10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

Commission file number: 001-38676

BANK FIRST CORPORATION

(Exact name of registrant as specified in its charter)

WISCONSIN	39-1435359
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

402 North 8th Street, Manitowoc, Wisconsin	54220
(Address of principal executive offices)	(Zip Code)

(920) 652-3100

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  ⌧    No  ◻

Indicate by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  ⌧    No  ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☒
Non-accelerated filer ☐	Smaller reporting company ☒
	Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐  No ☒

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name on each exchange on which registered
Common Stock, par value $0.01 per share	BFC	The Nasdaq Stock Market LLC

The number of shares of the issuer’s common stock, par value $0.01, outstanding as of November 6, 2020 was 7,730,071 shares.

TABLE OF CONTENTS

		Page Number
Part I. Financial Information		3
ITEM 1.	Financial Statements	3
	Consolidated Balance Sheets – September 30, 2020 (unaudited) and December 31, 2019	3
	Consolidated Statements of Income – Three and Nine Months Ended September 30, 2020 and 2019 (unaudited)	4
	Consolidated Statements of Comprehensive Income – Three and Nine Months Ended September 30, 2020 and 2019 (unaudited)	5
	Consolidated Statements of Changes in Stockholders’ Equity – Three and Nine Months Ended September 30, 2020 and 2019  (unaudited)	6
	Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2020 and 2019 (unaudited)	7
	Notes to Unaudited Consolidated Financial Statements	9
ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	31
ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	61
ITEM 4.	Controls and Procedures	62
Part II. Other Information		63
ITEM 1.	Legal Proceedings	63
ITEM 1A.	Risk Factors	63
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	63
ITEM 3.	Defaults Upon Senior Securities	64
ITEM 4.	Mine Safety Disclosures	64
ITEM 5.	Other Information	64
ITEM 6.	Exhibits	64
Signatures		65

2

PART I – FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS:

BANK FIRST CORPORATION

Consolidated Balance Sheets

(In thousands, except share and per share data)

	September 30, 2020		December 31, 2019
	(Unaudited)		(Audited)
Assets
Cash and due from banks	$	32,485	$	33,817
Interest-bearing deposits		1,854		19,242
Federal funds sold		46,413		33,393
Cash and cash equivalents		80,752		86,452
Securities held to maturity, at amortized cost ($6,691 and $44,803 fair value at September 30, 2020 and December 31, 2019, respectively)		6,670		43,734
Securities available for sale, at fair value		173,334		181,506
Loans held for sale		659		587
Loans, net		2,176,910		1,724,947
Premises and equipment, net		41,186		35,286
Goodwill		55,022		43,456
Other investments		8,896		4,933
Cash value of life insurance		31,197		24,945
Identifiable intangible assets, net		10,088		9,666
Other real estate owned ("OREO")		3,264		6,888
Investment in minority-owned subsidiaries		42,436		40,287
Other assets		8,833		7,481
TOTAL ASSETS	$	2,639,247	$	2,210,168
Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Interest-bearing deposits	$	1,582,831	$	1,366,846
Noninterest-bearing deposits		688,209		476,465
Total deposits		2,271,040		1,843,311
Securities sold under repurchase agreements		23,894		45,865
Notes payable		25,145		49,790
Subordinated notes		20,512		18,622
Other liabilities		12,552		22,369
Total liabilities		2,353,143		1,979,957
Stockholders’ equity:
Serial preferred stock - $0.01 par value
Authorized - 5,000,000 shares		—		—
Common stock - $0.01 par value
Authorized - 20,000,000 shares
Issued - 8,478,383 and 7,902,742 shares as of September 30, 2020 and December 31, 2019, respectively
Outstanding - 7,729,762 and 7,084,728 shares as of September 30, 2020 and December 31, 2019, respectively		85		79
Additional paid-in capital		92,560		63,085
Retained earnings		211,486		189,494
Treasury stock, at cost - 748,621 and 818,014 shares as of September 30, 2020 and December 31, 2019, respectively		(23,963)		(24,941)
Accumulated other comprehensive income		5,936		2,494
Total stockholders’ equity		286,104		230,211
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,639,247	$	2,210,168

See accompanying notes to consolidated financial statements.

3

ITEM 1. Financial Statements Continued:

BANK FIRST CORPORATION

Consolidated Statements of Income

(In thousands, except per share data) (Unaudited)

	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Interest income:
Loans, including fees	$	24,719	$	23,897	$	69,648	$	60,629
Securities:
Taxable		688		865		2,393		2,300
Tax-exempt		493		413		1,403		1,253
Other		28		314		162		1,188
Total interest income		25,928		25,489		73,606		65,370
Interest expense:
Deposits		2,721		4,735		10,043		13,402
Securities sold under repurchase agreements		4		85		110		383
Borrowed funds		278		356		1,089		698
Total interest expense		3,003		5,176		11,242		14,483
Net interest income		22,925		20,313		62,364		50,887
Provision for loan losses		1,350		3,000		5,475		4,125
Net interest income after provision for loan losses		21,575		17,313		56,889		46,762
Noninterest income:
Service charges		1,343		918		3,417		2,396
Income from Ansay and Associates, LLC ("Ansay")		970		319		2,571		1,737
Income from UFS, LLC ("UFS")		720		768		2,467		2,093
Loan servicing income		538		374		1,226		841
Net gain on sales of mortgage loans		1,304		533		3,096		774
Net gain on sales of securities		—		—		3,233		23
Net gain on sale of other investments		—		—		—		234
Noninterest income from strategic alliances		16		26		49		74
Other		224		207		717		1,249
Total noninterest income		5,115		3,145		16,776		9,421
Noninterest expense:
Salaries, commissions, and employee benefits		6,609		6,272		19,669		16,985
Occupancy		1,171		1,076		3,367		2,757
Data processing		1,463		1,158		3,996		3,031
Postage, stationery, and supplies		219		135		668		450
Net (gain) loss on sales and valuations of OREO		(32)		(10)		1,411		(109)
Advertising		41		53		165		180
Charitable contributions		110		225		360		497
Outside service fees		888		1,171		3,083		2,837
Amortization of intangibles		418		374		1,114		696
Penalty for early extinguishment of debt		—		—		1,323		—
Other		1,315		1,633		4,225		4,254
Total noninterest expense		12,202		12,087		39,381		31,578
Income before provision for income taxes		14,488		8,371		34,284		24,605
Provision for income taxes		3,534		1,712		7,768		5,370
Net Income	$	10,954	$	6,659	$	26,516	$	19,235
Earnings per share - basic	$	1.42	$	0.95	$	3.57	$	2.86
Earnings per share - diluted	$	1.42	$	0.93	$	3.56	$	2.83
Dividends per share	$	0.20	$	0.20	$	0.60	$	0.60

See accompanying notes to unaudited consolidated financial statements

4

ITEM 1. Financial Statements Continued:

BANK FIRST CORPORATION

Consolidated Statements of Comprehensive Income

(In thousands) (Unaudited)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
Net Income	$	10,954	$	6,659	$	26,516	$	19,235
Other comprehensive income:
Unrealized gains (losses) on available for sale securities:
Unrealized holding gains arising during period		593		925		8,230		5,244
Amortization of unrealized holding gains on securities transferred from available for sale to held to maturity		—		(11)		(102)		(34)
Reclassification adjustment for gains included in net income		—		—		(3,233)		(23)
Income tax expense		(160)		(192)		(1,453)		(1,089)
Total other comprehensive income		433		722		3,442		4,098
Comprehensive income	$	11,387	$	7,381	$	29,958	$	23,333

See accompanying notes to unaudited consolidated financial statements.

5

ITEM 1. Financial Statements Continued:

BANK FIRST CORPORATION

Consolidated Statement of Stockholders’ Equity

(In thousands, except share and per share data) (Unaudited)

											Accumulated
	Serial				Additional						Other		Total
	Preferred		Common		Paid-in		Retained		Treasury		Comprehensive		Stockholders'
	Stock		Stock		Capital		Earnings		Stock		Income (loss)		Equity
	(In Thousands, except share and per share amounts)
Balance at January 1, 2019	$	—	$	74	$	27,601	$	168,363	$	(21,349)	$	(366)	$	174,323
Net income		—		—		—		6,587		—		—		6,587
Other comprehensive income		—		—		—		—		—		1,853		1,853
Purchase of treasury stock		—		—		—		—		(2,489)		—		(2,489)
Issuance of treasury stock as deferred compensation payout		—		—		14		—		43		—		57
Cash dividends ($0.20 per share)		—		—		—		(1,306)		—		—		(1,306)
Amortization of stock-based compensation		—		—		152		—		—		—		152
Vesting of restricted stock awards		—		—		(462)		—		462		—		—
Balance at March 31, 2019		—		74		27,305		173,644		(23,333)		1,487		179,177
Net income		—		—		—		5,989		—		—		5,989
Other comprehensive income		—		—		—		—		—		1,522		1,522
Purchase of treasury stock		—		—		—		—		(161)		—		(161)
Issuance of treasury stock as deferred compensation payout		—		—		12		—		45		—		57
Cash dividends ($0.20 per share)		—		—		—		(1,319)		—		—		(1,319)
Amortization of stock-based compensation		—		—		182		—		—		—		182
Vesting of restricted stock awards		—		—		(63)		—		63		—		—
Balance at June 30, 2019		—		74		27,436		178,314		(23,386)		3,009		185,447
Net income		—		—		—		6,659		—		—		6,659
Other comprehensive income		—		—		—		—		—		722		722
Purchase of treasury stock		—		—		—		—		(1,555)		—		(1,555)
Cash dividends ($0.20 per share)		—		—		—		(1,422)		—		—		(1,422)
Amortization of stock-based compensation		—		—		177		—		—		—		177
Shares issued in the acquisition of Partnership Community Bancshares, Inc (534,659 shares)		—		5		35,298		—		—		—		35,303
Balance at September 30, 2019	$	—	$	79	$	62,911	$	183,551	$	(24,941)	$	3,731	$	225,331
Balance at January 1, 2020	$	—	$	79	$	63,085	$	189,494	$	(24,941)	$	2,494	$	230,211
Net income		—		—		—		7,266		—		—		7,266
Other comprehensive income		—		—		—		—		—		1,021		1,021
Purchase of treasury stock		—		—		—		—		(2,968)		—		(2,968)
Issuance of treasury stock as deferred compensation payout		—		—		—		—		3,368		—		3,368
Cash dividends ($0.20 per share)		—		—		—		(1,431)		—		—		(1,431)
Amortization of stock-based compensation		—		—		215		—		—		—		215
Vesting of restricted stock awards		—		—		(628)		—		628		—		—
Balance at March 31, 2020		—		79		62,672		195,329		(23,913)		3,515		237,682
Net income		—		—		—		8,296		—		—		8,296
Other comprehensive income		—		—		—		—		—		1,988		1,988
Cash dividends ($0.20 per share)		—		—		—		(1,543)		—		—		(1,543)
Amortization of stock-based compensation		—		—		296		—		—		—		296
Vesting of restricted stock awards		—		—		(66)		—		66		—		—
Shares issued in the acquisition of Tomah Bancshares, Inc. (575,641 shares)		—		6		29,375		—		—		—		29,381
Balance at June 30, 2020		—		85		92,277		202,082		(23,847)		5,503		276,100
Net income		—		—		—		10,954		—		—		10,954
Other comprehensive income		—		—		—		—		—		433		433
Purchase of treasury stock		—		—		—		—		(116)		—		(116)
Cash dividends ($0.20 per share)		—		—		—		(1,550)		—		—		(1,550)
Amortization of stock-based compensation		—		—		283		—		—		—		283
Balance at September 30, 2020	$	—	$	85	$	92,560	$	211,486	$	(23,963)	$	5,936	$	286,104

See accompanying notes to unaudited consolidated financial statements.

6

ITEM 1. Financial Statements Continued:

BANK FIRST CORPORATION

Consolidated Statements of Cash Flows

(In thousands) (Unaudited)

	Nine Months Ended September 30,
	2020		2019
Cash flows from operating activities:
Net income	$	26,516	$	19,235
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		5,475		4,125
Depreciation and amortization of premises and equipment		1,116		842
Amortization of intangibles		1,114		696
Net amortization of securities		505		286
Amortization of stock-based compensation		794		511
Accretion of purchase accounting valuations		(4,338)		(5,303)
Net change in deferred loan fees and costs		5,258		(197)
Change in fair value of mortgage servicing rights ("MSR") and other investments		1,468		(179)
Loss from sale and disposal of premises and equipment		—		23
Loss (gain) on sale of OREO and valuation allowance		1,411		(109)
Proceeds from sales of mortgage loans		149,229		45,951
Originations of mortgage loans held for sale		(147,185)		(47,661)
Gain on sales of mortgage loans		(3,096)		(774)
Realized gain on sale of securities		(3,233)		(23)
Realized gain on sale of other investments		—		(234)
Undistributed income of UFS joint venture		(2,467)		(2,093)
Undistributed income of Ansay joint venture		(2,571)		(1,737)
Net earnings on life insurance		(544)		(467)
Increase in other assets		(1,715)		(2,085)
Decrease in other liabilities		(5,416)		(1,667)
Net cash provided by operating activities		22,321		9,140
Cash flows from investing activities, net of effects of business combination:
Activity in securities available for sale and held to maturity:
Sales		59,697		748
Maturities, prepayments, and calls		65,655		9,742
Purchases		(28,764)		(8,823)
Net increase in loans		(348,814)		(15,876)
Dividends received from UFS		1,797		1,366
Dividends received from Ansay		1,119		958
Proceeds from sale of OREO		4,085		1,092
Proceeds from sale of other investments		—		984
Net purchases of Federal Home Loan Bank ("FHLB") stock		(640)		(65)
Net purchases of Federal Reserve Bank ("FRB") stock		(2,760)		—
Proceeds from sale of premises and equipment		25		—
Purchases of premises and equipment		(5,518)		(3,847)
Net cash received (used) in business combination		35,296		(9,771)
Net cash used in investing activities		(218,822)		(23,492)

7

ITEM 1. Financial Statements Continued:

BANK FIRST CORPORATION

Consolidated Statements of Cash Flows (Continued)

(In thousands) (Unaudited)

	Nine Months Ended September 30,
	2020		2019
Cash flows from financing activities, net of effects of business combination:
Net increase in deposits	$	256,947	$	12,550
Net decrease in securities sold under repurchase agreements		(22,788)		(19,288)
Proceeds from advances of notes payable		87,000		44,000
Repayment of notes payable		(124,750)		(4,000)
Proceeds from issuance of subordinated debt		2,000		—
Dividends paid		(4,524)		(4,047)
Repurchase of common stock		(3,084)		(4,205)
Net cash provided by financing activities		190,801		25,010
Net (decrease) increase in cash and cash equivalents		(5,700)		10,658
Cash and cash equivalents at beginning of period		86,452		107,743
Cash and cash equivalents at end of period	$	80,752	$	118,401
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	11,712	$	14,177
Income taxes		5,050		5,177
Supplemental schedule of noncash activities:
Loans transferred to OREO		1,892		4,260
MSR resulting from sale of loans		980		443
Amortization of unrealized holding gains on securities transferred from available for sale to held to maturity recognized in other comprehensive income, net of tax		(81)		(27)
Change in unrealized gains and losses on investment securities available for sale, net of tax		3,523		4,125
Payment of deferred compensation through issuance of treasury stock		3,368		114
Acquisitions:
Fair value of assets acquired	$	209,918	$	307,768
Fair value of liabilities assumed		191,701		286,612
Net assets acquired	$	18,217	$	21,156
Common stock issued in acquisition		29,381		35,304

See accompanying notes to consolidated financial statements.

8

BANK FIRST CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

NOTE 1 – BASIS OF PRESENTATION

Bank First Corporation (the “Company”) provides a variety of financial services to individual and corporate customers through its wholly-owned subsidiary, Bank First, N.A. (the “Bank”). The Bank operates as a full-service financial institution with a primary market area including, but not limited to, the counties in which the Bank’s branches are located. The Bank has twenty-four locations located in Manitowoc, Outagamie, Brown, Winnebago, Sheboygan, Waupaca, Ozaukee, Monroe, Jefferson and Barron counties in Wisconsin. On September 18, 2020, the Company announced its intention to sell its branch in Chetek, Wisconsin, in a transaction expected to close during the fourth quarter of 2020. This event will reduce the Bank's branch count by one and will remove Barron County from the list of counties in which the Bank has a presence. The Company and Bank are subject to the regulations of certain federal agencies and undergo periodic examinations by those regulatory authorities.

These interim unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and with the instructions to Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain information and footnote disclosures required by GAAP have been omitted or abbreviated. These unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 (“Annual Report”).

The unaudited consolidated financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods. The results for interim periods are not necessarily indicative of results for a full year.

Critical Accounting Policies and Estimates

Preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying disclosures. These estimates are based on management’s best knowledge of current events and actions the Company may undertake in the future. Estimates are used in accounting for, among other items, the allowance for loan losses (“ALL”), valuation of loans in acquisition transactions, useful lives for depreciation and amortization, fair value of financial instruments, other-than-temporary impairment calculations, valuation of deferred tax assets, uncertain income tax positions and contingencies. Estimates that are particularly susceptible to significant change for the Company include the determination of the ALL, the determination and assessment of deferred tax assets and liabilities, and the valuation of loans acquired in acquisition transactions; therefore, these are critical accounting policies. Factors that may cause sensitivity to the aforementioned estimates include but are not limited to: external market factors such as market interest rates and employment rates, changes to operating policies and procedures, changes in applicable banking or tax regulations, and changes to deferred tax estimates. Actual results may ultimately differ from estimates, although management does not generally believe such differences would materially affect the consolidated financial statements in any individual reporting period presented.

There have been no material changes or developments with respect to the assumptions or methodologies that the Company uses when applying what management believes are critical accounting policies and developing critical accounting estimates as previously disclosed in the Company’s Annual Report.

Recent Accounting Developments Adopted

In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-04, “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment”. The amendments in this ASU were issued to address concerns over the cost and complexity of the two-step goodwill impairment test and resulted in the removal of the second step of the test. The amendments require an entity to apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The new guidance did not amend the optional qualitative assessment of goodwill impairment. This ASU is intended to reduce the cost and complexity of the two-step goodwill impairment test and is effective for annual and interim goodwill

9

impairment tests in fiscal years beginning after December 15, 2019, with early adoption permitted for testing performed after January 1, 2017. The adoption of this guidance did not have a significant impact on the Company’s consolidated financial statements.

Recently Issued Not Yet Effective Accounting Standards

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” Certain aspects of this ASU were updated in November 2018 by the issuance of ASU 2018-19, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses”. The main objective of the ASU is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in the ASU replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. During 2019 FASB issued ASU 2019-10 which delayed the effective date of ASU 2016-13 for smaller, publicly traded companies, until interim and annual periods beginning after December 15, 2022. This delay applies to the Company as it was classified as a “Smaller reporting company” as defined in Rule 12b-2 of the Exchange Act as of the date ASU 2019-10 was enacted. Management is currently evaluating the potential impact of this update, although the general expectation in the banking industry is that the implementation of this standard will result in higher required balances in the ALL.

NOTE 2 – ACQUISITIONS

On July 12, 2019, the Company completed a merger with Partnership Community Bancshares, Inc. (“Partnership”), a bank holding company headquartered in Cedarburg, Wisconsin, pursuant to the Agreement and Plan of Bank Merger (“Merger Agreement”), dated as of January 22, 2019 and as amended on April 30, 2019, by and among the Company and Partnership, whereby Partnership merged with and into the Company, and Partnership Bank, Partnership’s wholly-owned banking subsidiary, merged with and into the Bank. Partnership’s principal activity was the ownership and operation of Partnership Bank, a state-chartered banking institution that operated four (4) branches in Wisconsin at the time of closing. The merger consideration totaled approximately $49.6 million.

Pursuant to the terms of the Merger Agreement, Partnership shareholders had the option to receive either 0.34879 shares of the Company’s common stock or $17.3001 in cash for each outstanding share of Partnership common stock, and cash in lieu of any remaining fractional share. The stock versus cash elections by the Partnership shareholders were subject to final consideration being made up of approximately $14.3 million in cash and 534,659 shares of Company common stock, valued at approximately $35.3 million (based on a value of $66.03 per share on the closing date).

For more information concerning this acquisition, see “Note 2 – Acquisition” in the Company’s audited consolidated financial statements included in the Company’s Annual Report.

On May 15, 2020, the Company completed a merger with Tomah Bancshares, Inc. (“Timberwood”), a bank holding company headquartered in Tomah, Wisconsin, pursuant to the Agreement and Plan of Bank Merger, dated as of November 20, 2019, by and among the Company and Timberwood, whereby Timberwood merged with and into the Company, and Timberwood Bank, Timberwood’s wholly-owned banking subsidiary, merged with and into the Bank. Timberwood’s principal activity was the ownership and operation of Timberwood Bank, a state-chartered banking institution that operated one (1) branch in Wisconsin at the time of closing. The merger consideration totaled approximately $29.8 million.

Pursuant to the terms of the Merger Agreement, Timberwood shareholders received 5.1445 shares of the Company’s common stock for each outstanding share of Timberwood common stock, and cash in lieu of any remaining fractional share. Company stock issued totaled 575,641 shares valued at approximately $29.4 million, with cash of $0.4 million comprising the remainder of merger consideration.

The Company accounted for the transaction under the acquisition method of accounting, and thus, the financial position and results of operations of Timberwood prior to the consummation date were not included in the accompanying consolidated financial statements. The accounting required assets purchased and liabilities assumed to be recorded at their respective fair values at the date of acquisition. The Company determined the fair value of core deposit intangibles, securities, premises and equipment, loans, other assets and liabilities, deposits and borrowings with the assistance of third party valuations, appraisals, and third party advisors. The estimated fair values will be subject to refinement for up to one year after deal consummation as additional information becomes available relative to the closing date fair values.

10

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

	As Recorded by		Fair Value		As Recorded by
	Timberwood		Adjustments		the Company
Cash, cash equivelants and securities	$	79,614	$	(656)	$	78,958
Other investments		533				533
Loans		117,343		1,068		118,411
Premises and equipment, net		2,538		(1,006)		1,532
Core deposit intangible		—		1,697		1,697
Other assets		11,392		(2,605)		8,787
Total assets acquired	$	211,420	$	(1,502)	$	209,918
Deposits	$	170,362	$	742	$	171,104
Subordinated debt		6,500				6,500
Other borrowings		12,938		210		13,148
Other liabilities		1,923		(974)		949
Total liabilities assumed	$	191,723	$	(22)	$	191,701
Excess of assets acquired over liabilties assumed	$	19,697	$	(1,480)	$	18,217
Less: purchase price						29,812
Goodwill (originally recorded)						11,595
Refinement to fair value estimates						(29)
Goodwill (after refinement)					$	11,566

NOTE 3 – EARNINGS PER SHARE

The two-class method is used in the calculation of basic and diluted earnings per share. Under the two-class method, earnings available to common shareholders for the period are allocated between common shareholders and participating securities according to dividends declared (or accumulated) and participation rights in undistributed earnings. There were no anti-dilutive stock options for the three and nine months ended September 30, 2020 or 2019.

11

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Basic
Net income available to common shareholders	$	10,954	$	6,659	$	26,516	$	19,235
Less: Earnings allocated to participating securities		(82)		(48)		(202)		(148)
Net income allocated to common shareholders	$	10,872	$	6,611	$	26,314	$	19,087
Weighted average common shares outstanding including participating securities		7,731,670		7,036,807		7,424,257		6,731,089
Less: Participating securities (1)		(58,098)		(51,040)		(56,464)		(51,608)
Average shares		7,673,572		6,985,767		7,367,793		6,679,481
Basic earnings per common shares	$	1.42	$	0.95	$	3.57	$	2.86
Diluted
Net income available to common shareholders	$	10,954	$	6,659	$	26,516	$	19,235
Weighted average common shares outstanding for basic earnings per common share		7,673,572		6,985,767		7,367,793		6,679,481
Add: Dilutive effects of stock based compensation awards		17,754		121,988		44,880		99,564
Average shares and dilutive potential common shares		7,691,326		7,107,755		7,412,673		6,779,045
Diluted earnings per common share	$	1.42	$	0.93	$	3.56	$	2.83

(1) Participating securities are restricted stock awards whereby the stock certificates have been issued, are included in outstanding shares, receive dividends and can be voted, but have not vested.

NOTE 4 – SECURITIES

The Company’s securities available for sale as of September 30, 2020 and December 31, 2019 is summarized as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
September 30, 2020
Obligations of U.S. Government sponsored agencies	$	18,283	$	595	$	(59)	$	18,819
Obligations of states and political subdivisions		69,414		4,104		(1)		73,517
Mortgage-backed securities		47,864		2,940		—		50,804
Corporate notes		27,325		507		—		27,832
Certificates of deposit		2,320		42		—		2,362
Total available for sale securities	$	165,206	$	8,188	$	(60)	$	173,334
December 31, 2019
Obligations of U.S. Government sponsored agencies	$	12,218	$	—	$	(158)	$	12,060
Obligations of states and political subdivisions		52,594		2,197		(20)		54,771
Mortgage-backed securities		50,770		988		(38)		51,720
Corporate notes		62,794		172		(11)		62,955
Total available for sale securities	$	178,376	$	3,357	$	(227)	$	181,506

12

The Company’s securities held to maturity as of September 30, 2020 and December 31, 2019 is summarized as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
September 30, 2020
Obligations of states and political subdivisions	$	6,670	$	21	$	—	$	6,691
December 31, 2019
U.S. Treasury securities	$	33,527	$	1,076	$	(22)	$	34,581
Obligations of states and political subdivisions		10,207		15		—		10,222
Total held to maturity securities	$	43,734	$	1,091	$	(22)	$	44,803

The following table shows the fair value and gross unrealized losses of securities with unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:

	Less Than 12 Months				Greater Than 12 Months				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
September 30, 2020 - Available for Sale
Obligations of U.S. Government sponsored agencies	$	5,639	$	(59)	$	—	$	—	$	5,639	$	(59)
Obligations of states and political subdivisions		354		(1)		—		—		354		(1)
Totals	$	5,993	$	(60)	$	—	$	—	$	5,993	$	(60)
December 31, 2019 - Available for Sale
Obligations of U.S. Government sponsored agencies	$	12,059	$	(158)	$	—	$	—	$	12,059	$	(158)
Obligations of states and political subdivisions		5,636		(19)		999		(1)		6,635		(20)
Mortgage-backed securities		4,038		(26)		2,187		(12)		6,225		(38)
Corporate notes		3,925		(11)		—		—		3,925		(11)
Totals	$	25,658	$	(214)	$	3,186	$	(13)	$	28,844	$	(227)
December 31, 2019 - Held to Maturity
U.S. Treasury securities	$	2,958	$	(22)	$	—	$	—	$	2,958	$	(22)

As of September 30, 2020, the Company does not consider its securities with unrealized losses to be other-than-temporarily impaired, as the unrealized losses in each category have occurred as a result of changes in interest rates, market spreads and market conditions subsequent to purchase, not credit deterioration. The Company has the intent and ability to hold its securities to maturity or until par is recovered. There were no other-than-temporary impairments charged to earnings during the nine months ended September 30, 2020 or 2019.

The following is a summary of amortized cost and estimated fair value of securities by contractual maturity as of September 30, 2020. Contractual maturities will differ from expected maturities for mortgage-backed securities because borrowers may have the right to call or prepay obligations without penalties.

	Available for Sale				Held to Maturity
	Amortized		Estimated		Amortized		Estimated
	Cost		Fair Value		Cost		Fair Value
Due in one year or less	$	12,735	$	12,834	$	751	$	751
Due after one year through 5 years		12,500		13,308		3,524		3,545
Due after 5 years through ten years		11,014		11,569		2,395		2,395
Due after 10 years		81,093		84,819		—		—
Subtotal		117,342		122,530		6,670		6,691
Mortgage-backed securities		47,864		50,804		—		—
Total	$	165,206	$	173,334	$	6,670	$	6,691

13

The following is a summary of the proceeds from sales of securities available for sale and held to maturity, as well as gross gains and losses for the nine months ended September 30, 2020 and 2019.

	Nine months eneded September 30,
	2020		2019
Proceeds from sales of securities	$	59,697	$	748
Gross gains on sales		3,284		23
Gross losses on sales		(51)		—

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

The following table presents total loans by portfolio segment and class of loan as of September 30, 2020 and December 31, 2019:

	September 30,		December 31,
	2020		2019
Commercial/industrial	$	547,750	$	302,538
Commercial real estate - owner occupied		530,476		459,782
Commercial real estate - non-owner occupied		426,463		353,723
Construction and development		150,139		132,296
Residential 1‑4 family		488,925		448,605
Consumer		29,684		29,462
Other		25,552		10,440
Subtotals		2,198,989		1,736,846
ALL		(16,318)		(11,396)
Loans, net of ALL		2,182,671		1,725,450
Deferred loan fees and costs		(5,761)		(503)
Loans, net	$	2,176,910	$	1,724,947

14

The ALL by loan type as of September 30, 2020 and 2019 is summarized as follows:

			Commercial		Commercial
			Real Estate -		Real Estate  -		Construction
	Commercial /		Owner		Non - Owner		and		Residential
	Industrial		Occupied		Occupied		Development		1-4 Family		Consumer		Other		Total
ALL - January 1, 2020	$	2,320	$	4,587	$	1,578	$	548	$	2,169	$	141	$	53	$	11,396
Charge-offs		(631)		(773)		—		—		(63)		(33)		(19)		(1,519)
Recoveries		2		873		40		—		40		—		11		966
Provision		138		995		2,276		474		1,259		86		247		5,475
ALL - September 30, 2020		1,829		5,682		3,894		1,022		3,405		194		292		16,318
ALL ending balance individually evaluated for impairment		14		483		1,098		—		—		—		—		1,595
ALL ending balance collectively evaluated for impairment	$	1,815	$	5,199	$	2,796	$	1,022	$	3,405	$	194	$	292	$	14,723
Loans outstanding - September 30, 2020	$	547,750	$	530,476	$	426,463	$	150,139	$	488,925	$	29,684	$	25,552	$	2,198,989
Loans ending balance individually evaluated for impairment		533		7,334		7,904		—		—		—		—		15,771
Loans ending balance collectively evaluated for impairment	$	547,217	$	523,142	$	418,559	$	150,139	$	488,925	$	29,684	$	25,552	$	2,183,218

15

			Commercial		Commercial
			Real Estate  -		Real Estate  -		Construction
	Commercial /		Owner		Non - Owner		and		Residential
	Industrial		Occupied		Occupied		Development		1-4 Family		Consumer		Other		Total
ALL - January 1, 2019	$	3,021	$	3,750	$	2,100	$	725	$	2,472	$	148	$	32	$	12,248
Charge-offs		(1,229)		(4,974)		(55)		—		(83)		(75)		(29)		(6,445)
Recoveries		3		4		60		—		126		4		6		203
Provision		507		4,360		(186)		(221)		(423)		70		18		4,125
ALL - September 30, 2019		2,302		3,140		1,919		504		2,092		147		27		10,131
ALL ending balance individually evaluated for impairment		—		—		—		—		—		—		—		—
ALL ending balance collectively evaluated for impairment	$	2,302	$	3,140	$	1,919	$	504	$	2,092	$	147	$	27	$	10,131
Loans outstanding -
September 30, 2019	$	310,536	$	467,030	$	337,558	$	118,055	$	443,906	$	31,665	$	5,985	$	1,714,735
Loans ending balance individually evaluated for impairment		—		—		—		—		—		—		—		—
Loans ending balance collectively evaluated for impairment	$	310,536	$	467,030	$	337,558	$	118,055	$	443,906	$	31,665	$	5,985	$	1,714,735

The Company’s past due loans as of September 30, 2020 is summarized as follows:

			90 Days
	30-89 Days		or more
	Past Due		Past Due
	Accruing		and Accruing		Non-Accrual		Total
Commercial/industrial	$	4	$	—	$	599	$	603
Commercial real estate - owner occupied		121		—		8,690		8,811
Commercial real estate - non-owner occupied		—		—		7,427		7,427
Construction and development		29		—		—		29
Residential 1‑4 family		318		72		1,092		1,482
Consumer		34		3		—		37
Other		—		—		—		—
	$	506	$	75	$	17,808	$	18,389

The Company’s past due loans as of December 31, 2019 is summarized as follows:

			90 Days
	30-89 Days		or more
	Past Due		Past Due
	Accruing		and Accruing		Non-Accrual		Total
Commercial/industrial	$	235	$	—	$	1,923	$	2,158
Commercial real estate - owner occupied		1,124		—		2,513		3,637
Commercial real estate - non-owner occupied		—		—		75		75
Construction and development		768		11		—		779
Residential 1‑4 family		805		307		550		1,662
Consumer		70		36		32		138
Other		—		—		—		—
	$	3,002	$	354	$	5,093	$	8,449

16

The Company utilizes a numerical risk rating system for commercial relationships. All other types of relationships (ex: residential, consumer, other) are assigned a “Pass” rating, unless they have fallen 90 days past due or more, at which time they receive a rating of 7. The Company uses split ratings for government guaranties on loans. The portion of a loan that is supported by a government guaranty is included with other Pass credits.

The determination of a commercial loan risk rating begins with completion of a matrix, which assigns scores based on the strength of the borrower’s debt service coverage, collateral coverage, balance sheet leverage, industry outlook, and customer concentration. A weighted average is taken of these individual scores to arrive at the overall rating. This rating is subject to adjustment by the loan officer based on facts and circumstances pertaining to the borrower. Risk ratings are subject to independent review.

Commercial borrowers with ratings between 1 and 5 are considered Pass credits, with 1 being most acceptable and 5 being just above the minimum level of acceptance.

Commercial borrowers rated 6 have potential weaknesses which may jeopardize repayment ability.

Borrowers rated 7 have a well-defined weakness or weaknesses such as the inability to demonstrate significant cash flow for debt service based on analysis of the company’s financial information. These loans remain on accrual status provided full collection of principal and interest is reasonably expected. Otherwise they are deemed impaired and placed on nonaccrual status. Borrowers rated 8 are the same as 7 rated credits with one exception: collection or liquidation in full is not probable.

The breakdown of loans by risk rating as of September 30, 2020 is as follows:

	Pass (1-5)		6		7		8		Total
Commercial/industrial	$	543,008	$	668	$	4,074	$	—	$	547,750
Commercial real estate - owner occupied		496,026		4,467		29,983		—		530,476
Commercial real estate - non-owner occupied		415,970		—		10,493		—		426,463
Construction and development		149,999		—		140		—		150,139
Residential 1‑4 family		486,462		604		1,859		—		488,925
Consumer		29,684		—		—		—		29,684
Other		25,552		—		—		—		25,552
	$	2,146,701	$	5,739	$	46,549	$	—	$	2,198,989

The breakdown of loans by risk rating as of December 31, 2019 is as follows:

	Pass (1-5)		6		7		8		Total
Commercial/industrial	$	290,180	$	5,329	$	7,029	$	—	$	302,538
Commercial real estate - owner occupied		422,336		5,603		31,843		—		459,782
Commercial real estate - non-owner occupied		344,278		8,774		671		—		353,723
Construction and development		132,266		—		30		—		132,296
Residential 1‑4 family		447,630		256		719		—		448,605
Consumer		29,430		—		32		—		29,462
Other		10,440		—		—		—		10,440
	$	1,676,560	$	19,962	$	40,324	$	—	$	1,736,846

The ALL represents management’s estimate of probable and inherent credit losses in the loan portfolio. Estimating the amount of the ALL requires the exercise of significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans, estimated losses on pools of homogenous loans based on historical loss experience, and consideration of other qualitative factors such as current economic trends and conditions, all of which may be susceptible to significant change. The loan portfolio also represents the largest asset on the consolidated balance sheets. Loan losses are charged off against the ALL, while recoveries of amounts previously charged off are credited to the ALL. A provision for loan losses is charged to operations based on management’s periodic evaluation of the factors previously mentioned, as well as other pertinent factors.

17

The ALL consists of specific reserves for certain individually evaluated impaired loans and general reserves for collectively evaluated non-impaired loans. Specific reserves reflect estimated losses on impaired loans from management’s analyses developed through specific credit allocations. The specific reserves are based on regular analyses of impaired, non-homogenous loans greater than $250,000. These analyses involve a high degree of judgment in estimating the amount of loss associated with specific loans, including estimating the amount and timing of future cash flows and collateral values. The general reserve is based in part on the Bank’s historical loss experience which is updated quarterly. The general reserve portion of the ALL also includes consideration of certain qualitative factors such as 1) changes in lending policies and/or underwriting practices, 2) national and local economic conditions, 3) changes in portfolio volume and nature, 4) experience, ability and depth of lending management and other relevant staff, 5) levels of and trends in past-due and nonaccrual loans and quality, 6) changes in loan review and oversight, 7) impact and effects of concentrations and 8) other issues deemed relevant.

There are many factors affecting ALL; some are quantitative while others require qualitative judgment. The process for determining the ALL (which management believes adequately considers potential factors which might possibly result in credit losses) includes subjective elements and, therefore, may be susceptible to significant change. To the extent actual outcomes differ from management estimates, additional provisions for loan losses could be required that could adversely affect the Company’s earnings or financial position in future periods. Allocations of the ALL may be made for specific loans but the entire ALL is available for any loan that, in management’s judgment, should be charged off or for which an actual loss is realized. As an integral part of their examination process, various regulatory agencies review the ALL as well. Such agencies may require that changes in the ALL be recognized when such regulators’ credit evaluations differ from those of management based on information available to the regulators at the time of their examinations.

A summary of impaired loans individually evaluated as of September 30, 2020 is as follows:

			Commercial		Commercial
			Real Estate -		Real Estate -		Construction
	Commercial /		Owner		Non - Owner		and		Residential
	Industrial		Occupied		Occupied		Development		1-4 Family		Consumer		Other		Unallocated		Total
With an allowance recorded:
Recorded investment	$	595	$	3,625	$	7,892	$	—	$	—	$	—	$	—	$	—	$	12,112
Unpaid principal balance		595		3,625		7,892		—		—		—		—		—		12,112
Related allowance		14		483		1,098		—		—		—		—		—		1,595
With no related allowance recorded:
Recorded investment	$	—	$	4,045	$	—	$	—	$	—	$	—	$	—	$	—	$	4,045
Unpaid principal balance		—		4,052		—		—		—		—		—		—		4,052
Related allowance		—		—		—		—		—		—		—		—		—
Total:
Recorded investment	$	595	$	7,670	$	7,892	$	—	$	—	$	—	$	—	$	—	$	16,157
Unpaid principal balance		595		7,677		7,892		—		—		—		—		—		16,164
Related allowance		14		483		1,098		—		—		—		—		—		1,595
Average recorded investment	$	1,237	$	5,784	$		$	—	$	—	$	—	$	—	$	—	$	10,967

18

A summary of impaired loans individually evaluated as of December 31, 2019 is as follows:

			Commercial		Commercial
			Real Estate -		Real Estate -		Construction
	Commercial /		Owner		Non - Owner		and		Residential
	Industrial		Occupied		Occupied		Development		1‑4 Family		Consumer		Other		Total
With an allowance recorded:
Recorded investment	$	1,878	$	960	$	—	$	—	$	—	$	—	$	—	$	2,838
Unpaid principal balance		1,878		960		—		—		—		—		—		2,838
Related allowance		760		80		—		—		—		—		—		840
With no related allowance recorded:
Recorded investment	$	—	$	2,938	$	—	$	—	$	—	$	—	$	—	$	2,938
Unpaid principal balance		—		2,938		—		—		—		—		—		2,938
Related allowance		—		—		—		—		—		—		—		—
Total:
Recorded investment	$	1,878	$	3,898	$	—	$	—	$	—	$	—	$	—	$	5,776
Unpaid principal balance		1,878		3,898		—		—		—		—		—		5,776
Related allowance		760		80		—		—		—		—		—		840
Average recorded investment	$	3,773	$	5,847	$	—	$	—	$	351	$	—	$	—	$	9,971

Interest recognized while these loans were impaired is considered immaterial to the consolidated financial statements for the nine months ended September 30, 2020 and 2019.

The following table presents loans acquired with deteriorated credit quality as of September 30, 2020 and December 31, 2019. No loans in this table had a related allowance at either date, and therefore, the below disclosures were not expanded to include loans with and without a related allowance.

