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EX-31.2 - EX-31.2 - FIRST BUSEY CORP /NV/a09-31125_1ex31d2.htm
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EX-32.2 - EX-32.2 - FIRST BUSEY CORP /NV/a09-31125_1ex32d2.htm
EX-32.1 - EX-32.1 - FIRST BUSEY CORP /NV/a09-31125_1ex32d1.htm

 

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC  20549

 

FORM 10-Q

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended 9/30/2009

 

Commission File No. 0-15950

 

FIRST BUSEY CORPORATION

(Exact name of registrant as specified in its charter)

 

Nevada

 

37-1078406

(State or other jurisdiction of
Incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

 

 

100 W. University Ave.,

Champaign, Illinois

 

61820

(Address of principal

executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code:  (217) 365-4516

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  ¨  No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one)

 

Large accelerated filer ¨

 

Accelerated filer x

Non-accelerated filer ¨
(Do not check if a smaller reporting company)

 

Smaller reporting company ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ¨  No x

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class

 

Outstanding at November 9, 2009

Common Stock, $.001 par value

 

56,515,892

 

 

 


 


 

PART I - FINANCIAL INFORMATION

 

ITEM 1.  FINANCIAL STATEMENTS (Unaudited)

 

2



 

FIRST BUSEY CORPORATION and Subsidiaries

CONSOLIDATED BALANCE SHEETS

September 30, 2009 and December 31, 2008

 

 

 

 

September 30, 2009

 

December 31, 2008

 

 

 

(dollars in thousands)

 

Assets

 

 

 

 

 

Cash and due from banks

 

$

183,243

 

$

190,113

 

Securities available for sale

 

601,129

 

654,130

 

Loans held for sale

 

29,284

 

14,206

 

Loans (net of allowance for loan losses 2009 $120,021 ; 2008 $98,671)

 

2,854,767

 

3,144,704

 

Premises and equipment

 

79,663

 

81,732

 

Cash surrender value of bank owned life insurance

 

35,501

 

34,530

 

Goodwill

 

20,686

 

228,863

 

Other intangible assets

 

24,734

 

28,005

 

Other assets

 

144,899

 

83,810

 

Total assets

 

$

3,973,906

 

$

4,460,093

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Liabilities

 

 

 

 

 

Deposits:

 

 

 

 

 

Noninterest bearing

 

$

427,267

 

$

378,007

 

Interest bearing

 

2,855,386

 

3,128,686

 

Total deposits

 

$

3,282,653

 

$

3,506,693

 

 

 

 

 

 

 

Federal funds purchased and securities sold under agreements to repurchase

 

158,875

 

182,980

 

Short-term borrowings

 

 

83,000

 

Long-term debt

 

120,493

 

134,493

 

Junior subordinated debt owed to unconsolidated trusts

 

55,000

 

55,000

 

Other liabilities

 

33,826

 

43,110

 

Total liabilities

 

$

3,650,847

 

$

4,005,276

 

 

 

 

 

 

 

Stockholders’ Equity

 

 

 

 

 

Preferred stock, $.001 par value, 1,000,000 shares authorized, issued and outstanding - 2009 Series T, 100,000 shares, $1,000 liquidation value; 2008 none

 

$

98,610

 

$

 

Common stock, $.001 par value, authorized 60,000,000 shares; issued — 2009 58,246,497; 2008 37,546,497

 

59

 

38

 

Surplus

 

472,609

 

393,005

 

Retained earnings (deficit)

 

(225,541

)

85,810

 

Accumulated other comprehensive income

 

11,173

 

9,837

 

Total stockholders’ equity before treasury stock and unearned ESOP shares

 

$

356,910

 

$

488,690

 

Treasury stock, at cost — 2009 1,650,605; 2008 1,651,887

 

(32,183

)

(32,205

)

Unearned ESOP shares — 80,000 shares

 

(1,668

)

(1,668

)

Total stockholders’ equity

 

$

323,059

 

$

454,817

 

Total liabilities and stockholders’ equity

 

$

3,973,906

 

$

4,460,093

 

 

 

 

 

 

 

Common shares outstanding at period end

 

56,515,892

 

35,814,610

 

 

See accompanying notes to unaudited consolidated financial statements.

 

3



 

FIRST BUSEY CORPORATION and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Nine Months Ended September 30, 2009 and 2008

 

 

 

2009

 

2008

 

 

 

(dollars in thousands, except per share amounts)

 

Interest income:

 

 

 

 

 

Interest and fees on loans

 

$

122,945

 

$

149,033

 

Interest and dividends on investment securities:

 

 

 

 

 

Taxable interest income

 

14,980

 

15,977

 

Non-taxable interest income

 

2,546

 

2,838

 

Dividends

 

87

 

123

 

Interest on Federal funds sold

 

 

173

 

Total interest income

 

$

140,558

 

$

168,144

 

Interest expense:

 

 

 

 

 

Deposits

 

$

48,047

 

$

61,701

 

Federal funds purchased and securities sold under agreements to repurchase

 

900

 

3,257

 

Short-term borrowings

 

1,136

 

1,691

 

Long-term debt

 

3,800

 

4,615

 

Junior subordinated debt owed to unconsolidated trusts

 

2,216

 

2,651

 

Total interest expense

 

$

56,099

 

$

73,915

 

Net interest income

 

$

84,459

 

$

94,229

 

Provision for loan losses

 

197,500

 

22,450

 

Net interest income (loss) after provision for loan losses

 

$

(113,041

)

$

71,779

 

 

 

 

 

 

 

Other income:

 

 

 

 

 

Remittance processing

 

$

9,886

 

$

9,089

 

Trust

 

9,620

 

10,113

 

Commissions and brokers’ fees, net

 

1,378

 

2,180

 

Service charges on deposit accounts

 

9,168

 

8,837

 

Other service charges and fees

 

3,534

 

3,413

 

Gain on sales of loans

 

9,942

 

3,448

 

Security gains, net

 

140

 

509

 

Other operating income

 

6,345

 

6,268

 

Total other income

 

$

50,013

 

$

43,857

 

Other expenses:

 

 

 

 

 

Salaries and wages

 

$

32,376

 

$

34,897

 

Employee benefits

 

8,186

 

8,430

 

Net occupancy expense of premises

 

7,385

 

7,115

 

Furniture and equipment expenses

 

5,576

 

6,256

 

Data processing

 

5,651

 

4,886

 

Amortization of intangible assets

 

3,271

 

3,388

 

FDIC insurance

 

6,680

 

857

 

Goodwill impairment expense

 

208,164

 

 

Other operating expenses

 

16,448

 

16,606

 

Total other expenses

 

$

293,737

 

$

82,435

 

Income (loss) before income taxes

 

$

(356,765

)

$

33,201

 

Income taxes

 

(61,210

)

9,789

 

Net income (loss)

 

$

(295,555

)

$

23,412

 

Preferred stock dividends and discount accretion

 

3,086

 

 

Net income (loss) available to common shareholders

 

$

(298,641

)

$

23,412

 

Basic earnings (loss) per share

 

$

(8.34

)

$

0.65

 

Diluted earnings (loss) per share

 

$

(8.34

)

$

0.65

 

Dividends declared per share of common stock

 

$

0.36

 

$

0.60

 

 

See accompanying notes to unaudited consolidated financial statements.

