What changed in this filing

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Item 1A. Risk Factors

2026-03-05 compared with 2025-03-07 · 292 added, 196 removed, 30 unchanged (94% of the section changed)

RISK FACTORS - (continued)

Financial services institutions have been subject to, and are likely to continue to be the target of, cyber-attacks, including computer viruses, malicious or destructive code, phishing attacks, denial of service or other security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of confidential, proprietary and other information of the institution, its associates or customers or of third parties, or otherwise materially disrupt network access or business operations.

For example, denial of service attacks have been launched against a number of large financial institutions and several large retailers have disclosed substantial cyber security breaches affecting debit and credit card accounts of their customers.

We have not experienced material cyber security incidents in the past, but there is no assurance that we will not experience an attack in the future.

Technology failures, cyber-attacks or other information or security breaches can cause material losses or other material consequences, and e ven with all reasonable security efforts, not every system or network breach can be prevented or even detected.

Furthermore, because some of our employees are working remotely from their homes, there is an increased risk of disruption to our operations because our employees’ residential networks and infrastructure may not be as secure as our office environment.

In addition to external threats, insider threats also represent a risk to us.

Insiders, having legitimate access to our systems and the information contained in them, have the opportunity to make inappropriate use of the systems and information.

We have policies, procedures and controls in place designed to prevent or limit this risk, but we cannot guarantee that such policies, procedures and controls fully mitigate this risk.

As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify and enhance our protective measures or to investigate and remediate any information security vulnerabilities or incidents.

Any of these matters could result in loss of customers and business opportunities, significant disruption to our operations and business, misappropriation or destruction of our confidential information and/or that of our customers, damage to computers or systems of our customers and/or third parties, violation of applicable privacy laws and other laws, litigation, costs associated with customer notification and credit monitoring services, increased insurance premiums, regulatory fines, penalties or intervention, loss of confidence in our security measures, reputational damage, reimbursement or other compensatory costs, and additional compliance costs.

In addition, any of the matters described above could adversely impact our results of operations and financial condition.

The Company relies on third-party providers and other suppliers for a number of services that are important to our business.

An interruption or cessation of an important service by any third-party could have a material adverse effect on our business .

The Company is dependent for the majority of our technology, including our core operating system, on third-party providers.

If these companies were to discontinue providing services to us, we may experience significant disruptions to our business.

In addition, each of these third parties faces the risk of a cyber-attack, information breach or loss, or technology failure and there is no assurance that they have not or will not experience a system or network breach .

If any of our third-party service providers experience such difficulties, or if there is any other disruption in our relationships with them, we may be required to find alternative sources of such services, which may not be on comparable or commercially reasonable terms.

We are dependent on these third-party providers securing their information systems, over which we have no control, and any failure to maintain performance, reliability and security of these systems could have a significant adverse effect on our financial condition or results of operations.

A breach of our third-party providers’ information systems could adversely affect our ability to process transactions, service our clients or manage our exposure to risk and could result in the disclosure of sensitive, personal customer information, which could have a material adverse impact on our business through damage to our reputation, loss of customer business, remedial costs, additional regulatory scrutiny or exposure to civil litigation and possible financial liability.

Assurance cannot be provided that we could negotiate terms with alternative service sources that are as favorable or could obtain services with similar functionality as found in our existing systems without the need to expend substantial resources, if at all, thereby resulting in a material adverse impact on our business and results of operations.

The Company is dependent on its management team, and the loss of any senior executive officers or other key personnel could impair its relationship with its customers and adversely affect its business and financial results.

We believe that our growth and future success will depend in large part on the skills of our executive officers.

We also depend upon the experience of the senior executive officers and other key personnel and their relationship with the communities they serve.

The loss of the services of one or more of these officers or key personnel could have an adverse impact on the business of the Company because of their skills, knowledge of the market, years of industry experience and the difficulty promptly finding qualified replacement personnel.

The Company relies on third-party service providers and other suppliers to support a number of critical business functions, including technology infrastructure, data processing, payment systems, and its core operating platform.

An interruption, failure, or cessation of services provided by any significant third-party provider could disrupt its operations and have a material adverse effect on its business, results of operations, liquidity, or financial condition .

The Company is dependent on third-party providers for a substantial portion of its technology environment, including its core banking and other key systems.

If any of these providers were to experience operation failures, cybersecurity incidents, financial distress, elect to discontinue or materially modify their services, or fail to handle current or higher volumes of use, the Company could experience significant disruptions to its business.

In addition, these providers are themselves, subject to risks of cyberattacks, data breaches, system failures, and other security incidents, and there can be no assurance that their systems have not been in the past and will not be in the future compromised.

Our ability to monitor, control, or remediate risks associated with third-party systems is more limited than for systems under our direct control.

A failure by a third-party provider to maintain adequate performance, reliability, resilience, or security could impair our ability to process transactions, service customers, comply with regulatory requirements, or manage operation and financial risks.

Such failures could also result in the unauthorized access to or disclosure of sensitive customer or proprietary information, leading to reputational harm, loss of customer relationships, regulatory scrutiny, litigation, or financial liability.

If the Company were required to replace a significant third-party service provider, it may not be able to do so in a timely manner or on comparable or commercially reasonable terms.

Transitioning to alternative providers could involve substantial costs, implementation risks, data migration challenges, service disruptions, and reduced functionality during transition periods, any of which could materially and adversely affect our business and results of operations.

Failure to keep pace with technological change could adversely affect the Company’s business and ability to remain competitive, and it may experience operational challenges when implementing new technologies.

The financial services industry is continually undergoing technological change with frequent introductions of new technology-driven products and services, and the Company anticipates that new technologies will continue to emerge.

The Company’s continued success depends, in part, on the ability to address the needs of its customers by using technology to provide products and services that satisfy customer demands and create efficiencies in our operations.

Developing or acquiring access to new technologies and incorporating those technologies into our products and services, or using them to expand our products and services, may require significant investments, may take considerable time to complete, and ultimately may not be successful.

If the Company fails to maintain or enhance its competitive position with respect to technology, whether because of a failure to anticipate customer expectations, substantially fewer resources to invest in technological improvements than its larger competitors, or because its technological developments fail to perform as desired or are not rolled out in a timely manner, the Company may lose market share or incur additional expense.

In addition, any future implementation of technological changes and upgrades to maintain current systems may cause operational and customer challenges upon implementation and for some time afterwards.

Key challenges include service interruptions, transaction processing errors and system conversion delays, which may cause the Company to lose customers or fail to comply with applicable laws, and may cause the Company to incur additional expenses, which may be substantial and could have a material adverse effect on its business, financial condition, results of operations, and future prospects.

The Company’s business is dependent on its executive management team and other key personnel, and the loss of their services could adversely affect its operations.

The Company’s success depends significantly on the leadership, experience, and expertise of its executive officers and other key personnel.

These individuals possess substantial knowledge of the markets the Company serves, maintain important customer and community relationship, and provide critical strategic direction.

The unexpected loss of the services of one or more executive officers or key personnel could disrupt the Company’s operations, impair customer relationships, and hinder the execution of strategic initiatives.

The loss of personnel with extensive customer relationship may also lead to the loss of business if the customers were to follow that employee to a competitor.

In addition, competition of qualified financial services professionals is intense, and the Company may not be able to attract or retain suitable replacements on a timely basis or at acceptable costs.

The loss of key personnel, or the inability to recruit and retain experienced leaders, could materially and adversely affect the Company’s business, financial condition, and results of operations.

CARTER BANKSHARES, INC.

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RISK FACTORS - (continued)

The success of our business strategies depends on our ability to identify and recruit individuals with experience and relationships in our primary markets.

The successful implementation of our business strategy will require us to continue to attract, hire, motivate and retain skilled personnel to develop new customer relationships as well as new financial products and services.

The market for qualified management personnel is competitive, which has contributed to salary and employee benefit costs that have risen and are expected to continue to rise, which may have an adverse effect on the Company’s net income (loss).

In addition, the process of identifying and recruiting individuals with the combination of skills and attributes required to carry out our strategy is often lengthy, and we may not be able to effectively integrate these individuals into our operations.

Our inability to identify, recruit and retain talented personnel to manage our operations effectively and in a timely manner could limit our growth or impair our ability to implement our business strategy effectively and efficiently, which could materially adversely affect our business.

