What changed in this filing

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Item 1A. Risk Factors

2022-03-16 compared with 2021-03-12 · 72 added, 58 removed, 274 unchanged (32% of the section changed)

In addition to the other information contained in this Form 10-K, you should carefully consider the risks described below, as well as the riskfactors and uncertainties discussed in our other public filings with the SEC under the caption "Risk Factors"

in evaluating us and our business and making or continuing an investment in our stock.Our operations and financial results are subject to various risks and uncertainties, including, but not limited, to the material risks described below.

In addition to the other information contained in this Form 10-K, you should carefully consider the risks described below, as well as the risk factors and uncertainties discussed in our other public filings with the SEC under the caption "Risk Factors"

in evaluating us and our business and making or continuing an investment in our stock.

Our operations and financial results are subject to various risks and uncertainties, including, but not limited, to the material risks described below.

Many of these risks are beyond our control although efforts are made to manage those risks while simultaneously optimizing operational and financial results.

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In addition, certain statements in the following risk factors constitute forward-looking statements.

Please refer to the section entitled “Cautionary Note Regarding Forward-Looking Statements” beginning on page 1 of this Annual Report

Please refer to the section entitled “Cautionary Note Regarding Forward-Looking Statements” beginning on page 1 of this Annual Report on Form 10- K.

Risks related to our business

COVID-19 Risk Factor

The novel coronavirus, COVID-19, may adversely affect our business, financial condition, results of operations and our liquidity in the short term and for the foreseeable future.

In March 2020, the outbreak of COVID-19 caused by a novel strain of the coronavirus was recognized as a pandemic by the World Health Organization.

Shortly thereafter, the President of the United States declared a National Emergency throughout the United States attributable to such outbreak.

The outbreak has become increasingly widespread in the United States, including in the markets in which we operate.

The Company has taken a number of steps to assess the effects, and mitigate the adverse consequences to its businesses, of the outbreak;

though the magnitude of the impact remains to be seen, the Company’s business will likely be adversely impacted by the outbreak of COVID-19.

The United States and various state and local governments have implemented various programs designed to aid individuals and businesses, but the impact of, and extent to which, these efforts will be successful cannot be determined at this time.

We have participated in some of these programs, including PPP, and likely will continue to participate in and facilitate such programs.

Such programs have been developed and implemented rapidly, often with little immediate guidance from regulatory authorities, creating uncertainty regarding the rules for participating in and facilitating these programs in a compliant manner.

Since the opening of the PPP, many banks have been subject to litigation regarding the process and procedures that such banks used in processing applications for the PPP and claims related to agent fees.

We may experience losses as a result of our participation in and facilitation of PPP and similar government stimulus and relief programs, including losses arising from fraud, litigation or regulatory action.

Federal, state and local governments have mandated or encouraged financial services companies to make accommodations to borrowers and other customers affected by the COVID-19 pandemic.

Legal and regulatory responses to concerns about the COVID-19 pandemic could result in additional regulation or restrictions affecting the conduct of our business in the future.

In addition to the potential affects from negative economic conditions noted above, the Company instituted a program to help COVID-19 impacted customers.

This program includes waiving non-sufficient fund fees, offering payment deferment and other loan relief, as appropriate, for customers impacted by COVID-19.

The Company’s liquidity could be negatively impacted if a significant number of customers apply and are approved for the deferral of payments.

In addition, if these deferrals are not effective in mitigating the effect of COVID-19 on the Company’s customers, it may adversely affect its business and results of operations more substantially over a longer period of time.

COVID-19 presents a significant risk to our loan portfolio.

Timely loan repayment and the value of collateral supporting the loans are affected by the strength of our borrower’s business.

Concern about the spread of COVID-19 has caused and is likely to continue to cause business shutdowns, limitations on commercial activity and financial transactions, labor shortages, supply chain interruptions, increased unemployment and commercial property vacancy rates, reduced profitability and ability for property owners to make mortgage payments, and overall economic and financial market instability, all of which may cause our customers to be unable to make scheduled loan payments.

If the effects of COVID-19 result in widespread and sustained repayment shortfalls on loans in our portfolio, we could incur significant delinquencies, foreclosures and credit losses, particularly if the available collateral is insufficient to cover our exposure.

The future effects of COVID-19 on economic activity could negatively affect the collateral values associated with our existing loans, the ability to liquidate the real estate collateral securing our residential and commercial real estate loans, our ability to maintain loan origination volume and to obtain additional financing, the future demand for or profitability of our lending and services, and the financial condition and credit risk of our customers.

