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Capital
12 Months Ended
Dec. 31, 2011
Capital  
Capital

Note 13.  Capital

 

Issuance of Preferred Stock Under Small Business Lending Fund

On August 25, 2011, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with  Treasury, pursuant to which the Company issued and sold to the Treasury 72,664 shares of its Senior Non-Cumulative Perpetual Preferred Stock, Series C (the “Series C Preferred Stock”), having a liquidation preference of $1,000 per share (the “Liquidation Amount”), for aggregate proceeds of $72,664,000 (which were used to partially finance the Company’s redemption of Series T Preferred Stock as described below).  The SBLF is a U.S. Department of the Treasury lending program that encourages qualified community banks to partner with small businesses and entrepreneurs to create jobs and promote economic development in local communities.

 

The Series C Preferred Stock qualifies as Tier 1 capital for the Company. Non-cumulative dividends are payable quarterly on the Series C Preferred Stock, which began October 1, 2011. The dividend rate is calculated as a percentage of the aggregate “Liquidation Amount” of the outstanding Series C Preferred Stock and will be based on changes in the level of “Qualified Small Business Lending” or “QSBL” (as such terms are defined in the Purchase Agreement) by the Bank. Based upon the lack of increase in the Bank’s level of QSBL over the baseline level calculated under the terms of the Purchase Agreement, the dividend rate for the initial dividend period, which is from the date of issuance through September 30, 2011, was set at 5%. For the 2nd through 10th calendar quarters, the annual dividend rate may be adjusted to between 1% and 5%, to reflect the amount of change in the Bank’s level of QSBL. For the 11th calendar quarter through 4.5 years after issuance, the dividend rate will be fixed at between 1% and 7% based upon the level of QSBL as compared to the baseline. After 4.5 years from issuance, the dividend rate will increase to 9% (including a quarterly lending incentive fee of 0.5%).

 

The Series C Preferred Stock is non-voting, except in limited circumstances.  The Company may redeem the shares of Series C Preferred Stock, in whole or in part, at any time at a redemption price equal to the sum of the Liquidation Amount per share and the per share amount of any unpaid dividends for the then-current period, subject to any required prior approval by the Company’s primary federal banking regulator.

 

Redemption of Series T Preferred Stock

The Company’s Fixed Rate Cumulative Perpetual Preferred Stock, Series T (the “Series T Preferred Stock”), was issued to the Treasury on March 6, 2009 in connection with the Company’s participation in the TARP Capital Purchase Program (“CPP”). On August 25, 2011, the Company entered into and consummated the transactions contemplated by a letter agreement (the “Repurchase Document”) with the Treasury.  Under the Repurchase Document, the Company redeemed from the Treasury, in part using the proceeds from the issuance of the Series C Preferred Stock, all 100,000 outstanding shares of its Series T Preferred Stock, for a redemption price of approximately $100.1 million, including accrued but unpaid dividends to the date of redemption.

 

In connection with the Company’s participation in the CPP, the Company also issued to Treasury a warrant to purchase 1,147,666 shares of the Company’s common stock.  Since the date of the Company’s participation in the CPP, it raised additional capital through a public offering of common stock and, as a result of that offering, the number of shares of common stock subject to the warrant were reduced by 50% to 573,833.  At December 31, 2011, this warrant to purchase 573,833 shares of the Company’s common stock remained outstanding; however, on November 23, 2011 the Treasury completed an auction to sell to CCS LLC, an unrelated party, its warrant in a private transaction.

 

Common Stock Issuance

At December 31, 2010, the Company completed a registered direct offering, issuing 12,718,635 shares of its common stock at an offering price of $4.25 per share.  The net proceeds after deducting underwriting discounts and commissions and estimated offering expenses was $52.5 million.

 

Series B Convertible Cumulative Preferred Stock Issuance and Subsequent Conversion

At December 28, 2010, the Company completed a registered direct offering, issuing 318.6225 shares of Series B Convertible Cumulative Preferred Stock (the “Series B Preferred Stock”) at a price of $100,000 per share, or $31.9 million in the aggregate.  The Series B Preferred Stock had a liquidation preference of $100,000 per share and annual dividend of 9.0%.

 

On March 1, 2011, the Company’s stockholders approved the conversion of the shares of the Series B Preferred Stock issued December 28, 2010, at $4.25 per share, the same price at which the shares of common stock were issued in the common stock issuance, resulting in an additional 7,497,000 common shares outstanding.   Following the conversion, no shares of Series B Preferred Stock remained outstanding.

