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Item 2. Management’s Discussion and Analysis

2025-08-11 compared with 2025-05-09 · 225 added, 113 removed, 647 unchanged (34% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements for the year ended December 31, 2024, included in our Annual Report and with our unaudited condensed accompanying notes set forth in this Quarterly Report on Form 10-Q for the quarterly period March 31, 2025.

FORWARD-LOOKING STATEMENTS

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It is a member of the Board of Governors of the Federal Reserve System (“Federal Reserve”), and is regulated by the Office of the Comptroller of the Currency (“OCC”).

Including its headquarters in Manitowoc, Wisconsin, the Bank has twenty-six banking locations in Manitowoc, Outagamie, Brown, Winnebago, Sheboygan, Shawano, Waupaca, Ozaukee, Monroe, Fond du Lac, Waushara, Dane, Columbia and Jefferson counties in Wisconsin.

Including its headquarters in Manitowoc, Wisconsin, the Bank has twenty-seven banking locations in Manitowoc, Outagamie, Brown, Winnebago, Sheboygan, Shawano, Waupaca, Ozaukee, Monroe, Fond du Lac, Waushara, Dane, Columbia, Door and Jefferson counties in Wisconsin.

The Bank offers loan, deposit and treasury management products at each of its banking locations.

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To account for credit risk inherent in all loans, the Bank maintains an ACL - Loans to absorb possible losses on existing loans that may become uncollectible.

The Bank establishes and maintains this allowance by charging a provision for loan losses against operating earnings.

The Bank establishes and maintains this allowance by charging a provision for credit losses against operating earnings.

Beyond its net interest income, the Bank further receives income through the net gain on sale of loans held for sale as well as servicing income which is retained on those sold loans.

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At or for the Three Months Ended

At or for the Six Months Ended

(In thousands, except per share data)

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At or for the Three Months Ended

At or for the Six Months Ended

(In thousands, except per share data)

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RESULTS OF OPERATIONS

Results of Operations for the Three Months Ended March 31, 2025 and March 31, 2024

Net income increased $2.8 million to $18.2 million for three months ended March 31, 2025, compared to $15.4 million for the same period in 2024.

This increase is primarily driven by the repricing of new and renewed loans in a higher rate environment, along with steady growth in interest-bearing assets.

Results of Operations for the Three Months Ended June 30, 2025 and June 30, 2024

Net income increased $0.8 million to $16.9 million for three months ended June 30, 2025, compared to $16.1 million for the same period in 2024.

This increase is primarily driven from new and renewed loans pricing at higher yields while deposits, particularly certificates, continue to reprice lower.

Average balances of interest-earning assets grew $0.3 million period-over-period, amplifying the impact of higher yields on these new and renewed loans.

Net Interest Income .

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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 and dividend income increased by $3.2 million to $36.5 million for the three months ended March 31, 2025 compared to $33.3 million for three months ended March 31, 2024.

The increase in net interest income was primarily due to repricing of new and renewed loans in a higher interest rate environment, as well as steady growth in interest-bearing assets.

Total average interest-earning assets were $4.10 billion for the three months ended March 31, 2025, up from $3.74 billion for the same period in 2024.

Net interest and dividend income increased by $3.7 million to $36.7 million for the three months ended June 30, 2025 compared to $33.0 million for three months ended June 30, 2024.

Total average interest-earning assets were $4.01 billion for the three months ended June 30, 2025, up from $3.70 billion for the same period in 2024.

Net interest margin and net interest income are influenced by internal and external factors.

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Interest Income.

Total interest income increased $5.7 million, or 11.7%, to $55.0 million for the three months ended March 31, 2025 compared to $49.3 million for the same period in 2024.

Total interest income increased $5.3 million, or 10.6%, to $54.6 million for the three months ended June 30, 2025 compared to $49.3 million for the same period in 2024.

The increase in total interest income was primarily due to an increase in in interest-earning assets coupled with higher average interest rates earned on interest-earning assets.

The average balance of interest-earning assets increased by $359.3 million during the three months ended March 31, 2025 compared to the same period in 2024 and the average interest rate earned on these assets increased by 0.16% in the year-over-year first quarters.

The average balance of interest-earning assets increased by $310.9 million during the three months ended June 30, 2025 compared to the same period in 2024 and the average interest rate earned on these assets increased by 0.10% in the year-over-year second quarters.

Interest Expense.

Interest expense increased $2.6 million, or 16.3%, to $18.5 million for the three months ended March 31, 2025 compared to $15.9 million for the same period in 2024.

The increase in interest expense was primarily due to higher crediting interest rates on also higher levels of interest-bearing liabilities.

Interest expense on interest-bearing deposits increased by $1.5 million to $16.9 million for the three months ended March 31, 2025 compared to $15.4 million for the same period in 2024.

The average balance and rate of interest-bearing deposits was $2.69 billion and 2.54% for the three months ended March 31, 2025, compared to $2.46 billion and 2.51% for the same period in 2024.

