First Busey Announces 2020 Third Quarter Earnings

Rhea-AI Summary

First Busey Corporation reported strong performance in Q3 2020, with net income rising to $30.8 million or $0.56 per diluted share, up from $25.8 million in Q2 2020. Adjusted net income reached $32.8 million, yielding an adjusted EPS of $0.60. Non-interest income was $32.3 million, contributing 32% to total revenue. Although total assets decreased to $10.54 billion, tangible book value increased by 7.9% YoY. The company anticipates $3.3 million in expense savings from branch consolidations.

Positive

• Net income increased to $30.8 million in Q3 2020, up from $25.8 million in Q2 2020.
• Adjusted EPS rose to $0.60, compared to $0.48 in Q2 2020.
• Non-interest income increased to $32.3 million, representing 32% of revenue.
• Tangible book value per share increased to $16.32, up 7.9% YoY.
• Expected annualized savings of $3.3 million from branch closings.

Negative

• Total assets decreased from $10.84 billion at June 30, 2020, to $10.54 billion.
• Net interest margin declined to 2.86% vs. 3.03% in Q2 2020.
• Provision for credit losses increased to $5.5 million due to economic uncertainties.

CHAMPAIGN, Ill., Oct. 27, 2020 (GLOBE NEWSWIRE) --

Message from our Chairman & CEO

Positive advances in the third quarter of 2020 compared to the second quarter of 2020 and third quarter of 2019

• Third quarter 2020 net income and adjusted net income¹ increased to $30.8 million and $32.8 million, respectively
• Third quarter 2020 diluted earnings per share of $0.56 and adjusted earnings per share¹ of $0.60 compared to $0.47 and $0.48, respectively, in the second quarter of 2020
• Non-interest income of $32.3 million increased in third quarter 2020 compared to $28.0 million in second quarter 2020, non-interest income represents 32% of revenue in the third quarter of 2020
• Non-interest expense of $56.5 million and non-interest expense excluding non-operating adjustments¹ of $54.0 million in third quarter 2020 decreased compared to third quarter of 2019 of $68.1 million and $60.5 million, respectively
• Total assets decreased from $10.84 billion at June 30 ,2020, to $10.54 billion at September 30, 2020
• Tangible book value per common share¹ of $16.32 at September 30, 2020 as compared to $15.92 at June 30, 2020 and $15.12 at September 30, 2019, an increase of 7.9% over September 30, 2019
• Wealth assets under care of $9.50 billion for the third quarter are within 2% of December 31, 2019 $9.70 billion high water mark
• For additional information, please refer to the 3Q20 Quarterly Earnings Supplement

Third Quarter Financial Results
The net income for First Busey Corporation (“First Busey” or the “Company”) for the third quarter of 2020 was $30.8 million, or $0.56 per diluted common share, as compared to $25.8 million, or $0.47 per diluted common share, for the second quarter of 2020 and $24.8 million, or $0.45 per diluted common share, for the third quarter of 2019.  Adjusted net income¹ for the third quarter of 2020 was $32.8 million, or $0.60 per diluted common share, as compared to $26.2 million, or $0.48 per diluted common share, for the second quarter of 2020 and $30.5 million, or $0.55 per diluted common share, for the third quarter of 2019. For the third quarter of 2020, annualized return on average assets and annualized return on average tangible common equity¹ were 1.15% and 13.92%, respectively.  Based on adjusted net income¹, annualized return on average assets was 1.22% and annualized return on average tangible common equity¹ was 14.81% for the third quarter of 2020.

Pre-provision net revenue¹ for the third quarter of 2020 was $45.9 million as compared to $45.4 million for the second quarter of 2020 and $35.9 million for the third quarter of 2019. Adjusted pre-provision net revenue¹ for the third quarter of 2020 was $48.7 million as compared to $46.4 million for the second quarter of 2020 and $43.6 million for the third quarter of 2019.   Pre-provision net revenue to average assets¹ for the third quarter of 2020 was 1.71% as compared to 1.76% for the second quarter of 2020 and 1.48% for the third quarter of 2019. Adjusted pre-provision net revenue to average assets¹ for the third quarter of 2020 was 1.81% as compared to 1.80% for the second quarter of 2020 and 1.79% for the third quarter of 2019.

The Company views certain non-operating items, including acquisition-related and other restructuring charges, as adjustments to net income reported under U.S. generally accepted accounting principles (“GAAP”). Non-operating pretax adjustments for the third quarter of 2020 included $0.3 million of expenses related to prior acquisitions and $2.2 million of other restructuring costs. The Company believes that non-GAAP measures (including adjusted pre-provision net revenue, adjusted net income, adjusted earnings per share, adjusted return on average assets, adjusted net interest margin, adjusted efficiency ratio, tangible common equity, tangible common equity to tangible assets, tangible book value per share and return on average tangible common equity), facilitate the assessment of its financial results and peer comparability. A reconciliation of these non-GAAP measures is included in tabular form at the end of this release.

¹ A Non-GAAP financial measure. See “Non-GAAP Financial Information” below for reconciliation.

