What changed in this filing

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Item 1A. Risk Factors

2024-03-11 compared with 2023-03-08 · 102 added, 62 removed, 286 unchanged (36% of the section changed)

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Before making an investment decision, you should carefully consider the risks and uncertainties described below together with all of the other information included or incorporated by reference in this report.

Risks Related to the Acquisition of SimplyBank

Our proposed transaction with SimplyBank may create incremental business, regulatory and reputational risks.

As previously disclosed on November 13, 2023, we entered into a merger agreement (the “Merger Agreement”) with SimplyBank., a Tennessee-chartered commercial bank (“SimplyBank”) which sets forth the terms of our proposed transaction (the “Merger”).

The Merger with SimplyBank comes with important risks, including, but not limited to:

the expected timing and likelihood of completion of the Merger, including the timing, receipt, and terms and conditions of any required governmental, regulatory, or stockholder approvals or clearance of the Merger;

the occurrence of any event, change, or other circumstances that could give rise to the termination of the Merger Agreement;

the initiation or outcome of any legal proceedings that may in the future be initiated against the parties and others following the announcement of the Merger;

the risks of expanding the Corporation’s business into new territories;

the inability to consummate the Merger due to the failure to satisfy other conditions to complete the Merger;

the risks that the Merger disrupts our current plans and operations;

the potential effect of the announcement and or consummation of the Merger on relationships, including with associates, competitors, employees, and customers;

the risk that management’s attention is diverted from other matters of the business to focus on the Merger;

the risk that the transaction and/or integration costs are greater than expected;

the risks that personnel, business, operational, regulatory, or other issues arise during the integration of the SimplyBank;

the occurrence of any event, change, or other circumstances that could give rise to the termination of the Merger Agreement;

and other risks described in our filings with the SEC.

We may be unable to retain personnel successfully as a result of the acquisition.

The success of the Merger will depend in part on the Corporation’s ability to retain the talents and dedication of key employees from SimplyBank.

It is possible that these employees may decide not to remain with the Corporation.

If the Corporation is unable to retain key employees, including management, who are critical to the successful integration and future operations of the combined company, the Corporation could face disruptions in its operations, loss of existing customers, loss of key information, expertise or know-how and incur unanticipated recruitment costs.

If key employees terminate their employment, the Corporation’s business activities may be adversely affected and the Corporation will incur costs to locate or retain suitable replacements, or may be unable to locate or retain suitable replacements at all.

We may be unable to retain customers as a result of the acquisition.

The success of the Merger will depend in part on the Corporation’s ability to retain some of its and SimplyBank’s customers.

It is possible that current customers of SimplyBank or the Corporation may decide to move their banking activities as a result of the Merger.

If the Corporation is unable to retain its or SimplyBank’s key customers, loses a large number of customers, or otherwise does not realize all of the anticipated benefits of the Merger, it could have a material adverse effect on the Corporation’s business, financial condition, and result of operations.

Risks Related to Economic and Market Conditions

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The Corporation’s financial performance generally, and in particular the ability of borrowers to pay interest on and repay principal of outstanding loans and the value of collateral securing those loans, as well as demand for loans and other products and services that the Corporation offers, is highly dependent upon the business environment in the markets where the Corporation operates and in the U.S.

An economic downturn or sustained, high unemployment levels, inflation, supply chain disruptions that impact borrowers, recession, currency devaluation, changes in the monetary supply, decreased investor or business confidence, trade wars and the imposition of tariffs on goods purchased or sold by our customers, the effect of a pandemic, epidemic, or outbreak of an infectious disease on our customers, stock market volatility, and other factors beyond our control may have a negative effect on the ability of our borrowers to make timely repayments of their loans (thereby, increasing the risk of loan defaults and losses), the value of collateral securing those loans, demand for loans and other products and services we offer, and our deposit levels and composition.

Given the current economic environment, an economic recession or downturn is a greater risk than in previous years.

