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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 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
incorporation of organization) Identification No.)
201 West Main Street
Urbana, Illinois 61801
(Address of principal executive offices) (Zip Code)
(217) 365-4513
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, without par value
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 if disclosure of delinquent filers pursuant to
Item 405 Regulation S-K is not contained herein, and will not be contained to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Indicate by check mark whether registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act.).
Yes [X] No [ ]
The aggregate market value of the voting and nonvoting Common Stock
held by non-affiliates was $201,795,237 based on the closing price for the stock
as reported on the Nasdaq National Market as of June 30, 2002 or as of the last
business day of the registrants most recently completed second fiscal quarter.
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 February 21, 2003
----- --------------------------------
Common Stock, without par value 13,635,620
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement dated March 19, 2003 for
First Busey Corporation's Annual Meeting of Stockholders to be held April 22,
2003, (the "2003 Proxy Statement") are incorporated by reference into Part III.
(This page intentionally left blank)
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FIRST BUSEY CORPORATION
Form 10-K Annual Report
Table of Contents
PART 1
Item 1 Business...................................................................... 4
Item 2 Properties.................................................................... 7
Item 3 Legal Proceedings............................................................. 8
Item 4 Submission of Matters to a Vote of Security Holders........................... 8
PART II
Item 5 Market for Registrant's Common Equity and Related Stockholder Matters......... 9
Item 6 Selected Financial Data....................................................... 10
Item 7 Management's Discussion and Analysis of Financial Condition and Results of
Operations.................................................................... 12
Item 7A Quantitative and Qualitative Disclosures About Market Risk.................... 29
Item 8 Financial Statements and Supplementary Data................................... 29
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.................................................................... 29
PART III
Item 10 Directors and Executive Officers of the Registrant............................ 30
Item 11 Executive Compensation........................................................ 30
Item 12 Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters........................................................... 30
Item 13 Certain Relationships and Related Transactions and Compensation Committee
Interlocks and Insider Participation.......................................... 30
Item 14 Controls and Procedures....................................................... 31
PART IV
Item 15 Exhibits, Financial Statement Schedules and reports on Form 8-K............... 31
3
PART I
ITEM 1. BUSINESS
INTRODUCTION
First Busey Corporation ("First Busey" or the "Corporation"), a Nevada
Corporation, is a $1.4 billion financial holding company which was initially
organized as a bank holding company in 1980. First Busey conducts a broad range
of financial services through its banking and non-banking subsidiaries at 21
locations. First Busey is headquartered in Urbana, Illinois and its common stock
is traded on the Nasdaq National Market under the symbol "BUSE."
First Busey's annual report on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K, and all amendments to those reports are
currently made available free of charge via the Corporation's internet website
(www.busey.com) as soon as practicable after such material is electronically
filed with, or furnished to, the Securities and Exchange Commission.
BANKING AND NON-BANKING SUBSIDIARIES
First Busey currently has two wholly owned banking subsidiaries located
in three states, Busey Bank and Busey Bank Florida (the "Banks").
Busey Bank, a state-chartered bank organized in 1868, is a full service
commercial bank offering a wide variety of services to individual, business,
institutional and governmental customers, including retail products and
services. Busey Bank has 18 locations in Illinois and one in Indianapolis,
Indiana.
First Busey acquired Eagle BancGroup, Inc., parent of First Federal
Savings & Loan Association ("First Federal"), in October, 1999. First Federal,
located in Bloomington, Illinois, was established in 1919 as a federally
chartered capital stock savings association. In June, 2000, First Federal
changed its name to Busey Bank fsb. At the same time, four of Busey Bank's
branches, located in LeRoy and Bloomington, Illinois, were transferred into
Busey Bank fsb. In October, 2000, Busey Bank fsb opened an additional branch 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, a federally chartered savings association, is a full service bank
offering commercial and retail banking services. Busey Bank Florida has one
location in Fort Myers, Florida.
The Banks offer a full range of banking services, including commercial,
financial, agricultural and real estate loans, and retail banking services,
including accepting customary types of demand and savings deposits, making
individual, consumer, installment, first mortgage and second mortgage loans,
offering money transfers, safe deposit services, IRA, Keogh and other fiduciary
services, automated banking and automated fund transfers.
Busey Investment Group, Inc., a wholly owned non-banking subsidiary,
located in Champaign, Illinois, and formed in February, 1999, is the parent
company of: (1) First Busey Trust & Investment Co., organized in January, 1987,
which is exclusively dedicated to providing a full range of trust and investment
management services, including farm management, estate and financial planning,
tax preparation, custody services and philanthropic advisory services; (2) First
Busey Securities, Inc., organized in April, 1991, which is a full service
broker/dealer and provides individual investment advice; and (3) Busey Insurance
Services, Inc., organized in October, 1997, which offers a variety of insurance
products.
First Busey Resources, Inc., a wholly owned non-banking subsidiary,
located in Urbana, Illinois, owns and manages Busey Plaza, a professional office
building that is fully leased to unaffiliated tenants.
First Busey Capital Trust I ("Capital Trust I"), a statutory business
trust organized under the Delaware Business Trust Act, was formed in June, 2001.
First Busey owns all of the Common Securities of Capital Trust I.
4
COMPETITION
The Banks compete actively with national and state banks, savings and
loan associations and credit unions for deposits and loans primarily in central
and east-central Illinois, southwest Florida, and central Indiana. In addition,
First Busey and its non-bank subsidiaries compete with other financial
institutions, including asset management and trust companies, security
broker/dealers, personal loan companies, insurance companies, finance companies,
leasing companies, mortgage companies and certain governmental agencies, all of
which actively engage in marketing various types of loans, deposit accounts and
other products and services.
Based on information obtained from FDIC/OTS Summary of Deposits dated
June, 2002, First Busey ranked first in total deposits in the Champaign and Ford
County markets and fifth in McLean County. Customers for banking services are
generally influenced by convenience, quality of service, personal contacts,
price of services and availability of products. Although the market share of
First Busey varies in different markets, First Busey believes that its
affiliates effectively compete with other banks, thrifts and financial
institutions in their relevant market areas.
SUPERVISION, REGULATION AND OTHER FACTORS
GENERAL
First Busey is a financial holding company subject to supervision and
regulation by the Board of Governors of the Federal Reserve System ("Federal
Reserve") under the Bank Holding Company Act ("BHCA"), and by the Illinois Bank
Holding Company Act ("IBHCA"). First Busey's state-chartered bank is subject to
regulation and examination primarily by the State of Illinois Office of Banks
and Real Estate ("SIOBRE") and, secondarily, by the Federal Deposit Insurance
Corporation ("FDIC"). First Busey's federally chartered capital stock savings
association is subject to regulation and examination primarily by the Office of
Thrift Supervision ("OTS") and, secondarily, by the FDIC. Numerous other federal
and state laws, as well as regulations promulgated by the Federal Reserve,
SIOBRE, FDIC and OTS govern almost all aspects of the operations of the Banks.
Various federal and state bodies regulate and supervise First Busey's
non-banking subsidiaries including its brokerage, investment advisory and
insurance agency operations. These include, but are not limited to, SIOBRE,
Federal Reserve, Securities and Exchange Commission, National Association of
Securities Dealers, Inc., Illinois Department of Insurance, federal and state
banking regulators and various state regulators of insurance and brokerage
activities.
Under the Gramm-Leach-Bliley Act (the "Act"), a bank holding company
that elects to become a financial holding company may engage in any activity
that the Federal Reserve, in consultation with the Secretary of the Treasury,
determines by regulation or order is: (1) financial in nature; (2) incidental to
any such financial activity; or (3) complementary to any such financial activity
and does not pose a substantial risk to the safety or soundness of depository
institutions or the financial system generally. This Act makes significant
changes in U.S. banking law, principally by repealing certain restrictive
provisions of the 1933 Glass-Steagall Act. The Act specifies certain activities
that are deemed to be financial in nature, including lending, exchanging,
transferring, investing for others, or safeguarding money or securities;
underwriting and selling insurance; providing financial, investment, or economic
advisory services; underwriting, dealing in or making a market in, securities;
and any activity currently permitted for bank holding companies by the Federal
Reserve under Section 4(c)(8) of the BHCA. The Act does not authorize banks or
their affiliates to engage in commercial activities that are not financial in
nature. A bank holding company may elect to be treated as a financial holding
company only if all depository institution subsidiaries of the holding company
are well-capitalized, well-managed and have at least a satisfactory rating under
the Community Reinvestment Act.
5
In addition to the Act, there have been a number of legislative and
regulatory proposals that would have an impact on bank/financial holding
companies and their bank and non-bank subsidiaries. It is impossible to predict
whether or in what form these proposals may be adopted in the future and if
adopted, what their effect will be on First Busey.
DIVIDENDS
The Federal Reserve has issued a policy statement on the payment of
cash dividends by financial holding companies. In the policy statement, the
Federal Reserve expressed its view that a bank holding company experiencing weak
earnings should not pay cash dividends in excess of its net income or which
could only be funded in ways that would weaken its financial health, such as by
borrowing. First Busey is also subject to certain contractual and regulatory
capital restrictions that limit the amount of cash dividends that First Busey
may pay. The Federal Reserve also may impose limitations on the payment of
dividends as a condition to its approval of certain applications, including
applications for approval of mergers and acquisitions.
The primary sources of funds for First Busey's payment of dividends to
its shareholders are dividends and fees to First Busey from its banking and
nonbanking affiliates. Various federal and state statutory provisions and
regulations limit the amount of dividends that the subsidiary banks of First
Busey may pay. Under provisions of the Illinois Banking Act ("IBA"), dividends
may not be declared by banking subsidiaries except out of the bank's net profit
(as defined), and unless the bank has transferred to surplus at least one-tenth
of its net profits since the date of the declaration of the last preceding
dividend, until the amount of its surplus is at least equal to its capital.
Federal and state banking regulations applicable to First Busey and its
banking subsidiaries require minimum levels of capital, which limit the amounts
available for payment of dividends.
CAPITAL REQUIREMENTS
First Busey is required to comply with the capital adequacy standards
established by the Federal Reserve, and its banking subsidiaries must comply
with similar capital adequacy standards established by the OTS, FDIC, and
SIOBRE, as applicable. There are two basic measures of capital adequacy for
financial holding companies and their banking subsidiaries that have been
promulgated by the Federal Reserve and the FDIC: a risk-based measure and a
leverage measure. All applicable capital standards must be satisfied for a bank
holding company or a bank to be considered in compliance.
Failure to meet capital guidelines could subject a bank to a variety of
enforcement remedies, including issuance of a capital directive, the termination
of deposit insurance by the FDIC, a prohibition on the taking of brokered
deposits, and certain other restrictions on its business. As described below,
substantial additional restrictions can be imposed upon FDIC insured depository
institutions that fail to meet applicable capital requirements. See "Prompt
Corrective Action."
PROMPT CORRECTIVE ACTION
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") establishes a system of prompt corrective action to resolve the
problems of undercapitalized institutions. Under this system the federal banking
regulators are required to rate supervised institutions on the basis of five
capital categories (well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized) and to take
certain mandatory supervisory actions, and are authorized to take other
discretionary actions, with respect to institutions in the three
undercapitalized categories, the severity of which will depend upon the capital
category in which the institution is placed. Generally, subject to a narrow
exception, FDICIA requires the banking regulator to appoint a receiver or
conservator for an institution that is critically undercapitalized. The federal
banking agencies have specified by regulation the relevant capital level for
each category.
Pursuant to FDICIA, the Federal Reserve, the FDIC, and the OTS have
adopted regulations setting forth a five-tier scheme for measuring the capital
adequacy of the financial institutions they supervise. Under the regulations, an
institution would be placed in one of the following capital categories:
6
(i) well capitalized (an institution that has a Total Capital ratio of at least
10%, a Tier 1 Capital ratio of at least 6% and a Tier 1 Leverage Ratio of at
least 5%); (ii) adequately capitalized (an institution that has a Total Capital
ratio of at least 8%, a Tier 1 Capital ratio of at least 4% and a Tier 1
Leverage Ratio of a least 4%); (iii) undercapitalized (an institution that has a
Total Capital ratio of under 8%, a Tier 1 Capital ratio of under 4% or a Tier 1
Leverage Ratio of under 4%); (iv) significantly undercapitalized (an institution
that has a Total Capital ratio of under 6%, a Tier 1 Capital ratio of under 3%
or a Tier 1 Leverage Ratio of under 3%); and (v) critically undercapitalized (an
institution whose tangible equity is not greater than 2% of total tangible
assets). The regulations permit the appropriate federal banking regulator to
downgrade an institution to the next lower category if the regulator determines
(i) after notice and opportunity for hearing or response, that the institution
is in an unsafe or unsound condition or (ii) that the institution has received
(and not corrected) a less-than-satisfactory rating for any of the categories of
asset quality, management, earnings or liquidity in its most recent examination.
Supervisory actions by the appropriate federal banking regulator depend upon an
institution's classification within the five categories. First Busey's
management believes that First Busey and its significant bank subsidiaries have
the requisite capital levels to qualify as well capitalized institutions under
the FDICIA regulations.
FDICIA generally prohibits a depository institution from making any
capital distribution (including payment of a dividend) or paying any management
fee to its holding company if the depository institution would thereafter be
undercapitalized. Undercapitalized depository institutions are subject to
restrictions on borrowing from the Federal Reserve System. In addition,
undercapitalized depository institutions are subject to growth limitations and
are required to submit capital restoration plans. A depository institution's
holding company must guarantee the capital plan, up to an amount equal to the
lesser of 5% of the depository institution's assets at the time it becomes
undercapitalized or the amount of the capital deficiency when the institution
fails to comply with the plan. Federal banking agencies may not accept a capital
plan without determining, among other things, that the plan is based on
realistic assumptions and is likely to succeed in restoring the depository
institution's capital. If a depository institution fails to submit an acceptable
plan, it is treated as if it is significantly undercapitalized.
Significantly undercapitalized depository institutions may be subject
to a number of requirements and restrictions, including orders to sell
sufficient voting stock to become adequately capitalized, requirements to reduce
total assets and cessation of receipt of deposits from correspondent banks.
Critically undercapitalized depository institutions are subject to appointment
of a receiver or conservator.
EMPLOYEES
As of December 31, 2002, First Busey and its subsidiaries had a total
of 491 employees (full-time and equivalents).
EXECUTIVE OFFICERS (as of January 1, 2003)
NAME AGE POSITION HELD
---- --- -------------
Douglas C. Mills 62 Chairman of the Board and CEO - First Busey Corp.
P. David Kuhl 53 Chairman of the Board and CEO - Busey Bank
Barbara J. Kuhl 52 President and COO of First Busey Corp.
Barbara J. Jones 43 CFO of First Busey Corp.
David D. Mills 32 President and COO of Busey Bank
Edwin A. Scharlau II 58 Chairman of the Board of Busey Investment Group
Vice Chairman of the Board of First Busey Corp.
ITEM 2. PROPERTIES
The location and general character of the materially important physical
properties of First Busey and its subsidiaries are as follows: First Busey,
where corporate management and administration operate, is headquartered at 201
West Main Street, Urbana, Illinois. Busey Bank has properties located at 201
West Main Street, Urbana, Illinois, 909 West Kirby Avenue, Champaign, Illinois,
and 301 Fairway Drive, Bloomington, Illinois. These facilities offer commercial
banking services, including commercial, financial, agricultural and real estate
loans, and retail banking services, including accepting customary types of
demand and savings deposits, making individual, consumer, installment, first
mortgage and second mortgage loans. Busey Bank Florida, located at 7980
Summerlin Lakes Drive, Fort Myers, Florida, offers similar services as Busey
Bank. Busey Investment Group, Inc., located at 502 West Windsor Road, Champaign,
Illinois, through its subsidiaries, provides a full range of trust and
investment management services, execution of securities transactions as a
full-service broker/dealer and provide individual investment advice on equity
and other securities as well as insurance agency services. First Busey
Resources, Inc., located at 102 East Main Street, Urbana, Illinois, owns and
manages Busey Plaza, which is fully leased to unaffiliated tenants.
First Busey and its subsidiaries own or lease all of the real property
and/or buildings on which each respective entity is located.
7
ITEM 3. LEGAL PROCEEDINGS
As part of the ordinary course of business, First Busey and its
subsidiaries are parties to litigation that is incidental to their regular
business activities.
There is no material pending litigation in which First Busey or any of
its subsidiaries is involved or of which any of their property is the subject.
Furthermore, there is no pending legal proceeding that is adverse to First Busey
in which any director, officer or affiliate of First Busey, or any associate of
any such director or officer, is a party, or has a material interest.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
8
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The following table presents for the periods indicated the high and low
closing price for First Busey common stock as reported on the Nasdaq National
Market.
2002 2001
------------------ ---------------------
Market Prices of Common Stock High Low High Low
- ----------------------------- ---- --- ---- ---
First Quarter 21.75 19.55 $20.50 $17.81
Second Quarter 22.61 20.30 $21.50 $19.69
Third Quarter 23.00 21.00 $22.00 $18.50
Fourth Quarter 23.57 22.14 $22.00 $19.00
During 2002 and 2001, First Busey declared cash dividends per share of common
stock as follows:
2002 COMMON STOCK
- ---- ------------
January $ .15
April $ .15
July $ .15
October $ .15
2001
- ----
January $ .13
April $ .13
July $ .13
October $ .13
For a discussion of restrictions on dividends, please see the
discussion of dividend restrictions under Item 1, Business, Dividends on page 6.
As of February 21, 2003, there were approximately 939 holders of common
stock.
9
ITEM 6. SELECTED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following selected financial data for each of the five years in the
period ended December 31, 2002, have been derived from First Busey's annual
consolidated financial statements and the results of operations for each of the
three years in the period ended December 31, 2002, appears elsewhere in this
report. This financial data should be read in conjunction with the financial
statements and the related notes thereto appearing in this report.
2002 2001 2000 1999 1998
---------------------------------------------------------------------------
(dollars in thousands, except per share data)
BALANCE SHEET ITEMS
Securities $ 233,830 $ 210,869 $ 228,597 $ 225,046 $ 217,991
Loans 1,101,043 978,106 984,369 886,684 662,281
Allowance for loan losses 15,460 13,688 12,268 10,403 7,101
Total assets 1,435,578 1,300,689 1,355,044 1,247,123 951,531
Total deposits 1,213,605 1,105,999 1,148,787 1,027,981 826,704
Long-term debt 71,759 47,021 55,259 55,849 25,000
Company obligated mandatorily
redeemable preferred securities 25,000 25,000 - - -
Stockholders' equity 115,163 105,790 92,325 82,284 87,103
RESULTS OF OPERATIONS
Interest income $ 76,085 $ 89,985 $ 93,242 $ 72,311 $ 67,048
Interest expense 30,494 46,435 50,476 34,920 32,975
Net interest income 45,591 43,550 42,766 37,391 34,073
Provision for loan losses 3,125 2,020 2,515 2,570 700
Net income(1) 17,904 15,653 14,053 12,548 11,398
PER SHARE DATA
Diluted earnings $ 1.31 $ 1.15 $ 1.03 $ .90 $ .81
Cash dividends .60 .52 .48 .44 .39
Book value 8.49 7.73 6.86 6.08 6.36
Closing price 23.06 21.48 19.9375 22.625 18.25
OTHER INFORMATION
Return on average assets 1.33% 1.19% 1.12% 1.22% 1.22%
Return on average equity 16.31% 15.80% 16.56% 14.68% 14.02%
Net interest margin(2) 3.74% 3.64% 3.74% 4.02% 4.10%
Stockholders' equity to assets 8.02% 8.13% 6.81% 6.60% 9.15%
(1) Effective January 1, 2002, First Busey adopted Statement of Financial
Accounting Standards (SFAS) No. 142 "Goodwill and Other Intangible Assets".
SFAS No. 142 changed the accounting for goodwill from a model that required
amortization of goodwill, supplemented by impairment tests, to an
accounting model that is based solely upon impairment tests.
