BUSE

Business Context and Reporting Period

Company: First Busey Corporation
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2005
Business Overview: First Busey Corporation operates through four reportable segments: Busey Bank, Busey Bank Florida, First Capital Bank (acquired June 2004), and Busey Investment Group. The company provides a full range of banking, trust, and investment services primarily in Illinois and Florida.

Key Financial Metrics

Note: Q1 2004 figures for assets and liabilities are based on average balances where applicable for margin calculations, or period-end balances where explicitly stated in the text. EPS and Net Income are period totals.

Material Changes vs. Prior Period

• Revenue Growth: Net interest income increased by $3,899,000 (31.5%) driven by a 29.9% increase in average earning assets and a 45 basis point increase in the yield on earning assets to 5.69%. This growth was significantly aided by the full-year inclusion of First Capital Bank and expansion in Busey Bank Florida.
• Expense Management: Total other expenses rose 18.8% to $11.25 million, primarily due to the addition of First Capital Bank ($502,000 in salaries) and growth in Busey Bank Florida. Salaries and wages increased 14.4%.
• Asset Quality: Non-performing assets increased slightly to $7.995 million (0.40% of total assets). Non-accrual loans rose to $1.974 million, while loans 90+ days past due declined. Potential problem loans increased to $5.65 million, largely due to a single commercial customer with seasonal cash flow issues.
• Loan Portfolio: Total loans grew 2.2% quarter-over-quarter to $1.51 billion, with significant increases in real estate construction and 1-4 family residential mortgages.

Guidance, Outlook, and Risks

• Pending Acquisition: On February 24, 2005, the company agreed to acquire Tarpon Coast Bancorp, Inc. for approximately $35.6 million ($27.00 per share). The deal is expected to close by August 30, 2005, subject to regulatory and shareholder approval. The cash portion (~$17.6 million) is intended to be funded via short-term debt.
• Stock Repurchases: The company completed its 2001 stock repurchase plan (750,000 shares) and continued repurchasing shares under the 2004 plan. 85,000 shares were repurchased in Q1 2005 at an average price of $20.82.
• Market Risk: The company maintains a liability-sensitive gap structure in the short term (1-90 days), meaning it would benefit from a decrease in interest rates. Management utilizes simulation models to monitor the impact of rate shifts on net interest income.
• Capital Resources: As of March 31, 2005, the consolidated entity and all subsidiary banks met or exceeded "Well Capitalized" regulatory requirements. Total Capital to Risk-Weighted Assets was 10.82% (Consolidated).
• Unusual Items: The company recognized a gain of $423,000 on the sale of mortgage loans, down from $822,000 in the prior year, reflecting slower refinancing activity due to rising interest rates.

Investor Verification Checklist

• Acquisition Closing: Verify the regulatory approval status and closing date of the Tarpon Coast Bancorp acquisition.
• Interest Rate Sensitivity: Monitor the impact of rising interest rates on the company's liability-sensitive gap and net interest margin.
• Asset Quality Trends: Track the "potential problem loans" category, specifically the $1.94 million exposure to the commercial customer with seasonal cash flow deficiencies.
• Debt Maturity: Review the schedule for long-term debt repayments, including the $4 million annual principal reductions on the note payable related to the First Capital Bank acquisition starting in 2006.
• Stock Repurchase Activity: Confirm the remaining capacity under the 2004 stock repurchase plan (675,889 shares remaining as of March 31, 2005).