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EX-32.1 - EXHIBIT 32.1 - Bank First National Corptv507807_ex32-1.htm
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EX-31.1 - EXHIBIT 31.1 - Bank First National Corptv507807_ex31-1.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C.  20549

 

FORM 10-Q

(Mark One)

 

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

 

For the quarterly period ended September 30, 2018

 

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 NATIONAL 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  x    No  o

 

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  x    No  o

 

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 o Accelerated filer o
Non-accelerated filer x Smaller reporting company x
  Emerging growth company x

 

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. x

 

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

 

The number of shares of the issuer’s common stock, par value $0.01, outstanding as of December 5, 2018 was 6,644,759 shares.

 

 

 

 

 

 

TABLE OF CONTENTS

 

Page Number
Part I. Financial Information 3
ITEM 1. Financial Statements 3
  Consolidated Balance Sheets – September 30, 2018 (unaudited) and December 31, 2017 3
  Consolidated Statements of Income – Three and Nine Months Ended September 30, 2018 and 2017 (unaudited) 4
  Consolidated Statements of Comprehensive Income – Three and Nine Months Ended September 30, 2018 and 2017 (unaudited) 5
  Consolidated Statements of Changes in Stockholders’ Equity – Nine Months Ended September 30, 2018 and 2017 (unaudited) 6
  Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2018 and 2017 (unaudited) 7
  Notes to Unaudited Consolidated Financial Statements 9
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 26
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 58
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 NATIONAL CORPORATION

Consolidated Balance Sheets
(In thousands, except share and per share data)

 

   September 30, 2018   December 31, 2017 
   (Unaudited)   (Audited) 
     
Assets          
Cash and due from banks  $25,294   $37,914 
Interest-bearing deposits   8,307    15,186 
Federal funds sold   1,715    48,877 
Cash and cash equivalents   35,316    101,977 
Securities held to maturity, at amortized cost ($40,129 and $39,808 fair value at September 30, 2018 and December 31, 2017, respectively)   40,882    39,991 
Securities available for sale, at fair value   119,623    119,043 
Loans held for sale   564    - 
Loans, net   1,429,917    1,385,935 
Premises and equipment, net   23,724    18,578 
Goodwill   15,024    15,085 
Other investments, at cost   4,900    7,226 
Cash value of life insurance   24,027    23,722 
Identifiable intangible assets, net   5,401    5,578 
Other real estate owned (OREO)   4,892    6,270 
Investment in minority-owned subsidiaries   22,887    21,515 
Other assets   8,597    8,484 
Total assets  $1,735,754   $1,753,404 
           
Liabilities and Stockholders' Equity          
Liabilities:          
Deposits:        
Noninterest-bearing  $398,226   $436,638 
Interest-bearing   1,088,244    1,070,004 
Total deposits   1,486,470    1,506,642 
Securities sold under repurchase agreements   7,298    47,568 
Notes payable   48,000    8,500 
Subordinated notes   11,500    11,500 
Other liabilities   13,353    17,466 
Total liabilities   1,566,621    1,591,676 
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 - 7,368,083 shares as of September 30, 2018 and December 31, 2017
          
Outstanding - 6,659,021 shares at September 30, 2018 and 6,805,684 shares at December 31, 2017   74    74 
Additional paid-in capital   27,455    27,528 
Retained earnings   162,075    145,879 
Treasury stock, at cost - 709,062 shares at September 30, 2018 and 562,399 shares at December 31, 2017   (18,965)   (12,730)
Accumulated other comprehensive income (loss)   (1,506)   977 
Total stockholders' equity   169,133    161,728 
Total liabilities and stockholders' equity  $1,735,754   $1,753,404 

 

See accompanying notes to unaudited consolidated financial statements.

 

 3 

 

 

ITEM 1. Financial Statements Continued:

 

BANK FIRST NATIONAL CORPORATION

Consolidated Statements of Income

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

 

   Three months ended September 30,   Nine months ended September 30, 
   2018   2017   2018   2017 
     
Interest income:                    
Loans, including fees  $18,054   $11,450   $53,668   $32,742 
Securities:                    
Taxable   781    436    2,196    1,307 
Tax-exempt   428    406    1,342    1,203 
Other   247    337    985    790 
Total interest income   19,510    12,629    58,191    36,042 
Interest expense:                    
Deposits   3,360    1,667    8,564    4,566 
Securities sold under repurchase agreements   69    50    293    189 
Borrowed funds   545    281    1,748    679 
Total interest expense   3,974    1,998    10,605    5,434 
Net interest income   15,536    10,631    47,586    30,608 
Provision for loan loss   800    255    2,185    635 
Net interest income after provision for loan loss   14,736    10,376    45,401    29,973 
Noninterest income:                    
Service charges   971    820    2,603    2,156 
Income from Ansay   176    117    1,934    1,788 
Income from UFS   660    614    1,855    1,711 
Loan servicing income   260    197    1,106    1,045 
Net gain on sales of mortgage loans   144    319    429    713 
Noninterest income from strategic alliances   24    25    68    70 
Other   273    155    983    478 
Total noninterest income   2,508    2,247    8,978    7,961 
Noninterest expense:                    
Salaries, commissions, and employee benefits   5,205    3,577    15,968    10,914 
Occupancy   817    845    2,699    2,171 
Data processing   856    752    2,720    2,091 
Postage, stationery, and supplies   138    121    464    273 
Net (gain) loss on sales and valuations of OREO   233    (32)   331    (39)
Net (gain) loss on sales of securities   (19)   -    31    9 
Advertising   36    54    142    124 
Charitable contributions   169    170    864    391 
Outside service fees   817    585    2,233    1,926 
Amortization of intangibles   189    -    567    3 
Other   1,267    902    3,730    2,113 
Total noninterest expense   9,708    6,974    29,749    19,976 
Income before provision for income taxes   7,536    5,649    24,630    17,958 
Provision for income taxes   1,604    1,818    5,235    5,923 
Net Income  $5,932   $3,831   $19,395   $12,035 
Earnings per common share - basic   $0.89   $0.62   $2.90   $1.95 
Earnings per common share - diluted  $0.89   $0.62   $2.90   $1.95 
Dividends per common share  $0.16   $0.16   $0.48   $0.48 

 

See accompanying notes to unaudited consolidated financial statements

 

