Bank First Corp 10-Q

ITEM 1. Financial Statements Continued: BANK FIRST CORPORATION Consolidated Statements of Cash Flows (Continued) (In thousands) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended September 30, ​ ​ 2022 2021 ​ ​ ​ ​ ​ Cash flows from financing activities, net of effects of business combination: ​ ​ ​ ​ Net increase in deposits ​ $ 5,020 ​ $ 150,541 ​ Net decrease in securities sold under repurchase agreements ​ ( 19,159 ) ​ ( 18,975 ) ​ Proceeds from advances of notes payable ​ 3,122,700 ​ 5,000 ​ Repayment of notes payable ​ ( 3,128,950 ) ​ ( 19,230 ) ​ Proceeds from issuance of subordinated notes ​ ​ 6,000 ​ ​ — ​ Dividends paid ​ ( 5,567 ) ​ ( 7,054 ) ​ Proceeds from sales of common stock ​ 85 ​ 65 ​ Repurchase of common stock ​ ( 14,313 ) ​ ( 6,531 ) ​ Net cash provided by (used in) financing activities ​ ( 34,184 ) ​ 103,816 ​ Net increase (decrease) in cash and cash equivalents ​ ( 153,419 ) ​ 129,734 ​ Cash and cash equivalents at beginning of period ​ 296,860 ​ 170,219 ​ Cash and cash equivalents at end of period ​ $ 143,441 ​ $ 299,953 ​ ​ ​ ​ ​ ​ ​ ​ ​ Supplemental disclosures of cash flow information: ​ ​ ​ Cash paid during the period for: ​ ​ ​ ​ ​ ​ ​ Interest ​ $ 6,985 ​ $ 7,064 ​ Income taxes ​ 9,835 ​ 12,260 ​ Supplemental schedule of noncash activities: ​ ​ ​ ​ ​ MSR resulting from sale of loans ​ 658 ​ 1,447 ​ Amortization of unrealized holding gains on securities transferred from available for sale to held to maturity recognized in other comprehensive income, net of tax ​ ( 1 ) ​ ( 1 ) ​ Change in unrealized gains and losses on investment securities available for sale, net of tax ​ ( 22,347 ) ​ ( 1,387 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ Acquisition: ​ ​ ​ ​ ​ ​ ​ Fair value of assets acquired ​ $ 685,840 ​ $ — ​ Fair value of liabilities assumed ​ ​ 612,700 ​ ​ — ​ Net assets acquired ​ $ 73,140 ​ $ — ​ Common stock issued in acquisition ​ $ 125,320 ​ $ — ​ ​ See accompanying notes to consolidated financial statements. ​ 8 Table of Contents ​ BANK FIRST CORPORATION NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) NOTE 1 – BASIS OF PRESENTATION Bank First Corporation (the “Company”) provides a variety of financial services to individual and corporate customers through its wholly-owned subsidiary, Bank First, N.A. (the “Bank”). 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-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. These interim unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and with the instructions to Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain information and footnote disclosures required by GAAP have been omitted or abbreviated. These unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (“Annual Report”). The unaudited consolidated financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods. The results for interim periods are not necessarily indicative of results for a full year. Critical Accounting Policies and Estimates Preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying disclosures. 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 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; therefore, these are critical accounting policies. Factors that may cause sensitivity to the aforementioned estimates include but are not limited to: external market factors such as market interest rates and employment rates, changes to operating policies and procedures, changes in applicable banking or tax regulations, and changes to deferred tax estimates. Actual results may ultimately differ from estimates, although management does not generally believe such differences would materially affect the consolidated financial statements in any individual reporting period presented. 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. Recently Issued Not Yet Effective Accounting Standards In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” Certain aspects of this ASU were updated in November 2018 by the issuance of ASU 2018-19, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses”. The main objective of the ASU is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in the ASU replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. During 2019 FASB issued ASU 2019-10 which delayed the effective date of ASU 2016-13 for smaller, publicly traded companies, until interim and annual periods beginning after December 15, 2022. This delay applies to the Company as it was classified as a “Smaller reporting company” 9 Table of Contents ​ as defined in Rule 12b-2 of the Exchange Act as of the date ASU 2019-10 was enacted. 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. 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. 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): 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 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. ​ ​ ​ ​ 10 Table of Contents ​ The fair value of the assets acquired and liabilities assumed on August 12, 2022 was as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As Recorded by Fair Value ​ As Recorded by (in thousands) ​ Denmark Adjustments the Company Cash, cash equivalents and securities ​ $ 188,017 ​ $ ( 148 ) ​ $ 187,869 Other investments ​ 3,566 ​ — ​ ​ 3,566 Loans, net ​ 459,413 ​ ( 2,358 ) ​ ​ 457,055 Premises and equipment, net ​ 5,980 ​ ( 1,635 ) ​ ​ 4,345 Core deposit intangible ​ — ​ 15,112 ​ ​ 15,112 Other assets ​ 17,704 ​ 189 ​ ​ 17,893 Total assets acquired ​ $ 674,680 ​ $ 11,160 ​ $ 685,840 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Deposits ​ $ 604,636 ​ $ 166 ​ $ 604,802 Other borrowings ​ 842 ​ — ​ 842 Other liabilities ​ 3,951 ​ 3,105 ​ 7,056 Total liabilities assumed ​ $ 609,429 ​ $ 3,271 ​ $ 612,700 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Excess of assets acquired over liabilities assumed ​ $ 65,251 ​ $ 7,889 ​ $ 73,140 Less: purchase price ​ ​ ​ 129,334 Goodwill ​ ​ ​ ​ ​ ​ ​ $ 56,194 ​ 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 Year Ended (in thousands, except per share data) ​ September 30, 2022 December 31, 2021 Total revenue, net of interest expense ​ $ 105,099 ​ $ 140,904 Net income ​ $ 34,572 ​ $ 49,589 Diluted earnings per common share ​ 3.78 ​ 5.35 ​ ​ On July 25, 2022, the Company entered into an Agreement and Plan of Merger with Hometown Bancorp, Ltd. (“Hometown”), a Wisconsin Corporation, under which Hometown will merge with and into the Company and Hometown’s banking subsidiary, Hometown Bank, will merge with and into the Bank. The transaction is expected to close during the first quarter of 2023 and is subject to, among other items, approval by the shareholders of Hometown and regulatory agencies. 