What changed in this filing

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Item 7. Management’s Discussion and Analysis

2026-02-27 compared with 2025-02-28 · 89 added, 122 removed, 570 unchanged (27% of the section changed)

11 unchanged sentences

It is a member of the Federal Reserve, and is regulated by the OCC.

Including its headquarters in Manitowoc, Wisconsin, the Bank has 26 banking locations in Brown, Columbia, Dane, Fond du Lac, Jefferson, Manitowoc, Monroe, Outagamie, Ozaukee, Shawano, Sheboygan, Waupaca, Waushara, and Winnebago counties in Wisconsin.

Including its headquarters in Manitowoc, Wisconsin, the Bank has 38 banking locations in Brown, Columbia, Dane, Door, Fond du Lac, Green, Jefferson, Manitowoc, Monroe, Outagamie, Ozaukee, Rock, Shawano, Sheboygan, Walworth, Waupaca, Waushara, and Winnebago counties in Wisconsin and Winnebago county in Illinois.

The Bank offers loan, deposit and treasury management products at each of its banking locations.

14 unchanged sentences

Recent acquisitions

Hometown Bancorp, Ltd.

On February 10, 2023, the Company completed a merger with Hometown Bancorp, Ltd.

("Hometown"), a bank holding company headquartered in Fond du Lac, Wisconsin, pursuant to the merger agreement, dated as of July 25, 2022, by and between the Company and Hometown, whereby Hometown merged with and into the Company, and Hometown Bank, Hometown's wholly-owned banking subsidiary, merged with and into the Bank.

Hometown's principal activity was the ownership and operation of Hometown Bank, a state-chartered banking institution that operated ten (10) branches in Wisconsin at the time of closing.

Centre 1 Bancorp, Inc.

On January 1, 2026, the Company completed a merger with Centre, a bank holding company headquartered in Beloit, Wisconsin, pursuant to the merger agreement, dated as of July 17, 2025, by and between the Company and Centre, whereby Centre merged with and into the Company, and First National Bank and Trust, Centre's wholly-owned banking subsidiary, merged with and into the Bank.

The acquisition expanded the Company’s presence in Wisconsin and Illinois and added trust and wealth management capabilities.

Centre's principal activity was the ownership and operation of First National Bank and Trust, a federal-chartered banking institution that operated seventeen (17) branches in Wisconsin and Illinois at the time of closing.

The merger consideration totaled approximately $168.8 million.

Pursuant to the terms of the merger agreement, Hometown shareholders could elect to receive either 0.3962 of a share of the Company’s common stock or $29.16 in cash for each outstanding share of Hometown common stock, subject to a maximum of 30% cash consideration in total, with cash paid in lieu of any remaining fractional share.

Pursuant to the Merger Agreement, Centre shareholders were entitled to receive, for each share of Centre common stock that was outstanding immediately prior to the Merger, 0.9200 of a share of the Company’s common stock and cash in lieu of fractional shares.

Company stock issued totaled 1,382,940 shares valued at approximately $168.5 million, with cash of $0.3 million comprising the remainder of merger consideration.

Full integration and system conversion activities are expected to be completed in the second quarter of 2026.

Company continues to manage integration activities with a focus on operational continuity, client retention, risk

management, and capital and liquidity discipline.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

1 unchanged sentence

To prepare financial statements in conformity with GAAP, management makes estimates, assumptions and judgments based on available information.

These estimates, assumptions and judgments are based on information available as of the date of the financial statements and, as this information changes, actual results could differ from the estimates, assumptions and judgments reflected in the financial statement.

Changes in these estimates or assumptions could have a material effect on the Company’s financial condition or results of operations.

In particular, management has identified several accounting policies that, due to the estimates, assumptions and judgments inherent in those policies, are critical in understanding our financial statements.

6 unchanged sentences

Results of operations of the acquired business are included in the statement of income from the effective date of the acquisition.

Accordingly, estimates related to recent acquisitions may be adjusted during the measurement period as additional information becomes available.

The primary identifiable intangible asset we typically record in connection with a whole bank or branch acquisition is the value of the core deposit intangible which represents the estimated value of the long-term deposit relationships acquired in the transaction.

4 unchanged sentences

including consideration of a credit component.

A number of factors are considered in determining the estimated fair value of purchased loans including, among other things, the remaining life of the acquired loans, estimated prepayments, estimated loss ratios, estimated value of the underlying collateral, estimated holding periods, contractual interest rates compared to market interest rates, and net present value of cash flows expected to be received.