 4 

 

 

ITEM 1. Financial Statements Continued:

 

BANK FIRST NATIONAL CORPORATION

Consolidated Statements of Comprehensive Income

(In thousands) (Unaudited)

 

   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
   2018   2017   2018   2017 
     
Net Income  $5,932   $3,831   $19,395   $12,035 
Other comprehensive income (loss):                    
Unrealized gains (losses) on available for sale securities:                    
Unrealized holding gains (losses) arising during period   (1,029)   35    (3,215)   1,746 
Amortization of unrealized holding gains on securities transferred from available for sale to held to maturity   (11)   (25)   (65)   (80)
Reclassification adjustment for (gains) losses included in net income   (19)   -    31    9 
Income tax benefit (expense)   222    (4)   766    (657)
Total other comprehensive income (loss)   (837)   6    (2,483)   1,018 
Comprehensive income  $5,095   $3,837   $16,912   $13,053 

 

See accompanying notes to unaudited consolidated financial statements.

 

 5 

 

 

ITEM 1. Financial Statements Continued:

 

BANK FIRST NATIONAL CORPORATION

Consolidated Statement of Changes in Stockholders’ Equity

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

 

                       Accumulated     
   Serial       Additional           Other   Total 
   Preferred   Common   Paid-in   Retained   Treasury   Comprehensive   Stockholders' 
   Stock   Stock   Capital   Earnings   Stock   Income (Loss)   Equity 
       (In Thousands, except per share amounts) 
                             
Balance at January 1, 2017  $-   $67   $2,828   $134,773   $(10,437)  $292   $127,523 
Net income   -    -    -    12,035    -    -    12,035 
Other comprehensive income   -    -    -    -    -    1,018    1,018 
Purchase of treasury stock   -    -    -    -    (3,588)   -    (3,588)
Sale of treasury stock   -    -    -    -    565    -    565 
Cash dividends ($0.48 per share)   -    -    -    (2,959)   -    -    (2,959)
Amortization of stock-based compensation   -    -    338    -    -    -    338 
Vesting of restricted stock awards   -    -    (442)   -    442    -    - 
                                    
Balance at September 30, 2017  $-   $67   $2,724   $143,849   $(13,018)  $1,310   $134,932 
                                    
Balance at January 1, 2018  $-   $74   $27,528   $145,879   $(12,730)  $977   $161,728 
Net income   -    -    -    19,395    -    -    19,395 
Other comprehensive loss   -    -    -    -    -    (2,483)   (2,483)
Purchase of treasury stock   -    -    -    -    (8,065)   -    (8,065)
Sale of treasury stock   -    -    -    -    1,347    -    1,347 
Cash dividends ($0.48 per share)   -    -    -    (3,199)   -    -    (3,199)
Amortization of stock-based compensation   -    -    410    -    -    -    410 
Vesting of restricted stock awards   -    -    (483)   -    483    -    - 
                                    
Balance at September 30, 2018  $-   $74   $27,455   $162,075   $(18,965)  $(1,506)  $169,133 

 

See accompanying notes to unaudited consolidated financial statements.

 

 6 

 

 

ITEM 1. Financial Statements Continued:

 

BANK FIRST NATIONAL CORPORATION

Consolidated Statements of Cash Flows

(In thousands) (Unaudited)

 

   Nine Months Ended September 30, 
   2018   2017 
   (In Thousands) 
Cash flows from operating activities:
Net income  $19,395   $12,035 
Adjustments to reconcile net income to net cash provided by operating activities:          
Net amortization of securities   315    535 
Depreciation and amortization of premises and equipment   847    729 
Amortization of intangibles   567    3 
Accretion of purchase accounting valuations   (4,921)   - 
Provision for loan losses   2,185    635 
Amortization of stock-based compensation   410    338 
Net change in deferred loan fees and costs   (205)   71 
Change in fair value of mortgage servicing rights (MSR) and other   (151)   19 
Proceeds from sales of mortgage loans   25,332    41,260 
Originations of mortgage loans held for sale   (25,706)   (41,644)
Gain on sales of mortgage loans   (429)   (713)
Realized loss on sale of securities available for sale   31    9 
Gain on sale and disposal of premises and equipment   (311)   - 
(Gain) loss on sale of OREO and valuation allowance   331    (39)
Undistributed income of UFS joint venture   (1,855)   (1,711)
Undistributed income of Ansay joint venture   (1,934)   (1,788)
Net earnings on life insurance   (305)   (407)
Decrease (increase) in other assets   683    (1,020)
Increase (decrease) in other liabilities   (4,113)   (2,345)
Net cash provided by operating activities   10,166    5,967 
Cash flows from investing activities:
Sales of securities available for sale   4,467    37,152 
Maturities, paydowns, and calls of:          
Securities available for sale   8,284    5,996 
Securities held to maturity   2,060    1,810 
Purchases of:          
Securities available for sale   (16,878)   (15,160)
Securities held to maturity   (2,968)   (10,852)
Net increase in loans   (42,259)   (76,997)
Dividends received from UFS   1,237    653 
Dividends received from Ansay   1,180    618 
Proceeds from sale of OREO   1,815    39 
Net sales of other investments   2,326    500 
Proceeds from sale of premises and equipment   435    - 
Purchases of premises and equipment   (6,117)   (1,616)
Net cash used in investing activities   (46,418)   (57,857)

 

 7 

 

 

ITEM 1. Financial Statements Continued:

 

BANK FIRST NATIONAL CORPORATION

Consolidated Statements of Cash Flows (Continued)

(In thousands) (Unaudited)

 

   Nine Months ended September 30, 
   2018   2017 
   (In Thousands) 
Cash flows from financing activities:          
Net (decrease) increase in deposits  $(19,722)  $14,364 
Net decrease in securities sold under repurchase agreements   (40,270)   (37,409)
Proceeds from advances of notes payable   1,154,600    411,500 
Repayment of notes payable   (1,115,100)   (376,500)
Dividends paid   (3,199)   (2,959)
Proceeds from sales of common stock   1,347    565 
Repurchase of common stock   (8,065)   (3,588)
Net cash (used in) provided by financing activities   (30,409)   5,973 
Net increase (decrease) in cash and cash equivalents   (66,661)   (45,917)
Cash and cash equivalents at beginning of period   101,977    80,157 
Cash and cash equivalents at end of period  $35,316   $34,240 
           
Supplemental disclosures of cash flow information:          
           
Cash paid during the period for:          
Interest  $10,197   $5,085 
Income taxes   3,675    5,750 
Supplemental schedule of noncash activities:          
Loans transferred to OREO   768    25 
Mortgage servicing rights resulting from sale of loans   239    352 
Amortization of unrealized holding gains on securities transferred from available for sale to held to maturity recognized in other comprehensive income, net of tax   (51)   (49)
Change in unrealized loss on investment securities available for sale, net of tax   (2,515)   1,061 

 

See accompanying notes to consolidated financial statements.

