Bank First(US:BFC)2024-05-09 20:38Part I. Financial Information This section presents Bank First Corporation's unaudited consolidated financial statements and management's discussion and analysis for the three months ended March 31, 2024 ITEM 1. Financial Statements This section presents the unaudited consolidated financial statements for Bank First Corporation, including balance sheets, income statements, comprehensive income statements, statements of changes in stockholders' equity, and cash flow statements for the three months ended March 31, 2024 and 2023, along with detailed notes Consolidated Balance Sheets The consolidated balance sheets show a decrease in total assets and stockholders' equity from December 31, 2023, to March 31, 2024, primarily due to a significant reduction in cash and cash equivalents and securities sold under repurchase agreements, partially offset by an increase in loans | Metric | March 31, 2024 (Unaudited) | December 31, 2023 (Audited) | | :------------------------------------- | :-------------------------- | :-------------------------- | | Total Assets | $4,099,924 | $4,221,842 | | Total Liabilities | $3,490,594 | $3,602,044 | | Total Stockholders' Equity | $609,330 | $619,798 | | Cash and cash equivalents | $83,374 | $247,468 | | Loans, net | $3,339,017 | $3,299,365 | | Total deposits | $3,416,039 | $3,432,920 | | Securities sold under repurchase agreements | $0 | $75,747 | Consolidated Statements of Income Net income significantly increased for the three months ended March 31, 2024, compared to the same period in 2023, driven by higher interest income from loans and securities, despite an increase in interest expense on deposits. The provision for credit losses also saw a substantial decrease | Metric | Three months ended March 31, 2024 | Three months ended March 31, 2023 | | :------------------------------------- | :-------------------------------- | :-------------------------------- | | Interest income | $49,272 | $40,902 | | Interest expense | $15,923 | $8,668 | | Net interest income | $33,349 | $32,234 | | Provision for credit losses | $200 | $4,182 | | Noninterest income | $4,397 | $5,849 | | Noninterest expense | $20,324 | $19,664 | | Net Income | $15,412 | $10,680 | | Earnings per share - basic | $1.51 | $1.09 | | Earnings per share - diluted | $1.51 | $1.09 | Consolidated Statements of Comprehensive Income Comprehensive income for the three months ended March 31, 2024, was $14.7 million, a decrease from $13.1 million in the prior year, primarily due to unrealized losses on available-for-sale securities | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------------------------- | :-------------------------------- | :-------------------------------- | | Net Income | $15,412 | $10,680 | | Unrealized holding gains (losses) on available for sale securities | $(853) | $3,226 | | Reclassification adjustment for losses included in net income | $34 | $75 | | Income tax benefit (expense) | $154 | $(891) | | Total other comprehensive income (loss) | $(665) | $2,410 | | Comprehensive income | $14,747 | $13,090 | Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity decreased from January 1, 2024, to March 31, 2024, primarily due to significant treasury stock repurchases and cash dividends, partially offset by net income and stock-based compensation amortization | Metric | Balance at January 1, 2024 | Balance at March 31, 2024 | | :------------------------------------- | :------------------------- | :------------------------ | | Total Stockholders' Equity | $619,798 | $609,330 | | Net income | $15,412 | $15,412 | | Other comprehensive loss | $(665) | $(665) | | Purchase of treasury stock | $(22,283) | $(22,283) | | Cash dividends ($0.35 per share) | $(3,541) | $(3,541) | | Amortization of stock-based compensation | $554 | $554 | Consolidated Statements of Cash Flows Net cash provided by operating activities decreased significantly in Q1 2024 compared to Q1 2023. Investing activities shifted from providing cash in 2023 (due to an acquisition) to using cash in 2024, primarily for loan growth and security purchases. Financing activities continued to use cash, mainly due to deposit decreases and common stock repurchases | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by operating activities | $1,329 | $4,114 | | Net cash provided by (used in) investing activities | $(42,929) | $205,568 | | Net cash used in financing activities | $(122,494) | $(159,342) | | Net increase (decrease) in cash and cash equivalents | $(164,094) | $50,340 | | Cash and cash equivalents at end of period | $83,374 | $169,691 | Notes to Unaudited Consolidated Financial Statements These notes provide detailed information on the Company's accounting policies, recent acquisitions, earnings per share calculations, securities portfolio, loan quality, mortgage servicing rights, various borrowings, regulatory capital, commitments, fair value measurements, stock-based compensation, and leases, offering context to the financial statements NOTE 1 – BASIS OF PRESENTATION The interim financial statements are prepared in accordance with GAAP, with certain disclosures abbreviated. Management's critical accounting policies and estimates, including those for business combinations, ACL-Loans, and deferred taxes, remain consistent. Recent ASUs on Reference Rate Reform and Disclosure Improvements are not expected to have