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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
| þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2005
| o | 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, IL 61801
(Address of principal executive offices) (Zip Code)
Urbana, IL 61801
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code (217) 365-4513
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.001 par value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act.
Yes o No þ
Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Exchange Act.
Yes o No þ
Yes o No þ
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 þ No o
Yes þ No o
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. o
Indicate by check mark whether registrant is a large accelerated filer, an accelerated filer, or a
non-accelerated filer (as defined in Rule 12b-2 of the Act.).
Large accelerated filer o Accelerated filer þ Non-accelerated filer o
Large accelerated filer o Accelerated filer þ Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes o No þ
Yes o No þ
The aggregate market value of the voting and nonvoting Common Stock held by non-affiliates on June
30, 2005 was $270,217,161, determined using a per share
closing price on that date of $19.31, as quoted on The Nasdaq Stock Market.
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, 2006 | |
Common Stock, $.001 par value |
21,495,582 |
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement dated March 15, 2006, for First Busey Corporation’s
Annual Meeting of Stockholders to be held April 25, 2006, (the “2006 Proxy Statement”) are
incorporated by reference into Part III.
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FIRST BUSEY CORPORATION
Form 10-K Annual Report
Form 10-K Annual Report
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Part I
Item 1. Business
Introduction
First Busey Corporation (“First Busey” or the “Corporation”), a Nevada Corporation, is a $2.263
billion financial holding company which was initially organized as a bank holding company in 1980.
First Busey conducts a broad range of financial services through its banking and non-banking
subsidiaries at 32 locations. First Busey is headquartered in Urbana, Illinois and its common
stock is traded on The Nasdaq Stock Market under the symbol “BUSE.”
Banking And Non-Banking Subsidiaries
First Busey currently has two wholly-owned banking subsidiaries located in three states, Busey Bank
and Busey Bank , National Association (the “Banks”).
Busey Bank, a state-chartered bank organized in 1868, is a full-service commercial bank offering a
wide variety of services to individual, business, institutional and governmental customers,
including retail products and services. Busey Bank has 25 locations in Illinois and one in
Indianapolis, Indiana.
First Busey acquired Eagle BancGroup, Inc., parent of First Federal Savings & Loan Association
(“First Federal”), in October, 1999. First Federal, located in Bloomington, Illinois, was
established in 1919 as a federally chartered capital stock savings association. In June, 2000,
First Federal changed its name to Busey Bank fsb. At the same time, four of Busey Bank’s branches,
located in LeRoy and Bloomington, Illinois, were transferred to Busey Bank fsb. In October, 2000,
Busey Bank fsb opened an additional branch in Fort Myers, Florida. In November, 2001, Busey Bank
fsb transferred its charter to Florida, and changed its name to Busey Bank Florida.
Simultaneously, the Illinois assets of Busey Bank fsb were merged into Busey Bank.
First Busey acquired First Capital Bankshares, Inc., parent of First Capital Bank on June 1, 2004.
First Capital Bank merged into Busey Bank, bringing all Illinois banking operations under one bank
charter.
On July 29, 2005, First Busey acquired Tarpon Coast Bancorp, Inc., parent of Tarpon Coast National
Bank and its subsidiary Tarpon Coast Financial Services. At the close of business on February 17,
2006, Busey Bank Florida merged into Tarpon Coast National Bank, and the surviving bank’s name
changed to Busey Bank, National Association (Busey Bank, N.A.) consolidating all Florida banking
activities under one charter. Busey Bank, N.A. is a federally-chartered bank based in Port
Charlotte, Florida. The bank has one other branch location in Charlotte, County Florida, two
branches in Sarasota County, Florida, and three branches in Lee County, Florida. The bank will
continue to operate under the name, Tarpon Coast National Bank, in its Charlotte County and
Sarasota County locations. All other Florida locations began operating under the new name on
February 18, 2006.
The Banks offer a full range of banking services, including commercial, financial, agricultural and
real estate loans, and retail banking services, including accepting customary types of demand and
savings deposits, making individual, consumer, installment, first mortgage and second mortgage
loans, offering money transfers, safe deposit services, IRA, Keogh and other fiduciary services,
automated banking and automated fund transfers.
Busey Investment Group, Inc., a wholly owned non-banking subsidiary, is located in Champaign,
Illinois. Busey Investment Group is the parent company of: (1) First Busey Trust & Investment Co.,
which provides a full range of trust and investment management services, including estate and
financial planning, tax preparation, custody services and philanthropic advisory services; (2)
First Busey Securities, Inc., which is a full-service broker/dealer and provides individual
investment advice; and (3) Busey Insurance Services, Inc., which offers a variety of insurance
products. Busey Capital Management is a wholly-owned subsidiary of First Busey Trust & Investment
Co.
First Busey Resources, Inc., a wholly owned non-banking subsidiary, located in Urbana, Illinois,
owns and manages one real estate property which is not currently used in banking activities.
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First Busey Capital Trust I (“Capital Trust I”), a statutory business trust organized under the
Delaware Business Trust Act, was formed in June, 2001. First Busey owns all of the Common
Securities of Capital Trust I.
First Busey Statutory Trust II, a statutory business trust, was organized in the state of
Connecticut in April, 2004. First Busey owns all of the common securities of First Busey Statutory
Trust II.
First Busey Statutory Trust III, a statutory business trust was organized in the state of Delaware
in June, 2005. First Busey owns all of the common securities of First Busey Statutory Trust III.
Competition
The Banks compete actively with national and state banks, savings and loan associations and credit
unions for deposits and loans primarily in central and east-central Illinois, southwest Florida,
and central Indiana. In addition, First Busey and its non-bank subsidiaries compete with other
financial institutions, including asset management and trust companies, security broker/dealers,
personal loan companies, insurance companies, finance companies, leasing companies, mortgage
companies, and certain governmental agencies, all of which actively engage in marketing various
types of loans, deposit accounts, and other products and services.
Based on information obtained from FDIC/OTS Summary of Deposits dated June, 2005, First Busey
ranked first in total deposits in Champaign County, second in Ford County, fourth in McLean County,
and seventh in Peoria County. Customers for banking services are generally influenced by
convenience, quality of service, personal contacts, price of services and availability of products.
Although the market share of First Busey varies in different markets, First Busey believes that
its affiliates effectively compete with other banks, thrifts and financial institutions in their
relevant market areas.
Supervision, Regulation and Other Factors
General
First Busey is a financial holding company subject to supervision and regulation by the Board of
Governors of the Federal Reserve System (“Federal Reserve”) under the Bank Holding Company Act
(“BHCA”) and by the Illinois Bank Holding Company Act (“IBHCA”). Busey Bank, a state-chartered
bank is subject to regulation and examination primarily by the State of Illinois Office of Banks
and Real Estate (“SIOBRE”) and, secondarily, by the Federal Deposit Insurance Corporation (“FDIC”).
Busey Bank Florida is a federally chartered capital stock savings association and is subject to
regulation and examination primarily by the Office of Thrift Supervision (“OTS”) and, secondarily,
by the FDIC. Tarpon Coast National Bank is a federally chartered bank and is subject to regulation
and examination primarily by the Office of the Controller of the Currency (“OCC”) and secondarily
by the FDIC. Numerous other federal and state laws, as well as regulations promulgated by the
Federal Reserve, SIOBRE, FDIC, OCC, and OTS govern almost all aspects of the operations of the
Banks. Various federal and state bodies regulate and supervise First Busey’s non-banking
subsidiaries including its brokerage, investment advisory and insurance agency operations. These
include, but are not limited to, SIOBRE, Federal Reserve, Securities and Exchange Commission,
National Association of Securities Dealers, Inc., Illinois Department of Insurance, federal and
state banking regulators and various state regulators of insurance and brokerage activities.
Under the Gramm-Leach-Bliley Act (the “Act”), a bank holding company that elects to become a
financial holding company may engage in any activity that the Federal Reserve, in consultation with
the Secretary of the Treasury, determines by regulation or order is: (1) financial in nature; (2)
incidental to any such financial activity; or (3) complementary to any such financial activity and
does not pose a substantial risk to the safety or soundness of depository institutions or the
financial system generally. This Act makes significant changes in U.S. banking law, principally by
repealing certain restrictive provisions of the 1933 Glass-Steagall Act. The Act specifies certain
activities that are deemed to be financial in nature, including lending, exchanging, transferring,
investing for others, or safeguarding money or securities; underwriting and selling insurance;
providing financial, investment, or economic advisory services; underwriting, dealing in, or making
a market in, securities; and any activity currently permitted for bank holding companies by the
Federal Reserve under Section 4(c)(8) of the BHCA. The Act does not authorize
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banks or their
affiliates to engage in commercial activities that are not financial in nature. A bank holding
company may elect to be treated as a financial holding company only if all depository institution
subsidiaries of the holding
company are well-capitalized, well-managed and have at least a satisfactory rating under the
Community Reinvestment Act.
In addition to the Act, there have been a number of legislative and regulatory proposals that would
have an impact on bank/financial holding companies and their bank and non-bank subsidiaries. It is
impossible to predict whether or in what form these proposals may be adopted in the future and if
adopted, what their effect will be on First Busey.
Dividends
The Federal Reserve has issued a policy statement on the payment of cash dividends by financial
holding companies. In the policy statement, the Federal Reserve expressed its view that a bank
holding company experiencing weak earnings should not pay cash dividends in excess of its net
income or which could only be funded in ways that would weaken its financial health, such as by
borrowing. First Busey is also subject to certain contractual and regulatory capital restrictions
that limit the amount of cash dividends that First Busey may pay. The Federal Reserve 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.
The primary sources of funds for First Busey’s payment of dividends to its shareholders are
dividends and fees to First Busey from its banking and nonbanking affiliates. Various federal and
state statutory provisions and regulations limit the amount of dividends the subsidiary banks of
First Busey may pay. Under provisions of the Illinois Banking Act (“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.
Federal and state banking regulations applicable to First Busey and its banking subsidiaries
require minimum levels of capital, which limit the amounts available for payment of dividends.
Capital Requirements
First Busey is required to comply with the capital adequacy standards established by the Federal
Reserve, and its banking subsidiaries must comply with similar capital adequacy standards
established by the OTS, OCC, FDIC, and SIOBRE, as applicable. There are two basic measures of
capital adequacy for financial holding companies and their banking subsidiaries that have been
promulgated by the Federal Reserve and the FDIC: a risk-based measure and a leverage measure. All
applicable capital standards must be satisfied for a bank holding company or a bank to be
considered in compliance.
Failure to meet capital guidelines could subject a bank to a variety of enforcement remedies,
including issuance of a capital directive, the termination of deposit insurance by the FDIC, a
prohibition on the taking of brokered deposits, and certain other restrictions on its business. As
described below, substantial additional restrictions can be imposed upon FDIC insured depository
institutions that fail to meet applicable capital requirements. See “Prompt Corrective Action.”
