Bank First Corporation

Company Overview

Business Model: Bank First Corporation operates as a relationship-based community bank, providing a comprehensive suite of retail and commercial banking services through its subsidiary, Bank First, N.A. These services include checking, savings, money market accounts, cash management, certificates of deposit, commercial and industrial loans, commercial real estate loans, construction and development loans, residential mortgages, consumer loans, credit cards, and digital banking solutions (online, telephone, and mobile banking). The Company also holds interests in an independent insurance provider (Ansay & Associates, LLC) and a title services provider (Generations Title, LLC), and offers investment and safekeeping services through Bank First Investments, Inc.

Market Position: As of June 30, 2024, Bank First, N.A. ranked in the top three for deposit market share in five of the fourteen Wisconsin counties where its branches are located. The Company competes by emphasizing its independent, community bank position, leveraging local market knowledge, local decision-making, and tailored, value-driven services to differentiate itself from a broad range of financial service providers.

Recent Strategic Developments: The Company's strategic plan focuses on growing capital through strong earnings, maintaining a robust credit culture, and pursuing prudent acquisitions and de novo growth. Key initiatives include advancing its digital strategy, enhancing core environment flexibility, and maintaining a strong vendor management program. In 2023, the Company recognized a pre-tax gain of $38.9 million from the sale of UFS, LLC. In Q1 2024, a $4.1 million junior subordinated debenture was repaid. A share repurchase program was reactivated on February 21, 2024, authorizing up to $30 million in common stock repurchases.

Geographic Footprint: Bank First Corporation's operations are concentrated in Wisconsin. Bank First, N.A. operates twenty-six offices across fourteen counties: Brown, Columbia, Dane, Fond du Lac, Jefferson, Manitowoc, Monroe, Outagamie, Ozaukee, Shawano, Sheboygan, Waupaca, Waushara, and Winnebago. All operating locations are within Wisconsin, and a significant majority of loans and deposits originate from this state.

Financial Performance

Revenue Analysis

Profitability Metrics (2024):

• Net Interest Margin: 3.65% (down from 3.69% in 2023)
• Net Margin: 31.8% (calculated as Net Income / Total Revenue)

Investment in Growth:

• Capital Expenditures: $1.5 million (construction in progress for buildings and improvements)
• Strategic Investments:
  • Amortization of intangibles: $5.8 million
  • Data processing expense: $9.7 million

Business Segment Analysis

Banking Operations

Financial Performance:

• Total Loans (as of December 31, 2024): $3.52 billion
• Nonaccrual Loans (as of December 31, 2024): $6.8 million (0.2% of total loans)
• Key Growth Drivers: Loan portfolio growth, particularly in construction and development loans, which increased by 38.4% in 2024 due to large multi-family projects.

Product Portfolio:

• Deposit Products: Checking, savings, money market, cash management, certificates of deposit.
• Lending Products: Commercial and industrial loans, commercial real estate loans, construction and development loans, residential mortgages, home equity loans, consumer loans, credit cards. The Company does not offer reverse mortgages, negative amortization loans, "Option ARM" loans, subprime loans, or Alt-A loans.
• Other Services: Online, telephone, and mobile banking, investment and safekeeping services (through Bank First Investments, Inc.), independent insurance services (through 40% ownership in Ansay & Associates, LLC), and title services (through 5.88% ownership in Generations Title, LLC).

Market Dynamics:

• The Company focuses on a relationship-based community banking model, emphasizing local market knowledge, local decision-making, and tailored services to meet customer needs within its Wisconsin market areas.

Loan Portfolio Breakdown (as of December 31, 2024):

• Commercial real estate: $1.75 billion (49.9% of total loans), increased 3.2% YoY. Owner Occupied CRE increased 8.3%, Non-owner occupied CRE declined 2.7%.
• Residential 1-4 family: $913.2 million (26.0% of total loans), increased 2.8% YoY.
• Commercial & industrial: $500.4 million (14.2% of total loans), increased 2.6% YoY.
• Construction & Development: $278.0 million (7.9% of total loans), increased 38.4% YoY.
• Consumer: $55.4 million (1.6% of total loans), increased 8.7% YoY.

