SEC Filing | First Busey Corporation

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 0-15950 FIRST BUSEY CORPORATION (Exact name of registrant as specified in its Charter) Nevada 37-1078406 (State or other jurisdiction of (I.R.S. Employer incorporation of organization) Identification No.) 201 West Main Street Urbana, Illinois 61801 (Address of principal executive offices) (Zip Code) (217) 365-4513 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Class A Common Stock, without par value Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No __ --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 Regulation S-K is not contained herein, and will not be contained to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of March 1, 1999, the aggregate market value of the Class A Common Stock held by non-affiliates was $131,450,918. The market value of the Class A Common Stock is based on the closing price for such stock as reported on the Nasdaq National Market on that date. Affiliates include all directors, executive officers and beneficial holders owning 5% or more of the shares. Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date. Class Outstanding at March 1, 1999 ----- ---------------------------- Class A Common Stock, without par value 13,179,689 DOCUMENTS INCORPORATED BY REFERENCE Portions of the definitive Proxy Statement dated March 25, 1999 for First Busey Corporation's Annual Meeting of Stockholders to be held April 20, 1999, (the "1999 Proxy Statement") are incorporated by reference into Part III.

FIRST BUSEY CORPORATION Form 10-K Annual Report Table of Contents PART 1 Item 1 Business 3 Item 2 Properties 11 Item 3 Legal Proceedings 11 Item 4 Submission of Matters to a Vote of Security Holders 11 PART II Item 5 Market for Registrant's Common Equity and Related Stockholder Matters 11 Item 6 Selected Financial Data 12 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 13 Item 8 Financial Statements and Supplementary Data 30 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 30 PART III Item 10 Directors and Executive Officers of the Registrant 30 Item 11 Executive Compensation 30 Item 12 Security Ownership of Certain Beneficial Owners and Management 30 Item 13 Certain Relationships and Related Transactions 30 PART IV Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 30 2

PART I ITEM 1. BUSINESS INTRODUCTION First Busey Corporation ("First Busey"), a Nevada corporation, is a bank holding company located in Urbana, Illinois. As of December 31, 1998, First Busey had seven wholly owned, directly and indirectly, subsidiaries: one community bank, a trust company, a securities broker-dealer, an ATM company, an insurance company, a real estate company, and a travel agency. First Busey is engaged primarily in commercial, retail and correspondent banking and provides trust services, insurance services, and travel services. Based on assets of $951 million as of December 31, 1998, First Busey, with deposits of $827 million and stockholders' equity of $87 million, is one of the largest financial institutions headquartered in east central Illinois. First Busey's largest subsidiary, Busey Bank, with continuous operations since 1868, is one of the oldest banks chartered in Illinois. First Busey's strategic plan is to provide a full range of financial services including commercial, retail and correspondent banking services through its banking subsidiaries, with emphasis on commercial and retail services. The strategic plan also emphasizes the operation of its banking centers autonomously, allowing them to tailor their service and products to the particular market they serve while consolidating back-room operations. First Busey intends to continue its expansion and growth in the three counties it currently serves in Illinois, Champaign, McLean and Ford County, its banking center in Indianapolis, Indiana, and its Loan Production Office in Ft. Myers. First Busey engages in exploratory discussions regarding potential acquisitions from time to time; however, First Busey does not currently have any commitments to acquire or merge with any financial institution. First Busey Corporation's operations are conducted primarily through its lead bank, Busey Bank (twenty-two locations), the trust company and the securities broker-dealer subsidiary. First Busey provides its subsidiaries with both financial and managerial support. Each subsidiary operates under the direction of its own Board of Directors. BUSEY BANK Busey Bank was established on January 13, 1868 and is a state-chartered bank. As of December 31, 1998, Busey Bank had total assets of $938 million, representing 99% of First Busey's assets, and had total revenues of $75 million, representing 93% of First Busey's revenues. Busey Bank provides a full range of banking services including commercial and retail banking products. The services available to its commercial and retail customers include a broad selection of depository and lending activities. In the commercial lending area, Busey Bank is designated a Small Business Administration Preferred Lender authorized to fund government guaranteed loans on an expedited basis and is also an approved lender under the Federal National Mortgage Association Program, permitting expedited origination of single- and multi-family mortgage loans. Busey Bank's other commercial lending activities consist primarily of secured loans to borrowers in many different industries. Busey Bank's retail services include consumer lending, numerous types of deposit accounts and certain specialized programs such as the Fortune Five-O Program for the mature market. Management's philosophy continues to be to develop programs tailored to specific market segments of its customer base with particular emphasis on retail services. The Busey organization emphasizes establishing strong relationships with its customers. Busey Bank has adopted a strategy to increase other income by emphasizing fee-based services, including transaction accounts, full service brokerage, mortgage origination and other loan services generating fees. 3

Guidelines for Busey Bank for various collateral advance ratios are set forth in the Loan Review Grading System under "Collateral Position." Loan Officers are required to use the grading system in determining an acceptable collateral position on any given credit request. Collateral coverage percentages for various types of credit are set forth in the following table: Collateral Type Coverage Ratio --------------------- --------------- Commercial Loans: Real Estate 125% Accounts Receivable 125% Inventory & Equipment 200% Consumer Real Estate Loans: Real Estate 125% Installment Loans: Cash or Equivalent 110% Vehicle 140% Mobile Homes 150% Other Collateral 160% All commercial loans must be supported by a completed and signed financial statement, which should include a minimum of a balance sheet and income statement. Loan Officers are encouraged to require borrowers to provide annual statements prepared by a CPA firm. Where possible, an audit should be obtained, however, a review or compilation is acceptable. The Credit Analysis Department tracks delinquent financial statements and provides weekly reports to the Commercial Loan Department. In addition, the Senior Loan Committee receives a monthly report detailing delinquent financial statements for customers with large loan balances. A borrower's financial position including cash flow is monitored at least annually through an annual review process. OTHER SUBSIDIARIES First Busey Trust & Investment Co. began operation on January 1, 1987 as a successor to the combined trust departments of Busey Bank and Champaign County Bank & Trust Co., which began trust operations in 1967 and 1947, respectively. Through First Busey Trust & Investment Co., First Busey plans to expand its trust activities by increasing assets under control, currently approximating $760 million, and by developing new financial services. During 1998, revenues from trust activities were $3.5 million. First Busey Resources, Inc., owns and manages Busey Plaza, a 90,000 square foot building which is the location of the headquarters of First Busey Trust & Investment Co. First Busey Corporation formed Busey Business Bank on January 12, 1998. This is a de novo bank established in Indianapolis, Indiana. Upon the establishment of this chartered bank, Busey Bank closed its Loan Production Office in Indianapolis. In October of 1998, Busey Business Bank was merged into Busey Bank and continued to operate as a full-service banking center. Busey Bank established a full service securities broker-dealer subsidiary, First Busey Securities, Inc., on April 1, 1991. Through the offering of full service brokerage, along with various insurance and annuity products, new sources of fee income are available to Busey Bank. 4

In October of 1997, Busey Bank established an insurance subsidiary, Busey Insurance Services, Inc., to further enhance the services available to its customers. This subsidiary serves primarily the McLean County market. During 1997, Busey Bank established a subsidiary, BAT, Inc, which owns and operates automated teller machines. In January of 1998, Busey Bank acquired Busey Carter Travel, a travel agency serving primarily Champaign County. This acquisition was also completed to enhance the services available to the customers of Busey Bank. In January 1999, this subsidiary changed its name to Busey Travel, Inc. COMPETITION First Busey faces intense competition in all phases of its banking business from other banks and financial institutions. First Busey's subsidiary bank competes for deposits with a large number of depository institutions including commercial banks, savings and loan associations, credit unions, money market funds and other financial institutions and financial intermediaries serving Champaign County, McLean County, Illinois, and Hamilton County, Indiana. Principal competitive factors with respect to deposits include interest rates paid on deposits, customer service, convenience and location. First Busey's subsidiary bank competes for loans with other banks headquartered in Illinois and Indiana, with loan production offices of large money center banks headquartered in other states, as well as with savings and loan associations, credit unions, finance companies, mortgage bankers, leasing companies and other institutions. Competitive factors with respect to loans include interest rates charged, customer service and responsiveness in tailoring financial products to the needs of customers. First Busey's subsidiary bank competes for loans primarily by designing their products for and directing their marketing efforts to businesses in the markets they serve which are locally owned, well-capitalized and well-managed. Many of the entities that compete with First Busey's subsidiary bank are substantially larger in size than First Busey and First Busey's subsidiary bank, and many non-bank financial intermediaries are not subject to the regulatory restrictions applicable to First Busey's bank subsidiary. First Busey and its subsidiary bank have experienced an increase in the level of competition as well as the number of competitors in recent years. See "Supervision and Regulation." EMPLOYEES First Busey and its subsidiaries employed 433 employees (full-time equivalent) on December 31, 1998. Management considers its relationship with its employees to be good. SUPERVISION AND REGULATION GENERAL Financial institutions and their holding companies are extensively regulated under federal and state laws. As a result, the business, financial condition and prospects of First Busey and its subsidiary bank can be materially affected not only by management decisions and general economic conditions, but also by applicable statutes and regulations and other regulatory pronouncements and policies promulgated by regulatory agencies with jurisdiction over First Busey and its subsidiary bank, such as the Federal Reserve Board ("FRB"), Federal Deposit Insurance Corporation ("FDIC") and the State of Illinois Office of Banks and Real Estate, and the effect of such statutes, regulations and other pronouncements and policies can be significant, cannot be predicted with a high degree of certainty and can change over time. Furthermore, such statutes, regulations and other pronouncements and policies are intended to protect the depositors and the FDIC's deposit insurance funds, not to protect stockholders. Bank holding companies and banks are subject to enforcement actions by their regulators for regulatory violations. In addition to compliance with statutory and regulatory limitations and requirements concerning financial and operating matters, regulated financial institutions such as First Busey and its subsidiary bank must file periodic and other reports and information with their regulators and are subject to examination by each of their regulators. 5

The statutory requirements applicable to and regulatory supervision of bank holding companies and banks have increased significantly and have undergone substantial change in recent years. To a great extent, these changes are embodied in the Financial Institutions Reform, Recovery and Enforcement Act ("FIRREA"), enacted in August 1989, the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), enacted in December 1991, and the regulations promulgated under FIRREA and FDICIA. The following discussion and other references to and descriptions of the regulation of financial institutions contained herein constitute brief summaries thereof. This discussion is not intended to constitute and does not purport to be a complete statement of all legal restrictions and requirements applicable to First Busey and its subsidiary bank and all such descriptions are qualified in their entirety by reference to applicable statutes, regulations and other regulatory pronouncements. INTERSTATE BANKING AND BRANCHING LEGISLATION On September 29, 1994, the Riegle-Neal Interstate Banking and Efficiency Act of 1994 (the "Interstate Banking Act") was enacted. Under the Interstate Banking Act, adequately capitalized and adequately managed bank holding companies will be allowed to acquire banks across state lines subject to certain limitations. In addition, under the Interstate Banking Act, since June 1, 1997, banks have been permitted, under some circumstances, to merge with one another across state lines and thereby create a main bank with branches in separate states. After establishing branches in a state through an interstate merger transaction, a bank may establish and acquire additional branches at any location in the state where any bank involved in the interstate merger could have established or acquired branches under applicable federal and state law. Under the Interstate Banking Act, states could adopt legislation permitting interstate mergers before June 1, 1997. Alternatively, states could adopt legislation before June 1, 1997, subject to certain conditions, opting out of interstate branching. Illinois adopted legislation, effective September 29, 1995, permitting interstate mergers beginning on June 1, 1997. It is anticipated that this interstate merger and branching ability will increase competition and further consolidate the financial institutions industry. REGULATION OF BANK HOLDING COMPANIES AND THEIR NON-BANK SUBSIDIARIES First Busey is a registered bank holding company within the meaning of the Bank Holding Company Act of 1956, as amended ("BHCA"). As such, First Busey is subject to regulation, supervision and examination by the FRB. First Busey is also subject to the limitations and requirements of the Illinois Bank Holding Company Act ("IBHCA"). These limitations and requirements, however, are no more restrictive in most instances than those imposed by the BHCA and the FRB. The business and affairs of First Busey are regulated in a variety of ways, including limitations on acquiring control of other banks and bank holding companies, limitations on activities and investments, limitations on interstate acquisitions, regulatory capital requirements and limitations on payment of dividends. In addition, it is the FRB's policy that a bank holding company is expected to act as a source of financial strength to banks that it owns or controls and, as a result, the FRB could require First Busey to commit resources to support its subsidiary bank in circumstances in which First Busey might not do so absent the FRB's policy. First Busey Trust & Investment Co. is subject to regulation and examination by the State of Illinois Office of Banks and Real Estate and the FRB. The federal and state laws generally applicable to a trust company subsidiary of a bank holding company regulate, among other things, the scope of its business, investments and other activities. Busey Insurance Services, Inc. is regulated by the Illinois Department of Insurance. First Busey Securities, Inc. is regulated by the National Association of Securities Dealers ("NASD"). 6

ACQUISITION OF BANKS AND BANK HOLDING COMPANIES The BHCA generally prohibits a bank holding company from (1) acquiring, directly or indirectly, more than 5% of the outstanding shares of any class of voting securities of a bank or bank holding company, (2) acquiring control of a bank or another bank holding company, (3) acquiring all or substantially all the assets of a bank, or (4) merging or consolidating with another bank holding company, without first obtaining FRB approval. In considering an application with respect to any such transaction, the FRB is required to consider a variety of factors, including the potential anti-competitive effects of the transaction, the financial condition and future prospects of the combining and resulting institutions, the managerial resources of the resulting institution, the convenience and needs of the communities the combined organization would serve, the record of performance of each combining organization under the Community Reinvestment Act and the Equal Credit Opportunity Act, and the prospective availability to the FRB of information appropriate to determine ongoing regulatory compliance with applicable banking laws. In addition, both the federal Change in Bank Control Act and the Illinois Banking Act ("IBA") impose limitations on the ability of one or more individuals or other entities to acquire control of First Busey or its subsidiary bank. The BHCA generally imposes certain limitations on extensions of credit and other transactions by and between banks that are members of the Federal Reserve System and other banks and non-bank companies in the same holding company. Under the BHCA and the FRB's regulations, a bank holding company and its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit, lease or sale of property or furnishing of services. The BHCA prohibits a bank holding company from acquiring control of a bank whose principal office is located outside of the state in which its principal place of business is located unless specifically authorized by applicable state law. The IBHCA permits Illinois bank holding companies to acquire control of banks in any state and permits bank holding companies whose principal place of business is in another state to acquire control of Illinois banks or bank holding companies if that state affords reciprocal rights to Illinois bank holding companies and certain other requirements are met. The restrictions described above represent limitations on expansion by First Busey and its subsidiary bank, the acquisition of control of First Busey by another company and the disposition by First Busey of all or a portion of the stock of its subsidiary bank or by its subsidiary bank of all or a substantial portion of its assets. Permitted Non-Banking Activities The BHCA generally prohibits a bank holding company from engaging in activities or acquiring or controlling, directly or indirectly, the voting securities or assets of any company engaged in any activity other than banking, managing or controlling banks and bank subsidiaries or another activity that the FRB has determined, by regulation or otherwise, to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. Subject to certain exceptions, before making any such acquisition or engaging in any such activity, a bank holding company must obtain the prior approval of the FRB as provided in applicable regulations. In evaluating such applications, the FRB will consider, among other relevant factors, whether permitting the bank holding company to engage in the activity in question can reasonably be expected to produce benefits to the public (such as increased convenience, competition or efficiency) that outweigh any possible adverse effects (such as undue concentration of resources, decreased or unfair competition, conflicts of interest or safety and soundness concerns). Those activities that the FRB has determined by regulation to be closely related to banking include making, acquiring and servicing loans or other extensions of credit by consumer finance companies. 7

Notwithstanding applicable restrictions on acquisition or control of banks, bank assets, bank holding companies and companies engaged in permitted non-banking activities, a bank holding company may acquire, without the prior approval of the FRB, 5% or less of the outstanding shares of any class of voting securities of a company assuming the investment does not otherwise result in control of such company. The BHCA prohibits bank holding companies, with certain exceptions, from acquiring direct or indirect ownership of more than five percent of the voting securities of any company that is not a bank or does not engage in any of the activities described in the preceding paragraph. Allowance for Loan Loss First Busey Corporation's loan loss allowance is categorized into six groups of loans: real estate mortgages, personal loans, commercial loans, sensitive assets, dealer paper, and credit card loans. Balances for each group of loans are multiplied by individual risk factors to determine the minimum reserve allocation for each category. The risk factors are based on historical losses, credit quality of the portfolio, and current economic conditions and are updated quarterly. The total of the calculated minimum reserve allocations is compared to the reserve balance at the end of each quarter. The reserve balance is then adjusted to meet the calculated minimum reserve. If the reserve balance is greater than the calculated minimum reserve, no addition to the loan loss provision is made during the period. The Corporation evaluates sensitive assets individually; sensitive assets are defined as nonaccrual loans, loans past due 90 days and still accruing, loans on the Bank's watch loan report, and other loans identified as having more than reasonable potential for loss. The remaining loan categories listed above are evaluated as groups. In determining the risk factors used to calculate the minimum reserve allocation for each loan category, the Corporation considers guidelines issued by federal and state regulatory agencies, historical loss experience for each category, and current delinquency reports for each loan class. Capital Requirements Regulatory capital requirements applicable to all regulated financial institutions, including bank holding companies and banks, have increased significantly in recent years and further increases are possible in future periods. The FRB has adopted risk-based capital standards for bank holding companies. The articulated objectives of Congress and the FRB in establishing a risk-based method of measuring capital adequacy are (i) to make regulatory capital requirements applicable to bank holding companies more sensitive to differences in risk profiles among bank holding companies, (ii) to factor off-balance sheet liabilities into the assessment of capital adequacy, (iii) to reduce disincentives for bank holding companies to hold liquid, low risk assets and (iv) to achieve greater consistency in the evaluation of capital adequacy of major banking organizations throughout the world by conforming to the framework developed jointly by supervisory authorities from countries that are parties to the so-called "Basle Accord" adopted by such supervisory authorities in July 1988. The FRB requires bank holding companies to maintain a minimum ratio of risk-weighted capital to total risk-adjusted assets. Banking organizations, however, generally are expected to operate well above the minimum risk-based ratios. Risk-adjusted assets include a "credit equivalent amount" of off-balance sheet items, determined in accordance with conversion formulae set forth in the FRB's regulations. Each asset and off-balance sheet item, after certain adjustments, is assigned to one of four risk-weighting categories, 0%, 20%, 50% or 100%, and the risk-adjusted values are then added together to determine risk-weighted assets. A bank holding company must meet two risk-based capital standards, a "core" or "Tier 1" capital requirement and a total capital requirement. The current regulations require that a bank holding company maintain Tier 1 capital equal to 4% of risk-adjusted assets and total capital equal to 8% of risk-adjusted assets. Tier 1 capital must represent at least 50% of total capital and may consist of those items defined in applicable regulations as core capital elements. Core capital elements include common stockholders' equity; qualifying noncumulative, nonredeemable perpetual preferred stock; qualifying (i.e., up to 25% of total Tier 1 capital) cumulative, nonredeemable perpetual preferred stock; and minority interests in the equity accounts of consolidated subsidiaries. Core capital excludes goodwill and other intangible assets required to be deducted in accordance with applicable regulations. 8