Further, in the event of delinquencies, regulatory changes and policies designed to protect borrowers may slow or prevent us from making our business decisions or may result in a delay in our taking certain remediation and collection actions, such as foreclosure.

Approximately [ ● ]% of our loan portfolio also includes exposure to sectors that are expected to be subject to increased risk from COVID-19, including hotels, restaurants, retail, convenience stores, healthcare, and direct energy.

Effective March 2020, the Federal Reserve lowered the primary credit rate by 150 basis points to 0.25 percent to mitigate the effects of the COVID-19 pandemic and to support the liquidity and stability of banking institutions as they serve the increased demand for credit.

We expect a long duration of reduced interest rates to negatively impact our net interest income, margin, cost of borrowing and future profitability and to have a material adverse effect on our financial results.

In order to protect the health of our customers and employees, and to comply with applicable government restrictions, we have modified our business practices, including restricting employee travel, directing many employees to work remotely, cancelling in-person meetings and implementing our business continuity plans and protocols to the extent necessary.

We may take further such actions that we determine are in the best interest of our employees, customers and communities or as may be required by government order.

These precautions could impact demand for the Company’s products and services.

As many of our employees are required to work from home, our internal controls over financial reporting could also be negatively affected as the remote working environment could necessitate new processes, procedures, and controls.

The increased reliance on remote access to information systems also increases the Company’s exposure to potential cybersecurity breaches and could impact the Company’s productivity.

Additionally, the Company’s business customers are increasingly required to work remotely as well and may not have appropriately secured remote networks may be more vulnerable to cyber-attacks or phishing schemes that could also affect us.

Furthermore, if a large proportion of the Company’s key employees were to contract COVID-19 or be quarantined as a result of the virus, then the Company’s operations could be adversely impacted and its business continuity plans may not prove effective.

Difficult or volatile conditions in the national financial markets, the U.S.

economy generally, or the state of Wisconsin in particular may adversely affect our lending activity or other businesses, as well as our financial condition.

Difficult or volatile conditions in the national financial markets, and the U.S.

economy generally, may adversely affect our lending activity or other businesses, as well as our financial condition.

Our business and financial performance are vulnerable to weak economic conditions in the financial markets and economic conditions generally or specifically in the state of Wisconsin, the principal market in which we conduct business.

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and collateral for loans made by us, especially real estate, may decline in value, in turn reducing our customers’ ability to repay outstanding loans, and reducing the value of assets and collateral associated with our existing loans.

Effective March 2020, the Federal Reserve lowered the target range for the federal funds rate to a range from 0 to 0.25 percent in response to the economic disruption that occurred at the outset of the COVID-19 pandemic, which has continued into 2022.

However, we expect the Federal Reserve to raise rates more than once in the next twelve months.

Increasing interest rates can have a negative impact on our business by reducing the amount of money our customers borrow or by adversely affecting their ability to repay outstanding loan balances that may increase due to adjustments in their variable rates.

In addition, in a rising interest rate environment we may have to offer more attractive interest rates to depositors to compete for deposits, or pursue other sources of liquidity, such as wholesale funds.

Higher income volatility from changes in interest rates and spreads to benchmark indices could result in a decrease in net interest income and a decrease in current fair market values of our assets.

Fluctuations in interest rates impacts both the level of income and expense recorded on most of our assets and liabilities and the market value of all interest-earning assets and interest-bearing liabilities, which in turn could have a material adverse effect on our net income, operating results, or financial condition.

A prolonged period of volatile and unstable market conditions would likely increase our funding costs and negatively affect market risk mitigation strategies.

Additionally, we conduct our banking operations primarily in Wisconsin.

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Therefore, our success will depend in large part upon the general economic conditions in this area, which we cannot predict with certainty.

This geographic concentration imposes risks from lack of geographic diversification, as adverse economic developments in Wisconsin, among other things, could affect the volume of loan originations, increase the level of nonperforming assets, increase the rate of foreclosure losses on loans and reduce the value of our loans and loan servicing portfolio.Any regional or local economic downturn that affects Wisconsin or existing or prospective borrowers or property values in such areas may affect us and our profitability more significantly and adversely than our competitors whose operations are less geographically concentrated.

Any regional or local economic downturn that affects Wisconsin or existing or prospective borrowers or property values in such areas may affect us and our profitability more significantly and adversely than our competitors whose operations are less geographically concentrated.