After careful consideration and analysis, the Company decided in July 2020 to consolidate 12 branches to ensure a balance between the Company’s physical banking center network and robust digital banking services. An efficient banking center footprint and strategic service models are necessary to keep First Busey competitive and responsive. These 12 banking centers closed on October 23, 2020. When fully realized, annualized expense savings net of expected associated revenue impacts are anticipated to be approximately $3.3 million with the impact of these cost savings beginning to be realized in the fourth quarter of 2020. Non-operating pretax expenses in salaries, wages and employee benefits in relation to the branch closings were $0.6 million during the third quarter of 2020, with an additional $0.1 million expected in the fourth quarter of 2020. The Company anticipates additional one-time expenses related to the banking center consolidation plan in the fourth quarter of 2020 as we finalize the fair value estimates related to the disposition of these banking centers. We currently estimate those remaining non-operating pretax expenses related to the consolidation to be in the range of $7.0 million to $7.5 million.

The operating model reorganization is consistent with the Company’s continued efforts to transition to a regional operating model that enhances sales organization alignment across our key business lines and improves efficiencies. Non-operating pretax expenses in salaries, wages and employee benefits related to the reorganization were $1.4 million during the third quarter of 2020. These efforts are currently anticipated to provide approximately $3.6 million in annual pre-tax noninterest expense savings when fully realized.

The Company continues to navigate the economic environment caused by the coronavirus disease 2019 (“COVID-19”) pandemic effectively and prudently. Our balance sheet strength remains robust with sound and stable asset quality, strong capital levels and substantial liquidity. Nevertheless, we remain vigilant, given that the negative impacts of COVID-19 are expected to continue in future quarters as the course of the economic recovery remains unclear and further fiscal stimulus is uncertain. These negative impacts may include further margin compression, increased provision expense, lower customer service fees and a deterioration in asset quality. As of the quarter ended September 30, 2020, the Company’s total assets exceeded $10 billion due to Paycheck Protection Program (“PPP”) loans and other factors. If the Company remains over $10 billion in assets at year-end, it will begin to face limitations on interchange fees and heightened supervision and regulation in 2021.

On January 1, 2020, the Company adopted ASU 2016-13 (Topic 326), “Measurement of Credit Losses on Financial Instruments,” commonly referenced as the Current Expected Credit Loss (“CECL”) model. Upon adoption of CECL, the Company recognized a $16.8 million increase in its allowance for credit losses, substantially attributable to the remaining loan fair value marks on prior acquisitions, and a $5.5 million increase in its reserve for unfunded commitments. Under accounting rules, the reserve for unfunded commitments is carried on the balance sheet in other liabilities rather than as a component of the allowance for credit losses. These one-time increases, net of tax, were $15.9 million and recorded as an adjustment to beginning retained earnings. Ongoing impacts of the CECL methodology will be dependent upon changes in economic conditions and forecasts, originated and acquired loan portfolio composition, credit performance trends, portfolio duration, and other factors. During the third quarter of 2020, the Company recorded provision for credit losses of $5.5 million and provision for unfunded commitments of $0.3 million primarily as a result of economic factors and uncertainty due to COVID-19. The allowance for credit losses increased from $53.7 million at December 31, 2019, to $84.4 million at March 31, 2020, to $96.0 million at June 30, 2020, to $98.8 million at September 30, 2020, representing 1.39% of portfolio loans outstanding, 1.55% of portfolio loans excluding PPP loans, and 408.82% of non-performing loans at September 30, 2020.

COVID-19 Update
The Company entered this crisis from a position of strength and remains resolute in its focus on serving its customers, communities and associates while protecting its balance sheet.

To alleviate some of the financial hardships qualifying customers faced as a result of COVID-19, First Busey offered an internal Financial Relief Program. The program included options for short-term loan payment deferrals and certain fee waivers. As of September 30, 2020, the Company had 301 commercial loans on payment deferrals representing $426.4 million in loans, 565 mortgage/personal loans on payment deferrals representing $82.4 million in loans and an additional 520 deferrals for $63.7 million of mortgage loans in the serviced portfolio. As of October 21, 2020 commercial modifications decreased to 155 commercial loans on payment deferrals representing $189.3 million in loans, or 3.7% of total commercial loans.

As part of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), Congress appropriated approximately $349 billion for the creation of the PPP and then authorized a second phase for another $310 billion in PPP loans. The program provided payroll assistance for the nation’s nearly 30 million small businesses—and select nonprofits—in the form of 100% government-guaranteed low-interest loans from the U.S. Small Business Administration. First Busey served as a bridge for the program, actively helping existing and new business clients sign up for this important financial resource. At September 30, 2020, First Busey had $749.4 million in PPP loans outstanding, with an amortized cost of $736.4 million, representing 4,569 new and existing customers. The Company is actively assisting these customers in submitting applications to the SBA for loan forgiveness.

First Busey’s goal of being a strong community bank for the communities it serves begins with outstanding associates. The Company is honored to be named among the 2020 Best Banks to Work For by American Banker, 2020 Best Places to Work in Illinois by Daily Herald Business Ledger, the 2020 Best Companies to Work For in Florida by Florida Trend magazine, the 2020 Best Place to Work in Indiana by the Indiana Chamber of Commerce, the 2019 Best-In-State Banks for Illinois by Forbes and Statista, the 2019 Best Places to Work in St. Louis by the St. Louis Business Journal and the 2019 Best Places to Work in Money Management by Pensions and Investments.

