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 6/30/2002 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 (I.R.S. Employer Identification
Incorporation or organization) No.)
201 W. Main St.,
Urbana, Illinois 61801
- ---------------------------------------- ------------------------------------
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (217) 365-4556
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 the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding at August 1, 2002
- -------------------------------------------------------------------------------
Common Stock, without par value 13,612,920
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
2 of 25
FIRST BUSEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2002 AND DECEMBER 31, 2001
(UNAUDITED)
<Table>
<Caption>
June 30, 2002 December 31, 2001
------------------- ---------------------
(Dollars in thousands)
ASSETS
Cash and due from banks $ 43,893 $ 41,580
Federal funds sold 27,700 20,000
Securities available for sale (amortized cost 2002, $203,262;
2001, $197,398) 218,482 210,869
Loans 1,009,151 978,106
Allowance for loan losses (13,810) (13,688)
------------------ ---------------------
Net loans $ 995,341 $ 964,418
Premises and equipment 28,258 29,081
Goodwill 9,293 9,293
Other intangible assets 987 1,211
Cash surrender value of bank owned life insurance 10,791 10,111
Other assets 21,820 14,126
------------------ ---------------------
Total assets $ 1,356,565 $ 1,300,689
================== =====================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest bearing $ 134,671 $ 138,685
Interest bearing 1,001,141 967,314
------------------ ---------------------
Total deposits $ 1,135,812 $ 1,105,999
Securities sold under agreements to repurchase 5,021 9,767
Short-term borrowings - 2,000
Long-term debt 70,021 47,021
Company obligated mandatorily redeemable preferred securities 25,000 25,000
Other liabilities 9,940 5,112
------------------ ---------------------
Total liabilities $ 1,245,794 $ 1,194,899
------------------ ---------------------
STOCKHOLDERS' EQUITY
Preferred stock $ - $ -
Common stock 6,291 6,291
Surplus 20,906 21,170
Retained earnings 86,764 81,861
Accumulated other comprehensive income 9,182 8,128
------------------ ---------------------
Total stockholders' equity before treasury stock, unearned ESOP
shares and deferred compensation for stock grants $ 123,143 $ 117,450
Treasury stock, at cost (10,205) (9,639)
Unearned ESOP shares and deferred compensation for stock grants (2,167) (2,021)
------------------ ---------------------
Total stockholders' equity $ 110,771 $ 105,790
------------------ ---------------------
Total liabilities and stockholders' equity $ 1,356,565 $ 1,300,689
================== =====================
Common Shares outstanding at period end 13,650,920 13,677,688
================== =====================
</Table>
See notes to unaudited consolidated financial statements.
3 of 25
FIRST BUSEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(UNAUDITED)
<Table>
<Caption>
2002 2001
------------------- ------------------
(Dollars in thousands, except per share amounts)
INTEREST INCOME:
Interest and fees on loans $ 32,637 $ 40,513
Interest and dividends on investment securities:
Taxable interest income 3,659 5,278
Non-taxable interest income 977 1,038
Dividends 61 59
Interest on federal funds sold 86 749
------------------ ------------------
Total interest income $ 37,420 $ 47,637
------------------ ------------------
INTEREST EXPENSE:
Deposits $ 12,366 $ 23,083
Short-term borrowings 265 1,457
Long-term debt 1,405 1,393
Company obligated mandatorily redeemable preferred securities 1,125 72
------------------ ------------------
Total interest expense $ 15,161 $ 26,005
------------------ ------------------
Net interest income $ 22,259 $ 21,632
Provision for loan losses 1,480 895
------------------ ------------------
Net interest income after provision for loan losses $ 20,779 $ 20,737
------------------ ------------------
OTHER INCOME:
Trust $ 2,499 $ 2,406
Commissions and brokers fees, net 1,095 1,164
Service charges on deposit accounts 3,411 2,907
Other service charges and fees 862 815
Security gains, net 473 872
Gain on sales of loans 1,356 966
Net commissions from travel services - 526
Other operating income 1,354 1,448
------------------ ------------------
Total other income $ 11,050 $ 11,104
------------------ ------------------
OTHER EXPENSES:
Salaries and wages $ 8,640 $ 8,641
Employee benefits 1,823 1,803
Net occupancy expense of premises 1,557 1,533
Furniture and equipment expenses 1,672 1,968
Data processing 417 391
Stationery, supplies and printing 490 541
Amortization of intangible assets 224 715
Other operating expenses 3,572 3,538
------------------ ------------------
Total other expenses $ 18,395 $ 19,130
------------------ ------------------
Income before income taxes $ 13,434 $ 12,711
Income taxes 4,457 4,586
------------------ ------------------
NET INCOME $ 8,977 $ 8,125
================== ==================
BASIC EARNINGS PER SHARE $ 0.66 $ 0.60
================== ==================
DILUTED EARNINGS PER SHARE $ 0.66 $ 0.60
================== ==================
DIVIDENDS DECLARED PER SHARE OF COMMON STOCK $ 0.30 $ 0.26
================== ==================
</Table>
See notes to unaudited consolidated financial statements.
4 of 25
FIRST BUSEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE QUARTERS ENDED JUNE 30, 2002 AND 2001
(UNAUDITED)
<Table>
<Caption> 2002 2001
------------------- ------------------
(Dollars in thousands, except per share amounts)
INTEREST INCOME:
Interest and fees on loans $ 16,233 $ 19,945
Interest and dividends on investment securities:
Taxable interest income 1,873 2,554
Non-taxable interest income 493 520
Dividends 30 29
Interest on federal funds sold 28 240
------------------ ------------------
Total interest income $ 18,657 $ 23,288
------------------ ------------------
INTEREST EXPENSE:
Deposits $ 6,101 $ 11,056
Short-term borrowings 126 664
Long-term debt 750 632
Company obligated mandatorily redeemable preferred securities 562 72
------------------ ------------------
Total interest expense $ 7,539 $ 12,424
------------------ ------------------
Net interest income $ 11,118 $ 10,864
Provision for loan losses 915 495
------------------ ------------------
Net interest income after provision for loan losses $ 10,203 $ 10,369
------------------ ------------------
OTHER INCOME:
Trust $ 1,249 $ 1,255
Commissions and brokers fees, net 554 567
Service charges on deposit accounts 1,855 1,528
Other service charges and fees 440 418
Security gains, net 199 221
Gains on sales of pooled loans 559 533
Net commissions from travel services - 254
Other operating income 730 936
------------------ ------------------
Total other income $ 5,586 $ 5,712
------------------ ------------------
OTHER EXPENSES:
Salaries and wages $ 4,342 $ 4,377
Employee benefits 892 835
Net occupancy expense of premises 782 731
Furniture and equipment expenses 840 997
Data processing 222 201
Stationary, supplies and printing 257 284
Amortization of intangible assets 112 357
Other operating expenses 1,953 2,020
------------------ ------------------
Total other expenses $ 9,400 $ 9,802
------------------ ------------------
Income before income taxes $ 6,389 $ 6,279
Income taxes 2,102 2,252
------------------ ------------------
NET INCOME $ 4,287 $ 4,027
================== ==================
BASIC EARNINGS PER SHARE $ 0.32 $ 0.30
================== ==================
DILUTED EARNINGS PER SHARE $ 0.32 $ 0.30
================== ==================
DIVIDENDS DECLARED PER SHARE OF COMMON STOCK $ 0.15 $ 0.13
================== ==================
</Table>
See notes to unaudited consolidated financial statements.