An economic recession or a downturn in various markets could have the following adverse effects on our business:

An economic downturn or sustained, high unemployment levels, inflation, supply chain disruptions that impact borrowers, recession, currency devaluation, changes in the monetary supply, changes in fiscal and monetary policy, decreased investor or business confidence, trade wars and the imposition of tariffs on goods purchased or sold by our customers, the effect of a pandemic, epidemic, or outbreak of an infectious disease on our customers, stock market volatility, and other factors beyond our control may have a negative effect on the ability of our borrowers to make timely repayments of their loans (thereby, increasing the risk of loan defaults and losses), the value of collateral securing those loans, demand for loans and other products and services we offer, and our deposit levels and composition.

Worsening conditions in the current economic market could make an economic recession or a downturn more likely in various industries or markets and could have the following adverse effects on our business:

• A decrease in net interest income derived from our lending and deposit gathering activities;

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As a result of these potential economic conditions, our operating results could be negatively impacted.

Unrelated bank failures, other issues of unrelated banks, and decreased depositor confidence in depository institutions could negatively impact our stock price and we may experience a material adverse effect on our financial condition and results of operations.

A collection of bank failures that began in March 2023 materially impacted depositor and investor confidence in community and regional depository institutions.

On March 8, 2023, Silvergate Bank announced its decision to voluntarily liquidate its assets and wind down its operations.

On March 10, 2023, the California Department of Financial Protection and Innovation (the “DFPI”) took possession of Silicon Valley Bank, citing inadequate liquidity and solvency.

On March 12, 2023, Signature Bank was closed by the New York State Department of Financial Services.

On May 1, 2023, the DFPI took possession of First Republic Bank citing that it was conducting its business in an unsafe or unsound manner and being in a condition that is unsafe or unsound to transact banking business.

In each instance the FDIC was appointed as a receiver for the failed institution.

There were a number of reasons for the failure of these institutions including, but not limited to, elevated levels of uninsured deposits, liquidity concerns, and losses in the financial institution’s long-term securities holdings.

These events impacted the confidence of investors and customers in financial institutions as a whole.

It led regulators, investors, and institutions to focus on the on-balance sheet liquidity, customer deposit base, including level of deposits uninsured by the FDIC, the amount of accumulated other comprehensive loss, capital levels, interest rate risk management, and securities holdings of financial institutions.

If any additional financial institutions fail in a similar manner as those financial institutions that failed in 2022, our stock price and deposit base could be negatively impacted.

As a result of these failures, enhanced scrutiny from regulators and potential new legislation may impact our ability to operate.

Depending upon any adopted change in legislation or directives from regulators, we may need to adjust our strategy and operations to comply with such changing laws or regulatory directives and it could materially impact our operating results.

Continued elevated levels of inflation could adversely impact our business and results of operations.

The United States has recently experienced elevated levels of inflation, with the consumer price index reaching approximately 6.5% in December 2022.

In connection with elevated levels of inflation, the Federal Reserve Board raised the Effective Federal Funds Rate seven times in 2022, ultimately targeting an Effective Federal Funds Rate between 4.25% and 4.50% in December, 2022.

Interest rates may continue to rise or otherwise stagnate at heightened levels in 2023 in an effort to account for continued levels of inflation.

Continued levels of inflation could have complex effects on our business and results of operations, some of which could be materially adverse.

While the Federal Reserve has taken steps to combat the heightened levels of inflation that began in 2021, continued levels of inflation and monetary policy adopted by the Federal Reserve to combat such inflation, could have complex effects on our business and results of operations, some of which could be materially adverse.

While we generally expect any inflation-related increases in our interest expense to be offset by increases in our interest revenue, inflation-driven increases in our levels of non-interest expense could negatively impact our results of operations.

Additionally, if interest rates continue to rise, we could see consumer sentiment shift and demand for loans may decrease which would impact our results of operations.

