Back to GetFilings.com
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 9/30/2004 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 October 29, 2004
-----------------------------------------------------------------------
Common Stock, without par value 20,588,401
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
2 of 39
FIRST BUSEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2004 AND DECEMBER 31, 2003
(UNAUDITED)
September 30, 2004 December 31, 2003
------------------ -----------------
(Dollars in thousands)
ASSETS
Cash and due from banks $ 61,917 $ 52,397
Federal funds sold 50,650 -
Securities available for sale (amortized cost 2004, $283,415;
2003, $209,482) 298,362 224,733
Loans 1,468,259 1,192,396
Allowance for loan losses (18,703) (16,228)
------------ ------------
Net loans $ 1,449,556 $ 1,176,168
Premises and equipment 26,179 22,223
Cash surrender value of bank owned life insurance 17,442 16,836
Goodwill 31,847 7,380
Other intangible assets 4,048 2,100
Other assets 25,497 20,247
------------ ------------
Total assets $ 1,965,498 $ 1,522,084
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest bearing $ 185,723 $ 160,578
Interest bearing 1,372,923 1,096,017
------------ ------------
Total deposits $ 1,558,646 $ 1,256,595
Federal funds purchased - 8,500
Securities sold under agreements to repurchase 39,025 7,500
Short-term borrowings 11,250 -
Long-term debt 171,796 92,853
Junior subordinated debt owed to unconsolidated trusts 40,000 25,000
Other liabilities 10,147 6,459
------------ ------------
Total liabilities $ 1,830,864 $ 1,396,907
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock $ - $ -
Common stock 6,291 6,291
Surplus 21,447 20,968
Retained earnings 111,244 102,288
Accumulated other comprehensive income 9,056 9,191
------------ ------------
Total stockholders' equity before treasury stock, unearned ESOP
shares and deferred compensation for stock grants $ 148,038 $ 138,738
Treasury stock, at cost (10,529) (10,667)
Unearned ESOP shares and deferred compensation for stock grants (2,875) (2,894)
------------ ------------
Total stockholders' equity $ 134,634 $ 125,177
------------ ------------
Total liabilities and stockholders' equity $ 1,965,498 $ 1,522,084
============ ============
Common shares outstanding at period end* 20,577,751 20,516,216
============ ============
*Share and per share data have been retroactively adjusted to effect a
three-for-two common stock split effective August 3, 2004, as if it had occurred
on January 1, 2003.
See accompanying notes to unaudited consolidated financial statements.
3 of 39
FIRST BUSEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(UNAUDITED)
2004 2003
------- -------
(Dollars in thousands, except
per share amounts)
INTEREST INCOME:
Interest and fees on loans $55,804 $49,225
Interest and dividends on investment securities:
Taxable interest income 3,933 4,567
Non-taxable interest income 1,428 1,543
Dividends 191 140
Interest on Federal funds sold 93 114
------- -------
Total interest income $61,449 $55,589
------- -------
INTEREST EXPENSE:
Deposits $14,858 $15,192
Short-term borrowings 352 127
Long-term debt 3,803 2,604
Junior subordinated debt owed to unconsolidated trusts 1,936 1,688
------- -------
Total interest expense $20,949 $19,611
------- -------
Net interest income $40,500 $35,978
Provision for loan losses 2,320 1,378
------- -------
Net interest income after provision for loan losses $38,180 $34,600
------- -------
OTHER INCOME:
Trust $ 4,002 $ 3,467
Commissions and brokers fees, net 1,774 1,541
Service charges on deposit accounts 5,830 5,427
Other service charges and fees 1,523 1,433
Security gains, net 1,090 322
Gain on sales of loans 1,984 5,833
Increase in cash surrender value of life insurance 606 484
Other operating income 940 557
------- -------
Total other income $17,749 $19,064
------- -------
OTHER EXPENSES:
Salaries and wages $14,353 $14,585
Employee benefits 3,160 2,818
Net occupancy expense of premises 2,898 2,326
Furniture and equipment expenses 1,772 1,899
Data processing 1,417 1,326
Stationery, supplies and printing 743 813
Amortization of intangible assets 435 309
Other operating expenses 6,035 6,313
------- -------
Total other expenses $30,813 $30,389
------- -------
Income before income taxes $25,116 $23,275
Income taxes 8,431 7,767
------- -------
NET INCOME $16,685 $15,508
======= =======
BASIC EARNINGS PER SHARE* $ 0.82 $ 0.76
======= =======
DILUTED EARNINGS PER SHARE* $ 0.81 $ 0.76
======= =======
DIVIDENDS DECLARED PER SHARE OF COMMON STOCK* $ 0.38 $ 0.34
======= =======
*Per share data have been retroactively adjusted to effect a three-for-two
common stock split effective August 3, 2004, as if it had occurred on January 1,
2003.
See accompanying notes to unaudited consolidated financial statements.
4 of 39
FIRST BUSEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE QUARTERS ENDED SEPTEMBER 30, 2004 AND 2003
(UNAUDITED)
2004 2003
------- -------
(Dollars in thousands, except
per share amounts)
INTEREST INCOME:
Interest and fees on loans $21,088 $16,386
Interest and dividends on investment securities:
Taxable interest income 1,562 1,418
Non-taxable interest income 503 512
Dividends 63 64
Interest on federal funds sold 65 37
------- -------
Total interest income $23,281 $18,417
------- -------
INTEREST EXPENSE:
Deposits $ 5,961 $ 4,592
Short-term borrowings 189 30
Long-term debt 1,572 933
Junior subordinated debt owed to unconsolidated trusts 715 563
------- -------
Total interest expense $ 8,437 $ 6,118
------- -------
Net interest income $14,844 $12,299
Provision for loan losses 1,240 448
------- -------
Net interest income after provision for loan losses $13,604 $11,851
------- -------
OTHER INCOME:
Trust $ 1,211 $ 1,176
Commissions and brokers' fees, net 578 565
Service charges on deposit accounts 2,090 1,898
Other service charges and fees 542 478
Security gains, net 402 23
Gains on sales of loans 703 1,359
Increase in cash surrender value of life insurance 191 157
Other operating income 304 62
------- -------
Total other income $ 6,021 $ 5,718
------- -------
OTHER EXPENSES:
Salaries and wages $ 5,229 $ 4,949
Employee benefits 924 934
Net occupancy expense of premises 1,081 797
Furniture and equipment expenses 649 589
Data processing 529 447
Stationary, supplies and printing 289 294
Amortization of intangible assets 201 103
Other operating expenses 2,248 1,910
------- -------
Total other expenses $11,150 $10,023
------- -------
Income before income taxes $ 8,475 $ 7,546
Income taxes 2,691 2,236
------- -------
NET INCOME $ 5,784 $ 5,310
======= =======
BASIC EARNINGS PER SHARE* $ 0.28 $ 0.26
======= =======
DILUTED EARNINGS PER SHARE* $ 0.28 $ 0.26
======= =======
DIVIDENDS DECLARED PER SHARE OF COMMON STOCK* $ 0.13 $ 0.11
======= =======
*Per share data have been retroactively adjusted to effect a three-for-two
common stock split effective August 3, 2004, as if it had occurred on January 1,
2003.
