What changed in this filing

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Item 1A. Risk Factors

2024-03-05 compared with 2023-03-07 · 64 added, 78 removed, 210 unchanged (40% of the section changed)

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Additional risks that we do not yet know of or that we currently believe are immaterial may also impair our future business operations.

If any of the events or circumstances described in the following risks actually occurs, our business, financial condition or results of operations could be materially adversely affected.

If any of the events or circumstances described in the

following risks actually occurs, our business, financial condition or results of operations could be materially adversely affected.

In such cases, the trading price of our common stock could decline.

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Inflation risk is the risk that the value of assets or income from investments will be worth less in the future as inflation decreases the value of money.

The annual inflation rate in the United States increased during most of 2022, and, as of December 2022, was 6.5% measured by consumer price index.

As a result, the Federal Reserve has continued to increase the target federal funds rate, and has indicated its intention to continue to increase interest rates in an effort to combat inflation.

As inflation increases, the value of our investment securities, particularly those with longer maturities, would decrease, although this effect can be less pronounced for floating rate instruments.

In addition, inflation increases the cost of goods and services we use in our business operations, such as electricity and other utilities, which increases our non-interest expenses.

The annual inflation rate as of December 2023 was 3.4% measured by consumer price index.

Inflation increases the cost of goods and services we use in our business operations, such as electricity and other utilities, which increases our non-interest expenses.

Furthermore, our customers are also affected by inflation and the rising costs of goods and services used in their households and businesses, which could have a negative impact on their ability to repay their loans with us.

Acts or threats of terrorism and political or military actions by the United States or other governments could adversely affect general economic industry conditions.

Geopolitical conditions may affect our earnings.

Acts or threats of terrorism and political actions taken by the United States or other governments in response to terrorism, or similar activity, could adversely affect general or industry conditions and, as a result, our consolidated financial condition and results of operations.

The COVID-19 pandemic may continue to impact economic conditions and affect our financial condition, our results of operations and other aspects of our business.

The COVID-19 pandemic caused significant economic dislocation in the United States and internationally, resulting in a slow-down in economic activity, increased unemployment levels, and disruptions in global supply chains and financial markets.

The pandemic and related government actions to curb its spread also resulted in closures of many organizations and the institution of social distancing requirements in many states and communities.

In response to the pandemic, various state governments and federal agencies required lenders to provide forbearance and other relief to borrowers (e.g., waiving late payment and other fees).

Federal banking agencies encouraged financial institutions to prudently work with affected borrowers and legislation provided relief from reporting loan classifications due to modifications related to the COVID-19 outbreak.

The spread of the coronavirus also caused us to modify our business practices, including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences.

Given the ongoing dynamic nature of variants of COVID-19, it is difficult to predict the full impact of the COVID-19 pandemic outbreak on our business.

As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, we could be subject to a number of risks, any of which could have an adverse effect on our business, financial condition, liquidity, results of operations, ability to execute our growth strategy, and ability to pay dividends.

These risks include, but are not limited to:

changes in demand for our products and services;

increased loan losses or other impairments in our loan portfolios and increases in our allowance for loan losses;

a decline in collateral for our loans, especially real estate;

unanticipated unavailability of employees;

increased cyber security risks as employees work remotely;

a prolonged weakness in economic conditions resulting in a reduction of future projected earnings could necessitate a valuation allowance against our current outstanding deferred tax assets;

a triggering event leading to impairment testing on our goodwill or core deposit and customer relationships intangibles, which could result in an impairment charge;

and increased costs as the Company and our regulators, customers and vendors adapt to evolving pandemic-related conditions.

Geopolitical tensions, including current or anticipated impact of military conflicts , could adversely affect general economic industry conditions.

Geopolitical tensions may affect our earnings.

Adverse economic conditions may result from a variety of factors including domestic and global economic and political developments, including civil unrest, terrorism, foreign investment restrictions, or military action, such as the armed conflict between Ukraine and Russia and corresponding sanctions imposed by the United States and other countries or the conflict in Israel and the surrounding areas, and new or evolving legal and regulatory requirements on business investment, hiring, migration, labor supply and global supply chains.

