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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended 6/30/2004 Commission File No. 0-15950
FIRST BUSEY CORPORATION
(Exact name of registrant as specified in its charter)
Nevada 37-1078406
- ------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
Incorporation or organization) No.)
201 W. Main St.,
Urbana, Illinois 61801
- ------------------------------- -------------------------------
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (217) 365-4556
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined by Rule 12b-2 of the Act)
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding at August 4, 2004
------------------------------- -----------------------------
Common Stock, without par value 20,544,001
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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FIRST BUSEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2004 AND DECEMBER 31, 2003
(UNAUDITED)
June 30, 2004 December 31, 2003
------------- -----------------
(Dollars in thousands)
ASSETS
Cash and due from banks $ 47,242 $ 52,397
Federal funds sold 5,850 -
Securities available for sale (amortized cost 2004, $271,685;
2003, $209,482) 284,533 224,733
Loans 1,451,460 1,192,396
Allowance for loan losses (18,313) (16,228)
------------ ------------
Net loans $ 1,433,147 $ 1,176,168
Premises and equipment 26,228 22,223
Cash surrender value of bank owned life insurance 17,251 16,836
Goodwill 31,730 7,380
Other intangible assets 4,514 2,100
Other assets 24,563 20,247
------------ ------------
Total assets $ 1,875,058 $ 1,522,084
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest bearing $ 181,599 $ 160,578
Interest bearing 1,301,598 1,096,017
------------ ------------
Total deposits $ 1,483,197 $ 1,256,595
Federal funds purchased - 8,500
Securities sold under agreements to repurchase 35,480 7,500
Short-term borrowings 14,250 -
Long-term debt 165,167 92,853
Junior subordinated debt owed to unconsolidated trust 40,000 25,000
Other liabilities 8,341 6,459
------------ ------------
Total liabilities $ 1,746,435 $ 1,396,907
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock $ - $ -
Common stock 6,291 6,291
Surplus 21,071 20,968
Retained earnings 108,036 102,288
Accumulated other comprehensive income 7,757 9,191
------------ ------------
Total stockholders' equity before treasury stock, unearned ESOP
shares and deferred compensation for stock grants $ 143,155 $ 138,738
Treasury stock, at cost (11,651) (10,667)
Unearned ESOP shares and deferred compensation for stock grants (2,881) (2,894)
------------ ------------
Total stockholders' equity $ 128,623 $ 125,177
------------ ------------
Total liabilities and stockholders' equity $ 1,875,058 $ 1,522,084
============ ============
Common shares outstanding at period end* 20,483,103 20,516,215
============ ============
*Share and per share data have been retroactively adjusted to effect a
three-for-two common stock split declared on July 23, 2004, as if it had
occurred on January 1, 2003.
See accompanying notes to unaudited consolidated financial statements.
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FIRST BUSEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(UNAUDITED)
2004 2003
--------------------- ----------------------
(Dollars in thousands, except per share amounts)
INTEREST INCOME:
Interest and fees on loans $34,716 $32,839
Interest and dividends on investment securities:
Taxable interest income 2,371 3,149
Non-taxable interest income 925 1,031
Dividends 128 76
Interest on Federal funds sold 28 77
------- -------
Total interest income $38,168 $37,172
------- -------
INTEREST EXPENSE:
Deposits $ 8,897 $10,600
Short-term borrowings 163 97
Long-term debt 2,231 1,671
Junior subordinated debt owed to unconsolidated trust 1,221 1,125
------- -------
Total interest expense $12,512 $13,493
------- -------
Net interest income $25,656 $23,679
Provision for loan losses 1,080 930
------- -------
Net interest income after provision for loan losses $24,576 $22,749
------- -------
OTHER INCOME:
Trust $ 2,791 $ 2,291
Commissions and brokers fees, net 1,196 976
Service charges on deposit accounts 3,740 3,529
Other service charges and fees 981 955
Security gains, net 688 299
Gain on sales of loans 1,281 4,474
Increase in cash surrender value of life insurance 415 327
Other operating income 636 495
------- -------
Total other income $11,728 $13,346
------- -------
OTHER EXPENSES:
Salaries and wages $ 9,124 $ 9,636
Employee benefits 2,236 1,884
Net occupancy expense of premises 1,817 1,529
Furniture and equipment expenses 1,123 1,310
Data processing 888 879
Stationery, supplies and printing 454 519
Amortization of intangible assets 234 206
Other operating expenses 3,787 4,403
------- -------
Total other expenses $19,663 $20,366
------- -------
Income before income taxes $16,641 $15,729
Income taxes 5,740 5,531
------- -------
NET INCOME $10,901 $10,198
======= =======
BASIC EARNINGS PER SHARE* $ 0.54 $ 0.50
======= =======
DILUTED EARNINGS PER SHARE* $ 0.53 $ 0.50
======= =======
DIVIDENDS DECLARED PER SHARE OF COMMON STOCK* $ 0.253 $ 0.227
======= =======
*Per share have been retroactively adjusted to effect a three-for-two common
stock split declared on July 23, 2004, as if it had occurred on January 1, 2003.
See accompanying notes to unaudited consolidated financial statements.
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FIRST BUSEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE QUARTERS ENDED JUNE 30, 2004 AND 2003
(UNAUDITED)
2004 2003
--------------------- -----------------------
(Dollars in thousands, except per share amounts)
INTEREST INCOME:
Interest and fees on loans $18,077 $16,354
Interest and dividends on investment securities:
Taxable interest income 1,228 1,554
Non-taxable interest income 472 514
Dividends 108 38
Interest on federal funds sold 27 44
------- -------
Total interest income $19,912 $18,504
------- -------
INTEREST EXPENSE:
Deposits $ 4,650 $ 5,176
Short-term borrowings 95 52
Long-term debt 1,215 860
Junior subordinated debt owed to unconsolidated trust 658 562
------- -------
Total interest expense $ 6,618 $ 6,650
------- -------
Net interest income $13,294 $11,854
Provision for loan losses 655 330
------- -------
Net interest income after provision for loan losses $12,639 $11,524
------- -------
OTHER INCOME:
Trust $ 1,396 $ 1,184
Commissions and brokers' fees, net 604 511
Service charges on deposit accounts 2,012 1,836
Other service charges and fees 513 505
Security gains, net 497 116
Gains on sales of loans 459 2,239
Increase in cash surrender value of life insurance 206 167
Other operating income 347 313
------- -------
Total other income $ 6,034 $ 6,871
------- -------
OTHER EXPENSES:
Salaries and wages $ 4,583 $ 4,947
Employee benefits 1,213 922
Net occupancy expense of premises 933 714
Furniture and equipment expenses 588 628
Data processing 450 370
Stationary, supplies and printing 234 226
Amortization of intangible assets 129 103
Other operating expenses 2,066 2,074
------- -------
Total other expenses $10,196 $ 9,984
------- -------
Income before income taxes $ 8,477 $ 8,411
Income taxes 2,936 3,055
------- -------
NET INCOME $ 5,541 $ 5,356
======= =======
BASIC EARNINGS PER SHARE* $ 0.27 $ 0.26
======= =======
DILUTED EARNINGS PER SHARE* $ 0.27 $ 0.26
======= =======
DIVIDENDS DECLARED PER SHARE OF COMMON STOCK* $ 0.127 $ 0.113
======= =======
*Per share have been retroactively adjusted to effect a three-for-two common
stock split declared on July 23, 2004, as if it had occurred on January 1, 2003.
See accompanying notes to unaudited consolidated financial statements.