See accompanying notes to unaudited consolidated financial statements.
5 of 39
FIRST BUSEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(UNAUDITED)
2004 2003
--------- ---------
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 16,685 $ 15,508
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation 19 41
Depreciation and amortization 2,577 2,753
Provision for loan losses 2,320 1,378
Provision for deferred income taxes (239) 435
Stock dividends (332) (379)
Amortization of investment security discounts (330) (241)
Gain on sales of investment securities, net (1,090) (322)
Gain on sales of loans (1,984) (5,833)
Gain on sale of ORE properties (18) (75)
Loss (gain) on sale and disposition of premises and equipment 25 (421)
Market valuation adjustment on ORE property 16 694
Change in assets and liabilities:
Decrease (increase) in other assets 1 (2,083)
Increase in accrued expenses 1,122 2,165
Increase (decrease) in interest payable 926 (835)
Increase in income taxes receivable (901) (953)
Decrease in income taxes payable - (392)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES BEFORE
LOAN ORIGINATIONS AND SALES $ 18,797 $ 11,440
--------- ---------
Loans originated for sale (116,948) (364,547)
Proceeds from sales of loans 141,683 399,718
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 43,532 $ 46,611
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of securities classified available for sale 34,625 13,451
Proceeds from maturities of securities classified available for sale 65,048 165,362
Purchase of securities classified available for sale (122,570) (195,311)
Increase in federal funds sold (49,057) -
Increase in loans (148,932) (73,639)
Proceeds from sale of premises and equipment 6 6,160
Proceeds form sale of ORE properties 66 630
Purchases of premises and equipment (2,646) (2,987)
Increase in investment in bank owned life insurance - (5,000)
Increase in cash surrender value of bank owned life insurance (606) (484)
Purchase of subsidiary, net of cash and due from banks acquired (35,990) -
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES $(260,056) $ (91,818)
--------- ---------
(continued on next page)
6 of 39
FIRST BUSEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(UNAUDITED)
2004 2003
--------- --------
(Dollars in thousands)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in certificates of deposit $ 95,427 $(31,263)
Net increase in demand, money market and savings deposits 59,540 30,337
Cash dividends paid (7,729) (6,910)
Purchase of treasury stock (2,168) (2,193)
Proceeds from sale of treasury stock 2,785 3,582
Net increase (decrease) in Federal funds purchased and securities sold
under agreement to repurchase (2,432) 32,033
Proceeds from short-term borrowings 15,250 -
Principal payments on short-term borrowings (5,250) -
Proceeds from issuance of long-term debt 74,655 16,000
Principal payments on long-term borrowings (19,034) -
Proceeds from issuance of junior subordinated debt owed to unconsolidated
trust 15,000 -
--------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES $ 226,044 $ 41,586
--------- --------
NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS $ 9,520 $ (3,621)
Cash and due from banks, beginning 52,397 $ 47,645
--------- --------
Cash and due from banks, ending $ 61,917 $ 44,024
========= ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
OTHER REAL ESTATE ACQUIRED IN SETTLEMENT OF LOANS $ 84 $ 391
========= ========
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 (net of allowance for loan losses 2004 $2,070; 2003 $ -) 147,758 -
Premises and equipment 3,483 -
Goodwill 24,467 -
Other intangible assets 2,383 -
Other assets 4,330 -
Liabilities assumed:
Deposits (147,084) -
Securities sold under agreements to repurchase (26,707) -
Long-term debt (23,322) -
Other liabilities (2,049) -
--------- --------
$ 42,072 $ -
========= ========
See accompanying notes to unaudited consolidated financial statements
7 of 39
FIRST BUSEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(UNAUDITED)
2004 2003
-------- --------
(Dollars in thousands)
Net income $ 16,685 $ 15,508
-------- --------
Other comprehensive income, before tax:
Unrealized gains on securities:
Unrealized holding gains arising during period $ 784 $ 421
Less reclassification adjustment for gains included in net
income (1,090) (322)
-------- --------
Other comprehensive (loss) income, before tax $ (306) $ 99
Income tax expense related to items of other comprehensive
income (171) 53
-------- --------
Other comprehensive (loss) income, net of tax $ (135) $ 46
-------- --------
Comprehensive income $ 16,550 $ 15,554
======== ========
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 39
NOTE 2: LOANS
The major classifications of loans as of September 30, 2004 and December 31,
2003 were as follows:
September 30, 2004 December 31, 2003
------------------ -----------------
(Dollars in thousands)
Commercial $ 203,881 $ 138,272
Real estate construction 238,476 168,141
Real estate - farmland 11,122 11,890
Real estate - 1-4 family residential mortgage 453,485 406,102
Real estate - multifamily mortgage 106,147 91,325
Real estate - non-farm nonresidential mortgage 365,598 292,169
Installment 65,146 61,323
Agricultural 23,563 22,300
---------- ----------
$1,467,418 $1,191,522
Plus net deferred loan costs 841 874
---------- ----------
1,468,259 1,192,396
Less:
Allowance for loan losses 18,703 16,228
---------- ----------
Net loans $1,449,556 $1,176,168
========== ==========
The real estate-mortgage category includes loans held for sale with carrying
values of $9,631,000 at September 30, 2004 and $30,529,000 at December 31, 2003;
these loans had fair market values of $9,774,000 and $30,609,000 respectively.
NOTE 3: EARNINGS PER SHARE*
Net income per common share has been computed as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
----------- ----------- ----------- -----------
Net income $ 5,784,000 $ 5,310,000 $16,685,000 $15,508,000
Shares:
Weighted average common shares outstanding 20,365,239 20,332,605 20,352,434 20,338,859
Dilutive effect of outstanding options, as determined
by the application of the treasury stock method 135,185 217,971 141,319 190,236
----------- ----------- ----------- -----------
Weighted average common shares outstanding,
as adjusted for diluted earnings per share calculation 20,500,424 20,550,576 20,493,753 20,529,095
=========== =========== =========== ===========
Basic earnings per share $ 0.28 $ 0.26 $ 0.82 $ 0.76
=========== =========== =========== ===========
Diluted earnings per share $ 0.28 $ 0.26 $ 0.81 $ 0.76
=========== =========== =========== ===========
* Share and per share data have been retroactively adjusted to effect a
three-for-two common stock split effective August 3, 2004, as if it had occurred
on January 1, 2003.
