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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 1O-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-15950
FIRST BUSEY CORPORATION
(Exact name of registrant as specified in its Charter)
Nevada 37-1078406
(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.)
201 W. Main Street
Urbana, Illinois 61801
(Address of principal executive offices) (Zip Code)
(217) 384-4513
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, without par value
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes _X_ No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
As of February 29, 1996, the aggregate market value of the Class A Common
Stock held by non-affiliates was $67,681,460. Class B Common Stock is held by
affiliates. The market value of the Class A Common Stock is based on the "Bid"
price for such stock as reported in the National Quotation Bureau's "Pink
Sheets" on that date. Affiliates include all directors, executive officers and
beneficial holders owning 5% or more of the shares.
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date.
Class Outstanding at February 29, 1996
--------------------------------------- ---------------------------------
Class A Common Stock, without par value 3,785,016
Class B Common Stock, without par value 750,000
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement dated March 18, 1996 for First
Busey Corporation's Annual Meeting of Stockholders to be held on April 16, 1996
(the "1996 Proxy Statement") are incorporated by reference into Part III.
Page 1 of 66 pages
Exhibit index on page 27
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FIRST BUSEY CORPORATION
Form 10-K Annual Report
Table of Contents
PART I Page Number
Item 1 Business .................................................................... 3
Item 2 Properties .................................................................. 9
Item 3 Legal Proceedings ........................................................... 9
Item 4 Submission of Matters to a Vote of Security Holders ......................... 9
PART II
Item 5 Market for Registrant's Common Equity and Related Stockholder Matters ....... 10
Item 6 Selected Financial Data ..................................................... 11
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations ................................................... 13
Item 8 Financial Statements and Supplementary Data ................................. 26
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure .................................................... 26
PART III
Item 10 Directors and Executive Officers of the Registrant .......................... 26
Item 11 Executive Compensation ...................................................... 26
Item 12 Security Ownership of Certain Beneficial Owners and Management .............. 26
Item 13 Certain Relationships and Related Transactions .............................. 26
PART IV
Item 14 Exhibits, Financial Statements Schedules and Reports on Form 8-K ............ 27
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PART I
ITEM 1. BUSINESS
INTRODUCTION
First Busey Corporation ("First Busey"), a Nevada corporation, is a
multi-bank holding company located in Urbana, Illinois. As of December 31,
1995, First Busey owned two community bank subsidiaries, a trust company
subsidiary and a securities broker-dealer subsidiary. First Busey is engaged
in commercial, retail and correspondent banking and provides trust services.
Based on assets of $845 million as of December 31, 1995, First Busey, with
deposits of $745 million and stockholders' equity of $68 million, is one of the
largest financial institutions headquartered in east central Illinois. First
Busey's largest subsidiary, Busey Bank, with continuous operations since 1868,
is one of the oldest banks chartered in Illinois.
First Busey's strategic plan is to continue providing commercial, retail
and correspondent banking services through its banking subsidiaries, with
emphasis on commercial and retail services. The strategic plan also emphasizes
the operation of its banking centers autonomously, allowing them to tailor
their service and products to the particular market they serve while
consolidating back-room operations. First Busey intends to continue its
expansion and growth in the three counties it serves in Illinois, Champaign,
McLean and Ford County, as well as its Loan Production Office in Indianapolis.
First Busey does not currently have any commitments to acquire or merge with
any financial institution. However, from time to time exploratory discussions
have been and continue to be held.
First Busey Corporation's operations are conducted primarily through its
lead bank, Busey Bank (fifteen locations), Busey Bank of McLean County (two
locations), the trust company and the securities broker-dealer subsidiary.
First Busey provides its subsidiaries with both financial and managerial
support. Each subsidiary operates under the direction of its own Board of
Directors.
BUSEY BANK
Busey Bank was established on January 13, 1868 and is a state-chartered
bank. As of December 31, 1995, Busey Bank had total assets of $751.7 million,
representing 89% of First Busey's assets, and had total revenues of $54.8
million, representing 87% of First Busey's revenues. Busey Bank provides a
full range of banking services including commercial and retail banking
products. The services available to its commercial and retail customers include
a broad selection of depository and lending activities. In the commercial
lending area, Busey Bank is designated a Small Business Administration
Preferred Lender authorized to fund government guaranteed loans on an expedited
basis, and is also an approved lender under the Federal National Mortgage
Association Program, permitting expedited origination of single- and
multi-family mortgage loans. Busey Bank's other commercial lending activities
consist primarily of secured loans to borrowers in many different industries.
Busey Bank's retail services include consumer lending, numerous types of
deposit accounts and certain specialized programs such as the Fortune Five-O
Program for the mature market.
Management's philosophy is to develop programs tailored to specific market
segments of its customer base with particular emphasis on retail services.
Busey Bank has adopted a strategy to increase other income by emphasizing
fee-based services, including transaction accounts, full service brokerage,
mortgage origination and other loan services generating fees.
Guidelines for Busey Bank for various collateral advance ratios are set
forth in the Loan Review Grading System under "Collateral Position." Loan
Officers are required to use the grading system in determining an acceptable
collateral position on any given credit request. Collateral coverage
percentages for various types of credit are set forth in the following table:
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Collateral Type Coverage Ratio
--------------- --------------
Commercial Loans: Real Estate 125%
Accounts Receivable 125%
Inventory & Equipment 150%
Consumer Real Estate Loans: Real Estate 125%
Installment Loans: Cash or Equivalent 110%
Vehicle 140%
Mobile Homes 150%
Other Collateral 160%
All commercial loans must be supported by a completed and signed financial
statement which should include a minimum of a balance sheet and income
statement. Loan Officers are encouraged to require borrowers to provide annual
statements prepared by a C.P.A. firm. Where possible, an audit should be
obtained, however, a review or compilation is acceptable. The Credit Analysis
Department tracks delinquent financial statements and provides weekly reports
to the Commercial Loan Department. In addition, the Senior Loan Committee
receives a monthly report detailing delinquent financial statements for
customers with large loan balances.
A borrower's financial position including cash flow is monitored at least
annually through an annual review process.
OTHER SUBSIDIARY BANKS
Busey Bank of McLean County, acquired February 26, 1993, is located in
LeRoy, Illinois and serves the financial needs of the customers of McLean
County. On December 31, 1995, Busey Bank of McLean County had total assets of
$83.7 million, representing 9.9% of First Busey's assets and total revenues of
$5.9 million representing 9.4% of First Busey's revenue. Busey Bank of
McLean County offers the same services and products as does Busey Bank with the
pricing tailored to McLean County. Busey Bank of McLean County was merged into
Busey Bank during the first quarter of 1996 in an effort to capitalize on
efficiencies arising from one charter. (Busey Bank and Busey Bank of McLean
County are referred to herein as "First Busey's subsidiary banks.")
OTHER SUBSIDIARIES
First Busey Trust & Investment Co. began operation on January 1, 1987 as a
successor to the combined trust departments of Busey Bank and County Bank,
which began trust operations in 1967 and 1947, respectively. Through First
Busey Trust & Investment Co., First Busey plans to expand its trust activities
by increasing assets under control, currently approximating $420 million, and
by developing new financial services. During 1995, revenues from trust
activities were $2.5 million.
Busey Bank established a full service securities broker-dealer subsidiary,
First Busey Securities, Inc., on April 1, 1991. Through the offering of full
service brokerage, along with various insurance and annuity products, new
sources of fee income will be available to Busey Bank.
COMPETITION
First Busey faces intense competition in all phases of its banking
business from other banks and financial institutions. First Busey's subsidiary
banks compete for deposits with a large number of depository institutions
including commercial banks, savings and loan associations, credit unions, money
market funds and other financial institutions and financial intermediaries
serving Champaign County and McLean County. Principal competitive factors with
respect to deposits include interest rates paid on deposits, customer service,
convenience and location.
First Busey's subsidiary banks compete for loans with other banks
headquartered in Illinois, with loan production offices of large money center
banks headquartered in other states, as well as with savings and loan
associations, credit unions, finance companies, mortgage bankers, leasing
companies and other institutions. Competitive factors with respect to loans
include interest rates charged, customer service and responsiveness in
tailoring financial products to the needs of customers. First Busey's
subsidiary banks compete for loans primarily by designing their products for
and directing their marketing efforts to businesses in Champaign County and
McLean County which are locally owned, well-capitalized and well-managed.
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Many of the entities that compete with First Busey's subsidiary banks are
substantially larger in size than First Busey and First Busey's subsidiary
banks, and many non-bank financial intermediaries are not subject to the
regulatory restrictions applicable to First Busey's bank subsidiaries. First
Busey and its subsidiary banks have experienced an increase in the level of
competition as well as the number of competitors in recent years. See
"Supervision and Regulation."
EMPLOYEES
First Busey and its subsidiaries employed 375 employees (full-time
equivalent) on December 31, 1995. Management considers its relationship with
its employees to be good.
SUPERVISION AND REGULATION
General
Financial institutions and their holding companies are extensively
regulated under federal and state laws. As a result, the business, financial
condition and prospects of First Busey and its subsidiary banks can be
materially affected not only by management decisions and general economic
conditions, but also by applicable statutes and regulations and other
regulatory pronouncements and policies promulgated by regulatory agencies with
jurisdiction over First Busey and its subsidiary banks, such as the Federal
Reserve Board ("FRB"), Federal Deposit Insurance Corporation ("FDIC") and the
Illinois Commissioner of Banks and Trust Companies. The effect of such
statutes, regulations and other pronouncements and policies can be significant,
cannot be predicted with a high degree of certainty and can change over time.
Furthermore, such statutes, regulations and other pronouncements and policies
are intended to protect the depositors and the FDIC's deposit insurance funds,
not to protect stockholders.
Bank holding companies and banks are subject to enforcement actions by
their regulators for regulatory violations. In addition to compliance with
statutory and regulatory limitations and requirements concerning financial and
operating matters, regulated financial institutions such as First Busey and its
subsidiary banks must file periodic and other reports and information with
their regulators and are subject to examination by each of their regulators.
The statutory requirements applicable to and regulatory supervision of
bank holding companies and banks have increased significantly and have
undergone substantial change in recent years. To a great extent, these changes
are embodied in the Financial Institutions Reform, Recovery and Enforcement Act
("FIRREA"), enacted in August 1989, the Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA"), enacted in December 1991, and the
regulations promulgated under FIRREA and FDICIA. Many of the regulations
promulgated pursuant to FDICIA have only recently been finalized and their
impact on the business, financial condition and prospects of First Busey and
its subsidiary banks cannot be predicted with certainty.
The following discussion and other references to and descriptions of the
regulation of financial institutions contained herein constitute brief
summaries thereof. This discussion is not intended to constitute and does not
purport to be a complete statement of all legal restrictions and requirements
applicable to First Busey and its subsidiary banks and all such descriptions
are qualified in their entirety by reference to applicable statutes,
regulations and other regulatory pronouncements.
ILLINOIS BANKING LAW
Interstate banking legislation permits adequately capitalized and managed
bank holding companies to acquire control of a bank in any state. States may
prohibit acquisitions of banks that have not been in existence for at least
five years. Recently enacted interstate branching legislation permits banks to
merge across state lines. This legislation becomes effective June 1, 1997,
unless a state takes legislative action prior to that date to "opt-in" prior to
the June 1, 1997 effective date or they may "opt-out" by expressly prohibiting
merger transactions involving out-of-state banks, provided the legislative
action is taken before June 1, 1997.
The effects on First Busey of such recent changes in interstate banking
and branching laws cannot be accurately predicted, but it is likely that there
will be increased competition from national and regional banking firms
headquartered outside of Illinois.
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Regulation of Bank Holding Companies and Their Non-Bank Subsidiaries
First Busey is a registered bank holding company within the meaning of the
Bank Holding Company Act of 1956, as amended ("BHCA"). As such, First Busey
is subject to regulation, supervision and examination by the FRB. First Busey
is also subject to the limitations and requirements of the Illinois Bank
Holding Company Act ("IBHCA"). These limitations and requirements, however,
are no more restrictive in most instances than those imposed by the BHCA and
the FRB. The business and affairs of First Busey are regulated in a variety of
ways, including limitations on acquiring control of other banks and bank
holding companies, limitations on activities and investments, limitations on
interstate acquisitions, regulatory capital requirements and limitations on
payment of dividends. In addition, it is the FRB's policy that a bank holding
company is expected to act as a source of financial strength to banks that it
owns or controls and, as a result, the FRB could require First Busey to commit
resources to support its subsidiary banks in circumstances in which First Busey
might not do so absent the FRB's policy.
First Busey Trust & Investment Co. is subject to regulation and
examination by the Illinois Commissioner of Banks and Trust Companies and the
FRB. The federal and state laws generally applicable to a trust company
subsidiary of a bank holding company regulate, among other things, the scope of
its business, investments and other activities.
Acquisition of Banks and Bank Holding Companies.
The BHCA generally prohibits a bank holding company from (1) acquiring,
directly or indirectly, more than 5% of the outstanding shares of any class of
voting securities of a bank or bank holding company, (2) acquiring control of a
bank or another bank holding company, (3) acquiring all or substantially all
the assets of a bank, or (4) merging or consolidating with another bank holding
company, without first obtaining FRB approval. In considering an application
with respect to any such transaction, the FRB is required to consider a variety
of factors, including the potential anti-competitive effects of the
transaction, the financial condition and future prospects of the combining and
resulting institutions, the managerial resources of the resulting institution,
the convenience and needs of the communities the combined organization would
serve, the record of performance of each combining organization under the
Community Reinvestment Act and the Equal Credit Opportunity Act, and the
prospective availability to the FRB of information appropriate to determine
ongoing regulatory compliance with applicable banking laws.
In addition, both the federal Change in Bank Control Act and the Illinois
Banking Act ("IBA") impose limitations on the ability of one or more
individuals or other entities to acquire control of First Busey or its
subsidiary banks.
The BHCA generally imposes certain limitations on extensions of credit and
other transactions by and between banks that are members of the Federal Reserve
System and other banks and non-bank companies in the same holding company.
Under the BHCA and the FRB's regulations, a bank holding company and its
subsidiaries are prohibited from engaging in certain tie-in arrangements in
connection with any extension of credit, lease or sale of property or
furnishing of services.
The BHCA prohibits a bank holding company from acquiring control of a bank
whose principal office is located outside of the state in which its principal
place of business is located unless specifically authorized by applicable state
law. The IBHCA permits Illinois bank holding companies to acquire control of
banks in any state and permits bank holding companies whose principal place of
business is in another state to acquire control of Illinois banks or bank
holding companies if that state affords reciprocal rights to Illinois bank
holding companies and certain other requirements are met.
The restrictions described above represent limitations on expansion by
First Busey and its subsidiary banks, the acquisition of control of First Busey
by another company and the disposition by First Busey of all or a portion of
the stock of its subsidiary banks or by its subsidiary banks of all or a
substantial portion of its assets.
Permitted Non-Banking Activities.
The BHCA generally prohibits a bank holding company from engaging in
activities or acquiring or controlling, directly or indirectly, the voting
securities or assets of any company engaged in any activity other than banking,
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managing or controlling banks and bank subsidiaries or another activity that
the FRB has determined, by regulation or otherwise, to be so closely related to
banking or managing or controlling banks as to be a proper incident thereto.
Subject to certain exceptions, before making any such acquisition or engaging
in any such activity, a bank holding company must obtain the prior approval of
the FRB as provided in applicable regulations.
In evaluating such applications, the FRB will consider, among other
relevant factors, whether permitting the bank holding company to engage in the
activity in question can reasonably be expected to produce benefits to the
public (such as increased convenience, competition or efficiency) that outweigh
any possible adverse effects (such as undue concentration of resources,
decreased or unfair competition, conflicts of interest or safety and soundness
concerns). Those activities that the FRB has determined by regulation to be
closely related to banking include making, acquiring and servicing loans or
other extensions of credit by consumer finance companies.
Notwithstanding applicable restrictions on acquisition of control of
banks, bank assets, bank holding companies and companies engaged in permitted
non-banking activities, a bank holding company may acquire, without the prior
approval of the FRB, 5% or less of the outstanding shares of any class of
voting securities of a company assuming the investment does not otherwise
result in control of such company. The BHCA prohibits bank holding companies,
with certain exceptions, from acquiring direct or indirect ownership of more
than five percent of the voting securities of any company that is not a bank or
does not engage in any of the activities described in the preceding paragraph.
Capital Requirements.
Regulatory capital requirements applicable to all regulated financial
institutions, including bank holding companies and banks, have increased
significantly in recent years and further increases are possible in future
periods. The FRB has adopted risk-based capital standards for bank holding
companies. The articulated objectives of Congress and the FRB in establishing
a risk-based method of measuring capital adequacy are (i) to make regulatory
capital requirements applicable to bank holding companies more sensitive to
differences in risk profiles among bank holding companies, (ii) to factor
off-balance sheet liabilities into the assessment of capital adequacy, (iii) to
reduce disincentives for bank holding companies to hold liquid, low risk assets
and (iv) to achieve greater consistency in the evaluation of capital adequacy
of major banking organizations throughout the world by conforming to the
framework developed jointly by supervisory authorities from countries that are
parties to the so-called "Basle Accord" adopted by such supervisory authorities
in July 1988.