A number of factors are considered in determining the

estimated fair value of purchased loans including, among other things, the remaining life of the acquired loans, estimated prepayments, estimated loss ratios, estimated value of the underlying collateral, estimated holding periods, contractual interest rates compared to market interest rates, and net present value of cash flows expected to be received.

Allowance for Credit Losses — Loans.

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Refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K filed with the SEC on February 28, 2025 for a discussion and analysis of the more significant factors that affected periods prior to 2024.

Net income decreased $8.9 million, or 12.0%, to $65.6 million for the year ended December 31, 2024, from $74.5 million for the year ended December 31, 2023.

During 2023, the Company sold 100% of its member interest in UFS, LLC, creating a pre-tax gain on sale of $38.9 million.

There was no corresponding similar event during 2024.

Offsetting this year-over-year decline in earnings, net interest income increased by $4.3 million, provision for credit losses declined by $5.5 million, and noninterest expenses declined by $9.4 million from 2023 to 2024.

Net income increased $5.9 million, or 9.0%, to $71.5 million for the year ended December 31, 2025, from $65.6 million for the year ended December 31, 2024.

Net interest income increased by $13.9 million and noninterest income increased by $2.5 million from 2024 to 2025.

These increases were offset by an increase in the provision for credit losses of $2.1 million and an increase in noninterest expenses of $5.7 million year-over-year.

Net Interest Income.

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Our net interest margin can also be adversely impacted by the reversal of interest on nonaccrual loans and the reinvestment of loan payoffs into lower yielding investment securities and other short-term investments.

Net interest income increased by $4.3 million to $137.8 million for the year ended December 31, 2024, from $133.5 million for the year ended December 31, 2023.

Net interest income increased to $151.7 million for the year ended December 31, 2025, from $137.8 million for the year ended December 31, 2024.

Total average interest-earning assets increased to $4.02 billion for the year ended December 31, 2025 from $3.81 billion for the year ended December 31, 2024.

The Bank’s net interest margin decreased four basis points to 3.65% for the year ended December 31, 2024, down from 3.69% for the year ended December 31, 2023.

The Bank’s net interest margin increased seventeen basis points to 3.82% for the year ended December 31, 2025, up from 3.65% for the year ended December 31, 2024.

Interest Income.

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Interest Expense.

Interest expense increased $19.6 million, or 40.0%, to $68.6 million for the year ended December 31, 2024, up from $49.0 million for the year ended December 31, 2023.

This increase was driven by a combination of increases in the average rates paid on interest-bearing liabilities, rising from 2.04% during 2023 to 2.69% during 2024, and a $152.1 million increase in average interest-bearing liabilities.

Interest expense on interest-bearing deposits increased by $21.8 million to $64.2 million for the year ended December 31, 2024, from $42.4 million for the year ended December 31, 2023.

This increase was due to a higher interest rate environment driving an increase in average rates paid on interest-bearing deposits, rising from 1.84% during 2023 to 2.61% during 2024, and growth of $151.2 million year-over-year in average interest-bearing deposits.

While the Bank continued to see average rates paid on interest-bearing deposits rise through the first three quarters of 2024, they declined during the fourth quarter.

Total interest expense increased $1.5 million, or 2.1%, to $70.1 million for the year ended December 31, 2025, up from $68.6 million for the year ended December 31, 2024.

This increase was driven by a $205.2 million increase in average interest-bearing liabilities which offset a decrease in the average rates paid on interest-bearing liabilities from 2.69% during 2024 to 2.54% during 2025.

Interest expense on interest-bearing deposits decreased by $0.5 million to $63.7 million for the year ended December 31, 2025, from $64.2 million for the year ended December 31, 2024.

This decrease was due to a lower interest rate environment driving a decrease in average rates paid on interest-bearing deposits from 2.61% during 2024 to 2.43% during 2025.

This decline in average rates paid more than offset growth of $163.2 million year-over-year in average interest-bearing deposits.

Provision for Credit Losses.

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When reductions in the allowance for credit losses are deemed appropriate, a negative provision for credit losses may be necessary.

We recorded a negative provision for credit losses of $0.8 million for the year ended December 31, 2024, compared to a positive provision of $4.7 million for the year ended December 31, 2023.

We recorded a provision for credit losses of $1.3 million for the year ended December 31, 2025, compared to a negative provision of $0.8 million for the year ended December 31, 2024.

Metrics regarding the credit quality of the Bank’s loan portfolio continued to show very little in terms of credit stress during 2025 .