10
A reconcilation of First Busey's Consolidated Statements of Income for each of
the five years ending December 31, 2002, from amounts reported to amounts
exclusive of goodwill amortization is shown below:
FINANCIAL ACCOUNTING STANDARDS NO. 142 DISCLOSURE
Net income as reported $ 17,904 $ 15,653 $ 14,053 $ 12,548 $ 11,398
Goodwill amortization, after tax - 651 677 322 300
---------------------------------------------------------------------------
Net income as adjusted $ 17,904 $ 16,304 $ 14,730 $ 12,870 $ 11,698
---------------------------------------------------------------------------
Diluted earnings per share of common stock:
As reported $ 1.31 $ 1.15 $ 1.03 $ .90 $ .81
Goodwill amortization - .05 .05 .02 .02
---------------------------------------------------------------------------
Earnings per share as adjusted $ 1.31 $ 1.20 $ 1.08 $ .92 $ .83
---------------------------------------------------------------------------
(2) Calculated as a percent of average earning assets.
11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is management's discussion and analysis of the financial
condition and results of operations of First Busey Corporation and Subsidiaries
for the years ended December 31, 2002, 2001, and 2000. It should be read in
conjunction with "Business," "Selected Financial Data," the consolidated
financial statements and the related notes to the consolidated financial
statements and other data included in this Annual Report.
GENERAL
The Corporation's consolidated income is generated primarily by the
financial services activities of its subsidiaries. Since January 1, 1982, the
Corporation has acquired eleven banks and sold two; acquired six savings and
loan branches and two bank branches; acquired a bank branch in an FDIC assisted
acquisition of a failed bank; acquired a thrift holding company and federal
savings and loan; formed a trust company subsidiary; formed an insurance agency
subsidiary; formed a non-bank ATM subsidiary and acquired and liquidated a
travel agency. The following table illustrates the amounts of net income
contributed by each subsidiary (on a pre-consolidation basis) since January 1,
2000, less purchase accounting adjustments (net income for Busey Bank in
following table excludes income from Bank subsidiaries and includes deduction
for amortization expense recorded on parent company statements).
Subsidiary Acquired 2002 2001 2000
- ----------------------------------------------------------------------------------------------------------------
(dollars in thousands)
Busey Bank(1) 3/20/80 $ 18,541 91.9% $ 13,574 79.2% $ 13,094 82.6%
Busey Bank Florida(2) 10/29/99 24 0.1% 1,984 11.6% 937 5.9%
First Busey Trust & Investment Co.(3) - 1,419 7.0% 1,391 8.1% 1,459 9.2%
First Busey Securities, Inc.(4) - 258 1.3% (40) -0.2% 357 2.3%
First Busey Resources, Inc.(5) - 149 0.7% 130 0.8% 154 1.0%
Busey Insurance Services, Inc.(6) - 39 0.2% 10 0.0% (38) -0.2%
BAT, Inc.(7) - (282) -1.4% 81 0.5% 20 0.1%
Busey Travel, Inc.(8) 1/1/98 33 0.2% (6) 0.0% (153) -1.0%
FFS Investments(9) 10/29/99 - 0.0% - 0.0% 19 0.1%
-------------------------------------------------------------------
Total $ 20,214 100.0% $ 17,124 100.0% $ 15,849 100.0%
===================================================================
(1) City Bank of Champaign and Champaign County Bank & Trust were merged into
Busey Bank as of January 1, 1987. First National Bank of Thomasboro was
merged into Busey Bank as of January 1,1988. State Bank of St. Joseph was
merged into Busey Bank as of November 3, 1989. The Bank of Urbana, Citizens
Bank of Tolono, and the assets of Community Bank of Mahomet subject to its
liabilities were merged into Busey Bank as of November 16, 1991. Busey Bank
of McLean County was merged into Busey Bank as of January 1, 1996. Busey
Business Bank was formed on January 12, 1998, and merged into Busey Bank as
of October 30, 1998.
(2) Acquired as a subsidiary of Eagle BancGroup, Inc. as of October 29, 1999.
(3) Formed as a subsidiary of the Corporation as of January 1, 1987 as a
successor to the combined trust departments of Busey Bank and Champaign
County Bank & Trust; transferred to Busey Investment Group on January 1,
2001.
(4) Formed as a subsidiary of Busey Bank as of April 1, 1991; transferred to
Busey Investment Group on January 1, 2001.
(5) Reactivated as a subsidiary of First Busey Corporation as of January 1,
1997. Real estate and certain other assets previously carried on the parent
company and subsidiary balance sheets were transferred to subsidiary as of
that date.
(6) Formed as a subsidiary of Busey Bank as of October 1, 1997; transferred to
Busey Investment Group on January 1, 2001.
(7) Reactivated as a subsidiary of Busey Bank as of July 1, 1997.
(8) Acquired as a subsidiary of Busey Bank as of January 1, 1998; liquidated
November 30, 2002.
(9) Acquired as a subsidiary of First Federal Savings and Loan Association of
Bloomington as of October 29, 1999; liquidated December 7, 2000.
12
Busey Bank, Busey Bank Florida and First Busey Trust & Investment Co.
are the three subsidiaries which have each contributed 10% of the Corporation's
consolidated net income in at least one of the last three years.
RESULTS OF OPERATIONS-THREE YEARS ENDED DECEMBER 31, 2002
SUMMARY
The Corporation reported net income of $17,904,000 in 2002, up 14.4%
from $15,653,000 in 2001, which had increased 11.4% from $14,053,000 in 2000.
Diluted earnings per share in 2002 increased 13.9% to $1.31 from $1.15 in 2001,
which was a 11.7% increase from $1.03 in 2000. The main factors contributing to
the increase in net income in 2002 were increases in net interest income,
service charges on deposit accounts, and gains on the sale of mortgage loans.
Operating earnings, which exclude security gains and the related tax expense,
were $17,445,000 or $1.28 per share for 2002; $14,878,000, or $1.09 per share
for 2001; and $13,608,000, or $1.00 per share for 2000.
Security gains after the related tax expense were $459,000 or 2.6% of
net income in 2002; $775,000 or 5.0% of net income in 2001; and $445,000 or 3.2%
of net income in 2000. First Busey Corporation owns a position in a
bank-qualified equity security (SLM Corp.) with substantial appreciated value.
First Busey's Board has authorized an orderly liquidation of this asset over a
ten-year period.
The Corporation's return on average assets was 1.33%, 1.19% and 1.12%
for 2002, 2001, and 2000, respectively, and return on average equity was 16.31%,
15.80%, and 16.56% for 2002, 2001, and 2000, respectively. On an operating
earnings basis, return on average assets was 1.30%, 1.13%, and 1.08% for 2002,
2001, and 2000, respectively, and return on average equity was 15.89%, 15.02%
and 16.03% for 2002, 2001, and 2000, respectively.
EARNING ASSETS, SOURCES OF FUNDS, AND NET INTEREST MARGIN
Average earning assets increased 1.6% or $20,304,000 to $1,253,193,000
during 2002 from the 2001 average balance of $1,232,889,000. The average balance
of loans increased 5.5% or $53,294,000 to $1,015,073,000 for 2002 from 2001
average balance of $961,779,000. The increase in loans was partially offset by
decreases in the average balances of interest-bearing bank deposits, Federal
funds sold and U.S. Treasuries and Agencies.
The balance of interest bearing liabilities averaged $1,091,587,000 for
2002, an increase of $7,401,000 or .7% from the 2001 average balance of
$1,084,186,000. Growth in the average balances of savings deposits, money market
deposits and long-term debt was offset by declines in the average balances of
interest-bearing transaction deposits, time deposits and short-term borrowings.
The Corporation's net interest margin expressed as a percentage of
average earning assets, stated on a fully taxable equivalent basis, was 3.74%
for 2002, an increase of 10 basis points from the 3.64% for 2001. The net
interest margin expressed as a percentage of average total assets, also on a
fully taxable equivalent basis, was 3.50% for 2002, an improvement of 8 basis
points from the 3.42% net interest margin for 2001.
Interest income on a tax equivalent basis decreased $13,925,000 or
15.2% to $77,393,000 for 2002 as compared to the interest income of $91,318,000
for 2001. The decrease in interest income is primarily attributable to the
decline in average rates paid on all categories of interest-earning assets. The
average yield on interest-earning assets fell 123 basis points to 6.18% for 2002
as compared to 7.41% for 2001. Growth in the average balance of loans partially
offset the impact of the decline in interest rates.
Interest expense decreased $15,941,000 or 34.3% to $30,494,000 during
2002 as compared to interest expense of $46,435,000 for 2001. This decline
resulted partially from changes in the mix of funding sources but primarily is
the result of the decline in rates paid on all categories of deposits,
short-term borrowings and long-term debt.
13
Net interest income on a tax equivalent basis increased 4.5% in 2002 to
$46,899,000 from $44,883,000 in 2001, which reflected a 1.8% increase from
$44,083,000 in 2000. The decrease in interest rates throughout 2002 led to
declines in the amount of income earned on interest-earning assets as well as
the amount of expense recognized on interest-bearing liabilities. The average
yield on interest-earning assets decreased 123 basis points from 7.41% in 2001
to 6.18% in 2002. The change in the mix of interest-earning assets partially
offset the decline in the yield on interest-earning assets as growth occurred in
higher-yielding loans. The low interest rate environment also had significant
impact on the rates paid on interest-bearing liabilities with the average rate
falling 149 basis points from 4.28% in 2001 to 2.79% in 2002.
PROVISION FOR LOAN LOSSES
The provision for loan losses, which is a current charge against
income, represents an amount which management believes is sufficient to maintain
an adequate allowance for known and probable losses. In assessing the adequacy
of the allowance for loan losses, management considers the size and quality of
the loan portfolio measured against prevailing economic conditions, regulatory
guidelines, and historical loan loss experience and credit quality of the
portfolio. When a determination is made by management to charge off a loan
balance, such write-off is charged against the allowance for loan losses.
The provision for loan losses increased $1,105,000 to $3,125,000 in
2002 from $2,020,000 in 2001 which had decreased from $2,515,000 in 2000. Net
charge-offs increased to $1,353,000 in 2002 from $600,000 in 2001, and total
non-performing loans increased slightly to $2,228,000 as of December 31, 2002,
compared to $2,224,000 as of December 31, 2001. Net charge-offs were $650,000 in
2000, and non-performing loans totaled $5,434,000 as of December 31, 2000.
Sensitive assets include nonaccrual loans, loans on First Busey
Corporation's watch loan report, and other loans identified as having more than
reasonable potential for loss. The watch loan list is comprised of loans which
have been restructured or involve customers in industries which have been
adversely affected by market conditions. The majority of these loans are being
repaid in conformance with their contracts.
OTHER INCOME
Other income increased 5.0% in 2002 to $22,537,000 from $21,460,000 in
2001, which reflected a 17.3% increase from $18,288,000 in 2000. The increases
in 2002 and 2001 are due primarily to increases in service charges on deposit
accounts and gains on the sale of loans. As a percentage of total income, other
income was 22.9%, 19.3%, and 16.4% in 2002, 2001, and 2000, respectively. Gains
on the sale of securities, as a component of other income, totaled $762,000
(3.4%) in 2002, $1,285,000 (6.0%) in 2001, and $737,000 (4.0%) in 2000. Gains on
sales of loans, as a component of other income totaled $3,995,000 (17.7%),
$2,296,000 (10.7%), and $1,112,000 (6.1%) in 2002, 2001, and 2000, respectively.
Additional components of other income were fee income and trust fees.
Service charges and other fee income increased 10.3% to $10,976,000 in 2002 from
$9,950,000 in 2001, which was a 6.8% increase from $9,317,000 in 2000. The
growth in fee income in 2002 and 2001 is due primarily to increases in service
charges on deposit accounts. Despite the poor equity market in 2002 and 2001,
trust fees declined just 0.9% in 2002 and increased 5.6% in 2001. Trust revenues
were $4,567,000 in 2002, $4,607,000 in 2001, and $4,364,000 in 2000. Trust
revenues in each year were directly related to the total trust assets under
care. Remaining other income decreased 32.7% to $2,237,000 in 2002 from
$3,322,000 in 2001 which was a 20.5% increase from $2,758,000 in 2000. 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 2002. The Corporation recognized $655,000 on the increase in the
cash surrender value of bank owned life insurance during 2002 compared to
$111,000 during 2001.
OTHER EXPENSES
Other expenses decreased slightly in 2002 to $38,926,000 from
$38,974,000 in 2001, which reflected an increase from $37,249,000 in 2000. As a
percentage of total income, other expenses were 39.5%, 35.0%, and 33.4% in 2002,
2001, and 2000, respectively. Employee related expenses, including
14
salaries and wages and employee benefits, decreased slightly in 2002 to
$21,003,000, as compared to $21,066,000 in 2001, which was a 10.4% increase from
$19,080,000 in 2000. As a percent of average assets, employee related expenses
were 1.57%, 1.61%, and 1.51% in 2002, 2001, and 2000, respectively. The
Corporation had 491, 498, and 484 full-time equivalent employees at December 31,
2002, 2001, and 2000, respectively. The declines in employee-related expense and
number of employees is related to the sale of the travel business. Net occupancy
expense of bank premises and furniture and equipment expenses decreased 5.9% in
2002 to $6,545,000 as compared from $6,957,000 in 2001 and $6,729,000 in 2000.
Remaining other expenses increased $427,000 or 3.9% to $11,378,000 in
2002 from $10,951,000 in 2001, which was a 4.3% decrease from $11,440,000 in
2000. Data processing expenses increased 11.1% to $888,000 for the year ended
December 31, 2002, compared to $799,000 for the year ended December 31, 2001,
and $1,142,000 for the year ended December 31, 2000. Data processing expenses
were higher in 2000 due to one-time conversion and setup expenses. Amortization
and impairment expenses declined in 2002 as compared to 2001 due to the adoption
of Statement of Financial Accounting standards No. 142. Amortization and
impairment expenses also declined in 2001 as compared to 2000. During the year
ended December 31, 2001, the Corporation recognized an impairment write-down of
$325,000 on a customer list purchased by First Busey Securities, Inc. Revenues
generated from this customer list were lower than originally projected. During
the year ended December 31, 2000, the Corporation recognized an impairment
write-down of $600,000 on the core deposit intangible associated with the
acquisition of Busey Bank Florida (formerly First Federal and Busey Bank fsb).
Remaining other expenses increased $1,435,000 or 19.4% to $8,820,000
during the year ended December 31, 2002, as compared to the year ended December
31, 2001. Of this increase, $1,036,000 is related to increase in expenses
associated with other real estate owned. On June 28, 2002 Busey Bank became
mortgagee in possession of a hotel property in McLean County. Busey Bank will
remain mortgagee in possession of this property pending completion of
foreclosure proceedings which are expected to be completed during the second
quarter of 2003. The other expense line includes $700,000 in fair market
valuation adjustments on the carrying value of this property and a net OREO
expense of $282,000 associated with operating this property during 2002. Busey
Bank operates this hotel through an operating agreement with its fully-owned
subsidiary BAT, Inc.
INCOME TAXES
Income tax expense in 2002 was $8,173,000 as compared to $8,363,000 in
2001 and $7,237,000 in 2000. The provision for income taxes as a percent of
income before income taxes was 31.3%, 34.8%, and 34.0%, for 2002, 2001, and
2000, respectively. The provision for income taxes as a percentage of income
before income taxes decreased due to the increase in income from bank owned life
insurance, which is not taxable to the Corporation, and to the reduction in
nondeductible amortization expense.
15
BALANCE SHEET-DECEMBER 31, 2002 AND DECEMBER 31, 2001
Total assets on December 31, 2002, were $1,435,578,000, an increase of
10.4% from $1,300,689,000 on December 31, 2001. Total loans, net of unearned
interest, increased 12.6% to $1,101,043,000 on December 31, 2002, as compared to
$978,106,000 on December 31, 2001. Total deposits increased 9.7% to
$1,213,605,000 on December 31, 2002 as compared to $1,105,999,000 on December
31, 2001. Non-interest bearing deposits increased $12,420,000 or 9.0% during
2002. Interest-bearing deposits increased $95,186,000 or 9.8% during 2002.
Total stockholders' equity increased 8.9% to $115,163,000 on December
31, 2002, as compared to $105,790,000 on December 31, 2001. Growth in equity is
due primarily to $9,778,000 earnings retained in the Corporation combined with a
net increase of $2,148,000 in unrealized gains on available for sale securities
and a $2,411,000 increase in Treasury stock. Treasury shares will be reissued in
future years as participants exercise outstanding options under the
Corporation's stock option plan which is discussed in Note 16 to the
Corporation's consolidated financial statements.
A. EARNING ASSETS
The average interest-earning assets of the Corporation were 93.4%,
94.0%, and 93.6%, of average total assets for the years ended December 31, 2002,
2001, and 2000, respectively.
B. INVESTMENT SECURITIES
The Corporation has classified all investment securities as securities
available for sale. These securities are held with the option of their disposal
in the foreseeable future to meet investment objectives or for other operational
needs. Securities available for sale are carried at fair value. As of December
31, 2002, the fair value of these securities was $233,830,000 and the amortized
cost was $216,801,000. There were $17,040,000 of gross unrealized gains and
$11,000 of gross unrealized losses for a net unrealized gain of $17,029,000. The
after-tax effect ($10,276,000) of this unrealized gain has been included in
stockholders' equity. The increase in market value for the debt securities in
this classification was a result of declining interest rates. The fair value
increase in the equity securities was primarily due to a $1,831,000 increase in
the value of 92,280 shares of SLM Corporation common stock owned by the
Corporation as of year end.
The composition of securities available for sale is as follows:
As of December 31,
---------------------------------------------------------------------------
2002 2001 2000 1999 1998
---------------------------------------------------------------------------
(dollars in thousands)
U.S. Treasuries and Agencies $ 158,324 $ 143,490 $ 162,886 $ 164,565 $ 159,261
Equity securities 20,326 18,058 15,479 13,079 12,550
States and political subdivisions 51,434 43,767 43,197 41,554 37,398
Other 3,746 5,554 7,035 5,848 8,782
---------------------------------------------------------------------------
Fair value of securities available for sale $ 233,830 $ 210,869 $ 228,597 $ 225,046 $ 217,991
===========================================================================
Amortized cost $ 216,801 $ 197,398 $ 218,790 $ 221,601 $ 207,531
===========================================================================
Fair value as a percentage of amortized
cost 107.85% 106.82% 104.48% 101.55% 105.04%
===========================================================================
16
The maturities, fair values and weighted average yields of debt
securities available for sale as of December 31, 2002, are:
Due in 1 year or Due after 1 year Due after 5 years Due after
less through 5 years through 10 years 10 years
--------------------------------------------------------------------------------
Weighted Weighted Weighted Weighted
Fair Average Fair Average Fair Average Fair Average
Investment Securities(1) Value Yield Value Yield Value Yield Value Yield
--------------------------------------------------------------------------------
(dollars in thousands)
U.S. Treasuries and Agencies $ 83,242 4.09% $ 74,969 3.47% $ 113 5.28% $ - 0.00%
States and political subdivisions(2) 5,563 5.88% 17,311 6.49% 25,997 6.82% 2,563 7.11%
Other 103 5.57% 1,998 6.19% 270 6.24% 1,375 9.72%
--------------------------------------------------------------------------------
Total $ 88,908 4.20% $ 94,278 4.08% $ 26,380 6.81% $ 3,938 8.02%
================================================================================
(1) Excludes equity securities and mortgage backed securities.
(2) On a tax-equivalent basis, assuming a federal income tax rate of 35% (the
effective federal income tax rate as of December 31, 2002)
The Corporation also uses its investment portfolio to manage its tax
position. Depending upon projected levels of taxable income for the Corporation,
periodic changes are made in the mix of tax-exempt and taxable securities to
achieve maximum yields on a tax-equivalent basis. U.S. government and agency
securities as a percentage of total securities decreased to 67.7% at December
31, 2002, from 68.0% at December 31, 2001, while obligations of state and
political subdivisions (tax-exempt obligations) as a percentage of total
securities increased to 22.0% at December 31, 2002, from 20.8% at December 31,
2001.