9 of 39
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 Nine Months Ended
September 30, September 30,
------------------ -----------------
(dollars in thousands except per share data)
2004 2003 2004 2003
---------- ---------- ---------- ----------
NET INCOME AS REPORTED $ 5,784 $ 5,310 $ 16,685 $ 15,508
Less compensation expense determined under fair value
method for all options granted, net of related tax effects 216 65 361 193
---------- ---------- ---------- ----------
Pro-forma net income $ 5,568 $ 5,245 $ 16,324 $ 15,315
========== ========== ========== ==========
BASIC EARNINGS PER SHARE
Reported net income $ 0.28 $ 0.26 $ 0.82 $ 0.76
Less compensation expense 0.01 0.01 0.02 0.01
---------- ---------- ---------- ----------
Pro-forma net income $ 0.27 $ 0.25 $ 0.80 $ 0.75
========== ========== ========== ==========
DILUTED EARNINGS PER SHARE
Reported net income $ 0.28 $ 0.26 $ 0.81 $ 0.76
Less compensation expense 0.00 0.00 0.01 0.01
---------- ---------- ---------- ----------
Pro-forma net income $ 0.28 $ 0.26 $ 0.80 $ 0.75
========== ========== ========== ==========
In April, 2004, the Corporation granted 54,000 stock options (retroactively
adjusted to effect a three-for-two common stock split effective August 3, 2004,
as if it had occurred prior to issuance of options). In September, 2004, the
Corporation granted 300,000 stock 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:
April, 2004 September, 2004
----------- ---------------
Number of options granted* 54,000 300,000
Risk-free interest rate 1.41% 2.10%
Expected life, in years 4.67 5.00
Expected volatility 18.20% 18.02%
Expected dividend yield 2.80% 2.60%
Estimated fair value per option* $ 2.04 $ 2.55
*Share and per share data have been retroactively adjusted to effect a
three-for-two common stock split effective August 3, 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
10 of 39
expense on the trust preferred securities was $1,687,500 for the nine-month
periods ended September 30, 2004 and September 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%). Effective September 17, 2004, the
rate on these securities increased to 4.53813%. 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.
NOTE 6: RECENT ACCOUNTING PRONOUNCEMENTS
In December 2003, the American Institute of Certified Public Accountants
released Statement of Position 03-3, Accounting for Certain Loans or Debt
Securities Acquired in a Transfer (SOP 03-3). SOP 03-3 addresses accounting for
differences between contractual cash flows and cash flows expected to be
collected from an investors initial investment in loans or debt securities
acquired in a transfer if those differences are attributable to credit quality.
SOP 03-3 is effective for loans acquired in fiscal years beginning after
December 15, 2004. The adoption of SOP 03-3 is not expected to have a material
impact on the Corporation's financial statements.
In March 2004, the FASB released EITF 03-1, The Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investments (EITF 03-1). EITF 03-1
provides guidance for determining when an investment is impaired and whether the
impairment is other than temporary as well as guidance for quantifying the
impairment.
11 of 39
In September 2004, the FASB approved for issuance a FASB Staff Position (FSP),
FSP EITF Issue 03-1-1, Effective Date of Paragraphs 10-20 of EITF Issue No.
03-1, The Meaning of Other-Than- Temporary Impairment and Its Application to
Certain Investments. FSP EITF Issue 03-1-1 delays the effective date, originally
set for periods beginning after June 15, 2004, for the measurement and
recognition guidance contained in paragraphs 10-20 of Issue 03-1. However, it
does not suspend the requirement to recognize other-than temporary impairments
as required by existing authoritative literature. The adoption of EITF 03-1 is
not expected to have a material impact on the Corporation's financial
statements.
In March 2004, the Securities and Exchange Commission released Staff Accounting
Bulletin No. 105, Application of Accounting Principles to Loan Commitments (SAB
105). SAB 105 provides general guidance that must be applied when an entity
determines the fair value of a loan commitment accounted for as a derivative.
SAB 105 is effective for commitments to originate mortgage loans to be held for
sale that are entered into after March 31, 2004. The adoption of SAB 105 did not
have a material impact on the Corporation's financial statements.
NOTE 7: UNREALIZED LOSSES ON INVESTMENT SECURITIES
Management evaluates the investment portfolio on a quarterly basis to determine
if investments have suffered a less than permanent decline in value. In
addition, management monitors market trends and current events in order to
identify trends and circumstances that might impact the carrying amount of
securities. As of September 30, 2004, the Corporation had the following
unrealized losses in its portfolio of investment securities, available for sale:
Continuous unrealized losses Continuous unrealized losses
existing for less than 12 existing greater than 12
months months Total
----------------------------- ----------------------------- -------------------------
Fair Unrealized Fair Unrealized Fair Unrealized
Value Losses Value Losses Value Losses
-------- ---------- ------ ---------- -------- ----------
(Dollars in thousands)
U.S. Treasury securities and
obligations of U.S.
government corporations
and agencies $102,437 $(359) $6,469 $ (99) $108,906 $(458)
Obligations of states and
political subdivisions 3,152 (11) 696 (1) 3,848 (12)
Corporate and other debt
securities 4,477 (22) - - 4,477 (22)
-------- ----- ------ ----- -------- -----
Subtotal, debt securities $110,066 $(392) $7,165 $(100) $117,231 $(492)
Mutual funds and other
equity securities 61 (3) 68 (34) 129 (37)
-------- ----- ------ ----- -------- -----
Total temporarily
impaired securities $110,127 $(395) $7,233 $(134) $117,360 $(529)
======== ===== ====== ===== ======== =====
NOTE 8: 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
12 of 39
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:
September 30, 2004 December 31, 2003
------------------ -----------------
(Dollars in thousands)
Financial instruments whose contract amounts represent
credit risk:
Commitments to extend credit $368,768 $286,037
Standby letters of credit 13,704 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
September 30, 2004, and December 31, 2003, no amounts have been recorded as
liabilities for the Corporation's potential obligations under these guarantees.
NOTE 9: 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 $2,383,000 is being amortized over a period of ten years.
The Corporation does not expect to make further adjustments to these
allocations.
