What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2025-02-28 compared with 2024-02-29 · 107 added, 114 removed, 585 unchanged (27% of the section changed)

21 unchanged sentences

The Bank, through its 100% owned subsidiary TVG Holdings, Inc., holds a 40% ownership interest in Ansay & Associates, LLC, an insurance agency providing clients primarily located in Wisconsin with insurance and risk management solutions.

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

The Bank owned 49.8% of UFS, LLC through October 1, 2023.

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

1 unchanged sentence

As of December 31, 2024, the Company had total consolidated assets of $4.50 billion, total loans of $3.52 billion, total deposits of $3.66 billion and total stockholders’ equity of $639.7 million.

The Company employs approximately 379 full-time equivalent employees and has an assets-to-FTE ratio of approximately $11.1 million.

The Company employs approximately 366 full-time equivalent employees (“FTE”) and has an assets-to-FTE ratio of approximately $11.5 million.

For more information, see the Company’s website at www.bankfirst.com.

2 unchanged sentences

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 merger agreement, dated as of July 25, 2022, by and between 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.

2 unchanged sentences

Company 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.

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 merger agreement, 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 $128.8 million.

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 $124.8 million, with cash of $4.0 million comprising the remainder of merger consideration.

The Company accounts for these transactions under the acquisition method of accounting, and thus, the financial position and results of operations of acquired institutions prior to the consummation date are not included in the accompanying consolidated financial statements.

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

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

CRITICAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The accounting and reporting policies of the Company conform to GAAP in the United States and general practices within the financial institution industry.

22 unchanged sentences

This evaluation is inherently subjective as it requires material estimates that are susceptible to significant change including the amounts and timing of future cash flows expected to be received on loans.

Deferred Tax Assets.

Deferred tax assets (“DTA”) and liabilities are determined using the liability method.

DTAs and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities and the current enacted tax rates which will be in effect when these differences are expected to reverse.

Provision (benefit) for deferred taxes is the result of changes in the DTAs and liabilities.

Deferred taxes are reviewed quarterly and are reduced by a valuation allowance if, based upon the information available, it is more likely than not that some or all of the DTAs will not be realized.

Recent Accounting Pronouncements.

2 unchanged sentences

The following discussion and analysis presents the more significant factors that affected our financial condition as of December 31, 2024 and 2023 and results of operations for each of the years then ended.

Refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K filed with the SEC on March 10, 2023 for a discussion and analysis of the more significant factors that affected periods prior to 2022.

Net income increased $29.3 million, or 64.8%, to $74.5 million for the year ended December 31, 2023, from $45.2 million for the year ended December 31, 2022.

During 2023, as a result of the acquisition of Hometown during February 2023 and the impact of the acquisition of Denmark impacting the full year of 2023 compared to less than five months of 2022, the Company experienced increased net interest income, a higher provision for credit losses, an increase in service charge and loan servicing income, and a significant increase in many noninterest expense areas.

Also during 2023 the Company sold 100% of its member interest in UFS, LLC, creating a pre-tax gain on sale of $38.9 million.

Finally, the Company sold its available for sale US Treasury securities during 2023, creating a pre-tax loss on sale of $7.9 million.

Refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K filed with the SEC on February 29, 2024 for a discussion and analysis of the more significant factors that affected periods prior to 2023.

Net income decreased $8.9 million, or 12.0%, to $65.6 million for the year ended December 31, 2024, from $74.5 million for the year ended December 31, 2023.

During 2023, the Company sold 100% of its member interest in UFS, LLC, creating a pre-tax gain on sale of $38.9 million.

There was no corresponding similar event during 2024.

Offsetting this year-over-year decline in earnings, net interest income increased by $4.3 million, provision for credit losses declined by $5.5 million, and noninterest expenses declined by $9.4 million from 2023 to 2024.

Net Interest Income.

2 unchanged sentences

Management closely monitors both total net interest income and the net interest margin (net interest income divided by average earning assets).

We seek to maximize net interest income without exposing the Company to an

excessive level of interest rate risk through our asset and liability policies.

We seek to maximize net interest income without exposing the Company to an excessive level of interest rate risk through our asset and liability policies.

Interest rate risk is managed by monitoring the pricing, maturity and repricing options of all classes of interest-bearing assets and liabilities.

Our net interest margin can also be adversely impacted by the reversal of interest on nonaccrual loans and the reinvestment of loan payoffs into lower yielding investment securities and other short-term investments.

