Bank First(BFC) - 2024 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION This section presents the unaudited consolidated financial statements and management's discussion and analysis of Bank First Corporation's financial condition and results of operations ITEM 1. FINANCIAL STATEMENTS This section presents the unaudited consolidated financial statements of Bank First Corporation, including balance sheets, income statements, and cash flows, with detailed notes on accounting policies and recent acquisitions Consolidated Balance Sheets This statement provides a snapshot of the Company's assets, liabilities, and stockholders' equity at specific points in time | Metric (in thousands) | June 30, 2024 (Unaudited) | December 31, 2023 (Audited) | | :-------------------- | :------------------------ | :-------------------------- | | Assets | | | | Cash and cash equivalents | $98,950 | $247,468 | | Loans, net | $3,383,517 | $3,299,365 | | Total Assets | $4,145,820 | $4,221,842 | | Liabilities | | | | Total deposits | $3,399,941 | $3,432,920 | | Notes payable | $90,321 | $35,270 | | Total Liabilities | $3,531,241 | $3,602,044 | | Stockholders' Equity | | | | Total Stockholders' Equity | $614,579 | $619,798 | - Total assets decreased by $76.0 million (1.8%) from $4.22 billion at December 31, 2023, to $4.15 billion at June 30, 2024, primarily due to a significant decrease in cash and cash equivalents, partially offset by an increase in net loans[5][133] - Cash and cash equivalents declined by $148.5 million, from $247.5 million at December 31, 2023, to $99.0 million at June 30, 2024, mainly due to investments in the loan portfolio and reductions in deposits and securities sold under repurchase agreements[5][133] - Net loans increased by $84.2 million, reaching $3.38 billion at June 30, 2024, up from $3.30 billion at December 31, 2023[5][134] Consolidated Statements of Income This statement reports the Company's revenues, expenses, and net income over specific periods, reflecting operational profitability | Metric (in thousands) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total interest income | $49,347 | $45,929 | $98,619 | $86,831 | | Total interest expense | $16,340 | $11,657 | $32,263 | $20,325 | | Net interest income | $33,007 | $34,272 | $66,356 | $66,506 | | Provision for credit losses | $0 | $0 | $200 | $4,182 | | Total noninterest income | $5,877 | $4,554 | $10,274 | $10,403 | | Total noninterest expense | $19,057 | $19,946 | $39,381 | $39,610 | | Net Income | $16,059 | $14,132 | $31,471 | $24,812 | | Earnings per share - basic | $1.59 | $1.37 | $3.10 | $2.46 | - Net income for the three months ended June 30, 2024, increased by $1.9 million (13.6%) to $16.1 million compared to $14.1 million in the same period of 2023[7][106] - Net income for the six months ended June 30, 2024, increased by $6.7 million (27.0%) to $31.5 million compared to $24.8 million in the same period of 2023[7][117] - Basic EPS increased to $1.59 for Q2 2024 from $1.37 for Q2 2023, and to $3.10 for H1 2024 from $2.46 for H1 2023[7] Consolidated Statements of Comprehensive Income This statement presents net income and other comprehensive income, providing a complete view of changes in equity from non-owner sources | Metric (in thousands) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net Income | $16,059 | $14,132 | $31,471 | $24,812 | | Total other comprehensive income (loss) | $40 | $(1,782) | $(625) | $628 | | Comprehensive income | $16,099 | $12,350 | $30,846 | $25,440 | - Comprehensive income for the three months ended June 30, 2024, was $16.1 million, up from $12.4 million in the prior year, driven by positive other comprehensive income compared to a loss in 2023[10] - For the six months ended June 30, 2024, comprehensive income was $30.8 million, compared to $25.4 million in the prior year, despite a total other comprehensive loss of $0.6 million in 2024 versus a gain of $0.6 million in 2023[10] Consolidated Statements of Changes in Stockholders' Equity This statement details changes in stockholders' equity, including net income, dividends, and stock repurchases, over a period | Metric (in thousands) | Balance at January 1, 2024 | Net Income | Other Comprehensive Income (Loss) | Purchase of Treasury Stock | Sale of Treasury Stock | Cash Dividends | Amortization of Stock-Based Compensation | Vesting of Restricted Stock Awards | Balance at June 30, 2024 | | :-------------------- | :------------------------- | :--------- | :-------------------------------- | :------------------------- | :--------------------- | :------------- | :--------------------------------------- | :--------------------------------- | :----------------------- | | Total Stockholders' Equity | $619,798 | $31,471 | $(625) | $(30,226) | $120 | $(7,052) | $1,093 | $(2,145) | $614,579 | - Total stockholders' equity decreased by $5.2 million (0.8%) from $619.8 million at December 31, 2023, to $614.6 million at June 30, 2024[14][136] - The decrease was primarily due to $30.2 million in common stock repurchases and $7.1 million in cash dividends, partially offset by $31.5 million in net income and $1.1 million in stock-based compensation amortization during the first six months of 2024[14][136] Consolidated Statements of Cash Flows This statement reports cash inflows and outflows from operating, investing, and financing activities, showing liquidity changes | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $16,263 | $15,163 | | Net cash provided by (used in) investing activities | $(69,819) | $221,759 | | Net cash used in financing activities | $(94,962) | $(244,947) | | Net decrease