Business Context and Reporting Period
Company: First Busey Corporation (First Busey)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2010
Business Overview: First Busey operates three reportable segments: Busey Bank (commercial and retail banking in Illinois, Indiana, and Florida), FirsTech (remittance processing), and Busey Wealth Management (trust and investment services). The company is an accelerated filer and a participant in the Treasury Capital Purchase Program (CPP).
Key Financial Metrics
| Metric (in thousands, except per share) | Q1 2010 | Q1 2009 |
|---|---|---|
| Net Income | $4,217 | $5,893 |
| Net Income Available to Common Shareholders | $2,935 | $5,506 |
| Diluted Earnings Per Share (EPS) | $0.04 | $0.15 |
| Net Interest Income | $29,005 | $27,564 |
| Net Interest Margin (Tax-Equivalent) | 3.52% | 2.89% |
| Provision for Loan Losses | $14,700 | $10,000 |
| Total Other Income | $16,294 | $16,122 |
| Total Other Expenses | $25,213 | $25,880 |
| Efficiency Ratio | 53.69% | 56.02% |
| Total Assets | $3,702,480 | $4,410,790 (Avg) |
| Total Loans (Net) | $2,582,723 | $2,663,491 (Dec 2009) |
| Total Deposits | $3,079,018 | $3,171,080 (Dec 2009) |
| Stockholders' Equity | $328,716 | $328,128 (Dec 2009) |
Material Changes vs. Prior Period
- Profitability: Net income decreased 28.4% year-over-year to $4.2 million, primarily due to a higher provision for loan losses ($14.7 million vs. $10.0 million) and increased preferred stock dividends. However, pre-provision, pre-tax income improved to $20.1 million from $17.8 million in Q1 2009.
- Asset Quality: Non-performing loans increased to $100.7 million (up from $86.3 million at year-end 2009) but remain significantly below the peak of $172.5 million in Q3 2009. The allowance for loan losses to non-performing loan ratio decreased to 94.2% from 116.1%.
- Balance Sheet Contraction: Total assets declined 2.9% from December 31, 2009. Net loans decreased by approximately $80.8 million, driven by $25.9 million in charge-offs and customer refinancing. Total deposits declined 2.9%.
- Net Interest Margin: Improved to 3.52% from 2.89% in Q1 2009, driven by a significant decline in interest-bearing liability costs (1.63% vs. 2.43%) which outpaced the decline in asset yields.
- Expense Management: Total other expenses decreased 2.6% year-over-year. Compensation expenses dropped 8.5% due to a reduction in full-time equivalent employees. FDIC insurance expense nearly doubled (98.8% increase) due to industry-wide rate hikes.
Guidance, Outlook, and Risks
- Outlook: Management expects balance sheet contraction to continue through at least the second quarter of 2010 as they reduce non-performing loans and exposure in non-owner-occupied commercial real estate. Growth is expected to be gradual and driven by core deposits.
- Market Conditions: Illinois markets are described as stable with strong industrial and academic anchors. Southwest Florida shows signs of stabilization but requires years to return to prior economic strength. Credit challenges persist in subdivision projects, hotels, and retail space.
- Asset Quality Risks: Management anticipates gradual improvement in credit metrics but notes that additional losses may be identified, particularly in the southwest Florida market. Potential problem loans totaled $196.5 million.
- Regulatory & Tax: The company is under examination by the IRS for tax years 2007 and 2008, with $1.1 million accrued for anticipated adjustments. Audits by Illinois and Florida Departments of Revenue are expected to begin in Q2 2010.
- Capital: First Busey and Busey Bank met all regulatory capital requirements and are considered "well capitalized" as of March 31, 2010.
- Stock Repurchases: The company is prohibited from repurchasing common stock under the CPP until the Treasury no longer holds equity securities, despite having 895,655 shares authorized for repurchase.
Investor Verification Checklist
- Non-Performing Loan Trends: Verify the trajectory of non-performing loans in the Florida market, which increased to $43.7 million, and the adequacy of the allowance for loan losses (94.2% coverage).
- Provision Sustainability: Assess whether the $14.7 million provision for loan losses is a one-time adjustment or indicative of ongoing credit deterioration.
- Deposit Stability: Monitor the continued decline in total deposits ($67 million drop in interest-bearing deposits) and the reliance on higher-cost funding sources.
- Fee Income Volatility: Review FirsTech revenue trends, which declined 19.5% due to issues in the cellular phone customer base, and the impact of new regulations on deposit account service charges.
- Tax Contingencies: Confirm the status of the IRS and state tax examinations and the potential for additional accruals beyond the $1.1 million currently reserved.