In today’s fluid, ever-evolving landscape, First Busey takes pride in its culture and is thankful for the tireless work carried out by its associates. Despite significant uncertainties in the current environment, the Company remains steadfast in its commitment to the customers and communities it serves.

/s/ Van A. Dukeman
Chairman, President & Chief Executive Officer
First Busey Corporation

SELECTED FINANCIAL HIGHLIGHTS1
(dollars in thousands, except per share data)
	As of and for the Three Months Ended												As of and for the Nine Months Ended
	September 30,			June 30,			December 31,			September 30,			September 30,			September 30,
		2020			2020			2019			2019			2020			2019
EARNINGS & PER SHARE DATA
Pre-provision net revenue2,3	$	45,922		$	45,394		$	37,479		$	35,930		$	127,165		$	107,383
Revenue4		102,464			98,462			102,969			104,051			297,289			300,687
Net income		30,829			25,806			28,571			24,828			71,999			74,382
Diluted earnings per share		0.56			0.47			0.52			0.45			1.31			1.35
Cash dividends paid per share		0.22			0.22			0.21			0.21			0.66			0.63
Net income by operating segment
Banking	$	31,744		$	25,985		$	29,573		$	25,731		$	72,653		$	76,837
Remittance Processing		578			528			958			972			1,966			3,102
Wealth Management		3,166			3,082			3,465			2,184			9,847			7,670
AVERAGE BALANCES
Cash and cash equivalents	$	836,097		$	563,022		$	533,519		$	515,965		$	626,222		$	391,029
Investment securities		1,824,327			1,717,790			1,677,962			1,780,066			1,760,461			1,800,069
Loans held for sale		104,965			108,821			68,480			42,418			91,964			28,326
Portfolio loans		7,160,757			7,216,825			6,657,283			6,558,519			7,012,497			6,406,779
Interest-earning assets		9,805,948			9,485,200			8,810,505			8,781,590			9,371,157			8,514,580
Total assets		10,680,995			10,374,820			9,713,858			9,659,769			10,249,578			9,352,272
Non-interest bearing deposits		2,592,130			2,472,568			1,838,523			1,780,645			2,303,538			1,715,701
Interest-bearing deposits		6,169,377			6,073,795			6,052,529			6,086,378			6,108,605			5,884,904
Total deposits		8,761,507			8,546,363			7,891,052			7,867,023			8,412,143			7,600,605
Securities sold under agreements to repurchase		190,046			184,208			204,076			184,637			185,528			194,189
Interest-bearing liabilities		6,694,561			6,527,709			6,537,611			6,557,518			6,578,587			6,373,639
Total liabilities		9,432,547			9,141,550			8,489,411			8,446,936			9,016,230			8,179,059
Stockholders' common equity		1,248,448			1,233,270			1,224,447			1,212,833			1,233,348			1,173,213
Tangible stockholders' common     Equity3		880,958			863,571			845,179			835,232			863,547			804,109
PERFORMANCE RATIOS
Pre-provision net revenue to average assets2,3		1.71	%		1.76	%		1.53	%		1.48	%		1.66	%		1.54	%
Return on average assets3		1.15	%		1.00	%		1.17	%		1.02	%		0.94	%		1.06	%
Return on average common equity		9.82	%		8.42	%		9.26	%		8.12	%		7.80	%		8.48	%
Return on average tangible common equity3		13.92	%		12.02	%		13.41	%		11.79	%		11.14	%		12.37	%
Net interest margin3,5		2.86	%		3.03	%		3.27	%		3.35	%		3.02	%		3.42	%
Efficiency ratio3		52.42	%		50.97	%		60.54	%		62.73	%		54.30	%		61.55	%
Non-interest revenue as a % of total revenue4		31.92	%		28.08	%		30.14	%		29.38	%		29.36	%		28.40	%
NON-GAAP INFORMATION
Adjusted pre-provision net revenue2,3	$	48,701		$	46,448		$	41,131		$	43,600		$	133,360		$	125,025
Adjusted net income3		32,803			26,191			31,782			30,535			74,473			86,647
Adjusted diluted earnings per share3		0.60			0.48			0.57			0.55			1.36			1.57
Adjusted pre-provision net revenue to average assets3		1.81	%		1.80	%		1.68	%		1.79	%		1.74	%		1.79	%
Adjusted return on average assets3		1.22	%		1.02	%		1.30	%		1.25	%		0.97	%		1.24	%
Adjusted return on average tangible common equity3		14.81	%		12.20	%		14.92	%		14.50	%		11.52	%		14.41	%
Adjusted net interest margin3,5		2.75	%		2.93	%		3.14	%		3.22	%		2.91	%		3.27	%
Adjusted efficiency ratio3		49.97	%		50.48	%		57.02	%		55.42	%		53.24	%		56.12	%
1 Results are unaudited.
2 Net interest income plus non-interest income, excluding security gains and losses, less non-interest expense.
3 See “Non-GAAP Financial Information” below for reconciliation.
4 Revenue consist of net interest income plus non-interest income, excluding security gains and losses.
5 On a tax-equivalent basis, assuming a federal income tax rate of 21%.

