Bank First Corporation's Q2 Earnings Miss: A Test of Resilience in a High-Rate World

The recent Q2 2025 earnings report from Bank First Corporation (BFC) offers a mixed bag for investors. While the bank's net interest margin (NIM) hit a trailing 12-month high of 3.77% and total loans grew by $151.7 million year-over-year, its revenue net of interest expense fell short of expectations by 4.32%, and earnings per share (EPS) missed the Zacks Consensus Estimate by 5%. This performance raises critical questions about the sustainability of BFC's growth trajectory and its valuation in a high-interest-rate environment.

A NIM in the Sweet Spot, But Risks Loom

BFC's NIM of 3.72% in Q2 2025—up from 3.63% in Q2 2024—reflects its ability to capitalize on a normalizing yield curve. The 10-basis-point increase in loan yields and 15-basis-point decline in deposit costs suggest effective balance sheet management. However, the industry-wide trend points to margin compression as interest rates stabilize. By year-end 2025, regional banks are expected to see NIMs dip to around 3%, pressured by lagging deposit rate adjustments and elevated funding costs. BFC's current NIM, while robust, may face downward pressure if the Federal Reserve holds rates longer than anticipated.

Loan Growth and Asset Quality: A Double-Edged Sword

BFC's loan portfolio has expanded steadily, with total loans reaching $3.58 billion as of June 30, 2025. This growth is a positive sign, especially in a high-rate environment where many banks struggle to attract borrowers. Yet, the commercial real estate (CRE) sector remains a vulnerability. Regional banks like BFC hold significant CRE exposure, and the ongoing distress in office and retail real estate could strain asset quality. BFC's nonperforming assets at 0.31% of total assets are currently low, but a deterioration in CRE markets could erode this buffer.

Valuation: Expensive or Fairly Priced?

BFC's stock trades at a P/E ratio of 18.4x, well above the US banking industry average of 12.0x and peer averages like BOKF (12.1x) and EWBC (12.91x). This premium reflects investor optimism about BFC's operational discipline and strategic initiatives, including branch expansions and digital banking upgrades. However, the P/E is 33% above its 7-year historical average of 13.91, suggesting the market is pricing in aggressive future growth. Analysts' price targets, clustered around $125—slightly below the current $126.17—hint at caution.

A discounted cash flow model estimates BFC's intrinsic value at $139.24, implying a 9.4% undervaluation. Yet, the high P/E ratio and limited analyst coverage (only two price targets) underscore uncertainty. For the stock to justify its current valuation, BFC must demonstrate that its NIM expansion and cost discipline can offset potential margin compression and CRE risks.

Strategic Moves and Shareholder Returns

BFC's capital management has been aggressive. The bank returned $43.6 million to shareholders via dividends and share repurchases in the first half of 2025, including a special dividend of $3.50 per share. While these actions reduced equity, the tangible book value per share rose to $42.57, reflecting confidence in earnings power. The dividend yield of 1.4% (based on the $0.45 quarterly payout) is modest but growing, with a 12.5% year-over-year increase.

However, the efficiency ratio of 56.7% in Q2 2025—driven by branch remodels and digital investments—risks rising as operating expenses climb. Regional banks face a delicate balance: investing in growth while maintaining profitability. BFC's strategy hinges on the assumption that its branch network and digital upgrades will drive long-term customer retention and fee income.

The High-Rate Environment: A Stress Test for Regional Banks

The broader macroeconomic context complicates BFC's outlook. High rates are squeezing household and business balance sheets, with delinquencies on consumer loans (credit cards, auto loans) expected to rise. While BFC's nonperforming assets remain low, its CRE concentration—though unspecified—could become a liability if office and retail real estate markets falter. The Basel III Endgame re-proposal also looms, potentially altering capital requirements and prompting M&A activity as smaller banks seek scale.

Investment Implications

BFC's Q2 earnings miss is a minor setback in an otherwise strong performance. The bank's NIM expansion, disciplined cost management, and shareholder-friendly policies position it well in the short term. However, investors should remain cautious about three key risks:
1. Margin Compression: If rates stabilize or decline, BFC's NIM could contract, pressuring earnings.
2. CRE Exposure: A downturn in commercial real estate could strain asset quality.
3. Valuation Multiples: The high P/E ratio implies high expectations, which may not materialize if growth slows.

For long-term investors, BFC's strategic investments in digital infrastructure and branch expansion offer upside potential. The stock's 9.4% undervaluation according to DCF analysis suggests room for appreciation if the bank executes its growth plan. However, those seeking defensive plays in a volatile environment may prefer lower-multiple peers with more diversified asset bases.

Conclusion

Bank First Corporation's Q2 earnings highlight the challenges and opportunities facing regional banks in a high-rate world. While its NIM and loan growth are encouraging, the sustainability of its valuation depends on navigating margin pressures and CRE risks. Investors should monitor its NIM trends, credit quality metrics, and capital returns closely. For those with a medium-term horizon and a tolerance for volatility, BFC remains a compelling case study in balancing growth and prudence.