What changed in this filing

/stocks — the workspaceLOADING

Item 1A. Risk Factors

2021-03-05 compared with 2020-03-06 · 155 added, 82 removed, 180 unchanged (57% of the section changed)

3 unchanged sentences

For a discussion of the impact of risks on our financial condition and results of operations in recent years and on forward looking statements contained in this report, reference is made to Item 7 below.

Risks Related to the Company's Business

We may be adversely affected by economic conditions in the local economies in which we conduct our operations, and in the United States in general.

6 unchanged sentences

And, while the presence of the University of Iowa and its affiliated institutions has a significant favorable impact upon the regional economy, it is unclear what impact the State budget and funding models will have on the University of Iowa and the University of Iowa Hospitals and Clinics.

Changes in U.S.

trade policies, such as the implementation of tariffs, and other factors beyond the Company’s control may adversely impact our business, financial condition and results of operations.

Throughout 2018 and 2019, the U.S.

government implemented tariffs on certain products from countries or entities such as Mexico, Canada, China and the European Union.

These countries have issued or continue to threaten retaliatory tariffs against products from the United States, including agricultural products.

The United States and these countries may impose additional tariffs and retaliatory tariffs in the future.

Tariffs, retaliatory tariffs or other trade restrictions on products and materials that our customers import or export, including agricultural products such as soybeans, could cause the prices of our customers’ products to increase which could reduce demand for such products, or reduce our customer margins, and adversely impact their revenues, financial results and ability to service debt.

This could adversely affect our financial condition and results of operations.

In addition, to the extent changes in the political environment have a negative impact on us or on the markets in which we operate, our business, results of operations and financial condition could be materially and adversely impacted in the future.

In January 2020, passage of the United States-Mexico-Canada (USMCA) trade agreement helped to alleviate some of these risks.

The USMCA updates trading rules to better reflect 21st century technology, regulates labor and environmental standards in Mexico, tightens the rules the auto industry must follow to trade vehicles duty free across the three countries and provides tariff-free trade in North America.

We may be adversely impacted by recent legislation and potential additional legislation and rulemaking.

The 2008-2009 recession produced a number of new laws that impact financial institutions including the Dodd-Frank Act.

The Dodd-Frank Act established the Consumer Financial Protection Bureau (the “CFPB”) and granted it the broad authority to administer and enforce a new federal regulatory framework of consumer financial regulation.

Any changes to state and federal banking laws and regulations may adversely impact our ability to expand services and to increase the value of our business.

We are subject to extensive state and federal regulation, supervision, and legislation that govern almost all aspects of our operations.

These laws may change from time to time and are primarily intended for the protection of consumers, depositors and the deposit insurance funds.

In addition, our earnings are affected by the monetary policies of the Board of Governors of the Federal Reserve.

These policies, which include regulating the national supply of bank reserves and bank credit, may have a major effect upon the source and cost of funds and the rates of return earned on loans and investments.

The Federal Reserve influences the size and distribution of bank reserves through its open market operations and changes in cash reserve requirements against member bank deposits.

We cannot predict what effect such act and any presently contemplated or future changes in the laws or regulations or their interpretations would have on us, but such changes could be materially adverse to our financial performance.

The ongoing COVID-19 pandemic and measures intended to prevent its spread could have a material adverse effect on our business, results of operations and financial condition, and such effects will depend on future developments, which are highly uncertain and are difficult to predict.

In December 2019, a novel coronavirus (COVID-19) was reported in China, and, in March 2020, the World Health Organization declared it a pandemic.

On March 12, 2020, the President of the United States declared the COVID-19 outbreak in the United States a national emergency.

The COVID-19 pandemic has caused significant economic dislocation in the United States as many state and local governments ordered non-essential businesses to close and residents to shelter in place at home.

This has resulted in an unprecedented slow-down in economic activity and a related increase in unemployment.

Since the COVID-19 outbreak, more than 65 million people have filed claims for unemployment, and stock markets have experienced significant volatility and, in particular, bank stocks have significantly declined in value.

In response to the COVID-19 outbreak, the Federal Reserve Board has reduced the benchmark fed funds rate to a target range of 0% to 0.25%, and the yields on 10 and 30-year treasury notes have declined to historic lows.

The federal banking agencies have encouraged financial institutions to prudently work with affected borrowers and have passed multiple rounds of legislation to provide relief from reporting loan classifications due to modifications related to the COVID-19 outbreak.

Finally, the spread of the coronavirus caused the Company to modify its business practices, including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences.