Condensed Consolidated Balance Sheets1		As of
(dollars in thousands, except per share data)		September 30,			June 30,			March 31,			December 31,			September 30,
			2020			2020			2020			2019			2019
Assets
Cash and cash equivalents		$	479,721		$	1,050,072		$	342,848		$	529,288		$	525,457
Investment securities			2,098,657			1,701,992			1,770,881			1,654,209			1,721,865
Loans held for sale			87,772			108,140			89,943			68,699			70,345
Commercial loans			5,600,705			5,637,999			5,040,507			4,943,646			4,900,430
Retail real estate and retail other loans			1,520,606			1,591,021			1,704,992			1,743,603			1,768,985
Portfolio loans		$	7,121,311		$	7,229,020		$	6,745,499		$	6,687,249		$	6,669,415
Allowance			(98,841	)		(96,046	)		(84,384	)		(53,748	)		(52,965	)
Premises and equipment			144,001			146,951			149,772			151,267			153,641
Goodwill and other intangibles			365,960			368,053			370,572			373,129			381,323
Right of use asset			7,251			8,511			9,074			9,490			9,979
Other assets			333,796			319,272			327,200			276,146			274,700
Total assets		$	10,539,628		$	10,835,965		$	9,721,405		$	9,695,729		$	9,753,760
Liabilities & Stockholders' Equity
Non-interest bearing deposits		$	2,595,075		$	2,764,408		$	1,910,673		$	1,832,619		$	1,779,490
Interest-bearing checking, savings, and money market deposits			4,819,859			4,781,761			4,580,547			4,534,927			4,498,005
Time deposits			1,227,767			1,363,497			1,482,013			1,534,850			1,652,971
Total deposits		$	8,642,701		$	8,909,666		$	7,973,233		$	7,902,396		$	7,930,466
Securities sold under agreements to repurchase			201,641			194,249			167,250			205,491			202,500
Short-term borrowings			4,651			24,648			21,358			8,551			29,739
Long-term debt			226,801			256,837			134,576			182,522			183,968
Junior subordinated debt owed to unconsolidated trusts			71,427			71,387			71,347			71,308			71,269
Lease liability			7,342			8,601			9,150			9,552			10,101
Other liabilities			129,360			134,493			126,906			95,475			109,736
Total liabilities		$	9,283,923		$	9,599,881		$	8,503,820		$	8,475,295		$	8,537,779
Total stockholders' equity		$	1,255,705		$	1,236,084		$	1,217,585		$	1,220,434		$	1,215,981
Total liabilities & stockholders' equity		$	10,539,628		$	10,835,965		$	9,721,405		$	9,695,729		$	9,753,760
Share Data
Book value per common share		$	23.03		$	22.67		$	22.38		$	22.28		$	22.03
Tangible book value per common share2		$	16.32		$	15.92		$	15.57		$	15.46		$	15.12
Ending number of common shares outstanding			54,522,231			54,516,000			54,401,208			54,788,772			55,197,277
1 Results are unaudited except for amounts reported as of December 31, 2019.
2 See “Non-GAAP Financial Information” below for reconciliation, excludes tax effect of other intangible assets.

Condensed Consolidated Statements of Income1
(dollars in thousands, except per share data)
	For the						For the
	Three Months Ended September 30,						Nine Months Ended September 30,
		2020			2019			2020		2019
Interest and fees on loans	$	69,809		$	78,083		$	213,434	$	227,903
Interest on investment securities		9,607			11,427			30,265		35,039
Other interest income		213			2,181			1,596		4,496
Total interest income	$	79,629		$	91,691		$	245,295	$	267,438
Interest on deposits		6,105			14,753			26,053		41,407
Interest on securities sold under agreements to repurchase		88			579			596		1,789
Interest on short-term borrowings		30			200			215		885
Interest on long-term debt		2,913			1,831			6,212		5,412
Interest on junior subordinated debt owed to unconsolidated trusts		740			852			2,220		2,658
Total interest expense	$	9,876		$	18,215		$	35,296	$	52,151
Net interest income	$	69,753		$	73,476		$	209,999	$	215,287
Provision for credit losses		5,549			3,411			35,656		8,039
Net interest income after provision for credit losses	$	64,204		$	70,065		$	174,343	$	207,248
Wealth management fees		10,548			8,821			32,296		27,338
Fees for customer services		8,014			9,842			23,400		27,635
Remittance processing		3,995			3,780			11,466		11,277
Mortgage revenue		5,793			3,331			9,879		8,127
Income on bank owned life insurance		1,022			1,573			4,361		4,653
Security gains (losses), net		(426	)		361			476		(623	)
Other		3,339			3,228			5,888		6,370
Total non-interest income	$	32,285		$	30,936		$	87,766	$	84,777
Salaries, wages and employee benefits		32,839			38,747			95,397		105,356
Data processing		3,937			5,032			12,383		15,049
Net occupancy expense of premises		4,256			4,652			13,419		13,365
Furniture and equipment expense		2,325			2,489			7,311		6,936
Professional fees		1,698			2,622			5,508		9,001
Amortization of intangible assets		2,493			2,360			7,569		6,866
Other		8,994			12,219			28,537		36,731
Total non-interest expense	$	56,542		$	68,121		$	170,124	$	193,304
Income before income taxes	$	39,947		$	32,880		$	91,985	$	98,721
Income taxes		9,118			8,052			19,986		24,339
Net income	$	30,829		$	24,828		$	71,999	$	74,382
Per Share Data
Basic earnings per common share	$	0.56		$	0.45		$	1.32	$	1.36
Diluted earnings per common share	$	0.56		$	0.45		$	1.31	$	1.35
Average common shares outstanding		54,585,998			55,410,109			54,579,088		54,782,946
Diluted average common shares outstanding		54,737,920			55,646,104			54,796,354		55,057,518
1 Results are unaudited.

