Business Context and Reporting Period
Company: First Busey Corporation (Nasdaq: BUSE)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter and nine months ended September 30, 1999
Business Overview: A financial holding company operating primarily through its subsidiary, Busey Bank, providing commercial and retail banking services in central Illinois, Indianapolis, and Fort Myers, Florida. It also operates First Busey Trust & Investment Co.
Key Financial Metrics
| Metric | Nine Months Ended 9/30/99 | Nine Months Ended 9/30/98 | Quarter Ended 9/30/99 | Quarter Ended 9/30/98 |
|---|---|---|---|---|
| Net Income | $9,751,000 | $8,701,000 | $3,454,000 | $2,989,000 |
| Diluted EPS | $0.70 | $0.62 | $0.25 | $0.21 |
| Net Interest Income | $27,449,000 | $25,765,000 | $9,415,000 | $8,679,000 |
| Total Assets (Period End) | $1,051,043,000 | $958,550,000 | $1,051,043,000 | $958,550,000 |
| Total Loans (Period End) | $735,495,000 | $634,043,000 | $735,495,000 | $634,043,000 |
| Total Deposits (Period End) | $886,070,000 | $824,016,000 | $886,070,000 | $824,016,000 |
| Net Cash from Operating Activities | $18,797,000 | $3,838,000 | N/A | N/A |
| Return on Average Assets | 1.33% | 1.26% | 1.35% | 1.26% |
| Net Interest Margin | 4.16% | 4.16% | 4.07% | 4.10% |
| Efficiency Ratio | 61.1% | 62.5% | 60.4% | 62.9% |
Material Changes vs. Prior Period
- Profitability Growth: Net income increased 12.1% year-over-year for the nine-month period, driven by a 6.5% increase in net interest income and a 15.5% increase in non-interest income (excluding security gains).
- Balance Sheet Expansion: Total assets grew 10.5% to $1.05 billion. Loans increased 11.1% ($73.2 million), primarily in commercial and mortgage categories. Total deposits rose 7.2% ($59.4 million).
- Liquidity and Borrowings: Short-term borrowings increased significantly by $25.3 million to $31.2 million, largely due to a $23.8 million repurchase agreement entered into by Busey Bank.
- Expense Management: Total other expenses increased 6.4% year-over-year. Notably, data processing expenses decreased $921,000 due to the conversion from an outsourced solution to an in-house system in late 1998, though occupancy and equipment costs rose 29.0%.
- Asset Quality: Non-performing assets increased to 0.40% of loans plus non-performing assets (from 0.29% at year-end 1998), primarily due to an increase in loans 90 days past due and still accruing. The allowance for loan losses remained at 1.07% of total loans.
Outlook, Risks, and Management Commentary
- Acquisition Activity: On October 29, 1999, the company announced the consummation of the acquisition of Eagle BancGroup, Inc. for approximately $27.0 million in cash. This is expected to increase First Busey's market share of deposits in McLean County to approximately 12%.
- Capital Resources: The company maintains strong capital ratios (Risk-based: 12.69%; Leverage: 7.58%), well above regulatory minimums. The dividend payout ratio was 46.3% for the nine months ended September 30, 1999.
- Market Risk: The company is currently liability-sensitive in the 1-30 day repricing category (negative gap of $232.5 million). Management notes this structure benefits the company if interest rates fall in the near term. Simulation models indicate minimal impact on net interest income from immediate +/- 100 or 200 basis point shifts over a one-year horizon.
- Year 2000 Compliance: Management reports completion of all five steps of the Y2K project plan as of March 31, 1999, including validation and implementation. Estimated renovation expenses were $155,000. A business continuity plan is in place and tested.
- Unusual Items: Net income included security gains of approximately $452,000 (after tax) for the nine-month period, representing 4.6% of net income. Operating earnings (excluding security gains) were $9.3 million.
Investor Verification Checklist
- Acquisition Integration: Verify the financial impact and integration progress of the Eagle BancGroup acquisition announced in late October 1999.
- Asset Quality Trends: Monitor the ratio of non-performing assets, specifically the increase in loans 90 days past due, to ensure it does not accelerate.
- Interest Rate Sensitivity: Assess the impact of the negative interest rate gap (liability sensitivity) on net interest margin if interest rates rise unexpectedly.
- Expense Ratios: Confirm that the reduction in data processing costs is sustainable and that occupancy/equipment costs do not continue to rise disproportionately to revenue.
- Capital Adequacy: Review future capital requirements in light of the recent acquisition and ongoing share repurchase program.