First Busey(US:BUSE)2019-05-08 20:53markdown Part I FINANCIAL INFORMATION [FINANCIAL STATEMENTS](index=3&type=section&id=Item%201.%20FINANCIAL%20STATEMENTS) This section presents the unaudited consolidated financial statements, detailing the company's financial position, performance, and cash flows, along with significant accounting policies [Consolidated Balance Sheets](index=4&type=section&id=CONSOLIDATED%20BALANCE%20SHEETS) Total assets increased to **$9.54 billion** at March 31, 2019, primarily due to the Banc Ed Corp. acquisition, with corresponding increases in liabilities and stockholders' equity Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | **Total Assets** | **$9,537,334** | **$7,702,357** | | Total cash and cash equivalents | $330,407 | $239,973 | | Portfolio loans, net | $6,464,166 | $5,517,780 | | Goodwill | $314,343 | $267,685 | | **Total Liabilities** | **$8,351,193** | **$6,707,393** | | Total deposits | $7,763,226 | $6,249,321 | | **Total Stockholders' Equity** | **$1,186,141** | **$994,964** | [Consolidated Statements of Income](index=5&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20INCOME) For Q1 2019, net income rose to **$25.5 million** from **$21.9 million** in Q1 2018, driven by a **14.4%** increase in net interest income to **$68.4 million**, resulting in diluted EPS of **$0.48** Q1 2019 vs Q1 2018 Income Statement (in thousands, except per share data) | Metric | Q1 2019 | Q1 2018 | | :--- | :--- | :--- | | Net Interest Income | $68,383 | $59,757 | | Provision for loan losses | $2,111 | $1,008 | | Total Non-interest Income | $25,945 | $22,486 | | Total Non-interest Expense | $57,163 | $51,040 | | **Net Income** | **$25,469** | **$21,917** | | Diluted EPS | $0.48 | $0.45 | | Dividends declared per share | $0.21 | $0.20 | [Consolidated Statements of Comprehensive Income](index=6&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20COMPREHENSIVE%20INCOME) Comprehensive income for Q1 2019 significantly increased to **$33.9 million** from **$15.7 million** in Q1 2018, primarily due to a positive swing in other comprehensive income driven by unrealized gains on securities Comprehensive Income (in thousands) | Item | Q1 2019 | Q1 2018 | | :--- | :--- | :--- | | Net Income | $25,469 | $21,917 | | Other comprehensive income (loss), net of tax | $8,407 | $(6,259) | | **Comprehensive Income** | **$33,876** | **$15,658** | [Consolidated Statements of Stockholders' Equity](index=7&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20STOCKHOLDERS%27%20EQUITY) Total stockholders' equity increased to **$1.186 billion** at March 31, 2019, primarily driven by **$166.3 million** in stock issued for the Banc Ed acquisition and **$25.5 million** in net income - Stockholders' equity increased mainly due to stock issued for the Banc Ed acquisition (**$166.3 million**) and net income (**$25.5 million**)[13](index=13&type=chunk) [Consolidated Statements of Cash Flows](index=8&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS) Cash and cash equivalents increased by **$90.4 million** in Q1 2019, with **$36.3 million** from operating activities, **$48.4 million** used in investing activities (including **$49.4 million** for acquisitions), and **$102.6 million** provided by financing activities Cash Flow Summary (in thousands) | Cash Flow Activity | Q1 2019 | Q1 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $36,269 | $93,663 | | Net cash (used in) provided by investing activities | $(48,398) | $14,197 | | Net cash provided by (used in) financing activities | $102,563 | $(93,607) | | **Net increase in cash and cash equivalents** | **$90,434** | **$14,253** | - The company paid a net amount of **$49.4 million** in cash for acquisitions during Q1 2019[14](index=14&type=chunk) [Notes to Unaudited Consolidated Financial Statements](index=10&type=section&id=NOTES%20TO%20UNAUDITED%20CONSOLIDATED%20FINANCIAL%20STATEMENTS) The notes detail accounting policies, business combinations including the **$257.9 million** Banc Ed Corp. acquisition, adoption of new lease standards, and a **$573.6 million** securities