1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended 3/31/2001 Commission File No. 0-15950 FIRST BUSEY CORPORATION (Exact name of registrant as specified in its charter) Nevada 37-1078406 - ---------------------------------- ------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification Incorporation or organization) No.) 201 W. Main St., Urbana, Illinois 61801 - ---------------------------------- ------------------------------- (Address of principal (Zip Code) executive offices) Registrant's telephone number, including area code: (217) 365-4556 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------- ------ Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date. Class Outstanding at May 1, 2001 ------------------------------------------------------------------------ Common Stock, without par value 13,522,062
2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS 2
3 FIRST BUSEY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) <TABLE> <CAPTION> March 31, 2001 December 31, 2000 -------------- ----------------- (Dollars in thousands) <S> <C> <C> ASSETS Cash and due from banks $ 42,186 $ 58,585 Federal funds sold 50,000 34,700 Securities available for sale (amortized cost 2001, $208,971; 220,528 228,597 2000, $218,790) Loans (net of unearned interest) 972,533 984,369 Allowance for loan losses (12,577) (12,268) ------------ ------------ Net loans $ 959,956 $ 972,101 Premises and equipment 30,537 31,253 Goodwill and other intangibles 11,897 12,255 Other assets 16,297 17,553 ------------ ------------ Total assets $ 1,331,401 $ 1,355,044 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Deposits: Non-interest bearing 117,230 134,669 Interest bearing 1,014,559 1,014,118 ------------ ------------ Total deposits $ 1,131,789 $ 1,148,787 Securities sold under agreements to repurchase 17,624 18,890 Short-term borrowings 30,983 32,283 Long-term debt 42,994 52,976 Other liabilities 11,876 9,783 ------------ ------------ Total liabilities $ 1,235,266 $ 1,262,719 ------------ ------------ STOCKHOLDERS' EQUITY Preferred stock $ - $ - Common stock 6,291 6,291 Surplus 21,861 22,044 Retained earnings 75,565 73,215 Accumulated other comprehensive income 6,973 5,917 ------------ ------------ Total stockholders' equity before treasury stock, unearned ESOP $ 110,690 $ 107,467 shares and deferred compensation for stock grants Treasury stock, at cost (12,267) (12,858) Unearned ESOP shares and deferred compensation for stock grants (2,288) (2,284) ------------ ------------ Total stockholders' equity $ 96,135 $ 92,325 ------------ ------------ Total liabilities and stockholders' equity $ 1,331,401 $ 1,355,044 ============ ============ Common Shares outstanding at period end 13,535,432 13,451,180 ============ ============ </TABLE> 3
4 FIRST BUSEY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 (UNAUDITED) <TABLE> <CAPTION> 2001 2000 -------- -------- INTEREST INCOME: (Dollars in thousands, except per share amounts) <S> <C> <C> Interest and fees on loans $ 20,568 $ 18,239 Interest and dividends on investment securities: Taxable interest income 2,724 2,772 Non-taxable interest income 518 504 Dividends 30 30 Interest on federal funds sold 509 199 -------- -------- Total interest income $ 24,349 $ 21,744 -------- -------- INTEREST EXPENSE: Deposits $ 12,027 $ 9,460 Short-term borrowings 833 1,223 Long-term debt 721 782 -------- -------- Total interest expense $ 13,581 $ 11,465 -------- -------- Net interest income $ 10,768 $ 10,279 Provision for loan losses 400 390 -------- -------- Net interest income after provision for loan losses $ 10,368 $ 9,889 -------- -------- OTHER INCOME: Trust $ 1,151 $ 1,095 Commissions and brokers fees, net 597 408 Service charges on deposit accounts 1,379 1,181 Other service charges and fees 397 630 Security gains (losses), net 651 (7) Gain on sales of pooled loans 433 446 Net commissions from travel services 272 253 Other operating income 512 386 -------- -------- Total other income $ 5,392 $ 4,392 -------- -------- OTHER EXPENSES: Salaries and wages $ 4,264 $ 3,890 Employee benefits 968 727 Net occupancy expense of premises 802 725 Furniture and equipment expenses 971 817 Data processing 190 293 Stationery, supplies and printing 257 209 Amortization of intangible assets 358 383 Other operating expenses 1,518 1,671 -------- -------- Total other expenses $ 9,328 $ 8,715 -------- -------- Income before income taxes $ 6,432 $ 5,566 Income taxes 2,334 1,959 -------- -------- Net income $ 4,098 $ 3,607 ======== ======== BASIC EARNINGS PER SHARE $ 0.30 $ 0.27 ======== ======== DILUTED EARNINGS PER SHARE $ 0.30 $ 0.26 ======== ======== DIVIDENDS DECLARED PER SHARE OF COMMON STOCK $ 0.13 $ 0.12 ======== ======== </TABLE> 4
