First Busey (BUSE) 8-K Results of Operations and Financial Condition

Message from our CEO Van A. Dukeman, President & CEO July 22, 2008 – Urbana, IL   First Busey Corporation’s (Nasdaq: BUSE) consolidated net income for the quarter ended June 30, 2008 was $4.6 million, or $0.13 per fully-diluted share, compared to $7.9 million, or $0.37 per fully-diluted share, for the same period in 2007. Year-to-date consolidated net income was $14.6 million, or $0.41 per fully-diluted share, compared to $15.6 million, or $0.72 per fully-diluted share, in the same period of 2007. We recorded a $12.3 million provision for loan losses during the second quarter, which represents a $0.21 per fully-diluted share charge.   The loan loss provision recorded during the second quarter is the result of our efforts to continue to identify the issues within our loan portfolio. Our management team has worked diligently to identify the problem and potential problem credits in our loan portfolio and, subsequently meet with these customers to assess the current situation and future plans. Currently, we believe to have a solid understanding of the risk in our loan portfolio. The largest portion of the risk in our loan portfolio resides in the southwest Florida market, which makes up approximately 25% of our total loan portfolio. The downstate Illinois economy, while somewhat weaker than two years ago, is holding up relatively well due to its stable academic, agricultural and healthcare employment base. However, in this weak economic environment, we have unidentified risks within the portfolio that will arise if the economic downturn continues to expand its reach, both geographically and into new industries. As known risks elevate and new risks are identified within our loan portfolio, we will make the appropriate adjustments to our allowance for loan losses.   The entire financial/ banking industry is facing tough times due to the economic downturn. Weakness in a bank’s loan portfolio is a primary symptom of an economic downturn. The known and expected further weakness in banks’ loan portfolios has led to the entire sector experiencing sharp declines in stock prices. The Busey stock price has paralleled this industry trend.   Our balance sheet and diversified business lines continue to be a source of strength. We continue to be well capitalized under regulatory standards and will pay our third $0.20 dividend of 2008 on July 25, 2008. Our investment portfolio is sound, closing June 2008 in a net unrealized gain position. Busey Wealth Management and FirsTech, our payment processing subsidiary, continue to provide a diversified earnings stream.   Corporate Profile   First Busey Corporation is a $4.3 billion financial holding company headquartered in Urbana, Illinois. First Busey Corporation has two wholly-owned banks with locations in three states. Busey Bank is headquartered in Champaign, Illinois and has forty-five banking centers serving downstate Illinois. Busey Bank has a banking center in Indianapolis, Indiana, and a loan production office in Fort Myers, Florida. As of June 30, 2008, Busey Bank had total assets of $3.8 billion. Busey Bank, N.A. is headquartered in Fort Myers, Florida, with nine banking centers serving southwest Florida. Busey Bank, N.A. had total assets of $459.2 million as of June 30, 2008.   Busey Wealth Management is a wholly-owned subsidiary of First Busey Corporation. Through Busey Trust Company, Busey Wealth Management delivers trust, asset management, retail brokerage and insurance products and services. As of June 30, 2008, Busey Wealth Management had approximately $3.9 billion in assets under care.   First Busey Corporation owns a retail payment processing subsidiary, FirsTech, Inc., which processes over 27 million transactions per year through online bill payments, lockbox processing and walk-in payments through its 4,000 agent locations in 36 states.   Busey provides electronic delivery of financial services through our website, www.busey.com.   Our Board of Directors and management team remains confident we will emerge from this economic downturn a stronger company. Our management team is doing everything we believe necessary to address issues as they arise. The more timely we address the issues facing us during this economic downturn, the better positioned we will be to take advantage of opportunities as the economy begins to stabilize and, ultimately, turn around.   Busey’s commitment to outstanding customer service, coupled with our management team’s efforts to address the symptoms of this economic environment, we believe will position your company for a bright future. As always, we welcome your questions and comments.    