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 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. ​ ​ ​ NOTE 3 – EARNINGS PER SHARE The two-class method is used in the calculation of basic and diluted earnings per share. 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, 2022 or 2021. 11 Table of Contents ​ 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, ​ 2022 2021 2022 2021 Basic ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income available to common shareholders ​ $ 10,533 ​ $ 11,218 ​ $ 32,370 ​ $ 34,280 Less: Earnings allocated to participating securities ​ ​ ( 76 ) ​ ​ ( 88 ) ​ ​ ( 247 ) ​ ​ ( 266 ) Net income allocated to common shareholders ​ $ 10,457 ​ $ 11,130 ​ $ 32,123 ​ $ 34,014 ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted average common shares outstanding including participating securities ​ ​ 8,265,186 ​ ​ 7,665,272 ​ ​ 7,796,259 ​ ​ 7,698,284 Less: Participating securities (1) ​ ​ ( 59,272 ) ​ ​ ( 59,731 ) ​ ​ ( 59,170 ) ​ ​ ( 59,427 ) Average shares ​ ​ 8,205,914 ​ ​ 7,605,541 ​ ​ 7,737,089 ​ ​ 7,638,857 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic earnings per common shares ​ $ 1.26 ​ $ 1.46 ​ $ 4.15 ​ $ 4.45 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Diluted ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income available to common shareholders ​ $ 10,533 ​ $ 11,218 ​ $ 32,370 ​ $ 34,280 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted average common shares outstanding for basic earnings per common share ​ ​ 8,205,914 ​ ​ 7,605,541 ​ ​ 7,737,089 ​ ​ 7,638,857 Add: Dilutive effects of stock based compensation awards ​ ​ 22,283 ​ ​ 19,250 ​ ​ 20,637 ​ ​ 19,971 Average shares and dilutive potential common shares ​ ​ 8,228,197 ​ ​ 7,624,791 ​ ​ 7,757,726 ​ ​ 7,658,828 Diluted earnings per common share ​ $ 1.26 ​ $ 1.46 ​ $ 4.15 ​ $ 4.45 (1) Participating securities are restricted stock awards whereby the stock certificates have been issued, are included in outstanding shares, receive dividends and can be voted, but have not vested. ​ ​ NOTE 4 – SECURITIES The following is a summary of available for sale securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross Gross ​ ​ ​ ​ ​ Amortized ​ Unrealized ​ Unrealized ​ Estimated ​ ​ ​ Cost ​ Gains ​ Losses ​ Fair Value ​ September 30, 2022 ​ ​ ​ ​ ​ U.S. Treasury securities ​ $ 149,601 ​ $ — ​ $ ( 8,851 ) ​ $ 140,750 ​ Obligations of U.S. Government sponsored agencies ​ 25,281 ​ — ​ ( 3,411 ) ​ 21,870 ​ Obligations of states and political subdivisions ​ ​ 91,217 ​ ​ 14 ​ ​ ( 10,096 ) ​ ​ 81,135 ​ Mortgage-backed securities ​ ​ 39,840 ​ ​ — ​ ​ ( 2,370 ) ​ ​ 37,470 ​ Corporate notes ​ 21,509 ​ 392 ​ ( 1,314 ) ​ 20,587 ​ Certificates of deposit ​ ​ 1,503 ​ ​ — ​ ​ ( 35 ) ​ ​ 1,468 ​ Total available for sale securities ​ $ 328,951 ​ $ 406 ​ $ ( 26,077 ) ​ $ 303,280 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. Treasury securities ​ $ 49,574 ​ $ 121 ​ $ ( 193 ) ​ $ 49,502 ​ Obligations of U.S. Government sponsored agencies ​ ​ 26,722 ​ ​ 165 ​ ​ ( 341 ) ​ ​ 26,546 ​ Obligations of states and political subdivisions ​ ​ 83,019 ​ ​ 3,786 ​ ​ ( 67 ) ​ ​ 86,738 ​ Mortgage-backed securities ​ 26,143 ​ 1,117 ​ ( 1 ) ​ 27,259 ​ Corporate notes ​ 20,760 ​ 436 ​ ( 94 ) ​ 21,102 ​ Certificates of deposit ​ ​ 1,529 ​ ​ 13 ​ ​ — ​ ​ 1,542 ​ Total available for sale securities ​ $ 207,747 ​ $ 5,638 ​ $ ( 696 ) ​ $ 212,689 ​ ​ 12 Table of Contents ​ The following is a summary of held to maturity securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross Gross ​ ​ ​ ​ Amortized ​ Unrealized ​ Unrealized ​ Estimated ​ ​ Cost ​ Gains ​ Losses ​ Fair Value September 30, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. Treasury securities ​ $ 35,630 ​ $ — ​ $ ( 1,687 ) ​ $ 33,943 Obligations of states and political subdivisions ​ ​ 5,196 ​ ​ — ​ ​ ( 5 ) ​ ​ 5,191 Total held to maturity securities ​ $ 40,826 ​ $ — ​ $ ( 1,692 ) ​ $ 39,134 December 31, 2021 ​ ​ ​ ​ Obligations of states and political subdivisions ​ $ 5,911 ​ $ 11 ​ $ — ​ $ 5,922 ​ The following table shows the fair value and gross unrealized losses of securities with unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Less Than 12 Months ​ Greater Than 12 Months ​ Total ​ Fair Unrealized Fair Unrealized Fair Unrealized ​ ​ Value ​ Losses ​ Value ​ Losses ​ Value ​ Losses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2022 - Available for Sale ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. Treasury securities ​ $ 140,750 ​ $ ( 8,851 ) ​ $ — ​ $ — ​ $ 140,750 ​ $ ( 8,851 ) Obligations of U.S. Government sponsored agencies ​ ​ 18,326 ​ ​ ( 2,429 ) ​ ​ 3,544 ​ ​ ( 982 ) ​ ​ 21,870 ​ ​ ( 3,411 ) Obligations of states and political subdivisions ​ ​ 75,119 ​ ​ ( 10,096 ) ​ ​ — ​ ​ — ​ ​ 75,119 ​ ​ ( 10,096 ) Mortgage-backed securities ​ 37,470 ​ ( 2,370 ) ​ — ​ — ​ 37,470 ​ ( 2,370 ) Corporate notes ​ 12,895 ​ ( 1,314 ) ​ — ​ — ​ 12,895 ​ ( 1,314 ) Certificate of Deposits ​ ​ 1,468 ​ ​ ( 35 ) ​ ​ — ​ ​ — ​ ​ 1,468 ​ ​ ( 35 ) Totals ​ $ 286,028 ​ $ ( 25,095 ) ​ $ 3,544 ​ $ ( 982 ) ​ $ 289,572 ​ $ ( 26,077 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2022 - Held to Maturity ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. Treasury securities ​ $ 33,943 ​ $ ( 1,687 ) ​ $ — ​ $ — ​ $ 33,943 ​ $ ( 1,687 ) Obligations of states and political subdivisions ​ ​ 415 ​ ​ ( 5 ) ​ ​ — ​ ​ — ​ ​ 415 ​ ​ ( 5 ) ​ ​ $ 34,358 ​ $ ( 1,692 ) ​ $ — ​ $ — ​ $ 34,358 ​ $ ( 1,692 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 - Available for Sale ​ ​ ​ ​ ​ ​ U.S. Treasury securities ​ $ 34,746 ​ $ ( 193 ) ​ $ — ​ $ — ​ $ 34,746 ​ $ ( 193 ) Obligations of U.S. Government sponsored agencies ​ ​ 13,185 ​ ​ ( 86 ) ​ ​ 4,558 ​ ​ ( 255 ) ​ ​ 17,743 ​ ​ ( 341 ) Obligations of states and political subdivisions ​ ​ 8,624 ​ ​ ( 67 ) ​ ​ — ​ ​ — ​ ​ 8,624 ​ ​ ( 67 ) Mortgage-backed securities ​ 254 ​ ( 1 ) ​ — ​ — ​ 254 ​ ( 1 ) Corporate notes ​ 8,973 ​ ( 94 ) ​ — ​ — ​ 8,973 ​ ( 94 ) Totals ​ $ 65,782 ​ $ ( 441 ) ​ $ 4,558 ​ $ ( 255 ) ​ $ 70,340 ​ $ ( 696 ) ​ 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 nine months ended September 30, 2022 or 2021. 