 

 8 

 

 

BANK FIRST NATIONAL CORPORATION

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

 

NOTE 1 – BASIS OF PRESENTATION

 

Bank First National 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 eighteen locations located in Manitowoc, Outagamie, Brown, Winnebago, Sheboygan, Waupaca and Barron counties in Wisconsin. The Company is subject to the regulations of certain federal agencies and undergoes 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 Registration Statement on Form 10 Amendment No.1 (Registration No. 001-38676) filed with the Securities and Exchange Commission (“SEC”) on October 17, 2018 (the “Registration Statement”).

 

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.

 

Subsequent Events

 

The Company has evaluated, for consideration of recognition or disclosure, subsequent events that occurred through the date of issuance of these financial statements. The Company has determined that there were no subsequent events other than that which is described below that occurred after September 30, 2018, but prior to the issuance of these financial statements that would have a material impact on the Company’s consolidated financial statements.

 

On October 16, 2018, the Company declared a regular quarterly dividend of $0.20 per share to be paid on January 7, 2019, to stockholders of record as of December 21, 2018, totaling approximately $1.3 million.

 

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 Registration Statement.

 

 9 

 

 

Recent Accounting Developments Adopted

 

In May 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-09, Compensation — Stock Compensation (Topic 718). ASU 2017-09 applies to entities that change the terms or conditions of a share-based payment award to provide clarity and reduce diversity in practice as well as cost and complexity when applying the guidance in Topic 718 to the modification to the terms and conditions of a share-based payment award. The updated guidance is effective for interim and annual reporting periods beginning after December 15, 2017. The Company adopted the updated guidance effective January 1, 2018 with no material impact on its consolidated financial statements.

 

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, to clarify the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets versus businesses. The update narrows the definition of a business by adding three principal clarifications: (1) if substantially all the fair value of the gross assets in the asset group is concentrated in either a single identifiable asset or group of similar identifiable assets the transaction does not involve a business, (2) if the asset group does not include a minimum of an input and a substantive process, it does not represent a business, and (3) if the integrated set of activities (including its inputs and processes) does not create, or have the ability to create, goods or services to customers, investment income (e.g., dividends or interest) or other revenue, it is not a business. The overall intention is to provide consistency in applying the guidance and make the definition of a business more operable. This update is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years and should be applied prospectively. The Company adopted the updated guidance effective January 1, 2018 with no material impact on its consolidated financial statements.

 

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash to provide guidance on the presentation of restricted cash or restricted cash equivalents in the statement of cash flows to reduce diversity in practice. The amendment requires that a statement of cash flow explain the change during the period in the total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash or restricted cash equivalents should be included in cash and cash equivalents when reconciling the beginning and end of period total amounts shown on the statement of cash flow. This amendment is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years and should be applied retrospectively to each period presented. The Company adopted the updated guidance effective January 1, 2018 with no material impact on its consolidated financial statements.

 

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts to address diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments provide guidance on specific cash flow issues, including: debt prepayment or debt extinguishment costs, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of Corporate-Owned Life Insurance Policies, including Bank-Owned Life Insurance Policies, and distributions received from equity method investees. The amendments are effective for public business entities for fiscal years beginning after December 31, 2017, and interim periods within those fiscal years. The Company adopted the updated guidance effective January 1, 2018 with no material impact on its consolidated financial statements.

 

In January 2016, the FASB issued ASU 2016-01, Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, to address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. This amendment supersedes the guidance to classify equity securities with readily determinable fair values into different categories, requires equity securities to be measured at fair value with changes in the fair value recognized through net income, and simplifies the impairment assessment of equity investments without readily determinable fair values. The amendment also requires public business entities that are required to disclose the fair value of financial instruments measured at amortized cost on the balance sheet to measure that fair value using the exit price notion. The amendment requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or in the accompanying notes to the financial statements. This amendment is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Entities are required to apply the amendment by means of a cumulative-effect adjustment as of the beginning of the fiscal year of adoption, with the exception of the amendment related to equity securities without readily determinable fair values, which should be applied prospectively to equity investments that exist as of the date of adoption. The Company adopted the updated guidance effective January 1, 2018 with no material impact on its consolidated financial statements.

 

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), with several subsequent updates. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. Topic 606 provides a five-step model to apply to revenue recognition, consisting of the following: (1) identify the contract; (2) identify the performance obligation in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations; and (5) recognize revenue when or as the performance obligation is satisfied. The guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The Company adopted the updated guidance using the modified retrospective approach effective January 1, 2018, with no material impact on its consolidated financial statements.

 

 10 

 

 

Recently Issued Not Yet Effective Accounting Standards

 

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” The update will require lessees to recognize right-of-use assets and lease liabilities for all leases not considered short term leases. The provisions of the update also include (a) defining direct costs to only include those incremental costs that would not have been incurred if the lease had not been entered into, (b) circumstances under which the transfer contract in a sale-leaseback transaction should be accounted for as the sale of an asset by the seller-lessee and the purchase of an asset by the buyer-lessor, and (c) additional disclosure requirements. The provisions of this update become effective for interim and annual periods beginning after December 15, 2018. The Company’s assets and liabilities will increase based on the present value of the remaining leases in place at the adoption date; however, this is not expected to be material to the Company’s consolidated financial statements.

 

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts and requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as, the credit quality and underwriting standards of an organization’s portfolio. In addition, ASU 2016-13 amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. ASU 2016-13 will become effective for interim and annual periods beginning after December 15, 2019. Management is currently evaluating the potential impact of this update, although the general expectation in the banking industry is that the implementation of this standard will result in higher required balances in the ALL.