 

4



 

FIRST BUSEY CORPORATION and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended September 30, 2009 and 2008

 

 

 

2009

 

2008

 

 

 

(dollars in thousands, except per share amounts)

 

Interest income:

 

 

 

 

 

Interest and fees on loans

 

$

39,198

 

$

48,771

 

Interest and dividends on investment securities:

 

 

 

 

 

Taxable interest income

 

4,574

 

5,064

 

Non-taxable interest income

 

833

 

948

 

Dividends

 

18

 

46

 

Interest on Federal funds sold

 

 

65

 

Total interest income

 

$

44,623

 

$

54,894

 

Interest expense:

 

 

 

 

 

Deposits

 

$

13,732

 

$

19,680

 

Federal funds purchased and securities sold under agreements to repurchase

 

272

 

944

 

Short-term borrowings

 

238

 

489

 

Long-term debt

 

1,220

 

1,494

 

Junior subordinated debt owed to unconsolidated trusts

 

697

 

846

 

Total interest expense

 

$

16,159

 

$

23,453

 

Net interest income

 

$

28,464

 

$

31,441

 

Provision for loan losses

 

140,000

 

8,000

 

Net interest income (loss) after provision for loan losses

 

$

(111,536

)

$

23,441

 

 

 

 

 

 

 

Other income:

 

 

 

 

 

Remittance processing

 

$

3,251

 

$

3,114

 

Trust

 

3,067

 

3,342

 

Commissions and brokers’ fees, net

 

431

 

792

 

Service charges on deposit accounts

 

3,209

 

3,293

 

Other service charges and fees

 

1,204

 

1,112

 

Gain on sales of loans

 

3,809

 

1,082

 

Security gains, net

 

65

 

7

 

Other operating income

 

1,417

 

3,081

 

Total other income

 

$

16,453

 

$

15,823

 

Other expenses:

 

 

 

 

 

Salaries and wages

 

$

10,955

 

$

11,534

 

Employee benefits

 

2,615

 

2,708

 

Net occupancy expense of premises

 

2,414

 

2,326

 

Furniture and equipment expenses

 

1,817

 

1,989

 

Data processing

 

1,989

 

1,570

 

Amortization of intangible assets

 

1,091

 

1,129

 

FDIC insurance

 

1,959

 

442

 

Goodwill impairment expense

 

208,164

 

 

Other operating expenses

 

6,754

 

5,627

 

Total other expenses

 

$

237,758

 

$

27,325

 

Income (loss) before income taxes

 

$

(332,841

)

$

11,939

 

Income taxes

 

(50,522

)

3,122

 

Net income (loss)

 

$

(282,319

)

$

8,817

 

Preferred stock dividends and discount accretion

 

1,356

 

 

Net income (loss) available to common shareholders

 

$

(283,675

)

$

8,817

 

Basic earnings (loss) per share

 

$

(7.92

)

$

0.25

 

Diluted earnings (loss) per share

 

$

(7.92

)

$

0.25

 

Dividends declared per share of common stock

 

$

0.08

 

$

0.20

 

 

See accompanying notes to unaudited consolidated financial statements.

 

5



 

FIRST BUSEY CORPORATION and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2009 and 2008

 

 

 

2009

 

2008

 

 

 

(dollars in thousands)

 

Cash Flows from Operating Activities

 

 

 

 

 

Net income (loss)

 

$

(295,555

)

$

23,412

 

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

Stock-based and non-cash compensation

 

107

 

52

 

Depreciation and amortization

 

8,618

 

8,922

 

Provision for loan losses

 

197,500

 

22,450

 

Goodwill impairment

 

208,164

 

 

Provision for deferred income taxes

 

(8,414

)

(2,765

)

Amortization (accretion) of security discounts, net

 

3,823

 

(784

)

Gain on sales of investment securities, net

 

(140

)

(509

)

Gain on sales of loans

 

(9,942

)

(3,448

)

Net loss (gain) on sale of ORE properties

 

1,003

 

 

Settlement of post retirement benefit liabilities

 

(2,021

)

 

Increase in cash surrender value of bank owned life insurance

 

(971

)

(1,377

)

Increase in deferred compensation, net

 

3

 

2

 

Change in assets and liabilities:

 

 

 

 

 

Decrease (increase) in other assets

 

1,078

 

(2,313

)

(Decrease) increase in other liabilities

 

(3,011

)

3,357

 

Decrease in interest payable

 

(4,949

)

(2,475

)

(Increase) decrease in income taxes receivable

 

(51,007

)

6,236

 

Increase in income taxes payable

 

 

914

 

Net cash provided by operating activities before loan originations and sales

 

$

44,286

 

$

51,674

 

 

 

 

 

 

 

Loans originated for sale

 

(537,016

)

(221,501

)

Proceeds from sales of loans

 

531,880

 

229,890

 

Net cash provided by operating activities

 

$

39,150

 

$

60,063

 

 

 

 

 

 

 

Cash Flows from Investing Activities

 

 

 

 

 

Proceeds from sales of securities classified available for sale

 

14,848

 

24,507

 

Proceeds from maturities of securities classified available for sale

 

184,197

 

229,593

 

Purchase of securities classified available for sale

 

(149,350

)

(268,024

)

Proceeds from sale of Federal Reserve Stock

 

1,845

 

 

Decrease in Federal funds sold

 

 

459

 

Decrease (increase) in loans

 

81,073

 

(203,636

)

Proceeds from sale of premises and equipment

 

574

 

742

 

Proceeds from sale of ORE properties

 

6,732

 

3,241

 

Purchases of premises and equipment

 

(3,852

)

(7,855

)

Net cash provided by (used in) investing activities

 

$

136,067

 

$

(220,973

)

 

(continued on next page)

 

6



 

FIRST BUSEY CORPORATION and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

For the Nine Months Ended September 30, 2009 and 2008

 

 

 

2009

 

2008

 

 

 

(dollars in thousands)

 

Cash Flows From Financing Activities

 

 

 

 

 

Net (decrease) increase in certificates of deposit

 

$

(217,934

)

$

248,676

 

Net decrease in demand, money market and savings deposits

 

(6,106

)

(157,503

)

Cash dividends paid

 

(15,102

)

(21,523

)

Net (decrease) increase in Federal funds purchased and securities sold under agreements to repurchase

 

(24,105

)

24,267

 

Proceeds from short-term borrowings

 

 

616,000

 

Principal payments on short-term borrowings

 

(83,000

)

(554,523

)

Proceeds from issuance of long-term debt

 

 

26,000

 

Principal payments on long-term debt

 

(14,000

)

(42,000

)

Proceeds from issuance of common stock

 

78,160

 

 

Purchase of treasury stock

 

 

(10,622

)

Proceeds from sale of treasury stock

 

 

353

 

Proceeds from issuance of CPP preferred stock and warrants

 

100,000

 

 

Net cash (used in) provided by financing activities

 

$

(182,087

)

$

129,125

 

Net decrease in cash and due from banks

 

$

(6,870

)

$

(31,785

)

Cash and due from banks, beginning

 

$

190,113

 

$

125,228

 

Cash and due from banks, ending

 

$

183,243

 

$

93,443

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

 

 

 

 

 

Other real estate acquired in settlement of loans

 

$

11,364

 

$

6,190

 

Cash payments for:

 

 

 

 

 

Interest

 

$

61,045

 

$

76,737

 

Income taxes

 

$

 

$

6,145

 

 

See accompanying notes to unaudited consolidated financial statements.