Prompt Corrective Action
The Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”) establishes a system
of prompt corrective action to resolve the problems of undercapitalized institutions. Under this
system the federal banking regulators are required to rate supervised institutions on the basis of
five capital categories (well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized) and to take certain mandatory supervisory
actions, and are authorized to take other discretionary actions, with respect to institutions in
the three undercapitalized categories, the severity of which will depend upon the capital category
in which the institution is placed. Generally, subject to a narrow exception, FDICIA requires the
banking regulator to appoint a receiver or conservator for an institution that is critically
undercapitalized. The federal banking agencies have specified by regulation the relevant capital
level for each category.
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Pursuant to FDICIA, the Federal Reserve, the FDIC, and the OTS have adopted regulations setting
forth a five-tier scheme for measuring the capital adequacy of the financial institutions they
supervise. Under the regulations, an institution would be placed in one of the following capital
categories: (i) well capitalized (an institution that has a Total
Capital ratio of at least 10%, a Tier 1 Capital ratio of at least 6% and a Tier 1 Leverage Ratio of
at least 5%); (ii) adequately capitalized (an institution that has a Total Capital ratio of at
least 8%, a Tier 1 Capital ratio of at least 4% and a Tier 1 Leverage Ratio of a least 4%); (iii)
undercapitalized (an institution that has a Total Capital ratio of under 8%, a Tier 1 Capital ratio
of under 4% or a Tier 1 Leverage Ratio of under 4%); (iv) significantly undercapitalized (an
institution that has a Total Capital ratio of under 6%, a Tier 1 Capital ratio of under 3% or a
Tier 1 Leverage Ratio of under 3%); and (v) critically undercapitalized (an institution whose
tangible equity is not greater than 2% of total tangible assets). The regulations permit the
appropriate federal banking regulator to downgrade an institution to the next lower category if the
regulator determines (i) after notice and opportunity for hearing or response, that the institution
is in an unsafe or unsound condition or (ii) that the institution has received (and not corrected)
a less-than-satisfactory rating for any of the categories of asset quality, management, earnings or
liquidity in its most recent examination. Supervisory actions by the appropriate federal banking
regulator depend upon an institution’s classification within the five categories. First Busey’s
management believes that First Busey and its significant bank subsidiaries have the requisite
capital levels to qualify as well capitalized institutions under the FDICIA regulations.
FDICIA generally prohibits a depository institution from making any capital distribution (including
payment of a dividend) or paying any management fee to its holding company if the depository
institution would thereafter be undercapitalized. Undercapitalized depository institutions are
subject to restrictions on borrowing from the Federal Reserve System. In addition, undercapitalized
depository institutions are subject to growth limitations and are required to submit capital
restoration plans. A depository institution’s holding company must guarantee the capital plan, up
to an amount equal to the lesser of 5% of the depository institution’s assets at the time it
becomes undercapitalized or the amount of the capital deficiency when the institution fails to
comply with the plan. Federal banking agencies may not accept a capital plan without determining,
among other things, that the plan is based on realistic assumptions and is likely to succeed in
restoring the depository institution’s capital. If a depository institution fails to submit an
acceptable plan, it is treated as if it is significantly undercapitalized.
Significantly undercapitalized depository institutions may be subject to a number of requirements
and restrictions, including orders to sell sufficient voting stock to become adequately
capitalized, requirements to reduce total assets and cessation of receipt of deposits from
correspondent banks. Critically undercapitalized depository institutions are subject to appointment
of a receiver or conservator.
Employees
As of December 31, 2005, First Busey and its subsidiaries had a total of 608 employees (full-time
and equivalents).
Executive Officers
Following is a description of the business experience for at least the past five years of the
executive officers of the Corporation.
Douglas C. Mills. Mr. Mills, age 65, has served as Chairman of the Board and Chief Executive
Officer of First Busey Corporation since its incorporation. He has been associated with Busey Bank
since 1971 when he assumed the position of Chairman of the Board. Mr. Mills’ son is David D.
Mills, President of Busey Bank.
Barbara J. Kuhl. Mrs. Kuhl, age 55, has served as President and Chief Operating Officer of First
Busey Corporation since November, 2000. Previously, Mrs. Kuhl served in various management
capacities since joining Busey Bank in 1974. Mrs. Kuhl is married to P. David Kuhl, Chairman of
the Board and Chief Executive Officer of Busey Bank.
P. David Kuhl. Mr. Kuhl, age 56, has served as Chairman of the Board and Chief Executive Officer
of Busey Bank since January, 2003. Previously, Mr. Kuhl served as President and Chief Executive
Officer of Busey Bank from June, 1991. Prior to that, Mr. Kuhl served in various management
capacities since joining Busey Bank in 1979. Mr.
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Kuhl has served on the Board of Directors of
Busey Bank since 1991. Mr. Kuhl is married to Barbara J. Kuhl, President and Chief Operating
Officer of First Busey Corporation.
David D. Mills. Mr. Mills, age 35, has served as President and Chief Operating Officer of Busey
Bank since January, 2003. Previously, he served as Vice President of First Busey Corporation from
December, 2001 to January, 2003. Mr. Mills began his career with Busey Bank in December, 1998, as
a Commercial Lending Officer. Mr. Mills’ father is Douglas C. Mills, Chairman of the Board of
First Busey Corporation.
Edwin A. Scharlau II. Mr. Scharlau, age 61, has served as chairman of the Board of Busey
Investment Group, Inc. since January, 2001, and First Busey Securities, Inc. since June, 1994. Mr.
Scharlau has also served as Vice-Chairman of the Board of First Busey Corporation since January,
2003. Mr. Scharlau served as Chairman of the Board of Busey Bank from June, 1991, to January,
2003. Mr. Scharlau has been associated with Busey Bank since 1964.
Barbara J. Harrington. Mrs. Harrington, age 46, has served as Chief Financial Officer of First
Busey Corporation since March, 1999. She served as Controller and Senior Vice President of Busey
Bank from December, 1994 to March, 1999. Mrs. Harrington has served in various financial and
accounting positions since joining the organization in December, 1991.
Business Combination
On July 29, 2005, First Busey Corporation acquired all the outstanding common stock of Tarpon Coast
Bancorp, Inc. and its subsidiary Tarpon Coast National Bank a $177 million bank headquartered in
Port Charlotte, Florida. This acquisition expanded the Corporation’s banking presence in southwest
Florida into Charlotte County. The transaction has been accounted for as a purchase and the results
of operations of both entities since the acquisition date have been included in the consolidated
financial statements. The purchase price of approximately $35.9 million was allocated based upon
the fair value of the assets acquired. The excess of the total acquisition cost over the fair value
of the net assets acquired has been allocated to core deposit intangible and goodwill. The core
deposit intangibles of $2.371 million are being amortized over periods ranging from three to ten
years.
On June 1, 2004, First Busey Corporation acquired all the outstanding common stock of First Capital
Bankshares, Inc. and its subsidiary First Capital Bank, a $239 million bank headquartered in
Peoria, Illinois. This acquisition expanded the Corporation’s banking presence in central Illinois
into Peoria and surrounding communities. The transaction has been accounted for as a purchase and
the results of operations of both entities since the acquisition date have been included in the
consolidated financial statements. The purchase price of approximately $42.1 million was allocated
based upon the fair value of the assets required. The excess of the total acquisition cost over
the fair value of the net assets acquired has been allocated to core deposit intangible and
goodwill. The core deposit intangibles of $2.383 million are being amortized over periods ranging
from three to ten years.
Pro forma unaudited operating results for 2005 and 2004, giving effect to the Tarpon Coast Bancorp
and First Capital Bankshares acquisitions as if they had occurred as of January 1, 2004, are
included in Note 2 to the Corporation’s consolidated financial statements.
Securities and Exchange Commission Reporting and Other Information
First
Busey’s web site address is www.busey.com. The Corporation makes available on this web site
its annual report on Form 10-K, its quarterly reports on Form 10-Q, current reports on form 8-K,
and amendments thereto, as reasonably practicable after such reports are filed with the Securities
and Exchange Commission, and in any event, on the same day as such filing with the Securities and
Exchange Commission. Reference to this web site does not constitute incorporation by reference of
the information contained on the web site and should not be considered part of this document.
First Busey Corporation has adopted a code of ethics applicable to our employees, officers, and
directors. The text of this code of ethics may be found under “Investor Relations” on the
Corporation’s website.
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Item 1A. Risk Factors
This section highlights the risks management believes could adversely affect First Busey’s
financial performance. Additional possible risks that could affect the Corporation adversely and
cannot be predicted, may arise at any time. Other risks that are immaterial at this time may also
have an adverse affect on the Corporation’s future financial condition.
A down turn in the economy could have an adverse affect on the Corporation.
The strength of the U.S. economy and the local economies in which we operate may be different than
expected. Our business and earnings are directly affected by general business and economic
conditions in the U.S. and, in particular, economic conditions in Central Illinois and Southwest
Florida. These conditions include legislative and regulatory changes, short-term and long-term
interest rates, inflation, and changes in government monetary and fiscal policies, all of which are
beyond our control. A down turn in economic condition could result in a decrease in products and
services demand, an increase in loan delinquencies, and increases in problem assets and
foreclosures. Real estate pledged as collateral for loans made by us may decline in value, in turn
reducing customers’ borrowing power, and reducing the value of assets and collateral associated
with our existing loans. These factors could lead to reduced interest income and an increase in the
provision for loan losses.
Government regulation can result in limitations on our operations.
We operate in a highly regulated environment and are subject to supervision and regulation by a
number of governmental regulatory agencies. Regulations adopted by these agencies, which are
generally intended to provide protection for depositors and customer rather than for the benefit of
shareholders, govern a comprehensive range of matters relating to ownership and control of our
shares, our acquisition of other companies and businesses, permissible activities for us to engage
in, maintenance of adequate capital levels, and other aspects of our operations. The laws and
regulations applicable to the banking industry could change at any time, and cannot predict the
effect of these changes on our business and profitability. Increased regulation could increase our
cost of compliance and adversely affect profitability.
We must effectively manage our credit risk
There are risks in making any loan, including risks inherent in dealing with individual borrowers,
risks of nonpayment, risks resulting from uncertainties as to the future value of collateral and
risks resulting from changes in economic and industry conditions. We attempt to minimize our
credit risk through prudent loan application approval procedures, careful monitoring of the
concentration of loans within specific industries and geographic location, and periodic independent
reviews of outstanding loans by our loan review and audit departments as well as external auditors.
However, we cannot assure such approval and monitoring procedures will eliminate these credit
risks.
Our allowance for loan losses must be managed to provide sufficient reserves to absorb potential
losses in our loan portfolio.
We established our allowance for loan losses and maintain it at a level considered adequate by
management to absorb probably loan losses based on a continual analysis of our portfolio and market
environment. The amount of loan losses is susceptible to changes in economic, operating, and other
conditions within our market, which may be beyond our control, and such losses may exceed current
estimates. Although management believes that the allowance for loan losses is adequate to absorb
losses on any existing loans that may become uncollectible, we cannot predict loan losses with
certainty, and we cannot assure that our allowance for loan losses will prove sufficient to cover
actual loan losses. Loan losses in excess of our reserves may adversely affect our business,
financial condition, and results of operations.