Continued elevated levels of inflation could also increase volatility and uncertainty in the business environment, which could adversely affect loan demand and our clients’ ability to repay indebtedness.

Additionally, if interest rates stay at their current level or continue to rise, we could see consumer sentiment shift and demand for loans may decrease which would impact our results of operations.

The continued effects from elevated levels of inflation recently experienced could also increase volatility and uncertainty in the business environment, which

could adversely affect loan demand and our clients’ ability to repay indebtedness.

It is also possible that governmental policy responses to the current inflation environment could further affect our business, such as changes to monetary and fiscal policy.

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Changes in monetary policy, including changes in interest rates, could influence not only the interest that is received on loans and securities and the interest that is paid on deposits and borrowings, but such changes could also affect the Corporation’s ability to originate loans and obtain deposits and the fair value of the Corporation’s financial assets and liabilities.

If the interest rates paid on deposits and other interest-bearing liabilities increase at a faster rate than the interest rates received on loans and other interest-earning assets, our net interest income, and, therefore, our earnings, could be adversely affected.

If the interest received on loans and other interest-earning assets decreases at a faster rate than the interest rates paid on deposits and other interest-bearing liabilities, our net interest income, and, therefore, our earnings could be adversely affected.

Such an interest rate environment may also result in a decrease in our deposit base, potentially leading to an impact on our liquidity.

While the lower payment amounts we would pay on deposits and other interest-bearing liabilities in a declining rate environment may increase our interest income, some depositors may use cash in other manners in an attempt earn greater returns than those interest rates paid on deposits, which could lead to a decline in our liquidity.

Declining rates also may reduce the demand for new deposits and other interest-bearing liabilities.

Accordingly, changes in interest rates could adversely affect our results of operations and financial condition.

Conversely, if the interest rates paid on deposits and other interest-bearing liabilities increase at a faster rate than the interest rates received on loans and other interest-earning assets, our net interest income, and, therefore, our earnings, could be adversely affected.

Such an interest rate environment may also result in us incurring a higher cost to retain our deposits.

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Competition for qualified personnel in the financial services industry can be intense and we may not be able to hire or retain the key personnel that we depend upon for success.

In addition, we face additional risks of loss of key personnel from our acquisition of SimplyBank, as discussed in the Risk Factor titled “ We may be unable to retain personnel successfully as a result of the acquisition.

” Frequently, we compete in the market for talent with entities that are not subject to comprehensive regulation.

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targets, rumors or threats of war, actual conflicts involving the U.S.

or its allies, or military or trade disruptions, may impact our operations.

In addition, natural disasters, global climate change, pandemics, other catastrophic events, trade policies, domestic civil unrest, protest, and other global or domestic conflicts may impact our operations as well.

or its allies, or military or trade disruptions, may impact our operations as well as the operations of some of our customers.

In addition, natural

disasters, global climate change, pandemics, other catastrophic events, trade policies, domestic civil unrest, protest, and other global or domestic conflicts may impact our operations or the operations of some of our customers as well.

Any of these occurrences could have an adverse impact on our operating results, revenues, and costs and may result in the volatility of the market price for our common stock and on the future price of our common stock.

Our participation in the SBA Paycheck Protection Program (“PPP”) exposes us to credit risk and regulatory enforcement risk, which could have a material adverse impact on our business, financial condition, and results of operations.

The Corporation was a participating lender in the PPP, a loan program administered through the SBA, which was created to help eligible businesses, organizations and self-employed persons fund their operational costs during the COVID-19 pandemic.

Under this program, the SBA guaranteed 100% of the amounts loaned under the PPP The Corporation made total loans under the PPP program in the amount of $275.1 million, of which all has been forgiven by the SBA.

The Corporation may be exposed to credit risk on a PPP loan (even if such loan has been forgiven) if a determination is made by the SBA that there is a deficiency in the manner in which these loans were originated, funded, or serviced.

If a deficiency is identified, 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 Corporation.

