First Busey(BUSE) - 2023 Q2 - Quarterly Report

PART I FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS (UNAUDITED) This section presents First Busey Corporation's unaudited consolidated financial statements, including balance sheets, income statements, comprehensive income, equity, and cash flows, with detailed accounting policy notes CONSOLIDATED BALANCE SHEETS Total assets decreased slightly to $12.21 billion at June 30, 2023, while total liabilities decreased to $11.01 billion, and stockholders' equity rose to $1.20 billion Consolidated Balance Sheet Summary (in thousands) | Account | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $12,209,029 | $12,336,677 | | Total cash and cash equivalents | $232,703 | $227,164 | | Debt securities available for sale | $2,283,848 | $2,461,393 | | Portfolio loans, net | $7,713,645 | $7,634,094 | | Goodwill | $317,873 | $317,873 | | Total Liabilities | $11,007,081 | $11,190,700 | | Total deposits | $10,062,755 | $10,071,280 | | Short-term borrowings | $212,000 | $351,054 | | Total Stockholders' Equity | $1,201,948 | $1,145,977 | CONSOLIDATED STATEMENTS OF INCOME Net income for the six months ended June 30, 2023, increased to $66.15 million from $58.26 million year-over-year, driven by higher net interest income, with diluted EPS at $1.18 Income Statement Highlights (in thousands, except per share data) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $78,670 | $75,928 | $164,527 | $145,984 | | Provision for credit losses | $627 | $1,653 | $1,580 | $1,400 | | Total Noninterest Income | $28,012 | $31,019 | $59,860 | $66,791 | | Total Noninterest Expense | $69,205 | $69,092 | $139,608 | $139,468 | | Net Income | $29,364 | $29,824 | $66,150 | $58,263 | | Diluted EPS | $0.52 | $0.53 | $1.18 | $1.04 | CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) Total comprehensive income for the six months ended June 30, 2023, was $78.5 million, a significant improvement from a $129.1 million loss in 2022, driven by a positive change in AOCI Comprehensive Income (Loss) Summary (in thousands) | Metric | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net Income | $66,150 | $58,263 | | Net change in AOCI | $12,357 | $(187,349) | | Total Comprehensive Income (Loss) | $78,507 | $(129,086) | CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Total stockholders' equity increased to $1.202 billion at June 30, 2023, driven by $66.2 million net income and $12.4 million OCI, partially offset by dividends Changes in Stockholders' Equity (Six Months Ended June 30, 2023, in thousands) | Description | Amount | | :--- | :--- | | Balance, December 31, 2022 | $1,145,977 | | Net Income | $66,150 | | OCI, net of tax | $12,357 | | Cash dividends on common stock | $(26,539) | | Repurchase of stock | $(931) | | Stock-based compensation & other | $4,934 | | Balance, June 30, 2023 | $1,201,948 | CONSOLIDATED STATEMENTS OF CASH FLOWS Net cash provided by operating activities was $85.1 million and by investing activities was $128.2 million, resulting in a $5.5 million net increase in cash and equivalents Summary of Cash Flows (Six Months Ended June 30, in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $85,149 | $73,682 | | Net cash provided by (used in) investing activities | $128,227 | $(279,409) | | Net cash used in financing activities | $(207,837) | $(399,516) | | Net increase (decrease) in cash | $5,539 | $(605,243) | Note 1: Significant Accounting Policies The company operates in Banking, FirsTech, and Wealth Management segments, adhering to GAAP with material estimates for securities and ACL, and adopted ASU 2022-02 without material impact - First Busey operates and reports its business in three segments: Banking, FirsTech, and Wealth Management[145] - Material estimates susceptible to significant change relate to the fair value of debt securities, assets/liabilities in business combinations, goodwill, income taxes, and the determination of the ACL[165] - The company adopted ASU 2022-02, eliminating the Troubled Debt Restructuring (TDR) accounting model, which did not have a material impact on its financial position or results of operations[167] Note 2: Debt Securities Debt securities totaled $2.28 billion (AFS) and $0.89 billion (HTM) at June 30, 2023, with significant unrealized losses of $297.0 million primarily due to market interest rates Debt Securities Summary (June 30, 2023, in thousands) | Category | Amortized Cost | Gross Unrealized Gains | Gross Unrealized/Unrecognized Losses | Fair Value | | :--- | :--- | :--- | :--- | :--- | | Available for Sale | $2,580,638 | $179 | $(296,969) | $2,283,848 | | Held to Maturity | $894,102 | $0 | $(147,600) | $746,502 | - Unrealized and unrecognized losses were primarily attributed to changes in market interest rates and conditions, not credit-related impairments. The company does not intend to sell securities