LOAN PORTFOLIO
Loans, including loans held for sale, before allowance for loan losses,
increased 12.6% to $1,101,043,000 in 2002 from $978,106,000 in 2001. Non-farm
non-residential real estate mortgage loans increased $20,221,000, or 8.0%, to
$274,153,000 in 2002 from $253,932,000 in 2001. This increase reflects
management's emphasis on commercial loans secured by mortgages. Also, 1 to 4
family residential real estate mortgage loans (not held for sale) increased
$20,158,000, or 5.8%, to $369,428,000 in 2002 from $349,270,000 in 2001. In
2002's low interest rate environment, the Corporation experienced significant
refinance activity. The Corporation has no loans to customers engaged in oil and
gas exploration or to foreign companies or governments. Commitments under
standby letters of credit, unused lines of credit and other conditionally
approved credit lines, totaled approximately $235,545,000 as of December 31,
2002.
The loan portfolio includes a concentration of loans for commercial
real estate amounting to approximately $331,712,000 and $308,197,000 as of
December 31, 2002 and 2001, respectively. Generally, these loans are
collateralized by assets of the borrowers. The loans are expected to be repaid
from cash flows or from proceeds from the sale of selected assets of the
borrowers. Credit losses arising from lending transactions for commercial real
estate entities are comparable with the Corporation's credit loss experience on
its loan portfolio as a whole.
17
The composition of loans is as follows:
As of December 31,
-----------------------------------------------------------------------
2002 2001 2000 1999 1998
-----------------------------------------------------------------------
(dollars in thousands)
Commercial and financial $ 118,004 $ 121,694 $ 124,052 $ 119,800 $ 80,958
Agricultural 22,034 21,022 20,844 20,126 19,072
Real estate-farmland 13,421 14,414 15,411 15,841 14,184
Real estate-construction 129,872 83,701 75,672 52,479 44,713
Real estate-mortgage 761,901 679,351 697,410 622,075 467,435
Installment loans to individuals 55,811 57,924 50,980 56,363 35,919
-----------------------------------------------------------------------
Loans $ 1,101,043 $ 978,106 $ 984,369 $ 886,684 $ 662,281
=======================================================================
The following table sets forth remaining maturities of selected loans
(excluding certain real estate-farmland, real estate-mortgage loans and
installment loans to individuals) at December 31, 2002:
1 Year or
Less 1 to 5 Years Over 5 Years Total
--------------------------------------------------------------
(dollars in thousands)
Commercial, financial and agricultural $ 83,033 $ 35,926 $ 21,079 $ 140,038
Real estate-construction 78,726 44,276 6,870 129,872
--------------------------------------------------------------
Total $ 161,759 $ 80,202 $ 27,949 $ 269,910
==============================================================
Interest rate sensitivity of selected loans
Fixed rate $ 45,777 $ 21,106 $ 3,385 $ 70,268
Adjustable rate 115,982 59,096 24,564 199,642
--------------------------------------------------------------
Total $ 161,759 $ 80,202 $ 27,949 $ 269,910
==============================================================
18
ALLOWANCE FOR LOAN LOSSES
The following table shows activity affecting the allowance for loan losses:
Years ended December 31
------------------------------------------------------------------------
2002 2001 2000 1999 1998
------------------------------------------------------------------------
(dollars in thousands)
Average loans outstanding during period $ 1,015,073 $ 961,779 $ 937,239 $ 731,491 $ 621,475
========================================================================
Allowance for loan losses:
Balance at beginning of period $ 13,688 $ 12,268 $ 10,403 $ 7,101 $ 6,860
------------------------------------------------------------------------
Loans charged-off:
Commercial, financial and agricultural $ 775 $ 103 $ 70 $ 40 $ 62
Real estate-construction 76 - - - -
Real estate-mortgage 659 408 290 145 282
Installment loans to individuals 319 265 414 366 260
------------------------------------------------------------------------
Total charge-offs $ 1,829 $ 776 $ 774 $ 551 $ 604
------------------------------------------------------------------------
Recoveries:
Commercial, financial and agricultural $ 349 $ 15 $ 22 $ 16 $ 12
Real estate-construction - - - - -
Real estate-mortgage 26 42 4 67 49
Installment loans to individuals 101 119 98 99 84
------------------------------------------------------------------------
Total recoveries $ 476 $ 176 $ 124 $ 182 $ 145
------------------------------------------------------------------------
Net loans charged-off $ 1,353 $ 600 $ 650 $ 369 $ 459
------------------------------------------------------------------------
Provision for loan losses $ 3,125 $ 2,020 $ 2,515 $ 2,570 $ 700
------------------------------------------------------------------------
Net additions due to acquisition - - - 1,101 -
------------------------------------------------------------------------
Balance at end of period $ 15,460 $ 13,688 $ 12,268 $ 10,403 $ 7,101
========================================================================
Ratios:
Net charge-offs to average loans 0.13% 0.06% 0.07% 0.05% 0.07%
========================================================================
Allowance for loan losses to total loans
at period end 1.40% 1.40% 1.25% 1.17% 1.07%
========================================================================
The following table sets forth the allowance for loan losses by loan
categories as of December 31 for each of the years indicated:
---------------------------------------------------------------------------------------
2002 2001 2000 1999 1998
---------------------------------------------------------------------------------------
% of % of % of % of % of
Total Total Total Total Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
---------------------------------------------------------------------------------------
(dollars in thousands)
Commercial, financial,
agricultural and real
estate-farmland $ 2,143 13.9% $ 1,880 16.1% $ 1,854 16.3% $ 3,391 17.6% $ 1,757 17.2%
Real estate-construction - 11.8% - 8.6% - 7.7% - 5.9% - 6.8%
Real estate-mortgage 12,451 69.2% 10,880 69.4% 9,051 70.8% 5,708 70.1% 4,380 70.6%
Installment loans to
individuals 779 5.1% 811 5.9% 708 5.2% 1,293 6.4% 964 5.4%
Unallocated 87 N/A 117 N/A 655 N/A 11 N/A - N/A
---------------------------------------------------------------------------------------
Total $ 15,460 100.0% $13,688 100.0% $ 12,268 100.0% $10,403 100.0% $ 7,101 100.0%
=======================================================================================
This table indicates growth in the allowance for loan losses for real
estate mortgages as of December 31, 2002 as compared to December 31, 2001. The
increase in the allowance allocated to real estate mortgages is due primarily to
growth in the outstanding balances of these loan categories.
19
NON-PERFORMING LOANS
It is management's policy to place commercial and mortgage loans on
non-accrual status when interest or principal is 90 days or more past due. Such
loans may continue on accrual status only if they are both well-secured and in
the process of collection.
The following table sets forth information concerning non-performing loans at
December 31 for each of the years indicated:
Years ended December 31,
---------------------------------------------------------------
2002 2001 2000 1999 1998
---------------------------------------------------------------
(dollars in thousands)
Non-accrual loans $ 1,265 $ 1,265 $ 767 $ 1,220 $ 526
Loans 90 days past due and still accruing 963 959 4,667 897 1,052
Restructured loans - - - - -
---------------------------------------------------------------
Total non-performing loans $ 2,228 $ 2,224 $ 5,434 $ 2,117 $ 1,578
---------------------------------------------------------------
Repossessed assets $ 5,724 $ 30 $ 230 $ 459 $ 320
Other assets acquired in satisfaction of debts
previously contracted 1 1 11 5 14
---------------------------------------------------------------
Total non-performing other assets $ 5,725 $ 31 $ 241 $ 464 $ 334
---------------------------------------------------------------
Total non-performing loans and non-
performing other assets $ 7,953 $ 2,255 $ 5,675 $ 2,581 $ 1,912
===============================================================
Non-performing loans to loans, before
allowance for loan losses 0.20% 0.23% 0.55% 0.24% 0.24%
===============================================================
Non-performing loans and non-performing
other assets to loans, before allowance for
loan losses 0.72% 0.23% 0.58% 0.29% 0.29%
===============================================================
The ratio of non-performing loans and non-performing other assets to
loans, before allowance to loan losses, increased from 0.23% as of December 31,
2001, to 0.72% as of December 31, 2002 due primarily to the addition of one
large commercial credit in the hotel industry. Busey Bank became mortgagee in
possession on June 28, 2002, and will remain so pending completion of
foreclosure proceedings which are expected to be completed during the second
quarter of 2003. After recording the costs to complete the renovation of the
hotel and recording a $700,000 reduction in its carrying value, the balance
associated with this property in repossessed assets is $4.3 million as of
December 31, 2002.
A loan is considered to be impaired when, based on current information
and events, it is probable the Corporation will not be able to collect all
amounts due. The accrual of interest income on impaired loans is discontinued
when there is reasonable doubt as to the borrower's ability to meet contractual
payments of interest or principal. Interest income on these loans is recognized
to the extent interest payments are received and the principal is considered
fully collectible. For the years ended December 31, 2002, 2001, and 2000,
$14,000, $9,000 and $0 were recognized from impaired loans, respectively.
The gross interest income that would have been recorded in the years
ended December 31, 2002, 2001 and 2000 if the non-accrual and restructured loans
had been current in accordance with their original terms was $211,000, $84,000,
and $41,000, respectively. The amount of interest collected on those loans that
was included in interest income was $0 for the year ended December 31, 2002,
$17,000 for the year ended December 31, 2001, and $2,000 for the year ended
December 31, 2000.
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 $1,053,000 at December 31, 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
20
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.
OTHER INTEREST-BEARING ASSETS
There are no other interest-bearing assets which are categorized as
impaired.
DEPOSITS
As indicated in the following table, average interest-bearing deposits
as a percentage of average total deposits decreased to 88.4% for the year ended
December 31, 2002, from 89.3% for the year ended December 31, 2001, which was a
decrease from 89.6% for the year ended December 31, 2000.
December 31,
---------------------------------------------------------------------------------------------------
2002 2001 2000
---------------------------------------------------------------------------------------------------
(dollars in thousands)
Average Average Average Average Average Average
Balance % Total Rate Balance % Total Rate Balance % Total Rate
---------------------------------------------------------------------------------------------------
Non-interest bearing
demand deposits $ 129,766 11.6% -% $ 119,274 10.7% -% $ 107,882 10.4% -%
Interest bearing demand
deposits 11,477 1.0% 1.15% 34,199 3.1% 2.15% 28,976 2.8% 2.86%
Savings/Money Market 507,931 45.3% 1.19% 449,874 40.5% 2.59% 411,262 39.6% 3.37%
Time deposits 472,000 42.1% 3.90% 508,400 45.7% 5.55% 489,779 47.2% 5.63%
---------------------------------------------------------------------------------------------------
Total $ 1,121,174 100.0% 2.19% $ 1,111,747 100.0% 3.65% $ 1,037,899 100.0% 4.07%
===================================================================================================
Certificates of deposit of $100,000 and over and other time deposits of
$100,000 and over at December 31, 2002, had the following maturities (dollars in
thousands):
Under 3 months $ 48,857
3 to 6 months 17,652
6 to 12 months 12,841
Over 12 months 30,808
----------
Total $ 110,158
==========
21
SHORT-TERM BORROWINGS
The following table sets forth the distribution of short-term
borrowings and weighted average interest rates thereon at the end of each of the
last three years. Federal funds purchased and securities sold under agreements
to repurchase generally represent overnight borrowing transactions. Other
short-term borrowings consist of various demand notes and notes with maturities
of less than one year.
Federal funds purchased and
securities sold under agreements to Other short-term
repurchase borrowings
---------------------------------------------------------------
(dollars in thousands)
2002
Balance, December 31, 2002 $ 2,467 $ -
Weighted average interest rate at end of period 5.68% 0.00%
Maximum outstanding at any month end $ 26,739 $ 2,000
Average daily balance $ 7,955 $ 462
Weighted average interest rate during period(1) 4.69% 4.55%
2001
Balance, December 31, 2001 $ 9,767 $ 2,000
Weighted average interest rate at end of period 5.68% 6.73%
Maximum outstanding at any month end $ 18,126 $ 30,000
Average daily balance $ 15,692 $ 14,985
Weighted average interest rate during period(1) 6.25% 7.39%
2000
Balance, December 31, 2000 $ 18,890 $ 30,000
Weighted average interest rate at end of period 5.68% 8.29%
Maximum outstanding at any month end $ 24,064 $ 82,120
Average daily balance $ 29,504 $ 44,961
Weighted average interest rate during period(1) 5.94% 7.76%
(1)The weighted average interest rate is computed by dividing total interest for
the year by the average daily balance outstanding.
LIQUIDITY
Liquidity management is the process by which the Corporation ensures
that adequate liquid funds are available to meet the present and future cash
flow obligations arising in the daily operations of the business. These
financial obligations consist of needs for funds to meet commitments to
borrowers for extensions of credit, funding capital expenditures, withdrawals by
customers, maintaining deposit reserve requirements, servicing debt, paying
dividends to shareholders, and paying operating expenses.
The Corporation's most liquid assets are Cash and due from banks,
Interest-bearing bank deposits, and Federal funds sold. The balances of these
assets are dependent on the Corporation's operating, investing, lending, and
financing activities during any given period.
Average liquid assets are summarized in the table below:
Years Ended December 31,
2002 2001 2000
--------------------------------------------------------------
(dollars in thousands)
Cash and due from banks $ 33,633 $ 31,690 $ 28,772
Interest-bearing bank deposits 1,039 13,721 8,714
Federal funds sold 16,633 30,142 10,310
--------------------------------------------------------------
Total $ 51,305 $ 75,553 $ 47,796
==============================================================
Percent of average total assets 3.8% 5.8% 3.8%
==============================================================
22
The Corporation's primary sources of funds consist of deposits,
investment maturities and sales, loan principal repayment,, deposits and capital
funds. Additional liquidity is provided by bank lines of credit, repurchase
agreements and the ability to borrow from the Federal Reserve Bank and Federal
Home Loan Bank. The Corporation has not dealt in or used 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 Banks of Chicago and Atlanta. The Corporation has an
operating line with Bank One in the amount of $10,000,000, all of which was
available as of December 31, 2002.
On December 31, 2002, the Corporation held $47,645,000 in liquid assets
as compared to $61,580,000 as of December 31, 2001. The reduction in liquid
assets is offset by growth in the increase in the balance of U.S. Treasuries and
Agency securities available for sale. These investments are highly liquid and
provide additional interest income.
An additional source of liquidity that can be managed for short-term
and long-term needs is the Corporation's ability to securitize or package loans
(primarily mortgage loans) for sale. During 2002 and 2001 the Corporation
realized increased activity in the origination and sale of loans held for sale
due to the low interest-rate environment. The Corporation sold $257,220,000 in
mortgage loans during 2002 and $260,797,000 during 2001. As of December 31,
2002, the Corporation held $60,761,000 in loans held for sale. Management
intends to sell these loans during the first quarter of 2003.
The Corporation also realized significant growth in loans held for
investment during 2002. This loan growth was funded primarily through deposit
growth and growth in the outstanding balances of advances from the Federal Home
Loan Bank of Chicago. In December, 2002, the Corporation prepaid Federal Home
Loan Bank advances totaling $10,000,000 and incurred prepayment penalties
totaling $388,000 in order to more closely match the term and cost of funds to
the loan growth.
The objective of liquidity management by the Corporation is to ensure
that funds will be available to meet demand in a timely and efficient manner.
Based upon the level of investment securities that reprice within 30 days and 90
days, management currently believes that adequate liquidity exists to meet all
projected cash flow obligations.
The Corporation achieves a satisfactory degree of liquidity through
actively managing both assets and liabilities. Asset management guides the
proportion of liquid assets to total assets, while liability management monitors
future funding requirements and prices liabilities accordingly.
The Corporation's banking subsidiaries routinely inter into commitments
to extend credit in the normal course of their business. As of December 31, 2002
and 2001, the Corporation had outstanding loan commitments including lines of
credit of $222,407,000 and $226,651,000, respectively. The balance of
commitments to extend credit represents future cash requirement and some of
these commitments may expire without being drawn upon. The Corporation
anticipates it will have sufficient funds available to meet its current loan
commitments, including loan applications received and in process prior to the
issuance of firm commitments.
As of December 31, 2002 and 2001 certificates of deposit which are
scheduled to mature within one year were $323,580,000 and $332,229,000,
respectively.
The Company has entered into certain contractual obligations and other
commitments. Such obligations generally relate to funding of operations through
deposits, debt issuances, and property and equipment leases.
23
The following table summarizes significant contractual obligations and
other commitments as of December 31, 2002:
Company
Obligated
Mandatorily
Short- and Redeemable
Certificates of Long-term Preferred
Deposit Borrowing Leases Securities Total
----------------------------------------------------------------------------------------------
(dollars in thousands)
2003 $ 323,580 $ 262 $ 761 $ - $ 324,603
2004 73,793 5,262 764 - 79,819
2005 50,383 13,262 713 - 64,358
2006 22,067 15,262 702 - 38,031
2007 44,768 12,237 642 - 57,647
Thereafter 119 25,474 868 25,000 51,461
----------------------------------------------------------------------------------------------
Total $ 514,710 $ 71,759 $ 4,450 $ 25,000 $ 615,919
==============================================================================================
Commitments to extend credit $ 222,407
==============
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.
The following table sets forth the static rate-sensitivity analysis of the
Corporation as of December 31, 2002:
Rate Sensitive Within
-----------------------------------------------------------------------------------
181 Days -
1-30 Days 31-90 Days 91-180 Days 1 Year Over 1 Year Total
------------------------------------------------------------------------------------
(dollars in thousands)
Interest-bearing deposits $ 110 $ - $ - $ - $ - $ 110
Federal funds sold - - - - - -
Investment securities
U.S. Treasuries and Agencies 9,002 16,076 21,399 36,766 75,081 158,324
States and political
subdivisions 2,986 992 645 3,746 43,065 51,434
Other securities 10,741 - - 104 13,226 24,071
Loans (net of unearned interest) 467,919 69,704 97,964 109,540 355,916 1,101,043
-----------------------------------------------------------------------------------
Total rate-sensitive assets $ 490,758 $ 86,772 $ 120,008 $150,156 $ 487,288 $1,334,982
-----------------------------------------------------------------------------------
Interest bearing transaction
deposits $ 42,894 $ - $ - $ - $ - $ 42,894
Savings deposits 98,274 - - - - 98,274
Money market deposits 406,622 - - - - 406,622
Time deposits 71,515 64,043 86,263 105,698 187,191 514,710
Fed funds purchased and repurchase
agreements 2,467 - - - - 2,467
Long-term debt 1,759 - 1,500 - 68,500 71,759
Company obligated mandatorily -
redeemable preferred securities - - - - 25,000 25,000
-----------------------------------------------------------------------------------
Total rate-sensitive
liabilities $ 623,531 $ 64,043 $ 87,763 $105,698 $ 280,691 $1,161,726
-----------------------------------------------------------------------------------
Rate-sensitive assets less
rate-sensitive liabilities $ (132,773) $ 22,729 $ 32,245 $ 44,458 $ 206,597 $ 173,256
-----------------------------------------------------------------------------------
Cumulative Gap $ (132,773) $ (110,044) $ (77,799) $(33,341) $ 173,256
===================================================================
Cumulative amounts as a percentage
of total rate-sensitive assets -9.95% -8.24% -5.83% -2.50% 12.98%
===================================================================
Cumulative Ratio 0.79 0.84 0.90 0.96 1.15
===================================================================
24
The forgoing table shows a negative (Liability-sensitive)
rate-sensitivity gap of $132.8 million in the 1-30 day repricing category as
there were more liabilities subject to repricing during 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 period beyond 30 days. On a cumulative basis, however,
the gap remains liability sensitive through one year. The composition of the gap
structure as of December 31, 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 the rates on rate-sensitive
assets. After one 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.
The funds management policies of Busey Bank and Busey Bank Florida
require the banks to maintain a cumulative rate-sensitivity ratio of .75 - 1.25
in the 90-day, 180-day, and 1-year time periods. As of December 31, 2002, the
banks and the Corporation, on a consolidated basis, are within those guidelines.
CAPITAL RESOURCES
Other than from the issuance of common stock, the Corporation's primary
source of capital is net income retained by the Corporation. During the year
ended December 31, 2001, the Corporation earned $17,904,000 and paid dividends
of $8,126,000 to stockholders, resulting in a retention of current earnings of
$9,778,000.
The Federal Reserve Board uses capital adequacy guidelines in its
examination and regulation of bank holding companies and their subsidiary banks.
Risk-based capital ratios are established by allocating assets and certain
off-balance sheet commitments into four risk-weighted categories. These balances
are then multiplied by the factor appropriate for that risk-weighted category.