13 Table of Contents ​ 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. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Available for Sale ​ Held to Maturity ​ Amortized Estimated Amortized Estimated ​ ​ Cost ​ Fair Value ​ Cost ​ Fair Value Due in one year or less ​ $ 103,648 ​ $ 102,497 ​ $ 1,044 ​ $ 1,043 Due after one year through 5 years ​ 22,408 ​ 21,333 ​ ​ 38,028 ​ ​ 36,390 Due after 5 years through ten years ​ 91,139 ​ 81,108 ​ ​ 1,754 ​ ​ 1,701 Due after 10 years ​ 71,916 ​ 60,872 ​ ​ — ​ ​ — Subtotal ​ 289,111 ​ 265,810 ​ ​ 40,826 ​ ​ 39,134 Mortgage-backed securities ​ 39,840 ​ 37,470 ​ ​ — ​ ​ — Total ​ $ 328,951 ​ $ 303,280 ​ $ 40,826 ​ $ 39,134 ​ 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. ​ ​ ​ ​ ​ ​ ​ ​ ​ 2022 2021 Proceeds from sales of securities ​ $ — ​ $ 9,087 Gross gains on sales ​ — ​ — Gross losses on sales ​ — ​ ( 3 ) ​ ​ ​ ​ 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, 2022 and December 31, 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ December 31, ​ ​ 2022 2021 Commercial/industrial ​ $ 486,839 ​ $ 367,284 Commercial real estate - owner occupied ​ 723,964 ​ 574,960 Commercial real estate - non-owner occupied ​ 668,505 ​ 537,077 Construction and development ​ 209,619 ​ 132,675 Residential 1‑4 family ​ 706,794 ​ 571,749 Consumer ​ 43,953 ​ 31,992 Other ​ 19,178 ​ 21,489 Subtotals ​ 2,858,852 ​ 2,237,226 ALL ​ ( 23,045 ) ​ ( 20,315 ) Loans, net of ALL ​ 2,835,807 ​ 2,216,911 Deferred loan fees and costs ​ ( 785 ) ​ ( 1,712 ) Loans, net ​ $ 2,835,022 ​ $ 2,215,199 ​ ​ 14 Table of Contents ​ A summary of the activity in the ALL by loan type as of September 30, 2022 and 2021 is summarized as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial Commercial ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Real Estate - ​ Real Estate  - ​ Construction ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial / ​ Owner ​ Non - Owner ​ and ​ Residential ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Industrial ​ Occupied ​ Occupied ​ Development ​ 1-4 Family ​ Consumer ​ Other ​ Total ALL - January 1, 2022 ​ $ 3,699 ​ $ 5,633 ​ $ 5,151 ​ $ 984 ​ $ 4,445 ​ $ 224 ​ $ 179 ​ $ 20,315 Charge-offs ​ — ​ ​ — ​ ​ — ​ — ​ ( 39 ) ​ ( 17 ) ​ ( 27 ) ​ ( 83 ) Recoveries ​ 455 ​ ​ 74 ​ ​ 360 ​ 152 ​ 6 ​ 2 ​ 64 ​ 1,113 Provision ​ 134 ​ ​ ( 643 ) ​ ​ 365 ​ 507 ​ 1,312 ​ 90 ​ ( 65 ) ​ 1,700 ALL - September 30, 2022 ​ 4,288 ​ ​ 5,064 ​ ​ 5,876 ​ 1,643 ​ 5,724 ​ 299 ​ 151 ​ 23,045 ALL ending balance individually evaluated for impairment ​ 150 ​ ​ — ​ ​ 775 ​ — ​ — ​ — ​ — ​ 925 ALL ending balance collectively evaluated for impairment ​ $ 4,138 ​ $ 5,064 ​ $ 5,101 ​ $ 1,643 ​ $ 5,724 ​ $ 299 ​ $ 151 ​ $ 22,120 Loans outstanding - September 30, 2022 ​ $ 486,839 ​ $ 723,964 ​ $ 668,505 ​ $ 209,619 ​ $ 706,794 ​ $ 43,953 ​ $ 19,178 ​ $ 2,858,852 Loans ending balance individually evaluated for impairment ​ 487 ​ ​ 2,541 ​ ​ 1,396 ​ — ​ 211 ​ — ​ — ​ 4,635 Loans ending balance collectively evaluated for impairment ​ $ 486,352 ​ $ 721,423 ​ $ 667,109 ​ $ 209,619 ​ $ 706,583 ​ $ 43,953 ​ $ 19,178 ​ $ 2,854,217 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial Commercial ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Real Estate - ​ Real Estate - ​ Construction ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial / ​ Owner ​ Non - Owner ​ and ​ Residential ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Industrial ​ Occupied ​ Occupied ​ Development ​ 1-4 Family ​ Consumer ​ Other ​ Total ALL - January 1, 2021 ​ $ 2,049 ​ $ 6,108 ​ $ 3,904 ​ $ 1,027 ​ $ 3,960 ​ $ 201 ​ $ 409 ​ $ 17,658 Charge-offs ​ ( 48 ) ​ ​ ( 289 ) ​ ​ — ​ — ​ — ​ — ​ ( 21 ) ​ ( 358 ) Recoveries ​ 38 ​ ​ 343 ​ ​ 5 ​ 33 ​ 12 ​ 1 ​ 5 ​ 437 Provision ​ 971 ​ ​ 805 ​ ​ 677 ​ ( 194 ) ​ 408 ​ 30 ​ ( 197 ) ​ 2,500 ALL - September 30, 2021 ​ 3,010 ​ ​ 6,967 ​ ​ 4,586 ​ 866 ​ 4,380 ​ 232 ​ 196 ​ 20,237 ALL ending balance individually evaluated for impairment ​ 93 ​ ​ — ​ ​ 392 ​ — ​ — ​ — ​ — ​ 485 ALL ending balance collectively evaluated for impairment ​ $ 2,917 ​ $ 6,967 ​ $ 4,194 ​ $ 866 ​ $ 4,380 ​ $ 232 ​ $ 196 ​ $ 19,752 Loans outstanding - September 30, 2021 ​ $ 355,773 ​ $ 567,906 ​ $ 542,455 ​ $ 116,957 ​ $ 572,821 ​ $ 33,008 ​ $ 22,816 ​ $ 2,211,736 Loans ending balance individually evaluated for impairment ​ 414 ​ ​ 3,467 ​ ​ 6,617 ​ — ​ — ​ — ​ — ​ 10,498 Loans ending balance collectively evaluated for impairment ​ $ 355,359 ​ $ 564,439 ​ $ 535,838 ​ $ 116,957 ​ $ 572,821 ​ $ 33,008 ​ $ 22,816 ​ $ 2,201,238 ​ The Company’s past due loans as of September 30, 2022 is summarized as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 90 Days ​ ​ ​ ​ ​ ​ 30-89 Days ​ or more ​ ​ ​ ​ ​ ​ ​ ​ Past Due ​ Past Due ​ ​ ​ ​ ​ ​ ​ Accruing ​ and Accruing ​ Non-Accrual ​ Total Commercial/industrial ​ $ 19 ​ $ 205 ​ $ 218 ​ $ 442 Commercial real estate - owner occupied ​ — ​ 33 ​ 3,609 ​ 3,642 Commercial real estate - non-owner occupied ​ — ​ — ​ — ​ — Construction and development ​ — ​ — ​ 17 ​ 17 Residential 1‑4 family ​ 232 ​ 162 ​ 516 ​ 910 Consumer ​ 19 ​ 3 ​ 10 ​ 32 Other ​ — ​ — ​ — ​ — ​ ​ $ 270 ​ $ 403 ​ $ 4,370 ​ $ 5,043 ​ 15 Table of Contents ​ The Company’s past due loans as of December 31, 2021 is summarized as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 90 Days ​ ​ ​ ​ ​ ​ 30-89 Days ​ or more ​ ​ ​ ​ ​ ​ ​ ​ Past Due ​ Past Due ​ ​ ​ ​ ​ ​ Accruing ​ and Accruing ​ Non-Accrual ​ Total Commercial/industrial ​ $ 12 ​ $ 738 ​ $ 247 ​ $ 997 Commercial real estate - owner occupied ​ — ​ — ​ 5,884 ​ 5,884 Commercial real estate - non-owner occupied ​ 65 ​ — ​ 650 ​ 715 Construction and development ​ — ​ — ​ 19 ​ 19 Residential 1‑4 family ​ 2,002 ​ 245 ​ 439 ​ 2,686 Consumer ​ 2 ​ 16 ​ 2 ​ 20 Other ​ — ​ — ​ — ​ — ​ ​ $ 2,081 ​ $ 999 ​ $ 7,241 ​ $ 10,321 ​ The Company utilizes a numerical risk rating system for commercial relationships. All other types of relationships (ex: residential, consumer, other) are assigned a “Pass” rating, unless they have fallen 90 days past due or more, at which time they receive a rating of 7. The Company uses split ratings for government guaranties