We are subject to higher lending risks with respect to our commercial and agricultural banking activities which could adversely affect our financial condition and results of operations.

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Although the Bank manages lending risks through its underwriting and credit administration policies, no assurance can be given that such risks will not materialize, in which event, our financial condition, results of operations, cash flows and business prospects could be materially adversely affected.

Future pandemics (including new variants of COVID-19), could materially affect our results of operations, financial position and/or liquidity .

COVID-19 presented, and any future pandemics (including new variants of COVID-19) could present, the following risks, among others:

increased unemployment levels;

disruptions in global supply chains and financial markets;

adverse legislative or regulatory actions;

operational disruptions;

increased general and administrative expenses;

financial market disruption;

and an economic downturn.

These risks could materially and adversely impact our results of operations, financial position and/or liquidity.

For a further discussion of risks that can impact us as a result of financial market disruption or an economic downturn, see “ Our business may be adversely affected by conditions in the financial markets and economic conditions generally .”

RISKS RELATED TO OUR BUSINESS AND OPERATIONS

We rely on network and information systems and other technologies, and, as a result, we are subject to various Cybersecurity risks.

Cybersecurity refers to the combination of technologies, processes and procedures established to protect information technology systems and data from unauthorized access, attack, or damage.

Our business involves the storage and transmission of customers’ personal information.

While we have internal policies and procedures designed to prevent or limit the effect of a failure, interruption or security breach of our information systems, as well as contracts and service agreements with applicable outside vendors, we cannot be assured that any such failures, interruptions or security breaches will not occur or, if they do, that they will be addressed adequately.

Any failure or interruption of these systems could result in failures or disruptions in our loan, deposit, general ledger and other systems.

We rely on the secure processing, storage and transmission of confidential and other information on our computer systems and networks.

Unauthorized disclosure of sensitive or confidential

client or customer information, whether through a breach of our computer systems or otherwise, could severely harm our business.

Although we have implemented measures to prevent security breaches, cyber incidents and other security threats, our facilities and systems, and those of third party service providers, may be vulnerable to security breaches, acts of vandalism, computer viruses, misplaced or lost data, programming and/or human error, or other similar events that could have a material adverse effect on our business.

Although, to date, we have not experienced any material losses relating to cyber-attacks or other information security breaches, there can be no assurance that we will not suffer such losses in the future.

Our risk and exposure to these matters remains heightened because of, among other things, the evolving nature of these threats, the outsourcing of some of our business operations and the continued uncertain global economic environment.

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

Furthermore, the storage and transmission of such data is regulated at the federal and state level.

Privacy information security laws and regulation changes, and compliance therewith, may result in cost increases due to system changes and the development of new administrative processes.

If we fail to comply with applicable laws and regulations or experience a data security breach involving the misappropriation, loss or other unauthorized disclosure of confidential information, whether by us or our vendors, our reputation could be damaged, possibly resulting in lost future business, and we could be subject to fines, penalties, administrative orders and other legal risks as a result of a breach or non-compliance.

The impact of larger or similar-sized financial institutions encountering financial difficulties may adversely affect the Company's business, earnings and financial condition.

The Company is exposed to the risk that when a peer financial institution experiences financial difficulties, there could be an adverse impact on the regional banking industry and the business environment in which it operates.

The bank failures of Silicon Valley Bank in California, Signature Bank in New York, and First Republic Bank in California during the first and second quarters of 2023 have caused a degree of concern and uncertainty in the investor community and among bank customers generally.

Uncertainty may be compounded by the reach and depth of media attention and its ability to disseminate concerns about these types of events.

This public uncertainty and concern could potentially affect the Bank despite its relatively high percentage of deposits (82% as of December 31, 2023) that are either insured or collateralized and its balance sheet liquidity and collateralized borrowing capacity being well in excess of the uninsured deposit balances.

While the Company does not believe that the circumstances of these three banks' failures are indicators of broader issues with the banking system, the failures may reduce customer confidence, affect sources of funding and liquidity, increase regulatory requirements and costs, adversely affect financial markets and/or have a negative reputational ramification for the banking industry, including the Company.

The Company will continue to monitor the ongoing events concerning these three banks as well as any future potential bank failures and volatility within the banking industry generally, together with any responsive measures taken by the banking regulators to mitigate or manage potential turmoil in the banking industry.