We face strong competition from financial services companies and other companies that offer banking services.

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In many instances these national and regional banks have greater resources than we do, and the smaller community banks may have stronger ties in local markets than we do, which may put us at a competitive disadvantage.

We also face competition from many other types of financial institutions, including thrift institutions, finance companies, brokerage firms, insurance companies, credit unions, mortgage banks and other financial intermediaries.

We also face competition from many other types of financial institutions, including fintech companies, thrift institutions, finance companies, brokerage firms, insurance companies, credit unions, mortgage banks and other financial intermediaries.

In addition, a number of out-of-state financial institutions have opened offices and solicit deposits in our market areas.

Increased competition in our markets may result in reduced loans and deposits, as well as reduced net interest margin and profitability.

We compete with many forms of payments offered by both bank and non-bank providers, including a variety of new and evolving alternative payment mechanisms, systems and products, such as aggregators and web-based and wireless payment platforms or technologies, digital or “crypto” currencies, prepaid systems and payment services targeting users of social networks, communications platforms and online gaming.

Our future success may depend, in part, on our ability to use technology competitively to offer products and services that provide convenience to customers and create additional efficiencies in our operations.

If we are unable to attract and retain banking clients, we may be unable to continue to grow our loan and deposit portfolios, and our business, financial condition and results of operations may be adversely affected.

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If the overall economic climate, including employment rates, real estate markets, interest rates and general economic growth, in the United States, generally, or Wisconsin, specifically, experiences material disruption, our borrowers may experience difficulties in repaying their loans, the collateral we hold may decrease in value or become illiquid, and the levels of nonperforming loans, charge-offs and delinquencies could rise and require additional provisions for loan losses, which would cause our net income and return on equity to decrease.

The future effects of the continued COVID-19 pandemic on economic activity could negatively affect the collateral values associated with our existing loans, the ability to liquidate the real estate collateral securing our residential and commercial real estate loans, our ability to maintain loan origination volume and to obtain additional financing, the future demand for or profitability of our lending and services, and the financial condition and credit risk of our customers.

If borrowers fail to repay their loans, our financial condition and results of operations would be adversely affected.

Our provision and allowance for credit losses may not be adequate to cover actual credit losses.

We make various assumptions and judgments about the collectability of our loan and lease portfolio and utilize these assumptions and judgments when determining the provision and allowance for credit losses.

The determination of the appropriate level of the provision for credit losses inherently involves a high degree of subjectivity and requires us to make significant estimates of current credit risks and future trends, all of which may undergo material changes, as we have experienced and expect to continue to experience as a result of the COVID-19 pandemic.

Deterioration in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, including the impact of COVID-19 and the recent election, both within and outside of our control, may require an increase in the amount reserved in the allowance for credit losses.

In addition, bank regulatory agencies periodically review our provision and the total allowance for credit losses and may require an increase in the allowance for credit losses or future provisions for credit losses, based on judgments different than those of management.

Any increases in the provision or allowance for credit losses will result in a decrease in our net income and, potentially, capital, and may have a material adverse effect on our financial condition or results of operations.

Our provision and allowance for loan losses may not be adequate to cover actual credit losses.

The determination of the appropriate level of the provision for loan losses inherently involves a high degree of subjectivity and requires us to make significant estimates of current credit risks and future trends, all of which may undergo material changes, as we have experienced.

Deterioration in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside of our control, may require an increase in the amount reserved in the allowance for loan losses.

In addition, bank regulatory agencies periodically review our provision and the total allowance for loan losses and may require an increase in the allowance for loan losses or future provisions for loan losses, based on judgments different than those of management.

Any increases in the provision or allowance for loan losses will result in a decrease in our net income and, potentially, capital, and may have a material adverse effect on our financial condition or results of operations.

The current expected credit loss standard established by the Financial Accounting Standards Board will require significant data requirements and changes to methodologies.

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Any such losses could have a material adverse effect on us.

A lack of liquidity could adversely affect our operations and jeopardize our business, financial condition, and results of operations.

We rely on our ability to generate deposits and effectively manage the repayment and maturity schedules of our loans and investment securities to ensure that we have adequate liquidity to fund our operations.

In addition to our traditional funding sources, we also may borrow funds from third-party lenders or issue equity or debt securities to investors.

Our access to funding sources in amounts adequate to finance or capitalize our activities, or on terms that are acceptable to us, could be impaired by factors that affect us directly or the financial services industry or economy in general, such as disruptions in the financial markets or negative views and expectations about the prospects for the financial services industry.