5 FIRST BUSEY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 (UNAUDITED) <TABLE> <CAPTION> 2001 2000 -------- -------- (Dollars in thousands) <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 4,098 $ 3,607 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,385 1,276 Provision for loan losses 400 390 Increase in deferred income taxes 26 6 Amortization of investment security discounts (326) (110) Loss (gain) on sales of investment securities, net (651) 7 Proceeds from sales of pooled loans 35,839 11,333 Loans originated for sale (44,440) (8,037) Gain on sale of pooled loans (433) (446) Gain on sale and disposition of premises and equipment - (168) Change in assets and liabilities: Decrease (increase) in other assets 996 (15) Increase (decrease) in accrued expenses 129 (1,399) Decrease in interest payable (102) (419) Increase in income taxes payable 1,518 1,953 -------- -------- Net cash (used in) provided by operating activities ($ 1,561) $ 7,978 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sales of securities classified available for sale $ 1,507 $ 1,049 Proceeds from maturities of securities classified available for sale 34,218 17,595 Purchase of securities classified available for sale (24,841) (22,639) Increase in federal funds sold (15,300) (4,800) Decrease (increase) in loans 20,779 (15,506) Proceeds from sale of premises and equipment - 407 Purchases of premises and equipment (310) (1,682) -------- -------- Net cash provided by (used in) investing activities $ 16,053 ($25,576) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Net increase (decrease) in certificates of deposit 719 ($29,202) Net (decrease) increase in demand, money market and saving deposits (17,717) 10,647 Cash dividends paid (1,748) (1,619) Purchase of treasury stock (2,082) (1,409) Proceeds from sale of treasury stock 2,485 - Net decrease in securities sold under agreement to repurchase (1,266) (561) Proceeds from short-term notes payable 1,200 16,926 Principal payments on short-term borrowings (2,500) (14,283) Proceeds from long-term borrowings - 10,000 Principal payments on long-term borrowings (9,982) (12,941) -------- -------- Net cash provided by used in financing activities ($30,891) ($22,442) -------- -------- Net increase (decrease) in cash and due from banks ($16,399) ($40,040) Cash and due from banks, beginning $ 58,585 $ 69,722 -------- -------- Cash and due from banks, ending $ 42,186 $ 29,682 ======== ======== </TABLE> 5
6 FIRST BUSEY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 <TABLE> <CAPTION> 2001 2000 ------- ------- (Dollars in thousands, except per share amounts) <S> <C> <C> Net income $ 4,098 $ 3,607 Other comprehensive income, before tax: Unrealized gains on securities: Unrealized holding gains (losses) arising during period 2,401 ($1,566) Less reclassification adjustment for (gains) losses included in net income (651) 7 ------- ------- Other comprehensive income, before tax 1,750 (1,559) Income tax expense related to items of other comprehensive income 694 620 ------- ------- Other comprehensive income, net of tax $ 1,056 ($ 939) ------- ------- Comprehensive income $ 5,154 $ 2,668 ======= ======= </TABLE> FORWARD LOOKING STATEMENTS This presentation includes forward looking statements that are intended to be covered by the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward looking statements include but are not limited to comments with respect to the objectives and strategies, financial condition, results of operations and business of First Busey. These forward looking statements involve numerous assumptions, inherent risks and uncertainties, both general and specific, and the risk that predictions and other forward looking statements will not be achieved. First Busey cautions you not to place undue reliance on these forward looking statements as a number of important factors could cause actual future results to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward looking statements. These risks, uncertainties and other factors include the general state of the economy, both on a local and national level, the ability of First Busey to successfully complete acquisitions, the continued growth of geographic regions served by the Corporation, and the retention of individuals who currently are very important in the management structure of First Busey Corporation. FIRST BUSEY CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1: INTERIM FINANCIAL STATEMENTS The consolidated interim financial statements of First Busey Corporation and Subsidiaries are unaudited, but in the opinion of management reflect all necessary adjustments, consisting only of normal recurring accruals, for a fair presentation of results as of the dates and for the periods covered by the financial statements. The interim financial statements should be read in conjunction with the Company's Annual Report and Form 10-K for the year ended December 31, 2000. The results for the interim periods are not necessarily indicative of the results of operations that may be expected for the fiscal year. 6
