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Item 8. Financial Statements and Supplementary Data

2024-02-29 compared with 2023-03-10 · 567 added, 463 removed, 885 unchanged (54% of the section changed)

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Report of Independent Registered Public Accounting Firm – Financial Statements (PCAOB ID:

Report of Independent Registered Public Accounting Firm – Internal Control over Financial Reporting (PCAOB ID:

Consolidated Financial Statements:

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Years Ended December 31, 2023, 2022 and 2021

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm – Financial Statements

Report of Independent Registered Public Accounting Firm – Internal Control over Financial Reporting

Consolidated Financial Statements:

9 unchanged sentences

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Bank First Corporation and Subsidiaries (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

We have audited the accompanying consolidated balance sheets of Bank First Corporation and Subsidiaries (the “Company”) as December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 29, 2024, expressed an unqualified opinion thereon .

Basis for Opinion

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Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Allowance for Credit Losses - Loans

As described in Note 4 to the financial statements the Company’s allowance for credit losses on loans (“ACL-Loans”) was $43.6 million as of December 31, 2023.

To estimate the ACL – Loans the Company segments the loan portfolio into loan pools based on loan type and similar credit risk elements.

Loans with similar risk characteristics are evaluated in pools and the Company utilizes a discounted cash flow (“DCF”) method where probability of default and loss given default assumptions are applied to a projective model of the pool’s cash flows while considering prepayment and principal curtailment effects.

The Company utilizes peer call report data to measure historical credit loss experience with similar risk characteristics within the segments over an economic cycle and has incorporated macroeconomic drivers to adjust the historical loss experience estimate for reasonable and supportable forecasts that are quantitatively related to the Company’s historical credit loss experience.

The expected credit losses for each loan pool are then adjusted for changes in qualitative factors not inherently considered in the quantitative analyses and include lending policy, changes in nature and volume of loans, staff experience, changes in volume and trends of problem loans, concentration risk, trends in underlying collateral values, external factors, quality of loan review system and other economic conditions.

We identified the ACL-Loans as a critical audit matter.

The principal considerations for our determination included the high degree of judgment and subjectivity in auditing management’s determination of the reasonable and supportable forecasts, and the identification and measurement of qualitative factor adjustments.

This required a high degree of effort, specialized skills and knowledge, and significant judgment.

The primary procedures we performed to address this critical audit matter included:

● Evaluated the design and operating effectiveness of controls relating to the ACL-Loans, including:

o Controls over the completeness and accuracy of data included in the model used to determine the ACL-Loans, and

o Controls over management’s review and approval of the ACL-Loans, including management’s determination of the reasonable and supportable forecasts and qualitative factor adjustments applied within the qualitative framework.

● Evaluated forecast inputs and assumptions and involved our internal specialists to test the model through a recalculation of the DCF methodology within the ACL-Loans model.

● Evaluated the reasonableness of management’s qualitative factor adjustments, including testing management’s identification of qualitative factors, the application of qualitative factor adjustments within the model, and assessing the completeness and accuracy of data utilized in development of the qualitative adjustments.

● Evaluated management’s judgments and assumptions related to the qualitative adjustments by assessing relevant trends in credit quality and evaluating the relationship of the trends to the qualitative adjustments applied to the ACL-Loans.

Merger with Hometown Bancorp, Ltd.

- Fair Value of Loans Acquired

As described in Note 2 to the financial statements, the Company completed a merger with Hometown Bancorp, Ltd.

on February 10, 2023.

The Company accounted for this acquisition under the acquisition method of accounting.

The Company recognized the full fair value of assets acquired and liabilities and immediately expensed transaction costs.

Determination of the acquisition date fair values of the assets acquired and liabilities assumed required management to make significant estimates and assumptions.

Specifically, a high degree of management judgment was required to determine the fair value loan portfolio acquired in the business combination.

The fair value of the acquired loans was $395.8 million as of February 10, 2023.

We identified the acquisition date fair value of acquired loans as a critical audit matter.

The principal considerations for our determination included the high degree of judgment and subjectivity involved in auditing management’s key inputs and

assumptions, particularly as it relates to the discount rates, prepayment rates, identification and measurement of purchase credit deteriorated (“PCD”) loans, and credit loss assumptions used to determine the fair value of acquired loans.

This required a high degree of auditor effort, specialized skills and knowledge, and significant auditor judgment.

The primary procedures we performed to address this critical audit matter included:

● Evaluated the design and operating effectiveness of controls relating to the valuation of acquired loans, including controls addressing:

o Management’s review of the reasonableness of the discount rates, prepayment rates, identification and measurement of PCD loans, and credit loss assumptions used in the estimate of the fair value of acquired loans.

o Management’s review of the results of the third-party valuation of the acquired loan portfolio, including the review of the completeness and accuracy of the data inputs used as a basis for the valuations.

● Evaluated the completeness and accuracy of data inputs used as a basis for the valuation of the acquired loan portfolio.

● Evaluated, with the assistance of internal specialists, the reasonableness of the discount rates, prepayment rates, identification and measurement of PCD loans, and credit loss assumptions used in the estimate of the fair value of acquired loans, including, for a selected sample of loans, developing an independent expectation for comparison to management’s fair value of the acquired loans.

● Tested the mathematical accuracy of the estimated fair value, including the application of the assumptions used in the calculation.

/s/ FORVIS, LLP

(Formerly, Dixon Hughes Goodman LLP)

We have served as the Company’s auditor since 2019.

March 10, 2023

FORVIS is a trademark of FORVIS, LLP, registration of which is pending with the U.S.

Patent and Trademark Office.

February 29, 2024

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

Bank First Corporation

Opinion on the Internal Control over Financial Reporting

We have audited Bank First Corporation and Subsidiaries’ (the “Company”) internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of December 31, 2023, and 2022, and for each of the three years in the period ended December 31, 2023, and our report dated February 29, 2024, expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting .

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audit also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

As described in management’s annual report on internal control over financial reporting, the scope of management’s assessment of internal control over financial reporting as of December 31, 2023, has excluded Hometown Bancorp, Ltd.

(“Hometown”) acquired on February 10, 2023.

We have also excluded Hometown from the scope of our audit of internal control over financial reporting.

The fair value of assets acquired from Hometown at the acquisition date represented 14.6 percent of the consolidated total assets of the Company as of December 31, 2023.

Definitions and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of reliable financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

/s/ FORVIS, LLP

February 29, 2024

Bank First Corporation and Subsidiaries

Consolidated Balance Sheets

December 31, 2023

December 31, 2022

(In thousands, except share and per share data)

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Securities held to maturity, at amortized cost ( $ 103,626 and $ 43,770 fair value at December 31, 2023 and December 31, 2022, respectively)

Securities available for sale, at fair value

Securities available for sale, at fair value ( $ 154,318 and $ 325,960 amortized cost at December 31, 2023 and December 31, 2022, respectively)

Loans held for sale

Allowance for credit losses - loans ("ACL-Loans")

Premises and equipment, net

2 unchanged sentences

Core deposit intangibles, net

Mortgage servicing rights ("MSR")

Other real estate owned (“OREO”)

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Subordinated notes

Junior subordinated debenture

Other liabilities

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Treasury stock, at cost - 1,149,999 and 1,043,161 shares as of December 31, 2023 and December 31, 2022, respectively

Accumulated other comprehensive income (loss)

Accumulated other comprehensive loss

Total stockholders’ equity

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Net interest income

Provision for loan losses

Net interest income after provision for loan losses

Provision for credit losses

Net interest income after provision for credit losses

Noninterest income:

5 unchanged sentences

Net gain on sales of mortgage loans

Net gain (loss) on sales and valuations of OREO

Gain on sale of UFS

Total noninterest income

3 unchanged sentences

Postage, stationery, and supplies

Net loss (gain) on sale of securities

Net loss (gain) on sales and valuations of OREO

Net loss on sale of securities

Charitable contributions

1 unchanged sentence

Amortization of intangibles

Penalty for early extinguishment of debt

Total noninterest expense

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Earnings per share - diluted

Dividends per share

See accompanying notes to consolidated financial statements

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Unrealized gains (losses) on available for sale securities:

Unrealized holding (losses) gains arising during period

Unrealized holding gains (losses) arising during period

Amortization of unrealized holding gains on securities transferred from available for sale to held to maturity

Reclassification adjustment for losses (gains) included in net income

Reclassification adjustment for losses included in net income

Income tax benefit (expense)

Total other comprehensive (loss) income

Total other comprehensive income (loss)

Comprehensive income

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Balance at January 1, 2021

Other comprehensive income

Other comprehensive loss

Purchase of treasury stock

Sale of treasury stock

Issuance of treasury stock as deferred compensation payout

Cash dividends ( $ 1.14 per share)

1 unchanged sentence

Vesting of restricted stock awards

Shares issued in the acquisition of Tomah Bancshares, Inc.

( 575,641 shares)

Balance at December 31, 2021

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Vesting of restricted stock awards

Shares issued in the acquisition of Denmark Bancshares, Inc.

( 1,579,530 shares)

Balance at December 31, 2022

Other comprehensive loss

Other comprehensive income

Purchase of treasury stock

3 unchanged sentences

Vesting of restricted stock awards

Shares issued in the acquisition of Denmark Bancshares, Inc.

Adoption of new accounting pronouncement (See Note 1)

Shares issued in the acquisition of Hometown Bancorp, Ltd.

( 1,450,272 shares)

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Adjustments to reconcile net income to net cash provided by operating activities:

Provision for loan losses

Provision for credit losses

Depreciation and amortization of premises and equipment

Amortization of intangibles

Net amortization of securities

Net amortization (accretion) of securities

Amortization of stock-based compensation

3 unchanged sentences

Change in fair value of MSR and other investments

(Gain) loss from sale and disposal of premises and equipment

(Gain) loss on sale of OREO and valuation allowance

Loss (gain) from sale and disposal of premises and equipment and valuation allowance

Net loss (gain) on sale of OREO and valuation allowance

Proceeds from sales of mortgage loans

1 unchanged sentence

Gain on sales of mortgage loans

Realized loss (gain) on sale of securities

Realized loss on sale of securities

Realized gain on sale of UFS

Undistributed income of UFS joint venture

1 unchanged sentence

Net earnings on life insurance

Decrease in other assets

Decrease in other liabilities

Decrease (increase) in other assets

Increase (decrease) in other liabilities

Net cash provided by operating activities

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Maturities, prepayments, and calls

Proceeds from other investments

Net increase in loans

Proceeds from sale of UFS

Dividends received from UFS

1 unchanged sentence

Proceeds from sale of OREO

Net purchases of Federal Home Loan Bank (“FHLB”) stock

Net sales (purchases) of Federal Home Loan Bank (“FHLB”) stock

Net purchases of Federal Reserve Bank (“FRB”) stock

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Net cash received in business combination

Net cash used in investing activities

Net cash provided by (used in) investing activities

Bank First Corporation and Subsidiaries

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( 3,129,584 )

Proceeds from subordinated debt

Repayment of subordinated debt

Proceeds from issuance of subordinated notes

Repayment of subordinated notes

Repayment of junior subordinated debentures

Dividends paid

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Supplemental disclosures of cash flow information:

Cash paid during the period for:

Cash paid during the year for:

Supplemental schedule of noncash activities:

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Note 1 Summary of Significant Accounting Policies

The accounting and reporting policies of Bank First Corporation and Subsidiaries (“Corporation”) conform to generally accepted accounting principles (“GAAP”) in the United States and general practices within the financial institution industry.

The accounting and reporting policies of Bank First Corporation and Subsidiaries (“Company”) conform to generally accepted accounting principles (“GAAP”) in the United States and general practices within the financial institution industry.

Significant accounting and reporting policies are summarized below.

Principles of Consolidation

The consolidated financial statements include the accounts of the Corporation and its wholly owned subsidiaries, Veritas Asset Holdings, LLC (“Veritas”) and Bank First, National Association (“Bank”).

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Veritas Asset Holdings, LLC (“Veritas”) and Bank First, National Association (“Bank”).

Veritas was dissolved by the Company during the year ended December 31, 2023.

The Bank’s wholly owned subsidiaries are Bank First Investments, Inc., TVG Holdings, Inc.

(“TVG") and BFC Title LLC.

All significant intercompany balances and transactions have been eliminated.

The Bank and TVG have investments in minority-owned subsidiaries that are accounted for using the equity method in the consolidated financial statements.

The Bank owns 49.8 % of UFS which provides data processing solutions to over 60 banks in the Midwest.

The Bank owned 49.8 % of UFS, which provides data processing solutions to over 60 banks in the Midwest, through October 1, 2023.

On that date it sold 100 % of its member interest in UFS to a third party.

TVG owns 40.0 % of Ansay providing clients throughout the Midwest with superior insurance and risk management solutions.

The Corporation provides a variety of financial services to individual and business customers, primarily located in Wisconsin, through the Bank.

The Company provides a variety of financial services to individual and business customers, primarily located in Wisconsin, through the Bank.

The Bank is subject to competition from other traditional and nontraditional financial institutions and is also subject to the regulations of certain federal agencies and undergoes periodic examinations by those regulatory authorities including the Office of the Comptroller of the Currency and the Federal Reserve Bank.

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Actual results may differ from these estimates.

The allowance for loan losses, carrying value of real estate owned, carrying value of goodwill, fair value of mortgage servicing rights, and fair values of financial instruments are inherently subjective and are susceptible to significant change.

The allowance for credit losses, carrying value of real estate owned, carrying value of goodwill, fair value of mortgage servicing rights, and fair values of financial instruments are inherently subjective and are susceptible to significant change.

Business Combinations

The Corporation accounts for business combinations under the acquisition method of accounting in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805, Business Combinations.

The Corporation recognizes the full fair value of the assets acquired and liabilities assumed and immediately expenses transaction costs.

There is no separate recognition of the acquired allowance for loan losses on the acquirer’s balance sheet as credit related factors are incorporated directly into the fair value of the net tangible and intangible assets acquired.

The Company accounts for business combinations under the acquisition method of accounting in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805, Business Combinations.

The Company recognizes the full fair value of the assets acquired and liabilities assumed and immediately expenses transaction costs.

If the amount of consideration exceeds the fair value of assets purchased less the fair value of liabilities assumed, goodwill is recorded.

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Generally, federal funds are purchased and sold for one day periods.

In the normal course of business, the Corporation maintains cash and due from bank balances with correspondent banks.

In the normal course of business, the Company maintains cash and due from bank balances with correspondent banks.

Accounts at each institution that are insured by the Federal Deposit Insurance Corporation have up to $250,000 of insurance.

Total uninsured balances held at December 31, 2022 and 2021 were approximately $ 2.9 million and $ 1.0 million, respectively.

The Bank is required to maintain deposits on hand or with the FRB to meet specific reserve requirements.

During 2022 and 2021, in response to liquidity concerns resulting from the COVID-19 pandemic (“COVID”), this reserve requirement was reduced to zero by the FRB.

Securities are classified as held to maturity or available for sale at the time of purchase.

Investment securities classified as held to maturity, which management has the intent and ability to hold to maturity, are reported at amortized cost.

Investment securities classified as available for sale, which management has the intent and ability to hold for an indefinite period of time, but not necessarily to maturity, are carried at fair value, with unrealized gains and losses, net of related deferred income taxes, included in stockholders’ equity as a separate component of other comprehensive income.

The net carrying value of debt securities classified as held to maturity or available for sale is adjusted for amortization of premiums and accretion of discounts utilizing the effective interest method over the expected estimated maturity.

Total uninsured balances held at December 31, 2023 and 2022 were approximately $ 3,100,000 and $ 2,900,000 , respectively.

Securities are classified as held to maturity (“HTM”) or available for sale (“AFS”) at the time of purchase.

Investment securities classified as HTM, which management has the intent and ability to hold to maturity, are reported at amortized cost.

Investment securities classified as AFS, which management has the intent and ability to hold for an indefinite period of time, but not necessarily to maturity, are carried at fair value, with unrealized gains and losses, net of related deferred income taxes, included in stockholders’ equity as a separate component of other comprehensive income.

The net carrying value of debt securities classified as HTM or AFS is adjusted for amortization of premiums and accretion of discounts utilizing the effective interest method over the expected estimated maturity.

Such amortization and accretion is included as an adjustment to interest income from securities.

Interest and dividends are included in interest income from securities.

Transfers of debt securities into the held to maturity classification from the available for sale classification are made at fair value as of the date of transfer.

The unrealized holding gain or loss as of the date of transfer is retained in other comprehensive income and in the carrying value of the held to maturity securities, establishing the amortized cost of the security.

Transfers of debt securities into the HTM classification from the AFS classification are made at fair value as of the date of transfer.

The unrealized holding gain or loss as of the date of transfer is retained in other comprehensive income and in the carrying value of the HTM securities, establishing the amortized cost of the security.

These unrealized holding gains and losses as of the date of transfer are amortized or accreted over the remaining life of the security.

Unrealized gains or losses considered temporary and the noncredit portion of unrealized losses deemed other-than-temporary are reported as an increase or decrease in accumulated other comprehensive income.

The credit related portion of unrealized losses deemed other-than-temporary is recorded in current period earnings.

Realized gains or losses, determined on the basis of the cost of specific securities sold, are included in earnings.

The Bank evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation.

As part of such monitoring, the credit quality of individual securities and their issuers are assessed.

In addition, management considers the length of time and extent that fair value has been less than cost, the financial condition and near-term prospects of the issuer, and that the Corporation does not have the intent to sell the security and it is more likely than not that it will not have to sell the security before recovery of its cost basis.

Adjustments to market value that are considered temporary are recorded as a separate component of equity, net of tax.

If an impairment of security is identified as other-than-temporary based on information available such as the decline in the credit worthiness of the issuer, external market ratings or the anticipated or realized elimination of associated dividends, such impairments are further analyzed to determine if a credit loss exists.

If there is a credit loss, it will be recorded in the consolidated statement of income in the period of identification.

Prior to January 1, 2023, unrealized gains or losses considered temporary and the noncredit portion of unrealized losses deemed other-that-temporary were reported as an increase or decrease in accumulated other comprehensive income.

The credit related portion of unrealized losses deemed other-than-temporary were recorded in current period earnings.

Subsequent to January 1, 2023, as a result of adopting ASU 2016-13, Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), the Bank evaluates securities for potential credit losses at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation.

For AFS securities, management determines whether the decline in fair value below the amortized cost basis (impairment) is due to credit-related or other factors.

In making that evaluation, management considers the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of the Company to hold the security for a period of time sufficient to allow for any anticipated recovery in fair value.

Any impairment on AFS securities that is related to factors other than credit is recognized in other comprehensive income, net of related deferred income taxes.

Credit-related impairment on AFS securities is recognized as an allowance for credit losses (“ACL”) on the balance sheet based on the amount by which the amortized cost basis exceeds the fair value, with a corresponding charge to net income.

Both the ACL and charge to net income may be reversed if conditions change.

However, if the Company intends to sell, or more likely than not will be required to sell, an impaired AFS security before recovering its amortized cost basis, the entire impairment must be recognized in net income with a corresponding adjustment to the security’s amortized cost basis rather than through the establishment of an ACL.

For HTM securities, management determines whether an ACL is necessary after considering the facts and circumstances of the underlying investment securities and evaluates expected credit losses by security type, aggregated by similar risk characteristics, based on historical credit losses adjusted for current conditions and supportable forecasts.

The Company’s HTM portfolio primarily consists of U.S.

Treasury securities which have an explicit government guarantee;

therefore, no ACL has been recorded for these securities.

Other Investments

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Loans and Related Interest Income - Originated

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoffs are generally reported at their outstanding unpaid principal balances adjusted for charge-offs and the allowance for loan losses.

The accrual of interest on loans is calculated using the simple interest method on daily balances of the principal amount outstanding and is recognized in the period earned utilizing the loan convention applicable by loan type.

Loan origination fees, net of certain direct loan origination costs, are deferred and recognized in interest income using the effective interest method over the estimated life of the loan.

The accrual of interest is discontinued when a loan becomes 90 days past due and is not both well collateralized and in the process of collection, or when management believes, after considering economic and business conditions and collection efforts, that the principal or interest will not be collectible in the normal course of business.

When loans are placed on nonaccrual or charged off, all unpaid accrued interest is reversed and additional income is recorded only to the extent that payments are received and the collection of principal is reasonably assured.

Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current, when the obligation has performed in accordance with the contractual terms for a reasonable period of time, and future payments of principal and interest are reasonably assured.

Loans are considered impaired if it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement.

Total impaired loans are evaluated based on the fair value of the collateral rather than on discounted cash flow basis.

In response to the COVID-19 pandemic, the CARES Act was signed into law.

Under the CARES Act, banks may elect to deem that loan modifications do not result in troubled debt restructurings ("TDRs") if they are (1) related to COVID-19;

(2) executed on a loan that was not more than 30 days past due as of December 31, 2019;

and (3) executed between March 1, 2020 and the earlier of (A) 60 days after the date of termination of the national emergency declaration or (B) January 1, 2022.

Additionally, in accordance with the lnteragency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised), other short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not TDRs under ASC Subtopic 310-40.

This includes short-term (e.g.

up to six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or delays in payment that are insignificant.

Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented.

Loans modified under this guidance are not considered TDRs.

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoffs are carried at their amortized cost basis, which is the unpaid principal balance outstanding, net of deferred loan fees and costs and any direct principal charge-offs.

Interest income is accrued on the unpaid principal balance using the simple interest method.

The accrual of interest income on loans is discontinued when, in the opinion of management, there is reasonable doubt as to the borrower’s ability to meet payment of interest or principal when due.

Loans are generally placed on nonaccrual status when contractually past due 90 days or more as to interest or principal, though they may be placed in such status earlier.

Loans past due 90 days or more may continue on accrual only when they are well secured and/or in process of collection or renewal.

When interest accrual is discontinued, all previously accrued but uncollected interest is reversed against current period interest income.

Except in very limited circumstances, cash collections on nonaccrual loans are credited to the loan receivable balance and no interest income is recognized on those loans until the principal balance is paid in full.

Accrual of interest may be resumed when the customer is current on all principal and interest payments and has been paying on a timely basis for a sustained period of time.

A description of each segment of the loan portfolio, including the corresponding credit risk, is included below:

Commercial / Industrial – Commercial and industrial loans are typically made to small and middle-market established businesses involved in professional services, accommodation and food services, health care, financial services, wholesale trade, manufacturing, distribution, retailing and non-profits.

Most clients are privately owned with markets that range from local to national in scope.

Many of the loans to this segment are secured by liens on corporate assets and the personal guarantees of the principals.

The regional economic strength or weakness impacts the relative risks in this loan category.

There is little concentration in any one business sector, and loan risks are generally diversified among many borrowers.

Risks associated with commercial and industrial loans include monitoring the condition of the collateral which often consists of inventory, accounts receivable, and other non-real estate assets.

Declines in general economic conditions and other events can cause cash flows to fall to levels insufficient to service this debt.

Commercial Real Estate – Owner Occupied and Non-owner Occupied – Commercial real estate loans generally have terms of 10 years or less, although payments may be structured on a longer amortization basis.

We evaluate each borrower on an individual basis and attempt to determine their business risks and credit profile.

We attempt to reduce credit risk in the commercial real estate portfolio by emphasizing loans on owner-occupied industrial, office, and retail buildings where the loan-to-value ratio, established by independent appraisals, does not generally exceed 85 % of cost or appraised value.

We also generally require that a borrower’s cash flow exceed 110 % of monthly debt service obligations.

In order to ensure secondary sources of payment and liquidity to support a loan request, we typically review all of the personal financial statements of the principal owners and require their personal guaranties.

Commercial real estate loans are generally viewed as having more risk of default than residential real estate loans.

They are also typically larger than residential real estate loans and consumer loans and depend on cash flows from the owner’s business or the property to service the debt.

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

Non-owner occupied commercial real estate also carries an elevated risk of vacancy inhibiting cash flow and creating an inability to service the debt.

Multi-Family – Multi-family loans are a subset of commercial real estate loans and generally carry similar terms and underwriting requirements.

These loans are broken out as a separate segment due to unique risk characteristics that they exhibit.

While similar in nature to other non-owner occupied commercial real estate, they are significantly impacted by the individual credit capacity of many more individual tenants than other commercial real estate as well as the condition and capacity of the local residential housing markets.

The underlying real estate also has a lack of suitable alternative uses.

Construction and Development – Construction and development loans are generally limited to a term of 9 to 24 months, although payments may be structured on a longer amortization basis.

Most loans will mature and require payment in full upon completion and either the sale of the property or refinance into a permanent loan.

We believe that construction and development loans generally carry a higher degree of risk than long-term financing of stabilized, rented, and owner-occupied properties because repayment depends on the ultimate completion of the project and usually on the subsequent sale of the property.

We attempt to reduce risk associated with construction and development loans by obtaining personal guaranties and by keeping the maximum loan-to-value ratio at or below 85 % of the lesser of cost or appraised value, depending on the project type.

Generally, we do not have interest reserves built into loan commitments but require periodic cash payments for interest from the borrower’s cash flow.

Residential 1-4 Family – We offer fixed and adjustable rate residential real estate loans with terms of up to 30 years.

We also offer a variety of lot loan options to consumers to purchase the lot on which they intend build their home.

We also offer traditional home equity loans and lines of credit.

Our underwriting criteria for, and the risks associated with, home equity loans and lines of credit are generally the same as those for first mortgage loans.

Home equity loans typically have terms of 20 years or less.

We generally limit the extension of credit to 90 % of the available equity of each property.

These loans carry risk associated with local employment and declining real estate values.

Consumer – Consumer loans are underwritten based on the borrower’s income, current debt level, past credit history, and the availability and value of collateral.

Consumer rates are both fixed and variable, with negotiable terms.

Our installment loans typically amortize over periods up to seven years.

Although we typically require monthly principal and interest payments on our loan products, we will offer consumer loans at interest only with a single maturity date when a specific source of repayment is available.

Consumer loans are generally considered to have greater risk than first or second mortgages on real estate because they may be unsecured, or, if they are secured, the value of the collateral may be difficult to assess and more likely to decrease in value than real estate.

Other – We make loans utilized to purchase or carry securities as well as loans to nonprofit organizations.

Other loans also include overdrawn depository accounts.

Loans and Related Interest Income - Acquired

Acquired loans are recorded at their estimated fair value at the acquisition date, and are initially classified as either purchase credit impaired ( “PCI” ) loans (i.e.

loans that reflect credit deterioration since origination and it is probable at acquisition that the Corporation will be unable to collect all contractually required payments) or purchased non-impaired loans (i.e.

performing acquired loans).

PCI loans are accounted for under the accounting guidance for loans and debt securities acquired with deteriorated credit quality, found in FASB ASC Topic 310-30, Receivables— Loans and Debt Securities Acquired with Deteriorated Credit Quality.

The Corporation estimates the amount and timing of expected principal, interest and other cash flows for each loan or pool of loans meeting the criteria above, and determines the excess of the loan’s scheduled contractual principal and contractual interest payments over all cash flows expected to be collected at acquisition as an amount that should not be accreted.

These credit discounts (nonaccretable marks) are included in the determination of the initial fair value for acquired loans;

therefore, an allowance for loan losses is not recorded at the acquisition date.

Differences between the estimated fair values and expected cash flows of acquired loans at the acquisition date that are not credit-based (accretable marks) are subsequently accreted to interest income over the estimated life of the loans using a method that approximates a level yield method if the timing and amount of the future cash flows is reasonably estimable.

Subsequent to the acquisition date for PCI loans, increases in cash flows over those expected at the acquisition date result in a move of the discount from nonaccretable to accretable.

Decreases in expected cash flows after the acquisition date are recognized through the provision for loan losses.

Performing acquired loans are accounted for under FASB ASC Topic 310-20, Receivables—Nonrefundable Fees and Other Costs.

Performance of certain loans may be monitored and based on management’s assessment of the cash flows and other facts available, portions of the accretable difference may be delayed or suspended if management deems appropriate.

The Corporation’s policy for determining when to discontinue accruing interest on performing acquired loans and the subsequent accounting for such loans is essentially the same as the policy for originated loans described above.

Allowance for Loan Losses - Originated

The allowance for loan losses (“ALL”) is established through a provision for loan losses charged to expense as losses are estimated to have occurred.

Loan losses are charged against the allowance when management believes that the collectability of the principal is unlikely.

Subsequent recoveries, if any, are credited to the allowance.

Management regularly evaluates the allowance for loan losses using general economic conditions, the Corporation’s past loan loss experience, composition of the portfolio, and other relevant factors.

This evaluation is inherently subjective since it requires material estimates that may be susceptible to significant change.

The ALL consists of specific reserves for certain impaired loans and general reserves for non-impaired loans.

Specific reserves reflect estimated losses on impaired loans from management’s analyses developed through specific credit allocations.

The specific credit 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 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.

Management believes that the allowance for loan losses is adequate.

Loans purchased in acquisition transactions are acquired loans, and are recorded at their fair value at the acquisition date.

Prior to January 1, 2023, the Company initially classified acquired loans as either purchased credit impaired (“PCI”) loans (i.e., loans that reflect credit deterioration since origination and it is probable at acquisition that the Company will be unable to collect all contractually required payments) or purchased non-impaired loans (i.e., performing acquired loans).

The Company estimated the fair value of PCI loans based on the amount and timing of expected principal, interest and other cash flows for each loan.

The excess of the loan’s contractual principal and interest payments over all cash flows expected to be collected at acquisition was considered an amount that should not be accreted.

These credit discounts (“nonaccretable marks”) were included in the determination of the initial fair value for acquired loans;

therefore, no allowance for credit losses was recorded at the acquisition date.

Differences between the estimated fair values and expected cash flows of acquired loans at the acquisition date that were not credit-based (“accretable marks”) were subsequently accreted to interest income over the estimated life of the loans.

Subsequent to the acquisition date for PCI loans, increases in cash flows over those expected at the acquisition date resulted in a move of the discount from nonaccretable to accretable, while decreases in expected cash flows after the acquisition date were recognized through the provision for credit losses.

Subsequent to January 1, 2023, as a result of adopting ASU 2016-13, acquired loans that have evidence of more-than-insignificant deterioration in credit quality since origination are considered purchased credit deteriorated (“PCD”) loans.

At acquisition, an estimate of expected credit losses is made for PCD loans.

This initial allowance for credit losses is allocated to individual PCD loans and added to the purchase price or acquisition date fair value to establish the initial cost basis of the PCD loans.

Any difference between the unpaid principal balance of PCD loans and the amortized cost basis is considered to relate to noncredit factors, resulting in a discount or premium that is accreted or amortized to interest income.

For acquired loans not deemed PCD loans at acquisition, the difference between the initial fair value mark and the unpaid principal balance is recognized in interest income over the estimated life of the loans.

In addition, an initial allowance for expected credit losses is estimated and recorded as provision expense at the acquisition date.

The subsequent measurement of expected credit losses for all acquired loans is the same as the subsequent measurement of expected credit losses for originated loans.

Allowance for Credit Losses - Loans

The ACL – Loans represents management’s estimate of expected credit losses in the Company’s loan portfolio at the balance sheet date.

The Company estimates the ACL – Loans based on the amortized cost basis of the underlying loan and has made an accounting policy election to exclude accrued interest from the loan’s amortized cost basis and the related measurement of the ACL – Loans.

Estimating the amount of the ACL – Loans is a function of a number of factors, including but not limited to changes in the loan portfolio, net charge-offs, trends in past due and nonaccrual loans, and the level of potential problem loans, all of which may be susceptible to significant change.

We establish the ACL – Loans through charges to earnings, which are shown in the statements of income as the provision for credit losses.

Specifically identifiable and quantifiable known losses are promptly charged off against the allowance.

Prior to January 1, 2023, the Company used an incurred loss impairment model.

This methodology assessed the overall appropriateness of the allowance for credit losses and included allocations for specifically impaired loans and loss factors for all remaining loans, with a component primarily based on historical loss rates and another component primarily based on other qualitative factors.

Impaired loans were individually assessed and measured based on the present value of expected future cash flows discounted at the loan’s effective price or the fair value of the collateral if the loan was collateral dependent.

Loans that were determined not to be impaired were collectively evaluated for impairment, stratified by type and allocated loss ranges based on the Company’s actual historical loss ratios for each strata, and adjustments were also provided for certain environmental and other qualitative factors.

Subsequent to January 1, 2023, as a result of adopting ASU 2016-13, the Company uses a current expected loss model (“CECL”).

This methodology also considers historical loss rates and other qualitative adjustments, as well as a new forward-looking component that considers reasonable and supportable forecasts over the expected life of each loan.

To develop the ACL – Loans estimate under CECL, the Company segments the loan portfolio into loan pools based on loan type and similar credit risk elements;

calculates the historical loss rates for the segmented loan pools;

applies the loss rates over the calculated life of the pooled loans;

adjusts the forecasted macro-level economic conditions;

and determines qualitative adjustments based on factors and conditions unique to the Company’s portfolio.

The Company further individually evaluates PCD loans and other loans that no longer share similar risk characteristics with the collectively evaluated pools based on the amount and timing of estimated future cash flows or collateral values and establishes specific reserves when these estimated future cash flows or collateral values do not justify the carrying value of the loan.

Management believes that the ACL - Loans is adequate.

While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on changes in economic conditions.

In addition, various regulatory agencies, as an integral part of their examination process, periodically review the allowance for loan losses.

In addition, various regulatory agencies, as an integral part of their examination process, periodically review the ACL - Loans.

Such agencies may require the Bank to recognize additions to the allowance based on their judgments of information available to them at the time of their examination.

Allowance for Loan Losses - Acquired

An ALL is calculated using a methodology similar to that described for originated loans.

Performing acquired loans are subsequently evaluated for any required allowance at each reporting date.

Such required allowance for each loan pool is compared to the remaining fair value discount for that pool.

If greater, the excess is recognized as an addition to the allowance through a provision for loan losses.

If less than the discount, no additional allowance is recorded.

Charge-offs and losses first reduce any remaining fair value discount for the loan pool and once the discount is depleted, losses are applied against the allowance established for that pool.

For PCI loans after acquisition, cash flows expected to be collected are recast for each loan periodically as determined appropriate by management.

If the present value of expected cash flows for a loan is less than its carrying value, impairment is reflected by an increase in the ALL and a charge to the provision for loan losses.

If the present value of the expected cash flows for a loan is greater than its carrying value, any previously established ALL is reversed and any remaining difference increases the accretable yield which will be taken into income over the remaining life of the loan.

Loans which were considered troubled debt restructurings by an acquired institution prior to the acquisition are not required to be classified as troubled debt restructurings in the Corporation’s consolidated financial statements unless or until such loans would subsequently meet criteria to be classified as such, since acquired loans were recorded at their estimated fair values at the time of the acquisition.

Allowance for Credit Losses – Unfunded Commitments

In addition to the ACL – Loans, the Company has established an allowance for unfunded commitments, included in other liabilities on the consolidated balance sheets, representing expected credit losses over the contractual period for which the Company is exposed to credit risk resulting from a contractual obligation to extend credit.

The ACL – Unfunded Commitments is maintained at a level that management believes is sufficient to absorb losses arising from unfunded loan commitments, and is determined quarterly based on methodology similar to the methodology for determining the ACL – Loans.

Premises and Equipment

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Other Real Estate Owned

Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value at the date of foreclosure less estimated costs to sell the asset, establishing a new cost basis.

Any write downs at the time of foreclosure are charged to the allowance for loan loss.

Assets acquired through, or in lieu of, loan foreclosure as well as buildings that the Company no longer utilizes in its operations are held for sale and are initially recorded at fair value at the date of foreclosure or abandonment less estimated costs to sell the asset, establishing a new cost basis.

Any write downs at the time of foreclosure are charged to the allowance for credit loss.

OREO properties acquired in conjunction with corporate acquisitions are recorded at fair value on the date of acquisition.

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Intangible assets consist of the value of core deposits, mortgage servicing assets and the excess of purchase price over fair value of net assets (goodwill).

Core deposits are stated at cost less accumulated amortization and are amortized on a sum of the year’s digits basis over a period of one to ten years .

See Note 2 for additional information on acquisitions completed in 2023 and 2022.

The value of core deposits are typically recorded in connection with a whole bank or branch acquisition.

The value of the core deposit intangible represents the estimated value of the long-term deposit relationships acquired in the transaction.

Determining the value of cored deposits and their average lives involves multiple assumptions and estimates and is typically determined by performing a discounted cash flow analysis, which involves a combination of any or all of the following assumptions:

customer attrition/runoff, alternative funding costs, deposit servicing costs, and discount rates.

The value of core deposits are stated at cost less accumulated amortization and are amortized on a sum of the year’s digits basis over a period of one to ten years.

Mortgage servicing rights are recognized as separate assets when rights are acquired through purchase or through sale of mortgage loans with servicing retained.

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Changes in fair value are recorded as an adjustment to earnings.

The Corporation performs a “qualitative” assessment of goodwill to determine whether further impairment testing of indefinite-lived intangible assets is necessary on at least an annual basis.

The Company performs a “qualitative” assessment of goodwill to determine whether further impairment testing of indefinite-lived intangible assets is necessary on at least an annual basis.

If it is determined, as a result of performing a qualitative assessment over goodwill, that it is more likely than not that goodwill is impaired, management will perform an impairment test to determine if the carrying value of goodwill is realizable.

The Corporation evaluated goodwill and core deposit intangibles for impairment during 2022, 2021 and 2020, determining that there was no goodwill or core deposit intangible impairment.

The Corporation files one consolidated federal income tax return and two state returns.

The Company evaluated goodwill and core deposit intangibles for impairment during 2023, 2022 and 2021, determining that there was no goodwill or core deposit intangible impairment.

The Company files one consolidated federal income tax return and four state returns.

Federal income tax expense is allocated to each subsidiary based on an intercompany tax sharing agreement.

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Treasury Stock

Common stock shares repurchased by the Corporation are recorded as treasury stock at cost.

Common stock shares repurchased by the Company are recorded as treasury stock at cost.

Securities Sold Under Repurchase Agreements

The Corporation sells securities under repurchase agreements.

The Company sells securities under repurchase agreements.

These transactions are accounted for as collateralized financing transactions and are recorded at the amounts at which the securities were sold.

The Corporation may have to provide additional collateral to the counterparty, as necessary.

The Company may have to provide additional collateral to the counterparty, as necessary.

Off-Balance-Sheet Financial Instruments

In the ordinary course of business, the Corporation has entered into off-balance-sheet financial instruments including commitments to extend credit, unfunded commitments under lines of credit, and letters of credit.

In the ordinary course of business, the Company has entered into off-balance-sheet financial instruments including commitments to extend credit, unfunded commitments under lines of credit, and letters of credit.

Such financial instruments are recorded in the consolidated financial statements when they are funded.

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This item is reported as a separate component of stockholders’ equity.

The Corporation presents comprehensive income in the statement of comprehensive income.

The Company presents comprehensive income in the statement of comprehensive income.

Stock-based Compensation

The Corporation uses the fair value method of recognizing expense for stock-based compensation based on the fair value of restricted stock awards at the date of grant as prescribed by accounting standards codification Topic 781-10 Compensation/Stock Compensation.

The Company uses the fair value method of recognizing expense for stock-based compensation based on the fair value of restricted stock awards at the date of grant as prescribed by accounting standards codification Topic 781-10 Compensation/Stock Compensation.

Mortgage Banking Derivatives

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Certain 2022 and 2021 amounts have been reclassified to conform to the presentation used in 2023.

These reclassifications had no effect on the operations, financial condition or cash flows of the Corporation.

These reclassifications had no effect on the operations, financial condition or cash flows of the Company.

New Accounting Pronouncements

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 Corporation as it was classified as a "Smaller reporting company"

as defined in Rule 12b-2 of the Exchange Act as of the date ASU 2019-10 was enacted.

During the first half of 2019 the Corporation engaged a third-party partner to assist in its 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 Corporation’s ALL under ASU 2016-13.

Throughout 2022, management ran 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 Corporation implements this standard.

Results of these parallel runs indicate that the Bank’s ALL to total loans coverage ratio will increase from 0.78 % as of December 31, 2022, to 1.10 % - 1.20 % upon implementation of ASU 2016-13 on January 1, 2023.

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

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In December 2022, the FASB issued ASU 2022-06 which deferred the sunset date of Topic 848 from December 31, 2022 to December 31, 2024.

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

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 October 2023, the FASB issued ASU 2023-06, Disclosure Improvements.

This ASU modifies the disclosure or presentation requirements of a variety of topics in the Codification.

Certain of the amendments represent clarifications to or technical corrections of the current requirements.

The effective date for each amendment will be the date on which the Security and Exchange Commission’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited.

If, by June 30, 2027, the Securities and Exchange Commission has not removed the applicable requirement from Regulation S-X or Regulation S-K, the pending content of the related amendment will be removed from the Codification and will not become effective for any entity.

The Company does not anticipate a significant impact to its financial statement disclosures as a result of this ASU.

Recently Implemented Accounting Standards

As a result of implementing ASU 2016-13 on January 1, 2023, the Company recorded a reduction to retained earnings of approximately $ 10,050,000 .

The transition adjustment included an increase to the ACL-Loans of $ 10,972,000 and an increase in the ACL – Unfunded Commitments of $ 3,264,000 , offset by applicable deferred taxes.

The Company adopted ASU 2016-13 using the prospective transition approach for financial assets considered PCD that were previously classified as PCI.

The amortized cost of the PCD assets were adjusted to reflect the addition of $ 0.3 million to the allowance for credit losses.

The remaining noncredit discount (based on the adjusted amortized cost) will be accreted into interest income at the effective interest rate over the remaining life of the assets.

The following table presents the changes in the allowance for credit losses required as a result of this adoption:

January 1, 2023 As

December 31, 2022

Reported After ASU

Pre-ASU 2016-13

Allowance for Credit Losses

2016-13 Adoption

Loans held for investments

Commercial/industrial

Commercial real estate - owner occupied

Commercial real estate - non-owner occupied

Commercial real estate - multi-family

Construction and development

Residential 1-4 family

Loans held for investments, total

Unfunded commitments

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 Corporation 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.

Troubled Debt Restructurings (“TDRs”) and Vintage Disclosures .

This ASU eliminated the accounting guidance for TDRs by creditors and enhanced the disclosure requirements for loan modifications to borrowers experiencing financial difficulty.

The ASU also requires public business entities to expand the vintage disclosures to include gross charge-offs by year of origination.

The updated guidance was effective for fiscal years beginning after December 15, 2022.

Adoption of this ASU did not have a material impact on the Company’s consolidated financial statements;

however, it resulted in new disclosures.

See Note 4 for the new disclosures.

Note 2 Acquisitions

Denmark Bancshares, Inc.

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

(“Denmark”), a bank holding company headquartered in Denmark, Wisconsin, pursuant to the Agreement and Plan of Bank Merger, dated as of January 18, 2022 by and between the Corporation and Denmark, whereby Denmark merged with and into the Corporation, 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 of a share of the Corporation’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.

Corporation 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 Corporation 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 Corporation 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.

Hometown Bancorp, Ltd.

On February 10, 2023, the Company completed a merger with Hometown Bancorp, Ltd.

(“Hometown”), a bank holding company headquartered in Fond du Lac, Wisconsin, pursuant to the Agreement and Plan of Bank Merger (“Merger Agreement”), dated as of July 25, 2022 by and among the Company and Hometown, whereby Hometown merged with and into the Company, and Hometown Bank, Hometown’s wholly-owned banking subsidiary, merged with and into the Bank.

Hometown’s principal activity was the ownership and operation of Hometown Bank, a state-chartered banking institution that operated ten (10) branches in Wisconsin at the time of closing.

The merger consideration totaled approximately $ 130,452,000 .

Pursuant to the terms of the Merger Agreement, Hometown shareholders could elect to receive either 0.3962 shares of the Company’s common stock or $ 29.16 in cash for each outstanding share of Hometown common stock, subject to a maximum of 30 % cash consideration in total, with cash paid in lieu of any remaining fractional share.

Company stock issued totaled 1,450,272 shares valued at approximately $ 115,079,000 , with cash of $ 15,373,000 comprising the remainder of merger consideration.

The fair value of the assets acquired and liabilities assumed on February 10, 2023 was as follows:

As Recorded by

(in thousands)

the Corporation

Cash, cash equivalents and securities

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Other borrowings

Junior subordinated debentures

Other liabilities

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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 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.

(in thousands, except per share data)

December 31, 2022

December 31, 2021

Total revenue, net of interest expense

Diluted earnings per common share

Tomah Bancshares, Inc.

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

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

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

The merger consideration totaled approximately $ 29.8 million.

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

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

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

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

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

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

The fair value of the assets acquired and liabilities assumed on May 15, 2020 was as follows:

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

Goodwill of $ 64,881,000 arising from the merger consisted largely of synergies and the cost saves resulting from the combining of operations of the companies, and is not expected to be deductible for income tax purposes.

The Company purchased loans through this merger for which there was, at the date of acquisition, more than insignificant deterioration of credit quality since origination.

The carrying value of these loans at acquisition was as follows:

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.

The carrying amount of these loans at acquisition was as follows:

February 10, 2023

Purchase price of PCD loans at acquisition

Non-credit discount on PCD loans at acquisition

Allowance for credit losses on PCD loans at acquisition

Par value of PCD acquired loans at acquisition

Denmark Bancshares, Inc .

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 Agreement and Plan of Bank Merger, dated as of January 18, 2022 by and between 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 $ 128,781,000 .

Pursuant to the terms of the merger agreement, Denmark shareholders could elect to receive either 0.5276 of a share 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 $ 124,771,000 , with cash of $ 4,010,000 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

the Corporation

(in thousands)

4 unchanged sentences

Total assets acquired

Subordinated debt

Other borrowings

3 unchanged sentences

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, 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.

(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 Denmark prior to the consummation dates were not included in the accompanying consolidated financial statements.

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

Note 3 Securities

1 unchanged sentence

December 31, 2023

Treasury securities

Obligations of U.S.

20 unchanged sentences

December 31, 2022

Treasury securities

Obligations of states and political subdivisions

At December 31, 2022, unrealized losses in the investment securities portfolio related to debt securities.

The unrealized losses on these debt securities arose primarily due to changing interest rates and are considered to be temporary.

From the December 31, 2022 tables above, 27 out of 28 U.S.

Treasury securities, 107 out of 109 mortgage-backed securities, 16 out of 16 obligations of U.S.

Government sponsored agency securities, 8 out of 16 corporate notes, 105 out of 135 obligations of states and political subdivisions and 4 out of 4 certificates of deposit contained unrealized losses.

At December 31, 2022 and 2021, management has both the intent and ability to hold securities containing material unrealized losses.

Total held to maturity securities

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 (dollar amounts in thousands):

2 unchanged sentences

December 31, 2023 - Available for Sale

Treasury securities

Obligations of U.S.

14 unchanged sentences

Corporate notes

Certificate of deposits

December 31, 2022 - Held to Maturity

Treasury securities

Obligations of states and political subdivisions

As of December 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.

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

The issuers of these securities continue to make timely principal and interest payments under the contractual terms of the securities.

As of December 31, 2023, the Company did not intend to sell these securities and it was more likely than not that the Company would not be required to sell the debt securities before recovery of their amortized cost, which may be at maturity.

The unrealized losses have occurred as a result of changes in interest rates, market spreads and market conditions subsequent to purchase, not credit deterioration.

Furthermore, the Company monitors the credit quality of debt securities held to maturity quarterly through the use of credit ratings.

Treasury securities at December 31, 2023 were all rated AAA and have the full faith and credit backing of the United States Government.

Obligations of states and political subdivisions in an unrealized loss position at December 31, 2023 are not material to the financial statements.

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

18 unchanged sentences

Residential 1 ‑ 4 family

Loans, net of ALL

Deferred loan fees and costs

A summary of the activity in the allowance for loan losses by loan type as of December 31, 2022 and December 31, 2021 is as follows (dollar amounts in thousands):

Loans, net of ACL - Loans

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.

Loans with similar risk characteristics are evaluated in pools and the Company utilizes a discounted cash flow (“DCF”) method to estimate ACL for all loan pools.

Under the DCF method, probability of default (“PD”) and loss given default (“LGD”) are applied to a projective model of the pool’s cash flows while considering prepayment and principal curtailment effects.

The analysis produces expected cash flows for each instrument in the pool by pairing loan-level term information (maturity date, payment amount, interest rate, etc.) with top-down pool assumptions (default rates and prepayment speeds).

Management has determined that peer loss experience provides the best basis for its assessment of expected credit losses to determine the ACL.

The Company utilized peer call report data to measure historical credit loss experience with similar risk characteristics within the segments over an economic cycle.

Management reviewed the historical loss information to appropriately adjust for differences in current asset specific risk characteristics.

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.

For all loan pools, the Company utilizes and forecasts the national unemployment rate as a loss driver.

The Company also utilizes and forecasts national GDP growth as a second loss driver for its commercial real estate – owner occupied and construction and development pools, the CRE (SA) interest rates and price index as a second loss driver for its commercial real estate – non-owner occupied pool, the real retail and food services sales index as a second loss driver for its consumer loan pool, and the S&P Case-Schiller US home price index as a second loss driver for its residential 1-4 family pool.

For both national unemployment and national GDP growth the Company utilized a twelve-month forecast period, followed by a twelve-month reversion to the mean.

The Company utilized the high-end range of the Federal Reserve Bank Open Market Committee forecast for national unemployment and the low-end range for national GDP growth at December 31, 2023.

As of December 31, 2023, the Company anticipates the national unemployment rate to rise during the forecast period and the national GDP growth rate to decline.

Due to a lack of reliable forecasts, the Company utilized long-term averages for the remaining loss drivers.

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.

The expected credit losses for each loan pool are then adjusted for changes in qualitative factors not inherently considered in the quantitative analyses.

The qualitative adjustments either increase or decrease the quantitative model estimation.

The Company considers factors that are relevant within the qualitative framework which include the following:

lending policy, changes in nature and volume of loans, staff experience, changes in volume and trends of problem loans, concentration risk, trends in underlying collateral values, external factors, quality of loan review system and other economic conditions.

Expected credit losses for loans that no longer share similar risk characteristics with the collectively evaluated pools are excluded from the collective evaluation and estimated on an individual basis.

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.

In addition to several minor refinements to the model during the fourth quarter of 2023, the Company performed a loss driver refresh study to determine whether the utilized loss drivers remained appropriate.

While the fundamental methodology remained unchanged, as a result of this study, the real retail and food services sales index was introduced and applied to the consumer loan pool.

In addition, multi-family loans were separated from commercial real estate – non-owner occupied into their own pool.

The net impact of these changes during the fourth quarter of 2023 were not material to the model as the ACL-Loans to total loans ratio was 1.30 % both prior to and after these changes were made.

A summary of the activity in ACL - Loans by loan type as of December 31, 2023 is as follows (dollar amounts in thousands):

Real Estate -

ALL - January 1, 2022

ALL - December 31, 2022

ALL ending balance individually evaluated for impairment

ALL ending balance collectively evaluated for impairment

Loans outstanding - December 31, 2022

Loans ending balance individually evaluated for impairment

Loans ending balance collectively evaluated for impairment

ACL - Loans - January 1, 2023

Adoption of CECL

ACL - Loans on PCD loans acquired

ACL - Loans - December 31, 2023

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

Real Estate -

7 unchanged sentences

Loans ending balance collectively evaluated for impairment

In addition to the ACL-Loans, the Company has established an ACL-Unfunded Commitments, classified in other liabilities on the consolidated balance sheets.

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

This quarterly assessment includes consideration of the likelihood that funding of these commitments will eventually occur.

The Company has identified the unfunded portion of certain lines of credit, credit card arrangements and letters of credit as unconditionally cancellable credit exposures, meaning the Company can cancel the unfunded commitment at any time.

No credit loss estimate is recorded for off-balance sheet credit exposures that are unconditionally cancelable by the Company or for undrawn amounts under such arrangements that may be drawn prior to the cancellation of the arrangement.

The ACL - Unfunded Commitments was $ 3,849,000 and $ 0 at December 31, 2023 and 2022, respectively.

See Note 20 for further information on commitments.

The provision for credit losses is determined by the Company as the amount to be added to the ACL loss accounts for various types of financial instruments including loans, investment securities, and off-balance sheet credit exposures after net charge-offs have been deducted to bring the ACL to a level that, in management’s judgment, is necessary to absorb expected credit losses over the lives of the respective financial instruments.

The following table presents the components of the provision for credit losses (dollar amounts in thousands):

December 31, 2023

December 31, 2022

Provision for credit losses on:

Unfunded Commitments

Total provision for credit losses

A summary of past due loans as of December 31, 2023 are as follows (dollar amounts in thousands):

allocated ACL

Commercial/industrial

9 unchanged sentences

Residential 1 ‑ 4 family

Credit Quality:

We utilize a numerical risk rating system for commercial relationships whose total indebtedness equals $ 250,000 or more.

A loan is considered to be collateral dependent when, based upon management’s assessment, the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral.

For collateral dependent loans, expected credit losses are based on the estimated fair value of the collateral at the balance sheet date, with consideration for estimated selling costs if satisfaction of the loan depends on the sale of the collateral.

The following table presents collateral dependent loans by portfolio segment and collateral type, including those loans with and without a related allowance allocation (dollar amounts in thousands).

A significant portion of the loan balances in this table and essentially all of the allowance allocations relate to PCD loans which were acquired from Hometown.

Real estate collateral primarily consists of operating facilities of the underlying borrowers.

Other business assets collateral primarily consists of receivables and inventory of the underlying borrowers.

Collateral Type

As of December 31, 2023

Business Assets

Commercial/industrial

Commercial real estate - owner occupied

Commercial real estate - non-owner occupied

Construction and development

Residential 1 ‑ 4 family

Prior to the adoption of ASU 2016-13, the allowance included specific reserves for certain individually evaluated impaired loans.

Specific reserves reflected estimated losses on impaired loans from management’s analysis developed through specific credit allocations.

The following table shows a summary of impaired loans individually evaluated as of December 31, 2022 (dollar amounts in thousands):

Real Estate -

With an allowance recorded:

Recorded investment

Unpaid principal balance

Related allowance

With no related allowance recorded:

Recorded investment

Unpaid principal balance

Related allowance

Recorded investment

Unpaid principal balance

Related allowance

Average recorded investment

The Company utilizes a numerical risk rating system for commercial relationships.

All other types of relationships (ex:

residential, consumer, commercial under $ 250,000 of indebtedness) 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 Corporation uses split ratings for government guaranties on loans.

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.

1 unchanged sentence

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.

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.

6 unchanged sentences

collection or liquidation in full is not probable.

The breakdown of loans by risk rating as of December 31, 2022 is as follows (dollar amounts in thousands):

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

Loans acquired from other previously acquired institutions have been included in the table based upon the actual origination date (dollar amounts in thousands).

Amortized Cost Basis by Origination Year

As of December 31, 2023

Commercial/industrial

Current-period gross charge-offs

Commercial real estate - owner occupied

Current-period gross charge-offs

Commercial real estate - non-owner occupied

Current-period gross charge-offs

Construction and development

Current-period gross charge-offs

Residential 1 ‑ 4 family

Current-period gross charge-offs

Total current-period gross charge-offs

The breakdown of loans by risk rating as of December 31, 2022 is as follows (dollar amounts in thousands):

2 unchanged sentences

Commercial real estate - non-owner occupied

Commercial real estate - multi-family

Construction and development

Residential 1 ‑ 4 family

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 (“PFLL”) 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 .

The general reserve is based in part on the Bank’s historical loss experience which is updated quarterly.

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 PFLL could be required that could adversely affect the Corporation’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.

A summary of impaired loans individually evaluated as of December 31, 2022 is as follows (dollar amounts in thousands):

Real Estate -

With an allowance recorded:

Recorded investment

Unpaid principal balance

Related allowance

With no related allowance recorded:

Recorded investment

Unpaid principal balance

Related allowance

Recorded investment

Unpaid principal balance

Related allowance

Average recorded investment

A summary of impaired loans individually evaluated as of December 31, 2021 is as follows (dollar amounts in thousands):

Real Estate -

With an allowance recorded:

Recorded investment

Unpaid principal balance

Related allowance

With no related allowance recorded:

Recorded investment

Unpaid principal balance

Related allowance

Recorded investment

Unpaid principal balance

Related allowance

Average recorded investment

An analysis of interest income on impaired loans for the years ended December 31 follows (dollar amounts in thousands):

Interest income in accordance with original terms

Interest income recognized

(Increase) Reduction in interest income

The following table presents loans acquired with deteriorated credit quality.

No loans in this table had a related allowance at December 31, 2022 and 2021, and therefore, the below disclosures were not expanded to include loans with and without a related allowance (dollar amounts in thousands).

December 31, 2022

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 year ended December 31, 2023, were insignificant to these consolidated financial statements.

The Company also had no new TDRs during the year ended December 31, 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 (dollar amounts in thousands).

December 31, 2022

2 unchanged sentences

Commercial real estate - non-owner occupied

Commercial real estate - multi-family

Construction and development

Residential 1 ‑ 4 family

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 (dollar amounts in thousands):

December 31, 2022

December 31, 2021

Non-accretable

Balance at beginning of year

Balance at beginning of period

Acquired balance, net

1 unchanged sentence

Accretion to loan interest income

Balance at end of year

A 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.

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, it remains there until a sufficient period of performance under the restructured terms has occurred at which time it is returned to accrual status, generally six months.

As of December 31, 2022 and 2021 the Corporation had specific reserves of $ 8,000 and $ 7,000 related to TDR’s, respectively.

Loans modified under the guidance of the Cares Act are not considered TDRs and as such are not included in the tables below.

The Corporation had no new troubled debt restructurings during the year ended December 31, 2022.

The following table presents the troubled debt restructurings during the year ended December 31, 2021 (dollar amounts in thousands):

Pre-Modification

Post-Modification

Outstanding Recorded

Commercial/ industrial

Commercial Real Estate

Balance at end of period

Note 5 Related Party Matters

Directors, executive officers, and principal shareholders of the Corporation, including their families and firms in which they are principal owners, are considered to be related parties.

Loans to officers, directors, and shareholders owning 10% or more of the Corporation, that we are aware of, were made on the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with others and did not involve more than the normal risk of collectability or present other unfavorable features.

Directors, executive officers, and principal shareholders of the Company, including their families and firms in which they are principal owners, are considered to be related parties.

Loans to officers, directors, and shareholders owning 10% or more of the Company, that we are aware of, were made on the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with others and did not involve more than the normal risk of collectability or present other unfavorable features.

A summary of loans to directors, executive officers, principal shareholders, and their affiliates for the years ended December 31 is as follows (dollar amounts in thousands):

6 unchanged sentences

MSRs are recognized as separate assets when loans sold in the secondary market are sold with servicing retained.

The Corporation utilizes a third party consulting firm to determine an accurate assessment of the mortgage servicing rights fair value.

The Company utilizes a third-party consulting firm to determine an accurate assessment of the mortgage servicing rights 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.

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.

14 unchanged sentences

Mortgage servicing rights as a percent of loans serviced for others

During the years ended December 31, 2022 and 2021, the Corporation utilized economic assumptions in measuring the initial value of MSRs for loans sold whereby servicing is retained by the Corporation.

During the years ended December 31, 2023 and 2022, the Company utilized economic assumptions in measuring the initial value of MSRs for loans sold whereby servicing is retained by the Company.

The economic assumptions used at December 31, 2023 and 2022 included constant prepayment speed of 7.5 and 7.5 months and a discount rate of 10.19 % and 10.21 %, respectively.

The constant prepayment speeds are obtained from publicly available sources for each of the Federal National Mortgage Association and Federal Home Loan Mortgage Corporation loan programs that the Corporation originates under.

The assumptions used by the Corporation are hypothetical and supported by a third party valuation.

The Corporation’s methodology for estimating the fair value of MSRs is highly sensitive to changes in assumptions.

The assumptions used by the Company are hypothetical and supported by a third-party valuation.

The Company’s methodology for estimating the fair value of MSRs is highly sensitive to changes in assumptions.

The carrying value of the mortgage servicing rights approximates fair market value at December 31, 2023 and 2022.

Changes in fair value are recognized through the income statement as loan servicing income.

Note 7 Premises and Equipment

20 unchanged sentences

Note 9 Investment in Minority-owned Subsidiaries

The Corporation has a 49.8 % membership interest in UFS.

The business operations of UFS consist of providing data processing and other information technology services to the Corporation and other financial institutions.

As of December 31, 2022 and 2021, UFS had total assets of $ 31,309,000 and $ 27,914,000 and liabilities of $ 6,680,000 and $ 4,493,000 , respectively.

The Corporation’s investment in UFS was $ 12,252,000 and $ 11,605,000 at December 31, 2022 and 2021, respectively.

The investment is accounted for on the equity method.

The Corporation’s undistributed earnings from its investment in UFS were approximately $ 3,055,000 , $ 2,556,000 , and $ 3,066,000 for the years ended December 31, 2022, 2021 and 2020, respectively.

Data processing service fees paid by the Corporation to UFS were approximately $ 4,348,000 , $ 3,754,000 , and $ 3,664,000 for the years ended December 31, 2022, 2021 and 2020, respectively.

The Corporation has a contract with UFS that was renewed for five years on January 1, 2023.

The Corporation’s proportionate share of earnings of UFS flow through to its tax return.

Deferred income taxes of approximately $ 1,509,000 and $ 1,671,000 were provided to account for the difference in the tax and book basis of assets and liabilities held at UFS at December 31, 2022 and 2021, respectively.

During 2022, 2021 and 2020, the Corporation received $ 2,408,000 , $ 2,646,000 and $ 2,103,000 in dividends from UFS, respectively.

TVG, the insurance subsidiary of the Bank, maintained a 40.0 % investment in Ansay at December 31, 2023 and 2022.

1 unchanged sentence

As of December 31, 2023 and 2022, Ansay had total assets of $ 86,853,000 and $ 87,271,000 and liabilities of $ 41,398,000 and $ 44,178,000 , respectively.

The Corporation’s investment in Ansay, which is accounted for using the equity method, was $ 31,928,000 and $ 31,330,000 at December 31, 2022 and 2021, respectively.

The Corporation recognized undistributed earnings of approximately $ 2,558,000 , $ 2,587,000 and $ 2,740,000 and received dividends of $ 1,960,000 , $ 1,840,000 and $ 1,712,000 from its investment in Ansay during the years ended December 31, 2022, 2021 and 2020, respectively.

The Company’s investment in Ansay, which is accounted for using the equity method, was $ 32,926,000 and $ 31,928,000 at December 31, 2023 and 2022, respectively.

The Company recognized undistributed earnings of approximately $ 2,922,000 , $ 2,558,000 and $ 2,587,000 and received dividends of $ 1,924,000 , $ 1,960,000 and $ 1,840,000 from its investment in Ansay during the years ended December 31, 2023, 2022 and 2021, respectively.

As of December 31, 2023 and 2022, Ansay had term loans with the Bank totaling approximately $ 19,731,000 and $ 19,838,000 , respectively.

Ansay also has available revolving lines of credit totaling $ 18,010,000 with the Corporation, under which there were no outstanding balances as of December 31, 2022.

Outstanding balances under these lines totaled $ 1,944,000 as of December 31, 2021.

Ansay also has available revolving lines of credit totaling $ 18,000,000 with the Company, under which there were no outstanding balances as of December 31, 2023 or 2022.

Ansay maintained deposits at the Bank totaling $ 11,498,000 and $ 10,797,000 as of December 31, 2023 and 2022, respectively.

The CEO of Ansay, Michael G.

Ansay, serves as Chairman of the Board of the Corporation.

As a related party, during 2022, 2021 and 2020 the Corporation received insurance consulting services and purchased director and officer fidelity bond and commercial insurance coverage through Ansay spending approximately $ 357,000 , $ 329,000 and $ 261,000 , respectively.

The Corporation’s proportionate share of earnings of Ansay flow through to its tax return.

Ansay, served as a member of the Board of the Company until retiring on January 15, 2024.

As a related party, during 2023, 2022 and 2021 the Company received insurance consulting services and purchased director and officer fidelity bond and commercial insurance coverage through Ansay spending approximately $ 417,000 , $ 357,000 and $ 329,000 , respectively.

The Company’s proportionate share of earnings of Ansay flow through to its tax return.

Deferred income taxes of approximately $ 944,000 and $ 1,125,000 were provided to account for the difference in the tax and book basis of assets and liabilities held at Ansay as of December 31, 2023 and 2022, respectively.

The Company had a 49.8 % membership interest in UFS which it sold on October 1, 2023, resulting in a $ 38,904,000 gain on sale.

Prior to this sale, the investment was accounted for on the equity method.

The Company’s undistributed earnings from its investment in UFS prior to sale were approximately $ 2,265,000 , $ 3,055,000 , and $ 2,556,000 for the years ended December 31, 2023, 2022 and 2021, respectively.

Data processing service fees paid by the Company to UFS were approximately $ 5,545,000 , $ 4,348,000 , and $ 3,754,000 for the years ended December 31, 2023, 2022 and 2021, respectively.

The business operations of UFS consist of providing data processing and other information technology services to the Company and other financial institutions.

As of December 31, 2022 UFS had total assets of $ 31,309,000 and liabilities of $ 6,680,000 .

The Company’s investment in UFS was $ 12,252,000 at December 31, 2022.

The Company’s proportionate share of earnings of UFS flow through to its tax return.

Deferred income taxes of approximately $ 1,509,000 were provided to account for the difference in the tax and book basis of assets and liabilities held at UFS at December 31, 2022.

During 2023, 2022 and 2021, the Company received $ 1,747,000 , $ 2,408,000 , and $ 2,646,000 in dividends from UFS, respectively.

Note 10 Core Deposit Intangibles

6 unchanged sentences

Goodwill was $ 175,106,000 and $ 110,206,000 at December 31, 2023 and 2022, respectively.

In addition to minor refinement of goodwill during the year, $ 64,911,000 in goodwill originally recorded from the acquisition of Hometown was the primary cause of the increase in goodwill during 2023.

Note 12 Deposits

10 unchanged sentences

Securities sold under repurchase agreements have contractual maturities up to one year from the transaction date with variable and fixed rate terms.

The agreements to repurchase securities require that the Corporation (seller) repurchase identical securities as those that are sold.

The securities underlying the agreements were under the Corporation’s control.

The agreements to repurchase securities require that the Company (seller) repurchase identical securities as those that are sold.

The securities underlying the agreements were under the Company’s control.

Information concerning securities sold under repurchase agreements at December 31 consists of the following (dollar amounts in thousands):

16 unchanged sentences

Fixed rate, fixed term

Purchase accounting adjustment

7 unchanged sentences

This stock is recorded at cost, which approximates fair value.

The Corporation maintains a $ 7,500,000 line of credit with a commercial bank, which was entered into on May 15, 2022.

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

The Company maintains a $ 7,500,000 line of credit with a commercial bank, which was entered into on May 15, 2022.

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

Any future borrowings will require monthly payments of interest at a variable rate, and will be due in full on May 15, 2024.

Note 15 Subordinated Debt

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

The Corporation had up to twelve months from entering these agreements to borrow funds up to a maximum availability of $ 22,500,000 .

As of December 31, 2022 and 2021, the Corporation had borrowed $ 11,500,000 under these agreements.

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 their issuance dates, and qualify for Tier 2 capital for regulatory purposes.

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

The Corporation had through December 31, 2020, to borrow funds up to a maximum availability of $ 6,000,000 under each agreement, or $ 12,000,000 total.

During September 2017, the Company entered into subordinated note agreements with three separate commercial banks under which it borrowed $ 11,500,000 .

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

These notes were repaid in full during October 2023.

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

The Company had through December 31, 2020, to borrow funds up to a maximum availability of $ 6,000,000 under each agreement, or $ 12,000,000 total.

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.

The Corporation had outstanding balances of $ 6,000,000 under these agreements at December 31, 2022 and 2021.

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

The Corporation had outstanding balances of $ 6,000,000 under these agreements as of December 31, 2022.

The Company had outstanding balances of $ 6,000,000 under these agreements at December 31, 2023 and 2022.

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

The Company had outstanding balances of $ 6,000,000 under these agreements as of December 31, 2023 and 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.

As a result of the acquisition of Hometown during February 2023, the Company acquired all of the common securities of Hometown’s wholly-owned subsidiaries, Hometown Bancorp, Ltd.

Capital Trust I (“Trust I”) and Hometown Bancorp, Ltd.

Capital Trust II (“Trust II”).

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

The junior subordinated debentures issued to Trust I and Trust II totaled $ 4,124,000 and $ 8,248,000 , respectively, carried interest at floating rates resetting on each quarterly payment date, and were due on January 7, 2034 and December 15, 2036, respectively.

Applicable discounts originally totaling $ 1,464,000 were recorded to carry the assumed debentures at their then estimated fair value and were being accreted to interest expense over the remaining life of the debentures.

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

The junior subordinated debentures represented the sole asset of Trust I and Trust II.

The trusts were not included in the Company’s consolidated financial statements.

The net effect of all agreements assumed with respect to Trust I and Trust II is that the Company, through payments on its debentures, was liable for the distributions and other payments required on the trusts’ preferred securities.

Trust I and Trust II also provided the Company with $ 12,000,000 in Tier 1 capital for regulatory capital purposes.

The Company redeemed the junior subordinated debenture related to Trust II during December 2023, resulting in Trust II’s dissolution.

The Company redeemed the junior subordinated debenture related to Trust I on January 8, 2024, resulting in Trust I’s dissolution.

As a result of the redemption of the junior subordinated debenture related to Trust II and notification of the Company’s intent to redeem the junior subordinated debenture of Trust I prior to December 31, 2023, the Company amortized the remaining original fair value discounts into interest expense during 2023.

Note 16 Income Taxes

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Current tax expense:

Total current

Deferred tax benefit:

Total deferred

Change in valuation allowance

Total provision for income taxes

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Nondeductible expenses associated with acquisition

Change in valuation allowance

Total provision for income taxes

Deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of the Corporation’s assets and liabilities.

Deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities.

Deferred taxes are included in other liabilities of the balance sheet.

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Premises and equipment

Allowance for loan losses

Allowance for credit losses

Accrued vacation and severance

Other real estate owned

Purchase accounting

Unrealized loss on securities available for sale

Net operating loss carry forward

Total deferred tax assets

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Investment in acquisition and discount accretion

Premises and equipment

Mortgage servicing rights

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Goodwill and other intangibles

Purchase accounting

Unrealized gain on securities available for sale

Total deferred tax liabilities

Valuation allowance

Net deferred tax asset (liability)

In assessing the ability of the Company to realize the benefit of the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.

Management considers the scheduled reversal of deferred tax liabilities, availability of operating loss carrybacks, projected future taxable income, and tax planning strategies in making this assessment.

Based upon the level of historical taxable income and projections for future taxable income over the periods which deferred tax assets are deductible, management believes it is more likely than not the Company will generate sufficient federally taxable income to realize the benefits of these deductible differences at December 31, 2023.

Due to legislation during 2023 related to exempting interest income on significant portions of the Company’s loan portfolio to taxability in the state of Wisconsin, however, management estimates that future state taxable income will be insufficient to fully realize the benefits of these deductible differences, resulting in a valuation allowance of $ 2,447,000 on the net deferred tax asset related to state income taxes at December 31, 2023.

Tax effects from an uncertain tax position can be recognized in the financial statements only if the position is more likely than not to be sustained on audit, based on the technical merits of the position.

The Corporation recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit.

The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit.

For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority.

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Employee Stock Ownership Plan

The Corporation has a defined contribution profit sharing 401(k) plan which includes the provisions for an employee stock ownership plan (“ESOP”).

The Company has a defined contribution profit sharing 401(k) plan which includes the provisions for an employee stock ownership plan (“ESOP”).

The plan is available to all employees over 18 years of age after completion of three months of service.

Employees participating in the plan may elect to defer a minimum of 2 % of compensation up to the limits specified by law.

All participants of the 401(k) plan are eligible for the ESOP and may allocate their contributions to purchase shares of the Corporation’s stock.

All participants of the 401(k) plan are eligible for the ESOP and may allocate their contributions to purchase shares of the Company’s stock.

As of December 31, 2023 and 2022, the plan held 272,132 and 322,020 shares, respectively.

These shares are included in the calculation of the Corporation’s earnings per share.

The Corporation may make discretionary contributions up to the limits established by IRS regulations.

These shares are included in the calculation of the Company’s earnings per share.

The Company may make discretionary contributions up to the limits established by IRS regulations.

The discretionary match was 35 % of participant contributions up to 10 % of the employee’s salary in 2023, 2022, and 2021.

The Corporation made additional discretionary contributions to the plan of $ 591,000 , $ 600,000 , $ 733,000 in 2022, 2021 and 2020, respectively.

The Company made additional discretionary contributions to the plan of $ 801,000 , $ 591,000 , $ 600,000 in 2023, 2022 and 2021, respectively.

Total expense associated with the plans was approximately $ 1,596,000 , $ 1,197,000 and $ 1,169,000 in 2023, 2022 and 2021, respectively.

Share-based Compensation

The Corporation has made restricted share grants during 2022, 2021 and 2020 pursuant to the Bank First National 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 Corporation, thereby promoting the long-term growth and financial success of the Corporation.

The Corporation stock to be offered under the Plan pursuant to Stock Appreciation Rights, performance unit awards, and restricted stock and unrestricted Corporation stock awards must be Corporation stock previously issued and outstanding and reacquired by the Corporation.

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

As of December 31, 2022, 51,266 shares of Corporation stock has been awarded under the 2020 Plan.