 

In March 2017, the FASB issued ASU 2017-08, “Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities.” The amendments in this ASU shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount, which continue to be amortized to maturity. Public business entities must prospectively apply the amendments in this ASU to annual periods beginning after December 15, 2018, including interim periods. The adoption of this update will not have a material impact on the Company’s consolidated financial statements.

 

NOTE 2 – ACQUISITIONS

 

On October 27, 2017, the Company completed a merger with Waupaca Bancorporation, Inc. (“Waupaca”), a bank holding company headquartered in Waupaca, Wisconsin, pursuant to the Agreement and Plan of Bank Merger, dated as of May 11, 2017 and as amended on July 20, 2017, by and among the Company, BFNC Merger Sub, LLC, a wholly-owned subsidiary of the Company, and Waupaca, whereby Waupaca merged with and into the Company, and First National Bank, Waupaca’s wholly-owned banking subsidiary, was merged with and into the Bank. Waupaca’s principal activity was the ownership and operation of First National Bank, a national banking institution that operated eight (8) branches in Wisconsin at the time of closing. The merger consideration totaled approximately $78,060,000, 70% of which was distributed in cash and 30% of which was distributed in the form of Company common stock.

 

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

 

NOTE 3 – EARNINGS PER SHARE

 

Basic earnings per share are computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share are computed by dividing net income by the sum of the weighted average number of shares of common stock outstanding and potential common shares using the treasury stock method. There were no potential common shares during the periods presented.

 

 11 

 

 

A reconciliation of the numerators and denominators of the earnings per common share, which equals earnings per common share assuming dilution, for the three and nine months ended September 30, 2018 and 2017, are presented below:

 

    Three months ended September 30,    Nine months ended September 30, 
    2018     2017    2018   2017 
Weighted-average common shares outstanding     6,659,021       6,143,576     6,682,472    6,176,329 
Net income   $ 5,932     $ 3,831    $19,395   $12,035 
Basic and diluted earnings per share   $ 0.89     $ 0.62    $2.90   $1.95 

 

NOTE 4 – SECURITIES

 

The Company’s securities available for sale as of September 30, 2018 and December 31, 2017 is summarized as follows:

 

       Gross   Gross     
   Amortized   Unrealized   Unrealized   Estimated 
   Cost   Gains   Losses   Fair Value 
                 
September 30, 2018                    
U.S. Treasury securities  $500   $-   $-   $500 
Obligations of states and political subdivisions   52,069    378    (388)   52,059 
Mortgage-backed securities   52,440    56    (1,726)   50,770 
Corporate notes   16,681    -    (387)   16,294 
Total available for sale securities  $121,690   $434   $(2,501)  $119,623 
                     
December 31, 2017                    
U.S. Treasury securities  $499   $-   $(1)  $498 
Obligations of states and political subdivisions   58,026    1,467    (103)   59,390 
Mortgage-backed securities   42,800    157    (322)   42,635 
Corporate notes   16,602    -    (82)   16,520 
Total available for sale securities  $117,927   $1,624   $(508)  $119,043 

 

The Company’s securities held to maturity as of September 30, 2018 and December 31, 2017 is summarized as follows:

 

       Gross   Gross     
   Amortized   Unrealized   Unrealized   Estimated 
   Cost   Gains   Losses   Fair Value 
                 
September 30, 2018                    
U.S. Treasury securities  $28,408   $-   $(755)  $27,653 
Obligations of states and political subdivisions   12,474    3    (1)   12,476 
Total held to maturity securities  $40,882   $3   $(756)  $40,129 
                     
December 31, 2017                    
U.S. Treasury securities  $25,426   $-   $(157)  $25,269 
Obligations of states and political subdivisions   14,565    5    (31)   14,539 
Total held to maturity securities  $39,991   $5   $(188)  $39,808 

 

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:

 

 12 

 

 

   Less Than 12 Months   Greater Than 12 Months   Total 
   Fair   Unrealized   Fair   Unrealized   Fair   Unrealized 
   Value   Losses   Value   Losses   Value   Losses 
                         
September 30, 2018 - Available for Sale                              
U.S. Treasury securities  $-   $-   $-   $-   $-   $- 
Obligations of states and political subdivisions   21,188    (359)   2,142    (29)   23,330    (388)
Mortgage-backed securities   43,066    (1,587)   4,630    (139)   47,696    (1,726)
Corporate notes   12,390    (387)   -    -    12,390    (387)
Totals  $76,644   $(2,333)  $6,772   $(168)  $83,416   $(2,501)
                               
September 30, 2018 - Held to Maturity                              
U.S. Treasury securities  $27,653   $(755)  $-   $-   $27,653   $(755)
Obligations of states and political subdivisions   702    (1)   -    -    702    (1)
Totals  $28,355   $(756)  $-   $-   $28,355   $(756)
                               
December 31, 2017 - Available for Sale                              
U.S. Treasury securities  $498   $(1)  $-   $-   $498   $(1)
Obligations of states and political subdivisions   3,700    (14)   2,765    (89)   6,465    (103)
Mortgage-backed securities   29,696    (250)   4,316    (72)   34,012    (322)
Corporate notes   12,642    (82)   -    -    12,642    (82)
Totals  $46,536   $(347)  $7,081   $(161)  $53,617   $(508)
                               
December 31, 2017 - Held to Maturity                              
U.S. Treasury securities  $10,425   $(50)  $12,281   $(107)  $22,706   $(157)
Obligations of states and political subdivisions   1,609    (24)   218    (7)   1,827    (31)
Totals  $12,034   $(74)  $12,499   $(114)  $24,533   $(188)

 

As of September 30, 2018, 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. There were no other-than-temporary impairments charged to earnings during the nine months ended September 30, 2018 or 2017.