SELECTED FINANCIAL HIGHLIGHTS
(amounts in thousands, except ratios and per share data)
	Three Months Ended									Six Months Ended
	June 30,			March 31,			June 30,			June 30,			June 30,
	2008			2008			2007			2008			2007
EARNINGS & PER SHARE DATA
Net income	$	4,591		$	10,004		$	7,864		$	14,595		$	15,600
Basic earnings per share	$	0.13		$	0.28		$	0.37		$	0.41		$	0.73
Weighted average shares of
common stock outstanding		35,824			35,949			21,470			35,887			21,464
Fully—diluted earnings per share	$	0.13		$	0.28		$	0.37		$	0.41		$	0.72
Weighted average shares of common stock and
dilutive potential common shares outstanding		35,931			36,130			21,510			36,031			21,526
Market price per share at period end	$	13.22		$	21.12		$	19.99
Price to book ratio		92.13	%		144.96	%		223.85	%
Price to earnings ratio1		25.42			18.69			13.51			16.12			13.79
Cash dividends paid per share	$	0.20		$	0.20		$	0.18		$	0.40		$	0.41
Book value per share	$	14.35		$	14.57		$	8.93
Tangible book value per share	$	6.56		$	6.77		$	6.25
Common shares outstanding		35,787			35,858			21,467
AVERAGE BALANCES
Assets	$	4,235,000		$	4,196,079		$	2,471,750		$	4,214,780		$	2,472,547
Investment securities		590,737			625,479			330,730			608,041			332,834
Gross loans		3,141,541			3,056,701			1,957,427			3,099,121			1,953,355
Earning assets		3,733,761			3,693,418			2,297,944			3,713,522			2,297,342
Deposits		3,200,098			3,230,782			1,993,273			3,215,248			1,994,556
Interest—bearing liabilities		3,289,370			3,253,477			2,035,871			3,271,299			2,034,576
Stockholders’ equity		517,936			521,701			189,061			519,418			187,201
PERIODIC FINANCIAL DATA
Tax equivalized net interest income	$	32,133		$	31,858		$	20,113		$	63,991		$	39,887
Gross loans		3,166,705			3,131,878			1,982,802
Allowance for loan losses		48,579			42,924			24,135
PERFORMANCE RATIOS
Return on average assets1		0.44	%		0.96	%		1.28	%		0.70	%		1.27	%
Return on average equity1		3.57	%		7.71	%		16.68	%		5.65	%		16.80	%
Net interest margin1		3.46	%		3.47	%		3.51	%		3.47	%		3.50	%
Net interest spread		3.13	%		3.07	%		3.05	%		3.10	%		3.04	%
Efficiency ratio2		56.46	%		59.17	%		52.68	%		57.81	%		53.88	%
Non—interest revenue as a % of total revenues3		30.68	%		30.49	%		26.17	%		30.59	%		25.61	%
Allowance for loan losses to loans		1.53	%		1.37	%		1.22	%
Allowance as a percentage of non—performing loans		82.84	%		134.29	%		232.25	%
Ratio of average loan to average deposits		98.17	%		94.61	%		98.20	%		96.39	%		97.93	%
Ratio of tangible capital to tangible assets		5.88	%		6.11	%		5.49	%
ASSET QUALITY
Net charge—offs	$	6,645		$	1,786		$	203		$	8,431		$	433
Non—performing loans		58,641			31,964			10,392
Other non—performing assets		3,096			2,476			1,817
1 Quarterly ratios annualized
2 Net of security gains and amortization
3 Net of interest expense, excludes security gains

Net Income by Segment	QTD			QTD			%		YTD			YTD		%
(dollars in thousands)	6/30/2008			3/31/2008			Change		6/30/2008			6/30/2007		Change
Consolidated	$	4,591		$	10,004		(54.11	)	$	14,595		$	15,600	(6.44	)
Busey Bank		6,395			11,602		(44.88	)		17,997			16,018	12.35
Busey Bank, N.A.		(2,002	)		(1,047	)	(91.21	)		(3,049	)		642	(574.92	)
Busey Wealth Management		871			446		95.29			1,317			1,164	13.14
FirsTech		703			629		11.76			1,332			—	—

Net income information reflects reported earnings for prior periods. The pro forma effects of the merger with Main Street are not reflected in the June 30, 2007 net income data. The provision for loan losses is the primary reason net income is down at Busey Bank and Busey Bank, N.A. quarter over quarter. YTD June 30, 2008 for Busey Bank and Busey Wealth Management net income reflects the increase from the merger with Main Street. Busey Bank’s increase YTD June 30, 2008 over the same period in the prior year is due to the merger with Main Street Bank & Trust, offset by the $9.2 million, pre-tax, of provision for loan losses recorded during 2008.