Total capital represents the sum of Tier 1 capital plus "Tier 2" capital, less certain deductions. Tier 2 or "supplementary" capital consists of allowances for loan and lease losses; perpetual preferred stock (to the extent not included in Tier 1 capital); hybrid capital instruments; perpetual debt; mandatory convertible debt securities; term subordinated debt; and intermediate term preferred stock, in each case subject to applicable regulatory limitations. The maximum amount of Tier 2 capital that may be included in an organization's qualifying total capital cannot exceed 100% of Tier 1 capital. In determining total capital, a bank holding company must deduct from the sum of Tier 1 and Tier 2 capital its investments in unconsolidated subsidiaries; reciprocal holdings of certain securities of banking organizations; and other deductions required by regulation or determined on a case-by-case basis by the appropriate supervisory authority. Another capital measure, the Tier 1 leverage ratio, is defined as Tier 1 capital divided by average total assets (net of allowance for losses and goodwill). The minimum leverage ratio is 3% for banking organizations that do not anticipate significant growth and that have well-diversified risk (including no undue interest rate risk), excellent asset quality, high liquidity and good earnings. Other banking organizations are expected to have ratios of at least 4% to 5%, depending upon their particular condition and growth plans. Higher capital ratios could be required if warranted by the particular circumstances or risk profile of a given banking organization. The FRB has not advised First Busey of any specific minimum Tier 1 leverage ratio applicable to it. As of December 31, 1998, First Busey's Tier 1 and total risk-based capital ratios were 12.07% and 13.23%, respectively, and its Tier 1 leverage ratio was 7.87%. The failure of a bank holding company to meet its risk-weighted capital ratios may result in supervisory action, as well as inability to obtain approval of any regulatory applications and, potentially, increased frequency of examination. The nature and intensity of the supervisory action will depend upon the level of noncompliance. Under the IBHCA, no bank holding company may acquire control of a bank if, at the time it applies for approval or at the time the transaction is consummated, its ratio of total capital to total assets, as determined in accordance with then applicable FRB regulations, is or will be less than 7%. Risk-based capital ratios focus principally on broad categories of credit risk and do not incorporate factors that can affect the Company's financial condition, such as overall interest rate risk exposure, liquidity, funding and market risks, the quality and level of earnings, investment or loan portfolio concentrations, the quality of loans and investments, the effectiveness of loan and investment policies and management's ability to monitor and control financial and operating risks. For this reason, the overall financial health of First Busey and its subsidiary bank and the assessment of First Busey and its subsidiary bank by various regulatory agencies may differ from conclusions that might be drawn solely from the level of First Busey or its subsidiary bank's risk-based capital ratios. During 1994, the federal banking regulators announced a joint decision not to modify risk-based capital and leverage requirements for regulatory capital to reflect the impact of unrealized gains and losses for securities classified as "available for sale." This decision was made in response to the Financial Accounting Standards Board's issuance of Statement No. 115 "Accounting for Certain Investments in Debt and Equity Securities." 9

Regulation of Banks First Busey's bank subsidiary is a banking corporation organized under the IBA. As such, it is subject to regulation, supervision and examination by the State of Illinois Office of Banks and Real Estate. The deposit accounts of the bank subsidiary are insured up to applicable limits by the FDIC's Bank Insurance Fund (the "BIF"). Thus, the bank subsidiary is also subject to regulation, supervision and examination by the FDIC. In certain instances, the statutes administered by and regulations promulgated by certain of these agencies are more stringent than those of other agencies with jurisdiction. In these instances, the bank subsidiary must comply with the more stringent restrictions, prohibitions or requirements. The business and affairs of the bank subsidiary are regulated in a variety of ways. Regulations apply to, among other things, insurance of deposit accounts, capital ratios, payment of dividends, liquidity requirements, the nature and amount of the investments that the bank subsidiary may make, transactions with affiliates, community and consumer lending laws, internal policies and controls, reporting by and examination of the bank subsidiary and changes in control of the bank subsidiary. Dividends The FRB has issued a policy statement on the payment of cash dividends by bank holding companies. In the policy statement, the FRB expressed its view that a bank holding company experiencing weak earnings should not pay cash dividends which exceed its net income or which could only be funded in ways that would weaken its financial health, such as by borrowing. The FRB also may impose limitations on the payment of dividends as a condition to its approval of certain applications, including applications for approval of mergers and acquisitions. First Busey uses funds derived primarily from the payment of dividends by its largest banking subsidiary for, among other purposes, the payment of dividends to First Busey's stockholders. Under provisions of the IBA, dividends may not be declared by banking subsidiaries except out of the bank's net profit (as defined), and unless the bank has transferred to surplus at least one-tenth of its net profits since the date of the declaration of the last preceding dividend, until the amount of its surplus is at least equal to its capital. Presently, the surplus of Busey Bank exceeds its capital. All dividends paid by First Busey's banking subsidiaries are restricted by capital adequacy requirements imposed by federal regulators regarding the maintenance of the risk-weighted asset ratios and the leverage ratio (as defined by regulatory agencies). At December 31, 1998, Busey Bank had $28,365,000 available for the payment of dividends to First Busey. Sound banking practices require the maintenance of adequate levels of capital. State and federal regulatory authorities have adopted standards for the maintenance of capital by banks and adherence to such standards further limits the ability of banks to pay dividends. First Busey Trust & Investment Co., as an Illinois corporation, is permitted to make distributions to its stockholder as authorized by its Board of Directors, except that as long as it continues in a fiduciary business, it may not withdraw for purposes of payment of dividends or otherwise any portion of its capital account except with the approval of the State of Illinois Office of Banks and Real Estate. MONETARY POLICY AND ECONOMIC CONDITION The earnings of commercial banks and bank holding companies are affected not only by general economic conditions but also by the policies of various governmental regulatory authorities. In particular, the FRB influences conditions in the money and capital markets, which affect interest rates and the growth in bank credit and deposits. FRB monetary policies have had a significant effect on the operating results of commercial banks in the past and this is expected to continue in the future. The general effect, if any, of such policies upon the future business and earnings of First Busey and its subsidiary bank cannot be predicted. 10

ITEM 2. PROPERTIES As of March 1, 1999, First Busey and its subsidiaries conduct business in twenty-three locations. Busey Bank has its headquarters at the Busey Bank Building, a 40,000 square foot building owned by Busey Bank. In addition to the Busey Bank Building, First Busey and/or its subsidiaries own the land and building for twelve locations, own the building and lease the land for two locations and lease eight locations. Two supermarket locations, the Bloomington facility, the Busey Plaza Building, the Indianapolis location and the Fort Myers location are the only facilities not fully occupied by First Busey or its subsidiaries. The Busey Plaza Building, a five-story 90,000 square foot office building, is the location of the headquarters of First Busey Trust & Investment Co., with the remainder leased to unaffiliated tenants. ITEM 3. LEGAL PROCEEDINGS There are no material pending legal proceedings, other than routine litigation incidental to the business, to which First Busey or its subsidiaries are a part of or which any of their property is the subject. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. EXECUTIVE OFFICERS OF THE REGISTRANT Name Office (year first elected as an officer) Age ---- ----------------------------------------- --- Douglas C. Mills Chairman of the Board, President and Chief Executive 58 Officer of First Busey (1971) Edwin A. Scharlau II Chairman of the Board of First Busey Trust & Investment 54 Co. and First Busey Securities, Inc. (1967) P. David Kuhl President and Chief Executive 49 Officer of Busey Bank (1979) Each executive officer also serves on First Busey's Board of Directors. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Effective October 1, 1998, First Busey Class A common stock began trading on the Nasdaq national market under the symbol BUSE. Prior to that the stock was traded and quoted in the National Quotation Bureau's "Pink Sheets" (1988-1997) and on the OTC Bulletin Board (1997-1998). Although a limited trading market for shares of First Busey Class A Common Stock has developed recently, there can be no assurance that it will continue. 11

The following table presents for the periods indicated the high and low closing price for First Busey Class A Common Stock as provided by the Corporation's market maker Stephens, Inc. and reported on the OTC Bulletin Board or the Nasdaq National Market, as the case may be. 1998 1997 ---------------- ---------------- Market Prices of Common Stock High Low High Low - ----------------------------- ------- ------- ------- ------- First Quarter $15.750 $13.750 $11.875 $11.125 Second Quarter $16.750 $15.750 $12.125 $11.875 Third Quarter $20.500 $16.688 $12.875 $12.125 Fourth Quarter $19.250 $18.000 $13.875 $12.875 During 1998 and 1997, First Busey, declared cash dividends per share as follows: CLASS A CLASS B 1998 COMMON STOCK COMMON STOCK ---- ------------ ------------ January $.0900 $.0000 April $.1000 $.0000 July $.1000 $.0000 October $.1000 $.0000 1997 ------- January $.0850 $.0773 April $.0850 $.0773 July $.0900 $.0818 October $.0900 $.0818 All issued and outstanding shares of Class B Common Stock were converted to Class A Common Stock on December 31, 1997. A two-for-one stock split on Class A Common Stock occurred on August 3, 1998. A three-for-two stock split on both Class A and Class B Common Stock occurred on May 7, 1996. For a discussion of restrictions on dividends, please see the discussion of dividend restrictions under Item 1, Business, Dividends on page 10. As of March 1, 1999 there were approximately 1,020 holders of First Busey Class A Common Stock. ITEM 6. SELECTED FINANCIAL DATA SELECTED CONSOLIDATED FINANCIAL INFORMATION The following selected financial data for each of the five years in the period ended December 31, 1998, have been derived from First Busey's annual consolidated financial statements audited by McGladrey & Pullen, LLP, independent certified public accountants, whose report on the financial position as of December 31, 1998 and December 31, 1997, and the results of operations for each of the three years in the period ended December 31, 1998, appears elsewhere in this report. This financial data should be read in conjunction with the financial statements and the related notes thereto appearing in this report. 12

1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- (dollars in thousands, except per share data) BALANCE SHEET ITEMS - ------------------- Securities $217,991 $215,514 $226,350 $284,517 $210,525 Loans, net of unearned interest 662,281 602,937 569,500 481,772 451,051 Allowance for loan losses 7,101 6,860 6,131 5,473 5,235 Total assets 951,531 915,540 864,918 844,666 728,459 Total deposits 826,704 811,453 766,927 744,897 635,694 Long-term debt 25,000 10,000 5,000 5,000 5,000 Stockholders' equity 87,103 81,279 73,417 67,778 59,016 RESULTS OF OPERATIONS - --------------------- Interest income $ 67,048 $ 63,831 $ 61,197 $ 54,494 $ 47,126 Interest expense 32,975 31,119 30,033 26,515 20,212 -------- -------- -------- -------- -------- Net interest income 34,073 32,712 31,164 27,979 26,914 Provision for loan losses 700 1,075 1,100 395 240 Net income 11,398 $ 10,371 $ 9,306 $ 8,775 $ 8,238 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- (dollars in thousands, except per share data) PER SHARE DATA(1) - --------------- Diluted earnings $ .81 $ .74 $ .67 $ .63 $ .59 Cash dividends (Class A) .39 .35 .33 .29 .27 Book value 6.36 5.92 5.36 4.97 4.32 Closing price 18.25 13.75 11.13 9.00 8.08 OTHER INFORMATION - ----------------- Return on average assets 1.22% 1.18% 1.08% 1.15% 1.14% Return on average equity 13.51% 13.42% 13.40% 13.86% 14.16% Net interest margin(2) 4.10% 4.20% 4.13% 4.20% 4.30% Stockholders' equity to assets 9.15% 8.88% 8.49% 8.02% 8.10% (1) Per share amounts have been restated to give retroactive effect to the two-for-one stock split which occurred August 3, 1998, and the three-for-two stock split which occurred May 7, 1996. (2) Calculated as a percent of average earning assets. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is management's discussion and analysis of the financial condition and results of operations of First Busey Corporation and Subsidiaries (the "Corporation") for the years ended December 31, 1998, 1997 and 1996. It should be read in conjunction with "Business," "Selected Financial Data," the consolidated financial statements and the related notes to the consolidated financial statements and other data included in this Annual Report. All per share amounts have been restated to give retroactive effect to the two-for-one stock split which occurred August 3, 1998, and the three-for-two stock split which occurred May 7, 1996. 13

GENERAL The Corporation's consolidated income is generated primarily by the financial services activities of its subsidiaries. Since January 1, 1982, the Corporation has acquired eleven banks and sold two; acquired six savings and loan branches and two bank branches; acquired a bank branch in an FDIC assisted acquisition of a failed bank; formed a trust company subsidiary; formed an insurance agency subsidiary; formed a non-bank ATM subsidiary and acquired a travel agency. All of the banks acquired during those years were accounted for using the purchase method of accounting, except for Bank of Urbana which was accounted for using the pooling of interests method. All subsidiary banks owned by the Corporation as of November 1991 were merged with Busey Bank. Under the purchase method of accounting, the earnings of the acquired subsidiaries are included in the Corporation's earnings only for the periods subsequent to acquisition. The following table illustrates the amounts of net income contributed by each subsidiary (on a pre-consolidation basis) since January 1, 1995, less purchase accounting adjustments (net income for Busey Bank in following table excludes income from Bank subsidiaries and includes deduction of $854,000 for amortization expense recorded on parent company statements). Subsidiary Acquired 1998 1997 1996 - ---------------------------------------------------------------------------------------------------------- (dollars in thousands) Busey Bank(1) 3/20/80 $10,630 86.5% $ 9,645 88.3% $8,980 91.8% First Busey Trust & Investment Co.(2) -- 1,175 9.6% 987 9.0% 651 6.7% First Busey Securities, Inc(3) -- 301 2.4% 234 2.1% 148 1.5% First Busey Resources, Inc.(4) -- 205 1.7% 102 0.9% -- -- Busey Insurance Services, Inc.(5) -- (14) -0.1% (26) -0.2% -- -- BAT, Inc.(6) -- (3) -0.0% (12) -0.1% -- -- Busey Travel, Inc.(7) 1/1/98 (10) -0.1% -- -- -- -- ------- -------- ------ -------- ------ ------ ------ Total $12,284 100.0% $10,930 100.0% $9,779 100.0% ======== ====== ======== ====== ====== ====== (1) City Bank of Champaign and Champaign County Bank & Trust were merged into Busey Bank as of January 1, 1987. First National Bank of Thomasboro was merged into Busey Bank as of January 1, 1988. State Bank of St. Joseph was merged into Busey Bank as of November 3, 1989. The Bank of Urbana, Citizens Bank of Tolono, and the assets of Community Bank of Mahomet subject to its liabilities were merged into Busey Bank as of November 16, 1991. Busey Bank of McLean County was merged into Busey Bank as of January 1, 1996. Busey Business Bank was formed on January 12, 1998, and merged into Busey Bank as of October 30, 1998. (2) Formed as a subsidiary of the Corporation as of January 1, 1987 as a successor to the combined trust departments of Busey Bank and Champaign County Bank & Trust. (3) Formed as a subsidiary of Busey Bank as of April 1, 1991. (4) Reactivated as a subsidiary of First Busey Corporation as of January 1, 1997. Real estate and certain other assets previously carried on the parent company's balance sheet were transferred to subsidiary as of that date. (5) Formed as a subsidiary of Busey Bank as of October 1, 1997. (6) Reactivated as a subsidiary of Busey Bank as of July 1, 1997. (7) Acquired as a subsidiary of Busey Bank as of January 1, 1998. Busey Bank and First Busey Trust & Investment Co. are the two subsidiaries which contributed more than 10% of the Corporation's consolidated net income. Busey Bank provides a full range of banking services to individual and corporate customers through its branch network in central Illinois, through its branch in Indianapolis, Indiana, and through its loan production office in Fort Myers, Florida. First Busey Trust & Investment provides trust and asset management services to individual and corporate customers throughout central Illinois. 14

RESULTS OF OPERATIONS-THREE YEARS ENDED DECEMBER 31, 1998 Summary The Corporation reported net income of $11,398,000 in 1998, up 9.9% from $10,371,000 in 1997, which had increased 11.4% from $9,306,000 in 1996. Diluted earnings per share in 1998 increased 9.5% to $.81 from $.74 in 1997, which was a 10.4% increase from $.67 in 1996. The main factors contributing to the increase in net income in 1998 were increases in net interest income, trust fees, other service charges and fees, security gains, and gains on the sales of loans. Contributing to the 1997 increase in net income were increases in net interest income, trust fees, commissions and brokers fees, and other service charges and fees. Operating earnings, which exclude security gains and the gain on sales of loans and the related tax expense, were $9,948,000 or $.71 per share for 1998; $9,748,000, or $.70 per share for 1997; and $8,965,000, or $.65 per share for 1996. Security gains after the related tax expense were $808,000 or 7.1% of net income in 1998; $338,000 or 3.3% of net income in 1997; and $166,000 or 1.8% of net income in 1996. First Busey Corporation owns a position in a qualified equity security with substantial appreciated value. During 1998 First Busey's Board authorized an orderly liquidation of this asset over a five-year period. The Corporation's return on average assets was 1.22%, 1.18% and 1.08% for 1998, 1997, and 1996, respectively, and return on average equity was 13.51%, 13.42%, and 13.40% for 1998, 1997, and 1996, respectively. On an operating earnings basis, return on average assets was 1.13%, 1.14%, and 1.06% for 1998, 1997, and 1996, respectively, and return on average equity was 12.55%, 12.98% and 13.16% for 1998, 1997, and 1996, respectively. Net Interest Income Net interest income on a tax equivalent basis for 1998 increased 3.5% to $35,262,000 from $34,075,000 for 1997, which reflected a 4.6% increase from $32,574,000 in 1996. Net interest income increased in 1998 due to continued growth in average loan balances outstanding. Net interest income increased in 1997 as investment security maturities and sales were reinvested in higher yielding loans. Net interest income increased in 1996 because of a large increase in average loans outstanding. Average interest-earning assets increased to $860,350,000 in 1998 from $811,010,000 and $788,158,000 in 1997 and 1996, respectively. The growth in interest-earning assets during 1998 was funded by growth in core deposits and debt. Internally generated growth accounted for the increase in average interest-earning assets in 1997. The net interest margin was 4.10% in 1998, 4.20% in 1997, and 4.13% in 1996. Interest rate trends had a significant impact on the Corporation's yields and costs during the period from 1996 through 1998. The decrease in the net interest margin for 1998 was due to the 11 basis point decline in the average rate earned on interest-earning assets coupled with the 5 basis point increase in the average rate paid on interest-bearing liabilities. The decline in the average rate earned on interest-earning assets was partially offset by the $49,340,000 increase in total interest-earning assets. In 1997, the average yield on interest earning assets increased 10 basis points while the average cost of interest-bearing liabilities also increased by 10 basis points. This resulted in the net interest margin increasing to 4.20% for 1997 from 4.13% in 1996. [See "Selected Statistical Information, Consolidated Average Balance Sheets and Interest Rates."] Provision for Loan Losses The provision for loan losses, which is a current charge against income, represents an amount which management believes is sufficient to maintain an adequate allowance for future loan losses. In assessing the adequacy of the allowance for loan losses, management considers the size and quality of the loan portfolio measured against prevailing economic conditions, regulatory guidelines, and historical loan loss experience. When a determination is made by management to charge off a loan balance, such write-off is charged against the allowance for loan losses. 15