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A significant portion of the loans in the Corporation’s portfolio is secured by real estate.
A large percentage of the Corporation’s loans are collateralized by real estate. The market value
of real estate can fluctuate significantly in a short period of time as a result of market
conditions in the geographic area in which the real estate is located. Adverse changes affecting
real estate values in one or more of our markets could increase the credit risk associated with our
loan portfolio, and could result in losses which would adversely affect profitability. An adverse
change in the economy affecting real estate values generally and in Central Illinois or Southwest
Florida specifically could significantly impair the value of property pledged as collateral on
loans and affect the Corporation’s ability to sell the collateral upon foreclosure. Collateral may
have to be sold for less than the outstanding balance of the loan which could result in loss. The
Corporation’s profitability could be negatively impacted by an adverse change in the real estate
market.
Construction and development loans are based upon estimates of costs and value associated with the
complete project. These estimates may be inaccurate, and we may be exposed to more losses on these
projects than on other loans.
Construction, land acquisition, and development lending involve additional risks because funds are
advanced upon the security of the project, which is of uncertain value prior to its completion.
Because of the uncertainties inherent in estimating construction costs and market value of the
completed project and the effects of governmental regulation of real property, it is relatively
difficult to evaluate accurately the total funds required to complete a project and the related
loan-to-value ratio. As a result, construction loans often involve the disbursement of substantial
funds with repayment dependent, in part, on the success of the ultimate project and the ability of
the borrower to sell or lease the property, rather than the ability of the borrower or guarantor to
repay principal and interest. If our appraisal of the value of the completed project proves to be
overstated, we may have inadequate security for the repayment of the loan upon completion of
construction of the project. If we are forced to foreclose on a project prior to or at completion
due to a default, there can be no assurance that we will be able to recover all of the unpaid
balance of, and accrued interest on, the loan as well as related foreclosure and holding costs. In
addition, we may be required to fund additional amounts to complete the project and may have to
hold the property for an unspecified period of time. We have attempted to address these risks
through our underwriting procedures, compliance with applicable regulations, and by limiting the
amount of construction development lending.
Changes in interest rates could have an adverse affect on the Corporation’s income.
First Busey’s earnings and profitability depend significantly on its net interest income. Net
interest income represents the difference between interest income and fees earned on
interest-earning assets and interest expense incurred on interest-bearing liabilities. In the event
that interest paid on deposits and borrowings increases faster than the interest earned on loans
and investments, there may be a negative impact on the Corporation’s net interest income. Changes
in interest rates could also adversely affect the income of certain components of the Corporation’s
noninterest income, as well as the Corporation’s cost to borrow funds. An increase in interest
rates may also affect the customer’s ability to pay, which could in turn increase loan losses. In
addition, higher interest rates could also increase the Corporation’s cost to borrow funds. The
Corporation is unable to predict or control fluctuations in market interest rates which are
affected by the economy.
The Corporation relies heavily on information systems to service customers.
An interruption in or breach in security of the Corporation’s information systems may result in a
loss of customer business and reduced earnings. The Corporation fully utilizes and relies heavily
on communications and information systems in every aspect of our business. Any failure of these
systems could result in disruptions in the Corporation’s customer service management, management
information, deposit, loan, or other systems. While the Corporation has procedures in place to
prevent or limit the effects of a failure, interruption, or security breach of its information
systems, there can be no guarantee that any such failures, interruptions or security breaches will
not occur or, if they do occur, that they will be adequately addressed. The occurrence of any
failures, interruptions or security breaches of the Corporation’s information systems could damage
the Corporation’s reputation, result in a loss of customer business, subject the Corporation to
additional regulatory scrutiny, or expose the Corporation to civil litigation and
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possible
financial liability, any of which could have an adverse effect on the Corporation’s financial
condition and results of operation.
Ability to attract and retain management and key personnel may affect future growth and earnings.
Much of the Corporation’s success to date has been influenced strongly by our ability to attract
and retain management experienced in banking and financial services and familiar with the
communities in our market areas. Our ability to retain executive officers, the current management
teams, lending and retail banking officers, and administrative staff of our subsidiaries will
continue to be important to the successful implementation of our strategy. It is also critical, as
we grow, to be able to attract and retain qualified additional staff with the appropriate level of
experience and knowledge about our market areas to implement our community-based operating
strategy. The unexpected loss of services of any key personnel, or the inability to recruit and
retain qualified personnel in the future, could have an adverse effect on our business, financial
condition, and results of operation.
Weather may adversely impact the Corporation.
Central Illinois is a highly agricultural area and therefore the economy can be greatly affected by
weather conditions. Favorable weather conditions increase the agriculture productivity and boost
the economy while unfavorable weather conditions may decrease productivity adversely affecting the
local economy. First Busey conducts a significant portion of its business in Central Illinois. As
stated above an adverse affect on the economy of Central Illinois could negatively affect the
Corporation’s profitability.
The Southwest coast of Florida is at risk of hurricanes each year which may cause damage to the
Corporation’s assets. Hurricane damage could adversely affect the Corporation’s financial condition
in a number of ways. Damage caused to a branch location could result in temporary closure and
inconvenience to customers which could result in loss of customers and business. A hurricane could
also affect the local economy and impact customers’ ability to meet loan repayment terms and
adversely affect the Corporation’s financial condition. Hurricane damage could significantly
reduce value of collateral pledged as security against loans made by the Corporation.
Growth and its impact on the infrastructure of the Corporation.
First Busey’s continued pace of growth may require it to raise additional capital in the future.
The Corporation is required by federal and state regulations to maintain adequate levels of capital
to support operations. As operations grow, the amount of capital required will increase. The
Corporation may also be required to raise capital to support future acquisitions. The Corporation’s
ability to raise capital will depend on conditions in the capital markets, which are outside of its
control, and on the Corporation’s financial performance. If additional capital cannot be raised
when needed, the Corporation could be subject to restricted growth which could negatively impact
expansion through future acquisitions.
First Busey has grown by strategically acquiring other banks and branch locations. The Corporation
plans to continue to pursue acquisitions in order to further supplement growth. Acquisitions
commonly involve potential risks such as exposure to unknown or contingent liabilities of the
acquired bank, exposure to asset quality issues of the acquired bank, a potential diversion of
management’s time and attention, and a short-term decrease in profitability which could negatively
impact stock prices. The integration could result in the loss of key employees and customers of the
acquired bank, and a possible disruption of business. The impact of these factors may keep the
Corporation from realizing all of the anticipated benefits of the acquisition.
Item 1B. Unresolved Staff Comments
None. The Corporation has not received written comments from the Commission during the 180 days
preceding the end of the fiscal year to which this annual report pertains.
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Item 2. Properties
The location and general character of the materially important physical properties of First Busey
and its subsidiaries are as follows: First Busey, where corporate management and administration
operate, is headquartered at 201 West Main Street, Urbana, Illinois. Busey Bank has properties
located at 201 West Main Street, Urbana, Illinois, 909 West Kirby Avenue, Champaign, Illinois, 301
Fairway Drive, Bloomington, Illinois, and 6699 Sheridan Road, Peoria, Illinois. These facilities
offer commercial banking services, including commercial, financial, agricultural and real estate
loans, and retail banking services, including accepting customary types of demand and savings
deposits, making individual, consumer, installment, first mortgage and second mortgage loans.
Busey Bank N.A., located at 1490 Tamiami Trail, Port Charlotte, Florida, offers services similar to
those offered by Busey Bank. Busey Investment Group, Inc., located at 502 West Windsor Road,
Champaign, Illinois, through its subsidiaries, provides a full range of trust and investment
management services, execution of securities transactions as a full-service broker/dealer and
provides individual investment advice on equity and other securities as well as insurance agency
services.
First Busey and its subsidiaries own or lease all of the real property and/or buildings on which
each respective entity is located.
Item 3. Legal Proceedings
As part of the ordinary course of business, First Busey and its subsidiaries are parties to
litigation that is incidental to their regular business activities.
There is no material pending litigation in which First Busey or any of its subsidiaries is involved
or of which any of their property is the subject. Furthermore, there is no pending legal
proceeding that is adverse to First Busey in which any director, officer or affiliate of First
Busey, or any associate of any such director or officer, is a party, or has a material interest.
Item 4. Submission Of Matters To A Vote Of Security Holders
There were no matters submitted to a vote of security holders during the quarter ended December 31,
2005.
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Part II
| Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
The following table presents for the periods indicated the high and low closing price for First
Busey common stock as reported on The Nasdaq Stock Market.
| 2005 | 2004 | |||||||||||||||
| Market Prices of Common Stock | High | Low | High | Low | ||||||||||||
First Quarter |
$ | 21.17 | $ | 18.87 | $ | 18.67 | $ | 17.83 | ||||||||
Second Quarter |
$ | 20.02 | $ | 18.24 | $ | 19.60 | $ | 17.97 | ||||||||
Third Quarter |
$ | 20.50 | $ | 18.50 | $ | 20.00 | $ | 18.50 | ||||||||
Fourth Quarter |
$ | 21.25 | $ | 18.03 | $ | 21.53 | $ | 18.28 | ||||||||
During 2005 and 2004, First Busey declared cash dividends per share of common stock as follows:
| Common Stock | ||||
2005 |
||||
January |
$ | .1400 | ||
April |
$ | .1400 | ||
July |
$ | .1400 | ||
October |
$ | .1400 | ||
2004 |
||||
January |
$ | .1267 | ||
April |
$ | .1267 | ||
July |
$ | .1267 | ||
October |
$ | .1300 | ||
For a discussion of restrictions on dividends, please see the discussion of dividend restrictions
under Item 1. Business, Supervision, Regulation and Other Factors, Dividends on pages 5 – 6.
As of March 1, 2006, First Busey Corporation had approximately 970 holders of common stock.
