Key Highlights

  • GAAP diluted EPS was $0.61 and adjusted diluted EPS was $0.63, down from $0.69 in the second quarter.
  • Provision for credit losses was $9.6 million, compared with $2.2 million in the second quarter.
  • Net interest margin was 3.58%, down from 3.72% in the second quarter.
  • Classified assets were $244.9 million, up from $226.0 million in the prior quarter.
  • The bank repurchased 1,972,900 shares for $59.6 million, bringing year-to-date buybacks to $188.4 million.

First Busey Earnings: Did a Single Credit Weigh on the Third Quarter?

First Busey (NASDAQ:BUSE) reported third-quarter results on Tuesday, October 27, with GAAP diluted EPS of $0.61 and adjusted diluted EPS of $0.63, compared with $0.69 in the second quarter and $0.58 and $0.64 a year earlier. Net income was $55.8 million, or $57.2 million adjusted. The chief executive attributed the weaker result mainly to one commercial relationship in the Central region, and the release gave no numeric guidance.

The screen showed an EPS estimate of $0.67, so the adjusted figure sits at a surprise of -6.17% as screened. Nine-month GAAP EPS was $1.81 against $0.83 a year ago.

First Busey is a bank holding company with $18.56 billion in assets and $15.54 billion in deposits, plus a wealth business with $16.72 billion in assets under care.

First Busey Credit Quality: How Large Is the Problem Relationship?

The provision was $9.6 million, against $2.2 million in the second quarter and a $1.0 million release a year earlier. Net charge-offs were $11.4 million, or 0.35% of loans, up from 0.19%. One relationship totaling $37.6 million received a $10.0 million partial charge-off and a $17.8 million individual reserve against the remaining $27.6 million.

Non-performing loans rose to $81.6 million, or 0.64% of loans, from $67.4 million and 0.51% in the second quarter. Classified assets were $244.9 million, compared with $161.1 million a year earlier. The allowance was $164.3 million, or 1.28% of loans, equal to 2.01 times non-performing loans versus 2.44 times in the second quarter.

First Busey Margin and Fees: Why Did the Net Interest Margin Fall 14 Basis Points?

Net interest income was $153.1 million, up from $152.4 million in the second quarter. The net interest margin was 3.58%, versus 3.72% last quarter and 3.58% a year ago, while the adjusted margin excluding purchase accounting was 3.46%. Deposit cost of funds rose to 1.93% from 1.80%, and a +100 basis point rate shock is projected to raise net interest income by 1.5% over 12 months.

Noninterest income was $40.4 million, with wealth management fees of $19.8 million, up about 15.5% year over year. Noninterest expense was $111.4 million, down from $120.0 million a year ago, and the efficiency ratio was 54.4%.

Portfolio loans fell to $12.82 billion from $13.20 billion in the second quarter and $13.60 billion a year ago. Loans held for sale of $68.1 million include $65.1 million from a lender finance pool, reclassified in the quarter and sold in the fourth. Deposits grew $408.8 million, or 2.7%, lowering the loan-to-deposit ratio to 82.5%.

First Busey Capital Return: What Do Buybacks and Tangible Book Value Signal Next?

The bank bought back 1,972,900 shares at a weighted average of $30.21 for $59.6 million, and $188.4 million year to date, with 1,925,875 shares left under the authorization. The common dividend was $0.26 per share. Tangible book value per share fell to $19.37 from $20.40, and tangible common equity to tangible assets was 8.70%, down from 9.57%.

The CET1 ratio was 12.47% and cash was $883.1 million. Watch for updates on the problem relationship, loan runoff, deposit costs and buyback capacity.