What changed in this filing

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Item 1A. Risk Factors

2025-03-14 compared with 2024-03-05 · 51 added, 29 removed, 297 unchanged (21% of the section changed)

13 unchanged sentences

Inflationary pressures in the global economy continue to persist.

With the increases in food, energy and other commodity prices, core inflation has risen sharply over the prior two year period and has become increasingly persistent.

Though increases in food, energy and other commodity prices have slowed throughout 2024, core inflation has risen sharply over the prior two year period and has become increasingly persistent.

While inflationary pressures related to the cost of goods and services, including labor, generally have minimal direct impact on the Bank's financial condition or results of operation, such pressures do directly impact the ability of both our commercial and consumer borrowers to meet their own financial obligations as they come due, including their loan payments to the Company.

In addition, while the Federal Reserve’s moves over the 2022 and 2023 fiscal years to raise interest rates in order to quell inflation appear to be working, such rapid increases in interest rates can have the impact of reducing demand for both the Company’s consumer and commercial products, as well as impact the ability of both our commercial and consumer borrowers to meet their own financial obligations as they come due, including their loan payments to the Company.

In addition, while the Federal Reserve’s moves over the 2022 and 2023 fiscal years to raise interest rates in order to quell inflation have slowed the increase in costs and allowed the Federal Reserve to begin reducing interest rates throughout 2024, higher interest rates can have the impact of reducing demand for both the Company’s consumer and commercial products, as well as impact the ability of both our commercial and consumer borrowers to meet their own financial obligations as they come due, including their loan payments to the Company.

We could experience an unexpected inability to obtain needed liquidity which could adversely affect our business, profitability, and viability as a going concern.

5 unchanged sentences

If we become unable to obtain funds when needed, it could have a material adverse effect on our business, financial condition, and results of operations.

Rising interest rates have decreased the value of the Company’s securities portfolio, and the Company would realize losses if it were required to sell such securities to meet liquidity needs.

As a result of inflationary pressures and the resulting rapid increases in interest rates over the prior two fiscal years, the trading value of previously issued government and other fixed income securities has declined significantly.

These securities make up a majority of the securities portfolio of most banks in the U.S., including the Company’s, resulting in unrealized losses embedded

in the held-to-maturity portion of U.S.

Higher interest rates have decreased the value of the Company’s securities portfolio, and the Company would realize losses if it were required to sell such securities to meet liquidity needs.

As a result of inflationary pressures and the resulting rapid increases in interest rates in 2023 and 2022, the trading value of previously issued government and other fixed income securities has declined significantly.

These securities make up a majority

of the securities portfolio of most banks in the U.S., including the Company’s, resulting in unrealized losses embedded in the held-to-maturity portion of U.S.

banks’ securities portfolios.

While the Company does not currently intend to sell its securities, and none of the Company's securities are classified as held-to-maturity, if the Company were required to sell securities to meet liquidity needs, it may incur losses, which could negatively impact its profitability.

Such a sale of securities, even if losses were incurred, would not further impair the Company's capital position.

While the Company does not currently intend to sell its securities, with the exception of the following, and none of the Company's securities are classified as held-to-maturity, if the Company were required to sell securities to meet liquidity needs, it may incur losses, which could negatively impact its profitability.

The Company did complete a balance sheet repositioning related to its investment securities portfolio in December 2024.

This consisted of the sale of lower-yielding AFS debt securities, resulting in a pre-tax realized loss on the sale of $5.22 million, which was recorded in December of 2024.

All of the proceeds from the sale of these securities were used to purchase AFS debt securities at higher yields to improve income going forward, while maintaining the liquidity provided by the investment portfolio.

The sale of securities did not impair the Company's capital position.

While the Company has taken actions to maximize its funding sources, there is no guarantee that such actions will be successful or sufficient in the event of sudden liquidity needs.

Furthermore, while the Federal Reserve Board has announced a Bank Term Funding Program available to eligible depository institutions secured by U.S.

treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral at par, to mitigate the risk of potential losses on the sale of such instruments, there is no guarantee that such programs will be effective in addressing liquidity needs as they arise.

The proportion of our deposit account balances that exceed FDIC insurance limits may expose the Bank to enhanced liquidity risk in times of financial distress.

16 unchanged sentences

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, including global economic, geopolitical instability, inflationary risks and other global pandemics.

Our primary market includes the Iowa counties of Johnson, Linn and Washington.

Our primary market includes the Iowa counties of Johnson, Linn, Washington and Iowa.

Our market has been one of the strongest economic areas in Iowa over the past ten years.

