What changed in this filing

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Item 1. Financial Statements

2023-08-09 compared with 2023-05-10 · 77 added, 108 removed, 640 unchanged (22% of the section changed)

3 unchanged sentences

(In thousands) (Unaudited)

Three Months Ended March 31,

Six Months Ended June 30,

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

7 unchanged sentences

Repurchase of common stock

Net cash used in financing activities

Net increase (decrease) in cash and cash equivalents

Net cash provided by (used in) financing activities

Net decrease in cash and cash equivalents

Cash and cash equivalents at beginning of period

4 unchanged sentences

MSR resulting from sale of loans

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

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

156 unchanged sentences

purchase price

Refinement to fair value estimates (1)

Goodwill (after refinement)

(1) Refinement consists of adjustments to the initial fair value estimates of other assets and liabilities.

The Company purchased loans through the acquisition of Hometown for which there was, at the date of acquisition, more than insignificant deterioration of credit quality since origination (PCD Loans).

4 unchanged sentences

Par value of PCD acquired loans at acquisition

On August 12, 2022, the Company completed a merger with Denmark Bancshares, Inc.

(“Denmark”), a bank holding company headquartered in Denmark, Wisconsin, pursuant to the 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 $ 128.8 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 1,579,530 shares valued at approximately $ 124.8 million, with cash of $ 4.0 million comprising the remainder of merger consideration.

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

Goodwill (originally recorded)

Refinement to fair value estimates (1)

Goodwill (after refinement)

(1) Refinement consists of adjustments to the initial fair value estimates of other assets and liabilities, primarily related to accrued and deferred income taxes.

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 Company would have had if the Denmark merger had occurred before such periods or the future results of operations that the Company 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, 2022, the beginning of the earliest period presented.

Results for the three months ended March 31, 2023, would not be impacted as reported results already include the impacts of the Denmark Merger.

(in thousands, except per share data)

December 31, 2022

Total revenue, net of interest expense

Diluted earnings per common share

The Company accounted for these transactions under the acquisition method of accounting, and thus, the financial position and results of operations of Hometown and Demark prior to the consummation dates were not included in the accompanying consolidated financial statements.

The Company accounted for this transaction under the acquisition method of accounting, and thus, the financial position and results of operations of Hometown prior to the consummation date was 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.

5 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 three months ended March 31, 2023 or 2022.

There were no anti-dilutive stock options for the six months ended June 30, 2023 or 2022.

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands, except per share data)

14 unchanged sentences

The following is a summary of available for sale securities:

March 31, 2023

June 30, 2023

Treasury securities

16 unchanged sentences

The following is a summary of held to maturity securities:

March 31, 2023

June 30, 2023

Treasury securities

8 unchanged sentences

Greater Than 12 Months

March 31, 2023 - Available for Sale

June 30, 2023 - Available for Sale

Treasury securities

5 unchanged sentences

Certificate of Deposits

March 31, 2023 - Held to Maturity

June 30, 2023 - Held to Maturity

Treasury securities

11 unchanged sentences

Obligations of states and political subdivisions

As of March 31, 2023, no allowance for credit losses has been recognized on available for sale securities in an unrealized loss position as the Company does not believe any of the debt securities are credit impaired.

As of June 30, 2023, no allowance for credit losses has been recognized on available for sale securities in an unrealized loss position as the Company does not believe any of the debt securities are credit impaired.

This is based on the Company’s analysis of the risk characteristics, including credit ratings, and other qualitative factors related to these securities.

3 unchanged sentences

Furthermore, based on its analysis the Company has determined that held to maturity securities have zero expected credit losses.

Treasury securities have the full faith and credit backing of the United States Government and the amount of Obligations of states and political subdivisions at March 31, 2023 are not material to the financial statements.

The following is a summary of amortized cost and estimated fair value of securities by contractual maturity as of March 31, 2023.

Treasury securities have the full faith and credit backing of the United States Government and the amount of Obligations of states and political subdivisions at June 30, 2023 are not material to the financial statements.