The Bank's cost of funds decreased by 0.08% from the fourth quarter of 2024, including a decrease of 0.18% in the average rate paid on the Bank's non-brokered certificates of deposit.

Interest expense increased $1.6 million, or 9.4%, to $17.9 million for the three months ended June 30, 2025 compared to $16.3 million for the same period in 2024.

The increase in interest expense was primarily due to higher levels of interest-bearing liabilities.

Interest expense on interest-bearing deposits increased by $0.4 million to $16.2 million for the three months ended June 30, 2025 compared to $15.8 million for the same period in 2024.

The average balance and rate of interest-bearing deposits was $2.62 billion and 2.48% for the three months ended June 30, 2025, compared to $2.42 billion and 2.63% for the same period in 2024.

The Bank's cost of funds decreased by 0.07% from the second quarter of 2024, including a decrease of 0.44% in the average rate paid on the Bank's interest checking and 0.35% in average rate paid on the Bank’s certificate of deposits.

Provision for Credit Losses.

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

We recorded a provision of $0.4 million for credit loss during the three months ended March 31, 2025 compared to a provision of $0.2 million for credit loss during the same period in 2024.

Economic forecasts, primarily US gross domestic product projections, decreased slightly during the first quarter of 2025 while projections for unemployment increased.

We recorded net charge offs of $0.8 million during the three months ended March 31, 2025 compared to net recoveries of $0.6 million during the three months ended March 31, 2024.

Other than a $0.8 million charge-off during the first quarter of 2025, related to a single customer relationship, the Bank’s loan portfolio continues to exhibit very little credit stress.

The ACL - Loans was $43.7 million, or 1.23% of total loans, at March 31, 2025 compared to $44.4 million, or 1.31% of total loans at March 31, 2024.

We recorded a provision of $0.2 million for credit loss during the three months ended June 30, 2025 compared to no provision for credit loss during the same period in 2024.

Economic forecasts, primarily US gross domestic product projections, decreased slightly during the second quarter of 2025 while projections for unemployment increased.

We recorded minimal net charge-offs during the three months ended June 30, 2025 compared to net recoveries of $0.2 million during the three months ended June 30, 2024.

Also, due to a reduction in unfunded loan commitments and an increase in outstanding loans, the Bank moved $0.4 million from its ACL-Unfunded Commitments to its ACL – Loans during the second quarter of 2025.

The Bank’s loan portfolio continues to exhibit very little credit stress.

The ACL - Loans was $44.3 million, or 1.24% of total loans, at June 30, 2025 compared to $45.1 million, or 1.32% of total loans at June 30, 2024.

Noninterest Income.

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

Noninterest income increased $2.2 million to $6.6 million for the three months ended March 31, 2025 compared to $4.4 million for the same period in 2024.

Service charges increased by 23.0% from the prior-year first quarter as the Bank continues to benefit from a renegotiated vendor incentive program related to credit and debit card payments processing.

Positive valuation adjustments to the Bank’s MSRs totaling $0.2 million during the first quarter of 2025 compared favorably to $0.3 million in negative valuation adjustments during the first quarter of 2024.

Finally, the Bank received a $2.3 million death benefit related to its bank-owned life insurance portfolio.

The underlying policies had a cash value of $1.3 million, leading to a gain of $1.0 million which is recorded in other noninterest income.

Noninterest income decreased $1.0 million to $4.9 million for the three months ended June 30, 2025 compared to $5.9 million for the same period in 2024.

Income provided by the Bank’s investment in Ansay & Associates, LLC totaled $1.2 million during the second quarter of 2025, down $0.2 million from the prior-year second quarter.

Negative valuation adjustments to the Bank’s MSRs totaling $0.1 million during the second quarter of 2025 compared negatively to $0.3 million in positive valuation adjustments during the second quarter of 2024.

Finally, the Bank benefited from a $0.4 million gain during the second quarter of 2024 from death benefits on bank-owned life insurance policies, creating a negative variance year-over-year in other non-interest income for the second quarter.

The major components of our noninterest income are listed below:

Three Months Ended March 31,

Three Months Ended June 30,

(in thousands)

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Noninterest Expense.

Noninterest expense increased $0.3 million to $20.6 million for the three months ended March 31, 2025 compared to $20.3 million for the same period in 2024.

Most noninterest expenses have remained well-controlled over the past five quarters.

Due to the gain on bank-owned life insurance noted earlier, the Bank accelerated some charitable giving which had been planned for later in the year into the first quarter.

Also, federal deposit insurance increased primarily due to elevated deposit levels which were developed late in the fourth quarter of 2024 and persisted through the first quarter of 2025.

Noninterest expense increased $1.7 million to $20.8 million for the three months ended June 30, 2025 compared to $19.1 million for the same period in 2024.

Occupancy, equipment and office expense was elevated during the second quarter of 2025, up $0.6 million from the prior-year second quarter, the result of expenses from multiple branch remodels and the opening of a new branch in Sturgeon Bay, WI during the most recent quarter.