The guidelines require bank holding companies and their subsidiary banks to
maintain a total capital to total risk-weighted asset ratio of not less than
8.00%, of which at least one half must be Tier 1 capital, and a Tier 1 leverage
ratio of not less than 4.00%. As of December 31, 2002, the Corporation had a
total capital to total risk-weighted asset ratio of 13.31%, a Tier 1 capital to
risk-weighted asset ratio of 11.58% and a Tier 1 leverage ratio of 8.66%; the
Corporation's bank subsidiary, Busey Bank, had ratios of 11.13%, 9.44%, and
7.03%, respectively; the Corporation's thrift subsidiary, Busey Bank Florida,
had ratios of 25.47%, 24.34%, and 16.50%, respectively. As these ratios
indicate, the Corporation and its bank subsidiaries exceed the regulatory
capital guidelines.
REGULATORY CONSIDERATIONS
It is management's belief that there are no current recommendations by
the regulatory authorities which if implemented, would have a material effect on
the Corporation's liquidity, capital resources, or operations.
NEW ACCOUNTING PRONOUNCEMENTS
Information relating to new accounting pronouncements appears in Note 1
in the Notes to the consolidated financial statements.
CRITICAL ACCOUNTING ESTIMATES
Critical accounting estimates are those that are critical to the
portrayal and understanding of the Corporation's financial condition and results
of operations and require management to make assumptions that are difficult,
subjective or complex. These estimates involve judgments, estimates and
uncertainties that are susceptible to change. In the event that different
assumptions or conditions were to prevail, and depending on the severity of such
changes, the possibility of materially different financial condition or results
of operations is a reasonable likelihood.
First Busey's significant accounting policies are described in Note 1
in the Notes to the Consolidated Financial Statements. The majority of these
accounting policies do not require management to make difficult, subjective or
complex judgments or estimates or the vairability of the estimates is not
material. However, the following policies could be deemed critical.
25
ALLOWANCE FOR LOAN LOSSES
First Busey Corporation has established an allowance for loan losses
which represents the corporation's estimate of the probable losses that have
occurred as of the date of the financial statements.
Management has established an allowance for loan losses which reduces
the total loans outstanding by an estimate of uncollectible loans. Loans deemed
uncollectible are charged against and reduce the allowance. Periodically, a
provision for loan losses is charged to current expense. This provision acts to
replenish the allowance for loan losses and to maintain the allowance at a level
that management deems adequate.
There is no precise method of predicting specific loan losses or
amounts which ultimately may be charged off on segments of the loan portfolio.
The determination that a loan may become uncollectible, in whole or in part, is
a matter of judgment. Similarly, the adequacy of the allowance for loan losses
can be determined only on a judgmental basis, after full review, including (a)
consideration of economic conditions and their effect on particular industries
and specific borrowers; (b) a review of borrowers' financial data, together with
industry data, the competitive situation, the borrowers' management capabilities
and other factors; (c) a continuing evaluation of the loan portfolio, including
monitoring by lending officers and staff credit personnel of all loans which are
identified as being of less than acceptable quality; (d) an in-depth appraisal,
on a monthly basis, of all impaired (loans are considered to be impaired when
based on current information and events, it is probable the Corporation will not
be able to collect all amounts due); and (e) an evaluation of the underlying
collateral for secured lending, including the use of independent appraisals of
real estate properties securing loans.
Periodic provisions for loan losses are determined by management based
upon the size and the quality of the loan portfolio measured against prevailing
economic conditions and historical loan loss experience and also based on
specific exposures in the portfolio. Management has instituted a formal loan
review system supported by an effective credit analysis and control process. The
Corporation will maintain the allowance for loan losses at a level sufficient to
absorb estimated uncollectible loans and, therefore, expects to make periodic
additions to the allowance for loan losses.
REVENUE RECOGNITION
Income on interest-earning assets is accrued based on the effective
yield of the underlying financial instruments. A loan is considered to be
impaired when, based on current information and events, it is probable the
Corporation will not be able to collect all amounts due. The accrual of interest
income on impaired loans is discontinued when there is reasonable doubt as to
the borrower's ability to meet contractual payments of interest or principal.
Income recognized on service charges, trust fees, commissions, and loan
gains is recognized based on contractual terms and are accrued based on
estimates, or are recognized as transactions occur or services are provided.
Income from the servicing of sold loans is recognized based on estimated asset
valuations and transactions volumes. While these estimates and assumptions may
be considered complex, First Busey has implemented controls and processes to
ensure the accuracy of these accruals.
EFFECTS OF INFLATION
The effect of inflation on a financial institution differs
significantly from the effect on an industrial company. While a financial
institution's operating expenses, particularly salary and employee benefits, are
affected by general inflation, the asset and liability structure of a financial
institution consists largely of monetary items. Monetary items, such as cash,
loans and deposits, are those assets and liabilities which are or will be
converted into a fixed number of dollars regardless of changes in prices. As a
result, changes in interest rates have a more significant impact on a financial
institution's performance than does general inflation. For additional
information regarding interest rates and changes in net interest income see
"Selected Statistical Information."
26
C. SELECTED STATISTICAL INFORMATION
The following tables contain information concerning the consolidated
financial condition and operations of the Corporation for the periods, or as of
the dates, shown. All average information is provided on a daily average basis.
The following table shows the consolidated average balance sheets,
detailing the major categories of assets and liabilities, the interest income
earned on interest-earning assets, the interest expense paid for
interest-bearing liabilities, and the related interest rates:
Years Ended December 31,
-------------------------------------------------------------------------------------------------
2002 2001 2000
-------------------------------------------------------------------------------------------------
Average Income/ Yield/ Average Income/ Yield/ Average Income/Ex Yield/
Balance Expense Rate Balance Expense Rate Balance pense Rate
-------------------------------------------------------------------------------------------------
(dollars in thousands)
Assets
Interest-bearing bank deposits $ 1,039 $ 12 1.15% $ 13,721 $ 513 3.74% $ 8,714 $ 228 2.62%
Federal funds sold 16,633 260 1.56% 30,142 1,179 3.91% 10,310 627 6.08%
Investment securities:
U.S. Treasuries and
Agencies 149,670 6,387 4.27% 159,969 8,726 5.45% 162,526 9,434 5.80%
Obligations of states and
political subdivisions(1) 46,577 3,140 6.74% 43,896 3,169 7.22% 40,833 3,129 7.66%
Other securities 24,201 800 3.31% 23,382 889 3.80% 19,623 995 5.07%
Loans (net of unearned
discount)(1,2) 1,015,073 66,794 6.58% 961,779 76,842 7.99% 937,239 80,146 8.55%
-------------------------------------------------------------------------------------------------
Total interest-earning
assets(1) $1,253,193 $77,393 6.18% $1,232,889 $91,318 7.41% $1,179,245 $ 94,559 8.02%
=================================================================================================
Cash and due from banks 33,633 31,690 28,772
Premises and equipment 28,375 30,283 30,399
Allowance for loan losses (14,001) (12,774) (11,077)
Other assets 40,209 30,173 32,777
---------- ---------- ----------
Total assets $1,341,409 $1,312,261 $1,260,116
========== ========== ==========
Liabilities and Stockholders'
Equity
Interest bearing transaction
deposits $ 11,477 $ 132 1.15% $ 34,199 $ 734 2.15% $ 28,976 $ 830 2.86%
Savings deposits 96,495 1,059 1.10% 90,544 2,059 2.27% 91,750 2,794 3.05%
Money market deposits 411,436 4,997 1.21% 359,330 9,614 2.68% 319,512 11,073 3.47%
Time deposits 472,000 18,410 3.90% 508,400 28,207 5.55% 489,779 27,589 5.63%
Short-term borrowings:
Federal funds purchased
and repurchase
agreements 7,955 373 4.69% 15,692 981 6.25% 29,504 1,752 5.94%
Other 462 21 4.55% 14,985 1,108 7.39% 44,961 3,491 7.76%
Long-term debt 66,762 3,252 4.87% 47,703 2,532 5.31% 53,240 2,947 5.54%
Company obligated mandatorily
redeemable preferred
securities 25,000 2,250 9.00% 13,333 1,200 9.00% - -
-------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities $1,091,587 $30,494 2.79% $1,084,186 $46,435 4.28% $ ,057,722 $ 50,476 4.77%
=================================================================================================
3.39% 3.13% 3.25%
==== ==== =========
Demand deposits 129,766 119,274 107,882
Other liabilities 10,286 9,746 9,628
Stockholders' equity 109,770 99,055 84,884
---------- ---------- ----------
Total liabilities and
stockholders' equity $1,341,409 $1,312,261 $1,260,116
========== ========== ==========
Interest income/earning
assets(1) $1,253,193 $77,393 6.18% $1,232,889 $91,318 7.41% $1,179,245 $ 94,559 8.02%
Interest expense/earning
assets $1,253,193 $30,494 2.44% $1,232,889 $46,435 3.77% $1,179,245 $ 50,476 4.28%
-------------------------------------------------------------------------------------------------
Net interest margin(1) 46,899 3.74% $44,883 3.64% $ 44,083 3.74%
=============== ================ =================
(1) On a tax equivalent basis, assuming a federal income tax rate of 35%
(2) Non-accrual loans have been included in average loans, net of unearned
discount
27
Changes In Net Interest Income
Years Ended December 31, 2002, 2001, and 2000
-------------------------------------------------------------------------------
Year 2002 vs. 2001 Change due to(1) Year 2001 vs. 2000 Change due to(1)
-------------------------------------------------------------------------------
Average Average Total Average Average Total
Volume Yield/Rate Change Volume Yield/Rate Change
-------------------------------------------------------------------------------
(dollars in thousands)
Increase (decrease) in interest income:
Interest-bearing bank deposits $ (285) $ (216) $ (501) $ 163 $ 122 $ 285
Federal funds sold (393) (526) (919) 678 (126) 552
Investment securities:
U.S. Treasuries and Agencies (534) (1,805) (2,339) (147) (561) (708)
States and political subdivisions(2) 345 (374) (29) 175 (135) 40
Other securities 33 (122) (89) 346 (452) (106)
Loans(2) 4,601 (14,649) (10,048) 2,190 (5,494) (3,304)
----------------------------------------------------------------------------
Change in interest income(2) $ 3,767 $ (17,692) $(13,925) $ 3,405 $ (6,646) $(3,241)
============================================================================
Increase (decrease) in interest expense:
Interest bearing transaction deposits $ (354) $ (248) $ (602) $ 245 $ (341) $ (96)
Savings deposits 145 (1,145) (1,000) (36) (699) (735)
Money market deposits 1,669 (6,286) (4,617) 1,759 (3,218) (1,459)
Time deposits (1,903) (7,894) (9,797) 1,023 (405) 618
Federal funds purchased and repurchase
agreements (403) (205) (608) (869) 98 (771)
Other (779) (308) (1,087) (2,223) (160) (2,383)
Long-term debt 907 (187) 720 (742) 327 (415)
Company obligated mandatorily
redeemable preferred securities 1,050 - 1,050 1,200 - 1,200
----------------------------------------------------------------------------
Change in interest expense $ 332 $ (16,273) $(15,941) $ 357 $ (4,398) $(4,041)
----------------------------------------------------------------------------
Increase (decrease) in net interest
income(2) $ 3,435 $ (1,419) $ 2,016 $ 3,048 $ (2,248) $ 800
============================================================================
Percentage increase in net interest income
over prior period 4.5% 1.8%
======= =======
(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%
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 in the
geographic area in which the banking subsidiaries operate, and the retention of
individuals who currently are very important in the management structure of the
Corporation.
28
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES 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 fsb, 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 committees use 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 committees 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 24.
The committees do 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 committees
supplement 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 points, -125 basis points and + 200 basis points.
Management measure such changes assuming immediate and sustained shifts in the
Federal funds rate and the corresponding shifts in other rate indices based on
their historical changes relative to changes in the Federal funds rate. The
model assumes asset and liability balances remain constant at December 31, 2002
balances. The model uses repricing frequency on all variable-rate assets and
liabilities. The model also uses a historical decay rate on all fixed-rate core
deposit balances. Prepayment speeds on loans have been adjusted up and down to
incorporate expected prepayment in both a rising and declining rate environment.
Utilizing this measurement concept the interest rate risk of the Corporation,
expressed as a change in net interest income as a percentage of the net income
calculated in the constant base model, due to changes in interest rates at
December 31, 2002, was as follows:
Basis Point Changes
-----------------------------------------------
-125 -100 +100 +200
-----------------------------------------------
Percentage change in net interest income due to an immediate change
in interest over a one-year period (1.90%) (0.47%) 2.86% 4.83%
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements are presented beginning on page 37.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
29
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Directors of the Registrant. Incorporated by reference is the
information set forth on pages 4-6 of the 2003 Proxy Statement.
(b) Executive Officers of the Registrant. Please refer to Part I of this
Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference is the information set forth on pages 10-12
of the 2003 Proxy Statement (except the information set forth in the sections
"Report of the Compensation Committee on Executive Compensation").
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Incorporated by reference is the information set forth on pages 8-10 of
the 2003 Proxy Statement.
The following table discloses the number of outstanding options,
warrants and rights granted by the Corporation to participants in equity
compensation plans, as well as the number of securities remaining available for
future issuance under these plans. The table provides this information
separately for equity compensation plans that have and have not been approved by
security holders.
(a) (b) (c)
- -------------------------------------------------------------------------------------------------------------------
Number of securities
remaining available for
future issuance under
Number of securities to be Weighted-average exercise equity compensation
issued upon exercise of price of outstanding plans (excluding
outstanding options options, warrants and securities reflected in
Plan Category warrants and rights rights column (a))
- ------------------------------------------------------------------------------------------------------------------
Equity compensation plans
approved by stockholders 587,942 $ 18.54 481,450
Equity compensation plans
not approved by stockholders
- - -
----------------------------------------------------------------------------
Total 587,942 $ 18.54 481,450
============================================================================
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Incorporated by reference is the information set forth on pages 13-14
of the 2003 Proxy Statement.
30
ITEM 14. CONTROLS AND PROCEDURES
Within the 90-day period prior to the filing of this report, an
evaluation was carried out under the supervision and with the participation of
the Corporation's management, including its Chief Executive Officer and Chief
Financial Officer, of the Corporation's disclosure controls and procedures (as
defined in Rule 13a-14(c) and 15d-14(c) under the Securities Exchange Act of
1934). Based on their evaluation, the Corporation's Chief Executive Officer and
Chief Financial Officer have concluded that information required to be disclosed
by the Corporation in reports that it files or submits under the Exchange Act is
recorded, processed, summarized, and reported within the time periods specified
in Commission rules and forms.
In addition, since their evaluation, there have been no significant
changes to the Corporation's internal controls or in other factors that could
significantly affect these controls, including any corrective actions with
regard to significant deficiencies and material weaknesses.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
EXHIBITS
Exhibit Sequentially
Number Description of Exhibit Numbered Page
- ------------- ------------------------------------------------------------------ -------------
3.1 Certificate of Incorporation of First Busey Corporation (filed as
Appendix B to First Busey's definitive proxy statement filed with
the Commission on April 5, 1993 (Commission File No. 0-15950),
and incorporated herein by reference)
3.2 By-Laws of First Busey Corporation (filed as Appendix C to First
Busey's definitive proxy statement filed with the Commission on
April 5, 1993 (Commission File No. 0-15950), and incorporated
herein by reference)
10.1 First Busey Corporation 1993 Restricted Stock Award Plan (filed
as Appendix E to First Busey's definitive proxy statement filed
with the Commission on April 5, 1993 (Commission File No.
0-15950), and incorporated herein by reference)
10.3 First Busey Corporation Profit Sharing Plan and Trust (filed as
Exhibit 10.3 to First Busey's Registration Statement on Form S-1
(Registration No. 33-13973), and incorporated herein by
reference)
10.4 Mortgage on County Plaza Building (filed as Exhibit 10.4 to First
Busey's Registration Statement on Form S-1 (Registration No.
33-13973), and incorporated herein by reference)
10.7 First Busey Corporation Employee Stock Ownership Plan (filed as
Exhibit 10.7 to First Busey's Annual Report on Form 10-K for the
fiscal year ended December 31, 1988 (Registration No. 2-66201),
and incorporated herein by reference)
10.8 First Busey Corporation 1988 Stock Option Plan (filed as Exhibit
10.8 to First Busey's Annual Report on Form 10-K for the fiscal
year ended December 31, 1988 (Registration No. 2-66201), and
incorporated herein by reference)
10.9 First Busey Corporation 1999 Stock Option Plan (filed as Appendix
B to First Busey's definitive proxy statement filed with the
Commission on March 25, 1999 (Commission File No. 0-15950), and
incorporated herein by reference)
10.10 First Busey Corporation Deferred Compensation Plan for Executives 83
31
21.1 List of Subsidiaries of First Busey Corporation 93
23.1 Consent of Independent Public Accountants 94
99.1 Certification of First Busey Corporation's Chief Executive Officer 95
99.2 Certification of First Busey Corporation's Chief Financial Officer 96
FINANCIAL STATEMENT SCHEDULES
Financial statement schedules not included in this Form 10-K have been omitted
because they are not applicable for the required information shown in the
financial statements or notes thereto.
FIRST BUSEY CORPORATION INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditor's Report 39
Consolidated Balance Sheets 40
Consolidated Statements of Income 41
Consolidated Statements of Stockholders' Equity 42
Consolidated Statements of Cash Flows 45
Notes to Consolidated Financial Statements 48
Management Report 81
Independent Accountant's Report 82
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.
FORM S-8 UNDERTAKING
For the purposes of complying with the amendments to the rules
governing Form S-8 (effective July 13, 1990) under the Securities Act of 1933,
the undersigned registrant hereby undertakes as follows, which undertaking shall
be incorporated by reference into the registrant's Registration Statement on
Form S-8 File No. 33-30095.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of the expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer, or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
32
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Urbana,
Illinois on March 19, 2002.
FIRST BUSEY CORPORATION
BY //DOUGLAS C. MILLS//
--------------------
Douglas C. Mills
Chairman of the Board, President,
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
signed below by the following persons on behalf of the Registrant and in the
capacities indicated on March 19, 2002.
Signature Title
//DOUGLAS C. MILLS// Chairman of the Board, Chief
-------------------- Executive Officer
Douglas C. Mills (Principal Executive Officer)
//BARBARA J. JONES// Chief Financial Officer
-------------------- (Principal Financial Officer)
Barbara J. Jones
//JOSEPH M. AMBROSE// Director
---------------------
Joseph M. Ambrose
//SAMUEL P. BANKS// Director
-------------------
Samuel P. Banks
//T.O. DAWSON// Director
---------------
T. O. Dawson
//VICTOR F. FELDMAN// Director
---------------------
Victor F. Feldman
//KENNETH M. HENDREN// Director
----------------------
Kenneth M. Hendren
//E. PHILLIPS KNOX// Director
--------------------
E. Phillips Knox
//BARBARA J. KUHL// Director
-------------------
Barbara J. Kuhl
//P. DAVID KUHL// Director
-----------------
P. David Kuhl
//V. B. LEISTER, JR.// Director
----------------------
V. B. Leister, Jr.
//LINDA M. MILLS// Director
------------------
Linda M. Mills
33
//EDWIN A. SCHARLAU// Director
---------------------
Edwin A. Scharlau II
//DAVID C. THIES// Director
------------------
David C. Thies
//ARTHUR R. WYATT// Director
-------------------
Arthur R. Wyatt
34
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, Douglas C. Mills, Chairman of the Board and Chief Executive Officer of First
Busey Corporation, certify that:
1) I have reviewed this annual report on Form 10-K of First Busey
Corporation;
2) Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;
3) Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4) The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5) The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize, and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6) The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
//Douglas C. Mills//
--------------------
Douglas C. Mills
Chairman of the Board and Chief
Executive Officer
Date: March 19, 2003
35
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
I, Barbara J. Jones, Chief Financial Officer of First Busey Corporation, certify
that:
1) I have reviewed this annual report on Form 10-K of First Busey
Corporation;
2) Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3) Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4) The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
d) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
e) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
f) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5) The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
c) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize, and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
d) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6) The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
// Barbara J. Jones//
---------------------
Barbara J. Jones
Chief Financial Officer
Date: March 19, 2003
36
FIRST BUSEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 AND 2000
37
FIRST BUSEY CORPORATION AND SUBSIDIARIES
CONTENTS
- -------------------------------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT 39
- -------------------------------------------------------------------------------------------------------
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated balance sheets 40
Consolidated statements of income 41
Consolidated statements of stockholders' equity 42 - 44
Consolidated statements of cash flows 45 - 47
Notes to consolidated financial statements 48 - 80
- -------------------------------------------------------------------------------------------------------
INTERNAL CONTROL REPORTS
Management Report - Effectiveness of the Internal Control 81
Independent Accountant's Report 82
- -------------------------------------------------------------------------------------------------------
38
[MCGLADREY & PULLEN LOGO]
Certified Public Accountants
INDEPENDENT AUDITOR'S REPORT
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS
FIRST BUSEY CORPORATION
URBANA, ILLINOIS
We have audited the accompanying consolidated balance sheets of FIRST BUSEY
CORPORATION AND SUBSIDIARIES as of December 31, 2002 and 2001, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 2002. These financial
statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of FIRST BUSEY
CORPORATION AND SUBSIDIARIES as of December 31, 2002 and 2001, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2002, in conformity with accounting principles
generally accepted in the United States of America.
