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, 2022

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 9, 2022 was 9,028,991 shares.

TABLE OF CONTENTS

		Page Number
Part I. Financial Information		3
ITEM 1.	Financial Statements	3
	Consolidated Balance Sheets – September 30, 2022 (unaudited) and December 31, 2021	3
	Consolidated Statements of Income – Three and Nine months Ended September 30, 2022 and 2021 (unaudited)	4
	Consolidated Statements of Comprehensive Income – Three and Nine months Ended September 30, 2022 and 2021 (unaudited)	5
	Consolidated Statements of Changes in Stockholders’ Equity – Three and Nine months Ended September 30, 2022 and 2021  (unaudited)	6
	Consolidated Statements of Cash Flows – Nine months Ended September 30, 2022 and 2021 (unaudited)	7
	Notes to Unaudited Consolidated Financial Statements	9
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	56
ITEM 4.	Controls and Procedures	58
Part II. Other Information		58
ITEM 1.	Legal Proceedings	58
ITEM 1A.	Risk Factors	58
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	59
ITEM 3.	Defaults Upon Senior Securities	59
ITEM 4.	Mine Safety Disclosures	59
ITEM 5.	Other Information	59
ITEM 6.	Exhibits	60
Signatures		61

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, 2022		December 31, 2021
	(Unaudited)		(Audited)
Assets
Cash and due from banks	$	45,780	$	29,171
Interest-bearing deposits		97,661		267,689
Cash and cash equivalents		143,441		296,860
Securities held to maturity, at amortized cost ($39,134 and $5,922 fair value at September 30, 2022 and December 31, 2021, respectively)		40,826		5,911
Securities available for sale, at fair value		303,280		212,689
Loans held for sale		1,253		786
Loans, net		2,835,022		2,215,199
Premises and equipment, net		57,019		49,461
Goodwill		111,551		55,357
Other investments		14,905		9,004
Cash value of life insurance		45,761		31,897
Core deposit intangibles, net		17,810		4,035
Mortgage servicing rights ("MSR")		9,563		5,016
Other real estate owned (“OREO”)		1,405		150
Investment in minority-owned subsidiaries		44,146		42,935
Other assets		14,772		8,252
TOTAL ASSETS	$	3,640,754	$	2,937,552
Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Interest-bearing deposits	$	2,166,398	$	1,728,504
Noninterest-bearing deposits		971,803		799,936
Total deposits		3,138,201		2,528,440
Securities sold under repurchase agreements		21,963		41,122
Notes payable		2,569		8,011
Subordinated notes		23,500		17,500
Other liabilities		15,106		19,826
Total liabilities		3,201,339		2,614,899
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 - 10,064,858 and 8,478,383 shares as of September 30, 2022 and December 31, 2021, respectively
Outstanding - 9,028,630 and 7,616,540 shares as of September 30, 2022 and December 31, 2021, respectively		101		85
Additional paid-in capital		218,365		93,149
Retained earnings		284,907		258,104
Treasury stock, at cost - 1,036,228 and 861,843 shares as of September 30, 2022 and December 31, 2021, respectively		(45,219)		(32,294)
Accumulated other comprehensive income (loss)		(18,739)		3,609
Total stockholders’ equity		439,415		322,653
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	3,640,754	$	2,937,552

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,
	2022		2021		2022		2021
Interest income:
Loans, including fees	$	28,353	$	23,584	$	74,131	$	69,792
Securities:
Taxable		1,590		739		4,266		1,953
Tax-exempt		453		465		1,339		1,402
Other		344		110		1,044		196
Total interest income		30,740		24,898		80,780		73,343
Interest expense:
Deposits		2,637		1,769		5,939		5,906
Securities sold under repurchase agreements		100		3		104		8
Borrowed funds		310		192		1,274		578
Total interest expense		3,047		1,964		7,317		6,492
Net interest income		27,693		22,934		73,463		66,851
Provision for loan losses		—		650		1,700		2,500
Net interest income after provision for loan losses		27,693		22,284		71,763		64,351
Noninterest income:
Service charges		1,383		1,491		4,246		4,554
Income from Ansay and Associates, LLC (“Ansay”)		671		756		2,316		2,204
Income from UFS, LLC (“UFS”)		852		751		2,120		1,780
Loan servicing income		1,673		599		4,841		2,282
Net gain on sales of mortgage loans		264		1,206		1,338		6,204
Net gain on sales and valuations of OREO		—		—		146		206
Other		323		228		944		791
Total noninterest income		5,166		5,031		15,951		18,021
Noninterest expense:
Salaries, commissions, and employee benefits		10,812		6,996		24,993		21,208
Occupancy		1,176		1,070		3,505		3,248
Data processing		1,577		1,259		4,353		4,010
Postage, stationery, and supplies		215		204		542		532
Net loss on sale of other investments		—		3		—		3
Advertising		61		50		205		152
Charitable contributions		150		121		553		399
Outside service fees		2,538		741		5,096		2,300
Amortization of intangibles		751		351		1,338		1,053
Other		1,615		1,674		4,260		4,216
Total noninterest expense		18,895		12,469		44,845		37,121
Income before provision for income taxes		13,964		14,846		42,869		45,251
Provision for income taxes		3,431		3,628		10,499		10,971
Net Income	$	10,533	$	11,218	$	32,370	$	34,280
Earnings per share - basic	$	1.26	$	1.46	$	4.15	$	4.45
Earnings per share - diluted	$	1.26	$	1.46	$	4.15	$	4.45
Dividends per share	$	0.25	$	0.50	$	0.69	$	0.92

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,
	2022		2021		2022		2021
Net Income	$	10,533	$	11,218	$	32,370	$	34,280
Other comprehensive income (loss):
Unrealized gains (losses) on available for sale securities:
Unrealized holding losses arising during period		(9,188)		(931)		(30,613)		(1,902)
Amortization of unrealized holding gains on securities transferred from available for sale to held to maturity		—		—		(1)		(1)
Reclassification adjustment for losses included in net income		—		3		—		3
Income tax benefit		2,480		250		8,266		512
Total other comprehensive loss		(6,708)		(678)		(22,348)		(1,388)
Comprehensive income	$	3,825	$	10,540	$	10,022	$	32,892

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
Balance at January 1, 2021	$	—	$	85	$	92,847	$	221,393	$	(25,227)	$	5,759	$	294,857
Net income		—		—		—		11,514		—		—		11,514
Other comprehensive loss		—		—		—		—		—		(1,236)		(1,236)
Purchase of treasury stock		—		—		—		—		(402)		—		(402)
Sale of treasury stock		—		—		—		—		23		—		23
Cash dividends ($0.21 per share)		—		—		—		(1,618)		—		—		(1,618)
Amortization of stock-based compensation		—		—		304		—		—		—		304
Vesting of restricted stock awards		—		—		(1,046)		—		1,046		—		—
Balance at March 31, 2021		—		85		92,105		231,289		(24,560)		4,523		303,442
Net income		—		—		—		11,548		—		—		11,548
Other comprehensive income		—		—		—		—		—		526		526
Purchase of treasury stock		—		—		—		—		(2,858)		—		(2,858)
Sale of treasury stock		—		—		—		—		21		—		21
Cash dividends ($0.21 per share)		—		—		—		(1,615)		—		—		(1,615)
Amortization of stock-based compensation		—		—		366		—		—		—		366
Vesting of restricted stock awards		—		—		(45)		—		45		—		—
Balance at June 30, 2021		—		85		92,426		241,222		(27,352)		5,049		311,430
Net income		—		—		—		11,218		—		—		11,218
Other comprehensive loss		—		—		—		—		—		(678)		(678)
Purchase of treasury stock		—		—		—		—		(3,271)		—		(3,271)
Sale of treasury stock		—		—		—		—		21		—		21
Cash dividends ($0.50 per share)		—		—		—		(3,821)		—		—		(3,821)
Amortization of stock-based compensation		—		—		363		—		—		—		363
Balance at September 30, 2021	$	—	$	85	$	92,789	$	248,619	$	(30,602)	$	4,371	$	315,262
Balance at January 1, 2022	$	—	$	85	$	93,149	$	258,104	$	(32,294)	$	3,609	$	322,653
Net income		—		—		—		10,183		—		—		10,183
Other comprehensive loss		—		—		—		—		—		(8,199)		(8,199)
Purchase of treasury stock		—		—		—		—		(5,018)		—		(5,018)
Sale of treasury stock		—		—		—		—		37		—		37
Cash dividends ($0.22 per share)		—		—		—		(1,673)		—		—		(1,673)
Amortization of stock-based compensation		—		—		320		—		—		—		320
Vesting of restricted stock awards		—		—		(1,303)		—		1,303		—		—
Balance at March 31, 2022		—		85		92,166		266,614		(35,972)		(4,590)		318,303
Net income		—		—		—		11,654		—		—		11,654
Other comprehensive loss		—		—		—		—		—		(7,441)		(7,441)
Purchase of treasury stock		—		—		—		—		(7,186)		—		(7,186)
Sale of treasury stock		—		—		—		—		23		—		23
Cash dividends ($0.22 per share)		—		—		—		(1,638)		—		—		(1,638)
Amortization of stock-based compensation		—		—		447		—		—		—		447
Balance at June 30, 2022		—		85		92,613		276,630		(43,135)		(12,031)		314,162
Net income		—		—		—		10,533		—		—		10,533
Other comprehensive loss		—		—		—		—		—		(6,708)		(6,708)
Purchase of treasury stock		—		—		—		—		(2,109)		—		(2,109)
Sale of treasury stock		—		—		—		—		25		—		25
Cash dividends ($0.25 per share)		—		—		—		(2,256)		—		—		(2,256)
Amortization of stock-based compensation		—		—		448		—		—		—		448
Shares issued in the acquisition of Denmark Bancshares, Inc. (1,586,475 shares)		—		16		125,304		—		—		—		125,320
Balance at September 30, 2022	$	—	$	101	$	218,365	$	284,907	$	(45,219)	$	(18,739)	$	439,415

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,
	2022		2021
Cash flows from operating activities:
Net income	$	32,370	$	34,280
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		1,700		2,500
Depreciation and amortization of premises and equipment		1,209		1,384
Amortization of intangibles		1,338		1,053
Net amortization of securities		337		586
Amortization of stock-based compensation		1,215		1,033
Accretion of purchase accounting valuations		(962)		(750)
Net change in deferred loan fees and costs		(946)		(99)
Change in fair value of MSR and other investments		(3,010)		728
Gain on sale and disposal of premises and equipment		—		(43)
Gain on sale of OREO and valuation allowance		(146)		(206)
Proceeds from sales of mortgage loans		74,463		235,023
Originations of mortgage loans held for sale		(73,593)		(232,053)
Gain on sales of mortgage loans		(1,338)		(6,204)
Realized loss on sale of securities		—		3
Undistributed income of UFS joint venture		(2,120)		(1,780)
Undistributed income of Ansay joint venture		(2,316)		(2,204)
Net earnings on life insurance		(636)		(575)
Decrease in other assets		4,206		822
Decrease in other liabilities		(11,776)		(8,835)
Net cash provided by operating activities		19,995		24,663
Cash flows from investing activities, net of effects of business combination:
Activity in securities available for sale and held to maturity:
Sales		—		9,087
Maturities, prepayments, and calls		11,836		28,307
Purchases		(138,303)		(22,463)
Net increase in loans		(162,677)		(16,833)
Dividends received from UFS		1,861		1,981
Dividends received from Ansay		1,364		1,368
Proceeds from sale of OREO		320		1,892
Proceeds from sales of other investments		—		264
Net purchases of Federal Home Loan Bank (“FHLB”) stock		(1,171)		—
Net purchases of Federal Reserve Bank (“FRB”) stock		(1,500)		—
Proceeds from sale of premises and equipment		—		548
Purchases of premises and equipment		(5,324)		(2,896)
Net cash received in business combination		154,364		—
Net cash provided by (used in) investing activities		(139,230)		1,255

7

ITEM 1. Financial Statements Continued:

BANK FIRST CORPORATION

Consolidated Statements of Cash Flows (Continued)

(In thousands) (Unaudited)

	Nine Months Ended September 30,
	2022		2021
Cash flows from financing activities, net of effects of business combination:
Net increase in deposits	$	5,020	$	150,541
Net decrease in securities sold under repurchase agreements		(19,159)		(18,975)
Proceeds from advances of notes payable		3,122,700		5,000
Repayment of notes payable		(3,128,950)		(19,230)
Proceeds from issuance of subordinated notes		6,000		—
Dividends paid		(5,567)		(7,054)
Proceeds from sales of common stock		85		65
Repurchase of common stock		(14,313)		(6,531)
Net cash provided by (used in) financing activities		(34,184)		103,816
Net increase (decrease) in cash and cash equivalents		(153,419)		129,734
Cash and cash equivalents at beginning of period		296,860		170,219
Cash and cash equivalents at end of period	$	143,441	$	299,953
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	6,985	$	7,064
Income taxes		9,835		12,260
Supplemental schedule of noncash activities:
MSR resulting from sale of loans		658		1,447
Amortization of unrealized holding gains on securities transferred from available for sale to held to maturity recognized in other comprehensive income, net of tax		(1)		(1)
Change in unrealized gains and losses on investment securities available for sale, net of tax		(22,347)		(1,387)
Acquisition:
Fair value of assets acquired	$	685,840	$	—
Fair value of liabilities assumed		612,700		—
Net assets acquired	$	73,140	$	—
Common stock issued in acquisition	$	125,320	$	—

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-six locations located in Manitowoc, Outagamie, Brown, Winnebago, Sheboygan, Shawano, Waupaca, Ozaukee, Monroe, and Jefferson counties in Wisconsin. 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, 2021 (“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, valuation of mortgage servicing rights, 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 of the valuation of mortgage servicing rights, 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.

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”

9

as defined in Rule 12b-2 of the Exchange Act as of the date ASU 2019-10 was enacted. During the first half of 2019 the Company engaged a third-party partner to assist it in implementation of this standard. Over the last three years significant progress has been made working through the assumptions, drivers, documentation and other mechanics for the calculation of the Company’s ALL under ASU 2016-13. Throughout this process, Management has evaluated the impact of this update. Management has begun running a calculation of its allowance under ASU 2016-13 parallel to its current modeling to assess the functioning of the ASU 2016-13 model while also documenting the controls that will be in place around the process when the Company implements this standard. Results of these parallel calculations indicate that the Bank’s ALL to total loans coverage ratio would fall within a range of 1.00% to 1.20% under ASU 2016-13 in the current environment, compared to 0.81% as of September 30, 2022 under the current methodology.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. It provides optional expedients and exceptions for applying GAAP to contracts hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The updated guidance is effective for all entities from March 12, 2020 through December 31, 2022. The Company has been diligent in responding to reference rate reform and does not anticipate a significant impact to its financial statements as a result.

In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. This ASU provides guidance on eliminating the requirement for classification of and disclosures around troubled debt restructurings. The purpose of this guidance is to eliminate unnecessary and overly-complex disclosures of loans that are already incorporated into the allowance for credit losses and related disclosures. This ASU further requires the disclosure of current-period gross charge-offs by year of origination. The updated guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, for all entities which have implemented ASU 2016-13. The Company has historically had very few credit relationships classified as troubled debt restructurings, and as such does not anticipate that the elimination of accounting for and disclosure of these types of credit relationships will have a significant impact to its financial statements upon implementation of ASU 2016-13 beginning with the first quarter of 2023.

NOTE 2 – ACQUISITIONS

On August 12, 2022, the Company completed a merger with Denmark, a bank holding company headquartered in Denmark, Wisconsin, pursuant to the Agreement and Plan of Bank Merger (“Merger Agreement”), dated as of January 18, 2022 by and among the Company and Denmark, whereby Denmark merged with and into the Company, and Denmark State Bank, Denmark’s wholly-owned banking subsidiary, merged with and into the Bank. Denmark’s principal activity was the ownership and operation of Denmark State Bank, a state-chartered banking institution that operated seven (7) branches in Wisconsin at the time of closing. The merger consideration totaled approximately $129.3 million.

Pursuant to the terms of the Merger Agreement, Denmark shareholders could elect to receive either 0.5276 shares of the Company’s common stock or $38.10 in cash for each outstanding share of Denmark common stock, subject to a maximum of 20% cash consideration in total, with cash paid in lieu of any remaining fractional share. Company stock issued totaled 1,586,475 shares valued at approximately $125.3 million, with cash of $4.0 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 Denmark prior to the consummation date were not included in the accompanying consolidated financial statements. The accounting required assets purchased and liabilities assumed to be recorded at their respective fair values at the date of acquisition. The Company determined the fair value of core deposit intangibles, securities, premises and equipment, loans, other assets and liabilities and deposits with the assistance of third party valuations, appraisals and third party advisors. The estimated fair values 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 August 12, 2022 was as follows:

	As Recorded by		Fair Value		As Recorded by
(in thousands)	Denmark		Adjustments		the Company
Cash, cash equivalents and securities	$	188,017	$	(148)	$	187,869
Other investments		3,566		—		3,566
Loans, net		459,413		(2,358)		457,055
Premises and equipment, net		5,980		(1,635)		4,345
Core deposit intangible		—		15,112		15,112
Other assets		17,704		189		17,893
Total assets acquired	$	674,680	$	11,160	$	685,840
Deposits	$	604,636	$	166	$	604,802
Other borrowings		842		—		842
Other liabilities		3,951		3,105		7,056
Total liabilities assumed	$	609,429	$	3,271	$	612,700
Excess of assets acquired over liabilities assumed	$	65,251	$	7,889	$	73,140
Less: purchase price						129,334
Goodwill					$	56,194

The following unaudited pro forma information is presented for illustrative purposes only. The pro forma information should not be relied upon as being indicative of the historical results of operations the companies would have had if the merger had occurred before such periods or the future results of operations that the companies will experience as a result of the merger. The pro forma information, although helpful in illustrating the financial characteristics of the combined company under one set of assumptions, does not reflect the benefits of expected cost savings, opportunities to earn additional revenue, the impact of restructuring and merger-related expenses, or other factors that may result as a consequence of the merger and, accordingly, does not attempt to predict or suggest future results. The unaudited pro forma information set forth below gives effect to the merger as if it had occurred on January 1, 2021, the beginning of the earliest period presented.

	Nine Months Ended		Year Ended
(in thousands, except per share data)	September 30, 2022		December 31, 2021
Total revenue, net of interest expense	$	105,099	$	140,904
Net income	$	34,572	$	49,589
Diluted earnings per common share		3.78		5.35

On July 25, 2022, the Company entered into an Agreement and Plan of Merger with Hometown Bancorp, Ltd. (“Hometown”), a Wisconsin Corporation, under which Hometown will merge with and into the Company and Hometown’s banking subsidiary, Hometown Bank, will merge with and into the Bank. The transaction is expected to close during the first quarter of 2023 and is subject to, among other items, approval by the shareholders of Hometown and regulatory agencies. Merger consideration will consist of up to 30% cash and no less than 70% common stock of the Company, and will total approximately $124 million, subject to the fair market value of the Company’s common stock on the date of closing. Based on results as of September 30, 2022, the combined company would have total assets of approximately $4.26 billion, loans of approximately $3.25 billion and deposits of approximately $3.68 billion.

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

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 nine months ended September 30, 2022 or 2021.

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,
	2022		2021		2022		2021
Basic
Net income available to common shareholders	$	10,533	$	11,218	$	32,370	$	34,280
Less: Earnings allocated to participating securities		(76)		(88)		(247)		(266)
Net income allocated to common shareholders	$	10,457	$	11,130	$	32,123	$	34,014
Weighted average common shares outstanding including participating securities		8,265,186		7,665,272		7,796,259		7,698,284
Less: Participating securities (1)		(59,272)		(59,731)		(59,170)		(59,427)
Average shares		8,205,914		7,605,541		7,737,089		7,638,857
Basic earnings per common shares	$	1.26	$	1.46	$	4.15	$	4.45
Diluted
Net income available to common shareholders	$	10,533	$	11,218	$	32,370	$	34,280
Weighted average common shares outstanding for basic earnings per common share		8,205,914		7,605,541		7,737,089		7,638,857
Add: Dilutive effects of stock based compensation awards		22,283		19,250		20,637		19,971
Average shares and dilutive potential common shares		8,228,197		7,624,791		7,757,726		7,658,828
Diluted earnings per common share	$	1.26	$	1.46	$	4.15	$	4.45

(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 following is a summary of available for sale securities:

			Gross		Gross
	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
September 30, 2022
U.S. Treasury securities	$	149,601	$	—	$	(8,851)	$	140,750
Obligations of U.S. Government sponsored agencies		25,281		—		(3,411)		21,870
Obligations of states and political subdivisions		91,217		14		(10,096)		81,135
Mortgage-backed securities		39,840		—		(2,370)		37,470
Corporate notes		21,509		392		(1,314)		20,587
Certificates of deposit		1,503		—		(35)		1,468
Total available for sale securities	$	328,951	$	406	$	(26,077)	$	303,280
December 31, 2021
U.S. Treasury securities	$	49,574	$	121	$	(193)	$	49,502
Obligations of U.S. Government sponsored agencies		26,722		165		(341)		26,546
Obligations of states and political subdivisions		83,019		3,786		(67)		86,738
Mortgage-backed securities		26,143		1,117		(1)		27,259
Corporate notes		20,760		436		(94)		21,102
Certificates of deposit		1,529		13		—		1,542
Total available for sale securities	$	207,747	$	5,638	$	(696)	$	212,689

12

The following is a summary of held to maturity securities:

			Gross		Gross
	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
September 30, 2022
U.S. Treasury securities	$	35,630	$	—	$	(1,687)	$	33,943
Obligations of states and political subdivisions		5,196		—		(5)		5,191
Total held to maturity securities	$	40,826	$	—	$	(1,692)	$	39,134
December 31, 2021
Obligations of states and political subdivisions	$	5,911	$	11	$	—	$	5,922

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, 2022 - Available for Sale
U.S. Treasury securities	$	140,750	$	(8,851)	$	—	$	—	$	140,750	$	(8,851)
Obligations of U.S. Government sponsored agencies		18,326		(2,429)		3,544		(982)		21,870		(3,411)
Obligations of states and political subdivisions		75,119		(10,096)		—		—		75,119		(10,096)
Mortgage-backed securities		37,470		(2,370)		—		—		37,470		(2,370)
Corporate notes		12,895		(1,314)		—		—		12,895		(1,314)
Certificate of Deposits		1,468		(35)		—		—		1,468		(35)
Totals	$	286,028	$	(25,095)	$	3,544	$	(982)	$	289,572	$	(26,077)
September 30, 2022 - Held to Maturity
U.S. Treasury securities	$	33,943	$	(1,687)	$	—	$	—	$	33,943	$	(1,687)
Obligations of states and political subdivisions		415		(5)		—		—		415		(5)
	$	34,358	$	(1,692)	$	—	$	—	$	34,358	$	(1,692)
December 31, 2021 - Available for Sale
U.S. Treasury securities	$	34,746	$	(193)	$	—	$	—	$	34,746	$	(193)
Obligations of U.S. Government sponsored agencies		13,185		(86)		4,558		(255)		17,743		(341)
Obligations of states and political subdivisions		8,624		(67)		—		—		8,624		(67)
Mortgage-backed securities		254		(1)		—		—		254		(1)
Corporate notes		8,973		(94)		—		—		8,973		(94)
Totals	$	65,782	$	(441)	$	4,558	$	(255)	$	70,340	$	(696)

As of September 30, 2022, 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, 2022 or 2021.

13

The following is a summary of amortized cost and estimated fair value of securities by contractual maturity as of September 30, 2022. 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	$	103,648	$	102,497	$	1,044	$	1,043
Due after one year through 5 years		22,408		21,333		38,028		36,390
Due after 5 years through ten years		91,139		81,108		1,754		1,701
Due after 10 years		71,916		60,872		—		—
Subtotal		289,111		265,810		40,826		39,134
Mortgage-backed securities		39,840		37,470		—		—
Total	$	328,951	$	303,280	$	40,826	$	39,134

There were no realized gains or losses on sales of securities available for sale or held to maturity for the nine months ended September 30, 2022. The following is a summary of the proceeds from sales of securities available for sale and held to maturity, as well as gross losses for the nine months ended September 30, 2021.

	2022		2021
Proceeds from sales of securities	$	—	$	9,087
Gross gains on sales		—		—
Gross losses on sales		—		(3)

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, 2022 and December 31, 2021:

	September 30,		December 31,
	2022		2021
Commercial/industrial	$	486,839	$	367,284
Commercial real estate - owner occupied		723,964		574,960
Commercial real estate - non-owner occupied		668,505		537,077
Construction and development		209,619		132,675
Residential 1‑4 family		706,794		571,749
Consumer		43,953		31,992
Other		19,178		21,489
Subtotals		2,858,852		2,237,226
ALL		(23,045)		(20,315)
Loans, net of ALL		2,835,807		2,216,911
Deferred loan fees and costs		(785)		(1,712)
Loans, net	$	2,835,022	$	2,215,199

14

A summary of the activity in the ALL by loan type as of September 30, 2022 and 2021 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, 2022	$	3,699	$	5,633	$	5,151	$	984	$	4,445	$	224	$	179	$	20,315
Charge-offs		—		—		—		—		(39)		(17)		(27)		(83)
Recoveries		455		74		360		152		6		2		64		1,113
Provision		134		(643)		365		507		1,312		90		(65)		1,700
ALL - September 30, 2022		4,288		5,064		5,876		1,643		5,724		299		151		23,045
ALL ending balance individually evaluated for impairment		150		—		775		—		—		—		—		925
ALL ending balance collectively evaluated for impairment	$	4,138	$	5,064	$	5,101	$	1,643	$	5,724	$	299	$	151	$	22,120
Loans outstanding - September 30, 2022	$	486,839	$	723,964	$	668,505	$	209,619	$	706,794	$	43,953	$	19,178	$	2,858,852
Loans ending balance individually evaluated for impairment		487		2,541		1,396		—		211		—		—		4,635
Loans ending balance collectively evaluated for impairment	$	486,352	$	721,423	$	667,109	$	209,619	$	706,583	$	43,953	$	19,178	$	2,854,217

			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, 2021	$	2,049	$	6,108	$	3,904	$	1,027	$	3,960	$	201	$	409	$	17,658
Charge-offs		(48)		(289)		—		—		—		—		(21)		(358)
Recoveries		38		343		5		33		12		1		5		437
Provision		971		805		677		(194)		408		30		(197)		2,500
ALL - September 30, 2021		3,010		6,967		4,586		866		4,380		232		196		20,237
ALL ending balance individually evaluated for impairment		93		—		392		—		—		—		—		485
ALL ending balance collectively evaluated for impairment	$	2,917	$	6,967	$	4,194	$	866	$	4,380	$	232	$	196	$	19,752
Loans outstanding - September 30, 2021	$	355,773	$	567,906	$	542,455	$	116,957	$	572,821	$	33,008	$	22,816	$	2,211,736
Loans ending balance individually evaluated for impairment		414		3,467		6,617		—		—		—		—		10,498
Loans ending balance collectively evaluated for impairment	$	355,359	$	564,439	$	535,838	$	116,957	$	572,821	$	33,008	$	22,816	$	2,201,238

The Company’s past due loans as of September 30, 2022 is summarized as follows:

			90 Days
	30-89 Days		or more
	Past Due		Past Due
	Accruing		and Accruing		Non-Accrual		Total
Commercial/industrial	$	19	$	205	$	218	$	442
Commercial real estate - owner occupied		—		33		3,609		3,642
Commercial real estate - non-owner occupied		—		—		—		—
Construction and development		—		—		17		17
Residential 1‑4 family		232		162		516		910
Consumer		19		3		10		32
Other		—		—		—		—
	$	270	$	403	$	4,370	$	5,043

15

The Company’s past due loans as of December 31, 2021 is summarized as follows:

			90 Days
	30-89 Days		or more
	Past Due		Past Due
	Accruing		and Accruing		Non-Accrual		Total
Commercial/industrial	$	12	$	738	$	247	$	997
Commercial real estate - owner occupied		—		—		5,884		5,884
Commercial real estate - non-owner occupied		65		—		650		715
Construction and development		—		—		19		19
Residential 1‑4 family		2,002		245		439		2,686
Consumer		2		16		2		20
Other		—		—		—		—
	$	2,081	$	999	$	7,241	$	10,321

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, 2022 is as follows:

	Pass (1-5)		6		7		8		Total
Commercial/industrial	$	466,355	$	304	$	20,180	$	—	$	486,839
Commercial real estate - owner occupied		678,288		333		45,343		—		723,964
Commercial real estate - non-owner occupied		664,162		—		4,343		—		668,505
Construction and development		208,463		—		1,156		—		209,619
Residential 1‑4 family		703,391		—		3,403		—		706,794
Consumer		43,951		—		2		—		43,953
Other		19,178		—		—		—		19,178
	$	2,783,788	$	637	$	74,427	$	—	$	2,858,852

16

The breakdown of loans by risk rating as of December 31, 2021 is as follows:

	Pass (1-5)		6		7		8		Total
Commercial/industrial	$	355,469	$	—	$	11,815	$	—	$	367,284
Commercial real estate - owner occupied		551,801		—		23,159		—		574,960
Commercial real estate - non-owner occupied		532,077		—		5,000		—		537,077
Construction and development		131,429		—		1,246		—		132,675
Residential 1‑4 family		570,022		83		1,644		—		571,749
Consumer		31,988		—		4		—		31,992
Other		21,489		—		—		—		21,489
	$	2,194,275	$	83	$	42,868	$	—	$	2,237,226

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.