7 NOTE 2: LOANS The major classifications of loans at March 31, 2001 and December 31, 2000 were as follows: <TABLE> <CAPTION> March 31, 2001 December 31, 2000 -------------------------------------- (Dollars in thousands) <S> <C> <C> Commercial $117,031 $124,052 Real estate construction 81,117 75,672 Real estate - farmland 15,323 15,411 Real estate - 1-4 family residential mortgage 401,528 403,676 Real estate - multifamily mortgage 57,994 61,954 Real estate - non-farm nonresidential mortgage 232,184 231,230 Installment 48,987 50,767 Agricultural 17,654 20,844 ---------------------------- $971,818 $983,606 Plus: Deferred loan fees 715 763 ---------------------------- $972,533 $984,369 Less: Allowance for loan losses 12,577 12,268 ---------------------------- Net loans $959,956 $972,101 ============================ </TABLE> The real estate-mortgage category includes loans held for sale with carrying values of $14,526,000 at March 31, 2001 and $5,492,000 at December 31, 2000; these loans had fair market values of $14,652,000 and $5,568,000 respectively. The following table sets forth the maturities of the loan portfolio: <TABLE> <CAPTION> Over 1 Year 1 Year Through Over Or Less 5 Years 5 Years Total --------------------------------------------------------------- <S> <C> <C> <C> <C> Commercial and agricultural $ 55,916 $ 32,713 $ 46,056 $134,685 Real estate 150,441 279,236 358,469 788,146 Installment 8,876 37,306 2,805 48,987 -------- -------- -------- -------- $215,233 $349,255 $407,330 $971,818 ======== ======== ======== ======== Fixed rate $109,369 $242,219 $ 87,777 $439,365 Floating rate 105,864 107,036 319,553 532,453 -------- -------- -------- -------- $215,233 $349,255 $407,330 $971,818 ======== ======== ======== ======== </TABLE> 7
8 FIRST BUSEY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3: INCOME PER SHARE Net income per common share has been computed as follows: <TABLE> <CAPTION> Three Months Ended March 31, 2001 2000 ----------- ----------- <S> <C> <C> Net income $ 4,098,000 $ 3,607,000 Shares: Weighted average common shares outstanding 13,442,495 13,368,992 Dilutive effect of outstanding options, as determined by the application of the treasury stock method 160,490 273,647 ----------- ----------- Weighted average common shares outstanding, as adjusted for diluted earnings per share calculation 13,602,985 13,642,639 =========== =========== Basic earnings per share $ 0.30 $ 0.27 =========== =========== Diluted earnings per share $ 0.30 $ 0.26 =========== =========== </TABLE> ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is management's discussion and analysis of the financial condition of First Busey Corporation and Subsidiaries ("Corporation") at March 31, 2001 (unaudited) when compared with December 31, 2000 and the results of operations for the three months ended March 31, 2001 and 2000 (unaudited). This discussion and analysis should be read in conjunction with the Corporation's consolidated financial statements and notes thereto appearing elsewhere in this quarterly report. FINANCIAL CONDITION AT MARCH 31, 2001 AS COMPARED TO DECEMBER 31, 2000 Total assets decreased $23,643,000, or 1.7%, to $1,331,401,000 at March 31, 2001 from $1,355,044,000 at December 31, 2000. Securities available for sale decreased $8,069,000 or 3.5%, to $220,528,000 at March 31, 2001 from $228,597,000 at December 31, 2000. Loans decreased $11,836,000 or 1.2%, to $972,533,000 at March 31, 2001 from $984,369,000 at December 31, 2000, primarily due to decreases in commercial, 1-4 family residential mortgages, multifamily mortgages, installment, and agricultural loans. These decreases were partially offset by increases in real estate construction loans. Commercial loans experienced the largest decline in balances. This decline was due primarily to balance reductions by five borrowers. Total deposits decreased $16,998,000, or 1.5%, to $1,131,789,000 at March 31, 2001 from $1,148,787,000 at December 31, 2000. Non interest-bearing deposits decreased $17,439,000 or 12.9% to $117,230,000 at March 31, 2001 from $134,669,000 at December 31, 2000. Interest-bearing deposits increased $441,000 or 0.04% to $1,014,559,000 at March 31, 2001 from $1,014,118,000 at December 31, 2000. Long-term borrowings decreased $9,982,000 or 23.2% to $42,994,000 at March 31, 2001, as compared to $52,976,000 at December 31, 2000. In the first three months of 2001, the Corporation repurchased 110,998 shares of its common stock at an aggregate cost of $2,082,000. The Corporation is purchasing shares for the treasury as they become available in order to meet future issuance requirements of previously granted non-qualified stock options. 8
