What changed in this filing

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Item 1. Financial Statements

2022-05-10 compared with 2021-11-09 · 104 added, 119 removed, 481 unchanged (32% of the section changed)

3 unchanged sentences

(In thousands) (Unaudited)

Nine Months Ended September 30,

Three Months Ended March 31,

Cash flows from financing activities, net of effects of business combination:

Net increase in deposits

Net decrease in securities sold under repurchase agreements

Net increase (decrease) in securities sold under repurchase agreements

Proceeds from advances of notes payable

Repayment of notes payable

Proceeds from issuance of subordinated debt

( 1,500,250 )

Dividends paid

1 unchanged sentence

Repurchase of common stock

Net cash provided by financing activities

Net cash provided by (used in) financing activities

Net increase (decrease) in cash and cash equivalents

4 unchanged sentences

Supplemental schedule of noncash activities:

Loans transferred to OREO

MSR resulting from sale of loans

Amortization of unrealized holding gains on securities transferred from available for sale to held to maturity recognized in other comprehensive income, net of tax

Change in unrealized gains and losses on investment securities available for sale, net of tax

Payment of deferred compensation through issuance of treasury stock

Fair value of assets acquired

Fair value of liabilities assumed

Net assets acquired

Common stock issued in acquisition

See accompanying notes to consolidated financial statements.

23 unchanged sentences

There have been no material changes or developments with respect to the assumptions or methodologies that the Company uses when applying what management believes are critical accounting policies and developing critical accounting estimates as previously disclosed in the Company’s Annual Report.

Recent Accounting Developments Adopted

In October 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-08, “Codification Improvements to Subtopic 310-20, Receivables and Nonrefundable Fees and Other Costs.

This ASU clarifies the requirements for entities to reevaluate whether a callable debt security is within the scope of paragraph 310-20-35-33 of the stated subtopic for each reporting period.

The ASU was published to clarify the Codification and correct its unintended application and was effective for fiscal years, and interim periods within those fiscal years, beginning after December 31, 2020.

The adoption of this guidance did not have a significant impact on the Company’s consolidated financial statements as all premiums within its securities portfolio were already being amortized to the earliest call date prior to implementation.

Recently Issued Not Yet Effective Accounting Standards

5 unchanged sentences

This delay applies to the Company as it was classified as a “Smaller reporting company” as defined in Rule 12b-2 of the Exchange Act as of the date ASU 2019-10 was enacted.

Management is currently evaluating the potential impact of this update, although the general expectation in the banking industry is that the implementation of this standard will result in higher required balances in the ALL.

During the first half of 2019 the Company

engaged a third-party partner to assist it in implementation of this standard.

Over the last three years significant progress has been made working through the assumptions, drivers, documentation and other mechanics for the calculation of the Company’s ALL under ASU 2016-13.

Throughout this process, Management has evaluated the impact of this update.

While the general expectation in the banking industry is that the implementation of this standard will result in higher required balances within the ALL, it is not anticipated to have a significant impact on the Company’s overall ALL balances.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting.

This ASU provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting.

It provides optional expedients and exceptions for applying GAAP to contracts hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.

The updated guidance is effective for all entities from March 12, 2020 through December 31, 2022.

The Company has been diligent in responding to reference rate reform and does not anticipate a significant impact to its financial statements as a result.

In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (Topic 326):

Troubled Debt Restructurings and Vintage Disclosures.

This ASU provides guidance on eliminating the requirement for classification of and disclosures around troubled debt restructurings.

The purpose of this guidance is to eliminate unnecessary and overly-complex disclosures of loans that are already incorporated into the allowance for credit losses and related disclosures.

This ASU further requires the disclosure of current-period gross charge-offs by year of origination.

The updated guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, for all entities which have implemented ASU 2016-13.

The Company has historically had very few credit relationships classified as troubled debt restructurings, and as such does not anticipate that the elimination of accounting for and disclosure of these types of credit relationships will have a significant impact to its financial statements upon implementation of ASU 2016-13 beginning with the first quarter of 2023.

NOTE 2 – ACQUISITIONS

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

(“Timberwood”), a bank holding company headquartered in Tomah, Wisconsin, pursuant to the Agreement and Plan of Bank Merger (“Merger Agreement”), dated as of November 20, 2019, by and among the Company and Timberwood, whereby Timberwood merged with and into the Company, and Timberwood Bank, Timberwood’s wholly-owned banking subsidiary, merged with and into the Bank.