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FIRST BUSEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(UNAUDITED)
2004 2003
-------------- -----------
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 10,901 $ 10,198
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation 13 28
Depreciation and amortization 1,599 1,940
Provision for loan losses 1,080 930
Provision for deferred income taxes (163) (646)
Stock dividends (201) (275)
Amortization of investment security discounts (41) (158)
Gain on sales of investment securities, net (688) (299)
Gain on sales of loans (1,281) (4,474)
Loss (gain) on sale and disposition of premises and equipment 20 (420)
Market valuation adjustment on OREO property - 694
Change in assets and liabilities:
Decrease (increase) in other assets 427 (2,493)
Increase in accrued expenses 509 1,554
Increase (decrease) in interest payable 372 (460)
Increase in income taxes receivable (476) -
Decrease in income taxes payable - (116)
------------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES BEFORE
LOAN ORIGINATIONS AND SALES $ 12,071 $ 6,003
------------- ----------
Loans originated for sale (86,104) (224,162)
Proceeds from sales of loans 91,992 241,803
------------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 17,959 $ 23,644
------------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of securities classified available for sale 8,638 12,832
Proceeds from maturities of securities classified available for sale 36,397 119,908
Purchase of securities classified available for sale (57,024) (145,571)
Increase in federal funds sold (4,257) (33,300)
Increase in loans (113,055) (27,256)
Proceeds from sale of premises and equipment 2 1,644
Purchases of premises and equipment (1,909) (988)
Increase in investment in bank owned life insurance - (5,000)
Increase in cash surrender value of bank owned life insurance (415) (327)
Purchase of subsidiary, net of cash and due from banks acquired (35,990) -
------------- ----------
NET CASH USED IN INVESTING ACTIVITIES $ (167,613) $ (78,058)
------------- ----------
(continued on next page)
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FIRST BUSEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(UNAUDITED)
2004 2003
---------- ---------
(Dollars in thousands)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in certificates of deposit $ 48,172 $ (4,438)
Net increase in demand, money market and saving deposits 31,346 48,115
Cash dividends paid (5,153) (4,612)
Purchase of treasury stock (1,886) (416)
Proceeds from sale of treasury stock 1,005 2,296
Net (decrease) increase in Federal funds purchased and securities sold
under agreement to repurchase (5,977) 5,695
Proceeds from short-term borrowings 15,250 -
Principal payments on short-term borrowings (2,250) -
Proceeds from issuance of long-term debt 61,000 6,000
Principal payments on long-term borrowings (12,008) -
Proceeds from issuance of junior subordinated debt owed to unconsolidated trust 15,000 -
--------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES $ 144,499 $ 52,640
--------- --------
NET (DECREASE) INCREASE IN CASH AND DUE FROM BANKS $ (5,155) $ (1,774)
--------- --------
Cash and due from banks, beginning 52,397 $ 47,645
--------- --------
Cash and due from banks, ending $ 47,242 $ 45,871
========= ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
OTHER REAL ESTATE ACQUIRED IN SETTLEMENT OF LOANS $ - $ 265
--------- --------
PURCHASE OF SUBSIDIARY:
Purchase price $ 42,072 $ -
--------- --------
Assets acquired: -
Cash and due from other banks $ 6,082 -
Federal funds sold 1,593 -
Securities available for sale 49,285 -
Loans held for sale 1,853 -
Loans 147,758 -
Premises and equipment 3,483 -
Goodwill 24,350
Other intangible assets 2,648
Other assets 4,267 -
Liabilities assumed:
Deposits (147,084) -
Securities sold under agreements to repurchase (26,707) -
Long-term debt (23,322) -
Other liabilities (2,134) -
--------- --------
$ 42,072 $ -
========= ========
See accompanying notes to unaudited consolidated financial statements
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FIRST BUSEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(UNAUDITED)
2004 2003
---- ----
(Dollars in thousands)
Net income $ 10,901 $ 10,198
-------- -----------
Other comprehensive income, before tax:
Unrealized gains on securities:
Unrealized holding (losses) gains arising during period $ (1,716) $ 1,735
Less reclassification adjustment for gains included in net income (688) (299)
-------- -----------
Other comprehensive (loss) income, before tax $ (2,404) $ 1,436
Income tax expense related to items of other comprehensive income (970) 570
-------- -----------
Other comprehensive (loss) income, net of tax $ (1,434) $ 866
-------- -----------
Comprehensive income $ 9,467 $ 11,064
======== ===========
See accompanying notes to unaudited consolidated financial statements
FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: INTERIM FINANCIAL STATEMENTS
The consolidated interim financial statements of First Busey Corporation and
Subsidiaries are unaudited, but in the opinion of management reflect all
necessary adjustments, consisting only of normal recurring accruals, for a fair
presentation of results as of the dates and for the periods covered by the
financial statements. The consolidated financial statements have been prepared
in accordance with accounting principles generally accepted within the United
States of America for interim financial data and with the instructions to Form
10-Q and Article 10 of Regulation S-X. The results for the interim periods are
not necessarily indicative of the results of operations that may be expected for
the fiscal year.
In preparing the consolidated financial statements, the Corporation's management
is required to make estimates and assumptions that affect the reported amounts
of assets and liabilities as of the date of the financial statements and the
reported amounts of revenues and expenses for the reporting period. Actual
results could differ from those estimates.
8 of 38
NOTE 2: LOANS
The major classifications of loans as of June 30, 2004 and December 31, 2003
were as follows:
June 30, 2004 December 31, 2003
------------- -----------------
(Dollars in thousands)
Commercial $ 213,124 $ 138,272
Real estate construction 222,054 168,141
Real estate - farmland 10,460 11,890
Real estate - 1-4 family residential mortgage 451,678 406,102
Real estate - multifamily mortgage 97,688 91,325
Real estate - non-farm nonresidential mortgage 362,379 292,169
Installment 69,666 61,323
Agricultural 23,574 22,300
------------- ----------
$ 1,450,623 $1,191,522
Plus net deferred loan costs 837 874
------------- ----------
1,451,460 1,192,396
Less:
Allowance for loan losses 18,313 16,228
------------- ----------
Net loans $ 1,433,147 $1,176,168
============= ==========
The real estate-mortgage category includes loans held for sale with carrying
values of $28,089,000 at June 30, 2004 and $30,529,000 at December 31, 2003.
9 of 38
NOTE 3: EARNINGS PER SHARE*
Net income per common share has been computed as follows:
Three Months Ended Six Months Ended
June 30, June 30,
2004 2003 2004 2003
----------- ----------- ----------- -------------
Net income $ 5,541,000 $ 5,356,000 $ 10,90 $ 10,198,000
Shares:
Weighted average common shares outstanding 20,334,312 20,358,036 20,345,961 20,342,037
Dilutive effect of outstanding options, as determined
by the application of the treasury stock method 143,809 181,399 144,420 176,139
----------- ----------- ----------- -------------
Weighted average common shares outstanding,
as adjusted for diluted earnings per share calculation 20,478,121 20,539,435 20,490,381 20,518,176
=========== =========== =========== =============
Basic earnings per share $ 0.27 $ 0.26 $ 0.54 $ 0.50
=========== =========== =========== =============
Diluted earnings per share $ 0.27 $ 0.26 $ 0.53 $ 0.50
=========== =========== =========== =============
* Share and per share data have been retroactively adjusted to effect a
three-for-two stock split declared on July 23, 2004, as if it had occurred on
January 1, 2003.
NOTE 4: STOCK-BASED COMPENSATION*
First Busey Corporation applies Accounting Principles Board Opinion No. 25 in
accounting for stock options and discloses the fair value of options granted as
permitted by SFAS No. 123. The Corporation has recorded no compensation expense
associated with stock options as all options granted under its plan had an
exercise price equal to the market value of the common stock when granted.
The following summarizes the pro-forma effects assuming compensation expense had
been recorded based upon the estimated fair value:
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------------------
(dollars in thousands except per share data )
2004 2003 2004 2003
------- ------ ------- ---------
NET INCOME AS REPORTED $ 5,541 $5,356 $10,901 $ 10,198
Less compensation expense determined under fair value
method for all options granted, net of related tax effects 88 64 145 128
------- ------- ------- ---------
Pro-forma net income $ 5,453 $5,292 $10,756 $ 10,070
======= ======= ======= =========
BASIC EARNINGS PER SHARE
Reported net income $ 0.27 $ 0.26 $ 0.54 $ 0.50
Less compensation expense - - 0.01 -
------- ------- ------- ---------
Pro-forma net income $ 0.27 $ 0.26 $ 0.53 $ 0.50
======= ======= ======= =========
DILUTED EARNINGS PER SHARE
Reported net income $ 0.27 $ 0.26 $ 0.53 $ 0.50
Less compensation expense - - 0.01 0.01
------- ------- ------- ---------
Pro-forma net income $ 0.27 $ 0.26 $ 0.52 $ 0.49
======= ======= ======= =========
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In April, 2004, the Corporation granted 54,000 stock options (retroactively
adjusted to effect a three-for-two common stock split declared on July 23, 2004,
as if it had occurred prior to issuance of options). The fair value of the stock
options granted has been estimated using the Black-Scholes option-pricing model
with the following weighted average assumptions:
Number of options granted* 54,000
Risk-free interest rate 1.41%
Expected life, in years 4.67
Expected volatility 18.20%
Expected dividend yield 2.80%
Estimated fair value per option* $ 2.04
*Share and per share data have been retroactively adjusted to effect a
three-for-two common stock split declared on July 23, 2004, as if it had
occurred prior to issuance of options.
NOTE 5: JUNIOR SUBORDINATED DEBT OWED TO UNCONSOLIDATED TRUST
In June 2001, First Busey Corporation issued $25 million in cumulative trust
preferred securities through a newly formed Delaware business trust, First Busey
Capital Trust I. 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 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. Interest expense on the trust preferred securities was $1,125,000 for the
six-month periods ended June 30, 2004 and June 30, 2003. Prior redemption is
permitted under certain circumstances such as changes in tax and investment
company regulations. 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, and are callable beginning June 18, 2006.