Pro forma unaudited operating results for the nine months ended September 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:
13 of 39
Three Months Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
------- ------- ------- -------
(Dollars in thousands except per share data)
Interest income $23,281 $21,026 $65,874 $63,554
Interest expense 8,437 7,318 22,649 23,439
Provision for loan losses 1,240 628 2,805 2,158
Noninterest income 6,021 6,194 18,604 20,677
Noninterest expense 11,150 11,255 33,000 33,726
------- ------- ------- -------
Income before income taxes $ 8,475 $ 8,019 $26,024 $24,908
Income taxes 2,691 2,378 8,792 8,248
------- ------- ------- -------
Net income $ 5,784 $ 5,641 $17,232 $16,660
======= ======= ======= =======
Earnings per share - basic* $ 0.28 $ 0.28 $ 0.85 $ 0.82
======= ======= ======= =======
Earnings per share - diluted* $ 0.28 $ 0.27 $ 0.84 $ 0.81
======= ======= ======= =======
* Per share data has been retroactively adjusted to effect a three-for-two
common stock split effective August 3, 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.
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 September 30,
2004 (unaudited), as compared with December 31, 2003, and the results of
operations for the nine months ended September 30, 2004 and 2003 (unaudited),
and the results of operations for the three months ended September 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 nine months ending September 30, 2003, to be
consistent with the classifications adopted as of and for the three and nine
months ending September 30, 2004. Share and per share data have been
retroactively adjusted to effect a three-for-two common stock split effective
August 3, 2004, as if it had occurred on January 1, 2003.
14 of 39
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 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 SEPTEMBER 30, 2004 AS COMPARED TO DECEMBER 31, 2003
Total assets increased $443,414,000 or 29.1%, to $1,965,498,000 at September 30,
2004 from $1,522,084,000 at December 31, 2003. Of the increase in total assets,
$241,234,000 is attributable to the acquisition of First Capital Bank.
Securities available for sale increased $73,629,000, or 32.8%, to $298,362,000
at September 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 $275,863,000, or 23.1%, to $1,468,259,000 at September
30, 2004 from $1,192,396,000 at December 31, 2003, primarily due to increases in
commercial, real
15 of 39
estate construction, 1-4 family residential mortgage, multifamily, 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 $302,051,000, or 24.0%, to $1,558,646,000 at September
30, 2004, from $1,256,595,000 at December 31, 2003. Noninterest-bearing deposits
increased 15.7% to $185,723,000 at September 30, 2004 from $160,578,000 at
December 31, 2003. Interest-bearing deposits increased 25.3% to $1,372,923,000
at September 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 $39,025,000 as of
September 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 $11,250,000 with the addition of
short-term advances from the Federal Home Loan Bank of Chicago. The balance of
long-term debt increased $78,943,000 to $171,796,000 as of September 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 nine months of 2004, the Corporation repurchased 118,727 shares
of its common stock at an aggregate cost of $2,168,000. The Corporation has
repurchased an aggregate of 734,111 shares under its 2001 Stock Repurchase Plan.
On February 17, 2004, First Busey's Board of Directors approved a stock
repurchase plan for the repurchase of up to 750,000 shares of common stock.
Through September 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 September 30, 2004, there were 106,875
options currently exercisable. There were an additional 692,550 stock options
outstanding but not currently exercisable.
ASSET QUALITY
The following table sets forth the components of non-performing assets and past
due loans.
September 30, 2004 December 31, 2003
------------------ -----------------
(Dollars in thousands)
Non-accrual loans $ 947 $2,638
Loans 90 days past due, still accruing 1,215 581
Restructured loans - -
Other real estate owned 4,902 4,781
Non-performing other assets 28 10
------ ------
Total non-performing assets $7,092 $8,010
====== ======
Total non-performing assets as a percentage of total assets 0.36% 0.53%
====== ======
Total non-performing assets as a percentage of loans plus
non-performing assets 0.48% 0.67%
====== ======
Total non-performing assets declined $918,000 or 11.5% to $7,092,000 as of
September 30, 2004. Non-performing loans as a percentage of total assets
declined to 0.36% as of September 30, 2004, from 0.53% as of December 31, 2004.
Loans 90 days past due and still accruing were $1,215,000 or 0.08% of total
loans as of September 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 $121,000
to $4,902,000 as of September 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. Although the Corporation
continues to market
16 of 39
this property for sale, after holding title for one year, the Corporation began
to depreciate the property and its contents for book purposes during September,
2004. Depreciation expense of $17,000 was included in other operating expenses
as were all other expenses associated with holding and maintaining properties
held in other real estate owned. The carrying value of this hotel property,
included in other real estate owned, was $3,996,000 as of September 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 $5,803,000 at
September 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
NINE MONTHS ENDED SEPTEMBER 30, 2004, AS COMPARED TO SEPTEMBER 30, 2003
SUMMARY
Net income for the nine months ended September 30, 2004, increased 7.6% to
$16,685,000 as compared to $15,508,000 for the comparable period in 2003.
Year-to-date diluted earnings per share increased 6.6% to $0.81 for the nine
months ending September 30, 2004, as compared to $0.76 for the same period in
2003. As a result of the common stock split effective 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 occurred on January 1, 2003.
The Corporation's return on average assets was 1.32% for the nine months ended
September 30, 2004, as compared to 1.43% for the comparable period in 2003. The
Corporation's return on average shareholders' equity was 17.34% for the nine
months ended September 30, 2004, as compared to 17.20% for the same period in
2003.
EARNING ASSETS, SOURCES OF FUNDS, AND NET INTEREST MARGIN
Average earning assets increased $211,228,000 or 15.5% to $1,574,597,000 for the
nine months ending September 30, 2004, as compared to $1,363,369,000 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, U.S. Government obligations, and obligations of state and political
subdivisions.
Interest-bearing liabilities averaged $1,377,580,000 during the first nine
months of 2004, an increase of $199,764,000 or 17.0% from the average balance of
$1,177,816,000 for the same period in 2003. This growth is due primarily to
growth in the average balances of all categories of interest-bearing
liabilities.
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 $4,521,000
or 12.2% to $41,454,000 for the nine months ended September 30, 2004, compared
to $36,933,000 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 3.52% for the nine months
ended September 30, 2004, as compared to
17 of 39
3.62% 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 3.29% for the nine months ended September 30, 2004, compared to 3.40% for
the comparable period in 2003.
Interest income, on a tax equivalent basis, for the nine months ended September
30, 2004, was $62,403,000, which is $5,859,000 or 10.4% higher than the
$56,544,000 earned during the comparable period in 2003. The average yield on
interest-earning assets declined 26 basis points to 5.29% for the nine months
ended September 30, 2004, compared to 5.55% for the comparable period in 2003.
Declines in the yield on loans and U.S. Government obligation investments
partially offset the growth in the average balance of loans.
Interest expense for the nine months ended September 30, 2004, was $20,949,000,
which is $1,338,000 or 6.8% higher than the $19,611,000 for the comparable
period in 2003. The average rate paid on interest-bearing liabilities declined
20 basis points to 2.03% for the nine months ended September 30, 2004, compared
to 2.23% for the comparable period in 2003. With the exception of
interest-bearing transaction deposits, the average rates paid on all categories
of interest-bearing liabilities were lower during the first nine months of 2004
than in the comparable period in 2003.