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The following table presents for the periods indicated a summary of the purchases made by or on
behalf of First Busey Corporation of shares of its common stock.
| Total | Maximum | |||||||||||||||
| Number of | Number of | |||||||||||||||
| Shares | Shares | |||||||||||||||
| Purchased | that May | |||||||||||||||
| as Part of | Yet Be | |||||||||||||||
| Total | Publicly | Purchased | ||||||||||||||
| Number of | Average | Announced | Under the | |||||||||||||
| Shares | Price Paid per | Plans or | Plans or | |||||||||||||
| Purchased | Share | Programs | Programs 1 | |||||||||||||
January 1 – 31, 2005 |
25,000 | $ | 20.93 | 25,000 | 735,889 | |||||||||||
February 1 – 28, 2005 |
20,000 | 20.81 | 20,000 | 715,889 | ||||||||||||
March 1 – 31, 2005 |
40,000 | 20.75 | 40,000 | 675,889 | ||||||||||||
April 1 – 30, 2005 |
15,000 | 19.75 | 15,000 | 660,889 | ||||||||||||
May 1 – 31, 2005 |
— | — | — | 660,889 | ||||||||||||
June 1 – 30, 2005 |
— | — | — | 660,889 | ||||||||||||
July 1 – 31, 2005 |
3,340 | 19.76 | 3,340 | 657,549 | ||||||||||||
August 1 – 31, 2005 |
— | — | — | 657,549 | ||||||||||||
September 1 – 30, 2005 |
— | — | — | 657,549 | ||||||||||||
October 1 – 31, 2005 |
10,359 | 20.58 | 10,359 | 647,190 | ||||||||||||
November 1 – 30, 2005 |
33,235 | 20.60 | 33,235 | 613,955 | ||||||||||||
December 1 – 31, 2005 |
10,000 | 20.61 | 10,000 | 603,955 | ||||||||||||
Total |
156,934 | $ | 20.61 | 156,934 | ||||||||||||
| 1 | First Busey Corporation’s board of directors approved a stock purchase plan on February 17, 2004, for the repurchase of up to an additional 750,000 shares of common stock. The Corporation’s 2004 repurchase plan has no expiration date. |
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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,
2005, have been derived from First Busey’s audited consolidated financial statements and the
results of operations for each of the three years in the period ended December 31, 2005, which
appear elsewhere in this report. This financial data should be read in conjunction with the
financial statements and the related notes thereto appearing in this annual report.
| 2005(6) | 2004(6) | 2003 | 2002 | 2001 | ||||||||||||||||
| (dollars in thousands, except per share data) | ||||||||||||||||||||
Balance Sheet Items |
||||||||||||||||||||
Securities available for sale |
$ | 331,237 | $ | 352,256 | $ | 224,733 | $ | 233,830 | $ | 210,869 | ||||||||||
Loans |
1,749,162 | 1,475,900 | 1,192,396 | 1,101,043 | 978,106 | |||||||||||||||
Allowance for loan losses |
23,190 | 19,217 | 16,228 | 15,460 | 13,688 | |||||||||||||||
Total assets |
2,263,422 | 1,964,441 | 1,522,084 | 1,435,578 | 1,300,689 | |||||||||||||||
Total deposits |
1,809,399 | 1,558,822 | 1,256,595 | 1,213,605 | 1,105,999 | |||||||||||||||
Long-term debt |
169,883 | 165,374 | 92,853 | 71,759 | 47,021 | |||||||||||||||
Junior subordinated debt owed to
unconsolidated trusts |
50,000 | 40,000 | 25,000 | 25,000 | 25,000 | |||||||||||||||
Stockholders’ equity |
169,714 | 138,872 | 125,177 | 115,163 | 105,790 | |||||||||||||||
Results of Operations |
||||||||||||||||||||
Interest and dividend income |
$ | 116,304 | $ | 85,919 | $ | 73,849 | $ | 76,085 | $ | 89,985 | ||||||||||
Interest expense |
45,342 | 30,041 | 25,618 | 30,494 | 46,435 | |||||||||||||||
Net interest income |
70,962 | 55,878 | 48,231 | 45,591 | 43,550 | |||||||||||||||
Provision for loan losses |
3,490 | 2,905 | 3,058 | 3,125 | 2,020 | |||||||||||||||
Net income(1) |
26,934 | 22,454 | 19,864 | 17,904 | 15,653 | |||||||||||||||
Per Share Data(2) |
||||||||||||||||||||
Diluted earnings |
$ | 1.29 | $ | 1.09 | $ | 0.97 | $ | 0.87 | $ | 0.77 | ||||||||||
Cash dividends |
0.56 | 0.51 | 0.45 | 0.40 | 0.35 | |||||||||||||||
Book value(3) |
7.89 | 6.74 | 6.10 | 5.66 | 5.16 | |||||||||||||||
Closing price |
20.89 | 20.87 | 18.00 | 15.37 | 14.32 | |||||||||||||||
Other Information |
||||||||||||||||||||
Return on average assets |
1.28 | % | 1.28 | % | 1.35 | % | 1.33 | % | 1.19 | % | ||||||||||
Return on average equity |
17.97 | % | 17.23 | % | 16.34 | % | 16.31 | % | 15.80 | % | ||||||||||
Net interest margin (4) |
3.72 | % | 3.49 | % | 3.60 | % | 3.74 | % | 3.64 | % | ||||||||||
Equity to assets ratio(5) |
7.13 | % | 7.42 | % | 8.28 | % | 8.18 | % | 7.55 | % | ||||||||||
Dividend payout ratio |
42.93 | % | 46.24 | % | 46.39 | % | 45.39 | % | 44.76 | % | ||||||||||
| (1) | Effective January 1, 2002, First Busey adopted Statement of Financial Accounting Standards (SFAS) No. 142 “Goodwill and Other Intangible Assets”. SFAS No. 142 changed the accounting for goodwill from a model that required amortization of goodwill, supplemented by impairment tests, to an accounting model that is based solely upon impairment tests. | |
| (2) | Per share data have been retroactively adjusted to effect a three-for-two common stock split effective August 3, 2004, as if it had occurred on January 1, 2001. | |
| (3) | Total capital divided by shares outstanding as of period end. | |
| (4) | Calculated as a percent of average earning assets. | |
| (5) | Average equity divided by average total assets | |
| (6) | First Busey acquired First Capital Bank on June 1, 2004, and Tarpon Coast National Bank on July 29, 2005. Results of operations for these institutions from acquisition date are included in the consolidated results of operations. |
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Table of Contents
A reconciliation of First Busey’s Consolidated Statements of Income for each of the five years
ending December 31, 2005, from amounts reported to amounts exclusive of goodwill amortization is
shown below:
Financial Accounting Standards No. 142 Disclosure
| 2005 | 2004 | 2003 | 2002 | 2001 | ||||||||||||||||
| (dollars in thousands except per share data) | ||||||||||||||||||||
Net income as reported |
$ | 26,934 | $ | 22,454 | $ | 19,864 | $ | 17,904 | $ | 15,653 | ||||||||||
Goodwill amortization, after tax |
— | — | — | — | 651 | |||||||||||||||
Net income as adjusted |
$ | 26,934 | $ | 22,454 | $ | 19,864 | $ | 17,904 | $ | 16,304 | ||||||||||
Diluted earnings per share of common stock: |
||||||||||||||||||||
As reported |
$ | 1.29 | $ | 1.09 | $ | 0.97 | $ | 0.87 | $ | 0.77 | ||||||||||
Goodwill amortization |
— | — | — | — | 0.03 | |||||||||||||||
Earnings per share as adjusted |
$ | 1.29 | $ | 1.09 | $ | 0.97 | $ | 0.87 | $ | 0.80 | ||||||||||
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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 for the years ended December 31, 2005, 2004,
and 2003. 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.
Critical Accounting Estimates
Critical accounting estimates are those that are critical to the portrayal and understanding of the
Corporation’s financial condition and results of operations and require management to make
assumptions that are difficult, subjective or complex. These estimates involve judgments,
estimates and uncertainties that are susceptible to change. In the event that different
assumptions or conditions were to prevail, and depending on the severity of such changes, the
possibility of materially different financial condition or results of operations is a reasonable
likelihood.
First Busey’s significant accounting policies are described in Note 1 in the Notes to the
Consolidated Financial Statements. The majority of these accounting policies do not require
management to make difficult, subjective or complex judgments or estimates or the variability of
the estimates is not material. However, the following policies could be deemed critical.
Evaluation of Securities for Impairment
Securities are classified as held-to-maturity when the Corporation has the ability and management
has the positive intent to hold those securities to maturity. Accordingly, they are stated at cost
adjusted for amortization of premiums and accretion of discounts. Securities are classified as
available-for-sale when the Corporation may decide to sell those securities due to changes in
market interest rates, liquidity needs, changes in yields on alternative investments, and for other
reasons. They are carried at fair value with unrealized gains and losses, net of taxes, reported
in other comprehensive income (loss). Interest income is reported net of amortization of premium
and accretion of discount. Realized gains and losses on the disposition of securities
available-for-sale are based on the net proceeds and the adjusted carrying amounts of the
securities sold, using the specific identification method. Declines in the fair value of
held-to-maturity and available-for-sale securities below their historical cost that are deemed to
be other-than-temporary are reflected in earnings as realized losses. In estimating
other-than-temporary losses, management considers (1) the length of time and extent to which the
fair value has been less than cost, (2) the financial condition and near-term prospects of the
issuer, and (3) the intent and ability of the Corporation to retain its investment in the issuer
for a period of time sufficient to allow for any anticipated recovery in fair value. The
evaluation also considers the impact that impairment may have on future capital, earnings, and
liquidity.
Allowance for Loan Losses
First Busey Corporation has established an allowance for loan losses which represents the
Corporation’s estimate of the probable losses that have occurred as of the date of the financial
statements. 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.
To determine the adequacy of the allowance for loan losses, a formal analysis is completed
quarterly to assess the risk within the loan portfolio. This assessment is conducted by senior
officers who are members of the holding company’s independent holding company credit review and
risk management department, and is reviewed by senior management of the banks and holding company.
The analysis includes review of historical performance, dollar amount and trends of past due loans,
dollar amount and trends in nonperforming loans, reviews of certain impaired loans, and review of
loans identified as sensitive assets. Sensitive assets include nonaccrual loans, past-due loans,
loans on First Busey Corporation’s watch loan reports and other loans identified as having more
than reasonable potential for loss.
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Table of Contents
The allowance for loan losses consists of two components: the allocated and unallocated
allowances. Both components of the allowance are available to cover inherent losses in the
portfolio. The allocated component of the
allowance is determined by type of loan within the commercial, mortgage, and retail portfolios.
The allocated allowance includes specific reserves for those loans that have been identified as
impaired. The allowance also includes an allowance for non-impaired commercial loans which is
based on application of loss reserve factors to the components of the portfolio based on loan
grades. The allocated allowance for mortgage and retail loans is determined on pools of
homogeneous loan groups. Loss factors applied to these pools are based on historical loss
experience, geographic mix, current delinquency trends, and other factors. The unallocated
component of the allowance is established for losses that specifically exist in the remainder of
the portfolio, but have yet to be identified. The unallocated component of the allowance is based
upon management’s evaluation of various conditions, the effects of which are not directly
considered in the allocated allowance. These conditions include credit concentrations, recent
levels and trends in delinquencies and nonaccrual loans, new credit products, changes in lending
policies and procedures, changes in personnel and regional and local economic conditions.
A loan is considered to be impaired when, based on current information and events, it is probable
the Corporation will not be able to collect all principal and interest amounts due according to the
contractual terms of the loan agreement. When a loan becomes impaired, management calculates the
impairment based on the present value of expected future cash flows discounted at the loan’s
effective interest rate. If the loan is collateral dependent, the fair value of the collateral is
used to measure the amount of impairment. The amount of impairment and any subsequent changes are
recorded through a charge to earnings as an adjustment to the allowance for loan losses. When
management considers a loan, or a portion thereof, as uncollectible, it is charged against the
allowance for loan losses. Because a significant majority of the Corporation’s loans are
collateral dependent, First Busey has determined the required allowance on these loans based upon
the estimated fair value, net of selling costs, of the respective collateral. The required
allowance or actual losses on these impaired loans could differ significantly if the ultimate fair
value of the collateral is significantly different from the fair value estimates used by First
Busey in estimating such potential losses.
