Bank First Corp. 2020 Form 10-K Summary
Business context and reporting period
Bank First Corporation is a Wisconsin-based bank holding company whose principal subsidiary, Bank First, N.A., operates 22 offices across nine Wisconsin counties. The filing covers the fiscal year ended December 31, 2020; quarterly data identifies the fourth quarter ended December 31, 2020. The company provides commercial and retail banking, mortgage banking, deposit, treasury management, data-processing and insurance-related services.
On May 15, 2020, the company acquired Timberwood Bank in a transaction valued at approximately $29.8 million, issuing 575,641 shares and paying approximately $0.4 million in cash. Results of Timberwood were included from the acquisition date.
Key financial metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Total assets | $2.718 billion | $2.210 billion | +23.0% |
| Total loans | $2.191 billion | $1.736 billion | +26.2% |
| Total deposits | $2.321 billion | $1.843 billion | +25.9% |
| Stockholders’ equity | $294.9 million | $230.2 million | +28.1% |
| Net interest income | $86.8 million | $69.7 million | +24.6% |
| Provision for loan losses | $7.1 million | $5.3 million | +35.7% |
| Noninterest income | $23.5 million | $12.6 million | +86.2% |
| Noninterest expense | $53.4 million | $42.8 million | +24.8% |
| Net income | $38.0 million | $26.7 million | +42.5% |
| Diluted EPS | $5.07 | $3.87 | +31.0% |
| Dividends per share | $0.81 | $0.80 | +1.3% |
Return on average assets was 1.52%, return on average equity was 14.33%, the efficiency ratio was 47.82%, and the taxable-equivalent net interest margin was 3.84%, compared with 3.95% in 2019. The allowance for loan losses was $17.7 million, or 0.81% of loans, versus $11.4 million, or 0.66%, in 2019.
Operating cash flow was $44.0 million. Investing activities used $206.0 million, principally reflecting a $343.6 million net increase in loans, while financing activities provided $245.8 million. Cash and cash equivalents increased to $170.2 million from $86.5 million.
At year-end, borrowings included $23.5 million of FHLB advances, $36.4 million of repurchase agreements and $17.5 million of subordinated notes. The Bank reported total capital of 11.73%, Tier 1 capital of 10.95%, CET1 capital of 10.95% and Tier 1 leverage capital of 9.46%, and was well capitalized.
Material changes versus the prior comparable period
- Loan growth was driven substantially by approximately 1,875 PPP loans totaling approximately $279.6 million, the Timberwood acquisition and broader mortgage activity.
- Noninterest income benefited from higher mortgage loan-sale gains, loan servicing income, service charges, income from Ansay and UFS, a $3.2 million gain on securities sales and a $1.7 million gain on the sale of a branch.
- Interest expense declined 28.9% as the average cost of interest-bearing liabilities fell from 1.57% to 0.87% in the low-rate environment.
- Noninterest expense increased because of acquisition-related scale, personnel, occupancy, data processing and outside-service costs. The company also recorded a $1.4 million loss on sales and valuations of other real estate owned and a $1.3 million penalty for early extinguishment of debt.
- Net charge-offs declined to $0.9 million from $6.1 million, but the allowance increased because of loan growth and COVID-19 economic uncertainty.
- Nonperforming loans increased to $12.5 million, or 0.57% of loans, from $5.4 million, or 0.31%. Management attributed much of the increase to a $7.3 million commercial real estate loan placed on nonaccrual after a major tenant bankruptcy.
Outlook, risks and unusual items
- Management stated that current liquidity and funding sources were adequate. Year-end cash and cash equivalents were $170.2 million, and available FHLB liquidity was approximately $350.0 million.
- The company expects COVID-19 effects, borrower repayment capacity, collateral values, loan deferrals, PPP administration and possible litigation or regulatory actions to remain material uncertainties.
- More than 70% of the loan portfolio was secured by real estate, including approximately 45% in commercial real estate. Approximately 96% of loans and deposits were tied to Wisconsin borrowers or depositors, creating geographic concentration risk.
- More than $271.5 million of loans for over 625 customers received COVID-19-related payment deferrals during 2020. By year-end, fewer than 20 loans totaling less than $20.0 million remained under deferral.
- The company expects the CECL credit-loss standard to become effective for its fiscal year beginning after December 15, 2022, with implementation in the first quarter of 2023. The filing states that the impact is still being evaluated and may increase allowance requirements and earnings volatility.
- The company repaid $30.0 million of FHLB borrowings early, incurring a $1.3 million penalty but expecting to save approximately $1.7 million of interest over four years.
- Management reported effective disclosure controls and effective internal control over financial reporting as of December 31, 2020. The independent auditor issued an unqualified opinion on the 2020 and 2019 financial statements.
- There is no specific earnings guidance in the filing. Management’s outlook emphasizes profitable growth, relationship deposits, prudent lending, liquidity, capital and technology investments.
Important facts for investors to verify
- Whether PPP-related balances, forgiveness timing and fee recognition materially affect future loan growth and net interest income.
- Whether COVID-19-related deferrals convert into higher delinquencies, nonaccrual loans, charge-offs or additional allowance requirements.
- The credit performance and collateral coverage of the commercial real estate portfolio, particularly the tenant-related nonaccrual loan.
- The sustainability of unusually strong mortgage-sale gains, securities gains and other noninterest income.
- The effect of prolonged low interest rates on net interest margin, deposit pricing and profitability.
- The eventual impact of CECL adoption on capital, allowance levels, provisions and reported earnings.
- The company’s ability to maintain well-capitalized status while funding growth, paying dividends and repurchasing shares.
- The accuracy of the filing’s inconsistent consumer-loan disclosure in one narrative passage; the detailed loan tables report consumer loans of approximately $30.5 million at December 31, 2020.