Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
BUSE > SEC Filings for BUSE > Form 10-Q on 8-Nov-2012All Recent SEC Filings

Show all filings for FIRST BUSEY CORP /NV/

Form 10-Q for FIRST BUSEY CORP /NV/


8-Nov-2012

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is management's discussion and analysis of the financial condition of First Busey Corporation and subsidiaries (referred to herein as "First Busey", "Company", "we", or "our") at September 30, 2012 (unaudited), as compared with June 30, 2012 (unaudited) and December 31, 2011, and the results of operations for the three and nine months ended September 30, 2012 and 2011 (unaudited) and the three months ended June 30, 2012 (unaudited) when applicable. Management's discussion and analysis should be read in conjunction with First Busey's consolidated financial statements and notes thereto appearing elsewhere in this quarterly report, as well as the Company's Annual Report on Form 10-K for the year ended December 31, 2011.

EXECUTIVE SUMMARY

Operating Results

First Busey Corporation's net income for the third quarter of 2012 was $4.9 million and net income available to common shareholders was $4.0 million, or $0.05 per fully-diluted common share. These results were consistent with the second quarter of 2012 in all three measures with some modest improvements. In comparison, the Company reported net income of $7.6 million and net income available to common shareholders of $6.5 million, or $0.08 per fully-diluted common share, for the third quarter of 2011. The Company's 2012 year-to-date net income through September 30 was $17.4 million and net income available to common shareholders was $14.7 million, or $0.17 per fully diluted share. For the comparable period of 2011, net income was $24.1 million and net income available to common shareholders was $20.0 million, or $0.24 per fully diluted share. Earnings from the prior quarter were stable while changes from the prior year reflect changes we are making in our organization as we position ourselves for future balance sheet strength, consistent profitability and sustainable growth.

Our previously announced loan growth initiative drove increases in gross loan balances for the second consecutive quarter, ending the third quarter at $2.04 billion, which was $13.4 million higher than the prior quarter-end. Commercial loan portfolios grew $25.3 million in the aggregate, with $22.0 million attributable to commercial real estate and construction loans, and $3.3 million attributable to commercial & industrial loans. Growth occurred in targeted portfolios with positive changes in mix, as loans with the strongest risk grades increased, while loans with weaker grades declined during the quarter. Partially offsetting growth in commercial product lines were residential real estate loans held for sale, which declined by $10.6 million.

Our non-interest-bearing deposits of $510.1 million at September 30, 2012 grew from $503.1 million at December 31, 2011 and $467.8 million at September 30, 2011. Furthermore, our core deposits of $2.7 billion at September 30, 2012 increased from $2.5 billion for both December 31, 2011 and September 30, 2011. Non-interest-bearing deposit growth has a beneficial influence on funding costs, while increasing core deposits provide a stable platform for continued asset growth.

Net interest income slightly increased to $25.5 million in the third quarter of 2012 compared to $25.3 million for the second quarter of 2012, but decreased from $27.7 million for the third quarter of 2011. Positive inflection from the prior quarter in average loan volumes of $29.9 million and decreasing funding costs created a small improvement in both net interest income and the net interest margin. Net interest income for the first nine months of 2012 was $76.5 million compared to $83.9 million for the same period of 2011. Net interest income declines from prior year were driven by decreases in average loan volumes, which have prompted initiatives to foster quality asset growth. Additional liquidity generated by our growing deposit base has primarily been deployed into our investment portfolio over the past year.

Net interest margin modestly increased to 3.25% for the third quarter of 2012 as compared to 3.21% for the second quarter of 2012, but decreased from 3.57% for the third quarter of 2011. The net interest margin for the first nine months of 2012 decreased to 3.26% compared to 3.55% for the same period of 2011. The Company continued to experience downward pressure on its yield on interest-earning assets resulting from a protracted period of historically low rates and heightened competition for assets, which has been experienced throughout the banking industry.

Other operational highlights for the quarter include the completion of our core processing system conversion in mid-September which provides for greater customization and technological agility going forward. Costs of the system upgrade were partially mitigated through securities sales to uphold a steady operating earnings stream to shareholders during the conversion launch and transition.

While our expenses increased as we continued to shape our infrastructure to support our growth strategy, we were able to maintain stable revenue generation through diversified sources during the quarter. Total revenue, net of interest expense and security gains, for the third quarter of 2012 was $40.6 million, compared to $41.0 million for the second quarter of 2012 and $42.4 million for the third quarter of 2011.