Timberwood’s principal activity was the ownership and operation of Timberwood Bank, a state-chartered banking institution that operated one (1) branch in Wisconsin at the time of closing.

The merger consideration totaled approximately $ 29.8 million.

Pursuant to the terms of the Merger Agreement, Timberwood shareholders received 5.1445 shares of the Company’s common stock for each outstanding share of Timberwood common stock, and cash in lieu of any remaining fractional share.

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.

For more information concerning this acquisition, see “Note 2 - Acquisition” in the Company’s audited consolidated financial statements included in the Company’s Annual Report.

On January 18, 2022, the Company entered into an Agreement and Plan of Merger with Denmark Bancshares, Inc.

(“Denmark”), a Wisconsin Corporation, under which Denmark will merge with and into the Company and Denmark’s banking subsidiary, Denmark State Bank, will merge with and into the Bank.

The transaction is expected to close during the third quarter of 2022, and is subject to, among other items, approval by the shareholders of both institutions and regulatory agencies.

Merger consideration will consist of up to 20 % cash and no less than 80 % common stock of the Company, and will total approximately $ 119 million, subject to the fair market value of the Company’s common stock on the date of closing.

Based on results as of March 31, 2022, the combined company would have total assets of approximately $ 3.61 billion, loans of approximately $ 2.79 billion and deposits of approximately $ 3.17 billion.

For more information concerning the Company’s acquisitions, see “Note 2 – Acquisition” in the Company’s audited consolidated financial statements included in the Company’s Annual Report.

NOTE 3 – EARNINGS PER SHARE

1 unchanged sentence

Under the two-class method, earnings available to common shareholders for the period are allocated between common shareholders and participating securities according to dividends declared (or accumulated) and participation rights in undistributed earnings.

There were no anti-dilutive stock options for the nine months ended September 30, 2021 or 2020.

There were no anti-dilutive stock options for the three months ended March 31, 2022 or 2021.

The following table presents the factors used in the earnings per share computations for the period indicated:

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Net income available to common shareholders

12 unchanged sentences

NOTE 4 – SECURITIES

The Company’s securities available for sale as of September 30, 2021 and December 31, 2020 is summarized as follows:

September 30, 2021

The following is a summary of available for sale securities:

March 31, 2022

Treasury securities

7 unchanged sentences

December 31, 2021

Treasury securities

Obligations of U.S.

5 unchanged sentences

Total available for sale securities

The Company’s securities held to maturity as of September 30, 2021 and December 31, 2020 is summarized as follows:

September 30, 2021

The following is a summary of held to maturity securities:

March 31, 2022

Obligations of states and political subdivisions

4 unchanged sentences

Greater Than 12 Months

September 30, 2021 - Available for Sale

March 31, 2022 - Available for Sale

Treasury securities

Obligations of U.S.

Government sponsored agencies

Obligations of states and political subdivisions

Mortgage-backed securities

Corporate notes

Certificate of Deposits

December 31, 2021 - Available for Sale

Treasury securities

Obligations of U.S.

Government sponsored agencies

Obligations of states and political subdivisions

Mortgage-backed securities

Corporate notes

As of September 30, 2021, the Company does not consider its securities with unrealized losses to be other-than-temporarily impaired, as the unrealized losses in each category have occurred as a result of changes in interest rates, market spreads and market conditions subsequent to purchase, not credit deterioration.

As of March 31, 2022, the Company does not consider its securities with unrealized losses to be other-than-temporarily impaired, as the unrealized losses in each category have occurred as a result of changes in interest rates, market spreads and market conditions subsequent to purchase, not credit deterioration.

The Company has the intent and ability to hold its securities to maturity or until par is recovered.

There were no other-than-temporary impairments charged to earnings during the nine months ended September 30, 2021 or 2020.

The following is a summary of amortized cost and estimated fair value of securities by contractual maturity as of September 30, 2021.

There were no other-than-temporary impairments charged to earnings during the three months ended March 31, 2022 or 2021.

The following is a summary of amortized cost and estimated fair value of securities by contractual maturity as of March 31, 2022.

Contractual maturities will differ from expected maturities for mortgage-backed securities because borrowers may have the right to call or prepay obligations without penalties.

6 unchanged sentences

Mortgage-backed securities

The following is a summary of the proceeds from sales of securities available for sale and held to maturity, as well as gross gains and losses for the nine months ended September 30, 2021 and 2020.

Proceeds from sales of securities

Gross gains on sales

Gross losses on sales

There were no sales of securities available for sale or held to maturity for the three months ended March 31, 2022 or 2021.