 

The following is a summary of amortized cost and estimated fair value of securities by contractual maturity as of September 30, 2018. 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  $4,130   $4,162   $4,413   $4,412 
Due after one year through five years   17,312    17,149    13,297    13,157 
Due after five years through ten years   14,656    14,525    19,392    18,780 
Due after ten years   33,152    33,017    3,780    3,780 
Subtotal   69,250    68,853    40,882    40,129 
Mortgage-backed securities   52,440    50,770    -    - 
Total  $121,690   $119,623   $40,882   $40,129 

 

 13 

 

 

The following is a summary of the proceeds from sales of securities available for sale, as well as gross gains and losses for the nine months ended September 30, 2018 and 2017:

 

   2018   2017 
Proceeds from sales of securities   $4,467   $37,152 
Gross gains on sales      41    56 
Gross losses on sales      72    65 

 

NOTE 5 – LOANS, ALL AND CREDIT QUALITY

 

The following table presents total loans by portfolio segment and class of loan as of September 30, 2018 and December 31, 2017:

 

   September 30,   December 31, 
   2018   2017 
         
Commercial/industrial  $314,379   $263,787 
Commercial real estate - owner occupied   420,727    418,928 
Commercial real estate - non-owner occupied   233,442    225,290 
Construction and development   68,137    75,907 
Residential 1-4 family   364,325    377,141 
Consumer   34,365    33,471 
Other   6,795    3,511 
Subtotals   1,442,170    1,398,035 
ALL   (11,560)   (11,612)
Deferred loan fees and costs   (693)   (488)
Loans, net  $1,429,917   $1,385,935 

 

The ALL by loan type as of September 30, 2018 and December 31, 2017 is summarized as follows:

 

   Commercial /
Industrial
   Commercial
Real Estate -
Owner
Occupied
   Commercial
Real Estate -
Non - Owner
Occupied
   Construction
and
Development
   Residential
1-4 Family
   Consumer   Other   Unallocated   Total 
                                     
ALL - January 1, 2018  $2,362   $2,855   $1,987   $945   $2,728   $191   $23   $521   $11,612 
Charge-offs   (35)   (2,344)   -    (83)   (128)   (7)   (29)   -    (2,626)
Recoveries   2    138    3    -    228    10    8    -    389 
Provision   326    2,591    (118)   69    (419)   (11)   32    (285)   2,185 
ALL - September 30, 2018   2,655    3,240    1,872    931    2,409    183    34    236    11,560 
                                              
ALL ending balance individually evaluated for impairment   -    353    -    -    160    -    -    -    513 
                                              
ALL ending balance collectively evaluated for impairment  $2,655   $2,887   $1,872   $931   $2,249   $183   $34   $236   $11,047 
                                              
Loans outstanding - September 30, 2018  $314,379   $420,727   $233,442   $68,137   $364,325   $34,365   $6,795   $-   $1,442,170 
                                              
Loans ending balance individually evaluated for impairment   -    5,397    -    -    704    -    -    -    6,101 
                                              
Loans ending balance collectively evaluated for impairment  $314,379   $415,330   $233,442   $68,137   $363,621   $34,365   $6,795   $-   $1,436,069 

 

 14 

 

 

   Commercial /
Industrial
   Commercial
Real Estate -
Owner
Occupied
   Commercial
Real Estate -
Non - Owner
Occupied
   Construction
and
Development
   Residential
1-4 Family
   Consumer   Other   Unallocated   Total 
                                     
ALL - January 1, 2017  $1,905   $2,576   $1,900   $727   $2,685   $189   $84   $662   $10,728 
Charge-offs   (4)   -    (1)   (15)   (141)   (7)   (50)   -    (218)
Recoveries   7    -    -    -    36    1    3    -    47 
Provision   454    279    88    233    148    8    (14)   (141)   1,055 
ALL - December 31, 2017   2,362    2,855    1,987    945    2,728    191    23    521    11,612 
                                              
ALL ending balance individually evaluated for impairment   -    121    -    -    160    -    -    -    281 
                                              
ALL ending balance collectively evaluated for impairment  $2,362   $2,734   $1,987   $945   $2,568   $191   $23   $521   $11,331 
                                              
Loans outstanding - December 31, 2017  $263,787   $418,928   $225,290   $75,907   $377,141   $33,471   $3,511   $-   $1,398,035 
                                              
Loans ending balance individually evaluated for impairment   -    275    -    -    709    -    -    -    984 
                                              
Loans ending balance collectively evaluated for impairment  $263,787   $418,653   $225,290   $75,907   $376,432   $33,471   $3,511   $-   $1,397,051 

 

The Company’s past due loans as of September 30, 2018 is summarized as follows:

 

      90 Days         
   30-89 Days   or more         
   Past Due
Accruing
   Past Due,
Accruing
   Non-Accrual   Total 
                 
Commercial/industrial  $319   $756   $7,506   $8,581 
Commercial real estate - owner occupied   172    7,261    11,034    18,467 
Commercial real estate - non-owner occupied   462    62    433    957 
Construction and development   -    49    43    92 
Residential 1-4 family   454    474    1,073    2,001 
Consumer   51    15    31    97 
Other   -    -    -    - 
   $1,458   $8,617   $20,120   $30,195 

 

The Company’s past due loans as of December 31, 2017 is summarized as follows:

 

      90 Days         
   30-89 Days   or more         
   Past Due
Accruing
   Past Due,
Accruing
   Non-Accrual   Total 
                 
Commercial/industrial  $740   $15   $6,473   $7,228 
Commercial real estate - owner occupied   4,285    2,016    7,253    13,554 
Commercial real estate - non-owner occupied   239    -    712    951 
Construction and development   -    -    758    758 
Residential 1-4 family   1,470    448    2,878    4,796 
Consumer   38    7    53    98 
Other   -    -    -    - 
   $6,772   $2,486   $18,127   $27,385 

 

 15 

 

 

We utilize 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, 2018 is as follows:

 

    Pass (1-5)    6    7    8    Total 
                          
Commercial/industrial  $298,321   $3,007   $13,051   $-   $314,379 
Commercial real estate - owner occupied   371,373    5,309    44,021    24    420,727 
Commercial real estate - non-owner occupied   230,031    -    3,411    -    233,442 
Construction and development   68,074    -    63    -    68,137 
Residential 1-4 family   359,672    671    3,979    3    364,325 
Consumer   34,296    -    69    -    34,365 
Other   6,795    -    -    -    6,795 
                          
   $1,368,562   $8,987   $64,594   $27   $1,442,170 

 

 

The breakdown of loans by risk rating as of December 31, 2017 is as follows:

 

                     
   Pass (1-5)   6   7   8   Total 
                     
Commercial/industrial  $247,576   $1,222   $14,989   $-   $263,787 
Commercial real estate - owner occupied   373,046    1,113    44,522    247    418,928 
Commercial real estate - non-owner occupied   221,844    1,382    2,064    -    225,290 
Construction and development   68,998    -    6,909    -    75,907 
Residential 1-4 family   370,683    -    6,456    2    377,141 
Consumer   33,426    -    43    2    33,471 
Other   3,511    -    -    -    3,511 
                          
   $1,319,084   $3,717   $74,983   $251   $1,398,035 

 

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 (PFLL) is charged to operations based on management’s periodic evaluation of the factors previously mentioned, as well as other pertinent factors.

