Executive Summary / Key Takeaways

• Bank First Corporation delivered strong first-quarter 2025 results, with net income increasing 18.4% year-over-year, driven by robust net interest income growth and a significant boost from noninterest income, including a bank-owned life insurance death benefit.
• Net interest income benefited from the repricing of loans in a higher rate environment and steady growth in interest-earning assets, although partially offset by increased funding costs as deposits shifted towards interest-bearing accounts.
• Loan growth in Q1 2025 was primarily fueled by strong demand from existing commercial relationships, particularly in the multi-family real estate sector, while overall credit quality remained sound despite a single charge-off.
• The company maintains a strong liquidity position, supported by a diversified funding base and substantial borrowing capacity, and remains well-capitalized, exceeding all regulatory requirements.
• While excelling in community-focused service and local market penetration, BFC faces competitive pressures from larger regional banks with more advanced digital platforms, highlighting the need for continued operational efficiency and strategic technology investment.

A Wisconsin Story: Building Value Through Community Banking

Bank First Corporation, headquartered in Manitowoc, Wisconsin, traces its roots back to 1894 with the founding of its subsidiary, Bank First, N.A. Over its long history, BFC has cultivated a deep connection with the communities it serves, expanding its footprint to twenty-six locations across numerous Wisconsin counties. This growth has been a blend of organic expansion and strategic acquisitions, such as the integration of loans from "Hometown," which have shaped its current scale and market presence.

At its core, BFC operates as a full-service financial institution, providing essential loan, deposit, and treasury management products to individuals and businesses. Its business model is fundamentally built on the traditional banking spread – earning interest on assets like loans and investments, funded by interest paid on deposits and borrowings. This model is supplemented by noninterest income streams, including service charges, gains on mortgage loan sales, and income from strategic investments like its stake in Ansay and Associates, LLC.

In the competitive landscape of regional banking, BFC positions itself against larger players like Associated Banc-Corp (ASB), Wintrust Financial Corporation (WTFC), Old National Bancorp (ONB), and Huntington Bancshares Incorporated (HBAN). While these competitors often boast greater scale and more extensive digital infrastructure, BFC's strength lies in its localized approach. Its extensive branch network fosters strong customer relationships and loyalty, which can translate into advantages like potentially faster loan processing in its niche markets compared to the broader, less personalized service sometimes offered by larger rivals.

However, this local focus also presents challenges. The competitive analysis indicates that BFC lags some larger rivals in digital innovation speed and technology integration. Competitors like WTFC and HBAN leverage advanced digital platforms and AI integration for faster transaction processing and potentially lower customer acquisition costs. While BFC incurs data processing expenses as part of its operations, it appears to lack a specific, differentiated core technology that provides a unique, quantifiable advantage over competitors. Instead, digital capabilities appear to be an area where BFC manages costs but faces a competitive vulnerability in terms of innovation speed and efficiency metrics compared to peers. This suggests that while BFC's community model is a strength, keeping pace with technological advancements is crucial for long-term competitiveness.

Financial Performance: Riding the Rate Wave

The first quarter of 2025 demonstrated BFC's ability to capitalize on the prevailing interest rate environment. Net income rose significantly to $18.2 million, an 18.4% increase from $15.4 million in the first quarter of 2024. This performance was primarily driven by a robust increase in net interest income, which grew by $3.2 million to $36.5 million.

The expansion in net interest income was a direct result of the repricing of new and renewed loans at higher interest rates, coupled with steady growth in the volume of interest-earning assets. Total interest income increased by a notable 11.7% to $55.0 million. However, this was partially offset by a 16.3% increase in interest expense, totaling $18.5 million, as the cost of funds rose due to higher interest rates and a continued shift in the deposit mix towards interest-bearing accounts. Encouragingly, the Bank's cost of funds saw a slight decrease of 0.08% from the fourth quarter of 2024, with a more significant 0.18% decrease in the average rate paid on non-brokered certificates of deposit, suggesting some stabilization or potential improvement in funding costs.

Noninterest income provided a significant tailwind in Q1 2025, increasing by $2.2 million to $6.6 million. This surge was attributed to several factors: a 23.0% increase in service charges, benefiting from a renegotiated vendor incentive program; positive valuation adjustments on Mortgage Servicing Rights (MSRs) ($0.2 million gain vs. $0.3 million loss in Q1 2024); and a substantial $1.0 million gain recorded in other noninterest income from a bank-owned life insurance death benefit.

Noninterest expenses remained relatively well-controlled, increasing by a modest $0.3 million to $20.6 million. While most expense categories showed stability, increases were noted in charitable contributions (accelerated due to the BOLI gain) and federal deposit insurance costs (driven by higher deposit levels).

The provision for income taxes increased to $3.9 million in Q1 2025 (17.5% effective rate) from $1.8 million in Q1 2024 (10.5% effective rate). The lower rate in the prior year was significantly impacted by a $1.3 million reduction in estimated 2023 tax liability following the publication of final rules related to Wisconsin tax legislation exempting certain loan income. The Q1 2025 effective rate was influenced by tax-exempt income from the BOLI death benefit, keeping it below levels seen in the latter half of 2024.