/s/ McGladrey & Pullen, LLP
Champaign, Illinois
February 7, 2003
McGladrey & Pullen, LLP is an independent member firm of
RSM International, an affiliation of independent accounting
and consulting firms.
39
FIRST BUSEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2002 AND 2001
2002 2001
- ------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
ASSETS
Cash and due from banks $ 47,645 $ 41,580
Federal funds sold - 20,000
Securities available for sale 233,830 210,869
Loans held for sale (fair value 2002 $61,685; 2001 $22,069) 60,761 21,884
Loans (net of allowance for loan losses 2002 $15,460; 2001 $13,688) 1,024,822 942,534
Premises and equipment 27,359 29,081
Goodwill 7,380 7,380
Other intangible assets 2,464 3,124
Cash surrender value of bank owned life insurance 11,109 10,111
Other assets 20,208 14,126
----------------------------------
TOTAL ASSETS $ 1,435,578 $ 1,300,689
==================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Noninterest bearing $ 151,105 $ 138,685
Interest bearing 1,062,500 967,314
----------------------------------
TOTAL DEPOSITS 1,213,605 1,105,999
Securities sold under agreements to repurchase 2,467 9,767
Short-term borrowings - 2,000
Long-term debt 71,759 47,021
Company obligated mandatorily redeemable preferred securities 25,000 25,000
Other liabilities 7,584 5,112
----------------------------------
TOTAL LIABILITIES 1,320,415 1,194,899
----------------------------------
Stockholders' Equity
Preferred stock, no par value, 1,000,000 shares authorized, no
shares issued - -
Common stock, no par value, authorized 40,000,000 shares;
14,154,706 shares issued 6,291 6,291
Surplus 20,862 21,170
Retained earnings 91,639 81,861
Accumulated other comprehensive income 10,276 8,128
----------------------------------
TOTAL STOCKHOLDERS' EQUITY BEFORE TREASURY STOCK,
UNEARNED ESOP SHARES AND DEFERRED COMPENSATION
FOR RESTRICTED STOCK AWARDS 129,068 117,450
Treasury stock, at cost, 586,486 shares 2002; 477,018 shares 2001 (12,050) (9,639)
Unearned ESOP shares and deferred compensation for restricted
stock awards (1,855) (2,021)
----------------------------------
TOTAL STOCKHOLDERS' EQUITY 115,163 105,790
----------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,435,578 $ 1,300,689
==================================
See Accompanying Notes to Consolidated Financial Statements.
40
FIRST BUSEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts)
Interest income:
Loans $ 66,586 $ 76,618 $ 79,924
Securities
Taxable interest income 7,094 10,011 10,531
Nontaxable interest income 2,041 2,060 2,034
Dividends 104 117 126
Federal funds sold 260 1,179 627
---------------------------------------------------
TOTAL INTEREST INCOME 76,085 89,985 93,242
---------------------------------------------------
Interest expense:
Deposits 24,598 40,614 42,286
Short-term borrowings 394 2,089 5,243
Long-term debt 3,252 2,532 2,947
Company obligated mandatorily redeemable
preferred securities 2,250 1,200 -
---------------------------------------------------
TOTAL INTEREST EXPENSE 30,494 46,435 50,476
---------------------------------------------------
NET INTEREST INCOME 45,591 43,550 42,766
Provision for loan losses 3,125 2,020 2,515
---------------------------------------------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 42,466 41,530 40,251
---------------------------------------------------
Other income:
Service charges on deposit accounts 7,054 6,121 5,341
Trust fees 4,567 4,607 4,364
Commissions and brokers' fees, net 2,106 2,162 1,901
Other service charges and fees 1,816 1,667 2,075
Security gains, net 762 1,285 737
Gain on sales of loans 3,995 2,296 1,112
Net commissions from travel services - 864 922
Other 2,237 2,458 1,836
---------------------------------------------------
TOTAL OTHER INCOME 22,537 21,460 18,288
---------------------------------------------------
Other expenses:
Salaries and wages 17,431 17,624 16,192
Employee benefits 3,572 3,442 2,888
Net occupancy expense of premises 3,076 3,110 3,115
Furniture and equipment expenses 3,469 3,847 3,614
Data processing 888 799 1,142
Amortization and impairment of intangible assets 660 1,751 2,288
Stationery, supplies and printing 1,010 1,016 1,029
Other 8,820 7,385 6,981
---------------------------------------------------
TOTAL OTHER EXPENSES 38,926 38,974 37,249
---------------------------------------------------
INCOME BEFORE INCOME TAXES 26,077 24,016 21,290
Income taxes 8,173 8,363 7,237
---------------------------------------------------
NET INCOME $ 17,904 $ 15,653 $ 14,053
===================================================
Basic earnings per share $ 1.32 $ 1.16 $ 1.05
===================================================
Diluted earnings per share $ 1.31 $ 1.15 $ 1.03
===================================================
See Accompanying Notes to Consolidated Financial Statements.
41
FIRST BUSEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000
Accumulated
Other
Common Retained Comprehensive
Stock Surplus Earnings Income
-----------------------------------------------------------
Balance, December 31, 1999 $ 6,291 $ 21,750 $ 65,572 $ 2,074
Comprehensive Income:
Net Income - - 14,053 -
Other comprehensive income, net of tax:
Unrealized gains on securities available for sale
arising during the period, net of taxes of $2,811 - - - -
Reclassification adjustment, net of taxes of ($292) - - - -
Other comprehensive income, net of taxes of $2,519 - - - 3,843
Comprehensive Income - - - -
Purchase of 118,479 shares for the treasury - - - -
Issuance of 20,000 shares of treasury stock for
customer list - 205 - -
Issuance of 10,150 shares of treasury stock for
bonus compensation program - 83 - -
Issuance of 700 shares of treasury stock for
restricted stock grants - 6 - -
Cash dividends:
Common stock at $.48 per share - - (6,410) -
Employee stock ownership plan shares allocated - - - -
Release of restricted stock issued under restricted
stock award plan - - - -
- ------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000 $ 6,291 $ 22,044 $ 73,215 $ 5,917
==============================================================================================================================
Deferred
Compensation
Unearned for Restricted
Treasury ESOP Stock
Stock Shares Awards Total
------------------------------------------------------------
Balance, December 31, 1999 $ (10,773) $ (2,620) $ (10) $ 82,284
Comprehensive Income:
Net Income - - - 14,053
Other comprehensive income, net of tax:
Unrealized gains on securities available for sale
arising during the period, net of taxes of $2,811 - - - 4,288
Reclassification adjustment, net of taxes of ($292) - - - (445)
--------------
Other comprehensive income, net of taxes of $2,519 - - - 3,843
Comprehensive Income - - - 17,896
--------------
Purchase of 118,479 shares for the treasury (2,385) - - (2,385)
Issuance of 20,000 shares of treasury stock for
customer list 195 - - 400
Issuance of 10,150 shares of treasury stock for
bonus compensation program 98 - - 181
Issuance of 700 shares of treasury stock for
restricted stock grants 7 - (13) -
Cash dividends:
Common stock at $.48 per share - - - (6,410)
Employee stock ownership plan shares allocated - 337 - 337
Release of restricted stock issued under restricted
stock award plan - - 22 22
- ------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000 $ (12,858) $ (2,283) $ (1) $ 92,325
==============================================================================================================================
(continued)
42
FIRST BUSEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
Accumulated
Other
Common Retained Comprehensive
Stock Surplus Earnings Income
------------------------------------------------------------
Balance, December 31, 2000 $ 6,291 $ 22,044 $ 73,215 $ 5,917
Comprehensive income:
Net income - - 15,653 -
Other comprehensive income, net of tax:
Unrealized gains on securities available for sale
arising during period, net of tax benefit of $1,963 - - - -
Reclassification adjustment, net of taxes of ($510) - - - -
Other comprehensive income, net of tax of $1,453 - - - 2,211
Comprehensive income - - - -
Purchase of 168,734 shares for the treasury - - - -
Issuance of 369,000 shares of treasury stock for
option exercise and related tax benefit - (872) - -
Issuance of 22,756 shares of treasury stock to
benefit plans - 18 - -
Issuance of 3,236 shares of treasury stock for
bonus compensation program - (3) - -
Issuance of 250 shares of treasury stock for
restricted stock grants - 1 - -
Cash dividends:
Common stock at $.52 per share - - (7,007) -
Employee stock ownership plan shares allocated - (18) - -
Release of restricted stock issued under restricted
stock award plan - - - -
- ------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2001 $ 6,291 $ 21,170 $ 81,861 $ 8,128
==============================================================================================================================
Deferred
Compensation
Unearned for Restricted
Treasury ESOP Stock
Stock Shares Awards Total
------------------------------------------------------------
Balance, December 31, 2000 $ (12,858) $ (2,283) $ (1) $ 92,325
Comprehensive income:
Net income - - - 15,653
Other comprehensive income, net of tax:
Unrealized gains on securities available for sale
arising during period, net of tax benefit of $1,963 - - - 2,986
Reclassification adjustment, net of taxes of ($510) - - - (775)
--------------
Other comprehensive income, net of tax of $1,453 - - - 2,211
--------------
Comprehensive income - - - 17,864
--------------
Purchase of 168,734 shares for the treasury (3,237) - - (3,237)
Issuance of 369,000 shares of treasury stock for
option exercise and related tax benefit 5,940 - - 5,068
Issuance of 22,756 shares of treasury stock to
benefit plans 444 - - 462
Issuance of 3,236 shares of treasury stock for
bonus compensation program 68 - - 65
Issuance of 250 shares of treasury stock for
restricted stock grants 4 - (5) -
Cash dividends:
Common stock at $.52 per share - - - (7,007)
Employee stock ownership plan shares allocated - 262 - 244
Release of restricted stock issued under restricted
stock award plan - - 6 6
- ------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2001 $ (9,639) $ (2,021) $ - $ 105,790
==============================================================================================================================
(continued)
43
FIRST BUSEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000
Accumulated
Other
Common Retained Comprehensive
Stock Surplus Earnings Income
------------------------------------------------------------
Balance, December 31, 2001 $ 6,291 $ 21,170 $ 81,861 $ 8,128
Comprehensive Income:
Net Income - - 17,904 -
Other comprehensive income, net of tax:
Unrealized gains on securities available for sale
arising during the period, net of taxes of $1,713 - - - -
Reclassification adjustment, net of taxes of ($303) - - - -
Other comprehensive income, net of tax of $1,410 - - - 2,148
Comprehensive Income - - - -
Purchase of 174,768 shares for the treasury - - - -
Issuance of 54,600 shares of treasury stock for
option exercise and related tax benefit - (296) - -
Issuance of 750 shares of treasury stock to
benefit plans - 1 - -
Issuance of 9,950 shares of treasury stock for
restricted stock grants - 2 - -
Cash dividends:
Common stock at $.60 per share - - (8,126) -
Employee stock ownership plan shares allocated - (15) - -
Amortization of restricted stock issued under restricted
stock award plan - - - -
- ------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2002 $ 6,291 $ 20,862 $ 91,639 $ 10,276
==============================================================================================================================
Deferred
Compensation
Unearned for Restricted
Treasury ESOP Stock
Stock Shares Awards Total
------------------------------------------------------------
Balance, December 31, 2001 $ (9,639) $ (2,021) $ - $ 105,790
Comprehensive Income:
Net Income - - - 17,904
Other comprehensive income, net of tax:
Unrealized gains on securities available for sale
arising during the period, net of taxes of $1,713 - - - 2,607
Reclassification adjustment, net of taxes of ($303) - - - (459)
--------------
Other comprehensive income, net of tax of $1,410 - - - 2,148
--------------
Comprehensive Income - - - 20,052
--------------
Purchase of 174,768 shares for the treasury (3,792) - - (3,792)
Issuance of 54,600 shares of treasury stock for
option exercise and related tax benefit 1,155 - - 859
Issuance of 750 shares of treasury stock to
benefit plans 16 - - 17
Issuance of 9,950 shares of treasury stock for
restricted stock grants 210 - (212) -
Cash dividends:
Common stock at $.60 per share - - - (8,126)
Employee stock ownership plan shares allocated - 262 - 247
Amortization of restricted stock issued under restricted
stock award plan - - 116 116
- ------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2002 $ (12,050) $ (1,759) $ (96) $ 115,163
==============================================================================================================================
See Accompanying Notes to Consolidated Financial Statements
44
FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FIRST BUSEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Cash Flows from Operating Activities
Net income $ 17,904 $ 15,653 $ 14,053
Adjustments to reconcile net income to net cash
provided by operating activities:
Stock-based compensation 116 71 203
Depreciation and amortization 4,202 5,718 6,030
Provision for loan losses 3,125 2,020 2,515
Non-cash ESOP adjustment (15) (18) -
Provision for deferred income taxes (1,367) (407) 287
Stock dividends (301) (403) -
Accretion of security discounts, net (460) (819) (340)
Gain on sales of securities, net (762) (1,285) (737)
Gain on sales of loans, net (3,995) (2,296) (1,112)
(Gain) loss on sales and dispositions of
premises and equipment (11) 388 16
Change in assets and liabilities:
(Increase) decrease in other assets (105) 3,617 (22)
Increase (decrease) in other liabilities 2,429 (5,877) 341
-----------------------------------------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES BEFORE LOAN ORIGINATIONS AND SALES 20,760 16,362 21,234
-----------------------------------------------
Loans originated for sale (292,102) (274,893) (64,718)
Proceeds from sales of loans 257,220 260,797 65,828
-----------------------------------------------
NET CASH (USED IN) PROVIDED BY OPERATING
ACTIVITIES (14,122) 2,266 22,344
-----------------------------------------------
Cash Flows from Investing Activities
Securities available for sale:
Purchases (118,028) (125,173) (68,198)
Proceeds from sales 23,358 9,105 18,157
Proceeds from maturities 76,548 139,967 53,929
Decrease (increase) in federal funds sold 20,000 14,700 (21,200)
(Increase) decrease in loans (91,148) 22,025 (98,649)
Purchases of premises and equipment (1,898) (2,380) (6,993)
Proceeds from sales of premises and equipment 89 197 732
Increase in investment in life insurance (343) (10,000) -
Increase in cash surrender value
of bank owned life insurance (655) (111) -
-----------------------------------------------
NET CASH (USED IN) PROVIDED BY INVESTING
ACTIVITIES (92,077) 48,330 (122,222)
-----------------------------------------------
(continued)
45
FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FIRST BUSEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Cash Flows from Financing Activities
Net increase (decrease) in certificates of deposit $ 64,691 $ (95,849) $ 62,688
Net increase in demand deposits, money market
and savings accounts 42,915 53,061 58,118
Net decrease in federal funds
purchased and securities sold under agreements
to repurchase (7,300) (9,123) (4,690)
Proceeds from short-term borrowings 500 4,500 55,925
Principal payments on short-term borrowings (2,500) (32,500) (71,632)
Proceeds from long-term debt 43,000 18,000 18,000
Principal payments on long-term debt (18,000) (25,976) (20,873)
Proceeds from issuance of company obligated
mandatorily redeemable preferred securities - 25,000 -
Cash dividends paid (8,126) (7,007) (6,410)
Purchase of treasury stock (3,792) (3,237) (2,385)
Proceeds from sales of treasury stock 876 5,530 -
-----------------------------------------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 112,264 (67,601) 88,741
-----------------------------------------------
Net increase (decrease) in cash
and due from banks 6,065 (17,005) (11,137)
Cash and due from banks, beginning 41,580 58,585 69,722
-----------------------------------------------
Cash and due from banks, ending $ 47,645 $ 41,580 $ 58,585
===============================================
See Accompanying Notes to Consolidated Financial Statements.
46
FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FIRST BUSEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash payments for:
Interest $ 30,817 $ 49,332 $ 48,546
Income taxes $ 7,810 $ 8,297 $ 5,921
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES
Other real estate acquired in settlement of loans $ 5,977 $ 30 $ 316
===============================================
Employee stock ownership plan shares allocated $ 262 $ 262 $ 337
===============================================
Transfer of installment purchase debt certificate from
investment portfolio to loan portfolio $ 242 $ - $ -
===============================================
Customer list acquired in exchange for
common stock $ - $ - $ 400
===============================================
See Accompanying Notes to Consolidated Financial Statements.
47
FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
Description of business:
First Busey Corporation (the Corporation) is a financial holding company whose
subsidiaries provide a full range of banking services, including security
broker/dealer services and investment management and fiduciary services, to
individual and corporate customers through its locations in Central Illinois,
Indianapolis, Indiana, and Fort Myers, Florida. The Corporation and subsidiaries
are subject to competition from other financial institutions and nonfinancial
institutions providing financial products and services. First Busey Corporation
and its subsidiaries are also subject to the regulations of certain regulatory
agencies and undergo periodic examinations by those regulatory agencies.
The significant accounting and reporting policies for First Busey Corporation
and its subsidiaries follow:
Basis of consolidation
The consolidated financial statements include the accounts of First Busey
Corporation and its subsidiaries: Busey Bank and its subsidiaries: Busey Travel,
Inc., and BAT, Inc.; Busey Bank Florida; First Busey Resources, Inc.; Busey
Investment Group, Inc. and its subsidiaries: First Busey Trust & Investment
Company, Inc., First Busey Securities, Inc., and Busey Insurance Services, Inc.;
and First Busey Capital Trust I, LP. All material intercompany balances and
transactions have been eliminated in consolidation.
The consolidated financial statements of First Busey Corporation have been
prepared in conformity with accounting principles generally accepted in the
United States of America and conform to predominant practice within the banking
industry.
Use of estimates
In preparing the accompanying 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. 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 and valuation of real estate, other properties
acquired in connection with foreclosures or in satisfaction of amounts due from
borrowers on loans, and consideration of impairment of goodwill and other
intangible assets.
Trust assets
Assets held for customers in a fiduciary or agency capacity, other than trust
cash on deposit at the Corporation's bank subsidiaries, are not assets of the
Corporation and, accordingly, are not included in the accompanying consolidated
financial statements.
Cash flows
For purposes of reporting cash flows, cash and due from banks include cash on
hand and amounts due from banks. Cash flows from federal funds purchased and
sold are reported net, since their original maturities are less than three
months.
48
FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Securities
Securities classified as available for sale are those debt securities that the
Corporation 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 Corporation's assets and liabilities, liquidity needs, regulatory capital
considerations and other similar factors. Securities available for sale are
carried at fair value. The difference between fair value and amortized cost
results in an unrealized gain or loss. Unrealized gains or losses are reported
as increases or decreases in accumulated other comprehensive income, net of the
related deferred tax effect, as a part of stockholders' equity. Realized gains
or losses, determined on the basis of the cost of specific securities sold, are
included in earnings. Where applicable, amortization of premiums and accretion
of discounts are recognized in interest income using the interest method over
the period to maturity.
Loans
Loans receivable that management has the intent and ability to hold for the
foreseeable future or until maturity or pay-off are stated at the amount of
unpaid principal, reduced by fees and an allowance for loan losses.
