10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to     

Commission File Number: 001-39731

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)

(Registrant’s telephone number, including area code) (276) 656-1776

NA

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232-405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of July 31, 2023 there were 23,329,523 shares of the registrant’s common stock issued and outstanding.

1

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION	3
ITEM 1 – FINANCIAL STATEMENTS	3
Consolidated Balance Sheets - June 30, 2023 (unaudited) and December 31, 2022 (audited)	3
Consolidated Statements of Income - Three and Six Months Ended June 30, 2023 and 2022 (unaudited)	4
Consolidated Statements of Comprehensive (Loss) Income - Three and Six Months Ended June 30, 2023 and 2022 (unaudited)	5
Consolidated Statements of Changes in Shareholders' Equity - Three and Six Months Ended June 30, 2023 and 2022 (unaudited)	6
Consolidated Statements of Cash Flows – Six Months Ended June 30, 2023 and 2022 (unaudited)	7
Notes to Unaudited Consolidated Financial Statements	8
ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	37
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	62
ITEM 4 - CONTROLS AND PROCEDURES	64
PART II – OTHER INFORMATION	64
ITEM 1 - LEGAL PROCEEDINGS	64
ITEM 1A - RISK FACTORS	66
ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	66
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES	66
ITEM 4 - MINE SAFETY DISCLOSURES	66
ITEM 5 - OTHER INFORMATION	66
ITEM 6 - EXHIBITS	67
SIGNATURES	68

2

CARTER BANKSHARES, INC.

PART 1

ITEM 1 – FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands Except per Share Data)	June 30, 2023 (unaudited)		December 31, 2022 (audited)
ASSETS
Cash and Due From Banks, including Interest-bearing Deposits of $8,403 at June 30, 2023 and $4,505 at December 31, 2022	$	53,275	$	46,869
Total Cash and Cash Equivalents	53,275		46,869
Securities Available-for-Sale, at Fair Value	821,370		836,273
Loans Held-for-Sale	173		—
Portfolio Loans	3,330,442		3,148,913
Allowance for Credit Losses	(94,144)		(93,852)
Portfolio Loans, net	3,236,298		3,055,061
Bank Premises and Equipment, net	74,946		72,114
Other Real Estate Owned, net	3,379		8,393
Federal Home Loan Bank Stock, at Cost	19,403		9,740
Bank Owned Life Insurance	57,415		56,734
Other Assets	117,731		119,335
Total Assets	$	4,383,990	$	4,204,519
LIABILITIES
Deposits:
Noninterest-Bearing Demand	$	686,124	$	703,334
Interest-Bearing Demand	489,971		496,948
Money Market	422,780		484,238
Savings	526,588		684,287
Certificates of Deposit	1,451,540		1,261,526
Total Deposits	3,577,003		3,630,333
Federal Home Loan Bank Borrowings	407,135		180,550
Federal Funds Purchased	7,900		17,870
Other Liabilities	47,715		47,139
Total Liabilities	4,039,753		3,875,892
SHAREHOLDERS’ EQUITY
Common Stock, Par Value $1.00 per share, Authorized 100,000,000 Shares; Outstanding shares 23,371,835 at June 30, 2023 and 23,956,772 at December 31, 2022	23,372		23,957
Additional Paid-in Capital	95,506		104,693
Retained Earnings	307,344		285,593
Accumulated Other Comprehensive Loss	(81,985)		(85,616)
Total Shareholders’ Equity	344,237		328,627
Total Liabilities and Shareholders’ Equity	$	4,383,990	$	4,204,519

See accompanying notes to unaudited consolidated financial statements.

3

CARTER BANKSHARES, INC.

PART 1

ITEM 1 – FINANCIAL STATEMENTS (continued)

CONSOLIDATED STATEMENTS OF INCOME

(Dollars in Thousands Except per Share Data)	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
INTEREST INCOME
Loans, including fees
Taxable	$	34,529	$	31,323	$	77,657	$	59,068
Non-Taxable	803		916		1,635		1,868
Investment Securities
Taxable	7,688		4,452		15,081		8,184
Non-Taxable	166		187		328		354
Federal Reserve Bank Excess Reserves	209		58		388		95
Interest on Bank Deposits	6		3		27		28
Dividend Income	315		22		555		42
Total Interest Income	43,716		36,961		95,671		69,639
Interest Expense
Interest Expense on Deposits	11,782		4,412		19,301		8,811
Interest Expense on Federal Funds Purchased	71		4		247		4
Interest on Other Borrowings	5,152		86		8,627		143
Total Interest Expense	17,005		4,502		28,175		8,958
NET INTEREST INCOME	26,711		32,459		67,496		60,681
Provision for Credit Losses	85		1,814		1,500		2,444
Provision for Unfunded Commitments	360		269		444		33
Net Interest Income After Provision for Credit Losses	26,266		30,376		65,552		58,204
NONINTEREST INCOME
Gains (Losses) on Sales of Securities, net	3		76		(9)		52
Service Charges, Commissions and Fees	1,759		1,749		3,597		3,702
Debit Card Interchange Fees	1,934		1,850		4,039		3,782
Insurance Commissions	508		568		682		837
Bank Owned Life Insurance Income	341		334		680		668
(Losses) Gains on Sales and Write-downs of Bank Premises, net	—		(37)		—		346
Commercial Loan Swap Fee Income	—		756		114		756
Other	483		308		660		796
Total Noninterest Income	5,028		5,604		9,763		10,939
NONINTEREST EXPENSE
Salaries and Employee Benefits	13,649		12,444		27,301		24,201
Occupancy Expense, net	3,601		3,296		7,001		6,648
FDIC Insurance Expense	702		629		1,343		997
Other Taxes	786		819		1,590		1,623
Advertising Expense	431		267		770		506
Telephone Expense	412		454		839		942
Professional and Legal Fees	1,659		1,202		2,493		2,421
Data Processing	1,058		842		1,778		1,683
Debit Card Expense	771		659		1,250		1,292
Tax Credit Amortization	—		615		—		1,230
Other	2,467		2,183		4,747		4,378
Total Noninterest Expense	25,536		23,410		49,112		45,921
Income Before Income Taxes	5,758		12,570		26,203		23,222
Income Tax Provision	54		1,792		4,558		3,121
Net Income	$	5,704	$	10,778	$	21,645	$	20,101
Earnings per Common Share
Basic Earnings per Common Share	$	0.24	$	0.44	$	0.91	$	0.80
Diluted Earnings per Common Share	$	0.24	$	0.44	$	0.91	$	0.80
Average Shares Outstanding – Basic & Diluted	23,513,837		24,490,302		23,641,109		25,111,931

See accompanying notes to unaudited consolidated financial statements.

4

CARTER BANKSHARES, INC.

PART 1

ITEM 1 – FINANCIAL STATEMENTS (continued)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in Thousands)	2023		2022		2023		2022
Net Income	$	5,704	$	10,778	$	21,645	$	20,101
Other Comprehensive (Loss) Income:
Net Unrealized (Losses) Gains on Securities Available-for-Sale:
Net Unrealized (Losses) Gains Arising during the Period	(11,036)		(35,002)		4,597		(78,034)
Reclassification Adjustment for (Gains) Losses included in Net Income	(3)		(76)		9		(52)
Tax Effect	2,418		7,366		(975)		16,398
Net Unrealized (Losses) Gains Recognized in Other Comprehensive (Loss) Income	(8,621)		(27,712)		3,631		(61,688)
Other Comprehensive (Loss) Income	(8,621)		(27,712)		3,631		(61,688)
Comprehensive (Loss) Income	$	(2,917)	$	(16,934)	$	25,276	$	(41,587)

See accompanying notes to unaudited consolidated financial statements.

5

CARTER BANKSHARES, INC.

PART 1

ITEM 1 – FINANCIAL STATEMENTS (continued)

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

	Three Months Ended June 30, 2023
(Dollars in Thousands)	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity
Balance at March 31, 2023	$	23,896	$	102,814	$	301,640	$	(73,364)	$	354,986
Net Income	—		—		5,704		—		5,704
Other Comprehensive Loss, Net of Tax	—		—		—		(8,621)		(8,621)
1% Excise Tax on Stock Buybacks	—		(93)		—		—		(93)
Repurchase of Common Stock (583,824 shares)	(584)		(7,569)		—		—		(8,153)
Forfeiture of Restricted Stock (2,007 shares)	(2)		(15)		—		—		(17)
Issuance of Restricted Stock (62,123 shares)	62		(62)		—		—		—
Recognition of Restricted Stock Compensation Expense	—		431		—		—		431
Balance at June 30, 2023	$	23,372	$	95,506	$	307,344	$	(81,985)	$	344,237

	Three Months Ended June 30, 2022
(Dollars in Thousands)	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity
Balance at March 31, 2022	$	24,987	$	121,045	$	244,798	$	(32,274)	$	358,556
Net Income	—		—		10,778		—		10,778
Other Comprehensive Loss, Net of Tax	—		—		—		(27,712)		(27,712)
Repurchase of Common Stock (446,436 shares)	(447)		(7,342)		—		—		(7,789)
Forfeiture of Restricted Stock (961 shares)	(1)		1		—		—		—
Issuance or Restricted Stock (38,148 shares)	38		(38)		—		—		—
Recognition of Restricted Stock Compensation Expense	—		309		—		—		309
Balance at June 30, 2022	$	24,577	$	113,975	$	255,576	$	(59,986)	$	334,142

	Six Months Ended June 30, 2023
(Dollars in Thousands)	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity
Balance at January 1, 2023	$	23,957	$	104,693	$	285,593	$	(85,616)	$	328,627
Net Income	—		—		21,645		—		21,645
Other Comprehensive Income, Net of Tax	—		—		—		3,631		3,631
Cumulative Effect of the Adoption of ASU 2023-02	—		—		106		—		106
1% Excise Tax on Stock Buybacks	—		(93)		—		—		(93)
Repurchase of Common Stock (716,056 shares)	(716)		(9,697)		—		—		(10,413)
Forfeiture of Restricted Stock (3,694 shares)	(4)		(38)		—		—		(42)
Issuance of Restricted Stock (134,813 shares)	135		(135)		—		—		—
Recognition of Restricted Stock Compensation Expense	—		776		—		—		776
Balance at June 30, 2023	$	23,372	$	95,506	$	307,344	$	(81,985)	$	344,237

	Six Months Ended June 30, 2022
(Dollars in Thousands)	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Shareholders’ Equity
Balance at January 1, 2022	$	26,431	$	143,988	$	235,475	$	1,702	$	407,596
Net Income	—		—		20,101		—		20,101
Other Comprehensive Loss, Net of Tax	—		—		—		(61,688)		(61,688)
Repurchase of Common Stock (1,969,593 shares)	(1,970)		(30,445)		—		—		(32,415)
Forfeiture of Restricted Stock (10,653 shares)	(11)		(145)		—		—		(156)
Issuance or Restricted Stock (126,804 shares)	127		(127)		—		—		—
Recognition of Restricted Stock Compensation Expense	—		704		—		—		704
Balance at June 30, 2022	$	24,577	$	113,975	$	255,576	$	(59,986)	$	334,142

See accompanying notes to unaudited consolidated financial statements.

6

CARTER BANKSHARES, INC.

PART 1

ITEM 1 – FINANCIAL STATEMENTS (continued)

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Six Months Ended June 30,
(Dollars in Thousands)	2023		2022
Net Income	$	21,645	$	20,101
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities
Provision for Credit Losses, including Provision for Unfunded Commitments	1,944		2,477
Origination of Loans Held-for-Sale	(3,527)		(4,955)
Proceeds From Loans Held-for-Sale	3,411		5,302
Depreciation/Amortization of Bank Premises and Equipment	3,079		2,977
Provision for Deferred Taxes	539		1,257
Net Amortization of Securities	2,528		3,156
Tax Credit Amortization	958		1,230
Gains on Sales of Mortgage Loans Held-for-Sale	(57)		(119)
Losses (Gains) on Sales of Securities, net	9		(52)
Commercial Loan Swap Derivative Loss (Income)	144		(443)
Increase in the Value of Life Insurance Contracts	(680)		(668)
Recognition of Restricted Stock Compensation Expense	776		704
Increase in Other Assets	(2,574)		(2,287)
Increase (Decrease) in Other Liabilities	1,397		(1,882)
Net Cash Provided By Operating Activities	29,592		26,798
INVESTING ACTIVITIES
Securities Available-for-Sale:
Proceeds from Sales	15,054		19,777
Proceeds from Maturities, Redemptions, and Pay-downs	26,856		50,033
Purchases	(24,938)		(135,634)
Purchase of Bank Premises and Equipment, Net	(5,977)		(2,528)
Proceeds from Sales of Bank Premises and Equipment, net	—		408
(Purchase) Redemption of Federal Home Loan Bank Stock, net	(9,663)		285
Loan Originations, net	(182,737)		(186,133)
Payments Received on Other Real Estate Owned	201		215
Proceeds from Sales of Other Real Estate Owned	4,818		3,718
Net Cash Used In Investing Activities	(176,386)		(249,859)
FINANCING ACTIVITIES
Net Change in Demand, Money Markets and Savings Accounts	(243,344)		138,772
Increase (Decrease) in Certificates of Deposits	190,014		(83,855)
Proceeds (Repayments) on Federal Home Loan Bank Borrowings, net	226,585		(7,000)
Repayments on Federal Funds Purchased, net	(9,970)		—
Repurchase of Common Stock	(10,085)		(32,415)
Net Cash Provided by Financing Activities	153,200		15,502
Net Increase (Decrease) in Cash and Cash Equivalents	6,406		(207,559)
Cash and Cash Equivalents at Beginning of Period	46,869		277,799
Cash and Cash Equivalents at End of Period	$	53,275	$	70,240
SUPPLEMENTARY DATA
Cash Interest Paid	$	23,697	$	9,040
Cash Paid for Income Taxes	5,550		333
Transfer from Fixed Assets to Other Real Estate Owned	—		1,584
Right-of-use Asset Recorded in Exchange for Lease Liabilities	—		2,879
Stock Repurchase Settled in Subsequent Period	(328)		—
Stock Repurchase Excise Tax Settled in Subsequent Period	(93)		—

See accompanying notes to unaudited consolidated financial statements.

7

CARTER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – BASIS OF PRESENTATION

Principles of Consolidation: The interim Consolidated Financial Statements include the accounts of Carter Bankshares, Inc. (the “Company”) and its wholly owned subsidiary, Carter Bank & Trust (the “Bank”). CB&T Investment Company (the “Investment Company”) is a subsidiary of the Bank. All significant intercompany transactions have been eliminated in consolidation.

Basis of Presentation: The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the audited Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission (“SEC”), on March 10, 2023. In management’s opinion, the accompanying interim financial information reflects all adjustments, consisting of normal recurring adjustments, necessary to present fairly our financial position and the results of operations for each of the interim periods presented. Results of operations for interim periods are not necessarily indicative to the results of operations that may be expected for a full year or any future period.

Reclassification: Amounts in prior periods financial statements and footnotes are reclassified whenever necessary to conform to the current period presentation. Reclassifications had no material effect on prior periods net income or shareholders’ equity.

Use of Estimates: To prepare financial statements in conformity with GAAP, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the Consolidated Financial Statements and the disclosures provided, and actual results could differ from those estimates. Information available which could affect these judgments include, but are not limited to, changes in interest rates, changes in the performance of the economy, and changes in the financial condition of borrowers.

Accounting Standards Adopted in 2023

In March 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards (“ASU”) No. 2023-02, Investments Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method. The amendments in this ASU expands the use of the proportional amortization method of accounting, previously only allowable for Low Income Tax Housing Credits, (“LITHC”) investments, to equity investments in other tax credit structures that meet certain criteria. This guidance is effective for public business entities for fiscal years including interim periods within those fiscal years, beginning after December 15, 2023. Early adoption is permitted in any interim period. The Company reviewed its existing tax equity investment portfolios and evaluated the impact of the updated guidance on its Consolidated Financial Statements and elected to early adopt the amendments in this ASU as of June 30, 2023 on a modified retrospective basis, effective dated as of January 1, 2023. As a result, the Company recorded a transitional adjustment of $0.1 million to retained earnings.

The Company makes equity investments as a limited partner in various partnerships that sponsor historic tax credits (“HTC”) as a strategic tax initiative designed to receive tax credits and other tax benefits, such as deductible flow-through losses. The Company has evaluated all of the proportional amortization method qualifying criteria and has elected to apply the proportional amortization method at the HTC program level. The Company records the investment in the HTC as a component of other assets and uses the proportional amortization method to account for the investments in the HTC partnerships. Amortization related to these HTC investments is recorded on a net basis as a component of the provision for income taxes on the Consolidated Statements of Income. Prior to the ASU adoption, amortization was recorded as a component of noninterest expense on the Consolidated Statements of Income. The amendments in this ASU did not materially impact our Consolidated Financial Statements.

Accounting Standards Issued but Not Yet Adopted

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in this ASU provide optional guidance for a limited period of time to ease the potential burden in accounting for or recognizing the effects of reference rate reform on financial reporting. The amendments provide optional expedients and exceptions for applying GAAP to loan and lease agreements, derivative contracts,

8

CARTER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – BASIS OF PRESENTATION – (continued)

and other transactions affected by the anticipated transition away from the London Interbank Offered Rate (“LIBOR”) toward new interest rate benchmarks. Modified contracts that meet certain scope guidance are eligible for relief from the modification accounting requirements in GAAP. The optional guidance generally allows for the modified contract to be accounted for as a continuation of the existing contract and does not require contract remeasurement at the modification date or reassessment of a previous accounting determination. The amendments in this ASU are effective for all entities between March 12, 2020 and December 31, 2022. In December 2022, the FASB issued ASU No 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848. The amendments in this ASU defer the sunset date for applying the reference rate reform relief by two years to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848.

Furthermore, the United Kingdom’s Financial Conduct Authority (“FCA”), who is the regulator of LIBOR, announced on March 5, 2021 that they will no longer require any panel bank to continue to submit LIBOR after December 31, 2021. As it pertains to the U.S. dollar LIBOR, effective January 1, 2022, the ICE Benchmark Administration Limited, the administrator of the LIBOR, ceased the publication of one-week and two-month USD LIBOR and ceased the publications of the remaining tenors of USD LIBOR (one, three, six, and 12-month) immediately after June 30, 2023. The Federal Reserve System (“FRB”) of New York created a working group called the Alternative Reference Rate Committee (“ARRC”) to assist U.S. institutions in transitioning away from LIBOR as a benchmark interest rate. The ARRC recommended the use of the Secured Overnight Financing Rate (“SOFR”) as a replacement index for LIBOR, and in March 2022 the U.S. passed legislation providing a uniform approach for replacing LIBOR as a reference rate in legacy contracts that do not contain effective “fall back” provisions for when LIBOR is no longer published or no longer representative, and that instructs the FRB to identify a replacement benchmark based on SOFR. We ceased originating new LIBOR based variable rate loans as of December 31, 2021 per the ARRC’s guidance.

We have created an internal team that is managing our transition away from LIBOR. This transition team is a cross-functional group comprised of representatives from the lending lines of business, as well as representatives from loan operations, information technology, finance and other support functions. To date, the transition team has completed the following milestones required for a successful transition away from LIBOR: identified contracts that contain LIBOR language, documented the risks associated with the transition, reviewed existing contract language for the presence of appropriate fallback rate language, and developed appropriate loan fallback rate language for when LIBOR is retired. We have selected one-month term SOFR (published by the CME Group) as our replacement benchmark for LIBOR based loans. The financial impact regarding pricing, valuation and operations of the transition has been evaluated and is not expected to be material in nature. Our transition team is fully committed to working within the guidelines established by the FCA and ARRC to complete a smooth transition away from LIBOR.

As of June 30, 2023, approximately 5.3% of our loan portfolio consists of loans whose variable rate index is one month LIBOR.

9

CARTER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 – EARNINGS PER SHARE

Basic earnings per common share is calculated by dividing net income allocated to common shareholders by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per common share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.

The following table reconciles the numerators and denominators of basic and diluted earnings per common share calculations for the periods presented:

	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in Thousands, except share and per share data)	2023		2022		2023		2022
Numerator for Earnings per Common Share – Basic and Diluted
Net Income	$	5,704	$	10,778	$	21,645	$	20,101
Less: Income allocated to participating shares	49		69		168		110
Net Income Allocated to Common Shareholders - Basic & Diluted	$	5,655	$	10,709	$	21,477	$	19,991
Denominator:
Weighted Average Shares Outstanding, including Shares Considered Participating Securities	23,715,564		24,647,543		23,826,312		25,250,413
Less: Average Participating Securities	201,727		157,241		185,203		138,482
Weighted Average Common Shares Outstanding - Basic & Diluted	23,513,837		24,490,302		23,641,109		25,111,931
Earnings per Common Share – Basic	$	0.24	$	0.44	$	0.91	$	0.80
Earnings per Common Share – Diluted	$	0.24	$	0.44	$	0.91	$	0.80

All outstanding unvested restricted stock awards are considered participating securities for the earnings per share calculation. As such, these shares have been allocated to a portion of net income and are excluded from the diluted earnings per common share calculation.

NOTE 3 - INVESTMENT SECURITIES

The following tables present the amortized cost and fair value of available-for-sale securities as of the dates presented:

	June 30, 2023
(Dollars in Thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. Treasury Securities	$	14,371	$	—	$	(1,197)	$	13,174
U.S. Government Agency Securities	51,803		508		(803)		51,508
Residential Mortgage-Backed Securities	113,218		—		(13,055)		100,163
Commercial Mortgage-Backed Securities	35,844		426		(868)		35,402
Other Commercial Mortgage-Backed Securities	24,839		—		(3,256)		21,583
Asset Backed Securities	152,683		3		(13,964)		138,722
Collateralized Mortgage Obligations	183,193		—		(14,116)		169,077
States and Political Subdivisions	279,497		—		(46,066)		233,431
Corporate Notes	70,750		—		(12,440)		58,310
Total Debt Securities	$	926,198	$	937	$	(105,765)	$	821,370

10

CARTER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 – INVESTMENT SECURITIES (continued)

	December 31, 2022
(Dollars in Thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. Treasury Securities	$	19,318	$	—	$	(1,452)	$	17,866
U.S. Government Agency Securities	50,334		218		(788)		49,764
Residential Mortgage-Backed Securities	115,694		—		(12,009)		103,685
Commercial Mortgage-Backed Securities	35,538		73		(936)		34,675
Other Commercial Mortgage-Backed Securities	24,987		9		(2,597)		22,399
Asset Backed Securities	156,552		—		(15,169)		141,383
Collateralized Mortgage Obligations	190,781		—		(14,159)		176,622
States and Political Subdivisions	281,753		—		(53,607)		228,146
Corporate Notes	70,750		—		(9,017)		61,733
Total Debt Securities	$	945,707	$	300	$	(109,734)	$	836,273

The Company did not have securities classified as held-to-maturity at June 30, 2023 or December 31, 2022.

The following table shows the composition of gross and net realized gains and losses for the periods presented:

	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in Thousands)	2023		2022		2023		2022
Proceeds from Sales of Securities Available-for-Sale	$	15,054	$	14,856	$	15,054	$	19,777
Gross Realized Gains	$	129	$	208	$	129	$	208
Gross Realized Losses	(126)		(132)		(138)		(156)
Net Realized Gains (Losses)	3		76		(9)		52
Tax Impact	$	1	$	16	$	(2)	$	11

Gains or losses are recognized in earnings on the trade date using the amortized cost of the specific security sold. The net realized gains (losses) above reflect reclassification adjustments in the calculation of Other Comprehensive (Loss) Income. The net realized gains (losses) are included in noninterest income as gains (losses) on sales of securities, net in the Consolidated Statements of Income. The tax impact is included in income tax provision in the Consolidated Statements of Income.

The amortized cost and fair value of available-for-sale debt securities are shown below by contractual maturity as of the date presented. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately.

	June 30, 2023
(Dollars in Thousands)	Amortized Cost		Fair Value
Due in One Year or Less	$	5,188	$	5,071
Due after One Year through Five Years	14,152		13,007
Due after Five Years through Ten Years	252,246		217,945
Due after Ten Years	144,835		120,400
Residential Mortgage-Backed Securities	113,218		100,163
Commercial Mortgage-Backed Securities	35,844		35,402
Other Commercial Mortgage-Backed Securities	24,839		21,583
Collateralized Mortgage Obligations	183,193		169,077
Asset Backed Securities	152,683		138,722
Total Debt Securities	$	926,198	$	821,370

At June 30, 2023 and December 31, 2022, there were no holdings of securities of any one issuer, other than those securities issued by or collateralized by the U.S. Government and its Agencies, in an amount greater than 10% of shareholders’ equity. The carrying value of securities pledged for various regulatory and legal requirements was $218.7 million at June 30, 2023 and $224.5 million at December 31, 2022.

11

CARTER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 – INVESTMENT SECURITIES (continued)

Available-for-sale securities with unrealized losses at June 30, 2023 and December 31, 2022, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position, were as follows:

	June 30, 2023
	Less Than 12 Months					12 Months or More					Total
(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	—	$	—	$	—	4	$	13,174	$	(1,197)	4	$	13,174	$	(1,197)
U.S. Government Agency Securities	8	6,683		(74)		12	16,891		(729)		20	23,574		(803)
Residential Mortgage-Backed Securities	1	83		—		42	100,080		(13,055)		43	100,163		(13,055)
Commercial Mortgage-Backed Securities	5	1,998		(9)		49	19,471		(859)		54	21,469		(868)
Other Commercial Mortgage-Backed Securities	1	1,939		(582)		8	19,644		(2,674)		9	21,583		(3,256)
Asset Backed Securities	1	1,885		(115)		52	136,141		(13,849)		53	138,026		(13,964)
Collateralized Mortgage Obligations	—	—		—		85	169,077		(14,116)		85	169,077		(14,116)
States and Political Subdivisions	3	2,922		(130)		158	230,309		(45,936)		161	233,231		(46,066)
Corporate Notes	1	2,037		(213)		20	56,273		(12,227)		21	58,310		(12,440)
Total Debt Securities	20	$	17,547	$	(1,123)	430	$	761,060	$	(104,642)	450	$	778,607	$	(105,765)

	December 31, 2022
	Less Than 12 Months					12 Months or More					Total
(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	3	$	14,080	$	(789)	2	$	3,786	$	(663)	5	$	17,866	$	(1,452)
U.S. Government Agency Securities	6	5,337		(26)		9	15,576		(762)		15	20,913		(788)
Residential Mortgage-Backed Securities	6	7,601		(372)		37	96,084		(11,637)		43	103,685		(12,009)
Commercial Mortgage-Backed Securities	7	7,843		(307)		49	15,675		(629)		56	23,518		(936)
Other Commercial Mortgage-Backed Securities	2	5,302		(617)		6	14,560		(1,980)		8	19,862		(2,597)
Asset Backed Securities	13	42,173		(2,984)		41	97,210		(12,185)		54	139,383		(15,169)
Collateralized Mortgage Obligations	35	66,362		(4,500)		50	110,260		(9,659)		85	176,622		(14,159)
States and Political Subdivisions	73	112,564		(19,706)		91	115,382		(33,901)		164	227,946		(53,607)
Corporate Notes	8	23,285		(2,965)		13	38,448		(6,052)		21	61,733		(9,017)
Total Debt Securities	153	$	284,547	$	(32,266)	298	$	506,981	$	(77,468)	451	$	791,528	$	(109,734)

The Company adopted Topic 326, Financial Instruments—Credit Losses (Topic 326) on January 1, 2021 and did not record an allowance for credit losses, (“ACL”), on its investment securities during the quarter ended June 30, 2023 or the year ended December 31, 2022. The Company did not have any credit related net investment impairment losses. There were no securities classified as held-to-maturity at June 30, 2023 and December 31, 2022. The Company regularly reviews debt securities for expected credit loss using both qualitative and quantitative criteria, as necessary, based on the composition of the portfolio at period end.

As of June 30, 2023, management does not intend to sell any security in an unrealized loss position and it is not more than likely that it will be required to sell any such security before the recovery of its amortized cost basis. The unrealized losses on debt securities are primarily the result of interest rate changes, credit spread fluctuations on agency-issued mortgage-related securities, general financial market uncertainty and market volatility. These conditions should not prohibit the Company from receiving its contractual principal and interest payments on its debt securities. The fair value is expected to recover as the securities approach their maturity date or repricing date.

12

CARTER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 – INVESTMENT SECURITIES (continued)

As of June 30, 2023, management believes the unrealized losses detailed in the table above are not related to credit; therefore, no ACL has been recognized on the Company’s securities. Should the impairment of any of these securities become credit related, the impairment will be recognized by establishing an ACL through provision for credit losses in the period the credit related impairment is identified, while any non-credit loss will be recognized in accumulated other comprehensive loss, net of applicable taxes. During the three and six months ended June 30, 2023 and 2022, the Company had no credit related net investment impairment losses.

NOTE 4 – LOANS AND LOANS HELD-FOR-SALE

The composition of the loan portfolio by dollar amount is shown in the table below:

(Dollars in Thousands)	June 30, 2023		December 31, 2022
Commercial
Commercial Real Estate	$	1,642,597	$	1,470,562
Commercial and Industrial	279,156		309,792
Total Commercial Loans	1,921,753		1,780,354
Consumer
Residential Mortgages	707,893		657,948
Other Consumer	38,736		44,562
Total Consumer Loans	746,629		702,510
Construction	356,805		353,553
Other	305,255		312,496
Total Portfolio Loans	3,330,442		3,148,913
Loans Held-for-Sale	173		—
Total Loans	$	3,330,615	$	3,148,913

Loan Restructurings

On April 1, 2022, the Company adopted the accounting guidance in ASU No. 2022-02, effective as of January 1, 2022, which eliminates the recognition and measurement of a troubled debt restructuring, (“TDR”). Due to the removal of the TDR designation, the Company evaluates all loan restructurings according to the accounting guidance for loan modifications to determine if the restructuring results in a new loan or a continuation of the existing loan. Loan modifications to borrowers experiencing financial difficulty that result in a direct change in the timing or amount of contractual cash flows include situations where there is principal forgiveness, interest rate reductions, other-than-insignificant payment delays, term extensions, and combinations of the listed modifications. Therefore, the disclosures related to loan restructurings are only for modifications that directly affect cash flows.

A loan that is considered a restructured loan may be subject to the individually evaluated loan analysis if the commitment is $1.0 million or greater and/or based on management discretion; otherwise, the restructured loan remains in the appropriate segment in the ACL model and associated allowance are adjusted based on collateral values or changes in the discounted cash flows resulting from the modification of the restructured loan. For a discussion with respect to reserve calculations regarding individually evaluated loans refer to the “Nonrecurring Loans” section in Note 6, Fair Value Measurements, in the Notes to Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q.

13

CARTER BANKSHARES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 – LOANS AND LOANS HELD-FOR-SALE (continued)

The following table shows the amortized cost basis as of June 30, 2023 and June 30, 2022 for the loans restructured during the six months ended June 30, 2023 and June 30, 2022 to borrowers experiencing financial difficulty, disaggregated by portfolio segment:

	Restructured Loans
	Six Months Ended June 30, 2023					Six Months Ended June 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	—	$	—	—	%	—	$	—	—	%
Commercial and Industrial	—	—		—	%	—	—		—	%
Residential Mortgages	—	—		—	%	—	—		—	%
Other Consumer	—	—		—	%	—	—		—	%
Construction	—	—		—	%	—	—		—	%
Other	—	—		—	%	—	—		—	%
Total Accruing Restructured Loans	—	$	—	—	%	—	$	—	—	%
Nonaccrual Restructured Loans
Commercial Real Estate	—	$	—	—	%	1	$	300	0.02	%
Commercial and Industrial	—	—		—	%	—	—		—	%
Residential Mortgages	—	—		—	%	—	—		—	%
Other Consumer	—	—		—	%	—	—		—	%
Construction	—	—		—	%	—	—		—	%
Other	—	—		—	%	—	—		—	%
Total Nonaccrual Restructured Loans	—	$	—	—	%	1	$	300	0.02	%
Total Restructured Loans	—	$	—	—	%	1	$	300	0.02	%

(1)Excludes accrued interest receivable of $0.0 thousand and $2.9 thousand at June 30, 2023 and June 30, 2022 for restructured loans during the six months ended June 30, 2023 and June 30, 2022, respectively.

The Company had no loans that were restructured during the three months ended June 30, 2023 and June 30, 2022. In the first quarter of 2022 the Bank recognized a loan modification of a commercial real estate loan as a restructured loan. The borrower’s objective was to redevelop the property for a purpose that temporarily lacks feasibility due to the COVID-19 pandemic. In the interim the property is leased, albeit at a lower rate than originally forecasted. The Bank reduced the regularly scheduled principal and interest payments to accommodate the rental income until the property can be redeveloped. This loan is not considered significant and is included in the Bank’s ACL model in the general pool of the CRE segment for reserve purposes.

The Company closely monitors the performance of the loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. During the three and six months ended June 30, 2023 and June 30, 2022, respectively, the Company had no modifications to borrowers experiencing financial difficulty to report.

At both June 30, 2023 and June 30, 2022, the Bank had no commitments to lend any additional funds on restructured loans. At both June 30, 2023 and June 30, 2022 the Bank had no loans that defaulted during the period and had been modified preceding the payment default when the borrower was experiencing financial difficulty at the time of modification.

As of June 30, 2023 and December 31, 2022, the Bank had $2.1 million and $0.9 million, respectively, of residential real estate loans in the process of foreclosure. We also had $21 thousand at June 30, 2023 and $133 thousand at December 31, 2022 in residential real estate loans included in other real estate owned (“OREO”).

14

CARTER BANKSHARES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 – ALLOWANCE FOR CREDIT LOSSES

The Company maintains an ACL at a level determined to be adequate to absorb expected credit losses associated with the Company’s financial instruments over the life of those instruments as of the balance sheet date. The Company develops and documents a systematic ACL methodology based on the following portfolio segments: 1) Commercial Real Estate, (“CRE”), 2) Commercial and Industrial, (“C&I”), 3) Residential Mortgages, 4) Other Consumer, 5) Construction and 6) Other. The Company’s loan portfolio is segmented by homogeneous loan types that behave similarly to economic cycles. The segmentation in the current expected credit losses, (“CECL”), model is different from the segmentation in the Incurred Loss model. The following is a discussion of the key risks by portfolio segment that management assesses in preparing the ACL.

CRE loans are secured by commercial purpose real estate, including both owner occupied properties and investment properties, for various purposes such as hotels, strip malls and apartments. Operations of the individual projects as well as global cash flows of the debtors are the primary sources of repayment for these loans. The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the collateral type as well as the business.

C&I loans are made to operating companies or manufacturers for the purpose of production, operating capacity, accounts receivable, inventory or equipment financing. Cash flow from the operations of the borrower is the primary source of repayment for these loans. The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the industry of the borrower. Collateral for these types of loans often do not have sufficient value in a distressed or liquidation scenario to satisfy the outstanding debt. These loans are also made to local and state municipalities for various purposes including refinancing existing obligations, infrastructure up-fit and expansion, or to purchase new equipment. These loans may be secured by general obligations from the municipal authority or revenues generated by infrastructure and equipment financed by the Company. The primary repayment source for these loans include the tax base of the municipality, specific revenue streams related to the infrastructure financed, and other business operations of the municipal authority. The health and stability of state and local economies directly impacts each municipality’s tax basis and are important indicators of risk for this segment. The ability of each municipality to increase taxes and fees to offset debt service requirements give this type of loan a very low risk profile in the continuum of the Company’s loan portfolio.

Residential Mortgages are loans secured by first and second liens such as home equity loans, home equity lines of credit and 1-4 family residential mortgages, including purchased money mortgages. The primary source of repayment for these loans is the income of the borrower. The condition of the local economy, in particular the unemployment rate, is an important indicator of risk for this segment. The state of the local housing market can also have a significant impact on this segment because low demand and/or declining home values can limit the ability of borrowers to sell a property and satisfy the debt.

Other Consumer loans are made to individuals and may be either secured by assets other than 1-4 family residences or unsecured. This segment includes auto loans and unsecured loans and lines. The primary source of repayment for these loans is the income and assets of the borrower. The condition of the local economy, in particular the unemployment rate, is an important indicator of risk for this segment. The value of the collateral, if there is any, is less likely to be a source of repayment due to less certain collateral values.

Construction loans include both commercial and consumer. Commercial loans are made to finance construction of buildings or other structures, as well as to finance the acquisition and development of raw land for various purposes. While the risk of these loans is generally confined to the construction period, if there are problems, the project may not be completed, and as such, may not provide sufficient cash flow on its own to service the debt or have sufficient value in a liquidation to cover the outstanding principal. The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the type of project and the experience and resources of the developer. Consumer loans are made for the construction of residential homes for which a binding sales contract exists and generally are for a period of time sufficient to complete construction. Residential construction loans to individuals generally provide for the payment of interest only during the construction phase. Credit risk for residential real estate construction loans can arise from construction delays, cost overruns, failure of the contractor to complete the project to specifications and economic conditions that could impact demand for or supply of the property being constructed.

Other loans include unique risk attributes considered inconsistent with our current underwriting standards.

The ACL reserve for the Other segment is based on a discounted cash flow methodology and reserves will fluctuate based on expected cash flow changes in the future. These inconsistencies may include, but are not limited to i) transaction and/or

15

CARTER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 – ALLOWANCE FOR CREDIT LOSSES (continued)

relationship sizes that exceed limits established in 2018, ii) overreliance on secondary, tertiary or guarantor cash flow, iii) land acquisition loans without a defined source of amortization, and iv) loan structures on operating lines of credit dependent on the value of real estate rather than trading assets. Management continuously assesses underwriting standards, but significantly enhanced these standards in 2018.

Our model is based on our best estimate of facts known with the most current information. Certain portions of the CECL model are inherently subjective and include, but are not limited to estimates with respect to: prepayment speeds, the timing of prepayments, potential losses given default, discount rates and the timing of future cash flows. Management utilizes widely published economic forecasts as the basis for the regression analysis used to estimate the probability of default in the baseline model. The peaks and troughs of these forecasts serve as guardrails for potential subjective adjustments. In addition to considering the outcomes based on the range of forecasts, management recognizes that the assumptions used in economic forecasts may not perfectly align with our market area, risk profile or unique attributes of our portfolio along with other important considerations. Severe changes in forecasts can also create significant variability and management must assess not only the absolute balance of reserves but also consider the appropriateness of the velocity of change. Therefore, management developed a framework to assess the tolerance and reasonableness of the CECL modeling process by challenging certain elements of the forecasts, when appropriate. These outcomes, known as “challenger models,” provide opportunities to examine and subjectively adjust the CECL model output and are designed to be counter cyclical, thereby reducing variability.

Credit Quality Indicators:

The Company’s portfolio grading analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled or at all. The Company’s internal credit risk grading system is based on debt service coverage, collateral values and other subjective factors. Mortgage and consumer loans are defaulted to a pass grade until a loan migrates to past due status.

The Company has a loan review policy and annual scope report that details the level of loan review for loans in a given year. The annual loan review provides the Credit Risk Committee with an independent analysis of the following: 1) credit quality of the loan portfolio, 2) compliance with the loan policy, 3) adequacy of documentation in credit files and 4) validity of risk ratings. Since 2020 and continuing into 2023, the Company used a five step approach for loan review in the following categories:

•Individual reviews of the top twenty large loan relationships (“LLRs”), which are defined as any individual commercial loan or aggregate commercial relationship totaling $2.0 million or more;

•A sampling of small LLRs, which are defined as individual commercial loans or relationships with aggregate exposure of $2.0 million or more but not included in the top twenty LLRs;

•A sampling review of Credit Risk Committee modifications, including new and existing loans to provide perspective on the appropriateness of the modification in relation to established policies and procedures;

•A sampling review of non-organic commercial loans and those commercial loans approved outside of the Credit Risk Committee; and

•Focus reviews of office and land development to evaluate segment risk rather than individual loan risk. Focus reviews are performed annually on a rotational basis.

The Company’s internally assigned grades are as follows:

Pass – The Company uses six grades of pass, including its watch rating. Generally, a pass rating indicates that the loan is currently performing and is of high quality.

Special Mention – Assets with potential weaknesses that warrant management’s close attention and if left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date.

16

CARTER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 – ALLOWANCE FOR CREDIT LOSSES (continued)

Substandard – Assets that are inadequately protected by the current sound worth and paying capacity of the obligor or by the collateral pledged, if any. Assets so classified have a well-defined weakness, or weaknesses that jeopardize the liquidation of the debt. Such assets are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful – Assets with all the weaknesses inherent in one classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions, and values, highly questionable and improbable.

Loss – Assets considered of such little value that its continuance on the books is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future.

The ability of borrowers to repay commercial loans is dependent upon the success of their business and general economic conditions. Due to the greater potential for loss within our commercial portfolio, we monitor the commercial loan portfolio through an internal risk rating system. Loan risk ratings are assigned based upon the creditworthiness of the borrower and are reviewed on an ongoing basis according to our internal policies. Loans rated special mention or substandard have potential or well-defined weaknesses not generally found in high quality, performing loans, and require attention from management to limit loss.

17

CARTER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 – ALLOWANCE FOR CREDIT LOSSES (continued)

The following table presents portfolio loan balances by year of origination and internally assigned risk rating for our portfolio segments as of the periods presented:

	June 30, 2023
	Risk Rating
(Dollars in Thousands)	2023		2022		2021		2020		2019		2018 and Prior		Revolving		Total Portfolio Loans
Commercial Real Estate
Pass	$	159,142	$	440,643	$	191,211	$	151,410	$	127,012	$	541,439	$	28,180	$	1,639,037
Special Mention	—		—		212		—		—		79		—		291
Substandard	—		—		—		—		—		3,269		—		3,269
Total Commercial Real Estate	$	159,142	$	440,643	$	191,423	$	151,410	$	127,012	$	544,787	$	28,180	$	1,642,597
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial and Industrial
Pass	$	112	$	20,160	$	41,155	$	28,618	$	7,442	$	151,379	$	27,333	$	276,199
Special Mention	—		—		—		2,838		—		—		—		2,838
Substandard	—		—		45		28		44		2		—		119
Total Commercial and Industrial	$	112	$	20,160	$	41,200	$	31,484	$	7,486	$	151,381	$	27,333	$	279,156
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	1	$	—	$	—	$	1
Residential Mortgages
Pass	$	27,670	$	216,563	$	196,442	$	80,929	$	46,442	$	104,559	$	31,184	$	703,789
Special Mention	—		—		—		—		—		531		—		531
Substandard	—		—		1,212		—		863		1,248		250		3,573
Total Residential Mortgages	$	27,670	$	216,563	$	197,654	$	80,929	$	47,305	$	106,338	$	31,434	$	707,893
YTD Gross Charge-offs	$	—	$	—	$	3	$	—	$	—	$	67	$	—	$	70
Other Consumer
Pass	$	23,001	$	6,289	$	3,638	$	5,110	$	73	$	227	$	369	$	38,707
Special Mention	—		—		—		—		—		—		—		—
Substandard	—		—		22		—		—		7		—		29
Total Other Consumer	$	23,001	$	6,289	$	3,660	$	5,110	$	73	$	234	$	369	$	38,736
YTD Gross Charge-offs	$	86	$	663	$	388	$	48	$	94	$	29	$	—	$	1,308
Construction
Pass	$	47,058	$	147,468	$	124,382	$	14,883	$	4,038	$	7,755	$	8,134	$	353,718
Special Mention	—		—		—		—		—		64		—		64
Substandard	—		67		—		2,089		—		867		—		3,023
Total Construction	$	47,058	$	147,535	$	124,382	$	16,972	$	4,038	$	8,686	$	8,134	$	356,805
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	42	$	—	$	42
Other
Pass	$	—	$	—	$	—	$	—	$	—	$	3,342	$	—	$	3,342
Special Mention	—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		301,913		—		301,913
Total Other Loans	$	—	$	—	$	—	$	—	$	—	$	305,255	$	—	$	305,255
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Total Portfolio Loans
Pass	$	256,983	$	831,123	$	556,828	$	280,950	$	185,007	$	808,701	$	95,200	$	3,014,792
Special Mention	—		—		212		2,838		—		674		—		3,724
Substandard	—		67		1,279		2,117		907		307,306		250		311,926
Total Portfolio Loans	$	256,983	$	831,190	$	558,319	$	285,905	$	185,914	$	1,116,681	$	95,450	$	3,330,442
Current YTD Period:
YTD Gross Charge-offs	$	86	$	663	$	391	$	48	$	95	$	138	$	—	$	1,421

18

CARTER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 – ALLOWANCE FOR CREDIT LOSSES (continued)

	December 31, 2022
	Risk Rating
(Dollars in Thousands)	2022		2021		2020		2019		2018		2017 and Prior		Revolving		Total Portfolio Loans
Commercial Real Estate
Pass	$	418,939	$	186,226	$	139,148	$	130,521	$	215,498	$	335,659	$	31,349	$	1,457,340
Special Mention	—		218		—		—		9,919		659		—		10,796
Substandard	—		—		—		—		2,105		321		—		2,426
Total Commercial Real Estate	$	418,939	$	186,444	$	139,148	$	130,521	$	227,522	$	336,639	$	31,349	$	1,470,562
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial and Industrial
Pass	$	23,104	$	47,137	$	35,819	$	9,022	$	10,639	$	154,473	$	23,699	$	303,893
Special Mention	—		—		2,887		—		—		—		—		2,887
Substandard	—		56		—		18		97		2,800		41		3,012
Total Commercial and Industrial	$	23,104	$	47,193	$	38,706	$	9,040	$	10,736	$	157,273	$	23,740	$	309,792
YTD Gross Charge-offs	$	3,432	$	—	$	—	$	—	$	4	$	—	$	—	$	3,436
Residential Mortgages
Pass	$	200,725	$	184,718	$	81,446	$	50,770	$	70,659	$	39,411	$	25,315	$	653,044
Special Mention	—		—		—		—		429		520		34		983
Substandard	—		1,212		—		865		444		1,400		—		3,921
Total Residential Mortgages	$	200,725	$	185,930	$	81,446	$	51,635	$	71,532	$	41,331	$	25,349	$	657,948
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	22	$	24	$	—	$	46
Other Consumer
Pass	$	24,100	$	10,006	$	7,323	$	1,999	$	512	$	256	$	299	$	44,495
Special Mention	—		—		—		—		—		—		—		—
Substandard	—		45		1		—		1		20		—		67
Total Other Consumer	$	24,100	$	10,051	$	7,324	$	1,999	$	513	$	276	$	299	$	44,562
YTD Gross Charge-offs	$	280	$	625	$	254	$	358	$	39	$	121	$	—	$	1,677
Construction
Pass	$	149,535	$	117,466	$	41,808	$	4,938	$	25,523	$	7,190	$	6,056	$	352,516
Special Mention	—		—		—		—		—		69		—		69
Substandard	—		—		—		—		92		876		—		968
Total Construction	$	149,535	$	117,466	$	41,808	$	4,938	$	25,615	$	8,135	$	6,056	$	353,553
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Other
Pass	$	—	$	—	$	—	$	—	$	—	$	180,745	$	—	$	180,745
Special Mention	—		—		—		—		—		—		—		—
Substandard	—		—		—		—		74,050		57,701		—		131,751
Total Other Loans	$	—	$	—	$	—	$	—	$	74,050	$	238,446	$	—	$	312,496
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Total Portfolio Loans
Pass	$	816,403	$	545,553	$	305,544	$	197,250	$	322,831	$	717,734	$	86,718	$	2,992,033
Special Mention	—		218		2,887		—		10,348		1,248		34		14,735
Substandard	—		1,313		1		883		76,789		63,118		41		142,145
Total Portfolio Loans	$	816,403	$	547,084	$	308,432	$	198,133	$	409,968	$	782,100	$	86,793	$	3,148,913
Current YTD Period:
YTD Gross Charge-offs	$	3,712	$	625	$	254	$	358	$	65	$	145	$	—	$	5,159

19

CARTER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 – ALLOWANCE FOR CREDIT LOSSES (continued)

The following table presents portfolio loan balances by year of origination and performing and nonperforming status for our portfolio segments as of the periods presented:

	June 30, 2023
(Dollars in Thousands)	2023		2022		2021		2020		2019		2018 and Prior		Revolving		Total Portfolio Loans
Commercial Real Estate
Performing	$	159,142	$	440,643	$	191,423	$	151,410	$	127,012	$	542,275	$	28,180	$	1,640,085
Nonperforming	—		—		—		—		—		2,512		—		2,512
Total Commercial Real Estate	$	159,142	$	440,643	$	191,423	$	151,410	$	127,012	$	544,787	$	28,180	$	1,642,597
Commercial and Industrial
Performing	$	112	$	20,160	$	41,155	$	31,456	$	7,448	$	151,379	$	27,333	$	279,043
Nonperforming	—		—		45		28		38		2		—		113
Total Commercial and Industrial	$	112	$	20,160	$	41,200	$	31,484	$	7,486	$	151,381	$	27,333	$	279,156
Residential Mortgages
Performing	$	27,670	$	216,563	$	196,442	$	80,929	$	46,442	$	105,125	$	31,434	$	704,605
Nonperforming	—		—		1,212		—		863		1,213		—		3,288
Total Residential Mortgages	$	27,670	$	216,563	$	197,654	$	80,929	$	47,305	$	106,338	$	31,434	$	707,893
Other Consumer
Performing	$	23,001	$	6,289	$	3,655	$	5,110	$	73	$	227	$	369	$	38,724
Nonperforming	—		—		5		—		—		7		—		12
Total Other Consumer	$	23,001	$	6,289	$	3,660	$	5,110	$	73	$	234	$	369	$	38,736
Construction
Performing	$	47,058	$	147,535	$	124,382	$	14,882	$	4,038	$	7,868	$	8,134	$	353,897
Nonperforming	—		—		—		2,090		—		818		—		2,908
Total Construction	$	47,058	$	147,535	$	124,382	$	16,972	$	4,038	$	8,686	$	8,134	$	356,805
Other
Performing	$	—	$	—	$	—	$	—	$	—	$	3,342	$	—	$	3,342
Nonperforming	—		—		—		—		—		301,913		—		301,913
Total Other Loans	$	—	$	—	$	—	$	—	$	—	$	305,255	$	—	$	305,255
Total Portfolio Loans
Performing	$	256,983	$	831,190	$	557,057	$	283,787	$	185,013	$	810,216	$	95,450	$	3,019,696
Nonperforming	—		—		1,262		2,118		901		306,465		—		310,746
Total Portfolio Loans	$	256,983	$	831,190	$	558,319	$	285,905	$	185,914	$	1,116,681	$	95,450	$	3,330,442

20

CARTER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 – ALLOWANCE FOR CREDIT LOSSES (continued)

	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

The following tables include an aging analysis of the recorded investment of past due portfolio loans as the periods presented:

	June 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		Nonaccrual Loans		Total Portfolio Loans
Commercial Real Estate	$	1,639,960	$	125	$	—	$	125	$	2,512	$	1,642,597
Commercial and Industrial	278,944		4		95		99		113		279,156
Residential Mortgages	703,917		438		250		688		3,288		707,893
Other Consumer	38,209		304		211		515		12		38,736
Construction	353,848		—		49		49		2,908		356,805
Other	3,342		—		—		—		301,913		305,255
Total	$	3,018,220	$	871	$	605	$	1,476	$	310,746	$	3,330,442

21

CARTER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 – ALLOWANCE FOR CREDIT LOSSES (continued)

	December 31, 2022
(Dollars in Thousands)	Current Loans		Loans 30-59 Days Past Due		Loans 60-89 Days Past Due		Total 30-89 Days Past Due		Nonaccrual Loans		Total Portfolio Loans
Commercial Real Estate	$	1,468,154	$	104	$	—	$	104	$	2,304	$	1,470,562
Commercial and Industrial	309,305		274		9		283		204		309,792
Residential Mortgages	654,238		445		—		445		3,265		657,948
Other Consumer	44,013		337		204		541		8		44,562
Construction	349,225		1,321		2,143		3,464		864		353,553
Other	312,496		—		—		—		—		312,496
Total	$	3,137,431	$	2,481	$	2,356	$	4,837	$	6,645	$	3,148,913

There were no loans past due 90 days or more and still accruing at June 30, 2023 and December 31, 2022. Loans past due 90 days are automatically transferred to nonaccrual status. Loans past due 30 to 89 days and still accruing decreased $3.3 million to $1.5 million at June 30, 2023 compared to $4.8 million at December 31, 2022 primarily in the construction category related to one $2.1 million residential construction relationship that moved to nonaccrual during the first quarter of 2023.