The Company may take further actions as may be required by government authorities or that it determines are in the best interests of employees, customers and business partners.

There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus or will otherwise be satisfactory to government authorities.

In addition, the success of the Company’s operations substantially depends on the management skills of its executive officers and directors, many of whom have held officer and director positions with the Company for many years.

The Company’s Treasurer and Chief Financial Officer resigned in September 2020.

The Company has commenced a search for a chief financial officer and will make a subsequent announcement regarding such appointment upon completion.

Pending the completion of its search, the Company retained an outside consultant to assist the Chief Executive Officer in managing the responsibilities of the Chief Financial Officer position.

The unanticipated loss or unavailability of key employees due to the outbreak could harm our ability to operate our business or execute our business strategy.

Given the ongoing and dynamic nature of the circumstances, it remains difficult to predict the full impact of the COVID-19 outbreak on our business.

The United States government has taken steps to attempt to mitigate some of the more severe anticipated economic effects of the virus, including the passage of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).

Further legislation was passed in December 2020, the Coronavirus Response and Relief Supplemental Appropriations Act 2021 , which extended many provisions in the CARES Act, but there can be no assurance that such steps

will be effective or achieve their desired results in a timely fashion.

The extent of such impact from the COVID-19 outbreak and related mitigation efforts will depend on future developments, which are highly uncertain, including but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or treat its impact, the broad distribution of vaccines, and how quickly and to what extent normal economic and operating conditions can resume.

As a result, the Company could be subject to any of the following risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations:

• demand for our products and services may decline, making it difficult to grow assets and income;

• if the economy is unable to substantially reopen, and high levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income;

• collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase;

• our allowance for loan losses may be insufficient given the significant economic uncertainties created by the pandemic and, as a result, may have to be increased if borrowers experience financial difficulties beyond forbearance periods, which will adversely affect our net income;

• the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us;

• as the result of the decline in the Federal Reserve Board’s target federal funds rate, the yield on our assets may decline to a greater extent than the decline in our cost of interest-bearing liabilities, reducing our net interest margin and spread and reducing net income;

• a material decrease in net income or a net loss over several quarters could result in a decrease in the rate of our quarterly cash dividend;

• we rely on third party vendors for certain services and the unavailability of a critical service due to the COVID-19 outbreak could have an adverse effect on us;

• Federal Deposit Insurance Corporation premiums may increase if the agency experiences additional resolution costs.

Any one or a combination of the factors identified above could negatively impact our business, financial condition and results of operations and prospects.

Even after the COVID-19 outbreak has subsided, the Company may continue to experience materially adverse impacts to our business as a result of the virus’s global economic impact, including the availability of credit, adverse impacts on our liquidity and any recession that has occurred or may occur in the future.

As a participating lender in the Paycheck Protection Program (PPP), the Company and the Bank are subject to additional risks of litigation from the Bank’s customers or other parties regarding the Bank’s processing of loans for the PPP and risks that the Small Business Administration (SBA) may not fund some or all PPP loan guarantees.

The CARES Act included a loan program administered through the SBA referred to as the PPP.

Under the PPP, small businesses and other entities and individuals can apply for loans from existing SBA lenders and other approved regulated lenders that enroll in the program, subject to numerous limitations and eligibility criteria.

The initial PPP opened on April 3, 2020 through August 2020, with another round of PPP funding approved in December 2020 with the Coronavirus Response and Relief Supplemental Appropriations Act 2021 ;

however, there has been some ambiguity in the laws, rules and guidance regarding the operation of the PPP, which exposes the Company to risks relating to noncompliance with the PPP.

Since the opening of the PPP, several other larger 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.

The Company and the Bank may be exposed to the risk of similar litigation from both customers and non-customers that approached the Bank regarding PPP loans.

If any such litigation is filed against the Company or the Bank and is not resolved in a manner favorable to the Company or the Bank, it may result in significant financial liability or adversely affect the Company’s reputation.

In addition, litigation can be costly, regardless of outcome.

Any financial liability, litigation costs or reputational damage caused by PPP related litigation could have a material adverse impact on our business, financial condition and results of operations.

The Bank also has credit risk on PPP loans if a determination is made by the SBA that there is a deficiency in the manner in which the loan was originated, funded, or serviced by the Bank, such as an issue with the eligibility of a borrower to receive a PPP loan, which may or may not be related to the ambiguity in the laws, rules and guidance regarding the operation of the PPP.

In the event of a loss resulting from a default on a PPP loan and a determination by the SBA that there was a deficiency in the manner in which the PPP loan was originated, funded, or serviced by the Company, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty, or, if it has already paid under the guaranty, seek recovery of any loss related to the deficiency from the Company.