The FRB requires bank holding companies to maintain a minimum ratio of
risk-weighted capital to total risk-adjusted assets. Banking organizations,
however, generally are expected to operate well above the minimum risk-based
ratios. Risk-adjusted assets include a "credit equivalent amount" of off
balance sheet items, determined in accordance with conversion formulae set
forth in the FRB's regulations. Each asset and off balance sheet item, after
certain adjustments, is assigned to one of four risk-weighing categories, 0%,
20% , 50% or 100%, and the risk-adjusted values then are added together to
determine risk-weighted assets.
A bank holding company must meet two risk-based capital standards, a
"core" or "Tier 1" capital requirement and a total capital requirement. The
current regulations require that a bank holding company maintain Tier 1 capital
equal to 4% of risk-adjusted assets and total capital equal to 8% of
risk-adjusted assets. Tier 1 capital must represent at least 50% of total
capital and may consist of those items defined in applicable regulations as
core capital elements. Core capital elements include common stockholders'
equity; qualifying noncumulative, nonredeemable perpetual preferred stock;
qualifying (i.e., up to 25% of total Tier 1 capital) cumulative, nonredeemable
perpetual preferred stock; and minority interests in the equity accounts of
consolidated subsidiaries. Core capital excludes goodwill and other intangible
assets required to be deducted in accordance with applicable regulations.
Total capital represents the sum of Tier 1 capital plus "Tier 2" capital,
less certain deductions. Tier 2 or "supplementary" capital consists of
allowances for loan and lease losses; perpetual preferred stock (to the extent
not included in Tier 1 capital); hybrid capital instruments; perpetual debt;
mandatory convertible debt securities; term subordinated debt; and
intermediate term preferred stock, in each case subject to applicable
regulatory limitations. The maximum amount of Tier 2 capital that may be
included in an organization's qualifying total capital cannot exceed 100% of
Tier 1 capital. In determining total capital, a bank holding company must
deduct from the sum of Tier 1 and Tier 2 capital its investments in
unconsolidated subsidiaries; reciprocal holdings of
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certain securities of banking organizations; and other deductions required
by regulation or determined on a case-by-case basis by the appropriate
supervisory authority.
Another capital measure, the Tier 1 leverage ratio, is defined as Tier 1
capital divided by average total assets (net of allowance for losses and
goodwill). The minimum leverage ratio is 3% for banking organizations that do
not anticipate significant growth and that have well-diversified risk (including
no undue interest rate risk), excellent asset quality, high liquidity and
good earnings. Other banking organizations are expected to have ratios of at
least 4% to 5%, depending upon their particular condition and growth plans.
Higher capital ratios could be required if warranted by the particular
circumstances or risk profile of a given banking organization. The FRB has not
advised First Busey of any specific minimum Tier 1 leverage ratio applicable to
it.
As of December 31, 1995, First Busey's Tier 1 and total risk-based capital
ratios were 11.23% and 12.36%, respectively, and its Tier 1 leverage ratio was
6.92%.
The failure of a bank holding company to meet its risk-weighted capital
ratios may result in supervisory action, as well as inability to obtain
approval of any regulatory applications and, potentially, increased frequency
of examination. The nature and intensity of the supervisory action will depend
upon the level of noncompliance. Under the IBHCA, no bank holding company may
acquire control of a bank if, at the time it applies for approval or at the
time the transaction is consummated, its ratio of total capital to total
assets, as determined in accordance with then applicable FRB regulations, is or
will be less than 7%.
Risk-based capital ratios focus principally on broad categories of credit
risk and do not incorporate factors that can affect the Company's financial
condition, such as overall interest rate risk exposure, liquidity, funding and
market risks, the quality and level of earnings, investment or loan portfolio
concentrations, the quality of loans and investments, the effectiveness of loan
and investment policies and management's ability to monitor and control
financial and operating risks. For this reason, the overall financial health
of First Busey and its subsidiary banks and the assessment of First Busey and
its subsidiary banks by various regulatory agencies may differ from conclusions
that might be drawn solely from the level of First Busey or its subsidiary
banks' risk-based capital ratios.
During 1994, the federal banking regulators announced a joint decision not
to modify risk-based capital and leverage requirements for regulatory capital
to reflect the impact of unrealized gains and losses for securities classified
as "available for sale." This decision was made in response to the Financial
Accounting Standards Board's ("FASB") issuance of Statement No. 115 "Accounting
for Certain Investments in Debt and Equity Securities"("FASB No. 115").
Regulation of Banks
First Busey's bank subsidiaries are banking corporations organized under
the IBA. As such, they are subject to regulation, supervision and examination
by the Illinois Commissioner of Banks and Trust Companies (the "Commissioner").
The deposit accounts of the bank subsidiaries are insured up to applicable
limits by the FDIC's Bank Insurance Fund (the "BIF"). Thus, the bank
subsidiaries are also subject to regulation, supervision and examination by the
FDIC. In certain instances, the statutes administered by and regulations
promulgated by certain of these agencies are more stringent than those of other
agencies with jurisdiction. In these instances, the bank subsidiaries must
comply with the more stringent restrictions, prohibitions or requirements.
The business and affairs of the bank subsidiaries are regulated in a
variety of ways. Regulations apply to, among other things, insurance of
deposit accounts, capital ratios, payment of dividends, liquidity requirements,
the nature and amount of the investments that the bank subsidiaries may make,
transactions with affiliates, community and consumer lending laws, internal
policies and controls, reporting by and examination of the bank subsidiaries
and changes in control of the bank subsidiaries.
Dividends
The FRB has issued a policy statement on the payment of cash dividends by
bank holding companies. In the policy statement, the FRB expressed its view
that a bank holding company experiencing weak earnings should not pay cash
dividends which exceed its net income or which could only be funded in ways
that would weaken its
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financial health, such as by borrowing. The FRB also may impose limitations on
the payment of dividends as a condition to its approval of certain applications,
including applications for approval of mergers and acquisitions. First Busey
uses funds derived primarily from the payment of dividends by its banking
subsidiaries for, among other purposes, the payment of dividends to First
Busey's stockholders. Under provisions of the IBA, dividends may not be declared
by banking subsidiaries except out of the bank's net profit (as defined), and
unless the bank has transferred to surplus at least one-tenth of its net profits
since the date of the declaration of the last preceding dividend, until the
amount of its surplus is at least equal to its capital. Presently, the surplus
of Busey Bank and Busey Bank of McLean County exceeds their capital.
All dividends paid by First Busey's banking subsidiaries are restricted by
capital adequacy requirements imposed by federal regulators regarding the
maintenance of the risk-weighed asset ratios and the leverage ratio (as defined
by regulatory agencies). At December 31, 1995, Busey Bank had $12,850,000 and
Busey Bank of McLean County had $1,339,000 available for the payment of
dividends to First Busey. Sound banking practices require the maintenance of
adequate levels of capital. State and federal regulatory authorities have
adopted standards for the maintenance of capital by banks, and adherence to
such standards further limits the ability of banks to pay dividends.
First Busey Trust & Investment Co., as an Illinois corporation, is
permitted to make distributions to its stockholder as authorized by its Board
of Directors, except that as long as it continues in a fiduciary business, it
may not withdraw for purposes of payment of dividends or otherwise any portion
of its capital account except with the approval of the Illinois Commissioner of
Banks and Trust Companies.
MONETARY POLICY AND ECONOMIC CONDITION
The earnings of commercial banks and bank holding companies are affected
not only by general economic conditions but also by the policies of various
governmental regulatory authorities. In particular, the FRB influences
conditions in the money and capital markets, which affect interest rates and
the growth in bank credit and deposits. FRB monetary policies have had a
significant effect on the operating results of commercial banks in the past and
this is expected to continue in the future. The general effect, if any, of such
policies upon the future business and earnings of First Busey and its
subsidiary banks cannot be predicted.
ITEM 2. PROPERTIES
As of February 29, 1996, First Busey and its subsidiaries conduct business
in eighteen locations. Busey Bank has its headquarters at the Busey Bank
Building, a 40,000 square foot building owned by Busey Bank. In addition to the
Busey Bank Building, First Busey and/or its subsidiaries own the land and
building for thirteen locations, own the building and lease the land for two
locations and lease the land and building for three. All the properties are
fully occupied by First Busey or its subsidiaries except for the Busey Plaza
Building in Urbana, a five-story, 90,000 square foot office building. The
Busey Plaza Building is the location of the headquarters of First Busey Trust &
Investment Co., with the remainder leased to unaffiliated tenants.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than routine
litigation incidental to the business, to which First Busey or its subsidiaries
are a part of or which any of their property is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
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EXECUTIVE OFFICERS OF THE REGISTRANT
(Provided pursuant to Instruction 3 of Item 401(b) of Regulation S-K under
the Securities Act of 1933.)
Name Office (year first elected as an officer) Age
- - --------------------- -------------------------------------------- ---
Douglas C. Mills* Chairman of the Board, President and 55
Chief Executive Officer of First Busey(1971)
Edwin A. Scharlau II* Chairman of the Board of First Busey Trust & 51
Investment Co. and First Busey Securities Inc.
(1967)
P. David Kuhl** President and Chief Executive 46
Officer of Busey Bank(1979)
* Director
** Director Nominee
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Since July 1, 1988, First Busey Class A Common Stock has been traded in
the over-the-counter market and quoted in the National Quotation Bureau's "Pink
Sheets." The "Pink Sheets" include approximately 15,000 thinly traded stocks.
The market quotations reflect inter-dealer prices, without retail-markup,
markdown or commission and may not necessarily represent actual transactions.
The investment banking firm of Stephens, Inc., Little Rock, Arkansas, is the
principal market maker for First Busey Class A Common Stock. The last reported
"Bid" price for First Busey Class A Common Stock is reported daily in the
News-Gazette, a Champaign-Urbana newspaper. Prior to July 1, 1988, there was
no public market for First Busey Class A Common Stock. Although, recently, a
limited trading market for shares of First Busey Class A Common Stock has
developed, there can be no assurance that it will continue.
The following table presents for the periods indicated the high and low
"Bid" quotations for First Busey Class A Common Stock as reported in the
National Quotation Bureau's "Pink Sheets."
1995 1994
--------------- ---------------
MARKET PRICES OF COMMON STOCK High Low High Low
- - ----------------------------- ---- --- ---- ---
First Quarter $25.75 $24.00 $22.50 $21.50
Second Quarter $26.50 $24.75 $23.50 $21.50
Third Quarter $27.25 $25.50 $25.25 $22.50
Fourth Quarter $27.75 $26.00 $25.25 $24.00
During 1995 and 1994, First Busey declared cash dividends per share as
follows:
10
11
Class A Class B
1995 Common Stock Common Stock
- - ---- ------------ ------------
January $.22 $.20
April $.22 $.20
July $.22 $.20
October $.22 $.20
1994
- - ----
January $.20 $.1818
April $.20 $.1818
July $.20 $.1818
October $.20 $.1818
In May of 1993, there was a three-for-two stock split on both Class A
and Class B Common Stock.
For a discussion of restrictions on dividends, please see the
discussion of dividend restrictions under Item 1, Business, Dividends on page
8.
As of February 29, 1996 there were approximately 889 holders of First
Busey Class A Common Stock.
Item 6. Selected Financial Data
Selected Consolidated Financial Information
The following selected financial data for each of the five years in the
period ended December 31, 1995, have been derived from First Busey's annual
consolidated financial statements audited by McGladrey & Pullen, LLP,
independent certified public accountants, whose report on the financial position
as of December 31, 1995 and December 31, 1994, and the results of operations
for each of the three years in the period ended December 31, 1995, appear
elsewhere in this report. This financial data should be read in conjunction
with the financial statements and the related notes thereto appearing in this
report.
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Balance Sheet Items (dollars in thousands, except per share data)
- - -------------------
Investment securities $284,517 $210,525 $230,359 $229,574 $185,699
Loans, net of unearned discount 481,772 451,051 412,905 330,137 318,894
Allowance for loan losses 5,473 5,235 5,205 4,456 3,833
Total assets 844,666 728,459 709,257 630,548 564,704
Total deposits 744,897 635,694 636,418 572,417 509,170
Long-term debt 5,000 5,000 6,645 3,338 5,700
Stockholders' equity 67,778 59,016 56,332 44,620 41,648
Results of Operations
- - ---------------------
Interest income $54,494 $ 47,126 $ 46,003 $ 45,978 $ 47,345
Interest expense 26,515 20,212 20,363 23,067 28,402
------ ------ ------ ------ ------
Net interest income 27,979 26,914 25,640 22,911 18,943
Provision for loan losses 395 240 1,125 1,000 798
Net income $8,775 $8,238 $7,364 $5,938 $5,215
11
12
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(dollars in thousands, except per share data)
PER SHARE DATA(1)
Net Income $1.90 $1.78 $1.60 $1.42 $1.27
Cash dividends declared (Class A) 0.88 0.80 0.80 0.69 0.67
Book value 14.92 12.97 12.20 10.85 10.08
Closing "Bid" price 27.00 24.25 21.50 16.33 15.33
OTHER INFORMATION
Return on average assets 1.15% 1.14% 1.07% .96% .95%
Return on average equity 13.86% 14.16% 13.87% 13.91% 13.09%
Net interest margin(2) 4.20% 4.30% 4.33% 4.33% 4.08%
Stockholders' equity to assets 8.02% 8.10% 7.94% 7.08% 7.38%
(1) Per share amounts have been restated to give retroactive effect to the
three-for-two stock split which occurred May 7, 1993.
(2) Calculated as a percent of average earning assets.
12
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is management's discussion and analysis of the financial
condition and results of operations of First Busey Corporation and Subsidiaries
(the "Corporation") for the years ended December 31, 1995, 1994 and 1993. It
should be read in conjunction with "Business", "Selected Financial Data", the
consolidated financial statements and the related notes to the consolidated
financial statements and other data included in this Annual Report. All per
share amounts have been restated to give retroactive effect to the
three-for-two stock split which occurred May 7, 1993.
GENERAL
The Corporation's consolidated income is generated primarily by the banking
activities of its subsidiaries. Since January 1, 1982, the Corporation has
acquired eleven banks and sold two, has acquired six savings and loan and two
bank branches and has acquired a bank branch in an FDIC assisted acquisition of
a failed bank, formed a trust company subsidiary and acquired a marketing and
communications company. All of the banks acquired during those years were
accounted for using the purchase method of accounting, except for Bank of
Urbana which was accounted for using the pooling of interests method. All
subsidiary banks owned by the Corporation as of November 1991 were merged with
Busey Bank. Under the purchase method of accounting, the earnings of the
acquired subsidiaries are included in the Corporation's earnings only for the
periods subsequent to acquisition. The following table illustrates the amounts
of net income contributed by each subsidiary (on a pre-consolidation basis)
since January 1, 1993, less purchase accounting adjustments.
Subsidiary Acquired 1995 1994 1993
- - ----------------------------------------------------------------------------------------------------------
(dollars in thousands)
Busey Bank (1) 3/20/80 $7,978 85.4% $7,764 86.0% $6,977 86.0%
First Busey Trust & Investment Co. (2) -- 596 6.4% 510 5.6% 363 4.5%
First Busey Securities, Inc. (3) -- 76 0.8% 57 0.6% 110 1.4%
Busey Bank of McLean County 2/28/93 686 7.4% 700 7.8% 656 8.1%
-------------------------------------------------------------------
Total $9,336 100.0% $9,031 100.0% $8,106 100.0%
===================================================================
(1) City Bank of Champaign and Champaign County Bank & Trust were
merged into Busey Bank as of January 1, 1987. First National Bank
of Thomasboro was merged into Busey Bank as of January 1, 1988. State
Bank of St. Joseph was merged into Busey Bank as of November 3, 1989.
The Bank of Urbana, Citizens Bank of Tolono, and the assets of
Community Bank of Mahomet subject to its liabilities were merged into
Busey Bank as of November 16, 1991.
(2) Formed as a subsidiary of the Corporation as of January 1, 1987 as
a successor to the combined trust departments of Busey Bank and
Champaign County Bank & Trust.
(3) Formed as a subsidiary of Busey Bank as of April 1, 1991.
RESULTS OF OPERATIONS-THREE YEARS ENDED DECEMBER 31, 1995
SUMMARY
The Corporation reported net income of $8,775,000 in 1995, up 6.5% from
$8,238,000 in 1994, which had increased 11.9% from $7,364,000 in 1993. Net
income per share in 1995 increased 6.7% to $1.90 from $1.78 in 1994, which was
an 11.3% increase from $1.60 in 1993. Contributing to the 1995 increase in net
income were increases in net interest income and trust income. Factors
contributing to the 1994 increase in net income were increases in net interest
income, trust income and a significant decrease in the provision for loan
losses. These increases were countered in part by the increase in other
expenses. Operating earnings, which exclude security gains and gains on sales
of pooled loans and the related tax expense, were $8,217,000, or $1.78 per
share for 1995; $7,479,000, or $1.62 per share for 1994; and $6,032,000, or
$1.31 per share for 1993.
There was not a material change in average shares outstanding in 1995 or 1994
to affect earnings per share. Earnings per share for 1993 were not affected by
a net increase of 10.8% in average shares outstanding during the year issued in
the purchase of Empire Capital Corporation due to the additional income
provided by the acquisition. Earnings for 1993 were reduced due to an after
tax charge to income of $305,000 for certain assets received in the
FDIC-assisted acquisition of Eagle Bank of Champaign County, N.A.
Operating earnings, when excluding the impact of average shares outstanding,
charges for assets acquired in the FDIC-assisted acquisition and the 1994
writedown of the Busey Plaza Building, were $8,217,000, or $1.78 per share for
1995; $7,707,000 or $1.66 per share for 1994; and $6,337,000 or $1.38 per share
for 1993.