9 The following table sets forth the components of non-performing assets and past due loans. <TABLE> <CAPTION> March 31, 2001 December 31,2000 -------------- ---------------- (Dollars in thousands) <S> <C> <C> Non-accrual loans $ 1,451 $ 767 Loans 90 days past due, still accruing 4,609 4,667 Restructured loans - - Other real estate owned 185 230 Non-performing other assets 12 11 -------------- ---------------- Total non-performing assets $ 6,257 $ 5,675 ============== ================ Total non-performing assets as a percentage of total assets 0.47% 0.42% ============== ================ Total non-performing assets as a percentage of loans plus non-performing assets 0.64% 0.57% ============== ================ </TABLE> The ratio of non-performing assets to loans plus non-performing assets increased to 0.64% at March 31, 2001 from 0.57% at December 31, 2000. This was due to increases in the balance of nonaccrual loans offset partially by a decrease in loans 90 days past due, still accruing. The balance in non-accrual loans as of March 31, 2001, includes $1,032,000 in loans secured by single-family mortgage loans which were acquired when the Corporation acquired Busey Bank fsb in October, 1999. These loans are well collateralized in various states of collection including foreclosure. Management expects losses on these assets to be minimal as the loans are well-collateralized and payment plans are being established to make up for deficiencies. The March 31, 2001, balance in loans 90 days past due, still accruing, includes a loan in the amount of $2,134,000 to one borrower which is secured by real estate. The borrower has entered into a contract to sell the property and repayment is expected following the closing of the sale. Management has also implemented more rigorous underwriting standards and more aggressive collection procedures to prevent additional growth in non-performing loans. RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2001 AS COMPARED TO MARCH 31, 2000 SUMMARY Net income for the three months ended March 31, 2001 increased 13.6% to $4,098,000 as compared to $3,607,000 for the comparable period in 2000. Diluted earnings per share increased 15.4% to $.30 at March 31, 2001 as compared to $.26 for the same period in 2000. Operating earnings, which exclude security gains (losses) and the related tax expense (benefit), were $3,705,000, or $.27 per share for the three months ended March 31, 2001, as compared to $3,612,000, or $.26 per share for the same period in 2000. The Corporation's return on average assets was 1.25% for the three months ended March 31, 2001, as compared to 1.18% achieved for the comparable period in 2000. The return on average assets from operations declined to 1.13% for the three months ended March 31, 2001, as compared to the 1.19% achieved in the comparable period of 2000. Net interest margin, the Corporation's net interest income expressed as a percentage of average earning assets stated on a fully taxable equivalent basis, was 3.60% for the three months ended March 31, 2001, as compared to 3.74% for the same period in 2000. The net interest margin expressed as a percentage of average total assets, also on a fully taxable equivalent basis, was 3.38% for the three months ended March 31, 2001, compared to 3.48% for the same period in 2000. During the three months ended March 31, 2001, the Corporation recognized security gains of approximately $393,000, after income taxes, representing 9.6% of net income. During the same period in 2000, security losses of approximately $5,000 after income taxes were recognized, representing 0.14% of net income. The Corporation owns a position in a qualified equity security with substantial appreciated value. First Busey's Board 9
10 of Directors has authorized an orderly liquidation of this asset over a six-year period. INTEREST INCOME Interest income, on a tax equivalent basis, for the three months ended March 31, 2001 increased 11.9% to $24,686,000 from $22,068,000 for the comparable period in 2000. The increase in interest income resulted primarily from increases in the average balances of Federal funds sold, other securities, and loans combined with an increase in the average yield earned on loans. The average yield on interest-earning assets increased 21 basis points for the three months ended March 31, 2001, as compared to the same period in 2000, due primarily to the increase in the yield on loan balances. INTEREST EXPENSE Total interest expense for the three months ended March 31, 2001, increased 18.5% to $13,581,000 from $11,465,000 for the comparable period. The increase resulted primarily from increases in the average balances of interest-bearing transaction accounts, money market deposits, and time deposits, combined with higher rates on interest-bearing transaction deposits, money market deposits, and time deposits for the three months ended March 31, 2001, as compared to the same period in 2000. PROVISION FOR LOAN LOSSES The provision for loan losses of $400,000 for the three months ended March 31, 2001, was $10,000 more than the provision for the comparable period in 2000. The provision and the low level of net charge-offs for the period resulted in the reserve representing 1.29% of total loans on March 31, 2001, slightly higher than the 1.25% level at December 31, 2000. Management considers the reserve for loan losses to be adequate based on the composition of the portfolio, non-performing asset levels, recent credit quality experience, historic charge-off trends, and