What changed in this filing

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Item 1. Financial Statements

2022-11-09 compared with 2022-08-09 · 118 added, 68 removed, 521 unchanged (26% of the section changed)

3 unchanged sentences

(In thousands) (Unaudited)

Six Months Ended June 30,

Nine Months Ended September 30,

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

4 unchanged sentences

( 3,128,950 )

Proceeds from issuance of subordinated notes

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

7 unchanged sentences

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

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.

6 unchanged sentences

The Bank operates as a full-service financial institution with a primary market area including, but not limited to, the counties in which the Bank’s branches are located.

The Bank has twenty-one locations located in Manitowoc, Outagamie, Brown, Winnebago, Sheboygan, Waupaca, Ozaukee, Monroe, and Jefferson counties in Wisconsin.

The Bank has twenty-six locations located in Manitowoc, Outagamie, Brown, Winnebago, Sheboygan, Shawano, Waupaca, Ozaukee, Monroe, and Jefferson counties in Wisconsin.

The Company and Bank are subject to the regulations of certain federal agencies and undergo periodic examinations by those regulatory authorities.

7 unchanged sentences

These estimates are based on management’s best knowledge of current events and actions the Company may undertake in the future.

Estimates are used in accounting for, among other items, the allowance for loan losses (“ALL”), valuation of loans in acquisition transactions, valuation of mortgae servicing rights, useful lives for depreciation and amortization, fair value of financial instruments, other-than-temporary impairment calculations, valuation of deferred tax assets, uncertain income tax positions and contingencies.

Estimates are used in accounting for, among other items, the allowance for loan losses (“ALL”), valuation of loans in acquisition transactions, valuation of mortgage servicing rights, useful lives for depreciation and amortization, fair value of financial instruments, other-than-temporary impairment calculations, valuation of deferred tax assets, uncertain income tax positions and contingencies.

Estimates that are particularly susceptible to significant change for the Company include the determination of the ALL, the determination of the valuation of mortgage servicing rights, the determination and assessment of deferred tax assets and liabilities, and the valuation of loans acquired in acquisition transactions;

16 unchanged sentences

Management has begun running a calculation of its allowance under ASU 2016-13 parallel to its current modeling to assess the functioning of the ASU 2016-13 model while also documenting the controls that will be in place around the process when the Company implements this standard.

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.

Results of these parallel calculations indicate that the Bank’s ALL to total loans coverage ratio would fall within a range of 1.00 % to 1.20 % under ASU 2016-13 in the current environment, compared to 0.81 % as of September 30, 2022 under the current methodology.

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

12 unchanged sentences

NOTE 2 – ACQUISITIONS

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.

The Company has secured all required approvals 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 June 30, 2022, the combined company would have total assets of approximately $ 3.64 billion, loans of approximately $ 2.85 billion and deposits of approximately $ 3.21 billion.

On August 12, 2022, the Company completed a merger with Denmark, a bank holding company headquartered in Denmark, Wisconsin, pursuant to the Agreement and Plan of Bank Merger (“Merger Agreement”), dated as of January 18, 2022 by and among the Company and Denmark, whereby Denmark merged with and into the Company, and Denmark State Bank, Denmark’s wholly-owned banking subsidiary, merged with and into the Bank.

Denmark’s principal activity was the ownership and operation of Denmark State Bank, a state-chartered banking institution that operated seven ( 7 ) branches in Wisconsin at the time of closing.

The merger consideration totaled approximately $ 129.3 million.

Pursuant to the terms of the Merger Agreement, Denmark shareholders could elect to receive either 0.5276 shares of the Company’s common stock or $ 38.10 in cash for each outstanding share of Denmark common stock, subject to a maximum of 20 % cash consideration in total, with cash paid in lieu of any remaining fractional share.

Company stock issued totaled 1,586,475 shares valued at approximately $ 125.3 million, with cash of $ 4.0 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 Denmark 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 and deposits 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.

The fair value of the assets acquired and liabilities assumed on August 12, 2022 was as follows:

As Recorded by

(in thousands)

Cash, cash equivalents and securities

Other investments

Premises and equipment, net

Core deposit intangible

Total assets acquired

Other borrowings

Other liabilities

Total liabilities assumed

Excess of assets acquired over liabilities assumed

purchase price

The following unaudited pro forma information is presented for illustrative purposes only.

The pro forma information should not be relied upon as being indicative of the historical results of operations the companies would have had if the merger had occurred before such periods or the future results of operations that the companies will experience as a result of the merger.

The pro forma information, although helpful in illustrating the financial characteristics of the combined company under one set of assumptions, does not reflect the benefits of expected cost savings, opportunities to earn additional revenue, the impact of restructuring and merger-related expenses, or other factors that may result as a consequence of the merger and, accordingly, does not attempt to predict or suggest future results.

The unaudited pro forma information set forth below gives effect to the merger as if it had occurred on January 1, 2021, the beginning of the earliest period presented.

