8-K: Bank First Navigates Inverted Yield Curve, Reports Strong First Half Earnings

Bank First Corporation reports solid first-half earnings despite an inverted yield curve, emphasizing its commitment to interest rate neutrality and community banking.

Summary

• Bank First Corporation released its quarterly shareholder newsletter, highlighting its approach to interest rate sensitivity and the impact of the inverted yield curve.
• The bank emphasizes its focus on relationship-based community banking, with about 30% of deposits in checking accounts, which are considered stable and low-cost.
• Bank First aims for interest rate neutrality to minimize the impact of market changes on profitability, a strategy that proved successful during both rapid rate declines and increases.
• The yield curve has been inverted for 777 days as of August 19, 2024, putting downward pressure on net interest income, but the bank's strategy has helped maintain it.
• Total assets reached $4.15 billion as of June 30, 2024, up from $4.09 billion the previous year.
• Net loans grew to $3.38 billion, an increase of $112.4 million year-over-year, while deposits decreased slightly to $3.40 billion.
• Earnings per share for the first half of 2024 were $3.10, up from $2.46 in the first half of 2023, which was impacted by one-time acquisition costs.
• Net interest income before loan loss provisions was $66.4 million, a slight decrease of $0.2 million compared to the first half of 2023.
• The bank's strong asset quality resulted in low provisions for credit losses of $0.2 million for the first half of 2024, down from $4.2 million in the same period of 2023.
• Total shareholders' equity increased by $43.7 million to $614.6 million as of June 30, 2024.
• The bank declared a quarterly cash dividend of $0.40 per common share, payable on October 9, 2024.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with strong financial performance, effective risk management, and strategic growth initiatives. The bank's ability to navigate the inverted yield curve and achieve solid earnings growth is encouraging. The only negative is the slight decrease in net interest income and deposits.

Positives

• The bank's focus on relationship-based community banking has resulted in a high percentage of stable, low-cost checking account deposits.
• The bank's interest rate neutrality strategy has been effective in maintaining net interest income despite market fluctuations.
• The bank has been recognized as one of the top-performing banks in the United States by Raymond James.
• Earnings per share increased significantly in the first half of 2024 compared to the same period in 2023.
• The bank's strong asset quality has resulted in low provisions for credit losses.
• Total shareholders' equity has increased substantially year-over-year.
• The bank has a stock repurchase program in place.

Negatives

• The inverted yield curve continues to put downward pressure on net interest income growth.
• Deposits decreased slightly year-over-year, although the bank notes a shift from noninterest-bearing to interest-bearing deposits.
• Net interest income before provision for loan losses decreased slightly compared to the first half of 2023.
• Noninterest income decreased slightly due to the sale of a member interest in UFS, LLC.

Risks

• The inverted yield curve poses a continued risk to net interest income growth.
• The shift from noninterest-bearing to interest-bearing deposits could increase the bank's cost of funds.
• The bank's technology investments could lead to increased data processing expenses.

Future Outlook

The bank expects its growth strategy and focus on interest neutrality to position it well for accelerated net interest income growth when the yield curve normalizes.

Management Comments

• Bank First promises to be a relationship-based community bank focused on providing innovative solutions that are value-driven to the communities we serve.
• Bank First strives to be near interest neutral, meaning changes in the interest market should not impact the profitability of the Bank.
• The inverted yield curve continues to put downward pressure on growth.
• The bank's growth strategy, combined with its successful focus on interest neutrality, will position the Bank well to accelerate the growth of net interest income when the yield curve normalizes.

Industry Context

The document highlights the challenges faced by banks due to the inverted yield curve, a common issue in the current economic environment. Bank First's focus on interest rate neutrality and community banking is a strategy employed by many regional banks to navigate these challenges. The comparison to Silicon Valley Bank highlights the importance of effective risk management in the current environment.

Comparison to Industry Standards

• Bank First's checking account deposit percentage of 30% is significantly higher than the industry average, indicating a strong customer base.
• The bank's recognition by Raymond James as a top-performing community bank, placing it in the top 10% of 203 banks, demonstrates its strong financial performance and stability.
• The bank's return on average assets of 1.54% and return on average equity of 10.34% are strong compared to industry averages for community banks.
• The document notes that the shift from noninterest-bearing to interest-bearing deposits is a common trend among banks as customers respond to rising interest rates.

Management Changes

Stakeholder Impact

• Shareholders will benefit from the increased earnings per share and the quarterly cash dividend.
• Employees will benefit from the bank's growth and investment in technology.
• Customers will benefit from the bank's focus on relationship-based community banking and innovative solutions.
• The community will benefit from the bank's sponsorships and community engagement activities.

Next Steps

• The bank will continue to monitor the yield curve and its impact on net interest income.
• The bank will continue to focus on building relationships and providing innovative solutions to its customers.
• The bank will continue to invest in technology to enhance the customer experience.

Key Dates

Keywords

community bank, interest rate sensitivity, inverted yield curve, net interest income, earnings per share, asset quality, shareholder equity, dividends, deposits, loans