Business Context and Reporting Period
Company: First Busey Corporation (Nasdaq: BUSE)
Reporting Period: Fiscal year ended December 31, 2010
Business Overview: First Busey is a $3.6 billion financial holding company headquartered in Champaign, Illinois. It operates through three primary segments: Busey Bank (commercial and retail banking in Illinois, Florida, and Indiana), Busey Wealth Management (asset management and fiduciary services), and FirsTech (retail payment processing). The company is subject to extensive regulation by the Federal Reserve, FDIC, and state authorities, and remains a participant in the U.S. Treasury's Capital Purchase Program (TARP).
Key Financial Metrics
| Metric | 2010 | 2009 |
|---|---|---|
| Net Income (Consolidated) | $23.2 million | ($323.1 million) loss |
| Net Income Available to Common Shareholders | $18.1 million | ($327.9 million) loss |
| Diluted Earnings Per Share | $0.27 | ($7.85) |
| Total Assets | $3.61 billion | $3.81 billion |
| Total Loans (Gross) | $2.37 billion | $2.79 billion |
| Total Deposits | $2.92 billion | $3.17 billion |
| Net Interest Margin | 3.58% | 3.05% |
| Efficiency Ratio | 55.91% | 63.12% |
| Allowance for Loan Losses | $76.0 million (3.21% of loans) | $100.2 million (3.59% of loans) |
| Non-Performing Assets | $77.3 million (2.15% of total assets) | $103.5 million (2.71% of total assets) |
| Stockholders' Equity | $420.5 million | $328.1 million |
Material Changes vs. Prior Period
- Return to Profitability: The company returned to profitability in 2010 with $23.2 million in net income, a significant turnaround from the $323.1 million loss in 2009. The 2009 loss was heavily impacted by a $208.2 million goodwill impairment charge related to banking operations, which did not recur in 2010.
- Asset Quality Improvement: Non-performing loans decreased to $68.1 million (2.88% of loans) from $86.3 million in 2009. Net charge-offs dropped significantly to $66.1 million in 2010 compared to $250.0 million in 2009.
- Balance Sheet Contraction: Total assets declined 5.5% to $3.61 billion, and the loan portfolio shrank 15.2% as the company actively reduced exposure to non-performing and construction loans. Total deposits decreased 8.0%.
- Capital Strengthening: The company raised $84.3 million in net proceeds through registered direct offerings of common stock and Series B convertible preferred stock in late 2010. This increased the total regulatory capital ratio to 17.55% and Tier 1 leverage ratio to 11.33%.
- Margin Expansion: Net interest margin improved to 3.58% from 3.05%, driven by reduced funding costs and a lower volume of non-accrual loans.
Guidance, Outlook, and Risks
Management Commentary: Management believes the peak of non-performing assets occurred in the third quarter of 2009 and expects gradual improvement in asset quality in 2011, contingent on market-specific economic conditions. The company plans to shift focus from shrinking the balance sheet to facilitating growth through relationship banking while continuing to resolve problem loans.
Regulatory and Economic Risks:
- Illinois Economic Conditions: The company's primary market is downstate Illinois, which faces significant fiscal challenges, including state tax increases and delayed payments to vendors. This poses a risk to the local economy and the company's customers.
- Southwest Florida Exposure: While improving, the southwest Florida market remains a source of credit stress due to the depressed real estate market. Real estate collateral values in this region remain a key risk factor.
- Regulatory Changes: The implementation of the Dodd-Frank Act and Basel III capital standards will increase capital requirements and compliance costs. The company is currently "well-capitalized" but must monitor these evolving standards.
- TARP Restrictions: As a TARP participant, the company faces restrictions on dividend increases and stock repurchases until the Treasury's preferred stock is redeemed.
Key Facts for Investor Verification
- Goodwill Impairment History: Verify the remaining goodwill balance of $20.7 million (associated with FirsTech and Wealth Management) and monitor for potential future impairment charges given the company's stock price volatility.
- Deferred Tax Assets: The company holds $64.2 million in net deferred tax assets. Investors should monitor the realization of these assets, particularly the $50.7 million net operating loss carryforward, and any potential valuation allowances.
- Non-Performing Loan Trends: While NPLs have decreased, verify the geographic concentration of remaining non-performing assets, specifically the increase in Illinois non-performing loans noted in the filing.
- Capital Ratios: Confirm that the company maintains "well-capitalized" status under Prompt Corrective Action provisions to avoid restrictions on brokered deposits and growth.
- TARP Redemption: Track the company's progress toward redeeming the $100 million Series T Preferred Stock issued to the Treasury, which is a prerequisite for lifting dividend and buyback restrictions.