FIRST BUSEY CORP /NV/ - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-15950

FIRST BUSEY CORPORATION
(Exact name of registrant as specified in its Charter)

Nevada 37-1078406
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)

201 West Main Street
Urbana, Illinois 61801
(Address of principal executive offices) (Zip Code)

(217) 365-4513
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
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. [ ]

As of March 1, 1999, the aggregate market value of the Class A Common Stock
held by non-affiliates was $131,450,918. The market value of the Class A Common
Stock is based on the closing price for such stock as reported on the Nasdaq
National Market 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 March 1, 1999
----- ----------------------------

Class A Common Stock, without par value 13,179,689

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement dated March 25, 1999 for First
Busey Corporation's Annual Meeting of Stockholders to be held April 20, 1999,
(the "1999 Proxy Statement") are incorporated by reference into Part III.

FIRST BUSEY CORPORATION
Form 10-K Annual Report

Table of Contents

PART 1

Item 1 Business 3
Item 2 Properties 11
Item 3 Legal Proceedings 11
Item 4 Submission of Matters to a Vote of Security Holders 11

PART II

Item 5 Market for Registrant's Common Equity and Related Stockholder Matters 11
Item 6 Selected Financial Data 12
Item 7 Management's Discussion and Analysis of Financial Condition and Results of
Operations 13
Item 8 Financial Statements and Supplementary Data 30
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure 30

PART III

Item 10 Directors and Executive Officers of the Registrant 30
Item 11 Executive Compensation 30
Item 12 Security Ownership of Certain Beneficial Owners and Management 30
Item 13 Certain Relationships and Related Transactions 30

PART IV

Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 30

2

PART I

ITEM 1. BUSINESS

INTRODUCTION
First Busey Corporation ("First Busey"), a Nevada corporation, is a bank
holding company located in Urbana, Illinois. As of December 31, 1998, First
Busey had seven wholly owned, directly and indirectly, subsidiaries: one
community bank, a trust company, a securities broker-dealer, an ATM company, an
insurance company, a real estate company, and a travel agency. First Busey is
engaged primarily in commercial, retail and correspondent banking and provides
trust services, insurance services, and travel services. Based on assets of
$951 million as of December 31, 1998, First Busey, with deposits of $827 million
and stockholders' equity of $87 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 provide a full range of financial
services including 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
currently serves in Illinois, Champaign, McLean and Ford County, its banking
center in Indianapolis, Indiana, and its Loan Production Office in Ft. Myers.
First Busey engages in exploratory discussions regarding potential acquisitions
from time to time; however, First Busey does not currently have any commitments
to acquire or merge with any financial institution.

First Busey Corporation's operations are conducted primarily through its
lead bank, Busey Bank (twenty-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, 1998, Busey Bank had total assets of
$938 million, representing 99% of First Busey's assets, and had
total revenues of $75 million, representing 93% 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 continues to be to develop programs tailored to
specific market segments of its customer base with particular emphasis on retail
services. The Busey organization emphasizes establishing strong relationships
with its customers. 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.

3

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:

Collateral Type Coverage Ratio
--------------------- ---------------

Commercial Loans: Real Estate 125%
Accounts Receivable 125%
Inventory & Equipment 200%

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 CPA 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 SUBSIDIARIES
First Busey Trust & Investment Co. began operation on January 1, 1987 as a
successor to the combined trust departments of Busey Bank and Champaign County
Bank & Trust Co., 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
$760 million, and by developing new financial services. During 1998, revenues
from trust activities were $3.5 million. First Busey Resources, Inc., owns and
manages Busey Plaza, a 90,000 square foot building which is the location of the
headquarters of First Busey Trust & Investment Co.

First Busey Corporation formed Busey Business Bank on January 12, 1998.
This is a de novo bank established in Indianapolis, Indiana. Upon the
establishment of this chartered bank, Busey Bank closed its Loan Production
Office in Indianapolis. In October of 1998, Busey Business Bank was merged into
Busey Bank and continued to operate as a full-service banking center.

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 are available to Busey Bank.

4

In October of 1997, Busey Bank established an insurance subsidiary, Busey
Insurance Services, Inc., to further enhance the services available to its
customers. This subsidiary serves primarily the McLean County market. During
1997, Busey Bank established a subsidiary, BAT, Inc, which owns and operates
automated teller machines. In January of 1998, Busey Bank acquired Busey Carter
Travel, a travel agency serving primarily Champaign County. This acquisition
was also completed to enhance the services available to the customers of Busey
Bank. In January 1999, this subsidiary changed its name to Busey Travel, Inc.

COMPETITION
First Busey faces intense competition in all phases of its banking business
from other banks and financial institutions. First Busey's subsidiary bank
competes 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, McLean County, Illinois, and Hamilton County, Indiana.
Principal competitive factors with respect to deposits include interest rates
paid on deposits, customer service, convenience and location.

First Busey's subsidiary bank competes for loans with other banks
headquartered in Illinois and Indiana, 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 bank
competes for loans primarily by designing their products for and directing their
marketing efforts to businesses in the markets they serve which are locally
owned, well-capitalized and well-managed.

Many of the entities that compete with First Busey's subsidiary bank are
substantially larger in size than First Busey and First Busey's subsidiary bank,
and many non-bank financial intermediaries are not subject to the regulatory
restrictions applicable to First Busey's bank subsidiary. First Busey and its
subsidiary bank 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 433 employees (full-time
equivalent) on December 31, 1998. 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 bank 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 bank, such as the Federal Reserve Board ("FRB"),
Federal Deposit Insurance Corporation ("FDIC") and the State of Illinois Office
of Banks and Real Estate, and 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 bank must file periodic and other reports and information with their
regulators and are subject to examination by each of their regulators.

5

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.

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 bank and all such descriptions are qualified in
their entirety by reference to applicable statutes, regulations and other
regulatory pronouncements.

INTERSTATE BANKING AND BRANCHING LEGISLATION
On September 29, 1994, the Riegle-Neal Interstate Banking and Efficiency
Act of 1994 (the "Interstate Banking Act") was enacted. Under the Interstate
Banking Act, adequately capitalized and adequately managed bank holding
companies will be allowed to acquire banks across state lines subject to certain
limitations. In addition, under the Interstate Banking Act, since June 1, 1997,
banks have been permitted, under some circumstances, to merge with one another
across state lines and thereby create a main bank with branches in separate
states. After establishing branches in a state through an interstate merger
transaction, a bank may establish and acquire additional branches at any
location in the state where any bank involved in the interstate merger could
have established or acquired branches under applicable federal and state law.

Under the Interstate Banking Act, states could adopt legislation permitting
interstate mergers before June 1, 1997. Alternatively, states could adopt
legislation before June 1, 1997, subject to certain conditions, opting out of
interstate branching. Illinois adopted legislation, effective September 29,
1995, permitting interstate mergers beginning on June 1, 1997. It is
anticipated that this interstate merger and branching ability will increase
competition and further consolidate the financial institutions industry.

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 bank 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 State of Illinois Office of Banks and Real Estate 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. Busey Insurance Services, Inc. is regulated
by the Illinois Department of Insurance. First Busey Securities, Inc. is
regulated by the National Association of Securities Dealers ("NASD").

6

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 bank.

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 bank, 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 bank or by its subsidiary bank 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, 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.

7

Notwithstanding applicable restrictions on acquisition or 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.

Allowance for Loan Loss
First Busey Corporation's loan loss allowance is categorized into six
groups of loans: real estate mortgages, personal loans, commercial loans,
sensitive assets, dealer paper, and credit card loans. Balances for each group
of loans are multiplied by individual risk factors to determine the minimum
reserve allocation for each category. The risk factors are based on historical
losses, credit quality of the portfolio, and current economic conditions and are
updated quarterly. The total of the calculated minimum reserve allocations is
compared to the reserve balance at the end of each quarter. The reserve balance
is then adjusted to meet the calculated minimum reserve. If the reserve balance
is greater than the calculated minimum reserve, no addition to the loan loss
provision is made during the period.

The Corporation evaluates sensitive assets individually; sensitive assets
are defined as nonaccrual loans, loans past due 90 days and still accruing,
loans on the Bank's watch loan report, and other loans identified as having
more than reasonable potential for loss. The remaining loan categories listed
above are evaluated as groups.

In determining the risk factors used to calculate the minimum reserve
allocation for each loan category, the Corporation considers guidelines issued
by federal and state regulatory agencies, historical loss experience for each
category, and current delinquency reports for each loan class.

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-weighting categories, 0%,
20%, 50% or 100%, and the risk-adjusted values are then 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.

8

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 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, 1998, First Busey's Tier 1 and total risk-based
capital ratios were 12.07% and 13.23%, respectively, and its Tier 1 leverage
ratio was 7.87%.

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 bank and the assessment of First Busey and its
subsidiary bank by various regulatory agencies may differ from conclusions that
might be drawn solely from the level of First Busey or its subsidiary bank's
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 issuance of Statement No. 115 "Accounting for
Certain Investments in Debt and Equity Securities."

9

Regulation of Banks

First Busey's bank subsidiary is a banking corporation organized under
the IBA. As such, it is subject to regulation, supervision and examination by
the State of Illinois Office of Banks and Real Estate. The deposit accounts of
the bank subsidiary are insured up to applicable limits by the FDIC's Bank
Insurance Fund (the "BIF"). Thus, the bank subsidiary is 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 subsidiary must comply with the more stringent
restrictions, prohibitions or requirements.

The business and affairs of the bank subsidiary 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 subsidiary may make,
transactions with affiliates, community and consumer lending laws, internal
policies and controls, reporting by and examination of the bank subsidiary and
changes in control of the bank subsidiary.

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 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 largest banking subsidiary 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 exceeds its 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-weighted asset ratios and the leverage
ratio (as defined by regulatory agencies). At December 31, 1998, Busey Bank
had $28,365,000 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 State of Illinois Office of
Banks and Real Estate.

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
bank cannot be predicted.

10

ITEM 2. PROPERTIES

As of March 1, 1999, First Busey and its subsidiaries conduct
business in twenty-three 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 twelve locations, own the building and lease the land for
two locations and lease eight locations. Two supermarket locations, the
Bloomington facility, the Busey Plaza Building, the Indianapolis location and
the Fort Myers location are the only facilities not fully occupied by First
Busey or its subsidiaries. The Busey Plaza Building, a five-story 90,000 square
foot office 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.

EXECUTIVE OFFICERS OF THE REGISTRANT

Name Office (year first elected as an officer) Age
---- ----------------------------------------- ---

Douglas C. Mills Chairman of the Board, President and Chief Executive 58
Officer of First Busey (1971)

Edwin A. Scharlau II Chairman of the Board of First Busey Trust & Investment 54
Co. and First Busey Securities, Inc. (1967)

P. David Kuhl President and Chief Executive 49
Officer of Busey Bank (1979)

Each executive officer also serves on First Busey's Board of Directors.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Effective October 1, 1998, First Busey Class A common stock began
trading on the Nasdaq national market under the symbol BUSE. Prior to that the
stock was traded and quoted in the National Quotation Bureau's "Pink Sheets"
(1988-1997) and on the OTC Bulletin Board (1997-1998). Although a limited
trading market for shares of First Busey Class A Common Stock has developed
recently, there can be no assurance that it will continue.

11

The following table presents for the periods indicated the high and low
closing price for First Busey Class A Common Stock as provided by the
Corporation's market maker Stephens, Inc. and reported on the OTC Bulletin
Board or the Nasdaq National Market, as the case may be.

1998 1997
---------------- ----------------
Market Prices of Common Stock High Low High Low
- ----------------------------- ------- ------- ------- -------

First Quarter $15.750 $13.750 $11.875 $11.125
Second Quarter $16.750 $15.750 $12.125 $11.875
Third Quarter $20.500 $16.688 $12.875 $12.125
Fourth Quarter $19.250 $18.000 $13.875 $12.875

During 1998 and 1997, First Busey, declared cash dividends per share as follows:

CLASS A CLASS B
1998 COMMON STOCK COMMON STOCK
---- ------------ ------------

January $.0900 $.0000
April $.1000 $.0000
July $.1000 $.0000
October $.1000 $.0000

1997
-------
January $.0850 $.0773
April $.0850 $.0773
July $.0900 $.0818
October $.0900 $.0818

All issued and outstanding shares of Class B Common Stock were converted to
Class A Common Stock on December 31, 1997.

A two-for-one stock split on Class A Common Stock occurred on August 3,
1998. A three-for-two stock split on both Class A and Class B Common Stock
occurred on May 7, 1996.

For a discussion of restrictions on dividends, please see the discussion of
dividend restrictions under Item 1, Business, Dividends on page 10.

As of March 1, 1999 there were approximately 1,020 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, 1998, 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, 1998 and December 31, 1997, and the results of operations for
each of the three years in the period ended December 31, 1998, appears elsewhere
in this report. This financial data should be read in conjunction with the
financial statements and the related notes thereto appearing in this report.

12

1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(dollars in thousands, except per share data)

BALANCE SHEET ITEMS
- -------------------
Securities $217,991 $215,514 $226,350 $284,517 $210,525
Loans, net of unearned interest 662,281 602,937 569,500 481,772 451,051
Allowance for loan losses 7,101 6,860 6,131 5,473 5,235
Total assets 951,531 915,540 864,918 844,666 728,459
Total deposits 826,704 811,453 766,927 744,897 635,694
Long-term debt 25,000 10,000 5,000 5,000 5,000
Stockholders' equity 87,103 81,279 73,417 67,778 59,016

RESULTS OF OPERATIONS
- ---------------------
Interest income $ 67,048 $ 63,831 $ 61,197 $ 54,494 $ 47,126
Interest expense 32,975 31,119 30,033 26,515 20,212
-------- -------- -------- -------- --------
Net interest income 34,073 32,712 31,164 27,979 26,914
Provision for loan losses 700 1,075 1,100 395 240
Net income 11,398 $ 10,371 $ 9,306 $ 8,775 $ 8,238

1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(dollars in thousands, except per share data)

PER SHARE DATA(1)
- ---------------
Diluted earnings $ .81 $ .74 $ .67 $ .63 $ .59
Cash dividends (Class A) .39 .35 .33 .29 .27
Book value 6.36 5.92 5.36 4.97 4.32
Closing price 18.25 13.75 11.13 9.00 8.08

OTHER INFORMATION
- -----------------
Return on average assets 1.22% 1.18% 1.08% 1.15% 1.14%
Return on average equity 13.51% 13.42% 13.40% 13.86% 14.16%
Net interest margin(2) 4.10% 4.20% 4.13% 4.20% 4.30%
Stockholders' equity to assets 9.15% 8.88% 8.49% 8.02% 8.10%

(1) Per share amounts have been restated to give retroactive effect to the two-for-one stock split
which occurred August 3, 1998, and the three-for-two stock split which occurred May 7, 1996.
(2) Calculated as a percent of average earning assets.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following is management's discussion and analysis of the financial
condition and results of operations of First Busey Corporation and Subsidiaries
(the "Corporation") for the years ended December 31, 1998, 1997 and 1996. 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 two-for-one
stock split which occurred August 3, 1998, and the three-for-two stock split
which occurred May 7, 1996.

