BUSE

Business Context and Reporting Period

Company: First Busey Corporation (Nevada corporation, principal office in Urbana, Illinois).
Filing Type: Form 10-Q (Unaudited Quarterly Report).
Reporting Period: Quarter and nine months ended September 30, 1997.
Business Overview: The Corporation operates as a financial holding company with a bank subsidiary, focusing on commercial and mortgage lending, trust services, and investment securities.

Key Financial Metrics

Revenue and Profit (Nine Months Ended Sept 30, 1997):

• Net Income: $7,695,000 (vs. $6,882,000 in 1996).
• Earnings Per Share (Diluted): $1.10 (vs. $0.99 in 1996).
• Net Interest Income: $24,242,000 (vs. $23,154,000 in 1996).
• Total Other Income: $7,525,000 (vs. $6,310,000 in 1996).
• Total Operating Expenses: $20,212,000 (vs. $19,357,000 in 1996).

Balance Sheet Highlights (As of Sept 30, 1997):

• Total Assets: $904,213,000 (up 4.5% from Dec 31, 1996).
• Total Loans (Net): $597,945,000 (up 6.2% from Dec 31, 1996).
• Total Deposits: $801,412,000 (up 4.5% from Dec 31, 1996).
• Stockholders' Equity: $80,661,000.
• Cash and Due from Banks: $51,189,000.

Key Ratios and Margins:

• Net Interest Margin (9 months): 4.21% (vs. 4.12% in 1996).
• Return on Average Assets (9 months): 1.18% (vs. 1.07% in 1996).
• Efficiency Ratio (9 months): 62.3% (vs. 63.6% in 1996).
• Risk-Based Capital Ratio: 12.90% (vs. 12.48% at Dec 31, 1996).
• Leverage Ratio: 7.65% (vs. 7.14% at Dec 31, 1996).

Material Changes vs. Prior Period

Asset Growth: Total assets increased by $34.3 million, driven primarily by a $35.0 million increase in loans, particularly in commercial and mortgage categories. Securities portfolios decreased as maturities were reinvested into loans.

Liability Structure: Total deposits grew by $34.5 million. Short-term borrowings decreased significantly by $8.7 million (60.0%) due to a reduction in repurchase agreements. Long-term debt doubled to $10.0 million.

Profitability Drivers: Net income increased 11.8% year-over-year. This was fueled by a 3.7% increase in interest income (due to higher average earning assets and yields) and a 15.2% increase in non-interest income (excluding security gains). Operating expenses rose 4.4%, primarily due to increases in salaries, employee benefits, and data processing costs.

Credit Quality: Non-performing assets increased to $3.395 million (0.38% of total assets) from $1.808 million (0.21%) at year-end 1996. This increase was due to higher balances of non-accrual loans ($1.012 million) and loans 90 days past due ($2.036 million), partially offset by a decrease in other real estate owned.

Outlook, Risks, and Management Commentary

Management Commentary: Management attributes the improved net interest margin to the reinvestment of security proceeds into higher-yielding loans. The Corporation continues to sell pooled mortgage loans to maintain its asset/liability structure, recognizing gains dependent on market conditions.

Capital and Liquidity: The Corporation maintains strong capital ratios well above regulatory minimums. Liquidity is supported by non-reinvested asset maturities, deposits, and a $10 million operating line of credit (with $5 million available). The company does not rely on brokered deposits.

Risks and Contingencies:

• Interest Rate Sensitivity: The balance sheet is liability-sensitive in the short term (1-30 days), meaning a drop in interest rates would benefit the net interest margin, while a rise could compress it.
• Credit Risk: Management notes that the installment loan portfolio (dealer paper) could be adversely affected by a weakening economic cycle, potentially necessitating larger loan loss provisions.
• Market Risk: Gains on the sale of pooled loans are subject to interest rate movements and market receptivity to mortgage-backed securities.

Investor Verification Checklist

• Verify the trend in non-performing assets (increased to 0.56% of loans + non-performing assets) and the adequacy of the allowance for loan losses (1.09% of total loans).
• Confirm the sustainability of the net interest margin expansion given the liability-sensitive gap in the short-term repricing category.
• Review the composition of the installment loan portfolio to assess exposure to economic downturns as highlighted by management.
• Monitor the efficiency ratio (62.3%) to ensure operating expense growth remains controlled relative to revenue growth.
• Check the status of the stock repurchase plan and the exercise of outstanding stock options to understand potential dilution or share count changes.