Our liquidity may also be adversely impacted if there is a decline in our mortgage revenues from higher prevailing interest rates.

Any decline in available funding could adversely impact our ability to originate loans, invest in securities, meet our expenses, pay dividends to our shareholders, or to fulfill obligations such as repaying our borrowings or meeting deposit withdrawal demands, any of which could have a material adverse impact on our liquidity, business, financial condition or results of operations.

We may not be able to meet our unfunded credit commitments, or adequately reserve for losses associated with our unfunded credit commitments.

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Our future success, including our ability to achieve our growth and profitability goals, is dependent on the ability of our management team to execute on our long-term business strategy, which requires them to, among other things:

maintain and enhance our reputation;attract and retain experienced and talented bankers in each of our markets;maintain adequate funding sources, including by continuing to attract stable, low-cost deposits;enhance our market penetration in our metropolitan markets and maintain our leadership position in our community markets;improve our operating efficiency;implement new technologies to enhance the client experience and keep pace with our competitors;identify attractive acquisition targets, close on such acquisitions on favorable terms and successfully integrate acquired businesses;attract and maintain commercial banking relationships with well-qualified businesses, real estate developers and investors with proven track records in our market areas;attract sufficient loans that meet prudent credit standards;originate conforming residential mortgage loans for resale into secondary market to provide mortgage banking income;maintain adequate liquidity and regulatory capital and comply with applicable federal and state banking regulations;manage our credit, interest rate and liquidity risks;develop new, and grow our existing, streams of noninterest income;oversee the performance of third-party service providers that provide material services to our business;

maintain and enhance our reputation;

attract and retain experienced and talented bankers in each of our markets;

maintain adequate funding sources, including by continuing to attract stable, low-cost deposits;enhance our market penetration in our metropolitan markets and maintain our leadership position in our community markets;

improve our operating efficiency;

implement new technologies to enhance the client experience and keep pace with our competitors;

identify attractive acquisition targets, close on such acquisitions on favorable terms and successfully integrate acquired businesses;

attract and maintain commercial banking relationships with well-qualified businesses, real estate developers and investors with proven track records in our market areas;

attract sufficient loans that meet prudent credit standards;

originate conforming residential mortgage loans for resale into secondary market to provide mortgage banking income;

maintain adequate liquidity and regulatory capital and comply with applicable federal and state banking regulations;

manage our credit, interest rate and liquidity risks;

develop new, and grow our existing, streams of noninterest income;

oversee the performance of third-party service providers that provide material services to our business;

and control expenses in line with current projections.

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In addition, our acquisition activities could be material to our business and involve a number of significant risks, including the following:

incurring time and expense associated with identifying and evaluating potential acquisitions and negotiating potential transactions, resulting in our attention being diverted from the operating of our existing business;using inaccurate estimates and judgments to evaluate credit, operations, management, and market risks with respect to the target company or the assets and liabilities that we seek to acquire;exposure to potential asset quality issues of the target company;intense competition from other banking organizations and other potential acquirers, many of which have substantially greater resources than we do;potential exposure to unknown or contingent liabilities of banks and businesses we acquire, including, without limitation, liabilities for regulatory and compliance issues;inability to realize the expected revenue increases, cost savings, increases in geographic or product presence, and other projected benefits of the acquisition;incurring time and expense required to integrate the operations and personnel of the combined businesses;inconsistencies in standards, procedures, and policies that would adversely affect our ability to maintain relationships with customers and employees;experiencing higher operating expenses relative to operating income from the new operations;creating an adverse short-term effect on our results of operations;losing key employees and customers;significant problems related to the conversion of the financial and customer data of the entity;integration of acquired customers into our financial and customer product systems;potential changes in banking or tax laws or regulations that may affect the target company;

using inaccurate estimates and judgments to evaluate credit, operations, management, and market risks with respect to the target company or the assets and liabilities that we seek to acquire;

exposure to potential asset quality issues of the target company;

intense competition from other banking organizations and other potential acquirers, many of which have substantially greater resources than we do;

potential exposure to unknown or contingent liabilities of banks and businesses we acquire, including, without limitation, liabilities for regulatory and compliance issues;

inability to realize the expected revenue increases, cost savings, increases in geographic or product presence, and other projected benefits of the acquisition;

incurring time and expense required to integrate the operations and personnel of the combined businesses;

inconsistencies in standards, procedures, and policies that would adversely affect our ability to maintain relationships with customers and employees;

experiencing higher operating expenses relative to operating income from the new operations;

creating an adverse short-term effect on our results of operations;

losing key employees and customers;

significant problems related to the conversion of the financial and customer data of the entity;

integration of acquired customers into our financial and customer product systems;

potential changes in banking or tax laws or regulations that may affect the target company;

or risks of impairment to goodwill.