The negative provision for credit losses during 2024 related to improvement in financial trends related to two relationships that were part of the Hometown acquisition, which allowed for a reduction in specific reserves related to them.

The elevated positive provision for credit losses during 2023 was primarily result of ASU 2016-13, which was adopted at the beginning of 2023.

Under ASU 2016-13 a provision for credit losses totaling $5.5 million was recorded related to loans acquired from Hometown.

The positive provision for credit losses during 2025 related to the growth of the loan portfolio.

The negative provision for credit losses during 2024 related to improvement in financial trends related to two relationships that were part of a previous institution acquisition, which allowed for a reduction in specific reserves related to them.

The ACL-Loans was $44.4 million, or 1.23% of total loans, at December 31, 2025 compared to $44.2 million, or 1.26% of total loans, at December 31, 2024.

1 unchanged sentence

Noninterest income is an important component of our total revenues.

A significant portion of our noninterest income has historically been associated with service charges and income from the Bank’s unconsolidated subsidiaries, Ansay and UFS.

A significant portion of our noninterest income has historically been associated with service charges and income from the Bank’s unconsolidated subsidiary, Ansay.

Other typical sources of noninterest income include loan servicing fees and gains on sales of mortgage loans.

Noninterest income decreased by $38.4 million, or 66.1% to $19.7 million for 2024, down from $58.1 million during 2023.

The primary driver of this decline was the aforementioned $38.9 million pre-tax gain on sale of UFS during 2023, while there was no corresponding similar event in 2024.

Service charge income increased by $1.0 million for 2024 compared to 2023, which was the result of increased operating scale for the Company as well as renegotiated contractual agreements related to credit and debit card payment processing.

Income from Ansay increased by $0.6 million for the full year of 2024 compared to 2023.

Net gains on sale of mortgage loans increased $0.4 million year-over-year due to a rise in secondary market loan origination activity resulting from lower prevailing mortgage interest rates during periods of 2024.

This increase in mortgage origination activity negatively impacted the valuation of the Company’s mortgage servicing rights (“MSR”) during 2024, leading to $0.3 million in negative valuation adjustments compared to positive adjustments totaling $0.4 million during 2023.

Other noninterest income is comprised of many nonmaterial items, several of which increased from 2023 to 2024, though none of these increases were individually significant.

Noninterest income increased by $2.5 million, or 12.9% to $22.2 million for 2025, up from $19.7 million during 2024.

Service charge income increased by $0.4 million for 2025 compared to 2024, the result of normal inflationary impacts on a slightly larger customer base.

Income from Ansay increased by $0.4 million, or 11.8%, for the full year of 2025 compared to 2024 as recent acquisitions by Ansay have enhanced its profitability.

Net gains on sale of mortgage loans increased $0.5 million year-over-year due to a rise in secondary market loan origination activity resulting from lower prevailing mortgage interest rates during 2025.

The valuation of the Company’s mortgage servicing rights (“MSR”) is impacted by many factors and can be volatile year-to-year, but the overall valuation adjustments were not material to 2025 or 2024.

Proceeds on Company owned life insurance policies, which increased from $0.5 million in 2024 to $1.1 million in 2025, drove the increase in other noninterest income.

The major components of our noninterest income are listed in the table below:

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Income from Ansay

Income from UFS

Loan servicing income

1 unchanged sentence

Net gain on sales of mortgage loans

Gain on sale of UFS

Total noninterest income

Noninterest Expense.

Noninterest expense decreased $9.3 million to $78.8 million for the year ended December 31, 2024, down from $88.1 million for the year ended December 31, 2023.

During 2023 the Company sold a significant number of available for sale securities, resulting a $7.9 million pre-tax loss, compared to negligible losses on sales of securities during 2024.

The securities sold during 2023 had an average yield of 1.36%.

Proceeds of these sales were reinvested in a combination of short and long-term investments with an average yield of 4.98%.

Personnel expense increased $0.5 million, or 1.4%, due to customary pay raises year-over-year, offset by certain efficiencies realized from further integration of recent acquisitions made by the Company.

Data processing expense increased by $1.7 million during 2024 compared to 2023 due to project-related costs for upgrading the Bank’s digital banking platform and the increased scale from recent acquisitions.

Expenses related to the Hometown acquisition totaled $1.6 million during 2023.

The lack of a similar acquisition during 2024 caused decreases in the areas of postage, stationary, supplies and advertising expense year-over-year.

Finally, gains on sales and valuations of OREO totaling $0.7 million during 2024 compared favorably to losses of $2.1 million during 2023.

