Business Context and Reporting Period
Company: First Busey Corporation (Nevada)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter ended March 31, 1998
Business Overview: First Busey Corporation operates as a bank holding company with subsidiaries including Busey Bank and a new subsidiary, Busey Business Bank, located in Indianapolis, Indiana. The company focuses on commercial, real estate, and consumer lending.
Key Financial Metrics
| Metric | Q1 1998 | Q1 1997 | Dec 31, 1997 (Balance Sheet) |
|---|---|---|---|
| Total Assets | $934.9 million | $866.9 million | $915.5 million |
| Total Loans (Net) | $603.3 million | $554.2 million | $596.1 million |
| Total Deposits | $800.9 million | $769.2 million | $811.5 million |
| Net Interest Income | $8.6 million | $7.9 million | - |
| Net Income | $2.7 million | $2.4 million | - |
| Diluted EPS | $0.39 | $0.34 | - |
| Cash Flow from Operations | $4.5 million | $5.9 million | - |
| Net Interest Margin | 4.21% | 4.22% | - |
| Efficiency Ratio | 58.8% | 60.5% | - |
| Risk-Based Capital Ratio | 13.39% | - | 13.01% |
Material Changes vs. Prior Period
- Profitability: Net income increased 12.6% to $2.711 million compared to $2.408 million in Q1 1997. Diluted earnings per share rose 14.7% to $0.39.
- Asset Growth: Total assets grew 2.1% quarter-over-quarter and 7.8% year-over-year. Loans increased $7.8 million (1.3%) sequentially, driven by commercial, real estate construction, and residential mortgages.
- Deposit Trends: Total deposits decreased 1.3% sequentially to $800.9 million, primarily due to an 8.5% drop in non-interest bearing deposits.
- Borrowing Activity: Short-term borrowings increased $10 million to $16.55 million to capitalize the new Busey Business Bank subsidiary. Long-term debt doubled to $25 million.
- Expense Management: Total other expenses increased 8.4% year-over-year, with salaries and wages up 12.7% and data processing costs up 35.4%. However, the efficiency ratio improved to 58.8% from 60.5%.
- Asset Quality: Non-performing assets rose to $2.375 million (0.25% of total assets) from $2.182 million at year-end, driven by an increase in loans 90 days past due.
Outlook, Risks, and Management Commentary
- Capital Strategy: The company repurchased 31,455 shares of Class A stock for $886,000 to meet future stock option issuance requirements. Retained earnings increased by $1.396 million after dividends.
- Year 2000 Compliance: Management is executing a five-phase plan to address Y2K issues, including a conversion from outsourced to in-house core data processing systems in Fall 1998. Estimated costs are approximately $3.8 million.
- Interest Rate Risk: The balance sheet is currently liability-sensitive in the short term (1-180 days). Management notes that falling rates would benefit the net interest margin in the near term, while rising rates would be beneficial after 180 days.
- Loan Sales: The company anticipates continued sales of mortgage loans to maintain asset/liability structure, with gains dependent on market conditions.
- Liquidity: Liquidity is maintained through asset maturities, deposits, and a $10 million operating line of credit with American National Bank and Trust Company (with $4 million available).
Investor Verification Checklist
- Security Gains Impact: Verify the sustainability of earnings, as security gains represented 7.2% of net income in Q1 1998 compared to 2.7% in the prior year.
- Y2K Implementation Costs: Monitor the $3.8 million projected cost for the in-house data processing conversion and potential delays.
- Deposit Stability: Assess the impact of the 8.5% decline in non-interest bearing deposits on future funding costs.
- Asset Quality Trends: Track the increase in loans 90 days past due and the corresponding rise in the provision for loan losses ($650k vs $200k prior year).
- Subsidiary Capitalization: Confirm the operational status and capital adequacy of the new Busey Business Bank subsidiary in Indianapolis.