Business Context and Reporting Period
Bank First Corporation is a Wisconsin bank holding company for Bank First, N.A., a full-service community bank with 21 locations across nine Wisconsin counties. The filing covers the unaudited three months ended March 31, 2022, compared primarily with the three months ended March 31, 2021 and, for balance-sheet measures, December 31, 2021.
Financial Highlights
| Metric | Q1 2022 | Comparable period | Change |
|---|---|---|---|
| Net income | $10.2 million | $11.5 million | Down 11.6% |
| Diluted EPS | $1.34 | $1.49 | Down $0.15 |
| Net interest income | $22.3 million | $22.1 million | Up $0.2 million |
| Provision for loan losses | $1.2 million | $0.9 million | Up $0.3 million |
| Noninterest income | $5.2 million | $6.3 million | Down 17% |
| Noninterest expense | $12.7 million | $12.4 million | Up 3% |
| Net interest margin, taxable equivalent | 3.06% | 3.57% | Down 51 basis points |
| Return on average assets | 1.27% | 1.67% | Down 40 basis points |
| Return on average common equity | 12.62% | 15.34% | Down 272 basis points |
| Net cash provided by operating activities | $2.5 million | $6.1 million | Down $3.6 million |
All dollar amounts are from the filing and are generally presented in thousands unless otherwise noted.
Balance Sheet, Liquidity and Capital
- Total assets were $2.925 billion at March 31, 2022, down $12.6 million from year-end 2021.
- Loans increased $81.2 million, or 3.6%, to $2.317 billion. Growth was concentrated in owner-occupied commercial real estate, non-owner-occupied commercial real estate, construction and development, and residential 1-4 family loans.
- Total deposits increased $28.7 million, or 1.1%, to $2.557 billion. Noninterest-bearing deposits were $798.3 million and interest-bearing deposits were $1.759 billion.
- Cash and cash equivalents declined to $107.4 million from $296.9 million, primarily because of loan growth and approximately $100 million invested in one-year Treasury notes.
- Available-for-sale securities increased to $297.1 million from $212.7 million. Unrealized losses increased materially as interest rates rose, producing an after-tax other comprehensive loss of $8.2 million.
- Total stockholders’ equity declined to $318.3 million from $322.7 million, as earnings and dividends were more than offset by securities valuation losses and share repurchases.
- FHLB borrowings were $7.7 million, subordinated notes were $17.5 million, and securities sold under repurchase agreements were $13.1 million. The Company had no outstanding balance on its $7.5 million commercial-bank line of credit.
- The Bank remained above applicable well-capitalized standards: total capital to risk-weighted assets was 11.94%, CET1 was 11.07%, Tier 1 capital was 11.07%, and Tier 1 leverage was 8.73%.
Material Changes Versus Prior Comparable Period
- Net income fell $1.3 million, primarily because of lower residential mortgage production and reduced PPP-loan interest income. PPP-loan interest income was $0.7 million in Q1 2022 versus $2.4 million in Q1 2021.
- Net interest income increased modestly despite a lower earning-asset yield. Average interest-earning assets increased to $3.0 billion from $2.5 billion, while the taxable-equivalent net interest margin contracted to 3.06% from 3.57%.
- Interest income declined 0.9% to $24.2 million, while interest expense declined 17.5% to $1.9 million. The average cost of interest-bearing deposits fell to 0.36% from 0.54%.
- Noninterest income declined $1.1 million. Mortgage-loan sale gains fell 76% to $0.7 million, partially offset by higher loan-servicing income and increased earnings from Ansay and UFS.
- Noninterest expense rose $0.4 million, including approximately $0.5 million of costs related to the pending Denmark Bancshares acquisition.
- The allowance for loan losses increased to $21.7 million, or 0.94% of loans, from $18.5 million, or 0.83%, at March 31, 2021. The quarter included net recoveries of $0.2 million.
- Nonperforming assets improved to $5.4 million, or 0.19% of total assets, from $14.7 million, or 0.52%, at March 31, 2021. Nonaccrual loans were $4.5 million versus $13.4 million.
Guidance, Outlook, Risks and Unusual Items
- Management expects loan demand and interest rates to improve returns, citing an asset-sensitive balance sheet and strong market position. The filing does not provide formal earnings or revenue guidance.
- The pending Denmark Bancshares merger is expected to close in the third quarter of 2022, subject to shareholder and regulatory approvals. Consideration is expected to be approximately $119 million, with up to 20% cash and at least 80% Company common stock. Based on March 31, 2022 data, the combined company would have approximately $3.61 billion of assets, $2.79 billion of loans and $3.17 billion of deposits.
- Management identifies inflation, Federal Reserve rate increases, supply-chain disruptions, labor shortages, COVID-19 developments and changing economic conditions as relevant risks.
- Interest-rate sensitivity analysis estimated that a parallel 400-basis-point increase would increase projected 12-month net interest income by 2.6%, while a 100-basis-point decrease would reduce it by 2.7%. These estimates assume no balance-sheet growth and depend on behavioral assumptions.
- The available-for-sale portfolio had $7.9 million of gross unrealized losses at March 31, 2022, compared with $0.7 million at year-end. Management attributed the losses primarily to interest-rate and market-spread changes rather than credit deterioration and did not record other-than-temporary impairment.
- Off-balance-sheet commitments totaled $505.4 million, including $485.2 million of unused lines of credit, $9.7 million of letters of credit and $10.6 million of credit-card arrangements.
- Management stated that liquidity was adequate, legal proceedings were not expected to have a material effect, disclosure controls were effective, and there were no material changes to previously disclosed risk factors.
Most Important Facts for Investors to Verify
- Whether the Denmark Bancshares transaction closes on schedule, receives required approvals and achieves the projected scale and financial benefits.
- The sustainability of loan growth and credit quality, particularly in commercial real estate and construction and development lending.
- The effect of further interest-rate increases on net interest margin, securities valuations, deposit costs and mortgage production.
- Whether mortgage banking revenue remains below prior-year levels as refinancing and residential mortgage activity slows.
- The adequacy of the allowance for loan losses as the portfolio grows and the Company transitions to the current expected credit loss standard in 2023.
- The impact of unrealized available-for-sale securities losses on tangible capital and stockholders’ equity if rates remain elevated or securities must be sold.
- Liquidity coverage relative to deposit outflows, loan commitments and the scheduled maturities of approximately $6.6 million of FHLB borrowings within one year.