Geographic concentration of the Corporation’s markets makes our business highly susceptible to local economic conditions and a downturn in local economic conditions may adversely affect our business.

Unlike larger banking organizations that are more geographically diversified, the Corporation’s operations are currently concentrated in west central Indiana, east central Illinois, western Kentucky, and middle and western Tennessee, and most of our customers are located in these markets.

Additionally, we will expand further into eastern Tennessee and northern Georgia provided we successfully consummate the Merger.

The economic conditions in these local markets may be different from, and in some instances be worse than, the economic conditions in the U.S.

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• a decrease in deposits balances.

Changes to the London Inter-Bank Offered Rate (“LIBOR”) may adversely impact the value of, and the return on, our financial instruments that are indexed to LIBOR.

The Corporation is continuing to evaluate the impacts of the phase out of LIBOR.

Management has determined to initially replace LIBOR as an index for any new adjustable-rate loans with the Secured Overnight Finance Rate (“SOFR”).

However, the transition from LIBOR could create considerable costs and additional risk for us.

Since SOFR is calculated differently, payments under contracts indexed to new rates will differ from those indexed to LIBOR.

The transition will change our market risk profiles, requiring changes to risk and pricing models, valuation tools, product design, and hedging strategies.

Further, our failure to adequately manage this transition process with our customers could impact our reputation and may subject us to disputes or litigation with our customers over the appropriateness or comparability to LIBOR of the substitute indices.

Although we are currently unable to assess what the ultimate impact of the transition from LIBOR will be, any market-wide transition away from LIBOR could have an adverse effect on our business, financial condition and results of operations.

Risks Related to Our Business

A lack of liquidity could affect our operations and jeopardize our financial condition.

The Corporation requires liquidity to meet our deposit and other obligations as they come due.

The Corporation’s access to funding sources in amounts adequate to finance its activities or on terms that are acceptable to it could be impaired by factors that affect it specifically or the financial services industry or the general economy.

Factors that could reduce our access to liquidity sources include a downturn in the markets in which our loans are concentrated or adverse regulatory actions against the Corporation.

The Corporation’s access to deposits may also be affected by the liquidity needs of depositors.

The Corporation may not be able to replace maturing deposits and advances as necessary in the future, especially if a large number of depositors sought to withdraw their deposits, regardless of the reason.

If the Corporation is unable to sufficiently maintain or grow its deposits to meet liquidity objectives, it may be subject to paying higher funding costs to achieve those liquidity objectives.

A failure to maintain adequate liquidity could have a material adverse effect on the Corporation’s business, financial condition, and result of operations.

The bank failures in 2023 as discussed in the Risk Factor titled “ Unrelated bank failures, other issues of unrelated banks, and decreased depositor confidence in depository institutions could negatively impact our stock price and we may experience a material adverse effect on our financial condition and results of operations.

” exemplifies the potential serious results of the unexpected inability of insured depository institutions to obtain needed liquidity to satisfy withdrawal requests, including how quickly such requests can accelerate once uninsured depositors lose confidence in an institution’s ability to satisfy its obligations to depositors.

When we loan money, commit to loan money, or enter into a letter of credit or other contract with a counterparty, we incur credit risk, or the risk of loss if our borrowers do not repay their loans or our counterparties fail to perform according to the terms of their contracts.

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We estimate and establish reserves for credit risks and probable incurred credit losses that are inherent in our loan portfolio.

This process, which is critical to our financial results and condition, requires difficult, subjective, and complex judgments, including reviews of economic conditions and how these economic conditions might impair the ability of our borrowers to repay their loans.

This process, which is critical to our financial results and condition, requires difficult, subjective, and complex judgments, including

reviews of economic conditions and how these economic conditions might impair the ability of our borrowers to repay their loans.

There is the chance that we will fail to identify the proper factors or that we will fail to accurately estimate the impacts of factors that we identify.

