Bank First Corp. 2021 Q3 Form 10-Q Summary
Business Context and Reporting Period
Bank First Corporation is the holding company for Bank First, N.A., a Wisconsin-based full-service community bank operating 21 locations across nine Wisconsin counties. The filing covers the unaudited three and nine months ended September 30, 2021, compared with the corresponding 2020 periods, and was filed November 9, 2021.
Key Financial Metrics
| Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Net interest income | $22.9 million | $22.9 million | $66.9 million | $62.4 million |
| Provision for loan losses | $0.7 million | $1.4 million | $2.5 million | $5.5 million |
| Noninterest income | $5.0 million | $5.1 million | $17.8 million | $16.8 million |
| Noninterest expense | $12.5 million | $12.2 million | $36.9 million | $39.4 million |
| Net income | $11.2 million | $11.0 million | $34.3 million | $26.5 million |
| Diluted EPS | $1.46 | $1.42 | $4.45 | $3.56 |
| Tax-equivalent net interest margin | 3.47% | 3.84% | 3.47% | 3.77% |
| Return on average assets | 1.57% | 1.67% | 1.62% | 1.44% |
| Return on average common equity | 14.30% | 15.56% | 14.86% | 13.74% |
Amounts are as reported; balance-sheet and cash-flow amounts below are generally in thousands unless otherwise stated.
- Total assets were $2.85 billion at September 30, 2021, up 4.7% from December 31, 2020.
- Loans, net, were $2.19 billion, up $14.9 million from year-end. Commercial real estate represented approximately 50% of gross loans, while residential 1-4 family loans represented approximately 26%.
- Deposits were $2.47 billion, up approximately 6.5% from year-end, including $790.2 million of noninterest-bearing deposits.
- Cash and cash equivalents increased to $300.0 million from $170.2 million at year-end.
- Total stockholders’ equity rose to $315.3 million from $294.9 million. Book value per common share was $41.26 and tangible book value per common share was $33.44.
- For the nine months, operating activities provided $24.7 million of cash, investing activities provided $1.3 million, and financing activities provided $103.8 million. Cash increased by $129.7 million.
- FHLB borrowings declined to $9.2 million from $23.5 million. Subordinated notes remained $17.5 million, and the company had no balance drawn on its $7.5 million commercial-bank line of credit.
- The Bank remained well capitalized. At September 30, 2021, total capital to risk-weighted assets was 12.33%, CET1 was 11.46%, Tier 1 capital was 11.46%, and Tier 1 capital to average assets was 9.67%.
Material Changes Versus Prior Comparable Period
- Nine-month net income increased $7.8 million, or approximately 29%, primarily from higher net interest income, lower funding costs, stronger mortgage production, lower loan-loss provisions, and the added scale of the 2020 Timberwood acquisition.
- Net interest income increased $4.5 million for the nine months despite net interest margin declining 30 basis points to 3.47%. Average interest-earning assets increased to $2.61 billion from $2.26 billion, while the cost of interest-bearing liabilities declined to 0.50% from 0.96%.
- The nine-month provision for loan losses declined $3.0 million. The allowance for loan losses increased to $20.2 million, or 0.92% of loans, from $16.3 million, or 0.74%, at September 30, 2020.
- Nine-month noninterest income increased $1.0 million. Mortgage loan sale gains increased to $6.2 million from $3.1 million, loan servicing income increased to $2.3 million from $1.2 million, and service charges increased to $4.6 million from $3.4 million. These increases were partly offset by the absence of a $3.2 million securities-sale gain recorded in 2020 and lower income from Ansay and UFS.
- Nine-month noninterest expense decreased $2.5 million. The prior-year period included a $1.3 million early debt-extinguishment penalty, higher acquisition-related outside service costs, and $1.4 million of OREO losses; these items did not recur comparably in 2021.
- Loan mix shifted materially: commercial and industrial loans declined primarily as PPP loans were forgiven, while commercial real estate and residential mortgage loans increased. PPP balances declined from $172.4 million at year-end 2020 to $62.6 million at September 30, 2021.
- Credit quality improved from September 2020: nonperforming loans declined to $11.9 million, or 0.53% of gross loans, from $17.9 million, or 0.84%. Net recoveries were $79,000 for the nine months of 2021 versus net charge-offs of $553,000 in the comparable 2020 period.
Guidance, Outlook, Risks and Unusual Items
The filing does not provide formal earnings or revenue guidance. Management stated that it believed current liquidity was adequate and expected the Bank to continue exceeding applicable well-capitalized regulatory requirements during 2021.
- Management continued to identify COVID-19, economic conditions, employment, borrower repayment capacity, collateral values, and government or regulatory responses as potential sources of adverse impact. All customer payment deferrals granted during the pandemic had ended by September 30, 2021.
- Management’s allowance estimate is judgmental and depends on economic trends, portfolio composition, delinquency levels, collateral values, and regulatory review. The company noted that future provisions could increase if actual losses differ from estimates.
- Commercial real estate comprised approximately half of the loan portfolio, creating exposure to property values, refinancing conditions, occupancy, and regional economic conditions.
- Interest-rate risk is material. Management’s simulation estimated that a 400-basis-point rate increase would increase projected 12-month net interest income by 9.0%, while a 100-basis-point decline would reduce it by 1.5%, assuming no balance-sheet growth. An instantaneous 200-basis-point increase was estimated to increase economic value of equity by 13.8%; a 100-basis-point decrease was estimated to reduce it by 8.4%.
- Off-balance-sheet commitments totaled approximately $509.6 million at September 30, 2021, including $489.5 million of unused credit lines, $8.6 million of letters of credit, and $11.4 million of credit-card arrangements.
- The company reactivated a $12 million share-repurchase program in April 2021. It repurchased 47,315 shares during the third quarter at an average price of $69.13, with approximately 84,678 shares remaining under the program based on the September 30 closing price.
- The filing reported no material changes to previously disclosed risk factors, no material litigation exposure, and effective disclosure controls. There were no material changes to internal control over financial reporting.
- CECL adoption was not yet effective for the company; management was evaluating the impact and noted that industry implementation could result in higher allowance balances.
Important Facts for Investors to Verify
- Whether the lower net interest margin persists as purchase-accounting accretion declines and market interest rates change.
- The sustainability of mortgage loan sale gains, mortgage servicing income, and unusually favorable credit-loss trends.
- Commercial real estate concentration, classified loans of $64.4 million, and the adequacy of the $20.2 million allowance for loan losses.
- The treatment and remaining effect of PPP loans, including forgiveness-related fee income and the decline in PPP balances.
- The company’s liquidity assumptions, deposit retention, upcoming FHLB maturities, and reliance on deposits versus wholesale funding.
- The potential effect of CECL adoption on the allowance, retained earnings, and regulatory capital.
- The filing contains a balance-sheet presentation showing deposits of $2,471.3 million, while portions of the MD&A refer to $2,472.3 million; investors should reconcile this apparent presentation inconsistency to the filed financial statements.