First Busey Corporation — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Unaudited results. First Busey is a financial holding company operating Banking, Remittance Processing and Wealth Management businesses. Comparisons below are primarily year over year unless noted.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net interest income | $70.8m | $69.8m | $200.2m | $210.0m |
| Noninterest income | $33.3m | $32.3m | $97.7m | $87.8m |
| Noninterest expense | $73.5m | $56.5m | $190.6m | $170.1m |
| Net income | $25.9m | $30.8m | $93.5m | $72.0m |
| Diluted EPS | $0.46 | $0.56 | $1.67 | $1.31 |
| Net interest margin, tax-equivalent | 2.41% | 2.86% | 2.54% | 3.02% |
- Q3 net income fell about 16% despite a $1.0m increase in net interest income and higher fee income. Higher expenses, including acquisition and restructuring costs, were the main pressure; provision for credit losses was a $1.9m release versus $5.5m expense a year earlier.
- Nine-month net income rose about 30%, helped by a $46.0m favorable swing in credit-loss provision (a $10.4m release versus $35.7m expense) and higher noninterest income.
- Q3 noninterest income increased 3%. Wealth management fees rose 30% and remittance-processing revenue rose 9%, while mortgage revenue declined 70%. For the nine months, noninterest income increased 11%, led by wealth management and remittance processing.
- Q3 noninterest expense rose 30%, including $8.7m of acquisition and other restructuring expense; nine-month expense increased 12%, including $11.7m of such costs. Reported efficiency ratio was 67.3% for Q3 and 61.4% for nine months; adjusted ratios were 59.0% and 57.5%, respectively. Adjusted figures are non-GAAP.
- Tax-equivalent net interest margin contracted year over year. Management cited low rates, faster repricing of assets than liabilities, loan paydowns, and elevated liquidity; lower deposit costs and PPP fees partly offset these pressures.
Balance sheet, cash flow and capital
- At September 30, 2021, assets were $12.90bn, up 22.3% from year-end 2020. Cash and cash equivalents were $883.8m; available-for-sale debt securities were $4.00bn; net portfolio loans were $7.06bn.
- Total deposits were $10.82bn, up 24.7% since year-end; noninterest-bearing deposits were $3.45bn. Management reported a 66.1% loan-to-deposit ratio and core deposits at 98.5% of deposits under its stated definition.
- Portfolio loans were $7.15bn before the allowance, up 4.9% since year-end. The allowance for credit losses was $92.8m, or 1.30% of total loans and 1.33% excluding PPP loans.
- Nonperforming loans were $25.9m, 0.36% of portfolio loans; nonperforming assets were $29.0m, or 0.23% of assets. Classified assets declined to $80.8m from $97.8m at year-end. The company reported $4.4m of acquired nonaccrual loans from GSB.
- For the first nine months, operating cash flow was $102.5m; investing cash flow was negative $769.6m, including substantial securities purchases; financing cash flow was positive $862.4m, principally reflecting deposit growth. Cash increased $195.3m to $883.8m.
- Debt included $241.2m of repurchase agreements, $17.7m of short-term borrowings and $49.2m of long-term debt, plus $39.9m of senior notes, $182.6m of subordinated notes and $71.6m of junior subordinated debt. A $57m term loan funded part of the CAC acquisition consideration.
- Regulatory capital ratios remained above well-capitalized thresholds: consolidated total capital ratio 15.91%, Tier 1 12.84%, and Common Equity Tier 1 11.95%. The bank’s corresponding ratios were 15.87%, 15.04% and 15.04%.
Material changes and notable items
- First Busey completed its acquisition of Cummins-American Corp., parent of Glenview State Bank (GSB), on May 31, 2021. GSB results were included from June 1 and its bank merged into Busey Bank on August 14. The acquisition added approximately $1.47bn of assets and $1.32bn of deposits at acquisition; $6.2m of goodwill was recorded.
- Management said GSB integration synergies were expected to contribute more fully in coming quarters. The company announced closures and consolidations of 17 banking centers in Q4 2021, including two former GSB locations, with 58 centers expected to remain afterward.
- COVID-19 remained a stated risk to future margins and asset quality. At quarter-end, 27 commercial loans totaling $116.6m were on interest-only deferrals and three retail loans totaling $0.4m were on payment deferrals. PPP loans outstanding, at amortized cost, were $178.2m.
- Management stated liquidity was adequate and identified additional borrowing capacity of $1.2bn from the FHLB and $603.6m from the Federal Reserve. No formal earnings or margin guidance was provided in the supplied filing text.
- Interest-rate sensitivity modeling estimated that an immediate, sustained +100 basis-point move would increase net interest income 8.44% in year one and 9.12% in year two; management cautioned these simulations are assumption-dependent and not forecasts.
- Unrealized losses on available-for-sale securities increased materially as market rates and conditions changed; management attributed them to noncredit factors and said it did not intend, and was not likely required, to sell before recovery. Accumulated other comprehensive income moved from $33.3m at year-end to a $1.4m loss.
- Management reported no material pending litigation, no material change to previously disclosed risk factors, and effective disclosure controls. The company repurchased 625,000 shares in Q3 at an average $23.66 per share.
Most important facts for investors to verify
- Whether post-acquisition cost reductions and branch consolidation deliver the anticipated GSB synergies, and how acquisition-related costs evolve.
- Whether margin pressure persists as rates, loan repricing and excess liquidity change; compare reported and adjusted margin measures.
- Credit trends, including deferral performance, acquired GSB nonaccrual loans, criticized assets, and the adequacy of the allowance under changing economic forecasts.
- The composition and duration of the expanded securities portfolio, its sensitivity to interest rates, and any effects on tangible equity through accumulated other comprehensive income.
- Deposit growth and liquidity sustainability, together with the cost, maturity and terms of the acquisition-related term loan and other debt.
- Underlying fee growth, particularly whether wealth management and remittance processing can offset lower mortgage revenue and elevated operating expenses.