Business Context and Reporting Period
Company: First Busey Corporation (First Busey)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2010
Business Overview: First Busey operates through 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's Capital Purchase Program (TARP).
Key Financial Metrics
| Metric | Three Months Ended 9/30/2010 | Nine Months Ended 9/30/2010 | Dec 31, 2009 (Balance Sheet) |
|---|---|---|---|
| Net Income | $6.0 million | $15.9 million | N/A |
| Net Income Available to Common | $4.7 million ($0.07/share) | $12.1 million ($0.18/share) | N/A |
| Total Assets | N/A | N/A | $3.53 billion |
| Total Deposits | N/A | N/A | $2.92 billion |
| Net Loans (Net of Allowance) | N/A | N/A | $2.38 billion |
| Net Interest Margin (Tax-Equivalent) | 3.64% | 3.55% | N/A |
| Efficiency Ratio | 58.21% | 57.46% | N/A |
| Allowance for Loan Losses (ALL) | N/A | N/A | $83.1 million (3.30% of loans) |
| Non-Performing Loans (NPL) | N/A | N/A | $79.7 million |
| Other Real Estate Owned (OREO) | N/A | N/A | $11.5 million |
Material Changes vs. Prior Period
- Profitability Turnaround: The company returned to profitability in Q3 2010 with net income of $6.0 million, a significant improvement from a net loss of $282.3 million in Q3 2009. The nine-month 2010 net income was $15.9 million compared to a $295.6 million loss in the same period of 2009.
- Provision for Loan Losses: The provision for loan losses decreased dramatically to $9.5 million in Q3 2010 from $140.0 million in Q3 2009. For the nine months, the provision was $31.7 million versus $197.5 million in 2009.
- Asset Quality: Non-performing loans decreased to $79.7 million (3.2% of loans) from $86.3 million at year-end 2009 and significantly from $172.5 million in Q3 2009. OREO decreased to $11.5 million from $17.2 million at year-end 2009.
- Balance Sheet Contraction: Total assets declined 7.4% to $3.53 billion from $3.81 billion at year-end 2009. Net loans declined $257.5 million, driven by charge-offs and loan sales. Total deposits decreased 7.8% to $2.92 billion.
- Expense Reduction: Total other expenses for the nine months dropped 72.8% to $79.9 million from $293.7 million in 2009, primarily due to the absence of the $208.2 million goodwill impairment charge recorded in 2009.
Outlook, Risks, and Management Commentary
- Outlook: Management expects continued gradual improvement in credit metrics in Q4 2010, subject to market-specific economic conditions. They anticipate balance sheet contraction to continue through the next quarter but expect loan growth to be accretive to net interest income and margin in the future.
- Market Conditions: Illinois markets remain stable with strong industrial and academic anchors. Southwest Florida shows signs of stabilization with rising home prices, though a full recovery is expected to take years. Indiana markets show slight improvement.
- Regulatory Risks: The Dodd-Frank Act (signed July 2010) introduces new capital standards and consumer protection rules. While current trust preferred securities are grandfathered, future capital requirements may necessitate seeking other capital sources. The act also permits interest on demand deposits, potentially increasing funding costs.
- 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 could compress margins as liabilities reprice faster than assets.
- Unusual Items: The 2009 results were heavily impacted by a $208.2 million goodwill impairment charge. 2010 results include non-recurring items such as bank-owned life insurance settlements and private equity fund adjustments.
Investor Verification Checklist
- Asset Quality Trends: Verify the sustainability of the decline in non-performing loans and the adequacy of the $83.1 million allowance for loan losses (104.3% coverage of NPLs) given the concentration of risk in Florida and Indiana.
- Deposit Stability: Monitor the run-off of high-cost time deposits and the ability to replace them with core, lower-cost deposits to maintain the improved net interest margin.
- Regulatory Capital: Confirm the impact of Dodd-Frank capital rules on the company's ability to utilize trust preferred securities as Tier 1 capital and assess future capital raising needs.
- Non-Interest Income: Review the decline in remittance processing revenue (FirsTech) and service charges to ensure these trends stabilize as the economy recovers.
- Goodwill Impairment: While no impairment was recorded in 2010, monitor the valuation of the remaining goodwill associated with FirsTech and Busey Wealth Management for potential future charges.