First Busey Corporation — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; comparisons are primarily with 2019. First Busey is a bank holding company with banking, remittance processing and wealth management operations, principally in Illinois, Missouri, Florida and Indiana.
Financial performance and position
| Metric | 2020 | 2019 |
|---|---|---|
| Total assets, year-end | $10.54 billion | $9.70 billion |
| Total deposits, year-end | $8.68 billion | $7.90 billion |
| Portfolio loans, gross, year-end | $6.81 billion | $6.69 billion |
| Total revenue (net interest income plus non-interest income) | $401.2 million | $403.6 million |
| Net interest income | $282.9 million | $287.2 million |
| Non-interest income | $118.3 million | $116.4 million |
| Provision for credit losses | $38.8 million | $10.4 million |
| Net income | $100.3 million | $103.0 million |
| Diluted earnings per share | $1.83 | $1.87 |
| Net interest margin, tax-equivalent | 3.03% | 3.38% |
| Efficiency ratio | 55.7% | 61.3% |
- Net income declined 2.5%, while total revenue was slightly lower. Higher credit-loss provisioning was partly offset by reduced interest expense and lower non-interest expense.
- Non-interest expense fell 9.5% to $234.2 million. Adjusted efficiency ratio, a non-GAAP measure, improved to 53.0% from 56.4%.
- Net cash provided by operating activities was $169.3 million, versus $80.8 million in 2019. Investing activities used $735.7 million; financing activities provided $725.6 million. Year-end cash and cash equivalents were $688.5 million.
- Year-end stockholders’ equity was $1.27 billion; tangible common equity was $921.1 million, and tangible book value per share was $16.66. The year-end equity-to-assets ratio cited in selected data was 12.05%.
- Year-end debt included $175.6 million of repurchase-agreement borrowings, $4.7 million short-term borrowings, $4.8 million long-term debt, $39.8 million senior notes, $182.2 million subordinated notes and $71.5 million junior subordinated debt. The company issued $125 million of 5.25% fixed-to-floating subordinated notes in June 2020.
- Management reported $2.3 billion of cash and unencumbered securities and additional borrowing capacity of $1.3 billion from the FHLB and $507.8 million from the Federal Reserve. It said liquidity was adequate for projected obligations.
- First Busey and Busey Bank were well-capitalized. At year-end, consolidated total risk-based capital was 17.04% and the bank’s was 15.50%; consolidated Common Equity Tier 1 was 12.43% and the bank’s was 14.44%.
Material changes and notable items
- Total assets increased 8.7% and deposits 9.8%. Deposit growth reflected PPP-related funds, economic stimulus and core deposit growth; noninterest-bearing deposits rose 39.3% to $2.55 billion. Gross portfolio loans rose 1.9%, including $446.4 million of PPP loans at amortized cost.
- The Company adopted CECL on January 1, 2020, recording a $15.9 million after-tax reduction to retained earnings. The year-end allowance for credit losses rose to $101.0 million, or 1.48% of portfolio loans (1.59% excluding PPP loans), from $53.7 million, or 0.80%.
- Credit measures were mixed but non-performing loans improved: $24.3 million, or 0.36% of portfolio loans, compared with $29.5 million, or 0.44%, in 2019. Non-performing assets were $28.9 million versus $32.6 million. Management cautioned that further pandemic-related deterioration could raise future credit costs.
- Interest-rate cuts, faster repricing of commercial loans, low-yield PPP loans and excess liquidity pressured margin. Lower deposit costs and PPP fees partly offset the decline. PPP fees, net of deferred costs, contributed $15.2 million to 2020 net interest income.
- Wealth management fees increased 11.3% to $42.9 million; customer service fees declined 13.8% to $31.6 million, partly due to changed customer behavior and fee waivers. Mortgage revenue rose 11.4% to $13.0 million.
- The Company closed 12 banking centers in October 2020, reducing its network from 80 to 68. It reported $9.3 million of other restructuring costs and $1.4 million of acquisition-related expenses for the year.
- In January 2021, First Busey agreed to acquire Cummins-American Corp. and Glenview State Bank for an indicated transaction value of approximately $190.8 million, expected to close in the second quarter of 2021 subject to approvals and other conditions. The filing provides no formal numeric earnings guidance.
Outlook, risks and contingencies
- Management expected COVID-19 effects to continue, with potential further margin compression, higher provision expense, lower customer fees and weaker asset quality. It identified hotel, restaurant, transportation, long-term healthcare and retail borrowers as areas of continuing stress.
- At year-end, 98 commercial loans totaling $208.6 million and 351 mortgage/personal loans totaling $47.7 million were on payment deferrals. PPP originations totaled $749.4 million; $451.5 million remained outstanding at year-end.
- Key risks include pandemic uncertainty and borrower defaults; commercial real estate and geographic/industry concentration; very low interest rates; competition and technology disruption; cybersecurity and third-party operational risk; and acquisition execution and integration.
- First Busey crossed $10 billion in assets during 2020. Temporary regulatory relief defers some threshold-related requirements until 2022; management expects Durbin interchange limits, when applicable, to materially reduce earnings on covered debit transactions.
- The filing reports no material pending litigation beyond ordinary-course matters. The independent auditor gave unqualified opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective.
Most important facts for investors to verify
- Whether credit quality and allowance adequacy hold as deferrals end and pandemic-related support programs expire.
- How much of deposit growth and liquidity is durable, and how excess liquidity and low rates affect net interest margin.
- The timing and financial impact of the $190.8 million Glenview State Bank transaction, including its funding, integration costs and expected benefits.
- Future recognition of PPP fees as forgiveness progresses, and remaining PPP loan balances and associated SBA documentation or reimbursement risks.
- The effect and timing of post-deferment regulatory requirements, particularly Durbin interchange limits and related revenue impacts.
- Whether branch closures, expense reductions and restructuring costs translate into sustained operating-efficiency improvement.