Nine Months Ended

(in thousands, except per share data)

September 30, 2022

December 31, 2021

Total revenue, net of interest expense

Diluted earnings per common share

On July 25, 2022, the Company entered into an Agreement and Plan of Merger with Hometown Bancorp, Ltd.

2 unchanged sentences

Merger consideration will consist of up to 30 % cash and no less than 70 % common stock of the Company, and will total approximately $ 124 million, subject to the fair market value of the Company’s common stock on the date of closing.

Based on results as of June 30, 2022, and inclusive of projected balances to be acquired from the proposed acquisition of Denmark, the combined company would have total assets of approximately $ 4.27 billion, loans of approximately $ 3.27 billion and deposits of approximately $ 3.75 billion.

Based on results as of September 30, 2022, the combined company would have total assets of approximately $ 4.26 billion, loans of approximately $ 3.25 billion and deposits of approximately $ 3.68 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.

2 unchanged sentences

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 six months ended June 30, 2022 or 2021.

There were no anti-dilutive stock options for the nine months ended September 30, 2022 or 2021.

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Net income available to common shareholders

13 unchanged sentences

The following is a summary of available for sale securities:

June 30, 2022

September 30, 2022

Treasury securities

16 unchanged sentences

The following is a summary of held to maturity securities:

June 30, 2022

September 30, 2022

Treasury securities

6 unchanged sentences

Greater Than 12 Months

June 30, 2022 - Available for Sale

September 30, 2022 - Available for Sale

Treasury securities

5 unchanged sentences

Certificate of Deposits

June 30, 2022 - Held to Maturity

September 30, 2022 - Held to Maturity

Treasury securities

Obligations of states and political subdivisions

December 31, 2021 - Available for Sale

5 unchanged sentences

Corporate notes

As of June 30, 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.

As of September 30, 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 six months ended June 30, 2022 or 2021.

The following is a summary of amortized cost and estimated fair value of securities by contractual maturity as of June 30, 2022.

There were no other-than-temporary impairments charged to earnings during the nine months ended September 30, 2022 or 2021.

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

There were no realized gains or losses on sales of securities available for sale or held to maturity for the six months ended June 30, 2022 or 2021.

There were no realized gains or losses on sales of securities available for sale or held to maturity for the nine months ended September 30, 2022.

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

Proceeds from sales of securities

Gross gains on sales

Gross losses on sales

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 June 30, 2022 and December 31, 2021:

The following table presents total loans by portfolio segment and class of loan as of September 30, 2022 and December 31, 2021:

September 30,

Commercial/industrial

5 unchanged sentences

Deferred loan fees and costs

A summary of the activity in the ALL by loan type as of June 30, 2022 and 2021 is summarized as follows:

A summary of the activity in the ALL by loan type as of September 30, 2022 and 2021 is summarized as follows:

Real Estate -

1 unchanged sentence

ALL - January 1, 2022

ALL - June 30, 2022

ALL - September 30, 2022

ALL ending balance individually evaluated for impairment

ALL ending balance collectively evaluated for impairment

Loans outstanding - June 30, 2022

Loans outstanding - September 30, 2022

Loans ending balance individually evaluated for impairment

3 unchanged sentences

ALL - January 1, 2021

ALL - June 30, 2021

ALL - September 30, 2021

ALL ending balance individually evaluated for impairment

ALL ending balance collectively evaluated for impairment

Loans outstanding - June 30, 2021

Loans outstanding - September 30, 2021

Loans ending balance individually evaluated for impairment

Loans ending balance collectively evaluated for impairment

The Company’s past due loans as of June 30, 2022 is summarized as follows:

The Company’s past due loans as of September 30, 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 June 30, 2022 is as follows:

The breakdown of loans by risk rating as of September 30, 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 June 30, 2022 is as follows:

A summary of impaired loans individually evaluated as of September 30, 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 six months ended June 30, 2022 and 2021.

The following table presents loans acquired with deteriorated credit quality as of June 30, 2022 and December 31, 2021.

Interest recognized while these loans were impaired is considered immaterial to the consolidated financial statements for the nine months ended September 30, 2022 and 2021.

The following table presents loans acquired with deteriorated credit quality as of September 30, 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.

June 30, 2022

September 30, 2022

December 31, 2021

6 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 six months ended June 30, 2022, and year ended December 31, 2021:

June 30, 2022

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, 2022, and year ended December 31, 2021:

September 30, 2022

December 31, 2021

12 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 June 30, 2022 and December 31, 2021 the Company had negligible specific reserves for TDRs.

As of September 30, 2022 and December 31, 2021 the Company had negligible 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.

2 unchanged sentences

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 Bank had no new TDRs during the six months ended June 30, 2022 or 2021.

The Bank had no new TDRs during the nine months ended September 30, 2022 or 2021.

NOTE 6 – MORTGAGE SERVICING RIGHTS

9 unchanged sentences

Following is an analysis of activity in the MSR asset:

Six Months Ended

June 30, 2022

Nine Months Ended

September 30, 2022

December 31, 2021

4 unchanged sentences

Amount recognized through earnings

MSR asset acquired

Fair value at end of period

1 unchanged sentence

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 8.2 months and 13.8 and discount rates of 10.3 % as of June 30, 2022 and December 31, 2021.

