First Busey Corporation — FY 2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017; the filing also reports unaudited quarterly results. This is an annual report, not a standalone fourth-quarter filing. First Busey is a regional financial holding company with banking, remittance processing, and wealth management businesses.
Financial performance and position
| Metric | FY 2017 / Dec. 31, 2017 | Comparable period |
|---|---|---|
| Net income | $62.7 million | $49.7 million in 2016 |
| Diluted EPS | $1.45 | $1.40 in 2016 |
| Adjusted net income (non-GAAP) | $75.7 million; adjusted diluted EPS $1.75 | Not provided here on a comparable adjusted basis |
| Net interest income | $203.4 million | $154.7 million in 2016 |
| Net interest margin | 3.58% reported; 3.36% excluding purchase-accounting effects (non-GAAP) | 3.42% reported; 3.24% adjusted in 2016 |
| Non-interest income / expense | $84.5 million / $174.4 million | $75.2 million / $147.9 million in 2016 |
| Efficiency ratio | 58.3% reported; 55.6% adjusted (non-GAAP) | 61.8% reported in 2016 |
| Return on average assets | 1.00% reported; 1.20% adjusted (non-GAAP) | 1.00% reported in 2016 |
| Total assets / deposits | $7.86 billion / $6.13 billion | $5.43 billion / $4.37 billion at year-end 2016 |
| Portfolio loans | $5.52 billion | $3.88 billion at year-end 2016 |
| Cash and cash equivalents | $353.3 million | $166.7 million at year-end 2016 |
| Operating cash flow | $253.4 million | $(20.9) million in 2016 |
| Capital ratios, consolidated | Total capital 14.15%; Tier 1 12.14%; CET1 10.90%; leverage 9.78% | All banks and the company were reported well-capitalized |
At year-end, debt included $304.6 million of repurchase-agreement borrowings, $220.0 million of short-term borrowings, $50.0 million of FHLB long-term debt, $39.4 million of senior notes, $64.7 million of subordinated notes, and $71.0 million of junior subordinated debt to trusts. Management said liquidity was adequate for projected cash needs. Average deposits funded 90.3% of average liabilities in 2017.
Material changes versus 2016
- Two 2017 acquisitions—First Community, completed July 2, and Mid Illinois, completed October 1—added about $2.0 billion of banking assets and expanded the company’s markets and wealth-management business. Total assets rose 44.9%; deposits rose 40.0%; and portfolio loans increased 42.3%.
- Net income increased about 26%, while diluted EPS rose from $1.40 to $1.45. Results included only partial-year contributions from the acquisitions and a $8.1 million non-cash, one-time tax charge related to the Tax Cuts and Jobs Act (TCJA).
- Reported net interest margin improved 16 basis points to 3.58%. Non-interest income rose 12.4%; non-interest expense rose 18.0%, including acquisition and restructuring costs.
- Operating cash flow improved to $253.4 million; investing cash flow was $(293.9) million and financing cash flow was $227.1 million. Year-end cash and cash equivalents increased by $186.6 million.
- Non-performing loans rose to $27.4 million from $21.6 million, but fell to 0.50% of portfolio loans from 0.56%. The allowance was $53.6 million, or 0.97% of portfolio loans; net recoveries were $0.5 million for the year.
Outlook, commentary, and risks
- Management gave no specific numeric earnings or revenue guidance. It said the company was positioned for growth in 2018 and beyond, prioritizing balance-sheet strength, profitability, and growth; it cited commercial lending, core deposits, low credit costs, and expected acquisition efficiencies.
- The company expected to merge South Side Bank into Busey Bank in the first quarter of 2018 and planned to close five banking centers in that quarter. It also transferred mortgage personnel and production outside its footprint to a third party; the transaction generated a $0.9 million gain.
- The TCJA reduced the federal corporate tax rate effective January 2018, which management expected to benefit future tax expense; the 2017 deferred-tax revaluation caused the one-time $8.1 million charge. The Illinois corporate tax increase effective July 2017 was expected to weigh on future tax expense.
- Key exposures include interest-rate and funding-cost changes, real-estate and commercial credit concentrations, Illinois fiscal and economic conditions, acquisition integration and realization of synergies, mortgage repurchase claims, cybersecurity and third-party operational risks, and evolving regulation. Management identified $70.4 million of potential problem loans, up from $50.2 million, and said these were being monitored.
- Commitments to extend credit and standby letters of credit totaled $1.34 billion. Management reported no material pending litigation beyond ordinary-course matters. Busey Bank was in an accumulated-deficit position and could not pay ordinary dividends; upstream distributions require regulatory approval. The company said it would seek approval for further distributions as needed.
- Cash dividends were $0.72 per share for 2017, up from $0.68 in 2016. Future dividends remain subject to earnings, capital, financial condition, and regulatory constraints.
Fourth-quarter context
Unaudited Q4 2017 net income was $12.3 million, versus $11.5 million in Q4 2016; diluted EPS was $0.25 versus $0.30. Q4 2017 included the TCJA-related tax charge. The filing does not separately provide a Q4 adjusted earnings figure in the data summarized here.
Important facts for investors to verify
- Whether acquisition integration, planned branch closures, and the South Side Bank merger deliver the expected cost savings and revenue opportunities.
- Credit trends behind the increase in non-performing and potential problem loans, including acquired-loan marks and the adequacy of the allowance.
- Deposit pricing, brokered-deposit levels, borrowing costs, and sensitivity of net interest income to further rate changes.
- The company’s capacity to upstream funds from Busey Bank, maintain capital buffers, service debt, and sustain dividends.
- The recurring earnings baseline excluding the $8.1 million TCJA charge and acquisition/restructuring costs; adjusted measures are non-GAAP and should be assessed alongside GAAP results.