PROVISION FOR LOAN LOSSES
The Corporation's provision for loan losses of $2,320,000 during the nine months
ended September 30, 2004, is $942,000 more than the $1,378,000 recorded during
the comparable period in 2003. The provision and net charge-offs of $1,915,000
for the nine-month period ending September 30, 2004, resulted in the allowance
representing 1.27% of total loans and 865% of non-performing loans as of
September 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 nine months of 2004 were $1,915,000 compared to
$107,000 for the comparable period in 2003. The net chargeoff ratio (net
charge-offs as a percentage of average loans) was 0.14% for the nine-month
period ending September 30, 2004, reflecting an increase from 0.01% for the same
period in 2003. Of the net chargeoffs recognized during the first nine months of
2004, $1,394,000 was related to one commercial customer. Busey Bank has no
additional balances in nonaccrual loans to this customer as of September 30,
2004. 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.
OTHER INCOME, OTHER EXPENSE, AND INCOME TAXES
Total other income, excluding security gains, decreased $2,083,000 or 11.1% to
$16,659,000 for the nine months ended September 30, 2004, compared to
$18,742,000 for the same period in 2003. The decrease is due primarily 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 nine months of 2004 the Corporation recognized gains of
$1,984,000 on the sale of $139,699,000 in mortgage loans compared to gains of
$5,833,000 on the sale of $393,885,000 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 considerably 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.
18 of 39
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 mortgage servicing asset amortization expense of $876,000 during the
nine months ended September 30, 2004.
During the nine months ending September 30, 2004, the Corporation recognized
security gains of approximately $657,000 after income taxes, representing 3.9%
of net income. During the same period in 2003, security gains of approximately
$194,000 after income taxes were recognized, representing 1.3% 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 over a six-year period.
Total other expenses increased $424,000 or 1.4% to $30,813,000 for the nine
months ending September 30, 2004, compared to $30,389,000 for the comparable
period in 2003. Salaries and wage expense decreased $232,000 or 1.6% to
$14,353,000 for the nine months ended September 30, 2004, as compared to
$14,585,000 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 $278,000 or 4.4% to $6,035,000 for the nine
months ending September 30, 2004, as compared to $6,313,000 for the comparable
period in 2003. During the first nine months of 2003, Busey Bank recorded
valuation adjustments of $694,000 on the carrying value of properties held in
its other real estate owned inventory. The Corporation has recognized $17,000 in
depreciation expense on property held in other real estate owned during the nine
months ended September 30, 2004.
Income taxes for the nine months ended September 30, 2004, increased to
$8,431,000 as compared to $7,767,000 for the comparable period in 2003. As a
percentage of income before taxes, the provision for income taxes increased
slightly to 33.6% for the nine months ended September 30, 2004, from 33.4% for
the comparable period in 2003.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2004, AS COMPARED TO SEPTEMBER 30, 2003
SUMMARY
Net income for three months ended September 30, 2004, increased $474,000 or 8.9%
to $5,784,000 as compared to $5,310,000 for the three months ending September
30, 2003. Diluted earnings per share increased $0.02 or 7.7% to $0.28 for the
three months ending September 30, 2004, as compared to $0.26 for the comparable
period in 2003. As a result of the common stock split effective 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 1.20% for the three-month period
ending September 30, 2004, compared to 1.42% for the comparable period in 2003.
The return on average shareholders' equity was 17.51% for the three-month period
ending September 30, 2004, compared to 17.07% for the comparable period in 2003.
EARNING ASSETS, SOURCES OF FUNDS, AND NET INTEREST MARGIN
Average earning assets increased $379,875,000 or 27.2% to $1,777,575,000 for the
three months ended September 30, 2004, as compared to $1,397,700,000 for the
comparable period last year. This is due primarily to growth in the average
balance of outstanding loans.
19 of 39
Interest-bearing liabilities averaged $1,589,931,000 during the three months
ended September 30, 2004, an increase of $389,483,000 or 32.4% from the average
balance of $1,200,448,000 for the comparable period in 2003. This growth is due
to increases in the average balances of all categories of interest-earning
assets, short-term borrowings.
Net interest income on a fully taxable equivalent basis, increased $2,581,000 or
20.5% to $15,192,000 for the three months ended September 30, 2004, compared to
$12,611,000 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 3.39% for the three
months ended September 30, 2004, as compared to 3.58% 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 3.15% for the three months
ended September 30, 2004, compared to 3.36% for the comparable period in 2003.
Interest income, on a taxable equivalent basis, for the three months ended
September 30, 2004, was $23,629,000, which is $4,900,000 or 26.2% higher than
the $18,729,000 earned during the comparable period in 2003. The average yield
on interest-earning assets declined 5 basis points to 5.27% for the three months
ended September 30, 2004, compared to 5.32% for the three months ended September
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 September 30, 2004, was $8,437,000,
which is $2,319,000 or 37.9% higher than the $6,118,000 for the comparable
period in 2003. The average rate paid on interest-bearing liabilities increased
9 basis points to 2.11% for the three months ended September 30, 2004, compared
to 2.02% for the comparable period in 2003. Increases in the average rates paid
on interest-bearing transaction deposits, savings deposits, and money market
deposits partially offset the decline in average rates paid on time deposits,
long-term debt, and junior subordinated debt owed to unconsolidated trusts.
OTHER INCOME, OTHER EXPENSE, AND INCOME TAXES
Total other income, excluding security transactions, declined $76,000 or 1.3% to
$5,619,000 for the three months ended September 30, 2004, compared to $5,695,000
for the same period in 2003. A decline in gains on the sales of loans was
partially offset by growth in service charges and other operating income. Gains
of $703,000 were recognized on the sale of $48,988,000 of mortgage loans during
the three months ending September 30, 2004, compared to gains of $1,359,000 on
the sale of $156,556,000 in mortgage loans during the prior year period.
During the three-month period ending September 30, 2004, the Corporation
recognized security gains of approximately $242,000, after income taxes,
representing 4.2% of net income. During the comparable period in 2003, security
gains of approximately $14,000, after income taxes, were recognized,
representing 0.3% of net income.
Total other expenses increased $1,127,000 or 11.2% to $11,150,000 during the
three months ending September 30, 2004, compared to $10,023,000 during the same
period last year. Salary and wage expense increased $280,000 or 5.7% to
$5,229,000 during the nine months ended September 30, 2004, as compared to
$4,949,000 during the comparable period in 2003. The decline in compensation
expense associated with held-for-sale mortgage loan production partially offset
the increase in salary and wage expense associated with the addition of First
Capital Bank.