Security gains after the related tax expense were $134,000 or 1.5% of net
income in 1995; $199,000 or 2.4% of net income in 1994; and $585,000 or 7.9% of
net income in 1993.
13
14
The Corporation's return on average assets was 1.15%, 1.14%, and 1.07% for
1995, 1994 and 1993, respectively, and return on average equity was 13.86%,
14.16%, and 13.87% for 1995, 1994, and 1993, respectively. On an operating
earnings basis, return on average assets was 1.08%, 1.04%, and 0.88% for 1995,
1994, and 1993, respectively, and return on average equity was 12.98%, 12.86%,
and 11.36% for 1995, 1994, and 1993, respectively.
NET INTEREST INCOME
Net interest income on a tax equivalent basis for 1995 increased 4.0% to
$29,349,000 from $28,212,000 for 1994, which reflected a 4.8% increase from
$26,932,000 in 1993. Net interest income increased because of an increase in
average earning assets, which was partially offset by a modestly declining net
interest margin.
Average interest-earning assets increased to $699,567,000 in 1995 from
$655,328,000 and $622,453,000 in 1994 and 1993, respectively. The growth in
1995 and 1994 is primarily due to increases in net loans of $32,578,000 and
$38,116,000, respectively.
The net interest margin was 4.20% in 1995, 4.30% in 1994 and 4.33% in 1993. The
slight decrease in net interest margin for 1995 was due to a 22 basis point
reduction in the net interest spread which resulted from a greater increase in
the rate paid on average interest-bearing liabilities than the increase on the
yield on average interest-earning assets when comparing the year ended December
31, 1995 to the prior year period. The slight decrease in net interest margin
for 1994 was due to a greater decline in the yield on average interest-earning
assets than the decline in rate paid on average interest-bearing liabilities.
During 1995, interest rate trends had a significant impact on the Corporation's
yields and costs. The average yield on interest-earning assets increased 60
basis points in 1995 and the average cost of interest-bearing liabilities
increased 82 basis points. The overall effect dropped the net interest margin
to 4.20% from 4.30%, while the net interest spread dropped 22 basis points.
The average yield on interest-earning assets and the average rate on
interest-bearing liabilities decreased during the year ended December 31, 1994;
this decrease in interest rates led to a 21 basis point decline in the average
yield on interest-earning assets and an 17 basis point decline on the average
rate paid on total interest-bearing liabilities for the year ended December 31,
1994. [See "Statistical Information, Consolidated Average Balance Sheets and
Interest Rates."]
PROVISION FOR LOAN LOSSES
The provision for loan losses, which is a current charge against income,
represents an amount which management believes is sufficient to maintain an
adequate allowance for future loan losses. In assessing the adequacy of the
allowance for loan losses, management considers the size and quality of the
loan portfolio measured against prevailing economic conditions and historical
loan loss experience. When management determines to charge off loans, such
write-offs are charged against the allowance for loan losses.
The provision for loan losses increased 64.6% to $395,000 in 1995 from $240,000
in 1994, which reflected a 78.7% decrease from $1,125,000 in 1993. Net
charge-offs decreased 25.2% to $157,000 in 1995 from $210,000 in 1994. Net
charge-offs for 1993 were $798,000. Net charge-offs for 1993 included $462,000
for loans acquired in the FDIC-assisted acquisition of the Eagle Bank of
Champaign County, N.A. The increased provision in 1995 was primarily due to
overall growth of the loan portfolio. The allowance for loan losses was funded
with a lower provision in 1994 due to the significant reduction in loan
balances charged off, when compared to the prior year.
OTHER INCOME
Other income increased 6.9% in 1995 to $8,559,000 from $8,006,000 in 1994,
which reflected a 6.1% decrease from $8,524,000 in 1993. The increase in 1995
is due primarily to increases in service charges and trust income. The
decrease in 1994 is due primarily to less reliance on security gains and sales
of pooled loans as a component of other income and a $188,000 trading
securities loss due to unfavorable interest rate movements during holding
periods. As a percentage of total income, other income was 13.6%, 14.5%, and
15.7% in 1995, 1994 and 1993, respectively. Gains on the sale of investment
securities, as a component of other income, totaled $206,000 (2.4%) in 1995,
$302,000 (3.8%) in 1994, and $887,000 (10.4%) in 1993. Other income also
includes gains on the sale of pooled loans of $653,000, $865,000, and
$1,131,000 in 1995, 1994 and 1993, respectively.
Additional components of other income were fee income and trust revenues.
Service charges and other fee income increased 6.7% to $3,973,000 in 1995 from
$3,725,000 in 1994, which was a 5.5% increase from $3,532,000 in 1993. The
growth in fee income in 1995 and 1994 was due to increases in service charges
on deposit accounts. The growth in fee income in 1993 was due to increases in
other service charges and fees, largely from securities broker-dealer fee
income. Trust revenues increased 9.4% in 1995, 7.8% in 1994, and 20.2% in
1993; revenues were $2,551,000 in 1995, $2,332,000 in 1994, and $2,163,000 in
1993. Increases in trust department revenues in each year were primarily due
to increases in assets under management to $418,086,000 at December 31, 1995
from $328,336,000 at December 31, 1994. Remaining other income increased 18.6%
to $1,150,000 in 1995 from $970,000 in 1994 which was a 30.9% increase from
$741,000 in 1993.
14
15
OTHER EXPENSES
Other expenses increased 4.2% in 1995 to $24,069,000 from $23,100,000 in 1994
which reflected a 1.0% increase from $22,875,000 in 1993. As a percentage of
total income, other expenses were 38.2%, 41.9%, and 42.0% in 1995, 1994 and
1993, respectively. Employee related expenses including salaries and wages and
employee benefits, increased 4.4% in 1995 to $12,546,000 as compared to
$12,017,000 in 1994, which was a 4.1% increase from $11,548,000 in 1993. As a
percent of average assets, employee related expenses were 1.64%, 1.67%, and
1.68% in 1995, 1994, and 1993, respectively. The Corporation's full-time
equivalent employees were 375, 366 and 364 at December 31, 1995, 1994 and 1993,
respectively. Net occupancy expense of bank premises and furniture and
equipment expenses increased 4.2% in 1995 to $3,559,000 as compared to
$3,414,000 in 1994 and $3,367,000 in 1993. The increases in 1995 and 1994 were
primarily due to expenses associated with expanded facilities. As a percent of
average assets, occupancy and equipment expenses were .46%, .47%, and .49% in
1995, 1994, and 1993, respectively.
Foreclosed property write-down and expense increased to $226,000 in 1995 from
$94,000 in 1994 which had decreased from $154,000 in 1993. Other expenses were
charged $350,000 in 1994 in order to write-down the carrying value of the Busey
Plaza Building, a fully leased 90,000 square foot office building, to its net
realizable value. Remaining other expenses increased 7.1% to $7,738,000 in
1995 from $7,225,000 in 1994 which was a 7.4% decrease from $7,806,000 in 1993.
The increase in 1995 was primarily due to increased data processing expense
and uncategorized expenses, offset in part by reduced FDIC insurance assessment
expense. The decrease in 1994 was due to various cost control efforts.
INCOME TAXES
Income tax expense in 1995 was $3,299,000 as compared to $3,342,000 in 1994 and
$2,800,000 in 1993. The provision for income taxes as a percent of income
before income taxes was 27.3%, 28.9%, and 27.6% for 1995, 1994, and 1993,
respectively. The decrease in 1995 was due to the reclassification of expenses
of certain acquisition costs. The increase in 1994 resulted in part from a
higher level of income and a somewhat lower level of non-taxable interest
income.
STATEMENTS OF CONDITION-DECEMBER 31, 1995 AND DECEMBER 31, 1994
Total assets on December 31, 1995 were $844,666,000, an increase of 16.0% from
$728,459,000 on December 31, 1994. Of the increase in assets, $79,155,000 is
related to the deposit assumption explained below. Total loans, net of
unearned interest, increased 6.8% to $481,772,000 on December 31, 1995 as
compared to $451,051,000 on December 31, 1994. Deposits increased 17.2% to
$744,897,000 on December 31, 1995 as compared to $635,694,000 on December 31,
1994. Interest bearing deposits increased $103,252,000 or 18.1% during 1995;
this increase was primarily due to the assumption of $77,988,000 of deposits
assumed in the December 15, 1995 acquisition of two First of America Bank
branches. Non-interest bearing deposits increased $5,951,000 or 9.0% during
1995. Total stockholders' equity increased 14.8% to $67,778,000 on December
31, 1995 as compared to $59,016,000 on December 31, 1994.
EARNING ASSETS
The average interest-earning assets of the Corporation were 91.6%, 90.9%, and
90.4% of total assets for the years ended December 31, 1995, 1994, and 1993,
respectively.
INVESTMENT SECURITIES
Effective January 1, 1994, the Corporation adopted Financial Accounting
Standards Board Statement No. 115, "Accounting for Certain Investments in Debt
and Equity Securities," ("Statement No. 115"). The adoption and cumulative
effect of adopting Statement No. 115 had the effect of an increase of
$4,446,000 on stockholders' equity, net of deferred taxes of $2,290,000 at the
adoption date.
The Corporation has classified certain investment securities as securities
available for sale. These securities are held with the option of their
disposal in the foreseeable future to meet investment objectives or for other
operational needs. Securities available for sale are carried at fair value.
As of December 31, 1995 the fair value of these securities was $223,016,000 and
the amortized cost was $218,257,000. There were $4,910,000 of gross unrealized
gains and $151,000 of gross unrealized losses for a net unrealized gain of
$4,759,000. The after-tax effect ($3,093,000) of this unrealized gain has been
included in stockholders' equity as called for in Statement No. 115. The
increase in market value for the debt securities in this classification was a
result of falling interest rates. The fair value increase in the equity
securities was primarily due to a 103.0% ($2,227,000) increase in the value of
66,500 shares of Student Loan Marketing Association (SLMA) common stock owned
by the Corporation throughout the year.
15
16
The composition of securities available for sale is as follows:
Years ended December 31,
------------------------------------------------------------
1995 1994 1993 1992 1991
------------------------------------------------------------
(dollars in thousands)
U.S. Treasuries and Agencies $213,862 $137,724 -- -- --
Equity securities 7,589 5,156 1,037 1,037 --
Other 1,565 1,138 -- -- --
------------------------------------------------------------
Fair value of securities available for sale $223,016 $144,018 $1,037 $1,037 --
============================================================
Fair value of securities under LOCOM(1) -- -- $3,052 $1,316 --
============================================================
Amortized cost $218,257 $145,293 $1,037 $1,037 --
============================================================
Fair value as a percentage of amortized cost 102.18% 99.12% 294.31% 126.90% --
============================================================
(1)Lower of cost or market
The maturities, fair values and weighted average yields of securities available
for sale as of December 31, 1995 are:
Due in 1 year or less Due after 1 year Due after 5 years Due after 10 years
through 5 years through 10 years
--------------------------------------------------------------------------------------------------
Fair Weighted Fair Weighted Fair Weighted Fair Weighted
Value Average Value Average Value Average Value Average
Investment Securities(1) Yield Yield Yield Yield
--------------------------------------------------------------------------------------------------
(dollars in thousands)
U.S. Treasuries and Agencies $160,005 5.88% $53,857 6.50% -- -- -- --
Other 735 5.62% 581 5.59% 249 6.62% -- --
--------------------------------------------------------------------------------------------------
Total $160,740 5.88% $54,438 6.49% $249 6.62% -- --
==================================================================================================
(1) Excludes equity securities
The securities held to maturity portfolio consists of debt securities which
provide the Corporation with a relatively stable source of income.
Additionally, the investment portfolio provides a balance to interest rate and
credit risk in other categories of the balance sheet while providing a vehicle
for the investment of available funds and supplying securities to pledge as
required collateral for certain deposits.
On December 31, 1995, the fair value of securities held to maturity as a
percentage of their book value was 101.8%, up significantly from 98.3% a
year earlier. For securities held to maturity, the fair value of the portfolio
may increase or decrease without a resulting gain or loss in the income
statement. At December 31, 1995, the portfolio had gross unrealized gains of
$1,416,000 and gross unrealized losses of $292,000 for a net unrealized gain of
$1,124,000. The fair value increase experienced in 1995 was primarily due to
the effects of declining interest rates on the bond portfolio.
The composition of securities held to maturity is as follows:
Years ended December 31,
----------------------------------------------------------
1995 1994 1993 1992 1991
----------------------------------------------------------
(dollars in thousands)
U.S. Treasuries and Agencies $13,198 $17,031 $174,581 $176,557 $136,639
States and political subdivisions 37,043 32,957 34,507 28,907 23,964
Student Loan Marketing Ass'n common stock -- -- -- 68 803
Other 11,260 16,519 20,234 23,005 24,293
----------------------------------------------------------
Amortized cost of securities held to maturity $61,501 $66,507 $229,322 $228,537 $185,699
==========================================================
Fair value of securities held to maturity $62,625 $65,386 $236,264 $238,981 $197,023
==========================================================
Fair value as a percentage of book value 101.83% 98.31% 103.03% 104.57% 106.10%
==========================================================
16
17
The maturities, book value and weighted average yields of securities held to
maturity as of December 31, 1995 are:
Due in 1 year Due after 1 year Due after 5 years Due after 10 years
or less through 5 years through 10 years
-----------------------------------------------------------------------------------
Book Weighted Book Weighted Book Weighted Book Weighted
Value Average Value Average Value Average Value Average
Investment Securities(1) Yield Yield Yield Yield
-----------------------------------------------------------------------------------
(dollars in thousands)
U.S. Treasuries and Agencies $4,000 4.57% $8,995 4.62% $95 10.37% $109 10.25%
States and political subdivisions (2) 4,362 8.55% 15,542 8.69% 13,671 8.52% 3,467 7.63%
Other 1,510 6.67% 5,602 6.63% 35 7.93% -- --
-----------------------------------------------------------------------------------
Total $9,872 6.65% $30,139 7.09% $13,801 8.53% $3,576 7.71%
===================================================================================
(1) Excludes mortgage-backed securities
(2) On a tax-equivalent basis, assuming a federal income tax rate of 35% (the
effective federal income tax rate as of December 31, 1995)
The Corporation also uses its investment portfolio to manage its tax position.
Depending upon projected levels of taxable income for the Corporation, periodic
changes are made in the mix of tax-exempt and taxable securities to achieve
maximum yields on a tax-equivalent basis. U.S. government and agency
securities as a percentage of total securities increased to 79.9% at December
31, 1995 from 73.5% at December 31, 1994, while obligations of state and
political subdivisions (tax-exempt obligations) as a percentage of total
securities decreased to 13.1% at December 31, 1995 from 15.7% at December 31,
1994.
LOAN PORTFOLIO
Loans, before allowance for loan losses, increased 6.8% to $481,772,000 in 1995
from $451,051,000 in 1994. Real estate mortgage loans increased 10.4% to
$334,417,000 in 1995 from $303,046,000 in 1994. This increase reflects
management's emphasis on commercial loans secured by mortgages and residential
mortgage origination to generate income and develop retail and other banking
relationships. The Corporation has no loans to customers engaged in oil and gas
exploration or to foreign companies or governments. Commitments under standby
letters of credit, unused lines of credit and other conditionally approved
credit lines, totaled approximately $100,372,000 as of December 31, 1995.
The composition of loans is as follows:
Years ended December 31,
----------------------------------------------------------------
1995 1994 1993 1992 1991
----------------------------------------------------------------
(dollars in thousands)
Commercial and financial $55,687 $57,878 $44,419 $38,093 $52,889
Agricultural 12,594 12,750 11,735 6,366 7,573
Real estate-farmland 11,162 11,769 10,777 5,871 4,538
Real estate-construction 25,566 21,759 16,228 8,004 9,975
Real estate-mortgage 334,417 303,046 276,404 235,304 218,469
Installment loans to individuals 42,353 43,854 53,483 36,727 25,747
----------------------------------------------------------------
$481,779 $451,056 $413,046 $330,365 $319,191
Unearned interest (7) (5) (141) (228) (297)
----------------------------------------------------------------
Loans $481,772 $451,051 $412,905 $330,137 $318,894
================================================================
The following table sets forth remaining maturities of selected loans
(excluding certain real estate-farmland, real estate-mortgage loans and
installment loans to individuals) at December 31, 1995.
1 Year or Less 1 to 5 Years Over 5 Years Total
---------------------------------------------------------------------------
(dollars in thousands)
Commercial, financial and agricultural $50,454 $16,229 $1,598 $68,281
Real estate-construction 21,884 3,682 0 25,566
---------------------------------------------------------------------------
Total $72,338 $19,911 $1,598 $93,847
---------------------------------------------------------------------------
Interest rate sensitivity of selected loans
Fixed rate $12,252 $9,209 $1,598 $23,059
Adjustable rate 60,086 10,702 0 70,788
---------------------------------------------------------------------------
Total $72,338 $19,911 $1,598 $93,847
---------------------------------------------------------------------------
17
18
ALLOWANCE FOR LOAN LOSSES
Management has established an allowance for loan losses which reduces the total
loans outstanding by an estimate of uncollectible loans. Loans deemed
uncollectible are charged against and reduce the allowance. Periodically, a
provision for loan losses is charged to current expense. This provision acts to
replenish the allowance for loan losses and to maintain the allowance at a
level that management deems adequate.