 

 16 

 

 

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, 2018 is as follows:

 

   Commercial/
Industrial
   Commercial
Real Estate -
Owner
Occupied
   Commercial
Real Estate -
Non - Owner
Occupied
   Construction
and
Development
   Residential
1-4 Family
   Consumer   Other   Unallocated   Total 
                                     
With an allowance recorded:                                             
Recorded investment  $-   $2,100   $-   $-   $523   $-   $-   $-   $2,623 
Unpaid principal balance   -    2,100    -    -    523    -    -    -    2,623 
Related allowance   -    353    -    -    160    -    -    -    513 
                                              
With no related allowance recorded:                                             
Recorded investment  $-   $3,297   $-   $-   $181   $-   $-   $-   $3,478 
Unpaid principal balance   -    3,297    -    -    181    -    -    -    3,478 
Related allowance   -    -    -    -    -    -    -    -    - 
                                              
Total:                                             
Recorded investment  $-   $5,397   $-   $-   $704   $-   $-   $-   $6,101 
Unpaid principal balance   -    5,397    -    -    704    -    -    -    6,101 
Related allowance   -    353    -    -    160    -    -    -    513 
                                              
Average recorded investment  $-   $2,836   $-   $-   $707   $-   $-   $-   $3,545 

 

A summary of impaired loans individually evaluated as of December 31, 2017 is as follows:

 

 17 

 

 

   Commercial/
Industrial
   Commercial
Real Estate -
Owner
Occupied
   Commercial
Real Estate -
Non - Owner
Occupied
   Construction
and
Development
   Residential
1-4 Family
   Consumer   Other   Unallocated   Total 
                                     
With an allowance recorded:                                             
Recorded investment  $-   $275   $-   $-   $523   $-   $-   $-   $798 
Unpaid principal balance   -    275    -    -    523    -    -    -    798 
Related allowance   -    121    -    -    160    -    -    -    281 
                                              
With no related allowance recorded:                                             
Recorded investment  $-   $-   $-   $-   $186   $-   $-   $-   $186 
Unpaid principal balance   -    -    -    -    186    -    -    -    186 
Related allowance   -    -    -    -    -    -    -    -    - 
                                              
Total:                                             
Recorded investment  $-   $275   $-   $-   $709   $-   $-   $-   $984 
Unpaid principal balance   -    275    -    -    709    -    -    -    984 
Related allowance   -    121    -    -    160    -    -    -    281 
                                              
Average recorded investment  $946   $138   $-   $13   $916   $-   $-   $-   $2,013 

 

The following table presents loans acquired with deteriorated credit quality as of September 30, 2018 and December 31, 2017. 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, 2018   December 31, 2017 
   Recorded
Investment
   Unpaid
Principal
Balance
   Recorded
Investment
   Unpaid
Principal
Balance
 
Commercial & Industrial  $458   $462   $628   $738 
Commercial real estate - owner occupied   1,791    2,080    2,609    2,951 
Commercial real estate - non-owner occupied   239    481    712    1,213 
Construction and development   402    446    758    884 
Residential 1-4 family   1,671    2,185    2,153    3,108 
Consumer   1    6    6    16 
Other   -    -    -    - 
   $4,562   $5,660   $6,866   $8,910 

 

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.

 

 18 

 

 

The following table represents the change in the accretable and non-accretable components of discounts on loans acquired with deteriorated credit quality for the period ended September 30, 2018:

 

   Accretable   Non-accretable 
   discount   discount 
         
Balance at beginning of period  $583   $800 
Acquired balance, net   -    - 
Reclassifications between accretable and non-accretable   15    (15)
Accretion to loan interest income   (110)   - 
Disposals of loans   (135)   (40)
Balance at end of period  $353   $745 

 

 

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. 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, it remains there until a sufficient period of performance under the restructured terms has occurred at which time it is returned to accrual status, generally six months. The Company did not have any specific reserves for TDR’s as of September 30, 2018 or December 31, 2017, and none of them have subsequently defaulted.

 

NOTE 6 – MORTGAGE SERVICING RIGHTS

 

Loans serviced for others are not included in the accompanying consolidated balance sheets. Mortgage servicing rights (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 mortgage servicing rights 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 mortgage servicing rights 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 mortgage servicing rights asset:

 

   Nine Months Ended   Year Ended 
   September 30, 2018   December 31, 2017 
         
Fair value at beginning of year  $2,610   $2,406 
Servicing asset additions   239    428 
Loan payments and payoffs   (349)   (440)
Changes in valuation inputs and assumptions used in the valuation model   500    216 
Amount recognized through earnings   390    204 
Fair value at end of period  $3,000   $2,610 
           
Unpaid principal balance of loans serviced for others  $313,154   $316,253 
Mortgage servicing rights as a percent of loans serviced for others   0.96    0.83 

 

The primary economic assumptions utilized by the Company in measuring the value of MSRs were constant prepayment speeds of 8.6 and 9.5 months as of September 30, 2018 and December 31, 2017, respectively, and discount rates of 10% as of both period ends.

 

 19 

 

  

NOTE 7 – NOTES PAYABLE

 

From time to time the Company utilizes short-term Federal Home Loan Bank (FHLB) advances to fund liquidity. As of September 30, 2018, outstanding balances in overnight borrowings from the FHLB totaled $46 million. There were no advances outstanding from the FHLB as of December 31, 2017.

 

The Company maintains a $5 million line of credit with a commercial bank. At September 30, 2018 and December 31, 2017, the Company had outstanding balances on this note of $2 million and $5 million, respectively. The note requires monthly payments of interest at a variable rate, and is due in full on May 25, 2019.