on loans. The portion of a loan that is supported by a government guaranty is included with other Pass credits. The determination of a commercial loan risk rating begins with completion of a matrix, which assigns scores based on the strength of the borrower’s debt service coverage, collateral coverage, balance sheet leverage, industry outlook, and customer concentration. A weighted average is taken of these individual scores to arrive at the overall rating. This rating is subject to adjustment by the loan officer based on facts and circumstances pertaining to the borrower. Risk ratings are subject to independent review. Commercial borrowers with ratings between 1 and 5 are considered Pass credits, with 1 being most acceptable and 5 being just above the minimum level of acceptance. Commercial borrowers rated 6 have potential weaknesses which may jeopardize repayment ability. Borrowers rated 7 have a well-defined weakness or weaknesses such as the inability to demonstrate significant cash flow for debt service based on analysis of the company’s financial information. These loans remain on accrual status provided full collection of principal and interest is reasonably expected. Otherwise they are deemed impaired and placed on nonaccrual status. Borrowers rated 8 are the same as 7 rated credits with one exception: collection or liquidation in full is not probable. The breakdown of loans by risk rating as of September 30, 2022 is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass (1-5) 6 7 8 Total Commercial/industrial ​ $ 466,355 ​ $ 304 ​ $ 20,180 ​ $ — ​ $ 486,839 Commercial real estate - owner occupied ​ 678,288 ​ 333 ​ 45,343 ​ — ​ 723,964 Commercial real estate - non-owner occupied ​ 664,162 ​ — ​ 4,343 ​ — ​ 668,505 Construction and development ​ 208,463 ​ — ​ 1,156 ​ — ​ 209,619 Residential 1‑4 family ​ 703,391 ​ — ​ 3,403 ​ — ​ 706,794 Consumer ​ 43,951 ​ — ​ 2 ​ — ​ 43,953 Other ​ 19,178 ​ — ​ — ​ — ​ 19,178 ​ ​ $ 2,783,788 ​ $ 637 ​ $ 74,427 ​ $ — ​ $ 2,858,852 ​ 16 Table of Contents ​ The breakdown of loans by risk rating as of December 31, 2021 is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass (1-5) 6 7 8 Total Commercial/industrial ​ $ 355,469 ​ $ — ​ $ 11,815 ​ $ — ​ $ 367,284 Commercial real estate - owner occupied ​ 551,801 ​ — ​ 23,159 ​ — ​ 574,960 Commercial real estate - non-owner occupied ​ 532,077 ​ — ​ 5,000 ​ — ​ 537,077 Construction and development ​ 131,429 ​ — ​ 1,246 ​ — ​ 132,675 Residential 1‑4 family ​ 570,022 ​ 83 ​ 1,644 ​ — ​ 571,749 Consumer ​ 31,988 ​ — ​ 4 ​ — ​ 31,992 Other ​ 21,489 ​ — ​ — ​ — ​ 21,489 ​ ​ $ 2,194,275 ​ $ 83 ​ $ 42,868 ​ $ — ​ $ 2,237,226 ​ The ALL represents management’s estimate of probable and inherent credit losses in the loan portfolio. Estimating the amount of the ALL requires the exercise of significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans, estimated losses on pools of homogenous loans based on historical loss experience, and consideration of other qualitative factors such as current economic trends and conditions, all of which may be susceptible to significant change. The loan portfolio also represents the largest asset on the consolidated balance sheets. Loan losses are charged off against the ALL, while recoveries of amounts previously charged off are credited to the ALL. A provision for loan losses is charged to operations based on management’s periodic evaluation of the factors previously mentioned, as well as other pertinent factors. The ALL consists of specific reserves for certain individually evaluated impaired loans and general reserves for collectively evaluated non-impaired loans. Specific reserves reflect estimated losses on impaired loans from management’s analyses developed through specific credit allocations. The specific reserves are based on regular analyses of impaired, non-homogenous loans greater than $250,000. These analyses involve a high degree of judgment in estimating the amount of loss associated with specific loans, including estimating the amount and timing of future cash flows and collateral values. The general reserve is based in part on the Bank’s historical loss experience which is updated quarterly. The general reserve portion of the ALL also includes consideration of certain qualitative factors such as 1) changes in lending policies and/or underwriting practices, 2) national and local economic conditions, 3) changes in portfolio volume and nature, 4) experience, ability and depth of lending management and other relevant staff, 5) levels of and trends in past-due and nonaccrual loans and quality, 6) changes in loan review and oversight, 7) impact and effects of concentrations and 8) other issues deemed relevant. There are many factors affecting ALL; some are quantitative while others require qualitative judgment. The process for determining the ALL (which management believes adequately considers potential factors which might possibly result in credit losses) includes subjective elements and, therefore, may be susceptible to significant change. To the extent actual outcomes differ from management estimates, additional provisions for loan losses could be required that could adversely affect the Company’s earnings or financial position in future periods. Allocations of the ALL may be made for specific loans but the entire ALL is available for any loan that, in management’s judgment, should be charged off or for which an actual loss is realized. As an integral part of their examination process, various regulatory agencies review the ALL as well. 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. 