There is no precise method of predicting specific loan losses or amounts which
ultimately may be charged off on segments of the loan portfolio. The
determination that a loan may become uncollectible, in whole or in part, is a
matter of judgment. Similarly, the adequacy of the allowance for loan losses
can be determined only on a judgmental basis, after full review, including (a)
consideration of economic conditions and their effect on particular industries
and specific borrowers; (b) a review of borrowers' financial data, together
with industry data, the competitive situation, the borrowers' management
capabilities and other factors; (c) a continuing evaluation of the loan
portfolio, including monitoring by lending officers and staff credit personnel
of all loans which are identified as being of less than acceptable quality; (d)
an in-depth appraisal, on a monthly basis, of all loans judged to present a
possibility of loss (if, as a result of such monthly appraisals, the loan is
judged to be not fully collectible, the carrying value of the loan is reduced
to that portion considered collectible); 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.
The following table shows activity affecting the allowance for loan losses:
Years ended December 31,
------------------------------------------------------
1995 1994 1993 1992 1991
------------------------------------------------------
(dollars in thousands)
Average loans outstanding during period $453,915 421,337 $366,859 $324,983 ***
======================================================
Allowance for loan losses:
Balance at beginning of period $5,235 $5,205 $4,456 $3,833 $3,566
------------------------------------------------------
Loans charged-off:
Commercial, financial and agricultural $339 $99 $397 $137 $404
Real estate-construction -- -- -- -- --
Real estate-mortgage 55 153 405 279 224
Installment loans to individuals 286 253 329 146 124
------------------------------------------------------
Total charge-offs $680 $505 $1,131 $562 $752
------------------------------------------------------
Recoveries:
Commercial, financial and agricultural $414 $62 $66 $74 $135
Real estate-construction -- -- -- -- --
Real estate-mortgage 3 128 156 39 12
Installment loans to individuals 106 105 111 72 74
------------------------------------------------------
Total recoveries $523 $295 $333 $185 $221
------------------------------------------------------
Net loans charged-off $157 $210 $798 $377 $531
------------------------------------------------------
Provision for loan losses $395 $240 $1,125 $1,000 $1,798
------------------------------------------------------
Net additions (reductions) due to acquisitions
and dispositions of subsidiaries -- -- 422 -- --
------------------------------------------------------
Balance at end of period $5,473 $5,235 $5,205 $4,456 $3,833
======================================================
Ratios:
Net charge-offs to average loans 0.03% 0.05% 0.22% 0.12% 0.17%
======================================================
Allowance for loan losses to total loans
at period end 1.14% 1.16% 1.26% 1.35% 1.20%
======================================================
18
19
The following table sets forth the allowance for loan losses by loan categories
as of December 31 for each of the years indicated.
1995 1994 1993 1992 1991
----------------------------------------------------------------------------------------------
% of % of % of % of % of
Total Total Total Total Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
----------------------------------------------------------------------------------------------
(dollars in thousands)
Commercial, financial, agricul-
tural and real estate-farmland $785 16.5% $1,122 18.3% $3,513 16.2% $3,099 15.2% $2,474 20.4%
Real estate-construction -- 5.3% -- 4.8% -- 3.9% -- 2.4% 550 3.1%
Real estate-mortgage 3,476 69.4% 3,013 67.2% 779 67.0% 523 71.3% 426 68.5%
Installment loans to individuals 1,097 8.8% 943 9.7% 785 12.9% 186 11.1% 183 8.0%
Unallocated 115 N/A 157 N/A 128 N/A 648 N/A 200 N/A
----------------------------------------------------------------------------------------------
Total $5,473 100.0% $5,235 100.0% $5,205 100.0% $4,456 100.0% $3,833 100.0%
==============================================================================================
NON-PERFORMING LOANS
It is management's policy to place commercial and mortgage loans on non-accrual
status when interest or principal is 90 days or more past due. Such loans may
continue on accrual status only if they are both well-secured and in the
process of collection.
The following table sets forth information concerning non-performing loans at
December 31 for each of the years indicated:
Years ended December 31,
-----------------------------------------------
1995 1994 1993 1992 1991
-----------------------------------------------
(dollars in thousands)
Non-accrual loans $532 $636 $247 $0 $522
Loans 90 days past due and still accruing 897 1,336 1,450 492 480
Restructured loans -- -- -- -- 254
-----------------------------------------------
Total non-performing loans $1,429 $1,972 $1,697 $492 $1,256
-----------------------------------------------
Repossessed assets $1,380 $1,645 $1,180 $1,803 $1,783
Other assets acquired in satisfaction of debts
previously contracted 1 1 1 1 557
-----------------------------------------------
Total non-performing other assets $1,381 $1,646 $1,181 $1,804 $2,340
-----------------------------------------------
Total non-performing loans and non-performing
other assets $2,810 $3,618 $2,878 $2,296 $3,596
===============================================
Non-performing loans to loans, before allowance for
loan losses 0.30% 0.44% 0.41% 0.15% 0.39%
===============================================
Non-performing loans and non-performing other
assets to loans, before allowance for loan losses
and repossessed assets 0.58% 0.80% 0.70% 0.69% 1.13%
===============================================
On January 1, 1995, the Corporation adopted Statement of Financial Accounting
Standards No. 114, "Accounting by Creditors for Impairment of a Loan," as
amended by Statement No. 118, which requires loans to be considered impaired
when, based on current information and events, it is probable the Corporation
will not be able to collect all amounts due. The accrual of interest income on
impaired loans is discontinued when there is reasonable doubt as to the
borrower's ability to meet contractual payments of interest or principal.
Interest income on these loans is recognized to the extent interest payments
are received and the principal is considered fully collectible. For the year
ended December 31, 1995, there was no interest recognized from impaired loans.
The gross interest income that would have been recorded in the years ended
December 31, 1994 and 1993 if the non-accrual and restructured loans had been
current in accordance with their original terms was $47,000 and $22,000,
respectively. The amount of interest collected on those loans that was included
in interest income for the year ended December 31, 1994 was $38,000. There was
no interest collected on these loans for the year ended December 31, 1993.
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
19
20
assesses the potential for loss on such loans as it would with other problem
loans and has considered the effect of any potential loss in determining its
provision for possible loan losses. Potential problem loans totaled $750,000 at
December 31, 1995.
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.
DEPOSITS
As indicated in the following table, average interest bearing deposits as a
percentage of average total deposits have decreased to 90.5% for the year ended
December 31, 1995 from 90.7% for the year ended December 31, 1994.
December 31,
-------------------------------------------------------------------------------------------
1995 1994 1993
-------------------------------------------------------------------------------------------
Average % Total Average Average % Total Average Average % Total Average
Balance Rate Balance Rate Balance Rate
Non-interest bearing
demand deposits $63,165 9.5% --% $58,906 9.3% --% $55,249 8.9% --%
Interest bearing
demand deposits 123,369 18.4% 1.79% 129,530 20.6% 1.82% 120,159 19.5% 2.13%
Savings/Money market 193,658 29.0% 3.49% 186,308 29.6% 2.73% 174,452 28.2% 2.76%
Time deposits 288,125 43.1% 5.44% 255,154 40.5% 4.43% 267,862 43.4% 4.56%
-------------------------------------------------------------------------------------------
Total $668,317 100.0% 4.07% $629,898 100.0% 3.29% $617,722 100.0% 3.48%
===========================================================================================
Certificates of deposit of $100,000 and over and other time deposits of
$100,000 and over at December 31, 1995 had the following maturities (dollars in
thousands):
Under 3 months $22,726
3 to 6 months 8,372
6 to 12 months 12,119
Over 12 months 9,352
-----
Total $52,569
=======
SHORT-TERM BORROWINGS
The following table sets forth the distribution of short-term borrowings and
weighted average interest rates thereon at the end of each of the last three
years. Federal funds purchased and securities sold under agreements to
repurchase generally represent overnight borrowing transactions. Other
short-term borrowings consist of various demand notes and notes with maturities
of less than one year.
Federal funds purchased
and securities sold under Other short-term
agreements to repurchase borrowings
----------------------------------------------------
1995 (dollars in thousands)
Balance, December 31, 1995 $12,101 $9,573
Weighted average interest
rate at end of period 5.75% 7.35%
Maximum outstanding at any month end $19,648 $10,573
Average daily balance $14,269 $8,428
Weighted average interest rate during period 6.23% 8.50%
1994
Balance, December 31, 1994 $20,430 $5,130
Weighted average interest rate at end of period 4.86% 8.29%
Maximum outstanding at any month end $21,812 $7,330
Average daily balance $17,330 $6,398
Weighted average interest rate during period(1) 4.06% 7.25%
1993
Balance, December 31, 1993 $930 $5,980
Weighted average interest rate at end of period 3.28% 5.85%
Maximum outstanding at any month end $13,335 $6,880
Average daily balance $3,121 $6,570
Weighted average interest rate during period(1) 3.00% 6.00%
(1) The weighted average interest rate is computed by dividing total
interest for the year by the average daily balance outstanding.
20
21
LIQUIDITY
Liquidity is the availability of funds to meet all present and future cash flow
obligations arising in the daily operations of the business at a minimal cost.
These financial obligations consist of needs for funds to meet extensions of
credit, deposit withdrawals and debt servicing.
The sources of short-term liquidity utilized by the Corporation consist of
asset maturities, sales, deposits and capital funds. Additional liquidity is
provided by bank lines of credit, repurchase agreements and the ability to
borrow from the Federal Reserve Bank and Federal Home Loan Bank. The
Corporation does not deal in or use brokered deposits as a source of liquidity.
The Corporation purchases federal funds as a service to its correspondent
banks, but does not rely upon these purchases for liquidity needs. 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.
The objective of liquidity management by the Corporation is to ensure that
funds will be available to meet demand in a timely and efficient manner. Based
upon the level of investment securities that reprice within 30 days and 90
days, management 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. Average liquid assets
are shown in the table below.
LIQUID ASSETS
Average Balances 1995 1994 1993
-----------------------------
(dollars in thousands)
Due from banks - interest bearing -- -- $548
Federal funds sold 15,000 5,651 9,527
-----------------------------
Total $15,000 $5,651 $10,075
=============================
Percentage of average total assets 1.96% 0.78% 1.46%
=============================
RATE SENSITIVE ASSETS AND LIABILITIES
Interest rate sensitivity is a measure of the volatility of the net interest
margin as a consequence of changes in market rates. The rate-sensitivity chart
shows the interval of time in which given volumes of rate-sensitive earning
assets and rate-sensitive interest bearing liabilities would be responsive to
changes in market interest rates based on their contractual maturities or terms
for repricing. It is however, only a static, single-day depiction of the
Corporation's rate sensitivity structure, which can be adjusted in response to
changes in forecasted interest rates.
21
22
The following table sets forth the static rate-sensitivity analysis of the
Corporation as of December 31, 1995.
Rate Sensitive Within
---------------------------------------------------------------------------------
1-30 Days 31-90 Days 91-180 Days 181 Days-1 Yr Over 1 Year Total
---------------------------------------------------------------------------------
(dollars in thousands)
---------------------------------------------------------------------------------
Federal funds sold $650 $0 $0 $0 $0 $650
Investment securities
U.S. Governments 70,510 31,534 17,264 48,552 59,200 227,060
Obligations of states & political subdivisions 962 0 697 3,000 32,586 37,245
Other securities 1,693 1,998 1,021 2,680 12,820 20,212
Loans (net of unearned interest) 152,027 23,423 34,321 67,025 204,976 481,772
---------------------------------------------------------------------------------
Total rate-sensitive assets $225,842 $56,955 $53,303 $121,257 $309,582 $766,939
---------------------------------------------------------------------------------
Interest bearing transaction deposits $129,327 $0 $0 $0 $0 $129,327
Savings deposits 71,654 0 0 0 0 71,654
Money market deposits 125,770 0 0 0 0 125,770
Time deposits 39,399 53,936 65,115 86,585 100,725 345,760
Short-term borrowings:
Federal funds purchased & repurchase
agreements 8,141 3,000 960 0 0 12,101
Other 9,573 0 0 0 0 9,573
Long-term debt 0 0 0 0 5,000 5,000
---------------------------------------------------------------------------------
Total rate-sensitive liabilities $383,864 $56,936 $66,075 $86,585 $105,725 $699,185
---------------------------------------------------------------------------------
Rate-sensitive assets less
rate-sensitive liabilities $(158,022) $19 (12,772) $34,672 $203,857 $67,754
---------------------------------------------------------------------------------
Cumulative Gap $(158,022) $(158,003) 170,775) $(136,103) $67,754
===================================================================
Cumulative amounts as a percentage of total
rate-sensitive assets (20.60)% (20.60)% (22.27)% (17.75)% 8.83%
===================================================================
Cumulative Ratio 0.59X 0.64X 0.66X 0.77X 1.10X
===================================================================
The foregoing table shows a negative (liability sensitive) cumulative
unadjusted gap of $158 million in the 1-30 day repricing category. The gap
beyond 30 days becomes less liability sensitive as rate-sensitive assets that
reprice within 90 days and one year gradually become greater in volume than
rate-sensitive liabilities that are subject to repricing in the same respective
time periods. The composition of the gap structure at December 31, 1995 will
benefit the Corporation more if interest rates fall during the next 30 days by
allowing the net interest margin to grow as liability rates would reprice more
quickly than rates on interest rate-sensitive assets.
CAPITAL RESOURCES
Other than from the issuance of common stock, the Corporation's primary source
of capital is net income retained by the Corporation. During the year ended
December 31, 1995, the Corporation earned $8,775,000 and paid dividends of
$3,940,000 to stockholders, resulting in a retention of current earnings of
$4,835,000.
The Federal Reserve Board uses capital adequacy guidelines in its examination
and regulation of bank holding companies and their subsidiary banks. Risk-based
capital ratios are established by allocating assets and certain off-balance
sheet commitments into four risk-weighted categories. These balances are then
multiplied by the factor appropriate for that risk-weighted category. The
guidelines require bank holding companies and their subsidiary banks to
maintain a total capital to total risk-weighted asset ratio of not less than
8.00%, of which at least one half must be Tier 1 capital, and a leverage ratio
of not less than 3.00%.
22
23
The following tables present the Corporation's regulatory capital position
under both the risk-based and leverage measurements at December 31, 1995 and
1994. As indicated in the table, the Corporation's regulatory capital position
exceeded the minimum requirements under both the risk-based and leverage ratio
measurements.
1995 1994
---------------------------------------
Amount Ratio Amount Ratio
---------------------------------------
RISK-BASED CAPITAL RATIOS (dollars in thousands)
Tier 1 capital $54,422 11.23% $53,792 12.02%
Tier 1 capital minimum requirement 19,378 4.00% 17,897 4.00%
----------------------------------------
Excess $35,044 7.23% $35,896 8.02%
----------------------------------------
Total capital 59,895 12.36% 59,027 13.19%
Total capital minimum requirement 38,757 8.00% 35,794 8.00%
----------------------------------------
Excess $21,138 4.36% $23,233 5.19%
----------------------------------------
Risk-weighted assets, net of goodwill and
intangibles and excess allowance $484,460 $447,429
-------- --------
LEVERAGE RATIO
Tier 1 capital to total assets,
net of goodwill $54,422 6.92% $53,792 7.45%
Minimum leverage requirement 23,602 3.00% 21,829 3.00%
----------------------------------------
Excess $30,820 3.92% $31,963 4.45%
----------------------------------------
Quarterly average total assets,
net of goodwill and intangibles $786,738 $727,628
-------- --------
REGULATORY CONSIDERATIONS
It is management's belief that there are no current recommendations by the
regulatory authorities which if implemented would have a material effect on the
Corporation's liquidity, capital resources, or operations.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") issued Statement No. 122,
"Accounting for Mortgage Servicing Rights" in May 1995. This statement is
effective for fiscal years beginning after December 15, 1995. The effect on
the Corporation's financial position and results of operations will not be
material.
The FASB issued Statement No. 123, "Accounting for Stock Based Compensation" in
November 1995. This statement is effective for fiscal years beginning after
December 15, 1996. The Corporation does not intend to adopt Statement No. 123,
but will disclose its effects on net income and earnings per share in the
footnotes to the financial report.
EFFECTS OF INFLATION
The effect of inflation on a financial institution differs significantly from
the effect on an industrial company. While a financial institution's operating
expenses, particularly salary and employee benefits, are affected by general
inflation, the asset and liability structure of a financial institution
consists largely of monetary items. Monetary items, such as cash, loans and
deposits, are those assets and liabilities which are or will be converted into
a fixed number of dollars regardless of changes in prices. As a result, changes
in interest rates have a more significant impact on a financial institution's
performance than does general inflation. For additional information regarding
interest rates and changes in net interest income see "Selected Statistical
Information."
SELECTED STATISTICAL INFORMATION
The following tables contain information concerning the consolidated financial
condition and operations of the Corporation for the periods, or as of the
dates, shown. All average information is provided on a daily average basis.
