Bank First Corporation 10-Q Summary
Business Context and Reporting Period
Bank First Corporation is a Wisconsin bank holding company for Bank First, N.A., operating 24 banking locations. The filing covers the quarter and six months ended June 30, 2020, with comparisons to June 30, 2019 and December 31, 2019. The period reflects the May 15, 2020 acquisition of Timberwood, including one branch, approximately $118.4 million of loans and 575,641 shares issued.
Financial Performance and Key Metrics
| Metric | Three Months Ended June 30 | Six Months Ended June 30 |
|---|---|---|
| Net interest income | $20.8 million, versus $15.4 million | $39.4 million, versus $30.6 million |
| Provision for loan losses | $3.2 million, versus $0.5 million | $4.1 million, versus $1.1 million |
| Noninterest income | $7.8 million, versus $2.7 million | $11.7 million, versus $6.3 million |
| Noninterest expense | $14.4 million, versus $10.0 million | $27.2 million, versus $19.5 million |
| Net income | $8.3 million, versus $6.0 million | $15.6 million, versus $12.6 million |
| Diluted EPS | $1.11, versus $0.90 | $2.13, versus $1.89 |
| Tax-equivalent net interest margin | 3.67%, versus 3.76% | 3.74%, versus 3.79% |
| Return on average assets | 1.32%, versus 1.33% | 1.32%, versus 1.41% |
| Return on average common equity | 12.94%, versus 13.20% | 12.70%, versus 14.11% |
- Total assets were $2.66 billion at June 30, 2020, up 20.3% from December 31, 2019.
- Loans were $2.12 billion, up 21.8%; net loans were $2.10 billion after the allowance and deferred fees.
- Deposits were $2.26 billion, up 22.8%, including $708.3 million of noninterest-bearing deposits.
- Cash and cash equivalents were $177.2 million, compared with $86.5 million at year-end. The MD&A narrative separately states $117.2 million; the financial statements provide the clearer reported value.
- Stockholders’ equity was $276.1 million, up from $230.2 million; book value per common share was $35.70 and tangible book value per share was $27.76.
- Six-month operating cash flow was $19.0 million. Investing cash flow was negative $144.1 million, primarily reflecting $271.2 million of net loan growth, while financing cash flow was positive $215.9 million, principally from deposit growth.
- Total borrowings included $25.2 million of notes payable, $18.5 million of subordinated notes and $57.4 million of repurchase agreements. FHLB advances declined to approximately $25.0 million from $39.8 million at year-end.
Material Changes Versus Prior Periods
- Net income increased 38.5% in the second quarter and 23.8% for the first six months, driven mainly by acquisitions, loan growth, lower funding costs and higher noninterest income.
- Net interest income increased 35.2% in the quarter and 29.0% year to date, although the net interest margin declined as asset yields and purchase-accounting accretion decreased.
- Noninterest income increased 184% in the quarter and 86% year to date. The increases included strong mortgage loan-sale activity and a $3.2 million gain from securities sales, including a $3.1 million gain from the sale of $36.6 million of U.S. Treasury notes.
- Noninterest expense rose 45% in the quarter and 39% year to date due to acquired operations, COVID-19-related operating investments, Timberwood integration costs, higher intangible amortization and a $1.3 million early debt-extinguishment penalty.
- The allowance for loan losses increased to $16.1 million from $11.4 million at year-end, while the allowance ratio was 0.76% of loans versus 0.66% at year-end. Management increased qualitative loss factors because of COVID-19-related economic risks.
- Nonperforming loans increased to $23.1 million, or 1.09% of gross loans, from $5.4 million, or 0.31%, at December 31, 2019. Management attributed the increase primarily to six large commercial customers affected by economic conditions.
Outlook, Risks, Contingencies and Unusual Items
- COVID-19 remains the principal uncertainty. The company provided payment deferrals and modifications and originated approximately $278.1 million of PPP loans during the first half. As of August 5, 2020, it reported approximately 1,859 PPP loans totaling $279.5 million.
- Management stated that liquidity was adequate and identified no known trend or event expected to materially impair liquidity. Deposit growth and cash balances supported lending and customer funding needs.
- The Bank was well capitalized at June 30, 2020. Bank ratios included total capital of 11.42%, Tier 1 capital of 10.66%, CET1 capital of 10.66% and Tier 1 leverage of 9.18%, all above applicable well-capitalized thresholds.
- Off-balance-sheet commitments totaled $462.3 million, including $445.1 million of unused lines of credit, $7.5 million of letters of credit and $9.7 million of credit card arrangements. Mortgage rate-lock commitments were approximately $62.0 million.
- Interest-rate sensitivity analysis projected a 8.2% increase in next-12-month net interest income under a 400-basis-point rate increase and a 3.5% decrease under a 100-basis-point decrease, assuming no balance-sheet growth.
- The company had no material litigation, no material changes to previously disclosed risk factors and effective disclosure controls as of June 30, 2020.
- CECL adoption was not yet required for the company; management expected the future standard could increase required loan-loss reserves.
Most Important Facts for Investors to Verify
- Whether the elevated nonperforming loans, COVID-19 payment deferrals and PPP-related exposures result in additional provisions or charge-offs.
- The sustainability of unusually high securities-sale gains and mortgage loan-sale income, which materially supported 2020 noninterest income.
- The reconciliation of the $177.2 million cash balance in the financial statements with the $117.2 million amount stated in MD&A.
- The quality, pricing and funding economics of rapid loan and deposit growth, particularly the $278.1 million PPP portfolio.
- The integration and earnings contribution of the Timberwood acquisition, including final purchase-accounting adjustments and goodwill.
- Future effects of lower interest rates on loan yields, deposit costs, net interest margin and mortgage servicing rights.