First Busey Corporation — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; balance-sheet comparisons are to December 31, 2020 unless noted. First Busey is a $10.8 billion financial holding company operating Banking, Remittance Processing and Wealth Management businesses, primarily in Illinois, Missouri, Florida and Indiana.
Financial performance and condition
| Metric | Q1 2021 | Comparable period / change |
|---|---|---|
| Net interest income | $64.9 million | $69.4 million, down 6.5% year over year |
| Net interest margin, tax-equivalent | 2.72% | 3.20% in Q1 2020 |
| Non-interest income | $31.4 million | $27.5 million, up 14.3% |
| Non-interest expense | $54.5 million | $60.5 million, down 9.9% |
| Provision for credit losses | $(6.8) million release | $17.2 million provision expense in Q1 2020 |
| Net income / diluted EPS | $37.8 million / $0.69 | $15.4 million / $0.28 |
| Operating cash flow | $45.5 million provided | $18.8 million provided in Q1 2020 |
- Income before taxes was $48.6 million versus $19.2 million; the effective tax rate was 22.2% versus 20.1%. The earnings increase reflects the credit-loss reserve release and lower operating expenses, alongside improved fee income.
- Total assets were $10.76 billion, up 2.0% from year-end. Available-for-sale debt securities increased $535.8 million to $2.80 billion, while net portfolio loans declined $27.8 million to $6.69 billion. Total deposits rose $196.0 million to $8.87 billion, including a $307.5 million increase in noninterest-bearing deposits.
- Cash and cash equivalents were $404.8 million, down from $688.5 million. Investing activities used $545.8 million, primarily reflecting $789.9 million of securities purchases; financing activities provided $216.6 million, including deposit growth. Management said liquidity was adequate and reported additional borrowing capacity of $1.6 billion at the FHLB and $483.8 million at the Federal Reserve.
- Funded borrowings reported across repurchase agreements, short- and long-term borrowings, notes and junior subordinated debt totaled approximately $513 million. The company and bank exceeded “well-capitalized” regulatory thresholds: consolidated total capital ratio was 17.39%, and bank ratio was 16.06%.
- Stockholders’ equity was $1.27 billion, slightly below year-end. Accumulated other comprehensive income fell from $33.3 million to $3.8 million, principally reflecting a decline in unrealized gains on available-for-sale securities. Tangible common equity to tangible assets was 8.82%, compared with 9.03% at year-end.
- Nonperforming loans were $22.9 million, or 0.34% of portfolio loans, down from $24.3 million and 0.36% at year-end. The allowance for credit losses was $93.9 million, 1.39% of portfolio loans (1.50% excluding PPP loans).
Material changes versus prior periods
- Net interest margin declined year over year amid lower rates, asset repricing, low-yielding PPP loans and elevated liquidity. Deposit-cost reductions and PPP fee recognition partly offset those pressures. PPP interest and net fees contributed $4.8 million to Q1 net interest income, down from $9.5 million in Q4 2020.
- Non-interest income increased, led by wealth management fees (+8.9%), remittance processing (+17.7%) and mortgage revenue (+93.0%). Wealth Management reported $10.7 billion of assets under care, versus $8.9 billion a year earlier.
- Expense reductions reflected branch closures, staffing changes and expense discipline. Full-time equivalent employees were 1,332, down 11.6% year over year; the company closed 12 banking centers in October 2020.
- Portfolio loans declined 0.5% from year-end. Nonperforming assets were $27.1 million, or 0.25% of assets, compared with $28.9 million and 0.27% at year-end.
Outlook, risks and unusual items
- Management warned that COVID-19 could contribute to further margin compression and asset-quality deterioration. It also noted that future credit performance depends on economic conditions and borrower outcomes.
- At March 31, 72 commercial loans totaling $197.1 million and 178 retail loans totaling $24.9 million remained on payment deferrals. Commercial deferrals included $29.7 million of full-payment deferrals and $167.4 million of interest-only deferrals.
- PPP exposure was $533.4 million outstanding across 3,441 customers. The SBA had forgiven approximately $478.5 million of first-round loans, with another $131.6 million in forgiveness applications submitted. First- and second-round PPP fee accretion in Q1 was $3.3 million and $0.3 million, respectively.
- The company agreed to acquire Cummins-American Corp. and Glenview State Bank for an indicated aggregate value of approximately $190.8 million, structured approximately 73% cash and 27% stock. Closing was expected in Q2 2021, subject to customary conditions and CAC shareholder approval; required regulatory approvals had been obtained. First Busey incurred $0.3 million in acquisition expenses during Q1.
- Management identified interest-rate risk as its most significant market risk. Simulations showed net interest income increases under immediate rate rises, but management cautioned that modeled results are not forecasts and actual outcomes may differ. A $70 million interest-rate hedge portfolio was designated as cash-flow hedges.
- Legal matters were described as ordinary-course proceedings with no material pending litigation disclosed. The filing reported no material changes to previously disclosed risk factors. Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
- Q1 included $0.3 million of acquisition-related expenses. The reported net-income improvement also benefited from a $6.8 million credit-loss reserve release; adjusted net income was $38.1 million, a non-GAAP measure.
Most important facts for investors to verify
- Whether margin pressure persists as PPP fees are recognized and loans are forgiven or repaid, and how net interest margin and deposit costs evolve.
- Progress on forgiveness and runoff of the $533.4 million PPP balance, and performance of loans previously on payment deferrals.
- Credit quality, provision assumptions and allowance adequacy if economic conditions weaken; the filing cites continued uncertainty in credit-loss forecasts.
- Completion, final consideration and integration impacts of the planned CAC/GSB acquisition, including the targeted closing timetable.
- Changes in securities valuations and accumulated other comprehensive income, which affected reported equity during the quarter.
- Liquidity and capital levels, including the company’s use of securities purchases, repurchase funding and available borrowing capacity.