in cash and cash equivalents | $(148,518) | $(8,025) | | Cash and cash equivalents at end of period | $98,950 | $111,326 | - Net cash provided by operating activities increased to $16.3 million for the six months ended June 30, 2024, from $15.2 million in the prior year[16] - Net cash used in investing activities was $69.8 million for the six months ended June 30, 2024, a significant change from $221.8 million provided in the prior year, primarily due to increased net loan growth and reduced proceeds from securities sales[16] - Net cash used in financing activities decreased to $95.0 million for the six months ended June 30, 2024, from $244.9 million in the prior year, mainly due to a smaller net decrease in deposits and higher proceeds from notes payable[19] Notes to Unaudited Consolidated Financial Statements This section provides detailed explanations and additional information supporting the unaudited consolidated financial statements NOTE 1 – BASIS OF PRESENTATION This note outlines the preparation of interim financial statements under GAAP and discusses the impact of recently issued accounting standards - Interim unaudited consolidated financial statements are prepared in accordance with GAAP for interim financial information, with certain information and footnote disclosures omitted or abbreviated[22] - No material changes or developments occurred regarding critical accounting policies and estimates, including accounting for business combinations, ACL-Loans, and deferred tax assets/liabilities[23][24] - Recently issued accounting standards (ASU 2020-04, ASU 2023-06, ASU 2023-07, ASU 2023-09) are not anticipated to have a significant impact on the Company's financial statements, with ASU 2023-07 on segment reporting effective for annual periods beginning after December 15, 2023, and ASU 2023-09 on income tax disclosures effective after December 15, 2024[25][26][27][28] NOTE 2 – ACQUISITIONS This note details the Company's merger with Hometown Bancorp, Ltd. for $130.5 million, resulting in $64.9 million in goodwill - On February 10, 2023, the Company completed a merger with Hometown Bancorp, Ltd. for approximately $130.5 million[29] - Merger consideration included 1,450,272 shares of Company common stock (valued at $115.1 million) and $15.4 million in cash[30] | Acquired/Assumed Item (in thousands) | Fair Value as Recorded by Company | | :----------------------------------- | :-------------------------------- | | Total assets acquired | $615,105 | | Total liabilities assumed | $549,564 | | Goodwill | $64,881 | NOTE 3 – EARNINGS PER SHARE This note explains the two-class method for calculating basic and diluted earnings per share, including participating securities - The two-class method is used for basic and diluted earnings per share calculations, allocating earnings between common shareholders and participating securities (restricted stock awards)[35][37] | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :----- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net Income | $16,059 | $14,132 | $31,471 | $24,812 | | Basic EPS | $1.59 | $1.37 | $3.10 | $2.46 | | Diluted EPS | $1.59 | $1.37 | $3.10 | $2.46 | NOTE 4 – SECURITIES This note summarizes available-for-sale and held-to-maturity securities, their fair values, and unrealized gains/losses, attributing losses to interest rate changes | Security Type (in thousands) | June 30, 2024 (Fair Value) | December 31, 2023 (Fair Value) | | :--------------------------- | :------------------------- | :----------------------------- | | Securities available for sale | $127,977 | $142,197 | | Securities held to maturity | $109,805 | $103,626 | | Unrealized Losses (in thousands) | June 30, 2024 | December 31, 2023 | | :------------------------------- | :------------ | :---------------- | | AFS Securities (Gross Unrealized Losses) | $(12,879) | $(12,207) | | HTM Securities (Gross Unrealized Losses) | $(1,471) | $(1,070) | - No allowance for credit losses has been recognized on AFS securities in an unrealized loss position, as the Company believes these are not credit impaired and unrealized losses are due to interest rate changes, not credit deterioration[41] - Held-to-maturity securities have zero expected credit losses, with U.S. Treasury securities backed by the U.S. Government[42] NOTE 5 – LOANS, ALLOWANCE FOR CREDIT LOSSES, AND CREDIT QUALITY This note details the loan portfolio, ACL-Loans, and credit quality, noting an increase in non-accrual loans due to an acquired customer relationship | Loan Type (in thousands) | June 30, 2024 | December 31, 2023 | | :----------------------- | :------------ | :---------------- | | Commercial/industrial | $507,895 | $488,498 | | Commercial real estate - owner occupied | $921,204 | $893,977 | | Commercial real estate - non-owner occupied | $472,392 | $473,829 | | Multi-family | $333,660 | $332,959 | | Construction and development | $230,791 | $201,823 | | Residential 1-4 family | $896,957 | $888,412 | | Consumer | $52,946 | $50,741 | | Other | $14,795 | $14,980 | | Subtotals | $3,430,640 | $3,345,219 | | ACL - Loans | $(45,118) | $(43,609) | | Loans, net | $3,383,517 | $3,299,365 | | ACL - Loans Activity (in thousands) | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :---------------------------------- | :----------------------------- | :----------------------------- | | Beginning Balance | $43,609 | $22,680 | | Provision for credit losses | $700 | $4,092 | | Net recoveries | $809 | $131 | | Ending Balance | $45,118 | $43,409 | - Non-accrual loans increased to $7.3 million at June 30, 2024, from $5.7 million at December 31, 2023, primarily due to