13 unchanged sentences

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.

The Federal Open Market Committee (FOMC), with particular attention being given to ongoing supply chain disruptions, rising energy and commodity prices and the global economic impact of the Russia-Ukraine conflict, has signaled that additional increases may be appropriate if inflation pressures remain elevated or intensify.

Further increases to prevailing interest rates could influence the interest we receive on loans and investments and the amount of interest we pay on deposits and borrowings.

Moreover, additional and aggressive increases to the target range for the federal funds rate, combined with ongoing geopolitical instability, raise the risk of economic recession.

The Federal Open Market Committee (FOMC), with particular attention being given to labor market conditions, continued inflation pressures and inflation expectations, and financial and international developments.

Prevailing interest rates influence the interest we receive on loans and investments and the amount of interest we pay on deposits and borrowings.

If the target range for the federal funds rate remains elevated for an extended period, combined with ongoing geopolitical instability, raise the risk of economic recession.

Any such downturn, especially in the regions in which we operate, may adversely affect our asset quality, deposit levels, loan demand and results of operations.

4 unchanged sentences

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 addition, the ongoing trade policies and potential tariff initiatives being pursued by the U.S.

government under the administration of President Trump could present potential risks unique to the markets within which we operate.

As a major producer and exporter of agricultural commodities, including corn, soybeans, and pork, Iowa is particularly vulnerable to negative consequences from such policy initiatives.

Any changes to trade agreements, the imposition of tariffs on agricultural products, or the escalation of trade disputes with key international trading partners could lead to reduced demand for Iowa’s agricultural exports, increased input costs for local farmers, and disrupted supply chains.

This, in turn, could result in financial strain for our agricultural clients, increasing the risk of loan defaults or delinquencies within our loan portfolio.

Additionally, any prolonged trade tensions or the implementation of tariffs could negatively impact the broader economic environment in Iowa and the Midwest, potentially leading to reduced consumer spending, lower economic growth, and decreased demand for other banking products and services.

As a result, our financial performance, including credit quality and loan growth, could be adversely affected by these policy changes.

While we actively monitor these developments and work closely with our agricultural customers, there is no assurance that we can fully mitigate the risks posed by potential tariff initiatives or other trade-related disruptions.

These factors could materially affect our business, financial condition, and results of operations.

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

14 unchanged sentences

For AFS debt securities, a decline in fair value due to credit loss results in recording an allowance for credit losses to the extent the fair value is less than the amortized cost basis.

In assessing whether the impairment of investment securities is due to credit losses, we consider if a credit loss exists by monitoring to ensure it has adequate credit

support considering the nature of the investment, collectability or delinquency issues, the underlying financial statements of the issuers, credit ratings and subsequent changes thereto, other available relevant information, and the intent and ability to retain our investment in the security for a period of time sufficient to allow for any anticipated recovery in fair value.

In assessing whether the impairment of investment securities is due to credit losses, we consider if a credit loss exists by monitoring to ensure it has adequate credit support considering the nature of the investment, collectability or delinquency issues, the underlying financial statements of the issuers, credit ratings and subsequent changes thereto, other available relevant information, and the intent and ability to retain our investment in the security for a period of time sufficient to allow for any anticipated recovery in fair value.

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

23 unchanged sentences

Our efforts to take these risks into account in making lending and other decisions, including by increasing our business with climate-friendly companies, may not be effective in protecting us from the negative impact of new laws and regulations or changes in consumer or business behavior.

Climate change and agricultural sector risk.

The Company operates in a region of the United States that is heavily reliant on the agricultural sector, which represents a significant portion of the local economy.

According to data provided by the United States Department of Agriculture (USDA), the market value of agricultural products sold by Iowa farms during 2022 totaled more than $43 billion, ranking second nationally only to the state of California.

As climate change continues to impact weather patterns and environmental conditions in our geographic region, the agricultural sector faces increased risks associated with increased volatility in crop yields, more frequent and severe extreme weather events (such as droughts, floods, and storms), and changing agricultural growing seasons.

Given the lack of empirical data on the credit and other financial risks posed by climate change, it is difficult to predict how climate change may impact our financial condition and operations.

however, as a banking organization, the physical effects of climate change may present certain unique risks.

For example, weather disasters, shifts in local climates and other disruptions related to climate change may adversely affect the value of real properties securing our loans, which could diminish the value of our loan portfolio.

Such events may also cause reductions in regional and local economic activity that may have an adverse effect on our customers, which could limit our ability to raise and invest capital in these areas and communities.