in a loss position and expects full collection[186] - Debt securities with carrying amounts of $823.6 million were pledged as collateral for public deposits and other purposes as of June 30, 2023[180] Note 3: Portfolio Loans Total portfolio loans increased to $7.81 billion at June 30, 2023, with a stable ACL of $91.6 million and low non-accrual loans of $15.2 million Portfolio Loans by Category (in thousands) | Loan Category | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total commercial loans | $5,793,426 | $5,766,496 | | Total retail loans | $2,011,858 | $1,959,206 | | Total portfolio loans | $7,805,284 | $7,725,702 | | ACL | $(91,639) | $(91,608) | | Portfolio loans, net | $7,713,645 | $7,634,094 | Past Due and Non-Accrual Loans (June 30, 2023, in thousands) | Status | Amount | | :--- | :--- | | 30-59 Days Past Due | $3,675 | | 60-89 Days Past Due | $1,494 | | 90+ Days Past Due (accruing) | $569 | | Non-accrual Loans | $15,209 | ACL Activity (Six Months Ended June 30, 2023, in thousands) | Description | Amount | | :--- | :--- | | Balance, December 31, 2022 | $91,608 | | Provision for credit losses | $1,580 | | Charged-off | $(2,528) | | Recoveries | $979 | | Balance, June 30, 2023 | $91,639 | Note 4: Leases Operating lease right-of-use assets totaled $11.8 million and lease liabilities were $12.1 million at June 30, 2023, with an 8.71-year weighted average remaining term Lease Balances (in thousands) | Account | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Right of use assets | $11,806 | $12,829 | | Lease liabilities | $12,059 | $12,995 | - Total undiscounted future cash flows for lease commitments amount to $14.2 million as of June 30, 2023[252] Note 5: Deposits Total deposits remained stable at $10.06 billion at June 30, 2023, with a shift from noninterest-bearing to interest-bearing accounts, notably a doubling of large time deposits Composition of Deposits (in thousands) | Deposit Type | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Noninterest-bearing demand | $3,086,885 | $3,393,666 | | Interest-bearing transaction | $2,725,297 | $2,857,818 | | Savings and money market | $2,778,958 | $2,964,421 | | Time deposits | $1,471,615 | $855,375 | | Total deposits | $10,062,755 | $10,071,280 | Note 6: Borrowings Total short-term borrowings decreased to $212.0 million at June 30, 2023, primarily due to reduced FHLB advances, with $225 million in subordinated notes outstanding Borrowings Summary (in thousands) | Category | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Securities sold under agreements to repurchase | $202,953 | $229,806 | | Short-term borrowings | $212,000 | $351,054 | | Long-term debt (Term Loan) | $24,000 | $30,000 | | Subordinated notes, net | $222,454 | $222,038 | Note 7: Regulatory Capital Both First Busey Corporation and Busey Bank exceeded all 'well capitalized' regulatory capital requirements at June 30, 2023, utilizing the five-year CECL transition option Regulatory Capital Ratios (First Busey Corp. - June 30, 2023) | Ratio | Actual | Minimum to be Well Capitalized | | :--- | :--- | :--- | | Common equity Tier 1 capital | 12.35% | 6.50% | | Tier 1 capital | 13.17% | 8.00% | | Total capital | 16.56% | 10.00% | | Leverage ratio | 9.93% | N/A | - The company has elected to use the CECL transition option, deferring the full regulatory capital impact of its adoption over a five-year period (two-year delay followed by a three-year phase-in)[262] Note 8: Stock-Based Compensation Total stock-based compensation expense was $4.3 million for the six months ended June 30, 2023, with $18.5 million in unamortized expense remaining over 2.6 years Stock-Based Compensation Expense (in thousands) | Period | RSU awards | PSU awards | DSU awards | 2021 ESPP | Total | | :--- | :--- | :--- | :--- | :--- | :--- | | Three Months Ended June 30, 2023 | $1,231 | $1,184 | $211 | $30 | $2,656 | | Six Months Ended June 30, 2023 | $2,251 | $1,544 | $407 | $123 | $4,325 | RSU Award Activity (Six Months Ended June 30, 2023) | Status | Shares | Weighted Avg. Grant Date Fair Value | | :--- | :--- | :--- | | Nonvested at Dec 31, 2022 | 1,096,931 | $23.61 | | Granted | 224,316 | $20.44 | | Nonvested at June 30, 2023 | 1,335,443 | $23.00 | - As of June 30, 2023, total unamortized stock-based compensation was $18.5 million, to be recognized over a weighted average period of 2.6 years[294] Note 9: Outstanding Commitments and Contingent Liabilities Off-balance-sheet commitments, primarily for credit extensions and standby letters, increased to $2.14 billion at June 30, 2023, from $2.02 billion at year-end 2022 Off-Balance-Sheet Commitments (in thousands) | Commitment Type | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Commitments to extend credit | $2,105,034 | $1,991,769 | | Standby letters of credit | $38,356 | $33,008 | | Total commitments | $2,143,390 | $2,024,777 | Note 