13

GENERAL

The Corporation's consolidated income is generated primarily by the
financial services activities of its subsidiaries. Since January 1, 1982, the
Corporation has acquired eleven banks and sold two; acquired six savings and
loan branches and two bank branches; acquired a bank branch in an FDIC assisted
acquisition of a failed bank; formed a trust company subsidiary; formed an
insurance agency subsidiary; formed a non-bank ATM subsidiary and acquired a
travel agency. 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,
1995, less purchase accounting adjustments (net income for Busey Bank in
following table excludes income from Bank subsidiaries and includes deduction of
$854,000 for amortization expense recorded on parent company statements).

Subsidiary Acquired 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------
(dollars in thousands)

Busey Bank(1) 3/20/80 $10,630 86.5% $ 9,645 88.3% $8,980 91.8%
First Busey Trust & Investment Co.(2) -- 1,175 9.6% 987 9.0% 651 6.7%
First Busey Securities, Inc(3) -- 301 2.4% 234 2.1% 148 1.5%
First Busey Resources, Inc.(4) -- 205 1.7% 102 0.9% -- --
Busey Insurance Services, Inc.(5) -- (14) -0.1% (26) -0.2% -- --
BAT, Inc.(6) -- (3) -0.0% (12) -0.1% -- --
Busey Travel, Inc.(7) 1/1/98 (10) -0.1% -- -- -- --
------- -------- ------ -------- ------ ------ ------
Total $12,284 100.0% $10,930 100.0% $9,779 100.0%
======== ====== ======== ====== ====== ======

(1) City Bank of Champaign and Champaign County Bank & Trust were merged into Busey Bank as of
January 1, 1987. First National Bank of Thomasboro was merged into Busey Bank as of January 1,
1988. State Bank of St. Joseph was merged into Busey Bank as of November 3, 1989. The Bank of
Urbana, Citizens Bank of Tolono, and the assets of Community Bank of Mahomet subject to its
liabilities were merged into Busey Bank as of November 16, 1991. Busey Bank of McLean County was
merged into Busey Bank as of January 1, 1996. Busey Business Bank was formed on January 12,
1998, and merged into Busey Bank as of October 30, 1998.
(2) 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.
(4) Reactivated as a subsidiary of First Busey Corporation as of January 1, 1997. Real estate and
certain other assets previously carried on the parent company's balance sheet were transferred
to subsidiary as of that date.
(5) Formed as a subsidiary of Busey Bank as of October 1, 1997.
(6) Reactivated as a subsidiary of Busey Bank as of July 1, 1997.
(7) Acquired as a subsidiary of Busey Bank as of January 1, 1998.

Busey Bank and First Busey Trust & Investment Co. are the two subsidiaries
which contributed more than 10% of the Corporation's consolidated net income.
Busey Bank provides a full range of banking services to individual and corporate
customers through its branch network in central Illinois, through its branch in
Indianapolis, Indiana, and through its loan production office in Fort Myers,
Florida. First Busey Trust & Investment provides trust and asset management
services to individual and corporate customers throughout central Illinois.

14

RESULTS OF OPERATIONS-THREE YEARS ENDED DECEMBER 31, 1998

Summary
The Corporation reported net income of $11,398,000 in 1998, up 9.9% from
$10,371,000 in 1997, which had increased 11.4% from $9,306,000 in 1996. Diluted
earnings per share in 1998 increased 9.5% to $.81 from $.74 in 1997, which was a
10.4% increase from $.67 in 1996. The main factors contributing to the increase
in net income in 1998 were increases in net interest income, trust fees, other
service charges and fees, security gains, and gains on the sales of loans.
Contributing to the 1997 increase in net income were increases in net interest
income, trust fees, commissions and brokers fees, and other service charges and
fees. Operating earnings, which exclude security gains and the gain on sales of
loans and the related tax expense, were $9,948,000 or $.71 per share for 1998;
$9,748,000, or $.70 per share for 1997; and $8,965,000, or $.65 per share for
1996.

Security gains after the related tax expense were $808,000 or 7.1% of net
income in 1998; $338,000 or 3.3% of net income in 1997; and $166,000 or 1.8% of
net income in 1996. First Busey Corporation owns a position in a qualified
equity security with substantial appreciated value. During 1998 First Busey's
Board authorized an orderly liquidation of this asset over a five-year period.

The Corporation's return on average assets was 1.22%, 1.18% and 1.08% for
1998, 1997, and 1996, respectively, and return on average equity was 13.51%,
13.42%, and 13.40% for 1998, 1997, and 1996, respectively. On an operating
earnings basis, return on average assets was 1.13%, 1.14%, and 1.06% for 1998,
1997, and 1996, respectively, and return on average equity was 12.55%, 12.98%
and 13.16% for 1998, 1997, and 1996, respectively.

Net Interest Income
Net interest income on a tax equivalent basis for 1998 increased 3.5% to
$35,262,000 from $34,075,000 for 1997, which reflected a 4.6% increase from
$32,574,000 in 1996. Net interest income increased in 1998 due to continued
growth in average loan balances outstanding. Net interest income increased in
1997 as investment security maturities and sales were reinvested in higher
yielding loans. Net interest income increased in 1996 because of a large
increase in average loans outstanding.

Average interest-earning assets increased to $860,350,000 in 1998 from
$811,010,000 and $788,158,000 in 1997 and 1996, respectively. The growth in
interest-earning assets during 1998 was funded by growth in core deposits and
debt. Internally generated growth accounted for the increase in average
interest-earning assets in 1997.

The net interest margin was 4.10% in 1998, 4.20% in 1997, and 4.13% in
1996. Interest rate trends had a significant impact on the Corporation's yields
and costs during the period from 1996 through 1998. The decrease in the net
interest margin for 1998 was due to the 11 basis point decline in the average
rate earned on interest-earning assets coupled with the 5 basis point increase
in the average rate paid on interest-bearing liabilities. The decline in the
average rate earned on interest-earning assets was partially offset by the
$49,340,000 increase in total interest-earning assets.

In 1997, the average yield on interest earning assets increased 10 basis
points while the average cost of interest-bearing liabilities also increased
by 10 basis points. This resulted in the net interest margin increasing to
4.20% for 1997 from 4.13% in 1996. [See "Selected 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, regulatory
guidelines, and historical loan loss experience. When a determination is made
by management to charge off a loan balance, such write-off is charged against
the allowance for loan losses.

15

The provision for loan losses decreased to $700,000 in 1998 from $1,075,000
in 1997 and $1,100,000 in 1996. The decrease in the 1998 provision is due to a
substantial improvement in sensitive assets which decreased significantly to
$6,453,000 in 1998 from $13,100,000 in 1997. Sensitive assets include
nonaccrual loans, loans 90 days past and still accruing, loans on First Busey
Corporation's watch loan report, and other loans identified as having more than
reasonable potential for loss. The watch loan list is comprised of loans which
have been restructured or involve customers in industries which have been
adversely affected by market conditions. The majority of these loans are being
repaid in conformance with their contracts. The provision for 1997 was large
relative to net charge-offs to restore the ratio of the allowance for loan
losses to non-performing loans. Net charge-offs increased to $459,000 in 1998
from $346,000 in 1997 which had decreased from $442,000 in 1996.

Changes in the portfolio mix account for the majority of the changes in the
calculation of the loan loss provision. Risk factors for all loan categories
remained the same as those used in prior periods with the exception of the
dealer paper portfolio. The risk factor on dealer paper was reduced due to
improvement in the historical loss experience. Changes in the risk factors
during 1998 and 1997 have ranged from .50% to 4.00%. The most notable change
occurred in Dealer Paper. During 1998, the Dealer Paper risk factor changed
from 4.00% to 1.00%. More conservative underwriting procedures for Dealer Loans
has resulted in substantially less loss. No other risk factors for any other
loan category were changed during 1998 and 1997.

Other Income
Other income increased 30.4% in 1998 to $13,530,000 from $10,379,000 in
1997, which reflected an 18.4% increase from $8,769,000 in 1996. The increase
in 1998 is due primarily to increases in trust fee income, other service charges
and fees, security gains, gains on the sales of loans, and the addition of net
commissions from travel services. As a percentage of total income, other income
was 16.8%, 14.0%, and 12.5% in 1998, 1997, and 1996, respectively. Gains on the
sale of securities, as a component of other income, totaled $1,243,000 (9.2%) in
1998, $520,000 (5.0%) in 1997, and $256,000 (2.9%) in 1996. Other income
also includes gains on sales of loans, as a component of other income, of
$988,000 (7.3%), $439,000 (4.2%), and $268,000 (3.1%) in 1998, 1997, and 1996,
respectively.

Additional components of other income were fee income and trust fees.
Service charges and other fee income increased 14.1% to $6,034,000 in 1998 from
$5,290,000 in 1997 which was a 12.6% increase from $4,698,000 in 1996. The
growth in fee income in 1998 is due to increases in fees for customer services.
The growth in fee income in 1997 and 1996 was due to increases in service
charges on deposit accounts. Trust fees increased 9.2% in 1998; revenues were
$3,445,000 in 1998, $3,156,000 in 1997, and $2,651,000 in 1996. Increases in
trust department revenues in each year were primarily due to increases in assets
under care to $783,226,000 at December 31, 1998, from $660,846,000 at December
31, 1997, which is an increase from $518,367,000 from December 31, 1996.
Remaining other income increased to $1,820,000 in 1998 from $972,000 in 1997
which was a 2.4% decrease from $996,000 in 1996. The increase in 1998 is
related to the addition of $862,000 in net commissions from travel services.

Other Expenses
Other expenses increased 11.5% in 1998 to $30,400,000 from $27,266,000 in
1997, which reflected an increase from $25,786,000 in 1996. As a percentage of
total income, other expenses were 37.7%, 36.7%, and 36.9% in 1998, 1997, and
1996, respectively. Employee related expenses, including salaries and wages and
employee benefits, increased 10.1% in 1998 to $16,095,000, as compared to
$14,615,000 in 1997, which was a 5.4% increase from $13,868,000 in 1996. As a
percent of average assets, employee related expenses were 1.73%, 1.66%, and
1.61%, in 1998, 1997, and 1996, respectively. The Corporation had 433, 393,
and 383 full-time equivalent employees at December 31, 1998, 1997, and 1996,
respectively. Net occupancy expense of bank premises and furniture and
equipment expenses increased 19.8% in 1998 to $4,867,000 as compared to
$4,063,000 in 1997 and $3,587,000 in 1996. The increases were primarily due to
expenses associated with remodeling of existing facilities.

16

Remaining other expenses increased 9.9% to $9,438,000 in 1998 from
$8,588,000 in 1997, which was a 3.1% increase from $8,331,000 in 1996. The
increase in 1998 was due primarily to increased costs associated with Busey
Bank's card services and electronic banking product delivery, increased data
processing costs, and the addition of costs associated with more recently
acquired and formed subsidiaries. The increase in 1997 was due to increased
data processing expense which was partially offset by reduced FDIC insurance
expense.

Income Taxes
Income tax expense in 1998 was $5,105,000 as compared to $4,379,000 in 1997
and $3,741,000 in 1996. The provision for income taxes as a percent of income
before income taxes was 30.9%, 29.7%, and 28.7%, for 1998, 1997, and 1996,
respectively.

STATEMENTS OF CONDITION-DECEMBER 31, 1998 AND DECEMBER 31, 1997

Total assets on December 31, 1998 were $951,531,000, an increase of 3.9%
from $915,540,000 on December 31, 1997. Total loans, net of unearned interest,
increased 9.8% to $662,281,000 on December 31, 1998, as compared to $602,937,000
on December 31, 1997. Deposits increased 1.9% to $826,704,000 on December 31,
1998 as compared to $811,453,000 on December 31, 1997. Interest-bearing
deposits increased $10,786,000 or 1.5% during 1998. Non-interest bearing
deposits increased $4,465,000 or 4.8% during 1998. Total stockholders' equity
increased 7.2% to $87,103,000 on December 31, 1998, as compared to $81,279,000
on December 31, 1997.

Earning Assets
The average interest-earning assets of the Corporation were 92.4%, 92.1%,
and 91.7%, of average total assets for the years ended December 31, 1998, 1997,
and 1996.

Investment Securities
The Corporation has classified all investment securities as securities
available for sale. These securities are held with the option of their disposal
in the foreseeable future to meet investment objectives or for other operational
needs. Securities available for sale are carried at fair value. As of December
31, 1998, the fair value of these securities was $217,991,000 and the amortized
cost was $207,531,000. There were $10,671,000 of gross unrealized gains and
$211,000 of gross unrealized losses for a net unrealized gain of $10,460,000.
The after-tax effect ($6,799,000) of this unrealized gain has been included in
stockholders' equity. The increase in market value for the debt securities in
this classification was a result of falling interest rates. The fair value
increase in the equity securities was primarily due to a $1,287,000 increase in
the value of 156,000 shares of Student Loan Marketing Association (SLMA) common
stock owned by the Corporation.

The composition of securities available for sale is as follows:

Years ended December 31,
----------------------------------------------------
1998 1997 1996 1995 1994
----------------------------------------------------
(dollars in thousands)

U.S. Treasuries and Agencies 159,261 $161,762 $159,044 $213,862 $137,724
Equity securities 12,550 11,994 9,065 7,589 5,156
States and political subdivisions 37,398 32,351 1,253 202 -
Other 8,782 9,407 1,881 1,363 1,138
----------------------------------------------------
Fair value of securities available for sale 217,991 $215,514 $171,243 $223,016 $144,018
====================================================
Amortized cost 207,531 $206,589 $166,189 $218,257 $145,293
====================================================
Fair value as a percentage of amortized cost 105.04% 104.32% 103.04% 102.18% 99.12%
====================================================

17

The maturities, fair values and weighted average yields of securities
available for sale as of December 31, 1998 are:

Due in 1 year or less Due after 1 year Due after 5 years Due after
through 5 years through 10 years 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 $106,718 5.79% $52,501 5.71% $ 42 10.47% - -
States and political subdivisions(2) 2,888 8.70% 15,353 8.47% 15,313 7.23% 3,844 6.39%
Other 2,787 6.44% 2,329 6.68% 2,070 6.29% - -
---------------------------------------------------------------------------------
Total $112,393 5.88% $70,183 6.35% $17,425 7.13% $3,844 6.39%
=================================================================================

(1) Excludes equity securities and mortgage backed securities.
(2) On a tax-equivalent basis, assuming a federal income tax rate of 35% (the effective federal
income tax rate as of December 31, 1998)

The securities held to maturity portfolio consisted of debt securities
which provided 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. All remaining securities were
transferred to the available for sale portfolio as of December 31, 1997.

The composition of securities held to maturity was as follows:

Years ended December 31,
------------------------------------------------
1998 1997 1996 1995 1994
------------------------------------------------
(dollars in thousands)

U.S. Treasuries and Agencies - - $ 8,635 $13,198 $17,031
States and political subdivisions - - 36,607 37,043 32,957
Other - - 9,865 11,260 16,519
------------------------------------------------
Amortized cost of securities held to maturity - - $55,107 $61,501 $66,507
================================================
Fair value of securities held to maturity - - $55,800 $62,625 $65,386
================================================
Fair value as a percentage of book value - - 101.26% 101.83% 98.31%
================================================

The Corporation also uses its investment portfolio to manage its tax
position. Depending upon projected levels of taxable income for the
Corporation, periodic changes are made in the mix of tax-exempt and taxable
securities to achieve maximum yields on a tax-equivalent basis. U.S. government
and agency securities as a percentage of total securities decreased to 73.1% at
December 31, 1998 from 75.1% at December 31, 1997 while obligations of state and
political subdivisions (tax-exempt obligations) as a percentage of total
securities decreased to 17.2% at December 31, 1998, from 15.0% at December 31,
1997.

18

Loan Portfolio
Loans, before allowance for loan losses, increased 9.8% to $662,281,000 in
1998 from $602,937,000 in 1997. Non-farm non-residential real estate mortgage
loans increased $29,295,000, or 21.0%, to $168,948,000 in 1998 from
$139,653,000 in 1997. This increase reflects management's emphasis on
commercial loans secured by mortgages. Also, 1 to 4 family residential real
estate mortgage loans (not held for sale) increased $14,674,000, or 6.7%, to
$235,333,000 in 1998 from $220,659,000 in 1997. It is intended that
residential mortgage loan origination will 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 $134,360,000 as of
December 31, 1998.

The composition of loans is as follows:

Years ended December 31,
---------------------------------------------------
1998 1997 1996 1995 1994
---------------------------------------------------
(dollars in thousands)

Commercial and financial $ 80,958 $ 63,861 $ 62,065 $ 55,687 $ 57,878
Agricultural 19,072 17,403 16,537 12,594 12,750
Real estate-farmland 14,184 11,782 11,468 11,162 11,769
Real estate-construction 44,713 31,306 26,184 25,566 21,759
Real estate-mortgage 467,435 439,660 413,541 334,417 303,046
Installment loans to individuals 35,919 38,925 39,707 42,353 43,854
---------------------------------------------------
$662,281 $602,937 $569,502 $481,779 $451,056
Unearned interest - - (2) (7) (5)
---------------------------------------------------
Loans $662,281 $602,937 $569,500 $481,772 $451,051
===================================================

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, 1998.

1 Year or Less 1 to 5 Years Over 5 Years Total
---------------------------------------------------------------
(dollars in thousands)

Commercial, financial and agricultural $61,062 $26,295 $12,673 $100,030
Real estate-construction 22,702 15,028 6,983 44,713
---------------------------------------------------------------
Total $83,764 $41,323 $19,656 $144,743
---------------------------------------------------------------
Interest rate sensitivity of selected loans
Fixed rate $22,250 $18,310 $ 4,152 $ 44,712
Adjustable rate 61,514 23,013 15,504 100,031
---------------------------------------------------------------
Total $83,764 $41,323 $19,656 $144,743
---------------------------------------------------------------

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

19

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
-----------------------------------------------------
1998 1997 1996 1995 1994
-----------------------------------------------------
(dollars in thousands)

Average loans outstanding during period $621,475 $584,327 $525,311 $453,915 $421,337
=====================================================
Allowance for loan losses:
Balance at beginning of period $ 6,860 $ 6,131 $ 5,473 $ 5,235 $ 5,205
-----------------------------------------------------

Loans charged-off:
Commercial, financial and agricultural $ 62 $ 192 $ 227 $ 339 $ 99
Real estate-construction - - 19 - -
Real estate-mortgage 282 50 32 55 153
Installment loans to individuals 260 317 404 286 253
-----------------------------------------------------
Total charge-offs $ 604 $ 559 $ 682 $ 680 $ 505
-----------------------------------------------------
Recoveries:
Commercial, financial and agricultural $ 12 $ 13 $ 43 $ 414 $ 62
Real estate-construction - - 50 - -
Real estate-mortgage 49 110 - 3 128
Installment loans to individuals 84 90 147 106 105
-----------------------------------------------------
Total recoveries $ 145 $ 213 $ 240 $ 523 $ 295
-----------------------------------------------------
Net loans charged-off $ 459 $ 346 $ 442 $ 157 $ 210
-----------------------------------------------------
Provision for loan losses $ 700 $ 1,075 $ 1,100 $ 395 $ 240
-----------------------------------------------------
Balance at end of period $ 7,101 $ 6,860 $ 6,131 $ 5,473 $ 5,235
=====================================================
Ratios:
Net charge-offs to average loans 0.07% 0.06% 0.08% 0.03% 0.05%
=====================================================
Allowance for loan losses to total loans
at period end 1.07% 1.14% 1.08% 1.14% 1.16%
=====================================================

20

The following table sets forth the allowance for loan losses by loan
categories as of December 31 for each of the years indicated:

-----------------------------------------------------------------------------
1998 1997 1996 1995 1994
-----------------------------------------------------------------------------
% 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, agri-
cultural and real estate-farmland $1,757 17.2% $1,059 15.4% $ 766 15.8% $ 785 16.5% $1,122 18.3%
Real estate-construction - 6.8% - 5.2% - 4.6% - 5.3% - 4.8%
Real estate-mortgage 4,380 70.6% 4,456 72.9% 3,505 72.6% 3,476 69.4% 3,013 67.2%
Installment loans to individuals 964 5.4% 1,045 6.5% 1,189 7.0% 1,097 8.8% 943 9.7%
Unallocated - N/A 300 N/A 671 N/A 115 N/A 157 N/A
-----------------------------------------------------------------------------
Total $7,101 100% $6,860 100% $6,131 100% $5,473 100% $5,235 100%
=============================================================================

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,
-------------------------------------------
1998 1997 1996 1995 1994
-------------------------------------------
(dollars in thousands)

Non-accrual loans $ 526 $ 628 $ - $ 532 $ 636
Loans 90 days past due and still accruing 1,052 1,033 1,002 897 1,336
Restructured loans - - - - -
-------------------------------------------
Total non-performing loans $1,578 $1,661 $1,002 $1,429 $1,972
-------------------------------------------
Repossessed assets $ 320 $ 516 $ 805 $1,380 $1,645
Other assets acquired in satisfaction of debts
previously contracted 14 5 1 1 1
-------------------------------------------
Total non-performing other assets $ 334 $ 521 $ 806 $1,381 $1,646
-------------------------------------------
Total non-performing loans and non-
performing other assets $1,912 $2,182 $1,808 $2,810 $3,618
===========================================
Non-performing loans to loans, before
Allowance for loan losses 0.24% 0.28% 0.18% 0.30% 0.44%
===========================================
Non-performing loans and non-performing
other assets to loans, before allowance for
loan losses 0.29% 0.36% 0.32% 0.58% 0.80%
===========================================

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, 1998, $4,000 of interest was recognized from
impaired loans, and $8,000 was recognized for the year ended December 31, 1997.

21

The gross interest income that would have been recorded in the years ended
December 31, 1998 and 1997 if the non-accrual and restructured loans had been
current in accordance with their original terms was $31,000 and $47,000,
respectively. The amount of interest collected on those loans that was included
in interest income was $9,000 for the year ended December 31, 1998, and $8,000
for the year ended December 31, 1997.

Potential Problem Loans
Potential problem loans are those loans which are not categorized as
impaired, non-accrual, past due or restructured, but where current
information indicates that the borrower may not be able to comply with
present loan repayment terms. Management assesses the potential for loss on
such loans as it would with other problem loans and has considered the effect of
any potential loss in determining its provision for possible loan losses.
Potential problem loans totaled $442,000 at December 31, 1998. 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 89.9% for the year ended
December 31, 1998 from 90.6% for the year ended December 31, 1997.

December 31,
----------------------------------------------------------------------------------------
1998 1997 1996
----------------------------------------------------------------------------------------
(dollars in thousands)

Average % Total Average Average % Total Average Average % Total Average
Balance Rate Balance Rate Balance Rate
----------------------------------------------------------------------------------------
Non-interest bearing
demand deposits $ 80,986 10.1% -% $ 73,345 9.4% -% $ 69,562 9.1% -%
Interest bearing demand
deposits 19,271 2.4% 1.96% 110,940 14.2% 1.97% 130,365 17.1% 1.62%
Savings/Money Market 351,695 43.9% 3.14% 234,865 30.1% 3.32% 216,498 28.4% 3.57%
Time deposits 349,956 43.6% 5.49% 360,968 46.3% 5.54% 345,726 45.4% 5.46%
----------------------------------------------------------------------------------------
Total $801,908 100.0% 4.25% $780,118 100.0% 4.24% $762,151 100.0% 4.15%
========================================================================================

Certificates of deposit of $100,000 and over and other time deposits of $100,000
and over at December 31, 1998, had the following maturities (dollars in
thousands):

Under 3 months $26,565
3 to 6 months 12,828
6 to 12 months 13,785
Over 12 months 12,925
-------
Total $66,103
=======

22

Short-term Borrowings
The following table sets forth the distribution of short-term borrowings
and weighted average interest rates thereon at the end of each of the last three
years. Federal funds purchased and securities sold under agreements to
repurchase generally represent overnight borrowing transactions. Other
short-term borrowings consist of various demand notes and notes with maturities
of less than one year.

Federal funds purchased and
securities sold under agreements Other short-term
to repurchase borrowings
-----------------------------------------------------
(dollars in thousands)

1998
Balance, December 31, 1998 - $ 5,900
Weighted average interest rate at end of period - 7.25%
Maximum outstanding at any month end $ 7,900 $16,550
Average daily balance $ 1,686 $13,694
Weighted average interest rate during period(1) 5.29% 7.37%

1997
Balance, December 31, 1997 - $ 6,550
Weighted average interest rate at end of period - 7.35%
Maximum outstanding at any month end $13,550 $ 8,000
Average daily balance $ 1,678 $ 6,542
Weighted average interest rate during period(1) 6.14% 7.21%

1996
Balance, December 31, 1996 $ 6,405 $ 8,000
Weighted average interest rate at end of period 7.19% 7.39%
Maximum outstanding at any month end $20,072 $ 9,250
Average daily balance $ 8,804 $ 8,092
Weighted average interest rate during period(1) 5.34% 7.10%

(1)The weighted average interest rate is computed by dividing total interest for
the year by the average daily balance outstanding.

Market Risk
Market risk is the risk of change in asset values due to movements in
underlying market rates and prices. Interest rate risk is the risk to earnings
and capital arising from movements in interest rates. Interest rate risk is the
most significant market risk affecting the Corporation as other types of market
risk, such as foreign currency exchange rate risk and commodity price risk, do
not arise in the normal course of the Corporation's business activities.

The Corporation's banking subsidiary, Busey Bank, has an asset-liability
committee which meets monthly to review current market conditions and attempts
to structure the bank's balance sheet to ensure stable net interest income
despite potential changes in interest rates with all other variables constant.

The asset-liability committee uses gap analysis to identify mismatches in
the dollar value of assets and liabilities subject to repricing within specific
time periods. The Funds Management Policy established by the asset liability
committee and approved by the Corporation's board of directors establishes
guidelines for maintaining the ratio of cumulative rate-sensitive assets to
rate-sensitive liabilities within prescribed ranges at certain intervals. A
summary of the Corporation's gap analysis is summarized on page 25.

The committee does not rely solely on gap analysis to manage interest-rate
risk as interest rate changes do not impact all categories of assets and
liabilities equally or simultaneously. The asset-liability committee
supplements gap analysis with balance sheet and income simulation analysis to
determine the potential impact on net interest income of changes in market
interest rates. In these simulation models the balance sheet is projected out
over a one-year period and net interest income is calculated under current
market rates, and then assuming permanent instantaneous shifts in the yield

23

curve of +/- 100 basis point and +/- 200 basis points. These interest-rate
scenarios indicate the interest rate risk of the Corporation over a one-year
time horizon due to changes in interest rates, as of December 31, 1998, is as
follows:

Basis Point Changes
------------------------------------------
-200 -100 +100 +200
------------------------------------------

Percentage change in net interest income due to an
immediate change in interest over a one-year period (1.17%) (0.24%) 0.79% 1.33%

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.
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

Years Ended December 31,
--------------------------------
Average Balances 1998 1997 1996
--------------------------------
(dollars in thousands)

Federal funds sold $16,463 $8,899 $8,159
================================
Percentage of average total assets 1.77% 1.01% 0.95%
================================

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.

24

The following table sets forth the static rate-sensitivity analysis of the
Corporation as of December 31, 1998:

Rate Sensitive Within
--------------------------------------------------------------------------
1-30 Days 31-90 Days 91-180 Days 181 Days-1 Yr Over 1 Yr Total
--------------------------------------------------------------------------
(dollars in thousands)

Federal funds sold - - - - - -
Investment securities
U.S. Treasuries and Agencies $ 21,480 $ 31,061 $ 27,059 $ 26,203 $ 53,458 $159,261
States and political subdivisions 20 287 518 2,324 34,249 37,398
Other securities 3,664 1,123 320 1,399 14,826 21,332
Loans (net of unearned interest) 199,163 50,057 77,099 105,720 230,242 662,281
--------------------------------------------------------------------------
Total rate-sensitive assets $ 224,327 $ 82,528 $ 104,996 $135,646 $332,775 $880,272
--------------------------------------------------------------------------
Interest bearing transaction deposits $ 71,467 - - - - $ 71,467
Savings deposits 83,572 - - - - 83,572
Money market deposits 238,473 - - - - 238,473
Time deposits 49,510 57,516 63,086 74,452 92,073 336,637
Short-term borrowings 5,900 - - - - 5,900
Long-term debt - - - - 25,000 25,000
--------------------------------------------------------------------------
Total rate-sensitive liabilities $ 448,922 $ 57,516 $ 63,086 $ 74,452 $117,073 $761,049
--------------------------------------------------------------------------
Rate-sensitive assets less rate-sensitive
liabilities $(224,595) $ 25,012 $ 41,910 $ 61,194 $215,702 $119,223
--------------------------------------------------------------------------
Cumulative Gap $(224,595) $(199,583) $(157,673) $(96,479) $119,223
=================================================================
Cumulative amounts as a percentage
of total rate-sensitive assets -25.51% -22.67% -17.91% -10.96% 13.54%
=================================================================
Cumulative Ratio 0.50X 0.61X 0.72X 0.85X 1.16X
=================================================================

The foregoing table shows a negative (liability sensitive) cumulative
unadjusted gap of approximately $225 million in the 1-30 day repricing category.
The gap from 31 to 90 days is nearly matched, and beyond 90 days becomes less
liability sensitive as rate-sensitive assets that reprice beyond 91 days
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, 1998 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
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, 1998, the Corporation earned $11,398,000 and paid dividends
of $5,381,000 to stockholders, resulting in a retention of current earnings of
$6,017,000.