Issuance costs of $1,340,000 related to the trust preferred debentures were
deferred and are being amortized over the period until mandatory redemption of
the debentures in June 2031.
Prior to the implementation of a new accounting standard in the first quarter of
2004, the financial statements of the Trust were included in the consolidated
financial statements of the Corporation because First Busey owns all of the
outstanding common equity securities of the Trust. However, because First Busey
is not the primary beneficiary of the Trust, in accordance with the new
accounting standard the financial statements of the Trust are no longer included
in the consolidated financial statements of the Corporation. The Corporation's
prior financial statements have been reclassified to de-consolidate the
Corporation's investment in the Trust. There was no cumulative effect on
stockholders' equity as a result of this adoption.
In April 2004, First Busey Corporation, through First Busey Statutory Trust II,
issued $15 million of trust preferred securities ("Securities") in a private
placement. The Securities were issued at an initial coupon rate of 3.82875%, pay
cumulative cash distributions quarterly, and are subject to repricing on a
quarterly basis (3-month LIBOR plus 2.65%). The proceeds of the offering were
invested by First Busey Statutory Trust II in junior subordinated deferrable
interest debentures of First Busey Corporation which represents all of the
assets of the Trust. The Securities are subject to mandatory redemption, in
whole or in part, upon repayment of the junior subordinated debentures at the
stated maturity or their earlier redemption, in each case at a redemption price
equal to the aggregate liquidation preference of the Securities plus any
accumulated and unpaid distributions thereon to the date of redemption. Prior
redemption is permitted under certain circumstances, such as changes in tax and
investment company regulations, and is subject to payment of premium above par
value if made within five years of issuance. 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.
11 of 38
First Busey Corporation used the proceeds of these debentures for general
corporate purposes and to partially fund the acquisition of First Capital
Bankshares, Inc. On January 6, 2004, the Board of Directors of First Busey
Corporation entered into an agreement with the Board of Directors of First
Capital Bankshares, Inc. to acquire all of the issued and outstanding stock of
First Capital for approximately $42 million or $5,750 per share. The acquisition
closed on June 1, 2004.
NOTE 6: OUTSTANDING COMMITMENTS
The Corporation is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its customers in
the way of commitments to extend credit. They involve, to varying degrees,
elements of credit risk in excess of the amount recognized in the balance
sheets.
The Corporation's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual amount of those instruments. The corporation uses
the same credit policies in making commitments and conditional obligations as
they do for on-balance-sheet instruments.
A summary of the contractual amount of the Corporation's exposure to off-balance
sheet risk follows:
June 30, 2004 December 31, 2003
------------- -----------------
(Dollars in thousands)
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit $ 347,556 $ 286,037
Standby letters of credit 13,050 11,682
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 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. As of June 30,
2004, and December 31, 2003, no amounts have been recorded as liabilities for
the Corporation's potential obligations under these guarantees.
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NOTE 7: SUBSEQUENT EVENT
On July 23, 2004, First Busey Corporation's Board of Directors approved a
three-for-two stock split. The stock split will be effected in the form of a 50%
dividend to be issued on August 3, 2004, for shareholders of record at the close
of business on August 2, 2004. Fractional share amounts resulting from the split
will be paid to shareholders in cash. Share and per share data have been
retroactively adjusted as if the stock split had occurred on January 1, 2003.
NOTE 8: BUSINESS COMBINATION
On June 1, 2004, First Busey Corporation acquired all the outstanding common
stock of First Capital Bankshares, Inc. and its subsidiary First Capital Bank, a
$239,000,000 bank headquartered in Peoria, Ilinois. This acquisition expands the
Corporation's banking presence in central Illinois into Peoria and surrounding
communities. The transaction has been accounted for as a purchase and the
results of operations of both entities since the acquisition date have been
included in the consolidated financial statements. The purchase price of
$42,072,000 was allocated based upon the fair value of the assets acquired. The
excess of the total acquisition cost over the fair value of the net assets
acquired has been allocated to core deposit intangible and goodwill. The core
deposit intangible of $2,648,000 is being amortized over a period of ten years.
Pro forma unaudited operating results for the six months ended June 30, 2004 and
2003, giving effect to the First Capital Bankshares acquisition as if it had
occurred as of January 1, 2003 are as follows:
2004 2003
---- ----
(Dollars in thousands except per share data)
Interest income $ 43,441 $ 42,528
Interest expense 14,523 16,121
Provision for loan losses 1,595 1,530
Noninterest income 12,696 14,483
Noninterest expense 22,238 22,471
---------- ----------
Income before income taxes $ 17,781 $ 16,889
Income taxes 6,183 5,870
---------- ----------
Net income $ 11,598 $ 11,019
========== ==========
Earnings per share - basic* $ 0.57 $ 0.54
---------- ----------
Earnings per share - diluted* $ 0.57 $ 0.54
========== ==========
* Per share data has been retroactively adjusted to effect a three-for-two
common stock split declared on July 23, 2004, as if it had occurred on January
1, 2003.
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 First Busey 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.
13 of 38
These risks, uncertainties and other factors include the general state of the
economy, both on a local and national level, the ability of the Corporation to
successfully complete acquisitions, the continued growth of geographic regions
served by the Corporation, and the retention of key individuals in the
Corporation's management structure.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of the financial condition
of First Busey Corporation and Subsidiaries ("Corporation") at June 30, 2004
(unaudited), as compared with December 31, 2003 and the results of operations
for the six months ended June 30, 2004 and 2003 (unaudited), and the results of
operations for the three months ended June 30, 2004 and 2003 (unaudited). This
discussion and analysis should be read in conjunction with the Corporation's
consolidated financial statements and notes thereto appearing elsewhere in this
quarterly report.
Certain reclassifications have been made to the balances, with no effect on net
income, as of and for the three and six months ending June 30, 2003, to be
consistent with the classifications adopted as of and for the three and six
months ending June 30, 2004. Share and per share data have been retroactively
adjusted to effect a three-for-two common stock split declared on July 23, 2004,
as if it had occurred on January 1, 2003.
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.
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 consolidated 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 evaluation,
on a monthly basis, of all impaired loans (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
14 of 38
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.
FINANCIAL CONDITION AT JUNE 30, 2004 AS COMPARED TO DECEMBER 31, 2003
Total assets increased $352,974,000 or 23.2%, to $1,875,058,000 at June 30, 2004
from $1,522,084,000 at December 31, 2003. Of the increase in total assets,
$241,319,000 is attributable to the acquisition of First Capital Bank.
Securities available for sale increased $59,800,000, or 26.6%, to $284,533,000
at June 30, 2004 from $224,733,000 at December 31, 2003. The First Capital Bank
acquisition contributed $49,285,000 to the increase in securities available for
sale. Loans increased $259,064,000, or 21.7%, to $1,451,460,000 at June 30, 2004
from $1,192,396,000 at December 31, 2003, primarily due to increases in
commercial, real estate construction, 1-4 family residential mortgage, and
non-farm non residential mortgage loans. Of the increase in total loans,
$149,611,000 is attributable to the acquisition of First Capital Bank.
Total deposits increased $226,602,000, or 18.0%, to $1,483,197,000 at June 30,
2004 from $1,256,595,000 at December 31, 2003. Noninterest-bearing deposits
increased 13.1% to $181,599,000 at June 30, 2004 from $160,578,000 at December
31, 2003. Interest-bearing deposits increased 18.8% to $1,301,598,000 at June
30, 2004, from $1,096,017,000 at December 31, 2003. At acquisition, First
Capital Bank added $147,084,000 in total deposits, $12,876,000 of which were
noninterest-bearing.
Securities sold under agreements to repurchase increased to $35,480,000 as of
June 30, 2004, from $7,500,000 as of December 31, 2003. At acquisition, First
Capital had $26,707,000 in securities sold under agreements to repurchase. Other
short-term borrowings increased to $14,250,000 with the addition of short-term
advances from the Federal Home Loan Bank of Chicago. The balance of long-term
debt increased $72,314,000 to $165,167,000 as of June 30, 2004, compared to
$92,853,000 as of December 31, 2003. Of this increase, $30,000,000 is in the
form of a note payable which matures in June 2011, the proceeds of which were
used to partially fund the acquisition of First Capital Bankshares of Peoria,
Illinois, and $23,322,000 was acquired with the addition of First Capital Bank.
During the first six months of 2004, the Corporation repurchased 103,650 shares
of its common stock at an aggregate cost of $1,886,000. Following the purchase
of these shares the corporation has repurchased 719,034 shares under its 2001
Stock Repurchase Plan. On February 27, 2004, First Busey's Board of Directors
approved a stock repurchase plan for the repurchase of 750,000 shares of common
stock. Through June 30, 2004, the Corporation has made no repurchases under the
2004 plan. The corporation is purchasing shares for the treasury as they become
available in order to meet future issuance requirements of previously granted
non-qualified stock options. As of June 30, 2004, there were 187,800 options
currently exercisable. There were an additional 395,925 stock options
outstanding but not currently exercisable.