Balance Sheet Growth

Total assets were $10.54 billion at September 30, 2020, down from $10.84 billion at June 30, 2020, and up from $9.75 billion at September 30, 2019.   At September 30, 2020, portfolio loans were $7.12 billion, as compared to $7.23 billion as of June 30, 2020 and $6.67 billion as of September 30, 2019. The amortized cost of PPP loans of $736.4 million are included in the September 30, 2020 balance. When excluding the PPP loans, total commercial loans declined by $44.4 million and retail real estate and retail other loans declined by $70.4 million during the quarter. A change in the commercial unfunded commitments accounted for approximately $13.9 million of the commercial decline.     

Average portfolio loans were $7.16 billion for the third quarter of 2020 as compared to $7.22 billion in the second quarter of 2020 and $6.56 billion in the third quarter of 2019. The average balance of PPP loans in the third quarter of 2020 were $734.2 million. Average interest-earning assets for the third quarter of 2020 increased to $9.81 billion compared to $9.49 billion for the second quarter of 2020 and $8.78 billion for the third quarter of 2019.
  
Total deposits were $8.64 billion at September 30, 2020, compared to $8.91 billion at June 30, 2020 and $7.93 billion at September 30, 2019. Recent fluctuations in deposit balances can be attributed to the retention of PPP loan funding in customer deposit accounts, the impacts of economic stimulus, other core deposit growth and the seasonality of public funds, as well as the Company’s efforts to efficiently manage the size of its balance sheet. The Company remains funded substantially through core deposits with significant market share in its primary markets.

Net Interest Margin and Net Interest Income

Net interest margin for the third quarter of 2020 was 2.86%, compared to 3.03% for the second quarter of 2020 and 3.35% for the third quarter of 2019. Net interest income was $69.8 million in the third quarter of 2020 compared to $70.8 million in the second quarter of 2020 and $73.5 million in the third quarter of 2019.

The Federal Open Market Committee (“FOMC”) lowered Federal Funds Target Rates for the first time in 11 years on July 31, 2019 and then again on September 18, 2019 and October 30, 2019, for a combined decrease of 75 basis points during 2019. In response to the potential economic risks posed by COVID-19, the FOMC took further action during the first quarter of 2020, lowering the Federal Funds Target Rate by 50 basis points on March 3, 2020, followed by an additional 100 basis point reduction on March 15, 2020. These rate cuts contributed to the decline in net interest margin as assets, in particular commercial loans, repriced more quickly and to a greater extent than liabilities.

Other factors contributing to the reported decline in net interest margin during the third quarter of 2020 include the sizeable balance of lower-yielding PPP loans, the Company’s significant liquidity position and the issuance of subordinated debt completed during the second quarter, with those impacts partially offset by the Company’s efforts to lower deposit funding costs. The cost of total deposits declined to 0.28% in the third quarter of 2020 from 0.36% in the second quarter of 2020, while the cost of non-time deposits declined to 0.09% in the third quarter of 2020 from 0.12% in the second quarter of 2020.

Asset Quality

Loans 30-89 days past due were $6.7 million as of September 30, 2020, compared to $5.2 million as of June 30, 2020 and $12.4 million as of September 30, 2019. Non-performing loans totaled $24.2 million as of September 30, 2020, a decrease from $25.4 million as of June 30, 2020, and $33.1 million as of September 30, 2019. Continued disciplined credit management resulted in non-performing loans as a percentage of total loans of 0.34% at September 30, 2020, as compared to 0.35% at June 30, 2020 and 0.50% at September 30, 2019. Non-performing loans as a percentage of total loans, excluding the amortized cost of PPP loans, was 0.38% at September 30, 2020.

Net charge-offs totaled $2.8 million for the quarter ended September 30, 2020 compared to $1.2 million and $1.8 million for the quarters ended June 30, 2020 and September 30, 2019, respectively.   The allowance as a percentage of portfolio loans increased to 1.39% at September 30, 2020, as compared to 1.33% at June 30, 2020 and 0.79% at September 30, 2019. The allowance as a percentage of portfolio loans, excluding the amortized cost of PPP loans, was 1.55% at September 30, 2020, up from 0.79% in the comparative quarter of 2019. The allowance as a percentage of non-performing loans increased to 408.82% at September 30, 2020 compared to 378.43% at June 30, 2020 and 160.00% at September 30, 2019.  

As a matter of policy and practice, the Company limits the level of concentration exposure in any particular loan segment and maintains a well-diversified loan portfolio.