5 of 25
FIRST BUSEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(UNAUDITED)
<Table>
<Caption>
2002 2001
------------------ ------------------
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 8,977 $ 8,125
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation 57 3
Depreciation and amortization 1,961 2,767
Provision for loan losses 1,480 895
Provision for deferred income taxes 766 (1,533)
Amortization of investment security discounts (212) (543)
Gain on sales of investment securities, net (473) (872)
Proceeds from sales of loans 100,922 98,391
Loans originated for sale (89,363) (118,109)
Gain on sale of loans (1,356) (966)
Gain on sale and disposition of premises and equipment (28) (1)
Change in assets and liabilities:
Increase in other assets (1,904) (723)
Increase in accrued expenses 3,104 1,184
Increase (decrease) in interest payable 264 (1,031)
Decrease in income taxes receivable 22 172
Increase in income taxes payable - 251
----------------- ------------------
Net cash provided by (used in) operating activities $ 24,217 $ (11,990)
----------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of securities classified available for sale 17,544 3,213
Proceeds from maturities of securities classified available for sale 36,020 73,762
Purchase of securities classified available for sale (58,744) (67,104)
Increase in federal funds sold (7,700) (7,800)
(Increase) decrease in loans (48,418) 35,103
Increase in cash surrender value of bank owned life insurance (336) -
Proceeds from sale of premises and equipment 106 2
Purchases of premises and equipment (992) (875)
Increase in investment in bank owned life insurance (344) -
----------------- ------------------
Net cash (used in) provided by investing activities $ (62,864) $ 36,301
----------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in certificates of deposit $ 36,320 $ (25,074)
Net (decrease) increase in demand, money market and saving deposits (6,507) 11,102
Cash dividends paid (4,074) (3,494)
Purchase of treasury stock (1,796) (2,454)
Proceeds from sale of treasury stock 763 2,886
Net decrease in securities sold under agreement to
repurchase & federal funds purchased (4,746) (2,488)
Proceeds from short-term borrowings 500 2,500
Principal payments on short-term borrowings (2,500) (27,500)
Proceeds from issuance of long-term debt 31,000 -
Proceeds from issuance of trust preferred securities - 25,000
Principal payments on long-term borrowings (8,000) (9,976)
----------------- ------------------
Net cash provided by (used in) financing activities $ 40,960 $ (29,498)
----------------- ------------------
Net increase (decrease) in cash and due from banks $ 2,313 $ (5,187)
Cash and due from banks, beginning 41,580 $ 58,585
----------------- ------------------
Cash and due from banks, ending $ 43,893 $ 53,398
================= ==================
</Table>
6 of 25
FIRST BUSEY CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES
FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(UNAUDITED)
<Table>
<Caption>
2002 2001
------------------ ------------------
(Dollars in thousands)
----------------------------------------
Other real estate acquired in settlement of loans $ 5,812 $ -
================= ==================
See notes to unaudited consolidated financial statements.
</Table>
FIRST BUSEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001
<Table>
<Caption>
2002 2001
------------------- ------------------
(Dollars in thousands, except per share amounts)
Net income $ 8,977 $ 8,125
------------------ ------------------
Other comprehensive income, before tax:
Unrealized gains on securities:
Unrealized holding gains arising during period $ 2,221 $ 2,874
Less reclassification adjustment for gains included in net income (473) (872)
------------------ ------------------
Other comprehensive income, before tax $ 1,748 $ 2,002
Income tax expense related to items of other comprehensive income 694 794
------------------ ------------------
Other comprehensive income, net of tax $ 1,054 $ 1,208
------------------ ------------------
Comprehensive income $ 10,031 $ 9,333
================== ==================
</Table>
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FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: INTERIM FINANCIAL STATEMENTS
The consolidated interim financial statements of First Busey Corporation and
Subsidiaries are unaudited, but in the opinion of management reflect all
necessary adjustments, consisting only of normal recurring accruals, for a fair
presentation of results as of the dates and for the periods covered by the
financial statements. In preparing the consolidated financial statements, the
Corporation'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. The results
for the interim periods are not necessarily indicative of the results of
operations that may be expected for the fiscal year.
NOTE 2: LOANS
The major classifications of loans at June 30, 2002 and December 31, 2001 were
as follows:
<Table>
<Caption>
June 30, 2002 December 31, 2001
------------------------------------------------
(Dollars in thousands)
Commercial $ 117,379 $ 121,694
Real estate construction 96,482 83,701
Real estate - farmland 12,991 14,414
Real estate - 1-4 family residential mortgage 383,031 371,154
Real estate - multifamily mortgage 53,972 54,265
Real estate - non-farm nonresidential mortgage 268,061 253,932
Installment 56,873 57,924
Agricultural 20,362 21,022
-----------------------------------------------
$ 1,009,151 $ 978,106
Less:
Allowance for loan losses (13,810) (13,688)
-----------------------------------------------
Net loans $ 995,341 $ 964,418
===============================================
</Table>
The real estate-mortgage category includes loans held for sale with carrying
values of $11,681,000 at June 30, 2002 and $21,884,000 at December 31, 2001;
these loans had fair market values of $11,866,000 and $22,069,000 respectively.
The following table sets forth the maturities of the loan portfolio:
<Table>
<Caption>
1 year or less Over 1 year Over 5 years Total
through 5 years
------------------- ------------------- ------------------- --------------------
(Dollars in thousands)
Commercial and agricultural $ 87,310 $ 33,397 $ 17,034 $ 137,741
Real Estate 159,987 329,710 324,840 814,537
Installment 12,613 41,182 3,078 56,873
------------------ ------------------- ------------------- --------------------
$ 259,910 $ 404,289 $ 344,952 $ 1,009,151
================== =================== =================== ====================
Fixed Rate $ 89,456 $ 265,514 $ 86,310 $ 441,280
Floating Rate 170,454 138,775 258,642 567,871
------------------ ------------------- ------------------- --------------------
$ 259,910 $ 404,289 $ 344,952 $ 1,009,151
================== =================== =================== ====================
</Table>
8 of 25
FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3: EARNINGS PER SHARE
Net income per common share has been computed as follows:
<Table>
<Caption>
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
-------------------------------------------------------------
Net income $ 4,287,000 $ 4,027,000 $ 8,977,000 $ 8,125,000
Shares:
Weighted average common shares outstanding 13,564,129 13,500,603 13,572,538 13,435,161
Dilutive effect of outstanding options, as determined
by the application of the treasury stock method 78,589 51,339 77,066 161,879
------------------------------------------------------------
Weighted average common shares outstanding,
as adjusted for diluted earnings per share calculation 13,642,718 13,551,942 13,649,604 13,597,040
============================================================
Basic earnings per share $ 0.32 $ 0.30 $ 0.66 $ 0.60
============================================================
Diluted earnings per share $ 0.32 $ 0.30 $ 0.66 $ 0.60
============================================================
</Table>
NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 2002, First Busey Corporation applied FASB Statement No.
