Business Context and Reporting Period
Company: First Busey Corporation (Nasdaq: BUSE)
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2008
Business Overview: First Busey is a $4.5 billion financial holding company operating through two banking subsidiaries (Busey Bank and Busey Bank, N.A.), a wealth management subsidiary (Busey Wealth Management), and a payment processing subsidiary (FirsTech). Operations are concentrated in downstate Illinois, southwest Florida, and central Indiana. The company completed a merger of equals with Main Street Trust, Inc. in August 2007.
Key Financial Metrics
| Metric | 2008 | 2007 |
|---|---|---|
| Net Income (Loss) | $(37.9) million | $31.5 million |
| Diluted EPS | $(1.06) | $1.13 |
| Total Assets | $4.46 billion | $4.19 billion |
| Gross Loans | $3.26 billion | $3.05 billion |
| Total Deposits | $3.51 billion | $3.21 billion |
| Net Interest Income | $123.3 million | $101.5 million |
| Net Interest Margin | 3.33% | 3.58% |
| Provision for Loan Losses | $98.3 million | $14.5 million |
| Allowance for Loan Losses | $98.7 million | $42.6 million |
| Stockholders' Equity | $454.8 million | $530.0 million |
| Return on Average Assets | (0.89)% | 0.99% |
| Return on Average Equity | (7.39)% | 9.89% |
Material Changes vs. Prior Period
- Net Loss: The company reported a net loss of $37.9 million in 2008, a reversal from the $31.5 million net income in 2007. This was primarily driven by a $98.3 million provision for loan losses (compared to $14.5 million in 2007) and a $22.6 million goodwill impairment charge.
- Asset Quality Deterioration: Non-performing loans increased significantly to $84.2 million (2.58% of total loans) from $20.1 million (0.66%) in 2007. Approximately 72.7% of non-performing loans were concentrated in the southwest Florida market.
- Goodwill Impairment: A full impairment of $22.6 million was recorded for Busey Bank, N.A. due to operating losses and the severe downturn in the southwest Florida real estate market.
- Loan Portfolio Growth: Despite the economic downturn, gross loans grew by $204.4 million (6.7%), driven primarily by growth in the downstate Illinois market. Real estate-mortgage loans comprised 58.5% of the portfolio.
- Capital Position: Stockholders' equity decreased by $74.9 million due to the net loss, dividend payments, and treasury stock purchases. However, the company remained "well-capitalized" under regulatory guidelines.
Guidance, Outlook, and Risks
- TARP Participation: On March 6, 2009, the company sold $100 million of Series T Preferred Stock to the U.S. Treasury under the Capital Purchase Program (CPP). This transaction includes a warrant to purchase 1.15 million shares of common stock. Participation restricts the company's ability to increase common dividends above $0.20 per share or repurchase common stock without Treasury consent until March 2012.
- Dividend Restrictions: Busey Bank, N.A. is currently prohibited by the OCC from paying dividends due to its loan portfolio deterioration. The holding company relies primarily on dividends from Busey Bank (Illinois) for cash flow.
- Economic Outlook: Management expects continued challenges in the southwest Florida market, which has not shown signs of economic improvement. Downstate Illinois markets remain relatively stable but face softening conditions.
- Key Risks:
- Real Estate Exposure: Significant concentration in real estate loans (58.5% mortgage, 22.8% construction), particularly in Florida, exposes the company to collateral value declines.
- Credit Risk: The allowance for loan losses may be insufficient if economic conditions worsen, necessitating further provisions.
- Regulatory Constraints: Compliance with CPP compensation limits and dividend restrictions.
Investor Verification Checklist
- Florida Asset Quality: Verify the specific composition and collateral values of the $59.9 million in non-accrual loans located in Florida.
- Allowance Adequacy: Assess whether the 3.03% allowance-to-loan ratio is sufficient given the 72.7% concentration of non-performing assets in Florida.
- Dividend Sustainability: Confirm the ability of Busey Bank (Illinois) to generate sufficient dividends to support the holding company's obligations, given the restriction on Busey Bank, N.A. dividends.
- TARP Impact: Review the specific terms of the Series T Preferred Stock and the potential dilution from the warrant exercise.
- Goodwill Impairment: Monitor the remaining goodwill balance ($228.9 million) for potential further impairment if stock prices or earnings decline.