10-Q: Bank First Reports Q2 Earnings Growth, Announces Merger

Bank First Corporation reported increased net income and earnings per share for Q2 2025, driven by strong net interest income, while also announcing a strategic merger with Centre 1 Bancorp.

Summary

• Net income for the three months ended June 30, 2025, increased by $0.8 million to $16.9 million, up from $16.1 million in the same period of 2024.
• Basic earnings per share rose to $1.71 for Q2 2025, compared to $1.59 for Q2 2024.
• For the six months ended June 30, 2025, net income increased by $3.6 million to $35.1 million, up from $31.5 million in the prior year.
• Basic earnings per share for the six-month period reached $3.53, compared to $3.10 in 2024.
• Net interest income increased by $3.7 million to $36.7 million for Q2 2025 and by $6.8 million to $73.2 million for the six months ended June 30, 2025.
• Total loans, net, increased by $63.0 million to $3.54 billion at June 30, 2025, from $3.47 billion at December 31, 2024, driven by commercial and industrial loans (up $38.3 million) and multi-family loans (up $50.8 million).
• Total assets decreased by $130.0 million, or 2.9%, to $4.37 billion at June 30, 2025, from $4.50 billion at December 31, 2024.
• Deposits decreased by $65.6 million, or 1.8%, to $3.60 billion at June 30, 2025, from $3.66 billion at December 31, 2024, with a continued shift from noninterest-bearing to interest-bearing accounts.
• Noninterest income decreased by $1.0 million to $4.9 million for Q2 2025, primarily due to lower income from Ansay and negative valuation adjustments on Mortgage Servicing Rights (MSRs).
• Noninterest expense increased by $1.7 million to $20.8 million for Q2 2025, mainly due to higher occupancy costs from branch remodels and a new branch, and increased data processing expenses for digital banking platform upgrades.
• Nonperforming loans increased to $13.6 million (0.38% of total loans) at June 30, 2025, from $8.5 million (0.19% of total loans) at December 31, 2024.
• The Allowance for Credit Losses Loans (ACL-Loans) was $44.3 million, or 1.24% of total loans, at June 30, 2025, compared to $44.2 million, or 1.26% of total loans, at December 31, 2024.
• A provision for credit losses of $0.2 million was recorded for Q2 2025, and $0.6 million for the six months ended June 30, 2025, compared to no provision and $0.2 million respectively in the prior year periods.
• The company announced a merger agreement with Centre 1 Bancorp, Inc., expected to close on January 1, 2026, which would result in a combined entity with approximately $5.9 billion in assets, $4.6 billion in loans, and $4.9 billion in deposits.

Sentiment

Score: 8

Explanation: The company demonstrated strong financial performance with increased net income, EPS, and net interest income. Loan growth was robust, and capital ratios remain strong. While nonperforming assets increased and noninterest income saw a slight dip, these were offset by core operational strengths and a significant strategic merger announcement, indicating positive future prospects.

Positives

• Net income and earnings per share increased for both the three and six-month periods ended June 30, 2025, demonstrating improved profitability.
• Net interest income showed strong growth, increasing by $3.7 million for the quarter and $6.8 million for the six-month period, driven by higher yields on new and renewed loans.
• The loan portfolio experienced solid growth, increasing by $63.0 million, with notable increases in commercial and industrial loans (6.5%) and multi-family loans (15.6%).
• The company's net interest margin, on a taxable equivalent basis, improved to 3.72% for Q2 2025 and 3.69% for the six months ended June 30, 2025, indicating efficient management of interest-earning assets and interest-bearing liabilities.
• The Bank First, N.A. subsidiary remains well-capitalized, exceeding all applicable regulatory capital requirements.
• The announced merger with Centre 1 Bancorp, Inc. is a significant strategic move expected to create a larger, more diversified banking entity with increased assets, loans, and deposits.

Negatives

• Total assets decreased by $130.0 million, or 2.9%, from December 31, 2024, primarily due to a significant decrease in cash and cash equivalents and investment securities.
• Deposits decreased by $65.6 million, or 1.8%, and the company continues to observe a shift from lower-cost noninterest-bearing deposits to higher-cost interest-bearing deposits.
• Noninterest income declined by $1.0 million for the quarter, impacted by lower income from the Ansay investment and negative valuation adjustments on MSRs.
• Noninterest expenses increased by $1.7 million for the quarter and $2.0 million for the six-month period, driven by higher occupancy costs from branch expansion and increased data processing expenses.
• Nonperforming loans and nonperforming assets increased significantly from December 31, 2024, with nonaccrual loans rising from $6.8 million to $13.0 million.
• The provision for credit losses increased to $0.2 million for the quarter and $0.6 million for the six-month period, reflecting increased loan growth and net charge-offs compared to net recoveries in the prior year.