142, Goodwill and Other Intangible Assets. Among its provisions is a requirement
to disclose what reported net income would have been in all periods presented
exclusive of amortization expense, net of related income tax effects, recognized
in those periods related to goodwill, intangible assets no longer being
amortized, and changes in amortization periods for intangible assets that will
continue to be amortized together with related per share amounts.
<Table>
<Caption>
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
------------- ------------ ------------ -----------
Reported net income $ 4,287 $ 4,027 $ 8,977 $ 8,125
Add goodwill amortization - 234 - 467
------------- ------------ ------------ -----------
Adjusted net income $ 4,287 $ 4,261 $ 8,977 $ 8,592
============= ============ ============ ===========
BASIC EARNINGS PER SHARE
Reported net income $ 0.32 $ 0.30 $ 0.66 $ 0.60
Goodwill amortization - 0.02 - 0.04
------------- ------------ ------------ -----------
Adjusted net income $ 0.32 $ 0.32 $ 0.66 $ 0.64
============= ============ ============ ===========
DILUTED EARNINGS PER SHARE
Reported net income $ 0.32 $ 0.30 $ 0.66 $ 0.60
Goodwill amortization - 0.01 - 0.03
------------- ------------ ------------ -----------
Adjusted net income $ 0.32 $ 0.31 $ 0.66 $ 0.63
============= ============ ============ ===========
</Table>
In June, 2001, Statement of Financial Accounting Standards No. 143, "Accounting
for Asset Retirement Obligations," was issued to address financial reporting and
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. This Statement applies to all entities and to
legal obligations associated with the retirement of long-lived assets that
result from the acquisition, construction, development or normal operations of a
long-lived asset, except for certain obligations of lessees. Statement No. 143
is effective for financial statements issued for fiscal years beginning after
June 15, 2002. The Corporation does not believe the adoption of the Standard
will have a material impact on the consolidated financial statements.
9 of 25
In August, 2001, Statement on Financial Accounting Standards No. 144,
"Accounting for the Impairment or Disposal of Long-lived Assets," was issued to
supercede Statement No. 121, "Accounting for Impairment and for Long-lived
Assets to Be Disposed Of," and the accounting and reporting provisions of APB
Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions." Statement No. 144 is effective for financial
statements issued for fiscal years beginning after December 15, 2002, and
interim periods within those fiscal years, with early application encouraged.
The Corporation does not believe the adoption of the Standard will have a
material impact on the consolidated financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of the financial condition
of First Busey Corporation and Subsidiaries ("Corporation") at June 30, 2002
(unaudited) as compared with December 31, 2001 and the results of operations for
the six months ended June 30, 2002 and 2001 (unaudited) and the results of
operations for the three months ended June 30, 2002 and 2001 (unaudited). This
discussion and analysis should be read in conjunction with the Corporation's
consolidated financial statements and notes thereto appearing elsewhere in this
quarterly report. The accompanying unaudited financial statements should be read
in conjunction with the First Busey Corporation consolidated financial
statements and related notes appearing in the 2001 annual report previously
filed on Form 10-K.
FINANCIAL CONDITION AT JUNE 30, 2002 AS COMPARED TO DECEMBER 31, 2001
Total assets increased $55,876,000 or 4.3%, to $1,356,565,000 at June 30, 2002
from $1,300,689,000 at December 31, 2001. Securities available for sale
increased $7,613,000, or 3.6%, to $218,482,000 at June 30, 2002 from
$210,869,000 at December 31, 2001. Loans increased $31,045,000, or 3.2%, to
$1,009,151,000 at June 30, 2002 from $978,106,000 at December 31, 2001,
primarily due to increases in real estate construction, 1-4 family mortgages,
and non-farm nonresidential mortgages. These increases were partially offset by
a decrease in commercial loan balances.
Total deposits increased $29,813,000, or 2.7%, to $1,135,812,000 at June 30,
2002 from $1,105,999,000 at December 31, 2001. Noninterest-bearing deposits
decreased 2.9% to $134,671,000 at June 30, 2002 from $138,685,000 at December
31, 2001. Interest-bearing deposits increased 3.5% to $1,001,141,000 at June 30,
2002 from $967,314,000 at December 31, 2001.
There were no short-term borrowings as of June 30, 2002 as compared to
$2,000,000 at December 31, 2001. Long-term debt increased $23,000,000 or 48.9%
to $70,021,000 at June 30, 2002, as compared to $47,021,000 at December 31,
2001. The increase in long-term debt is due to increases in Federal Home Loan
Bank (FHLB) advances outstanding which were used primarily to fund loan growth.
In the first six months of 2002, the Corporation repurchased 84,868 shares of
its common stock at an aggregate cost of $1,796,000. The Corporation is
purchasing shares for the treasury as they become available in order to meet
future issuance requirements of previously granted non-qualified stock options.
As of June 30, 2002, there were 236,200 outstanding options currently
exercisable. There were an additional 353,192 stock options outstanding but not
currently exercisable.
10 of 25
ASSET QUALITY
The following table sets forth the components of non-performing assets and past
due loans.
<Table>
<Caption>
June 30, 2002 December 31, 2001
--------------------- -----------------------
(Dollars in thousands)
Non-accrual loans $ 1,169 $ 1,265
Loans 90 days past due, still accruing 484 959
Restructured loans - -
Other real estate owned 5,281 30
Non-performing other assets 1 1
--------------------- -----------------------
Total non-performing assets $ 6,935 $ 2,255
===================== =======================
Total non-performing assets as a percentage of total assets 0.51% 0.17%
===================== =======================
Total non-performing assets as a percentage of loans plus non-performing assets 0.68% 0.23%
===================== =======================
</Table>
The ratio of non-performing assets to loans plus non-performing assets increased
to 0.68% at June 30, 2002, from 0.23% at December 31, 2001. This was due to an
increase in other real estate owned. The increase in other real estate owned was
due primarily to the addition of $4 million for one large commercial credit in
the hotel industry. Busey Bank became mortgagee in possession on June 28, 2002,
and will remain so pending the completion of foreclosure proceedings.
Loans 90 days past due and still accruing at June 30, 2002, were $484,000 or
0.05% of total loans, compared to $959,000, or 0.10% of total loans as of
December 31, 2001. These loans are in the process of collection, and management
believes that sufficient collateral value securing these loans exists to cover
contractual interest and principal payments on the loans.
RESERVE FOR LOAN LOSSES
The Corporation maintains its allowance for loan losses at a level management
believes will be adequate to absorb estimated losses on existing loans based on
an evaluation of the collectibility of loans and prior loss experience. The
allowance is calculated using a risk rating system which involves judgments,
estimates, and uncertainties that are susceptible to change. This risk rating
system is based on continuous credit reviews of the loan portfolio and considers
changes in the nature and volume of the loan portfolio, overall portfolio
quality, loan concentrations, specific problem loans, current and anticipated
economic conditions that may affect the borrowers' ability to pay, historical
loan loss experience and other factors, which, in management's opinion, deserve
current recognition in estimating loan losses. Changes in these factors or
conditions could have significant impact on the Corporation's financial
condition or results of operation.