Asset Quality1
(dollars in thousands)	As of and for the Three Months Ended
	September 30,			June 30,			March 31,			December 31,			September 30,
		2020			2020			2020			2019			2019
Portfolio loans	$	7,121,311		$	7,229,020		$	6,745,499		$	6,687,249		$	6,669,415
Portfolio loans excluding amortized cost of PPP loans		6,384,916			6,499,734			6,745,499			6,687,249			6,669,415
Loans 30-89 days past due		6,708			5,166			10,150			14,271			12,434
Non-performing loans:
Non-accrual loans		23,898			25,095			25,672			27,896			31,827
Loans 90+ days past due		279			285			1,540			1,611			1,276
Total non-performing loans	$	24,177		$	25,380		$	27,212		$	29,507		$	33,103
Total non-performing loans, segregated by geography
Illinois/ Indiana		15,097			16,285			17,761			20,428			24,296
Missouri		6,867			5,327			5,711			5,227			8,202
Florida		2,213			3,768			3,740			3,852			605
Other non-performing assets		4,978			3,755			3,553			3,057			926
Total non-performing assets	$	29,155		$	29,135		$	30,765		$	32,564		$	34,029
Total non-performing assets to total assets		0.28	%		0.27	%		0.32	%		0.34	%		0.35	%
Total non-performing assets to portfolio loans and non- performing assets		0.41	%		0.40	%		0.46	%		0.49	%		0.51	%
Allowance to portfolio loans		1.39	%		1.33	%		1.25	%		0.80	%		0.79	%
Allowance to portfolio loans, excluding PPP		1.55	%		1.48	%		1.25	%		0.80	%		0.79	%
Allowance as a percentage of non-performing loans		408.82	%		378.43	%		310.10	%		182.15	%		160.00	%
Net charge-offs		2,754			1,229			3,413			1,584			1,821
Provision		5,549			12,891			17,216			2,367			3,411
1 Results are unaudited.

Non-Interest Income

Total non-interest income of $32.3 million for the third quarter of 2020 increased as compared to $28.0 million for the second quarter of 2020 and $30.9 million in the third quarter of 2019. Revenues from wealth management fees and remittance processing activities represented 45.0% of the Company’s non-interest income for the quarter ended September 30, 2020, providing a balance to spread-based revenue from traditional banking activities.

Wealth management fees were $10.5 million for the third quarter of 2020, an increase from $10.2 million for the second quarter of 2020 and $8.8 million for the third quarter of 2019. Net income from the Wealth Management segment was $3.2 million for the third quarter of 2020, an increase from $3.1 million for the second quarter of 2020 and $2.2 million in the third quarter of 2019. First Busey’s Wealth Management division ended the third quarter of 2020 with $9.50 billion in assets under care as compared to $9.02 billion at the end of the second quarter of 2020 and $9.70 billion at December 31, 2019.

Fees for customer services were $8.0 million for the third quarter of 2020, an increase from $7.0 million for the second quarter of 2020, but decreased from $9.8 million for the third quarter of 2019. Fees for customer services in the second quarter of 2020 were significantly impacted by changing customer behaviors resulting from COVID-19 and to a lesser extent by deposit account fee waivers related to the Financial Relief Program. An increase in customer activity and a decline in customer fee waivers contributed to the increase in fees for customer services in the third quarter of 2020.

Remittance processing revenue from the Company’s subsidiary, FirsTech, of $4.0 million for the third quarter of 2020 increased from $3.7 million in the second quarter of 2020 and $3.8 million in the third quarter of 2019. The Remittance Processing operating segment generated net income of $0.6 million for the third quarter of 2020 compared to $0.5 million for the second quarter of 2020 and $1.0 million in the third quarter of 2019. The net income decline in the third and second quarters of 2020 are attributable to strategic planning initiatives and related severance expense.

Mortgage revenue of $5.8 million in the third quarter of 2020 increased compared to $2.7 million in the second quarter of 2020 and $3.3 million in the third quarter of 2019. The increase in the third quarter of 2020 over second quarter of 2020 was due to stronger gain on sale margins.

Operating Efficiency

Total non-interest expense was $56.5 million in the third quarter of 2020 as compared to $53.1 million in the second quarter of 2020 and $68.1 million in the third quarter of 2019. Non-interest expense excluding non-operating adjustment items¹ was $54.0 million in the third quarter of 2020 as compared to $52.6 million in the second quarter of 2020 and $60.5 million in the third quarter of 2019. Total deferred PPP loan origination costs reduced reported non-interest expense in the second quarter of 2020 by $4.9 million.

The efficiency ratio was 52.42% for the quarter ended September 30, 2020 compared to 50.97% for the quarter ended June 30, 2020 and 62.73% for the quarter ended September 30, 2019. The adjusted efficiency ratio¹ was 49.97% for the quarter ended September 30, 2020, 50.48% for the quarter ended June 30, 2020, and 55.42% for the quarter ended September 30, 2019. The Company remains focused on expense discipline.

Noteworthy components of non-interest expense are as follows:

• Salaries, wages and employee benefits were $32.8 million in the third quarter of 2020, an increase from $28.6 million in the second quarter of 2020 and a decrease from $38.7 million from the third quarter of 2019. The third quarter of 2020 included $2.0 million in non-operating severance expense. The deferral of PPP loan origination costs of $3.8 million lowered salaries, wages and benefits expense in the second quarter of 2020. Total full-time equivalents at September 30, 2020 numbered 1,371 compared to 1,480 at June 30, 2020 and 1,595 at September 30, 2019, a decline of 14% year-over-year.
  
  
• Combined net occupancy expense of premises and furniture and equipment expenses totaled $6.6 million in the third quarter of 2020, a decline from $7.0 million in the second quarter of 2020 and $7.1 million in the third quarter of 2019.
  
  
• Data processing expenses were $3.9 million in the third quarter of 2020 as compared to $4.1 million in the second quarter of 2020 and $5.0 million in the third quarter of 2019.
  
  
• Other expense in the third quarter of 2020 of $9.0 million was steady with the second quarter of 2020 and decreased from $12.2 million in the third quarter of 2019. Provision for unfunded commitments of $0.3 million and $0.6 million were recorded in the third and second quarters of 2020, respectively. Non-operating pretax acquisition expenses and other restructuring costs of $0.5 million were recorded in the third quarter of 2020, compared to $0.1 million in the second quarter of 2020 and $3.6 million in the third quarter of 2019.
  

Capital Strength

The Company's strong capital levels, coupled with its earnings, have allowed First Busey to provide a steady return to its stockholders through dividends.  The Company will pay a cash dividend on October 30, 2020 of $0.22 per common share to stockholders of record as of October 23, 2020. The Company has consistently paid dividends to its common stockholders since the bank holding company was organized in 1980.

As of September 30, 2020, the Company continued to exceed the capital adequacy requirements necessary to be considered “well-capitalized” under applicable regulatory guidelines. The Company’s tangible common equity¹ (“TCE”) was $905.0 million at September 30, 2020, compared to $883.9 million at June 30, 2020 and $851.1 million at September 30, 2019. TCE represented 8.88% of tangible assets at September 30, 2020, compared to 8.43% at June 30, 2020 and 9.06% at September 30, 2019.¹

¹ A Non-GAAP financial measure. See “Non-GAAP Financial Information” below for reconciliation.

3Q20 Quarterly Earnings Supplement

For additional information on the Company’s response to COVID-19, financial condition and operating results, please refer to the 3Q20 Quarterly Earnings Supplement presentation furnished via Form 8-K on October 27, 2020, in conjunction with this earnings release.

Corporate Profile

As of September 30, 2020, First Busey Corporation (Nasdaq: BUSE) was a $10.54 billion financial holding company headquartered in Champaign, Illinois.

Busey Bank, the wholly-owned bank subsidiary of First Busey Corporation, had total assets of $10.51 billion as of September 30, 2020 and is headquartered in Champaign, Illinois. Busey Bank currently has 53 banking centers serving Illinois, ten banking centers serving Missouri, four banking centers serving southwest Florida and a banking center in Indianapolis, Indiana. Through Busey Bank’s Wealth Management division, the Company provides asset management, investment and fiduciary services to individuals, businesses and foundations. As of September 30, 2020, assets under care were approximately $9.50 billion. Busey Bank owns a retail payment processing subsidiary, FirsTech, Inc., which processes approximately 27 million transactions per year using online bill payment, lockbox processing and walk-in payments at its 4,220 agent locations in 46 states. More information about FirsTech, Inc. can be found at firstechpayments.com.

Busey Bank was named among Forbes’ 2019 Best-In-State Banks—one of five in Illinois and 173 from across the country, equivalent to 2.8% of all U.S. banks. Best-In-State Banks are awarded for exceptional customer experiences as determined by a survey sample of 25,000+ banking customers who rated banks on trust, terms and conditions, branch services, digital services and financial advice.

For more information about us, visit busey.com.

Contacts:

Jeffrey D. Jones, Chief Financial Officer
217-365-4130

Non-GAAP Financial Information

This earnings release contains certain financial information determined by methods other than GAAP. These measures include adjusted pre-provision net revenue, adjusted net income, adjusted diluted earnings per share, adjusted return on average assets, adjusted net interest margin, adjusted efficiency ratio, tangible common equity, tangible common equity to tangible assets, tangible book value per share and return on average tangible common equity. Management uses these non-GAAP measures, together with the related GAAP measures, in analysis of the Company’s performance and in making business decisions. Management also uses these measures for peer comparisons.

A reconciliation to what management believes to be the most direct compared GAAP financial measures, specifically total net interest income in the case of pre-provision net revenue, net income in the case of adjusted net income, adjusted earnings per share and adjusted return on average assets, total net interest income in the case of adjusted net interest margin, total non-interest income and total non-interest expense in the case of adjusted efficiency ratio and total stockholders’ equity in the case of tangible common equity, tangible common equity to tangible assets, tangible book value per share and return on average tangible common equity, appears below. The Company believes the adjusted measures are useful for investors and management to understand the effects of certain non-recurring non-interest items and provide additional perspective on the Company’s performance over time as well as comparison to the Company’s peers.

These non-GAAP disclosures have inherent limitations and are not audited. They should not be considered in isolation or as a substitute for the results reported in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. Tax effected numbers included in these non-GAAP disclosures are based on estimated statutory rates or effective rates as appropriate.