We are subject to interest rate risk.

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Our exposure to lending risk is managed through the use of consistent underwriting standards, and we avoid highly leveraged transactions as well as excessive industry and other concentrations, but there can be no assurance that our risk mitigation measures will be effective in avoiding undue credit risk.

An increase in interest rates or weakening economic conditions (such as high levels of unemployment) could further adversely impact the ability of borrowers to repay outstanding

loans, or could substantially weaken the value of collateral securing those loans.

An increase in interest rates or weakening economic conditions (such as high levels of unemployment) could further adversely impact the ability of borrowers to repay outstanding loans, or could substantially weaken the value of collateral securing those loans.

Downward pressure on real estate values could increase the potential for problem loans and thus have a direct impact on our consolidated results of operations.

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We generally view changes in fair value caused by changes in interest rates as temporary, which is consistent with our experience.

If we deem such decline to be other-than-temporary related to credit losses, the security is written down to a new cost basis and the resulting loss is charged to earnings as a component of non-interest income in the period in which the decline in value occurs.

If we deem such decline to be other-than-temporary related to credit losses, an allowance for credit losses(“ACL”) will be established.

At December 31, 2023, no ACL was established for available for sale securities or held to maturity securities.

At December 31, 2023, U.S.

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agency issued securities were carried at $181.3 million or 73.4% of the combined AFS and HTM portfolio.

We have, in the past, recorded other than temporary impairment (“OTTI”) charges, principally arising from investments in non-agency mortgage-backed securities.

We do not currently hold any non-agency mortgage-backed securities.

We continue to monitor our securities portfolio as part of our ongoing OTTI evaluation process.

No assurance can be given that we will not need to recognize OTTI charges related to securities in the future.

Future OTTI charges would cause decreases to both Tier 1 and Risk-based capital levels which may expose the Company and/or the Bank to additional regulatory restrictions.

The capital that we are required to maintain for regulatory purposes is impacted by, among other factors, the securities ratings on our portfolio.

Therefore, ratings downgrades on our securities may also have a material adverse effect on our risk-based regulatory capital levels.

Deterioration in the markets for residential real estate, including secondary residential mortgage loan markets, could reduce our net income and profitability.

During the severe recession that lasted from 2007 to 2009, softened residential housing markets, increased delinquency and default rates, and volatile and constrained secondary credit markets negatively impacted the mortgage industry.

Our financial results were adversely affected by these effects including changes in real estate values, primarily in Wisconsin and Minnesota, and our net income declined as a result.

Decreases in real estate values adversely affected the value of property used as collateral for loans as well as investments in our portfolio.

Continued slow growth in the economy since 2009 resulted in increased competition and lower rates, which has negatively impacted our net income and profits.

The foregoing changes could affect our ability to originate loans and deposits, the fair value of our financial assets and liabilities and the average maturity of our securities portfolio.

An increase in the level of interest rates may also adversely affect the ability of certain of our borrowers to repay their obligations.

If interest rates paid on deposits or other borrowings were to increase at a faster rate than the interest rates earned on loans and investments, our net income would be adversely affected.

Our allowance for loan losses may be insufficient.

To address risks inherent in our loan portfolio, we maintain an allowance for loan losses that represents management’s best estimate of probable losses that exist within our loan portfolio.

The level of the allowance reflects management’s continuing evaluation of various factors, including specific credit risks, historical loan loss experience, current loan portfolio quality, present economic, political and regulatory conditions, and unidentified losses inherent in the current loan portfolio.

Determining the appropriate level of the allowance for loan losses involves a high degree of subjectivity and requires us to make estimates of significant credit risks, which may undergo material changes.

Our allowance for credit losses - loans may be insufficient.

To address risks inherent in our loan portfolio, we maintain an allowance for credit losses that represents the Company’s best estimate of the reserve necessary to adequately account for probable losses expected over the remaining life of the assets.

Factors considered by the Company in evaluating the overall adequacy of the allowance include historical net loan losses, the level and composition of nonaccrual, past due and modifications, trends in volumes and terms of loans, effects of changes in risk selection and underwriting standards or lending practices, lending staff changes, concentrations of credit, industry conditions and the current economic conditions in the region where the Company operates.

