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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended 3/31/98 Commission File No. 0-15950
FIRST BUSEY CORPORATION
(Exact name of registrant as specified in its charter)
Nevada 37-1078406
------------------------- -------------------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
201 W. Main St.,
Urbana, Illinois 61801
------------------------- -------------------------
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (217) 365-4556
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding at May 8, 1998
--------------------------------------- ----------------------------
Class A Common Stock, without par value 6,883,279
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
2 of 18
FIRST BUSEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, 1998 December 31, 1997
-------------- -----------------
(Dollars in thousands)
ASSETS
Cash and due from banks $ 42,252 $ 43,299
Federal funds sold 25,300 18,800
Securities available for sale (amort. cost 1998, $209,963; 1997, $206,589) 219,752 215,514
Loans (net of unearned interest) 610,758 602,937
Allowance for loan losses (7,474) (6,860)
----------- -----------
Net loans $ 603,284 $ 596,077
Premises and equipment 24,602 22,834
Other assets 19,688 19,016
----------- -----------
Total assets $ 934,878 $ 915,540
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Non-interest bearing $ 84,268 $ 92,090
Interest bearing 716,651 719,363
----------- -----------
Total deposits $ 800,919 $ 811,453
Short-term borrowings 16,550 6,550
Long-term debt 25,000 10,000
Other liabilities 8,832 6,258
----------- -----------
Total liabilities $ 851,301 $ 834,261
----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock $ - $ -
Common stock 6,291 6,291
Surplus 21,219 20,729
Retained earnings 54,406 53,011
Unrealized gain (loss) on securities available for sale, net 6,363 5,801
----------- -----------
Total stockholders' equity before treasury stock, unearned ESOP
shares and deferred compensation for stock grants $ 88,279 $ 85,832
Treasury stock, at cost (4,082) (3,922)
Unearned ESOP shares and deferred compensation for stock grants (620) (631)
----------- -----------
Total stockholders' equity $ 83,577 $ 81,279
----------- -----------
Total liabilities and stockholders' equity $ 934,878 $ 915,540
=========== ===========
Class A Common Shares outstanding at period end 6,883,438 6,865,393
=========== ===========
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FIRST BUSEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, 1998 March 31, 1997
-------------- --------------
(Dollars in thousands)
ASSETS
Cash and due from banks $ 42,252 $ 37,109
Federal funds sold 25,300 10,800
Securities held to maturity (fair value 1997, $51,680) - 51,347
Securities available for sale (amort. cost 1998, $209,963; 1997, $168,407) 219,752 172,300
Loans (net of unearned interest) 610,758 560,492
Allowance for loan losses (7,474) (6,329)
----------- -----------
Net loans $ 603,284 $ 554,163
Premises and equipment 24,602 22,280
Other assets 19,688 18,925
----------- -----------
Total assets $ 934,878 $ 866,924
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Non-interest bearing $ 84,268 $ 76,364
Interest bearing 716,651 692,885
----------- -----------
Total deposits $ 800,919 $ 769,249
Short-term borrowings 16,550 6,500
Long-term debt 25,000 10,000
Other liabilities 8,832 6,616
----------- -----------
Total liabilities $ 851,301 $ 792,365
----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock $ - $ -
Common stock 6,291 6,291
Surplus 21,219 20,367
Retained earnings 54,406 48,651
Unrealized gain (loss) on securities available for sale, net 6,363 2,530
----------- -----------
Total stockholders' equity before treasury stock, unearned ESOP
shares and deferred compensation for stock grants $ 88,279 $ 77,839
Treasury stock, at cost (4,082) (2,635)
Unearned ESOP shares and deferred compensation for stock grants (620) (645)
----------- -----------
Total stockholders' equity $ 83,577 $ 74,559
----------- -----------
Total liabilities and stockholders' equity $ 934,878 $ 866,924
=========== ===========
Class A Common Shares outstanding at period end 6,883,438 5,792,933
=========== ===========
Class B Common Shares outstanding at period end - 1,125,000
=========== ===========
4 of 18
FIRST BUSEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
1998 1997
--------- ---------
(Dollars in thousands,
except per share amounts)
INTEREST INCOME:
Interest and fees on loans $ 13,319 $ 12,008
Interest and dividends on investment securities:
Taxable interest income 2,646 2,641
Non-taxable interest income 417 500
Dividends 35 28
Interest on federal funds sold 280 100
--------- ---------
Total interest income $ 16,697 $ 15,277
--------- ---------
INTEREST EXPENSE:
Deposits $ 7,592 $ 7,150
Short-term borrowings 284 132
Long-term debt 266 101
--------- ---------
Total interest expense $ 8,142 $ 7,383
--------- ---------
Net interest income $ 8,555 $ 7,894
Provision for loan losses 650 200
--------- ---------
Net interest income after provision for loan losses $ 7,905 $ 7,694
--------- ---------
OTHER INCOME:
Trust $ 884 $ 775
Commissions and brokers fees, net 283 287
Service charges on deposit accounts 703 720
Other service charges and fees 449 270
Security gains (losses), net 300 99
Trading security gains (losses), net (1) 1
Gain on sales of loans 186 35
Other operating income 498 269
--------- ---------
Total other income $ 3,302 2,456
--------- ---------
OTHER EXPENSES:
Salaries and wages $ 3,386 $ 3,005
Employee benefits 665 673
Net occupancy expense of bank premises 621 565
Furniture and equipment expenses 487 430
Data processing 486 359
Stationery, supplies and printing 149 184
Foreclosed property write-downs and expenses 0 0
Amortization expense 343 330
Other operating expenses 1,171 1,196
--------- ---------
Total other expenses $ 7,308 $ 6,742
--------- ---------
Income before income taxes $ 3,899 $ 3,408
Income taxes 1,188 1,000
--------- ---------
Net income $ 2,711 $ 2,408
========= =========
Other comprehensive income, before tax:
Unrealized gains on securities:
Unrealized holding gains (losses) arising during period $ 1,165 ($1,062)
Less reclassification adjustment for gains included in net income (300) (99)
--------- ---------
Other comprehensive income, before tax 865 (1,161)
Income tax expense related to items of other comprehensive income (303) 406
--------- ---------
Other comprehensive income, net of tax $ 562 ($755)
Comprehensive income $ 3,273 $ 1,653
========= =========
BASIC EARNINGS PER SHARE $ 0.39 $ 0.35
========= =========
DILUTED EARNINGS PER SHARE $ 0.39 $ 0.34
========= =========
DIVIDENDS DECLARED PER SHARE:
Class A Common Stock $ 0.19 $ 0.17
========= =========
Class B Common Stock - $ 0.15
========= =========
5 of 18
FIRST BUSEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
1998 1997
---------- ---------
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,711 $ 2,408
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 923 829
Provision for loan losses 650 200
Increase in deferred income taxes 6 10
Amortization of investment security discounts (41) (131)
(Gain) on sales of investment securities, net (300) (99)
Proceeds from sales of pooled loans 15,831 5,180
Loans originated for sale (16,944) (4,973)
Gain on sale of pooled loans (186) (35)
Change in assets and liabilities:
Decrease (increase) in other assets (492) 1,015
Increase in accrued expenses 1,312 564
(Decrease) in interest payable (97) (90)
Increase in income taxes payable 1,125 973
---------- ---------
Net cash provided by operating activities $ 4,498 $ 5,851
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of securities classified available for sale $ 16,701 $ 1,571
Proceeds from maturities of securities classified available for sale 37,853 37,325
Proceeds from maturities of securities classified held to maturity - 4,079
Purchase of securities classified available for sale (57,586) (40,903)
Purchase of securities classified held to maturity - (300)
Increase in federal funds sold (6,500) (10,800)
(Increase) decrease in loans (6,558) 8,834
Proceeds from sale of premises and equipment 22 -
Purchases of premises and equipment (2,337) (1,171)
Cash acquired in acquisition of Busey Carter Travel, Inc. 204 -
---------- ---------
Net cash (used in) investing activities ($18,201) ($1,365)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease) in certificates of deposit ($21,194) ($844)
Net increase in demand, money market and saving deposits 10,660 3,166
Cash dividends paid (1,315) (1,159)
Purchase of treasury stock (886) (177)
Proceeds from sale of treasury stock 391 804
Proceeds from short-term notes payable 10,000 -
Proceeds from long-term borrowings 15,000 5,000
Principal payments on short-term notes payable - (1,500)
Net decrease in federal funds purchased,
repurchase agreements and Federal Reserve discount borrowings - (6,405)
---------- ---------
Net cash provided by (used in) financing activities $ 12,656 ($1,115)
---------- ---------
Net increase (decrease) in cash and cash equivalents ($1,047) $ 3,371
Cash and due from banks, beginning 43,299 33,738
---------- ---------
Cash and due from banks, ending $ 42,252 $ 37,109
========== =========
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FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: INTERIM FINANCIAL STATEMENTS
The consolidated interim financial statements of First Busey Corporation and
Subsidiaries are unaudited, but in the opinion of management reflect all
necessary adjustments, consisting only of normal recurring accruals, for a fair
presentation of results as of the dates and for the periods covered by the
financial statements. The results for the interim periods are not necessarily
indicative of the results of operations that may be expected for the fiscal
year.
NOTE 2: LOANS
The major classifications of loans at March 31, 1998 and December 31, 1997 were
as follows:
March 31, 1998 December 31, 1997
------------------------------------
(Dollars in thousands)
Commercial $ 73,091 $ 63,861
Real estate construction 37,303 31,306
Real estate - farmland 12,589 11,782
Real estate - 1-4 family residential mortgage 227,379 225,622
Real estate - multifamily mortgage 64,148 74,385
Real estate - non-farm nonresidential mortgage 144,726 139,653
Installment 37,333 38,925
Agricultural 14,189 17,403
------------------------------------
$610,758 $602,937
Less:
Allowance for loan losses 7,474 6,860
------------------------------------
Net loans $603,284 $596,077
====================================
The real estate-mortgage category includes loans held for sale with carrying
values of $6,262,000 at March 31, 1998 and $4,963,000 at December 31, 1997;
these loans had fair market values of $6,277,000 and $5,016,000, respectively.
7 of 18
FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3: INCOME PER SHARE
Net income per common share has been computed as follows:
Three Months Ended
March 31,
1998 1997
---------- ----------
Net income $2,711,000 $2,408,000
Shares:
Weighted average common shares outstanding 6,890,565 6,911,371
Dilutive effect of outstanding options, as determined
by the application of the treasury stock method 117,656 99,847
---------- ----------
Weighted average common shares outstanding,
as adjusted for diluted earnings per share calculation 7,008,221 7,011,218
========== ==========
Basic earnings per share $ 0.39 $ 0.35
========== ==========
Diluted earnings per share $ 0.39 $ 0.34
========== ==========
NOTE 4: SUPPLEMENTAL CASH FLOW DISCLOSURES FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1997.
1998 1997
--------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest $ 8,239 $ 7,473
========= =========
Income taxes $ 0 $ 12
========= =========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Other real estate acquired in settlement of loans $ 0 $ 0
========= =========
Change in unrealized gain (loss) on securities available for sale $ 865 ($1,161)
========= =========
(Decrease) increase in deferred income tax assets attributable to the
unrealized (gain) loss on investment securities available for sale ($303) $ 406
========= =========
Acquisition of Busey Carter Travel, Inc.:
Working capital including cash $ 561 -
Premises and equipment 23 -
Intangibles and other assets 241 -
--------- ---------
Common stock issued from treasury
to acquire Busey Carter Travel, Inc. $ 825 0
========= =========
8 of 18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of the financial condition
of First Busey Corporation and Subsidiaries ("Corporation") at March 31, 1998
(unaudited) when compared with December 31, 1997 and the results of operations
for the three months ended March 31, 1998 and 1997 (unaudited). This discussion
and analysis should be read in conjunction with the Corporation's consolidated
financial statements and notes thereto appearing elsewhere in this quarterly
report.
FINANCIAL CONDITION AT MARCH 31, 1998 AS COMPARED TO DECEMBER 31, 1997
Total assets increased $19,338,000, or 2.1%, to $934,878,000 at March 31, 1998
from $915,540,000 at December 31, 1997.
