What changed in this filing

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Item 1. Business

2022-03-16 compared with 2021-03-12 · 70 added, 87 removed, 453 unchanged (26% of the section changed)

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The Company and the Bank are headquartered in Manitowoc, Wisconsin, and the Bank is a member of the Board of Governors of the Federal Reserve System (the “Federal Reserve”) and regulated by the Office of the Comptroller of the Currency (the “OCC”).

The Bank has twenty-two (22) offices, including its headquarters, in Manitowoc, Outagamie, Brown, Winnebago, Sheboygan, Waupaca, Ozaukee, Monroe, and Jefferson counties in the State of Wisconsin.

The Bank has twenty-one (21) offices, including its headquarters, in Manitowoc, Outagamie, Brown, Winnebago, Sheboygan, Waupaca, Ozaukee, Monroe, and Jefferson counties in the State of Wisconsin.

We serve businesses, professionals and consumers with a wide variety of financial services, including retail and commercial banking.

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UFS is a Wisconsin limited liability company organized in 2014, in which the Bank is a 49.8% member.

UFS provides core data processing, managed information technology services and private cloud services to the Bank and many other community banks in and around Wisconsin.

UFS provides core data processing, endpoint management, cloud services, cyber security, and digital banking solutions to the Bank and many other community banks in and around Wisconsin.

Bank First Investments, Inc.

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The Bank employs approximately 287 full-time equivalent employees (“FTE”), and has an assets-to-FTE ratio of approximately $10.2 million.

For more information, see the Bank’s website at www.bankfirstwi.bank.

For more information, see the Bank’s website at www.bankfirst.com.

Recent acquisitions

Partnership Community Bancshares, Inc.

On July 12, 2019, the Company completed a merger with Partnership Community Bancshares, Inc.

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The stock versus cash elections by the Partnership shareholders were subject to final consideration being made up of approximately $14.3 million in cash and 534,731 shares of Company common stock, valued at approximately $35.3 million (based on a value of $66.03 per share on the closing date).

Timberwood Bancshares, Inc.

On May 15, 2020, the Company completed a merger with Tomah Bancshares, Inc.

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Company stock issued totaled 575,641 shares valued at approximately $29.4 million, with cash of $0.4 million comprising the remainder of merger consideration.

The Company accounted for the transaction under the acquisition method of accounting, and thus, the financial position and results of operations of Timberwood prior to the consummation date were not included in the accompanying consolidated financial statements.

The accounting required assets purchased and liabilities assumed to be recorded at their respective fair values at the date of acquisition.

The Company determined the fair value of core deposit intangibles, securities, premises and equipment, loans, other assets and liabilities, deposits and borrowings with the assistance of third party valuations, appraisals, and third party advisors.

The estimated fair values will be subject to refinement for up to one year after deal consummation as additional information becomes available relative to the closing date fair values.

Denmark Bancshares, Inc.

On January 18, 2022, the Company entered into an Agreement and Plan of Merger with Denmark Bancshares, Inc., a Wisconsin corporation, whereby Denmark will be merged with and into the Company.

Pursuant to entering into the Merger Agreement, the Bank and Denmark’s wholly-owned subsidiary bank, Denmark State Bank, will enter into a Plan of Bank Merger whereby Denmark State Bank will be merged with and into the Bank immediately following the merger of Denmark with the Company.

The Merger Agreement has been unanimously approved by the boards of directors of the Company and Denmark.

The transaction is expected to close in the early third quarter of 2022, subject to customary closing conditions, including regulatory approvals and shareholder approvals from both the Company’s and Denmark’s shareholders.

Pursuant to the terms of the Merger Agreement, Denmark shareholders will have the right to receive, at each shareholder’s election, either $38.10 in cash or 0.5276 of a share of the Company’s common stock, subject to share reconciliation, proration, and allocation procedures, such that at least 80% of Denmark shares will receive stock consideration and no more than 20% of Denmark shares will receive cash consideration.

Notwithstanding the foregoing, the aggregate merger consideration is subject to a downward adjustment if Denmark’s tangible equity capital (as calculated per the Merger Agreement) is less than $67,565,297 at the time of closing of the Merger.

The Company accounts for these transactions under the acquisition method of accounting, and thus, the financial position and results of operations of acquired institutions prior to the consummation date are not included in the accompanying consolidated financial statements.

The acquisition method of accounting requires assets purchased and liabilities assumed to be recorded at their respective fair values at the date of acquisition.