The Company has made restricted share grants during 2023, 2022 and 2021 pursuant to the Bank First Corporation 2020 Equity 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 Company stock to be offered under the Plan pursuant to Stock Appreciation Rights, performance unit awards, and restricted stock and unrestricted Company stock awards must be Company stock previously issued and outstanding and reacquired by 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 December 31, 2023, 76,373 shares of Company stock has 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 of the respective grants.

For the year ended December 31, 2022, 2021 and 2020, compensation expense of $ 1,662,000 , $ 1,393,000 and $ 1,081,000 , respectively, was recognized related to restricted stock awards.

For the years ended December 31, 2023, 2022 and 2021, compensation expense of $ 2,142,000 , $ 1,662,000 and $ 1,393,000 , respectively, was recognized related to restricted stock awards.

As of December 31, 2023, there was $ 1,993,000 of unrecognized compensation cost related to non-vested restricted stock awards granted under the plan.

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Deferred Compensation Plan

The Corporation has a deferred compensation agreement with one of its former executive officers.

The benefits were payable beginning June 30, 2009, the date of termination of employment with the Corporation via retirement.

The Company has a deferred compensation agreement with one of its former executive officers.

The benefits were payable beginning June 30, 2009, the date of termination of employment with the Company via retirement.

The estimated annual cash benefit payment upon retirement at the age of 70 under the salary continuation plan is $ 108,011 .

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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 Corporation 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 Corporation became 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 and Corporation are 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.

Under regulatory guidance for non-advanced approaches institutions, the Bank and Company are 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 December 31, 2023 and 2022, this buffer was 2.50 %.

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

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

Actual and required capital amounts and ratios are presented below (dollar amounts in thousands):

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Note 19 Segment Information

The Corporation, through the branch network of its subsidiary, the Bank, provides a full range of consumer and commercial financial institution services to individuals and businesses in Wisconsin.

The Company, through the branch network of its subsidiary, the Bank, provides a full range of consumer and commercial financial institution services to individuals and businesses in Wisconsin.

These services include credit cards;

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and ATM processing.

The Corporation also offers a full-line of insurance services through its equity investment in Ansay and offers data processing services through its equity investment in UFS.

While the Corporation’s chief decision makers monitor the revenue streams of various Corporation products and services, operations are managed and financial performance is evaluated on a Corporation-wide basis.

Accordingly, all of the Corporation’s financial institution operations are considered by management to be aggregated in one reportable operating segment.

The Company also offers a full-line of insurance services through its equity investment in Ansay.

While the Company’s chief decision makers monitor the revenue streams of various Company products and services, operations are managed and financial performance is evaluated on a Company-wide basis.

Accordingly, all of the Company’s financial institution operations are considered by management to be aggregated in one reportable operating segment.

Note 20 Commitments and Contingencies

The Corporation enters into commitments to originate loans whereby the interest rate on the loan is determined prior to funding (rate lock commitments).

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.

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and stocks and bonds.

Letters of credit include $ 10,343,000 of standby letters of credit and no direct pay letters of credit and.

Standby letters of credit are conditional lending commitments issued by the Corporation to guaranty the performance of a customer to a third party.

Letters of credit include $ 9,785,000 of standby letters of credit and no direct pay letters of credit.

Standby letters of credit are conditional lending commitments issued by the Company to guaranty the performance of a customer to a third party.

Direct pay letters of credit generally are issued to support the marketing of industrial development revenue and housing bonds and provide that all debt service payments will be paid by drawing on the letter of credit.

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The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.

The Corporation generally holds collateral supporting these commitments.

The majority of the Corporation’s loans, commitments, and letters of credit have been granted to customers in the Corporation’s market area.

The Company generally holds collateral supporting these commitments.

The majority of the Company’s loans, commitments, and letters of credit have been granted to customers in the Company’s market area.

The concentrations of credit by type are set forth in Note 4.

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Note 21 Leases

In accordance with GAAP, leases where the Corporation is the lessee are recognized on-balance sheet through a right-of-use (“ROU”) model that requires recognition of a ROU lease asset and liability on the balance sheet for all leases with a term longer than 12 months.

In accordance with GAAP, leases where the Company is the lessee are recognized on-balance sheet through a right-of-use (“ROU”) model that requires recognition of 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.

The Corporation leases certain properties under operating leases that resulted in the recognition of ROU lease assets of approximately $ 1,582,000 and $ 1,580,000 and corresponding lease liabilities of similar value on the Corporation’s Consolidated Balance Sheets as of December 31, 2022 and 2021, respectively.

The Company leases certain properties under operating leases that resulted in the recognition of ROU lease assets of approximately $ 1,583,000 and $ 1,582,000 and corresponding lease liabilities of similar value on the Company’s Consolidated Balance Sheets as of December 31, 2023 and 2022, respectively.

GAAP provides a number of optional practical expedients in transition.

The Corporation has elected the “ package of practical expedients,” which permits the Corporation not to reassess under the new standard the prior conclusions about lease identification, lease classification and initial direct costs.

The Corporation also elected the use of the hindsight , a practical expedient which permits the use of information available after lease inception to determine the lease term via the knowledge of renewal options exercised not available as of the leases inception.

The Corporation elected the short-term lease recognition exemption for all leases that qualify, meaning those with terms under twelve months.

The Company has elected the “ package of practical expedients,” which permits the Company not to reassess under the new standard the prior conclusions about lease identification, lease classification and initial direct costs.

The Company also elected the use of the hindsight , a practical expedient which permits the use of information available after lease inception to determine the lease term via the knowledge of renewal options exercised not available as of the lease’s inception.

The Company elected the short-term lease recognition exemption for all leases that qualify, meaning those with terms under twelve months.

ROU assets or lease liabilities are not to be recognized for short-term leases.

The Corporation 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.

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.

However, since these non-lease items are subject to change, they are treated and disclosed as variable payments in the quantitative disclosures below.

Lessee Leases

The Corporation’s lessee leases are operating leases, and consist of leased real estate for branches.

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.

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Rent escalations are generally specified by a payment schedule, or are subject to a defined formula.

The Corporation 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 Corporation liable for damages.

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.

The Corporation is electing to utilize the Wall Street Journal Prime Rate on the date of lease commencement as the lease interest rate.

For the year ended

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

(dollars in thousands)

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Securities available for sale

Treasury securities

Obligations of U.S.

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December 31, 2023

Impaired Loans, net of impairment reserve

Loans individually evaluated, net of reserve

December 31, 2022

Impaired Loans, net of impairment reserve

The following is a description of the valuation methodologies used by the Corporation for the items noted in the table above, including the general classification of such instruments in the fair value hierarchy.

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.

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Collateral discounts and estimated costs to sell

Impaired loans

Loans individually evaluated

Third party appraisals and discounted cash flows

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Collateral discounts and discount rates

The following methods and assumptions were used by the Corporation 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 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 Corporation 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 December 31 follows (dollar amounts in thousands):

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Securities held to maturity

Securities available for sale

Loans held for sale

Other investments, at cost

Other investments

Mortgage servicing rights

Cash surrender value of life insurance

Financial liabilities:

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Subordinated notes

Junior subordinated debentures

December 31, 2022

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Securities held to maturity

Securities available for sale

Loans held for sale

Other investments, at cost

Other investments

Mortgage servicing rights

Cash surrender value of life insurance

Financial liabilities:

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Fair value is best determined based upon quoted market prices.

However, in many instances, there are no quoted market prices for the Corporation’s various financial instruments.

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.

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 Corporation.

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 Corporation’s entire holdings of a particular instrument.

Because no market exists for a significant portion of the Corporation’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 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.

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Investment in Bank

Investment in Veritas

Investment in Veritas (Dissolved during 2023)

Liabilities and Stockholders’ Equity

Subordinated notes

Junior subordinated notes

Other liabilities

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Cash flow from operating activities:

Adjustments to reconcile net income to net cash provided by operating activities:

Adjustments to reconcile net income to net cash used in operating activities:

Stock compensation

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Other liabilities

Net cash provided by (used in) operating activities

Net cash used in operating activities

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

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Net cash used in business combination

Contribution to subsidiaries

Proceeds from other investments

Net cash provided by investing activities

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

Repayment of notes payable

Proceeds from notes payable

Repayment of junior subordinated debentures

Repayment of subordinate notes

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Repurchase of common stock

Net cash (used in) provided by financing activities

Net increase (decrease) in cash and cash equivalents

Net cash used in financing activities

Net increase in cash and cash equivalents

Cash and cash equivalents at beginning

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Note 24 Earnings Per Common Share

See Note 1 for the Corporation’s accounting policy regarding per share computations.

See Note 1 for the Company’s accounting policy regarding per share computations.

Earnings per common share, earnings per share assuming dilution, and related information are summarized as follows:

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Diluted earnings per common share

Note 25 Quarterly Results of Operations

2022 Quarters

(dollars in thousands, except share and per share data)

Interest income

Interest expense

Net interest and dividend income

Provision for loan losses

Net interest and dividend income after provision for loan losses

Noninterest income

Noninterest expense

Income before provision for income taxes

Provision for income taxes

Average shares outstanding, basic

Average shares outstanding, diluted

Earnings per share, basic

Earnings per share, diluted

2021 Quarters

(dollars in thousands, except share and per share data)

Interest income

Interest expense

Net interest and dividend income

Provision for loan losses

Net interest and dividend income after provision for loan losses

Noninterest income

Noninterest expense

Income before provision for income taxes

Provision for income taxes

Average shares outstanding, basic

Average shares outstanding, diluted

Earnings per share, basic

Earnings per share, diluted

Note 26 Subsequent Merger Transaction

On February 10, 2023, the Corporation completed a merger with Hometown Bancorp, Ltd.

("Hometown"), a bank holding company headquartered in Fond Du Lac, Wisconsin, pursuant to the Agreement and Plan of Bank Merger, dated as of July 25, 2022, by and between the Corporation and Hometown, whereby Hometown merged with and into the Corporation, and Hometown Bank, Hometown's wholly-owned banking subsidiary, merged with and into the Bank.

Hometown's principal activity was the ownership and operation of Hometown Bank, a state-chartered banking institution.

The merger consideration totaled approximately $ 130.5 million.

Pursuant to the terms of the merger agreement, Hometown shareholders could elect to receive either 0.3962 of a share of the Corporation’s common stock or $ 29.16 in cash for each outstanding share of Hometown common stock, subject to a maximum of 30 % cash consideration in total, and cash in lieu of any remaining fractional share.

Corporation stock issued totaled 1,450,272 shares valued at approximately $ 115.1 million, with cash of $ 15.4 million comprising the remainder of merger consideration.

At close, the combined company had total assets of approximately $ 4.2 billion, loans of approximately $ 3.3 billion and deposits of approximately $ 3.5 billion.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data