Bank First Corporation (BFC)

Executive Summary / Key Takeaways

• Bank First's pending acquisition of Centre 1 Bancorp will nearly double its assets to $6 billion and add wealth management capabilities, but investors are paying 18.5x earnings for execution that remains unproven and faces significant integration risk in Q2 2026.
• The bank's deposit franchise is genuinely exceptional, with over 25% of deposits in noninterest-bearing accounts versus an industry average below 20%, funding net interest margin expansion to 3.75%—but this advantage is eroding as deposits shrink 3.3% and shift toward higher-cost interest-bearing products.
• Loan repricing is driving profit growth, with net income up 8.7% in Q3 2025, but this cyclical tailwind will eventually fade, making successful Centre 1 integration the primary driver of future returns rather than rate environment benefits.
• Credit quality remains strong with minimal charge-offs, yet a recent increase in nonaccrual loans from a single customer relationship highlights concentration risk in a $3.6 billion portfolio heavily weighted toward commercial real estate and commercial industrial lending.
• The core risk/reward hinges on whether management can integrate a bank nearly its own size while preserving its superior deposit franchise and maintaining credit discipline through a potential economic slowdown in its concentrated Wisconsin markets.

Setting the Scene: A 131-Year-Old Bank Bets Big on Transformation

Bank First Corporation, founded in 1894 and headquartered in Manitowoc, Wisconsin, has spent over a century building a relationship-driven community banking franchise across 27 branches in central and northeastern Wisconsin. The company generates revenue through traditional banking operations—lending to businesses and consumers while gathering deposits—making it a pure-play on the economic health of its regional markets and the efficiency of its funding model. Unlike larger regional competitors such as Associated Banc-Corp (ASB) with $44 billion in assets or Nicolet Bankshares (NIC) with $9 billion, Bank First has maintained a focused presence, leveraging deep local relationships to originate quality loans and maintain a deposit base that is unusually heavy on low-cost, noninterest-bearing accounts.

This historical foundation matters because it explains how the bank achieved its most valuable asset: a deposit franchise where over 25% of balances sit in noninterest checking accounts, significantly above the industry average of under 20%. This funding advantage directly translates to a wider net interest margin, which reached 3.75% in Q3 2025, up from 3.67% a year earlier. However, this moat is under pressure as rising interest rates have prompted depositors to shift toward interest-bearing products, causing total deposits to decline 3.3% year-to-date to $3.54 billion. The bank's strategy has always emphasized growing noninterest deposits through community involvement, but macroeconomic forces are testing this approach.

The competitive landscape reveals Bank First's mid-tier positioning. It lacks the scale of Associated Banc-Corp, which can spread technology investments across 200+ branches, and it doesn't have Nicolet's acquisition-driven growth trajectory. Yet it is substantially larger than Waterstone Financial (WSBF) and PSB Holdings (PSBQ), giving it more resources for digital banking upgrades while remaining small enough that a single acquisition can fundamentally transform its business. This positioning sets the stage for the Centre 1 Bancorp deal, which represents the most significant strategic shift in the bank's recent history.

Strategic Differentiation: The Power and Fragility of Relationship Banking

Bank First's core competitive advantage lies in its relationship-driven model, which fosters deposit loyalty and enables prudent credit underwriting. The bank's long-standing presence in Wisconsin communities creates switching costs for customers who value local decision-making and personalized service, particularly for commercial borrowers whose operating profits often serve as the primary repayment source for owner-occupied commercial real estate loans. This approach has produced a loan portfolio with minimal credit stress and net charge-offs that are negligible compared to peers.

The bank's product offerings are straightforward but well-suited to its market: commercial and industrial loans, commercial real estate (both owner-occupied and non-owner-occupied), residential mortgages, and treasury management services. Management views owner-occupied CRE as an extension of C&I lending, focusing on the underlying business cash flows rather than just property values—a discipline that has helped maintain asset quality. The decision to sell residential loans to the secondary market or retain them is based on asset-liability positioning and customer preference, with servicing rights retained in either case, generating additional fee income.

Technology investments are modest but targeted. The bank is upgrading its digital banking platform, which drove a $0.6 million increase in data processing expenses in Q3, and has invested in branch construction and remodel projects. These expenditures, while necessary to remain competitive, highlight the disadvantage of smaller scale relative to Associated Banc-Corp, which can deploy more sophisticated mobile and online banking solutions. Bank First's technological moat is not about innovation but about integration—its systems support the relationship banking model without adding unnecessary complexity.

The pending acquisition of Centre 1 Bancorp will add wealth management and insurance services through First National Bank and Trust's existing operations, diversifying revenue beyond traditional spread income. This matters because it addresses a key vulnerability: over-reliance on net interest income in a cyclical rate environment. However, the integration will test management's ability to merge two distinct technology stacks and customer bases without disrupting the relationship-driven culture that underpins Bank First's deposit franchise.

Financial Performance: Cyclical Tailwinds Masking Integration Costs

Bank First's Q3 2025 results demonstrate the power of loan repricing in a higher-rate environment. Net interest income rose 6.7% to $38.3 million, driven by new and renewed loans priced at higher yields while deposit costs continued to reprice lower. The average rate paid on interest-bearing liabilities fell 27 basis points year-over-year to 2.52%, with interest checking and CD rates declining 54 and 56 basis points respectively. This dynamic expanded the tax-equivalent net interest margin to 3.75%, up 8 basis points from the prior year.

The "so what" is clear: these gains are cyclical, not structural. As the rate environment stabilizes and deposit competition intensifies, this tailwind will dissipate, leaving the bank dependent on loan growth and expense control for future earnings expansion. Total loans grew 3.2% year-to-date to $3.63 billion, driven by commercial and industrial lending (+10.9%) and multi-family real estate (+14%), responding to housing shortages in local markets. This growth is solid but not spectacular, particularly compared to Nicolet Bankshares' more aggressive expansion.

Noninterest income increased 21.7% to $6.0 million, but this includes $1.1 million in bank-owned life insurance death benefits that are non-recurring and $0.3 million in positive mortgage servicing rights valuations that could reverse if rates move. The underlying fee growth is more modest, highlighting the bank's dependence on spread income. Noninterest expense rose 5.0% to $21.1 million, with $0.9 million in outside service fees directly related to the Centre 1 acquisition. This cost pressure will likely intensify as integration expenses ramp up in Q4 2025 and Q1 2026.

Credit quality remains a bright spot, with minimal net charge-offs in Q3 compared to $0.3 million in the prior year. However, nonaccrual loans increased due to deterioration in a single customer relationship, a reminder that concentration risk exists even in a well-managed portfolio. The bank's commercial real estate exposure—38% of total loans in owner-occupied and non-owner-occupied categories—could become problematic if regional economic conditions weaken, particularly given Wisconsin's manufacturing exposure.

The balance sheet shows total assets declined 1.7% to $4.42 billion, primarily due to a $135 million decrease in cash and cash equivalents as the bank funded loan growth and managed seasonal deposit outflows through $100 million in short-term FHLB borrowings. This liquidity management is prudent but adds funding cost volatility. Total stockholders' equity fell 1.8% to $628 million due to $22 million in share repurchases and $48 million in dividends, offsetting $53 million in earnings. The bank remains well-capitalized, but capital deployment toward buybacks and dividends limits cushion for acquisition-related stress.

Outlook and Execution Risk: The Centre 1 Integration Challenge

Management's guidance is optimistic but vague. CEO Mike Molepske expects loan repricing to continue boosting portfolio yields "for some time to come," while deposit repricing is projected to keep declining. The Centre 1 acquisition is slated to close on January 1, 2026, with system conversion anticipated in Q2 2026. Based on combined September 30, 2025 figures, the merged entity would have $6 billion in assets, $4.6 billion in loans, and $4.8 billion in deposits—effectively doubling the bank's scale.

The "why this matters" is execution risk. Integrating a bank of similar size is notoriously difficult, with potential for customer attrition, technology disruptions, and cultural clashes. The all-stock transaction, valued at $174.3 million based on July 2025 share prices, dilutes existing shareholders and ties the deal's success to BFC's stock performance. Unlike cash deals that provide certainty, this structure means Centre 1 shareholders remain exposed to integration risks alongside BFC investors.

Management commentary emphasizes that both institutions maintain over 25% of deposits in non-interest-bearing checking accounts, suggesting deposit franchise compatibility. However, combining two branch networks, core processing systems, and risk management frameworks will require significant management attention and resources. The $0.9 million in Q3 acquisition expenses are just the beginning; integration costs could pressure earnings through mid-2026.

The bank's strategy of growing through acquisitions—Hometown Bancorp in 2023 and now Centre 1—creates a track record that investors can evaluate. Yet each deal increases complexity and geographic reach, moving BFC beyond its historical Wisconsin footprint into northern Illinois for the first time. This expansion diversifies market risk but also subjects the bank to new competitive dynamics and regulatory environments where it lacks established relationships.

Risks and Asymmetries: Where the Thesis Can Break

The most material risk is integration failure. If Centre 1's systems don't merge smoothly, customer attrition could accelerate, particularly among commercial clients who value relationship continuity. The combined bank would need to maintain two core processing systems for several months, increasing operational risk and expense. Any misstep in the Q2 2026 system conversion could disrupt service and damage the reputation that underpins the deposit franchise.

Interest rate risk cuts both ways. The bank's own disclosures state that "a sudden and substantial change in interest rates may adversely impact our earnings to the extent that the interest rates borne by assets and liabilities do not change at the same speed, to the same extent or on the same basis." While the current environment has favored BFC, any rapid rate decline could compress margins as loan yields fall faster than deposit costs can adjust. The bank's economic value of equity analysis acknowledges that estimates are "inherently uncertain" and rely on assumptions that may not hold.

Credit concentration risk is more acute than headline metrics suggest. The increase in nonaccrual loans from a single customer relationship demonstrates how quickly asset quality can deteriorate. With 42% of loans in commercial real estate and 18% in commercial and industrial, a regional economic slowdown could create cascading problems. The bank actively monitors tariff impacts on C&I borrowers but notes no significant pressure yet—a risk that could materialize if trade policies change.

Deposit franchise erosion represents a slow-burn threat. The shift from noninterest-bearing to interest-bearing deposits has accelerated, with total deposits down 3.3% year-to-date. If this trend continues, BFC's funding cost advantage will narrow, compressing the very margins that justify its premium valuation. Competition from high-yield online alternatives and national banks could further pressure deposit retention, particularly among younger consumers less tied to community banking relationships.

Valuation risk is immediate. At 18.5x earnings, BFC trades above most peers, including Nicolet at 13.87x and Waterstone at 12.06x. This premium prices in flawless execution of the Centre 1 integration and sustained NIM expansion. Any disappointment on either front could trigger multiple compression, with downside amplified by the stock's low beta (0.39) which suggests limited institutional interest and potential liquidity issues in a sell-off.

Valuation Context: Premium Pricing for Execution Premium

At $129.86 per share, Bank First trades at 18.24 times trailing earnings and 2.03 times book value, generating an 11.24% return on equity and 1.62% return on assets. These metrics place it in the upper tier of regional bank valuations, reflecting market expectations for successful Centre 1 integration and continued superior performance.

Peer comparisons highlight the premium. Associated Banc-Corp trades at 30.37 times earnings but generates only 3.79% ROE, reflecting its larger scale and lower efficiency. Nicolet Bankshares trades at 13.87 times earnings with a similar 12.25% ROE, making it a direct comp that suggests BFC's valuation is stretched. Waterstone Financial and PSB Holdings trade at 12.06x and 11.23x respectively, with lower ROEs confirming that BFC commands a quality premium.

Cash flow multiples tell a more nuanced story. BFC's price-to-operating cash flow ratio of 19.87 and price-to-free cash flow of 24.50 are elevated but not extreme for a bank with its profitability.

The 1.39% dividend yield and 25.32% payout ratio indicate a balanced capital return policy, though the $22 million in share repurchases during Q3 occurred at what may prove to be peak valuation if integration stumbles.

The enterprise value-to-revenue ratio of 8.29 is substantially higher than peers, reflecting both the expected Centre 1 synergies and the market's confidence in management's ability to maintain its deposit franchise. However, this premium leaves no margin for error. Unlike larger banks that can absorb integration hiccups through diversification, BFC's transformation is binary: success will validate the valuation, while failure could see the stock re-rate toward Nicolet's 13-14x multiple, implying 20-25% downside before considering any operational deterioration.

Conclusion: A High-Quality Bank at a High-Stakes Moment

Bank First Corporation has built a genuinely superior community banking franchise over 131 years, distinguished by a deposit base that provides a durable funding cost advantage and credit underwriting that has produced minimal losses through various cycles. The pending Centre 1 acquisition offers a compelling strategic rationale: doubling the bank's size, diversifying into wealth management, and expanding into Illinois markets that complement its Wisconsin footprint without overlap.

The investment thesis, however, hinges entirely on execution. The bank's current 18.5x earnings multiple prices in a seamless integration and sustained NIM expansion, leaving no cushion for the operational disruptions that often plague bank mergers of this relative size. While management's track record with the 2023 Hometown Bancorp acquisition provides some confidence, Centre 1 represents a far larger and more complex integration challenge.

For investors, the critical variables to monitor are deposit franchise retention through the conversion process and the pace of integration cost normalization. If BFC can maintain its >25% noninterest deposit ratio while achieving projected cost synergies, the premium valuation will be justified by enhanced scale and diversified revenue. If integration falters or deposit migration accelerates, the stock's rich multiple could compress rapidly, turning a quality bank into a value trap at the wrong price. The next 12 months will determine whether this century-old institution can execute a transformation worthy of its premium valuation.