The Company estimates the appropriate level of allowance for credit losses by evaluating loans collectively on a pooled basis when similar risk characteristics exist, and on an individual basis when management determines that a loan does not share similar risk characteristics with other loans.

In evaluating our impaired loans, we assess repayment expectations and determine collateral values based on all information that is available to us.

However, we must often make subjective decisions based on our assumption about the creditworthiness of the borrowers and the values of collateral securing these loans.

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 our allowance for loan losses.

In addition, bank regulatory agencies periodically examine our allowance for loan losses and may require an increase in the allowance or the recognition of further loan charge-offs, based on judgments different from those of our management.

If charge-offs in future periods exceed our allowance for loan losses, we will need to take additional loan loss provisions to increase our allowance for loan losses.

Any additional loan loss provision will reduce our net income or increase our net loss, which could have a direct material adverse effect on our financial condition and results of operations.

In addition, bank regulatory agencies periodically examine our allowance for credit losses and may require an increase in the allowance or the recognition of further loan charge-offs, based on judgments different from those of our management.

If charge-offs in future periods exceed our allowance for credit losses, we will need to take additional credit loss provisions to increase our allowance for credit losses.

Any additional provision for credit losses will reduce our net income or increase our net loss, which could have a direct material adverse effect on our financial condition and results of operations.

Competition may affect our results.

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Technology and other changes are allowing customers to complete financial transactions that historically have involved banks at one or both ends of the transaction.

For example, customers can now pay bills and transfer funds directly without going through a bank.

For example, customers can now pay bills and transfer funds directly without

going through a bank.

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.

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While we have policies and procedures designed to prevent such losses, there can be no assurance that such losses will not occur.

We rely on network and information systems and other technologies, and, as a result, we are subject to various Cybersecurity risks.

Cybersecurity refers to the combination of technologies, processes and procedures established to protect information technology systems and data from unauthorized access, attack, or damage.

Our business involves the storage and transmission of customers’ personal information.

Any failure or interruption of these systems could result in failures or disruptions in our loan, deposit, general ledger and other systems.

We rely on the secure processing, storage and transmission of confidential and other information on our computer systems and networks.

Unauthorized disclosure of sensitive or confidential client or customer information, whether through a breach of our computer systems or otherwise, could severely harm our business.

As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate

and remediate any information security vulnerabilities.

Furthermore, the storage and transmission of such data is regulated at the federal and state level.

Privacy information security laws and regulation changes, and compliance therewith, may result in cost increases due to system changes and the development of new administrative processes.

Our internal controls and procedures may fail or be circumvented.

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Our growth strategy includes selectively acquiring businesses through acquisitions of other banks, and our ability to consummate these acquisitions on economically advantageous terms acceptable to us in the future is unknown.

Our growth strategy includes acquisitions of other banks that serve customers or markets we find desirable, including our recent acquisitions of Community Bank of Northern Wisconsin (“CBN”), WFC, United Bank and F&M.

Our growth strategy includes acquisitions of other banks that serve customers or markets we find desirable, including our acquisitions of Community Bank of Northern Wisconsin (“CBN”), WFC, United Bank and F&M.

The market for acquisitions remains highly competitive, and we may be unable to find satisfactory acquisition candidates in the future that fit our acquisition and growth strategy.

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We intend to continue to evaluate potential acquisitions and expansion opportunities in the normal course of our business.

Although the integration of F&M, United Bank, WFC and CBN have been successfully completed, we cannot assure you that we will be able to adequately or profitably manage the ongoing integration of any such future acquisitions.

Acquiring other banks or financial service companies, as well as other geographic and product expansion activities, involve various risks including:

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In particular, federal bank regulators have stated that paying dividends that deplete a banking organization’s capital base to an inadequate level would be an unsafe and unsound banking practice and that banking organizations should generally pay dividends only out of current operating earnings.

In addition, in the current financial and economic environment, the Federal Reserve has indicated that bank holding companies should carefully review their dividend policy and has discouraged payment ratios that are at maximum allowable levels unless both asset quality and capital are very strong.