The following is a summary of amortized cost and estimated fair value of securities by contractual maturity as of June 30, 2023.

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

As of March 31, 2023 and December 31, 2022, the carrying values of securities pledged to secure public deposits, securities sold under repurchase agreements, and for other purposes required or permitted by law were approximately $ 195.1 million and $ 226.9 million, respectively.

Sales of securities available for sale produced $ 34.2 million in proceeds, $ 0.1 million in gross gains and $ 0.2 million in gross losses for the three months ended March 31, 2023.

There were no sales of securities during the three months ended March 31, 2022.

As of June 30, 2023 and December 31, 2022, the carrying values of securities pledged to secure public deposits, securities sold under repurchase agreements, and for other purposes required or permitted by law were approximately $ 161.8 million and $ 226.9 million, respectively.

Sales of securities available for sale produced $ 34.2 million in proceeds, $ 0.1 million in gross gains and $ 0.2 million in gross losses for the six months ended June 30, 2023.

There were no sales of securities during the six months ended June 30, 2022.

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

The following table presents total loans by portfolio segment and class of loan as of March 31, 2023 and December 31, 2022:

The following table presents total loans by portfolio segment and class of loan as of June 30, 2023 and December 31, 2022:

Commercial/industrial

4 unchanged sentences

Loans, net of ACL - Loans

Deferred loan fees and costs

Deferred loan fees, net

The ACL - Loans is based on the Company’s evaluation of historical default and loss experience, current and projected economic conditions, asset quality trends, known and inherent risks in the portfolio, adverse situations that may affect the borrowers’ ability to repay a loan, the estimated value of any underlying collateral, composition of the loan portfolio and other relevant factors.

1 unchanged sentence

The historical loss experience estimate by pool is then adjusted by forecast factors that are quantitatively related to the Company’s historical credit loss experience, such as national unemployment rates, gross domestic product and indexes which are indicative of the value of underlying collateral.

Losses are predicted over a period of time determined to be reasonable and supportable, and at the end of the reasonable and supportable period losses are reverted to long term historical averages.

Losses are forecasted over the expected life of the loan, first by predicting over a period of time determined to be reasonable and supportable (currently four calendar quarters), and at the end of the reasonable and supportable period reverting to long term historical averages..

The reasonable and supportable period and reversion period are re-evaluated each quarter by the Company and are dependent on the current economic environment among other factors.

5 unchanged sentences

Individual evaluations are performed for nonaccrual loans, loans rated substandard, and modified loans (previously classified as TDRs).

Specific allocations of the ACL for credit losses are estimated on one of several methods, including the estimated fair value of the underlying collateral, observable market value of similar debt or the present value of expected cash flows.

A summary of the activity in the ACL - Loans by loan type as of March 31, 2023 is summarized as follows:

Specific allocations of the ACL for credit losses on individually evaluated loans are estimated on one of several methods, including the estimated fair value of the underlying collateral, observable market value of similar debt or the present value of expected cash flows.

A summary of the activity in the ACL - Loans by loan type as of June 30, 2023 is summarized as follows:

Real Estate -

3 unchanged sentences

ACL - Loans on PCD loans acquired

ACL - Loans - March 31, 2023

A summary of the activity in the allowance for loan losses (“ALL”) by loan type as of March 31, 2022 is as follows:

ACL - Loans - June 30, 2023

A summary of the activity in the allowance for loan losses (“ALL”) by loan type as of June 30, 2022 is as follows:

Real Estate -

1 unchanged sentence

ALL - January 1, 2022

ALL March 31, 2022

ALL June 30, 2022

ALL ending balance individually evaluated for impairment

ALL ending balance collectively evaluated for impairment

Loans outstanding - March 31, 2022

Loans outstanding - June 30, 2022

Loans ending balance individually evaluated for impairment

2 unchanged sentences

This allowance is maintained to absorb losses arising from unfunded loan commitments, and is determined quarterly based on methodology similar to the methodology for determining the ACL-Loans.

The ACL - Unfunded Commitments was $ 3.5 million at March 31, 2023.