Net interest income after provision for credit losses increased by $26.9 million to $128.8 million for the year ended December 31, 2023, from $101.9 million for the year ended December 31, 2022.

Interest income on loans increased by $61.9 million, or 57.8%, from 2022 to 2023.

Net interest income increased by $4.3 million to $137.8 million for the year ended December 31, 2024, from $133.5 million for the year ended December 31, 2023.

Total average interest-earning assets increased to $3.81 billion for the year ended December 31, 2024 from $3.66 billion for the year ended December 31, 2023.

The Bank’s net interest margin increased twenty-eight basis points to 3.69% for the year ended December 31, 2023, up from 3.41% for the year ended December 31, 2022.

The Bank’s net interest margin decreased four basis points to 3.65% for the year ended December 31, 2024, down from 3.69% for the year ended December 31, 2023.

Interest Income.

1 unchanged sentence

This increase was driven by an increase in average rates earned on interest-earning assets, rising from 5.03% during 2023 to 5.45% during 2024, and a $153.9 million increase in average interest-earning assets during 2024 when compared to 2023.

Most of the growth in average interest-earning assets was the result of the acquisitions of Denmark and Hometown.

Interest Expense.

Interest expense increased $19.6 million, or 40.0%, to $68.6 million for the year ended December 31, 2024, up from $49.0 million for the year ended December 31, 2023.

The increase was driven by a combination of increases in the average rates paid on interest-bearing liabilities, rising from 0.60% during 2022 to 2.04% during 2023, and a $311.0 million increase in average interest-bearing liabilities.

Once again, most of the growth in average interest-bearing liabilities was the result of the acquisitions of Denmark and Hometown.

This increase was driven by a combination of increases in the average rates paid on interest-bearing liabilities, rising from 2.04% during 2023 to 2.69% during 2024, and a $152.1 million increase in average interest-bearing liabilities.

Interest expense on interest-bearing deposits increased by $21.8 million to $64.2 million for the year ended December 31, 2024, from $42.4 million for the year ended December 31, 2023.

This increase was due to a higher interest rate environment driving an increase in average rates paid on interest-bearing deposits, rising from 1.84% during 2023 to 2.61% during 2024, and growth of $151.2 million year-over-year in average interest-bearing deposits.

While the Bank continued to see average rates paid on interest-bearing deposits rise through the first three quarters of 2024, they declined during the fourth quarter.

Provision for Credit Losses.

1 unchanged sentence

We establish an allowance for credit losses 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.

The provision for credit losses is determined by conducting a quarterly evaluation of the adequacy of our allowance for credit losses and charging the shortfall or excess, if any, to the current quarter’s expense.

This has the effect of creating variability in the amount and frequency of charges to earnings.

The provision for credit losses and level of allowance for each period are dependent upon many factors, including loan growth, net charge-offs, changes in the composition of the loan portfolio, delinquencies, management’s assessment of the quality of the loan portfolio, the valuation of problem loans and the general economic conditions in our market area.

The determination of the amount is complex and involves a high degree of judgment and subjectivity.

We recorded a provision for credit losses of $4.7 million for the year ended December 31, 2023, compared to $2.2 million for the year ended December 31, 2022.

The increased provision for credit losses during 2023 was primarily result of ASU 2016-13, which was adopted at the beginning of 2023, requiring a provision to be recorded related to loans acquired from Hometown.

Metrics regarding the credit quality of the Bank’s loan portfolio continue to show very little in terms of credit stress during 2023 .

When reductions in the allowance for credit losses are deemed appropriate, a negative provision for credit losses may be necessary.

We recorded a negative provision for credit losses of $0.8 million for the year ended December 31, 2024, compared to a positive provision of $4.7 million for the year ended December 31, 2023.

Metrics regarding the credit quality of the Bank’s loan portfolio continued to show very little in terms of credit stress during 2024 .

The negative provision for credit losses during 2024 related to improvement in financial trends related to two relationships that were part of the Hometown acquisition, which allowed for a reduction in specific reserves related to them.

The elevated positive provision for credit losses during 2023 was primarily result of ASU 2016-13, which was adopted at the beginning of 2023.

Under ASU 2016-13 a provision for credit losses totaling $5.5 million was recorded related to loans acquired from Hometown.

The ACL-Loans was $44.2 million, or 1.26% of total loans, at December 31, 2024 compared to $43.6 million, or 1.30% of total loans, at December 31, 2023.