The Company determines the fair value of core deposit intangibles, securities, premises and equipment, loans, other assets and liabilities, deposits and borrowings with the assistance of third party valuations, appraisals, and third party advisors.

The estimated fair values are subject to refinement for up to one year after deal consummation as additional information becomes available relative to the closing date fair values.

Strategic Plan

The Bank is a relationship-based community bank focused on providing innovative products and services that are value driven.

The Bank is a relationship-based community bank focused on providing innovative products and services that are value driven to the communities we serve.

The Bank’s culture celebrates diversity, creativity, and responsiveness, with the highest ethical standards.

Employees are encouraged and empowered to develop their careers and always do the right thing.

Employees are supported and encouraged to develop their careers.

They are empowered with the tools to be successful and are held accountable for the results they deliver to our customers and shareholders.

We maintain a strong credit culture as a foundation of sound asset quality, and we embrace innovation and provide the solutions our customers need and expect.

The Bank’s vision is to remain an independent community bank and plans to sustain its independence by remaining one of the top-performing providers of financial services in Wisconsin.

The Bank focuses on creating value for the communities and customers it serves to provide exceptional return for our shareholders, and also growing relationship deposits and lending those funds to invest in and support the communities the Bank serves, ultimately yielding superior growth in earnings per share.

The Bank focuses on creating value for its customers and shareholders by forging strong relationships and offering personalized and innovative solutions.

Our strategic priorities are organized around the CAMELS ratings, including Capital, Asset Quality, Management, Earnings, Liquidity, and Sensitivity to Market Rates.

We have also added a sixth category to prioritize our strategic goals surrounding Information Technology.

Under the heading of Capital, our priorities include (i) growing capital through strong earnings, (ii) developing short and long-term capital goals such that we can take advantage of opportunities as they arise and return capital to shareholders through dividends and share repurchases, and (iii) maintaining contingent capital options .

Under the heading of Asset Quality, our priorities include (i) hiring and training our employees well to support our credit culture;

(ii) being cognizant of laying risk;

(iii) maintaining a strong relationship-based banking model;

(iv) enhancing our credit administration;

(v) effectively utilizing government programs;

(vi) maintaining a strong credit culture;

and (vii) effectively administering the Paycheck Protection Program loans and forgiveness process to best serve our customers.

Under the heading of Management, our priorities are (i) to continue to enhance and modify the succession plan;

(ii) to continue to improve role clarity within the senior management team;

(iii) to enhance existing employee training and provide additional career development opportunities;

(iv) to show appreciation and celebrate the successes of our employees;

(v) to sustain and build upon employee engagement;

(vi) to assist employees with career development and growth;

(vii) to live the promise, culture and promise of the Bank;

(viii) to maintain open communication between management and employees;

and (ix) to continue to enhance the compliance function.

Under the Earnings heading, our priorities include (i) loan growth;

(ii) deposit growth;

(iii) reinvigorating our approach to merchant services and fee income;

(iv) growing our teams organically;

(v) building and improving infrastructure to support our customers;

(vi) identify metrics and track profitability of different bank function;

(vii) expand and develop new business lines;

(viii) continue to grow strategic partner referrals;

and (ix) enhance the Bank’s brand awareness.

Under the Liquidity heading, our priorities are (i) deploying liquidity to maximize earnings;

(ii) developing deeper relationships with deposit customers;

(iii) developing new business banking relationships;

(iv) reviewing target balances on sweep accounts;

(v) managing participations;

and (vi) purchasing only top-quality, highly liquid securities.

Under the heading of Sensitivity to Market Rates, our priorities include (i) developing asset liability management strategies, (ii) continuing to adjust our investment portfolio model to eliminate optionality, and (iii) maintaining an efficient community bank network with relationship-based banking.

Finally, under the heading of Information Technology, our strategic priorities include (i) using technology to provide more employee training opportunities;

(ii) enhancing our vendor relationships;

(iii) continuing to monitor and adapt to new cybersecurity threats;

(iv) moving toward paperless transactions to improve efficiency;

(v) focusing on process optimization;

(vi) improving our communication systems;

and (vii) leveraging technology to support the Bank’s growth and improve the Bank’s marketing efforts.

Our Market Area

Our market areas primarily cover Wisconsin.

The counties in our market areas include:

Brown, Manitowoc, Outagamie, Sheboygan, Waupaca, Ozaukee, Monroe, Jefferson and Winnebago.

Under the heading of Capital, our priorities include (i) growing capital through strong earnings, (ii) maintaining and assessing short and long-term capital goals, (iii) maintaining contingent capital options, and (iv) educating and creating awareness of our Dividend Reinvestment Plan (“DRIP”).