10: Derivative Financial Instruments Busey uses $350.0 million notional interest rate swaps as cash flow hedges and offers customer-facing derivatives, with fair value changes recorded in current earnings - The company designated interest rate swaps with notional amounts totaling $350.0 million as cash flow hedges to manage variability in cash flows from debt and to reduce asset sensitivity[28] - Busey offers derivative contracts to customers for their risk management, managing its own risk by entering into offsetting agreements. These support commercial loan relationships totaling $623.2 million as of June 30, 2023[298] Mortgage Banking Derivatives (in thousands) | Description | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Derivatives with positive fair value | | | | Interest rate lock commitments | $10 | $16 | | Forward sales commitments | $16 | $1 | | Derivatives with negative fair value | | | | Interest rate lock commitments | $6 | $1 | | Forward sales commitments | $23 | $39 | Note 11: Fair Value Measurements Fair value measurements are categorized into three levels, with most recurring financial assets like debt securities and derivatives classified as Level 2, using observable market inputs - The fair value hierarchy prioritizes inputs: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than quoted prices), and Level 3 (unobservable inputs)[36][50][51] Financial Assets Measured at Fair Value on a Recurring Basis (June 30, 2023, in thousands) | Asset/Liability Type | Level 1 Inputs | Level 2 Inputs | Level 3 Inputs | Total Fair Value | | :--- | :--- | :--- | :--- | :--- | | Debt securities available for sale | $0 | $2,283,848 | $0 | $2,283,848 | | Equity securities | $0 | $9,034 | $0 | $9,034 | | Derivative assets | $0 | $38,238 | $15 | $38,253 | | Derivative liabilities | $0 | $68,506 | $0 | $68,506 | - Assets measured at fair value on a non-recurring basis, such as individually evaluated loans ($3.4 million) and impaired bank property held for sale ($4.3 million), are classified as Level 3[95][99] Note 12: Earnings Per Common Share Basic EPS was $1.19 and diluted EPS was $1.18 for the six months ended June 30, 2023, reflecting the dilutive effect of RSU, PSU, and DSU awards Earnings Per Common Share Calculation | Metric | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | | Net Income (in thousands) | $29,364 | $66,150 | | Weighted average shares outstanding, basic | 55,440,277 | 55,419,250 | | Weighted average shares outstanding, diluted | 56,195,801 | 56,187,820 | | Basic EPS | $0.53 | $1.19 | | Diluted EPS | $0.52 | $1.18 | Note 13: Accumulated Other Comprehensive Income (Loss) AOCI improved from a $273.3 million loss at year-end 2022 to a $260.9 million loss at June 30, 2023, driven by positive changes in unrealized gains/losses on debt securities Changes in AOCI by Component (Six Months Ended June 30, 2023, in thousands) | Component | Balance at Dec 31, 2022 | Net Change in Period | Balance at June 30, 2023 | | :--- | :--- | :--- | :--- | | Unrealized/Unrecognized gains (losses) on debt securities | $(252,293) | $12,525 | $(239,768) | | Unrealized gains (losses) on cash flow hedges | $(20,985) | $(168) | $(21,153) | | Total AOCI | $(273,278) | $12,357 | $(260,921) | Note 14: Operating Segments and Related Information Busey operates in Banking, FirsTech, and Wealth Management segments; Banking is the largest with $12.06 billion in assets and $67.5 million net income for the period - The company's three reportable operating segments are Banking, FirsTech (payment technology), and Wealth Management[60] Segment Net Income (Six Months Ended June 30, in thousands) | Segment | 2023 | 2022 | | :--- | :--- | :--- | | Banking | $67,500 | $56,950 | | FirsTech | $188 | $947 | | Wealth Management | $9,790 | $10,932 | | Other | $(11,328) | $(10,566) | | Total Net Income | $66,150 | $58,263 | Segment Total Assets (in thousands) | Segment | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Banking | $12,057,131 | $12,199,960 | | FirsTech | $48,558 | $48,715 | | Wealth Management | $93,408 | $84,082 | | Consolidated Total | $12,209,029 | $12,336,677 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition and operations, highlighting a conservative strategy, strong asset quality, and a net income increase to $66.2 million for the first six months of 2023 EXECUTIVE SUMMARY First Busey, a $12.2 billion financial holding company, reported $66.2 million net income for the six months ended June 30, 2023, emphasizing its conservative strategy, stable deposits, and strong asset quality - Busey's financial strength is built on a sound business strategy of conservative banking, with a focus on a quality core deposit franchise, diversified loan portfolio, and strong asset quality[83][84] Key Operating Performance Metrics | Metric (Reported) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net