 

The Company maintains a $5 million line of credit with another commercial bank. There were no outstanding balances on this note at September 30, 2018 or December 31, 2017.

 

During September 2017 the Company entered into a term-loan agreement with a commercial bank under which it borrowed $3.5 million which was outstanding as of December 31, 2017. The borrowings bore interest at a variable rate. This note was paid in full during July, 2018.

 

NOTE 8 – SUBORDINATED NOTES

 

During September 2017, the Company entered into subordinated note agreements with three separate commercial banks. The Company borrowed $11.5 million under these agreements as of September 30, 2018 and December 31, 2017. 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.

 

NOTE 9 – REGULATORY MATTERS

 

Banks and 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.

 

Under regulatory guidance for non-advanced approaches institutions, the Bank is required to maintain minimum amounts and ratios of common equity Tier I capital to risk-weighted assets. Additionally, under Basel III rules, the decision was made to opt-out of including accumulated other comprehensive income in regulatory capital. As of September 30, 2018 and December 31, 2017, the Bank and Company met all capital adequacy requirements to which they are subject.

 

Beginning in 2016, an additional conservation buffer was added to the minimum requirements for capital adequacy purposes, subject to a three year phase-in period. As of September 30, 2018 and December 31, 2017, the buffer was 1.88% and 1.25%, respectively. The capital conservative buffer will be fully phased in January 1, 2019 at 2.50%.

 

 20 

 

 

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

 

                           To Be Well 
               Minimum Capital   Capitalized Under 
           For Capital   Adeqaucy with   Prompt Corrective 
   Actual   Adequacy Purposes   Capital Buffer   Action Provisions 
   Amount   Ratio   Amount   Ratio   Amount   Ratio   Amount   Ratio 
                                 
September 30, 2018                                        
Total capital (to risk-weighted assets):                                        
Company  $176,314    11.04%  $127,802    8.00%  $157,756    9.88%   NA    NA 
Bank  $175,411    11.00%  $127,596    8.00%  $157,502    9.88%  $159,495    10.00%
Tier 1 capital (to risk-weighted assets):                                        
Company  $153,214    9.59%  $95,852    6.00%  $125,805    7.88%   NA    NA 
Bank  $163,851    10.27%  $95,697    6.00%  $125,603    7.88%  $127,596    8.00%
Common Equity Tier 1 capital (to risk-weighted assets):                                        
Company  $153,214    9.59%  $71,889    4.50%  $101,842    6.38%   NA    NA 
Bank  $163,851    10.27%  $71,773    4.50%  $101,678    6.38%  $103,672    6.50%
Tier 1 capital (to average assets):                                        
Company  $153,214    8.73%  $70,209    4.00%   NA    NA    NA    NA 
Bank  $163,851    9.36%  $70,037    4.00%   NA    NA   $87,546    5.00%
December 31, 2017                                        
Total capital (to risk-weighted assets):                                        
Company  $165,809    10.80%  $122,868    8.00%  $142,066    9.25%   NA    NA 
Bank  $171,642    11.20%  $122,643    8.00%  $141,806    9.25%  $153,304    10.00%
Tier 1 capital (to risk-weighted assets):                                        
Company  $142,697    9.29%  $92,151    6.00%  $111,349    7.25%   NA    NA 
Bank  $160,030    10.44%  $91,982    6.00%  $111,145    7.25%  $122,643    8.00%
Common Equity Tier 1 capital (to risk-weighted assets):                                        
Company  $142,697    9.29%  $69,113    4.50%  $88,311    5.75%   NA    NA 
Bank  $160,030    10.44%  $68,987    4.50%  $88,150    5.75%  $99,647    6.50%
Tier 1 capital (to average assets):                                        
Company  $142,697    8.47%  $67,415    4.00%   NA    NA    NA    NA 
Bank  $160,030    9.56%  $66,984    4.00%   NA    NA   $83,780    5.00%

 

NOTE 10 – COMMITMENTS

 

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, 2018 and December 31, 2017, respectively, was $7,031,000 and $3,186,000.

 

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, 2018   December 31, 2017 
Commitments to extend credit:          
Fixed  $58,825   $39,027 
Variable   261,606    264,995 
Credit card arrangements   6,523    5,642 
Letters of credit   25,355    25,904 

 

 21 

 

 

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, 2018                    
Assets                    
Securities available for sale                    
Obligations of states and political subdivisions  $52,059   $-   $51,659   $400 
Mortgage-backed securities   50,770    -    50,770    - 
Corporate notes   16,294    -    16,294    - 
U.S. Treasury securities   500    -    500    - 
Mortgage servicing rights   3,000    -    3,000    - 
                     
December 31, 2017                    
Assets                    
Securities available for sale                    
Obligations of states and political subdivisions  $59,390   $-   $58,890   $500 
Mortgage-backed securities   42,635    -    42,635    - 
Corporate notes   16,520    -    16,520    - 
U.S. Treasury securities   498    -    498    - 
Mortgage servicing rights   2,610    -    2,610    - 

 

 22 

 

 

Fair value of assets measured on a recurring basis using significant unobservable inputs (Level 3) are as follows:

 

   September 30, 2018   December 31, 2017 
         
Total securities at beginning of year  $500   $1,010 
Included in earnings   -    - 
Included in other comprehensive income   -    - 
Purchases, issuance, and settlements   (100)   - 
Transfer in and/or out of level 3   -    (510)
Total securities at end of period  $400   $500 

 

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, 2018                
OREO  $4,892   $-   $-   $4,892 
Impaired Loans, net of impairment reserve   22,189    -    -    22,189 
   $27,081   $-   $-   $27,081 
December 31, 2017                    
OREO  $6,270   $-   $-   $6,270 
Impaired Loans, net of impairment reserve   18,372    -    -    18,372 
   $24,642   $-   $-   $24,642 

 

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:

 

   Valuation
Technique
  Unobservable
Inputs
  Range of
Discounts
   Weighted
Average
Discount
 
As of September 30, 2018                
OREO  Third-party appraisals, sales contracts or brokered price options  Collateral discounts and estimated costs to sell   0% - 40%   21.7%
Impaired loans  Third-party appraisals and discounted cash flows  Collateral discounts and discount rates   0% - 100%   8.5%
                 
As of December 31, 2017                
OREO  Third-party appraisals, sales contracts or brokered price options  Collateral discounts and estimated costs to sell   0% - 100%   15.7%
Impaired loans  Third-party appraisals and discounted cash flows  Collateral discounts and discount rates   0% - 100%   6.1%

 

 23 

 

 

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.