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.
Revenue Recognition
Income on interest-earning assets is accrued based on the effective yield of the underlying
financial instruments. A loan is considered to be 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.
Fair Value of Financial Instruments and Derivatives
Fair value of financial instruments, including derivatives, are estimated using relevant market
information and other assumptions. Fair value estimates involve uncertainties and matters of
significant judgment regarding interest rates, credit risk, prepayments, and other factors,
especially in the absence of broad markets for the particular items. There is no ready market for
a significant portion of the Corporation’s financial instruments. Accordingly, fair values are
based on various factors relative to expected loss experience, current economic conditions, risk
characteristics, and other factors. The assumptions and estimates used in the fair value
determination process are subjective in nature and involve uncertainties and significant judgment.
As a consequence, fair values cannot be determined with precision. Changes in assumptions or in
market conditions could significantly affect these estimates.
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Table of Contents
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 thirteen 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; acquired a thrift holding company and federal savings
and loan; formed a trust company subsidiary; formed an insurance agency subsidiary; formed and
liquidated a non-bank ATM subsidiary and acquired and liquidated a travel agency. The following
table illustrates the amounts of net income contributed by each direct subsidiary since January 1,
2003.
| Subsidiary | Acquired | 2005 | 2004 | 2003 | ||||||||||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||||||||||
Busey Bank 1 |
3/20/1980 | $ | 24,985 | 81.1 | % | $ | 20,683 | 83.3 | % | $ | 19,758 | 90.9 | % | |||||||||||||||
Busey Bank Florida2 |
10/29/1999 | 3,302 | 10.7 | % | 1,573 | 6.3 | % | 287 | 1.3 | % | ||||||||||||||||||
First Capital Bank3, 4 |
6/1/2004 | — | — | 1,170 | 4.7 | % | — | — | ||||||||||||||||||||
Tarpon Coast National Bank5 |
7/29/2005 | 469 | 1.5 | % | — | — | — | — | ||||||||||||||||||||
Busey Investment Group, Inc.6 |
— | 2,141 | 6.9 | % | 1,989 | 8.0 | % | 1,620 | 7.5 | % | ||||||||||||||||||
First Busey Resources, Inc.7 |
— | (78 | ) | -0.2 | % | (565 | ) | -2.3 | % | 72 | 0.3 | % | ||||||||||||||||
Total |
$ | 30,819 | 100.0 | % | $ | 24,850 | 100.0 | % | $ | 21,737 | 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 | Acquired as a subsidiary of Eagle BancGroup, Inc. as of October 29, 1999. | |
| 3 | Acquired as a subsidiary of First Capital Bankshares Inc., as of June 1, 2004. | |
| 4 | Merged into Busey Bank on May 20, 2005. | |
| 5 | Acquired as a subsidiary of Tarpon Coast Bancorp on July 29, 2005. | |
| 6 | Formed as a subsidiary of First Busey Corporation on March 18, 1999. | |
| 7 | 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 and subsidiary balance sheets were transferred to subsidiary as of that date. |
Busey Bank and Busey Bank Florida are the only subsidiaries that have contributed at least 10% of
the Corporation’s consolidated net income in at least one of the last three years.
19
Table of Contents
Executive Summary
First Busey Corporation proved to be another record year for First Busey Corporation earnings. The
Corporation recognized net income of $26,934,000 or $1.29 per share on a fully-diluted basis. This
growth is due largely to growth in net interest income combined with modest growth in operating
expenses. Balance sheet growth combined with relatively higher interest rates contributed to the
growth in net interest income. Operating expenses were higher in 2005 than in prior years, due
primarily to the June, 2004, acquisition of First Capital Bank and the July, 2005, acquisition of
Tarpon Coast National Bank.
In September, 2003, upon completion of foreclosure proceedings, Busey Bank became owner of a hotel
property in Bloomington, IL. The hotel property has been included in First Busey Corporation’s
inventory of other real estate owned since June, 2002, when Busey Bank became mortgagee in
possession of the property. In September, 2005, the property was sold for $3,157,000,
significantly reducing the Corporation’s inventory of other real estate owned. The carrying value
of this hotel property, included in other real estate owned, was $3,115,000 when it was sold in
September, 2005, and $3,247,000 as of December 31, 2004.
Consistent with First Busey’s business plan to expand beyond its primary market in Central
Illinois, in February, 2005, First Busey announced that it had entered into an agreement to
purchase Tarpon Coast Bankshares, Inc. and its subsidiary bank, Tarpon Coast National Bank. On
July 29, 2005, First Busey closed on this transaction, which expanded First Busey’s presence along
the Gulf Coast of Southwest Florida. Tarpon Coast National Bank was a bank founded in 1998 by
local business people in Port Charlotte, Florida. Over that period, Tarpon Coast National Bank
expanded to four branch locations: two branches in the Charlotte County communities of Port
Charlotte and Punta Gorda and two branches in the Sarasota County communities of Englewood and
North Port.
First Busey also operated Busey Bank Florida, which is based in Fort Myers, Florida, and has two
branch locations in Cape Coral, Florida. First Busey operated the two Florida banks separately
until the close of business on February 17, 2006, when Busey Bank Florida merged into Tarpon Coast
National Bank, forming Busey Bank, National Association (“Busey Bank, N.A.”). Following this
merger, Busey Bank, N.A. had total assets of $422 million, total loans of $352 million and total
deposits of $339 million. While branches in Fort Myers and Cape Coral converted to the name Busey
Bank, N.A. in February, 2006, branches in Charlotte and Sarasota Counties will continue to operate
under the Tarpon Coast National Bank name due to strong brand recognition in those markets.
First Busey has experienced significant loan growth over the past two years due in part to the
June, 2004, acquisition of First Capital Bank in Peoria, Illinois, and the July, 2005, acquisition
of Tarpon Coast National Bank along with growth in its seasoned central Illinois and Southwest
Florida markets. Despite this significant growth, the Corporation’s credit quality has remained
strong. During 2005 First Busey charged off $940,000 in loans and recovered $215,000 on loans
charged off in prior years, resulting in net charge-offs of $725,000. This is a strong improvement
from $1,985,000, which is the net amount charged off in 2004. Of the items charged off in 2004,
$1,400,000 is related to one large credit in the commercial construction industry.
First Busey plans continued bank expansion in 2006 through the addition of several new branch
locations. Busey Bank is expanding its presence in the Bloomington-Normal market of McLean County
in Illinois by constructing a new branch location in Normal. This 3,500 square foot facility has
been designed to service retail customer transactions efficiently in a customer-friendly
environment. This branch facility is scheduled to open in April, 2006.
Busey Bank, N.A. also has plans to expand its branch network during 2006. A 14,000 square-foot
two-story branch building is under construction in Cape Coral. The Cape Coral branch will be a
full-service banking center featuring mortgage, commercial, and retail lending products. The bank
does not intend to initially occupy the entire building, but will lease out unused space on the
second floor until needed for expansion purposes. Management estimates this branch will open no
later than the third quarter of 2006. Busey Bank, N.A., has also purchased an existing 2,300
square-foot building in Fort Myers, Florida which will be remodeled and open for banking services
by June 30, 2006. This smaller branch location will focus on retail customer transactions.
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Results of Operations – Three Years Ended December 31, 2005
Summary
First Busey Corporation reported net income of $26,934,000 in 2005, up 20.0% from $22,454,000 in
2004, which itself represented an increase of 13.0% from $19,864,000 in 2003. Diluted earnings per
share in 2005 increased 18.3% to $1.29 from $1.09 in 2004, which was a 12.4% increase from $0.97 in
2003. The main factors contributing to the increase in net income during 2005 were growth in the
consolidated net interest margin and continued growth in Southwest Florida.
Security losses after the related tax benefits were $33,000 or 0.1% of net income in 2005, $827,000
or 3.7% of net income in 2004, and $588,000 or 3.0% of net income in 2003. Busey Bank owns a
position in a bank-qualified equity security with substantial appreciated value. The Bank’s Board
has authorized the orderly liquidation of this security over an extended time period.
The Corporation’s return on average assets was 1.28%, 1.28% and 1.35% for 2005, 2004, and 2003,
respectively, and return on average equity was 17.97%, 17.23%, and 16.34% for 2005, 2004, and 2003,
respectively.
Earning Assets, Sources of Funds, and Net Interest Margin
Average earning assets increased $311,660,000 or 19.0% to $1,951,864,000 in 2005 as compared to
$1,640,204,000 in 2004. This growth is due primarily to growth in the average balance of loans,
U.S. Treasury and agency securities, and obligations of states and political subdivisions.
Interest-bearing liabilities averaged $1,717,056,000 for the year ended December 31, 2005, an
increase of $275,606,000 or 19.1% from the average balance of $1,441,450,000 for 2004. With the
exception of other short-term borrowings, the Corporation experienced growth in all categories of
interest-bearing liabilities. The July, 2005, addition of Tarpon Coast National Bank and June,
2004, addition of First Capital Bank contributed to this average balance sheet growth. The
Corporation also experienced growth from its other two bank subsidiaries, Busey Bank and Busey Bank
Florida.
Interest income, on a fully taxable equivalent basis increased $30,704,000 or 35.2% to $117,930,000
in 2005 from $87,226,000, which was an increase of $12,117,000 or 16.1% from the $75,109,000 in
interest income earned in 2003. Interest income grew in 2005 primarily due to growth in the
average balance of outstanding loans, U.S. Treasuries and agencies, and obligations of state and
political subdivisions. Increased yields, primarily on outstanding loan balances and U.S.
Treasuries and Agencies, also was a major factor contributing to the increase in interest income.
The Corporation’s yield on average earning assets was 6.04% in 2005 compared to 5.32% in 2004 and
5.46% in 2003.
Interest expense increased during 2005 by $15,301,000 or 50.9% to $45,342,000 from $30,041,000 in
2004. The increase in interest expense was due primarily to increased deposit rates in response to
increases in interest rates throughout the year. Growth in the average balance of deposits also
was a major factor in the interest expense growth. The average rate paid on interest-bearing
liabilities was 2.64% in 2005 compared to 2.08% in 2004 and 2.16% in 2003.
Net interest income, on a fully taxable equivalent basis, increased 26.9% in 2005 to $72,588,000
from $57,185,000, which reflected a 15.5% increase from $49,491,000 in 2003. Net interest margin,
the Corporation’s net interest income expressed as a percentage of average earning assets stated on
a fully taxable equivalent basis, increased to 3.72% during 2005, from 3.49% in 2004, which had
decreased from 3.60% in 2003. The net interest margin expressed as a percentage of average total
assets, also on a fully taxable equivalent basis, was 3.45% in 2005, compared to 3.25% in 2004, and
3.37% in 2003.
Provision for Loan Losses
The provision for loan losses is a current charge against income and represents an amount which
management believes is sufficient to maintain an adequate allowance for known and probable losses.