Data processing expense was once again impacted in the most recent quarter by elevated expenditures related to the Bank’s upgrade of its digital banking platform.

Outside service fees declined by $0.3 million in the most recent quarter compared to the second quarter of 2024.

Included in outside service fees during the second quarter of 2025 was $0.1 million in commission expense from the sale of a former branch, which generated a $0.2 million gain.

By contrast, the second quarter of 2024 included $0.4 million in commission expense from former branch sales, resulting in $0.5 million in gains.

The major components of our noninterest expense are listed below:

Three Months Ended March 31,

Three Months Ended June 30,

(In thousands)

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Postage, stationary, and supplies

Net loss on sales and valuations of other real estate owned

Net gain on sales and valuations of other real estate owned

Charitable contributions

Federal deposit insurance

Outside service fees

Amortization of intangibles

Total noninterest expenses

Income Tax Expense.

We recorded a provision for income taxes of $3.8 million for the three months ended June 30, 2025 compared to a provision of $3.8 million for the same period during 2024, reflecting effective tax rates of 18.3% and 19.0%, respectively.

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.

Results of Operations for the Six Months Ended June 30, 2025 and June 30, 2024

Net income increased $3.6 million to $35.1 million for six months ended June 30, 2025, compared to $31.5 million for the same period in 2024.

The Bank’s net income continues to benefit from new and renewed loans being priced at higher yields, while deposits continue to reprice lower.

Net Interest Income .

Net interest and dividend income increased by $6.8 million to $73.2 million for the six months ended June 30, 2025 compared to $66.4 million for six months ended June 30, 2024.

As discussed earlier, the rise in net interest income was mainly driven by the repricing of new and renewed loans in a higher interest rate environment and overall growth in interest-earning assets.

Comparing the first six months of 2025 to the first six months of 2024, rates earned on interest-earning assets increased by 0.13% while average interest-earning assets increased by $334.9 million.

Tax equivalent net interest margin increased 0.07% to 3.69% for the six months ended June 30, 2025, up from 3.62% for the same period in 2024.

Net interest margin and net interest income are influenced by internal and external factors.

Internal factors include balance sheet changes on both volume and mix and pricing decisions, and external factors include changes in market interest rates, competition and the shape of the interest rate yield curve.

Interest Income.

Total interest income increased $11.0 million, or 11.2%, to $109.6 million for the six months ended June 30, 2025 compared to $98.6 million for the same period in 2024.

The increase in total interest income was primarily due to the aforementioned increase in rates earned on higher average interest-earning assets over recent quarters.

Interest Expense.

Interest expense increased $4.1 million, or 12.8%, to $36.4 million for the six months ended June 30, 2025 compared to $32.3 million for the same period in 2024.

The increase in interest expense was primarily due to elevated balances in average interest-bearing liabilities.

The average balance of interest-bearing liabilities increased by $310.1 million during the first six months of 2025 compared to the same period in 2024 and the average interest rate paid on these balances was 2.62% for the first half of 2025 compared to 2.61% for the first half of 2024.

Interest expense on interest-bearing deposits totaled $33.1 million and $31.2 million for the six months ended June 30, 2025 and 2024, respectively.

The average cost of interest-bearing deposits was 2.51% for the six months ended June 30, 2025, compared to 2.57% for the same period in 2024.

Provision for Credit Losses.

We recorded a provision for credit losses of $0.6 million for the six months ended June 30, 2025 compared to $0.2 million for the same period in 2024.

The increased provision for the first six months of 2025 was primarily related to loan growth.

We recorded net charge-offs of $0.8 million for the six months ended June 30, 2025 compared to net recoveries of $0.8 million for the same period in 2024.

As mentioned earlier, due to a reduction in unfunded loan commitments and an increase in outstanding loans, the Bank also transferred $0.4 million from its ACL-Unfunded Commitments to its ACL – Loans during the first six months of 2025.

The ACL - Loans was $44.3 million, or 1.24% of total loans, at June 30, 2025 compared to $45.1 million, or 1.32% of total loans at June 30, 2024.

Noninterest Income.

Noninterest income is an important component of our total revenues.

A significant portion of our noninterest income has historically been associated with service charges and income from the Bank’s unconsolidated subsidiary, Ansay.

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

Noninterest income increased $1.2 million to $11.5 million for the six months ended June 30, 2025 compared to $10.3 million for the same period in 2024.

Service charges increased $0.3 million for the first six months of 2025 compared to the same period in 2024 as the Bank continues to benefit from a vendor incentive program which was renegotiated in the second quarter of 2024 related to credit and debit card payments processing.

During the first six months of 2025, the Bank recognized a $1.1 million gain from death benefits tied to its bank-owned life insurance portfolio, compared to $0.4 million in the same period of 2024.

These amounts are recorded under other noninterest income.

The major components of our noninterest income are listed below:

Six Months Ended June 30,

(In thousands)

Noninterest Income

Service Charges

Income from Ansay

Loan Servicing income

Valuation adjustment on MSR

Net gain on sales of mortgage loans

Total noninterest income

Noninterest Expense.