The provision for loan losses decreased to $700,000 in 1998 from $1,075,000 in 1997 and $1,100,000 in 1996. The decrease in the 1998 provision is due to a substantial improvement in sensitive assets which decreased significantly to $6,453,000 in 1998 from $13,100,000 in 1997. Sensitive assets include nonaccrual loans, loans 90 days past and still accruing, loans on First Busey Corporation's watch loan report, and other loans identified as having more than reasonable potential for loss. The watch loan list is comprised of loans which have been restructured or involve customers in industries which have been adversely affected by market conditions. The majority of these loans are being repaid in conformance with their contracts. The provision for 1997 was large relative to net charge-offs to restore the ratio of the allowance for loan losses to non-performing loans. Net charge-offs increased to $459,000 in 1998 from $346,000 in 1997 which had decreased from $442,000 in 1996. Changes in the portfolio mix account for the majority of the changes in the calculation of the loan loss provision. Risk factors for all loan categories remained the same as those used in prior periods with the exception of the dealer paper portfolio. The risk factor on dealer paper was reduced due to improvement in the historical loss experience. Changes in the risk factors during 1998 and 1997 have ranged from .50% to 4.00%. The most notable change occurred in Dealer Paper. During 1998, the Dealer Paper risk factor changed from 4.00% to 1.00%. More conservative underwriting procedures for Dealer Loans has resulted in substantially less loss. No other risk factors for any other loan category were changed during 1998 and 1997. Other Income Other income increased 30.4% in 1998 to $13,530,000 from $10,379,000 in 1997, which reflected an 18.4% increase from $8,769,000 in 1996. The increase in 1998 is due primarily to increases in trust fee income, other service charges and fees, security gains, gains on the sales of loans, and the addition of net commissions from travel services. As a percentage of total income, other income was 16.8%, 14.0%, and 12.5% in 1998, 1997, and 1996, respectively. Gains on the sale of securities, as a component of other income, totaled $1,243,000 (9.2%) in 1998, $520,000 (5.0%) in 1997, and $256,000 (2.9%) in 1996. Other income also includes gains on sales of loans, as a component of other income, of $988,000 (7.3%), $439,000 (4.2%), and $268,000 (3.1%) in 1998, 1997, and 1996, respectively. Additional components of other income were fee income and trust fees. Service charges and other fee income increased 14.1% to $6,034,000 in 1998 from $5,290,000 in 1997 which was a 12.6% increase from $4,698,000 in 1996. The growth in fee income in 1998 is due to increases in fees for customer services. The growth in fee income in 1997 and 1996 was due to increases in service charges on deposit accounts. Trust fees increased 9.2% in 1998; revenues were $3,445,000 in 1998, $3,156,000 in 1997, and $2,651,000 in 1996. Increases in trust department revenues in each year were primarily due to increases in assets under care to $783,226,000 at December 31, 1998, from $660,846,000 at December 31, 1997, which is an increase from $518,367,000 from December 31, 1996. Remaining other income increased to $1,820,000 in 1998 from $972,000 in 1997 which was a 2.4% decrease from $996,000 in 1996. The increase in 1998 is related to the addition of $862,000 in net commissions from travel services. Other Expenses Other expenses increased 11.5% in 1998 to $30,400,000 from $27,266,000 in 1997, which reflected an increase from $25,786,000 in 1996. As a percentage of total income, other expenses were 37.7%, 36.7%, and 36.9% in 1998, 1997, and 1996, respectively. Employee related expenses, including salaries and wages and employee benefits, increased 10.1% in 1998 to $16,095,000, as compared to $14,615,000 in 1997, which was a 5.4% increase from $13,868,000 in 1996. As a percent of average assets, employee related expenses were 1.73%, 1.66%, and 1.61%, in 1998, 1997, and 1996, respectively. The Corporation had 433, 393, and 383 full-time equivalent employees at December 31, 1998, 1997, and 1996, respectively. Net occupancy expense of bank premises and furniture and equipment expenses increased 19.8% in 1998 to $4,867,000 as compared to $4,063,000 in 1997 and $3,587,000 in 1996. The increases were primarily due to expenses associated with remodeling of existing facilities. 16

Remaining other expenses increased 9.9% to $9,438,000 in 1998 from $8,588,000 in 1997, which was a 3.1% increase from $8,331,000 in 1996. The increase in 1998 was due primarily to increased costs associated with Busey Bank's card services and electronic banking product delivery, increased data processing costs, and the addition of costs associated with more recently acquired and formed subsidiaries. The increase in 1997 was due to increased data processing expense which was partially offset by reduced FDIC insurance expense. Income Taxes Income tax expense in 1998 was $5,105,000 as compared to $4,379,000 in 1997 and $3,741,000 in 1996. The provision for income taxes as a percent of income before income taxes was 30.9%, 29.7%, and 28.7%, for 1998, 1997, and 1996, respectively. STATEMENTS OF CONDITION-DECEMBER 31, 1998 AND DECEMBER 31, 1997 Total assets on December 31, 1998 were $951,531,000, an increase of 3.9% from $915,540,000 on December 31, 1997. Total loans, net of unearned interest, increased 9.8% to $662,281,000 on December 31, 1998, as compared to $602,937,000 on December 31, 1997. Deposits increased 1.9% to $826,704,000 on December 31, 1998 as compared to $811,453,000 on December 31, 1997. Interest-bearing deposits increased $10,786,000 or 1.5% during 1998. Non-interest bearing deposits increased $4,465,000 or 4.8% during 1998. Total stockholders' equity increased 7.2% to $87,103,000 on December 31, 1998, as compared to $81,279,000 on December 31, 1997. Earning Assets The average interest-earning assets of the Corporation were 92.4%, 92.1%, and 91.7%, of average total assets for the years ended December 31, 1998, 1997, and 1996. Investment Securities The Corporation has classified all investment securities as securities available for sale. These securities are held with the option of their disposal in the foreseeable future to meet investment objectives or for other operational needs. Securities available for sale are carried at fair value. As of December 31, 1998, the fair value of these securities was $217,991,000 and the amortized cost was $207,531,000. There were $10,671,000 of gross unrealized gains and $211,000 of gross unrealized losses for a net unrealized gain of $10,460,000. The after-tax effect ($6,799,000) of this unrealized gain has been included in stockholders' equity. The increase in market value for the debt securities in this classification was a result of falling interest rates. The fair value increase in the equity securities was primarily due to a $1,287,000 increase in the value of 156,000 shares of Student Loan Marketing Association (SLMA) common stock owned by the Corporation. The composition of securities available for sale is as follows: Years ended December 31, ---------------------------------------------------- 1998 1997 1996 1995 1994 ---------------------------------------------------- (dollars in thousands) U.S. Treasuries and Agencies 159,261 $161,762 $159,044 $213,862 $137,724 Equity securities 12,550 11,994 9,065 7,589 5,156 States and political subdivisions 37,398 32,351 1,253 202 - Other 8,782 9,407 1,881 1,363 1,138 ---------------------------------------------------- Fair value of securities available for sale 217,991 $215,514 $171,243 $223,016 $144,018 ==================================================== Amortized cost 207,531 $206,589 $166,189 $218,257 $145,293 ==================================================== Fair value as a percentage of amortized cost 105.04% 104.32% 103.04% 102.18% 99.12% ==================================================== 17

The maturities, fair values and weighted average yields of securities available for sale as of December 31, 1998 are: Due in 1 year or less Due after 1 year Due after 5 years Due after through 5 years through 10 years 10 years --------------------------------------------------------------------------------- Fair Weighted Fair Weighted Fair Weighted Fair Weighted Value Average Value Average Value Average Value Average Investment Securities(1) Yield Yield Yield Yield --------------------------------------------------------------------------------- (dollars in thousands) U.S. Treasuries and Agencies $106,718 5.79% $52,501 5.71% $ 42 10.47% - - States and political subdivisions(2) 2,888 8.70% 15,353 8.47% 15,313 7.23% 3,844 6.39% Other 2,787 6.44% 2,329 6.68% 2,070 6.29% - - --------------------------------------------------------------------------------- Total $112,393 5.88% $70,183 6.35% $17,425 7.13% $3,844 6.39% ================================================================================= (1) Excludes equity securities and mortgage backed securities. (2) On a tax-equivalent basis, assuming a federal income tax rate of 35% (the effective federal income tax rate as of December 31, 1998) The securities held to maturity portfolio consisted of debt securities which provided the Corporation with a relatively stable source of income. Additionally, the investment portfolio provides a balance to interest rate and credit risk in other categories of the balance sheet while providing a vehicle for the investment of available funds and supplying securities to pledge as required collateral for certain deposits. All remaining securities were transferred to the available for sale portfolio as of December 31, 1997. The composition of securities held to maturity was as follows: Years ended December 31, ------------------------------------------------ 1998 1997 1996 1995 1994 ------------------------------------------------ (dollars in thousands) U.S. Treasuries and Agencies - - $ 8,635 $13,198 $17,031 States and political subdivisions - - 36,607 37,043 32,957 Other - - 9,865 11,260 16,519 ------------------------------------------------ Amortized cost of securities held to maturity - - $55,107 $61,501 $66,507 ================================================ Fair value of securities held to maturity - - $55,800 $62,625 $65,386 ================================================ Fair value as a percentage of book value - - 101.26% 101.83% 98.31% ================================================ The Corporation also uses its investment portfolio to manage its tax position. Depending upon projected levels of taxable income for the Corporation, periodic changes are made in the mix of tax-exempt and taxable securities to achieve maximum yields on a tax-equivalent basis. U.S. government and agency securities as a percentage of total securities decreased to 73.1% at December 31, 1998 from 75.1% at December 31, 1997 while obligations of state and political subdivisions (tax-exempt obligations) as a percentage of total securities decreased to 17.2% at December 31, 1998, from 15.0% at December 31, 1997. 18

Loan Portfolio Loans, before allowance for loan losses, increased 9.8% to $662,281,000 in 1998 from $602,937,000 in 1997. Non-farm non-residential real estate mortgage loans increased $29,295,000, or 21.0%, to $168,948,000 in 1998 from $139,653,000 in 1997. This increase reflects management's emphasis on commercial loans secured by mortgages. Also, 1 to 4 family residential real estate mortgage loans (not held for sale) increased $14,674,000, or 6.7%, to $235,333,000 in 1998 from $220,659,000 in 1997. It is intended that residential mortgage loan origination will generate income and develop retail and other banking relationships. The Corporation has no loans to customers engaged in oil and gas exploration or to foreign companies or governments. Commitments under standby letters of credit, unused lines of credit and other conditionally approved credit lines, totaled approximately $134,360,000 as of December 31, 1998. The composition of loans is as follows: Years ended December 31, --------------------------------------------------- 1998 1997 1996 1995 1994 --------------------------------------------------- (dollars in thousands) Commercial and financial $ 80,958 $ 63,861 $ 62,065 $ 55,687 $ 57,878 Agricultural 19,072 17,403 16,537 12,594 12,750 Real estate-farmland 14,184 11,782 11,468 11,162 11,769 Real estate-construction 44,713 31,306 26,184 25,566 21,759 Real estate-mortgage 467,435 439,660 413,541 334,417 303,046 Installment loans to individuals 35,919 38,925 39,707 42,353 43,854 --------------------------------------------------- $662,281 $602,937 $569,502 $481,779 $451,056 Unearned interest - - (2) (7) (5) --------------------------------------------------- Loans $662,281 $602,937 $569,500 $481,772 $451,051 =================================================== The following table sets forth remaining maturities of selected loans (excluding certain real estate-farmland, real estate-mortgage loans and installment loans to individuals) at December 31, 1998. 1 Year or Less 1 to 5 Years Over 5 Years Total --------------------------------------------------------------- (dollars in thousands) Commercial, financial and agricultural $61,062 $26,295 $12,673 $100,030 Real estate-construction 22,702 15,028 6,983 44,713 --------------------------------------------------------------- Total $83,764 $41,323 $19,656 $144,743 --------------------------------------------------------------- Interest rate sensitivity of selected loans Fixed rate $22,250 $18,310 $ 4,152 $ 44,712 Adjustable rate 61,514 23,013 15,504 100,031 --------------------------------------------------------------- Total $83,764 $41,323 $19,656 $144,743 --------------------------------------------------------------- Allowance for Loan Losses Management has established an allowance for loan losses which reduces the total loans outstanding by an estimate of uncollectible loans. Loans deemed uncollectible are charged against and reduce the allowance. Periodically, a provision for loan losses is charged to current expense. This provision acts to replenish the allowance for loan losses and to maintain the allowance at a level that management deems adequate. There is no precise method of predicting specific loan losses or amounts which ultimately may be charged off on segments of the loan portfolio. The determination that a loan may become uncollectible, in whole or in part, is a matter of judgment. Similarly, the adequacy of the allowance for loan losses can be determined only on a judgmental basis, after full review, including (a) consideration of economic conditions and their effect on particular industries and specific borrowers; (b) a review of borrowers' financial data, together with industry data, the competitive situation, the borrowers' management capabilities and other factors; (c) a continuing evaluation of the loan portfolio, including monitoring by lending officers and staff credit personnel of all loans which are 19

identified as being of less than acceptable quality; (d) an in-depth appraisal, on a monthly basis, of all loans judged to present a possibility of loss (if, as a result of such monthly appraisals, the loan is judged to be not fully collectible, the carrying value of the loan is reduced to that portion considered collectible); and (e) an evaluation of the underlying collateral for secured lending, including the use of independent appraisals of real estate properties securing loans. Periodic provisions for loan losses are determined by management based upon the size and the quality of the loan portfolio measured against prevailing economic conditions and historical loan loss experience and also based on specific exposures in the portfolio. Management has instituted a formal loan review system supported by an effective credit analysis and control process. The Corporation will maintain the allowance for loan losses at a level sufficient to absorb estimated uncollectible loans and, therefore, expects to make periodic additions to the allowance for loan losses. The following table shows activity affecting the allowance for loan losses: Years ended December 31 ----------------------------------------------------- 1998 1997 1996 1995 1994 ----------------------------------------------------- (dollars in thousands) Average loans outstanding during period $621,475 $584,327 $525,311 $453,915 $421,337 ===================================================== Allowance for loan losses: Balance at beginning of period $ 6,860 $ 6,131 $ 5,473 $ 5,235 $ 5,205 ----------------------------------------------------- Loans charged-off: Commercial, financial and agricultural $ 62 $ 192 $ 227 $ 339 $ 99 Real estate-construction - - 19 - - Real estate-mortgage 282 50 32 55 153 Installment loans to individuals 260 317 404 286 253 ----------------------------------------------------- Total charge-offs $ 604 $ 559 $ 682 $ 680 $ 505 ----------------------------------------------------- Recoveries: Commercial, financial and agricultural $ 12 $ 13 $ 43 $ 414 $ 62 Real estate-construction - - 50 - - Real estate-mortgage 49 110 - 3 128 Installment loans to individuals 84 90 147 106 105 ----------------------------------------------------- Total recoveries $ 145 $ 213 $ 240 $ 523 $ 295 ----------------------------------------------------- Net loans charged-off $ 459 $ 346 $ 442 $ 157 $ 210 ----------------------------------------------------- Provision for loan losses $ 700 $ 1,075 $ 1,100 $ 395 $ 240 ----------------------------------------------------- Balance at end of period $ 7,101 $ 6,860 $ 6,131 $ 5,473 $ 5,235 ===================================================== Ratios: Net charge-offs to average loans 0.07% 0.06% 0.08% 0.03% 0.05% ===================================================== Allowance for loan losses to total loans at period end 1.07% 1.14% 1.08% 1.14% 1.16% ===================================================== 20

The following table sets forth the allowance for loan losses by loan categories as of December 31 for each of the years indicated: ----------------------------------------------------------------------------- 1998 1997 1996 1995 1994 ----------------------------------------------------------------------------- % of % of % of % of % of Total Total Total Total Total Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans ----------------------------------------------------------------------------- (dollars in thousands) Commercial, financial, agri- cultural and real estate-farmland $1,757 17.2% $1,059 15.4% $ 766 15.8% $ 785 16.5% $1,122 18.3% Real estate-construction - 6.8% - 5.2% - 4.6% - 5.3% - 4.8% Real estate-mortgage 4,380 70.6% 4,456 72.9% 3,505 72.6% 3,476 69.4% 3,013 67.2% Installment loans to individuals 964 5.4% 1,045 6.5% 1,189 7.0% 1,097 8.8% 943 9.7% Unallocated - N/A 300 N/A 671 N/A 115 N/A 157 N/A ----------------------------------------------------------------------------- Total $7,101 100% $6,860 100% $6,131 100% $5,473 100% $5,235 100% ============================================================================= Non-performing loans It is management's policy to place commercial and mortgage loans on non-accrual status when interest or principal is 90 days or more past due. Such loans may continue on accrual status only if they are both well-secured and in the process of collection. The following table sets forth information concerning non-performing loans at December 31 for each of the years indicated: Years ended December 31, ------------------------------------------- 1998 1997 1996 1995 1994 ------------------------------------------- (dollars in thousands) Non-accrual loans $ 526 $ 628 $ - $ 532 $ 636 Loans 90 days past due and still accruing 1,052 1,033 1,002 897 1,336 Restructured loans - - - - - ------------------------------------------- Total non-performing loans $1,578 $1,661 $1,002 $1,429 $1,972 ------------------------------------------- Repossessed assets $ 320 $ 516 $ 805 $1,380 $1,645 Other assets acquired in satisfaction of debts previously contracted 14 5 1 1 1 ------------------------------------------- Total non-performing other assets $ 334 $ 521 $ 806 $1,381 $1,646 ------------------------------------------- Total non-performing loans and non- performing other assets $1,912 $2,182 $1,808 $2,810 $3,618 =========================================== Non-performing loans to loans, before Allowance for loan losses 0.24% 0.28% 0.18% 0.30% 0.44% =========================================== Non-performing loans and non-performing other assets to loans, before allowance for loan losses 0.29% 0.36% 0.32% 0.58% 0.80% =========================================== On January 1, 1995, the Corporation adopted Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan," as amended by Statement No. 118, which requires loans to be considered impaired when, based on current information and events, it is probable the Corporation will not be able to collect all amounts due. The accrual of interest income on impaired loans is discontinued when there is reasonable doubt as to the borrower's ability to meet contractual payments of interest or principal. Interest income on these loans is recognized to the extent interest payments are received and the principal is considered fully collectible. For the year ended December 31, 1998, $4,000 of interest was recognized from impaired loans, and $8,000 was recognized for the year ended December 31, 1997. 21