 

7



 

FIRST BUSEY CORPORATION and Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

 

 

Three Months Ended
September  30,

 

Nine Months Ended
September 30,

 

 

 

2009

 

2008

 

2009

 

2008

 

 

 

(dollars in thousands)

 

Net income (loss)

 

$

(282,319

)

$

8,817

 

$

(295,555

)

$

23,412

 

Other comprehensive income (loss), before tax:

 

 

 

 

 

 

 

 

 

Unrealized net gains (losses) on securities:

 

 

 

 

 

 

 

 

 

Unrealized net holding gains (losses) arising during period

 

$

4,002

 

$

(2,274

)

$

2,361

 

$

(5,146

)

Less adjustment for gains included in net income

 

(65

)

(7

)

(140

)

(509

)

Other comprehensive income (loss), before tax

 

$

3,937

 

$

(2,281

)

$

2,221

 

$

(5,655

)

Income tax expense (benefit) related to items of other comprehensive loss

 

1,567

 

(907

)

885

 

(2,247

)

Other comprehensive income (loss), net of tax

 

$

2,370

 

$

(1,374

)

$

1,336

 

$

(3,408

)

Comprehensive income (loss)

 

$

(279,949

)

$

7,443

 

$

(294,219

)

$

20,004

 

 

See accompanying notes to unaudited consolidated financial statements

 

FIRST BUSEY CORPORATION and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1:  Basis of Presentation

 

The accompanying unaudited consolidated interim financial statements of First Busey Corporation (the Company), a Nevada corporation, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for quarterly reports on Form 10-Q and do not include certain information and footnote disclosures required by U.S. generally accepted accounting principles (U.S. GAAP) for complete annual financial statements. Accordingly, these financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

 

The accompanying consolidated balance sheet as of December 31, 2008, which has been derived from audited financial statements, and the unaudited consolidated interim financial statements have been prepared in accordance with U.S. GAAP and reflect all adjustments that are, in the opinion of management, necessary for the fair presentation of the financial position and results of operations for the periods presented. All such adjustments are of a normal recurring nature. The results of operations for the three and nine months ended September 30, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009.

 

The consolidated financial statements include the accounts of the Company and its subsidiaries. All material intercompany transactions and balances have been eliminated in consolidation. Certain prior year amounts have been reclassified to conform to the current presentation with no effect on net income (loss) or stockholders’ equity.

 

In preparing the accompanying consolidated financial statements, the Company’s management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses for the reporting period.  Actual results could differ from those estimates.  Material estimates which are particularly susceptible to significant change in the near term relate to the market value of investment securities, the determination of the allowance for loan losses, including valuation of real estate and related collateral, determination of the need for a valuation allowance on the deferred tax asset, and the fair value of reporting unit goodwill.

 

The Company has evaluated subsequent events for potential recognition and/or disclosure through November 9, 2009, the date the consolidated financial statements included in this Quarterly Report on Form 10-Q were issued. All significant subsequent events have been disclosed in the Notes to the Financial Statements.

 

8



 

Note 2:  Recent Accounting Pronouncements

 

On July 1, 2009, the Accounting Standards Codification (“ASC”) became FASB’s officially recognized source of authoritative U.S. generally accepted accounting principles applicable to all public and non-public non-governmental entities, superseding existing FASB, AICPA, EITF and related literature. Rules and interpretive releases of the SEC under the authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. All other accounting literature is considered non-authoritative. The switch to the ASC affects the way companies refer to U.S. GAAP in financial statements and accounting policies. Citing particular content in the ASC involves specifying the unique numeric path to the content through the Topic, Subtopic, Section and Paragraph structure.

 

FASB ASC Topic 260, “Earnings Per Share.” On January 1, 2009, the Company adopted new authoritative accounting guidance under FASB ASC Topic 260, “Earnings Per Share,” which provides that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method.   The adoption did not have an impact on the Company’s financial statements.

 

FASB ASC Topic 320, “Investments - Debt and Equity Securities.” New authoritative accounting guidance under ASC Topic 320, “Investments - Debt and Equity Securities,” (i) changes existing guidance for determining whether an impairment is other than temporary to debt securities and (ii) replaces the existing requirement that the entity’s management assert it has both the intent and ability to hold an impaired security until recovery with a requirement that management assert: (a) it does not have the intent to sell the security; and (b) it is more likely than not it will not have to sell the security before recovery of its cost basis. Under ASC Topic 320, declines in the fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses to the extent the impairment is related to credit losses. The amount of the impairment related to other factors is recognized in other comprehensive income. The Company adopted the provisions of the new authoritative accounting guidance under ASC Topic 320 during the first quarter of 2009. Adoption of the new guidance did not significantly impact the Company’s financial statements.

 

FASB ASC Topic 715, “Compensation - Retirement Benefits.” New authoritative accounting guidance under ASC Topic 715, “Compensation - Retirement Benefits,” provides guidance related to an employer’s disclosures about plan assets of defined benefit pension or other post-retirement benefit plans. Under ASC Topic 715, disclosures should provide users of financial statements with an understanding of how investment allocation decisions are made, the factors that are pertinent to an understanding of investment policies and strategies, the major categories of plan assets, the inputs and valuation techniques used to measure the fair value of plan assets, the effect of fair value measurements using significant unobservable inputs on changes in plan assets for the period and significant concentrations of risk within plan assets. The disclosures required by ASC Topic 715 will be included in the Company’s financial statements beginning with the financial statements for the year-ended December 31, 2009.

 

FASB ASC Topic 805, “Business Combinations.” On January 1, 2009, new authoritative accounting guidance under ASC Topic 805, “Business Combinations,” became applicable to the Company’s accounting for business combinations closing on or after January 1, 2009. ASC Topic 805 applies to all transactions and other events in which one entity obtains control over one or more other businesses. ASC Topic 805 requires an acquirer, upon initially obtaining control of another entity, to recognize the assets, liabilities and any non-controlling interest in the acquiree at fair value as of the acquisition date. Contingent consideration is required to be recognized and measured at fair value on the date of acquisition rather than at a later date when the amount of that consideration may be determinable beyond a reasonable doubt. This fair value approach replaces the cost-allocation process required under previous accounting guidance whereby the cost of an acquisition was allocated to the individual assets acquired and liabilities assumed based on their estimated fair value. ASC Topic 805 requires acquirers to expense acquisition-related costs as incurred rather than allocating such costs to the assets acquired and liabilities assumed, as was previously the case under prior accounting guidance. Assets acquired and liabilities assumed in a business combination that arise from contingencies are to be recognized at fair value if fair value can be reasonably estimated. If fair value of such an asset or liability cannot be reasonably estimated, the asset or liability would generally be recognized in accordance with ASC Topic 450, “Contingencies.” Under ASC Topic 805, the requirements of ASC Topic 420, “Exit or Disposal Cost Obligations,” would have to be met in order to accrue for a restructuring plan in purchase accounting. Pre-acquisition contingencies are to be recognized at fair value, unless it is a non-contractual contingency that is not likely to materialize, in which case, nothing should be recognized in purchase accounting and, instead, that contingency would be subject to the probable and estimable recognition criteria of ASC Topic 450, “Contingencies.”  Adoption of the new guidance is expected to impact the Company only in the instance of a business combination.

 

9



 

FASB ASC Topic 810, “Consolidation.” New authoritative accounting guidance under ASC Topic 810, “Consolidation,” amended prior guidance to establish accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. Under ASC Topic 810, a non-controlling interest in a subsidiary, which is sometimes referred to as minority interest, is an ownership interest in the consolidated entity that should be reported as a component of equity in the consolidated financial statements. Among other requirements, ASC Topic 810 requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the non-controlling interest. It also requires disclosure, on the face of the consolidated income statement, of the amounts of consolidated net income attributable to the parent and to the non-controlling interest. The new authoritative accounting guidance under ASC Topic 810 became effective for the Company on January 1, 2009 and did not have a significant impact on the Company’s financial statements.