Noninterest expense increased $2.0 million to $41.4 million for the six months ended June 30, 2025 compared to $39.4 million for the same period in 2024.

Occupancy expense increased by $0.6 million, or 20.6%, over the first half of 2024 due to aforementioned branch construction and remodel projects competed during the first six months of 2025.

Data processing expense increased by $0.6 million, or 12.5%, over the first two quarters of 2025 due to the aforementioned elevated expenditures related to the Bank’s upgrade of its digital banking platform.

Also, federal deposit insurance increased primarily due to elevated deposit levels which occurred late in the fourth quarter of 2024 and persisted through much of the second quarter of 2025.

Finally, gains on sales and valuations of OREO totaling $0.2 million during the first two quarters of 2025 was less than similar gains of $0.5 million during the first two quarters of 2024.

The major components of our noninterest expense are listed below:

Six Months Ended June 30,

(In thousands)

Noninterest Expense

Salaries, commissions, and employee benefits

Data processing

Postage, stationary, and supplies

Net gain on sales and valuations of other real estate owned

Net loss on sales of securities

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Income Tax Expense.

We recorded a provision for income taxes of $3.9 million for the three months ended March 31, 2025 compared to a provision of $1.8 million for the same period during 2024, reflecting effective tax rates of 17.5% and 10.5%, respectively.

We recorded a provision for income taxes of $7.7 million for the six months ended June 30, 2025 compared to a provision of $5.6 million for the same period during 2024, reflecting effective tax rates of 17.9% and 15.1%, respectively.

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

As a result of this legislation, income from a significant portion of the Company’s loans will no longer be subject to taxation in its home state.

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 the first quarter of 2024.

Although not as impactful as this event in the first quarter of 2024, tax-exempt income during the first quarter of 2025 resulting from a death benefit on life insurance lowered the effective tax rate for the most recent quarter from levels seen in the final three quarters of 2024.

NET INTEREST MARGIN

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Three Months Ended

March 31, 2025

March 31, 2024

June 30, 2025

June 30, 2024

Rate Earned/ Paid

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Net interest margin (4)

Annualized on a fully taxable equivalent basis calculated using a federal tax rate of 21% for the three months ended March 31, 2025 and 2024.

Annualized on a fully taxable equivalent basis calculated using a federal tax rate of 21% for the six months ended June 30, 2025 and 2024.

Nonaccrual loans are included in average amounts outstanding.

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Net interest margin represents net interest income on a fully tax equivalent basis as a percentage of average interest-earning assets.

Six Months Ended

June 30, 2025

June 30, 2024

(dollars in thousands)

Interest-earning assets

Taxable (available for sale)

Tax-exempt (available for sale)

Taxable (held to maturity)

Tax-exempt (held to maturity)

Cash and due from banks

Total interest-earning assets

Non interest-earning assets

Allowance for loan losses

LIABILITIES AND SHAREHOLDERS’ EQUITY

Interest-bearing deposits

Checking accounts

Savings accounts

Money market accounts

Certificates of deposit

Brokered deposits

Total interest-bearing deposits

Other borrowed funds

Total interest-bearing liabilities

Non-interest bearing liabilities

Demand deposits

Other liabilities

Total liabilities

Shareholders’ equity

Total liabilities & shareholders' equity

Net interest income on a fully taxable equivalent basis

Less taxable equivalent adjustment

Net interest income

Net interest spread (3)

Net interest margin (4)

Annualized on a fully taxable equivalent basis calculated using a federal tax rate of 21% for the six months ended June 30, 2025 and 2024.

Nonaccrual loans are included in average amounts outstanding.

Interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.

Net interest margin represents net interest income on a fully tax equivalent basis as a percentage of average interest-earning assets.

Rate/Volume Analysis

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(i) changes attributable to changes in volumes (changes in average balance multiplied by prior year average rate) and (ii) changes attributable to changes in rate (change in average interest rate multiplied by prior year average balance), while (iii) changes attributable to the combined impact of volumes and rates have been allocated proportionately to separate volume and rate categories.

Three Months Ended March 31, 2025

Three Months Ended June 30, 2025

Six Months Ended June 30, 2025

Compared with

Three Months Ended March 31, 2024

Compared with

Three Months Ended June 30, 2024

Six Months Ended June 30, 2024

Increase/(Decrease) Due to Change in

(dollars in thousands)

Interest income

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Total Assets.

Total assets increased $11.4 million, or 0.3%, to $4.51 billion at March 31, 2025, from $4.50 billion at December 31, 2024.

Total assets decreased $130.0 million, or 2.9%, to $4.37 billion at June 30, 2025, from $4.50 billion at December 31, 2024.

Cash and Cash Equivalents.

Cash and cash equivalents increased by $39.5 million to $300.9 million at March 31, 2025, from $261.3 million at December 31, 2024.

Cash and cash equivalents decreased by $141.0 million to $120.3 million at June 30, 2025, from $261.3 million at December 31, 2024.