a significant impact - The Company's accounting and reporting policies conform to GAAP, with critical accounting policies identified for business combinations, ACL-Loans, and deferred tax assets/liabilities93 - ASU 2020-04 (Reference Rate Reform) and ASU 2023-06 (Disclosure Improvements) are not anticipated to have a significant impact on the Company's financial statements or disclosures9495 NOTE 2 – ACQUISITIONS On February 10, 2023, the Company completed the merger with Hometown Bancorp, Ltd., acquiring assets and assuming liabilities at fair value. The acquisition consideration totaled approximately $130.5 million, resulting in $64.9 million in goodwill - On February 10, 2023, the Company merged with Hometown Bancorp, Ltd., expanding its presence in Wisconsin with ten additional branches96244 Acquisition Details (in thousands) | Metric | Amount (in thousands) | | :------------------------------------- | :-------------------- | | Total assets acquired | $615,105 | | Total liabilities assumed | $549,564 | | Purchase price | $130,452 | | Goodwill (after refinement) | $64,881 | | Company stock issued | $115,079 | | Cash consideration | $15,400 | - The acquisition method of accounting was used, recording assets and liabilities at fair value, with estimated fair values subject to refinement for up to one year post-consummation121187 NOTE 3 – EARNINGS PER SHARE Basic and diluted earnings per common share for the three months ended March 31, 2024, increased to $1.51, up from $1.09 in the prior year, reflecting higher net income and a slight increase in weighted average common shares outstanding Earnings Per Share | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------------------------- | :-------------------------------- | :-------------------------------- | | Net income allocated to common shareholders | $15,328 | $10,616 | | Weighted average common shares outstanding (basic) | 10,177,932 | 9,714,184 | | Basic earnings per common share | $1.51 | $1.09 | | Diluted earnings per common share | $1.51 | $1.09 | - The two-class method is used for EPS calculation, allocating earnings between common shareholders and participating securities (restricted stock awards)122123 NOTE 4 – SECURITIES The Company's investment securities portfolio, comprising available-for-sale (AFS) and held-to-maturity (HTM) securities, saw a slight increase in carrying value. AFS securities are carried at fair value with significant unrealized losses, primarily due to interest rate changes, not credit deterioration. HTM securities are reported at amortized cost, with no expected credit losses Investment Securities (in thousands) | Metric | March 31, 2024 | December 31, 2023 | | :------------------------------------- | :------------- | :---------------- | | Total available for sale securities (Fair Value) | $138,420 | $142,197 | | Total held to maturity securities (Amortized Cost) | $111,732 | $103,324 | | Total AFS Gross Unrealized Losses | $(12,957) | $(12,207) | | Total HTM Gross Unrealized Losses | $(1,536) | $(1,070) | - Unrealized losses on AFS securities are primarily due to changes in interest rates, market spreads, and market conditions, not credit deterioration. The Company does not intend to sell these securities and expects to recover amortized cost149352 - Held-to-maturity securities, including U.S. Treasury securities, have zero expected credit losses due to their backing by the U.S. Government126322 NOTE 5 – LOANS, ALLOWANCE FOR CREDIT LOSSES, AND CREDIT QUALITY The loan portfolio increased by $40.4 million, driven by commercial and industrial loans and non-owner occupied commercial real estate. The Allowance for Credit Losses (ACL) on loans increased to $44.4 million, representing 1.31% of total loans, reflecting consistent asset quality and net recoveries. Nonperforming loans also increased, primarily due to one customer relationship Loan Portfolio Composition (in thousands) | Loan Type | March 31, 2024 | December 31, 2023 | | :------------------------------------- | :------------- | :---------------- | | Commercial/industrial | $510,930 | $488,498 | | Commercial real estate - owner occupied | $892,994 | $893,977 | | Commercial real estate - non-owner occupied | $502,569 | $473,829 | | Multi-family | $323,248 | $332,959 | | Construction and development | $208,807 | $201,823 | | Residential 1-4 family | $880,029 | $888,412 | | Consumer | $52,086 | $50,741 | | Other | $14,844 | $14,980 | | Subtotals | $3,385,507 | $3,345,219 | | ACL - Loans | $(44,378) | $(43,609) | | Loans, net | $3,339,017 | $3,299,365 | Nonperforming Assets (in thousands) | Metric | March 31, 2024 | December 31, 2023 | | :------------------------------------- | :------------- | :---------------- | | Total nonaccrual loans | $7,610 | $5,662 | | Total loans past due > 90 days, but still accruing | $2,267 | $893 | | Total nonperforming loans | $9,877 | $6,555 | | Total nonperforming assets ("NPAs") | $12,551 | $9,128 | | Nonaccrual loans to total loans | 0.22% | 0.17% | | NPAs to total loans plus OREO | 0.37% | 0.27% | - The ACL - Loans was $44.4 million (1.31% of period-end loans) at March 31, 2024, remaining consistent due to strong asset quality and economic conditions. The Company recorded net recoveries of $0.6 million in Q1 20244155 - Nonaccrual loans increased in Q1 2024, primarily due to one customer relationship acquired from Hometown being moved