In addition, large loans, letters of credit, and contracts with individual counterparties in our portfolio magnify the credit risk that we face, as the impact of large borrowers and counterparties not repaying their loans or performing according to the terms of their contracts has a disproportionately significant impact on our credit losses and reserves.

In addition, large loans, letters of credit, and contracts with individual counterparties in our portfolio magnify the credit risk that we face, as the impact of large borrowers and counterparties not repaying their loans or performing according to the terms of their contracts would have a disproportionately significant impact on our credit losses and reserves.

The Corporation has significant exposure to risks associated with commercial and commercial real estate loans.

As of December 31, 2023, approximately 57.5% of the Corporation’s loan portfolio consisted of commercial and commercial real estate loans.

These loans are generally viewed as having more inherent risk of default than residential mortgage or consumer loans.

The repayment of these loans often depends on the successful operation of a business and could be impacted by a recession or economic downturn.

These loans are more likely to be adversely affected by weak conditions in the economy.

Weak conditions in the local market, the regional economy, the general economy, or industry specific factors may also adversely affect the value of the underlying collateral securing the loan.

Also, the commercial loan balance per borrower is typically larger than that of residential mortgage loans and consumer loans, indicating higher potential losses on an individual loan basis.

The deterioration of one or a few of these loans could cause a significant increase in nonperforming loans and a reduction in interest income.

An increase in nonperforming loans could result in an increase in the provision for loan losses and an increase in loan charge-offs, both of which could have a material adverse effect on the Corporation’s business, financial condition, and results of operations.

The information that we use in managing our credit risk may be inaccurate or incomplete, which may result in an increased risk of default and otherwise have an adverse effect on our business, results of operations, and financial condition.

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Failure to perform in any of these areas could significantly weaken the Corporation's competitive position, which could adversely affect the Corporation's growth and profitability, which, in turn, could have a material adverse effect on the Corporation's financial condition and results of operations.

The Corporation has significant exposure to risks associated with commercial and commercial real estate loans.

As of December 31, 2022, approximately 58.8% of the Corporation’s loan portfolio consisted of commercial and commercial real estate loans.

These loans are generally viewed as having more inherent risk of default than residential mortgage or consumer loans.

The repayment of these loans often depends on the successful operation of a business and could be impacted by a recession or economic downturn.

These loans are more likely to be adversely affected by weak conditions in the economy.

Also, the commercial loan balance per borrower is typically larger than that of residential mortgage loans and consumer loans, indicating higher potential losses on an individual loan basis.

The deterioration of one or a few of these loans could cause a significant increase in nonperforming loans and a reduction in interest income.

An increase in nonperforming loans could result in an increase in the provision for loan

losses and an increase in loan charge-offs, both of which could have a material adverse effect on the Corporation’s business, financial condition, and results of operations.

The Corporation’s accounting estimates and risk management processes rely on analytical and forecasting models, which, if inadequate, may result in a material adverse effect on our business, financial condition, or results of operation.

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Any failure in the Corporation’s analytical or forecasting models could have a material adverse effect on the Corporation’s business, financial condition, and results of operations.

The Financial Accounts Standards Board adopted a new accounting standard, effective January 1, 2020, that represents a comprehensive change in estimating the allowance for credit losses from the previous “incurred loss” model of losses inherent in the loan portfolio to a current “expected loss” model (“CECL”), which encompasses losses expected to be incurred over the life of the portfolio.

CECL 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 Corporation implemented the CECL for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

This change in methodology may require us to increase our allowance for loan losses.

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 business, financial condition, and results of operations.

We are a community bank and our ability to maintain our reputation is critical to the success of our business.

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The financial services industry has experienced an increase in both the number and severity of reported cyber-attacks aimed at gaining unauthorized access to bank systems as a way to misappropriate assets and sensitive information, corrupt and destroy data, or cause operational or business services disruptions.