The ACL - Unfunded Commitments was $ 3.5 million at June 30, 2023.

See Note 10 for further information on commitments.

1 unchanged sentence

The following table presents the components of the provision for credit losses.

Three Months Ended

March 31, 2023

March 31, 2022

Six Months Ended

June 30, 2023

June 30, 2022

December 31, 2022

2 unchanged sentences

Total provision for credit losses

The Company’s past due and non-accrual loans as of March 31, 2023 is summarized as follows:

The Company’s past due and non-accrual loans as of June 30, 2023 is summarized as follows:

allocated ACL

10 unchanged sentences

Residential 1‑4 family

Interest recognized on non-accrual loans is considered immaterial to the consolidated financial statements for the three months ended March 31, 2023 and 2022.

Interest recognized on non-accrual loans is considered immaterial to the consolidated financial statements for the six months ended June 30, 2023 and 2022.

A loan is considered to be collateral dependent when, based upon management’s assessment, the borrower is experiencing financial

6 unchanged sentences

Collateral Type

As of March 31, 2023

As of June 30, 2023

Business Assets

38 unchanged sentences

The following table presents total loans by risk ratings and year of origination.

Loans acquired from Hometown, Denmark and other previously acquired institutions have been included in the table based upon the actual origination date.

Loans acquired from other previously acquired institutions have been included in the table based upon the actual origination date.

Amortized Cost Basis by Origination Year

As of March 31, 2023

As of June 30, 2023

Commercial/industrial

17 unchanged sentences

On January 1, 2023, the Company adopted ASU 2022-02, which eliminated the accounting guidance for TDRs by creditors and enhanced the disclosure requirements for certain loan modifications to borrowers experiencing financial difficulty.

Loans that were both experiencing financial difficulty and were modified during the three months ended March 31, 2023, were insignificant to these consolidated financial statements.

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

Loans that were both experiencing financial difficulty and were modified during the six months ended June 30, 2023, were insignificant to these consolidated financial statements.

The Company also had no new TDRs during the six months ended June 30, 2022.

The following tables present loans acquired with deteriorated credit quality and the change in the accretable and non-accretable components of the related discounts prior to the adoption of ASU 2016-13.

5 unchanged sentences

Residential 1‑4 family

March 31, 2022

June 30, 2022

December 31, 2022

17 unchanged sentences

Following is an analysis of activity in the MSR asset:

Three Months Ended

March 31, 2023

Six Months Ended

June 30, 2023

December 31, 2022

8 unchanged sentences

Mortgage servicing rights as a percent of loans serviced for others

The primary economic assumptions utilized by the Company in measuring the value of MSRs were constant prepayment speeds of 7.7 and 7.9 months and discount rates of 10.19 % and 10.21 % as of March 31, 2023 and December 31, 2022.

The primary economic assumptions utilized by the Company in measuring the value of MSRs were constant prepayment speeds of 7.9 and 7.9 months as of June 30, 2023 and December 31, 2022 and discount rates of 10.20 % and 10.21 % as of each of those periods, respectively.

NOTE 7 – NOTES PAYABLE

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

At March 31, 2023 and December 31, 2022, the Company had outstanding balances borrowed from the FHLB of $ 36.9 million and $ 1.9 million, respectively.

At June 30, 2023 and December 31, 2022, the Company had outstanding balances borrowed from the FHLB of $ 36.1 million and $ 1.9 million, respectively.

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

9 unchanged sentences

1 year or less

As of March 31, 2023, the Company had borrowing availability at the FHLB totaling $ 633.6 million in addition to the existing borrowings noted in the tables above.

As of June 30, 2023, the Company had borrowing availability at the FHLB totaling $ 775.6 million in addition to the existing borrowings noted in the tables above.

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 March 31, 2023 or December 31, 2022.

There were no outstanding balances on this note at June 30, 2023 or December 31, 2022.

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 March 31, 2023 and December 31, 2022.

The Company had outstanding balances of $ 11.5 million under these agreements as of June 30, 2023 and December 31, 2022.

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 March 31, 2023 and December 31, 2022.