Our profitability and liquidity may be adversely affected by deterioration in the credit quality of, or defaults by, third parties who owe us money or other assets.

2 unchanged sentences

Our rights against third parties may not be enforceable in all circumstances.

In addition, deterioration in the credit quality of third parties whose securities

or obligations we hold could result in losses and/or adversely affect our ability to use those securities or obligations for liquidity purposes.

In addition, deterioration in the credit quality of third parties whose securities or obligations we hold could result in losses and/or adversely affect our ability to use those securities or obligations for liquidity purposes.

Our financial condition has not been materially impacted by the deterioration in the credit quality of third parties except as related to borrower credit quality.

Management believes that the allowance for loan losses is adequate to absorb probable losses on any existing loans that may become uncollectible but cannot predict loan losses with certainty and cannot assure that our allowance for loan losses will prove sufficient to cover actual losses in the future.

Changing interest rates may adversely affect our profits.

Our income and cash flows depend to a great extent on the difference between the interest rates earned by us on interest-earning assets such as loans and investment securities and the interest rates paid by us on interest-bearing liabilities such as deposits and borrowings.

Our net interest margin will be affected by general economic conditions, fiscal and monetary policies of the federal government, and our ability to respond to changes in such rates.

Our assets and liabilities are affected differently by a change in interest rates.

An increase or decrease in rates, the length of loan terms or the mix of adjustable and fixed rate loans in our portfolio could have a positive or negative effect on our net income, capital and liquidity.

We measure interest rate risk under various rate scenarios and using specific criteria and assumptions.

A summary of this process is presented under the heading "Quantitative and Qualitative Disclosures about Market Risk" included under Item 7A of Part II of this Form 10-K.

Although we believe our current level of interest rate sensitivity is reasonable and effectively managed, significant fluctuations in interest rates may have an adverse effect on our business, financial condition and results of operations.

Also, our interest rate risk modeling techniques and assumptions may not fully predict or capture the impact of actual interest rate changes on our financial condition and results of operations.

We experience intense competition for loans and deposits.

Competition in banking and financial services business in our market is highly competitive and is currently undergoing significant change.

Our competitors include local commercial banks, local credit unions, online banks, mortgage companies, finance companies and other non-bank financial services providers.

Increasingly, competitors are able to provide integrated financial services over a broad geographic area.

Increased competition may result in a decrease in the amounts of loans and deposits, reduced spreads between loan rates and deposit rates or loan terms that are less favorable to us.

Competition may also accelerate investments in technology or infrastructure.

Any of these results could have a material adverse effect on our ability to grow and remain profitable.

If we do not continue to meet or exceed regulatory capital requirements and maintain our “well-capitalized” status, there could be an adverse effect on the manner in which we do business and on the confidence of our customers in us.

Under regulatory capital adequacy guidelines, we must meet guidelines that involve quantitative measures of assets, liabilities and certain off-balance sheet items.

Failure to meet minimum capital requirements could have a material effect on our financial condition and could subject us to a variety of enforcement actions, as well as certain restrictions on our business.

Failure to maintain the status of “well-capitalized” under the regulatory framework could adversely affect the confidence that our customers have in us, which may lead to a decline in the demand for or a reduction in the prices that we are able to charge for our products and services.

Failure to meet the guidelines could also limit our access to liquidity sources.

Our growth may require us to raise additional capital in the future, but that capital may not be available.

We may at some point need to raise additional capital to maintain our “well-capitalized” status.

Any capital we obtain may result in the dilution of the interests of existing holders of our stock.

Our ability to raise additional capital, if needed, will depend on conditions in the capital markets at that time, which are outside our control, and on our financial condition and performance.

Accordingly, we cannot make assurances of our ability to raise additional capital if needed, or if the terms will be acceptable to us.

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

2 unchanged sentences

The determination of the appropriate level of the allowance 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.

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 allowance for loan losses.

Economic conditions affecting borrowers, including, but not limited to, the ongoing economic impact of the COVID-19 pandemic and the related uncertainties created thereby, 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 allowance for loan losses.

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

47 unchanged sentences

In these cases, any repossessed collateral for a defaulted loan may not provide an adequate source of repayment of the outstanding loan balance as a result of the greater likelihood of damage, loss or depreciation.

The ongoing impact of the derecho storm could have a material adverse effect on our business, results of operations and financial condition, and such effects will depend on future developments, which are highly uncertain and are difficult to predict.

