First Busey Corporation — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. First Busey is a financial holding company operating Banking, Remittance Processing, and Wealth Management businesses across Illinois, Missouri, Indiana, and southwest Florida. Amounts below are in millions unless otherwise stated.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net interest income | $64.5 | $70.8 | $129.4 | $140.2 |
| Provision for credit losses | $(1.7) release | $12.9 expense | $(8.5) release | $30.1 expense |
| Non-interest income | $33.0 | $28.0 | $64.5 | $55.5 |
| Non-interest expense | $62.6 | $53.1 | $117.1 | $113.6 |
| Net income | $29.8 | $25.8 | $67.6 | $41.2 |
| Diluted EPS | $0.53 | $0.47 | $1.22 | $0.75 |
- Q2 revenue, defined as net interest income plus non-interest income, was $97.6 million versus $98.8 million a year earlier; six-month revenue was $193.9 million versus $195.7 million.
- Reported Q2 net interest margin was 2.50%, down from 3.03% a year earlier and 2.72% in Q1 2021. Six-month margin was 2.61% versus 3.11%.
- Non-interest income increased 18% in Q2, led by wealth management fees (+28%), customer service fees (+23%), and remittance processing (+17%). Mortgage revenue fell 35% in Q2 as sold-loan volume declined.
- Q2 non-interest expense increased 18%; the reported efficiency ratio rose to 61.7% from 51.0% (58.9% adjusted versus 50.5%). Acquisition costs and GSB expenses contributed to the increase.
- Management’s non-GAAP adjusted Q2 net income was $31.9 million and adjusted diluted EPS was $0.57. These exclude specified acquisition and other items and should not be substituted for GAAP results.
Balance sheet, cash flow, and capital
- At June 30, total assets were $12.42 billion, up 17.7% from year-end 2020; portfolio loans were $7.19 billion, up 5.5%, and deposits were $10.34 billion, up 19.1%. The May 31 acquisition of GSB contributed approximately $1.4 billion of assets, $422 million of net loans, and $1.3 billion of deposits.
- Cash and cash equivalents were $920.8 million, compared with $688.5 million at year-end. For the first six months, operating cash flow was $82.3 million, investing cash flow was negative $241.2 million, and financing cash flow was positive $391.2 million. Investing outflows included substantial securities purchases; acquisition cash received was $237.0 million.
- Total liabilities were $11.07 billion and stockholders’ equity was $1.35 billion. Long-term debt was $52.4 million; short-term borrowings were $30.2 million. The company also reported $39.9 million of senior notes, $182.5 million of subordinated notes, and $71.6 million of junior subordinated debt.
- Regulatory capital ratios remained above “well-capitalized” thresholds: consolidated total capital ratio 16.41%, Tier 1 ratio 13.18%, and common equity Tier 1 ratio 12.26%. Management said liquidity was adequate; additional borrowing capacity was $1.2 billion at the FHLB and $476.5 million at the Federal Reserve.
Material changes, outlook, and risks
- Net income improved year over year, substantially reflecting lower credit-loss provisions: the company recorded a reserve release in both Q2 and the first half of 2021, compared with significant provision expense in 2020. Q2 net interest income declined as asset yields fell, partly offset by lower deposit costs.
- Credit quality indicators were mixed. Non-performing loans were $28.3 million, or 0.39% of portfolio loans, compared with $24.3 million at year-end; the increase primarily reflected $4.4 million of acquired GSB non-performing loans. Potential problem loans declined to $44.8 million from $68.8 million. The allowance for credit losses was $95.4 million, or 1.33% of loans (1.40% excluding PPP loans).
- At quarter-end, 49 commercial loans totaling $143.5 million remained on payment deferrals or interest-only modifications, as did eight retail loans totaling $0.8 million. PPP loans outstanding had an amortized cost of $390.4 million. Management warned COVID-19 could still cause margin compression or asset-quality deterioration and noted ongoing economic uncertainty.
- The acquisition of CAC, parent of GSB, closed May 31. Results included one month of GSB operations. Goodwill recorded was approximately $6.0 million; purchase accounting valuations remained provisional. Management expected the bank merger in Q3 2021 and anticipated realizing acquisition efficiencies after the merger.
- After quarter-end, on July 27, the company announced plans to close or consolidate 15 Busey Bank centers and two GSB centers in Q4 2021. No formal earnings guidance is provided in the supplied filing text.
- Available-for-sale securities grew to $3.46 billion from $2.26 billion at year-end. Their unrealized losses were attributed to market interest rates and conditions, not credit impairment, according to management; the company said it did not intend or expect to be required to sell them before recovery. Six-month other comprehensive income included a $23.3 million after-tax loss on these securities.
- Legal matters were described as ordinary-course, with no material pending litigation identified. The filing reported no material changes to the risk factors in the 2020 Annual Report.
Investor verification priorities
- Assess whether lower net interest margin persists and how asset repricing, deposit costs, PPP fee recognition, and acquired GSB balances affect future earnings.
- Track credit quality as deferrals end, including non-performing loans, criticized assets, charge-offs, and the adequacy of the allowance under changing economic forecasts.
- Verify GSB integration progress, final purchase accounting values, realized synergies, and the costs and savings associated with announced branch consolidations.
- Review securities portfolio duration, valuation sensitivity to rates, and the implications of unrealized losses and growth in investment securities.
- Monitor deposit growth and mix, liquidity capacity, debt funding costs, and the company’s continued capital cushion.