Securities available for sale increased $4,238,000, or 2.0%, to $219,752,000 at
March 31, 1998 from $215,514,000 at December 31, 1997.
Loans increased $7,821,000 or 1.3%, to $610,758,000 at March 31, 1998 from
$602,937,000 at December 31, 1997, primarily due to increases in commercial,
real estate construction, and 1-4 family residential mortgages. These increases
were partially offset by a decrease in multi-family mortgage loans.
Total deposits decreased $10,534,000, or 1.3%, to $800,919,000 at March 31, 1998
from $811,453,000 at December 31, 1997. Non-interest bearing deposits decreased
8.5% to $84,268,000 at March 31, 1998 from $92,090,000 at December 31, 1997.
Interest bearing deposits decreased 0.4% to $716,651,000 at March 31, 1998 from
$719,363,000 at December 31, 1997. Short-term borrowings increased $10,000,000
to $16,550,000 at March 31, 1998, as compared to $6,550,000 at December 31,
1997. Proceeds from the increase in short-term borrowings were used to
capitalize Busey Business Bank, the holding company's new bank subsidiary
located in Indianapolis, Indiana.
In the first three months of 1998, the Corporation repurchased 31,455 shares of
its Class A stock at an aggregate cost of $886,000. The Corporation is
purchasing shares for the treasury as they become available in order to meet
future issuance requirements of previously granted non-qualified stock options.
As of March 31, 1998, 41,403 of the 133,441 options which became exercisable on
January 1, 1997 (and expire December 31, 1999), have not yet been exercised, and
14,700 of the 36,900 options which became exercisable on January 1, 1998 (and
expire December 31, 1999) have not yet been exercised.
The following table sets forth the components of non-performing assets and past
due loans.
March 31, 1998 December 31,1997
-------------- ----------------
(Dollars in thousands)
Non-accrual loans $ 648 $ 628
Loans 90 days past due, still accruing 1,460 1,033
Restructured loans -- --
Other real estate owned 265 516
Non-performing other assets 2 5
-------------- ----------------
Total non-performing assets $2,375 $2,182
============== ================
Total non-performing assets as a percentage of total assets 0.25% 0.24%
============== ================
Total non-performing assets as a percentage of loans plus non-performing assets 0.39% 0.36%
============== ================
The ratio of non-performing assets to loans plus non-performing assets increased
to 0.39% at March 31, 1998 from 0.36 % at December 31, 1997. This was due to
increases in the balance of loans 90 days past due and still accruing, offset
partly by a decrease in other real estate owned.
9 of 18
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AS COMPARED TO MARCH 31, 1997
SUMMARY
- -------
Net income for the three months ended March 31, 1998 increased 12.6% to
$2,711,000 as compared to $2,408,000 for the comparable period in 1997. Diluted
earnings per share increased 14.7% to $.39 at March 31, 1998 as compared to $.34
for the same period in 1997.
Operating earnings, which exclude security gains (losses) and the related tax
expense (benefit), were $2,516,000, or $.36 per share for the three months ended
March 31, 1998, as compared to $2,343,000, or $.33 per share for the same period
in 1997.
The Corporation's return on average assets was 1.20% for the three months ended
March 31, 1998, as compared to 1.13% achieved for the comparable period in 1997.
The return on average assets from operations of 1.11% for the three months ended
March 31, 1998 was a slight improvement over the 1.10% achieved in the
comparable period of 1997.
Net interest margin, the Corporation's net interest income expressed as a
percentage of average earning assets stated on a fully taxable equivalent basis,
was 4.21% for the three months ended March 31, 1998, as compared to 4.22% for
the same period in 1997. The net interest margin expressed as a percentage of
average total assets, also on a fully taxable equivalent basis, was 3.91% for
the three months ended March 31, 1998, compared to 3.85% for the same period in
1997.
During the three months ended March 31, 1998, the Corporation recognized
security gains of approximately $195,000, after income taxes, representing 7.20%
of net income. During the same period in 1997, security gains of approximately
$65,000 after income taxes were recognized, representing 2.7% of net income.