POTENTIAL PROBLEM LOANS
Potential problem loans are those loans which are not categorized as impaired,
non-accrual, past due or restructured, but where current information indicates
that the borrower may not be able to comply with present loan repayment terms.
Management assesses the potential for loss on such loans as it would with other
problem loans and has considered the effect of any potential loss in determining
its provision for possible loan losses. Potential problem loans totaled $534,000
at June 30, 2002. There are no other loans identified which management believes
represent or result from trends or uncertainties which management reasonably
expects will materially impact future operating results, liquidity or capital
resources. There are no other credits identified about which management is aware
of any information which causes management to have serious doubts as to the
ability of such borrower(s) to comply with the loan repayment terms.
11 of 25
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2002 AS COMPARED TO JUNE 30, 2001
SUMMARY
Net income for the six months ended June 30, 2002 increased 10.5% to $8,977,000
as compared to $8,125,000 for the comparable period in 2001. Year-to-date
diluted earnings per share increased 10.0% to $.66 at June 30, 2002 as compared
to $.60 for the same period in 2001.
Operating earnings, which exclude security gains and the related tax expense,
were $8,692,000, or $.64 per share for the six months ended June 30, 2002, as
compared to $7,599,000, or $.56 per share for the same period in 2001.
The Corporation's return on average assets was 1.40% for the six months ended
June 30, 2002, as compared to 1.24% for the comparable period in 2001. The
return on average assets from operations of 1.35% for the six months ended June
30, 2002 was 19 basis points higher than the 1.16% level achieved in the
comparable period of 2001.
During the six months ended June 30, 2002, the Corporation recognized net
security gains of approximately $285,000, after income taxes, representing 3.2%
of net income. During the same period in 2001, net security gains of $526,000,
after income taxes, were recognized, representing 6.5% of net income.
EARNING ASSETS, SOURCES OF FUNDS, AND NET INTEREST MARGIN
The Corporation's net interest margin expressed as a percentage of average
earning assets stated on a fully taxable equivalent basis, was 3.82% for the six
months ended June 30, 2002, as compared to 3.61% for the same period in 2001.
The net interest margin expressed as a percentage of average total assets, also
on a fully taxable equivalent basis, was 3.56% for the six months ended June 30,
2002, compared to 3.40% for the same period in 2001.
Interest income, on a tax equivalent basis, for the six months ended June 30,
2002 decreased $10,255,000 or 21.2% to $38,056,000 from $48,311,000 for the
comparable period in 2001. The decrease in interest income resulted partially
from a decrease in average earning assets but more significantly in the rates
paid on average earning assets for the period ended June 30, 2002, as compared
to the same period of 2001. The average yield on interest-earning assets
decreased from 7.83% for the six months ended June 30, 2001 to 6.35% for the
same period in 2002 due to decreases in the yields on all categories of
interest-earning assets.
Average earnings assets for the first six months of 2002 were $1,208,862,000,
down $35,764,000 or 2.9% from $1,244,626,000 for the same period in 2001.
Average interest-bearing liabilities were $1,050,672,000 for the six months
ending June 30, 2002, a decrease of $53,246,000 or 4.8% from $1,103,918,000 for
the same period in 2001. Runoff in higher-costing time deposit category was
replaced by growth in savings and money market deposits.
Total interest expense decreased $10,844,000 or 41.7% for the six months ended
June 30, 2002 as compared to the prior year period. This decrease resulted from
changes in the mix of funding sources primarily from the lower rates paid on all
categories of interest-bearing liabilities.
PROVISION FOR LOAN LOSSES
The provision for loan losses of $1,480,000 for the six months ended June 30,
2002 is $585,000 higher than the provision for the comparable period in 2001.
The provision and expense level of net charge-offs for the period resulted in
the reserve representing 1.37% of total loans and 835% of non-performing loans
at June 30, 2002, as compared to the reserve representing 1.40% of total loans
and 615% of non-performing loans at December 31, 2001. The adequacy of the
reserve for loan losses is consistent with management's consideration of the
12 of 25
composition of the portfolio, non-performing asset levels, recent credit quality
experience, historic charge-off trends, prevailing economic conditions among
other factors.
The net chargeoff ratio (net chargeoffs as percentage of average loans) was
0.14% for the six months ending June 30, 2002, which increased from 0.02% for
the same period in 2001.
Like many other financial institutions, the corporation is concerned about the
continued weakening of the economy in 2002. Should the economic climate continue
to deteriorate, borrowers may experience difficulty, and the level of
non-performing loans, charge-offs, and delinquencies could rise and require
further increases in the provision for loan losses which may cause the
Corporation's net income to decrease.
OTHER INCOME, OTHER EXPENSE AND INCOME TAXES
Total other income, excluding security gains, increased $345,000 or 3.4% for the
six months ended June 30, 2002 as compared to the same period in 2001. Growth in
service charge income and gains on the sale of loans offset declines in
commissions and brokers' fees and net commissions from travel services. In
December, 2001, the Corporation sold the customer list of its travel agency
subsidiary. As a result of this sale, no commissions from travel services were
recognized in the six months ending June 30, 2002, as compared to $526,000 for
the comparable period in 2001.
Gains of $1,356,000 were recognized on the sale of $99,566,000 of loans for the
six months ended June 30, 2002 as compared to gains of $966,000 on the sale of
$97,425,000 of pooled loans in the prior year period. Management anticipates
continued sales from the current mortgage loan production in order to maintain
the asset/liability structure that the Corporation is trying to effect. The
Corporation may realize gains and/or losses on these sales dependent upon
interest rate movements and upon how receptive the debt markets are to mortgage
backed securities.
Total other expenses decreased 3.8% or $735,000 to $18,395,000 for the six
months ended June 30, 2002 as compared to $19,130,000 for the same period in
2001.
Salaries and wages expense remained relatively constant for the first six months
of 2002 as compared to the same period in 2001. Employee benefits expense
increased $20,000 to $1,823,000 for the first six months of 2002 as compared to
$1,803,000 in the same period in 2001. The Corporation had 473 and 502 full-time
equivalent employees as of June 30, 2002 and 2001, respectively.
Occupancy and furniture and equipment expenses decreased 7.8% to $3,229,000 for
the six months ended June 30, 2002 from $3,501,000 in the prior year period.
The Corporation's net overhead expense, total non-interest expense less
non-interest income divided by average assets, decreased to 1.14% for the six
months ended June 30, 2002 from 1.22% in the prior year period as a result of
the changes in the income and expense items described above.
The Corporation's efficiency ratio is defined as operating expenses divided by
net revenue. (More specifically it is defined as non interest expense expressed
as a percentage of the sum of tax equivalent net interest income and non
interest income, excluding security gains). The consolidated efficiency ratio
for the six months ended June 30, 2002, was 55.0% as compared to 58.8% for the
same period in 2001.