Occupancy and furniture and equipment expenses increased $344,000 or 24.8% to
$1,730,000 for the three-month period ending September 30, 2004, compared to
$1,386,000 during the comparable period in 2003. This increase is due to
increased rent expense for temporary office space during branch remodeling
combined with reduced receipts on property leased to non-related entities.
20 of 39
Income taxes for the three-month period ending September 30, 2004, increased to
$2,691,000 as compared to $2,236,000 for the comparable period in 2003. As a
percentage of income before taxes, the provision for income taxes increased to
31.8% for the three months ended September 30, 2004, from 29.6% 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.
21 of 39
Following is a summary of selected financial information for the Corporation's
business segments for the nine-month periods ended September 30, 2004, and
September 30, 2003:
Nine Months Ended September 30,
2004 2003
----------- -----------
(Dollars in thousands)
Interest Income:
Busey Bank $ 51,765 $ 52,166
Busey Bank Florida 5,739 3,235
First Capital Bank 3,740 -
Busey Investment Group 108 112
All Other 97 76
----------- -----------
Total Interest Income $ 61,449 $ 55,589
----------- -----------
Interest Expense:
Busey Bank $ 15,505 $ 16,374
Busey Bank Florida 1,855 1,541
First Capital Bank 1,329 -
Busey Investment Group - -
All Other 2,260 1,696
----------- -----------
Total Interest Expense $ 20,949 $ 19,611
----------- -----------
Other Income:
Busey Bank $ 11,727 $ 14,163
Busey Bank Florida 377 430
First Capital Bank 384 -
Busey Investment Group 5,498 4,845
All Other (237) (374)
----------- -----------
Total Other Income $ 17,749 $ 19,064
----------- -----------
Net Income:
Busey Bank $ 15,189 $ 15,348
Busey Bank Florida 1,021 169
First Capital Bank 656 -
Busey Investment Group 1,534 1,195
All Other (1,715) (1,204)
----------- -----------
Total Net Income $ 16,685 $ 15,508
----------- -----------
Goodwill:
Busey Bank $ 5,832 $ 5,832
Busey Bank Florida - -
First Capital Bank 24,467 -
Busey Investment Group - -
All Other 1,548 1,548
----------- -----------
Total Goodwill $ 31,847 $ 7,380
----------- -----------
Net Assets:
Busey Bank $ 1,529,292 $ 1,376,114
Busey Bank Florida 161,924 107,657
First Capital Bank 260,262 -
Busey Investment Group 6,159 5,795
All Other 7,861 4,619
----------- -----------
Total Assets $ 1,965,498 $ 1,494,185
----------- -----------
22 of 39
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 repayments, 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 in the
amount of $10,000,000, all of which was available as of September 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 nine months of 2004 the
Corporation originated $116,948,000 and sold $139,699,000 in mortgage loans for
sale compared to originations of $364,547,000 and sales of $393,885,000 during
the first nine months of 2003. As of September 30, 2004, the Corporation held
$9,631,000 in loans held for sale. Management intends to sell these loans during
the fourth 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. The balance of the purchase
price was financed by borrowed funds in the form of a note payable which
requires annual principal reductions of $4,000,000 beginning in January, 2005,
and matures in June, 2011. The Corporation intends to review various
alternatives for refinancing this note on a long-term basis and will determine
its course of action in 2005.
The objective of liqudity 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 September 30, 2004
and 2003, the Corporation had outstanding loan commitments including lines of
credit of $368,768,000 and $237,255,000, 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.
23 of 39
The following table summarizes significant contractual obligations and other
commitments as of September 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 Trusts Total
- ---------- ------------ --------------- ------ -------------- --------
(Dollars in thousands)
1 year $396,607 $ 90,916 $ 882 $ - $488,405
2 years 128,814 30,272 851 - 159,937
3 years 92,814 25,223 824 - 118,861
4 years 23,548 41,373 689 - 65,610
5 years 31,723 17,372 314 - 49,409
Thereafter 252 16,915 290 40,000 57,457
-------- -------- ------ ------- --------
Total $673,758 $222,071 $3,850 $40,000 $939,679
======== ======== ====== ======= ========
Net cash flows provided by operating activities totaled $43,532,000 during the
nine months ended September 30, 2004, compared to $46,611,000 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 nine months of
2004 compared to the same period in 2003 due primarily to lower mortgage loan
sale activity. During the first nine months of 2004 the Corporation originated
$116,948,000 in loans held for sale and generated $141,683,000 from the sale of
held-for-sale loans resulting in net cash provided by loan originations and sale
of $24,735,000. During the comparable period in 2003, the Corporation originated
$364,547,000 in held-for-sale loans and generated $399,718,000 from the sale of
held-for-sale loans leading to net cash provided by loan originations and sale
of $34,171,000.
Net cash used in investing activities was $260,056,000 for the nine months ended
September 30, 2004, compared to $91,818,000 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 nine months ended September 30, 2004,
proceeds from the sales and maturities of securities classified as available for
sale totaled $99,673,000, and the Corporation purchased $122,570,000 in
securities resulting in net cash used by securities activity of $22,897,000. In
the comparable period of 2003 proceeds from the sales and maturities of
securities classified as available for sale totaled $178,813,000, and the
Corporation purchased $195,311,000 in securities resulting in net cash used by
securities activity of $16,498,000. The Corporation's loan portfolio increased
$148,932,000 during the first nine months of 2004, compared to an increase of
$73,639,000 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 $226,044,000 during the first nine
months of 2004 compared to $41,586,000 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 $154,967,000 during the first nine months of 2004,
compared to a net decrease of $926,000 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.
24 of 39
CAPITAL RESOURCES
Other than from the issuance of common stock, the Corporation's primary source
of capital is retained net income. During the nine months ended September 30,
2004, the Corporation earned $16,685,000 and paid dividends of $7,729,000 to
stockholders, resulting in a retention of current earnings of $8,956,000. The
Corporation's dividend payout ratio for the nine months ended September 30, 2004
was 46.3%.