one customer relationship acquired from Hometown[52][53][158] - Past due loans (90+ days, still accruing) increased to $3.4 million at June 30, 2024, from $0.9 million at December 31, 2023, mainly in Commercial real estate - owner occupied[52][53] NOTE 6 – MORTGAGE SERVICING RIGHTS This note describes Mortgage Servicing Rights (MSRs) recognized at fair value, with a balance of $13.7 million at June 30, 2024 - MSRs are recognized as separate assets at fair value when loans are sold with servicing retained[63] | MSR Metric (in thousands) | Six Months Ended June 30, 2024 | Year Ended December 31, 2023 | | :------------------------ | :----------------------------- | :--------------------------- | | Fair value at beginning of period | $13,668 | $9,582 | | Servicing asset additions | $488 | $879 | | Loan payments and payoffs | $(819) | $(1,624) | | Changes in valuation inputs and assumptions | $357 | $1,140 | | Fair value at end of period | $13,694 | $13,668 | - Primary economic assumptions for MSR valuation include constant prepayment speeds of 7.8 months (June 30, 2024) and 7.5 months (December 31, 2023), and a discount rate of 10.19% for both periods[65] NOTE 7 – NOTES PAYABLE This note details FHLB advances, which significantly increased to $90.5 million to support loan growth, with $737.1 million in additional availability - FHLB advances increased by $55.0 million to $90.5 million at June 30, 2024, from $35.5 million at December 31, 2023, to provide liquidity for loan growth[66][135] | Maturity | Rate (June 30, 2024) | June 30, 2024 (in thousands) | December 31, 2023 (in thousands) | | :------- | :------------------- | :--------------------------- | :------------------------------- | | 1 year or less | 5.16% | $25,000 | $0 | | 1 to 2 years | 4.02% | $10,000 | $10,000 | | 2 to 3 years | 4.77% | $15,000 | $0 | | 3 to 4 years | 3.91% | $10,000 | $10,000 | | 4 to 5 years | 4.57% | $15,000 | $0 | | Over 5 years | 3.85% | $10,000 | $10,000 | | Total | | $90,508 | $35,508 | - The Company had an additional $737.1 million in borrowing availability at the FHLB as of June 30, 2024[68] NOTE 8 – SUBORDINATED NOTES AND JUNIOR SUBORDINATED DEBENTURES This note covers $12.0 million in subordinated notes qualifying as Tier 2 capital and the redemption of junior subordinated debentures - Subordinated notes totaled $12.0 million at June 30, 2024, with fixed interest rates (5.0% through June 30, 2025, and 5.25% through August 6, 2027) and qualifying as Tier 2 capital[69][70] - Junior subordinated debentures acquired from Hometown Bancorp, totaling $4.1 million (Trust I) and $8.2 million (Trust II), were redeemed in December 2023 (Trust II) and January 2024 (Trust I), leading to the dissolution of the trusts[71][135] NOTE 9 – REGULATORY MATTERS This note confirms the Company and Bank met all regulatory capital adequacy requirements and were classified as 'well capitalized' - The Company and Bank met all capital adequacy requirements, including the 2.5% conservation buffer, as of June 30, 2024, and December 31, 2023[73] | Capital Ratio | Company (June 30, 2024) | Bank (June 30, 2024) | Company (December 31, 2023) | Bank (December 31, 2023) | | :------------ | :---------------------- | :------------------- | :-------------------------- | :----------------------- | | Total capital (to risk-weighted assets) | 13.66% | 12.32% | 13.99% | 12.91% | | Tier 1 capital (to risk-weighted assets) | 12.17% | 11.17% | 12.65% | 11.92% | | Common Equity Tier 1 capital (to risk-weighted assets) | 12.17% | 11.17% | 12.54% | 11.92% | | Tier 1 capital (to average assets) | 10.98% | 10.07% | 11.05% | 10.40% | - The Bank was well capitalized at June 30, 2024, exceeding the minimum requirements for CET1 (6.5%), Tier 1 (8.0%), Total Capital (10.0%), and Leverage (5.0%) ratios[193] NOTE 10 – COMMITMENTS AND CONTINGENCIES This note outlines off-balance sheet financial instruments, with total commitments of $797.6 million at June 30, 2024 - Notional amount of rate-lock commitments increased to $13.2 million at June 30, 2024, from $5.9 million at December 31, 2023[75] | Commitment Type (in thousands) | June 30, 2024 (Notional Amount) | December 31, 2023 (Notional Amount) | | :----------------------------- | :------------------------------ | :---------------------------------- | | Commitments to extend credit: Fixed | $59,958 | $92,113 | | Commitments to extend credit: Variable | $704,141 | $707,285 | | Credit card arrangements | $22,273 | $21,213 | | Letters of credit | $11,265 | $9,785 | | Total commitments | $797,637 | $830,396 | NOTE 11 – FAIR VALUE MEASUREMENTS This note describes fair value measurements using a three-level hierarchy, primarily Level 2 for recurring assets and Level 3 for non-recurring assets - Fair value measurements are categorized into a three-level hierarchy (Level 1: quoted prices in active markets; Level 2: significant other observable inputs; Level 3: significant unobservable inputs)[77][78] | Recurring Fair Value Assets (in thousands) | June 30, 2024 (Level 2) | December 31, 2023 (Level 2) | | :--------------------------------------- | :---------------------- | :-------------------------- | | Securities available for sale | $127,977 | $142,197 | | Mortgage servicing rights | $13,694 | $13,668 | | Non-Recurring Fair Value Assets (in thousands) | June 30, 2024 (Level 3) | December 31, 2023 (Level 3) | | :--------------------------------------------- | :---------------------- | :-------------------------- | | OREO | $712 | $2,573 | | Loans individually evaluated, net of reserve | $9,653 | $9,242 | NOTE 12 – STOCK BASED COMPENSATION This note details stock-based