Income taxes for the six months ended June 30, 2002 decreased to $4,457,000 as
compared to $4,586,000 for the comparable period in 2001. As a percent of income
before taxes, the provision for income taxes decreased to 33.2% for the six
months ended June 30, 2002 from 36.1% for the same period in 2001. The provision
for income taxes as a percentage of income before taxes has decreased due to the
addition of income from bank owned life insurance which is nontaxable to the
Corporation and to the reduction in nondeductible amortization expense.
13 of 25
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2002 AS COMPARED TO JUNE 30, 2001
SUMMARY
Net income for the three months ended June 30, 2002 increased 6.5% to $4,287,000
as compared to $4,027,000 for the comparable period in 2001. Diluted earnings
per share increased 6.7% to $.32 at June 30, 2002 as compared to $.30 for the
same period in 2001.
Operating earnings, which exclude security gains and the related tax expense,
were $4,167,000, or $.31 per share for the three months ended June 30, 2002, as
compared to $3,894,000, or $.29 per share for the same period in 2001.
The Corporation's return on average assets was 1.32% for the three months ended
June 30, 2002, as compared to 1.23% achieved for the comparable period in 2001.
The return on average assets from operations for the three months ended June 30,
2002 of 1.28% was nine basis points higher than the 1.19% level achieved in the
comparable period of 2001.
EARNING ASSETS, SOURCES OF FUNDS, AND NET INTEREST MARGIN
The net interest margin expressed as a percentage of average earning assets was
3.77% for the three months ended June 30, 2002, an increase of 14 basis points
from the level achieved for the like period in 2001. The net interest margin
expressed as a percentage of average total assets increased 10 basis points to
3.52% for the three months ended June 30, 2002, compared to 3.42% for the same
period in 2001. The increase in the net interest margin resulted from a 140
basis point decrease in the yield on interest-earning assets offset by a 154
basis point decrease in the rates paid on interest-bearing liabilities.
Interest income on a fully taxable equivalent basis decreased $4,654,000, or
19.7% for the three months ended June 30, 2002 from the same period in 2001. The
decrease resulted primarily from the decline in market interest rates.
Total interest expense decreased $4,885,000 or 39.3% for the three months ended
June 30, 2002 as compared to the prior year period. This decline is primarily
due to the decline in rates paid on interest-bearing liabilities combined with a
change in the mix of funding sources.
OTHER INCOME, OTHER EXPENSE AND INCOME TAXES
During the three months ended June 30, 2002, the Corporation recognized security
gains of approximately $120,000, after income taxes, representing 2.8% of net
income. During the same period in 2001, security gains of approximately
$133,000, after income taxes, were recognized, representing 3.3% of net income.
Total other income, excluding security transactions, decreased 1.9% to
$5,387,000 for the three months ended June 30, 2002 as compared to $5,491,000
for the same period in 2001. This was a combination of the loss of net
commissions from travel services, and lower other income offset by an increase
in service charge income. Gains of $559,000 were recognized on the sale of
$39,844,000 of pooled loans for the three months ended June 30, 2002 as compared
to gains of $533,000 on the sale of $62,019,000 of pooled loans in the prior
year period.
Total other expense decreased 4.1% or $402,000 to $9,400,000 for the three
months ended June 30, 2002 as compared to the same period in 2001. Salaries and
wages expense decreased $35,000 or 0.8% and employee benefits expense increased
$57,000 or 6.8% for the three months ended June 30, 2002, as compared to the
same period last year. Occupancy and furniture and equipment expenses decreased
6.1% to $1,622,000 for the three months ended June 30, 2002 from $1,728,000 in
the prior year period.
14 of 25
The consolidated efficiency ratio for the three months ended June 30, 2002 was
55.9% as compared to 58.7% for the prior year period. The change in the current
year efficiency ratio is due to the income and expense items noted above.
Income taxes for the three months ended June 30, 2002 decreased to $2,102,000 as
compared to $2,252,000 for the comparable period in 2001. As a percent of income
before taxes, the provision for income taxes decreased to 32.9% for the three
months ended June 30, 2001 from 35.9% for the same period in 2001. The provision
for income taxes as a percentage of income before taxes has decreased due to the
addition of income from bank owned life insurance which is nontaxable to the
Corporation and to the reduction in nondeductible amortization expense.
REPORTABLE SEGMENTS AND RELATED INFORMATION
First Busey Corporation has three reportable segments, Busey Bank, Busey Bank
Florida and First Busey Trust & Investment Co. Busey Bank provides a full range
of banking services to individual and corporate customers through its branch
network in Champaign, McLean and Ford Counties in Illinois, through its branch
in Indianapolis, Indiana, and through its loan production office in Fort Myers,
Florida. In November, 2001, Busey Bank fsb transferred its charter to Florida,
and changed its name to Busey Bank Florida. Simultaneously, the Illinois assets
of Busey Bank fsb were merged into Busey Bank. Busey Bank Florida provides a
full range of banking services to individual and corporate customers in Fort
Myers, Florida. First Busey Trust & Investment Company provides trust and asset
management services to individual and corporate customers throughout central
Illinois.
The Corporation's three reportable segments are strategic business units that
are separately managed as they offer different products and services and have
different marketing strategies.
The segment financial information provided below has been derived from the
internal profitability reporting system used by management to monitor and manage
the financial performance of the Corporation. The accounting policies of the
three segments are the same as those described in the summary of significant
accounting policies in the annual report. The Corporation accounts for
intersegment revenue and transfers at current market value.
<Table>
<Caption>
June 30, 2002
-------------------------------------------------------------------------------------------------------------
First Busey
Busey Bank, Trust & Consolidated
Busey Bank Florida Investment Co. All Other Totals Eliminations Totals
- ------------------------------------------------------------------------------------------------------------------------------------
Interest income $ 35,917 $ 1,366 $ 79 $ 1,209 $ 38,571 $ (1,151) $ 37,420
Interest expense 13,327 674 - 2,297 16,298 (1,137) 15,161
Other income 7,356 172 2,520 12,766 22,814 (11,764) 11,050
Net income 9,134 48 763 10,095 20,040 (11,063) 8,977
Total assets 1,287,848 56,103 3,642 179,975 1,527,568 (171,003) 1,356,565
</Table>
<Table>
<Caption>
June 30, 2001
-------------------------------------------------------------------------------------------------------------
First Busey
Busey Bank, Trust & Consolidated
Busey Bank Florida Investment Co. All Other Totals Eliminations Totals
- ------------------------------------------------------------------------------------------------------------------------------------
Interest income $ 36,229 $ 11,288 $ 92 $ 143 $ 47,752 $ (115) $ 47,637
Interest expense 18,213 6,722 - 1,133 26,068 26,005
(63)
Other income 6,616 1,206 2,431 10,804 21,057 11,104
(9,953)
Net income 7,143 948 769 8,381 17,241 8,125
(9,116)
Total assets 1,030,811 300,300 3,614 163,568 1,498,293 (163,746) 1,334,547
</Table>
15 of 25
LIQUIDITY
Liquidity is the availability of funds to meet all present and future financial
obligations arising in the daily operations of the business at a minimal cost.