Under the heading of Asset Quality, our priorities include (i) maintaining a strong credit culture;

(ii) being cognizant of layering of risk;

(iii) optimizing the credit life cycle and enhancing credit administration;

and (iv) hiring and training well to support our credit culture.

Under the heading of Management, our priorities are (i) to review and reassess our organizational structure;

(ii) to continue to enhance our succession plan;

(iii) to build trust;

(iv) to provide consistent and clear messaging to our employees, customers and shareholders;

and (v) to sustain and build upon employee engagement.

Under the Earnings heading, our priorities include (i) growing relationships;

(ii) improving the quality of data across platforms;

(iii) exploring and evaluating current and alternative revenue sources;

(iv) to structure a cross-solving program;

(v) to evaluate and pursue prudent acquisitions;

and (vi) to enhance brand awareness.

Under the Liquidity heading, our priorities are (i) to deploy excess liquidity;

(ii) to optimize our customer portfolio;

(iii) to develop the right relationships;

and (iv) to maintain an efficient bank network.

Under the heading of Sensitivity to Market Rates, our priorities include (i) minimizing optionality;

(ii) to assess, determine and implement a deposit mix for the current environment;

and (iii) to maintain rate neutrality with a preference towards asset sensitivity.

Finally, under the heading of Information Technology, our strategic priorities include (i) optimizing our digital strategy to match internal and external customer expectations;

(ii) enhancing and growing our vendor relationships;

(iii) developing a robust data roadmap;

(iv) establishing a Chief Information Officer role and organizational structure for the Information Technology function;

and (v) monitoring the current cybersecurity environment and training employees on risks and appropriate actions.

Bank First is a full-service community bank, offering business and retail products and services in communities throughout Wisconsin.

Our branches are located in Brown, Jefferson, Manitowoc, Monroe, Outagamie, Ozaukee, Sheboygan, Waupaca, and Winnebago counties.

Our main office is located at 402 N.

8th Street, Manitowoc, Wisconsin.

In addition, we are currently in the process of constructing a new operations center along the I-43 corridor in Manitowoc.

Furthermore, with the proposed acquisition of Denmark, we will also enter into the Shawano County upon the completion of the merger.

Based on the deposit market share reports published by the FDIC on June 30, 2021, Bank First ranks in top two of market share in four of the nine counties in which its branches are located.

The nine counties in which the Bank has offices have an estimated aggregate population of 1,104,554, based on U.S.

Census data, and total deposits of approximately $28.64 billion as of June 30, 2021, according to the most recent data published by the FDIC.

The economies of our primary markets in Manitowoc, Sheboygan, and Waupaca counties are largely driven by the food service, manufacturing, insurance, and healthcare industries.

Companies with their headquarters in this area include Lakeside Foods, Point Beach Nuclear Plant, Acuity Insurance, Kohler Co., Johnsonville Sausage, Bemis, and Sargento Foods.

In addition, Brown County is home to Green Bay, a major Wisconsin city, with a thriving tourism industry.

Our markets in Outagamie and Winnebago counties are home to several major manufacturers, including Oshkosh Corporation, Appvion and Kimberly-Clark Corporation.

The region also includes a number of higher education centers, including state universities and technical colleges.

The banking business is highly competitive, and we face competition in our market areas from many other local, regional, and national financial institutions.

Competition among financial institutions is based on interest rates offered on deposit accounts, interest rates charged on loans, other credit and service charges relating to loans, the quality and scope of the services rendered, the convenience of banking facilities, and, in the case of loans to commercial borrowers, relative lending limits.

We compete with commercial banks, credit unions, savings institutions, mortgage banking firms, consumer finance companies, securities brokerage firms, insurance companies, money market funds and other mutual funds, as well as regional and national financial institutions that operate offices in our market areas and elsewhere.

We compete with commercial banks, credit unions, savings institutions, mortgage banking firms, consumer finance companies, securities brokerage firms, insurance companies, money market funds and other mutual funds, fintech companies, as well as regional and national financial institutions that operate offices in our market areas and elsewhere.

The competing major commercial banks have greater resources that may provide them a competitive advantage by enabling them to maintain numerous branch offices, mount extensive advertising campaigns and invest in new technologies.

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This legal lending limit will increase or decrease as the Bank’s level of capital increases or decreases.

In addition to the legal lending limit, management and the board of directors have established a more conservative, internal lending limit.

In addition to the legal lending, management and the board of directors have established a more conservative, internal lending limit.