Any security breach could result in the misappropriation, loss, or unauthorized disclosure of sensitive customer information, severely damage our reputation, expose us to the risk of litigation and liability, disrupt our operations, and have a material adverse effect on our business.

Any security breach

could result in the misappropriation, loss, or unauthorized disclosure of sensitive customer information, severely damage our reputation, expose us to the risk of litigation and liability, disrupt our operations, and have a material adverse effect on our business.

We also rely on the integrity and security of a variety of third-party processors and payment, clearing, and settlement systems, as well as the various participants involved in these systems, many of which have no direct relationship with us.

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

The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs.

The Corporation’s future success depends, in part, upon its ability to address customer needs by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in the Corporation’s operations.

The Corporation may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to its customers.

The effective use of technology can increase efficiency and enable financial institutions to better serve customers and to reduce costs.

The Corporation’s future success depends, in part, upon its ability to address customer needs by using

technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in the Corporation’s operations.

The Corporation may not be able to effectively implement new technology-driven products and services, be successful in marketing these products and services to its customers, or incur significant costs in implementing new technology-driven products and services.

Further, many of our competitors have substantially greater resources to invest in technological improvements.

Failure to successfully keep pace with technological change affecting the financial services industry could negatively affect the Corporation’s growth, revenue, and profit.

A lack of liquidity could affect our operations and jeopardize our financial condition.

The Corporation requires liquidity to meet our deposit and other obligations as they come due.

Factors that could reduce its access to liquidity sources include a downturn in the markets in which our loans are concentrated or adverse regulatory actions against the Corporation.

The Corporation’s access to deposits may also be affected by the liquidity needs of depositors.

The Corporation may not be able to replace maturing deposits and advances as necessary in the future, especially if a large number of depositors sought to withdraw their deposits,

regardless of the reason.

A failure to maintain adequate liquidity could have a material adverse effect on the Corporation’s business, financial condition, and result of operations.

The Corporation’s controls and procedures may fail or be circumvented, and the Corporation’s methods of reducing risk exposure may not be effective.

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Environmental reviews of real property before initiating foreclosure actions may not be sufficient to detect all potential environmental hazards.

The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on the Corporation’s business, financial condition, and results of operations.

The remediation costs and any other financial liabilities

associated with an environmental hazard could have a material adverse effect on the Corporation’s business, financial condition, and results of operations.

The Corporation may become subject to claims and litigation pertaining to intellectual property.

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In addition, patent holding companies seek to monetize patents they have purchased or otherwise obtained.

Competitors of the Corporation’s vendors, or other individuals or companies, may claim to hold intellectual property sold or licensed to the Corporation by its vendors.

Competitors of the Corporation’s vendors, or other individuals or companies, may claim to hold intellectual property rights in technology products or services sold or licensed to the Corporation by its vendors.

Intellectual property claims may increase in the future as the financial services sector becomes more reliant on information technology vendors.

The plaintiffs in these actions frequently seek injunctions and substantial damages.

Regardless of the scope or validity of alleged patents or other intellectual property rights, or the merits of any claims by potential or actual litigants, the Corporation may have to engage in protracted litigation, which may be expensive, time-consuming, disruptive to the Corporation’s operations, and distracting to management.

If the Corporation is found to infringe upon one or more patents or other intellectual property rights, it may be required to pay substantial damages or royalties to a third-party.

Regardless of the scope or validity of alleged patents or other intellectual property rights, or the merits of any claims by potential or actual litigants, the Corporation may have to engage in protracted litigation, which may be expensive, time-consuming, and disruptive to the Corporation’s operations, and distracting to management.

If the Corporation is found to infringe upon one or more patents or other intellectual property rights, it may be required to pay substantial damages or royalties to a third-party and/or incur costs to replace or find an alternative for such technology products or services.

The Corporation may also consider entering into licensing agreements for disputed intellectual property, however, these license agreements may also significantly increase the Corporation’s operating expenses.