Total revenue (net of interest expense and security gains) for the first nine months of 2012 was $125.2 million as compared to $127.9 million for the same period of 2011. Non-interest income revenue sources helped offset declines in net interest income arising from slow asset growth and continued margin pressure. Revenues from trust, brokerage and commissions, and remittance processing activities, which are primarily generated through Busey Wealth Management and FirsTech, represented 43% of non-interest income, providing a balance to traditional banking activities in a slow growth economy.

The Company recently announced the founding of Trevett Capital Partners ("Trevett"), a private wealth management boutique created to serve high net worth clientele in southwest Florida, operating as a division of Busey Bank. The Trevett name has roots in the legacy organizations upon which First Busey Corporation was founded, dating back to the Trevett-Mattis Banking Company in 1861. Trevett will build upon our established presence in Florida and the broad capabilities of our existing Wealth Management operation to provide concierge service and tailored solutions for the accumulation and preservation of capital and generational legacies. A highly tenured team of sophisticated wealth management professionals with an in-depth knowledge of the Florida market will lead the delivery of comprehensive investment, estate planning, trust and private banking solutions.

Busey Wealth Management's net income of $0.8 million for the third quarter of 2012 fell slightly from $1.0 million for the second quarter of 2012, but was comparable to the $0.7 million earned in the third quarter of 2011. Busey Wealth Management's net income for the first nine months of 2012 was $2.6 million as compared to $2.4 million for the first nine months of 2011. FirsTech's net income of $0.2 million for the third quarter of 2012 remained consistent with the amount earned in the second quarter of 2012, but slightly decreased from $0.4 million for the third quarter of 2011. FirsTech's net income for the first nine months of 2012 was $0.7 million as compared to $1.3 million for the same period of 2011 due to decreased volume of online bill payments.

Asset Quality

While much internal focus has been directed toward organic growth, our commitment to credit quality remains strong, as evidenced by another quarter of positive trends across a range of credit indicators. We expect continued gradual improvement in our overall asset quality during the remainder of 2012; however, this remains dependent upon market-specific economic conditions. The key metrics are as follows:

Non-performing loans decreased to $25.2 million at September 30, 2012 from $33.8 million at June 30, 2012 and $38.5 million at December 31, 2011.

Illinois/Indiana non-performing loans decreased to $17.4 million at September 30, 2012 from $25.3 million at June 30, 2012 and $27.7 million at December 31, 2011.


Florida non-performing loans decreased to $7.8 million at September 30, 2012 from $8.5 million at June 30, 2012 and $10.8 million at December 31, 2011.

Loans 30-89 days past due increased to $7.9 million at September 30, 2012 from $4.2 million at June 30, 2012 and $4.7 million at December 31, 2011. The increase primarily related to a few large commercial credits that are actively being pursued for collection. Loans 30-89 days past due as a percentage of gross loan balances at September 30, 2012 were 0.39%, which compares favorably to peer averages per publically available Federal Reserve System Bank Holding Company Performance Reports.

Other non-performing assets, primarily consisting of other real estate owned, increased to $8.5 million at September 30, 2012 from $7.8 million at June 30, 2012, but remained consistent with the amount recorded at December 31, 2011. The increase in other real estate owned and the decline in non-performing loans in the third quarter of 2012 were interrelated due to the foreclosure of a large commercial property. This property was previously classified as a non-performing loan in the second quarter of 2012.

The ratio of non-performing assets to total loans plus other non-performing assets at September 30, 2012 decreased to 1.65% from 2.05% at June 30, 2012 and 2.28% at December 31, 2011.

The allowance for loan losses to non-performing loans ratio increased to 195.38% at September 30, 2012 from 150.42% at June 30, 2012 and 151.91% at December 31, 2011.

The allowance for loan losses to total loans ratio decreased to 2.42% at September 30, 2012 compared to 2.52% at June 30, 2012 and 2.85% at December 31, 2011.

Net charge-offs of $5.2 million recorded in the third quarter of 2012 were lower than the $7.5 million recorded in the second quarter of 2012 and the $10.4 million recorded in the third quarter of 2011.

Provision expense decreased to $3.5 million in the third quarter of 2012 from $4.5 million recorded in the second quarter of 2012 and $5.0 million recorded in the third quarter of 2011.