The following table shows the consolidated average balance sheets, detailing
the major categories of assets and liabilities, the interest income earned on
interest-earning assets, the interest expense paid for interest-bearing
liabilities, and the related interest rates:
23
24
CONSOLIDATED AVERAGE BALANCE SHEETS AND INTEREST RATES
Years Ended December 31,
1995 1994 1993
--------------------------------------------------------------------------------------
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
--------------------------------------------------------------------------------------
(dollars in thousands)
ASSETS
Interest bearing bank deposits $0 $0 -- $0 $0 -- $548 $23 4.11%
Federal funds sold 15,000 884 5.89% 5,651 222 3.93% 9,527 302 3.17%
Investment securities:
U.S. Government obligations 172,960 10,452 6.04% 171,204 9,945 5.81% 188,844 11,950 6.33%
Obligations of states and
political subdivisions(1) 36,668 3,126 8.52% 34,405 2,887 8.39% 34,819 2,971 8.53%
Other securities 21,024 1,361 6.47% 22,731 1,454 6.40% 21,856 1,493 6.83%
Loans (net of unearned
discount)(1,2) 453,915 40,041 8.82% 421,337 33,916 8.05% 366,859 30,556 8.33%
--------------------------------------------------------------------------------------
Total interest-earning assets(1) $699,567 $55,864 7.99% $655,328 $48,424 7.39% $622,453 $47,295 7.60%
======================================================================================
Cash and due from banks 30,694 31,823 32,085
Premises and equipment 21,501 22,173 20,655
Allowance for loan losses (5,421) (5,340) (4,888)
Other assets 17,604 17,065 18,072
-------- -------- --------
Total assets $763,945 $721,049 $688,377
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing transaction
deposits $123,369 $2,209 1.79% $129,530 $2,357 1.82% $120,159 $2,560 2.13%
Savings deposits 57,073 1,659 2.91% 48,814 1,068 2.19% 44,759 1,101 2.46%
Money market deposits 136,585 5,095 3.73% 137,494 4,019 2.92% 129,693 3,710 2.86%
Time deposits 288,125 15,670 5.44% 255,154 11,316 4.43% 267,862 12,226 4.56%
Short-term borrowings:
Federal funds purchased
and repurchase agreements 14,269 889 6.23% 17,330 703 4.06% 3,121 94 3.00%
Other 8,428 716 8.50% 6,398 463 7.25% 6,570 394 6.00%
Long-term debt 5,000 277 5.54% 5,127 286 5.56% 3,981 278 6.99%
--------------------------------------------------------------------------------------
Total interest-bearing liabilities $632,849 $26,515 4.19% $599,847 $20,212 3.37% $576,145 $20,363 3.54%
======================================================================================
Net interest spread 3.80% 4.02% 4.06%
===== ===== =====
Demand deposits 63,165 58,906 55,249
0ther liabilities 4,630 4,133 3,901
Stockholders' equity 63,301 58,163 53,082
-------- -------- --------
Total liabilities and
Stockholders' equity $763,945 $721,049 $688,377
======== ======== ========
Interest income/earning assets(1) $699,567 $55,864 7.99% $655,328 $48,424 7.39% $622,453 $47,295 7.60%
Interest expense/earning assets 699,567 26,515 3.79% 655,328 20,212 3.09% 622,453 20,363 3.27%
--------------------------------------------------------------------------------------
Net interest margin(1) $29,349 4.20% $28,212 4.30% $26,932 4.33%
================= ================= ================
(1) On a tax equivalent basis, assuming a federal income tax rate of 35% for
1995 and 1994 and 34% for 1993
(2) Non-accrual loans have been included in average loans, net of unearned
discount
24
25
CHANGES IN NET INTEREST INCOME
Years Ended December 31, 1995, 1994 and 1993
---------------------------------------------------------------------
Year 1995 vs 1994 Change due to(1) Year 1994 vs 1993 Change due to(1)
---------------------------------------------------------------------
Average Average Total Average Average Total
Volume Yield/Rate Change Volume Yield/Rate Change
---------------------------------------------------------------------
(dollars in thousands)
Increase (decrease) in interest income:
Interest earning bank deposits $0 $0 $0 $(23) $0 $(23)
Federal funds sold 508 154 662 (195) 115 (80)
Investment securities:
U.S. Government obligations 103 404 507 (1,067) (938) (2,005)
States and political subdivisions(2) 192 47 239 (35) (49) (84)
Other securities (110) 17 (93) 66 (105) (39)
Loans(2) 2,734 3,391 6,125 4,341 (981) 3,360
---------------------------------------------------------------------
Change in interest income(2) $3,427 $4,013 $7,440 $3,087 (1,958) $1,129
=====================================================================
Increase (decrease) in interest expense:
Interest bearing transaction deposits $(111) $(37) $(148) $233 $(436) $(203)
Savings deposits 201 390 591 150 (183) (33)
Money market deposits (26) 1,102 1,076 227 82 309
Time deposits 1,582 2,772 4,354 (570) (340) (910)
Federal funds purchased and
repurchase agreements (92) 278 186 565 44 609
Other 164 89 253 (10) 79 69
Long-term debt (7) (2) (9) 25 (17) 8
---------------------------------------------------------------------
Change in interest expense $1,711 $4,592 $6,303 $620 $(771) $(151)
---------------------------------------------------------------------
Increase (decrease) in net interest income(2) $1,716 $(579) $1,137 $2,467 (1,187) $1,280
=====================================================================
Percentage increase in net interest
income over prior period 4.0% 4.8%
==== ====
(1) Changes due to both rate and volume have been allocated proportionally
(2) On a tax-equivalent basis, assuming a federal income tax rate of 35% for
1995 and 1994 and 34% for 1993
25
26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements are presented beginning on page F-1
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Directors of the Registrant. Incorporated by reference is the
information set forth on pages 3, 4 and 5 of the 1996 Proxy Statement.
(b) Executive Officers of the Registrant. Incorporated by reference is
the information set forth in Part I of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference is the information set forth on pages 8 through
12 of the 1996 Proxy Statement (except the information set forth in the
sections "Report of the Compensation Committee on Executive Compensation" and
"Company Performance").
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference is the information set forth on pages 6 and 7 of
the 1996 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference is the information set forth on page 13 of the
1996 Proxy Statement.
26
27
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
EXHIBITS
Exhibit Sequentially
Number Description of Exhibit Numbered Page
- - -------- ---------------------- -------------
3.1 Certificate of Incorporation of First Busey Corporation (filed as
Appendix B to First Busey's definitive proxy statement filed with the
Commission on April 5, 1993 (Commission File No. 0-15950), and
incorporated herein by reference)
3.2 By-Laws of First Busey Corporation (filed as Appendix C to First Busey's
definitive proxy statement filed with the Commission on April 5, 1993
(Commission File No. 0-15950), and incorporated herein by reference)
10.1* First Busey Corporation 1993 Restricted Stock Award Plan (filed as
Appendix E to First Busey's definitive proxy statement filed with the
Commission on April 5, 1993 (Commission File No. 0-15950), and incorporated
herein by reference)
10.2* First Busey Corporation 1986 Stock Option Plan (filed as Exhibit 10.2 to
First Busey's Registration Statement on Form S-1 (Registration No. 33-13973),
and incorporated herein by reference)
10.3* First Busey Corporation Profit Sharing Plan and Trust (filed as Exhibit
10.3 to First Busey's Registration Statement on Form S-1 (Registration
No. 33-13973), and incorporated herein by reference)
10.4 Mortgage on County Plaza Building (filed as Exhibit 10.4 to First Busey's
Registration Statement on Form S-1 (Registration No. 33-13973), and incorporated
herein by reference
10.5 Affiliation Agreement dated October 13, 1988 between Community Bank of
Mahomet and CBM Bank, Mahomet and joined in by First Busey Corporation
(filed as Exhibit 2.1 to First Busey's Registration Statement on Form S-4
(Registration No. 33-25159), and incorporated herein by reference)
10.6 Merger Agreement dated October 13, 1988 between Community Bank of Mahomet
and CBM Bank, Mahomet and joined in by First Busey Corporation (filed as
Exhibit 2.2 to First Busey's Registration Statement on Form S-4 (Registration
No. 33-25159), and incorporated herein by reference)
10.7* First Busey Corporation Employee Stock Ownership Plan (filed as Exhibit 10.7
to First Busey's Annual Report on Form 10-K for the fiscal year ended December
31, 1988 (Registration No. 2-66201), and incorporated herein by reference)
10.8* First Busey Corporation 1988 Stock Option Plan (filed as Exhibit 10.8 to
First Busey's Annual Report on Form 10-K for the fiscal year ended December
31, 1988 (Registration No. 2-66201), and incorporated herein by reference)
10.9 Affiliation Agreement dated as of April 10, 1989 between First Busey Corporation
and St. Joseph Bancorp, Inc. (filed as Exhibit 2.1 to First Busey's Corporation
Statement on Form S4 (Registration No. 33-28926), and incorporated herein by
reference)
10.10 Agreement and Plan of Merger dated April 10, 1989 between First Busey Corporation
and St. Joseph Bancorp, Inc. (filed as Exhibit 2.2 to First Busey's Registration Statement
on Form S-4 (Registration No 33-28926), and incorporated herein by reference)
27
28
Exhibit Sequentially
Number Description of Exhibit Numbered Page
- - ------- ---------------------- -------------
10.11 Affiliation Agreement dated as of October 2, 1992 between First Busey Corporation
and Empire Capital Corporation (filed as Exhibit 2.1 to First Busey's Registration Statement
on Form S-4 (Registration No. 33-54664), and incorporated herein by reference)
10.12 Agreement and Plan of Merger dated as of October 2, 1992 between First Busey Corporation
and Empire Capital Corporation (filed as Exhibit 2.2 to First Busey's Registration Statement
on Form 5-4 (Registration No. 33-54664), and incorporated herein by reference)
10.13* First Busey Corporation Executive Deferred Compensation Plan (filed as Exhibit 10.13
to First Busey's Annual Report on Form 10-K for the fiscal year ending December 31,
1993 and incorporated herein by reference)
10.14* First Busey Corporation Director Deferred Compensation Plan (filed as Exhibit 10.14
to First Busey's Annual Report on Form 10-K for the fiscal year ending December 31,
1993 and incorporated herein by reference)
10.15* Split-dollar Life Insurance Policy on Douglas C. Mills and Linda M. Mills (filed
as Exhibit 10.15 to First Busey's Annual Report on Form 10-K for the fiscal year ending
December 31, 1993 and incorporated herein by reference)
10.16* Split-dollar Life Insurance Policy on Edwin A. Scharlau (filed as Exhibit 10.16
to First Busey's Annual Report on Form 10-K for the fiscal year ending
December 31, 1994 and incorporated herein by reference)
10.17* Split-dollar Life Insurance Policy on P. David Kuhl (filed as Exhibit 10.17
to First Busey's Annual Report on Form 10-K for the fiscal year ending December 31,
1994 and incorporated herein by reference)
21.1 List of Subsidiaries of First Busey Corporation
23.1 Consent of Independent Public Accountants
*Indicates an employee benefit plan, management contract or compensatory plan
or arrangement in which a named executive officer participates.
FINANCIAL STATEMENT SCHEDULES
Financial statement schedules not included in this Form 10-K have been
omitted because they are not applicable for the required information shown in
the financial statements or notes thereto.
FIRST BUSEY CORPORATION INDEX TO FINANCIAL STATEMENTS
Page
----------
Consolidated Balance Sheets F-2
Consolidated Statements of Income F-3 to F-4
Consolidated Statements of Stockholders' Equity F-5 to F-7
Consolidated Statements of Cash Flows F-8 to F-9
Notes to Consolidated Financial Statements F-10 to F-32
Management Report, Effectiveness of the Internal Control Structure F-34
Independent Auditor's Report F-35
REPORTS ON FORM 8-K
No reports on Form 8-K have been filed for or on behalf of First Busey
Corporation during the last quarter or the period covered by this Form 10-K.
FORM S-8 UNDERTAKING
For the purposes of complying with the amendments to the rules governing
Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the
undersigned registrant hereby undertakes as follows, which undertaking shall be
incorporated by reference into the registrant's Registration Statement on Form
S-8 File No. 33-30095.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim
28
29
for indemnification against such liabilities (other than the payment by
the registrant of the expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Urbana, Illinois on March 18, 1996.
FIRST BUSEY CORPORATION
BY //DOUGLAS C. MILLS//
--------------------
Douglas C. Mills
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report signed below by the following persons on behalf of the Registrant and in
the capacities indicated on March 18, 1996.
SIGNATURE TITLE
//DOUGLAS C. MILLS// Chairman of the Board, President and
------------------------ Chief Executive Officer
Douglas C. Mills (Principal Executive Officer)
//SCOTT L. HENDRIE// Senior Vice President and Chief
------------------------ Financial Officer
Scott L. Hendrie (Principal Financial Officer)
//JOSEPH M. AMBROSE// Director
------------------------
Joseph M. Ambrose
//T.O. DAWSON// Director
------------------------
T. O. Dawson
//E. PHILLIPS KNOX// Director
------------------------
E. Phillips Knox
//JOHN W. POLLARD// Director
------------------------
John W. Pollard
//EDWIN A. SCHARLAU II// Director
------------------------
Edwin A. Scharlau II
//ARTHUR R. WYATT// Director
------------------------
Arthur R. Wyatt
29
30
FIRST BUSEY CORPORATION
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
31
FIRST BUSEY CORPORATION AND SUBSIDIARIES
CONTENTS
- - --------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT 1
- - --------------------------------------------------------------------------------
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets 2
Consolidated Statements of Income 3 and 4
Consolidated Statements of Stockholders' Equity 5 - 7
Consolidated Statements of Cash Flows 8 and 9
Notes to Consolidated Financial Statements 10 - 33
- - --------------------------------------------------------------------------------
INTERNAL CONTROL STRUCTURE REPORTS
Management Report - Effectiveness of the
Internal Control Structure 34
Independent Accountant's Report 35
- - --------------------------------------------------------------------------------
32
[McGLADREY & PULLEN, LLP LOGO]
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors
First Busey Corporation
Urbana, Illinois
We have audited the accompanying consolidated balance sheets of FIRST
BUSEY CORPORATION AND SUBSIDIARIES as of December 31, 1995 and 1994, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the years in the three-year period ended December 31, 1995. These
financial statements are the responsibility of the Corporation's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of FIRST BUSEY
CORPORATION AND SUBSIDIARIES as of December 31, 1995 and 1994, and the results
of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1995, in conformity with generally
accepted accounting principles.
McGLADREY & PULLEN, LLP
Champaign, Illinois
February 2, 1996
33
FIRST BUSEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
ASSETS
1995 1994
-------- --------
(Dollars in thousands)
Cash and due from banks $ 39,358 $ 31,326
Federal funds sold 650 -
Investment securities:
Securities held to maturity (fair value 1995 $62,625;
1994 $65,386) 61,501 66,507
Securities available for sale 223,016 144,018
Loans held for sale (fair value 1995 $1,840; 1994 $8,234) 1,803 8,234
Loans:
Loans 479,976 442,822
Unearned interest (7) (5)
Allowance for loan losses (5,473) (5,235)
-------- --------
Net loans 474,496 437,582
Premises and equipment 21,857 21,924
Other assets 21,985 18,868
-------- --------
Total assets $844,666 $728,459
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Non-interest bearing $ 72,386 $ 66,435
Interest bearing 672,511 569,259
-------- --------
Total deposits 744,897 635,694
Short-term borrowings 21,674 25,560
Long-term debt 5,000 5,000
Other liabilities 5,317 3,189
-------- --------
Total liabilities $776,888 $669,443
-------- --------
COMMITMENTS, CONTINGENCIES AND CREDIT RISK
STOCKHOLDERS' EQUITY
Preferred stock, no par value, 1,000,000 shares
authorized, no shares issued $ - $ -
Common stock:
Class A common stock, no par value, 10,000,000 shares
authorized, 3,968,235 shares issued 1995 and 1994 5,291 5,291
Class B common stock, no par value, 2,500,000 shares
authorized, 750,000 shares issued 1995 and 1994 1,000 1,000
Surplus 20,380 20,299
Retained earnings 42,474 37,639
Unrealized gain (loss) on investment securities
available for sale, net 3,093 (842)
Total stockholders' equity before treasury
stock, unearned
ESOP shares and deferred compensation for stock grants 72,238 63,387
Treasury stock, at cost, 176,930 shares 1995;
166,834 shares 1994 (3,659) (3,226)
Unearned ESOP shares and deferred compensation
for stock grants (801) (1,145)
-------- --------
Total stockholders' equity $67,778 $59,016
-------- --------
Total liabilities and stockholders' equity $844,666 $728,459
======== ========
See Accompanying Notes to Consolidated Financial Statements.
F-2
34
FIRST BUSEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
---- ---- ----
(Dollars in thousands,
except per share data)
Interest income:
Interest and fees on loans $39,763 $33,628 $30,274
Interest and dividends on investment securities:
Taxable interest income 11,681 11,276 13,351
Non-taxable interest income 2,034 1,877 1,961
Dividends 132 123 92
Interest on deposits in other banks - - 23
Interest on federal funds sold 884 222 302
------- ------- -------
Total interest income $54,494 $47,126 $46,003
------- ------- -------
Interest expense:
Interest on deposits $24,632 $18,760 $19,597
Interest on short-term borrowings 1,606 1,166 488
Interest on long-term debt 277 286 278
------- ------- -------
Total interest expense $26,515 $20,212 $20,363
------- ------- -------
Net interest income $27,979 $26,914 $25,640
Provision for loan losses 395 240 1,125
------- ------- -------
Net interest income after
provision for loan losses $27,584 $26,674 $24,515
------- ------- -------
Other income:
Service charges on deposit accounts $2,705 $2,522 $2,328
Trust 2,551 2,332 2,163
Commissions and brokers fees, net 628 644 662
Other service charges and fees 640 559 542
Security gains, net 206 302 887
Trading security gains (losses), net 26 (188) 70
Gain on sales of pooled loans 653 865 1,131
Other 1,150 970 741
------- ------- -------
Total other income $8,559 $8,006 $8,524
------- ------- -------
Other expenses:
Salaries and wages $10,462 $10,121 $9,632
Employee benefits 2,084 1,896 1,916
Net occupancy expense of bank premises 1,977 1,826 1,844
Furniture and equipment expenses 1,582 1,588 1,523
Data processing 1,745 1,179 1,271
FDIC expense 874 1,441 1,355
Amortization of intangible assets 860 860 992
Stationery, supplies and printing 690 632 675
Foreclosed property write-down and expense 226 94 154
Write-down of real property - 350 -
Other 3,569 3,113 3,513
------- ------- -------
Total other expenses $24,069 $23,100 $22,875
------- ------- -------
(Continued)
F-3
35
FIRST BUSEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Continued)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
---- ---- ----
(Dollars in thousands,
except per share data)
Income before income taxes $12,074 $11,580 $10,164
Income taxes 3,299 3,342 2,800
------- ------- -------
Net income $ 8,775 $ 8,238 $ 7,364
======= ======= =======
Net income per share of common stock and common stock equivalents $ 1.90 $ 1.78 $ 1.60
======= ======= =======
See Accompanying Notes to Consolidated Financial Statements.