Asset Quality and Risk Management

Credit risk is an inherent part of the banking business, and BFC actively manages its loan portfolio quality. As of March 31, 2025, the Allowance for Credit Losses (ACL) - Loans stood at $43.7 million, representing 1.23% of total loans. A provision for credit losses of $0.4 million was recorded in Q1 2025, compared to $0.2 million in Q1 2024. The increase reflects slight shifts in economic forecasts, with projections for national unemployment rising and GDP growth declining.

The loan portfolio generally exhibits low credit stress. However, net charge-offs totaled $0.8 million in Q1 2025, primarily due to a single customer relationship charge-off, contrasting with net recoveries of $0.6 million in Q1 2024. Nonperforming assets decreased to $7.6 million at March 31, 2025, from $9.2 million at December 31, 2024, largely due to one customer relationship returning to accrual status. Nonaccrual loans represented 0.18% of total loans, and nonperforming assets were 0.17% of total assets at quarter-end, indicating sound asset quality metrics relative to total portfolio size.

Interest rate risk is another key focus for BFC, managed through its Asset-Liability Committee (ALCO). The company monitors its exposure to changes in market rates through various analyses, including interest rate simulations. As of March 31, 2025, simulations projected that a hypothetical instantaneous 200 basis point increase in interest rates could lead to a 4.90% increase in net interest income over the next 12 months, while a 100 basis point decrease could result in a 0.80% decrease. The economic value of equity analysis estimated a 3.14% increase for a 200 basis point rate increase and a 3.20% decrease for a 100 basis point rate decrease. These results suggest a relatively balanced interest rate sensitivity position, within the company's policy guidelines.

The investment securities portfolio, totaling $274.0 million at March 31, 2025, experienced unrealized losses, primarily due to changes in interest rates. However, management does not believe these losses are credit-impaired and does not intend to sell these securities before recovery of their amortized cost, which is expected at maturity.

Liquidity and Capital Strength

Maintaining robust liquidity and capital levels is paramount for BFC. Liquidity is managed through a diversified base of deposits, borrowings from the FHLB, and lines of credit from correspondent banks. As of March 31, 2025, the company had substantial borrowing availability of $1.54 billion between borrowings and brokered deposits, which management views as adequate to meet current and future needs. Deposits remain the primary funding source, totaling $3.67 billion at quarter-end, with a continued trend of customers shifting funds from noninterest-bearing to interest-bearing accounts.

BFC and its subsidiary bank are well-capitalized, comfortably exceeding all applicable regulatory capital requirements, including the capital conservation buffer. At March 31, 2025, the company's Common Equity Tier 1 capital ratio was 12.67%, Tier 1 capital ratio was 12.67%, and Total capital ratio was 14.15%, all well above the minimum requirements. Management expects the Bank to continue exceeding well-capitalized standards throughout 2025. The company does not intend to opt into the Community Bank Leverage Ratio Framework.

In February 2025, BFC renewed its share repurchase program, authorizing up to $50.0 million in repurchases over the subsequent year. The company repurchased $6.4 million of common stock during Q1 2025. These repurchases, along with $4.5 million in regular quarterly dividends, were offset by strong earnings, contributing to an increase in total stockholders' equity to $648.4 million at quarter-end. The Inflation Reduction Act of 2022 imposes a 1% excise tax on stock repurchases, which applies to BFC and will impact financial results depending on the extent of future buybacks.

Notably, the Board declared a special cash dividend of $3.50 per share in April 2025, in addition to the regular quarterly dividend, signaling confidence and a commitment to returning capital to shareholders.

Outlook

Bank First Corporation's first-quarter performance sets a positive tone for the year, demonstrating resilience and profitability in a dynamic rate environment. The core banking operations continue to benefit from strategic loan repricing and growth in interest-earning assets. While funding costs have risen, the recent slight decrease in the cost of non-brokered CDs is a favorable development.

The loan portfolio, particularly the growth in multi-family real estate, reflects ongoing demand in BFC's Wisconsin markets. Management's assessment of low credit stress, despite the isolated charge-off, suggests a stable asset quality outlook. The company's strong capital and liquidity positions provide a solid foundation to support continued loan growth and navigate potential economic uncertainties.

Analyst expectations, such as Zacks Equity Research projecting $6.90 earnings per share for the fiscal year 2025, reflect a positive view on the company's earnings trajectory. While BFC faces ongoing competition, particularly from larger, more technologically advanced institutions, its established local presence and focus on relationship banking remain key strengths. The challenge will be to balance this community-centric model with necessary investments in digital capabilities to maintain efficiency and competitiveness in the evolving banking landscape.

Conclusion

Bank First Corporation delivered a strong start to 2025, showcasing profitable growth driven by effective asset-liability management in a higher interest rate environment and a boost from noninterest income. The company's deep roots in Wisconsin communities, supported by its extensive branch network, provide a stable deposit base and opportunities for relationship-driven loan growth, particularly in commercial real estate and multi-family sectors. Despite facing competitive pressures from larger rivals with more advanced digital platforms, BFC maintains sound asset quality, robust liquidity, and a well-capitalized balance sheet. The recent special dividend underscores management's confidence and commitment to shareholder returns. While navigating the ongoing shift in funding costs and the need for strategic technology investment, BFC's core strength in community banking and its solid financial foundation position it favorably for continued profitable performance.