This decline resulted from the reduction in seasonal customer deposits during the first half of 2025 amplified by growth in the Bank’s loan portfolio.

Investment Securities.

The carrying value of total investment securities decreased by $59.8 million to $274.0 million at March 31, 2025, from $333.8 million at December 31, 2024.

The quarter-over-quarter decrease in investments was primarily attributed to the maturity of short-duration securities during the most recent quarter.

These investments were acquired during the fourth quarter of 2024 to meet heightened needs for collateral due to a seasonal collateralized deposit increase during the fourth quarter of 2024.

Net loans increased by $31.3 million, totaling $3.50 billion at March 31, 2025 compared to $3.47 billion at December 31, 2024.

Deposits increased $13.1 million, or 0.4%, to $3.67 billion at March 31, 2025 from $3.66 billion at December 31, 2024.

At March 31, 2025, borrowings consisted of advances from the FHLB of Chicago and subordinated debt to other banks and an individual.

FHLB borrowings decreased $0.5 million, or 0.4%, to $134.9 million at March 31, 2025 from $135.4 million at December 31, 2024.

Subordinated debt remained stable at $12.0 million at March 31, 2025 and December 31, 2024.

The carrying value of total investment securities decreased by $56.7 million to $277.1 million at June 30, 2025, from $333.8 million at December 31, 2024.

The decrease in investments was primarily attributed to the maturity of short-duration securities during the first half of 2025.

These investments were acquired during the fourth quarter of 2024 to meet heightened needs for collateral due to a seasonal collateralized deposit increase.

Net loans increased by $63.0 million, totaling $3.54 billion at June 30, 2025 compared to $3.47 billion at December 31, 2024.

Deposits decreased $65.6 million, or 1.8%, to $3.60 billion at June 30, 2025 from $3.66 billion at December 31, 2024.

At June 30, 2025, borrowings consisted of advances from the FHLB of Chicago and subordinated debt to other banks and an individual.

FHLB borrowings decreased $25.5 million, or 18.8%, to $109.9 million at June 30, 2025 from $135.4 million at December 31, 2024.

Subordinated debt remained stable at $12.0 million at June 30, 2025 and December 31, 2024.

Stockholders’ Equity.

Total stockholders’ equity increased $8.7 million, or 1.4%, to $648.4 million at March 31, 2025 from $639.7 million at December 31, 2024.

Repurchases of the Company’s common stock totaling $6.4 million and dividends declared totaling $4.5 million offset the positive impact of earnings totaling $18.2 million during the first three months of the year.

Total stockholders’ equity decreased $27.4 million, or 4.3%, to $612.3 million at June 30, 2025 from $639.7 million at December 31, 2024.

Repurchases of the Company’s common stock totaling $22.0 million and dividends declared totaling $43.6 million offset the positive impact of earnings totaling $35.1 million during the first six months of the year.

Our lending activities are principally conducted in the state of Wisconsin.

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Repayment of the Bank’s residential loans are generally dependent on the health of the employment market in the borrowers’ geographic areas and that of the general economy with liquidation of the underlying real estate collateral being typically viewed as the primary source of repayment in the event of borrower default.

Our loan portfolio is our most significant earning asset, comprising 78.8% and 78.3% of our total assets as of March 31, 2025 and December 31, 2024, respectively.

Our loan portfolio is our most significant earning asset, comprising 82.1% and 78.3% of our total assets as of June 30, 2025 and December 31, 2024, respectively.

Our strategy is to grow our loan portfolio by originating quality commercial and consumer loans that comply with our credit policies and that produce revenues consistent with our financial objectives.

We believe our loan portfolio is well-balanced, which provides us with the opportunity to grow while monitoring our loan concentrations.

Loans increased $30.9 million, or 0.9%, to $3.55 billion as of March 31, 2025 compared to $3.52 billion as of December 31, 2024.

This increase during the first three months of 2025 was primarily driven by solid demand for new credit from our existing customer relationships.

This growth was comprised of an increase of $7.5 million or 1.5% in commercial and industrial loans, an increase of $4.8 million or 0.5% in owner occupied commercial real estate loans, an increase of $0.6 million or 0.1% in non-owner occupied commercial real estate, an increase of $28.6 million or 8.8% in multi-family loans, an increase of $0.5 million or 0.2% in construction and development loans, a decrease of $9.9 million or 1.1% in residential 1-4 family loans and a decrease of $1.2 million or 1.7% in consumer and other loans.

Loans increased $63.2 million, or 1.8%, to $3.58 billion as of June 30, 2025 compared to $3.52 billion as of December 31, 2024.

This increase during the first six months of 2025 was primarily driven by solid demand for new credit from our existing customer relationships.

This growth was comprised of an increase of $38.3 million or 6.5% in commercial and industrial loans, a decrease of $4.7 million or 0.6% in owner occupied commercial real estate loans, an increase of $9.4 million or 1.8% in non-owner occupied commercial real estate, an increase of $50.8 million or 15.6% in multi-family loans, a decrease of $28.1 million or 10.1% in construction and development loans, a decrease of $4.2 million or 0.5% in residential 1-4 family loans and an increase of $1.7 million or 2.4% in consumer and other loans.