These financial obligations consist of needs for funds to meet extensions of
credit, deposit withdrawals and debt servicing.
The sources of short-term liquidity utilized by the Corporation consist of
non-reinvested asset maturities, deposits, borrowed funds, and capital funds.
Long-term liquidity needs will be satisfied primarily through retention of
capital funds. The Corporation does not deal in or use brokered deposits as a
source of liquidity. Additional liquidity is provided by bank lines of credit,
repurchase agreements and the ability to borrow from the Federal Reserve Bank
and the Federal Home Loan Bank of Chicago. The Corporation has an operating line
with American National Bank and Trust Company of Chicago in the amount of
$10,000,000 with $10,000,000 available as of June 30, 2002.
The Corporation's dependence on large liabilities (defined as time deposits over
$100,000 and short-term borrowings) increased to 9.1% at June 30, 2002 from 8.6%
at December 31, 2001. This is the ratio of total large liabilities to total
liabilities. Large liabilities increased $9,858,000 to $112,942,000 as of June
30, 2002, as compared to $103,084,000 as of December 31, 2001. Total liabilities
grew $50,895,000 to $1,245,794,000 as of June 30, 2002, as compared to
$1,194,899,000 as of December 31, 2001.
CAPITAL RESOURCES
Other than from the issuance of common stock, the Corporation's primary source
of capital is retained net income. During the six months ended June 30, 2002,
the Corporation earned $8,977,000 and paid dividends of $4,074,000 to
stockholders, resulting in a retention of current earnings of $4,903,000. The
Corporation's dividend payout for the six months ended June 30, 2002 was 45.4%.
The Corporation and the Banks are subject to regulatory capital requirements
administered by federal and state banking agencies. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Corporation and the Banks must meet specific capital guidelines 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 Corporation and
the Banks 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 1 capital (as defined) to average assets (as
defined). Management believes, as of June 30, 2002, that the Corporation and the
Banks meet all capital adequacy requirements to which they are subject.
<Table>
<Caption>
As of June 30, 2002:
Total Capital (to Risk Weighted Assets)
Consolidated $ 132,810 13.71% $ 77,525 8.0% N/A N/A
Busey Bank $ 103,948 11.25% $ 73,918 8.0% $ 92,397 10.0%
Busey Bank Florida $ 11,737 33.86% $ 2,773 8.0% $ 3,467 10.0%
Tier I Capital (to Risk Weighted Assets)
Consolidated $ 116,184 11.99% $ 38,763 4.0% N/A N/A
Busey Bank $ 88,250 9.55% $ 36,959 4.0% $ 55,439 6.0%
Busey Bank Florida $ 11,308 32.62% $ 1,387 4.0% $ 2,080 6.0%
Tier I Capital (to Average Assets)
Consolidated $ 116,184 9.09% $ 51,139 4.0% N/A N/A
Busey Bank $ 88,250 7.28% $ 48,516 4.0% $ 60,645 5.0%
Busey Bank Florida $ 11,308 32.62% $ 2,056 4.0% $ 2,570 5.0%
</Table>
16 of 25
<Table>
<Caption>
As of December 31, 2001:
Total Capital (to Risk Weighted Assets)
Consolidated $ 128,017 13.63% $ 75,143 8.0% N/A N/A
Busey Bank $ 99,927 11.14% $ 71,747 8.0% $ 89,683 10.0%
Busey Bank Florida $ 11,610 41.50% $ 2,238 8.0% $ 2,798 10.0%
Tier I Capital (to Risk Weighted Assets)
Consolidated $ 112,067 11.93% $ 37,572 4.0% N/A N/A
Busey Bank $ 84,927 9.47% $ 35,874 4.0% $ 53,810 6.0%
Busey Bank Florida $ 11,260 40.25% $ 1,119 4.0% $ 1,679 6.0%
Tier I Capital (to Average Assets)
Consolidated $ 112,067 8.78% $ 51,080 4.0% N/A N/A
Busey Bank $ 84,927 7.62% $ 44,597 4.0% $ 55,746 5.0%
Busey Bank Florida $ 11,260 7.34% $ 7,666 4.0% $ 7,666 5.0%
</Table>
RATE SENSITIVE ASSETS AND LIABILITIES
Interest rate sensitivity is a measure of the volatility of the net interest
margin as a consequence of changes in market rates. The rate-sensitivity chart
shows the interval of time in which given volumes of rate-sensitive, earning
assets and rate-sensitive, interest bearing liabilities would be responsive to
changes in market interest rates based on their contractual maturities or terms
for repricing. It is, however, only a static, single-day depiction of the
Corporation's rate sensitivity structure, which can be adjusted in response to
changes in forecasted interest rates.
17 of 25
The following table sets forth the static rate-sensitivity analysis of the
Corporation as of June 30, 2002.
<Table>
<Caption>
Rate Sensitive Within
-----------------------------------------------------------------------------------
1-30 31-90 91-180 181 Days - Over
Days Days Days 1 Year 1 Year Total
-----------------------------------------------------------------------------------
(Dollars in thousands)
Interest-bearing deposits $ 67 $ - $ - $ - $ - $ 67
Federal funds sold 27,700 - - - - 27,700
Investment securities
U.S. Governments 1,001 13,067 9,136 45,783 78,620 147,607
Obligations of states and
political subdivisions 1,097 - 2,430 2,039 40,656 46,222
Other securities 10,775 1,003 - - 12,875 24,653
Loans (net of unearned int.) 372,045 65,819 72,993 125,998 372,296 1,009,151
-------------------------------------------------------------------------------------
Total rate-sensitive assets $ 412,685 $ 79,889 $ 84,559 $ 173,820 $ 504,447 $ 1,255,400
-------------------------------------------------------------------------------------
Interest bearing transaction
Deposits $ 23,056 $ - $ - $ - $ - $ 23,056
Savings deposits 96,632 - - - - 96,632
Money market deposits 395,114 - - - - 395,114
Time deposits 73,933 62,522 71,316 126,811 151,757 486,339
Short term borrowings 5,021 - - - - 5,021
Long-term debt 8,000 12,000 2,021 5,000 43,000 70,021
Company obligated mandatorily
redeemable preferred securities - - - - 25,000 25,000
-------------------------------------------------------------------------------------
Total rate-sensitive
liabilities $ 601,756 $ 74,522 $ 73,337 $ 131,811 $ 219,757 $ 1,101,183
-------------------------------------------------------------------------------------
Rate-sensitive assets less
rate-sensitive liabilities $ (189,071) $ 5,367 $ 11,222 $ 42,009 $ 284,690 $ 154,217
-------------------------------------------------------------------------------------
Cumulative Gap $ (189,071) $ (183,704) $ (172,482) $ (130,473) $ 154,217
=====================================================================================
Cumulative amounts as a percentage
of total rate-sensitive assets -15.06% -14.63% -13.74% -10.39% 12.28%
=====================================================================================
Cumulative ratio 0.69 0.73 0.77 0.85 1.14
=====================================================================================
</Table>
The foregoing table shows a negative (liability sensitive) rate-sensitivity gap
of $189.1 million in the 1-30 day as there were more liabilities subject to
repricing in that time period than there were assets subject to repricing within
that same time period. The volume of assets subject to repricing exceeds the
volume of liabilities subject to repricing for all time periods beyond 30 days.