Loan Portfolio Quality
(dollars in thousands)
	Balance		YTD		YTD			Balance		Balance
Allowance for Loan Losses	12/31/2007		Provision		Charge Offs, Net			6/30/2008		3/31/2008
Busey Bank	$	35,796	$	9,150	$	(4,226	)	$	40,720	$	35,791
Busey Bank, N.A.		6,764		5,300		(4,205	)		7,859		7,133
	$	42,560	$	14,450	$	(8,431	)	$	48,579	$	42,924

	Balance		IL / IN		FL		Commercial		Retail		Balance
Non-Accrual Loans	6/30/2008		6/30/2008		6/30/2008		6/30/2008		6/30/2008		3/31/2008
Busey Bank	$	39,032	$	13,607	$	25,425	$	37,098	$	1,934	$	12,704
Busey Bank, N.A.		14,123		—		14,123		6,329		7,794		13,947
	$	53,155	$	13,607	$	39,548	$	43,427	$	9,728	$	26,651
2008 Charge—offs on Non—Accrual Loans
Busey Bank	$	10,520	$	5,520	$	5,000	$	10,053	$	467	$	7,592
Busey Bank, N.A.		5,482		—		5,482		1,943		3,539		2,917
	$	16,002	$	5,520	$	10,482	$	11,996	$	4,006	$	10,509
Specific Allocation of ALL
Busey Bank	$	7,283	$	2,833	$	4,450	$	7,233	$	50	$	1,040
Busey Bank, N.A.		1,112		—		1,112		100		1,012		690
	$	8,395	$	2,833	$	5,562	$	7,333	$	50	$	1,040
90 + Days Past Due
Busey Bank	$	5,032	$	5,032	$	—	$	2,588	$	2,444	$	5,087
Busey Bank, N.A.		454		—		454		149		305		227
	$	5,486	$	5,032	$	454	$	2,737	$	2,749	$	5,314

Non-performing loans increased $26.7 million primarily related to increased non-accrual loans. Busey Bank’s non-accrual loans increased $26.3 million due primarily to loans to two different customers in its Florida loan production office that totaled $23.8 million at June 30, 2008. We have charged off $2.0 million and have $4.2 million of specific allowance allocated to these loans.

Overall, Busey Bank has charged off $10.5 million of its non-accrual loans during 2008. Charge offs reduce the reported principal of the balance of the loan, whereas, a specific allocation of allowance for loan losses (ALL) does not reduce the reported principal balance of the loan. Non-accrual loans are reported net of charge-offs, but gross of related specific allocations of ALL.

Our ALL as a percentage of non-performing loans has decreased below 100% due to the $16.0 million of charge-offs taken during 2008. As loan balances are charged off to reflect the loss we expect upon final resolution of the loan collection process, no additional allowance is necessary to cover the expected loss related to that loan. Certain loans will have amounts charged off and a specific allocation of ALL assigned to the loan. In this case, we expect a loss, but a reasonable possibility exists the loss will not be as large as we estimate. Therefore, the known loss is charged off and the remaining potential loss is assigned a specific allocation of ALL.