The following table presents the balance and associated percentage of each major category in our loan portfolio:

March 31, 2025

June 30, 2025

December 31, 2024

March 31, 2024

June 30, 2024

(dollars in thousands)

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Commercial and Industrial (C&I).

Our C&I portfolio totaled $507.9 million and $500.4 million at March 31, 2025 and December 31, 2024, respectively, and represented 14% of our total loans at both dates.

Our C&I portfolio totaled $628.5 million and $590.2 million at June 30, 2025 and December 31, 2024, respectively, and represented 18% of our total loans as of June 30, 2025 and 17% of our total loans as of December 31, 2024.

Our C&I loan customers represent various 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.

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Commercial Real Estate (CRE).

Our CRE loan portfolio totaled $1.79 billion and $1.75 billion at March 31, 2025 and December 31, 2024, respectively, and represented 50% of our total loans at those dates.

The growth in our CRE loan portfolio through the first three months of 2025 consisted primarily of multi-family real estate as developers respond to a shortage of available dwellings in our markets.

Management views owner occupied CRE, which expanded marginally during the quarter, as an extension of C&I lending as typically the primary repayment source on these loans is operating profits from the underlying business.

Our CRE loan portfolio totaled $1.74 billion and $1.68 billion at June 30, 2025 and December 31, 2024, respectively, and represented 48% of our total loans at those dates.

The growth in our CRE loan portfolio through the first six months of 2025 consisted primarily of multi-family real estate as developers respond to a shortage of available dwellings in our markets.

Management views owner occupied CRE as an extension of C&I lending as typically the primary repayment source on these loans is operating profits from the underlying business.

Our CRE loans are secured by a variety of property types including multi-family dwellings, retail facilities, office buildings, commercial mixed use, lodging and industrial and warehouse properties.

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Construction and Development (C&D).

Our C&D loan portfolio totaled $278.5 million and $278.0 million at March 31, 2025 and December 31, 2024, respectively, and represented 8% of our total loans at those dates.

Our C&D loan portfolio totaled $249.9 million and $278.0 million at June 30, 2025 and December 31, 2024, respectively, and represented 7% of our total loans as of June 30, 2025 and 8% of our total loans as of December 31, 2024.

Our C&D loans are generally for the purpose of creating value out of real estate through construction and development work, and also include loans used to purchase recreational use land.

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Residential 1 – 4 Family.

Residential 1 – 4 family loans held in portfolio amounted to $903.3 million and $913.2 million at March 31, 2025 and December 31, 2024, respectively, and represented 26% of our total loans at those dates.

Residential 1 – 4 family loans held in portfolio amounted to $891.7 million and $895.9 million at June 30, 2025 and December 31, 2024, respectively, and represented 25% of our total loans at those dates.

We offer fixed and adjustable-rate residential mortgage loans with maturities up to 30 years.

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

We were servicing mortgage loans sold to others without recourse of approximately $1.17 billion at March 31, 2025 and December 31, 2024.

We were servicing mortgage loans sold to others without recourse of approximately $1.17 billion at June 30, 2025 and December 31, 2024.

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

Loan servicing rights are carried at fair value.

The net balance of capitalized servicing rights amounted to $13.5 million and $13.4 million at March 31, 2025 and December 31, 2024, respectively.

The net balance of capitalized servicing rights amounted to $13.4 million at June 30, 2025 and December 31, 2024.

Consumer Loans.

Our consumer loan portfolio totaled $54.8 million and $55.4 million at March 31, 2025 and December 31, 2024, respectively, and represented 2% of our total loans at those dates.

Our consumer loan portfolio totaled $57.9 million and $55.4 million at June 30, 2025 and December 31, 2024, respectively, and represented 2% of our total loans at those dates.

Consumer loans include secured and unsecured loans, lines of credit and personal installment loans.

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As a result, consumer loan repayments are dependent on the borrower’s continuing financial stability and thus are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy.

Our other loans totaled $15.0 million and $15.6 million at March 31, 2025 and December 31, 2024, respectively, and are immaterial to the overall loan portfolio.

Our other loans totaled $14.8 million and $15.6 million at June 30, 2025 and December 31, 2024, respectively, and are immaterial to the overall loan portfolio.

The other loans category consists primarily of over-drafted depository accounts, loans utilized to purchase or carry securities and loans to nonprofit organizations.

Loan Portfolio Maturities.

The following tables summarize the dollar amount of loans maturing in our portfolio based on their loan type, fixed or variable rate of interest, and contractual terms to maturity at March 31, 2025.

The following tables summarize the dollar amount of loans maturing in our portfolio based on their loan type, fixed or variable rate of interest, and contractual terms to maturity at June 30, 2025.

The tables do not include any estimate of prepayments, which can significantly shorten the average life of all loans and may cause our actual repayment experience to differ from that shown below.

