Bank First Corp. 2023 First-Quarter Form 10-Q Summary
Business context and reporting period
Bank First Corporation is the holding company for Bank First, N.A., a Wisconsin full-service community bank operating 28 locations. The filing covers the unaudited three months ended March 31, 2023, compared primarily with the three months ended March 31, 2022 and December 31, 2022 balance-sheet data.
The February 10, 2023 acquisition of Hometown Bancorp, Ltd. added approximately $395.8 million of loans, $532.4 million of deposits, six branches and $115.1 million of Bank First common stock issued. The acquisition generated approximately $64.9 million of goodwill and $16.5 million of core deposit intangibles.
Key financial metrics
| Metric | Q1 2023 | Comparable period | Change |
|---|---|---|---|
| Net interest income | $32.2 million | $22.3 million | Up $9.9 million |
| Provision for credit losses | $4.2 million | $1.2 million | Up $3.0 million |
| Noninterest income | $5.8 million | $5.2 million | Up $0.6 million |
| Noninterest expense | $19.7 million | $12.7 million | Up $6.9 million |
| Net income | $10.7 million | $10.2 million | Up 4.9% |
| Diluted EPS | $1.09 | $1.34 | Down $0.25 |
| Tax-equivalent net interest margin | 3.74% | 3.06% | Up 68 basis points |
| Return on average assets | 1.11% | 1.27% | Down 16 basis points |
| Return on average common equity | 8.33% | 12.62% | Down 4.29 percentage points |
| Net cash provided by operating activities | $4.1 million | $2.5 million | Up $1.6 million |
Amounts are in thousands or millions as indicated. The increase in net income reflected acquisition-related scale and stronger net interest income, but per-share earnings declined because the Hometown transaction increased the weighted-average share count.
Financial condition, liquidity and capital
- Total assets increased 13.9% from December 31, 2022 to $4.17 billion, principally due to the Hometown acquisition.
- Loans increased 14.8% to $3.32 billion; net loans were $3.28 billion. Commercial real estate represented approximately 51% of total loans, and residential 1-to-4-family loans represented approximately 26%.
- Total deposits increased 13.2% to $3.46 billion, including $1.10 billion of noninterest-bearing deposits and $2.36 billion of interest-bearing deposits.
- Cash and cash equivalents increased to $169.7 million. Management reported approximately $1.12 billion of combined availability between borrowings and brokered deposits and $633.6 million of additional FHLB borrowing capacity.
- Borrowings included $36.6 million of FHLB advances, $23.5 million of subordinated notes and $10.9 million of junior subordinated debentures. Securities sold under repurchase agreements totaled $46.6 million.
- Stockholders’ equity increased 24.1% to $562.4 million, primarily from shares issued in the Hometown acquisition. Book value per common share was $54.04, while tangible book value per common share was $34.14.
- The Bank remained well capitalized. At March 31, 2023, Bank First, N.A. reported total risk-based capital of 12.20%, CET1 capital of 11.21% and Tier 1 leverage capital of 10.79%.
Material changes versus prior comparable periods
- Interest income increased 68.9% to $40.9 million, driven by higher earning-asset balances and higher yields. Average interest-earning assets increased to $3.52 billion from $3.00 billion, while the average earning-asset yield increased to 4.74% from 3.32%.
- Interest expense increased to $8.7 million from $1.9 million. Average interest-bearing deposit costs increased to 1.35% from 0.36%, reflecting higher market rates and deposit repricing.
- Noninterest income increased 12%, led by higher service charges, income from Ansay and UFS, loan servicing income and mortgage servicing-rights valuation gains. Mortgage-loan sale gains declined 79% to $0.1 million due to slower mortgage activity.
- Noninterest expense increased 54%, reflecting the larger operating platform, $1.3 million of acquisition-related expenses and higher amortization of acquisition-related intangibles.
- The allowance for credit losses on loans increased to $43.3 million, or 1.30% of loans, from $22.7 million at December 31, 2022 and $21.7 million at March 31, 2022.
- The company adopted the CECL model on January 1, 2023, reducing retained earnings by approximately $10.1 million and increasing the loan allowance by approximately $11.0 million. Hometown acquisition accounting added a $5.5 million allowance for purchased credit-deteriorated loans.
- Available-for-sale securities declined to $197.9 million from $304.6 million at year-end, while held-to-maturity securities increased to $78.0 million from $45.1 million. The AFS portfolio had $18.4 million of gross unrealized losses, which management attributed to interest-rate and market changes rather than credit deterioration.
Credit quality, outlook and risks
Nonperforming loans totaled $5.2 million, including $4.7 million of nonaccrual loans, and other real estate owned totaled $3.9 million. Total nonperforming assets were $9.1 million, or 0.22% of total assets. Net charge-offs were negligible during the quarter. Management stated that the allowance was adequate to absorb expected losses, but CECL estimates remain sensitive to economic forecasts, collateral values, portfolio composition and borrower performance.
The filing provides no specific quantitative earnings or revenue guidance. Management expects to continue exceeding applicable well-capitalized regulatory requirements and believes current liquidity is adequate. The company cautions that results may be affected by interest-rate movements, deposit pricing and retention, economic conditions, credit losses, commercial real estate exposure, mortgage-market activity, acquisition integration and regulatory or capital requirements.
Interest-rate modeling indicated that a parallel 400-basis-point increase could reduce projected 12-month net interest income by 1.7%, while a 100-basis-point decrease could reduce it by 0.5%, assuming no balance-sheet growth. The company estimated a 3.15% increase in economic value of equity from an instantaneous 200-basis-point rate increase and a 1.72% decrease from a 100-basis-point decrease.
Off-balance-sheet commitments totaled $783.8 million at March 31, 2023, including $754.0 million of unused lines of credit, $11.4 million of letters of credit and $18.4 million of credit-card arrangements. Management reported no material litigation, no material change in previously disclosed risk factors and effective disclosure controls.
Most important facts for investors to verify
- Whether deposit costs continue rising faster than loan and securities yields, potentially compressing the net interest margin.
- Whether the Hometown acquisition produces expected scale benefits after acquisition expenses and intangible amortization.
- Trends in commercial real estate concentrations, nonperforming loans, criticized assets, charge-offs and the $43.3 million CECL allowance.
- The liquidity and capital impact of deposit outflows, securities sales, FHLB borrowing and unrealized securities losses.
- Whether mortgage servicing-rights valuation gains and income from Ansay and UFS remain sustainable.
- The effect of the increased share count and future repurchases on EPS and tangible book value per share.