Business Context and Reporting Period
Company: First Busey Corporation (Nevada corporation, financial holding company)
Reporting Period: Fiscal year ended December 31, 2009
Operations: The Company operates through three primary segments: Busey Bank (commercial and retail banking in Illinois, Florida, and Indiana), FirsTech (retail payment processing), and Busey Wealth Management (asset management and fiduciary services).
Key Events: In August 2009, the Company merged its Florida subsidiary, Busey Bank, N.A., into Busey Bank. In March 2009, the Company participated in the U.S. Treasury's Capital Purchase Program (TARP), issuing $100 million in Series T Preferred Stock. In late 2009, the Company raised additional capital through a public common stock offering ($78.1 million net) and a private placement of convertible preferred stock ($39.3 million).
Key Financial Metrics
| Metric | 2009 | 2008 |
|---|---|---|
| Net Income (Loss) | $(323.1) million | $(37.9) million |
| Net Income (Loss) Available to Common Shareholders | $(327.9) million | $(37.9) million |
| Diluted EPS | $(7.85) | $(1.06) |
| Total Assets | $3.81 billion | $4.46 billion |
| Total Deposits | $3.17 billion | $3.51 billion |
| Net Interest Income | $114.5 million | $123.3 million |
| Net Interest Margin | 3.04% | 3.33% |
| Provision for Loan Losses | $251.5 million | $98.3 million |
| Goodwill Impairment | $208.2 million | $22.6 million |
| Allowance for Loan Losses | $100.2 million | $98.7 million |
| Non-Performing Assets (NPA) | $103.5 million (2.71% of total assets) | $100.0 million (2.24% of total assets) |
| Stockholders' Equity | $328.1 million | $454.8 million |
| Tangible Common Equity to Tangible Assets | 4.89% | 4.71% |
Material Changes vs. Prior Period
- Significant Losses: The Company reported a net loss of $323.1 million in 2009, a substantial increase from the $37.9 million loss in 2008. This was driven primarily by a $208.2 million goodwill impairment charge and a $251.5 million provision for loan losses.
- Asset Quality Deterioration and Resolution: While non-performing assets increased slightly year-over-year, the Company took aggressive action in Q4 2009 to sell $73.4 million of Florida loans (mostly non-performing) for $47.3 million, resulting in significant charge-offs. Non-performing loans decreased 50% from the Q3 2009 peak of $172.4 million to $86.3 million at year-end.
- Balance Sheet Contraction: Total assets declined 14.5% to $3.81 billion, and total deposits declined 9.6% to $3.17 billion. The Company reduced high-cost brokered deposits and allowed loans to run off to improve asset quality.
- Capital Position: Despite the losses, the Company strengthened its capital ratios through equity raises. It remained "well-capitalized" under regulatory standards at both the consolidated and bank levels.
Guidance, Outlook, and Risks
- Outlook: Management indicated that credit metrics peaked in Q3 2009 and improved in Q4. Core pre-provision, pre-tax profit improved to $17.0 million in Q4 2009. However, the Company does not expect significant loan growth in 2010 due to economic uncertainty.
- Revenue Expectations: FirsTech revenue is expected to decline 25-35% in 2010 due to customer difficulties.
- Key Risks:
- Southwest Florida Exposure: Continued economic downturn in Florida poses significant risk to real estate collateral values and loan performance.
- Goodwill Impairment: Remaining goodwill ($20.7 million) related to non-banking segments is subject to future impairment testing.
- Deferred Tax Assets: The Company holds $66.5 million in net deferred tax assets. An "ownership change" under Section 382 of the Internal Revenue Code could limit the use of these assets.
- Liquidity and Funding: Reliance on brokered deposits and correspondent lines of credit remains a risk if market conditions worsen.
- Regulatory Constraints: TARP participation restricts the Company's ability to increase dividends or repurchase stock without Treasury consent.
Investor Verification Checklist
- Florida Loan Portfolio: Verify the current valuation and remaining exposure of the Southwest Florida loan portfolio, specifically construction and commercial real estate loans.
- Allowance Adequacy: Assess whether the $100.2 million allowance for loan losses (3.6% of total loans) is sufficient given the high concentration of real estate collateral and potential for further charge-offs.
- Deferred Tax Asset Realization: Confirm the Company's ability to generate sufficient future taxable income to realize the $66.5 million deferred tax asset without triggering a valuation allowance.
- Capital Ratios: Monitor Tier 1 leverage and risk-based capital ratios to ensure they remain above "well-capitalized" thresholds, particularly as the Company seeks to repay TARP funds.
- Non-Performing Asset Trends: Track the resolution of the $103.5 million in non-performing assets and the impact of potential further sales or foreclosures on earnings.