In assessing the adequacy of the allowance for loan losses, management considers the size and
quality of the loan portfolio measured against
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prevailing economic conditions, regulatory
guidelines, and historical loan loss experience and credit quality of the
portfolio. When a determination is made by management to charge off a loan balance, such write-off
is charged against the allowance for loan losses.
The Corporation’s provision for loan losses was $3,490,000 during 2005 compared to $2,905,000 in
2004. The increase in provision expense during 2005 is due primarily to increases in
non-performing loans and potential problem loans. Most of this increase in non-accrual loans is
related to two credits which had previously been identified as potential problem loans. The
increase in potential problem loans is due to general growth in the loan portfolio combined with
improved internal tracking and identification systems for such loans. The provision and net
charge-offs of $725,000 resulted in the allowance for loan losses representing 1.33% of total
outstanding loans and 393% of non-performing loans as of December 31, 2005, as compared to the
allowance representing 1.30% of outstanding loans and 524% of non-performing loans as of December
31, 2004.
Sensitive assets include nonaccrual loans, loans on First Busey Corporation’s watch loan reports
and other loans identified as having more than reasonable potential for loss. Management reviews
sensitive assets on at least a quarterly basis for changes in the customers’ ability to pay and
changes in valuation of underlying collateral in order to estimate probable losses. Management
also periodically reviews a watch loan list which is comprised of loans that 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.
Other Income
Other income decreased $253,000 or 1.06% to $23,537,000 in 2005 from $23,790,000 in 2004, which
reflected an increase of 3.6% or $895,000 from $24,685,000 in 2003. The variability in other
income is due primarily to changes in the level of gains on the sale of mortgage loans and gains
and losses recognized on the sale of investment securities. In 2005 the Corporation recognized
gains of $2,571,000 on the sale of $176,241,000 in mortgage loans compared to $2,689,000 on the
sale of $182,368,000 in loans in 2004 and $6,183,000 on the sale of $431,199,000 in loans in 2003.
The interest-rate environment and debt markets have strong influence on the level of mortgage loan
origination and sales volumes.
First Busey Corporation recognized gains of $584,000 and losses of $638,000 for a net loss of
$54,000 on the sale of securities. These losses were recognized in order to reposition the
investment portfolio for better performance under current interest-rate conditions and to
restructure maturities of certain securities to better meet the Corporation’s liquidity needs.
These losses on the sale of securities represented -0.2% of other income during 2005. During the
2004 and 2003, the Corporation recognized net security gains of $1,373,000 and $975,000
respectively.
Additional components of other income were service charge and other fee income, trust fees, and
brokerage commissions. Service charges and other fees totaled $10,213,000 (43.4%), $9,876,000
(41.5%), and $9,155,000 (37.1%) in 2005, 2004, and 2003, respectively. Trust revenues, which are
directly related to the total value of trust assets under care and are thus influenced by changes
in the equity and bond markets, were $5,752,000, $5,339,000, and $4,615,000 in 2005, 2004, and 2003
respectively. Commissions and brokerage fees were $2,327,000 in 2005, compared to $2,335,000 and
$2,103,000 in 2004 and 2003, respectively. Remaining other income increased 25.3% or $550,000 to
$2,728,000 in 2005 from $2,178,000 in 2004 which was an increase of 31.7% or $524,000 from
$1,654,000 in 2003. Other income includes $796,000 on the increase in the cash surrender value of
bank owned life insurance during 2005, compared to $798,000 in 2004 and $727,000 in 2003. There
were several other factors which contributed to the remaining increase in other income. Among
these are growth in the operating revenue from brokerage services, revenue from the sale of the
Corporation’s insurance customer list, increased gains on the sale of other real estate owned, and
the addition of loan referral fees generated by Tarpon Coast National Bank’s mortgage production
department.
First Busey services loans for the benefit of others. Generally, the Corporation services loans
which have been originated by First Busey staff and then sold to others. The Corporation
recognized net servicing income of $344,000 in 2005, $243,000 in 2004 and net servicing expense of
$612,000 in 2003. During 2003 the Corporation recorded a valuation allowance of $215,000 to the
carrying amount of its mortgage servicing assets as loans in the Corporation’s sold loan portfolio
were prepaying more rapidly than anticipated when the loans were sold. Mortgage servicing asset
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amortization of $1,659,000 and the valuation allowance of $215,000 were recorded as charges against
the servicing income on sold mortgage loans and were included in other operating income. The
balance in the valuation allowance remained at $215,000 on December 31, 2005 and 2004.
Other Expenses
Operating expenses increased 18.6% or $8,030,000 to $51,115,000 from $43,085,000 in 2004, which had
increased by 7.8% or $3,116,000 from $39,969,000 in 2003. As a percentage of total income, other
expenses were 36.6%, 39.3%, and 40.6% in 2005, 2004, and 2003, respectively.
Employee-related expenses, including salaries and wages and employee benefits, increased by 19.6%
or $4,662,000 to $28,488,000 in 2005 from $23,826,000 in 2004, which had increased by $1,512,000
from $22,314,000 in 2003. When expressed as a percentage of average assets, employee-related
expenses were 1.36%, 1.36%, and 1.52% in 2005, 2004, and 2003, respectively. The Corporation had
608, 548, and 503 full-time equivalent employees at December 31, 2005, 2004, and 2003,
respectively. The increase in employee-related expenses in 2005 is related primarily to the July,
2005, acquisition of Tarpon Coast National Bank. The increase in employee-related expenses in 2004
compared to 2003 was due to the addition of associates of First Capital Bank which was partially
offset by reduced commissions and incentive payments to associates involved in the origination,
processing, and sale of mortgage loans held for sale.
Occupancy expense increased 16.7% or $655,000 to $4,576,000 in 2005, from $3,921,000 in 2004 from
$3,158,000 in 2003. Again, these increases are due to the addition of Tarpon Coast National Bank
and First Capital Bank combined with higher real estate taxes, and increased maintenance costs.
Other expenses increased 14.7% or $1,378,000 to $10,766,000 in 2005 from $9,388,000 in 2004, which
had increased 6.4% or $567,000 from $8,821,000 in 2003. The increase in other operating expenses
in both 2005 and 2004 is due primarily to the acquisitions previously discussed. Lower expenses
associated with owning and operating the banks’ inventory of other real estate owned (“ORE
expense”) partially offset the increase associated with these acquisitions in 2005.
In June, 2002, Busey Bank became mortgagee in possession of a hotel property located in
Bloomington, Illinois. Busey Bank took title to the property in September, 2003, upon completion
of foreclosure proceedings. The Bank operated this property through its wholly-owned subsidiary,
BAT, Inc., from June, 2002, through December 31, 2003. The hotel property was transferred from
Busey Bank to First Busey Resources, Inc., in December, 2003, where it remained classified as ORE
until it was sold in September, 2005. Other expenses for the year ended December 31, 2005,
included net ORE expenses of $181,000. Other expenses for the year ended December 31, 2004,
included valuation adjustments of $700,000 and net ORE expenses of $139,000 associated with
operating this repossessed asset. For the year ended December 31, 2003, other expenses included
valuations adjustments of $931,000 and net ORE expenses of $269,000 associated with this asset.
Income Taxes
Income tax expense in 2005 was $12,960,000 as compared to $11,224,000 in 2004 and $10,025,000 in
2003. The provision for income taxes as a percent of income before income taxes was 32.5%, 33.3%
and 33.5% for 2005, 2004, and 2003, respectively.
Balance Sheet – December 31, 2005 and December 31, 2004
Total assets on December 31, 2005, were $2,263,422,000, an increase of 15.2% or $298,981,000 from
$1,964,441,000 on December 31, 2004. Of the increase in total assets, 177,046,000 is attributable
to the acquisition of Tarpon Coast National Bank. Remaining growth in total assets was split
between Busey Bank and Busey Bank Florida. Securities available for sale declined $21,019,000 or
6.0% to $331,237,000 at December 31, 2005 from $352,256,000 at December 31, 2004. Proceeds from
the maturities and sales of securities were used to partially fund loan growth Total loans, net
of unearned interest, increased 18.5% or $273,262,000 to $1,749,162,000 on December 31, 2005, as
compared to $1,475,900,000 on December 31, 2004. Of this increase $128,107,000 is
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attributable to
the addition of Tarpon Coast National Bank. Busey Bank generated net loan growth of $81,043,000
and Busey Bank Florida generated net loan growth $63,549,000 during 2005.
Total deposits increased 16.1% or $250,577,000 to $1,809,399,000 on December 31, 2005, as
compared to $1,558,822,000 on December 31, 2004. Non-interest bearing deposits increased 24.0% or
$51,249,000 during 2005.
Interest-bearing deposits increased 14.8% or $199,328,000 during 2005. At December 31, 2005,
Tarpon Coast National Bank had $117,113,000 in outstanding deposits, $38,287,000 of which was
non-interest bearing.
Total stockholders’ equity increased 22.2% or $30,842,000 to $169,714,000 on December 31, 2005, as
compared to $138,872,000 on December 31, 2004. The growth in total equity was due primarily to the
issuance of 849,365 shares for the purchase of Tarpon Coast Bancorp, Inc. combined with $15,370,000
in current year earnings retained in the Corporation. These increases were partially offset by the
decline in net unrealized gains on securities available for sale combined with the increase in
treasury stock. Treasury shares will be used in future years as participants exercise outstanding
options under the Corporation’s stock option plan which is discussed in Note 16 of the
Corporation’s consolidated financial statements.
A. Earning Assets
The average interest-earning assets of the Corporation were 92.9%, 93.4%, and 93.7% of average
total assets for the years ended December 31, 2005, 2004, and 2003 respectively.
B. 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, 2005, the fair value of these securities was $331,237,000 and the
amortized cost was $319,151,000. There were $14,680,000 of gross unrealized gains and $2,594,000
of gross unrealized losses for a net unrealized gain of $12,086,000. The after-tax effect of
$7,282,000 of this unrealized gain has been included in stockholders’ equity. The decrease in
market value for the debt securities in this classification was a result of increasing interest
rates.