17 Table of Contents ​ A summary of impaired loans individually evaluated as of September 30, 2022 is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial Commercial ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Real Estate - ​ Real Estate - ​ Construction ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial/ ​ Owner ​ Non - Owner ​ and ​ Residential ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Industrial ​ Occupied ​ Occupied ​ Development ​ 1-4 Family ​ Consumer ​ Other ​ Total With an allowance recorded: ​ ​ ​ ​ ​ ​ ​ ​ Recorded investment ​ $ 202 ​ $ — ​ $ 1,285 ​ $ — ​ $ — ​ $ — ​ $ — ​ $ 1,487 Unpaid principal balance ​ 202 ​ — ​ 1,285 ​ — ​ — ​ — ​ — ​ 1,487 Related allowance ​ 150 ​ — ​ 775 ​ — ​ — ​ — ​ — ​ 925 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ With no related allowance recorded: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Recorded investment ​ $ 285 ​ $ 2,541 ​ $ 111 ​ $ — ​ $ 211 ​ $ — ​ $ — ​ $ 3,148 Unpaid principal balance ​ 285 ​ 2,541 ​ 111 ​ — ​ 211 ​ — ​ — ​ 3,148 Related allowance ​ — ​ — ​ — ​ — ​ — ​ — ​ — ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Recorded investment ​ $ 487 ​ $ 2,541 ​ $ 1,396 ​ $ — ​ $ 211 ​ $ — ​ $ — ​ $ 4,635 Unpaid principal balance ​ 487 ​ 2,541 ​ 1,396 ​ — ​ 211 ​ — ​ — ​ 4,635 Related allowance ​ 150 ​ — ​ 775 ​ — ​ — ​ — ​ — ​ 925 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Average recorded investment ​ $ 463 ​ $ 3,753 ​ $ 1,457 ​ $ — ​ $ 242 ​ $ — ​ $ — ​ $ 5,915 ​ A summary of impaired loans individually evaluated as of December 31, 2021 is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial Commercial ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Real Estate - ​ Real Estate - ​ Construction ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial/ ​ Owner ​ Non - Owner ​ and ​ Residential ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Industrial ​ Occupied ​ Occupied ​ Development ​ 1 ‑ 4 Family ​ Consumer ​ Other ​ Total With an allowance recorded: ​ ​ ​ ​ ​ ​ ​ ​ ​ Recorded investment ​ $ 357 ​ $ — ​ $ 1,406 ​ $ — ​ $ — ​ $ — ​ $ — ​ $ 1,763 Unpaid principal balance ​ 357 ​ — ​ 1,406 ​ — ​ — ​ — ​ — ​ 1,763 Related allowance ​ 70 ​ — ​ 894 ​ — ​ — ​ — ​ — ​ 964 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ With no related allowance recorded: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Recorded investment ​ $ 82 ​ $ 4,966 ​ $ 113 ​ $ — ​ $ 273 ​ $ — ​ $ — ​ $ 5,434 Unpaid principal balance ​ 82 ​ 4,966 ​ 113 ​ — ​ 273 ​ — ​ — ​ 5,434 Related allowance ​ — ​ — ​ — ​ — ​ — ​ — ​ — ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Recorded investment ​ $ 439 ​ $ 4,966 ​ $ 1,519 ​ $ — ​ $ 273 ​ $ — ​ $ — ​ $ 7,197 Unpaid principal balance ​ 439 ​ 4,966 ​ 1,519 ​ — ​ 273 ​ — ​ — ​ 7,197 Related allowance ​ 70 ​ — ​ 894 ​ — ​ — ​ — ​ — ​ 964 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Average recorded investment ​ $ 459 ​ $ 3,069 ​ $ 5,098 ​ $ — ​ $ 267 ​ $ — ​ $ — ​ $ 8,893 ​ 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. 18 Table of Contents ​ 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. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2022 ​ December 31, 2021 ​ ​ ​ ​ ​ Unpaid ​ ​ ​ ​ Unpaid ​ ​ Recorded ​ Principal ​ Recorded ​ Principal ​ Investment Balance Investment Balance Commercial & Industrial ​ $ 730 ​ $ 1,180 ​ $ 596 ​ $ 685 Commercial real estate - owner occupied ​ 2,566 ​ 2,873 ​ 2,664 ​ 3,146 Commercial real estate - non-owner occupied ​ — ​ — ​ 1,018 ​ 1,150 Construction and development ​ — ​ — ​ — ​ — Residential 1‑4 family ​ 827 ​ 1,060 ​ 863 ​ 1,124 Consumer ​ — ​ — ​ — ​ — Other ​ — ​ — ​ — ​ — ​ ​ $ 4,123 ​ $ 5,113 ​ $ 5,141 ​ $ 6,105 ​ Due to the nature of these loan relationships, prepayment expectations have not been considered in the determination of future cash flows. 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, 2022, and year ended December 31, 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2022 ​ December 31, 2021 ​ ​ Accretable ​ Non-accretable ​ Accretable ​ Non-accretable ​ discount discount discount discount Balance at beginning of period ​ $ 813 ​ $ 149 ​ $ 1,250 ​ $ 176 Acquired balance, net ​ 292 ​ 211 ​ — ​ — Reclassifications between accretable and non-accretable ​ 61 ​ ( 61 ) ​ 27 ​ ( 27 ) Accretion to loan interest income ​ ( 476 ) ​ — ​ ( 464 ) ​ — Balance at end of period ​ $ 690 ​ $ 299 ​ $ 813 ​ $ 149 ​ A troubled debt restructuring (“TDR”) includes a loan modification where a borrower is experiencing financial difficulty and we grant a concession to that borrower that we would not otherwise consider except for the borrower’s financial difficulties. These concessions may include modifications of the terms of the debt such as deferral of payments, extension of maturity, reduction of principal balance, reduction of the stated interest rate other than normal market rate adjustments, or a combination of these concessions. Debt may be bifurcated with separate terms for each tranche of the restructured debt. Restructuring a loan in lieu of aggressively enforcing the collection of the loan may benefit the Company by increasing the ultimate probability of collection. A TDR may be either on accrual or nonaccrual status based upon the performance of the borrower and management’s assessment of collectability. 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, 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. 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. 19 Table of Contents ​ The Bank had no new TDRs during the nine months ended September 30, 2022 or 2021. ​ ​ ​ ​ NOTE 6 – MORTGAGE SERVICING RIGHTS Loans serviced for others are not included in the accompanying consolidated balance sheets. MSRs are recognized as separate assets when loans sold in the secondary market are sold with servicing retained. The Company utilizes a third-party consulting firm to determine an accurate assessment of the MSRs fair value. The third-party firm collects relevant data points from numerous sources. Some of these data points relate directly to the pricing level or relative value of the mortgage servicing while other data points relate to the assumptions used to derive fair value. In addition, the valuation evaluates specific collateral types, and current and historical performance of the collateral in question. The valuation process focuses on the non-distressed secondary servicing market, common industry practices and current regulatory standards. The primary determinants of the fair value of MSRs are servicing fee percentage, ancillary income, expected loan life or prepayment speeds, discount rates, costs to service, delinquency rates, foreclosure losses and recourse obligations. The valuation data also contains interest rate shock analyses for monitoring fair value changes in differing interest rate environments. Following is an analysis of activity in the MSR asset: ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended Year Ended ​ ​ September 30, 2022 ​ December 31, 2021 Fair value at beginning of period ​ $ 5,016 ​ $ 3,726 ​ ​ ​ ​ ​ ​ ​ Servicing asset additions ​ 658 ​ 1,862 Loan payments and payoffs ​ ( 660 ) ​ ( 1,319 ) Changes in valuation inputs and assumptions used in the valuation model ​ 2,848 ​ 747 Amount recognized through earnings ​ ​ 2,846 ​ ​ 1,290 MSR asset acquired ​ 1,701 ​ — Fair value at end of period ​ $ 9,563 ​ $ 5,016 ​ ​ ​ ​ ​ ​ ​ Unpaid principal balance of loans serviced for others ​ $ 873,383 ​ $ 705,462 Mortgage servicing rights as a percent of loans serviced for others ​ 1.09 ​ 0.71 ​ 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. ​ 20 Table of Contents ​ NOTE 7 – NOTES PAYABLE From time to time the Company utilizes FHLB advances to fund liquidity. 