First Busey Corporation — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. First Busey is a $12.6 billion financial holding company based in Champaign, Illinois, with Banking, FirsTech payment technology, and Wealth Management segments. Comparisons with Q1 2021 are affected by the May 2021 acquisition of Cummins-American Corp. (CAC), whose results were included from June 2021.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Net interest income | $70.1 million | $64.9 million | +8.0% |
| Net interest margin, tax-equivalent | 2.45% | 2.72% | Down 27 bps |
| Noninterest income | $35.8 million | $31.4 million | +13.8% |
| Noninterest expense | $70.4 million | $54.5 million | +29.1% |
| Provision for credit losses | $(0.3) million | $(6.8) million | Both periods included provision releases |
| Net income | $28.4 million | $37.8 million | Down 24.8% |
| Diluted EPS | $0.51 | $0.69 | Down $0.18 |
| Cash dividends per share | $0.23 | $0.23 | Unchanged |
Net interest income growth reflected higher average earning assets and lower interest expense, but the margin declined as asset yields remained under pressure. Total revenue—net interest income plus noninterest income—was approximately $105.8 million, versus $96.3 million a year earlier. The efficiency ratio increased to 63.0% from 54.7% (adjusted: 62.2% versus 54.3%).
Balance sheet, liquidity, and capital
- Total assets were $12.57 billion, down 2.3% from year-end 2021. Portfolio loans were $7.27 billion, up 1.2%; growth excluding PPP loans was concentrated in commercial and retail lending.
- Total deposits were $10.59 billion, down 1.6% from December 31. Core deposits represented 98.7% of deposits; the reported loan-to-deposit ratio was 68.7%.
- Cash and cash equivalents were $479.2 million, down from $836.1 million at year-end. Management stated liquidity was adequate and reported $2.23 billion of additional borrowing capacity.
- Stockholders’ equity declined to $1.22 billion from $1.32 billion, largely reflecting the $113.8 million after-tax decline in other comprehensive income. Tangible book value per share was $15.29, versus $17.01 at year-end.
- All reported regulatory capital ratios exceeded well-capitalized thresholds. At March 31, consolidated CET1 was 11.89%, total capital was 15.80%, and the leverage ratio was 8.78%.
- Debt securities available for sale were $2.95 billion, and securities held to maturity were $976.1 million. The company transferred $985.2 million of securities from available for sale to held to maturity during the quarter. Unrealized losses reflected market-rate and market-condition changes; management reported no credit-related impairment and did not expect to sell the securities.
- Cash provided by operating activities was $42.5 million, compared with $44.1 million in Q1 2021. Investing activities used $187.0 million and financing activities used $212.4 million; cash declined by $356.9 million during the quarter.
Material changes and management commentary
- Noninterest income increased, led by wealth management fees (+25.4%), customer service fees (+10.8%), and payment technology revenue (+9.9%). Mortgage revenue fell 63.4%, reflecting lower volumes and gain-on-sale margins. Other income rose, including venture investment income and gains on fixed-asset disposals.
- Expense growth included higher salaries and benefits, data processing, and other expenses. Management cited the CAC acquisition, investments in staffing and risk management, labor-market pressures, and increased business development and regulatory costs. Acquisition expenses were $0.8 million pre-tax.
- The FOMC raised rates in Q1 for the first time in three years. Management expected rate increases to benefit net interest margin in subsequent quarters because assets, particularly commercial loans, were expected to reprice faster and more than liabilities. No formal earnings or margin guidance was provided.
- Credit metrics improved overall: nonperforming loans declined to $12.7 million from $16.9 million at year-end, and nonperforming assets were $16.3 million. However, potential problem loans increased to $79.9 million from $70.6 million. The allowance for credit losses was $88.2 million, or 1.21% of portfolio loans. Management cited continued economic uncertainty and noted actual losses could differ from estimates.
- Fifteen commercial loans totaling $37.4 million remained on interest-only COVID-19 deferrals; no loans remained on full payment deferral. PPP loans outstanding declined to $32.5 million from $76.9 million at year-end.
- Interest-rate sensitivity models estimated that an immediate, sustained 100-basis-point increase could raise net interest income 5.8% in year one and 6.2% in year two. Management cautioned that modeled outcomes are assumption-dependent and may differ from actual results.
- A $2.0 million OREO property was sold after quarter-end; a $0.6 million impairment was recognized in Q1. Management reported no significant subsequent events through the filing date, May 5, 2022.
- The company’s $40 million senior notes mature May 25, 2022. An April 30 amendment extended the revolving credit facility through April 30, 2023, and changed its index from LIBOR to SOFR. Management reported no material pending litigation and no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether higher interest rates translated into the anticipated improvement in net interest margin, and how deposit pricing and securities values affected results.
- Whether expense growth moderates as acquisition-related costs and investments are absorbed, and how much recurring revenue growth offsets that spending.
- Trends in potential problem loans, delinquencies, criticized assets, and the allowance for credit losses as economic conditions evolve.
- The effect of the securities transfer and accumulated unrealized losses on reported equity, capital measures, and future flexibility to sell or reposition securities.
- Funding and refinancing developments around the May 2022 senior-note maturity, the amended credit facility, and the LIBOR-to-SOFR transition.