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 September 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 SEPTEMBER 30, 2004:
TOTAL CAPITAL (TO RISK WEIGHTED ASSETS)
Consolidated $153,030 10.57% $115,782 8.00% N/A N/A
Busey Bank $125,437 10.91% $ 91,946 8.00% $114,932 10.00%
Busey Bank Florida $ 13,572 10.97% $ 9,895 8.00% $ 12,369 10.00%
First Capital Bank $ 17,302 11.31% $ 12,241 8.00% $ 15,301 10.00%
TIER I CAPITAL (TO RISK WEIGHTED ASSETS)
Consolidated $129,458 8.95% $ 57,891 4.00% $ N/A N/A
Busey Bank $106,438 9.26% $ 45,973 4.00% $ 68,959 6.00%
Busey Bank Florida $ 12,140 9.82% $ 4,948 4.00% $ 7,422 6.00%
First Capital Bank $ 15,387 10.06% $ 6,121 4.00% $ 9,181 6.00%
TIER I CAPITAL (TO AVERAGE ASSETS)
Consolidated $129,458 6.95% $ 74,493 4.00% N/A N/A
Busey Bank $106,348 7.22% $ 58,982 4.00% $ 73,727 5.00%
Busey Bank Florida $ 12,140 8.34% $ 5,821 4.00% $ 7,276 5.00%
First Capital Bank $ 15,387 6.72% $ 9,157 4.00% $ 11,447 5.00%
25 of 39
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 8.00% N/A N/A
Busey Bank $117,133 11.30% $82,934 8.00% $103,667 10.0%
Busey Bank Florida $ 12,402 15.50% $ 6,402 8.00% $ 8,003 10.0%
TIER I CAPITAL (TO RISK WEIGHTED ASSETS)
Consolidated $131,277 11.62% $45,175 4.00% N/A N/A
Busey Bank $ 99,920 9.64% $41,467 4.00% $ 62,201 6.00%
Busey Bank Florida $ 11,514 14.39% $ 3,201 4.00% $ 4,802 6.00%
TIER I CAPITAL (TO AVERAGE ASSETS)
Consolidated $131,277 8.85% $59,363 4.00% N/A N/A
Busey Bank $ 99,920 7.33% $54,543 4.00% $ 68,179 5.00%
Busey Bank Florida $ 11,514 10.16% $ 4,533 4.00% $ 5,666 5.00%
26 of 39
FIRST BUSEY CORPORATION AND SUBSIDIARIES
AVERAGE BALANCE SHEETS AND INTEREST RATES
NINE MONTHS ENDED SEPTEMBER 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 $ 8,491 $ 93 1.46% $ 14,194 $ 114 1.07%
Investment securities
U.S. Government obligations 151,178 2,968 2.62% 166,149 4,050 3.26%
Obligations of states and political
subdivisions (1) 48,847 2,197 6.01% 51,934 2,374 6.11%
Other securities 43,248 1,156 3.57% 26,455 657 3.32%
Loans (net of unearned interest) (1) (2) 1,322,833 55,989 5.65% 1,104,637 49,349 5.97%
----------- ----------- ---------- -------
Total interest earning assets $ 1,574,597 $ 62,403 5.29% $1,363,369 $56,544 5.55%
=========== =======
Cash and due from banks 45,024 37,373
Premises and equipment 24,060 25,666
Allowance for loan losses (17,353) (16,069)
Other assets 59,275 43,719
----------- ----------
Total Assets $ 1,685,603 $1,454,058
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing transaction deposits $ 24,539 $ 120 0.65% $ 17,956 $ 70 0.52%
Savings deposits 111,899 514 0.61% 105,308 578 0.73%
Money market deposits 496,296 2,712 0.73% 440,993 2,616 0.79%
Time deposits 547,117 11,512 2.81% 499,267 11,928 3.19%
Short-term borrowings:
Federal funds purchased 6,606 63 1.27% 3,349 36 1.44%
Repurchase agreements 21,330 182 1.14% 7,495 91 1.62%
Other 8,636 107 1.66% - - -
Long-term debt 127,157 3,803 3.99% 78,448 2,604 4.44%
Junior subordinated debt owed
To unconsolidated trust 34,000 1,936 7.61% 25,000 1,688 9.03%
----------- ----------- ---------- -------
Total interest-bearing liabilities $ 1,377,580 $ 20,949 2.03% $1,177,816 $19,611 2.23%
=========== =======
Net interest spread 3.26% 3.32%
==== ====
Demand deposits 170,476 146,336
Other liabilities 9,046 9,362
Stockholders' equity 128,501 120,544
----------- ----------
Total Liabilities and Stockholders' Equity $ 1,685,603 $1,454,058
=========== ==========
Interest income / earning assets (1) $ 1,574,597 $ 62,403 5.29% $1,363,369 $56,544 5.55%
Interest expense / earning assets $ 1,574,597 $ 20,949 1.77% $1,363,369 $19,611 1.93%
----------- ---- ------- ----
Net interest margin (1) $ 41,454 3.52% $36,933 3.62%
=========== ==== ======= ====
(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.
27 of 39
FIRST BUSEY CORPORATION AND SUBSIDIARIES
CHANGES IN NET INTEREST INCOME
NINE MONTHS ENDED SEPTEMBER 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 $ (54) $ 33 $ (21)
Investment securities:
U.S. Government obligations (342) (740) (1,082)
Obligations of states and political
subdivisions (2) (139) (38) (177)
Other securities 370 129 499
Loans (2) 9,343 (2,703) 6,640
------- ------- -------
Change in interest income (2) $ 9,178 $(3,319) $ 5,859
------- ------- -------
Increase (decrease) in interest expense:
Interest-bearing transaction deposits $ 29 $ 21 $ 50
Savings deposits 35 (99) (64)
Money market deposits 312 (216) 96
Time deposits 1,082 (1,498) (416)
Short-term borrowings:
Federal funds purchased 31 (4) 27
Repurchase agreements 126 (35) 91
Other 107 - 107
Long-term debt 1,479 (280) 1,199
Junior subordinated debt owed to unconsolidated trust 541 (293) 248
------- ------- -------
Change in interest expense $ 3,742 $(2,404) $ 1,338
------- ------- -------
Increase in net interest income (2) $ 5,436 $ (915) $ 4,521
======= ======= =======
(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.
