Bank First Corporation 10-Q Summary
Business Context and Reporting Period
Bank First Corporation is a Wisconsin bank holding company for Bank First, N.A., a full-service community bank operating 28 Wisconsin locations. The filing covers the unaudited quarter and six months ended June 30, 2023. Comparative periods are the three and six months ended June 30, 2022, with balance-sheet comparisons to December 31, 2022.
The February 10, 2023 acquisition of Hometown Bancorp, Ltd. added approximately $615.1 million of assets, $549.6 million of liabilities, 10 branches at closing, and 1,450,272 shares issued as consideration. Results of Hometown before closing are not included in the financial statements.
Key Financial Metrics
| Metric | Q2 2023 | Q2 2022 | Change |
|---|---|---|---|
| Interest income | $45.9 million | $25.8 million | +77.9% |
| Interest expense | $11.7 million | $2.3 million | +398.0% |
| Net interest income | $34.3 million | $23.5 million | +$10.8 million |
| Provision for credit losses | — | $0.5 million | Decrease of $0.5 million |
| Noninterest income | $4.1 million | $5.6 million | -27% |
| Noninterest expense | $19.5 million | $13.2 million | +47% |
| Net income | $14.1 million | $11.7 million | +21.3% |
| Diluted EPS | $1.37 | $1.55 | Decrease of $0.18 |
| Tax-equivalent net interest margin | 3.77% | 3.21% | +56 basis points |
| Return on average assets | 1.38% | 1.47% | Down 9 basis points |
| Return on average common equity | 9.99% | 14.72% | Down 473 basis points |
For the six months ended June 30, 2023, net income was $24.8 million versus $21.8 million in the prior-year period; net interest income was $66.5 million versus $45.8 million; and diluted EPS was $2.46 versus $2.89.
Balance Sheet, Liquidity, Debt, and Capital
- Total assets were $4.09 billion, up 11.8% from December 31, 2022.
- Total loans were $3.31 billion, up 14.5%; net loans were $3.27 billion. Approximately $395.8 million of loans were acquired through Hometown.
- Total deposits were $3.41 billion, up 11.3%, including $1.08 billion of noninterest-bearing deposits and $2.32 billion of interest-bearing deposits.
- Cash and cash equivalents were $111.3 million, compared with $119.4 million at year-end 2022.
- Stockholders’ equity was $570.9 million, up 26.0%, primarily due to $115.1 million of common stock issued in the Hometown acquisition.
- FHLB borrowings increased to $35.8 million from $1.9 million. Subordinated notes totaled $23.5 million and junior subordinated debentures totaled $10.9 million.
- The Company reported approximately $1.12 billion of borrowing and brokered-deposit availability, including $775.6 million of FHLB borrowing capacity.
- The Bank was well capitalized. At June 30, 2023, Bank First, N.A. reported total risk-based capital of 12.27%, CET1 capital of 11.28%, and Tier 1 leverage capital of 10.27%.
Material Changes Versus Prior Comparable Period
- Net interest income benefited from acquisition-related asset growth and higher earning-asset yields. Average interest-earning assets increased to $3.68 billion from $2.98 billion, while the average yield increased to 5.04% from 3.53%.
- Funding costs rose materially. The average cost of interest-bearing deposits increased to 1.74% from 0.40%, and total interest-bearing liabilities increased to $2.44 billion from $2.05 billion.
- Noninterest income declined because Q2 2023 included a $0.5 million negative mortgage servicing rights valuation adjustment versus a $1.5 million positive adjustment in Q2 2022, and a $0.5 million loss on OREO sales and valuations.
- Noninterest expense increased primarily from the larger operating platform, acquisition-related costs, higher personnel and data-processing costs, and amortization of acquisition-related intangibles.
- Reported EPS declined despite higher net income because the share count increased substantially following the Hometown acquisition.
- The allowance for credit losses on loans increased to $43.4 million, or 1.31% of loans, from $22.7 million, or 0.95% at June 30, 2022. The increase primarily reflects adoption of CECL and acquired Hometown credit exposure.
- Available-for-sale securities declined to $191.3 million from $304.6 million at year-end 2022, while held-to-maturity securities increased to $77.7 million from $45.1 million. AFS securities had $20.5 million of gross unrealized losses at June 30, 2023.
Credit Quality, Outlook, Risks, and Unusual Items
- The Company adopted CECL on January 1, 2023, reducing retained earnings by approximately $10.1 million and increasing the loan allowance by $11.0 million plus $3.3 million for unfunded commitments.
- Six-month provision expense was $4.2 million, including $4.1 million on loans and $0.1 million on unfunded commitments. Net loan recoveries were $0.1 million, and Q2 net recoveries were also approximately $0.1 million.
- Nonperforming loans were $5.2 million and nonperforming assets were $7.4 million at June 30, 2023. Nonaccrual loans were $4.6 million, or 0.14% of total loans.
- Commercial real estate represented approximately 50% of the loan portfolio, creating exposure to property values, refinancing conditions, and regional economic conditions.
- Management stated that economic forecasts were little changed during the quarter and that liquidity was adequate. No formal earnings or financial guidance was provided.
- Interest-rate sensitivity shifted materially from year-end. The filing’s simulation estimated that a 400-basis-point rate increase would reduce projected 12-month net interest income by 4.5%, while a 100-basis-point decrease would increase it by 0.6%, assuming no balance-sheet growth.
- The Company reported $20.5 million of unrealized losses on AFS securities and stated that the losses were attributable to interest rates and market spreads rather than credit deterioration. No securities credit-loss allowance was recorded.
- Off-balance-sheet commitments totaled $808.0 million, including $777.3 million of unused lines of credit, $11.3 million of letters of credit, and $19.4 million of credit-card arrangements.
- The Company reactivated a $26 million share-repurchase program in April 2023 and repurchased 18,486 shares in Q2 at an average price of $72.55.
- Management reported no material changes to previously disclosed risk factors, no material litigation exposure, and effective disclosure controls as of June 30, 2023.
Important Facts for Investors to Verify
- Whether deposit pricing and migration toward higher-cost certificates of deposit continue to pressure net interest margin.
- Whether the Hometown acquisition produces expected revenue and cost synergies after integration and purchase-accounting effects.
- Trends in commercial real estate credit quality, nonaccrual loans, criticized assets, and collateral values.
- The adequacy of the $43.4 million CECL allowance as economic forecasts and loan composition change.
- Potential earnings volatility from mortgage servicing rights valuations, OREO activity, securities values, and interest-rate movements.
- The sustainability of liquidity, deposit balances, FHLB borrowing capacity, and regulatory capital following continued loan growth.
- The effect of acquisition-related amortization and the materially higher share count on future EPS and tangible book value.