BANKFIRST CAPITAL CORPORATION Reports Third Quarter 2023 Earnings of $8.4 Million

COLUMBUS, Miss., Oct. 27, 2023 /PRNewswire/ -- BankFirst Capital Corporation (OTCQX: BFCC) ("BankFirst" or the "Company"), parent company of BankFirst Financial Services, Macon, Mississippi (the "Bank"), reported net income of $8.4 million, or $1.55 per share, for the third quarter of 2023, compared to net income of $6.2 million, or $1.15 per share, for the second quarter of 2023, and compared to net income of $5.3 million, or $1.00 per share, for the third quarter of 2022.

Third Quarter 2023 Highlights:

• Net income totaled $8.4 million, or $1.55 per share, in the third quarter of 2023 compared to $5.3 million, or $1.00 per share, in the third quarter of 2022.
• Net interest income increased 26% to $21.6 million in the third quarter of 2023 from $17.1 million in the third quarter of 2022.
• Total assets increased 23% to $2.7 billion at September 30, 2023 from $2.2 billion at September 30, 2022.
• Total loans increased 35% to $1.8 billion at September 30, 2023 from $1.3 billion at September 30, 2022.
• Total deposits increased 26% to $2.3 billion at September 30, 2023 from $1.8 billion at September 30, 2022.
• Available liquidity sources totaled approximately $918.1 million as of September 30, 2023 through (i) available advances from the Federal Home Loan Bank of Dallas, (ii) the Federal Reserve Bank of St. Louis ("FRB") Discount Window and (iii) access to funding through several relationships with correspondent banks.
• The Bank received a $6.2 million Equitable Recovery Program grant in the third quarter.
• Credit quality remains strong with non-performing assets to total assets of 0.47% as of September 30, 2023 compared to 0.43% for the second quarter of 2023, and compared to 0.54% for the third quarter of 2022.

Recent Developments

As previously reported, on April 10, 2023, the Bank and Mechanics Bank were each named a recipient of a grant award under the Community Development Financial Institution ("CDFI") Equitable Recovery Program (the "ERP"). The Bank was awarded $6.2 million and Mechanics Bank was awarded $4.9 million. The Bank previously reported that the Bank anticipated receiving the amount awarded to Mechanics Bank as the successor entity in the Bank's acquisition of Mechanics Bank on January 1, 2023.  However, on August 30, 2023, the Bank was notified by the CDFI Fund that the CDFI Fund did not approve the transfer of the CDFI ERP award provided to Mechanics Bank to the Bank and, accordingly, the $4.9 million awarded to Mechanics Bank was rescinded and de-obligated. Nevertheless, the CDFI Fund advised that there was no change to the CDFI ERP award to the Bank totaling $6.2 million. The Bank received its $6.2 million CDFI ERP award in the third quarter of 2023. The CDFI ERP award will be used to support lending to small businesses and microenterprises, community facilities, affordable housing, commercial real estate and intermediary lending to non-profits and CDFIs, as well as used for financial services, development services to support borrowers, and operational support.

During the third quarter of 2023, management made the strategic decision to sell $31.2 million of available-for-sale securities from the Company's investment securities portfolio, which resulted in the realization of a loss of $1.5 million. The average book yield of these securities was approximately 1.88% per annum and the Company intends to use the proceeds from the sale for liquidity to help fund future organic loan growth at higher yields.

The Bank completed the conversion of its core data processing system where the Bank converted from Jack Henry CIF 20/20 to Jack Henry SilverLake the weekend of August 11, 2023 through August 13, 2023.  The Bank is currently preparing for the conversion of Mechanics Bank's core data processing system into the Bank's core data processing system, which is scheduled to occur over the weekend of October 27, 2023 through October 29, 2023 and should be completed prior to the start of business on October 30, 2023.

CEO Commentary

Moak Griffin, President and Chief Executive Officer of the Company and the Bank, stated, "We are proud to report another strong quarter of earnings, despite the increased cost of funds we have experienced due to continued rising market interest rates. While our credit quality and access to liquidity remain strong, we are closely monitoring the continued economic uncertainty and lingering challenges in the banking industry. Overall, our financial performance this quarter has inspired confidence and we continue to see growth opportunities in our markets."

Financial Condition and Results of Operations

Total assets were $2.7 billion at September 30, 2023, compared to $2.7 billion at June 30, 2023 and $2.2 billion at September 30, 2022, an increase of 2% and 23%, respectively. The increase in total assets since September 30, 2022 was primarily due to organic loan and deposit growth during the period, our acquisition of Tate Financial Corporation and Sycamore Bank effective on October 1, 2022, and our acquisition of Mechanics Banc Holding Company and Mechanics Bank effective on January 1, 2023. Total loans outstanding, net of the allowance for credit losses, as of September 30, 2023 totaled $1.8 billion, compared to $1.7 billion as of June 30, 2023, and $1.3 billion as of September 30, 2022, an increase of 2% and 35%, respectively.

Total deposits as of September 30, 2023 were $2.3 billion, compared to $2.2 billion as of June 30, 2023 and $1.8 billion as of September 30, 2022, an increase of 26% from the prior year period. Non-interest-bearing deposits were $586.3 million as of September 30, 2023, compared to $592.7 million as of June 30, 2023, a decrease of 1%, and compared to $543.0 million as of September 30, 2022, an increase of 8%. Non-interest-bearing deposits represented 26% of total deposits as of September 30, 2023. While the Bank has seen a decrease in non-interest-bearing deposits since the beginning of 2023, the average balance of non-interest-bearing deposits has been steady over the past 90 days. The Bank had no brokered deposits as of September 30, 20203. The Company's consolidated cost of funds as of September 30, 2023 was 1.40%, compared to 1.03% as of June 30, 2023 and 0.32% as of September 30, 2022.  The increase in the Company's consolidated cost of funds during the third quarter of 2023 compared to the prior periods was primarily due to the continued rise in market interest rates for deposits across the Bank's market areas and increased competition from bank and non-bank alternatives. Bank-only cost of funds as of September 30, 2023 was 1.35%, compared to 0.79% as of June 30, 2023 and 0.19% as of September 30, 2022.

The ratio of loans to deposits was 76.8% as of September 30, 2023, compared to 78.0% as of June 30, 2023 and 72.1% as of September 30, 2022.

Net interest income was $21.6 million for the third quarter of 2023, compared to $22.7 million for the second quarter of 2023, a decrease of 5%, and compared to $17.1 million for the third quarter of 2022, an increase of 26%. Net interest income was negatively impacted by continued compression in net interest margin due to the continued rise in market interest rates over the last year. Net interest margin was 3.55% in the third quarter of 2023, a decrease from 3.82% in the second quarter of 2023 and a decrease from 3.89% in the third quarter of 2022. Yield on earning assets was 4.90% during the third quarter of 2023, compared to 4.83% during the second quarter of 2023 and 4.07% during the third quarter of 2022, an increase of 13 basis points and an increase of 83 basis points, respectively.

Noninterest income was $10.1 million for the third quarter of 2023, compared to $6.1 million for the second quarter of 2023, an increase of 65%, and compared to $5.4 million for the third quarter of 2022, an increase of 87%. As previously noted, the increase was primarily due to the Bank receiving its $6.2 million CDFI ERP award in the third quarter of 2023. Mortgage banking revenue was $804 thousand in the third quarter of 2023, an increase of $65 thousand from $739 thousand in the second quarter of 2023, or an increase of 9%, and an increase of $85 thousand from $719 thousand in the third quarter of 2022, or an increase of 12%. During the third quarter of 2023, the Bank retained $3.1 million of the $28.6 million in secondary market mortgages originated to hold in-house, compared to $8.2 million secondary market loans originated during the third quarter of 2022, of which $4.1 million were retained to hold in-house. During the third quarter the Company temporarily suspended the in-house mortgage purchase program.

Noninterest expense was $20.0 million for the third quarter of 2023, compared to $20.5 million for the second quarter of 2023 and $15.2 million for the third quarter of 2022, an decrease of 2.1% and an increase of 32.0%, respectively. While non-interest expense has increased over the respective periods, a portion is attributable to one-time expenses related to the Bank's recently-completed conversion of its core data processing system from Jack Henry CIF 20/20 to Jack Henry SilverLake, recent acquisitions and core conversions related to such acquisitions. Core conversion expenses were $416 thousand for the third quarter of 2023 compared to $323 thousand for the second quarter of 2023.  Acquisition-related expenses were $136 thousand for the third quarter of 2023 compared to $173 thousand for the second quarter of 2023. Total year to date one-time expenses related to core conversion were $892 thousand. Acquisition-related expenses year to date were $599 thousand.

As of September 30, 2023, tangible common book value per share (non-GAAP) was $17.95. According to OTCQX, there were 379 trades of the Company's shares of common stock during the third quarter of 2023 for a total of 103,258 shares and for a total price of $3,597103. The closing price of the Company's common stock quoted on OTCQX on September 30, 2023 was $32.00 per share. Based on this closing share price, the Company's market capitalization was $172.3 million as of September 30, 2023.

Credit Quality

The Company recorded a provision for credit losses of $875 thousand during the third quarter of 2023, compared to $375 thousand for the second quarter of 2023 and $300 thousand for the third quarter of 2022.  The provision for credit losses in the third quarter 2023 increased compared with the provision for credit losses in the second quarter of 2023 and the provision for credit losses in the third quarter of 2022 in order to adequately fund the reserve due to organic growth in the Company's loan portfolio. Nevertheless, the Company continues to closely monitor the continued economic uncertainty, especially in the commercial real estate market. 

Net loan charge-offs in the third quarter of 2023 were $413 thousand, compared to net loan charge-offs of $332 thousand in the second quarter of 2023 and $260 thousand in the third quarter of 2022. Non-performing assets, excluding restructured loans, to total assets were 0.47% for the second quarter of 2023, compared to 0.44% for the second quarter of 2023, and compared to 0.54% for the third quarter of 2022. Annualized net charge-offs to average loans for the third quarter of 2023 were 0.02%, which remained the same as annualized net charge-offs for the second quarter of 2023 and the third quarter of 2022, respectively. 

As of September 30, 2023, the allowance for credit losses equaled $23.7 million, compared to $23.2 million as of June 30, 2023 and $14.0 million as of September 30, 2022.  Allowance for credit losses as a percentage of total loans was 1.33% at September 30, 2023, compared to 1.33% at June 30, 2023 and 1.06% at September 30, 2022.  Allowance for credit losses as a percentage of nonperforming loans was 185% at September 30, 2023, compared to 201% at June 30, 2023 and 118% at September 30, 2022. 

The Company continues to closely monitor credit quality in light of the recent events in the banking industry, including the recent bank failures, and the continued economic uncertainty due to the rising interest rate environment and persistent high inflation levels in the United States and our market areas. Accordingly, additional provisions for credit losses may be necessary in future periods.

Liquidity and Capital Position

Liquidity – We have a limited reliance on wholesale funding and currently have no brokered deposits. We currently have the capacity to borrow up to approximately $860.0 million from the Federal Home Loan Bank of Dallas, $14.1 million from the FRB Discount Window and an estimated additional $45.0 million in funding through several relationships with correspondent banks. We have not applied for the Bank Term Funding Program ("BTFP") of the FRB, but management continues to consider establishing an account with the FRB under the BTFP to further expand and diversify our funding capacity.

Capital Requirements and the Community Bank Leverage Ratio Framework – Pursuant to federal regulations, banks and bank holding companies must maintain capital levels commensurate with the level of risk to which they are exposed, including the volume and severity of problem loans. Federal banking regulations implementing the international regulatory capital framework, referred to as the "Basel III Rules," apply to both depository institutions and (subject to certain exceptions not applicable to the Company) their holding companies. The Basel III Rules also establish a "capital conservation buffer" of 2.5% above the regulatory minimum risk-based capital requirements. The Basel III minimum capital ratios with the full capital conservation buffer are summarized in the table below.

On September 17, 2019, the federal banking agencies jointly finalized a rule intended to simplify the Basel III regulatory capital requirements described above for qualifying community banking organizations that opt into the Community Bank Leverage Ratio ("CBLR") framework, as required by Section 201 of the Economic Growth, Regulatory Relief, and Consumer Protection Act. The final rule became effective on January 1, 2020, and the CBLR framework became available for banks to use beginning with their March 31, 2020 Call Reports. Under the final rule, if a qualifying community banking organization opts into the CBLR framework and meets all requirements under the framework, it will be considered to have met the "well-capitalized" regulatory capital ratio requirements under the "prompt corrective action" regulations promulgated by the federal banking agencies and will not be required to report or calculate risk-based capital under the Basel III Rules. In order to qualify for the CBLR framework, a community banking organization must have a tier 1 leverage ratio of greater than 9.0%, less than $10 billion in total consolidated assets, and limited amounts of off-balance-sheet exposures and trading assets and liabilities.

The Company and the Bank are qualifying community banking organizations and, on June 15, 2022, the Company and the Bank elected to opt into the CBLR framework. However, the Company currently operates under the Federal Reserve's Small Bank Holding Company Policy Statement and, therefore, is not currently subject to the Federal Reserve's consolidated capital reporting requirements.  Accordingly, the Company's election to opt into the CBLR framework will commence for the first reporting period for which the Company no longer operates under the Federal Reserve's Small Bank Holding Company Policy Statement, at which time the Company will become subject to the Federal Reserve's consolidated capital requirements. 

By electing to opt into the CBLR framework, the Company and the Bank are not required to report or calculate risk-based capital under the Basel III Rules described above. As of September 30, 2023, the Bank's bank-only CBLR amounted to 10.36%. While the Company is currently not subject to the Federal Reserve's consolidated capital requirements, as discussed above, the Company's consolidated CBLR would have amounted to 12.15% as of September 30, 2023. These levels exceeded the 9.0% minimum CBLR necessary to be deemed "well-capitalized."

Included in shareholders' equity at September 30, 2023 was an unrealized loss in accumulated other comprehensive income of $17.0 million related to the unrealized loss in the Company's investment securities portfolio primarily due to the continued increases in market interest rates during the period. The composition of the Bank's investment securities portfolio includes $234.4 million, or 41.3%, classified as available-for-sale, and $332.8 million, or 58.7%, of the Bank's investment securities portfolio is classified as held to maturity, at September 30, 2023. All investments in our investment securities portfolio are expected to mature at par value.

Our investment securities portfolio made up 20.9% of our total assets at September 30, 2023 compared to 23.1% and 26.4% at June 30, 2023 and September 30, 2022, respectively.

ABOUT BANKFIRST CAPITAL CORPORATION  

BankFirst Capital Corporation (OTCQX: BFCC) is a registered bank holding company headquartered in Columbus, Mississippi with approximately $2.7 billion in total assets as of September 30, 2023. BankFirst Financial Services, the Company's wholly-owned banking subsidiary, was founded in 1888 and is locally owned, controlled, and operated. The Bank is headquartered in Macon, Mississippi, and operates additional branch offices in Coldwater, Columbus, Flowood, Hattiesburg, Hernando, Independence, Jackson, Louin, Madison, Newton, Oxford, Senatobia, Southaven, Starkville, Tupelo, Water Valley, and West Point, Mississippi; and Addison, Aliceville, Arley, Bear Creek, Carrollton, Curry, Double Springs, Fayette, Gordo, Haleyville, Northport, and Tuscaloosa, Alabama. The Bank also operates four loan production offices in Biloxi and Brookhaven, Mississippi, and in Birmingham and Huntsville, Alabama. BankFirst offers a wide variety of services for businesses and consumers. The Bank also offers internet banking, no-fee ATM access, checking, CD, and money market accounts, merchant services, mortgage loans, remote deposit capture, and more. For more information, visit www.BankFirstfs.com.

Non-GAAP Financial Measures

Some of the financial measures included in this press release are not measures of financial performance recognized in accordance with generally accepted accounting principles in the United States ("GAAP"). These non-GAAP financial measures include tangible book value per share. The Company believes these non-GAAP financial measures provide both management and investors a more complete understanding of the Company's financial position and performance. These non-GAAP financial measures are supplemental and are not a substitute for any analysis based on GAAP financial measures.

We classify a financial measure as being a non-GAAP financial measure if that financial measure excludes or includes amounts, or is subject to adjustments that have the effect of excluding or including amounts, that are included or excluded, as the case may be, in the most directly comparable measure calculated and presented in accordance with GAAP as in effect from time to time in the United States in our statements of income, balance sheets or statements of cash flows. Not all companies use the same calculation of these measures; therefore, this presentation may not be comparable to other similarly titled measures as presented by other companies.

A reconciliation of non-GAAP financial measures to GAAP financial measures is provided at the end of this press release.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This press release contains, among other things, certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including, without limitation, statements regarding certain of the Company's goals and expectations with respect to future events that are subject to various risks and uncertainties, and statements preceded by, followed by, or that include the words "may," "will," "could," "should," "expect," "plan," "project," "intend," "anticipate," "believe," "estimate," "predict," "potential," "pursuant," "target," "continue," and similar expressions. These statements are based upon the current belief and expectations of the Company's management team and are subject to significant risks and uncertainties that are subject to change based on various factors (many of which are beyond the Company's control). Factors that could cause actual results to differ materially from management's projections, forecasts, estimates and expectations include, but are not limited to: the impact on us or our customers of a decline in general economic conditions and any regulatory responses thereto; potential recession in the United States and our market areas; the impacts related to or resulting from recent bank failures and any continuation of the recent uncertainty in the banking industry, including the associated impact to the Company and other financial institutions of any regulatory changes or other mitigation efforts taken by government agencies in response thereto; increased competition for deposits and related changes in deposit customer behavior; fluctuations in market rates of interest and loan and deposit pricing; the persistence of the inflationary environment in the United States and our market areas; the uncertain impacts of ongoing quantitative tightening and current and future monetary policies of the Board of Governors of the Federal Reserve System; effects of declines in housing prices in the United States and our market areas; increases in unemployment rates in the United States and our market areas; declines in commercial real estate prices; uncertainty regarding United States fiscal debt and budget matters; cyber incidents or other failures, disruptions or security breaches; severe weather, natural disasters, acts of war or terrorism or other external events; regulatory considerations; our ability to recognize the expected benefits and synergies of our completed acquisitions; our ability to successfully complete the conversion of the core data processing system of Mechanics Bank into the core data processing system of the Bank; the maintenance and development of well-established and valued client relationships and referral source relationships; acquisition or loss of key production personnel; changes in tax laws; and current or future litigation, regulatory examinations or other legal and/or regulatory actions. These forward-looking statements are based on current information and/or management's good faith belief as to future events. Although the Company believes that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove to be inaccurate. Therefore, the Company can give no assurance that the results contemplated in the forward-looking statements will be realized. Due to these and other possible uncertainties and risks, readers are cautioned not to place undue reliance on the forward-looking statements contained in this press release. The inclusion of this forward-looking information should not be construed as a representation by the Company or any person that the future events, plans or expectations contemplated by the Company will be achieved. All subsequent written and oral forward-looking statements attributable to the Company or any person acting on its behalf are expressly qualified in their entirety by the cautionary statements above. The forward-looking statements are made as of the date of this press release. The Company does not undertake any obligation to update any forward-looking statement to reflect circumstances or events that occur after the date the forward-looking statements are made, except as required by law. All forward-looking statements, express or implied, included in the press release are qualified in their entirety by this cautionary statement.

AVAILABLE INFORMATION

The Company maintains an Internet web site at www.BankFirstfs.com/about/investor-relations. The Company makes available, free of charge, on its web site the Company's annual reports, quarterly earnings reports, and other press releases. In addition, the OTC Markets Group maintains an Internet site that contains reports, proxy and information statements, and other information regarding the Company (at www.otcmarkets.com/stock/BFCC/overview).

The Company routinely posts important information for investors on its web site (under www.BankFirstfs.com and, more specifically, under the Investor Relations tab at www.BankFirstfs.com/about/investor-relations). The Company intends to use its web site as a means of disclosing material non-public information and for complying with its disclosure obligations under the OTC Markets Group OTCQX Rules for U.S. Banks. Accordingly, investors should monitor the Company's web site, in addition to following the Company's press releases, OTC filings, public conference calls, presentations and webcasts.

The information contained on, or that may be accessed through, the Company's web site is not incorporated by reference into, and is not a part of, this press release.

Member FDIC

SOURCE BankFirst Capital Corporation

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