Business Context and Reporting Period
Company: First Busey Corporation (First Busey)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2009
Business Overview: First Busey operates through four reportable segments: Busey Bank (Illinois/Indiana), Busey Bank, N.A. (Florida), FirsTech (payment processing), and Busey Wealth Management (trust and brokerage). The company is an accelerated filer and is not a shell company.
Key Financial Metrics
| Metric | Q1 2009 | Q1 2008 | Dec 31, 2008 (Balance Sheet) |
|---|---|---|---|
| Net Income | $5.9 million | $10.0 million | N/A |
| Net Income Available to Common | $5.5 million | $10.0 million | N/A |
| Diluted EPS | $0.15 | $0.28 | N/A |
| Total Assets | $4.47 billion | N/A | $4.46 billion |
| Total Deposits | $3.49 billion | N/A | $3.51 billion |
| Net Interest Income | $27.6 million | $31.3 million | N/A |
| Net Interest Margin | 2.88% | 3.47% | N/A |
| Provision for Loan Losses | $10.0 million | $2.2 million | N/A |
| Allowance for Loan Losses | $88.5 million | N/A | $98.7 million |
| Non-Performing Loans | $121.2 million | $32.0 million | $84.2 million |
| Stockholders' Equity | $551.7 million | N/A | $454.8 million |
Material Changes vs. Prior Period
- Profitability Decline: Net income available to common shareholders dropped 45% year-over-year, primarily driven by a $7.8 million increase in the provision for loan losses and a $3.7 million decrease in net interest income.
- Asset Quality Deterioration: Non-performing loans surged to $121.2 million (3.72% of total loans) from $84.2 million at year-end 2008 and $32.0 million in Q1 2008. Net charge-offs were $20.2 million for the quarter.
- Capital Injection: On March 6, 2009, the company participated in the U.S. Treasury's Capital Purchase Program (CPP), issuing $100 million of Series T Preferred Stock and a warrant to purchase 1.15 million common shares. This significantly boosted stockholders' equity.
- Interest Rate Environment: Net interest margin compressed to 2.88% from 3.47% in the prior year due to declining asset yields outpacing reductions in deposit costs.
- Expense Management: Total other expenses decreased 8.0% year-over-year, aided by a reduction in full-time equivalent employees and merger-related efficiencies.
Outlook, Risks, and Management Commentary
- Dividend Reduction: On April 21, 2009, the company announced a reduction in its quarterly common dividend from $0.20 to $0.08 per share to conserve capital.
- Restrictions on Buybacks: Due to the CPP agreement, the company is prohibited from repurchasing common stock (except for benefit plans) until the Treasury no longer holds equity securities.
- Asset Quality Outlook: Management expects heightened levels of non-performing loans to continue through the remainder of 2009 and into 2010, citing economic challenges in Florida and softening markets in Illinois/Indiana.
- Goodwill Impairment Risk: While no impairment was recorded in Q1 2009, management noted that due to stock price declines, goodwill may be evaluated more frequently, with potential for future impairment charges.
- Liquidity: Liquidity remains adequate, supported by the $100 million CPP capital infusion, which allowed the company to reduce reliance on brokered certificates of deposit and short-term borrowings.
Investor Verification Checklist
- Loan Loss Reserves: Verify the adequacy of the $88.5 million allowance given the rapid increase in non-performing loans to $121.2 million and the coverage ratio dropping to 73.0%.
- Florida Exposure: Assess the concentration of non-performing assets in the Florida market ($84.5 million total non-performing loans in Florida), which is a primary driver of asset quality issues.
- CPP Terms: Review the specific covenants of the Treasury Capital Purchase Program, particularly the 5% (rising to 9%) dividend rate on preferred stock and restrictions on common dividends and buybacks.
- Net Interest Margin Trajectory: Monitor the ability to stabilize the net interest margin in a low-interest-rate environment where deposit rates are near floors.
- Goodwill Valuation: Watch for future goodwill impairment tests, especially for the Busey Bank, N.A. segment, which previously recorded a $22.6 million impairment in 2008.