15 of 38
ASSET QUALITY
The following table sets forth the components of non-performing assets and past
due loans.
June 30, 2004 December 31, 2003
------------- -----------------
(Dollars in thousands)
Non-accrual loans $ 2,030 $ 2,638
Loans 90 days past due, still accruing 1,121 581
Restructured loans - -
Other real estate owned 4,886 4,781
Non-performing other assets 25 10
-------- -------
Total non-performing assets $ 8,062 $ 8,010
======== =======
Total non-performing assets as a percentage of total assets 0.43% 0.53%
======== =======
Total non-performing assets as a percentage of loans plus
non-performing assets 0.55% 0.67%
======== =======
Loans 90 days past due and still accruing were $1,121,000 or 0.08% of total
loans as of June 30, 2004, compared to $581,000 or 0.05% of total loans as of
December 31, 2003. The balance of other real estate owned increased to
$4,886,000 as of June 30, 2004, compared to $4,781,000 as of December 31, 2003.
In September, 2003, upon completion of foreclosure proceedings, Busey Bank
became owner of a hotel property in Bloomington, Illinois. In December, 2003,
ownership of this property was transferred to First Busey Resources, Inc., a
nonbank subsidiary of First Busey Corporation. The carrying value of this hotel
property, included in other real estate owned, was $4,013,000 as of June 30,
2004 and $4,006,000 as of December 31, 2003.
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 loan losses. Potential problem loans totaled $8,048,000 at
June 30, 2004, as compared to $10,566,000 as of December 31, 2003. There are no
other loans identified which management believes represent or result from trends
or uncertainties which management reasonably expects will materially impact
future operating results, liquidity or capital resources. There are no other
credits identified about which management is aware of any information which
causes management to have serious doubts as to the ability of such borrower(s)
to comply with the loan repayment terms.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2004, AS COMPARED TO JUNE 30, 2003
SUMMARY
Net income for the six months ended June 30, 2004, increased 6.9% to $10,901,000
as compared to $10,198,000 for the comparable period in 2003. Year-to-date
diluted earnings per share increased 6.0% to $0.53 for the six months ending
June 30, 2004, as compared to $0.50 for the same period in 2003. As a result of
the common stock split announced on July 23, 2004, and payable on August 2,
2004, all share and per share data have been retroactively adjusted to effect a
three-for-two stock split as if it had occured on January 1, 2003.
The Corporation's return on average assets was 1.38% for the six months ended
June 30, 2004, as compared to 1.43% for the comparable period in 2003. The
Corporation's return on average shareholders' equity was 17.26% for the six
months ended June 30, 2004, as compared to 17.23% for the same period in 2003.
16 of 38
EARNING ASSETS, SOURCES OF FUNDS, AND NET INTEREST MARGIN
Average earning assets increased $138,287,000 or 10.3% to $1,484,228,000 for the
six months ending June 30, 2004, as compared to $1,345,941,000 for the same
period last year. This growth is due primarily to growth in the average balance
of loans offset partially by declines in the average balances of Federal funds
sold and investment securities.
Interest-bearing liabilities averaged $1,283,096,000 during the first six months
of 2004, an increase of $116,751,000 or 10.0% from the average balance of
$1,166,345,000 for the same period in 2003. This growth is due primarily to
growth in the average balances of money market deposits, short-term borrowings,
and long-term debt.
Income on interest-earning assets is accrued 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.
Net interest income, on a fully taxable equivalent basis, increased $1,940,000
or 8.0% to $26,262,000 for the six months ended June 30, 2004, compared to
$24,322,000 for the comparable period in 2003. Net interest margin, the
Corporation's net interest income, expressed as a percentage of average earning
assets stated on a fully taxable equivalent basis, was 3.56% for the six months
ended June 30, 2004, as compared to 3.64% for the comparable period in 2003. The
net interest margin expressed as a percentage of average total assets, also on a
fully taxable equivalent basis, was 3.33% for the six months ended June 30,
2004, compared to 3.41% for the comparable period in 2003.
Interest income, on a tax equivalent basis, for the six months ended June 30,
2004, was $38,774,000, which is $959,000 or 2.5% higher than the $37,815,000
earned during the comparable period in 2003. The average yield on
interest-earning assets declined 41 basis points to 5.25% for the six months
ended June 30, 2004, compared to 5.66% for the comparable period in 2003. Growth
in the average balance of loans was partially offset by the declines in yield on
loans and U.S. Government obligation investments.
Interest expense for the six months ended June 30, 2004, was $12,512,000, which
is $981,000 or 7.3% lower than the $13,493,000 for the comparable period in
2003. The average rate paid on interest-bearing liabilities declined 37 basis
points to 1.96% for the six months ended June 30, 2004, compared to 2.33% for
the comparable period in 2003. The average rate paid on all categories of
interest-bearing liabilities were lower during the first six months of 2004 than
in the comparable period in 2003.
PROVISION FOR LOAN LOSSES
The Corporation's provision for loan losses of $1,080,000 during the six months
ended June 30, 2004, is $150,000 more than the $930,000 recorded during the
comparable period in 2003. The provision and net charge-offs of $1,064,000 for
the six-month period ending June 30, 2004, resulted in the allowance
representing 1.26% of total loans and 581% of non-performing loans as of June
30, 2004, as compared to the allowance representing 1.36% of outstanding loans
and 504% of non-performing loans as of December 31, 2003. Net charge-offs for
the first six months of 2004 were $1,064,000 compared to $63,000 for the
comparable period in 2003. The net chargeoff ratio (net charge-offs as a
percentage of average loans) was 0.17% for the six-month period ending June 30,
2004, reflecting an increase from 0.01% for the same period in 2003. Of the net
chargeoffs recognized during the first six months of 2004, $850,000 was related
to one commercial customer. Busey Bank has an additional balance o $560,000
included in nonaccrual loans to this customer as of June 30, 2004. This
remaining balance represents the expected net realizable value of outstanding
accounts receivable which have been pledged as collateral on these loans. The
adequacy of the allowance for loan losses is consistent with management's
consideration of the composition of the portfolio, non-performing asset levels,
recent credit quality experience, historic charge-off trends, and prevailing
economic conditions among other factors.
17 of 38
OTHER INCOME, OTHER EXPENSE, AND INCOME TAXES
Total other income, excluding security gains, decreased $2,007,000 or 15.4% to
$11,040,000 for the six months ended June 30, 2004, compared to $13,047,000 for
the same period in 2003. The decrease is primarily due to a decline in gains on
the sale of mortgage loans which was only partially offset by growth in trust
fees, commissions and brokers' fees, service charges, and other operating
income.
During the first six months of 2004 the Corporation recognized $1,281,000 on the
sale of $90,711,000 in mortgage loans compared to $4,474,000 on the sale of
$237,329,000 of loans during the prior year period. The interest-rate and debt
markets have strong influence on the level of mortgage loan origination and
sales volumes. As interest rates have risen, origination and sales activity
related to home purchases has remained strong while refinancing activity has
slowed considerably. While mortgage loan originations and sales volumes are down
considerable from 2003, management anticipates continued sales from current
production. The Corporation may realize gains and/or losses on these sales
dependent upon interest-rate movements and upon how receptive the debt markets
are to mortgage-backed securities.
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
transaction volumes. While these estimates and assumptions may be considered
complex, First Busey has implemented controls and processes to ensure the
accuracy of these accruals.
During the second quarter of 2003, the Corporation recorded a valuation
allowance of $215,000 to the carrying value of its mortgage servicing assets as
loans in the Corporation's sold loan portfolio were prepaying more rapidly than
anticipated when the loans were sold. Mortgage servicing asset amortization of
$851,000 and the valuation allowance of $215,000 were recorded as charges
against the servicing income on sold mortgage loans and were included in other
operating income. The Corporation recorded no such adjustment in 2004, but has
recognized amortization expense of $588,000 during the six months ended June 30,
2004.
During the six months ending June 30, 2004, the Corporation recognized security
gains of approximately $415,000 after income taxes, representing 3.8% of net
income. During the same period in 2003, security gains of approximately $180,000
after income taxes were recognized, representing 1.8% of net income. The
Corporation owns a position in a qualified equity security with substantial
appreciated value. First Busey's Board of Directors has authorized an orderly
liquidation of this asset.
Total other expenses decreased $703,000 or 3.5% to $19,663,000 for the six
months ending June 30, 2004, compared to $20,366,000 for the comparable period
in 2003.
Salaries and wage expense decreased $512,000 or 5.3% to $9,124,000 for the six
months ended June 30, 2004, as compared to $9,636,000 during the same period
last year. The decline in salary expense is due primarily to lower commission
payments and other incentive compensation programs for associates involved in
originating, processing, and selling mortgage loans held for sale.