Nonperforming loans increased during the second quarter of 2023 as the Company placed commercial loans in the Other segment of the Company’s loan portfolio, relating to the Bank’s largest lending relationship which has an aggregate principal amount of $301.9 million, on nonaccrual status due to loan maturities and failure to pay in full.

There were no nonaccrual or past due loans related to loans held-for-sale at June 30, 2023 or December 31, 2022.

The following table presents loans on nonaccrual status and loans past due 90 days or more and still accruing by portfolio segment for the periods presented:

	June 30, 2023
(Dollars in Thousands)	Beginning of Period Nonaccrual		End of Period Nonaccrual		Nonaccrual With No Related Allowance		Past Due 90+ Days Still Accruing
Commercial Real Estate	$	2,304	$	2,512	$	—	$	—
Commercial and Industrial	204		113		—		—
Residential Mortgages	3,265		3,288		—		—
Other Consumer	8		12		—		—
Construction	864		2,908		2,090		—
Other	—		301,913		—		—
Total	$	6,645	$	310,746	$	2,090	$	—

	December 31, 2022
(Dollars in Thousands)	Beginning of Period Nonaccrual		End of Period Nonaccrual		Nonaccrual With No Related Allowance		Past Due 90+ Days Still Accruing
Commercial Real Estate	$	3,337	$	2,304	$	—	$	—
Commercial and Industrial	451		204		—		—
Residential Mortgages	2,551		3,265		—		—
Other Consumer	73		8		—		—
Construction	985		864		—		—
Other	—		—		—		—
Total	$	7,397	$	6,645	$	—	$	—

22

CARTER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 – ALLOWANCE FOR CREDIT LOSSES (continued)

A loan is considered nonperforming when we transfer the interest methodology from accrual to nonaccrual. Nonaccrual status recognizes that the collection in full of both principal and interest is unlikely. Without applying additional scrutiny at a granular level, we believe delinquency to be a leading indicator with respect to the likelihood of collection in full of both principal and interest. Accordingly, we automatically transfer loans to nonaccrual status if they are 90 or more days delinquent. Management reserves the right to exercise discretion at the individual loan level. For example, we may elect to transfer a loan to nonaccrual regardless of the delinquency status if we believe the collection in full of both principal and interest to be unlikely. We may also elect to retain a loan that is 90 or more days delinquent in accrual status if we believe the loan is well secured and in the process of collection. Nonaccrual loans, and loans that have been characterized as Restructured Loans may be individually evaluated for credit losses in the Allowance for Credit Losses model if the loan commitment is $1.0 million or more unless we elect to maintain the loan in the general pool. During the three and six months ended June 30, 2023 and June 30, 2022, respectively, no material amount of interest income was recognized on nonperforming loans subsequent to their classification as nonperforming loans.

The following table presents the amortized cost basis of individually evaluated loans as of the periods presented. Changes in the fair value of the types of collateral and discounted cash flow modeling for individually evaluated loans are reported as provision for credit loss on loans in the period of change.

	June 30, 2023						December 31, 2022
(Dollars in Thousands)	Collateral		Discounted Cash Flow		Total		Collateral
Commercial Real Estate	$	1,946	$	—	$	1,946	$	2,106
Commercial and Industrial	—		—		—		—
Residential Mortgages	1,212		—		1,212		1,212
Other Consumer	—		—		—		—
Construction	2,090		—		2,090		—
Other	—		301,913		301,913		—
Total	$	5,248	$	301,913	$	307,161	$	3,318

23

CARTER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 – ALLOWANCE FOR CREDIT LOSSES (continued)

The following tables present activity in the ACL for the periods presented:

	Three Months Ended June 30, 2023
(Dollars in Thousands)	Commercial Real Estate		Commercial and Industrial		Residential Mortgage		Other Consumer		Construction		Other		Total Loans
Allowance for Credit Losses on Loans:
Balance at Beginning of Period	$	18,595	$	3,531	$	10,419	$	1,189	$	7,506	$	53,454	$	94,694
Provision (Recovery) for Credit Losses on Loans	549		(243)		33		401		(861)		206		85
Charge-offs	—		—		(67)		(651)		(42)		—		(760)
Recoveries	—		5		1		119		—		—		125
Net Recoveries/(Charge-offs)	—		5		(66)		(532)		(42)		—		(635)
Balance at End of Period	$	19,144	$	3,293	$	10,386	$	1,058	$	6,603	$	53,660	$	94,144

	Six Months Ended June 30, 2023
(Dollars in Thousands)	Commercial Real Estate		Commercial and Industrial		Residential Mortgage		Other Consumer		Construction		Other		Total Loans
Allowance for Credit Losses on Loans:
Balance at Beginning of Period	$	17,992	$	3,980	$	8,891	$	1,329	$	6,942	$	54,718	$	93,852
Provision (Recovery) for Credit Losses on Loans	1,152		(691)		1,563		831		(297)		(1,058)		1,500
Charge-offs	—		(1)		(70)		(1,308)		(42)		—		(1,421)
Recoveries	—		5		2		206		—		—		213
Net Recoveries/(Charge-offs)	—		4		(68)		(1,102)		(42)		—		(1,208)
Balance at End of Period	$	19,144	$	3,293	$	10,386	$	1,058	$	6,603	$	53,660	$	94,144

	Three Months Ended June 30, 2022
(Dollars in Thousands)	Commercial Real Estate		Commercial and Industrial		Residential Mortgage		Other Consumer		Construction		Other		Total Loans
Allowance for Credit Losses on Loans:
Balance at Beginning of Period	$	17,518	$	3,583	$	4,520	$	1,470	$	7,554	$	61,731	$	96,376
Provision (Recovery) for Credit Losses on Loans	290		2,127		545		526		(722)		(952)		1,814
Charge-offs	—		(22)		(6)		(391)		—		—		(419)
Recoveries	—		—		96		114		—		—		210
Net (Charge-offs)/Recoveries	—		(22)		90		(277)		—		—		(209)
Balance at End of Period	$	17,808	$	5,688	$	5,155	$	1,719	$	6,832	$	60,779	$	97,981

	Six Months Ended June 30, 2022
(Dollars in Thousands)	Commercial Real Estate		Commercial and Industrial		Residential Mortgage		Other Consumer		Construction		Other		Total Loans
Allowance for Credit Losses on Loans:
Balance at Beginning of Period	$	17,297	$	4,111	$	4,368	$	1,493	$	6,939	$	61,731	$	95,939
Provision (Recovery) for Credit Losses on Loans	511		1,598		714		829		(256)		(952)		2,444
Charge-offs	—		(22)		(23)		(826)		—		—		(871)
Recoveries	—		1		96		223		149		—		469
Net (Charge-offs)/Recoveries	—		(21)		73		(603)		149		—		(402)
Balance at End of Period	$	17,808	$	5,688	$	5,155	$	1,719	$	6,832	$	60,779	$	97,981

24

CARTER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 – FAIR VALUE MEASUREMENTS

The Company uses fair value measurements when recording and disclosing certain financial assets and liabilities. Securities available-for-sale and derivative financial instruments are recorded at fair value on a recurring basis. Additionally, from time to time, we may be required to record other assets at fair value on a nonrecurring basis, such as loans held-for-sale, individually evaluated loans, OREO, and certain other assets.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants at the measurement date. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets or liabilities; it is not a forced transaction. In determining fair value, we use various valuation approaches, including market, income and cost approaches. The fair value standard establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing an asset or liability, which are developed based on market data we have obtained from independent sources. Unobservable inputs reflect our estimates of assumptions that market participants would use in pricing an asset or liability, which are developed based on the best information available in the circumstances.

The fair value hierarchy gives the highest priority to unadjusted quoted market prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). There are three levels of inputs that may be used to measure fair values:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that an entity has the ability to access as of the measurement date, or observable inputs.

Level 2: Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. We recognize transfers between any of the fair value hierarchy levels at the end of the reporting period in which the transfer occurred.

The following are descriptions of the valuation methodologies that the Company uses for financial instruments recorded at fair value on either a recurring or nonrecurring basis.

Recurring Basis

Securities Available-for-Sale: The fair values of securities available-for-sale are determined by obtaining quoted prices on nationally recognized securities exchanges, if available. This valuation method is classified as Level 1 in the fair value hierarchy. For securities where quoted prices are not available, fair values are calculated on market prices of similar securities, or matrix pricing, which is a mathematical technique, used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities. Matrix pricing relies on the securities’ relationship to similarly traded securities, benchmark curves, and the benchmarking of like securities. Matrix pricing utilizes observable market inputs such as benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data, and industry and economic events. In instances where broker quotes are used, these quotes are obtained from market makers or broker-dealers recognized to be market participants. This valuation method is classified as Level 2 in the fair value hierarchy. For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators. This valuation method is classified as Level 3 in the fair value hierarchy.

Derivative Financial Instruments and Hedging Activities: The Company uses derivative instruments such as interest rate swaps for commercial loans with our customers. Upon entering into swaps with the borrower, the Company entered into

25

CARTER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 – FAIR VALUE MEASUREMENTS (continued)

offsetting positions with counterparties to minimize risk to the Company. The back-to-back swaps qualify as derivatives, but are not designated as hedging instruments. Interest rate swap contracts involve the risk of dealing with borrower and counterparties and their ability to meet contractual terms. We calculate the fair value for derivatives using accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. Each valuation considers the contractual terms of the derivative, including the period to maturity, and uses observable market-based inputs, such as interest rate curves and implied volatilities. When the fair value of a derivative instrument contract is positive, this generally indicates that the counterparty or customer owes the Company, and results in credit risk to the Company. When the fair value of a derivative instrument contract is negative, the Company owes the customer or counterparty, and, therefore, has no risk. Accordingly, interest rate swaps for commercial loans are classified as Level 2.

The Company also enters into commitments to originate mortgage loans whereby the interest rate on the loan is determined prior to funding (rate lock commitments). Rate lock commitments on mortgage loans to be held-for-sale are considered to be derivatives. The period of time between issuance of a loan commitment and closing and sale of the loan generally ranges from 15 to 90 days. The Company protects itself from changes in interest rates through the use of best efforts forward delivery commitments, whereby the Company commits to sell a loan at the time the borrower commits to an interest rate with the intent that the buyer has assumed interest rate risk on rate lock commitments due to changes in interest rates.

Nonrecurring Basis

Individually Evaluated Loans: Individually evaluated loans with commitments greater than or equal to $1.0 million are evaluated for potential specific reserves and adjusted, if a shortfall exists, to fair value less costs to sell. Fair value is measured based on the value of the underlying collateral securing the loan if repayment is expected solely from the sale or operation of the collateral or present value of estimated future cash flows discounted at the loan’s contractual interest rate if the loan is not determined to be collateral dependent. All loans with a specific reserve are classified as Level 3 in the fair value hierarchy.

Fair value for individually evaluated loans is determined using several methods. Generally, the fair value of real estate is determined based on appraisals by qualified licensed appraisers. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. These routine adjustments are made to adjust the value of a specific property relative to comparable properties for variations in qualities such as location, size, and income production capacity relative to the subject property of the appraisal. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value. Alternative methodologies utilize various discounted cash flow assumptions in the alternative modeling through a variety of scenarios.

Subsequent to the initial impairment date, existing individually evaluated loans are reevaluated quarterly for additional impairment and adjustments to fair value less costs to sell are made, where appropriate. For individually evaluated loans, the first stage of our impairment analysis involves inspection of the property in question to affirm the condition has not deteriorated since the previous impairment analysis date. Management also engages in conversations with local real estate professionals and market participants to determine the likely marketing time and value range for the property. The second stage involves an assessment of current trends in the regional market. After thorough consideration of these factors, management will order a new appraisal.

For non-individually evaluated loans, the fair value is determined by updating the present value of estimated future cash flows using the loan’s existing rate to reflect the payment schedule for the remaining life of the loan.

OREO is evaluated at the time of acquisition and is recorded at fair value as determined by an appraisal or evaluation, less costs to sell. After acquisition, most OREO assets are revalued every twelve months, or more frequently when deemed necessary by management based upon changes in market or collateral conditions. For smaller OREO assets with existing carrying values less than $0.5 million, management may elect to re-value the assets, at minimum, once every twenty-four months based on the size of the exposure. Fair value, when recorded, is generally based upon appraisals by approved, independent state certified appraisers. Appraisals on OREO may be discounted based on our historical knowledge, changes in market conditions from the time of appraisal or other information available to us. OREO and other repossessed assets marked to fair value are classified as Level 3. At June 30, 2023 OREO assets were in compliance with the OREO policy as set forth above, and substantially all of the assets were listed for sale with credible third-party real estate brokers.

26

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 – FAIR VALUE MEASUREMENTS (continued)

Financial assets measured at fair value on a recurring basis are summarized below for the periods presented:

	June 30, 2023
(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:
U.S. Treasury Securities	$	13,174	$	13,174	$	—	$	—
U.S. Government Agency Securities	51,508		—		51,508		—
Residential Mortgage-Backed Securities	100,163		—		100,163		—
Commercial Mortgage-Backed Securities	35,402		—		35,402		—
Other Commercial Mortgage-Backed Securities	21,583		—		21,583		—
Asset Backed Securities	138,722		—		138,722		—
Collateralized Mortgage Obligations	169,077		—		169,077		—
States and Political Subdivisions	233,431		—		233,431		—
Corporate Notes	58,310		—		50,999		7,311
Total Securities Available-for-Sale	821,370		13,174		800,885		7,311
Derivatives	21,107		—		21,107		—
Total	$	842,477	$	13,174	$	821,992	$	7,311
Liabilities
Derivatives	$	20,820	$	—	$	20,820	$	—
Total	$	20,820	$	—	$	20,820	$	—

	December 31, 2022
(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:
U.S. Treasury Securities	$	17,866	$	17,866	$	—	$	—
U.S. Government Agency Securities	49,764		—		49,764		—
Residential Mortgage-Backed Securities	103,685		—		103,685		—
Commercial Mortgage-Backed Securities	34,675		—		34,675		—
Other Commercial Mortgage-Backed Securities	22,399		2,538		19,861		—
Asset Backed Securities	141,383		4,996		136,387		—
Collateralized Mortgage Obligations	176,622		—		176,622		—
States and Political Subdivisions	228,146		—		228,146		—
Corporate Notes	61,733		—		54,216		7,517
Total Securities Available-for-Sale	836,273		25,400		803,356		7,517
Derivatives	22,974		—		22,974		—
Total	$	859,247	$	25,400	$	826,330	$	7,517
Liabilities
Derivatives	$	22,543	$	—	$	22,543	$	—
Total	$	22,543	$	—	$	22,543	$	—

We have invested in subordinated debt of other financial institutions. We have two securities totaling $7.3 million that are considered to be Level 3 securities at June 30, 2023 and total $7.5 million at December 31, 2022. The Level 3 fair value is benchmarked to other securities that have observable market values in Level 2 using comparable financial ratio analysis specific to the industry in which the underlying company operates. The underwriting includes considerations of capital adequacy, asset quality trends, management’s ability to continue efficient and profitable operations, the institution’s core earnings ability, liquidity management platform and current on and off-balance sheet interest rate risk exposures.

27

CARTER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 – FAIR VALUE MEASUREMENTS (continued)

Financial assets measured at fair value on a nonrecurring basis are summarized below for the periods presented:

	June 30, 2023
(Dollars in Thousands)	Level 1		Level 2		Level 3		Fair Value
OREO	$	—	$	—	$	2,570	$	2,570
Individually Evaluated Loans	$	—	$	—	$	2,858	$	2,858

	December 31, 2022
(Dollars in Thousands)	Level 1		Level 2		Level 3		Fair Value
OREO	$	—	$	—	$	8,393	$	8,393
Individually Evaluated Loans	$	—	$	—	$	2,649	$	2,649

Individually evaluated loans had a net carrying amount of $2.9 million at June 30, 2023 with a valuation allowance of $0.3 million. Individually evaluated loans had a net carrying amount of $2.6 million at December 31, 2022 with a valuation allowance of $0.7 million. The Company’s largest lending relationship is classified as an individually evaluated loan with a net carrying amount totaling $248.3 million. The Company utilized various cash flow assumptions in the alternative modeling, instead of fair value, which resulted in a valuation allowance of $53.6 million at June 30, 2023.

OREO, which is measured at the lower of carrying or fair value less costs to sell, had a net carrying amount of $2.6 million as of June 30, 2023, compared with $8.4 million at December 31, 2022, primarily due to sales and payments. There were no write-downs recorded on OREO for the six months ended June 30, 2023 and $0.4 million for the same periods in 2022.

The following table summarizes the Company’s assets that were measured at fair value on a nonrecurring basis for the periods presented:

	June 30, 2023
(Dollars in Thousands)	Fair Value		Valuation Technique	Unobservable Inputs	Weighted Range		Average
Assets
Individually Evaluated Loans	$	1,067	Sales Contract	Other Expenses & Liens	1.0	%	1.0	%
Individually Evaluated Loans	1,791		Discounted Appraisals	Management's Discount & Estimated Selling Costs and Other Expenses & Liens	6.0	%	6.0	%
Total Individually Evaluated Loans	$	2,858
OREO	$	2,427	Appraisals	Estimated Selling Costs	10.0	%	10.0	%
OREO	143		Internal Valuations	Estimated Selling Costs	5.0	%	5.0	%
Total OREO	$	2,570

	December 31, 2022
(Dollars in Thousands)	Fair Value		Valuation Technique	Unobservable Inputs	Weighted Range		Average
Assets
Individually Evaluated Loans	$	858	Discounted Internal Valuations	Management's Discount & Estimated Selling Costs	14.2	%	14.2	%
Individually Evaluated Loans	$	1,791	Discounted Appraisals	Estimated Selling Costs	6.0	%	6.0	%
Total Individually Evaluated Loans	$	2,649
OREO	$	7,323	Appraisals	Estimated Selling Costs	10.0	%	10.0	%
OREO	143		Internal Valuations	Estimated Selling Costs	5.0	%	5.0	%
OREO	927		Discounted Internal Valuations	Management’s Discount & Estimated Selling Costs	0.0% - 5.0%		0.7	%
Total OREO	$	8,393

A baseline discount rate has been established for impairment measurement. This baseline discount rate was back tested against historical OREO sales, and; therefore, represents an average recovery rate based on the transaction sizes and asset types in the

28

CARTER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 – FAIR VALUE MEASUREMENTS (continued)

population examined. Management considers the unique attributes and characteristics of each specific individually evaluated loan and may use judgment to adjust the baseline discount rate when appropriate.

The carrying values and estimated fair values of our financial instruments at June 30, 2023 and December 31, 2022 are presented in the following tables. Fair values for June 30, 2023 and December 31, 2022 are estimated under the exit price notion in accordance with ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities.”

GAAP requires disclosure of fair value information about financial instruments carried at book value on the Consolidated Balance Sheet. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.

			Fair Value Measurements at June 30, 2023
(Dollars in Thousands)	Carrying Value		Level 1		Level 2		Level 3		Total
Financial Assets:
Cash and Cash Equivalents	$	53,275	$	44,872	$	8,403	$	—	$	53,275
Securities Available-for-Sale	821,370		13,174		800,885		7,311		821,370
Loans Held-for-Sale	173		—		—		173		173
Portfolio Loans, net	3,236,298		—		—		3,130,923		3,130,923
Federal Home Loan Bank Stock, at Cost	19,403		—		—		NA		NA
Other Assets- Interest Rate Derivatives	21,107		—		21,107		—		21,107
Accrued Interest Receivable	17,260		35		5,311		11,914		17,260
Financial Liabilities:
Deposits	$	3,577,003	$	686,124	$	1,439,339	$	1,455,148	$	3,580,611
Other Liabilities- Interest Rate Derivatives	20,820		—		20,820		—		20,820
FHLB Borrowings	407,135		—		—		405,543		405,543
Federal Funds Purchased	7,900		—		7,900		—		7,900
Accrued Interest Payable	6,772		—		—		6,772		6,772

			Fair Value Measurements at December 31, 2022
(Dollars in Thousands)	Carrying Value		Level 1		Level 2		Level 3		Total
Financial Assets:
Cash and Cash Equivalents	$	46,869	$	42,364	$	4,505	$	—	$	46,869
Securities Available-for-Sale	836,273		25,400		803,356		7,517		836,273
Portfolio Loans, net	3,055,061		—		—		2,955,489		2,955,489
Federal Home Loan Bank Stock, at Cost	9,740		—		—		NA		NA
Other Assets- Interest Rate Derivatives	22,974		—		22,974		—		22,974
Accrued Interest Receivable	19,346		138		4,903		14,305		19,346
Financial Liabilities:
Deposits	$	3,630,333	$	703,334	$	1,665,473	$	1,264,659	$	3,633,466
Other Liabilities- Interest Rate Derivatives	22,543		—		22,543		—		22,543
FHLB Borrowings	180,550		—		—		180,569		180,569
Federal Funds Purchased	17,870		—		17,870		—		17,870
Accrued Interest Payable	2,294		—		—		2,294		2,294

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

In accordance with applicable accounting guidance for derivatives and hedging, all derivatives are recognized as either assets or liabilities on the Consolidated Balance Sheet at fair value. Interest rate swaps are contracts in which a series of interest rate flows (fixed and variable) are exchanged over a prescribed period. The notional amounts on which the interest payments are based are not exchanged. These derivative positions relate to transactions in which the Company enters into an interest rate swap with a commercial customer while at the same time entering into an offsetting interest rate swap with another financial institution, or counterparty. In connection with each transaction, the Company originates a floating rate loan to the customer at a notional amount. In turn, the customer contracts with the counterparty to swap the stream of cash flows associated with the floating interest rate loan with the Company for a stream of fixed interest rate cash flows based on the same notional amount as the Company’s loan. The transaction allows the customer to effectively convert a variable rate loan to a fixed rate loan with the Company receiving a variable rate. These agreements could have floors or caps on the contracted interest rates.

Pursuant to agreements with various financial institutions, the Company may receive collateral or may be required to post collateral based upon mark-to-market positions. Beyond unsecured threshold levels, collateral in the form of cash or securities may be made available to counterparties of interest rate swap transactions. Based upon current positions and related future collateral requirements relating to them, management believes any effect on our cash flow or liquidity position to be immaterial.

Derivatives contain an element of credit risk, the possibility that the Company will incur a loss because a counterparty, which may be a financial institution or a customer, fails to meet its contractual obligations. All derivative contracts with financial institutions may be executed only with counterparties approved by the Asset and Liability Committee (“ALCO”) and all derivatives with customers are approved by a team of members from senior management who have been trained to understand the risk associated with interest rate swaps and have past industry experience. Interest rate swaps are considered derivatives but are not accounted for using hedge accounting. As such, changes in the estimated fair value of the derivatives are recorded in current earnings in the Consolidated Statements of Income.

The following table indicates the amounts representing the fair value of derivative assets and derivative liabilities at the dates presented:

	Fair Value of Derivative Assets (Included in Other Assets)
	June 30, 2023					December 31, 2022
(Dollars in Thousands)	Number of Transactions	Notional Amount		Fair Value		Number of Transactions	Notional Amount		Fair Value
Derivatives not Designated as Hedging Instruments
Interest Rate Lock Commitments – Mortgage Loans	7	$	1,147	$	6	1	$	200	$	1
Interest Rate Swap Contracts – Commercial Loans	60	407,256		21,101		62	432,984		22,973
Total Derivatives not Designated as Hedging Instruments	67	$	408,403	$	21,107	63	$	433,184	$	22,974

	Fair Value of Derivative Liabilities (Included in Other Liabilities)
	June 30, 2023					December 31, 2022
(Dollars in Thousands)	Number of Transactions	Notional Amount		Fair Value		Number of Transactions	Notional Amount		Fair Value
Derivatives not Designated as Hedging Instruments
Forward Sale Contracts – Mortgage Loans	7	$	1,147	$	6	1	$	200	$	1
Interest Rate Swap Contracts – Commercial Loans	60	407,256		20,814		62	432,984		22,542
Total Derivatives not Designated as Hedging Instruments	67	$	408,403	$	20,820	63	$	433,184	$	22,543

30

CARTER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES – (continued)

The following table indicates the income (loss) recognized on derivatives for the periods presented:

	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in Thousands)	2023		2022		2023		2022
Derivatives not Designated as Hedging Instruments
Interest Rate Lock Commitments – Mortgage Loans	$	5	$	14	$	5	$	18
Forward Sale Contracts – Mortgage Loans	(5)		(14)		(5)		(18)
Interest Rate Swap Contracts – Commercial Loans	50		139		(144)		443
Total Derivative Income (Loss)	$	50	$	139	$	(144)	$	443

Presenting offsetting derivatives that are subject to legally enforceable netting arrangements with the same party is permitted. For example, we may have a derivative asset and a derivative liability with the same counterparty to a swap transaction and are permitted to offset the asset position and the liability position resulting in a net presentation.

The following table indicates the gross amounts of commercial loan swap derivative assets and derivative liabilities, the amounts offset and the carrying values in the Consolidated Balance Sheets at the dates presented:

	Derivative Assets (Included in Other Assets)				Derivative Liabilities (Included in Other Liabilities)
(Dollars in Thousands)	June 30, 2023		December 31, 2022		June 30, 2023		December 31, 2022
Derivatives not Designated as Hedging Instruments
Gross Amounts Recognized	$	21,101	$	22,973	$	20,814	$	22,542
Gross Amounts Offset	—		—		—		—
Net Amounts Presented in the Consolidated Balance Sheets	21,101		22,973		20,814		22,542
Gross Amounts Not Offset	—		—		—		—
Net Amount	$	21,101	$	22,973	$	20,814	$	22,542

NOTE 8 – DEPOSITS

The following table presents the composition of deposits at the dates presented:

(Dollars in Thousands)	June 30, 2023		December 31, 2022
Noninterest-Bearing Demand	$	686,124	$	703,334
Interest-Bearing Demand	489,971		496,948
Money Market	422,780		484,238
Savings	526,588		684,287
Certificates of Deposits	1,451,540		1,261,526
Total	$	3,577,003	$	3,630,333

All deposit accounts are insured by the FDIC up to the maximum amount allowed by law. The Dodd-Frank Act, signed into law on July 21, 2010, makes permanent the $250,000 limit for federal deposit insurance and the coverage limit applies per depositor, per insured depository institution for each account ownership. Certificates of deposits that exceed the FDIC Insurance limit of $250,000 at June 30, 2023 and December 31, 2022 were $233.5 million and $159.0 million, respectively.

Certificates of Deposit maturing as of the date presented:

(Dollars in Thousands)	June 30, 2023
3 Months or Less	$	99,282
Over 3 Months through 12 Months	765,786
Over 1 Year Through 3 Years	506,886
Over 3 Years	79,586
Total	$	1,451,540

Overdrafts reclassified to loans were $0.3 million at both June 30, 2023 and December 31, 2022.

31

CARTER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 – FEDERAL HOME LOAN BANK BORROWINGS AND FEDERAL FUNDS PURCHASED

Borrowings serve as an additional source of liquidity for the Company. The Company had $407.1 million Federal Home Loan Bank (“FHLB”) borrowings at June 30, 2023 and $180.6 million at December 31, 2022. FHLB borrowings include both fixed rate and variable rate advances for various terms and are secured by a blanket lien on select residential mortgages, select multifamily loans, and select commercial real estate loans. Variable rate FHLB borrowings were 82.8% and 33.4% of total borrowings at June 30, 2023 and December 31, 2022, respectively. Total loans pledged as collateral were $1.5 billion at both June 30, 2023 and December 31, 2022, respectively. There were no securities available-for-sale pledged as collateral at both June 30, 2023 and December 31, 2022. The Company continues to methodically pledge additional eligible loans and had continued progress in additional pledging throughout the year. The Company is eligible to borrow up to an additional $508.4 million based upon current qualifying collateral and has a maximum borrowing capacity of approximately $1.1 billion, or 25.0% of the Company’s assets, as of June 30, 2023. The Company had the capacity to borrow up to an additional $676.7 million from the FHLB at December 31, 2022.

The Company had $7.9 million and $17.9 million in overnight federal funds purchased at June 30, 2023 and December 31, 2022, respectively. The available borrowing capacity under unsecured lines of credit with corresponding banks was $137.1 million and $127.1 million at June 30, 2023 and December 31, 2022, respectively.

The following table represents the balance of FHLB borrowings and the weighted average interest rate as of the periods presented:

(Dollars in Thousands)	June 30, 2023			December 31, 2022
FHLB Borrowings	$	407,135		$	180,550
Weighted Average Interest Rate	5.10		%	4.48		%
FHLB Availability	$	508,369		$	676,746

The following table represents the balance of federal funds purchased and the weighted average interest rate as of the periods presented:

(Dollars in Thousands)	June 30, 2023			December 31, 2022
Federal Fund Purchased	$	7,900		$	17,870
Weighted Average Interest Rate	5.40		%	4.65		%
Federal Funds Purchased Availability	$	137,100		$	127,130

Scheduled annual maturities and weighted average interest rates for FHLB borrowings for each of the five years subsequent to June 30, 2023 and thereafter are as follows:

(Dollars in Thousands)	Balance		Weighted Average Rate
1 year	$	337,135	5.32	%
2 years	25,000		4.13	%
3 years	45,000		3.96	%
4 years	—		—	%
5 years	—		—	%
Thereafter	—		—	%
Total FHLB Borrowings	$	407,135	5.10	%

NOTE 10 – COMMITMENTS AND CONTINGENCIES

Commitments to extend credit, which amounted to $749.4 million at June 30, 2023 and $630.6 million at December 31, 2022, represent agreements to lend to customers with fixed expiration dates or other termination clauses. The Company provides lines of credit to our clients to finance the completion of construction projects and revolving lines of credit to operating companies to finance their working capital needs. Lines of credit for construction projects represented $395.6 million, or 52.8% and $373.2

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CARTER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – COMMITMENTS AND CONTINGENCIES – (continued)

million, or 59.2%, of the commitments to extend credit at June 30, 2023 and December 31, 2022, respectively. Standby letters of credit are conditional commitments issued by the Company guaranteeing the performance of a customer to a third-party. Those guarantees are primarily issued to support public and private borrowing arrangements. The Company had outstanding letters of credit totaling $26.3 million at June 30, 2023 and $25.7 million at December 31, 2022.

The following table sets forth our commitments and letters of credit as of the dates presented:

(Dollars in Thousands)	June 30, 2023		December 31, 2022
Commitments to Extend Credit	$	749,377	$	630,619
Standby and Performance Letters of Credit	26,289		25,739
Total	$	775,666	$	656,358

Our exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and unconditional obligations as it does for on-balance sheet instruments. Unless noted otherwise, collateral or other security is required to support financial instruments with credit risk.

Life-of-Loss Reserve on Unfunded Loan Commitments

We maintain a life-of-loss reserve on unfunded commercial lending commitments and letters of credit to provide for the risk of loss inherent in these arrangements. The life-of-loss reserve is computed using a methodology similar to that used to determine the ACL for loans, modified to take into account the probability of a draw-down on the commitment. The life-of-loan reserve for unfunded commitments is included in other liabilities on our Consolidated Balance Sheets.

The following table presents activity in the life-of-loss reserve on unfunded loan commitments as of the dates presented:

	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in Thousands)	2023		2022		2023		2022
Life-of-Loss Reserve on Unfunded Loan Commitments
Balance at Beginning of Period	$	2,376	$	1,547	$	2,292	$	1,783
Provision for Unfunded Commitments	360		269		444		33
Balance at End of Period	$	2,736	$	1,816	$	2,736	$	1,816

Amounts are added or subtracted to the provision for unfunded commitments through a charge or credit to current earnings in the provision for unfunded commitments. An expense of $0.4 million was recorded during the three months ended June 30, 2023 for the provision for unfunded commitments, which resulted in increases of $0.1 million and $0.4 million for the three and six months ended June 30, 2023, respectively compared to the same periods in 2022.

Litigation

In the normal course of business, the Company is subject to various legal and administrative proceedings and claims. Legal and administrative proceedings are subject to inherent uncertainties and unfavorable rulings could occur, and the timing and outcome of any legal or administrative proceeding cannot be predicted with certainty. Other than as set forth below, as of June 30, 2023, the Company is not involved in any other material pending legal proceedings other than proceedings occurring in the ordinary course of business.

The Bank is engaged in a variety of collection proceedings against various related entities that are owned and/or controlled by James C. Justice, II, Cathy L Justice and James C. Justice, III (such entities, the “Justice Entities” and collectively with the individuals, the “Defendants”). On April 20, 2023 and May 15, 2023, the Bank filed in the Circuit Court of the City of Martinsville, Virginia confessions of judgment against the Defendants with respect to amounts owed on matured promissory notes made or guaranteed by the Defendants with an aggregate principal balance of approximately $301 million. On May 12, 2023 and June 7, 2023, the Defendants filed motions to set aside the confessions of judgment on the basis that the Bank allegedly (i) violated anti-tying provisions of the Bank Holding Company Act of 1956, as amended, (ii) breached contractual obligations and fiduciary duties to the Defendants and (iii) tortiously interfered with the Defendants’ business expectancies and relationships, among other allegations.

33

CARTER BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – COMMITMENTS AND CONTINGENCIES – (continued)

The Company and the Bank intend to pursue vigorously the confessions of judgment and enforce the promissory notes and related agreements, including release and affirmation agreements, guaranties and indemnification agreements. The Company and the Bank vigorously deny the allegations contained in the Defendants’ motions to set aside the confessions of judgment. Based on consultation with legal counsel, the Company believes that the Bank has meritorious defenses to all allegations contained in such motions to set aside the confessions of judgment.

Because the collection litigation is in its early stages, the Company can make no prediction as to the ultimate outcome thereof or any related legal proceedings that may commence, and the Company is not yet able to make a determination as to the likelihood of an unfavorable outcome in this matter or to estimate the range of any possible gain or loss with respect to this litigation.

NOTE 11 – TAX EFFECTS ON OTHER COMPREHENSIVE (LOSS) INCOME

The following table presents the change in components of other comprehensive (loss) income for the periods presented, net of tax effects:

(Dollars in Thousands)	Three Months Ended June 30, 2023						Three Months Ended June 30, 2022
	Pre-Tax Amount		Tax Benefit		Net of Tax Amount		Pre-Tax Amount		Tax Benefit		Net of Tax Amount
Net Unrealized Losses Arising during the period	$	(11,036)	$	2,417	$	(8,619)	$	(35,002)	$	7,350	$	(27,652)
Reclassification Adjustment for Gains included in Net Income	(3)		1		(2)		(76)		16		(60)
Other Comprehensive Loss	$	(11,039)	$	2,418	$	(8,621)	$	(35,078)	$	7,366	$	(27,712)

(Dollars in Thousands)	Six Months Ended June 30, 2023								Six Months Ended June 30, 2022
	Pre-Tax Amount				Tax Expense		Net of Tax Amount		Pre-Tax Amount		Tax Benefit		Net of Tax Amount
Net Unrealized Gains (Losses) Arising during the period	$	4,597			$	(973)	$	3,624	$	(78,034)	$	16,387	$	(61,647)
Reclassification Adjustment for Losses (Gains) included in Net Income	9				(2)		7		(52)		11		(41)
Other Comprehensive Income (Loss)	$	4,606	$	4,615	$	(975)	$	3,631	$	(78,086)	$	16,398	$	(61,688)

NOTE 12 – STOCK REPURCHASE PLAN

On March 29, 2023, the Company announced that its Board of Directors (the “Board”) has authorized, effective May 1, 2023, a common share repurchase program to purchase up to 1,000,000 shares of the Company’s common stock in the aggregate over a period of twelve months, (the “2023 Program”) subject to receipt of non-objection from the Federal Reserve Bank of Richmond, which was received on April 24, 2023. The 2023 Program authorizes the purchase of the Company’s common stock in open market transactions or privately negotiated transactions, including pursuant to a trading plan in accordance with Rule 10b-18 promulgated under the Securities Exchange Act of 1934, as amended. The authorization permits management to repurchase shares of the Company’s common stock from time to time at management’s discretion. The actual means and timing of any shares purchased under the 2023 Program will depend on a variety of factors, including the market price of the Company’s common stock, general market and economic conditions, management’s evaluation of the Company’s financial condition and liquidity position and applicable legal and regulatory requirements. The 2023 Program is authorized through May 1, 2024, although it may be modified or terminated by the Board at any time. The 2023 Program does not obligate the Company to purchase any particular number of shares. During the six months ended June 30, 2023, 583,824 shares of common stock had been repurchased under this program at a total cost of $8.2 million, or an average price of $13.96 per share.

Previously on June 28, 2022, the Company announced that its Board authorized, effective August 1, 2022, a common share repurchase program to purchase up to 750,000 shares of the Company’s common stock in the aggregate over a period of twelve months, subject to non-objection from the Federal Reserve Bank of Richmond, which was received in July 2022 (the “2022 Program”). The 2022 Program authorized the purchase of the Company’s common stock in open market transactions or privately negotiated transactions, including pursuant to a trading plan in accordance with Rule 10b-18 promulgated under the Exchange Act. The authorization permitted management to repurchase shares of the Company’s common stock from time to

34

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

Previously on December 13, 2021, the Company announced that its Board authorized, effective December 10, 2021, a common share repurchase program to purchase up to 2,000,000 shares of the Company’s common stock in the aggregate over a period of twelve months (the “2021 Program”). The 2021 Program was originally authorized through December 9, 2022, did not obligate the Company to purchase any particular number of shares, and was exhausted as of April 28, 2022.

35

NOTE 13 – PROVISION FOR INCOME TAXES

The following is a reconciliation of the differences between the provision for income taxes and the amount computed by applying the statutory federal income tax rate to income before taxes:

	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
(Dollars in Thousands)	Amount		Percent	Amount		Percent	Amount		Percent	Amount		Percent
Federal Income Tax at Statutory Rate	$	1,209	21.0	$	2,640	21.0	$	5,503	21.0	$	4,877	21.0
State Income Tax, net of Federal Benefit	55		0.9	48		0.4	420		1.6	262		1.1
Tax-exempt Interest, net of Disallowance	(183)		(2.9)	(225)		(1.8)	(378)		(1.4)	(453)		(2.0)
Federal Tax Credits, net of Basis Reduction	(559)		(8.9)	(553)		(4.4)	(1,109)		(4.2)	(1,107)		(4.8)
Tax Credit Investment Amortization, net of Federal Benefit	274		4.4	—		—	757		2.9	—		—
Change in Valuation Allowance	—		—	(132)		(1.1)	—		—	(280)		(1.2)
Income from Bank Owned Life Insurance	(72)		(1.2)	(70)		(0.6)	(143)		(0.5)	(140)		(0.6)
Interim Period Effective Tax Rate Adjustment	(799)		(12.8)	76		0.6	(597)		(2.3)	(55)		(0.2)
Other	129		0.4	8		0.2	105		0.3	17		0.1
Income Tax Provision and Effective Income Tax Rate	$	54	0.9	$	1,792	14.3	$	4,558	17.4	$	3,121	13.4

The Company elected to adopt the proportional amortization method of accounting for all qualifying equity investments within the HTC program. The Company makes equity investments as a limited partner in various partnerships that sponsor HTC as a strategic tax initiative designed to receive income tax credits and other income tax benefits, such as deductible flow-through losses. As of June 30, 2023, the Company recognized $2.7 million in Historical Tax Credit equity investments recorded as a component of other assets on the Consolidated Balance Sheets.

The Company records income tax credits and other income tax benefits received from its HTC investments as a component of the provision for income taxes on the Consolidated Statements of Income and as a component of operating activities on the Consolidated Statements of Cash Flows.

Investments accounted for using the proportional amortization method are amortized and recorded as a component of the provision for income taxes on the Consolidated Statements of Income.

The Company records non-income-tax-related activity and other returns received from its HTC investments as a component of other noninterest income on the Consolidated Statements of Income and as a component of operating activities on the Consolidated Statements of Cash Flows. As of June 30, 2023, the Company has not recognized any non-income-tax-related activity from its HTC investments.

36

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 the reader understand Carter Bankshares, Inc., 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 six month periods ended June 30, 2023 and June 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 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 within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements that 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, including but not limited to statements regarding the interest rate environment, the impact of future changes in interest rates, and the impacts of the Company placing its 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,” “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 including, but not limited 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, Federal Deposit Insurance Corporation, (“FDIC”) and U.S. Department of the Treasury (the “Treasury Department”);

37

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, for example, our adoption of Current Expected Credit Losses (“CECL”) 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 ongoing war between Russia and Ukraine) or public health events (such as the 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;

•a change in spreads on interest-earning assets and interest-bearing liabilities;

•regulatory supervision and 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/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;

•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;

•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, 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;

•changes in deposit flows and loan demand;

38

CARTER BANKSHARES, INC.

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

•our failure to attract or retain key employees;

•expansions or consolidations in the Company’s branch network, including that the anticipated benefits of the Company’s 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; 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.

Please also refer to such other factors as discussed throughout Part I, Item 1A, “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, Part II, Item 1A, “Risk Factors” in the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 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 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 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 Estimates

Our critical accounting estimates involving significant judgments and assumptions used in the preparation of the Consolidated Financial Statements as of June 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, 2022 under the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and are incorporated herein by reference.

Overview and Strategy

Carter Bankshares, Inc. (the “Company”) is a bank holding company headquartered in Martinsville, Virginia with assets of $4.4 billion at June 30, 2023. The Company is the parent company of its wholly owned subsidiary, Carter Bank & Trust (the “Bank”). The Bank is a Federal Deposit Insurance Corporation (“FDIC”) insured, Virginia state-chartered bank, which operates

39

CARTER BANKSHARES, INC.

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

66 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”.

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

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 Bank is at a turning point in its evolution and transformation. The Company’s focus will shift from restructuring the balance sheet to pursuing a prudent growth strategy. This strategy will be primarily targeted at organic growth, but will also consider opportunistic acquisitions that fit this strategic vision. This initiative is viable given the Bank’s strong capital and liquidity positions. In addition to loan and deposit growth, the Company will seek to increase fee income while closely monitoring operating expenses.

The Company is focused on executing this strategy to successfully build our new brand and grow our business in our current markets as well as any new markets we may enter. As part of executing this strategy, the Company will be dedicating significant resources to resolve the Company’s nonaccrual loans, the significant majority of which are related to a single large lending relationship at June 30, 2023, in a manner that best protects the Company and its shareholders.

Results of Operations and Financial Condition

Earnings Summary

Highlights for the Three Months Ended June 30, 2023

•Net interest income decreased $5.7 million, or 17.7%, to $26.7 million for the three months ended June 30, 2023 compared to the same period in 2022 primarily due to a $11.3 million negative impact on interest income caused by placing the Bank’s largest lending relationship in nonaccrual status during the three months ended June 30, 2023 and by an increase of 149 basis points in funding costs, offset by an increase of 42 basis points in the yield on earning assets due to the rising interest rate environment;

•The provision for credit losses decreased $1.7 million to $0.1 million for the three months ended June 30, 2023, compared to the same period in 2022;

•Total noninterest income decreased $0.6 million to $5.0 million for the three months ended June 30, 2023 compared to $5.6 million for the same period in 2022;

•Total noninterest expense increased $2.1 million to $25.5 million for the three months ended June 30, 2023 compared to the same period in 2022; and

•Provision for income taxes decreased $1.7 million to $0.1 million for the three months ended June 30, 2023 compared to $1.8 million for the same period in 2022 was primarily due to the decrease in pre-tax income due to the Company’s largest lending relationship moving into nonaccrual status during the quarter, partially offset by the adoption of ASU 2023-02.

Highlights for the Six Months Ended June 30, 2023

•Net interest income increased $6.8 million, or 11.2%, to $67.5 million for the six months ended June 30, 2023 compared to the same period in 2022 primarily due to an increase of 106 basis points in the yield on earning assets due

40

CARTER BANKSHARES, INC.

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

to the rising interest rate environment, partially offset by an increase of 115 basis points in funding costs and the negative impact of placing the Bank’s largest lending relationship in nonaccrual status during the three months ended June 30, 2023;

•The provision for credit losses decreased $0.9 million to $1.5 million for the six months ended June 30, 2023, compared to the same period in 2022;

•Total noninterest income decreased $1.2 million to $9.8 million for the six months ended June 30, 2023 compared to the same period in 2022;

•Total noninterest expense increased $3.2 million to $49.1 million for the six months ended June 30, 2023 compared to the same period in 2022; and

•Provision for income taxes increased $1.4 million to $4.6 million for the six months ended June 30, 2023 compared to the same period in 2022.

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

•The securities portfolio decreased $14.9 million and is currently 18.7% of total assets compared to 19.9% of total assets;

•Total portfolio loans increased $181.5 million, or 11.6%, on an annualized basis, primarily due to loan growth in commercial real estate (“CRE”) and residential mortgage segments during the first half of 2023;

•The portfolio loans to deposit ratio was 93.1%, compared to 86.7%, due to loan growth;

•Nonperforming loans as a percentage of total portfolio loans were 9.33% compared to 0.21%. The significant increase is due to loans contained in the Other segment with an aggregate principal balance of $301.9 million that were placed into nonaccrual status due to loan maturities and failure to pay in full during the second quarter of 2023. These loans comprise 97.2% of nonperforming loans at June 30, 2023;

•Total deposits decreased $53.3 million or 1.5% to $3.6 billion at June 30, 2023 due to a decrease of $243.3 million in core deposits; and

•The Allowance for Credit Losses, (“ACL”) to total portfolio loans ratio was 2.83% compared to 2.98%. The ACL on portfolio loans totaled $94.1 million at June 30, 2023, compared to $93.9 million at December 31, 2022 with the decrease in the ACL coverage ratio driven by loan growth and by the release of specific reserves on three credits, offset by an increased valuation allowance on the large nonaccrual lending relationship.

The Company reported net income of $5.7 million or $0.24 diluted earnings per common share for the three months ended June 30, 2023 and $21.6 million, or $0.91 diluted earnings per common share for the six months ended June 30, 2023 compared to net income of $10.8 million, or $0.44 diluted earnings per common share and $20.1 million, or $0.80 diluted earnings per common share, for the same periods in 2022.

The Company’s financial results for the second quarter of 2023, compared to the prior quarter and the prior year quarter, were significantly impacted by placing commercial loans with an aggregate principal value of $301.9 million in the Other segment of the Bank’s loan portfolio on nonaccrual status due to loan maturities and failure to pay in full. This nonaccrual classification had a $11.3 million negative impact on interest income recognized by the Company for the three and six months ended June 30, 2023

	Three Months Ended June 30,				Six Months Ended June 30,
PERFORMANCE RATIOS	2023		2022		2023		2022
Return on Average Assets	0.52	%	1.04	%	1.01	%	0.98	%
Return on Average Shareholders’ Equity	6.38	%	12.51	%	12.45	%	10.95	%
Portfolio Loans to Deposit Ratio	93.11	%	79.87	%	93.11	%	79.87	%
Allowance for Credit Losses to Total Portfolio Loans	2.83	%	3.27	%	2.83	%	3.27	%
Nonperforming Loans to Total Portfolio Loans	9.33	%	0.40	%	9.33	%	0.40	%

41

CARTER BANKSHARES, INC.

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

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, interest-bearing liabilities, 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. 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 $5.7 million to $26.7 million for the three months ended June 30, 2023 and increased $6.8 million to $67.5 million for the six months ended June 30, 2023 compared to the same periods in 2022 as the higher interest rate environment 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 a $11.3 million negative impact on interest income related to the Company placing its largest lending relationship on nonaccrual status during the three months ended June 30, 2023. Net interest income, on an FTE basis (non-GAAP), decreased $5.8 million to $27.0 million for the three months ended June 30, 2023 and increased $6.7 million to $68.0 million for the six months ended June 30, 2023, compared to $32.8 million and $61.3 million for the same periods in 2022, respectively.

The decrease in net interest income, on an FTE basis (non-GAAP) for the three months ended June 30, 2023 was driven by higher interest income of $6.7 million compared to the same period last year, offset by higher interest expense of $12.5 million for the three months ended June 30, 2023 compared to the same period last year. Net interest margin decreased 73 basis points and increased 16 basis points to 2.51% and 3.22% for the three and six months ended June 30, 2023, respectively, compared to the same periods in 2022. Net interest margin, on an FTE basis (non-GAAP), decreased 73 basis points and increased 16 basis points to 2.54% and 3.25% for the three and six months ended June 30, 2023 compared to the same periods in 2022, respectively. The decline in net interest income and net interest margin was driven by the $11.3 million negative impact of the Company placing its largest lending relationship on nonaccrual status, which negatively impacted the yield on earning assets by 105 basis points during the three months ended June 30, 2023.