Capital Allocation Strategy

Shareholder Returns:

• Share Repurchases: $31.9 million in 2024 (30,143 shares vested, 24,581 granted). The share repurchase program was reactivated on February 21, 2024, authorizing up to $30 million of common stock for one year ending February 20, 2025. As of December 31, 2024, 175,611 shares remained available under the program.
• Dividend Payments: $15.6 million in 2024 ($1.55 per share).
• Future Capital Return Commitments: An authorized share repurchase program with 175,611 shares remaining as of December 31, 2024.

Balance Sheet Position (as of December 31, 2024):

• Cash and Equivalents: $261.3 million (up 5.6% from $247.5 million in 2023)
• Total Debt: $147.4 million (comprising FHLB borrowings of $135.4 million and subordinated debt of $12.0 million)
• Net Cash Position: $113.9 million
• Total stockholders’ equity: $639.7 million (up 3.2% from $619.8 million in 2023)
• Loans pledged as collateral on FHLB borrowings: $1.47 billion
• Available liquidity for future FHLB draws: $1.47 billion

Cash Flow Generation (2024):

• Operating Cash Flow: $65.8 million (up from $52.9 million in 2023)
• Free Cash Flow: $64.3 million (Operating Cash Flow less Capital Expenditures)

Operational Excellence

Production & Service Model: The Company operates as a relationship-based community bank, emphasizing local market knowledge, local decision-making, and tailored services. Its mortgage banking operations include secondary market lending through Fannie Mae, Federal Home Loan Bank of Chicago, U.S. Dept. of Agriculture, the Federal Housing Administration, and the Wisconsin Housing and Economic Development Authority, with servicing rights retained on all loans sold.

Key Suppliers & Partners:

• Investment Services: Bank First Investments, Inc. (wholly-owned subsidiary)
• Insurance Services: Ansay & Associates, LLC (40% ownership interest)
• Title Services: Generations Title, LLC (5.88% ownership interest)
• Technology Partners: Relies on third parties for core technology infrastructure, data processing, and online banking services.

Facility Network:

• Main Office: 402 North 8th Street, Manitowoc, Wisconsin (owned).
• Branches: 26 additional branches across 14 Wisconsin counties (25 owned, 1 leased in Appleton).

Operational Metrics:

• Average assets-to-FTE ratio: Approximately $11.5 million for the year ended December 31, 2024.

Market Access & Customer Relationships

Go-to-Market Strategy: The Company's strategy is centered on its independent, community bank identity, leveraging local market knowledge and decision-making to provide specialized, value-driven services.

Distribution Channels:

• Branch Network: 26 physical offices across 14 counties in Wisconsin.
• Digital Platforms: Online, telephone, and mobile banking services.

Geographic Revenue Distribution: All operating locations are within Wisconsin, and a significant majority of loans and deposits are sourced from within the state.

Competitive Intelligence

Market Structure & Dynamics

The Company operates in fourteen Wisconsin counties with an estimated aggregate population of 1,894,606 (2020 U.S. Census data) and total deposits of approximately $62.5 billion as of June 30, 2024.

Competitive Positioning Matrix

Direct Competitors

The Company faces strong competition from a diverse range of financial institutions, including commercial banks, credit unions, savings institutions, mortgage banking firms, consumer finance companies, securities brokerage firms, insurance companies, money market funds, mutual funds, fintech companies, and non-bank lenders.

Competitive Response Strategy: The Company's strategy to maintain its competitive advantage involves focusing on its independent, community bank position, leveraging local market knowledge, local decision-making, and offering tailored services.

Risk Assessment Framework

Strategic & Market Risks

Market Dynamics:

• Interest Rate Risk: As of December 31, 2024, a +300 basis point interest rate shift was estimated to decrease net interest income by 4.5% over the next 12 months; a -100 basis point shift was estimated to decrease net interest income by 1.3%. An instantaneous 200 basis point increase in interest rates would result in a 3.00% increase in Economic Value of Equity (EVE); a 100 basis point decrease would result in a 3.23% decrease in EVE.
• Geographic Concentration: All operating locations, and a significant majority of loans and deposits, are concentrated within Wisconsin, exposing the Company to regional economic fluctuations.

Operational & Execution Risks

Supply Chain Vulnerabilities:

• Third-Party Dependency: The Company relies on third parties for core technology infrastructure, data processing, and online banking services, introducing operational dependencies.
• Cybersecurity: The Company relies extensively on information technology systems and faces continuous threats from hacking and cyberattacks. While no material cybersecurity incidents have impacted business strategy or financial condition to date, this remains a significant operational risk.

Financial & Regulatory Risks

Market & Financial Risks:

• Lending Concentration: As of December 31, 2024, 49.9% of the loan portfolio was secured by commercial real estate, indicating a concentration risk within this asset class.

Regulatory & Compliance Risks:

• Capital Requirements: Having crossed the $3 billion asset threshold in Q3 2022, the Company is now subject to Federal Reserve risk-based capital rules. The Company and Bank were well capitalized at December 31, 2024, exceeding applicable standards and the 2.50% capital conservation buffer.
• FDIC Insurance: The FDIC increased the initial base deposit insurance assessment rate by 2 basis points, effective Q1 2023.
• CRA Modernization: The OCC, Federal Reserve, and FDIC issued a final rule to modernize CRA regulations on October 24, 2023, with material aspects effective January 1, 2026, and data reporting requirements effective January 1, 2027. A preliminary injunction was granted in March 2024 enjoining implementation.

Innovation & Technology Leadership

Research & Development Focus: The Company's strategic priorities include advancing its digital strategy and enhancing flexibility in its core technology environment. It also maintains a focus on cybersecurity, including an annual review of its FFIEC Cybersecurity Assessment Tool (CAT) and a Cybersecurity Education and Awareness Program.

Technology Partnerships: The Company relies on third parties for its core technology infrastructure, data processing, and online banking services, indicating strategic collaborations in these areas.

Leadership & Governance

Executive Leadership Team

Leadership Continuity: Michael G. Ansay, CEO of Ansay & Associates, LLC, retired from the Board on January 15, 2024.

Board Composition: One-third (33%) of Board members identify as female. The Board includes Mary-Kay H. Bourbulas, Erin A. Davis, Robert D. Gregorski, Judy L. Heun, Stephen E. Johnson, Laura E. Kohler, Phillip R. Maples, Daniel C. McConeghy, Timothy J. McFarlane, Michael S. Stayer-Suprick, and Peter J. Van Sistine.

Human Capital Strategy

Workforce Composition (as of December 31, 2024):

• Total Employees: Approximately 366 full-time equivalent employees.
• Geographic Distribution: Primarily located in Wisconsin.
• Diversity Metrics: Approximately 73% of employees self-identified as female and approximately 7% as people of color. 42% of the Senior Management team identify as female. No employees are represented by a collective bargaining unit.

Talent Management: Acquisition & Retention:

• Employee Value Proposition: The Company's 401(k) plan includes an ESOP. The discretionary match was 60% of participant contributions up to 10% of salary in 2024, an increase from 35% in 2023 and 2022.

Diversity & Development:

• Culture & Engagement: The Company's culture emphasizes diversity, creativity, and responsiveness.
• Development Programs: A Cybersecurity Education and Awareness Program is in place to train employees on cybersecurity risk.

Environmental & Social Impact

Social Impact Initiatives:

• Community Investment: Bank First, N.A. received an “Outstanding” rating in its most recent Community Reinvestment Act (CRA) evaluation.

Regulatory Environment & Compliance

Regulatory Framework: Bank First Corporation is subject to comprehensive supervision and regulation by the Federal Reserve, and its subsidiary, Bank First, N.A., by the Office of the Comptroller of the Currency (OCC). The Company is required to act as a source of financial and managerial strength to its subsidiary bank.

Industry-Specific Regulations:

• The Federal Reserve reduced reserve requirement ratios to zero percent effective March 26, 2020.
• The Company is subject to various regulatory changes, including the FDIC's increase in the base deposit insurance assessment rate (effective Q1 2023) and the modernization of CRA regulations (with material aspects effective January 1, 2026, though implementation is currently enjoined).

Legal Proceedings: The Company reported no liability for uncertain tax positions as of December 31, 2024 and 2023.

Tax Strategy & Considerations

Tax Profile:

• Effective Tax Rate: 17.5% in 2024, down from 24.6% in 2023.
• Geographic Tax Planning: Wisconsin tax legislation enacted in 2023 exempted a significant portion of the Company’s loan portfolio interest income from state taxation. Final guidelines in Q1 2024 led to a $1.3 million reduction in the 2023 estimated tax liability.
• Tax Reform Impact: The Inflation Reduction Act of 2022 (IRA) created a 1% excise tax on stock repurchases after December 31, 2022. The Company is a "covered corporation" but experienced no impact in the period presented.
• Valuation allowance: $3.1 million (2024) and $2.4 million (2023) on the net deferred tax asset related to state income taxes.