Bank First Corp [BFC] Filings

10-Q 1 bfc-20220331x10q.htm 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 March 31, 2022


	☐	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 8^th 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 May 10, 2022 was 7,524,825 shares.

Table of Contents

TABLE OF CONTENTS


		Page Number
Part I. Financial Information		3
ITEM 1.	Financial Statements	3
	Consolidated Balance Sheets – March 31, 2022 (unaudited) and December 31, 2021	3
	Consolidated Statements of Income – Three Months Ended March 31, 2022 and 2021 (unaudited)	4
	Consolidated Statements of Comprehensive Income – Three Months Ended March 31, 2022 and 2021 (unaudited)	5
	Consolidated Statements of Changes in Stockholders’ Equity – Three Months Ended March 31, 2022 and 2021 (unaudited)	6
	Consolidated Statements of Cash Flows – Three Months Ended March 31, 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	27
ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	51
ITEM 4.	Controls and Procedures	53
Part II. Other Information		53
ITEM 1.	Legal Proceedings	53
ITEM 1A.	Risk Factors	53
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	54
ITEM 3.	Defaults Upon Senior Securities	54
ITEM 4.	Mine Safety Disclosures	54
ITEM 5.	Other Information	54
ITEM 6.	Exhibits	55
Signatures		56

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS:

BANK FIRST CORPORATION

Consolidated Balance Sheets

(In thousands, except share and per share data)


	March 31, 2022		December 31, 2021
	(Unaudited)		(Audited)

Assets
Cash and due from banks	$	28,890	$	29,171
Interest-bearing deposits		78,469		267,689
Cash and cash equivalents		107,359		296,860
Securities held to maturity, at amortized cost ($5,845 and $5,922 fair value at March 31, 2022 and December 31, 2021, respectively)		5,841		5,911
Securities available for sale, at fair value		297,063		212,689
Loans held for sale		371		786
Loans, net		2,294,939		2,215,199
Premises and equipment, net		50,068		49,461
Goodwill		55,357		55,357
Other investments		19,563		9,004
Cash value of life insurance		32,084		31,897
Identifiable intangible assets, net		3,742		4,035
Mortgage Servicing Rights ("MSR")		5,466		5,016
Other real estate owned (“OREO”)		—		150
Investment in minority-owned subsidiaries		43,552		42,935
Other assets		9,531		8,252
TOTAL ASSETS	$	2,924,936	$	2,937,552
Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Interest-bearing deposits	$	1,758,849	$	1,728,504
Noninterest-bearing deposits		798,257		799,936
Total deposits		2,557,106		2,528,440
Securities sold under repurchase agreements		13,130		41,122
Notes payable		7,747		8,011
Subordinated notes		17,500		17,500
Other liabilities		11,150		19,826
Total liabilities		2,606,633		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 - 8,478,383 shares as of March 31, 2022 and December 31, 2021
Outstanding - 7,570,766 and 7,616,540 shares as of March 31, 2022 and December 31, 2021, respectively		85		85
Additional paid-in capital		92,166		93,149
Retained earnings		266,614		258,104
Treasury stock, at cost - 907,617 and 861,843 shares as of March 31, 2022 and December 31, 2021, respectively		(35,972)		(32,294)
Accumulated other comprehensive income		(4,590)		3,609
Total stockholders’ equity		318,303		322,653
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,924,936	$	2,937,552

See accompanying notes to consolidated financial statements.

Table of Contents

ITEM 1. Financial Statements Continued:

BANK FIRST CORPORATION

Consolidated Statements of Income

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


	Three months ended March 31,
	2022		2021

Interest income:
Loans, including fees	$	22,306	$	23,276
Securities:
Taxable		1,288		655
Tax-exempt		449		472
Other		177		39
Total interest income		24,220		24,442
Interest expense:
Deposits		1,562		2,150
Securities sold under repurchase agreements		2		3
Borrowed funds		366		186
Total interest expense		1,930		2,339
Net interest income		22,290		22,103
Provision for loan losses		1,200		900
Net interest income after provision for loan losses		21,090		21,203
Noninterest income:
Service charges		1,422		1,467
Income from Ansay and Associates, LLC (“Ansay”)		826		725
Income from UFS, LLC (“UFS”)		705		366
Loan servicing income		1,062		505
Net gain on sales of mortgage loans		671		2,811
Net gain on sales and valuations of OREO		171		133
Other		377		336
Total noninterest income		5,234		6,343
Noninterest expense:
Salaries, commissions, and employee benefits		7,175		7,091
Occupancy		1,115		1,210
Data processing		1,345		1,393
Postage, stationery, and supplies		183		197
Advertising		89		49
Charitable contributions		168		126
Outside service fees		1,172		755
Amortization of intangibles		293		351
Other		1,191		1,186
Total noninterest expense		12,731		12,358
Income before provision for income taxes		13,593		15,188
Provision for income taxes		3,410		3,674
Net Income	$	10,183	$	11,514
Earnings per share - basic	$	1.34	$	1.49
Earnings per share - diluted	$	1.34	$	1.49
Dividends per share	$	0.22	$	0.21

See accompanying notes to unaudited consolidated financial statements

Table of Contents

ITEM 1. Financial Statements Continued:

BANK FIRST CORPORATION

Consolidated Statements of Comprehensive Income

(In thousands) (Unaudited)


	Three Months Ended
	March 31,
	2022		2021

Net Income	$	10,183	$	11,514
Other comprehensive loss:
Unrealized losses on available for sale securities:
Unrealized holding losses arising during period		(11,232)		(1,693)
Income tax benefit		3,033		457
Total other comprehensive loss		(8,199)		(1,236)
Comprehensive income	$	1,984	$	10,278

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

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

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

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

ITEM 1. Financial Statements Continued:

BANK FIRST CORPORATION

Consolidated Statements of Cash Flows

(In thousands) (Unaudited)


	Three Months Ended March 31,
	2022		2021


Cash flows from operating activities:
Net income	$	10,183	$	11,514
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		1,200		900
Depreciation and amortization of premises and equipment		398		508
Amortization of intangibles		293		351
Net amortization of securities		176		183
Amortization of stock-based compensation		320		304
Accretion of purchase accounting valuations		(554)		(242)
Net change in deferred loan fees and costs		(510)		1,014
Change in fair value of mortgage servicing rights ("MSR") and other investments		(623)		467
Gain on sale and disposal of premises and equipment		—		(62)
Gain on sale of OREO and valuation allowance		(171)		(133)
Proceeds from sales of mortgage loans		36,304		97,619
Originations of mortgage loans held for sale		(35,218)		(94,940)
Gain on sales of mortgage loans		(671)		(2,811)
Undistributed income of UFS joint venture		(705)		(366)
Undistributed income of Ansay joint venture		(826)		(725)
Net earnings on life insurance		(187)		(192)
Decrease in other assets		1,754		967
Decrease in other liabilities		(8,676)		(8,223)
Net cash provided by operating activities		2,487		6,133
Cash flows from investing activities, net of effects of business combination:
Activity in securities available for sale and held to maturity:
Maturities, prepayments, and calls		5,881		5,550
Purchases		(101,593)		(9,576)
Net increase in loans		(80,183)		(38,348)
Dividends received from UFS		460		565
Dividends received from Ansay		454		456
Proceeds from sale of OREO		321		1,101
Net purchases of Federal Home Loan Bank (“FHLB”) stock		(10,386)		—
Proceeds from sale of premises and equipment		—		367
Purchases of premises and equipment		(1,005)		(1,237)
Net cash used in investing activities		(186,051)		(41,122)

Table of Contents

ITEM 1. Financial Statements Continued:

BANK FIRST CORPORATION

Consolidated Statements of Cash Flows (Continued)

(In thousands) (Unaudited)


	Three Months Ended March 31,
	2022		2021


Cash flows from financing activities, net of effects of business combination:
Net increase in deposits	$	28,959	$	127,167
Net increase (decrease) in securities sold under repurchase agreements		(27,992)		11,254
Proceeds from advances of notes payable		1,500,000		—
Repayment of notes payable		(1,500,250)		(10,480)
Dividends paid		(1,673)		(1,618)
Proceeds from sales of common stock		37		23
Repurchase of common stock		(5,018)		(402)
Net cash provided by (used in) financing activities		(5,937)		125,944
Net increase (decrease) in cash and cash equivalents		(189,501)		90,955
Cash and cash equivalents at beginning of period		296,860		170,219
Cash and cash equivalents at end of period	$	107,359	$	261,174

Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	1,916	$	2,508
Supplemental schedule of noncash activities:
MSR resulting from sale of loans		269		560
Change in unrealized gains and losses on investment securities available for sale, net of tax		(8,199)		(1,236)

See accompanying notes to consolidated financial statements.