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The composition of our nonperforming assets is as follows:

As of March 31,

As of June 30,

As of December 31,

As of March 31,

As of June 30,

(dollars in thousands)

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The status of delinquent loans, as well as situations identified as potential problems, are reviewed on a regular basis by senior management.

The decrease in the amount of nonaccrual loans was primarily due to the improvement in one customer relationship, which resulted in the loan being returned to accrual status.

The increase in the amount of nonaccrual loans through the first six months of 2025 was primarily due to the deterioration of one customer relationship, which resulted in the loan being moved to nonaccrual status.

ALLOWANCE FOR CREDIT LOSSES - LOANS

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

At March 31, 2025, the ACL - Loans was $43.7 million (representing 1.23% of period end loans).

Bank First recorded a provision for credit losses of $0.4 million during the first three quarters of 2025.

At June 30, 2025, the ACL - Loans was $44.3 million (representing 1.24% of period end loans).

The Bank recorded a provision for credit losses of $1.0 million during the first half of 2025.

The ACL– Loans has remained consistent over recent quarters as economic conditions have remained stable and the Company’s overall asset quality remain strong.

The Company recorded net charge-offs totaling $0.8 million during the first three months of 2025.

The Company recorded net charge-offs totaling $0.8 million during the first six months of 2025.

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

Three months ended

Six months ended

(dollars in thousands)

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

As of March 31, 2025, deposit liabilities accounted for approximately 81.6% of our total liabilities and equity.

As of June 30, 2025, deposit liabilities accounted for approximately 82.4% of our total liabilities and equity.

We accept deposits primarily from customers in the communities in which our branches and offices are located, as well as from small businesses and other customers throughout our lending area.

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Deposit rates and terms are based primarily on current business strategies, market interest rates, liquidity requirements and our deposit growth goals.

Total deposits were $3.67 billion and $3.66 billion as of March 31, 2025 and December 31, 2024, respectively.

Noninterest-bearing deposits at March 31, 2025 and December 31, 2024, were $993.8 million and $1.02 billion, respectively, while interest-bearing deposits were $2.68 billion and $2.64 billion at March 31, 2025 and December 31, 2024, respectively.

Total deposits were $3.60 billion and $3.66 billion as of June 30, 2025 and December 31, 2024, respectively.

Noninterest-bearing deposits at June 30, 2025 and December 31, 2024, were $990.0 million and $1.02 billion, respectively, while interest-bearing deposits were $2.61 billion and $2.64 billion at June 30, 2025 and December 31, 2024, respectively.

The Bank continue to see a shift in its deposit portfolio from noninterest-bearing deposits to interest-bearing deposits as prevailing interest rates have increased over the last several years.

At March 31, 2025, we had a total of $662.5 million in certificates of deposit, including $20.1 million of brokered deposits.

At June 30, 2025, we had a total of $656.7 million in certificates of deposit, including $20.1 million of brokered deposits.

Based on historical experience and our current pricing strategy, we believe we will retain a majority of these accounts upon maturity, although our long-term strategy is to minimize reliance on certificates of deposits by increasing relationship deposits in lower earning savings and demand deposit accounts.

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

Three months ended

March 31, 2025

Six months ended

June 30, 2025

December 31, 2024

March 31, 2024

June 30, 2024

(dollars in thousands)

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Brokered deposits

The following table provides information on maturities of certificates of deposits which exceed FDIC insurance limits of $250,000 as of March 31, 2025:

The following table provides information on maturities of certificates of deposits which exceed FDIC insurance limits of $250,000 as of June 30, 2025:

Time Deposits over FDIC

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The Company’s borrowings have historically consisted primarily of FHLB of Chicago advances collateralized by a blanket pledge agreement on the Company’s FHLB capital stock and retail and commercial loans held in the Company’s portfolio.

There were $134.9 million and $135.4 million of advances outstanding from the FHLB at March 31, 2025 and December 31, 2024, respectively.

The total loans pledged as collateral were $1.14 billion and $1.47 billion at March 31, 2025 and December 31, 2024.

There were no outstanding letters of credit from the FHLB at March 31, 2025 or December 31, 2024.

There were $109.9 million and $135.4 million of advances outstanding from the FHLB at June 30, 2025 and December 31, 2024, respectively.

The total loans pledged as collateral were $1.14 billion and $1.47 billion at June 30, 2025 and December 31, 2024.

There were no outstanding letters of credit from the FHLB at June 30, 2025 or December 31, 2024.

The following table summarizes borrowings from the FHLB, and the weighted average interest rates paid:

Three months ended

Six months ended

(dollars in thousands)

March 31, 2025

June 30, 2025

December 31, 2024

March 31, 2024

June 30, 2024

Average daily amount of borrowings outstanding during the period

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

As of March 31, 2025 and December 31, 2024, outstanding balances under these agreements totaled $6.0 million.

As of June 30, 2025 and December 31, 2024, outstanding balances under these agreements totaled $6.0 million.

