Business Context and Reporting Period
Company: First Busey Corporation
Filing Type: Form 10-Q (Unaudited)
Period Ended: June 30, 2009
Business Overview: First Busey operates four reportable segments: Busey Bank (Illinois/Indiana), Busey Bank, N.A. (Southwest Florida), FirsTech (remittance processing), and Busey Wealth Management. The company is an accelerated filer and is subject to regulatory capital requirements.
Key Financial Metrics
| Metric | Six Months Ended 6/30/2009 | Six Months Ended 6/30/2008 |
|---|---|---|
| Net Income (Loss) | $(13.2) million | $14.6 million |
| Net Income (Loss) Available to Common | $(15.0) million | $14.6 million |
| Diluted EPS | $(0.42) | $0.41 |
| Net Interest Income | $56.0 million | $62.8 million |
| Net Interest Margin (Tax-Equivalent) | 2.90% | 3.47% |
| Provision for Loan Losses | $57.5 million | $14.5 million |
| Total Assets | $4.28 billion | $4.46 billion (Dec 31, 2008) |
| Total Deposits | $3.34 billion | $3.51 billion (Dec 31, 2008) |
| Stockholders' Equity | $529.0 million | $454.8 million (Dec 31, 2008) |
| Cash and Due from Banks | $90.8 million | $190.1 million (Dec 31, 2008) |
Material Changes vs. Prior Period
- Significant Losses: The company reported a net loss of $13.2 million for the six months ended June 30, 2009, compared to net income of $14.6 million in the prior year. This reversal was primarily driven by a $57.5 million provision for loan losses, compared to $14.5 million in 2008.
- Asset Quality Deterioration: Non-performing loans increased to $127.1 million (4.0% of total loans) from $84.2 million at year-end 2008. Non-accrual loans rose to $122.6 million. Charge-offs totaled $68.7 million for the six-month period.
- Geographic Concentration of Risk: Credit challenges are concentrated in the Southwest Florida market, which accounts for 21.1% of the loan portfolio. The non-performing loan ratio in Florida was 13.6%, compared to 1.1% in Illinois.
- Capital Injection: In March 2009, the company received $100 million from the U.S. Treasury under the Capital Purchase Program (CPP) in exchange for Series T Preferred Stock. This increased stockholders' equity despite operating losses.
- Expense Increases: FDIC insurance expense surged to $4.7 million (from $0.4 million in 2008) due to a special assessment of $2.2 million.
Outlook, Risks, and Management Commentary
- Market Conditions: Management notes that Illinois markets remain stable, anchored by strong industrial and academic institutions. Conversely, Southwest Florida continues to suffer from double-digit real estate value deterioration, high vacancy rates, and unemployment.
- Dividend Policy: The quarterly common dividend was reduced from $0.20 to $0.08 per share to retain capital. Future dividends are subject to Treasury consent under the CPP agreement until the preferred stock is redeemed.
- Loan Portfolio Strategy: Management expects average loans to continue declining due to charge-offs and increased credit selectivity. Significant resources are being dedicated to resolving Florida credit issues.
- Interest Rate Risk: The company is currently liability-sensitive through one year but effectively asset-sensitive due to the low interest rate environment. A rise in rates would negatively impact net interest income as liabilities reprice faster than assets.
- Goodwill Impairment: While no new goodwill impairment was recorded in Q2 2009, management noted a $22.6 million impairment charge for Busey Bank, N.A. in 2008 and warned that future declines in stock price or earnings could trigger further impairment testing.
Investor Verification Checklist
- Florida Exposure: Verify the specific composition and collateral values of the $670 million loan portfolio in Southwest Florida and the adequacy of the allowance for loan losses relative to this concentration.
- Charge-off Trends: Monitor the trajectory of charge-offs and non-accrual loans in the Florida subsidiary (Busey Bank, N.A.) to assess if the peak of credit deterioration has passed.
- CPP Restrictions: Confirm the impact of Treasury restrictions on common stock repurchases and dividend increases on shareholder returns.
- FDIC Assessments: Review future FDIC assessment schedules to determine if the $2.2 million special assessment was a one-time event or indicative of ongoing regulatory costs.
- Net Interest Margin: Track the ability to maintain net interest margins as higher-yielding assets mature and are replaced in a low-rate environment.