The Company’s net interest income and net interest margin will continue to be negatively impacted in future periods, if the Company’s largest lending relationship remains on nonaccrual status and the related loans are not repaid. 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 first six months of 2023, the Company’s yield on earning assets continued to benefit from the rising interest rate environment. However, during the third and fourth quarters 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 first six months of 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 25.3% floating rates and 41.6% variable rates, while 46.9% 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

42

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 June 30,						Six Months Ended June 30,
(Dollars in Thousands)	2023			2022			2023			2022
Interest Income (FTE)(Non-GAAP)
Interest and Dividend Income (GAAP)	$	43,716		$	36,961		$	95,671		$	69,639
Tax Equivalent Adjustment	257			293			521			591
Interest and Dividend Income (FTE) (Non-GAAP)	43,973			37,254			96,192			70,230
Average Earning Assets	$	4,261,652		$	4,020,589		$	4,224,116		$	3,997,592
Yield on Interest-earning Assets (GAAP)	4.11		%	3.69		%	4.57		%	3.51		%
Yield on Interest-earning Assets (FTE) (Non-GAAP)	4.14		%	3.72		%	4.59		%	3.54		%
Net Interest Income (GAAP)	$	26,711		$	32,459		$	67,496		$	60,681
Tax Equivalent Adjustment	257			293			521			591
Net Interest Income (FTE) (Non-GAAP)	26,968			32,752			68,017			61,272
Average Earning Assets	$	4,261,652		$	4,020,589		$	4,224,116		$	3,997,592
Net Interest Margin (GAAP)	2.51		%	3.24		%	3.22		%	3.06		%
Net Interest Margin (FTE) (Non-GAAP)	2.54		%	3.27		%	3.25		%	3.09		%

43

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 June 30, 2023						Three Months Ended June 30, 2022
(Dollars in Thousands)	Average Balance		Income/ Expense		Yield/Rate		Average Balance		Income/ Expense		Yield/Rate
ASSETS
Interest-Bearing Deposits with Banks	$	17,902	$	215	4.82	%	$	30,606	$	61	0.80	%
Tax-Free Investment Securities(2)	27,894		210		3.02	%	33,873		237		2.81	%
Taxable Investment Securities	912,292		7,688		3.38	%	975,352		4,452		1.83	%
Total Securities	940,186		7,898		3.37	%	1,009,225		4,689		1.86	%
Tax-Free Loans(1)(2)	126,453		1,016		3.22	%	147,060		1,159		3.16	%
Taxable Loans(3)	3,157,780		34,529		4.39	%	2,831,384		31,323		4.44	%
Total Loans	3,284,233		35,545		4.34	%	2,978,444		32,482		4.37	%
Federal Home Loan Bank Stock	19,331		315		6.54	%	2,314		22		3.81	%
Total Interest-Earning Assets	4,261,652		$	43,973	4.14	%	4,020,589		$	37,254	3.72	%
Noninterest Earning Assets	97,525						120,540
Total Assets	$	4,359,177					$	4,141,129
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-Bearing Demand	$	490,423	$	659	0.54	%	$	487,567	$	343	0.28	%
Money Market	414,852		1,858		1.80	%	528,211		310		0.24	%
Savings	566,312		151		0.11	%	735,438		189		0.10	%
Certificates of Deposit	1,396,307		9,114		2.62	%	1,270,569		3,570		1.13	%
Total Interest-Bearing Deposits	2,867,894		11,782		1.65	%	3,021,785		4,412		0.59	%
Federal Home Loan Bank Borrowings	405,443		5,080		5.03	%	6,594		10		0.61	%
Federal Funds Purchased	5,363		71		5.31	%	3,033		4		0.53	%
Other Borrowings	6,163		72		4.69	%	6,205		76		4.91	%
Total Borrowings	416,969		5,223		5.02	%	15,832		90		2.28	%
Total Interest-Bearing Liabilities	3,284,863		17,005		2.08	%	3,037,617		4,502		0.59	%
Noninterest-Bearing Liabilities	715,576						757,831
Shareholders' Equity	358,738						345,681
Total Liabilities and Shareholders' Equity	$	4,359,177					$	4,141,129
Net Interest Income(2)			$	26,968					$	32,752
Net Interest Margin(2)					2.54	%					3.27	%

(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.

44

CARTER BANKSHARES, INC.

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

	Six Months Ended June 30, 2023						Six Months Ended June 30, 2022
(Dollars in Thousands)	Average Balance		Income/ Expense		Yield/Rate		Average Balance		Income/ Expense		Yield/Rate
ASSETS
Interest-Bearing Deposits with Banks	$	17,023	$	415	4.92	%	$	85,040	$	123	0.29	%
Tax-Free Investment Securities(2)	28,491		415		2.94	%	30,246		448		2.99	%
Taxable Investment Securities	916,439		15,081		3.32	%	968,039		8,184		1.70	%
Total Securities	944,930		15,496		3.31	%	998,285		8,632		1.74	%
Tax-Free Loans(1)(2)	129,580		2,069		3.22	%	150,569		2,365		3.17	%
Taxable Loans(3)	3,115,799		77,657		5.03	%	2,761,471		59,068		4.31	%
Total Loans	3,245,379		79,726		4.95	%	2,912,040		61,433		4.25	%
Federal Home Loan Bank Stock	16,784		555		6.67	%	2,227		42		3.80	%
Total Interest-Earning Assets	4,224,116		$	96,192	4.59	%	3,997,592		$	70,230	3.54	%
Noninterest Earning Assets	94,549						137,661
Total Assets	$	4,318,665					$	4,135,253
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-Bearing Demand	$	490,518	$	1,156	0.48	%	$	475,838	$	620	0.26	%
Money Market	445,654		3,112		1.41	%	519,298		594		0.23	%
Savings	604,004		316		0.11	%	720,681		367		0.10	%
Certificates of Deposit	1,339,269		14,717		2.22	%	1,289,578		7,230		1.13	%
Total Interest-Bearing Deposits	2,879,445		19,301		1.35	%	3,005,395		8,811		0.59	%
Federal Home Loan Bank Borrowings	345,834		8,475		4.94	%	4,011		16		0.80	%
Federal Funds Purchased	9,831		247		5.07	%	1,525		4		0.53	%
Other Borrowings	6,305		152		4.86	%	5,287		127		4.84	%
Total Borrowings	361,970		8,874		4.94	%	10,823		147		2.74	%
Total Interest-Bearing Liabilities	3,241,415		28,175		1.75	%	3,016,218		8,958		0.60	%
Noninterest-Bearing Liabilities	726,656						748,744
Shareholders' Equity	350,594						370,291
Total Liabilities and Shareholders' Equity	$	4,318,665					$	4,135,253
Net Interest Income(2)			$	68,017					$	61,272
Net Interest Margin(2)					3.25	%					3.09	%

(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.

Interest income increased $6.8 million and $26.0 million for the three and six months ended June 30, 2023, respectively, compared to the same periods in 2022. Interest income, on an FTE basis (non-GAAP), increased $6.7 million and $26.0 million for the three and six months ended June 30, 2023, respectively, compared to the same periods in 2022. The change was primarily due to increases in average interest-earning assets of $241.1 million and $226.5 million in the three and six months ended June 30, 2023, respectively, compared to the same periods in 2022, and higher interest rate yields on interest-earning assets of 42 basis points and 105 basis points for the three and six months ended June 30, 2023, respectively, compared to the same periods in 2022 due to the rising interest rate environment, offset by a $11.3 million negative impact related to placing the Company’s largest lending relationship on nonaccrual status.

For the three and six months ended June 30, 2023 compared to the same periods in 2022, average interest-bearing deposits with banks decreased $12.7 million and $68.0 million, respectively, as funds were deployed into higher yielding loans, and the average rate earned increased 402 basis points and 463 basis points, respectively. Average loan balances increased $305.8 million and $333.3 million for the three and six months ended June 30, 2023, respectively, compared to the same periods in 2022. Loans provide the greatest impact on interest income and the yield on earning assets as they have the largest balance and the highest yield within major earning asset categories. The average rate earned on loans decreased three basis points and increased 70 basis points for the three and six months ended June 30, 2023, respectively, compared to the same periods in 2022.

Interest income was negatively affected by placing the Bank’s largest lending relationship on nonaccrual status during the second quarter of 2023, which had a negative impact on interest income of $11.3 million during the second quarter and first six months of 2023. This negative impact represented an estimated negative effect on the yield on earning assets for the six months ended June 30, 2023 of 53 basis points.

45

CARTER BANKSHARES, INC.

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

At June 30, 2023 the loan portfolio was comprised of 25.3% floating rate loans which reprice monthly, 41.6% variable rate loans that reprice at least once during the life of the loan and 33.1% fixed rate loans that do not reprice during the life of the loan.

Average investment securities decreased $69.0 million and $53.4 million for the three and six months ended June 30, 2023, respectively, compared to the same periods in 2022. The average rate earned on investment securities increased 151 basis points and 157 basis points for the three and six months ended June 30, 2023, respectively, compared to the same periods in 2022. The change in investment securities is the result of active balance sheet management to deploy the proceeds from securities maturities and principal payments into higher yielding loans, rather than reinvesting those proceeds back into the securities portfolio. The portfolio has been diversified as to bond types, maturities, and interest rate structures. As of June 30, 2023, the securities portfolio was comprised of 46.9% 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 structure is expected to limit the impact of rising rates on the Company’s unrealized losses on debt securities.

Interest expense increased $12.5 million and $19.2 million for the three and six months ended June 30, 2023, respectively, compared to the same periods in 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 $153.9 million and $126.0 million declines in average interest-bearing deposits for the three and six months ended June 30, 2023, respectively, compared to the same periods in 2022. The cost of interest-bearing liabilities increased by 149 basis points and 115 basis points to 2.08% and 1.75% for the three and six months ended June 30, 2023, respectively, compared to the same periods in 2022. Interest expense on deposits increased $7.4 million and $10.5 million for the three and six months ended June 30, 2023 compared to the same periods in 2022 primarily due to the rates on these deposits increasing 106 basis points and 76 basis points to 1.65% and 1.35%, respectively. The increases in rates for the three and six months ended June 30, 2023 compared to the same periods last year included interest-bearing demand deposits up by 26 basis points and 22 basis points, respectively, money market accounts up by 156 basis points and 118 basis points, respectively, and CDs up by 149 basis points and 109 basis points, respectively, in response to competitive pressures from higher market rates compared to the same periods in 2022. The average rates paid on savings accounts increased by one basis point for both the three and six months ended June 30, 2023 compared to the same periods in 2022.

The average balances on borrowings increased $401.1 million and $351.1 million for the three and six months ended June 30, 2023, respectively, when compared to the same periods in 2022. The cost of borrowings increased 274 basis points and 220 basis points for the three and six months ended June 30, 2023, respectively, when compared to the same periods in 2022, largely due to the higher interest rate environment.

46

CARTER BANKSHARES, INC.

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

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 Months Ended June 30, 2023 Compared to June 30, 2022						Six Months Ended June 30, 2023 Compared to June 30, 2022
(Dollars in Thousands)	Volume(3)		Rate(3)		Increase/ (Decrease)		Volume(3)		Rate		Increase/ (Decrease)
Interest Earned on:
Interest-Bearing Deposits with Banks	$	(35)	$	189	$	154	$	(173)	$	465	$	292
Tax-free Investment Securities(2)	(44)		17		(27)		(26)		(7)		(33)
Taxable Investment Securities	(305)		3,541		3,236		(458)		7,355		6,897
Total Securities	(349)		3,558		3,209		(484)		7,348		6,864
Tax-free Loans(1)(2)	(165)		22		(143)		(334)		38		(296)
Taxable Loans(1)	3,573		(367)		3,206		8,127		10,462		18,589
Total Loans	3,408		(345)		3,063		7,793		10,500		18,293
Federal Home Loan Bank Stock	267		26		293		460		53		513
Total Interest-Earning Assets	$	3,291	$	3,428	$	6,719	$	7,596	$	18,366	$	25,962
Interest Paid on:
Interest-Bearing Demand	$	2	$	314	$	316	$	20	$	516	$	536
Money Market	(80)		1,628		1,548		(96)		2,614		2,518
Savings	(45)		7		(38)		(60)		9		(51)
Certificates of Deposit	386		5,158		5,544		289		7,198		7,487
Total Interest-Bearing Deposits	263		7,107		7,370		153		10,337		10,490
Federal Home Loan Bank Borrowings	4,527		543		5,070		7,977		482		8,459
Federal Funds Purchased	5		62		67		95		148		243
Other Borrowings	(1)		(3)		(4)		24		1		25
Total Borrowings	4,531		602		5,133		8,096		631		8,727
Total Interest-Bearing Liabilities	4,794		7,709		12,503		8,249		10,968		19,217
Change in Net Interest Margin	$	(1,503)	$	(4,281)	$	(5,784)	$	(653)	$	7,398	$	6,745

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

Provision for Credit Losses

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

The ACL to total portfolio loans was 2.83% of total portfolio loans at June 30, 2023, compared to 2.98% of total portfolio loans, at December 31, 2022. The provision for credit losses decreased $1.7 million and $0.9 million for the three and six months ended June 30, 2023, respectively, when compared to the same periods in 2022. The decrease for the three and six months ended June 30, 2023 in the provision for credit losses was primarily driven by the release of individually evaluated loan reserves on three loans, offset by organic loan growth.

The provision for unfunded commitments increased $0.1 million and $0.4 million for the three and six months ended June 30, 2023, respectively, compared to the same periods in 2022 related to increases in real estate construction and increased pressure on the reserve rate.

Net charge-offs were $0.6 million and $1.2 million for the three and six months ended June 30, 2023, respectively, compared to $0.2 million and $0.4 million for the same periods in 2022. During the three and six months ended June 30, 2023, net charge-offs were primarily recognized in the other consumer segment. As a percentage of average portfolio loans, on an annualized

47

CARTER BANKSHARES, INC.

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

basis, net charge-offs were 0.08% for both the three and six months ended 2023 and 0.03% for both the same periods of 2022, respectively. See the “Allowance for Credit Losses” section of this MD&A for additional details regarding our charge-offs.

Nonperforming loans (“NPLs”) increased at June 30, 2023 by $304.1 million to $310.7 million compared to $6.6 million at December 31, 2022. During the second quarter of 2023, the Company placed commercial loans that reside in the Other segment of the Company’s loan portfolio, relating to a single lending relationship which has an aggregate principal amount of $301.9 million, on nonaccrual status due to loan maturities and failure to pay in full during the second quarter of 2023. The Other loan segment resulted in current expected credit losses (“CECL”) of $51.3 million in connection with our adoption of Topic 326 “Financial Instruments - Credit Losses.” on January 1, 2021. As of December 31, 2022 and March 31, 2023, those Other segment reserves were $54.7 million and $53.5 million, respectively. As of June 30, 2023, the Company utilized discounted cash flow valuation techniques to evaluate the current condition of certain of the borrowers’ operating businesses and those borrowers’ capacity to repay, which resulted in specific reserves related to that single lending relationship of $53.6 million. As a result, the classification of these commercial loans in nonaccrual status did not have a significant impact on the Company’s provision for credit losses during the three or six months ended June 30, 2023. See the “Credit Quality” section of this MD&A for additional information regarding our NPLs and this lending relationship.

Refer to Note 5, Allowance for Credit Losses, in the Notes to Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q for additional information related to our ACL.

Noninterest Income

	Three Months Ended June 30,								Six Months Ended June 30,
(Dollars in Thousands)	2023		2022		$ Change		% Change		2023		2022		$ Change		% Change
Gains (Losses) on Sales of Securities, net	$	3	$	76	$	(73)	(96.1)	%	$	(9)	$	52	$	(61)	(117.3)	%
Service Charges, Commissions and Fees	1,759		1,749		10		0.6	%	3,597		3,702		(105)		(2.8)	%
Debit Card Interchange Fees	1,934		1,850		84		4.5	%	4,039		3,782		257		6.8	%
Insurance Commissions	508		568		(60)		(10.6)	%	682		837		(155)		(18.5)	%
Bank Owned Life Insurance Income	341		334		7		2.1	%	680		668		12		1.8	%
(Losses) Gains on Sales and Write-downs of Bank Premises, net	—		(37)		37		100.0	%	—		346		(346)		(100.0)	%
Commercial Loan Swap Fee Income	—		756		(756)		(100.0)	%	114		756		(642)		(84.9)	%
Other	483		308		175		56.8	%	660		796		(136)		(17.1)	%
Total Noninterest Income	$	5,028	$	5,604	$	(576)	(10.3)	%	$	9,763	$	10,939	$	(1,176)	(10.8)	%

Total noninterest income decreased $0.6 million, or 10.3%, to $5.0 million for the three months ended June 30, 2023 and decreased $1.2 million, or 10.8%, to $9.8 million for the six months ended June 30, 2023 when compared to the same periods in 2022. The decrease for the three months ended June 30, 2023 compared to the same periods in 2022 was primarily related to a $0.8 million decrease in commercial loan swap fee income due to the rising interest rate environment, offset by a $0.2 million increase within other noninterest income due to a $0.2 million net gain on an equity investment.

For the six months ended June 30, 2023, the decrease in total noninterest income primarily related to a decrease of $0.6 million in commercial loan swap fee income due to the rising interest rate environment, a decrease of $0.3 million related to losses on sales and write-downs of bank premises, net due to a $0.4 million eminent domain settlement on a previously closed branch in the first quarter of 2022. Also impacting the decrease from the year ago period included a $0.2 million decline in insurance commissions, a decrease of $0.1 million in other noninterest income, as well as a decline of $0.1 million in service charges, commissions and fees. The decreases in insurance commissions and service charges on deposit accounts were primarily volume driven and the decrease in other noninterest income related to a higher fair value adjustment of our interest rate swap contracts with commercial customers in the first quarter of 2022. These decreases were offset by an increase of $0.3 million in debit card interchange fees due to higher interchange fee volume in the first six months of 2023.

48

CARTER BANKSHARES, INC.

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

Noninterest Expense

	Three Months Ended June 30, 2023								Six Months Ended June 30,
(Dollars in Thousands)	2023		2022		$ Change		% Change		2023		2022		$ Change		% Change
Salaries and Employee Benefits	$	13,649	$	12,444	$	1,205	9.7	%	$	27,301	$	24,201	$	3,100	12.8	%
Occupancy Expense, net	3,601		3,296		305		9.3	%	7,001		6,648		353		5.3	%
FDIC Insurance Expense	702		629		73		11.6	%	1,343		997		346		34.7	%
Other Taxes	786		819		(33)		(4.0)	%	1,590		1,623		(33)		(2.0)	%
Advertising Expense	431		267		164		61.4	%	770		506		264		52.2	%
Telephone Expense	412		454		(42)		(9.3)	%	839		942		(103)		(10.9)	%
Professional and Legal Fees	1,659		1,202		457		38.0	%	2,493		2,421		72		3.0	%
Data Processing	1,058		842		216		25.7	%	1,778		1,683		95		5.6	%
Debit Card Expense	771		659		112		17.0	%	1,250		1,292		(42)		(3.3)	%
Tax Credit Amortization	—		615		(615)		(100.0)	%	—		1,230		(1,230)		(100.0)	%
Other	2,467		2,183		284		13.0	%	4,747		4,378		369		8.4	%
Total Noninterest Expense	$	25,536	$	23,410	$	2,126	9.1	%	$	49,112	$	45,921	$	3,191	6.9	%

During the three and six months ended June 30, 2023 total noninterest expense increased $2.1 million and $3.2 million, respectively, when compared to the same periods in 2022. The most significant increase for both the three and six months ended June 30, 2023 was higher salaries and employee benefits of $1.2 million and $3.1 million, respectively, compared to the same periods in 2022 related to higher salary expense due to retail open positions being filled, job grade assessment increases, normal merit increases, increased medical claims and higher incentive bonuses in 2023. Also impacting the variance for both the three and six months ended June 30, 2023 were increases in occupancy expense, net of $0.3 million and $0.4 million, respectively compared to the same periods in 2022 as well as $0.3 million and $0.4 million in other noninterest expense, respectively in comparison to the prior periods. Advertising expenses increased for both the three and six month periods by $0.2 million and $0.3 million, respectively, due to marketing initiatives. Impacting both the three and six months ended June 30, 2023 was a decline of $0.6 million in tax credit amortization due to the early adoption of ASU 2023-02 Investments Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method. Under the proportional amortization method, the amortization of tax credit investments is recorded as a component of income tax expense instead of through noninterest expense as previously recorded.

Other variances impacting the three months ended June 30, 2023, along with the above mentioned fluctuations, was an increase of $0.5 million in professional and legal expense and a $0.2 million increase in data processing expenses due to an additional service in the second quarter of 2023.

Other variances impacting the six months ended June 30, 2023, along with the above mentioned fluctuations, was a $0.3 million increase in Federal Deposit Insurance Corporation (“FDIC”) insurance expenses due to a final rule adopted by the FDIC to increase initial base deposit insurance assessment rate schedules uniformly by two basis points on all insured depository institutions, beginning in the first quarterly assessment period of 2023.

Provision for Income Taxes

The provision for income taxes decreased $1.7 million and increased $1.4 million to $0.1 million and $4.6 million for the three and six months ended June 30, 2023, respectively, when compared to the same periods in 2022. Pre-tax income decreased $6.8 million for the three months ended June 30, 2023 and increased $3.0 million when compared to the same periods in 2022. The effective tax rate was 0.9% and 17.4% for the three and six months ended June 30, 2023 compared to 14.3% and 13.4% for the same periods in 2022. The decrease in the effective tax rate for the three months ended June 30, 2023 compared to the same period in 2022 was primarily related to the decrease in pre-tax income due to the Company’s largest lending relationship moving to nonaccrual status during the quarter, partially offset by $0.1 million due to the adoption of ASU 2023-02. Under ASU 2023-02 the amortization of tax credit investments is recorded as a component of income tax expense instead of through noninterest expense, which affects the effective tax rate. 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”).

49

CARTER BANKSHARES, INC.

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

Financial Condition

June 30, 2023

Total assets increased $179.5 million, to $4.4 billion at June 30, 2023 compared to $4.2 billion at December 31, 2022. Total portfolio loans increased $181.5 million, or 11.6% on an annualized basis, to $3.3 billion at June 30, 2023 compared to December 31, 2022 primarily due to loan growth in the CRE, residential mortgage and construction segments during the six months ended June 2023. The variances in loan segments for portfolio loans related to increases of $172.0 million in commercial real estate loans, $49.9 million in residential mortgages, $3.2 million in construction loans, offset by decreases of $30.6 million in C&I loans, $7.2 million in the other category and $5.8 million in other consumer loans.

The securities portfolio decreased $14.9 million and is currently 18.7% of total assets at June 30, 2023 compared to 19.9% of total assets at December 31, 2022. The decrease is due to $42.0 million in security sales, curtailments and maturities deployed into higher yielding loan growth, offset by $24.9 million in purchases of small business administration bonds during the six months ended June 30, 2023. As of June 30, 2023, the securities portfolio was comprised of 46.9% variable rate securities with approximately 99.4% that will reprice at least once over the next 12 months. At June 30, 2023, total gross unrealized gains in the available-for-sale portfolio were $0.9 million, offset by $105.8 million of gross unrealized losses. Refer to the “Securities Activity” section below for further discussion of unrealized losses in the available-for-sale securities portfolio.

Federal Home Loan Bank (“FHLB”) stock, at cost increased $9.7 million to $19.4 million at June 30, 2023 compared to $9.7 million at December 31, 2022. The increase is due to the FHLB requirement to hold a specified level of stock based upon level of borrowings. Other real estate owned (“OREO”) decreased $5.0 million at June 30, 2023 compared to December 31, 2022 due to the sale of one OREO property in June 2023. Closed retail bank offices had a book value of $1.0 million at June 30, 2023 and $1.1 million at December 31, 2022.

Total deposits decreased $53.3 million to $3.6 billion at June 30, 2023 compared to December 31, 2022. The decrease related to a decline of $243.3 million in savings, money market and demand deposits due to customers migrating to higher-yielding CD products driven by rising market interest rates. At June 30, 2023, noninterest-bearing deposits comprised 19.2% of total deposits compared to 19.4% at December 31, 2022 and 18.8% at June 30, 2022. CDs comprised 40.6%, 34.7% and 33.6% of total deposits at June 30, 2023, December 31, 2022 and June 30, 2022, respectively. As of June 30, 2023, based on assumptions that the Bank uses to prepare its regulatory call report, approximately 88.3% of our total deposits of $3.6 billion were insured under standard FDIC insurance coverage limits, and approximately 11.7% of our total deposits were uninsured deposits over the standard FDIC insurance coverage limit. The Company’s deposit base is diversified and granular and is comprised of approximately 77.5% of retail deposits.

Total capital of $344.2 million at June 30, 2023, reflects an increase of $15.6 million as compared to $328.6 million at December 31, 2022. The increase in total capital from December 31, 2022 is primarily due to a $3.6 million improvement in other comprehensive income due to changes in fair value of investment securities and net income of $21.6 million for the six months ended June 30, 2023, as well as, the transitional adjustment of $0.1 million, net of tax for the adoption of ASU 2023-02 less $10.4 million related to the repurchase of common stock. The remaining difference of $0.7 million is related to restricted stock activity for the six months ended June 30, 2023.

The ACL was 2.83% of total portfolio loans at June 30, 2023 compared to 2.98% as of December 31, 2022. General reserves as a percentage of total portfolio loans were 1.21% at June 30, 2023 compared to 2.96% at December 31, 2022. The decrease in the general reserves as a percentage of total portfolio loans was primarily driven by the largest lending relationships movement from the general pool to the individually evaluated pool due to the transfer to nonaccrual during the second quarter of 2023 offset by loan growth. Management believes the ACL is adequate to absorb expected losses inherent in the loan portfolio. See the sections of this MD&A titled “Provision for Credit Losses,” “Credit Quality” and “Allowance for Credit Losses” for information about the factors that impacted the ACL and the provision for credit losses.

The Company remains well capitalized. The Tier 1 capital ratio decreased to 11.46% at June 30, 2023 compared to 12.61% at December 31, 2022. The leverage ratio was 10.02% at June 30, 2023, compared to 10.29% at December 31, 2022 and the total risk-based capital ratio was 12.72% at June 30, 2023 compared to 13.86% at December 31, 2022. The decrease is related to the aforementioned repurchase of common stock of $10.4 million through June 30, 2023 and loan growth during the six months ended June 30, 2023. Another significant factor driving the ratios downward was the above mentioned large lending relationship movement to nonaccrual with the $11.3 million negative impact on interest income, combined with the movement of nonaccrual assets to higher risk rating categories.

50

CARTER BANKSHARES, INC.

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

The Bank also remained well capitalized as of June 30, 2023. The Bank’s Tier 1 Capital ratio was 11.34% at June 30, 2023 compared to 12.42% at December 31, 2022. The Bank’s leverage ratio was 9.76% at June 30, 2023 compared to 10.13% at December 31, 2022. The Bank’s Total Risk-Based Capital ratio was 12.60% at June 30, 2023 compared to 13.68% at December 31, 2022.

Securities Activity

The following table presents the composition of available-for-sale securities:

(Dollars in Thousands)	June 30, 2023		December 31, 2022		$ Change
U.S. Treasury Securities	$	13,174	$	17,866	$	(4,692)
U.S. Government Agency Securities	51,508		49,764		1,744
Residential Mortgage-Backed Securities	100,163		103,685		(3,522)
Commercial Mortgage-Backed Securities	35,402		34,675		727
Other Commercial Mortgage-Backed Securities	21,583		22,399		(816)
Asset Backed Securities	138,722		141,383		(2,661)
Collateralized Mortgage Obligations	169,077		176,622		(7,545)
States and Political Subdivisions	233,431		228,146		5,285
Corporate Notes	58,310		61,733		(3,423)
Total Debt Securities	$	821,370	$	836,273	$	(14,903)

The Company invests in various securities in order to maintain a source of liquidity, to satisfy various pledging requirements, to increase net interest income and as a tool of the ALCO to diversify and reposition the balance sheet for interest rate risk purposes. Securities are subject to market risks that could negatively affect the level of liquidity available to us. Security purchases are subject to our investment policy that is approved annually by our Board and administered through ALCO and our treasury function.

The securities portfolio decreased $14.9 million to $821.4 million at June 30, 2023 compared to $836.3 million at December 31, 2022. Securities comprise 18.7% of total assets at June 30, 2023 compared to 19.9% at December 31, 2022. The decrease is due to $42.0 million in security sales, curtailments and maturities deployed into higher yielding loan growth, offset by $24.9 million in purchases of small business administration bonds during the six months ended June 30, 2023. As of June 30, 2023, the securities portfolio was comprised of 46.9% variable rate securities with approximately 99.4% that will reprice at least once over the next 12 months.

At June 30, 2023 total gross unrealized gains in the available-for-sale portfolio were $0.9 million, offset by $105.8 million of gross unrealized losses. At December 31, 2022, total gross unrealized gains in the available-for-sale portfolio were $0.3 million offset by $109.7 million of gross unrealized losses.

The unrealized losses on debt securities are believed to be temporary primarily because these unrealized losses are due to reductions in market value caused by upward movement in interest rates since the securities purchase (as applicable), and not related to the credit quality of these securities. Our portfolio consists of 48.5% of securities issued by United States government sponsored entities and carry an implicit government guarantee. States and political subdivisions comprise 28.4% of the portfolio and are largely general obligations or essential purpose revenue bonds, which have performed very well historically over all business cycles, and are rated AA and AAA. We have the ability to hold these securities to maturity and expect full recovery of the amortized cost.

The Company’s investment securities with intermediate and long-term maturities were the largest driver of these gross unrealized losses, as the market values of these securities are significantly impacted by the Treasury yield curve for similar durations (i.e., 5- and 10-year Treasury securities). This portion of the Treasury yield curve has moved slightly downward over the past three months, driving unrealized losses on these securities lower. Although the Federal Reserve is in the middle of an aggressive effort to raise short-term interest rates to combat inflation, the Company does not expect higher short-term rates to adversely impact the fair values of the Company’s investment securities to the same extent as increases in longer-term rates.

51

CARTER BANKSHARES, INC.

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

The Company expects that higher short-term rates may continue to improve yields on certain of the Company’s variable rate securities over the next six to twelve months.

At June 30, 2023 the 5-year and 10-year U.S. Treasury yields were 4.13% and 3.81, respectively. At December 31, 2022, those same bond yields were 3.99% and 3.88%, respectively. The decrease of seven basis points in the 10-year treasury was offset by the increase in the 5-year treasury in the intermediate part of the yield curve which drove the reduction in unrealized losses for the first six months of 2023. The effects were generally greater for longer maturity bonds, such as municipal bonds. On the other hand, floating rate bonds largely held consistent values, as those interest rates adjust in line with Federal Reserve interest rate hikes.

Should the impairment of any of these securities become credit related, the impairment will be recognized by establishing an ACL through provision for credit losses in the period the credit related impairment is identified, while any non-credit loss will be recognized in accumulated other comprehensive loss, net of applicable taxes. At June 30, 2023 and December 31, 2022, the Company had no credit related net investment impairment losses.

Refer to Note 3, Investment Securities, in the Notes to Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q for additional information related to our securities.

The Basel rules also permit most banking organizations to retain, through a one-time election, existing treatment for accumulated other comprehensive loss, which currently does not affect regulatory capital. The Company elected to retain this treatment which reduces the volatility of regulatory capital levels.

Loan Composition

The following table summarizes our loan portfolio for the periods presented:

(Dollars in Thousands)	June 30, 2023		December 31, 2022
Commercial
Commercial Real Estate	$	1,642,597	$	1,470,562
Commercial and Industrial	279,156		309,792
Total Commercial Loans	1,921,753		1,780,354
Consumer
Residential Mortgages	707,893		657,948
Other Consumer	38,736		44,562
Total Consumer Loans	746,629		702,510
Construction	356,805		353,553
Other	305,255		312,496
Total Portfolio Loans	3,330,442		3,148,913
Loans Held-for-Sale	173		—
Total Loans	$	3,330,615	$	3,148,913

Our loan portfolio represents our most significant source of interest income. The risk that borrowers are unable to pay such obligations is inherent in the loan portfolio. Other conditions such as downturns in the borrower's industry or the overall economic climate can significantly impact the borrower’s ability to pay. For a discussion of the risk factors relevant to our business and operations, please refer to Part I, Item 1A, “Risk Factors,” contained in our Annual Report on Form 10-K for the year ended December 31, 2022, and Part II, Item 1A, “Risk Factors,” contained in our Quarterly Report on Form 10-Q for the period ended March 31, 2023 and this Quarterly Report on Form 10-Q.

Total portfolio loans increased $181.5 million, or 11.6%, on an annualized basis, to $3.3 billion at June 30, 2023 compared to December 31, 2022 with strong production primarily in our CRE and residential mortgage portfolios. The CRE portfolio is monitored for potential concentrations of credit risk by market, property type and tenant concentrations. Given the continued rising rate environment our mortgage portfolio is experiencing more modest growth in 2023. At June 30, 2023, the loan portfolio was comprised of 25.3% floating rates which reprice monthly, 41.6%, variable rates that reprice at least once during the life of the loan and the remaining 33.1% are fixed rate loans. The Company is carefully monitoring the loan portfolio during 2023, including in light of market conditions that impact our borrowers and the interest rate environment.

52

CARTER BANKSHARES, INC.

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

Aggregate commitments to our top 10 credit relationships were $638.3 million at June 30, 2023. The Other segment represents 47.3% of the top 10 credit relationships and $301.9 million has since transferred to nonaccrual during the second quarter of 2023, as described in more detail below under “Credit Quality” in this MD&A.

The following table summarizes our top 10 relationships and a description of industries represented for the periods presented:

Dollars in Thousands	For the Periods Ending						Change			June 30, 2023		June 30, 2023
	June 30, 2023			December 31, 2022						% of Gross Loans		% of RBC
1. Hospitality, agriculture & energy	$	301,913		$	309,107		$	(7,194)		9.06	%	61.97	%
2. Retail real estate & food services	54,232			55,625			(1,393)			1.63	%	11.13	%
3. Industrial & retail real estate	40,795			41,725			(930)			1.22	%	8.37	%
4. Multifamily development	40,000			40,000			—			1.20	%	8.21	%
5. Retail real estate	37,955			37,679			276			1.14	%	7.78	%
6. Non-Owner Occupied/Commercial Real Estate	33,538			17,308			16,230			1.01	%	6.88	%
7. Multifamily & student housing	33,349			33,998			(649)			1.00	%	6.85	%
8. Hospitality	32,987			33,587			(600)			0.99	%	6.77	%
9. Multifamily / Construction Real Estate	32,000			24,000			8,000			0.96	%	6.57	%
10. Multifamily Development	31,521			31,790			(269)			0.95	%	6.47	%
Top Ten (10) Relationships	$	638,290		$	624,819		$	13,471		19.16	%	131.00	%
Total Gross Loans	$	3,330,615		$	3,148,913		$	181,702
% of Total Gross Loans	19.16		%	19.84		%	(0.68)		%
Concentration (25% of RBC)	$	121,797		$	120,863

Unfunded commitments on lines of credit were $592.8 million at June 30, 2023 as compared to $512.7 million at December 31, 2022. The majority of unused commitments are for construction projects that will be drawn as the construction completes. Total utilization was 49.8% at June 30, 2023 and 52.2% at December 31, 2022. Unfunded commitments on commercial operating lines of credit was 49.0% at June 30, 2023 and 51.7% at December 31, 2022.

We attempt to limit our exposure to credit risk by diversifying our loan portfolio by segment, geography, collateral and industry while actively managing concentrations. When concentrations exist in certain segments, this risk is mitigated by reviewing the relevant economic indicators and internal risk rating trends of the loans in these segments. The Company established transaction, relationship and specific loan segment limits in its loan policy. Total commercial real estate balances should not exceed the combination of 300% of total risk-based capital and growth in excess of 50% over the previous thirty-six months and construction loan balances should not exceed 100% of total risk-based capital. Investment real estate property types and purchased loan programs have individual dollar limits that should not be exceeded in the portfolio and are based on management’s risk tolerance relative to capital. In addition, there are specific limits in place for various categories of real estate loans with regards to loan-to-value ratios, loan terms, and amortization periods. We also have policy limits on loan-to-cost for construction projects. Although leverage is important, the Company is also focused on cash flow generation and uses multiple metrics to calculate a supportable loan amount. Supportable loan amounts have generally been more challenging given the increases in commodities pricing.

Unsecured loans pose higher risk for the Company due to the lack of a well-defined secondary source of repayment. Commercial unsecured loans are reserved for the best quality customers with well-established businesses that operate with low financial and operating leverage. The repayment capacity of the borrower should exceed the policy and guidelines for secured loans. The Company significantly increased the standards for consumer unsecured lending by adjusting upward the required qualifying Fair Isaac Corporation (“FICO”) scores and restricting loan amounts at lower FICO scores.

Deferred costs and fees included in the portfolio balances above were $6.6 million and $8.2 million at June 30, 2023 and December 31, 2022, respectively. Discounts on purchased 1-4 family loans included in the portfolio balances above were $146.6 thousand and $161.2 thousand at June 30, 2023 and December 31, 2022, respectively.

From time to time, we have mortgage loans held-for-sale derived from two sources. First, we purchase mortgage loans on a short-term basis from a partner financial institution that has fully executed sales contracts to end investors. Second, we originate and close mortgages with fully executed contracts with investors to purchase shortly after closing. We then hold these mortgage

53

CARTER BANKSHARES, INC.

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

loans from both sources until funded by the investor, typically a two-week period. There were $173.2 thousand and zero mortgage loans held-for-sale at June 30, 2023 and December 31, 2022, respectively.

Refer to Note 4, Loans and Loans Held-for-Sale, in the Notes to Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q for additional information related to our loans.

Credit Quality

On a monthly basis, a Criticized Asset Committee meets to review certain watch, special mention and substandard risk rated loans within prescribed policy thresholds. These loans typically represent the highest risk of loss to the Company. Action plans are established and these loans are monitored through regular contact with the borrower and loan officer, review of current financial information and other documentation, review of all loan or potential loan restructures or modifications and the regular re-evaluation of assets held as collateral.

On a quarterly basis, the Credit Risk Committee of the Board meets to review our loan portfolio metrics, approve segment limits, approve the adequacy of ACL, and findings from Loan Review identified in the previous quarter. Annually, this same committee approves credit related policy changes and policy enhancements as they become available.

Additional credit risk management practices include continuous reviews of trends in our lending footprint and our lending policies and procedures to support sound underwriting practices, concentrations, delinquencies and annual portfolio stress testing. Our Loan Review department serves as a mechanism to independently monitor credit quality and assess the effectiveness of credit risk management practices to provide oversight of all lending activities. The loan review function has the primary responsibility for assessing commercial credit administration and credit decision functions of consumer and mortgage underwriting, as well as determining the appropriateness of risk ratings for those loans reviewed and providing input to the loan risk rating process. Our policy is to place loans in all categories in nonaccrual status when collection of interest or principal is doubtful, or generally when interest or principal payments are 90 days or more past due based on contractual terms. Consumer unsecured loans and secured loans are evaluated for charge-off after the loan becomes 90 days past due. Unsecured loans are fully charged-off and secured loans are charged-off to the estimated fair value of the collateral less the cost to sell.

The ability of borrowers to repay commercial loans is dependent upon the success of their business and general economic conditions. Due to the greater potential for loss within our commercial portfolio, we monitor the commercial loan portfolio through an internal risk rating system. Loan risk ratings are assigned based upon the creditworthiness of the borrower and are reviewed on an ongoing basis according to our internal policies. Loans rated special mention or substandard have potential or well-defined weaknesses not generally found in high quality, performing loans, and require attention from management to limit loss.

Nonperforming assets consist of nonaccrual loans and OREO. The following table summarizes nonperforming assets for the dates presented:

(Dollars in Thousands)	June 30, 2023		December 31, 2022		$ Change
Nonaccrual Loans
Commercial Real Estate	$	2,512	$	2,304	$	208
Commercial and Industrial	113		204		(91)
Residential Mortgages	3,288		3,265		23
Other Consumer	12		8		4
Construction	2,908		864		2,044
Other	301,913		—		301,913
Total Nonperforming Loans	310,746		6,645		304,101
Other Real Estate Owned	3,379		8,393		(5,014)
Total Nonperforming Assets	$	314,125	$	15,038	$	299,087

Nonperforming assets increased $299.1 million to $314.1 million at June 30, 2023 compared to December 31, 2022. During the second quarter of 2023, the Company placed commercial loans that resided in the Other segment of the Company’s loan portfolio, relating to the Bank’s largest lending relationship which has an aggregate principal amount of $301.9 million, on

54

CARTER BANKSHARES, INC.

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

nonaccrual status due to loan maturities and failure to pay in full. These nonperforming loans are 97.2% of the Company's total nonperforming loans and 96.1% of the Company's total nonperforming assets.

Based on analyses of the credit relationship and various cash flow assumptions in the alternative modeling the Company established specific reserves with respect to these loans of $53.6 million at June 30, 2023, representing 17.8%, of these loans aggregate principal amount. At June 30, 2023, all of the Bank’s loans related to this lending relationship are on nonaccrual status.

The following is an analysis of nonperforming loans by loan portfolio segment for the dates presented, and each segment’s relative contribution to total nonperforming loans:

	June 30, 2023				December 31, 2022
(Dollars in Thousands)	Amount		% of NPLs		Amount		% of NPLs
Commercial Real Estate	$	2,512	0.8	%	$	2,304	34.7	%
Commercial & Industrial	113		—	%	204		3.1	%
Residential Mortgages	3,288		1.1	%	3,265		49.1	%
Other Consumer	12		—	%	8		0.1	%
Construction	2,908		0.9	%	864		13.0	%
Other	301,913		97.2	%	—		—	%
Balance End of Period	310,746		100.0	%	6,645		100.0	%

The Company believes it is well secured based on the net carrying value of the credit relationship and appropriately reserved for potential losses with respect to all such loans based on information currently available. The Company utilized various cash flow assumptions in the alternative modeling which resulted in a valuation allowance of $53.6 million at June 30, 2023. As the borrowers on these loans operate in the hospitality, agriculture, and energy sectors, this credit relationship is secured by, among other collateral, commercial real estate properties in these sectors including but not limited to top-tier hospitality properties. When evaluating the net carrying value of this credit relationship at June 30, 2023, the Company utilized discounted cash flow valuation techniques to evaluate the current condition of certain of the borrowers’ operating businesses and those borrowers’ capacity to repay. That evaluation resulted in the Company establishing a valuation allowance of $53.6 million at June 30, 2023.

The Company has initiated collection processes with respect to such loans and intends to explore all alternatives for repayment. However, we cannot give any assurance as to the timing or amount of future payments or collections on such loans. For a discussion of collection proceedings with respect to these loans, see Part II, Item 1, “Legal Proceedings” of this Quarterly Report on Form 10-Q.

Closed retail bank offices have a remaining book value of $1.0 million at June 30, 2023 and $1.1 million at December 31, 2022, and are recorded in OREO on the Company’s balance sheet.

Past Company legacy underwriting standards relied heavily on loan to value and did not necessarily consider the income characteristics of the borrower or the repayment capacity of collateral with respect to speculative land financing. An overreliance on value as a primary repayment source can become compromised during real estate cycles. As a result, management has worked through these legacy credits and has installed a number of underwriting guardrails that consider the global cash flows and repayment capability of borrowers and/or guarantors, the proportion of speculation, transaction limits and introduced sensitivity analysis in order to determine supportable loan amounts. While these guardrails do not insulate the Company from credit cycles, we believe it should reduce the experience of defaults.

At both June 30, 2023 and December 31, 2022, respectively, the Company’s loans held-for-sale were all accruing.

Closed-end installment loans, amortizing loans secured by real estate and any other loans with payments scheduled monthly are reported past due when the borrower is in arrears two or more monthly payments. Other multi-payment obligations with payments scheduled other than monthly are reported past due when one scheduled payment is due and unpaid for 30 days or more. We monitor delinquency on a monthly basis, including loans that are at risk for becoming delinquent and early stage delinquencies in order to identify emerging patterns and potential problem loans.

55

CARTER BANKSHARES, INC.

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

Allowance for Credit Losses

The following is the allocation of the ACL reserves by segment for the periods presented:

	June 30, 2023				December 31, 2022
(Dollars in Thousands)	Amount		% of Loans in each Category to Total Portfolio Loans		Amount		% of Loans in each Category to Total Portfolio Loans
Commercial Real Estate	$	19,144	49.3	%	$	17,992	46.7	%
Commercial & Industrial	3,293		8.4	%	3,980		9.9	%
Residential Mortgages	10,386		21.2	%	8,891		20.9	%
Other Consumer	1,058		1.2	%	1,329		1.4	%
Construction	6,603		10.7	%	6,942		11.2	%
Other	53,660		9.2	%	54,718		9.9	%
Balance End of Period	$	94,144	100.0	%	$	93,852	100.0	%

The decline in the ACL attributable to the other segment was primarily due to $1.3 million of principal pay-downs during the six months ended June 30, 2023 that occurred during the first quarter of 2023. The ACL was $94.1 million, or 2.83%, of total portfolio loans at June 30, 2023 compared to $93.9 million, or 2.98%, of total portfolio loans at December 31, 2022.

The following table summarizes the credit quality ratios and their components as of June 30, 2023 and December 31, 2022:

(Dollars in Thousands)	June 30, 2023			December 31, 2022
Allowance for Credit Losses to Total Portfolio Loans
Allowance for Credit Losses	$	94,144		$	93,852
Total Portfolio Loans	3,330,442			3,148,913
Allowance for Credit Losses to Total Portfolio Loans	2.83		%	2.98		%
Nonperforming Loans to Total Portfolio Loans
Nonperforming Loans	$	310,746		$	6,645
Total Portfolio Loans	3,330,442			3,148,913
Nonperforming Loans to Total Portfolio Loans	9.33		%	0.21		%
Allowance for Credit Losses to Nonperforming Loans
Allowance for Credit Losses	$	94,144		$	93,852
Nonperforming Loans	310,746			6,645
Allowance for Credit Losses to Nonperforming Loans	30.30		%	1,412.37		%
Net Charge-offs to Average Portfolio Loans
Net Charge-offs (annualized)	$	2,436		$	4,506
Average Total Portfolio Loans	3,245,299			2,988,785
Net Charge-offs to Average Portfolio Loans	0.08		%	0.15		%

See the Credit Quality and Allowance for Credit Losses sections within this MD&A for an analysis of the factors that drove the changes in the ACL ratios presented in the previous table.

The provision for credit losses, which includes a provision for losses on loans and on unfunded commitments, is a charge to earnings to maintain the ACL at a level consistent with management's assessment of expected losses in the loan portfolio at the balance sheet date. The provision for credit losses decreased $1.7 million and $0.9 million for the three and six months ended June 30, 2023, respectively, when compared to the same periods in 2022. The decrease for the three and six months ended June 30, 2023 in the provision for credit losses was primarily driven by the release of specific reserves on three loans, offset by loan growth and increased reserves due to the above mentioned loan entering nonaccrual status. For more information about the Company’s provision for credit losses, see the discussion above under “Provision for Credit Losses” in this MD&A.

The provision for unfunded commitments increased $0.1 million and $0.4 million for the three and six months ended June 30, 2023, respectively, compared to the same periods in 2022 related to increases in real estate construction and increased pressure on the reserve rate. There are three basic factors that influence the reserve rates associated with unfunded commitments for real

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CARTER BANKSHARES, INC.

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

estate construction loans. First, the reserve rate is extrapolated from the reserve rates calculated for certain commercial real estate funded loans within the ACL model. These reserve rates are influenced by the same factors cited in the ACL model such as economic forecasts, average portfolio life, etc. Refer to Note 1, Basis of Presentation, in the Notes to Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q for additional information related to the ACL Policy and the discussion of these factors. Second, since the category of construction is generic, management applies a weighting of the reserve rates associated with certain commercial real estate loans. The proportion of these segments affect the weighting. Third, volume changes impact the total reserve calculation.

Net charge-offs were $0.6 million and $1.2 million for the three and six months ended June 30, 2023, respectively, compared to $0.2 million and $0.4 million for the same period in 2022. During the first three and six months of 2023, net charge-offs were primarily recognized in the other consumer segment. As a percentage of average portfolio loans, on an annualized basis, net charge-offs were 0.08% for both the three and six months ended June 30, 2023 and 0.03% for both the same periods of 2022, respectively. At June 30, 2023, nonperforming loans increased $304.1 million to $310.7 million since December 31, 2022. Nonperforming loans as a percentage of total portfolio loans were 9.33% and 0.21% as of June 30, 2023 and December 31, 2022, respectively. Nonperforming loans increased during the second quarter of 2023 as the Company placed commercial loans that were in the Other segment of the Company’s loan portfolio, relating to the Bank’s largest lending relationship which has an aggregate principal amount of $301.9 million, on nonaccrual status due to loan maturities and failure to pay in full. For more information about the Company’s nonperforming loans and about this lending relationship, see the discussion above under “Credit Quality” in this MD&A.

The following tables represent credit exposures by internally assigned risk ratings as of the periods presented:

	June 30, 2023
(Dollars in Thousands)	Commercial Real Estate		Commercial and Industrial		Residential Mortgage		Other Consumer		Construction		Other		Total Portfolio Loans
Pass	$	1,639,037	$	276,199	$	703,789	$	38,707	$	353,718	$	3,342	$	3,014,792
Special Mention	291		2,838		531		—		64		—		3,724
Substandard	3,269		119		3,573		29		3,023		301,913		311,926
Doubtful	—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—
Total Portfolio Loans	$	1,642,597	$	279,156	$	707,893	$	38,736	$	356,805	$	305,255	$	3,330,442
Performing	$	1,640,085	$	279,043	$	704,605	$	38,724	$	353,897	$	3,342	$	3,019,696
Nonperforming	2,512		113		3,288		12		2,908		301,913		310,746
Total Portfolio Loans	$	1,642,597	$	279,156	$	707,893	$	38,736	$	356,805	$	305,255	$	3,330,442

	December 31, 2022
(Dollars in Thousands)	Commercial Real Estate		Commercial and Industrial		Residential Mortgage		Other Consumer		Construction		Other		Total Portfolio Loans
Pass	$	1,457,340	$	303,893	$	653,044	$	44,495	$	352,516	$	180,745	$	2,992,033
Special Mention	10,796		2,887		983		—		69		—		14,735
Substandard	2,426		3,012		3,921		67		968		131,751		142,145
Doubtful	—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—
Total Portfolio Loans	$	1,470,562	$	309,792	$	657,948	$	44,562	$	353,553	$	312,496	$	3,148,913
Performing	$	1,468,258	$	309,588	$	654,683	$	44,554	$	352,689	$	312,496	$	3,142,268
Nonperforming	2,304		204		3,265		8		864		—		6,645
Total Portfolio Loans	$	1,470,562	$	309,792	$	657,948	$	44,562	$	353,553	$	312,496	$	3,148,913

Special mention, substandard and doubtful loans at June 30, 2023 increased $158.8 million to $315.7 million compared to $156.9 million at December 31, 2022. The decrease of $11.0 million in special mention is primarily due to the upgrade of a $9.8 million credit to a pass rating. The increase of $169.8 million in substandard loans is primarily related to the above mentioned large nonaccrual lending relationship in the other loan category. The $301.9 million of loans related to the Bank’s

57

CARTER BANKSHARES, INC.