28 of 39
FIRST BUSEY CORPORATION AND SUBSIDIARIES
AVERAGE BALANCE SHEETS AND INTEREST RATES
QUARTERS ENDED SEPTEMBER 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 $ 17,355 $ 65 1.49% $ 15,653 $ 37 0.94%
Investment securities
U.S. Government obligations 171,064 1,078 2.50% 170,708 1,229 2.86%
Obligations of states and political
subdivisions (1) 52,447 774 5.85% 52,219 788 5.99%
Other securities 63,177 547 3.44% 28,321 253 3.54%
Loans (net of unearned interest) (1) (2) 1,473,532 21,165 5.70% 1,130,799 16,422 5.76%
----------- ----------- ---------- -------
Total interest earning assets $ 1,777,575 $ 23,629 5.27% $1,397,700 $18,729 5.32%
=========== =======
Cash and due from banks 49,323 36,998
Premises and equipment 26,356 24,150
Allowance for loan losses (18,506) (16,439)
Other assets 78,632 46,350
----------- ----------
Total Assets $ 1,913,380 $1,488,759
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing transaction deposits $ 29,637 $ 66 0.88% $ 17,855 $ 19 0.42%
Savings deposits 112,567 194 0.68% 107,243 149 0.55%
Money market deposits 539,988 1,166 0.86% 466,244 788 0.67%
Time deposits 645,533 4,535 2.79% 488,651 3,636 2.95%
Short-term borrowings:
Federal funds purchased 1,734 8 1.83% 3,093 10 1.28%
Repurchase agreements 38,673 120 1.23% 7,864 20 1.01%
Other 13,076 61 1.85% - - -
Long-term debt 168,723 1,572 3.70% 84,498 933 4.38%
Junior subordinated debt owed
to unconsolidated trust 40,000 715 7.09% 25,000 563 8.93%
----------- ----------- ---------- -------
Total interest-bearing liabilities $ 1,589,931 $ 8,437 2.11% $1,200,448 $ 6,118 2.02%
=========== =======
Net interest spread 3.16% 3.30%
==== ====
Demand deposits 182,363 156,258
Other liabilities 10,001 8,668
Stockholders' equity 131,085 123,385
----------- ----------
Total Liabilities and Stockholders' Equity $ 1,913,380 $1,488,759
=========== ==========
Interest income / earning assets (1) $ 1,777,575 $ 23,629 5.27% $1,397,700 $18,729 5.32%
Interest expense / earning assets $ 1,777,575 $ 8,437 1.88% $1,397,000 $ 6,118 1.74%
----------- ---- ------- ----
Net interest margin (1) $ 15,192 3.39% $12,611 3.58%
=========== ==== ======= ====
(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.
29 of 39
FIRST BUSEY CORPORATION AND SUBSIDIARIES
CHANGES IN NET INTEREST INCOME
QUARTERS ENDED SEPTEMBER 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 $ 4 $ 24 $ 28
Investment securities:
U.S. Government obligations 3 (154) (151)
Obligations of states and political
subdivisions (2) 3 (17) (14)
Other securities 302 (8) 294
Loans (2) 4,921 (178) 4,743
------- ----- -------
Change in interest income (2) $ 5,233 $(333) $ 4,900
------- ----- -------
Increase (decrease) in interest expense:
Interest-bearing transaction deposits $ 18 $ 29 $ 47
Savings deposits 8 37 45
Money market deposits 137 241 378
Time deposits 1,088 (189) 899
Short-term borrowings:
Federal funds purchased (5) 3 (2)
Repurchase agreements 96 4 100
Other 61 - 61
Long-term debt 758 (119) 639
Junior subordinated debt owed to unconsolidated trust 232 (80) 152
------- ----- -------
Change in interest expense $ 2,393 $ (74) $ 2,319
------- ----- -------
Increase in net interest income (2) $ 2,840 $(259) $ 2,581
======= ===== =======
(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.
30 of 39
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.
31 of 39
The following table sets forth the static rate-sensitivity analysis of the
Corporation as of September 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 $ 7,705 $ - $ - $ - $ - $ 7,705
Federal funds sold 50,650 - - - - 50,650
Investment securities
U.S. Governments 9,633 15,994 13,027 31,347 119,724 189,725
Obligations of states and
political subdivisions 1,049 6,166 4,099 1,535 40,357 53,206
Other securities 14,241 - 349 1,252 39,587 55,429
Loans (net of unearned int.) 654,983 85,501 96,985 155,542 475,248 1,468,259
--------- --------- --------- --------- -------- ----------
Total rate-sensitive assets $ 738,261 $ 107,661 $ 114,460 $ 189,676 $674,916 $1,824,974
--------- --------- --------- --------- -------- ----------
Interest bearing transaction
deposits $ 56,051 $ - $ - $ - $ - $ 56,051
Savings deposits 110,672 - - - - 110,672
Money market deposits 532,442 - - - - 532,442
Time deposits 83,579 82,733 109,127 149,595 248,724 673,758
Short-term borrowings:
Repurchase agreements 39,025 - - - - 39,025
Other - - 2,250 9,000 - 11,250
Long-term debt 5,048 1,000 47,353 15,695 102,700 171,796
Junior subordinated debt owed
to unconsolidated trusts - 15,000 - - 25,000 40,000
--------- --------- --------- --------- -------- ----------
Total rate-sensitive liabilities $ 826,817 $ 98,733 $ 158,730 $ 174,290 $376,424 $1,634,994
Rate-sensitive assets less
rate-sensitive liabilities $ (88,556) $ 8,928 $ (44,270) $ 15,386 $298,492 $ 189,980
--------- --------- --------- --------- -------- ----------
Cumulative Gap $ (88,556) $ (79,628) $(123,898) $(108,512) $189,980
========= ========= ========= ========= ========
Cumulative amounts as a
percentage of total
rate-sensitive assets -4.85% -4.36% -6.79% -5.95% 10.41%
========= ========= ========= ========= ========
Cumulative ratio 0.89 0.91 0.89 0.91 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 September 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 $88.6 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 with the exception of the 91-180 days repricing period.
On a cumulative basis, the gap remains liability sensitive through 180 days. The
composition of the gap structure at September 30, 2004 indicates the Corporation
would benefit more if interest rates decrease during the next year 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
32 of 39
permanent instantaneous shifts of +/-100 basis points and +200 basis points.
Management measures 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 remain constant at September 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 September 30, 2004, and December 31, 2003 was as follows:
Basis Point Changes
-------------------------
-100 +100 +200
------- ----- -----
September 30, 2004 (5.06%) 1.33% 2.64%
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
33 of 39
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
July 1 - 31, 2004 15,000 18.73 15,000 765,966
August 1 - 31, 2004 77 19.04 77 765,889
September 1 - 30, 2004 - - - 765,889
------- ------ -------
Total 118,727 $18.26 118,727
(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 effective August 3, 2004, as if it had occurred
on January 1, 2004.
ITEM 3: Defaults Upon Senior Securities
Not Applicable
ITEM 4: None
ITEM 5: Other Information
(a) None
(b) Not applicable
34 of 39
ITEM 6: Exhibits
(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.) On July 20, 2004, First Busey Corporation filed a report on Form
8-K (Item 7) dated July 19, 2004, releasing its financial results
for the three months ending June 30, 2004.
On July 29, 2004, First Busey Corporation filed a report on Form
8-K (Item 5) dated July 28, 2004, announcing the declaration of a
three-for-two stock split.
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: //Douglas C. Mills//
--------------------------------------
Douglas C. Mills
Chairman of the Board and Chief
Executive Officer
By: //Barbara J. Harrington//
--------------------------------------
Barbara J. Harrington
Chief Financial Officer
(Principal financial and accounting
officer)
Date: November 9, 2004
35 of 39