8-K: First Busey Corporation Announces Solid Third Quarter Earnings and Transformative Merger

First Busey Corporation reported a net income of $32.0 million for the third quarter of 2024, alongside announcing a significant merger with CrossFirst Bankshares.

Summary

• First Busey Corporation's net income for the third quarter of 2024 was $32.0 million, or $0.55 per diluted share, compared to $30.7 million, or $0.54 per diluted share, for the same period last year.
• Adjusted net income, excluding acquisition and restructuring expenses, was $33.5 million, or $0.58 per diluted share.
• The company's tangible book value per common share increased to $18.19, a 20.7% year-over-year increase.
• A transformative merger with CrossFirst Bankshares was announced, creating a combined entity with approximately $20 billion in assets.
• The merger is expected to close in the first or second quarter of 2025.
• Noninterest income was $36.0 million, representing 30.5% of operating revenue.
• The Wealth Management segment achieved record high quarterly revenue.
• The company's core deposit base represents 96.5% of total deposits.
• Non-performing assets decreased to $8.3 million, representing 0.07% of total assets.
• The Common Equity Tier 1 ratio was 13.78%, and the Total Capital to Risk Weighted Assets ratio was 18.19%.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with strong financial results, a transformative merger, and solid capital ratios. While there are some minor negatives, the overall tone is optimistic and indicates a well-managed company with growth potential.

Positives

• The company experienced a significant year-over-year increase in tangible book value per common share, demonstrating strong growth.
• The merger with CrossFirst Bankshares is expected to create a premier commercial bank with a larger footprint and increased assets.
• The Wealth Management segment achieved record high quarterly revenue, indicating strong performance in this area.
• The company maintains a high-quality core deposit base, providing a stable funding source.
• Asset quality remains strong, with low levels of non-performing assets and a high coverage ratio for non-performing loans.
• The company's capital ratios are well above regulatory requirements, indicating a strong financial position.

Negatives

• The net interest margin decreased slightly by 1 basis point compared to the previous quarter.
• Non-maturity deposit funding costs increased, impacting the net interest margin.
• There was a slight decrease in payment technology solutions revenue compared to the previous quarter.
• The company incurred $1.3 million in one-time pretax acquisition-related expenses during the third quarter of 2024.

Risks

• The merger with CrossFirst is subject to regulatory and shareholder approvals, and there is a risk that the transaction may not close or may be delayed.
• The integration of CrossFirst's operations may be more difficult, time-consuming, or costly than expected.
• The company is exposed to risks related to changes in interest rates, economic conditions, and competition in the financial services sector.
• There are risks associated with the company's loan portfolio, including concentrations in certain sectors and large loans to certain borrowers.
• The company is exposed to cybersecurity risks and potential breaches of information security controls.

Future Outlook

The company expects to continue to prudently manage expenses and realize increased rates of M&M acquisition synergies during the final quarter of 2024. The merger with CrossFirst is expected to close in the first or second quarter of 2025, with the bank merger anticipated in mid-2025.

Management Comments

• Van A. Dukeman, Chairman and Chief Executive Officer, stated that the company remains confident in its position as it moves into the final quarter of 2024 and into 2025.
• Management is focused on balance sheet strength, profitability, and growth, in that order.
• The pending CrossFirst transaction fits with the company's acquisition strategy, and they are excited to welcome CrossFirst colleagues into the Busey family.

Industry Context

This announcement comes at a time when the banking industry is facing increased scrutiny and economic uncertainty. The merger with CrossFirst is a strategic move to expand the company's footprint and diversify its revenue streams. The focus on maintaining a strong balance sheet and high-quality assets is consistent with industry trends towards risk management and stability.

Comparison to Industry Standards

• Busey's tangible book value per share growth of 20.7% year-over-year is significantly higher than the average for regional banks, which typically see single-digit growth.
• The company's Common Equity Tier 1 ratio of 13.78% and Total Capital to Risk Weighted Assets ratio of 18.19% are well above the regulatory minimums and compare favorably to peers such as Old National Bancorp (ONB) and Associated Banc-Corp (ASB), which typically operate in the 10-12% and 14-16% ranges respectively.
• Busey's non-performing assets to total assets ratio of 0.07% is lower than the industry average, which is closer to 0.2-0.3%, indicating a strong credit portfolio compared to peers like Fifth Third Bancorp (FITB) and Huntington Bancshares (HBAN).
• The adjusted efficiency ratio of 60.2% is competitive with other regional banks, but there is room for improvement to reach the levels of the most efficient operators like U.S. Bancorp (USB) which often operate below 55%.
• The company's adjusted return on average tangible common equity of 13.41% is solid, but some top-performing banks like Signature Bank (SBNY) before its collapse, have achieved higher returns, indicating potential for further optimization.

Stakeholder Impact

• Shareholders will benefit from the increased value of the company and the potential for future growth.
• Employees will have opportunities for career advancement and development within the larger combined organization.
• Customers will have access to a wider range of products and services.
• Suppliers and creditors will benefit from the stability and financial strength of the combined entity.

Next Steps

• The company will continue to manage expenses and realize synergies from the M&M acquisition.
• The company will work towards closing the merger with CrossFirst Bankshares in the first or second quarter of 2025.
• The company will integrate CrossFirst Bank into Busey Bank in mid-2025.

Key Dates

Keywords

Merger, Acquisition, Earnings, Financial Results, Net Income, Wealth Management, Banking, Deposits, Loans, Asset Quality, Capital Ratios, Noninterest Income, Payment Technology, CrossFirst Bankshares