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

largest lending relationship were nonperforming and rated as substandard as of June 30, 2023. At December 31, 2022 the largest lending relationship in the other segment loans were all accruing and totaled $309.1 million of which, $177.3 million of those loans were pass-rated and $131.8 million of those loans were substandard-rated.

Additionally, refer to Note 5, Allowance for Credit Losses, in the Notes to Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q for additional information related to the ACL.

Deposits

The following table presents the composition of deposits for the periods presented:

(Dollars in Thousands)	June 30, 2023		December 31, 2022		$ Change		% Change
Noninterest-Bearing Demand	$	686,124	$	703,334	$	(17,210)	(2.4)	%
Interest-Bearing Demand	489,971		496,948		(6,977)		(1.4)	%
Money Market	422,780		484,238		(61,458)		(12.7)	%
Savings	526,588		684,287		(157,699)		(23.0)	%
Certificates of Deposit	1,451,540		1,261,526		190,014		15.1	%
Total Deposits	$	3,577,003	$	3,630,333	$	(53,330)	(1.5)	%

Deposits are the Company’s primary source of funds. The Company believes that the deposit base is stable and that the Company has the ability to attract new depositors while diversifying the deposit composition. Total deposits at June 30, 2023 decreased $53.3 million, or 1.5%, from December 31, 2022. The decrease related to a decline of $243.3 million in demand, money market and savings deposits, offset by an increase of $190.0 million in CDs, which was primarily due to customers migrating between deposit products as interest rates have risen.

At June 30, 2023, noninterest-bearing deposits comprised 19.2% of total deposits compared to 19.4% at December 31, 2022 and 18.8% at June 30, 2022. CDs comprised 40.6%, 34.7% and 33.6% of total deposits at June 30, 2023, December 31, 2022 and June 30, 2022, respectively. As of June 30, 2023, based on assumptions that the Bank uses to prepare its regulatory call report, approximately 88.3% of our total deposits of $3.6 billion were insured under standard FDIC insurance coverage limits, and approximately 11.7% of our total deposits were uninsured deposits over the standard FDIC insurance coverage limit. The Company’s deposit base is diversified and granular and is comprised of approximately 77.5% of retail deposits.

The following table presents additional information in relation to deposits:

(Dollars in Thousands)	June 30, 2023		December 31, 2022
Deposits from the Certificate of Deposit Account Registry Services ("CDARS")	$	—	$	922
Noninterest-Bearing Public Funds Deposits	43,083		27,086
Interest-Bearing Public Funds Deposits	145,780		180,243
Total Deposits not Covered by Deposit Insurance(1)	418,599		493,013
Certificates of Deposits not Covered by Deposit Insurance	233,495		159,030
Deposits for Certain Directors, Executive Officers and their Affiliates	1,768		2,910

(1) These deposits are presented on an estimated basis. This estimate was determined based on the same methodologies and assumptions used for regulatory reporting requirements.

Maturities of CDs over $250,000 or more not covered by deposit insurance at June 30, 2023 are summarized as follows:

(Dollars in Thousands)	Amount		Percent
Three Months or Less	$	13,186	5.6	%
Over Three Months Through Twelve Months	131,942		56.5	%
Over Twelve Months Through Three Years	66,808		28.6	%
Over Three Years	21,559		9.3	%
Total	$	233,495	100.0	%

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CARTER BANKSHARES, INC.

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

Borrowings and Federal Funds Purchased

Borrowings are an additional source of liquidity for the Company. We had $407.1 million FHLB borrowings at June 30, 2023 and $180.6 million at December 31, 2022. The Company had $7.9 million overnight federal funds purchased at June 30, 2023 and $17.9 million in overnight federal funds purchased at December 31, 2022. The level and composition of borrowed funds fluctuates over time based on many factors including market conditions, loan growth, investment securities, deposits and capital considerations. We manage our borrowed funds to provide a reliable source of liquidity.

Information pertaining to FHLB borrowings and federal funds purchased is summarized in the following table:

(Dollars in Thousands)	June 30, 2023			December 31, 2022
Balance at Period End
Federal Home Loan Bank Borrowings	$	407,135		$	180,550
Federal Funds Purchased	$	7,900		$	17,870
Average Balance during the Period
Federal Home Loan Bank Borrowings	$	345,834		$	29,849
Federal Funds Purchased	$	9,831		$	5,711
Average Interest Rate during the Period
Federal Home Loan Bank Borrowings	4.94		%	3.90		%
Federal Funds Purchased	5.07		%	3.29		%
Maximum Month-end Balance during the Period
Federal Home Loan Bank Borrowings	$	435,135		$	180,550
Federal Funds Purchased	$	46,965		$	23,020
Average Interest Rate at Period End
Federal Home Loan Bank Borrowings	5.10		%	4.48		%
Federal Funds Purchased	5.40		%	4.65		%

The Company held FHLB of Atlanta stock of $19.4 million and $9.7 million at June 30, 2023 and December 31, 2022, respectively. The increase in FHLB stock was due to increased borrowings. Dividends recorded on restricted stock were $315.6 thousand and $555.4 thousand for the three and six months ended June 30, 2023, respectively, compared to $22.1 thousand and $41.7 thousand for the same periods in 2022. The investment is carried at cost and evaluated for impairment based on the ultimate recoverability of the par value. We hold FHLB stock because we are a member of the FHLB of Atlanta. The FHLB requires members to purchase and hold a specified level of FHLB stock based upon the members’ asset values, level of borrowings and participation in other programs offered. Stock in the FHLB is non-marketable and is redeemable at the discretion of the FHLB. Members do not purchase stock in the FHLB for the same reasons that traditional equity investors acquire stock in an investor-owned enterprise. Rather, members purchase stock to obtain access to the products and services offered by the FHLB. Unlike equity securities of traditional for-profit enterprises, the stock of the FHLB does not provide its holders with an opportunity for capital appreciation because, by regulation, FHLB stock can only be purchased, redeemed and transferred at par value.

Refer to Note 9, Federal Home Loan Bank Borrowings, in the Notes to Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q for additional information related to borrowings.

Liquidity and Capital Resources

Liquidity is defined as a financial institution’s ability to meet its cash and collateral obligations at a reasonable cost. This includes the ability to satisfy the financial needs of depositors who want to withdraw funds or borrowers needing to access funds to meet their credit needs. In order to manage liquidity risk, the Company’s Board has delegated authority to the ALCO for formulation, implementation and oversight of liquidity risk management for the Company. The ALCO’s goal is to maintain adequate levels of liquidity at a reasonable cost to meet funding needs in both a normal operating environment and for potential liquidity stress events. The ALCO monitors and manages liquidity through various ratios, reviewing cash flow projections, performing stress tests and by having a detailed contingency funding plan. The ALCO policy guidelines define graduated risk tolerance levels. If our liquidity position moves to a level that has been defined as high risk, specific actions are required, such as increased monitoring or the development of an action plan to reduce the risk position.

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CARTER BANKSHARES, INC.

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

The Company’s primary funding and liquidity source is a stable customer deposit base. Management believes that we have the ability to retain existing deposits and attract new deposits, mitigating any funding dependency on other more volatile sources. Although deposits are the primary source of funds, the Company has identified various other funding sources that can be used as part of our normal funding program when either a structure or cost efficiency has been identified. Additional funding sources accessible to the Company include borrowing availability at the FHLB, equal to 25.0% of the Company’s assets approximating $1.1 billion, subject to the amount of eligible collateral pledged, federal funds lines with six other correspondent financial institutions with an available amount of $137.1 million, access to the institutional CD market, and the brokered deposit market. In addition to the lines referenced above, the Company also has $602.7 million of unpledged available-for-sale investment securities that may be sold or pledged as collateral that can serve as an additional source of liquidity. Please refer to the Liquidity Sources table below for available funding with the FHLB and our unsecured lines of credit with correspondent banks. As of June 30, 2023, approximately 88.3% of our total deposits of $3.6 billion were insured under standard FDIC insurance coverage limits, and approximately 11.7% of our total deposits were uninsured deposits over the standard FDIC insurance coverage limit.

An important component of our ability to effectively respond to potential liquidity stress events is maintaining a cushion of highly liquid assets. Highly liquid assets are those that can be converted to cash quickly, with little or no loss in value, to meet financial obligations. ALCO policy guidelines define a ratio of highly liquid assets to total assets by graduated risk tolerance levels of minimal, moderate and high. At June 30, 2023, the Bank had $611.3 million in highly liquid assets, which consisted of Federal Reserve Board Excess Reserves and interest-bearing deposits in other financial institutions of $8.4 million, $602.7 million in unpledged securities and $173.2 thousand in loans held-for-sale. This resulted in highly liquid assets to total assets ratio of 13.9% at June 30, 2023. Total available liquidity to uninsured deposits was 324.5% at June 30, 2023.

As of June 30, 2023, the Company has approximately $322.3 million in par value of securities that are eligible to be pledged under the Bank Term Funding Program (“BTFP”), but the Bank has not borrowed under or otherwise accessed the BTFP.

The following table provides detail of liquidity sources as of the periods presented:

(Dollars in Thousands)	June 30, 2023		December 31, 2022
Cash and Due From Banks, including Interest-bearing Deposits	$	53,275	$	46,869
Unpledged Investment Securities	602,674		611,845
Excess Pledged Securities	57,136		46,305
FHLB Borrowing Availability	508,369		676,746
Unsecured Lines of Credit	137,100		127,130
Total Liquidity Sources	$	1,358,554	$	1,508,895

The following table provides total liquidity sources and ratios as of June 30, 2023:

(Dollars in Thousands)	June 30, 2023
Total Liquidity Sources	$	1,358,554
Highly Liquid Assets to Total Assets	13.9%
Highly Liquid Assets to Uninsured Deposits	146.0		%
Total Available Liquidity to Uninsured Deposits	324.5		%

Regulatory Capital Requirements

Total capital of $344.2 million at June 30, 2023, reflects an increase of $15.6 million as compared to $328.6 million at December 31, 2022. The increase in total capital from December 31, 2022 is primarily due to a $3.6 million improvement in other comprehensive income due to changes in fair value of investment securities and net income of $21.6 million for the six months ended June 30, 2023, as well as, the transitional adjustment of $0.1 million, net of tax for the adoption of ASU 2023-02, less $10.4 million related to the Company’s repurchase of common stock. The remaining difference of $0.7 million is related to restricted stock activity for the six months ended June 30, 2023.

The Company and the Bank are subject to various capital requirements administered by the federal banking regulators. Failure to meet the minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our financial statements. Under capital adequacy guidelines

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CARTER BANKSHARES, INC.

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

and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Prompt corrective action provisions are not applicable to bank holding companies. Quantitative measures established by regulations to ensure capital adequacy require us to maintain minimum amounts and ratios.

Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At June 30, 2023 and December 31, 2022, the most recent regulatory notifications categorized the Bank as well-capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institution’s category.

At June 30, 2023, the Bank continues to maintain its capital position with a leverage ratio of 9.76% as compared to the regulatory guideline of 5.00% to be well-capitalized and a risk-based Common Equity Tier 1 ratio of 11.34% compared to the regulatory guideline of 6.50% to be well-capitalized. The Bank’s risk-based Tier 1 and Total Capital ratios were 11.34% and 12.60%, respectively, which places the Bank above the federal bank regulatory agencies’ well-capitalized guidelines of 8.00% and 10.00%, respectively. We believe that we have the ability to raise additional capital, if necessary.

The Basel rules also permit banking organizations with less than $15.0 billion in assets to retain, through a one-time election, existing treatment for accumulated other comprehensive loss, which currently does not affect regulatory capital. The Company elected to retain this treatment which reduces the volatility of regulatory capital levels.

The Basel III Capital Rules require the Company and the Bank to maintain minimum Common Equity Tier 1, Tier 1 and Total Capital ratios, along with a capital conservation buffer, effectively resulting in new minimum capital ratios. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of Common Equity Tier 1 capital to risk-weighted assets above the minimum but below the conservation buffer (or below the combined capital conservation buffer and countercyclical capital buffer, when the latter is applied) will face constraints on dividends, equity repurchases and compensation based on the amount of the shortfall. The Basel III Capital Rules also provide for a “countercyclical capital buffer” that is applicable to only certain covered institutions and does not have any current applicability to the Company or the Bank.

The following table summarizes the actual risk-based capital amounts and ratios for the Company and the Bank for the dates presented:

(Dollars in Thousands)	Minimum Required Basel III		Well Capitalized(1)		June 30, 2023				December 31, 2022
					Amount		Ratio		Amount		Ratio
Carter Bankshares, Inc.
Leverage Ratio	4.00	%	NA		$	438,904	10.02	%	$	439,606	10.29	%
Common Equity Tier 1 (to Risk-weighted Assets)	7.00	%	NA		438,904		11.46	%	439,606		12.61	%
Tier 1 Capital (to Risk-weighted Assets)	8.50	%	NA		438,904		11.46	%	439,606		12.61	%
Total Capital (to Risk-weighted Assets)	10.50	%	NA		487,186		12.72	%	483,450		13.86	%
Carter Bank & Trust
Leverage Ratio	4.00	%	5.00	%	$	433,615	9.76	%	$	432,711	10.13	%
Common Equity Tier 1 (to Risk-weighted Assets)	7.00	%	6.50	%	433,615		11.34	%	432,711		12.42	%
Tier 1 Capital (to Risk-weighted Assets)	8.50	%	8.00	%	433,615		11.34	%	432,711		12.42	%
Total Capital (to Risk-weighted Assets)	10.50	%	10.00	%	481,832		12.60	%	476,496		13.68	%

(1)To be “well capitalized” under the prompt corrective action framework applies to the Bank only.

In December 2018, the Office of the Comptroller of the Currency, the Federal Reserve System, (“FRB”), and the FDIC approved a final rule to address changes to credit loss accounting under GAAP, including banking organizations’ implementation of CECL. The final rule provides banking organizations the option to phase in over a three-year period the Day 1 adverse effects on regulatory capital that may result from the adoption of the new accounting standard. On March 27, 2020, the regulators issued interim final rule (“IFR”), “Regulatory Capital Rule: Revised Transition of the Current Expected Credit

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

Losses Methodology for Allowances” in response to the disrupted economic activity from the spread of COVID-19. The IFR maintains the three-year transition option in the previous rule and provides banks the option to delay for two years an estimate of CECL’s effect on regulatory capital, relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period (five-year transition option). We adopted CECL effective January 1, 2021 and elected to implement the capital transition relief over the permissible three-year period.

Contractual Obligations

As of June 30, 2023, there have been no material changes outside the ordinary course of business to the information about the Company’s contractual obligations and cash commitments disclosed in Part II, Item 7, “Management's Discussion and Analysis," under the heading “Contractual Obligations” in the Company's Annual Report on Form 10-K for the year ended December 31, 2022.

Off-Balance Sheet Arrangements

As of June 30, 2023, there have been no material changes to the off-balance sheet arrangements disclosed in Part II, Item 7, "Management's Discussion and Analysis," under the heading "Off-Balance Sheet Arrangements" in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Annual Report”).

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk

Market risk is defined as the degree to which changes in interest rates, foreign exchange rates, commodity prices, or equity prices can adversely affect a financial institution’s earnings or capital. For financial institutions, market risk primarily reflects exposures to changes in interest rates. Interest rate fluctuations affect earnings by changing net interest income and other interest-sensitive income and expense levels. Interest rate changes affect capital by changing the net present value of a financial institution’s future cash flows, and the cash flows themselves, as rates change. Accepting this risk is a normal part of banking and can be an important source of profitability and enhancement of shareholder value. However, excessive interest rate risk can threaten a financial institution’s earnings, capital, liquidity, and solvency. Our sensitivity to changes in interest rate movements is continually monitored by the ALCO.

The ALCO utilizes an asset liability model (“ALM”) to monitor and manage market risk by simulating various rate shock scenarios and analyzing the results of the rate shocks on the Company’s projected net interest income (“NII”) and economic value of equity (“EVE”). The rate shock scenarios used in the ALM span over multiple time horizons and yield curve shapes and include parallel and non-parallel shifts to ensure the ALCO can mitigate future earnings and market value fluctuations due to changes in market interest rates.

Within the context of the ALM, NII rate shock simulations explicitly measure the exposure to earnings from changes in market rates of interest over a defined time horizon. These robust simulations include assumptions of how the balance sheet will react in different rate environments including loan prepayment speeds, the average life of non-maturing deposits, and how sensitive each interest-earning asset and interest-bearing liability is to changes in the market rates (betas). Under simulation analysis, our current financial position is combined with assumptions regarding future business to calculate net interest income under various hypothetical rate scenarios. Reviewing these various measures provides us with a more comprehensive view of our interest rate risk profile.

NII rate shock simulation results are compared to a base case NII result to provide an estimate of the impact that simulated market rate changes may have on 12 months and 24 months of pretax NII. The base case earnings scenario together with various rate shock earning scenarios are modeled utilizing both a static and growth balance sheet. A static balance sheet is a no-growth balance sheet in which all maturing and/or repricing cash flows are reinvested in the same product at the existing product spread over a prescribed index. Parallel rate shock analyses assume an immediate parallel shift in market interest rates across all horizons of the yield curve and also include management’s assumptions regarding the impact of interest rate changes on non-maturity deposit products (noninterest-bearing demand, interest-bearing demand, money market, and savings) and changes in the prepayment behavior of loans and securities with embedded optionality. Our policy guidelines limit the change in pretax NII over a 12-month horizon using rate shocks of +/- 100, 200, 300, and 400 basis points. We have temporarily

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CARTER BANKSHARES, INC.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (continued)

suspended the + 300 and + 400 basis point rate shock analyses. Due to Federal Open Market Committee’s slowing future rate increase projections coupled with the recent increase in the Fed Funds Target Rate of 5.00% since March 17, 2022, we believe the impact to NII income when evaluating the + 300 and +400 basis point rate shock scenarios do not provide meaningful insight into our interest rate risk position nor does it project a probably interest rate environment for the foreseeable future.

To monitor interest rate risk beyond the 24-month time horizon of rate shocks, we also perform EVE rate shock simulations using the same assumptions used in the NII rate shock simulations discussed above. EVE represents the present value of all asset cash flows discounted with related market interest rates minus the present value of all liability cash flows which are also discounted with related market interest rates. The impact of a changing interest rate environment on the Company’s projected EVE is analyzed by shocking market interest rates, then modeling the impact of the rate shock on both the cash flow of assets and liabilities, and the underlying discount rate utilized in the present value calculation of the assets and liabilities. Market rate shock results are then compared to base case simulation results to determine the impact that market rate changes may have on our EVE. As with NII rate shock analyses, EVE rate shock analyses incorporate management’s assumptions regarding prepayment behavior of fixed rate loans and securities with embedded optionality and the behavior and value of non-maturity deposit products. Our policy guidelines limit the change in EVE given changes in rates of +/- 100, 200, 300, and 400 basis points. We have temporarily suspended the + 300 and + 400 basis point rate shock analyses. Due to Federal Open Market Committee’s slowing future rate increase projections coupled with the recent increase in the Fed Funds Target Rate of 5.00% since March 17, 2022. We believe the impact to NII income when evaluating the + 300 and +400 basis point rate shock scenarios do not provide meaningful insight into our interest rate risk position nor does it project a probably interest rate environment for the foreseeable future.

The following tables reflect the NII rate shock analyses and EVE analyses results for the periods presented utilizing a forecasted static balance sheet over the next twelve months. All percentage changes presented are within prescribed ranges set by management.

	June 30, 2023		December 31, 2022
Change in Interest Rate (basis points)	% Change in Pretax Net Interest Income	% Change in Economic Value of Equity	% Change in Pretax Net Interest Income	% Change in Economic Value of Equity
200	5.5%	(3.7)%	7.7%	(0.2)%
100	2.7%	(1.3)%	4.1%	0.8%
-100	(2.9)%	(0.8)%	(5.1)%	(3.4)%
-200	(6.9)%	(2.9)%	(10.7)%	(8.5)%
-300	(11.5)%	(6.0)%	(17.3)%	(16.0)%
-400	(16.4)%	(14.1)%	(23.5)%	(28.0)%

The results from the net interest income rate shock analysis are consistent with having an asset sensitive balance sheet when adjusted for repricing correlations (betas). The above table indicates that in a rising interest rate environment, the Company is positioned to have increased pretax net interest income for the same asset base due to the balance sheet composition, related maturity structures, and repricing correlations to market interest rates for assets and liabilities. Conversely, in a declining interest rate environment, we are positioned to have decreased pretax net interest income for the same reasons discussed above.

Based on the ALM results presented above for the quarters ending June 30, 2023 and December 31, 2022, the Company’s balance sheet is less asset sensitive at June 30, 2023 than it previously was at December 31, 2022. This migration in asset sensitivity is due to 1) lower yielding, floating rate excess cash positions held in federal reserve bank and interest-bearing deposits in other financial institutions that are more sensitive to future market interest rate changes which were deployed into higher yielding, fixed and floating rate securities and portfolio loans that are less sensitive to future market interest rate changes, 2) the addition of the Company’s largest lending relationship with an aggregate principal amount of $301.9 million being placed on nonaccrual status as of June 30, 2023, and 3) the recent shifts in the shape of the yield curve between the two periods presented above.

In addition to rate shocks and EVE analyses, sensitivity analyses are performed to help us identify which model assumptions are critical and cause the greatest impact on pretax NII. Sensitivity analyses include changing prepayment behavior of loans and securities with optionality, repricing correlations, and the impact of interest rate changes on non-maturity deposit products (decay rates).

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CARTER BANKSHARES, INC.

ITEM 4 - CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) (its principal executive officer and principal financial officer, respectively), management has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of June 30, 2023. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods required by the Securities and Exchange Commission, or the SEC, and that such information is accumulated and communicated to the Company’s management, including our CEO and CFO as appropriate, to allow timely decisions regarding required disclosure.

Based on and as of the date of such evaluation, our CEO and CFO concluded that the design and operation of our disclosure controls and procedures were effective at the reasonable assurance level, as of the end of the period covered by this Report.

Changes in Internal Control Over Financial Reporting

No changes were made to our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the quarter ended June 30, 2023 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1- LEGAL PROCEEDINGS

In the normal course of business, the Company is subject to various legal and administrative proceedings and claims. Legal and administrative proceedings are subject to inherent uncertainties and unfavorable rulings could occur, and the timing and outcome of any legal or administrative proceeding cannot be predicted with certainty. Other than as set forth below, as of the date of this Quarterly Report on Form 10-Q, the Company is not involved in any other material pending legal proceedings other than proceedings occurring in the ordinary course of business.

The Bank is engaged in a variety of collection proceedings against various related entities that are owned and/or controlled by James C. Justice, II, Cathy L. Justice and James C. Justice, III (such entities, the “Justice Entities” and collectively with the individuals, the “Defendants”). On April 20, 2023 and May 15, 2023, the Bank filed in the Circuit Court of the City of Martinsville, Virginia confessions of judgment against the Defendants with respect to amounts owed on matured promissory notes made or guaranteed by the Defendants with an aggregate principal balance of approximately $301 million. On May 12, 2023 and June 7, 2023, the Defendants filed motions to set aside the confessions of judgment on the basis that the Bank allegedly (i) violated anti-tying provisions of the Bank Holding Company Act of 1956, as amended, (ii) breached contractual obligations and fiduciary duties to the Defendants and (iii) tortiously interfered with the Defendants’ business expectancies and relationships, among other allegations.

The Company and the Bank intend to pursue vigorously the confessions of judgment and enforce the promissory notes and related agreements, including release and affirmation agreements, guaranties and indemnification agreements. The Company and the Bank vigorously deny the allegations contained in the Defendants’ motions to set aside the confessions of judgment. Based on consultation with legal counsel, the Company believes that the Bank has meritorious defenses to all allegations contained in such motions to set aside the confessions of judgment. However, because the collection litigation is in its early stages, the Company can make no prediction as to the ultimate outcome thereof or any related legal proceedings that may commence.

64

CARTER BANKSHARES, INC.

ITEM 1A – RISK FACTORS

Other than the risk factors set forth below, there have been no material changes in the risk factors faced by the Company from those disclosed in our 2022 Annual Report on Form 10-K and Quarterly Report on Form 10-Q for the period ended March 31, 2023.

An investment in the Company’s securities involves risks. In addition to the other information set forth in this Quarterly Report on Form 10-Q, including the information addressed in this Item 1A and under “Forward Looking Statements” in Part I, Item 2 of this Quarterly Report on Form 10-Q, investors in the Company’s securities should carefully consider the factors discussed in our 2022 Annual Report on Form 10-K in Part I, Item 1A, “Risk Factors” and in our Quarterly Report on Form 10-Q for the period ended March 31, 2023 in Part II, Item 1A, “Risk Factors.”

Nonperforming assets can take significant time to resolve and may adversely affect the Company’s results of operations and financial condition, and could result in further losses in the future.

As of June 30, 2023, our nonperforming assets (which at that date consist of nonaccrual loans and OREO) totaled $314.1 million, or 9.4%, of the Company’s loan portfolio plus OREO. The Company’s policy is to place loans in nonaccrual status when collection of interest or principal is doubtful, or generally when interest or principal payments are 90 days or more past due based on contractual terms. While the Company generally seeks to reduce or resolve problem assets through, among other methods, loan workouts, restructurings, or sales, decreases in the value of the underlying collateral, decreases in the respective borrowers’ financial condition, profitability, or operating performance may inhibit such reduction or resolution efforts which, in turn, could adversely impact the Company’s business, financial condition and results of operations.

The Company’s nonperforming assets adversely affect its business, financial condition and results of operations in various ways. The Company does not record interest income on nonaccrual loans or OREO; thus nonperforming assets adversely affect the Company’s net income and returns on assets and equity, increase the Company’s loan administration costs and adversely affects the Company’s results of operations and efficiency ratio. The resolution of nonperforming assets requires significant time commitments from management which can adversely impact the Company’s and Bank’s other strategic and operational priorities. If the Bank takes collateral in foreclosure and via a similar proceeding, the Bank is required to mark the collateral to its then-fair market value, which may result in a loss, and the Bank will incur legal and other expenses, which may be significant, in connection with the foreclosure and sale process. Nonperforming loans and OREO can also increase the Company’s and the Bank’s risk profile and the level of regulatory capital that their respective banking regulators believe is appropriate.

During the second quarter of 2023, the Company placed in nonaccrual status certain commercial loans in the Other segment of the Company’s loan portfolio, all relating to the Bank’s largest lending relationship, that have an aggregate principal amount of $301.9 million. Because the Company placed these loans on nonaccrual status, the Company was unable to accrue approximately $11.3 million of interest income related to these loans during the second quarter of 2023.

The Company’s level of credit risk is elevated due to relationship exposure to the Company’s largest lending relationship.

As of June 30, 2023, the Company’s largest lending relationship operates in the hospitality, agriculture and energy sectors and had loans outstanding with an aggregate principal amount of $301.9 million. All such loans are classified in Other segment of the Company’s loan portfolio. During the second quarter of 2023, the Company placed these loans on nonaccrual status due to loan maturities and failure to pay in full. This lending relationship comprises 96.1% of the Company’s nonperforming assets and 97.2% of the Company’s nonperforming loans at June 30, 2023.

The Company has initiated collection processes with respect to such loans and intends to explore all alternatives for repayment. Although the Company believes it is well secured based on the net carrying value of the credit relationship and appropriately reserved for potential losses with respect to all such loans based on information currently available, we cannot give any assurance as to the timing or amount of future payments or collections on such loans.

Further deterioration of this lending relationship, including adverse changes in the financial condition of the respective borrowers or guarantors or adverse changes in the value of collateral that secures this lending relationship, could require the

65

CARTER BANKSHARES, INC.

Company to increase its allowance for loan losses or result in significant losses to the Company, which could have a material adverse effect on the Company’s business, financial condition and results of operations.

ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On March 29, 2023, the Company announced that its Board of Directors (the “Board”) has authorized, effective May 1, 2023, a common share repurchase program to purchase up to 1,000,000 shares of the Company’s common stock in the aggregate over a period of twelve months, (the “2023 Program”) subject to receipt of non-objection from the Federal Reserve Bank of Richmond, which was received on April 24, 2023. The 2023 Program authorizes the purchase of the Company’s common stock in open market transactions or privately negotiated transactions, including pursuant to a trading plan in accordance with Rule 10b-18 promulgated under the Securities Exchange Act of 1934, as amended. The authorization permits management to repurchase shares of the Company’s common stock from time to time at management’s discretion. The actual means and timing of any shares purchased under the 2023 Program will depend on a variety of factors, including the market price of the Company’s common stock, general market and economic conditions, management’s evaluation of the Company’s financial condition and liquidity position and applicable legal and regulatory requirements. The 2023 Program is authorized through May 1, 2024, although it may be modified or terminated by the Board at any time. The 2023 Program does not obligate the Company to purchase any particular number of shares. During the six months ended June 30, 2023, 583,824 shares of common stock had been repurchased under the 2023 Program at a total cost of $8.2 million, or an average price of $13.96 per share.

Previously on June 28, 2022, the Company announced that its Board authorized, effective August 1, 2022, a common share repurchase program to purchase up to 750,000 shares of the Company’s common stock in the aggregate over a period of twelve months, subject to non-objection from the Federal Reserve Bank of Richmond, which was received in July 2022 (the “2022 Program”). The 2022 Program authorized the purchase of the Company’s common stock in open market transactions or privately negotiated transactions, including pursuant to a trading plan in accordance with Rule 10b-18 promulgated under the Exchange Act. The authorization permitted management to repurchase shares of the Company’s common stock from time to time at management’s discretion. The 2022 Program was originally authorized through August 1, 2023, did not obligate the Company to purchase any particular number of shares, and was exhausted as of March 10, 2023. All common stock repurchased by the Company during the first quarter of 2023 was purchased pursuant to the 2022 Program.

The following table provides information regarding the Company’s purchases of our common stock during the quarter ended June 30, 2023.

Issuer Purchases of Equity Securities
Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum number (or approximate dollar value) of Shares that may yet be purchased under the plans or programs(1)
04/01/2023 - 04/30/2023	—	$	—	—	1,000,000
05/01/2023 - 05/31/2023	265,164	13.62		265,164	734,836
06/01/2023 - 06/30/2023	318,660	14.25		318,660	416,176
Total	583,824	$	13.96	583,824

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

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4 – MINE SAFETY DISCLOSURES

None.

ITEM 5 - OTHER INFORMATION

During the three months ended June 30, 2023, none of our directors or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934, as amended) adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K of the Securities Act of 1933).

66

CARTER BANKSHARES, INC.

PART II – OTHER INFORMATION (continued)

ITEM 6 - EXHIBITS

Exhibits:

3.1	Articles of Incorporation of Carter Bankshares, Inc., effective October 7, 2020 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on November 23, 2020)
3.2	Bylaws of Carter Bankshares, Inc., as adopted October 28, 2020 (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed with the SEC on November 23, 2020)
31.1	Certification by principal executive officer pursuant to Rule 13a-14(a) (filed herewith)
31.2	Certification by principal financial officer pursuant to Rule 13a-14(a) (filed herewith)
32	Certification by principal executive officer and principal financial officer pursuant to 18 U.S.C. §1350 (filed herewith)
101.INS	Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH	Inline XBRL Taxonomy Extension Schema
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibits 101)

67

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	CARTER BANKSHARES, INC. (Registrant)
Date: August 3, 2023	/s/ Litz H. Van Dyke
	Litz H. Van Dyke Chief Executive Officer (Principal Executive Officer)
Date: August 3, 2023	/s/ Wendy S Bell
	Wendy S. Bell Chief Financial Officer (Principal Financial Officer)

68

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Litz H. Van Dyke, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Carter Bankshares, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: August 3, 2023	/s/ Litz H. Van Dyke
	Litz H. Van Dyke Chief Executive Officer (Principal Executive Officer)

EX-31.2

Exhibit 31.2

I, Wendy Bell, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Carter Bankshares, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: August 3, 2023	/s/ Wendy S. Bell
	Wendy S. Bell Chief Financial Officer (Principal Financial Officer)

EX-32

Exhibit 32

CERTIFICATION OF

PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER

Pursuant to § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350)

The undersigned, as the principal executive officer and principal financial officer of Carter Bankshares, Inc., respectively, certify that, to the best of their knowledge and belief, the Quarterly Report on Form 10-Q for the period ended June 30, 2023, which accompanies this certification fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and the information contained in the report fairly presents, in all material respects, the financial condition and results of operations of Carter Bankshares, Inc. at the dates and for the periods indicated. The foregoing certification is made pursuant to § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350) and shall not be relied upon for any other purpose. The undersigned expressly disclaim any obligation to update the foregoing certification except as required by law.

Dated: August 3, 2023	/s/ Litz H. Van Dyke
	Litz H. Van Dyke Chief Executive Officer (Principal Executive Officer)
Dated: August 3, 2023	/s/ Wendy S. Bell
	Wendy S. Bell Chief Financial Officer (Principal Financial Officer)

XML

Cover - shares	6 Months Ended
	Jun. 30, 2023	Jul. 31, 2023
Cover [Abstract]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Jun. 30, 2023
Document Transition Report	false
Entity File Number	001-39731
Entity Registrant Name	CARTER BANKSHARES, INC.
Entity Incorporation, State or Country Code	VA
Entity Tax Identification Number	85-3365661
Entity Address, Address Line One	1300 Kings Mountain Road
Entity Address, City or Town	Martinsville
Entity Address, State or Province	VA
Entity Address, Postal Zip Code	24112
City Area Code	276
Local Phone Number	656-1776
Title of 12(b) Security	Common Stock, $1 par value
Trading Symbol	CARE
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		23,329,523
Entity Central Index Key	0001829576
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2023
Current Fiscal Year End Date	--12-31
Amendment Flag	false

XML

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Jun. 30, 2023	Dec. 31, 2022
ASSETS
Cash and Due From Banks, including Interest-bearing Deposits of $8,403 at June 30, 2023 and $4,505 at December 31, 2022	$ 53,275	$ 46,869
Securities Available-for-Sale, at Fair Value	821,370	836,273
Loans Held-for-Sale	173	0
Portfolio Loans	3,330,442	3,148,913
Allowance for Credit Losses	(94,144)	(93,852)
Portfolio Loans, net	3,236,298	3,055,061
Bank Premises and Equipment, net	74,946	72,114
Other Real Estate Owned, net	3,379	8,393
Federal Home Loan Bank Stock, at Cost	19,403	9,740
Bank Owned Life Insurance	57,415	56,734
Other Assets	117,731	119,335
Total Assets	4,383,990	4,204,519
Deposits:
Noninterest-Bearing Demand	686,124	703,334
Interest-Bearing Demand	489,971	496,948
Money Market	422,780	484,238
Savings	526,588	684,287
Certificates of Deposit	1,451,540	1,261,526
Total Deposits	3,577,003	3,630,333
Federal Home Loan Bank Borrowings	407,135	180,550
Federal Funds Purchased	7,900	17,870
Other Liabilities	47,715	47,139
Total Liabilities	4,039,753	3,875,892
SHAREHOLDERS’ EQUITY
Common Stock, Par Value $1.00 per share, Authorized 100,000,000 Shares; Outstanding shares 23,371,835 at June 30, 2023 and 23,956,772 at December 31, 2022	23,372	23,957
Additional Paid-in Capital	95,506	104,693
Retained Earnings	307,344	285,593
Accumulated Other Comprehensive Loss	(81,985)	(85,616)
Total Shareholders’ Equity	344,237	328,627
Total Liabilities and Shareholders’ Equity	$ 4,383,990	$ 4,204,519

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Jun. 30, 2023	Dec. 31, 2022
Statement of Financial Position [Abstract]
Interest-bearing deposits	$ 8,403	$ 4,505
Common stock, par value (in usd per share)	$ 1.00	$ 1.00
Common stock, shares authorized (in shares)	100,000,000	100,000,000
Common stock, shares outstanding (in shares)	23,371,835	23,956,772

XML

CONSOLIDATED STATEMENTS OF INCOME - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
Loans, including fees
Taxable	$ 34,529	$ 31,323	$ 77,657	$ 59,068
Non-Taxable	803	916	1,635	1,868
Investment Securities
Taxable	7,688	4,452	15,081	8,184
Non-Taxable	166	187	328	354
Federal Reserve Bank Excess Reserves	209	58	388	95
Interest on Bank Deposits	6	3	27	28
Dividend Income	315	22	555	42
Total Interest Income	43,716	36,961	95,671	69,639
Interest Expense
Interest Expense on Deposits	11,782	4,412	19,301	8,811
Interest Expense on Federal Funds Purchased	71	4	247	4
Interest on Other Borrowings	5,152	86	8,627	143
Total Interest Expense	17,005	4,502	28,175	8,958
NET INTEREST INCOME	26,711	32,459	67,496	60,681
Provision for Credit Losses	85	1,814	1,500	2,444
Provision for Unfunded Commitments	360	269	444	33
Net Interest Income After Provision for Credit Losses	26,266	30,376	65,552	58,204
NONINTEREST INCOME
Gains (Losses) on Sales of Securities, net	3	76	(9)	52
Bank Owned Life Insurance Income	341	334	680	668
(Losses) Gains on Sales and Write-downs of Bank Premises, net	0	(37)	0	346
Other	483	308	660	796
Total Noninterest Income	5,028	5,604	9,763	10,939
NONINTEREST EXPENSE
Salaries and Employee Benefits	13,649	12,444	27,301	24,201
Occupancy Expense, net	3,601	3,296	7,001	6,648
FDIC Insurance Expense	702	629	1,343	997
Other Taxes	786	819	1,590	1,623
Advertising Expense	431	267	770	506
Telephone Expense	412	454	839	942
Professional and Legal Fees	1,659	1,202	2,493	2,421
Data Processing	1,058	842	1,778	1,683
Debit Card Expense	771	659	1,250	1,292
Tax Credit Amortization	0	615	0	1,230
Other	2,467	2,183	4,747	4,378
Total Noninterest Expense	25,536	23,410	49,112	45,921
Income Before Income Taxes	5,758	12,570	26,203	23,222
Income Tax Provision	54	1,792	4,558	3,121
Net Income	$ 5,704	$ 10,778	$ 21,645	$ 20,101
Earnings per Common Share
Basic Earnings per Common Share (in usd per share)	$ 0.24	$ 0.44	$ 0.91	$ 0.80
Diluted Earnings per Common Share (in usd per share)	$ 0.24	$ 0.44	$ 0.91	$ 0.80
Average Shares Outstanding - Basic (in shares)	23,513,837	24,490,302	23,641,109	25,111,931
Average Shares Outstanding - Diluted (in shares)	23,513,837	24,490,302	23,641,109	25,111,931
Service Charges, Commissions and Fees
NONINTEREST INCOME
Revenue from contract with customer	$ 1,759	$ 1,749	$ 3,597	$ 3,702
Debit Card Interchange Fees
NONINTEREST INCOME
Revenue from contract with customer	1,934	1,850	4,039	3,782
Insurance Commissions
NONINTEREST INCOME
Revenue from contract with customer	508	568	682	837
Commercial Loan Swap Fee Income
NONINTEREST INCOME
Revenue from contract with customer	$ 0	$ 756	$ 114	$ 756

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
Statement of Other Comprehensive Income [Abstract]
Net Income	$ 5,704	$ 10,778	$ 21,645	$ 20,101
Net Unrealized (Losses) Gains on Securities Available-for-Sale:
Net Unrealized (Losses) Gains Arising during the Period	(11,036)	(35,002)	4,597	(78,034)
Reclassification Adjustment for (Gains) Losses included in Net Income	(3)	(76)	9	(52)
Tax Effect	2,418	7,366	(975)	16,398
Net Unrealized (Losses) Gains Recognized in Other Comprehensive (Loss) Income	(8,621)	(27,712)	3,631	(61,688)
Other Comprehensive (Loss) Income	(8,621)	(27,712)	3,631	(61,688)
Comprehensive (Loss) Income	$ (2,917)	$ (16,934)	$ 25,276	$ (41,587)

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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY - USD ($) $ in Thousands	Total	Cumulative Effect, Period of Adoption, Adjustment	Common Stock	Additional Paid-in Capital	Additional Paid-in Capital Cumulative Effect, Period of Adoption, Adjustment	Retained Earnings	Retained Earnings Cumulative Effect, Period of Adoption, Adjustment	Accumulated Other Comprehensive Loss
Beginning balance at Dec. 31, 2021	$ 407,596		$ 26,431	$ 143,988		$ 235,475		$ 1,702
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net Income	20,101					20,101
Other Comprehensive Income (Loss), Net of Tax	(61,688)							(61,688)
Repurchase of Common Stock	(32,415)		(1,970)	(30,445)
Forfeiture of Restricted Stock	(156)		(11)	(145)
Issuance of Restricted Stock	0		127	(127)
Recognition of Restricted Stock Compensation Expense	704			704
Ending balance at Jun. 30, 2022	334,142		24,577	113,975		255,576		(59,986)
Beginning balance at Mar. 31, 2022	358,556		24,987	121,045		244,798		(32,274)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net Income	10,778					10,778
Other Comprehensive Income (Loss), Net of Tax	(27,712)							(27,712)
Repurchase of Common Stock	(7,789)		(447)	(7,342)
Forfeiture of Restricted Stock	0		(1)	1
Issuance of Restricted Stock	0		38	(38)
Recognition of Restricted Stock Compensation Expense	309			309
Ending balance at Jun. 30, 2022	334,142		24,577	113,975		255,576		(59,986)
Beginning balance at Dec. 31, 2022	328,627	$ 106	23,957	104,693		285,593	$ 106	(85,616)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net Income	21,645					21,645
Other Comprehensive Income (Loss), Net of Tax	3,631							3,631
1% Excise Tax on Stock Buybacks		(93)			$ (93)
Repurchase of Common Stock	(10,413)		(716)	(9,697)
Forfeiture of Restricted Stock	(42)		(4)	(38)
Issuance of Restricted Stock	0		135	(135)
Recognition of Restricted Stock Compensation Expense	776			776
Ending balance at Jun. 30, 2023	344,237		23,372	95,506		307,344		(81,985)
Beginning balance at Mar. 31, 2023	354,986		23,896	102,814		301,640		(73,364)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net Income	5,704					5,704
Other Comprehensive Income (Loss), Net of Tax	(8,621)							(8,621)
1% Excise Tax on Stock Buybacks		$ (93)			$ (93)
Repurchase of Common Stock	(8,153)		(584)	(7,569)
Forfeiture of Restricted Stock	(17)		(2)	(15)
Issuance of Restricted Stock	0		62	(62)
Recognition of Restricted Stock Compensation Expense	431			431
Ending balance at Jun. 30, 2023	$ 344,237		$ 23,372	$ 95,506		$ 307,344		$ (81,985)

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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Parenthetical) - shares	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
Statement of Stockholders' Equity [Abstract]
Repurchase of Common Stock (in shares)	583,824	446,436	716,056	1,969,593
Forfeitures of Restricted Stock (in shares)	2,007	961	3,694	10,653
Issuance of Restricted Stock (in shares)	62,123	38,148	134,813	126,804

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CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022
OPERATING ACTIVITIES
Net Income	$ 21,645	$ 20,101
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities
Provision for Credit Losses, including Provision for Unfunded Commitments	1,944	2,477
Origination of Loans Held-for-Sale	(3,527)	(4,955)
Proceeds From Loans Held-for-Sale	3,411	5,302
Depreciation/Amortization of Bank Premises and Equipment	3,079	2,977
Provision for Deferred Taxes	539	1,257
Net Amortization of Securities	2,528	3,156
Tax Credit Amortization	958	1,230
Gains on Sales of Mortgage Loans Held-for-Sale	(57)	(119)
Losses (Gains) on Sales of Securities, net	9	(52)
Commercial Loan Swap Derivative Loss (Income)	144	(443)
Increase in the Value of Life Insurance Contracts	(680)	(668)
Recognition of Restricted Stock Compensation Expense	776	704
Increase in Other Assets	(2,574)	(2,287)
Increase (Decrease) in Other Liabilities	1,397	(1,882)
Net Cash Provided By Operating Activities	29,592	26,798
Securities Available-for-Sale:
Proceeds from Sales	15,054	19,777
Proceeds from Maturities, Redemptions, and Pay-downs	26,856	50,033
Purchases	(24,938)	(135,634)
Purchase of Bank Premises and Equipment, Net	(5,977)	(2,528)
Proceeds from Sales of Bank Premises and Equipment, net	0	408
(Purchase) Redemption of Federal Home Loan Bank Stock, net	(9,663)
(Purchase) Redemption of Federal Home Loan Bank Stock, net		285
Loan Originations, net	(182,737)	(186,133)
Payments Received on Other Real Estate Owned	201	215
Proceeds from Sales of Other Real Estate Owned	4,818	3,718
Net Cash Used In Investing Activities	(176,386)	(249,859)
FINANCING ACTIVITIES
Net Change in Demand, Money Markets and Savings Accounts	(243,344)	138,772
Increase (Decrease) in Certificates of Deposits	190,014	(83,855)
Proceeds (Repayments) on Federal Home Loan Bank Borrowings, net	226,585	0
Repayments on Federal Funds Purchased, net	(9,970)	(7,000)
Repurchase of Common Stock	(10,085)	(32,415)
Net Cash Provided by Financing Activities	153,200	15,502
Net Increase (Decrease) in Cash and Cash Equivalents	6,406	(207,559)
Cash and Cash Equivalents at Beginning of Period	46,869	277,799
Cash and Cash Equivalents at End of Period	53,275	70,240
SUPPLEMENTARY DATA
Cash Interest Paid	23,697	9,040
Cash Paid for Income Taxes	5,550	333
Transfer from Fixed Assets to Other Real Estate Owned	0	1,584
Right-of-use Asset Recorded in Exchange for Lease Liabilities	0	2,879
Stock Repurchase Settled in Subsequent Period	(328)	0
Stock Repurchase Excise Tax Settled in Subsequent Period	$ (93)	$ 0

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BASIS OF PRESENTATION

6 Months Ended

Jun. 30, 2023

Organization, Consolidation and Presentation of Financial Statements [Abstract]

BASIS OF PRESENTATION

BASIS OF PRESENTATION

Principles of Consolidation: The interim Consolidated Financial Statements include the accounts of Carter Bankshares, Inc. (the “Company”) and its wholly owned subsidiary, Carter Bank & Trust (the “Bank”). CB&T Investment Company (the “Investment Company”) is a subsidiary of the Bank. All significant intercompany transactions have been eliminated in consolidation.

Basis of Presentation: The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the audited Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission (“SEC”), on March 10, 2023. In management’s opinion, the accompanying interim financial information reflects all adjustments, consisting of normal recurring adjustments, necessary to present fairly our financial position and the results of operations for each of the interim periods presented. Results of operations for interim periods are not necessarily indicative to the results of operations that may be expected for a full year or any future period.

Reclassification: Amounts in prior periods financial statements and footnotes are reclassified whenever necessary to conform to the current period presentation. Reclassifications had no material effect on prior periods net income or shareholders’ equity.

Use of Estimates: To prepare financial statements in conformity with GAAP, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the Consolidated Financial Statements and the disclosures provided, and actual results could differ from those estimates. Information available which could affect these judgments include, but are not limited to, changes in interest rates, changes in the performance of the economy, and changes in the financial condition of borrowers.

Accounting Standards Adopted in 2023

In March 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards (“ASU”) No. 2023-02, Investments Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method. The amendments in this ASU expands the use of the proportional amortization method of accounting, previously only allowable for Low Income Tax Housing Credits, (“LITHC”) investments, to equity investments in other tax credit structures that meet certain criteria. This guidance is effective for public business entities for fiscal years including interim periods within those fiscal years, beginning after December 15, 2023. Early adoption is permitted in any interim period. The Company reviewed its existing tax equity investment portfolios and evaluated the impact of the updated guidance on its Consolidated Financial Statements and elected to early adopt the amendments in this ASU as of June 30, 2023 on a modified retrospective basis, effective dated as of January 1, 2023. As a result, the Company recorded a transitional adjustment of $0.1 million to retained earnings.

The Company makes equity investments as a limited partner in various partnerships that sponsor historic tax credits (“HTC”) as a strategic tax initiative designed to receive tax credits and other tax benefits, such as deductible flow-through losses. The Company has evaluated all of the proportional amortization method qualifying criteria and has elected to apply the proportional amortization method at the HTC program level. The Company records the investment in the HTC as a component of other assets and uses the proportional amortization method to account for the investments in the HTC partnerships. Amortization related to these HTC investments is recorded on a net basis as a component of the provision for income taxes on the Consolidated Statements of Income. Prior to the ASU adoption, amortization was recorded as a component of noninterest expense on the Consolidated Statements of Income. The amendments in this ASU did not materially impact our Consolidated Financial Statements.

Accounting Standards Issued but Not Yet Adopted

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in this ASU provide optional guidance for a limited period of time to ease the potential burden in accounting for or recognizing the effects of reference rate reform on financial reporting. The amendments provide optional expedients and exceptions for applying GAAP to loan and lease agreements, derivative contracts,

and other transactions affected by the anticipated transition away from the London Interbank Offered Rate (“LIBOR”) toward new interest rate benchmarks. Modified contracts that meet certain scope guidance are eligible for relief from the modification accounting requirements in GAAP. The optional guidance generally allows for the modified contract to be accounted for as a continuation of the existing contract and does not require contract remeasurement at the modification date or reassessment of a previous accounting determination. The amendments in this ASU are effective for all entities between March 12, 2020 and December 31, 2022. In December 2022, the FASB issued ASU No 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848. The amendments in this ASU defer the sunset date for applying the reference rate reform relief by two years to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848.

Furthermore, the United Kingdom’s Financial Conduct Authority (“FCA”), who is the regulator of LIBOR, announced on March 5, 2021 that they will no longer require any panel bank to continue to submit LIBOR after December 31, 2021. As it pertains to the U.S. dollar LIBOR, effective January 1, 2022, the ICE Benchmark Administration Limited, the administrator of the LIBOR, ceased the publication of one-week and two-month USD LIBOR and ceased the publications of the remaining tenors of USD LIBOR (one, three, six, and 12-month) immediately after June 30, 2023. The Federal Reserve System (“FRB”) of New York created a working group called the Alternative Reference Rate Committee (“ARRC”) to assist U.S. institutions in transitioning away from LIBOR as a benchmark interest rate. The ARRC recommended the use of the Secured Overnight Financing Rate (“SOFR”) as a replacement index for LIBOR, and in March 2022 the U.S. passed legislation providing a uniform approach for replacing LIBOR as a reference rate in legacy contracts that do not contain effective “fall back” provisions for when LIBOR is no longer published or no longer representative, and that instructs the FRB to identify a replacement benchmark based on SOFR. We ceased originating new LIBOR based variable rate loans as of December 31, 2021 per the ARRC’s guidance.

