Business Context and Reporting Period
Bank First Corporation is the Wisconsin-based holding company for Bank First, N.A., a full-service community bank operating 21 locations across Wisconsin. The unaudited Form 10-Q covers the quarter and six months ended June 30, 2021, with comparisons to the same periods in 2020 and to December 31, 2020 for balance-sheet information. Unless otherwise stated, amounts are in thousands.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 |
|---|---|---|---|---|
| Net interest income | $21,814 | $20,796 | $43,917 | $39,439 |
| Provision for loan losses | $950 | $3,150 | $1,850 | $4,125 |
| Noninterest income | $6,574 | $7,764 | $12,784 | $11,661 |
| Noninterest expense | $12,221 | $14,438 | $24,446 | $27,179 |
| Net income | $11,548 | $8,296 | $23,062 | $15,562 |
| Diluted earnings per share | $1.50 | $1.11 | $2.99 | $2.14 |
| Net interest margin, taxable equivalent | 3.37% | 3.67% | 3.47% | 3.74% |
| Return on average assets | 1.63% | 1.32% | 1.65% | 1.32% |
| Return on average common equity | 14.99% | 12.94% | 15.16% | 12.70% |
- Total assets were $2.819 billion at June 30, 2021, up 3.7% from December 31, 2020.
- Loans were $2.225 billion, up 1.5% from year-end 2020; net loans were $2.206 billion.
- Deposits were $2.447 billion, up 5.4% from year-end 2020, including $782.9 million of noninterest-bearing deposits.
- Cash and cash equivalents were $251.1 million, compared with $170.2 million at December 31, 2020.
- Total stockholders’ equity was $311.4 million, compared with $294.9 million at year-end; book value per common share was $40.50 and tangible book value per common share was $32.69.
- Allowance for loan losses was $19.5 million, or 0.88% of loans, compared with $17.7 million, or 0.81%, at December 31, 2020.
- FHLB notes payable declined to $9.2 million from $23.5 million at year-end. Subordinated notes remained $17.5 million. The Company also had an unused $7.5 million bank line of credit.
- Six-month cash flow from operating activities was $11.6 million; investing activities used $21.2 million; financing activities provided $90.4 million. Cash increased $80.9 million during the period.
Material Changes Versus Prior Comparable Period
- Quarterly net income increased 39.2% and six-month net income increased 48.2%, primarily from lower funding costs, lower loan-loss provisions, mortgage production and the Timberwood acquisition’s added scale.
- Net interest income increased 4.9% in the quarter and 11.4% year to date, despite net interest margin compression. Interest expense declined 39.0% in the quarter and 45.0% year to date, reflecting lower deposit and borrowing costs.
- Quarterly provision expense fell $2.2 million, while the six-month provision fell $2.3 million. Management attributed the prior-year provision to heightened COVID-19 economic risk.
- Quarterly noninterest income declined 15.3% because the prior-year period included a $3.2 million securities-sale gain. Year-to-date noninterest income increased 9.6%, led by mortgage-loan sale gains, loan servicing income and service charges.
- Noninterest expense declined 15.4% in the quarter and 10.1% year to date. Comparisons benefited from the absence of 2020 Timberwood-related professional fees and a $1.3 million early-debt-extinguishment penalty.
- Credit quality improved from June 30, 2020: nonperforming loans declined to $12.4 million, or 0.55% of gross loans, from $23.1 million, or 1.09%. However, classified loans increased to $72.0 million from $50.1 million at December 31, 2020.
- The Bank originated approximately 1,132 additional PPP loans totaling approximately $98.2 million during the first six months of 2021, following approximately 1,875 loans totaling $279.6 million in 2020.
Guidance, Outlook, Risks and Unusual Items
- The filing does not provide specific earnings or revenue guidance. Management stated that current liquidity is adequate and expects the Bank to continue exceeding well-capitalized regulatory requirements in 2021.
- Management continued to identify COVID-19 as an economic risk, although pandemic-related payment deferrals had declined to negligible levels by June 30, 2021.
- Key risks include borrower repayment capacity, collateral values, regional economic conditions, interest-rate changes, deposit pricing, mortgage prepayment speeds and the valuation of mortgage servicing rights.
- Management’s allowance estimate involves significant judgment and could require additional provisions if actual credit losses, economic conditions or regulatory assessments differ from expectations.
- At June 30, 2021, the Bank’s regulatory ratios exceeded well-capitalized thresholds: total capital 12.15%, Tier 1 capital 11.30%, CET1 11.30% and Tier 1 leverage 9.50%.
- Interest-rate simulations estimated that a parallel 400-basis-point increase would increase projected 12-month net interest income by 7.7%, while a 100-basis-point decrease would reduce it by 2.9%, assuming no balance-sheet growth.
- Off-balance-sheet commitments totaled $491.1 million, including $470.8 million of unused lines of credit, $9.0 million of letters of credit and $11.2 million of credit-card arrangements.
- The Company renewed a $12 million share-repurchase program in April 2021 and repurchased 40,000 shares during the second quarter at an average price of $71.45.
- The Company stated that pending litigation is ordinary-course and is not expected to materially affect financial position, results or liquidity. No material changes were reported to previously disclosed risk factors.
Important Facts for Investors to Verify
- Whether margin compression continues as PPP balances decline and interest rates remain low.
- Trends in classified loans, nonaccrual loans, commercial real estate exposure and the allowance coverage ratio.
- The sustainability of mortgage-loan sale gains and mortgage servicing income, which contributed materially to noninterest income.
- Deposit retention, certificate-of-deposit maturities and the effect of funding-cost changes on net interest income.
- The eventual impact of CECL adoption, which the filing states is expected to become effective for the Company after December 15, 2022 and may increase the required allowance.
- The effect of share repurchases and dividends on capital, tangible book value and future per-share results.