compensation expense of $1.1 million for H1 2024, with $3.0 million unrecognized cost remaining - Compensation expense for restricted stock awards was $0.5 million for Q2 2024 (vs. $0.6 million in Q2 2023) and $1.1 million for H1 2024 (vs. $1.0 million in H1 2023)[88] - As of June 30, 2024, $3.0 million of unrecognized compensation cost related to non-vested restricted stock awards is expected to be recognized over a weighted average period of 1.66 years[89] | Restricted Stock Activity | Outstanding at beginning of period | Granted | Vested | Forfeited or cancelled | Outstanding at end of period | | :------------------------ | :--------------------------------- | :------ | :----- | :--------------------- | :--------------------------- | | Shares (June 30, 2024) | 58,196 | 24,581 | (30,143) | 0 | 52,634 | | Weighted-Average Grant-Date Fair Value (June 30, 2024) | $72.28 | $85.85 | $71.14 | $0 | $79.27 | ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes Bank First Corporation's financial condition and operational results, covering performance, liquidity, and capital OVERVIEW Bank First Corporation operates as a full-service financial institution in Wisconsin, with primary income from loans and investments, and recently merged with Hometown Bancorp - Bank First Corporation operates as a full-service financial institution in Wisconsin with twenty-six banking locations[94] - Primary income is derived from interest on loans and investments, with deposits as the main funding source. Net interest income is maximized by managing asset/liability volumes and rates[95] - The Company completed its merger with Hometown Bancorp, Ltd. on February 10, 2023, expanding its presence in Fond du Lac, Columbia, Dane, and Waushara counties[96] SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA This section provides a historical snapshot of key consolidated financial data, including results of operations, balances, and ratios | Metric (in thousands, except per share data) | 6/30/2024 | 12/31/2023 | 6/30/2023 | | :------------------------------------------- | :-------- | :--------- | :-------- | | Net income | $16,059 | $34,898 | $14,132 | | Earnings per common share - basic | $1.59 | $3.39 | $1.37 | | Total assets | $4,145,820 | $4,221,842 | $4,092,071 | | Total liabilities | $3,531,241 | $3,602,044 | $3,521,199 | | Stockholders' equity | $614,579 | $619,798 | $570,872 | | Return on average assets | 1.58 % | 3.34 % | 1.38 % | | Net interest margin, taxable equivalent | 3.63 % | 3.53 % | 3.77 % | | Nonperforming loans to total loans | 0.31 % | 0.20 % | 0.15 % | GAAP RECONCILIATION AND MANAGEMENT EXPLANATION OF NON-GAAP FINANCIAL MEASURES This section defines and reconciles non-GAAP financial measures like tangible book value and tangible equity, excluding intangibles for capital comparison - Non-GAAP financial measures include tangible book value per common share and tangible equity to tangible assets[101] - These non-GAAP measures exclude goodwill and other intangibles to facilitate comparison of capital adequacy among companies[104] | Metric (in thousands, except per share data) | 6/30/2024 | 12/31/2023 | | :------------------------------------------- | :-------- | :--------- | | Total assets | $4,145,820 | $4,221,842 | | Goodwill | $(175,106) | $(175,106) | | Core deposit intangible, net | $(24,021) | $(26,996) | | Tangible assets | $3,946,693 | $4,019,740 | | Total stockholders' equity | $614,579 | $619,798 | | Tangible common equity | $415,452 | $417,696 | | Book value per common share | $61.27 | $59.80 | | Tangible book value per common share | $41.42 | $40.30 | | Tangible common equity to tangible assets | 10.53 % | 10.39 % | RESULTS OF OPERATIONS This section analyzes the Company's financial performance for Q2 and H1 2024, detailing changes in net income, interest income/expense, and noninterest items Results of Operations for the Three Months Ended June 30, 2024 and June 30, 2023 Net income increased by $1.9 million to $16.1 million, driven by MSR adjustments and OREO gains, despite lower net interest income due to higher funding costs - Net income increased by $1.9 million to $16.1 million for Q2 2024, compared to $14.1 million for Q2 2023, partly due to positive MSR valuation adjustments and OREO gains[106] - Net interest income decreased by $1.3 million to $33.0 million for Q2 2024, primarily due to increased cost of funding liabilities, despite a 7.4% increase in total interest income to $49.3 million[108][109] - Interest expense increased by $4.7 million (40.2%) to $16.3 million for Q2 2024, driven by higher crediting interest rates on interest-bearing liabilities[110] - Noninterest income increased by $1.3 million to $5.9 million for Q2 2024, with service charges up 19.0% and positive MSR valuation adjustments of $0.3 million (compared to a $0.5 million negative adjustment in Q2 2023)[114] - Noninterest expense decreased by $0.9 million to $19.1 million for Q2 2024, benefiting from net gains on OREO sales ($0.5 million) compared to losses in Q2 2023, and well-managed operating costs[115] - Provision for income taxes decreased to $3.8 million for Q2 2024 (19.0% effective tax rate) from $4.7 million for Q2 2023 (25.1% effective tax rate), due to a Wisconsin state budget provision exempting certain commercial loan income from state tax[116] Results of Operations for the Six months Ended June 30, 2024 and June 30, 2023 Net income increased by $6.7 million to $31.5 million, driven by the Hometown acquisition and lower expenses, while net interest income remained stable - Net income increased by $6.7 million to $31.5 million for H1 2024, compared