 

Further new authoritative accounting guidance under ASC Topic 810 amends prior guidance to change how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance. The new authoritative accounting guidance requires additional disclosures about the reporting entity’s involvement with variable-interest entities and any significant changes in risk exposure due to that involvement as well as its affect on the entity’s financial statements. The new authoritative accounting guidance under ASC Topic 810 will be effective January 1, 2010 and is not expected to have a significant impact on the Company’s financial statements.

 

FASB ASC Topic 820, “Fair Value Measurements and Disclosures.” New authoritative accounting guidance under ASC Topic 820,”Fair Value Measurements and Disclosures,” affirms that the objective of fair value when the market for an asset is not active is the price that would be received to sell the asset in an orderly transaction, and clarifies and includes additional factors for determining whether there has been a significant decrease in market activity for an asset when the market for that asset is not active. ASC Topic 820 requires an entity to base its conclusion about whether a transaction was not orderly on the weight of the evidence. The new accounting guidance amended prior guidance to expand certain disclosure requirements. The Company adopted the new authoritative accounting guidance under ASC Topic 820 during the first quarter of 2009. Adoption of the new guidance did not significantly impact the Company’s financial statements.

 

Further new authoritative accounting guidance (Accounting Standards Update No. 2009-5) under ASC Topic 820 provides guidance for measuring the fair value of a liability in circumstances in which a quoted price in an active market for the identical liability is not available. In such instances, a reporting entity is required to measure fair value utilizing a valuation technique that uses (i) the quoted price of the identical liability when traded as an asset, (ii) quoted prices for similar liabilities or similar liabilities when traded as assets, or (iii) another valuation technique that is consistent with the existing principles of ASC Topic 820, such as an income approach or market approach. The new authoritative accounting guidance also clarifies that when estimating the fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of the liability. The forgoing new authoritative accounting guidance under ASC Topic 820 will be effective for the Company’s financial statements beginning October 1, 2009 and is not expected to have a significant impact on the Company’s financial statements.

 

FASB ASC Topic 825 “Financial Instruments.” New authoritative accounting guidance under ASC Topic 825,”Financial Instruments,” requires an entity to provide disclosures about the fair value of financial instruments in interim financial information and amends prior guidance to require those disclosures in summarized financial information at interim reporting periods. The new interim disclosures required under Topic 825 are included in these financial statements.

 

FASB ASC Topic 855, “Subsequent Events.” New authoritative accounting guidance under ASC Topic 855, “Subsequent Events,” establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or available to be issued. ASC Topic 855 defines (i) the period after the balance sheet date during which a reporting entity’s management should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, (ii) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and (iii) the disclosures an entity should make about events or transactions that occurred after the balance sheet date. The new authoritative accounting guidance under ASC Topic 855 became effective for the Company’s financial statements for periods ending after June 15, 2009 and did not have a significant impact on the Company’s financial statements.

 

FASB ASC Topic 860, “Transfers and Servicing.” New authoritative accounting guidance under ASC Topic 860, “Transfers and Servicing,” amends prior accounting guidance to enhance reporting about transfers of financial assets, including securitizations, and where companies have continuing exposure to the risks related to transferred financial assets. The new

 

10



 

authoritative accounting guidance eliminates the concept of a “qualifying special-purpose entity” and changes the requirements for derecognizing financial assets. The new authoritative accounting guidance also requires additional disclosures about all continuing involvements with transferred financial assets including information about gains and losses resulting from transfers during the period. The new authoritative accounting guidance under ASC Topic 860 will be effective January 1, 2010 and is not expected to have a significant impact on the Company’s financial statements.

 

Note 3:  Capital

 

Common Stock Issuance

 

On September 30, 2009, the Company completed an underwritten public common stock offering by issuing 20,700,000 shares of the Company’s common stock at a public offering price of $4.00 per share.  The net proceeds after deducting underwriting discounts and commissions and estimated offering expenses are expected to be $78.1 million.  Due to the timing of the closing of the offering, the Company expects to finalize expenses in November.

 

Series A Mandatorily Convertible Preferred Stock

 

On October 29, 2009, the Company closed on the issuance and sale of 393 shares of Series A Mandatorily Convertible Preferred Stock Cumulative Preferred Stock (the “Series A Preferred Stock”) at a price of $100,000 per share, or $39.3 million in the aggregate.  The Series A Preferred Stock has a liquidation preference of $100,000 per share, an annual dividend of 9.0% and no voting rights. Upon approval by the Company’s stockholders to amend the Company’s restated articles of incorporation to increase the number of authorized shares of common stock from 60,000,000 shares to 100,000,000 shares and to issue shares of common stock upon the conversion of the shares of the Series A Preferred Stock issued in the private placement, each share of Series A Preferred Stock will automatically convert into shares of common stock at $4.00 per share, the same price at which the shares of common stock were issued in the underwritten public offering. If converted, the Company will have 9,825,000 additional common shares outstanding.  Because the shares were not issued until October 29, 2009, the Series A Preferred Stock have not been included in the balance sheet of these financial statements

 

Series T Cumulative Perpetual Preferred Stock

 

On March 6, 2009, the Company, pursuant to the Capital Purchase Program (the “CPP”) implemented under the Emergency Economic Stabilization Act, entered into a Letter Agreement, which includes the Securities Purchase Agreement — Standard Terms (collectively, the “Purchase Agreement”), with the U.S. Treasury (the “Treasury”) pursuant to which the Company issued and sold to Treasury 100,000 shares of the Company’s Fixed Rate Cumulative Perpetual Preferred Stock, Series T (“Series T Preferred Stock”), together with a warrant to purchase 1,147,666 shares of the Company’s common stock for an aggregate purchase price of $100 million in cash.  The warrant has a ten-year term and is immediately exercisable upon its issuance, with an exercise price equal to $13.07 per share of the common stock.

 

The fair value of the warrant was calculated utilizing the Black-Scholes pricing model.  The inputs to the Black-Scholes model are consistent with those inputs utilized by the Company for a 10-year employee stock option.

 

Number of shares underlying the warrant

 

1,147,666

 

Exercise price

 

$

13.07

 

Grant date fair market value

 

$

6.15

 

Estimated forfeiture rate

 

 

Risk-free interest rate

 

2.83

%

Expected life, in years

 

10.0

 

Expected volatility

 

42.1

%

Expected dividend yield

 

3.07

%

Estimated fair value per warrant

 

$

1.37

 

 

We received $100.0 million in proceeds from participation in the CPP, of which $98.4 million was allocated to the Series T Preferred Stock and $1.6 million was allocated to the warrants.  The resulting discount on the Series T Preferred Stock (i.e. the difference between the allocated value of $98.4 million and the liquidation value of $100.0 million), is being accreted on a straight-line basis over 60 months, which is not significantly different from the effective interest method.  The calculated fair value discount utilizing a 12% discount rate was not significant, and therefore not recorded.

 

The Series T Preferred Stock qualifies as Tier 1 capital and pays cumulative dividends at a rate of 5% per annum for the first five years, and 9% per annum thereafter.  The Series T Preferred Stock may be redeemed by the Company at any time, subject to approval of the Federal Reserve and the Treasury.  Any redemption of the Series T Preferred Stock will be at the per share liquidation amount of $1,000 per share, plus any accrued and unpaid dividends.