Table of Contents

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-one locations located in Manitowoc, Outagamie, Brown, Winnebago, Sheboygan, 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, useful lives for depreciation and amortization, fair value of financial instruments, other-than-temporary impairment calculations, valuation of deferred tax assets, uncertain income tax positions and contingencies. Estimates that are particularly susceptible to significant change for the Company include the determination of the ALL, the determination and assessment of deferred tax assets and liabilities, and the valuation of loans acquired in acquisition transactions; therefore, these are critical accounting policies. Factors that may cause sensitivity to the aforementioned estimates include but are not limited to: external market factors such as market interest rates and employment rates, changes to operating policies and procedures, changes in applicable banking or tax regulations, and changes to deferred tax estimates. Actual results may ultimately differ from estimates, although management does not generally believe such differences would materially affect the consolidated financial statements in any individual reporting period presented.

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

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

Table of Contents

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. While the general expectation in the banking industry is that the implementation of this standard will result in higher required balances within the ALL, it is not anticipated to have a significant impact on the Company’s overall ALL balances.

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 January 18, 2022, the Company entered into an Agreement and Plan of Merger with Denmark Bancshares, Inc. (“Denmark”), a Wisconsin Corporation, under which Denmark will merge with and into the Company and Denmark’s banking subsidiary, Denmark State Bank, will merge with and into the Bank. The transaction is expected to close during the third quarter of 2022, and is subject to, among other items, approval by the shareholders of both institutions and regulatory agencies. Merger consideration will consist of up to 20% cash and no less than 80% common stock of the Company, and will total approximately $119 million, subject to the fair market value of the Company’s common stock on the date of closing. Based on results as of March 31, 2022, the combined company would have total assets of approximately $3.61 billion, loans of approximately $2.79 billion and deposits of approximately $3.17 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 three months ended March 31, 2022 or 2021.

Table of Contents

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


	Three Months Ended March 31,
	2022		2021
Basic
Net income available to common shareholders	$	10,183	$	11,514
Less: Earnings allocated to participating securities		(79)		(88)
Net income allocated to common shareholders	$	10,104	$	11,426

Weighted average common shares outstanding including participating securities		7,599,382		7,716,424
Less: Participating securities (1)		(59,119)		(59,123)
Average shares		7,540,263		7,657,301

Basic earnings per common shares	$	1.34	$	1.49

Diluted
Net income available to common shareholders	$	10,183	$	11,514

Weighted average common shares outstanding for basic earnings per common share		7,540,263		7,657,301
Add: Dilutive effects of stock based compensation awards		18,956		20,675
Average shares and dilutive potential common shares		7,559,219		7,677,976
Diluted earnings per common share	$	1.34	$	1.49

(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
March 31, 2022
U.S. Treasury securities	$	149,576	$	—	$	(3,466)	$	146,110
Obligations of U.S. Government sponsored agencies		25,398		—		(1,555)		23,843
Obligations of states and political subdivisions		81,173		1,009		(2,285)		79,897
Mortgage-backed securities		25,105		219		(121)		25,203
Corporate notes		20,580		389		(470)		20,499
Certificates of deposit		1,520		—		(9)		1,511
Total available for sale securities	$	303,352	$	1,617	$	(7,906)	$	297,063

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

Table of Contents

The following is a summary of held to maturity securities:


			Gross		Gross
	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
March 31, 2022
Obligations of states and political subdivisions	$	5,841	$	4	$	—	$	5,845
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

March 31, 2022 - Available for Sale

U.S. Treasury securities