The Company uses models in its business, and could be adversely affected if its design, implementation, or use of models is flawed.

The use of statistical and quantitative models and other quantitatively based analyses is central to bank decision-making and regulatory compliance processes, and the employment of such analyses is becoming increasingly widespread in our operations.

The Company uses quantitative models to price products and services, measure risk, calculate the quantitative portion of its allowance for credit losses, estimate asset and liability values, assess capital and liquidity, manage its balance sheet, create financial forecasts, and otherwise conduct our business and operations.

The Company anticipates that model-derived insights will penetrate further into bank decision-making, and particularly risk management efforts.

While these quantitative techniques and approaches improve its decision-making, they also create the possibility that faulty data or flawed quantitative approaches could yield adverse outcomes or regulatory scrutiny.

Additionally, because of the complexity inherent in these approaches, misunderstanding or misuse of their outputs could similarly result in suboptimal decision-making.

The Company also relies on model inputs that are provided by third parties.

To the extent that any flawed models or inaccurate model outputs are used in reports to banking agencies or the public, the Company could be subjected to supervisory actions, private litigation, and other proceedings that may adversely affect its business, financial condition, and results of operations.

The Company is subject to physical and financial risks associated with climate change and other weather and natural disaster impacts.

The Company is subject to the growing risk of climate change.

Among the risks associated with climate change are more frequent severe weather events.

Severe weather events such as hurricanes, tropical storms, tornados, winter storms, freezes, flooding and other large-scale weather catastrophes in the Company’s markets subject it to significant risks and more frequent severe weather events magnify those risks.

Large-scale weather catastrophes or other significant climate change effects that either damage or destroy residential or multifamily real estate underlying mortgage loans or real estate collateral, could decrease the value of our real estate collateral or increase our delinquency rates in the affected areas and thus diminish the value of our loan portfolio.

In addition, the effects of climate change may have a significant effect on our geographic markets and could disrupt our operations or the operations of our customers, third-party service providers, or supply chains more generally.

Those disruptions could result in declines in economic conditions in our geographic markets or industries in which our borrowers operate and impact their ability to repay loans or maintain deposits.

Climate change could also impact its assets or employees directly or lead to changes in customer preferences that could negatively affect its growth or business strategies.

In addition, the Company’s reputation and customer relationships could be damaged due to our practices related to climate change, including our or our customers’ involvement in certain industries or projects.

In recent years, the federal banking regulators have focused on the physical and financial risks to financial institutions associated with climate change;

although, expectations with respect to these matters has been changing, and it is difficult to predict changes in priorities and requirements with respect to these matters, including any changes in compliance costs relating to such changes.

Risks Related to Liquidity

Adverse developments affecting the financial services industry, such as actual events or concerns involving liquidity, defaults, or non-performance by financial institutions or transactional counterparties, may have a material adverse effect on our financial condition and results of operations.

Actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, which may be compounded by the reach and depth of media attention, including social media, have in the past and may in the future lead to market-wide liquidity problems.

Liquidity is essential to the Company’s banking business, and the Company’s business strategies are largely based on access to funding from customer deposits and supplemental funding provided by secondary liquidity sources, including wholesale funding facilities.

Deposit levels may be impacted by industry factors, market interest rates, rates paid for deposits by other financial institutions and market interest rates generally, inflationary conditions, general economic conditions than can impact savings rates, and banking industry conditions that can impact customers’ perceptions of the safety and soundness of the banking industry generally or of specific financial institutions.

The failures of Silicon Valley Bank, Signature Bank and First Republic Bank in the first quarter of 2023, and the resulting industry turmoil, have underscored the importance of maintaining diversified funding sources to ensure the safety and soundness of a financial institution.

It is uncertain whether, during periods of turmoil in the banking industry, actions to stabilize the banking industry will be sufficient to ensure continued funding and liquidity, reduce the risk of deposit outflows, and particularly sudden outflows, from banks.

Should any of these conditions materialize, our liquidity, financial condition and results of operations could be materially and adversely impacted.

The Company’s liquidity could be impaired by an inability to access short-term funding or the inability to monetize liquid assets.

If significant volatility or disruptions occur in the wholesale funding or investment securities markets, the Company’s ability to access short-term liquidity could be materially impaired.

In addition, other factors outside of the Company’s control could limit the Company’s ability to access short-term funding or to monetize liquid assets, including by selling investment securities at an attractive price or at all, operational issues that impact third parties in the funding or securities markets or unforeseen significant deposit outflows.

The Company’s inability to access short-term funding or inability to monetize liquid assets could impair the Company’s ability to make new loans or meet existing lending commitments, and could adversely impact the Company’s overall financial condition, liquidity and regulatory capital.

We rely substantially on deposits obtained from customers in our target markets to provide liquidity and support growth, and impairment of our access to funding may negatively affect our financial performance.

Our primary funding and liquidity source to support our business strategies is a stable customer deposit base.

Deposit levels may be affected by a number of factors, including interest rates paid by competitors, general interest rate levels, returns available to customers on alternative investments and general economic conditions.

If our deposit levels fall, we could lose a relatively low-cost source of funding and our interest expense would likely increase as we obtain alternative funding to replace lost deposits.

If local customer deposits are not sufficient to fund our normal operations and growth, we will look to outside sources, such as fed funds lines with other financial institutions or borrowings with the FHLB and we have access to the

Liquidity risks and adverse developments affecting the financial services industry could materially adversely affect our financial condition and results of operations.

Adverse developments in the financial services industry, including actual events or concerns involving liquidity constraints, defaults, nonperformance by financial institutions or transactional counterparties, or other similar risks have in the past and may in the future lead to market-wide liquidity disruptions.

Such risks may be amplified by extensive media coverage and social media activity, which can accelerate customer reactions and negatively impact confidence in the banking system.

Liquidity is essential to our business, and our funding strategy relies primarily on customer deposits, supplemented by secondary sources such as wholesale funding facilities and other contingent liquidity arrangements.

Deposit levels may be affected by a variety of factors, including changes in market interest rates, competitive pricing pressures from other financial institutions, inflationary conditions, general economic trends influencing savings behavior, and customer perceptions regarding the safety and soundness of the banking industry or specific institutions.

The closures of Silicon Valley Bank, Signature Bank and First Republic Bank in the first quarter of 2023, and the resulting industry volatility, underscored the importance of maintaining diversified funding sources and robust liquidity management practices.

The response to bank closures by the U.S.

government, including the U.S.

Department of the Treasury, the FDIC and the FRB, cannot be predicted, and the policies and regulations implemented in response to past bank closures cannot be

CARTER BANKSHARES, INC.

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RISK FACTORS - (continued)

institutional CD market and the brokered deposit market.

We may also seek to raise funds through the issuance of shares of our common stock, or other equity or equity-related securities, or debt securities including subordinated notes as additional sources of liquidity.

A number of factors, many of which are outside the Company’s control, could make accessing such financing more difficult or more expensive, or could make such financing unavailable altogether, including the financial condition of the Company, rate disruptions in the capital markets, the attractiveness of investing in or lending to financial services companies generally, and competition for funding from other banks, holding companies or similar financial service companies, some of which could be substantially larger or have stronger credit ratings or profiles.

If we are unable to access funding sufficient to support our business operations and growth strategies or are only able to access such funding on unattractive terms, we may not be able to implement our business strategies which may negatively affect our financial performance.

Our ability to meet contingency funding needs, in the event of a crisis that causes a disruption to our core deposit base, is dependent on access to wholesale markets, including funds provided by the FHLB of Atlanta .

Significant unanticipated deposit outflows have occurred at other financial institutions and may occur in the future, compounded by advances in technology that increase the speed at which deposits can be moved from bank to bank or outside the banking system, as well as the speed and reach with which information, concerns and rumors can spread through media.

This may exacerbate funding or liquidity concerns and result in significant contingency funding needs.

Our financial flexibility could be severely constrained if we were unable to maintain our access to funding or if adequate financing is not available at acceptable interest rates.

Our primary contingency funding source is borrowings from the FHLB of Atlanta.

We own stock in the FHLB of Atlanta, in order to qualify for membership in the FHLB system, which enables us to borrow on our line of credit with the FHLB that is secured by a blanket lien on select commercial loans, multifamily loans, residential mortgages and investment securities available-for-sale.