transfer, confirming the company remains 'well capitalized' - On January 31, 2019, the Company acquired The Banc Ed Corp. for total consideration of **$257.9 million** (**$91.4 million** cash and **$166.5 million** stock), resulting in **$46.7 million** of goodwill[36](index=36&type=chunk)[38](index=38&type=chunk) - The company adopted new lease accounting standard ASU 2016-02, recording an **$11.6 million** right-of-use asset and a corresponding lease liability on January 1, 2019[26](index=26&type=chunk)[29](index=29&type=chunk) - In Q1 2019, the company transferred **$573.6 million** of securities from held-to-maturity to available-for-sale, resulting in a **$4.8 million** unrealized loss recorded in other comprehensive income[33](index=33&type=chunk)[43](index=43&type=chunk) - The company's three reportable operating segments are Banking, Remittance Processing, and Wealth Management[107](index=107&type=chunk) - All capital ratios for the Company and its subsidiary banks exceeded the 'well capitalized' levels required by federal banking agencies as of March 31, 2019[102](index=102&type=chunk)[105](index=105&type=chunk) [MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=38&type=section&id=Item%202.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Management discusses Q1 2019 financial performance, highlighting **$25.5 million** net income and the impact of the Banc Ed Corp. acquisition on balance sheet growth, net interest margin, non-interest income, operating expenses, and strong asset quality [Executive Summary](index=38&type=section&id=EXECUTIVE%20SUMMARY) The company reported Q1 2019 net income of **$25.5 million** (**$0.48** diluted EPS), with adjusted net income of **$26.6 million** (**$0.50** diluted EPS), following the Banc Ed Corp. acquisition and diversified fee-based revenues Q1 2019 Key Performance Metrics | Metric | Reported | Adjusted (Non-GAAP) | | :--- | :--- | :--- | | Net Income | $25.5 million | $26.6 million | | Diluted EPS | $0.48 | $0.50 | - The acquisition of The Banc Ed Corp. was completed on January 31, 2019[154](index=154&type=chunk) [Financial Condition](index=44&type=section&id=FINANCIAL%20CONDITION) Total assets grew **23.8%** to **$9.5 billion** at March 31, 2019, driven by the Banc Ed acquisition, which also increased portfolio loans by **17.2%** to **$6.5 billion** and total deposits by **24.2%** to **$7.8 billion** Balance Sheet Changes (Q1 2019 vs YE 2018) | Account | % Change | | :--- | :--- | | Total Assets | +23.8% | | Portfolio loans, net | +17.2% | | Total deposits | +24.2% | | Securities available for sale | +175.0% | | Securities held to maturity | -97.4% | - The company's lending is focused in Illinois (**$4.3B**) and Missouri (**$1.6B**), with smaller portfolios in Florida and Indiana[198](index=198&type=chunk) [Results of Operations](index=39&type=section&id=RESULTS%20OF%20OPERATIONS) Net interest income rose **14.5%** to **$69.1 million**, with a stable adjusted net interest margin of **3.31%**, while non-interest income grew **15.4%** to **$25.9 million**, and the efficiency ratio improved to **58.0%** Net Interest Margin | Period | Reported NIM | Adjusted NIM (Non-GAAP) | | :--- | :--- | :--- | | Q1 2019 | 3.46% | 3.31% | | Q1 2018 | 3.51% | 3.31% | Non-Interest Income Breakdown (Q1 2019 vs Q1 2018) | Category | Q1 2019 ($M) | % Change YoY | | :--- | :--- | :--- | | Trust fees | $8.1 | +8.0% | | Remittance processing | $3.8 | +11.4% | | Fees for customer services | $8.1 | +16.6% | | Mortgage revenue | $1.9 | +18.4% | | **Total Non-Interest Income** | **$25.9** | **+15.4%** | - The efficiency ratio improved to **58.0%** in Q1 2019 from **59.8%** in Q1 2018. The adjusted efficiency ratio was **56.4%** in Q1 2019[187](index=187&type=chunk)[188](index=188&type=chunk) [Asset Quality](index=39&type=section&id=Asset%20Quality) Asset quality remained strong with non-performing loans at **0.56%** of total portfolio loans, and the allowance for loan losses at **0.78%**, reflecting the accounting for acquired loans and a **$2.1 million** provision Asset Quality Metrics | Metric | March 31, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Non-performing loans to portfolio loans | 0.56% | 0.66% | | Allowance for loan losses to portfolio loans | 0.78% | 0.91% | | Allowance as a % of non-performing loans | 139.2% | 138.4% | - The provision for loan losses was **$2.1 million** in Q1 2019, compared to **$1.0 million** in Q1 2018[201](index=201&type=chunk)[203](index=203&type=chunk) [Liquidity and Capital Resources](index=47&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) The company maintains adequate liquidity and strong capital resources, with all regulatory capital ratios, including a **13.95%** Total Capital Ratio and **10.55%** Tier 1 Leverage Ratio, significantly exceeding 'well-capitalized' thresholds - The company's capital ratios are in excess of those required to be considered 'well-capitalized' under regulatory guidelines[215](index=215&type=chunk) Consolidated Capital Ratios (March 31, 2019) | Ratio | Actual | Minimum to be Well-Capitalized | | :--- | :--- | :--- | | Total Capital (to Risk Weighted Assets) | 13.95% | 10.00% | | Tier 1 Capital (to Risk Weighted Assets) | 12.42% | 8.00% | | Common Equity Tier 1 Capital | 11.40% | 6.50% | | Tier 1 Capital (to Average Assets) | 10.55% | 5.00% (for bank) | [QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=53&type=section&id=Item%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company's primary market risk is interest rate risk, with a **+100 basis point** rate shock projected to increase net interest income by **0.88%** and a **-100 basis point** shock to decrease it by **3.26%** over one year Net Interest Income Sensitivity (Year-One Horizon at March 31, 2019) | Rate Shock | % Change in NII | | :--- | :--- | | +300 bps | +3.01% | | +200 bps | +2.09% | | +100 bps | +0.88% | | -100 bps | (3.26)% | | -200 bps | (9.79)% | - The company's primary market risk is interest rate risk, managed by an asset-liability committee that meets at least quarterly[240](index=240&type=chunk)[241](index=241&type=chunk) [CONTROLS AND PROCEDURES](index=54&type=section&id=Item%204.%20CONTROLS%20AND%20PROCEDURES) The CEO and CFO concluded that disclosure controls and procedures were effective as of March 31, 2019, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that as of March 31, 2019, disclosure controls and procedures were effective[246](index=246&type=chunk) - No material changes were made to internal control over financial reporting during the first quarter of 2019[247](index=247&type=chunk) Part II OTHER INFORMATION [LEGAL PROCEEDINGS](index=55&type=section&id=Item%201.%20LEGAL%20PROCEEDINGS) The company is party to routine litigation incidental to its business, with no material pending litigation expected to significantly affect its financial position or results - There is no material pending litigation, other than ordinary routine litigation incidental to its business[251](index=251&type=chunk) [RISK FACTORS](index=55&type=section&id=Item%201A.%20RISK%20FACTORS) No material changes to the risk factors previously disclosed in the Annual Report on Form 10-K were reported - No material changes to risk factors were reported for the period[253](index=253&type=chunk) [UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=55&type=section&id=Item%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) The company did not repurchase common stock during Q1 2019, with **333,334** shares remaining available under the existing repurchase plan - No shares of common stock were repurchased during the quarter ended March 31, 2019[254](index=254&type=chunk) - As of March 31, 2019, **333,334** shares may still be purchased under the existing stock repurchase plan[254](index=254&type=chunk) [EXHIBITS](index=56&type=section&id=Item%206.%20EXHIBITS) This section lists the exhibits filed with the Form 10-Q, including credit agreements, employment addendums, and required Sarbanes-Oxley certifications - Exhibits filed include an Amended and Restated Credit Agreement, employment agreement addendums for executives, and Sarbanes-Oxley certifications[257](index=257&type=chunk)