If legal matters related to intellectual property claims were resolved against the Corporation or settled, the Corporation could be required to make payments in amounts that could have a material adverse effect on its business, financial condition, and results of operations.

If legal matters related to intellectual property claims were resolved against the Corporation or settled, the Corporation could be required to make payments and/or incur costs in amounts that could have a material adverse effect on its business, financial condition, and results of operations.

Changes in consumer use of banks and changes in consumer spending and savings habits could adversely affect the Corporation’s financial results.

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This regulatory framework affects our lending practices, capital structure, investment practices, and growth, among other things.

If, as a result of an examination, a banking regulatory were to determine that our financial condition, capital resources, asset quality, earnings prospects, management, liquidity, or other aspects of any of our operations had become unsatisfactory, or that we were in violation of any law or regulation, they may take a number of different remedial actions as they deem appropriate.

These actions

include the power to enjoin “unsafe or unsound” practices, to require affirmative action to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in our capital, to restrict our growth, to assess civil money penalties, to fine or remove officers and directors, and, if it is concluded that these conditions cannot be corrected or there is an imminent risk of loss to depositors, to terminate our deposit insurance and place us into receivership or conservatorship.

If, as a result of an examination, a banking regulator were to determine that our financial condition, capital resources, asset quality, earnings prospects, management, liquidity, or other aspects of any of our operations had become unsatisfactory, or that we were in violation of any law or regulation, they may take a number of different remedial actions as they deem appropriate.

These actions include the power to enjoin “unsafe or unsound” practices, to require affirmative action to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in our capital, to restrict our growth, to assess civil money penalties, to fine or remove officers and directors, and, if it is concluded that these conditions cannot be corrected or there is an imminent risk of loss to depositors, to terminate our deposit insurance and place us into receivership or conservatorship.

Any regulatory action against us or failure to comply with applicable laws and regulations could have an adverse effect on our reputation, business, financial condition, and results of operations.

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In particular, the Dodd-Frank Act drastically revised the laws and regulations under which we operate.

Financial institutions generally have also been subjected to increased scrutiny from regulatory authorities.

Financial institutions generally have also been subjected to increased scrutiny from regulatory authorities which has been further exacerbated by the depository institution failures that occurred in 2023.

These changes and increased scrutiny may result in increased costs of doing business, decreased revenues and net income, may reduce our ability to effectively compete to attract and retain customers, or make it less attractive for us to continue providing certain products and services.

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We could also incur increased costs and expenses to improve our anti-money laundering procedures and systems to comply with any regulatory requirements or actions.

Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have serious reputational consequences for us.

Failure to maintain and implement adequate programs to combat money laundering and terrorist

financing could also have serious reputational consequences for us.

Any of these results could have a material adverse effect on our business, financial condition, results of operations, and future prospects.

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Future capital needs could result in dilution of shareholder investment.

Our board of directors may determine from time to time there is a need to or, if our or the Bank’s regulatory capital ratios fall below the required minimums, we could be forced to raise additional capital through the issuance of additional shares of stock or other securities, including debt securities and senior or subordinated notes.

The Corporation’s Board of Directors may determine from time to time there is a need to or, if our or the Bank’s regulatory capital ratios fall below the required minimums, we could be forced to raise additional capital through the issuance of additional shares of

stock or other securities, including debt securities and senior or subordinated notes.

We are currently authorized to issue up to 40 million shares of common stock, of which 11,795,024 shares were outstanding as of December 31, 2023, and up to 10 million shares of preferred stock, of which no shares are outstanding.

Subject to certain limitations, our board of directors generally has authority, without action or vote of our shareholders, to issue all or part of the remaining authorized but unissued shares and to establish the rights, preferences, and

privileges of any class or series of preferred stock.

These equity and/or debt issuances could dilute the ownership interest of our shareholders and may dilute the per share book value of our common stock.

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As a result, if you acquire the Corporation’s common stock, you could lose some or all of your investment.

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