First Busey Corp. 10-Q Summary: Period Ended June 30, 2005
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended June 30, 2005, and the six-month period ended June 30, 2005, for First Busey Corporation, a financial holding company operating primarily through Busey Bank (Illinois/Indiana) and Busey Bank Florida. The filing includes unaudited consolidated financial statements. The company recently completed the acquisition of First Capital Bankshares (merged into Busey Bank in May 2005) and closed the acquisition of Tarpon Coast Bancorp in July 2005.
Key Financial Metrics
| Metric | Six Months Ended June 30, 2005 | Six Months Ended June 30, 2004 | Quarter Ended June 30, 2005 |
|---|---|---|---|
| Net Income | $12,812,000 | $10,901,000 | $6,276,000 |
| Diluted EPS | $0.62 | $0.53 | $0.31 |
| Total Assets | $2,027,862,000 | $1,964,441,000 (Dec 31, 2004) | N/A |
| Total Loans | $1,575,742,000 | $1,475,900,000 (Dec 31, 2004) | N/A |
| Total Deposits | $1,632,714,000 | $1,558,822,000 (Dec 31, 2004) | N/A |
| Net Interest Margin (Tax-Equivalent) | 3.69% | 3.56% | 3.74% |
| Return on Average Assets | 1.29% | 1.38% | 1.25% |
| Return on Average Equity | 18.51% | 17.26% | 17.89% |
| Allowance for Loan Losses | $21,119,000 | $19,217,000 (Dec 31, 2004) | N/A |
| Non-Performing Assets | $6,961,000 (0.34% of assets) | $7,899,000 (Dec 31, 2004) | N/A |
Material Changes vs. Prior Period
- Profitability: Net income increased 17.5% year-over-year for the six-month period, driven by a 29.9% increase in net interest income (tax-equivalent basis) and growth in non-interest income.
- Balance Sheet Growth: Total assets grew 3.2% since year-end 2004. Loans increased 6.8%, primarily due to growth in real estate construction (up 26.9%), residential mortgages, and non-farm nonresidential mortgages. Deposits increased 4.7%, largely driven by Busey Bank Florida.
- Interest Rates: The average yield on interest-earning assets increased 56 basis points to 5.81%, while the average cost of interest-bearing liabilities increased 45 basis points to 2.41%.
- Asset Quality: Non-performing assets decreased 11.9% to $6.96 million. However, "potential problem loans" increased significantly to $10.35 million from $3.25 million at year-end, largely due to two large commercial credits.
- Provision for Loan Losses: The provision doubled to $2.115 million for the six months ended June 30, 2005, compared to $1.08 million in the prior year, reflecting loan growth and the increase in potential problem loans.
Outlook, Risks, and Management Commentary
- Acquisitions: The company closed the acquisition of Tarpon Coast Bancorp in July 2005 for approximately $35.6 million, funded by stock and cash. The First Capital Bank acquisition was fully integrated into Busey Bank in May 2005.
- Florida Construction Lending: Management terminated a short-term residential construction lending program at Busey Bank Florida due to concerns over accelerated growth rates, though they believe the existing loans meet underwriting standards and do not contain excessive risk.
- Capital Resources: The company and its subsidiaries are "Well Capitalized" under regulatory guidelines. Total capital to risk-weighted assets was 11.33% for the consolidated entity.
- Liquidity: Liquidity is managed through deposits, investment maturities, and access to the Federal Reserve and Federal Home Loan Banks. The company has a $10 million operating line of credit fully available.
- Market Risk: The company maintains a liability-sensitive gap structure in the short term (1-30 days) but is asset-sensitive beyond 30 days. Simulation models indicate net interest income would increase by 1.55% with a 100 basis point rise in rates.
- Stock Repurchases: The company repurchased 100,000 shares during the first six months of 2005, completing its 2001 repurchase plan and continuing under the 2004 plan.
Investor Verification Checklist
- Potential Problem Loans: Verify the status and collateral coverage of the $10.35 million in potential problem loans, specifically the two large commercial credits cited by management.
- Florida Construction Portfolio: Assess the credit quality and performance of the terminated short-term residential construction loan program in Southwest Florida.
- Integration Costs: Monitor the impact of the Tarpon Coast Bancorp acquisition on future operating expenses and revenue synergies.
- Interest Rate Sensitivity: Review the company's asset-liability management strategy given the liability-sensitive gap in the 1-30 day window.
- Allowance Adequacy: Evaluate the sufficiency of the allowance for loan losses (1.34% of total loans) given the rise in potential problem loans and the increased provision expense.