Income (in thousands) | $66,150 | $58,263 | | Diluted EPS | $1.18 | $1.04 | | Return on average assets | 1.09% | 0.94% | | Return on average tangible common equity | 16.12% | 13.57% | RESULTS OF OPERATIONS Net interest income increased 12.6% to $165.6 million for the first six months of 2023, with net interest margin expanding to 2.99%, while noninterest income decreased and expenses remained flat FINANCIAL CONDITION Total assets decreased slightly to $12.2 billion, with net portfolio loans growing 1.0% to $7.7 billion; asset quality remains strong with non-performing loans at 0.20% - Net loan growth was $79.6 million (1.0%) during the first six months of 2023, with management signaling a potential slowdown in future growth due to a conservative underwriting posture[410] Asset Quality Metrics | Ratio | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | ACL to portfolio loans | 1.17% | 1.19% | | Non-performing loans to portfolio loans | 0.20% | 0.20% | | Non-performing assets to total assets | 0.13% | 0.13% | - Core deposits, a non-GAAP measure, represented 97.0% of total deposits as of June 30, 2023, down from 98.8% at year-end 2022[418] LIQUIDITY AND CAPITAL RESOURCES The company maintains adequate liquidity with $1.88 billion in cash and unencumbered securities, plus $2.77 billion in borrowing capacity, and capital ratios exceeding 'well-capitalized' minimums Liquidity Position (June 30, 2023, in thousands) | Source | Amount | | :--- | :--- | | Cash and unencumbered securities | $1,879,864 | | Additional borrowing capacity (FHLB, Fed, etc.) | $2,769,332 | - The company's capital ratios are in excess of those required to be considered 'well-capitalized' under regulatory guidelines[398] NON-GAAP FINANCIAL INFORMATION Non-GAAP reconciliations show adjusted net income of $66.2 million and an adjusted efficiency ratio of 58.8% for the six months ended June 30, 2023, with tangible book value per share at $15.25 Reconciliation of Net Income to Adjusted Net Income (in thousands) | Description | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net income (GAAP) | $66,150 | $58,263 | | Acquisition & restructuring expenses | $12 | $1,138 | | Related tax benefit | $(3) | $(216) | | Adjusted net income (Non-GAAP) | $66,159 | $59,185 | Tangible Book Value Per Share | Metric | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total stockholders' equity (in thousands) | $1,201,948 | $1,145,977 | | Less: Goodwill and other intangibles, net | $(358,898) | $(364,296) | | Tangible book value (in thousands) | $843,050 | $781,681 | | Tangible book value per common share | $15.25 | $14.14 | Item 3. Quantitative and Qualitative Disclosures About Market Risk Interest rate risk is the primary market risk; simulations show a 100 bps rate increase would boost net interest income by 2.20%, while a decrease would reduce it by 2.61% Interest Rate Risk Simulation (Change in Net Interest Income) | Rate Shock | Year-One Impact (June 30, 2023) | | :--- | :--- | | +400 bps | +8.99% | | +200 bps | +4.45% | | +100 bps | +2.20% | | -100 bps | -2.61% | | -200 bps | -5.12% | Item 4. Controls and Procedures Management concluded disclosure controls and procedures were effective as of June 30, 2023, with no material changes to internal control over financial reporting during Q2 2023 - Based on an evaluation as of June 30, 2023, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective[470] - No material changes occurred in the company's internal control over financial reporting during the three months ended June 30, 2023[471] PART II OTHER INFORMATION Item 1. Legal Proceedings The company is not involved in any material pending litigation beyond ordinary routine legal matters incidental to its business - There is no material pending litigation, other than ordinary routine litigation incidental to its business, in which First Busey Corporation or any of its subsidiaries is involved[473][496] Item 1A. Risk Factors No material changes have occurred to the risk factors previously disclosed in the company's 2022 Annual Report on Form 10-K - No material changes to the risk factors disclosed in Part I—Item 1A of Busey's 2022 Annual Report have occurred[474] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 20,000 shares at $19.86 weighted average price in Q2 2023, with 2,102,210 shares remaining under the repurchase plan Share Repurchase Activity (Q2 2023) | Period | Total Shares Purchased | Weighted Avg. Price Paid | Shares Remaining Under Plan | | :--- | :--- | :--- | :--- | | April 1-30, 2023 | 0 | N/A | 2,122,210 | | May 1-31, 2023 | 0 | N/A | 2,122,210 | | June 1-30, 2023 | 20,000 | $19.86 | 2,102,210 | | Q2 2023 Total | 20,000 | $19.86 | 2,102,210 | Item 6. Exhibits This section lists exhibits filed with Form 10-Q, including certifications by the Principal Executive and Financial Officers, and iXBRL data files