NOTE 5 – LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY

The following table presents total loans by portfolio segment and class of loan as of September 30, 2021 and December 31, 2020:

September 30,

The following table presents total loans by portfolio segment and class of loan as of March 31, 2022 and December 31, 2021:

Commercial/industrial

5 unchanged sentences

Deferred loan fees and costs

The ALL by loan type as of September 30, 2021 and 2020 is summarized as follows:

A summary of the activity in the ALL by loan type as of March 31, 2022 and 2021 is summarized as follows:

Real Estate -

1 unchanged sentence

ALL - January 1, 2022

ALL - September 30, 2021

ALL - March 31, 2022

ALL ending balance individually evaluated for impairment

ALL ending balance collectively evaluated for impairment

Loans outstanding - September 30, 2021

Loans outstanding - March 31, 2022

Loans ending balance individually evaluated for impairment

3 unchanged sentences

ALL - January 1, 2021

ALL - September 30, 2020

ALL - March 31, 2021

ALL ending balance individually evaluated for impairment

ALL ending balance collectively evaluated for impairment

Loans outstanding - September 30, 2020

Loans outstanding - March 31, 2021

Loans ending balance individually evaluated for impairment

Loans ending balance collectively evaluated for impairment

The Company’s past due loans as of September 30, 2021 is summarized as follows:

The Company’s past due loans as of March 31, 2022 is summarized as follows:

Commercial/industrial

25 unchanged sentences

collection or liquidation in full is not probable.

The breakdown of loans by risk rating as of September 30, 2021 is as follows:

The breakdown of loans by risk rating as of March 31, 2022 is as follows:

Commercial/industrial

27 unchanged sentences

Such agencies may require that changes in the ALL be recognized when such regulators’ credit evaluations differ from those of management based on information available to the regulators at the time of their examinations.

A summary of impaired loans individually evaluated as of September 30, 2021 is as follows:

A summary of impaired loans individually evaluated as of March 31, 2022 is as follows:

Real Estate -

27 unchanged sentences

Average recorded investment

Interest recognized while these loans were impaired is considered immaterial to the consolidated financial statements for the nine months ended September 30, 2021 and 2020.

The following table presents loans acquired with deteriorated credit quality as of September 30, 2021 and December 31, 2020.

Interest recognized while these loans were impaired is considered immaterial to the consolidated financial statements for the three months ended March 31, 2022 and 2021.

The following table presents loans acquired with deteriorated credit quality as of March 31, 2022 and December 31, 2021.

No loans in this table had a related allowance at either date, and therefore, the below disclosures were not expanded to include loans with and without a related allowance.

September 30, 2021

March 31, 2022

December 31, 2021

Unpaid Principal

Commercial & Industrial

5 unchanged sentences

Management regularly monitors these loan relationships, and if information becomes available that indicates expected cash flows will differ from initial expectations, it may necessitate reclassification between accretable and non-accretable components of the original discount calculation.

The following table represents the change in the accretable and non-accretable components of discounts on loans acquired with deteriorated credit quality for the nine months ended September 30, 2021, and year ended December 31, 2020:

September 30, 2021

The following table represents the change in the accretable and non-accretable components of discounts on loans acquired with deteriorated credit quality for the three months ended March 31, 2022, and year ended December 31, 2021:

March 31, 2022

December 31, 2021

2 unchanged sentences

Balance at beginning of period

Acquired balance, net

Reclassifications between accretable and non-accretable

7 unchanged sentences

If a TDR is placed on nonaccrual status, which could occur based on the same criteria as non-TDR loans, it remains there until a sufficient period of performance under the restructured terms has occurred at which it returned to accrual status, generally 6 months.

As of September 30, 2021 and December 31, 2020 the Company had no specific reserves for TDRs.

As of March 31, 2022 and December 31, 2021 the Company had no specific reserves for TDRs.

As a result of the COVID-19 pandemic, the Bank experienced an increase in customer requests for loan modifications and payment deferrals.

Certain provisions of the Coronavirus Aid, Relief, and Economic Security (CARES) act, as extended, signed into law on March 27, 2020, allowed financial institutions the option to exempt loan modifications related to the COVID-19 pandemic that would otherwise be categorized as a TDR from consideration for TDR treatment.

The Coronavirus Aid, Relief, and Economic Security (CARES) act, signed into law on March 27, 2020, allowed financial institutions the option to exempt loan modifications related to the COVID-19 pandemic that would otherwise be categorized as a TDR from consideration for TDR treatment.