As of December 31, 2024, that line of credit is estimated to be equal to 25% of our assets approximating $[1.2] billion, with available borrowing capacity subject to the amount of eligible collateral pledged at any given time.

Changes or disruptions to the FHLB or the FHLB system in general may materially impact our ability to meet short and long-term liquidity needs.

Additionally, we cannot be assured that the FHLB will be able to provide funding to us when needed, nor can we be certain that the FHLB will provide funds specifically to us, should our financial condition and/or our regulators prevent access to our line of credit.

The inability to access this source of funds could have a materially adverse effect on our ability to meet our customer’s needs.

Other wholesale market sources of liquidity include the Fed discount window, the brokered CD market, and our four fed funds lines totaling $95.0 million with correspondent banks.

Additionally, we have a large bond portfolio that can be used for liquidity purposes, including pledging or outright sales.

We may compete with other banks or other financial institutions for borrowing capacity from these wholesale market sources, which may increase our cost of funding or make it more difficult to access these funding sources.

We rely on dividends from our subsidiaries for most of our revenue .

The Company is a separate and distinct legal entity from the Bank.

A substantial portion of the Company’s revenue comes from dividends from the Bank.

Various federal and Virginia laws and regulations limit the amount of dividends that the Bank may pay to us.

Also, in the event the Bank is unable to pay dividends to the Company, the Company may not be able to service any debt that is outstanding, pay obligations, or pay any future dividends on its common stock.

The inability to receive dividends from the Bank could have a material adverse effect on our business, financial condition, and results of operations .

Risks Related to Our Business Strategy

Our profitability depends significantly on economic conditions.

Our success depends primarily on the general economic conditions of the geographic markets in which we operate, primarily in Virginia and North Carolina.

The local economic conditions in the areas where we operate have a significant impact on our commercial, real estate and construction loans, the ability of our borrowers to repay their loans and the value of the collateral securing these loans and on customer demand for loans, deposits and other bank products.

A significant decline in general economic conditions, including pandemics or significant health hazards (such as the COVID-19 pandemic), inflation, recession, acts of terrorism, outbreak of hostilities (including the military conflict between Russia and Ukraine) or other international or

expected to be extended or repeated in response to a future bank closure.

Additionally, during periods of industry stress, governmental and regulatory actions intended to stabilize the banking system may not be sufficient to prevent funding disruptions or deposit outflows, particularly sudden or large-scale withdrawals.

If these conditions were to occur, they could impair our access to funding, place pressure on our liquidity position, and materially adversely affect our financial condition and results of operations.

The Company’s liquidity could be adversely affected if it were unable to access short-term funding or monetize liquid assets.

The Company’s ability to maintain adequate liquidity depends on reliable access to funding sources and the capacity to convert liquid assets into cash in a timely manner.

Significant volatility or disruptions in the wholesale funding markets or investment securities markets could materially impair its access to short-term funding.

Factors outside our control may further limit our ability to obtain funding or monetize liquid assets, including the need to sell investment securities at unfavorable prices or the inability to sell such assets at all, operational or financial difficulties affecting third parties that participate in funding or securities markets, and unexpected or substantial deposit outflows.

If the Company is unable to access short-term funding or monetize liquid assets as needed, our ability to originate new loans, fund existing commitments, and otherwise support our operations could be negatively affected.

Such conditions could place pressure on our liquidity position, adversely affect regulatory capital, and materially harm our financial condition and results of operations.

The Company’s reliance on customer deposits for funding and liquidity could adversely affect its financial performance if access to such funding becomes impaired.

Customer deposits represent the Company’s primary and generally lowest cost source of funding and are critical to supporting its liquidity and growth strategies.

Deposit levels are influenced by numerous factors, including interest rates offered by competitors, prevailing market interest rates, returns available on alternative investments, customer preferences, and broader economic conditions.

A decline in deposit balances could require the Company to replace this funding with higher cost alternatives, which would likely increase its interest expense and negatively affect its net interest margin and profitability.

If deposits in our markets are insufficient to support our operating needs and growth, the Company may seek supplemental funding through sources such as federal funds lines with other financial institutions, borrowings from the FHLB, institutional CD market, brokered deposits, or the issuance of debt or equity securities, including subordinated notes.

Access to these alternative funding sources may be limited or more expensive due to factors largely outside of our control, including our financial condition, disruptions in the capital markets, changes in investor sentiment toward financial institutions, competitive pressures from other banking organizations, our financial condition, and broader economic uncertainty.

Some competitors may have greater financial resources, stronger credit ratings, or broader market access than the Company does, which could further constrain its funding options.

If the Company is unable to obtain sufficient funding on acceptable terms to support its operations and strategic initiatives, its ability to grow, maintain adequate liquidity, and execute its business strategy could be materially adversely affected, which in turn could harm its financial condition and results of operations.

The Company’s ability to meet contingency funding needs during periods of financial stress depends on access to wholesale funding sources, including the FHLB of Atlanta, and any disruption to these sources could materially adversely affect its liquidity.

In the event of a crisis that disrupts our core deposit base, our ability to meet contingency funding needs relies significantly on access to wholesale funding markets.

Significant and unanticipated deposit outflows have occurred at other financial institutions and could occur in the future.

Advances in technology have increased the speed at which deposits can be transferred within or outside the banking system, while the rapid dissemination or information, including through traditional and social media may

CARTER BANKSHARES, INC.

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RISK FACTORS - (continued)

domestic calamities, unemployment or other factors, all of which are beyond our control, could impact economic conditions and negatively affect our financial results.

We face strong competition from financial services companies and other companies that offer banking services which could negatively affect our business.

We conduct our banking operations primarily in Virginia and North Carolina, including Fredericksburg, Charlottesville, Lynchburg, Roanoke, Blacksburg, Martinsville, and Danville in Virginia, and Greensboro, Charlotte, Raleigh and Mooresville in North Carolina.

Increased competition in these markets may result in reduced loans and deposits.

Ultimately, we may not be able to compete successfully against current and future competitors.

Many competitors offer the same banking services that we offer in our service area.

These competitors include national banks, regional banks and other community banks.

We also face competition from many other types of financial institutions, including without limitation, savings and loan institutions, finance companies, brokerage firms, insurance companies, credit unions, mortgage banks and other financial intermediaries.

In particular, our competitors include several major financial companies whose greater resources may afford them a marketplace advantage by enabling them to maintain numerous banking locations and ATMs, conduct extensive promotional and advertising campaigns and offer a wider range of products, services and technologies.

Additionally, banks and other financial institutions with larger capitalization and financial intermediaries not subject to bank regulatory restrictions have larger lending limits and are thereby able to serve the credit needs of larger customers.

Areas of competition include interest rates for loans and deposits, efforts to obtain deposits, and range and quality of products and services provided, including new technology-driven products and services.

Technological innovation continues to contribute to greater competition in domestic and international financial services markets as technological advances enable more companies to provide financial services, products and services traditionally provided by banks, such as automatic transfer and automatic payment systems.

We also face competition from out-of-state financial intermediaries that have opened loan production offices or that solicit deposits in our market areas.

If we are unable to attract and retain banking customers, we may be unable to continue to grow our loan and deposit portfolios or may be required to increase the rates we pay on deposits or lower the rates we offer on loans and results of operations and financial condition may otherwise be adversely affected.

Our customers may increasingly decide not to use the Bank to complete their financial transactions, which would have a material adverse impact on our financial condition and operations.

Technology and other changes are allowing parties to complete financial transactions through alternative methods that have historically involved banks.

For example, customers can now maintain funds that would have historically been held as bank deposits in brokerage accounts, mutual funds, or general-purpose reloadable prepaid cards.

Customers can also complete transactions such as paying bills and/or transferring funds directly without the assistance of banks.

We face increasing competition from fintech companies, as trends toward digital financial transactions have accelerated since the COVID-19 pandemic.

The process of eliminating banks as intermediaries, known as “disintermediation,” could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits.

The loss of these revenue streams and the lower cost of deposits as a source of funds could have a material adverse effect on our financial condition and results of operations.

amplify customer concerns and accelerate withdrawal activity.

These factors may heighten funding pressures and increase the Company’s reliance on contingency liquidity sources.

The Company’s primary contingency funding source is borrowings from the FHLB of Atlanta.

As a member of the FHLB system, the Company may borrow against a line of credit secured by a blanket lien on certain commercial and multifamily loans, residential mortgages, and available-for-sale investment securities.

At December 31, 2025, total borrowing capacity with the FHLB was approximately $1.5 billion, or about 30% of total assets, although actual availability is dependent on the amount and composition of eligible collateral pledged at any given time.

Any operational, financial, or regulatory disruption affecting the FHLB or the broader FHLB system could materially impair our ability to meet short and long-term liquidity needs.

In addition, access to FHLB advances is subject to our continued compliance with applicable borrowing requirements, collateral eligibility standards, and regulatory expectations.

If our financial condition were to deteriorate or if regulatory authorities were to restrict our access, the FHLB may be unwilling or unable to provide funding when needed.

Additional wholesale liquidity sources include the FRB discount window, the brokered CD market, federal funds lines with correspondent banks totaling approximately $75.0 million, and the ability to generate liquidity from our investment securities portfolio through pledging or sales.

However, the Company may face increased competition for these funding sources during periods of market stress, which could increase its cost of funds or limit the availability of these funding sources.

If the Company is unable to access adequate funding on acceptable terms, its financial flexibility could be severely constrained, impairing its ability to meet customer needs, support lending activities, maintain adequate liquidity, and execute our business strategy.

Such conditions could materially adversely affect its financial condition and results of operations.

The Company depends on dividends from its bank subsidiary for substantially all of its revenue, and regulatory restrictions on the Bank’s ability to pay dividends could adversely affect its financial condition .

The Company is a separate legal entity from the Bank and relies primarily on dividends from the Bank to provide the funds necessary to meet our obligations, including the payment of operating expenses, servicing of any outstanding debt, and the payment of future dividends on our common stock.

Federal and Virginia laws and regulations, as well as supervisory expectations, limit the amount of dividends the Bank may pay to us.

The Bank’s ability to declare and pay dividends is also subject to its earnings, financial condition, capital levels, liquidity position, and, as applicable, regulatory approval or non-objection.

Regulatory authorities may restrict or prohibit dividend payments if they determine that such payments would be unsafe or unsound or otherwise inconsistent with applicable regulations.

For more information on these regulatory restrictions on the right of the Bank to pay dividends to the Company and on the right of the Company to pay dividends to its shareholders, see Part I, Item 1 “Supervision and Regulation —Dividend Limitations” in this Annual Report on Form 10-K.

If the Bank is unable to pay dividends to the Company, the Company may lack sufficient liquidity to satisfy its obligations, including servicing its outstanding debt and paying future dividends on its common stock, and may be required to seek alternative sources of funding, which may not be available on favorable terms or at all.

Any inability to receive dividends from the Bank could materially adversely affect our business, financial condition, results of operations, and shareholder returns .

Any declaration and payment of dividends on our common stock will depend upon our earnings and financial condition, liquidity and capital requirements, the general economic and regulatory climate, our ability to service any equity or debt obligations senior to the common stock, and other factors deemed relevant by the Board of Directors.

Furthermore, consistent with our business plans, growth initiatives, capital availability, projected liquidity needs, and other factors, the Company has made, and will continue to make, capital management decisions and policies that could adversely impact the amount of dividends, if any, paid to its shareholders.

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

RISK FACTORS - (continued)

Risks Related to the Company’s Business Strategy

The Company’s profitability is significantly influenced by economic conditions in the markets that it serves.

The Company’s success is closely tied to the economic health of the geographic markets in which it operates, primarily Virginia and North Carolina.

Local economic conditions directly affect the performance of our loan portfolio, particularly commercial, real estate and construction loans, by influencing borrowers’ ability to repay, the value of collateral securing these loans, and customer demand for loans, deposits, and other financial products and services.

Adverse changes in economic conditions, whether regional, national, or global, could reduce economic activity and negatively affect our financial performance.

Such conditions may include inflationary pressures, elevated interest rates, recessionary environments, unemployment, supply chain disruptions, public health crisis, acts of terrorism, geographic instability or military conflicts (including the military conflict with Iran), and other domestic or international events beyond our control.

While the long-term impacts of these developments are inherently uncertain, any significant or prolonged economic downturn in our markets could lead to increased credit losses, reduced loan growth, weakened deposit trends, and declines in collateral values.

If economic conditions deteriorate in the markets the Company serves, its business, financial condition, results of operations, and growth prospects could be materially adversely affected.

The Company faces significant competition from financial institutions and other providers of banking and financial services, which could adversely affect its growth and profitability.

The Company conducts its banking operations primarily in Virginia and North Carolina, and faces strong competition in each of the markets that it serves.

Increased competition for loans, deposits, and other financial services may limit the Company’s ability to grow and could place pressure on pricing, profitability, and market share.

The Company’s competitors include national and regional banks, community banks, savings institutions, credit unions, finance companies, mortgage banks, brokerage firms, financial technology companies, insurance companies, and other financial intermediaries.

In addition, certain nonbank financial services providers operate with fewer regulatory constraints, may have larger lending limits, and may be better positioned to serve the credit needs of larger customers.

Many of our competitors have substantially greater financial, operational, and technological resources than the Company does.

These institutions may benefit from broader brand recognition, more extensive branch and ATM networks, greater financial resources, including larger marketing budgets, higher lending limits and the ability to offer a wider array of products and services.

Such advantages may enable competitors to attract customers by offering more favorable loan and deposit rates, reduced fees, and enhanced digital banking capabilities.

Technological innovation has intensified competition within the financial services industry by enabling both traditional institutions and emerging financial technology companies to deliver products and services historically provided by banks.

Many of these non-bank competitors are not subject to the same extensive federal regulations that govern bank holding companies, like the Company, and federally insured banks, like the Bank, which may allow them to offer greater lending limits and certain products and services that the Bank does not provide.

Additionally, out-of-market institutions may enter our footprint through loan production offices, digital platforms, or deposit-gathering strategies, further increasing competitive pressures.

If the Company is unable to successfully compete for customers, it may experience slower loan and deposit growth or be forced to accept lower yields on loans or pay higher rates on deposits to retain and attract customers.

Any of these outcomes could materially adversely affect its business, financial condition, and results of operations.

Customers may increasingly bypass traditional banking relationships, which could adversely affect the Company’s revenue and funding sources.

Technological advancements and evolving consumer preferences are enabling financial transactions to occur through alternative channels that historically required the involvement of banks.

Customers may choose to maintain funds in brokerage accounts, mutual funds, prepaid products, or other nonbank platforms, such as crypto currencies or other digital assets, rather than traditional deposit accounts.

In addition, many payment and money transfer services allow customers to pay bills, transfer funds, and conduct other financial activities without direct interaction with a bank.

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The Company faces growing competition from financial technology (“fintech”) companies and other nonbank providers, as the adoption of digital financial services has accelerated in recent years.

These competitors often offer specialized products, streamlined digital experiences, and rapid innovation cycles that may appeal to customers seeking convenience, speed, and lower costs.

Many of these nonbank providers are not subject to the same extensive federal regulation that govern bank holding companies and federally insured banks, and as a result, can offer products and services that the Company is unable to offer or to offer such products and services at more competitive rates.

The ongoing process of disintermediation (i.e., the removal of banks as intermediaries in financial transactions) could reduce our fee income, diminish deposit balances, and increase our cost of funds if lower cost deposits are replaced with more expensive funding sources.

A sustained shift away from traditional banking relationships could also weaken customer engagement and limit opportunities to cross-sell products and services.

If these trends continue, the resulting loss of deposits, revenue streams, and customer relationships could materially adversely affect our financial condition, results of operations, and long-term growth prospects.

Our ability to execute our business strategy depends on attracting and retaining qualified personnel.

The successful execution of the Company’s business strategy depends on its ability to identify, recruit, develop, motivate and retain experienced personnel who possess strong customer relationships and market knowledge within the Company’s primary service areas.

These individuals are critical to developing new business opportunities, expanding customer relationships, and supporting the delivery of financial products and services.

Competition for qualified financial services professionals is intense and has contributed to rising compensation and employee benefit costs, a trend that may continue.

Sustained increases in personnel expenses could place pressure on the Company’s profitability and operating results.

In addition, the process of identifying candidates with the combination of skills, experience, and culture fit can be time consuming, and the Company may not successfully recruit or effectively integrate new hires into its operations.

Failure to attract, retain, and successfully onboard talented personnel in a timely manner could limit the Company’s growth, disrupt operations, and impair its ability to implement its business strategy effectively, which could materially and adversely affect the Company’s business, financial condition, and results of operations.

Risks Related to Regulatory Compliance and Legal Matters

We are subject to extensive government regulation and supervision.

Banking regulations are primarily intended to protect depositors’ funds, federal deposit insurance funds and the banking system as a whole, not security holders.

These regulations affect our lending practices, capital structure, investment practices, dividend policy and growth, among other things.

Congress and federal regulatory agencies continually review banking laws, regulations and policies for possible changes.

Changes to statutes, regulations or regulatory policies, including changes in interpretation or implementation of statutes, regulations or policies, could affect us in substantial and unpredictable ways.

Such changes could subject us to additional costs, limit the types of financial services and products we may offer and/or increase the ability of non-banks to offer competing financial services and products, among other things.

For example, we currently derive a portion of our noninterest income from consumer overdraft fees, which have recently come under scrutiny by banking regulators and politicians.

Such regulators or politicians could act to impose additional restrictions on overdraft fee programs which could reduce our noninterest income, increase our compliance costs, or increase our exposure to regulatory and legal claims related to our overdraft program.

Failure to comply with laws, regulations, policies or supervisory guidance could result in enforcement

The Company is subject to extensive regulation and supervision, and changes in laws or regulatory expectations could materially adversely affect its business.

The banking industry is highly regulated, and the Company is subject to comprehensive federal and state supervision.

These laws and regulations are primarily intended to protect depositors, the DIF, and the stability of the financial system rather than security holders.

Regulatory requirements influence many aspects of our operations, including lending practices, capital levels, investment activities, dividend policy, liquidity management, product offerings, and growth initiatives, and compliance with these regulatory requirements is costly.

Congress, federal regulatory agencies, and state authorities frequently review banking laws, regulations, and supervisory guidance.

Changes in statutes, regulations, regulatory interpretations, or examination practices may occur with little advance notice and could affect the Company in substantial and unpredictable ways.

Such changes may increase compliance costs, restrict the products and services the Company is permitted to offer, limit our growth, or enhance the ability of nonbank financial providers to compete with traditional banking institutions.

For example, the Company derives a portion of our noninterest income from consumer overdraft fees, an area that has received heightened scrutiny from regulators and policymakers.

Future regulatory actions or legislative changes could impose additional limitations on overdraft programs, which may reduce fee income, increase compliance obligations, or heighten its exposure to regulatory investigations and private litigation.

Failure to comply with applicable laws, regulations, or supervisory expectations could result in enforcement actions by federal or state authorities, including the imposition of civil money penalties, formal or informal consent orders, restrictions on our

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RISK FACTORS - (continued)

and other legal actions by Federal or state authorities, including criminal and civil penalties, the loss of FDIC insurance, the revocation of a banking charter, other sanctions by regulatory agencies, civil money penalties and/or reputational damage.

In this regard, government authorities, including the bank regulatory agencies, are pursuing aggressive enforcement actions with respect to compliance and other legal matters involving financial activities, which heightens the risks associated with actual and perceived compliance failures.

See “Supervision and Regulation” included in Item 1, Business, of this Annual Report on Form 10-K for a more detailed description of the certain regulatory requirements applicable to the Bank.

The financial services industry may be subject to new or changing legislation, regulation, and government policy, which could affect the banking industry and the broader economy.

At this time, it is difficult to predict the legislative and regulatory changes that will result from the combination of President Trump’s reelection and both Houses of Congress having majority memberships from the Republican party.

It appears that the Trump administration will seek to implement a regulatory reform agenda that is significantly different than that of the Biden administration, impacting the rule-making, supervision, examination and enforcement priorities of the federal banking agencies.

Furthermore, the change in presidential administration has, and is expected to continue to, result in certain changes in the leadership and senior staffs of the federal banking agencies.

Such changes are likely to impact the rule-making, supervision, examination and enforcement priorities and policies of the agencies.

In addition, changes in key personnel at the agencies that regulate such banking organizations, including the federal banking agencies, may result in differing interpretations of existing rules and guidelines and potentially different enforcement priorities.

The potential impact of any changes in agency personnel, policies, priorities, regulations and interpretations on the financial services sector, including us, cannot be predicted.

The new presidential administration and Congress also may cause broader economic changes due to changes in governing ideology and governing style, as well as changes to the size, scope and operations of the federal government.

These changes could have varied effects on the economy that are difficult to predict.

For example, changes in trade and fiscal policy could affect broader patterns of trade and economic growth.

Additionally, comprehensive changes to the federal government could be materially adverse to the regional and local economies where we conduct business and to our customers, which, in turn, could be materially adverse to our business, financial condition and results of operations.

Regulatory capital standards may require the Company and the Bank to maintain higher levels of capital and liquidity, which could adversely affect its return on equity and otherwise affect its business.

The Company and the Bank are each subject to capital adequacy guidelines and other regulatory requirements specifying minimum amounts and types of capital, which each must maintain.

From time to time, regulators implement changes to these regulatory capital adequacy guidelines.

In addition, regulators may require the Company to maintain higher levels of regulatory capital based on the Company’s condition, risk profile, or growth plans or conditions in the banking industry or economy.

The Basel III capital adequacy standards applicable to the Company and the Bank impose stricter capital requirements and leverage limits than the requirements to which the Company and the Bank were subject in the past.

The application of more stringent capital requirements could, among other things, result in lower returns on equity, require the raising of additional capital, and result in regulatory actions if the Company were to be unable to comply with such requirements.

Furthermore, the imposition of liquidity requirements in connection with the implementation of Basel III capital adequacy standards could result in the Company having to lengthen the term of its funding, restructure its business models, and/or increase its holdings of liquid assets.

Implementation of changes to asset risk weightings for risk-based capital calculations, items included or deducted in calculating regulatory capital and/or additional capital conservation buffers could result in management modifying its business strategy, and could limit the Company’s ability to make distributions, including paying out dividends or buying back shares.

If the Company and the Bank fail to meet these minimum capital guidelines and/or other regulatory requirements, the Company’s financial condition would be materially and adversely affected.

Failure to maintain effective systems of internal control over financial reporting and disclosure controls and procedures could have a material adverse effect on our results of operation and financial condition.

Effective internal controls over financial reporting and disclosure controls and procedures are necessary for us to provide reliable financial reports and effectively prevent fraud and to operate successfully as a public company.

We are required to establish and maintain an adequate internal control structure over financial reporting.

If we cannot provide reliable financial reports or prevent fraud, our reputation and operating results would be harmed.

As part of our ongoing monitoring of internal control, we may discover material weaknesses or significant deficiencies in our internal control that require remediation.

operations, limitations on capital distributions, the loss of deposit insurance, or, in extreme cases, the revocation of our banking charter.

Additionally, perceived compliance deficiencies could harm our reputation and negatively affect customer and investor confidence.

Further, the financial services industry faces more aggressive enforcement of laws at the federal, state and local levels, particularly in connection with practices that may harm consumers or the financial system more generally, which heightens the risk associated with both actual and perceived violations.

For additional information regarding the regulatory framework applicable to us, see “Supervision and Regulation” included in Item 1, Business, of this Annual Report on Form 10-K.

The CFPB may increase our regulatory compliance burden and could affect the consumer financial products and services that the Company offers.

The CFPB influences consumer financial laws, regulation and policy through rulemaking related to enforcement of the Dodd-Frank Act’s prohibits against unfair, deceptive and abusive consumer finance products or practices, which directly affect the business operations of financial institutions offering consumer financial products or services, including the Corporation.

This agency’s broad rulemaking authority includes identifying practices or acts that are unfair, deceptive or abusive in connection with any consumer financial transaction, financial product or service.

In particular, the CFPB’s interpretation of the Dodd-Frank Act’s prohibitions against unfair, deceptive and abusive consumer finance products or practices and the application of those prohibitions to so-called “junk fees” may ultimately affect products or services currently offered by the Corporation and its subsidiaries and may affect the amount of revenue that may be derived from these products and services in the future, especially revenue from overdraft products offered by the Bank.