	September 30, 2020				December 31, 2019
	Recorded		Unpaid Principal		Recorded		Unpaid Principal
	Investment		Balance		Investment		Balance
Commercial & Industrial	$	1,191	$	1,365	$	191	$	212
Commercial real estate - owner occupied		3,986		4,847		518		785
Commercial real estate - non-owner occupied		1,241		1,405		—		—
Construction and development		95		106		213		237
Residential 1‑4 family		881		1,182		901		1,031
Consumer		—		—		—		—
Other		—		—		—		—
	$	7,394	$	8,905	$	1,823	$	2,265

Due to the nature of these loan relationships, prepayment expectations have not been considered in the determination of future cash flows. Management regularly monitors these loan relationships, and if information becomes available that indicates expected cash flows will differ from initial expectations, it may necessitate reclassification between accretable and non-accretable components of the original discount calculation.

The following table represents the change in the accretable and non-accretable components of discounts on loans acquired with deteriorated credit quality for the nine months ended September 30, 2020, and year ended December 31, 2019:

	September 30, 2020				December 31, 2019
	Accretable		Non-accretable		Accretable		Non-accretable
	discount		discount		discount		discount
Balance at beginning of period	$	222	$	220	$	318	$	745
Acquired balance, net		1,064		727		44		333
Reclassifications between accretable and non-accretable		696		(696)		858		(858)
Accretion to loan interest income		(722)		—		(998)		—
Balance at end of period	$	1,260	$	251	$	222	$	220

A troubled debt restructuring (“TDR”) includes a loan modification where a borrower is experiencing financial difficulty and we grant a concession to that borrower that we would not otherwise consider except for the borrower’s financial difficulties. These concessions

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may include modifications of the terms of the debt such as deferral of payments, extension of maturity, reduction of principal balance, reduction of the stated interest rate other than normal market rate adjustments, or a combination of these concessions. Debt may be bifurcated with separate terms for each tranche of the restructured debt. Restructuring a loan in lieu of aggressively enforcing the collection of the loan may benefit the Company by increasing the ultimate probability of collection.

A TDR may be either on accrual or nonaccrual status based upon the performance of the borrower and management’s assessment of collectability. If a TDR is placed on nonaccrual status, which could occur based on the same criteria as non-TDR loans, it remains there until a sufficient period of performance under the restructured terms has occurred at which it returned to accrual status, generally 6 months.

As of September 30, 2020 and December 31, 2019 the Company had specific reserves of $0 and $80,000 for TDRs, respectively, and none of them have subsequently defaulted.

During the first nine months of 2020 the Bank has experienced an increase in customer requests for loan modifications and payment deferrals as a result of impacts of the COVID-19 pandemic. The Coronavirus Aid, Relief, and Economic Security (CARES) act, signed into law on March 27, 2020, allowed financial institutions the option to exempt loan modifications related to the COVID-19 pandemic that would otherwise be categorized as a TDR from consideration for TDR treatment. Modifications in the scope of the exemption include forbearance agreements, interest-rate modifications, repayment plan changes and any other similar arrangements that would delay payments of principal or interest. This relief is allowable on modifications on loans which were not more than 30 days past due as of December 31, 2019, and that occur after March 1, 2020, and before the earlier of 60 days after the date on which the national emergency related to the COVID-19 outbreak is terminated.

The following table presents the TDRs during the nine months ended September 30, 2020. There were no TDRs during the same period in 2019.

			Pre-Modification		Post-Modification
			Outstanding		Outstanding
	Number of		Recorded		Recorded
	Contracts		Investment		Investment
Commerical Real Estate	1	$	115	$	115

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NOTE 6 – MORTGAGE SERVICING RIGHTS

Loans serviced for others are not included in the accompanying consolidated balance sheets. MSRs are recognized as separate assets when loans sold in the secondary market are sold with servicing retained. The Company utilizes a third-party consulting firm to determine an accurate assessment of the MSRs fair value. The third-party firm collects relevant data points from numerous sources. Some of these data points relate directly to the pricing level or relative value of the mortgage servicing while other data points relate to the assumptions used to derive fair value. In addition, the valuation evaluates specific collateral types, and current and historical performance of the collateral in question. The valuation process focuses on the non-distressed secondary servicing market, common industry practices and current regulatory standards. The primary determinants of the fair value of MSRs are servicing fee percentage, ancillary income, expected loan life or prepayment speeds, discount rates, costs to service, delinquency rates, foreclosure losses and recourse obligations. The valuation data also contains interest rate shock analyses for monitoring fair value changes in differing interest rate environments.

Following is an analysis of activity in the MSR asset:

	Nine Months Ended		Year Ended
	September 30, 2020		December 31, 2019
Fair value at beginning of year	$	4,287	$	3,085
MSR asset acquired		384		1,859
Servicing asset additions		980		740
Loan payments and payoffs		(1,132)		(821)
Changes in valuation inputs and assumptions used in the valuation model		(393)		(576)
Amount recognized through earnings		(545)		(657)
Fair value at end of period	$	4,126	$	4,287
Unpaid principal balance of loans serviced for others	$	628,204	$	554,374
MSR as a percent of loans serviced for others		0.66		0.77

The primary economic assumptions utilized by the Company in measuring the value of MSRs were constant prepayment speeds of 17.5 and 12.1 months as of September 30, 2020 and December 31, 2019, respectively, and discount rates of 10.1% and 10.0% as of each period end.

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NOTE 7 – NOTES PAYABLE

From time to time the Company utilizes FHLB advances to fund liquidity. At September 30, 2020 and December, 31, 2019, the Company had outstanding balances borrowed from the FHLB of $25.0 million and $39.8 million, respectively. The advances, rate, and maturities of FHLB advances were as follows:

					September 30,		December 31,
	Maturity	Rate			2020		2019
				(dollars in thousands)
Fixed rate, fixed term	01/27/2020	1.42	%	$	—	$	1,000
Fixed rate, fixed term	11/02/2020	1.28	%		400		400
Fixed rate, fixed term	11/02/2020	2.83	%		500		—
Fixed rate, fixed term	12/08/2020	2.76	%		500		—
Fixed rate, fixed term	12/28/2020	2.07	%		250		—
Fixed rate, fixed term	01/22/2021	1.67	%		2,000		2,000
Fixed rate, fixed term	01/25/2021	2.37	%		5,000		5,000
Fixed rate, fixed term	01/27/2021	1.60	%		1,000		1,000
Fixed rate, fixed term	03/29/2021	0.00	%		2,377		—
Fixed rate, fixed term	05/03/2021	2.87	%		500		—
Fixed rate, fixed term	05/03/2021	0.00	%		4,000		—
Fixed rate, fixed term	05/03/2021	0.00	%		4,000		—
Fixed rate, fixed term	06/28/2021	2.00	%		250		—
Fixed rate, fixed term	11/03/2021	1.46	%		400		400
Fixed rate, fixed term	12/08/2021	2.87	%		500		—
Fixed rate, fixed term	12/27/2021	1.99	%		250		—
Fixed rate, fixed term	01/24/2022	2.51	%		250		—
Fixed rate, fixed term	05/02/2022	2.98	%		500		—
Fixed rate, fixed term	06/08/2022	2.92	%		500		—
Fixed rate, fixed term	08/08/2022	1.76	%		—		10,000
Fixed rate, fixed term	11/21/2022	3.02	%		600		—
Fixed rate, fixed term	08/08/2023	1.74	%		—		10,000
Fixed rate, fixed term	11/21/2023	3.06	%		600		—
Fixed rate, fixed term	08/08/2024	1.75	%		—		10,000
Fixed rate, fixed term	01/04/2027	0.00	%		103		—
Fixed rate, fixed term	04/22/2030	0.00	%		508		—
					24,988		39,800
Adjustment due to purchase accounting					157		(10)
				$	25,145	$	39,790

Future maturities of borrowings were as follows:

	September 30,		December 31,
	2020		2019
1 year or less	$	20,777	$	1,400
1 to 2 years		2,400		8,400
2 to 3 years		600		10,000
3 to 4 years		600		10,000
4 to 5 years		—		10,000
Over 5 years		611		—
	$	24,988	$	39,800

The Company maintained a $5.0 million line of credit with a commercial bank. At December 31, 2019 the Company had outstanding balances on this note of $5.0 million. The note required monthly payments of interest at a variable rate, and was due in full on May 25, 2021. This agreement was terminated on July 22, 2020.

The Company maintained a $5.0 million line of credit with another commercial bank. At December 31, 2019 the Company had outstanding balances on this note of $5.0 million. This note was not renewed when it matured on May 19, 2020.

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The Company maintains a $7.5 million line of credit with another commercial bank, which was entered into on May 15, 2020. There were no outstanding balances on this note at September 30, 2020. Any future borrowings will require monthly payments of interest at a variable rate, and will be due in full on May 15, 2021.

NOTE 8 – SUBORDINATED NOTES

During September 2017, the Company entered into subordinated note agreements with three separate commercial banks. The Company had outstanding balances of $11.5 million under these agreements as of September 30, 2020 and December 31, 2019. These notes were all issued with 10-year maturities, carry interest at a variable rate payable quarterly, are callable on or after the sixth anniversary of the issuance dates, and qualify for Tier 2 capital for regulatory purposes.

As a part of the Partnership acquisition, further detailed in Note 2, the Company assumed a subordinated note agreement with outstanding balance of $7.0 million, and an initial fair market value adjustment of $0.2 million ($12,000 and $122,000 as of September 30, 2020 and December 31, 2019, respectively). The total amount outstanding was $7.0 million and $7.1 million at September 30, 2020 and December 31, 2019, respectively. The note was set to mature on October 1, 2025, required quarterly interest-only payments at a rate of 7.1% prior to maturity, and could be prepaid without penalty on or after October 1, 2020, and qualified for Tier 2 capital for regulatory purposes.

This note was prepaid in full on October 1, 2020.

On July 22, 2020, the Company entered into subordinated note agreements with two separate commercial banks. The Company has through December 31, 2020, to borrow funds up to a maximum availability of $6.0 million under each agreement, or $12.0 million total. These notes were issued with 10-year maturities, carry interest at a fixed rate of 5.0% through June 30, 2025, and at a variable rate thereafter, payable quarterly. These notes are callable on or after January 1, 2026 and qualify for Tier 2 capital for regulatory purposes. The Company had outstanding balances of $2.0 million under these agreements at September 30, 2020.

NOTE 9 – REGULATORY MATTERS

Banks and certain bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action.

The Economic Growth, Regulatory Relief, and Consumer Protection Act, signed into law in May 2018 raised the threshold for those bank holding companies subject to the Federal Reserve’s Small Bank Holding Company Policy Statement to $3 billion. As a result, as of the effective date of that change in 2018, the Company was no longer required to comply with the risk-based capital rules applicable to the Bank. The Federal Reserve may, however, require smaller bank holding companies to maintain certain minimum capital levels, depending upon general economic conditions and a bank holding company’s particular condition, risk profile and growth plans.

Under regulatory guidance for non-advanced approaches institutions, the Bank is required to maintain minimum amounts and ratios of common equity Tier I capital to risk-weighted assets. Additionally, under Basel III rules, the decision was made to opt-out of including accumulated other comprehensive income in regulatory capital. As of September 30, 2020 and December 31, 2019, the Bank met all capital adequacy requirements to which they are subject.

Beginning in 2016, an additional conservation buffer was added to the minimum requirements for capital adequacy purposes, subject to a three year phase-in period. The capital conservation buffer was fully phased in January 1, 2019 at 2.50%.

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

													To Be Well
					For Capital				Minimum Capital				Capitalized Under
					Adequacy				Adeqaucy with				Prompt Corrective
	Actual				Purposes				Capital Buffer				Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
September 30, 2020
Total capital (to risk-weighted assets):
Corporation	$	255,984	11.89	%		NA	NA			NA	NA			NA	NA
Bank	$	252,284	11.72	%	$	172,179	8.00	%	$	225,985	10.50	%	$	215,224	10.00	%
Tier 1 capital (to risk-weighted assets):
Corporation	$	219,154	10.18	%		NA	NA			NA	NA			NA	NA
Bank	$	235,966	10.96	%	$	129,135	6.00	%	$	182,941	8.50	%	$	172,179	8.00	%
Common Equity Tier 1 capital (to risk-weighted assets):
Corporation	$	219,154	10.18	%		NA	NA			NA	NA			NA	NA
Bank	$	235,966	10.96	%	$	96,851	4.50	%	$	150,657	7.00	%	$	139,896	6.50	%
Tier 1 capital (to average assets):
Corporation	$	219,154	8.54	%		NA	NA			NA	NA			NA	NA
Bank	$	235,966	9.25	%	$	102,019	4.00	%	$	102,019	4.00	%	$	127,524	5.00	%
December 31, 2019
Total capital (to risk-weighted assets):
Corporation	$	208,900	10.35	%		NA	NA			NA	NA			NA	NA
Bank	$	215,347	10.69	%	$	161,163	8.00	%	$	211,527	10.50	%	$	201,454	10.00	%
Tier 1 capital (to risk-weighted assets):
Corporation	$	178,882	8.86	%		NA	NA			NA	NA			NA	NA
Bank	$	203,951	10.12	%	$	120,872	6.00	%	$	171,236	8.50	%	$	161,163	8.00	%
Common Equity Tier 1 capital (to risk-weighted assets):
Corporation	$	178,882	8.86	%		NA	NA			NA	NA			NA	NA
Bank	$	203,951	10.12	%	$	90,654	4.50	%	$	141,018	7.00	%	$	130,945	6.50	%
Tier 1 capital (to average assets):
Corporation	$	178,882	8.46	%		NA	NA			NA	NA			NA	NA
Bank	$	203,951	9.67	%	$	84,390	4.00	%		84,390	4.00	%	$	105,487	5.00	%

NOTE 10 – COMMITMENTS AND CONTINGENCIES

The Company enters into commitments to originate loans whereby the interest rate on the loan is determined prior to funding (rate-lock commitments). Rate-lock commitments on mortgage loans that are intended to be sold are considered to be derivatives. Accordingly, such commitments, along with any related fees received from potential borrowers, are recorded at fair value in derivative assets or liabilities, with changes in fair value recorded in the net gain or loss on sale of mortgage loans. Fair value is based on fees currently charged to enter into similar agreements and for fixed rate commitments also considers the difference between current levels of interest rates and committed rates. The notional amount of rate-lock commitments at September 30, 2020 and December 31, 2019 was approximately $73.0 million and $14.8 million, respectively.

The Company is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets.

The Company’s exposure to credit loss is represented by the contractual or notional amount of these commitments. The Company follows the same credit policies in making commitments as it does for on-balance-sheet instruments. Since some of the commitments are expected to expire without being drawn upon and some of the commitments may not be drawn upon to the total extent of the commitment, the notional amount of these commitments does not necessarily represent future cash requirements.

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The following commitments were outstanding:

	Notional Amount
	September 30, 2020		December 31, 2019
Commitments to extend credit:
Fixed	$	68,438	$	49,741
Variable		380,615		333,468
Credit card arrangements		9,973		11,148
Letters of credit		7,794		17,121

NOTE 11 – FAIR VALUE MEASUREMENTS

Accounting guidance establishes a fair value hierarchy to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value.

Level 1:        Quoted prices (unadjusted) or identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2:        Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3:        Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

Information regarding the fair value of assets measured at fair value on a recurring basis is as follows:

	Instruments		Markets		Other		Significant
	Measured		for Identical		Observable		Unobservable
	At Fair		Assets		Inputs		Inputs
	Value		(Level 1)		(Level 2)		(Level 3)
September 30, 2020
Assets
Securities available for sale
Obligations of U.S.Government sponsored agencies	$	18,819	$	—	$	18,819	$	—
Obligations of states and political subdivisions		73,517		—		73,517		—
Mortgage-backed securities		50,804		—		50,804		—
Corporate notes		27,832		—		27,832		—
Certificates of deposit		2,362		—		2,362		—
Mortgage servicing rights		4,126		—		4,126		—
December 31, 2019
Assets
Securities available for sale
Obligations of U.S. Government sponsored agencies	$	12,060	$	—	$	12,060	$	—
Obligations of states and political subdivisions		54,771		—		54,771		—
Mortgage-backed securities		51,720		—		51,720		—
Corporate notes		62,955		—		62,955		—
Mortgage servicing rights		4,287		—		4,287		—

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There were no assets measured on a recurring basis using significant unobservable inputs (Level 3).

	September 30, 2020		December 31, 2019
Total securities at beginning of period	$	—	$	400
Included in earnings		—		—
Included in other comprehensive income		—		—
Purchases, issuance, and settlements		—		(400)
Transfer in and/or out of level 3		—		—
Total securities at end of period	$	—	$	—

Information regarding the fair value of assets measured at fair value on a non-recurring basis is as follows:

			Quoted Prices
			In Active		Significant
	Assets		Markets		Other		Significant
	Measured		for Identical		Observable		Unobservable
	At Fair		Assets		Inputs		Inputs
	Value		(Level 1)		(Level 2)		(Level 3)
September 30, 2020
OREO	$	3,264	$	—	$	—	$	3,264
Impaired Loans, net of impairment reserve		24,984		—		—		24,984
	$	28,248	$	—	$	—	$	28,248
December 31, 2019
OREO	$	6,888	$	—	$	—	$	6,888
Impaired Loans, net of impairment reserve		6,847		—		—		6,847
	$	13,735	$	—	$	—	$	13,735

The following is a description of the valuation methodologies used by the Company for the items noted in the table above, including the general classification of such instruments in the fair value hierarchy. For individually evaluated impaired loans, the amount of impairment is based upon the present value of expected future cash flows discounted at the loan’s effective interest rate, the estimated fair value of the underlying collateral for collateral-dependent loans, or the estimated liquidity of the note. For OREO, the fair value is based upon the estimated fair value of the underlying collateral adjusted for the expected costs to sell. The following table shows significant unobservable inputs used in the fair value measurement of Level 3 assets:

					Weighted
		Unobservable	Range of		Average
	Valuation Technique	Inputs	Discounts		Discount
As of September 30, 2020
Other real estate owned	Third party appraisals, sales contracts or brokered price options	Collateral discounts and estimated costs to sell	0% - 100	%	37.1	%
Impaired loans	Third party appraisals and discounted cash flows	Collateral discounts and discount rates	0% - 100	%	5.7	%
As of December 31, 2019
Other real estate owned	Third party appraisals, sales contracts or brokered price options	Collateral discounts and estimated costs to sell	0% - 61	%	33.5	%
Impaired loans	Third party appraisals and discounted cash flows	Collateral discounts and discount rates	0% - 100	%	6.1	%

The following methods and assumptions were used by the Company to estimate fair value of financial instruments.

Cash and cash equivalents — Fair value approximates the carrying amount.

Securities — The fair value measurement is obtained from an independent pricing service and is based on recent sales of similar securities and other observable market data.

Loans held for sale — Fair value is based on commitments on hand from investors or prevailing market prices.

Loans — Fair value of variable rate loans that reprice frequently are based on carrying value. Fair value of other loans is estimated by discounting future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings. Fair

26

value of impaired and other nonperforming loans are estimated using discounted expected future cash flows or the fair value of the underlying collateral, if applicable.

Other investments — The carrying amount reported in the consolidated balance sheets for other investments approximates the fair value of these assets.

Mortgage servicing rights — Fair values were determined using the present value of future cash flows.

Cash value of life insurance — The carrying amount approximates its fair value.

Deposits — Fair value of deposits with no stated maturity, such as demand deposits, savings, and money market accounts, by definition, is the amount payable on demand on the reporting date. Fair value of fixed-rate time deposits is estimated using discounted cash flows applying interest rates currently offered on similar time deposits.

Securities sold under repurchase agreements — The fair value of securities sold under repurchase agreements with variable rates or due on demand is the amount payable at the reporting date. The fair value of securities sold under repurchase agreements with fixed terms is estimated using discounted cash flows with discount rates at interest rates currently offered for securities sold under repurchase agreements of similar remaining values.

Notes payable and subordinated notes — Rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate fair value of existing debt. Fair value of borrowings is estimated by discounting future cash flows using the current rates at which similar borrowings would be made. Fair value of borrowed funds due on demand is the amount payable at the reporting date.

Off-balance-sheet instruments — Fair value is based on quoted market prices of similar financial instruments where available. If a quoted market price is not available, fair value is based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreement and the company’s credit standing. Since this amount is immaterial, no amounts for fair value are presented.

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The carrying value and estimated fair value of financial instruments at September 30, 2020 and December 31, 2019 follows:

			Fair Value
	Carrying
September 30, 2020	amount		Level 1		Level 2		Level 3		Total
Financial assets:
Cash and cash equivalents	$	80,752	$	80,752	$	—	$	—	$	80,752
Securities held to maturity		6,670		—		6,691		—		6,691
Securities available for sale		173,334		—		173,334		—		173,334
Loans held for sale		659		—		—		659		659
Loans, net		2,176,910		—		—		2,161,367		2,161,367
Other investments, at cost		8,896		—		—		8,896		8,896
Mortgage servicing rights		4,126		—		4,126		—		4,126
Cash surrender value of life insurance		31,197		31,197		—		—		31,197
Deposits	$	2,271,040	$	—	$	—	$	2,255,945	$	2,255,945
Securities sold under repurchase agreements		23,894		—		23,894		—		23,894
Notes payable		25,145		—		25,145		—		25,145
Subordinated notes		20,512		—		20,512		—		20,512

			Fair Value
	Carrying
December 31, 2019	amount		Level 1		Level 2		Level 3		Total
Financial assets:
Cash and cash equivalents	$	86,452	$	86,452	$	—	$	—	$	86,452
Securities held to maturity		43,734		—		44,803		—		44,803
Securities available for sale		181,506		—		181,506		—		181,506
Loans held for sale		587		—		—		587		587
Loans, net		1,724,947		—		—		1,723,542		1,723,542
Other investments, at cost		4,933		—		—		4,933		4,933
Mortgage servicing rights		4,287		—		4,287		—		4,287
Cash surrender value of life insurance		24,945		24,945		—		—		24,945
Financial liabilities:
Deposits	$	1,843,311	$	—	$	—	$	1,783,638	$	1,783,638
Securities sold under repurchase agreements		45,865		—		45,865		—		45,865
Notes payable		49,790		—		49,790		—		49,790
Subordinated notes		18,622		—		18,622		—		18,622

The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. Consequently, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

Fair value estimates are made at a specific point in time based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters that could affect the estimates. Fair value estimates are based on existing on- and off-balance-sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments.

Deposits with no stated maturities are defined as having a fair value equivalent to the amount payable on demand. This prohibits adjusting fair value derived from retaining those deposits for an expected future period of time. This component, commonly referred

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to as a deposit base intangible, is neither considered in the above amounts nor is it recorded as an intangible asset on the consolidated balance sheet. Significant assets and liabilities that are not considered financial assets and liabilities include premises and equipment. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.

NOTE 12 – STOCK BASED COMPENSATION

The Company has made restricted share grants pursuant to the Bank First Corporation 2011 Equity Plan and the Bank First Corporation 2020 Equity Plan, which replaced the 2011 Plan. The purpose of the Plan is to provide financial incentives for selected employees and for the non-employee Directors of the Company, thereby promoting the long-term growth and financial success of the Company. The Company stock to be offered under the Plan pursuant to Stock Appreciation Rights, performance unit awards, and restricted stock and unrestricted Company stock awards must be Company stock previously issued and outstanding and reacquired by the Company. The number of shares of Company stock that may be issued pursuant to awards under the 2020 Plan shall not exceed, in the aggregate, 700,000. As of September 30, 2020, 399 shares of Company stock have been awarded under the 2020 Plan. Compensation expense for restricted stock is based on the fair value of the awards of Bank First Corporation common stock at the time of grant. The value of restricted stock grants that are expected to vest is amortized into expense over the vesting periods. For the nine months ended September 30, 2020 and 2019, compensation expense of $0.8 million and $0.5 million, respectively, was recognized related to restricted stock awards.

As of September 30, 2020, there was $2.3 million of unrecognized compensation cost related to non-vested restricted stock awards granted under the plan. That cost is expected to be recognized over a weighted average period of 2.84 years. The aggregate grant date fair value of restricted stock awards that vested during the nine months ended September 30, 2020, was approximately $0.7 million.

	For the nine months ended September 30,			For the nine months ended September 30,
	2020			2019
		Weighted-			Weighted-
		Average Grant-			Average Grant-
	Shares	Date Fair Value		Shares	Date Fair Value
Restricted Stock
Outstanding at beginning of year	50,676	$	43.03	51,776	$	34.27
Granted	27,466		60.76	17,015		56.62
Vested	(18,623)		37.28	(17,212)		30.54
Forfeited or cancelled	(2,344)		51.27	(903)		41.01
Outstanding at end of year	57,175	$	53.08	50,676	$	43.03

NOTE 13 – LEASES

Accounting standards require lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements, establishing a right-of-use (“ROU”) model that requires a lessee to recognize a ROU lease asset and liability on the balance sheet for all leases with a term longer than 12 months. Leases are classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.

Lessee Leases

The Company’s lessee leases are operating leases, and consist of leased real estate for branches. Options to extend and renew leases are generally exercised under normal circumstances. Advance notification is required prior to termination, and any noticing period is often limited to the months prior to renewal. Rent escalations are generally specified by a payment schedule, or are subject to a defined formula. The Company also elected the practical expedient to not separate lease and non-lease components for all leases, the majority of which consist of real estate common area maintenance expenses. Generally, leases do not include guaranteed residual values, but instead typically specify that the leased premises are to be returned in satisfactory condition with the Company liable for damages.

For operating leases, the lease liability and ROU asset (before adjustments) are recorded at the present value of future lease payments. Accounting standards require the use of the lease interest rate; however, this rate is typically not known. As an alternative, the use of

29

an entity’s fully secured incremental borrowing rate is permitted. The Company is electing to utilize the Wall Street Journal Prime Rate on the date of lease commencement.

	Nine-month period ended
	September 30, 2020			September 30, 2019
Amortization of ROU Assets - Operating Leases	$	31		$	35
Interest on Lease Liabilities - Operating Leases		69			63
Operating Lease Cost (Cost resulting from lease payments)		100			98
ROU Assets - Operating Leases at beginning of period		1,699			—
New ROU Assets - Operating Leases		—			1,744
ROU Assets - Operating Leases at September 30,		1,668			1,708
Weighted Average Lease Term (Years) - Operating Leases		31.51			31.60
Weighted Average Discount Rate - Operating Leases		5.50	%		5.50	%

A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total operating lease liabilities as of September 30, 2020 is as follows:

	September 30, 2020
Operating lease payments due:
Within one year	$	141
After one but within two years		124
After two but within three years		86
After three but within four years		86
After four years but within five years		86
After five years		3,346
Total undiscounted cash flows		3,869
Discount on cash flows		(2,201)
Total operating lease liabilities	$	1,668

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ITEM 2. 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, 2019, 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 September 30, 2020.

FORWARD-LOOKING STATEMENTS

Certain statements contained in this report are forward-looking statements within the meaning of and subject to the safe harbor protections of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, without limitation, statements relating to the Company’s assets, business, cash flows, condition (financial or otherwise), credit quality, financial performance, liquidity, short and long-term performance goals, prospects, results of operations, strategic initiatives, potential future acquisitions, disposition and other growth opportunities. These statements, which are based upon certain assumptions and estimates and describe the Company’s future plans, results, strategies and expectations, can generally be identified by the use of the words and phrases “may,” “will,” “should,” “could,” “would,” “goal,” “plan,” “potential,” “estimate,” “project,” “believe,” “intend,” “anticipate,” “expect,” “target,” “aim,” “predict,” “continue,” “seek,” “projection” and other variations of such words and phrases and similar expressions. These forward-looking statements are not historical facts, and are based upon current expectations, estimates and projections about the Company’s industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond the Company’s control. The inclusion of these forward-looking statements should not be regarded as a representation by the Company or any other person that such expectations, estimates and projections will be achieved. Accordingly, the Company cautions investors that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict and that are beyond the Company’s control. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable as of the date of this report, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements. A number of factors could cause actual results to differ materially from those contemplated by the forward-looking statement in this report including, without limitation, the risks and other factors set forth in the Company’s Registration Statements under the captions “Cautionary Note Regarding Forward-Looking Statements” and “Risk factors.” Many of these factors are beyond the Company’s ability to control or predict. If one or more events related to these or other risks or uncertainties materialize, or if the Company’s underlying assumptions prove to be incorrect, actual results may differ materially from the forward-looking statements. Accordingly, investors should not place undue reliance on any such forward-looking statements. Any forward-looking statements speaks only as of the date of this report, and the Company does not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law. New risks and uncertainties may emerge from time to time, and it is not possible for the Company to predict their occurrence or how they will affect the Company.

We qualify all of our forward-looking statements by these cautionary statements.

OVERVIEW

Bank First Corporation is a Wisconsin corporation that was organized primarily to serve as the holding company for Bank First, N.A. Bank First, N.A., which was incorporated in 1894, is a nationally-chartered bank headquartered in Manitowoc, Wisconsin. 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 24 banking locations in Manitowoc, Outagamie, Brown, Winnebago, Sheboygan, Waupaca, Ozaukee, Monroe, Jefferson and Barron counties in Wisconsin. The Bank offers loan, deposit and treasury management products at each of its banking locations. On September 18, 2020, the Company announced its intention to sell its branch in Chetek, Wisconsin, in a transaction expected to close during the fourth quarter of 2020. This event will reduce the Bank's branch count by one and will remove Barron County from the list of counties in which the Bank has a presence.

31

As with most community banks, the Bank derives a significant portion of its income from interest received on loans and investments. The Bank’s primary source of funding is deposits, both interest-bearing and noninterest-bearing. In order to maximize the Bank’s net interest income, or the difference between the income on interest-earning assets and the expense of interest-bearing liabilities, the Bank must not only manage the volume of these balance sheet items, but also the yields earned on interest-earning assets and the rates paid on interest-bearing liabilities. To account for credit risk inherent in all loans, the Bank maintains an ALL 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. 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. In order to maintain its operations and bank locations, the Bank incurs various operating expenses which are further described within the “Results of Operations” later in this section.

The Bank is a 49.8% member of a data processing subsidiary, UFS, which provides core data processing, endpoint management cloud services, cyber security and digital banking solutions for over 50 Midwest banks. The Bank, through its 100% owned subsidiary TVG Holdings, Inc., also holds a 40% ownership interest in Ansay, an insurance agency providing clients throughout Wisconsin with insurance and risk management solutions (on October 1, 2019, TVG Holdings, Inc. purchased an additional 10% ownership interest in Ansay, increasing its ownership interest from 30% prior to that date). These unconsolidated subsidiary interests contribute noninterest income to the Bank through their underlying annual earnings.

On October 27, 2017, the Company consummated its merger with Waupaca pursuant to the Agreement and Plan of Bank Merger, dated as of May 11, 2017 and as amended on July 20, 2017, by and among the Company, BFNC Merger Sub, LLC, a wholly-owned subsidiary of the Company, and Waupaca, whereby Waupaca was merged with and into the Company, and First National Bank, Waupaca’s wholly owned banking subsidiary, was merged with and into the Bank. The system integration was completed, and six branches of First National Bank opened on October 30, 2017 as branches of the Bank, expanding the Bank’s presence into Barron and Waupaca counties.

On July 12, 2019, the Company consummated its merger with Partnership pursuant to the Agreement and Plan of Bank Merger, dated as of January 22, 2019 and as amended on April 30, 2019, by and among the Company and Partnership, whereby Partnership was merged with and into the Company, and Partnership Bank, Partnership’s wholly owned banking subsidiary, was merged with and into the Bank. The system integration was completed, and four branches of Partnership Bank opened on July 15, 2019 as branches of the bank, expanding the Bank’s presence into Ozaukee, Monroe and Jefferson counties.

On May 15, 2020, the Company consummated its merger with Timberwood pursuant to the Agreement and Plan of Bank Merger, dated as of November 20, 2019, by and among the Company and Timberwood, whereby Timberwood was merged with and into the Company, and Timberwood Bank, Timberwood’s wholly owned banking subsidiary, was merged with and into the Bank. The system integration was completed, and the sole branch of Timberwood Bank opened on May 18, 2020 as a branch of the bank, expanding the Bank’s presence in Monroe County.

During the first quarter of 2020, COVID-19 was declared a global pandemic by the World Health Organization and a National Public Health Emergency was declared in the United States. Shortly before the end of March 2020, in response to the COVID-19 pandemic, the government of Wisconsin and of most other states took preventative or protective actions, such as imposing restrictions on travel and business operations, advising or requiring individuals to limit or forego their time outside of their homes, and ordering temporary closures of businesses that have been deemed to be non-essential. These preventative and protective actions within Wisconsin were lifted during May 2020, but continued uncertainty remains as future actions may be warranted based on the progression of the pandemic.

The impact of the COVID-19 pandemic on the economy continues to evolve. The COVID-19 pandemic and its associated impacts on trade, travel, unemployment, consumer spending, and other economic activities has resulted in less economic activity and could have an adverse effect on our business, financial condition and results of operations. The ultimate extent of the impact of the COVID-19 pandemic on our business, financial condition and results of operations is currently uncertain and will depend on various developments and other factors, including, among others, the duration and scope of the pandemic, as well as governmental, regulatory and private sector responses to the pandemic, and the associated impacts on the economy, financial markets and our customers.

Our business, financial condition and results of operations generally rely upon the ability of our borrowers to repay their loans, the value of collateral underlying our secured loans, and demand for loans and other products and services we offer, which are highly dependent on the business environment in our primary markets. We have actively reached out to our customers to provide guidance, direction and assistance in these uncertain times. We also participated extensively in the Payroll Protection Program (“PPP”), under which we secured funding of approximately 1,875 loans totaling approximately $279.6 million.

32

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

The following tables present certain selected historical consolidated financial data as of the dates or for the period indicated:

	At or for the Three Months Ended															At or for the Nine Months Ended
(In thousands, except per share data)	9/30/2020			6/30/2020			3/31/2020			12/31/2019			9/30/2019			9/30/2020			9/30/2019
Results of Operations:
Interest income	$	25,928		$	24,382		$	23,296		$	23,795		$	25,489		$	73,606		$	65,370
Interest expense		3,003			3,586			4,653			5,015			5,176			11,242			14,483
Net interest income		22,925			20,796			18,643			18,780			20,313			62,364			50,887
Provision for loan losses		1,350			3,150			975			1,125			3,000			5,475			4,125
Net interest income after provision for loan losses		21,575			17,646			17,668			17,655			17,313			56,889			46,762
Noninterest income		5,115			7,764			3,897			3,211			3,145			16,776			9,421
Noninterest expense		12,202			14,438			12,741			11,182			12,087			39,381			31,578
Income before income tax expense		14,488			10,972			8,824			9,684			8,371			34,284			24,605
Income tax expense		3,534			2,676			1,558			2,225			1,712			7,768			5,370
Net income	$	10,954		$	8,296		$	7,266		$	7,459		$	6,659		$	26,516		$	19,235
Earnings per common share - basic	$	1.42		$	1.11		$	1.03		$	1.05		$	0.95		$	3.57		$	2.88
Earnings per common share - diluted		1.42			1.11			1.02			1.04			0.93			3.56			2.83
Common Shares:
Basic weighted average		7,673,572			7,395,199			7,028,690			7,084,728			6,985,767			7,367,793			6,679,481
Diluted weighted average		7,691,326			7,405,995			7,128,246			7,182,854			7,134,674			7,412,673			6,808,177
Outstanding		7,729,762			7,733,457			7,155,955			7,084,728			7,084,728			7,729,762			7,084,728
Noninterest income / noninterest expense:
Service charges	$	1,343		$	1,158		$	916		$	1,110		$	918		$	3,417		$	2,396
Income from Ansay		970			710			891			55			319			2,571			1,737
Income from UFS		720			850			897			842			768			2,467			2,093
Loan servicing income		538			226			462			(291)			374			1,226			841
Net gain on sales of mortgage loans		1,304			1,332			460			627			533			3,096			774
Net gain on sales of securities		—			3,233			—			611			—			3,233			257
Noninterest income from strategic alliances		16			16			17			21			26			49			74
Other noninterest income		224			239			254			236			207			717			1,249
Total noninterest income	$	5,115		$	7,764		$	3,897		$	3,211		$	3,145		$	16,776		$	9,421
Personnel expense	$	6,609		$	6,608		$	6,452		$	5,918		$	6,272		$	19,669		$	16,985
Occupancy, equipment and office		1,171			921			1,275			1,103			1,076			3,367			2,757
Data processing		1,463			1,334			1,199			1,478			1,158			3,996			3,031
Postage, stationery and supplies		219			277			172			141			135			668			450
Net (gain) loss on sales and valuations of other real estate owned		(32)			467			976			36			(10)			1,411			(109)
Advertising		41			69			55			88			53			165			180
Charitable contributions		110			127			123			69			225			360			497
Outside service fees		888			1,394			801			204			1,171			3,083			2,837
Amortization of intangibles		418			362			334			373			374			1,114			696
Penalty for early extinguishment of debt		—			1,323			—			—			—			1,323			—
Other noninterest expense		1,315			1,556			1,354			1,772			1,633			4,225			4,254
Total noninterest expense	$	12,202		$	14,438		$	12,741		$	11,182		$	12,087		$	39,381		$	31,578
Period-end balances:
Loans	$	2,193,228		$	2,115,023		$	1,765,242		$	1,736,343		$	1,714,213		$	2,193,228		$	1,714,213
Allowance for loan losses		16,318			16,071			12,967			11,396			10,131			16,318			10,131
Investment securities available-for-sale, at fair value		173,334			174,067			172,070			181,506			136,935			173,334			136,935
Investment securities held-to-maturity, at cost		6,670			9,579			43,732			43,734			42,605			6,670			42,605
Goodwill and other intangibles, net		65,110			65,559			52,789			53,122			54,153			65,110			54,153
Total assets		2,639,247			2,657,911			2,200,320			2,210,168			2,163,501			2,639,247			2,163,501
Deposits		2,271,040			2,263,145			1,847,209			1,843,311			1,838,080			2,271,040			1,838,080
Stockholders' equity		286,104			276,100			237,682			230,211			225,332			286,104			225,332
Book value per common share		37.01			35.70			33.21			32.49			31.81			37.01			31.81
Tangible book value per common share (1)		29.12			27.76			26.44			25.60			24.86			29.12			24.86
Average balances:
Loans	$	2,140,008		$	2,034,738		$	1,744,576		$	1,718,705		$	1,682,932		$	1,973,716		$	1,513,552
Interest-earning assets		2,423,168			2,329,097			2,011,382			1,976,420			1,923,451			2,255,165			1,752,714
Total assets		2,626,136			2,520,882			2,196,662			2,160,080			2,095,357			2,448,544			1,891,257
Deposits		2,260,065			2,130,100			1,843,039			1,835,430			1,786,373			2,078,580			1,633,726
Interest-bearing liabilities		1,636,606			1,589,127			1,476,814			1,373,320			1,310,757			1,567,768			1,198,799
Goodwill and other intangibles, net		61,276			53,836			48,606			49,071			42,373			54,633			25,612
Stockholders' equity		281,656			256,529			233,470			228,404			227,205			257,308			194,778
Financial ratios (2):
Return on average assets		1.67	%		1.32	%		1.32	%		1.37	%		1.27	%		1.44	%		1.36	%
Return on average common equity		15.56	%		12.94	%		12.45	%		12.96	%		11.72	%		13.74	%		13.17	%
Average equity to average assets		10.73	%		10.18	%		10.63	%		10.57	%		10.84	%		10.51	%		10.30	%
Stockholders' equity to assets		10.84	%		10.39	%		10.80	%		10.42	%		10.42	%		10.84	%		10.42	%
Tangible equity to tangible assets (1)		8.73	%		8.27	%		8.79	%		8.39	%		8.33	%		8.73	%		8.33	%
Loan yield		4.65	%		4.66	%		5.07	%		5.22	%		5.73	%		4.78	%		5.44	%
Earning asset yield		4.33	%		4.29	%		4.74	%		4.86	%		5.37	%		4.44	%		5.08	%
Cost of funds		0.73	%		0.91	%		1.27	%		1.45	%		1.57	%		0.96	%		1.62	%
Net interest margin, taxable equivalent		3.84	%		3.67	%		3.81	%		3.85	%		4.30	%		3.77	%		3.98	%

33

Net loan charge-offs to average loans	0.20	%	1.00	%	(0.14)	%	(0.01)	%	1.20	%	0.03	%	0.48	%
Nonperforming loans to total loans	0.84	%	1.09	%	0.42	%	0.31	%	0.30	%	0.84	%	0.30	%
Nonperforming assets to total assets	0.79	%	0.94	%	0.51	%	0.52	%	0.52	%	0.79	%	0.52	%
Allowance for loan losses to loans	0.74	%	0.76	%	0.73	%	0.66	%	0.59	%	0.74	%	0.59	%

(1) These measures are not measures prepared in accordance with GAAP, and are therefore considered to be non-GAAP financial measures. See "GAAP reconciliation and management explanation of non-GAAP finanical measures" for a reconciliation of these measures to their most comparable GAAP measures.

(2) Income statement-related ratios for partial year periods are annualized.

GAAP RECONCILIATION AND MANAGEMENT EXPLANATION OF NON-GAAP FINANCIAL MEASURES

We identify certain financial measures discussed in the Report as being “non-GAAP financial measures.” The non-GAAP financial measures presented in this Report are tangible book value per common share and tangible equity to tangible assets.

In accordance with the SEC’s rules, we classify a financial measure as being a non-GAAP financial measure if that financial measure excludes or includes amounts, or is subject to adjustments that have the effect of excluding or including amounts, that are included or excluded, as the case may be, in the most directly comparable measure calculated and presented in accordance with GAAP as in effect from time to time in the United States in our statements of income, balance sheets or statements of cash flows.

The non-GAAP financial measures that we discuss in this Report should not be considered in isolation or as a substitute for the most directly comparable or other financial measures calculated in accordance with GAAP. Moreover, the manner in which we calculate the non-GAAP financial measures that we discuss in our selected historical consolidated financial data may differ from that of other companies reporting measures with similar names. You should understand how such other banking organizations calculate their financial measures similar or with names similar to the non-GAAP financial measures we have presented in our selected historical consolidated financial data when comparing such non-GAAP financial measures. The following discussion and reconciliations provide a more detailed analysis of these non-GAAP financial measures.

Tangible book value per common share and tangible equity to tangible assets are non-GAAP measures that exclude the impact of goodwill and other intangibles used by the Company’s management to evaluate capital adequacy. Because intangible assets such as goodwill and other intangibles vary extensively from company to company, we believe that the presentation of this information allows investors to more easily compare the Company’s capital position to other companies. The most directly comparable financial measures calculated in accordance with GAAP are book value per common share, return on average common equity and stockholders’ equity to total assets.

	At or for the Three Months Ended															At or for the Nine Months Ended
(In thousands, except per share data)	9/30/2020			6/30/2020			3/31/2020			12/31/2019			9/30/2019			9/30/2020			9/30/2019
Tangible Assets
Total assets	$	2,639,247		$	2,657,911		$	2,200,320		$	2,210,168		$	2,163,501		$	2,639,247		$	2,163,501
Adjustments:
Goodwill		(55,022)			(55,052)			(43,456)			(43,456)			(43,456)			(55,022)			(43,456)
Core deposit intangible, net of amortization		(5,962)			(6,381)			(5,046)			(5,379)			(5,752)			(5,962)			(5,752)
Tangible assets	$	2,578,263		$	2,596,478		$	2,151,818		$	2,161,333		$	2,114,293		$	2,578,263		$	2,114,293
Tangible Common Equity
Total stockholders' equity	$	286,104		$	276,100		$	237,682		$	230,211		$	225,332		$	286,104		$	225,332
Adjustments:
Goodwill		(55,022)			(55,052)			(43,456)			(43,456)			(43,456)			(55,022)			(43,456)
Core deposit intangible, net of amortization		(5,962)			(6,381)			(5,046)			(5,379)			(5,752)			(5,962)			(5,752)
Tangible common equity	$	225,120		$	214,667		$	189,180		$	181,376		$	176,124		$	225,120		$	176,124
Book value per common share	$	37.01		$	35.70		$	33.21		$	32.49		$	31.81		$	37.01		$	31.81
Tangible book value per common share		29.12			27.76			26.44			25.60			24.86			29.12			24.86
Total stockholders' equity to total assets		10.84	%		10.39	%		10.80	%		10.42	%		10.42	%		10.84	%		10.42	%
Tangible common equity to tangible assets		8.73	%		8.27	%		8.79	%		8.39	%		8.33	%		8.73	%		8.33	%

34

RESULTS OF OPERATIONS

Results of Operations for the Three Months Ended September 30, 2020 and September 30, 2019

General. Net income increased $4.3 million to $11.0 million for three months ended September 30, 2020, compared to $6.7 million for the same period in 2019. This increase was primarily due to the added scale of the office acquired in the Timberwood acquisition during the second quarter of 2020, strong residential mortgage production during the third quarter of 2020, interest income produced by approximately $279.6 million in PPP loans originated during the first half of 2020, and a lower provision for loan losses during the third quarter of 2020 compared to the third quarter of 2019.

Net Interest Income. The management of interest income and expense is fundamental to our financial performance. Net interest income, the difference between interest income and interest expense, is the largest component of the Company’s total revenue. 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. 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 and dividend income increased by $2.6 million to $22.9 million for the three months ended September 30, 2020 compared to $20.3 million for three months ended September 30, 2019. The increase in net interest income was primarily due to the added scale of one office acquired in the Timberwood acquisition as well as the impact of approximately $279.6 million PPP loans originated during the first half of 2020. Total average interest-earning assets was $2.42 billion for the three months ended September 30, 2020, up from $1.92 billion for the same period in 2019. Tax equivalent net interest margin decreased 0.46% to 3.84% for the three-months ended September 30, 2020, down from 4.30% for the same period in 2019. Net interest margin decreased by 0.44% due to a decrease in purchase accounting accretion quarter-over-quarter which added to a decrease of 0.02% in core net interest margin. 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 $0.4 million, or 1.72%, to $25.9 million for the three months ended September 30, 2020 compared to $25.5 million for the same period in 2019. The increase in total interest income was primarily due the added scale of one office acquired in the Timberwood acquisition during the second quarter of 2020 along with the interest income produced by approximately $279.6 million in PPP loans originated during the first half of 2020. The average balance of loans increased by $457.1 million during the three months ended September 30, 2020 compared to the same period in 2019, offsetting a reduction in yield on interest-earning assets of 1.04% between these two periods. Of this reduction in yield on interest earning assets, 0.48% was the result of lower purchase accounting accretion during the 2020 third quarter, with the remaining 0.56% due to the lower interest rate environment during the third quarter of 2020 in comparison to the third quarter of 2019.

Interest Expense. Interest expense decreased $2.2 million, or 42.0%, to $3.0 million for the three months ended September 30, 2020 compared to $5.2 million for the same period in 2019. The decrease in interest expense was primarily due to the lower overall interest rate environment due to the COVID-19 pandemic, which was counteracted to a certain extent by the added scale of one office acquired in the Timberwood acquisition.

Interest expense on interest-bearing deposits decreased by $2.0 million to $2.7 million for the three months ended September 30, 2020, from $4.7 million for the same period in 2019. The average cost of interest-bearing deposits was 0.69% for the three months ended September 30, 2020, compared to 1.50% for the same period in 2019.

Provision for Loan Losses. Credit risk is inherent in the business of making loans. We establish an ALL through charges to earnings, which are shown in the statements of operations as the provision for loan losses. Specifically identifiable and quantifiable known losses are promptly charged off against the allowance. The provision for loan losses is determined by conducting a quarterly evaluation of the adequacy of our ALL 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 loan 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.

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We recorded a provision for loan losses of $1.4 million for the three months ended September 30, 2020 compared to $3.0 million for the same period in 2019. We recorded net charge-offs of $1.3 million for the three months ended September 30, 2020 compared to net charge-offs of $5.0 million for the same period in 2019. The ALL was $16.3 million, or 0.74% of total loans, at September 30, 2020 compared to $10.1 million, or 0.59% of total loans at September 30, 2019.

Noninterest Income. Noninterest income is an important component of our total revenues. A significant portion of our noninterest income is associated with service charges and income from the Bank’s subsidiaries, Ansay and UFS. Other sources of noninterest income include loan servicing fees, gains on sales of mortgage loans, and other income from strategic alliances.

Noninterest income increased $2.0 million to $5.1 million for the three months ended September 30, 2020 compared to $3.1 million for the same period in 2019. Income from service charges increased by 46.3% due to an expanded base of customer relationships, many of which were the result of the Timberwood acquisition, as well as a lower earned income crediting rate on analyzed depository accounts, which serve to offset fees on those accounts. Income from our investment in Ansay increased by 204.1% as a result of a strong operating quarter by that entity as well as the Company’s increased ownership of that entity from 30.0% during the third quarter of 2019 to 40.0% during the third quarter of 2020. Loan servicing income increased by 43.9% resulting from significant additions to the Company’s serviced portfolios both organically and through the acquisitions of Partnership and Timberwood. Net gains on sales of mortgage loans saw a very significant increase quarter-over-quarter as the Company continues to experience very robust activity in secondary market loan originations.

The major components of our noninterest income are listed below:

	Three Months Ended September 30,
	2020		2019		$ Change		% Change
	(In thousands)
Noninterest Income
Service Charges	$	1,343	$	918	$	425		46	%
Income from Ansay		970		319		651		204	%
Income from UFS		720		768		(48)		(6)	%
Loan Servicing income		538		374		164		44	%
Net gain on sales of mortgage loans		1,304		533		771		145	%
Noninterest income from strategic alliances		16		26		(10)		(38)	%
Other		224		207		17		8	%
Total noninterest income	$	5,115	$	3,145	$	1,970		63	%

Noninterest Expense. Noninterest expense increased $0.1 million to $12.2 million for the three months ended September 30, 2020 compared to $12.1 million for the same period in 2019. Personnel expense increased 5.4%, or $0.3 million, as a result of the added cost of staffing one acquired office locations in addition to customary annual pay increases. Occupancy expenses and postage, stationary and supplies expense increased 8.8% and 62.2%, respectively, the result of continued investments made in equipment to allow staff to work remotely and supplies to maintain safe work environments due to the COVID-19 pandemic. Data processing fees increased by 26.3% as a result of trailing one-time expenses incurred in relation to the Timberwood acquisition as well as increases in “per-item” costs which are charged based on number of customer accounts, due to the increased scale of the Company through its acquisitions and PPP loan originations. Outside service fee expense decreased by 24.2% due to significant investment banker fees paid during the third quarter of 2019 in relation to the Partnership acquisition, which did not occur during the third quarter of 2020.

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The major components of our noninterest expense are listed below:

	Three Months Ended September 30,
	2020		2019		$ Change		% Change
	(In thousands)
Noninterest Expense
Salaries, commissions, and employee benefits	$	6,609	$	6,272	$	337		5	%
Occupancy		1,171		1,076		95		9	%
Data Processing		1,463		1,158		305		26	%
Postage, stationary, and supplies		219		135		84		62	%
Net gain on sales and valuation of ORE		(32)		(10)		(22)		NM
Advertising		41		53		(12)		(23)	%
Charitable contributions		110		225		(115)		(51)	%
Outside service fees		888		1,171		(283)		(24)	%
Amortization of intangibles		418		374		44		12	%
Other		1,315		1,633		(318)		(19)	%
Total noninterest expenses	$	12,202	$	12,087	$	115		1	%

Income Tax Expense. We recorded a provision for income taxes of $3.5 million for the three months ended September 30, 2020 compared to a provision of $1.7 million for the same period during 2019, reflecting effective tax rates of 24.4% and 20.5%, 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 Nine Months Ended September 30, 2020 and September 30, 2019

General. Net income increased $7.3 million to $26.5 million for the nine months ended September 30, 2020, compared to $19.2 million for the same period in 2019. This increase was primarily due to the added scale of the four offices acquired in the Partnership acquisition during the third quarter of 2019 and the one office acquired in the Timberwood acquisition during the second quarter of 2020, strong residential mortgage production during the first nine months of 2020, and interest income produced by approximately $279.6 million in PPP loans originated during the first half of 2020.

Net Interest Income. Net interest and dividend income increased by $11.5 million to $62.4 million for the nine months ended September 30, 2020, compared to $50.9 million for nine months ended September 30, 2019. The increase in net interest income was primarily due to the added scale of five offices acquired in the aforementioned acquisitions. Interest income on loans increased by $9.0 million, or 14.65%, during the same period. Total average interest-earning assets increased to $2.26 billion for the nine months ended September 30, 2020, compared to $1.75 billion for the same period in 2019. Tax equivalent net interest margin decreased 0.21% to 3.77% for the nine months ended September 30, 2020, down from 3.98% for the same period in 2019. Net interest margin decreased by 0.20% due to a decrease in purchase accounting accretion period-over-period which added to a decrease of 0.01% in core net interest margin. 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 $8.2 million, or 12.6%, to $73.6 million for the nine months ended September 30, 2020 compared to $65.4 million for the same period in 2019. The increase in total interest income was primarily due the added scale of four offices acquired in the Partnership acquisition as well as the one office acquired in the Timberwood acquisition during the second quarter of 2020 along with interest income produced by approximately $279.6 million in PPP loans originated during the first half of 2020. The average balance of loans increased by $460.2 million during the nine months ended September 30, 2020 compared to the same period in 2019, offsetting a reduction in yield on interest-earning assets of 0.65% between these two periods. Of this reduction in yield on interest earning assets, 0.22% was the result of lower purchase accounting accretion during the 2020 third quarter, with the remaining 0.43% due to the lower interest rate environment during the third quarter of 2020 in comparison to the third quarter of 2019.

Interest Expense. Interest expense decreased $3.3 million, or 22.4%, to $11.2 million for the nine months ended September 30, 2020 compared to $14.5 million for the same period in 2019. The decrease in interest expense was primarily due to the lower overall interest rate environment due to the COVID-19 pandemic, which was counteracted to a certain extent by the added scale of five offices acquired in the aforementioned acquisitions.

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Interest expense on interest-bearing deposits decreased by $3.4 million to $10.0 million for the nine months ended September 30, 2020, from $13.4 million for the same period in 2019. The average cost of interest-bearing deposits was 0.91% for the nine months ended September 30, 2020, compared to 1.55% for the same period in 2019.

Provision for Loan Losses. We recorded a provision for loan losses of $5.5 million for the nine months ended September 30, 2020, compared to $4.1 million for the same period in 2019. We recorded net charge-offs of $0.6 million for the nine months ended September 30, 2020 compared to net charge-offs of 6.2 million for the same period in 2019. The ALL was $16.3 million, or 0.74% of total loans, at September 30, 2020 compared to $10.1 million, or 0.59% of total loans at September 30, 2019. The elevated provision during the first half of 2020 compared to the provision during the first half of 2019 was primarily the result of increased qualitative factors in the calculation of the ALL at September 30, 2020, in response to the heightened economic risks resulting from the COVID-19 pandemic.

Noninterest Income. Noninterest income increased $7.4 million to $16.8 million for the nine months ended September 30, 2020 compared to $9.4 million for the same period in 2019. Income from service charges increased by 43.6% due to an expanded base of customer relationships, many of which were the result of the Partnership and Timberwood acquisitions, as well as a lower earned income crediting rate on analyzed depository accounts, which serve to offset fees on those accounts. Income from our investment in Ansay increased by 48.0% as a result of the Company’s increased ownership of that entity from 30.0% during the first nine months of 2019 to 40.0% during the first nine months of 2020. Income from our investment in UFS increased by 17.9% as they continue to see significant growth in customers in their managed information technology business. Loan servicing income increased by 45.8% resulting from the addition of significant serviced portfolios acquired as a part of the acquisitions of Partnership and Timberwood augmented by strong organic growth in this area. Net gains on sales of mortgage loans saw a very significant increase period-over-period as the Company continues to experience very robust activity in secondary market loan originations. During the second quarter of 2020 the Company sold $36.6 million of U.S. Treasury notes. This sale resulted in a gain of $3.1 million, and was an event that did not occur during the first nine months of 2019, causing a positive comparison between those periods. Finally, during the first nine months of 2019 the Company revalued an investment in common stock of another financial institution, which had historically been held at cost, to fair value based on recent observable prices in orderly stock transactions, resulting in other noninterest income of $0.6 million. While this common stock continued to be held and valued in a similar fashion during the first half of 2020, the appreciation in value was less than $0.1 million, creating a negative variance between those periods in other noninterest income.

The major components of our noninterest income are listed below:

	Nine Months Ended September 30,
	2020		2019		$Change		% Change
	(In thousands)
Noninterest Income
Service Charges	$	3,417	$	2,396	$	1,021	43	%
Income from Ansay		2,571		1,737		834	48	%
Income from UFS		2,467		2,093		374	18	%
Loan Servicing income		1,226		841		385	46	%
Net gain on sales of mortgage loans		3,096		774		2,322	300	%
Net gain on sales of securities		3,233		257		2,976	NM
Noninterest income from strategic alliances		49		74		(25)	(34)	%
Other		717		1,249		(532)	(43)	%
Total noninterest income	$	16,776	$	9,421	$	7,355	78	%

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Noninterest Expense. Noninterest expense increased $7.8 million to $39.4 million for the nine months ended September 30, 2020 compared to $31.6 million for the same period in 2019. The increase in noninterest expense was primarily the result of the Partnership and Timberwood acquisitions. Personnel expense increased 15.8%, or $2.7 million, as a result of the added cost of staffing five acquired office locations in addition to customary annual pay increases. Occupancy expenses and postage, stationary and supplies expense increased 22.1% and 48.4%, respectively, the result of significant investments made in equipment to allow staff to work remotely and supplies to maintain safe work environments due to the COVID-19 pandemic. Data processing fees increased by 31.8%as a result of increases in “per-item” costs which are charged based on number of customer accounts, due to the increased scale of the Company through its acquisitions and PPP loan originations. Amortization of intangibles increased by 60.1% as a result of amortization related to the core deposit intangibles that were established as part of the Partnership and Timberwood acquisitions. Finally, the Company incurred a $1.3 million penalty for early extinguishment of borrowings from the FHLB during the second quarter of 2020, an event which did not occur during the first nine months of 2019.

Net gains and losses from sales of ORE and securities are specific to the properties and securities which are sold and will vary greatly period to period, as they did in the first nine months of 2020 compared to the first nine months of 2019.

The major components of our noninterest expense are listed below:

	Nine Months Ended September 30,
	2020		2019		$ Change		% Change
	(In thousands)
Noninterest Expense
Salaries, commissions, and employee benefits	$	19,669	$	16,985	$	2,684	16	%
Occupancy		3,367		2,757		610	22	%
Data Processing		3,996		3,031		965	32	%
Postage, stationary, and supplies		668		450		218	48	%
Net loss (gain) on sales and valuation of ORE		1,411		(109)		1,520	NM
Advertising		165		180		(15)	(8)	%
Charitable Contributions		360		497		(137)	(28)	%
Outside service fees		3,083		2,837		246	9	%
Amortization of intangibles		1,114		696		418	60	%
Penalty for early extinguishment of debt		1,323		—		1,323	NM
Other		4,225		4,254		(29)	(1)	%
Total noninterest expenses	$	39,381	$	31,578	$	7,803	25	%

Income Tax Expense. We recorded a provision for income taxes of $7.8 million for the nine months ended September 30, 2020 compared to a provision of $5.4 million for the same period during 2019, reflecting effective tax rates of 22.66% and 21.82%, respectively. The effective tax rates were reduced from the statutory federal and state income tax rates largely as a result of tax-exempt interest income produced by certain qualifying loans and investments in the Bank’s portfolios.

NET INTEREST MARGIN

Net interest income represents the difference between interest earned, primarily on loans and investments, and interest paid on funding sources, primarily deposits and borrowings. Interest rate spread is the difference between the average rate earned on total interest-earning assets and the average rate paid on total interest-bearing liabilities. 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 paid on interest-bearing liabilities is equal to annualized interest expense as a percentage of average interest-bearing liabilities.

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The following tables set forth the distribution of our average assets, liabilities and stockholders’ equity, and average rates earned or paid on a fully taxable equivalent basis for each of the periods indicated:

	Three Months Ended
	September 30, 2020						September 30, 2019
			Interest						Interest
	Average		Income/		Rate Earned/ Paid		Average		Income/		Rate Earned/ Paid
	Balance		Expenses (1)		(1)		Balance		Expenses (1)		(1)
	(dollars in thousands)
ASSETS
Interest-earning assets
Loans (2)
Taxable	$	2,026,973	$	93,783	4.63	%	$	1,582,587	$	88,515	5.59	%
Tax-exempt		113,035		5,770	5.10	%		100,345		7,966	7.94	%
Securities
Taxable (available for sale)		107,171		2,735	2.55	%		88,363		2,625	2.97	%
Tax-exempt (available for sale)		74,472		2,313	3.11	%		52,746		1,836	3.48	%
Taxable (held to maturity)		—		—	—			31,079		761	2.45	%
Tax-exempt (held to maturity)		7,081		170	2.40	%		10,558		295	2.79	%
Cash and due from banks		94,436		111	0.12	%		57,773		1,245	2.15	%
Total interest-earning assets		2,423,168		104,882	4.33	%		1,923,451		103,243	5.37	%
Non interest-earning assets		219,144						184,077
Allowance for loan losses		(16,176)						(12,171)
Total assets	$	2,626,136					$	2,095,357
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing deposits
Checking accounts	$	195,870	$	267	0.14	%	$	91,598	$	1,939	2.12	%
Savings accounts		379,599		1,491	0.39	%		281,531		2,755	0.98	%
Money market accounts		593,470		2,542	0.43	%		469,211		5,268	1.12	%
Certificates of deposit		376,618		5,961	1.58	%		392,194		8,353	2.13	%
Brokered Deposits		20,135		567	2.82	%		15,507		470	3.03	%
Total interest bearing deposits		1,565,692		10,828	0.69	%		1,250,041		18,785	1.50	%
Other borrowed funds		70,914		1,121	1.58	%		60,716		1,751	2.88	%
Total interest-bearing liabilities		1,636,606		11,949	0.73	%		1,310,757		20,536	1.57	%
Non-interest bearing liabilities
Demand Deposits		694,373						536,332
Other liabilities		13,501						21,063
Total Liabilities		2,344,480						1,868,152
Shareholders' equity		281,656						227,205
Total liabilities & sharesholders' equity	$	2,626,136					$	2,095,357
Net interest income on a fully taxable equivalent basis				92,933						82,707
Less taxable equivalent adjustment				(1,732)						(2,120)
Net interest income			$	91,201					$	80,587
Net interest spread (3)					3.60	%					3.80	%
Net interest margin (4)					3.84	%					4.30	%

(1) Annualized on a fully taxable equivalent basis calculated using a federal tax rate of 21% for the three months ended September 30, 2020 and 2019.

(2) Nonaccrual loans are included in average amounts outstanding.

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

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

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	Nine Months Ended
	September 30, 2020						September 30, 2019
			Interest						Interest
	Average		Income/		Rate Earned/ Paid		Average		Income/		Rate Earned/ Paid
	Balance		Expenses (1)		(1)		Balance		Expenses (1)		(1)
	(dollars in thousands)
ASSETS
Interest-earning assets
Loans (2)
Taxable	$	1,857,288	$	88,326	4.76	%	$	1,417,376	$	76,317	5.38	%
Tax-exempt		116,428		5,960	5.12	%		96,176		6,005	6.24	%
Securities
Taxable (available for sale)		116,792		2,907	2.49	%		78,007		2,298	2.95	%
Tax-exempt (available for sale)		66,160		2,134	3.23	%		52,221		1,875	3.59	%
Taxable (held to maturity)		12,113		289	2.39	%		29,685		728	2.45	%
Tax-exempt (held to maturity)		9,010		239	2.65	%		11,105		310	2.79	%
Cash and due from banks		77,374		216	0.28	%		68,144		1,586	2.33	%
Total interest-earning assets		2,255,165		100,071	4.44	%		1,752,714		89,119	5.08	%
Non interest-earning assets		207,466						150,747
Allowance for loan losses		(14,087)						(12,204)
Total assets	$	2,448,544					$	1,891,257
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing deposits
Checking accounts	$	194,592	$	796	0.41	%	$	81,051	$	1,880	2.32	%
Savings accounts		343,196		1,915	0.56	%		250,783		2,564	1.02	%
Money market accounts		542,993		3,388	0.62	%		425,662		4,847	1.14	%
Certificates of deposit		371,170		6,793	1.83	%		379,836		8,139	2.14	%
Brokered Deposits		18,090		523	2.89	%		16,661		488	2.93	%
Total interest bearing deposits		1,470,041		13,415	0.91	%		1,153,993		17,918	1.55	%
Other borrowed funds		97,727		1,602	1.64	%		44,806		1,446	3.23	%
Total interest-bearing liabilities		1,567,768		15,017	0.96	%		1,198,799		19,364	1.62	%
Non-interest bearing liabilities
Demand Deposits		608,359						479,733
Other liabilities		15,109						17,947
Total Liabilities		2,191,236						1,696,479
Shareholders' equity		257,308						194,778
Total liabilities & sharesholders' equity	$	2,448,544					$	1,891,257
Net interest income on a fully taxable equivalent basis				85,054						69,755
Less taxable equivalent adjustment				(1,750)						(1,720)
Net interest income			$	83,304					$	68,035
Net interest spread (3)					3.48	%					3.47	%
Net interest margin (4)					3.77	%					3.98	%

(1) Annualized on a fully taxable equivalent basis calculated using a federal tax rate of 21% for the nine months ended September 30, 2020 and 2019.

(2) Nonaccrual loans are included in average amounts outstanding.

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

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

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Rate/Volume Analysis

The following tables describe the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected our interest income and interest expense during the periods indicated. Information is provided in each category with respect to: (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 September 30, 2020						Nine Months Ended September 30, 2020
	Compared with						Compared with
	Three Months Ended September 30, 2019						Nine Months Ended September 30, 2019
	Increase/(Decrease) Due to Change in						Increase/(Decrease) Due to Change in
	Volume		Rate		Total		Volume		Rate		Total
	(dollars in thousands)						(dollars in thousands)
Interest income
Loans
Taxable	$	22,196	$	(16,928)	$	5,268	$	21,677	$	(9,668)	$	12,009
Tax-exempt		913		(3,109)		(2,196)		1,142		(1,187)		(45)
Securities
Taxable (AFS)		511		(401)		110		1,008		(399)		609
Tax-exempt (AFS)		692		(215)		477		464		(205)		259
Taxable (HTM)		(381)		(380)		(761)		(420)		(19)		(439)
Tax-exempt (HTM)		(88)		(37)		(125)		(56)		(15)		(71)
Cash and due from banks		490		(1,624)		(1,134)		190		(1,560)		(1,370)
Total interest income		24,333		(22,694)		1,639		24,005		(13,053)		10,952
Interest expense
Deposits
Checking accounts	$	1,074	$	(2,746)	$	(1,672)	$	1,268	$	(2,352)	$	(1,084)
Savings accounts		748		(2,012)		(1,264)		753		(1,402)		(649)
Money market accounts		1,136		(3,862)		(2,726)		1,107		(2,566)		(1,459)
Certificates of deposit		(320)		(2,072)		(2,392)		(182)		(1,164)		(1,346)
Brokered Deposits		132		(35)		97		41		(6)		35
Total interest bearing deposits		2,770		(10,727)		(7,957)		2,987		(7,490)		(4,503)
Other borrowed funds		258		(888)		(630)		1,115		(959)		156
Total interest expense		3,028		(11,615)		(8,587)		4,102		(8,449)		(4,347)
Change in net interest income	$	21,305	$	(11,079)	$	10,226	$	19,903	$	(4,604)	$	15,299

CHANGES IN FINANCIAL CONDITION

Total Assets. Total assets increased $429.1 million, or 19.4%, to $2.64 billion at September 30, 2020, from $2.21 billion at December 31, 2019.

Cash and Cash Equivalents. Cash and cash equivalents decreased by $5.7 million to $80.8 million at September 30, 2020 from $86.5 million at December 31, 2019.

Investment Securities. The carrying value of total investment securities decreased by $45.2 million to $180.0 million at September 30, 2020, from $225.2 million at December 31, 2019. This decrease was largely the result of the aforementioned sale of $36.6 million of U.S. Treasury notes during the second quarter of 2020.

Loans. Net loans increased by $452.0 million, totaling $2.18 billion at September 30, 2020 compared to $1.72 billion at December 31, 2019. This increase was primarily the result of loans originated during the second quarter of 2020 under the PPP, offset by pay-downs of commercial lines with proceeds from these loans. This increase is also the result of loans acquired in the Timberwood acquisition.

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Bank-Owned Life Insurance. At September 30, 2020, our investment in bank-owned life insurance was $31.2 million, an increase of $6.3 million from $24.9 million at December 31, 2019. This increase was primarily the result of bank-owned life insurance acquired in the Timberwood acquisition.

Deposits. Deposits increased $427.7 million, or 23.2%, to $2.27 billion at September 30, 2020 from $1.84 billion at December 31, 2019. This increase was primarily the result of proceeds of much of the loans originated under the PPP remaining in the depository accounts of the Company’s customers, as well as a result of the deposits acquired in the Timberwood acquisition.

Borrowings. At September 30, 2020, borrowings consisted of advances from the FHLB of Chicago, as well as notes payable and subordinated debt to other banks. Total FHLB borrowings decreased to $25.0 million at September 30, 2020 from $39.8 million of FHLB borrowings at December 31, 2019. Notes payable to other banks totaled $0 at September 30, 2020 and $10.0 million at December 31, 2019. Subordinated debt owed to other banks totaled $20.5 million at September 30, 2020 and $18.6 million December 31, 2019.

Stockholders’ Equity. Total stockholders’ equity increased $55.9 million, or 24.3%, to $286.1 million at September 30, 2020, from $230.2 million at December 31, 2019.

LOANS

Our lending activities are conducted principally in Wisconsin. The Bank makes commercial and industrial loans, commercial real estate loans, construction and development loans, residential real estate loans, and a variety of consumer loans and other loans. Much of the loans made by the Bank are secured by real estate collateral. The Bank’s commercial business loans are primarily made based on the cash flow of the borrower and secondarily on the underlying collateral provided by the borrower, with liquidation of the underlying real estate collateral typically being viewed as the primary source of repayment in the event of borrower default. Although commercial business loans are also often collateralized by equipment, inventory, accounts receivable, or other business assets, the liquidation of collateral in the event of default is often an insufficient source of repayment. 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 83.1% and 78.6% of our total assets as of September 30, 2020 and December 31, 2019, 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 $456.9 million, or 26.3%, to $2.19 billion as of September 30, 2020 as compared to $1.74 billion as of December 31, 2019. This increase during the first nine months of 2020 has been comprised of an increase of $240.1 million or 79.4% in commercial and industrial loans, an increase of $143.5 million or 17.7% in commercial real estate loans, an increase of $18.0 million or 13.6% in construction and development loans, an increase of $40.3 million or 9.0% in residential 1-4 family loans and an increase of $14.9 million or 37.3% in consumer and other loans. The increase in loans was primarily due to the acquisition of Timberwood, which included $118.4 million in loan balances, as well as the originations of $279.6 million in PPP loans during the first nine months of 2020, consisting of 1,876 individual loans with an average balance of $149,000.

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The following table presents the balance and associated percentage of each major category in our loan portfolio at September 30, 2020, December 31, 2019, and September 30, 2019:

	September 30,				December 31,				September 30,
	2020		% of Total		2019		% of Total		2019		% of Total
	(dollars in thousands)
Commercial & industrial
Commercial & industrial	$	547,750	25	%	$	302,538	17	%	$	310,536	18	%
Deferred costs net of unearned fees		(5,247)	0	%		(158)	0	%		(178)	0	%
Total commercial & industrial		542,503	25	%		302,380	17	%		310,358	18	%
Commercial real estate
Owner Occupied		530,476	24	%		459,782	26	%		467,030	27	%
Non-owner occupied		426,463	20	%		353,723	20	%		337,558	20	%
Deferred costs net of unearned fees		(250)	0	%		(362)	0	%		(385)	0	%
Total commercial real estate		956,689	44	%		813,143	46	%		804,203	47	%
Construction & Development
Construction & Development		150,139	7	%		132,296	8	%		118,055	7	%
Deferred costs net of unearned fees		27	0	%		(133)	0	%		(123)	0	%
Total construction & development		150,166	7	%		132,163	8	%		117,932	7	%
Residential 1-4 family
Residential 1-4 family		488,925	22	%		448,605	26	%		443,906	26	%
Deferred costs net of unearned fees		7	0	%		25	0	%		42	0	%
Total residential 1-4 family		488,932	22	%		448,630	26	%		443,948	26	%
Consumer
Consumer		29,684	1	%		29,462	2	%		31,665	2	%
Deferred costs net of unearned fees		133	0	%		124	0	%		123	0	%
Total consumer		29,817	1	%		29,586	2	%		31,788	2	%
Other Loans
Other		25,552	1	%		10,440	1	%		5,985	0	%
Deferred costs net of unearned fees		(431)	0	%		1	0	%		(1)	0	%
Total other loans		25,121	1	%		10,441	1	%		5,984	0	%
Total loans	$	2,193,228	100	%	$	1,736,343	100	%	$	1,714,213	100	%

Our directors and officers and their associates are customers of, and have other transactions with, the Bank in the normal course of business. All loans and commitments included in such transactions were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons and do not involve more than normal risk of collection or present other unfavorable features. At September 30, 2020 and December 31, 2019, total loans outstanding to such directors and officers and their associates were $60.3 million and $68.6 million, respectively. During the nine months ended September 30, 2020, $44.9 million of additions and $53.2 million of repayments were made to these loans. At September 30, 2020 and December 31, 2019, all of the loans to directors and officers were performing according to their original terms, other than standard and customary payment deferrals allowed under the CARES act, which were provided under the same terms as all other customers of the Bank.

Loan categories

The principal categories of our loan portfolio are discussed below:

Commercial and Industrial (C&I). Our C&I portfolio totaled $542.5 million and $302.4 million at September 30, 2020 and December 31, 2019, respectively, and represented 25% and 17% of our total loans at those dates. The increase in this loan category was the result of $279.6 million in PPP loans made primarily in the second quarter of 2020.

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. Most clients are privately owned with markets that range from local to national in scope. Many of the loans to this segment are secured by liens on corporate assets and the personal guarantees of the principals. The regional economic strength or weakness

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

Commercial Real Estate (CRE). Our CRE loan portfolio totaled $956.7 million and $813.1 million at September 30, 2020 and December 31, 2019, respectively, and represented 44% and 46% of our total loans at those dates.

Our CRE loans are secured by a variety of property types including multifamily dwellings, retail facilities, office buildings, commercial mixed use, lodging and industrial and warehouse properties. We do not have any specific industry or customer concentrations in our CRE portfolio. Our commercial real estate loans are generally for terms up to ten years, with loan-to-values that generally do not exceed 80%. Amortization schedules are long term and thus a balloon payment is generally due at maturity. Under most circumstances, the Bank will offer to rewrite or otherwise extend the loan at prevailing interest rates.

Construction and Development (C&D). Our C&D loan portfolio totaled $150.2 million and $132.2 million at September 30, 2020 and December 31, 2019, respectively, and represented 7% and 8% of our total loans at those dates.

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. Borrowers typically provide a copy of a construction or development contract which is subject to bank acceptance prior to loan approval. Disbursements are handled by a title company. Borrowers are required to inject their own equity into the project prior to any note proceeds being disbursed. These loans are, by their nature, intended to be short term and are refinanced into other loan types at the end of the construction and development period.

Residential 1 – 4 Family. Residential 1 – 4 family loans held in portfolio amounted to $488.9 million and $448.6 million at September 30, 2020 and December 31, 2019, respectively, and represented 22% and 26% of our total loans at those dates.

We offer fixed and adjustable-rate residential mortgage loans with maturities up to 30 years. One-to-four family residential mortgage loans are generally underwritten according to Fannie Mae guidelines, and we refer to loans that conform to such guidelines as “conforming loans.” We generally originate both fixed and adjustable-rate mortgage loans in amounts up to the maximum conforming loan limits as established by the Federal Housing Finance Agency, which is generally $424,100 for one-unit properties. In addition, we also offer loans above conforming lending limits typically referred to as “jumbo” loans. These loans are typically underwritten to the same guidelines as conforming loans; however, we may choose to hold a jumbo loan within its portfolio with underwriting criteria that does not exactly match conforming guidelines.

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. We also do not offer “subprime loans” (loans that are made with low down payments to borrowers with weakened credit histories typically characterized by payment delinquencies, previous charge-offs, judgments, bankruptcies, or borrowers with questionable repayment capacity as evidenced by low credit scores or high debt-burden ratios) or Alt-A loans (defined as loans having less than full documentation).

Residential real estate loans are originated both for sale to the secondary market as well as for retention in the Bank’s loan portfolio. The decision to sell a loan to the secondary market or retain within the portfolio is determined based on a variety of factors including but not limited to our asset/liability position, the current interest rate environment, and customer preference. Servicing rights are retained on all loans sold to the secondary market.

We were servicing mortgage loans sold to others without recourse of approximately $628.2 million at September 30, 2020 and $554.4 million at December 31, 2019.

Loans sold with the retention of servicing assets result in the capitalization of servicing rights. Loan servicing rights are included in other assets and are carried at fair value. The net balance of capitalized servicing rights amounted to $4.1 million and $4.3 million at September 30, 2020 and December 31, 2019, respectively.

Consumer Loans. Our consumer loan portfolio totaled $29.8 million and $29.6 million at September 30, 2020 and December 31, 2019, respectively, and represented 1% and 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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Consumer loans generally have greater risk compared to longer-term loans secured by improved, owner-occupied real estate, particularly consumer loans that are secured by rapidly depreciable assets. In these cases, any repossessed collateral for a defaulted loan may not provide an adequate source of repayment of the outstanding loan balance. 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.

Other Loans. Our other loans totaled $25.1 million and $10.4 million at September 30, 2020 and December 31, 2019, 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 and contractual terms to maturity at September 30, 2020 and December 31, 2019, respectively. 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. Demand loans, loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in one year or less.

	One Year or		One to Five		Over Five
As of September 30, 2020	Less		Years		Years		Total
	(dollars in thousands)
Commercial & industrial	$	65,011	$	393,304	$	84,188	$	542,503
Commercial real estate		116,066		424,853		415,770		956,689
Construction & Development		33,706		17,325		99,135		150,166
Residential 1-4 family		18,770		61,579		408,583		488,932
Consumer and other		5,315		40,193		9,430		54,938
Total	$	238,868	$	937,254	$	1,017,106	$	2,193,228

	One Year or		One to Five		Over Five
As of December 31, 2019	Less		Years		Years		Total
	(dollars in thousands)
Commercial & industrial	$	93,244	$	120,816	$	88,320	$	302,380
Commercial real estate		120,010		421,789		271,344		813,143
Construction & Development		27,079		43,132		61,952		132,163
Residential 1-4 family		27,120		65,537		355,973		448,630
Consumer and other		10,825		20,438		8,764		40,027
Total	$	278,278	$	671,712	$	786,353	$	1,736,343

The following tables summarize the dollar amount of loans maturing in our portfolio based on whether the loan has a fixed or variable rate of interest and their contractual terms to maturity at September 30, 2020 and December 31, 2019, respectively. 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. Demand loans, loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in one year or less.

	One Year or		One to Five		Over Five
As of September 30, 2020	Less		Years		Years		Total
	(dollars in thousands)
Predetermined interest rates	$	137,433	$	844,534	$	557,906	$	1,539,873
Floating or adjustable interest rates		101,435		92,720		459,200		653,355
Total	$	238,868	$	937,254	$	1,017,106	$	2,193,228

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	One Year or		One to Five		Over Five
As of December 31, 2019	Less		Years		Years		Total
	(dollars in thousands)
Predetermined interest rates	$	141,578	$	574,071	$	389,942	$	1,105,591
Floating or adjustable interest rates		136,700		97,641		396,411		630,752
Total	$	278,278	$	671,712	$	786,353	$	1,736,343

NONPERFORMING LOANS AND TROUBLED DEBT RESTRUCTURINGS

In order to operate with a sound risk profile, we focus on originating loans that we believe to be of high quality. We have established loan approval policies and procedures to assist us in maintaining the overall quality of our loan portfolio. When delinquencies in our loans exist, we rigorously monitor the levels of such delinquencies for any negative or adverse trends. From time to time, we may modify loans to extend the term or make other concessions to help a borrower with a deteriorating financial condition stay current on their loan and to avoid foreclosure. We generally do not forgive principal or interest on loans or modify the interest rates on loans to rates that are below market rates. Furthermore, we are committed to collecting on all of our loans and, as a result, at times have lower net charge-offs compared to many of our peer banks. We believe that our commitment to collecting on all of our loans results in higher loan recoveries.

Our nonperforming assets consist of nonperforming loans and foreclosed real estate. Nonperforming loans are those on which the accrual of interest has stopped, as well as loans that are contractually 90 days past due on which interest continues to accrue. The composition of our nonperforming assets is as follows:

	September 30,			December 31,			September 30,
	2020			2019			2019
	(dollars in thousands)
Nonaccruals	$	17,808		$	5,093		$	4,692
Loans past due > 90 days, but still accruing		75			354			527
Total nonperforming loans	$	17,883		$	5,447		$	5,219
Accruing troubled debt resructured loans	$	1,223		$	1,844		$	175
Nonperforming loans as a percent of gross loans		0.84	%		0.31	%		0.30	%
Nonperforming loans as a percent of total assets		0.68	%		0.25	%		0.24	%

At September 30, 2020 and December 31, 2019, impaired loans had specific reserves of $1.6 million and $0.8 million, respectively.

Nonaccrual Loans

Loans are typically placed on nonaccrual status when any payment of principal and/or interest is 90 days or more past due, unless the collateral is sufficient to cover both principal and interest and the loan is in the process of collection. Loans are also placed on nonaccrual status when management believes, after considering economic and business conditions, that the principal or interest will not be collectible in the normal course of business. We monitor closely the performance of our loan portfolio. In addition to the monitoring and review of loan performance internally, we have also contracted with an independent organization to review our commercial and retail loan portfolios. The status of delinquent loans, as well as situations identified as potential problems, is reviewed on a regular basis by senior management. The increase in nonaccrual loans during the first nine months of 2020 were primarily due to negative impacts of the current economic conditions on five large commercial customers. Two of these customers, whose balances comprise 57% of the total value of nonaccrual loans at September 30, 2020, remain current with their loan repayments. The remaining three relationships are either adequately collateralized or only modestly under collateralized, in which case specific reserves have been established within the allowance for loan losses, and are performing under terms of reorganization plans.

Troubled Debt Restructurings

A troubled debt restructuring includes a loan modification where a borrower is experiencing financial difficulty and we grant a concession to that borrower that we would not otherwise consider except for the borrower’s financial difficulties. These concessions may include modifications of the terms of the debt such as deferral of payments, extension of maturity, reduction of principal balance, reduction of the stated interest rate other than normal market rate adjustments, or a combination of these concessions. Debt may be

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bifurcated with separate terms for each tranche of the restructured debt. Restructuring a loan in lieu of aggressively enforcing the collection of the loan may benefit the Company by increasing the ultimate probability of collection.

A TDR may be either on accrual or nonaccrual status based upon the performance of the borrower and management’s assessment of collectability. If a TDR is placed on nonaccrual status, which would occur based on the same criteria as non-TDR loans, it remains there until a sufficient period of performance under the restructured terms has occurred at which it returned to accrual status, generally 6 months.

As of September 30, 2020 and December 31, 2019 the Company had specific reserves of $0 and $80,000 for TDRs, respectively, and none of them have subsequently defaulted.

During the first half of 2020 the Bank has experienced an increase in customer requests for loan modifications and payment deferrals as a result of impacts of the COVID-19 pandemic. The CARES act, signed into law on March 27, 2020, allowed financial institutions the option to exempt loan modifications related to the COVID-19 pandemic that would otherwise be categorized as a TDR from consideration for TDR treatment. Modifications in the scope of the exemption include forbearance agreements, interest-rate modifications, repayment plan changes and any other similar arrangements that would delay payments of principal or interest. This relief is allowable on modifications on loans which were not more than 30 days past due as of December 31, 2019, and that occur after March 1, 2020, and before the earlier of 60 days after the date on which the national emergency related to the COVID-19 outbreak is terminated. The Company granted payment deferrals to over 625 customers on loans totaling over $271.5 million. These deferrals were primarily for lengths in the range of 60 to 180 days, and were a combination of deferrals of principal payments only (89.7% by dollar value) or both principal and interest payments (10.3% by dollar value). As of September 30, 2020, these totals had decreased to 383 loans totaling $187.3 million.

Classified loans

Accounting standards require the Company to identify loans, where full repayment of principal and interest is doubtful, as impaired loans. These standards require that impaired loans be valued at the present value of expected future cash flows, discounted at the loan’s effective interest rate, or using one of the following methods: the observable market price of the loan or the fair value of the underlying collateral if the loan is collateral dependent. We have implemented these standards in our quarterly review of the adequacy of the ALL, and identify and value impaired loans in accordance with guidance on these standards. As part of the review process, we also identify loans classified as watch, which have a potential weakness that deserves management’s close attention.

Loans totaling $52.3 million were classified substandard under the Bank’s policy at September 30, 2020 and loans totaling $60.3 million were classified substandard under the Bank’s policy as of December 31, 2019. The following table sets forth information related to the credit quality of our loan portfolio at September 30, 2020 and December 31, 2019.

Loan type (in thousands)	Pass		Watch		Substandard		Total
As of September 30, 2020 (unaudited)
Commercial & industrial	$	505,025	$	32,736	$	4,742	$	542,503
Commercial real estate		799,803		111,943		44,943		956,689
Construction & Development		144,925		5,101		140		150,166
Residential 1-4 family		478,640		7,829		2,463		488,932
Consumer		29,805		12		—		29,817
Other loans		24,868		253		—		25,121
Total loans	$	1,983,066	$	157,874	$	52,288	$	2,193,228

Loan type (in thousands)	Pass		Watch		Substandard		Total
As of December 31, 2019
Commercial & industrial	$	270,948	$	19,074	$	12,358	$	302,380
Commercial real estate		693,642		72,610		46,891		813,143
Construction & Development		128,820		3,313		30		132,163
Residential 1-4 family		441,144		6,511		975		448,630
Consumer		29,517		37		32		29,586
Other loans		6,504		3,937		—		10,441
Total loans	$	1,570,575	$	105,482	$	60,286	$	1,736,343

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ALLOWANCE FOR LOAN LOSSES

ALL represents management’s estimate of probable and inherent credit losses in the loan portfolio. Estimating the amount of the ALL require the exercise of significant judgment and the use of estimates related to the amount and timing of expected future cash flows or impaired loans, estimated losses on pools of homogenous loans based on historical loss experience, and consideration of other qualitative factors such as current economic trends and conditions, all of which may be susceptible to significant change. The loan portfolio also represents the largest asset on the consolidated balance sheets. Loan losses are charged off against the ALL, while recoveries of amounts previously charged off are credited to the ALL. A provision for loan losses is charged to operations based on management’s periodic evaluation of the factors previously mentioned, as well as other pertinent factors.

The ALL consists of specific reserves for certain individually evaluated impaired loans and general reserves for collectively evaluated non-impaired loans. Specific reserves reflect estimated losses on impaired loans from management’s analyses developed through specific credit allocations. The specific reserves are based on regular analyses of impaired, non-homogenous loans greater than $250,000. These analyses involve a high degree of judgment in estimating the amount of loss associated with specific loans, including estimating the amount and timing of future cash flows and collateral values. The general reserve is based in part on the Bank’s historical loss experience which is updated quarterly. The general reserve portion of the ALL also includes consideration of certain qualitative factors such as (1) changes in lending policies and/or underwriting practices, (2) national and local economic conditions, (3) changes in portfolio volume and nature, (4) experience, ability and depth of lending management and other relevant staff, (5) levels of and trends in past-due and nonaccrual loans and quality, (6) changes in loan review and oversight, (7) impact and effects of concentrations and (8) other issues deemed relevant.

There are many factors affecting ALL; some are quantitative while others require qualitative judgment. The process for determining the ALL (which management believes adequately considers potential factors which might possibly result in credit losses) includes subjective elements and, therefore, may be susceptible to significant change. To the extent actual outcomes differ from management estimates, additional provision for loan losses could be required that could adversely affect our earnings or financial position in future periods. Allocations of the ALL may be made for specific loans but the entire ALL is available for any loan that, in management’s judgment, should be charged off or for which an actual loss is realized. As an integral part of their examination process, various regulatory agencies review the ALL as well. Such agencies may require that changes in the ALL be recognized when such regulators’ credit evaluations differ from those of management based on information available to the regulators at the time of their examinations.

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The following table summarizes the changes in our ALL for the periods indicated:

	Nine months ended			Year ended			Nine months ended
	September 30,			December 31,			September 30,
	2020			2019			2019
	(dollars in thousands)
Period-end loans outstanding (net of unearned discount and deferred loan fees)	$	2,193,228		$	1,736,343		$	1,714,213
Average loans outstanding (net of unearned discount and deferred loan fees)	$	1,973,716		$	1,565,261		$	1,513,552
Balance of allowance for loan losses at the beginning of period	$	11,396		$	12,248		$	12,248
Loans charged-off:
Commercial & industrial		631			1,229			1,229
Commercial real estate - owner occupied		773			4,994			4,974
Commercial real estate - non-owner occupied		—			62			55
Construction & Development		—			—			—
Residential 1-4 family		63			276			83
Consumer		33			76			75
Other Loans		19			41			29
Total loans charged-off		1,519			6,678			6,445
Recoveries of loans previously charged off:
Commercial & industrial		2			11			3
Commercial real estate - owner occupied		873			356			4
Commercial real estate - non-owner occupied		40			60			60
Construction & Development		—			—			—
Residential 1-4 family		40			130			126
Consumer		—			11			4
Other Loans		11			8			6
Total recoveries of loans previously charged off:		966			576			203
Net Loan charge-offs		553			6,102			6,242
Provision charged to operating expense		5,475			5,250			4,125
Balance at end of period	$	16,318		$	11,396		$	10,131
Ratio of net charge offs during the year to average loans outstanding		0.03	%		0.39	%		0.48	%
Ratio of allowance for loan losses to loans outstanding		0.74	%		0.66	%		0.59	%

The level of charge-offs depends on many factors, including the national and regional economy. Cyclical lagging factors may result in charge-offs being higher than historical levels. Although the allowance is allocated between categories, the entire allowance is available to absorb losses attributable to all loan categories. Management believes that the current ALL is adequate.

The following table summarizes an allocation of the ALL and the related percentage of loans outstanding in each category for the periods below.

	September 30,				December 31,				September 30,
	2020				2019				2019
(in thousands, except %)	Amount		% of Loans		Amount		% of Loans		Amount		% of Loans
Loan Type:
Commercial & industrial	$	1,829	25	%	$	2,320	17	%	$	2,302	18	%
Commercial real estate - owner occupied		5,682	24	%		4,587	26	%		3,140	27	%
Commercial real estate - non-owner occupied		3,894	20	%		1,578	20	%		1,919	20	%
Construction & Development		1,022	7	%		548	8	%		504	7	%
Residential 1-4 family		3,405	22	%		2,169	26	%		2,092	26	%
Consumer		194	1	%		141	2	%		147	2	%
Other Loans		292	1	%		53	1	%		27	0	%
Total allowance	$	16,318	100	%	$	11,396	100	%	$	10,131	100	%

SOURCES OF FUNDS

General. Deposits traditionally have been our primary source of funds for our investment and lending activities. We also borrow from the FHLB of Chicago to supplement cash needs, to lengthen the maturities of liabilities for interest rate risk management purposes and to manage our cost of funds. 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.

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Deposits. Our current deposit products include non-interest bearing and interest-bearing checking accounts, savings accounts, money market accounts, and certificate of deposits. As of September 30, 2020, deposit liabilities accounted for approximately 86.0% 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. We rely on our competitive pricing and products, quality customer service, and convenient locations and hours to attract and retain deposits. Deposit rates and terms are based primarily on current business strategies, market interest rates, liquidity requirements and our deposit growth goals.

Total deposits were $2.27 billion and $1.84 billion as of September 30, 2020 and December 31, 2019, respectively. Noninterest-bearing deposits at September 30, 2020 and December 31, 2019, were $688.2 million and $476.5 million, respectively, while interest-bearing deposits were $1.58 billion and $1.37 billion at September 30, 2020 and December 31, 2019, respectively.

At September 30, 2020, we had a total of $386.6 million in certificates of deposit, including $19.8 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:

	Nine months ended						Year ended						Nine months ended
	September 30, 2020						December 31, 2019						September 30, 2019
					Weighted						Weighted						Weighted
	Amount		Percent		average rate		Amount		Percent		average rate		Amount		Percent		average rate
	(dollars in thousands)
Noninterest-bearing demand deposits	$	608,539	29.3	%	N/A		$	495,039	29.4	%	N/A		$	479,733	29.4	%	N/A
Interest-bearing checking deposits		194,592	9.4	%	0.41	%		90,273	5.4	%	1.98	%		81,051	5.0	%	2.32	%
Savings deposits		343,196	16.5	%	0.56	%		261,977	15.6	%	0.98	%		250,783	15.4	%	1.02	%
Money market accounts		542,993	26.1	%	0.62	%		440,773	26.2	%	1.11	%		425,662	26.1	%	1.14	%
Certificates of deposit		371,170	17.9	%	1.83	%		380,117	22.6	%	2.14	%		379,836	23.2	%	2.14	%
Brokered deposits		18,090	0.8	%	2.89	%		16,387	1.0	%	2.95	%		16,661	1.0	%	2.93	%
Total	$	2,078,580	100	%			$	1,684,566	100	%			$	1,633,726	100	%

Certificates of deposit of $100,000 or greater by maturity are as follows:

	September 30,		December 31,		September 30,
	2020		2019		2019
	(dollars in thousands)
Less than 3 months remaining	$	28,922	$	34,306	$	26,034
3 to 6 months remaining		33,558		23,201		32,640
6 to 12 months remaining		65,671		38,937		40,002
12 months or more remaining		45,127		80,151		85,277
Total	$	173,278	$	176,595	$	183,953

Retail certificates of deposit of $100,000 or greater totaled $173.3 million and $176.6 million at September 30, 2020 and December 31, 2019, respectively. Interest expense on retail certificates of deposit of $100,000 or greater was $2.5 million for the nine months ended September 30, 2020, and $3.5 million for the year ended December 31, 2019.

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The following table sets forth certificates of deposit classified by interest rate as of the dates indicated:

	September 30,		December 31,		September 30,
	2020		2019		2019
	(dollars in thousands)
Interest Rate:
Less than 1.00%	$	86,110	$	168	$	2,654
1.00% to 1.99%		142,162		165,763		134,933
2.00% to 2.99%		127,921		190,164		234,276
3.00% to 3.99%		30,419		32,911		32,761
Total	$	386,612	$	389,006	$	404,624

Borrowings

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

	Nine months			Year ended			Nine months
	ended			December 31,			ended
(dollars in thousands)	September 30, 2020			2019			September 30, 2019
Average daily amount of securities sold under repurchase agreements during the period	$	39,179		$	21,522		$	22,134
Weighted average interest rate on average daily securities sold under repurchase agreements		0.37	%		2.14	%		2.31	%
Maximum outstanding securities sold under repurchase agreements at any month-end	$	79,718		$	45,865		$	42,338
Securities sold under repurchase agreements at period end	$	23,894		$	45,865		$	12,201
Weighted average interest rate on securities sold under repurchase agreements at period end		0.01	%		1.47	%		1.83	%

Borrowings

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 $25.0 million of advances outstanding from the FHLB at September 30, 2020, and $39.8 million as of December 31, 2019.

The total loans pledged as collateral were $885.0 million at September 30, 2020 and $815.2 million at December 31, 2019. Outstanding letters of credit from the FHLB totaled $4.9 million at September 30, 2020 and December 31, 2019.

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

	Nine months			Year ended			Nine months
	ended			December 31,			ended
(dollars in thousands)	September 30, 2020			2019			September 30, 2019
Average daily amount of borrowings outstanding during the period	$	39,384		$	16,665		$	8,873
Weighted average interest rate on average daily borrowing		1.48	%		1.90	%		1.75	%
Maximum outstanding borrowings at any month-end	$	58,800		$	39,800		$	39,800
Borrowing outstanding at period end	$	24,988		$	39,800		$	39,800
Weighted average interest rate on borrowing at period end		1.29	%		1.80	%		1.80	%

Lines of credit and other borrowings.

We maintained a $5.0 million line of credit with a commercial bank. At December 31, 2019, the Company had an outstanding balance of $5.0 million on this line. Borrowings under this note carried interest at a variable rate with a floor of 3.50%, and was due in full on May 25, 2021. This agreement was terminated on July 22, 2020.

We also maintained a $5.0 million line of credit with another commercial bank. At December 31, 2019, the Company had an outstanding balance of $5.0 million on this line. This note was not renewed when it matured on May 19, 2020.

We maintain a $7.5 million line of credit with another commercial bank, which was entered into on May 15, 2020. There were no outstanding balances on this note at September 30, 2020. Any future borrowings will required monthly payments of interest at a variable rate, and will be due in full on May 15, 2021.

During September 2017, the Company entered into subordinated note agreements with three separate commercial banks, where the Company had up to twelve months from entering these agreements to borrow funds up to a maximum availability of $22.5 million. As of September 30, 2020 and December 31, 2019, outstanding balances under these agreements totaled $11.5 million. These notes were all issued with 10-year maturities, carry interest at a variable rate payable quarterly, are callable on or after the sixth anniversary of their issuance dates, and qualify for Tier 2 capital for regulatory purposes.

As part of the Partnership acquisition, the Company assumed a subordinated note agreement with an outstanding balance of $7.0 million, and a fair market value adjustment of $0.2 million ($12,000 and $61,000 at June 30, 2020 and December 31, 2019, respectively). The total amount outstanding was $7.0 million and $7.1 million at September 30, 2020 and December 31, 2019, respectively. The note was set to mature on October 1, 2025, required quarterly interest-only payments at a rate of 7.1% prior to maturity, and could be prepaid without penalty after October 1, 2020. This note qualified for Tier 2 capital for regulatory purposes. This note was prepaid in full on October 1, 2020.

On July 22, 2020, the Company entered into subordinated note agreements with two separate commercial banks. The Company has through December 31, 2020, to borrow funds up to a maximum availability of $6.0 million under each agreement, or $12.0 million total. 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. These notes are callable on or after January 1, 2026 and qualify for Tier 2 capital for regulatory purposes. The Company had outstanding balances of $2.0 million under these agreements at September 30, 2020.

INVESTMENT SECURITIES

Our securities portfolio consists of securities available for sale and securities held to maturity. 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. government agencies or U.S. government-sponsored enterprises, make up the largest components of the securities portfolio. We manage our investment portfolio to provide an adequate level of liquidity as well as to maintain neutral interest rate-sensitive positions, while earning an adequate level of investment income without taking undue or excessive risk.

Securities available for sale consist of obligations of states and political subdivision, 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

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sale totaled $173.3 million and included gross unrealized gains of $8.2 million and gross unrealized losses of $0.1 at September 30, 2020. At December, 31 2019, the fair value of securities available for sale totaled $181.5 million and included gross unrealized gains of $3.4 million and gross unrealized losses of $0.2 million.

Securities classified as held to maturity consist of 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 totaled $6.7 million and $43.7 million at September 30, 2020 and December 31, 2019, respectively.

The Company recognized a net gain on sale of available for sale securities of $0.1 million during the nine-months ended September 30, 2020, The Company recognized a net gain of $3.1 million on sale of held to maturity securities during the nine-months ended September 30, 2020. The Company recognized a net gain of $0.2 million on the sale of an investment previously classified as an “other investment” and a $22,000 gain on sale of available for sale securities during the nine-months ended September 30, 2019.

The following table sets forth the fair value of available for sale investment securities, the amortized costs of held to maturity and the percentage distribution at the dates indicated:

	September 30,				December 31,
	2020				2019
	Amount		Percent		Amount		Percent
	(dollars in thousands)
Available for sale securities, at estimated fair value
Obligations of U.S. Government sponsored agencies	$	18,819	11	%	$	12,060	7	%
Obligations of states and political subdivisions		73,517	43	%		54,771	30	%
Mortgage-backed securities		50,804	29	%		51,720	28	%
Corporate notes		27,832	16	%		62,955	35	%
Certificates of deposit		2,362	1	%		—	0	%
Total securities available for sale		173,334	100	%		181,506	100	%
Held to maturity securities, at amortized cost
U.S. Treasury securities		—	0	%		33,527	77	%
Obligations of states and political subdivisions		6,670	100	%		10,207	23	%
Total securities held to maturity		6,670	100	%		43,734	100	%
Total	$	180,004			$	225,240

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The following tables set forth the composition and maturities of investment securities as of September 30, 2020 and December 31, 2019. 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.

					After One, But				After Five, But
					Within Five				Within Ten
	Within One Year				Years				Years				After Ten Years				Total
			Weighted				Weighted				Weighted				Weighted				Weighted
	Amortized		Average		Amortized		Average		Amortized		Average		Amortized		Average		Amortized		Average
	Cost		Yield (1)		Cost		Yield (1)		Cost		Yield (1)		Cost		Yield (1)		Cost		Yield (1)
	(dollars in thousands)
At September 30, 2020
Available for sale securities
Obligations of U.S.
Government sponsored agencies	$	304	0.4	%	$	311	0.1	%	$	2,185	2.1	%	$	15,483	1.8	%	$	18,283	1.8	%
Obligations of states and political subdivisions		—	0.0	%		5,407	3.7	%		8,829	3.2	%		55,178	3.4	%		69,414	3.4	%
Mortgage-backed securities		1,687	2.2	%		15,546	2.4	%		18,806	2.8	%		11,825	2.6	%		47,864	2.6	%
Corporate notes		11,936	2.9	%		4,958	3.3	%		—	—			10,431	0.8	%		27,325	2.1	%
Certificates of deposit		496	2.0	%		1,824	1.0	%		—	—			—	—			2,320	1.2	%
Total available for sale securities	$	14,423	2.7	%	$	28,046	2.7	%	$	29,820	2.9	%	$	92,917	2.7	%	$	165,206	2.7	%
Held to maturity securities
Obligations of states and political subdivisions	$	751	1.8	%	$	3,524	2.6	%	$	2,395	2.9	%	$	—	—		$	6,670	2.6	%
Total	$	15,174	2.6	%	$	31,570	2.7	%	$	32,215	2.9	%	$	92,917	2.7	%	$	171,876	2.7	%

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					After One, But				After Five, But
	Within One Year				Within Five Years				Within Ten Years				After Ten Years				Total
			Weighted				Weighted				Weighted				Weighted				Weighted
	Amortized		Average		Amortized		Average		Amortized		Average		Amortized		Average		Amortized		Average
	Cost		Yield (1)		Cost		Yield (1)		Cost		Yield (1)		Cost		Yield (1)		Cost		Yield (1)
	(dollars in thousands)
At December 31, 2019
Available for sale securities
Obligations of U.S. Government sponsored agencies	$	—	—		$	—	—		$	—	—		$	12,218	2.3	%	$	12,218	2.3	%
Obligations of states and political subdivisions		1,685	3.1	%		6,524	3.5	%		13,153	3.7	%		31,231	3.7	%		52,593	3.6	%
Mortgage-backed securities		1,469	2.1	%		18,395	2.5	%		19,514	2.9	%		11,392	2.8	%		50,770	2.7	%
Corporate notes		45,752	1.8	%		16,815	3.0	%		—	—			228	8.3	%		62,795	2.1	%
Total available for sale securities	$	48,906	1.9	%	$	41,734	2.8	%	$	32,667	3.2	%	$	55,069	3.2	%	$	178,376	2.8	%
Held to maturity securities
U.S. Treasury securities	$	3,508	2.3	%	$	12,501	2.6	%	$	17,517	2.4	%	$	—	—		$	33,526	2.4	%
Obligations of states and political subdivisions		628	1.6	%		4,276	2.4	%		2,395	2.9	%		2,909	3.8	%		10,208	2.9	%
Total held to maturity securities		4,136	2.1	%		16,777	2.5	%		19,912	2.5	%		2,909	3.8	%		43,734	2.5	%
Total	$	53,042	1.9	%	$	58,511	2.8	%	$	52,579	2.9	%	$	57,978	3.2	%	$	222,110	2.7	%

(1) Weighted Average Yield is shown on a fully taxable equivalent basis using a federal tax rate of 21% at September 30, 2020 and December 31, 2019, respectively.

The Company evaluates securities for other-than-temporary impairment on at least a quarterly basis, and more frequently when economic or market conditions warrant such evaluation. Consideration is given to (1) credit quality of individual securities and their issuers are assessed; (2) the length of time and the extent to which the fair value has been less than cost; (3) the financial condition and near-term prospects of the issuer; and (4) that the Company does not have the intent to sell the security and it is more likely than not that it will not have to sell the security before recovery of its cost basis.

As of September 30, 2020, 5 debt securities had gross unrealized losses, with negligible aggregate depreciation from our amortized cost basis. The largest unrealized loss percentage of any single security was 1.14% (or $58,000) of its amortized cost. This was also the largest unrealized dollar loss of any security.

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As of December 31, 2019, 20 debt securities had gross unrealized losses, with an aggregate depreciation of 0.11% from our amortized cost basis. The largest unrealized loss percentage of any single security was 1.87% (or $6,000) of its amortized cost. The largest unrealized dollar loss of any single security was $67,000 (or 1.46%) of its amortized cost.

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

LIQUIDITY AND CAPITAL RESOURCES

Impact of Inflation and Changing Prices. Our consolidated financial statements and related notes have been prepared in accordance with GAAP. GAAP generally requires the measurement of financial position and operating results in terms of historical dollars without consideration of changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of our operations. Unlike industrial companies, our assets and liabilities are primarily monetary in nature. As a result, changes in market interest rates have a greater impact on our performance than they would on industrial companies.

Liquidity. 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. Liquidity is the risk of potential loss if we were unable to meet our funding requirements at a reasonable cost. We are expected to maintain adequate liquidity at the Bank to meet the cash flow requirements of customers who may be either depositors wishing to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs. Our asset and liability management policy is intended to cause the Bank to maintain adequate liquidity and, therefore, enhance our ability to raise funds to support asset growth, meet deposit withdrawals and lending needs, maintain reserve requirements and otherwise sustain our operations.

We continuously monitor our liquidity position to ensure that assets and liabilities are managed in a manner that will meet all of our short-term and long-term cash requirements. We manage our liquidity based on demand and specific events and uncertainties to meet current and future financial obligations of a short-term nature. We also monitor our liquidity requirements in light of interest rate trends, changes in the economy and the scheduled maturity and interest rate sensitivity of the investment and loan portfolios and deposits. Our objective in managing liquidity is to respond to the needs of depositors and borrowers as well as to increase earnings enhancement opportunities in a changing marketplace.

Our liquidity is maintained through investment portfolio, deposits, borrowings from the FHLB, and lines available from correspondent banks. Our highest priority is placed on growing noninterest bearing deposits through strong community involvement in the markets that we serve. Borrowings and brokered deposits are considered short-term supplements to our overall liquidity but are not intended to be relied upon for long-term needs. We believe that our present position is adequate to meet our current and future liquidity needs, and management knows of no trend or event that will have a material impact on the Company’s ability to maintain liquidity at satisfactory levels.

Capital Adequacy. Total stockholders’ equity was $286.1 million at September 30, 2020 compared to $230.2 million at December 31, 2019.

Our capital management consists of providing adequate equity to support our current and future operations. The Bank is subject to various regulatory capital requirements administered by state and federal banking agencies, including the Federal Reserve and the OCC. Failure to meet minimum capital requirements may prompt certain actions by regulators that, if undertaken, could have a direct material adverse effect on our financial condition and results of operations. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measure of their assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and the classifications are also subject to qualitative judgment by the regulator in regards to components, risk weighting and other factors.

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The Bank is subject to the following risk-based capital ratios: a common equity Tier 1 (“CET1”) risk-based capital ratio, a Tier 1 risk-based capital ratio, which includes CET1 and additional Tier 1 capital, and a total capital ratio, which includes Tier 1 and Tier 2 capital. CET1 is primarily comprised of the sum of common stock instruments and related surplus net of treasury stock, retained earnings, and certain qualifying minority interests, less certain adjustments and deductions, including with respect to goodwill, intangible assets, mortgage servicing assets and deferred tax assets subject to temporary timing differences. Additional Tier 1 capital is primarily comprised of noncumulative perpetual preferred stock, tier 1 minority interests and grandfathered trust preferred securities. Tier 2 capital consists of instruments disqualified from Tier 1 capital, including qualifying subordinated debt, other preferred stock and certain hybrid capital instruments, and a limited amount of loan loss reserves up to a maximum of 1.25% of risk-weighted assets, subject to certain eligibility criteria. The capital rules also define the risk-weights assigned to assets and off-balance sheet items to determine the risk-weighted asset components of the risk-based capital rules, including, for example, certain “high volatility” commercial real estate, past due assets, structured securities and equity holdings.

The leverage capital ratio, which serves as a minimum capital standard, is the ratio of Tier 1 capital to quarterly average assets net of goodwill, certain other intangible assets, and certain required deduction items. The required minimum leverage ratio for all banks is 4%.

In addition, the capital rules require a capital conservation buffer of up to 2.5% above each of the minimum capital ratio requirements (CET1, Tier 1, and total risk-based capital), which is designed to absorb losses during periods of economic stress. These buffer requirements must be met for a bank to be able to pay dividends, engage in share buybacks or make discretionary bonus payments to executive management without restriction. This capital conservation buffer is being phased in, and was 1.875% as of January 1, 2018 and is 2.5% effective January 1, 2019.

Failure to be well-capitalized or to meet minimum capital requirements could result in certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have an adverse material effect on our operations or financial condition. For example, only a well-capitalized depository institution may accept brokered deposits without prior regulatory approval. Failure to be well-capitalized or to meet minimum capital requirements could also result in restrictions on the Bank’s ability to pay dividends or otherwise distribute capital or to receive regulatory approval of applications or other restrictions on its growth.

The Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”), among other things, requires the federal bank regulatory agencies to take “prompt corrective action” regarding depository institutions that do not meet minimum capital requirements. FDICIA establishes five regulatory capital tiers: “well capitalized”, “adequately capitalized”, “undercapitalized”, “significantly undercapitalized”, and “critically undercapitalized”. A depository institution’s capital tier will depend upon how its capital levels compare to various relevant capital measures and certain other factors, as established by regulation. FDICIA generally prohibits a depository institution from making any capital distribution (including payment of a dividend) or paying any management fee to its holding company if the depository institution would thereafter be undercapitalized. The FDICIA imposes progressively more restrictive restraints on operations, management and capital distributions, depending on the category in which an institution is classified. Undercapitalized depository institutions are subject to restrictions on borrowing from the Federal Reserve System. In addition, undercapitalized depository institutions may not accept brokered deposits absent a waiver from the FDIC, are subject to growth limitations and are required to submit capital restoration plans for regulatory approval. A depository institution’s holding company must guarantee any required capital restoration plan, up to an amount equal to the lesser of 5 percent of the depository institution’s assets at the time it becomes undercapitalized or the amount of the capital deficiency when the institution fails to comply with the plan. Federal banking agencies may not accept a capital plan without determining, among other things, that the plan is based on realistic assumptions and is likely to succeed in restoring the depository institution’s capital. If a depository institution fails to submit an acceptable plan, it is treated as if it is significantly undercapitalized. 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 December 31, 2018, and brokered deposits are not restricted.

To be well-capitalized, the Bank must maintain at least the following capital ratios:

● 6.5% CET1 to risk-weighted assets;

● 8.0% Tier 1 capital to risk-weighted assets;

● 10.0% Total capital to risk-weighted assets; and

● 5.0% leverage ratio.

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The Bank’s regulatory capital ratios were above the applicable well-capitalized standards and met the then-applicable capital conservation buffer. Based on current estimates, we believe that the Bank will continue to exceed all applicable well-capitalized regulatory capital requirements and the capital conservation buffer in 2019.

The Economic Growth, Regulatory Relief, and Consumer Protection Act (the “Economic Growth Act”) signed into law in May 2018 scaled back certain requirements of the Dodd-Frank Act and provided other regulatory relief. Among the provisions of the Economic Growth Act was a requirement that the Federal Reserve raise the asset threshold for those bank holding companies subject to the Federal Reserve’s Small Bank Holding Company Policy Statement (“Policy Statement”) to $3 billion. As a result, as of the effective date of that change in 2018, the Company was no longer required to comply with the risk-based capital rules applicable to the Bank as described above. The Federal Reserve may however, require smaller bank holding companies subject to the Policy Statement to maintain certain minimum capital levels, depending upon general economic conditions and a bank holding company’s particular condition, risk profile and growth plans.

As a result of the Economic Growth Act, the federal banking agencies were also required to develop a “Community Bank Leverage Ratio” (the ratio of a bank’s Tier 1 capital to average total consolidated assets) for financial institutions with assets of less than $10 billion. A “qualifying community bank” that exceeds this ratio will be deemed to be in compliance with all other capital and leverage requirements, including the capital requirements to be considered “well capitalized” under prompt corrective action statutes. The federal banking agencies may consider a financial institutions risk profile when evaluation whether it qualifies as a community bank for purposes of the capital ratio requirement. The federal banking agencies set the minimum capital for the new Community Bank Leverage Ratio at 9%. The Bank does not intend to opt into the Community Bank Leverage Ratio Framework.

On December 21, 2018, federal banking agencies issued a joint final rule to revise their regulatory capital rules to (i) address the upcoming implementation of the “current expected credit losses” (“CECL”) accounting standard under GAAP; (ii) provide an optional three-year phase-in period for the day-one adverse regulatory capital effects that banking organizations are expected to experience upon adopting CECL; and (iii) require the use of CECL in stress tests beginning with the 2020 capital planning and stress testing cycle for certain banking organizations. for more information regarding Accounting Standards Update No. 2016-13, which introduced CECL as the methodology to replace the current “incurred loss” methodology for financial assets measured at amortized cost, and changed the approaches for recognizing and recording credit losses on available-for-sale debt securities and purchased credit impaired financial assets, including the required implementation date for the Company, see the Company’s Annual Report.

Federal banking regulators have issued risk-based capital guidelines, which assign risk factors to asset categories and off-balance-sheet items. The following table reflects capital ratios computed utilizing the implemented Basel III regulatory capital framework discussed above:

								Minimum Capital
								Required for
								Capital Adequacy			Minimum To Be
								Plus Capital			Well-Capitalized
					Minimum Capital			Conservation Buffer			Under Ptompt
					Required for			Basel III Fully			Corective Action
	Actual				Capital Adequacy			Phased In			Provisions
	Amount		Ratio		Amount	Ratio		Amount	Ratio		Amount	Ratio
	(dollars in thousands)
At September 30, 2020
Bank First Corporation:
Total capital (to risk-weighted assets)	$	255,984	11.9	%	N/A	N/A		N/A	N/A		N/A	N/A
Tier I capital (to risk-weighted assets)		219,154	10.2	%	N/A	N/A		N/A	N/A		N/A	N/A
Common equity tier I capital (to risk-weighted assets)		219,154	10.2	%	N/A	N/A		N/A	N/A		N/A	N/A
Tier I capital (to average assets)		219,154	8.5	%	N/A	N/A		N/A	N/A		N/A	N/A
Bank First, N.A:
Total capital (to risk-weighted assets)	$	252,284	11.7	%	172,179	8.0	%	225,985	10.5	%	215,224	10.0	%
Tier I capital (to risk-weighted assets)		235,966	11.0	%	129,135	6.0	%	182,941	8.5	%	172,179	8.0	%
Common equity tier I capital (to risk-weighted assets)		235,966	11.0	%	96,851	4.5	%	150,657	7.0	%	139,896	6.5	%
Tier I capital (to average assets)		235,966	9.3	%	102,019	4.0	%	102,019	4.0	%	127,524	5.0	%
At December 31, 2019
Bank First Corporation:
Total capital (to risk-weighted assets)	$	208,900	10.4	%	N/A	N/A		N/A	N/A		N/A	N/A
Tier I capital (to risk-weighted assets)		178,882	8.9	%	N/A	N/A		N/A	N/A		N/A	N/A
Common equity tier I capital (to risk-weighted assets)		178,882	8.9	%	N/A	N/A		N/A	N/A		N/A	N/A
Tier I capital (to average assets)		178,882	8.5	%	N/A	N/A		N/A	N/A		N/A	N/A
Bank First, N.A:
Total capital (to risk-weighted assets)	$	215,347	10.7	%	161,163	8.0	%	211,527	10.5	%	201,454	10.0	%
Tier I capital (to risk-weighted assets)		203,951	10.1	%	120,872	6.0	%	171,236	8.5	%	161,163	8.0	%
Common equity tier I capital (to risk-weighted assets)		203,951	10.1	%	90,654	4.5	%	141,018	7.0	%	130,945	6.5	%
Tier I capital (to average assets)		203,951	9.7	%	84,390	4.0	%	84,390	4.0	%	105,487	5.0	%

59

As previously mentioned, the Company carried $20.5 million of subordinated debt as of September 30, 2020 and December 31, 2019, respectively, which is included in total capital for the Company in the tables above.

FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

We are party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments primarily include commitments to originate and sell loans, standby and direct pay letters of credit, unused lines of credit and unadvanced portions of construction and development loans. The instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheet. The contract or notional amounts of those instruments reflect the extent of involvement the Company has in these particular classes of financial instruments.

Our exposure to credit loss in the event of nonperformance by the other party to the financial instrument for loan commitments, standby and direct pay letters of credit and unadvanced portions of construction and development loans is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.

Off-Balance Sheet Arrangements. Our significant off-balance-sheet arrangements consist of the following:

● Unused lines of credit

● Standby and direct pay letters of credit

● Credit card arrangements

Off-balance sheet arrangement means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with the registrant is a party, under which the registrant has (1) any obligation under a guarantee contract, (2) retained or contingent interest in assets transferred to an unconsolidated entity or similar arrangement, (3) any obligation, including a contingent obligation, under a contract that would be accounted for as a derivative instrument, or (4) any obligation, including a contingent obligation, arising out of a variable interest.

Loan commitments are made to accommodate the financial needs of our customers. Standby and direct pay letters of credit commit us to make payments on behalf of customers when certain specified future events occur. Both arrangements have credit risk essentially the same as that involved in extending loans to clients and are subject to our normal credit policies. Collateral (e.g., securities, receivables, inventory, equipment, etc.) is obtained based on management’s credit assessment of the customer.

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 at the dates indicated were as follows:

	Amounts of Commitments Expiring - By Period as of September 30, 2020
			Less Than		One to Three		Three to Five		After Five
Other Commitments	Total		One Year		Years		Years		Years
	(dollars in thousands)
Unused lines of credit	$	449,950	$	234,499	$	87,981	$	27,653	$	99,817
Standby and direct pay letters of credit		6,897		5,117		1,400		380		—
Credit card arrangements		9,973		—		—		—		9,973
Total commitments	$	466,820	$	239,616	$	89,381	$	28,033	$	109,790

	Amounts of Commitments Expiring - By Period as of December 31, 2019
			Less Than		One to Three		Three to Five		After Five
Other Commitments	Total		One Year		Years		Years		Years
	(dollars in thousands)
Unused lines of credit	$	383,209	$	194,890	$	47,214	$	28,215	$	112,890
Standby and direct pay letters of credit		17,121		5,354		5,050		5,426		1,291
Credit card arrangements		11,148		—		—		—		11,148
Total commitments	$	411,478	$	200,244	$	52,264	$	33,641	$	125,329

60

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of loss from adverse changes in market prices and rates. Our market risk arises primarily from interest rate risk inherent in its lending, investment and deposit-taking activities. To that end, management actively monitors and manages its interest rate risk exposure.

Our profitability is affected by fluctuations in interest rates. A sudden and substantial change in interest rates may adversely impact our earnings to the extent that the interest rates borne by assets and liabilities do not change at the same speed, to the same extent or on the same basis. We monitor the impact of changes in interest rates on its net interest income using several tools.

Our primary objective in managing interest rate risk is to minimize the adverse impact of changes in interest rates on our net interest income and capital, while configuring our asset-liability structure to obtain the maximum yield-cost spread on that structure. We rely primarily on our asset-liability structure to control interest rate risk.

Interest Rate Sensitivity. Interest rate risk is the risk to earnings and value arising from changes in market interest rates. Interest rate risk arises from timing differences in the repricings and maturities of interest-earning assets and interest-bearing liabilities (repricing risk), changes in the expected maturities of assets and liabilities arising from embedded options, such as borrowers’ ability to prepay home mortgage loans at any time and depositors’ ability to redeem certificates of deposit before maturity (option risk), changes in the shape of the yield curve where interest rates increase or decrease in a nonparallel fashion (yield curve risk), and changes in spread relationships between different yield curves, such as U.S. Treasuries and LIBOR (basis risk).

An asset sensitive position refers to a balance sheet position in which an increase in short-term interest rates is expected to generate higher net interest income, as rates earned on our interest-earning assets would reprice upward more quickly than rates paid on our interest-bearing liabilities, thus expanding our net interest margin. Conversely, a liability sensitive position refers to a balance sheet position in which an increase in short-term interest rates is expected to generate lower net interest income, as rates paid on our interest-bearing liabilities would reprice upward more quickly than rates earned on our interest-earning assets, thus compressing our net interest margin.

The Company actively manages its interest rate sensitivity position. The objectives of interest rate risk management are to control exposure of net interest income to risks associated with interest rate movements and to achieve sustainable growth in net interest income. The Company’s ALCO, using policies and procedures approved by the Company’s board of directors, is responsible for the management of the Company’s interest rate sensitivity position. The Company manages interest rate sensitivity by changing the mix, pricing and re-pricing characteristics of its assets and liabilities, through the management of its investment portfolio, its offerings of loan and selected deposit terms and through wholesale funding. Wholesale funding consists of, but is not limited to, multiple sources including borrowings with the FHLB of Chicago, the Federal Reserve Bank of Chicago’s discount window and certificates of deposit from institutional brokers.

The Company uses several tools to manage its interest rate risk including interest rate sensitivity analysis, or gap analysis, market value of portfolio equity analysis, interest rate simulations under various rate scenarios and net interest margin reports. The results of these reports are compared to limits established by the Company’s ALCO policies and appropriate adjustments are made if the results are outside the established limits.

There are an infinite number of potential interest rate scenarios, each of which can be accompanied by differing economic/political/regulatory climates; can generate multiple differing behavior patterns by markets, borrowers, depositors, etc.; and, can last for varying degrees of time. Therefore, by definition, interest rate risk sensitivity cannot be predicted with certainty. Accordingly, the Company’s interest rate risk measurement philosophy focuses on maintaining an appropriate balance between theoretical and practical scenarios; especially given the primary objective of the Company’s overall asset/liability management process is to facilitate meaningful strategy development and implementation.

Therefore, we model a set of interest rate scenarios capturing the financial effects of a range of plausible rate scenarios; the collective impact of which will enable the Company to clearly understand the nature and extent of its sensitivity to interest rate changes. Doing so necessitates an assessment of rate changes over varying time horizons and of varying/sufficient degrees such that the impact of embedded options within the balance sheet are sufficiently examined.

61

The following tables demonstrate the annualized result of an interest rate simulation and the estimated effect that a parallel interest rate shift, or “shock,” in the yield curve and subjective adjustments in deposit pricing might have on the Company’s projected net interest income over the next 12 months.

This simulation assumes that there is no growth in interest-earning assets or interest-bearing liabilities over the next 12 months. The changes to net interest income shown below are in compliance with the Company’s policy guidelines. As of September 30, 2020:

Change in Interest Rates (in	Percentage Change in
Basis Points)	Net Interst Income
+400	4.2%
+300	4.0%
+200	3.7%
+100	2.3%
(100)	(3.3)%

As of December 31, 2019:

Change in Interest Rates (in	Percentage Change in
Basis Points)	Net Interst Income
+400	(0.6)%
+300	(0.4)%
+200	(0.2)%
+100	0.0%
(100)	(1.1)%

Economic Value of Equity Analysis. We also analyze the sensitivity of the Company’s financial condition to changes in interest rates through our economic value of equity model. This analysis measures the difference between estimated changes in the present value of the Company’s assets and estimated changes in the present value of the Company’s liabilities assuming various changes in current interest rates. The Company’s economic value of equity analysis as of September 30, 2020 estimated that, in the event of an instantaneous 200 basis point increase in interest rates, the Company would experience a 14.57% increase in the economic value of equity. At the same date, our analysis estimated that, in the event of an instantaneous 100 basis point decrease in interest rates, the Company would experience a 1.73% increase in the economic value of equity. The estimates of changes in the economic value of our equity require us to make certain assumptions including loan and mortgage-related investment prepayment speeds, reinvestment rates, and deposit maturities and decay rates. These assumptions are inherently uncertain and, as a result, we cannot precisely predict the impact of changes in interest rates on the economic value of our equity. Although our economic value of equity analysis provides an indication of our interest rate risk exposure at a particular point in time, such estimates are not intended to, and do not, provide a precise forecast of the effect of changes in market interest rates on the economic value of our equity and will differ from actual results.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Management, including our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), undertook an evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report, and, based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report, in recording, processing, summarizing and reporting in a timely manner the information that the Company is required to disclose in its reports under the Exchange Act and in accumulating and communicating to the Company’s management, including the Company’s CEO and CFO, such information as appropriate to allow timely decisions regarding required disclosure.

62

Changes in Internal Control Over Financial Reporting

No changes were made to our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the quarter ended September 30, 2020 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

PART II. OTHER INFORMATION

ITEM 1.       LEGAL PROCEEDINGS

We are a party to various litigation in the normal course of business. Management, after consulting with our legal counsel, believes that any liability resulting from litigation will not have a material effect on our financial position, results of operations or liquidity.

ITEM 1A.     RISK FACTORS

Additional information regarding risk factors appears in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Forward-Looking Statements” of this Form 10-Q and in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019. There have been no material changes during the quarterly period ended September 30, 2020 to the risk factors previously disclosed in the Company’s Annual Report.

ITEM 2.       UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a) None.

(b) None.

(c) Issuer Purchases of Equity Securities

On July 21, 2020, the Company reactivated its share repurchase program, pursuant to which the Company may repurchase up to $10 million of its common stock, par value $0.01 per share, for a period of nine (9) months, ending on April 21, 2021. The program was announced in a Current Report on Form 8-K on July 27, 2020. The table below sets forth information regarding repurchases of our common stock during the third quarter of 2020 under that program and other repurchases.

				Total Number	Maximum Number
				of Shares Repurchased as	of Shares
				Part of	that May Yet Be
	Total Number of Shares	Average Price Paid per		Publicly Announced	Purchased Under the
(in thousands, except per share data)	Repurchased	Share(1)		Plans or Programs	Plans or Programs(2)
July 2020	1,852(3)	$	62.96	0	170,358
August 2020	0		N/A	0	170,358
September 2020	0		N/A	0	170,358
Total	1,852	$	62.96	0	170,358

(1) The average price paid per share is calculated on a trade date basis for all open market transactions and excludes commissions and other transaction expenses.

(2) Based on the closing per share price as of September 30, 2020 ($58.70).

(3) On July 10, 2020, the Company repurchased the shares issued as merger consideration to the Timberwood Bank Savings and Retirement Plan. The shares were not repurchased pursuant to any publicly announced plans or programs.

63

ITEM 3.       DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.       MINE SAFETY DISCLOSURES

None.

ITEM 5.       OTHER INFORMATION

None

ITEM 6.       EXHIBITS

Exhibit Index

Exhibit Number	Description
31.1	Rule 13a-14(a) Certification of Chief Executive Officer*
31.2	Rules 13a-14(a) Certification of Chief Financial Officer*
32.1	Section 1350 Certification of Chief Executive Officer and Chief Financial Officer**
101 INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

*Filed herewith.

**Furnished herewith.

64

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		BANK FIRST CORPORATION
DATE:	November 6, 2020	BY:	/s/Kevin M. LeMahieu
			Kevin M. LeMahieu
			Chief Financial Officer
			(Principal Financial and Accounting Officer)

65

EX-31.1

Exhibit 31.1

Certification of Chief Executive Officer

I, Michael B. Molepske, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Bank First Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	November 6, 2020	By:	/s/Michael B. Molepske
			Michael B. Molepske
			Chief Executive Officer and President

EX-31.2

Exhibit 31.2

Certification of Chief Financial Officer

I, Kevin M. LeMahieu, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Bank First Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	November 6, 2020	By:	/s/Kevin M. LeMahieu
			Kevin M. LeMahieu
			Chief Financial Officer

EX-32

Exhibit 32.1

Certification of Chief Executive Officer and Chief Financial Officer

Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the filing of theQuarterlyReport on Form10-Qfor the quarter endedSeptember 30, 2020(the “Report”) by Bank First Corporation (“Registrant”), each of the undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350 (as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002), that to the undersigned’s knowledge:

1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Registrant.

Date:	November 6, 2020	By:	/s/Michael B. Molepske
			Michael B. Molepske
			Chief Executive Officer and President
Date:	November 6, 2020	By:	/s/Kevin M. LeMahieu
			Kevin M. LeMahieu
			Chief Financial Officer

This certification “accompanies” the Form 10-Q to which it relates, is not deemed filed with the SEC and is not to be incorporated by reference into any filing of the Registrant under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q, irrespective of any general incorporation contained in such filing.)

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Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2020	Nov. 06, 2020
Document and Entity Information
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Sep. 30, 2020
Document Transition Report	false
Entity File Number	001-38676
Entity Registrant Name	Bank First Corp
Entity Incorporation, State or Country Code	WI
Entity Tax Identification Number	39-1435359
Entity Address, Address Line One	402 North 8th Street
Entity Address, City or Town	Manitowoc
Entity Address, State or Province	WI
Entity Address, Postal Zip Code	54220
City Area Code	920
Local Phone Number	652-3100
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	true
Entity Ex Transition Period	true
Entity Shell Company	false
Title of 12(b) Security	Common Stock, par value $0.01 per share
Trading Symbol	BFC
Security Exchange Name	NASDAQ
Entity Common Stock, Shares Outstanding		7,730,071
Entity Central Index Key	0001746109
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q3
Amendment Flag	false

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Consolidated Balance Sheets - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Assets
Cash and due from banks	$ 32,485	$ 33,817
Interest-bearing deposits	1,854	19,242
Federal funds sold	46,413	33,393
Cash and cash equivalents	80,752	86,452
Securities held to maturity, at amortized cost ($6,691 and $44,803 fair value at September 30, 2020 and December 31, 2019, respectively)	6,670	43,734
Securities available for sale, at fair value	173,334	181,506
Loans held for sale	659	587
Loans, net	2,176,910	1,724,947
Premises and equipment, net	41,186	35,286
Goodwill	55,022	43,456
Other investments	8,896	4,933
Cash value of life insurance	31,197	24,945
Identifiable intangible assets, net	10,088	9,666
Other real estate owned ("OREO")	3,264	6,888
Investment in minority-owned subsidiaries	42,436	40,287
Other assets	8,833	7,481
TOTAL ASSETS	2,639,247	2,210,168
Deposits:
Interest-bearing deposits	1,582,831	1,366,846
Noninterest-bearing deposits	688,209	476,465
Total deposits	2,271,040	1,843,311
Securities sold under repurchase agreements	23,894	45,865
Notes payable	25,145	49,790
Subordinated notes		18,622
Other liabilities	12,552	22,369
Total liabilities	2,353,143	1,979,957
Stockholders' equity:
Serial preferred stock - $0.01 par value Authorized - 5,000,000 shares	0	0
Common stock - $0.01 par value Authorized - 20,000,000 shares Issued - 8,478,383 and 7,902,742 shares as of September 30, 2020 and December 31, 2019, respectively Outstanding - 7,729,762 and 7,084,728 shares as of September 30, 2020 and December 31, 2019, respectively	85	79
Additional paid-in capital	92,560	63,085
Retained earnings	211,486	189,494
Treasury stock, at cost - 748,621 and 818,014 shares as of September 30, 2020 and December 31, 2019, respectively	(23,963)	(24,941)
Accumulated other comprehensive income	5,936	2,494
Total stockholders' equity	286,104	230,211
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 2,639,247	$ 2,210,168

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Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Debt Securities, Held-to-maturity, Fair Value	$ 6,691	$ 44,803
Preferred Stock, Shares Authorized	5,000,000	5,000,000
Common Stock, Par or Stated Value Per Share	$ 0.01	$ 0.01
Common Stock, Shares Authorized	20,000,000	20,000,000
Common Stock, Shares, Issued	8,478,383	7,902,742
Common Stock, Shares, Outstanding	7,729,762	7,084,728
Treasury Stock, Shares	748,621	818,014
Series A Preferred Stock [Member]
Preferred Stock, Par or Stated Value Per Share	$ 0.01	$ 0.01

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Consolidated Statements of Income - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Interest income:
Loans, including fees	$ 24,719	$ 23,897	$ 69,648	$ 60,629
Securities:
Taxable	688	865	2,393	2,300
Tax-exempt	493	413	1,403	1,253
Other	28	314	162	1,188
Total interest income	25,928	25,489	73,606	65,370
Interest expense:
Deposits	2,721	4,735	10,043	13,402
Securities sold under repurchase agreements	4	85	110	383
Borrowed funds	278	356	1,089	698
Total interest expense	3,003	5,176	11,242	14,483
Net interest income	22,925	20,313	62,364	50,887
Provision for loan losses	1,350	3,000	5,475	4,125
Net interest income after provision for loan losses	21,575	17,313	56,889	46,762
Noninterest income:
Service charges	1,343	918	3,417	2,396
Income from Ansay and Associates, LLC ("Ansay")	970	319	2,571	1,737
Income from UFS, LLC ("UFS")	720	768	2,467	2,093
Loan servicing income	538	374	1,226	841
Net gain on sales of mortgage loans	1,304	533	3,096	774
Net gain on sales of securities			3,233	23
Net gain on sale of other investments				234
Noninterest income from strategic alliances	16	26	49	74
Other	224	207	717	1,249
Total noninterest income	5,115	3,145	16,776	9,421
Noninterest expense:
Salaries, commissions, and employee benefits	6,609	6,272	19,669	16,985
Occupancy	1,171	1,076	3,367	2,757
Data processing	1,463	1,158	3,996	3,031
Postage, stationery, and supplies	219	135	668	450
Net (gain) loss on sales and valuations of OREO	(32)	(10)	1,411	(109)
Advertising	41	53	165	180
Charitable contributions	110	225	360	497
Outside service fees	888	1,171	3,083	2,837
Amortization of intangibles	418	374	1,114	696
Penalty for early extinguishment of debt			1,323
Other	1,315	1,633	4,225	4,254
Total noninterest expense	12,202	12,087	39,381	31,578
Income before provision for income taxes	14,488	8,371	34,284	24,605
Provision for income taxes	3,534	1,712	7,768	5,370
Net Income	$ 10,954	$ 6,659	$ 26,516	$ 19,235
Earnings per share - basic	$ 1.42	$ 0.95	$ 3.57	$ 2.86
Earnings per share - diluted	1.42	0.93	3.56	2.83
Dividends per share	$ 0.20	$ 0.20	$ 0.60	$ 0.60

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Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Consolidated Statements of Comprehensive Income
Net Income	$ 10,954	$ 6,659	$ 26,516	$ 19,235
Unrealized gains (losses) on available for sale securities:
Unrealized holding gains arising during period	593	925	8,230	5,244
Amortization of unrealized holding gains on securities transferred from available for sale to held to maturity		(11)	(102)	(34)
Reclassification adjustment for gains included in net income			(3,233)	(23)
Income tax expense	(160)	(192)	(1,453)	(1,089)
Total other comprehensive income	433	722	3,442	4,098
Comprehensive income	$ 11,387	$ 7,381	$ 29,958	$ 23,333

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Consolidated Statement of Stockholders' Equity - USD ($) $ in Thousands	Partnership Community Bancshares, Inc. [Member] Serial Preferred Stock [Member]	Partnership Community Bancshares, Inc. [Member] Common Stock [Member]	Partnership Community Bancshares, Inc. [Member] Additional Paid-in Capital [Member]	Partnership Community Bancshares, Inc. [Member] Retained Earnings [Member]	Partnership Community Bancshares, Inc. [Member] Treasury Stock [Member]	Partnership Community Bancshares, Inc. [Member] Accumulated Other Comprehensive Income (Loss) [Member]	Partnership Community Bancshares, Inc. [Member]	Tomah Bancshares Inc [Member] Serial Preferred Stock [Member]	Tomah Bancshares Inc [Member] Common Stock [Member]	Tomah Bancshares Inc [Member] Additional Paid-in Capital [Member]	Tomah Bancshares Inc [Member] Retained Earnings [Member]	Tomah Bancshares Inc [Member] Treasury Stock [Member]	Tomah Bancshares Inc [Member] Accumulated Other Comprehensive Income (Loss) [Member]	Tomah Bancshares Inc [Member]	Serial Preferred Stock [Member]	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Treasury Stock [Member]	Accumulated Other Comprehensive Income (Loss) [Member]	Total
Balance at Dec. 31, 2018															$ 0	$ 74	$ 27,601	$ 168,363	$ (21,349)	$ (366)	$ 174,323
Net income															0	0	0	6,587	0	0	6,587
Other comprehensive income															0	0	0	0	0	1,853	1,853
Purchase of treasury stock															0	0	0	0	(2,489)	0	(2,489)
Issuance of treasury stock as deferred compensation payout															0	0	14	0	43	0	57
Cash dividends ($0.20 per share)															0	0	0	(1,306)	0	0	(1,306)
Amortization of stock-based compensation															0	0	152	0	0	0	152
Vesting of restricted stock awards															0	0	(462)	0	462	0	0
Balance at Mar. 31, 2019															0	74	27,305	173,644	(23,333)	1,487	179,177
Balance at Dec. 31, 2018															0	74	27,601	168,363	(21,349)	(366)	174,323
Net income																					19,235
Balance at Sep. 30, 2019															0	79	62,911	183,551	(24,941)	3,731	225,331
Balance at Mar. 31, 2019															0	74	27,305	173,644	(23,333)	1,487	179,177
Net income															0	0	0	5,989	0	0	5,989
Other comprehensive income															0	0	0	0	0	1,522	1,522
Purchase of treasury stock															0	0	0	0	(161)	0	(161)
Issuance of treasury stock as deferred compensation payout															0	0	12	0	45	0	57
Cash dividends ($0.20 per share)															0	0	0	(1,319)	0	0	(1,319)
Amortization of stock-based compensation															0	0	182	0	0	0	182
Vesting of restricted stock awards															0	0	(63)	0	63	0	0
Balance at Jun. 30, 2019															0	74	27,436	178,314	(23,386)	3,009	185,447
Net income															0	0	0	6,659	0	0	6,659
Other comprehensive income															0	0	0	0	0	722	722
Purchase of treasury stock															0	0	0	0	(1,555)	0	(1,555)
Cash dividends ($0.20 per share)															0	0	0	(1,422)	0	0	(1,422)
Amortization of stock-based compensation															0	0	177	0	0	0	177
Shares issued in the acquisition	$ 0	$ 5	$ 35,298	$ 0	$ 0	$ 0	$ 35,303
Balance at Sep. 30, 2019															0	79	62,911	183,551	(24,941)	3,731	225,331
Balance at Dec. 31, 2019															0	79	63,085	189,494	(24,941)	2,494	230,211
Net income															0	0	0	7,266	0	0	7,266
Other comprehensive income															0	0	0	0	0	1,021	1,021
Purchase of treasury stock															0	0	0	0	(2,968)	0	(2,968)
Issuance of treasury stock as deferred compensation payout															0	0	0	0	3,368	0	3,368
Cash dividends ($0.20 per share)															0	0	0	(1,431)	0	0	(1,431)
Amortization of stock-based compensation															0	0	215	0	0	0	215
Vesting of restricted stock awards															0	0	(628)	0	628	0	0
Balance at Mar. 31, 2020															0	79	62,672	195,329	(23,913)	3,515	237,682
Balance at Dec. 31, 2019															0	79	63,085	189,494	(24,941)	2,494	230,211
Net income																					26,516
Balance at Sep. 30, 2020															0	85	92,560	211,486	(23,963)	5,936	286,104
Balance at Mar. 31, 2020															0	79	62,672	195,329	(23,913)	3,515	237,682
Net income															0	0	0	8,296	0	0	8,296
Other comprehensive income															0	0	0	0	0	1,988	1,988
Cash dividends ($0.20 per share)															0	0	0	(1,543)	0	0	(1,543)
Amortization of stock-based compensation															0	0	296	0	0	0	296
Vesting of restricted stock awards															0	0	(66)	0	66	0	0
Shares issued in the acquisition								$ 0	$ 6	$ 29,375	$ 0	$ 0	$ 0	$ 29,381
Balance at Jun. 30, 2020															0	85	92,277	202,082	(23,847)	5,503	276,100
Net income															0	0	0	10,954	0	0	10,954
Other comprehensive income															0	0	0	0	0	433	433
Purchase of treasury stock															0	0	0	0	(116)	0	(116)
Cash dividends ($0.20 per share)															0	0	0	(1,550)	0	0	(1,550)
Amortization of stock-based compensation															0	0	283	0	0	0	283
Balance at Sep. 30, 2020															$ 0	$ 85	$ 92,560	$ 211,486	$ (23,963)	$ 5,936	$ 286,104

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Consolidated Statement of Changes in Stockholders' Equity (Parenthetical) - $ / shares	3 Months Ended
	Jun. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Mar. 31, 2020	Jun. 30, 2019	Mar. 31, 2019
Dividends Payable, Amount Per Share	$ 0.20	$ 0.20	$ 0.20	$ 0.20	$ 0.20	$ 0.20
Partnership Community Bancshares, Inc. [Member]
Stock Issued During Period, Shares, Acquisitions		534,659
Tomah Bancshares Inc [Member]
Stock Issued During Period, Shares, Acquisitions	575,641

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Consolidated Statements of Cash Flows - USD ($) shares in Thousands, $ in Thousands	9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Cash flows from operating activities:
Net income	$ 26,516	$ 19,235
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	5,475	4,125
Depreciation and amortization of premises and equipment	1,116	842
Amortization of intangibles	1,114	696
Net amortization of securities	505	286
Amortization of stock-based compensation	794	511
Accretion of purchase accounting valuations	(4,338)	(5,303)
Net change in deferred loan fees and costs	5,258	(197)
Change in fair value of mortgage servicing rights ("MSR") and other investments	1,468	(179)
Loss from sale and disposal of premises and equipment	0	23
Loss (gain) on sale of OREO and valuation allowance	1,411	(109)
Proceeds from sales of mortgage loans	149,229	45,951
Originations of mortgage loans held for sale	(147,185)	(47,661)
Gain on sales of mortgage loans	(3,096)	(774)
Realized gain on sale of securities	(3,233)	(23)
Realized gain on sale of other investments	0	(234)
Undistributed income of UFS joint venture	(2,467)	(2,093)
Undistributed income of Ansay joint venture	(2,571)	(1,737)
Net earnings on life insurance	(544)	(467)
Increase in other assets	(1,715)	(2,085)
Decrease in other liabilities	(5,416)	(1,667)
Net cash provided by operating activities	22,321	9,140
Activity in securities available for sale and held to maturity:
Sales	59,697	748
Maturities, prepayments, and calls	65,655	9,742
Purchases	(28,764)	(8,823)
Net increase in loans	(348,814)	(15,876)
Dividends received from UFS	1,797	1,366
Dividends received from Ansay	1,119	958
Proceeds from sale of OREO	4,085	1,092
Proceeds from sale of other investments	0	984
Net purchases of Federal Home Loan Bank ("FHLB") stock	(640)	(65)
Net purchases of Federal Reserve Bank ("FRB") stock	(2,760)	0
Proceeds from sale of premises and equipment	25	0
Purchases of premises and equipment	(5,518)	(3,847)
Net cash received in business combination	35,296
Net cash used in business combination		(9,771)
Net cash used in investing activities	(218,822)	(23,492)
Cash flows from financing activities, net of effects of business combination:
Net increase in deposits	256,947	12,550
Net decrease in securities sold under repurchase agreements	(22,788)	(19,288)
Proceeds from advances of notes payable	87,000	44,000
Repayment of notes payable	(124,750)	(4,000)
Proceeds from issuance of subordinated debt	2,000	0
Dividends paid	(4,524)	(4,047)
Repurchase of common stock	(3,084)	(4,205)
Net cash provided by financing activities	190,801	25,010
Net (decrease) increase in cash and cash equivalents	(5,700)	10,658
Cash and cash equivalents at beginning of period	86,452	107,743
Cash and cash equivalents at end of period	80,752	118,401
Cash paid during the period for:
Interest	11,712	14,177
Income taxes	5,050	5,177
Supplemental schedule of noncash activities:
Loans transferred to OREO	1,892	4,260
MSR resulting from sale of loans	980	443
Amortization of unrealized holding gains on securities transferred from available for sale to held to maturity recognized in other comprehensive income, net of tax	(81)	(27)
Change in unrealized gains and losses on investment securities available for sale, net of tax	3,523	4,125
Payment of deferred compensation through issuance of treasury stock	3,368	114
Acquisitions:
Fair value of assets acquired	209,918	307,768
Fair value of liabilities assumed	191,701	286,612
Net assets acquired	$ 18,217	$ 21,156
Common stock issued in acquisition	29,381	35,304

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BASIS OF PRESENTATION

9 Months Ended

Sep. 30, 2020

BASIS OF PRESENTATION

BASIS OF PRESENTATION

NOTE 1 – BASIS OF PRESENTATION

Bank First Corporation (the “Company”) provides a variety of financial services to individual and corporate customers through its wholly-owned subsidiary, Bank First, N.A. (the “Bank”). The Bank operates as a full-service financial institution with a primary market area including, but not limited to, the counties in which the Bank’s branches are located. The Bank has twenty-four locations located in Manitowoc, Outagamie, Brown, Winnebago, Sheboygan, Waupaca, Ozaukee, Monroe, Jefferson and Barron counties in Wisconsin. On September 18, 2020, the Company announced its intention to sell its branch in Chetek, Wisconsin, in a transaction expected to close during the fourth quarter of 2020. This event will reduce the Bank's branch count by one and will remove Barron County from the list of counties in which the Bank has a presence. The Company and Bank are subject to the regulations of certain federal agencies and undergo periodic examinations by those regulatory authorities.

These interim unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and with the instructions to Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain information and footnote disclosures required by GAAP have been omitted or abbreviated. These unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 (“Annual Report”).

The unaudited consolidated financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods. The results for interim periods are not necessarily indicative of results for a full year.

Critical Accounting Policies and Estimates

Preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying disclosures. These estimates are based on management’s best knowledge of current events and actions the Company may undertake in the future. Estimates are used in accounting for, among other items, the allowance for loan losses (“ALL”), valuation of loans in acquisition transactions, useful lives for depreciation and amortization, fair value of financial instruments, other-than-temporary impairment calculations, valuation of deferred tax assets, uncertain income tax positions and contingencies. Estimates that are particularly susceptible to significant change for the Company include the determination of the ALL, the determination and assessment of deferred tax assets and liabilities, and the valuation of loans acquired in acquisition transactions; therefore, these are critical accounting policies. Factors that may cause sensitivity to the aforementioned estimates include but are not limited to: external market factors such as market interest rates and employment rates, changes to operating policies and procedures, changes in applicable banking or tax regulations, and changes to deferred tax estimates. Actual results may ultimately differ from estimates, although management does not generally believe such differences would materially affect the consolidated financial statements in any individual reporting period presented.

There have been no material changes or developments with respect to the assumptions or methodologies that the Company uses when applying what management believes are critical accounting policies and developing critical accounting estimates as previously disclosed in the Company’s Annual Report.

Recent Accounting Developments Adopted

In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-04, “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment”. The amendments in this ASU were issued to address concerns over the cost and complexity of the two-step goodwill impairment test and resulted in the removal of the second step of the test. The amendments require an entity to apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The new guidance did not amend the optional qualitative assessment of goodwill impairment. This ASU is intended to reduce the cost and complexity of the two-step goodwill impairment test and is effective for annual and interim goodwill

impairment tests in fiscal years beginning after December 15, 2019, with early adoption permitted for testing performed after January 1, 2017. The adoption of this guidance did not have a significant impact on the Company’s consolidated financial statements.

Recently Issued Not Yet Effective Accounting Standards

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” Certain aspects of this ASU were updated in November 2018 by the issuance of ASU 2018-19, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses”. The main objective of the ASU is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in the ASU replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. During 2019 FASB issued ASU 2019-10 which delayed the effective date of ASU 2016-13 for smaller, publicly traded companies, until interim and annual periods beginning after December 15, 2022. This delay applies to the Company as it was classified as a “Smaller reporting company” as defined in Rule 12b-2 of the Exchange Act as of the date ASU 2019-10 was enacted. Management is currently evaluating the potential impact of this update, although the general expectation in the banking industry is that the implementation of this standard will result in higher required balances in the ALL.

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ACQUISITIONS

9 Months Ended

Sep. 30, 2020

ACQUISITIONS

ACQUISITIONS

NOTE 2 – ACQUISITIONS

On July 12, 2019, the Company completed a merger with Partnership Community Bancshares, Inc. (“Partnership”), a bank holding company headquartered in Cedarburg, Wisconsin, pursuant to the Agreement and Plan of Bank Merger (“Merger Agreement”), dated as of January 22, 2019 and as amended on April 30, 2019, by and among the Company and Partnership, whereby Partnership merged with and into the Company, and Partnership Bank, Partnership’s wholly-owned banking subsidiary, merged with and into the Bank. Partnership’s principal activity was the ownership and operation of Partnership Bank, a state-chartered banking institution that operated four (4) branches in Wisconsin at the time of closing. The merger consideration totaled approximately $49.6 million.

Pursuant to the terms of the Merger Agreement, Partnership shareholders had the option to receive either 0.34879 shares of the Company’s common stock or $17.3001 in cash for each outstanding share of Partnership common stock, and cash in lieu of any remaining fractional share. The stock versus cash elections by the Partnership shareholders were subject to final consideration being made up of approximately $14.3 million in cash and 534,659 shares of Company common stock, valued at approximately $35.3 million (based on a value of $66.03 per share on the closing date).

For more information concerning this acquisition, see “Note 2 – Acquisition” in the Company’s audited consolidated financial statements included in the Company’s Annual Report.

On May 15, 2020, the Company completed a merger with Tomah Bancshares, Inc. (“Timberwood”), a bank holding company headquartered in Tomah, Wisconsin, pursuant to the Agreement and Plan of Bank Merger, dated as of November 20, 2019, by and among the Company and Timberwood, whereby Timberwood merged with and into the Company, and Timberwood Bank, Timberwood’s wholly-owned banking subsidiary, merged with and into the Bank. Timberwood’s principal activity was the ownership and operation of Timberwood Bank, a state-chartered banking institution that operated one (1) branch in Wisconsin at the time of closing. The merger consideration totaled approximately $29.8 million.

Pursuant to the terms of the Merger Agreement, Timberwood shareholders received 5.1445 shares of the Company’s common stock for each outstanding share of Timberwood common stock, and cash in lieu of any remaining fractional share. Company stock issued totaled 575,641 shares valued at approximately $29.4 million, with cash of $0.4 million comprising the remainder of merger consideration.

The Company accounted for the transaction under the acquisition method of accounting, and thus, the financial position and results of operations of Timberwood prior to the consummation date were not included in the accompanying consolidated financial statements. The accounting required assets purchased and liabilities assumed to be recorded at their respective fair values at the date of acquisition. The Company determined the fair value of core deposit intangibles, securities, premises and equipment, loans, other assets and liabilities, deposits and borrowings with the assistance of third party valuations, appraisals, and third party advisors. The estimated fair values will be subject to refinement for up to one year after deal consummation as additional information becomes available relative to the closing date fair values.

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

	As Recorded by		Fair Value		As Recorded by
	Timberwood		Adjustments		the Company
Cash, cash equivelants and securities	$	79,614	$	(656)	$	78,958
Other investments		533				533
Loans		117,343		1,068		118,411
Premises and equipment, net		2,538		(1,006)		1,532
Core deposit intangible		—		1,697		1,697
Other assets		11,392		(2,605)		8,787
Total assets acquired	$	211,420	$	(1,502)	$	209,918
Deposits	$	170,362	$	742	$	171,104
Subordinated debt		6,500				6,500
Other borrowings		12,938		210		13,148
Other liabilities		1,923		(974)		949
Total liabilities assumed	$	191,723	$	(22)	$	191,701
Excess of assets acquired over liabilties assumed	$	19,697	$	(1,480)	$	18,217
Less: purchase price						29,812
Goodwill (originally recorded)						11,595
Refinement to fair value estimates						(29)
Goodwill (after refinement)					$	11,566

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EARNINGS PER SHARE

9 Months Ended

Sep. 30, 2020

EARNINGS PER SHARE

EARNINGS PER SHARE

NOTE 3 – EARNINGS PER SHARE

The two-class method is used in the calculation of basic and diluted earnings per share. Under the two-class method, earnings available to common shareholders for the period are allocated between common shareholders and participating securities according to dividends declared (or accumulated) and participation rights in undistributed earnings. There were no anti-dilutive stock options for the three and nine months ended September 30, 2020 or 2019.

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Basic
Net income available to common shareholders	$	10,954	$	6,659	$	26,516	$	19,235
Less: Earnings allocated to participating securities		(82)		(48)		(202)		(148)
Net income allocated to common shareholders	$	10,872	$	6,611	$	26,314	$	19,087
Weighted average common shares outstanding including participating securities		7,731,670		7,036,807		7,424,257		6,731,089
Less: Participating securities (1)		(58,098)		(51,040)		(56,464)		(51,608)
Average shares		7,673,572		6,985,767		7,367,793		6,679,481
Basic earnings per common shares	$	1.42	$	0.95	$	3.57	$	2.86
Diluted
Net income available to common shareholders	$	10,954	$	6,659	$	26,516	$	19,235
Weighted average common shares outstanding for basic earnings per common share		7,673,572		6,985,767		7,367,793		6,679,481
Add: Dilutive effects of stock based compensation awards		17,754		121,988		44,880		99,564
Average shares and dilutive potential common shares		7,691,326		7,107,755		7,412,673		6,779,045
Diluted earnings per common share	$	1.42	$	0.93	$	3.56	$	2.83

(1) Participating securities are restricted stock awards whereby the stock certificates have been issued, are included in outstanding shares, receive dividends and can be voted, but have not vested.

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SECURITIES

9 Months Ended

Sep. 30, 2020

SECURITIES

SECURITIES

NOTE 4 – SECURITIES

The Company’s securities available for sale as of September 30, 2020 and December 31, 2019 is summarized as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
September 30, 2020
Obligations of U.S. Government sponsored agencies	$	18,283	$	595	$	(59)	$	18,819
Obligations of states and political subdivisions		69,414		4,104		(1)		73,517
Mortgage-backed securities		47,864		2,940		—		50,804
Corporate notes		27,325		507		—		27,832
Certificates of deposit		2,320		42		—		2,362
Total available for sale securities	$	165,206	$	8,188	$	(60)	$	173,334
December 31, 2019
Obligations of U.S. Government sponsored agencies	$	12,218	$	—	$	(158)	$	12,060
Obligations of states and political subdivisions		52,594		2,197		(20)		54,771
Mortgage-backed securities		50,770		988		(38)		51,720
Corporate notes		62,794		172		(11)		62,955
Total available for sale securities	$	178,376	$	3,357	$	(227)	$	181,506

The Company’s securities held to maturity as of September 30, 2020 and December 31, 2019 is summarized as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
September 30, 2020
Obligations of states and political subdivisions	$	6,670	$	21	$	—	$	6,691
December 31, 2019
U.S. Treasury securities	$	33,527	$	1,076	$	(22)	$	34,581
Obligations of states and political subdivisions		10,207		15		—		10,222
Total held to maturity securities	$	43,734	$	1,091	$	(22)	$	44,803

The following table shows the fair value and gross unrealized losses of securities with unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:

	Less Than 12 Months				Greater Than 12 Months				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
September 30, 2020 - Available for Sale
Obligations of U.S. Government sponsored agencies	$	5,639	$	(59)	$	—	$	—	$	5,639	$	(59)
Obligations of states and political subdivisions		354		(1)		—		—		354		(1)
Totals	$	5,993	$	(60)	$	—	$	—	$	5,993	$	(60)
December 31, 2019 - Available for Sale
Obligations of U.S. Government sponsored agencies	$	12,059	$	(158)	$	—	$	—	$	12,059	$	(158)
Obligations of states and political subdivisions		5,636		(19)		999		(1)		6,635		(20)
Mortgage-backed securities		4,038		(26)		2,187		(12)		6,225		(38)
Corporate notes		3,925		(11)		—		—		3,925		(11)
Totals	$	25,658	$	(214)	$	3,186	$	(13)	$	28,844	$	(227)
December 31, 2019 - Held to Maturity
U.S. Treasury securities	$	2,958	$	(22)	$	—	$	—	$	2,958	$	(22)

As of September 30, 2020, the Company does not consider its securities with unrealized losses to be other-than-temporarily impaired, as the unrealized losses in each category have occurred as a result of changes in interest rates, market spreads and market conditions subsequent to purchase, not credit deterioration. The Company has the intent and ability to hold its securities to maturity or until par is recovered. There were no other-than-temporary impairments charged to earnings during the nine months ended September 30, 2020 or 2019.

The following is a summary of amortized cost and estimated fair value of securities by contractual maturity as of September 30, 2020. Contractual maturities will differ from expected maturities for mortgage-backed securities because borrowers may have the right to call or prepay obligations without penalties.

	Available for Sale				Held to Maturity
	Amortized		Estimated		Amortized		Estimated
	Cost		Fair Value		Cost		Fair Value
Due in one year or less	$	12,735	$	12,834	$	751	$	751
Due after one year through 5 years		12,500		13,308		3,524		3,545
Due after 5 years through ten years		11,014		11,569		2,395		2,395
Due after 10 years		81,093		84,819		—		—
Subtotal		117,342		122,530		6,670		6,691
Mortgage-backed securities		47,864		50,804		—		—
Total	$	165,206	$	173,334	$	6,670	$	6,691

The following is a summary of the proceeds from sales of securities available for sale and held to maturity, as well as gross gains and losses for the nine months ended September 30, 2020 and 2019.

	Nine months eneded September 30,
	2020		2019
Proceeds from sales of securities	$	59,697	$	748
Gross gains on sales		3,284		23
Gross losses on sales		(51)		—

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LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY

9 Months Ended

Sep. 30, 2020

LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY

LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY

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

The following table presents total loans by portfolio segment and class of loan as of September 30, 2020 and December 31, 2019:

	September 30,		December 31,
	2020		2019
Commercial/industrial	$	547,750	$	302,538
Commercial real estate - owner occupied		530,476		459,782
Commercial real estate - non-owner occupied		426,463		353,723
Construction and development		150,139		132,296
Residential 1‑4 family		488,925		448,605
Consumer		29,684		29,462
Other		25,552		10,440
Subtotals		2,198,989		1,736,846
ALL		(16,318)		(11,396)
Loans, net of ALL		2,182,671		1,725,450
Deferred loan fees and costs		(5,761)		(503)
Loans, net	$	2,176,910	$	1,724,947

The ALL by loan type as of September 30, 2020 and 2019 is summarized as follows:

			Commercial		Commercial
			Real Estate -		Real Estate  -		Construction
	Commercial /		Owner		Non - Owner		and		Residential
	Industrial		Occupied		Occupied		Development		1-4 Family		Consumer		Other		Total
ALL - January 1, 2020	$	2,320	$	4,587	$	1,578	$	548	$	2,169	$	141	$	53	$	11,396
Charge-offs		(631)		(773)		—		—		(63)		(33)		(19)		(1,519)
Recoveries		2		873		40		—		40		—		11		966
Provision		138		995		2,276		474		1,259		86		247		5,475
ALL - September 30, 2020		1,829		5,682		3,894		1,022		3,405		194		292		16,318
ALL ending balance individually evaluated for impairment		14		483		1,098		—		—		—		—		1,595
ALL ending balance collectively evaluated for impairment	$	1,815	$	5,199	$	2,796	$	1,022	$	3,405	$	194	$	292	$	14,723
Loans outstanding - September 30, 2020	$	547,750	$	530,476	$	426,463	$	150,139	$	488,925	$	29,684	$	25,552	$	2,198,989
Loans ending balance individually evaluated for impairment		533		7,334		7,904		—		—		—		—		15,771
Loans ending balance collectively evaluated for impairment	$	547,217	$	523,142	$	418,559	$	150,139	$	488,925	$	29,684	$	25,552	$	2,183,218

			Commercial		Commercial
			Real Estate  -		Real Estate  -		Construction
	Commercial /		Owner		Non - Owner		and		Residential
	Industrial		Occupied		Occupied		Development		1-4 Family		Consumer		Other		Total
ALL - January 1, 2019	$	3,021	$	3,750	$	2,100	$	725	$	2,472	$	148	$	32	$	12,248
Charge-offs		(1,229)		(4,974)		(55)		—		(83)		(75)		(29)		(6,445)
Recoveries		3		4		60		—		126		4		6		203
Provision		507		4,360		(186)		(221)		(423)		70		18		4,125
ALL - September 30, 2019		2,302		3,140		1,919		504		2,092		147		27		10,131
ALL ending balance individually evaluated for impairment		—		—		—		—		—		—		—		—
ALL ending balance collectively evaluated for impairment	$	2,302	$	3,140	$	1,919	$	504	$	2,092	$	147	$	27	$	10,131
Loans outstanding -
September 30, 2019	$	310,536	$	467,030	$	337,558	$	118,055	$	443,906	$	31,665	$	5,985	$	1,714,735
Loans ending balance individually evaluated for impairment		—		—		—		—		—		—		—		—
Loans ending balance collectively evaluated for impairment	$	310,536	$	467,030	$	337,558	$	118,055	$	443,906	$	31,665	$	5,985	$	1,714,735

The Company’s past due loans as of September 30, 2020 is summarized as follows:

			90 Days
	30-89 Days		or more
	Past Due		Past Due
	Accruing		and Accruing		Non-Accrual		Total
Commercial/industrial	$	4	$	—	$	599	$	603
Commercial real estate - owner occupied		121		—		8,690		8,811
Commercial real estate - non-owner occupied		—		—		7,427		7,427
Construction and development		29		—		—		29
Residential 1‑4 family		318		72		1,092		1,482
Consumer		34		3		—		37
Other		—		—		—		—
	$	506	$	75	$	17,808	$	18,389

The Company’s past due loans as of December 31, 2019 is summarized as follows:

			90 Days
	30-89 Days		or more
	Past Due		Past Due
	Accruing		and Accruing		Non-Accrual		Total
Commercial/industrial	$	235	$	—	$	1,923	$	2,158
Commercial real estate - owner occupied		1,124		—		2,513		3,637
Commercial real estate - non-owner occupied		—		—		75		75
Construction and development		768		11		—		779
Residential 1‑4 family		805		307		550		1,662
Consumer		70		36		32		138
Other		—		—		—		—
	$	3,002	$	354	$	5,093	$	8,449

The Company utilizes a numerical risk rating system for commercial relationships. All other types of relationships (ex: residential, consumer, other) are assigned a “Pass” rating, unless they have fallen 90 days past due or more, at which time they receive a rating of 7. The Company uses split ratings for government guaranties on loans. The portion of a loan that is supported by a government guaranty is included with other Pass credits.

The determination of a commercial loan risk rating begins with completion of a matrix, which assigns scores based on the strength of the borrower’s debt service coverage, collateral coverage, balance sheet leverage, industry outlook, and customer concentration. A weighted average is taken of these individual scores to arrive at the overall rating. This rating is subject to adjustment by the loan officer based on facts and circumstances pertaining to the borrower. Risk ratings are subject to independent review.

Commercial borrowers with ratings between 1 and 5 are considered Pass credits, with 1 being most acceptable and 5 being just above the minimum level of acceptance.

Commercial borrowers rated 6 have potential weaknesses which may jeopardize repayment ability.

Borrowers rated 7 have a well-defined weakness or weaknesses such as the inability to demonstrate significant cash flow for debt service based on analysis of the company’s financial information. These loans remain on accrual status provided full collection of principal and interest is reasonably expected. Otherwise they are deemed impaired and placed on nonaccrual status. Borrowers rated 8 are the same as 7 rated credits with one exception: collection or liquidation in full is not probable.

The breakdown of loans by risk rating as of September 30, 2020 is as follows:

	Pass (1-5)		6		7		8		Total
Commercial/industrial	$	543,008	$	668	$	4,074	$	—	$	547,750
Commercial real estate - owner occupied		496,026		4,467		29,983		—		530,476
Commercial real estate - non-owner occupied		415,970		—		10,493		—		426,463
Construction and development		149,999		—		140		—		150,139
Residential 1‑4 family		486,462		604		1,859		—		488,925
Consumer		29,684		—		—		—		29,684
Other		25,552		—		—		—		25,552
	$	2,146,701	$	5,739	$	46,549	$	—	$	2,198,989

The breakdown of loans by risk rating as of December 31, 2019 is as follows:

	Pass (1-5)		6		7		8		Total
Commercial/industrial	$	290,180	$	5,329	$	7,029	$	—	$	302,538
Commercial real estate - owner occupied		422,336		5,603		31,843		—		459,782
Commercial real estate - non-owner occupied		344,278		8,774		671		—		353,723
Construction and development		132,266		—		30		—		132,296
Residential 1‑4 family		447,630		256		719		—		448,605
Consumer		29,430		—		32		—		29,462
Other		10,440		—		—		—		10,440
	$	1,676,560	$	19,962	$	40,324	$	—	$	1,736,846

The ALL represents management’s estimate of probable and inherent credit losses in the loan portfolio. Estimating the amount of the ALL requires the exercise of significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans, estimated losses on pools of homogenous loans based on historical loss experience, and consideration of other qualitative factors such as current economic trends and conditions, all of which may be susceptible to significant change. The loan portfolio also represents the largest asset on the consolidated balance sheets. Loan losses are charged off against the ALL, while recoveries of amounts previously charged off are credited to the ALL. A provision for loan losses is charged to operations based on management’s periodic evaluation of the factors previously mentioned, as well as other pertinent factors.

The ALL consists of specific reserves for certain individually evaluated impaired loans and general reserves for collectively evaluated non-impaired loans. Specific reserves reflect estimated losses on impaired loans from management’s analyses developed through specific credit allocations. The specific reserves are based on regular analyses of impaired, non-homogenous loans greater than $250,000. These analyses involve a high degree of judgment in estimating the amount of loss associated with specific loans, including estimating the amount and timing of future cash flows and collateral values. The general reserve is based in part on the Bank’s historical loss experience which is updated quarterly. The general reserve portion of the ALL also includes consideration of certain qualitative factors such as 1) changes in lending policies and/or underwriting practices, 2) national and local economic conditions, 3) changes in portfolio volume and nature, 4) experience, ability and depth of lending management and other relevant staff, 5) levels of and trends in past-due and nonaccrual loans and quality, 6) changes in loan review and oversight, 7) impact and effects of concentrations and 8) other issues deemed relevant.

There are many factors affecting ALL; some are quantitative while others require qualitative judgment. The process for determining the ALL (which management believes adequately considers potential factors which might possibly result in credit losses) includes subjective elements and, therefore, may be susceptible to significant change. To the extent actual outcomes differ from management estimates, additional provisions for loan losses could be required that could adversely affect the Company’s earnings or financial position in future periods. Allocations of the ALL may be made for specific loans but the entire ALL is available for any loan that, in management’s judgment, should be charged off or for which an actual loss is realized. As an integral part of their examination process, various regulatory agencies review the ALL as well. Such agencies may require that changes in the ALL be recognized when such regulators’ credit evaluations differ from those of management based on information available to the regulators at the time of their examinations.

A summary of impaired loans individually evaluated as of September 30, 2020 is as follows:

			Commercial		Commercial
			Real Estate -		Real Estate -		Construction
	Commercial /		Owner		Non - Owner		and		Residential
	Industrial		Occupied		Occupied		Development		1-4 Family		Consumer		Other		Unallocated		Total
With an allowance recorded:
Recorded investment	$	595	$	3,625	$	7,892	$	—	$	—	$	—	$	—	$	—	$	12,112
Unpaid principal balance		595		3,625		7,892		—		—		—		—		—		12,112
Related allowance		14		483		1,098		—		—		—		—		—		1,595
With no related allowance recorded:
Recorded investment	$	—	$	4,045	$	—	$	—	$	—	$	—	$	—	$	—	$	4,045
Unpaid principal balance		—		4,052		—		—		—		—		—		—		4,052
Related allowance		—		—		—		—		—		—		—		—		—
Total:
Recorded investment	$	595	$	7,670	$	7,892	$	—	$	—	$	—	$	—	$	—	$	16,157
Unpaid principal balance		595		7,677		7,892		—		—		—		—		—		16,164
Related allowance		14		483		1,098		—		—		—		—		—		1,595
Average recorded investment	$	1,237	$	5,784	$		$	—	$	—	$	—	$	—	$	—	$	10,967

A summary of impaired loans individually evaluated as of December 31, 2019 is as follows:

			Commercial		Commercial
			Real Estate -		Real Estate -		Construction
	Commercial /		Owner		Non - Owner		and		Residential
	Industrial		Occupied		Occupied		Development		1‑4 Family		Consumer		Other		Total
With an allowance recorded:
Recorded investment	$	1,878	$	960	$	—	$	—	$	—	$	—	$	—	$	2,838
Unpaid principal balance		1,878		960		—		—		—		—		—		2,838
Related allowance		760		80		—		—		—		—		—		840
With no related allowance recorded:
Recorded investment	$	—	$	2,938	$	—	$	—	$	—	$	—	$	—	$	2,938
Unpaid principal balance		—		2,938		—		—		—		—		—		2,938
Related allowance		—		—		—		—		—		—		—		—
Total:
Recorded investment	$	1,878	$	3,898	$	—	$	—	$	—	$	—	$	—	$	5,776
Unpaid principal balance		1,878		3,898		—		—		—		—		—		5,776
Related allowance		760		80		—		—		—		—		—		840
Average recorded investment	$	3,773	$	5,847	$	—	$	—	$	351	$	—	$	—	$	9,971

Interest recognized while these loans were impaired is considered immaterial to the consolidated financial statements for the nine months ended September 30, 2020 and 2019.

The following table presents loans acquired with deteriorated credit quality as of September 30, 2020 and December 31, 2019. No loans in this table had a related allowance at either date, and therefore, the below disclosures were not expanded to include loans with and without a related allowance.

	September 30, 2020				December 31, 2019
	Recorded		Unpaid Principal		Recorded		Unpaid Principal
	Investment		Balance		Investment		Balance
Commercial & Industrial	$	1,191	$	1,365	$	191	$	212
Commercial real estate - owner occupied		3,986		4,847		518		785
Commercial real estate - non-owner occupied		1,241		1,405		—		—
Construction and development		95		106		213		237
Residential 1‑4 family		881		1,182		901		1,031
Consumer		—		—		—		—
Other		—		—		—		—
	$	7,394	$	8,905	$	1,823	$	2,265

Due to the nature of these loan relationships, prepayment expectations have not been considered in the determination of future cash flows. Management regularly monitors these loan relationships, and if information becomes available that indicates expected cash flows will differ from initial expectations, it may necessitate reclassification between accretable and non-accretable components of the original discount calculation.

The following table represents the change in the accretable and non-accretable components of discounts on loans acquired with deteriorated credit quality for the nine months ended September 30, 2020, and year ended December 31, 2019:

	September 30, 2020				December 31, 2019
	Accretable		Non-accretable		Accretable		Non-accretable
	discount		discount		discount		discount
Balance at beginning of period	$	222	$	220	$	318	$	745
Acquired balance, net		1,064		727		44		333
Reclassifications between accretable and non-accretable		696		(696)		858		(858)
Accretion to loan interest income		(722)		—		(998)		—
Balance at end of period	$	1,260	$	251	$	222	$	220

A troubled debt restructuring (“TDR”) includes a loan modification where a borrower is experiencing financial difficulty and we grant a concession to that borrower that we would not otherwise consider except for the borrower’s financial difficulties. These concessions

may include modifications of the terms of the debt such as deferral of payments, extension of maturity, reduction of principal balance, reduction of the stated interest rate other than normal market rate adjustments, or a combination of these concessions. Debt may be bifurcated with separate terms for each tranche of the restructured debt. Restructuring a loan in lieu of aggressively enforcing the collection of the loan may benefit the Company by increasing the ultimate probability of collection.

A TDR may be either on accrual or nonaccrual status based upon the performance of the borrower and management’s assessment of collectability. If a TDR is placed on nonaccrual status, which could occur based on the same criteria as non-TDR loans, it remains there until a sufficient period of performance under the restructured terms has occurred at which it returned to accrual status, generally 6 months.

As of September 30, 2020 and December 31, 2019 the Company had specific reserves of $0 and $80,000 for TDRs, respectively, and none of them have subsequently defaulted.

During the first nine months of 2020 the Bank has experienced an increase in customer requests for loan modifications and payment deferrals as a result of impacts of the COVID-19 pandemic. The Coronavirus Aid, Relief, and Economic Security (CARES) act, signed into law on March 27, 2020, allowed financial institutions the option to exempt loan modifications related to the COVID-19 pandemic that would otherwise be categorized as a TDR from consideration for TDR treatment. Modifications in the scope of the exemption include forbearance agreements, interest-rate modifications, repayment plan changes and any other similar arrangements that would delay payments of principal or interest. This relief is allowable on modifications on loans which were not more than 30 days past due as of December 31, 2019, and that occur after March 1, 2020, and before the earlier of 60 days after the date on which the national emergency related to the COVID-19 outbreak is terminated.

The following table presents the TDRs during the nine months ended September 30, 2020. There were no TDRs during the same period in 2019.

			Pre-Modification		Post-Modification
			Outstanding		Outstanding
	Number of		Recorded		Recorded
	Contracts		Investment		Investment
Commerical Real Estate	1	$	115	$	115

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MORTGAGE SERVICING RIGHTS

9 Months Ended

Sep. 30, 2020

MORTGAGE SERVICING RIGHTS

MORTGAGE SERVICING RIGHTS

NOTE 6 – MORTGAGE SERVICING RIGHTS

Loans serviced for others are not included in the accompanying consolidated balance sheets. MSRs are recognized as separate assets when loans sold in the secondary market are sold with servicing retained. The Company utilizes a third-party consulting firm to determine an accurate assessment of the MSRs fair value. The third-party firm collects relevant data points from numerous sources. Some of these data points relate directly to the pricing level or relative value of the mortgage servicing while other data points relate to the assumptions used to derive fair value. In addition, the valuation evaluates specific collateral types, and current and historical performance of the collateral in question. The valuation process focuses on the non-distressed secondary servicing market, common industry practices and current regulatory standards. The primary determinants of the fair value of MSRs are servicing fee percentage, ancillary income, expected loan life or prepayment speeds, discount rates, costs to service, delinquency rates, foreclosure losses and recourse obligations. The valuation data also contains interest rate shock analyses for monitoring fair value changes in differing interest rate environments.

Following is an analysis of activity in the MSR asset:

	Nine Months Ended		Year Ended
	September 30, 2020		December 31, 2019
Fair value at beginning of year	$	4,287	$	3,085
MSR asset acquired		384		1,859
Servicing asset additions		980		740
Loan payments and payoffs		(1,132)		(821)
Changes in valuation inputs and assumptions used in the valuation model		(393)		(576)
Amount recognized through earnings		(545)		(657)
Fair value at end of period	$	4,126	$	4,287
Unpaid principal balance of loans serviced for others	$	628,204	$	554,374
MSR as a percent of loans serviced for others		0.66		0.77

The primary economic assumptions utilized by the Company in measuring the value of MSRs were constant prepayment speeds of 17.5 and 12.1 months as of September 30, 2020 and December 31, 2019, respectively, and discount rates of 10.1% and 10.0% as of each period end.

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NOTES PAYABLE

9 Months Ended

Sep. 30, 2020

NOTES PAYABLE

NOTES PAYABLE

NOTE 7 – NOTES PAYABLE

From time to time the Company utilizes FHLB advances to fund liquidity. At September 30, 2020 and December, 31, 2019, the Company had outstanding balances borrowed from the FHLB of $25.0 million and $39.8 million, respectively. The advances, rate, and maturities of FHLB advances were as follows:

					September 30,		December 31,
	Maturity	Rate			2020		2019
				(dollars in thousands)
Fixed rate, fixed term	01/27/2020	1.42	%	$	—	$	1,000
Fixed rate, fixed term	11/02/2020	1.28	%		400		400
Fixed rate, fixed term	11/02/2020	2.83	%		500		—
Fixed rate, fixed term	12/08/2020	2.76	%		500		—
Fixed rate, fixed term	12/28/2020	2.07	%		250		—
Fixed rate, fixed term	01/22/2021	1.67	%		2,000		2,000
Fixed rate, fixed term	01/25/2021	2.37	%		5,000		5,000
Fixed rate, fixed term	01/27/2021	1.60	%		1,000		1,000
Fixed rate, fixed term	03/29/2021	0.00	%		2,377		—
Fixed rate, fixed term	05/03/2021	2.87	%		500		—
Fixed rate, fixed term	05/03/2021	0.00	%		4,000		—
Fixed rate, fixed term	05/03/2021	0.00	%		4,000		—
Fixed rate, fixed term	06/28/2021	2.00	%		250		—
Fixed rate, fixed term	11/03/2021	1.46	%		400		400
Fixed rate, fixed term	12/08/2021	2.87	%		500		—
Fixed rate, fixed term	12/27/2021	1.99	%		250		—
Fixed rate, fixed term	01/24/2022	2.51	%		250		—
Fixed rate, fixed term	05/02/2022	2.98	%		500		—
Fixed rate, fixed term	06/08/2022	2.92	%		500		—
Fixed rate, fixed term	08/08/2022	1.76	%		—		10,000
Fixed rate, fixed term	11/21/2022	3.02	%		600		—
Fixed rate, fixed term	08/08/2023	1.74	%		—		10,000
Fixed rate, fixed term	11/21/2023	3.06	%		600		—
Fixed rate, fixed term	08/08/2024	1.75	%		—		10,000
Fixed rate, fixed term	01/04/2027	0.00	%		103		—
Fixed rate, fixed term	04/22/2030	0.00	%		508		—
					24,988		39,800
Adjustment due to purchase accounting					157		(10)
				$	25,145	$	39,790

Future maturities of borrowings were as follows:

	September 30,		December 31,
	2020		2019
1 year or less	$	20,777	$	1,400
1 to 2 years		2,400		8,400
2 to 3 years		600		10,000
3 to 4 years		600		10,000
4 to 5 years		—		10,000
Over 5 years		611		—
	$	24,988	$	39,800

The Company maintained a $5.0 million line of credit with a commercial bank. At December 31, 2019 the Company had outstanding balances on this note of $5.0 million. The note required monthly payments of interest at a variable rate, and was due in full on May 25, 2021. This agreement was terminated on July 22, 2020.

The Company maintained a $5.0 million line of credit with another commercial bank. At December 31, 2019 the Company had outstanding balances on this note of $5.0 million. This note was not renewed when it matured on May 19, 2020.

The Company maintains a $7.5 million line of credit with another commercial bank, which was entered into on May 15, 2020. There were no outstanding balances on this note at September 30, 2020. Any future borrowings will require monthly payments of interest at a variable rate, and will be due in full on May 15, 2021.

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SUBORDINATED NOTES

9 Months Ended

Sep. 30, 2020

SUBORDINATED NOTES

SUBORDINATED NOTES

NOTE 8 – SUBORDINATED NOTES

During September 2017, the Company entered into subordinated note agreements with three separate commercial banks. The Company had outstanding balances of $11.5 million under these agreements as of September 30, 2020 and December 31, 2019. These notes were all issued with 10-year maturities, carry interest at a variable rate payable quarterly, are callable on or after the sixth anniversary of the issuance dates, and qualify for Tier 2 capital for regulatory purposes.

As a part of the Partnership acquisition, further detailed in Note 2, the Company assumed a subordinated note agreement with outstanding balance of $7.0 million, and an initial fair market value adjustment of $0.2 million ($12,000 and $122,000 as of September 30, 2020 and December 31, 2019, respectively). The total amount outstanding was $7.0 million and $7.1 million at September 30, 2020 and December 31, 2019, respectively. The note was set to mature on October 1, 2025, required quarterly interest-only payments at a rate of 7.1% prior to maturity, and could be prepaid without penalty on or after October 1, 2020, and qualified for Tier 2 capital for regulatory purposes.

This note was prepaid in full on October 1, 2020.

On July 22, 2020, the Company entered into subordinated note agreements with two separate commercial banks. The Company has through December 31, 2020, to borrow funds up to a maximum availability of $6.0 million under each agreement, or $12.0 million total. These notes were issued with 10-year maturities, carry interest at a fixed rate of 5.0% through June 30, 2025, and at a variable rate thereafter, payable quarterly. These notes are callable on or after January 1, 2026 and qualify for Tier 2 capital for regulatory purposes. The Company had outstanding balances of $2.0 million under these agreements at September 30, 2020.

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REGULATORY MATTERS

9 Months Ended

Sep. 30, 2020

REGULATORY MATTERS

REGULATORY MATTERS

NOTE 9 – REGULATORY MATTERS

Banks and certain bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action.

The Economic Growth, Regulatory Relief, and Consumer Protection Act, signed into law in May 2018 raised the threshold for those bank holding companies subject to the Federal Reserve’s Small Bank Holding Company Policy Statement to $3 billion. As a result, as of the effective date of that change in 2018, the Company was no longer required to comply with the risk-based capital rules applicable to the Bank. The Federal Reserve may, however, require smaller bank holding companies to maintain certain minimum capital levels, depending upon general economic conditions and a bank holding company’s particular condition, risk profile and growth plans.

Under regulatory guidance for non-advanced approaches institutions, the Bank is required to maintain minimum amounts and ratios of common equity Tier I capital to risk-weighted assets. Additionally, under Basel III rules, the decision was made to opt-out of including accumulated other comprehensive income in regulatory capital. As of September 30, 2020 and December 31, 2019, the Bank met all capital adequacy requirements to which they are subject.

Beginning in 2016, an additional conservation buffer was added to the minimum requirements for capital adequacy purposes, subject to a three year phase-in period. The capital conservation buffer was fully phased in January 1, 2019 at 2.50%.

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

													To Be Well
					For Capital				Minimum Capital				Capitalized Under
					Adequacy				Adeqaucy with				Prompt Corrective
	Actual				Purposes				Capital Buffer				Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
September 30, 2020
Total capital (to risk-weighted assets):
Corporation	$	255,984	11.89	%		NA	NA			NA	NA			NA	NA
Bank	$	252,284	11.72	%	$	172,179	8.00	%	$	225,985	10.50	%	$	215,224	10.00	%
Tier 1 capital (to risk-weighted assets):
Corporation	$	219,154	10.18	%		NA	NA			NA	NA			NA	NA
Bank	$	235,966	10.96	%	$	129,135	6.00	%	$	182,941	8.50	%	$	172,179	8.00	%
Common Equity Tier 1 capital (to risk-weighted assets):
Corporation	$	219,154	10.18	%		NA	NA			NA	NA			NA	NA
Bank	$	235,966	10.96	%	$	96,851	4.50	%	$	150,657	7.00	%	$	139,896	6.50	%
Tier 1 capital (to average assets):
Corporation	$	219,154	8.54	%		NA	NA			NA	NA			NA	NA
Bank	$	235,966	9.25	%	$	102,019	4.00	%	$	102,019	4.00	%	$	127,524	5.00	%
December 31, 2019
Total capital (to risk-weighted assets):
Corporation	$	208,900	10.35	%		NA	NA			NA	NA			NA	NA
Bank	$	215,347	10.69	%	$	161,163	8.00	%	$	211,527	10.50	%	$	201,454	10.00	%
Tier 1 capital (to risk-weighted assets):
Corporation	$	178,882	8.86	%		NA	NA			NA	NA			NA	NA
Bank	$	203,951	10.12	%	$	120,872	6.00	%	$	171,236	8.50	%	$	161,163	8.00	%
Common Equity Tier 1 capital (to risk-weighted assets):
Corporation	$	178,882	8.86	%		NA	NA			NA	NA			NA	NA
Bank	$	203,951	10.12	%	$	90,654	4.50	%	$	141,018	7.00	%	$	130,945	6.50	%
Tier 1 capital (to average assets):
Corporation	$	178,882	8.46	%		NA	NA			NA	NA			NA	NA
Bank	$	203,951	9.67	%	$	84,390	4.00	%		84,390	4.00	%	$	105,487	5.00	%

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COMMITMENTS AND CONTINGENCIES

9 Months Ended

Sep. 30, 2020

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

NOTE 10 – COMMITMENTS AND CONTINGENCIES

The Company enters into commitments to originate loans whereby the interest rate on the loan is determined prior to funding (rate-lock commitments). Rate-lock commitments on mortgage loans that are intended to be sold are considered to be derivatives. Accordingly, such commitments, along with any related fees received from potential borrowers, are recorded at fair value in derivative assets or liabilities, with changes in fair value recorded in the net gain or loss on sale of mortgage loans. Fair value is based on fees currently charged to enter into similar agreements and for fixed rate commitments also considers the difference between current levels of interest rates and committed rates. The notional amount of rate-lock commitments at September 30, 2020 and December 31, 2019 was approximately $73.0 million and $14.8 million, respectively.

The Company is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets.

The Company’s exposure to credit loss is represented by the contractual or notional amount of these commitments. The Company follows the same credit policies in making commitments as it does for on-balance-sheet instruments. Since some of the commitments are expected to expire without being drawn upon and some of the commitments may not be drawn upon to the total extent of the commitment, the notional amount of these commitments does not necessarily represent future cash requirements.

The following commitments were outstanding:

	Notional Amount
	September 30, 2020		December 31, 2019
Commitments to extend credit:
Fixed	$	68,438	$	49,741
Variable		380,615		333,468
Credit card arrangements		9,973		11,148
Letters of credit		7,794		17,121

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FAIR VALUE MEASUREMENTS

9 Months Ended

Sep. 30, 2020

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

NOTE 11 – FAIR VALUE MEASUREMENTS

Accounting guidance establishes a fair value hierarchy to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value.

Level 1:        Quoted prices (unadjusted) or identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2:        Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3:        Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

Information regarding the fair value of assets measured at fair value on a recurring basis is as follows:

	Instruments		Markets		Other		Significant
	Measured		for Identical		Observable		Unobservable
	At Fair		Assets		Inputs		Inputs
	Value		(Level 1)		(Level 2)		(Level 3)
September 30, 2020
Assets
Securities available for sale
Obligations of U.S.Government sponsored agencies	$	18,819	$	—	$	18,819	$	—
Obligations of states and political subdivisions		73,517		—		73,517		—
Mortgage-backed securities		50,804		—		50,804		—
Corporate notes		27,832		—		27,832		—
Certificates of deposit		2,362		—		2,362		—
Mortgage servicing rights		4,126		—		4,126		—
December 31, 2019
Assets
Securities available for sale
Obligations of U.S. Government sponsored agencies	$	12,060	$	—	$	12,060	$	—
Obligations of states and political subdivisions		54,771		—		54,771		—
Mortgage-backed securities		51,720		—		51,720		—
Corporate notes		62,955		—		62,955		—
Mortgage servicing rights		4,287		—		4,287		—

There were no assets measured on a recurring basis using significant unobservable inputs (Level 3).

	September 30, 2020		December 31, 2019
Total securities at beginning of period	$	—	$	400
Included in earnings		—		—
Included in other comprehensive income		—		—
Purchases, issuance, and settlements		—		(400)
Transfer in and/or out of level 3		—		—
Total securities at end of period	$	—	$	—

Information regarding the fair value of assets measured at fair value on a non-recurring basis is as follows:

			Quoted Prices
			In Active		Significant
	Assets		Markets		Other		Significant
	Measured		for Identical		Observable		Unobservable
	At Fair		Assets		Inputs		Inputs
	Value		(Level 1)		(Level 2)		(Level 3)
September 30, 2020
OREO	$	3,264	$	—	$	—	$	3,264
Impaired Loans, net of impairment reserve		24,984		—		—		24,984
	$	28,248	$	—	$	—	$	28,248
December 31, 2019
OREO	$	6,888	$	—	$	—	$	6,888
Impaired Loans, net of impairment reserve		6,847		—		—		6,847
	$	13,735	$	—	$	—	$	13,735

The following is a description of the valuation methodologies used by the Company for the items noted in the table above, including the general classification of such instruments in the fair value hierarchy. For individually evaluated impaired loans, the amount of impairment is based upon the present value of expected future cash flows discounted at the loan’s effective interest rate, the estimated fair value of the underlying collateral for collateral-dependent loans, or the estimated liquidity of the note. For OREO, the fair value is based upon the estimated fair value of the underlying collateral adjusted for the expected costs to sell. The following table shows significant unobservable inputs used in the fair value measurement of Level 3 assets:

					Weighted
		Unobservable	Range of		Average
	Valuation Technique	Inputs	Discounts		Discount
As of September 30, 2020
Other real estate owned	Third party appraisals, sales contracts or brokered price options	Collateral discounts and estimated costs to sell	0% - 100	%	37.1	%
Impaired loans	Third party appraisals and discounted cash flows	Collateral discounts and discount rates	0% - 100	%	5.7	%
As of December 31, 2019
Other real estate owned	Third party appraisals, sales contracts or brokered price options	Collateral discounts and estimated costs to sell	0% - 61	%	33.5	%
Impaired loans	Third party appraisals and discounted cash flows	Collateral discounts and discount rates	0% - 100	%	6.1	%

The following methods and assumptions were used by the Company to estimate fair value of financial instruments.

Cash and cash equivalents — Fair value approximates the carrying amount.

Securities — The fair value measurement is obtained from an independent pricing service and is based on recent sales of similar securities and other observable market data.

Loans held for sale — Fair value is based on commitments on hand from investors or prevailing market prices.

Loans — Fair value of variable rate loans that reprice frequently are based on carrying value. Fair value of other loans is estimated by discounting future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings. Fair

value of impaired and other nonperforming loans are estimated using discounted expected future cash flows or the fair value of the underlying collateral, if applicable.

Other investments — The carrying amount reported in the consolidated balance sheets for other investments approximates the fair value of these assets.

Mortgage servicing rights — Fair values were determined using the present value of future cash flows.

Cash value of life insurance — The carrying amount approximates its fair value.

Deposits — Fair value of deposits with no stated maturity, such as demand deposits, savings, and money market accounts, by definition, is the amount payable on demand on the reporting date. Fair value of fixed-rate time deposits is estimated using discounted cash flows applying interest rates currently offered on similar time deposits.

Securities sold under repurchase agreements — The fair value of securities sold under repurchase agreements with variable rates or due on demand is the amount payable at the reporting date. The fair value of securities sold under repurchase agreements with fixed terms is estimated using discounted cash flows with discount rates at interest rates currently offered for securities sold under repurchase agreements of similar remaining values.

Notes payable and subordinated notes — Rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate fair value of existing debt. Fair value of borrowings is estimated by discounting future cash flows using the current rates at which similar borrowings would be made. Fair value of borrowed funds due on demand is the amount payable at the reporting date.

Off-balance-sheet instruments — Fair value is based on quoted market prices of similar financial instruments where available. If a quoted market price is not available, fair value is based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreement and the company’s credit standing. Since this amount is immaterial, no amounts for fair value are presented.

The carrying value and estimated fair value of financial instruments at September 30, 2020 and December 31, 2019 follows:

			Fair Value
	Carrying
September 30, 2020	amount		Level 1		Level 2		Level 3		Total
Financial assets:
Cash and cash equivalents	$	80,752	$	80,752	$	—	$	—	$	80,752
Securities held to maturity		6,670		—		6,691		—		6,691
Securities available for sale		173,334		—		173,334		—		173,334
Loans held for sale		659		—		—		659		659
Loans, net		2,176,910		—		—		2,161,367		2,161,367
Other investments, at cost		8,896		—		—		8,896		8,896
Mortgage servicing rights		4,126		—		4,126		—		4,126
Cash surrender value of life insurance		31,197		31,197		—		—		31,197
Deposits	$	2,271,040	$	—	$	—	$	2,255,945	$	2,255,945
Securities sold under repurchase agreements		23,894		—		23,894		—		23,894
Notes payable		25,145		—		25,145		—		25,145
Subordinated notes		20,512		—		20,512		—		20,512

			Fair Value
	Carrying
December 31, 2019	amount		Level 1		Level 2		Level 3		Total
Financial assets:
Cash and cash equivalents	$	86,452	$	86,452	$	—	$	—	$	86,452
Securities held to maturity		43,734		—		44,803		—		44,803
Securities available for sale		181,506		—		181,506		—		181,506
Loans held for sale		587		—		—		587		587
Loans, net		1,724,947		—		—		1,723,542		1,723,542
Other investments, at cost		4,933		—		—		4,933		4,933
Mortgage servicing rights		4,287		—		4,287		—		4,287
Cash surrender value of life insurance		24,945		24,945		—		—		24,945
Financial liabilities:
Deposits	$	1,843,311	$	—	$	—	$	1,783,638	$	1,783,638
Securities sold under repurchase agreements		45,865		—		45,865		—		45,865
Notes payable		49,790		—		49,790		—		49,790
Subordinated notes		18,622		—		18,622		—		18,622

The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. Consequently, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

Fair value estimates are made at a specific point in time based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters that could affect the estimates. Fair value estimates are based on existing on- and off-balance-sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments.

Deposits with no stated maturities are defined as having a fair value equivalent to the amount payable on demand. This prohibits adjusting fair value derived from retaining those deposits for an expected future period of time. This component, commonly referred

to as a deposit base intangible, is neither considered in the above amounts nor is it recorded as an intangible asset on the consolidated balance sheet. Significant assets and liabilities that are not considered financial assets and liabilities include premises and equipment. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.

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STOCK BASED COMPENSATION

9 Months Ended

Sep. 30, 2020

STOCK BASED COMPENSATION

STOCK BASED COMPENSATION

NOTE 12 – STOCK BASED COMPENSATION

The Company has made restricted share grants pursuant to the Bank First Corporation 2011 Equity Plan and the Bank First Corporation 2020 Equity Plan, which replaced the 2011 Plan. The purpose of the Plan is to provide financial incentives for selected employees and for the non-employee Directors of the Company, thereby promoting the long-term growth and financial success of the Company. The Company stock to be offered under the Plan pursuant to Stock Appreciation Rights, performance unit awards, and restricted stock and unrestricted Company stock awards must be Company stock previously issued and outstanding and reacquired by the Company. The number of shares of Company stock that may be issued pursuant to awards under the 2020 Plan shall not exceed, in the aggregate, 700,000. As of September 30, 2020, 399 shares of Company stock have been awarded under the 2020 Plan. Compensation expense for restricted stock is based on the fair value of the awards of Bank First Corporation common stock at the time of grant. The value of restricted stock grants that are expected to vest is amortized into expense over the vesting periods. For the nine months ended September 30, 2020 and 2019, compensation expense of $0.8 million and $0.5 million, respectively, was recognized related to restricted stock awards.

As of September 30, 2020, there was $2.3 million of unrecognized compensation cost related to non-vested restricted stock awards granted under the plan. That cost is expected to be recognized over a weighted average period of 2.84 years. The aggregate grant date fair value of restricted stock awards that vested during the nine months ended September 30, 2020, was approximately $0.7 million.

	For the nine months ended September 30,			For the nine months ended September 30,
	2020			2019
		Weighted-			Weighted-
		Average Grant-			Average Grant-
	Shares	Date Fair Value		Shares	Date Fair Value
Restricted Stock
Outstanding at beginning of year	50,676	$	43.03	51,776	$	34.27
Granted	27,466		60.76	17,015		56.62
Vested	(18,623)		37.28	(17,212)		30.54
Forfeited or cancelled	(2,344)		51.27	(903)		41.01
Outstanding at end of year	57,175	$	53.08	50,676	$	43.03

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LEASES

9 Months Ended

Sep. 30, 2020

LEASES

LEASES

NOTE 13 – LEASES

Accounting standards require lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements, establishing a right-of-use (“ROU”) model that requires a lessee to recognize a ROU lease asset and liability on the balance sheet for all leases with a term longer than 12 months. Leases are classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.

Lessee Leases

The Company’s lessee leases are operating leases, and consist of leased real estate for branches. Options to extend and renew leases are generally exercised under normal circumstances. Advance notification is required prior to termination, and any noticing period is often limited to the months prior to renewal. Rent escalations are generally specified by a payment schedule, or are subject to a defined formula. The Company also elected the practical expedient to not separate lease and non-lease components for all leases, the majority of which consist of real estate common area maintenance expenses. Generally, leases do not include guaranteed residual values, but instead typically specify that the leased premises are to be returned in satisfactory condition with the Company liable for damages.

For operating leases, the lease liability and ROU asset (before adjustments) are recorded at the present value of future lease payments. Accounting standards require the use of the lease interest rate; however, this rate is typically not known. As an alternative, the use of

an entity’s fully secured incremental borrowing rate is permitted. The Company is electing to utilize the Wall Street Journal Prime Rate on the date of lease commencement.

	Nine-month period ended
	September 30, 2020			September 30, 2019
Amortization of ROU Assets - Operating Leases	$	31		$	35
Interest on Lease Liabilities - Operating Leases		69			63
Operating Lease Cost (Cost resulting from lease payments)		100			98
ROU Assets - Operating Leases at beginning of period		1,699			—
New ROU Assets - Operating Leases		—			1,744
ROU Assets - Operating Leases at September 30,		1,668			1,708
Weighted Average Lease Term (Years) - Operating Leases		31.51			31.60
Weighted Average Discount Rate - Operating Leases		5.50	%		5.50	%

A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total operating lease liabilities as of September 30, 2020 is as follows:

	September 30, 2020
Operating lease payments due:
Within one year	$	141
After one but within two years		124
After two but within three years		86
After three but within four years		86
After four years but within five years		86
After five years		3,346
Total undiscounted cash flows		3,869
Discount on cash flows		(2,201)
Total operating lease liabilities	$	1,668

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ACQUISITIONS (Tables)

9 Months Ended

Sep. 30, 2020

ACQUISITIONS

Schedule of Fair Vlue of Assets And Liabilities

	As Recorded by		Fair Value		As Recorded by
	Timberwood		Adjustments		the Company
Cash, cash equivelants and securities	$	79,614	$	(656)	$	78,958
Other investments		533				533
Loans		117,343		1,068		118,411
Premises and equipment, net		2,538		(1,006)		1,532
Core deposit intangible		—		1,697		1,697
Other assets		11,392		(2,605)		8,787
Total assets acquired	$	211,420	$	(1,502)	$	209,918
Deposits	$	170,362	$	742	$	171,104
Subordinated debt		6,500				6,500
Other borrowings		12,938		210		13,148
Other liabilities		1,923		(974)		949
Total liabilities assumed	$	191,723	$	(22)	$	191,701
Excess of assets acquired over liabilties assumed	$	19,697	$	(1,480)	$	18,217
Less: purchase price						29,812
Goodwill (originally recorded)						11,595
Refinement to fair value estimates						(29)
Goodwill (after refinement)					$	11,566

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EARNINGS PER SHARE (Tables)

9 Months Ended

Sep. 30, 2020

EARNINGS PER SHARE

Schedule of Earnings Per Common Share

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Basic
Net income available to common shareholders	$	10,954	$	6,659	$	26,516	$	19,235
Less: Earnings allocated to participating securities		(82)		(48)		(202)		(148)
Net income allocated to common shareholders	$	10,872	$	6,611	$	26,314	$	19,087
Weighted average common shares outstanding including participating securities		7,731,670		7,036,807		7,424,257		6,731,089
Less: Participating securities (1)		(58,098)		(51,040)		(56,464)		(51,608)
Average shares		7,673,572		6,985,767		7,367,793		6,679,481
Basic earnings per common shares	$	1.42	$	0.95	$	3.57	$	2.86
Diluted
Net income available to common shareholders	$	10,954	$	6,659	$	26,516	$	19,235
Weighted average common shares outstanding for basic earnings per common share		7,673,572		6,985,767		7,367,793		6,679,481
Add: Dilutive effects of stock based compensation awards		17,754		121,988		44,880		99,564
Average shares and dilutive potential common shares		7,691,326		7,107,755		7,412,673		6,779,045
Diluted earnings per common share	$	1.42	$	0.93	$	3.56	$	2.83

(1) Participating securities are restricted stock awards whereby the stock certificates have been issued, are included in outstanding shares, receive dividends and can be voted, but have not vested.

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SECURITIES (Tables)

9 Months Ended

Sep. 30, 2020

SECURITIES

Schedule of securities available for sale

The Company’s securities available for sale as of September 30, 2020 and December 31, 2019 is summarized as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
September 30, 2020
Obligations of U.S. Government sponsored agencies	$	18,283	$	595	$	(59)	$	18,819
Obligations of states and political subdivisions		69,414		4,104		(1)		73,517
Mortgage-backed securities		47,864		2,940		—		50,804
Corporate notes		27,325		507		—		27,832
Certificates of deposit		2,320		42		—		2,362
Total available for sale securities	$	165,206	$	8,188	$	(60)	$	173,334
December 31, 2019
Obligations of U.S. Government sponsored agencies	$	12,218	$	—	$	(158)	$	12,060
Obligations of states and political subdivisions		52,594		2,197		(20)		54,771
Mortgage-backed securities		50,770		988		(38)		51,720
Corporate notes		62,794		172		(11)		62,955
Total available for sale securities	$	178,376	$	3,357	$	(227)	$	181,506

Schedule of securities held to maturity

The Company’s securities held to maturity as of September 30, 2020 and December 31, 2019 is summarized as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
September 30, 2020
Obligations of states and political subdivisions	$	6,670	$	21	$	—	$	6,691
December 31, 2019
U.S. Treasury securities	$	33,527	$	1,076	$	(22)	$	34,581
Obligations of states and political subdivisions		10,207		15		—		10,222
Total held to maturity securities	$	43,734	$	1,091	$	(22)	$	44,803

Schedule of fair value and gross unrealized lossess of securities

The following table shows the fair value and gross unrealized losses of securities with unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:

	Less Than 12 Months				Greater Than 12 Months				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
September 30, 2020 - Available for Sale
Obligations of U.S. Government sponsored agencies	$	5,639	$	(59)	$	—	$	—	$	5,639	$	(59)
Obligations of states and political subdivisions		354		(1)		—		—		354		(1)
Totals	$	5,993	$	(60)	$	—	$	—	$	5,993	$	(60)
December 31, 2019 - Available for Sale
Obligations of U.S. Government sponsored agencies	$	12,059	$	(158)	$	—	$	—	$	12,059	$	(158)
Obligations of states and political subdivisions		5,636		(19)		999		(1)		6,635		(20)
Mortgage-backed securities		4,038		(26)		2,187		(12)		6,225		(38)
Corporate notes		3,925		(11)		—		—		3,925		(11)
Totals	$	25,658	$	(214)	$	3,186	$	(13)	$	28,844	$	(227)
December 31, 2019 - Held to Maturity
U.S. Treasury securities	$	2,958	$	(22)	$	—	$	—	$	2,958	$	(22)

Schedule of amortized cost and estimated fair value of securities

The following is a summary of amortized cost and estimated fair value of securities by contractual maturity as of September 30, 2020. Contractual maturities will differ from expected maturities for mortgage-backed securities because borrowers may have the right to call or prepay obligations without penalties.

	Available for Sale				Held to Maturity
	Amortized		Estimated		Amortized		Estimated
	Cost		Fair Value		Cost		Fair Value
Due in one year or less	$	12,735	$	12,834	$	751	$	751
Due after one year through 5 years		12,500		13,308		3,524		3,545
Due after 5 years through ten years		11,014		11,569		2,395		2,395
Due after 10 years		81,093		84,819		—		—
Subtotal		117,342		122,530		6,670		6,691
Mortgage-backed securities		47,864		50,804		—		—
Total	$	165,206	$	173,334	$	6,670	$	6,691

Schedule of proceeds from sale of securities available for sale and held to maturity

The following is a summary of the proceeds from sales of securities available for sale and held to maturity, as well as gross gains and losses for the nine months ended September 30, 2020 and 2019.

	Nine months eneded September 30,
	2020		2019
Proceeds from sales of securities	$	59,697	$	748
Gross gains on sales		3,284		23
Gross losses on sales		(51)		—

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LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY (Tables)

9 Months Ended

Sep. 30, 2020

LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY

Schedule of total loans by portfolio segment and class of loan

The following table presents total loans by portfolio segment and class of loan as of September 30, 2020 and December 31, 2019:

	September 30,		December 31,
	2020		2019
Commercial/industrial	$	547,750	$	302,538
Commercial real estate - owner occupied		530,476		459,782
Commercial real estate - non-owner occupied		426,463		353,723
Construction and development		150,139		132,296
Residential 1‑4 family		488,925		448,605
Consumer		29,684		29,462
Other		25,552		10,440
Subtotals		2,198,989		1,736,846
ALL		(16,318)		(11,396)
Loans, net of ALL		2,182,671		1,725,450
Deferred loan fees and costs		(5,761)		(503)
Loans, net	$	2,176,910	$	1,724,947

Schedule of ALL by loan type

The ALL by loan type as of September 30, 2020 and 2019 is summarized as follows:

			Commercial		Commercial
			Real Estate -		Real Estate  -		Construction
	Commercial /		Owner		Non - Owner		and		Residential
	Industrial		Occupied		Occupied		Development		1-4 Family		Consumer		Other		Total
ALL - January 1, 2020	$	2,320	$	4,587	$	1,578	$	548	$	2,169	$	141	$	53	$	11,396
Charge-offs		(631)		(773)		—		—		(63)		(33)		(19)		(1,519)
Recoveries		2		873		40		—		40		—		11		966
Provision		138		995		2,276		474		1,259		86		247		5,475
ALL - September 30, 2020		1,829		5,682		3,894		1,022		3,405		194		292		16,318
ALL ending balance individually evaluated for impairment		14		483		1,098		—		—		—		—		1,595
ALL ending balance collectively evaluated for impairment	$	1,815	$	5,199	$	2,796	$	1,022	$	3,405	$	194	$	292	$	14,723
Loans outstanding - September 30, 2020	$	547,750	$	530,476	$	426,463	$	150,139	$	488,925	$	29,684	$	25,552	$	2,198,989
Loans ending balance individually evaluated for impairment		533		7,334		7,904		—		—		—		—		15,771
Loans ending balance collectively evaluated for impairment	$	547,217	$	523,142	$	418,559	$	150,139	$	488,925	$	29,684	$	25,552	$	2,183,218

			Commercial		Commercial
			Real Estate  -		Real Estate  -		Construction
	Commercial /		Owner		Non - Owner		and		Residential
	Industrial		Occupied		Occupied		Development		1-4 Family		Consumer		Other		Total
ALL - January 1, 2019	$	3,021	$	3,750	$	2,100	$	725	$	2,472	$	148	$	32	$	12,248
Charge-offs		(1,229)		(4,974)		(55)		—		(83)		(75)		(29)		(6,445)
Recoveries		3		4		60		—		126		4		6		203
Provision		507		4,360		(186)		(221)		(423)		70		18		4,125
ALL - September 30, 2019		2,302		3,140		1,919		504		2,092		147		27		10,131
ALL ending balance individually evaluated for impairment		—		—		—		—		—		—		—		—
ALL ending balance collectively evaluated for impairment	$	2,302	$	3,140	$	1,919	$	504	$	2,092	$	147	$	27	$	10,131
Loans outstanding -
September 30, 2019	$	310,536	$	467,030	$	337,558	$	118,055	$	443,906	$	31,665	$	5,985	$	1,714,735
Loans ending balance individually evaluated for impairment		—		—		—		—		—		—		—		—
Loans ending balance collectively evaluated for impairment	$	310,536	$	467,030	$	337,558	$	118,055	$	443,906	$	31,665	$	5,985	$	1,714,735

Schedule of past due loans

The Company’s past due loans as of September 30, 2020 is summarized as follows:

			90 Days
	30-89 Days		or more
	Past Due		Past Due
	Accruing		and Accruing		Non-Accrual		Total
Commercial/industrial	$	4	$	—	$	599	$	603
Commercial real estate - owner occupied		121		—		8,690		8,811
Commercial real estate - non-owner occupied		—		—		7,427		7,427
Construction and development		29		—		—		29
Residential 1‑4 family		318		72		1,092		1,482
Consumer		34		3		—		37
Other		—		—		—		—
	$	506	$	75	$	17,808	$	18,389

The Company’s past due loans as of December 31, 2019 is summarized as follows:

			90 Days
	30-89 Days		or more
	Past Due		Past Due
	Accruing		and Accruing		Non-Accrual		Total
Commercial/industrial	$	235	$	—	$	1,923	$	2,158
Commercial real estate - owner occupied		1,124		—		2,513		3,637
Commercial real estate - non-owner occupied		—		—		75		75
Construction and development		768		11		—		779
Residential 1‑4 family		805		307		550		1,662
Consumer		70		36		32		138
Other		—		—		—		—
	$	3,002	$	354	$	5,093	$	8,449

Schedule of loans by risk rating

The breakdown of loans by risk rating as of September 30, 2020 is as follows:

	Pass (1-5)		6		7		8		Total
Commercial/industrial	$	543,008	$	668	$	4,074	$	—	$	547,750
Commercial real estate - owner occupied		496,026		4,467		29,983		—		530,476
Commercial real estate - non-owner occupied		415,970		—		10,493		—		426,463
Construction and development		149,999		—		140		—		150,139
Residential 1‑4 family		486,462		604		1,859		—		488,925
Consumer		29,684		—		—		—		29,684
Other		25,552		—		—		—		25,552
	$	2,146,701	$	5,739	$	46,549	$	—	$	2,198,989

The breakdown of loans by risk rating as of December 31, 2019 is as follows:

	Pass (1-5)		6		7		8		Total
Commercial/industrial	$	290,180	$	5,329	$	7,029	$	—	$	302,538
Commercial real estate - owner occupied		422,336		5,603		31,843		—		459,782
Commercial real estate - non-owner occupied		344,278		8,774		671		—		353,723
Construction and development		132,266		—		30		—		132,296
Residential 1‑4 family		447,630		256		719		—		448,605
Consumer		29,430		—		32		—		29,462
Other		10,440		—		—		—		10,440
	$	1,676,560	$	19,962	$	40,324	$	—	$	1,736,846

Schedule of impaired loans individually

A summary of impaired loans individually evaluated as of September 30, 2020 is as follows:

			Commercial		Commercial
			Real Estate -		Real Estate -		Construction
	Commercial /		Owner		Non - Owner		and		Residential
	Industrial		Occupied		Occupied		Development		1-4 Family		Consumer		Other		Unallocated		Total
With an allowance recorded:
Recorded investment	$	595	$	3,625	$	7,892	$	—	$	—	$	—	$	—	$	—	$	12,112
Unpaid principal balance		595		3,625		7,892		—		—		—		—		—		12,112
Related allowance		14		483		1,098		—		—		—		—		—		1,595
With no related allowance recorded:
Recorded investment	$	—	$	4,045	$	—	$	—	$	—	$	—	$	—	$	—	$	4,045
Unpaid principal balance		—		4,052		—		—		—		—		—		—		4,052
Related allowance		—		—		—		—		—		—		—		—		—
Total:
Recorded investment	$	595	$	7,670	$	7,892	$	—	$	—	$	—	$	—	$	—	$	16,157
Unpaid principal balance		595		7,677		7,892		—		—		—		—		—		16,164
Related allowance		14		483		1,098		—		—		—		—		—		1,595
Average recorded investment	$	1,237	$	5,784	$		$	—	$	—	$	—	$	—	$	—	$	10,967

A summary of impaired loans individually evaluated as of December 31, 2019 is as follows:

			Commercial		Commercial
			Real Estate -		Real Estate -		Construction
	Commercial /		Owner		Non - Owner		and		Residential
	Industrial		Occupied		Occupied		Development		1‑4 Family		Consumer		Other		Total
With an allowance recorded:
Recorded investment	$	1,878	$	960	$	—	$	—	$	—	$	—	$	—	$	2,838
Unpaid principal balance		1,878		960		—		—		—		—		—		2,838
Related allowance		760		80		—		—		—		—		—		840
With no related allowance recorded:
Recorded investment	$	—	$	2,938	$	—	$	—	$	—	$	—	$	—	$	2,938
Unpaid principal balance		—		2,938		—		—		—		—		—		2,938
Related allowance		—		—		—		—		—		—		—		—
Total:
Recorded investment	$	1,878	$	3,898	$	—	$	—	$	—	$	—	$	—	$	5,776
Unpaid principal balance		1,878		3,898		—		—		—		—		—		5,776
Related allowance		760		80		—		—		—		—		—		840
Average recorded investment	$	3,773	$	5,847	$	—	$	—	$	351	$	—	$	—	$	9,971

Schedule of Change in the accretable and non accretable Components of Discounts on Loans

The following table represents the change in the accretable and non-accretable components of discounts on loans acquired with deteriorated credit quality for the nine months ended September 30, 2020, and year ended December 31, 2019:

	September 30, 2020				December 31, 2019
	Accretable		Non-accretable		Accretable		Non-accretable
	discount		discount		discount		discount
Balance at beginning of period	$	222	$	220	$	318	$	745
Acquired balance, net		1,064		727		44		333
Reclassifications between accretable and non-accretable		696		(696)		858		(858)
Accretion to loan interest income		(722)		—		(998)		—
Balance at end of period	$	1,260	$	251	$	222	$	220

Schedule of troubled debt restructurings

The following table presents the TDRs during the nine months ended September 30, 2020. There were no TDRs during the same period in 2019.

			Pre-Modification		Post-Modification
			Outstanding		Outstanding
	Number of		Recorded		Recorded
	Contracts		Investment		Investment
Commerical Real Estate	1	$	115	$	115

Financial Asset Acquired with Credit Deterioration [Member]

LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY

Schedule of impaired loans individually

The following table presents loans acquired with deteriorated credit quality as of September 30, 2020 and December 31, 2019. No loans in this table had a related allowance at either date, and therefore, the below disclosures were not expanded to include loans with and without a related allowance.

	September 30, 2020				December 31, 2019
	Recorded		Unpaid Principal		Recorded		Unpaid Principal
	Investment		Balance		Investment		Balance
Commercial & Industrial	$	1,191	$	1,365	$	191	$	212
Commercial real estate - owner occupied		3,986		4,847		518		785
Commercial real estate - non-owner occupied		1,241		1,405		—		—
Construction and development		95		106		213		237
Residential 1‑4 family		881		1,182		901		1,031
Consumer		—		—		—		—
Other		—		—		—		—
	$	7,394	$	8,905	$	1,823	$	2,265

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MORTGAGE SERVICING RIGHTS (Tables)

9 Months Ended

Sep. 30, 2020

MORTGAGE SERVICING RIGHTS

Schedule of analysis of activity in the MSR asset

Following is an analysis of activity in the MSR asset:

	Nine Months Ended		Year Ended
	September 30, 2020		December 31, 2019
Fair value at beginning of year	$	4,287	$	3,085
MSR asset acquired		384		1,859
Servicing asset additions		980		740
Loan payments and payoffs		(1,132)		(821)
Changes in valuation inputs and assumptions used in the valuation model		(393)		(576)
Amount recognized through earnings		(545)		(657)
Fair value at end of period	$	4,126	$	4,287
Unpaid principal balance of loans serviced for others	$	628,204	$	554,374
MSR as a percent of loans serviced for others		0.66		0.77

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NOTES PAYABLE (Tables)

9 Months Ended

Sep. 30, 2020

NOTES PAYABLE

Schedule of advance rate and maturities

					September 30,		December 31,
	Maturity	Rate			2020		2019
				(dollars in thousands)
Fixed rate, fixed term	01/27/2020	1.42	%	$	—	$	1,000
Fixed rate, fixed term	11/02/2020	1.28	%		400		400
Fixed rate, fixed term	11/02/2020	2.83	%		500		—
Fixed rate, fixed term	12/08/2020	2.76	%		500		—
Fixed rate, fixed term	12/28/2020	2.07	%		250		—
Fixed rate, fixed term	01/22/2021	1.67	%		2,000		2,000
Fixed rate, fixed term	01/25/2021	2.37	%		5,000		5,000
Fixed rate, fixed term	01/27/2021	1.60	%		1,000		1,000
Fixed rate, fixed term	03/29/2021	0.00	%		2,377		—
Fixed rate, fixed term	05/03/2021	2.87	%		500		—
Fixed rate, fixed term	05/03/2021	0.00	%		4,000		—
Fixed rate, fixed term	05/03/2021	0.00	%		4,000		—
Fixed rate, fixed term	06/28/2021	2.00	%		250		—
Fixed rate, fixed term	11/03/2021	1.46	%		400		400
Fixed rate, fixed term	12/08/2021	2.87	%		500		—
Fixed rate, fixed term	12/27/2021	1.99	%		250		—
Fixed rate, fixed term	01/24/2022	2.51	%		250		—
Fixed rate, fixed term	05/02/2022	2.98	%		500		—
Fixed rate, fixed term	06/08/2022	2.92	%		500		—
Fixed rate, fixed term	08/08/2022	1.76	%		—		10,000
Fixed rate, fixed term	11/21/2022	3.02	%		600		—
Fixed rate, fixed term	08/08/2023	1.74	%		—		10,000
Fixed rate, fixed term	11/21/2023	3.06	%		600		—
Fixed rate, fixed term	08/08/2024	1.75	%		—		10,000
Fixed rate, fixed term	01/04/2027	0.00	%		103		—
Fixed rate, fixed term	04/22/2030	0.00	%		508		—
					24,988		39,800
Adjustment due to purchase accounting					157		(10)
				$	25,145	$	39,790

Schedule of Future maturities of borrowings

	September 30,		December 31,
	2020		2019
1 year or less	$	20,777	$	1,400
1 to 2 years		2,400		8,400
2 to 3 years		600		10,000
3 to 4 years		600		10,000
4 to 5 years		—		10,000
Over 5 years		611		—
	$	24,988	$	39,800

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REGULATORY MATTERS (Tables)

9 Months Ended

Sep. 30, 2020

REGULATORY MATTERS

Schedule of Actual and required capital amounts and ratios

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

													To Be Well
					For Capital				Minimum Capital				Capitalized Under
					Adequacy				Adeqaucy with				Prompt Corrective
	Actual				Purposes				Capital Buffer				Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
September 30, 2020
Total capital (to risk-weighted assets):
Corporation	$	255,984	11.89	%		NA	NA			NA	NA			NA	NA
Bank	$	252,284	11.72	%	$	172,179	8.00	%	$	225,985	10.50	%	$	215,224	10.00	%
Tier 1 capital (to risk-weighted assets):
Corporation	$	219,154	10.18	%		NA	NA			NA	NA			NA	NA
Bank	$	235,966	10.96	%	$	129,135	6.00	%	$	182,941	8.50	%	$	172,179	8.00	%
Common Equity Tier 1 capital (to risk-weighted assets):
Corporation	$	219,154	10.18	%		NA	NA			NA	NA			NA	NA
Bank	$	235,966	10.96	%	$	96,851	4.50	%	$	150,657	7.00	%	$	139,896	6.50	%
Tier 1 capital (to average assets):
Corporation	$	219,154	8.54	%		NA	NA			NA	NA			NA	NA
Bank	$	235,966	9.25	%	$	102,019	4.00	%	$	102,019	4.00	%	$	127,524	5.00	%
December 31, 2019
Total capital (to risk-weighted assets):
Corporation	$	208,900	10.35	%		NA	NA			NA	NA			NA	NA
Bank	$	215,347	10.69	%	$	161,163	8.00	%	$	211,527	10.50	%	$	201,454	10.00	%
Tier 1 capital (to risk-weighted assets):
Corporation	$	178,882	8.86	%		NA	NA			NA	NA			NA	NA
Bank	$	203,951	10.12	%	$	120,872	6.00	%	$	171,236	8.50	%	$	161,163	8.00	%
Common Equity Tier 1 capital (to risk-weighted assets):
Corporation	$	178,882	8.86	%		NA	NA			NA	NA			NA	NA
Bank	$	203,951	10.12	%	$	90,654	4.50	%	$	141,018	7.00	%	$	130,945	6.50	%
Tier 1 capital (to average assets):
Corporation	$	178,882	8.46	%		NA	NA			NA	NA			NA	NA
Bank	$	203,951	9.67	%	$	84,390	4.00	%		84,390	4.00	%	$	105,487	5.00	%

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COMMITMENTS AND CONTINGENCIES (Tables)

9 Months Ended

Sep. 30, 2020

COMMITMENTS AND CONTINGENCIES

Schedule of Commitments and contingencies outstanding

The following commitments were outstanding:

	Notional Amount
	September 30, 2020		December 31, 2019
Commitments to extend credit:
Fixed	$	68,438	$	49,741
Variable		380,615		333,468
Credit card arrangements		9,973		11,148
Letters of credit		7,794		17,121

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FAIR VALUE MEASUREMENTS (Tables)

9 Months Ended

Sep. 30, 2020

FAIR VALUE MEASUREMENTS

Schedule of fair value of assets measured at fair value on a recurring basis

Information regarding the fair value of assets measured at fair value on a recurring basis is as follows:

	Instruments		Markets		Other		Significant
	Measured		for Identical		Observable		Unobservable
	At Fair		Assets		Inputs		Inputs
	Value		(Level 1)		(Level 2)		(Level 3)
September 30, 2020
Assets
Securities available for sale
Obligations of U.S.Government sponsored agencies	$	18,819	$	—	$	18,819	$	—
Obligations of states and political subdivisions		73,517		—		73,517		—
Mortgage-backed securities		50,804		—		50,804		—
Corporate notes		27,832		—		27,832		—
Certificates of deposit		2,362		—		2,362		—
Mortgage servicing rights		4,126		—		4,126		—
December 31, 2019
Assets
Securities available for sale
Obligations of U.S. Government sponsored agencies	$	12,060	$	—	$	12,060	$	—
Obligations of states and political subdivisions		54,771		—		54,771		—
Mortgage-backed securities		51,720		—		51,720		—
Corporate notes		62,955		—		62,955		—
Mortgage servicing rights		4,287		—		4,287		—

Schedule of fair value of assets measured on a recurring basis using significant unobservable inputs

There were no assets measured on a recurring basis using significant unobservable inputs (Level 3).

	September 30, 2020		December 31, 2019
Total securities at beginning of period	$	—	$	400
Included in earnings		—		—
Included in other comprehensive income		—		—
Purchases, issuance, and settlements		—		(400)
Transfer in and/or out of level 3		—		—
Total securities at end of period	$	—	$	—

Schedule of fair value of assets measured on a non-recurring basis

Information regarding the fair value of assets measured at fair value on a non-recurring basis is as follows:

			Quoted Prices
			In Active		Significant
	Assets		Markets		Other		Significant
	Measured		for Identical		Observable		Unobservable
	At Fair		Assets		Inputs		Inputs
	Value		(Level 1)		(Level 2)		(Level 3)
September 30, 2020
OREO	$	3,264	$	—	$	—	$	3,264
Impaired Loans, net of impairment reserve		24,984		—		—		24,984
	$	28,248	$	—	$	—	$	28,248
December 31, 2019
OREO	$	6,888	$	—	$	—	$	6,888
Impaired Loans, net of impairment reserve		6,847		—		—		6,847
	$	13,735	$	—	$	—	$	13,735

Schedule of fair value measurement on inputs and valuation techniques

					Weighted
		Unobservable	Range of		Average
	Valuation Technique	Inputs	Discounts		Discount
As of September 30, 2020
Other real estate owned	Third party appraisals, sales contracts or brokered price options	Collateral discounts and estimated costs to sell	0% - 100	%	37.1	%
Impaired loans	Third party appraisals and discounted cash flows	Collateral discounts and discount rates	0% - 100	%	5.7	%
As of December 31, 2019
Other real estate owned	Third party appraisals, sales contracts or brokered price options	Collateral discounts and estimated costs to sell	0% - 61	%	33.5	%
Impaired loans	Third party appraisals and discounted cash flows	Collateral discounts and discount rates	0% - 100	%	6.1	%

Schedule of carrying value and estimated fair value of financial instruments

The carrying value and estimated fair value of financial instruments at September 30, 2020 and December 31, 2019 follows:

			Fair Value
	Carrying
September 30, 2020	amount		Level 1		Level 2		Level 3		Total
Financial assets:
Cash and cash equivalents	$	80,752	$	80,752	$	—	$	—	$	80,752
Securities held to maturity		6,670		—		6,691		—		6,691
Securities available for sale		173,334		—		173,334		—		173,334
Loans held for sale		659		—		—		659		659
Loans, net		2,176,910		—		—		2,161,367		2,161,367
Other investments, at cost		8,896		—		—		8,896		8,896
Mortgage servicing rights		4,126		—		4,126		—		4,126
Cash surrender value of life insurance		31,197		31,197		—		—		31,197
Deposits	$	2,271,040	$	—	$	—	$	2,255,945	$	2,255,945
Securities sold under repurchase agreements		23,894		—		23,894		—		23,894
Notes payable		25,145		—		25,145		—		25,145
Subordinated notes		20,512		—		20,512		—		20,512

			Fair Value
	Carrying
December 31, 2019	amount		Level 1		Level 2		Level 3		Total
Financial assets:
Cash and cash equivalents	$	86,452	$	86,452	$	—	$	—	$	86,452
Securities held to maturity		43,734		—		44,803		—		44,803
Securities available for sale		181,506		—		181,506		—		181,506
Loans held for sale		587		—		—		587		587
Loans, net		1,724,947		—		—		1,723,542		1,723,542
Other investments, at cost		4,933		—		—		4,933		4,933
Mortgage servicing rights		4,287		—		4,287		—		4,287
Cash surrender value of life insurance		24,945		24,945		—		—		24,945
Financial liabilities:
Deposits	$	1,843,311	$	—	$	—	$	1,783,638	$	1,783,638
Securities sold under repurchase agreements		45,865		—		45,865		—		45,865
Notes payable		49,790		—		49,790		—		49,790
Subordinated notes		18,622		—		18,622		—		18,622

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STOCK BASED COMPENSATION (Tables)

9 Months Ended

Sep. 30, 2020

STOCK BASED COMPENSATION

Schedule of share-based compensation, restricted stock and restricted stock units activity

	For the nine months ended September 30,			For the nine months ended September 30,
	2020			2019
		Weighted-			Weighted-
		Average Grant-			Average Grant-
	Shares	Date Fair Value		Shares	Date Fair Value
Restricted Stock
Outstanding at beginning of year	50,676	$	43.03	51,776	$	34.27
Granted	27,466		60.76	17,015		56.62
Vested	(18,623)		37.28	(17,212)		30.54
Forfeited or cancelled	(2,344)		51.27	(903)		41.01
Outstanding at end of year	57,175	$	53.08	50,676	$	43.03

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LEASES (Tables)

9 Months Ended

Sep. 30, 2020

LEASES

Schedule of lease cost and other information related to leases

	Nine-month period ended
	September 30, 2020			September 30, 2019
Amortization of ROU Assets - Operating Leases	$	31		$	35
Interest on Lease Liabilities - Operating Leases		69			63
Operating Lease Cost (Cost resulting from lease payments)		100			98
ROU Assets - Operating Leases at beginning of period		1,699			—
New ROU Assets - Operating Leases		—			1,744
ROU Assets - Operating Leases at September 30,		1,668			1,708
Weighted Average Lease Term (Years) - Operating Leases		31.51			31.60
Weighted Average Discount Rate - Operating Leases		5.50	%		5.50	%

Schedule of maturity analysis of operating lease liabilities

A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total operating lease liabilities as of September 30, 2020 is as follows:

	September 30, 2020
Operating lease payments due:
Within one year	$	141
After one but within two years		124
After two but within three years		86
After three but within four years		86
After four years but within five years		86
After five years		3,346
Total undiscounted cash flows		3,869
Discount on cash flows		(2,201)
Total operating lease liabilities	$	1,668

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ACQUISITIONS - Fair value of assets and liabilities (Details) - USD ($)	May 15, 2020	Sep. 30, 2020	Dec. 31, 2019
Cash, cash equivelants and securities	$ 78,958,000
Other investments	533,000
Loans	118,411,000
Premises and equipment, net	1,532,000
Core deposit intangible	1,697,000
Other assets	8,787,000
Total assets acquired	209,918,000
Deposits	171,104,000
Subordinated debt	6,500,000	$ 12,000	$ 122,000
Other borrowings	13,148,000
Other liabilities	949,000
Total liabilities assumed	191,701,000
Excess of assets acquired over liabilities assumed	18,217,000
Less: purchase price	29,812,000
Goodwill	11,595,000	$ 55,022,000	$ 43,456,000
Refinement to fair value estimates during 2018	(29,000)
Goodwill (after refinement)	11,566,000
Timberwood [Member]
Cash, cash equivelants and securities	79,614,000
Other investments	533,000
Loans	117,343,000
Premises and equipment, net	2,538,000
Other assets	11,392,000
Total assets acquired	211,420,000
Deposits	170,362,000
Subordinated debt	6,500,000
Other borrowings	12,938,000
Other liabilities	1,923,000
Total liabilities assumed	191,723,000
Excess of assets acquired over liabilities assumed	19,697,000
Fair Value Adjustments [Member]
Cash, cash equivelants and securities	(656,000)
Loans	1,068,000
Premises and equipment, net	(1,006,000)
Core deposit intangible	1,697,000
Other assets	(2,605,000)
Total assets acquired	(1,502,000)
Deposits	742,000
Other borrowings	210,000
Other liabilities	(974,000)
Total liabilities assumed	(22,000)
Excess of assets acquired over liabilities assumed	$ (1,480,000)

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ACQUISITIONS (Details) - USD ($)	May 15, 2020	Jul. 12, 2019	Jan. 22, 2019
Business Combination, Consideration Transferred	$ 29,812,000
Payments to Acquire Businesses, Gross	$ 400,000	$ 14,300,000
Business Combination Consideration Transferred Number of Shares Issuable	5.1445	0.34879
Business Combination, Consideration Transferred, Equity Interests Issued and Issuable		$ 17.3001
Business Acquisition, Equity Interest Issued or Issuable, Number of Shares	575,641	534,659
Business Acquisition, Equity Interest Issued or Issuable, Value Assigned	$ 29,400,000	$ 35,300,000
Business Acquisition, Share Price		$ 66.03
Partnership Community Bancshares [Member]
Business Combination, Contingent Consideration, Liability			$ 49,600,000
Tomah Bancshares [Member]
Business Combination, Contingent Consideration, Liability	$ 29,800,000

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EARNINGS PER SHARE (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended						9 Months Ended
	Sep. 30, 2020	Jun. 30, 2020	Mar. 31, 2020	Sep. 30, 2019	Jun. 30, 2019	Mar. 31, 2019	Sep. 30, 2020	Sep. 30, 2019
Basic
Net income available to common shareholders	$ 10,954	$ 8,296	$ 7,266	$ 6,659	$ 5,989	$ 6,587	$ 26,516	$ 19,235
Less: Earnings allocated to participating securities	(82)			(48)			(202)	(148)
Net income allocated to common shareholders	$ 10,872			$ 6,611			$ 26,314	$ 19,087
Weighted average common shares outstanding including participating securities	7,731,670			7,036,807			7,424,257	6,731,089
Less: Participating securities (1)	(58,098)			(51,040)			(56,464)	(51,608)
Average shares	7,673,572			6,985,767			7,367,793	6,679,481
Basic earnings per common shares	$ 1.42			$ 0.95			$ 3.57	$ 2.86
Diluted
Net income available to common shareholders	$ 10,954	$ 8,296	$ 7,266	$ 6,659	$ 5,989	$ 6,587	$ 26,516	$ 19,235
Weighted average common shares outstanding for basic earnings per common share	7,673,572			6,985,767			7,367,793	6,679,481
Add: Dilutive effects of stock based compensation awards	17,754			121,988			44,880	99,564
Average shares and dilutive potential common shares	7,691,326			7,107,755			7,412,673	6,779,045
Diluted earnings per common share	$ 1.42			$ 0.93			$ 3.56	$ 2.83

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SECURITIES - Securities available for sale (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Marketable Securities [Line Items]
Available for sale securities, Amortized Cost	$ 165,206	$ 178,376
Available for sale securities, Gross Unrealized Gains	8,188	3,357
Available for sale securities, Gross Unrealized Losses	(60)	(227)
Available for sale securities, Estimated Fair Value	173,334	181,506
Corporate notes
Marketable Securities [Line Items]
Available for sale securities, Amortized Cost	27,325	62,794
Available for sale securities, Gross Unrealized Gains	507	172
Available for sale securities, Gross Unrealized Losses		(11)
Available for sale securities, Estimated Fair Value	27,832	62,955
Certificates of deposit
Marketable Securities [Line Items]
Available for sale securities, Amortized Cost	2,320
Available for sale securities, Gross Unrealized Gains	42
Available for sale securities, Estimated Fair Value	2,362
Obligations of U.S. Government sponsored agencies
Marketable Securities [Line Items]
Available for sale securities, Amortized Cost	18,283	12,218
Available for sale securities, Gross Unrealized Gains	595
Available for sale securities, Gross Unrealized Losses	(59)	(158)
Available for sale securities, Estimated Fair Value	18,819	12,060
Obligations of states and political subdivisions [Member]
Marketable Securities [Line Items]
Available for sale securities, Amortized Cost	69,414	52,594
Available for sale securities, Gross Unrealized Gains	4,104	2,197
Available for sale securities, Gross Unrealized Losses	(1)	(20)
Available for sale securities, Estimated Fair Value	73,517	54,771
Mortgage-backed securities [Member]
Marketable Securities [Line Items]
Available for sale securities, Amortized Cost	47,864	50,770
Available for sale securities, Gross Unrealized Gains	2,940	988
Available for sale securities, Gross Unrealized Losses		(38)
Available for sale securities, Estimated Fair Value	$ 50,804	$ 51,720

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SECURITIES - Securities held to maturity (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Marketable Securities [Line Items]
Held to maturity securities, Amortized Cost	$ 6,670	$ 43,734
Held to maturity securities, Gross Unrealized Gains		1,091
Held to maturity securities, Gross Unrealized Losses		(22)
Held to Maturity Total, Estimated Fair Value	6,691	44,803
U.S. Treasury securities [Member]
Marketable Securities [Line Items]
Held to maturity securities, Amortized Cost		33,527
Held to maturity securities, Gross Unrealized Gains		1,076
Held to maturity securities, Gross Unrealized Losses		(22)
Held to Maturity Total, Estimated Fair Value		34,581
Obligations of states and political subdivisions [Member]
Marketable Securities [Line Items]
Held to maturity securities, Amortized Cost	6,670	10,207
Held to maturity securities, Gross Unrealized Gains	21	15
Held to maturity securities, Gross Unrealized Losses		0
Held to Maturity Total, Estimated Fair Value	$ 6,691	$ 10,222

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SECURITIES - Fair value and gross unrealized losses (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Marketable Securities [Line Items]
Available-for-sale Securities, Continuous Unrealized Loss Position, Twelve Months or Longer, Fair Value	$ 0	$ 3,186
Available for Sale, Greater Than 12 Months Unrealized Losses	0	(13)
Available for Sale, Less Than 12 Months Fair Value	5,993	25,658
Available for Sale, Total Fair Value	5,993	28,844
Available for Sale, Less Than 12 Months Unrealized Losses	(60)	(214)
Available for Sale, Total Unrealized Losses	(60)	(227)
Corporate notes
Marketable Securities [Line Items]
Available-for-sale Securities, Continuous Unrealized Loss Position, Twelve Months or Longer, Fair Value		0
Available for Sale, Greater Than 12 Months Unrealized Losses		0
Available for Sale, Less Than 12 Months Fair Value		3,925
Available for Sale, Total Fair Value		3,925
Available for Sale, Less Than 12 Months Unrealized Losses		(11)
Available for Sale, Total Unrealized Losses		(11)
Obligations of U.S. Government sponsored agencies
Marketable Securities [Line Items]
Available for Sale, Greater Than 12 Months Unrealized Losses	0	0
Available for Sale, Less Than 12 Months Fair Value	5,639	12,059
Available for Sale, Greater Than 12 Months Fair Value	0	0
Available for Sale, Total Fair Value	5,639	12,059
Available for Sale, Less Than 12 Months Unrealized Losses	(59)	(158)
Available for Sale, Total Unrealized Losses	(59)	(158)
Obligations of states and political subdivisions [Member]
Marketable Securities [Line Items]
Available-for-sale Securities, Continuous Unrealized Loss Position, Twelve Months or Longer, Fair Value	0	999
Available for Sale, Greater Than 12 Months Unrealized Losses	0	(1)
Available for Sale, Less Than 12 Months Fair Value	354	5,636
Available for Sale, Total Fair Value	354	6,635
Available for Sale, Less Than 12 Months Unrealized Losses	(1)	(19)
Available for Sale, Total Unrealized Losses	$ (1)	(20)
Mortgage-backed securities [Member]
Marketable Securities [Line Items]
Available-for-sale Securities, Continuous Unrealized Loss Position, Twelve Months or Longer, Fair Value		2,187
Available for Sale, Greater Than 12 Months Unrealized Losses		(12)
Available for Sale, Less Than 12 Months Fair Value		4,038
Available for Sale, Total Fair Value		6,225
Available for Sale, Less Than 12 Months Unrealized Losses		(26)
Available for Sale, Total Unrealized Losses		(38)
U.S. Treasury securities [Member]
Marketable Securities [Line Items]
Held to Maturity, Less Than 12 Months Fair Value		2,958
Held to Maturity, Greater Than 12 Months Fair Value		0
Held to Maturity, Total Fair Value		2,958
Held to Maturity, Less Than 12 Months Unrealized Losses		(22)
Held to Maturity, Greater Than 12 Months Unrealized Losses		0
Held to Maturity, Total Unrealized Losses		$ (22)

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SECURITIES - Summary of amortized cost and estimated fair value (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
SECURITIES
Available for Sale Due in one year or less, Amortized Cost	$ 12,735
Available for Sale Due after one year through five years, Amortized Cost	12,500
Available for Sale Due after five years through ten years, Amortized Cost	11,014
Available for Sale Due after ten years, Amortized Cost	81,093
Available for Sale Subtotal, Amortized Cost	117,342
Available for Sale Mortgage-backed securities, Amortized Cost	47,864
Available for sale securities, Amortized Cost	165,206	$ 178,376
Available for Sale Due in one year or less, Estimated Fair Value	12,834
Available for Sale Due after one year through five years, Estimated Fair Value	13,308
Available for Sale Due after five years through ten years, Estimated Fair Value	11,569
Available for Sale Due after ten years, Estimated Fair Value	84,819
Available for Sale Subtotal, Estimated Fair Value	122,530
Available for Sale Mortgage-backed securities, Estimated Fair Value	50,804
Available for sale securities, Estimated Fair Value	173,334	181,506
Held to Maturity Due in one year or less, Amortized Cost	751
Held to Maturity Due after one year through five years, Amortized Cost	3,524
Held to Maturity Due after five years through ten years, Amortized Cost	2,395
Held to Maturity Subtotal, Amortized Cost	6,670
Held to maturity securities, Amortized Cost	6,670	43,734
Held to Maturity Due in one year or less, Estimated Fair Value	751
Held to Maturity Due after one year through five years, Estimated Fair Value	3,545
Held to Maturity Due after five years through ten years, Estimated Fair Value	2,395
Held to Maturity Subtotal, Estimated Fair Value	6,691
Held to Maturity Total, Estimated Fair Value	$ 6,691	$ 44,803

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SECURITIES - Summary of proceeds from sales securities (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
SECURITIES
Proceeds from sales of securities	$ 59,697	$ 748
Gross gains on sales	3,284	$ 23
Gross losses on sales	$ (51)

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LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019	Sep. 30, 2019	Dec. 31, 2018
Loans and Leases Receivable, Gross	$ 2,198,989	$ 1,736,846	$ 1,714,735
ALL	(16,318)	(11,396)	(10,131)	$ (12,248)
Loans, net of ALL	2,182,671	1,725,450
Deferred loan fees and costs	(5,761)	(503)
Loans, net	2,176,910	1,724,947
Other
Loans and Leases Receivable, Gross	25,552	10,440	5,985
ALL	(292)	(53)	(27)	(32)
Construction and Development
Loans and Leases Receivable, Gross	150,139	132,296	118,055
ALL	(1,022)	(548)	(504)	(725)
Commercial/Industrial
Loans and Leases Receivable, Gross	547,750	302,538	310,536
ALL	(1,829)	(2,320)	(2,302)	(3,021)
Commercial Real Estate-Owner Occupied
Loans and Leases Receivable, Gross	530,476	459,782	467,030
ALL	(5,682)	(4,587)	(3,140)	(3,750)
Commercial Real Estate-Non-Owner Occupied
Loans and Leases Receivable, Gross	426,463	353,723	337,558
ALL	(3,894)	(1,578)	(1,919)	(2,100)
Residential 14 Family
Loans and Leases Receivable, Gross	488,925	448,605	443,906
ALL	(3,405)	(2,169)	(2,092)	(2,472)
Consumer
Loans and Leases Receivable, Gross	29,684	29,462	31,665
ALL	$ (194)	$ (141)	$ (147)	$ (148)

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LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY - ALL by loan type (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Dec. 31, 2019
ALL - Beginning Balance	$ 11,396	$ 12,248
Charge-offs	(1,519)	(6,445)
Recoveries	966	203
Provision	5,475	4,125
ALL - Ending Balance	16,318	10,131
ALL ending balance individually evaluated for impairment	1,595	0
ALL ending balance collectively evaluated for impairment	14,723	10,131
Loans outstanding - Ending Balance	2,198,989	1,714,735	$ 1,736,846
Loans ending balance individually evaluated for impairment	15,771	0
Loans ending balance collectively evaluated for impairment	2,183,218	1,714,735
Other
ALL - Beginning Balance	53	32
Charge-offs	(19)	(29)
Recoveries	11	6
Provision	247	18
ALL - Ending Balance	292	27
ALL ending balance individually evaluated for impairment	0	0
ALL ending balance collectively evaluated for impairment	292	27
Loans outstanding - Ending Balance	25,552	5,985	10,440
Loans ending balance individually evaluated for impairment	0	0
Loans ending balance collectively evaluated for impairment	25,552	5,985
Construction and Development
ALL - Beginning Balance	548	725
Charge-offs	0	0
Recoveries	0	0
Provision	474	(221)
ALL - Ending Balance	1,022	504
ALL ending balance individually evaluated for impairment	0	0
ALL ending balance collectively evaluated for impairment	1,022	504
Loans outstanding - Ending Balance	150,139	118,055	132,296
Loans ending balance individually evaluated for impairment	0	0
Loans ending balance collectively evaluated for impairment	150,139	118,055
Commercial/Industrial
ALL - Beginning Balance	2,320	3,021
Charge-offs	(631)	(1,229)
Recoveries	2	3
Provision	138	507
ALL - Ending Balance	1,829	2,302
ALL ending balance individually evaluated for impairment	14	0
ALL ending balance collectively evaluated for impairment	1,815	2,302
Loans outstanding - Ending Balance	547,750	310,536	302,538
Loans ending balance individually evaluated for impairment	533	0
Loans ending balance collectively evaluated for impairment	547,217	310,536
Commercial Real Estate-Owner Occupied
ALL - Beginning Balance	4,587	3,750
Charge-offs	(773)	(4,974)
Recoveries	873	4
Provision	995	4,360
ALL - Ending Balance	5,682	3,140
ALL ending balance individually evaluated for impairment	483	0
ALL ending balance collectively evaluated for impairment	5,199	3,140
Loans outstanding - Ending Balance	530,476	467,030	459,782
Loans ending balance individually evaluated for impairment	7,334	0
Loans ending balance collectively evaluated for impairment	523,142	467,030
Commercial Real Estate-Non-Owner Occupied
ALL - Beginning Balance	1,578	2,100
Charge-offs	0	(55)
Recoveries	40	60
Provision	2,276	(186)
ALL - Ending Balance	3,894	1,919
ALL ending balance individually evaluated for impairment	1,098	0
ALL ending balance collectively evaluated for impairment	2,796	1,919
Loans outstanding - Ending Balance	426,463	337,558	353,723
Loans ending balance individually evaluated for impairment	7,904	0
Loans ending balance collectively evaluated for impairment	418,559	337,558
Residential 14 Family
ALL - Beginning Balance	2,169	2,472
Charge-offs	(63)	(83)
Recoveries	40	126
Provision	1,259	(423)
ALL - Ending Balance	3,405	2,092
ALL ending balance individually evaluated for impairment	0	0
ALL ending balance collectively evaluated for impairment	3,405	2,092
Loans outstanding - Ending Balance	488,925	443,906	448,605
Loans ending balance individually evaluated for impairment	0	0
Loans ending balance collectively evaluated for impairment	488,925	443,906
Consumer
ALL - Beginning Balance	141	148
Charge-offs	(33)	(75)
Recoveries	0	4
Provision	86	70
ALL - Ending Balance	194	147
ALL ending balance individually evaluated for impairment	0	0
ALL ending balance collectively evaluated for impairment	194	147
Loans outstanding - Ending Balance	29,684	31,665	$ 29,462
Loans ending balance individually evaluated for impairment	0	0
Loans ending balance collectively evaluated for impairment	$ 29,684	$ 31,665

XML

LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY - Past due loans (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable, Recorded Investment, Past Due	$ 17,808	$ 5,093
Financing Receivable, Recorded Investment, Nonaccrual Status	18,389	8,449
Other
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable, Recorded Investment, Past Due	0	0
Financing Receivable, Recorded Investment, Nonaccrual Status	0	0
Construction and Development
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable, Recorded Investment, Past Due	0	0
Financing Receivable, Recorded Investment, Nonaccrual Status	29	779
Commercial/Industrial
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable, Recorded Investment, Past Due	599	1,923
Financing Receivable, Recorded Investment, Nonaccrual Status	603	2,158
Commercial Real Estate-Owner Occupied
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable, Recorded Investment, Past Due	8,690	2,513
Financing Receivable, Recorded Investment, Nonaccrual Status	8,811	3,637
Commercial Real Estate-Non-Owner Occupied
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable, Recorded Investment, Past Due	7,427	75
Financing Receivable, Recorded Investment, Nonaccrual Status	7,427	75
Residential 14 Family
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable, Recorded Investment, Past Due	1,092	550
Financing Receivable, Recorded Investment, Nonaccrual Status	1,482	1,662
Consumer
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable, Recorded Investment, Past Due	0	32
Financing Receivable, Recorded Investment, Nonaccrual Status	37	138
30-89 Days Past Due Accruing
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable, Recorded Investment, Past Due	506	3,002
30-89 Days Past Due Accruing | Other
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable, Recorded Investment, Past Due	0	0
30-89 Days Past Due Accruing | Construction and Development
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable, Recorded Investment, Past Due	29	768
30-89 Days Past Due Accruing | Commercial/Industrial
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable, Recorded Investment, Past Due	4	235
30-89 Days Past Due Accruing | Commercial Real Estate-Owner Occupied
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable, Recorded Investment, Past Due	121	1,124
30-89 Days Past Due Accruing | Commercial Real Estate-Non-Owner Occupied
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable, Recorded Investment, Past Due	0	0
30-89 Days Past Due Accruing | Residential 14 Family
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable, Recorded Investment, Past Due	318	805
30-89 Days Past Due Accruing | Consumer
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable, Recorded Investment, Past Due	34	70
90 Days Past Due Accruing
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable, Recorded Investment, Past Due	75	354
90 Days Past Due Accruing | Other
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable, Recorded Investment, Past Due	0	0
90 Days Past Due Accruing | Construction and Development
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable, Recorded Investment, Past Due	0	11
90 Days Past Due Accruing | Commercial/Industrial
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable, Recorded Investment, Past Due	0	0
90 Days Past Due Accruing | Commercial Real Estate-Owner Occupied
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable, Recorded Investment, Past Due	0	0
90 Days Past Due Accruing | Commercial Real Estate-Non-Owner Occupied
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable, Recorded Investment, Past Due	0	0
90 Days Past Due Accruing | Residential 14 Family
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable, Recorded Investment, Past Due	72	307
90 Days Past Due Accruing | Consumer
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable, Recorded Investment, Past Due	$ 3	$ 36

XML

LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY- Breakdown of loans by risk rating (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019	Sep. 30, 2019
Loans and Leases Receivable, Gross	$ 2,198,989	$ 1,736,846	$ 1,714,735
Other
Loans and Leases Receivable, Gross	25,552	10,440	5,985
Construction and Development
Loans and Leases Receivable, Gross	150,139	132,296	118,055
Commercial/Industrial
Loans and Leases Receivable, Gross	547,750	302,538	310,536
Commercial Real Estate-Owner Occupied
Loans and Leases Receivable, Gross	530,476	459,782	467,030
Commercial Real Estate-Non-Owner Occupied
Loans and Leases Receivable, Gross	426,463	353,723	337,558
Residential 14 Family
Loans and Leases Receivable, Gross	488,925	448,605	443,906
Consumer
Loans and Leases Receivable, Gross	29,684	29,462	$ 31,665
Pass (1-5)
Loans and Leases Receivable, Gross	2,146,701	1,676,560
Pass (1-5) | Other
Loans and Leases Receivable, Gross	25,552	10,440
Pass (1-5) | Construction and Development
Loans and Leases Receivable, Gross	149,999	132,266
Pass (1-5) | Commercial/Industrial
Loans and Leases Receivable, Gross	543,008	290,180
Pass (1-5) | Commercial Real Estate-Owner Occupied
Loans and Leases Receivable, Gross	496,026	422,336
Pass (1-5) | Commercial Real Estate-Non-Owner Occupied
Loans and Leases Receivable, Gross	415,970	344,278
Pass (1-5) | Residential 14 Family
Loans and Leases Receivable, Gross	486,462	447,630
Pass (1-5) | Consumer
Loans and Leases Receivable, Gross	29,684	29,430
Pass 6
Loans and Leases Receivable, Gross	5,739	19,962
Pass 6 | Other
Loans and Leases Receivable, Gross	0	0
Pass 6 | Construction and Development
Loans and Leases Receivable, Gross	0	0
Pass 6 | Commercial/Industrial
Loans and Leases Receivable, Gross	668	5,329
Pass 6 | Commercial Real Estate-Owner Occupied
Loans and Leases Receivable, Gross	4,467	5,603
Pass 6 | Commercial Real Estate-Non-Owner Occupied
Loans and Leases Receivable, Gross	0	8,774
Pass 6 | Residential 14 Family
Loans and Leases Receivable, Gross	604	256
Pass 6 | Consumer
Loans and Leases Receivable, Gross	0	0
Pass 7
Loans and Leases Receivable, Gross	46,549	40,324
Pass 7 | Other
Loans and Leases Receivable, Gross	0	0
Pass 7 | Construction and Development
Loans and Leases Receivable, Gross	140	30
Pass 7 | Commercial/Industrial
Loans and Leases Receivable, Gross	4,074	7,029
Pass 7 | Commercial Real Estate-Owner Occupied
Loans and Leases Receivable, Gross	29,983	31,843
Pass 7 | Commercial Real Estate-Non-Owner Occupied
Loans and Leases Receivable, Gross	10,493	671
Pass 7 | Residential 14 Family
Loans and Leases Receivable, Gross	1,859	719
Pass 7 | Consumer
Loans and Leases Receivable, Gross	0	32
Pass 8
Loans and Leases Receivable, Gross	0	0
Pass 8 | Other
Loans and Leases Receivable, Gross	0	0
Pass 8 | Construction and Development
Loans and Leases Receivable, Gross	0	0
Pass 8 | Commercial/Industrial
Loans and Leases Receivable, Gross	0	0
Pass 8 | Commercial Real Estate-Owner Occupied
Loans and Leases Receivable, Gross	0	0
Pass 8 | Commercial Real Estate-Non-Owner Occupied
Loans and Leases Receivable, Gross	0	0
Pass 8 | Residential 14 Family
Loans and Leases Receivable, Gross	0	0
Pass 8 | Consumer
Loans and Leases Receivable, Gross	$ 0	$ 0

XML

LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY -Summary of impaired loans individually (Details) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2020	Dec. 31, 2019
With an allowance recorded:
Recorded investment	$ 12,112	$ 2,838
Unpaid principal balance	12,112	2,838
Related allowance	1,595	840
With no related allowance recorded:
Recorded investment	4,045	2,938
Unpaid principal balance	4,052	2,938
Related allowance	0	0
Total:
Recorded investment	16,157	5,776
Unpaid principal balance	16,164	5,776
Related allowance	1,595	840
Average recorded investment	10,967	9,971
Other
With an allowance recorded:
Recorded investment	0	0
Unpaid principal balance	0	0
Related allowance	0	0
With no related allowance recorded:
Recorded investment	0	0
Unpaid principal balance	0	0
Related allowance	0	0
Total:
Recorded investment	0	0
Unpaid principal balance	0	0
Related allowance	0	0
Average recorded investment	0	0
Construction and Development
With an allowance recorded:
Recorded investment	0	0
Unpaid principal balance	0	0
Related allowance	0	0
With no related allowance recorded:
Recorded investment	0	0
Unpaid principal balance	0	0
Related allowance	0	0
Total:
Recorded investment	0	0
Unpaid principal balance	0	0
Related allowance	0	0
Average recorded investment	0	0
Commercial/Industrial
With an allowance recorded:
Recorded investment	595	1,878
Unpaid principal balance	595	1,878
Related allowance	14	760
With no related allowance recorded:
Recorded investment	0	0
Unpaid principal balance	0	0
Related allowance	0	0
Total:
Recorded investment	595	1,878
Unpaid principal balance	595	1,878
Related allowance	14	760
Average recorded investment	1,237	3,773
Commercial Real Estate-Owner Occupied
With an allowance recorded:
Recorded investment	3,625	960
Unpaid principal balance	3,625	960
Related allowance	483	80
With no related allowance recorded:
Recorded investment	4,045	2,938
Unpaid principal balance	4,052	2,938
Related allowance	0	0
Total:
Recorded investment	7,670	3,898
Unpaid principal balance	7,677	3,898
Related allowance	483	80
Average recorded investment	5,784	5,847
Commercial Real Estate-Non-Owner Occupied
With an allowance recorded:
Recorded investment	7,892	0
Unpaid principal balance	7,892	0
Related allowance	1,098	0
With no related allowance recorded:
Recorded investment	0	0
Unpaid principal balance	0	0
Related allowance	0	0
Total:
Recorded investment	7,892	0
Unpaid principal balance	7,892	0
Related allowance	1,098	0
Average recorded investment		0
Residential 14 Family
With an allowance recorded:
Recorded investment	0	0
Unpaid principal balance	0	0
Related allowance	0	0
With no related allowance recorded:
Recorded investment	0	0
Unpaid principal balance	0	0
Related allowance	0	0
Total:
Recorded investment	0	0
Unpaid principal balance	0	0
Related allowance	0	0
Average recorded investment	0	351
Consumer
With an allowance recorded:
Recorded investment	0	0
Unpaid principal balance	0	0
Related allowance	0	0
With no related allowance recorded:
Recorded investment	0	0
Unpaid principal balance	0	0
Related allowance	0	0
Total:
Recorded investment	0	0
Unpaid principal balance	0	0
Related allowance	0	0
Average recorded investment	0	$ 0
Unallocated
With an allowance recorded:
Recorded investment	0
Unpaid principal balance	0
Related allowance	0
With no related allowance recorded:
Recorded investment	0
Unpaid principal balance	0
Related allowance	0
Total:
Recorded investment	0
Unpaid principal balance	0
Related allowance	0
Average recorded investment	$ 0

XML

LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY - Credit Deterioration (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Impaired Financing Receivable, Recorded Investment	$ 16,157	$ 5,776
Impaired Financing Receivable, Unpaid Principal Balance	16,164	5,776
Other
Impaired Financing Receivable, Recorded Investment	0	0
Impaired Financing Receivable, Unpaid Principal Balance	0	0
Construction and Development
Impaired Financing Receivable, Recorded Investment	0	0
Impaired Financing Receivable, Unpaid Principal Balance	0	0
Commercial/Industrial
Impaired Financing Receivable, Recorded Investment	595	1,878
Impaired Financing Receivable, Unpaid Principal Balance	595	1,878
Commercial Real Estate-Owner Occupied
Impaired Financing Receivable, Recorded Investment	7,670	3,898
Impaired Financing Receivable, Unpaid Principal Balance	7,677	3,898
Commercial Real Estate-Non-Owner Occupied
Impaired Financing Receivable, Recorded Investment	7,892	0
Impaired Financing Receivable, Unpaid Principal Balance	7,892	0
Residential 14 Family
Impaired Financing Receivable, Recorded Investment	0	0
Impaired Financing Receivable, Unpaid Principal Balance	0	0
Consumer
Impaired Financing Receivable, Recorded Investment	0	0
Impaired Financing Receivable, Unpaid Principal Balance	0	0
Financial Asset Acquired with Credit Deterioration [Member]
Impaired Financing Receivable, Recorded Investment	7,394	1,823
Impaired Financing Receivable, Unpaid Principal Balance	8,905	2,265
Financial Asset Acquired with Credit Deterioration [Member] | Other
Impaired Financing Receivable, Recorded Investment	0	0
Impaired Financing Receivable, Unpaid Principal Balance	0	0
Financial Asset Acquired with Credit Deterioration [Member] | Construction and Development
Impaired Financing Receivable, Recorded Investment	95	213
Impaired Financing Receivable, Unpaid Principal Balance	106	237
Financial Asset Acquired with Credit Deterioration [Member] | Commercial/Industrial
Impaired Financing Receivable, Recorded Investment	1,191	191
Impaired Financing Receivable, Unpaid Principal Balance	1,365	212
Financial Asset Acquired with Credit Deterioration [Member] | Commercial Real Estate-Owner Occupied
Impaired Financing Receivable, Recorded Investment	3,986	518
Impaired Financing Receivable, Unpaid Principal Balance	4,847	785
Financial Asset Acquired with Credit Deterioration [Member] | Commercial Real Estate-Non-Owner Occupied
Impaired Financing Receivable, Recorded Investment	1,241	0
Impaired Financing Receivable, Unpaid Principal Balance	1,405	0
Financial Asset Acquired with Credit Deterioration [Member] | Residential 14 Family
Impaired Financing Receivable, Recorded Investment	881	901
Impaired Financing Receivable, Unpaid Principal Balance	1,182	1,031
Financial Asset Acquired with Credit Deterioration [Member] | Consumer
Impaired Financing Receivable, Recorded Investment	0	0
Impaired Financing Receivable, Unpaid Principal Balance	$ 0	$ 0

XML

LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY - Change in the accretable and non accretable Components of Discounts on Loans (Details) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2020	Dec. 31, 2019
Accretable Discount [Member]
Balance at beginning of period	$ 222	$ 318
Acquired balance, net	1,064	44
Reclassifications between accretable and non-accretable	696	858
Accretion to loan interest income	(722)	(998)
Balance at end of period	1,260	222
Non Accretable Discount [Member]
Balance at beginning of period	220	745
Acquired balance, net	727	333
Reclassifications between accretable and non-accretable	(696)	(858)
Accretion to loan interest income	0	0
Balance at end of period	$ 251	$ 220

XML

LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY - Schedule of troubled debt restructurings (Details) - Commercial Real Estate $ in Thousands	9 Months Ended
	Sep. 30, 2020 USD ($) contract
Number of Contracts | contract	1
Pre-Modification Outstanding Recorded Investment	$ 115
Post-Modification Outstanding Recorded Investment	$ 115

XML

LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY - Additional Information (Details) - USD ($)	Sep. 30, 2020	Dec. 31, 2019	Sep. 30, 2019	Dec. 31, 2018
Loans and Leases Receivable, Allowance	$ 16,318,000	$ 11,396,000	$ 10,131,000	$ 12,248,000
Troubled Debt Restructuring Reserve	0	$ 80,000
Minimum [Member]
Loans and Leases Receivable, Allowance	$ 250,000,000

XML

MORTGAGE SERVICING RIGHTS (Details) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2020	Dec. 31, 2019
Fair value at beginning of period	$ 4,287	$ 3,085
MSR asset acquired	384	1,859
Servicing asset additions	980	740
Loan payments and payoffs	(1,132)	(821)
Changes in valuation inputs and assumptions used in the valuation model	(393)	(576)
Amount recognized through earnings	(545)	(657)
Fair value at end of period	4,126	4,287
Unpaid principal balance of loans serviced for others	16,164	5,776
Other
Unpaid principal balance of loans serviced for others	$ 0	$ 0
Mortgage servicing rights as a percent of loans serviced for others	0.66%	0.77%
Other | Mortgage Servicing Rights [Member]
Unpaid principal balance of loans serviced for others	$ 628,204	$ 554,374

XML

MORTGAGE SERVICING RIGHTS - Additional Information (Details) - M	Sep. 30, 2020	Dec. 31, 2019
Measurement Input, Discount Rate [Member]
Mortgage Servicing Rights Discount Rate	10.10%	10.00%
Measurement Input, Prepayment Rate [Member]
Servicing Asset, Measurement Input	17.5	12.1

XML

NOTES PAYABLE (Details) - USD ($)	9 Months Ended
	Sep. 30, 2020	Dec. 31, 2019
Federal Home Loan Bank, Advances, Branch of FHLB Bank, Amount of Advances	$ 25,145,000	$ 39,790,000
FHLB advances, before adjustment due to purchase accounting	24,988,000	39,800,000
Adjustment due to purchase accounting	157,000	(10,000)
Long-term Debt	$ 24,988,000	39,800,000
Maturity of Fixed Term one Member
Long-term Debt		1,000,000
Debt Instrument, Basis Spread on Variable Rate	1.42%
Maturity of Fixed Term Two Member
Long-term Debt	$ 400,000	400,000
Debt Instrument, Basis Spread on Variable Rate	1.28%
Maturity of Fixed Term Three Member
Long-term Debt	$ 500,000
Debt Instrument, Basis Spread on Variable Rate	2.83%
Maturity of Fixed Term Four Member
Long-term Debt	$ 500,000
Debt Instrument, Basis Spread on Variable Rate	2.76%
Maturity of Fixed Term Five Member
Long-term Debt	$ 250,000
Debt Instrument, Basis Spread on Variable Rate	2.07%
Maturity of Fixed Term Six Member
Long-term Debt	$ 2,000,000	2,000,000
Debt Instrument, Basis Spread on Variable Rate	1.67%
Maturity of Fixed Term Seven Member
Long-term Debt	$ 5,000,000	5,000,000
Debt Instrument, Basis Spread on Variable Rate	2.37%
Maturity of Fixed Term Eight Member
Long-term Debt	$ 1,000,000	1,000,000
Debt Instrument, Basis Spread on Variable Rate	1.60%
Maturity of Fixed Term Nine Member
Long-term Debt	$ 2,377,000
Debt Instrument, Basis Spread on Variable Rate	0.00%
Maturity Of Fixed Term Ten Member
Long-term Debt	$ 500,000
Debt Instrument, Basis Spread on Variable Rate	2.87%
Maturity Of Fixed Term Eleven Member
Long-term Debt	$ 4,000,000
Debt Instrument, Basis Spread on Variable Rate	0.00%
Maturity Of Fixed Term Twelve Member
Long-term Debt	$ 4,000,000
Debt Instrument, Basis Spread on Variable Rate	0.00%
Maturity Of Fixed Term Thirteen [Member]
Long-term Debt	$ 250,000
Debt Instrument, Basis Spread on Variable Rate	2.00%
Maturity Of Fixed Term Fourteen [Member]
Long-term Debt	$ 400,000	400,000
Debt Instrument, Basis Spread on Variable Rate	1.46%
Maturity Of Fixed Term Fifteen [Member]
Long-term Debt	$ 500,000
Debt Instrument, Basis Spread on Variable Rate	2.87%
Maturity Of Fixed Term Sixteen [Member]
Long-term Debt	$ 250,000
Debt Instrument, Basis Spread on Variable Rate	1.99%
Maturity Of Fixed Term Seventeen [Member]
Long-term Debt	$ 250,000
Debt Instrument, Basis Spread on Variable Rate	2.51%
Maturity Of Fixed Term Eighteen [Member]
Long-term Debt	$ 500,000
Debt Instrument, Basis Spread on Variable Rate	2.98%
Maturity Of Fixed Term Nineteen [Member]
Long-term Debt	$ 500,000
Debt Instrument, Basis Spread on Variable Rate	2.92%
Maturity Of Fixed Term Twenty [Member]
Long-term Debt		10,000,000
Debt Instrument, Basis Spread on Variable Rate	1.76%
Maturity Of Fixed Term Twenty One [Member]
Long-term Debt	$ 600,000
Debt Instrument, Basis Spread on Variable Rate	3.02%
Maturity Of Fixed Term Twenty Two [Member]
Long-term Debt		10,000,000
Debt Instrument, Basis Spread on Variable Rate	1.74%
Maturity Of Fixed Term Twenty Three [Member]
Long-term Debt	$ 600,000
Debt Instrument, Basis Spread on Variable Rate	3.06%
Maturity Of Fixed Term Twenty Four [Member]
Long-term Debt		10,000,000
Debt Instrument, Basis Spread on Variable Rate	1.75%
Maturity Of Fixed Term Twenty Five [Member]
Long-term Debt	$ 103,000
Debt Instrument, Basis Spread on Variable Rate	0.00%
Maturity Of Fixed Term Twenty Six [Member]
Long-term Debt	$ 508,000
Debt Instrument, Basis Spread on Variable Rate	0.00%
Commercial Bank One [Member]
Line of Credit Facility, Maximum Borrowing Capacity	$ 5,000,000.0
Line of credit with bank	5,000,000.0
Long-term Line of Credit		5,000,000.0
Commercial Bank Two [Member]
Line of Credit Facility, Maximum Borrowing Capacity	5,000,000.0
Line of credit with bank	5,000,000.0
Long-term Line of Credit		$ 5,000,000.0
Commercial Bank Three Member
Line of Credit Facility, Maximum Borrowing Capacity	7,500,000
Line of credit with bank	7,500,000
Long-term Line of Credit	$ 0

XML

NOTES PAYABLE - Future maturities (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
NOTES PAYABLE
1 year or less	$ 20,777	$ 1,400
1 to 2 years	2,400	8,400
2 to 3 years	600	10,000
3 to 4 years	600	10,000
4 to 5 years		10,000
Over 5 years	611
Long-term Debt, Total	$ 24,988	$ 39,800

XML

SUBORDINATED NOTES (Details) - USD ($)		9 Months Ended
	Jul. 22, 2020	Sep. 30, 2020	May 15, 2020	Dec. 31, 2019
Subordinated Borrowing [Line Items]
Subordinated Debt				$ 18,622,000
Subordinated debt acquired		$ 12,000	$ 6,500,000	122,000
Commercial Bank One [Member]
Subordinated Borrowing [Line Items]
Maximum borrowing capacity		5,000,000.0
Commercial Bank Two [Member]
Subordinated Borrowing [Line Items]
Maximum borrowing capacity		5,000,000.0
Subordinated Debt [Member]
Subordinated Borrowing [Line Items]
Subordinated Debt		11,500,000		11,500,000
Long-term Debt, Gross		7,000,000.0		$ 7,100,000
Liabilities, Fair Value Adjustment		$ 200,000
Debt Instrument, Interest Rate During Period		7.10%
Maximum borrowing capacity	$ 12,000,000.0
Maturity term	10 years	10 years
Interest at fixed rate (as a percent)	5.00%
Subordinated Debt [Member] | Commercial Bank One [Member]
Subordinated Borrowing [Line Items]
Maximum borrowing capacity	$ 6,000,000.0

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REGULATORY MATTERS (Details) $ in Thousands	Sep. 30, 2020 USD ($)	Dec. 31, 2019 USD ($)
Total capital (to risk-weighted assets):
Capital	$ 252,284	$ 215,347
Capital to Risk Weighted Assets	11.72	10.69
Capital Required for Capital Adequacy	$ 172,179	$ 161,163
Capital Required for Capital Adequacy to Risk Weighted Assets	8.00	8.00
Excess Capital	$ 225,985	$ 211,527
Excess Capital to Risk Weighted Assets	10.50	10.50
Capital Required to be Well Capitalized	$ 215,224	$ 201,454
Capital Required to be Well Capitalized to Risk Weighted Assets	10.00	10.00
Tier One Risk Based Capital [Abstract]
Tier One Risk Based Capital	$ 235,966	$ 203,951
Tier One Risk Based Capital to Risk Weighted Assets	10.96	10.12
Tier One Risk Based Capital Required for Capital Adequacy	$ 129,135	$ 120,872
Tier One Risk Based Capital Required for Capital Adequacy to Risk Weighted Assets	6.00	6.00
Excess Tier One Risk Based Capital	$ 182,941	$ 171,236
Excess Tier One Risk Based Capital to Risk Weighted Assets	8.50	8.50
Tier One Risk Based Capital Required to be Well Capitalized	$ 172,179	$ 161,163
Tier One Risk Based Capital Required to be Well Capitalized to Risk Weighted Assets	8.00	8.00
Common Equity Tier One Capital [Abstract]
Common Equity Tier One Capital	$ 235,966	$ 203,951
Common Equity Tier One Capital Ratio	10.96	10.12
Common Equity Tier One Capital Required for Capital Adequacy	$ 96,851	$ 90,654
Common Equity Tier One Capital Required for Capital Adequacy To Risk Weighted Assets	4.50%	4.50%
Excess Common Equity Tier One Capital	$ 150,657	$ 141,018
Excess Common Equity Tier One Capital to Risk Weighted Assets	7.00%	7.00%
Common Equity Tier One Capital Required to be Well-Capitalized	$ 139,896	$ 130,945
Common Equity Tier One Capital Required To Be Well Capitalized To Risk Weighted Assets	6.50%	6.50%
Tier One Leverage Capital [Abstract]
Tier One Leverage Capital	$ 235,966	$ 203,951
Tier One Leverage Capital to Average Assets	9.25	9.67
Tier One Leverage Capital Required for Capital Adequacy	$ 102,019	$ 84,390
Tier One Leverage Capital Required for Capital Adequacy to Average Assets	4.00	4.00
Excess Tier One Leverage Capital	$ 102,019	$ 84,390
Excess Tier One Leverage Capital to Average Assets	4.00	4.00
Tier One Leverage Capital Required to be Well Capitalized	$ 127,524	$ 105,487
Tier One Leverage Capital Required to be Well Capitalized to Average Assets	5.00	5.00
Company [Member]
Total capital (to risk-weighted assets):
Capital	$ 255,984	$ 208,900
Capital to Risk Weighted Assets	11.89	10.35
Tier One Risk Based Capital [Abstract]
Tier One Risk Based Capital	$ 219,154	$ 178,882
Tier One Risk Based Capital to Risk Weighted Assets	10.18	8.86
Common Equity Tier One Capital [Abstract]
Common Equity Tier One Capital	$ 219,154	$ 178,882
Common Equity Tier One Capital Ratio	10.18	8.86
Tier One Leverage Capital [Abstract]
Tier One Leverage Capital	$ 219,154	$ 178,882
Tier One Leverage Capital to Average Assets	8.54	8.46

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REGULATORY MATTERS - Additional Information (Details) - USD ($) $ in Billions	Sep. 30, 2020	Jan. 01, 2019
REGULATORY MATTERS
Capital Conservative Buffer		2.50%
Threshold Amount Subject To Federal Reserve	$ 3

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COMMITMENTS AND CONTINGENCIES (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
COMMITMENTS AND CONTINGENCIES
Fixed	$ 68,438	$ 49,741
Variable	380,615	333,468
Credit card arrangements	9,973	11,148
Letters of credit	$ 7,794	$ 17,121

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COMMITMENTS AND CONTINGENCIES - Additional Information (Details) - USD ($) $ in Millions	Sep. 30, 2020	Dec. 31, 2019
Interest Rate Lock Commitments [Member]
Derivative, Notional Amount	$ 73.0	$ 14.8

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FAIR VALUE MEASUREMENTS (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019	Dec. 31, 2018
Securities available for sale
Mortgage servicing rights	$ 4,126	$ 4,287	$ 3,085
Quoted Prices In Active Markets for Identical Assets (Level 1)
Securities available for sale
Mortgage servicing rights	0	0
Significant Other Other Inputs (Level 2)
Securities available for sale
Mortgage servicing rights	4,126	4,287
Significant Unobservable Inputs (Level 3)
Securities available for sale
Mortgage servicing rights	0	0
Corporate notes
Securities available for sale
Instruments Measured At Fair Value	27,832	62,955
Corporate notes | Quoted Prices In Active Markets for Identical Assets (Level 1)
Securities available for sale
Instruments Measured At Fair Value	0	0
Corporate notes | Significant Other Other Inputs (Level 2)
Securities available for sale
Instruments Measured At Fair Value	27,832	62,955
Corporate notes | Significant Unobservable Inputs (Level 3)
Securities available for sale
Instruments Measured At Fair Value	0	0
Certificates of deposit
Securities available for sale
Instruments Measured At Fair Value	2,362
Certificates of deposit | Quoted Prices In Active Markets for Identical Assets (Level 1)
Securities available for sale
Instruments Measured At Fair Value	0
Certificates of deposit | Significant Other Other Inputs (Level 2)
Securities available for sale
Instruments Measured At Fair Value	2,362
Certificates of deposit | Significant Unobservable Inputs (Level 3)
Securities available for sale
Instruments Measured At Fair Value	0
Obligations of U.S. Government sponsored agencies
Securities available for sale
Instruments Measured At Fair Value	18,819	12,060
Obligations of U.S. Government sponsored agencies | Quoted Prices In Active Markets for Identical Assets (Level 1)
Securities available for sale
Instruments Measured At Fair Value	0	0
Obligations of U.S. Government sponsored agencies | Significant Other Other Inputs (Level 2)
Securities available for sale
Instruments Measured At Fair Value	18,819	12,060
Obligations of U.S. Government sponsored agencies | Significant Unobservable Inputs (Level 3)
Securities available for sale
Instruments Measured At Fair Value	0	0
Obligations of states and political subdivisions [Member]
Securities available for sale
Instruments Measured At Fair Value	73,517	54,771
Obligations of states and political subdivisions [Member] | Quoted Prices In Active Markets for Identical Assets (Level 1)
Securities available for sale
Instruments Measured At Fair Value	0	0
Obligations of states and political subdivisions [Member] | Significant Other Other Inputs (Level 2)
Securities available for sale
Instruments Measured At Fair Value	73,517	54,771
Obligations of states and political subdivisions [Member] | Significant Unobservable Inputs (Level 3)
Securities available for sale
Instruments Measured At Fair Value	0	0
Mortgage-backed securities [Member]
Securities available for sale
Instruments Measured At Fair Value	50,804	51,720
Mortgage-backed securities [Member] | Quoted Prices In Active Markets for Identical Assets (Level 1)
Securities available for sale
Instruments Measured At Fair Value	0	0
Mortgage-backed securities [Member] | Significant Other Other Inputs (Level 2)
Securities available for sale
Instruments Measured At Fair Value	50,804	51,720
Mortgage-backed securities [Member] | Significant Unobservable Inputs (Level 3)
Securities available for sale
Instruments Measured At Fair Value	$ 0	$ 0

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FAIR VALUE MEASUREMENTS - Fair value of assets measured on a recurring basis (Details) - Obligations of states and political subdivisions [Member] - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2020	Dec. 31, 2019
Total securities at beginning of period	$ 0	$ 400
Included in earnings	0	0
Included in other comprehensive income	0	0
Purchases, issuance, and settlements	0	(400)
Transfer in and/or out of level 3	0	0
Total securities at end of period	$ 0	$ 0

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FAIR VALUE MEASUREMENTS - Fair value of assets measured on a non-recurring basis (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
OREO	$ 3,264	$ 6,888
Impaired Loans, net of impairment reserve	24,984	6,847
Assets, Fair Value Disclosure	28,248	13,735
Quoted Prices In Active Markets for Identical Assets (Level 1)
Impaired Loans, net of impairment reserve	0	0
Quoted Prices In Active Markets for Identical Assets (Level 1) | Fair Value, Measurements, Nonrecurring [Member]
OREO	0	0
Impaired Loans, net of impairment reserve	0	0
Assets, Fair Value Disclosure	0	0
Significant Other Other Inputs (Level 2)
Impaired Loans, net of impairment reserve	0	0
Significant Other Other Inputs (Level 2) | Fair Value, Measurements, Nonrecurring [Member]
OREO	0	0
Impaired Loans, net of impairment reserve	0	0
Assets, Fair Value Disclosure	0	0
Significant Unobservable Inputs (Level 3)
Impaired Loans, net of impairment reserve	2,161,367	1,723,542
Significant Unobservable Inputs (Level 3) | Fair Value, Measurements, Nonrecurring [Member]
OREO	3,264	6,888
Impaired Loans, net of impairment reserve	24,984	6,847
Assets, Fair Value Disclosure	$ 28,248	$ 13,735

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FAIR VALUE MEASUREMENTS - Fair value measurement on inputs and valuation techniques (Details)	9 Months Ended	12 Months Ended
	Sep. 30, 2020	Dec. 31, 2019
Third party appraisals, sales contracts or brokered price options
Other real estate owned	Collateral discounts and estimated costs to sell	Collateral discounts and estimated costs to sell
Third party appraisals, sales contracts or brokered price options | Maximum [Member] | Measurement Input, Discount Rate [Member]
Other real estate owned	100	61
Third party appraisals, sales contracts or brokered price options | Minimum [Member] | Measurement Input, Discount Rate [Member]
Other real estate owned	0	0
Third party appraisals, sales contracts or brokered price options | Weighted Average [Member] | Measurement Input, Discount Rate [Member]
Other real estate owned	37.1	33.5
Third party appraisals and discounted cash flows
Impaired Loans, Unobservable Inputs	Collateral discounts and discount rates	Collateral discounts and discount rates
Third party appraisals and discounted cash flows | Maximum [Member] | Measurement Input, Discount Rate [Member]
Loans Held-for-sale, Measurement Input	100	100
Third party appraisals and discounted cash flows | Minimum [Member] | Measurement Input, Discount Rate [Member]
Loans Held-for-sale, Measurement Input	0	0
Third party appraisals and discounted cash flows | Weighted Average [Member] | Measurement Input, Discount Rate [Member]
Loans Held-for-sale, Measurement Input	5.7	6.1

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FAIR VALUE MEASUREMENTS - Carrying value and estimated fair value (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019	Dec. 31, 2018
Financial assets:
Securities held to maturity	$ 6,691	$ 44,803
Securities available for sale	173,334	181,506
Loans, net	24,984	6,847
Mortgage servicing rights	4,126	4,287	$ 3,085
Quoted Prices In Active Markets for Identical Assets (Level 1)
Financial assets:
Cash and cash equivalents	80,752	86,452
Securities held to maturity	0	0
Securities available for sale	0	0
Loans held for sale	0	0
Loans, net	0	0
Other investments, at cost	0	0
Mortgage servicing rights	0	0
Cash surrender value of life insurance	31,197	24,945
Financial liabilities:
Deposits	0	0
Securities sold under repurchase agreements	0	0
Notes Payable	0	0
Subordinated notes	0	0
Significant Other Other Inputs (Level 2)
Financial assets:
Cash and cash equivalents	0	0
Securities held to maturity	6,691	44,803
Securities available for sale	173,334	181,506
Loans held for sale	0	0
Loans, net	0	0
Other investments, at cost	0	0
Mortgage servicing rights	4,126	4,287
Cash surrender value of life insurance	0	0
Financial liabilities:
Deposits	0	0
Securities sold under repurchase agreements	23,894	45,865
Notes Payable	25,145	49,790
Subordinated notes	20,512	18,622
Significant Unobservable Inputs (Level 3)
Financial assets:
Cash and cash equivalents	0	0
Securities held to maturity	0	0
Securities available for sale	0	0
Loans held for sale	659	587
Loans, net	2,161,367	1,723,542
Other investments, at cost	8,896	4,933
Mortgage servicing rights	0	0
Cash surrender value of life insurance	0	0
Financial liabilities:
Deposits	2,255,945	1,783,638
Securities sold under repurchase agreements	0	0
Notes Payable	0	0
Subordinated notes	0	0
Carrying Amount [Member]
Financial assets:
Cash and cash equivalents	80,752	86,452
Securities held to maturity	6,670	43,734
Securities available for sale	173,334	181,506
Loans held for sale	659	587
Loans, net	2,176,910	1,724,947
Other investments, at cost	8,896	4,933
Mortgage servicing rights	4,126	4,287
Cash surrender value of life insurance	31,197	24,945
Financial liabilities:
Deposits	2,271,040	1,843,311
Securities sold under repurchase agreements	23,894	45,865
Notes Payable	25,145	49,790
Subordinated notes	20,512	18,622
Estimated Fair Value [Member]
Financial assets:
Cash and cash equivalents	80,752	86,452
Securities held to maturity	6,691	44,803
Securities available for sale	173,334	181,506
Loans held for sale	659	587
Loans, net	2,161,367	1,723,542
Other investments, at cost	8,896	4,933
Mortgage servicing rights	4,126	4,287
Cash surrender value of life insurance	31,197	24,945
Financial liabilities:
Deposits	2,255,945	1,783,638
Securities sold under repurchase agreements	23,894	45,865
Notes Payable	25,145	49,790
Subordinated notes	$ 20,512	$ 18,622

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STOCK BASED COMPENSATION (Details) - $ / shares	9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
STOCK BASED COMPENSATION
Restricted Stock, Shares Outstanding at beginning of period	50,676	51,776
Restricted Stock, Shares Granted	27,466	17,015
Restricted Stock, Shares Vested	(18,623)	(17,212)
Restricted Stock, Shares Forfeited or cancelled	(2,344)	(903)
Restricted Stock, Shares Outstanding at end of period	57,175	50,676
Weighted-Average Grant-Date Fair Value, Outstanding at beginning of period	$ 43.03	$ 34.27
Weighted-Average Grant-Date Fair Value, Granted	60.76	56.62
Weighted-Average Grant-Date Fair Value, Vested	37.28	30.54
Weighted-Average Grant-Date Fair Value, Forfeited or cancelled	51.27	41.01
Weighted-Average Grant-Date Fair Value, Outstanding at end of period	$ 53.08	$ 43.03

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STOCK BASED COMPENSATION - Additional Information (Details) - USD ($) $ in Millions	9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Employee Service Share-based Compensation, Nonvested Awards, Compensation Not yet Recognized, Share-based Awards Other than Options	$ 2.3
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition	2 years 10 months 2 days
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period, Fair Value	$ 0.7
Restricted Stock or Unit Expense	$ 0.8	$ 0.5
2020 Equity Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized	700,000
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Outstanding, Number	399

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LEASES (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
LEASES
Amortization of ROU Assets - Operating Leases	$ 31	$ 35
Interest on Lease Liabilities - Operating Leases	69	63
Operating Lease Cost (Cost resulting from lease payments)	100	98
ROU Assets - Operating Leases at beginning of period	1,699
New ROU Assets - Operating Leases		1,744
ROU Assets - Operating Leases at June 30,	$ 1,668	$ 1,708
Weighted Average Lease Term (Years) - Operating Leases	31 years 6 months 3 days	31 years 7 months 6 days
Weighted Average Discount Rate - Operating Leases	5.50%	5.50%

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LEASES - Operating Lease (Details) $ in Thousands	Sep. 30, 2020 USD ($)
Operating lease payments due:
Within one year	$ 141
After one but within two years	124
After two but within three years	86
After three but within four years	86
After four years but within five years	86
After five years	3,346
Total undiscounted cash flows	3,869
Discount on cash flows	(2,201)
Total operating lease liabilities	$ 1,668