First Busey(BUSE) - 2019 Q3 - Quarterly Report

Part I - Financial Information This section provides the company's unaudited consolidated financial statements, management's discussion and analysis, market risk disclosures, and internal controls for the period ended September 30, 2019 Item 1. Financial Statements This section presents the unaudited consolidated financial statements, including balance sheets, income statements, cash flows, and comprehensive notes, for the period ending September 30, 2019 Consolidated Balance Sheets This statement provides a snapshot of the company's financial position, detailing assets, liabilities, and equity as of September 30, 2019, and December 31, 2018 Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Total Assets | $9,753,760 | $7,702,357 | | Total Cash and Cash Equivalents | $525,457 | $239,973 | | Portfolio Loans, Net | $6,616,450 | $5,517,780 | | Goodwill | $322,699 | $267,685 | | Total Liabilities | $8,537,779 | $6,707,393 | | Total Deposits | $7,930,466 | $6,249,321 | | Total Stockholders' Equity | $1,215,981 | $994,964 | - Total assets grew by 26.6% to $9.75 billion at September 30, 2019, from $7.70 billion at year-end 2018, primarily driven by the acquisition of The Banc Ed Corp[7] - Portfolio loans, net of allowance, increased by 19.9% to $6.62 billion, and total deposits increased by 26.9% to $7.93 billion over the same period[7] Consolidated Statements of Income This statement details the company's revenues, expenses, and net income for the third quarter and nine months ended September 30, 2019 and 2018 Income Statement Summary (in thousands, except per share data) | Metric | Q3 2019 | Q3 2018 | 9 Months 2019 | 9 Months 2018 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $73,476 | $60,774 | $215,287 | $180,903 | | Provision for Loan Losses | $3,411 | $758 | $8,039 | $4,024 | | Non-interest Income | $30,936 | $21,853 | $84,777 | $67,141 | | Non-interest Expense | $68,121 | $45,929 | $193,304 | $144,274 | | Net Income | $24,828 | $26,859 | $74,382 | $73,638 | | Diluted EPS | $0.45 | $0.55 | $1.35 | $1.50 | - Net income for Q3 2019 was $24.8 million, a decrease from $26.9 million in Q3 2018, primarily due to a significant increase in non-interest expense related to acquisitions[11] - For the nine months ended September 30, 2019, net income was $74.4 million, slightly up from $73.6 million in the prior-year period, with strong growth in both net interest income and non-interest income being largely offset by higher expenses and provision for loan losses[11] Consolidated Statements of Cash Flows This statement outlines the cash inflows and outflows from operating, investing, and financing activities for the nine months ended September 30, 2019 and 2018 Cash Flow Summary for Nine Months Ended Sep 30 (in thousands) | Cash Flow Category | 2019 | 2018 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $52,315 | $147,136 | | Net Cash from Investing Activities | $19,667 | $(305,405) | | Net Cash from Financing Activities | $213,502 | $(34,351) | | Net Increase (Decrease) in Cash | $285,484 | $(192,620) | - Investing activities provided net cash of $19.7 million in the first nine months of 2019, a significant shift from a net use of $305.4 million in the same period of 2018, mainly due to proceeds from sales and maturities of securities offsetting purchases and cash paid for acquisitions ($61.5 million)[23] - Financing activities provided $213.5 million in cash, driven by a net increase in deposits of $243.2 million, which funded acquisitions, dividends, and share repurchases[25] Notes to Unaudited Consolidated Financial Statements This section provides detailed explanations of the accounting policies, significant transactions, and financial statement line items, including acquisitions and new accounting standards - On January 31, 2019, the Company completed its acquisition of The Banc Ed Corp. for total consideration of $257.9 million, consisting of $91.4 million in cash and $166.5 million in common stock, adding approximately $1.74 billion in assets and resulting in $46.4 million of goodwill[43][44][48] - On August 31, 2019, Busey Bank acquired Investors' Security Trust Company (IST), a wealth management firm in Fort Myers, Florida, which is not expected to have an immediate material impact on earnings[50] - The company adopted new lease accounting standards (Topic 842) on January 1, 2019, resulting in the recognition of right-of-use assets and lease liabilities of approximately $8.1 million[36][37] - During Q1 2019, the Company transferred $573.6 million of securities from held-to-maturity to available-for-sale, recording a related unrealized loss of $4.8 million in other comprehensive income[56] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes the company's financial performance, condition, liquidity, and capital for Q3 and the first nine months of 2019, including the impact of recent acquisitions and market trends Executive Summary & Operating Results This section provides an overview of key financial highlights and operating performance for the third quarter of 2019, including acquisition impacts and loan growth Q3 2019 Performance Summary (per diluted share) | Metric | Q3 2019 | Q2 2019 | Q3 2018 | | :--- | :--- | :--- | :--- | | Net Income (GAAP) | $0.45 | $0.43 | $0.55 | | Adjusted Net Income (Non-GAAP) | $0.55 | $0.53 | $0.55 | - The company completed the acquisition of The Banc Ed Corp. on January 31, 2019, with full synergies expected in future