Business Context and Reporting Period
Company: First Busey Corporation (Nevada)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter and six months ended June 30, 2001
Overview: First Busey Corporation operates three reportable segments: Busey Bank, Busey Bank fsb, and First Busey Trust & Investment Co. The company provides full-service banking and trust services primarily in central Illinois and Florida. As of June 30, 2001, the company had 13,546,813 common shares outstanding.
Key Financial Metrics
| Metric | Six Months Ended June 30, 2001 | Six Months Ended June 30, 2000 |
|---|---|---|
| Net Income | $8,125,000 | $7,539,000 |
| Diluted EPS | $0.60 | $0.55 |
| Total Assets | $1,334,547,000 | $1,355,044,000 (Dec 31, 2000) |
| Total Loans | $969,784,000 | $984,369,000 (Dec 31, 2000) |
| Total Deposits | $1,134,815,000 | $1,148,787,000 (Dec 31, 2000) |
| Net Interest Margin (FTE) | 3.61% | 3.83% |
| Return on Average Assets | 1.24% | 1.24% |
| Efficiency Ratio | 58.8% | 56.7% |
| Cash Flow from Operations | ($11,990,000) | $14,114,000 |
| Non-Performing Assets | $2,907,000 (0.22% of assets) | $5,675,000 (Dec 31, 2000) |
Material Changes vs. Prior Period
- Profitability: Net income increased 7.8% year-over-year to $8.125 million. Diluted earnings per share rose 9.1% to $0.60. Operating earnings (excluding security gains) were $7.599 million, a slight increase from $7.524 million in the prior year.
- Balance Sheet: Total assets decreased 1.5% to $1.33 billion. Loans declined 1.5% due to reductions in commercial and residential mortgages, partially offset by growth in real estate construction. Total deposits decreased 1.2%.
- Interest Margin: The net interest margin contracted to 3.61% from 3.83% in the prior year. This was driven by a 10 basis point decline in asset yields and a 21 basis point increase in liability costs, following Federal Reserve rate reductions.
- Debt Structure: Short-term borrowings decreased significantly by $25 million to $7.28 million. The company issued $25 million in trust preferred securities to reduce short-term debt associated with a prior acquisition.
- Cash Flow: Operating cash flow turned negative at ($11.99 million) compared to positive $14.11 million in the prior year, largely due to loan origination activities and changes in accrued expenses.
Outlook, Risks, and Management Commentary
- Asset Quality: Non-performing assets decreased to 0.22% of total assets from 0.42% at year-end 2000. Management attributes this to vigorous underwriting and aggressive collection procedures. The allowance for loan losses was 1.34% of total loans.
- Economic Risks: Management expressed concern regarding the weakening economy in 2001. A continued deterioration could lead to higher non-performing loans and charge-offs, potentially requiring increased provisions for loan losses and reducing net income.
- Interest Rate Sensitivity: The company has a negative rate-sensitivity gap of $221.2 million in the 1-30 day window, making it liability-sensitive. Management notes this structure would benefit from falling interest rates in the near term.
- Operational Changes: Increased expenses in salaries, benefits, and occupancy were attributed to the opening of a new full-service branch in Fort Myers, Florida. Data processing expenses decreased due to system consolidation.
- Accounting Updates: The company noted the issuance of SFAS No. 141 and 142 regarding business combinations and goodwill, which will be effective for fiscal years beginning after December 15, 2001. The impact on financial statements has not yet been determined.
Investor Verification Checklist
- Loan Portfolio Composition: Verify the specific impact of the decline in commercial and residential mortgage loans on future revenue streams.
- Non-Performing Asset Trends: Monitor the ratio of non-performing assets (currently 0.30% of loans) against the allowance for loan losses (1.34% of loans) to assess reserve adequacy given economic concerns.
- Net Interest Margin Pressure: Track the spread between asset yields and liability costs, as the margin compression (3.61% vs 3.83%) impacts core profitability.
- Operating Cash Flow: Investigate the drivers behind the negative operating cash flow of $11.99 million, specifically the timing of loan originations versus sales.
- Efficiency Ratio: Review the efficiency ratio of 58.8% (up from 56.7%) to ensure expense growth remains controlled relative to revenue.