 

Regulatory Capital

The ability of the Company to pay cash dividends to its stockholders and to service its debt historically was dependent on the receipt of cash dividends from its subsidiaries.  However, our banking subsidiary sustained significant losses during 2008 and 2009 resulting in pressure on capital, which has been enhanced through injections by the Company.  State chartered banks have certain statutory and regulatory restrictions on the amount of cash dividends they may pay.  Due to the significant retained earnings deficit and the Company’s desire to maintain a strong capital position at Busey Bank, dividends were not paid out of the Bank in 2010 or 2011.  Further, until such time as retained earnings have been restored, the Bank will not be permitted to pay dividends and we will need to request permission from the Bank’s primary regulator to receive any capital out of the Bank.

 

The Company and the Bank are subject to various regulatory capital requirements administered by federal and state banking agencies.  Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company’s or the Bank’s financial statements.  Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices.  The Company’s and the Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

 

The Dodd-Frank Act mandates the Federal Reserve to establish minimum capital levels for bank holding companies on a consolidated basis that are as stringent as those required for insured depository institutions.  The components of Tier 1 capital will be restricted to capital instruments that are currently considered to be Tier 1 capital for insured depository institutions.  As a result, the proceeds of trust preferred securities will be excluded from Tier 1 capital unless such securities were issued prior to May 19, 2010 by bank holding companies with less than $15 billion of assets. As First Busey has assets of less than $15 billion, it will be able to maintain its trust preferred proceeds as capital but it will have to comply with new capital mandates in other respects, and it will not be able to raise Tier 1 capital in the future through the issuance of trust preferred securities.

 

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and Tier I capital (as defined) to average assets (as defined).  Management believes, as of December 31, 2011, that the Company and the Bank meet all capital adequacy requirements to which they are subject.

 

The Company and the Bank are subject to regulatory capital requirements administered by federal and state banking agencies that involve the quantitative measure of their assets, liabilities, and certain off-balance-sheet items, as calculated under regulatory accounting practices.  Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and, for the Bank, Tier 1 capital (as defined) to average assets (as defined).  Failure to meet minimum capital requirements may cause regulatory bodies to initiate certain discretionary and/or mandatory actions that, if undertaken, may have a direct material effect on our financial statements.  The Company, as a financial holding company, is required to be “well capitalized” in the two capital categories based on risk-weighted assets, as shown in the table below.  We believe, as of December 31, 2011, that the Company and the Bank met all capital adequacy requirements to which they are subject, including the guidelines to be considered “well capitalized”.

 

 

 

 

 

Minimum

 

Minimum

 

 

 

 

 

Capital

 

To Be Well

 

 

 

Actual

 

Requirement

 

Capitalized(1)

 

 

 

Amount

 

Ratio

 

Amount

 

Ratio

 

Amount

 

Ratio

 

 

 

(dollars in thousands)

 

As of December 31, 2011:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Capital (to Risk Weighted Assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

$

407,801

 

18.65

%

$

174,946

 

8.00

%

$

218,682

 

10.00

%

Busey Bank

 

$

375,154

 

17.27

%

$

173,815

 

8.00

%

$

217,268

 

10.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier I Capital (to Risk Weighted Assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

$

379,483

 

17.35

%

$

87,473

 

4.00

%

$

131,210

 

6.00

%

Busey Bank

 

$

347,011

 

15.97

%

$

86,908

 

4.00

%

$

130,361

 

6.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier I Capital (to Average Assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

$

379,483

 

11.50

%

$

132,022

 

4.00

%

$

N/A

 

N/A

 

Busey Bank

 

$

347,011

 

10.60

%

$

130,924

 

4.00

%

$

163,654

 

5.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2010:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Capital (to Risk Weighted Assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

$

422,821

 

17.55

%

$

192,783

 

8.00

%

N/A

 

N/A

 

Busey Bank

 

$

346,722

 

14.31

%

$

193,772

 

8.00

%

$

242,215

 

10.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier I Capital (to Risk Weighted Assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

$

391,571

 

16.25

%

$

96,392

 

4.00

%

N/A

 

N/A

 

Busey Bank

 

$

315,321

 

13.02

%

$

96,886

 

4.00

%

$

145,329

 

6.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier I Capital (to Average Assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

$

391,571

 

11.33

%

$

138,203

 

4.00

%

N/A

 

N/A

 

Busey Bank

 

$

315,321

 

9.14

%

$

137,926

 

4.00

%

$

172,408

 

5.00

%

 

 

(1) Pursuant to provisions contained in the Dodd-Frank Act, certain minimum capital requirements to be considered “well capitalized” to which the Company had not previously been subject became applicable to the Company on July 21, 2011.