First Busey Corporation — 2014 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2014. The filing also provides unaudited fourth-quarter results. First Busey is a financial holding company operating banking, wealth management and payment-processing businesses, principally in downstate Illinois, southwest Florida and central Indiana.
Financial performance and condition
- Profit: Net income was $32.8 million, up from $28.7 million in 2013. Net income available to common shareholders was $32.0 million, or $0.37 per diluted share, versus $25.1 million, or $0.29 per share. Lower preferred dividends contributed to the increase in common earnings.
- Revenue and margins: Net interest income was $101.6 million, versus $100.1 million. Net interest margin was 3.15%, unchanged from 2013. Total other income declined to $58.9 million from $62.6 million, mainly due to lower gains on loan sales and lower other income. The efficiency ratio improved to 65.11% from 66.39%.
- Credit costs and asset quality: Provision for loan losses fell to $2.0 million from $7.5 million; net charge-offs were $2.1 million versus $7.9 million. Nonperforming loans declined to $9.0 million from $17.4 million, and nonperforming assets to $9.2 million from $19.5 million. The allowance was $47.5 million, or 1.96% of gross loans.
- Balance sheet and liquidity: Total assets were $3.67 billion, up 3.6%; gross loans were $2.42 billion, up 5.2%; deposits were $2.90 billion, up 1.1%. Cash and due from banks ended the year at $339.4 million. Management said liquidity was adequate for projected obligations; average liquid assets were 7.0% of average total assets, down from 8.1%.
- Debt and capital: Year-end borrowings included $198.9 million of repurchase agreements, $50.0 million of FHLB long-term debt and $55.0 million of junior subordinated debt. The Bank was well-capitalized: total risk-based capital was 14.94%, Tier 1 risk-based capital 13.66%, and leverage ratio 10.10%. The Bank had no brokered deposits.
- Cash flow: Operating activities provided $68.1 million, investing activities used $51.3 million, and financing activities provided $91.0 million. Cash increased by $107.8 million during the year.
Changes from 2013 and notable items
- Profitability improved with lower credit provisions, reduced operating expenses and a preferred-stock dividend decline to $0.7 million from $3.6 million. Noninterest expense fell 3.7% to $108.2 million.
- Loan growth and a larger share of noninterest-bearing deposits supported performance, while low rates and competition continued to pressure asset yields. Interest expense fell, but management expected net interest margin compression to remain a focus in 2015.
- Noninterest income fell 5.8%. Loan-sale gains declined to $4.7 million from $10.2 million as refinance activity weakened; wealth-management fees and payment-processing revenue increased.
- First Busey acquired Herget Financial on January 8, 2015, after year-end, for $34.1 million in cash. Herget had $278.8 million of assets at December 31, 2014; its results are not included in this filing. First Busey incurred $0.4 million of related acquisition costs in 2014.
- The company reported a $1.5 million loss on private-equity investments in 2014, including a $0.6 million write-down of a local investment.
Outlook, risks and contingencies
- No quantified earnings or revenue guidance is provided. Management cited continued attention to expense discipline, relationship-based loan growth, liquidity, and deploying liquid funds into loans as economic conditions permit.
- Key risks include interest-rate changes and margin pressure; credit and collateral risk, particularly given the real-estate-heavy loan book; economic weakness in Illinois and southwest Florida; competition; regulatory and compliance costs, including Basel III; and cybersecurity, technology and third-party operational risks.
- Illinois fiscal challenges, including pension underfunding, budget deficits and vendor-payment delays, could affect local borrowers and employers. Management also noted that southwest Florida had improved but had not returned to peak economic strength.
- The Bank remained in a retained-deficit position and could not pay dividends to the parent from retained earnings; distributions require regulatory approval. First Busey’s $22.2 million net deferred tax asset depends on future taxable income, and an ownership change could limit tax-loss utilization.
- Ordinary-course litigation was not expected by management to have a material effect. The filing reports no material pending litigation beyond routine matters.
Important facts for investors to verify
- Whether subsequent Herget acquisition integration, purchase accounting and expected cost savings meet management’s expectations.
- Whether margin pressure, loan yields and deposit funding costs affect net interest income in 2015.
- Whether credit quality remains strong as loans grow, including commercial real-estate concentrations, potential problem loans of $30.9 million and the adequacy of the loan-loss allowance.
- Whether capital, liquidity and parent-company cash remain sufficient, given restrictions on Bank dividends and the company’s debt and repurchase plans.
- Whether deferred tax assets are realizable and whether regulatory changes or local economic conditions materially affect results.