F-4
36
FIRST BUSEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
Unrealized Deferred
Gain Compen-
(Loss) on sation
Class A Class B Securities Unearned for
Common Common Retained Available Treasury ESOP Stock
Stock Stock Surplus Earnings for Sale Stock Shares Grants Total
------- ------- ------- -------- ---------- -------- -------- -------- -----
(Dollars in thousands except per share amounts)
Balance, December 31,
1992 $4,582 $1,000 $12,717 $29,221 $- $(1,100) $(1,800) $- $44,620
Net income - - - 7,364 - - - - 7,364
Issuance of 532,080
shares of Class A
common stock 709 - 7,449 - - - - - 8,158
Purchase of 74,210
shares for the
treasury - - - - - (1,311) - - (1,311)
Issuance of 47,514
shares of
treasury stock - - 51 - - 711 - (86) 676
Cash dividends -
Class A common
stock $.80 per
share - - - (3,027) - - - - (3,027)
Class B common
stock $.73 per
share - - - (548) - - - - (548)
Principal payments on
employee stock own-
ership plan debt - - - - - - 400 - 400
----------- ------ ------- ------- --- -------- -------- ----- -------
Balance, December 31,
1993 $5,291 $1,000 $20,217 $33,010 $- $ (1,700) $ (1,400) $ (86) $56,332
F-5
37
FIRST BUSEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
Unrealized Deferred
Gain Compen-
(Loss) on sation
Class A Class B Securities Unearned for
Common Common Retained Available Treasury ESOP Stock
Stock Stock Surplus Earnings for Sale Stock Shares Grants Total
------- ------- ------- -------- ---------- -------- -------- -------- -----
(Dollars in thousands except per share amounts)
Balance, December 31,
1993 $5,291 $1,000 $20,217 $33,010 $- $(1,700) $(1,400) $(86) $56,332
Implementation of
change in
accounting
principle for
securities avail-
able for sale - - - - 4,446 - - - 4,446
Net income - - - 8,238 - - - - 8,238
Purchase of 75,200
shares for the
treasury - - - - - (1,653) - - (1,653)
Issuance of 8,500
shares of treasury
stock - - 82 - - 127 - (124) 85
Cash dividends -
Class A common
stock $.80 per
share - - - (3,063) - - - - (3,063)
Class B common
stock $.73 per
share - - - (546) - - - - (546)
Principal payments
on employee stock
ownership plan
debt - - - - - - 400 - 400
Amortization of
restricted stock
issued under
restricted stock
award plan - - - - - - - 65 65
Change in unrealized
(loss) on invest-
ment securities
available for sale,
net - - - - (5,288) - - - (5,288)
------ ------ ------- ------- ------- -------- -------- ------ -------
Balance, December 31,
1994 $5,291 $1,000 $20,299 $37,639 $ (842) $ (3,226) $ (1,000) $ (145) $59,016
F-6
38
FIRST BUSEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
Unrealized Deferred
Gain Compen-
(Loss) on sation
Class A Class B Securities Unearned for
Common Common Retained Available Treasury ESOP Stock
Stock Stock Surplus Earnings for Sale Stock Shares Grants Total
------- ------- ------- -------- ---------- -------- -------- -------- -----
(Dollars in thousands except per share amounts)
Balance, December 31,
1994 $5,291 $1,000 $20,299 $37,639 $ (842) $ (3,226) $ (1,000) $ (145) $59,016
Net income - - - 8,775 - - - - 8,775
Purchase of 28,096
shares for the
treasury - - - - - (705) - - (705)
Issuance of 18,000
shares of treasury
stock - - 81 - - 272 - - 353
Cash dividends -
Class A common
stock $.88 per
share - - - (3,340) - - - - (3,340)
Class B common
stock $.80 per
share - - - (600) - - - - (600)
Principal payments
on employee stock
ownership plan
debt - - - - - - 250 - 250
Amortization of
restricted stock
issued under
restricted stock
award plan - - - - - - - 94 94
Change in unrealized
gain on invest-
ment securities
available for sale,
net - - - - 3,935 - - - 3,935
------ ------ ------- ------- ------ -------- -------- ------ -------
Balance, December 31,
1995 $5,291 $1,000 $20,380 $42,474 $3,093 $ (3,659) $ (750) $ (51) $67,778
====== ====== ======= ======= ====== ======== ======== ====== =======
See Accompanying Notes to Consolidated Financial Statements.
F-7
39
FIRST BUSEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
---- ---- ----
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 8,775 $ 8,238 $ 7,364
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 2,801 2,505 2,502
Write-down on real property - 350 -
Provision for loan losses 395 240 1,125
Provision for deferred income taxes (705) (182) (403)
Amortization of investment security discounts (820) (214) (183)
Gain on sales of investment securities, net (206) (302) (887)
Proceeds from sales of pooled loans 34,223 43,333 65,735
Loans originated for sale (27,139) (35,059) (80,247)
Gain on sales of pooled loans, net (653) (865) (1,131)
(Gain) loss on sales and dispositions of premises and equipment 8 (40) 39
Change in assets and liabilities:
(Increase) decrease in other assets (4,682) (595) 1,227
Increase in accrued expenses 415 202 44
Increase (decrease) in interest payable 1,903 121 (422)
(Decrease) in income taxes payable (190) (86) 172
---------- --------- --------
Net cash provided by (used in) operating activities $ 14,125 $ 17,646 $ (5,065)
---------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in interest-earning deposits in other banks $ - $ - $1,000
Proceeds from sales of investment securities held to maturity - 60 51,491
Proceeds from maturities of investment securities held to maturity 14,360 27,704 48,859
Purchase of investment securities to be held to maturity (8,929) (34,125) (71,972)
Proceeds from sales of investment securities available for sale 55,189 48,824 -
Proceeds from maturities of investment securities available for sale 101,722 27,721 -
Purchase of investment securities available for sale (229,274) (51,110) -
(Increase) decrease in federal funds sold (650) 3,025 4,750
Increase in loans (37,998) (46,513) (39,283)
Purchases of premises and equipment (1,788) (2,765) (2,413)
Proceeds from sales of premises and equipment - 184 87
Purchase of Empire Capital Corporation, net of cash and due from
banks acquired - - 1,876
---------- --------- --------
Net cash (used in) investing activities $ (107,368) $ (26,995) $ (5,605)
---------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in certificates of deposit $ 24,233 $ (19,686) $ (3,926)
Net increase in demand deposits, money market and savings accounts 6,982 18,962 11,440
Certificates of deposit assumed from First of America 67,506 - -
Demand deposits, money market and savings accounts assumed from
First of America 10,482 - -
Cash dividends paid (3,940) (3,609) (3,575)
Purchase of treasury stock (705) (1,653) (1,311)
Proceeds from sale of treasury stock 353 85 676
Proceeds from short-term notes payable 5,750 3,300 4,100
Proceeds from long-term debt - - 6,700
Principal payments on short-term notes payable (1,250) (3,800) (4,600)
Principal payments on long-term debt - (1,645) (3,393)
Net increase (decrease) in federal funds purchased, repurchase
agreements and federal reserve discount obligations (8,136) 19,550 290
---------- --------- --------
Net cash provided by financing activities $ 101,275 $ 11,504 $ 6,401
---------- --------- --------
(Continued)
F-8
40
FIRST BUSEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
---- ---- ----
(Dollars in thousands)
Net increase (decrease) in cash and due from banks $ 8,032 $ 2,155 $ (4,269)
Cash and due from banks, beginning 31,326 29,171 33,440
------- ------- --------
Cash and due from banks, ending $39,358 $31,326 $ 29,171
======= ======= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest $25,795 $20,091 $ 20,785
======= ======= ========
Income taxes $ 3,894 $ 3,564 $ 3,130
======= ======= ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Other real estate acquired in settlement of loans $ 689 $ 748 $ 80
======= ======= ========
Reduction in ESOP debt $ 250 $ 400 $ 400
======= ======= ========
Change in unrealized gain (loss) on investment securities available
for sale $ 6,034 $(1,275) $ -
======= ======= ========
(Decrease) increase in deferred income taxes attributable to the
unrealized (gain) loss on investment securities available for sale $(2,099) $ 433 $ -
======= ======= ========
Acquisition of Empire Capital Corporation and subsidiary $ - $ - $ 8,446
======= ======= ========
Assets acquired:
Cash and due from banks $ - $ - $ 2,164
Federal funds sold - - 3,275
Investment securities - - 28,093
Loans - - 28,298
Premises and equipment - - 452
Other assets - - 3,156
Liabilities assumed:
Deposits - - (56,487)
Other liabilities - - (505)
------- ------- -------
$ - $ - $ 8,446
Value of stock issued in connection with the acquisition of Empire Capital
Corporation - - (8,158)
------- ------- -------
Cash paid to Empire Capital Corporation shareholders and
acquisition costs $ - $ - $ 288
======= ======= =======
See Accompanying Notes to Consolidated Financial Statements.
F-9
41
FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
Description of business:
First Busey Corporation (the Corporation) is a holding
company whose two bank subsidiaries provide a full range of
banking services to individual and corporate customers through
their seventeen locations throughout central Illinois. The Banks
are subject to competition from other financial institutions and
nonfinancial institutions providing financial products. First
Busey Securities, Inc. offers security broker/dealer services,
and First Busey Trust and Investment Co. provides investment
management and fiduciary services to institutional, corporate and
personal trust clients. First Busey Corporation, the Banks,
First Busey Securities, Inc. and First Busey Trust and Investment
Co. are subject to the regulations of certain regulatory agencies
and undergo periodic examinations by those regulatory agencies.
The consolidated financial statements of First Busey Corporation
have been prepared in conformity with generally accepted
accounting principles and conform to predominate practice within
the banking industry.
Basis of consolidation:
The consolidated financial statements include the accounts
of First Busey Corporation and its subsidiaries: Busey Bank and
its subsidiary: First Busey Securities, Inc.; Busey Bank of
McLean County; First Busey Trust and Investment Company; First
Busey Resources, Inc. and First Busey Information Services. All
material intercompany balances and transactions have been
eliminated in consolidation.
Use of estimates in preparation of financial statements:
In preparing the consolidated financial statements,
Corporation management is required to make estimates and
assumptions which significantly affect the amounts reported in
the consolidated financial statements. Significant estimates
which are particularly susceptible to change in a short period of
time include the determination of the allowance for loan losses
and valuation of real estate and other properties acquired in
connection with foreclosures or in satisfaction of amounts due
from borrowers on loans. Actual results could differ from those
estimates.
Trust assets:
Other than trust cash on deposit at the Corporation's bank
subsidiaries, trust assets are not included in the accompanying
consolidated financial statements because they are not assets of
the Corporation.
Cash flows:
For purposes of reporting cash flows, cash and due from
banks include cash on hand and amounts due from banks. Cash
flows from federal funds purchased and sold are reported net,
since their original maturities are less than three months.
F-10
42
FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Securities:
The Corporation adopted Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities," effective
January 1, 1994.
Securities classified as held maturity are those debt
securities the Corporation has both the positive intent and
ability to hold to maturity regardless of changes in market
conditions, liquidity needs or changes in general economic
conditions. These securities are carried at cost adjusted for
amortization of premium and accretion of discount which are
recognized in interest income using the interest method over the
period to maturity.
Securities classified as available for sale are those debt
securities that the Corporation intends to hold for an indefinite
period of time, but not necessarily to maturity and marketable
equity securities. Any decision to sell a security classified as
available for sale would be based on various factors, including
significant movements in interest rates, changes in the maturity
mix of the Corporation's assets and liabilities, liquidity needs,
regulatory capital considerations and other similar factors.
Securities available for sale are carried at fair value. The
difference between fair value and amortized cost results in an
unrealized gain or loss. Unrealized gains or losses are reported
as increases or decreases in stockholders' equity, net of the
related deferred tax effect. Realized gains or losses,
determined on the basis of the cost of specific securities sold,
are included in earnings.
Securities purchased with the intent to earn a profit by
trading or reselling them in a short period of time are
classified as trading securities and are carried at fair value.
Realized and unrealized gains and losses are included in income.
At December 31, 1995 and 1994, there were no securities
classified in this category.
In 1993, investment securities were stated at cost, adjusted
for amortization of premiums and accretion of discounts, using
the interest method, over the period to maturity. Realized gains
and losses on the sale of securities were determined on the basis
of the specific securities sold and were included in earnings.
Loans:
Unearned interest on discounted loans is credited to income
over the duration of the loans using the interest method. For
all other loans, interest is credited to income as earned using
the simple interest method applied to the daily balances of
principal outstanding.
F-11
43
FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On January 1, 1995, the Corporation adopted Financial
Accounting Standards Board Statement of Financial Accounting
Standards No. 114, "Accounting by Creditors for Impairment of a
Loan," as amended by FAS 118, which requires loans to be
considered impaired when, based on current information and
events, it is probable the Banks will not be able to collect all
amounts due. The portion of the allowance for loan losses
applicable to impaired loans has been computed based on the
present value of the estimated future cash flows of interest and
principal discounted at the loan's effective interest rate or on
the fair value of the collateral for collateral dependent loans.
The change in the present value of expected cash flows of
impaired loans or of collateral value is reported as bad debt
expense in the same manner in which impairment initially was
recognized or as a reduction in the amount of bad debt expense
that otherwise would be reported.
The accrual of interest income on impaired loans is
discontinued when, in the opinion of management, there is
reasonable doubt as to the borrower's ability to meet payments of
interest or principal when they become due. Interest income on
these loans is recognized to the extent interest payments are
received and the principal is considered fully collectible.
Loans held for sale:
Loans held for sale at December 31, 1995 consist of fixed
rate mortgage loans conforming to established guidelines and held
for sale to the secondary mortgage market. Mortgage loans held
for sale are carried at the lower of aggregate cost or estimated
fair value.
Loans held for sale at December 31, 1994 consist of certain
student loans with limited salability. These loans are carried
at the lower of aggregate cost or estimated fair value.
Allowance for loan losses:
The allowance for loan losses is maintained at a level
considered adequate by management to provide for known and
inherent risks in the loan portfolio. The allowance is increased
by provisions charged to operating expense and by recoveries
applicable to loans previously charged to the allowance and is
reduced by loan balances which are considered uncollectible. The
allowance is based upon continuous credit reviews of the loan
portfolio and considers current economic conditions, historical
loan loss experience, review of specific problem loans and other
factors which, in management's opinion, deserve current
recognition in estimating loan losses.
In addition, various regulatory agencies periodically review
the allowance for loan losses. These agencies may require the
Bank to make additions to the allowance for loan losses based on
their judgments of collectibility based on information available
to them at the time of their examination.
Premises and equipment:
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed principally by the
straight-line method over the estimated useful lives of the
assets.
F-12
44
FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Other real estate owned:
Other real estate owned (OREO) represents properties
acquired through foreclosure or other proceedings in settlement
of loans. OREO is held for sale and is recorded at the date of
foreclosure at the fair value of the properties less estimated
costs of disposal. Any write-down to fair value at the time of
transfer to OREO is charged to the allowance for loan losses.
Property is evaluated regularly to ensure the recorded amount is
supported by its current fair value and valuation allowances to
reduce the carrying amount to fair value less estimated costs to
dispose are recorded as necessary.
Amortization:
The excess of the purchase price of subsidiaries over the
fair value of identifiable assets acquired, which excess
aggregated approximately $10,480,000, is amortized using the
straight-line method over 15 years. Amortization of this excess
is $479,000, $479,000 and $460,000 for the years ended December
31, 1995, 1994 and 1993, respectively. Accumulated amortization
at December 31, 1995, is $3,301,000.
Core deposit and other identifiable intangible assets which
aggregated approximately $4,917,000 are amortized on an
accelerated basis over the estimated periods benefited.
Amortization of these intangibles is $381,000, $381,000 and
$532,000 for the years ended December 31, 1995, 1994 and 1993,
respectively. Accumulated amortization at December 31, 1995 is
$1,833,000.
The Corporation reviews its intangible assets periodically
to determine potential impairment by comparing the carrying value
of the intangibles with the anticipated future cash flows of the
related businesses.
Income taxes:
The Corporation and its subsidiaries file consolidated
Federal and State income tax returns with each organization
computing its taxes on a separate entity basis. The provision
for income taxes is based on income as reported in the financial
statements.
Deferred income tax assets and liabilities are computed
annually for differences between the financial statement and tax
bases of assets and liabilities that will result in taxable or
deductible amounts in the future. The deferred tax assets and
liabilities are computed based on enacted tax laws and rates
applicable to the periods in which the differences are expected
to affect taxable income. Valuation allowances are established
when necessary to reduce deferred tax assets to an amount
expected to be realized. Income tax expense is the tax payable
or refundable for the period plus or minus the change during the
period in deferred tax assets and liabilities.
