First Busey Corporation — 2019 Form 10-K Summary
Business context and reporting period
For the fiscal year ended December 31, 2019, First Busey was a $9.7 billion financial holding company operating banking, remittance processing and wealth management businesses. Its markets included Illinois, Missouri, southwest Florida and Indiana.
The company acquired Banc Ed, parent of TheBANK, on January 31, 2019 and merged TheBANK into Busey Bank on October 4. It also acquired Florida wealth management firm Investors’ Security Trust Company on August 31. The filing is an annual report, not a standalone fourth-quarter filing.
Key financial metrics
| Metric | 2019 | 2018 |
|---|---|---|
| Total assets at year-end | $9.70 billion | $7.70 billion |
| Total revenue (net interest income plus non-interest income) | $403.6 million | $331.4 million |
| Net interest income | $287.2 million | $241.4 million |
| Net income | $103.0 million | $98.9 million |
| Diluted EPS | $1.87 | $2.01 |
| Net interest margin, tax-equivalent | 3.38% | 3.45% |
| Non-interest expense | $258.8 million | $193.0 million |
| Cash and cash equivalents at year-end | $529.3 million | $240.0 million |
| Operating cash flow | $80.8 million | $202.5 million |
- Total revenue rose about 22%, while net income increased about 4%. Diluted EPS fell as average diluted shares increased to 55.1 million from 49.2 million, principally reflecting acquisition-related share issuance.
- Management’s non-GAAP adjusted net income was $118.4 million, or $2.15 per diluted share, versus $103.5 million, or $2.10, in 2018. Adjustments included acquisition and restructuring costs; these measures are not GAAP.
- Reported efficiency ratio increased to 61.29% from 56.16%; adjusted efficiency ratio rose to 56.35% from 54.49%. The reported 2019 ratio included acquisition and restructuring costs.
- Portfolio loans grew 20% to $6.69 billion and deposits grew 26.5% to $7.90 billion. Noninterest-bearing deposits were $1.83 billion, or 23.2% of deposits.
- Non-performing loans declined to $29.5 million, or 0.44% of portfolio loans, from $36.6 million, or 0.66%. The allowance for loan losses was $53.7 million, 0.80% of portfolio loans, versus $50.6 million, or 0.91%.
- Year-end stockholders’ equity was $1.22 billion. Consolidated regulatory capital ratios were 14.03% total capital, 12.49% Tier 1, 11.49% Common Equity Tier 1 and 9.88% Tier 1 leverage; the company reported compliance with well-capitalized requirements and the capital conservation buffer.
- Deposits were the primary funding source. Year-end cash and cash equivalents were $529.3 million; management stated liquidity was adequate. Outstanding debt included $214.0 million of short-term debt and $253.8 million of long-term, senior, subordinated and junior subordinated debt. The company paid $45.2 million in cash dividends and declared $0.84 per share.
- Fourth-quarter 2019 net income was $28.6 million and diluted EPS was $0.52, versus $25.3 million and $0.51 in fourth-quarter 2018.
Material changes versus the prior comparable period
- Growth in assets, loans and deposits chiefly reflected the Banc Ed acquisition as well as organic growth. Banc Ed contributed to the year-over-year expansion in revenue and costs; integration and conversion expenses included $14.7 million of acquisition expenses and $5.4 million of other restructuring costs for 2019.
- Net interest income increased 19.1% on a tax-equivalent basis, but margin declined. Management attributed second-half margin pressure partly to 2019 Federal Reserve rate cuts and faster repricing of assets, particularly commercial loans, than liabilities.
- Non-interest income rose 29.4%, including higher wealth management fees, customer service fees and mortgage revenue. Assets under care increased to approximately $9.7 billion from $7.1 billion.
- Non-interest expense increased 34.1%, reflecting acquisitions, higher staffing and operating costs, intangible amortization, and conversion and restructuring activity.
- Operating cash flow decreased substantially, to $80.8 million from $202.5 million. The filing cites changes in mortgage-loan origination and sale cash flows among the drivers.
- The company reclassified its remaining held-to-maturity securities to available for sale during 2019; it had no held-to-maturity debt securities at year-end.
Outlook, commentary, risks and unusual items
- No specific earnings, revenue or margin guidance is provided. Management expected integration and core-system conversion savings to contribute to future expense efficiencies, and stated that it expected the full contribution and synergies of TheBANK to appear in future performance.
- CECL became effective for the company in 2020. Management estimated an initial increase in the allowance for credit losses, including unfunded commitments, of approximately 25%–45% above existing loan-loss allowance levels; the final amount depended on assumptions and remained subject to governance and approval processes.
- Key disclosed risks include interest-rate and net-interest-margin sensitivity, credit and commercial real estate exposures, economic conditions in Illinois and other markets, acquisition integration and execution, regulatory requirements as assets approach $10 billion, cybersecurity and operational risk, and the transition from LIBOR to an alternative benchmark.
- The filing also identifies potential effects from trade policy, severe weather, widespread disease or pandemics, competition and evolving technology. These are described as risks, not as quantified expected impacts.
- Management reported no material pending litigation beyond routine matters. The independent auditor gave unqualified opinions on the financial statements and internal control over financial reporting. Critical audit matters included allowance qualitative factors and fair-value estimates for acquired performing loans.
Important facts for investors to verify
- Whether Banc Ed and IST integration delivers the anticipated contribution and cost savings, and whether one-time acquisition and conversion expenses decline.
- How net interest margin and funding costs respond to interest-rate changes and the repricing of loans and deposits.
- Whether loan quality, commercial real estate concentrations, criticized loans and loss reserves remain sound as the acquired loan portfolio seasons.
- The final CECL day-one adjustment and subsequent effect on credit-loss provisions, earnings and capital.
- Cash-flow trends, deposit mix, liquidity and debt levels, including the company’s ability to sustain dividends and repurchases within regulatory constraints.
- Reported versus adjusted results and the company’s reconciliation of non-GAAP measures to GAAP figures.