 

Prior to the third anniversary of Treasury’s purchase of the Series T Preferred Stock, unless the Series T Preferred Stock has been redeemed or Treasury has transferred all of the Series T Preferred Stock to one or more third parties, the consent of

 

11



 

Treasury will be required for the Company to increase the dividend paid on its common stock above its most recent quarterly dividend prior to issuance of $0.20 per share or repurchase shares of its common stock (other than in connection with benefit plans).  The Series T Preferred Stock is non-voting except for class voting rights on matters that would adversely affect the rights of the holders of the Series T Preferred Stock.

 

Warrant Reduction

 

In conjunction with the closing of the underwritten public common offering and the closing of the Series A Preferred Stock, we have notified Treasury of our intent to reduce the warrant issued in conjunction with the Series T Preferred Stock by half pursuant to the terms of the warrant.  The reduction will reduce the number of shares subject to exercise under the warrant to 573,833.

 

Note 4:  Goodwill

 

Other than goodwill, the Company does not have any other intangible assets that are not amortized. Goodwill is tested for impairment using a two-step process that begins with an estimation of the fair value of a reporting unit, which for the Company is our operating segments. The first step is a screen for potential impairment and the second step measures the amount of impairment, if any. The first step utilizes level 2 inputs to establish the estimated fair value of the reporting unit, which are primarily valuations of comparable public companies and comparable public transaction multiples. Due to the significant loss experienced by Busey Bank in the third quarter of 2009, the Company conducted interim preliminary goodwill impairment testing for the goodwill associated with Busey Bank as of September 30, 2009 rather than waiting until the annual impairment analysis in December.

 

Based upon the first step of preliminary impairment testing, the Company identified potential impairment of goodwill associated with Busey Bank and subjected that goodwill to the second step of impairment testing. Busey Bank experienced significant operating losses driven primarily by the deterioration in the real estate markets in southwest Florida.  The operating losses and the effects of the current economic environment on the valuation of financial institutions and the capital markets had a significant, negative effect on the fair value of Busey Bank.  As a result of applying the second step of the preliminary impairment test, the Company recorded $208.2 million of goodwill impairment for the quarter ended September 30, 2009, including $204.8 million at Busey Bank and $3.4 million at First Busey Corporation that was related to our banking operations.

 

The remaining goodwill on the balance relates to FirsTech, our remittance processing subsidiary, and Busey Wealth Management. Due to the decline in the Company’s stock price, it is possible we will evaluate our goodwill for impairment on a more frequent basis than annually.  The evaluation may result in further impairment.

 

Note 5:  Securities

 

Securities classified as available for sale are those debt securities that the Company intends to hold for an indefinite period of time, but not necessarily to maturity, and marketable equity securities.  Any decision to sell a security classified as available for sale would be based on various factors, including significant movements in interest rates, changes in the maturity mix of the Company’s assets and liabilities, liquidity needs, regulatory capital considerations and other similar factors.  Securities available for sale are carried at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income.

 

Federal Home Loan Bank stock and Federal Reserve Bank stock are carried at cost and are included in securities available for sale in the balance sheets. The Company is required to maintain these equity securities as a member of both the Federal Home Loan Bank and the Federal Reserve System, and in amounts as required by these institutions. These equity securities are “restricted” in that they can only be sold back to the respective institutions or another member institution at par. Therefore, they are less liquid than other tradable equity securities, their fair value is equal to amortized cost, and no impairment has been recorded during 2009 or 2008.

 

Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities.  Declines in the fair value of available-for-sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses.  In estimating other-than-temporary impairment losses, management considers the length of time and extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, and, whether we have the intent to sell the security and it is more likely than not we will not have to sell the security before recovery of its cost basis.  Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.

 

12



 

The amortized cost and fair values of securities available for sale are summarized as follows:

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

 

 

Cost

 

Gains

 

Losses

 

Value

 

 

 

(dollars in thousands)

 

September 30, 2009:

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

712

 

$

12

 

$

 

$

724

 

Obligations of U.S. government corporations and agencies

 

329,400

 

9,375

 

28

 

338,747

 

Obligations of states and political subdivisions

 

85,775

 

3,077

 

93

 

88,759

 

Mortgage-backed securities

 

144,416

 

5,288

 

1

 

149,703

 

Corporate debt securities

 

1,871

 

62

 

6

 

1,927

 

 

 

562,174

 

17,814

 

128

 

579,860

 

Mutual funds and other equity securities

 

1,266

 

857

 

 

2,123

 

Federal Home Loan Bank and Federal Reserve Bank stock

 

19,146

 

 

 

19,146

 

 

 

 

 

 

 

 

 

 

 

 

 

$

582,586

 

$

18,671

 

$

128

 

$

601,129

 

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

 

 

Cost

 

Gains

 

Losses

 

Value

 

 

 

(dollars in thousands)

 

December 31, 2008:

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

716

 

$

42

 

$

 

$

758

 

Obligations of U.S. government corporations and agencies

 

394,496

 

13,611

 

 

408,107

 

Obligations of states and political subdivisions

 

92,907

 

652

 

1,365

 

92,194

 

Mortgage-backed securities

 

122,747

 

2,488

 

17

 

125,218

 

Corporate debt securities

 

3,159

 

14

 

76

 

3,097

 

 

 

614,025

 

16,807

 

1,458

 

629,374

 

Mutual funds and other equity securities

 

2,324

 

1,141

 

168

 

3,297

 

Federal Home Loan Bank and Federal Reserve Bank stock

 

21,459

 

 

 

21,459

 

 

 

 

 

 

 

 

 

 

 

 

 

$

637,808

 

$

17,948

 

$

1,626

 

$

654,130

 

 

13



 

The following presents information pertaining to securities with gross unrealized losses as of September 30, 2009, aggregated by investment category and length of time that individual securities have been in continuous loss position:

 

 

 

Less than 12 months

 

Greater than 12 months

 

Total

 

 

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

 

 

Value

 

Losses

 

Value

 

Losses

 

Value

 

Losses

 

 

 

(dollars in thousands)

 

September 30, 2009:

 

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of U.S. government agencies and corporations

 

$

26,371

 

$

28

 

$

 

$

 

$

26,371

 

$

28

 

Obligations of states and political subdivisions

 

525

 

3

 

5,818

 

90

 

6,343

 

93

 

Mortgage-backed securities

 

107

 

1

 

 

 

107

 

1

 

Corporate debt securities

 

94

 

6

 

 

 

94

 

6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total temporarily impaired securities

 

$

27,097

 

$

38

 

$

5,818

 

$

90

 

$

32,915

 

$

128

 

 

 

 

Less than 12 months

 

Greater than 12 months

 

Total

 

 

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

 

 

Value

 

Losses

 

Value

 

Losses

 

Value

 

Losses

 

 

 

(dollars in thousands)

 

December 31, 2008:

 

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of states and political subdivisions

 

$

48,662

 

$

1,321

 

$

2,075

 

$

44

 

$

50,737

 

$

1,365

 

Mortgage-backed securities

 

3,573

 

17

 

 

 

3,573

 

17

 

Corporate debt securities

 

1,991

 

57

 

181

 

19

 

2,172

 

76

 

Subtotal, debt securities

 

$

54,226

 

$

1,395

 

$

2,256

 

$

63

 

$

56,482

 

$

1,458

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity securities

 

161

 

118

 

9

 

50

 

170

 

168

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total temporarily impaired securities

 

$

54,387

 

$

1,513

 

$

2,265

 

$

113

 

$

56,652

 

$

1,626

 

 

The total number of investment securities in an unrealized loss position as of September 30, 2009 and December 31, 2008 was 21 and 164, respectively. The unrealized losses resulted from changes in market interest rates and liquidity, not from changes in the probability of receiving the contractual cash flows. The Company does not intend to sell the securities and it is not more-likely-than-not that the Company will be required to sell the securities prior to recovery of amortized cost.  Full collection of the amounts due according to the contractual terms of the securities is expected; therefore, the Company does not consider these investments to be other-than-temporarily impaired at September 30, 2009.

