Bank First Corp. 2021 Form 10-K Summary
Business context and reporting period
Bank First Corporation is a Wisconsin bank holding company whose primary subsidiary, Bank First, N.A., operates 21 offices across nine Wisconsin counties. The filing covers the fiscal year ended December 31, 2021, with comparative results for 2020 and 2019. The Company serves consumers, professionals, and small- to middle-market businesses through commercial and retail banking, mortgage banking, treasury management, data processing, and insurance-related investments.
At December 31, 2021, consolidated assets were $2.94 billion, loans were $2.24 billion, deposits were $2.53 billion, and stockholders’ equity was $322.7 million.
Key financial metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Net income | $45.4 million | $38.0 million | Up 19.4% |
| Diluted earnings per share | $5.92 | $5.07 | Up 16.8% |
| Net interest income | $90.1 million | $86.8 million | Up $3.2 million |
| Net interest margin | 3.47% | 3.84% | Down 37 basis points |
| Provision for loan losses | $3.1 million | $7.1 million | Down $4.0 million |
| Noninterest income | $23.5 million | $23.5 million | Essentially unchanged |
| Noninterest expense | $50.5 million | $53.4 million | Down $2.8 million |
| Net cash from operating activities | $40.3 million | $44.0 million | Down $3.7 million |
| Cash and cash equivalents | $296.9 million | $170.2 million | Up 74.4% |
| Total assets | $2.94 billion | $2.72 billion | Up 8.1% |
| Total deposits | $2.53 billion | $2.32 billion | Up 8.9% |
| Total borrowings and subordinated notes | $66.6 million | $77.3 million | Down $10.7 million |
Profitability, credit quality, and balance sheet
- Net income growth reflected higher net interest income, lower loan-loss provisions, strong mortgage banking results, lower OREO losses, and the absence of the $1.3 million early debt-extinguishment penalty recorded in 2020.
- Interest income declined to $98.4 million from $100.7 million as loan yields fell 50 basis points to 4.25%. Interest expense declined 40.1% to $8.3 million as the average cost of interest-bearing liabilities fell to 0.48%.
- Mortgage-related noninterest income benefited from loan servicing income of $3.8 million and mortgage loan sale gains of $7.4 million. These increases offset the loss of the $3.2 million securities-sale gain and $1.7 million branch-sale gain recognized in 2020.
- Net loans increased 1.9% to $2.22 billion. Commercial real estate loans increased 12.0% to $1.11 billion, while commercial and industrial loans declined 17.7% to $366.2 million, primarily because PPP loans were forgiven.
- Real estate-secured loans represented approximately 75.3% of total loans, and commercial real estate represented approximately 49.7%. This concentration remains a key credit-risk consideration.
- The allowance for loan losses increased to $20.3 million, or 0.91% of total loans, from $17.7 million, or 0.81%. Net charge-offs were $443,000, or 0.02% of average loans.
- Nonaccrual loans declined to $7.2 million, or 0.32% of loans, from $10.8 million. Total nonperforming assets declined to $8.4 million, or 0.29% of assets, from $14.4 million.
- The Bank remained well capitalized. At year-end, total risk-based capital was 12.21%, CET1 capital was 11.36%, Tier 1 risk-based capital was 11.36%, and Tier 1 leverage capital was 9.72%.
Material changes versus the prior comparable period
- Profitability improved despite a 37-basis-point decline in net interest margin, primarily because funding costs and credit provisions declined.
- Deposit growth of $207.5 million exceeded loan growth of approximately $44.1 million, resulting in substantially higher cash and liquidity.
- Cash and cash equivalents rose by $126.6 million, while securities increased by $46.9 million. Investment activity included $93.8 million of securities purchases.
- FHLB borrowings declined from $23.5 million to $8.0 million; subordinated notes remained $17.5 million. Securities sold under repurchase agreements increased to $41.1 million from $36.4 million.
- Shareholders’ equity increased 9.4% to $322.7 million after earnings, dividends of $8.7 million, and $8.3 million of common-stock repurchases. The 2021 dividend was $1.14 per share versus $0.81 in 2020.
- PPP participation totaled approximately 2,998 loans and $377.5 million across 2020 and 2021; significant forgiveness reduced the commercial and industrial portfolio during 2021.
Guidance, outlook, risks, contingencies, and unusual items
- Management expected Federal Reserve rate increases during 2022 and stated that the Company’s asset-sensitive balance sheet and market position could benefit from higher rates and stronger loan demand. The filing does not provide quantitative earnings guidance.
- On January 18, 2022, the Company agreed to acquire Denmark Bancshares and Denmark State Bank. Closing was expected in the third quarter of 2022, subject to shareholder and regulatory approvals. Consideration was expected to be approximately $119 million, with at least 80% stock and no more than 20% cash. The combined company was projected to have approximately $3.6 billion of assets, $2.7 billion of loans, and $3.1 billion of deposits.
- The Company expects to adopt the CECL credit-loss standard for the fiscal year beginning after December 15, 2022, with a day-one allowance adjustment in early 2023. The magnitude of the adjustment was not yet clear.
- Key risks include Wisconsin geographic concentration, substantial commercial real estate exposure, interest-rate and funding-cost volatility, COVID-19 effects, inflation and supply-chain disruptions, competition, cybersecurity and third-party service-provider risks, regulatory capital requirements, and acquisition execution and integration risk.
- Off-balance-sheet commitments totaled $522.1 million, including $502.1 million of unused credit lines, $9.1 million of letters of credit, and $10.9 million of credit-card arrangements.
- Management stated that pending litigation was not expected to have a material adverse effect. Disclosure controls and internal control over financial reporting were assessed as effective; the independent auditor issued an unqualified opinion.
Most important facts for investors to verify
- Whether net interest margin and earnings benefit as rates rise, given the Company’s asset-sensitive position and exposure to deposit repricing.
- The sustainability of mortgage loan-sale gains and servicing income, which contributed materially to 2021 noninterest income.
- Commercial real estate concentration, property values, borrower cash flows, and trends in nonperforming loans and charge-offs.
- The size and capital impact of the CECL adoption adjustment expected in 2023.
- Final terms, approvals, closing timing, dilution, tangible-equity adjustments, and integration results for the Denmark acquisition.
- The adequacy of liquidity and regulatory capital relative to deposit outflows, loan commitments, acquisition funding, and potential economic deterioration.