Acquisition

9 Months Ended

Sep. 30, 2019

Acquisition

Acquisition

Note 2: Acquisition

The Banc Ed Corp.

On January 31, 2019, the Company completed its acquisition of The Banc Ed Corp. (“Banc Ed”). TheBANK, Banc Ed’s wholly-owned bank subsidiary, was operated as a separate subsidiary from the completion of the acquisition until October 4, 2019 when it was merged with and into Busey Bank. At that time, TheBANK’s banking centers became banking centers of Busey Bank.

Under the terms of the merger agreement with Banc Ed, at the effective time of the acquisition, each share of Banc Ed common stock issued and outstanding was converted into the right to receive 8.2067 shares of the Company’s common stock, cash in lieu of fractional shares and $111.53 in cash consideration per share. The market value of the 6.7 million shares of First Busey common stock issued at the effective time of the acquisition was approximately $166.5 million based on First Busey’s closing stock price of $24.76 on January 31, 2019.

This transaction was accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed, and consideration exchanged was recorded at estimated fair values on the date of acquisition. Fair values are considered provisional until final fair values are determined or the measurement period has passed, but no later than one year from the acquisition date. Reviews of third party valuations are still being performed by management. Therefore amounts are subject to change and could change materially from the provisional amounts disclosed below. During the quarter ended September 30, 2019, the Company adjusted the provisional fair value estimates of Banc Ed’s assets acquired and liabilities assumed. Adjustments included a $0.1 million decrease to premises and equipment and a $0.3 decrease to other liabilities with a corresponding decrease to goodwill of $0.2 million.

First Busey incurred $6.5 million and $11.5 million in pre-tax expenses related to the acquisition of Banc Ed for the three and nine months ended September 30, 2019, respectively, primarily for salaries, wages and employee benefits, professional and legal fees and deconversion expenses, all of which are reported as a component of non-interest expense in the accompanying unaudited Consolidated Statements of Income.

The following table presents the estimated fair value of Banc Ed’s assets acquired and liabilities assumed as of January 31, 2019 (dollars in thousands):

	Estimated
	Fair Value
Assets acquired:
Cash and cash equivalents	$	42,013
Securities		692,716
Loans held for sale		2,157
Portfolio loans		873,336
Premises and equipment		31,804
Other intangible assets		32,617
Mortgage servicing rights		6,946
Other assets		57,296
Total assets acquired		1,738,885
Liabilities assumed:
Deposits		1,439,203
Other borrowings		63,439
Other liabilities		24,760
Total liabilities assumed		1,527,402
Net assets acquired	$	211,483
Consideration paid:
Cash	$	91,400
Common stock		166,515
Total consideration paid	$	257,915
Goodwill	$	46,432

The loans acquired in this transaction were recorded at fair value with no carryover of any existing allowance for loan losses.  Loans that were not deemed to be credit-impaired at the acquisition date were accounted for under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 310-20, Receivables-Nonrefundable Fees and Other Costs, and were subsequently considered as part of the Company’s determination of the adequacy of the allowance for loan losses.  Purchased credit impaired (“PCI”) loans were accounted for under ASC 310-30, Receivables — Loans and Debt Securities Acquired with Deteriorated Credit Quality.  As of the acquisition date, the aggregate principal balance outstanding and aggregate fair value of the acquired performing loans were $889.3 million and $871.0 million, respectively.  The difference between the carrying value and aggregate fair value of $17.0 million will be accreted over the estimated remaining life of the respective loans in a manner that approximates the level yield method.  As of the acquisition date, the aggregate principal balance outstanding of PCI loans totaled $3.9 million and the aggregate fair value of PCI loans totaled $2.3 million.  The accretable discount of $0.2 million on PCI loans represents the amount by which the undiscounted expected cash flows on such loans exceed their carrying value. The amount by which the contractual payments exceeds the undiscounted expected cash flows represents the non-accretable difference. The difference between contractually required payments at the acquisition date and the cash flow expected to be collected is referred to as the non-accretable difference.  Further, the excess of cash flows expected at acquisition over the fair value is referred to as the accretable yield. At September 30, 2019, the carrying value of PCI loans acquired from Banc Ed was $1.5 million. 

Since the acquisition date, Banc Ed earned total revenues of $53.7 million and net income of $9.5 million, which are included in the Company’s unaudited Consolidated Statements of Income for the nine months ended September 30, 2019.  The following table provides the unaudited pro forma information for the results of operations for the three and nine months ended September 30, 2019 and 2018, as if the acquisition had occurred January 1, 2018.  The pro forma results combine the historical results of Banc Ed into the Company’s unaudited Consolidated Statements of Income, including the impact of purchase accounting adjustments including loan discount accretion, intangible assets amortization, deposit accretion and premises accretion, net of taxes.  The pro forma results have been prepared for comparative purposes only and are not necessarily indicative of the results that would have been obtained had the acquisition actually occurred on January 1, 2018.  No assumptions have been applied to the pro forma results of operations regarding possible revenue enhancements, expense efficiencies or asset dispositions (dollars in thousands, except per share amounts):

		Pro Forma
		Three Months Ended September 30,			Nine Months Ended September 30,
		2019		2018		2019	2018
Total revenues (net interest income plus non- interest income)	$	104,543	$	101,001	$	305,709	$	306,472
Net income		30,811		31,641		84,742		87,972
Diluted earnings per common share		0.55		0.57		1.51		1.60

Investors’ Security Trust Company

On August 31, 2019, the Company completed the previously announced acquisition by Busey Bank of Investors’ Security Trust Company (“IST”), a Fort Myers, Florida wealth management firm. While the partnership is expected to add to the Company’s wealth management offerings, it is not expected to have any immediate, material impact on the Company’s earnings or overall business.

This transaction was accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed, and consideration exchanged was recorded at estimated fair values on the date of acquisition. Fair values are considered provisional until final fair values are determined or the measurement period has passed, but no later than one year from the acquisition date. Reviews of third party valuations are still being performed by management.

First Busey incurred $0.5 million and $0.7 million in pre-tax expenses related to the acquisition of IST for the three and nine months ended September 30, 2019, respectively, primarily for professional and legal fees, which are reported as a component of non-interest expense in the accompanying unaudited Consolidated Statements of Income.