Modifications in the scope of the exemption include forbearance agreements, interest-rate modifications, repayment plan changes and any other similar arrangements that would delay payments of principal or interest.

This relief is allowable on modifications on loans which were not more than 30 days past due as of December 31, 2019, and that occur after March 1, 2020, and before the earlier of 60 days after the date on which the national emergency related to the COVID-19 outbreak is terminated.

The following table presents the TDRs during the nine months ended September 30, 2021:

Pre-Modification

Post-Modification

Outstanding Recorded

Commercial/ industrial

Commercial Real Estate

The following table presents the TDRs during the nine months September 30, 2020:

The Bank had no new TDRs during the three months ended March 31, 2022.

The following table presents new TDRs during the three months March 31, 2021:

Pre-Modification

14 unchanged sentences

Following is an analysis of activity in the MSR asset:

Nine Months Ended

September 30, 2021

Three Months Ended

March 31, 2022

December 31, 2021

Fair value at beginning of period

MSR asset acquired

Servicing asset additions

5 unchanged sentences

Mortgage servicing rights as a percent of loans serviced for others

The primary economic assumptions utilized by the Company in measuring the value of MSRs were constant prepayment speeds of 15.9 and 16.3 months as of September 30, 2021 and December 31, 2020, respectively, and discount rates of 10.3 % as of each period end.

The primary economic assumptions utilized by the Company in measuring the value of MSRs were constant prepayment speeds of 13.8 months and discount rates of 10.3 % as of March 31, 2022 and December 31, 2021.

NOTE 7 – NOTES PAYABLE

From time to time the Company utilizes FHLB advances to fund liquidity.

At September 30, 2021 and December, 31, 2020, the Company had outstanding balances borrowed from the FHLB of $ 9.1 million and $ 23.3 million, respectively.

At March 31, 2022 and December, 31, 2021, the Company had outstanding balances borrowed from the FHLB of $ 7.7 million and $ 8.0 million, respectively.

The advances, rate, and maturities of FHLB advances were as follows:

September 30,

Fixed rate, fixed term

5 unchanged sentences

Fixed rate, fixed term

Adjustment due to purchase accounting

Future maturities of borrowings were as follows:

September 30,

1 year or less

The Company maintains a $ 7.5 million line of credit with a commercial bank, which was entered into on May 15, 2021.

There were no outstanding balances on this note at September 30, 2021 or December 31, 2020.

There were no outstanding balances on this note at March 31, 2022 or December 31, 2021.

Any future borrowings will require monthly payments of interest at a variable rate, and will be due in full on May 15, 2022.

1 unchanged sentence

During September 2017, the Company entered into subordinated note agreements with three separate commercial banks.

The Company had outstanding balances of $ 11.5 million under these agreements as of September 30, 2021 and December 31, 2020.

The Company had outstanding balances of $ 11.5 million under these agreements as of March 31, 2022 and December 31, 2021.

These notes were all issued with 10-year maturities, carry interest at a variable rate payable quarterly, are callable on or after the sixth anniversary of the issuance dates, and qualify for Tier 2 capital for regulatory purposes.

During July 2020, the Company entered into subordinated note agreements with two separate commercial banks.

The Company had outstanding balances of $ 6.0 million under these agreements as of September 30, 2021 and December 31, 2020.

The Company had outstanding balances of $ 6.0 million under these agreements as of March 31, 2022 and December 31, 2021.

These notes were issued with 10-year maturities, carry interest at a fixed rate of 5.0 % through June 30, 2025, and at a variable rate thereafter, payable quarterly.

6 unchanged sentences

The Economic Growth, Regulatory Relief, and Consumer Protection Act, signed into law in May 2018 raised the threshold for those bank holding companies subject to the Federal Reserve’s Small Bank Holding Company Policy Statement to $ 3 billion.

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 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.

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

Under regulatory guidance for non-advanced approaches institutions, the Bank is required to maintain minimum amounts and ratios of common equity Tier I capital to risk-weighted assets, including an additional conservation buffer determined by banking regulators.

As of September 30, 2021 and December 31, 2020, this buffer was 2.5 %.

As of September 30, 2021 and December 31, 2020, the Bank met all capital adequacy requirements to which they are subject.

As of March 31, 2022 and December 31, 2021, this buffer was 2.5 %.

As of March 31, 2022 and December 31, 2021, the Bank met all capital adequacy requirements to which they are subject.