The increased ACL - Loans coverage was also the result of adopting ASU 2016-13 as of January 1, 2023.

Noninterest Income.

2 unchanged sentences

Other typical sources of noninterest income include loan servicing fees and gains on sales of mortgage loans.

Noninterest income increased by $38.4 million, or 195.0% to $58.1 million for 2023, up from $19.7 million during 2022.

The primary driver of the increase in noninterest income was the aforementioned $38.9 million pre-tax gain on sale of UFS during 2023.

This sale also led to a decrease in the income provided by UFS during 2023 as this revenue stream no longer existed during the final quarter.

The continued slowdown in the retail mortgage lending market during 2023 led to a $0.7 million decline in gains on sales of mortgage loans to the secondary market year-over-year.

While this slowdown continued from 2022, the positive impact it had on the valuation of the Company’s mortgage servicing rights (“MSR”) was less significant during 2023, leading to only $0.4 million in positive valuation adjustments to MSRs in 2023 compared to $2.9 million in 2022.

Finally, income from service charges and loan servicing saw a significant increase year-over-year as a result of added scale from the acquisitions of Denmark and Hometown.

Noninterest income decreased by $38.4 million, or 66.1% to $19.7 million for 2024, down from $58.1 million during 2023.

The primary driver of this decline was the aforementioned $38.9 million pre-tax gain on sale of UFS during 2023, while there was no corresponding similar event in 2024.

Service charge income increased by $1.0 million for 2024 compared to 2023, which was the result of increased operating scale for the Company as well as renegotiated contractual agreements related to credit and debit card payment processing.

Income from Ansay increased by $0.6 million for the full year of 2024 compared to 2023.

Net gains on sale of mortgage loans increased $0.4 million year-over-year due to a rise in secondary market loan origination activity resulting from lower prevailing mortgage interest rates during periods of 2024.

This increase in mortgage origination activity negatively impacted the valuation of the Company’s mortgage servicing rights (“MSR”) during 2024, leading to $0.3 million in negative valuation adjustments compared to positive adjustments totaling $0.4 million during 2023.

Other noninterest income is comprised of many nonmaterial items, several of which increased from 2023 to 2024, though none of these increases were individually significant.

The major components of our noninterest income are listed in the table below:

11 unchanged sentences

Noninterest Expense.

Noninterest expense increased $26.2 million to $88.1 million for the year ended December 31, 2023, up from $62.0 million for the year ended December 31, 2022.

One driver of this increase in noninterest expense was the aforementioned sale of a significant number of available for sale securities during 2023, resulting in a $7.9 million pre-tax loss during 2023.

These securities had an average yield of 1.36%.

Noninterest expense decreased $9.3 million to $78.8 million for the year ended December 31, 2024, down from $88.1 million for the year ended December 31, 2023.

During 2023 the Company sold a significant number of available for sale securities, resulting a $7.9 million pre-tax loss, compared to negligible losses on sales of securities during 2024.

The securities sold during 2023 had an average yield of 1.36%.

Proceeds of these sales were reinvested in a combination of short and long-term investments with an average yield of 4.98%.

Personnel expense increased $7.2 million, or 21.7%, data processing expense increased $1.7 million, or 26.7%, postage, stationary and supplies expense increased $0.3 million, or 40.6%, charitable contributions expense increased by $0.2 million, or 31.5%, advertising expense increased $0.1 million, or 19.9%, and other noninterest expense increased $2.7 million, or 42.1%, all primarily as a result of the added scale from the Denmark and Hometown acquisitions.

Outside service fees decreased $0.4 million, or 5.6%, primarily as a result of nearly all legal and professional fees related to the Denmark acquisition and many of these same fees related to the Hometown acquisition occurring during 2022.

Amortization of intangibles increased by $4.0 million, or 172.8%, as the acquisitions of Denmark and Hometown created core deposit intangibles of $15.1 million and $16.5 million, respectively, which began amortizing on the date those transactions closed.

These acquisitions also resulted in several former bank branches of those institutions becoming other real estate owned, leading to the significant losses on sales and valuations of these buildings during 2023.The major components of our noninterest expense are listed in the table below:

Personnel expense increased $0.5 million, or 1.4%, due to customary pay raises year-over-year, offset by certain efficiencies realized from further integration of recent acquisitions made by the Company.

Data processing expense increased by $1.7 million during 2024 compared to 2023 due to project-related costs for upgrading the Bank’s digital banking platform and the increased scale from recent acquisitions.

Expenses related to the Hometown acquisition totaled $1.6 million during 2023.

The lack of a similar acquisition during 2024 caused decreases in the areas of postage, stationary, supplies and advertising expense year-over-year.

Finally, gains on sales and valuations of OREO totaling $0.7 million during 2024 compared favorably to losses of $2.1 million during 2023.

Amortization of intangibles decreased by $0.5 million year-over-year, the result of using the sum-of-the-years-digits method of amortization on core deposit intangibles which takes more expense in years immediately following the acquisition which created them.

The major components of our noninterest expense are listed in the table below:

For the Years Ended

4 unchanged sentences

Postage, stationary, and supplies

Charitable contributions

Outside service fees

Net loss (gain) on sales and valuations of other real estate owned

Net loss on sales of securities

Charitable contributions

Federal deposit insurance

Outside service fees

Amortization of intangibles

2 unchanged sentences

We recorded a provision for income taxes of $14.0 million for the year ended December 31, 2024, compared to $24.3 million for the year ended December 31, 2023, reflecting effective tax rates of 17.5% and 24.6%, respectively.

The income tax expense related to the gain on sale of UFS offset the impact of legislation passed as part of the 2023 Wisconsin state budget which exempts interest and fees earned on certain commercial loans of $5 million or less made to borrowers who reside or are located in the state of Wisconsin.

The expected future reduction in the Bank’s effective tax rate as a result of this legislation resulted in a valuation allowance on our deferred tax assets totaling $2.5 million, adding to income tax expense for 2023.

The Company’s home state passed tax legislation during the third quarter of 2023 which exempted income produced by a significant portion of the Company’s loans from taxation in Wisconsin.

As a result of the lower anticipated future effective tax rate, the Company determined that a $2.9 million allowance was required to be made against its deferred tax asset, creating a one-time increase in tax expense for 2023.

Final rules relating to qualifying loans under this legislation were not published until the first quarter of 2024.

Based on these final rules, the Company was able to further reduce its estimated tax liability from 2023 by $1.3 million, resulting in the lower provision for income taxes and effective tax rate during 2024.

The effective tax rates were reduced from the statutory federal and state income tax rates during both periods as a result of tax-exempt interest income produced by certain qualifying loans and investments in the Bank’s portfolios.

NET INTEREST MARGIN

2 unchanged sentences

Net interest margin is the amount of net interest income, on a fully taxable-equivalent basis, expressed as a percentage of average interest-earning assets.

The average rate earned on earning assets is the amount of annualized taxable equivalent interest income expressed as a percentage of average earning assets.

The average rate earned on earning assets is the amount of annualized taxable equivalent interest income

expressed as a percentage of average earning assets.

The average rate paid on interest-bearing liabilities is equal to annualized interest expense as a percentage of average interest-bearing liabilities.

72 unchanged sentences

Total assets increased $273.2 million, or 6.5%, to $4.50 billion at December 31, 2024 from $4.22 billion at December 31, 2023.

The primary driver of this increase, as with most of the categories below, was our acquisition of Hometown, consisting of $615.1 million in assets, during 2023.

A significant increase in customer deposits during the fourth quarter of 2024, funding cash, investment, and loan growth was the primary cause of this year-over-year increase.

Cash and Cash Equivalents.

1 unchanged sentence

Investment Securities.

The carrying value of total investment securities decreased by $104.2 million to $245.5 million at December 31, 2023 from $349.7 million at December 31, 2022.

This decrease was the result of sales of available for sale securities during 2023 as well as maturities of securities for which we chose to retain the funds in cash and cash equivalents rather than reinvest in securities.

The carrying value of total investment securities increased by $88.3 million to $333.8 million at December 31, 2024 from $245.5 million at December 31, 2023.

A significant portion of the deposit increase during the fourth quarter of 2024 required collateralization by investments in the Company’s portfolio.

As a result of this heightened need for collateral, the Company invested $100.0 million into a 30-day US Treasury note during December 2024 which matured at the end of January 2025.

Net loans increased by $173.7 million, or 5.3%, to $3.47 billion at December 31, 2024 from $3.30 billion at December 31, 2023.

This increase was due to the addition of new customer relationships as well as inflationary impacts on the loan requirements of existing customers.

Bank-Owned Life Insurance.