Noninterest expense increased $5.7 million to $84.5 million for the year ended December 31, 2025, up from $78.8 million for the year ended December 31, 2024.

Personnel expense increased $1.6 million, or 3.8%, due to customary pay raises year-over-year.

Occupancy expense increased $1.9 million, or 31.8%, due to construction of one new branch location in Sturgeon Bay, Wisconsin as well as the razing and rebuilding of a branch location in Denmark, Wisconsin.

The razing of the former branch in Denmark led to a loss of $0.9 million which is included in occupancy expense.

Data processing expense increased by $0.6 million during 2025 compared to 2024.

Expenses related to the Centre acquisition totaled $1.5 million during 2025.

The lack of a similar acquisition during 2024 caused increases in the areas of outside service fees and other noninterest expense.

Amortization of intangibles decreased by $0.8 million year-over-year, the result of using the sum-of-the-years-digits method of amortization on core deposit intangibles which takes more expense in years immediately following the acquisition which created them.

6 unchanged sentences

Postage, stationary, and supplies

Net loss (gain) on sales and valuations of other real estate owned

Net gain on sales and valuations of other real estate owned

Net loss on sales of securities

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The Company’s home state passed tax legislation during the third quarter of 2023 which exempted income produced by a significant portion of the Company’s loans from taxation in Wisconsin.

As a result of the lower anticipated future effective tax rate, the Company determined that a $2.9 million allowance was required to be made against its deferred tax asset, creating a one-time increase in tax expense for 2023.

Final rules relating to qualifying loans under this legislation were not published until the first quarter of 2024.

Based on these final rules, the Company was able to further reduce its estimated tax liability from 2023 by $1.3 million, resulting in the lower provision for income taxes and effective tax rate during 2024.

Final rules relating to qualifying loans under this legislation were published during the first quarter of 2024 and allowed the Company to reduce its estimated tax liability by $1.3 million, resulting in the lower provision for income taxes and effective tax rate during 2024.

The effective tax rates were reduced from the statutory federal and state income tax rates during both periods as a result of tax-exempt interest income produced by certain qualifying loans and investments in the Bank’s portfolios.

New federal tax legislation was signed into law on July 4, 2025, which includes a broad range of tax reform provisions, and

extends or makes permanent various tax provisions that were originally enacted in the 2017 Tax Cuts and Jobs Act.

NET INTEREST MARGIN

2 unchanged sentences

Net interest margin is the amount of net interest income, on a fully taxable-equivalent basis, expressed as a percentage of average interest-earning assets.

The average rate earned on earning assets is the amount of annualized taxable equivalent interest income

expressed as a percentage of average earning assets.

The average rate earned on earning assets is the amount of annualized taxable equivalent interest income expressed as a percentage of average earning assets.

The average rate paid on interest-bearing liabilities is equal to annualized interest expense as a percentage of average interest-bearing liabilities.

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Total assets increased $11.0 million, or 0.3%, to $4.51 billion at December 31, 2025 from $4.50 billion at December 31, 2024.

A significant increase in customer deposits during the fourth quarter of 2024, funding cash, investment, and loan growth was the primary cause of this year-over-year increase.

An increase in the Company’s loan portfolio was offset by a decrease in its investment portfolio, leading to little growth in total assets year-over-year.

Cash and Cash Equivalents.

Cash and cash equivalents increased by $13.8 million, or 5.6%, to $261.3 million at December 31, 2024 from $247.5 million at December 31, 2023.

Cash and cash equivalents decreased by $18.1 million, or 6.9%, to $243.2 million at December 31, 2025 from $261.3 million at December 31, 2024.

Investment Securities.

The carrying value of total investment securities increased by $88.3 million to $333.8 million at December 31, 2024 from $245.5 million at December 31, 2023.

A significant portion of the deposit increase during the fourth quarter of 2024 required collateralization by investments in the Company’s portfolio.

As a result of this heightened need for collateral, the Company invested $100.0 million into a 30-day US Treasury note during December 2024 which matured at the end of January 2025.

The carrying value of total investment securities decreased by $65.7 million to $268.1 million at December 31, 2025 from $333.8 million at December 31, 2024.

Proceeds from maturing investments were utilized to fund the Company’s growing loan portfolio during 2025.

Net loans increased by $87.3 million, or 2.5%, to $3.56 billion at December 31, 2025 from $3.47 billion at December 31, 2024.

This increase was due to the addition of new customer relationships as well as inflationary impacts on the loan requirements of existing customers.