On August 10, 2020, a derecho impacted Eastern Iowa, primarily Cedar Rapids, Iowa and the surrounding areas.

The derecho caused widespread high winds up to 140 mph, the equivalent of a Category 4 hurricane, torrential rain, large hail and low-class tornadoes.

The damage from the derecho was significant across the east central Iowa area, including wide-scale utility disruptions, residential and commercial property damage and severe damage to corn and soybeans crops.

The Bank has assisted customers impacted by the derecho by providing short-term loan modifications to defer principal payments on loans totaling $21.36 million, $14.87 million of which were still active as of December 31, 2020, primarily for 1 to 4 family non-owner occupied, multifamily and commercial real estate loans.

Further deterioration to the local economy caused by the derecho could have a materially negative impact on the Bank’s financial condition and results of operation in future periods.

We may be required to repurchase mortgage loans or reimburse investors and others as a result of breaches in contractual representations and warranties.

7 unchanged sentences

If this information is inaccurate, we may be subject to regulatory action, reputational harm or other adverse effects with respect to the operation of our business, our financial condition and our results of operation.

Growth levels in local and national real estate markets may impact our operations and/or financial condition.

Change in growth in the national housing market as evidenced by reports of levels of new and existing home sales, inventories of houses on the market, property values, building permits, and the time houses remain on the market may indicate increased levels of credit risk.

In past history of real estate growth, some lenders made many adjustable-rate mortgage loans, and lowered their credit standards with respect to mortgage loans and home equity loans.

A subsequent slowdown in the national housing market created uncertainty and liquidity issues relating to the value of such mortgage loans, which caused disruption in credit markets.

Management will continue to monitor that the Bank has maintained appropriate lending standards in times of real estate growth and decline.

No assurance can be given that these conditions will not directly or indirectly affect our operations.

If we are unable to continuously attract deposits and other short-term funding, our financial condition and our business prospects could be adversely affected.

27 unchanged sentences

The unexpected loss of one of our key managers and/or officers or the inability to attract qualified personnel could have an adverse effect on our operations, financial condition and reputation.

The Company’s Treasurer and Chief Financial Officer resigned in September 2020.

The Company has commenced a search for a chief financial officer and will make a subsequent announcement regarding such appointment upon completion.

Pending the completion of its search, the Company retained an outside consultant to assist the Chief Executive Officer in managing the responsibilities of the Chief Financial Officer position.

The potential for business interruption exists throughout our organization.

Integral to our performance is the continued efficacy of our technical systems, operational infrastructure, relationships with third parties and the array of personnel involved with bank operations.

Failure by any or all of these resources subjects us to risks that may vary in size, scale and scope.

This includes, but is not limited to, operational or technical failures, ineffectiveness or exposure due to interruption in third-party support, as well as the loss of key individuals or failure on the part of key individuals to perform properly.

These risks are heightened during data system changes or conversions.

Although management has established policies and procedures to address such failures, the occurrence of any such event could have a material adverse effect on our business, which, in turn, could have a material adverse effect on our financial condition 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 that we face.

These include credit, liquidity, market, operational, reputational, compliance, strategic, information technology and security, and trust risks.

While we assess this program on an ongoing basis, there can be no assurance that its approach and framework for risk management and related controls will effectively mitigate risk and limit losses in our business.

If conditions or circumstances arise that expose flaws or gaps in the risk management program or if its controls break down, the performance and value of our business could be adversely affected.

Our internal controls may be ineffective.

We regularly review and update our internal controls, disclosure controls and procedures, and corporate governance policies and procedures.

Any system of controls, however well-designed and operated, is based in part on certain assumptions and may provide only reasonable, not absolute, assurances that the objectives of the controls are met.

Any failure or circumvention of our controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on our business, financial condition and results of operation.

We are subject to a variety of litigation or other proceedings, which could adversely affect our business.

We are involved from time to time in a variety of litigation or other proceedings arising out of business or operations.

We establish reserves for claims when appropriate under accounting principles generally accepted in the United States of America, but costs often may be incurred in connection with a matter before any reserve has been created.

In addition, the actual costs associated with resolving a claim may be substantially higher than amounts that we have reserved.

Substantial legal claims could have a detrimental impact on our business, results of operations, and financial condition and may cause reputational harm.

Risks Related to the Banking Industry in General and Community Banking in Particular

Changes in U.S.

trade policies, such as the implementation of tariffs, and other factors beyond the Company’s control may adversely impact our business, financial condition and results of operations.

government has implemented tariffs on certain products from countries or entities such as Mexico, Canada, China and the European Union.