Bank First Corporation — 2021 Q1 Form 10-Q Summary
Business context and reporting period
Bank First Corporation is a Wisconsin bank holding company for Bank First, N.A., a full-service community bank operating 21 locations across Wisconsin. The filing covers the three months ended March 31, 2021, with comparative results for the three months ended March 31, 2020 and balance-sheet comparisons to December 31, 2020.
The company’s primary businesses are commercial and residential lending, deposit-taking, treasury management, mortgage loan production and servicing. It also owns interests in UFS, a data-processing and digital-banking services provider, and Ansay, an insurance agency. The May 2020 Timberwood acquisition contributed to year-over-year balance-sheet and earnings growth.
Key financial metrics
| Metric | Q1 2021 | Q1 2020 or March 31, 2020 | Change |
|---|---|---|---|
| Total assets | $2.846 billion | $2.200 billion at March 31, 2020 | Up 29.3% year over year; up 4.7% from December 31, 2020 |
| Loans, net | $2.210 billion | $1.765 billion at March 31, 2020 | Up 25.2% year over year; up $36.6 million from December 31, 2020 |
| Total deposits | $2.448 billion | $1.847 billion at March 31, 2020 | Up 32.6% year over year; up $127.1 million sequentially |
| Net interest income | $22.1 million | $18.6 million | Up $3.5 million, or 18.6% |
| Provision for loan losses | $0.9 million | $1.0 million | Down $0.1 million |
| Noninterest income | $6.2 million | $3.9 million | Up $2.3 million, or 59% |
| Noninterest expense | $12.2 million | $12.7 million | Down $0.5 million, or 4% |
| Net income | $11.5 million | $7.3 million | Up $4.2 million, or 58.5% |
| Basic/diluted EPS | $1.49/$1.49 | $1.03/$1.02 | Increased from the prior-year quarter |
| Tax-equivalent net interest margin | 3.57% | 3.81% | Down 24 basis points |
| Return on average assets | 1.67% | 1.32% | Improved 35 basis points |
| Return on average common equity | 15.34% | 12.45% | Improved 289 basis points |
Interest income increased 4.9% to $24.4 million, while interest expense declined 49.7% to $2.3 million. The average cost of interest-bearing deposits fell to 0.54% from 1.20%, and total cost of funds declined to 0.56% from 1.27%. Average interest-earning assets increased to $2.55 billion from $2.01 billion.
Operating cash flow was $6.1 million, compared with cash used in operations of $2.1 million in the prior-year quarter. Investing activities used $41.1 million, primarily from a $38.3 million net increase in loans. Financing activities provided $125.9 million, principally from a $127.2 million increase in deposits. Cash and cash equivalents increased to $261.2 million from $170.2 million at year-end 2020.
Total stockholders’ equity was $303.4 million at March 31, 2021, compared with $294.9 million at December 31, 2020. Book value per common share was $39.26 and tangible book value per common share was $31.42. The quarterly dividend was $0.21 per share.
Material changes versus comparable periods
- Net income benefited from the Timberwood acquisition, approximately $279.6 million of PPP loans originated in 2020, strong residential mortgage production and lower funding costs.
- Net gains on mortgage loan sales increased to $2.8 million from $0.5 million, reflecting robust secondary-market mortgage activity.
- Service-charge income increased to $1.5 million from $0.9 million, partly due to the expanded customer base following Timberwood.
- Income from UFS declined to $0.4 million from $0.9 million because of an unfavorable sales-tax audit and the absence of prior-year one-time deconversion fees. Ansay income declined to $0.7 million from $0.9 million.
- Noninterest expense benefited from a $0.1 million gain on OREO sales and valuations versus a $1.0 million loss in Q1 2020. Personnel and data-processing costs increased due to expanded operations and PPP activity.
- Loans grew 1.7% from year-end 2020, led by commercial and industrial loans, which increased 6.0%, and residential 1-to-4-family loans, which increased 1.6%. Construction and development loans declined 2.7%.
- The allowance for loan losses increased to $18.5 million, or 0.83% of loans, from $13.0 million, or 0.73%, at March 31, 2020. Net charge-offs were $27,000, compared with net recoveries of $596,000 in Q1 2020.
- Nonperforming loans increased to $13.8 million, or 0.63% of gross loans, from $7.4 million, or 0.42%, a year earlier, and from $12.5 million at December 31, 2020.
Debt, liquidity and capital
- FHLB borrowings declined to $13.0 million from $23.5 million at year-end 2020. Subordinated notes remained $17.5 million.
- Securities sold under repurchase agreements increased to $47.6 million from $36.4 million at year-end 2020.
- The company had no balance outstanding on its $7.5 million commercial-bank line of credit; the line was scheduled to mature on May 15, 2021.
- Liquidity was supported by $261.2 million of cash and cash equivalents, deposits, securities, FHLB borrowing capacity and correspondent-bank lines. Management stated that current liquidity was adequate.
- Bank First, N.A. remained well capitalized. At March 31, 2021, total capital to risk-weighted assets was 12.11%, Tier 1 capital was 11.29%, common equity Tier 1 capital was 11.29% and Tier 1 leverage was 9.60%.
Guidance, outlook, risks and unusual items
The filing does not provide formal earnings or revenue guidance. Management expects the bank to remain above applicable well-capitalized regulatory requirements and the capital conservation buffer during 2021, based on current estimates.
- COVID-19 remains a material uncertainty affecting borrowers, collateral values, loan demand, credit quality, employment and economic activity. Customer payment deferrals declined from more than 625 loans totaling over $271.5 million during 2020 to 13 loans totaling $7.6 million at March 31, 2021.
- The bank originated approximately 1,075 additional PPP loans totaling $95.9 million during Q1 2021.
- Management’s allowance estimate is judgmental and may change with economic conditions, delinquency trends, portfolio mix, collateral values and regulatory review. The company expects adoption of CECL after December 15, 2022 and anticipates that industry implementation could require higher allowance balances.
- Interest-rate risk is significant. A modeled 400-basis-point increase in rates was estimated to increase next-12-month net interest income by 5.9%, while a 100-basis-point decrease was estimated to reduce it by 4.0%. These are model estimates and not forecasts.
- Mortgage servicing rights were $3.7 million on $632.2 million of loans serviced for others. Their value is sensitive to prepayment speeds, discount rates, delinquencies and servicing costs.
- Off-balance-sheet commitments totaled $496.2 million, including $477.7 million of unused lines of credit, $7.4 million of letters of credit and $11.1 million of credit-card arrangements.
- Available-for-sale securities had $6.6 million of unrealized gains and $0.4 million of unrealized losses. Management did not consider the losses to be other-than-temporary and recorded no other-than-temporary impairment charges.
- Management reported no material changes to previously disclosed risk factors, no material litigation exposure and effective disclosure controls as of March 31, 2021.
Important facts for investors to verify
- Whether the improvement in earnings can be sustained after the unusually strong mortgage-sale gains and PPP-related income normalize.
- Trends in nonperforming loans, classified loans, net charge-offs and the allowance coverage ratio as COVID-19 relief programs expire.
- The effect of continued low interest rates and eventual rate increases on the 3.57% net interest margin, deposit costs and loan yields.
- Execution and profitability of PPP lending, including fee recognition and loan forgiveness activity.
- Liquidity and refinancing needs associated with FHLB maturities, subordinated notes and the May 2021 commercial-bank credit-line maturity.
- The eventual capital and earnings impact of CECL adoption.
- Accuracy of the filing’s reported share-repurchase data and remaining authorization, including the distinction between employee tax-withholding share repurchases and program repurchases.