Bank-Owned Life Insurance.

At December 31, 2024, our investment in bank-owned life insurance was $61.5 million, an increase of $0.2 million from $61.3 million at December 31, 2023.

Strong growth in the Company’s commercial and industrial loan portfolio during 2025 was offset by a concerted effort to reduce commercial and residential real estate loans as a percentage of overall balances.

Company-Owned Life Insurance.

At December 31, 2025, our investment in company-owned life insurance was $61.1 million, a decrease of $0.4 million from $61.5 million at December 31, 2024.

Deposits increased $34.7 million, or 1.0%, to $3.70 billion at December 31, 2025 from $3.66 billion at December 31, 2024.

As previously mentioned, much of the growth during 2024 resulted during the fourth quarter and is anticipated to be seasonal.

Elevated seasonal deposit balances at the end of 2024 led to a high beginning portfolio balance to start 2025.

While the seasonal component of deposits was lower at the end of 2025, growth in the core deposit portfolio allowed for some growth year-over-year.

At December 31, 2025, borrowings consisted of advances from the FHLB of Chicago and subordinated debt to other banks and individuals.

FHLB borrowings increased to $135.4 million at December 31, 2024 from $35.3 million at December 31, 2023.

These additional borrowings were intended to provide liquidity to support near-term loan growth.

FHLB borrowings decreased by $25.4 million to $110.0 million at December 31, 2025 from $135.4 million at December 31, 2024, as maturing FHLB borrowings were not reissued.

Subordinated debt remained stable at $12.0 million at December 31, 2025 and December 31, 2024.

A junior subordinated debenture totaling $4.1 million, which was part of the acquisition of Hometown, was repaid in full during the first quarter of 2024.

Stockholders’ Equity.

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Total loans increased $87.5 million, or 2.5%, to $3.60 billion as of December 31, 2025 as compared to $3.52 billion as of December 31, 2024.

This loan growth was comprised of an increase of $12.5 million, or 2.6%, in commercial and industrial loans, an increase of $55.0 million, or 3.2%, in commercial real estate loans, an increase of $77.1 million, or 38.4%, in construction and development loans, an increase of $24.5 million, or 2.8%, in residential 1-4 family loans and an increase of $5.1 million, or 7.7%, in consumer and other loans.

This loan growth was comprised of an increase of $56.9 million, or 9.6%, in commercial and industrial loans, an increase of $93.2 million, or 5.5%, in commercial real estate loans, a decrease of $62.5 million, or 22.5%, in construction and development loans (much of which moved into commercial real estate loans), a decrease of $0.9 million, or 0.1%, in residential 1-4 family loans and an increase of $0.8 million, or 1.1%, in consumer and other loans.

The following table presents the balance and associated percentage of each major category in our loan portfolio at December 31, 2025, 2024, and 2023:

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Residential 1-4 family

Our directors and officers and their affiliates are customers of, and have other transactions with, the Bank in the normal course of business.

All loans and commitments included in such transactions were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons and do not involve more than normal risk of collection or present other unfavorable features.

At December 31, 2024 and December 31, 2023, total loans outstanding to such directors and officers and their affiliates were $62.9 million and $63.9 million, respectively.

During the year ended December 31, 2024, the Bank had $19.0 million in net increases due to changes in the composition of directors and officers, $56.3 million of additional loan advances, and $76.4 million in repayments of these loans, compared to $24.5 million of additional loan advances and $30.8 million in repayments of these loans during the year ended December 31, 2023.

At December 31, 2024 and December 31, 2023, all of the loans to directors and officers were performing according to their original terms.

Loan segments

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C&I loans increased 9.6% during 2025 due to the increased business needs of customers in our markets in response to strong economic conditions.

C&I loans decreased 0.9% during 2023 as a result of exiting a few nonperforming borrowers and borrowers from acquired institutions that did not fit the Bank ’ s lending philosophy.

Commercial Real Estate (CRE).

Our CRE loan portfolio totaled $1.78 billion and $1.68 billion at December 31, 2025 and 2024, respectively, and represented 49% and 48% of our total loans, respectively.

Our CRE loans increased 3.2% during 2024, due to organic growth within our markets.

Owner occupied CRE loans increased by 8.3% while non-owner occupied CRE loans declined by 2.7% as a result of management ’ s desire to reduce exposure to non-owner occupied CRE loans from acquired institutions where the bank did not have full relationships with the borrowers.

Our CRE loans increased 21.5% during 2023, primarily as a result of loans acquired from Hometown during 2023.