to nonaccrual status340 NOTE 6 – MORTGAGE SERVICING RIGHTS Mortgage Servicing Rights (MSRs) are recognized as separate assets at fair value when loans are sold with servicing retained. The MSR asset decreased slightly to $13.4 million at March 31, 2024, from $13.7 million at December 31, 2023, influenced by loan payments and negative valuation adjustments - MSRs are recognized at fair value when loans are sold with servicing retained, with valuation assisted by a third-party consulting firm139 Mortgage Servicing Rights (in thousands) | Metric | March 31, 2024 | December 31, 2023 | | :------------------------------------- | :------------- | :---------------- | | Fair value at end of period | $13,356 | $13,668 | | Servicing asset additions | $189 | $879 | | Loan payments and payoffs | $(363) | $(1,624) | | Valuation adjustment on MSR | $(312) | $395 | | Unpaid principal balance of loans serviced for others | $1,170,466 | $1,175,709 | NOTE 7 – NOTES PAYABLE Notes payable, primarily FHLB advances, remained stable at $35.3 million at March 31, 2024. The Company also maintains a $7.5 million line of credit with a commercial bank, which had no outstanding balance - The Company's borrowings primarily consist of FHLB advances, totaling $35.3 million at March 31, 2024 and December 31, 2023346 Notes Payable (in thousands) | Metric | March 31, 2024 | December 31, 2023 | | :------------------------------------- | :------------- | :---------------- | | Borrowing outstanding at period end | $35,295 | $35,270 | | Weighted average interest rate on borrowing at period end | 3.59% | 3.59% | | Borrowing availability at FHLB | $805.7 million | N/A | - A $7.5 million line of credit with a commercial bank had no outstanding balance at March 31, 202456317 NOTE 8 – SUBORDINATED NOTES AND JUNIOR SUBORDINATED DEBENTURES The Company had $12.0 million in subordinated notes outstanding at March 31, 2024, carrying a fixed interest rate of 5.0% or 5.25% through mid-2025 or mid-2027, respectively. A $4.1 million junior subordinated debenture, acquired from Hometown, was fully repaid in Q1 2024, leading to the dissolution of related trusts - Subordinated note agreements totaling $12.0 million were outstanding at March 31, 2024, with fixed interest rates of 5.0% (callable Jan 2026) and 5.25% (callable Aug 2027)10197349 - A $4.1 million junior subordinated debenture, assumed from the Hometown acquisition, was fully repaid in January 2024, resulting in the dissolution of Trust I68318 NOTE 9 – REGULATORY MATTERS Both the Company and the Bank exceeded all applicable well-capitalized regulatory capital requirements and the capital conservation buffer as of March 31, 2024, and December 31, 2023. The Bank does not intend to opt into the Community Bank Leverage Ratio Framework - The Bank's regulatory capital ratios were above the applicable well-capitalized standards and met the capital conservation buffer at March 31, 2024, and December 31, 202321199 Company Capital Ratios | Capital Ratio (Company) | March 31, 2024 | December 31, 2023 | | :------------------------------------- | :------------- | :---------------- | | Total capital (to risk-weighted assets) | 13.49% | 13.99% | | Tier 1 capital (to risk-weighted assets) | 12.06% | 12.65% | | Common Equity Tier 1 capital (to risk-weighted assets) | 12.06% | 12.54% | | Tier 1 capital (to average assets) | 10.73% | 11.05% | - The Bank does not intend to opt into the Community Bank Leverage Ratio Framework, which sets a minimum Tier 1 capital to average total consolidated assets ratio at 9% for qualifying community banks360 NOTE 10 – COMMITMENTS AND CONTINGENCIES The Company engages in off-balance-sheet financial instruments, including loan commitments, standby letters of credit, and credit card arrangements, to meet customer financing needs. These instruments involve credit and interest rate risk, with total commitments at March 31, 2024, amounting to $829.7 million - The Company is party to financial instruments with off-balance-sheet risk, primarily commitments to originate and sell loans, standby/direct pay letters of credit, and unused lines of credit39201 Commitments (in thousands) | Commitment Type | March 31, 2024 (Total) | December 31, 2023 (Total) | | :------------------------------------- | :--------------------- | :------------------------ | | Unused lines of credit | $796,930 | $799,398 | | Standby and direct pay letters of credit | $10,951 | $9,785 | | Credit card arrangements | $21,807 | $21,213 | | Total commitments | $829,688 | $830,396 | - Loan commitments and letters of credit have credit risk similar to extending loans and are subject to normal credit policies, with collateral obtained based on credit assessment40 NOTE 11 – FAIR VALUE MEASUREMENTS The Company uses a fair value hierarchy (Level 1, 2, and 3) for financial instruments. Available-for-sale securities and mortgage servicing rights are measured on a recurring basis using Level 2 inputs. Non-recurring fair value measurements for OREO and individually evaluated loans primarily use Level 3 unobservable inputs, such as collateral discounts and estimated selling costs - Fair value measurements are categorized into a three-level hierarchy: Level 1 (quoted active market prices), Level 2 (significant other observable inputs), and Level 3 (significant unobservable inputs)172202 Fair Value Measurements (in thousands) | Asset Type (March 