Although the CFPB has jurisdiction over banks with $10 billion or greater in assets, rules, regulations and policies issued by the CFPB may also apply to the Corporation or its subsidiaries by virtue of the adoption of such policies and practices by the Federal Reserve and the FDIC.

Further, the CFPB may include its own examiners in regulatory examinations by the Corporation’s primary regulators.

The limitations and restrictions imposed by the CFPB may produce significant, material effects on our business, financial condition and results of operations.

There is ongoing uncertainty as to the CFPB’s regulations and approach to enforcement and supervision;

although, the current leadership of the CFPB has indicated intentions to rescind or revise many regulations, as well as to narrow its enforcement and supervision.

The Company cannot currently predict the impact of such changes on our business, financial condition and results of operation.

Legislation, regulatory, and governmental policy changes could materially affect the economy, the financial services industry and our business.

The financial services industry is highly sensitive to changes in legislation, regulation, and government policy at the federal and state levels.

Following the 2024 U.S.

presidential election, which resulted in the return of President Donald Trump to office in January 2025, shifts in policy priorities, agency leadership, and supervisory approaches have occurred and may continue to evolve.

Changes in administration and congressional leadership often lead to revisions in regulatory frameworks, examination practices, supervision and enforcement priorities, and rulemaking initiatives affecting financial institutions, as well as to changes in the leadership and senior staffs of the federal banking agencies, which also drive such changes.

In addition, changes in key personnel at the agencies that regulate financial institutions may result in differing interpretations of existing rules and guidelines and potentially different supervision and enforcement priorities.

The ultimate impact of these developments remains uncertain.

Government actions, including changes in banking regulation, capital requirements, trade policy, tariffs, immigration policy, fiscal spending, or other economic initiatives could influence economic growth, inflation, market stability, and the operating environment for financial institutions.

Broader policy changes have already drawn mixed reactions from experts and global leaders regarding their potential economic effects.

Because the scope, timing, and consequences of policy and regulatory changes are inherently difficult to predict, such developments could increase compliance costs, impose operational constraints, alter competitive dynamics, or otherwise materially adversely affect our business, financial condition, and results of operations.

Regulatory capital and liquidity requirements could require the Company to maintain higher levels of capital and liquid assets, which may adversely affect its profitability and business operations.

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RISK FACTORS - (continued)

“material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis.

Our inability to maintain the operating effectiveness of the controls described above could result in a material misstatement to our financial statements or other disclosures, which could have an adverse effect on our business, financial condition or results of operations.

In addition, any failure to maintain effective controls or to timely effect any necessary improvement of our internal and disclosure controls could, among other things, require significant investments of management time, funds and other resources in remediation efforts, result in losses from fraud or error or harm to our reputation, or cause investors to lose confidence in our reported financial information, all of which could have a material adverse effect on our results of operation and financial condition.

Claims and litigation against the Company could result in significant expenses or losses or damage to our reputation, which may have a material adverse effect on its financial condition, results of operation or business.

The Company operates in a business, legal and regulatory environment that exposes the Company to potential significant litigation risk.

The Company may be involved from time to time in a variety of litigation arising out of its business, and the outcome of litigation and other legal matters is frequently uncertain.

Litigation and claims against the Company can arise from the Company’s lending activities, commercial agreements, compliance programs, and other general business matters.

Such litigation and claims have involved and could involve large amounts in controversy and substantial legal costs necessary for the Company’s defense or to recover amounts owed to the Company, and substantial legal liability, which may or may not be insured, against the Company could materially and adversely impact the Company’s financial condition and results of operations.

Even if the Company has insurance coverage for certain claims or legal or administrative actions against it, the Company’s insurance may not cover all claims that may be asserted against it in legal or administrative actions or costs that it may incur defending such actions, and any claims asserted against it, regardless of merit or eventual outcome, may harm the Company’s reputation which may harm the Company’s business.

Should the ultimate judgments or settlements and/or costs incurred in any litigation exceed any applicable insurance coverage, they could have a material adverse effect on the Company’s financial condition and results of operation for any period.

Litigation may also divert management resources, which may adversely impact the Company’s business and results of operations.

Our risk management framework may not be effective in mitigating risk and loss.

We maintain an enterprise risk management program that is designed to identify, quantify, monitor, report and control the risks we face.

These risks include, but are not limited to, interest rate, credit, liquidity, operational, reputation, legal, compliance, economic and litigation risk.

Although we assess our risk management program on an ongoing basis and make identified improvements to it, we can offer no assurances that this approach and risk management framework (including related controls) will effectively mitigate the risks listed above or limit losses that we may incur.

If our risk management program has flaws or gaps, or if our risk management controls do not function effectively, our results of operations, financial condition or business may be adversely affected.

Our earnings are significantly affected by the fiscal and monetary policies of the federal government and its agencies.

The policies of the FRB affect us significantly.

The FRB regulates the supply of money and credit in the United States.

Its policies directly and indirectly influence the rate of interest earned on loans and paid on borrowings and interest-bearing deposits and can also affect the value of financial instruments we hold.

Those policies determine, to a significant extent, our cost of funds for lending and investing, and can significantly impact the levels of inflation in the United States.

Changes in those policies are beyond our control and are difficult to predict.

FRB policies can also affect our borrowers, potentially increasing the risk that they may fail to repay their loans.

For example, a tightening of the money supply by the FRB could reduce the demand for a borrower's products and services.

This could adversely affect the borrower’s earnings and ability to repay a loan, which could have a material adverse effect on our financial condition and results of operations.

The Company and the Bank each must meet regulatory capital requirements and maintain sufficient liquidity.

Banking regulators periodically revise these requirements and may impose additional or heightened standards based on our financial condition, risk profile, growth strategies, or broader economic and industry conditions.

Compliance with heightened capital standards may require the Company to retain earnings, raise additional capital, or limit balance sheet growth.

These actions could dilute existing shareholders, reduce returns on equity, and constrain our ability to pursue strategic initiatives.

The Company could also be subject to regulatory actions if it were unable to comply with the capital standards.

In addition, regulatory expectations regarding liquidity management may require the Company to maintain higher levels of liquid assets, lengthen the duration of its funding, or modify aspects of its business model.

Such measures could reduce net interest income and overall profitability.

Changes to regulatory capital rules including revisions to asset risk weightings, the composition of qualifying capital, required regulatory deductions, or the capital conservation buffer could restrict our ability to make capital distributions, including paying out dividends or repurchasing shares, and may require adjustments to our business strategy.

If the Company fails to meet applicable capital or liquidity requirements, it could become subject to supervisory actions or enforcement measures, including restrictions on our operations or growth, and such failure could affect customer confidence, our cost of funds and FDIC insurance costs, our ability to pay dividends, our ability to accept brokered deposits and our ability to make acquisitions, among other things.

Any such limitations could materially adversely affect its business, financial condition, results of operations, and shareholder returns.

Failure to maintain effective internal control over financial reporting and disclosure controls could materially adversely affect the Company’s financial condition and results of operations.

Effective internal control over financial reporting and disclosure controls and procedures are essential to our ability to produce reliable financial statements, safeguard assets, prevent and detect fraud, and operate successfully as a public company.

The Company is required to establish and maintain an adequate system of internal control over financial reporting and to evaluate its effectiveness on an ongoing basis.

Despite our efforts, our controls may not prevent or detect all errors or fraud.

As part of our ongoing monitoring and evaluation processes, the Company may identify material weaknesses or significant deficiencies that require timely remediation.

A “material weakness” is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of its annual or interim financial statements would not be prevented or detected on a timely basis.

If the Company fails to maintain effective internal controls and disclosure controls, or to timely effect any necessary improvement of our internal and disclosure controls, or if material weaknesses are identified and not remediated promptly, it could experience material misstatements in our financial statements or other disclosures.

Such events could result in significant investments of management time, regulatory scrutiny, enforcement actions, or litigation, harm our reputation, cause investors to lose confidence in the accuracy and completeness of its financial reporting, and negatively impact its access to capital.

Additionally, the remediation of control deficiencies or material weaknesses may require substantial management attention and significant financial resources and could disrupt our operations.

Any of these outcomes could materially adversely affect our business, financial condition, results of operations, and market value of our common stock.