Earnings per common share and common share equivalents:
Earnings per share are computed by dividing net income by the
weighted average number of shares outstanding as increased
by common stock equivalents. This increase is the number of
shares issuable upon exercise of stock options less common
shares assumed to have been purchased by the Corporation with
the proceeds received upon exercise. Certain options are not
included in computing the common stock equivalents because their
inclusion would have an antidilutive effect.
F-13
45
FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The weighted average number of shares used in computing earnings
per share are:
Year ended December 31, 1995 4,607,497
=========
Year ended December 31, 1994 4,629,182
=========
Year ended December 31, 1993 4,595,858
=========
Reclassifications:
Certain reclassifications have been made to the balances as
of and for the years ended December 31, 1994 and 1993 to be
consistent with the classifications adopted for 1995.
Accounting for mortgage servicing rights:
In May 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 122 (FAS 122),
"Accounting for Mortgage Servicing Rights." FAS 122 requires the
Bank to recognize as separate assets rights to service mortgage
loans for others, however those servicing rights are acquired.
If the Bank acquires mortgage servicing rights through either the
purchase or origination of mortgage loans and sells or
securitizes those loans with servicing rights retained, the Bank
should allocate the total cost of the mortgage loans to mortgage
servicing rights and the loans (without the mortgage servicing
rights) based on their relative fair values. The mortgage
servicing rights should be amortized in proportion to and over
the period of estimated net servicing income.
FAS 122 is effective for fiscal years beginning after
December 15, 1995.
The Company believes the adoption of FAS 122 will not have a
material impact on its consolidated financial statements.
Accounting for stock based compensation:
In November 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standard No. 123 (FAS
123), "Accounting for Stock Based Compensation". FAS 123
encourages, but does not require, accounting for stock based
compensation awards on the basis of fair value at the date the
awards are granted. The fair value of the award is included in
expense on the statement of income. Companies that do not adopt
FAS 123 will be required to disclose what net income and earnings
per share would have been, had they adopted FAS 123.
FAS 123 is effective for fiscal years beginning after
December 15, 1996.
The Corporation does not intend to adopt FAS 123.
NOTE 2. CASH AND DUE FROM BANKS
The Corporation's banking subsidiaries are required to maintain certain
average cash reserve balances with the Federal Reserve Bank of
Chicago, which may be offset by cash on hand. The reserve balances as
of December 31, 1995 and 1994 were approximately $12,846,000 and
$12,397,000, respectively.
F-14
46
FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. SECURITIES
The amortized cost and fair values of securities held to maturity
are summarized as follows:
Held to Maturity
December 31, 1995
------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -------
(Dollars in thousands)
U.S. Treasury securities
and obligations of
U.S. government corpor-
ations and agencies $13,198 $ 3 $ 233 $12,968
Obligations of states and
political subdivisions 37,043 1,079 59 38,063
Corporate securities 7,147 195 - 7,342
Mortgage-backed securities 4,113 139 - 4,252
------- ------ -------- -------
$61,501 $1,416 $ 292 $62,625
======= ====== ======== =======
Held to Maturity
December 31, 1994
-------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -------
(Dollars in thousands)
U.S. Treasury securities
and obligations of
U.S. government corpor-
ations and agencies $17,031 $ 5 $965 $16,071
Obligations of states and
political subdivisions 32,957 420 390 32,987
Corporate securities 11,145 25 148 11,022
Mortgage-backed securities 5,374 36 104 5,306
------- -------- ------ -------
$66,507 $ 486 $1,607 $65,386
======= ======== ====== =======
F-15
47
FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The amortized cost and fair value of securities available for sale
are summarized as follows:
Available for Sale
December 31, 1995
-----------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -----
(Dollars in thousands)
U.S. Treasury securities
and obligations of
U.S. government corpor-
ations and agencies $212,797 $1,169 $ 104 $213,862
Obligations of states and
political subdivisions 200 2 - 202
Corporate securities 721 13 4 730
Equity securities 3,906 3,726 43 7,589
Other debt securities 633 - - 633
-------- ------ -------- --------
$218,257 $4,910 $ 151 $223,016
======== ====== ======== ========
Available for Sale
December 31, 1994
----------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -----
(Dollars in thousands)
U.S. Treasury securities
and obligations of
U.S. government corpor-
ations and agencies $140,138 $ 56 $2,470 $137,724
Corporate securities 720 - 28 692
Equity securities 3,989 1,644 477 5,156
Other debt securities 446 - - 446
-------- ------ ------ --------
$145,293 $1,700 $2,975 $144,018
======== ====== ====== ========
F-16
48
FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The amortized cost and fair value of securities as of December 31,
1995, by contractual maturity, are shown below. Expected
maturities may differ from contractual maturities because the
mortgage-backed securities may be called or prepaid without
penalty. Therefore, these securities are not included in the
maturity categories in the following maturity summary.
Held to Maturity Available for Sale
---------------- ------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- ----- --------- -----
(Dollars in thousands) (Dollars in thousands)
Due in one year or less $9,872 $ 9,906 $160,392 $160,740
Due after one year
through five years 30,139 30,519 53,713 54,438
Due after five years
through ten years 13,801 14,331 246 249
Due after ten years 3,576 3,617 - -
------- ------- -------- --------
$57,388 $58,373 $214,351 $215,427
Mortgage-backed
securities 4,113 4,252 - -
------- ------- -------- --------
$61,501 $62,625 $214,351 $215,427
======= ======= ======== ========
Gains and losses related to sales of securities for the years ended
December 31, 1995, 1994 and 1993 are summarized as follows (in
thousands):
1995 1994 1993
--------- --------- ----------
Gross security gains $ 351 $ 374 $ 1,091
Gross security losses 145 72 204
--------- --------- ----------
Net security gains $ 206 $ 302 $ 887
========= ========= ==========
Investment securities with carrying values of $141,602,000 and
$116,607,000 on December 31, 1995 and 1994, respectively, were
pledged as collateral on public deposits and for other purposes as
required or permitted by law.
F-17
49
FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. LOANS
The composition of net loans is as follows:
December 31,
---------------------
1995 1994
---------- ----------
(Dollars in thousands)
Commercial $ 55,687 $ 57,878
Real estate construction 25,566 21,759
Real estate - farmland 11,162 11,769
Real estate - mortgage 332,614 303,046
Installment 42,353 35,620
Agricultural 12,594 12,750
-------- --------
$479,976 $442,822
-------- --------
Less:
Unearned interest $ 7 $ 5
Allowance for loan losses 5,473 5,235
-------- --------
$5,480 $ 5,240
-------- --------
Net loans $474,496 $437,582
======== ========
The amount of loans serviced by the Corporation for the benefit of
others is not included in the accompanying consolidated balance
sheets. The unpaid principal balances of these loans were
$93,478,000 and $95,240,000 as of December 31, 1995 and 1994,
respectively.
The loan portfolio includes a concentration of loans for commercial
real estate amounting to approximately $155,370,000 and
$135,335,000 as of December 31, 1995 and 1994, respectively.
Generally these loans are collateralized by assets of the
borrowers. The loans are expected to be repaid from cash flows or
from proceeds from the sale of selected assets of the borrowers.
Credit losses arising from lending transactions for commercial real
estate entities compare favorably with the Corporation's credit
loss experience on its loan portfolio as a whole.
The following table presents data on impaired loans at December 31,
1995:
Impaired loans for which an allowance has been provided $ -
Impaired loans for which no allowance has been provided $ 410
-------------
Total loans determined to be impaired $ 410
=============
Allowance for loan loss for impaired loans included in the
allowance for loan losses $ -
=============
Average recorded investment in impaired loans $ 480
=============
Interest income recognized from impaired loans $ -
=============
Cash basis interest income recognized from impaired loans $ 37
=============
F-18
50
FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Non-accruing loans were $636,000 and $247,000 on December 31, 1994
and 1993, respectively. The gross interest income that would have
been recorded in the years ended December 31, 1994 and 1993 if the
nonaccrual and restructured loans had been current in accordance
with their original terms was $47,000 and $22,000, respectively.
The amount of interest collected on these loans that was included
in interest income for the year ended December 31, 1994 was
$38,000. There was no interest collected on these loans for the
year ended December 31, 1993.
NOTE 5. ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses were as follows:
Years Ended December 31,
-----------------------------------
1995 1994 1993
---------- ---------- ----------
(Dollars in thousands)
Balance, beginning of year $ 5,235 $ 5,205 $ 4,456
Addition due to acquisition
of Busey Bank of McLean
County - - 422
Provision charged to operating
expense 395 240 1,125
Recoveries applicable to loan
balances previously charged
off 523 295 333
---------- ---------- ----------
$ 6,153 $ 5,740 $ 6,336
Loan balances charged off 680 505 1,131
---------- ---------- ----------
Balance, ending of year $ 5,473 $ 5,235 $ 5,205
========== ========== ==========
NOTE 6. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
December 31,
-----------------
1995 1994
-------- --------
(Dollars in thousands)
Land $ 5,173 $ 5,109
Buildings and improvements 21,238 20,331
Furniture and equipment 7,902 7,211
------- -------
$34,313 $32,651
Less accumulated depreciation 12,456 10,727
------- -------
$21,857 $21,924
======= =======
Depreciation expense was $1,847,000, $1,580,000 and $1,510,000 for
the years ending December 31, 1995, 1994 and 1993, respectively.
The Corporation reduced the carrying value of the Busey Plaza
Building, a fully leased 90,000 square foot office building located
in downtown Urbana, by recording a $350,000 write-down in other
operating expenses in 1994. This write-down had the effect of
stating the building at its net realizable value. The building is
carried at a book value of $5,092,000 at December 31, 1995.
F-19
51
FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. SHORT-TERM BORROWINGS
Short-term borrowings are summarized as follows:
December 31,
---------------
1995 1994
------ ------
(Dollars in thousands)
Notes payable:
American National Bank of Chicago, 7.4375%,
due January 31, 1996, collateralized
by all of the capital stock of Busey
Bank, a subsidiary $ 8,500 $ 4,000
American National Bank of Chicago, 7.225%,
due January 31, 1996, collateralized
by 36,905 shares of First Busey Corpor-
ation Class A common stock owned by
employee stock ownership plan 375 500
American National Bank of Chicago, 7.4375%,
due January 31, 1996, collateralized
by 36,905 shares of First Busey Corpor-
ation Class A common stock owned by
employee stock ownership plan 375 500
Federal funds purchased and securities sold
under agreements to repurchase 12,101 20,430
U.S. Treasury Note accounts 323 130
------- -------
$21,674 $25,560
======= =======
The Corporation has a $10,000,000 line of credit with American
National Bank of Chicago with $1,500,000 available as of December
31, 1995.
In accordance with the consensus reached on Issue Number 89-10 at
the June 1989 meeting of the Financial Accounting Standards Board's
Emerging Issues Task Force, the Company has recorded the debt of
the employee stock ownership plan (ESOP), which totalled $750,000
and $1,000,000 at December 31, 1995 and 1994, respectively as
short-term borrowings and a reduction of stockholders' equity.
NOTE 8. LONG-TERM DEBT
Long-term debt is summarized as follows:
December 31,
---------------------
1995 1994
---------- ---------
(Dollars in thousands)
Note payable, Federal Home Loan Bank of
Chicago, 5.46%, monthly installments
of interest through June 25, 1998,
balance due June 25, 1998,
collateralized by all unpledged
U.S. Treasury and U.S. Agency
securities, first mortgages
on residential real estate and
Federal Home Loan Bank stock $ 5,000 $ 5,000
========== ==========
F-20
52
FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. INCOME TAXES
The components of income tax expense consist of:
Years Ended December 31,
---------------------------------
1995 1994 1993
---------- ---------- ---------
(Dollars in thousands)
Current $ 4,004 $ 3,524 $ 3,203
Deferred (705) (182) (403)
---------- ---------- ---------
Total income tax expense $ 3,299 $ 3,342 $2,800
========== ========== =========
A reconciliation of federal income taxes at statutory rates to the
income taxes included in the statements of income is as follows:
Years Ended December 31,
----------------------------------------------
1995 1994 1993
-------------- -------------- --------------
% of % of % of
Pretax Pretax Pretax
Amount Income Amount Income Amount Income
------ ------ ------ ------ ------ ------
(Dollars in thousands)
Income tax
at statu-
tory rate $ 4,226 35.0% $4,053 35.0% $3,456 34.0%
Effect of:
Benefit of
income
taxed at
lower
rates (100) (0.9) (100) (0.9) - -
Tax-exempt
interest,
net (788) (6.5) (744) (6.3) (772) (7.6)
Amortization
of purchase
premium 170 1.4 165 1.4 210 2.1
Other (209) (1.7) (32) (0.3) (94) (0.9)
------ ---- ------ ---- ------ ------
$3,299 27.3% $3,342 28.9% $2,800 27.6%
====== ==== ====== ==== ====== ======
Income taxes related to realized gains on sales of securities were
$72,000, $106,000, and $302,000 for the years ended December 31,
1995, 1994 and 1993, respectively.
The net deferred tax asset, included in other assets, in the
accompanying balance sheets includes the following amounts of
deferred tax assets and liabilities:
1995 1994
-------- --------
(Dollars in thousands)
Deferred tax liability $(2,325) $ (802)
Deferred tax asset 3,269 3,136
Valuation allowance for deferred
tax assets (481) (477)
------- -------
Net deferred tax asset $ 463 $ 1,857
======= =======
F-21
53
FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The tax effects of principal temporary differences are shown in the
following table:
1995 1994
-------- --------
(Dollars in thousands)
Investment securities:
Unrealized (gain) loss on securities
available for sale $(1,666) $ 433
Other 219 214
Basis in property and equipment (567) (570)
Allowance for loan losses 2,156 2,002
Property acquired in settlement of loans 79 40
Loans held for sale 15 -
Basis in deposit intangibles 298 -
Deferred loan fees - (8)
Deferred compensation 275 169
Performance/restricted stock 29 (8)
State net operating loss carryforward 198 278
Other (92) (216)
-------- ------
$ 944 $2,334
Valuation allowance for state income taxes (481) (477)
-------- ------
$ 463 $1,857
======== ======
State net operating loss carryforwards of approximately $4,242,000
are available to offset future taxable income. The carryforwards
expire as follows: 2005 - $870,000; 2006 - $2,465,000; 2007 -
$860,000 and 2008 - $47,000.
NOTE 10. EMPLOYEE BENEFIT PLANS
The Corporation established the First Busey Corporation Employees'
Stock Ownership Plan (ESOP) as of January 1, 1984. All full time
employees who meet certain age and length of service requirements
are eligible to participate in the ESOP which purchased common
shares of the Corporation using the proceeds of bank borrowings
secured by the stock. The borrowings are to be repaid using fully
deductible contributions to the trust fund. As the ESOP makes each
payment of principal, an appropriate percentage of stock will be
allocated to eligible employee's accounts in accordance with
applicable regulations under the Internal Revenue Code.
Allocations of common stock released and forfeitures are based on
the eligible compensation of each participant. Dividends on
allocated shares of common stock are distributed directly to the
participants and dividends on unallocated shares are used to
service the bank borrowings. All shares held by the ESOP are
included in the computation of average common shares and common
share equivalents. This accounting treatment is grandfathered
under Statement of Position 93-6, "Employers' Accounting for
Employee Stock Ownership Plans" for shares purchased prior to
December 31, 1992. All shares included in the Corporation's ESOP
were purchased prior to this date.
F-22
54
FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During the year ended December 31, 1995, $250,000 of compensation
expense was recognized for the ESOP, releasing 24,603 common shares
to participant accounts, and is reflected in the chart below under
"Employee Benefits." As of December 31, 1995, the ESOP held
229,367 shares that were allocated to participant accounts and
73,810 suspense shares. The Corporation does not have any
repurchase obligation.
All full-time employees who meet certain age and length of service
requirements are eligible to participate in the Corporation's
profit-sharing plan. The contributions, if any, are determined
solely by the Boards of Directors of the Corporation and its
subsidiaries and in no case may the annual contributions be greater
than the amounts deductible for federal income tax purposes for
that year. The rights of the participants vest ratably over a
seven-year period.
Employer contributions to the employee benefit plans, are included
in the statements of income as follows:
Years Ended December 31,
------------------------
1995 1994 1993
---- ---- ----
(Dollars in Thousands)
Employee benefits $623 $617 $610
Interest on employee stock
ownership plan debt 77 93 100
---- ---- ----
Total employer contributions $700 $710 $710
==== ==== ====
NOTE 11. STOCK INCENTIVE PLANS
Stock Option Plan:
In March 1989, the Corporation adopted the 1988 Stock Option Plan
pursuant to which incentive stock options and non-qualified stock
options for up to 300,000 shares of Class A common stock may be
granted by the Compensation Committee of the Board of Directors to
certain executive officers and key personnel of First Busey
Corporation and its subsidiaries. Subject to shareholder approval
at the April 16, 1996 Annual Meeting, the Board of Directors have
approved an increase in the number of shares reserved for issuance
as stock options from 300,000 to 750,000. As of December 31, 1995,
there were unexercised options outstanding for 109,000 shares,
23,200 shares, 825 shares, 49,875 shares, 39,000 shares, 30,000
shares and 10,500 shares at option prices of $26.25, $24.75, $21.50,
$15.17, $15.00, $14.17 and $13.50, respectively. As of December 31,
1995, 141,000 options had been exercised under the 1988 stock option
plan.