31, 2024) | Fair Value | Level 1 | Level 2 | Level 3 | | :------------------------------------- | :--------- | :------ | :------ | :------ | | Securities available for sale | $138,420 | $0 | $138,420 | $0 | | Mortgage servicing rights | $13,356 | $0 | $13,356 | $0 | | OREO (non-recurring) | $2,674 | $0 | $0 | $2,674 | | Loans individually evaluated, net of reserve (non-recurring) | $9,482 | $0 | $0 | $9,482 | Level 3 Asset Valuation (March 31, 2024) | Level 3 Asset (March 31, 2024) | Valuation Technique | Unobservable Inputs | Range of Discounts | Weighted Average Discount | | :------------------------------------- | :------------------ | :------------------ | :----------------- | :------------------------ | | Other real estate owned | Third-party brokered appraisals | Collateral discounts and estimated costs to sell | 3% - 61% | 42% | | Loans individually evaluated | Third-party appraisals and discounted cash flows | Collateral discounts and discount rates | 18% - 38% | 35% | NOTE 12 – STOCK BASED COMPENSATION The Company grants restricted stock awards under its 2020 Equity Plan to incentivize employees and directors. As of March 31, 2024, $3.5 million in unrecognized compensation cost remains, expected to be recognized over a weighted average period of 1.91 years. Compensation expense for Q1 2024 was $0.6 million - The Bank First Corporation 2020 Equity Plan allows for the issuance of up to 700,000 shares, with 100,954 shares awarded as of March 31, 2024237 - Unrecognized compensation cost related to non-vested restricted stock awards was $3.5 million at March 31, 2024, with a weighted average recognition period of 1.91 years209 Stock-Based Compensation (in thousands) | Metric | March 31, 2024 | March 31, 2023 | | :------------------------------------- | :------------- | :------------- | | Restricted Stock Outstanding at end of period | 52,634 | 58,065 | | Weighted Average Grant-Date Fair Value | $79.27 | $71.41 | | Compensation expense recognized | $0.6 million | $0.5 million | NOTE 13 – LEASES The Company's lessee leases are operating leases for real estate, recognized on-balance sheet as ROU assets and liabilities. Total undiscounted cash flows for operating leases were $3.48 million at March 31, 2024, with a weighted average lease term of 29.75 years and a discount rate of 5.50% - The Company's lessee leases are operating leases for real estate, requiring recognition of a Right-of-Use (ROU) lease asset and liability on the balance sheet for terms longer than 12 months182210 Operating Lease Details (in thousands) | Metric | March 31, 2024 | | :------------------------------------- | :------------- | | Total undiscounted cash flows | $3,475 | | Discount on cash flows | $(1,891) | | Total operating lease liabilities | $1,584 | | Weighted Average Lease Term (Years) - Operating Leases | 29.75 | | Weighted Average Discount Rate - Operating Leases | 5.50% | - The Company uses the Wall Street Journal Prime Rate on the lease commencement date as its fully secured incremental borrowing rate for operating leases183 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial performance and condition, highlighting key drivers of net income, changes in interest income and expense, credit quality trends, and shifts in the balance sheet. It also includes forward-looking statements and a reconciliation of non-GAAP financial measures FORWARD-LOOKING STATEMENTS This section contains forward-looking statements regarding the Company's future performance, plans, and expectations, which are subject to inherent uncertainties and risks. Investors are cautioned not to place undue reliance on these statements, as actual results may differ materially - Forward-looking statements are based on current expectations, estimates, and projections, but are subject to risks and uncertainties that could cause actual results to differ materially242 - The Company does not undertake any obligation to publicly update or review any forward-looking statement, except as required by law242 OVERVIEW Bank First Corporation, through its subsidiary Bank First, N.A., provides financial services across Wisconsin. Its primary income is from interest on loans and investments, funded by deposits. The Bank manages credit risk with an Allowance for Credit Losses (ACL) and generates non-interest income from loan sales and servicing - Bank First, N.A. operates 26 banking locations across various Wisconsin counties, offering loan, deposit, and treasury management products186 - The Bank's primary income source is interest from loans and investments, with deposits as the main funding source. Net interest income is maximized by managing asset/liability volumes and pricing214 - Credit risk is managed through an Allowance for Credit Losses (ACL) on loans, established by charging a provision against operating earnings214 SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA This section provides a five-quarter overview of key financial metrics, showing trends in average balances, financial ratios, and income statement components. Net income and earnings per share have generally increased, while nonperforming assets have fluctuated Selected Financial Data (in thousands, except per share data) | Metric | 3/31/2024 | 12/31/2023 | 9/30/2023 | 6/30/2023 | 3/31/2023 | | :------------------------------------- | :-------- | :--------- | :-------- | :-------- | :-------- | | Net