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, December 31, ​ ​ Maturity ​ Rate ​ 2022 ​ 2021 Fixed rate, fixed term ​ 01/24/2022 ​ 2.51 % $ — ​ $ 250 Fixed rate, fixed term ​ 05/02/2022 ​ 2.98 % ​ — ​ ​ 500 Fixed rate, fixed term ​ 05/16/2022 ​ 0.00 % ​ — ​ ​ 5,000 Fixed rate, fixed term ​ 06/08/2022 ​ 2.92 % ​ — ​ ​ 500 Fixed rate, fixed term ​ 11/21/2022 ​ 3.02 % ​ 600 ​ ​ 600 Fixed rate, fixed term ​ 06/01/2023 ​ 1.79 % ​ 842 ​ ​ — Fixed rate, fixed term ​ 11/21/2023 ​ 3.06 % ​ 600 ​ ​ 600 Fixed rate, fixed term ​ 04/22/2030 ​ 0.00 % ​ 508 ​ ​ 508 ​ ​ ​ ​ ​ ​ ​ 2,550 ​ ​ 7,958 Adjustment due to purchase accounting ​ ​ ​ ​ ​ ​ 19 ​ ​ 53 ​ ​ ​ ​ ​ ​ $ 2,569 ​ $ 8,011 ​ Future maturities of borrowings were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, December 31, ​ ​ 2022 ​ 2021 1 year or less ​ $ 1,442 ​ $ 6,850 1 to 2 years ​ 600 ​ 600 2 to 3 years ​ — ​ — 3 to 4 years ​ — ​ — 4 to 5 years ​ — ​ — Over 5 years ​ ​ 508 ​ ​ 508 ​ ​ $ 2,550 ​ $ 7,958 ​ 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 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. ​ NOTE 8 – SUBORDINATED NOTES 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, 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, 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. ​ 21 Table of Contents ​ NOTE 9 – REGULATORY MATTERS Banks and certain bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. 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. 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 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. 22 Table of Contents ​ Actual and required capital amounts and ratios are presented below at period-end: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ To Be Well ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Minimum Capital ​ Capitalized Under ​ ​ ​ ​ ​ ​ ​ For Capital ​ Adequacy with ​ Prompt Corrective ​ ​ Actual ​ Adequacy Purposes ​ Capital Buffer ​ Action Provisions ​ Amount Ratio Amount Ratio Amount Ratio Amount Ratio ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total capital (to risk-weighted assets): ​ ​ ​ ​ ​ Company ​ $ 375,338 11.92 % $ 252,010 8.00 % $ 330,763 10.50 % $ 315,012 10.00 % Bank ​ $ 362,876 11.52 % $ 251,900 8.00 % $ 330,619 10.50 % $ 314,876 10.00 % Tier 1 capital (to risk-weighted assets): ​ ​ ​ ​ ​ ​ ​ ​ Company ​ $ 328,793 10.44 % $ 189,007 6.00 % $ 267,761 8.50 % $ 252,010 8.00 % Bank ​ $ 339,831 10.79 % $ 188,925 6.00 % $ 267,644 8.50 % $ 251,900 8.00 % Common Equity Tier 1 capital (to risk-weighted assets): ​ ​ ​ ​ ​ ​ ​ ​ Company ​ $ 328,793 10.44 % $ 141,756 4.50 % $ 220,509 7.00 % $ 204,758 6.50 % Bank ​ $ 339,831 10.79 % $ 141,694 4.50 % $ 220,413 7.00 % $ 204,669 6.50 % Tier 1 capital (to average assets): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Company ​ $ 328,793 10.22 % $ 128,705 4.00 % $ 128,705 4.00 % $ 160,881 5.00 % Bank ​ $ 339,831 10.63 % $ 127,821 4.00 % $ 127,821 4.00 % $ 159,776 5.00 % December 31, 2021 ​ ​ ​ ​ ​ ​ ​ Total capital (to risk-weighted assets): ​ ​ ​ ​ ​ ​ Company ​ $ 297,467 12.44 % NA NA ​ NA NA ​ NA NA ​ Bank ​ $ 291,994 12.21 % $ 191,339 8.00 % $ 251,133 10.50 % $ 239,174 10.00 % Tier 1 capital (to risk-weighted assets): ​ ​ ​ ​ ​ ​ Company ​ $ 259,652 10.86 % NA NA ​ NA NA ​ NA NA ​ Bank ​ $ 271,679 11.36 % $ 143,505 6.00 % $ 203,298 8.50 % $ 191,339 8.00 % Common Equity Tier 1 capital (to risk-weighted assets): ​ ​ ​ ​ ​ ​ Company ​ $ 259,652 10.86 % NA NA ​ NA NA ​ NA NA ​ Bank ​ $ 271,679 11.36 % $ 107,628 4.50 % $ 167,422 7.00 % $ 155,463 6.50 % Tier 1 capital (to average assets): ​ ​ ​ ​ ​ ​ Company ​ $ 259,652 9.29 % NA NA ​ NA NA ​ NA NA ​ Bank ​ $ 271,679 9.72 % $ 111,825 4.00 % $ 111,825 4.00 % $ 139,781 5.00 % ​ ​ ​ ​ NOTE 10 – COMMITMENTS AND CONTINGENCIES The Company enters into commitments to originate loans whereby the interest rate on the loan is determined prior to funding (rate-lock commitments). Rate-lock commitments on mortgage loans that are intended to be sold are considered to be derivatives. 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, 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. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets. 23 Table of Contents ​ The Company’s exposure to credit loss is represented by the contractual or notional amount of these commitments. The Company follows the same credit policies in making commitments as it does for on-balance-sheet instruments. Since some of the commitments are expected to expire without being drawn upon and some of the commitments may not be drawn upon to the total extent of the commitment, the notional amount of these commitments does not necessarily represent future cash requirements. The following commitments were outstanding: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Notional Amount ​ September 30, 2022 ​ December 31, 2021 ​ ​ ​ ​ ​ ​ ​ Commitments to extend credit: ​ ​ Fixed ​ $ 147,480 ​ $ 90,036 Variable ​ 522,367 ​ 412,095 Credit card arrangements ​ 16,787 ​ 10,916 Letters of credit ​ 11,889 ​ 9,062 ​ ​ NOTE 11 – FAIR VALUE MEASUREMENTS Accounting guidance establishes a fair value hierarchy to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value. Level 1: Quoted prices (unadjusted) or identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date. Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. ​ Information regarding the fair value of assets measured at fair value on a recurring basis is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Instruments Markets Other Significant ​ ​ Measured ​ for Identical ​ Observable ​ Unobservable ​ ​ At Fair ​ Assets ​ Inputs ​ Inputs ​ ​ Value ​ (Level 1) ​ (Level 2) ​ (Level 3) September 30, 2022 ​ ​ ​ ​ Assets ​ ​ ​ ​ Securities available for sale ​ ​ ​ ​ ​ U.S. Treasury securities ​ $ 140,750 ​ $ — ​ $ 140,750 ​ $ — Obligations of U.S. Government sponsored agencies ​ 21,870 ​ — ​ 21,870 ​ — Obligations of states and political subdivisions ​ 81,135 ​ — ​ 81,135 ​ — Mortgage-backed securities ​ ​ 37,470 ​ ​ — ​ ​ 37,470 ​ ​ — Corporate notes ​ 20,587 ​ — ​ 20,587 ​ — Certificates of deposit ​ ​ 1,468 ​ ​ — ​ ​ 1,468 ​ ​ — Mortgage servicing rights ​ 9,563 ​ — ​ 9,563 ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ ​ ​ ​ Assets ​ ​ ​ ​ Securities available for sale ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. Treasury securities ​ $ 49,502 ​ $ — ​ $ 49,502 ​ $ — Obligations of U.S. Government sponsored agencies ​ 26,546 ​ — ​ 26,546 ​ — Obligations of states and political subdivisions ​ 86,738 ​ — ​ 86,738 ​ — Mortgage-backed securities ​ ​ 27,259 ​ ​ — ​ ​ 27,259 ​ ​ — Corporate notes ​ 21,102 ​ — ​ 21,102 ​ — Certificates of deposit ​ ​ 1,542 ​ ​ — ​ ​ 1,542 ​ ​ — Mortgage servicing rights ​ 5,016 ​ — ​ 5,016 ​ — ​ 24 Table of Contents ​ There were no assets measured on a recurring basis using significant unobservable inputs (Level 3) during these periods. ​ Information regarding the fair value of assets measured at fair value on a non-recurring basis is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Quoted Prices ​ ​ ​ ​ ​ ​ ​ ​ ​ In Active ​ Significant ​ ​ ​ ​ ​ Assets ​ Markets ​ Other ​ Significant ​ ​ Measured ​ for Identical ​ Observable ​ Unobservable ​ ​ At Fair ​ Assets ​ Inputs ​ Inputs ​ ​ Value ​ (Level 1) ​ (Level 2) ​ (Level 3) September 30, 2022 ​ ​ ​ ​ OREO ​ $ 1,405 ​ $ — ​ $ — ​ $ 1,405 Impaired Loans, net of impairment reserve ​ ​ 3,710 ​ ​ — ​ ​ — ​ ​ 3,710 ​ ​ $ 5,115 ​ $ — ​ $ — ​ $ 5,115 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ ​ ​ ​ OREO ​ $ 150 ​ $ — ​ $ — ​ $ 150 Impaired Loans, net of impairment reserve ​ 6,233 ​ — ​ — ​ 6,233 ​ ​ $ 6,383 ​ $ — ​ $ — ​ $ 6,383 ​ The following is a description of the valuation methodologies used by the Company for the items noted in the table above, including the general classification of such instruments in the fair value hierarchy. For individually evaluated impaired loans, the amount of impairment is based upon the present value of expected future cash flows discounted at the loan’s effective interest rate, the estimated fair value of the underlying collateral for collateral-dependent loans, or the estimated liquidity of the note. For OREO, the fair value is based upon the estimated fair value of the underlying collateral adjusted for the expected costs to sell. The following table shows significant unobservable inputs used in the fair value measurement of Level 3 assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted ​ ​ ​ ​ Unobservable ​ Range of ​ Average ​ ​ Valuation Technique ​ Inputs ​ Discounts Discount ​ 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 0 % 0 % Impaired loans Third party appraisals and discounted cash flows Collateral discounts and discount rates 0 % - 74 % 20.0 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, 2021 ​ Other real estate owned Third party appraisals, sales contracts or brokered price options Collateral discounts and estimated costs to sell 18 % - 97 % 18.0 % Impaired loans Third party appraisals and discounted cash flows Collateral discounts and discount rates 0 % - 100 % 7.4 % ​ The following methods and assumptions were used by the Company to estimate fair value of financial instruments. Cash and cash equivalents — Fair value approximates the carrying amount. Securities — The fair value measurement is obtained from an independent pricing service and is based on recent sales of similar securities and other observable market data. Loans held for sale — Fair value is based on commitments on hand from investors or prevailing market prices. Loans — Fair value of variable rate loans that reprice frequently are based on carrying value. 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 25 Table of Contents ​ 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. Mortgage servicing rights — Fair values were determined using the present value of future cash flows. Cash value of life insurance — The carrying amount approximates its fair value. Deposits — Fair value of deposits with no stated maturity, such as demand deposits, savings, and money market accounts, by definition, is the amount payable on demand on the reporting date. Fair value of fixed-rate time deposits is estimated using discounted cash flows applying interest rates currently offered on similar time deposits. Securities sold under repurchase agreements — The fair value of securities sold under repurchase agreements with variable rates or due on demand is the amount payable at the reporting date. The fair value of securities sold under repurchase agreements with fixed terms is estimated using discounted cash flows with discount rates at interest rates currently offered for securities sold under repurchase agreements of similar remaining values. Notes payable and subordinated notes — Rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate fair value of existing debt. Fair value of borrowings is estimated by discounting future cash flows using the current rates at which similar borrowings would be made. Fair value of borrowed funds due on demand is the amount payable at the reporting date. Off-balance-sheet instruments — Fair value is based on quoted market prices of similar financial instruments where available. If a quoted market price is not available, fair value is based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreement and the company’s credit standing. 