The Bank’s legal and internal lending limits are a safety and soundness measure intended to prevent one person or a relatively small and economically related group of persons from borrowing an unduly large amount of the Bank’s funds.

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Because our loan portfolio contains a number of commercial real estate loans with relatively large balances, the deterioration of one or a few of these loans could cause a significant increase in our levels of nonperforming assets.

As of December 31, 2020, commercial real estate loans made up approximately $992.2 million or 45.3% of our loan portfolio.

As of December 31, 2021, commercial real estate loans made up approximately $1.11 billion or 49.7% of our loan portfolio.

● Residential Mortgage Loans and Home Equity Loans.

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Throughout COVID-19, the health and safety of our employees, customers, and communities we serve has been our top priority, and we continue to do our best to update guidelines and practices in accordance with recommendations by the Center for Disease Control and Prevention and new data as it becomes available.

In response to COVID-19, we quickly implemented extensive safety measures to protect our employees, including heightened sanitary

precautions, protective supplies, suspended non-essential business travel, directed employees to work remotely when possible and limited in-person meetings.

In response to COVID-19, we quickly implemented extensive safety measures to protect our employees, including heightened sanitary precautions, protective supplies, suspended non-essential business travel, directed employees to work remotely when possible and limited in-person meetings.

We also implemented flexible scheduling and compensation arrangements for employees affected by COVID-19.

Our Company culture emphasizes our longstanding dedication to being respectful to others and having a workforce that is representative of the communities we serve.

Diversity and inclusion are fundamental to our culture.

Diversity, equity and inclusion are fundamental to our culture.

We believe in attracting, retaining and promoting quality talent and recognize that diversity makes us stronger as a Company.

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The appropriate federal banking agency for the depository institution (in the case of the Bank, this agency is the OCC) may require reports from us to assess our ability to serve as a source of strength and to enforce compliance with the source of strength requirements by requiring us to provide financial assistance to the Bank in the event of financial distress.

If we were to enter bankruptcy or become subject to the orderly liquidation process established by the Dodd-Frank Act, any

commitment by us to a federal bank regulatory agency to maintain the capital of the Bank would be assumed by the bankruptcy trustee or the FDIC, as appropriate, and entitled to a priority of payment.

If we were to enter bankruptcy or become subject to the orderly liquidation process established by the Dodd-Frank Act, any commitment by us to a federal bank regulatory agency to maintain the capital of the Bank would be assumed by the bankruptcy trustee or the FDIC, as appropriate, and entitled to a priority of payment.

Acquisitions.

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The required minimum leverage ratio for all banks is 4.0%.

In addition, the capital rules require a capital conservation buffer of up to 2.5% above each of the minimum capital ratio requirements (CET1, Tier 1, and total risk-based capital), which is designed to absorb losses during periods of economic stress.

In addition, the capital rules require a capital conservation buffer of CET1 of 2.5% above each of the minimum capital ratio requirements (CET1, Tier 1, and total risk-based capital), which is designed to absorb losses during periods of economic stress.

These buffer requirements must be met for a bank to be able to pay dividends, engage in share buybacks or make discretionary bonus payments to executive management without restriction.

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FDICIA generally prohibits a depository institution from making any capital distribution (including payment of a dividend) or paying any management fee to its holding company if the depository institution would thereafter be undercapitalized.

The FDICIA imposes progressively more restrictive restraints on operations, management and capital distributions, depending on the category in which an institution is classified.

Undercapitalized depository institutions are subject to restrictions on borrowing from the Federal Reserve System.

In addition, undercapitalized depository institutions may not accept brokered deposits absent a waiver from the FDIC, are subject to growth limitations and are required to submit capital restoration plans for regulatory approval.

A depository institution’s holding company must guarantee any required capital restoration plan, up to an amount equal to the lesser of 5 percent of the depository institution’s assets at the time it becomes undercapitalized or the amount of the capital deficiency when the institution fails to comply with the plan.

Federal banking agencies may not accept a capital plan without determining, among other things, that the plan is based on realistic assumptions and is likely to succeed in restoring the depository institution’s capital.

If a depository institution fails to submit an acceptable plan, it is treated as if it is significantly undercapitalized.

The Bank was well capitalized at December 31, 2020, and brokered deposits are not restricted.

To be well-capitalized, the Bank must maintain at least the following capital ratios:

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Failure to be well-capitalized or to meet minimum capital requirements could also result in restrictions on the Bank’s ability to pay dividends or otherwise distribute capital or to receive regulatory approval of applications or other restrictions on its growth.

The Bank was well capitalized at December 31, 2021, and brokered deposits are not restricted.

In 2021, the Bank’s regulatory capital ratios were above the applicable well-capitalized standards and met the then-applicable capital conservation buffer.

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As a result, as of the effective date of that change in 2018, the Company was no longer required to comply with the risk-based capital rules applicable to the Bank as described above.

The Federal Reserve may however, require smaller bank holding companies subject to

the Policy Statement to maintain certain minimum capital levels, depending upon general economic conditions and a bank holding company’s particular condition, risk profile and growth plans.

The Federal Reserve may however, require smaller bank holding companies subject to the Policy Statement to maintain certain minimum capital levels, depending upon general economic conditions and a bank holding company’s particular condition, risk profile and growth plans.

As a result of the Economic Growth Act, the federal banking agencies were also required to develop a “Community Bank Leverage Ratio” (the ratio of a bank’s Tier 1 capital to average total consolidated assets) for financial institutions with assets of less than $10 billion.

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As a national bank, our primary bank subsidiary, Bank First, N.A., is subject to comprehensive supervision and regulation by the OCC and is subject to its regulatory reporting requirements.

The deposits of the Bank are insured by the FDIC and, accordingly, the Bank is also subject to certain FDIC regulations and the FDIC has backup examination authority and some enforcement powers over the Bank.

The deposits of the Bank are insured by the FDIC up to applicable limits and, accordingly, the Bank is also subject to certain FDIC regulations and the FDIC has backup examination authority and some enforcement powers over the Bank.

The Bank also is subject to certain Federal Reserve regulations.

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Historically, Federal Reserve rules required depository institutions, such as the Bank, to maintain reserves against their transaction accounts, primarily interest bearing and non-interest bearing checking accounts.

On March 15, 2020, the Federal Reserve announced that reserve requirement ratios were reduced to zero percent effective March 26, 2020.

The Federal Reserve announced that reserve requirement ratios were reduced to zero percent effective March 26, 2020.

This action eliminated reserve requirements for all depository institutions.

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Sanctions for violations of the Act can be imposed in an amount equal to twice the sum involved in the violating transaction, up to $1 million.

January 1, 2021, Congress passed federal legislation that made sweeping changes to federal anti-money laundering laws, including changes that will be implemented in 2021 and subsequent years.

On January 1, 2021, Congress passed federal legislation that made sweeping changes to federal anti-money laundering laws to be implemented in subsequent years.

Economic Sanctions .

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The Guidance also applies when a bank has a sharp increase in CRE loans or has significant concentrations of CRE secured by a particular property type.

We have always had exposures to loans secured by commercial real estate due to the nature of our markets and the loan needs of both retail and commercial customers.

We believe our long-term experience in CRE lending, underwriting policies, internal controls, and other policies currently in place, as well as our loan and credit monitoring and administration procedures, are generally appropriate to managing our concentrations as required under the Guidance.

Risk Factors -- We have a concentration in commercial real estate lending which could cause our regulators to restrict our ability to grow – for a discussion of our risks regarding CRE exposure.

Community Reinvestment Act.

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In May 2020, the OCC issued new final regulations meant to strengthen and modernize the CRA regulations, with an effective date of October 1, 2020.

Neither the Federal Reserve nor the FDIC joined in promulgating the OCC’s final rule,and these rules may change.

The Bank has a rating of “Satisfactory” in its most recent CRA evaluation.

However, on December 14, 2021, the OCC issued a final rule rescinding its 2020 CRA Rule and replacing it with a rule based largely on the prior rules adopted jointly by the federal banking agencies in 1995.

The Bank had a rating of “Satisfactory” in its most recent CRA evaluation.

Privacy and Data Security.

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Customers must be notified when unauthorized disclosure involves sensitive customer information that may be misused.

On December 18, 2020, the federal banking agencies proposed a new rule that would require banks to notify their regulators within 36 hours of a "computer-security incident"

that rises to the level of a "notification incident."

On November 18, 2021, the federal banking agencies issued a new rule effective in 2022 that requires banks to notify their regulators within 36 hours of a “computer-security incident” that rises to the level of a “notification incident.”

Furthermore, the federal banking regulators regularly issue guidance regarding cybersecurity intended to enhance cyber risk management.

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including certain first or subordinate lien loans designed principally for the occupancy of one to four families.

These consumer protections continue during the COVID-19 pandemic.

These consumer protections continued during the COVID-19 pandemic.

Non-Discrimination Policies.

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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 1. Business