Other operating expenses decreased $616,000 or 14.0% to $3,787,000 for the six
months ending June 30, 2004, as compared to $4,403,000 for the comparable period
in 2003. During the first six months of 2003, Busey Bank recorded valuation
adjustments of $637,000 on the carrying value of properties held in its other
real estate owned inventory but has recorded no such adjustments in 2004.
Income taxes for the six months ended June 30, 2004, increased to $5,740,000 as
compared to $5,531,000 for the comparable period in 2003. As a percentage of
income before taxes, the provision for income taxes decreased slightly to 34.5%
for the six months ended June 30, 2004, from 35.2% for the comparable period in
2003.
18 of 38
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2004, AS COMPARED TO JUNE 30, 2003
SUMMARY
Net income for three months ended June 30, 2004, increased $185,000 or 3.5% to
$5,541,000 as compared to $5,356,000 for the three months ending June 30, 2003.
Diluted earnings per share increased $.01 or 3.8% to $0.27 for the three months
ending June 30, 2004, as compared to $0.26 for the comparable period in 2003. As
a result of the common stock split announced on July 23, 2004, and payable on
August 3, 2004, all share and per share data have been retroactively adjusted to
effect a three-for-two stock split as if it had occured on January 1, 2003.
The Corporation's return on average assets was 1.35% for the three-month period
ending June 30, 2004, compared to 1.48% for the comparable period in 2003. The
return on average shareholders' equity was 17.40% for the three-month period
ending June 30, 2004, compared to 17.71% for the comparable period in 2003.
EARNING ASSETS, SOURCES OF FUNDS, AND NET INTEREST MARGIN
Average earning assets increased $186,298,000 or 13.7% to $1,545,837,000 for the
three months ended June 30, 2004, as compared to $1,359,539,000 for the
comparable period last year. This is due primarily to growth in the average
balance of outstanding loans.
Interest-bearing liabilities averaged $1,345,681,000 during the three months
ended June 30, 2004, an increase of $170,966,000 or 14.6% from the average
balance of $1,174,715,000 for the comparable period in 2003. This growth is due
to increases in the average balances of money market deposits, time deposits,
long-term debt, and trust preferred securities.
Net interest income on a fully taxable equivalent basis, increased $1,438,000 or
11.8% to $13,611,000 for the three months ended June 30, 2004, compared to
$12,173,000 for the comparable period in 2003. Net interest margin, the
Corporation's net interest income, expressed as a percentage of average earning
assets stated on a fully taxable equivalent basis, was 3.53% for the three
months ended June 30, 2004, as compared to 3.59% for the comparable period in
2003. The net interest margin expressed as a percentage of average total assets,
also on a fully taxable equivalent basis, was 3.30% for the three months ended
June 30, 2004, compared to 3.37% for the comparable period in 2003.
Interest income, on a tax equivalent basis, for the three months ended June 30,
2004, was $20,229,000, which is $1,406,000 or 7.5% higher than the $18,823,000
earned during the comparable period in 2003. The average yield on
interest-earning assets declined 30 basis points to 5.25% for the three months
ended June 30, 2004, compared to 5.55% for the three months ended June 30, 2003.
The decline in yields is due primarily to declines in the average yield earned
on U.S. Government obligations and loans.
Interest expense for the three months ended June 30, 2004, was $6,618,000, which
is $32,000 or 0.5% lower than the $6,650,000 for the comparable period in 2003.
The average rate paid on interest-bearing liabilities declined 30 basis points
to 1.97% for the three months ended June 30, 2004, compared to 2.27% for the
comparable period in 2003. Declines in the average rate paid on all categories
of interest-bearing liabilities offset growth in the average balances of
deposits, long-term debt, and junior subordinated debt owed to unconsolidated
trust.
OTHER INCOME, OTHER EXPENSE, AND INCOME TAXES
Total other income, excluding security transactions, declined $1,218,000 or
18.0% to $5,537,000 for the three months ended June 30, 2004, compared to
$6,755,000 for the same period in 2003. A large decline in gains on the sales of
loans was only partially offset by growth in trust fees, commissions and
brokers' fees. Gains of $459,000 were recognized on the sale of $47,029,000 of
mortgage loans during the three months ending
19 of 38
June 30, 2004, compared to gains of $2,239,000 on the sale of $118,783,000 in
mortgage loans during the prior year period.
During the three-month period ending June 30, 2004, the Corporation recognized
security gains of approximately $299,000, after income taxes, representing 5.4%
of net income. During the comparable period in 2003, security gains of
approximately $70,000, after income taxes, were recognized, representing 1.3% of
net income.
Total other expenses increased $212,000 or 2.1% to $10,196,000 for the three
months ending June 30, 2004, compared to $9,984,000 for the comparable period in
2003.
Salaries and wage expense decreased $364,000 or 7.4% to $4,583,000 for the three
months ended June 30, 2004, as compared to $4,947,000 during the same period
last year. Again, the decline in salary and wage expense is due to reduced
levels of compensation due to reduced mortgage production.
Occupancy and furniture and equipment expenses increased $179,000 or 13.3% to
$1,521,000 for the three-month period ending June 30, 2004, compared to
$1,342,000 during the comparable period in 2003. Net occupancy expenses
increased $219,000 or 30.7% to $933,000 for the three months ended June 30, 2004
compared to $714,000 for the comparable period in 2003 due to increased rent
expense for temporary office space during branch remodeling combined with
reduced receipts on property leased to non-related entities.
Income taxes for the three-month period ending June 30, 2004, decreased to
$2,936,000 as compared to $3,055,000 for the comparable period in 2003. As a
percentage of income before taxes, the provision for income taxes decreased
moderately to 34.6% for the three months ended June 30, 2004, from 36.3% for the
comparable period in 2003.
REPORTABLE SEGMENTS AND RELATED INFORMATION
First Busey Corporation has four reportable segments, Busey Bank, Busey Bank
Florida, First Capital Bank, and Busey Investment Group. Busey Bank provides a
full range of banking services to individual and corporate customers through its
branch network in Champaign, McLean and Ford Counties in Illinois, through its
branch in Indianapolis, Indiana, and through its loan production office in Fort
Myers, Florida. Busey Bank Florida provides a full range of banking services to
individual and corporate customers in Fort Myers and Cape Coral, Florida. First
Capital Bank, acquired June 1, 2004, provides a full range of banking services
to individual and corporate customers in Peoria and Pekin, Illinois. Busey
Investment Group is a wholly-owned subsidiary of First Busey Corporation and
owns three subsidiaries: First Busey Trust & Investment Co. which provides trust
and asset management services to individual and corporate customers throughout
Central Illinois; First Busey Securities, Inc., a full-service broker/dealer
subsidiary; and Busey Insurance Services, Inc., an insurance agency which
provides personal insurance products and specializes in long-term healthcare
insurance.
In prior periods, First Busey has reported First Busey Trust & Investment Co. as
a separate segment. Over time, the three subsidiaries of Busey Investment Group
have converged and are now directed by a common management team in a similar
operating style, share similar marketing strategies, and share common office
locations. Likewise, the financial results of these three subsidiaries are
reviewed and monitored on a consolidated basis. Therefore, management of First
Busey Corporation has identified Busey Investment Group as the more appropriate
reportable segment.
The Corporation's four 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
four segments are the same as those described in the summary of significant
accounting policies in the annual report. The Corporation accounts for
intersegment revenue and transfers at current market value.
20 of 38
Following is a summary of selected financial information for the Corporation's
business segments for the six-month periods ended June 30, 2004, and June 30,
2003:
Six Months Ended June 30,
2004 2003
----------- -----------
(dollars in thousands)
Interest Income:
Busey Bank $ 33,748 $ 35,069
Busey Bank Florida 3,430 1,988
First Capital Bank 848 -
Busey Investment Group 72 76
All Other - 39
----------- -----------
Total Interest Income $ 38,168 $ 37,172
----------- -----------
Interest Expense:
Busey Bank $ 9,752 $ 11,357
Busey Bank Florida 1,125 1,010
First Capital Bank 311 -
Busey Investment Group - -
All Other 1,324 1,126
----------- -----------
Total Interest Expense $ 12,512 $ 13,493
----------- -----------
Other Income:
Busey Bank $ 7,754 $ 10,081
Busey Bank Florida 222 335
First Capital Bank 113 -
Busey Investment Group 3,752 3,183
All Other (113) (253)
----------- -----------
Total Other Income $ 11,728 $ 13,346
----------- -----------
Net Income:
Busey Bank $ 10,157 $ 10,503
Busey Bank Florida 573 55
First Capital Bank 150 -
Busey Investment Group 1,064 760
All Other (1,043) (1,120)
----------- -----------
Total Net Income $ 10,901 $ 10,198
----------- -----------
Goodwill:
Busey Bank $ 5,832 $ 5,832
Busey Bank Florida - -
First Capital Bank 24,350 -
Busey Investment Group - -
All Other 1,548 1,548
----------- -----------
Total Goodwill $ 31,730 $ 7,380
----------- -----------
Net Assets:
Busey Bank $ 1,469,209 $ 1,395,252
Busey Bank Florida 136,663 87,758
First Capital Bank 254,003 -
Busey Investment Group 5,870 5,053
All Other 9,313 12,149
----------- -----------
Total Assets $ 1,875,058 $ 1,500,212
----------- -----------
21 of 38
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.
