First Busey Corporation — FY 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011; comparisons are primarily with 2010. The filing also reports fourth-quarter results. First Busey is a financial holding company operating banking, wealth management and payment-processing businesses in Illinois, southwest Florida and Indiana.
Financial performance and condition
| Metric | 2011 | 2010 | Change / context |
|---|---|---|---|
| Total assets | $3.40 billion | $3.61 billion | Down 5.6% |
| Net interest income | $110.4 million | $117.2 million | Down 5.8% |
| Net interest margin | 3.52% | 3.58% | Down 6 basis points |
| Net income | $29.9 million | $23.2 million | Up 28.6% |
| Net income available to common shareholders | $24.5 million | $18.1 million | Diluted EPS: $0.29 vs. $0.27 |
| Provision for loan losses | $20.0 million | $42.0 million | Down 52.4% |
| Total other income | $59.0 million | $62.8 million | Down 6.0% |
| Efficiency ratio | 59.03% | 55.91% | Higher, indicating reduced operating efficiency |
| Net cash from operating activities | $115.9 million | $87.8 million | Cash flow includes mortgage-loan originations and sales |
Fourth quarter: Net income was $5.7 million, or $0.05 diluted EPS, compared with $7.6 million, or $0.08 diluted EPS, in Q3 2011.
- Balance sheet and funding: Gross loans fell 13.4% to $2.05 billion, while securities available for sale increased 38.7% to $831.7 million. Deposits decreased 5.2% to $2.76 billion; noninterest-bearing deposits rose 9.2% to $503.1 million. Cash and due from banks ended at $315.1 million.
- Credit quality: Nonperforming loans declined to $38.5 million from $68.1 million; nonperforming assets were $47.0 million versus $77.3 million. Net charge-offs fell to $37.5 million from $66.1 million. The allowance for loan losses was $58.5 million, or 2.85% of loans, and covered nonperforming loans by 151.9%.
- Debt and liquidity: Year-end repurchase-agreement borrowings were $127.9 million, long-term debt was $19.4 million, and junior subordinated debt was $55.0 million. The company reported a $20 million operating credit line, fully available at year-end, and said projected liquidity needs were adequately covered.
- Capital: Consolidated total risk-based capital was 18.65%, Tier 1 risk-based capital 17.35%, and Tier 1 leverage 11.50%. The Bank’s corresponding ratios were 17.27%, 15.97% and 10.60%; both company and Bank were described as well-capitalized.
Material changes and notable items
- Profitability improved as loan-loss provisions declined, but lower average loan balances reduced interest income and net interest income. The company attributed loan contraction to removing underperforming loans, loan sales, charge-offs, weak demand and competition.
- On August 25, 2011, First Busey issued $72.7 million of Series C preferred stock to Treasury through the Small Business Lending Fund and redeemed its $100 million Series T TARP preferred stock for approximately $100.1 million. The net cash outlay was about $27.3 million. Series C dividends depend on qualified small-business lending and may rise to 9% after 4.5 years.
- Common shareholders received $0.16 per share in 2011, unchanged from 2010. The company said it remained committed to regular dividends, subject to earnings, capital needs and regulatory restrictions. The Bank could not pay dividends to the parent because it remained in a retained-deficit position.
- The 2011 tax provision was $15.0 million, with a 33.4% effective rate. Net deferred tax assets were $48.2 million; management recorded a valuation allowance for certain state tax attributes but none for the other deferred tax assets.
Outlook, management commentary and risks
- Management expected gradual asset-quality improvement in 2012, conditional on market conditions. Its priorities were balance-sheet strength, profitability and growth; plans included hiring and investing in commercial banking, cash management, wealth management and payment processing to support organic growth and diversify revenue.
- Management anticipated continued net interest margin pressure in 2012 amid historically low rates, and said further deposit-rate reductions were limited. It also expected compensation expense to rise with growth investment, potentially weighing on the efficiency ratio until revenue growth catches up.
- Key exposures include real-estate concentration and collateral values, particularly in southwest Florida; commercial real-estate and construction credit risk; state and local economic conditions, including Illinois’ fiscal difficulties; interest-rate and securities valuation risk; and possible additional loan-loss provisions.
- Other material risks include uncertainty around new Dodd-Frank and Basel capital and consumer rules, funding and liquidity access, competition, technology and cybersecurity, weather events, and realization of deferred tax assets. A change in ownership under tax rules could restrict use of tax attributes.
- The company reported no material pending litigation. The auditor issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded disclosure controls were effective.
Important facts for investors to verify
- Whether subsequent credit trends support management’s expected improvement, including potential problem loans ($80.6 million), restructured loans ($46.2 million) and collateral valuations.
- Whether loan growth and the deployment of increased securities and cash balances can offset declining loan yields and margin compression.
- The terms, dividend cost and lending-based rate adjustments of Series C preferred stock, and the restrictions it imposes on common dividends and repurchases.
- The sustainability of the $48.2 million net deferred tax asset, including forecast taxable income and any ownership-change limitations.
- The full audited statements and notes for details not reproduced here; this summary does not provide a standalone consolidated revenue total or a single comprehensive liquidity ratio.