prevailing economic conditions among other factors. OTHER INCOME, OTHER EXPENSE AND INCOME TAXES Total other income, excluding security transactions, increased 7.8% to $4,741,000 from $4,399,000 for the three months ended March 31, 2001, as compared to the same period in 2000. This was a combination of increased trust revenue, commissions and brokers' fees, service charges on deposit accounts, offset by a decrease in other service charges and fees. In April, 2000, the Corporation sold its merchant transaction processing operation. Fee income on this operation was included in other service charges and fees through the date of sale and is responsible for most of the decrease in this line item for the three months ended March 31, 2001, as compared to the same period in 2000. Gains of $433,000 were recognized on the sale of $35,406,000 of loans for the three months ended March 31, 2001, as compared to gains of $446,000 on the sale of $10,887,000 of loans in the prior year period. The gains recognized in the three months ending March 31, 2000 include a one-time gain of $350,000 on the sale of the Corporation's credit card loan portfolio, which had balances of $4,116,000. The increases in gains on the sale of loans and the principal balances sold can be attributed to the interest-rate environment experienced during the three months ended March 31, 2001 as customers refinanced existing home mortgages at lower interest rates. Management anticipates continued sales from the current mortgage loan production of the Corporation if mortgage loan originations allow and the sales of the loans are necessary to maintain the asset/liability structure that the Corporation is trying to effect. The Corporation may realize gains and/or losses on these sales dependent upon interest rate movements and upon how receptive the debt markets are to mortgage backed securities. Total other expense increased 7.0% or $613,000 to $9,328,000 for the three months ended March 31, 2001 as compared to $8,715,000 for the same period in 2000. Salaries and wages expense increased $374,000 or 9.6% and employee benefits expense increased $241,000 or 33.1% for the three months ended March 31, 2001, as compared to the same period last year. The Corporation had 499 and 495 full-time-equivalent employees as of March 31, 2001, and 2000, respectively. Occupancy and 10
11 furniture and equipment expenses increased 15.0% to $1,773,000 for the three months ended March 31, 2001 from $1,542,000 in the prior year period. In October, 2000, Busey Bank fsb opened a full-service branch office in Fort Myers, Florida. The majority of the increases in occupancy and furniture and equipment expense can be attributed to the opening of this branch office. Data processing expense decreased $103,000 to $190,000 for the three months ended March 31, 2001 from the prior year period. Other operating expenses decreased $153,000 or 9.2% for the three months ended March 31, 2001 from the prior year period. The Corporation's net overhead expense, total non-interest expense less non-interest income divided by average assets, increased to 1.64% for the three months ended March 31, 2001 from 1.42% in the prior year. The Corporation's efficiency ratio is defined as operating expenses divided by net revenue. (More specifically it is defined as non interest expense expressed as a percentage of the sum of tax equivalent net interest income and non interest income, excluding security gains and amortization expense). The consolidated efficiency ratio for the three months ended March 31, 2001 was 56.6% as compared to 55.5% for the prior year period. Income taxes for the three months ended March 31, 2001 increased to $2,334,000 as compared to $1,959,000 for the comparable period in 2000. The increase is due primarily to the higher level of pre-tax income. As a percent of income before taxes, the provision for income taxes increased to 36.3% for the three months ended March 31, 2001 from 35.2% for the same period in 2000. REPORTABLE SEGMENTS AND RELATED INFORMATION First Busey Corporation has three reportable segments, Busey Bank, Busey Bank fsb, 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 Champaign and Ford Counties in Illinois, through its branch in Indianapolis, Indiana, and through its loan production office in Fort Myers, Florida. First Busey Trust & Investment Co. provides trust and asset management services to individual and corporate customers throughout central Illinois. Busey Bank fsb provides a full range of banking services to individual and corporate customers in Bloomington, Illinois, and the surrounding communities, and in Fort Myers, Florida. The Corporation's three reportable segments are strategic business units that are separately managed as they offer different products and services and have different marketing strategies. The segment financial information provided below has been derived from the internal profitability reporting system used by management to monitor and manage the financial performance of the Corporation. The accounting policies of the three segments are the same as those described in the summary of significant accounting policies. The Corporation accounts for intersegment revenue and transfers at current market value. 11