The Company had outstanding balances of $ 6.0 million under these agreements as of June 30, 2023 and December 31, 2022.

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.

1 unchanged sentence

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 March 31, 2023.

The Company had outstanding balances of $ 6.0 million under these agreements as of June 30, 2023.

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.

4 unchanged sentences

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

The junior subordinated debenture issued to Trust I totals $ 4.1 million, carries interest at a floating rate of the three-month LIBOR plus 3.30 % (resetting on each quarterly payment date) , and is due on January 7, 2034.

The junior subordinated debenture issued to Trust II totals $ 8.2 million, carries interest at a floating rate of the three-month LIBOR plus 1.80 % (resetting on each quarterly payment date) , and is due on December 15, 2036.

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

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

4 unchanged sentences

Interest on all debentures is current.

Applicable discounts (initially recorded to carry the acquired debentures at their then estimated fair value) are being accreted to interest expense over the remaining life of the debentures, and total $ 1.4 million at March 31, 2023.

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 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.

3 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.

Due to the acquisition of Denmark Bancshares, Inc.

(“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 March 31, 2023 and December 31, 2022, this buffer was 2.5 %.

As of March 31, 2023 and December 31, 2022, the Bank met all capital adequacy requirements to which they are subject.

As of June 30, 2023 and December 31, 2022, this buffer was 2.5 %.

The Bank met all capital adequacy requirements to which they are subject as of June 30, 2023 and December 31, 2022.

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

6 unchanged sentences

Action Provisions

March 31, 2023

June 30, 2023

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 March 31, 2023 and December 31, 2022 was approximately $ 10.1 million and $ 3.7 million, respectively.

The notional amount of rate-lock commitments at June 30, 2023 and December 31, 2022 was approximately $ 9.2 million and $ 3.7 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

March 31, 2023

June 30, 2023

December 31, 2022

12 unchanged sentences

for Identical

March 31, 2023

June 30, 2023

Securities available for sale

21 unchanged sentences

for Identical

March 31, 2023

June 30, 2023

Loans individually evaluated, net of reserve

6 unchanged sentences

Valuation Technique

As of March 31, 2023

As of June 30, 2023

Other real estate owned

11 unchanged sentences

Collateral discounts and discount rates

The carrying value and estimated fair value of financial instruments at March 31, 2023 and December 31, 2022 follows:

March 31, 2023

The carrying value and estimated fair value of financial instruments at June 30, 2023 and December 31, 2022 follows:

June 30, 2023

Financial assets:

5 unchanged sentences

Mortgage servicing rights

Cash surrender value of life insurance

Financial liabilities:

11 unchanged sentences

Mortgage servicing rights

Cash surrender value of life insurance

Financial liabilities:

23 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 March 31, 2023, 76,641 shares of Company stock have been awarded under the 2020 Plan.

As of June 30, 2023, 76,641 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 three months ended March 31, 2023 and 2022, compensation expense of $ 0.5 million and $ 0.3 million, respectively, was recognized related to restricted stock awards.

As of March 31, 2023, there was $ 3.7 million of unrecognized compensation cost related to non-vested restricted stock awards granted under the plan.

For the six months ended June 30, 2023 and 2022, compensation expense of $ 1.0 million and $ 0.8 million, respectively, was recognized related to restricted stock awards.

As of June 30, 2023, there was $ 3.1 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 1.83 years.

The aggregate grant date fair value of restricted stock awards that vested during the three months ended March 31, 2023, was approximately $ 1.6 million.

The aggregate grant date fair value of restricted stock awards that vested during the six months ended June 30, 2023, was approximately $ 1.6 million.

For the year ended

March 31, 2023

March 31, 2022

June 30, 2023

June 30, 2022

Average Grant-

21 unchanged sentences

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

Three Months Ended

Six Months Ended

(dollars in thousands)

March 31, 2023

March 31, 2022

June 30, 2023

June 30, 2022

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 March 31, 2023 is as follows:

March 31, 2023

A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total operating lease liabilities as of June 30, 2023 is as follows:

June 30, 2023

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