We have created an internal team that is managing our transition away from LIBOR. This transition team is a cross-functional group comprised of representatives from the lending lines of business, as well as representatives from loan operations, information technology, finance and other support functions. To date, the transition team has completed the following milestones required for a successful transition away from LIBOR: identified contracts that contain LIBOR language, documented the risks associated with the transition, reviewed existing contract language for the presence of appropriate fallback rate language, and developed appropriate loan fallback rate language for when LIBOR is retired. We have selected one-month term SOFR (published by the CME Group) as our replacement benchmark for LIBOR based loans. The financial impact regarding pricing, valuation and operations of the transition has been evaluated and is not expected to be material in nature. Our transition team is fully committed to working within the guidelines established by the FCA and ARRC to complete a smooth transition away from LIBOR.

As of June 30, 2023, approximately 5.3% of our loan portfolio consists of loans whose variable rate index is one month LIBOR.

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EARNINGS PER SHARE

6 Months Ended

Jun. 30, 2023

Earnings Per Share [Abstract]

EARNINGS PER SHARE

EARNINGS PER SHARE

Basic earnings per common share is calculated by dividing net income allocated to common shareholders by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per common share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.

The following table reconciles the numerators and denominators of basic and diluted earnings per common share calculations for the periods presented:

	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in Thousands, except share and per share data)	2023		2022		2023		2022
Numerator for Earnings per Common Share – Basic and Diluted
Net Income	$	5,704	$	10,778	$	21,645	$	20,101
Less: Income allocated to participating shares	49		69		168		110
Net Income Allocated to Common Shareholders - Basic & Diluted	$	5,655	$	10,709	$	21,477	$	19,991
Denominator:
Weighted Average Shares Outstanding, including Shares Considered Participating Securities	23,715,564		24,647,543		23,826,312		25,250,413
Less: Average Participating Securities	201,727		157,241		185,203		138,482
Weighted Average Common Shares Outstanding - Basic & Diluted	23,513,837		24,490,302		23,641,109		25,111,931
Earnings per Common Share – Basic	$	0.24	$	0.44	$	0.91	$	0.80
Earnings per Common Share – Diluted	$	0.24	$	0.44	$	0.91	$	0.80

All outstanding unvested restricted stock awards are considered participating securities for the earnings per share calculation. As such, these shares have been allocated to a portion of net income and are excluded from the diluted earnings per common share calculation.

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INVESTMENT SECURITIES

6 Months Ended

Jun. 30, 2023

Investments, Debt and Equity Securities [Abstract]

INVESTMENT SECURITIES

INVESTMENT SECURITIES

The following tables present the amortized cost and fair value of available-for-sale securities as of the dates presented:

	June 30, 2023
(Dollars in Thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. Treasury Securities	$	14,371	$	—	$	(1,197)	$	13,174
U.S. Government Agency Securities	51,803		508		(803)		51,508
Residential Mortgage-Backed Securities	113,218		—		(13,055)		100,163
Commercial Mortgage-Backed Securities	35,844		426		(868)		35,402
Other Commercial Mortgage-Backed Securities	24,839		—		(3,256)		21,583
Asset Backed Securities	152,683		3		(13,964)		138,722
Collateralized Mortgage Obligations	183,193		—		(14,116)		169,077
States and Political Subdivisions	279,497		—		(46,066)		233,431
Corporate Notes	70,750		—		(12,440)		58,310
Total Debt Securities	$	926,198	$	937	$	(105,765)	$	821,370

	December 31, 2022
(Dollars in Thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. Treasury Securities	$	19,318	$	—	$	(1,452)	$	17,866
U.S. Government Agency Securities	50,334		218		(788)		49,764
Residential Mortgage-Backed Securities	115,694		—		(12,009)		103,685
Commercial Mortgage-Backed Securities	35,538		73		(936)		34,675
Other Commercial Mortgage-Backed Securities	24,987		9		(2,597)		22,399
Asset Backed Securities	156,552		—		(15,169)		141,383
Collateralized Mortgage Obligations	190,781		—		(14,159)		176,622
States and Political Subdivisions	281,753		—		(53,607)		228,146
Corporate Notes	70,750		—		(9,017)		61,733
Total Debt Securities	$	945,707	$	300	$	(109,734)	$	836,273

The Company did not have securities classified as held-to-maturity at June 30, 2023 or December 31, 2022.

The following table shows the composition of gross and net realized gains and losses for the periods presented:

	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in Thousands)	2023		2022		2023		2022
Proceeds from Sales of Securities Available-for-Sale	$	15,054	$	14,856	$	15,054	$	19,777
Gross Realized Gains	$	129	$	208	$	129	$	208
Gross Realized Losses	(126)		(132)		(138)		(156)
Net Realized Gains (Losses)	3		76		(9)		52
Tax Impact	$	1	$	16	$	(2)	$	11

Gains or losses are recognized in earnings on the trade date using the amortized cost of the specific security sold. The net realized gains (losses) above reflect reclassification adjustments in the calculation of Other Comprehensive (Loss) Income. The net realized gains (losses) are included in noninterest income as gains (losses) on sales of securities, net in the Consolidated Statements of Income. The tax impact is included in income tax provision in the Consolidated Statements of Income.

The amortized cost and fair value of available-for-sale debt securities are shown below by contractual maturity as of the date presented. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately.

	June 30, 2023
(Dollars in Thousands)	Amortized Cost		Fair Value
Due in One Year or Less	$	5,188	$	5,071
Due after One Year through Five Years	14,152		13,007
Due after Five Years through Ten Years	252,246		217,945
Due after Ten Years	144,835		120,400
Residential Mortgage-Backed Securities	113,218		100,163
Commercial Mortgage-Backed Securities	35,844		35,402
Other Commercial Mortgage-Backed Securities	24,839		21,583
Collateralized Mortgage Obligations	183,193		169,077
Asset Backed Securities	152,683		138,722
Total Debt Securities	$	926,198	$	821,370

At June 30, 2023 and December 31, 2022, there were no holdings of securities of any one issuer, other than those securities issued by or collateralized by the U.S. Government and its Agencies, in an amount greater than 10% of shareholders’ equity. The carrying value of securities pledged for various regulatory and legal requirements was $218.7 million at June 30, 2023 and $224.5 million at December 31, 2022.

Available-for-sale securities with unrealized losses at June 30, 2023 and December 31, 2022, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position, were as follows:

	June 30, 2023
	Less Than 12 Months					12 Months or More					Total
(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	—	$	—	$	—	4	$	13,174	$	(1,197)	4	$	13,174	$	(1,197)
U.S. Government Agency Securities	8	6,683		(74)		12	16,891		(729)		20	23,574		(803)
Residential Mortgage-Backed Securities	1	83		—		42	100,080		(13,055)		43	100,163		(13,055)
Commercial Mortgage-Backed Securities	5	1,998		(9)		49	19,471		(859)		54	21,469		(868)
Other Commercial Mortgage-Backed Securities	1	1,939		(582)		8	19,644		(2,674)		9	21,583		(3,256)
Asset Backed Securities	1	1,885		(115)		52	136,141		(13,849)		53	138,026		(13,964)
Collateralized Mortgage Obligations	—	—		—		85	169,077		(14,116)		85	169,077		(14,116)
States and Political Subdivisions	3	2,922		(130)		158	230,309		(45,936)		161	233,231		(46,066)
Corporate Notes	1	2,037		(213)		20	56,273		(12,227)		21	58,310		(12,440)
Total Debt Securities	20	$	17,547	$	(1,123)	430	$	761,060	$	(104,642)	450	$	778,607	$	(105,765)

	December 31, 2022
	Less Than 12 Months					12 Months or More					Total
(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	3	$	14,080	$	(789)	2	$	3,786	$	(663)	5	$	17,866	$	(1,452)
U.S. Government Agency Securities	6	5,337		(26)		9	15,576		(762)		15	20,913		(788)
Residential Mortgage-Backed Securities	6	7,601		(372)		37	96,084		(11,637)		43	103,685		(12,009)
Commercial Mortgage-Backed Securities	7	7,843		(307)		49	15,675		(629)		56	23,518		(936)
Other Commercial Mortgage-Backed Securities	2	5,302		(617)		6	14,560		(1,980)		8	19,862		(2,597)
Asset Backed Securities	13	42,173		(2,984)		41	97,210		(12,185)		54	139,383		(15,169)
Collateralized Mortgage Obligations	35	66,362		(4,500)		50	110,260		(9,659)		85	176,622		(14,159)
States and Political Subdivisions	73	112,564		(19,706)		91	115,382		(33,901)		164	227,946		(53,607)
Corporate Notes	8	23,285		(2,965)		13	38,448		(6,052)		21	61,733		(9,017)
Total Debt Securities	153	$	284,547	$	(32,266)	298	$	506,981	$	(77,468)	451	$	791,528	$	(109,734)

The Company adopted Topic 326, Financial Instruments—Credit Losses (Topic 326) on January 1, 2021 and did not record an allowance for credit losses, (“ACL”), on its investment securities during the quarter ended June 30, 2023 or the year ended December 31, 2022. The Company did not have any credit related net investment impairment losses. There were no securities classified as held-to-maturity at June 30, 2023 and December 31, 2022. The Company regularly reviews debt securities for expected credit loss using both qualitative and quantitative criteria, as necessary, based on the composition of the portfolio at period end.

As of June 30, 2023, management does not intend to sell any security in an unrealized loss position and it is not more than likely that it will be required to sell any such security before the recovery of its amortized cost basis. The unrealized losses on debt securities are primarily the result of interest rate changes, credit spread fluctuations on agency-issued mortgage-related securities, general financial market uncertainty and market volatility. These conditions should not prohibit the Company from receiving its contractual principal and interest payments on its debt securities. The fair value is expected to recover as the securities approach their maturity date or repricing date.

As of June 30, 2023, management believes the unrealized losses detailed in the table above are not related to credit; therefore, no ACL has been recognized on the Company’s securities. Should the impairment of any of these securities become credit related, the impairment will be recognized by establishing an ACL through provision for credit losses in the period the credit related impairment is identified, while any non-credit loss will be recognized in accumulated other comprehensive loss, net of applicable taxes. During the three and six months ended June 30, 2023 and 2022, the Company had no credit related net investment impairment losses.

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LOANS AND LOANS HELD-FOR-SALE

6 Months Ended

Jun. 30, 2023

Receivables [Abstract]

LOANS AND LOANS HELD-FOR-SALE

LOANS AND LOANS HELD-FOR-SALE

The composition of the loan portfolio by dollar amount is shown in the table below:

(Dollars in Thousands)	June 30, 2023		December 31, 2022
Commercial
Commercial Real Estate	$	1,642,597	$	1,470,562
Commercial and Industrial	279,156		309,792
Total Commercial Loans	1,921,753		1,780,354
Consumer
Residential Mortgages	707,893		657,948
Other Consumer	38,736		44,562
Total Consumer Loans	746,629		702,510
Construction	356,805		353,553
Other	305,255		312,496
Total Portfolio Loans	3,330,442		3,148,913
Loans Held-for-Sale	173		—
Total Loans	$	3,330,615	$	3,148,913

Loan Restructurings

On April 1, 2022, the Company adopted the accounting guidance in ASU No. 2022-02, effective as of January 1, 2022, which eliminates the recognition and measurement of a troubled debt restructuring, (“TDR”). Due to the removal of the TDR designation, the Company evaluates all loan restructurings according to the accounting guidance for loan modifications to determine if the restructuring results in a new loan or a continuation of the existing loan. Loan modifications to borrowers experiencing financial difficulty that result in a direct change in the timing or amount of contractual cash flows include situations where there is principal forgiveness, interest rate reductions, other-than-insignificant payment delays, term extensions, and combinations of the listed modifications. Therefore, the disclosures related to loan restructurings are only for modifications that directly affect cash flows.

A loan that is considered a restructured loan may be subject to the individually evaluated loan analysis if the commitment is $1.0 million or greater and/or based on management discretion; otherwise, the restructured loan remains in the appropriate segment in the ACL model and associated allowance are adjusted based on collateral values or changes in the discounted cash flows resulting from the modification of the restructured loan. For a discussion with respect to reserve calculations regarding individually evaluated loans refer to the “Nonrecurring Loans” section in Note 6, Fair Value Measurements, in the Notes to Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q.

The following table shows the amortized cost basis as of June 30, 2023 and June 30, 2022 for the loans restructured during the six months ended June 30, 2023 and June 30, 2022 to borrowers experiencing financial difficulty, disaggregated by portfolio segment:

	Restructured Loans
	Six Months Ended June 30, 2023					Six Months Ended June 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	—	$	—	—	%	—	$	—	—	%
Commercial and Industrial	—	—		—	%	—	—		—	%
Residential Mortgages	—	—		—	%	—	—		—	%
Other Consumer	—	—		—	%	—	—		—	%
Construction	—	—		—	%	—	—		—	%
Other	—	—		—	%	—	—		—	%
Total Accruing Restructured Loans	—	$	—	—	%	—	$	—	—	%
Nonaccrual Restructured Loans
Commercial Real Estate	—	$	—	—	%	1	$	300	0.02	%
Commercial and Industrial	—	—		—	%	—	—		—	%
Residential Mortgages	—	—		—	%	—	—		—	%
Other Consumer	—	—		—	%	—	—		—	%
Construction	—	—		—	%	—	—		—	%
Other	—	—		—	%	—	—		—	%
Total Nonaccrual Restructured Loans	—	$	—	—	%	1	$	300	0.02	%
Total Restructured Loans	—	$	—	—	%	1	$	300	0.02	%

(1)Excludes accrued interest receivable of $0.0 thousand and $2.9 thousand at June 30, 2023 and June 30, 2022 for restructured loans during the six months ended June 30, 2023 and June 30, 2022, respectively.

The Company had no loans that were restructured during the three months ended June 30, 2023 and June 30, 2022. In the first quarter of 2022 the Bank recognized a loan modification of a commercial real estate loan as a restructured loan. The borrower’s objective was to redevelop the property for a purpose that temporarily lacks feasibility due to the COVID-19 pandemic. In the interim the property is leased, albeit at a lower rate than originally forecasted. The Bank reduced the regularly scheduled principal and interest payments to accommodate the rental income until the property can be redeveloped. This loan is not considered significant and is included in the Bank’s ACL model in the general pool of the CRE segment for reserve purposes.

The Company closely monitors the performance of the loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. During the three and six months ended June 30, 2023 and June 30, 2022, respectively, the Company had no modifications to borrowers experiencing financial difficulty to report.

At both June 30, 2023 and June 30, 2022, the Bank had no commitments to lend any additional funds on restructured loans. At both June 30, 2023 and June 30, 2022 the Bank had no loans that defaulted during the period and had been modified preceding the payment default when the borrower was experiencing financial difficulty at the time of modification.

As of June 30, 2023 and December 31, 2022, the Bank had $2.1 million and $0.9 million, respectively, of residential real estate loans in the process of foreclosure. We also had $21 thousand at June 30, 2023 and $133 thousand at December 31, 2022 in residential real estate loans included in other real estate owned (“OREO”).

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ALLOWANCE FOR CREDIT LOSSES

6 Months Ended

Jun. 30, 2023

Credit Loss [Abstract]

ALLOWANCE FOR CREDIT LOSSES

ALLOWANCE FOR CREDIT LOSSES

The Company maintains an ACL at a level determined to be adequate to absorb expected credit losses associated with the Company’s financial instruments over the life of those instruments as of the balance sheet date. The Company develops and documents a systematic ACL methodology based on the following portfolio segments: 1) Commercial Real Estate, (“CRE”), 2) Commercial and Industrial, (“C&I”), 3) Residential Mortgages, 4) Other Consumer, 5) Construction and 6) Other. The Company’s loan portfolio is segmented by homogeneous loan types that behave similarly to economic cycles. The segmentation in the current expected credit losses, (“CECL”), model is different from the segmentation in the Incurred Loss model. The following is a discussion of the key risks by portfolio segment that management assesses in preparing the ACL.

CRE loans are secured by commercial purpose real estate, including both owner occupied properties and investment properties, for various purposes such as hotels, strip malls and apartments. Operations of the individual projects as well as global cash flows of the debtors are the primary sources of repayment for these loans. The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the collateral type as well as the business.

C&I loans are made to operating companies or manufacturers for the purpose of production, operating capacity, accounts receivable, inventory or equipment financing. Cash flow from the operations of the borrower is the primary source of repayment for these loans. The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the industry of the borrower. Collateral for these types of loans often do not have sufficient value in a distressed or liquidation scenario to satisfy the outstanding debt. These loans are also made to local and state municipalities for various purposes including refinancing existing obligations, infrastructure up-fit and expansion, or to purchase new equipment. These loans may be secured by general obligations from the municipal authority or revenues generated by infrastructure and equipment financed by the Company. The primary repayment source for these loans include the tax base of the municipality, specific revenue streams related to the infrastructure financed, and other business operations of the municipal authority. The health and stability of state and local economies directly impacts each municipality’s tax basis and are important indicators of risk for this segment. The ability of each municipality to increase taxes and fees to offset debt service requirements give this type of loan a very low risk profile in the continuum of the Company’s loan portfolio.

Residential Mortgages are loans secured by first and second liens such as home equity loans, home equity lines of credit and 1-4 family residential mortgages, including purchased money mortgages. The primary source of repayment for these loans is the income of the borrower. The condition of the local economy, in particular the unemployment rate, is an important indicator of risk for this segment. The state of the local housing market can also have a significant impact on this segment because low demand and/or declining home values can limit the ability of borrowers to sell a property and satisfy the debt.

Other Consumer loans are made to individuals and may be either secured by assets other than 1-4 family residences or unsecured. This segment includes auto loans and unsecured loans and lines. The primary source of repayment for these loans is the income and assets of the borrower. The condition of the local economy, in particular the unemployment rate, is an important indicator of risk for this segment. The value of the collateral, if there is any, is less likely to be a source of repayment due to less certain collateral values.

Construction loans include both commercial and consumer. Commercial loans are made to finance construction of buildings or other structures, as well as to finance the acquisition and development of raw land for various purposes. While the risk of these loans is generally confined to the construction period, if there are problems, the project may not be completed, and as such, may not provide sufficient cash flow on its own to service the debt or have sufficient value in a liquidation to cover the outstanding principal. The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the type of project and the experience and resources of the developer. Consumer loans are made for the construction of residential homes for which a binding sales contract exists and generally are for a period of time sufficient to complete construction. Residential construction loans to individuals generally provide for the payment of interest only during the construction phase. Credit risk for residential real estate construction loans can arise from construction delays, cost overruns, failure of the contractor to complete the project to specifications and economic conditions that could impact demand for or supply of the property being constructed.

Other loans include unique risk attributes considered inconsistent with our current underwriting standards.

The ACL reserve for the Other segment is based on a discounted cash flow methodology and reserves will fluctuate based on expected cash flow changes in the future. These inconsistencies may include, but are not limited to i) transaction and/or

relationship sizes that exceed limits established in 2018, ii) overreliance on secondary, tertiary or guarantor cash flow, iii) land acquisition loans without a defined source of amortization, and iv) loan structures on operating lines of credit dependent on the value of real estate rather than trading assets. Management continuously assesses underwriting standards, but significantly enhanced these standards in 2018.

Our model is based on our best estimate of facts known with the most current information. Certain portions of the CECL model are inherently subjective and include, but are not limited to estimates with respect to: prepayment speeds, the timing of prepayments, potential losses given default, discount rates and the timing of future cash flows. Management utilizes widely published economic forecasts as the basis for the regression analysis used to estimate the probability of default in the baseline model. The peaks and troughs of these forecasts serve as guardrails for potential subjective adjustments. In addition to considering the outcomes based on the range of forecasts, management recognizes that the assumptions used in economic forecasts may not perfectly align with our market area, risk profile or unique attributes of our portfolio along with other important considerations. Severe changes in forecasts can also create significant variability and management must assess not only the absolute balance of reserves but also consider the appropriateness of the velocity of change. Therefore, management developed a framework to assess the tolerance and reasonableness of the CECL modeling process by challenging certain elements of the forecasts, when appropriate. These outcomes, known as “challenger models,” provide opportunities to examine and subjectively adjust the CECL model output and are designed to be counter cyclical, thereby reducing variability.

Credit Quality Indicators:

The Company’s portfolio grading analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled or at all. The Company’s internal credit risk grading system is based on debt service coverage, collateral values and other subjective factors. Mortgage and consumer loans are defaulted to a pass grade until a loan migrates to past due status.

The Company has a loan review policy and annual scope report that details the level of loan review for loans in a given year. The annual loan review provides the Credit Risk Committee with an independent analysis of the following: 1) credit quality of the loan portfolio, 2) compliance with the loan policy, 3) adequacy of documentation in credit files and 4) validity of risk ratings. Since 2020 and continuing into 2023, the Company used a five step approach for loan review in the following categories:

•Individual reviews of the top twenty large loan relationships (“LLRs”), which are defined as any individual commercial loan or aggregate commercial relationship totaling $2.0 million or more;

•A sampling of small LLRs, which are defined as individual commercial loans or relationships with aggregate exposure of $2.0 million or more but not included in the top twenty LLRs;

•A sampling review of Credit Risk Committee modifications, including new and existing loans to provide perspective on the appropriateness of the modification in relation to established policies and procedures;

•A sampling review of non-organic commercial loans and those commercial loans approved outside of the Credit Risk Committee; and

•Focus reviews of office and land development to evaluate segment risk rather than individual loan risk. Focus reviews are performed annually on a rotational basis.

The Company’s internally assigned grades are as follows:

Pass – The Company uses six grades of pass, including its watch rating. Generally, a pass rating indicates that the loan is currently performing and is of high quality.

Special Mention – Assets with potential weaknesses that warrant management’s close attention and if left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date.

Substandard – Assets that are inadequately protected by the current sound worth and paying capacity of the obligor or by the collateral pledged, if any. Assets so classified have a well-defined weakness, or weaknesses that jeopardize the liquidation of the debt. Such assets are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful – Assets with all the weaknesses inherent in one classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions, and values, highly questionable and improbable.

Loss – Assets considered of such little value that its continuance on the books is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future.

The ability of borrowers to repay commercial loans is dependent upon the success of their business and general economic conditions. Due to the greater potential for loss within our commercial portfolio, we monitor the commercial loan portfolio through an internal risk rating system. Loan risk ratings are assigned based upon the creditworthiness of the borrower and are reviewed on an ongoing basis according to our internal policies. Loans rated special mention or substandard have potential or well-defined weaknesses not generally found in high quality, performing loans, and require attention from management to limit loss.

The following table presents portfolio loan balances by year of origination and internally assigned risk rating for our portfolio segments as of the periods presented:

	June 30, 2023
	Risk Rating
(Dollars in Thousands)	2023		2022		2021		2020		2019		2018 and Prior		Revolving		Total Portfolio Loans
Commercial Real Estate
Pass	$	159,142	$	440,643	$	191,211	$	151,410	$	127,012	$	541,439	$	28,180	$	1,639,037
Special Mention	—		—		212		—		—		79		—		291
Substandard	—		—		—		—		—		3,269		—		3,269
Total Commercial Real Estate	$	159,142	$	440,643	$	191,423	$	151,410	$	127,012	$	544,787	$	28,180	$	1,642,597
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial and Industrial
Pass	$	112	$	20,160	$	41,155	$	28,618	$	7,442	$	151,379	$	27,333	$	276,199
Special Mention	—		—		—		2,838		—		—		—		2,838
Substandard	—		—		45		28		44		2		—		119
Total Commercial and Industrial	$	112	$	20,160	$	41,200	$	31,484	$	7,486	$	151,381	$	27,333	$	279,156
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	1	$	—	$	—	$	1
Residential Mortgages
Pass	$	27,670	$	216,563	$	196,442	$	80,929	$	46,442	$	104,559	$	31,184	$	703,789
Special Mention	—		—		—		—		—		531		—		531
Substandard	—		—		1,212		—		863		1,248		250		3,573
Total Residential Mortgages	$	27,670	$	216,563	$	197,654	$	80,929	$	47,305	$	106,338	$	31,434	$	707,893
YTD Gross Charge-offs	$	—	$	—	$	3	$	—	$	—	$	67	$	—	$	70
Other Consumer
Pass	$	23,001	$	6,289	$	3,638	$	5,110	$	73	$	227	$	369	$	38,707
Special Mention	—		—		—		—		—		—		—		—
Substandard	—		—		22		—		—		7		—		29
Total Other Consumer	$	23,001	$	6,289	$	3,660	$	5,110	$	73	$	234	$	369	$	38,736
YTD Gross Charge-offs	$	86	$	663	$	388	$	48	$	94	$	29	$	—	$	1,308
Construction
Pass	$	47,058	$	147,468	$	124,382	$	14,883	$	4,038	$	7,755	$	8,134	$	353,718
Special Mention	—		—		—		—		—		64		—		64
Substandard	—		67		—		2,089		—		867		—		3,023
Total Construction	$	47,058	$	147,535	$	124,382	$	16,972	$	4,038	$	8,686	$	8,134	$	356,805
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	42	$	—	$	42
Other
Pass	$	—	$	—	$	—	$	—	$	—	$	3,342	$	—	$	3,342
Special Mention	—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		301,913		—		301,913
Total Other Loans	$	—	$	—	$	—	$	—	$	—	$	305,255	$	—	$	305,255
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Total Portfolio Loans
Pass	$	256,983	$	831,123	$	556,828	$	280,950	$	185,007	$	808,701	$	95,200	$	3,014,792
Special Mention	—		—		212		2,838		—		674		—		3,724
Substandard	—		67		1,279		2,117		907		307,306		250		311,926
Total Portfolio Loans	$	256,983	$	831,190	$	558,319	$	285,905	$	185,914	$	1,116,681	$	95,450	$	3,330,442
Current YTD Period:
YTD Gross Charge-offs	$	86	$	663	$	391	$	48	$	95	$	138	$	—	$	1,421

	December 31, 2022
	Risk Rating
(Dollars in Thousands)	2022		2021		2020		2019		2018		2017 and Prior		Revolving		Total Portfolio Loans
Commercial Real Estate
Pass	$	418,939	$	186,226	$	139,148	$	130,521	$	215,498	$	335,659	$	31,349	$	1,457,340
Special Mention	—		218		—		—		9,919		659		—		10,796
Substandard	—		—		—		—		2,105		321		—		2,426
Total Commercial Real Estate	$	418,939	$	186,444	$	139,148	$	130,521	$	227,522	$	336,639	$	31,349	$	1,470,562
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial and Industrial
Pass	$	23,104	$	47,137	$	35,819	$	9,022	$	10,639	$	154,473	$	23,699	$	303,893
Special Mention	—		—		2,887		—		—		—		—		2,887
Substandard	—		56		—		18		97		2,800		41		3,012
Total Commercial and Industrial	$	23,104	$	47,193	$	38,706	$	9,040	$	10,736	$	157,273	$	23,740	$	309,792
YTD Gross Charge-offs	$	3,432	$	—	$	—	$	—	$	4	$	—	$	—	$	3,436
Residential Mortgages
Pass	$	200,725	$	184,718	$	81,446	$	50,770	$	70,659	$	39,411	$	25,315	$	653,044
Special Mention	—		—		—		—		429		520		34		983
Substandard	—		1,212		—		865		444		1,400		—		3,921
Total Residential Mortgages	$	200,725	$	185,930	$	81,446	$	51,635	$	71,532	$	41,331	$	25,349	$	657,948
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	22	$	24	$	—	$	46
Other Consumer
Pass	$	24,100	$	10,006	$	7,323	$	1,999	$	512	$	256	$	299	$	44,495
Special Mention	—		—		—		—		—		—		—		—
Substandard	—		45		1		—		1		20		—		67
Total Other Consumer	$	24,100	$	10,051	$	7,324	$	1,999	$	513	$	276	$	299	$	44,562
YTD Gross Charge-offs	$	280	$	625	$	254	$	358	$	39	$	121	$	—	$	1,677
Construction
Pass	$	149,535	$	117,466	$	41,808	$	4,938	$	25,523	$	7,190	$	6,056	$	352,516
Special Mention	—		—		—		—		—		69		—		69
Substandard	—		—		—		—		92		876		—		968
Total Construction	$	149,535	$	117,466	$	41,808	$	4,938	$	25,615	$	8,135	$	6,056	$	353,553
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Other
Pass	$	—	$	—	$	—	$	—	$	—	$	180,745	$	—	$	180,745
Special Mention	—		—		—		—		—		—		—		—
Substandard	—		—		—		—		74,050		57,701		—		131,751
Total Other Loans	$	—	$	—	$	—	$	—	$	74,050	$	238,446	$	—	$	312,496
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Total Portfolio Loans
Pass	$	816,403	$	545,553	$	305,544	$	197,250	$	322,831	$	717,734	$	86,718	$	2,992,033
Special Mention	—		218		2,887		—		10,348		1,248		34		14,735
Substandard	—		1,313		1		883		76,789		63,118		41		142,145
Total Portfolio Loans	$	816,403	$	547,084	$	308,432	$	198,133	$	409,968	$	782,100	$	86,793	$	3,148,913
Current YTD Period:
YTD Gross Charge-offs	$	3,712	$	625	$	254	$	358	$	65	$	145	$	—	$	5,159

The following table presents portfolio loan balances by year of origination and performing and nonperforming status for our portfolio segments as of the periods presented:

	June 30, 2023
(Dollars in Thousands)	2023		2022		2021		2020		2019		2018 and Prior		Revolving		Total Portfolio Loans
Commercial Real Estate
Performing	$	159,142	$	440,643	$	191,423	$	151,410	$	127,012	$	542,275	$	28,180	$	1,640,085
Nonperforming	—		—		—		—		—		2,512		—		2,512
Total Commercial Real Estate	$	159,142	$	440,643	$	191,423	$	151,410	$	127,012	$	544,787	$	28,180	$	1,642,597
Commercial and Industrial
Performing	$	112	$	20,160	$	41,155	$	31,456	$	7,448	$	151,379	$	27,333	$	279,043
Nonperforming	—		—		45		28		38		2		—		113
Total Commercial and Industrial	$	112	$	20,160	$	41,200	$	31,484	$	7,486	$	151,381	$	27,333	$	279,156
Residential Mortgages
Performing	$	27,670	$	216,563	$	196,442	$	80,929	$	46,442	$	105,125	$	31,434	$	704,605
Nonperforming	—		—		1,212		—		863		1,213		—		3,288
Total Residential Mortgages	$	27,670	$	216,563	$	197,654	$	80,929	$	47,305	$	106,338	$	31,434	$	707,893
Other Consumer
Performing	$	23,001	$	6,289	$	3,655	$	5,110	$	73	$	227	$	369	$	38,724
Nonperforming	—		—		5		—		—		7		—		12
Total Other Consumer	$	23,001	$	6,289	$	3,660	$	5,110	$	73	$	234	$	369	$	38,736
Construction
Performing	$	47,058	$	147,535	$	124,382	$	14,882	$	4,038	$	7,868	$	8,134	$	353,897
Nonperforming	—		—		—		2,090		—		818		—		2,908
Total Construction	$	47,058	$	147,535	$	124,382	$	16,972	$	4,038	$	8,686	$	8,134	$	356,805
Other
Performing	$	—	$	—	$	—	$	—	$	—	$	3,342	$	—	$	3,342
Nonperforming	—		—		—		—		—		301,913		—		301,913
Total Other Loans	$	—	$	—	$	—	$	—	$	—	$	305,255	$	—	$	305,255
Total Portfolio Loans
Performing	$	256,983	$	831,190	$	557,057	$	283,787	$	185,013	$	810,216	$	95,450	$	3,019,696
Nonperforming	—		—		1,262		2,118		901		306,465		—		310,746
Total Portfolio Loans	$	256,983	$	831,190	$	558,319	$	285,905	$	185,914	$	1,116,681	$	95,450	$	3,330,442

	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

The following tables include an aging analysis of the recorded investment of past due portfolio loans as the periods presented:

	June 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		Nonaccrual Loans		Total Portfolio Loans
Commercial Real Estate	$	1,639,960	$	125	$	—	$	125	$	2,512	$	1,642,597
Commercial and Industrial	278,944		4		95		99		113		279,156
Residential Mortgages	703,917		438		250		688		3,288		707,893
Other Consumer	38,209		304		211		515		12		38,736
Construction	353,848		—		49		49		2,908		356,805
Other	3,342		—		—		—		301,913		305,255
Total	$	3,018,220	$	871	$	605	$	1,476	$	310,746	$	3,330,442

	December 31, 2022
(Dollars in Thousands)	Current Loans		Loans 30-59 Days Past Due		Loans 60-89 Days Past Due		Total 30-89 Days Past Due		Nonaccrual Loans		Total Portfolio Loans
Commercial Real Estate	$	1,468,154	$	104	$	—	$	104	$	2,304	$	1,470,562
Commercial and Industrial	309,305		274		9		283		204		309,792
Residential Mortgages	654,238		445		—		445		3,265		657,948
Other Consumer	44,013		337		204		541		8		44,562
Construction	349,225		1,321		2,143		3,464		864		353,553
Other	312,496		—		—		—		—		312,496
Total	$	3,137,431	$	2,481	$	2,356	$	4,837	$	6,645	$	3,148,913

There were no loans past due 90 days or more and still accruing at June 30, 2023 and December 31, 2022. Loans past due 90 days are automatically transferred to nonaccrual status. Loans past due 30 to 89 days and still accruing decreased $3.3 million to $1.5 million at June 30, 2023 compared to $4.8 million at December 31, 2022 primarily in the construction category related to one $2.1 million residential construction relationship that moved to nonaccrual during the first quarter of 2023.

Nonperforming loans increased during the second quarter of 2023 as the Company placed commercial loans in the Other segment of the Company’s loan portfolio, relating to the Bank’s largest lending relationship which has an aggregate principal amount of $301.9 million, on nonaccrual status due to loan maturities and failure to pay in full.

There were no nonaccrual or past due loans related to loans held-for-sale at June 30, 2023 or December 31, 2022.

The following table presents loans on nonaccrual status and loans past due 90 days or more and still accruing by portfolio segment for the periods presented:

	June 30, 2023
(Dollars in Thousands)	Beginning of Period Nonaccrual		End of Period Nonaccrual		Nonaccrual With No Related Allowance		Past Due 90+ Days Still Accruing
Commercial Real Estate	$	2,304	$	2,512	$	—	$	—
Commercial and Industrial	204		113		—		—
Residential Mortgages	3,265		3,288		—		—
Other Consumer	8		12		—		—
Construction	864		2,908		2,090		—
Other	—		301,913		—		—
Total	$	6,645	$	310,746	$	2,090	$	—

	December 31, 2022
(Dollars in Thousands)	Beginning of Period Nonaccrual		End of Period Nonaccrual		Nonaccrual With No Related Allowance		Past Due 90+ Days Still Accruing
Commercial Real Estate	$	3,337	$	2,304	$	—	$	—
Commercial and Industrial	451		204		—		—
Residential Mortgages	2,551		3,265		—		—
Other Consumer	73		8		—		—
Construction	985		864		—		—
Other	—		—		—		—
Total	$	7,397	$	6,645	$	—	$	—

A loan is considered nonperforming when we transfer the interest methodology from accrual to nonaccrual. Nonaccrual status recognizes that the collection in full of both principal and interest is unlikely. Without applying additional scrutiny at a granular level, we believe delinquency to be a leading indicator with respect to the likelihood of collection in full of both principal and interest. Accordingly, we automatically transfer loans to nonaccrual status if they are 90 or more days delinquent. Management reserves the right to exercise discretion at the individual loan level. For example, we may elect to transfer a loan to nonaccrual regardless of the delinquency status if we believe the collection in full of both principal and interest to be unlikely. We may also elect to retain a loan that is 90 or more days delinquent in accrual status if we believe the loan is well secured and in the process of collection. Nonaccrual loans, and loans that have been characterized as Restructured Loans may be individually evaluated for credit losses in the Allowance for Credit Losses model if the loan commitment is $1.0 million or more unless we elect to maintain the loan in the general pool. During the three and six months ended June 30, 2023 and June 30, 2022, respectively, no material amount of interest income was recognized on nonperforming loans subsequent to their classification as nonperforming loans.

The following table presents the amortized cost basis of individually evaluated loans as of the periods presented. Changes in the fair value of the types of collateral and discounted cash flow modeling for individually evaluated loans are reported as provision for credit loss on loans in the period of change.

	June 30, 2023						December 31, 2022
(Dollars in Thousands)	Collateral		Discounted Cash Flow		Total		Collateral
Commercial Real Estate	$	1,946	$	—	$	1,946	$	2,106
Commercial and Industrial	—		—		—		—
Residential Mortgages	1,212		—		1,212		1,212
Other Consumer	—		—		—		—
Construction	2,090		—		2,090		—
Other	—		301,913		301,913		—
Total	$	5,248	$	301,913	$	307,161	$	3,318

The following tables present activity in the ACL for the periods presented:

	Three Months Ended June 30, 2023
(Dollars in Thousands)	Commercial Real Estate		Commercial and Industrial		Residential Mortgage		Other Consumer		Construction		Other		Total Loans
Allowance for Credit Losses on Loans:
Balance at Beginning of Period	$	18,595	$	3,531	$	10,419	$	1,189	$	7,506	$	53,454	$	94,694
Provision (Recovery) for Credit Losses on Loans	549		(243)		33		401		(861)		206		85
Charge-offs	—		—		(67)		(651)		(42)		—		(760)
Recoveries	—		5		1		119		—		—		125
Net Recoveries/(Charge-offs)	—		5		(66)		(532)		(42)		—		(635)
Balance at End of Period	$	19,144	$	3,293	$	10,386	$	1,058	$	6,603	$	53,660	$	94,144

	Six Months Ended June 30, 2023
(Dollars in Thousands)	Commercial Real Estate		Commercial and Industrial		Residential Mortgage		Other Consumer		Construction		Other		Total Loans
Allowance for Credit Losses on Loans:
Balance at Beginning of Period	$	17,992	$	3,980	$	8,891	$	1,329	$	6,942	$	54,718	$	93,852
Provision (Recovery) for Credit Losses on Loans	1,152		(691)		1,563		831		(297)		(1,058)		1,500
Charge-offs	—		(1)		(70)		(1,308)		(42)		—		(1,421)
Recoveries	—		5		2		206		—		—		213
Net Recoveries/(Charge-offs)	—		4		(68)		(1,102)		(42)		—		(1,208)
Balance at End of Period	$	19,144	$	3,293	$	10,386	$	1,058	$	6,603	$	53,660	$	94,144

	Three Months Ended June 30, 2022
(Dollars in Thousands)	Commercial Real Estate		Commercial and Industrial		Residential Mortgage		Other Consumer		Construction		Other		Total Loans
Allowance for Credit Losses on Loans:
Balance at Beginning of Period	$	17,518	$	3,583	$	4,520	$	1,470	$	7,554	$	61,731	$	96,376
Provision (Recovery) for Credit Losses on Loans	290		2,127		545		526		(722)		(952)		1,814
Charge-offs	—		(22)		(6)		(391)		—		—		(419)
Recoveries	—		—		96		114		—		—		210
Net (Charge-offs)/Recoveries	—		(22)		90		(277)		—		—		(209)
Balance at End of Period	$	17,808	$	5,688	$	5,155	$	1,719	$	6,832	$	60,779	$	97,981

XML

FAIR VALUE MEASUREMENTS

6 Months Ended

Jun. 30, 2023

Fair Value Disclosures [Abstract]

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

The Company uses fair value measurements when recording and disclosing certain financial assets and liabilities. Securities available-for-sale and derivative financial instruments are recorded at fair value on a recurring basis. Additionally, from time to time, we may be required to record other assets at fair value on a nonrecurring basis, such as loans held-for-sale, individually evaluated loans, OREO, and certain other assets.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants at the measurement date. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets or liabilities; it is not a forced transaction. In determining fair value, we use various valuation approaches, including market, income and cost approaches. The fair value standard establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing an asset or liability, which are developed based on market data we have obtained from independent sources. Unobservable inputs reflect our estimates of assumptions that market participants would use in pricing an asset or liability, which are developed based on the best information available in the circumstances.

The fair value hierarchy gives the highest priority to unadjusted quoted market prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). There are three levels of inputs that may be used to measure fair values:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that an entity has the ability to access as of the measurement date, or observable inputs.

Level 2: Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. We recognize transfers between any of the fair value hierarchy levels at the end of the reporting period in which the transfer occurred.

The following are descriptions of the valuation methodologies that the Company uses for financial instruments recorded at fair value on either a recurring or nonrecurring basis.

Recurring Basis

Securities Available-for-Sale: The fair values of securities available-for-sale are determined by obtaining quoted prices on nationally recognized securities exchanges, if available. This valuation method is classified as Level 1 in the fair value hierarchy. For securities where quoted prices are not available, fair values are calculated on market prices of similar securities, or matrix pricing, which is a mathematical technique, used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities. Matrix pricing relies on the securities’ relationship to similarly traded securities, benchmark curves, and the benchmarking of like securities. Matrix pricing utilizes observable market inputs such as benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data, and industry and economic events. In instances where broker quotes are used, these quotes are obtained from market makers or broker-dealers recognized to be market participants. This valuation method is classified as Level 2 in the fair value hierarchy. For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators. This valuation method is classified as Level 3 in the fair value hierarchy.

Derivative Financial Instruments and Hedging Activities: The Company uses derivative instruments such as interest rate swaps for commercial loans with our customers. Upon entering into swaps with the borrower, the Company entered into

offsetting positions with counterparties to minimize risk to the Company. The back-to-back swaps qualify as derivatives, but are not designated as hedging instruments. Interest rate swap contracts involve the risk of dealing with borrower and counterparties and their ability to meet contractual terms. We calculate the fair value for derivatives using accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. Each valuation considers the contractual terms of the derivative, including the period to maturity, and uses observable market-based inputs, such as interest rate curves and implied volatilities. When the fair value of a derivative instrument contract is positive, this generally indicates that the counterparty or customer owes the Company, and results in credit risk to the Company. When the fair value of a derivative instrument contract is negative, the Company owes the customer or counterparty, and, therefore, has no risk. Accordingly, interest rate swaps for commercial loans are classified as Level 2.

The Company also enters into commitments to originate mortgage loans whereby the interest rate on the loan is determined prior to funding (rate lock commitments). Rate lock commitments on mortgage loans to be held-for-sale are considered to be derivatives. The period of time between issuance of a loan commitment and closing and sale of the loan generally ranges from 15 to 90 days. The Company protects itself from changes in interest rates through the use of best efforts forward delivery commitments, whereby the Company commits to sell a loan at the time the borrower commits to an interest rate with the intent that the buyer has assumed interest rate risk on rate lock commitments due to changes in interest rates.

Nonrecurring Basis

Individually Evaluated Loans: Individually evaluated loans with commitments greater than or equal to $1.0 million are evaluated for potential specific reserves and adjusted, if a shortfall exists, to fair value less costs to sell. Fair value is measured based on the value of the underlying collateral securing the loan if repayment is expected solely from the sale or operation of the collateral or present value of estimated future cash flows discounted at the loan’s contractual interest rate if the loan is not determined to be collateral dependent. All loans with a specific reserve are classified as Level 3 in the fair value hierarchy.

Fair value for individually evaluated loans is determined using several methods. Generally, the fair value of real estate is determined based on appraisals by qualified licensed appraisers. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. These routine adjustments are made to adjust the value of a specific property relative to comparable properties for variations in qualities such as location, size, and income production capacity relative to the subject property of the appraisal. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value. Alternative methodologies utilize various discounted cash flow assumptions in the alternative modeling through a variety of scenarios.

Subsequent to the initial impairment date, existing individually evaluated loans are reevaluated quarterly for additional impairment and adjustments to fair value less costs to sell are made, where appropriate. For individually evaluated loans, the first stage of our impairment analysis involves inspection of the property in question to affirm the condition has not deteriorated since the previous impairment analysis date. Management also engages in conversations with local real estate professionals and market participants to determine the likely marketing time and value range for the property. The second stage involves an assessment of current trends in the regional market. After thorough consideration of these factors, management will order a new appraisal.

For non-individually evaluated loans, the fair value is determined by updating the present value of estimated future cash flows using the loan’s existing rate to reflect the payment schedule for the remaining life of the loan.

OREO is evaluated at the time of acquisition and is recorded at fair value as determined by an appraisal or evaluation, less costs to sell. After acquisition, most OREO assets are revalued every twelve months, or more frequently when deemed necessary by management based upon changes in market or collateral conditions. For smaller OREO assets with existing carrying values less than $0.5 million, management may elect to re-value the assets, at minimum, once every twenty-four months based on the size of the exposure. Fair value, when recorded, is generally based upon appraisals by approved, independent state certified appraisers. Appraisals on OREO may be discounted based on our historical knowledge, changes in market conditions from the time of appraisal or other information available to us. OREO and other repossessed assets marked to fair value are classified as Level 3. At June 30, 2023 OREO assets were in compliance with the OREO policy as set forth above, and substantially all of the assets were listed for sale with credible third-party real estate brokers.

Financial assets measured at fair value on a recurring basis are summarized below for the periods presented:

	June 30, 2023
(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:
U.S. Treasury Securities	$	13,174	$	13,174	$	—	$	—
U.S. Government Agency Securities	51,508		—		51,508		—
Residential Mortgage-Backed Securities	100,163		—		100,163		—
Commercial Mortgage-Backed Securities	35,402		—		35,402		—
Other Commercial Mortgage-Backed Securities	21,583		—		21,583		—
Asset Backed Securities	138,722		—		138,722		—
Collateralized Mortgage Obligations	169,077		—		169,077		—
States and Political Subdivisions	233,431		—		233,431		—
Corporate Notes	58,310		—		50,999		7,311
Total Securities Available-for-Sale	821,370		13,174		800,885		7,311
Derivatives	21,107		—		21,107		—
Total	$	842,477	$	13,174	$	821,992	$	7,311
Liabilities
Derivatives	$	20,820	$	—	$	20,820	$	—
Total	$	20,820	$	—	$	20,820	$	—

	December 31, 2022
(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:
U.S. Treasury Securities	$	17,866	$	17,866	$	—	$	—
U.S. Government Agency Securities	49,764		—		49,764		—
Residential Mortgage-Backed Securities	103,685		—		103,685		—
Commercial Mortgage-Backed Securities	34,675		—		34,675		—
Other Commercial Mortgage-Backed Securities	22,399		2,538		19,861		—
Asset Backed Securities	141,383		4,996		136,387		—
Collateralized Mortgage Obligations	176,622		—		176,622		—
States and Political Subdivisions	228,146		—		228,146		—
Corporate Notes	61,733		—		54,216		7,517
Total Securities Available-for-Sale	836,273		25,400		803,356		7,517
Derivatives	22,974		—		22,974		—
Total	$	859,247	$	25,400	$	826,330	$	7,517
Liabilities
Derivatives	$	22,543	$	—	$	22,543	$	—
Total	$	22,543	$	—	$	22,543	$	—

We have invested in subordinated debt of other financial institutions. We have two securities totaling $7.3 million that are considered to be Level 3 securities at June 30, 2023 and total $7.5 million at December 31, 2022. The Level 3 fair value is benchmarked to other securities that have observable market values in Level 2 using comparable financial ratio analysis specific to the industry in which the underlying company operates. The underwriting includes considerations of capital adequacy, asset quality trends, management’s ability to continue efficient and profitable operations, the institution’s core earnings ability, liquidity management platform and current on and off-balance sheet interest rate risk exposures.

Financial assets measured at fair value on a nonrecurring basis are summarized below for the periods presented:

	June 30, 2023
(Dollars in Thousands)	Level 1		Level 2		Level 3		Fair Value
OREO	$	—	$	—	$	2,570	$	2,570
Individually Evaluated Loans	$	—	$	—	$	2,858	$	2,858

	December 31, 2022
(Dollars in Thousands)	Level 1		Level 2		Level 3		Fair Value
OREO	$	—	$	—	$	8,393	$	8,393
Individually Evaluated Loans	$	—	$	—	$	2,649	$	2,649

Individually evaluated loans had a net carrying amount of $2.9 million at June 30, 2023 with a valuation allowance of $0.3 million. Individually evaluated loans had a net carrying amount of $2.6 million at December 31, 2022 with a valuation allowance of $0.7 million. The Company’s largest lending relationship is classified as an individually evaluated loan with a net carrying amount totaling $248.3 million. The Company utilized various cash flow assumptions in the alternative modeling, instead of fair value, which resulted in a valuation allowance of $53.6 million at June 30, 2023.

OREO, which is measured at the lower of carrying or fair value less costs to sell, had a net carrying amount of $2.6 million as of June 30, 2023, compared with $8.4 million at December 31, 2022, primarily due to sales and payments. There were no write-downs recorded on OREO for the six months ended June 30, 2023 and $0.4 million for the same periods in 2022.

The following table summarizes the Company’s assets that were measured at fair value on a nonrecurring basis for the periods presented:

	June 30, 2023
(Dollars in Thousands)	Fair Value		Valuation Technique	Unobservable Inputs	Weighted Range		Average
Assets
Individually Evaluated Loans	$	1,067	Sales Contract	Other Expenses & Liens	1.0	%	1.0	%
Individually Evaluated Loans	1,791		Discounted Appraisals	Management's Discount & Estimated Selling Costs and Other Expenses & Liens	6.0	%	6.0	%
Total Individually Evaluated Loans	$	2,858
OREO	$	2,427	Appraisals	Estimated Selling Costs	10.0	%	10.0	%
OREO	143		Internal Valuations	Estimated Selling Costs	5.0	%	5.0	%
Total OREO	$	2,570

	December 31, 2022
(Dollars in Thousands)	Fair Value		Valuation Technique	Unobservable Inputs	Weighted Range		Average
Assets
Individually Evaluated Loans	$	858	Discounted Internal Valuations	Management's Discount & Estimated Selling Costs	14.2	%	14.2	%
Individually Evaluated Loans	$	1,791	Discounted Appraisals	Estimated Selling Costs	6.0	%	6.0	%
Total Individually Evaluated Loans	$	2,649
OREO	$	7,323	Appraisals	Estimated Selling Costs	10.0	%	10.0	%
OREO	143		Internal Valuations	Estimated Selling Costs	5.0	%	5.0	%
OREO	927		Discounted Internal Valuations	Management’s Discount & Estimated Selling Costs	0.0% - 5.0%		0.7	%
Total OREO	$	8,393

A baseline discount rate has been established for impairment measurement. This baseline discount rate was back tested against historical OREO sales, and; therefore, represents an average recovery rate based on the transaction sizes and asset types in the

population examined. Management considers the unique attributes and characteristics of each specific individually evaluated loan and may use judgment to adjust the baseline discount rate when appropriate.