17

A summary of impaired loans individually evaluated as of September 30, 2022 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	$	202	$	—	$	1,285	$	—	$	—	$	—	$	—	$	1,487
Unpaid principal balance		202		—		1,285		—		—		—		—		1,487
Related allowance		150		—		775		—		—		—		—		925
With no related allowance recorded:
Recorded investment	$	285	$	2,541	$	111	$	—	$	211	$	—	$	—	$	3,148
Unpaid principal balance		285		2,541		111		—		211		—		—		3,148
Related allowance		—		—		—		—		—		—		—		—
Total:
Recorded investment	$	487	$	2,541	$	1,396	$	—	$	211	$	—	$	—	$	4,635
Unpaid principal balance		487		2,541		1,396		—		211		—		—		4,635
Related allowance		150		—		775		—		—		—		—		925
Average recorded investment	$	463	$	3,753	$	1,457	$	—	$	242	$	—	$	—	$	5,915

A summary of impaired loans individually evaluated as of December 31, 2021 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	$	357	$	—	$	1,406	$	—	$	—	$	—	$	—	$	1,763
Unpaid principal balance		357		—		1,406		—		—		—		—		1,763
Related allowance		70		—		894		—		—		—		—		964
With no related allowance recorded:
Recorded investment	$	82	$	4,966	$	113	$	—	$	273	$	—	$	—	$	5,434
Unpaid principal balance		82		4,966		113		—		273		—		—		5,434
Related allowance		—		—		—		—		—		—		—		—
Total:
Recorded investment	$	439	$	4,966	$	1,519	$	—	$	273	$	—	$	—	$	7,197
Unpaid principal balance		439		4,966		1,519		—		273		—		—		7,197
Related allowance		70		—		894		—		—		—		—		964
Average recorded investment	$	459	$	3,069	$	5,098	$	—	$	267	$	—	$	—	$	8,893

Interest recognized while these loans were impaired is considered immaterial to the consolidated financial statements for the nine months ended September 30, 2022 and 2021.

18

The following table presents loans acquired with deteriorated credit quality as of September 30, 2022 and December 31, 2021. 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, 2022				December 31, 2021
			Unpaid				Unpaid
	Recorded		Principal		Recorded		Principal
	Investment		Balance		Investment		Balance
Commercial & Industrial	$	730	$	1,180	$	596	$	685
Commercial real estate - owner occupied		2,566		2,873		2,664		3,146
Commercial real estate - non-owner occupied		—		—		1,018		1,150
Construction and development		—		—		—		—
Residential 1‑4 family		827		1,060		863		1,124
Consumer		—		—		—		—
Other		—		—		—		—
	$	4,123	$	5,113	$	5,141	$	6,105

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, 2022, and year ended December 31, 2021:

	September 30, 2022				December 31, 2021
	Accretable		Non-accretable		Accretable		Non-accretable
	discount		discount		discount		discount
Balance at beginning of period	$	813	$	149	$	1,250	$	176
Acquired balance, net		292		211		—		—
Reclassifications between accretable and non-accretable		61		(61)		27		(27)
Accretion to loan interest income		(476)		—		(464)		—
Balance at end of period	$	690	$	299	$	813	$	149

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, 2022 and December 31, 2021 the Company had negligible specific reserves for TDRs.

As a result of the COVID-19 pandemic, the Bank experienced an increase in customer requests for loan modifications and payment deferrals. 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.

19

The Bank had no new TDRs during the nine months ended September 30, 2022 or 2021.

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, 2022		December 31, 2021
Fair value at beginning of period	$	5,016	$	3,726
Servicing asset additions		658		1,862
Loan payments and payoffs		(660)		(1,319)
Changes in valuation inputs and assumptions used in the valuation model		2,848		747
Amount recognized through earnings		2,846		1,290
MSR asset acquired		1,701		—
Fair value at end of period	$	9,563	$	5,016
Unpaid principal balance of loans serviced for others	$	873,383	$	705,462
Mortgage servicing rights as a percent of loans serviced for others		1.09		0.71

The primary economic assumptions utilized by the Company in measuring the value of MSRs were constant prepayment speeds of 8.1 and 13.8 months and discount rates of 10.2% and 10.3% as of September 30, 2022 and December 31, 2021.

20

NOTE 7 – NOTES PAYABLE

From time to time the Company utilizes FHLB advances to fund liquidity. At September 30, 2022 and December, 31, 2021, the Company had outstanding balances borrowed from the FHLB of $2.6 million and $8.0 million, respectively. The advances, rate, and maturities of FHLB advances were as follows:

				September 30,		December 31,
	Maturity	Rate		2022		2021
Fixed rate, fixed term	01/24/2022	2.51	%	$	—	$	250
Fixed rate, fixed term	05/02/2022	2.98	%		—		500
Fixed rate, fixed term	05/16/2022	0.00	%		—		5,000
Fixed rate, fixed term	06/08/2022	2.92	%		—		500
Fixed rate, fixed term	11/21/2022	3.02	%		600		600
Fixed rate, fixed term	06/01/2023	1.79	%		842		—
Fixed rate, fixed term	11/21/2023	3.06	%		600		600
Fixed rate, fixed term	04/22/2030	0.00	%		508		508
					2,550		7,958
Adjustment due to purchase accounting					19		53
				$	2,569	$	8,011

Future maturities of borrowings were as follows:

	September 30,		December 31,
	2022		2021
1 year or less	$	1,442	$	6,850
1 to 2 years		600		600
2 to 3 years		—		—
3 to 4 years		—		—
4 to 5 years		—		—
Over 5 years		508		508
	$	2,550	$	7,958

The Company maintains a $7.5 million line of credit with a commercial bank, which was entered into on May 15, 2022. There were no outstanding balances on this note at September 30, 2022 or December 31, 2021. Any future borrowings will require monthly payments of interest at a variable rate, and will be due in full on May 15, 2024.

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, 2022 and December 31, 2021. These notes were all issued with 10-year maturities, carry interest at a variable rate payable quarterly, are callable on or after the sixth anniversary of the issuance dates, and qualify for Tier 2 capital for regulatory purposes.

During July 2020, the Company entered into subordinated note agreements with two separate commercial banks. The Company had outstanding balances of $6.0 million under these agreements as of September 30, 2022 and December 31, 2021. 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.

During August 2022, the Company entered into subordinated note agreements with an individual. The Company had outstanding balances of $6.0 million under these agreements as of September 30, 2022. These notes were issued with 10-year maturities, carry interest at a fixed rate of 5.25% through August 6, 2027, and at a variable rate thereafter, payable quarterly. These notes are callable on or after August 6, 2027 and qualify for Tier 2 capital for regulatory purposes.

21

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. Due to the acquisition of Denmark the Company is subject to compliance with risk-based capital rules beginning with the third quarter of 2022, and will remain so as long as it remains above the $3 billion threshold.

Under regulatory guidance for non-advanced approaches institutions, the Bank is required to maintain minimum amounts and ratios of common equity Tier I capital to risk-weighted assets, including an additional conservation buffer determined by banking regulators. As of September 30, 2022 and December 31, 2021, this buffer was 2.5%. As of September 30, 2022 and December 31, 2021, the Bank met all capital adequacy requirements to which they are subject.

22

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

													To Be Well
									Minimum Capital				Capitalized Under
					For Capital				Adequacy with				Prompt Corrective
	Actual				Adequacy Purposes				Capital Buffer				Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
September 30, 2022
Total capital (to risk-weighted assets):
Company	$	375,338	11.92	%	$	252,010	8.00	%	$	330,763	10.50	%	$	315,012	10.00	%
Bank	$	362,876	11.52	%	$	251,900	8.00	%	$	330,619	10.50	%	$	314,876	10.00	%
Tier 1 capital (to risk-weighted assets):
Company	$	328,793	10.44	%	$	189,007	6.00	%	$	267,761	8.50	%	$	252,010	8.00	%
Bank	$	339,831	10.79	%	$	188,925	6.00	%	$	267,644	8.50	%	$	251,900	8.00	%
Common Equity Tier 1 capital (to risk-weighted assets):
Company	$	328,793	10.44	%	$	141,756	4.50	%	$	220,509	7.00	%	$	204,758	6.50	%
Bank	$	339,831	10.79	%	$	141,694	4.50	%	$	220,413	7.00	%	$	204,669	6.50	%
Tier 1 capital (to average assets):
Company	$	328,793	10.22	%	$	128,705	4.00	%	$	128,705	4.00	%	$	160,881	5.00	%
Bank	$	339,831	10.63	%	$	127,821	4.00	%	$	127,821	4.00	%	$	159,776	5.00	%
December 31, 2021
Total capital (to risk-weighted assets):
Company	$	297,467	12.44	%		NA	NA			NA	NA			NA	NA
Bank	$	291,994	12.21	%	$	191,339	8.00	%	$	251,133	10.50	%	$	239,174	10.00	%
Tier 1 capital (to risk-weighted assets):
Company	$	259,652	10.86	%		NA	NA			NA	NA			NA	NA
Bank	$	271,679	11.36	%	$	143,505	6.00	%	$	203,298	8.50	%	$	191,339	8.00	%
Common Equity Tier 1 capital (to risk-weighted assets):
Company	$	259,652	10.86	%		NA	NA			NA	NA			NA	NA
Bank	$	271,679	11.36	%	$	107,628	4.50	%	$	167,422	7.00	%	$	155,463	6.50	%
Tier 1 capital (to average assets):
Company	$	259,652	9.29	%		NA	NA			NA	NA			NA	NA
Bank	$	271,679	9.72	%	$	111,825	4.00	%	$	111,825	4.00	%	$	139,781	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, 2022 and December 31, 2021 was approximately $7.1 million and $21.9 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.

23

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, 2022		December 31, 2021
Commitments to extend credit:
Fixed	$	147,480	$	90,036
Variable		522,367		412,095
Credit card arrangements		16,787		10,916
Letters of credit		11,889		9,062

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, 2022
Assets
Securities available for sale
U.S. Treasury securities	$	140,750	$	—	$	140,750	$	—
Obligations of U.S. Government sponsored agencies		21,870		—		21,870		—
Obligations of states and political subdivisions		81,135		—		81,135		—
Mortgage-backed securities		37,470		—		37,470		—
Corporate notes		20,587		—		20,587		—
Certificates of deposit		1,468		—		1,468		—
Mortgage servicing rights		9,563		—		9,563		—
December 31, 2021
Assets
Securities available for sale
U.S. Treasury securities	$	49,502	$	—	$	49,502	$	—
Obligations of U.S. Government sponsored agencies		26,546		—		26,546		—
Obligations of states and political subdivisions		86,738		—		86,738		—
Mortgage-backed securities		27,259		—		27,259		—
Corporate notes		21,102		—		21,102		—
Certificates of deposit		1,542		—		1,542		—
Mortgage servicing rights		5,016		—		5,016		—

24

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

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, 2022
OREO	$	1,405	$	—	$	—	$	1,405
Impaired Loans, net of impairment reserve		3,710		—		—		3,710
	$	5,115	$	—	$	—	$	5,115
December 31, 2021
OREO	$	150	$	—	$	—	$	150
Impaired Loans, net of impairment reserve		6,233		—		—		6,233
	$	6,383	$	—	$	—	$	6,383

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, 2022
Other real estate owned	Third party appraisals, sales contracts or brokered price options	Collateral discounts and estimated costs to sell	0	%	0	%
Impaired loans	Third party appraisals and discounted cash flows	Collateral discounts and discount rates	0% - 74	%	20.0	%
As of December 31, 2021
Other real estate owned	Third party appraisals, sales contracts or brokered price options	Collateral discounts and estimated costs to sell	18% - 97	%	18.0	%
Impaired loans	Third party appraisals and discounted cash flows	Collateral discounts and discount rates	0% - 100	%	7.4	%

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

25

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, 2022 and December 31, 2021 follows:

	Carrying
September 30, 2022	amount		Level 1		Level 2		Level 3		Total
Financial assets:
Cash and cash equivalents	$	143,441	$	143,441	$	—	$	—	$	143,441
Securities held to maturity		40,826		—		39,134		—		39,134
Securities available for sale		303,280		—		303,280		—		303,280
Loans held for sale		1,253		—		—		1,253		1,253
Loans, net		2,835,022		—		—		2,801,373		2,801,373
Other investments, at cost		14,905		—		—		14,905		14,905
Mortgage servicing rights		9,563		—		9,563		—		9,563
Cash surrender value of life insurance		45,761		45,761		—		—		45,761
Financial liabilities:
Deposits	$	3,138,201	$	—	$	—	$	2,801,549	$	2,801,549
Securities sold under repurchase agreements		21,963		—		21,963		—		21,963
Notes payable		2,569		—		2,569		—		2,569
Subordinated notes		23,500		—		23,500		—		23,500

26

	Carrying
December 31, 2021	amount		Level 1		Level 2		Level 3		Total
Financial assets:
Cash and cash equivalents	$	296,860	$	296,860	$	—	$	—	$	296,860
Securities held to maturity		5,911		—		5,922		—		5,922
Securities available for sale		212,689		—		212,689		—		212,689
Loans held for sale		786		—		—		786		786
Loans, net		2,215,199		—		—		2,210,593		2,210,593
Other investments, at cost		9,004		—		—		9,004		9,004
Mortgage servicing rights		5,016		—		5,016		—		5,016
Cash surrender value of life insurance		31,897		31,897		—		—		31,897
Financial liabilities:
Deposits	$	2,528,440	$	—	$	—	$	2,457,287	$	2,457,287
Securities sold under repurchase agreements		41,122		—		41,122		—		41,122
Notes payable		8,011		—		8,011		—		8,011
Subordinated notes		17,500		—		17,500		—		17,500

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.

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 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, 2022, 50,867 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, 2022 and 2021, compensation expense of $1.2 million and $1.0 million, respectively, was recognized related to restricted stock awards.

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As of September 30, 2022, there was $2.6 million of unrecognized compensation cost related to non-vested restricted stock awards granted under the plan. That cost is expected to be recognized over a weighted average period of 1.74 years. The aggregate grant date fair value of restricted stock awards that vested during the nine months ended September 30, 2022, was approximately $1.3 million.

	For the year ended			For the year ended
	September 30, 2022			September 30, 2021
		Weighted-			Weighted-
		Average Grant-			Average Grant-
	Shares	Date Fair Value		Shares	Date Fair Value
Restricted Stock
Outstanding at beginning of year	58,611	$	61.44	57,175	$	53.08
Granted	25,451		69.73	25,416		70.67
Vested	(20,785)		60.52	(21,755)		50.15
Forfeited or cancelled	(4,005)		60.50	(1,105)		62.23
Outstanding at end of year	59,272	$	65.85	59,731	$	61.46

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, 2022			September 30, 2021
Amortization of ROU Assets - Operating Leases	$	(1)		$	10
Interest on Lease Liabilities - Operating Leases		74			65
Operating Lease Cost (Cost resulting from lease payments)		73			75
Weighted Average Lease Term (Years) - Operating Leases		24.68			32.25
Weighted Average Discount Rate - Operating Leases		5.50	%		5.50	%

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A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total operating lease liabilities as of September 30, 2022 is as follows:

	September 30, 2022
Operating lease payments due:
Within one year	$	201
After one but within two years		201
After two but within three years		200
After three but within four years		207
After four years but within five years		161
After five years		3,206
Total undiscounted cash flows		4,176
Discount on cash flows		(2,092)
Total operating lease liabilities	$	2,084

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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, 2021, 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, 2022.

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 26 banking locations in Manitowoc, Outagamie, Brown, Winnebago, Sheboygan, Shawano, Waupaca, Ozaukee, Monroe, and Jefferson counties in Wisconsin. The Bank offers loan, deposit and treasury management products at each of its banking locations.

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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 private cloud services, cyber security and digital banking solutions for over 60 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. These unconsolidated subsidiary interests contribute noninterest income to the Bank through their underlying annual earnings.

On August 12, 2022, the Company consummated its merger with Denmark pursuant to the Agreement and Plan of Bank Merger, dated as of January 18, 2022, by and among the Company and Denmark, whereby Denmark was merged with and into the Company, and Denmark State Bank, Denmark’s wholly owned banking subsidiary, was merged with and into the Bank. The system integration was completed, and five branches of Denmark State Bank opened on August 15, 2022 as a branch of the Bank, expanding the Bank’s presence in Manitowoc, Brown, Outagamie and Shawano County.

On July 25, 2022, the Company entered into an Agreement and Plan of Merger with Hometown, a Wisconsin Corporation, pursuant to which Hometown will merge with and into the Company and Hometown's banking subsidiary, Hometown Bank, will merge with and into the Bank. The transaction is expected to close during the first quarter of 2023 and is subject to, among other items, approval by the shareholders of Hometown and regulatory agencies. Merger consideration will consist of up to 30% cash and no less than 70% of the common stock of the Company, and will total approximately $124 million, subject to the fair market value of the Company's common stock on the date of closing. Based on results as of September 30, 2022, the combined company would have total assets of approximately $4.26 billion, loans of approximately $3.25 billion, and deposits of approximately $3.68 billion.

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

The U.S. economy contracted in the first half of 2020, ending the longest expansionary period in U.S. history, due to the COVID-19 pandemic. During March 2020, in an effort to lessen the impact of COVID-19 on consumers and businesses, the Federal Reserve reduced the federal funds rate 1.5 percentage points to 0.00 to 0.25 percent and the U.S. government enacted the CARES Act, the largest economic stimulus package in the nation's history. The Company responded to the pandemic, beginning in March 2020, by supporting our clients, employees, and communities with such measures as remote work capabilities and branch service enhancements, loan payment deferrals, and accelerated investments in several technology initiatives that provided more convenience and a better digital experience as clients adapted to this highly virtual environment. The Company participated in the PPP and funded approximately 2,998 loans totaling approximately $377.5 million under the programs available in both 2020 and 2021.

Additional government spending measures and the availability of vaccines improved consumer confidence and demand, and the economy largely reopened in 2021, leading to a reduction in the unemployment rate and accelerated GDP growth. While 2021 and 2022 have seen a recovery in the U.S. economy compared to 2020, uncertainty and market disruptions such as additional coronavirus variants, pandemic-related supply chain issues and labor shortages persist. The economic expansion has been met with inflationary pressures which have resulted in the Federal Open Market Committee aggressively tightening monetary policy during 2022, beginning in March 2022 and likely including more interest rate hikes in the future. With an asset-sensitive balance sheet and our strong position in our markets, we expect increases in loan demand and interest rates should improve returns going forward.

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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)	9/30/2022			6/30/2022			3/31/2022			12/31/2021			9/30/2021			9/30/2022			9/30/2021
Results of Operations:
Interest income	$	30,740		$	25,820		$	24,220		$	25,043		$	24,898		$	80,780		$	73,343
Interest expense		3,047			2,340			1,930			1,812			1,964			7,317			6,492
Net interest income		27,693			23,480			22,290			23,231			22,934			73,463			66,851
Provision for loan losses		—			500			1,200			600			650			1,700			2,500
Net interest income after provision for loan losses		27,693			22,980			21,090			22,631			22,284			71,763			64,351
Noninterest income		5,166			5,551			5,234			5,520			5,031			15,951			18,021
Noninterest expense		18,895			13,219			12,731			13,435			12,469			44,845			37,121
Income before income tax expense		13,964			15,312			13,593			14,716			14,846			42,869			45,251
Income tax expense		3,431			3,658			3,410			3,553			3,628			10,499			10,971
Net income	$	10,533		$	11,654		$	10,183		$	11,163		$	11,218		$	32,370		$	34,280
Earnings per common share - basic	$	1.26		$	1.55		$	1.34		$	1.46		$	1.46		$	4.15		$	4.45
Earnings per common share - diluted		1.26			1.55			1.34			1.46			1.46			4.15			4.45
Common Shares:
Basic weighted average		8,205,914			7,457,443			7,540,264			7,570,128			7,605,541			7,737,089			7,638,857
Diluted weighted average		8,228,197			7,472,561			7,559,844			7,595,052			7,624,791			7,757,726			7,658,828
Outstanding		9,028,629			7,470,255			7,570,766			7,616,540			7,641,771			9,028,629			7,641,771
Noninterest income / noninterest expense:
Service charges	$	1,383		$	1,441		$	1,422		$	1,574		$	1,491		$	4,246		$	4,554
Income from Ansay		671			819			826			383			756			2,316			2,204
Income from UFS		852			563			705			776			751			2,120			1,780
Loan servicing income		1,673			2,106			1,062			1,557			599			4,841			2,282
Net gain on sales of mortgage loans		264			403			671			1,167			1,206			1,338			6,204
Net gain (loss) on sales and valuations of other real estate owned		—			(25)			171			(186)			—			146			206
Other noninterest income		323			244			377			249			228			944			791
Total noninterest income	$	5,166		$	5,551		$	5,234		$	5,520		$	5,031		$	15,951		$	18,021
Personnel expense	$	10,812		$	7,006		$	7,175		$	7,307		$	6,996		$	24,993		$	21,208
Occupancy, equipment and office		1,176			1,214			1,115			950			1,070			3,505			3,248
Data processing		1,577			1,431			1,345			1,334			1,259			4,353			4,010
Postage, stationery and supplies		215			144			183			181			204			542			532
Net loss on sales of securities		-			-			-			-			3			—			3
Advertising		61			55			89			75			50			205			152
Charitable contributions		150			235			168			135			121			553			399
Outside service fees		2,538			1,386			1,172			776			741			5,096			2,300
Amortization of intangibles		751			294			293			352			351			1,338			1,053
Other noninterest expense		1,615			1,454			1,191			2,325			1,674			4,260			4,216
Total noninterest expense	$	18,895		$	13,219		$	12,731		$	13,435		$	12,469		$	44,845		$	37,121
Period-end balances:
Loans	$	2,859,293		$	2,387,617		$	2,316,688		$	2,235,515		$	2,208,915		$	2,859,293		$	2,208,915
Allowance for loan losses		23,045			22,699			21,749			20,315			20,237			23,045			20,237
Investment securities available-for-sale, at fair value		303,280			292,426			297,063			212,689			148,376			303,280			148,376
Investment securities held-to-maturity, at cost		40,826			33,867			5,841			5,911			5,912			40,826			5,912
Goodwill and other intangibles, net		129,361			58,805			59,099			59,392			59,743			129,361			59,743
Total assets		3,640,754			2,961,027			2,924,936			2,937,552			2,846,605			3,640,754			2,846,605
Deposits		3,138,201			2,601,479			2,557,106			2,528,440			2,472,258			3,138,201			2,472,258
Stockholders’ equity		439,415			314,162			318,303			322,653			315,262			439,415			315,262
Book value per common share		48.67			42.06			42.04			42.36			41.26			48.67			41.26
Tangible book value per common share (1)		34.34			34.18			34.24			34.56			33.44			34.34			33.44
Average balances:
Loans	$	2,640,397		$	2,341,954		$	2,271,956		$	2,207,615		$	2,218,324		$	2,419,451		$	2,220,570
Interest-earning assets		3,062,921			2,975,376			3,001,174			2,695,175			2,659,584			3,013,382			2,614,140
Total assets		3,349,615			3,186,384			3,209,202			2,901,685			2,861,959			3,249,469			2,816,409
Deposits		2,911,561			2,566,520			2,543,471			2,513,918			2,479,799			2,675,199			2,430,068
Interest-bearing liabilities		2,034,158			2,053,369			2,080,172			1,759,437			1,738,895			2,055,732			1,719,162
Goodwill and other intangibles, net		90,962			58,987			59,285			59,614			59,969			69,861			60,368
Stockholders’ equity		401,130			317,484			322,852			318,837			313,868			347,442			307,517
Financial ratios (2):
Return on average assets		1.25	%		1.47	%		1.27	%		1.53	%		1.57	%		1.33	%		1.62	%
Return on average common equity		10.42	%		14.72	%		12.62	%		13.89	%		14.30	%		12.46	%		14.86	%
Average equity to average assets		11.98	%		9.96	%		10.06	%		10.99	%		10.97	%		10.69	%		10.92	%
Stockholders’ equity to assets		12.07	%		10.61	%		10.88	%		10.98	%		11.08	%		12.07	%		11.08	%
Tangible equity to tangible assets (1)		8.83	%		8.80	%		9.04	%		9.15	%		9.17	%		8.83	%		9.17	%
Loan yield		4.29	%		4.06	%		4.02	%		4.25	%		4.25	%		4.13	%		4.24	%
Earning asset yield		4.03	%		3.53	%		3.32	%		3.74	%		3.76	%		3.63	%		3.80	%
Cost of funds		0.59	%		0.46	%		0.38	%		0.41	%		0.45	%		0.48	%		0.50	%
Net interest margin, taxable equivalent		3.63	%		3.21	%		3.06	%		3.47	%		3.47	%		3.30	%		3.47	%
Net loan charge-offs to average loans		-0.05	%		-0.08	%		-0.04	%		0.02	%		-0.01	%		-0.04	%		0.00	%
Nonperforming loans to total loans		0.17	%		0.22	%		0.24	%		0.37	%		0.53	%		0.17	%		0.53	%
Nonperforming assets to total assets		0.17	%		0.18	%		0.19	%		0.28	%		0.42	%		0.18	%		0.42	%
Allowance for loan losses to loans		0.81	%		0.95	%		0.94	%		0.91	%		0.92	%		0.81	%		0.92	%

(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 financial measures” for a reconciliation of these measures to their most comparable GAAP measures.