quarters following the subsidiary bank merger on October 4, 2019[203] - Net organic loan growth was strong at $137.3 million in the third quarter, increasing total portfolio loans to $6.67 billion[207] Asset Quality This section evaluates the quality of the company's loan portfolio, focusing on non-performing assets and allowance for loan losses Asset Quality Metrics | Metric | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Non-performing loans to portfolio loans | 0.50% | 0.66% | | Allowance for loan losses to portfolio loans | 0.79% | 0.91% | | Allowance as a % of non-performing loans | 160.0% | 138.4% | - Asset quality improved, with non-performing loans as a percentage of total portfolio loans decreasing to 0.50% at September 30, 2019, from 0.66% at year-end 2018[208] Net Interest Income and Margin This section analyzes the trends in net interest income and net interest margin, considering the impact of balance sheet growth and interest rate changes - Tax-equivalent net interest income increased 21.0% to $74.3 million for Q3 2019 compared to Q3 2018, driven by balance sheet growth from the Banc Ed acquisition[217][224] - The net interest margin (tax-equivalent) decreased to 3.35% in Q3 2019 from 3.41% in Q3 2018, attributed to increases in funding costs and the impact of falling interest rates[225][226] Quarterly Net Interest Margin Trend | Quarter | 2019 | 2018 | | :--- | :--- | :--- | | Q1 | 3.46% | 3.51% | | Q2 | 3.43% | 3.50% | | Q3 | 3.35% | 3.41% | Non-interest Income and Expense This section examines the components and trends of non-interest income and expenses, including the efficiency ratio, for the reporting period - Total non-interest income for Q3 2019 increased 41.6% to $30.9 million year-over-year, driven by growth in customer service fees (+34.1%), trust fees (+21.6%), and mortgage revenue (+161.9%)[230][234] - Total non-interest expense for Q3 2019 increased 48.3% to $68.1 million year-over-year, primarily due to higher salaries and benefits (+48.9%) and other expenses (+65.5%) related to acquisitions[237] - The reported efficiency ratio for Q3 2019 was 62.7%, while the adjusted efficiency ratio was 55.4%, reflecting the impact of non-operating acquisition and restructuring costs[246] Financial Condition, Liquidity, and Capital This section assesses the company's overall financial health, including loan portfolio growth, allowance for loan losses, liquidity sources, and capital adequacy - Portfolio loans increased by $1.1 billion (19.8%) from year-end 2018, driven by the Banc Ed acquisition and organic growth[259] - The allowance for loan losses as a percentage of portfolio loans was 0.79% at September 30, 2019, down from 0.91% at year-end 2018, attributed to purchase accounting for the Banc Ed acquisition[261][262] - The company maintains a strong liquidity position with primary sources from deposits, loan repayments, and investment cash flows, supplemented by borrowing capacity of $1.1 billion from the FHLB and $479.4 million from the Federal Reserve[275] - All capital ratios remain in excess of "well-capitalized" regulatory requirements, with a Common Equity Tier 1 ratio of 11.20% and a Total Capital ratio of 13.71% at the consolidated level as of September 30, 2019[136][279] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk, with simulation analysis indicating asset sensitivity to rising rates and moderate exposure to falling rates Interest Rate Sensitivity Analysis (% Change in Net Interest Income) | Rate Shock (bps) | Year-One Impact | Year-Two Impact | | :--- | :--- | :--- | | +300 | +6.98% | +10.53% | | +200 | +4.81% | +7.36% | | +100 | +2.50% | +4.00% | | -100 | (4.84)% | (7.22)% | - The analysis shows the company is asset-sensitive, meaning net interest income is projected to increase in a rising rate environment and decrease in a falling rate environment[309][311] Item 4. Controls and Procedures Management confirmed the effectiveness of disclosure controls and procedures as of September 30, 2019, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that disclosure controls and procedures were effective as of the end of the period[313] - No changes were made in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[314] Part II - Other Information This section provides information on legal proceedings, risk factors, and details regarding unregistered sales of equity securities and use of proceeds Item 1. Legal Proceedings The company is party to routine litigation incidental to business, with no material pending cases expected to impact financial condition or operations - There is no material pending litigation, other than ordinary routine litigation incidental to the business[316] Item 1A. Risk Factors No material changes have occurred to the risk factors previously disclosed in the company's 2018 Annual Report on Form 10-K - No material changes to the risk factors disclosed in the 2018 Form 10-K have occurred[318] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company details its share repurchase activity for the third quarter of 2019, repurchasing 194,062 shares at an average price of $25.19, with 805,938 shares remaining available Share Repurchase Activity (Q3 2019) | Period | Total Shares Purchased | Average Price Paid | | :--- | :--- | :--- | | July 2019 | 0 | N/A | | August 2019 | 64,062 | $24.72 | | September 2019 | 130,000 | $25.43 | - As of September 30, 2019, 805,938 shares remained available for purchase under the company's stock repurchase program[320]