Loan origination and commitment fees and certain direct loan origination costs
are deferred and the net amount amortized as an adjustment of the related loan's
yield. The Corporation is generally amortizing these amounts over the
contractual life.
Interest is accrued daily on the outstanding balances. For impaired loans,
accrual of interest is discontinued on a loan when management believes, after
considering collection efforts and other factors that the borrower's financial
condition is such that collection of interest is doubtful. Cash collections on
impaired loans are credited to the loan receivable balance, and no interest
income is recognized on those loans until the principal balance has been
collected.
A loan is impaired when it is probable the Corporation will be unable to collect
all contractual principal and interest payments due in accordance with the terms
of the loan agreement. Impaired loans are measured based on the present value of
expected future cash flows discounted at the loan's effective interest rate, or
as a practical expedient, at the loan's observable market price or the fair
value of the collateral if the loan is collateral dependent. The amount of
impairment, if any, and any subsequent changes are included in the allowance for
loan losses.
Large groups of smaller balance homogenous loans are collectively evaluated for
impairment. Accordingly, the Corporation does not separately identify individual
consumer and residential loans for impairment disclosures.
49
FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Allowance for loan losses
The allowance for loan losses is established through a provision for loan losses
charged to operating expense. Loan losses are charged against the allowance when
management believes the collectibility of the principal is unlikely. Subsequent
recoveries, if any, are credited to the allowance.
The allowance is an amount management believes will be adequate to absorb
estimated losses related to specifically identified loans, as well as probable
credit losses inherent in the balance of the loan portfolio, based on an
evaluation of the collectibility of existing loans and prior loss experience.
The evaluations also take into consideration such factors as changes in the
nature and volume of the loan portfolio, overall portfolio quality, loan
concentrations, review of specific problem loans and current economic conditions
that may affect the borrowers' ability to repay. This evaluation does not
include the effect of unexpected losses on specific loans or groups of loans
that are related to future events or unexpected changes in economic conditions.
While management uses the best information available to make its evaluation,
future adjustments to the allowance may be necessary if there are significant
changes in economic conditions.
In addition, various regulatory agencies periodically review the allowance for
loan losses, and may require the Bank to make additions to the allowance based
on their judgment of collectibility based on information available to them at
the time of their examination.
The allowance consists of specific, general and unallocated components. The
specific component relates to loans that are classified as either doubtful,
substandard or special mention. For such loans that are also classified as
impaired, an allowance is established when the discounted cash flows (or
collateral value or observable market price) of the impaired loan is lower than
the carrying value of that loan. The general component covers non-classified
loans and is based on historical loss experience adjusted for qualitative
factors. An unallocated component is maintained to cover uncertainties that
could affect management's estimate of probable losses. The unallocated component
of the allowance reflects the margin of imprecision inherent in the underlying
assumptions used in the methodologies for estimating specific and general losses
in the portfolio.
Loans held for sale
Loans held for sale are those loans the Corporation has the intent to sell in
the foreseeable future. They consist of fixed-rate mortgage loans conforming to
established guidelines and held for sale to investors and the secondary mortgage
market. Loans held for sale are carried at the lower of aggregate cost or
estimated fair value. Net unrealized losses, if any, are recognized through a
valuation allowance by charges to income. Gains and losses on sales of loans are
recognized at settlement dates and are determined by the difference between the
sales proceeds and the carrying value of the loans after allocating cost to
servicing rights retained.
Loan servicing
The Corporation generally retains the right to service mortgage loans sold to
others. The cost allocated to the mortgage servicing rights retained has been
recognized as a separate asset and is being amortized in proportion to and over
the period of estimated net servicing income.
Mortgage servicing rights are periodically evaluated for impairment based on the
fair value of those rights. Fair values are estimated using discounted cash
flows based on current market rates of interest and current expected future
prepayment rates. For purposes of measuring impairment, the rights must be
stratified by one or more predominant risk characteristics of the underlying
loans. The Corporation
50
FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
stratifies its capitalized mortgage servicing rights based on the origination
date of the underlying loans. The amount of impairment recognized is the amount,
if any, by which the amortized cost of the rights for each stratum exceeds its
fair value.
Premises and equipment
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed principally by the straight-line method over the
estimated useful lives of the assets. Management periodically reviews the
carrying value of its long-lived assets to determine if an impairment has
occurred or whether changes in circumstances have occurred that would require a
revision to the remaining useful lives of those assets. In making such
determination, management evaluates the performance, on an undiscounted basis,
of the underlying operations or assets which give rise to such amount.
Other real estate owned
Other real estate owned (OREO) represents properties acquired through
foreclosure or other proceedings in settlement of loans. OREO is held for sale
and is recorded at the date of foreclosure at the fair value of the properties
less estimated costs of disposal. Any write-down to fair value at the time of
transfer to OREO is charged to the allowance for loan losses. Property is
evaluated regularly to ensure the recorded amount is supported by its current
fair value, and valuation allowances to reduce the carrying amount to fair value
less estimated costs to dispose are recorded as necessary. Revenue and expense
from the operations of foreclosed assets and changes in the valuation allowance
are included in operations. Other real estate owned included in other assets was
approximately $5,724,000 and $30,000 as of December 31, 2002, and 2001
respectively.
Goodwill and other intangible assets
Costs in excess of the estimated fair value of identifiable net assets acquired
consist primarily of goodwill, core deposit intangible and other identifiable
intangible assets. Goodwill was originally amortized into expense on a
straight-line basis over periods not to exceed 25 years. Effective January 1,
2002, the Corporation ceased amortization in accordance with newly adopted
accounting standards generally accepted in the United States of America. The
Corporation performed an initial impairment assessment as of January 1, 2002,
and an annual impairment assessment as of December 31, 2002.
Core deposit and other identifiable intangible assets are amortized on an
accelerated basis over the estimated period benefited up to 10 years.
Total amortization expense was approximately $660,000, $1,751,000 and $2,288,000
for the years ended December 31, 2002, 2001, and 2000, respectively.
Intangible assets are reviewed for possible impairment when events or changed
circumstances may affect the underlying basis of the net assets. Such reviews
include an analysis of current results and take into consideration the
discounted value of projected operating cash flows.
During the year ended December 31, 2000, the Corporation recognized an
impairment write down of $600,000 on the core deposit intangible of Busey Bank
Florida (formerly Busey Bank, fsb). The Corporation recognized this write down
due to a significant run off of the core deposit base. This write down is
included in the amortization and impairment of intangible assets line item on
the income statement.
51
FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income taxes
The Corporation and its subsidiaries file consolidated Federal and State income
tax returns with each organization computing its taxes on a separate entity
basis. The provision for income taxes is based on income as reported in the
financial statements.
Deferred income tax assets and liabilities are computed annually for differences
between the financial statement and tax bases of assets and liabilities that
will result in taxable or deductible amounts in the future. The deferred tax
assets and liabilities are computed based on enacted tax laws and rates
applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to reduce
deferred tax assets to an amount expected to be realized. Income tax expense is
the tax payable or refundable for the period plus or minus the change during the
period in deferred tax assets and liabilities.
Reclassifications
Certain reclassifications have been made to the balances, with no effect on net
income, as of and for the year ended December 31, 2001, to be consistent with
the classifications adopted as of and for the year ended December 31, 2002.
Stock-based employee compensation
The Corporation has two stock-based employee compensation plans which have been
in existence for all periods presented, and which are more fully described in
Note 16. As permitted under accounting principles generally accepted in the
United States of American, grants of options under the plans are accounted for
under the recognition and measurement principles of APB No. 25, "Accounting for
Stock Issued to Employees," and related interpretations. Because options granted
under the plans had an exercise price equal to market value of the underlying
common stock on the date of grant, no stock-based employee compensation cost is
included in determining net income. The following table illustrates the effect
on net income and earnings per share if the Corporation had applied the fair
value recognition provisions of Statement of Financial Accounting Standard No.
123, "Accounting for Stock-Based Compensation," to stock-based employee
compensation.
2002 2001 2000
-------------------------------------
Net income (in thousands):
As reported $ 17,904 $ 15,653 $ 14,053
Deduct total stock-based compensation expense determined
under the fair value method for all awards, net of related
tax effects 242 303 244
-------------------------------------
Pro forma $ 17,662 $ 15,350 $ 13,809
=====================================
Basic earnings per share:
As reported $ 1.32 $ 1.16 $ 1.05
Pro forma $ 1.30 $ 1.14 $ 1.03
Diluted earnings per share:
As reported $ 1.31 $ 1.15 $ 1.03
Pro forma $ 1.30 $ 1.13 $ 1.02
52
FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Black-Scholes option pricing model was developed for use in estimating the
fair value of traded options which have no vesting restrictions. In additioon,
such models require the use of subjective assumptions, including expected stock
price volatility. In management's opinion, such valuation models may not
necessarily provide the best single measure of option value.
The fair value of the stock options granted has been estimated using the
Black-Scholes option pricing model with the following weighted average
assumptions.
2002 2001 2000
----------------------------------------------------------------------------
Block 1 Block 2 Block 3 Block 1 Block 2
----------------------------------------------------------------------------
Number of options granted 229,000 61,500 2,250 1,000 57,000 5,000
Risk-free interest rate 3.51% 4.04% 4.39% 3.54% 4.90% 4.90%
Expected life, in years 3 4 5 3 4 4
Expected volatility 19.27% 19.89% 19.89% 19.89% 19.89% 19.89%
Expected dividend yield 2.60% 2.42% 2.42% 2.44% 2.41% 2.41%
Estimated fair value per option $ 4.92 $ 5.35 $ 5.10 $ 3.50 $ 3.10 $ 4.22
Earnings per share
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.
The following reflects net income per share calculations for basic and diluted
methods:
For the Years Ended December 31,
--------------------------------------------------
2002 2001 2000
--------------------------------------------------
Net income available to common shareholders $ 17,904,000 $ 15,653,000 $ 14,053,000
Basic average common shares outstanding 13,535,918 13,486,688 13,356,197
Dilutive potential due to stock options 81,329 135,300 246,995
--------------------------------------------------
Average number of common shares and dilutive
potential common shares outstanding 13,617,247 13,621,988 13,603,192
==================================================
Basic net income per share $ 1.32 $ 1.16 $ 1.05
==================================================
Diluted net income per share $ 1.31 $ 1.15 $ 1.03
==================================================
53
FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accounting for Acquisitions of Certain Financial Institutions In October, 2002,
Statement of Financial Accounting Standards No. 147, "Acquisitions of Certain
Financial Institutions - an amendment of FASB Statements No. 72 and 144 and FASB
Interpretation No. 9," was issued. FASB Statement No. 72, "Accounting for
Certain Acquisitions of Banking or Thrift Institutions," and FASB Interpretation
No.9, "Applying APB Opinions No. 16 and 17 When a Savings and Loan Association
or a Similar Institution is Acquired in a Business Combination Accounted for by
the Purchase Method, " provided interpretive guidance on the application of the
purchase method to acquisitions of financial institutions. Except for
transactions between two or more mutual enterprises, this Statement removes
acquisitions of financial institutions from the scope of both Statement No. 72
and Interpretation No. 9 and requires that those transactions be accounted for
in accordance with FASB Statements No. 141, "Business Combinations," and No.
142, "Goodwill and Other Intangible Assets." Thus, the requirement in paragraph
5 of Statement No. 72 to recognize (and subsequently amortize) any excess of the
fair value of liabilities assumed over the fair value of tangible and
identifiable intangible assets acquired as an unidentifiable intangible asset no
longer applies to acquisitions within the scope of this Statement. In addition,
this Statement amends FASB Statement No. 144, "Accounting for the Impairment or
Disposal of Long-lived Assets," to include in its scope long-term
customer-relationship intangible assets of financial institutions such as
depositor- and borrower-relationship intangible assets and credit cardholder
intangible assets. Consequently, those intangible assets are subject to the same
undiscounted cash flow recoverability test and impairment loss recognition and
measurement provisions that Statement No. 144 requires for other long-lived
assets that are held and used. Paragraph 5 of this Statement which relates to
the application of the purchase method of accounting, is effective for
acquisitions for which the date of acquisition is on or after October 1, 2002.
The provisions in paragraph 6 relating to accounting for the impairment or
disposal of certain long-term customer-relationship intangible assets are
effective on October 1, 2002. Transition provisions for previously recognized
unidentifiable intangible assets in paragraphs 8-14 are effective on October 1,
2002, with earlier application permitted. The Corporation does not expect this
statement will have a significant impact on the operations of the Corporation or
the Banks.
Guarantor's Accounting and Disclosure Requirements for Guarantees The Financial
Accounting Standards Board (FASB) has issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" - an interpretation of Statements of
Financial Accounting Standards Nos. 5, 57 and 107 and rescission of FASB
Interpretation No. 34. This interpretation elaborates on the disclosures to be
made by a guarantor in its interim and annual financial statements about its
obligations under certain guarantees that it has issued. It also clarifies that
a guarantor is required to recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in issuing the
guarantee. The initial recognition and measurement provisions of the
Interpretation are applicable on a prospective basis to guarantees issued or
modified after December 31, 2002. Implementation of these provisions of the
Interpretation is not expected to have a material impact on the Corporation's
consolidated financial statements. The disclosure requirements of the
Interpretation are effective for financial statements of interim or annual
periods ending after December 15, 2002, and have been adopted in the
consolidated financial statements for December 31, 2002.
Comprehensive income
Accounting principles generally require that recognized revenue, expenses, gains
and losses be included in net income. Although certain changes in assets and
liabilities, such as unrealized gains and losses on available-for-sale
securities, are reported as a separate component of the equity section of the
balance sheet, such items, along with net income, are components of
comprehensive income.
54
FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. ADOPTION OF STATEMENT NO. 142.
On January 1, 2002, the Corporation implemented Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets." Under the
provisions of Statement No. 142, goodwill is no longer subject to amortization
over its estimated useful life, but instead will be subject to at least annual
assessments for impairment by applying a fair value based test. Statement No.
142 also requires that an acquired intangible asset should be separately
recognized if the benefit of the intangible asset is obtained through
contractual or other legal rights, or if the asset can be sold, transferred,
licensed, rented or exchanged, regardless of the acquirer's intent to do so. The
Corporation determined that no transitional impairment loss was required at
January 1, 2002.
Among the provisions of Statement No. 142 is a requirement to disclose what
reported net income would have been for all periods presented exclusive of
amortization expense (net of related income tax effects) recognized in those
periods related to goodwill with related per share amounts. No changes in the
amortization periods for other intangible assets were made during the year ended
December 31, 2002, as the result of the adoption of this Standard.
Goodwill and intangible asset disclosures are as follows:
As of December 31, 2002
----------------------------------------
Gross Carrying Accumulated
Amount Amortization
--------------- ---------------
(Dollars in thousands)
AMORTIZED INTANGIBLE ASSETS:
Core deposit intangibles $ 7,956 $ 5,492
============== ===============
AGGREGATE AMORTIZATION EXPENSE:
For the year ended December 31, 2002 $ 660
===============
ESTIMATED AMORTIZATION EXPENSE:
2003 $ 412
2004 412
2005 412
2006 378
2007 213
Thereafter 637
---------------
2,464
===============
GOODWILL: $ 7,380
==============
55
FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31,
2002 2001 2000
-----------------------------------------------------------
(Dollars in thousands, except per share data)
Reported net income $ 17,904 $ 15,653 $ 14,053
Add goodwill amortization, net of tax - 651 677
-------------- --------------- ---------------
Adjusted net income $ 17,904 $ 16,304 $ 14,730
============== =============== ===============
Basic earnings per share:
Reported net income $ 1.32 $ 1.16 $ 1.05
Goodwill amortization, net of tax - .05 .05
-------------- --------------- ---------------
Adjusted net income $ 1.32 $ 1.21 $ 1.10
============== =============== ===============
Diluted earnings per share:
Reported net income $ 1.31 $ 1.15 $ 1.03
Goodwill amortization, net of tax - .05 .05
-------------- --------------- ---------------
Adjusted net income $ 1.31 $ 1.20 $ 1.08
============== =============== ===============
NOTE 3. CASH AND DUE FROM BANKS
The Corporation's banking and thrift subsidiaries are required to maintain
certain cash reserve balances with the Federal Reserve Bank of Chicago, which
may be offset by cash on hand. The required reserve balances as of December 31,
2002 and 2001 were approximately $8,566,000 and $8,464,000, respectively.
In October 1997, the Corporation's bank subsidiary established a clearing
balance requirement of $2,000,000 with the Federal Reserve Bank of Chicago to
use Federal Reserve Bank services. As of December 31, 2002 and 2001, the
clearing balance requirement was $2,750,000. These deposited funds generate
earnings credits at market rates which offset service charges resulting from the
use of Federal Reserve Bank services. The clearing balance requirement is
included in the required reserve balance referred to above and may be increased,
or otherwise adjusted, on approval of the Federal Reserve Bank based on
estimated service charges; however, such adjustments will be made no more
frequently than once per month.
The Corporation maintains its cash in deposit accounts which, at times, may
exceed federally insured limits. The Corporation has not experienced any losses
in such accounts. The Corporation believes it is not exposed to any significant
credit risk on cash and cash equivalents.
56
FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. SECURITIES
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)
December 31, 2002:
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 155,051 $ 3,273 $ - $ 158,324
Obligations of states and political
subdivisions 48,878 2,557 1 51,434
Corporate securities 3,493 255 2 3,746
---------------------------------------------------------------
207,422 6,085 3 213,504
Mutual funds and other equity securities 9,379 10,955 8 20,326
---------------------------------------------------------------
$ 216,801 $ 17,040 $ 11 $ 233,830
===============================================================
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------------------------------------------------------------
(Dollars in thousands)
December 31, 2001:
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 140,304 $ 3,186 $ - $ 143,490
Obligations of states and political
Subdivisions 42,929 1,008 170 43,767
Corporate securities 5,407 159 12 5,554
---------------------------------------------------------------
188,640 4,353 182 192,811
Mutual funds and other equity securities 8,758 9,300 - 18,058
---------------------------------------------------------------
$ 197,398 $ 13,653 $ 182 $ 210,869
===============================================================
The amortized cost and fair value of securities available for sale as of
December 31, 2002, by contractual maturity, are shown below. Mutual funds and
other equity securities 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 $ 87,640 $ 88,908
Due after one year through five years 91,183 94,278
Due after five years through ten years 24,852 26,380
Due after ten years 3,747 3,938
----------------------------
$ 207,422 $ 213,504
============================
57
FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Gains and losses related to sales of securities are summarized as follows (in
thousands):
For the Years Ended December 31,
-----------------------------------------------
2002 2001 2000
-----------------------------------------------
Gross security gains $ 762 $ 1,285 $ 973
Gross security losses - - (236)
-----------------------------------------------
NET SECURITY GAINS $ 762 $ 1,285 $ 737
===============================================
The tax provisions for these net realized gains and losses amounted to $303,000,
510,000, and $292,000 for the years ended December 31, 2002, 2001 and 2000,
respectively.
Investment securities with carrying values of $142,781,000 and $139,120,000 on
December 31, 2002 and 2001, respectively, were pledged as collateral on public
deposits, to secure securities sold under agreements to repurchase and for other
purposes as required or permitted by law.
NOTE 5. LOANS
The composition of loans is as follows:
December 31,
-----------------------------------
2002 2001
-----------------------------------
(Dollars in thousands)
Commercial $ 118,004 $ 121,694
Real estate construction 129,872 83,701
Real estate - farmland 13,421 14,414
Real estate - 1 to 4 family residential mortgage 369,428 349,270
Real estate - multifamily mortgage 57,559 54,265
Real estate - non-farm nonresidential mortgage 274,153 253,932
Installment 55,811 57,924
Agricultural 22,034 21,022
-----------------------------------
1,040,282 956,222
Less:
Allowance for loan losses 15,460 13,688
-----------------------------------
NET LOANS $ 1,024,822 $ 942,534
===================================
The loan portfolio includes a concentration of loans for commercial real estate
amounting to approximately $331,712,000 and $308,197,000 as of December 31, 2002
and 2001, respectively. Generally these loans are collateralized by assets of
the borrowers. The loans are expected to be repaid from cash flows or from
proceeds from the sale of selected assets of the borrowers. Credit losses
arising from lending transactions for commercial real estate entities are
comparable with the Corporation's credit loss experience on its loan portfolio
as a whole.