income | $15,412 | $34,898 | $14,804 | $14,132 | $10,680 | | Earnings per common share - basic | $1.51 | $3.39 | $1.43 | $1.37 | $1.09 | | Total assets (period-end) | $4,099,924 | $4,221,842 | $4,087,519 | $4,092,071 | $4,167,228 | | Total deposits (period-end) | $3,416,039 | $3,432,920 | $3,398,293 | $3,405,736 | $3,463,235 | | Nonperforming loans to total loans | 0.29% | 0.20% | 0.10% | 0.15% | 0.14% | | Nonperforming assets to total assets | 0.31% | 0.21% | 0.13% | 0.18% | 0.22% | | Allowance for credit losses - loans to total loans | 1.31% | 1.30% | 1.29% | 1.31% | 1.30% | GAAP RECONCILIATION AND MANAGEMENT EXPLANATION OF NON-GAAP FINANCIAL MEASURES The Company presents non-GAAP financial measures, specifically tangible book value per common share and tangible equity to tangible assets, to provide investors with a clearer comparison of capital adequacy by excluding goodwill and other intangibles. These measures are reconciled to their most comparable GAAP figures - Non-GAAP financial measures, such as tangible book value per common share and tangible equity to tangible assets, are used to evaluate capital adequacy by excluding goodwill and other intangibles221248 - These non-GAAP measures should not be considered in isolation or as a substitute for GAAP measures, and their calculation may differ from other companies249 Non-GAAP Reconciliation (in thousands, except per share data) | Metric | 3/31/2024 | 12/31/2023 | | :------------------------------------- | :-------- | :--------- | | Total assets | $4,099,924 | $4,221,842 | | Goodwill | $(175,106) | $(175,106) | | Core deposit intangible, net of amortization | $(25,496) | $(26,996) | | Tangible assets | $3,899,322 | $4,019,740 | | Total stockholders' equity | $609,330 | $619,798 | | Tangible common equity | $408,728 | $417,696 | | Book value per common share | $60.16 | $59.80 | | Tangible book value per common share | $40.35 | $40.30 | | Tangible common equity to tangible assets | 10.48% | 10.39% | RESULTS OF OPERATIONS Net income increased by $4.7 million to $15.4 million for Q1 2024, compared to $10.7 million in Q1 2023. This improvement was driven by higher net interest income and a significantly lower provision for credit losses, partially offset by a decrease in noninterest income - Net income increased by $4.7 million to $15.4 million for the three months ended March 31, 2024, compared to $10.7 million for the same period in 2023222 - The increase in net income was partially attributed to the added operational scale from the Hometown acquisition in Q1 2023 and a lower provision for credit losses222 Net Interest Income Net interest and dividend income increased by $1.1 million to $33.3 million for Q1 2024, primarily due to growth in interest-earning assets and an increase in the average interest rate earned on these assets, despite rising interest expense - Net interest and dividend income increased by $1.1 million to $33.3 million for Q1 2024, up from $32.2 million in Q1 2023223 - The increase was primarily driven by a $216.8 million growth in average interest-earning assets and a 0.59% increase in the average interest rate earned on these assets223253 Interest Expense Total interest expense surged by $7.2 million, or 83.7%, to $15.9 million in Q1 2024, mainly due to elevated interest-bearing liabilities and higher crediting interest rates on deposits - Interest expense increased by $7.2 million (83.7%) to $15.9 million in Q1 2024, compared to $8.7 million in Q1 2023225 - The increase was primarily due to higher average balances ($2.46 billion vs. $2.24 billion) and increased cost (2.51% vs. 1.35%) of interest-bearing deposits254 Provision for Credit Losses The provision for credit losses significantly decreased to $0.2 million in Q1 2024 from $4.2 million in Q1 2023, with the prior year's expense primarily driven by the Hometown acquisition. Asset quality remains strong, and the ACL-Loans was $44.4 million (1.31% of total loans) - Provision for credit losses decreased to $0.2 million in Q1 2024 from $4.2 million in Q1 2023255 - The elevated expense in Q1 2023 was primarily due to a $3.6 million provision related to acquired loans from Hometown255 - The ACL - Loans was $44.4 million, or 1.31% of total loans, at March 31, 2024, with net recoveries of $0.6 million during the quarter255 Noninterest Income Noninterest income decreased by $1.4 million to $4.4 million in Q1 2024, primarily due to the sale of UFS in October 2023 and negative valuation adjustments on Mortgage Servicing Rights (MSRs) - Noninterest income decreased by $1.4 million to $4.4 million in Q1 2024, compared to $5.8 million in Q1 2023256 - The decline was mainly due to no income from UFS (following its sale in October 2023) and negative MSR valuation adjustments of $0.3 million256 Noninterest Income (in thousands) | Noninterest Income | Q1 2024 | Q1 2023 | $ Change | % Change | | :------------------------------------- | :------ | :------ | :------- | :------- | | Service charges | $1,634 | $1,599 | $35 | 2% | | Income from Ansay | $979 | $1,071 | $(92) | (9)% | | Income from UFS | $0 | $890 | $(890) | (100)% | | Loan servicing income | $726 | $636 | $90 | 14% | | Valuation adjustment on MSR | $(312) | $779 | $(1,091) | NM | | Net gain on sales of mortgage loans | $219 | $140 | $79 | 56% | | Other | $1,151 | $734 | $417 | 57% | | Total noninterest income | $4,397 | $5,849 | $(1,452) | (25)% | Noninterest Expense Noninterest expense increased by $0.7 million to $20.3 million in Q1 2024, primarily due to increased operational scale from the Hometown acquisition impacting salaries, data processing, and other expenses. One-time acquisition-related expenses in Q1 2023 led to a decline in postage and outside service fees in Q1 2024 - Noninterest expense increased by $0.7 million to $20.3 million in Q1 2024, compared to $19.7 million in Q1 2023258 - Increases in salaries, data processing, and other noninterest expenses were due to the full-quarter impact of the Hometown acquisition258 - Postage, stationery, supplies, and outside service fees decreased due to the absence of one-time acquisition-related expenses present in Q1 2023258 Noninterest Expense (in thousands) | Noninterest Expense | Q1 2024 | Q1 2023 | $ Change | % Change | | :------------------------------------- | :------ | :------ | :------- | :------- | | Salaries, commissions, and employee benefits | $10,893 | $9,912 | $981 | 10% | | Data processing | $2,389 | $1,864 | $525 | 28% | | Outside service fees | $1,293 | $2,202 | $(909) | (41)% | | Total noninterest expenses | $20,324 | $19,664 | $660 | 3% | Income Tax Expense Income tax expense decreased to $1.8 million in Q1 2024 from $3.6 million in Q1 2023, resulting in effective tax rates of 10.5% and 25.0%, respectively. This reduction was primarily due to a $1.3 million decrease in estimated 2023 tax liability following new Wisconsin legislation exempting certain commercial loan income from state tax - Provision for income taxes decreased to $1.8 million in Q1 2024 (10.5% effective rate) from $3.6 million in Q1 2023 (25.0% effective rate)259 - The lower tax provision was mainly due to a $1.3 million reduction in estimated 2023 tax liability, resulting from new Wisconsin legislation exempting income from certain commercial loans ($5.0 million or less) from state tax259 - Effective tax rates were further reduced by tax-exempt interest income from qualifying loans and investments259 NET INTEREST MARGIN The net interest margin, on a fully taxable equivalent basis, decreased to 3.62% in Q1 2024 from 3.74% in Q1 2023. While interest income increased due to higher asset yields, interest expense grew at a faster pace due to rising deposit costs, compressing the margin - Net interest margin, on a fully taxable equivalent basis, was 3.62% for Q1 2024, down from 3.74% for Q1 2023218261 - The average rate earned on interest-earning assets increased to 5.33% in Q1 2024 from 4.74% in Q1 2023261 - The average rate paid on interest-bearing liabilities increased to 2.55% in Q1 2024 from 1.51% in Q1 2023261 Rate/Volume Analysis Interest income increased significantly due to both volume and rate changes, with rate changes contributing more. Interest expense also rose substantially, predominantly driven by higher rates on deposits and other borrowed funds, leading to a net increase in interest income Rate/Volume Analysis (in thousands) | Metric | Volume Increase/(Decrease) | Rate Increase/(Decrease) | Total Change | | :------------------------------------- | :------------------------- | :----------------------- | :----------- | | Total interest income | $12,310 | $19,991 | $32,301 | | Total interest expense | $3,091 | $25,797 | $28,888 | | Change in net interest income | $9,219 | $(5,806) | $3,413 | - The increase in total interest income was primarily driven by rate changes ($19.99 million) rather than volume changes ($12.31 million)263 - The increase in total interest expense was overwhelmingly due to rate changes ($25.80 million), with volume changes contributing $3.09 million263 CHANGES IN FINANCIAL CONDITION The Company experienced a decrease in total assets and stockholders' equity in Q1 2024, primarily due to a reduction in cash and cash equivalents and common stock repurchases. However, the loan portfolio continued to grow, and investment securities saw a slight increase. Deposits and borrowings also saw some shifts Total Assets Total assets decreased by $121.9 million, or 2.9%, to $4.10 billion at March 31, 2024, from $4.22 billion at December 31, 2023 - Total assets decreased by $121.9 million (2.9%) to $4.10 billion at March 31, 2024, from $4.22 billion at December 31, 2023290 Cash and Cash Equivalents Cash and cash equivalents significantly decreased by $164.1 million to $83.4 million at March 31, 2024, from $247.5 million at December 31, 2023. This decline was primarily due to investments in loan portfolio growth and a reduction in securities sold under repurchase agreements - Cash and cash equivalents decreased by $164.1 million to $83.4 million at March 31, 2024, from $247.5 million at December 31, 2023263 - The decline was primarily a result of funds being invested in loan portfolio growth and a reduction in securities sold under repurchase agreements263 Investment Securities The carrying value of total investment securities increased by $4.6 million to $250.2 million at March 31, 2024, from $245.5 million at December 31, 2023 - The carrying value of total investment securities increased by $4.6 million to $250.2 million at March 31, 2024, from $245.5 million at December 31, 2023235 Loans The loan portfolio, the Company's most significant earning asset, increased by $40.4 million (1.2%) to $3.38 billion at March 31, 2024, driven by strong demand for new credit. Commercial & Industrial