1 unchanged sentence

Deposits increased $228.2 million, or 6.7%, to $3.66 billion at December 31, 2024 from $3.43 billion at December 31, 2023.

At December 31, 2023 and 2022, borrowings consisted of advances from the FHLB of Chicago, subordinated debt to other banks and a junior subordinated debenture related to the Hometown Bancorp, Ltd.

Capital Trust I.

FHLB borrowings totaled $35.3 million and $1.9 million at December 31, 2023 and 2022, respectively.

Subordinated debt decreased from $23.5 million at December 31, 2022 to $12.0 million at December 31, 2023.

The junior subordinated debenture, which resulted from the acquisition of Hometown, totaled $4.1 million at December 31, 2023.

As previously mentioned, much of the growth during 2024 resulted during the fourth quarter and is anticipated to be seasonal.

At December 31, 2024, borrowings consisted of advances from the FHLB of Chicago and subordinated debt to other banks and individuals.

FHLB borrowings increased to $135.4 million at December 31, 2024 from $35.3 million at December 31, 2023.

These additional borrowings were intended to provide liquidity to support near-term loan growth.

Subordinated debt remained stable at $12.0 million at December 31, 2024 and December 31, 2023.

A junior subordinated debenture totaling $4.1 million, which was part of the acquisition of Hometown, was repaid in full during the first quarter of 2024.

Stockholders’ Equity.

Total stockholders’ equity increased $19.9 million, or 3.2%, to $639.7 million at December 31, 2024 from $619.8 million at December 31, 2023.

Repurchases of the Company’s common stock totaling $31.2 million and dividends declared totaling $15.6 million offset the positive impact of earnings totaling $65.6 million during 2024.

Our lending activities are conducted principally in Wisconsin.

8 unchanged sentences

Total loans increased $174.2 million, or 5.2%, to $3.52 billion as of December 31, 2024 as compared to $3.34 billion as of December 31, 2023.

Our loan growth during the year ended December 31, 2023 has been comprised of a decrease of $4.5 million, or 0.9%, in commercial and industrial loans, an increase of $301.1 million, or 21.5%, in commercial real estate loans, an increase of $1.1 million, or 0.6%, in construction and development loans, an increase of $149.1 million, or 20.2%, in residential 1-4 family loans and an increase of $2.2 million, or 3.5%, in consumer and other loans.

This loan growth was comprised of an increase of $12.5 million, or 2.6%, in commercial and industrial loans, an increase of $55.0 million, or 3.2%, in commercial real estate loans, an increase of $77.1 million, or 38.4%, in construction and development loans, an increase of $24.5 million, or 2.8%, in residential 1-4 family loans and an increase of $5.1 million, or 7.7%, in consumer and other loans.

The following table presents the balance and associated percentage of each major category in our loan portfolio at December 31, 2024, 2023, and 2022:

9 unchanged sentences

At December 31, 2024 and December 31, 2023, total loans outstanding to such directors and officers and their affiliates were $62.9 million and $63.9 million, respectively.

During the year ended December 31, 2023, $24.5 million of additions and $30.8 million of repayments were made to these loans, compared to $46.5 million of additions and $49.8 million of repayments during the year ended December 31, 2022.

During the year ended December 31, 2024, the Bank had $19.0 million in net increases due to changes in the composition of directors and officers, $56.3 million of additional loan advances, and $76.4 million in repayments of these loans, compared to $24.5 million of additional loan advances and $30.8 million in repayments of these loans during the year ended December 31, 2023.

At December 31, 2024 and December 31, 2023, all of the loans to directors and officers were performing according to their original terms.

4 unchanged sentences

Our C&I portfolio totaled $500.4 million and $487.9 million at December 31, 2024 and 2023, respectively, and represented 14% and 15% of our total loans, respectively.

C&I loans increased 2.6% during 2024 due to the increased business needs of customers in our markets in response to strong economic conditions.

C&I loans decreased 0.9% during 2023 as a result of exiting a few nonperforming borrowers and borrowers from acquired institutions that did not fit the Bank ’ s lending philosophy.

C&I loans increased 34.5% during 2022 primarily as a result of loans acquired from Denmark during 2022, slightly offset by significant levels of PPP loans being forgiven during the year.

Commercial Real Estate (CRE).

Our CRE loan portfolio totaled $1.75 billion and $1.70 billion at December 31, 2024 and 2023, respectively, and represented 50% and 51% of our total loans, respectively.

Our CRE loans increased 3.2% during 2024, due to organic growth within our markets.