The carrying values and estimated fair values of our financial instruments at June 30, 2023 and December 31, 2022 are presented in the following tables. Fair values for June 30, 2023 and December 31, 2022 are estimated under the exit price notion in accordance with ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities.”

GAAP requires disclosure of fair value information about financial instruments carried at book value on the Consolidated Balance Sheet. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.

			Fair Value Measurements at June 30, 2023
(Dollars in Thousands)	Carrying Value		Level 1		Level 2		Level 3		Total
Financial Assets:
Cash and Cash Equivalents	$	53,275	$	44,872	$	8,403	$	—	$	53,275
Securities Available-for-Sale	821,370		13,174		800,885		7,311		821,370
Loans Held-for-Sale	173		—		—		173		173
Portfolio Loans, net	3,236,298		—		—		3,130,923		3,130,923
Federal Home Loan Bank Stock, at Cost	19,403		—		—		NA		NA
Other Assets- Interest Rate Derivatives	21,107		—		21,107		—		21,107
Accrued Interest Receivable	17,260		35		5,311		11,914		17,260
Financial Liabilities:
Deposits	$	3,577,003	$	686,124	$	1,439,339	$	1,455,148	$	3,580,611
Other Liabilities- Interest Rate Derivatives	20,820		—		20,820		—		20,820
FHLB Borrowings	407,135		—		—		405,543		405,543
Federal Funds Purchased	7,900		—		7,900		—		7,900
Accrued Interest Payable	6,772		—		—		6,772		6,772

			Fair Value Measurements at December 31, 2022
(Dollars in Thousands)	Carrying Value		Level 1		Level 2		Level 3		Total
Financial Assets:
Cash and Cash Equivalents	$	46,869	$	42,364	$	4,505	$	—	$	46,869
Securities Available-for-Sale	836,273		25,400		803,356		7,517		836,273
Portfolio Loans, net	3,055,061		—		—		2,955,489		2,955,489
Federal Home Loan Bank Stock, at Cost	9,740		—		—		NA		NA
Other Assets- Interest Rate Derivatives	22,974		—		22,974		—		22,974
Accrued Interest Receivable	19,346		138		4,903		14,305		19,346
Financial Liabilities:
Deposits	$	3,630,333	$	703,334	$	1,665,473	$	1,264,659	$	3,633,466
Other Liabilities- Interest Rate Derivatives	22,543		—		22,543		—		22,543
FHLB Borrowings	180,550		—		—		180,569		180,569
Federal Funds Purchased	17,870		—		17,870		—		17,870
Accrued Interest Payable	2,294		—		—		2,294		2,294

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DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

6 Months Ended

Jun. 30, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

In accordance with applicable accounting guidance for derivatives and hedging, all derivatives are recognized as either assets or liabilities on the Consolidated Balance Sheet at fair value. Interest rate swaps are contracts in which a series of interest rate flows (fixed and variable) are exchanged over a prescribed period. The notional amounts on which the interest payments are based are not exchanged. These derivative positions relate to transactions in which the Company enters into an interest rate swap with a commercial customer while at the same time entering into an offsetting interest rate swap with another financial institution, or counterparty. In connection with each transaction, the Company originates a floating rate loan to the customer at a notional amount. In turn, the customer contracts with the counterparty to swap the stream of cash flows associated with the floating interest rate loan with the Company for a stream of fixed interest rate cash flows based on the same notional amount as the Company’s loan. The transaction allows the customer to effectively convert a variable rate loan to a fixed rate loan with the Company receiving a variable rate. These agreements could have floors or caps on the contracted interest rates.

Pursuant to agreements with various financial institutions, the Company may receive collateral or may be required to post collateral based upon mark-to-market positions. Beyond unsecured threshold levels, collateral in the form of cash or securities may be made available to counterparties of interest rate swap transactions. Based upon current positions and related future collateral requirements relating to them, management believes any effect on our cash flow or liquidity position to be immaterial.

Derivatives contain an element of credit risk, the possibility that the Company will incur a loss because a counterparty, which may be a financial institution or a customer, fails to meet its contractual obligations. All derivative contracts with financial institutions may be executed only with counterparties approved by the Asset and Liability Committee (“ALCO”) and all derivatives with customers are approved by a team of members from senior management who have been trained to understand the risk associated with interest rate swaps and have past industry experience. Interest rate swaps are considered derivatives but are not accounted for using hedge accounting. As such, changes in the estimated fair value of the derivatives are recorded in current earnings in the Consolidated Statements of Income.

The following table indicates the amounts representing the fair value of derivative assets and derivative liabilities at the dates presented:

	Fair Value of Derivative Assets (Included in Other Assets)
	June 30, 2023					December 31, 2022
(Dollars in Thousands)	Number of Transactions	Notional Amount		Fair Value		Number of Transactions	Notional Amount		Fair Value
Derivatives not Designated as Hedging Instruments
Interest Rate Lock Commitments – Mortgage Loans	7	$	1,147	$	6	1	$	200	$	1
Interest Rate Swap Contracts – Commercial Loans	60	407,256		21,101		62	432,984		22,973
Total Derivatives not Designated as Hedging Instruments	67	$	408,403	$	21,107	63	$	433,184	$	22,974

	Fair Value of Derivative Liabilities (Included in Other Liabilities)
	June 30, 2023					December 31, 2022
(Dollars in Thousands)	Number of Transactions	Notional Amount		Fair Value		Number of Transactions	Notional Amount		Fair Value
Derivatives not Designated as Hedging Instruments
Forward Sale Contracts – Mortgage Loans	7	$	1,147	$	6	1	$	200	$	1
Interest Rate Swap Contracts – Commercial Loans	60	407,256		20,814		62	432,984		22,542
Total Derivatives not Designated as Hedging Instruments	67	$	408,403	$	20,820	63	$	433,184	$	22,543

The following table indicates the income (loss) recognized on derivatives for the periods presented:

	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in Thousands)	2023		2022		2023		2022
Derivatives not Designated as Hedging Instruments
Interest Rate Lock Commitments – Mortgage Loans	$	5	$	14	$	5	$	18
Forward Sale Contracts – Mortgage Loans	(5)		(14)		(5)		(18)
Interest Rate Swap Contracts – Commercial Loans	50		139		(144)		443
Total Derivative Income (Loss)	$	50	$	139	$	(144)	$	443

Presenting offsetting derivatives that are subject to legally enforceable netting arrangements with the same party is permitted. For example, we may have a derivative asset and a derivative liability with the same counterparty to a swap transaction and are permitted to offset the asset position and the liability position resulting in a net presentation.

The following table indicates the gross amounts of commercial loan swap derivative assets and derivative liabilities, the amounts offset and the carrying values in the Consolidated Balance Sheets at the dates presented:

	Derivative Assets (Included in Other Assets)				Derivative Liabilities (Included in Other Liabilities)
(Dollars in Thousands)	June 30, 2023		December 31, 2022		June 30, 2023		December 31, 2022
Derivatives not Designated as Hedging Instruments
Gross Amounts Recognized	$	21,101	$	22,973	$	20,814	$	22,542
Gross Amounts Offset	—		—		—		—
Net Amounts Presented in the Consolidated Balance Sheets	21,101		22,973		20,814		22,542
Gross Amounts Not Offset	—		—		—		—
Net Amount	$	21,101	$	22,973	$	20,814	$	22,542

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DEPOSITS

6 Months Ended

Jun. 30, 2023

Banking and Thrift, Interest [Abstract]

DEPOSITS

DEPOSITS

The following table presents the composition of deposits at the dates presented:

(Dollars in Thousands)	June 30, 2023		December 31, 2022
Noninterest-Bearing Demand	$	686,124	$	703,334
Interest-Bearing Demand	489,971		496,948
Money Market	422,780		484,238
Savings	526,588		684,287
Certificates of Deposits	1,451,540		1,261,526
Total	$	3,577,003	$	3,630,333

All deposit accounts are insured by the FDIC up to the maximum amount allowed by law. The Dodd-Frank Act, signed into law on July 21, 2010, makes permanent the $250,000 limit for federal deposit insurance and the coverage limit applies per depositor, per insured depository institution for each account ownership. Certificates of deposits that exceed the FDIC Insurance limit of $250,000 at June 30, 2023 and December 31, 2022 were $233.5 million and $159.0 million, respectively.

Certificates of Deposit maturing as of the date presented:

(Dollars in Thousands)	June 30, 2023
3 Months or Less	$	99,282
Over 3 Months through 12 Months	765,786
Over 1 Year Through 3 Years	506,886
Over 3 Years	79,586
Total	$	1,451,540

Overdrafts reclassified to loans were $0.3 million at both June 30, 2023 and December 31, 2022.

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FEDERAL HOME LOAN BANK BORROWINGS AND FEDERAL FUNDS PURCHASED

6 Months Ended

Jun. 30, 2023

Debt Disclosure [Abstract]

FEDERAL HOME LOAN BANK BORROWINGS AND FEDERAL FUNDS PURCHASED

FEDERAL HOME LOAN BANK BORROWINGS AND FEDERAL FUNDS PURCHASED

Borrowings serve as an additional source of liquidity for the Company. The Company had $407.1 million Federal Home Loan Bank (“FHLB”) borrowings at June 30, 2023 and $180.6 million at December 31, 2022. FHLB borrowings include both fixed rate and variable rate advances for various terms and are secured by a blanket lien on select residential mortgages, select multifamily loans, and select commercial real estate loans. Variable rate FHLB borrowings were 82.8% and 33.4% of total borrowings at June 30, 2023 and December 31, 2022, respectively. Total loans pledged as collateral were $1.5 billion at both June 30, 2023 and December 31, 2022, respectively. There were no securities available-for-sale pledged as collateral at both June 30, 2023 and December 31, 2022. The Company continues to methodically pledge additional eligible loans and had continued progress in additional pledging throughout the year. The Company is eligible to borrow up to an additional $508.4 million based upon current qualifying collateral and has a maximum borrowing capacity of approximately $1.1 billion, or 25.0% of the Company’s assets, as of June 30, 2023. The Company had the capacity to borrow up to an additional $676.7 million from the FHLB at December 31, 2022.

The Company had $7.9 million and $17.9 million in overnight federal funds purchased at June 30, 2023 and December 31, 2022, respectively. The available borrowing capacity under unsecured lines of credit with corresponding banks was $137.1 million and $127.1 million at June 30, 2023 and December 31, 2022, respectively.

The following table represents the balance of FHLB borrowings and the weighted average interest rate as of the periods presented:

(Dollars in Thousands)	June 30, 2023			December 31, 2022
FHLB Borrowings	$	407,135		$	180,550
Weighted Average Interest Rate	5.10		%	4.48		%
FHLB Availability	$	508,369		$	676,746

The following table represents the balance of federal funds purchased and the weighted average interest rate as of the periods presented:

(Dollars in Thousands)	June 30, 2023			December 31, 2022
Federal Fund Purchased	$	7,900		$	17,870
Weighted Average Interest Rate	5.40		%	4.65		%
Federal Funds Purchased Availability	$	137,100		$	127,130

Scheduled annual maturities and weighted average interest rates for FHLB borrowings for each of the five years subsequent to June 30, 2023 and thereafter are as follows:

(Dollars in Thousands)	Balance		Weighted Average Rate
1 year	$	337,135	5.32	%
2 years	25,000		4.13	%
3 years	45,000		3.96	%
4 years	—		—	%
5 years	—		—	%
Thereafter	—		—	%
Total FHLB Borrowings	$	407,135	5.10	%

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COMMITMENTS AND CONTINGENCIES

6 Months Ended

Jun. 30, 2023

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIESCommitments to extend credit, which amounted to $749.4 million at June 30, 2023 and $630.6 million at December 31, 2022, represent agreements to lend to customers with fixed expiration dates or other termination clauses. The Company provides lines of credit to our clients to finance the completion of construction projects and revolving lines of credit to operating companies to finance their working capital needs. Lines of credit for construction projects represented $395.6 million, or 52.8% and $373.2

million, or 59.2%, of the commitments to extend credit at June 30, 2023 and December 31, 2022, respectively. Standby letters of credit are conditional commitments issued by the Company guaranteeing the performance of a customer to a third-party. Those guarantees are primarily issued to support public and private borrowing arrangements. The Company had outstanding letters of credit totaling $26.3 million at June 30, 2023 and $25.7 million at December 31, 2022.

The following table sets forth our commitments and letters of credit as of the dates presented:

(Dollars in Thousands)	June 30, 2023		December 31, 2022
Commitments to Extend Credit	$	749,377	$	630,619
Standby and Performance Letters of Credit	26,289		25,739
Total	$	775,666	$	656,358

Our exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and unconditional obligations as it does for on-balance sheet instruments. Unless noted otherwise, collateral or other security is required to support financial instruments with credit risk.

Life-of-Loss Reserve on Unfunded Loan Commitments

We maintain a life-of-loss reserve on unfunded commercial lending commitments and letters of credit to provide for the risk of loss inherent in these arrangements. The life-of-loss reserve is computed using a methodology similar to that used to determine the ACL for loans, modified to take into account the probability of a draw-down on the commitment. The life-of-loan reserve for unfunded commitments is included in other liabilities on our Consolidated Balance Sheets.

The following table presents activity in the life-of-loss reserve on unfunded loan commitments as of the dates presented:

	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in Thousands)	2023		2022		2023		2022
Life-of-Loss Reserve on Unfunded Loan Commitments
Balance at Beginning of Period	$	2,376	$	1,547	$	2,292	$	1,783
Provision for Unfunded Commitments	360		269		444		33
Balance at End of Period	$	2,736	$	1,816	$	2,736	$	1,816

Amounts are added or subtracted to the provision for unfunded commitments through a charge or credit to current earnings in the provision for unfunded commitments. An expense of $0.4 million was recorded during the three months ended June 30, 2023 for the provision for unfunded commitments, which resulted in increases of $0.1 million and $0.4 million for the three and six months ended June 30, 2023, respectively compared to the same periods in 2022.

Litigation

In the normal course of business, the Company is subject to various legal and administrative proceedings and claims. Legal and administrative proceedings are subject to inherent uncertainties and unfavorable rulings could occur, and the timing and outcome of any legal or administrative proceeding cannot be predicted with certainty. Other than as set forth below, as of June 30, 2023, the Company is not involved in any other material pending legal proceedings other than proceedings occurring in the ordinary course of business.

The Bank is engaged in a variety of collection proceedings against various related entities that are owned and/or controlled by James C. Justice, II, Cathy L Justice and James C. Justice, III (such entities, the “Justice Entities” and collectively with the individuals, the “Defendants”). On April 20, 2023 and May 15, 2023, the Bank filed in the Circuit Court of the City of Martinsville, Virginia confessions of judgment against the Defendants with respect to amounts owed on matured promissory notes made or guaranteed by the Defendants with an aggregate principal balance of approximately $301 million. On May 12, 2023 and June 7, 2023, the Defendants filed motions to set aside the confessions of judgment on the basis that the Bank allegedly (i) violated anti-tying provisions of the Bank Holding Company Act of 1956, as amended, (ii) breached contractual obligations and fiduciary duties to the Defendants and (iii) tortiously interfered with the Defendants’ business expectancies and relationships, among other allegations.

The Company and the Bank intend to pursue vigorously the confessions of judgment and enforce the promissory notes and related agreements, including release and affirmation agreements, guaranties and indemnification agreements. The Company and the Bank vigorously deny the allegations contained in the Defendants’ motions to set aside the confessions of judgment. Based on consultation with legal counsel, the Company believes that the Bank has meritorious defenses to all allegations contained in such motions to set aside the confessions of judgment.

Because the collection litigation is in its early stages, the Company can make no prediction as to the ultimate outcome thereof or any related legal proceedings that may commence, and the Company is not yet able to make a determination as to the likelihood of an unfavorable outcome in this matter or to estimate the range of any possible gain or loss with respect to this litigation.

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TAX EFFECTS ON OTHER COMPREHENSIVE (LOSS) INCOME

6 Months Ended

Jun. 30, 2023

Equity [Abstract]

TAX EFFECTS ON OTHER COMPREHENSIVE (LOSS) INCOME

TAX EFFECTS ON OTHER COMPREHENSIVE (LOSS) INCOME

The following table presents the change in components of other comprehensive (loss) income for the periods presented, net of tax effects:

(Dollars in Thousands)	Three Months Ended June 30, 2023						Three Months Ended June 30, 2022
	Pre-Tax Amount		Tax Benefit		Net of Tax Amount		Pre-Tax Amount		Tax Benefit		Net of Tax Amount
Net Unrealized Losses Arising during the period	$	(11,036)	$	2,417	$	(8,619)	$	(35,002)	$	7,350	$	(27,652)
Reclassification Adjustment for Gains included in Net Income	(3)		1		(2)		(76)		16		(60)
Other Comprehensive Loss	$	(11,039)	$	2,418	$	(8,621)	$	(35,078)	$	7,366	$	(27,712)

(Dollars in Thousands)	Six Months Ended June 30, 2023								Six Months Ended June 30, 2022
	Pre-Tax Amount				Tax Expense		Net of Tax Amount		Pre-Tax Amount		Tax Benefit		Net of Tax Amount
Net Unrealized Gains (Losses) Arising during the period	$	4,597			$	(973)	$	3,624	$	(78,034)	$	16,387	$	(61,647)
Reclassification Adjustment for Losses (Gains) included in Net Income	9				(2)		7		(52)		11		(41)
Other Comprehensive Income (Loss)	$	4,606	$	4,615	$	(975)	$	3,631	$	(78,086)	$	16,398	$	(61,688)

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STOCK REPURCHASE PLAN

6 Months Ended

Jun. 30, 2023

Equity [Abstract]

STOCK REPURCHASE PLAN

STOCK REPURCHASE PLAN

On March 29, 2023, the Company announced that its Board of Directors (the “Board”) has authorized, effective May 1, 2023, a common share repurchase program to purchase up to 1,000,000 shares of the Company’s common stock in the aggregate over a period of twelve months, (the “2023 Program”) subject to receipt of non-objection from the Federal Reserve Bank of Richmond, which was received on April 24, 2023. The 2023 Program authorizes the purchase of the Company’s common stock in open market transactions or privately negotiated transactions, including pursuant to a trading plan in accordance with Rule 10b-18 promulgated under the Securities Exchange Act of 1934, as amended. The authorization permits management to repurchase shares of the Company’s common stock from time to time at management’s discretion. The actual means and timing of any shares purchased under the 2023 Program will depend on a variety of factors, including the market price of the Company’s common stock, general market and economic conditions, management’s evaluation of the Company’s financial condition and liquidity position and applicable legal and regulatory requirements. The 2023 Program is authorized through May 1, 2024, although it may be modified or terminated by the Board at any time. The 2023 Program does not obligate the Company to purchase any particular number of shares. During the six months ended June 30, 2023, 583,824 shares of common stock had been repurchased under this program at a total cost of $8.2 million, or an average price of $13.96 per share.

Previously on June 28, 2022, the Company announced that its Board authorized, effective August 1, 2022, a common share repurchase program to purchase up to 750,000 shares of the Company’s common stock in the aggregate over a period of twelve months, subject to non-objection from the Federal Reserve Bank of Richmond, which was received in July 2022 (the “2022 Program”). The 2022 Program authorized the purchase of the Company’s common stock in open market transactions or privately negotiated transactions, including pursuant to a trading plan in accordance with Rule 10b-18 promulgated under the Exchange Act. The authorization permitted management to repurchase shares of the Company’s common stock from time to

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

Previously on December 13, 2021, the Company announced that its Board authorized, effective December 10, 2021, a common share repurchase program to purchase up to 2,000,000 shares of the Company’s common stock in the aggregate over a period of twelve months (the “2021 Program”). The 2021 Program was originally authorized through December 9, 2022, did not obligate the Company to purchase any particular number of shares, and was exhausted as of April 28, 2022.

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PROVISION FOR INCOME TAXES

6 Months Ended

Jun. 30, 2023

Income Tax Disclosure [Abstract]

PROVISION FOR INCOME TAXES

PROVISION FOR INCOME TAXES

The following is a reconciliation of the differences between the provision for income taxes and the amount computed by applying the statutory federal income tax rate to income before taxes:

	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
(Dollars in Thousands)	Amount		Percent	Amount		Percent	Amount		Percent	Amount		Percent
Federal Income Tax at Statutory Rate	$	1,209	21.0	$	2,640	21.0	$	5,503	21.0	$	4,877	21.0
State Income Tax, net of Federal Benefit	55		0.9	48		0.4	420		1.6	262		1.1
Tax-exempt Interest, net of Disallowance	(183)		(2.9)	(225)		(1.8)	(378)		(1.4)	(453)		(2.0)
Federal Tax Credits, net of Basis Reduction	(559)		(8.9)	(553)		(4.4)	(1,109)		(4.2)	(1,107)		(4.8)
Tax Credit Investment Amortization, net of Federal Benefit	274		4.4	—		—	757		2.9	—		—
Change in Valuation Allowance	—		—	(132)		(1.1)	—		—	(280)		(1.2)
Income from Bank Owned Life Insurance	(72)		(1.2)	(70)		(0.6)	(143)		(0.5)	(140)		(0.6)
Interim Period Effective Tax Rate Adjustment	(799)		(12.8)	76		0.6	(597)		(2.3)	(55)		(0.2)
Other	129		0.4	8		0.2	105		0.3	17		0.1
Income Tax Provision and Effective Income Tax Rate	$	54	0.9	$	1,792	14.3	$	4,558	17.4	$	3,121	13.4

The Company elected to adopt the proportional amortization method of accounting for all qualifying equity investments within the HTC program. The Company makes equity investments as a limited partner in various partnerships that sponsor HTC as a strategic tax initiative designed to receive income tax credits and other income tax benefits, such as deductible flow-through losses. As of June 30, 2023, the Company recognized $2.7 million in Historical Tax Credit equity investments recorded as a component of other assets on the Consolidated Balance Sheets.

The Company records income tax credits and other income tax benefits received from its HTC investments as a component of the provision for income taxes on the Consolidated Statements of Income and as a component of operating activities on the Consolidated Statements of Cash Flows.

Investments accounted for using the proportional amortization method are amortized and recorded as a component of the provision for income taxes on the Consolidated Statements of Income.

The Company records non-income-tax-related activity and other returns received from its HTC investments as a component of other noninterest income on the Consolidated Statements of Income and as a component of operating activities on the Consolidated Statements of Cash Flows. As of June 30, 2023, the Company has not recognized any non-income-tax-related activity from its HTC investments.

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Pay vs Performance Disclosure - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
Pay vs Performance Disclosure
Net Income	$ 5,704	$ 10,778	$ 21,645	$ 20,101

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BASIS OF PRESENTATION (Policies)

6 Months Ended

Jun. 30, 2023

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Principles of Consolidation

Principles of Consolidation: The interim Consolidated Financial Statements include the accounts of Carter Bankshares, Inc. (the “Company”) and its wholly owned subsidiary, Carter Bank & Trust (the “Bank”). CB&T Investment Company (the “Investment Company”) is a subsidiary of the Bank. All significant intercompany transactions have been eliminated in consolidation.

Basis of Presentation

Basis of Presentation: The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the audited Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission (“SEC”), on March 10, 2023. In management’s opinion, the accompanying interim financial information reflects all adjustments, consisting of normal recurring adjustments, necessary to present fairly our financial position and the results of operations for each of the interim periods presented. Results of operations for interim periods are not necessarily indicative to the results of operations that may be expected for a full year or any future period.

Reclassification

Reclassification: Amounts in prior periods financial statements and footnotes are reclassified whenever necessary to conform to the current period presentation. Reclassifications had no material effect on prior periods net income or shareholders’ equity.

Use of Estimates

Use of Estimates: To prepare financial statements in conformity with GAAP, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the Consolidated Financial Statements and the disclosures provided, and actual results could differ from those estimates. Information available which could affect these judgments include, but are not limited to, changes in interest rates, changes in the performance of the economy, and changes in the financial condition of borrowers.

Accounting Standards Adopted in 2023 and Accounting Standards Issued but Not Yet Adopted

Accounting Standards Adopted in 2023

In March 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards (“ASU”) No. 2023-02, Investments Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method. The amendments in this ASU expands the use of the proportional amortization method of accounting, previously only allowable for Low Income Tax Housing Credits, (“LITHC”) investments, to equity investments in other tax credit structures that meet certain criteria. This guidance is effective for public business entities for fiscal years including interim periods within those fiscal years, beginning after December 15, 2023. Early adoption is permitted in any interim period. The Company reviewed its existing tax equity investment portfolios and evaluated the impact of the updated guidance on its Consolidated Financial Statements and elected to early adopt the amendments in this ASU as of June 30, 2023 on a modified retrospective basis, effective dated as of January 1, 2023. As a result, the Company recorded a transitional adjustment of $0.1 million to retained earnings.

The Company makes equity investments as a limited partner in various partnerships that sponsor historic tax credits (“HTC”) as a strategic tax initiative designed to receive tax credits and other tax benefits, such as deductible flow-through losses. The Company has evaluated all of the proportional amortization method qualifying criteria and has elected to apply the proportional amortization method at the HTC program level. The Company records the investment in the HTC as a component of other assets and uses the proportional amortization method to account for the investments in the HTC partnerships. Amortization related to these HTC investments is recorded on a net basis as a component of the provision for income taxes on the Consolidated Statements of Income. Prior to the ASU adoption, amortization was recorded as a component of noninterest expense on the Consolidated Statements of Income. The amendments in this ASU did not materially impact our Consolidated Financial Statements.

Accounting Standards Issued but Not Yet Adopted

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in this ASU provide optional guidance for a limited period of time to ease the potential burden in accounting for or recognizing the effects of reference rate reform on financial reporting. The amendments provide optional expedients and exceptions for applying GAAP to loan and lease agreements, derivative contracts,

and other transactions affected by the anticipated transition away from the London Interbank Offered Rate (“LIBOR”) toward new interest rate benchmarks. Modified contracts that meet certain scope guidance are eligible for relief from the modification accounting requirements in GAAP. The optional guidance generally allows for the modified contract to be accounted for as a continuation of the existing contract and does not require contract remeasurement at the modification date or reassessment of a previous accounting determination. The amendments in this ASU are effective for all entities between March 12, 2020 and December 31, 2022. In December 2022, the FASB issued ASU No 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848. The amendments in this ASU defer the sunset date for applying the reference rate reform relief by two years to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848.

Furthermore, the United Kingdom’s Financial Conduct Authority (“FCA”), who is the regulator of LIBOR, announced on March 5, 2021 that they will no longer require any panel bank to continue to submit LIBOR after December 31, 2021. As it pertains to the U.S. dollar LIBOR, effective January 1, 2022, the ICE Benchmark Administration Limited, the administrator of the LIBOR, ceased the publication of one-week and two-month USD LIBOR and ceased the publications of the remaining tenors of USD LIBOR (one, three, six, and 12-month) immediately after June 30, 2023. The Federal Reserve System (“FRB”) of New York created a working group called the Alternative Reference Rate Committee (“ARRC”) to assist U.S. institutions in transitioning away from LIBOR as a benchmark interest rate. The ARRC recommended the use of the Secured Overnight Financing Rate (“SOFR”) as a replacement index for LIBOR, and in March 2022 the U.S. passed legislation providing a uniform approach for replacing LIBOR as a reference rate in legacy contracts that do not contain effective “fall back” provisions for when LIBOR is no longer published or no longer representative, and that instructs the FRB to identify a replacement benchmark based on SOFR. We ceased originating new LIBOR based variable rate loans as of December 31, 2021 per the ARRC’s guidance.

We have created an internal team that is managing our transition away from LIBOR. This transition team is a cross-functional group comprised of representatives from the lending lines of business, as well as representatives from loan operations, information technology, finance and other support functions. To date, the transition team has completed the following milestones required for a successful transition away from LIBOR: identified contracts that contain LIBOR language, documented the risks associated with the transition, reviewed existing contract language for the presence of appropriate fallback rate language, and developed appropriate loan fallback rate language for when LIBOR is retired. We have selected one-month term SOFR (published by the CME Group) as our replacement benchmark for LIBOR based loans. The financial impact regarding pricing, valuation and operations of the transition has been evaluated and is not expected to be material in nature. Our transition team is fully committed to working within the guidelines established by the FCA and ARRC to complete a smooth transition away from LIBOR.

As of June 30, 2023, approximately 5.3% of our loan portfolio consists of loans whose variable rate index is one month LIBOR.

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EARNINGS PER SHARE (Tables)

6 Months Ended

Jun. 30, 2023

Earnings Per Share [Abstract]

Schedule of Basic and Diluted Earnings per Share Calculations

The following table reconciles the numerators and denominators of basic and diluted earnings per common share calculations for the periods presented:

	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in Thousands, except share and per share data)	2023		2022		2023		2022
Numerator for Earnings per Common Share – Basic and Diluted
Net Income	$	5,704	$	10,778	$	21,645	$	20,101
Less: Income allocated to participating shares	49		69		168		110
Net Income Allocated to Common Shareholders - Basic & Diluted	$	5,655	$	10,709	$	21,477	$	19,991
Denominator:
Weighted Average Shares Outstanding, including Shares Considered Participating Securities	23,715,564		24,647,543		23,826,312		25,250,413
Less: Average Participating Securities	201,727		157,241		185,203		138,482
Weighted Average Common Shares Outstanding - Basic & Diluted	23,513,837		24,490,302		23,641,109		25,111,931
Earnings per Common Share – Basic	$	0.24	$	0.44	$	0.91	$	0.80
Earnings per Common Share – Diluted	$	0.24	$	0.44	$	0.91	$	0.80

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INVESTMENT SECURITIES (Tables)

6 Months Ended

Jun. 30, 2023

Investments, Debt and Equity Securities [Abstract]

Schedule of Amortized Cost and Fair Value for Available-for-sale Securities

The following tables present the amortized cost and fair value of available-for-sale securities as of the dates presented:

	June 30, 2023
(Dollars in Thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. Treasury Securities	$	14,371	$	—	$	(1,197)	$	13,174
U.S. Government Agency Securities	51,803		508		(803)		51,508
Residential Mortgage-Backed Securities	113,218		—		(13,055)		100,163
Commercial Mortgage-Backed Securities	35,844		426		(868)		35,402
Other Commercial Mortgage-Backed Securities	24,839		—		(3,256)		21,583
Asset Backed Securities	152,683		3		(13,964)		138,722
Collateralized Mortgage Obligations	183,193		—		(14,116)		169,077
States and Political Subdivisions	279,497		—		(46,066)		233,431
Corporate Notes	70,750		—		(12,440)		58,310
Total Debt Securities	$	926,198	$	937	$	(105,765)	$	821,370

	December 31, 2022
(Dollars in Thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. Treasury Securities	$	19,318	$	—	$	(1,452)	$	17,866
U.S. Government Agency Securities	50,334		218		(788)		49,764
Residential Mortgage-Backed Securities	115,694		—		(12,009)		103,685
Commercial Mortgage-Backed Securities	35,538		73		(936)		34,675
Other Commercial Mortgage-Backed Securities	24,987		9		(2,597)		22,399
Asset Backed Securities	156,552		—		(15,169)		141,383
Collateralized Mortgage Obligations	190,781		—		(14,159)		176,622
States and Political Subdivisions	281,753		—		(53,607)		228,146
Corporate Notes	70,750		—		(9,017)		61,733
Total Debt Securities	$	945,707	$	300	$	(109,734)	$	836,273

Schedule of Gross and Net Realized Gains and Losses

The following table shows the composition of gross and net realized gains and losses for the periods presented:

	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in Thousands)	2023		2022		2023		2022
Proceeds from Sales of Securities Available-for-Sale	$	15,054	$	14,856	$	15,054	$	19,777
Gross Realized Gains	$	129	$	208	$	129	$	208
Gross Realized Losses	(126)		(132)		(138)		(156)
Net Realized Gains (Losses)	3		76		(9)		52
Tax Impact	$	1	$	16	$	(2)	$	11

Schedule of Amortized Cost and Fair Value of Available-for-sale Debt Securities by Contractual Maturity

The amortized cost and fair value of available-for-sale debt securities are shown below by contractual maturity as of the date presented. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately.

	June 30, 2023
(Dollars in Thousands)	Amortized Cost		Fair Value
Due in One Year or Less	$	5,188	$	5,071
Due after One Year through Five Years	14,152		13,007
Due after Five Years through Ten Years	252,246		217,945
Due after Ten Years	144,835		120,400
Residential Mortgage-Backed Securities	113,218		100,163
Commercial Mortgage-Backed Securities	35,844		35,402
Other Commercial Mortgage-Backed Securities	24,839		21,583
Collateralized Mortgage Obligations	183,193		169,077
Asset Backed Securities	152,683		138,722
Total Debt Securities	$	926,198	$	821,370

Schedule of Available-for-sale Securities with Unrealized Losses

Available-for-sale securities with unrealized losses at June 30, 2023 and December 31, 2022, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position, were as follows:

	June 30, 2023
	Less Than 12 Months					12 Months or More					Total
(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	—	$	—	$	—	4	$	13,174	$	(1,197)	4	$	13,174	$	(1,197)
U.S. Government Agency Securities	8	6,683		(74)		12	16,891		(729)		20	23,574		(803)
Residential Mortgage-Backed Securities	1	83		—		42	100,080		(13,055)		43	100,163		(13,055)
Commercial Mortgage-Backed Securities	5	1,998		(9)		49	19,471		(859)		54	21,469		(868)
Other Commercial Mortgage-Backed Securities	1	1,939		(582)		8	19,644		(2,674)		9	21,583		(3,256)
Asset Backed Securities	1	1,885		(115)		52	136,141		(13,849)		53	138,026		(13,964)
Collateralized Mortgage Obligations	—	—		—		85	169,077		(14,116)		85	169,077		(14,116)
States and Political Subdivisions	3	2,922		(130)		158	230,309		(45,936)		161	233,231		(46,066)
Corporate Notes	1	2,037		(213)		20	56,273		(12,227)		21	58,310		(12,440)
Total Debt Securities	20	$	17,547	$	(1,123)	430	$	761,060	$	(104,642)	450	$	778,607	$	(105,765)

	December 31, 2022
	Less Than 12 Months					12 Months or More					Total
(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	3	$	14,080	$	(789)	2	$	3,786	$	(663)	5	$	17,866	$	(1,452)
U.S. Government Agency Securities	6	5,337		(26)		9	15,576		(762)		15	20,913		(788)
Residential Mortgage-Backed Securities	6	7,601		(372)		37	96,084		(11,637)		43	103,685		(12,009)
Commercial Mortgage-Backed Securities	7	7,843		(307)		49	15,675		(629)		56	23,518		(936)
Other Commercial Mortgage-Backed Securities	2	5,302		(617)		6	14,560		(1,980)		8	19,862		(2,597)
Asset Backed Securities	13	42,173		(2,984)		41	97,210		(12,185)		54	139,383		(15,169)
Collateralized Mortgage Obligations	35	66,362		(4,500)		50	110,260		(9,659)		85	176,622		(14,159)
States and Political Subdivisions	73	112,564		(19,706)		91	115,382		(33,901)		164	227,946		(53,607)
Corporate Notes	8	23,285		(2,965)		13	38,448		(6,052)		21	61,733		(9,017)
Total Debt Securities	153	$	284,547	$	(32,266)	298	$	506,981	$	(77,468)	451	$	791,528	$	(109,734)

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LOANS AND LOANS HELD-FOR-SALE (Tables)

6 Months Ended

Jun. 30, 2023

Receivables [Abstract]

Schedule of Loan Portfolio by Dollar Amount

The composition of the loan portfolio by dollar amount is shown in the table below:

(Dollars in Thousands)	June 30, 2023		December 31, 2022
Commercial
Commercial Real Estate	$	1,642,597	$	1,470,562
Commercial and Industrial	279,156		309,792
Total Commercial Loans	1,921,753		1,780,354
Consumer
Residential Mortgages	707,893		657,948
Other Consumer	38,736		44,562
Total Consumer Loans	746,629		702,510
Construction	356,805		353,553
Other	305,255		312,496
Total Portfolio Loans	3,330,442		3,148,913
Loans Held-for-Sale	173		—
Total Loans	$	3,330,615	$	3,148,913

Schedule of Troubled Debt Restructurings

The following table shows the amortized cost basis as of June 30, 2023 and June 30, 2022 for the loans restructured during the six months ended June 30, 2023 and June 30, 2022 to borrowers experiencing financial difficulty, disaggregated by portfolio segment:

	Restructured Loans
	Six Months Ended June 30, 2023					Six Months Ended June 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	—	$	—	—	%	—	$	—	—	%
Commercial and Industrial	—	—		—	%	—	—		—	%
Residential Mortgages	—	—		—	%	—	—		—	%
Other Consumer	—	—		—	%	—	—		—	%
Construction	—	—		—	%	—	—		—	%
Other	—	—		—	%	—	—		—	%
Total Accruing Restructured Loans	—	$	—	—	%	—	$	—	—	%
Nonaccrual Restructured Loans
Commercial Real Estate	—	$	—	—	%	1	$	300	0.02	%
Commercial and Industrial	—	—		—	%	—	—		—	%
Residential Mortgages	—	—		—	%	—	—		—	%
Other Consumer	—	—		—	%	—	—		—	%
Construction	—	—		—	%	—	—		—	%
Other	—	—		—	%	—	—		—	%
Total Nonaccrual Restructured Loans	—	$	—	—	%	1	$	300	0.02	%
Total Restructured Loans	—	$	—	—	%	1	$	300	0.02	%

(1)Excludes accrued interest receivable of $0.0 thousand and $2.9 thousand at June 30, 2023 and June 30, 2022 for restructured loans during the six months ended June 30, 2023 and June 30, 2022, respectively.

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ALLOWANCE FOR CREDIT LOSSES (Tables)

6 Months Ended

Jun. 30, 2023

Credit Loss [Abstract]

Schedule of Loan Balances by Origination Year and Assigned Risk Rating

The following table presents portfolio loan balances by year of origination and internally assigned risk rating for our portfolio segments as of the periods presented:

	June 30, 2023
	Risk Rating
(Dollars in Thousands)	2023		2022		2021		2020		2019		2018 and Prior		Revolving		Total Portfolio Loans
Commercial Real Estate
Pass	$	159,142	$	440,643	$	191,211	$	151,410	$	127,012	$	541,439	$	28,180	$	1,639,037
Special Mention	—		—		212		—		—		79		—		291
Substandard	—		—		—		—		—		3,269		—		3,269
Total Commercial Real Estate	$	159,142	$	440,643	$	191,423	$	151,410	$	127,012	$	544,787	$	28,180	$	1,642,597
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial and Industrial
Pass	$	112	$	20,160	$	41,155	$	28,618	$	7,442	$	151,379	$	27,333	$	276,199
Special Mention	—		—		—		2,838		—		—		—		2,838
Substandard	—		—		45		28		44		2		—		119
Total Commercial and Industrial	$	112	$	20,160	$	41,200	$	31,484	$	7,486	$	151,381	$	27,333	$	279,156
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	1	$	—	$	—	$	1
Residential Mortgages
Pass	$	27,670	$	216,563	$	196,442	$	80,929	$	46,442	$	104,559	$	31,184	$	703,789
Special Mention	—		—		—		—		—		531		—		531
Substandard	—		—		1,212		—		863		1,248		250		3,573
Total Residential Mortgages	$	27,670	$	216,563	$	197,654	$	80,929	$	47,305	$	106,338	$	31,434	$	707,893
YTD Gross Charge-offs	$	—	$	—	$	3	$	—	$	—	$	67	$	—	$	70
Other Consumer
Pass	$	23,001	$	6,289	$	3,638	$	5,110	$	73	$	227	$	369	$	38,707
Special Mention	—		—		—		—		—		—		—		—
Substandard	—		—		22		—		—		7		—		29
Total Other Consumer	$	23,001	$	6,289	$	3,660	$	5,110	$	73	$	234	$	369	$	38,736
YTD Gross Charge-offs	$	86	$	663	$	388	$	48	$	94	$	29	$	—	$	1,308
Construction
Pass	$	47,058	$	147,468	$	124,382	$	14,883	$	4,038	$	7,755	$	8,134	$	353,718
Special Mention	—		—		—		—		—		64		—		64
Substandard	—		67		—		2,089		—		867		—		3,023
Total Construction	$	47,058	$	147,535	$	124,382	$	16,972	$	4,038	$	8,686	$	8,134	$	356,805
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	42	$	—	$	42
Other
Pass	$	—	$	—	$	—	$	—	$	—	$	3,342	$	—	$	3,342
Special Mention	—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		301,913		—		301,913
Total Other Loans	$	—	$	—	$	—	$	—	$	—	$	305,255	$	—	$	305,255
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Total Portfolio Loans
Pass	$	256,983	$	831,123	$	556,828	$	280,950	$	185,007	$	808,701	$	95,200	$	3,014,792
Special Mention	—		—		212		2,838		—		674		—		3,724
Substandard	—		67		1,279		2,117		907		307,306		250		311,926
Total Portfolio Loans	$	256,983	$	831,190	$	558,319	$	285,905	$	185,914	$	1,116,681	$	95,450	$	3,330,442
Current YTD Period:
YTD Gross Charge-offs	$	86	$	663	$	391	$	48	$	95	$	138	$	—	$	1,421

	December 31, 2022
	Risk Rating
(Dollars in Thousands)	2022		2021		2020		2019		2018		2017 and Prior		Revolving		Total Portfolio Loans
Commercial Real Estate
Pass	$	418,939	$	186,226	$	139,148	$	130,521	$	215,498	$	335,659	$	31,349	$	1,457,340
Special Mention	—		218		—		—		9,919		659		—		10,796
Substandard	—		—		—		—		2,105		321		—		2,426
Total Commercial Real Estate	$	418,939	$	186,444	$	139,148	$	130,521	$	227,522	$	336,639	$	31,349	$	1,470,562
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial and Industrial
Pass	$	23,104	$	47,137	$	35,819	$	9,022	$	10,639	$	154,473	$	23,699	$	303,893
Special Mention	—		—		2,887		—		—		—		—		2,887
Substandard	—		56		—		18		97		2,800		41		3,012
Total Commercial and Industrial	$	23,104	$	47,193	$	38,706	$	9,040	$	10,736	$	157,273	$	23,740	$	309,792
YTD Gross Charge-offs	$	3,432	$	—	$	—	$	—	$	4	$	—	$	—	$	3,436
Residential Mortgages
Pass	$	200,725	$	184,718	$	81,446	$	50,770	$	70,659	$	39,411	$	25,315	$	653,044
Special Mention	—		—		—		—		429		520		34		983
Substandard	—		1,212		—		865		444		1,400		—		3,921
Total Residential Mortgages	$	200,725	$	185,930	$	81,446	$	51,635	$	71,532	$	41,331	$	25,349	$	657,948
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	22	$	24	$	—	$	46
Other Consumer
Pass	$	24,100	$	10,006	$	7,323	$	1,999	$	512	$	256	$	299	$	44,495
Special Mention	—		—		—		—		—		—		—		—
Substandard	—		45		1		—		1		20		—		67
Total Other Consumer	$	24,100	$	10,051	$	7,324	$	1,999	$	513	$	276	$	299	$	44,562
YTD Gross Charge-offs	$	280	$	625	$	254	$	358	$	39	$	121	$	—	$	1,677
Construction
Pass	$	149,535	$	117,466	$	41,808	$	4,938	$	25,523	$	7,190	$	6,056	$	352,516
Special Mention	—		—		—		—		—		69		—		69
Substandard	—		—		—		—		92		876		—		968
Total Construction	$	149,535	$	117,466	$	41,808	$	4,938	$	25,615	$	8,135	$	6,056	$	353,553
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Other
Pass	$	—	$	—	$	—	$	—	$	—	$	180,745	$	—	$	180,745
Special Mention	—		—		—		—		—		—		—		—
Substandard	—		—		—		—		74,050		57,701		—		131,751
Total Other Loans	$	—	$	—	$	—	$	—	$	74,050	$	238,446	$	—	$	312,496
YTD Gross Charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Total Portfolio Loans
Pass	$	816,403	$	545,553	$	305,544	$	197,250	$	322,831	$	717,734	$	86,718	$	2,992,033
Special Mention	—		218		2,887		—		10,348		1,248		34		14,735
Substandard	—		1,313		1		883		76,789		63,118		41		142,145
Total Portfolio Loans	$	816,403	$	547,084	$	308,432	$	198,133	$	409,968	$	782,100	$	86,793	$	3,148,913
Current YTD Period:
YTD Gross Charge-offs	$	3,712	$	625	$	254	$	358	$	65	$	145	$	—	$	5,159

The following table presents portfolio loan balances by year of origination and performing and nonperforming status for our portfolio segments as of the periods presented:

	June 30, 2023
(Dollars in Thousands)	2023		2022		2021		2020		2019		2018 and Prior		Revolving		Total Portfolio Loans
Commercial Real Estate
Performing	$	159,142	$	440,643	$	191,423	$	151,410	$	127,012	$	542,275	$	28,180	$	1,640,085
Nonperforming	—		—		—		—		—		2,512		—		2,512
Total Commercial Real Estate	$	159,142	$	440,643	$	191,423	$	151,410	$	127,012	$	544,787	$	28,180	$	1,642,597
Commercial and Industrial
Performing	$	112	$	20,160	$	41,155	$	31,456	$	7,448	$	151,379	$	27,333	$	279,043
Nonperforming	—		—		45		28		38		2		—		113
Total Commercial and Industrial	$	112	$	20,160	$	41,200	$	31,484	$	7,486	$	151,381	$	27,333	$	279,156
Residential Mortgages
Performing	$	27,670	$	216,563	$	196,442	$	80,929	$	46,442	$	105,125	$	31,434	$	704,605
Nonperforming	—		—		1,212		—		863		1,213		—		3,288
Total Residential Mortgages	$	27,670	$	216,563	$	197,654	$	80,929	$	47,305	$	106,338	$	31,434	$	707,893
Other Consumer
Performing	$	23,001	$	6,289	$	3,655	$	5,110	$	73	$	227	$	369	$	38,724
Nonperforming	—		—		5		—		—		7		—		12
Total Other Consumer	$	23,001	$	6,289	$	3,660	$	5,110	$	73	$	234	$	369	$	38,736
Construction
Performing	$	47,058	$	147,535	$	124,382	$	14,882	$	4,038	$	7,868	$	8,134	$	353,897
Nonperforming	—		—		—		2,090		—		818		—		2,908
Total Construction	$	47,058	$	147,535	$	124,382	$	16,972	$	4,038	$	8,686	$	8,134	$	356,805
Other
Performing	$	—	$	—	$	—	$	—	$	—	$	3,342	$	—	$	3,342
Nonperforming	—		—		—		—		—		301,913		—		301,913
Total Other Loans	$	—	$	—	$	—	$	—	$	—	$	305,255	$	—	$	305,255
Total Portfolio Loans
Performing	$	256,983	$	831,190	$	557,057	$	283,787	$	185,013	$	810,216	$	95,450	$	3,019,696
Nonperforming	—		—		1,262		2,118		901		306,465		—		310,746
Total Portfolio Loans	$	256,983	$	831,190	$	558,319	$	285,905	$	185,914	$	1,116,681	$	95,450	$	3,330,442

	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

Schedule of Loans Past Due

The following tables include an aging analysis of the recorded investment of past due portfolio loans as the periods presented:

	June 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		Nonaccrual Loans		Total Portfolio Loans
Commercial Real Estate	$	1,639,960	$	125	$	—	$	125	$	2,512	$	1,642,597
Commercial and Industrial	278,944		4		95		99		113		279,156
Residential Mortgages	703,917		438		250		688		3,288		707,893
Other Consumer	38,209		304		211		515		12		38,736
Construction	353,848		—		49		49		2,908		356,805
Other	3,342		—		—		—		301,913		305,255
Total	$	3,018,220	$	871	$	605	$	1,476	$	310,746	$	3,330,442

	December 31, 2022
(Dollars in Thousands)	Current Loans		Loans 30-59 Days Past Due		Loans 60-89 Days Past Due		Total 30-89 Days Past Due		Nonaccrual Loans		Total Portfolio Loans
Commercial Real Estate	$	1,468,154	$	104	$	—	$	104	$	2,304	$	1,470,562
Commercial and Industrial	309,305		274		9		283		204		309,792
Residential Mortgages	654,238		445		—		445		3,265		657,948
Other Consumer	44,013		337		204		541		8		44,562
Construction	349,225		1,321		2,143		3,464		864		353,553
Other	312,496		—		—		—		—		312,496
Total	$	3,137,431	$	2,481	$	2,356	$	4,837	$	6,645	$	3,148,913

Schedule of Nonaccrual Loans

The following table presents loans on nonaccrual status and loans past due 90 days or more and still accruing by portfolio segment for the periods presented:

	June 30, 2023
(Dollars in Thousands)	Beginning of Period Nonaccrual		End of Period Nonaccrual		Nonaccrual With No Related Allowance		Past Due 90+ Days Still Accruing
Commercial Real Estate	$	2,304	$	2,512	$	—	$	—
Commercial and Industrial	204		113		—		—
Residential Mortgages	3,265		3,288		—		—
Other Consumer	8		12		—		—
Construction	864		2,908		2,090		—
Other	—		301,913		—		—
Total	$	6,645	$	310,746	$	2,090	$	—

	December 31, 2022
(Dollars in Thousands)	Beginning of Period Nonaccrual		End of Period Nonaccrual		Nonaccrual With No Related Allowance		Past Due 90+ Days Still Accruing
Commercial Real Estate	$	3,337	$	2,304	$	—	$	—
Commercial and Industrial	451		204		—		—
Residential Mortgages	2,551		3,265		—		—
Other Consumer	73		8		—		—
Construction	985		864		—		—
Other	—		—		—		—
Total	$	7,397	$	6,645	$	—	$	—

Schedule of Collateral Dependent Loans

The following table presents the amortized cost basis of individually evaluated loans as of the periods presented. Changes in the fair value of the types of collateral and discounted cash flow modeling for individually evaluated loans are reported as provision for credit loss on loans in the period of change.

