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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, 1997
[ ] 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 6, 1998, the aggregate market value of the Class A Common Stock
held by non-affiliates was $112,351,170. The market value of the Class A Common
Stock is based on the "Bid" price for such stock as reported in the OTC Bulletin
Board 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 6, 1998
--------------------------------------- ----------------------------
Class A Common Stock, without par value 6,895,174
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement dated March 23, 1998 for First Busey
Corporation's Annual Meeting of Stockholders to be held April 27, 1998, (the
"1998 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 10
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 13
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations 14
Item 8 Financial Statements and Supplementary Data 29
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 29
PART III
Item 10 Directors and Executive Officers of the Registrant 29
Item 11 Executive Compensation 29
Item 12 Security Ownership of Certain Beneficial Owners and Management 29
Item 13 Certain Relationships and Related Transactions 29
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
multi-bank holding company located in Urbana, Illinois. As of December 31,
1997, First Busey owned one community bank subsidiary, and acquired a second one
as of January 12, 1998, a trust company subsidiary, a securities broker-dealer
subsidiary, an insurance subsidiary, a real estate subsidiary, and, effective
January 2, 1998, a travel agency subsidiary. First Busey is engaged primarily
in commercial, retail and correspondent banking and provides trust services,
insurance services, and travel services. Based on assets of $916 million as of
December 31, 1997, First Busey, with deposits of $811 million and stockholders'
equity of $81 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 second
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 (eighteen 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, 1997, Busey Bank had total assets of
$900.8 million, representing 98% of First Busey's assets, and had
total revenues of $70.9 million, representing 96% 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
$660 million, and by developing new financial services. During 1997, revenues
from trust activities were $3.2 million. First Busey Resources, Inc.,
previously an inactive subsidiary of First Busey Corporation, became active on
January 7, 1997. This subsidiary currently 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 acquired 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. It is anticipated that this banking center will serve
the financial needs of the customers who were previously being served by the
Loan Production Office.
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. This subsidiary 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.
COMPETITION
First Busey faces intense competition in all phases of its banking business
from other banks and financial institutions. First Busey's subsidiary banks
compete for deposits with a large number of depository institutions including
commercial banks, savings and loan associations, credit unions, money market
funds and other financial institutions and financial intermediaries serving
Champaign County, 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 banks compete 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 banks
compete 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 banks are
substantially larger in size than First Busey and First Busey's subsidiary
banks, and many non-bank financial intermediaries are not subject to the
regulatory restrictions applicable to First Busey's bank subsidiaries. First
Busey and its subsidiary banks have experienced an increase in the level of
competition as well as the number of competitors in recent years. See
"Supervision and Regulation."
EMPLOYEES
First Busey and its subsidiaries employed 393 employees (full-time
equivalent) on December 31, 1997. Management considers its relationship with
its employees to be good.
SUPERVISION AND REGULATION
GENERAL
Financial institutions and their holding companies are extensively
regulated under federal and state laws. As a result, the business, financial
condition and prospects of First Busey and its subsidiary banks can be
materially affected not only by management decisions and general economic
conditions, but also by applicable statutes and regulations and other regulatory
pronouncements and policies promulgated by regulatory agencies with jurisdiction
over First Busey and its subsidiary banks, such as the Federal Reserve Board
("FRB"), Federal Deposit Insurance Corporation ("FDIC") and the 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 banks 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 banks 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 banks or by its subsidiary banks of all or a substantial
portion of its assets.
Permitted Non-Banking Activities
The BHCA generally prohibits a bank holding company from engaging in
activities or acquiring or controlling, directly or indirectly, the voting
securities or assets of any company engaged in any activity other than
banking, 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.
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.
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.
8
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, 1997, First Busey's Tier 1 and total risk-based
capital ratios were 11.81% and 13.01%, respectively, and its Tier 1 leverage
ratio was 7.61%.
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."
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.
9
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, 1997, Busey Bank
had $25,754,000 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.
ITEM 2. PROPERTIES
As of March 6, 1998, First Busey and its subsidiaries conduct
business in twenty-one 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 six locations. Two supermarket locations, the Bloomington
facility, the Busey Plaza Building and the Indianapolis 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.
10
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 57
Executive Officer of First Busey (1971)
Edwin A. Scharlau II* Chairman of the Board of First Busey Trust & 53
Investment Co. and First Busey Securities, Inc.
(1967)
P. David Kuhl* President and Chief Executive 48
Officer of Busey Bank (1979)
*Director
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Since July 1, 1988, First Busey Class A Common Stock has been traded
in the over-the-counter market and quoted in the National Quotation Bureau's
"Pink Sheets." The "Pink Sheets" include approximately 14,000 thinly traded
stocks. In 1997, First Busey Corporation began trading on the OTC Bulletin
Board. The market quotations reflect inter-dealer prices, without
retail-markup, markdown or commission and may not necessarily represent actual
transactions. The investment banking firm of Stephens Inc., Little Rock,
Arkansas, is the principal market maker for First Busey Class A Common Stock.
The last reported "Bid" price for First Busey Class A Common Stock is reported
daily in the News-Gazette, a Champaign-Urbana newspaper. Prior to July 1, 1988,
there was no public market for First Busey Class A Common Stock. Although 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.
The following table presents for the periods indicated the high and
low "Bid" quotations for First Busey Class A Common Stock as provided by the
Corporation's market maker Stephens, Inc. and reported on the OTC Bulletin
Board.
1997 1996
-------------- --------------
Market Prices of Common Stock High Low High Low
----------------------------- ------ ------ ------ ------
First Quarter $23.75 $22.25 $19.17 $18.00
Second Quarter $24.25 $23.75 $21.00 $18.50
Third Quarter $25.75 $24.25 $22.00 $20.00
Fourth Quarter $27.75 $25.75 $23.75 $21.25
11
During 1997 and 1996, First Busey, declared cash dividends per share as follows:
CLASS A CLASS B
1997 COMMON STOCK COMMON STOCK
------- ------------ ------------
January $ .1700 $ .1546
April $ .1700 $ .1546
July $ .1800 $ .1636
October $ .1800 $ .1636
1996
-------
January $ .1667 $ .1515
April $ .1667 $ .1515
July $ .1600 $ .1455
October $ .1600 $ .1455
Three-for-two stock splits on both Class A and Class B Common Stock
occurred on May 7, 1996, and May 7, 1993.
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 6, 1998 there were approximately 1,012 holders of First Busey
Class A Common Stock.
12
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, 1997, 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, 1997 and December 31, 1996, and the results of operations for
each of the three years in the period ended December 31, 1997, 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.
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
BALANCE SHEET ITEMS (dollars in thousands, except per share data)
- ----------------------------------
Securities $215,514 $226,350 $284,517 $210,525 $230,359
Loans, net of unearned interest 602,937 569,500 481,772 451,051 412,905
Allowance for loan losses 6,860 6,131 5,473 5,235 5,205
Total assets 915,540 864,918 844,666 728,459 709,257
Total deposits 811,453 766,927 744,897 635,694 636,418
Long-term debt 10,000 5,000 5,000 5,000 6,645
Stockholders' equity 81,279 73,417 67,778 59,016 56,332
RESULTS OF OPERATIONS
- ----------------------------------
Interest income $ 63,831 $ 61,197 $ 54,494 $ 47,126 $ 46,003
Interest expense 31,119 30,033 26,515 20,212 20,363
-------- -------- -------- -------- --------
Net interest income 32,712 31,164 27,979 26,914 25,640
Provision for loan losses 1,075 1,100 395 240 1,125
Net income $ 10,371 $ 9,306 $ 8,775 $ 8,238 $ 7,364
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
(dollars in thousands, except per share data)
PER SHARE DATA(1)
- ----------------------------------
Diluted earnings $ 1.48 $ 1.34 $ 1.27 $ 1.19 $ 1.07
Cash dividends (Class A) .70 .65 0.59 0.53 0.53
Book value 11.84 10.72 9.95 8.64 8.13
Closing "Bid" price 27.50 22.25 18.00 16.17 14.33
OTHER INFORMATION
- ----------------------------------
Return on average assets 1.18% 1.08% 1.15% 1.14% 1.07%
Return on average equity 13.42% 13.40% 13.86% 14.16% 13.87%
Net interest margin (2) 4.20% 4.13% 4.20% 4.30% 4.33%
Stockholders' equity to assets 8.88% 8.49% 8.02% 8.10% 7.94%
(1) Per share amounts have been restated to give retroactive effect to the
three-for-two stock splits which occurred May 7, 1996, and May 7, 1993.
(2) Calculated as a percent of average earning assets.
13
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, 1997, 1996 and 1995. It
should be read in conjunction with "Business", "Selected Financial Data", the
consolidated financial statements and the related notes to the consolidated
financial statements and other data included in this Annual Report. All per
share amounts have been restated to give retroactive effect to the three-for-two
stock splits which occurred May 7, 1996, and May 7, 1993.
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; and formed a non-bank ATM subsidiary. 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.
Subsidiary Acquired 1997 1996 1995
- --------------------------------------------------------------------------------------------------
(dollars in thousands)
Busey Bank (1) 3/20/80 $ 9,645 88.3% $8,980 91.8% $8,664 92.8%
First Busey Trust & Investment Co. (2) -- 987 9.0% 651 6.7% 596 6.4%
First Busey Securities, Inc (3) -- 234 2.1% 148 1.5% 76 0.8%
First Busey Resources, Inc. (4) -- 102 0.9% -- -- -- --
Busey Insurance Services, Inc. (5) -- (26) - 0.2% -- -- -- --
BAT, Inc. (6) -- (12) - 0.1% -- -- -- --
----------------------------------------------------------
Total $10,930 100.0% $9,779 100.0% $9,336 100.0%
==========================================================
(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.
(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.
RESULTS OF OPERATIONS-THREE YEARS ENDED DECEMBER 31, 1997
Summary
The Corporation reported net income of $10,371,000 in 1997, up 11.4% from
$9,306,000 in 1996, which had increased 6.1% from $8,775,000 in 1995. Diluted
earnings per share in 1997 increased 10.4% to $1.48 from $1.34 in 1996, which
was a 5.5% increase from $1.27 in 1995. 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. The main factor contributing
to the increase in net income for 1996 was the increase in net interest income
resulting from the large increase in loans outstanding. Operating earnings,
which exclude security gains and the gain on sales of loans and the related tax
14
expense, were $9,748,000 or $1.39 per share for 1997; $8,965,000, or $1.29 per
share for 1996; and $8,217,000, or $1.19 per share for 1995.
There were no material changes in average shares outstanding from 1995 to
1997 to affect earnings per share.
Security gains after the related tax expense were $338,000 or 3.3% of net
income in 1997; $166,000 or 1.8% of net income in 1996; and $134,000 or 1.5% of
net income in 1995.
The Corporation's return on average assets was 1.18%, 1.08% and 1.15% for
1997, 1996, and 1995, respectively, and return on average equity was 13.42%,
13.40%, and 13.86% for 1997, 1996, and 1995, respectively. On an operating
earnings basis, return on average assets was 1.11%, 1.04%, and 1.08% for 1997,
1996, and 1995, respectively, and return on average equity was 12.61%, 12.91%
and 12.98% for 1997, 1996, and 1995, respectively.
Net Interest Income
Net interest income on a tax equivalent basis for 1997 increased 4.6% to
$34,075,000 from $32,574,000 for 1996, which reflected an 11.0% increase from
$29,349,000 in 1995. 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 $811,010,000 in 1997 from
$788,158,000 and $699,567,000 in 1996 and 1995, respectively. Modest
internally generated growth accounted for the increase in average
interest-earning assets in 1997. The growth in 1996 was primarily due to the
effect of the investment in loans and securities that resulted from the
assumption of $77,988,000 of deposits in December 1995.
The net interest margin was 4.20% in 1997, 4.13% in 1996, and 4.20% in
1995. The increase in the net interest margin for 1997 was due to an increase
in average loan balances of $59,016,000 at an average rate one basis point lower
than the same rate for 1996, partially offset by increases in the average
balance of interest-bearing liabilities and the rates paid on those balances.
The decrease in net interest margin for 1996 was due to a 6 basis point decline
in the net interest spread which resulted from a decline in the yield on
interest-earning assets and an increase in the weighted rate paid on
interest-bearing liabilities when comparing the year ended December 31, 1996, to
the prior year period.
During 1997 and 1996, interest rate trends had a significant impact on the
Corporation's yields and costs. 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. In 1996, the
average yield on interest-earning assets decreased 5 basis points, while the
average cost of interest-bearing liabilities increased 1 basis point. This
resulted in the net interest margin declining to 4.13% for 1996 from 4.20% for
1995. [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 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 $1,075,000 in 1997 from
$1,100,000 in 1996 when it increased from $395,000 in 1995. Net charge-offs
decreased to $346,000 in 1997 from $442,000 in 1996 which had increased from
$157,000 in 1995. 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.
The increase in the provision for 1996 was primarily made in order to fund the
reserve for the $87,728,000 increase in loans during the year.
Other Income
Other income increased 18.4% in 1997 to $10,379,000 from $8,769,000 in
1996, which reflected a 2.5% increase from $8,559,000 in 1995. The increase in
1997 is due primarily to increases in trust fee income, commission income, and
other service charges. As a percentage of total income, other income was 14.0%,
12.5%, and 13.6% in 1997, 1996, and 1995, respectively. Gains on the sale of
securities, as a component of other income, totaled $520,000 (5.0%) in 1997,
$256,000 (2.9%) in 1996, and $206,000 (2.4%) in 1995. Other income also
includes gains on sales of loans, as a component of other income, of $439,000
(4.2%), $268,000 (3.1%), and $653,000 (7.6%) in 1997, 1996, and 1995,
respectively.
Additional components of other income were fee income and trust fees.
Service charges and other fee income increased 12.6% to $5,290,000 in 1997 from
$4,698,000 in 1996, which was an 18.2% increase from $3,973,000 in 1995. The
growth in fee income in 1997 and 1996 was due to increases in service charges on
deposit accounts. Trust fees increased 19.0% in 1997 and 3.9% in 1996; revenues
were $3,156,000 in 1997, $2,651,000 in 1996, and $2,551,000 in 1995. Increases
in trust department revenues in each year were primarily due to increases in
assets under care to $660,846,000 at December 31, 1997 from $518,367,000 at
December 31, 1996. Remaining other income decreased 2.4% to $972,000 in 1997
from $996,000 in 1996 which was a 13.4% decrease from $1,150,000 in 1995.
Other Expenses
Other expenses increased 5.7% in 1997 to $27,266,000 from $25,786,000 in
1996, which reflected an increase from $24,069,000 in 1995. As a percentage of
total income, other expenses were 36.7%, 36.9%, and 38.2% in 1997, 1996, and
1995, respectively. Employee related expenses, including salaries and wages and
employee benefits, increased 5.4% in 1997 to $14,615,000, as compared to
$13,868,000 in 1996, which was a 10.5% increase from $12,546,000 in 1995. As a
percent of average assets, employee related expenses were 1.66%, 1.61% and
1.64%, in 1997, 1996, and 1995, respectively. The Corporation had 393, 383,
and 375 full-time equivalent employees at December 31, 1997, 1996, and 1995,
respectively. Net occupancy expense of bank premises and furniture and
equipment expenses increased 13.3% in 1997 to $4,063,000 as compared to
$3,587,000 in 1996 and $3,559,000 in 1995. The increases were primarily due to
expenses associated with remodeling of existing facilities. As a percent of
average assets, occupancy and equipment expenses were .46%, .42%, and .46% in
1997, 1996, and 1995, respectively.
Excluding foreclosed property write-down and expense, remaining other
expenses increased 4.8% to $8,576,000 in 1997 from $8,181,000 in 1996 which was
a 5.7% increase from $7,738,000 in 1995. The increase in 1997 was primarily due
to increased data processing expense. This increase was partially offset by
reduced FDIC insurance expense. The increase in 1996 was primarily due to
increased amortization expenses related to acquisitions in December 1995, and
was partially offset by reduced data processing expenses.
Income Taxes
Income tax expense in 1997 was $4,379,000 as compared to $3,741,000 in 1996
and $3,299,000 in 1995. The provision for income taxes as a percent of income
before income taxes was 29.7%, 28.7%, and 27.3%, for 1997, 1996, and 1995,
respectively. The slightly lower rate in 1995 was due to the reclassification
of expenses of certain acquisition costs.
16
STATEMENTS OF CONDITION-DECEMBER 31, 1997 AND DECEMBER 31, 1996
Total assets on December 31, 1997 were $915,540,000 an increase of 5.9%
from $864,918,000, on December 31, 1996. Total loans, net of unearned
interest, increased 5.9% to $602,937,000 on December 31, 1997 as compared to
$569,500,000 on December 31, 1996. Deposits increased 5.8% to $811,453,000 on
December 31, 1997 as compared to $766,927,000 on December 31, 1996. Interest
bearing deposits increased $30,513,000 or 4.4% during 1997. Non-interest bearing
deposits increased $14,013,000 or 17.9% during 1997. Total stockholders' equity
increased 10.7% to $81,279,000 on December 31, 1997, as compared to $73,417,000
on December 31, 1996.
Earning Assets
The average interest-earning assets of the Corporation were 92.1%, 91.7%,
and 91.6%, of average total assets for the years ended December 31, 1997, 1996,
and 1995, respectively.
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, 1997, the fair value of these securities was $215,514,000 and the amortized
cost was $206,589,000. There were $9,097,000 of gross unrealized gains and
$172,000 of gross unrealized losses for a net unrealized gain of $8,925,000.
The after-tax effect ($5,801,000) of this unrealized gain has been included in
stockholders' equity as called for in Statement No. 115. The increase in market
value for the debt securities in this classification was a result of falling
interest rates. The fair value increase in the equity securities was primarily
due to a $2,142,000 increase in the value of 54,200 shares of Student Loan
Marketing Association (SLMA) common stock owned by the Corporation throughout
the year.
The composition of securities available for sale is as follows:
Years ended December 31,
----------------------------------------------------
1997 1996 1995 1994 1993
----------------------------------------------------
(dollars in thousands)
U.S. Treasuries and Agencies $161,762 $159,044 $213,862 $137,724 -
Equity securities 11,994 9,065 7,589 5,156 1,037
States and political subdivisions 32,351 1,253 202 - -
Other 9,407 1,881 1,363 1,138 -
----------------------------------------------------
Fair value of securities available for sale $215,514 $171,243 $223,016 $144,018 $ 1,037
====================================================
Fair value of securities under LOCOM(1) - - - - $ 3,052
====================================================
Amortized cost $206,589 $166,189 $218,257 $145,293 $ 1,037
====================================================
Fair value as a percentage of amortized cost 104.32% 103.04% 102.18% 99.12% 294.31%
====================================================
(1) Lower of cost or market
17
The maturities, fair values and weighted average yields of securities available
for sale as of December 31, 1997 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 $76,011 5.66% $ 83,210 5.93% $ 2,541 5.89% - -
States and political subdivisions (2) 5,010 9.15% 12,228 8.72% 11,823 7.84% 3,290 8.46%
Other 1,210 5.60% 5,097 6.33% 748 7.19% - -
-----------------------------------------------------------------------------------------
Total $82,231 5.87% $100,535 6.29% $15,112 7.48% $3,290 8.46%
=========================================================================================
(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, 1996)
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,
-------------------------------------------------
1997 1996 1995 1994 1993
-------------------------------------------------
(dollars in thousands)
U.S. Treasuries and Agencies - $ 8,635 $13,198 $17,031 $174,581
States and political subdivisions - 36,607 37,043 32,957 34,507
Other - 9,865 11,260 16,519 20,234
-------------------------------------------------
Amortized cost of securities held to maturity - $55,107 $61,501 $66,507 $229,322
=================================================
Fair value of securities held to maturity - $55,800 $62,625 $65,386 $236,264
=================================================
Fair value as a percentage of book value - 101.26% 101.83% 98.31% 103.03%
=================================================
The Corporation also uses its investment portfolio to manage its tax
position. Depending upon projected levels of taxable income for the
Corporation, periodic changes are made in the mix of tax-exempt and taxable
securities to achieve maximum yields on a tax-equivalent basis. U.S. government
and agency securities as a percentage of total securities increased to 75.1% at
December 31, 1997 from 74.1% at December 31, 1996 while obligations of state and
political subdivisions (tax-exempt obligations) as a percentage of total
securities decreased to 15.0% at December 31, 1997, from 16.7% at December 31,
1996.
18
Loan Portfolio
Loans, before allowance for loan losses, increased 5.9% to $602,937,000 in
1997 from $569,500,000 in 1996. Non-farm non-residential real estate mortgage
loans increased $8,303,000, or 6.3%, to $139,653,000 in 1997 from $131,350,000
in 1996. 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 $14,160,000, or 6.9%, to $220,659,000 in
1997 from $206,499,000 in 1996. 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 $131,060,000 as of December 31, 1997.
The composition of loans is as follows:
Years ended December 31,
----------------------------------------------------
1997 1996 1995 1994 1993
----------------------------------------------------
(dollars in thousands)
Commercial and financial $ 63,861 $ 62,065 $ 55,687 $ 57,878 $ 44,419
Agricultural 17,403 16,537 12,594 12,750 11,735
Real estate-farmland 11,782 11,468 11,162 11,769 10,777
Real estate-construction 31,306 26,184 25,566 21,759 16,228
Real estate-mortgage 439,660 413,541 334,417 303,046 276,404
Installment loans to individuals 38,925 39,707 42,353 43,854 53,483
----------------------------------------------------
$602,937 $569,502 $481,779 $451,056 $413,046
Unearned interest - (2) (7) (5) (141)
----------------------------------------------------
Loans $602,937 $569,500 $481,772 $451,051 $412,905
====================================================
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, 1997.
1 Year or Less 1 to 5 Years Over 5 Years Total
-----------------------------------------------------------
(dollars in thousands)
Commercial, financial and agricultural $ 63,136 $ 17,463 $ 665 $ 81,264
Real estate-construction 25,843 4,359 1,104 31,306
-----------------------------------------------------------
Total $ 88,979 21,822 $ 1,769 $ 112,570
-----------------------------------------------------------
Interest rate sensitivity of selected loans
Fixed rate $ 13,748 9,324 $ 1,769 $ 24,841
Adjustable rate 75,231 12,498 - 87,729
-----------------------------------------------------------
Total $ 88,979 $ 21,822 $ 1,769 $ 112,570
-----------------------------------------------------------
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'
19
financial data, together with industry data, the competitive situation, the
borrowers' management capabilities and other factors; (c) a continuing
evaluation of the loan portfolio, including monitoring by lending officers and
staff credit personnel of all loans which are identified as being of less than
acceptable quality; (d) an in-depth appraisal, on a monthly basis, of all loans
judged to present a possibility of loss (if, as a result of such monthly
appraisals, the loan is judged to be not fully collectible, the carrying value
of the loan is reduced to that portion considered collectible); and (e) an
evaluation of the underlying collateral for secured lending, including the use
of independent appraisals of real estate properties securing loans.
Periodic provisions for loan losses are determined by management based upon
the size and the quality of the loan portfolio measured against prevailing
economic conditions and historical loan loss experience and also based on
specific exposures in the portfolio. Management has instituted a formal loan
review system supported by an effective credit analysis and control process.
The Corporation will maintain the allowance for loan losses at a level
sufficient to absorb estimated uncollectible loans and, therefore, expects to
make periodic additions to the allowance for loan losses.
The following table shows activity affecting the allowance for loan losses:
Years ended December 31
-----------------------------------------------------
1997 1996 1995 1994 1993
-----------------------------------------------------
(dollars in thousands)
Average loans outstanding during period $584,327 $525,311 $453,915 $421,337 $366,859
=====================================================
Allowance for loan losses:
Balance at beginning of period $ 6,131 $ 5,473 $ 5,235 $ 5,205 $ 4,456
-----------------------------------------------------
Loans charged-off:
Commercial, financial and agricultural $ 192 $ 227 $ 339 $ 99 $ 397
Real estate-construction - 19 - - -
Real estate-mortgage 50 32 55 153 405
Installment loans to individuals 317 404 286 253 329
-----------------------------------------------------
Total charge-offs $ 559 $ 682 $ 680 $ 505 $ 1,131
-----------------------------------------------------
Recoveries:
Commercial, financial and agricultural $ 13 $ 43 $ 414 $ 62 $ 66
Real estate-construction - 50 - - -
Real estate-mortgage 110 - 3 128 156
Installment loans to individuals 90 147 106 105 111
-----------------------------------------------------
Total recoveries $ 213 $ 240 $ 523 $ 295 $ 333
-----------------------------------------------------
Net loans charged-off $ 346 $ 442 $ 157 $ 210 $ 798
-----------------------------------------------------
Provision for loan losses $ 1,075 $ 1,100 $ 395 $ 240 $ 1,125
-----------------------------------------------------
Net additions (due to acquisitions) - - - - 422
-----------------------------------------------------
Balance at end of period $ 6,860 $ 6,131 $ 5,473 $ 5,235 $ 5,205
=====================================================
Ratios:
Net charge-offs to average loans 0.06% 0.08% 0.03% 0.05% 0.22%
=====================================================
Allowance for loan losses to total
loans at period end 1.14% 1.08% 1.14% 1.16% 1.26%
=====================================================
20
The following table sets forth the allowance for loan losses by loan
categories as of December 31 for each of the years indicated:
-----------------------------------------------------------------------------------
1997 1996 1995 1994 1993
-----------------------------------------------------------------------------------
% 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 1,059 15.4% $ 766 15.8% $ 785 16.5% $ 1,122 18.3% $ 3,513 16.2%
Real estate-construction - 5.2% - 4.6% - 5.3% - 4.8% - 3.9%
Real estate-mortgage 4,456 72.9% 3,505 72.6% 3,476 69.4% 3,013 67.2% 779 67.0%
Installment loans to individuals 1,045 6.5% 1,189 7.0% 1,097 8.8% 943 9.7% 785 12.9%
Unallocated 300 N/A 671 N/A 115 N/A 157 N/A 128 N/A
-----------------------------------------------------------------------------------
Total $ 6,860 100% $ 6,131 100% $ 5,473 100% $ 5,235 100% $ 5,205 100%
===================================================================================
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,
-------------------------------------------
1997 1996 1995 1994 1993
-------------------------------------------
(dollars in thousands)
Non-accrual loans $ 628 $ - $ 532 $ 636 $ 247
Loans 90 days past due and still accruing 1,033 1,002 897 1,336 1,450
Restructured loans - - - - -
-------------------------------------------
Total non-performing loans $1,661 $1,002 $1,429 $1,972 $1,697
-------------------------------------------
Repossessed assets $ 516 $ 805 $1,380 $1,645 $1,180
Other assets acquired in satisfaction of debts
previously contracted 5 1 1 1 1
-------------------------------------------
Total non-performing other assets $ 521 $ 806 $1,381 $1,646 $1,181
-------------------------------------------
Total non-performing loans and non-
performing other assets $2,182 $1,808 $2,810 $3,618 $2,878
===========================================
Non-performing loans to loans, before
Allowance for loan losses 0.28% 0.18% 0.30% 0.44% 0.41%
===========================================
Non-performing loans and non-performing
other assets to loans, before allowance for
loan losses, and repossessed assets 0.36% 0.32% 0.58% 0.80% 0.70%
===========================================
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, 1997, $8,000 of interest was recognized from
impaired loans, while no interest was recognized for the year ended December 31,
1996.
The gross interest income that would have been recorded in the years ended
December 31, 1994 and 1993 if the non-accrual and restructured loans had been
current in accordance with their original terms was $47,000 and $22,000,
respectively. The amount of interest collected on those loans that was
21
included in interest income for the year ended December 31, 1994 was $38,000.
There was no interest collected on these loans for the year ended December 31,
1993.
Potential Problem Loans
Potential problem loans are those loans which are not categorized as
impaired, non-accrual, past due or restructured, but where current
information indicates that the borrower may not be able to comply with
present loan repayment terms. Management 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 $640,000 at December 31, 1997. There are no
other loans identified which management believes represent or result from trends
or uncertainties which management reasonably expects will materially impact
future operating results, liquidity or capital resources. There are no other
credits identified about which management is aware of any information which
causes management to have serious doubts as to the ability of such borrower(s)
to comply with the loan repayment terms.
Deposits
As indicated in the following table, average interest bearing deposits as a
percentage of average total deposits have decreased to 90.6% for the year ended
December 31, 1997 from 90.9% for the year ended December 31, 1996.
December 31,
----------------------------------------------------------------------------------------
1997 1996 1995
----------------------------------------------------------------------------------------
(dollars in thousands)
Average % Total Average Average % Total Average Average % Total Average
Balance Rate Balance Rate Balance Rate
----------------------------------------------------------------------------------------
Non-interest bearing
demand deposits $ 73,345 9.4% -% $ 69,562 9.1% -% $ 63,165 9.5% -%
Interest bearing demand
deposits 110,940 14.2% 1.97% 130,365 17.1% 1.62% 123,369 18.4% 1.79%
Savings/Money Market 234,865 30.1% 3.32% 216,498 28.4% 3.57% 193,658 29.0% 3.49%
Time deposits 360,968 46.3% 5.54% 345,726 45.4% 5.46% 288,125 43.1% 5.44%
----------------------------------------------------------------------------------------
Total $780,118 100.0% 4.24% $762,151 100.0% 4.15% $668,317 100.0% 4.07%
========================================================================================
Certificates of deposit of $100,000 and over and other time deposits of $100,000
and over at December 31, 1997, had the following maturities (dollars in
thousands):
Under 3 months $47,774
3 to 6 months 19,678
6 to 12 months 17,510
Over 12 months 11,575
-------
Total $96,537
=======
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)
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%
1995
Balance, December 31, 1995 $12,101 $ 9,573
Weighted average interest rate at end of period 5.75% 7.35%
Maximum outstanding at any month end $19,648 $10,573
Average daily balance $14,269 $ 8,428
Weighted average interest rate during period(1) 6.23% 8.50%
(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
23
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 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, 1997, 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 8.23% 3.97% (5.26%) (11.43%)
Liquidity
Liquidity is the availability of funds to meet all present and future cash
flow obligations arising in the daily operations of the business at a minimal
cost. These financial obligations consist of needs for funds to meet extensions
of credit, deposit withdrawals and debt servicing.
The sources of short-term liquidity utilized by the Corporation consist of
asset maturities, sales, deposits and capital funds. Additional liquidity is
provided by bank lines of credit, repurchase agreements and the ability to
borrow from the Federal Reserve Bank and Federal Home Loan Bank. The
Corporation does not deal in or use brokered deposits as a source of liquidity.
The Corporation purchases federal funds as a service to its correspondent banks,
but does not rely upon these purchases for liquidity needs. Long-term liquidity
needs will be satisfied primarily through retention of capital funds. An
additional source of liquidity that can be managed for short-term and long-term
needs is the Corporation's ability to securitize or package loans (primarily
mortgage loans) for sale.
The objective of liquidity management by the Corporation is to ensure that
funds will be available to meet demand in a timely and efficient manner. Based
upon the level of investment securities that reprice within 30 days and 90 days,
management believes that adequate liquidity exists to meet all projected cash
flow obligations.
The Corporation achieves a satisfactory degree of liquidity through
actively managing both assets and liabilities. Asset management guides the
proportion of liquid assets to total assets, while liability management
monitors future funding requirements and prices liabilities accordingly.
Average liquid assets are shown in the table below:
Liquid Assets
Years Ended December 31,
--------------------------
Average Balances 1997 1996 1995
--------------------------
(dollars in thousands)
Federal funds sold $8,899 $8,159 $15,000
==========================
Percentage of average total assets 1.01% 0.95% 1.96%
==========================
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, 1997:
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 $ 18,800 - - - - $ 18,800
Investment securities
U.S. Treasuries and Agencies 9,635 $ 29,622 $ 8,731 $ 29,022 $ 84,752 161,762
States and political subdivisions 1,103 - 260 4,312 26,676 32,351
Other securities 2,475 200 401 300 18,025 21,401
Loans (net of unearned interest) 196,285 25,435 37,733 82,188 261,296 602,937
--------------------------------------------------------------------------------
Total rate-sensitive assets $ 228,298 $ 55,257 $ 47,125 $ 115,822 $ 390,749 $837,251
--------------------------------------------------------------------------------
Interest bearing transaction deposits $ 13,715 - - - - $ 13,715
Savings deposits 78,393 - - - - 78,393
Money market deposits 254,193 - - - - 254,193
Time deposits 49,990 54,059 71,043 87,209 110,761 373,062
Short-term borrowings 6,550 - - - - 6,550
Long-term debt - - 5,000 - 5,000 10,000
--------------------------------------------------------------------------------
Total rate-sensitive liabilities $ 402,841 $ 54,059 $ 76,043 $ 87,209 $ 115,761 $735,913
--------------------------------------------------------------------------------
Rate-sensitive assets less rate- $ (174,543)
sensitive liabilities $ 1,198 $ (28,918) $ 28,613 $ 274,988 $101,338
--------------------------------------------------------------------------------
Cumulative Gap $ (174,543) $ (173,345) $ (202,263) $ (173,650) $ 101,338
======================================================================
Cumulative amounts as a percentage
of total rate-sensitive assets -20.85% -20.70% -24.16% -20.74% 12.10%
======================================================================
Cumulative Ratio 0.57X 0.62X 0.62X 0.72X 1.14X
======================================================================
The foregoing table shows a negative (liability sensitive) cumulative
unadjusted gap of approximately $175 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, 1997 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, 1997, the Corporation earned $10,371,000 and paid dividends
of $4,762,000 to stockholders, resulting in a retention of current earnings of
$5,609,000.
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, 1997, the Corporation
had a total capital to total risk-weighted asset ratio of 13.01%, a Tier 1
capital to risk-weighted asset ratio of 11.81% and a Tier 1 leverage ratio of
7.61%; the Corporation's bank subsidiary, Busey Bank, had ratios of 12.59%,
11.37%, and 7.27%, 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
The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income," in
June 1997. This statement is effective for financial statement periods
beginning after December 15, 1997. The effect on the Corporation's financial
position and results of operations will not be material.
In June 1997 the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information."
This statement is effective for financial statement periods beginning after
December 15, 1997. The effect on the Corporation's consolidated financial
statements will not be material.
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 Corporation has developed an all encompassing plan to address Year 2000
related issues. The plan has five phases that included (1) awareness of Year
2000 issues, (2) identification and inventory of Year 2000 issues, (3)
development of solutions including contingency plans, (4) implementation of
solutions, and (5) testing. Approximately 300 different issues and software
systems have been inventoried as having possible Year 2000 impact. These issues
range from forms to alarm systems to core applications software. Plans are
being put in place to test and address each of these items. To ensure
compliance for the bank core data processing systems, there will be a conversion
from the current outsourced solution to an in-house solution in the fall of
1998. This will encompass all loan, deposit and financial reporting aspects of
the banking operation. There will be costs of approximately $3,800,000 for
equipment and software which will be partially offset by the elimination of many
of the outsourcing costs. Some of these costs will be capitalized as they
related to equipment purchased for an in-house data processing solution.
This risk goes beyond the internal items and also involves all of our
vendors and customers. We will be conducting education sessions for our
customers in 1998 to alert them to the potential problems they could encounter.
This will not eliminate this type of Year 2000 risk and the Corporation could be
adversely affected if the vendors and customers do not adequately address their
own Year 2000 issues.
Contingency plans are being developed for critical business applications in
order to mitigate potential problems and/or delays associated with
implementation of new solutions or delivery of products and services from
vendors.
26
Selected Statistical Information
The following tables contain information concerning the consolidated
financial condition and operations of the Corporation for the periods, or as of
the dates, shown. All average information is provided on a daily average basis.