58
FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Corporation's opinion as to the ultimate collectibility of loans is subject
to estimates regarding future cash flows from operations and the value of
property, real and personal, pledged as collateral. These estimates are affected
by changing economic conditions and the economic prospects of borrowers.
It is management's policy to place loans on non-accrual status when interest and
or principal is 90 days or more past due. Such loans may continue on non-accrual
status only if they are both well-securred and in the process of collection.
Loans contractually past due in excess of 90 days and loans classified as
non-accrual are summarized as follows:
December 31,
--------------------------
2002 2001
--------------------------
(Dollars in thousands)
Loans 90 days past and still accruing $ 963 $ 959
Non-accrual loans 1,265 1,265
--------------------------
2,228 2,224
==========================
The following table presents data on impaired loans:
2002 2001 2000
---------------------------------------
(Dollars in thousands)
Impaired loans for which an allowance has
been provided $ - $ - $ -
Impaired loans for which no allowance has
been provided $ 309 $ 656 $ 92
---------------------------------------
Total loans determined to be impaired $ 309 $ 656 $ 92
=======================================
Allowance for loan loss for impaired loans included
in the allowance for loan losses $ - $ - $ -
=======================================
Average recorded investment in impaired loans $ 1,435 $ 390 $ 170
=======================================
Interest income recognized from impaired loans $ - $ 9 $ -
=======================================
Cash basis interest income recognized from
impaired loans $ - $ 9 $ -
=======================================
59
FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses were as follows:
Years Ended December 31,
-------------------------------------------------
2002 2001 2000
-------------------------------------------------
(Dollars in thousands)
Balance, beginning of year $ 13,688 $ 12,268 $ 10,403
Provision for loan losses 3,125 2,020 2,515
Recoveries applicable to loan balances
Previously charged off 476 176 124
Loan balances charged off (1,829) (776) (774)
-------------------------------------------------
Balance, end of year $ 15,460 $ 13,688 $ 12,268
=================================================
NOTE 7. LOAN SERVICING
The amount of loans serviced by the Corporation for the benefit of others is not
included in the accompanying consolidated balance sheets. The unpaid principal
balances of these loans were $368,907,000, $273,225,000 and $184,419,000 as of
December 31, 2002, 2001 and 2000, respectively. Servicing loans for others
generally consists of collecting mortgage payments, maintaining escrow accounts,
disbursing payments to investors and collection and foreclosure processing. Loan
servicing income is recorded on the accrual basis and includes servicing fees
from investors and certain charges collected from borrowers, such as late
payment fees and is net of amortization of capitalized mortgage servicing
rights.
The balance of capitalized servicing rights included in other assets at December
31, 2002 and 2001, was $1,474,000 and $913,000, respectively. The following
summarizes mortgage servicing rights capitalized and amortized:
For the Years Ended December 31,
------------------------------------------
2002 2001 2000
------------------------------------------
(Dollars in thousands)
Mortgage servicing rights capitalized $ 1,467 $ 961 $ 133
==========================================
Mortgage servicing rights amortized $ 906 $ 468 $ 212
==========================================
60
FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
December 31,
-----------------------------
2002 2001
-----------------------------
(Dollars in thousands)
Land $ 7,101 $ 7,101
Buildings and improvements 31,401 31,427
Furniture and equipment 18,253 18,352
-----------------------------
56,755 56,880
Less accumulated depreciation 29,396 27,799
-----------------------------
$ 27,359 $ 29,081
=============================
Depreciation expense was $3,542,000, $3,967,000 and $3,742,000 for the years
ended December 31, 2002, 2001 and 2000, respectively.
NOTE 9. DEPOSITS
The aggregate amount of time deposits with a minimum denomination of $100,000
was approximately $110,158,000 and $91,317,000 at December 31, 2002 and 2001,
respectively.
As of December 31, 2002, the scheduled maturities of certificates of deposit, in
thousands, are as follows:
2003 $ 323,580
2004 73,793
2005 50,383
2006 22,067
2007 44,768
Thereafter 119
-----------
$ 514,710
===========
NOTE 10. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase, which are classified as secured
borrowings, generally mature within one to four years from the transaction date.
Securities sold under agreements to repurchase are reflected at the amount of
cash received in connection with the transaction. The Corporation may be
required to provide additional collateral based on the fair value of the
underlying securities.
61
FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. SHORT-TERM BORROWINGS
Short-term borrowings are summarized as follows:
December 31,
2002 2001
-----------------------
(Dollars in thousands)
Notes payable, Bank One, interest payable
quarterly:
$10,000,000 line of credit, at one-year LIBOR plus 1.40% (effective
rate of 6.72875% at December 31, 2001), due January 18, 2002,
collateralized by all of the common stock of Busey Bank and Busey
Bank Florida - 1,000
$25,000,000 line of credit, at one-year LIBOR plus 1.40% (effective rate
of 6.72875% at December 31, 2001), due January 18, 2002, collateralized
by all of the common stock of Busey Bank and Busey Bank Florida - 1,000
$10,000,000 line of credit, at one year LIBOR plus 1.40% (effective rate of
3.6875% at December 31, 2002), due January 24, 2003, collateralized by
all of the common stock of Busey Bank and Busey Bank Florida - -
-----------------------
$ - $ 2,000
=======================
62
FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12. LONG-TERM DEBT
Long-term debt is summarized as follows:
December 31,
2002 2001
---------------------------
(Dollars in thousands)
Notes payable, Bank One, interest payable quarterly
$250,000 term loan, at one-year LIBOR plus 1.40% (effective rate of
3.6875% at December 31, 2002), principal payment of $25,000 due
annually on December 15, final payment due December 15, 2006,
Collateralized by unallocated shares of First Busey Corporation common
Stock purchased by employee stock ownership plan in August, 1997
(8,000 shares as of December 31, 2002; 10,000 shares as of
December 31, 2001) $ 100 $ 125
$2,370,000 term loan, at one-year LIBOR plus 1.40% (effective rate of
3.6875% at December 31, 2002), principal payment of $237,000 due
annually on December 15, final payment due December 15, 2009,
collateralized by unallocated shares of First Busey Corporation common
stock purchased by employee stock ownership plan in November, 1999
(70,000 shares as of December 31, 2002; 80,000 shares as of
December 31, 2001) $ 1,659 $ 1,896
Notes payable, Federal Home Loan Bank of Chicago, collateralized
by all unpledged U.S. Treasury and U.S. Agency securities, first
mortgages on 1-4 family residential real estate and Federal Home
Loan Bank of Chicago stock $ 70,000 $ 45,000
--------------------------
$ 71,759 $ 47,021
==========================
63
FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Funds borrowed from the Federal Home Loan Bank of Chicago consisted of the
following advances:
Rate December 31,
-----------------------------------------------------
2002 2001 2002 2001
- ---------------------------------------------------------------------------------------------
(Dollars in thousands)
March 20, 2002, fixed - 6.60% $ - $ 2,000
March 20, 2002, fixed - 6.60% - 2,000
March 22, 2002, fixed - 6.54% - 4,000
September 3, 2003, fixed - 5.55% - 5,000
February 19, 2004, fixed - 5.49% - 5,000
October 8, 2004, fixed 3.95% - 1,000 -
October 18, 2004, fixed 3.95% - 2,000 -
October 18, 2004, fixed 3.89% - 2,000 -
March 21, 2005, fixed 4.63% - 4,000 -
April 22, 2005, fixed 4.22% - 1,000 -
June 12, 2005, fixed 3.88% - 1,000 -
June 20, 2005, fixed 4.00% - 4,000 -
July 23, 2005, fixed 3.17% - 1,000 -
October 28, 2005, fixed 2.68% - 2,000 -
February 27, 2006, fixed 4.44% - 3,000 -
March 20, 2006, fixed 4.94% - 500 -
March 20, 2006, fixed 4.94% - 675 -
March 20, 2006, fixed 4.94% - 825 -
July 24, 2006, fixed 3.87% - 5,000 -
September 11, 2006, fixed 4.95% 4.95% 2,000 2,000
November 24, 2006, fixed 4.75% - 3,000 -
February 28, 2007, fixed 4.90% - 5,000 -
May 16, 2007, fixed 5.00% - 500 -
May 16, 2007, variable 4.387% - 1,500 -
June 20, 2007, fixed 4.46% - 1,000 -
July 24, 2007, fixed 3.78% - 1,000 -
September 6, 2007, fixed 3.45% - 3,000 -
January 16, 2008, fixed 4.95% 4.95% 5,000 5,000
January 16, 2008, fixed 5.30% 5.30% 5,000 5,000
January 16, 2008, fixed 5.01% 5.01% 10,000 10,000
February 27, 2008, fixed 5.07% 5.07% 2,000 2,000
October 6, 2008, fixed 4.30% 4.30% 3,000 3,000
----------------------------
$ 70,00 $ 45,000
============================
As of December 31, 2002, the scheduled maturities of long-term debt, in
thousands, are as follows:
2003 $ 262
2004 5,262
2005 13,262
2006 15,262
2007 12,237
Thereafter 25,474
-----------
$ 71,759
===========
64
FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Corporation had no letters of credit outstanding at December 31, 2002. The
Corporation had letters of credit outstanding with the Federal Home Loan Bank of
Chicago for $51,660,000 at December 31, 2001.
NOTE 13. COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES
In June, 2001, First Busey Corporation issued $25,000,000 in cumulative trust
preferred securities through a newly formed special-purpose trust, First Busey
Capital Trust I, L.P. The proceeds of the offering were invested by First Busey
Capital Trust I in junior subordinated deferrable interest debentures of the
Corporation. The Trust is a wholly owned consolidated subsidiary of the
Corporation, and its sole assets are the junior subordinated deferrable interest
debentures. Distributions are cumulative and are payable quarterly at a rate of
9.00% per annum of the stated liquidation amount of $10 per preferred security.
Interest expense on the trust preferred securities was $2,250,000 for the year
ended December 31, 2002 and $1,200,000 for the year ended December 31, 2001. The
obligations of the trust are fully and unconditionally guaranteed, on a
subordinated basis, by the Corporation. The trust preferred securities qualify
as Tier 1 capital for regulatory purposes.
The trust preferred securities are mandatorily redeemable upon the maturity of
the debentures on June 18, 2031, or to the extent of any earlier redemption of
any debentures by the Corporation, and are callable beginning June 18, 2006.
Issuance costs of $1,340,000 related to the trust preferred securities were
deferred and are being amortized over the period until mandatory redemption of
the securities in June, 2031.
65
FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14. INCOME TAXES
The components of income taxes consist of:
Years Ended December 31,
---------------------------------
2002 2001 2000
---------------------------------
(Dollars in thousands)
Current $ 9,540 $ 8,770 $ 6,950
Deferred (1,367) (407) 287
---------------------------------
TOTAL INCOME TAX EXPENSE $ 8,173 $ 8,363 $ 7,237
=================================
A reconciliation of federal and state income taxes at statutory rates to the
income taxes included in the statements of income is as follows:
Years Ended December 31,
2002 2001 2000
--------------------------------------------------------------
% of % of % of
Pretax Pretax Pretax
Amount Income Amount Income Amount Income
--------------------------------------------------------------
(Dollars in thousands)
Income tax at statutory rate $ 9,127 35.0% $ 8,406 35.0% $ 7,452 35.0%
Effect of:
Benefit of income taxed
at lower rates - - - - (100) (0.5)%
Tax-exempt interest, net (774) (3.0%) (758) (3.2%) (759) (3.5)%
Income on bank owned life
Insurance (260) (1.0%) (44) (0.2%) - -
Amortization of intangibles 55 0.2% 437 1.8% 615 2.9%
Other 25 0.1% 322 1.4% 29 0.1%
-----------------------------------------------------------
$ 8,173 31.3% $ 8,363 34.8% $ 7,237 34.0%
===========================================================
66
FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Net deferred taxes, included in other liabilities, in the accompanying balances
sheets includes the following amounts of deferred tax assets and liabilities:
2002 2001
-------------------------
(Dollars in thousands)
Deferred tax assets:
Allowance for loan losses $ 6,133 $ 5,440
Property acquired in settlement of loans 240 -
Loans held for sale 366 73
Basis in deposit intangibles 350 288
Deferred compensation 254 53
State net operating loss carryforwards 31 169
Other 235 154
----------------------
7,609 6,177
----------------------
Deferred tax liabilities:
Investment securities
Unrealized gains on securities held for sale (6,753) (5,343)
Other (247) (152)
Basis in premises and equipment (909) (882)
Mortgage servicing assets (585) (363)
Deferred loan fees (304) (272)
Other (240) (551)
----------------------
(9,038) (7,563)
----------------------
NET DEFERRED TAX LIABILITY $ (1,429) $ (1,386)
======================
State net operating loss carryforwards of approximately $666,000 are available
to offset future taxable income. The carryforwards expire in 2011.
NOTE 15. EMPLOYEE BENEFIT PLANS
Employees' Stock Ownership Plan
The First Busey Corporation Employees' Stock Ownership Plan (ESOP) is available
to all full-time employees who meet certain age and length of service
requirements. The ESOP purchased common shares of the Corporation using the
proceeds of bank borrowings which is secured by the stock. The borrowings are to
be repaid using fully deductible contributions to the trust fund. As the ESOP
makes each payment of principal, an appropriate percentage of stock will be
allocated to eligible employees' accounts in accordance with applicable
regulations under the Internal Revenue Code. Allocations of common stock
released and forfeitures are based on the eligible compensation of each
participant. Dividends on allocated shares of common stock are distributed
directly to the participants, and dividends on unallocated shares are used to
service the bank borrowings. All shares held by the ESOP, which were acquired
prior to the issuance of Statement of Position 93-6, are included in the
computation of average common shares and common share equivalents. This
accounting treatment is grandfathered under
67
FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Statement of Position 93-6, "Employers' Accounting for Employee Stock Ownership
Plans" for shares purchased prior to December 31, 1992.
As permitted by AICPA Statement of Position (SOP) 93-6, compensation expense for
shares released is equal to the original acquisition cost of the shares if they
were acquired prior to December 31, 1992. During 2000, $337,000 of compensation
expense was recognized for the ESOP, releasing 18,000 shares to participant
accounts, and is reflected in the chart below under "Employee Benefits". During
2001, $303,000 of compensation expense was recognized for the ESOP, releasing
12,000 shares to participant accounts and is reflected in the chart below under
"Employee Benefits". During 2002, $304,000 of compensation expense was
recognized for the ESOP, releasing 12,000 shares to participant accounts and is
reflected in the chart below under "Employee Benefits". For such shares,
compensation expense is equal to the fair market value of the shares released.
Compensation expense related to the ESOP plan, including related interest
expense, was $382,000, $459,000, and $488,000 in the years ended December 31,
2002, 2001 and 2000.
Shares held in the ESOP which were acquired prior to December 31, 1992 were as
follows:
2002 2001
---------------------------
Allocated shares 740,264 782,008
Unallocated shares - -
---------------------------
TOTAL 740,264 782,008
===========================
Fair value of allocated shares at December 31 $ 17,070,000 $ 16,798,000
===========================
Shares held in the ESOP which were acquired after December 31, 1992 and their
fair values were as follows:
2002 2001
-----------------------------------------------------
Fair Fair
Shares Value Shares Value
-----------------------------------------------------
Allocated shares 37,740 $ 870,000 29,719 $ 638,000
Unallocated shares 78,000 1,799,000 90,000 1,933,000
-----------------------------------------------------
TOTAL 115,740 $ 2,669,000 119,719 $ 2,571,000
=====================================================
Profit Sharing Plan
All full-time employees who meet certain age and length of service requirements
are eligible to participate in the Corporation's profit-sharing plan. The
contributions, if any, are determined solely by the Boards of Directors of the
Corporation and its subsidiaries and in no case may the annual contributions be
greater than the amounts deductible for federal income tax purposes for that
year. The rights of the participants vest ratably over a seven-year period.
Contributions to the plan were $857,000, $676,000, and $361,000 for the years
ended December 31, 2002, 2001, and 2000, respectively.
68
FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Expense related to the employee benefit plans are included in the statements of
income as follows:
Years Ended December 31,
---------------------------------
2002 2001 2000
---------------------------------
(Dollars in thousands)
Employee benefits $ 1,161 $ 979 $ 698
Interest on employee stock ownership plan debt 78 156 151
---------------------------------
TOTAL EMPLOYER CONTRIBUTIONS $ 1,239 $ 1,135 $ 849
=================================
NOTE 16. STOCK INCENTIVE PLANS
Stock Option Plan:
In March 1989, the Corporation adopted the 1988 Stock Option Plan pursuant to
which incentive stock options and nonqualified stock options for up to 900,000
shares of common stock may be granted by the Compensation Committee of the Board
of Directors to certain executive officers and key personnel of First Busey
Corporation and its subsidiaries. In March 1996, the Board of Directors approved
an increase in the number of shares reserved for issuance as stock options from
900,000 to 1,500,000.
In January of 1999, the Corporation adopted the 1999 Stock Option Plan pursuant
to which nonqualified stock options for up to 500,000 shares of common stock may
be granted by the Compensation Committee of the Board of Directors to certain
executive officers and key personnel of First Busey Corporation and its
subsidiaries.
A summary of the status of the Corporation's stock option plan for the years
ended December 31, 2002, 2001 and 2000 and the changes during the years ending
on those dates is as follows:
2002 2001 2000
-----------------------------------------------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
Outstanding at beginning of year 408,992 $ 16.14 719,042 $ 12.68 668,642 $ 12.23
Granted 229,000 21.84 64,750 17.95 62,000 19.88
Exercised (54,600) 12.13 (369,000) 9.99 - -
Terminated and reissuable (2,400) 16.75 (5,800) 15.56 (11,600) 14.67
--------- -------- --------
Outstanding at end of year 580,992 $ 18.76 408,992 $ 16.14 719,042 $ 12.68
=======================================================================
Exercisable at end of year 230,200 $ 16.70 98,000 $ 19.25 64,000 $ 18.25
Weighted-average fair value per
option of options granted during
the year $ 4.92 $ 5.31 $ 3.19
69
FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes information about stock options outstanding at
December 31, 2002:
Options
Options Outstanding Exercisable
------------------------------------------
Weighted-
Average
Remaining
Exercise Contractual
Prices Number Life Number
- --------------------------------------------------
$ 12.13 70,700 1.00 years 70,700
16.75 113,542 1.75 years -
17.88 61,500 2.96 years 61,500
17.88 5,000 2.00 years -
18.25 44,000 0.96 years 44,000
19.06 2,250 3.67 years -
20.06 54,000 1.96 years 54,000
20.18 1,000 1.75 years -
21.84 229,000 7.96 years -
------------------------------------
580,992 4.20 years 230,200
====================================
Restricted Stock Award Plan:
The 1993 Restricted Stock Award Plan provides for restricted stock awards of up
to 450,000 shares of common stock which may be granted by the Compensation
Committee of the Board of Directors to certain executive officers and key
personnel of First Busey Corporation and its subsidiaries. Shares vest over a
period established by the Compensation Committee at grant date and are based on
the attainment of specified earnings per share and earnings growth. As of
December 31, 2002, there were 6,950 shares under grant.
Number of Shares
-------------------------------
2002 2001 2000
-------------------------------
Under restriction, beginning of year - 100 4,000
Granted 9,950 250 700
Restrictions released 3,000 350 4,600
Forfeited and reissuable - - -
-------------------------------
Under restriction, end of year 6,950 - 100
===============================
Available to grant, end of year 398,200 408,150 408,400
===============================
Compensation expense is recognized for financial statement purposes over the
period of performance. Compensation expense of $116,000, $6,000, and $22,000 was
recognized for financial statement purposes during the years ended December 31,
2002, 2001, and 2000, respectively.
70
FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17. TRANSACTIONS WITH DIRECTORS AND EXECUTIVE OFFICERS
The Corporation and its subsidiaries have had, and may be expected to have in
the future, banking transactions in the ordinary course of business with
directors, executive officers, their immediate families and affiliated companies
in which they have 10% or more beneficial ownership (commonly referred to as
related parties), on the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with others.