F-23
55
FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Number of Shares
----------------------------
1995 1994 1993
--------- ------- --------
Under option, beginning of year 176,425 155,775 223,500
Granted - 24,400 900
Terminated and reissuable (5,025) (750) (25,125)
Exercised (18,000) (3,000) (43,500)
--------- ------- --------
Under option, end of year 153,400 176,425 155,775
========= ======= ========
Options exercisable, end of year 40,500 18,000 21,000
========= ======= ========
Available to grant, end of year 5,600 575 24,225
Increase in shares under option,
subject to stockholder approval 450,000 - -
Granted, subject to stockholder approval (109,000) - -
--------- ------- --------
Available to grant, end of year, subject
to stockholder approval 346,600 575 24,225
========= ======= ========
Average Price
----------------------------
1995 1994 1993
-------- -------- --------
Granted during the year $26.25 $ 24.75 $21.50
Exercised during the year 13.96 13.50 13.50
Under option, end of year 20.43 16.10 14.70
No compensation expense has been recognized for financial
statement purposes. Compensation expense of $202,000, $24,000
and $116,000 was recognized for income tax purposes for the years
ended December 31, 1995, 1994 and 1993, respectively.
Restricted Stock Award Plan:
In January 1993, the Corporation adopted the 1993 Restricted
Stock Award Plan pursuant to which restricted stock awards for up
to 150,000 shares of Class A common stock may be granted by the
Compensation Committee of the Board of Directors to certain
executive officers and key personnel of First Busey Corporation
and its subsidiaries. As of December 31, 1995, there were 5,500
shares under grant with performance restrictions allowed by the
plan which expire December 31, 1996.
Number of Shares
----------------
1995 1994
------- -------
Under restriction, beginning of year 9,500 4,000
Granted - 5,500
Restrictions released 4,000 -
------- -------
Under restriction, end of year 5,500 9,500
======= =======
Available to grant, end of year 140,500 140,500
======= =======
F-24
56
FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Compensation expense is recognized for financial statement
purposes over the period of performance. Compensation expense of
$94,000 and $65,000 was recognized for financial statement
purposes during the years ended December 31, 1995 and 1994,
respectively. No compensation expense was recognized for
financial statement purposes for the year ended December 31,
1993. Compensation expense of $86,000 was recognized for income
tax purposes for the year ended December 31, 1993.
NOTE 12. TRANSACTIONS WITH DIRECTORS AND EXECUTIVE OFFICERS
The Corporation and its subsidiaries have had, and may be expected
to have in the future, banking transactions in the ordinary course
of business with directors, principal officers, their immediate
families and affiliated companies in which they have 10% or more
beneficial ownership (commonly referred to as related parties), on
the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with others.
These persons and firms were indebted to the Corporation for loans
totaling approximately $7,503,000 and $9,013,000 at December 31,
1995 and 1994 respectively.
The following is an analysis of the changes in loans to related
parties during the year ended December 31, 1995:
(Dollars in
thousands)
Balance, beginning $ 9,013
New loans 3,226
Repayments (4,891)
Other 155
----------
Balance, ending $ 7,503
==========
NOTE 13. COMMON STOCK
The holders of Class A common stock are entitled to cash dividends
per share which are 10% greater than the cash dividends per share
with respect to Class B common stock. Class A stockholders have
one vote per share whereas Class B stockholders have ten votes per
share. Class B common stock may be converted to Class A common
stock at any time on a one-for-one basis. All of the issued Class
B common stock is owned by the Chairman of the Board of the
Corporation and his spouse. There are no other differences between
the two classes of common stock.
NOTE 14. COMMITMENTS, CONTINGENCIES AND CREDIT RISK
The Corporation and its subsidiaries are parties to legal actions
which arise in the normal course of their business activities. In
the opinion of management, the ultimate resolution of these matters
is not expected to have a material effect on the financial position
or the results of operations of the Corporation and its
subsidiaries.
F-25
57
FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Corporation and its subsidiaries are parties to financial
instruments with off-balance-sheet risk in the normal course of
business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit, standby
letters of credit and financial guarantees. Those instruments
involve, to varying degrees, elements of credit and interest rate
risk. The contract or notional amounts of those instruments
reflect the extent of involvement the Corporation has in particular
classes of financial instruments.
The Corporation and its subsidiaries' exposure to credit loss in
the event of nonperformance by the other party to the financial
instrument for commitments to extend credit and standby letters of
credit and financial guarantees written is represented by the
contractual amount of those instruments. The Corporation and its
subsidiaries use the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet
instruments.
Unless noted otherwise, the Corporation and its subsidiaries do not
require collateral or other security to support financial
instruments with credit risk.
A summary of the contractual amount of the Bank's exposure to
off-balance-sheet risk as of December 31, 1995 and 1994, is as
follows:
1995 1994
-------- --------
(Dollars in thousands)
Financial instruments whose contract amounts
represent credit risk:
Commitments to extend credit $98,030 $69,735
Standby letters of credit 2,342 1,824
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 Corporation evaluates each customer's
credit worthiness on a case-by-case basis. The amount of
collateral obtained, if 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 letters of credit are primarily issued to support
public and private borrowing arrangements, including bond financing
and similar transactions. The credit risk involved in issuing
letters of credit is essentially the same as that involved in
extending loan facilities to customers.
As of December 31, 1995, the Corporation has no significant
futures, forwards, swaps or option contracts, or other financial
instruments with similar characteristics.
F-26
58
FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the
fair value of each class of financial instrument for which it is
practicable to estimate that value:
Cash and cash equivalents:
The carrying amounts reported in the balance sheet for cash
and due from banks and federal funds sold approximate those assets'
fair values.
Securities:
For securities held to maturity and available for sale, fair values
are based on quoted market prices or dealer quotes, where
available. If a quoted market price is not available, fair value is
estimated using quoted market prices for similar securities.
Loans:
For certain homogeneous categories of loans, such as some residential
mortgages, fair value is estimated using the quoted market prices
for securities backed by similar loans, adjusted for differences in
loan characteristics. The fair value of other types of loans is
estimated by discounting the future cash flows using the current
rates at which similar loans would be made to borrowers with similar
credit ratings and for the same remaining maturities.
Deposits:
The fair value of demand deposits, savings accounts, NOW accounts,
and certain money market deposits is defined as the amount payable
on demand at the reporting date. The fair value of fixed-maturity
certificates of deposit is estimated using the rates currently
offered for deposits of similar remaining maturities.
Short-term borrowings and long-term debt:
Rates currently available to the Corporation for debt with similar
terms and remaining maturities are used to estimate fair value of
existing debt.
Commitments to extend credit and standby letters of credit:
The fair value of commitments is estimated using the fees currently
charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of
the counterparties. For fixed-rate loan commitments, fair value also
considers the difference between current levels of interest rates and
the committed rates. The fair value of letters of credit is based on
fees currently charged for similar agreements or on the estimated
cost to terminate them or otherwise settle the obligations with the
counterparties at the reporting date. As of December 31, 1995, these
items are immaterial in nature.
F-27
59
FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The estimated fair values of the Corporation's financial
instruments are as follows:
1995 1994
---------------- ----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ------- -------- -------
(Dollars in thousands) (Dollars in thousands)
Financial assets:
Cash and cash
equivalents $ 40,008 $ 40,008 $ 31,326 $ 31,326
Investment securities 284,517 285,641 210,525 209,404
Loans, net 476,299 479,671 445,816 437,729
Financial liabilities:
Deposits 744,897 750,293 635,694 636,423
Short-term borrowings 21,674 21,674 25,560 25,560
Long-term debt 5,000 4,985 5,000 4,573
NOTE 16. BRANCH ACQUISITIONS
On December 15, 1995, Busey Bank acquired (the Acquisition) the
Gibson City and Paxton, Illinois, branches of First of America
Bank-Illinois, N.A. The branches had approximately $78 million in
deposits at the date of acquisition. In addition to assuming the
deposit liabilities attributable to the branches, the Bank acquired
certain loans and the branch premises and equipment associated with
the Gibson City and Paxton branches. The operations of the Gibson
City and Paxton branches are included in the Consolidated
Statements of Income from the acquisition date and reflect the
application of the purchase method of accounting.
Under this method of accounting, the aggregate cost to the Bank of
the Acquisition was allocated to the assets acquired and the
liabilities assumed, based on their estimated fair value as of
December 15, 1995. Goodwill and the estimated value of the
customer deposit base in the amount of $3,190,000 and $1,736,000,
respectively, were recorded by the Bank in connection with the
Acquisition. The goodwill will be amortized on a straight-line
basis over 15 years. The customer deposit base intangible will be
amortized on a straight-line basis over 7 years.
NOTE 17. SUBSEQUENT EVENT
On January 1, 1996, the Corporation merged Busey Bank of McLean
County into Busey Bank. This transaction had no impact on the
consolidated financial statements.
NOTE 18. FINANCIAL INFORMATION OF PARENT COMPANY
The ability of the Corporation to pay cash dividends to its
stockholders and to service its debt is dependent on the receipt of
cash dividends from its subsidiaries. State chartered banks have
certain statutory and regulatory restrictions on the amount of cash
dividends they may pay. As a practical matter, dividend payments
are restricted because of the desire to maintain a strong capital
position in the bank subsidiaries.
F-28
60
FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed financial data for First Busey Corporation (parent
company only) is presented below.
BALANCE SHEETS
December 31,
------------------
1995 1994
-------- --------
(Dollars in thousands)
ASSETS
Cash and due from subsidiary banks $ 439 $ 222
Investment securities available for sale 1,034 970
Investments in subsidiaries:
Bank 62,451 54,528
Non-bank 2,053 1,809
Premises and equipment, net 5,145 5,238
Other assets 6,648 6,855
------- -------
Total assets $77,770 $69,622
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Short-term corporate borrowings $8,500 $4,000
Short-term ESOP borrowings 750 1,000
Long-term debt - 4,891
Other liabilities 742 715
------- -------
Total liabilities $9,992 $10,606
------- -------
Stockholders' equity before unearned ESOP
shares and deferred compensation for
stock grants $68,579 $60,161
Unearned ESOP shares and deferred compen-
sation for stock grants (801) (1,145)
------- -------
Stockholders' equity $67,778 $59,016
Total liabilities and stockholders' ------- -------
equity $77,770 $69,622
======= =======
F-29
61
FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17. FINANCIAL INFORMATION OF PARENT COMPANY (CONTINUED)
STATEMENTS OF INCOME
Years Ended December 31,
----------------------------------
1995 1994 1993
---------- ---------- ----------
(Dollars in thousands)
Operating income:
Dividends from subsidiaries:
Bank $ 5,400 $ 4,640 $ 4,200
Non-bank 300 250 170
Interest and dividend income 27 25 7
Other income 451 473 494
---------- ---------- ----------
Total operating income $ 6,178 $ 5,388 $ 4,871
---------- ---------- ----------
Expenses:
Salaries and employee benefits $ 1,025 $ 886 $ 872
Interest expense 740 719 602
Write-down of real property - 350 -
Operating expense 1,109 938 1,268
---------- ---------- ----------
Total expenses $ 2,874 $ 2,893 $ 2,742
---------- ---------- ----------
Income before income tax
benefit and equity in
undistributed income
of subsidiaries $ 3,304 $ 2,495 $ 2,129
Income tax benefit 980 737 524
---------- ---------- ----------
Income before equity in
undistributed income
of subsidiaries $ 4,284 $ 3,232 $ 2,653
Equity in undistributed
income of subsidiaries:
Bank 4,195 4,746 4,518
Non-bank 296 260 193
---------- ---------- ----------
Net income $ 8,775 $ 8,238 $ 7,364
========== ========== ==========
F-30
62
FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17. FINANCIAL INFORMATION OF PARENT COMPANY (CONTINUED)
STATEMENTS OF CASH FLOWS
Years Ended December 31,
-----------------------
1995 1994 1993
---- ---- ----
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $8,775 $8,238 $7,364
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 1,226 1,188 1,252
Write-down of real property - 350 -
Equity in undistributed net
income of subsidiaries (4,491) (5,006) (4,711)
(Gain) loss on sales of
investment securities (54) (2) 25
Loss on sale of premises and
equipment - 1 22
Changes in assets and liabilities:
(Increase) in other assets (739) (315) (71)
Increase in other liabilities 27 120 339
------- ------- -------
Net cash provided by
operating activities $ 4,744 $4,574 $4,220
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital investment in subsidiary $ - $ - $(1,960)
Proceeds from sales of invest-
ment securities held to maturity - - 25
Purchase of investment securities
held to maturity - - (677)
Proceeds from sale of investment
securities available for sale 259 5 -
Purchase of investment securities
available for sale (10) (45) -
Purchases of premises and equip-
ment (184) (52) (37)
Proceeds from sales of premises
and equipment - - 87
Proceeds from capital distri-
bution of subsidiary 91 1,000 2,950
------- ------- -------
Net cash provided by
investing activities $ 156 $ 908 $ 388
------- ------- -------
F-31
63
FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17. FINANCIAL INFORMATION OF PARENT COMPANY (CONTINUED)
STATEMENTS OF CASH FLOWS (Continued)
Years Ended December 31,
--------------------------
1995 1994 1993
------ ------ ------
(Dollars in thousands)
CASH FLOWS FROM FINANCING ACTIVITIES
Purchase of treasury stock $(705) $(1,653) $(1,311)
Proceeds from sale of treasury
stock 353 85 676
Proceeds from short-term
borrowings 5,750 3,300 4,100
Proceeds from long-term debt - - 5,000
Dividends paid (3,940) (3,609) (3,575)
Principal payments on short-
term debt borrowings (1,250) (3,800) (4,600)
Principal payments on long-
term debt (4,891) (54) (4,801)
------- -------- --------
Net cash (used in)
financing activities $(4,683) $(5,731) $(4,511)
-------- -------- --------
Net increase (decrease)
in cash and due from
banks $ 217 $ (249) $ 97
Cash and due from banks,
beginning 222 471 374
-------- -------- --------
Cash and due from banks,
ending $ 439 $ 222 $ 471
======== ======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Reduction of ESOP debt $ 250 $ 400 $ 400
======== ======== ========
Change in unrealized gain on
investment securities available
for sale - parent $ 259 $ 17 $ -
======== ======== ========
Increase in deferred income taxes
attributable to the unrealized
gain on investment securities
available for sale - parent $ (91) $ (6) $ -
======== ======== ========
Change in unrealized gain (loss)
on investment securities avail-
able for sale - subsidiaries $ 3,767 $ (853) $ -
======== ======== ========
F-32
64
FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE LEFT INTENTIONALLY BLANK
F-33
65
[BUSEY BANK LETTERHEAD]
MANAGEMENT REPORT
EFFECTIVENESS OF THE INTERNAL CONTROL STRUCTURE
BUSEY BANK
AS OF DECEMBER 31, 1995
Busey Bank is responsible for the preparation, integrity and fair presentation
of its published financial statements as of December 31, 1995, and the year
then ended. The financial statements have been prepared in accordance with
generally accepted accounting principles and, as such, include amounts, some of
which are based on judgments and estimates of management.
Management is responsible for establishing and maintaining an effective
internal control structure over financial reporting. The system contains
monitoring mechanisms, and actions are taken to correct deficiencies
identified.
There are inherent limitations in the effectiveness of any system of internal
control, including the possibility of human error and the circumvention or
overriding of controls. Accordingly, even an effective internal control system
can provide only reasonable assurance with respect to financial statement
preparation. Further, because of changes in conditions, the effectiveness of
an internal control system may vary over time.
Management assessed its internal control structure over financial reporting as
of December 31, 1995. This assessment was based on criteria for effective
internal control over financial reporting described in "Internal Control -
Integrated Framework" issued by the Committee of Sponsoring Organizations of
the Treadway Commission. Based on this assessment, management believes that
Busey Bank maintained an effective internal control structure over financial
reporting as of December 31, 1995.
DOUGLAS C. MILLS
Douglas C. Mills, Chairman of the Board
First Busey Corporation (Holding Company)
P. DAVID KUHL
P. David Kuhl, President
Busey Bank
F-34
66
INDEPENDENT ACCOUNTANT'S REPORT
TO THE BOARD OF DIRECTORS
BUSEY BANK
URBANA, ILLINOIS
We have examined management's assertion that Busey Bank maintained a
system of internal control over financial reporting which is designed to
provide reasonable assurance to the Bank's management and Board of Directors
regarding the preparation of reliable published financial statements as of
December 31, 1995, included in the accompanying management report.
Our examination was made in accordance with standards established by the
American Institute of Certified Public Accountants and, accordingly, included
obtaining an understanding of the internal control structure over financial
reporting, testing and evaluating the design and operating effectiveness of the
internal control structure, and such other procedures as we considered
necessary in the circumstances. We believe that our examination provides a
reasonable basis for your opinion.
Because of inherent limitations in any internal control structure, errors
or irregularities may occur and not be detected. Also, projections of any
evaluation of the internal control structure over financial reporting to future
periods are subject to the risk that the internal control structure may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our opinion, management's assertions that Busey Bank maintained a
system of internal control over financial reporting which is designed to
provide reasonable assurance to the Bank's management and Board of Directors
regarding the preparation of reliable published financial statements as of
December 31, 1995, is fairly stated, in all material respects, based upon
criteria established in "Internal Control - Integrated Framework" issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO).
McGLADREY & PULLEN, LLP
Champaign, Illinois
February 2, 1996
F-35