First Busey Corporation — Q1 2019 Form 10-Q
Business context and reporting period
Unaudited results cover the three months ended March 31, 2019, compared with Q1 2018; balance-sheet comparisons are primarily with December 31, 2018. First Busey is a regional banking and financial-services company. The January 31 acquisition of The Banc Ed Corp. (TheBANK) materially expanded the company; TheBANK’s bank merger into Busey Bank was expected in Q4 2019.
Financial and operating highlights
| Metric | Q1 2019 / March 31, 2019 | Comparable period / date |
|---|---|---|
| Net income; diluted EPS | $25.5 million; $0.48 | Q1 2018: $21.9 million; $0.45 |
| Adjusted net income; adjusted diluted EPS (non-GAAP) | $26.6 million; $0.50 | Q1 2018: $24.9 million; $0.51 |
| Net interest income | $68.4 million | Q1 2018: $59.8 million |
| Net interest margin, tax-equivalent | 3.46%; 3.31% excluding purchase-accounting effects | Q1 2018: 3.51%; adjusted 3.31% |
| Non-interest income / expense | $25.9 million / $57.2 million | Q1 2018: $22.5 million / $51.0 million |
| Efficiency ratio | 58.0%; adjusted 56.4% (non-GAAP) | Q1 2018: 59.8%; adjusted 55.4% |
| Operating cash flow | $36.3 million | Q1 2018: $93.7 million |
| Total assets; portfolio loans, net | $9.54 billion; $6.46 billion | December 31, 2018: $7.70 billion; $5.52 billion |
| Deposits; cash and cash equivalents | $7.76 billion; $330.4 million | December 31, 2018: $6.25 billion; $240.0 million |
| Allowance / non-performing loans | $50.9 million / $36.6 million; allowance was 0.78% of portfolio loans | December 31, 2018: $50.6 million / $36.6 million; allowance was 0.91% |
Interest income rose to $84.3 million from $68.6 million, while interest expense increased to $15.9 million from $8.9 million. Management attributed the increase in interest income mainly to loan growth; higher deposit rates and acquisition-related borrowing contributed to increased funding costs. Q1 net charge-offs were $1.8 million. Total non-performing assets were $37.5 million.
Quarter-end regulatory capital ratios remained above well-capitalized thresholds: consolidated total capital was 13.95%, Tier 1 capital 12.42%, and common equity Tier 1 11.40%. The company reported total stockholders’ equity of $1.19 billion.
Material changes and unusual items
- Banc Ed added $873.3 million of portfolio loans, $1.44 billion of deposits, and $1.74 billion of assets at estimated acquisition-date fair values. The company issued approximately 6.7 million shares and paid $91.4 million in cash; provisional goodwill was $46.7 million. Banc Ed contributed $12.3 million of revenue and $3.6 million of net income after acquisition. Purchase-accounting valuations remained subject to review.
- Average interest-earning assets and loans increased, primarily reflecting the acquisition and organic growth. Higher funding costs partially offset asset-yield benefits; reported margin declined year over year, while the margin excluding purchase-accounting effects was unchanged.
- The company transferred $573.6 million of securities from held-to-maturity to available-for-sale following adoption of hedge-accounting guidance. The transfer recognized a $4.8 million unrealized loss in other comprehensive income, not current-period earnings.
- Q1 results included $1.2 million of acquisition expenses and $0.3 million of restructuring expenses before tax. These are excluded from management’s adjusted non-GAAP results.
- Cash flow from investing was a $48.4 million outflow, including $49.4 million net cash paid in acquisitions; financing provided $102.6 million. The filing does not provide a clear standalone measure of free cash flow.
Outlook, risks and contingencies
Management expected interest-rate increases to be modestly favorable to net interest income for the remainder of 2019, while noting that higher rates could reduce mortgage originations and refinancing. It anticipated the bank merger with TheBANK in Q4 2019 and expected operating efficiencies in future years, but provided no quantified earnings or synergy guidance. Management considered liquidity adequate and expected near-term loan losses to remain generally low.
Risks highlighted include acquisition integration and realization of expected benefits, credit quality and economic conditions in the company’s markets, interest-rate and prepayment changes, competition, technology and security, and Illinois’s pension and budget pressures. The interest-rate simulation estimated first-year net interest income changes of +0.88% under a 100-basis-point rise and −9.79% under a 200-basis-point decline; second-year estimates were negative across the disclosed rate scenarios. Management cautioned that simulations rely on assumptions and exclude mitigating actions. Credit commitments and standby letters of credit totaled approximately $1.64 billion. Management said ordinary-course legal matters were not expected to materially affect financial condition or results.
Key facts for investors to verify
- Track integration, final purchase-accounting marks, the expected Q4 bank merger, and whether anticipated efficiencies emerge.
- Assess earnings growth against the acquisition’s contribution, higher expenses and funding costs, and the difference between GAAP and adjusted non-GAAP results.
- Monitor loan growth, non-performing and potential problem loans, charge-offs, and allowance coverage; acquired loans initially carried no separate allowance.
- Review deposit pricing and mix, time-deposit maturities, borrowing costs, and liquidity as the enlarged balance sheet is funded.
- Compare actual performance with management’s interest-rate sensitivity assumptions and monitor mortgage activity and Illinois-related economic exposure.