The following is an analysis of the changes in loans to related parties during
the year ended December 31, 2002:
Balance at the beginning of year $ 5,127
New loans 2,520
Repayments 2,373
------------
Balance at end of year $ 5,274
============
NOTE 18. CAPITAL
The ability of the Corporation to pay cash dividends to its stockholders and to
service its debt is dependent on the receipt of cash dividends from its
subsidiaries. State chartered banks have certain statutory and regulatory
restrictions on the amount of cash dividends they may pay. As a practical
matter, dividend payments are restricted because of the desire to maintain a
strong capital position in the subsidiaries.
The Corporation and the Banks 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 Corporation's or the Banks' financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Corporation and the Banks 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 Corporation's and the Banks' capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors. Prompt corrective action
provisions are not applicable to bank holding companies.
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 December 31,
2002, that the Corporation and the Banks meet all capital adequacy requirements
to which they are subject.
As of December 31, 2002, the most recent notification from the federal and state
regulatory agencies categorized the Banks as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, the Banks must maintain minimum total risk-based, Tier I
risk-based, and Tier I leverage ratios as set forth in the table. There are no
conditions or events since that notification that management believes have
changed the Banks' categories.
71
FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
-------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
-------------------------------------------------------------------------
(Dollars in Thousands)
As of December 31, 2002:
Total Capital (to Risk Weighted Assets)
Consolidated $ 137,796 13.31% $ 82,830 8.00% N/A N/A
Busey Bank $ 108,321 11.13% $ 77,846 8.00% $ 97,307 10.00%
Busey Bank Florida $ 11,802 25.47% $ 3,708 8.00% $ 4,634 10.00%
Tier I Capital (to Risk Weighted Assets)
Consolidated $ 119,897 11.58% $ 41,415 4.00% N/A N/A
Busey Bank $ 91,826 9.44% $ 38,923 4.00% $ 58,385 6.00%
Busey Bank Florida $ 11,280 24.34% $ 1,854 4.00% $ 2,781 6.00%
Tier I Capital (to Average Assets)
Consolidated $ 119,897 8.66% $ 55,389 4.00% N/A N/A
Busey Bank $ 91,826 7.03% $ 52,244 4.00% $ 65,305 5.00%
Busey Bank Florida $ 11,280 16.50% $ 2,736 4.00% $ 3,420 5.00%
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%
72
FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19. COMMITMENTS, CONTINGENCIES AND CREDIT RISK
The Corporation 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 Corporation
and its subsidiaries.
The Corporation and its subsidiaries are parties to financial instruments with
off-balance-sheet risk in the normal course of business to meet the financing
needs of its customers. These financial instruments include commitments to
extend credit, standby letters of credit and financial guarantees. Those
instruments involve, to varying degrees, elements of credit and interest rate
risk. The contract or notional amounts of those instruments reflect the extent
of involvement the Corporation has in particular classes of financial
instruments.
The Corporation and its subsidiaries' exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for commitments to
extend credit and standby letters of credit and financial guarantees written is
represented by the contractual amount of those instruments. The Corporation and
its subsidiaries use the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instruments.
A summary of the contractual amount of the Corporation's exposure to
off-balance-sheet risk follows:
December 31,
------------------------
2002 2001
------------------------
(Dollars in thousands)
Financial instruments whose contract amounts
represent credit risk:
Commitments to extend credit $ 222,407 $ 226,651
Standby letters of credit 13,138 12,636
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. 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.
Since many of the commitments are expected to expire without being drawn upon,
the total commitment amounts do not necessarily represent future cash
requirements. The customer's credit worthiness is evaluated on a case-by-case
basis. The amount of collateral obtained, if it is deemed necessary by the
Corporation upon extension of credit, is based on management's credit evaluation
of the counterparty. Collateral held varies but may include accounts receivable,
inventory, property and equipment and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the Corporation
to guarantee the performance of a customer 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 Corporation holds collateral, which may include accounts receivable,
inventory, property and equipment, 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 corporation
would be required to fund the commitment. The maximum potential amount of future
payments the Corporation could be required to make is
73
FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
represented by the contractual amount shown in the summary above. If the
commitment is funded, the Corporation would be entitled to seek recovery from
the customer. At December 31, 2002 and 2001, no amounts have been recorded as
liabilities for the corporation's potential obligations under these guarantees.
As of December 31, 2002, the Corporation has no futures, forwards, swaps or
option contracts, or other financial instruments with similar characteristics.
Lease Commitments
At December 31, 2002, the Corporation was obligated under noncancelable
operating leases for office space and other commitments. Rent expense under
operating leases, included in net occupancy expense of premises, was
approximately $699,000, $699,000, and $715,000 for the years ended December 31,
2002, 2001 and 2000, respectively.
The projected minimum rental payments under the terms of the leases at December
31, 2002, in thousands, are as follows:
2003 $ 761
2004 764
2005 713
2006 702
2007 642
Thereafter 868
--------
$ 4,450
========
NOTE 20. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument for which it is practicable to estimate that
value:
Cash and cash equivalents
The carrying amounts reported in the balance sheet for cash and due from banks
and federal funds sold approximate those assets' fair values.
Securities
For securities available for sale, fair values are based on quoted market prices
or dealer quotes, where available. If a quoted market price is not available,
fair value is estimated using quoted market prices for similar securities. The
carrying amount of accrued interest receivable approximates fair value.
Loans
For certain homogeneous categories of loans, such as some residential mortgages,
fair value is estimated using the quoted market prices for similar loans or
securities backed by similar loans, adjusted for differences in loan
characteristics. The fair value of other types of loans is estimated by
discounting the future cash flows using the current rates at which similar loans
would be made to borrowers with similar
74
FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
credit ratings and for the same remaining maturities. The carrying amount of
accrued interest receivable approximates fair value.
Deposits and securities sold under agreements to repurchase
The fair value of demand deposits, savings accounts, interest-bearing
transaction accounts, and certain money market deposits is defined as the amount
payable on demand at the reporting date. The fair value of fixed-maturity
certificates of deposit and securities sold under agreements to repurchase is
estimated using the rates currently offered for deposits of similar remaining
maturities. The carrying amount of accrued interest payable approximates fair
value.
Short-term borrowings and long-term debt
Rates currently available to the Corporation for debt with similar terms and
remaining maturities are used to estimate fair value of existing debt. The
carrying amount of accrued interest payable approximates fair value.
COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES
Fair values are based upon quoted market prices or dealer quotes. The carrying
amount of accrued interest payable approximates fair value.
Commitments to extend credit and standby letters of credit
The fair value of commitments is estimated using the fees currently charged to
enter into similar agreements, taking into account the remaining terms of the
agreements and the present creditworthiness of the counterparties. For
fixed-rate loan commitments, fair value also considers the difference between
current levels of interest rates and the committed rates. The fair value of
letters of credit is based on fees currently charged for similar agreements or
on the estimated cost to terminate them or otherwise settle the obligations with
the counterparties at the reporting date. As of December 31, 2002 and 2001,
these items are immaterial in nature.
The estimated fair values of the Corporation's financial instruments are as
follows:
2002 2001
----------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------------------------------------------------------
(Dollars in thousands)
Financial assets:
Cash and cash equivalents $ 47,645 $ 47,645 $ 61,580 $ 61,580
Securities 233,830 233,830 210,869 210,869
Loans, net 1,085,583 1,100,710 964,418 973,436
Accrued interest receivable 7,114 7,114 7,566 7,566
Financial liabilities:
Deposits 1,213,605 1,221,229 1,105,999 1,110,754
Securities sold under agreements to
repurchase 2,467 2,498 9,767 10,142
Short-term borrowings - - 2,000 2,000
Long-term debt 71,759 76,591 47,021 48,616
Company obligated mandatorily
redeemable preferred securities 25,000 27,875 25,000 27,500
Accrued interest payable 3,241 3,241 3,563 3,563
75
FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In addition, other assets and liabilities of the Corporation that are not
defined as financial instruments are not included in the above disclosures, such
as property and equipment. Also, nonfinancial instruments typically not
recognized in financial statements nevertheless may have value but are not
included in the above disclosures. These include, among other items, the
estimated earnings power of core deposit accounts, the earnings potential of
loan servicing rights, the earnings potential of the trust operations, the
trained work force, customer goodwill and similar items.
NOTE 21. REPORTABLE SEGMENTS AND RELATED INFORMATION
First Busey Corporation has three reportable segments, Busey Bank, First Busey
Trust & Investment Co., and Busey Bank Florida. Busey Bank provides a full range
of banking services to individual and corporate customers through its branch
network in central Illinois, through its branch in Indianapolis, Indiana, and
through its loan production office in Fort Myers, Florida. First Busey Trust &
Investment Co. provides trust and asset management services to individual and
corporate customers throughout central Illinois. Busey Bank Florida provides a
full range of banking services to individuals and corporate customers in Fort
Myers, Florida and the surrounding communities.
In November of 2001, Busey Bank Florida transferred banking assets in McLean
County, Illinois to Busey Bank. At year-end, Busey Bank Florida had one banking
location in Fort Myers, Florida.
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. The Corporation accounts for intersegment revenue and
transfers at current market value.
76
FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following summarized information relates to the Company's reportable
segments:
December 31, 2002
First
Busey
Busey Trust &
Busey Bank Investment All Consolidated
Bank Florida Co. Other Totals Eliminations Totals
----------------------------------------------------------------------------------------------
Interest income $ 72,841 $ 2,981 $ 156 $ 2,412 $ 78,390 $ (2,305) $ 76,085
Interest expense 26,599 1,588 - 4,587 32,774 (2,280) 30,494
Other income 15,841 434 4,610 25,084 45,969 (23,432) 22,537
Total income 88,682 3,415 4,766 27,496 124,359 (25,737) 98,622
Net income 18,292 24 1,419 20,016 39,751 (21,847) 17,904
Total assets 1,346,062 73,193 3,232 181,750 1,604,237 (168,659) 1,435,578
December 31, 2001
First
Busey
Busey Trust &
Busey Bank Investment All Consolidated
Bank Florida Co. Other Totals Eliminations Totals
----------------------------------------------------------------------------------------------
Interest income $ 70,740 $ 18,948 $ 178 $ 1,402 $ 91,268 $ (1,283) $ 89,985
Interest expense 33,284 10,823 - 3,508 47,615 (1,180) 46,435
Other income 12,519 2,281 4,664 23,298 42,762 (21,302) 21,460
Total income 83,259 21,229 4,842 24,700 134,030 (22,585) 111,445
Net income 14,029 1,997 1,391 17,175 34,592 (18,939) 15,653
Total assets 1,238,377 50,935 3,339 174,322 1,466,973 (166,284) 1,300,689
December 31, 2000
First
Busey
Busey Trust &
Busey Bank Investment Consolidated
Bank Florida Co. All Other Totals Eliminations Totals
----------------------------------------------------------------------------------------------
Interest income $ 75,634 $ 17,342 $ 179 $ 140 $ 93,295 $ (53) $ 93,242
Interest expense 38,374 9,439 - 2,564 50,377 99 50,476
Other income 10,106 1,149 4,411 20,806 36,472 (18,184) 18,288
Total income 85,740 18,491 4,590 20,946 129,767 (18,237) 111,530
Net income 13,564 919 1,459 14,393 30,335 (16,282) 14,053
Total assets 1,051,969 297,803 3,485 134,222 1,487,479 (132,435) 1,355,044
77
FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 22. PARENT COMPANY ONLY FINANCIAL INFORMATION
Condensed financial data for First Busey Corporation is presented below.
BALANCE SHEETS
December 31,
-------------------------------
2002 2001
-------------------------------
(Dollars in thousands)
ASSETS
Cash and due from subsidiary bank $ 1,869 $ 1,690
Securities available for sale 2,598 1,671
Loans 2,138 1,825
Investments in subsidiaries:
Bank 120,880 112,751
Non-bank 11,697 11,971
Premises and equipment, net 128 45
Goodwill 1,548 1,548
Other assets 1,870 3,634
-------------------------------
TOTAL ASSETS $ 142,728 $ 135,135
===============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Short-term corporate borrowings $ - $ 2,000
Long-term ESOP borrowings 1,759 2,021
Long-term debt 25,000 25,000
Other liabilities 806 324
-------------------------------
TOTAL LIABILITIES 27,565 29,345
-------------------------------
Stockholders' equity before unearned ESOP shares and deferred
Compensation for restricted stock awards 117,018 107,811
Unearned ESOP shares and deferred compensation for restricted
stock awards (1,855) (2,021)
-------------------------------
TOTAL STOCKHOLDERS' EQUITY 115,163 105,790
-------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 142,728 $ 135,135
===============================
78
FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STATEMENTS OF INCOME
Years Ended December 31,
----------------------------------------
2002 2001 2000
----------------------------------------
(Dollars in thousands)
Operating income:
Dividends from subsidiaries:
Bank $ 12,000 $ 28,983 $ 14,138
Non-bank 2,050 3,190 2,825
Interest and dividend income 141 137 52
Other income 928 950 1,115
----------------------------------------
TOTAL OPERATING INCOME 15,119 33,260 18,130
----------------------------------------
Expenses:
Salaries and employee benefits 1,503 1,096 1,040
Interest expense 2,325 2,308 2,563
Operating expense 1,475 1,340 1,096
----------------------------------------
TOTAL EXPENSES 5,303 4,744 4,699
----------------------------------------
INCOME BEFORE INCOME TAX BENEFIT
AND EQUITY IN UNDISTRIBUTED
INCOME OF SUBSIDIARIES 9,816 28,516 13,431
Income tax benefit 2,007 1,806 1,378
----------------------------------------
INCOME BEFORE EQUITY IN
UNDISTRIBUTED INCOME OF
SUBSIDIARIES 11,823 30,322 14,809
Equity in undistributed income of subsidiaries:
Bank 6,316 (12,958) (574)
Non-bank (235) (1,711) (182)
----------------------------------------
NET INCOME $ 17,904 $ 15,653 $ 14,053
========================================
79
FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 23. UNAUDITED INTERIM FINANCIAL DATA
The following table reflects summarized quarterly data for the periods described
(unaudited), in thousands, except per share data:
2002
------------------------------------------------------------
December 31 September 30 June 30 March 31
------------------------------------------------------------
Interest income $ 19,313 $ 19,352 $ 18,657 $ 18,763
Interest expense 7,596 7,737 7,539 7,622
------------------------------------------------------------
Net interest income 11,717 11,615 11,118 11,141
Provision for loan losses 1,070 575 915 565
Noninterest income 6,051 5,436 5,586 5,464
Noninterest expense 10,958 9,573 9,400 8,995
------------------------------------------------------------
Income before income taxes 5,740 6,903 6,389 7,045
Income taxes 1,385 2,331 2,102 2,355
------------------------------------------------------------
Net income $ 4,355 $ 4,572 $ 4,287 $ 4,690
============================================================
Basic earnings per share $ 0.32 $ 0.34 $ 0.32 $ 0.34
Diluted earnings per share $ 0.32 $ 0.33 $ 0.32 $ 0.34
2001
-------------------------------------------------------------
December 31 September 30 June 30 March 31
-------------------------------------------------------------
Interest income $ 20,357 $ 21,991 $ 23,288 $ 24,349
Interest expense 9,191 11,239 12,424 13,581
-------------------------------------------------------------
Net interest income 11,166 10,752 10,864 10,768
Provision for loan losses 875 250 495 400
Noninterest income 4,866 5,490 5,712 5,392
Noninterest expense 10,049 9,795 9,802 9,328
-------------------------------------------------------------
Income before income taxes 5,108 6,197 6,279 6,432
Income taxes 1,441 2,336 2,252 2,334
-------------------------------------------------------------
Net income $ 3,667 $ 3,861 $ 4,027 $ 4,098
=============================================================
Basic earnings per share $ 0.27 $ 0.29 $ 0.30 $ 0.30
Diluted earnings per share $ 0.27 $ 0.28 $ 0.30 $ 0.30
80
[BUSEY(R) LOGO]
MANAGEMENT REPORT
BUSEY BANK
AS OF DECEMBER 31, 2002
FINANCIAL STATEMENTS
Busey Bank, a wholly owned subsidiary of First Busey Corporation, is responsible
for the preparation, integrity and fair presentation of its published financial
statements as of December 31, 2002, and for the year then ended. The
consolidated financial statements of First Busey Corporation have been prepared
in accordance with accounting principles generally accepted in the United States
of America and, as such, include some amounts that are based on judgments and
estimates of management.
INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining effective internal
control over financial reporting presented in conformity with accounting
principles generally accepted in the United States of America and the Federal
Financial Institutions Examination Council Instructions for Consolidated Reports
of Condition and Income (call report instructions). The system contains
monitoring mechanisms and actions are taken to correct deficiencies identified.
There are inherent limitations in the effectiveness of any system of internal
control, including the possibility of human error and the circumvention or
overriding of controls. Accordingly, even an effective internal control can
provide only reasonable assurance with respect to financial statement
preparation. Further, because of changes in conditions, the effectiveness of
internal control may vary over time.
Management assessed Busey Bank's internal control over financial reporting
presented in conformity with accounting principles generally accepted in the
United States of America and call reports instructions as of December 31, 2002.
This assessment was based on criteria for effective internal control over
financial reporting described in "Internal Control - Integrated Framework"
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on this assessment, management believes that Busey Bank maintained
effective internal control over financial reporting presented in conformity with
accounting principles generally accepted in the United States of America and
call reports instructions as of December 31, 2002.
COMPLIANCE WITH LAWS AND REGULATION
Management is responsible for compliance with the federal and state laws and
regulations concerning dividend restrictions and federal laws and regulations
concerning loans to insiders designated by the FDIC as safety and soundness laws
and regulations.
Management assessed compliance by Busey Bank with the designated laws and
regulations relating to safety and soundness. Based on our assessment,
management believes Busey Bank complied, in all significant respects, with the
designated laws and regulations related to safety and soundness for the year
ended December 31, 2002.
/s/ Douglas C. Mills
-----------------------------------
Douglas C. Mills, Chairman of the Board
First Busey Corporation (Holding Company)
/s/ David Kuhl
----------------------------------
P. David Kuhl, President
Busey Bank
BUSEY BANK URBANA
201 W. Main, P.O. Box 17430, Urbana, IL 61803-7430 217.365.4500 fax 217.365.4070
www.busey.com
81
[MCGLADREY & PULLEN LOGO]
Certified Public Accountants
INDEPENDENT ACCOUNTANT'S REPORT
TO THE BOARD OF DIRECTORS
BUSEY BANK
URBANA, ILLINOIS
We have examined management's assertion that BUSEY BANK, a wholly owned
subsidiary of FIRST BUSEY CORPORATION, maintained effective internal control
over financial reporting as of December 31, 2002, included in the accompanying
Report of Management insofar as management's assertion relates to internal
control over the annual financial reporting in the 2002 consolidated financial
statements of First Busey Corporation and Busey Bank's December 31, 2002 Call
Report.
Our examination was made in accordance with attestation standards established by
the American Institute of Certified Public Accountants and, accordingly,
included obtaining an understanding of internal control over financial
reporting, testing and evaluating the design and operating effectiveness of the
internal control, and such other procedures as we considered necessary in the
circumstances. We believe that our examination provides a reasonable basis for
our opinion.
Because of inherent limitations in any internal control, misstatements due to
error or fraud may occur and not be detected. Also, projections of any
evaluation of the internal control over financial reporting to future periods
are subject to the risk that the internal control may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In our opinion, management's assertions that BUSEY BANK maintained effective
internal control over financial reporting as of December 31, 2002, insofar as
management's assertion relates to internal control over the annual financial
reporting of Busey Bank, included in the 2002 consolidated financial statements
of First Busey Corporation and Busey Bank's December 31, 2002 Call Report is
fairly stated, in all material respects, based upon criteria established in
"Internal Control - Integrated Framework" issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
We were not engaged to, and we have not performed any procedures with respect to
management's assertion regarding compliance with laws and regulations included
in the accompanying Report of Management. Accordingly, we do not express any
opinion, or any other form of assurance, on management's assertion regarding
compliance with laws and regulations.
/s/ McGladrey & Pullen, LLP
Champaign, Illinois
February 7, 2003
McGladrey & Pullen, LLP is an independent member firm of
RSM International, an affiliation of independent accounting
and consulting firms.
82