Reconciliation of Non-GAAP Financial Measures – Adjusted Pre-Provision Net Revenue
(dollars in thousands)
	Three Months Ended										Nine Months Ended
	September 30, 2020			June 30, 2020			September 30, 2019				September 30, 2020			September 30, 2019
Net interest income	$	69,753		$	70,813		$	73,476			$	209,999		$	215,287
Non-interest income		32,285			27,964			30,936				87,766			84,777
Less securities (gains) and losses, net		426			(315	)		(361	)			(476	)		623
Non-interest expense		(56,542	)		(53,068	)		(68,121	)			(170,124	)		(193,304	)
Pre-provision net revenue	$	45,922		$	45,394		$	35,930			$	127,165		$	107,383
Acquisition and other restructuring expenses		2,529			487			7,670				3,161			16,442
Provision for unfunded commitments		250			567			-				1,834			-
New Market Tax Credit amortization		-			-			-				1,200			1,200
Adjusted pre-provision net revenue	$	48,701		$	46,448		$	43,600			$	133,360		$	125,025
Average total assets	$	10,680,995		$	10,374,820		$	9,659,769			$	10,249,578		$	9,352,272
Reported: Pre-provision net revenue to average assets1		1.71	%		1.76	%		1.48	%			1.66	%		1.54	%
Adjusted: Pre-provision net revenue to average assets1		1.81	%		1.80	%		1.79	%			1.74	%		1.79	%
1 Annualized measure.

Reconciliation of Non-GAAP Financial Measures – Adjusted Net Income, Adjusted Earnings Per Share and Adjusted Return on Average Assets
(dollars in thousands)
	Three Months Ended											Nine Months Ended
	September 30, 2020			June 30, 2020			September 30, 2019				September 30, 2020				September 30, 2019
Net income	$	30,829		$	25,806		$	24,828				$	71,999		$	74,382
Acquisition expenses
Salaries, wages and employee benefits		-			-			3,673					-			3,716
Data processing		-			-			172					-			506
Lease or fixed asset impairment		234			-			-					234			415
Other (includes professional and legal)		99			141			3,100					385			7,598
Other restructuring costs
Salaries, wages and employee benefits		2,011			346			182					2,357			457
Data processing		-			-			84					-			476
Other (includes professional and legal)		185			-			459					185			1,452
MSR valuation impairment		-			-			-					-			1,822
Related tax benefit		(555	)		(102	)		(1,963	)				(687	)		(4,177	)
Adjusted net income	$	32,803		$	26,191		$	30,535				$	74,473		$	86,647
Diluted average common shares outstanding		54,737,920			54,705,273			55,646,104					54,796,354			55,057,518
Reported: Diluted earnings per share	$	0.56		$	0.47		$	0.45				$	1.31		$	1.35
Adjusted: Diluted earnings per share	$	0.60		$	0.48		$	0.55				$	1.36		$	1.57
Average total assets	$	10,680,995		$	10,374,820		$	9,659,769				$	10,249,578		$	9,352,272
Reported: Return on average assets1		1.15	%		1.00	%		1.02	%				0.94	%		1.06	%
Adjusted: Return on average assets 1		1.22	%		1.02	%		1.25	%				0.97	%		1.24	%
1 Annualized measure.

Reconciliation of Non-GAAP Financial Measures – Adjusted Net Interest Margin
(dollars in thousands)
	Three Months Ended										Nine Months Ended
	September 30, 2020			June 30, 2020			September 30, 2019				September 30, 2020			September 30, 2019
Reported: Net interest income	$	69,753		$	70,813		$	73,476			$	209,999		$	215,287
Tax-equivalent adjustment		638			717			778				2,085			2,232
Purchase accounting accretion related to business combinations		(2,618	)		(2,477	)		(2,974	)			(7,922	)		(9,439	)
Adjusted: Net interest income	$	67,773		$	69,053		$	71,280			$	204,162		$	208,080
Average interest-earning assets	$	9,805,948		$	9,485,200		$	8,781,590			$	9,371,157		$	8,514,580
Reported: Net interest margin1		2.86	%		3.03	%		3.35	%			3.02	%		3.42	%
Adjusted: Net Interest margin1		2.75	%		2.93	%		3.22	%			2.91	%		3.27	%
1 Annualized measure.

Reconciliation of Non-GAAP Financial Measures – Adjusted Efficiency Ratio
(dollars in thousands)
	Three Months Ended										Nine Months Ended
	September 30, 2020			June 30, 2020			September 30, 2019				September 30, 2020			September 30, 2019
Reported: Net Interest income	$	69,753		$	70,813		$	73,476			$	209,999		$	215,287
Tax- equivalent adjustment		638			717			778				2,085			2,232
Tax-equivalent interest income	$	70,391		$

FAQ

What were First Busey Corporation's Q3 2020 earnings results?

First Busey Corporation reported Q3 2020 net income of $30.8 million or $0.56 per diluted share.

How did First Busey's adjusted earnings compare in Q3 2020?

Adjusted net income for Q3 2020 was $32.8 million, with adjusted EPS at $0.60.

What was the impact of branch consolidations on First Busey's financials?

The branch consolidations are expected to generate annualized expense savings of approximately $3.3 million.

How did First Busey's assets change in Q3 2020?

Total assets decreased from $10.84 billion at June 30, 2020, to $10.54 billion at September 30, 2020.

What challenges did First Busey Corporation face in Q3 2020?

First Busey faced challenges including a decline in net interest margin and an increase in provision for credit losses.