Bank First Corporation 10-Q Summary
Business Context and Reporting Period
Bank First Corporation is a Wisconsin-based bank holding company for Bank First, N.A., a full-service community bank operating 26 locations across Wisconsin. The filing covers the quarter and nine months ended September 30, 2023. Financial statements are unaudited and presented in thousands, except per-share data.
The company completed its acquisition of Hometown Bancorp, Ltd. on February 10, 2023. The transaction added approximately $395.8 million of loans, $532.4 million of deposits, 10 branches at closing, and $64.9 million of goodwill.
Key Financial Metrics
| Metric | Q3 2023 | Q3 2022 | Change |
|---|---|---|---|
| Interest income | $47.0 million | $30.7 million | +52.9% |
| Interest expense | $12.9 million | $3.0 million | +324.4% |
| Net interest income | $34.1 million | $27.7 million | +23.0% |
| Provision for credit losses | $0 | $0 | No change |
| Noninterest income | $5.3 million | $5.2 million | +1.7% |
| Noninterest expense | $19.6 million | $18.9 million | +4.0% |
| Net income | $14.8 million | $10.5 million | +40.5% |
| Diluted EPS | $1.43 | $1.26 | +13.5% |
| Return on average assets | 1.44% | 1.25% | +19 basis points |
| Return on average common equity | 10.19% | 10.42% | Down 23 basis points |
| Tax-equivalent net interest margin | 3.71% | 3.63% | +8 basis points |
For the nine months ended September 30, 2023, net income was $39.6 million versus $32.4 million in the prior-year period. Net interest income increased to $100.6 million from $73.5 million, while noninterest income was $15.7 million versus $15.8 million and noninterest expense increased to $59.3 million from $44.7 million. Nine-month diluted EPS was $3.89 versus $4.15, reflecting the substantial increase in shares issued in the Hometown acquisition.
Balance Sheet, Liquidity, Debt, and Capital
| Balance-sheet item | September 30, 2023 | December 31, 2022 | Change |
|---|---|---|---|
| Total assets | $4.09 billion | $3.66 billion | +11.7% |
| Total loans | $3.36 billion | $2.89 billion | +15.9% |
| Loans, net of ACL | $3.31 billion | $2.87 billion | +15.4% |
| Total deposits | $3.40 billion | $3.06 billion | +11.0% |
| Cash and cash equivalents | $75.8 million | $119.4 million | Down $43.6 million |
| Stockholders’ equity | $577.3 million | $453.1 million | +27.4% |
| FHLB notes payable, net | $35.8 million | $1.9 million | Increase of $33.9 million |
- The allowance for credit losses on loans was $43.4 million, or 1.29% of loans, compared with $22.7 million, or 0.78%, at December 31, 2022 and $23.0 million, or 0.81%, at September 30, 2022.
- Cash flow from operating activities was $32.6 million for the first nine months, compared with $20.0 million in the prior-year period. Investing activities provided $186.5 million, largely due to business-combination cash and securities maturities. Financing activities used $262.7 million, primarily reflecting deposit and repurchase-agreement reductions, dividends, and debt activity.
- The company reported $1.76 billion of availability between borrowings and brokered deposits. FHLB borrowing availability was $773.6 million, and the company maintained an undrawn $7.5 million commercial-bank line of credit.
- Bank First, N.A. was well capitalized. At September 30, 2023, its total capital ratio was 11.94%, CET1 ratio was 11.02%, Tier 1 risk-based capital ratio was 11.02%, and leverage ratio was 10.20%.
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 $3.67 billion from $3.06 billion in the third quarter, while the average cost of interest-bearing deposits rose to 1.99% from 0.52%.
- Interest expense grew substantially as deposit pricing increased and borrowing costs rose, partially offsetting higher loan yields.
- Noninterest expense increased because of the larger operating platform and higher amortization of acquisition-related core deposit intangibles. Third-quarter 2022 also included approximately $4.6 million of acquisition-related expenses, compared with approximately $0.3 million in Q3 2023.
- Mortgage-related noninterest income weakened: nine-month net gains on mortgage loan sales declined 53% to $0.6 million, and MSR valuation adjustments declined 84% to $0.5 million.
- The company adopted CECL on January 1, 2023, reducing retained earnings by approximately $10.1 million and increasing the loan allowance by approximately $11.0 million. The Hometown acquisition added $5.5 million of allowance for purchased credit-deteriorated loans.
- Loans and deposits increased primarily because of the Hometown acquisition. Securities declined by approximately $93.5 million as maturities and sales were used to fund loan growth and offset deposit changes.
Outlook, Risks, Contingencies, and Unusual Items
- Management stated that credit-quality metrics showed limited stress. Nonperforming loans were $3.4 million, nonperforming assets were $5.2 million, and net loan charge-offs were negligible at September 30, 2023.
- Interest-rate risk is material. The company’s simulation indicated that a parallel 400-basis-point increase in rates would reduce projected 12-month net interest income by 5.0%, while a 100-basis-point decline would increase it by 1.2%, assuming no balance-sheet growth.
- Available-for-sale securities had $26.6 million of gross unrealized losses, and held-to-maturity securities had $2.3 million of unrealized losses. Management attributed the losses primarily to interest-rate and market-spread changes rather than credit deterioration and recorded no related credit-loss allowance.
- On October 1, 2023, the Bank sold its 100% member interest in UFS for $52.2 million of proceeds and expects to recognize a pre-tax gain of $39.3 million in the fourth quarter. This will eliminate the company’s UFS ownership interest and related earnings contribution.
- On October 2, 2023, the company repaid $11.5 million of subordinated notes.
- Off-balance-sheet commitments totaled $825.2 million, including $794.5 million of unused lines of credit, $10.5 million of letters of credit, and $20.2 million of credit-card arrangements.
- Management disclosed no material changes to previously reported risk factors and stated that ordinary-course litigation is not expected to materially affect financial condition, results of operations, or liquidity.
- The Wisconsin tax law change produced a $2.4 million reversal of state tax expense, offset by a $2.9 million increase in the deferred-tax-asset valuation allowance, resulting in a net one-time increase of approximately $0.5 million in third-quarter tax expense.
Most Important Facts for Investors to Verify
- Assess the sustainability of net interest income as deposit costs continue to rise and the interest-rate environment changes.
- Separate organic growth from the effects of the Hometown acquisition, including acquisition-related loan marks, goodwill, intangible amortization, and added expenses.
- Monitor commercial real estate exposure, which represented approximately 50% of total loans, and trends in nonaccrual loans, criticized assets, and the CECL allowance.
- Evaluate liquidity after the decline in cash and securities, the increase in FHLB borrowings, and the company’s reliance on deposit retention and available funding capacity.
- Consider the effect of the October UFS sale on recurring noninterest income and the fourth-quarter $39.3 million pre-tax gain.
- Review unrealized securities losses and capital sensitivity to interest-rate movements.
- Confirm the impact of the October subordinated-note repayment on regulatory capital, funding costs, and future liquidity.