	June 30, 2023						December 31, 2022
(Dollars in Thousands)	Collateral		Discounted Cash Flow		Total		Collateral
Commercial Real Estate	$	1,946	$	—	$	1,946	$	2,106
Commercial and Industrial	—		—		—		—
Residential Mortgages	1,212		—		1,212		1,212
Other Consumer	—		—		—		—
Construction	2,090		—		2,090		—
Other	—		301,913		301,913		—
Total	$	5,248	$	301,913	$	307,161	$	3,318

Schedule of activity in ACL and Allowance for Loan Losses

The following tables present activity in the ACL for the periods presented:

	Three Months Ended June 30, 2023
(Dollars in Thousands)	Commercial Real Estate		Commercial and Industrial		Residential Mortgage		Other Consumer		Construction		Other		Total Loans
Allowance for Credit Losses on Loans:
Balance at Beginning of Period	$	18,595	$	3,531	$	10,419	$	1,189	$	7,506	$	53,454	$	94,694
Provision (Recovery) for Credit Losses on Loans	549		(243)		33		401		(861)		206		85
Charge-offs	—		—		(67)		(651)		(42)		—		(760)
Recoveries	—		5		1		119		—		—		125
Net Recoveries/(Charge-offs)	—		5		(66)		(532)		(42)		—		(635)
Balance at End of Period	$	19,144	$	3,293	$	10,386	$	1,058	$	6,603	$	53,660	$	94,144

	Six Months Ended June 30, 2023
(Dollars in Thousands)	Commercial Real Estate		Commercial and Industrial		Residential Mortgage		Other Consumer		Construction		Other		Total Loans
Allowance for Credit Losses on Loans:
Balance at Beginning of Period	$	17,992	$	3,980	$	8,891	$	1,329	$	6,942	$	54,718	$	93,852
Provision (Recovery) for Credit Losses on Loans	1,152		(691)		1,563		831		(297)		(1,058)		1,500
Charge-offs	—		(1)		(70)		(1,308)		(42)		—		(1,421)
Recoveries	—		5		2		206		—		—		213
Net Recoveries/(Charge-offs)	—		4		(68)		(1,102)		(42)		—		(1,208)
Balance at End of Period	$	19,144	$	3,293	$	10,386	$	1,058	$	6,603	$	53,660	$	94,144

	Three Months Ended June 30, 2022
(Dollars in Thousands)	Commercial Real Estate		Commercial and Industrial		Residential Mortgage		Other Consumer		Construction		Other		Total Loans
Allowance for Credit Losses on Loans:
Balance at Beginning of Period	$	17,518	$	3,583	$	4,520	$	1,470	$	7,554	$	61,731	$	96,376
Provision (Recovery) for Credit Losses on Loans	290		2,127		545		526		(722)		(952)		1,814
Charge-offs	—		(22)		(6)		(391)		—		—		(419)
Recoveries	—		—		96		114		—		—		210
Net (Charge-offs)/Recoveries	—		(22)		90		(277)		—		—		(209)
Balance at End of Period	$	17,808	$	5,688	$	5,155	$	1,719	$	6,832	$	60,779	$	97,981

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FAIR VALUE MEASUREMENTS (Tables)

6 Months Ended

Jun. 30, 2023

Fair Value Disclosures [Abstract]

Schedule of Financial Assets Measured on a Recurring Basis

Financial assets measured at fair value on a recurring basis are summarized below for the periods presented:

	June 30, 2023
(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:
U.S. Treasury Securities	$	13,174	$	13,174	$	—	$	—
U.S. Government Agency Securities	51,508		—		51,508		—
Residential Mortgage-Backed Securities	100,163		—		100,163		—
Commercial Mortgage-Backed Securities	35,402		—		35,402		—
Other Commercial Mortgage-Backed Securities	21,583		—		21,583		—
Asset Backed Securities	138,722		—		138,722		—
Collateralized Mortgage Obligations	169,077		—		169,077		—
States and Political Subdivisions	233,431		—		233,431		—
Corporate Notes	58,310		—		50,999		7,311
Total Securities Available-for-Sale	821,370		13,174		800,885		7,311
Derivatives	21,107		—		21,107		—
Total	$	842,477	$	13,174	$	821,992	$	7,311
Liabilities
Derivatives	$	20,820	$	—	$	20,820	$	—
Total	$	20,820	$	—	$	20,820	$	—

	December 31, 2022
(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:
U.S. Treasury Securities	$	17,866	$	17,866	$	—	$	—
U.S. Government Agency Securities	49,764		—		49,764		—
Residential Mortgage-Backed Securities	103,685		—		103,685		—
Commercial Mortgage-Backed Securities	34,675		—		34,675		—
Other Commercial Mortgage-Backed Securities	22,399		2,538		19,861		—
Asset Backed Securities	141,383		4,996		136,387		—
Collateralized Mortgage Obligations	176,622		—		176,622		—
States and Political Subdivisions	228,146		—		228,146		—
Corporate Notes	61,733		—		54,216		7,517
Total Securities Available-for-Sale	836,273		25,400		803,356		7,517
Derivatives	22,974		—		22,974		—
Total	$	859,247	$	25,400	$	826,330	$	7,517
Liabilities
Derivatives	$	22,543	$	—	$	22,543	$	—
Total	$	22,543	$	—	$	22,543	$	—

Schedule of Financial Liabilities Measured on a Recurring Basis

Financial assets measured at fair value on a recurring basis are summarized below for the periods presented:

	June 30, 2023
(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:
U.S. Treasury Securities	$	13,174	$	13,174	$	—	$	—
U.S. Government Agency Securities	51,508		—		51,508		—
Residential Mortgage-Backed Securities	100,163		—		100,163		—
Commercial Mortgage-Backed Securities	35,402		—		35,402		—
Other Commercial Mortgage-Backed Securities	21,583		—		21,583		—
Asset Backed Securities	138,722		—		138,722		—
Collateralized Mortgage Obligations	169,077		—		169,077		—
States and Political Subdivisions	233,431		—		233,431		—
Corporate Notes	58,310		—		50,999		7,311
Total Securities Available-for-Sale	821,370		13,174		800,885		7,311
Derivatives	21,107		—		21,107		—
Total	$	842,477	$	13,174	$	821,992	$	7,311
Liabilities
Derivatives	$	20,820	$	—	$	20,820	$	—
Total	$	20,820	$	—	$	20,820	$	—

	December 31, 2022
(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:
U.S. Treasury Securities	$	17,866	$	17,866	$	—	$	—
U.S. Government Agency Securities	49,764		—		49,764		—
Residential Mortgage-Backed Securities	103,685		—		103,685		—
Commercial Mortgage-Backed Securities	34,675		—		34,675		—
Other Commercial Mortgage-Backed Securities	22,399		2,538		19,861		—
Asset Backed Securities	141,383		4,996		136,387		—
Collateralized Mortgage Obligations	176,622		—		176,622		—
States and Political Subdivisions	228,146		—		228,146		—
Corporate Notes	61,733		—		54,216		7,517
Total Securities Available-for-Sale	836,273		25,400		803,356		7,517
Derivatives	22,974		—		22,974		—
Total	$	859,247	$	25,400	$	826,330	$	7,517
Liabilities
Derivatives	$	22,543	$	—	$	22,543	$	—
Total	$	22,543	$	—	$	22,543	$	—

Schedule of Financial Assets Measured on a Nonrecurring Basis

Financial assets measured at fair value on a nonrecurring basis are summarized below for the periods presented:

	June 30, 2023
(Dollars in Thousands)	Level 1		Level 2		Level 3		Fair Value
OREO	$	—	$	—	$	2,570	$	2,570
Individually Evaluated Loans	$	—	$	—	$	2,858	$	2,858

	December 31, 2022
(Dollars in Thousands)	Level 1		Level 2		Level 3		Fair Value
OREO	$	—	$	—	$	8,393	$	8,393
Individually Evaluated Loans	$	—	$	—	$	2,649	$	2,649

Schedule of Assets Measured at Fair Value on Nonrecurring Basis, Valuation Techniques

The following table summarizes the Company’s assets that were measured at fair value on a nonrecurring basis for the periods presented:

	June 30, 2023
(Dollars in Thousands)	Fair Value		Valuation Technique	Unobservable Inputs	Weighted Range		Average
Assets
Individually Evaluated Loans	$	1,067	Sales Contract	Other Expenses & Liens	1.0	%	1.0	%
Individually Evaluated Loans	1,791		Discounted Appraisals	Management's Discount & Estimated Selling Costs and Other Expenses & Liens	6.0	%	6.0	%
Total Individually Evaluated Loans	$	2,858
OREO	$	2,427	Appraisals	Estimated Selling Costs	10.0	%	10.0	%
OREO	143		Internal Valuations	Estimated Selling Costs	5.0	%	5.0	%
Total OREO	$	2,570

	December 31, 2022
(Dollars in Thousands)	Fair Value		Valuation Technique	Unobservable Inputs	Weighted Range		Average
Assets
Individually Evaluated Loans	$	858	Discounted Internal Valuations	Management's Discount & Estimated Selling Costs	14.2	%	14.2	%
Individually Evaluated Loans	$	1,791	Discounted Appraisals	Estimated Selling Costs	6.0	%	6.0	%
Total Individually Evaluated Loans	$	2,649
OREO	$	7,323	Appraisals	Estimated Selling Costs	10.0	%	10.0	%
OREO	143		Internal Valuations	Estimated Selling Costs	5.0	%	5.0	%
OREO	927		Discounted Internal Valuations	Management’s Discount & Estimated Selling Costs	0.0% - 5.0%		0.7	%
Total OREO	$	8,393

Schedule of Financial Instruments, Carrying Values and Estimated Fair Values

GAAP requires disclosure of fair value information about financial instruments carried at book value on the Consolidated Balance Sheet. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.

			Fair Value Measurements at June 30, 2023
(Dollars in Thousands)	Carrying Value		Level 1		Level 2		Level 3		Total
Financial Assets:
Cash and Cash Equivalents	$	53,275	$	44,872	$	8,403	$	—	$	53,275
Securities Available-for-Sale	821,370		13,174		800,885		7,311		821,370
Loans Held-for-Sale	173		—		—		173		173
Portfolio Loans, net	3,236,298		—		—		3,130,923		3,130,923
Federal Home Loan Bank Stock, at Cost	19,403		—		—		NA		NA
Other Assets- Interest Rate Derivatives	21,107		—		21,107		—		21,107
Accrued Interest Receivable	17,260		35		5,311		11,914		17,260
Financial Liabilities:
Deposits	$	3,577,003	$	686,124	$	1,439,339	$	1,455,148	$	3,580,611
Other Liabilities- Interest Rate Derivatives	20,820		—		20,820		—		20,820
FHLB Borrowings	407,135		—		—		405,543		405,543
Federal Funds Purchased	7,900		—		7,900		—		7,900
Accrued Interest Payable	6,772		—		—		6,772		6,772

			Fair Value Measurements at December 31, 2022
(Dollars in Thousands)	Carrying Value		Level 1		Level 2		Level 3		Total
Financial Assets:
Cash and Cash Equivalents	$	46,869	$	42,364	$	4,505	$	—	$	46,869
Securities Available-for-Sale	836,273		25,400		803,356		7,517		836,273
Portfolio Loans, net	3,055,061		—		—		2,955,489		2,955,489
Federal Home Loan Bank Stock, at Cost	9,740		—		—		NA		NA
Other Assets- Interest Rate Derivatives	22,974		—		22,974		—		22,974
Accrued Interest Receivable	19,346		138		4,903		14,305		19,346
Financial Liabilities:
Deposits	$	3,630,333	$	703,334	$	1,665,473	$	1,264,659	$	3,633,466
Other Liabilities- Interest Rate Derivatives	22,543		—		22,543		—		22,543
FHLB Borrowings	180,550		—		—		180,569		180,569
Federal Funds Purchased	17,870		—		17,870		—		17,870
Accrued Interest Payable	2,294		—		—		2,294		2,294

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DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (Tables)

6 Months Ended

Jun. 30, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Schedule of Derivative Assets and Liabilities

The following table indicates the amounts representing the fair value of derivative assets and derivative liabilities at the dates presented:

	Fair Value of Derivative Assets (Included in Other Assets)
	June 30, 2023					December 31, 2022
(Dollars in Thousands)	Number of Transactions	Notional Amount		Fair Value		Number of Transactions	Notional Amount		Fair Value
Derivatives not Designated as Hedging Instruments
Interest Rate Lock Commitments – Mortgage Loans	7	$	1,147	$	6	1	$	200	$	1
Interest Rate Swap Contracts – Commercial Loans	60	407,256		21,101		62	432,984		22,973
Total Derivatives not Designated as Hedging Instruments	67	$	408,403	$	21,107	63	$	433,184	$	22,974

	Fair Value of Derivative Liabilities (Included in Other Liabilities)
	June 30, 2023					December 31, 2022
(Dollars in Thousands)	Number of Transactions	Notional Amount		Fair Value		Number of Transactions	Notional Amount		Fair Value
Derivatives not Designated as Hedging Instruments
Forward Sale Contracts – Mortgage Loans	7	$	1,147	$	6	1	$	200	$	1
Interest Rate Swap Contracts – Commercial Loans	60	407,256		20,814		62	432,984		22,542
Total Derivatives not Designated as Hedging Instruments	67	$	408,403	$	20,820	63	$	433,184	$	22,543

Schedule of Income (Loss) Recognized in Income on Derivatives

The following table indicates the income (loss) recognized on derivatives for the periods presented:

	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in Thousands)	2023		2022		2023		2022
Derivatives not Designated as Hedging Instruments
Interest Rate Lock Commitments – Mortgage Loans	$	5	$	14	$	5	$	18
Forward Sale Contracts – Mortgage Loans	(5)		(14)		(5)		(18)
Interest Rate Swap Contracts – Commercial Loans	50		139		(144)		443
Total Derivative Income (Loss)	$	50	$	139	$	(144)	$	443

Schedule of Offsetting Assets

The following table indicates the gross amounts of commercial loan swap derivative assets and derivative liabilities, the amounts offset and the carrying values in the Consolidated Balance Sheets at the dates presented:

	Derivative Assets (Included in Other Assets)				Derivative Liabilities (Included in Other Liabilities)
(Dollars in Thousands)	June 30, 2023		December 31, 2022		June 30, 2023		December 31, 2022
Derivatives not Designated as Hedging Instruments
Gross Amounts Recognized	$	21,101	$	22,973	$	20,814	$	22,542
Gross Amounts Offset	—		—		—		—
Net Amounts Presented in the Consolidated Balance Sheets	21,101		22,973		20,814		22,542
Gross Amounts Not Offset	—		—		—		—
Net Amount	$	21,101	$	22,973	$	20,814	$	22,542

Schedule of Offsetting Liabilities

The following table indicates the gross amounts of commercial loan swap derivative assets and derivative liabilities, the amounts offset and the carrying values in the Consolidated Balance Sheets at the dates presented:

	Derivative Assets (Included in Other Assets)				Derivative Liabilities (Included in Other Liabilities)
(Dollars in Thousands)	June 30, 2023		December 31, 2022		June 30, 2023		December 31, 2022
Derivatives not Designated as Hedging Instruments
Gross Amounts Recognized	$	21,101	$	22,973	$	20,814	$	22,542
Gross Amounts Offset	—		—		—		—
Net Amounts Presented in the Consolidated Balance Sheets	21,101		22,973		20,814		22,542
Gross Amounts Not Offset	—		—		—		—
Net Amount	$	21,101	$	22,973	$	20,814	$	22,542

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DEPOSITS (Tables)

6 Months Ended

Jun. 30, 2023

Banking and Thrift, Interest [Abstract]

Schedule of Deposits

The following table presents the composition of deposits at the dates presented:

(Dollars in Thousands)	June 30, 2023		December 31, 2022
Noninterest-Bearing Demand	$	686,124	$	703,334
Interest-Bearing Demand	489,971		496,948
Money Market	422,780		484,238
Savings	526,588		684,287
Certificates of Deposits	1,451,540		1,261,526
Total	$	3,577,003	$	3,630,333

Schedule of Maturities of Time Deposits

Certificates of Deposit maturing as of the date presented:

(Dollars in Thousands)	June 30, 2023
3 Months or Less	$	99,282
Over 3 Months through 12 Months	765,786
Over 1 Year Through 3 Years	506,886
Over 3 Years	79,586
Total	$	1,451,540

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FEDERAL HOME LOAN BANK BORROWINGS AND FEDERAL FUNDS PURCHASED (Tables)

6 Months Ended

Jun. 30, 2023

Debt Disclosure [Abstract]

Schedule of Long-term Borrowings

The following table represents the balance of FHLB borrowings and the weighted average interest rate as of the periods presented:

(Dollars in Thousands)	June 30, 2023			December 31, 2022
FHLB Borrowings	$	407,135		$	180,550
Weighted Average Interest Rate	5.10		%	4.48		%
FHLB Availability	$	508,369		$	676,746

The following table represents the balance of federal funds purchased and the weighted average interest rate as of the periods presented:

(Dollars in Thousands)	June 30, 2023			December 31, 2022
Federal Fund Purchased	$	7,900		$	17,870
Weighted Average Interest Rate	5.40		%	4.65		%
Federal Funds Purchased Availability	$	137,100		$	127,130

Schedule of Maturities of Long-term Debt

Scheduled annual maturities and weighted average interest rates for FHLB borrowings for each of the five years subsequent to June 30, 2023 and thereafter are as follows:

(Dollars in Thousands)	Balance		Weighted Average Rate
1 year	$	337,135	5.32	%
2 years	25,000		4.13	%
3 years	45,000		3.96	%
4 years	—		—	%
5 years	—		—	%
Thereafter	—		—	%
Total FHLB Borrowings	$	407,135	5.10	%

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COMMITMENTS AND CONTINGENCIES (Tables)

6 Months Ended

Jun. 30, 2023

Commitments and Contingencies Disclosure [Abstract]

Schedule of Other Commitments

The following table sets forth our commitments and letters of credit as of the dates presented:

(Dollars in Thousands)	June 30, 2023		December 31, 2022
Commitments to Extend Credit	$	749,377	$	630,619
Standby and Performance Letters of Credit	26,289		25,739
Total	$	775,666	$	656,358

Schedule of Life-of-loss Reserve on Unfunded Loan Commitments

The following table presents activity in the life-of-loss reserve on unfunded loan commitments as of the dates presented:

	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in Thousands)	2023		2022		2023		2022
Life-of-Loss Reserve on Unfunded Loan Commitments
Balance at Beginning of Period	$	2,376	$	1,547	$	2,292	$	1,783
Provision for Unfunded Commitments	360		269		444		33
Balance at End of Period	$	2,736	$	1,816	$	2,736	$	1,816

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TAX EFFECTS ON OTHER COMPREHENSIVE (LOSS) INCOME (Tables)

6 Months Ended

Jun. 30, 2023

Equity [Abstract]

Schedule of Change in Components of Other Comprehensive Loss, Net of Tax Effects

The following table presents the change in components of other comprehensive (loss) income for the periods presented, net of tax effects:

(Dollars in Thousands)	Three Months Ended June 30, 2023						Three Months Ended June 30, 2022
	Pre-Tax Amount		Tax Benefit		Net of Tax Amount		Pre-Tax Amount		Tax Benefit		Net of Tax Amount
Net Unrealized Losses Arising during the period	$	(11,036)	$	2,417	$	(8,619)	$	(35,002)	$	7,350	$	(27,652)
Reclassification Adjustment for Gains included in Net Income	(3)		1		(2)		(76)		16		(60)
Other Comprehensive Loss	$	(11,039)	$	2,418	$	(8,621)	$	(35,078)	$	7,366	$	(27,712)

(Dollars in Thousands)	Six Months Ended June 30, 2023								Six Months Ended June 30, 2022
	Pre-Tax Amount				Tax Expense		Net of Tax Amount		Pre-Tax Amount		Tax Benefit		Net of Tax Amount
Net Unrealized Gains (Losses) Arising during the period	$	4,597			$	(973)	$	3,624	$	(78,034)	$	16,387	$	(61,647)
Reclassification Adjustment for Losses (Gains) included in Net Income	9				(2)		7		(52)		11		(41)
Other Comprehensive Income (Loss)	$	4,606	$	4,615	$	(975)	$	3,631	$	(78,086)	$	16,398	$	(61,688)

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PROVISION FOR INCOME TAXES (Tables)

6 Months Ended

Jun. 30, 2023

Income Tax Disclosure [Abstract]

Schedule of Effective Income Tax Rate Reconciliation

The following is a reconciliation of the differences between the provision for income taxes and the amount computed by applying the statutory federal income tax rate to income before taxes:

	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
(Dollars in Thousands)	Amount		Percent	Amount		Percent	Amount		Percent	Amount		Percent
Federal Income Tax at Statutory Rate	$	1,209	21.0	$	2,640	21.0	$	5,503	21.0	$	4,877	21.0
State Income Tax, net of Federal Benefit	55		0.9	48		0.4	420		1.6	262		1.1
Tax-exempt Interest, net of Disallowance	(183)		(2.9)	(225)		(1.8)	(378)		(1.4)	(453)		(2.0)
Federal Tax Credits, net of Basis Reduction	(559)		(8.9)	(553)		(4.4)	(1,109)		(4.2)	(1,107)		(4.8)
Tax Credit Investment Amortization, net of Federal Benefit	274		4.4	—		—	757		2.9	—		—
Change in Valuation Allowance	—		—	(132)		(1.1)	—		—	(280)		(1.2)
Income from Bank Owned Life Insurance	(72)		(1.2)	(70)		(0.6)	(143)		(0.5)	(140)		(0.6)
Interim Period Effective Tax Rate Adjustment	(799)		(12.8)	76		0.6	(597)		(2.3)	(55)		(0.2)
Other	129		0.4	8		0.2	105		0.3	17		0.1
Income Tax Provision and Effective Income Tax Rate	$	54	0.9	$	1,792	14.3	$	4,558	17.4	$	3,121	13.4

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BASIS OF PRESENTATION - Narrative CECL Adoption (Details) - USD ($) $ in Thousands	Jun. 30, 2023	Jan. 01, 2023	Dec. 31, 2022
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Decrease in retained earnings	$ 307,344		$ 285,593
Cumulative Effect, Period of Adoption, Adjustment | Accounting Standards Update 2023-02
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Decrease in retained earnings		$ 100
Total Loans | Credit Concentration Risk | London Interbank Offered Rate (LIBOR)
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Concentration risk, percentage	5.30%

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EARNINGS PER SHARE (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
Numerator for Earnings per Common Share – Basic and Diluted
Net Income	$ 5,704	$ 10,778	$ 21,645	$ 20,101
Less: Income allocated to participating shares	49	69	168	110
Net Income Allocated to Common Shareholders - Basic	5,655	10,709	21,477	19,991
Net Income Allocated to Common Shareholders - Diluted	$ 5,655	$ 10,709	$ 21,477	$ 19,991
Denominator:
Weighted Average Shares Outstanding, including Shares Considered Participating Securities (in shares)	23,715,564	24,647,543	23,826,312	25,250,413
Less: Average Participating Securities (in shares)	201,727	157,241	185,203	138,482
Weighted Average Common Shares Outstanding, Basic (in shares)	23,513,837	24,490,302	23,641,109	25,111,931
Weighted Average Common Shares Outstanding, Diluted (in shares)	23,513,837	24,490,302	23,641,109	25,111,931
Earnings per Common Share – Basic (in usd per share)	$ 0.24	$ 0.44	$ 0.91	$ 0.80
Earnings per Common Share – Diluted (in usd per share)	$ 0.24	$ 0.44	$ 0.91	$ 0.80

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INVESTMENT SECURITIES - Amortized Cost and Fair Value (Details) - USD ($) $ in Thousands	Jun. 30, 2023	Dec. 31, 2022
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	$ 926,198	$ 945,707
Gross Unrealized Gains	937	300
Gross Unrealized Losses	(105,765)	(109,734)
Fair Value	821,370	836,273
U.S. Treasury Securities
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	14,371	19,318
Gross Unrealized Gains	0	0
Gross Unrealized Losses	(1,197)	(1,452)
Fair Value	13,174	17,866
U.S. Government Agency Securities
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	51,803	50,334
Gross Unrealized Gains	508	218
Gross Unrealized Losses	(803)	(788)
Fair Value	51,508	49,764
Residential Mortgage-Backed Securities
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	113,218	115,694
Gross Unrealized Gains	0	0
Gross Unrealized Losses	(13,055)	(12,009)
Fair Value	100,163	103,685
Commercial Mortgage-Backed Securities
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	35,844	35,538
Gross Unrealized Gains	426	73
Gross Unrealized Losses	(868)	(936)
Fair Value	35,402	34,675
Other Commercial Mortgage-Backed Securities
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	24,839	24,987
Gross Unrealized Gains	0	9
Gross Unrealized Losses	(3,256)	(2,597)
Fair Value	21,583	22,399
Asset Backed Securities
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	152,683	156,552
Gross Unrealized Gains	3	0
Gross Unrealized Losses	(13,964)	(15,169)
Fair Value	138,722	141,383
Collateralized Mortgage Obligations
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	183,193	190,781
Gross Unrealized Gains	0	0
Gross Unrealized Losses	(14,116)	(14,159)
Fair Value	169,077	176,622
States and Political Subdivisions
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	279,497	281,753
Gross Unrealized Gains	0	0
Gross Unrealized Losses	(46,066)	(53,607)
Fair Value	233,431	228,146
Corporate Notes
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	70,750	70,750
Gross Unrealized Gains	0	0
Gross Unrealized Losses	(12,440)	(9,017)
Fair Value	$ 58,310	$ 61,733

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INVESTMENT SECURITIES - Narrative (Details) - USD ($)	Jun. 30, 2023	Dec. 31, 2022
Investments, Debt and Equity Securities [Abstract]
Debt securities, held-to-maturity	$ 0	$ 0
Carrying value of securities pledged as collateral	$ 218,700,000	$ 224,500,000

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INVESTMENT SECURITIES - Gain (Loss) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
Investments, Debt and Equity Securities [Abstract]
Proceeds from Sales of Securities Available-for-Sale	$ 15,054	$ 14,856	$ 15,054	$ 19,777
Gross Realized Gains	129	208	129	208
Gross Realized Losses	(126)	(132)	(138)	(156)
Net Realized Gains (Losses)	3	76	(9)	52
Tax Impact	$ 1	$ 16	$ (2)	$ 11

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INVESTMENT SECURITIES - Contractual Maturities (Details) - USD ($) $ in Thousands	Jun. 30, 2023	Dec. 31, 2022
Amortized Cost
Due in One Year or Less	$ 5,188
Due after One Year through Five Years	14,152
Due after Five Years through Ten Years	252,246
Due after Ten Years	144,835
Amortized Cost	926,198	$ 945,707
Fair Value
Due in One Year or Less	5,071
Due after One Year through Five Years	13,007
Due after Five Years through Ten Years	217,945
Due after Ten Years	120,400
Fair Value	821,370	836,273
Residential Mortgage-Backed Securities
Amortized Cost
Without single maturity date	113,218
Amortized Cost	113,218	115,694
Fair Value
Without single maturity date	100,163
Fair Value	100,163	103,685
Commercial Mortgage-Backed Securities
Amortized Cost
Without single maturity date	35,844
Amortized Cost	35,844	35,538
Fair Value
Without single maturity date	35,402
Fair Value	35,402	34,675
Other Commercial Mortgage-Backed Securities
Amortized Cost
Without single maturity date	24,839
Amortized Cost	24,839	24,987
Fair Value
Without single maturity date	21,583
Fair Value	21,583	22,399
Collateralized Mortgage Obligations
Amortized Cost
Without single maturity date	183,193
Amortized Cost	183,193	190,781
Fair Value
Without single maturity date	169,077
Fair Value	169,077	176,622
Asset Backed Securities
Amortized Cost
Without single maturity date	152,683
Amortized Cost	152,683	156,552
Fair Value
Without single maturity date	138,722
Fair Value	$ 138,722	$ 141,383

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INVESTMENT SECURITIES - Continuous Loss Position (Details) $ in Thousands	Jun. 30, 2023 USD ($) security	Dec. 31, 2022 USD ($) security
Debt Securities, Available-for-sale [Line Items]
AFS, Less Than 12 months, Number of Securities | security	20	153
AFS, Less Than 12 months, Fair Value	$ 17,547	$ 284,547
AFS, Less Than 12 months, Unrealized Losses	$ (1,123)	$ (32,266)
AFS, 12 Months or More, Number of Securities | security	430	298
AFS, 12 Months or More, Fair Value	$ 761,060	$ 506,981
AFS, 12 Months or More, Unrealized Losses	$ (104,642)	$ (77,468)
AFS, Total, Number of Securities | security	450	451
AFS, Total, Fair Value	$ 778,607	$ 791,528
AFS, Total, Unrealized Losses	$ (105,765)	$ (109,734)
U.S. Treasury Securities
Debt Securities, Available-for-sale [Line Items]
AFS, Less Than 12 months, Number of Securities | security	0	3
AFS, Less Than 12 months, Fair Value	$ 0	$ 14,080
AFS, Less Than 12 months, Unrealized Losses	$ 0	$ (789)
AFS, 12 Months or More, Number of Securities | security	4	2
AFS, 12 Months or More, Fair Value	$ 13,174	$ 3,786
AFS, 12 Months or More, Unrealized Losses	$ (1,197)	$ (663)
AFS, Total, Number of Securities | security	4	5
AFS, Total, Fair Value	$ 13,174	$ 17,866
AFS, Total, Unrealized Losses	$ (1,197)	$ (1,452)
U.S. Government Agency Securities
Debt Securities, Available-for-sale [Line Items]
AFS, Less Than 12 months, Number of Securities | security	8	6
AFS, Less Than 12 months, Fair Value	$ 6,683	$ 5,337
AFS, Less Than 12 months, Unrealized Losses	$ (74)	$ (26)
AFS, 12 Months or More, Number of Securities | security	12	9
AFS, 12 Months or More, Fair Value	$ 16,891	$ 15,576
AFS, 12 Months or More, Unrealized Losses	$ (729)	$ (762)
AFS, Total, Number of Securities | security	20	15
AFS, Total, Fair Value	$ 23,574	$ 20,913
AFS, Total, Unrealized Losses	$ (803)	$ (788)
Residential Mortgage-Backed Securities
Debt Securities, Available-for-sale [Line Items]
AFS, Less Than 12 months, Number of Securities | security	1	6
AFS, Less Than 12 months, Fair Value	$ 83	$ 7,601
AFS, Less Than 12 months, Unrealized Losses	$ 0	$ (372)
AFS, 12 Months or More, Number of Securities | security	42	37
AFS, 12 Months or More, Fair Value	$ 100,080	$ 96,084
AFS, 12 Months or More, Unrealized Losses	$ (13,055)	$ (11,637)
AFS, Total, Number of Securities | security	43	43
AFS, Total, Fair Value	$ 100,163	$ 103,685
AFS, Total, Unrealized Losses	$ (13,055)	$ (12,009)
Commercial Mortgage-Backed Securities
Debt Securities, Available-for-sale [Line Items]
AFS, Less Than 12 months, Number of Securities | security	5	7
AFS, Less Than 12 months, Fair Value	$ 1,998	$ 7,843
AFS, Less Than 12 months, Unrealized Losses	$ (9)	$ (307)
AFS, 12 Months or More, Number of Securities | security	49	49
AFS, 12 Months or More, Fair Value	$ 19,471	$ 15,675
AFS, 12 Months or More, Unrealized Losses	$ (859)	$ (629)
AFS, Total, Number of Securities | security	54	56
AFS, Total, Fair Value	$ 21,469	$ 23,518
AFS, Total, Unrealized Losses	$ (868)	$ (936)
Other Commercial Mortgage-Backed Securities
Debt Securities, Available-for-sale [Line Items]
AFS, Less Than 12 months, Number of Securities | security	1	2
AFS, Less Than 12 months, Fair Value	$ 1,939	$ 5,302
AFS, Less Than 12 months, Unrealized Losses	$ (582)	$ (617)
AFS, 12 Months or More, Number of Securities | security	8	6
AFS, 12 Months or More, Fair Value	$ 19,644	$ 14,560
AFS, 12 Months or More, Unrealized Losses	$ (2,674)	$ (1,980)
AFS, Total, Number of Securities | security	9	8
AFS, Total, Fair Value	$ 21,583	$ 19,862
AFS, Total, Unrealized Losses	$ (3,256)	$ (2,597)
Asset Backed Securities
Debt Securities, Available-for-sale [Line Items]
AFS, Less Than 12 months, Number of Securities | security	1	13
AFS, Less Than 12 months, Fair Value	$ 1,885	$ 42,173
AFS, Less Than 12 months, Unrealized Losses	$ (115)	$ (2,984)
AFS, 12 Months or More, Number of Securities | security	52	41
AFS, 12 Months or More, Fair Value	$ 136,141	$ 97,210
AFS, 12 Months or More, Unrealized Losses	$ (13,849)	$ (12,185)
AFS, Total, Number of Securities | security	53	54
AFS, Total, Fair Value	$ 138,026	$ 139,383
AFS, Total, Unrealized Losses	$ (13,964)	$ (15,169)
Collateralized Mortgage Obligations
Debt Securities, Available-for-sale [Line Items]
AFS, Less Than 12 months, Number of Securities | security	0	35
AFS, Less Than 12 months, Fair Value	$ 0	$ 66,362
AFS, Less Than 12 months, Unrealized Losses	$ 0	$ (4,500)
AFS, 12 Months or More, Number of Securities | security	85	50
AFS, 12 Months or More, Fair Value	$ 169,077	$ 110,260
AFS, 12 Months or More, Unrealized Losses	$ (14,116)	$ (9,659)
AFS, Total, Number of Securities | security	85	85
AFS, Total, Fair Value	$ 169,077	$ 176,622
AFS, Total, Unrealized Losses	$ (14,116)	$ (14,159)
States and Political Subdivisions
Debt Securities, Available-for-sale [Line Items]
AFS, Less Than 12 months, Number of Securities | security	3	73
AFS, Less Than 12 months, Fair Value	$ 2,922	$ 112,564
AFS, Less Than 12 months, Unrealized Losses	$ (130)	$ (19,706)
AFS, 12 Months or More, Number of Securities | security	158	91
AFS, 12 Months or More, Fair Value	$ 230,309	$ 115,382
AFS, 12 Months or More, Unrealized Losses	$ (45,936)	$ (33,901)
AFS, Total, Number of Securities | security	161	164
AFS, Total, Fair Value	$ 233,231	$ 227,946
AFS, Total, Unrealized Losses	$ (46,066)	$ (53,607)
Corporate Notes
Debt Securities, Available-for-sale [Line Items]
AFS, Less Than 12 months, Number of Securities | security	1	8
AFS, Less Than 12 months, Fair Value	$ 2,037	$ 23,285
AFS, Less Than 12 months, Unrealized Losses	$ (213)	$ (2,965)
AFS, 12 Months or More, Number of Securities | security	20	13
AFS, 12 Months or More, Fair Value	$ 56,273	$ 38,448
AFS, 12 Months or More, Unrealized Losses	$ (12,227)	$ (6,052)
AFS, Total, Number of Securities | security	21	21
AFS, Total, Fair Value	$ 58,310	$ 61,733
AFS, Total, Unrealized Losses	$ (12,440)	$ (9,017)

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LOANS AND LOANS HELD-FOR-SALE - Loan Portfolios (Details) - USD ($) $ in Thousands	Jun. 30, 2023	Dec. 31, 2022
Accounts, Notes, Loans and Financing Receivable [Line Items]
Portfolio Loans	$ 3,330,442	$ 3,148,913
Loans Held-for-Sale	173	0
Total Loans	3,330,615	3,148,913
Total Commercial Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Portfolio Loans	1,921,753	1,780,354
Commercial Real Estate
Accounts, Notes, Loans and Financing Receivable [Line Items]
Portfolio Loans	1,642,597	1,470,562
Commercial and Industrial
Accounts, Notes, Loans and Financing Receivable [Line Items]
Portfolio Loans	279,156	309,792
Total Consumer Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Portfolio Loans	746,629	702,510
Residential Mortgages
Accounts, Notes, Loans and Financing Receivable [Line Items]
Portfolio Loans	707,893	657,948
Other Consumer
Accounts, Notes, Loans and Financing Receivable [Line Items]
Portfolio Loans	38,736	44,562
Construction
Accounts, Notes, Loans and Financing Receivable [Line Items]
Portfolio Loans	356,805	353,553
Other
Accounts, Notes, Loans and Financing Receivable [Line Items]
Portfolio Loans	$ 305,255	$ 312,496

XML

LOANS AND LOANS HELD-FOR-SALE - Narrative (Details) - USD ($) $ in Thousands	Jun. 30, 2023	Dec. 31, 2022
Accounts, Notes, Loans and Financing Receivable [Line Items]
Commitment limit for restructured loan	$ 1,000
Mortgage loans in process of foreclosure	2,100	$ 900
Other real estate owned	3,379	8,393
Residential Real Estate
Accounts, Notes, Loans and Financing Receivable [Line Items]
Other real estate owned	$ 21	$ 133

XML

LOANS AND LOANS HELD-FOR-SALE - Additional Funds for Loans Identified as TDRs (Details)	3 Months Ended		6 Months Ended
	Jun. 30, 2023 USD ($)	Jun. 30, 2022 USD ($)	Jun. 30, 2023 USD ($) security	Jun. 30, 2022 USD ($) security
Financing Receivable, Troubled Debt Restructuring [Line Items]
Number of Contracts | security			0	1
Amortized Cost Basis			$ 0	$ 300,000
Percent of total class of financing receivable			0.00%	0.02%
Interest receivable	$ 0	$ 2,900	$ 0	$ 2,900
Accruing Restructured Loans
Financing Receivable, Troubled Debt Restructuring [Line Items]
Number of Contracts | security			0	0
Amortized Cost Basis			$ 0	$ 0
Percent of total class of financing receivable			0.00%	0.00%
Nonaccrual Restructured Loans
Financing Receivable, Troubled Debt Restructuring [Line Items]
Number of Contracts | security			0	1
Amortized Cost Basis			$ 0	$ 300,000
Percent of total class of financing receivable			0.00%	0.02%
Commercial Real Estate | Accruing Restructured Loans
Financing Receivable, Troubled Debt Restructuring [Line Items]
Number of Contracts | security			0	0
Amortized Cost Basis			$ 0	$ 0
Percent of total class of financing receivable			0.00%	0.00%
Commercial Real Estate | Nonaccrual Restructured Loans
Financing Receivable, Troubled Debt Restructuring [Line Items]
Number of Contracts | security			0	1
Amortized Cost Basis			$ 0	$ 300,000
Percent of total class of financing receivable			0.00%	0.02%
Commercial and Industrial | Accruing Restructured Loans
Financing Receivable, Troubled Debt Restructuring [Line Items]
Number of Contracts | security			0	0
Amortized Cost Basis			$ 0	$ 0
Percent of total class of financing receivable			0.00%	0.00%
Commercial and Industrial | Nonaccrual Restructured Loans
Financing Receivable, Troubled Debt Restructuring [Line Items]
Number of Contracts | security			0	0
Amortized Cost Basis			$ 0	$ 0
Percent of total class of financing receivable			0.00%	0.00%
Residential Mortgages | Accruing Restructured Loans
Financing Receivable, Troubled Debt Restructuring [Line Items]
Number of Contracts | security			0	0
Amortized Cost Basis			$ 0	$ 0
Percent of total class of financing receivable			0.00%	0.00%
Residential Mortgages | Nonaccrual Restructured Loans
Financing Receivable, Troubled Debt Restructuring [Line Items]
Number of Contracts | security			0	0
Amortized Cost Basis			$ 0	$ 0
Percent of total class of financing receivable			0.00%	0.00%
Other Consumer | Accruing Restructured Loans
Financing Receivable, Troubled Debt Restructuring [Line Items]
Number of Contracts | security			0	0
Amortized Cost Basis			$ 0	$ 0
Percent of total class of financing receivable			0.00%	0.00%
Other Consumer | Nonaccrual Restructured Loans
Financing Receivable, Troubled Debt Restructuring [Line Items]
Number of Contracts | security			0	0
Amortized Cost Basis			$ 0	$ 0
Percent of total class of financing receivable			0.00%	0.00%
Construction | Accruing Restructured Loans
Financing Receivable, Troubled Debt Restructuring [Line Items]
Number of Contracts | security			0	0
Amortized Cost Basis			$ 0	$ 0
Percent of total class of financing receivable			0.00%	0.00%
Construction | Nonaccrual Restructured Loans
Financing Receivable, Troubled Debt Restructuring [Line Items]
Number of Contracts | security			0	0
Amortized Cost Basis			$ 0	$ 0
Percent of total class of financing receivable			0.00%	0.00%
Other | Accruing Restructured Loans
Financing Receivable, Troubled Debt Restructuring [Line Items]
Number of Contracts | security			0	0
Amortized Cost Basis			$ 0	$ 0
Percent of total class of financing receivable			0.00%	0.00%
Other | Nonaccrual Restructured Loans
Financing Receivable, Troubled Debt Restructuring [Line Items]
Number of Contracts | security			0	0
Amortized Cost Basis			$ 0	$ 0
Percent of total class of financing receivable			0.00%	0.00%

XML

ALLOWANCE FOR CREDIT LOSSES - Narrative (Details)	3 Months Ended	6 Months Ended
	Jun. 30, 2023 USD ($) security	Jun. 30, 2023 USD ($) security loan	Jun. 30, 2022 USD ($)	Dec. 31, 2022 USD ($)	Dec. 31, 2021 USD ($)
Financing Receivable, Credit Quality Indicator [Line Items]
Number of loans evaluated | security	20	20
Total aggregate commercial relationship	$ 2,000,000	$ 2,000,000
Minimum aggregate exposure	2,000,000	2,000,000
Portfolio loans	3,330,442,000	3,330,442,000		$ 3,148,913,000
Amortized cost basis		0	$ 300,000
Financing receivable, nonaccrual	310,746,000	310,746,000		6,645,000	$ 7,397,000
Troubled debt restructured loans, individually evaluated impaired loans	1,000,000	1,000,000
Nonperforming
Financing Receivable, Credit Quality Indicator [Line Items]
Portfolio loans	310,746,000	310,746,000		6,645,000
Disposal Group, Held-for-sale, Not Discontinued Operations
Financing Receivable, Credit Quality Indicator [Line Items]
Financing receivable, nonaccrual	0	0		0
Construction
Financing Receivable, Credit Quality Indicator [Line Items]
Portfolio loans	356,805,000	356,805,000		353,553,000
Financing receivable, nonaccrual	2,908,000	2,908,000		864,000	985,000
Construction | Nonperforming
Financing Receivable, Credit Quality Indicator [Line Items]
Portfolio loans	2,908,000	2,908,000		864,000
Other
Financing Receivable, Credit Quality Indicator [Line Items]
Portfolio loans	305,255,000	305,255,000		312,496,000
Financing receivable, nonaccrual	301,913,000	301,913,000		0	$ 0
Other | Nonperforming
Financing Receivable, Credit Quality Indicator [Line Items]
Portfolio loans	301,913,000	301,913,000		0
Financial Asset, Equal to or Greater than 90 Days Past Due
Financing Receivable, Credit Quality Indicator [Line Items]
Portfolio loans	0	0		0
Total 30-89 Days Past Due
Financing Receivable, Credit Quality Indicator [Line Items]
Portfolio loans	1,476,000	1,476,000		4,837,000
Decrease in portfolio loans		3,300,000
Total 30-89 Days Past Due | Disposal Group, Held-for-sale, Not Discontinued Operations
Financing Receivable, Credit Quality Indicator [Line Items]
Financing receivable, held-for-sale	0	0		0
Total 30-89 Days Past Due | Construction
Financing Receivable, Credit Quality Indicator [Line Items]
Portfolio loans	49,000	49,000		3,464,000
Decrease in portfolio loans		$ 2,100,000
Number of loans in nonaccrual status | loan		1
Total 30-89 Days Past Due | Other
Financing Receivable, Credit Quality Indicator [Line Items]
Portfolio loans	0	$ 0		$ 0
Total 30-89 Days Past Due | Other | Nonperforming
Financing Receivable, Credit Quality Indicator [Line Items]
Amortized cost basis	$ 301,900,000

XML

ALLOWANCE FOR CREDIT LOSSES - Origination Year and Assigned Risk Rating (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2023	Dec. 31, 2022
Financing Receivable, Credit Quality Indicator [Line Items]
Year one	$ 256,983	$ 816,403
Year two	831,190	547,084
Year three	558,319	308,432
Year four	285,905	198,133
Year five	185,914	409,968
Year five and prior	1,116,681	782,100
Revolving	95,450	86,793
Total Portfolio Loans	3,330,442	3,148,913
Charge-offs, Year one	86	3,712
Charge-offs, Year two	663	625
Charge-offs, Year three	391	254
Charge-offs, Year four	48	358
Charge-offs, Year five	95	65
Charge-offs, Year five and prior	138	145
Charge-offs, Revolving	0	0
Charge-offs	1,421	5,159
Performing
Financing Receivable, Credit Quality Indicator [Line Items]
Year one	256,983	816,403
Year two	831,190	545,820
Year three	557,057	308,431
Year four	283,787	197,250
Year five	185,013	407,545
Year five and prior	810,216	780,067
Revolving	95,450	86,752
Total Portfolio Loans	3,019,696	3,142,268
Nonperforming
Financing Receivable, Credit Quality Indicator [Line Items]
Year one	0	0
Year two	0	1,264
Year three	1,262	1
Year four	2,118	883
Year five	901	2,423
Year five and prior	306,465	2,033
Revolving	0	41
Total Portfolio Loans	310,746	6,645
Pass
Financing Receivable, Credit Quality Indicator [Line Items]
Year one	256,983	816,403
Year two	831,123	545,553
Year three	556,828	305,544
Year four	280,950	197,250
Year five	185,007	322,831
Year five and prior	808,701	717,734
Revolving	95,200	86,718
Total Portfolio Loans	3,014,792	2,992,033
Special Mention
Financing Receivable, Credit Quality Indicator [Line Items]
Year one	0	0
Year two	0	218
Year three	212	2,887
Year four	2,838	0
Year five	0	10,348
Year five and prior	674	1,248
Revolving	0	34
Total Portfolio Loans	3,724	14,735
Substandard
Financing Receivable, Credit Quality Indicator [Line Items]
Year one	0	0
Year two	67	1,313
Year three	1,279	1
Year four	2,117	883
Year five	907	76,789
Year five and prior	307,306	63,118
Revolving	250	41
Total Portfolio Loans	311,926	142,145
Commercial Real Estate
Financing Receivable, Credit Quality Indicator [Line Items]
Year one	159,142	418,939
Year two	440,643	186,444
Year three	191,423	139,148
Year four	151,410	130,521
Year five	127,012	227,522
Year five and prior	544,787	336,639
Revolving	28,180	31,349
Total Portfolio Loans	1,642,597	1,470,562
Charge-offs, Year one	0	0
Charge-offs, Year two	0	0
Charge-offs, Year three	0	0
Charge-offs, Year four	0	0
Charge-offs, Year five	0	0
Charge-offs, Year five and prior	0	0
Charge-offs, Revolving	0	0
Charge-offs	0	0
Commercial Real Estate | Performing
Financing Receivable, Credit Quality Indicator [Line Items]
Year one	159,142	418,939
Year two	440,643	186,444
Year three	191,423	139,148
Year four	151,410	130,521
Year five	127,012	225,416
Year five and prior	542,275	336,441
Revolving	28,180	31,349
Total Portfolio Loans	1,640,085	1,468,258
Commercial Real Estate | Nonperforming
Financing Receivable, Credit Quality Indicator [Line Items]
Year one	0	0
Year two	0	0
Year three	0	0
Year four	0	0
Year five	0	2,106
Year five and prior	2,512	198
Revolving	0	0
Total Portfolio Loans	2,512	2,304
Commercial Real Estate | Pass
Financing Receivable, Credit Quality Indicator [Line Items]
Year one	159,142	418,939
Year two	440,643	186,226
Year three	191,211	139,148
Year four	151,410	130,521
Year five	127,012	215,498
Year five and prior	541,439	335,659
Revolving	28,180	31,349
Total Portfolio Loans	1,639,037	1,457,340
Commercial Real Estate | Special Mention
Financing Receivable, Credit Quality Indicator [Line Items]
Year one	0	0
Year two	0	218
Year three	212	0
Year four	0	0
Year five	0	9,919
Year five and prior	79	659
Revolving	0	0
Total Portfolio Loans	291	10,796
Commercial Real Estate | Substandard
Financing Receivable, Credit Quality Indicator [Line Items]
Year one	0	0
Year two	0	0
Year three	0	0
Year four	0	0
Year five	0	2,105
Year five and prior	3,269	321
Revolving	0	0
Total Portfolio Loans	3,269	2,426
Commercial and Industrial
Financing Receivable, Credit Quality Indicator [Line Items]
Year one	112	23,104
Year two	20,160	47,193
Year three	41,200	38,706
Year four	31,484	9,040
Year five	7,486	10,736
Year five and prior	151,381	157,273
Revolving	27,333	23,740
Total Portfolio Loans	279,156	309,792
Charge-offs, Year one	0	3,432
Charge-offs, Year two	0	0
Charge-offs, Year three	0	0
Charge-offs, Year four	0	0
Charge-offs, Year five	1	4
Charge-offs, Year five and prior	0	0
Charge-offs, Revolving	0	0
Charge-offs	1	3,436
Commercial and Industrial | Performing
Financing Receivable, Credit Quality Indicator [Line Items]
Year one	112	23,104
Year two	20,160	47,147
Year three	41,155	38,706
Year four	31,456	9,022
Year five	7,448	10,639
Year five and prior	151,379	157,271
Revolving	27,333	23,699
Total Portfolio Loans	279,043	309,588
Commercial and Industrial | Nonperforming
Financing Receivable, Credit Quality Indicator [Line Items]
Year one	0	0
Year two	0	46
Year three	45	0
Year four	28	18
Year five	38	97
Year five and prior	2	2
Revolving	0	41
Total Portfolio Loans	113	204
Commercial and Industrial | Pass
Financing Receivable, Credit Quality Indicator [Line Items]
Year one	112	23,104
Year two	20,160	47,137
Year three	41,155	35,819
Year four	28,618	9,022
Year five	7,442	10,639
Year five and prior	151,379	154,473
Revolving	27,333	23,699
Total Portfolio Loans	276,199	303,893
Commercial and Industrial | Special Mention
Financing Receivable, Credit Quality Indicator [Line Items]
Year one	0	0
Year two	0	0
Year three	0	2,887
Year four	2,838	0
Year five	0	0
Year five and prior	0	0
Revolving	0	0
Total Portfolio Loans	2,838	2,887
Commercial and Industrial | Substandard
Financing Receivable, Credit Quality Indicator [Line Items]
Year one	0	0
Year two	0	56
Year three	45	0
Year four	28	18
Year five	44	97
Year five and prior	2	2,800
Revolving	0	41
Total Portfolio Loans	119	3,012
Residential Mortgages
Financing Receivable, Credit Quality Indicator [Line Items]
Year one	27,670	200,725
Year two	216,563	185,930
Year three	197,654	81,446
Year four	80,929	51,635
Year five	47,305	71,532
Year five and prior	106,338	41,331
Revolving	31,434	25,349
Total Portfolio Loans	707,893	657,948
Charge-offs, Year one	0	0
Charge-offs, Year two	0	0
Charge-offs, Year three	3	0
Charge-offs, Year four	0	0
Charge-offs, Year five	0	22
Charge-offs, Year five and prior	67	24
Charge-offs, Revolving	0	0
Charge-offs	70	46
Residential Mortgages | Performing
Financing Receivable, Credit Quality Indicator [Line Items]
Year one	27,670	200,725
Year two	216,563	184,718
Year three	196,442	81,446
Year four	80,929	50,770
Year five	46,442	71,313
Year five and prior	105,125	40,362
Revolving	31,434	25,349
Total Portfolio Loans	704,605	654,683
Residential Mortgages | Nonperforming
Financing Receivable, Credit Quality Indicator [Line Items]
Year one	0	0
Year two	0	1,212
Year three	1,212	0
Year four	0	865
Year five	863	219
Year five and prior	1,213	969
Revolving	0	0
Total Portfolio Loans	3,288	3,265
Residential Mortgages | Pass
Financing Receivable, Credit Quality Indicator [Line Items]
Year one	27,670	200,725
Year two	216,563	184,718
Year three	196,442	81,446
Year four	80,929	50,770
Year five	46,442	70,659
Year five and prior	104,559	39,411
Revolving	31,184	25,315
Total Portfolio Loans	703,789	653,044
Residential Mortgages | Special Mention
Financing Receivable, Credit Quality Indicator [Line Items]
Year one	0	0
Year two	0	0
Year three	0	0
Year four	0	0
Year five	0	429
Year five and prior	531	520
Revolving	0	34
Total Portfolio Loans	531	983
Residential Mortgages | Substandard
Financing Receivable, Credit Quality Indicator [Line Items]
Year one	0	0
Year two	0	1,212
Year three	1,212	0
Year four	0	865
Year five	863	444
Year five and prior	1,248	1,400
Revolving	250	0
Total Portfolio Loans	3,573	3,921
Other Consumer
Financing Receivable, Credit Quality Indicator [Line Items]
Year one	23,001	24,100
Year two	6,289	10,051
Year three	3,660	7,324
Year four	5,110	1,999
Year five	73	513
Year five and prior	234	276
Revolving	369	299
Total Portfolio Loans	38,736	44,562
Charge-offs, Year one	86	280
Charge-offs, Year two	663	625
Charge-offs, Year three	388	254
Charge-offs, Year four	48	358
Charge-offs, Year five	94	39
Charge-offs, Year five and prior	29	121
Charge-offs, Revolving	0	0
Charge-offs	1,308	1,677
Other Consumer | Performing
Financing Receivable, Credit Quality Indicator [Line Items]
Year one	23,001	24,100
Year two	6,289	10,045
Year three	3,655	7,323
Year four	5,110	1,999
Year five	73	512
Year five and prior	227	276
Revolving	369	299
Total Portfolio Loans	38,724	44,554
Other Consumer | Nonperforming
Financing Receivable, Credit Quality Indicator [Line Items]
Year one	0	0
Year two	0	6
Year three	5	1
Year four	0	0
Year five	0	1
Year five and prior	7	0
Revolving	0	0
Total Portfolio Loans	12	8
Other Consumer | Pass
Financing Receivable, Credit Quality Indicator [Line Items]
Year one	23,001	24,100
Year two	6,289	10,006
Year three	3,638	7,323
Year four	5,110	1,999
Year five	73	512
Year five and prior	227	256
Revolving	369	299
Total Portfolio Loans	38,707	44,495
Other Consumer | Special Mention
Financing Receivable, Credit Quality Indicator [Line Items]
Year one	0	0
Year two	0	0
Year three	0	0
Year four	0	0
Year five	0	0
Year five and prior	0	0
Revolving	0	0
Total Portfolio Loans	0	0
Other Consumer | Substandard
Financing Receivable, Credit Quality Indicator [Line Items]
Year one	0	0
Year two	0	45
Year three	22	1
Year four	0	0
Year five	0	1
Year five and prior	7	20
Revolving	0	0
Total Portfolio Loans	29	67
Construction
Financing Receivable, Credit Quality Indicator [Line Items]
Year one	47,058	149,535
Year two	147,535	117,466
Year three	124,382	41,808
Year four	16,972	4,938
Year five	4,038	25,615
Year five and prior	8,686	8,135
Revolving	8,134	6,056
Total Portfolio Loans	356,805	353,553
Charge-offs, Year one	0	0
Charge-offs, Year two	0	0
Charge-offs, Year three	0	0
Charge-offs, Year four	0	0
Charge-offs, Year five	0	0
Charge-offs, Year five and prior	42	0
Charge-offs, Revolving	0	0
Charge-offs	42	0
Construction | Performing
Financing Receivable, Credit Quality Indicator [Line Items]
Year one	47,058	149,535
Year two	147,535	117,466
Year three	124,382	41,808
Year four	14,882	4,938
Year five	4,038	25,615
Year five and prior	7,868	7,271
Revolving	8,134	6,056
Total Portfolio Loans	353,897	352,689
Construction | Nonperforming
Financing Receivable, Credit Quality Indicator [Line Items]
Year one	0	0
Year two	0	0
Year three	0	0
Year four	2,090	0
Year five	0	0
Year five and prior	818	864
Revolving	0	0
Total Portfolio Loans	2,908	864
Construction | Pass
Financing Receivable, Credit Quality Indicator [Line Items]
Year one	47,058	149,535
Year two	147,468	117,466
Year three	124,382	41,808
Year four	14,883	4,938
Year five	4,038	25,523
Year five and prior	7,755	7,190
Revolving	8,134	6,056
Total Portfolio Loans	353,718	352,516
Construction | Special Mention
Financing Receivable, Credit Quality Indicator [Line Items]
Year one	0	0
Year two	0	0
Year three	0	0
Year four	0	0
Year five	0	0
Year five and prior	64	69
Revolving	0	0
Total Portfolio Loans	64	69
Construction | Substandard
Financing Receivable, Credit Quality Indicator [Line Items]
Year one	0	0
Year two	67	0
Year three	0	0
Year four	2,089	0
Year five	0	92
Year five and prior	867	876
Revolving	0	0
Total Portfolio Loans	3,023	968
Other
Financing Receivable, Credit Quality Indicator [Line Items]
Year one	0	0
Year two	0	0
Year three	0	0
Year four	0	0
Year five	0	74,050
Year five and prior	305,255	238,446
Revolving	0	0
Total Portfolio Loans	305,255	312,496
Charge-offs, Year one	0	0
Charge-offs, Year two	0	0
Charge-offs, Year three	0	0
Charge-offs, Year four	0	0
Charge-offs, Year five	0	0
Charge-offs, Year five and prior	0	0
Charge-offs, Revolving	0	0
Charge-offs	0	0
Other | Performing
Financing Receivable, Credit Quality Indicator [Line Items]
Year one	0	0
Year two	0	0
Year three	0	0
Year four	0	0
Year five	0	74,050
Year five and prior	3,342	238,446
Revolving	0	0
Total Portfolio Loans	3,342	312,496
Other | Nonperforming
Financing Receivable, Credit Quality Indicator [Line Items]
Year one	0	0
Year two	0	0
Year three	0	0
Year four	0
Year five	0	0
Year five and prior	301,913	0
Revolving	0	0
Total Portfolio Loans	301,913	0
Other | Pass
Financing Receivable, Credit Quality Indicator [Line Items]
Year one	0	0
Year two	0	0
Year three	0	0
Year four	0	0
Year five	0	0
Year five and prior	3,342	180,745
Revolving	0	0
Total Portfolio Loans	3,342	180,745
Other | Special Mention
Financing Receivable, Credit Quality Indicator [Line Items]
Year one	0	0
Year two	0	0
Year three	0	0
Year four	0	0
Year five	0	0
Year five and prior	0	0
Revolving	0	0
Total Portfolio Loans	0	0
Other | Substandard
Financing Receivable, Credit Quality Indicator [Line Items]
Year one	0	0
Year two	0	0
Year three	0	0
Year four	0	0
Year five	0	74,050
Year five and prior	301,913	57,701
Revolving	0	0
Total Portfolio Loans	$ 301,913	$ 131,751

XML

ALLOWANCE FOR CREDIT LOSSES - Past Due (Details) - USD ($) $ in Thousands	Jun. 30, 2023	Dec. 31, 2022	Dec. 31, 2021
Financing Receivable, Past Due [Line Items]
Portfolio Loans	$ 3,330,442	$ 3,148,913
Nonaccrual Loans	310,746	6,645	$ 7,397
Current Loans
Financing Receivable, Past Due [Line Items]
Portfolio Loans	3,018,220	3,137,431
Total 30-89 Days Past Due
Financing Receivable, Past Due [Line Items]
Portfolio Loans	1,476	4,837
Loans 30-59 Days Past Due
Financing Receivable, Past Due [Line Items]
Portfolio Loans	871	2,481
Loans 60-89 Days Past Due
Financing Receivable, Past Due [Line Items]
Portfolio Loans	605	2,356
Commercial Real Estate
Financing Receivable, Past Due [Line Items]
Portfolio Loans	1,642,597	1,470,562
Nonaccrual Loans	2,512	2,304	3,337
Commercial Real Estate | Current Loans
Financing Receivable, Past Due [Line Items]
Portfolio Loans	1,639,960	1,468,154
Commercial Real Estate | Total 30-89 Days Past Due
Financing Receivable, Past Due [Line Items]
Portfolio Loans	125	104
Commercial Real Estate | Loans 30-59 Days Past Due
Financing Receivable, Past Due [Line Items]
Portfolio Loans	125	104
Commercial Real Estate | Loans 60-89 Days Past Due
Financing Receivable, Past Due [Line Items]
Portfolio Loans	0	0
Commercial and Industrial
Financing Receivable, Past Due [Line Items]
Portfolio Loans	279,156	309,792
Nonaccrual Loans	113	204	451
Commercial and Industrial | Current Loans
Financing Receivable, Past Due [Line Items]
Portfolio Loans	278,944	309,305
Commercial and Industrial | Total 30-89 Days Past Due
Financing Receivable, Past Due [Line Items]
Portfolio Loans	99	283
Commercial and Industrial | Loans 30-59 Days Past Due
Financing Receivable, Past Due [Line Items]
Portfolio Loans	4	274
Commercial and Industrial | Loans 60-89 Days Past Due
Financing Receivable, Past Due [Line Items]
Portfolio Loans	95	9
Residential Mortgages
Financing Receivable, Past Due [Line Items]
Portfolio Loans	707,893	657,948
Nonaccrual Loans	3,288	3,265	2,551
Residential Mortgages | Current Loans
Financing Receivable, Past Due [Line Items]
Portfolio Loans	703,917	654,238
Residential Mortgages | Total 30-89 Days Past Due
Financing Receivable, Past Due [Line Items]
Portfolio Loans	688	445
Residential Mortgages | Loans 30-59 Days Past Due
Financing Receivable, Past Due [Line Items]
Portfolio Loans	438	445
Residential Mortgages | Loans 60-89 Days Past Due
Financing Receivable, Past Due [Line Items]
Portfolio Loans	250	0
Other Consumer
Financing Receivable, Past Due [Line Items]
Portfolio Loans	38,736	44,562
Nonaccrual Loans	12	8	73
Other Consumer | Current Loans
Financing Receivable, Past Due [Line Items]
Portfolio Loans	38,209	44,013
Other Consumer | Total 30-89 Days Past Due
Financing Receivable, Past Due [Line Items]
Portfolio Loans	515	541
Other Consumer | Loans 30-59 Days Past Due
Financing Receivable, Past Due [Line Items]
Portfolio Loans	304	337
Other Consumer | Loans 60-89 Days Past Due
Financing Receivable, Past Due [Line Items]
Portfolio Loans	211	204
Construction
Financing Receivable, Past Due [Line Items]
Portfolio Loans	356,805	353,553
Nonaccrual Loans	2,908	864	985
Construction | Current Loans
Financing Receivable, Past Due [Line Items]
Portfolio Loans	353,848	349,225
Construction | Total 30-89 Days Past Due
Financing Receivable, Past Due [Line Items]
Portfolio Loans	49	3,464
Construction | Loans 30-59 Days Past Due
Financing Receivable, Past Due [Line Items]
Portfolio Loans	0	1,321
Construction | Loans 60-89 Days Past Due
Financing Receivable, Past Due [Line Items]
Portfolio Loans	49	2,143
Other
Financing Receivable, Past Due [Line Items]
Portfolio Loans	305,255	312,496
Nonaccrual Loans	301,913	0	$ 0
Other | Current Loans
Financing Receivable, Past Due [Line Items]
Portfolio Loans	3,342	312,496
Other | Total 30-89 Days Past Due
Financing Receivable, Past Due [Line Items]
Portfolio Loans	0	0
Other | Loans 30-59 Days Past Due
Financing Receivable, Past Due [Line Items]
Portfolio Loans	0	0
Other | Loans 60-89 Days Past Due
Financing Receivable, Past Due [Line Items]
Portfolio Loans	$ 0	$ 0

XML

ALLOWANCE FOR CREDIT LOSSES - Nonaccrual (Details) - USD ($) $ in Thousands	Jun. 30, 2023	Dec. 31, 2022
Financing Receivable, Nonaccrual [Line Items]
Nonaccrual With No Related Allowance	$ 2,090	$ 0
Past Due 90+ Days Still Accruing	0	0
Commercial Real Estate
Financing Receivable, Nonaccrual [Line Items]
Nonaccrual With No Related Allowance	0	0
Past Due 90+ Days Still Accruing	0	0
Commercial and Industrial
Financing Receivable, Nonaccrual [Line Items]
Nonaccrual With No Related Allowance	0	0
Past Due 90+ Days Still Accruing	0	0
Residential Mortgages
Financing Receivable, Nonaccrual [Line Items]
Nonaccrual With No Related Allowance	0	0
Past Due 90+ Days Still Accruing	0	0
Other Consumer
Financing Receivable, Nonaccrual [Line Items]
Nonaccrual With No Related Allowance	0	0
Past Due 90+ Days Still Accruing	0	0
Construction
Financing Receivable, Nonaccrual [Line Items]
Nonaccrual With No Related Allowance	2,090	0
Past Due 90+ Days Still Accruing	0	0
Other
Financing Receivable, Nonaccrual [Line Items]
Nonaccrual With No Related Allowance	0	0
Past Due 90+ Days Still Accruing	$ 0	$ 0

XML

ALLOWANCE FOR CREDIT LOSSES - Collateral Dependent Loans (Details) - USD ($) $ in Thousands	Jun. 30, 2023	Dec. 31, 2022
Financing Receivable, Nonaccrual [Line Items]
Portfolio Loans	$ 3,330,442	$ 3,148,913
Commercial Real Estate
Financing Receivable, Nonaccrual [Line Items]
Portfolio Loans	1,642,597	1,470,562
Commercial and Industrial
Financing Receivable, Nonaccrual [Line Items]
Portfolio Loans	279,156	309,792
Residential Mortgages
Financing Receivable, Nonaccrual [Line Items]
Portfolio Loans	707,893	657,948
Other Consumer
Financing Receivable, Nonaccrual [Line Items]
Portfolio Loans	38,736	44,562
Construction
Financing Receivable, Nonaccrual [Line Items]
Portfolio Loans	356,805	353,553
Other
Financing Receivable, Nonaccrual [Line Items]
Portfolio Loans	305,255	312,496
Real Estate, Invetment And Cash
Financing Receivable, Nonaccrual [Line Items]
Portfolio Loans	307,161
Real Estate, Invetment And Cash | Commercial Real Estate
Financing Receivable, Nonaccrual [Line Items]
Portfolio Loans	1,946
Real Estate, Invetment And Cash | Commercial and Industrial
Financing Receivable, Nonaccrual [Line Items]
Portfolio Loans	0
Real Estate, Invetment And Cash | Residential Mortgages
Financing Receivable, Nonaccrual [Line Items]
Portfolio Loans	1,212
Real Estate, Invetment And Cash | Other Consumer
Financing Receivable, Nonaccrual [Line Items]
Portfolio Loans	0
Real Estate, Invetment And Cash | Construction
Financing Receivable, Nonaccrual [Line Items]
Portfolio Loans	2,090
Real Estate, Invetment And Cash | Other
Financing Receivable, Nonaccrual [Line Items]
Portfolio Loans	301,913
Collateral
Financing Receivable, Nonaccrual [Line Items]
Portfolio Loans	5,248	3,318
Collateral | Commercial Real Estate
Financing Receivable, Nonaccrual [Line Items]
Portfolio Loans	1,946	2,106
Collateral | Commercial and Industrial
Financing Receivable, Nonaccrual [Line Items]
Portfolio Loans	0	0
Collateral | Residential Mortgages
Financing Receivable, Nonaccrual [Line Items]
Portfolio Loans	1,212	1,212
Collateral | Other Consumer
Financing Receivable, Nonaccrual [Line Items]
Portfolio Loans	0	0
Collateral | Construction
Financing Receivable, Nonaccrual [Line Items]
Portfolio Loans	2,090	0
Collateral | Other
Financing Receivable, Nonaccrual [Line Items]
Portfolio Loans	0	$ 0
Discounted Cash Flow
Financing Receivable, Nonaccrual [Line Items]
Portfolio Loans	301,913
Discounted Cash Flow | Commercial Real Estate
Financing Receivable, Nonaccrual [Line Items]
Portfolio Loans	0
Discounted Cash Flow | Commercial and Industrial
Financing Receivable, Nonaccrual [Line Items]
Portfolio Loans	0
Discounted Cash Flow | Residential Mortgages
Financing Receivable, Nonaccrual [Line Items]
Portfolio Loans	0
Discounted Cash Flow | Other Consumer
Financing Receivable, Nonaccrual [Line Items]
Portfolio Loans	0
Discounted Cash Flow | Construction
Financing Receivable, Nonaccrual [Line Items]
Portfolio Loans	0
Discounted Cash Flow | Other
Financing Receivable, Nonaccrual [Line Items]
Portfolio Loans	$ 301,913

XML

ALLOWANCE FOR CREDIT LOSSES - ACL and Allowance for Loan Losses Rollforward (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
Allowance for Credit Losses on Loans:
Balance at Beginning of Period	$ 94,694	$ 96,376	$ 93,852	$ 95,939
Provision (Recovery) for Credit Losses on Loans	85	1,814	1,500	2,444
Charge-offs	(760)	(419)	(1,421)	(871)
Recoveries	125	210	213	469
Net Recoveries/(Charge-offs)	(635)	(209)	(1,208)	(402)
Balance at End of Period	94,144	97,981	94,144	97,981
Commercial Real Estate
Allowance for Credit Losses on Loans:
Balance at Beginning of Period	18,595	17,518	17,992	17,297
Provision (Recovery) for Credit Losses on Loans	549	290	1,152	511
Charge-offs	0	0	0	0
Recoveries	0	0	0	0
Net Recoveries/(Charge-offs)	0	0	0	0
Balance at End of Period	19,144	17,808	19,144	17,808
Commercial and Industrial
Allowance for Credit Losses on Loans:
Balance at Beginning of Period	3,531	3,583	3,980	4,111
Provision (Recovery) for Credit Losses on Loans	(243)	2,127	(691)	1,598
Charge-offs	0	(22)	(1)	(22)
Recoveries	5	0	5	1
Net Recoveries/(Charge-offs)	5	(22)	4	(21)
Balance at End of Period	3,293	5,688	3,293	5,688
Residential Mortgages
Allowance for Credit Losses on Loans:
Balance at Beginning of Period	10,419	4,520	8,891	4,368
Provision (Recovery) for Credit Losses on Loans	33	545	1,563	714
Charge-offs	(67)	(6)	(70)	(23)
Recoveries	1	96	2	96
Net Recoveries/(Charge-offs)	(66)	90	(68)	73
Balance at End of Period	10,386	5,155	10,386	5,155
Other Consumer
Allowance for Credit Losses on Loans:
Balance at Beginning of Period	1,189	1,470	1,329	1,493
Provision (Recovery) for Credit Losses on Loans	401	526	831	829
Charge-offs	(651)	(391)	(1,308)	(826)
Recoveries	119	114	206	223
Net Recoveries/(Charge-offs)	(532)	(277)	(1,102)	(603)
Balance at End of Period	1,058	1,719	1,058	1,719
Construction
Allowance for Credit Losses on Loans:
Balance at Beginning of Period	7,506	7,554	6,942	6,939
Provision (Recovery) for Credit Losses on Loans	(861)	(722)	(297)	(256)
Charge-offs	(42)	0	(42)	0
Recoveries	0	0	0	149
Net Recoveries/(Charge-offs)	(42)	0	(42)	149
Balance at End of Period	6,603	6,832	6,603	6,832
Other
Allowance for Credit Losses on Loans:
Balance at Beginning of Period	53,454	61,731	54,718	61,731
Provision (Recovery) for Credit Losses on Loans	206	(952)	(1,058)	(952)
Charge-offs	0	0	0	0
Recoveries	0	0	0	0
Net Recoveries/(Charge-offs)	0	0	0	0
Balance at End of Period	$ 53,660	$ 60,779	$ 53,660	$ 60,779

XML

FAIR VALUE MEASUREMENTS - Narrative (Details)	6 Months Ended
	Jun. 30, 2023 USD ($) security	Jun. 30, 2022 USD ($)	Dec. 31, 2022 USD ($) security
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Troubled debt restructured loans, individually evaluated impaired loans	$ 1,000,000
OREO threshold to revalue every 24 months	500,000
Impaired loans with specific valuation allowance	248,300,000
Related allowance	53,600,000
OREO	3,379,000		$ 8,393,000
OREO Write down	0	$ 400,000
Fair Value, Nonrecurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans with specific valuation allowance	2,858,000		2,649,000
Related allowance	300,000		700,000
OREO	$ 2,570,000		8,393,000
Minimum
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Period of time between issuance and closing of loan commitment	15 days
Maximum
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Period of time between issuance and closing of loan commitment	90 days
Level 3 | Fair Value, Nonrecurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans with specific valuation allowance	$ 2,858,000		2,649,000
OREO	$ 2,570,000		$ 8,393,000
Level 3 | Subordinated Debt | Fair Value, Recurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Number of securities | security	2		2
Fair value level 3 security	$ 7,300,000		$ 7,500,000

XML

FAIR VALUE MEASUREMENTS - Assets and Liabilities Measured on a Recurring Basis (Details) - USD ($) $ in Thousands	Jun. 30, 2023	Dec. 31, 2022
Assets
Securities Available-for-Sale, at Fair Value	$ 821,370	$ 836,273
Derivatives	21,101	22,973
Liabilities
Derivatives	20,814	22,542
U.S. Treasury Securities
Assets
Securities Available-for-Sale, at Fair Value	13,174	17,866
U.S. Government Agency Securities
Assets
Securities Available-for-Sale, at Fair Value	51,508	49,764
Residential Mortgage-Backed Securities
Assets
Securities Available-for-Sale, at Fair Value	100,163	103,685
Commercial Mortgage-Backed Securities
Assets
Securities Available-for-Sale, at Fair Value	35,402	34,675
Other Commercial Mortgage-Backed Securities
Assets
Securities Available-for-Sale, at Fair Value	21,583	22,399
Asset Backed Securities
Assets
Securities Available-for-Sale, at Fair Value	138,722	141,383
Collateralized Mortgage Obligations
Assets
Securities Available-for-Sale, at Fair Value	169,077	176,622
States and Political Subdivisions
Assets
Securities Available-for-Sale, at Fair Value	233,431	228,146
Corporate Notes
Assets
Securities Available-for-Sale, at Fair Value	58,310	61,733
Fair Value, Recurring
Assets
Securities Available-for-Sale, at Fair Value	821,370	836,273
Derivatives	21,107	22,974
Total	842,477	859,247
Liabilities
Derivatives	20,820	22,543
Total	20,820	22,543
Fair Value, Recurring | U.S. Treasury Securities
Assets
Securities Available-for-Sale, at Fair Value	13,174	17,866
Fair Value, Recurring | U.S. Government Agency Securities
Assets
Securities Available-for-Sale, at Fair Value	51,508	49,764
Fair Value, Recurring | Residential Mortgage-Backed Securities
Assets
Securities Available-for-Sale, at Fair Value	100,163	103,685
Fair Value, Recurring | Commercial Mortgage-Backed Securities
Assets
Securities Available-for-Sale, at Fair Value	35,402	34,675
Fair Value, Recurring | Other Commercial Mortgage-Backed Securities
Assets
Securities Available-for-Sale, at Fair Value	21,583	22,399
Fair Value, Recurring | Asset Backed Securities
Assets
Securities Available-for-Sale, at Fair Value	138,722	141,383
Fair Value, Recurring | Collateralized Mortgage Obligations
Assets
Securities Available-for-Sale, at Fair Value	169,077	176,622
Fair Value, Recurring | States and Political Subdivisions
Assets
Securities Available-for-Sale, at Fair Value	233,431	228,146
Fair Value, Recurring | Corporate Notes
Assets
Securities Available-for-Sale, at Fair Value	58,310	61,733
Fair Value, Recurring | Quoted Prices in Active Markets for Identical Assets (Level 1)
Assets
Securities Available-for-Sale, at Fair Value	13,174	25,400
Derivatives	0	0
Total	13,174	25,400
Liabilities
Derivatives	0	0
Total	0	0
Fair Value, Recurring | Quoted Prices in Active Markets for Identical Assets (Level 1) | U.S. Treasury Securities
Assets
Securities Available-for-Sale, at Fair Value	13,174	17,866
Fair Value, Recurring | Quoted Prices in Active Markets for Identical Assets (Level 1) | U.S. Government Agency Securities
Assets
Securities Available-for-Sale, at Fair Value	0	0
Fair Value, Recurring | Quoted Prices in Active Markets for Identical Assets (Level 1) | Residential Mortgage-Backed Securities
Assets
Securities Available-for-Sale, at Fair Value	0	0
Fair Value, Recurring | Quoted Prices in Active Markets for Identical Assets (Level 1) | Commercial Mortgage-Backed Securities
Assets
Securities Available-for-Sale, at Fair Value	0	0
Fair Value, Recurring | Quoted Prices in Active Markets for Identical Assets (Level 1) | Other Commercial Mortgage-Backed Securities
Assets
Securities Available-for-Sale, at Fair Value	0	2,538
Fair Value, Recurring | Quoted Prices in Active Markets for Identical Assets (Level 1) | Asset Backed Securities
Assets
Securities Available-for-Sale, at Fair Value	0	4,996
Fair Value, Recurring | Quoted Prices in Active Markets for Identical Assets (Level 1) | Collateralized Mortgage Obligations
Assets
Securities Available-for-Sale, at Fair Value	0	0
Fair Value, Recurring | Quoted Prices in Active Markets for Identical Assets (Level 1) | States and Political Subdivisions
Assets
Securities Available-for-Sale, at Fair Value	0	0
Fair Value, Recurring | Quoted Prices in Active Markets for Identical Assets (Level 1) | Corporate Notes
Assets
Securities Available-for-Sale, at Fair Value	0	0
Fair Value, Recurring | Significant Other Observable Inputs (Level 2)
Assets
Securities Available-for-Sale, at Fair Value	800,885	803,356
Derivatives	21,107	22,974
Total	821,992	826,330
Liabilities
Derivatives	20,820	22,543
Total	20,820	22,543
Fair Value, Recurring | Significant Other Observable Inputs (Level 2) | U.S. Treasury Securities
Assets
Securities Available-for-Sale, at Fair Value	0	0
Fair Value, Recurring | Significant Other Observable Inputs (Level 2) | U.S. Government Agency Securities
Assets
Securities Available-for-Sale, at Fair Value	51,508	49,764
Fair Value, Recurring | Significant Other Observable Inputs (Level 2) | Residential Mortgage-Backed Securities
Assets
Securities Available-for-Sale, at Fair Value	100,163	103,685
Fair Value, Recurring | Significant Other Observable Inputs (Level 2) | Commercial Mortgage-Backed Securities
Assets
Securities Available-for-Sale, at Fair Value	35,402	34,675
Fair Value, Recurring | Significant Other Observable Inputs (Level 2) | Other Commercial Mortgage-Backed Securities
Assets
Securities Available-for-Sale, at Fair Value	21,583	19,861
Fair Value, Recurring | Significant Other Observable Inputs (Level 2) | Asset Backed Securities
Assets
Securities Available-for-Sale, at Fair Value	138,722	136,387
Fair Value, Recurring | Significant Other Observable Inputs (Level 2) | Collateralized Mortgage Obligations
Assets
Securities Available-for-Sale, at Fair Value	169,077	176,622
Fair Value, Recurring | Significant Other Observable Inputs (Level 2) | States and Political Subdivisions
Assets
Securities Available-for-Sale, at Fair Value	233,431	228,146
Fair Value, Recurring | Significant Other Observable Inputs (Level 2) | Corporate Notes
Assets
Securities Available-for-Sale, at Fair Value	50,999	54,216
Fair Value, Recurring | Significant Unobservable Inputs (Level 3)
Assets
Securities Available-for-Sale, at Fair Value	7,311	7,517
Derivatives	0	0
Total	7,311	7,517
Liabilities
Derivatives	0	0
Total	0	0
Fair Value, Recurring | Significant Unobservable Inputs (Level 3) | U.S. Treasury Securities
Assets
Securities Available-for-Sale, at Fair Value	0	0
Fair Value, Recurring | Significant Unobservable Inputs (Level 3) | U.S. Government Agency Securities
Assets
Securities Available-for-Sale, at Fair Value	0	0
Fair Value, Recurring | Significant Unobservable Inputs (Level 3) | Residential Mortgage-Backed Securities
Assets
Securities Available-for-Sale, at Fair Value	0	0
Fair Value, Recurring | Significant Unobservable Inputs (Level 3) | Commercial Mortgage-Backed Securities
Assets
Securities Available-for-Sale, at Fair Value	0	0
Fair Value, Recurring | Significant Unobservable Inputs (Level 3) | Other Commercial Mortgage-Backed Securities
Assets
Securities Available-for-Sale, at Fair Value	0	0
Fair Value, Recurring | Significant Unobservable Inputs (Level 3) | Asset Backed Securities
Assets
Securities Available-for-Sale, at Fair Value	0	0
Fair Value, Recurring | Significant Unobservable Inputs (Level 3) | Collateralized Mortgage Obligations
Assets
Securities Available-for-Sale, at Fair Value	0	0
Fair Value, Recurring | Significant Unobservable Inputs (Level 3) | States and Political Subdivisions
Assets
Securities Available-for-Sale, at Fair Value	0	0
Fair Value, Recurring | Significant Unobservable Inputs (Level 3) | Corporate Notes
Assets
Securities Available-for-Sale, at Fair Value	$ 7,311	$ 7,517

XML

FAIR VALUE MEASUREMENTS - Assets Measured on a Nonrecurring Basis (Details) - USD ($) $ in Thousands	Jun. 30, 2023	Dec. 31, 2022
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
OREO	$ 3,379	$ 8,393
Individually Evaluated Loans	248,300
Fair Value, Nonrecurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
OREO	2,570	8,393
Individually Evaluated Loans	2,858	2,649
Fair Value, Nonrecurring | Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
OREO	0	0
Individually Evaluated Loans	0	0
Fair Value, Nonrecurring | Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
OREO	0	0
Individually Evaluated Loans	0	0
Fair Value, Nonrecurring | Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
OREO	2,570	8,393
Individually Evaluated Loans	$ 2,858	$ 2,649

XML

FAIR VALUE MEASUREMENTS - Bank Assets Measured on Nonrecurring Basis (Details) $ in Thousands	Jun. 30, 2023 USD ($)	Dec. 31, 2022 USD ($)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Individually Evaluated Loans	$ 248,300
OREO	3,379	$ 8,393
Fair Value, Nonrecurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Individually Evaluated Loans	2,858	2,649
OREO	2,570	8,393
Fair Value, Nonrecurring | Individually Evaluated Loans
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Individually Evaluated Loans	1,067
Fair Value, Nonrecurring | Individually Evaluated Loans
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Individually Evaluated Loans	1,791
Fair Value, Nonrecurring | Individually Evaluated Loans
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Individually Evaluated Loans		858
Fair Value, Nonrecurring | Individually Evaluated Loans
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Individually Evaluated Loans		1,791
Fair Value, Nonrecurring | OREO
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
OREO	2,427	7,323
Fair Value, Nonrecurring | OREO
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
OREO	$ 143
Fair Value, Nonrecurring | OREO
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
OREO		143
Fair Value, Nonrecurring | OREO
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
OREO		$ 927
Discounted Internal Valuations | Management’s Discount & Estimated Selling Costs | Individually Evaluated Loans
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Individually Evaluated Loans, Measurement Input		0.142
Discounted Internal Valuations | Minimum | Management’s Discount & Estimated Selling Costs | OREO
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
OREO, Measurement Input		0.000
Discounted Internal Valuations | Maximum | Management’s Discount & Estimated Selling Costs | OREO
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
OREO, Measurement Input		0.050
Discounted Internal Valuations | Weighted Average | Management’s Discount & Estimated Selling Costs | Individually Evaluated Loans
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Individually Evaluated Loans, Measurement Input	0.010
Discounted Internal Valuations | Weighted Average | Management’s Discount & Estimated Selling Costs | Individually Evaluated Loans
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Individually Evaluated Loans, Measurement Input		0.142
Discounted Internal Valuations | Weighted Average | Management’s Discount & Estimated Selling Costs | OREO
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
OREO, Measurement Input		0.007
Discounted Appraisals | Estimated Selling Costs | Individually Evaluated Loans
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Individually Evaluated Loans, Measurement Input	0.010
Discounted Appraisals | Estimated Selling Costs | Individually Evaluated Loans
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Individually Evaluated Loans, Measurement Input	0.060
Discounted Appraisals | Estimated Selling Costs | Individually Evaluated Loans
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Individually Evaluated Loans, Measurement Input		0.060
Discounted Appraisals | Weighted Average | Estimated Selling Costs | Individually Evaluated Loans
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Individually Evaluated Loans, Measurement Input	0.060
Discounted Appraisals | Weighted Average | Estimated Selling Costs | Individually Evaluated Loans
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Individually Evaluated Loans, Measurement Input		0.060
Appraisals | Estimated Selling Costs | OREO
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
OREO, Measurement Input	0.100	0.100
Appraisals | Weighted Average | Estimated Selling Costs | OREO
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
OREO, Measurement Input		0.100
Internal Valuations | Estimated Selling Costs | OREO
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
OREO, Measurement Input	0.050
Internal Valuations | Estimated Selling Costs | OREO
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
OREO, Measurement Input		0.050
Internal Valuations | Weighted Average | Estimated Selling Costs | OREO
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
OREO, Measurement Input		0.050

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FAIR VALUE MEASUREMENTS - Carrying Value and Fair Value (Details) - USD ($) $ in Thousands	Jun. 30, 2023	Dec. 31, 2022
Financial Assets:
Securities Available-for-Sale	$ 821,370	$ 836,273
Federal Home Loan Bank Stock, at Cost	19,403	9,740
Reported Value Measurement
Financial Assets:
Cash and Cash Equivalents	53,275	46,869
Securities Available-for-Sale	821,370	836,273
Loans Held-for-Sale	173
Portfolio Loans, net	3,236,298	3,055,061
Federal Home Loan Bank Stock, at Cost	19,403	9,740
Other Assets- Interest Rate Derivatives	21,107	22,974
Accrued Interest Receivable	17,260	19,346
Financial Liabilities:
Deposits	3,577,003	3,630,333
Other Liabilities- Interest Rate Derivatives	20,820	22,543
FHLB Borrowings	407,135	180,550
Federal Funds Purchased	7,900	17,870
Accrued Interest Payable	6,772	2,294
Estimate of Fair Value Measurement
Financial Assets:
Cash and Cash Equivalents	53,275	46,869
Securities Available-for-Sale	821,370	836,273
Loans Held-for-Sale	173
Portfolio Loans, net	3,130,923	2,955,489
Other Assets- Interest Rate Derivatives	21,107	22,974
Accrued Interest Receivable	17,260	19,346
Financial Liabilities:
Deposits	3,580,611	3,633,466
Other Liabilities- Interest Rate Derivatives	20,820	22,543
FHLB Borrowings	405,543	180,569
Federal Funds Purchased	7,900	17,870
Accrued Interest Payable	6,772	2,294
Estimate of Fair Value Measurement | Quoted Prices in Active Markets for Identical Assets (Level 1)
Financial Assets:
Cash and Cash Equivalents	44,872	42,364
Securities Available-for-Sale	13,174	25,400
Loans Held-for-Sale	0
Portfolio Loans, net	0	0
Federal Home Loan Bank Stock, at Cost	0	0
Other Assets- Interest Rate Derivatives	0	0
Accrued Interest Receivable	35	138
Financial Liabilities:
Deposits	686,124	703,334
Other Liabilities- Interest Rate Derivatives	0	0
FHLB Borrowings	0	0
Federal Funds Purchased	0	0
Accrued Interest Payable	0	0
Estimate of Fair Value Measurement | Significant Other Observable Inputs (Level 2)
Financial Assets:
Cash and Cash Equivalents	8,403	4,505
Securities Available-for-Sale	800,885	803,356
Loans Held-for-Sale	0
Portfolio Loans, net	0	0
Federal Home Loan Bank Stock, at Cost	0	0
Other Assets- Interest Rate Derivatives	21,107	22,974
Accrued Interest Receivable	5,311	4,903
Financial Liabilities:
Deposits	1,439,339	1,665,473
Other Liabilities- Interest Rate Derivatives	20,820	22,543
FHLB Borrowings	0	0
Federal Funds Purchased	7,900	17,870
Accrued Interest Payable	0	0
Estimate of Fair Value Measurement | Significant Unobservable Inputs (Level 3)
Financial Assets:
Cash and Cash Equivalents	0	0
Securities Available-for-Sale	7,311	7,517
Loans Held-for-Sale	173
Portfolio Loans, net	3,130,923	2,955,489
Other Assets- Interest Rate Derivatives	0	0
Accrued Interest Receivable	11,914	14,305
Financial Liabilities:
Deposits	1,455,148	1,264,659
Other Liabilities- Interest Rate Derivatives	0	0
FHLB Borrowings	405,543	180,569
Federal Funds Purchased	0	0
Accrued Interest Payable	$ 6,772	$ 2,294

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DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - Fair Value of Assets and Liabilities (Details) $ in Thousands	Jun. 30, 2023 USD ($) security	Dec. 31, 2022 USD ($) security
Fair Value of Derivative Assets (Included in Other Assets)
Fair Value	$ 21,101	$ 22,973
Fair Value of Derivative Liabilities (Included in Other Liabilities)
Fair Value	$ 20,814	$ 22,542
Not Designated as Hedging Instrument
Fair Value of Derivative Assets (Included in Other Assets)
Number of Transactions | security	67	63
Notional Amount	$ 408,403	$ 433,184
Fair Value	$ 21,107	$ 22,974
Fair Value of Derivative Liabilities (Included in Other Liabilities)
Number of Transactions | security	67	63
Notional Amount	$ 408,403	$ 433,184
Fair Value	$ 20,820	$ 22,543
Interest Rate Lock Commitments – Mortgage Loans | Not Designated as Hedging Instrument
Fair Value of Derivative Assets (Included in Other Assets)
Number of Transactions | security	7	1
Notional Amount	$ 1,147	$ 200
Fair Value	$ 6	$ 1
Interest Rate Swap Contracts – Commercial Loans | Not Designated as Hedging Instrument
Fair Value of Derivative Assets (Included in Other Assets)
Number of Transactions | security	60	62
Notional Amount	$ 407,256	$ 432,984
Fair Value	$ 21,101	$ 22,973
Fair Value of Derivative Liabilities (Included in Other Liabilities)
Number of Transactions | security	60	62
Notional Amount	$ 407,256	$ 432,984
Fair Value	$ 20,814	$ 22,542
Forward Sale Contracts – Mortgage Loans | Not Designated as Hedging Instrument
Fair Value of Derivative Liabilities (Included in Other Liabilities)
Number of Transactions | security	7	1
Notional Amount	$ 1,147	$ 200
Fair Value	$ 6	$ 1

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DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - Income (Loss) Recognized in Income (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
Derivative [Line Items]
Total Derivative Income (Loss)	$ 50	$ 139	$ (144)	$ 443
Interest Rate Lock Commitments – Mortgage Loans
Derivative [Line Items]
Total Derivative Income (Loss)	5	14	5	18
Forward Sale Contracts – Mortgage Loans
Derivative [Line Items]
Total Derivative Income (Loss)	(5)	(14)	(5)	(18)
Interest Rate Swap Contracts – Commercial Loans
Derivative [Line Items]
Total Derivative Income (Loss)	$ 50	$ 139	$ (144)	$ 443

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DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - Amounts Offset (Details) - USD ($) $ in Thousands	Jun. 30, 2023	Dec. 31, 2022
Derivative Assets (Included in Other Assets)
Gross Amounts Recognized	$ 21,101	$ 22,973
Gross Amounts Offset	0	0
Net Amounts Presented in the Consolidated Balance Sheets	21,101	22,973
Gross Amounts Not Offset	0	0
Net Amount	21,101	22,973
Derivative Liabilities (Included in Other Liabilities)
Gross Amounts Recognized	20,814	22,542
Gross Amounts Offset	0	0
Net Amounts Presented in the Consolidated Balance Sheets	20,814	22,542
Gross Amounts Not Offset	0	0
Net Amount	$ 20,814	$ 22,542

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DEPOSITS - Schedule of Deposits (Details) - USD ($) $ in Thousands	Jun. 30, 2023	Dec. 31, 2022
Banking and Thrift, Interest [Abstract]
Noninterest-Bearing Demand	$ 686,124	$ 703,334
Interest-Bearing Demand	489,971	496,948
Money Market	422,780	484,238
Savings	526,588	684,287
Certificates of Deposit	1,451,540	1,261,526
Total Deposits	$ 3,577,003	$ 3,630,333

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DEPOSITS - Narrative (Details) - USD ($) $ in Millions	Jun. 30, 2023	Dec. 31, 2022
Banking and Thrift, Interest [Abstract]
Time deposits, at or above FDIC insurance limit	$ 233.5	$ 159.0
Overdraft reclassified to loans	$ 0.3	$ 0.3

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DEPOSITS - Schedule of Maturities of Time Deposits (Details) - USD ($) $ in Thousands	Jun. 30, 2023	Dec. 31, 2022
Banking and Thrift, Interest [Abstract]
3 Months or Less	$ 99,282
Over 3 Months through 12 Months	765,786
Over 1 Year Through 3 Years	506,886
Over 3 Years	79,586
Total	$ 1,451,540	$ 1,261,526

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FEDERAL HOME LOAN BANK BORROWINGS AND FEDERAL FUNDS PURCHASED - Narrative (Details) - USD ($)	Jun. 30, 2023	Dec. 31, 2022
Debt Instrument [Line Items]
Advances from federal home loan banks	$ 407,135,000	$ 180,550,000
Interest rate	82.80%	33.40%
FHLB Availability	$ 508,369,000	$ 676,746,000
Maximum borrowing capacity	$ 1,100,000,000
Maximum amount available, percentage of total assets	25.00%
Federal funds purchased	$ 7,900,000	17,870,000
Remaining borrowing capacity	137,100,000	127,130,000
Loans Receivable
Debt Instrument [Line Items]
Assets pledged as collateral	1,500,000,000	1,500,000,000
Available-for-sale Securities
Debt Instrument [Line Items]
Assets pledged as collateral	$ 0	$ 0

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FEDERAL HOME LOAN BANK BORROWINGS AND FEDERAL FUNDS PURCHASED - Long Term Debt (Details) - USD ($) $ in Thousands	Jun. 30, 2023	Dec. 31, 2022
Debt Disclosure [Abstract]
FHLB Borrowings	$ 407,135	$ 180,550
Weighted Average Interest Rate	5.10%	4.48%
FHLB Availability	$ 508,369	$ 676,746
Federal Funds Purchased	$ 7,900	$ 17,870
Weighted Average Interest Rate	5.40%	4.65%
Remaining borrowing capacity	$ 137,100	$ 127,130

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FEDERAL HOME LOAN BANK BORROWINGS AND FEDERAL FUNDS PURCHASED - Maturities and Weighted Average Interest Rates (Details) - USD ($) $ in Thousands	Jun. 30, 2023	Dec. 31, 2022
Balance
1 year	$ 337,135
2 years	25,000
3 years	45,000
4 years	0
5 years	0
Thereafter	0
Total FHLB Borrowings	$ 407,135	$ 180,550
Weighted Average Rate
1 year	5.32%
2 years	4.13%
3 years	3.96%
4 years	0.00%
5 years	0.00%
Thereafter	0.00%
Total FHLB Borrowings	5.10%	4.48%

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COMMITMENTS AND CONTINGENCIES - Narrative (Details) - USD ($) $ in Thousands	1 Months Ended	3 Months Ended		6 Months Ended
	May 15, 2023	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022	Dec. 31, 2022
Other Commitments [Line Items]
Unused commitments to extend credit		$ 749,377		$ 749,377		$ 630,619
Provision for (release of) unfunded commitments		360	$ 269	444	$ 33
Amounts owed on maturity with aggregate principal balance	$ 301,000
Standby and Performance Letters of Credit
Other Commitments [Line Items]
Guarantor obligations, current carrying value		26,289		26,289		25,739
Construction Loans
Other Commitments [Line Items]
Unused commitments to extend credit		$ 395,600		$ 395,600		$ 373,200
Commitments to extend credit, percent to total		52.80%		52.80%		59.20%
Unfunded Loan Commitment
Other Commitments [Line Items]
Provision for (release of) unfunded commitments		$ 400
Expense increase		$ 100		$ 400

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COMMITMENTS AND CONTINGENCIES - Commitments and Letters of Credit (Details) - USD ($) $ in Thousands	Jun. 30, 2023	Dec. 31, 2022
Other Commitments [Line Items]
Commitments to Extend Credit	$ 749,377	$ 630,619
Total	775,666	656,358
Standby and Performance Letters of Credit
Other Commitments [Line Items]
Standby and Performance Letters of Credit	$ 26,289	$ 25,739

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COMMITMENTS AND CONTINGENCIES - Life-of-Loss Reserve (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
Life-of-Loss Reserve on Unfunded Loan Commitments
Life-of-loss reserve on unfunded loan commitments, beginning balance	$ 2,376	$ 1,547	$ 2,292	$ 1,783
Provision for Unfunded Commitments	360	269	444	33
Life-of-loss reserve on unfunded loan commitments, ending balance	$ 2,736	$ 1,816	$ 2,736	$ 1,816

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TAX EFFECTS ON OTHER COMPREHENSIVE (LOSS) INCOME (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
Accumulated Other Comprehensive Income (Loss) [Line Items]
Other Comprehensive Income (Loss), Pre-Tax Amount	$ (11,039)	$ (35,078)	$ 4,606	$ (78,086)
Other Comprehensive Income (Loss), Tax Benefit (Expense)	2,418	7,366	(975)	16,398
Other Comprehensive (Loss) Income	(8,621)	(27,712)	3,631	(61,688)
AOCI, Accumulated Gain (Losses), Debt Securities, Available-for-sale, Parent
Accumulated Other Comprehensive Income (Loss) [Line Items]
Net Unrealized Gains (Losses) Arising during the period, Pre-Tax Amount	(11,036)	(35,002)	4,597	(78,034)
Net Unrealized Gains (Losses) Arising during the period, Tax Benefit (Expense)	2,417	7,350	(973)	16,387
Net Unrealized Gains (Losses) Arising during the period, Net of Tax Amount	(8,619)	(27,652)	3,624	(61,647)
Reclassification Adjustment for Losses included in Net Income, Pre-Tax Amount	(3)	(76)	9	(52)
Reclassification Adjustment for Losses included in Net Income, Tax Benefit (Expense)	1	16	(2)	11
Reclassification Adjustment for Losses included in Net Income, Net of Tax Amount	$ (2)	$ (60)	$ 7	$ (41)

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STOCK REPURCHASE PLAN (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022	Mar. 29, 2023	Aug. 01, 2022	Dec. 10, 2021
Equity [Abstract]
Number of shares authorized (in shares)					1,000,000	750,000	2,000,000
Repurchase of common stock (in shares)	583,824	446,436	716,056	1,969,593
Cost of shares repurchased	$ 8,153	$ 7,789	$ 10,413	$ 32,415
Share price (usd per share)	$ 13.96

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PROVISION FOR INCOME TAXES - Schedule of Effective Income Tax Rate Reconciliation (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
Amount
Federal Income Tax at Statutory Rate	$ 1,209	$ 2,640	$ 5,503	$ 4,877
State Income Tax, net of Federal Benefit	55	48	420	262
Tax-exempt Interest, net of Disallowance	(183)	(225)	(378)	(453)
Federal Tax Credits, net of Basis Reduction	(559)	(553)	(1,109)	(1,107)
Tax Credit Investment Amortization, net of Federal Benefit	274	0	757	0
Change in Valuation Allowance	0	(132)	0	(280)
Income from Bank Owned Life Insurance	(72)	(70)	(143)	(140)
Interim Period Effective Tax Rate Adjustment	(799)	76	(597)	(55)
Other	129	8	105	17
Income Tax Provision and Effective Income Tax Rate	$ 54	$ 1,792	$ 4,558	$ 3,121
Percent
Federal Income Tax at Statutory Rate	21.00%	21.00%	21.00%	21.00%
State Income Tax, net of Federal Benefit	0.90%	0.40%	1.60%	1.10%
Tax-exempt Interest, net of Disallowance	(2.90%)	(1.80%)	(1.40%)	(2.00%)
Federal Tax Credits, net of Basis Reduction	(8.90%)	(4.40%)	(4.20%)	(4.80%)
Tax Credit Investment Amortization, net of Federal Benefit	4.40%	0.00%	2.90%	0.00%
Change in Valuation Allowance	0.00%	(1.10%)	0.00%	(1.20%)
Income from Bank Owned Life Insurance	(1.20%)	(0.60%)	(0.50%)	(0.60%)
Interim Period Effective Tax Rate Adjustment	(12.80%)	0.60%	(2.30%)	(0.20%)
Other	0.40%	0.20%	0.30%	0.10%
Income Tax Provision and Effective Income Tax Rate	0.90%	14.30%	17.40%	13.40%

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PROVISION FOR INCOME TAXES - Narrative (Details) $ in Millions	6 Months Ended
	Jun. 30, 2023 USD ($)
Income Tax Disclosure [Abstract]
Historical tax credit equity investments	$ 2.7