The composition of securities available for sale is as follows:
| As of December 31, | ||||||||||||||||||||
| 2005 | 2004 | 2003 | 2002 | 2001 | ||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||
U.S. Treasury securities and obligations of
U.S. government corporations and
Agencies |
$ | 202,924 | $ | 249,150 | $ | 150,898 | $ | 158,324 | $ | 143,490 | ||||||||||
Obligations of states and political
subdivisions |
82,057 | 51,768 | 48,235 | 51,434 | 43,767 | |||||||||||||||
Mortgage-backed securities |
16,837 | 23,170 | — | — | — | |||||||||||||||
Corporate debt securities |
2,926 | 2,220 | 4,265 | 3,746 | 5,554 | |||||||||||||||
Mutual funds and other equity securities |
26,493 | 25,948 | 21,335 | 20,326 | 18,058 | |||||||||||||||
Fair value of securities available for sale |
$ | 331,237 | $ | 352,256 | $ | 224,733 | $ | 233,830 | $ | 210,869 | ||||||||||
Amortized cost |
$ | 319,151 | $ | 337,037 | $ | 209,482 | $ | 216,801 | $ | 197,398 | ||||||||||
Fair value as a percentage of amortized cost |
103.79 | % | 104.52 | % | 107.28 | % | 107.85 | % | 106.82 | % | ||||||||||
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The maturities, fair values and weighted average yields of debt securities available for sale as of
December 31, 2005 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 | ||||||||||||||||||||||||||||||
| Weighted | Weighted | Weighted | Weighted | |||||||||||||||||||||||||||||
| Fair | Average | Fair | Average | Fair | Average | Fair | Average | |||||||||||||||||||||||||
| Investment Securities1 | Value | Yield | Value | Yield | Value | Yield | Value | Yield | ||||||||||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||||||||||||||
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies |
$ | 105,552 | 3.28 | % | $ | 96,898 | 4.03 | % | $ | 474 | 2.38 | % | $ | — | 0.00 | % | ||||||||||||||||
Obligations of states and political
subdivisions 2 |
5,974 | 5.41 | % | 27,128 | 6.18 | % | 30,101 | 5.74 | % | 18,854 | 6.08 | % | ||||||||||||||||||||
Mortgage-backed securities |
— | 0.00 | % | 38 | 5.35 | % | 3,673 | 5.03 | % | 13,126 | 5.64 | % | ||||||||||||||||||||
Corporate debt securities |
528 | 6.33 | % | 2,116 | 4.54 | % | 282 | 4.80 | % | — | 0.00 | % | ||||||||||||||||||||
Total |
$ | 112,054 | 3.41 | % | $ | 126,180 | 4.50 | % | $ | 34,530 | 5.61 | % | $ | 31,980 | 5.90 | % | ||||||||||||||||
| 1 | Excludes mutual funds and other equity 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, 2005) |
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 61.3% at December
31, 2005, from 70.7% at December 31, 2004, while obligations of state and political subdivisions
(tax-exempt obligations) as a percentage of total securities increased to 24.8% at December 31,
2005, from 14.7% at December 31, 2004.
Loan Portfolio
Loans, including loans held for sale, before allowance for loan losses, increased 18.5% to
$1,749,162,000 as of December 31, 2005 from $1,475,900,000 at December 31, 2004. A significant
portion of the overall loan growth occurred in non-farm nonresidential mortgages, which increased
30.8% or $106,786,000 to $470,779,000 at December 31, 2005 from $363,993,000 at the end of 2004.
This increase reflects management’s emphasis on commercial loans secured by mortgages.
The Corporation also experienced significant growth in real estate construction loans which grew
46.7% or $109,907,000 to $345,454,000 at December 31, 2005, compared to $235,547,000 at the end of
2004. Of the growth in real estate construction loans, $39,542,000 is attributable to the addition
of Tarpon Coast National Bank. Busey Bank contributed $30,705,000 of this growth through loans
originated out of its Fort Myers loan production office. Most of these loans were made to
developers of commercial and multifamily real estate projects. Busey Bank Florida contributed
$26,378,000 of the growth in real estate construction loans, primarily through its short-term
construction lending program, which was instituted in March, 2003. The lending program was
developed at Busey Bank Florida and was meant to capitalize on the tremendous growth in the
Southwest Florida real estate market. As a result of some concern regarding the accelerated growth
rate of loans made pursuant to this program, the Corporation has terminated activity under the
program. However, management believes the loans provided under such program do not contain
excessive risk and otherwise meet the underwriting standards of Busey Bank Florida. While
management believes growth will continue in real estate construction loans as long as the real
estate market remains strong, particularly in Southwest Florida, management does not expect this
growth rate will be as significant as that recorded over the past two years.
Also, 1-to-4 family residential real estate mortgage loans (not held for sale) increased
$73,865,000, or 16.7%, to $517,185,000 as of December 31, 2005, from $443,320,000 at December 31,
2004. The addition of Tarpon Coast National Bank contributed $45,423,000 of this growth in 1-4
family mortgage loans. Busey Bank Florida is responsible for the additional growth in this
category.
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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 $559,847,000 as of December 31,
2005.
The loan portfolio includes a concentration of loans for commercial real estate amounting to
approximately $575,281,000 and $470,156,000 as of December 31, 2005 and 2004, 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 composition of loans is as follows:
| As of December 31, | ||||||||||||||||||||
| 2005 | 2004 | 2003 | 2002 | 2001 | ||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||
Commercial and financial |
$ | 219,134 | $ | 216,290 | $ | 138,272 | $ | 118,004 | $ | 121,694 | ||||||||||
Agricultural |
23,433 | 25,224 | 22,300 | 22,034 | 21,022 | |||||||||||||||
Real estate-farmland |
10,188 | 11,750 | 11,890 | 13,421 | 14,414 | |||||||||||||||
Real estate-construction |
345,454 | 235,547 | 168,141 | 129,872 | 83,701 | |||||||||||||||
Real estate-mortgage |
1,104,798 | 923,291 | 790,089 | 761,901 | 679,351 | |||||||||||||||
Installment loans to individuals |
46,155 | 63,798 | 61,704 | 55,811 | 57,924 | |||||||||||||||
Loans |
$ | 1,749,162 | $ | 1,475,900 | $ | 1,192,396 | $ | 1,101,043 | $ | 978,106 | ||||||||||
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,
2005
| 1 Year or Less | 1 to 5 Years | Over 5 Years | Total | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
Commercial, financial and agricultural |
$ | 137,205 | $ | 59,101 | $ | 46,261 | $ | 242,567 | ||||||||
Real estate-construction |
211,616 | 89,924 | 43,914 | 345,454 | ||||||||||||
Total |
$ | 348,821 | $ | 149,025 | $ | 90,175 | $ | 588,021 | ||||||||
Interest rate sensitivity of selected loans
Fixed rate |
$ | 154,549 | $ | 50,453 | $ | 27,407 | $ | 232,409 | ||||||||
Adjustable rate |
194,273 | 98,572 | 62,767 | 355,612 | ||||||||||||
Total |
$ | 348,822 | $ | 149,025 | $ | 90,174 | $ | 588,021 | ||||||||
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Allowance
for Loan Losses
The following table shows activity affecting the allowance for loan losses:
| Years ended December 31 | ||||||||||||||||||||
| 2005 | 2004 | 2003 | 2002 | 2001 | ||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||
Average loans outstanding during
period |
$ | 1,604,198 | $ | 1,355,487 | $ | 1,118,667 | $ | 1,015,073 | $ | 961,779 | ||||||||||
Allowance for loan losses: |
||||||||||||||||||||
Balance at beginning of period |
$ | 19,217 | $ | 16,228 | $ | 15,460 | $ | 13,688 | $ | 12,268 | ||||||||||
Loans charged-off: |
||||||||||||||||||||
Commercial, financial and
agricultural |
$ | 152 | $ | 1,782 | $ | 2,123 | $ | 775 | $ | 103 | ||||||||||
Real estate-construction |
— | 48 | — | 76 | — | |||||||||||||||
Real estate-mortgage |
628 | 141 | 172 | 659 | 408 | |||||||||||||||
Installment loans to individuals |
160 | 216 | 220 | 319 | 265 | |||||||||||||||
Total charge-offs |
$ | 940 | $ | 2,187 | $ | 2,515 | $ | 1,829 | $ | 776 | ||||||||||
Recoveries: |
||||||||||||||||||||
Commercial, financial and
agricultural |
$ | 133 | $ | 57 | $ | 69 | $ | 349 | $ | 15 | ||||||||||
Real estate-construction |
— | — | — | — | — | |||||||||||||||
Real estate-mortgage |
7 | 28 | 6 | 26 | 42 | |||||||||||||||
Installment loans to individuals |
75 | 117 | 150 | 101 | 119 | |||||||||||||||
Total recoveries |
$ | 215 | $ | 202 | $ | 225 | $ | 476 | $ | 176 | ||||||||||
Net loans charged-off |
$ | 725 | $ | 1,985 | $ | 2,290 | $ | 1,353 | $ | 600 | ||||||||||
Provision for loan losses |
$ | 3,490 | $ | 2,905 | $ | 3,058 | $ | 3,125 | $ | 2,020 | ||||||||||
Net additions due to acquisition |
$ | 1,208 | $ | 2,069 | $ | — | $ | — | $ | — | ||||||||||
Balance at end of period |
$ | 23,190 | $ | 19,217 | $ | 16,228 | $ | 15,460 | $ | 13,688 | ||||||||||
Ratios: |
||||||||||||||||||||
Net charge-offs to average loans |
0.05 | % | 0.15 | % | 0.20 | % | 0.13 | % | 0.06 | % | ||||||||||
Allowance for loan losses to
total loans
at period end |
1.33 | % | 1.30 | % | 1.36 | % | 1.40 | % | 1.40 | % | ||||||||||
The following table sets forth the allowance for loan losses by loan categories as of December 31
for each of the years indicated:
| 2005 | 2004 | 2003 | 2002 | 2001 | ||||||||||||||||||||||||||||||||||||
| % of Loans | % of Loans | % of Loans | % of Loans | % of Loans | ||||||||||||||||||||||||||||||||||||
| to Total | to Total | to Total | to Total | to Total | ||||||||||||||||||||||||||||||||||||
| Amount | Loans | Amount | Loans | Amount | Loans | Amount | Loans | Amount | Loans | |||||||||||||||||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||
Commercial, financial, agricultural
and real estate-farmland |
$ | 4,221 | 14.4 | % | $ | 4,337 | 17.2 | % | $ | 2,295 | 14.5 | % | $ | 2,143 | 13.9 | % | $ | 1,880 | 16.1 | % | ||||||||||||||||||||
Real estate-construction |
5,743 | 19.8 | % | 27 | 16.0 | % | — | 14.1 | % | — | 11.8 | % | — | 8.6 | % | |||||||||||||||||||||||||
Real estate-mortgage |
12,455 | 63.2 | % | 13,053 | 62.5 | % | 12,752 | 66.2 | % | 12,451 | 69.2 | % | 10,880 | 69.4 | % | |||||||||||||||||||||||||
Installment loans to individuals |
268 | 2.6 | % | 481 | 4.3 | % | 821 | 5.2 | % | 779 | 5.1 | % | 811 | 5.9 | % | |||||||||||||||||||||||||
Unallocated |
503 | N/A | 1,319 | N/A | 360 | N/A | 87 | N/A | 117 | N/A | ||||||||||||||||||||||||||||||
Total |
$ | 23,190 | 100.0 | % | $ | 19,217 | 100.0 | % | $ | 16,228 | 100.0 | % | $ | 15,460 | 100.0 | % | $ | 13,688 | 100.0 | % | ||||||||||||||||||||
This table indicates growth in the allowance for loan losses for real estate construction
as of December 31, 2005, as compared to December 31, 2004. This increase is due primarily to
growth in the outstanding balances in this loan category.