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

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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)	9/30/2022			6/30/2022			3/31/2022			12/31/2021			9/30/2021			9/30/2022			9/30/2021
Tangible Assets
Total assets	$	3,640,754		$	2,961,027		$	2,924,936		$	2,937,552		$	2,846,605		$	3,640,754		$	2,846,605
Adjustments:
Goodwill		(111,551)			(55,357)			(55,357)			(55,357)			(55,357)			(111,551)			(55,357)
Core deposit intangible, net of amortization		(17,810)			(3,448)			(3,742)			(4,035)			(4,386)			(17,810)			(4,386)
Tangible assets	$	3,511,393		$	2,902,222		$	2,865,837		$	2,878,160		$	2,786,862		$	3,511,393		$	2,786,862
Tangible Common Equity
Total stockholders’ equity	$	439,415		$	314,162		$	318,303		$	322,653		$	315,262		$	439,415		$	315,262
Adjustments:
Goodwill		(111,551)			(55,357)			(55,357)			(55,357)			(55,357)			(111,551)			(55,357)
Core deposit intangible, net of amortization		(17,810)			(3,448)			(3,742)			(4,035)			(4,386)			(17,810)			(4,386)
Tangible common equity	$	310,054		$	255,357		$	259,204		$	263,261		$	255,519		$	310,054		$	255,519
Book value per common share	$	48.67		$	42.06		$	42.04		$	42.36		$	41.26		$	48.67		$	41.26
Tangible book value per common share		34.34			34.18			34.24			34.56			33.44			34.34			33.44
Total stockholders’ equity to total assets		12.07	%		10.61	%		10.88	%		10.98	%		11.08	%		12.07	%		11.08	%
Tangible common equity to tangible assets		8.83	%		8.80	%		9.04	%		9.15	%		9.17	%		8.83	%		9.17	%

RESULTS OF OPERATIONS

Results of Operations for the Three Months Ended September 30, 2022 and September 30, 2021

General. Net income decreased $0.7 million to $10.5 million for three months ended September 30, 2022, compared to $11.2 million for the same period in 2021. This decrease was primarily due to an increase in noninterest expense from one-time costs related to the acquisition of Denmark in the third quarter of 2022 as well as increased scale of operations from that acquisition impacting approximately half of the quarter. These increased expenses more than offset a rise in net interest income in the year-over-year third quarters.

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

33

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 $4.8 million to $27.7 million for the three months ended September 30, 2022 compared to $22.9 million for three months ended September 30, 2021. The increase in net interest income was primarily due to growth in interest earning assets over the last twelve months as well as increasing net interest margin in the year-over-year third quarters. Total average interest-earning assets was $3.06 billion for the three months ended September 30, 2022, up from $2.66 billion for the same period in 2021. Tax equivalent net interest margin increased 0.16% to 3.63% for the three-months ended September 30, 2022, up from 3.47% for the same period in 2021. 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 $5.8 million, or 23.5%, to $30.7 million for the three months ended September 30, 2022 compared to $24.9 million for the same period in 2021. The increase in total interest income was primarily due to the aforementioned growth in interest earnings assets over the last twelve months along with an increase in the average interest rate earned on these assets. The average balance of interest-earning assets increased by $403.3 million during the three months ended September 30, 2022 compared to the same period in 2021 and the average interest rate earned on these assets increased by 0.27% in the year-over-year third quarters.

Interest Expense. Interest expense increased $1.1 million, or 55.1%, to $3.0 million for the three months ended September 30, 2022 compared to $2.0 million for the same period in 2021. The increase in interest expense was primarily due to elevated interest bearing liabilities and higher crediting interest rates on those liabilities.

Interest expense on interest-bearing deposits increased by $0.8 million to $2.6 million for the three months ended September 30, 2022 from $1.8 million for the same period in 2021. The average balance and average cost of interest-bearing deposits was $2.0 million and 0.52% for the three months ended September 30, 2022, compared to $1.7 million and 0.42% for the same period in 2021.

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.

We did not record a provision for loan loss during the three months ended September 30, 2022 compared to a provision of $0.7 million for the same period in 2021. We recorded net recoveries of $0.3 million for the three months ended September 30, 2022 compared to negligible net recoveries for the same period in 2021. The ALL was $23.0 million, or 0.81% of total loans, at September 30, 2022 compared to $20.2 million, or 0.92% of total loans at September 30, 2021. The decreased ALL coverage was the result of a significant increase in total purchased loans, due to the Denmark acquisition during the third quarter of 2022, which carry a fair value mark in lieu of a portion of the ALL until they are paid off or renewed.

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 unconsolidated subsidiaries, Ansay and UFS. Other sources of noninterest income include loan servicing fees and gains on sales of mortgage loans.

Noninterest income increased $0.1 million to $5.2 million for the three months ended September 30, 2022 compared to $5.0 million for the same period in 2021. This increase was primarily the result of higher loan servicing income, which includes the impact of valuation updates to the Company’s MSRs, offset by a significant reduction in net gains on sales of mortgage loans quarter-over-quarter as the Company, and the banking industry as a whole, saw a slowdown in residential mortgage lending. MSR valuation updates added $0.9 million to servicing income during the third quarter of 2022, compared to no change during the prior year third quarter.

34

The major components of our noninterest income are listed below:

	Three Months Ended September 30,
	2022		2021		$ Change		% Change
	(In thousands)
Noninterest Income
Service charges	$	1,383	$	1,491	$	(108)		(7)	%
Income from Ansay		671		756		(85)		(11)	%
Income from UFS		852		751		101		13	%
Loan servicing income		1,673		599		1,074		179	%
Net gain on sales of mortgage loans		264		1,206		(942)		(78)	%
Other		323		228		95		42	%
Total noninterest income	$	5,166	$	5,031	$	135		3	%

Noninterest Expense. Noninterest expense increased $6.4 million to $18.9 million for the three months ended September 30, 2022 compared to $12.5 million for the same period in 2021. Significant one-time expenses from the Company’s acquisition of Denmark during the third quarter of 2022 caused large increases in salaries, data processing and outside service fees. The added scale resulting from this transaction, which impacted approximately one-half of the third quarter of 2022, further increased salaries, occupancy and data processing. Finally, the acquisition of Denmark resulted in the recording of a core deposit intangible totaling $15.1 million. Amortization of this core deposit intangible began during the third quarter of 2022 and was the cause of the increase in amortization of intangibles in the year-over-year third quarters.

The major components of our noninterest expense are listed below:

	Three Months Ended September 30,
	2022		2021		$ Change		% Change
	(In thousands)
Noninterest Expense
Salaries, commissions, and employee benefits	$	10,812	$	6,996	$	3,816	55	%
Occupancy		1,176		1,070		106	10	%
Data processing		1,577		1,259		318	25	%
Postage, stationary, and supplies		215		204		11	5	%
Net loss on sales of securities		—		3		(3)	NM
Advertising		61		50		11	22	%
Charitable contributions		150		121		29	24	%
Outside service fees		2,538		741		1,797	243	%
Amortization of intangibles		751		351		400	114	%
Other		1,615		1,674		(59)	(4)	%
Total noninterest expenses	$	18,895	$	12,469	$	6,426	52	%

Income Tax Expense. We recorded a provision for income taxes of $3.4 million for the three months ended September 30, 2022 compared to a provision of $3.6 million for the same period during 2021, reflecting effective tax rates of 24.6% and 24.4%, 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.

35

Results of Operations for the Nine months Ended September 30, 2022 and September 30, 2021

General. Net income decreased $1.9 million to $32.4 million for nine months ended September 30, 2022, compared to $34.3 million for the same period in 2021. This decrease was primarily due to a slowdown in residential mortgage production during the first three quarters of 2022 compared to the same period during the prior year and significant one-time expenses related to the Company’s acquisition of Denmark, partially offset by higher net interest income and lower provisions for loan losses during 2022 compared to the prior year period.

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 $6.6 million to $73.5 million for the nine months ended September 30, 2022 compared to $66.9 million for nine months ended September 30, 2021. The increase in net interest income was primarily due to growth in interest earning assets over the last twelvemonths. Total average interest-earning assets was $3.01 billion for the nine months ended September 30, 2022, up from $2.61 billion for the same period in 2021. Tax equivalent net interest margin decreased 0.17% to 3.30% for the nine months ended September 30, 2022, down from 3.47% for the same period in 2021. The decrease in net interest margin was primarily caused by a short-term net interest income enhancement strategy which was in place for much of the first two quarters of 2022. This strategy utilized $300.0 million in short-term borrowings which were invested in short-term, risk-free investments. Investments and borrowings utilized in this strategy had a net interest margin less than 0.20%. While this strategy increased net interest income, it had a detrimental impact on 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 $7.4 million, or 10.1%, to $80.8 million for the nine months ended September 30, 2022 compared to $73.3 million for the same period in 2021. The increase in total interest income was primarily due to growth in interest earnings assets over the last twelve months. The average balance of interest-earning assets increased by $399.2 million during the first nine months of 2022 compared to the same period in 2021.

Interest Expense. Interest expense increased $0.8 million, or 12.7%, to $7.3 million for the nine months ended September 30, 2022 compared to $6.5 million for the same period in 2021. The increase in interest expense was primarily due growth in interest-bearing liabilities over the last twelve months. The average balance of interest-bearing liabilities increased by $336.6 million during the first nine months of 2022 compared to the same period in 2021.

Interest expense on interest-bearing deposits totaled $5.9 million for the nine months ended September 30, 2022 and 2021. The average cost of interest-bearing deposits was 0.43% for the nine months ended September 30, 2022, compared to 0.48% for the same period in 2021.

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.

We recorded a provision for loan losses of $1.7 million for the nine months ended September 30, 2022 compared to $2.5 million for the same period in 2021. We recorded net recoveries of $1.0 million for the nine months ended September 30, 2022 compared to net recoveries of $0.1 million for the same period in 2021. The ALL was $23.0 million, or 0.81% of total loans, at September 30, 2022 compared to $20.2 million, or 0.92% of total loans at September 30, 2021. The decreased ALL coverage was the result of a significant

36

increase in total purchased loans, due to the Denmark acquisition during the third quarter of 2022, which carry a fair value mark in lieu of a portion of the ALL until they are paid off or renewed.

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 unconsolidated subsidiaries, Ansay and UFS. Other sources of noninterest income include loan servicing fees and gains on sales of mortgage loans.

Noninterest income decreased $2.1 million to $16.0 million for the nine months ended September 30, 2022 compared to $18.0 million for the same period in 2021. This decrease was caused by a significant reduction in net gains on sales of mortgage loans as the Company, and the banking industry as a whole, saw an extreme slowdown in residential mortgage lending due in part to a higher interest rate environment during 2022 compared to 2021. This decrease was partially offset by higher loan servicing income, which includes the impact of valuation updates to the Company’s MSRs. These valuation updates added $2.8 million to servicing income during the first three quarters of 2022, compared to $0.6 million during the first three quarters of 2021.

The major components of our noninterest income are listed below:

	Nine Months Ended September 30,
	2022		2021		$ Change		% Change
	(In thousands)
Noninterest Income
Service charges	$	4,246	$	4,554	$	(308)	(7)	%
Income from Ansay		2,316		2,204		112	5	%
Income from UFS		2,120		1,780		340	19	%
Loan servicing income		4,841		2,282		2,559	112	%
Net gain on sales of mortgage loans		1,338		6,204		(4,866)	(78)	%
Net gain on sales and valuations of other real estate owned		146		206		(60)	(29)	%
Other		944		791		153	19	%
Total noninterest income	$	15,951	$	18,021	$	(2,070)	(11)	%

Noninterest Expense. Noninterest expense increased $7.7 million to $44.8 million for the nine months ended September 30, 2022 compared to $37.1 million for the same period in 2021. Significant one-time expenses from the Company’s acquisition of Denmark during the third quarter of 2022 caused large increases in salaries, data processing and outside service fees. The added scale resulting from this transaction, which impacted approximately one-half of the third quarter of 2022, as well as inflationary pressures further increased salaries, occupancy and data processing. Finally, the acquisition of Denmark resulted in the recording of a core deposit intangible totaling $15.1 million. Amortization of this core deposit intangible began during the third quarter of 2022 and was the cause of the increase in amortization of intangibles in the year-over-year periods.

The major components of our noninterest expense are listed below:

	Nine Months Ended September 30,
	2022		2021		$ Change		% Change
	(In thousands)
Noninterest Expense
Salaries, commissions, and employee benefits	$	24,993	$	21,208	$	3,785	18	%
Occupancy		3,505		3,248		257	8	%
Data processing		4,353		4,010		343	9	%
Postage, stationary, and supplies		542		532		10	2	%
Net loss on sales of securities		—		3		(3)	NM
Advertising		205		152		53	35	%
Charitable contributions		553		399		154	39	%
Outside service fees		5,096		2,300		2,796	122	%
Amortization of intangibles		1,338		1,053		285	27	%
Other		4,260		4,216		44	1	%
Total noninterest expenses	$	44,845	$	37,121	$	7,724	21	%

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Income Tax Expense. We recorded a provision for income taxes of $10.5 million for the nine months ended September 30, 2022 compared to a provision of $11.0 million for the same period during 2021, reflecting effective tax rates of 24.5% and 24.2%, 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.

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.

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, 2022						September 30, 2021
			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	$	2,545,855	$	109,147	4.29	%	$	2,132,765	$	90,476	4.24	%
Tax-exempt		94,542		4,227	4.47	%		85,559		3,910	4.57	%
Securities
Taxable (available for sale)		240,261		5,453	2.27	%		88,821		2,933	3.30	%
Tax-exempt (available for sale)		81,355		2,143	2.63	%		70,253		2,187	3.11	%
Taxable (held to maturity)		31,014		853	2.75	%		—		—	—
Tax-exempt (held to maturity)		5,196		134	2.58	%		5,912		150	2.54	%
Cash and due from banks		64,698		1,366	2.11	%		276,274		435	0.16	%
Total interest-earning assets		3,062,921		123,323	4.03	%		2,659,584		100,091	3.76	%
Non interest-earning assets		309,925						222,385
Allowance for loan losses		(23,231)						(20,010)
Total assets	$	3,349,615					$	2,861,959
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing deposits
Checking accounts	$	262,003	$	1,359	0.52	%	$	203,736	$	248	0.12	%
Savings accounts		750,027		3,224	0.43	%		521,635		1,927	0.37	%
Money market accounts		682,260		2,957	0.43	%		683,275		2,111	0.31	%
Certificates of deposit		297,622		2,725	0.92	%		260,581		2,373	0.91	%
Brokered deposits		6,781		199	2.93	%		12,461		359	2.88	%
Total interest-bearing deposits		1,998,693		10,464	0.52	%		1,681,688		7,018	0.42	%
Other borrowed funds		35,465		1,625	4.58	%		57,207		773	1.35	%
Total interest-bearing liabilities		2,034,158		12,089	0.59	%		1,738,895		7,791	0.45	%
Non-interest bearing liabilities
Demand deposits		912,868						798,111
Other liabilities		1,459						11,085
Total liabilities		2,948,485						2,548,091
Shareholders’ equity		401,130						313,868
Total liabilities & shareholders’ equity	$	3,349,615					$	2,861,959
Net interest income on a fully taxable equivalent basis				111,234						92,300
Less taxable equivalent adjustment				(1,366)						(1,312)
Net interest income			$	109,868					$	90,988
Net interest spread (3)					3.43	%					3.32	%
Net interest margin (4)					3.63	%					3.47	%

(1). Annualized on a fully taxable equivalent basis calculated using a federal tax rate of 21% for the three months ended September 30, 2022 and 2021.

38

(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.

	Nine Months Ended
	September 30, 2022						September 30, 2021
			Interest		Rate				Interest		Rate
	Average		Income/		Earned/		Average		Income/		Earned/
	Balance		Expenses (1)		Paid (1)		Balance		Expenses (1)		Paid (1)
	(dollars in thousands)
ASSETS
Interest-earning assets
Loans (2)
Taxable	$	2,323,410	$	95,783	4.12	%	$	2,132,037	$	90,072	4.22	%
Tax-exempt		96,041		4,215	4.39	%		88,533		4,100	4.63	%
Securities
Taxable (available for sale)		223,506		5,180	2.32	%		97,677		2,612	2.67	%
Tax-exempt (available for sale)		81,067		2,126	2.62	%		70,546		2,217	3.14	%
Taxable (held to maturity)		19,685		524	2.66	%		—		—	—
Tax-exempt (held to maturity)		5,464		141	2.58	%		6,161		156	2.53	%
Cash and due from banks		264,209		1,395	0.53	%		219,186		262	0.12	%
Total interest-earning assets		3,013,382		109,364	3.63	%		2,614,140		99,419	3.80	%
Non interest-earning assets		258,122						221,231
Allowance for loan losses		(22,035)						(18,962)
Total assets	$	3,249,469					$	2,816,409
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing deposits
Checking accounts	$	244,615	$	688	0.28	%	$	212,197	$	252	0.12	%
Savings accounts		643,841		2,494	0.39	%		480,285		1,752	0.36	%
Money market accounts		679,091		2,343	0.35	%		656,922		2,183	0.33	%
Certificates of deposit		255,197		2,147	0.84	%		288,805		3,266	1.13	%
Brokered deposits		9,217		269	2.92	%		15,607		444	2.84	%
Total interest-bearing deposits		1,831,961		7,941	0.43	%		1,653,816		7,897	0.48	%
Other borrowed funds		223,771		1,842	0.82	%		65,346		784	1.20	%
Total interest-bearing liabilities		2,055,732		9,783	0.48	%		1,719,162		8,681	0.50	%
Non-interest bearing liabilities
Demand deposits		843,238						776,252
Other liabilities		3,057						13,478
Total liabilities		2,902,027						2,508,892
Shareholders’ equity		347,442						307,517
Total liabilities & shareholders' equity	$	3,249,469					$	2,816,409
Net interest income on a fully taxable equivalent basis				99,581						90,738
Less taxable equivalent adjustment				(1,361)						(1,359)
Net interest income			$	98,220					$	89,379
Net interest spread (3)					3.15	%					3.30	%
Net interest margin (4)					3.30	%					3.47	%

(1). Annualized on a fully taxable equivalent basis calculated using a federal tax rate of 21% for the nine months ended September 30, 2022 and 2021.

(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, 2022						Nine Months Ended September 30, 2022
	Compared with						Compared with
	Three Months Ended September 30, 2021						Nine Months Ended September 30, 2021
	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	$	17,701	$	970	$	18,671	$	7,931	$	(2,220)	$	5,711
Tax-exempt		403		(86)		317		336		(221)		115
Securities
Taxable (AFS)		3,679		(1,159)		2,520		2,958		(390)		2,568
Tax-exempt (AFS)		319		(363)		(44)		305		(396)		(91)
Taxable (HTM)		853		—		853		524		—		524
Tax-exempt (HTM)		(18)		2		(16)		(18)		3		(15)
Cash and due from banks		(573)		1,504		931		64		1,069		1,133
Total interest income		22,364		868		23,232		12,100		(2,155)		9,945
Interest expense
Deposits
Checking accounts	$	90	$	1,021	$	1,111	$	44	$	392	$	436
Savings accounts		944		353		1,297		628		114		742
Money market accounts		(3)		849		846		75		85		160
Certificates of deposit		339		13		352		(350)		(769)		(1,119)
Brokered Deposits		(167)		7		(160)		(186)		11		(175)
Total interest bearing deposits		1,203		2,243		3,446		211		(167)		44
Other borrowed funds		(390)		1,242		852		1,372		(314)		1,058
Total interest expense		813		3,485		4,298		1,583		(481)		1,102
Change in net interest income	$	21,551	$	(2,617)	$	18,934	$	10,517	$	(1,674)	$	8,843

CHANGES IN FINANCIAL CONDITION

Total Assets. Total assets increased $703.2 million, or 23.9%, to $3.64 billion at September 30, 2022, from $2.94 billion at December 31, 2021.

Cash and Cash Equivalents. Cash and cash equivalents decreased by $153.4 million to $143.4 million at September 30, 2022 from $296.9 million at December 31, 2021, the result of significant loan growth during the first two quarters of 2022 as well as investing approximately $100.0 million in one-year treasury notes during the first quarter of 2022.

Investment Securities. The carrying value of total investment securities increased by $125.5 million to $344.1 million at September 30, 2022, from $218.6 million at December 31, 2021.

Loans. Net loans increased by $619.8 million, totaling $2.84 billion at September 30, 2022 compared to $2.22 billion at December 31, 2021.

Bank-Owned Life Insurance. At September 30, 2022, our investment in bank-owned life insurance was $45.8 million, an increase of $13.9 million from $31.9 million at December 31, 2021.

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Deposits. Deposits increased $609.8 million, or 24.1%, to $3.14 billion at September 30, 2022 from $2.53 billion at December 31, 2021.

Borrowings. At September 30, 2022, borrowings consisted of advances from the FHLB of Chicago, as well as subordinated debt to other banks and an individual. FHLB borrowings decreased to $2.6 million at September 30, 2022, from $8.0 million at December 31, 2021. Subordinated debt increased to $23.5 million at September 30, 2022 compared to $17.5 million at December 31, 2021.

Stockholders’ Equity. Total stockholders’ equity increased $116.8 million, or 36.2%, to $439.4 million at September 30, 2022, from $322.7 million at December 31, 2021. The primary driver of this increase was the Denmark acquisition, which added $125.3 million to stockholders’ equity. Strong earnings through the first three quarters of 2022 were offset by valuation adjustments to the Bank’s available for sale investment portfolio, which is accounted for through the comprehensive income component of equity, due to significant movements in the interest rate environment. Further offsetting the strong earnings was $13.8 million in repurchases of its common stock by the Company.

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 78.5% and 76.1% of our total assets as of September 30, 2022 and December 31, 2021, 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 $622.6 million, or 27.8%, to $2.86 billion as of September 30, 2022 as compared to $2.24 billion as of December 31, 2021. This increase during the first nine months of 2022 was primarily driven by the acquisition of Denmark, which included approximately $457.1 million in loan balances, and has been comprised of an increase of $120.5 million or 32.9% in commercial and industrial loans, an increase of $149.0 million or 25.9% in owner occupied commercial real estate loans, an increase of $131.4 million or 24.5% in non-owner occupied commercial real estate, an increase of $76.8 million or 58.0% in construction and development loans, an increase of $135.1 million or 23.6% in residential 1-4 family loans and an increase of $9.7 million or 18.1% in consumer and other loans.

The following table presents the balance and associated percentage of each major category in our loan portfolio at September 30, 2022, December 31, 2021, and September 30, 2021:

	September 30,				December 31,				September 30,
	2022		% of Total		2021		% of Total		2021		% of Total
	(dollars in thousands)
Commercial & industrial	$	486,696	17	%	$	366,166	16	%	$	353,614	16	%
Commercial real estate
Owner occupied		723,524	25	%		574,565	26	%		567,507	26	%
Non-owner occupied		668,337	23	%		536,892	24	%		542,258	25	%
Construction & development		209,270	7	%		132,454	6	%		116,759	5	%
Residential 1-4 family		706,956	25	%		571,845	26	%		572,875	26	%
Consumer		44,113	2	%		32,131	1	%		33,145	1	%
Other loans		19,171	1	%		21,461	1	%		22,757	1	%
Total Loans	$	2,858,067	100	%	$	2,235,514	100	%	$	2,208,915	100	%

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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, 2022 and December 31, 2021, total loans outstanding to such directors and officers and their associates were $72.1 million and $73.5 million, respectively. During the nine months ended September 30, 2022, $36.3 million of additions and $37.7 million of repayments were made to these loans. At September 30, 2022 and December 31, 2021, 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 $486.7 million and $366.2 million at September 30, 2022 and December 31, 2021, respectively, and represented 17% and 16% of our total loans at those dates.

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 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 $1.39 billion and $1.11 billion at September 30, 2022 and December 31, 2021, respectively, and represented 49% and 50% 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 $209.3 million and $132.5 million at September 30, 2022 and December 31, 2021, respectively, and represented 7% and 6% 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 $707.0 million and $571.8 million at September 30, 2022 and December 31, 2021, respectively, and represented 25% 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

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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 $873.4 million at September 30, 2022 and $705.5 million at December 31, 2021.

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 $9.6 million and 5.0 million at September 30, 2022 and December 31, 2021, respectively.

Consumer Loans. Our consumer loan portfolio totaled $44.1 million and $32.1 million at September 30, 2022 and December 31, 2021, respectively, and represented 2% and 1% of our total loans at those dates. Consumer loans include secured and unsecured loans, lines of credit and personal installment loans.

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 $19.2 million at September 30, 2022 and December 31, 2021, respectively, and are immaterial to the overall loan portfolio. The other loans category consists primarily of over-drafted depository accounts, loans utilized to purchase or carry securities and loans to nonprofit organizations.

Loan Portfolio Maturities.

The following tables summarize the dollar amount of loans maturing in our portfolio based on their loan type, fixed or variable rate of interest, and contractual terms to maturity at September 30, 2022. 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

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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		Five to Fifteen		Over Fifteen
	Less		Years		Years		Years		Total
	(dollars in thousands)
Commercial & industrial	$	137,814	$	213,370	$	131,714	$	3,798	$	486,696
Commercial real estate
Owner Occupied		81,392		301,930		298,043		42,159		723,524
Non-owner Occupied		39,301		260,281		350,451		18,304		668,337
Construction & Development		23,993		70,896		70,679		43,702		209,270
Residential 1-4 family		10,773		85,107		225,779		385,297		706,956
Consumer and other		6,442		37,944		15,456		3,442		63,284
Total	$	299,715	$	969,528	$	1,092,122	$	496,702	$	2,858,067
Fixed Rate Loans:
Commercial & industrial	$	22,617	$	168,405	$	94,867	$	3,333	$	289,222
Commercial real estate
Owner Occupied		48,537		281,070		135,473		10,533		475,613
Non-owner Occupied		35,296		250,294		221,166		6,650		513,406
Construction & Development		14,453		44,467		57,597		37,664		154,181
Residential 1-4 family		3,308		75,480		195,009		224,417		498,214
Consumer and other		4,063		37,162		15,120		3,442		59,787
Total	$	128,274	$	856,878	$	719,232	$	286,039	$	1,990,423
Floating Rate Loans:
Commercial & industrial	$	115,197	$	44,965	$	36,847	$	465	$	197,474
Commercial real estate
Owner Occupied		32,855		20,860		162,570		31,626		247,911
Non-owner Occupied		4,005		9,987		129,285		11,654		154,931
Construction & Development		9,540		26,429		13,082		6,038		55,089
Residential 1-4 family		7,465		9,627		30,770		160,880		208,742
Consumer and other		2,379		782		336		—		3,497
Total	$	171,441	$	112,650	$	372,890	$	210,663	$	867,644

NONPERFORMING ASSETS

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.

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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:

	As of September 30,			As of December 31,			As of September 30,
	2022			2021			2021
	(dollars in thousands)
Nonperforming loans
Nonaccrual loans
Commercial & industrial	$	218		$	247		$	285
Commercial real estate
Owner Occupied		3,609			5,884			3,373
Non-owner Occupied		—			650			7,413
Construction & Development		17			19			19
Residential 1-4 family		516			439			456
Consumer and other		10			2			3
Total nonaccrual loans		4,370			7,241			11,549
Loans past due > 90 days, but still accruing
Commercial & industrial		205			738			—
Commercial real estate
Owner Occupied		33			—			—
Non-owner Occupied		—			—			—
Construction & Development		—			—			—
Residential 1-4 family		162			245			310
Consumer and other		3			16			2
Total loans past due > 90 days, but still accruing		403			999			312
Total nonperforming loans	$	4,773		$	8,240		$	11,861
OREO
Commercial real estate owned	$	—		$	—		$	—
Residential real estate owned		—			10			197
Bank property real estate owned		1,405			140			—
Total OREO	$	1,405		$	150		$	197
Total nonperforming assets ("NPAs")	$	6,178		$	8,390		$	12,058
Accruing troubled debt restructured loans	$	450		$	484		$	1,232
Ratios
Nonaccrual loans to total loans		0.15	%		0.32	%		0.52	%
NPAs to total loans plus OREO		0.21	%		0.38	%		0.54	%
NPAs to total assets		0.17	%		0.28	%		0.42	%
ALL to nonaccrual loans		527	%		281	%		175	%
ALL to total loans		0.81	%		0.91	%		0.92	%

At September 30, 2022 and December 31, 2021, impaired loans had specific reserves of $0.9 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.

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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 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, 2022 and December 31, 2021 the Company had specific reserves of $7,000 for TDRs, and none of them have subsequently defaulted.

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,
	2022			2021			2021
	(dollars in thousands)
Balance of ALL at the beginning of period	$	20,315		$	17,658		$	17,658
Net loans charged-off (recovered):
Commercial & industrial		(455)			180			10
Commercial real estate - owner occupied		(74)			275			(54)
Commercial real estate - non-owner occupied		(360)			(5)			(5)
Construction & Development		(152)			(143)			(33)
Residential 1-4 family		33			110			(12)
Consumer		15			6			(1)
Other Loans		(37)			20			16
Total net loans charged-off		(1,030)			443			(79)
Provision charged to operating expense		1,700			3,100			2,500
Balance of ALL at end of period	$	23,045		$	20,315		$	20,237
Ratio of net charge-offs (recoveries) to average loans by loan composition
Commercial & industrial		(0.11)	%		0.05	%		0.00	%
Commercial real estate - owner occupied		(0.01)	%		0.05	%		(0.01)	%
Commercial real estate - non-owner occupied		(0.06)	%		0.00	%		(0.00)	%
Construction & Development		(0.09)	%		(0.11)	%		(0.03)	%
Residential 1-4 family		0.01	%		0.02	%		(0.00)	%
Consumer		0.04	%		0.02	%		(0.00)	%
Other Loans		(0.19)	%		0.07	%		0.05	%
Total net charge-offs to average loans		(0.04)	%		0.02	%		(0.00)	%

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,
	2022				2021				2021
			% of				% of				% of
(in thousands, except %)	Amount		Loans		Amount		Loans		Amount		Loans
Loan Type:
Commercial & industrial	$	4,288	17	%	$	3,699	16	%	$	3,010	16	%
Commercial real estate - owner occupied		5,064	25	%		5,633	26	%		6,967	26	%
Commercial real estate - non-owner occupied		5,876	23	%		5,151	24	%		4,586	25	%
Construction & development		1,643	7	%		984	6	%		866	5	%
Residential 1-4 family		5,724	25	%		4,445	26	%		4,380	26	%
Consumer		299	2	%		224	1	%		232	1	%
Other loans		151	1	%		179	1	%		196	1	%
Total allowance	$	23,045	100	%	$	20,315	100	%	$	20,237	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, 2022, deposit liabilities accounted for approximately 86.2% 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 $3.14 billion and $2.53 billion as of September 30, 2022 and December 31, 2021, respectively. Noninterest-bearing deposits at September 30, 2022 and December 31, 2021, were $971.8 million and $799.9 million, respectively, while interest-bearing deposits were $2.17 billion and $1.73 billion at September 30, 2022 and December 31, 2021, respectively.

At September 30, 2022, we had a total of $356.9 million in certificates of deposit, including $6.7 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, 2022				December 31, 2021				September 30, 2021
	Amount		Percent		Amount		Percent		Amount		Percent
	(dollars in thousands)
Noninterest-bearing demand deposits	$	843,238	31.5	%	$	785,364	32.0	%	$	776,252	32.0	%
Interest-bearing checking deposits		244,615	9.1	%		209,970	8.6	%		212,197	8.7	%
Savings deposits		643,841	24.1	%		497,958	20.3	%		480,285	19.8	%
Money market accounts		679,091	25.4	%		664,591	27.1	%		656,922	27.0	%
Certificates of deposit		255,197	9.6	%		278,602	11.4	%		288,805	11.9	%
Brokered deposits		9,217	0.3	%		14,718	0.6	%		15,607	0.6	%
Total	$	2,675,199	100	%	$	2,451,203	100	%	$	2,430,068	100	%

The following table provides information on maturities of certificates of deposits which exceed FDIC insurance limits of $250,000 as of September 30, 2022:

	Time Deposits over FDIC		Portion of Time Deposits in
	Insurance Limits		Excess of FDIC Insurance Limits
	(dollars in thousands)
3 months or less remaining	$	3,467	$	717
Over 3 to 6 months remaining		10,271		3,271
Over 6 to 12 months remaining		19,763		11,263
Over 12 months or more remaining		25,505		8,755
Total	$	59,006	$	24,006

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.

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

	Nine months ended			Year ended			Nine months ended
(dollars in thousands)	September 30, 2022			December 31, 2021			September 30, 2021
Average daily amount of securities sold under repurchase agreements during the period	$	19,109		$	34,637		$	35,638
Weighted average interest rate on average daily securities sold under repurchase agreements		0.73	%		0.03	%		0.03	%
Maximum outstanding securities sold under repurchase agreements at any month-end	$	38,803		$	57,915		$	57,532
Securities sold under repurchase agreements at period end	$	21,963		$	41,122		$	17,402
Weighted average interest rate on securities sold under repurchase agreements at period end		3.10	%		0.02	%		0.06	%

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 $2.6 million of advances outstanding from the FHLB at September 30, 2022, and $8.0 million as of December 31, 2021.

The total loans pledged as collateral were $588.8 million at September 30, 2022 and $915.5 million at December 31, 2021. There were no outstanding letters of credit from the FHLB at September 30, 2022 and December 31, 2021.

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

	Nine months ended			Year ended			Nine months ended
(dollars in thousands)	September 30, 2022			December 31, 2021			September 30, 2021
Average daily amount of borrowings outstanding during the period	$	185,740		$	11,343		$	12,208
Weighted average interest rate on average daily borrowing		0.43	%		0.33	%		0.36	%
Maximum outstanding borrowings at any month-end	$	308,756		$	15,338		$	15,338
Borrowing outstanding at period end	$	2,550		$	7,958		$	9,108
Weighted average interest rate on borrowing at period end		2.02	%		0.91	%		1.07	%

Lines of credit and other borrowings.

We maintain a $7.5 million line of credit with another commercial bank, which was entered into on May 15, 2022. There were no outstanding balances on this note at September 30, 2022. Any future borrowings will required monthly payments of interest at a variable rate, and will be due in full on May 15, 2024.

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During September 2017, the Company entered into subordinated note agreements with three separate commercial banks. As of September 30, 2021 and December 31, 2020, 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.

During July 2020, the Company entered into subordinated note agreements with two separate commercial banks. As of September 30, 2022 and December 31, 2021, outstanding balances under these agreements totaled $6.0 million. These notes were issued with 10-year maturities, will carry interest at a fixed rate of 5.0% through June 30, 2025, and at a variable rate thereafter, payable quarterly. These notes are callable on or after January 1, 2026 and qualify for Tier 2 capital for regulatory purposes.

During August 2022, the Company entered into subordinated note agreements with an individual. As of September 30, 2022, outstanding balances under these agreements totaled $6.0 million. These notes were issued with 10-year maturities, will carry interest at a fixed rate of 5.25% through August 6, 2027, and at a variable rate thereafter, payable quarterly. These notes are callable on or after August 6, 2027 and qualify for Tier 2 capital for regulatory purposes.

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 U.S. treasury securities, 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 sale totaled $303.3 million and included gross unrealized gains of $0.4 million and gross unrealized losses of $26.1 at September 30, 2022. At December 31, 2021, the fair value of securities available for sale totaled $212.7 million and included gross unrealized gains of $5.6 million and gross unrealized losses of $0.7 million.

Securities classified as held to maturity consist of U.S. treasury securities and obligations of states and political subdivisions. These securities, which management has the intent and ability to hold to maturity, are reported at amortized cost. Securities held to maturity totaled $40.8 million at September 30, 2022 and $5.9 million at December 31, 2021.

The Company had recognized gains or losses on sales of securities of $0 and $3,000 during the nine months ended September 30, 2022 and 2021, respectively.

The following tables set forth the composition and maturities of investment securities as of September 30, 2022 and December 31, 2021. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

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					After 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
At September 30, 2022	Cost		Yield (1)		Cost		Yield (1)		Cost		Yield (1)		Cost		Yield (1)		Cost		Yield (1)
	(dollars in thousands)
Available for sale securities
U.S. Treasury securities	$	99,991	1.2	%	$	9,849	1.2	%	$	39,761	1.5	%	$	—	—	%	$	149,601	1.3	%
Obligations of U.S. Government sponsored agencies		—	—	%		—	—	%		13,110	1.5	%		12,171	1.9	%		25,281	1.7	%
Obligations of states and political subdivisions		2,910	2.8	%		6,822	3.6	%		24,060	3.5	%		57,425	3.0	%		91,217	3.2	%
Mortgage-backed securities		3,461	2.4	%		7,464	2.7	%		15,410	3.2	%		13,504	3.4	%		39,839	3.1	%
Corporate notes		—	—	%		4,981	3.3	%		14,208	3.6	%		2,320	5.1	%		21,509	3.7	%
Certificates of deposit		747	1.0	%		756	1.2	%		—	—	%		—	—	%		1,503	1.1	%
Total available for sale securities	$	107,109	1.3	%	$	29,872	2.5	%	$	106,549	2.5	%	$	85,420	2.9	%	$	328,950	2.2	%
Held to maturity securities
U.S. Treasury securities	$	—	—	%	$	34,747	2.7	%	$	883	3.1	%	$	—	—		$	35,630	2.6	%
Obligations of states and political subdivisions	$	1,044	2.6	%	$	3,281	2.7	%	$	871	3.1	%	$	—	—	%	$	5,196	2.8	%
Total held to maturity securities	$	1,044	2.6	%	$	38,028	2.7	%	$	1,754	3.1	%	$	—	—	%	$	40,826	2.6	%
Total	$	108,153	1.3	%	$	33,153	2.6	%	$	107,420	2.5	%	$	85,420	2.9	%	$	369,776	2.3	%

					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
At December 31, 2021	Cost		Yield (1)		Cost		Yield (1)		Cost		Yield (1)		Cost		Yield (1)		Cost		Yield (1)
	(dollars in thousands)
Available for sale securities
U.S. Treasury securities	$	—	0.0	%	$	—	0.0	%	$	49,574	1.4	%	$	—	0.0	%		49,574	1.4	%
Obligations of U.S. Government sponsored agencies		304	0.2	%		—	0.0	%		12,967	1.4	%		13,451	1.8	%		26,722	1.6	%
Obligations of states and political subdivisions		—	0.0	%		4,367	3.7	%		14,587	3.4	%		64,065	3.1	%		83,019	3.2	%
Mortgage-backed securities		60	2.6	%		10,559	2.5	%		10,508	3.0	%		5,016	2.5	%		26,143	2.7	%
Corporate notes		—	0.0	%		4,972	3.3	%		14,311	3.6	%		1,477	5.1	%		20,760	3.6	%
Certificates of deposit		503	0.9	%		1,026	1.2	%		—	0.0	%		—	0.0	%		1,529	1.1	%
Total available for sale securities	$	867	0.7	%	$	20,924	2.9	%	$	101,947	2.1	%	$	84,009	2.9	%	$	207,747	2.5	%
Held to maturity securities
Obligations of states and political subdivisions	$	715	2.3	%	$	3,492	2.6	%	$	1,704	3.0	%	$	—	0.0	%	$	5,911	2.7	%
Total	$	1,582	1.5	%	$	24,416	2.8	%	$	103,651	2.1	%	$	84,009	2.9	%	$	213,658	2.5	%

(1) Weighted Average Yield is shown on a fully taxable equivalent basis using a federal tax rate of 21% at September 30, 2022 and December 31, 2021, 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, 2022, 270 debt securities had gross unrealized losses, with an aggregate depreciation of 7.8% from our amortized cost basis. The largest unrealized loss percentage of any single security was 22.5% (or $0.6 million) of its amortized cost. The largest unrealized dollar loss of any security was $1.6 million (or 17.1%).

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As of December 31, 2021, 26 debt securities had gross unrealized losses, with an aggregate depreciation of 0.98% from our amortized cost basis. The largest unrealized loss percentage of any single security was 5.31% (or $0.3 million) of its amortized cost. This was also the largest unrealized dollar loss of any single security.

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 $439.4 million at September 30, 2022 compared to $322.7 million at December 31, 2021.

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 regard 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%.

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 September 30, 2022, 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.

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 2022.

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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. Due to the acquisition of Denmark the Company is subject to compliance with risk-based capital rules beginning with the third quarter of 2022, and will remain so as long as it remains above the $3 billion threshold.

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:

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								Minimum Capital Required			Minimum To Be Well-
					Minimum Capital			for Capital Adequacy Plus			Capitalized Under prompt
					Required for Capital			Capital Conservation Buffer			corrective Action
	Actual				Adequacy			Basel III Phase-In Schedule			Provisions
	Amount		Ratio		Amount	Ratio		Amount	Ratio		Amount	Ratio
	(dollars in thousands)
At September 30, 2022
Bank First Corporation:
Total capital (to risk-weighted assets)	$	375,338	12.0	%	252,010	8.0	%	330,763	10.5	%	315,012	10.0	%
Tier I capital (to risk-weighted assets)		328,793	10.5	%	189,007	6.0	%	267,761	8.5	%	252,010	8.0	%
Common equity tier I capital (to risk-weighted assets)		328,793	10.5	%	141,756	4.5	%	220,509	7.0	%	204,758	6.5	%
Tier I capital (to average assets)		328,793	10.2	%	128,705	4.0	%	128,705	4.0	%	160,881	5.0	%
Bank First, N.A:
Total capital (to risk-weighted assets)	$	301,206	11.6	%	250,904	8.0	%	329,312	10.5	%	313,630	10.0	%
Tier I capital (to risk-weighted assets)		278,508	10.8	%	188,178	6.0	%	266,586	8.5	%	250,904	8.0	%
Common equity tier I capital (to risk-weighted assets)		278,508	10.8	%	141,134	4.5	%	219,541	7.0	%	203,860	6.5	%
Tier I capital (to average assets)		278,508	10.6	%	127,821	4.0	%	127,821	4.0	%	159,776	5.0	%
At December 31, 2021
Bank First Corporation:
Total capital (to risk-weighted assets)	$	297,467	12.4	%	N/A	N/A		N/A	N/A		N/A	N/A
Tier I capital (to risk-weighted assets)		259,652	10.9	%	N/A	N/A		N/A	N/A		N/A	N/A
Common equity tier I capital (to risk-weighted assets)		259,652	10.9	%	N/A	N/A		N/A	N/A		N/A	N/A
Tier I capital (to average assets)		259,652	9.3	%	N/A	N/A		N/A	N/A		N/A	N/A
Bank First, N.A:
Total capital (to risk-weighted assets)	$	291,994	12.2	%	191,339	8.0	%	251,133	10.50	%	239,174	10.0	%
Tier I capital (to risk-weighted assets)		271,679	11.4	%	143,505	6.0	%	203,298	8.50	%	191,339	8.0	%
Common equity tier I capital (to risk-weighted assets)		271,679	11.4	%	107,628	4.5	%	167,422	7.00	%	155,463	6.5	%
Tier I capital (to average assets)		271,679	9.7	%	111,825	4.0	%	111,825	4.00	%	139,781	5.0	%

As previously mentioned, the Company carried $23.5 million and $17.5 million of subordinated debt as of September 30, 2022 and December 31, 2021, 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.

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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, 2022
			Less Than One		One to Three		Three to Five
Other Commitments	Total		Year		Years		Years		After Five Years
	(dollars in thousands)
Unused lines of credit	$	646,444	$	304,179	$	88,021	$	59,671	$	194,573
Standby and direct pay letters of credit		11,889		9,550		1,568		589		182
Credit card arrangements		16,787		—		—		—		16,787
Total commitments	$	675,120	$	313,729	$	89,589	$	60,260	$	211,542

	Amounts of Commitments Expiring - By Period as of December 31, 2021
			Less Than		One to		Three to		After Five
Other Commitments	Total		One Year		Three Years		Five Years		Years
	(dollars in thousands)
Unused lines of credit	$	502,131	$	235,004	$	72,240	$	54,594	$	140,293
Standby and direct pay letters of credit		9,062		7,172		1,414		473		3
Credit card arrangements		10,916		—		—		—		10,916
Total commitments	$	522,109	$	242,176	$	73,654	$	55,067	$	151,212

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

56

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.

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, 2022:

Change in Interest Rates	Percentage Change in
(in Basis Points)	Net Interest Income
+400	3.7%
+300	2.8%
+200	2.1%
+100	1.3%
-100	(2.8)%

As of December 31, 2021:

Change in Interest Rates	Percentage Change in
(in Basis Points)	Net Interest Income
+400	9.3%
+300	7.6%
+200	6.2%
+100	3.6%
-100	(4.3)%

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, 2022 estimated that, in the event of an instantaneous 200 basis point increase in interest rates, the Company would experience a 2.91% 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 3.51% decrease 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,

57

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.

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, 2022 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, 2021. There have been no material changes during the quarterly period ended September 30, 2022 to the risk factors previously disclosed in the Company’s Annual Report.

58

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

(a) None.

(b) None.

(c) Issuer Purchases of Equity Securities

On April 19, 2022, the Company reactivated its share repurchase program, pursuant to which the Company may repurchase up to $30 million of its common stock, par value $0.01 per share, for a period of one (1) year, ending on April 18, 2023. The program was announced in a Current Report on Form 8-K on April 19, 2022. The table below sets forth information regarding repurchases of our common stock during the second quarter of 2022 under that program as well as pursuant to the 2020 Equity Plan 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 2022	9,026	$	75.45	9,026.00	285,863.00
August 2022	19,397		79.61	19,397.00	266,466.00
September 2022	—		—	—	266,466.00
Total	28,423	$	78.29	28,423.00	266,466.00

(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, 2022 ($76.48).

ITEM 3.       DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.       MINE SAFETY DISCLOSURES

None.

ITEM 5.       OTHER INFORMATION

None

59

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	Inline XBRL Instance Document
101.SCH	Inline XBRL Taxonomy Extension Schema Document
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104	Cover Page Interactive Data File (the cover page XBRL tags are embedded in the Inline XBRL document)

*Filed herewith.

**Furnished herewith.

60

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 9, 2022	BY:	/s/Kevin M. LeMahieu
			Kevin M. LeMahieu
			Chief Financial Officer
			(Principal Financial and Accounting Officer)

61

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.

9
Date: November 9, 2022	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 9, 2022	By:	/s/Kevin M. LeMahieu
		Kevin M. LeMahieu
		Chief Financial Officer

EX-32.1

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 the Quarterly Report on Form 10-Q for the quarter ended September 30, 2022 (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 9, 2022	By:	/s/Michael B. Molepske
			Michael B. Molepske
			Chief Executive Officer and President
Date:	November 9, 2022	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.)

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2022	Nov. 09, 2022
Document and Entity Information
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Sep. 30, 2022
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
Title of 12(b) Security	Common Stock, par value $0.01 per share
Trading Symbol	BFC
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	true
Entity Ex Transition Period	true
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		9,028,991
Entity Central Index Key	0001746109
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2022
Document Fiscal Period Focus	Q3
Amendment Flag	false

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Assets
Cash and due from banks	$ 45,780	$ 29,171
Interest-bearing deposits	97,661	267,689
Cash and cash equivalents	143,441	296,860
Securities held to maturity, at amortized cost ($39,134 and $5,922 fair value at September 30, 2022 and December 31, 2021, respectively)	40,826	5,911
Securities available for sale, at fair value	303,280	212,689
Loans held for sale	1,253	786
Loans, net	2,835,022	2,215,199
Premises and equipment, net	57,019	49,461
Goodwill	111,551	55,357
Other investments	14,905	9,004
Cash value of life insurance	45,761	31,897
Core deposit intangibles, net	17,810	4,035
Mortgage servicing rights ("MSR")	9,563	5,016
Other real estate owned ("OREO")	1,405	150
Investment in minority-owned subsidiaries	44,146	42,935
Other assets	14,772	8,252
TOTAL ASSETS	3,640,754	2,937,552
Deposits:
Interest-bearing deposits	2,166,398	1,728,504
Noninterest-bearing deposits	971,803	799,936
Total deposits	3,138,201	2,528,440
Securities sold under repurchase agreements	21,963	41,122
Notes payable	2,569	8,011
Subordinated notes	23,500	17,500
Other liabilities	15,106	19,826
Total liabilities	3,201,339	2,614,899
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 - 10,064,858 and 8,478,383 shares as of September 30, 2022 and December 31, 2021, respectively; Outstanding - 9,028,630 and 7,616,540 shares as of September 30, 2022 and December 31, 2021, respectively	101	85
Additional paid-in capital	218,365	93,149
Retained earnings	284,907	258,104
Treasury stock, at cost - 1,036,228 and 861,843 shares as of September 30, 2022 and December 31, 2021, respectively	(45,219)	(32,294)
Accumulated other comprehensive income (loss)	(18,739)	3,609
Total stockholders' equity	439,415	322,653
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 3,640,754	$ 2,937,552

XML

Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Consolidated Balance Sheets
Securities held to maturity, fair value	$ 39,134	$ 5,922
Serial preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Serial preferred stock, shares authorized	5,000,000	5,000,000
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized	20,000,000	20,000,000
Common stock, shares issued	10,064,858	8,478,383
Common stock, shares outstanding	9,028,630	7,616,540
Treasury stock, shares	1,036,228	861,843

XML

Consolidated Statements of Income - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Interest income:
Loans, including fees	$ 28,353	$ 23,584	$ 74,131	$ 69,792
Securities:
Taxable	1,590	739	4,266	1,953
Tax-exempt	453	465	1,339	1,402
Other	344	110	1,044	196
Total interest income	30,740	24,898	80,780	73,343
Interest expense:
Deposits	2,637	1,769	5,939	5,906
Securities sold under repurchase agreements	100	3	104	8
Borrowed funds	310	192	1,274	578
Total interest expense	3,047	1,964	7,317	6,492
Net interest income	27,693	22,934	73,463	66,851
Provision for loan losses		650	1,700	2,500
Net interest income after provision for loan losses	27,693	22,284	71,763	64,351
Noninterest income:
Service charges	1,383	1,491	4,246	4,554
Income from Ansay and Associates, LLC ("Ansay")	671	756	2,316	2,204
Income from UFS, LLC ("UFS")	852	751	2,120	1,780
Loan servicing income	1,673	599	4,841	2,282
Net gain on sales of mortgage loans	264	1,206	1,338	6,204
Net gain on sales and valuations of OREO			146	206
Other	323	228	944	791
Total noninterest income	5,166	5,031	15,951	18,021
Noninterest expense:
Salaries, commissions, and employee benefits	10,812	6,996	24,993	21,208
Occupancy	1,176	1,070	3,505	3,248
Data processing	1,577	1,259	4,353	4,010
Postage, stationery, and supplies	215	204	542	532
Net loss on sale of other investments		3		3
Advertising	61	50	205	152
Charitable contributions	150	121	553	399
Outside service fees	2,538	741	5,096	2,300
Amortization of intangibles	751	351	1,338	1,053
Other	1,615	1,674	4,260	4,216
Total noninterest expense	18,895	12,469	44,845	37,121
Income before provision for income taxes	13,964	14,846	42,869	45,251
Provision for income taxes	3,431	3,628	10,499	10,971
Net Income	$ 10,533	$ 11,218	$ 32,370	$ 34,280
Earnings per share - basic	$ 1.26	$ 1.46	$ 4.15	$ 4.45
Earnings per share - diluted	1.26	1.46	4.15	4.45
Dividends per share	$ 0.25	$ 0.50	$ 0.69	$ 0.92

XML

Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Consolidated Statements of Comprehensive Income
Net Income	$ 10,533	$ 11,218	$ 32,370	$ 34,280
Unrealized gains (losses) on available for sale securities:
Unrealized holding gains (losses) arising during period	(9,188)	(931)	(30,613)	(1,902)
Amortization of unrealized holding gains on securities transferred from available for sale to held to maturity			(1)	(1)
Reclassification adjustment for losses included in net income		3		3
Income tax benefit	2,480	250	8,266	512
Total other comprehensive loss	(6,708)	(678)	(22,348)	(1,388)
Comprehensive income	$ 3,825	$ 10,540	$ 10,022	$ 32,892

XML

Consolidated Statement of Stockholders' Equity - USD ($) $ in Thousands	Common Stock	Additional Paid-in Capital	Retained Earnings	Treasury Stock	Accumulated Other Comprehensive Income (Loss)	Total
Balance at Dec. 31, 2020	$ 85	$ 92,847	$ 221,393	$ (25,227)	$ 5,759	$ 294,857
Net income			11,514			11,514
Other comprehensive income (loss)					(1,236)	(1,236)
Purchase of treasury stock				(402)		(402)
Sale of treasury stock				23		23
Cash dividends			(1,618)			(1,618)
Amortization of stock-based compensation		304				304
Vesting of restricted stock awards		(1,046)		1,046
Balance at Mar. 31, 2021	85	92,105	231,289	(24,560)	4,523	303,442
Balance at Dec. 31, 2020	85	92,847	221,393	(25,227)	5,759	294,857
Net income						34,280
Balance at Sep. 30, 2021	85	92,789	248,619	(30,602)	4,371	315,262
Balance at Mar. 31, 2021	85	92,105	231,289	(24,560)	4,523	303,442
Net income			11,548			11,548
Other comprehensive income (loss)					526	526
Purchase of treasury stock				(2,858)		(2,858)
Sale of treasury stock				21		21
Cash dividends			(1,615)			(1,615)
Amortization of stock-based compensation		366				366
Vesting of restricted stock awards		(45)		45
Balance at Jun. 30, 2021	85	92,426	241,222	(27,352)	5,049	311,430
Net income			11,218			11,218
Other comprehensive income (loss)					(678)	(678)
Purchase of treasury stock				(3,271)		(3,271)
Sale of treasury stock				21		21
Cash dividends			(3,821)			(3,821)
Amortization of stock-based compensation		363				363
Balance at Sep. 30, 2021	85	92,789	248,619	(30,602)	4,371	315,262
Balance at Dec. 31, 2021	85	93,149	258,104	(32,294)	3,609	322,653
Net income			10,183			10,183
Other comprehensive income (loss)					(8,199)	(8,199)
Purchase of treasury stock				(5,018)		(5,018)
Sale of treasury stock				37		37
Cash dividends			(1,673)			(1,673)
Amortization of stock-based compensation		320				320
Vesting of restricted stock awards		(1,303)		1,303
Balance at Mar. 31, 2022	85	92,166	266,614	(35,972)	(4,590)	318,303
Balance at Dec. 31, 2021	85	93,149	258,104	(32,294)	3,609	322,653
Net income						32,370
Shares issued in the acquisition of Denmark Bancshares, Inc.						125,320
Balance at Sep. 30, 2022	101	218,365	284,907	(45,219)	(18,739)	439,415
Balance at Mar. 31, 2022	85	92,166	266,614	(35,972)	(4,590)	318,303
Net income			11,654			11,654
Other comprehensive income (loss)					(7,441)	(7,441)
Purchase of treasury stock				(7,186)		(7,186)
Sale of treasury stock				23		23
Cash dividends			(1,638)			(1,638)
Amortization of stock-based compensation		447				447
Balance at Jun. 30, 2022	85	92,613	276,630	(43,135)	(12,031)	314,162
Net income			10,533			10,533
Other comprehensive income (loss)					(6,708)	(6,708)
Purchase of treasury stock				(2,109)		(2,109)
Sale of treasury stock				25		25
Cash dividends			(2,256)			(2,256)
Amortization of stock-based compensation		448				448
Shares issued in the acquisition of Denmark Bancshares, Inc.	16	125,304				125,320
Balance at Sep. 30, 2022	$ 101	$ 218,365	$ 284,907	$ (45,219)	$ (18,739)	$ 439,415

XML

Consolidated Statements of Stockholders' Equity (Parenthetical) - $ / shares	3 Months Ended
	Sep. 30, 2022	Jun. 30, 2022	Mar. 31, 2022	Sep. 30, 2021	Jun. 30, 2021	Mar. 31, 2021
Cash dividends, per share	$ 0.25	$ 0.22	$ 0.22	$ 0.50	$ 0.21	$ 0.21
Shares issued in the acquisition of Denmark Bancshares, Inc., shares	1,586,475

XML

Consolidated Statements of Cash Flows $ in Thousands	9 Months Ended
	Sep. 30, 2022 USD ($)	Sep. 30, 2021 USD ($)
Cash flows from operating activities:
Net income	$ 32,370	$ 34,280
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	1,700	2,500
Depreciation and amortization of premises and equipment	1,209	1,384
Amortization of intangibles	1,338	1,053
Net amortization of securities	337	586
Amortization of stock-based compensation	1,215	1,033
Accretion of purchase accounting valuations	(962)	(750)
Net change in deferred loan fees and costs	(946)	(99)
Change in fair value of MSR and other investments	(3,010)	728
Gain on sale and disposal of premises and equipment		(43)
Gain on sale of OREO and valuation allowance	(146)	(206)
Proceeds from sales of mortgage loans	74,463	235,023
Originations of mortgage loans held for sale	(73,593)	(232,053)
Gain on sales of mortgage loans	(1,338)	(6,204)
Realized loss on sale of securities	0	3
Undistributed income of UFS joint venture	(2,120)	(1,780)
Undistributed income of Ansay joint venture	(2,316)	(2,204)
Net earnings on life insurance	(636)	(575)
Decrease in other assets	4,206	822
Decrease in other liabilities	(11,776)	(8,835)
Net cash provided by operating activities	19,995	24,663
Activity in securities available for sale and held to maturity:
Sales		9,087
Maturities, prepayments, and calls	11,836	28,307
Purchases	(138,303)	(22,463)
Net increase in loans	(162,677)	(16,833)
Dividends received from UFS	1,861	1,981
Dividends received from Ansay	1,364	1,368
Proceeds from sale of OREO	320	1,892
Proceeds from sales of other investments		264
Net purchases of Federal Home Loan Bank ("FHLB") stock	(1,171)
Net purchases of Federal Reserve Bank ("FRB") stock	(1,500)
Proceeds from sale of premises and equipment		548
Purchases of premises and equipment	(5,324)	(2,896)
Net cash received in business combination	154,364
Net cash provided by (used in) investing activities	(139,230)	1,255
Cash flows from financing activities, net of effects of business combination:
Net increase in deposits	5,020	150,541
Net decrease in securities sold under repurchase agreements	(19,159)	(18,975)
Proceeds from advances of notes payable	3,122,700	5,000
Repayment of notes payable	(3,128,950)	(19,230)
Proceeds from issuance of subordinated notes	6,000
Dividends paid	(5,567)	(7,054)
Proceeds from sales of common stock	85	65
Repurchase of common stock	(14,313)	(6,531)
Net cash provided by (used in) financing activities	(34,184)	103,816
Net increase (decrease) in cash and cash equivalents	(153,419)	129,734
Cash and cash equivalents at beginning of period	296,860	170,219
Cash and cash equivalents at end of period	143,441	299,953
Cash paid during the period for:
Interest	6,985	7,064
Income taxes	9,835	12,260
Supplemental schedule of noncash activities:
MSR resulting from sale of loans	658	1,447
Amortization of unrealized holding gains on securities transferred from available for sale to held to maturity recognized in other comprehensive income, net of tax	(1)	(1)
Change in unrealized gains and losses on investment securities available for sale, net of tax	(22,347)	$ (1,387)
Acquisition:
Fair value of assets acquired	685,840
Fair value of liabilities assumed	612,700
Excess of assets acquired over liabilities assumed	73,140
Value of shares issued in acquisition	$ 125,320

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BASIS OF PRESENTATION

9 Months Ended

Sep. 30, 2022

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-six locations located in Manitowoc, Outagamie, Brown, Winnebago, Sheboygan, Shawano, Waupaca, Ozaukee, Monroe, and Jefferson counties in Wisconsin. 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, 2021 (“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, valuation of mortgage servicing rights, 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 of the valuation of mortgage servicing rights, 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.

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. During the first half of 2019 the Company engaged a third-party partner to assist it in implementation of this standard. Over the last three years significant progress has been made working through the assumptions, drivers, documentation and other mechanics for the calculation of the Company’s ALL under ASU 2016-13. Throughout this process, Management has evaluated the impact of this update. Management has begun running a calculation of its allowance under ASU 2016-13 parallel to its current modeling to assess the functioning of the ASU 2016-13 model while also documenting the controls that will be in place around the process when the Company implements this standard. Results of these parallel calculations indicate that the Bank’s ALL to total loans coverage ratio would fall within a range of 1.00% to 1.20% under ASU 2016-13 in the current environment, compared to 0.81% as of September 30, 2022 under the current methodology.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. It provides optional expedients and exceptions for applying GAAP to contracts hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The updated guidance is effective for all entities from March 12, 2020 through December 31, 2022. The Company has been diligent in responding to reference rate reform and does not anticipate a significant impact to its financial statements as a result.

In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. This ASU provides guidance on eliminating the requirement for classification of and disclosures around troubled debt restructurings. The purpose of this guidance is to eliminate unnecessary and overly-complex disclosures of loans that are already incorporated into the allowance for credit losses and related disclosures. This ASU further requires the disclosure of current-period gross charge-offs by year of origination. The updated guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, for all entities which have implemented ASU 2016-13. The Company has historically had very few credit relationships classified as troubled debt restructurings, and as such does not anticipate that the elimination of accounting for and disclosure of these types of credit relationships will have a significant impact to its financial statements upon implementation of ASU 2016-13 beginning with the first quarter of 2023.

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ACQUISITIONS

9 Months Ended

Sep. 30, 2022

ACQUISITIONS

ACQUISITIONS

NOTE 2 – ACQUISITIONS

On August 12, 2022, the Company completed a merger with Denmark, a bank holding company headquartered in Denmark, Wisconsin, pursuant to the Agreement and Plan of Bank Merger (“Merger Agreement”), dated as of January 18, 2022 by and among the Company and Denmark, whereby Denmark merged with and into the Company, and Denmark State Bank, Denmark’s wholly-owned banking subsidiary, merged with and into the Bank. Denmark’s principal activity was the ownership and operation of Denmark State Bank, a state-chartered banking institution that operated seven (7) branches in Wisconsin at the time of closing. The merger consideration totaled approximately $129.3 million.

Pursuant to the terms of the Merger Agreement, Denmark shareholders could elect to receive either 0.5276 shares of the Company’s common stock or $38.10 in cash for each outstanding share of Denmark common stock, subject to a maximum of 20% cash consideration in total, with cash paid in lieu of any remaining fractional share. Company stock issued totaled 1,586,475 shares valued at approximately $125.3 million, with cash of $4.0 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 Denmark prior to the consummation date were not included in the accompanying consolidated financial statements. The accounting required assets purchased and liabilities assumed to be recorded at their respective fair values at the date of acquisition. The Company determined the fair value of core deposit intangibles, securities, premises and equipment, loans, other assets and liabilities and deposits with the assistance of third party valuations, appraisals and third party advisors. The estimated fair values 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 August 12, 2022 was as follows:

	As Recorded by		Fair Value		As Recorded by
(in thousands)	Denmark		Adjustments		the Company
Cash, cash equivalents and securities	$	188,017	$	(148)	$	187,869
Other investments		3,566		—		3,566
Loans, net		459,413		(2,358)		457,055
Premises and equipment, net		5,980		(1,635)		4,345
Core deposit intangible		—		15,112		15,112
Other assets		17,704		189		17,893
Total assets acquired	$	674,680	$	11,160	$	685,840
Deposits	$	604,636	$	166	$	604,802
Other borrowings		842		—		842
Other liabilities		3,951		3,105		7,056
Total liabilities assumed	$	609,429	$	3,271	$	612,700
Excess of assets acquired over liabilities assumed	$	65,251	$	7,889	$	73,140
Less: purchase price						129,334
Goodwill					$	56,194

The following unaudited pro forma information is presented for illustrative purposes only. The pro forma information should not be relied upon as being indicative of the historical results of operations the companies would have had if the merger had occurred before such periods or the future results of operations that the companies will experience as a result of the merger. The pro forma information, although helpful in illustrating the financial characteristics of the combined company under one set of assumptions, does not reflect the benefits of expected cost savings, opportunities to earn additional revenue, the impact of restructuring and merger-related expenses, or other factors that may result as a consequence of the merger and, accordingly, does not attempt to predict or suggest future results. The unaudited pro forma information set forth below gives effect to the merger as if it had occurred on January 1, 2021, the beginning of the earliest period presented.

	Nine Months Ended		Year Ended
(in thousands, except per share data)	September 30, 2022		December 31, 2021
Total revenue, net of interest expense	$	105,099	$	140,904
Net income	$	34,572	$	49,589
Diluted earnings per common share		3.78		5.35

On July 25, 2022, the Company entered into an Agreement and Plan of Merger with Hometown Bancorp, Ltd. (“Hometown”), a Wisconsin Corporation, under which Hometown will merge with and into the Company and Hometown’s banking subsidiary, Hometown Bank, will merge with and into the Bank. The transaction is expected to close during the first quarter of 2023 and is subject to, among other items, approval by the shareholders of Hometown and regulatory agencies. Merger consideration will consist of up to 30% cash and no less than 70% common stock of the Company, and will total approximately $124 million, subject to the fair market value of the Company’s common stock on the date of closing. Based on results as of September 30, 2022, the combined company would have total assets of approximately $4.26 billion, loans of approximately $3.25 billion and deposits of approximately $3.68 billion.

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

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EARNINGS PER SHARE

9 Months Ended

Sep. 30, 2022

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 nine months ended September 30, 2022 or 2021.

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,
	2022		2021		2022		2021
Basic
Net income available to common shareholders	$	10,533	$	11,218	$	32,370	$	34,280
Less: Earnings allocated to participating securities		(76)		(88)		(247)		(266)
Net income allocated to common shareholders	$	10,457	$	11,130	$	32,123	$	34,014
Weighted average common shares outstanding including participating securities		8,265,186		7,665,272		7,796,259		7,698,284
Less: Participating securities (1)		(59,272)		(59,731)		(59,170)		(59,427)
Average shares		8,205,914		7,605,541		7,737,089		7,638,857
Basic earnings per common shares	$	1.26	$	1.46	$	4.15	$	4.45
Diluted
Net income available to common shareholders	$	10,533	$	11,218	$	32,370	$	34,280
Weighted average common shares outstanding for basic earnings per common share		8,205,914		7,605,541		7,737,089		7,638,857
Add: Dilutive effects of stock based compensation awards		22,283		19,250		20,637		19,971
Average shares and dilutive potential common shares		8,228,197		7,624,791		7,757,726		7,658,828
Diluted earnings per common share	$	1.26	$	1.46	$	4.15	$	4.45

(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, 2022

SECURITIES

SECURITIES

NOTE 4 – SECURITIES

The following is a summary of available for sale securities:

			Gross		Gross
	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
September 30, 2022
U.S. Treasury securities	$	149,601	$	—	$	(8,851)	$	140,750
Obligations of U.S. Government sponsored agencies		25,281		—		(3,411)		21,870
Obligations of states and political subdivisions		91,217		14		(10,096)		81,135
Mortgage-backed securities		39,840		—		(2,370)		37,470
Corporate notes		21,509		392		(1,314)		20,587
Certificates of deposit		1,503		—		(35)		1,468
Total available for sale securities	$	328,951	$	406	$	(26,077)	$	303,280
December 31, 2021
U.S. Treasury securities	$	49,574	$	121	$	(193)	$	49,502
Obligations of U.S. Government sponsored agencies		26,722		165		(341)		26,546
Obligations of states and political subdivisions		83,019		3,786		(67)		86,738
Mortgage-backed securities		26,143		1,117		(1)		27,259
Corporate notes		20,760		436		(94)		21,102
Certificates of deposit		1,529		13		—		1,542
Total available for sale securities	$	207,747	$	5,638	$	(696)	$	212,689

The following is a summary of held to maturity securities:

			Gross		Gross
	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
September 30, 2022
U.S. Treasury securities	$	35,630	$	—	$	(1,687)	$	33,943
Obligations of states and political subdivisions		5,196		—		(5)		5,191
Total held to maturity securities	$	40,826	$	—	$	(1,692)	$	39,134
December 31, 2021
Obligations of states and political subdivisions	$	5,911	$	11	$	—	$	5,922

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, 2022 - Available for Sale
U.S. Treasury securities	$	140,750	$	(8,851)	$	—	$	—	$	140,750	$	(8,851)
Obligations of U.S. Government sponsored agencies		18,326		(2,429)		3,544		(982)		21,870		(3,411)
Obligations of states and political subdivisions		75,119		(10,096)		—		—		75,119		(10,096)
Mortgage-backed securities		37,470		(2,370)		—		—		37,470		(2,370)
Corporate notes		12,895		(1,314)		—		—		12,895		(1,314)
Certificate of Deposits		1,468		(35)		—		—		1,468		(35)
Totals	$	286,028	$	(25,095)	$	3,544	$	(982)	$	289,572	$	(26,077)
September 30, 2022 - Held to Maturity
U.S. Treasury securities	$	33,943	$	(1,687)	$	—	$	—	$	33,943	$	(1,687)
Obligations of states and political subdivisions		415		(5)		—		—		415		(5)
	$	34,358	$	(1,692)	$	—	$	—	$	34,358	$	(1,692)
December 31, 2021 - Available for Sale
U.S. Treasury securities	$	34,746	$	(193)	$	—	$	—	$	34,746	$	(193)
Obligations of U.S. Government sponsored agencies		13,185		(86)		4,558		(255)		17,743		(341)
Obligations of states and political subdivisions		8,624		(67)		—		—		8,624		(67)
Mortgage-backed securities		254		(1)		—		—		254		(1)
Corporate notes		8,973		(94)		—		—		8,973		(94)
Totals	$	65,782	$	(441)	$	4,558	$	(255)	$	70,340	$	(696)

As of September 30, 2022, 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, 2022 or 2021.

The following is a summary of amortized cost and estimated fair value of securities by contractual maturity as of September 30, 2022. 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	$	103,648	$	102,497	$	1,044	$	1,043
Due after one year through 5 years		22,408		21,333		38,028		36,390
Due after 5 years through ten years		91,139		81,108		1,754		1,701
Due after 10 years		71,916		60,872		—		—
Subtotal		289,111		265,810		40,826		39,134
Mortgage-backed securities		39,840		37,470		—		—
Total	$	328,951	$	303,280	$	40,826	$	39,134

There were no realized gains or losses on sales of securities available for sale or held to maturity for the nine months ended September 30, 2022. The following is a summary of the proceeds from sales of securities available for sale and held to maturity, as well as gross losses for the nine months ended September 30, 2021.

	2022		2021
Proceeds from sales of securities	$	—	$	9,087
Gross gains on sales		—		—
Gross losses on sales		—		(3)

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LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY

9 Months Ended

Sep. 30, 2022

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, 2022 and December 31, 2021:

	September 30,		December 31,
	2022		2021
Commercial/industrial	$	486,839	$	367,284
Commercial real estate - owner occupied		723,964		574,960
Commercial real estate - non-owner occupied		668,505		537,077
Construction and development		209,619		132,675
Residential 1‑4 family		706,794		571,749
Consumer		43,953		31,992
Other		19,178		21,489
Subtotals		2,858,852		2,237,226
ALL		(23,045)		(20,315)
Loans, net of ALL		2,835,807		2,216,911
Deferred loan fees and costs		(785)		(1,712)
Loans, net	$	2,835,022	$	2,215,199

A summary of the activity in the ALL by loan type as of September 30, 2022 and 2021 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, 2022	$	3,699	$	5,633	$	5,151	$	984	$	4,445	$	224	$	179	$	20,315
Charge-offs		—		—		—		—		(39)		(17)		(27)		(83)
Recoveries		455		74		360		152		6		2		64		1,113
Provision		134		(643)		365		507		1,312		90		(65)		1,700
ALL - September 30, 2022		4,288		5,064		5,876		1,643		5,724		299		151		23,045
ALL ending balance individually evaluated for impairment		150		—		775		—		—		—		—		925
ALL ending balance collectively evaluated for impairment	$	4,138	$	5,064	$	5,101	$	1,643	$	5,724	$	299	$	151	$	22,120
Loans outstanding - September 30, 2022	$	486,839	$	723,964	$	668,505	$	209,619	$	706,794	$	43,953	$	19,178	$	2,858,852
Loans ending balance individually evaluated for impairment		487		2,541		1,396		—		211		—		—		4,635
Loans ending balance collectively evaluated for impairment	$	486,352	$	721,423	$	667,109	$	209,619	$	706,583	$	43,953	$	19,178	$	2,854,217

			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, 2021	$	2,049	$	6,108	$	3,904	$	1,027	$	3,960	$	201	$	409	$	17,658
Charge-offs		(48)		(289)		—		—		—		—		(21)		(358)
Recoveries		38		343		5		33		12		1		5		437
Provision		971		805		677		(194)		408		30		(197)		2,500
ALL - September 30, 2021		3,010		6,967		4,586		866		4,380		232		196		20,237
ALL ending balance individually evaluated for impairment		93		—		392		—		—		—		—		485
ALL ending balance collectively evaluated for impairment	$	2,917	$	6,967	$	4,194	$	866	$	4,380	$	232	$	196	$	19,752
Loans outstanding - September 30, 2021	$	355,773	$	567,906	$	542,455	$	116,957	$	572,821	$	33,008	$	22,816	$	2,211,736
Loans ending balance individually evaluated for impairment		414		3,467		6,617		—		—		—		—		10,498
Loans ending balance collectively evaluated for impairment	$	355,359	$	564,439	$	535,838	$	116,957	$	572,821	$	33,008	$	22,816	$	2,201,238

The Company’s past due loans as of September 30, 2022 is summarized as follows:

			90 Days
	30-89 Days		or more
	Past Due		Past Due
	Accruing		and Accruing		Non-Accrual		Total
Commercial/industrial	$	19	$	205	$	218	$	442
Commercial real estate - owner occupied		—		33		3,609		3,642
Commercial real estate - non-owner occupied		—		—		—		—
Construction and development		—		—		17		17
Residential 1‑4 family		232		162		516		910
Consumer		19		3		10		32
Other		—		—		—		—
	$	270	$	403	$	4,370	$	5,043

The Company’s past due loans as of December 31, 2021 is summarized as follows:

			90 Days
	30-89 Days		or more
	Past Due		Past Due
	Accruing		and Accruing		Non-Accrual		Total
Commercial/industrial	$	12	$	738	$	247	$	997
Commercial real estate - owner occupied		—		—		5,884		5,884
Commercial real estate - non-owner occupied		65		—		650		715
Construction and development		—		—		19		19
Residential 1‑4 family		2,002		245		439		2,686
Consumer		2		16		2		20
Other		—		—		—		—
	$	2,081	$	999	$	7,241	$	10,321

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, 2022 is as follows:

	Pass (1-5)		6		7		8		Total
Commercial/industrial	$	466,355	$	304	$	20,180	$	—	$	486,839
Commercial real estate - owner occupied		678,288		333		45,343		—		723,964
Commercial real estate - non-owner occupied		664,162		—		4,343		—		668,505
Construction and development		208,463		—		1,156		—		209,619
Residential 1‑4 family		703,391		—		3,403		—		706,794
Consumer		43,951		—		2		—		43,953
Other		19,178		—		—		—		19,178
	$	2,783,788	$	637	$	74,427	$	—	$	2,858,852

The breakdown of loans by risk rating as of December 31, 2021 is as follows:

	Pass (1-5)		6		7		8		Total
Commercial/industrial	$	355,469	$	—	$	11,815	$	—	$	367,284
Commercial real estate - owner occupied		551,801		—		23,159		—		574,960
Commercial real estate - non-owner occupied		532,077		—		5,000		—		537,077
Construction and development		131,429		—		1,246		—		132,675
Residential 1‑4 family		570,022		83		1,644		—		571,749
Consumer		31,988		—		4		—		31,992
Other		21,489		—		—		—		21,489
	$	2,194,275	$	83	$	42,868	$	—	$	2,237,226

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, 2022 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	$	202	$	—	$	1,285	$	—	$	—	$	—	$	—	$	1,487
Unpaid principal balance		202		—		1,285		—		—		—		—		1,487
Related allowance		150		—		775		—		—		—		—		925
With no related allowance recorded:
Recorded investment	$	285	$	2,541	$	111	$	—	$	211	$	—	$	—	$	3,148
Unpaid principal balance		285		2,541		111		—		211		—		—		3,148
Related allowance		—		—		—		—		—		—		—		—
Total:
Recorded investment	$	487	$	2,541	$	1,396	$	—	$	211	$	—	$	—	$	4,635
Unpaid principal balance		487		2,541		1,396		—		211		—		—		4,635
Related allowance		150		—		775		—		—		—		—		925
Average recorded investment	$	463	$	3,753	$	1,457	$	—	$	242	$	—	$	—	$	5,915

A summary of impaired loans individually evaluated as of December 31, 2021 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	$	357	$	—	$	1,406	$	—	$	—	$	—	$	—	$	1,763
Unpaid principal balance		357		—		1,406		—		—		—		—		1,763
Related allowance		70		—		894		—		—		—		—		964
With no related allowance recorded:
Recorded investment	$	82	$	4,966	$	113	$	—	$	273	$	—	$	—	$	5,434
Unpaid principal balance		82		4,966		113		—		273		—		—		5,434
Related allowance		—		—		—		—		—		—		—		—
Total:
Recorded investment	$	439	$	4,966	$	1,519	$	—	$	273	$	—	$	—	$	7,197
Unpaid principal balance		439		4,966		1,519		—		273		—		—		7,197
Related allowance		70		—		894		—		—		—		—		964
Average recorded investment	$	459	$	3,069	$	5,098	$	—	$	267	$	—	$	—	$	8,893

Interest recognized while these loans were impaired is considered immaterial to the consolidated financial statements for the nine months ended September 30, 2022 and 2021.

The following table presents loans acquired with deteriorated credit quality as of September 30, 2022 and December 31, 2021. 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, 2022				December 31, 2021
			Unpaid				Unpaid
	Recorded		Principal		Recorded		Principal
	Investment		Balance		Investment		Balance
Commercial & Industrial	$	730	$	1,180	$	596	$	685
Commercial real estate - owner occupied		2,566		2,873		2,664		3,146
Commercial real estate - non-owner occupied		—		—		1,018		1,150
Construction and development		—		—		—		—
Residential 1‑4 family		827		1,060		863		1,124
Consumer		—		—		—		—
Other		—		—		—		—
	$	4,123	$	5,113	$	5,141	$	6,105

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, 2022, and year ended December 31, 2021:

	September 30, 2022				December 31, 2021
	Accretable		Non-accretable		Accretable		Non-accretable
	discount		discount		discount		discount
Balance at beginning of period	$	813	$	149	$	1,250	$	176
Acquired balance, net		292		211		—		—
Reclassifications between accretable and non-accretable		61		(61)		27		(27)
Accretion to loan interest income		(476)		—		(464)		—
Balance at end of period	$	690	$	299	$	813	$	149

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, 2022 and December 31, 2021 the Company had negligible specific reserves for TDRs.

As a result of the COVID-19 pandemic, the Bank experienced an increase in customer requests for loan modifications and payment deferrals. 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 Bank had no new TDRs during the nine months ended September 30, 2022 or 2021.

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MORTGAGE SERVICING RIGHTS

9 Months Ended

Sep. 30, 2022

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, 2022		December 31, 2021
Fair value at beginning of period	$	5,016	$	3,726
Servicing asset additions		658		1,862
Loan payments and payoffs		(660)		(1,319)
Changes in valuation inputs and assumptions used in the valuation model		2,848		747
Amount recognized through earnings		2,846		1,290
MSR asset acquired		1,701		—
Fair value at end of period	$	9,563	$	5,016
Unpaid principal balance of loans serviced for others	$	873,383	$	705,462
Mortgage servicing rights as a percent of loans serviced for others		1.09		0.71

The primary economic assumptions utilized by the Company in measuring the value of MSRs were constant prepayment speeds of 8.1 and 13.8 months and discount rates of 10.2% and 10.3% as of September 30, 2022 and December 31, 2021.

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NOTES PAYABLE

9 Months Ended

Sep. 30, 2022

NOTES PAYABLE

NOTES PAYABLE

NOTE 7 – NOTES PAYABLE

From time to time the Company utilizes FHLB advances to fund liquidity. At September 30, 2022 and December, 31, 2021, the Company had outstanding balances borrowed from the FHLB of $2.6 million and $8.0 million, respectively. The advances, rate, and maturities of FHLB advances were as follows:

				September 30,		December 31,
	Maturity	Rate		2022		2021
Fixed rate, fixed term	01/24/2022	2.51	%	$	—	$	250
Fixed rate, fixed term	05/02/2022	2.98	%		—		500
Fixed rate, fixed term	05/16/2022	0.00	%		—		5,000
Fixed rate, fixed term	06/08/2022	2.92	%		—		500
Fixed rate, fixed term	11/21/2022	3.02	%		600		600
Fixed rate, fixed term	06/01/2023	1.79	%		842		—
Fixed rate, fixed term	11/21/2023	3.06	%		600		600
Fixed rate, fixed term	04/22/2030	0.00	%		508		508
					2,550		7,958
Adjustment due to purchase accounting					19		53
				$	2,569	$	8,011

Future maturities of borrowings were as follows:

	September 30,		December 31,
	2022		2021
1 year or less	$	1,442	$	6,850
1 to 2 years		600		600
2 to 3 years		—		—
3 to 4 years		—		—
4 to 5 years		—		—
Over 5 years		508		508
	$	2,550	$	7,958

The Company maintains a $7.5 million line of credit with a commercial bank, which was entered into on May 15, 2022. There were no outstanding balances on this note at September 30, 2022 or December 31, 2021. Any future borrowings will require monthly payments of interest at a variable rate, and will be due in full on May 15, 2024.

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SUBORDINATED NOTES

9 Months Ended

Sep. 30, 2022

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, 2022 and December 31, 2021. These notes were all issued with 10-year maturities, carry interest at a variable rate payable quarterly, are callable on or after the sixth anniversary of the issuance dates, and qualify for Tier 2 capital for regulatory purposes.

During July 2020, the Company entered into subordinated note agreements with two separate commercial banks. The Company had outstanding balances of $6.0 million under these agreements as of September 30, 2022 and December 31, 2021. 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.

During August 2022, the Company entered into subordinated note agreements with an individual. The Company had outstanding balances of $6.0 million under these agreements as of September 30, 2022. These notes were issued with 10-year maturities, carry interest at a fixed rate of 5.25% through August 6, 2027, and at a variable rate thereafter, payable quarterly. These notes are callable on or after August 6, 2027 and qualify for Tier 2 capital for regulatory purposes.

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REGULATORY MATTERS

9 Months Ended

Sep. 30, 2022

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. Due to the acquisition of Denmark the Company is subject to compliance with risk-based capital rules beginning with the third quarter of 2022, and will remain so as long as it remains above the $3 billion threshold.

Under regulatory guidance for non-advanced approaches institutions, the Bank is required to maintain minimum amounts and ratios of common equity Tier I capital to risk-weighted assets, including an additional conservation buffer determined by banking regulators. As of September 30, 2022 and December 31, 2021, this buffer was 2.5%. As of September 30, 2022 and December 31, 2021, the Bank met all capital adequacy requirements to which they are subject.

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

													To Be Well
									Minimum Capital				Capitalized Under
					For Capital				Adequacy with				Prompt Corrective
	Actual				Adequacy Purposes				Capital Buffer				Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
September 30, 2022
Total capital (to risk-weighted assets):
Company	$	375,338	11.92	%	$	252,010	8.00	%	$	330,763	10.50	%	$	315,012	10.00	%
Bank	$	362,876	11.52	%	$	251,900	8.00	%	$	330,619	10.50	%	$	314,876	10.00	%
Tier 1 capital (to risk-weighted assets):
Company	$	328,793	10.44	%	$	189,007	6.00	%	$	267,761	8.50	%	$	252,010	8.00	%
Bank	$	339,831	10.79	%	$	188,925	6.00	%	$	267,644	8.50	%	$	251,900	8.00	%
Common Equity Tier 1 capital (to risk-weighted assets):
Company	$	328,793	10.44	%	$	141,756	4.50	%	$	220,509	7.00	%	$	204,758	6.50	%
Bank	$	339,831	10.79	%	$	141,694	4.50	%	$	220,413	7.00	%	$	204,669	6.50	%
Tier 1 capital (to average assets):
Company	$	328,793	10.22	%	$	128,705	4.00	%	$	128,705	4.00	%	$	160,881	5.00	%
Bank	$	339,831	10.63	%	$	127,821	4.00	%	$	127,821	4.00	%	$	159,776	5.00	%
December 31, 2021
Total capital (to risk-weighted assets):
Company	$	297,467	12.44	%		NA	NA			NA	NA			NA	NA
Bank	$	291,994	12.21	%	$	191,339	8.00	%	$	251,133	10.50	%	$	239,174	10.00	%
Tier 1 capital (to risk-weighted assets):
Company	$	259,652	10.86	%		NA	NA			NA	NA			NA	NA
Bank	$	271,679	11.36	%	$	143,505	6.00	%	$	203,298	8.50	%	$	191,339	8.00	%
Common Equity Tier 1 capital (to risk-weighted assets):
Company	$	259,652	10.86	%		NA	NA			NA	NA			NA	NA
Bank	$	271,679	11.36	%	$	107,628	4.50	%	$	167,422	7.00	%	$	155,463	6.50	%
Tier 1 capital (to average assets):
Company	$	259,652	9.29	%		NA	NA			NA	NA			NA	NA
Bank	$	271,679	9.72	%	$	111,825	4.00	%	$	111,825	4.00	%	$	139,781	5.00	%

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COMMITMENTS AND CONTINGENCIES

9 Months Ended

Sep. 30, 2022

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, 2022 and December 31, 2021 was approximately $7.1 million and $21.9 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, 2022		December 31, 2021
Commitments to extend credit:
Fixed	$	147,480	$	90,036
Variable		522,367		412,095
Credit card arrangements		16,787		10,916
Letters of credit		11,889		9,062

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FAIR VALUE MEASUREMENTS

9 Months Ended

Sep. 30, 2022

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, 2022
Assets
Securities available for sale
U.S. Treasury securities	$	140,750	$	—	$	140,750	$	—
Obligations of U.S. Government sponsored agencies		21,870		—		21,870		—
Obligations of states and political subdivisions		81,135		—		81,135		—
Mortgage-backed securities		37,470		—		37,470		—
Corporate notes		20,587		—		20,587		—
Certificates of deposit		1,468		—		1,468		—
Mortgage servicing rights		9,563		—		9,563		—
December 31, 2021
Assets
Securities available for sale
U.S. Treasury securities	$	49,502	$	—	$	49,502	$	—
Obligations of U.S. Government sponsored agencies		26,546		—		26,546		—
Obligations of states and political subdivisions		86,738		—		86,738		—
Mortgage-backed securities		27,259		—		27,259		—
Corporate notes		21,102		—		21,102		—
Certificates of deposit		1,542		—		1,542		—
Mortgage servicing rights		5,016		—		5,016		—

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

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, 2022
OREO	$	1,405	$	—	$	—	$	1,405
Impaired Loans, net of impairment reserve		3,710		—		—		3,710
	$	5,115	$	—	$	—	$	5,115
December 31, 2021
OREO	$	150	$	—	$	—	$	150
Impaired Loans, net of impairment reserve		6,233		—		—		6,233
	$	6,383	$	—	$	—	$	6,383

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, 2022
Other real estate owned	Third party appraisals, sales contracts or brokered price options	Collateral discounts and estimated costs to sell	0	%	0	%
Impaired loans	Third party appraisals and discounted cash flows	Collateral discounts and discount rates	0% - 74	%	20.0	%
As of December 31, 2021
Other real estate owned	Third party appraisals, sales contracts or brokered price options	Collateral discounts and estimated costs to sell	18% - 97	%	18.0	%
Impaired loans	Third party appraisals and discounted cash flows	Collateral discounts and discount rates	0% - 100	%	7.4	%

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, 2022 and December 31, 2021 follows:

	Carrying
September 30, 2022	amount		Level 1		Level 2		Level 3		Total
Financial assets:
Cash and cash equivalents	$	143,441	$	143,441	$	—	$	—	$	143,441
Securities held to maturity		40,826		—		39,134		—		39,134
Securities available for sale		303,280		—		303,280		—		303,280
Loans held for sale		1,253		—		—		1,253		1,253
Loans, net		2,835,022		—		—		2,801,373		2,801,373
Other investments, at cost		14,905		—		—		14,905		14,905
Mortgage servicing rights		9,563		—		9,563		—		9,563
Cash surrender value of life insurance		45,761		45,761		—		—		45,761
Financial liabilities:
Deposits	$	3,138,201	$	—	$	—	$	2,801,549	$	2,801,549
Securities sold under repurchase agreements		21,963		—		21,963		—		21,963
Notes payable		2,569		—		2,569		—		2,569
Subordinated notes		23,500		—		23,500		—		23,500

	Carrying
December 31, 2021	amount		Level 1		Level 2		Level 3		Total
Financial assets:
Cash and cash equivalents	$	296,860	$	296,860	$	—	$	—	$	296,860
Securities held to maturity		5,911		—		5,922		—		5,922
Securities available for sale		212,689		—		212,689		—		212,689
Loans held for sale		786		—		—		786		786
Loans, net		2,215,199		—		—		2,210,593		2,210,593
Other investments, at cost		9,004		—		—		9,004		9,004
Mortgage servicing rights		5,016		—		5,016		—		5,016
Cash surrender value of life insurance		31,897		31,897		—		—		31,897
Financial liabilities:
Deposits	$	2,528,440	$	—	$	—	$	2,457,287	$	2,457,287
Securities sold under repurchase agreements		41,122		—		41,122		—		41,122
Notes payable		8,011		—		8,011		—		8,011
Subordinated notes		17,500		—		17,500		—		17,500

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, 2022

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 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, 2022, 50,867 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, 2022 and 2021, compensation expense of $1.2 million and $1.0 million, respectively, was recognized related to restricted stock awards.

As of September 30, 2022, there was $2.6 million of unrecognized compensation cost related to non-vested restricted stock awards granted under the plan. That cost is expected to be recognized over a weighted average period of 1.74 years. The aggregate grant date fair value of restricted stock awards that vested during the nine months ended September 30, 2022, was approximately $1.3 million.

	For the year ended			For the year ended
	September 30, 2022			September 30, 2021
		Weighted-			Weighted-
		Average Grant-			Average Grant-
	Shares	Date Fair Value		Shares	Date Fair Value
Restricted Stock
Outstanding at beginning of year	58,611	$	61.44	57,175	$	53.08
Granted	25,451		69.73	25,416		70.67
Vested	(20,785)		60.52	(21,755)		50.15
Forfeited or cancelled	(4,005)		60.50	(1,105)		62.23
Outstanding at end of year	59,272	$	65.85	59,731	$	61.46

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LEASES

9 Months Ended

Sep. 30, 2022

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, 2022			September 30, 2021
Amortization of ROU Assets - Operating Leases	$	(1)		$	10
Interest on Lease Liabilities - Operating Leases		74			65
Operating Lease Cost (Cost resulting from lease payments)		73			75
Weighted Average Lease Term (Years) - Operating Leases		24.68			32.25
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, 2022 is as follows:

	September 30, 2022
Operating lease payments due:
Within one year	$	201
After one but within two years		201
After two but within three years		200
After three but within four years		207
After four years but within five years		161
After five years		3,206
Total undiscounted cash flows		4,176
Discount on cash flows		(2,092)
Total operating lease liabilities	$	2,084

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BASIS OF PRESENTATION (Policies)

9 Months Ended

Sep. 30, 2022

BASIS OF PRESENTATION

Critical Accounting Policies and Estimates

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, valuation of mortgage servicing rights, 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 of the valuation of mortgage servicing rights, 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.

Recently Issued Not Yet Effective Accounting Standards

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. During the first half of 2019 the Company engaged a third-party partner to assist it in implementation of this standard. Over the last three years significant progress has been made working through the assumptions, drivers, documentation and other mechanics for the calculation of the Company’s ALL under ASU 2016-13. Throughout this process, Management has evaluated the impact of this update. Management has begun running a calculation of its allowance under ASU 2016-13 parallel to its current modeling to assess the functioning of the ASU 2016-13 model while also documenting the controls that will be in place around the process when the Company implements this standard. Results of these parallel calculations indicate that the Bank’s ALL to total loans coverage ratio would fall within a range of 1.00% to 1.20% under ASU 2016-13 in the current environment, compared to 0.81% as of September 30, 2022 under the current methodology.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. It provides optional expedients and exceptions for applying GAAP to contracts hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The updated guidance is effective for all entities from March 12, 2020 through December 31, 2022. The Company has been diligent in responding to reference rate reform and does not anticipate a significant impact to its financial statements as a result.

In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. This ASU provides guidance on eliminating the requirement for classification of and disclosures around troubled debt restructurings. The purpose of this guidance is to eliminate unnecessary and overly-complex disclosures of loans that are already incorporated into the allowance for credit losses and related disclosures. This ASU further requires the disclosure of current-period gross charge-offs by year of origination. The updated guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, for all entities which have implemented ASU 2016-13. The Company has historically had very few credit relationships classified as troubled debt restructurings, and as such does not anticipate that the elimination of accounting for and disclosure of these types of credit relationships will have a significant impact to its financial statements upon implementation of ASU 2016-13 beginning with the first quarter of 2023.

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ACQUISITIONS (Tables) - Denmark Bancshares, Inc.

9 Months Ended

Sep. 30, 2022

Schedule of fair value of the assets acquired and liabilities assumed

The fair value of the assets acquired and liabilities assumed on August 12, 2022 was as follows:

	As Recorded by		Fair Value		As Recorded by
(in thousands)	Denmark		Adjustments		the Company
Cash, cash equivalents and securities	$	188,017	$	(148)	$	187,869
Other investments		3,566		—		3,566
Loans, net		459,413		(2,358)		457,055
Premises and equipment, net		5,980		(1,635)		4,345
Core deposit intangible		—		15,112		15,112
Other assets		17,704		189		17,893
Total assets acquired	$	674,680	$	11,160	$	685,840
Deposits	$	604,636	$	166	$	604,802
Other borrowings		842		—		842
Other liabilities		3,951		3,105		7,056
Total liabilities assumed	$	609,429	$	3,271	$	612,700
Excess of assets acquired over liabilities assumed	$	65,251	$	7,889	$	73,140
Less: purchase price						129,334
Goodwill					$	56,194

Schedule of unaudited pro forma information

The unaudited pro forma information set forth below gives effect to the merger as if it had occurred on January 1, 2021, the beginning of the earliest period presented.

	Nine Months Ended		Year Ended
(in thousands, except per share data)	September 30, 2022		December 31, 2021
Total revenue, net of interest expense	$	105,099	$	140,904
Net income	$	34,572	$	49,589
Diluted earnings per common share		3.78		5.35

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EARNINGS PER SHARE (Tables)

9 Months Ended

Sep. 30, 2022

EARNINGS PER SHARE

Schedule of Earnings Per Share

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Basic
Net income available to common shareholders	$	10,533	$	11,218	$	32,370	$	34,280
Less: Earnings allocated to participating securities		(76)		(88)		(247)		(266)
Net income allocated to common shareholders	$	10,457	$	11,130	$	32,123	$	34,014
Weighted average common shares outstanding including participating securities		8,265,186		7,665,272		7,796,259		7,698,284
Less: Participating securities (1)		(59,272)		(59,731)		(59,170)		(59,427)
Average shares		8,205,914		7,605,541		7,737,089		7,638,857
Basic earnings per common shares	$	1.26	$	1.46	$	4.15	$	4.45
Diluted
Net income available to common shareholders	$	10,533	$	11,218	$	32,370	$	34,280
Weighted average common shares outstanding for basic earnings per common share		8,205,914		7,605,541		7,737,089		7,638,857
Add: Dilutive effects of stock based compensation awards		22,283		19,250		20,637		19,971
Average shares and dilutive potential common shares		8,228,197		7,624,791		7,757,726		7,658,828
Diluted earnings per common share	$	1.26	$	1.46	$	4.15	$	4.45

(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, 2022

SECURITIES

Schedule of securities available for sale

The following is a summary of available for sale securities:

			Gross		Gross
	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
September 30, 2022
U.S. Treasury securities	$	149,601	$	—	$	(8,851)	$	140,750
Obligations of U.S. Government sponsored agencies		25,281		—		(3,411)		21,870
Obligations of states and political subdivisions		91,217		14		(10,096)		81,135
Mortgage-backed securities		39,840		—		(2,370)		37,470
Corporate notes		21,509		392		(1,314)		20,587
Certificates of deposit		1,503		—		(35)		1,468
Total available for sale securities	$	328,951	$	406	$	(26,077)	$	303,280
December 31, 2021
U.S. Treasury securities	$	49,574	$	121	$	(193)	$	49,502
Obligations of U.S. Government sponsored agencies		26,722		165		(341)		26,546
Obligations of states and political subdivisions		83,019		3,786		(67)		86,738
Mortgage-backed securities		26,143		1,117		(1)		27,259
Corporate notes		20,760		436		(94)		21,102
Certificates of deposit		1,529		13		—		1,542
Total available for sale securities	$	207,747	$	5,638	$	(696)	$	212,689

Schedule of securities held to maturity

The following is a summary of held to maturity securities:

			Gross		Gross
	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
September 30, 2022
U.S. Treasury securities	$	35,630	$	—	$	(1,687)	$	33,943
Obligations of states and political subdivisions		5,196		—		(5)		5,191
Total held to maturity securities	$	40,826	$	—	$	(1,692)	$	39,134
December 31, 2021
Obligations of states and political subdivisions	$	5,911	$	11	$	—	$	5,922

Schedule of fair value and gross unrealized losses 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, 2022 - Available for Sale
U.S. Treasury securities	$	140,750	$	(8,851)	$	—	$	—	$	140,750	$	(8,851)
Obligations of U.S. Government sponsored agencies		18,326		(2,429)		3,544		(982)		21,870		(3,411)
Obligations of states and political subdivisions		75,119		(10,096)		—		—		75,119		(10,096)
Mortgage-backed securities		37,470		(2,370)		—		—		37,470		(2,370)
Corporate notes		12,895		(1,314)		—		—		12,895		(1,314)
Certificate of Deposits		1,468		(35)		—		—		1,468		(35)
Totals	$	286,028	$	(25,095)	$	3,544	$	(982)	$	289,572	$	(26,077)
September 30, 2022 - Held to Maturity
U.S. Treasury securities	$	33,943	$	(1,687)	$	—	$	—	$	33,943	$	(1,687)
Obligations of states and political subdivisions		415		(5)		—		—		415		(5)
	$	34,358	$	(1,692)	$	—	$	—	$	34,358	$	(1,692)
December 31, 2021 - Available for Sale
U.S. Treasury securities	$	34,746	$	(193)	$	—	$	—	$	34,746	$	(193)
Obligations of U.S. Government sponsored agencies		13,185		(86)		4,558		(255)		17,743		(341)
Obligations of states and political subdivisions		8,624		(67)		—		—		8,624		(67)
Mortgage-backed securities		254		(1)		—		—		254		(1)
Corporate notes		8,973		(94)		—		—		8,973		(94)
Totals	$	65,782	$	(441)	$	4,558	$	(255)	$	70,340	$	(696)

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, 2022. 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	$	103,648	$	102,497	$	1,044	$	1,043
Due after one year through 5 years		22,408		21,333		38,028		36,390
Due after 5 years through ten years		91,139		81,108		1,754		1,701
Due after 10 years		71,916		60,872		—		—
Subtotal		289,111		265,810		40,826		39,134
Mortgage-backed securities		39,840		37,470		—		—
Total	$	328,951	$	303,280	$	40,826	$	39,134

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

There were no realized gains or losses on sales of securities available for sale or held to maturity for the nine months ended September 30, 2022. The following is a summary of the proceeds from sales of securities available for sale and held to maturity, as well as gross losses for the nine months ended September 30, 2021.

	2022		2021
Proceeds from sales of securities	$	—	$	9,087
Gross gains on sales		—		—
Gross losses on sales		—		(3)

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

9 Months Ended

Sep. 30, 2022

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, 2022 and December 31, 2021:

	September 30,		December 31,
	2022		2021
Commercial/industrial	$	486,839	$	367,284
Commercial real estate - owner occupied		723,964		574,960
Commercial real estate - non-owner occupied		668,505		537,077
Construction and development		209,619		132,675
Residential 1‑4 family		706,794		571,749
Consumer		43,953		31,992
Other		19,178		21,489
Subtotals		2,858,852		2,237,226
ALL		(23,045)		(20,315)
Loans, net of ALL		2,835,807		2,216,911
Deferred loan fees and costs		(785)		(1,712)
Loans, net	$	2,835,022	$	2,215,199

Summary of the activity in the ALL by loan type

A summary of the activity in the ALL by loan type as of September 30, 2022 and 2021 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, 2022	$	3,699	$	5,633	$	5,151	$	984	$	4,445	$	224	$	179	$	20,315
Charge-offs		—		—		—		—		(39)		(17)		(27)		(83)
Recoveries		455		74		360		152		6		2		64		1,113
Provision		134		(643)		365		507		1,312		90		(65)		1,700
ALL - September 30, 2022		4,288		5,064		5,876		1,643		5,724		299		151		23,045
ALL ending balance individually evaluated for impairment		150		—		775		—		—		—		—		925
ALL ending balance collectively evaluated for impairment	$	4,138	$	5,064	$	5,101	$	1,643	$	5,724	$	299	$	151	$	22,120
Loans outstanding - September 30, 2022	$	486,839	$	723,964	$	668,505	$	209,619	$	706,794	$	43,953	$	19,178	$	2,858,852
Loans ending balance individually evaluated for impairment		487		2,541		1,396		—		211		—		—		4,635
Loans ending balance collectively evaluated for impairment	$	486,352	$	721,423	$	667,109	$	209,619	$	706,583	$	43,953	$	19,178	$	2,854,217

			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, 2021	$	2,049	$	6,108	$	3,904	$	1,027	$	3,960	$	201	$	409	$	17,658
Charge-offs		(48)		(289)		—		—		—		—		(21)		(358)
Recoveries		38		343		5		33		12		1		5		437
Provision		971		805		677		(194)		408		30		(197)		2,500
ALL - September 30, 2021		3,010		6,967		4,586		866		4,380		232		196		20,237
ALL ending balance individually evaluated for impairment		93		—		392		—		—		—		—		485
ALL ending balance collectively evaluated for impairment	$	2,917	$	6,967	$	4,194	$	866	$	4,380	$	232	$	196	$	19,752
Loans outstanding - September 30, 2021	$	355,773	$	567,906	$	542,455	$	116,957	$	572,821	$	33,008	$	22,816	$	2,211,736
Loans ending balance individually evaluated for impairment		414		3,467		6,617		—		—		—		—		10,498
Loans ending balance collectively evaluated for impairment	$	355,359	$	564,439	$	535,838	$	116,957	$	572,821	$	33,008	$	22,816	$	2,201,238

Schedule of past due loans

The Company’s past due loans as of September 30, 2022 is summarized as follows:

			90 Days
	30-89 Days		or more
	Past Due		Past Due
	Accruing		and Accruing		Non-Accrual		Total
Commercial/industrial	$	19	$	205	$	218	$	442
Commercial real estate - owner occupied		—		33		3,609		3,642
Commercial real estate - non-owner occupied		—		—		—		—
Construction and development		—		—		17		17
Residential 1‑4 family		232		162		516		910
Consumer		19		3		10		32
Other		—		—		—		—
	$	270	$	403	$	4,370	$	5,043

The Company’s past due loans as of December 31, 2021 is summarized as follows:

			90 Days
	30-89 Days		or more
	Past Due		Past Due
	Accruing		and Accruing		Non-Accrual		Total
Commercial/industrial	$	12	$	738	$	247	$	997
Commercial real estate - owner occupied		—		—		5,884		5,884
Commercial real estate - non-owner occupied		65		—		650		715
Construction and development		—		—		19		19
Residential 1‑4 family		2,002		245		439		2,686
Consumer		2		16		2		20
Other		—		—		—		—
	$	2,081	$	999	$	7,241	$	10,321

Schedule of loans by risk rating

The breakdown of loans by risk rating as of September 30, 2022 is as follows:

	Pass (1-5)		6		7		8		Total
Commercial/industrial	$	466,355	$	304	$	20,180	$	—	$	486,839
Commercial real estate - owner occupied		678,288		333		45,343		—		723,964
Commercial real estate - non-owner occupied		664,162		—		4,343		—		668,505
Construction and development		208,463		—		1,156		—		209,619
Residential 1‑4 family		703,391		—		3,403		—		706,794
Consumer		43,951		—		2		—		43,953
Other		19,178		—		—		—		19,178
	$	2,783,788	$	637	$	74,427	$	—	$	2,858,852

The breakdown of loans by risk rating as of December 31, 2021 is as follows:

	Pass (1-5)		6		7		8		Total
Commercial/industrial	$	355,469	$	—	$	11,815	$	—	$	367,284
Commercial real estate - owner occupied		551,801		—		23,159		—		574,960
Commercial real estate - non-owner occupied		532,077		—		5,000		—		537,077
Construction and development		131,429		—		1,246		—		132,675
Residential 1‑4 family		570,022		83		1,644		—		571,749
Consumer		31,988		—		4		—		31,992
Other		21,489		—		—		—		21,489
	$	2,194,275	$	83	$	42,868	$	—	$	2,237,226

Schedule of impaired loans individually evaluated

A summary of impaired loans individually evaluated as of September 30, 2022 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	$	202	$	—	$	1,285	$	—	$	—	$	—	$	—	$	1,487
Unpaid principal balance		202		—		1,285		—		—		—		—		1,487
Related allowance		150		—		775		—		—		—		—		925
With no related allowance recorded:
Recorded investment	$	285	$	2,541	$	111	$	—	$	211	$	—	$	—	$	3,148
Unpaid principal balance		285		2,541		111		—		211		—		—		3,148
Related allowance		—		—		—		—		—		—		—		—
Total:
Recorded investment	$	487	$	2,541	$	1,396	$	—	$	211	$	—	$	—	$	4,635
Unpaid principal balance		487		2,541		1,396		—		211		—		—		4,635
Related allowance		150		—		775		—		—		—		—		925
Average recorded investment	$	463	$	3,753	$	1,457	$	—	$	242	$	—	$	—	$	5,915

A summary of impaired loans individually evaluated as of December 31, 2021 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	$	357	$	—	$	1,406	$	—	$	—	$	—	$	—	$	1,763
Unpaid principal balance		357		—		1,406		—		—		—		—		1,763
Related allowance		70		—		894		—		—		—		—		964
With no related allowance recorded:
Recorded investment	$	82	$	4,966	$	113	$	—	$	273	$	—	$	—	$	5,434
Unpaid principal balance		82		4,966		113		—		273		—		—		5,434
Related allowance		—		—		—		—		—		—		—		—
Total:
Recorded investment	$	439	$	4,966	$	1,519	$	—	$	273	$	—	$	—	$	7,197
Unpaid principal balance		439		4,966		1,519		—		273		—		—		7,197
Related allowance		70		—		894		—		—		—		—		964
Average recorded investment	$	459	$	3,069	$	5,098	$	—	$	267	$	—	$	—	$	8,893

Schedule of loans acquired with deteriorated credit quality

The following table presents loans acquired with deteriorated credit quality as of September 30, 2022 and December 31, 2021. 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, 2022				December 31, 2021
			Unpaid				Unpaid
	Recorded		Principal		Recorded		Principal
	Investment		Balance		Investment		Balance
Commercial & Industrial	$	730	$	1,180	$	596	$	685
Commercial real estate - owner occupied		2,566		2,873		2,664		3,146
Commercial real estate - non-owner occupied		—		—		1,018		1,150
Construction and development		—		—		—		—
Residential 1‑4 family		827		1,060		863		1,124
Consumer		—		—		—		—
Other		—		—		—		—
	$	4,123	$	5,113	$	5,141	$	6,105

Schedule of change in the accretable and non-accretable components of discounts on loans acquired with deteriorated credit quality

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, 2022, and year ended December 31, 2021:

	September 30, 2022				December 31, 2021
	Accretable		Non-accretable		Accretable		Non-accretable
	discount		discount		discount		discount
Balance at beginning of period	$	813	$	149	$	1,250	$	176
Acquired balance, net		292		211		—		—
Reclassifications between accretable and non-accretable		61		(61)		27		(27)
Accretion to loan interest income		(476)		—		(464)		—
Balance at end of period	$	690	$	299	$	813	$	149

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MORTGAGE SERVICING RIGHTS (Tables)

9 Months Ended

Sep. 30, 2022

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, 2022		December 31, 2021
Fair value at beginning of period	$	5,016	$	3,726
Servicing asset additions		658		1,862
Loan payments and payoffs		(660)		(1,319)
Changes in valuation inputs and assumptions used in the valuation model		2,848		747
Amount recognized through earnings		2,846		1,290
MSR asset acquired		1,701		—
Fair value at end of period	$	9,563	$	5,016
Unpaid principal balance of loans serviced for others	$	873,383	$	705,462
Mortgage servicing rights as a percent of loans serviced for others		1.09		0.71