Claims, litigation, and other legal proceedings could expose the Company to significant costs and liabilities and adversely affect its reputation, financial condition and results of operations.

The Company operates in a highly regulated and litigious environment and the Company, its subsidiaries and its respective directors and management are periodically subject to claims, litigation, investigations, and other legal proceedings arising in the ordinary course of business.

These matters may relate to, among other things, lending activities, customer relationships, commercial contracts, employment matters, compliance with applicable laws and regulations, and other operational issues.

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Increased scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with respect to environmental, social and governance (“ESG”) practices may impose additional costs on the Company or expose it to new or additional risks.

As a regulated financial institution and a publicly traded company, we are facing increasing scrutiny from customers, regulators, investors, and other stakeholders related to ESG practices and disclosure.

Investor advocacy groups, investment funds, and influential investors are increasingly focused on these practices, especially as they relate to climate risk, hiring practices, the diversity of the work force, and racial and social justice issues.

Failure to adapt to or comply with regulatory requirements or investor or stakeholder expectations and standards could negatively impact the Company’s reputation, ability to do business with certain partners, and stock price.

Government regulations could also result in new or more stringent forms of ESG oversight and expanding mandatory and voluntary reporting, diligence, and disclosure.

ESG-related costs, including with respect to compliance with any additional regulatory or disclosure requirements or expectations, could adversely impact our results of operations.

The development and use of Artificial Intelligence (“AI”) presents risks and challenges that may adversely impact our business.

We or our third-party vendors, clients or counterparties may develop or incorporate AI technology in certain business processes, services, or products.

The development and use of AI presents several potential risks and challenges to our business.

The legal and regulatory environment relating to AI is uncertain and rapidly evolving in the U.S.

and internationally, and includes regulatory schemes targeted specifically at AI as well as provisions in intellectual property, privacy, consumer protection, employment, and other laws applicable to the use of AI.

These evolving laws and regulations could require changes in our implementation of AI technology and increase our compliance costs and the risk of non-compliance.

AI models, particularly generative AI models, may produce output or take action that is incorrect, that reflects biases included in the data on which they are trained, that results in the release of private, confidential, or proprietary information, that infringes on the intellectual property rights of others, or that is otherwise harmful.

In addition, the complexity of many AI models makes it difficult to understand why they are generating particular outputs.

This limited transparency increases the challenges associated with assessing the proper operation of AI models, understanding and monitoring the capabilities of the AI models, reducing erroneous output, eliminating bias, and complying with regulations that require documentation or explanation of the basis on which decisions are made.

Further, we may rely on AI models developed by third parties, and, to that extent, would be dependent in part on the manner in which those third parties develop and train their models, including risks arising from the inclusion of any unauthorized material in the training data for their models and the effectiveness of the steps these third parties have taken to limit the risks associated with the output of their models, matters over which we may have limited visibility.

Any of these risks could expose us to liability or adverse legal or regulatory consequences and harm our reputation and the public perception of our business or the effectiveness of our security measures.

Risks Related to Owning Our Stock

The market price of our common stock may fluctuate significantly in response to a number of factors.

Our operating results may fluctuate due to a variety of factors, many of which are outside of our control, including the changing U.S.

economic environment and changes in the commercial and residential real estate market, any of which may cause our stock price to fluctuate.

If our operating results fall below the expectation of investors or securities analysts, the price of our common stock could decline substantially.

Our stock price can fluctuate significantly in response to a variety of factors including, among other things:

The outcome of legal proceedings is inherently uncertain, and such matters may involve substantial defense costs, significant damages, or other remedies.

While the Company establishes reserves when appropriate and maintain insurance coverage for certain risks, its insurance may not be sufficient to cover all claims, may not apply to all types of proceedings, or may be subject to deductibles and coverage limitations.

Even claims that lack merit can result in significant legal expenses, consume management’s attention, and divert resources from the Company’s business operations.

Additionally, allegations of wrongdoing, regardless of their validity could harm the Company’s reputation, impair customer relationships, and increase regulatory scrutiny.

If judgments, settlements, fines, penalties, or related expenses exceed available insurance coverage or established reserves, or if reputational damage results in lost business opportunities, our financial condition, results of operations, and business could be materially adversely affected.

The Company’s risk management framework may not be effective in identifying or mitigating risks, which could adversely affect its financial condition and results of operations.

The Company maintains an enterprise risk management program designed to identify, measure, monitor, report and control the various risks it faces.

These risks include, among others, credit, interest rate, liquidity, operational, compliance, legal, reputational, strategic, and economic risks.

Our risk management processes incorporate assumptions, judgments, models, and analytical tools that may not always accurately predict risk exposures or future outcomes.

Although the Company regularly evaluates and enhances its risk management framework and related controls, no risk management system can eliminate risk entirely or anticipate every emerging threat.

Its framework may prove inadequate due to design limitations, execution failures, ineffective controls, human error, model inaccuracies, insufficient data, or rapidly evolving market conditions.

In addition, as the Company’s business grows and becomes more complex, its risk management processes may not adapt quickly enough to address new or heightened risks.

If the Company’s risk management framework is ineffective or if significant gaps or control failures occur, it could experience increased credit losses, operational disruptions, regulatory criticism, financial losses, or reputational harm.

Any such developments could materially adversely affect its business, financial condition, results of operations, and long-term prospects.

The Company’s earnings and financial condition are significantly influenced by monetary and fiscal policies of the federal government and its agencies.

The results of the Company’s operations are affected by the monetary and fiscal policies of the federal government and its agencies, particularly the FRB.

The FRB regulates the supply of money and credit in the United States and establishes policies that influence interest rates, inflation, financial market conditions, and overall economic activity.

FRB actions directly and indirectly affect the yields the Company earns on loans and securities, the rates it pays on deposits and borrowings, and the value of financial instruments it holds.

These policies therefore play a significant role in determining our cost of funds, net interest margin, and overall profitability.

Changes in monetary policy, including adjustments to benchmark interest rates, balance sheet management, or other liquidity measures are beyond its control and are inherently difficult to predict.

Monetary policy decisions can also affect the financial condition of our borrowers.

For example, a tightening of the money supply or a prolonged period of elevated interest rates could slow economic activity, reduce demand for our borrowers’ products and services, and impair their ability to repay outstanding loans.

Conversely, rapid changes in interest rate environments may create volatility in funding costs and asset yields.

Because the timing, magnitude, and impact of monetary and fiscal policy changes are uncertain, such developments could materially adversely affect our business, financial condition, results of operations, and growth prospects.

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Heightened scrutiny and evolving expectations regarding environmental, social and governance (“ESG”) matters may increase costs and expose the Company to additional risks.

As a regulated financial institution and a publicly traded company, the Company faces growing scrutiny from customers, regulators, investors, advocacy groups, and other stakeholders regarding our ESG practices, policies, and disclosures.

Stakeholder expectations continue to evolve, and often these stakeholders have differing, and sometimes conflicting, priorities and expectations regarding ESG matters.

In addition, certain federal and state law and regulations to ESG matters may include provisions that conflict with other laws and regulations, it may increase costs or limit the Company’s ability to conduct business in certain jurisdictions.

Specifically, changing views and scrutiny against certain ESG and corporate diversity, equity and inclusion matters has gained momentum across the United States at national, state and local levels.

Failing to comply with legal or regulatory requirements or expectations and standards from customers, regulators, investors and other stakeholders regarding ESG-related matters, or taking action in conflict with one or another of those stakeholder’s expectations, could also lead to loss of business, adverse publicity, an adverse impact on our reputation, customer complaints, or public protests, as well as governmental enforcement or private litigation.

Any adverse publicity or adverse impact to our reputation in connection with ESG, any shifting in investing priorities amount investors, or any loss of business resulting from any of the foregoing, may result in adverse effects on the trading price of our common stock and/or our business, operations and earnings.

The development and use of Artificial Intelligence (“AI”) technologies present risks that could adversely affect the Company’s business, financial condition, and results of operations.

The Company, as well as or its third-party vendors, clients or counterparties may continue to develop or incorporate AI technologies into certain business processes, products, and services.

While AI has the potential to enhance operational efficiency and customer experience, its use also introduces a range of risks and challenges.