INTEREST INCOME
- ---------------
Interest income, on a tax equivalent basis, for the three months ended March 31,
1998 increased 8.8% to $16,994,000 from $15,625,000 for the comparable period
in 1997. The increase in interest income resulted from an increase in average
earning assets of $59,208,000 for the period ended March 31, 1998, an increase
of 7.5% from the 1997 level of average earning assets. The average yield on
interest earning assets increased 10 basis points for the three months ended
March 31, 1998 as compared to the same period in 1997, as asset growth was
invested in loans.
INTEREST EXPENSE
- ----------------
Total interest expense increased 10.3% for the three months ended March 31, 1998
as compared to the prior year period. This increase resulted primarily from a
$6,800,000 increase in the average balance of other short-term borrowings
combined with a $11,777,000 increase in the average balance of long-term debt
for the three months ended March 31, 1998, as compared to the same period in
1997.
PROVISION FOR LOAN LOSSES
- -------------------------
The provision for loan losses of $650,000 for the three months ended March 31,
1998 is $450,000 more than the provision for the comparable period in 1997. The
provision and the low level of net charge-offs for the period resulted in the
reserve representing 1.22% of total loans on March 31, 1998, an increase from
the 1.13% level at December 31, 1997. The adequacy of the reserve for loan
losses is consistent with management's consideration of the composition of the
portfolio, recent credit quality experience, and prevailing economic conditions.
10 of 18
OTHER INCOME, OTHER EXPENSE AND INCOME TAXES
- --------------------------------------------
Total other income, excluding security transactions, increased 34.4% for the
three months ended March 31, 1998 as compared to the same period in 1997. This
was a combination of increased trust revenue, other service charges and fees,
securities gains and other operating income. Gains of $186,000 were recognized
on the sale of $15,645,000 of loans for the three months ended March 31, 1998 as
compared to gains of $35,000 on the sale of $5,145,000 of loans in the prior
year period.
Management anticipates continued sales from the current mortgage loan production
of the Corporation if mortgage loan originations allow and the sales of the
loans are necessary to maintain the asset/liability structure that the
Corporation is trying to effect. The Corporation may realize gains and/or
losses on these sales dependent upon interest rate movements and upon how
receptive the debt markets are to mortgage backed securities.
Total other expense increased 8.4% or $566,000 for the three months ended March
31, 1998 as compared to the same period in 1997.
Salaries and wages expense increased $381,000 or 12.7% and employee benefits
expense decreased $8,000 or 1.2% for the three months ended March 31, 1998, as
compared to the same period last year. The Corporation had 422 and 390
full-time-equivalent employees as of March 31, 1998 and 1997, respectively.
Occupancy and furniture and equipment expenses increased 11.4% to $1,108,000 for
the three months ended March 31, 1998 from $995,000 in the prior year period.
Data processing expense increased $127,000 or 35.4% to $486,000 for the three
months ended March 31, 1998 from the prior year period. There were no
foreclosed property write-downs and expenses in the three month periods ending
March 31, 1998 and March 31, 1997.
The Corporation's net overhead expense, total non-interest expense less
non-interest income divided by average assets, decreased to 1.90% for the three
months ended March 31, 1998 from 2.05% in the prior year period as a result of
the income and expense items described above.
The Corporation's efficiency ratio is defined as operating expenses divided by
net revenue. (More specifically it is defined as non interest expense
expressed as a percentage of the sum of tax equivalent net interest income and
non interest income, excluding security gains and amortization expense). The
consolidated efficiency ratio for the three months ended March 31, 1998 was
58.8% as compared to 60.5% for the prior year period. When the gains on the
sales of loans are excluded, these ratios are 59.7% and 60.7%, respectively.
The change in the current year efficiency ratio is due to the income and expense
items noted above.
Income taxes for the three months ended March 31, 1998 increased to $1,188,000
as compared to $1,000,000 for the comparable period in 1997 due to the higher
level of pre-tax income. As a percent of income before taxes, the provision for
income taxes increased to 30.5% for the three months ended March 31, 1998 from
29.3% for the same period in 1997.