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NOTES PAYABLE (Tables)

9 Months Ended

Sep. 30, 2022

NOTES PAYABLE

Schedule of advances, rate, and maturities of FHLB advances

				September 30,		December 31,
	Maturity	Rate		2022		2021
Fixed rate, fixed term	01/24/2022	2.51	%	$	—	$	250
Fixed rate, fixed term	05/02/2022	2.98	%		—		500
Fixed rate, fixed term	05/16/2022	0.00	%		—		5,000
Fixed rate, fixed term	06/08/2022	2.92	%		—		500
Fixed rate, fixed term	11/21/2022	3.02	%		600		600
Fixed rate, fixed term	06/01/2023	1.79	%		842		—
Fixed rate, fixed term	11/21/2023	3.06	%		600		600
Fixed rate, fixed term	04/22/2030	0.00	%		508		508
					2,550		7,958
Adjustment due to purchase accounting					19		53
				$	2,569	$	8,011

Schedule of future maturities of borrowings

	September 30,		December 31,
	2022		2021
1 year or less	$	1,442	$	6,850
1 to 2 years		600		600
2 to 3 years		—		—
3 to 4 years		—		—
4 to 5 years		—		—
Over 5 years		508		508
	$	2,550	$	7,958

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REGULATORY MATTERS (Tables)

9 Months Ended

Sep. 30, 2022

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
									Minimum Capital				Capitalized Under
					For Capital				Adequacy with				Prompt Corrective
	Actual				Adequacy Purposes				Capital Buffer				Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
September 30, 2022
Total capital (to risk-weighted assets):
Company	$	375,338	11.92	%	$	252,010	8.00	%	$	330,763	10.50	%	$	315,012	10.00	%
Bank	$	362,876	11.52	%	$	251,900	8.00	%	$	330,619	10.50	%	$	314,876	10.00	%
Tier 1 capital (to risk-weighted assets):
Company	$	328,793	10.44	%	$	189,007	6.00	%	$	267,761	8.50	%	$	252,010	8.00	%
Bank	$	339,831	10.79	%	$	188,925	6.00	%	$	267,644	8.50	%	$	251,900	8.00	%
Common Equity Tier 1 capital (to risk-weighted assets):
Company	$	328,793	10.44	%	$	141,756	4.50	%	$	220,509	7.00	%	$	204,758	6.50	%
Bank	$	339,831	10.79	%	$	141,694	4.50	%	$	220,413	7.00	%	$	204,669	6.50	%
Tier 1 capital (to average assets):
Company	$	328,793	10.22	%	$	128,705	4.00	%	$	128,705	4.00	%	$	160,881	5.00	%
Bank	$	339,831	10.63	%	$	127,821	4.00	%	$	127,821	4.00	%	$	159,776	5.00	%
December 31, 2021
Total capital (to risk-weighted assets):
Company	$	297,467	12.44	%		NA	NA			NA	NA			NA	NA
Bank	$	291,994	12.21	%	$	191,339	8.00	%	$	251,133	10.50	%	$	239,174	10.00	%
Tier 1 capital (to risk-weighted assets):
Company	$	259,652	10.86	%		NA	NA			NA	NA			NA	NA
Bank	$	271,679	11.36	%	$	143,505	6.00	%	$	203,298	8.50	%	$	191,339	8.00	%
Common Equity Tier 1 capital (to risk-weighted assets):
Company	$	259,652	10.86	%		NA	NA			NA	NA			NA	NA
Bank	$	271,679	11.36	%	$	107,628	4.50	%	$	167,422	7.00	%	$	155,463	6.50	%
Tier 1 capital (to average assets):
Company	$	259,652	9.29	%		NA	NA			NA	NA			NA	NA
Bank	$	271,679	9.72	%	$	111,825	4.00	%	$	111,825	4.00	%	$	139,781	5.00	%

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COMMITMENTS AND CONTINGENCIES (Tables)

9 Months Ended

Sep. 30, 2022

COMMITMENTS AND CONTINGENCIES

Schedule of Commitments and contingencies outstanding

The following commitments were outstanding:

	Notional Amount
	September 30, 2022		December 31, 2021
Commitments to extend credit:
Fixed	$	147,480	$	90,036
Variable		522,367		412,095
Credit card arrangements		16,787		10,916
Letters of credit		11,889		9,062

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FAIR VALUE MEASUREMENTS (Tables)

9 Months Ended

Sep. 30, 2022

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, 2022
Assets
Securities available for sale
U.S. Treasury securities	$	140,750	$	—	$	140,750	$	—
Obligations of U.S. Government sponsored agencies		21,870		—		21,870		—
Obligations of states and political subdivisions		81,135		—		81,135		—
Mortgage-backed securities		37,470		—		37,470		—
Corporate notes		20,587		—		20,587		—
Certificates of deposit		1,468		—		1,468		—
Mortgage servicing rights		9,563		—		9,563		—
December 31, 2021
Assets
Securities available for sale
U.S. Treasury securities	$	49,502	$	—	$	49,502	$	—
Obligations of U.S. Government sponsored agencies		26,546		—		26,546		—
Obligations of states and political subdivisions		86,738		—		86,738		—
Mortgage-backed securities		27,259		—		27,259		—
Corporate notes		21,102		—		21,102		—
Certificates of deposit		1,542		—		1,542		—
Mortgage servicing rights		5,016		—		5,016		—

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, 2022
OREO	$	1,405	$	—	$	—	$	1,405
Impaired Loans, net of impairment reserve		3,710		—		—		3,710
	$	5,115	$	—	$	—	$	5,115
December 31, 2021
OREO	$	150	$	—	$	—	$	150
Impaired Loans, net of impairment reserve		6,233		—		—		6,233
	$	6,383	$	—	$	—	$	6,383

Schedule of fair value measurement on inputs and valuation techniques

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, 2022
Other real estate owned	Third party appraisals, sales contracts or brokered price options	Collateral discounts and estimated costs to sell	0	%	0	%
Impaired loans	Third party appraisals and discounted cash flows	Collateral discounts and discount rates	0% - 74	%	20.0	%
As of December 31, 2021
Other real estate owned	Third party appraisals, sales contracts or brokered price options	Collateral discounts and estimated costs to sell	18% - 97	%	18.0	%
Impaired loans	Third party appraisals and discounted cash flows	Collateral discounts and discount rates	0% - 100	%	7.4	%

Schedule of carrying value and estimated fair value of financial instruments

The carrying value and estimated fair value of financial instruments at September 30, 2022 and December 31, 2021 follows:

	Carrying
September 30, 2022	amount		Level 1		Level 2		Level 3		Total
Financial assets:
Cash and cash equivalents	$	143,441	$	143,441	$	—	$	—	$	143,441
Securities held to maturity		40,826		—		39,134		—		39,134
Securities available for sale		303,280		—		303,280		—		303,280
Loans held for sale		1,253		—		—		1,253		1,253
Loans, net		2,835,022		—		—		2,801,373		2,801,373
Other investments, at cost		14,905		—		—		14,905		14,905
Mortgage servicing rights		9,563		—		9,563		—		9,563
Cash surrender value of life insurance		45,761		45,761		—		—		45,761
Financial liabilities:
Deposits	$	3,138,201	$	—	$	—	$	2,801,549	$	2,801,549
Securities sold under repurchase agreements		21,963		—		21,963		—		21,963
Notes payable		2,569		—		2,569		—		2,569
Subordinated notes		23,500		—		23,500		—		23,500

	Carrying
December 31, 2021	amount		Level 1		Level 2		Level 3		Total
Financial assets:
Cash and cash equivalents	$	296,860	$	296,860	$	—	$	—	$	296,860
Securities held to maturity		5,911		—		5,922		—		5,922
Securities available for sale		212,689		—		212,689		—		212,689
Loans held for sale		786		—		—		786		786
Loans, net		2,215,199		—		—		2,210,593		2,210,593
Other investments, at cost		9,004		—		—		9,004		9,004
Mortgage servicing rights		5,016		—		5,016		—		5,016
Cash surrender value of life insurance		31,897		31,897		—		—		31,897
Financial liabilities:
Deposits	$	2,528,440	$	—	$	—	$	2,457,287	$	2,457,287
Securities sold under repurchase agreements		41,122		—		41,122		—		41,122
Notes payable		8,011		—		8,011		—		8,011
Subordinated notes		17,500		—		17,500		—		17,500

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STOCK BASED COMPENSATION (Tables)

9 Months Ended

Sep. 30, 2022

STOCK BASED COMPENSATION

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

	For the year ended			For the year ended
	September 30, 2022			September 30, 2021
		Weighted-			Weighted-
		Average Grant-			Average Grant-
	Shares	Date Fair Value		Shares	Date Fair Value
Restricted Stock
Outstanding at beginning of year	58,611	$	61.44	57,175	$	53.08
Granted	25,451		69.73	25,416		70.67
Vested	(20,785)		60.52	(21,755)		50.15
Forfeited or cancelled	(4,005)		60.50	(1,105)		62.23
Outstanding at end of year	59,272	$	65.85	59,731	$	61.46

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LEASES (Tables)

9 Months Ended

Sep. 30, 2022

LEASES

Schedule of lease cost and other information related to leases

	Nine-month period ended
	September 30, 2022			September 30, 2021
Amortization of ROU Assets - Operating Leases	$	(1)		$	10
Interest on Lease Liabilities - Operating Leases		74			65
Operating Lease Cost (Cost resulting from lease payments)		73			75
Weighted Average Lease Term (Years) - Operating Leases		24.68			32.25
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, 2022 is as follows:

	September 30, 2022
Operating lease payments due:
Within one year	$	201
After one but within two years		201
After two but within three years		200
After three but within four years		207
After four years but within five years		161
After five years		3,206
Total undiscounted cash flows		4,176
Discount on cash flows		(2,092)
Total operating lease liabilities	$	2,084

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BASIS OF PRESENTATION (Details)	Sep. 30, 2022 item
BASIS OF PRESENTATION
Number of Bank locations	26
ALL to total loans coverage ratio as modeled under current methodology	0.81%
ASU 2016-13 | Minimum | Pro Forma
BASIS OF PRESENTATION
ALL to total loans coverage ratio as modeled under new ASU	1.00%
ASU 2016-13 | Maximum | Pro Forma
BASIS OF PRESENTATION
ALL to total loans coverage ratio as modeled under new ASU	1.20%

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ACQUISITIONS - Denmark (Details) $ / shares in Units, $ in Thousands		3 Months Ended	9 Months Ended
	Aug. 12, 2022 USD ($) item $ / shares shares	Sep. 30, 2022 USD ($) shares	Sep. 30, 2022 USD ($)
ACQUISITIONS
Shares issued in the acquisition of Denmark Bancshares, Inc., shares | shares		1,586,475
Value of shares issued in acquisition		$ 125,320	$ 125,320
Cash received in business acquisition			$ 154,364
Denmark Bancshares, Inc.
ACQUISITIONS
Number of branches operated | item	7
Total amount of merger consideration	$ 129,334
Number of Company shares which may be received for each share of Denmark common stock | shares	0.5276
Acquisition price, cash per share | $ / shares	$ 38.10
Percentage of total consideration consisting of cash	20.00%
Shares issued in the acquisition of Denmark Bancshares, Inc., shares | shares	1,586,475
Value of shares issued in acquisition	$ 125,300
Cash received in business acquisition	$ 4,000

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ACQUISITIONS - Denmark - Fair value of assets acquired and liabilities assumed (Details) - USD ($) $ in Thousands	Aug. 12, 2022	Sep. 30, 2022	Dec. 31, 2021
ACQUISITIONS
Total assets acquired		$ 685,840
Total liabilities assumed		612,700
Excess of assets acquired over liabilities assumed		73,140
Goodwill		$ 111,551	$ 55,357
Denmark Bancshares, Inc.
ACQUISITIONS
Cash, cash equivalents and securities	$ 187,869
Other investments	3,566
Loans, net	457,055
Premises and equipment, net	4,345
Core deposit intangible	15,112
Other assets	17,893
Total assets acquired	685,840
Deposits	604,802
Other borrowings	842
Other liabilities	7,056
Total liabilities assumed	612,700
Excess of assets acquired over liabilities assumed	73,140
Less: purchase price	129,334
Goodwill	56,194
Denmark Bancshares, Inc. | Adjustments
ACQUISITIONS
Cash, cash equivalents and securities	(148)
Loans, net	(2,358)
Premises and equipment, net	(1,635)
Core deposit intangible	15,112
Other assets	189
Total assets acquired	11,160
Deposits	166
Other liabilities	3,105
Total liabilities assumed	3,271
Excess of assets acquired over liabilities assumed	7,889
Denmark Bancshares, Inc. | Previously Reported
ACQUISITIONS
Cash, cash equivalents and securities	188,017
Other investments	3,566
Loans, net	459,413
Premises and equipment, net	5,980
Other assets	17,704
Total assets acquired	674,680
Deposits	604,636
Other borrowings	842
Other liabilities	3,951
Total liabilities assumed	609,429
Excess of assets acquired over liabilities assumed	$ 65,251

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ACQUISITIONS - Denmark - Pro Forma (Details) - Denmark Bancshares, Inc. - USD ($) $ / shares in Units, $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2022	Dec. 31, 2021
ACQUISITIONS
Total revenue, net of interest expense	$ 105,099	$ 140,904
Net income	$ 34,572	$ 49,589
Diluted earnings per common share	$ 3.78	$ 5.35

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ACQUISITIONS - Hometown (Details) - USD ($) $ in Thousands		9 Months Ended
	Jul. 25, 2022	Sep. 30, 2022
ACQUISITIONS
Cash received in business acquisition		$ 154,364
Hometown Bancorp, Ltd.
ACQUISITIONS
Percentage of total consideration consisting of cash	30.00%
Percentage of total consideration consisting of common stock of the Company	70.00%
Consideration amount under terms of merger agreement	$ 124,000
Total assets of combined company	4,260,000
Total loans of combined company	3,250,000
Total deposits of combined company	$ 3,680,000

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EARNINGS PER SHARE (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended						9 Months Ended
	Sep. 30, 2022	Jun. 30, 2022	Mar. 31, 2022	Sep. 30, 2021	Jun. 30, 2021	Mar. 31, 2021	Sep. 30, 2022	Sep. 30, 2021
EARNINGS PER SHARE
Antidilutive Securities excluded from computation of earnings per share, amount							0	0
Basic
Net income available to common shareholders	$ 10,533	$ 11,654	$ 10,183	$ 11,218	$ 11,548	$ 11,514	$ 32,370	$ 34,280
Less: Earnings allocated to participating securities	(76)			(88)			(247)	(266)
Net income available to common shareholders	$ 10,457			$ 11,130			$ 32,123	$ 34,014
Weighted average common shares outstanding including participating securities	8,265,186			7,665,272			7,796,259	7,698,284
Less: Participating securities	(59,272)			(59,731)			(59,170)	(59,427)
Average shares	8,205,914			7,605,541			7,737,089	7,638,857
Basic earnings per common shares	$ 1.26			$ 1.46			$ 4.15	$ 4.45
Diluted
Net income available to common shareholders	$ 10,533	$ 11,654	$ 10,183	$ 11,218	$ 11,548	$ 11,514	$ 32,370	$ 34,280
Weighted average common shares outstanding for basic earnings per common share	8,205,914			7,605,541			7,737,089	7,638,857
Add: Dilutive effects of stock based compensation awards	22,283			19,250			20,637	19,971
Average shares and dilutive potential common shares	8,228,197			7,624,791			7,757,726	7,658,828
Diluted earnings per common share	$ 1.26			$ 1.46			$ 4.15	$ 4.45

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SECURITIES - Available for sale securities (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
SECURITIES
Amortized Cost	$ 328,951	$ 207,747
Gross Unrealized Gains	406	5,638
Gross Unrealized Losses	(26,077)	(696)
Estimated Fair Value	303,280	212,689
U.S. Treasury securities
SECURITIES
Amortized Cost	149,601	49,574
Gross Unrealized Gains		121
Gross Unrealized Losses	(8,851)	(193)
Estimated Fair Value	140,750	49,502
Obligations of U.S. Government sponsored agencies
SECURITIES
Amortized Cost	25,281	26,722
Gross Unrealized Gains		165
Gross Unrealized Losses	(3,411)	(341)
Estimated Fair Value	21,870	26,546
Obligations of states and political subdivisions
SECURITIES
Amortized Cost	91,217	83,019
Gross Unrealized Gains	14	3,786
Gross Unrealized Losses	(10,096)	(67)
Estimated Fair Value	81,135	86,738
Mortgage-backed securities
SECURITIES
Amortized Cost	39,840	26,143
Gross Unrealized Gains		1,117
Gross Unrealized Losses	(2,370)	(1)
Estimated Fair Value	37,470	27,259
Corporate notes
SECURITIES
Amortized Cost	21,509	20,760
Gross Unrealized Gains	392	436
Gross Unrealized Losses	(1,314)	(94)
Estimated Fair Value	20,587	21,102
Certificates of deposit
SECURITIES
Amortized Cost	1,503	1,529
Gross Unrealized Gains		13
Gross Unrealized Losses	(35)
Estimated Fair Value	$ 1,468	$ 1,542

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SECURITIES - Held to maturity securities (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
SECURITIES
Amortized Cost	$ 40,826	$ 5,911
Gross Unrealized Losses	(1,692)
Estimated Fair Value	39,134	5,922
U.S. Treasury securities
SECURITIES
Amortized Cost	35,630
Gross Unrealized Losses	(1,687)
Estimated Fair Value	33,943
Obligations of states and political subdivisions
SECURITIES
Amortized Cost	5,196	5,911
Gross Unrealized Gains		11
Gross Unrealized Losses	(5)
Estimated Fair Value	$ 5,191	$ 5,922

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SECURITIES - Fair value and gross unrealized losses of securities with unrealized losses (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Available for Sale
Less Than 12 Months, Fair Value	$ 286,028	$ 65,782
Less Than 12 Months, Unrealized Losses	(25,095)	(441)
Greater Than 12 Months, Fair Value	3,544	4,558
Greater Than 12 Months, Unrealized Losses	(982)	(255)
Total, Fair Value	289,572	70,340
Total, Unrealized Losses	(26,077)	(696)
Held to Maturity
Less Than 12 Months, Fair Value	34,358
Less Than 12 Months, Unrealized Losses	(1,692)
Total, Fair Value	34,358
Total, Unrealized Losses	(1,692)
U.S. Treasury securities
Available for Sale
Less Than 12 Months, Fair Value	140,750	34,746
Less Than 12 Months, Unrealized Losses	(8,851)	(193)
Total, Fair Value	140,750	34,746
Total, Unrealized Losses	(8,851)	(193)
Held to Maturity
Less Than 12 Months, Fair Value	33,943
Less Than 12 Months, Unrealized Losses	(1,687)
Total, Fair Value	33,943
Total, Unrealized Losses	(1,687)
Obligations of U.S. Government sponsored agencies
Available for Sale
Less Than 12 Months, Fair Value	18,326	13,185
Less Than 12 Months, Unrealized Losses	(2,429)	(86)
Greater Than 12 Months, Fair Value	3,544	4,558
Greater Than 12 Months, Unrealized Losses	(982)	(255)
Total, Fair Value	21,870	17,743
Total, Unrealized Losses	(3,411)	(341)
Obligations of states and political subdivisions
Available for Sale
Less Than 12 Months, Fair Value	75,119	8,624
Less Than 12 Months, Unrealized Losses	(10,096)	(67)
Total, Fair Value	75,119	8,624
Total, Unrealized Losses	(10,096)	(67)
Held to Maturity
Less Than 12 Months, Fair Value	415
Less Than 12 Months, Unrealized Losses	(5)
Total, Fair Value	415
Total, Unrealized Losses	(5)
Mortgage-backed securities
Available for Sale
Less Than 12 Months, Fair Value	37,470	254
Less Than 12 Months, Unrealized Losses	(2,370)	(1)
Total, Fair Value	37,470	254
Total, Unrealized Losses	(2,370)	(1)
Corporate notes
Available for Sale
Less Than 12 Months, Fair Value	12,895	8,973
Less Than 12 Months, Unrealized Losses	(1,314)	(94)
Greater Than 12 Months, Fair Value		0
Greater Than 12 Months, Unrealized Losses		0
Total, Fair Value	12,895	8,973
Total, Unrealized Losses	(1,314)	$ (94)
Certificates of deposit
Available for Sale
Less Than 12 Months, Fair Value	1,468
Less Than 12 Months, Unrealized Losses	(35)
Total, Fair Value	1,468
Total, Unrealized Losses	$ (35)

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SECURITIES - Amortized cost and estimated fair value of securities by contractual maturity (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Available for Sale, Amortized Cost
Due in one year or less	$ 103,648
Due after one year through 5 years	22,408
Due after 5 years through ten years	91,139
Due after 10 years	71,916
Subtotal	289,111
Mortgage-backed securities	39,840
Amortized Cost	328,951	$ 207,747
Available for Sale, Estimated Fair Value
Due in one year or less	102,497
Due after one year through 5 years	21,333
Due after 5 years through ten years	81,108
Due after 10 years	60,872
Subtotal	265,810
Mortgage-backed securities	37,470
Total	303,280	212,689
Held to Maturity, Amortized Cost
Due in one year or less	1,044
Due after one year through 5 years	38,028
Due after 5 years through ten years	1,754
Subtotal	40,826
Amortized Cost	40,826	5,911
Held to Maturity, Estimated Fair Value
Due in one year or less	1,043
Due after one year through 5 years	36,390
Due after 5 years through ten years	1,701
Subtotal	39,134
Total	$ 39,134	$ 5,922

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SECURITIES - Sales of securities (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021
SECURITIES
Realized gains (losses) on sale of securities	$ 0	$ (3)
Proceeds from sales of securities		9,087
Gross losses on sales		$ (3)

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LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY - Portfolio segment and class of loan (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021	Sep. 30, 2021	Dec. 31, 2020
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
Loans and Leases Receivable, Gross	$ 2,858,852	$ 2,237,226	$ 2,211,736
ALL	(23,045)	(20,315)	(20,237)	$ (17,658)
Loans, net of ALL	2,835,807	2,216,911
Deferred loan fees and costs	(785)	(1,712)
Loans, net	2,835,022	2,215,199
Other
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
Loans and Leases Receivable, Gross	19,178	21,489	22,816
ALL	(151)	(179)	(196)	(409)
Construction and Development
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
Loans and Leases Receivable, Gross	209,619	132,675	116,957
ALL	(1,643)	(984)	(866)	(1,027)
Commercial/Industrial
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
Loans and Leases Receivable, Gross	486,839	367,284	355,773
ALL	(4,288)	(3,699)	(3,010)	(2,049)
Commercial Real Estate - Owner Occupied
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
Loans and Leases Receivable, Gross	723,964	574,960	567,906
ALL	(5,064)	(5,633)	(6,967)	(6,108)
Commercial Real Estate - Non-Owner Occupied
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
Loans and Leases Receivable, Gross	668,505	537,077	542,455
ALL	(5,876)	(5,151)	(4,586)	(3,904)
Residential 1-4 Family
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
Loans and Leases Receivable, Gross	706,794	571,749	572,821
ALL	(5,724)	(4,445)	(4,380)	(3,960)
Consumer
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
Loans and Leases Receivable, Gross	43,953	31,992	33,008
ALL	$ (299)	$ (224)	$ (232)	$ (201)

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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, 2022	Sep. 30, 2021	Dec. 31, 2021
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
ALL - Beginning Balance	$ 20,315	$ 17,658
Charge-offs	(83)	(358)
Recoveries	1,113	437
Provision	1,700	2,500
ALL - Ending Balance	23,045	20,237
ALL ending balance individually evaluated for impairment	925	485
ALL ending balance collectively evaluated for impairment	22,120	19,752
Loans outstanding - Ending Balance	2,858,852	2,211,736	$ 2,237,226
Loans ending balance individually evaluated for impairment	4,635	10,498
Loans ending balance collectively evaluated for impairment	2,854,217	2,201,238
Other
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
ALL - Beginning Balance	179	409
Charge-offs	(27)	(21)
Recoveries	64	5
Provision	(65)	(197)
ALL - Ending Balance	151	196
ALL ending balance collectively evaluated for impairment	151	196
Loans outstanding - Ending Balance	19,178	22,816	21,489
Loans ending balance collectively evaluated for impairment	19,178	22,816
Construction and Development
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
ALL - Beginning Balance	984	1,027
Recoveries	152	33
Provision	507	(194)
ALL - Ending Balance	1,643	866
ALL ending balance collectively evaluated for impairment	1,643	866
Loans outstanding - Ending Balance	209,619	116,957	132,675
Loans ending balance collectively evaluated for impairment	209,619	116,957
Commercial/Industrial
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
ALL - Beginning Balance	3,699	2,049
Charge-offs		(48)
Recoveries	455	38
Provision	134	971
ALL - Ending Balance	4,288	3,010
ALL ending balance individually evaluated for impairment	150	93
ALL ending balance collectively evaluated for impairment	4,138	2,917
Loans outstanding - Ending Balance	486,839	355,773	367,284
Loans ending balance individually evaluated for impairment	487	414
Loans ending balance collectively evaluated for impairment	486,352	355,359
Commercial Real Estate - Owner Occupied
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
ALL - Beginning Balance	5,633	6,108
Charge-offs		(289)
Recoveries	74	343
Provision	(643)	805
ALL - Ending Balance	5,064	6,967
ALL ending balance collectively evaluated for impairment	5,064	6,967
Loans outstanding - Ending Balance	723,964	567,906	574,960
Loans ending balance individually evaluated for impairment	2,541	3,467
Loans ending balance collectively evaluated for impairment	721,423	564,439
Commercial Real Estate - Non-Owner Occupied
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
ALL - Beginning Balance	5,151	3,904
Recoveries	360	5
Provision	365	677
ALL - Ending Balance	5,876	4,586
ALL ending balance individually evaluated for impairment	775	392
ALL ending balance collectively evaluated for impairment	5,101	4,194
Loans outstanding - Ending Balance	668,505	542,455	537,077
Loans ending balance individually evaluated for impairment	1,396	6,617
Loans ending balance collectively evaluated for impairment	667,109	535,838
Residential 1-4 Family
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
ALL - Beginning Balance	4,445	3,960
Charge-offs	(39)
Recoveries	6	12
Provision	1,312	408
ALL - Ending Balance	5,724	4,380
ALL ending balance collectively evaluated for impairment	5,724	4,380
Loans outstanding - Ending Balance	706,794	572,821	571,749
Loans ending balance individually evaluated for impairment	211
Loans ending balance collectively evaluated for impairment	706,583	572,821
Consumer
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
ALL - Beginning Balance	224	201
Charge-offs	(17)
Recoveries	2	1
Provision	90	30
ALL - Ending Balance	299	232
ALL ending balance collectively evaluated for impairment	299	232
Loans outstanding - Ending Balance	43,953	33,008	$ 31,992
Loans ending balance collectively evaluated for impairment	$ 43,953	$ 33,008