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The financial services industry is undergoing rapid technological changes with frequent introductions of new technology-driven products and services.

These trends were accelerated by the COVID-19 pandemic, increasing demand for mobile banking solutions.

In addition to better serving clients, the effective use of technology increases efficiency and enables financial institutions to reduce costs.

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These federal and state laws, regulations and policies are described in greater detail in “Business— Supervision and Regulation—Payment of Dividends,” but generally look to factors such as previous results and net income, capital needs, asset quality, existence of enforcement or remediation proceedings, and overall financial condition.

Notably, in 2020, in direct response to potential adverse financial impacts caused by COVID-19, the Federal Reserve capped dividend payments and suspended share repurchases by several large banks (i.e., those with more than $50 billion in total assets).

Though temporary (and not applicable to the Company or the Bank), these measures highlight the sensitivity of the bank regulators to the potential financial impacts of COVID-19.

For the foreseeable future, the majority, if not all, of the Company’s revenue will be from any dividends paid to the Company by the Bank.

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Risks related to the business environment and our industry

Inflation could negatively impact our business, our profitability and our stock price .

Prolonged periods of inflation may impact our profitability by negatively impacting our fixed costs and expenses, including increasing funding costs and expense related to talent acquisition and retention, and negatively impacting the demand for our products and services.

Additionally, inflation may lead to a decrease in consumer and clients purchasing power and negatively affect the need or demand for our products and services.

If significant inflation continues, our business could be negatively affected by, among other things, increased default rates leading to credit losses which could decrease our appetite for new credit extensions.

These inflationary pressures could result in missed earnings and budgetary projections causing our stock price to suffer.

The COVID-19 pandemic has adversely impacted, and will likely continue to adversely impact, our business, financial condition, liquidity, capital and results of operations .

The extent and duration to which the continuing COVID-19 pandemic will impact our business in the future is unknown and will depend on future developments, which are highly uncertain and outside our control.

These developments include the duration and severity of the pandemic (including the possibility of further surges of new or existing COVID-19 variants of concern), supply chain disruptions, decreased demand for our products and services or those of our borrowers, which could increase our credit risk, rising inflation, our ability to maintain sufficient qualified personnel due to labor shortages, talent attrition, employee illness, quarantine, willingness to return to work, face-coverings and other safety requirements, or travel and other restrictions, and the actions taken by governments, businesses and individuals to contain the impact of COVID-19, as well as further actions taken by governmental authorities to limit the resulting economic impact.

It is also possible that the pandemic and its aftermath will lead to a prolonged economic slowdown in sectors disproportionately affected by the pandemic or recession in the U.S.

economy or the world economy in general.

ESG risks could adversely affect our reputation and shareholder, employee, client and third party relationships and may negatively affect our stock price .

Our business faces increasing public scrutiny related to environmental, social and governance (“ESG”) activities.

We risk damage to our brand and reputation if we fail to act responsibly in a number of areas, such as diversity, equity, inclusion, environmental stewardship, human capital management, support for our local communities, corporate governance and transparency, or fail to consider ESG factors in our business operations.

Furthermore, as a result of our diverse base of clients and business partners, we may face potential negative publicity based on the identity of our clients or business partners and the public’s (or certain segments of the public’s) view of those entities.

Such publicity may arise from traditional media sources or from social media and may increase rapidly in size and scope.

If our client or business partner relationships were to become intertwined in such negative publicity, our ability to attract and retain clients, business partners, and employees may be negatively impacted, and our stock price may also be negatively impacted.

Additionally, we may face pressure to not do business in certain industries that are viewed as harmful to the environment or are otherwise negatively perceived, which could impact our growth.Additionally, investors and shareholder advocates are placing ever increasing emphasis on how corporations address ESG issues in their business strategy when making investment decisions and when developing their investment theses and proxy recommendations.

We may incur meaningful costs with respect to our ESG efforts and if such efforts are negatively perceived, our reputation and stock price may suffer.

The Company is subject to extensive government regulation and supervision, which may interfere with our ability to conduct our business and may negatively impact our financial results .

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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