The primary economic assumptions utilized by the Company in measuring the value of MSRs were constant prepayment speeds of 8.1 and 13.8 months and discount rates of 10.2 % and 10.3 % as of September 30, 2022 and December 31, 2021.

NOTE 7 – NOTES PAYABLE

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

At June 30, 2022 and December, 31, 2021, the Company had outstanding balances borrowed from the FHLB of $ 1.7 million and $ 8.0 million, respectively.

At September 30, 2022 and December, 31, 2021, the Company had outstanding balances borrowed from the FHLB of $ 2.6 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, 2022.

There were no outstanding balances on this note at June 30, 2022 or December 31, 2021.

There were no outstanding balances on this note at September 30, 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, 2024.

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 June 30, 2022 and December 31, 2021.

The Company had outstanding balances of $ 11.5 million under these agreements as of September 30, 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 June 30, 2022 and December 31, 2021.

The Company had outstanding balances of $ 6.0 million under these agreements as of September 30, 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.

These notes are callable on or after January 1, 2026 and qualify for Tier 2 capital for regulatory purposes.

During August 2022, the Company entered into subordinated note agreements with an individual.

The Company had outstanding balances of $ 6.0 million under these agreements as of September 30, 2022.

These notes were issued with 10 -year maturities, carry interest at a fixed rate of 5.25 % through August 6, 2027, and at a variable rate thereafter, payable quarterly.

These notes are callable on or after August 6, 2027 and qualify for Tier 2 capital for regulatory purposes.

NOTE 9 – REGULATORY MATTERS

6 unchanged sentences

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.

Due to the acquisition of Denmark the Company is subject to compliance with risk-based capital rules beginning with the third quarter of 2022, and will remain so as long as it remains above the $ 3 billion threshold.

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 June 30, 2022 and December 31, 2021, this buffer was 2.5 %.

As of June 30, 2022 and December 31, 2021, the Bank met all capital adequacy requirements to which they are subject.

As of September 30, 2022 and December 31, 2021, this buffer was 2.5 %.

As of September 30, 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

June 30, 2022

September 30, 2022

Total capital (to risk-weighted assets):

12 unchanged sentences

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 June 30, 2022 and December 31, 2021 was approximately $ 7.8 million and $ 21.9 million, respectively.

The notional amount of rate-lock commitments at September 30, 2022 and December 31, 2021 was approximately $ 7.1 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

June 30, 2022

September 30, 2022

December 31, 2021

12 unchanged sentences

for Identical

June 30, 2022

September 30, 2022

Securities available for sale

21 unchanged sentences

for Identical

June 30, 2022

September 30, 2022

Impaired Loans, net of impairment reserve

6 unchanged sentences

Valuation Technique

As of June 30, 2022

As of September 30, 2022

Other real estate owned

Third party appraisals, sales contracts or brokered price options

Collateral discounts and estimated costs to sell

Impaired loans

14 unchanged sentences

Fair value of other loans is estimated by discounting future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings.

Fair value of impaired and other nonperforming loans are estimated using discounted expected future cash flows or the fair value of the underlying collateral, if applicable.

value of impaired and other nonperforming loans are estimated using discounted expected future cash flows or the fair value of the underlying collateral, if applicable.

Other investments — The carrying amount reported in the consolidated balance sheets for other investments approximates the fair value of these assets.

11 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 June 30, 2022 and December 31, 2021 follows:

June 30, 2022

The carrying value and estimated fair value of financial instruments at September 30, 2022 and December 31, 2021 follows:

September 30, 2022

Financial assets:

44 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 June 30, 2022, 50,867 shares of Company stock have been awarded under the 2020 Plan.

As of September 30, 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 six months ended June 30, 2022 and 2021, compensation expense of $ 0.8 million and $ 0.7 million, respectively, was recognized related to restricted stock awards.

As of June 30, 2022, there was $ 3.0 million of unrecognized compensation cost related to non-vested restricted stock awards granted under the plan.

For the nine months ended September 30, 2022 and 2021, compensation expense of $ 1.2 million and $ 1.0 million, respectively, was recognized related to restricted stock awards.

As of September 30, 2022, there was $ 2.6 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 1.74 years.

The aggregate grant date fair value of restricted stock awards that vested during the six months ended June 30, 2022, was approximately $ 1.3 million.

The aggregate grant date fair value of restricted stock awards that vested during the nine months ended September 30, 2022, was approximately $ 1.3 million.

For the year ended

June 30, 2022

June 30, 2021

September 30, 2022

September 30, 2021

Average Grant-

21 unchanged sentences

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

Six-month period ended

June 30, 2022

June 30, 2021

Nine-month period ended

September 30, 2022

September 30, 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 June 30, 2022 is as follows:

June 30, 2022

A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total operating lease liabilities as of September 30, 2022 is as follows:

September 30, 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