Actual and required capital amounts and ratios are presented below at period-end:

6 unchanged sentences

Action Provisions

September 30, 2021

March 31, 2022

Total capital (to risk-weighted assets):

11 unchanged sentences

Accordingly, such commitments, along with any related fees received from potential borrowers, are recorded at fair value in derivative assets or liabilities, with changes in fair value recorded in the net gain or loss on sale of mortgage loans.

Fair value is based on fees currently charged to enter into similar agreements and for fixed rate commitments also considers the difference between current levels of interest rates and committed rates.

The notional amount of rate-lock commitments at September 30, 2021 and December 31, 2020 was approximately $ 44.0 million and $ 69.6 million, respectively.

Fair value is based on fees currently charged to enter into similar agreements and for fixed rate commitments also considers the difference between current levels

of interest rates and committed rates.

The notional amount of rate-lock commitments at March 31, 2022 and December 31, 2021 was approximately $ 12.5 million and $ 21.9 million, respectively.

The Company is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers.

5 unchanged sentences

Notional Amount

September 30, 2021

March 31, 2022

December 31, 2021

12 unchanged sentences

for Identical

September 30, 2021

March 31, 2022

Securities available for sale

9 unchanged sentences

Securities available for sale

Treasury securities

Obligations of U.S.

9 unchanged sentences

for Identical

September 30, 2021

March 31, 2022

Impaired Loans, net of impairment reserve

6 unchanged sentences

Valuation Technique

As of September 30, 2021

Other real estate owned

Third party appraisals, sales contracts or brokered price options

Collateral discounts and estimated costs to sell

As of March 31, 2022

Impaired loans

28 unchanged sentences

Since this amount is immaterial, no amounts for fair value are presented.

The carrying value and estimated fair value of financial instruments at September 30, 2021 and December 31, 2020 follows:

September 30, 2021

The carrying value and estimated fair value of financial instruments at March 31, 2022 and December 31, 2021 follows:

March 31, 2022

Financial assets:

33 unchanged sentences

Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors.

These estimates are subjective in nature and involve uncertainties and matters that could affect the estimates.

These estimates are subjective in nature and involve uncertainties

and matters that could affect the estimates.

Fair value estimates are based on existing on- and off-balance-sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments.

8 unchanged sentences

The number of shares of Company stock that may be issued pursuant to awards under the 2020 Plan shall not exceed, in the aggregate, 700,000 .

As of September 30, 2021, 25,416 shares of Company stock have been awarded under the 2020 Plan.

As of March 31, 2022, 50,867 shares of Company stock have been awarded under the 2020 Plan.

Compensation expense for restricted stock is based on the fair value of the awards of Bank First Corporation common stock at the time of grant.

The value of restricted stock grants that are expected to vest is amortized into expense over the vesting periods.

For the nine months ended September 30, 2021 and 2020, compensation expense of $ 1.0 million and $ 0.8 million, respectively, was recognized related to restricted stock awards.

As of September 30, 2021, there was $ 2.7 million of unrecognized compensation cost related to non-vested restricted stock awards granted under the plan.

For the three months ended March 31, 2022 and 2021, compensation expense of $ 0.3 million was recognized related to restricted stock awards.

As of March 31, 2022, there was $ 3.5 million of unrecognized compensation cost related to non-vested restricted stock awards granted under the plan.

That cost is expected to be recognized over a weighted average period of 2.25 years.

The aggregate grant date fair value of restricted stock awards that vested during the nine months ended September 30, 2021, was approximately $ 1.1 million.

For the nine months ended

September 30, 2021

September 30, 2020

The aggregate grant date fair value of restricted stock awards that vested during the three months ended March 31, 2022, was approximately $ 1.3 million.

For the year ended

March 31, 2022

March 31, 2021

Average Grant-

19 unchanged sentences

however, this rate is typically not known.

As an alternative, the use of an entity’s fully secured incremental borrowing rate is permitted.

As an alternative, the use of

an entity’s fully secured incremental borrowing rate is permitted.

The Company is electing to utilize the Wall Street Journal Prime Rate on the date of lease commencement.

Nine-month period ended

September 30, 2021

September 30, 2020

Three-month period ended

March 31, 2022

March 31, 2021

Amortization of ROU Assets - Operating Leases

3 unchanged sentences

Weighted Average Discount Rate - Operating Leases

A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total operating lease liabilities as of September 30, 2021 is as follows:

September 30, 2021

A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total operating lease liabilities as of March 31, 2022 is as follows:

March 31, 2022

Operating lease payments due:

9 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements