First Busey Corporation — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. Although the request identifies 2023 Q4, this filing reports full-year results; quarterly data are noted where relevant. Dollar amounts are in millions unless stated otherwise.
Business context
First Busey is a financial holding company with $12.3 billion in assets. Its businesses include community banking through Busey Bank, wealth management, and payment technology through FirsTech. It operates primarily in Illinois and Missouri, with locations in southwest Florida and Indiana.
Key financial results
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Net interest income | $319.5 | $323.4 | Down 1.2% |
| Net interest margin, tax-equivalent | 2.88% | 2.84% | Up 4 bps |
| Noninterest income | $122.4 | $126.8 | Down 3.5% |
| Noninterest expense | $285.5 | $283.9 | Up 0.6% |
| Provision for credit losses | $2.4 | $4.6 | Down $2.2 |
| Net income | $122.6 | $128.3 | Down 4.5% |
| Diluted EPS | $2.18 | $2.29 | Down 4.8% |
| Cash dividends declared per share | $0.96 | $0.92 | Up $0.04 |
Adjusted net income, a non-GAAP measure, was $126.0 million, versus $131.9 million in 2022; adjusted diluted EPS was $2.24 versus $2.35. The reported efficiency ratio rose to 61.7% from 59.9% (adjusted: 60.7% from 58.9%).
Balance sheet, funding and capital
- Total assets were $12.28 billion, down 0.4%; portfolio loans were $7.65 billion, down 1.0%.
- Deposits grew 2.2% to $10.29 billion. The mix shifted: noninterest-bearing deposits fell 16.5%, while time deposits rose 112.7%. Core deposits were 96.2% of deposits, down from 98.8%.
- Estimated uninsured deposits were $3.8 billion; $2.8 billion, or 27% of total deposits, was estimated to be uninsured and not otherwise collateralized.
- Cash and cash equivalents were $719.6 million. Cash and unencumbered securities totaled $2.16 billion, with an additional $3.02 billion of reported borrowing capacity. Management said liquidity was adequate.
- Year-end debt included $187.4 million of repurchase agreements, $30.0 million on the term loan, $222.9 million of subordinated notes, and $72.0 million of junior subordinated debt. FHLB advances were zero at year-end, compared with $339.1 million in short-term borrowings in 2022.
- Capital ratios remained above regulatory well-capitalized thresholds: First Busey’s CET1 ratio was 13.09%, total capital ratio 17.44%, and leverage ratio 10.08%. Tangible common equity to tangible assets, a non-GAAP ratio, was 7.75%, up from 6.60%.
- Operating cash flow was $173.4 million, versus $165.9 million. Investing activities provided $551.0 million, compared with $291.0 million used in 2022; financing activities used $232.0 million, versus $483.9 million.
Material changes and unusual items
- Interest income rose substantially as rates increased, but interest expense increased by $123.4 million, substantially offsetting the revenue benefit. The fourth-quarter net interest margin was 2.74%, down from 2.80% in Q3 2023 and 3.24% in Q4 2022.
- Customer service fees fell 12.3%, primarily reflecting a full year of Durbin Amendment interchange limits and changes to overdraft and nonsufficient-funds fees. Wealth management fees rose 3.5% and FirsTech revenue rose 5.6%; FirsTech reported record annual revenue.
- Credit metrics improved: nonperforming loans declined to $7.8 million from $15.7 million, and nonperforming assets to $7.9 million from $16.6 million. Net charge-offs increased to $2.3 million from $0.9 million. The allowance for credit losses was $91.7 million, or 1.20% of portfolio loans.
- Available-for-sale securities had a $247.2 million gross unrealized loss at year-end; held-to-maturity securities had $142.2 million of unrecognized losses. Management attributed the losses to market rates and conditions, not credit impairment, and reported no credit impairment on debt securities in 2023.
- In Q4, Busey sold its Visa Class B shares for a pretax gain of approximately $5.5 million and sold about $110 million of lower-yielding securities for a pretax loss of approximately $5.3 million, reinvesting proceeds in Federal Reserve deposits. Management estimated these actions would add about $4.3 million to annualized net interest income and 4 basis points to the margin run rate; this is an estimate, not formal earnings guidance.
- Busey announced a planned $41.6 million acquisition of Merchants and Manufacturers Bank Corporation, expected to close in Q2 2024 subject to approvals and other conditions. Consideration is expected to be approximately 71% stock and 29% cash.
Outlook, risks and contingencies
Management emphasized conservative underwriting, relationship banking, core deposits, and expense discipline, but did not provide specific forward financial guidance in the supplied filing text. Key exposures include deposit competition and funding costs, interest-rate changes, securities valuation and liquidity, commercial real estate concentration, economic weakening and borrower repayment, regulatory and fee changes, and cybersecurity and third-party technology risks. Commercial real estate loans were $3.34 billion, about 43.6% of total loans; management said the bank did not exceed the cited supervisory concentration guidelines.
An Illinois Secretary of State inquiry into franchise-tax filings remained unresolved. The company said additional taxes, penalties, interest, or other expenditures were reasonably possible but not reasonably estimable, and no accrual was recorded. The company reported no material pending litigation apart from ordinary-course matters. The independent auditor gave an unqualified opinion on the financial statements and internal control over financial reporting.
Most important facts for investors to verify
- Whether deposits remain stable and the share of uninsured, uncollateralized deposits changes; verify deposit pricing and funding costs.
- Whether the stated $4.3 million annualized benefit from the Q4 balance-sheet actions materializes, and how it affects subsequent net interest margin and earnings.
- Credit performance in commercial real estate and other commercial portfolios, including delinquencies, criticized loans, charge-offs, and allowance adequacy.
- The size, duration, and accounting treatment of securities unrealized losses, and whether liquidity needs could require securities sales.
- Completion, consideration mix, integration costs, and expected benefits of the M&M acquisition.
- Resolution and potential financial effect of the Illinois franchise-tax inquiry.