Our CRE loans increased 5.5% during 2025, with a majority of this growth occurring in the multi-family segment.

The growth in multi-family loans during 2025 primarily came through balances that were in construction and development loans at December 31, 2024.

Outside of this migration CRE loans saw little growth during 2025 as a result of the aforementioned concerted effort by management to reduce CRE as a percentage of the Company ’ s overall loan portfolio.

Management continues to monitor portfolio concentrations and credit quality metrics to maintain alignment with the Company ’ s risk appetite.

Construction and Development (C&D).

Our C&D loan portfolio totaled $215.5 million and $278.0 million at December 31, 2025 and 2024, respectively, and represented 6% and 8% of our total loans, respectively.

C&D loans increased 38.4% during 2024, as a result of a few large multi-family related projects for existing customers with experience in this industry.

C&D loans increased 0.6% during 2023, as a result of management making a strategic decision to limit growth in this area.

C&D loans decreased 22.5% during 2025 as construction in progress as of December 31, 2024, completed the construction phase and migrated to CRE balances, primarily multi-family.

Residential 1-4 Family.

Our residential 1-4 family loan portfolio totaled $913.2 million and $888.6 million at December 31, 2024 and 2023, respectively, and represented 26% and 27% of our total loans, respectively.

Residential 1-4 family loans increased 2.8% during 2024, driven by natural growth in our markets.

Residential 1-4 family loans increased 20.2% during 2023, primarily as a result of loans acquired from Hometown during 2023.

Our residential 1-4 family loan portfolio totaled $895.0 million and $895.9 million at December 31, 2025 and 2024, respectively, and represented 25% of our total loans at both of these dates.

We do not offer reverse mortgages nor do we offer loans that provide for negative amortization of principal, such as “ Option ARM ” loans, where the borrower can pay less than the interest owed on his loan, resulting in an increased principal balance during the life of the loan.

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Consumer Loans.

Our consumer loan portfolio totaled $55.4 million and $51.0 million at December 31, 2024 and 2023, respectively, and represented 2% and 1% of our total loans, respectively.

Our consumer loan portfolio totaled $54.8 million and $55.4 million at December 31, 2025 and 2024, respectively, and represented 2% of our total loans at both dates.

Consumer loans include secured and unsecured loans, lines of credit and personal installment loans.

Our consumer loans increased by 8.7% and 13.3% during 2024 and 2023, respectively.

Our other loans totaled $16.9 million and $15.6 million at December 31, 2025 and 2024, respectively, and are immaterial to the overall loan portfolio.

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ACL - Loans to total loans

(1) Amounts prior to January 1, 2023 represent accruing troubled debt restructured loans.

At December 31, 2024, 2023 and 2022, loans individually evaluated had specific reserves of $2.4 million, $4.2 million and a negligible amount, respectively.

At December 31, 2025, 2024 and 2023, loans individually evaluated had specific reserves of $2.2 million, $2.4 million and $4.2 million, respectively.

Levels of specific reserves are dependent on the specific underlying impaired loans at any given time.

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Loans are typically placed on nonaccrual status when any payment of principal and/or interest is 90 days or more past due, unless the collateral is sufficient to cover both principal and interest and the loan is in the process of collection.

Loans are also placed on nonaccrual status when management believes, after considering economic and business conditions, that the principal or interest will not be collectible in the normal course of business.

Loans are also placed on nonaccrual status when management believes, after considering economic and business conditions, that

the principal or interest will not be collectible in the normal course of business.

We monitor closely the performance of our loan portfolio.

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At December 31, 2025, the ACL - Loans was $44.4 million (representing 1.23% of year-end loans).

Bank First recorded a negative provision for credit losses totaling $0.8 million during 2024.

While the Bank’s overall credit quality has remained consistently strong over all these periods, improvement in financial trends related to two relationships that were part of the Hometown acquisition allowed for a reduction in specific reserves related to them, causing the decrease in overall required allowance for credit losses related to the loan portfolio.

The Company adopted CECL as of January 1, 2023, which increased the ACL - Loans by $11.0 million.

In addition, the ACL - Loans increased during 2023 due to the acquisition of Hometown, which required a $3.6 million provision for credit losses on non-Purchase Credit Deteriorated (“PCD”) loans and a $5.5 million reserve related to PCD loans.

The reserve related to PCD loans was recorded as an adjustment to the acquisition date fair values on these loans and was not included in the provision for credit losses.

The Bank has recorded net loan recoveries over each of the last three years.