The gross interest income that would have been recorded in the years ended December 31, 1998 and 1997 if the non-accrual and restructured loans had been current in accordance with their original terms was $31,000 and $47,000, respectively. The amount of interest collected on those loans that was included in interest income was $9,000 for the year ended December 31, 1998, and $8,000 for the year ended December 31, 1997. Potential Problem Loans Potential problem loans are those loans which are not categorized as impaired, non-accrual, past due or restructured, but where current information indicates that the borrower may not be able to comply with present loan repayment terms. Management assesses the potential for loss on such loans as it would with other problem loans and has considered the effect of any potential loss in determining its provision for possible loan losses. Potential problem loans totaled $442,000 at December 31, 1998. There are no other loans identified which management believes represent or result from trends or uncertainties which management reasonably expects will materially impact future operating results, liquidity or capital resources. There are no other credits identified about which management is aware of any information which causes management to have serious doubts as to the ability of such borrower(s) to comply with the loan repayment terms. Deposits As indicated in the following table, average interest bearing deposits as a percentage of average total deposits have decreased to 89.9% for the year ended December 31, 1998 from 90.6% for the year ended December 31, 1997. December 31, ---------------------------------------------------------------------------------------- 1998 1997 1996 ---------------------------------------------------------------------------------------- (dollars in thousands) Average % Total Average Average % Total Average Average % Total Average Balance Rate Balance Rate Balance Rate ---------------------------------------------------------------------------------------- Non-interest bearing demand deposits $ 80,986 10.1% -% $ 73,345 9.4% -% $ 69,562 9.1% -% Interest bearing demand deposits 19,271 2.4% 1.96% 110,940 14.2% 1.97% 130,365 17.1% 1.62% Savings/Money Market 351,695 43.9% 3.14% 234,865 30.1% 3.32% 216,498 28.4% 3.57% Time deposits 349,956 43.6% 5.49% 360,968 46.3% 5.54% 345,726 45.4% 5.46% ---------------------------------------------------------------------------------------- Total $801,908 100.0% 4.25% $780,118 100.0% 4.24% $762,151 100.0% 4.15% ======================================================================================== Certificates of deposit of $100,000 and over and other time deposits of $100,000 and over at December 31, 1998, had the following maturities (dollars in thousands): Under 3 months $26,565 3 to 6 months 12,828 6 to 12 months 13,785 Over 12 months 12,925 ------- Total $66,103 ======= 22

Short-term Borrowings The following table sets forth the distribution of short-term borrowings and weighted average interest rates thereon at the end of each of the last three years. Federal funds purchased and securities sold under agreements to repurchase generally represent overnight borrowing transactions. Other short-term borrowings consist of various demand notes and notes with maturities of less than one year. Federal funds purchased and securities sold under agreements Other short-term to repurchase borrowings ----------------------------------------------------- (dollars in thousands) 1998 Balance, December 31, 1998 - $ 5,900 Weighted average interest rate at end of period - 7.25% Maximum outstanding at any month end $ 7,900 $16,550 Average daily balance $ 1,686 $13,694 Weighted average interest rate during period(1) 5.29% 7.37% 1997 Balance, December 31, 1997 - $ 6,550 Weighted average interest rate at end of period - 7.35% Maximum outstanding at any month end $13,550 $ 8,000 Average daily balance $ 1,678 $ 6,542 Weighted average interest rate during period(1) 6.14% 7.21% 1996 Balance, December 31, 1996 $ 6,405 $ 8,000 Weighted average interest rate at end of period 7.19% 7.39% Maximum outstanding at any month end $20,072 $ 9,250 Average daily balance $ 8,804 $ 8,092 Weighted average interest rate during period(1) 5.34% 7.10% (1)The weighted average interest rate is computed by dividing total interest for the year by the average daily balance outstanding. Market Risk Market risk is the risk of change in asset values due to movements in underlying market rates and prices. Interest rate risk is the risk to earnings and capital arising from movements in interest rates. Interest rate risk is the most significant market risk affecting the Corporation as other types of market risk, such as foreign currency exchange rate risk and commodity price risk, do not arise in the normal course of the Corporation's business activities. The Corporation's banking subsidiary, Busey Bank, has an asset-liability committee which meets monthly to review current market conditions and attempts to structure the bank's balance sheet to ensure stable net interest income despite potential changes in interest rates with all other variables constant. The asset-liability committee uses gap analysis to identify mismatches in the dollar value of assets and liabilities subject to repricing within specific time periods. The Funds Management Policy established by the asset liability committee and approved by the Corporation's board of directors establishes guidelines for maintaining the ratio of cumulative rate-sensitive assets to rate-sensitive liabilities within prescribed ranges at certain intervals. A summary of the Corporation's gap analysis is summarized on page 25. The committee does not rely solely on gap analysis to manage interest-rate risk as interest rate changes do not impact all categories of assets and liabilities equally or simultaneously. The asset-liability committee supplements gap analysis with balance sheet and income simulation analysis to determine the potential impact on net interest income of changes in market interest rates. In these simulation models the balance sheet is projected out over a one-year period and net interest income is calculated under current market rates, and then assuming permanent instantaneous shifts in the yield 23

curve of +/- 100 basis point and +/- 200 basis points. These interest-rate scenarios indicate the interest rate risk of the Corporation over a one-year time horizon due to changes in interest rates, as of December 31, 1998, is as follows: Basis Point Changes ------------------------------------------ -200 -100 +100 +200 ------------------------------------------ Percentage change in net interest income due to an immediate change in interest over a one-year period (1.17%) (0.24%) 0.79% 1.33% Liquidity Liquidity is the availability of funds to meet all present and future cash flow obligations arising in the daily operations of the business at a minimal cost. These financial obligations consist of needs for funds to meet extensions of credit, deposit withdrawals and debt servicing. The sources of short-term liquidity utilized by the Corporation consist of asset maturities, sales, deposits and capital funds. Additional liquidity is provided by bank lines of credit, repurchase agreements and the ability to borrow from the Federal Reserve Bank and Federal Home Loan Bank. The Corporation does not deal in or use brokered deposits as a source of liquidity. Long-term liquidity needs will be satisfied primarily through retention of capital funds. An additional source of liquidity that can be managed for short-term and long-term needs is the Corporation's ability to securitize or package loans (primarily mortgage loans) for sale. The objective of liquidity management by the Corporation is to ensure that funds will be available to meet demand in a timely and efficient manner. Based upon the level of investment securities that reprice within 30 days and 90 days, management believes that adequate liquidity exists to meet all projected cash flow obligations. The Corporation achieves a satisfactory degree of liquidity through actively managing both assets and liabilities. Asset management guides the proportion of liquid assets to total assets, while liability management monitors future funding requirements and prices liabilities accordingly. Average liquid assets are shown in the table below: Liquid Assets Years Ended December 31, -------------------------------- Average Balances 1998 1997 1996 -------------------------------- (dollars in thousands) Federal funds sold $16,463 $8,899 $8,159 ================================ Percentage of average total assets 1.77% 1.01% 0.95% ================================ Rate Sensitive Assets and Liabilities Interest rate sensitivity is a measure of the volatility of the net interest margin as a consequence of changes in market rates. The rate-sensitivity chart shows the interval of time in which given volumes of rate-sensitive earning assets and rate-sensitive interest bearing liabilities would be responsive to changes in market interest rates based on their contractual maturities or terms for repricing. It is however, only a static, single-day depiction of the Corporation's rate sensitivity structure, which can be adjusted in response to changes in forecasted interest rates. 24

The following table sets forth the static rate-sensitivity analysis of the Corporation as of December 31, 1998: Rate Sensitive Within -------------------------------------------------------------------------- 1-30 Days 31-90 Days 91-180 Days 181 Days-1 Yr Over 1 Yr Total -------------------------------------------------------------------------- (dollars in thousands) Federal funds sold - - - - - - Investment securities U.S. Treasuries and Agencies $ 21,480 $ 31,061 $ 27,059 $ 26,203 $ 53,458 $159,261 States and political subdivisions 20 287 518 2,324 34,249 37,398 Other securities 3,664 1,123 320 1,399 14,826 21,332 Loans (net of unearned interest) 199,163 50,057 77,099 105,720 230,242 662,281 -------------------------------------------------------------------------- Total rate-sensitive assets $ 224,327 $ 82,528 $ 104,996 $135,646 $332,775 $880,272 -------------------------------------------------------------------------- Interest bearing transaction deposits $ 71,467 - - - - $ 71,467 Savings deposits 83,572 - - - - 83,572 Money market deposits 238,473 - - - - 238,473 Time deposits 49,510 57,516 63,086 74,452 92,073 336,637 Short-term borrowings 5,900 - - - - 5,900 Long-term debt - - - - 25,000 25,000 -------------------------------------------------------------------------- Total rate-sensitive liabilities $ 448,922 $ 57,516 $ 63,086 $ 74,452 $117,073 $761,049 -------------------------------------------------------------------------- Rate-sensitive assets less rate-sensitive liabilities $(224,595) $ 25,012 $ 41,910 $ 61,194 $215,702 $119,223 -------------------------------------------------------------------------- Cumulative Gap $(224,595) $(199,583) $(157,673) $(96,479) $119,223 ================================================================= Cumulative amounts as a percentage of total rate-sensitive assets -25.51% -22.67% -17.91% -10.96% 13.54% ================================================================= Cumulative Ratio 0.50X 0.61X 0.72X 0.85X 1.16X ================================================================= The foregoing table shows a negative (liability sensitive) cumulative unadjusted gap of approximately $225 million in the 1-30 day repricing category. The gap from 31 to 90 days is nearly matched, and beyond 90 days becomes less liability sensitive as rate-sensitive assets that reprice beyond 91 days gradually become greater in volume than rate-sensitive liabilities that are subject to repricing in the same respective time periods. The composition of the gap structure at December 31, 1998 will benefit the Corporation more if interest rates fall during the next 30 days by allowing the net interest margin to grow as liability rates would reprice more quickly than rates on rate-sensitive assets. Capital Resources Other than from the issuance of common stock, the Corporation's primary source of capital is net income retained by the Corporation. During the year ended December 31, 1998, the Corporation earned $11,398,000 and paid dividends of $5,381,000 to stockholders, resulting in a retention of current earnings of $6,017,000. The Federal Reserve Board uses capital adequacy guidelines in its examination and regulation of bank holding companies and their subsidiary banks. Risk-based capital ratios are established by allocating assets and certain off-balance sheet commitments into four risk-weighted categories. These balances are then multiplied by the factor appropriate for that risk-weighted category. The guidelines require bank holding companies and their subsidiary banks to maintain a total capital to total risk-weighted asset ratio of not less than 8.00%, of which at least one half must be Tier 1 capital, and a Tier 1 leverage ratio of not less than 4.00%. As of December 31, 1998, the Corporation had a total capital to total risk-weighted asset ratio of 13.23%, a Tier 1 capital to risk-weighted asset ratio of 12.07% and a Tier 1 leverage ratio of 7.87%; the Corporation's bank subsidiary, Busey Bank, had ratios of 12.74%, 11.55%, and 7.48%, respectively. As these ratios show, the Corporation and its bank subsidiary significantly exceed the regulatory capital guidelines. 25

Regulatory Considerations It is management's belief that there are no current recommendations by the regulatory authorities which if implemented, would have a material effect on the Corporation's liquidity, capital resources, or operations. New Accounting Pronouncements Statement of Financial Accounting Standard No. 133, "Accounting for Derivative Instruments and Hedging Activities" was issued in June 1998 by the Financial Accounting Standards Board. The Statement is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. Because the Corporation does not use derivatives, management does not believe the adoption of the Statement will have a material impact on the consolidated financial statements. Effects of Inflation The effect of inflation on a financial institution differs significantly from the effect on an industrial company. While a financial institution's operating expenses, particularly salary and employee benefits, are affected by general inflation, the asset and liability structure of a financial institution consists largely of monetary items. Monetary items, such as cash, loans and deposits, are those assets and liabilities which are or will be converted into a fixed number of dollars regardless of changes in prices. As a result, changes in interest rates have a more significant impact on a financial institution's performance than does general inflation. For additional information regarding interest rates and changes in net interest income see "Selected Statistical Information." Year 2000 Compliance The "Year 2000" is an issue due to the fact that computer programmers and other designers of microprocessor controlled systems have used only the last two digits to refer to a year. As the calendar moves from December 31, 1999 to January 1, 2000, systems may be unable to distinguish between the year 1900 and 2000. This could result in inaccurate processing of information that is date related which could cause a variety of problems for businesses. First Busey Corporation has appointed a Year 2000 project team, headed by a full-time project coordinator to manage the project. The team members come from all areas of the organization and have experience with the processes and systems in use by the Corporation. The Corporation's software and hardware systems provide essential support to all of its businesses. Failure to properly address Year 2000 issues could result in an adverse effect on the daily operations and financial performance of the Corporation. Additionally, those on whom the Corporation relies or does business with could also adversely affect the organization if they are not properly prepared. Given the number of possible scenarios, it is virtually impossible to determine the potential cost of problems should the Corporation's remediation efforts or the efforts of those with whom it does business not be successful. In addition should the Corporation fail to make satisfactory progress toward Year 2000 preparedness or not fully comply with government agency mandated steps, there could be steps taken by state or federal regulators that would adversely affect the Corporation's business. The project team has employed a five-step plan to effectively deal with all aspects of the Year 2000 issue. The first step is awareness, during which phase the project was defined. This was followed closely by the assessment phase, during which all software, hardware, equipment, physical plant issues, and forms were inventoried and priority was assigned as to the importance in overall operations. Items included in the physical plant inventory include HVAC systems, security systems, vaults, and elevators among others. 26

The third step of the project plan is renovation. This step involves making changes to existing items, elimination of unnecessary items, or replacement of items. During 1997 and early 1998 Busey Bank conducted a search process to select a new core processing system to replace the system then processed by a third-party vendor. The third party processor had undertaken a project to consolidate systems which would have required Busey Bank to convert to another of their systems. This provided the Bank with the opportunity to review all options available and to select a solution which would be Year 2000 compliant. The fourth step of the Year 2000 project plan is validation, which involves testing all mission critical systems and is scheduled for completion by March 15, 1999. Testing will continue throughout 1999 on non-mission critical systems. The testing will be conducted on all systems even those such as the core banking applications that were purchased as being Year 2000 compliant. Any systems that have changes made after the initial testing will be retested to ensure that they remain compliant. The fifth step of the Corporation's Year 2000 project plan is implementation. This phase involves the review of test results by end users to verify that performance is as expected. The Corporation has completed the awareness and assessment phases. The remaining three steps will be completed by March 31, 1999. In addition to the five-step plan, First Busey Corporation has also undertaken the challenge to review its customer base and business suppliers for compliance. Several approaches have been taken to achieve an understanding of how well prepared these groups are. Questionnaires were sent to the Corporation's significant customers and suppliers. These questionnaires were followed up with personal interviews when questionnaire responses did not provide clear indications of the entities' preparedness. The Corporation cannot control the success of any given entity's preparations but is trying to have as complete an understanding as possible about all aspects of its business. First Busey Corporation has been simultaneously developing a business continuity plan to implement should a problem arise. This business continuity plan is complete and will be tested several times prior to the end of 1999, with the first test scheduled for March, 1999. The plan has been developed with three scenarios in mind, the most critical assumes there would be no utilities of any kind available. The organization has five backup generators for operating customer service locations and a large generator to power the data processing center, which will support the most critical operations functions. First Busey Corporation has also developed an education program in conjunction with its Year 2000 efforts. The Corporation has provided mandatory training for all in-house personnel. The Corporation has also taken a leadership role in educating the community about the Year 2000 issues through public forums, radio and television sessions, and meetings with community organizations. It is important that the citizens of the communities which the Corporation serves understand what the Year 2000 issues are and what plans and progress that individuals, businesses, and government agencies are making to minimize any negative effects of Year 2000. The estimated expense for First Busey Corporation's Year 2000 efforts is $155,000. The cost of in-house personnel that performed testing and other functions for the Year 2000 project plan is not included in this estimate with the exception of the full-time Year 2000 project coordinator. Of this total, $67,600 was expensed during 1998. The remaining amount is for projected expenses not yet incurred. Funding for these expenses has been included in the Corporation's operating budget for 1999. Expenses related to Busey Bank's conversion to an in-house data processing solution are considered to be in the normal course of business and not related to the Year 2000. Selected Statistical Information The following tables contain information concerning the consolidated financial condition and operations of the Corporation for the periods, or as of the dates, shown. All average information is provided on a daily average basis. 27

The following table shows the consolidated average balance sheets, detailing the major categories of assets and liabilities, the interest income earned on interest-earning assets, the interest expense paid for interest- bearing liabilities, and the related interest rates: Consolidated Average Balance Sheets and Interest Rates Years Ended December 31, ---------------------------------------------------------------------------------- 1998 1997 1996 ---------------------------------------------------------------------------------- Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/ Balance Expense Rate Balance Expense Rate Balance Expense Rate ---------------------------------------------------------------------------------- (dollars in thousands) Assets Federal funds sold $ 16,463 $ 891 5.41% $ 8,899 $ 488 5.49% $ 8,159 $ 441 5.40% Investment securities: U.S. Treasuries and Agencies 169,680 9,776 5.76% 160,394 9,309 5.80% 193,295 11,427 5.91% States and political subdivisions(1) 33,683 2,665 7.91% 36,064 3,022 8.38% 38,794 3,248 8.37% Other securities 19,049 980 5.14% 21,326 1,008 4.73% 22,599 1,270 5.62% Loans (net of unearned discount)(1, 2) 621,475 53,925 8.68% 584,327 51,367 8.79% 525,311 46,221 8.80% ---------------------------------------------------------------------------------- Total interest-earning assets(1) $860,350 $68,237 7.93% $811,010 $65,194 8.04% $788,158 $62,607 7.94% ================================================================================== Cash and due from banks 32,175 35,695 34,784 Premises and equipment 24,243 22,535 21,555 Allowance for loan losses (7,253) (6,480) (5,619) Other assets 21,648 18,139 20,392 --------- --------- --------- Total assets $931,163 $880,899 $859,270 ========= ========= ========= Liabilities and Stockholders' Equity Interest bearing transaction deposits $ 19,271 $ 377 1.96% $110,940 $ 2,182 1.97% $130,365 $ 2,105 1.62% Savings deposits 80,648 2,635 3.27% 79,888 2,617 3.28% 80,516 2,554 3.17% Money market deposits 271,047 8,419 3.11% 154,977 5,192 3.35% 135,982 5,167 3.80% Time deposits 349,956 19,211 5.49% 360,968 20,011 5.54% 345,726 18,884 5.46% Short-term borrowings: Federal funds purchased and repurchase agreements 1,686 89 5.29% 1,678 103 6.14% 8,804 470 5.34% Other 12,981 1,010 7.78% 6,542 472 7.21% 8,092 575 7.10% Long-term debt 22,548 1,234 5.47% 9,301 542 5.83% 5,000 278 5.55% ---------------------------------------------------------------------------------- Total interest-bearing liabilities $758,137 $32,975 4.35% $724,294 $31,119 4.30% $714,485 $30,033 4.20% ================================================================================== Net interest spread 3.58% 3.74% 3.74% ===== ===== ===== Demand deposits 80,986 73,345 69,562 Other liabilities 10,724 5,954 5,798 Stockholders' equity 81,316 77,306 69,425 --------- --------- --------- Total liabilities and stockholders' equity $931,163 $880,899 $859,270 ========= ========= ========= Interest income/earning assets(1) $860,350 $68,237 7.93% $811,010 $65,194 8.04% $788,158 $62,607 7.94% Interest expense/earning assets $860,350 $32,975 3.83% 811,010 31,119 3.84% 788,158 30,033 3.81% ---------------------------------------------------------------------------------- Net interest margin(1) $35,262 4.10% $34,075 4.20% $32,574 4.13% ============== ============== ============== (1) On a tax equivalent basis, assuming a federal income tax rate of 35% (2) Non-accrual loans have been included in average loans, net of unearned discount 28

Changes In Net Interest Income Years Ended December 31, 1998, 1997, and 1996 ---------------------------------------------------------------------- Year 1998 vs 1997 Change due to(1) Year 1997 vs 1996 Change due to(1) ---------------------------------------------------------------------- Average Average Total Average Average Total Volume Yield/Rate Change Volume Yield/Rate Change ---------------------------------------------------------------------- (dollars in thousands) Increase (decrease) in interest income: Federal funds sold $ 409 $ (6) $ 403 $ 40 $ 7 $ 47 Investment securities: U.S. Treasuries and Agencies 535 (68) 467 (1,913) (205) (2,118) States and political subdivisions(2) (193) (164) (357) (229) 3 (226) Other securities (163) 135 (28) (69) (193) (262) Loans(2) 3,213 (655) 2,558 5,188 (42) 5,146 ---------------------------------------------------------------------- Change in interest income(2) $ 3,801 $(758) $ 3,043 $ 3,017 $ (430) $ 2,587 ====================================================================== Increase (decrease) in interest expense: Interest bearing transaction deposits $(1,793) $ (12) $(1,805) $ (166) $ 243 $ 77 Savings deposits 25 (7) 18 (20) 83 63 Money market deposits 3,575 (348) 3,227 167 (142) 25 Time deposits (606) (194) (800) 842 285 1,127 Federal funds purchased and repurchase agreements 1 (15) (14) (450) 83 (367) Other 498 40 538 (112) 9 (103) Long-term debt 723 (31) 692 250 14 264 ---------------------------------------------------------------------- Change in interest expense $ 2,423 $(567) $ 1,856 $ 511 $ 575 $ 1,086 ---------------------------------------------------------------------- Increase (decrease) in net interest income(2) $ 1,378 $(191) $ 1,187 $ 2,506 $(1,005) $ 1,501 ====================================================================== Percentage increase in net interest income over prior period 3.5% 4.6% ======== ======== (1) Changes due to both rate and volume have been allocated proportionally (2) On a tax equivalent basis, assuming a federal income tax rate of 35% 29

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements are presented beginning on page 35. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (a) Directors of the Registrant. Incorporated by reference is the information set forth on pages 5 and 6 of the 1999 Proxy Statement. (b) Executive Officers of the Registrant. Please refer to Part I of this Form 10-K. ITEM 11. EXECUTIVE COMPENSATION Incorporated by reference is the information set forth on pages 9 and 10 of the 1999 Proxy Statement (except the information set forth in the sections "Report of the Compensation Committee on Executive Compensation"). ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated by reference is the information set forth on page 8 of the 1999 Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Incorporated by reference is the information set forth on page 13 of the 1999 Proxy Statement. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K EXHIBITS Exhibit Description of Exhibit Sequentially Number Numbered Page - -------------------------------------------------------------------------------------------------------------- 3.1 Certificate of Incorporation of First Busey Corporation (filed as Appendix B to First Busey's definitive proxy statement filed with the Commission on April 5, 1993 (Commission File No. 0-15950), and incorporated herein by reference) 3.2 By-Laws of First Busey Corporation (filed as Appendix C to First Busey's definitive proxy statement filed with the Commission on April 5, 1993 (Commission File No. 0-15950), and incorporated herein by reference) 10.1 First Busey Corporation 1993 Restricted Stock Award Plan (filed as Appendix E to First Busey's definitive proxy statement filed with the Commission on April 5, 1993 (Commission File No. 0-15950), and incorporated herein by reference) 10.3 First Busey Corporation Profit Sharing Plan and Trust (filed as Exhibit 10.3 to First Busey's Registration Statement on Form S-1 (Registration No. 33-13973), and incorporated herein by reference) 30

Exhibit Description of Exhibit Sequentially Number Numbered Page - -------------------------------------------------------------------------------------------------------------- 10.4 Mortgage on County Plaza Building (filed as Exhibit 10.4 to First Busey's Registration Statement on Form S-1 (Registration No. 33-13973), and incorporated herein by reference) 10.7 First Busey Corporation Employee Stock Ownership Plan (filed as Exhibit 10.7 to First Busey's Annual Report on Form 10-K for the fiscal year ended December 31, 1988 (Registration No. 2-66201), and incorporated herein by reference) 10.8 First Busey Corporation 1988 Stock Option Plan (filed as Exhibit 10.8 to First Busey's Annual Report on Form 10-K for the fiscal year ended December 31, 1988 (Registration No. 2-66201), and incorporated herein by reference) 21.1 List of Subsidiaries of First Busey Corporation 23.1 Consent of Independent Public Accountants 31

FINANCIAL STATEMENT SCHEDULES Financial statement schedules not included in this Form 10-K have been omitted because they are not applicable for the required information shown in the financial statements or notes thereto. FIRST BUSEY CORPORATION INDEX TO FINANCIAL STATEMENTS Page ----- Independent Auditor's Report 36 Consolidated Balance Sheets 37 Consolidated Statements of Income 38 Consolidated Statements of Stockholders' Equity 39-41 Consolidated Statements of Cash Flows 42-44 Notes to Consolidated Financial Statements 45-73 Management Report 74 Independent Accountant's Report 75 REPORTS ON FORM 8-K No reports on Form 8-K have been filed for or on behalf of First Busey Corporation during the last quarter or the period covered by this Form 10-K. FORM S-8 UNDERTAKING For the purposes of complying with the amendments to the rules governing Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the undersigned registrant hereby undertakes as follows, which undertaking shall be incorporated by reference into the registrant's Registration Statement on Form S-8 File No. 33-30095. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of the expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Urbana, Illinois on March 25, 1999. FIRST BUSEY CORPORATION BY //DOUGLAS C. MILLS// -------------------- Douglas C. Mills Chairman of the Board, President, Chief Executive Officer and Chief Financial Officer 32

Pursuant to the requirements of the Securities Exchange Act of 1934, this report signed below by the following persons on behalf of the Registrant and in the capacities indicated on March 25, 1999. Signature Title //DOUGLAS C. MILLS// Chairman of the Board, President, -------------------- Chief Executive Officer and Chief Douglas C. Mills Financial Officer (Principal Executive Officer) //JOSEPH M. AMBROSE// Director --------------------- Joseph M. Ambrose //SAMUEL P. BANKS// Director ------------------- Samuel P. Banks //T.O. DAWSON// Director --------------- T. O. Dawson //VICTOR F. FELDMAN// Director --------------------- Victor F. Feldman //KENNETH M. HENDREN// Director ---------------------- Kenneth M. Hendren //E. PHILLIPS KNOX// Director -------------------- E. Phillips Knox //P. DAVID KUHL// Director ----------------- P. David Kuhl //V. B. LEISTER, JR.// Director ---------------------- V. B. Leister, Jr. //LINDA M. MILLS// Director ------------------ Linda M. Mills //ROBERT C. PARKER// Director -------------------- Robert C. Parker //EDWIN A. SCHARLAU// Director --------------------- Edwin A. Scharlau II //DAVID C. THIES// Director ------------------ David C. Thies //ARTHUR R. WYATT// Director ------------------- Arthur R. Wyatt 33

FIRST BUSEY CORPORATION AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 34

FIRST BUSEY CORPORATION AND SUBSIDIARIES CONTENTS - ------------------------------------------------------------------------------ INDEPENDENT AUDITOR'S REPORT 36 - ------------------------------------------------------------------------------ CONSOLIDATED FINANCIAL STATEMENTS Consolidated balance sheets 37 Consolidated statements of income 38 Consolidated statements of stockholders' equity 39-41 Consolidated statements of cash flows 42-44 Notes to consolidated financial statements 45-73 - ------------------------------------------------------------------------------ INTERNAL CONTROL REPORTS Management Report - Effectiveness of the Internal Control 74 Independent Accountant's Report 75 35

INDEPENDENT AUDITOR'S REPORT To the Stockholders and Board of Directors First Busey Corporation Urbana, Illinois We have audited the accompanying consolidated balance sheets of First Busey Corporation and Subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1998. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of First Busey Corporation and Subsidiaries as of December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1998, in conformity with generally accepted accounting principles. /s/ McGladrey & Pullen, LLP Champaign, Illinois January 29, 1999 36

FIRST BUSEY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1998 AND 1997 1998 1997 - ---------------------------------------------------------------------------------------- (Dollars in thousands) ASSETS Cash and due from banks $ 35,644 $ 43,299 Federal funds sold - 18,800 Securities available for sale 217,991 215,514 Loans held for sale (fair value 1998 $11,373; 1997 $5,016) 11,266 4,963 Loans (net of allowance for loan losses 1998 $7,101; 1997 $6,860) 643,914 591,114 Premises and equipment 24,232 22,834 Other assets 18,484 19,016 -------------------- TOTAL ASSETS $951,531 $915,540 ==================== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Deposits: Noninterest bearing $ 96,555 $ 92,090 Interest bearing 730,149 719,363 -------------------- TOTAL DEPOSITS 826,704 811,453 Short-term borrowings 5,900 6,550 Long-term debt 25,000 10,000 Other liabilities 6,824 6,258 -------------------- TOTAL LIABILITIES 864,428 834,261 --------- --------- Stockholders' Equity Preferred stock, no par value, 1,000,000 shares authorized, no shares issued - - Common stock: Class A common stock, no par value, authorized 40,000,000 shares; 14,154,706 shares issued 1998 and 1997 6,291 6,291 Surplus 21,283 20,729 Retained earnings 59,028 53,011 Accumulated other comprehensive income 6,799 5,801 -------------------- TOTAL STOCKHOLDERS' EQUITY BEFORE TREASURY STOCK, UNEARNED ESOP SHARES AND DEFERRED COMPENSATION FOR RESTRICTED STOCK AWARDS 93,401 85,832 Treasury stock, at cost, 449,768 shares 1998; 403,920 shares 1997 (5,865) (3,922) Unearned ESOP shares and deferred compensation for restricted stock awards (433) (631) -------------------- TOTAL STOCKHOLDERS' EQUITY 87,103 81,279 -------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $951,531 $915,540 ==================== See Accompanying Notes to Consolidated Financial Statements. 37

FIRST BUSEY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 1998 1997 1996 - ------------------------------------------------------------------------------------ (Dollars in thousands, except per share amounts) Interest income: Loans $53,669 $51,061 $45,948 Securities Taxable interest income 10,622 10,208 12,579 Nontaxable interest income 1,732 1,964 2,111 Dividends 134 110 118 Federal funds sold 891 488 441 -------------------------- TOTAL INTEREST INCOME 67,048 63,831 61,197 -------------------------- Interest expense: Deposits 30,642 30,002 28,710 Short-term borrowings 1,099 575 1,045 Long-term debt 1,234 542 278 -------------------------- TOTAL INTEREST EXPENSE 32,975 31,119 30,033 -------------------------- NET INTEREST INCOME 34,073 32,712 31,164 Provision for loan losses 700 1,075 1,100 -------------------------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 33,373 31,637 30,064 -------------------------- Other income: Service charges on deposit accounts 2,938 2,947 2,937 Trust fees 3,445 3,156 2,651 Commissions and brokers' fees, net 1,187 1,051 812 Other service charges and fees 1,909 1,292 949 Security gains, net 1,243 520 256 Trading security gains (losses), net 5 2 (100) Gain on sales of loans 988 439 268 Net commissions from travel services 862 - - Other 953 972 996 -------------------------- TOTAL OTHER INCOME 13,530 10,379 8,769 -------------------------- Other expenses: Salaries and wages 13,524 12,134 11,662 Employee benefits 2,571 2,481 2,206 Net occupancy expense of premises 2,497 2,225 1,936 Furniture and equipment expenses 2,370 1,838 1,651 Data processing 1,924 1,760 1,476 Amortization of intangible assets 1,404 1,328 1,321 Stationery, supplies and printing 758 704 715 Other 5,352 4,796 4,819 -------------------------- TOTAL OTHER EXPENSES 30,400 27,266 25,786 -------------------------- INCOME BEFORE INCOME TAXES 16,503 14,750 13,047 Income taxes 5,105 4,379 3,741 -------------------------- NET INCOME $11,398 $10,371 $ 9,306 ========================== Basic earnings per share $ .83 $ .75 $ .68 ========================== Diluted earnings per share $ .81 $ .74 $ .67 ========================== See Accompanying Notes To Consolidated Financial Statements. 38

FIRST BUSEY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 - ---------------------------------------------------------------------------------------------------------------------------- Accumulated Class A Class B Other Common Common Retained Comprehensive Treasury Stock Stock Surplus Earnings Income Stock - ---------------------------------------------------------------------------------------------------------------------------- (Dollars in thousands except per share amounts Balance, December 31, 1995 5,291 1,000 20,380 42,474 3,093 (3,659) Comprehensive Income: Net Income - - - 9,306 - - Other comprehensive income, net of tax: Unrealized gain on securities available for sale arising during the period, net of taxes of $193 - - - - - - Reclassification adjustment, net of taxes of $90 - - - - - - Other comprehensive income, net of tax - - - - 192 - Comprehensive income - - - - - - Purchase of 62,268 shares for the treasury - - - - - (605) Issuance of 131,776 shares of treasury stock - - 214 - - 775 Cash dividends: Class A common stock $.33 per share - - - (3,710) - - Class B common stock $.30 per share - - - (668) - - Principal payments on employee stock ownership plan debt - - - - - - Release of restricted stock issued under restricted stock award plan - - - - - - - ---------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1996 $ 5,291 $ 1,000 $ 20,594 $ 47,402 $ 3,285 $ (3,489) Deferred Compensation Unearned for Restricted ESOP Stock Shares Awards Total - ---------------------------------------------------------------------------------------------------- (Dollars in thousands except per share amounts Balance, December 31, 1995 (750) (51) 67,778 -------- Comprehensive Income: Net Income - - 9,306 Other comprehensive income, net of tax: Unrealized gain on securities available for sale arising during the period, net of taxes of $193 - - 358 Reclassification adjustment, net of taxes of $90 - - (166) -------- Other comprehensive income, net of tax - - 192 -------- Comprehensive income - - 9,498 -------- Purchase of 62,268 shares for the treasury - - (605) Issuance of 131,776 shares of treasury stock - (192) 797 Cash dividends: Class A common stock $.33 per share - - (3,710) Class B common stock $.30 per share - - (668) Principal payments on employee stock ownership plan debt 250 - 250 Release of restricted stock issued under restricted stock award plan - 77 77 - ---------------------------------------------------------------------------------------------------- Balance, December 31, 1996 $ (500) $ (166) $73,417 39

FIRST BUSEY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 - ------------------------------------------------------------------------------------------------------------------------------ Accumulated Class A Class B Other Common Common Retained Comprehensive Treasury Stock Stock Surplus Earnings Income Stock - ------------------------------------------------------------------------------------------------------------------------------ (Dollars in thousands except per share amounts Balance, December 31, 1996 5,291 1,000 20,594 47,402 3,285 (3,489) Comprehensive Income: Net Income - - - 10,371 - - Other comprehensive income, net of tax: Unrealized gain on securities available for sale arising during the period, net of taxes of $1,537 - - - - - - Reclassification adjustment, net of taxes of $182 - - - - - - Other comprehensive income, net of tax - - - - 2,516 - Comprehensive income - - - - - - Purchase of 243,464 shares for the treasury - - - - - (3,127) Issuance of 300,826 shares of treasury stock - - 135 - - 2,699 Cash dividends: Class A common stock $.35 per share - - - (4,046) - - Class B common stock $.32 per share - - - (716) - - Proceeds from employee stock ownership plan debt - - - - - - Principal payments on employee stock ownership plan debt - - - - - - Forfeiture of restricted stock issued under restricted stock award plan - - - - - (5) Release of restricted stock issued under restricted stock award plan - - - - - - Conversion of Class B common stock to Class A common stock 1,000 (1,000) - - - - - ------------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 1997 $ 6,291 - $ 20,729 $ 53,011 $ 5,801 $ (3,922) Deferred Compensation Unearned for Restricted ESOP Stock Shares Awards Total - ---------------------------------------------------------------------------------------------------- (Dollars in thousands except per share amounts Balance, December 31, 1996 (500) (166) 73,417 -------- Comprehensive Income: Net Income - - 10,371 Other comprehensive income, net of tax: Unrealized gain on securities available for sale arising during the period, net of taxes of $1,537 - - 2,854 Reclassification adjustment, net of taxes of $182 - - (338) -------- Other comprehensive income, net of tax - - 2,516 -------- Comprehensive income - - 12,887 -------- Purchase of 243,464 shares for the treasury - - (3,127) Issuance of 300,826 shares of treasury stock - - 2,834 Cash dividends: Class A common stock $.35 per share - - (4,046) Class B common stock $.32 per share - - (716) Proceeds from employee stock ownership plan debt (250) - (250) Principal payments on employee stock ownership plan debt 200 - 200 Forfeiture of restricted stock issued under restricted stock award plan - 5 - Release of restricted stock issued under restricted stock award plan - 80 80 Conversion of Class B common stock to Class A common stock - - - - ---------------------------------------------------------------------------------------------------- Balance, December 31, 1997 $ (550) $ (81) $81,279 40

FIRST BUSEY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 - ------------------------------------------------------------------------------------------------------------------------------ Accumulated Class A Class B Other Common Common Retained Comprehensive Treasury Stock Stock Surplus Earnings Income Stock - ------------------------------------------------------------------------------------------------------------------------------ (Dollars in thousands except per share amounts Balance, December 31, 1997 6,291 - 20,729 53,011 5,801 (3,922) Comprehensive Income: Net Income - - - 11,398 - - Other comprehensive income, net of tax: Unrealized gains on securities available for sale arising during the period, net of taxes of $972 - - - - - - Reclassification adjustment, net of taxes of $435 - - - - - - Other comprehensive income, net of tax: - - - - 998 - Comprehensive Income - - - - - - Purchase of 162,774 shares for the treasury - - - - - (2,747) Issuance of 56,926 shares of treasury stock for option exercise and related tax benefit - - 169 - - 417 Issuance of 60,000 shares of treasury stock for acquisition - - 385 - - 440 Cash dividends: Class A common stock $.39 per share - - - (5,381) - - Principal payments on employee stock ownership plan debt - - - - - - Forfeiture of restricted stock issued under restricted stock award plan - - - - - (53) Amortization of restricted stock issued under restricted stock award plan - - - - - - - ------------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 1998 $ 6,291 - $ 21,283 $ 59,028 $ 6,799 $ (5,865) =================================================================== Deferred Compensation Unearned for Restricted ESOP Stock Shares Awards Total - ------------------------------------------------------------------------------------------------- (Dollars in thousands except per share amounts Balance, December 31, 1997 (550) (81) 81,279 -------- Comprehensive Income: Net Income - - 11,398 Other comprehensive income, net of tax: Unrealized gains on securities available for sale arising during the period, net of taxes of $972 - - 1,806 Reclassification adjustment, net of taxes of $435 - - (808) -------- Other comprehensive income, net of tax: - - 998 -------- Comprehensive Income - - 12,396 -------- Purchase of 162,774 shares for the treasury - - (2,747) Issuance of 56,926 shares of treasury stock for option exercise and related tax benefit - - 586 Issuance of 60,000 shares of treasury stock for acquisition - - 825 Cash dividends: Class A common stock $.39 per share - - (5,381) Principal payments on employee stock ownership plan debt 150 - 150 Forfeiture of restricted stock issued under restricted stock award plan - 53 - Amortization of restricted stock issued under restricted stock award plan - (5) (5) - ------------------------------------------------------------------------------------------------- Balance, December 31, 1998 $ (400) $ (33) $87,103 ====================================== See Accompanying Notes to Consolidated Financial Statements 41

FIRST BUSEY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 1998 1997 1996 - ------------------------------------------------------------------------------------------- (Dollars in thousands) Cash Flows from Operating Activities Net income $ 11,398 $ 10,371 $ 9,306 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 4,005 3,532 3,355 Provision for loan losses 700 1,075 1,100 Provision for deferred income taxes (299) (463) (373) Accretion of security discounts (142) (293) (1,000) Gain on sales of securities, net (1,243) (520) (256) Proceeds from sales of loans 88,508 42,004 34,742 Loans originated for sale (93,823) (45,081) (34,118) Gain on sales of loans, net (988) (439) (268) (Gain) loss on sales and dispositions of premises and equipment 8 (1) (6) Change in assets and liabilities: (Increase) decrease in other assets 316 (1,114) 1,457 Increase (decrease) in other liabilities 95 1,247 (148) ---------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 8,535 10,318 13,791 ---------------------------------- Cash Flows from Investing Activities Securities available for sale: Purchases (141,088) (100,964) (357,712) Proceeds from sales 47,324 12,292 15,948 Proceeds from maturities 94,207 93,826 395,149 Securities held to maturity: Purchases - (1,375) (20,556) Proceeds from maturities - 11,741 26,889 (Increase) decrease in federal funds sold 18,800 (18,800) 650 Increase in loans (53,857) (30,674) (88,922) Purchases of premises and equipment (4,188) (3,370) (1,713) Proceeds from sales of premises and equipment 199 1 31 Cash acquired in acquisition 204 - - ---------------------------------- NET CASH USED IN INVESTING ACTIVITIES (38,399) (37,323) (30,236) ---------------------------------- (Continued) 42

FIRST BUSEY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 1998 1997 1996 - ------------------------------------------------------------------------------------------- (Dollars in thousands) Cash Flows from Financing Activities Net (decrease) increase in certificates of deposit $($36,425) $ 26,200 $ 1,102 Net increase in demand deposits, money market and savings accounts 51,676 18,326 20,928 Cash dividends paid (5,381) (4,762) (4,378) Purchase of treasury stock (2,747) (3,127) (605) Proceeds from sales of treasury stock 586 2,834 797 Proceeds from short-term borrowings 11,000 2,500 1,000 Principal payments on short-term borrowings (11,500) (4,000) (2,000) Proceeds from long-term debt 20,000 5,000 - Principal payments on long-term debt (5,000) - - Net decrease in federal funds purchased, repurchase agreements and federal reserve discount obligations - (6,405) (6,019) ---------------------------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 22,209 36,566 10,825 ---------------------------------- NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS (7,655) 9,561 (5,620) Cash and due from banks, beginning 43,299 33,738 39,358 ---------------------------------- Cash and due from banks, ending $ 35,644 $ 43,299 $ 33,738 ================================== Supplemental Disclosures of Cash Flow Information Cash payments for: Interest $ 33,124 $ 30,981 $ 30,573 ================================== Income taxes $ 5,104 $ 4,388 $ 3,661 ================================== (Continued) 43

FIRST BUSEY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- NOTE 1. SIGNIFICANT ACCOUNTING POLICIES Description of business: - ----------------------- First Busey Corporation (the Corporation) is a holding company whose bank subsidiary, Busey Bank, provides a full range of banking services to individual and corporate customers through its eighteen branches throughout central Illinois, one branch in Indianapolis, Indiana, and one loan production office in Fort Myers, Florida. The bank is subject to competition from other financial institutions and nonfinancial institutions providing financial products. First Busey Securities, Inc. offers security broker/dealer services, and First Busey Trust & Investment Co. provides investment management and fiduciary services to institutional, corporate and personal trust clients. First Busey Corporation, Busey Bank, First Busey Securities, Inc. and First Busey Trust & Investment Co. are subject to the regulations of certain regulatory agencies and undergo periodic examinations by those regulatory agencies. The significant accounting and reporting policies for First Busey Corporation and its subsidiaries follow: Basis of consolidation - ---------------------- The consolidated financial statements include the accounts of First Busey Corporation and its subsidiaries: Busey Bank and its subsidiaries: First Busey Securities, Inc., Busey Insurance Services, Inc., Busey Travel, Inc., and BAT, Inc.; First Busey Trust & Investment Co.; and First Busey Resources, Inc. All material intercompany balances and transactions have been eliminated in consolidation. The consolidated financial statements of First Busey Corporation have been prepared in conformity with generally accepted accounting principles and conform to predominant practice within the banking industry. Comprehensive Income - -------------------- Effective January 1, 1998, the Corporation adopted Financial Accounting Standards Board Statement No. 130 (SFAS 130), "Reporting Comprehensive Income." SFAS 130 establishes standards for reporting and display of comprehensive income and its components, but has no effect on the Corporation's net income or total stockholder's equity. SFAS 130 requires unrealized gains and losses on the Corporation's available for sale securities, which prior to adoption were reported separately in Stockholder's equity, to be included in comprehensive income. Prior year financial statements have been reclassified to conform to the requirements of SFAS 130. Disclosures about Segments of an Enterprise and Related Information - ------------------------------------------------------------------- Effective January 1, 1998, the Corporation adopted the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131 (SFAS 131), "Disclosures about Segments of an Enterprise and Related Information." SFAS 131 establishes standards for the manner in which public business enterprises report certain information about operating segments of their business in both their annual and interim financial reports provided to shareholders. Comparative information for prior years has been disclosed. 45

FIRST BUSEY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- Use of estimates - ---------------- In preparing the consolidated financial statements, the Corporation's management is required to make estimates and assumptions which significantly affect the amounts reported in the consolidated financial statements. Significant estimates which are particularly susceptible to change in a short period of time include the determination of the allowance for loan losses and valuation of real estate and other properties acquired in connection with foreclosures or in satisfaction of amounts due from borrowers on loans. Actual results could differ from those estimates. Trust assets - ------------ Other than trust cash on deposit at the Corporation's bank subsidiary, trust assets are not included in the accompanying consolidated financial statements because they are not assets of the Corporation. Cash flows - ---------- For purposes of reporting cash flows, cash and due from banks include cash on hand and amounts due from banks. Cash flows from federal funds purchased and sold are reported net, since their original maturities are less than three months. Securities - ---------- Securities classified as available for sale are those debt securities that the Corporation intends to hold for an indefinite period of time, but not necessarily to maturity, and marketable equity securities. Any decision to sell a security classified as available for sale would be based on various factors, including significant movements in interest rates, changes in the maturity mix of the Corporation's assets and liabilities, liquidity needs, regulatory capital considerations and other similar factors. Securities available for sale are carried at fair value. The difference between fair value and amortized cost results in an unrealized gain or loss. Unrealized gains or losses are reported as increases or decreases in accumulated comprehensive income, net of the related deferred tax effect, as a part of stockholder's equity. Realized gains or losses, determined on the basis of the cost of specific securities sold, are included in earnings. Where applicable, amortization of premiums and accretion of discounts are recognized in interest income using the interest method over the period to maturity. Securities classified as held to maturity are those debt securities the Corporation has both the positive intent and ability to hold to maturity regardless of changes in market conditions, liquidity needs or changes in general economic conditions. These securities are carried at cost adjusted for amortization of premium and accretion of discount which are recognized in interest income using the interest method over the period to maturity. At December 31, 1998 and 1997, there were no securities classified in this category. Securities purchased with the intent to earn a profit by trading or reselling them in a short period of time are classified as trading securities and are carried at fair value. Realized and unrealized gains and losses are included in income. At December 31, 1998 and 1997, there were no securities classified in this category. Loans - ----- Loans are stated at the principal amount outstanding, net of unearned interest and the allowance for loan losses. Interest is credited to income as earned using the simple interest method applied to the daily balances of principal outstanding. 46

FIRST BUSEY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- The accrual of interest income on loans is discontinued when, in the opinion of management, there is reasonable doubt as to the borrower's ability to meet payments of interest or principal when they become due. Upon discontinuance of interest accrual, unpaid accrued interest is reversed. Interest income on these loans is recognized to the extent interest payments are received and the principal is considered fully collectible. For collateralized impaired loans, loan balances in excess of net realizable value are deemed impaired. In the determination of the valuation, historical charge-offs for each category of loans, local economic trends, the source of loans and concentrations of credit in specific industries, if any, are considered. Allowance for loan losses - ------------------------- The allowance for loan losses is maintained at a level considered adequate by management to provide for known and inherent risks in the loan portfolio. The allowance is increased through a provision charged to operating expense and by recoveries applicable to loans previously charged to the allowance, and is reduced by loan balances which are considered uncollectible. The allowance is based upon continuous credit reviews of the loan portfolio and considers changes in the nature and volume of the loan portfolio, overall portfolio quality, loan concentrations, specific problem loans, current and anticipated economic conditions that may affect the borrowers' ability to pay, historical loan loss experience and other factors, which, in management's opinion, deserve current recognition in estimating loan losses. In addition, various regulatory agencies periodically review the allowance for loan losses, and may require the Bank to make additions to the allowance based on their judgment of collectibility based on information available to them at the time of their examination. Loans held for sale - ------------------- Loans held for sale consist of fixed rate mortgage loans conforming to established guidelines and held for sale to investors and the secondary mortgage market. Mortgage loans held for sale are carried at the lower of aggregate cost or estimated fair value. Premises and equipment - ---------------------- Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed principally by the straight-line method over the estimated useful lives of the assets. Other real estate owned - ----------------------- Other real estate owned (OREO) represents properties acquired through foreclosure or other proceedings in settlement of loans. OREO is held for sale and is recorded at the date of foreclosure at the fair value of the properties less estimated costs of disposal. Any write-down to fair value at the time of transfer to OREO is charged to the allowance for loan losses. Property is evaluated regularly to ensure the recorded amount is supported by its current fair value and valuation allowances to reduce the carrying amount to fair value less estimated costs to dispose are recorded as necessary. Amortization - ------------ The excess of the purchase price of subsidiaries over the fair value of identifiable assets acquired, which excess aggregated approximately $10,661,000, is amortized using the straight-line method over 15 years. Amortization of this excess is $709,000, $692,000 and $691,000 for the years ended December 31, 1998, 1997 and 1996, respectively. Accumulated amortization at December 31, 1998, is $5,394,000. 47

FIRST BUSEY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- Core deposit and other identifiable intangible assets which aggregated approximately $5,309,000 are amortized on an accelerated basis over the estimated periods benefited, 5 to 25 years. Amortization of these intangibles is $695,000, $636,000 and $630,000 for the years ended December 31, 1998, 1997 and 1996, respectively. Accumulated amortization at December 31, 1998 is $3,792,000. The Corporation reviews its intangible assets periodically to determine potential impairment by comparing the carrying value of the intangibles with the anticipated future cash flows of the related businesses. Income taxes - ------------ The Corporation and its subsidiaries file consolidated Federal and State income tax returns with each organization computing its taxes on a separate entity basis. The provision for income taxes is based on income as reported in the financial statements. Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future. The deferred tax assets and liabilities are computed based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to an amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities. Earnings per share - ------------------ Basic earnings per share is computed by dividing net income for the year by the weighted average number of shares outstanding of 13,753,102, 13,803,546, and 13,608,320 for 1998, 1997, and 1996, respectively. Diluted earnings per share is determined by dividing net income for the year by the weighted average number of shares of common stock and common stock equivalents outstanding. Common stock equivalents assume exercise of stock options and use of proceeds to purchase treasury stock at the average market price for the period. The weighted average shares outstanding were 14,035,037, 13,997,976, and 13,873,016 for 1998, 1997, and 1996, respectively. Stock split - ----------- In June 1998, the Board of Directors approved a two-for-one stock split for stockholders of record on July 17, 1998, and was effected on August 3, 1998. All share amounts in the consolidated financial statements have been restated to reflect the stock split. Reclassifications - ----------------- Certain reclassifications have been made to the balances as of and for the year ended December 31, 1997 and 1996 to be consistent with the classifications adopted for 1998. 48

FIRST BUSEY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- Recent accounting pronouncements - -------------------------------- Statement of Financial Accounting Standard No. 133, "Accounting for Derivative Instruments and Hedging Activities" was issued in June 1998 by the Financial Accounting Standards Board. The Statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. The Statement is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. Because the Corporation does not use derivatives, management does not believe the adoption of the Statement will have a material impact on the consolidated financial statements. NOTE 2. CASH AND DUE FROM BANKS The Corporation's banking subsidiary is required to maintain certain cash reserve balances with the Federal Reserve Bank of Chicago, which may be offset by cash on hand. The required reserve balances as of December 31, 1998 and 1997 were approximately $6,116,000 and $5,045,000, respectively. In October 1997, the Corporation's bank subsidiary established a clearing balance requirement of $2,000,000 with the Federal Reserve Bank of Chicago to use Federal Reserve Bank services. As of December 31, 1998, the clearing balance requirement is $2,750,000. These deposited funds generate earnings credits at market rates which offset service charges resulting from the use of Federal Reserve Bank services. The clearing balance requirement is included in the required reserve balance referred to above and may be increased, or otherwise adjusted, on approval of the Federal Reserve Bank based on estimated service charges; however, such adjustments will be made no more frequently than once per month. 49

FIRST BUSEY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- NOTE 3. SECURITIES The amortized cost and fair values of securities available for sale are summarized as follows: Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value ---------------------------------------------------- (Dollars in thousands) December 31, 1998: U.S. Treasury securities and obligations of U.S. government corporations and agencies $158,415 $ 876 $ 30 $159,261 Obligations of states and political subdivisions 36,400 1,177 179 37,398 Corporate securities 5,539 95 1 5,633 Equity securities 4,084 8,467 1 12,550 Other debt securities 1,553 - - 1,553 Mortgage backed securities 1,540 56 - 1,596 ---------------------------------------------------- $207,531 $10,671 $ 211 $217,991 ==================================================== December 31, 1997: U.S. Treasury securities and obligations of U.S. government corporations and agencies $161,617 $ 277 $ 132 $161,762 Obligations of states and political subdivisions 31,452 919 20 32,351 Corporate securities 6,177 20 1 6,196 Equity securities 4,132 7,881 19 11,994 Other debt securities 859 - - 859 Mortgage backed securities 2,352 - - 2,352 ---------------------------------------------------- $206,589 $ 9,097 $172 $215,514 ==================================================== 50

FIRST BUSEY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- The amortized cost and fair value of securities, other than equity securities, as of December 31, 1998, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because the mortgage-backed securities may be called or prepaid without penalty. Therefore, these securities are not included in the maturity categories in the following maturity summary. Amortized Fair Cost Value ----------------------- (Dollars in thousands) Due in one year or less $111,998 $112,393 Due after one year through five years 69,040 70,183 Due after five years through ten years 17,022 17,425 Due after ten years 3,847 3,844 ----------------------- 201,907 203,845 Mortgage-backed securities 1,540 1,596 ----------------------- $203,447 $205,441 ======================= Gains and losses related to sales of securities for the years ended December 31, 1998, 1997 and 1996 are summarized as follows (in thousands): 1998 1997 1996 --------------------------------- Gross security gains $1,253 $595 $258 Gross security losses (10) (75) (2) --------------------------------- NET SECURITY GAINS $1,243 $520 $256 ================================= Investment securities with carrying values of $155,691,000 and $154,451,000 on December 31, 1998 and 1997, respectively, were pledged as collateral on public deposits and for other purposes as required or permitted by law. As of December 31, 1997, the Corporation's bank subsidiary transferred its entire portfolio of held to maturity securities into the available for sale securities category. In accordance with Statement of Financial Accounting Standards No. 115 (SFAS 115), "Accounting for Certain Investments in Debt and Equity Securities," this transfer was accounted for at market value. The aggregate amortized cost and fair values of these securities as of the transfer date was $44,812,000 and $45,707,000, respectively. The gross unrealized gain of $895,000, net of the deferred tax liability of $313,000, is included in accumulated comprehensive income, a part of stockholder's equity. 51

FIRST BUSEY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- NOTE 4. LOANS The composition of loans is as follows: December 31, ---------------------- 1998 1997 ---------------------- (Dollars in thousands) Commercial $ 80,958 $ 63,861 Real estate construction 44,713 31,306 Real estate - farmland 14,184 11,782 Real estate - 1 to 4 family residential mortgage 235,333 220,659 Real estate - multifamily mortgage 51,888 74,385 Real estate - non-farm nonresidential mortgage 168,948 139,653 Installment 35,919 38,925 Agricultural 19,072 17,403 ---------------------- 651,015 597,974 Less: Allowance for loan losses 7,101 6,860 ---------------------- NET LOANS $643,914 $591,114 ====================== The amount of loans serviced by the Corporation for the benefit of others is not included in the accompanying consolidated balance sheets. The unpaid principal balances of these loans were $125,754,000 and $113,506,000 as of December 31, 1998 and 1997, respectively. The loan portfolio includes a concentration of loans for commercial real estate amounting to approximately $220,836,000 and $214,038,000 as of December 31, 1998 and 1997, respectively. Generally these loans are collateralized by assets of the borrowers. The loans are expected to be repaid from cash flows or from proceeds from the sale of selected assets of the borrowers. Credit losses arising from lending transactions for commercial real estate entities are comparable with the Corporation's credit loss experience on its loan portfolio as a whole. The Corporation's opinion as to the ultimate collectibility of loans is subject to estimates regarding future cash flows from operations and the value of property, real and personal, pledged as collateral. These estimates are reflected by changing economic conditions and the economic prospects of borrowers. 52

FIRST BUSEY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- The following table presents data on impaired loans: 1998 1997 ---------------------- (Dollars in thousands) Impaired loans for which an allowance has been provided $ - $ - Impaired loans for which no allowance has been provided 127 226 ---------------------- Total loans determined to be impaired $ 127 $ 226 ====================== Allowance for loan loss for impaired loans included in the allowance for loan losses $ - $ - ====================== Average recorded investment in impaired loans $ 219 $ 254 ====================== Interest income recognized from impaired loans $ 4 $ 8 ====================== Cash basis interest income recognized from impaired loans $ 9 $ 25 ====================== NOTE 5. ALLOWANCE FOR LOAN LOSSES Changes in the allowance for loan losses were as follows: Years Ended December 31, ------------------------- 1998 1997 1996 ------------------------- (Dollars in thousands) Balance, beginning of year $6,860 $6,131 $5,473 Provision for loan losses 700 1,075 1,100 Recoveries applicable to loan balances previously charged off 145 213 240 ------------------------- 7,705 7,419 6,813 Loan balances charged off (604) (559) (682) ------------------------- Balance, ending of year $7,101 $6,860 $6,131 ========================= 53

FIRST BUSEY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- NOTE 6. PREMISES AND EQUIPMENT Premises and equipment are summarized as follows: December 31, --------------------- 1998 1997 --------------------- (Dollars in thousands) Land $ 4,854 $ 4,899 Buildings and improvements 23,716 23,294 Furniture and equipment 13,462 10,720 --------------------- 42,032 38,913 Less accumulated depreciation 17,800 16,079 --------------------- $24,232 $22,834 ===================== Depreciation expense was $2,606,000, $2,124,000 and $1,957,000 for the years ending December 31, 1998, 1997 and 1996, respectively. NOTE 7. DEPOSITS The aggregate amount of time deposits with a minimum denomination of $100,000, was approximately $66,103,000 and $96,537,000 at December 31, 1998 and 1997, respectively. As of December 31, 1998, the scheduled maturities of certificates of deposit, in thousands, are as follows: 1999 $239,603 2000 57,581 2001 21,706 2002 14,021 2003 and thereafter 3,726 -------- $336,637 ======== 54

FIRST BUSEY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- NOTE 8. SHORT-TERM BORROWINGS Short-term borrowings are summarized as follows: December 31, ---------------------- 1998 1997 ---------------------- (Dollars in thousands) Notes payable, American National Bank of Chicago, due January 22, 1999, interest payable quarterly at LIBOR plus 1.50% (effective rate of 7.250% at December 31, 1998): $10,000,000 line of credit, collateralized by all of the capital stock of Busey Bank. $5,000 $5,000 Note payable, collateralized by all of the capital stock of Busey Bank 500 1,000 Collateralized by 44,286 shares of First Busey Corporation Class A common stock owned by employee stock ownership Plan 75 150 Collateralized by 44,286 shares of First Busey Corporation Class A common stock owned by employee stock ownership plan 75 150 Collateralized by 20,000 shares of First Busey Corporation Class A common stock owned by employee stock ownership plan 250 250 ---------------------- $5,900 $6,550 ====================== In accordance with the consensus reached on Issue Number 89-10 at the June 1989 meeting of the Financial Accounting Standards Board's Emerging Issues Task Force, the Company has recorded the pre-1993 debt of the employee stock ownership plan (ESOP), which totaled $150,000 and $300,000 at December 31, 1998 and 1997, respectively as short-term borrowings and a reduction of stockholders' equity. In August 1997, the employee stock ownership plan borrowed $250,000 to acquire additional shares. In accordance with AICPA Statement of Position 93-6, this debt has been recorded as short-term borrowings and a reduction of stockholders' equity. 55

FIRST BUSEY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- NOTE 9. LONG-TERM DEBT Long-term debt is summarized as follows: December 31, -------------------- 1998 1997 -------------------- (Dollars in thousands) Note payable, Federal Home Loan Bank of Chicago, 5.46%, monthly installments of interest through June 25, 1998, balance due June 25, 1998, collateralized by all unpledged U.S. Treasury and U.S. Agency securities, first mortgages on residential real estate and Federal Home Loan Bank stock $ - $ 5,000 Note payable, Federal Home Loan Bank of Chicago, 6.08%, monthly installments of interest through February 21, 2000, balance due February 21, 2000, collateralized by all unpledged U.S. Treasury and U.S. Agency securities, first mortgages on residential real estate and Federal Home Loan Bank stock 5,000 5,000 Note payable, Federal Home Loan Bank of Chicago, 5.30%, monthly installments of interest through January 16, 2008, balance due January 16, 2008, redeemable by issuer only on January 16, 2003, collateralized by all unpledged U.S. Treasury and U.S. Agency- securities, first mortgages on residential real estate and Federal Home Loan Bank stock 5,000 - Note payable, Federal Home Loan Bank of Chicago, 5.01% monthly installments of interest through February 17, 2008, balance due February 17, 2008, redeemable by issuer only on February 17, 2001 and quarterly thereafter, collateralized by all unpledged U.S. Treasury and U.S. Agency securities, first mortgages on residential real estate and Federal Home Loan Bank stock 10,000 - Note payable, Federal Home Loan Bank of Chicago, 5.55% monthly installments of interest through September 3, 2003, balance due September 3, 2003, collateralized by all unpledged U.S. Treasury and U.S. Agency securities, first mortgages on residential real estate and Federal Home Loan Bank stock 5,000 - -------------------- $25,000 $10,000 ==================== As of December 31, 1998, the scheduled maturities of long-term debt, in thousands, are as follows: 1999 $ - 2000 5,000 2001 - 2002 - 2003 5,000 Thereafter 15,000 ------- $25,000 ======= 56

FIRST BUSEY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- NOTE 10. INCOME TAXES The components of income tax expense consist of: Years Ended December 31, ------------------------- 1998 1997 1996 ------------------------- (Dollars in thousands) Current $5,404 $4,842 $4,114 Deferred (299) (463) (373) ------------------------- TOTAL INCOME TAX EXPENSE $5,105 $4,379 $3,741 ========================= A reconciliation of federal income taxes at statutory rates to the income taxes included in the statements of income is as follows: Years ended December 31, ----------------------------------------------------------------------- 1998 1997 1996 ----------------------------------------------------------------------- % of % of % of Pretax Pretax Pretax Amount Income Amount Income Amount Income ----------------------------------------------------------------------- (Dollars in thousands) Income tax at statutory rate $5,776 35.0% $5,163 35.0% $4,566 35.0% Effect of: Benefit of income taxed at lower rates (100) (0.6) (100) (0.7) (100) (0.8) Tax-exempt interest, net (673) (4.1) (777) (5.3) (805) (6.2) Amortization of intangibles 186 1.1 170 1.2 170 1.3 Other (84) (0.5) (77) (0.5) (90) (0.6) ----------------------------------------------------------------------- $5,105 30.9% $4,379 29.7% $3,741 28.7% ====================================================================== Income taxes related to realized gains on sales of securities were $435,000, $182,000 and $90,000 for the years ended December 31, 1998, 1997 and 1996, respectively. 57

FIRST BUSEY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- The net deferred tax asset, included in other assets or liabilities, in the accompanying balance sheets includes the following amounts of deferred tax assets and liabilities: 1998 1997 ---------------------- (Dollars in thousands) Deferred tax liability $(4,385) $(3,828) Deferred tax asset 4,479 4,344 Valuation allowance for deferred tax assets (490) (674) ---------------------- NET DEFERRED TAX LIABILITY $ (396) $ (158) ===================== The tax effects of principal temporary differences are shown in the following table: 1998 1997 ---------------------- (Dollars in thousands) Investment securities: Unrealized gain on securities available for sale $(3,661) $(3,124) Other 195 219 Basis in premises and equipment (586) (567) Allowance for loan losses 2,816 2,721 Property acquired in settlement of loans (25) (24) Loans held for sale 42 22 Basis in deposit intangibles 683 552 Deferred compensation 666 528 Performance/restricted stock 22 24 State net operating loss carryforward 55 278 Other (113) (113) ---------------------- 94 516 Valuation allowance (490) (674) ---------------------- $ (396) $ (158) ====================== State net operating loss carryforwards of approximately $1,175,000 are available to offset future taxable income. The carryforwards expire as follows: 2006 - $268,000; 2007 - $860,000 and 2008 - $47,000. NOTE 11. EMPLOYEE BENEFIT PLANS The Corporation established the First Busey Corporation Employees' Stock Ownership Plan (ESOP) as of January 1, 1984. All full-time employees who meet certain age and length of service requirements are eligible to participate in the ESOP which purchased common shares of the Corporation using the proceeds of bank borrowings secured by the stock. The borrowings are to be repaid using fully deductible contributions to the trust fund. As the ESOP makes each payment of principal, an appropriate percentage of stock will be allocated to eligible employee's accounts in accordance with applicable regulations under the Internal Revenue Code. Allocations of common stock released and forfeitures are based on the eligible compensation of each participant. Dividends on allocated shares of common stock are distributed directly to the participants and 58

FIRST BUSEY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- dividends on unallocated shares are used to service the bank borrowings. All shares held by the ESOP are included in the computation of average common shares and common share equivalents. This accounting treatment is grandfathered under Statement of Position 93-6, "Employers' Accounting for Employee Stock Ownership Plans" for shares purchased prior to December 31, 1992. During the year ended December 31, 1998, $150,000 of compensation expense was recognized for the ESOP, releasing 44,286 common shares to participant accounts, and is reflected in the chart below under "Employee Benefits." As permitted by AICPA Statement of Position (SOP) 93-6, compensation expense for shares released during 1998 and 1997 is equal to the original acquisition cost of the shares if they were acquired prior to December 31, 1992. There have been no shares released that were acquired by the ESOP after December 31, 1992. For such shares, compensation expense would be equal to the fair market value of the shares released. Compensation expense related to the ESOP plan was $189,000, $243,000 and $297,000 in 1998, 1997 and 1996, respectively. Shares held in the ESOP which were acquired prior to December 31, 1992 were as follows: 1998 1997 ------------------------ Allocated shares 798,174 771,854 Unallocated shares 44,286 88,572 ------------------------ TOTAL 842,460 860,426 ======================== Fair value of allocated shares at December 31 $14,567,000 $10,613,000 ======================== Shares held in the ESOP which were acquired after December 31, 1992 and their fair values were as follows: 1998 1997 ------------------------------------------- Fair Fair Shares Value Shares Value ------------------------------------------- Unallocated shares 20,000 $365,000 20,000 $275,000 =========================================== All full-time employees who meet certain age and length of service requirements are eligible to participate in the Corporation's profit-sharing plan. The contributions, if any, are determined solely by the Boards of Directors of the Corporation and its subsidiaries and in no case may the annual contributions be greater than the amounts deductible for federal income tax purposes for that year. The rights of the participants vest ratably over a seven-year period. 59

FIRST BUSEY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- Employer contributions to the employee benefit plans are included in the statements of income as follows: Years Ended December 31, 1998 1997 1996 ------------------------ (Dollars in thousands) Employee benefits $826 $809 $703 Interest on employee stock ownership plan debt 39 43 47 ------------------------ TOTAL EMPLOYER CONTRIBUTIONS $865 $852 $750 ======================== NOTE 12. STOCK INCENTIVE PLANS Stock Option Plan: - ----------------- In March 1989, the Corporation adopted the 1988 Stock Option Plan pursuant to which incentive stock options and nonqualified stock options for up to 900,000 shares of Class A common stock may be granted by the Compensation Committee of the Board of Directors to certain executive officers and key personnel of First Busey Corporation and its subsidiaries. In March 1996, the Board of Directors approved an increase in the number of shares reserved for issuance as stock options from 900,000 to 1,500,000. A summary of the status of the Corporation's stock option plan as of December 31, 1998, 1997 and 1996 and the changes during the years ending on those dates is as follows: 1998 1997 1996 ------------------------------------------------------------------ Weighted- Weighted- Weighted- Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price ------------------------------------------------------------------ Outstanding at begin- ning of year 659,606 $ 9.34 676,682 $ 7.20 787,834 $6.81 Granted 129,542 16.71 195,650 12.49 12,000 9.25 Exercised (56,926) 7.42 (190,826) 5.03 (113,626) 4.66 Terminated and reissuable (16,600) 9.69 (21,900) 8.66 (9,526) 8.19 --------- ---------- ---------- Outstanding at end of year 715,622 10.82 659,606 9.34 676,682 7.20 ================================================================== Exercisable at end of year 94,880 $ 5.81 87,306 $ 5.05 9,000 $4.72 Weighted-average fair value per option of options granted during the year $ 4.17 $ 2.46 $ 2.69 60

FIRST BUSEY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- The following table summarizes information about stock options outstanding at December 31, 1998: Options Options Outstanding Exercisable ----------------------------------------------------------- Exercise Number Weighted-Average Number Prices Outstanding Remaining Contractual Life Outstanding - ----------------------------------------------------------------------- $ 5.00 22,500 1 years 22,500 5.06 49,502 1 years 49,502 7.17 678 1 years 678 8.25 22,200 1 years 22,200 8.75 291,000 3 years - 9.25 12,000 3 years - 12.13 134,800 5 years - 13.75 2,000 1 years - 13.75 52,000 3 years - 16.75 128,942 6 years - ----------------------------------------------------------- 715,622 4 years 94,880 =========================================================== Grants under the above plan are accounted for following APB No. 25 and related Interpretations. Accordingly, no compensation cost has been recognized for grants under this plan. Had compensation cost for stock-based compensation been determined based on the grant date fair values of awards (the method described in SFAS 123), reported net income and earnings per common share would have been reduced to the pro forma amounts shown below: 1998 1997 1996 ------------------------------ Net Income (in thousands): As reported $11,398 $10,371 $9,306 Pro forma $11,254 $10,262 $9,262 Basic earnings per share: As reported $ .83 $ .75 $ .68 Pro forma $ .82 $ .74 $ .68 Diluted earnings per share: As reported $ .81 $ .74 $ .67 Pro forma $ .80 $ .73 $ .67 The Black-Scholes option pricing model was developed for use in estimating the fair value of traded options which have no vesting restrictions. In addition, such models require the use of subjective assumptions, including expected stock price volatility. In management's opinion, such valuation models may not necessarily provide the best single measure of option value. 61

FIRST BUSEY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- The fair value of the stock options granted has been estimated using the Black-Scholes option pricing model with the following weighted average assumptions. 1997 ---------------------------------- 1998 Block 1 Block 2 Block 3 1996 --------- --------- -------- ------- -------- Number of options granted 128,942 139,400 52,000 2,000 12,000 Risk-free interest rate 5.46% 5.76% 5.74% 5.64% 6.21% Expected life, in years 5 6 4 2 5 Expected volatility 12.05% 6.3% 6.3% 6.3% 6.1% Expected dividend yield 2.1% 2.9% 2.9% 2.9% 3.1% Estimated fair value per option $ 4.17 $ 2.89 $ 1.39 $ .84 $ 2.69 An additional 2,250 options granted in 1997 vested and were exercised during the year ended December 31, 1997. An additional 600 options granted in 1998 vested and were exercised during the year ended December 31, 1998. Restricted Stock Award Plan: - --------------------------- In January 1993, the Corporation adopted the 1993 Restricted Stock Award Plan pursuant to which restricted stock awards for up to 450,000 shares of Class A common stock may be granted by the Compensation Committee of the Board of Directors to certain executive officers and key personnel of First Busey Corporation and its subsidiaries. Shares vest over a period established by the Compensation Committee at grant date and are based on the attainment of specified earnings per share and earnings growth. As of December 31, 1998, there were 8,200 shares under grant with performance restrictions allowed by the plan which expire as follows: 1999 - 4,100 shares, and 2000 - 4,100 shares. Number of Shares ------------------------- 1998 1997 1996 ------------------------- Under restriction, beginning of year 13,200 18,000 16,500 Granted - - 18,000 Restrictions released - 4,400 16,500 Forfeited and reissuable 5,000 400 - ------------------------- Under restriction, end of year 8,200 13,200 18,000 ========================= Available to grant, end of year 408,900 403,900 403,500 ========================= Compensation expense is recognized for financial statement purposes over the period of performance. Compensation expense of ($5,000), $80,000, and $77,000 was recognized for financial statement purposes during the years ended December 31, 1998, 1997, and 1996, respectively. Compensation expense of $0, $61,000, and $184,000 was recognized for income tax purposes for the years ended December 31, 1998, 1997, and 1996 respectively. 62

FIRST BUSEY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- NOTE 13. TRANSACTIONS WITH DIRECTORS AND EXECUTIVE OFFICERS The Corporation and its subsidiaries have had, and may be expected to have in the future, banking transactions in the ordinary course of business with directors, executive officers, their immediate families and affiliated companies in which they have 10% or more beneficial ownership (commonly referred to as related parties), on the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with others. The following is an analysis of the changes in loans to related parties during the year ended December 31, 1998: Balance at the beginning of year $ 4,875 New loans 2,227 Repayments (1,588) -------- Balance at end of year $ 5,514 ======== NOTE 14. CAPITAL RATIOS The ability of the Corporation to pay cash dividends to its stockholders and to service its debt is dependent on the receipt of cash dividends from its subsidiaries. State chartered banks have certain statutory and regulatory restrictions on the amount of cash dividends they may pay. As a practical matter, dividend payments are restricted because of the desire to maintain a strong capital position in the subsidiaries. The Corporation and the Bank are subject to various regulatory capital requirements administered by federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Corporation's or the Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Corporation's and the Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Corporation and the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and Tier 1 capital (as defined) to average assets (as defined). Management believes, as of December 31, 1998, that the Corporation and the Bank meet all capital adequacy requirements to which they are subject. As of December 31, 1998, the most recent notification from the federal and state regulatory agencies categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the Bank's categories. 63