Economic Conditions of Markets

The Illinois markets we operate in possess strong industrial, academic and healthcare employment bases. Our primary downstate Illinois markets of Champaign, Macon, McLean and Peoria counties are anchored by several strong, familiar and stable organizations. Although our downstate Illinois and Indiana markets experienced economic distress in recent years, they did not experience it to the level of many other areas, including our southwest Florida market. While future economic conditions remain uncertain, our markets have not experienced further significant downside impact over the past few years and, as a whole, have begun to show signs of improvement.

Champaign County is home to the University of Illinois - Urbana/Champaign ("U of I"), the University's primary campus. U of I has in excess of 42,000 students. Additionally, Champaign County healthcare providers serve a significant area of downstate Illinois and western Indiana. Macon County is home to Archer Daniels Midland ("ADM"), a Fortune 100 company and one of the largest agricultural processors in the world. ADM's presence in Macon County supports many derivative businesses in the agricultural processing arena. Additionally, Macon County is home to Millikin University, and its healthcare providers serve a significant role in the market. McLean County is home to State Farm, Country Financial, Illinois State University and Illinois Wesleyan University. State Farm, a Fortune 100 company, is the largest employer in McLean County, and Country Financial and the universities provide additional stability to a growing area of downstate Illinois. Peoria County is home to Caterpillar, a Fortune 100 company, and Bradley University, in addition to a large healthcare presence serving much of the western portion of downstate Illinois. The institutions noted above, coupled with a large agricultural sector, anchor the communities in which they are located, and have provided a comparatively stable foundation for housing, employment and small business.

For the past several months, the agriculture sector in the United States has been dealing with the nation's worst drought in decades. Loans to finance agricultural production and other loans to farmers do not represent a significant portion of our total loan portfolio, with balances of $27.2 million or approximately 1% of total loans as of September 30, 2012. Additionally, loans secured by farmland totaled $43.4 million or approximately 2% of total loans for the same period. Currently, the economic impact of the drought appears to be less than originally anticipated in our markets. Commodity prices along with crop insurance have helped soften the effect of poor corn yields. The drought's negative impact on soybean yields has been less than anticipated and less than that of corn. Commodity prices and crop insurance are also minimizing the effect of decreased soybean yields. The financial condition of these clients and the agriculture base in our communities will continue to be monitored by management for negative effects in upcoming periods.


Southwest Florida has shown signs of improvement in areas such as unemployment and home sales since 2011. As southwest Florida's economy is based primarily on tourism and the secondary/retirement residential market, significant declines in discretionary spending brought on by the difficult economic period since 2008 have caused significant damage to that economy and, the recent improvement in certain economic indicators notwithstanding, we expect it will take southwest Florida a number of years to return to the economic strength it demonstrated just a few years ago.

The largest portion of the Company's customer base is within the State of Illinois, the financial condition of which is among the most troubled of any state in the United States with severe pension under-funding, recurring bill payment delays, and budget gaps. Additionally, the Company is located in markets with significant universities and healthcare companies, which rely heavily on state funding and contracts. The State of Illinois continues to be significantly behind on payments to its vendors and government sponsored entities. Further and continued payment lapses by the State of Illinois to its vendors and government sponsored entities may have significant, negative effects on our primary market areas.

OPERATING PERFORMANCE

NET INTEREST INCOME

Net interest income is the difference between interest income and fees earned on earning assets and interest expense incurred on interest-bearing liabilities. Interest rate levels and volume fluctuations within earning assets and interest-bearing liabilities impact net interest income. Net interest margin is tax-equivalent net interest income as a percentage of average earning assets.

Certain assets with tax favorable treatment are evaluated on a tax-equivalent basis. Tax-equivalent basis assumes a federal income tax rate of 35%. Tax favorable assets generally have lower contractual pre-tax yields than fully taxable assets. A tax-equivalent analysis is performed by adding the tax savings to the earnings on tax favorable assets. After factoring in the tax favorable effects of these assets, the yields may be more appropriately evaluated against alternative earning assets. In addition to yield, various other risks are factored into the evaluation process.

The following table shows the consolidated average balance sheets, detailing the major categories of assets and liabilities, the interest income earned on interest-earning assets, the interest expense paid for the interest-bearing liabilities, and the related interest rates for the periods, or as of the dates, shown. All average information is provided on a daily average basis.