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, 2022 and December 31, 2021 follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Carrying ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2022 amount Level 1 Level 2 Level 3 Total ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Financial assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 143,441 ​ $ 143,441 ​ $ — ​ $ — ​ $ 143,441 Securities held to maturity ​ 40,826 ​ — ​ 39,134 ​ — ​ 39,134 Securities available for sale ​ 303,280 ​ — ​ 303,280 ​ — ​ 303,280 Loans held for sale ​ 1,253 ​ — ​ — ​ 1,253 ​ 1,253 Loans, net ​ 2,835,022 ​ — ​ — ​ 2,801,373 ​ 2,801,373 Other investments, at cost ​ 14,905 ​ — ​ — ​ 14,905 ​ 14,905 Mortgage servicing rights ​ 9,563 ​ — ​ 9,563 ​ — ​ 9,563 Cash surrender value of life insurance ​ 45,761 ​ 45,761 ​ — ​ — ​ 45,761 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Financial liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Deposits ​ $ 3,138,201 ​ $ — ​ $ — ​ $ 2,801,549 ​ $ 2,801,549 Securities sold under repurchase agreements ​ 21,963 ​ — ​ 21,963 ​ — ​ ​ 21,963 Notes payable ​ ​ 2,569 ​ ​ — ​ ​ 2,569 ​ ​ — ​ ​ 2,569 Subordinated notes ​ 23,500 ​ ​ — ​ ​ 23,500 ​ ​ — ​ ​ 23,500 ​ 26 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Carrying ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ amount ​ Level 1 ​ Level 2 ​ Level 3 ​ Total Financial assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 296,860 ​ $ 296,860 ​ $ — ​ $ — ​ $ 296,860 Securities held to maturity ​ 5,911 ​ — ​ 5,922 ​ — ​ 5,922 Securities available for sale ​ 212,689 ​ — ​ 212,689 ​ — ​ 212,689 Loans held for sale ​ 786 ​ — ​ — ​ 786 ​ 786 Loans, net ​ 2,215,199 ​ — ​ — ​ 2,210,593 ​ 2,210,593 Other investments, at cost ​ 9,004 ​ — ​ — ​ 9,004 ​ 9,004 Mortgage servicing rights ​ 5,016 ​ — ​ 5,016 ​ — ​ 5,016 Cash surrender value of life insurance ​ ​ 31,897 ​ 31,897 ​ — ​ — ​ 31,897 Financial liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Deposits ​ $ 2,528,440 ​ $ — ​ $ — ​ $ 2,457,287 ​ $ 2,457,287 Securities sold under repurchase agreements ​ ​ 41,122 ​ — ​ 41,122 ​ — ​ ​ 41,122 Notes payable ​ 8,011 ​ ​ — ​ ​ 8,011 ​ ​ — ​ ​ 8,011 Subordinated notes ​ 17,500 ​ ​ — ​ ​ 17,500 ​ ​ — ​ ​ 17,500 ​ The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. Consequently, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company. Fair value estimates are made at a specific point in time based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular instrument. 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. 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. Deposits with no stated maturities are defined as having a fair value equivalent to the amount payable on demand. This prohibits adjusting fair value derived from retaining those deposits for an expected future period of time. This component, commonly referred to as a deposit base intangible, is neither considered in the above amounts nor is it recorded as an intangible asset on the consolidated balance sheet. Significant assets and liabilities that are not considered financial assets and liabilities include premises and equipment. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates. ​ NOTE 12 – STOCK BASED COMPENSATION The Company has made restricted share grants pursuant to the Bank First Corporation 2011 Equity Plan and the Bank First Corporation 2020 Equity Plan, which replaced the 2011 Plan. The purpose of the Plan is to provide financial incentives for selected employees and for the non-employee Directors of the Company, thereby promoting the long-term growth and financial success of the Company. 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, 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, 2022 and 2021, compensation expense of $ 1.2 million and $ 1.0 million, respectively, was recognized related to restricted stock awards. 27 Table of Contents ​ 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 nine months ended September 30, 2022, was approximately $ 1.3 million. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended ​ For the year ended ​ ​ September 30, 2022 ​ September 30, 2021 ​ ​ Weighted- ​ Weighted- ​ ​ ​ ​ Average Grant- ​ ​ ​ Average Grant- ​ ​ Shares ​ Date Fair Value ​ Shares ​ Date Fair Value Restricted Stock ​ ​ Outstanding at beginning of year 58,611 ​ $ 61.44 57,175 ​ $ 53.08 Granted 25,451 ​ 69.73 25,416 ​ 70.67 Vested ( 20,785 ) ​ 60.52 ( 21,755 ) ​ 50.15 Forfeited or cancelled ( 4,005 ) ​ 60.50 ( 1,105 ) ​ 62.23 Outstanding at end of year 59,272 ​ $ 65.85 59,731 ​ $ 61.46 ​ ​ NOTE 13 – LEASES Accounting standards require lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements, establishing a right-of-use (“ROU”) model that requires a lessee to recognize a ROU lease asset and liability on the balance sheet for all leases with a term longer than 12 months. Leases are classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. Lessee Leases The Company’s lessee leases are operating leases, and consist of leased real estate for branches. Options to extend and renew leases are generally exercised under normal circumstances. Advance notification is required prior to termination, and any noticing period is often limited to the months prior to renewal. Rent escalations are generally specified by a payment schedule, or are subject to a defined formula. The Company also elected the practical expedient to not separate lease and non-lease components for all leases, the majority of which consist of real estate common area maintenance expenses. Generally, leases do not include guaranteed residual values, but instead typically specify that the leased premises are to be returned in satisfactory condition with the Company liable for damages. For operating leases, the lease liability and ROU asset (before adjustments) are recorded at the present value of future lease payments. Accounting standards require the use of the lease interest rate; however, this rate is typically not known. 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, 2022 September 30, 2021 Amortization of ROU Assets - Operating Leases ​ $ ( 1 ) ​ $ 10 ​ Interest on Lease Liabilities - Operating Leases ​ 74 ​ ​ 65 ​ Operating Lease Cost (Cost resulting from lease payments) ​ 73 ​ ​ 75 ​ Weighted Average Lease Term (Years) - Operating Leases ​ 24.68 ​ ​ 32.25 ​ Weighted Average Discount Rate - Operating Leases ​ 5.50 % ​ 5.50 % ​ 28 Table of Contents ​ 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: ​ ​ Within one year ​ $ 201 After one but within two years ​ ​ 201 After two but within three years ​ ​ 200 After three but within four years ​ ​ 207 After four years but within five years ​ ​ 161 After five years ​ ​ 3,206 Total undiscounted cash flows ​ ​ 4,176 Discount on cash flows ​ ​ ( 2,092 ) Total operating lease liabilities ​ $ 2,084 ​ ​ ​ 29 Table of Contents ​