On a cumulative basis, however, the gap remains liability sensitive through one
year. The composition of the gap structure at June 30, 2002, will benefit the
Corporation more if interest rates decrease during the next year by allowing the
net interest margin to grow as liability rates would reprice more quickly than
rates on rate-sensitive assets. After 1 year, a rate increase would benefit the
Corporation because the volume of rate-sensitive assets subject to repricing
would exceed the volume of rate-sensitive liabilities subject to repricing.
18 of 25
FIRST BUSEY CORPORATION AND SUBSIDIARIES
AVERAGE BALANCE SHEETS AND INTEREST RATES
SIX MONTHS ENDED JUNE 30, 2002 AND 2001
<Table>
<Caption>
2002 2001
--------------------------------------- ---------------------------------------
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
--------------------------------------- ---------------------------------------
(Dollars in thousands)
ASSETS
Federal funds sold $ 10,878 $ 86 1.59% $ 28,339 $ 749 5.33%
Investment securities
U.S. Government obligations 143,451 3,294 4.63% 159,023 4,543 5.76%
Obligations of states and political
subdivisions (1) 42,925 1,503 7.06% 43,741 1,597 7.36%
Other securities 24,350 426 3.53% 37,017 794 4.33%
Loans (net of unearned interest) (1) (2) 987,258 32,747 6.69% 976,506 40,628 8.39%
-------------------------- --------------------------
Total interest earning assets $ 1,208,862 $ 38,056 6.35% $ 1,244,626 $ 48,311 7.83%
============ =============
Cash and due from banks 33,596 31,422
Premises and equipment 28,679 30,728
Reserve for possible loan losses (13,814) (12,545)
Other assets 38,134 28,344
-------------- -------------
Total Assets $ 1,295,457 $ 1,322,575
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing transaction deposits $ 13,456 $ 65 0.97% $ 37,576 $ 477 2.56%
Savings deposits 97,168 550 1.14% 89,086 1,225 2.77%
Money market deposits 401,638 2,622 1.32% 338,982 5,347 3.18%
Time deposits 446,130 9,129 4.13% 542,634 16,034 5.96%
Short-term borrowings 13,821 265 3.87% 44,207 1,457 6.65%
Long-term debt 53,459 1,405 5.30% 49,841 1,393 5.64%
Company obligated mandatorily
redeemable preferred securities 25,000 1,125 9.07% 1,592 72 9.12%
-------------------------- --------------------------
Total interest-bearing liabilities $ 1,050,672 $ 15,161 2.91% $ 1,103,918 $ 26,005 4.75%
============ =============
Net interest spread 3.44% 3.08%
============= =============
Demand deposits 127,455 113,240
Other liabilities 9,715 10,155
Stockholders' equity 107,615 95,262
-------------- -------------
Total Liabilities and Stockholders' Equity $ 1,295,457 $ 1,322,575
============== =============
Interest income / earning assets (1) $ 1,208,862 $ 38,056 6.35% $ 1,244,626 $ 48,311 7.83%
Interest expense / earning assets $ 1,208,862 $ 15,161 2.53% $ 1,244,626 $ 26,005 4.22%
------------------------- --------------------------
Net interest margin (1) $ 22,895 3.82% $ 22,306 3.61%
========================= ==========================
</Table>
(1) On a tax-equivalent basis, assuming a federal income tax rate of 35%
for 2002 and 2001.
(2) Non-accrual loans have been included in average loans, net of unearned
interest.
19 of 25
FIRST BUSEY CORPORATION AND SUBSIDIARIES
CHANGES IN NET INTEREST INCOME
SIX MONTHS ENDED JUNE 30, 2002 AND 2001
<Table>
<Caption>
Change due to(1)
Average Average Total
Volume Yield/Rate Change
-----------------------------------------------
(Dollars in thousands)
Increase (decrease) in interest income:
Federal funds sold $ (310) $ (353) $ (663)
Investment securities:
U.S. Government obligations (416) (833) (1,249)
Obligations of states and political
subdivisions (2) (29) (65) (94)
Other securities (241) (127) (368)
Loans (2) 453 (8,334) (7,881)
-------------------------------------------------
Change in interest income (2) $ (543) $ (9,712) $ (10,255)
-------------------------------------------------
Increase (decrease) in interest expense:
Interest-bearing transaction deposits $ (209) $ (203) $ (412)
Savings deposits 123 (798) (675)
Money market deposits 1,255 (3,980) (2,725)
Time deposits (2,531) (4,374) (6,905)
Short-term borrowings (648) (544) (1,192)
Long-term debt 67 (55) 12
Company obligated mandatorily redeemable preferred securities 1,053 - 1,053
-------------------------------------------------
Change in interest expense $ (890) $ (9,954) $ (10,844)
-------------------------------------------------
Increase in net interest income (2) $ 347 $ 242 $ 589
=================================================
</Table>
(1) Changes due to both rate and volume have been allocated proportionally.
(2) On a tax-equivalent basis, assuming a federal income tax rate of 35% for
2002 and 2001.
20 of 25
FIRST BUSEY CORPORATION AND SUBSIDIARIES
AVERAGE BALANCE SHEETS AND INTEREST RATES
QUARTERS ENDED JUNE 30, 2002 AND 2001
<Table>
<Caption>
2002 2001
--------------------------------------- ---------------------------------------
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
--------------------------------------- ---------------------------------------
(Dollars in thousands)
ASSETS
Federal funds sold $ 6,702 $ 28 1.68% $ 21,818 $ 240 5.33%
Investment securities
U.S. Government obligations 151,329 1,676 4.44% 155,875 2,205 5.67%
Obligations of states and political
subdivisions (1) 43,697 758 6.96% 44,028 800 7.29%
Other securities 24,556 227 3.71% 38,107 378 3.98%
Loans (net of unearned interest) (1) (2) 989,895 16,282 6.60% 978,028 20,002 8.20%
-------------------------- --------------------------
Total interest earning assets $ 1,216,179 $ 18,971 6.26% $ 1,237,856 $ 23,625 7.66%
============ =============
Cash and due from banks 34,255 30,174
Premises and equipment 28,514 30,449
Reserve for possible loan losses (13,940) (12,694)
Other assets 39,075 28,355
-------------- -------------
Total Assets $ 1,304,083 $ 1,314,140
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing transaction deposits $ 12,143 $ 27 0.89% $ 36,915 $ 203 2.21%
Savings deposits 97,569 283 1.16% 90,213 577 2.57%
Money market deposits 397,706 1,289 1.30% 342,150 2,518 2.95%
Time deposits 451,244 4,502 4.00% 532,056 7,758 5.85%
Short-term borrowings 14,956 126 3.38% 41,640 664 6.40%
Long-term debt 59,066 750 5.09% 46,083 632 5.50%
Company obligated mandatorily
redeemable preferred securities 25,000 562 9.02% 3,165 72 9.12%
-------------------------- --------------------------
Total interest-bearing liabilities $ 1,057,684 $ 7,539 2.86% $ 1,092,222 $ 12,424 4.56%
============ =============
Net interest spread 3.40% 3.10%
============= =============
Demand deposits 127,052 115,491
Other liabilities 10,640 9,793
Stockholders' equity 108,707 96,634
-------------- -------------
Total Liabilities and Stockholders' Equity $ 1,304,083 $ 1,314,140
============== =============
Interest income / earning assets (1) $ 1,216,179 $ 18,971 6.26% $ 1,237,856 $ 23,625 7.66%
Interest expense / earning assets $ 1,216,179 $ 7,539 2.49% $ 1,237,856 $ 12,424 4.03%
------------------------- --------------------------
Net interest margin (1) $ 11,432 3.77% $ 11,201 3.63%
========================= ==========================
</Table>
(1) On a tax-equivalent basis, assuming a federal income tax rate of 35% for
2002 and 2001.