The legal and regulatory framework governing AI is rapidly evolving in the U.S.

and internationally, and includes regulatory schemes targeted specifically at AI as well as provisions in privacy, consumer protection, intellectual property, employment, model governance, and other laws applicable to the use of AI.

These evolving laws and regulations may require changes to our technology practices, increase compliance costs, and elevate the risk of regulatory scrutiny or enforcement.

AI models, particularly generative AI tools, may produce inaccurate, incomplete, or misleading outputs;

reflect biases presented in training data;

improperly disclose confidential, proprietary, or personal information;

or infringe upon the intellectual property rights of others.

Additionally, the complexity and limited transparency of certain AI models can make it difficult to understand how outputs are generated, which complicates model validation, risk management, regulatory compliance and decision-making processes.

To the extent the Company relies on AI technologies developed or operated by third parties, it faces additional risk related to vendor oversight, data security, operational resilience, and the effectiveness of those third parties’ risk management and mitigation, over which it may have limited control or visibility.

Any failure to appropriately govern the use of AI or to mitigate its associated risks could expose the Company to legal liability, regulatory action, operational disruptions, financial loss, or reputational harm.

Such outcomes could materially adversely affect its business, financial condition, results of operations, and competitive position.

The Company is subject to losses due to errors, omissions or fraud by its associates, clients, counterparties or other third parties.

The Company is exposed to many types of operational risk, including the risk of fraud by third parties, customers and employees, clerical recordkeeping errors, and transactional errors.

Such fraudulent activity may take many forms, including check fraud, electronic fraud, wire fraud, social engineering, phishing and other dishonest acts.

While the Company’s procedures are designed to follow customary, industry-specific security precautions and while the Company provides associates with ongoing training and regular communications and guidance to combat fraud, its efforts might not be successful in mitigating or reducing fraudulent attempts resulting in financial losses, increased litigation risk and reputational harm.

The Company’s business also depends on its associates, as well as third-party service providers, to process a large number of increasingly complex transactions.

The Company could be materially and adversely affected if associates, clients,

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counterparties, or other third parties caused an operational breakdown or failure, either from human error, fraudulent manipulation, or purposeful damage to any of its operations or systems.

Risks Related to Owning the Company’s Stock

The market price of the Company’s common stock may fluctuate significantly and could decline, which could result in losses to its investors.

The market price of the Company’s common stock has been volatile in the past and may fluctuate significantly in the future in response to a variety of factors, many of which are beyond the Company’s control.

The Company’s stock price can fluctuate significantly in response to a variety of factors including, among other things:

• variations in the Company’s operating results, including if its financial results fall below the expectation of investor or securities analysts;

• changes in analysts’ recommendations or projections with regard to the Company’s common stock or the markets and businesses in which it operates;

• volatility of stock market prices and volumes in general;

• changes in market valuations of similar companies;

• reports of trends and concerns and other issues related to the financial services industry;

• changes in the conditions of credit markets;

• changes in accounting policies or procedures as required by the Financial Accounting Standards Board, or other regulatory agencies;

• legislative and regulatory actions, including the impact of the Dodd-Frank Act and related regulations, that may subject us to additional regulatory oversight which may result in increased compliance costs and/or require us to change our business model;

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• legislative and regulatory actions, including the impact of the Dodd-Frank Act and related regulations, that may subject the Company to additional regulatory oversight which may result in increased compliance costs and/or require changes to its business model;

• government intervention in the U.S.

1 unchanged sentence

• additions or departures of key members of management;

• fluctuations in our quarterly or annual operating results;

• changes in analysts’ estimates of financial performance.

Future issuances of the Company’s common stock could adversely affect the market price of the common stock and could be dilutive.

The Company is not restricted from issuing additional shares of common stock, and may issue securities that are convertible into or exchangeable for, or that represent the right to receive, shares of common stock.

Issuances of a substantial number of shares of common stock, or the expectation that such issuances might occur, including in connection with acquisitions by the Company, could materially adversely affect the market price of the shares of common stock and could be dilutive to shareholders.

Because the Company’s decision to issue equity securities in the future will depend on market conditions and other factors, it cannot predict or estimate the amount, timing, or nature of possible future stock issuances.

Accordingly, the Company’s shareholders bear the risk that future stock issuances will reduce market prices and dilute their stock holdings in the Company.

Common stock is equity and is subordinate to the Company’s existing and future indebtedness and effectively subordinated to all the indebtedness and other non-equity claims against the Bank.

Shares of the Company’s common stock are equity interests and do not constitute indebtedness.

As such, shares of the common stock will rank junior to all of the Company’s indebtedness and to other non-equity claims against the Company and its assets available to satisfy claims against it, including in the event of the Company’s liquidation.

The Company is permitted to incur additional debt.

Upon liquidation, lenders and holders of the Company’s debt securities would receive distributions of the Company’s available assets prior to holders of the Company’s common stock.

Furthermore, the Company’s right to participate in a distribution of assets upon the Bank’s liquidation or reorganization is subject to the prior claims of the Bank’s creditors, including holders of any depositors of the Bank or any debt issued by the Bank.

• the realization of any of the other risks presented in this Annual Report on Form 10-K.

Fluctuations in the Company’s common stock price may be unrelated to its performance.

General market declines or market volatility in the future, especially in the financial institutions sector, could adversely affect the price of the Company’s common stock, and the current market price may not be indicative of future market prices.

Future issuances of the Company’s common stock or securities convertible into common stock could dilute existing shareholders and adversely affect the market price of its common stock.

The Company is generally not restricted from issuing additional shares of common stock or securities that are convertible into, exchangeable for, or represent the right to receive shares of its common stock.

The Company may issue equity securities for a variety of purposes, including capital raising activities, acquisitions, strategic investments, equity-based compensation, or other corporate initiatives.

The issuance of a substantial number of shares of the Company’s common stock or the perception that such issuances may occur could materially reduce the market price of its common stock and dilute the ownership interests of existing shareholders.

Dilution may occur not only as a result of shares issued in public or private offerings, but also from the exercise of stock options, the vesting of equity awards, or the conversion of other securities into common stock.

The timing, amount, and terms of any future equity issuances will depend on market conditions, regulatory considerations, capital needs, acquisition opportunities, and other factors beyond the Company’s control, and the Company cannot predict or estimate the amount, timing or nature of possible future issuance of its common stock.

As a result, shareholders bear the risk that future issuances may reduce the value of their investment and their proportional ownership in the Company.

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

RISK FACTORS - (continued)

The Company’s common stock is subordinate to its existing and future indebtedness and is structurally subordinated to the claims of the Bank’s creditors.

Shares of our common stock represent an equity interest in the Company and do not constitute indebtedness.

As a result, our common stock ranks junior to all of our existing and future debt obligations and other non-equity claims with respect to our assets, including in the event of liquidation, bankruptcy, or other insolvency proceedings.

Holders of our debt securities and other creditors would be entitled to receive distributions from available assets before any payments could be made to shareholders.

In addition, because the Company is a holding company that conducts substantially all of its operations through the Bank, our claims on the Bank’s assets are structurally subordinated to the claims of the Bank’s creditors.

These creditors include depositors, trade creditors, and any holders of any debt obligations issued by the Bank.

Upon the Bank’s liquidation or reorganization, its assets must first be used to satisfy these obligations before any distributions may be made to the Company.

As a result of this hierarchy, shareholders bear a greater risk of loss, as there may be few or no remaining assets available for distribution to holders of our common stock after satisfying the claims of creditors.

The trading volumes in our common stock may not provide adequate liquidity for investors.

Shares of our common stock are listed on the Nasdaq Global Select Market;

however, the average trading volume is less than that of other larger financial institutions.

A public trading market having the desired characteristics of depth, liquidity and orderliness depends on the presence in the marketplace of a sufficient number of willing buyers and sellers of our common stock at any given time.

This presence depends on the individual decisions of investors and general economic and market conditions over which the Company has no control.

Given these factors, a shareholder may have difficulty selling shares of our common stock at an attractive price (or at all).

Additionally, shareholders may not be able to sell a substantial number of our common stock shares for the same price at which shareholders could sell a smaller number of shares.

Given the current daily average trading volume of our common stock, significant sales of our common stock in a brief period of time, or the expectation of these sales, could cause a significant decline in the price of our common stock.

CARTER BANKSHARES, INC.

AND SUBSIDIARIES

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors