BankFirst Capital Corporation (OTCQX: BFCC) (“BankFirst” or the “Company”), parent company of BankFirst Financial Services, Macon, Mississippi (the “Bank”), reported quarterly net income of $7.0 million, or $1.31 per share, for the fourth quarter of 2022, compared to net income of $5.3 million, or $1.00 per share, for the third quarter of 2022, and compared to net income of $4.4 million, or $0.84 per share, for the fourth quarter of 2021. The Company also reported net income of $23.0 million, or $4.30 per share, for the year ended December 31, 2022, an increase of 25% compared to net income of $18.3 million, or $3.47 per share for the year ended December 31, 2021.

2022 Fourth Quarter Highlights:

• On December 9, 2022, the Company paid a cash dividend of $0.85 per share to shareholders of record as of December 1, 2022.
• Total assets increased 37% to $2.5 billion at December 31, 2022 from $1.8 billion at December 31, 2021.
• Total loans increased 26% to $1.5 billion at December 31, 2022 from $1.2 billion at December 31, 2021.
• Total deposits increased 32% to $2.1 billion at December 31, 2022 from $1.6 billion at December 31, 2021
• Net income totaled $7.0 million, or $1.31 per share, in the fourth quarter of 2022 compared to $4.4 million, or $0.84 per share, for the fourth quarter of 2021.
• Net interest income increased 32% to $20.4 million in the fourth quarter of 2022 from $15.5 million in the fourth quarter of 2021.
• Net interest margin (net of Paycheck Protection Program (“PPP”) fees) increased 76 basis points to 4.09% in the fourth quarter of 2022 from 3.33% in fourth quarter of 2021.

Nonperforming assets improved to 0.46% of total assets at December 31, 2022 from 0.54% at September 30, 2022. Excluding loans restructured during the period, nonperforming assets improved to 0.46% of total assets at December 31, 2022 from 0.54% at September 30, 2022.

On October 1, 2022, the Company completed its acquisition of Tate Financial Corporation (“Tate”) and Sycamore Bank, Senatobia, Mississippi (“Sycamore Bank”) for all cash consideration. On September 30, 2022, Sycamore Bank had total assets of $321.3 million, total loans of $151.5 million, and total deposits of $302.8 million. The acquisition of Tate resulted in the Bank having 42 locations serving Mississippi and Alabama, with total assets of approximately $2.5 billion, total loans of approximately $1.5 billion and total deposits of approximately $2.1 billion as of October 1, 2022.

Recent Developments

On January 1, 2023, the Company completed its acquisition of Mechanics Banc Holding Company (“Mechanics”), the parent company of Mechanics Bank, Water Valley, Mississippi (“Mechanics Bank”) for all cash consideration. On December 31, 2022, Mechanics Bank had total assets of 323.3 million, total loans of $211.4 million, and total deposits of $291.6 million.

The acquisitions of Tate and Mechanics resulted in the Bank having 47 locations serving Mississippi and Alabama, with total assets of approximately $2.8 billion, total loans of approximately $1.7 billion and total deposits of approximately $2.4 billion as of January 1, 2023.

CEO Commentary

Moak Griffin, president and chief executive officer of the Company and the Bank, stated, “We are pleased to report another strong quarter of earnings. The fourth quarter of 2022 was an exciting time for BankFirst, as we completed our acquisition of Tate and Sycamore Bank, further expanding our branch network for our customers across Mississippi and Alabama, and reinforcing our strategic plan of partnering with community banks with strong relationships in our local markets.  This acquisition drove much of our growth in total assets, total loans and total deposits during the period.”

Financial Condition and Results of Operations

Total assets were $2.5 billion at December 31, 2022, compared to $2.2 billion at September 30, 2022 and $1.8 billion at December 31, 2021, an increase of 12% and 37%, respectively. The increase in total assets since December 31, 2021 was primarily due to organic loan and deposit growth, and the acquisitions of The Citizens Bank of Fayette, Fayette, Alabama (“Citizens Bank”) after the close of business on December 31, 2021, the issuance of senior perpetual noncumulative preferred stock (the “Senior Preferred”) to the U.S. Department of the Treasury (“Treasury”) pursuant to the Emergency Capital Investment Program (“ECIP”), and our acquisition of Tate and Sycamore Bank on October 1, 2022. Total loans outstanding, net of the allowance for loan losses, as of December 31, 2022 totaled $1.5 billion, compared to $1.3 billion as of September 30, 2022 and $1.2 billion as of December 31, 2021, an increase of 15% and 26%, respectively.

Non-interest-bearing deposits decreased to $525.0 million as of December 31, 2022, compared to $543.0 million as of September 30, 2022, a decrease of 3%, and $474 million as of December 31, 2021, an increase of 11%. Non-interest-bearing deposits represented 25% of total deposits as of December 31, 2022. Total deposits as of December 31, 2022 were $2.1 billion, compared to $1.8 billion as of September 30, 2022 and $1.6 billion as of December 31, 2021, an increase of 15% and 32%, respectively. The increase in non-interest-bearing deposits year-over-year is primarily due to our acquisitions of Citizens Bank and Sycamore Bank. Cost of funds as of December 31, 2022 was 0.28% compared to 0.22% as of September 30, 2022, and 0.31% as of December 31, 2021. Moving forward in 2023, management anticipates that cost of funds will continue to slowly rise to remain competitive in the markets we serve.

The ratio of loans to deposits was 72% as of December 31, 2022 compared to 72% as of September 30, 2022, and 76% as of December 31, 2021.

Net interest income was $20.4 million for the fourth quarter of 2022, compared to $17.1 million for the third quarter of 2022, an increase of 19%, and $15.5 million for the fourth quarter of 2021, an increase of 23%. Net interest margin increased to 4.09% in the fourth quarter of 2022, compared to 3.89% in the third quarter of 2022 and 4.00% in the fourth quarter of 2021. Yield on earning assets was 4.36% in the fourth quarter of 2022, compared to 4.07% during the third quarter of 2022 and 4.39% during the fourth quarter of 2021, an increase of 29 basis points and a decrease of 3 basis points, respectively.

Noninterest income was $5.7 million for the fourth quarter of 2022, compared to $5.4 million for the third quarter of 2022, an increase of 5%, and $4.8 million for the fourth quarter of 2021, an increase of 18%. Mortgage banking revenue was $413 thousand in the fourth quarter of 2022, a decrease of $175 thousand from $588 thousand in the third quarter of 2022, or 30%, and a decrease of $479 thousand from $892 thousand in the fourth quarter of 2021, or 54%. The decline in mortgage banking revenue during the period was primarily due to decreased demand in the residential mortgage market as a result of rising market interest rates and seasonality. During the second quarter of 2021, the Bank implemented a Mortgage Purchase Program to maintain mortgage loans in-house. During the fourth quarter of 2022, the Bank purchased $2.6 million of the $20.2 million secondary market mortgages originated to hold in-house, compared to $43.3 million secondary market loans originated during the fourth quarter of 2021, of which $2.2 million were held in-house. Gross mortgage fees during the fourth quarter of 2022 were $472 thousand compared to $655 thousand during the third quarter of 2022 and compared to $1.1 million in the fourth quarter of 2021.

As of December 31, 2022, tangible book value per share was $16.25. According to OTCQX, there were 504 trades of the Company’s shares of common stock during the fourth quarter of 2022 for a total of 109,880 shares and for a total price of 4,243,158. The closing price of the Company’s common stock quoted on OTCQX on December 31, 2022 was $41.00 per share. Based on this closing share price, the Company’s market capitalization was $219.5 million as of December 31, 2022.

Credit Quality

The Company recorded a provision for loan losses of $450 thousand during the fourth quarter of 2022 compared to $300 thousand for the third quarter of 2022, and $400 thousand for the fourth quarter of 2021. Net loan charge-offs in the fourth quarter of 2022 were $464 thousand, compared to $260 thousand in the third quarter of 2022 and $1.4 million in the fourth quarter of 2021. Non-performing assets to total assets were 0.49% for the fourth quarter of 2022, a decrease of 5 basis points compared to 0.54% for the third quarter of 2022, and a decrease of 34 basis points compared to 0.80% for the fourth quarter of 2021. Annualized net charge-offs to average loans for the fourth quarter of 2022 were 0.03%, compared to 0.02% for the third quarter of 2022 and 0.9% for the fourth quarter of 2021.  The Company continues to closely monitor credit quality as concerns regarding forecasted economic conditions continue to worsen due to the rising interest rate environment and persistent high inflation levels in the United States and our market areas, and additional provisions for loan losses may be necessary in future periods.

CECL Adoption

Effective January 1, 2023, the Company adopted the Financial Accounting Standards Board’s Accounting Standards Update 2016-13, Measurement of Credit Losses on Financial Instruments, including the current expected credit losses (“CECL”) methodology for estimating the allowance for credit losses. The CECL methodology requires earlier recognition of credit losses using a life of loan, expected loss methodology that incorporates reasonable and supportable forecasts into the estimate.

Effective January 1, 2023, the date the Company adopted the CECL methodology, the difference in total loan loss reserves between the two models will be recorded through stockholders’ equity, net of applicable income tax.  The Company currently anticipates that, under the CECL methodology, an adjustment to the allowance for credit losses will be needed in the first quarter of 2023 in an amount equal to approximately $10.0 million, before applicable income tax.  However, the Company has not finalized the exact amount of the adjustment to be made to the allowance for credit losses under the CECL methodology, and, accordingly, the anticipated amount of such adjustment remains subject to change.

PPP Loans

The Bank participated in the PPP, a $943.0 billion low-interest business loan program funded by Treasury and administered by the U.S. Small Business Administration (the “SBA”), which officially ended on May 31, 2021. The PPP provided U.S. government guarantees for lenders, as well as loan forgiveness incentives for borrowers that predominately utilize the loan proceeds to cover employee compensation-related business costs. The Bank participated in Rounds 1 and 2 of the PPP during 2020 and in Round 3 of the PPP in 2021 until its expiration on May 31, 2021. In 2020, during Rounds 1 and 2 of the PPP, the Bank originated 1,489 PPP loans totaling $115.6 million. Through December 31, 2022, the Bank has received loan forgiveness payments from the SBA on all PPP loans originated in Rounds 1 and 2 of the PPP. The Bank received and recognized approximately $4.4 million in fees (net of expenses) paid by the SBA on PPP loans originated in Rounds 1 and 2 of the PPP.

In 2021, during Round 3 of the PPP, the Bank originated an additional 1,382 PPP loans totaling $62.0 million. Through December 31, 2022, the Bank has received forgiveness payments from the SBA on all PPP loans originated in Round 3 of the PPP. The Bank received approximately $4.1 million in fees (net of expenses) paid by the SBA on PPP loans originated in Round 3 of the PPP, from which the bank recognized the remaining $249 thousand as loan fee income during the third quarter of 2022.