FIRST BUSEY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- To Be Well Capitalized Under For Capital Prompt Corrective Actual Adequacy Purposes Action Provisions ----------------------------------------------------------- Amount Ratio Amount Ratio Amount Ratio ----------------------------------------------------------- (Dollars in Thousands) As of December 31, 1998: Total Capital (to Risk Weighted Assets) Consolidated $80,621 13.23% $48,745 8.0% N/A N/A Busey Bank $76,259 12.74% $47,894 8.0% $59,868 10% Tier I Capital (to Risk Weighted Assets) Consolidated $73,520 12.07% $24,373 4.0% N/A N/A Busey Bank $69,158 11.55% $23,947 4.0% $35,921 6.0% Tier I Capital (to Average Assets) Consolidated $73,520 7.87% $37,354 4.0% N/A N/A Busey Bank $69,158 7.48% $36,986 4.0% $46,232 5.0% As of December 31, 1997: Total Capital (to Risk Weighted Assets) Consolidated $74,372 13.01% $45,726 8.0% N/A N/A Busey Bank $70,604 12.59% $44,850 8.0% $56,063 10.0% Tier I Capital (to Risk Weighted Assets) Consolidated $67,512 11.81% $22,863 4.0% N/A N/A Busey Bank $63,744 11.37% $22,425 4.0% $33,638 6.0% Tier I Capital (to Average Assets) Consolidated $67,512 7.61% $35,495 4.0% N/A N/A Busey Bank $63,744 7.27% $35,068 4.0% $43,835 5.0% NOTE 15. COMMITMENTS, CONTINGENCIES AND CREDIT RISK The Corporation and its subsidiaries are parties to legal actions which arise in the normal course of their business activities. In the opinion of management, the ultimate resolution of these matters is not expected to have a material effect on the financial position or the results of operations of the Corporation and its subsidiaries. 64

FIRST BUSEY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- The Corporation and its subsidiaries are parties to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit and financial guarantees. Those instruments involve, to varying degrees, elements of credit and interest rate risk. The contract or notional amounts of those instruments reflect the extent of involvement the Corporation has in particular classes of financial instruments. The Corporation and its subsidiaries' exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit and financial guarantees written is represented by the contractual amount of those instruments. The Corporation and its subsidiaries use the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. Unless noted otherwise, the Corporation and its subsidiaries do not require collateral or other security to support financial instruments with credit risk. A summary of the contractual amount of the Corporation's exposure to off-balance-sheet risk as of December 31, 1998 and 1997, is as follows: 1998 1997 ---------------------- (Dollars in thousands) Financial instruments whose contract amounts represent credit risk: Commitments to extend credit $129,760 $126,280 Standby letters of credit 3,816 4,780 Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. These commitments are generally at variable interest rates and generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Corporation evaluates each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if it is deemed necessary by the Corporation upon extension of credit, is based on management's credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property and equipment and income-producing commercial properties. Standby letters of credit are conditional commitments issued by the Corporation to guarantee the performance of a customer to a third party. Those letters of credit are primarily issued to support public and private borrowing arrangements, including bond financing and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. As of December 31, 1998, the Corporation has no significant futures, forwards, swaps or option contracts, or other financial instruments with similar characteristics. 65

FIRST BUSEY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- Lease Commitments - ----------------- At December 31, 1998, the Corporation was obligated under noncancelable operating leases for office space and other commitments. Rent expense under operating leases, included in net occupancy expense of premises, was approximately $632,000, $456,000, and $404,000 for the years ended December 31, 1998, 1997 and 1996, respectively. The projected minimum rental payments under the terms of the leases at December 31, 1998, in thousands, are as follows: 1999 $ 700 2000 680 2001 622 2002 520 2003 407 Thereafter 2,389 ------ $5,318 ====== NOTE 16. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate that value: Cash and cash equivalents - ------------------------- The carrying amounts reported in the balance sheet for cash and due from banks and federal funds sold approximate those assets' fair values. Securities - ---------- For securities available for sale, fair values are based on quoted market prices or dealer quotes, where available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities. The carrying amount of accrued interest receivable approximates fair value. Loans - ----- For certain homogeneous categories of loans, such as some residential mortgages, fair value is estimated using the quoted market prices for similar loans or securities backed by similar loans, adjusted for differences in loan characteristics. The fair value of other types of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. The carrying amount of accrued interest receivable approximates fair value. Deposits - -------- The fair value of demand deposits, savings accounts, NOW accounts, and certain money market deposits is defined as the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities. The carrying amount of accrued interest payable approximates fair value. 66

FIRST BUSEY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- Short-term borrowings and long-term debt - ---------------------------------------- Rates currently available to the Corporation for debt with similar terms and remaining maturities are used to estimate fair value of existing debt. The carrying amount of accrued interest payable approximates fair value. Commitments to extend credit and standby letters of credit - ---------------------------------------------------------- The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date. As of December 31, 1998 and 1997, these items are immaterial in nature. The estimated fair values of the Corporation's financial instruments are as follows: 1998 1997 ----------------------------------------------- Carrying Fair Carrying Fair Amount Value Amount Value ----------------------------------------------- (Dollars in thousands) Financial assets: Cash and cash equivalents $ 35,644 $ 35,644 $ 62,099 $ 62,099 Securities 217,991 217,991 215,514 215,514 Loans, net 655,180 659,297 596,077 596,802 Accrued interest receivable 7,167 7,167 7,464 7,464 Financial liabilities: Deposits 826,704 829,200 811,453 811,198 Short-term borrowings 5,900 5,900 6,550 6,550 Long-term debt 25,000 25,095 10,000 9,982 Accrued interest payable 3,437 3,437 3,586 3,586 In addition, other assets and liabilities of the Corporation that are not defined as financial instruments are not included in the above disclosures, such as property and equipment. Also, nonfinancial instruments typically not recognized in financial statements nevertheless may have value but are not included in the above disclosures. These include, among other items, the estimated earnings power of core deposit accounts, the earnings potential of loan servicing rights, the earnings potential of the trust operations, the trained work force, customer goodwill and similar items. NOTE 17. REPORTABLE SEGMENTS AND RELATED INFORMATION First Busey Corporation has two reportable segments, Busey Bank and First Busey Trust & Investment Co. Busey Bank provides a full range of banking services to individual and corporate customers through its branch network in central Illinois, through its branch in Indianapolis, Indiana, and through its loan production office in Fort Myers, Florida. First Busey Trust & Investment Co. provides trust and asset management services to individual and corporate customers throughout central Illinois. The Corporation's two reportable segments are strategic business units that are separately managed as they offer different products and services and have different marketing strategies. 67

FIRST BUSEY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- The segment financial information provided below has been derived from the internal profitability reporting system used by management to monitor and manage the financial performance of the Corporation. The accounting policies of the two segments are the same as those described in the summary of significant accounting policies. The Corporation accounts for intersegment revenue and transfers at current market value. The following summarized information relates to the Corporation's reportable segments, in thousands: December 31, 1998 ------------------------------------------------------------------------------------- First Busey Busey Trust & Intersegment Consolidated Bank Investment Co. All Other Totals Eliminations Totals ------------------------------------------------------------------------------------- Interest income $ 66,778 $ 165 $ 108 $ 67,051 $ (3) $ 67,048 Interest expense 31,966 - 1,010 32,976 (1) 32,975 Other income 8,003 3,490 16,434 27,927 (14,397) 13,530 Net income 11,758 1,175 11,838 24,771 (13,373) 11,398 Total assets 937,710 3,360 103,617 1,044,687 (93,156) 951,531 December 31, 1997 ------------------------------------------------------------------------------------- First Busey Busey Trust & Intersegment Consolidated Bank Investment Co. All Other Totals Eliminations Totals ------------------------------------------------------------------------------------- Interest income $ 63,651 $ 137 $ 43 $ 63,831 $ - $ 63,831 Interest expense 30,647 - 472 31,119 - 31,119 Other income 6,391 3,200 13,659 23,250 (12,871) 10,379 Net income 10,696 987 10,626 22,309 (11,938) 10,371 Total assets 901,073 2,905 96,509 1,000,487 (84,947) 915,540 December 31, 1996 ------------------------------------------------------------------------------------- First Busey Busey Trust & Intersegment Consolidated Bank Investment Co. All Other Totals Eliminations Totals ------------------------------------------------------------------------------------- Interest income $ 61,091 $ 102 $ 35 $ 61,228 $ (31) $ 61,197 Interest expense 29,488 - 545 30,033 - 30,033 Other income 5,555 2,685 12,025 20,265 (11,496) 8,769 Net income 9,983 651 9,436 20,070 (10,764) 9,306 Total assets 850,212 2,352 83,059 935,623 (70,705) 864,918 68

FIRST BUSEY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- NOTE 18. PARENT COMPANY ONLY FINANCIAL INFORMATION Condensed financial data for First Busey Corporation is presented below. BALANCE SHEETS December 31, ------------------ 1998 1997 ------------------ (Dollars in thousands) ASSETS Cash and due from subsidiary bank $ 208 $ 131 Securities available for sale 1,993 1,602 Investments in subsidiaries: Bank 78,901 73,485 Non-bank 8,764 8,334 Premises and equipment, net 15 48 Other assets 4,797 5,515 ------------------ TOTAL ASSETS $94,678 $89,115 ================== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Short-term corporate borrowings $ 5,500 $ 6,000 Short-term ESOP borrowings 400 550 Other liabilities 1,675 1,286 ------------------ TOTAL LIABILITIES 7,575 7,836 ------------------ Stockholders' equity before unearned ESOP shares and deferred compensation for restricted stock awards 87,536 81,910 Unearned ESOP shares and deferred compensation for restricted stock awards (433) (631) ------------------ STOCKHOLDERS' EQUITY 87,103 81,279 ------------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $94,678 $89,115 ================== 69

FIRST BUSEY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- STATEMENTS OF INCOME Years Ended December 31, ------------------------- 1998 1997 1996 ------------------------- (Dollars in thousands) Operating income: Dividends from subsidiaries: Bank $18,000 $ 6,000 $6,000 Non-bank 975 500 400 Interest and dividend income 40 10 12 Other income 820 788 579 ------------------------- TOTAL OPERATING INCOME 19,835 7,298 6,991 ------------------------- Expenses: Salaries and employee benefits 957 1,124 1,057 Interest expense 971 429 527 Operating expense 1,543 1,425 1,064 ------------------------- TOTAL EXPENSES 3,471 2,978 2,648 ------------------------- INCOME BEFORE INCOME TAX BENEFIT AND EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARIES 16,364 4,320 4,343 Income tax benefit 872 767 730 ------------------------- INCOME BEFORE EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARIES 17,236 5,087 5,073 Equity in undistributed income of subsidiaries: Bank (6,242) 4,696 3,983 Non-bank 404 588 250 ------------------------- NET INCOME $11,398 $10,371 $9,306 ========================= 70

FIRST BUSEY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- STATEMENTS OF CASH FLOWS Years Ended December 31, ----------------------------- 1998 1997 1996 ----------------------------- (Dollars in thousands) Cash Flows from Operating Activities Net income $ 11,398 $10,371 $ 9,306 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 872 972 1,206 Equity in undistributed net income of subsidiaries 5,838 (5,284) (4,233) Gain on sales of securities (58) (62) - (Gain) loss on disposal of premises and equipment 11 (1) 6 Changes in assets and liabilities: Increase in other assets (213) (320) (445) Increase in other liabilities 389 267 277 ----------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 18,237 5,943 6,117 ----------------------------- Cash Flows from Investing Activities Proceeds from sales of securities available for sale 86 556 136 Purchases of securities available for sale (203) (473) (186) Proceeds from sales of premises and equipment - 1 - Purchases of premises and equipment (1) (2) (66) Capital contribution to subsidiary (10,000) (593) - ----------------------------- NET CASH USED IN INVESTING ACTIVITIES (10,118) (511) (116) Cash Flows from Financing Activities Purchases of treasury stock (2,747) (3,127) (605) Proceeds from sales of treasury stock 586 2,834 797 Proceeds from short-term borrowings 11,000 2,500 1,000 Dividends paid (5,381) (4,762) (4,378) Principal payments on short-term borrowings (11,500) (4,000) (2,000) ----------------------------- NET CASH USED IN FINANCING ACTIVITIES (8,042) (6,555) (5,186) ----------------------------- NET (DECREASE) INCREASE IN CASH AND DUE FROM BANKS 77 (1,123) 815 Cash and due from banks, beginning 131 1,254 439 ----------------------------- Cash and due from banks, ending $ 208 $ 131 $ 1,254 ============================= 71

FIRST BUSEY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- STATEMENTS OF CASH FLOWS (Continued) Years Ended December 31, ------------------------- 1998 1997 1996 ------------------------- (Dollars in thousands) Supplemental Schedule of Noncash Investing and Financing Activities Principal payments on ESOP debt $ 150 $ 200 $ 250 ========================= Proceeds from ESOP debt $ - $ 250 $ - ========================= Transfer of premises and equipment and other assets to subsidiary $ - $5,441 $ - ========================= Issuance of treasury stock for acquisition of Busey Travel, Inc. $ 825 $ - $ - ========================= Change in unrealized gain on securities available for sale - holding company $ 216 $ 365 $ 174 ========================= Increase in deferred income taxes attributable to the unrealized gain on securities available for sale - holding company $ (76) $ (127) $ (61) ========================= Change in unrealized gain on securities available for sale - subsidiaries $ 858 $2,278 $ 79 ========================= 72

FIRST BUSEY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- NOTE 19. UNAUDITED INTERIM FINANCIAL DATA The following table reflects summarized quarterly data for the periods described (unaudited), in thousands, except per share data: 1998 - ---------------------------------------------------------------------------- December 31 September 30 June 30 March 31 - ---------------------------------------------------------------------------- Interest income $ 16,649 $ 17,062 $ 16,640 $ 16,697 Interest expense 8,341 8,383 8,109 8,142 Net interest income 8,308 8,679 8,531 8,555 Provision for loan losses - 50 - 650 Noninterest income 3,596 3,282 3,350 3,302 Noninterest expense 7,992 7,586 7,514 7,308 - ---------------------------------------------------------------------------- Income before income taxes 3,912 4,325 4,367 3,899 Income taxes 1,215 1,336 1,366 1,188 - ---------------------------------------------------------------------------- Net income $ 2,697 $ 2,989 $ 3,001 $ 2,711 ============================================================================ Basic earnings per share $ 0.20 $ 0.22 $ 0.22 $ 0.19 Diluted earnings per share $ 0.19 $ 0.21 $ 0.22 $ 0.19 1997 - ---------------------------------------------------------------------------- December 31 September 30 June 30 March 31 - ---------------------------------------------------------------------------- Interest income $ 16,598 $ 16,253 $ 15,703 $ 15,277 Interest expense 8,128 8,005 7,603 7,383 - ---------------------------------------------------------------------------- Net interest income 8,470 8,248 8,100 7,894 Provision for loan losses 475 200 200 200 Noninterest income 2,854 2,532 2,537 2,456 Noninterest expense 7,054 6,811 6,659 6,742 - ---------------------------------------------------------------------------- Income before income taxes 3,795 3,769 3,778 3,408 Income taxes 1,119 1,129 1,131 1,000 - ---------------------------------------------------------------------------- Net income $ 2,676 $ 2,640 $ 2,647 $ 2,408 ============================================================================ Basic earnings per share $ 0.19 $ 0.19 $ 0.19 $ 0.18 Diluted earnings per share $ 0.19 $ 0.19 $ 0.19 $ 0.17 73

MANAGEMENT REPORT BUSEY BANK AS OF DECEMBER 31, 1998 FINANCIAL STATEMENTS Management of Busey Bank is responsible for the preparation, integrity and fair presentation of its published financial statements as of December 31, 1998, and for the year then ended. The financial statements have been prepared in accordance with generally accepted accounting principles and, as such, include amounts, some of which are based on judgments and estimates of management. INTERNAL CONTROLS Management is responsible for establishing and maintaining effective internal control over financial reporting. The internal control system contains monitoring mechanisms, and actions are taken to correct deficiencies identified. There are inherent limitations in the effectiveness of any system of internal control, including the possibility of human error and the circumvention or overriding of controls. Accordingly, even an effective internal control system can provide only reasonable assurance with respect to financial statement preparation. Further, because of changes in conditions, the effectiveness of internal control may vary over time. Management assessed its internal control over financial reporting as of December 31, 1998. This assessment was based on criteria for effective internal control over financial reporting described in "Internal Control - Integrated Framework" issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management believes that Busey Bank maintained effective internal control over financial reporting as of December 31, 1998. DESIGNATED LAWS Management is also responsible for compliance with the federal and state laws and regulations relating to safety and soundness, including those designated laws and regulations regarding dividend restrictions and loans to insiders. Based on our assessment, management believes Busey Bank complied, in all material respects, with those designated laws and regulations for the year ended December 31, 1998. ___________________________________ Douglas C. Mills, Chairman of the Board First Busey Corporation (Holding Company) ___________________________________ P. David Kuhl, President Busey Bank 74

INDEPENDENT ACCOUNTANT'S REPORT To the Board of Directors Busey Bank Urbana, Illinois We have examined management's assertion that Busey Bank maintained a system of internal control over financial reporting which is designed to provide reasonable assurance to the Bank's management and Board of Directors regarding the preparation of reliable published financial statements as of December 31, 1998, included in the accompanying management report. Our examination was made in accordance with standards established by the American Institute of Certified Public Accountants and, accordingly, included obtaining an understanding of the internal control structure over financial reporting, testing and evaluating the design and operating effectiveness of the internal control structure, and such other procedures as we considered necessary in the circumstances. We believe that our examination provides a reasonable basis for our opinion. Because of inherent limitations in any internal control structure, errors or irregularities may occur and not be detected. Also, projections of any evaluation of the internal control structure over financial reporting to future periods are subject to the risk that the internal control structure may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, management's assertions that Busey Bank maintained a system of internal control over financial reporting which is designed to provide reasonable assurance to the Bank's management and Board of Directors regarding the preparation of reliable published financial statements as of December 31, 1997, is fairly stated, in all material respects, based upon criteria established in "Internal Control - Integrated Framework" issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). /s/ McGladrey & Pullen, LLP Champaign, Illinois January 29, 1999 75

EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 33-30095, 33-60402, and 33-44903) of our report, dated January 29, 1999, with respect to the financial statements of First Busey Corporation and Subsidiaries, appearing in this Annual Report on Form 10-K for the year ended December 31, 1998. //McGladrey & Pullen, LLP// Champaign, Illinois March 23, 1999

9 1,000 YEAR DEC-31-1998 DEC-31-1998 35,644 0 0 0 217,991 0 0 662,281 7,101 951,531 826,704 5,900 6,824 25,000 0 0 6,291 80,812 951,531 53,669 12,488 891 67,048 30,642 32,975 34,073 700 1,243 30,400 16,503 11,398 0 0 11,398 .83 .81 7.93 526 1,052 0 442 6,860 604 145 7,101 0 0 53