First Busey Corporation (BUSE) — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. First Busey is a $12.2 billion financial holding company operating Banking, FirsTech payment technology, and Wealth Management businesses, primarily across Illinois, Missouri, southwest Florida, and Indianapolis. Figures below are in U.S. dollars; financial statement amounts are generally in millions unless noted.
Financial performance and condition
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Net interest income | $78.7 | $75.9 | $164.5 | $146.0 |
| Provision for credit losses | $0.6 | $1.7 | $1.6 | $1.4 |
| Noninterest income | $28.0 | $31.0 | $59.9 | $66.8 |
| Noninterest expense | $69.2 | $69.1 | $139.6 | $139.5 |
| Net income | $29.4 | $29.8 | $66.2 | $58.3 |
| Diluted earnings per share | $0.52 | $0.53 | $1.18 | $1.04 |
| Tax-equivalent net interest margin | 2.86% | 2.68% | 2.99% | 2.56% |
- Profitability and margins: Q2 net income declined about 2% year over year, while first-half net income rose about 14%. Q2 tax-equivalent net interest margin improved year over year but fell from 3.13% in Q1 2023 to 2.86% in Q2. The six-month efficiency ratio improved to 58.8% from 61.8%; Q2 was 60.9% versus 60.6%.
- Revenue trends: Q2 total noninterest income fell 9.7% year over year. Customer service fees fell 24.5%, partly reflecting a $2.4 million quarterly impact from the Durbin Amendment; wealth management and FirsTech combined revenue rose 4.0%. Q2 net securities losses were $2.1 million, including $1.9 million of unrealized losses on equity securities.
- Balance sheet and liquidity: At June 30, total assets were $12.21 billion, down 1.0% from year-end 2022. Portfolio loans were $7.81 billion, up 1.0%; deposits were $10.06 billion, essentially unchanged. Noninterest-bearing deposits fell $306.8 million while interest-bearing deposits increased $298.3 million; time deposits rose to $1.47 billion from $855 million. Core deposits were 97.0% of deposits, versus 98.8% at year-end. Cash and unencumbered securities totaled $1.88 billion, with additional borrowing capacity of $2.77 billion. Management said liquidity was adequate.
- Cash flow, first half: Operating activities provided $85.1 million; investing activities provided $128.2 million; financing activities used $207.8 million. Cash and cash equivalents increased $5.5 million to $232.7 million.
- Debt and capital: Short-term borrowings were $212 million and long-term debt $24 million; subordinated notes were $222.5 million net of issuance costs. Regulatory capital ratios exceeded “well-capitalized” thresholds: First Busey’s CET1 ratio was 12.35% and total capital ratio 16.56%; Busey Bank’s were 14.76% and 15.68%, respectively.
Material changes and credit quality
- Loan growth was $79.6 million in the first half, led by commercial real estate and retail real estate; commercial balances excluding PPP loans grew 0.5%. Management said loan growth may slow from the prior 12 months and earlier expectations, reflecting its conservative underwriting and economic outlook.
- The allowance for credit losses was $91.6 million, or 1.17% of loans, versus 1.19% at year-end. Nonperforming loans were $15.8 million, 0.20% of loans; classified assets decreased to $81.9 million from $107.1 million. Net charge-offs were $2.5 million for the first half.
- Debt securities had $444.6 million of aggregate gross unrealized or unrecognized losses at June 30: $297.0 million on available-for-sale securities and $147.6 million on held-to-maturity securities. Management attributed the losses to interest rates and market conditions, not credit impairment, and said it did not expect to sell the securities before recovery. AFS securities’ fair value was $2.28 billion; HTM securities’ estimated fair value was $746.5 million against $894.1 million carrying value.
Outlook, risks, and unusual items
- The filing provides no specific earnings or net interest margin guidance. Management noted that higher deposit and wholesale funding costs, deposit migration to higher-cost accounts, and additional borrowing can offset the benefit of rising asset yields. It emphasized conservative underwriting, expense discipline, and sufficient liquidity.
- Key stated risks include economic deterioration, interest-rate and securities valuation changes, deposit concentration and withdrawals—especially uninsured balances—loan concentrations and credit deterioration, competition, cybersecurity and technology disruptions, regulatory changes, and litigation. Interest-rate simulations estimated that a sustained +100 basis-point shock would increase modeled net interest income 2.20% in year one and 2.53% in year two; results depend on assumptions and are not forecasts.
- Management reported no significant subsequent events through the filing date and no material pending litigation. It disclosed an Illinois inquiry into prior franchise tax filings that could result in additional expense if amendments are required. No material changes to the prior annual report’s risk factors were reported.
- Management cited $0.8 million of year-to-date earnings on life-insurance death proceeds. Non-operating costs were only $12,000 for the first half. The company repurchased 45,000 shares during the first half and declared $0.48 per share in dividends.
Important facts for investors to verify
- Whether deposit repricing and migration continue to pressure the net interest margin, particularly after the sequential Q1-to-Q2 decline.
- Trends in noninterest-bearing and uninsured deposits, time-deposit maturities, funding costs, and use of wholesale borrowing capacity.
- Whether credit quality remains stable: monitor commercial real estate exposures, criticized/classified loans, delinquencies, charge-offs, and allowance coverage.
- How the large unrealized securities losses affect tangible capital, liquidity choices, and results if securities must be sold; confirm the company’s ability to hold them until recovery.
- Whether management’s expectation of slower loan growth and its outlook for operating costs and fee income are borne out in subsequent filings.