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LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY - Past due loans (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
Financing Receivable, Recorded Investment, Past Due	$ 4,370	$ 7,241
Financing Receivable, Recorded Investment, Nonaccrual Status	5,043	10,321
Construction and Development
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
Financing Receivable, Recorded Investment, Past Due	17	19
Financing Receivable, Recorded Investment, Nonaccrual Status	17	19
Commercial/Industrial
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
Financing Receivable, Recorded Investment, Past Due	218	247
Financing Receivable, Recorded Investment, Nonaccrual Status	442	997
Commercial Real Estate - Owner Occupied
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
Financing Receivable, Recorded Investment, Past Due	3,609	5,884
Financing Receivable, Recorded Investment, Nonaccrual Status	3,642	5,884
Commercial Real Estate - Non-Owner Occupied
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
Financing Receivable, Recorded Investment, Past Due		650
Financing Receivable, Recorded Investment, Nonaccrual Status		715
Residential 1-4 Family
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
Financing Receivable, Recorded Investment, Past Due	516	439
Financing Receivable, Recorded Investment, Nonaccrual Status	910	2,686
Consumer
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
Financing Receivable, Recorded Investment, Past Due	10	2
Financing Receivable, Recorded Investment, Nonaccrual Status	32	20
30-89 Days Past Due Accruing
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
Financing Receivable, Recorded Investment, Past Due	270	2,081
30-89 Days Past Due Accruing | Commercial/Industrial
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
Financing Receivable, Recorded Investment, Past Due	19	12
30-89 Days Past Due Accruing | Commercial Real Estate - Non-Owner Occupied
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
Financing Receivable, Recorded Investment, Past Due		65
30-89 Days Past Due Accruing | Residential 1-4 Family
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
Financing Receivable, Recorded Investment, Past Due	232	2,002
30-89 Days Past Due Accruing | Consumer
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
Financing Receivable, Recorded Investment, Past Due	19	2
90 Days Past Due Accruing
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
Financing Receivable, Recorded Investment, Past Due	403	999
90 Days Past Due Accruing | Commercial/Industrial
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
Financing Receivable, Recorded Investment, Past Due	205	738
90 Days Past Due Accruing | Commercial Real Estate - Owner Occupied
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
Financing Receivable, Recorded Investment, Past Due	33
90 Days Past Due Accruing | Residential 1-4 Family
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
Financing Receivable, Recorded Investment, Past Due	162	245
90 Days Past Due Accruing | Consumer
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
Financing Receivable, Recorded Investment, Past Due	$ 3	$ 16

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LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY - Breakdown of loans by risk rating (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021	Sep. 30, 2021
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
Loans and Leases Receivable, Gross	$ 2,858,852	$ 2,237,226	$ 2,211,736
Other
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
Loans and Leases Receivable, Gross	19,178	21,489	22,816
Construction and Development
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
Loans and Leases Receivable, Gross	209,619	132,675	116,957
Commercial/Industrial
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
Loans and Leases Receivable, Gross	486,839	367,284	355,773
Commercial Real Estate - Owner Occupied
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
Loans and Leases Receivable, Gross	723,964	574,960	567,906
Commercial Real Estate - Non-Owner Occupied
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
Loans and Leases Receivable, Gross	668,505	537,077	542,455
Residential 1-4 Family
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
Loans and Leases Receivable, Gross	706,794	571,749	572,821
Consumer
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
Loans and Leases Receivable, Gross	43,953	31,992	$ 33,008
Risk Rating, Pass (1-5)
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
Loans and Leases Receivable, Gross	2,783,788	2,194,275
Risk Rating, Pass (1-5) | Other
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
Loans and Leases Receivable, Gross	19,178	21,489
Risk Rating, Pass (1-5) | Construction and Development
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
Loans and Leases Receivable, Gross	208,463	131,429
Risk Rating, Pass (1-5) | Commercial/Industrial
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
Loans and Leases Receivable, Gross	466,355	355,469
Risk Rating, Pass (1-5) | Commercial Real Estate - Owner Occupied
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
Loans and Leases Receivable, Gross	678,288	551,801
Risk Rating, Pass (1-5) | Commercial Real Estate - Non-Owner Occupied
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
Loans and Leases Receivable, Gross	664,162	532,077
Risk Rating, Pass (1-5) | Residential 1-4 Family
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
Loans and Leases Receivable, Gross	703,391	570,022
Risk Rating, Pass (1-5) | Consumer
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
Loans and Leases Receivable, Gross	43,951	31,988
Risk Rating, 6
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
Loans and Leases Receivable, Gross	637	83
Risk Rating, 6 | Commercial/Industrial
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
Loans and Leases Receivable, Gross	304
Risk Rating, 6 | Commercial Real Estate - Owner Occupied
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
Loans and Leases Receivable, Gross	333
Risk Rating, 6 | Residential 1-4 Family
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
Loans and Leases Receivable, Gross		83
Risk Rating, 7
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
Loans and Leases Receivable, Gross	74,427	42,868
Risk Rating, 7 | Construction and Development
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
Loans and Leases Receivable, Gross	1,156	1,246
Risk Rating, 7 | Commercial/Industrial
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
Loans and Leases Receivable, Gross	20,180	11,815
Risk Rating, 7 | Commercial Real Estate - Owner Occupied
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
Loans and Leases Receivable, Gross	45,343	23,159
Risk Rating, 7 | Commercial Real Estate - Non-Owner Occupied
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
Loans and Leases Receivable, Gross	4,343	5,000
Risk Rating, 7 | Residential 1-4 Family
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
Loans and Leases Receivable, Gross	3,403	1,644
Risk Rating, 7 | Consumer
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
Loans and Leases Receivable, Gross	$ 2	$ 4

XML

LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY - Summary of impaired loans individually evaluated (Details) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2022	Dec. 31, 2021
With an allowance recorded:
Recorded investment	$ 1,487	$ 1,763
Unpaid principal balance	1,487	1,763
Related allowance	925	964
With no related allowance recorded:
Recorded investment	3,148	5,434
Unpaid principal balance	3,148	5,434
Total:
Recorded investment	4,635	7,197
Unpaid principal balance	4,635	7,197
Related allowance	925	964
Average recorded investment	5,915	8,893
Commercial/Industrial
With an allowance recorded:
Recorded investment	202	357
Unpaid principal balance	202	357
Related allowance	150	70
With no related allowance recorded:
Recorded investment	285	82
Unpaid principal balance	285	82
Total:
Recorded investment	487	439
Unpaid principal balance	487	439
Related allowance	150	70
Average recorded investment	463	459
Commercial Real Estate - Owner Occupied
With no related allowance recorded:
Recorded investment	2,541	4,966
Unpaid principal balance	2,541	4,966
Total:
Recorded investment	2,541	4,966
Unpaid principal balance	2,541	4,966
Average recorded investment	3,753	3,069
Commercial Real Estate - Non-Owner Occupied
With an allowance recorded:
Recorded investment	1,285	1,406
Unpaid principal balance	1,285	1,406
Related allowance	775	894
With no related allowance recorded:
Recorded investment	111	113
Unpaid principal balance	111	113
Total:
Recorded investment	1,396	1,519
Unpaid principal balance	1,396	1,519
Related allowance	775	894
Average recorded investment	1,457	5,098
Residential 1-4 Family
With no related allowance recorded:
Recorded investment	211	273
Unpaid principal balance	211	273
Total:
Recorded investment	211	273
Unpaid principal balance	211	273
Average recorded investment	$ 242	$ 267

XML

LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY - Credit Deterioration (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
Impaired Financing Receivable, Recorded Investment	$ 4,635	$ 7,197
Impaired Financing Receivable, Unpaid Principal Balance	4,635	7,197
Commercial/Industrial
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
Impaired Financing Receivable, Recorded Investment	487	439
Impaired Financing Receivable, Unpaid Principal Balance	487	439
Commercial Real Estate - Owner Occupied
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
Impaired Financing Receivable, Recorded Investment	2,541	4,966
Impaired Financing Receivable, Unpaid Principal Balance	2,541	4,966
Commercial Real Estate - Non-Owner Occupied
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
Impaired Financing Receivable, Recorded Investment	1,396	1,519
Impaired Financing Receivable, Unpaid Principal Balance	1,396	1,519
Residential 1-4 Family
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
Impaired Financing Receivable, Recorded Investment	211	273
Impaired Financing Receivable, Unpaid Principal Balance	211	273
Financial Asset Acquired with Credit Deterioration
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
Impaired Financing Receivable, Recorded Investment	4,123	5,141
Impaired Financing Receivable, Unpaid Principal Balance	5,113	6,105
Financial Asset Acquired with Credit Deterioration | Commercial/Industrial
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
Impaired Financing Receivable, Recorded Investment	730	596
Impaired Financing Receivable, Unpaid Principal Balance	1,180	685
Financial Asset Acquired with Credit Deterioration | Commercial Real Estate - Owner Occupied
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
Impaired Financing Receivable, Recorded Investment	2,566	2,664
Impaired Financing Receivable, Unpaid Principal Balance	2,873	3,146
Financial Asset Acquired with Credit Deterioration | Commercial Real Estate - Non-Owner Occupied
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
Impaired Financing Receivable, Recorded Investment		1,018
Impaired Financing Receivable, Unpaid Principal Balance		1,150
Financial Asset Acquired with Credit Deterioration | Residential 1-4 Family
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
Impaired Financing Receivable, Recorded Investment	827	863
Impaired Financing Receivable, Unpaid Principal Balance	$ 1,060	$ 1,124

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, 2022	Dec. 31, 2021
Accretable Discount [Member]
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
Balance at beginning of year	$ 813	$ 1,250
Acquired balance, net	292
Reclassifications between accretable and non-accretable	61	27
Accretion to loan interest income	(476)	(464)
Balance at end of year	690	813
Non Accretable Discount [Member]
LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY
Balance at beginning of year	149	176
Acquired balance, net	211
Reclassifications between accretable and non-accretable	(61)	(27)
Balance at end of year	$ 299	$ 149

XML

MORTGAGE SERVICING RIGHTS - Analysis of activity in MSR asset (Details) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2022 USD ($) item M	Dec. 31, 2021 USD ($) M item
MORTGAGE SERVICING RIGHTS
Fair value at beginning of period	$ 5,016	$ 3,726
Servicing asset additions	658	1,862
Loan payments and payoffs	(660)	(1,319)
Changes in valuation inputs and assumptions used in the valuation model	2,848	747
Amount recognized through earnings	2,846	1,290
MSR asset acquired	1,701
Fair value at end of period	9,563	5,016
Unpaid principal balance of loans serviced for others	$ 873,383	$ 705,462
Mortgage servicing rights as a percent of loans serviced for others	1.09%	0.71%
Measurement Input, Prepayment Rate
MORTGAGE SERVICING RIGHTS
MSR asset, measurement input | M	8.1	13.8
Measurement Input, Discount Rate
MORTGAGE SERVICING RIGHTS
MSR asset, measurement input | item	0.102	0.103

XML

NOTES PAYABLE - FHLB advances (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
NOTES PAYABLE
Notes payable, before adjustments	$ 2,550	$ 7,958
Purchase accounting adjustment	19	53
Total notes payable	$ 2,569	$ 8,011
Fixed rate, fixed term, Maturity 01/24/2022
NOTES PAYABLE
Rate		2.51%
Notes payable, before adjustments		$ 250
Fixed rate, fixed term, Maturity 05/02/2022
NOTES PAYABLE
Rate		2.98%
Notes payable, before adjustments		$ 500
Fixed rate, fixed term, Maturity 05/16/2022
NOTES PAYABLE
Rate		0.00%
Notes payable, before adjustments		$ 5,000
Fixed rate, fixed term, Maturity 06/08/2022
NOTES PAYABLE
Rate		2.92%
Notes payable, before adjustments		$ 500
Fixed rate, fixed term, Maturity 11/21/2022
NOTES PAYABLE
Rate	3.02%	3.02%
Notes payable, before adjustments	$ 600	$ 600
Fixed rate, fixed term, Maturity 06/01/2023
NOTES PAYABLE
Rate	1.79%
Notes payable, before adjustments	$ 842
Fixed rate, fixed term, Maturity 11/21/2023
NOTES PAYABLE
Rate	3.06%	3.06%
Notes payable, before adjustments	$ 600	$ 600
Fixed rate, fixed term, Maturity 04/22/2030
NOTES PAYABLE
Rate	0.00%	0.00%
Notes payable, before adjustments	$ 508	$ 508

XML

NOTES PAYABLE- Future maturities (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
NOTES PAYABLE
1 year or less	$ 1,442	$ 6,850
1 to 2 years	600	600
Over 5 years	508	508
Total	$ 2,550	$ 7,958

XML

NOTES PAYABLE - Additional Information (Details) - USD ($) $ in Millions	Sep. 30, 2022	May 15, 2022	Dec. 31, 2021
NOTES PAYABLE
Maximum borrowing capacity		$ 7.5
Line of credit
NOTES PAYABLE
Outstanding balance	$ 0.0		$ 0.0

XML

SUBORDINATED NOTES (Details) - USD ($) $ in Thousands	1 Months Ended
	Aug. 31, 2022	Jul. 31, 2020	Sep. 30, 2017	Sep. 30, 2022	Dec. 31, 2021
SUBORDINATED NOTES
Outstanding balance				$ 23,500	$ 17,500
Subordinated Notes Initiated in September 2017
SUBORDINATED NOTES
Outstanding balance				11,500	11,500
Maturity term			10 years
Subordinated Notes Initiated in July 2020
SUBORDINATED NOTES
Outstanding balance				$ 6,000	$ 6,000
Maturity term		10 years
Interest at fixed rate (as a percent)				5.00%
Subordinated Notes Initiated in August 2022
SUBORDINATED NOTES
Outstanding balance				$ 6,000
Maturity term	10 years
Interest at fixed rate (as a percent)				5.25%

XML

REGULATORY MATTERS (Details) $ in Thousands	Sep. 30, 2022 USD ($)	Dec. 31, 2021 USD ($)	May 31, 2018 USD ($)
REGULATORY MATTERS
Threshold amount subject to the Federal Reserve's Small Bank Holding Company Policy Statement			$ 3,000,000
Total capital (to risk-weighted assets):
Actual, Amount	$ 375,338	$ 297,467
Actual, Ratio	0.1192	0.1244
For Capital Adequacy Purposes, Amount	$ 252,010
For Capital Adequacy Purposes, Ratio	0.0800
Minimum Capital Adequacy with Capital Buffer, Amount	$ 330,763
Minimum Capital Adequacy with Capital Buffer, Ratio	0.1050
To Be Well Capitalized Under Prompt Corrective Action Provisions, Amount	$ 315,012
To Be Well Capitalized Under Prompt Corrective Action Provisions, Ratio	0.1000
Tier 1 capital (to risk-weighted assets):
Actual, Amount	$ 328,793	$ 259,652
Actual, Ratio	0.1044	0.1086
For Capital Adequacy Purposes, Amount	$ 189,007
For Capital Adequacy Purposes, Ratio	0.0600
Minimum Capital Adequacy with Capital Buffer, Amount	$ 267,761
Minimum Capital Adequacy with Capital Buffer, Ratio	0.0850
To Be Well Capitalized Under Prompt Corrective Action Provisions, Amount	$ 252,010
To Be Well Capitalized Under Prompt Corrective Action Provisions, Ratio	0.0800
Common Equity Tier 1 capital (to risk-weighted assets):
Actual, Amount	$ 328,793	$ 259,652
Actual, Ratio	0.1044	0.1086
For Capital Adequacy Purposes, Amount	$ 141,756
For Capital Adequacy Purposes, Ratio	0.0450
Minimum Capital Adequacy with Capital Buffer, Amount	$ 220,509
Minimum Capital Adequacy with Capital Buffer, Ratio	0.0700
To Be Well Capitalized Under Prompt Corrective Action Provisions, Amount	$ 204,758
To Be Well Capitalized Under Prompt Corrective Action Provisions, Ratio	0.0650
Tier 1 capital (to average assets):
Actual, Amount	$ 328,793	$ 259,652
Actual, Ratio	0.1022	0.0929
For Capital Adequacy Purposes, Amount	$ 128,705
For Capital Adequacy Purposes, Ratio	0.0400
Minimum Capital Adequacy with Capital Buffer, Amount	$ 128,705
Minimum Capital Adequacy with Capital Buffer, Ratio	0.0400
To Be Well Capitalized Under Prompt Corrective Action Provisions, Amount	$ 160,881
To Be Well Capitalized Under Prompt Corrective Action Provisions, Ratio	0.0500
Standardized Approach
REGULATORY MATTERS
Minimum conservation buffer	0.025	0.025
Bank
Total capital (to risk-weighted assets):
Actual, Amount	$ 362,876	$ 291,994
Actual, Ratio	0.1152	0.1221
For Capital Adequacy Purposes, Amount	$ 251,900	$ 191,339
For Capital Adequacy Purposes, Ratio	0.0800	0.0800
Minimum Capital Adequacy with Capital Buffer, Amount	$ 330,619	$ 251,133
Minimum Capital Adequacy with Capital Buffer, Ratio	0.1050	0.1050
To Be Well Capitalized Under Prompt Corrective Action Provisions, Amount	$ 314,876	$ 239,174
To Be Well Capitalized Under Prompt Corrective Action Provisions, Ratio	0.1000	0.1000
Tier 1 capital (to risk-weighted assets):
Actual, Amount	$ 339,831	$ 271,679
Actual, Ratio	0.1079	0.1136
For Capital Adequacy Purposes, Amount	$ 188,925	$ 143,505
For Capital Adequacy Purposes, Ratio	0.0600	0.0600
Minimum Capital Adequacy with Capital Buffer, Amount	$ 267,644	$ 203,298
Minimum Capital Adequacy with Capital Buffer, Ratio	0.0850	0.0850
To Be Well Capitalized Under Prompt Corrective Action Provisions, Amount	$ 251,900	$ 191,339
To Be Well Capitalized Under Prompt Corrective Action Provisions, Ratio	0.0800	0.0800
Common Equity Tier 1 capital (to risk-weighted assets):
Actual, Amount	$ 339,831	$ 271,679
Actual, Ratio	0.1079	0.1136
For Capital Adequacy Purposes, Amount	$ 141,694	$ 107,628
For Capital Adequacy Purposes, Ratio	0.0450	0.0450
Minimum Capital Adequacy with Capital Buffer, Amount	$ 220,413	$ 167,422
Minimum Capital Adequacy with Capital Buffer, Ratio	0.0700	0.0700
To Be Well Capitalized Under Prompt Corrective Action Provisions, Amount	$ 204,669	$ 155,463
To Be Well Capitalized Under Prompt Corrective Action Provisions, Ratio	0.0650	0.0650
Tier 1 capital (to average assets):
Actual, Amount	$ 339,831	$ 271,679
Actual, Ratio	0.1063	0.0972
For Capital Adequacy Purposes, Amount	$ 127,821	$ 111,825
For Capital Adequacy Purposes, Ratio	0.0400	0.0400
Minimum Capital Adequacy with Capital Buffer, Amount	$ 127,821	$ 111,825
Minimum Capital Adequacy with Capital Buffer, Ratio	0.0400	0.0400
To Be Well Capitalized Under Prompt Corrective Action Provisions, Amount	$ 159,776	$ 139,781
To Be Well Capitalized Under Prompt Corrective Action Provisions, Ratio	0.0500	0.0500

XML

COMMITMENTS AND CONTINGENCIES (Details) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2022	Dec. 31, 2021
Interest rate lock commitments
COMMITMENTS AND CONTINGENCIES
Notional amount of derivatives	$ 7,100	$ 21,900
Fixed
COMMITMENTS AND CONTINGENCIES
Commitments outstanding	147,480	90,036
Variable
COMMITMENTS AND CONTINGENCIES
Commitments outstanding	522,367	412,095
Credit card arrangements
COMMITMENTS AND CONTINGENCIES
Commitments outstanding	16,787	10,916
Letters of credit
COMMITMENTS AND CONTINGENCIES
Commitments outstanding	$ 11,889	$ 9,062

XML

FAIR VALUE MEASUREMENTS - Fair value of assets measured on a recurring basis (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021	Dec. 31, 2020
Assets
Mortgage servicing rights	$ 9,563	$ 5,016	$ 3,726
Recurring
Assets
Mortgage servicing rights	9,563	5,016
Recurring | U.S. Treasury securities
Assets
Securities available for sale	140,750	49,502
Recurring | Obligations of U.S. Government sponsored agencies
Assets
Securities available for sale	21,870	26,546
Recurring | Obligations of states and political subdivisions
Assets
Securities available for sale	81,135	86,738
Recurring | Mortgage-backed securities
Assets
Securities available for sale	37,470	27,259
Recurring | Corporate notes
Assets
Securities available for sale	20,587	21,102
Recurring | Certificates of deposit
Assets
Securities available for sale	1,468	1,542
Recurring | Level 2
Assets
Mortgage servicing rights	9,563	5,016
Recurring | Level 2 | U.S. Treasury securities
Assets
Securities available for sale	140,750	49,502
Recurring | Level 2 | Obligations of U.S. Government sponsored agencies
Assets
Securities available for sale	21,870	26,546
Recurring | Level 2 | Obligations of states and political subdivisions
Assets
Securities available for sale	81,135	86,738
Recurring | Level 2 | Mortgage-backed securities
Assets
Securities available for sale	37,470	27,259
Recurring | Level 2 | Corporate notes
Assets
Securities available for sale	20,587	21,102
Recurring | Level 2 | Certificates of deposit
Assets
Securities available for sale	1,468	1,542
Recurring | Level 3
Assets
Assets at fair value	$ 0	$ 0

XML

FAIR VALUE MEASUREMENTS - Fair value of assets measured on a non-recurring basis (Details) - Non-recurring - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Assets Measured at Fair Value
OREO	$ 1,405	$ 150
Impaired Loans, net of impairment reserve	3,710	6,233
Total Assets Measured at Fair Value	5,115	6,383
Level 3
Assets Measured at Fair Value
OREO	1,405	150
Impaired Loans, net of impairment reserve	3,710	6,233
Total Assets Measured at Fair Value	$ 5,115	$ 6,383

XML

FAIR VALUE MEASUREMENTS - Fair value measurement on inputs and valuation techniques (Details)	Sep. 30, 2022 item	Dec. 31, 2021 item
Third party appraisals, sales contracts or brokered price options | Collateral discounts and estimated costs to sell
FAIR VALUE MEASUREMENTS
Other real estate owned	0
Third party appraisals, sales contracts or brokered price options | Collateral discounts and estimated costs to sell | Minimum
FAIR VALUE MEASUREMENTS
Other real estate owned		0.18
Third party appraisals, sales contracts or brokered price options | Collateral discounts and estimated costs to sell | Maximum
FAIR VALUE MEASUREMENTS
Other real estate owned		0.97
Third party appraisals, sales contracts or brokered price options | Collateral discounts and estimated costs to sell | Weighted Average
FAIR VALUE MEASUREMENTS
Other real estate owned	0	0.180
Third party appraisals and discounted cash flows | Collateral discounts and discount rates | Minimum
FAIR VALUE MEASUREMENTS
Impaired loans	0	0
Third party appraisals and discounted cash flows | Collateral discounts and discount rates | Maximum
FAIR VALUE MEASUREMENTS
Impaired loans	0.74	1
Third party appraisals and discounted cash flows | Collateral discounts and discount rates | Weighted Average
FAIR VALUE MEASUREMENTS
Impaired loans	0.200	0.074

XML

FAIR VALUE MEASUREMENTS - Carrying value and estimated fair value (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021	Dec. 31, 2020
Financial assets:
Securities held to maturity, fair value	$ 39,134	$ 5,922
Securities available for sale	303,280	212,689
Mortgage servicing rights	9,563	5,016	$ 3,726
Carrying Amount
Financial assets:
Cash and cash equivalents	143,441	296,860
Securities held to maturity, fair value	40,826	5,911
Securities available for sale	303,280	212,689
Loans held for sale	1,253	786
Loans, net	2,835,022	2,215,199
Other investments, at cost	14,905	9,004
Mortgage servicing rights	9,563	5,016
Cash surrender value of life insurance	45,761	31,897
Financial liabilities:
Deposits	3,138,201	2,528,440
Securities sold under repurchase agreements	21,963	41,122
Notes Payable	2,569	8,011
Subordinated notes	23,500	17,500
Carrying Amount | Level 1
Financial assets:
Cash and cash equivalents	143,441	296,860
Cash surrender value of life insurance	45,761	31,897
Carrying Amount | Level 2
Financial assets:
Securities held to maturity, fair value	39,134	5,922
Securities available for sale	303,280	212,689
Mortgage servicing rights	9,563	5,016
Financial liabilities:
Securities sold under repurchase agreements	21,963	41,122
Notes Payable	2,569	8,011
Subordinated notes	23,500	17,500
Carrying Amount | Level 3
Financial assets:
Loans held for sale	1,253	786
Loans, net	2,801,373	2,210,593
Other investments, at cost	14,905	9,004
Financial liabilities:
Deposits	2,801,549	2,457,287
Estimated Fair Value
Financial assets:
Cash and cash equivalents	143,441	296,860
Securities held to maturity, fair value	39,134	5,922
Securities available for sale	303,280	212,689
Loans held for sale	1,253	786
Loans, net	2,801,373	2,210,593
Other investments, at cost	14,905	9,004
Mortgage servicing rights	9,563	5,016
Cash surrender value of life insurance	45,761	31,897
Financial liabilities:
Deposits	2,801,549	2,457,287
Securities sold under repurchase agreements	21,963	41,122
Notes Payable	2,569	8,011
Subordinated notes	$ 23,500	$ 17,500

XML

STOCK BASED COMPENSATION - Summary of Plans (Details) - USD ($) $ in Millions	9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021
Restricted Stock
STOCK BASED COMPENSATION
Compensation expense	$ 1.2	$ 1.0
Unrecognized compensation cost	$ 2.6
Unrecognized compensation recognition period	1 year 8 months 26 days
Aggregate grant date fair value of vested awards	$ 1.3
2020 Equity Plan
STOCK BASED COMPENSATION
Number of shares authorized	700,000
Aggregate number of shares awarded under the plan	50,867

XML

STOCK BASED COMPENSATION - Changes in Restricted Stock (Details) - $ / shares	9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021
Restricted Stock, Shares
Outstanding at beginning of year	58,611	57,175
Granted	25,451	25,416
Vested	(20,785)	(21,755)
Forfeited or cancelled	(4,005)	(1,105)
Outstanding at end of year	59,272	59,731
Restricted Stock, Weighted- Average Grant- Date Fair Value
Outstanding at beginning of year	$ 61.44	$ 53.08
Granted	69.73	70.67
Vested	60.52	50.15
Forfeited or cancelled	60.50	62.23
Outstanding at end of year	$ 65.85	$ 61.46

XML

LEASES - Operating leases (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021
LEASES
Amortization of ROU Assets - Operating Leases	$ (1)	$ 10
Interest on Lease Liabilities - Operating Leases	74	65
Operating Lease Cost (Cost resulting from lease payments)	$ 73	$ 75
Weighted Average Lease Term (Years) - Operating Leases	24 years 8 months 4 days	32 years 3 months
Weighted Average Discount Rate - Operating Leases	5.50%	5.50%

XML

LEASES - Maturity analysis (Details) $ in Thousands	Sep. 30, 2022 USD ($)
Operating lease payments due:
Within one year	$ 201
After one but within two years	201
After two but within three years	200
After three but within four years	207
After four years but within five years	161
After five years	3,206
Total undiscounted cash flows	4,176
Discount on cash flows	(2,092)
Total operating lease liabilities	$ 2,084