The Federal Reserve Board uses capital adequacy guidelines in its
examination and regulation of bank holding companies and their subsidiary banks.
Risk-based capital ratios are established by allocating assets and certain
off-balance sheet commitments into four risk-weighted categories. These
balances are then multiplied by the factor appropriate for that risk-weighted
category. The guidelines require bank holding companies and their subsidiary
banks to maintain a total capital to total risk-weighted asset ratio of not less
than 8.00%, of which at least one half must be Tier 1 capital, and a Tier 1
leverage ratio of not less than 4.00%. As of December 31, 1998, the Corporation
had a total capital to total risk-weighted asset ratio of 13.23%, a Tier 1
capital to risk-weighted asset ratio of 12.07% and a Tier 1 leverage ratio of
7.87%; the Corporation's bank subsidiary, Busey Bank, had ratios of 12.74%,
11.55%, and 7.48%, respectively. As these ratios show, the Corporation and its
bank subsidiary significantly exceed the regulatory capital guidelines.

25

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
Statement of Financial Accounting Standard No. 133, "Accounting for
Derivative Instruments and Hedging Activities" was issued in June 1998 by the
Financial Accounting Standards Board. The Statement is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. Because the
Corporation does not use derivatives, management does not believe the adoption
of the Statement will have a material impact on the consolidated financial
statements.

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."

Year 2000 Compliance
The "Year 2000" is an issue due to the fact that computer programmers and
other designers of microprocessor controlled systems have used only the last two
digits to refer to a year. As the calendar moves from December 31, 1999 to
January 1, 2000, systems may be unable to distinguish between the year 1900 and
2000. This could result in inaccurate processing of information that is date
related which could cause a variety of problems for businesses.

First Busey Corporation has appointed a Year 2000 project team, headed by a
full-time project coordinator to manage the project. The team members come from
all areas of the organization and have experience with the processes and systems
in use by the Corporation.

The Corporation's software and hardware systems provide essential support
to all of its businesses. Failure to properly address Year 2000 issues could
result in an adverse effect on the daily operations and financial performance
of the Corporation. Additionally, those on whom the Corporation relies or does
business with could also adversely affect the organization if they are not
properly prepared. Given the number of possible scenarios, it is virtually
impossible to determine the potential cost of problems should the Corporation's
remediation efforts or the efforts of those with whom it does business not be
successful. In addition should the Corporation fail to make satisfactory
progress toward Year 2000 preparedness or not fully comply with government
agency mandated steps, there could be steps taken by state or federal regulators
that would adversely affect the Corporation's business.

The project team has employed a five-step plan to effectively deal with all
aspects of the Year 2000 issue. The first step is awareness, during which phase
the project was defined. This was followed closely by the assessment phase,
during which all software, hardware, equipment, physical plant issues, and forms
were inventoried and priority was assigned as to the importance in overall
operations. Items included in the physical plant inventory include HVAC
systems, security systems, vaults, and elevators among others.

26

The third step of the project plan is renovation. This step involves
making changes to existing items, elimination of unnecessary items, or
replacement of items. During 1997 and early 1998 Busey Bank conducted a search
process to select a new core processing system to replace the system then
processed by a third-party vendor. The third party processor had undertaken a
project to consolidate systems which would have required Busey Bank to convert
to another of their systems. This provided the Bank with the opportunity to
review all options available and to select a solution which would be Year 2000
compliant.

The fourth step of the Year 2000 project plan is validation, which involves
testing all mission critical systems and is scheduled for completion by March
15, 1999. Testing will continue throughout 1999 on non-mission critical
systems. The testing will be conducted on all systems even those such as the
core banking applications that were purchased as being Year 2000 compliant. Any
systems that have changes made after the initial testing will be retested to
ensure that they remain compliant.

The fifth step of the Corporation's Year 2000 project plan is
implementation. This phase involves the review of test results by end users
to verify that performance is as expected.

The Corporation has completed the awareness and assessment phases. The
remaining three steps will be completed by March 31, 1999.

In addition to the five-step plan, First Busey Corporation has also
undertaken the challenge to review its customer base and business suppliers
for compliance. Several approaches have been taken to achieve an
understanding of how well prepared these groups are. Questionnaires were sent
to the Corporation's significant customers and suppliers. These
questionnaires were followed up with personal interviews when questionnaire
responses did not provide clear indications of the entities' preparedness.
The Corporation cannot control the success of any given entity's preparations
but is trying to have as complete an understanding as possible about all
aspects of its business.

First Busey Corporation has been simultaneously developing a business
continuity plan to implement should a problem arise. This business continuity
plan is complete and will be tested several times prior to the end of 1999, with
the first test scheduled for March, 1999. The plan has been developed with
three scenarios in mind, the most critical assumes there would be no utilities
of any kind available. The organization has five backup generators for
operating customer service locations and a large generator to power the data
processing center, which will support the most critical operations functions.

First Busey Corporation has also developed an education program in
conjunction with its Year 2000 efforts. The Corporation has provided mandatory
training for all in-house personnel. The Corporation has also taken a
leadership role in educating the community about the Year 2000 issues through
public forums, radio and television sessions, and meetings with community
organizations. It is important that the citizens of the communities which the
Corporation serves understand what the Year 2000 issues are and what plans and
progress that individuals, businesses, and government agencies are making to
minimize any negative effects of Year 2000.

The estimated expense for First Busey Corporation's Year 2000 efforts is
$155,000. The cost of in-house personnel that performed testing and other
functions for the Year 2000 project plan is not included in this estimate with
the exception of the full-time Year 2000 project coordinator. Of this total,
$67,600 was expensed during 1998. The remaining amount is for projected
expenses not yet incurred. Funding for these expenses has been included in the
Corporation's operating budget for 1999. Expenses related to Busey Bank's
conversion to an in-house data processing solution are considered to be in the
normal course of business and not related to the Year 2000.

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.

27

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:

Consolidated Average Balance Sheets and Interest Rates

Years Ended December 31,
----------------------------------------------------------------------------------
1998 1997 1996
----------------------------------------------------------------------------------
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
----------------------------------------------------------------------------------
(dollars in thousands)

Assets
Federal funds sold $ 16,463 $ 891 5.41% $ 8,899 $ 488 5.49% $ 8,159 $ 441 5.40%
Investment securities:
U.S. Treasuries and Agencies 169,680 9,776 5.76% 160,394 9,309 5.80% 193,295 11,427 5.91%
States and political
subdivisions(1) 33,683 2,665 7.91% 36,064 3,022 8.38% 38,794 3,248 8.37%
Other securities 19,049 980 5.14% 21,326 1,008 4.73% 22,599 1,270 5.62%
Loans (net of unearned
discount)(1, 2) 621,475 53,925 8.68% 584,327 51,367 8.79% 525,311 46,221 8.80%
----------------------------------------------------------------------------------
Total interest-earning assets(1) $860,350 $68,237 7.93% $811,010 $65,194 8.04% $788,158 $62,607 7.94%
==================================================================================
Cash and due from banks 32,175 35,695 34,784
Premises and equipment 24,243 22,535 21,555
Allowance for loan losses (7,253) (6,480) (5,619)
Other assets 21,648 18,139 20,392
--------- --------- ---------
Total assets $931,163 $880,899 $859,270
========= ========= =========

Liabilities and Stockholders' Equity
Interest bearing transaction deposits $ 19,271 $ 377 1.96% $110,940 $ 2,182 1.97% $130,365 $ 2,105 1.62%
Savings deposits 80,648 2,635 3.27% 79,888 2,617 3.28% 80,516 2,554 3.17%
Money market deposits 271,047 8,419 3.11% 154,977 5,192 3.35% 135,982 5,167 3.80%
Time deposits 349,956 19,211 5.49% 360,968 20,011 5.54% 345,726 18,884 5.46%
Short-term borrowings:
Federal funds purchased and
repurchase agreements 1,686 89 5.29% 1,678 103 6.14% 8,804 470 5.34%
Other 12,981 1,010 7.78% 6,542 472 7.21% 8,092 575 7.10%
Long-term debt 22,548 1,234 5.47% 9,301 542 5.83% 5,000 278 5.55%
----------------------------------------------------------------------------------
Total interest-bearing liabilities $758,137 $32,975 4.35% $724,294 $31,119 4.30% $714,485 $30,033 4.20%
==================================================================================
Net interest spread 3.58% 3.74% 3.74%
===== ===== =====
Demand deposits 80,986 73,345 69,562
Other liabilities 10,724 5,954 5,798
Stockholders' equity 81,316 77,306 69,425
--------- --------- ---------
Total liabilities and
stockholders' equity $931,163 $880,899 $859,270
========= ========= =========
Interest income/earning assets(1) $860,350 $68,237 7.93% $811,010 $65,194 8.04% $788,158 $62,607 7.94%
Interest expense/earning assets $860,350 $32,975 3.83% 811,010 31,119 3.84% 788,158 30,033 3.81%
----------------------------------------------------------------------------------
Net interest margin(1) $35,262 4.10% $34,075 4.20% $32,574 4.13%
============== ============== ==============

(1) On a tax equivalent basis, assuming a federal income tax rate of 35%
(2) Non-accrual loans have been included in average loans, net of unearned discount

28

Changes In Net Interest Income

Years Ended December 31, 1998, 1997, and 1996
----------------------------------------------------------------------
Year 1998 vs 1997 Change due to(1) Year 1997 vs 1996 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:
Federal funds sold $ 409 $ (6) $ 403 $ 40 $ 7 $ 47
Investment securities:
U.S. Treasuries and Agencies 535 (68) 467 (1,913) (205) (2,118)
States and political subdivisions(2) (193) (164) (357) (229) 3 (226)
Other securities (163) 135 (28) (69) (193) (262)
Loans(2) 3,213 (655) 2,558 5,188 (42) 5,146
----------------------------------------------------------------------
Change in interest income(2) $ 3,801 $(758) $ 3,043 $ 3,017 $ (430) $ 2,587
======================================================================

Increase (decrease) in interest expense:
Interest bearing transaction deposits $(1,793) $ (12) $(1,805) $ (166) $ 243 $ 77
Savings deposits 25 (7) 18 (20) 83 63
Money market deposits 3,575 (348) 3,227 167 (142) 25
Time deposits (606) (194) (800) 842 285 1,127
Federal funds purchased and
repurchase agreements 1 (15) (14) (450) 83 (367)
Other 498 40 538 (112) 9 (103)
Long-term debt 723 (31) 692 250 14 264
----------------------------------------------------------------------
Change in interest expense $ 2,423 $(567) $ 1,856 $ 511 $ 575 $ 1,086
----------------------------------------------------------------------
Increase (decrease) in net interest income(2) $ 1,378 $(191) $ 1,187 $ 2,506 $(1,005) $ 1,501
======================================================================

Percentage increase in net interest income
over prior period 3.5% 4.6%
======== ========

(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%

29

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements are presented beginning on page 35.

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 5 and 6 of the 1999 Proxy Statement.

(b) Executive Officers of the Registrant. Please refer to Part I of this Form
10-K.

ITEM 11. EXECUTIVE COMPENSATION

Incorporated by reference is the information set forth on pages 9 and 10 of the
1999 Proxy Statement (except the information set forth in the sections "Report
of the Compensation Committee on Executive Compensation").

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Incorporated by reference is the information set forth on page 8 of the 1999
Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Incorporated by reference is the information set forth on page 13 of the 1999
Proxy Statement.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

EXHIBITS

Exhibit Description of Exhibit Sequentially
Number Numbered Page
- --------------------------------------------------------------------------------------------------------------

3.1 Certificate of Incorporation of First Busey Corporation (filed as
Appendix B to First Busey's definitive proxy statement filed with the Commission
on April 5, 1993 (Commission File No. 0-15950), and incorporated herein by
reference)

3.2 By-Laws of First Busey Corporation (filed as Appendix C to First Busey's
definitive proxy statement filed with the Commission on April 5, 1993
(Commission File No. 0-15950), and incorporated herein by reference)

10.1 First Busey Corporation 1993 Restricted Stock Award Plan (filed as
Appendix E to First Busey's definitive proxy statement filed with the Commission
on April 5, 1993 (Commission File No. 0-15950), and incorporated herein by
reference)

10.3 First Busey Corporation Profit Sharing Plan and Trust (filed as Exhibit
10.3 to First Busey's Registration Statement on Form S-1 (Registration No.
33-13973), and incorporated herein by reference)

30

Exhibit Description of Exhibit Sequentially
Number Numbered Page
- --------------------------------------------------------------------------------------------------------------

10.4 Mortgage on County Plaza Building (filed as Exhibit 10.4 to First
Busey's Registration Statement on Form S-1 (Registration No. 33-13973), and
incorporated herein by reference)

10.7 First Busey Corporation Employee Stock Ownership Plan (filed as Exhibit
10.7 to First Busey's Annual Report on Form 10-K for the fiscal year ended
December 31, 1988 (Registration No. 2-66201), and incorporated herein by
reference)

10.8 First Busey Corporation 1988 Stock Option Plan (filed as Exhibit 10.8
to First Busey's Annual Report on Form 10-K for the fiscal year ended December
31, 1988 (Registration No. 2-66201), and incorporated herein by reference)

21.1 List of Subsidiaries of First Busey Corporation

23.1 Consent of Independent Public Accountants

31

FINANCIAL STATEMENT SCHEDULES

Financial statement schedules not included in this Form 10-K have been omitted
because they are not applicable for the required information shown in the
financial statements or notes thereto.

FIRST BUSEY CORPORATION INDEX TO FINANCIAL STATEMENTS

Page
-----

Independent Auditor's Report 36
Consolidated Balance Sheets 37
Consolidated Statements of Income 38
Consolidated Statements of Stockholders' Equity 39-41
Consolidated Statements of Cash Flows 42-44
Notes to Consolidated Financial Statements 45-73
Management Report 74
Independent Accountant's Report 75

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 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 25, 1999.

FIRST BUSEY CORPORATION
BY //DOUGLAS C. MILLS//
--------------------
Douglas C. Mills
Chairman of the Board, President,
Chief Executive Officer and Chief
Financial Officer

32

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 25, 1999.

Signature Title
//DOUGLAS C. MILLS// Chairman of the Board, President,
-------------------- Chief Executive Officer and Chief
Douglas C. Mills Financial Officer
(Principal Executive Officer)

//JOSEPH M. AMBROSE// Director
---------------------
Joseph M. Ambrose

//SAMUEL P. BANKS// Director
-------------------
Samuel P. Banks

//T.O. DAWSON// Director
---------------
T. O. Dawson

//VICTOR F. FELDMAN// Director
---------------------
Victor F. Feldman

//KENNETH M. HENDREN// Director
----------------------
Kenneth M. Hendren

//E. PHILLIPS KNOX// Director
--------------------
E. Phillips Knox

//P. DAVID KUHL// Director
-----------------
P. David Kuhl

//V. B. LEISTER, JR.// Director
----------------------
V. B. Leister, Jr.

//LINDA M. MILLS// Director
------------------
Linda M. Mills

//ROBERT C. PARKER// Director
--------------------
Robert C. Parker

//EDWIN A. SCHARLAU// Director
---------------------
Edwin A. Scharlau II

//DAVID C. THIES// Director
------------------
David C. Thies

//ARTHUR R. WYATT// Director
-------------------
Arthur R. Wyatt

33

FIRST BUSEY CORPORATION AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1998

34

FIRST BUSEY CORPORATION AND SUBSIDIARIES

CONTENTS

- ------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT 36
- ------------------------------------------------------------------------------

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated balance sheets 37

Consolidated statements of income 38

Consolidated statements of stockholders' equity 39-41

Consolidated statements of cash flows 42-44

Notes to consolidated financial statements 45-73

- ------------------------------------------------------------------------------

INTERNAL CONTROL REPORTS

Management Report - Effectiveness of the Internal Control 74

Independent Accountant's Report 75

35

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, 1998 and 1997, 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, 1998. 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, 1998 and 1997, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1998, in conformity with generally accepted accounting
principles.

/s/ McGladrey & Pullen, LLP

Champaign, Illinois
January 29, 1999

36

FIRST BUSEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997

1998 1997
- ----------------------------------------------------------------------------------------
(Dollars in thousands)

ASSETS
Cash and due from banks $ 35,644 $ 43,299
Federal funds sold - 18,800
Securities available for sale 217,991 215,514
Loans held for sale (fair value 1998 $11,373; 1997 $5,016) 11,266 4,963
Loans (net of allowance for loan losses 1998 $7,101; 1997 $6,860) 643,914 591,114
Premises and equipment 24,232 22,834
Other assets 18,484 19,016
--------------------
TOTAL ASSETS $951,531 $915,540
====================

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Noninterest bearing $ 96,555 $ 92,090
Interest bearing 730,149 719,363
--------------------
TOTAL DEPOSITS 826,704 811,453
Short-term borrowings 5,900 6,550
Long-term debt 25,000 10,000
Other liabilities 6,824 6,258
--------------------
TOTAL LIABILITIES 864,428 834,261
--------- ---------

Stockholders' Equity
Preferred stock, no par value, 1,000,000 shares authorized,
no shares issued - -
Common stock:
Class A common stock, no par value, authorized 40,000,000
shares; 14,154,706 shares issued 1998 and 1997 6,291 6,291
Surplus 21,283 20,729
Retained earnings 59,028 53,011
Accumulated other comprehensive income 6,799 5,801
--------------------

TOTAL STOCKHOLDERS' EQUITY BEFORE TREASURY STOCK, UNEARNED
ESOP SHARES AND DEFERRED COMPENSATION FOR RESTRICTED
STOCK AWARDS 93,401 85,832
Treasury stock, at cost, 449,768 shares 1998; 403,920 shares 1997 (5,865) (3,922)
Unearned ESOP shares and deferred compensation for restricted
stock awards (433) (631)
--------------------
TOTAL STOCKHOLDERS' EQUITY 87,103 81,279
--------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $951,531 $915,540
====================

See Accompanying Notes to Consolidated Financial Statements.

37

FIRST BUSEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

1998 1997 1996
- ------------------------------------------------------------------------------------
(Dollars in thousands, except
per share amounts)

Interest income:
Loans $53,669 $51,061 $45,948
Securities
Taxable interest income 10,622 10,208 12,579
Nontaxable interest income 1,732 1,964 2,111
Dividends 134 110 118
Federal funds sold 891 488 441
--------------------------
TOTAL INTEREST INCOME 67,048 63,831 61,197
--------------------------

Interest expense:
Deposits 30,642 30,002 28,710
Short-term borrowings 1,099 575 1,045
Long-term debt 1,234 542 278
--------------------------
TOTAL INTEREST EXPENSE 32,975 31,119 30,033
--------------------------
NET INTEREST INCOME 34,073 32,712 31,164
Provision for loan losses 700 1,075 1,100
--------------------------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 33,373 31,637 30,064
--------------------------

Other income:
Service charges on deposit accounts 2,938 2,947 2,937
Trust fees 3,445 3,156 2,651
Commissions and brokers' fees, net 1,187 1,051 812
Other service charges and fees 1,909 1,292 949
Security gains, net 1,243 520 256
Trading security gains (losses), net 5 2 (100)
Gain on sales of loans 988 439 268
Net commissions from travel services 862 - -
Other 953 972 996
--------------------------
TOTAL OTHER INCOME 13,530 10,379 8,769
--------------------------

Other expenses:
Salaries and wages 13,524 12,134 11,662
Employee benefits 2,571 2,481 2,206
Net occupancy expense of premises 2,497 2,225 1,936
Furniture and equipment expenses 2,370 1,838 1,651
Data processing 1,924 1,760 1,476
Amortization of intangible assets 1,404 1,328 1,321
Stationery, supplies and printing 758 704 715
Other 5,352 4,796 4,819
--------------------------
TOTAL OTHER EXPENSES 30,400 27,266 25,786
--------------------------
INCOME BEFORE INCOME TAXES 16,503 14,750 13,047
Income taxes 5,105 4,379 3,741
--------------------------
NET INCOME $11,398 $10,371 $ 9,306
==========================
Basic earnings per share $ .83 $ .75 $ .68
==========================
Diluted earnings per share $ .81 $ .74 $ .67
==========================

See Accompanying Notes To Consolidated Financial Statements.

38

FIRST BUSEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
- ----------------------------------------------------------------------------------------------------------------------------
Accumulated
Class A Class B Other
Common Common Retained Comprehensive Treasury
Stock Stock Surplus Earnings Income Stock
- ----------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands except per share amounts

Balance, December 31, 1995 5,291 1,000 20,380 42,474 3,093 (3,659)

Comprehensive Income:
Net Income - - - 9,306 - -
Other comprehensive income, net of tax:
Unrealized gain on securities available for sale
arising during the period, net of taxes of $193 - - - - - -
Reclassification adjustment, net of taxes of $90 - - - - - -

Other comprehensive income, net of tax - - - - 192 -

Comprehensive income - - - - - -

Purchase of 62,268 shares for the treasury - - - - - (605)
Issuance of 131,776 shares of treasury stock - - 214 - - 775
Cash dividends:
Class A common stock $.33 per share - - - (3,710) - -
Class B common stock $.30 per share - - - (668) - -
Principal payments on employee stock ownership
plan debt - - - - - -
Release of restricted stock issued under
restricted stock award plan - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------

Balance, December 31, 1996 $ 5,291 $ 1,000 $ 20,594 $ 47,402 $ 3,285 $ (3,489)

Deferred
Compensation
Unearned for Restricted
ESOP Stock
Shares Awards Total
- ----------------------------------------------------------------------------------------------------
(Dollars in thousands except per share amounts

Balance, December 31, 1995 (750) (51) 67,778
--------

Comprehensive Income:
Net Income - - 9,306
Other comprehensive income, net of tax:
Unrealized gain on securities available for sale
arising during the period, net of taxes of $193 - - 358
Reclassification adjustment, net of taxes of $90 - - (166)
--------
Other comprehensive income, net of tax - - 192
--------
Comprehensive income - - 9,498
--------

Purchase of 62,268 shares for the treasury - - (605)
Issuance of 131,776 shares of treasury stock - (192) 797
Cash dividends:
Class A common stock $.33 per share - - (3,710)
Class B common stock $.30 per share - - (668)
Principal payments on employee stock ownership
plan debt 250 - 250
Release of restricted stock issued under
restricted stock award plan - 77 77
- ----------------------------------------------------------------------------------------------------

Balance, December 31, 1996 $ (500) $ (166) $73,417

39

FIRST BUSEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
- ------------------------------------------------------------------------------------------------------------------------------

Accumulated
Class A Class B Other
Common Common Retained Comprehensive Treasury
Stock Stock Surplus Earnings Income Stock
- ------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands except per share amounts

Balance, December 31, 1996 5,291 1,000 20,594 47,402 3,285 (3,489)

Comprehensive Income:
Net Income - - - 10,371 - -
Other comprehensive income, net of tax:
Unrealized gain on securities available for sale
arising during the period, net of taxes of $1,537 - - - - - -
Reclassification adjustment, net of taxes of $182 - - - - - -

Other comprehensive income, net of tax - - - - 2,516 -

Comprehensive income - - - - - -

Purchase of 243,464 shares for the treasury - - - - - (3,127)
Issuance of 300,826 shares of treasury stock - - 135 - - 2,699
Cash dividends:
Class A common stock $.35 per share - - - (4,046) - -
Class B common stock $.32 per share - - - (716) - -
Proceeds from employee stock ownership plan debt - - - - - -
Principal payments on employee stock ownership
plan debt - - - - - -
Forfeiture of restricted stock issued under restricted
stock award plan - - - - - (5)
Release of restricted stock issued under restricted
stock award plan - - - - - -
Conversion of Class B common stock to
Class A common stock 1,000 (1,000) - - - -
- ------------------------------------------------------------------------------------------------------------------------------

Balance, December 31, 1997 $ 6,291 - $ 20,729 $ 53,011 $ 5,801 $ (3,922)

Deferred
Compensation
Unearned for Restricted
ESOP Stock
Shares Awards Total
- ----------------------------------------------------------------------------------------------------
(Dollars in thousands except per share amounts

Balance, December 31, 1996 (500) (166) 73,417
--------

Comprehensive Income:
Net Income - - 10,371
Other comprehensive income, net of tax:
Unrealized gain on securities available for sale
arising during the period, net of taxes of $1,537 - - 2,854
Reclassification adjustment, net of taxes of $182 - - (338)
--------
Other comprehensive income, net of tax - - 2,516
--------
Comprehensive income - - 12,887
--------

Purchase of 243,464 shares for the treasury - - (3,127)
Issuance of 300,826 shares of treasury stock - - 2,834
Cash dividends:
Class A common stock $.35 per share - - (4,046)
Class B common stock $.32 per share - - (716)
Proceeds from employee stock ownership plan debt (250) - (250)
Principal payments on employee stock ownership
plan debt 200 - 200
Forfeiture of restricted stock issued under restricted
stock award plan - 5 -
Release of restricted stock issued under restricted
stock award plan - 80 80
Conversion of Class B common stock to
Class A common stock - - -
- ----------------------------------------------------------------------------------------------------

Balance, December 31, 1997 $ (550) $ (81) $81,279

40

FIRST BUSEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
- ------------------------------------------------------------------------------------------------------------------------------

Accumulated
Class A Class B Other
Common Common Retained Comprehensive Treasury
Stock Stock Surplus Earnings Income Stock
- ------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands except per share amounts

Balance, December 31, 1997 6,291 - 20,729 53,011 5,801 (3,922)

Comprehensive Income:
Net Income - - - 11,398 - -
Other comprehensive income, net of tax:
Unrealized gains on securities available for sale
arising during the period, net of taxes of $972 - - - - - -
Reclassification adjustment, net of taxes of $435 - - - - - -

Other comprehensive income, net of tax: - - - - 998 -

Comprehensive Income - - - - - -

Purchase of 162,774 shares for the treasury - - - - - (2,747)
Issuance of 56,926 shares of treasury stock for
option exercise and related tax benefit - - 169 - - 417
Issuance of 60,000 shares of treasury stock for
acquisition - - 385 - - 440
Cash dividends:
Class A common stock $.39 per share - - - (5,381) - -
Principal payments on employee stock ownership
plan debt - - - - - -
Forfeiture of restricted stock issued under restricted
stock award plan - - - - - (53)
Amortization of restricted stock issued under
restricted stock award plan - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------

Balance, December 31, 1998 $ 6,291 - $ 21,283 $ 59,028 $ 6,799 $ (5,865)
===================================================================

Deferred
Compensation
Unearned for Restricted
ESOP Stock
Shares Awards Total
- -------------------------------------------------------------------------------------------------
(Dollars in thousands except per share amounts

Balance, December 31, 1997 (550) (81) 81,279
--------

Comprehensive Income:
Net Income - - 11,398
Other comprehensive income, net of tax:
Unrealized gains on securities available for sale
arising during the period, net of taxes of $972 - - 1,806
Reclassification adjustment, net of taxes of $435 - - (808)
--------
Other comprehensive income, net of tax: - - 998
--------
Comprehensive Income - - 12,396
--------

Purchase of 162,774 shares for the treasury - - (2,747)
Issuance of 56,926 shares of treasury stock for
option exercise and related tax benefit - - 586
Issuance of 60,000 shares of treasury stock for
acquisition - - 825
Cash dividends:
Class A common stock $.39 per share - - (5,381)
Principal payments on employee stock ownership
plan debt 150 - 150
Forfeiture of restricted stock issued under restricted
stock award plan - 53 -
Amortization of restricted stock issued under
restricted stock award plan - (5) (5)
- -------------------------------------------------------------------------------------------------

Balance, December 31, 1998 $ (400) $ (33) $87,103
======================================

See Accompanying Notes to Consolidated Financial Statements

41

FIRST BUSEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

1998 1997 1996
- -------------------------------------------------------------------------------------------
(Dollars in thousands)

Cash Flows from Operating Activities
Net income $ 11,398 $ 10,371 $ 9,306
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,005 3,532 3,355
Provision for loan losses 700 1,075 1,100
Provision for deferred income taxes (299) (463) (373)
Accretion of security discounts (142) (293) (1,000)
Gain on sales of securities, net (1,243) (520) (256)
Proceeds from sales of loans 88,508 42,004 34,742
Loans originated for sale (93,823) (45,081) (34,118)
Gain on sales of loans, net (988) (439) (268)
(Gain) loss on sales and dispositions of premises
and equipment 8 (1) (6)
Change in assets and liabilities:
(Increase) decrease in other assets 316 (1,114) 1,457
Increase (decrease) in other liabilities 95 1,247 (148)
----------------------------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 8,535 10,318 13,791
----------------------------------

Cash Flows from Investing Activities
Securities available for sale:
Purchases (141,088) (100,964) (357,712)
Proceeds from sales 47,324 12,292 15,948
Proceeds from maturities 94,207 93,826 395,149
Securities held to maturity:
Purchases - (1,375) (20,556)
Proceeds from maturities - 11,741 26,889
(Increase) decrease in federal funds sold 18,800 (18,800) 650
Increase in loans (53,857) (30,674) (88,922)
Purchases of premises and equipment (4,188) (3,370) (1,713)
Proceeds from sales of premises and equipment 199 1 31
Cash acquired in acquisition 204 - -
----------------------------------
NET CASH USED IN INVESTING ACTIVITIES (38,399) (37,323) (30,236)
----------------------------------

(Continued)

42

FIRST BUSEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

1998 1997 1996
- -------------------------------------------------------------------------------------------
(Dollars in thousands)

Cash Flows from Financing Activities
Net (decrease) increase in certificates of deposit $($36,425) $ 26,200 $ 1,102
Net increase in demand deposits, money market and
savings accounts 51,676 18,326 20,928
Cash dividends paid (5,381) (4,762) (4,378)
Purchase of treasury stock (2,747) (3,127) (605)
Proceeds from sales of treasury stock 586 2,834 797
Proceeds from short-term borrowings 11,000 2,500 1,000
Principal payments on short-term borrowings (11,500) (4,000) (2,000)
Proceeds from long-term debt 20,000 5,000 -
Principal payments on long-term debt (5,000) - -
Net decrease in federal funds purchased, repurchase
agreements and federal reserve discount obligations - (6,405) (6,019)
----------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 22,209 36,566 10,825
----------------------------------

NET INCREASE (DECREASE) IN CASH AND
DUE FROM BANKS (7,655) 9,561 (5,620)

Cash and due from banks, beginning 43,299 33,738 39,358
----------------------------------

Cash and due from banks, ending $ 35,644 $ 43,299 $ 33,738
==================================

Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest $ 33,124 $ 30,981 $ 30,573
==================================

Income taxes $ 5,104 $ 4,388 $ 3,661
==================================

(Continued)

43

FIRST BUSEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

1998 1997 1996
- -------------------------------------------------------------------------------------------
(Dollars in thousands)

Supplemental Schedule of Noncash Investing and
Financing Activities
Other real estate acquired in settlement of loans $ 357 $ 407 $ 396
==================================

Principal payments on ESOP debt $ 150 $ 200 $ 250
==================================

Proceeds from ESOP debt $ - $ 250 $ -
==================================

Change in unrealized gain on investment
securities available for sale $ 1,535 $ 3,871 $ 295
==================================

Decrease in deferred income tax assets attributable
to the unrealized gain on investment securities
available for sale $ (537) $ (1,355) $ (103)
==================================

Transfer of securities held to maturity to securities
available for sale $ - $ 44,812 $ -
==================================

See Accompanying Notes to Consolidated Financial Statements.

44

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 bank
subsidiary, Busey Bank, provides a full range of banking services to individual
and corporate customers through its eighteen branches throughout central
Illinois, one branch in Indianapolis, Indiana, and one loan production office in
Fort Myers, Florida. The bank is 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 & Investment Co. provides investment management and fiduciary services to
institutional, corporate and personal trust clients. First Busey Corporation,
Busey Bank, First Busey Securities, Inc. and First Busey Trust & Investment Co.
are subject to the regulations of certain regulatory agencies and undergo
periodic examinations by those regulatory agencies.

The significant accounting and reporting policies for First Busey Corporation
and its subsidiaries follow:

Basis of consolidation
- ----------------------

The consolidated financial statements include the accounts of First Busey
Corporation and its subsidiaries: Busey Bank and its subsidiaries: First Busey
Securities, Inc., Busey Insurance Services, Inc., Busey Travel, Inc., and BAT,
Inc.; First Busey Trust & Investment Co.; and First Busey Resources, Inc. All
material intercompany balances and transactions have been eliminated in
consolidation.

The consolidated financial statements of First Busey Corporation have been
prepared in conformity with generally accepted accounting principles and conform
to predominant practice within the banking industry.

Comprehensive Income
- --------------------

Effective January 1, 1998, the Corporation adopted Financial Accounting
Standards Board Statement No. 130 (SFAS 130), "Reporting Comprehensive Income."
SFAS 130 establishes standards for reporting and display of comprehensive income
and its components, but has no effect on the Corporation's net income or total
stockholder's equity. SFAS 130 requires unrealized gains and losses on the
Corporation's available for sale securities, which prior to adoption were
reported separately in Stockholder's equity, to be included in comprehensive
income. Prior year financial statements have been reclassified to conform to
the requirements of SFAS 130.

Disclosures about Segments of an Enterprise and Related Information
- -------------------------------------------------------------------

Effective January 1, 1998, the Corporation adopted the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 131
(SFAS 131), "Disclosures about Segments of an Enterprise and Related
Information." SFAS 131 establishes standards for the manner in which public
business enterprises report certain information about operating segments of
their business in both their annual and interim financial reports provided to
shareholders. Comparative information for prior years has been disclosed.

45

FIRST BUSEY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------

Use of estimates
- ----------------

In preparing the consolidated financial statements, the Corporation's 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 subsidiary, 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.

Securities
- ----------

Securities classified as available for sale are those debt securities that the
Corporation intends to hold for an indefinite period of time, but not
necessarily to maturity, and marketable equity securities. Any decision to sell
a security classified as available for sale would be based on various factors,
including significant movements in interest rates, changes in the maturity mix
of the Corporation's assets and liabilities, liquidity needs, regulatory capital
considerations and other similar factors. Securities available for sale are
carried at fair value. The difference between fair value and amortized cost
results in an unrealized gain or loss. Unrealized gains or losses are reported
as increases or decreases in accumulated comprehensive income, net of the
related deferred tax effect, as a part of stockholder's equity. Realized gains
or losses, determined on the basis of the cost of specific securities sold, are
included in earnings. Where applicable, amortization of premiums and accretion
of discounts are recognized in interest income using the interest method over
the period to maturity.

Securities classified as held to 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. At
December 31, 1998 and 1997, there were no securities classified in this
category.

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, 1998 and 1997, there were no securities classified in
this category.

Loans
- -----

Loans are stated at the principal amount outstanding, net of unearned interest
and the allowance for loan losses.

Interest is credited to income as earned using the simple interest method
applied to the daily balances of principal outstanding.

46

FIRST BUSEY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------

The accrual of interest income on 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. Upon discontinuance of
interest accrual, unpaid accrued interest is reversed. Interest income on these
loans is recognized to the extent interest payments are received and the
principal is considered fully collectible.

For collateralized impaired loans, loan balances in excess of net realizable
value are deemed impaired. In the determination of the valuation, historical
charge-offs for each category of loans, local economic trends, the source of
loans and concentrations of credit in specific industries, if any, are
considered.

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 through a provision 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 changes
in the nature and volume of the loan portfolio, overall portfolio quality, loan
concentrations, specific problem loans, current and anticipated economic
conditions that may affect the borrowers' ability to pay, historical loan loss
experience and other factors, which, in management's opinion, deserve current
recognition in estimating loan losses.

In addition, various regulatory agencies periodically review the allowance for
loan losses, and may require the Bank to make additions to the allowance based
on their judgment of collectibility based on information available to them at
the time of their examination.

Loans held for sale
- -------------------

Loans held for sale consist of fixed rate mortgage loans conforming to
established guidelines and held for sale to investors and the secondary mortgage
market. Mortgage loans held for sale are carried at the lower of aggregate cost
or estimated fair value.

Premises and equipment
- ----------------------

Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed principally by the straight-line method over the
estimated useful lives of the assets.

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 $10,661,000,
is amortized using the straight-line method over 15 years. Amortization of this
excess is $709,000, $692,000 and $691,000 for the years ended December 31, 1998,
1997 and 1996, respectively. Accumulated amortization at December 31, 1998, is
$5,394,000.

47

FIRST BUSEY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------

Core deposit and other identifiable intangible assets which aggregated
approximately $5,309,000 are amortized on an accelerated basis over the
estimated periods benefited, 5 to 25 years. Amortization of these intangibles
is $695,000, $636,000 and $630,000 for the years ended December 31, 1998, 1997
and 1996, respectively. Accumulated amortization at December 31, 1998 is
$3,792,000.

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 share
- ------------------

Basic earnings per share is computed by dividing net income for the year by the
weighted average number of shares outstanding of 13,753,102, 13,803,546, and
13,608,320 for 1998, 1997, and 1996, respectively.

Diluted earnings per share is determined by dividing net income for the year by
the weighted average number of shares of common stock and common stock
equivalents outstanding. Common stock equivalents assume exercise of stock
options and use of proceeds to purchase treasury stock at the average market
price for the period. The weighted average shares outstanding were 14,035,037,
13,997,976, and 13,873,016 for 1998, 1997, and 1996, respectively.

Stock split
- -----------

In June 1998, the Board of Directors approved a two-for-one stock split for
stockholders of record on July 17, 1998, and was effected on August 3, 1998.
All share amounts in the consolidated financial statements have been restated to
reflect the stock split.

Reclassifications
- -----------------

Certain reclassifications have been made to the balances as of and for the year
ended December 31, 1997 and 1996 to be consistent with the classifications
adopted for 1998.

48

FIRST BUSEY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------

Recent accounting pronouncements
- --------------------------------

Statement of Financial Accounting Standard No. 133, "Accounting for Derivative
Instruments and Hedging Activities" was issued in June 1998 by the Financial
Accounting Standards Board. The Statement establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the balance
sheet and measure those instruments at fair value. The Statement is effective
for all fiscal quarters of fiscal years beginning after June 15, 1999. Because
the Corporation does not use derivatives, management does not believe the
adoption of the Statement will have a material impact on the consolidated
financial statements.

NOTE 2. CASH AND DUE FROM BANKS

The Corporation's banking subsidiary is required to maintain certain cash
reserve balances with the Federal Reserve Bank of Chicago, which may be offset
by cash on hand. The required reserve balances as of December 31, 1998 and 1997
were approximately $6,116,000 and $5,045,000, respectively.

In October 1997, the Corporation's bank subsidiary established a clearing
balance requirement of $2,000,000 with the Federal Reserve Bank of Chicago to
use Federal Reserve Bank services. As of December 31, 1998, the clearing
balance requirement is $2,750,000. These deposited funds generate earnings
credits at market rates which offset service charges resulting from the use of
Federal Reserve Bank services. The clearing balance requirement is included in
the required reserve balance referred to above and may be increased, or
otherwise adjusted, on approval of the Federal Reserve Bank based on estimated
service charges; however, such adjustments will be made no more frequently than
once per month.

49

FIRST BUSEY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------

NOTE 3. SECURITIES

The amortized cost and fair values of securities available for sale are
summarized as follows:

Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------------------------------------------------
(Dollars in thousands)

December 31, 1998:
U.S. Treasury securities and obligations
of U.S. government corporations and
agencies $158,415 $ 876 $ 30 $159,261
Obligations of states and political
subdivisions 36,400 1,177 179 37,398
Corporate securities 5,539 95 1 5,633
Equity securities 4,084 8,467 1 12,550
Other debt securities 1,553 - - 1,553
Mortgage backed securities 1,540 56 - 1,596
----------------------------------------------------

$207,531 $10,671 $ 211 $217,991
====================================================
December 31, 1997:
U.S. Treasury securities and obligations
of U.S. government corporations and
agencies $161,617 $ 277 $ 132 $161,762
Obligations of states and political
subdivisions 31,452 919 20 32,351
Corporate securities 6,177 20 1 6,196
Equity securities 4,132 7,881 19 11,994
Other debt securities 859 - - 859
Mortgage backed securities 2,352 - - 2,352
----------------------------------------------------
$206,589 $ 9,097 $172 $215,514
====================================================

50

FIRST BUSEY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------

The amortized cost and fair value of securities, other than equity securities,
as of December 31, 1998, 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.

Amortized Fair
Cost Value
-----------------------
(Dollars in thousands)

Due in one year or less $111,998 $112,393
Due after one year through five years 69,040 70,183
Due after five years through ten years 17,022 17,425
Due after ten years 3,847 3,844
-----------------------
201,907 203,845
Mortgage-backed securities 1,540 1,596
-----------------------

$203,447 $205,441
=======================

Gains and losses related to sales of securities for the years ended December 31,
1998, 1997 and 1996 are summarized as follows (in thousands):

1998 1997 1996
---------------------------------

Gross security gains $1,253 $595 $258
Gross security losses (10) (75) (2)
---------------------------------

NET SECURITY GAINS $1,243 $520 $256
=================================

Investment securities with carrying values of $155,691,000 and $154,451,000 on
December 31, 1998 and 1997, respectively, were pledged as collateral on public
deposits and for other purposes as required or permitted by law.

As of December 31, 1997, the Corporation's bank subsidiary transferred its
entire portfolio of held to maturity securities into the available for sale
securities category. In accordance with Statement of Financial Accounting
Standards No. 115 (SFAS 115), "Accounting for Certain Investments in Debt and
Equity Securities," this transfer was accounted for at market value. The
aggregate amortized cost and fair values of these securities as of the transfer
date was $44,812,000 and $45,707,000, respectively. The gross unrealized gain
of $895,000, net of the deferred tax liability of $313,000, is included in
accumulated comprehensive income, a part of stockholder's equity.

51

FIRST BUSEY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------

NOTE 4. LOANS

The composition of loans is as follows:

December 31,
----------------------
1998 1997
----------------------
(Dollars in thousands)

Commercial $ 80,958 $ 63,861
Real estate construction 44,713 31,306
Real estate - farmland 14,184 11,782
Real estate - 1 to 4 family residential mortgage 235,333 220,659
Real estate - multifamily mortgage 51,888 74,385
Real estate - non-farm nonresidential mortgage 168,948 139,653
Installment 35,919 38,925
Agricultural 19,072 17,403
----------------------
651,015 597,974
Less:
Allowance for loan losses 7,101 6,860
----------------------

NET LOANS $643,914 $591,114
======================

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 $125,754,000 and $113,506,000 as of December 31,
1998 and 1997, respectively.

The loan portfolio includes a concentration of loans for commercial real estate
amounting to approximately $220,836,000 and $214,038,000 as of December 31, 1998
and 1997, respectively. Generally these loans are collateralized by assets of
the borrowers. The loans are expected to be repaid from cash flows or from
proceeds from the sale of selected assets of the borrowers. Credit losses
arising from lending transactions for commercial real estate entities are
comparable with the Corporation's credit loss experience on its loan portfolio
as a whole.

The Corporation's opinion as to the ultimate collectibility of loans is subject
to estimates regarding future cash flows from operations and the value of
property, real and personal, pledged as collateral. These estimates are
reflected by changing economic conditions and the economic prospects of
borrowers.

52

FIRST BUSEY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------

The following table presents data on impaired loans:

1998 1997
----------------------
(Dollars in thousands)

Impaired loans for which an allowance has been provided $ - $ -
Impaired loans for which no allowance has been provided 127 226
----------------------

Total loans determined to be impaired $ 127 $ 226
======================

Allowance for loan loss for impaired loans included in the
allowance for loan losses $ - $ -
======================
Average recorded investment in impaired loans $ 219 $ 254
======================
Interest income recognized from impaired loans $ 4 $ 8
======================
Cash basis interest income recognized from impaired loans $ 9 $ 25
======================

NOTE 5. ALLOWANCE FOR LOAN LOSSES

Changes in the allowance for loan losses were as follows:

Years Ended December 31,
-------------------------
1998 1997 1996
-------------------------
(Dollars in thousands)

Balance, beginning of year $6,860 $6,131 $5,473
Provision for loan losses 700 1,075 1,100
Recoveries applicable to loan balances previously
charged off 145 213 240
-------------------------
7,705 7,419 6,813
Loan balances charged off (604) (559) (682)
-------------------------

Balance, ending of year $7,101 $6,860 $6,131
=========================

53

FIRST BUSEY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------

NOTE 6. PREMISES AND EQUIPMENT

Premises and equipment are summarized as follows:

December 31,
---------------------
1998 1997
---------------------
(Dollars in thousands)

Land $ 4,854 $ 4,899
Buildings and improvements 23,716 23,294
Furniture and equipment 13,462 10,720
---------------------
42,032 38,913
Less accumulated depreciation 17,800 16,079
---------------------

$24,232 $22,834
=====================

Depreciation expense was $2,606,000, $2,124,000 and $1,957,000 for the years
ending December 31, 1998, 1997 and 1996, respectively.

NOTE 7. DEPOSITS

The aggregate amount of time deposits with a minimum denomination of $100,000,
was approximately $66,103,000 and $96,537,000 at December 31, 1998 and 1997,
respectively.

As of December 31, 1998, the scheduled maturities of certificates of deposit, in
thousands, are as follows:

1999 $239,603
2000 57,581
2001 21,706
2002 14,021
2003 and thereafter 3,726
--------
$336,637
========

54

FIRST BUSEY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------

NOTE 8. SHORT-TERM BORROWINGS

Short-term borrowings are summarized as follows:

December 31,
----------------------
1998 1997
----------------------
(Dollars in thousands)

Notes payable, American National Bank of Chicago, due January 22,
1999, interest payable quarterly at LIBOR plus 1.50% (effective rate
of 7.250% at December 31, 1998):

$10,000,000 line of credit, collateralized by all of the capital
stock of Busey Bank. $5,000 $5,000

Note payable, collateralized by all of the capital stock of Busey
Bank 500 1,000

Collateralized by 44,286 shares of First Busey Corporation
Class A common stock owned by employee stock ownership
Plan 75 150

Collateralized by 44,286 shares of First Busey Corporation
Class A common stock owned by employee stock ownership
plan 75 150

Collateralized by 20,000 shares of First Busey Corporation
Class A common stock owned by employee stock ownership
plan 250 250
----------------------
$5,900 $6,550
======================

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 pre-1993 debt of the employee stock
ownership plan (ESOP), which totaled $150,000 and $300,000 at December 31, 1998
and 1997, respectively as short-term borrowings and a reduction of stockholders'
equity.

In August 1997, the employee stock ownership plan borrowed $250,000 to acquire
additional shares. In accordance with AICPA Statement of Position 93-6, this
debt has been recorded as short-term borrowings and a reduction of stockholders'
equity.

55

FIRST BUSEY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------

NOTE 9. LONG-TERM DEBT

Long-term debt is summarized as follows:

December 31,
--------------------
1998 1997
--------------------
(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

Note payable, Federal Home Loan Bank of Chicago, 6.08%, monthly
installments of interest through February 21, 2000, balance due
February 21, 2000, 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

Note payable, Federal Home Loan Bank of Chicago, 5.30%, monthly
installments of interest through January 16, 2008, balance due
January 16, 2008, redeemable by issuer only on January 16, 2003,
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 -

Note payable, Federal Home Loan Bank of Chicago, 5.01% monthly
installments of interest through February 17, 2008, balance due
February 17, 2008, redeemable by issuer only on February 17, 2001
and quarterly thereafter, collateralized by all unpledged
U.S. Treasury and U.S. Agency securities, first mortgages on
residential real estate and Federal Home Loan Bank stock 10,000 -

Note payable, Federal Home Loan Bank of Chicago, 5.55% monthly
installments of interest through September 3, 2003, balance
due September 3, 2003, 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 -
--------------------
$25,000 $10,000
====================

As of December 31, 1998, the scheduled maturities of long-term debt, in
thousands, are as follows:

1999 $ -
2000 5,000
2001 -
2002 -
2003 5,000
Thereafter 15,000
-------
$25,000
=======

56

FIRST BUSEY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------

NOTE 10. INCOME TAXES

The components of income tax expense consist of:

Years Ended December 31,
-------------------------
1998 1997 1996
-------------------------
(Dollars in thousands)

Current $5,404 $4,842 $4,114
Deferred (299) (463) (373)
-------------------------

TOTAL INCOME TAX EXPENSE $5,105 $4,379 $3,741
=========================

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,
-----------------------------------------------------------------------
1998 1997 1996
-----------------------------------------------------------------------
% of % of % of
Pretax Pretax Pretax
Amount Income Amount Income Amount Income
-----------------------------------------------------------------------
(Dollars in thousands)

Income tax at
statutory rate $5,776 35.0% $5,163 35.0% $4,566 35.0%
Effect of:
Benefit of
income taxed
at lower rates (100) (0.6) (100) (0.7) (100) (0.8)
Tax-exempt
interest, net (673) (4.1) (777) (5.3) (805) (6.2)
Amortization
of intangibles 186 1.1 170 1.2 170 1.3
Other (84) (0.5) (77) (0.5) (90) (0.6)

-----------------------------------------------------------------------
$5,105 30.9% $4,379 29.7% $3,741 28.7%
======================================================================

Income taxes related to realized gains on sales of securities were $435,000,
$182,000 and $90,000 for the years ended December 31, 1998, 1997 and 1996,
respectively.

57

FIRST BUSEY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------

The net deferred tax asset, included in other assets or liabilities, in the
accompanying balance sheets includes the following amounts of deferred tax
assets and liabilities:

1998 1997
----------------------
(Dollars in thousands)

Deferred tax liability $(4,385) $(3,828)
Deferred tax asset 4,479 4,344
Valuation allowance for deferred tax assets (490) (674)
----------------------

NET DEFERRED TAX LIABILITY $ (396) $ (158)
=====================

The tax effects of principal temporary differences are shown in the following
table:

1998 1997
----------------------
(Dollars in thousands)

Investment securities:
Unrealized gain on securities available for sale $(3,661) $(3,124)
Other 195 219
Basis in premises and equipment (586) (567)
Allowance for loan losses 2,816 2,721
Property acquired in settlement of loans (25) (24)
Loans held for sale 42 22
Basis in deposit intangibles 683 552
Deferred compensation 666 528
Performance/restricted stock 22 24
State net operating loss carryforward 55 278
Other (113) (113)
----------------------
94 516
Valuation allowance (490) (674)
----------------------

$ (396) $ (158)
======================

State net operating loss carryforwards of approximately $1,175,000 are available
to offset future taxable income. The carryforwards expire as follows: 2006 -
$268,000; 2007 - $860,000 and 2008 - $47,000.

NOTE 11. 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

58

FIRST BUSEY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------

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.

During the year ended December 31, 1998, $150,000 of compensation expense was
recognized for the ESOP, releasing 44,286 common shares to participant accounts,
and is reflected in the chart below under "Employee Benefits."

As permitted by AICPA Statement of Position (SOP) 93-6, compensation expense for
shares released during 1998 and 1997 is equal to the original acquisition cost
of the shares if they were acquired prior to December 31, 1992. There have been
no shares released that were acquired by the ESOP after December 31, 1992. For
such shares, compensation expense would be equal to the fair market value of the
shares released. Compensation expense related to the ESOP plan was $189,000,
$243,000 and $297,000 in 1998, 1997 and 1996, respectively.

Shares held in the ESOP which were acquired prior to December 31, 1992 were as
follows:

1998 1997
------------------------

Allocated shares 798,174 771,854
Unallocated shares 44,286 88,572
------------------------

TOTAL 842,460 860,426
========================

Fair value of allocated shares at December 31 $14,567,000 $10,613,000
========================

Shares held in the ESOP which were acquired after December 31, 1992 and their
fair values were as follows:

1998 1997
-------------------------------------------
Fair Fair
Shares Value Shares Value
-------------------------------------------

Unallocated shares 20,000 $365,000 20,000 $275,000
===========================================

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.

59

FIRST BUSEY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------

Employer contributions to the employee benefit plans are included in the
statements of income as follows:

Years Ended December 31,
1998 1997 1996
------------------------
(Dollars in thousands)

Employee benefits $826 $809 $703
Interest on employee stock ownership plan debt 39 43 47
------------------------

TOTAL EMPLOYER CONTRIBUTIONS $865 $852 $750
========================

NOTE 12. STOCK INCENTIVE PLANS

Stock Option Plan:
- -----------------

In March 1989, the Corporation adopted the 1988 Stock Option Plan pursuant to
which incentive stock options and nonqualified stock options for up to 900,000
shares of 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. In March 1996, the Board of Directors
approved an increase in the number of shares reserved for issuance as stock
options from 900,000 to 1,500,000.

A summary of the status of the Corporation's stock option plan as of December
31, 1998, 1997 and 1996 and the changes during the years ending on those dates
is as follows:

1998 1997 1996
------------------------------------------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------------------------------------------------------------------

Outstanding at begin-
ning of year 659,606 $ 9.34 676,682 $ 7.20 787,834 $6.81
Granted 129,542 16.71 195,650 12.49 12,000 9.25
Exercised (56,926) 7.42 (190,826) 5.03 (113,626) 4.66
Terminated and
reissuable (16,600) 9.69 (21,900) 8.66 (9,526) 8.19
--------- ---------- ----------
Outstanding at end
of year 715,622 10.82 659,606 9.34 676,682 7.20
==================================================================

Exercisable at end
of year 94,880 $ 5.81 87,306 $ 5.05 9,000 $4.72

Weighted-average fair
value per option of
options granted
during the year $ 4.17 $ 2.46 $ 2.69

60

FIRST BUSEY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------

The following table summarizes information about stock options outstanding at
December 31, 1998:

Options
Options Outstanding Exercisable
-----------------------------------------------------------
Exercise Number Weighted-Average Number
Prices Outstanding Remaining Contractual Life Outstanding
- -----------------------------------------------------------------------

$ 5.00 22,500 1 years 22,500
5.06 49,502 1 years 49,502
7.17 678 1 years 678
8.25 22,200 1 years 22,200
8.75 291,000 3 years -
9.25 12,000 3 years -
12.13 134,800 5 years -
13.75 2,000 1 years -
13.75 52,000 3 years -
16.75 128,942 6 years -
-----------------------------------------------------------
715,622 4 years 94,880
===========================================================

Grants under the above plan are accounted for following APB No. 25 and related
Interpretations. Accordingly, no compensation cost has been recognized for
grants under this plan. Had compensation cost for stock-based compensation been
determined based on the grant date fair values of awards (the method described
in SFAS 123), reported net income and earnings per common share would have been
reduced to the pro forma amounts shown below:

1998 1997 1996
------------------------------

Net Income (in thousands):
As reported $11,398 $10,371 $9,306
Pro forma $11,254 $10,262 $9,262

Basic earnings per share:
As reported $ .83 $ .75 $ .68
Pro forma $ .82 $ .74 $ .68

Diluted earnings per share:
As reported $ .81 $ .74 $ .67
Pro forma $ .80 $ .73 $ .67

The Black-Scholes option pricing model was developed for use in estimating the
fair value of traded options which have no vesting restrictions. In addition,
such models require the use of subjective assumptions, including expected stock
price volatility. In management's opinion, such valuation models may not
necessarily provide the best single measure of option value.

61

FIRST BUSEY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------

The fair value of the stock options granted has been estimated using the
Black-Scholes option pricing model with the following weighted average
assumptions.

1997
----------------------------------
1998 Block 1 Block 2 Block 3 1996
--------- --------- -------- ------- --------

Number of options granted 128,942 139,400 52,000 2,000 12,000
Risk-free interest rate 5.46% 5.76% 5.74% 5.64% 6.21%
Expected life, in years 5 6 4 2 5
Expected volatility 12.05% 6.3% 6.3% 6.3% 6.1%
Expected dividend yield 2.1% 2.9% 2.9% 2.9% 3.1%
Estimated fair value per option $ 4.17 $ 2.89 $ 1.39 $ .84 $ 2.69

An additional 2,250 options granted in 1997 vested and were exercised during the
year ended December 31, 1997. An additional 600 options granted in 1998 vested
and were exercised during the year ended December 31, 1998.

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 450,000 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. Shares vest over a period established by the
Compensation Committee at grant date and are based on the attainment of
specified earnings per share and earnings growth. As of December 31, 1998,
there were 8,200 shares under grant with performance restrictions allowed by the
plan which expire as follows: 1999 - 4,100 shares, and 2000 - 4,100 shares.

Number of Shares
-------------------------
1998 1997 1996
-------------------------

Under restriction, beginning of year 13,200 18,000 16,500
Granted - - 18,000
Restrictions released - 4,400 16,500
Forfeited and reissuable 5,000 400 -
-------------------------

Under restriction, end of year 8,200 13,200 18,000
=========================

Available to grant, end of year 408,900 403,900 403,500
=========================

Compensation expense is recognized for financial statement purposes over the
period of performance. Compensation expense of ($5,000), $80,000, and $77,000
was recognized for financial statement purposes during the years ended December
31, 1998, 1997, and 1996, respectively. Compensation expense of $0, $61,000,
and $184,000 was recognized for income tax purposes for the years ended December
31, 1998, 1997, and 1996 respectively.

62

FIRST BUSEY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------

NOTE 13. TRANSACTIONS WITH DIRECTORS AND EXECUTIVE OFFICERS

The Corporation and its subsidiaries have had, and may be expected to have in
the future, banking transactions in the ordinary course of business with
directors, executive officers, their immediate families and affiliated companies
in which they have 10% or more beneficial ownership (commonly referred to as
related parties), on the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with others.

The following is an analysis of the changes in loans to related parties during
the year ended December 31, 1998:

Balance at the beginning of year $ 4,875
New loans 2,227
Repayments (1,588)
--------
Balance at end of year $ 5,514
========

NOTE 14. CAPITAL RATIOS

The ability of the Corporation to pay cash dividends to its stockholders and to
service its debt is dependent on the receipt of cash dividends from its
subsidiaries. State chartered banks have certain statutory and regulatory
restrictions on the amount of cash dividends they may pay. As a practical
matter, dividend payments are restricted because of the desire to maintain a
strong capital position in the subsidiaries.

The Corporation and the Bank are subject to various regulatory capital
requirements administered by federal and state banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory, and possibly
additional discretionary, actions by regulators that, if undertaken, could have
a direct material effect on the Corporation's or the Bank's financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Corporation and the Bank must meet specific
capital guidelines that involve quantitative measures of their assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Corporation's and the Bank's capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy
require the Corporation and the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier I capital (as defined in the
regulations) to risk-weighted assets (as defined), and Tier 1 capital (as
defined) to average assets (as defined). Management believes, as of December
31, 1998, that the Corporation and the Bank meet all capital adequacy
requirements to which they are subject.

As of December 31, 1998, the most recent notification from the federal and state
regulatory agencies categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based,
and Tier I leverage ratios as set forth in the table. There are no conditions
or events since that notification that management believes have changed the
Bank's categories.

63

FIRST BUSEY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------

To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
-----------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
-----------------------------------------------------------
(Dollars in Thousands)

As of December 31, 1998:
Total Capital (to Risk
Weighted Assets)
Consolidated $80,621 13.23% $48,745 8.0% N/A N/A
Busey Bank $76,259 12.74% $47,894 8.0% $59,868 10%

Tier I Capital (to Risk
Weighted Assets)
Consolidated $73,520 12.07% $24,373 4.0% N/A N/A
Busey Bank $69,158 11.55% $23,947 4.0% $35,921 6.0%

Tier I Capital (to
Average Assets)
Consolidated $73,520 7.87% $37,354 4.0% N/A N/A
Busey Bank $69,158 7.48% $36,986 4.0% $46,232 5.0%

As of December 31, 1997:
Total Capital (to Risk
Weighted Assets)
Consolidated $74,372 13.01% $45,726 8.0% N/A N/A
Busey Bank $70,604 12.59% $44,850 8.0% $56,063 10.0%

Tier I Capital (to Risk
Weighted Assets)
Consolidated $67,512 11.81% $22,863 4.0% N/A N/A
Busey Bank $63,744 11.37% $22,425 4.0% $33,638 6.0%

Tier I Capital (to
Average Assets)
Consolidated $67,512 7.61% $35,495 4.0% N/A N/A
Busey Bank $63,744 7.27% $35,068 4.0% $43,835 5.0%

NOTE 15. 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.

64

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 Corporation's exposure to
off-balance-sheet risk as of December 31, 1998 and 1997, is as follows:

1998 1997
----------------------
(Dollars in thousands)

Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit $129,760 $126,280
Standby letters of credit 3,816 4,780

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 it is deemed
necessary by the Corporation upon extension of credit, is based on management's
credit evaluation of the counterparty. Collateral held varies but may include
accounts receivable, inventory, property and equipment and income-producing
commercial properties.

Standby letters of credit are conditional commitments issued by the Corporation
to guarantee the performance of a customer to a third party. Those 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, 1998, the Corporation has no significant futures, forwards,
swaps or option contracts, or other financial instruments with similar
characteristics.

65

FIRST BUSEY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------

Lease Commitments
- -----------------

At December 31, 1998, the Corporation was obligated under noncancelable
operating leases for office space and other commitments. Rent expense under
operating leases, included in net occupancy expense of premises, was
approximately $632,000, $456,000, and $404,000 for the years ended December 31,
1998, 1997 and 1996, respectively.

The projected minimum rental payments under the terms of the leases at December
31, 1998, in thousands, are as follows:

1999 $ 700
2000 680
2001 622
2002 520
2003 407
Thereafter 2,389
------
$5,318
======

NOTE 16. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate the fair value of
each class of financial instrument for which it is practicable to estimate that
value:

Cash and cash equivalents
- -------------------------

The carrying amounts reported in the balance sheet for cash and due from banks
and federal funds sold approximate those assets' fair values.

Securities
- ----------

For securities available for sale, fair values are based on quoted market prices
or dealer quotes, where available. If a quoted market price is not available,
fair value is estimated using quoted market prices for similar securities. The
carrying amount of accrued interest receivable approximates fair value.

Loans
- -----

For certain homogeneous categories of loans, such as some residential mortgages,
fair value is estimated using the quoted market prices for similar loans or
securities backed by similar loans, adjusted for differences in loan
characteristics. The fair value of other types of loans is estimated by
discounting the future cash flows using the current rates at which similar loans
would be made to borrowers with similar credit ratings and for the same
remaining maturities. The carrying amount of accrued interest receivable
approximates fair value.

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. The carrying amount of accrued interest payable approximates fair
value.

66

FIRST BUSEY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------

Short-term borrowings and long-term debt
- ----------------------------------------

Rates currently available to the Corporation for debt with similar terms and
remaining maturities are used to estimate fair value of existing debt. The
carrying amount of accrued interest payable approximates fair value.

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, 1998 and 1997,
these items are immaterial in nature.

The estimated fair values of the Corporation's financial instruments are as
follows:

1998 1997
-----------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-----------------------------------------------
(Dollars in thousands)

Financial assets:
Cash and cash equivalents $ 35,644 $ 35,644 $ 62,099 $ 62,099
Securities 217,991 217,991 215,514 215,514
Loans, net 655,180 659,297 596,077 596,802
Accrued interest receivable 7,167 7,167 7,464 7,464

Financial liabilities:
Deposits 826,704 829,200 811,453 811,198
Short-term borrowings 5,900 5,900 6,550 6,550
Long-term debt 25,000 25,095 10,000 9,982
Accrued interest payable 3,437 3,437 3,586 3,586

In addition, other assets and liabilities of the Corporation that are not
defined as financial instruments are not included in the above disclosures, such
as property and equipment. Also, nonfinancial instruments typically not
recognized in financial statements nevertheless may have value but are not
included in the above disclosures. These include, among other items, the
estimated earnings power of core deposit accounts, the earnings potential of
loan servicing rights, the earnings potential of the trust operations, the
trained work force, customer goodwill and similar items.

NOTE 17. REPORTABLE SEGMENTS AND RELATED INFORMATION

First Busey Corporation has two reportable segments, Busey Bank and First Busey
Trust & Investment Co. Busey Bank provides a full range of banking services to
individual and corporate customers through its branch network in central
Illinois, through its branch in Indianapolis, Indiana, and through its loan
production office in Fort Myers, Florida. First Busey Trust & Investment Co.
provides trust and asset management services to individual and corporate
customers throughout central Illinois.

The Corporation's two reportable segments are strategic business units that are
separately managed as they offer different products and services and have
different marketing strategies.

67

FIRST BUSEY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------

The segment financial information provided below has been derived from the
internal profitability reporting system used by management to monitor and manage
the financial performance of the Corporation. The accounting policies of the
two segments are the same as those described in the summary of significant
accounting policies. The Corporation accounts for intersegment revenue and
transfers at current market value.

The following summarized information relates to the Corporation's reportable
segments, in thousands:

December 31, 1998
-------------------------------------------------------------------------------------
First Busey
Busey Trust & Intersegment Consolidated
Bank Investment Co. All Other Totals Eliminations Totals
-------------------------------------------------------------------------------------

Interest income $ 66,778 $ 165 $ 108 $ 67,051 $ (3) $ 67,048
Interest expense 31,966 - 1,010 32,976 (1) 32,975
Other income 8,003 3,490 16,434 27,927 (14,397) 13,530
Net income 11,758 1,175 11,838 24,771 (13,373) 11,398
Total assets 937,710 3,360 103,617 1,044,687 (93,156) 951,531

December 31, 1997
-------------------------------------------------------------------------------------
First Busey
Busey Trust & Intersegment Consolidated
Bank Investment Co. All Other Totals Eliminations Totals
-------------------------------------------------------------------------------------

Interest income $ 63,651 $ 137 $ 43 $ 63,831 $ - $ 63,831
Interest expense 30,647 - 472 31,119 - 31,119
Other income 6,391 3,200 13,659 23,250 (12,871) 10,379
Net income 10,696 987 10,626 22,309 (11,938) 10,371
Total assets 901,073 2,905 96,509 1,000,487 (84,947) 915,540

December 31, 1996
-------------------------------------------------------------------------------------
First Busey
Busey Trust & Intersegment Consolidated
Bank Investment Co. All Other Totals Eliminations Totals
-------------------------------------------------------------------------------------

Interest income $ 61,091 $ 102 $ 35 $ 61,228 $ (31) $ 61,197
Interest expense 29,488 - 545 30,033 - 30,033
Other income 5,555 2,685 12,025 20,265 (11,496) 8,769
Net income 9,983 651 9,436 20,070 (10,764) 9,306
Total assets 850,212 2,352 83,059 935,623 (70,705) 864,918

68

FIRST BUSEY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------

NOTE 18. PARENT COMPANY ONLY FINANCIAL INFORMATION

Condensed financial data for First Busey Corporation is presented below.

BALANCE SHEETS

December 31,
------------------
1998 1997
------------------
(Dollars in thousands)

ASSETS

Cash and due from subsidiary bank $ 208 $ 131
Securities available for sale 1,993 1,602
Investments in subsidiaries:
Bank 78,901 73,485
Non-bank 8,764 8,334
Premises and equipment, net 15 48
Other assets 4,797 5,515
------------------
TOTAL ASSETS $94,678 $89,115
==================

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Short-term corporate borrowings $ 5,500 $ 6,000
Short-term ESOP borrowings 400 550
Other liabilities 1,675 1,286
------------------
TOTAL LIABILITIES 7,575 7,836
------------------

Stockholders' equity before unearned ESOP shares and deferred
compensation for restricted stock awards 87,536 81,910
Unearned ESOP shares and deferred compensation for restricted
stock awards (433) (631)
------------------
STOCKHOLDERS' EQUITY 87,103 81,279
------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $94,678 $89,115
==================

69

FIRST BUSEY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------

STATEMENTS OF INCOME

Years Ended December 31,
-------------------------
1998 1997 1996
-------------------------
(Dollars in thousands)

Operating income:
Dividends from subsidiaries:
Bank $18,000 $ 6,000 $6,000
Non-bank 975 500 400
Interest and dividend income 40 10 12
Other income 820 788 579
-------------------------
TOTAL OPERATING INCOME 19,835 7,298 6,991
-------------------------

Expenses:
Salaries and employee benefits 957 1,124 1,057
Interest expense 971 429 527
Operating expense 1,543 1,425 1,064
-------------------------
TOTAL EXPENSES 3,471 2,978 2,648
-------------------------

INCOME BEFORE INCOME TAX BENEFIT AND
EQUITY IN UNDISTRIBUTED INCOME OF
SUBSIDIARIES 16,364 4,320 4,343

Income tax benefit 872 767 730
-------------------------

INCOME BEFORE EQUITY IN UNDISTRIBUTED
INCOME OF SUBSIDIARIES 17,236 5,087 5,073

Equity in undistributed income of subsidiaries:
Bank (6,242) 4,696 3,983
Non-bank 404 588 250
-------------------------

NET INCOME $11,398 $10,371 $9,306
=========================

70

FIRST BUSEY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------

STATEMENTS OF CASH FLOWS

Years Ended December 31,
-----------------------------
1998 1997 1996
-----------------------------
(Dollars in thousands)

Cash Flows from Operating Activities
Net income $ 11,398 $10,371 $ 9,306
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 872 972 1,206
Equity in undistributed net income of subsidiaries 5,838 (5,284) (4,233)
Gain on sales of securities (58) (62) -
(Gain) loss on disposal of premises and equipment 11 (1) 6
Changes in assets and liabilities:
Increase in other assets (213) (320) (445)
Increase in other liabilities 389 267 277
-----------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 18,237 5,943 6,117
-----------------------------

Cash Flows from Investing Activities
Proceeds from sales of securities
available for sale 86 556 136
Purchases of securities available for sale (203) (473) (186)
Proceeds from sales of premises and equipment - 1 -
Purchases of premises and equipment (1) (2) (66)
Capital contribution to subsidiary (10,000) (593) -
-----------------------------
NET CASH USED IN INVESTING ACTIVITIES (10,118) (511) (116)

Cash Flows from Financing Activities
Purchases of treasury stock (2,747) (3,127) (605)
Proceeds from sales of treasury stock 586 2,834 797
Proceeds from short-term borrowings 11,000 2,500 1,000
Dividends paid (5,381) (4,762) (4,378)
Principal payments on short-term borrowings (11,500) (4,000) (2,000)
-----------------------------
NET CASH USED IN FINANCING ACTIVITIES (8,042) (6,555) (5,186)
-----------------------------

NET (DECREASE) INCREASE IN CASH AND
DUE FROM BANKS 77 (1,123) 815

Cash and due from banks, beginning 131 1,254 439
-----------------------------

Cash and due from banks, ending $ 208 $ 131 $ 1,254
=============================

71

FIRST BUSEY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------

STATEMENTS OF CASH FLOWS (Continued)

Years Ended December 31,
-------------------------
1998 1997 1996
-------------------------
(Dollars in thousands)

Supplemental Schedule of Noncash Investing and
Financing Activities
Principal payments on ESOP debt $ 150 $ 200 $ 250
=========================

Proceeds from ESOP debt $ - $ 250 $ -
=========================

Transfer of premises and equipment and other
assets to subsidiary $ - $5,441 $ -
=========================

Issuance of treasury stock for acquisition
of Busey Travel, Inc. $ 825 $ - $ -
=========================

Change in unrealized gain on securities
available for sale - holding company $ 216 $ 365 $ 174
=========================

Increase in deferred income taxes attributable
to the unrealized gain on securities
available for sale - holding company $ (76) $ (127) $ (61)
=========================

Change in unrealized gain on securities
available for sale - subsidiaries $ 858 $2,278 $ 79
=========================

72

FIRST BUSEY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------

NOTE 19. UNAUDITED INTERIM FINANCIAL DATA

The following table reflects summarized quarterly data for the periods described
(unaudited), in thousands, except per share data:

1998
- ----------------------------------------------------------------------------
December 31 September 30 June 30 March 31
- ----------------------------------------------------------------------------

Interest income $ 16,649 $ 17,062 $ 16,640 $ 16,697
Interest expense 8,341 8,383 8,109 8,142
Net interest income 8,308 8,679 8,531 8,555
Provision for loan losses - 50 - 650
Noninterest income 3,596 3,282 3,350 3,302
Noninterest expense 7,992 7,586 7,514 7,308
- ----------------------------------------------------------------------------
Income before income taxes 3,912 4,325 4,367 3,899
Income taxes 1,215 1,336 1,366 1,188
- ----------------------------------------------------------------------------
Net income $ 2,697 $ 2,989 $ 3,001 $ 2,711
============================================================================

Basic earnings per share $ 0.20 $ 0.22 $ 0.22 $ 0.19
Diluted earnings per share $ 0.19 $ 0.21 $ 0.22 $ 0.19

1997
- ----------------------------------------------------------------------------
December 31 September 30 June 30 March 31
- ----------------------------------------------------------------------------

Interest income $ 16,598 $ 16,253 $ 15,703 $ 15,277
Interest expense 8,128 8,005 7,603 7,383
- ----------------------------------------------------------------------------
Net interest income 8,470 8,248 8,100 7,894
Provision for loan losses 475 200 200 200
Noninterest income 2,854 2,532 2,537 2,456
Noninterest expense 7,054 6,811 6,659 6,742
- ----------------------------------------------------------------------------
Income before income taxes 3,795 3,769 3,778 3,408
Income taxes 1,119 1,129 1,131 1,000
- ----------------------------------------------------------------------------
Net income $ 2,676 $ 2,640 $ 2,647 $ 2,408
============================================================================

Basic earnings per share $ 0.19 $ 0.19 $ 0.19 $ 0.18
Diluted earnings per share $ 0.19 $ 0.19 $ 0.19 $ 0.17

73

MANAGEMENT REPORT
BUSEY BANK
AS OF DECEMBER 31, 1998

FINANCIAL STATEMENTS
Management of Busey Bank is responsible for the preparation, integrity and fair
presentation of its published financial statements as of December 31, 1998, and
for 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.

INTERNAL CONTROLS
Management is responsible for establishing and maintaining effective internal
control over financial reporting. The internal control 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
internal control may vary over time.

Management assessed its internal control over financial reporting as of December
31, 1998. This assessment was based on criteria for effective internal control
over financial reporting described in "Internal Control - Integrated Framework"
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on this assessment, management believes that Busey Bank maintained
effective internal control over financial reporting as of December 31, 1998.

DESIGNATED LAWS
Management is also responsible for compliance with the federal and state laws
and regulations relating to safety and soundness, including those designated
laws and regulations regarding dividend restrictions and loans to insiders.
Based on our assessment, management believes Busey Bank complied, in all
material respects, with those designated laws and regulations for the year ended
December 31, 1998.

___________________________________
Douglas C. Mills, Chairman of the Board
First Busey Corporation (Holding Company)

___________________________________
P. David Kuhl, President
Busey Bank

74

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,
1998, 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 our 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,
1997, 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).

/s/ McGladrey & Pullen, LLP

Champaign, Illinois
January 29, 1999

75