Owner occupied CRE loans increased by 8.3% while non-owner occupied CRE loans declined by 2.7% as a result of management ’ s desire to reduce exposure to non-owner occupied CRE loans from acquired institutions where the bank did not have full relationships with the borrowers.

Our CRE loans increased 21.5% during 2023, primarily as a result of loans acquired from Hometown during 2023.

Our CRE loans increased 25.8% during 2022, primarily as a result of loans acquired from Denmark during 2022.

Construction and Development (C&D).

Our C&D loan portfolio totaled $278.0 million and $200.8 million at December 31, 2024 and 2023, respectively, and represented 8% and 6% of our total loans, respectively.

C&D loans increased 38.4% during 2024, as a result of a few large multi-family related projects for existing customers with experience in this industry.

C&D loans increased 0.6% during 2023, as a result of management making a strategic decision to limit growth in this area.

C&D loans increased 50.8% during 2022, primarily as a result of loans acquired from Denmark during 2022.

Residential 1-4 Family.

Our residential 1-4 family loan portfolio totaled $913.2 million and $888.6 million at December 31, 2024 and 2023, respectively, and represented 26% and 27% of our total loans, respectively.

Residential 1-4 family loans increased 2.8% during 2024, driven by natural growth in our markets.

Residential 1-4 family loans increased 20.2% during 2023, primarily as a result of loans acquired from Hometown during 2023.

Residential 1-4 family loans increased 29.3% during 2022, primarily as a result of loans acquired from Denmark during 2022.

We do not offer reverse mortgages nor do we offer loans that provide for negative amortization of principal, such as “ Option ARM ” loans, where the borrower can pay less than the interest owed on his loan, resulting in an increased principal balance during the life of the loan.

3 unchanged sentences

Servicing rights are retained on all loans sold to the secondary market.

We were servicing mortgage loans sold to others without recourse of approximately $1.18 billion and $866.9 million at December 31, 2023 and 2022, respectively.

We were servicing mortgage loans sold to others without recourse of approximately $1.17 billion and $1.18 billion at December 31, 2024 and 2023, respectively.

Loans sold with the retention of servicing assets result in the capitalization of servicing rights.

48 unchanged sentences

As of December 31,

(dollars in thousands)

30 unchanged sentences

(1) Amounts prior to January 1, 2023 represent accruing troubled debt restructured loans.

At December 31, 2023, 2022 and 2021, loans individually evaluated had specific reserves of $4,245,000, $8,000 and $964,000, respectively.

At December 31, 2024, 2023 and 2022, loans individually evaluated had specific reserves of $2.4 million, $4.2 million and a negligible amount, respectively.

Levels of specific reserves are dependent on the specific underlying impaired loans at any given time.

13 unchanged sentences

For further details on the Company’s ACL – Loans, refer to the footnotes presented along with the consolidated financial statements elsewhere in this report.

At December 31, 2023, the ACL - Loans was $43.6 million (representing 1.30% of period end loans).

At December 31, 2024, the ACL - Loans was $44.2 million (representing 1.26% of year-end loans).

Bank First recorded a negative provision for credit losses totaling $0.8 million during 2024.

While the Bank’s overall credit quality has remained consistently strong over all these periods, improvement in financial trends related to two relationships that were part of the Hometown acquisition allowed for a reduction in specific reserves related to them, causing the decrease in overall required allowance for credit losses related to the loan portfolio.

The Company adopted CECL as of January 1, 2023, which increased the ACL - Loans by $11.0 million.

In addition, the ACL - Loans increased due to the acquisition of Hometown, which required a $3.6 million provision for credit losses on non-Purchase Credit Deteriorated (“PCD”) loans and a $5.5 million reserve related to PCD loans.

In addition, the ACL - Loans increased during 2023 due to the acquisition of Hometown, which required a $3.6 million provision for credit losses on non-Purchase Credit Deteriorated (“PCD”) loans and a $5.5 million reserve related to PCD loans.

The reserve related to PCD loans was recorded as an adjustment to the acquisition date fair values on these loans and was not included in the provision for credit losses.

Net charge-offs remain negligible.

The Bank has recorded net loan recoveries over each of the last three years.

The following table summarizes the changes in our ACL - Loans for the years indicated:

12 unchanged sentences

Provision charged to operating expense

Transfer from (to) ACL - Unfunded Commitments

Balance of ACL - Loans at end of period

27 unchanged sentences

Our additional sources of funds are scheduled payments and prepayments of principal and interest on loans and investment securities and fee income and proceeds from the sales of loans and securities.

