First Busey Corporation — FY 2012 Form 10-K
Business context and reporting period. This annual report covers the year ended December 31, 2012, with comparisons to 2011 and 2010; it is not a standalone fourth-quarter filing. First Busey is a financial holding company operating banking, wealth management and payment-processing businesses in Illinois, southwest Florida and Indiana. Total assets were $3.62 billion.
Financial performance and condition
| Metric | FY 2012 | FY 2011 |
|---|---|---|
| Interest income | $116.9 million | $132.8 million |
| Net interest income | $102.1 million | $110.4 million |
| Noninterest income | $66.9 million | $59.0 million |
| Net income | $22.4 million | $29.9 million |
| Net income available to common shareholders | $18.7 million; diluted EPS $0.22 | $24.5 million; diluted EPS $0.29 |
| Net interest margin | 3.24% | 3.52% |
| Efficiency ratio | 68.54% | 59.03% |
| Cash from operating activities | $49.1 million | $115.9 million |
- FY 2012 total assets increased 6.3% to $3.62 billion. Deposits grew 7.8% to $2.98 billion, including noninterest-bearing deposits up 21.5% to $611.0 million. Gross loans rose 1.1% to $2.07 billion; available-for-sale securities increased 20.4% to $1.00 billion.
- At year-end, cash and due from banks were $351.3 million. The company reported a $20 million operating credit line fully available, alongside access to repurchase agreements and Federal Reserve and Federal Home Loan Bank borrowing. Management said projected liquidity needs were adequately covered.
- Year-end borrowings included $139.0 million under securities repurchase agreements, $7.0 million of long-term debt and $55.0 million of junior subordinated debt. Stockholders’ equity was $408.8 million.
- Consolidated capital ratios were 18.63% total risk-based capital, 17.34% Tier 1 risk-based capital and 11.30% Tier 1 leverage; the Bank was also above “well-capitalized” thresholds.
- Credit quality improved: nonperforming loans fell to $25.4 million from $38.5 million, and nonperforming assets to $28.8 million from $47.0 million. The allowance for loan losses was $48.0 million, or 2.32% of loans; net charge-offs were $27.0 million and provision expense was $16.5 million.
Material changes versus the prior year
- Net income fell 25% and common diluted EPS declined from $0.29 to $0.22. Net interest income declined 7.5%, while the margin contracted 28 basis points, reflecting lower loan balances and yields and low rates.
- Noninterest income rose 13.3%, led by wealth-management fees, mortgage loan-sale gains and a $3.1 million gain on private-equity investments. Management characterized the private-equity gain as nonrecurring.
- Noninterest expense increased 14.4%; compensation rose 21.7% and data-processing expense 28.1%, including investment in staff, the new core-processing system and branch-closure costs. The efficiency ratio consequently worsened.
- Cash from operations decreased substantially year over year; investing activities used $204.4 million, principally reflecting securities purchases, while financing activities provided $191.6 million, primarily from deposit growth.
Outlook, commentary and risks
- Management expected gradual asset-quality improvement in 2013, subject to local economic conditions, and described organic loan growth and relationship banking as priorities. It also expected continued net interest margin pressure in 2013, with near-term improvement dependent partly on redeploying liquid funds into higher-yielding assets. No numeric earnings or revenue guidance was provided.
- The company closed three branches in late 2012 and planned four additional Illinois branch closures in the second quarter of 2013. It completed a core-system conversion and launched a wealth-management boutique in southwest Florida.
- Principal risks include real-estate and commercial-credit concentrations, continued economic weakness in southwest Florida, Illinois fiscal stress and delayed state payments, low-rate margin pressure, deposit-funding competition, securities valuation sensitivity to interest rates, and evolving regulatory and capital requirements. The filing also highlights uncertainty around realization of $39.4 million in net deferred tax assets and possible ownership-change limitations.
- Common dividends were $0.24 per share for 2012; the December payment included an accelerated regular quarterly dividend and an additional $0.04 per share. Future dividends remain subject to earnings, capital needs and regulatory restrictions. The Bank had a retained deficit and could not pay dividends to the parent at year-end; with regulatory approval, it transferred $50 million of capital to the parent on January 22, 2013.
- Management reported no material pending litigation. The auditor issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Whether loan growth can be sustained without weakening underwriting, and whether nonperforming assets and charge-offs continue to decline.
- How net interest margin and earnings respond to persistently low rates, competition and the planned shift toward higher-yielding assets.
- Whether higher staffing, system-conversion and branch-consolidation costs produce the expected revenue growth and operating efficiencies.
- The recurring earnings contribution excluding the $3.1 million private-equity gain and securities gains, and the sustainability of the $0.24 annual common dividend.
- The effect of the $50 million capital transfer on Bank capital, parent-company liquidity, and the Bank’s ability to resume upstream dividends.
- Whether deferred tax assets are realized and how final regulatory capital rules may affect capital ratios, distributions and lending.