 

 24 

 

 

The carrying value and estimated fair value of financial instruments at September 30, 2018 and December 31, 2017 follows:

 

       Fair value 
September 30, 2018  Carrying
amount
   Level 1   Level 2   Level 3   Total 
                     
Financial assets:                         
Cash and cash equivalents  $35,316   $35,316   $-   $-   $35,316 
Securities held to maturity   40,882    -    40,129    -    40,129 
Securities available for sale   119,623    -    119,223    400    119,623 
Loans held for sale   564    -    -    564    564 
Loans, net   1,429,917    -    -    1,416,546    1,416,546 
Other investments, at cost   4,900    -    -    4,900    4,900 
Mortgage servicing rights   3,000    -    3,000    -    3,000 
Cash surrender value of life insurance   24,027    24,027    -    -    24,027 
                          
Financial liabilities:                         
Deposits  $1,486,470   $-   $-   $1,372,558   $1,372,558 
Securites sold under repurchase agreements   7,298    -    7,298    -    7,298 
Notes payable   48,000    -    48,000    -    48,000 
Subordinated notes   11,500    -    11,500    -    11,500 

 

       Fair value 
December 31, 2017  Carrying
amount
   Level 1   Level 2   Level 3   Total 
                     
Financial assets:                         
Cash and cash equivalents  $101,977   $101,977   $-   $-   $101,977 
Securities held to maturity   39,991    -    39,808    -    39,808 
Securities available for sale   119,043    -    118,543    500    119,043 
Loans, net   1,385,935    -    -    1,375,864    1,375,864 
Other investments, at cost   7,226    -    -    7,226    7,226 
Mortgage servicing rights   2,610    -    2,610    -    2,610 
Cash surrender value of life insurance   23,722    23,722    -    -    23,722 
                          
Financial liabilities:                         
Deposits  $1,506,642   $-   $-   $1,454,580   $1,454,580 
Securites sold under repurchase agreements   47,568    -    47,568    -    47,568 
Notes payable   8,500    -    8,500    -    8,500 
Subordinated notes   11,500    -    11,500    -    11,500 

 

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 National Corporation 2011 Equity Plan (Plan). The purpose of the Plan is to provide financial incentives for selected employees and for the non-employee Directors of the Company, thereby promoting the long-term growth and financial success of the Company. The Company stock to be offered under the Plan pursuant to Stock Appreciation Rights (SAR), performance unit awards, and restricted stock and unrestricted Company stock awards must be Company stock previously issued and outstanding and reacquired by the Company. The number of shares of Company stock that may be issued pursuant to awards under the Plan shall not exceed, in the aggregate, 659,250. As of September 30, 2018 and December 31, 2017, 160,362 and 142,465 shares of Company stock have been awarded under the Plan, respectively. Compensation expense for restricted stock is based on the fair value of the awards of Bank First National 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, 2018 and 2017, compensation expense of $410,000 and $338,000, respectively, was recognized related to restricted stock awards.

 

As of September 30, 2018, there was $1,461,000 of unrecognized compensation cost related to non-vested restricted stock awards granted under the plan. That cost is expected to be recognized over a weighted average period of 2.75 years. The aggregate grant date fair value of restricted stock awards that vested during the nine months ended September 30, 2018, was approximately $483,000.

 

   For the nine months ended September 30, 2018   For the nine months ended September 30, 2017 
                 
       Weighted-       Weighted- 
       Average Grant-       Average Grant- 
   Shares   Date Fair Value   Shares   Date Fair Value 
Restricted Stock                    
Outstanding at beginning of period   53,619   $26.59    59,543   $21.98 
Granted   17,989    46.55    15,975    35.00 
Vested   (19,825)   24.35    (21,899)   20.20 
Forfeited or cancelled   -    -    -    - 
Outstanding at end of period   51,783   $34.38    53,619   $26.59 

 

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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, 2017 set forth in our Registration Statement on Form 10 Amendment No. 1 (Registration No. 001-38676) and filed with the SEC on October 17, 2018 (the “Registration Statement”) and with our unaudited condensed accompanying notes set forth in this Quarterly Report on Form 10-Q for the quarterly period September 30, 2018.

 

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.

 

CRITICAL ACCOUNTING POLICIES

 

Our financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and general practices within the banking industry. Within our financial statements, certain financial information contains approximate measurements of financial effects of transactions and impacts at the consolidated balance sheet dates and our results of operations for the reporting periods. As certain accounting policies require significant estimates and assumptions that have a material impact on the carrying value of assets and liabilities, we have established critical accounting policies to facilitate making the judgments necessary to prepare our financial statements. Our critical accounting policies are described in our previously filed Registration Statement

 

OVERVIEW

 

Bank First National 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 18 banking locations in Manitowoc, Outagamie, Brown, Winnebago, Sheboygan, Waupaca and Barron counties in Wisconsin. The Bank offers loan, deposit and treasury management products at each of its banking locations.

 

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, LLC which provides core data processing, endpoint management cloud services, cyber security and digital banking solutions for over 50 Midwest banks. The Bank, through its 100% owned subsidiary TVG Holdings, Inc., also holds a 30% ownership interest in Ansay & Associates, LLC, an insurance agency providing clients throughout the Midwest with insurance and risk management solutions. These unconsolidated subsidiary interests contribute noninterest income to the Bank through their underlying annual earnings.

 

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

 

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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)  9/30/2018   6/30/2018   3/31/2018   12/31/2017   9/30/2017   9/30/2018   9/30/2017 
                             
Results of Operations:                                   
                                    
Interest income  $19,510   $19,372   $19,309   $17,430   $12,629   $58,191   $36,042 
Interest expense   3,974    3,604    3,027    2,298    1,998    10,605    5,434 
                                    
Net interest income   15,536    15,768    16,282    15,132    10,631    47,586    30,608 
Provision for loan losses   800    900    485    420    255    2,185    635 
                                    
Net interest income after provision for loan losses   14,736    14,868    15,797    14,712    10,376    45,401    29,973 
                                    
Noninterest income   2,508