The Corporation's primary sources of funds, consists of deposits, investment
maturities and sales, loan principal repayment, deposits, and capital funds.
Additional liquidity is provided by brokered deposits, bank lines of credit,
repurchase agreements and the ability to borrow from the Federal Reserve Bank
and the Federal Home Loan Bank. The Corporation has an operating line with Bank
One in the amount of $10,000,000, all of which was available as of June 30,
2004. Long-term liquidity needs will be satisfied primarily through retention of
capital funds.
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 the first six months of 2004 the
Corporation originated $86,104,000 and sold $90,711,000 in mortgage loans for
sale compared to originations of $224,162,000 and sales of $237,329,000 during
the first six months of 2003. As of June 30, 2004, the Corporation held
$28,089,000 in loans held for sale. Management intends to sell these loans
during the third quarter of 2004.
On June 1, 2004, First Busey Corporation completed the acquisition of First
Capital Bankshares, Inc. of Peoria, Illinois, the holding company of First
Capital Bank. In order to partially fund this transaction, First Busey issued
$15,000,000 in trust preferred securities through First Busey Statutory Trust
II. These securities were issued in April 2004. In order to fund the rest of the
$42,070,000 purchase price, First Busey borrowed funds in the form of a note
payable which requires annual principal reductions of $4,000,000 and matures in
June, 2011. The Corporation intends to review various alternatives for
refinancing this note on a longer-term basis and will determine its course of
action in 2005.
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 enter into commitments to
extend credit in the normal course of their business. As of June 30, 2004, and
2003, the Corporation had outstanding loan commitments including lines of credit
of $347,556,000 and $233,745,000, 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.
The Corporation has entered into certain contractual obligations and other
commitments. Such obligations generally relate to funding of operations through
deposits, debt issuance, and property and equipment leases.
22 of 38
The following table summarizes significant contractual obligations and other
commitments as of June 30, 2004:
Securities
Sold under
Agreements to Junior
Repurchase and Subordinated
Short- and Debt Owed to
Certificates Long-term Unconsolidated
Due Within of Deposit Borrowings Leases Trust Total
- ---------- ---------- ---------- ------ ----- -----
(Dollars in thousands)
1 year $ 374,979 $ 87,596 $ 862 $ - $ 463,437
2 years 95,938 20,418 804 - 117,160
3 years 95.013 28,223 782 - 124,018
4 years 35,660 35,373 661 - 71,694
5 years 24,661 22,373 356 - 47,390
Thereafter 253 20,914 319 40,000 61,486
---------- ---------- -------- ---------- -----------
Total $ 626,504 $ 214,897 $ 3,784 $ 40,000 $ 885,185
========== ========== ======== ========== ===========
Commitments to extend credit $ 347,556
===========
Net cash flows provided by operating activities totaled $17,959,000 during the
six months ended June 30, 2004, compared to $23,644,000 during the prior year
period. Significant items affecting the cash flows provided by operating
activities are net income, depreciation and amortization expense, the provision
for loan losses, and activities related to the origination and sale of loans
held for sale. Operating cash flow decreased during the first six months of 2004
compared to the same period in 2003 due primarily to lower mortgage loan sale
activity. During the first six months of 2004 the Corporation originated
$86,104,000 in loans held for sale and generated $91,992,000 from the sale of
held-for-sale loans resulting in net cash provided by loan originations and sale
of $5,888,000. During the comparable period in 2003, the Corporation originated
$224,162,000 in held-for-sale loans and generated $241,803,000 from the sale of
held-for-sale loans leading to net cash provided by loan originations and sale
of $17,641,000.
Net cash used in investing activities was $167,613,000 for the six months ended
June 30, 2004, compared to $78,058,000 for the comparable period in 2003.
Significant activities affecting cash flows from investing activities are those
activities associated with managing the Corporation's investment portfolio,
loans held in the Corporation's portfolio, and subsidiary or business unit
acquisition activities. During the six months ended June 30, 2004, proceeds from
the sales and maturities of securities classified as available for sale totaled
$45,035,000, and the Corporation purchased $57,024,000 in securities resulting
in net cash used by securities activity of $11,989,000. In the comparable period
of 2003 proceeds from the sales and maturities of securities classified as
available for sale totaled $132,740,000, and the Corporation purchased
$145,571,000 in securities resulting in net cash used by securities activity of
$12,831,000. The Corporation's loan portfolio increased $113,055,000 during the
first six months of 2004, compared to an increase of $27,256,000 in the
comparable period of 2003. During June, 2004, the Corporation purchased the
outstanding shares of First Capital Bankshares resulting in the net use of
$35,990,000.
Net cash provided by financing activities was $144,499,000 during the first six
months of 2004 compared to $52,640,000 for the comparable period in 2003.
Significant items affecting cash flows from financing activities are deposits,
short-term borrowings, and long-term debt. Deposits, which are the Corporation's
primary funding source, grew $78,518,000 during the first six months of 2004,
compared to a net increase of $43,677,000 during the comparable period in 2003.
The Corporation has increased its use of short-term and long-term advances from
the Federal Home Loan Banks of Chicago and Atlanta to partially fund loan
growth. The Corporation issued junior subordinated debt and increased long-term
debt to fund the acquisition of First Capital Bankshares in June, 2004.
23 of 38
CAPITAL RESOURCES
Other than from the issuance of common stock, the Corporation's primary source
of capital is retained net income. During the six months ended June 30, 2004,
the Corporation earned $10,901,000 and paid dividends of $5,153,000 to
stockholders, resulting in a retention of current earnings of $5,748,000. The
Corporation's dividend payout for the six months ended June 30, 2004 was 47.3%.
The Corporation and the Banks are subject to regulatory capital requirements
administered by federal and state banking agencies. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Corporation and the Banks must meet specific capital guidelines that involve the
quantitative measure of their assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. Quantitative measures
established by regulation to ensure capital adequacy require the Corporation and
the Banks to maintain minimum amounts and ratios (set forth in the table below)
of total and Tier I capital (as defined in the regulations) to risk-weighted
assets (as defined), and Tier 1 capital (as defined) to average assets (as
defined). Management believes, as of June 30, 2004, that the Corporation and the
Banks meet all capital adequacy requirements to which they are subject.