LIQUIDITY
- ---------
Liquidity is the availability of funds to meet all present and future financial
obligations arising in the daily operations of the business at a minimal cost.
These financial obligations consist of needs for funds to meet extensions of
credit, deposit withdrawals and debt servicing.
The sources of short-term liquidity utilized by the Corporation consist of
non-reinvested asset maturities, deposits and capital funds. Additional
liquidity is provided by bank lines of credit, repurchase agreements and the
ability to borrow from the Federal Reserve Bank. 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 respondent banks, but does not rely upon these
purchases for liquidity needs. The Corporation has an operating line with
American National Bank and Trust Company of Chicago in the amount of $10,000,000
with $4,000,000 available as of March 31, 1998. Long-term liquidity needs will
be satisfied primarily through retention of capital funds.
11 of 18
The Corporation's dependence on large liabilities (defined as time deposits over
$100,000 and short-term borrowings) decreased to 11.09% at March 31, 1998 from
12.4% at December 31, 1997. This is the ratio of total large liabilities to
total liabilities. This change was due to an $18,678,000 decrease in time
deposits over $100,000, partially offset by a $10,000,000 increase in short-term
borrowings.
CAPITAL RESOURCES
- -----------------
Other than from the issuance of common stock, the Corporation's primary source
of capital is retained net income. During the three months ended March 31,
1998, the Corporation earned $2,711,000 and paid dividends of $1,315,000 to
stockholders, resulting in a retention of current earnings of $1,396,000. The
Corporation's dividend payout for the three months ended March 31, 1998 was
48.5%. The Corporation's risk-based capital ratio was 13.39% and the leverage
ratio was 7.67% as of March 31 1998, as compared to 13.01% and 7.61%
respectively as of December 31, 1997. The Corporation and its bank subsidiary
were well above all minimum required capital ratios as of March 31, 1998.
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 subsidiaries, Busey Bank and Busey Business Bank, have
asset-liability committees which meet periodically (Busey Bank's committee meets
monthly and Busey Business Bank's committee meets quarterly) to review current
market conditions and attempt to structure the banks' balance sheets to ensure
stable net interest income despite potential changes in interest rates with all
other variables constant.
The asset-liability committees use gap analysis to identify mismatches in the
dollar value of assets and liabilities subject to repricing within specific time
periods. The Funds Management Policy established by Busey Bank's
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 in the
Rate Sensitive Assets and Liabilities section of this report.
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 committees supplement gap
analysis with balance sheet and income simulation analysis to determine the
potential impact on net interest income of changes in market interest rates. In
these simulation models the balance sheet is projected over a one-year period
and net interest income is calculated under current market rates, and then
assuming permanent instantaneous shifts in the yield curve of -100 basis points
and +/- 200 basis points. These interest-rate scenarios indicate the interest
rate risk of the Corporation over a one-year time horizon due to changes in
interest rates, as of March 31, 1998, is as follows:
Basis Point Changes
---------------------
-100 +100 +200
---------------------
Percentage change in net interest income due to an
immediate change in interest rates over a one-year period -3.31% -.60% -3.33%
YEAR 2000 COMPLIANCE
- --------------------
The Corporation has developed an all encompassing plan to address Year 2000
related issues. The plan has five phases that include (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.
12 of 18
This risk goes beyond the internal items and also involves all of our vendors
and customers. The Corporation will be conducting education sessions for its
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.
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.
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The following table sets forth the static rate-sensitivity analysis of the
Corporation as of March 31, 1998.
Rate Sensitive Within
-----------------------------------------------------------------------
1-30 31-90 91-180 181 Days - Over
Days Days Days 1 Year 1 Year Total
-----------------------------------------------------------------------
(Dollars in thousands)
Federal funds sold $ 25,300 $ 0 $ 0 $ 0 $ 0 $ 25,300
Investment securities
U.S. Governments 2,001 16,732 17,051 64,013 65,211 165,008
Obligations of states and
political subdivisions 252 8 0 4,614 27,147 32,021
Other securities 3,347 301 326 1,318 17,457 22,749
Loans (net of unearned int.) 181,529 30,806 43,891 92,064 262,468 610,758
-----------------------------------------------------------------------
Total rate-sensitive assets $ 212,429 $ 47,847 $ 61,268 $ 162,009 $372,283 $855,836
-----------------------------------------------------------------------
Interest bearing transaction
deposits $ 159,248 $ 0 $ 0 $ 0 $ 0 $159,248
Savings deposits 83,290 0 0 0 0 83,290
Money market deposits 122,002 0 0 0 0 122,002
Time deposits 41,926 51,480 66,822 93,251 98,658 352,137
Short-term borrowings:
Federal funds purchased &
repurchase agreements 0 0 0 0 0 0
Other 0 0 16,550 0 0 16,550
Long-term debt 0 5,000 0 0 20,000 25,000
-----------------------------------------------------------------------
Total rate-sensitive
liabilities $ 406,466 $ 56,480 $ 83,372 $ 93,251 $118,658 $758,227
-----------------------------------------------------------------------
Rate-sensitive assets less
rate-sensitive liabilities ($194,037) ($8,633) ($22,104) $ 68,758 $253,625 $ 97,609
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Cumulative Gap ($194,037) ($202,670) ($224,774) ($156,016) $ 97,609 ---
=======================================================================
Cumulative amounts as a
percentage of total
rate-sensitive assets -22.67% -23.68% -26.26% -18.23% 11.41% ---
=======================================================================
Cumulative ratio 0.52X 0.56X 0.59X 0.76X 1.13X 1.13X
=======================================================================
The foregoing table shows a negative (liability sensitive) rate-sensitivity gap
of $194.0 million in the 1-30 day repricing category. The gap beyond 30 days,
through 180 days, becomes slightly more liability sensitive as rate-sensitive
assets that reprice in those time periods are slightly less in volume than
rate-sensitive liabilities that are subject to repricing in the same respective
time periods. The gap beyond 180 days become less liability sensitive as
rate-sensitive assets that reprice after 180 days 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 March 31, 1998 will
benefit the Corporation more if interest rates fall during the next 180 days by
allowing the net interest margin to grow as liability rates would reprice more
quickly than rates on interest rate-sensitive assets. After 180 days, a rate
increase would benefit the Corporation because the volume of rate-sensitive
assets repricing would exceed the volume of rate-sensitive liabilities that
would be repricing.
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FIRST BUSEY CORPORATION AND SUBSIDIARIES
AVERAGE BALANCE SHEETS AND INTEREST RATES
QUARTERS ENDED MARCH 31, 1998 AND 1997
1998 1997
----------------------------------------------------------
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
----------------------------------------------------------
(Dollars in thousands)
ASSETS
Federal funds sold $ 20,616 $ 280 5.51% $ 7,680 $ 100 5.30%
Investment securities
U.S. Government obligations 170,876 2,436 5.78% 167,324 2,416 5.86%
Obligations of states and political
subdivisions (1) 31,890 642 8.16% 36,896 769 8.46%
Other securities 21,941 246 4.55% 20,427 253 5.01%
Loans (net of unearned interest) (1) (2) 606,971 13,391 8.95% 560,759 12,087 8.74%
------------------- -------------------
Total interest earning assets $852,294 $ 16,994 8.09% $793,086 $ 15,625 7.99%
======== ========
Cash and due from banks 32,636 38,497
Premises and equipment 23,309 21,939
Reserve for possible loan losses (7,011) (6,248)
Other assets 17,432 17,661
--------- ---------
Total Assets $918,660 $864,935
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing transaction deposits $ 10,965 $ 52 1.93% $142,848 $ 616 1.75%
Savings deposits 80,497 662 3.33% 84,303 677 3.26%
Money market deposits 261,922 1,898 2.94% 121,455 1,115 3.72%
Time deposits 363,132 4,980 5.56% 348,931 4,741 5.51%
Short-term borrowings:
Federal funds purchased and
repurchase agreements 419 6 5.58% 310 6 7.90%
Other 14,050 278 8.02% 7,250 127 7.08%
Long-term debt 18,944 266 5.70% 7,167 101 5.73%
------------------- -------------------
Total interest bearing liabilities $749,929 $ 8,142 4.40% $712,264 $ 7,383 4.20%
======== ========
Net interest spread 3.69% 3.79%
======= =======
Demand deposits 78,479 72,657
Other liabilities 7,815 5,734
Stockholders' equity 82,437 74,280
--------- ---------
Total Liabilities and Stockholders' Equity $918,660 $864,935
========= =========
Interest income / earning assets (1) $852,294 $ 16,994 8.09% $793,086 $ 15,625 7.99%
Interest expense / earning assets 852,294 8,142 3.87% 793,086 7,383 3.77%
----------------- -----------------
Net interest margin (1) $ 8,852 4.21% $ 8,242 4.22%
================= =================
(1) On a tax-equivalent basis, assuming a federal income tax rate of 35% for 1998 and 1997.
(2) Non-accrual loans have been included in average loans, net of unearned interest.
15 of 18
FIRST BUSEY CORPORATION AND SUBSIDIARIES
CHANGES IN NET INTEREST INCOME
QUARTERS ENDED MARCH 31, 1998 AND 1997
Change due to (1)
Average Average Total
Volume Yield/Rate Change
---------------------------------
(Dollars in thousands)
Increase (decrease) in interest income:
Federal funds sold $ 176 $ 4 $ 180
Investment securities:
U.S. Government obligations 50 (30) 20
Obligations of states and political
subdivisions (2) (101) (27) (128)
Other securities 26 (32) (6)
Loans (2) 1,014 289 1,303
---------------------------------
Change in interest income (2) $ 1,165 $ 204 $ 1,369
---------------------------------
Increase (decrease) in interest expense:
Interest bearing transaction deposits ($635) $ 71 ($564)
Savings deposits (32) 16 (16)
Money market deposits 957 (174) 783
Time deposits 194 45 239
Short-term borrowings:
Federal funds purchased and repurchase
agreements (2) 2 0
Other 133 19 152
Long-term debt 166 (1) 165
---------------------------------
Change in interest expense $ 781 ($22) $ 759
---------------------------------
Increase in net interest income (2) $ 384 $ 226 $ 610
=================================
(1) Changes due to both rate and volume have been allocated proportionally.
(2) On a tax-equivalent basis, assuming a federal income tax rate of 35% for
1998 and 1997.
16 of 18
PART II - OTHER INFORMATION
ITEM 4:
The annual meeting of Stockholders of First Busey Corporation was held on April
27, 1998. At that meeting, the following matters were approved by the
Stockholders:
1. Election of the following fourteen (14) directors to serve until the next
annual meeting of stockholders:
Joseph M. Ambrose Samuel P. Banks
T. O. Dawson Victor F. Feldman
Kenneth M. Hendren E. Phillips Knox
P. David Kuhl V. B. Leister, Jr.
Douglas C. Mills Linda M. Mills
Robert C. Parker David C. Thies
Edwin A. Scharlau II Arthur R. Wyatt
2. Ratification of the appointment of McGladrey & Pullen, LLP as independent
auditors for the fiscal year ending December 31, 1998.
For: 5,390,931 (98.28%)
Against: 4,094 (0.07%)
Abstain: 90,403 (1.65%)
ITEM 6: Exhibits and Reports on Form 8-K
(a) There were no reports on Form 8-K filed during the three
months ending March 31, 1998.
17 of 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused the report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST BUSEY CORPORATION
(REGISTRANT)
By: //Scott L. Hendrie//
------------------------------------------------
Scott L. Hendrie
Senior Vice President and
Chief Financial Officer
(Principal financial and accounting officer)
Date: May 13, 1998
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9 1,000 3-MOS DEC-31-1998 MAR-31-1998 42,252 0 25,300 0 219,752 0 0 610,758 7,474 934,878 800,919 16,550 8,832 25,000 0 0 6,291 77,286 934,878 13,319 3,098 280 16,697 7,592 8,142 8,555 650 300 7,308 3,899 2,711 0 0 2,711 0.39 0.39 8.09 648 1,460 0 463 6,860 78 42 7,474 0 0 613