Our current deposit products include non-interest bearing and interest-bearing checking accounts, savings accounts, money market accounts, and certificate of deposits.

Our current deposit products include noninterest-bearing and interest-bearing checking accounts, savings accounts, money market accounts, and certificate of deposits.

As of December 31, 2024, deposit liabilities accounted for approximately 81.4% of our total liabilities and equity.

3 unchanged sentences

Total deposits were $3.66 billion and $3.43 billion as of December 31, 2024 and 2023, respectively.

Noninterest-bearing deposits at December 31, 2023 and 2022 were $1.05 billion and $934.1 million, respectively, while interest-bearing deposits were $2.38 billion and $2.13 billion at December 31, 2023 and 2022, respectively.

At December 31, 2023, we had a total of $582.0 million in certificates of deposit, including $0.7 million of brokered deposits, of which $0.7 million had remaining maturities of one year or less.

Based on historical experience and our current pricing strategy, we believe we will retain a large portion of these accounts upon maturity.

Noninterest-bearing deposits at December 31, 2024 and 2023 were $1.02 billion and $1.05 billion, respectively, while interest-bearing deposits were $2.64 billion and $2.38 billion at December 31, 2024 and 2023, respectively.

During 2024 the Bank experienced 6.7% growth in deposits, but also experienced a shift in customer behavior, moving balances from noninterest-bearing accounts to interest-bearing accounts, resulting in the noted decline in noninterest-bearing totals.

At December 31, 2024, we had a total of $651.1 million in certificates of deposit.

This total included $20.1 million of brokered deposits, of which $5.0 million had remaining maturities of one year or less.

Based on historical experience and our current pricing strategy, we believe we will retain a large portion of these non-brokered accounts upon maturity.

The following tables set forth the average balances of our deposits for the periods indicated:

December 31, 2023

December 31, 2022

December 31, 2021

(dollars in thousands)

15 unchanged sentences

Over 12 months or more remaining

Deposits and investment securities for sale are the primary source of funds for our lending activities and general business purposes.

Deposits and investment securities held for sale are the primary source of funds for our lending activities and general business purposes.

However, we may also obtain advances from the FHLB, purchase federal funds and engage in overnight borrowing from the Federal Reserve, correspondent banks, or enter into repurchase agreements.

Securities sold under repurchase agreements

The Company has securities sold under repurchase agreements which have contractual maturities up to one year from the transaction date with variable and fixed rate terms.

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

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

The Company had securities sold under repurchase agreements which had contractual maturities up to one year from the transaction date with variable and fixed rate terms.

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

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

The Company redeemed all securities sold under repurchase agreements during the first quarter of 2024 and has had no such balances since that time.

The following table summarizes securities sold under repurchase agreements, and the weighted average interest rates paid:

11 unchanged sentences

The total loans pledged as collateral were $1.47 billion and $1.49 billion at December 31, 2024 and 2023, respectively.

The Company maintains a $7.5 million line of credit with a commercial bank, which was entered into on May 15, 2022.

There were no outstanding balances on this note at 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.

During September 2017, the Company entered into subordinated note agreements with three separate commercial banks under which it borrowed $11.5 million.

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.

On July 22, 2020, the Company entered into subordinated note agreements with two separate commercial banks.

21 unchanged sentences

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.

INVESTMENT SECURITIES

1 unchanged sentence

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

Obligations of states and political subdivisions and mortgage-backed securities, all of which are issued by U.S.

Treasury securities, obligations of states and political subdivisions, and mortgage-backed securities, all of which are issued by U.S.

government agencies or U.S.

2 unchanged sentences

Securities available for sale consist of U.S.

Treasury securities, obligations of states and political subdivision, agency mortgage-backed securities, corporate notes, and certificates of deposits.

Treasury securities, obligations of U.S.

Government sponsored agencies, obligations of states and political subdivision, agency mortgage-backed securities, and corporate notes.

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 fair value of securities available for sale totaled $142.2 million and included gross unrealized gains of $86,000 and gross unrealized losses of $12.2 million at December 31, 2023.

The fair value of securities available for sale totaled $223.1 million and included negligible gross unrealized gains and gross unrealized losses of $12.9 million at

December 31, 2024.