 

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation.  Consideration is given to the length of time and extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, and whether we have the intent to sell the security and it is more likely than not we will not have to sell the security before recovery of its cost basis.

 

14


 


 

The amortized cost and fair value of debt securities available for sale as of September 30, 2009, by contractual maturity, are shown below.  Mutual funds and other equity securities, and Federal Home Loan Bank and Federal Reserve Bank stock do not have stated maturity dates and therefore are not included in the following maturity summary.

 

 

 

Amortized

 

Fair

 

 

 

Cost

 

Value

 

 

 

(dollars in thousands)

 

Due in one year or less

 

$

131,593

 

$

133,625

 

Due after one year through five years

 

246,437

 

255,320

 

Due after five years through ten years

 

69,171

 

71,944

 

Due after ten years

 

114,973

 

118,971

 

 

 

$

562,174

 

$

579,860

 

 

Investment securities with carrying amounts of $486.2 million and $515.9 million on September 30, 2009 and December 31, 2008, respectively, were pledged as collateral on public deposits, securities sold under agreements to repurchase and for other purposes as required or permitted by law.

 

Note 6:  Loans

 

The major classifications of loans as of September 30, 2009 and December 31, 2008 were as follows:

 

 

 

September 30, 2009

 

December 31, 2008

 

 

 

(dollars in thousands)

 

 

 

 

 

 

 

Commercial

 

$

393,959

 

$

455,592

 

Real estate construction

 

566,215

 

743,371

 

Real estate - farmland

 

55,067

 

54,337

 

Real estate - 1-4 family residential mortgage

 

662,384

 

715,853

 

Real estate - multifamily mortgage

 

256,071

 

278,345

 

Real estate - non-farm nonresidential mortgage

 

934,826

 

893,011

 

Installment

 

67,498

 

59,692

 

Agricultural

 

37,668

 

41,781

 

 

 

$

 2,973,688

 

$

3,241,982

 

Plus:

 

 

 

 

 

Net deferred loan costs

 

1,100

 

1,393

 

 

 

2,974,788

 

3,243,375

 

Less:

 

 

 

 

 

Allowance for loan losses

 

120,021

 

98,671

 

Net loans

 

$

2,854,767

 

$

3,144,704

 

 

Changes in the allowance for loan losses were as follows:

 

 

 

Nine Months Ended September 30,

 

 

 

2009

 

2008

 

 

 

(dollars in thousands)

 

 

 

 

 

 

 

Balance, beginning of year

 

$

98,671

 

$

42,560

 

Provision for loan losses

 

197,500

 

22,450

 

Recoveries applicable to loan balances previously charged off

 

1,637

 

830

 

Loan balances charged off

 

(177,787

)

(17,166

)

Balance, June 30

 

$

120,021

 

$

48,674

 

 

15



 

Non-performing and impaired loan totals in the categories below are net of cumulative charge-offs taken against those loans. The balance shown does not reflect the total amounts due from the customer. The following table presents data on non-performing and impaired loans:

 

 

 

September 30,

 

December 31,

 

 

 

2009

 

2008

 

 

 

(dollars in thousands)

 

 

 

 

 

 

 

Total loans 90 days past due and still accruing

 

14,526

 

15,845

 

Total non-accrual loans

 

157,978

 

68,347

 

Total non-performing loans

 

$

172,504

 

$

84,192

 

 

 

 

 

 

 

Impaired loans for which a specific allowance has been provided

 

$

46,226

 

$

25,850

 

Impaired loans for which no specific allowance has been provided

 

$

115,437

 

$

45,097

 

 

 

 

 

 

 

Allowance for loan loss for impaired loans included in the allowance for loan losses

 

$

15,954

 

$

6,665

 

 

Note 7:  Earnings Per Share

 

Net income (loss) per common share has been computed as follows:

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2009

 

2008

 

2009

 

2008

 

 

 

(in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) available to common shareholders

 

$

(283,675

)

$

8,817

 

$

(298,641

)

$

23,412

 

Shares:

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

35,816

 

35,787

 

35,816

 

35,853

 

 

 

 

 

 

 

 

 

 

 

Dilutive effect of outstanding options as determined by the application of the treasury stock method

 

 

69

 

 

119

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding, as adjusted for diluted earnings per share calculation

 

35,816

 

35,856

 

35,816

 

35,972

 

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per share

 

$

(7.92

)

$

0.25

 

$

(8.34

)

$

0.65

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings (loss) per share

 

$

(7.92

)

$

0.25

 

$

(8.34

)

$

0.65

 

 

Basic earnings per share are computed by dividing net income for the year by the weighted average number of shares outstanding.

 

Diluted earnings per share are determined by dividing net income for the year by the weighted average number of shares of common stock and common stock equivalents outstanding.  Common stock equivalents assume exercise of stock options and use of proceeds to purchase treasury stock at the average market price for the period.  If the average market price for the period exceeds the strike price of a stock option, that option is considered anti-dilutive and is excluded from the calculation of common stock equivalents.  The calculation of the diluted loss per share for the three and nine-months ended September 30, 2009 does not reflect the assumed exercise of potentially dilutive stock options because the effect would have been anti-dilutive due to the net loss for the period.   None of the Company’s 1,643,755 outstanding options or 1,147,666 warrants were potentially dilutive for the three and nine months ended September 30, 2009.

 

16



 

Note 8:  Stock-based Compensation

 

Under the terms of the Company’s stock option plans, the Company is allowed, but not required to source stock option exercises from its inventory of treasury stock.  The Company has historically sourced stock option exercises from its treasury stock inventory, including exercises for the periods presented.  As of September 30, 2009, under the Company’s 2008 stock repurchase plan, 895,655 additional shares were authorized for repurchase.  The repurchase plan has no expiration date and expires when the Company has repurchased all of the remaining authorized shares.  However, because of First Busey’s participation in CPP, it will not be permitted to repurchase any shares of its common stock, other than in connection with benefit plans consistent with past practice, until such time as Treasury no longer holds any equity securities in the Company.

 

The fair value of the stock options granted has been estimated using the Black-Scholes option pricing model. The components of the Black-Scholes option pricing model are determined on a grant-by-grant basis. Expected life and estimated forfeiture rate is based on historical exercise and termination behavior. Expected stock price volatility is based on historical volatility of the Company’s common stock and correlates with the expected life of the options. The risk-free interest rate is based on the implied yield currently available on U.S. Treasury zero-coupon issues with a remaining term approximately equal to the expected life of the option. The expected dividend yield represents the annual dividend yield as of the date of grant. Management reviews and adjusts the assumptions used to calculate the fair value of an option on a periodic basis to better reflect expected trends.

 

On June 16, 2009, the Company issued 67,500 stock options to First Busey Corporation’s non-employee directors. The stock options have an exercise price of $7.53, vest on June 1, 2010 and expire on June 30, 2019.