Bank First recorded a provision for credit losses totaling $1.3 million during 2025.

While the Bank’s overall credit quality has remained consistently strong, the provision for credit losses was necessary due to growth in the loan portfolio.

The following table summarizes the changes in our ACL - Loans for the years indicated:

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Residential 1-4 family

Total net loans recovered

Total net loans charged-off (recovered)

Provision charged to operating expense

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The following table summarizes an allocation of the ACL - Loans and the related percentage of loans outstanding in each category for the periods below.

As of December 31

(in thousands, except %)

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Noninterest-bearing deposits at December 31, 2025 and 2024 were $1.00 billion and $1.02 billion, respectively, while interest-bearing deposits were $2.69 billion and $2.64 billion at December 31, 2025 and 2024, respectively.

During 2024 the Bank experienced 6.7% growth in deposits, but also experienced a shift in customer behavior, moving balances from noninterest-bearing accounts to interest-bearing accounts, resulting in the noted decline in noninterest-bearing totals.

At December 31, 2025, we had a total of $661.0 million in certificates of deposit.

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The Company redeemed all securities sold under repurchase agreements during the first quarter of 2024 and has had no such balances since that time.

Management currently does not rely on repurchase agreements as a regular source of funding.

The following table summarizes securities sold under repurchase agreements, and the weighted average interest rates paid:

Year ended December 31,

(dollars in thousands)

December 31, 2025

December 31, 2024

December 31, 2023

Average daily amount of securities sold under repurchase agreements during the period

18 unchanged sentences

The individual associated with these subordinated note agreements is not a related party of the Company.

As a result of the acquisition of Hometown during February 2023, the Company acquired all of the common securities of Hometown’s wholly-owned subsidiaries, Hometown Bancorp, Ltd.

Capital Trust I (“Trust I”) and Hometown Bancorp, Ltd.

Capital Trust II (“Trust II”).

The Company also assumed adjustable rate junior subordinated debentures issued to these trusts.

The junior subordinated debentures issued to Trust I and Trust II totaled $4.1 million and $8.2 million, respectively, carried interest at floating rates resetting on each quarterly payment date, and were due on January 7, 2034 and December 15, 2036, respectively.

Applicable discounts originally totaling $1.5 million were recorded to carry the assumed debentures at their then estimated fair value and were being accreted to interest expense over the remaining life of the debentures.

Both junior subordinated debentures were redeemable by the Company, subject to prior approval by the Federal Reserve Bank, on any quarterly payment date.

The junior subordinated debentures represented the sole asset of Trust I and Trust II.

The trusts were not included in the Company’s consolidated financial statements.

The net effect of all agreements assumed with respect to Trust I and Trust II is that the Company, through payments on its debentures, was liable for the distributions and other payments required on the trusts’ preferred securities.

Trust I and Trust II also provided the Company with $12.0 million in Tier 1 capital for regulatory capital purposes.

The Company redeemed the junior subordinated debenture related to Trust II during December 2023, resulting in Trust II’s dissolution.

The Company redeemed the junior subordinated debenture related to Trust I on January 8, 2024, resulting in Trust I’s dissolution.

INVESTMENT SECURITIES

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We manage our investment portfolio to provide an adequate level of liquidity as well as to maintain neutral interest rate-sensitive positions, while earning an adequate level of investment income without taking undue or excessive risk.

Securities available for sale consist of U.S.

Treasury securities, obligations of U.S.

Securities available for sale consist of obligations of U.S.

Government sponsored agencies, obligations of states and political subdivision, agency mortgage-backed securities, and corporate notes.

Securities classified as available for sale, which management has the intent and ability to hold for an indefinite period of time, but not necessarily to maturity, are carried at fair value, with unrealized gains and losses, net of related deferred income taxes, included in stockholders’ equity as a separate component of other comprehensive income.

The fair value of securities available for sale totaled $223.1 million and included negligible gross unrealized gains and gross unrealized losses of $12.9 million at

December 31, 2024.

At December 31, 2023, the fair value of securities available for sale totaled $142.2 million and included gross unrealized gains of $0.1 million and gross unrealized losses of $12.2 million.

separate component of other comprehensive income.

The fair value of securities available for sale totaled $164.4 million and included $0.4 million gross unrealized gains and gross unrealized losses of $7.8 million at December 31, 2025.

At December 31, 2024, the fair value of securities available for sale totaled $223.1 million and included negligible gross unrealized gains and gross unrealized losses of $12.9 million.

Securities classified as held to maturity consist of U.S.