to $24.8 million for H1 2023, benefiting from the Hometown acquisition and lower acquisition expenses in 2024[117] - Net interest income slightly decreased by $0.1 million to $66.4 million for H1 2024, as increases in rates paid on interest-bearing liabilities outpaced increases in rates earned on interest-earning assets[119] - Total interest income increased by $11.8 million (13.6%) to $98.6 million for H1 2024, driven by a 0.48% increase in average interest rates earned on interest-earning assets[120] - Interest expense increased by $11.9 million (58.7%) to $32.3 million for H1 2024, due to elevated crediting rates on interest-bearing liabilities, with the average cost of interest-bearing deposits rising to 2.57% from 1.55%[121] - Provision for credit losses was $0.2 million for H1 2024, significantly lower than $4.2 million for H1 2023, which included provisions related to Hometown acquired loans[123] - Noninterest income decreased slightly by $0.1 million to $10.3 million for H1 2024. Increases in service charges and Ansay income were offset by the absence of UFS income (due to its sale in October 2023)[124] - Noninterest expense decreased by $0.2 million to $39.4 million for H1 2024, benefiting from gains on OREO sales ($0.5 million) and lower acquisition-related expenses compared to H1 2023[126] - Provision for income taxes decreased to $5.6 million for H1 2024 (15.1% effective tax rate) from $8.3 million for H1 2023 (25.1% effective tax rate), primarily due to a Wisconsin state tax exemption on certain commercial loans and a $1.3 million reduction in estimated 2023 tax liability[127] NET INTEREST MARGIN This section analyzes the Company's net interest margin (NIM) and rate/volume changes, noting a decrease to 3.62% due to higher funding costs | Metric | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :----- | :----------------------------- | :----------------------------- | | Earning asset yield | 5.37 % | 4.89 % | | Cost of funds | 2.61 % | 1.72 % | | Net interest spread (3) | 2.76 % | 3.18 % | | Net interest margin (4) | 3.62 % | 3.76 % | - The tax-equivalent net interest margin decreased by 0.14% to 3.62% for the six months ended June 30, 2024, from 3.76% in the same period of 2023[119] - The decrease in NIM was primarily due to increases in rates paid on interest-bearing liabilities (up 0.89%) outpacing increases in rates earned on interest-earning assets (up 0.48%) over the last twelve months[119] | Change in Net Interest Income (in thousands) | Six Months Ended June 30, 2024 | | :------------------------------------------- | :----------------------------- | | Due to Volume | $4,952 | | Due to Rate | $(5,601) | | Total Change | $(649) | CHANGES IN FINANCIAL CONDITION This section details balance sheet changes, including a $76.0 million asset decrease, driven by lower cash and higher loans, and a slight equity reduction Total Assets Total assets decreased by $76.0 million (1.8%) to $4.15 billion at June 30, 2024, from $4.22 billion at December 31, 2023 - Total assets decreased by $76.0 million (1.8%) to $4.15 billion at June 30, 2024, from $4.22 billion at December 31, 2023[133] Cash and Cash Equivalents Cash and cash equivalents decreased by $148.5 million to $99.0 million, primarily due to loan portfolio growth and deposit reductions - Cash and cash equivalents decreased by $148.5 million to $99.0 million at June 30, 2024, from $247.5 million at December 31, 2023[133] - This decline was primarily due to funds invested in loan portfolio growth and a reduction in deposits and securities sold under repurchase agreements[133] Investment Securities The carrying value of total investment securities decreased by $6.9 million to $238.6 million at June 30, 2024 - The carrying value of total investment securities decreased by $6.9 million to $238.6 million at June 30, 2024, from $245.5 million at December 31, 2023[133] Loans Net loans increased by $84.2 million, totaling $3.38 billion at June 30, 2024, reflecting continued portfolio growth - Net loans increased by $84.2 million, totaling $3.38 billion at June 30, 2024, compared to $3.30 billion at December 31, 2023[134] Deposits Deposits decreased by $33.0 million (1.0%) to $3.40 billion at June 30, 2024, reflecting a typical seasonal decline - Deposits decreased by $33.0 million (1.0%) to $3.40 billion at June 30, 2024, from $3.43 billion at December 31, 2023, reflecting a typical seasonal decline in the first half of the year[135] Borrowings FHLB borrowings increased by $55.1 million to $90.3 million to support loan growth, while junior subordinated debentures were repaid - FHLB borrowings increased by $55.1 million (156.1%) to $90.3 million at June 30, 2024, from $35.3 million at December 31, 2023, to support near-term loan growth[135] - Subordinated debt remained stable at $12.0 million, while a $4.1 million junior subordinated debenture (from Hometown acquisition) was repaid in Q1 2024[135] Stockholders' Equity Total stockholders' equity decreased by $5.2 million to $614.6 million, primarily due to share repurchases and dividends - Total stockholders' equity decreased by $5.2 million (0.8%) to $614.6 million at June 30, 2024, from $619.8 million at December 31, 2023[136] - This decrease was due to $30.2 million in common stock repurchases and $7.1 million in dividends, partially offset by $31.5 million in net earnings[136] LOANS The loan portfolio, the Company's largest earning asset, grew by $85.7 million to $3.43 billion, driven by strong demand in commercial and construction sectors - The loan portfolio is the most significant earning asset, comprising 82.7% of total assets