Condensed Consolidated Balance Sheets
(Unaudited, in thousands, except per share data)	June 30,		March 31,		December 31,		June 30,
	2008		2008		2007		2007
Assets
Cash and due from banks	$	124,639	$	123,068	$	125,228	$	56,104
Federal funds sold		—		—		459		14,100
Investment securities		580,891		600,953		610,422		323,201
Net loans		3,118,126		3,088,954		3,010,665		1,958,667
Premises and equipment		82,198		81,269		80,400		41,328
Goodwill and other intangibles		278,835		279,982		280,487		57,623
Other assets		80,742		77,596		85,264		49,173
Total assets	$	4,265,431	$	4,251,822	$	4,192,925	$	2,500,196
Liabilities & Stockholders’ Equity
Non—interest bearing deposits	$	376,452	$	395,115	$	389,672	$	230,595
Interest—bearing deposits		2,797,511		2,853,193		2,817,526		1,813,142
Total deposits	$	3,173,963	$	3,248,308	$	3,207,198	$	2,043,737
Federal funds purchased & securities
sold under agreements to repurchase		217,734		142,496		203,119		52,697
Short—term borrowings		117,000		116,000		10,523		—
Long—term debt		151,910		127,910		150,910		139,825
Junior subordinated debt owed to unconsolidated trusts		55,000		55,000		55,000		55,000
Other liabilities		36,301		39,487		36,478		17,210
Total liabilities	$	3,751,908	$	3,729,201	$	3,663,228	$	2,308,469
Total stockholders’ equity	$	513,523	$	522,621	$	529,697	$	191,727
Total liabilities & stockholders’ equity	$	4,265,431	$	4,251,822	$	4,192,925	$	2,500,196
Per Share Data
Book value per share	$	14.35	$	14.57	$	14.58	$	8.93
Tangible book value per share	$	6.56	$	6.77	$	6.86	$	6.25
Ending number of shares outstanding		35,787		35,858		36,332		21,467

Condensed Consolidated Statements of Income
(Unaudited, in thousands, except per share data)	Three Months Ended June 30,				Six Months Ended June 30,
	2008		2007		2008		2007
Interest and fees on loans	$	48,611	$	36,232	$	100,262	$	71,747
Interest on investment securities		6,079		3,820		12,880		7,581
Other interest income		3		128		108		287
Total interest income	$	54,693	$	40,180	$	113,250	$	79,615
Interest on deposits		19,174		16,921		42,021		33,507
Interest on short-term borrowings		1,756		805		3,515		1,510
Interest on long-term debt		1,391		1,788		3,121		3,672
Junior subordinated debt owed to unconsolidated trusts		846		1,003		1,805		2,002
Total interest expense	$	23,167	$	20,517	$	50,462	$	40,691
Net interest income	$	31,526	$	19,663	$	62,788	$	38,924
Provision for loan losses		12,300		680		14,450		980
Net interest income after provision for loan losses	$	19,226	$	18,983	$	48,338	$	37,944
Fees for customer services		3,994		2,923		7,845		5,589
Trust fees		3,698		1,689		6,771		3,399
Remittance processing		3,028		—		5,975		—
Commissions and brokers’ fees		686		657		1,388		1,242
Gain on sales of loans		1,206		764		2,366		1,420
Net security gains		30		427		502		930
Other		1,343		937		3,322		1,749
Total non-interest income	$	13,985	$	7,397	$	28,169	$	14,329
Salaries and wages		11,851		6,955		23,363		13,699
Employee benefits		2,586		1,384		5,722		2,937
Net occupancy expense		2,325		1,363		4,789		2,826
Furniture and equipment expense		2,350		855		4,267		1,679
Data processing expense		1,628		482		3,316		1,016
Amortization expense		1,130		254		2,259		509
Other operating expenses		5,282		3,229		11,529		6,554
Total non-interest expense	$	27,152	$	14,522	$	55,245	$	29,220
Income before income taxes	$	6,059	$	11,858	$	21,262	$	23,053
Income taxes		1,468		3,994		6,667		7,453
Net income	$	4,591	$	7,864	$	14,595	$	15,600
Per Share Data
Basic earnings per share	$	0.13	$	0.37	$	0.41	$	0.73
Fully-diluted earnings per share	$	0.13	$	0.37	$	0.41	$	0.72
Diluted average shares outstanding		35,931		21,510		36,031		21,526