12 <TABLE> <CAPTION> March 31, 2001 ---------------------------------------------------------------------------------------------------------- First Busey Busey Bank Trust & Consolidated Busey Bank fsb Investment Co. All Other Totals Eliminations Totals ---------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> Interest income $ 18,570 $ 5,707 $ 45 $ 33 $ 24,355 $ (6) $ 24,349 Interest expense 9,575 3,435 - 551 13,561 20 13,581 Other income 3,133 536 1,164 5,798 10,631 (5,239) 5,392 Net income 3,638 497 349 4,275 8,759 (4,661) 4,098 Total assets 1,025,551 303,083 3,697 135,907 1,468,238 (136,837) 1,331,401 </TABLE> <TABLE> <CAPTION> March 31, 2000 ---------------------------------------------------------------------------------------------------------- First Busey Busey Bank Trust & Consolidated Busey Bank fsb Investment Co. All Other Totals Eliminations Totals ---------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> Interest income $ 18,626 $ 3,046 $ 41 $ 33 $ 21,746 $ (2) $ 21,744 Interest expense 9,150 1,638 - 627 11,415 50 11,465 Other income 2,489 171 1,101 5,237 8,998 (4,606) 4,392 Net income 3,501 265 361 3,764 7,891 (4,284) 3,607 Total assets 1,041,904 173,455 3,399 128,302 1,347,060 (119,573) 1,227,487 </TABLE> LIQUIDITY Liquidity is the availability of funds to meet all present and future financial 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 non-reinvested asset maturities, 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 the Federal Home Loan Bank. The Corporation does not deal in or use brokered deposits as a source of liquidity. The Corporation has an operating line with American National Bank and Trust Company of Chicago in the amount of $10,000,000 with $3,700,000 available as of March 31, 2001. Long-term liquidity needs will be satisfied primarily through retention of capital funds. The Corporation's reliance on large liabilities (defined as time deposits over $100,000 and short-term borrowings) decreased to 16.5% at March 31, 2001 from 17.3% at December 31, 2000. This is the ratio of total large liabilities to total liabilities. This change was due to a $11,809,000 decrease in time deposits over $100,000 partially and a $2,566,000 decrease in short-term debt. CAPITAL RESOURCES Other than from the issuance of common stock, the Corporation's primary source of capital is retained net income. During the three months ended March 31, 2001, the Corporation earned $4,098,000 and paid dividends of $1,748,000 to stockholders, resulting in a retention of current earnings of $2,350,000. The Corporation's dividend payout for the three months ended March 31, 2001 was 42.7%. The Corporation's total risk-based capital ratio was 10.37% and the leverage ratio was 5.89% as of March 31 2001, as compared to 9.43% and 5.71% respectively as of December 31, 2000. The Corporation and its bank subsidiary were well above all minimum required capital ratios as of March 31, 2001. 12
13 RATE SENSITIVE ASSETS AND LIABILITIES Interest rate sensitivity is a measure of the volatility of the net interest margin as a consequence of changes in market rates. The rate-sensitivity chart shows the interval of time in which given volumes of rate-sensitive, earning assets and rate-sensitive, interest bearing liabilities would be responsive to changes in market interest rates based on their contractual maturities or terms for repricing. It is however, only a static, single-day depiction of the Corporation's rate sensitivity structure, which can be adjusted in response to changes in forecasted interest rates. The following table sets forth the static rate-sensitivity analysis of the Corporation as of March 31, 2001. <TABLE> <CAPTION> Rate Sensitive Within ----------------------------------------------------------------------------------- 1-30 31-90 91-180 181 Days - Over Days Days Days 1 Year 1 Year Total ----------------------------------------------------------------------------------- (Dollars in thousands) <S> <C> <C> <C> <C> <C> <C> Interest-bearing deposits $ 3,459 $ - $ - $ - $ - $ 3,459 Federal funds sold 50,000 - - - - 50,000 Investment securities U.S. Governments 18,096 19,981 17,051 35,763 62,301 153,192 Obligations of states and political subdivisions 225 57 101 5,547 38,158 44,088 Other securities 8,814 1,505 - 50 12,879 23,248 Loans (net of unearned int.) 327,670 106,740 85,054 106,983 346,086 972,533 ----------------------------------------------------------------------------------- Total rate-sensitive assets $408,264 $128,283 $102,206 $148,343 $459,424 $1,246,520 ----------------------------------------------------------------------------------- Interest bearing transaction deposits $51,287 $ - $ - $ - $ - $51,287 Savings deposits 90,424 - - - - 90,424 Money market deposits 325,701 - - - - 325,701 Time deposits 50,813 95,360 145,323 145,897 109,754 547,147 Short-term borrowings: Federal funds purchased & repurchase agreements 6,110 2,207 2,382 2,460 4,465 17,624 Other - - - 30,983 - 30,983 Long-term debt 4,994 12,000 - 11,000 15,000 42,994 ----------------------------------------------------------------------------------- Total rate-sensitive liabilities $529,329 $109,567 $147,705 $190,340 $129,219 $1,106,160 ----------------------------------------------------------------------------------- Rate-sensitive assets less rate-sensitive liabilities ($ 121,065) $ 18,716 ($ 45,499) ($ 41,997) $330,215 $140,360 ----------------------------------------------------------------------------------- Cumulative Gap ($ 121,065) ($102,349) ($ 147,848) ($ 189,845) $140,360 =================================================================================== Cumulative amounts as a percentage of total rate-sensitive assets -9.71% -8.21% -11.86% -15.23% 11.26% =================================================================================== Cumulative ratio 0.77 0.84 0.81 0.81 1.13 =================================================================================== </TABLE> The foregoing table shows a negative (liability sensitive) rate-sensitivity gap of $121.1 million in the 1-30 day repricing category. On a cummulative basis, the gap remains liability sensitive as rate-sensitive assets that reprice in those time periods are 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 March 31, 2001 will benefit the Corporation more if interest rates fall during the next year by allowing the net interest margin to grow as liability rates would reprice more quickly than rates on interest rate-sensitive assets. After 1 year, a rate increase would benefit the Corporation because the volume of rate-sensitive assets repricing would exceed the volume of rate-sensitive liabilities that would be repricing. 13
14 FIRST BUSEY CORPORATION AND SUBSIDIARIES AVERAGE BALANCE SHEETS AND INTEREST RATES QUARTERS ENDED MARCH 31, 2001 AND 2000 <TABLE> <CAPTION> 2001 2000 -------------------------------------- ------------------------------------ Average Income/ Yield/ Average Income/ Yield/ Balance Expense Rate Balance Expense Rate -------------------------------------- ------------------------------------ <S> <C> <C> <C> <C> <C> <C> ASSETS (Dollars in thousands) Federal funds sold $ 37,173 $ 509 5.55% $ 14,509 $ 199 5.52% Investment securities U.S. Government obligations 162,189 2,338 5.85% 177,376 2,559 5.80% Obligations of states and political subdivisions (1) 43,451 797 7.44% 40,517 775 7.69% Other securities 35,674 416 4.73% 21,360 242 4.56% Loans (net of unearned interest) (1) (2) 972,634 20,626 8.60% 885,669 18,293 8.31% ------------------------ ---------------------- Total interest earning assets $ 1,251,121 $ 24,686 8.00% $1,139,431 $ 22,068 7.79% =========== ============ Cash and due from banks 33,011 33,650 Premises and equipment 30,999 29,147 Reserve for possible loan losses (12,395) (10,510) Other assets 28,182 33,197 ------------- ------------- Total Assets $ 1,330,918 $ 1,224,915 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing transaction deposits $ 38,244 274 2.91% $ 24,490 $ 137 2.25% Savings deposits 87,946 648 2.99% 97,502 732 3.02% Money market deposits 335,444 2,829 3.42% 325,832 2,591 3.20% Time deposits 553,332 8,276 6.07% 460,732 6,000 5.24% Short-term borrowings: Federal funds purchased and 18,211 260 5.79% 25,021 356 5.72% repurchase agreements Other 31,583 573 7.36% 47,849 867 7.29% Long-term debt 50,538 721 5.79% 53,744 782 5.85% ------------------------- ---------------------- Total interest-bearing liabilities $ 1,115,298 $ 13,581 4.94% $1,035,170 $ 11,465 4.45% ============ =========== Net interest spread 3.06% 3.34% ========== ============ Demand deposits 111,374 99,901 Other liabilities 10,138 8,565 Stockholders' equity 94,108 81,279 ------------- ------------- Total Liabilities and Stockholders' Equity $ 1,330,918 $ 1,224,915 ============= ============= Interest income / earning assets (1) $ 1,251,121 $ 24,686 8.00% $1,139,431 $ 22,068 7.79% Interest expense / earning assets $ 1,251,121 13,581 4.40% $1,139,431 $ 11,465 4.05% ---------------------- ------------------------- Net interest margin (1) $ 11,105 3.60% $ 10,603 3.74% ====================== ========================= </TABLE> (1) On a tax-equivalent basis, assuming a federal income tax rate of 35% for 2001 and 2000. (2) Non-accrual loans have been included in average loans, net of unearned interest. 14
15 FIRST BUSEY CORPORATION AND SUBSIDIARIES CHANGES IN NET INTEREST INCOME QUARTERS ENDED MARCH 31, 2001 AND 2000 <TABLE> <CAPTION> Change due to (1) Average Average Total Volume Yield/Rate Change ---------------------------------------- (Dollars in thousands) <S> <C> Increase (decrease) in interest income: Federal funds sold $ 309 $ 1 $ 310 Investment securities: U.S. Government obligations (235) 14 (221) Obligations of states and political subdivisions (2) 49 (27) 22 Other securities 164 10 174 Loans (2) 1,712 621 2,333 ------------------------------------- Change in interest income (2) $ 1,999 $ 619 $ 2,618 ------------------------------------- Increase (decrease) in interest expense: Interest-bearing transaction deposits $ 91 $ 46 $ 137 Savings deposits (76) (8) (84) Money market deposits 71 167 238 Time deposits 1,271 1,005 2,276 Short-term borrowings: Federal funds purchased and repurchase agreements (100) 4 (96) Other (302) 8 (294) Long-term debt (51) (10) (61) ------------------------------------- Change in interest expense $ 904 $ 1,212 $ 2,116 ------------------------------------- Increase in net interest income (2) $ 1,095 ($ 593) $ 502 ===================================== </TABLE> (1) Changes due to both rate and volume have been allocated proportionally. (2) On a tax-equivalent basis, assuming a federal income tax rate of 35% for 2001 and 2000. 15
16 ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK MARKET RISK Market risk is the risk of change in asset values due to movements in underlying market rates and prices. Interest rate risk is the risk to earnings and capital arising from movements in interest rates. Interest rate risk is the most significant market risk affecting the Corporation as other types of market risk, such as foreign currency exchange rate risk and commodity price risk, do not arise in the normal course of the Corporation's business activities. The Corporation's subsidiary banks, Busey Bank, and Busey Bank fsb have asset-liability committees which meet at least quarterly to review current market conditions and attempt to structure the banks' balance sheets to ensure stable net interest income despite potential changes in interest rates with all other variables constant. The asset-liability committees use gap analysis to identify mismatches in the dollar value of assets and liabilities subject to repricing within specific time periods. The Funds Management Policy established by the asset-liability committees and approved by the Corporation's board of directors establishes guidelines for maintaining the ratio of cumulative rate-sensitive assets to rate sensitive liabilities within prescribed ranges at certain intervals. A summary of the Corporation's gap analysis is summarized in the Rate Sensitive Assets and Liabilities section of this report. The committees do not rely solely on gap analysis to manage interest-rate risk as interest rate changes do not impact all categories of assets and liabilities equally or simultaneously. The asset-liability committees supplement gap analysis with balance sheet and income simulation analysis to determine the potential impact on net interest income of changes in market interest rates. In these simulation models the balance sheet is projected over a one-year period and net interest income is calculated under current market rates, and then assuming permanent instantaneous shifts in the yield curve of +/-100 basis points 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 March 31, 2001, is as follows: <TABLE> <CAPTION> Basis Point Changes -200 -100 +100 +200 ---------------------------------------------- <S> <C> <C> <C> <C> Percentage change in net interest income due to an immediate change in interest rates over a one-year period (4.91%) (2.39%) (0.66%) (2.79%) </TABLE> 16
17 PART II - OTHER INFORMATION ITEM 1: Legal Proceedings None ITEM 2: Changes in Securities Not applicable ITEM 3: Defaults Upon Senior Securities Not applicable ITEM 4: The annual meeting of stockholders of First Busey Corporation was held on April 16, 2001. At that meeting, the following matters were approved by the stockholders: 1. Election of the following fourteen (14) directors to serve until the next annual meeting of stockholders: Joseph M. Ambrose Samuel P. Banks T. O. Dawson Victor F. Feldman Kenneth M. Hendren E. Phillips Knox Barbara J. Kuhl V. B. Leister, Jr. P. David Kuhl Linda M. Mills Douglas C. Mills David C. Thies Edwin A. Scharlau II Arthur R. Wyatt 2. Ratification of the appointment of McGladrey & Pullen, LLP as independent auditors for the fiscal year ending December 31, 2001. For: 10,583,692 (78.02%) Against: 3,523 (0.03%) Abstain: 20,272 (0.15%) ITEM 5: Other Information Not Applicable ITEM 6: Exhibits and Reports on Form 8-K (a.) EXHIBIT 21.1 See Exhibit Index (b.) REPORTS ON FORM 8-K On April 17, 2001, the Corporation filed a report on Form 8-K dated April 16, 2001, relating to Vision 2010, First Busey Corporation's strategic plan, which was presented at the Corporation's annual shareholder meeting held April 16, 2001. 17
18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused the report to be signed on its behalf by the undersigned thereunto duly authorized. FIRST BUSEY CORPORATION (REGISTRANT) By: /s/ Barbara J. Jones -------------------------------------------- Barbara J. Jones Chief Financial Officer (Principal financial and accounting officer) Date: May 15, 2001 18