Risks

• Fluctuations in interest rates could adversely impact net interest income and capital, as changes in rates on assets and liabilities may not align.
• Credit risk is inherent in the lending business, and adverse economic conditions or borrower financial difficulties could lead to increased loan losses.
• The determination of the Allowance for Credit Losses (ACL-Loans) involves significant judgment and subjectivity, and actual losses could differ from estimates.
• The company is subject to various regulatory capital requirements, and failure to meet these could result in restrictive regulatory actions.
• The Inflation Reduction Act of 2022 (IRA) imposes a new 1% excise tax on stock repurchases, which could impact the company's financial statements depending on future repurchase activity.
• The fair value of Mortgage Servicing Rights (MSRs) and other financial instruments is subject to changes in market conditions and assumptions, leading to valuation adjustments.
• The success of the announced merger with Centre 1 Bancorp, Inc. is subject to customary closing conditions, including regulatory approvals, and integration risks post-closing.

Future Outlook

The company anticipates the national unemployment rate to rise and national GDP growth rate to decline during the forecast period. It expects to continue exceeding all applicable well-capitalized regulatory capital requirements and the capital conservation buffer in 2025. The merger with Centre 1 Bancorp, Inc. is expected to close on January 1, 2026, subject to customary closing conditions including regulatory approvals.

Management Comments

• Net income continues to benefit from new and renewed loans pricing at higher yields while deposits, particularly certificates, continue to reprice lower.
• The loan portfolio continues to exhibit very little credit stress.
• The Bank continues to see a shift in its deposit portfolio from noninterest-bearing deposits to interest-bearing deposits as prevailing interest rates have increased over the last several years.
• The company believes its present liquidity position is adequate to meet current and future liquidity needs, and management knows of no trend or event that will have a material impact on the company's ability to maintain liquidity at satisfactory levels.
• The company's commitment to collecting on all loans results in higher loan recoveries.

Industry Context

The banking industry is navigating a dynamic interest rate environment, with rising rates generally benefiting net interest margins for banks that can reprice assets faster than liabilities. However, this also leads to increased competition for deposits, often resulting in a shift from noninterest-bearing to interest-bearing accounts, as observed in this filing. The increase in nonperforming loans, while still low, warrants monitoring as economic conditions evolve. Consolidation through mergers and acquisitions, like the announced Centre 1 Bancorp deal, remains a key strategy for regional banks to achieve scale and expand market reach in a competitive landscape.

Comparison to Industry Standards

• The company's net interest margin of 3.72% for Q2 2025 is competitive within the community banking sector, which has generally seen improved margins in a higher interest rate environment.
• The nonperforming loans to total loans ratio of 0.38% at June 30, 2025, while an increase from the prior period, remains relatively low compared to the broader banking industry average, indicating strong asset quality management.
• The Allowance for Credit Losses to total loans at 1.24% is a robust coverage ratio, reflecting a conservative approach to credit risk, especially when compared to some larger institutions that may have lower coverage.
• The Bank First, N.A.'s capital ratios (e.g., CET1 ratio of 11.03%) significantly exceed the 'well-capitalized' thresholds (6.5%), demonstrating a strong capital position relative to regulatory benchmarks and many peers.
• The strategic acquisition of Centre 1 Bancorp, Inc., with pro forma combined assets of approximately $5.9 billion, positions the company to compete more effectively with larger regional banks in Wisconsin and potentially expand its market share.

Legal Proceedings

• The company is a party to various litigation in the normal course of business, but management believes any resulting liability will not have a material effect on financial position, results of operations, or liquidity.

Stakeholder Impact

• Shareholders: Positive impact from increased earnings per share and the strategic merger, which could enhance long-term value. However, share repurchases and dividends led to a decrease in total stockholders' equity in the short term.
• Customers: Benefit from continued loan offerings and expanded branch network (new branch in Sturgeon Bay, WI), as well as ongoing digital banking platform upgrades.
• Employees: Potential for integration challenges and opportunities arising from the merger with Centre 1 Bancorp, Inc.
• Creditors: Strong capital adequacy ratios and liquidity position provide assurance regarding the company's ability to meet its financial obligations.

Next Steps

• Integration of Centre 1 Bancorp, Inc. following the expected merger closing on January 1, 2026.
• Continued monitoring of economic forecasts, particularly national unemployment and GDP growth rates, to assess their impact on the loan portfolio.
• Ongoing management of interest rate risk through asset and liability policies to optimize net interest income.
• Further investment in digital banking platform upgrades.
• Execution of the share repurchase program through February 17, 2026.

Key Dates

Recommendation

The company exhibits strong core banking performance with consistent growth in net interest income and earnings per share, driven by effective loan pricing and portfolio expansion. While there's a slight increase in nonperforming assets and some non-interest income headwinds, the overall asset quality remains robust, and capital levels are well above regulatory requirements. The announced strategic merger with Centre 1 Bancorp, Inc. is a significant catalyst, promising enhanced scale, market presence, and long-term value creation. This combination of solid fundamentals and strategic growth initiatives makes it a compelling investment.

Keywords

Banking, Financial Services, SEC Filing, Earnings, Net Interest Income, Loan Growth, Deposits, Nonperforming Assets, Merger, Acquisition, Capital Adequacy, Interest Rate Risk, Credit Losses, Wisconsin