(2) Non-accrual loans have been included in average loans, net of unearned
interest.
21 of 25
FIRST BUSEY CORPORATION AND SUBSIDIARIES
CHANGES IN NET INTEREST INCOME
QUARTERS ENDED JUNE 30, 2002 AND 2001
<Table>
<Caption>
Change due to(1)
Average Average Total
Volume Yield/Rate Change
--------------------------------------------
(Dollars in thousands)
Increase (decrease) in interest income:
Federal funds sold $ (112) $ (100) $ (212)
Investment securities:
U.S. Government obligations (63) (466) (529)
Obligations of states and political
subdivisions (2) (6) (36) (42)
Other securities (128) (23) (151)
Loans (2) 246 (3,966) (3,720)
-------------------------------------------
Change in interest income (2) $ (63) $ (4,591) $ (4,654)
-------------------------------------------
Increase (decrease) in interest expense:
Interest-bearing transaction deposits $ (93) $ (83) $ (176)
Savings deposits 51 (345) (294)
Money market deposits 502 (1,731) (1,229)
Time deposits (1,058) (2,198) (3,256)
Short-term borrowings (282) (256) (538)
Long-term debt 160 (42) 118
Company obligated mandatorily redeemable preferred securities 490 - 490
-------------------------------------------
Change in interest expense $ (230) $ (4,655) $ (4,885)
-------------------------------------------
Increase in net interest income (2) $ 167 $ 64 $ 231
===========================================
</Table>
(1) Changes due to both rate and volume have been allocated proportionally.
(2) On a tax-equivalent basis, assuming a federal income tax rate of 35% for
2002 and 2001.
22 of 25
FORWARD LOOKING STATEMENTS
This presentation includes forward looking statements that are intended to be
covered by the safe-harbor provisions of the Private Securities Litigation
Reform Act of 1995. These forward looking statements include but are not limited
to comments with respect to the objectives and strategies, financial condition,
results of operations and business of the Corporation.
These forward looking statements involve numerous assumptions, inherent risks
and uncertainties, both general and specific, and the risk that predictions and
other forward looking statements will not be achieved. The Corporation cautions
you not to place undue reliance on these forward looking statements as a number
of important factors could cause actual future results to differ materially from
the plans, objectives, expectations, estimates and intentions expressed in such
forward looking statements.
These risks, uncertainties and other factors include the general state of the
economy, both on a local and national level, the ability of the Corporation to
successfully complete acquisitions, the continued growth of geographic regions
served by the Corporation, and the retention of individuals who currently are
very important in the management structure of the Corporation.
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURE ABOUT MARKET RISK
Market risk is the risk of change in asset values due to movements in underlying
market rates and prices. Interest rate risk is the risk to earnings and capital
arising from movements in interest rates. Interest rate risk is the most
significant market risk affecting the Corporation as other types of market risk,
such as foreign currency exchange rate risk and commodity price risk, do not
arise in the normal course of the Corporation's business activities.
The Corporation's subsidiary banks, Busey Bank and Busey Bank Florida have
asset-liability committees which meet at least quarterly to review current
market conditions and attempt to structure the banks' balance sheets to ensure
stable net interest income despite potential changes in interest rates with all
other variables constant.
The asset-liability committee uses gap analysis to identify mismatches in the
dollar value of assets and liabilities subject to repricing within specific time
periods. The Funds Management Policy established by the asset-liability
committee and approved by the Corporation's board of directors establishes
guidelines for maintaining the ratio of cumulative rate-sensitive assets to
rate-sensitive liabilities within prescribed ranges at certain intervals. A
summary of the Corporation's gap analysis is summarized on page 18.
The committee does not rely solely on gap analysis to manage interest-rate risk
as interest rate changes do not impact all categories of assets and liabilities
equally or simultaneously. The asset-liability committee supplements gap
analysis with balance sheet and income simulation analysis to determine the
potential impact on net interest income of changes in market interest rates. In
these simulation models the balance sheet is projected out over a one-year
period and net interest income is calculated under current market rates, and
then assuming permanent instantaneous shifts in the yield curve of +/- 100 basis
point, + 200 basis points, and -175 basis points. These interest-rate scenarios
indicate the interest rate risk of the Corporation over a one-year time horizon
due to changes in interest rates, as of June 30, 2002, is as follows:
<Table>
<Caption>
Basis Point Changes
---------------------------------------------------
-175 -100 +100 +200
----------- ----------- ----------- ---------------
Percentage change in net interest income due to an immediate change
in interest over a one-year period 1.88% 2.20% -0.28% -0.61%
</Table>
These results do not differ materially from those reported as of December 31,
2002.
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PART II - OTHER INFORMATION
ITEM 1: Legal Proceedings
Not Applicable
ITEM 2: Changes in Securities and Use of Proceeds
Not Applicable
ITEM 3: Defaults Upon Senior Securities
Not Applicable
ITEM 4: Submission of Matters to a Vote of Security Holders
The annual meeting of the stockholders of First Busey
Corporation was held on April 15, 2002. Please refer to the
Corporation's quarterly report filed on Form 10-Q for the
period ending March 31, 2002 for the results of the matters
approved by the stockholders.
ITEM 5: Other Information
Not Applicable
ITEM 6: Exhibits and Reports on Form 8-K
(a.) EXHIBITS
(b.) REPORTS ON FORM 8-K
On July 18, 2002, the Corporation filed a report on Form
8-K (Item 5) dated July 18, 2002, revising information
contained in its press release dated and issued July 15,
2002.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST BUSEY CORPORATION
(REGISTRANT)
By: //Barbara J. Jones//
---------------------------------------------------
Barbara J. Jones
Chief Financial Officer
(Principal financial and accounting officer)
By: //Douglas C. Mills//
---------------------------------------------------
Douglas C. Mills
Chairman of the Board and Chief Executive Officer
Date: August 14, 2002
(Certification of Chief Executive Officer and Chief Financial Officer pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 accompanies this filing as
separate correspondence.)
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