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 JUNE 30, 2004:
TOTAL CAPITAL (TO RISK WEIGHTED ASSETS)
Consolidated $ 147,181 10.44% $ 112,823 8.00% N/A N/A
Busey Bank $ 122,646 10.92% $ 89,835 8.00% $ 112,293 10.00%
Busey Bank Florida $ 13,022 12.36% $ 8,429 8.00% $ 10,536 10.00%
First Capital Bank $ 16,683 10.31% $ 12,952 8.00% $ 16,189 10.00%
TIER I CAPITAL (TO RISK WEIGHTED ASSETS)
Consolidated $ 124,388 8.82% $ 56,412 4.0% $ N/A N/A
Busey Bank $ 104,295 9.29% $ 44,918 4.0% $ 67,376 6.00%
Busey Bank Florida $ 11,890 11.29% $ 4,215 4.0% $ 6,322 6.00%
First Capital Bank $ 14,679 9.07% $ 6,476 4.0% $ 9,714 6.00%
TIER I CAPITAL (TO AVERAGE ASSETS)
Consolidated $ 124,388 7.76% $ 64,107 4.0% N/A N/A
Busey Bank $ 104,295 7.36% $ 56,667 4.0% $ 70,834 5.00%
Busey Bank Florida $ 11,890 9.61% $ 4,949 4.0% $ 6,186 5.00%
First Capital Bank $ 14,679 6.44% $ 9,111 4.0% $ 11,389 5.00%
24 of 38
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, 2003:
TOTAL CAPITAL (TO RISK WEIGHTED ASSETS)
Consolidated $ 150,545 13.33% $ 90,350 8.0% N/A N/A
Busey Bank $ 117,133 11.30% $ 82,934 8.0% $ 103,667 10.0%
Busey Bank Florida $ 12,402 15.50% $ 6,402 8.0% $ 8,003 10.0%
TIER I CAPITAL (TO RISK WEIGHTED ASSETS)
Consolidated $ 131,277 11.62% $ 45,175 4.0% N/A N/A
Busey Bank $ 99,920 9.64% $ 41,467 4.0% $ 62,201 6.00%
Busey Bank Florida $ 11,514 14.39% $ 3,201 4.0% $ 4,802 6.00%
TIER I CAPITAL (TO AVERAGE ASSETS)
Consolidated $ 131,277 8.85% $ 59,363 4.0% N/A N/A
Busey Bank $ 99,920 7.33% $ 54,543 4.0% $ 68,179 5.00%
Busey Bank Florida $ 11,514 10.16% $ 4,533 4.0% $ 5,666 5.00%
25 of 38
FIRST BUSEY CORPORATION AND SUBSIDIARIES
AVERAGE BALANCE SHEETS AND INTEREST RATES
SIX MONTHS ENDED JUNE 30, 2004 AND 2003
2004 2003
--------------------------------- ---------------------------------
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
------- ------- ---- ------- ------- ----
(Dollars in thousands)
ASSETS
Federal funds sold $ 5,631 $ 28 1.00% $ 13,485 $ 77 1.15%
Investment securities
U.S. Government obligations 142,304 1,890 2.67% 163,840 2,821 3.47%
Obligations of states and political
subdivisions (1) 47,392 1,423 6.04% 51,789 1,586 6.18%
Other securities 32,666 609 3.75% 25,539 404 3.19%
Loans (net of unearned interest) (1) (2) 1,256,235 34,824 5.57% 1,091,288 32,927 6.08%
----------- --------- ----------- --------
Total interest earning assets $ 1,484,228 $ 38,774 5.25% $ 1,345,941 $ 37,815 5.66%
========= ========
Cash and due from banks 43,237 37,563
Premises and equipment 23,166 26,668
Allowance for loan losses (16,897) (15,881)
Other assets 50,604 42,495
----------- -----------
Total Assets $ 1,584,338 $ 1,436,786
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing transaction deposits $ 22,519 $ 54 0.48% $ 18,008 $ 51 0.57%
Savings deposits 111,669 320 0.58% 104,325 429 0.83%
Money market deposits 475,380 1,546 0.65% 428,157 1,828 0.86%
Time deposits 503,290 6,977 2.79% 504,663 8,292 3.31%
Short-term borrowings:
Federal funds purchased 9,074 55 1.22% 3,513 26 1.49%
Repurchase agreements 14,374 62 0.87% 7,308 71 1.96%
Other 6,391 46 1.45% - - -
Long-term debt 108,970 2,231 4.12% 75,371 1,671 4.47%
Junior subordinated debt owed
To unconsolidated trust 31,429 1,221 7.81% 25,000 1,125 9.07%
----------- --------- ----------- --------
Total interest-bearing liabilities $ 1,283,096 $ 12,512 1.96% $ 1,166,345 $ 13,493 2.33%
========= ========
Net interest spread 3.29% 3.33%
==== ====
Demand deposits 165,565 141,413
Other liabilities 8,636 9,681
Stockholders' equity 127,041 119,347
----------- -----------
Total Liabilities and Stockholders' Equity $ 1,584,338 $ 1,436,786
=========== ===========
Interest income / earning assets (1) $ 1,484,228 $ 38,774 5.25% $ 1,345,941 $ 37,815 5.66%
Interest expense / earning assets $ 1,484,228 $ 12,512 1.69% $ 1,345,941 $ 13,493 2.02%
--------- ---- -------- ----
Net interest margin (1) $ 26,262 3.56% $ 24,322 3.64%
========= ==== ======== ====
(1) On a tax-equivalent basis, assuming a federal income tax rate of 35% for
2004 and 2003.
(2) Non-accrual loans have been included in average loans, net of unearned
interest.
26 of 38
FIRST BUSEY CORPORATION AND SUBSIDIARIES
CHANGES IN NET INTEREST INCOME
SIX MONTHS ENDED JUNE 30, 2004 AND 2003
Change due to(1)
Average Average Total
Volume Yield/Rate Change
------ ---------- ------
(Dollars in thousands)
Increase (decrease) in interest income:
Federal funds sold $ (40) $ (9) $ (49)
Investment securities:
U.S. Government obligations (338) (593) (931)
Obligations of states and political
subdivisions (2) (129) (34) (163)
Other securities 109 96 205
Loans (2) 4,257 (2,360) 1,897
------- ------- -------
Change in interest income (2) $ 3,859 $(2,900) $ 959
------- ------- -------
Increase (decrease) in interest expense:
Interest-bearing transaction deposits $ 8 $ (5) $ 3
Savings deposits 33 (142) (109)
Money market deposits 239 (521) (282)
Time deposits (22) (1,293) (1,315)
Short-term borrowings:
Federal funds purchased 33 (4) 29
Repurchase agreements 50 (59) (9)
Other 46 - 46
Long-term debt 681 (121) 560
Junior subordinated debt owed to unconsolidated trust 209 (113) 96
------- ------- -------
Change in interest expense $ 1,277 $(2,258) $ (981)
------- ------- -------
Increase in net interest income (2) $ 2,582 $ (642) $ 1,940
======= ======= =======
(1) Changes due to both rate and volume have been allocated proportionally.
(2) On a tax-equivalent basis, assuming a federal income tax rate of 35% for
2004 and 2003.
27 of 38
FIRST BUSEY CORPORATION AND SUBSIDIARIES
AVERAGE BALANCE SHEETS AND INTEREST RATES
QUARTERS ENDED JUNE 30, 2004 AND 2003
2004 2003
----------------------------------- ---------------------------------------
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
------- ------- ---- ------- ------- ----
(Dollars in thousands)
ASSETS
Federal funds sold $ 10,652 $ 27 1.02% $ 15,257 $ 44 1.16%
Investment securities
U.S. Government obligations 142,862 934 2.62% 166,544 1,377 3.32%
Obligations of states and political
subdivisions (1) 48,002 726 6.07% 52,693 791 6.02%
Other securities 37,784 401 4.26% 25,944 215 3.32%
Loans (net of unearned interest) (1) (2) 1,306,537 18,141 5.57% 1,099,101 16,396 5.98%
------------ --------- ------------ ---------
Total interest earning assets $ 1,545,837 $ 20,229 5.25% $ 1,359,539 $ 18,823 5.55%
========= =========
Cash and due from banks 45,882 38,070
Premises and equipment 23,873 25,868
Allowance for loan losses (17,410) (16,167)
Other assets 53,811 43,046
------------ ------------
Total Assets $ 1,651,993 $ 1,450,356
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing transaction deposits $ 24,037 $ 34 0.57% $ 18,219 $ 26 0.57%
Savings deposits 113,418 162 0.57% 106,876 217 0.81%
Money market deposits 491,086 832 0.68% 430,678 912 0.85%
Time deposits 528,603 3,622 2.75% 502,258 4,021 3.21%
Short-term borrowings:
Federal funds purchased 5,355 16 1.20% 5,300 20 1.51%
Repurchase agreements 18,419 45 0.98% 8,625 32 1.49%
Other 9,036 34 1.51% - - -
Long-term debt 119,477 1,215 4.08% 77,759 860 4.44%
Junior subordinated debt owed
to unconsolidated trust 36,250 658 7.28% 25,000 562 9.02%
------------ --------- ------------ ---------
Total interest-bearing liabilities $ 1,345,681 $ 6,618 1.97% $ 1,174,715 $ 6,650 2.27%
========= =========
Net interest spread 3.28% 3.28%
==== ====
Demand deposits 169,587 144,432
Other liabilities 9,003 9,921
Stockholders' equity 127,722 121,288
------------ ------------
Total Liabilities and Stockholders' Equity $ 1,651,993 $ 1,450,356
============ ============
Interest income / earning assets (1) $ 1,545,837 $ 20,229 5.25% $ 1,359,539 $ 18,823 5.55%
Interest expense / earning assets $ 1,545,837 $ 6,618 1.72% $ 1,359,539 $ 6,650 1.96%
--------- ---- --------- ----
Net interest margin (1) $ 13,611 3.53% $ 12,173 3.59%
========= ==== ========= ====
(1) On a tax-equivalent basis, assuming a federal income tax rate of 35% for
2004 and 2003.
(2) Non-accrual loans have been included in average loans, net of unearned
interest.