In addition, the Federal Reserve has indicated that bank holding companies should carefully review their dividend policy and has discouraged payment ratios that are at maximum allowable levels unless both asset quality and capital are very strong.

The ability of the Bank to pay dividends to us is also subject to its profitability, financial condition, capital expenditures and other cash flow requirements.

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A new accounting standard may require us to increase our allowance for loan losses and may have a material adverse effect on our financial condition and results of operations.

The Financial Accounting Standards Board (“FASB”) has adopted a new accounting standard referred to as Current Expected Credit Loss, or CECL, which will require financial institutions to determine periodic estimates of lifetime expected credit losses on loans, and recognize the expected credit losses as allowances for loan losses.

The FASB extended the effective date of CECL from January 2021 to January 2023 for smaller reporting companies such as the Company.

Once effective, this will change the current method of providing allowances for loan losses that are probable, which may require us to increase our allowance for loan losses, and to greatly increase the types of data we will need to collect and review to determine the appropriate level of the allowance for loan losses.

The Financial Accounting Standards Board (“FASB”) adopted a new accounting standard referred to as Current Expected Credit Loss, or CECL, which requires financial institutions to determine periodic estimates of lifetime expected credit losses on loans, and recognize the expected credit losses as allowances for loan losses.

CECL became effective in January 2023 for smaller reporting companies such as the Company.

This changed the current method of providing allowances for loan losses that are probable, which may require us to increase our allowance for loan losses, and to greatly increase the types of data we will need to collect and review to determine the appropriate level of the allowance for loan losses.

Banking regulators expect the new accounting standard will increase the allowance for loan losses.

Any change in the allowance for loan losses at the time of adoption will be an adjustment to retained earnings and would change the Bank’s capital levels.

Any change in the allowance for loan losses will be an adjustment to retained earnings and would change the Bank’s capital levels.

Any increase in our allowance for loan losses or expenses incurred to determine the appropriate level of the allowance for loan losses may have a material adverse effect on our financial condition and results of operations.

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Any change in such regulation and oversight, whether in the form of regulatory policy, new regulations or legislation, or additional deposit insurance premiums could have a material impact on our operations.

Failure to comply with applicable laws, regulations or policies could result in sanction by regulatory agencies, civil monetary penalties, and/or damage to our reputation, which could have a material adverse

effect on our business, consolidated financial condition and results of operations.

In addition, any change in government regulation could have a material adverse effect on our business or our ability to pay dividends.

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Under the BHCA and Federal Reserve guidance thereunder, a person or group will be presumed to control a bank holding company if they acquire a certain percentage of the bank holding company or if one or more other control factors are present.

On January 31, 2020, the Federal Reserve Board approved the issuance of a final rule (which became effective October 1, 2020) that clarified and codified the Federal Reserve’s standards for determining whether one company has control over another.

On October 1, 2020, a Federal Reserve Board final rule became effective that clarified and codified the Federal Reserve’s standards for determining whether one company has control over another.

The final rule established four categories of tiered presumptions of non-control that are based on the percentage of voting shares held by the investor (less than 5%, 5-9.9%, 10-14.9% and 15-24.9%) and the presence of other indicia of control.

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These indicia of control include nonvoting equity ownership, director representation, management interlocks, business relationship and restrictive contractual covenants.

Under the final rule, investors can hold up to 24.9% of the voting securities and up to 33% of the total equity of a company without necessarily having a controlling influence.

Under the final rule, investors can hold up to 24.9% of the voting securities and up to 33% of the total equity of a company without necessarily being deemed to have a controlling influence.

The overall effect of the BHCA is to make it more difficult to acquire a bank holding company and a bank by tender offer or similar means than it might be to acquire control of another type of corporation.

Consequently, shareholders of the Company may be less likely to benefit from the rapid increases in stock prices that may result from tender offers or similar efforts to acquire control of other non-bank companies.

Consequently, stockholders of the Company may be less likely to benefit from the rapid increases in stock prices that may result from tender offers or similar efforts to acquire control of other non-bank companies.

Investors should be aware of these requirements when acquiring shares of our stock.

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The implementation of such changes could have a material adverse effect on our financial condition and results of operations.

UNRESOLVED STAFF COMMENTS

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