The following table shows the consolidated average balance sheets,
detailing the major categories of assets and liabilities, the interest income
earned on interest-earning assets, the interest expense paid for interest-
bearing liabilities, and the related interest rates:
Consolidated Average Balance Sheets and Interest Rates
Years Ended December 31,
----------------------------------------------------------------------------------------
1997 1996 1995
----------------------------------------------------------------------------------------
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 $ 8,899 $ 488 5.49% $ 8,159 $ 441 5.40% $ 15,000 $ 884 5.89%
Investment securities:
U.S. Treasuries and Agencies 160,394 9,309 5.80% 193,295 11,427 5.91% 172,960 10,452 6.04%
States and political
subdivisions(1) 36,064 3,022 8.38% 38,794 3,248 8.37% 36,668 3,126 8.52%
Other securities 21,326 1,008 4.73% 22,599 1,270 5.62% 21,024 1,361 6.47%
Loans (net of unearned discount)(1), (2) 584,327 51,367 8.79% 525,311 46,221 8.80% 453,915 40,041 8.82%
----------------------------------------------------------------------------------------
Total interest-earning assets(1) $811,010 $ 65,194 8.04% $788,158 $ 62,607 7.94% $699,567 $ 55,864 7.99%
========================================================================================
Cash and due from banks 35,695 34,784 30,694
Premises and equipment 22,535 21,555 21,501
Allowance for loan losses (6,480) (5,619) (5,421)
Other assets 18,139 20,392 17,604
--------- --------- ---------
Total assets $880,899 $859,270 $763,945
========= ========= =========
Liabilities and Stockholders' Equity
Interest bearing transaction deposits $110,940 $ 2,182 1.97% $130,365 $ 2,105 1.62% $123,369 $ 2,209 1.79%
Savings deposits 79,888 2,617 3.28% 80,516 2,554 3.17% 57,073 1,659 2.91%
Money market deposits 154,977 5,192 3.35% 135,982 5,167 3.80% 136,585 5,095 3.73%
Time deposits 360,968 20,011 5.54% 345,726 18,884 5.46% 288,125 15,670 5.44%
Short-term borrowings:
Federal funds purchased and
repurchase agreements 1,678 103 6.14% 8,804 470 5.34% 14,269 889 6.23%
Other 6,542 472 7.21% 8,092 575 7.10% 8,428 716 8.50%
Long-term debt 9,301 542 5.83% 5,000 278 5.55% 5,000 277 5.54%
----------------------------------------------------------------------------------------
Total interest-bearing liabilities $724,294 $ 31,119 4.30% $714,485 $ 30,033 4.20% $632,849 $ 26,515 4.19%
========================================================================================
Net interest spread 3.74% 3.74% 3.80%
======= ======= =======
Demand deposits 73,345 69,562 63,165
Other liabilities 5,954 5,798 4,630
Stockholders' equity 77,306 69,425 63,301
--------- --------- ---------
Total liabilities and
stockholders' equity $880,899 $859,270 $763,945
========= ========= =========
Interest income/earning assets(1) $811,010 $ 65,194 8.04% $788,158 $ 62,607 7.94% $699,567 $ 55,864 7.99%
Interest expense/earning assets 811,010 31,119 3.84% 788,158 30,033 3.81% 699,567 26,515 3.79%
----------------------------------------------------------------------------------------
Net interest margin(1) $ 34,075 4.20% $ 32,574 4.13% $ 29,349 4.20%
================= ================= =================
(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
27
Changes In Net Interest Income
Years Ended December 31, 1997, 1996, and 1995
--------------------------------------------------------------------------
Year 1997 vs 1996 Change due to(1) Year 1996 vs 1995 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 $ 40 $ 7 $ 47 $ (375) $ (68) $ (443)
Investment securities:
U.S. Treasuries and Agencies (1,913) (205) (2,118) 1,196 (221) 975
States and political subdivisions(2) (229) 3 (226) 177 (55) 122
Other securities (69) (193) (262) 119 (210) (91)
Loans(2) 5,188 (42) 5,146 6,282 (102) 6,180
--------------------------------------------------------------------------
Change in interest income(2) $ 3,017 $ (430) $ 2,587 $ 7,399 $ (656) $ 6,743
==========================================================================
Increase (decrease) in interest expense:
Interest bearing transaction deposits $ (166) $ 243 $ 77 $ 42 $ (246) $ (104)
Savings deposits (20) 83 63 732 163 895
Money market deposits 167 (142) 25 (22) 94 72
Time deposits 842 285 1,127 3,146 68 3,214
Federal funds purchased and
repurchase agreements (450) 83 (367) (305) (114) (419)
Other (112) 9 (103) (28) (113) (141)
Long-term debt 250 14 264 - 1 1
--------------------------------------------------------------------------
Change in interest expense $ 511 $ 575 $ 1,086 $ 3,665 $ (147) $ 3,518
--------------------------------------------------------------------------
Increase (decrease) in net interest income(2) $ 2,506 $ (1,005) $ 1,501 $ 3,734 $ (509) $ 3,225
==========================================================================
Percentage increase in net interest income
over prior period 4.6% 11.0%
======== ========
(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%
28
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 1998 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
1998 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 pages 7 and 8 of the
1998 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference is the information set forth on page 13 of the 1998
Proxy Statement.
29
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)
10.2 First Busey Corporation 1986 Stock Option Plan (filed as Exhibit 10.2 to First
Busey's Registration Statement on Form S-1 (Registration No. 33-13973), and
incorporated herein by reference)
10.3 First Busey Corporation Profit Sharing Plan and Trust (filed as Exhibit 10.3 to
First Busey's Registration Statement on Form S-1 (Registration No. 33-13973),
and incorporated herein by reference)
10.4 Mortgage on County Plaza Building (filed as Exhibit 10.4 to First Busey's
Registration Statement on Form S-1 (Registration No. 33-13973), and
incorporated herein by reference)
10.5 Affiliation Agreement dated October l3, 1988 between Community Bank of
Mahomet and CBM Bank, Mahomet and joined in by First Busey Corporation
(filed as Exhibit 2.1 to First Busey's Registration Statement on Form S-4
(Registration No. 33-25159), and incorporated herein by reference)
10.6 Merger Agreement dated October 13, 1988 between Community Bank of
Mahomet and CBM Bank, Mahomet and joined in by Busey