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These securities, which management has the intent and ability to hold to maturity, are reported at amortized cost of $103.7 million and $110.8 million as of December 31, 2025 and 2024, respectively.

The Company recognized a negligible net loss on sale of investment securities during the year ended December 31, 2024 and a net loss on sale of investment securities of $7.9 million during the year ended December 31, 2023.

The Company did not sell any investment securities during the year ended December 31, 2025 and had a negligible net loss on sale of investment securities during the year ended December 31, 2024.

The following tables set forth the composition and maturities of investment securities as of December 31, 2025 and December 31, 2024.

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Available for sale securities

Treasury securities

Obligations of U.S.

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Available for sale securities

Treasury securities

Obligations of U.S.

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Corporate notes

Certificates of deposit

Total available for sale securities

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Net cash flows provided by operating activities totaled $62.5 million during 2025 compared to $65.8 million during 2024.

The largest contributing factor to the increase in cash flows provided by operating activities during 2024 was an increase in net income excluding realized gains and losses on the sale of securities and UFS (which are considered investing activities).

Net cash flows used by investing activities totaled $252.9 million during 2024 compared to net cash flows provided by investing activities totaling $269.0 million during 2023.

Significant increases in our loan portfolio along with purchases of securities during 2024 created net cash flows used during 2024.

The absence of significant increases in these areas added to proceeds from the sales of securities and UFS and $90.0 million in net cash received in the acquisition of Hometown created net cash flows provided by investing activities during 2023.

Net cash flows provided by financing activities totaled $201.0 million during 2024 compared to net cash flows used in financing activities totaling $193.8 million during 2023.

The primary difference in year-over-year cash flows related to financing activities was significant growth in deposits during 2024 compared to significant decreases in deposits during 2023.

Overall cash flows provided by operations during 2025 was very comparable to 2024, and no single factor contributed materially to an increase or decrease in this area.

Net cash flows used by investing activities totaled $16.0 million during 2025 compared to $252.9 million during 2024.

Lower comparable growth in our loan portfolio along with fewer purchases of securities and more maturing securities during 2025 significantly reduced net cash flows used by investing activities compared to 2024.

Net cash flows used by financing activities totaled $64.6 million during 2025 compared to net cash flows provided by financing activities totaling $201.0 million during 2024.

The primary difference in year-over-year cash flows related to financing activities was muted growth in deposits during 2025 compared to significant increases in deposits during 2024 as well as significantly higher dividends paid to common shareholders during 2025 compared to 2024.

See the consolidated statement of cash flows elsewhere in this report for further information regarding cash flow activity during 2025 and 2024.

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Our total shareholders’ equity increased during 2025 and 2024 as a result of our profitability, reduced by dividends paid and common share repurchases.

Growth in shareholders’ equity was further stimulated by the acquisition of Hometown during 2023.

Our capital management consists of providing adequate equity to support our current and future operations.

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Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank and Company must meet specific capital guidelines that involve quantitative measure of their assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices.

The capital amounts and the classifications are also subject to qualitative judgment by the regulator in regards to risk weighting and other factors.

The capital amounts and the classifications are also subject to qualitative judgment by the regulator in regard to risk weighting and other factors.

See “Business—Supervision and Regulation—Capital Requirements.”

The following table reflects capital ratios computed pursuant to the regulatory capital rules as applicable to the Company and the Bank.

As a result of the Economic Growth Act, the Company is no longer required to comply with its risk-based capital rules.

For more information, see “Business—Supervision and Regulation—Capital Requirements.”

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Tier I capital (to average assets)

As previously mentioned, the Company carried $12.0 million of subordinated debt as of December 31, 2024 and 2023, as well as $4.0 million of junior subordinated debt as of December 31, 2023.

As previously mentioned, the Company carried $12.0 million of subordinated debt as of December 31, 2025 and 2024.

These totals are included in total capital for the Company in the tables above.

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For additional information regarding interest rates and changes in net interest income see “Quantitative and Qualitative Disclosures about Market Risk—Interest Rate Sensitivity.” Inflation may have impacts on the Bank’s customers, on businesses and consumers and their ability or willingness to invest, save or spend, and perhaps on their ability to repay loans.

Additionally, periods of elevated inflation may indirectly affect the Company through higher operating costs, including compensation and vendor expenses, as well as through changes in customer behavior and funding dynamics.

As such, there would likely be impacts on the general appetite of banking products and the credit health of the Bank’s customer base.

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 7. Management’s Discussion and Analysis