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 26 locations across Wisconsin. The filing covers the unaudited quarter ended March 31, 2024, with comparisons to March 31, 2023 and December 31, 2023. The bank’s primary businesses are commercial, commercial real estate, residential, construction and consumer lending, deposits, treasury management and mortgage servicing.
Key Financial Metrics
| Metric | Q1 2024 | Comparable / Prior Period |
|---|---|---|
| Net income | $15.4 million | $10.7 million in Q1 2023 |
| Diluted EPS | $1.51 | $1.09 in Q1 2023 |
| Total interest income | $49.3 million | $40.9 million in Q1 2023 |
| Net interest income | $33.3 million | $32.2 million in Q1 2023 |
| Provision for credit losses | $0.2 million | $4.2 million in Q1 2023 |
| Noninterest income | $4.4 million | $5.8 million in Q1 2023 |
| Noninterest expense | $20.3 million | $19.7 million in Q1 2023 |
| Net interest margin, taxable equivalent | 3.62% | 3.74% in Q1 2023; 3.53% in Q4 2023 |
| Return on average assets | 1.50% | 1.11% in Q1 2023 |
| Return on average common equity | 10.11% | 8.33% in Q1 2023 |
| Net loans | $3.34 billion | $3.30 billion at December 31, 2023 |
| Total assets | $4.10 billion | $4.22 billion at December 31, 2023 |
| Total deposits | $3.42 billion | $3.43 billion at December 31, 2023 |
| Cash and cash equivalents | $83.4 million | $247.5 million at December 31, 2023 |
| Stockholders’ equity | $609.3 million | $619.8 million at December 31, 2023 |
All dollar amounts are as reported in the filing; financial statement amounts are generally in thousands unless otherwise indicated.
Material Changes Versus Prior Comparable Period
- Net income increased 44% year over year, primarily reflecting higher earning-asset balances, lower credit-loss provision expense and the absence of significant Hometown acquisition-related costs incurred in Q1 2023.
- Interest income increased 20.5% to $49.3 million, supported by higher average interest-earning assets and higher yields.
- Interest expense increased 83.7% to $15.9 million. Interest expense on deposits more than doubled to $15.4 million as average interest-bearing deposit costs rose to 2.51% from 1.35%.
- Net interest margin declined to 3.62% from 3.74% in Q1 2023, as funding-cost increases more than offset asset-yield improvement.
- Noninterest income declined 25% to $4.4 million. The decrease reflected the sale of UFS in October 2023, which eliminated $0.9 million of Q1 2023 income, and a $0.3 million MSR valuation loss versus a $0.8 million gain in Q1 2023.
- Noninterest expense increased 3% to $20.3 million, with higher salaries, data processing and amortization costs partly offset by lower outside-service and acquisition-related expenses.
- Loans increased $40.4 million, or 1.2%, during the quarter. Growth was concentrated in commercial and industrial, non-owner-occupied commercial real estate, and construction and development loans.
- Cash declined by $164.1 million as funds were deployed into loan growth and securities sold under repurchase agreements were fully redeemed. Deposits declined modestly by $16.9 million.
- The company repurchased $22.3 million of common stock during the quarter, including 261,193 shares at an average price of $85.27, and declared $3.5 million of dividends.
Credit Quality, Liquidity, Debt and Capital
- The allowance for credit losses on loans was $44.4 million, or 1.31% of total loans, compared with $43.3 million, or 1.30%, at March 31, 2023. The quarter included $0.6 million of net recoveries and a $0.2 million provision.
- Nonperforming loans increased to $9.9 million from $6.6 million at December 31, 2023; nonperforming assets increased to $12.6 million, or 0.31% of assets, from $9.1 million, or 0.21%. Management attributed the increase in nonaccrual loans primarily to one Hometown-acquired customer relationship.
- FHLB advances totaled $35.3 million, subordinated notes totaled $12.0 million, and no repurchase-agreement borrowings remained outstanding at March 31, 2024. A $4.1 million junior subordinated debenture was repaid during the quarter.
- The company reported $805.7 million of additional FHLB borrowing availability and approximately $1.71 billion of aggregate availability between borrowings and brokered deposits.
- The Bank remained well capitalized. At March 31, 2024, Bank First, N.A. reported total capital of 12.24%, Tier 1 capital of 11.15%, CET1 capital of 11.15% and a Tier 1 leverage ratio of 9.91%.
- Available-for-sale securities had $13.0 million of gross unrealized losses. Management attributed the losses primarily to interest-rate and market changes rather than credit deterioration and reported no related credit-loss allowance.
Outlook, Risks and Unusual Items
- Management expects to continue exceeding applicable well-capitalized regulatory requirements and the capital conservation buffer in 2024.
- The allowance methodology incorporates expectations for higher national unemployment and lower GDP growth during the forecast period, while using long-term averages for other loss drivers because of forecast volatility.
- Interest-rate risk remains material. The filing’s simulation estimated that a 100-basis-point rate decline would reduce projected next-12-month net interest income by 3.0%, while a 100-basis-point increase would increase it by 0.3%.
- The company estimated that a 200-basis-point instantaneous rate increase would increase economic value of equity by 4.61%, while a 100-basis-point decrease would reduce it by 3.79%.
- Commitments to extend credit totaled $797.0 million, including $726.5 million of variable-rate commitments. Letters of credit totaled $11.0 million, and credit card commitments totaled $21.8 million.
- Rate-lock commitments for mortgage loans intended for sale totaled approximately $7.4 million.
- The company renewed a $30 million share-repurchase authorization effective February 21, 2024, through February 20, 2025.
- Management stated that pending litigation is not expected to materially affect financial position, results of operations or liquidity. No material changes were reported to previously disclosed risk factors.
- Disclosure controls and procedures were deemed effective, and no material changes occurred in internal control over financial reporting during the quarter.
Important Facts for Investors to Verify
- Whether deposit pricing and the higher cost of interest-bearing deposits continue to compress the net interest margin.
- Whether the increase in nonaccrual and nonperforming loans, particularly the Hometown-acquired relationship, develops into additional charge-offs or provision expense.
- The sustainability of loan growth, especially in commercial real estate and construction and development portfolios.
- Liquidity trends following the substantial reduction in cash and the elimination of repurchase-agreement funding.
- The effect of ongoing share repurchases and dividends on tangible capital, regulatory capital ratios and per-share results.
- Future MSR valuation changes and mortgage production, given the Q1 valuation loss and interest-rate sensitivity.
- The impact of future interest-rate movements on deposit costs, net interest income and economic value of equity.