 

Number of options granted

 

67,500

 

Exercise Price

 

$

7.53

 

Estimated forfeiture rate

 

%

Risk-free interest rate

 

2.7

%

Expected life, in years

 

4.6

 

Expected volatility

 

42.1

%

Expected dividend yield

 

3.9

%

Estimated fair value per option

 

$

2.08

 

 

A summary of the status of and changes in the Company’s stock option plans for the nine months ended September 30, 2009 follows:

 

 

 

 

 

Weighted-

 

Weighted-

 

 

 

 

 

Average

 

Average

 

 

 

 

 

Exercise

 

Remaining Contractual

 

 

 

Shares

 

Price

 

Term

 

 

 

 

 

 

 

 

 

Outstanding at beginning of year

 

1,918,888

 

$

17.11

 

 

 

Granted

 

67,500

 

7.53

 

 

 

Exercised

 

4,883

 

11.29

 

 

 

Forfeited

 

337,750

 

19.52

 

 

 

Outstanding at end of period

 

1,643,755

 

$

16.24

 

3.67

 

 

 

 

 

 

 

 

 

Exercisable at end of period

 

1,576,255

 

$

16.61

 

3.41

 

 

The total intrinsic value of stock options exercised in the nine months ended September 30, 2009 and 2008 was insignificant.

 

17



 

The following table summarizes information about stock options outstanding at September 30, 2009:

 

 

 

 

 

Options

 

 

 

Options Outstanding

 

Exercisable

 

 

 

 

 

 

 

Weighted-

 

 

 

 

 

 

 

 

 

 

 

Weighted-

 

Average

 

 

 

 

 

 

 

Range of

 

 

 

Average

 

Remaining

 

 

 

 

 

 

 

Exercise

 

 

 

Exercise

 

Contractual

 

Intrinsic

 

 

 

Intrinsic

 

Prices

 

Number

 

Price

 

Life

 

Value

 

Number

 

Value

 

 

 

(intrinsic value in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

7.53

 

67,500

 

$

7.53

 

9.75

 

 

 

 

 

 

11.29-12.00

 

424,512

 

$

11.72

 

1.58

 

 

 

424,512

 

 

 

14.56-16.03

 

292,014

 

15.36

 

2.47

 

 

 

292,014

 

 

 

19.83

 

51,000

 

19.83

 

0.21

 

 

 

51,000

 

 

 

17.12-19.74

 

637,229

 

19.17

 

5.65

 

 

 

637,229

 

 

 

20.16-20.71

 

171,500

 

20.34

 

2.21

 

 

 

171,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,643,755

 

$

16.24

 

3.67

 

$

 

1,576,255

 

$

 

 

Stock option expense and stock expense remaining to be recognized was insignificant for the Company as of and for the periods ended September 30, 2009 and 2008.

 

Note 9:  Income Taxes

 

The Company is subject to income taxes in the U.S. federal and various state jurisdictions.  The Company and its subsidiaries file consolidated federal and state income tax returns with each subsidiary computing its taxes on a separate entity basis.  Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require the application of significant judgment.  With few exceptions, the Company is no longer subject to U.S. federal, state or local tax examinations by tax authorities for the years before 2005.  The provision for income taxes is based on income as reported in the financial statements.

 

There were no uncertain tax positions as of January 1, 2009.  There have been no adjustments to uncertain tax positions since January 1, 2009.  There are no material tax positions for which it is reasonably possible that uncertain tax positions will significantly change in the twelve months subsequent to September 30, 2009.

 

When applicable, the Company recognizes interest accrued related to uncertain tax positions and penalties in operating expenses.  The Company has no accruals for payments of interest and penalties at September 30, 2009.

 

At September 30, 2009, the Company was under examination by the Internal Revenue Service for the Company’s 2007 U.S. Federal income tax filing.

 

The Company evaluated the recoverability of its net deferred tax asset position at September 30, 2009 and determined there was no need for a valuation allowance.  The evaluation was based upon the Company’s expected ability to carry back tax losses, available tax planning strategies and the ability to generate future earnings.  The recoverability of the net deferred tax asset may to be tested in future periods, which may result in the need to record a valuation allowance against the net deferred tax asset.

 

18



 

Note 10:  Junior Subordinated Debt Owed to Unconsolidated Trusts

 

The Company has established statutory trusts for the sole purpose of issuing trust preferred securities and related trust common securities.  The proceeds from such issuances were used by the trusts to purchase junior subordinated notes of the Company, which are the sole assets of each trust.  Concurrent with the issuance of the trust preferred securities, the Company issued guarantees for the benefit of the holders of the trust preferred securities.  The Company owns all of the common securities of each trust.  The trust preferred securities issued by each trust rank equally with the common securities in right of payment, except that if an event of default under the indenture governing the notes has occurred and is continuing, the preferred securities will rank senior to the common securities in right of payment.

 

The table below summarizes the outstanding junior subordinated notes and the related trust preferred securities issued by each trust as of September 30, 2009:

 

 

 

First Busey Statutory Trust II

 

First Busey Statutory Trust III

 

First Busey Statutory Trust IV

 

 

 

 

 

 

 

Junior Subordinated Notes:

 

 

 

 

 

 

Principal balance

 

$15,000,000

 

$10,000,000

 

$30,000,000

Annual interest rate(1)

 

3-mo LIBOR + 2.65%

 

3-mo LIBOR + 1.75%

 

6.94%

Stated maturity date

 

June 17, 2034

 

June 15, 2035

 

June 15, 2036

First call date

 

June 17, 2009

 

June 15, 2010

 

June 15, 2011

 

 

 

 

 

 

 

Trust Preferred Securities:

 

 

 

 

 

 

Face value

 

$15,000,000

 

$10,000,000

 

$30,000,000

Annual distribution rate(1)

 

3-mo LIBOR + 2.65%

 

3-mo LIBOR + 1.75%

 

6.94%

Issuance date

 

April 30, 2004

 

June 15, 2005

 

June 15, 2006

Distribution dates(2)

 

Quarterly

 

Quarterly

 

Quarterly

 


(1) First Busey Statutory Trust IV maintains a 5-year fixed coupon of 6.94% through June 10, 2011, subsequently converting to a floating 3-month LIBOR +1.55%.

(2) All cash distributions are cumulative.

 

The trust preferred securities are subject to mandatory redemption, in whole or in part, upon repayment of the junior subordinated notes at par value at the stated maturity date or upon redemption of the junior subordinated notes on a date no earlier than June 17, 2009, for First Busey Statutory Trust II, June 15, 2010, for First Busey Statutory Trust III, and June 15, 2011, for First Busey Statutory Trust IV.  Prior to these respective redemption dates, the junior subordinated notes may also be redeemed by the Company (in which case the trust preferred securities would also be redeemed) after the occurrence of certain events that would have a negative tax effect on the Company or the trusts, would cause the trust preferred securities to no longer qualify for Tier 1 capital, or would result in a trust being treated as an investment company.  Each trust’s ability to pay amounts due on the trust preferred securities is solely dependent upon the Company making payment on the related junior subordinated notes.  The Company’s obligations under the junior subordinated notes and other relevant trust agreements, in aggregate, constitute a full and unconditional guarantee by the Company of each trust’s obligations under the trust preferred securities issued by each trust.  The Company has the right to defer payment of interest on the notes and, therefore, distributions on the trust preferred securities, for up to five years, but not beyond the stated maturity date in the table above, but does not expect to exercise this right.

 

In March 2005, the Board of Governors of the Federal Reserve System issued a final rule allowing bank holding companies to continue to include qualifying trust preferred securities in their Tier I Capital for regulatory capital purposes, subject to a 25% limitation to all core (Tier I) capital elements, net of goodwill and other intangible assets less any associated deferred tax liability.  The final rule provided a five-year transition period, which has been extended to March 31, 2011, for applications of the aforementioned quantitative limitation.  As of September 30, 2009, 100% of the trust preferred securities noted in the table above qualified as Tier I capital under the final rule adopted in March 2005.

 

19



 

Note 11:  Outstanding Commitments and Contingent Liabilities

 

Debt Covenant Violation

As expected and disclosed during our September 2009 capital offering, as of September 30, 2009, we were in default on two of our loan covenants contained in the debt facility at the holding company.  We were in default on performance covenants by exceeding the non-performing loans as a percentage of assets ratio and falling below the return on assets ratio as prescribed in the debt agreement.  The facility consists of $26.0 million of term debt and a $20.0 million line of credit, which has zero outstanding as of September 30, 2009.  We are in negotiations with the lender to resolve covenant violations.  The means of resolution is unknown at this time, but may include one or a combination of a waiver of the covenants for a defined period, a renegotiation of the debt agreement and part or total principal pay down.

 

Legal Matters

The Company and its subsidiaries are parties to legal actions which arise in the normal course of their business activities. In the opinion of management, the ultimate resolution of these matters is not expected to have a material effect on the financial position or the results of operations of the Company and its subsidiaries.

 

Credit Commitments and Contingencies

The Company and its subsidiaries are parties to credit related financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of their customers.  These financial instruments include commitments to extend credit and standby letters of credit.  Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets.

 

The Company’s and its subsidiaries’ exposure to credit loss are represented by the contractual amount of those commitments.  The Company and its subsidiaries use the same credit policies in making commitments and conditional obligations as they do for on-balance-sheet instruments.  A summary of the contractual amount of the Company’s exposure to off-balance-sheet risk follows:

 

 

 

September 30, 2009

 

December 31, 2008

 

 

 

(dollars in thousands)

 

Financial instruments whose contract amounts represent credit risk:

 

 

 

 

 

Commitments to extend credit

 

$

601,953

 

$

705,231

 

Standby letters of credit

 

16,595

 

27,862

 

 

Commitments to extend credit are agreements to lend to a customer as long as no condition established in the contract has been violated.  These commitments are generally at variable interest rates and generally have fixed expiration dates or other termination clauses and may require payment of a fee.  The commitments for equity lines of credit may expire without being drawn upon.  Therefore, the total commitment amounts do not necessarily represent future cash requirements.  The amount of collateral obtained, if it is deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the customer.

 

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer’s obligation to a third party.  Those guarantees are primarily issued to support public and private borrowing arrangements, including bond financing and similar transactions and primarily have terms of one year or less.  The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.  The Company holds collateral, which may include accounts receivable, inventory, property and equipment, and income producing properties, supporting those commitments if deemed necessary.  In the event the customer does not perform in accordance with the terms of the agreement with the third party, the Company would be required to fund the commitment.  The maximum potential amount of future payments the Company could be required to make is represented by the contractual amount shown in the summary above.  If the commitment is funded, the Company would be entitled to seek recovery from the customer.  As of September 30, 2009, and December 31, 2008, no amounts were recorded as liabilities for the Company’s potential obligations under these guarantees.

 

As of September 30, 2009, the Company had no futures, forwards, swaps or option contracts, or other financial instruments with similar characteristics with the exception of interest rate lock commitments on mortgage loans to be held for sale.

 

20



 

Note 12:  Reportable Segments and Related Information

 

Following the August 2009 merger of Busey Bank, N.A. into Busey Bank, the Company has three reportable segments, Busey Bank, FirsTech and Busey Wealth Management.  Busey Bank provides a full range of banking services to individual and corporate customers through its branch network in downstate Illinois, through its branch in Indianapolis, Indiana, and through its branch network in southwest Florida.  FirsTech provides remittance processing for online bill payments, lockbox and walk-in payments.  Busey Wealth Management is the parent company of Busey Trust Company, which provides a full range of trust and investment management services, including estate and financial planning, securities brokerage, investment advice, tax preparation, custody services and philanthropic advisory services.

 

The Company’s three reportable segments are strategic business units that are separately managed as they offer different products and services and have different marketing strategies.

 

Busey Bank, N.A. information has been combined with the information presented for Busey Bank restrospectively.  The segment financial information provided below has been derived from the internal accounting system used by management to monitor and manage the financial performance of the Company.  The accounting policies of the three segments are the same as those described in the summary of significant accounting policies in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

 

21



 

Following is a summary of selected financial information for the Company’s business segments:

 

 

 

Goodwill

 

Total Assets

 

 

 

September 30,

 

December 31,

 

September 30,

 

December 31,

 

 

 

2009

 

2008

 

2009

 

2008

 

 

 

(dollars in thousands)

 

(dollars in thousands)

 

Goodwill:

 

 

 

 

 

 

 

 

 

Busey Bank

 

$

 

$

204,800

 

$

3,920,749

 

$

4,414,535

 

FirsTech

 

8,992

 

8,992

 

22,078

 

19,911

 

Busey Wealth Management

 

11,694

 

11,694

 

24,320

 

25,255

 

All Other

 

 

3,377

 

6,759

 

392

 

Total Goodwill

 

$

20,686

 

$

228,863

 

$

3,973,906

 

$

4,460,093

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

 

2009

 

2008

 

2009

 

2008

 

 

 

(dollars in thousands)

 

(dollars in thousands)

 

Interest Income:

 

 

 

 

 

 

 

 

 

Busey Bank

 

$

44,577

 

$

54,809

 

$

140,381

 

$

167,849

 

FirsTech

 

12

 

11

 

34

 

28

 

Busey Wealth Management

 

60

 

69

 

174

 

257

 

All Other

 

(26

)

5

 

(31

)

10

 

Total Interest Income

 

$

44,623

 

$

54,894

 

$

140,558

 

$

168,144

 

 

 

 

 

 

 

 

 

 

 

Interest Expense:

 

 

 

 

 

 

 

 

 

Busey Bank

 

$

15,347

 

$

22,174

 

$

53,203

 

$

69,709

 

FirsTech

 

 

 

 

 

Busey Wealth Management

 

 

 

 

 

All Other

 

812

 

1,279

 

2,896

 

4,206

 

Total Interest Expense

 

$

16,159

 

$

23,453

 

$

56,099

 

$

73,915

 

 

 

 

 

 

 

 

 

 

 

Other Income:

 

 

 

 

 

 

 

 

 

Busey Bank

 

$

10,012

 

$

7,189

 

$

29,335

 

$

22,505

 

FirsTech

 

3,279

 

3,144

 

9,964

 

9,233

 

Busey Wealth Management

 

3,109

 

3,696

 

9,520

 

10,934

 

All Other

 

53

 

1,794

 

1,194

 

1,374

 

Total Other Income

 

$

16,453

 

$

15,823

 

$

50,013

 

$

43,857

 

 

 

 

 

 

 

 

 

 

 

Net Income (loss):

 

 

 

 

 

 

 

 

 

Busey Bank

 

$

(280,677

)

$

6,671

 

$

(294,942

)

$

21,619

 

FirsTech

 

728

 

705

 

2,397

 

2,037

 

Busey Wealth Management

 

629

 

766

 

1,908

 

2,083

 

All Other

 

(2,999

)

675

 

(4,918

)

(2,327

)

Total Net Income (loss)

 

$

(282,319

)

$

8,817

 

$

(295,555

)

$

23,412

 

 

22