At December 31, 2023, the fair value of securities available for sale totaled $142.2 million and included gross unrealized gains of $0.1 million and gross unrealized losses of $12.2 million.

1 unchanged sentence

Treasury securities and obligations of states and political subdivisions.

These securities, which management has the intent and ability to hold to maturity, are reported at amortized cost.

Securities held to maturity as of December 31, 2023 and 2022, are carried at their amortized cost of $103.3 million and $45.1 million, respectively.

The Company recognized a net loss on sale of investment securities of $7.9 million during the year ended December 31, 2023.

The Company did not sell any securities in 2022.

These securities, which management has the intent and ability to hold to maturity, are reported at amortized cost of $110.8 million and $103.3 million as of December 31, 2024 and 2023, respectively.

The Company recognized a negligible net loss on sale of investment securities during the year ended December 31, 2024 and a net loss on sale of investment securities of $7.9 million during the year ended December 31, 2023.

The following tables set forth the composition and maturities of investment securities as of December 31, 2024 and December 31, 2023.

9 unchanged sentences

Available for sale securities

Treasury securities

Obligations of U.S.

3 unchanged sentences

Corporate notes

Certificates of deposit

Total available for sale securities

12 unchanged sentences

Available for sale securities

Treasury securities

Obligations of U.S.

10 unchanged sentences

(1) Weighted Average Yield is shown on a fully taxable equivalent basis using a federal tax rate of 21%.

LIQUIDITY AND CAPITAL RESOURCES

LIQUIDITY, CASH FLOWS, AND CAPITAL RESOURCES

Liquidity is defined as the Company’s ability to generate adequate cash to meet its needs for day-to-day operations and material long and short-term commitments.

11 unchanged sentences

Management further believes that our present position is adequate to assure that securities classified as held to maturity will not need to be sold prior to maturity.

Our cash flows consist of operating activities, investing activities, and financing activities.

Net cash flows provided by operating activities totaled $65.8 million during 2024 compared to $52.9 million during 2023.

The largest contributing factor to the increase in cash flows provided by operating activities during 2024 was an increase in net income excluding realized gains and losses on the sale of securities and UFS (which are considered investing activities).

Net cash flows used by investing activities totaled $252.9 million during 2024 compared to net cash flows provided by investing activities totaling $269.0 million during 2023.

Significant increases in our loan portfolio along with purchases of securities during 2024 created net cash flows used during 2024.

The absence of significant increases in these areas added to proceeds from the sales of securities and UFS and $90.0 million in net cash received in the acquisition of Hometown created net cash flows provided by investing activities during 2023.

Net cash flows provided by financing activities totaled $201.0 million during 2024 compared to net cash flows used in financing activities totaling $193.8 million during 2023.

The primary difference in year-over-year cash flows related to financing activities was significant growth in deposits during 2024 compared to significant decreases in deposits during 2023.

See the consolidated statement of cash flows elsewhere in this report for further information regarding cash flow activity during 2024 and 2023.

Capital Adequacy.

1 unchanged sentence

Our total shareholders’ equity increased during 2024 and 2023 as a result of our profitability, reduced by dividends paid and common share repurchases.

Growth in shareholders’ equity was further stimulated by the acquisitions of Hometown during 2023 and Denmark during 2022.

Growth in shareholders’ equity was further stimulated by the acquisition of Hometown during 2023.

Our capital management consists of providing adequate equity to support our current and future operations.

39 unchanged sentences

Tier I capital (to average assets)

As previously mentioned, the Company carried $12.0 million of subordinated debt and $4.0 million of junior subordinated debt as of December 31, 2023 and $23.5 million of subordinated debt as of December 31, 2022, which is included in total capital for the Company in the tables above.

As previously mentioned, the Company carried $12.0 million of subordinated debt as of December 31, 2024 and 2023, as well as $4.0 million of junior subordinated debt as of December 31, 2023.

These totals are included in total capital for the Company in the tables above.

FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

31 unchanged sentences

As a result, changes in interest rates have a more significant impact on a financial institution’s performance than does general inflation.

For additional information regarding interest rates and changes in net interest income see “Quantitative and Qualitative Disclosures about Market Risk—Interest Rate Sensitivity.” Inflation may have impacts on the Bank’s customers, on businesses and consumers and their ability or willingness to invest, save or

spend, and perhaps on their ability to repay loans.

As such, there would likely be impacts on the general appetite of banking products and the credit health of the Bank’s customer base.

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 7. Management’s Discussion and Analysis