and non-owner occupied Commercial Real Estate loans saw notable increases, while residential 1-4 family and multi-family loans decreased - The loan portfolio is the most significant earning asset, comprising 82.5% of total assets at March 31, 2024267 - Loans increased by $40.4 million (1.2%) to $3.38 billion at March 31, 2024, driven by solid demand for new credit from existing customer relationships295 Loan Portfolio by Category (in thousands) | Loan Category | March 31, 2024 | December 31, 2023 | | :------------------------------------- | :------------- | :---------------- | | Commercial & industrial | $510,396 (15%) | $487,893 (15%) | | Commercial real estate (Owner occupied) | $892,275 (26%) | $894,596 (27%) | | Commercial real estate (Non-owner occupied) | $502,429 (15%) | $472,321 (14%) | | Multi-family | $323,047 (10%) | $332,757 (10%) | | Construction & development | $207,866 (6%) | $200,835 (6%) | | Residential 1-4 family | $880,241 (26%) | $888,639 (27%) | | Consumer | $52,296 (2%) | $50,950 (1%) | | Other loans | $14,845 (0%) | $14,983 (0%) | | Total Loans | $3,383,395 (100%) | $3,342,974 (100%) | NONPERFORMING ASSETS Nonperforming assets, comprising nonperforming loans and foreclosed real estate, increased to $12.6 million at March 31, 2024, from $9.1 million at December 31, 2023. This rise was primarily driven by an increase in nonaccrual loans, particularly one customer relationship acquired from Hometown - Nonperforming assets increased to $12.55 million at March 31, 2024, from $9.13 million at December 31, 20232 Nonperforming Assets (in thousands) | Metric | March 31, 2024 | December 31, 2023 | | :------------------------------------- | :------------- | :---------------- | | Total nonaccrual loans | $7,610 | $5,662 | | Total loans past due > 90 days, but still accruing | $2,267 | $893 | | Total nonperforming loans | $9,877 | $6,555 | | Total OREO | $2,674 | $2,573 | | Total nonperforming assets ("NPAs") | $12,551 | $9,128 | - The increase in nonaccrual loans was primarily related to one customer relationship, acquired as part of the Hometown acquisition, moved from accrual status during Q1 2024340 ALLOWANCE FOR CREDIT LOSSES - LOANS The Allowance for Credit Losses (ACL) on loans increased to $44.4 million at March 31, 2024, from $43.6 million at December 31, 2023, representing 1.31% of total loans. This increase reflects a $0.2 million provision for credit losses and net recoveries of $0.6 million during Q1 2024, with asset quality remaining strong - The ACL - Loans was $44.4 million (1.31% of period-end loans) at March 31, 2024, remaining consistent over recent quarters due to strong economic conditions and asset quality4 Allowance for Credit Losses - Loans (in thousands) | Metric | March 31, 2024 | December 31, 2023 | | :------------------------------------- | :------------- | :---------------- | | Balance of ACL - Loans at end of period | $44,378 | $43,609 | | Provision charged to operating expense | $200 | $4,292 | | Total net loans recovered | $569 | $131 | | ACL - Loans to total loans | 1.31% | 1.30% | - The ACL - Loans is assessed quarterly based on historical experience, economic conditions, asset quality trends, and inherent portfolio risks341 SOURCES OF FUNDS Deposits remain the primary source of funds, totaling $3.42 billion at March 31, 2024, a slight decrease from December 31, 2023. The Company also utilizes FHLB borrowings and subordinated debt, which remained stable. Securities sold under repurchase agreements were fully redeemed in Q1 2024 - Deposits are the primary source of funds for investment and lending activities, supplemented by FHLB borrowings6 Deposit Composition (in thousands) | Deposit Type | March 31, 2024 | December 31, 2023 | | :------------------------------------- | :------------- | :---------------- | | Total deposits | $3,416,039 | $3,432,920 | | Noninterest-bearing demand deposits | $1,016,452 | $1,078,468 | | Interest-bearing checking deposits | $421,776 | $293,568 | | Certificates of deposit | $590,116 | $509,273 | | Brokered deposits | $748 | $3,184 | - Securities sold under repurchase agreements were fully redeemed during the first quarter of 2024, reducing this liability from $75.7 million to zero8315 - FHLB borrowings and subordinated debt remained stable at $35.3 million and $12.0 million, respectively, at March 31, 2024347349 LIQUIDITY AND CAPITAL RESOURCES The Company maintains strong liquidity through its investment portfolio, deposits, FHLB borrowings, and correspondent bank lines, with $1.71 billion in available funding. Capital adequacy remains robust, with the Bank exceeding all 'well-capitalized' regulatory requirements. Total stockholders' equity decreased slightly due to stock repurchases and dividends - Liquidity is maintained through the investment portfolio, deposits, FHLB borrowings, and lines from correspondent banks, with $1.71 billion in available funding17355 - The Bank was 'well capitalized' at March 31, 2024, exceeding all minimum capital requirements, including CET1, Tier 1, Total Capital, and Leverage ratios328329361 - Total stockholders' equity decreased by $10.5 million to $609.3 million at March 31, 2024, primarily due to $22.3 million in common stock repurchases and $3.5 million in dividends, partially offset by $15.4 million in net income293356 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk The Company's primary