Business Context and Reporting Period
Company: First Busey Corporation (First Busey)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2011
Business Overview: First Busey operates three primary segments: Busey Bank (commercial and retail banking in Illinois, Indiana, and Florida), FirsTech (payment processing), and Busey Wealth Management (trust and investment services). The company is an accelerated filer and is subject to regulatory capital requirements.
Key Financial Metrics
| Metric (in thousands, except per share) | Q1 2011 | Q1 2010 |
|---|---|---|
| Net Income | $9,110 | $4,217 |
| Net Income Available to Common Stockholders | $7,334 | $2,935 |
| Diluted Earnings Per Share (EPS) | $0.09 | $0.04 |
| Total Assets | $3,517,965 | $3,724,025 (Avg) |
| Total Loans (Net) | $2,137,782 | $2,243,055 (Dec 2010) |
| Total Deposits | $2,853,996 | $2,916,366 (Dec 2010) |
| Net Interest Income | $28,347 | $29,005 |
| Net Interest Margin (Tax-Equivalent) | 3.55% | 3.52% |
| Provision for Loan Losses | $5,000 | $14,700 |
| Efficiency Ratio | 55.87% | 53.69% |
| Stockholders' Equity | $423,931 | $420,505 (Dec 2010) |
Material Changes vs. Prior Period
- Profitability Surge: Net income increased 116% year-over-year to $9.1 million, driven primarily by a $9.7 million reduction in the provision for loan losses ($5.0 million in Q1 2011 vs. $14.7 million in Q1 2010).
- Asset Quality Improvement: Non-performing loans decreased to $60.9 million (down from $68.1 million in Q4 2010 and $100.7 million in Q1 2010). The ratio of non-performing assets to total loans plus OREO improved to 3.04%.
- Loan Portfolio Contraction: Net loans declined $105.3 million from the prior quarter due to soft loan demand and a strategic reduction in non-relationship commercial real estate exposure. Loans held for sale also declined $29.5 million.
- Deposit Growth: Non-time deposits increased by $29.8 million (1.6%) quarter-over-quarter, while interest-bearing deposits declined overall as high-cost funding matured.
- Expense Management: Total other expenses increased slightly by 1.8% year-over-year, with regulatory expenses rising 26.2% due to increased FDIC and IDFPR assessment rates.
Guidance, Outlook, and Risks
- Management Outlook: Management expects gradual improvement in asset quality and profitability in 2011. Priorities remain balance sheet strength, profitability, and growth. The company initiated an organic growth initiative in January 2011.
- Market Conditions: The Illinois market remains relatively stable due to strong industrial, academic, and healthcare anchors. However, the State of Illinois faces significant fiscal challenges, including tax increases and payment delays to vendors, which poses a risk to the company's primary market. The Florida market shows small signs of improvement but remains challenged by the tourism and retirement residential sectors.
- Interest Rate Risk: The company is currently liability-sensitive through one year but effectively asset-sensitive due to the low interest rate environment. A 100 basis point increase in rates is projected to decrease net interest income by 1.36%.
- Capital Constraints: Due to participation in the Treasury's Capital Purchase Program (TARP), the company is restricted from repurchasing common stock until the Treasury no longer holds equity securities.
- Unusual Items: The company switched its allowance for loan losses calculation method to a rolling 20-quarter weighted average, which increased allowance requirements by 13.3% compared to the prior method.
Investor Verification Checklist
- Allowance Adequacy: Verify the sufficiency of the $74.8 million allowance for loan losses (3.35% of loans) given the $60.9 million in non-performing loans and the specific risks in the Florida real estate market.
- Loan Growth Strategy: Assess the effectiveness of the new organic growth initiative in reversing the $105 million decline in the loan portfolio.
- State of Illinois Exposure: Evaluate the potential impact of Illinois state fiscal instability on the company's primary customer base (universities, healthcare, and state contractors).
- Non-Performing Asset Trends: Monitor the quarterly reduction of non-performing assets to ensure the trend of improvement continues despite economic headwinds.
- Regulatory Capital: Confirm continued compliance with "well-capitalized" status under Prompt Corrective Action provisions, particularly regarding Tier 1 capital ratios.