These notes were issued with 10-year maturities, will carry interest at a fixed rate of 5.0% through June 30, 2025, and at a variable rate thereafter, payable quarterly.

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

As of March 31, 2025 and December 31, 2024, outstanding balances under these agreements totaled $6.0 million.

As of June 30, 2025 and December 31, 2024, outstanding balances under these agreements totaled $6.0 million.

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

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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 $163.7 million and included negligible gross unrealized gains and gross unrealized losses of $11.9 million at March 31, 2025.

The fair value of securities available for sale totaled $167.2 million and included $0.2 million gross unrealized gains and gross unrealized losses of $11.0 million at June 30, 2025.

At December 31, 2024, 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.

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

Securities held to maturity totaled $110.2 million at March 31, 2025 and $110.8 million at December 31, 2024.

The Company had recognized no net losses on sales of securities during the three months ended March 31, 2025.

The Company had recognized net losses on sales of securities of $0.03 million during the three months ended March 31, 2024.

The following tables set forth the composition and maturities of investment securities as of March 31, 2025 and December 31, 2024.

Securities held to maturity totaled $109.9 million at June 30, 2025 and $110.8 million at December 31, 2024.

The Company had recognized no net losses on sales of securities during the six months ended June 30, 2025.

The Company had recognized net losses on sales of securities of $0.03 million during the six months ended June 30, 2024.

The following tables set forth the composition and maturities of investment securities as of June 30, 2025 and December 31, 2024.

Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

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After Ten Years

At March 31, 2025

At June 30, 2025

(dollars in thousands)

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Weighted Average Yield is shown on a fully taxable equivalent basis using a federal tax rate of 21% and includes the amortization of premiums and discounts.

As of March 31, 2025 and December 31, 2024, no allowance for credit losses on securities AFS was recognized.

As of June 30, 2025 and December 31, 2024, no allowance for credit losses on securities AFS was recognized.

The Company does not consider its securities AFS with unrealized losses to be attributable to credit-related factors, as the unrealized losses in each category have occurred as a result of changes in noncredit-related factors such as changes in interest rates, market spreads and market conditions subsequent to purchase, not credit deterioration.

Furthermore, as of March 31, 2025, the Company did not have the intent to sell any of these securities AFS and believes that it is more likely than not that we will not have to sell any such securities before a recovery of cost.

The Company does not believe there are any expected credit losses in its HTM securities portfolio at March 31, 2025 or December 31, 2024.

Furthermore, as of June 30, 2025, the Company did not have the intent to sell any of these securities AFS and believes that it is more likely than not that we will not have to sell any such securities before a recovery of cost.

The Company does not believe there are any expected credit losses in its HTM securities portfolio at June 30, 2025 or December 31, 2024.

Treasury securities have the full faith and credit backing of the United States government and the amount of obligations of states and political subdivisions in an unrealized loss position is immaterial to the financial statements.

As of March 31, 2025, 203 debt securities had gross unrealized losses, with an aggregate depreciation of 4.2% from our amortized cost basis.

As of June 30, 2025, 198 debt securities had gross unrealized losses, with an aggregate depreciation of 3.6% from our amortized cost basis.

The largest unrealized loss percentage of any single security was 24.6% (or $0.5 million) of its amortized cost.

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Capital Adequacy.

Total stockholders’ equity was $648.4 million at March 31, 2025 compared to $639.7 million at December 31, 2024.

Total stockholders’ equity was $612.3 million at June 30, 2025 compared to $639.7 million at December 31, 2024.

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

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All of the federal bank regulatory agencies have adopted regulations establishing relevant capital measures and relevant capital levels for federally insured depository institutions.

The Bank was well capitalized at March 31, 2025, and brokered deposits are not restricted.

The Bank was well capitalized at June 30, 2025, and brokered deposits are not restricted.

To be well-capitalized, the Bank must maintain at least a 6.5% CET1 to risk-weighted assets ratio, an 8.0% Tier 1 capital to risk-weighted assets ratio, a 10.0% Total capital to risk-weighted assets ratio, and a 5.0% leverage ratio.

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(dollars in thousands)

At March 31, 2025

At June 30, 2025

Bank First Corporation:

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Tier I capital (to average assets)

As previously mentioned, the Company carried $12.0 million of subordinated debt as of March 31, 2025 and December 31, 2024, which qualifies as Tier II capital.

As previously mentioned, the Company carried $12.0 million of subordinated debt as of June 30, 2025 and December 31, 2024, which qualifies as Tier II capital.

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

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Loan commitments and standby and direct pay letters of credit do not necessarily represent our future cash requirements because while the borrower has the ability to draw upon these commitments at any time, these commitments often expire without being drawn upon.

Our off-balance sheet arrangements as of March 31, 2025, were as follows:

Amounts of Commitments Expiring - By Period as of March 31, 2025

Our off-balance sheet arrangements as of June 30, 2025, were as follows:

Amounts of Commitments Expiring - By Period as of June 30, 2025

Less Than One

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis