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CHAMPAIGN — With the purchase of a bank in Edwardsville, First Busey Corp. will be one large step closer to $10 billion in assets, a threshold where various regulations kick in.
The holding company for Busey Bank agreed Wednesday to buy Banc Ed Corp., the holding company for The Bank of Edwardsville, for about $304.9 million.
Once the transaction is approved and closes in late 2018 or early 2019, Busey said it will have combined assets of $9.6 billion with the addition of the Edwardsville bank’s $1.9 billion in total consolidated assets.
It will also have 82 branches, including 62 in Illinois, 14 in Missouri, five in Florida and one in Indiana.
"That’s the company’s next big strategic decision: What are they going to do with that threshold?" said Michael Perito, an analyst with Keefe Bruyette & Woods who is following Busey. "They probably have a little time, but at some point, they’ll have to do something."
Once banks reach $10 billion in assets, Perito said they are subject to more vigorous stress testing to determine their health, and they can’t charge as high of payment-processing fees.
"When they’re under $10 billion, they can charge higher rates," Perito said. "Depending on how retail-oriented a bank is, this could be a few-percentage-points hit to its earnings."
Banks are also subject to oversight from the Consumer Financial Protection Bureau once they hit $10 billion in assets, Perito said.
The good news, he said, is that Busey likely won’t face the rules for larger banks until at least the summer of 2021.
"Even with a full year of organic growth, I think they’ll stay under $10 billion through 2019, assuming there’s no other acquisitions," Perito said.
Banks are measured at the end of the year based on their average assets from the previous four quarters, so if they reach $10 billion at the end of 2020, then the rules won’t hit until 2021.
"It’s not as profitable to operate just over $10 billion, but it’s not good to manage growth and stay under $10 billion," Perito said. "You have to cross somehow," whether through purchases of more banks or a partnership with a larger bank.
"We’ll likely know what this is over the next 12 to 24 months," he said.
But he said the purchase of the bank in Edwardsville puts Busey in a good position to cross that threshold.
"It gives them a little flexibility to not have to immediately propel over $10 billion assets," he said.
Busey officials were too busy Wednesday to comment, but in a statement, CEO Van Dukeman said that the deal "supports our strategic intention of increasing market share through partnerships with organizations whom have strong core deposit funding, solid commercial banking and credit practices, and a tradition of serving wealth management clients for generations."
Once the deal is completed, Busey said its deposit share in the St. Louis metro area will improve from 18th to seventh.
"They’re acquiring what seems to be a very solid deposit franchise at a time when premiums on deposits are starting to increase. It gives them a lot of lower-cost liquidity they can deploy over time," Perito said. "Overall, it bolsters them in St. Louis," which he said is a growth market.
"It seems like a pretty solid transaction that isn’t trying to change what Busey’s trying to do," he said. "It fits into their prior and continued strategy."
This is the second St. Louis-area bank First Busey has bought in recent years.
In October 2016, it completed its purchase of Pulaski Bank for $211.6 million.
Since then, it has also bought First Community Financial Partners in the southwest suburbs of Chicago for $242 million and Mid Illinois Bancorp, the holding company of South Side Trust & Savings Bank of Peoria, for $133.4 million.
Shares of First Busey stock rose 0.47 percent on the news to $32.04.
The purchase of Banc Ed will consist of about 70 percent stock and 30 percent cash, with Banc Ed shareholders receiving $111.53 in cash and 8.2067 shares of First Busey stock for every share of Banc Ed they own.