at June 30, 2024[138] - Loans increased by $85.7 million (2.6%) to $3.43 billion as of June 30, 2024, driven by demand for new credit[139] | Loan Category | June 30, 2024 (Amount) | June 30, 2024 (% of Total) | December 31, 2023 (Amount) | December 31, 2023 (% of Total) | | :------------ | :--------------------- | :------------------------- | :------------------------- | :----------------------------- | | Commercial & industrial | $507,406 | 15 % | $487,893 | 15 % | | Commercial real estate | $1,726,254 | 51 % | $1,699,084 | 51 % | | Construction & development | $229,934 | 7 % | $200,835 | 6 % | | Residential 1-4 family | $897,087 | 26 % | $888,639 | 27 % | | Consumer and other | $67,954 | 2 % | $65,933 | 2 % | | Total Loans | $3,428,635 | 100 % | $3,342,974 | 100 % | - Loans to directors, officers, and their associates totaled $75.7 million at June 30, 2024, all performing according to original terms[141] Commercial and Industrial (C&I) The C&I portfolio totaled $507.4 million, representing 15% of total loans, primarily serving small and middle-market businesses - C&I portfolio totaled $507.4 million at June 30, 2024, representing 15% of total loans[142] - Customers are small and middle-market businesses across various sectors, with loans typically secured by corporate assets and personal guarantees[142] Commercial Real Estate (CRE) The CRE loan portfolio totaled $1.73 billion, representing 51% of total loans, with growth primarily in owner-occupied properties - CRE loan portfolio totaled $1.73 billion at June 30, 2024, representing 51% of total loans[143] - Growth in H1 2024 was primarily in owner-occupied CRE, which management views as an extension of C&I lending[143] - Loans are secured by various property types, generally for terms up to ten years with loan-to-values not exceeding 80%[144] Construction and Development (C&D) The C&D loan portfolio totaled $229.9 million, representing 7% of total loans, typically increasing during the primary construction season - C&D loan portfolio totaled $229.9 million at June 30, 2024, representing 7% of total loans[145] - C&D loans typically increase through the middle of the year, aligning with the primary construction season[145] - These short-term loans are for construction/development work and recreational land purchases, with borrowers required to inject equity before disbursements[146] Residential 1 – 4 Family Residential 1-4 family loans totaled $897.1 million, representing 26% of total loans, with MSRs retained on all secondary market sales - Residential 1-4 family loans totaled $897.1 million at June 30, 2024, representing 26% of total loans[147] - The Bank offers fixed and adjustable-rate mortgages up to 30 years, generally underwritten to Fannie Mae guidelines, including 'jumbo' loans[148] - The Bank does not offer reverse mortgages, negative amortization loans, subprime loans, or Alt-A loans[149] - Mortgage servicing rights (MSRs) are retained on all loans sold to the secondary market, with a net balance of $13.7 million at June 30, 2024[150] Consumer Loans The consumer loan portfolio totaled $53.2 million, representing 1% of total loans, carrying greater risk due to reliance on borrower financial stability - Consumer loan portfolio totaled $53.2 million at June 30, 2024, representing 1% of total loans[151] - Consumer loans carry greater risk due to reliance on borrower financial stability and potential for inadequate collateral repayment[151] Other Loans Other loans totaled $14.8 million, primarily consisting of over-drafted depository accounts, securities-backed loans, and loans to nonprofit organizations - Other loans totaled $14.8 million at June 30, 2024, primarily consisting of over-drafted depository accounts, securities-backed loans, and loans to nonprofit organizations[152] Loan Portfolio Maturities This table presents the maturity distribution of the loan portfolio, broken down by fixed and floating rate loans | Maturity (in thousands) | Total Loans | Fixed Rate Loans | Floating Rate Loans | | :---------------------- | :---------- | :--------------- | :------------------ | | One Year or Less | $343,683 | $167,155 | $176,528 | | One to Five Years | $1,293,497 | $1,090,891 | $202,606 | | Five to Fifteen Years | $1,082,652 | $612,639 | $470,013 | | Over Fifteen Years | $708,803 | $343,359 | $365,444 | | Total | $3,428,635 | $2,214,044 | $1,214,591 | NONPERFORMING ASSETS Total nonperforming assets increased to $11.4 million, primarily due to one acquired customer relationship, with rigorous monitoring in place - Nonperforming assets (NPAs) consist of nonperforming loans (nonaccrual loans and loans 90+ days past due but still accruing) and foreclosed real estate (OREO)[157] | Nonperforming Assets (in thousands) | June 30, 2024 | December 31, 2023 | June 30, 2023 | | :---------------------------------- | :------------ | :---------------- | :------------ | | Total nonaccrual loans | $7,283 | $5,662 | $4,600 | | Total loans past due > 90 days, but still accruing | $3,385 | $893 | $601 | | Total nonperforming loans | $10,668 | $6,555 | $5,201 | | Total OREO | $712 | $2,573 | $2,239 | | Total nonperforming assets (NPAs) | $11,380 | $9,128 | $7,440 | - The increase in nonaccrual loans during H1 2024 primarily related to one customer relationship acquired as part of the Hometown acquisition[158] | Ratios | June 30, 2024 | December 31, 2023 | June 30, 2023 | | :----- | :------------ | :---------------- | :------------ | | Nonaccrual loans to total loans | 0.21 % | 0.17 % | 0.14 % | | NPAs to total assets | 0.27 % | 0.21 % | 0.18 % | | ACL - Loans to nonaccrual loans | 619 % | 770 % | 944 % | | ACL - Loans to total loans | 1.32 % | 1.30 % | 1.31 % | ALLOWANCE FOR CREDIT LOSSES - LOANS The ACL-Loans was $45.1 million (1.32% of total loans) at June 30, 2024, remaining consistent due to stable economic conditions - The ACL-Loans was $45.1 million (1.32% of total loans) at June 30, 2024, consistent with recent quarters due to stable economic conditions and strong asset quality[160] - Net recoveries totaled $0.8 million during the first half of 2024[160] | ACL - Loans Activity (in thousands) | Six Months Ended June 30, 2024 | Year Ended December 31, 2023 | Six Months Ended June 30, 2023 | | :---------------------------------- | :----------------------------- | :--------------------------- | :----------------------------- | | Balance at beginning of period | $43,609 | $22,680 | $22,680 | | Net loans recovered | $809 | $131 | $131 | | Provision charged to operating expense | $200 | $4,292 | $4,092 | | Transfer from ACL - Unfunded Commitments | $500 | $0 | $0 | | Balance at end of period | $45,118 | $43,609 | $43,409 | | Loan Type (in thousands) | June 30, 2024 (Amount) | June 30, 2024 (% of Loans) | | :----------------------- | :--------------------- | :------------------------- | | Commercial & industrial | $5,755 | 15 % | | Commercial real estate - owner occupied | $13,338 | 27 % | | Commercial real estate - non-owner occupied | $5,639 | 14 % | | Commercial real estate - multi-family | $4,670 | 10 % | | Construction & development | $4,169 | 7 % | | Residential 1-4 family | $10,809 | 26 % | | Consumer | $610 | 1 % | | Other loans | $128 | 0 % | | Total allowance | $45,118 | 100 % | SOURCES OF FUNDS This section details funding sources, primarily deposits, which decreased slightly, and FHLB borrowings, which significantly increased to support loan growth General Deposits are the primary source of funds, supplemented by FHLB borrowings and correspondent bank lines, along with scheduled payments and fee income - Deposits are the primary source of funds, supplemented by FHLB borrowings and correspondent bank lines[165] - Additional sources include scheduled payments and prepayments on loans and investment securities, and fee income[165] Deposits Deposit liabilities accounted for 82.0% of total liabilities and equity, decreasing to $3.40 billion with a shift to interest-bearing accounts - Deposit liabilities accounted for approximately 82.0% of total liabilities and equity at June 30, 2024[166] - Total deposits decreased to $3.40 billion at June 30, 2024, from $3.43 billion at December 31, 2023[167] - There was a shift from noninterest-bearing deposits to interest-bearing deposits due to increased prevailing interest rates[167] | Deposit Type (in thousands) | Six Months Ended June 30, 2024 (Average) | Six Months Ended June 30, 2024 (% of Total) | | :-------------------------- | :--------------------------------------- | :------------------------------------------ | | Noninterest-bearing demand deposits | $984,490 | 28.8 % | | Interest-bearing checking deposits | $410,955 | 12.0 % | | Savings deposits | $813,963 | 23.8 % | | Money market accounts | $616,236 | 18.0 % | | Certificates of deposit | $597,593 | 17.5 % | | Brokered deposits | $748 | 0.0 % | | Total | $3,423,985 | 100 % | Borrowings FHLB advances increased to $90.3 million to support loan growth, while securities sold under repurchase agreements were redeemed - The Company redeemed all securities sold under repurchase agreements during the first quarter of 2024[170] - FHLB advances outstanding increased to $90.3 million at June 30, 2024, from $35.3 million at December 31, 2023[171] | FHLB Borrowings (in thousands) | Six Months Ended June 30, 2024 | Year Ended December 31, 2023 | | :----------------------------- | :----------------------------- | :--------------------------- | | Average daily amount outstanding | $37,035 | $30,697 | | Weighted average interest rate | 4.01 % | 3.92 % | | Borrowing outstanding at period end | $90,321 | $35,270 | - Subordinated notes totaled $12.0 million at June 30, 2024, with fixed rates of 5.0% and 5.25%, qualifying as Tier 2 capital[173] - Junior subordinated debentures from the Hometown acquisition were fully redeemed in December 2023 and January 2024[174] INVESTMENT SECURITIES The investment portfolio, comprising AFS and HTM securities, totaled $238.6 million, with unrealized losses primarily due to interest rate changes - The investment portfolio consists of securities available for sale (AFS) and held to maturity (HTM), managed for liquidity, neutral interest rate-sensitive positions, and adequate investment income[175] - AFS securities (fair value) totaled $128.0 million at June 30, 2024, with gross unrealized losses of $12.9 million[176] - HTM securities (amortized cost) totaled $110.6 million at June 30, 2024[177] - Unrealized losses on debt securities are considered temporary and primarily due to changing interest rates, not credit-related factors. No allowance for credit losses on securities was recognized[182] | Security Type (in thousands) | June 30, 2024 (Amortized Cost) | June 30, 2024 (Weighted Average Yield) | | :--------------------------- | :----------------------------- | :------------------------------------- | | Available for sale securities | $140,845 | 3.4 % | | Held to maturity securities | $110,648 | 3.9 % | | Total | $251,493 | 3.6 % | LIQUIDITY AND CAPITAL RESOURCES Liquidity is maintained through investments, deposits, and borrowings, with $1.73 billion in additional funding, while capital ratios remain strong - Liquidity is managed through the investment portfolio, deposits, FHLB borrowings, and lines from correspondent banks, with a focus on growing noninterest-bearing deposits[187] - The Company has $1.73 billion in availability from borrowings and brokered deposits for future funding needs[187] - Total stockholders' equity was $614.6 million at June 30, 2024, a slight decrease from $619.8 million at December 31, 2023[187] - Both the Company and Bank met all regulatory capital requirements and were classified as 'well capitalized' at June 30, 2024[193][196] FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK This section describes off-balance-sheet instruments, including unused lines of credit and letters of credit, totaling $797.6 million - Off-balance-sheet arrangements include unused lines of credit, standby and direct pay letters of credit, and credit card arrangements[198] - These instruments involve credit risk and are managed with the same credit policies as on-balance-sheet instruments[198] | Off-Balance Sheet Commitment (in thousands) | June 30, 2024 (Total) | December 31, 2023 (Total) | | :------------------------------------------ | :-------------------- | :------------------------ | | Unused lines of credit | $764,099 | $799,398 | | Standby and direct pay letters of credit | $11,265 | $9,785 | | Credit card arrangements | $22,273 | $21,213 | | Total commitments | $797,637 | $830,396 | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section discusses interest rate risk management through gap analysis and simulations, indicating increased sensitivity to rate changes - Market risk primarily arises from interest rate risk inherent in lending, investment, and deposit-taking activities[200] - The Company manages interest rate risk to minimize adverse impacts on net interest income and capital, using tools like interest rate sensitivity analysis (gap analysis), market value of portfolio equity analysis, and interest rate simulations[201][205] | Change in Interest Rates (in Basis Points) | Percentage Change in Net Interest Income (June 30, 2024) | | :--------------------------------------- | :------------------------------------------------------- | | +400 | (9.0)% | | +300 | (6.3)% | | +200 | (4.2)% | | +100 | (1.9)% | | -100 | (1.4)% | - The increased sensitivity to interest rate changes at June 30, 2024, resulted from management's reconsideration of interest rate betas for loan and deposit products[209] - Economic Value of Equity analysis as of June 30, 2024, estimated a 0.64% increase in EVE for an instantaneous 200 basis point rate increase and a 1.90% decrease for a 100 basis point rate decrease[210] ITEM 4. CONTROLS AND PROCEDURES Management concluded that disclosure controls and procedures were effective as of June 30, 2024, with no material changes to internal control - The CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2024[212] - No material changes were made to internal control over financial reporting during the quarter ended June 30, 2024[213] PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, equity security sales, defaults, mine safety, other information, and exhibits ITEM 1. LEGAL PROCEEDINGS The Company is involved in various litigation, but management believes any resulting liability will not materially affect its financial position - The Company is a party to various litigation in the normal course of business[214] - Management believes any liability from litigation will not have a material effect on financial position, results of operations, or liquidity[214] ITEM 1A. RISK FACTORS No material changes occurred during the quarter ended June 30, 2024, to the risk factors previously disclosed in the Company's Annual Report on Form 10-K - No material changes occurred during the quarter ended June 30, 2024, to the risk factors previously disclosed in the Company's Annual Report on Form 10-K[215] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS The Company renewed its share repurchase program for up to $30 million and repurchased 98,623 shares in Q2 2024, subject to a 1% excise tax - The Company renewed its share repurchase program on February 21, 2024, authorizing up to $30 million in common stock repurchases until February 20, 2025[217] | Month (2024) | Total Number of Shares Repurchased | Average Price Paid per Share | | :----------- | :--------------------------------- | :--------------------------- | | April | 35,791 | $79.64 | | May | 40,424 | $81.70 | | June | 22,408 | $80.42 | | Total | 98,623 | $80.59 | - The Inflation Reduction Act of 2022 imposes a new 1% excise tax on corporate stock repurchases, which applies to the Company[219] ITEM 3. DEFAULTS UPON SENIOR SECURITIES There were no defaults upon senior securities during the reported period - No defaults upon senior securities occurred[220] ITEM 4. MINE SAFETY DISCLOSURES There are no mine safety disclosures to report - No mine safety disclosures[220] ITEM 5. OTHER INFORMATION No Rule 10b5-1 trading arrangements were adopted, terminated, or modified by directors and officers during Q2 2024 - No Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements were adopted, terminated, or modified by directors and officers during Q2 2024[221] ITEM 6. EXHIBITS This section lists all exhibits filed with the Form 10-Q, including certifications from the Chief Executive Officer and Chief Financial Officer - Exhibits include Rule 13a-14(a) and Section 1350 certifications from the CEO and CFO, and various Inline XBRL documents[222] SIGNATURES The report is duly signed on behalf of Bank First Corporation by Kevin M. LeMahieu, Chief Financial Officer, on August 7, 2024 - The report was signed by Kevin M. LeMahieu, Chief Financial Officer, on August 7, 2024[223]