market risk is interest rate risk, which is actively managed to minimize adverse impacts on net interest income and capital. Management uses various tools, including interest rate sensitivity analysis and economic value of equity models, to assess and control exposure to interest rate movements. The increased sensitivity noted at March 31, 2024, was due to a reconsideration of interest rate betas for loan and deposit products - The primary market risk is interest rate risk, arising from timing differences in repricing assets and liabilities, embedded options, yield curve changes, and spread relationships334365 - Interest rate risk is managed through asset-liability structure, investment portfolio management, loan/deposit terms, and wholesale funding, with oversight by the ALCO25335380 Net Interest Income Sensitivity | Change in Interest Rates (in Basis Points) | Percentage Change in Net Interest Income (March 31, 2024) | | :------------------------------------- | :-------------------------------------------------------- | | +400 | 0.1% | | +300 | 0.1% | | +200 | 0.1% | | +100 | 0.2% | | -100 | (0.1)% | - The increased sensitivity to interest rate changes at March 31, 2024, resulted from management's reconsideration of interest rate betas for loan and deposit products28 - An instantaneous 200 basis point increase in interest rates was estimated to result in a 4.61% increase in economic value of equity, while a 100 basis point decrease was estimated to result in a 3.79% decrease367 ITEM 4. Controls and Procedures The CEO and CFO evaluated the Company's disclosure controls and procedures as of March 31, 2024, concluding they were effective. No material changes to internal control over financial reporting occurred during the quarter - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of March 31, 2024368 - No material changes were made to internal control over financial reporting during the quarter ended March 31, 2024384 Part II. Other Information This section provides additional information on legal proceedings, risk factors, equity security sales, defaults, mine safety, and exhibits ITEM 1. Legal Proceedings The Company is involved in various litigation in the normal course of business, but management believes any resulting liability will not materially affect its financial position, results of operations, or liquidity - The Company is party to various litigation in the normal course of business46 - Management believes that any liability from litigation will not have a material effect on the Company's financial position, results of operations, or liquidity46 ITEM 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2023, during the quarter ended March 31, 2024 - No material changes occurred during Q1 2024 to the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 202330 ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds The Company renewed its share repurchase program in February 2024, authorizing up to $30 million in common stock repurchases. During Q1 2024, the Company repurchased 261,193 shares at an average price of $85.27 per share, with 294,982 shares remaining available under the program - The Company renewed its share repurchase program on February 21, 2024, authorizing repurchases of up to $30 million of common stock until February 20, 2025386 Share Repurchase Activity | Month | Total Number of Shares Repurchased | Average Price Paid per Share | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs | | :------------------------------------- | :--------------------------------- | :--------------------------- | :----------------------------------------------------------------------------- | | January 2024 | — | — | 270,346 | | February 2024 | 223,863 | $85.54 | 332,312 | | March 2024 | 37,330 | $83.63 | 294,982 | | Total | 261,193 | $85.27 | 294,982 | - The Inflation Reduction Act of 2022 (IRA) imposes a new 1% excise tax on corporate stock repurchases, which applies to the Company47 ITEM 3. Defaults Upon Senior Securities There were no defaults upon senior securities during the period - No defaults upon senior securities occurred during the reporting period3348 ITEM 4. Mine Safety Disclosures There were no mine safety disclosures for the quarter ended March 31, 2024. Additionally, no Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted, terminated, or modified by directors and officers during the quarter - No mine safety disclosures were reported for the quarter ended March 31, 202431 - No Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted, terminated, or modified by directors and officers during the quarter373 ITEM 5. Other Information No other information was reported in this section for the period - No other information was reported in this section34 ITEM 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications, XBRL documents, and the cover page interactive data file - The exhibits include certifications (CEO, CFO), XBRL instance and taxonomy documents, and the cover page interactive data file374 Signatures The report was duly signed on behalf of Bank First Corporation by Kevin M. LeMahieu, Chief Financial Officer, on May 9, 2024, pursuant to the requirements of the Securities Exchange Act of 1934 - The report was signed by Kevin M. LeMahieu, Chief Financial Officer, on May 9, 202452 - The signing confirms compliance with the requirements of the Securities Exchange Act of 193437