28 of 38
FIRST BUSEY CORPORATION AND SUBSIDIARIES
CHANGES IN NET INTEREST INCOME
QUARTERS ENDED JUNE 30, 2004 AND 2003
Change due to(1)
Average Average Total
Volume Yield/Rate Change
------ ---------- ------
(Dollars in thousands)
Increase (decrease) in interest income:
Federal funds sold $ (12) $ (5) $ (17)
Investment securities:
U.S. Government obligations (180) (263) (443)
Obligations of states and political
subdivisions (2) (74) 9 (65)
Other securities 107 79 186
Loans (2) 2,698 (953) 1,745
------- ------- -------
Change in interest income (2) $ 2,539 $(1,133) $ 1,406
------- ------- -------
Increase (decrease) in interest expense:
Interest-bearing transaction deposits $ - $ 8
Savings deposits 14 (69) (55)
Money market deposits 195 (275) (80)
Time deposits 234 (633) (399)
Short-term borrowings:
Federal funds purchased - (4) (4)
Repurchase agreements 18 (5) 13
Other 34 - 34
Long-term debt 415 (60) 355
Junior subordinated debt owed to unconsolidated trust 166 (70) 96
------- ------- -------
Change in interest expense $ 1,084 $(1,116) $ (32)
------- ------- -------
Increase in net interest income (2) $ 1,455 $ (17) $ 1,438
======= ======= =======
(1) Changes due to both rate and volume have been allocated proportionally.
(2) On a tax-equivalent basis, assuming a federal income tax rate of 35% for
2004 and 2003.
29 of 38
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURE ABOUT MARKET RISK
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, Busey Bank Florida, and First
Capital Bank 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 Policies established by the asset-liability
committees and approved by the Corporation's Board of Directors establish
guidelines for maintaining the ratio of cumulative rate-sensitive assets to
rate-sensitive liabilities within prescribed ranges at certain intervals.
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.
30 of 38
The following table sets forth the static rate-sensitivity analysis of the
Corporation as of June 30, 2004:
Rate Sensitive Within
-----------------------------------------------------------------------------
1-30 31-90 91-180 181 Days - Over
Days Days Days 1 Year 1 Year Total
---- ---- ---- ------ ------ -----
(Dollars in thousands)
Interest-bearing deposits $ 1,442 $ - $ - $ - $ - $ 1,442
Federal funds sold 5,850 - - - - 5,850
Investment securities
U.S. Governments 4,931 20,531 20,061 23,343 102,551 171,417
Obligations of states and
political subdivisions 2,237 - 6,493 4,880 38,032 51,642
Other securities 16,588 1,750 2,450 7,530 33,156 61,474
Loans (net of unearned int.) 578,643 140,309 90,659 158,057 483,792 1,451,460
----------- ---------- ---------- --------- -------- ----------
Total rate-sensitive assets $ 609,691 $ 162,590 $ 119,663 $ 193,810 $657,531 $1,743,285
----------- ---------- ---------- --------- -------- ----------
Interest bearing transaction
deposits $ 58,745 $ - $ - $ - $ - 58,745
Savings deposits 114,230 - - - - 114,230
Money market deposits 502,119 - - - - 502,119
Time deposits 89,012 52,025 109,424 151,626 224,417 626,504
Short-term borrowings:
Repurchase agreements 35,480 - - - - 35,480
Other - 3,000 - 11,250 - 14,250
Long-term debt 5,074 2,000 6,000 27,248 124,845 165,167
Junior subordinated debt owed
to unconsolidated trust - 15,000 - - 25,000 40,000
----------- ---------- ---------- --------- -------- ----------
Total rate-sensitive liabilities $ 804,660 $ 72,025 $ 115,424 $ 190,124 $374,262 $1,556,495
Rate-sensitive assets less
rate-sensitive liabilities $ (194,969) $ 90,565 $ 4,239 $ 3,686 $283,269 $ 186,790
----------- ---------- ---------- --------- -------- ----------
Cumulative Gap $ (194,969) $ (104,404) $ (100,165) $ (96,479) $186,790
=========== ========== ========== ========= ========
Cumulative amounts as a
percentage of total
rate-sensitive assets - 11.18% -5.99% -5.75% -5.53% 10.71%
=========== ========== ========== ========= ========
Cumulative ratio 0.76 0.88 0.90 0.92 1.12
=========== ========== ========== ========= ========
The funds management policy of First Busey Corporation 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 June 30, 2004, the Banks and the
Corporation, on a consolidated basis, are within those guidelines.
The foregoing table shows a negative (liability-sensitive) rate-sensitivity gap
of $195 million in the 1-30 day repricing period 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
periods beyond 30 days. On a cumulative basis, however, the gap remains
liability sensitive through 180 days. The composition of the gap structure at
June 30, 2004 indicates the Corporation would benefit more if interest rates
decrease during the next 180 days by allowing the net interest margin to grow as
the volume of interest-bearing liabilities subject to repricing would be greater
than the volume of interest-earning assets subject to repricing during the same
period.
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 over a one-year period
and net interest income is calculated under current market rates, and then
assuming permanent instantaneous shifts of +/-100 basis points and +200 basis
points. Management measures such
31 of 38
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 remain constant at June 30, 2004, 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 declining and rising 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 an immediate and sustained change in interest rates at June 30, 2004, and
December 31, 2003 was as follows:
Basis Point Changes
-------------------
-100 +100 +200
---- ---- ----
June 30, 2004 (4.29%) 1.11% 1.87%
December 31, 2003 (5.57%) 3.05% 6.06%
ITEM 4: 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 effectiveness 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 the
Corporation's disclosure controls and procedures are effective to ensure 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 Securities and Exchange 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 II - OTHER INFORMATION
ITEM 1: Legal Proceedings
Not Applicable
32 of 38
ITEM 2: Changes in Securities, Use of Proceeds and Issuer Purchases of
Equity Securities
The following table presents for the periods indicated a summary of
the purchases made by or on behalf of First Busey Corporation of
shares of its common stock.
Total Maximum
Number of Number of
Shares Shares
Purchased that May
as Part of Yet Be
Total Publicly Purchased
Number of Average Announced Under the
Shares Price Paid per Plans or Plans or
Purchased(2) Share(2) Programs(2) Programs (1),(2)
January 1 - 31, 2004 - $ - - 134,616
February 1 - 29, 2004 - - - 884,616
March 1 - 31, 2004 33,750 18.07 33,750 850,866
April 1 - 30, 2004 9,900 18.47 9,900 840,966
May 1 - 31, 2004 30,000 18.15 30,000 810,966
June 1 - 30, 2004 30,000 18.28 30,000 780,966
------- ------- -------
Total 103,650 $ 18.19 103,650
(1) First Busey Corporation's Board of Directors approved a stock purchase plan
on March 20, 2001, for the repurchase of up to 750,000 shares of common stock.
The Corporation's 2001 repurchase plan has no expiration date. First Busey
Corporation's board of directors approved a stock purchase plan on February 17,
2004 for the repurchase of up to 750,000 shares of common stock. The
Corporation's 2004 repurchase plan has no expiration date.
(2) Share and per share amounts have been retroactively adjusted to effect a
three-for-two common stock split declared on July 23, 2004, as if it had
occurred on January 1, 2004.
ITEM 3: Defaults Upon Senior Securities
Not Applicable
ITEM 4: Submission of Matters to a Vote of Security Holders The annual
meeting of the stockholders of First Busey Corporation was held
on April 13, 2004. The shareholders approved the election of
Directors with votes casted as follows:
ELECTION OF DIRECTORS
DIRECTOR FOR WITHHELD
-------- --- --------
Joseph M. Ambrose 18,367,563 411,720
David L. Ikenberry 18,749,793 29,479
E. Phillips Knox 18,734,620 45,102
V. B. Leister, Jr. 18,771,532 7,740
Douglas C. Mills 18,771,553 7,729
Joseph E. O'Brien 18,584,037 192,145
Arthur R. Wyatt 18,581,095 195,087
The shareholders approved the First Busey Corporation 2004 stock
option plan with 14,115,412 shares voted in favor, 393,399 voted
against, 446,506 abstaining and 2,089,833 broker non-votes. Share
amounts have been retroactively adjusted to effect a
three-for-two common stock split declared on July 23, 2004, as if
it had occurred on January 1, 2004.
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ITEM 5: Other Information
Not Applicable
ITEM 6: Exhibits and Reports on Form 8-K
(a.) Exhibits
31.1 Certification of Principal Executive Officer
31.2 Certification of Principal Financial Officer
32.1 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, from the Corporation's
Chief Executive Officer.
32.2 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, from the Corporation's
Chief Financial Officer.
(b.) Reports on Form 8-K
On April 20, 2004, First Busey Corporation filed a report on
Form 8-K (Item 7) dated April 19, 2004, releasing its
financial results for the three months ending March 31,
2004.
On May 4, 2004, First Busey Corporation filed a report on
Form 8-K (Item 7) dated May 4, 2004, announcing the issuance
of $15 million in cumulative trust preferred securities
through a newly formed business trust, First Busey Statutory
Trust II.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST BUSEY CORPORATION
(REGISTRANT)
By: /s/ //Douglas C. Mills//
-------------------------------------
Douglas C. Mills
Chairman of the Board and Chief
Executive Officer
By: /s/ //Barbara J. Harrington//
------------------------------------
Barbara J. Harrington
Chief Financial Officer
(Principal financial and accounting
officer)
Date: August 9, 2004
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