Business Context and Reporting Period
Company: First Busey Corporation (Nevada corporation)
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Quarter and six months ended June 30, 2010
Business Overview: First Busey operates through three reportable segments: Busey Bank (commercial and retail banking in Illinois, Indiana, and Florida), FirsTech (remittance processing), and Busey Wealth Management (trust and investment services). The company is an accelerated filer and a participant in the Treasury's Capital Purchase Program (TARP).
Key Financial Metrics
| Metric | Six Months Ended June 30, 2010 |
Six Months Ended June 30, 2009 |
Quarter Ended June 30, 2010 |
Quarter Ended June 30, 2009 |
|---|---|---|---|---|
| Net Income (Loss) | $9.9 million | ($13.2 million) | $5.7 million | ($19.1 million) |
| Net Income Available to Common | $7.3 million | ($15.0 million) | $4.4 million | ($20.5 million) |
| Diluted EPS | $0.11 | ($0.42) | $0.07 | ($0.57) |
| Net Interest Income | $58.1 million | $55.9 million | $29.1 million | $28.4 million |
| Net Interest Margin (NIM) | 3.50% | 2.91% | 3.49% | 2.93% |
| Provision for Loan Losses | $22.2 million | $57.5 million | $7.5 million | $47.5 million |
| Total Assets | $3.70 billion | $3.81 billion (Dec 31, 2009) | N/A | |
| Total Deposits | $3.08 billion | $3.17 billion (Dec 31, 2009) | N/A | |
| Stockholders' Equity | $333.3 million | $328.1 million (Dec 31, 2009) | N/A | |
| Efficiency Ratio | 57.1% | 59.4% | 60.6% | 62.6% |
Material Changes vs. Prior Period
- Profitability Turnaround: The company returned to profitability, reporting net income of $9.9 million for the six months ended June 30, 2010, compared to a net loss of $13.2 million in the same period of 2009. This improvement was driven by a significant reduction in the provision for loan losses ($22.2 million vs. $57.5 million) and an expansion in net interest margin.
- Asset Quality Improvement: Non-performing loans (NPLs) decreased significantly from a peak of $172.5 million in September 2009 to $87.8 million as of June 30, 2010. However, NPLs increased slightly from $86.3 million at year-end 2009. The allowance for loan losses to non-performing loans ratio was 104.9%.
- Balance Sheet Contraction: Total assets declined 3.0% to $3.70 billion, and total deposits declined 2.9% to $3.08 billion compared to December 31, 2009. Management attributes this to loan charge-offs, sales, and the runoff of high-cost, non-core funding.
- Revenue Mix: While net interest income increased, non-interest income decreased 8.7% year-over-year for the six-month period, primarily due to lower remittance processing revenue from a significant cellular phone customer and reduced gains on loan sales.
Guidance, Outlook, and Risks
- Outlook: Management expects gradual improvement in credit metrics throughout 2010 but anticipates continued balance sheet contraction in the near term as they reduce non-performing loans. Loan growth is expected to be gradual and accretive to net interest income.
- Regulatory Impact: The company highlighted the impact of the newly enacted Dodd-Frank Wall Street Reform and Consumer Protection Act (signed July 21, 2010). Potential impacts include increased deposit insurance assessments, limitations on interchange fees, and changes to capital requirements regarding trust preferred securities.
- Market Conditions: Economic conditions in Illinois markets are described as stable, anchored by strong industrial and academic institutions. Southwest Florida markets show signs of stabilization but are expected to take years to return to prior economic strength. Indianapolis markets remain a primary area of credit challenge.
- Capital Resources: As of June 30, 2010, First Busey and Busey Bank met all regulatory capital requirements and were considered "well capitalized." The company is restricted from repurchasing common stock due to TARP participation.
- Interest Rate Risk: The company maintains a liability-sensitive gap structure through one year but is effectively asset-sensitive due to the low interest rate environment. Simulation models indicate that a 100 or 200 basis point increase in rates would negatively impact net interest income by 1.17% and 1.72%, respectively.
Investor Verification Checklist
- Asset Quality Trends: Verify the trajectory of non-performing loans in the Southwest Florida region, which remains a concentration of credit risk despite overall portfolio improvement.
- Provision Adequacy: Assess whether the reduced provision for loan losses ($7.5 million in Q2) is sustainable given the remaining $157.9 million in potential problem loans.
- Revenue Concentration: Monitor the recovery of FirsTech remittance processing revenue following the loss of a significant customer, which impacted non-interest income.
- Regulatory Compliance: Track the specific financial impact of the Dodd-Frank Act provisions on deposit costs and capital treatment of trust preferred securities.
- Balance Sheet Runoff: Confirm the pace of loan and deposit runoff to determine if the company can stabilize its balance sheet size before pursuing growth.