                   AVERAGE BALANCE SHEETS AND INTEREST RATES

                 THREE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011



                                                                                                           Change in income/
                                      2012                                 2011                           expense due to (1)
                          Average     Income/     Yield/       Average     Income/     Yield/      Average      Average       Total
                          Balance     Expense    Rate (3)      Balance     Expense    Rate (3)     Volume      Yield/Rate     Change
                                                                   (dollars in thousands)
Assets
Interest-bearing bank
deposits                $   203,650   $    132       0.26 %  $   244,712   $    165       0.27 %  $     (27 ) $         (6 ) $    (33 )
Investment securities
U.S. Government
obligations                 470,912      1,943       1.64 %      398,857      2,338       2.33 %        372           (767 )     (395 )
Obligations of states
and political
subdivisions(1)             246,494      1,804       2.91 %      118,409      1,103       3.70 %        976           (275 )      701
Other securities            268,527      1,254       1.86 %      248,217      1,348       2.15 %        103           (197 )      (94 )
Loans(1) (2)              2,014,586     24,488       4.84 %    2,128,079     28,334       5.28 %     (1,488 )       (2,358 )   (3,846 )
Total
interest-earning
assets                  $ 3,204,169   $ 29,621       3.68 %  $ 3,138,274   $ 33,288       4.21 %  $     (64 ) $     (3,603 ) $ (3,667 )

Cash and due from
banks                        78,974                               77,071
Premises and
equipment                    71,172                               70,870
Allowance for loan
losses                      (50,199 )                            (69,360 )
Other assets                184,313                              204,023

Total Assets            $ 3,488,429                          $ 3,420,878

Liabilities and
Stockholders' Equity
Interest-bearing
transaction deposits    $    41,083   $     16       0.15 %  $    41,424   $     22       0.21 %  $       -   $         (6 ) $     (6 )
Savings deposits            195,542         46       0.09 %      187,602         78       0.16 %          3            (35 )      (32 )
Money market deposits     1,390,501        717       0.21 %    1,228,590        964       0.31 %        114           (361 )     (247 )
Time deposits               731,571      2,181       1.19 %      845,975      3,393       1.59 %       (420 )         (792 )   (1,212 )
Short-term
borrowings:
Repurchase agreements       116,141         63       0.22 %      127,413         87       0.27 %         (7 )          (17 )      (24 )
Other                             -          8          - %            -          9          - %          -             (1 )       (1 )
Long-term debt                8,330        106       5.06 %       19,834        230       4.60 %       (145 )           21       (124 )
Junior subordinated
debt owed to
unconsolidated trusts        55,000        329       2.38 %       55,000        301       2.17 %          -             28         28
Total
interest-bearing
liabilities             $ 2,538,168   $  3,466       0.54 %  $ 2,505,838   $  5,084       0.80 %  $    (455 ) $     (1,163 ) $ (1,618 )

Net interest spread                                  3.14 %                               3.41 %

Noninterest-bearing
deposits                    508,030                              465,664
Other liabilities            26,734                               27,200
Stockholders' equity        415,497                              422,176

Total Liabilities and
Stockholders' Equity    $ 3,488,429                          $ 3,420,878

Interest income /
earning assets(1)       $ 3,204,169   $ 29,621       3.68 %  $ 3,138,274   $ 33,288       4.21 %
Interest expense /
earning assets          $ 3,204,169   $  3,466       0.43 %  $ 3,138,274   $  5,084       0.64 %

Net interest margin
(1)                                   $ 26,155       3.25 %                $ 28,204       3.57 %  $     391   $     (2,440 ) $ (2,049 )



(1) On a tax-equivalent basis assuming a federal income tax rate of 35% for 2012 and 2011.

(2) Non-accrual loans have been included in average loans.

(3) Annualized.


                   AVERAGE BALANCE SHEETS AND INTEREST RATES

                 NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011



                                                                                                           Change in income/
                                     2012                                  2011                           expense due to (1)
                         Average     Income/     Yield/       Average      Income/     Yield/     Average      Average        Total
                         Balance     Expense    Rate (3)      Balance      Expense    Rate (3)     Volume     Yield/Rate     Change
                                                                   (dollars in thousands)
Assets
Interest-bearing
bank deposits          $   265,126   $    503       0.25 %  $   303,629   $     579       0.25 %  $    (73 ) $         (3 ) $     (76 )
Investment
securities
U.S. Government
obligations                451,808      6,053       1.79 %      384,020       6,955       2.42 %     1,102         (2,004 )      (902 )
Obligations of
states and political
subdivisions(1)            206,667      4,848       3.13 %       97,101       3,229       4.45 %     2,796         (1,177 )     1,619
Other securities           275,950      3,915       1.90 %      221,779       4,033       2.43 %       874           (992 )      (118 )
Loans(1) (2)             2,009,358     74,728       4.97 %    2,207,011      88,192       5.34 %    (7,549 )       (5,915 )   (13,464 )
Total
interest-earning
assets                 $ 3,208,909   $ 90,047       3.75 %  $ 3,213,540   $ 102,988       4.29 %  $ (2,850 ) $    (10,091 ) $ (12,941 )

Cash and due from
banks                       77,787                               76,576
Premises and
equipment                   70,227                               71,982
Allowance for loan
losses                     (53,307 )                            (73,654 )
Other assets               188,247                              211,677

Total Assets           $ 3,491,863                          $ 3,500,121

Liabilities and
Stockholders' Equity
Interest-bearing
transaction deposits   $    41,440   $     54       0.17 %  $    40,712   $      69       0.23 %  $      1   $        (16 ) $     (15 )
Savings deposits           196,422        194       0.13 %      189,516         240       0.17 %         9            (55 )       (46 )
Money market
deposits                 1,352,144      2,417       0.24 %    1,231,888       2,963       0.32 %       270           (816 )      (546 )
Time deposits              752,886      7,361       1.31 %      896,749      11,264       1.68 %    (1,636 )       (2,267 )    (3,903 )
Short-term
borrowings:
Repurchase
agreements                 127,905        217       0.23 %      130,062         298       0.31 %        (5 )          (76 )       (81 )
Other                            -         26          - %            -          29          - %         -             (3 )        (3 )
Long-term debt              15,585        552       4.73 %       32,122       1,212       5.04 %      (589 )          (71 )      (660 )
Junior subordinated
debt owed to
unconsolidated
trusts                      55,000        994       2.41 %       55,000       1,600       3.89 %         -           (606 )      (606 )
Total
interest-bearing
liabilities            $ 2,541,382   $ 11,815       0.62 %  $ 2,576,049   $  17,675       0.92 %  $ (1,950 ) $     (3,910 ) $  (5,860 )

Net interest spread                                 3.13 %                                3.37 %

Noninterest-bearing
deposits                   510,718                              470,965
Other liabilities           26,732                               30,180
Stockholders' equity       413,031                              422,927

Total Liabilities
and Stockholders'
Equity                 $ 3,491,863                          $ 3,500,121

Interest income /
earning assets(1)      $ 3,208,909   $ 90,047       3.75 %  $ 3,213,540   $ 102,988       4.29 %
Interest expense /
earning assets         $ 3,208,909   $ 11,815       0.49 %  $ 3,213,540   $  17,675       0.74 %

Net interest margin
(1)                                  $ 78,232       3.26 %                $  85,313       3.55 %  $   (900 ) $     (6,181 ) $  (7,081 )



(1) On a tax-equivalent basis assuming a federal income tax rate of 35% for 2012 and 2011.

(2) Non-accrual loans have been included in average loans.

(3) Annualized.


Average earning assets increased for the three month period ended September 30, 2012 as compared to the same period of 2011, but decreased for the nine month period ended September 30, 2012 as compared to the same period of 2011. Average loans declined $113.5 million and $197.7 million for the three and nine month periods ended September 30, 2012, respectively. The Company is now focusing on rebuilding its loan portfolio with new assets and in recent quarters has made significant investments in tools and talent to support organic growth to address its declining loan balances. Securities increased by $220.5 million and $231.5 million for the three and nine month periods ended September 30, 2012, respectively, which more than offset the declines in average loans; however, at a much lower yield.

Interest-bearing liabilities increased slightly for the three month period ended September 30, 2012 as compared to the same period of 2011, while they decreased for the nine month period ended September 30, 2012 as compared to the same period of 2011. The Company has focused on reducing more expensive non-core funding, which we were able to do in light of the decrease in our average loans and a continued increase in our average core deposits.

Interest income, on a tax-equivalent basis, decreased $3.7 million and $12.9 million for the three and nine month periods ended September 30, 2012, respectively, as compared to the same periods of 2011. The interest income declines related to decreases in loan volume, repricing of assets under a low interest rate environment and heightened competition for assets which is generally being experienced in the banking industry. Interest expense decreased $1.6 million and $5.9 million for the three and nine month periods ended September 30, 2012, respectively, as compared to the same periods of 2011. The interest expense declines were a result of reductions in non-core funding sources and decreases in interest rates offered on certain deposit products as the interest rate environment remains low. Decreases in both interest income and expense were also due in part to changes in the composition of assets and liabilities.

Net interest margin

Net interest margin, our net interest income expressed as a percentage of . . .

  Add BUSE to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for BUSE - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.