Such climate-related factors may result in greater financial strain on the agricultural businesses and farming communities that form a substantial part of our customer base.

This, in turn, could lead to higher default rates on loans, lower demand for agricultural credit, and decreased collateral values for agricultural loans.

Additionally, disruptions to regional supply chains, rising insurance costs, and the potential for reduced investment in the area may exacerbate the overall economic instability in our market.

While we have implemented practices to mitigate against these risks, including monitoring agricultural sector exposure and diversifying our loan portfolio, the long-term financial stability of the regional economy remains vulnerable to the potential impacts of climate change.

As a result, our financial condition and results of operations could be materially adversely affected by the consequences of climate change on the agricultural sector and the broader regional economy.

There may be issues with environmental law compliance if we take possession of real property that secures a loan.

60 unchanged sentences

These sources include brokered money markets and certificates of deposit, federal funds purchased, lines of credit, the Bank Term Funding Program through the Federal Reserve, and Federal Home Loan Bank advances.

Negative operating results or changes in industry conditions could lead to an inability to replace these additional

funding sources at maturity.

Negative operating results or changes in industry conditions could lead to an inability to replace these additional funding sources at maturity.

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

45 unchanged sentences

Generally, for assets that are reported at fair value, we use quoted market prices or valuation models that utilize observable market data inputs to estimate their fair value as of the balance sheet date.

In certain cases, observable market prices and data may not be readily available or their availability may be diminished due to market conditions.

In certain cases, observable market prices and data may not be readily

available or their availability may be diminished due to market conditions.

We use financial models to value certain of these assets.

16 unchanged sentences

Although we have not experienced any material labor shortage to date, we have recently observed an overall tightening and increasingly competitive local labor market.

A sustained labor shortage or increased turnover rates within our employee base and also within our third-party vendors

could lead to increased costs, such as increased compensation expense to attract and retain employees.

A sustained labor shortage or increased turnover rates within our employee base and also within our third-party vendors could lead to increased costs, such as increased compensation expense to attract and retain employees.

In addition, if we are unable to hire and retain employees capable of performing at a high-level, or if mitigation measures we take to respond to a decrease in labor availability have unintended negative effects, our business could be adversely affected.

An overall labor shortage, lack of skilled labor, increased turnover or labor inflation, caused by COVID-19 or as a result of general macroeconomic factors, could have a material adverse impact on our business, results of operations and financial condition.

An overall labor shortage, lack of skilled labor, increased turnover or labor inflation as a result of general macroeconomic factors, could have a material adverse impact on our business, results of operations and financial condition.

The potential for business interruption exists throughout our organization.

19 unchanged sentences

Our future may depend on our ability to analyze technological changes to determine the best course of action for our business, customers and shareholders.

Potential impact of artificial intelligence and quantum computing on our operations and competitiveness.

The rapid development and implementation of advanced technologies, including artificial intelligence ("AI") and quantum computing, present both opportunities and risks to our business.

AI technologies are being increasingly adopted across the financial services industry to enhance operational efficiencies, optimize decision-making, and improve customer experience.

Similarly, quantum computing, though still in early stages, has the potential to revolutionize areas such as data encryption, portfolio optimization, and risk modeling.

However, the pace at which competitors and other financial institutions adopt these technologies may create challenges for our ability to remain competitive.

For instance, if we are unable to effectively implement or keep pace with advancements in AI and quantum computing, we may experience a competitive disadvantage, which could result in decreased market share, reduced profitability, and strained customer relationships.

Furthermore, the integration of these technologies into banking operations may require significant investments in infrastructure, talent acquisition, and cybersecurity measures, which could have a material adverse effect on our financial performance and operations.

In addition to competitive risks, there is also the potential for AI and quantum computing to be misused, including by malicious actors seeking to exploit these technologies for fraudulent activities.

As a result, our systems could be targeted for exploitation by such actors, leading to risks such as unauthorized transactions, identity theft, and other forms of financial fraud.

Similarly, quantum computing, when it matures, could potentially undermine the security of current encryption methods, exposing us and our customers to heightened cybersecurity risks.

While we are actively monitoring and investing in security measures to address these emerging threats, there is no guarantee that we will be able to prevent all potential risks associated with the misuse of these technologies.

As a result, the risks associated with the rapid evolution of AI and quantum computing may have an adverse effect on our ability to compete effectively, as well as expose us to new forms of fraud and cybersecurity threats, which could materially affect our business, financial condition, and results of operations.

We rely heavily on our network security and any system failure or data breach could subject us to increased costs as well as reputational risk.

42 unchanged sentences

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