Life insurance lending was the carrot in First Busey-Merchants deal

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First Busey Corp. of Champaign, Illinois, announced late Monday a $41.6 million cash and stock deal to acquire Merchants & Manufacturers Bank near Chicago.

Merchants and Manufacturers Bank had a limited line of business that it aimed to take over from First Busy Corporation. The seller’s 20-year life insurance mortgage business was “a key driver in our decision,” Van Dueckman, chairman, president and CEO of First Busey, said Tuesday.

First Busey It agreed to pay $41.6 million in cash and stock. In a deal announced late Monday for Oakbrook Terrace, Illinois-based dealers and manufacturers.

The Merchants & Manufacturers Life Equity Loan Program offers a revolving line of credit secured by the cash value of borrowers’ life insurance policies. It generates good risk-adjusted returns, but few if any are credit headaches, FirstBusy executives said. In fact, after the introduction of life equity loans in 2003, traders and manufacturers have experienced zero losses on their products.

“It’s incredibly safe,” said Jeff Jones, chief financial officer of FirstBusy. “In addition to cash bonds, top-rated insurance companies are behind these policies, such as Northwest Mutual and Massmutual.”

“It’s our favorite line of business,” added Dukeman. “You can think of it as a home equity line of credit, except it’s secured by cash.”

From Duckman.jpg

Van Dueckman, Chairman, President and CEO of First Busy.

Given its strong fundamentals, life insurance lending is an arena where dozens of banks, non-bank lenders and insurance companies offer competitive products. Dukeman attributes the success of the dealers and manufacturers to their relationships with insurance agents across the country to access life equity loans for their policyholders.

“The team at dealers and manufacturers has done a great job of developing relationships,” said Dueckmann.

If something like this is possible, it can be a great job. Traders and manufacturers have been forced to sell large volumes of products from the line of business in recent years, Jones said, as the scheme’s growth has outstripped balancing capacity. “They’re really taken from a capital and liquidity perspective,” Jones said. This is the gas-and-oxygen mix they need to keep the business growing.

With $473 million in assets, Traders and Manufacturers is dwarfed by First Busey, which has $12.3 billion in assets. This additional lift should support additional lending through the life insurance business line.

“We can alleviate those concerns for them,” Jones added.

Bussey Bank’s corporate parent, First Bussey, has some experience in life insurance lending. According to Dukeman, he purchased these types of loans from another lender. More importantly, in 2021, it will sell $1.5 billion to Cummins-American Corp., the holding company for Glenview State Bank. have got. Cummins-American used to buy loans from dealers and manufacturers, “so we got a little bit of exposure,” Dukeman said.

The merchant and manufacturer life equity loan portfolio has grown at a 20% compound annual growth rate since the end of 2019, First Bussey said. As of September 30, it totaled $224 million, or 55% of the total loan book. The company’s profits followed a similar trend, growing from $2.3 million in 2019 to $4.1 million in 2022. In the first nine months of 2023, traders and producers reported earnings of $5.1 million, according to the Federal Deposit Insurance Corporation.

Brian Martin, an analyst who covers the business for Janney Montgomery Scott First, described buying traders and manufacturers as “positive” in a research note on Tuesday. In addition to strengthening First Busey’s position in the greater Chicago metropolitan area, it will also add scalable loan products, Martin wrote. Investors appear to have put their stamp of approval on the deal, with First Busey shares trading up more than 2% at $21.36 midday Tuesday.

Founded in 1969, Traders & Manufacturers operates five locations in DuPage and Will counties, west of Chicago and Cook County. First Busey operates eight branches in Will and DuPage. In the year As of June 30, it accounted for 1.4 percent of the $71 billion deposit market. The combined company will have 13 subsidiaries and a 2% equity interest in Will and DuPage.

The median household income for both DuPage ($100,292) and Will ($95,751) is well above the national average of $69,021, according to the Census Bureau.

Monday’s deal “helps us in what we consider to be a very good market,” Dukeman said.

The $41.6 million price represents 142% tangible book value from traders and manufacturers, up from the 2023 average of 129%, said Laurie Hanner Hunsicker, analyst at Seaport Research Partners. For FirstBus, the acquisition, which is expected to close in the second quarter of 2024, will generate a 1.5% book value plus two-year earnings. Earnings per share growth is estimated to be 6% in 2025, the first full year for the combined company.

Martin described the merger as “strategically compelling and financially attractive” in a research note.

Dueckman said the relatively small size of the transaction and the strong credit quality metrics of both companies do not foresee any obstacles to closing on time. First Bussey reported $12 million in loans, or 0.15% of its $7.9 billion property portfolio, as of September 30. Traders and manufacturers reported zero workers.

“It’s relatively small with no significant external businesses,” Dukeman said. “You don’t think it’s going to take long.” We will submit our application and investigate.”

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