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Table of Contents
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, | ||||||||||||||||||||
| 2005 | 2004 | 2003 | 2002 | 2001 | ||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||
Non-accrual loans |
$ | 4,483 | $ | 1,523 | $ | 2,638 | $ | 1,265 | $ | 1,265 | ||||||||||
Loans 90 days past due and still accruing |
1,420 | 2,141 | 581 | 963 | 959 | |||||||||||||||
Restructured loans |
— | — | — | — | — | |||||||||||||||
Total non-performing loans |
$ | 5,903 | $ | 3,664 | $ | 3,219 | $ | 2,228 | $ | 2,224 | ||||||||||
Repossessed assets |
$ | 236 | $ | 4,212 | $ | 4,781 | $ | 5,724 | $ | 30 | ||||||||||
Other assets acquired in satisfaction of debts
previously contracted |
1 | 23 | 10 | 1 | 1 | |||||||||||||||
Total non-performing other assets |
$ | 237 | $ | 4,235 | $ | 4,791 | $ | 5,725 | $ | 31 | ||||||||||
Total non-performing loans and non-
performing other assets |
$ | 6,140 | $ | 7,899 | $ | 8,010 | $ | 7,953 | $ | 2,255 | ||||||||||
Non-performing loans to loans, before
allowance for loan losses |
0.34 | % | 0.25 | % | 0.27 | % | 0.20 | % | 0.23 | % | ||||||||||
Non-performing loans and non-performing
other assets to loans, before allowance for
loan losses |
0.35 | % | 0.54 | % | 0.67 | % | 0.72 | % | 0.23 | % | ||||||||||
The ratio of non-performing loans and non-performing other assets to loans, before allowance
for loan losses, decreased from 0.54% as of December 31, 2004, to 0.35% as of December 31, 2005,
due primarily to a large reduction in repossessed assets combined with a reduction in loans 90 days
past due and still accruing. These reductions in non-performing loans and non-performing other
assets were partially offset by a substantial increase in non-accrual loans. Of the increase in
non-accrual loans, $1,920,000 is related to two credits which had previously been identified as
potential problem loans.
Busey Bank became mortgagee in possession of a hotel property in June, 2002, and remained so until
September, 2003, when it took title to the property upon completion of foreclosure proceedings.
The property was included in repossessed assets from June, 2002, until it was sold in September,
2005.
A loan is considered to be 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. The
Corporation recognized $250,000 and $28,000 in interest income on these loans in 2005 and 2004,
respectively. No interest income was recognized on these loans during 2003.
The gross interest income that would have been recorded in the years ended December 31, 2005, 2004
and 2003 if the non-accrual and restructured loans had been current in accordance with their
original terms was $380,000, $307,000, and $268,000, respectively. The amount of interest
collected on those loans that was included in interest income was $250,000 for the year ended
December 31, 2005, $28,000 for the year ended December 31, 2004, $0 for the year ended December 31,
2003.
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Potential
Problem Loans
Potential problem loans are those loans which are not categorized as impaired, non-accrual, 90-days
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 probable loan losses. Potential problem loans totaled $11,691,000 at
December 31, 2005 and $3,245,000 at December 31, 2004. Of this increase $6,990,000 is related to
six commercial customers. These loans are performing under existing terms and continue to accrue
interest. Management continues to monitor these credits and anticipates that restructure,
guarantee, additional collateral or other planned action will result in full repayment of the
debts. Management has identified no other loans that represent or result from trends or
uncertainties which management reasonably expects will materially impact future operating results,
liquidity or capital resources. Management is not aware of any information about any other credits
which cause management to have serious doubts as to the ability of such borrower(s) to comply with
the loan repayment terms.
Other Interest-bearing Assets
No other interest-bearing assets are categorized as impaired.
Deposits
As indicated in the following table, average non-interest-bearing deposits as a percentage of
average total deposits increased to 13.3% for the year ended December 31, 2005, from 12.5% for the
year ended December 31, 2004, which was an increase from 12.2% for the year ended December 31,
2003. The acquisition of Tarpon Coast National Bank had positive impact on this ratio. At
acquisition 33.8% of the bank’s deposits were non-interest bearing demand deposits.
| December 31, | ||||||||||||||||||||||||||||||||||||
| 2005 | 2004 | 2003 | ||||||||||||||||||||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||||||||||||||||||
| Average Balance | % Total | Average Rate | Average Balance | % Total | Average Rate | Average Balance | % Total | Average Rate | ||||||||||||||||||||||||||||
Non-interest bearing
demand deposits |
$ | 221,632 | 13.3 | % | 0.00 | % | $ | 175,463 | 12.5 | % | 0.00 | % | $ | 149,030 | 12.2 | % | 0.00 | % | ||||||||||||||||||
Interest bearing demand
deposits |
42,150 | 2.5 | % | 0.74 | % | 26,917 | 1.9 | % | 0.70 | % | 18,194 | 1.5 | % | 0.48 | % | |||||||||||||||||||||
Savings/Money Market |
714,891 | 42.8 | % | 1.49 | % | 622,660 | 44.4 | % | 0.78 | % | 555,193 | 45.5 | % | 0.74 | % | |||||||||||||||||||||
Time deposits |
691,790 | 41.4 | % | 3.30 | % | 578,808 | 41.2 | % | 2.83 | % | 497,875 | 40.8 | % | 3.10 | % | |||||||||||||||||||||
Total |
$ | 1,670,463 | 100.0 | % | 2.03 | % | $ | 1,403,848 | 100.0 | % | 1.53 | % | $ | 1,220,292 | 100.0 | % | 1.61 | % | ||||||||||||||||||
Certificates of deposit of $100,000 and over and other time deposits of $100,000 and over at
December 31, 2005 had the following maturities (dollars in thousands):
Under 3 months |
$ | 58,045 | ||
3 to 6 months |
46,749 | |||
6 to 12 months |
43,338 | |||
Over 12 months |
61,740 | |||
Total |
$ | 209,872 | ||
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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.
| Securities sold under | Other short-term | ||||||||||||
| Federal funds purchased | agreements to repurchase | borrowings | |||||||||||
| (dollars in thousands) | |||||||||||||
2005 |
|||||||||||||
Balance, December 31, 2005 |
$ | 7,885 | $ | 42,228 | $ | — | |||||||
Weighted average interest rate at end of period |
4.62 | % | 2.79 | % | 0.00 | % | |||||||
Maximum outstanding at any month end |
$ | 32,000 | $ | 53,369 | $ | 9,000 | |||||||
Average daily balance |
$ | 9,865 | $ | 44,998 | $ | 4,112 | |||||||
Weighted average interest rate during period 1 |
2.37 | % | 2.10 | % | 2.44 | % | |||||||
2004 |
|||||||||||||
Balance, December 31, 2004 |
$ | — | $ | 41,558 | $ | 11,250 | |||||||
Weighted average interest rate at end of period |
0.00 | % | 1.31 | % | 1.86 | % | |||||||
Maximum outstanding at any month end |
$ | 29,400 | $ | 49,645 | $ | 17,250 | |||||||
Average daily balance |
$ | 5,010 | $ | 26,864 | $ | 9,293 | |||||||
Weighted average interest rate during period 1 |
1.28 | % | 1.25 | % | 1.70 | % | |||||||
2003 |
|||||||||||||
Balance, December 31, 2003 |
$ | 8,500 | $ | 7,500 | $ | — | |||||||
Weighted average interest rate at end of period |
1.19 | % | 0.75 | % | 0.00 | % | |||||||
Maximum outstanding at any month end |
$ | 27,000 | $ | 9,341 | $ | — | |||||||
Average daily balance |
$ | 2,999 | $ | 7,497 | $ | — | |||||||
Weighted average interest rate during period 1 |
1.40 | % | 1.39 | % | 0.00 | % | |||||||
| 1 | The weighted average interest rate is computed by dividing total interest for the year by the average daily balance outstanding. |
30
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Liquidity
Liquidity management is the process by which the Corporation ensures that adequate liquid funds are
available to meet the present and future cash flow obligations arising in the daily operations of
the business. These financial obligations consist of needs for funds to meet commitments to
borrowers for extensions of credit, funding capital expenditures, withdrawals by customers,
maintaining deposit reserve requirements, servicing debt, paying dividends to shareholders, and
paying operating expenses.
The Corporation’s most liquid assets are cash and due from banks, interest-bearing bank deposits,
and Federal funds sold. The balances of these assets are dependent on the Corporation’s operating,
investing, lending, and financing activities during any given period. Average liquid assets are
summarized in the table below:
| Years Ended December 31, | ||||||||||||
| 2005 | 2004 | 2003 | ||||||||||
| (dollars in thousands) | ||||||||||||
Cash and due from banks |
$ | 49,865 | $ | 45,905 | $ | 38,247 | ||||||
Interest-bearing bank deposits |
1,394 | 3,359 | 928 | |||||||||
Federal funds sold |
21,291 | 15,844 | 14,362 | |||||||||
Total |
$ | 72,550 | $ | 65,108 | $ | 53,537 | ||||||
Percent of average total assets |
3.5 | % | 3.7 | % | 3.6 | % | ||||||
The Corporation’s primary sources of funds consist of deposits, investment maturities and sales,
loan principal repayments, deposits, and capital funds. Additional liquidity is provided by
brokered deposits, bank lines of credit, repurchase agreements and the ability to borrow from the
Federal Reserve Bank and the Federal Home Loan Bank. The Corporation has an operating line in the
amount of $10,000,000, all of which was available as of December 31, 2005 and 2004. Long-term
liquidity needs will be satisfied primarily through the 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. During
2005 the Corporation originated $178,404,000 and sold $176,241,000 in mortgage loans held for sale
compared to originations of $159,560,000 and sales of $182,368,000 in 2004, and originations of
$400,967,000 and sales of $463,199,000 in 2003. As of December 31, 2005, the Corporation held
$11,737,000 in loans held for sale.
On July 29, 2005, First Busey Corporation acquired Tarpon Coast National Bank through the
acquisition of its parent company Tarpon Coast Bancorp, Inc. Tarpon shareholders received
$16,778,000 in First Busey common stock and $19,131,000 in cash consideration. First Busey funded
the cash portion of this transaction by issuing $10,000,000 in trust preferred securities through
First Busey Statutory Trust III and by drawing on its commercial loan at JPMorgan Chase, N.A. The
arrangement is a note, in the amount of $42,000,000, which matures in June, 2011, and carries
interest at LIBOR plus 1.25%.
On June 1, 2004, First Busey Corporation completed the acquisition of First Capital Bankshares,
Inc. of Peoria, Illinois, the holding company of First Capital Bank. In order to partially fund
this transaction First Busey issued $15,000,000 in trust preferred securities through First Busey
Statutory Trust II. These securities were issued in April, 2004. The balance is financed through
a commercial loan agreement with JPMorgan Chase N.A.
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 currently 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.
The Corporation’s banking subsidiaries routinely enter into commitments to extend credit in the
normal course of their business. As of December 31, 2005 and 2004, the Corporation had outstanding
loan commitments including lines of credit of $559,847,000, and $413,679,000 respectively. The
balance of commitments to extend credit represents
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future cash requirements and some of these commitments may expire without being drawn upon. The
Corporation anticipates it will have sufficient funds available to meet its current loan
commitments, including loan applications received and in process prior to the issuance of firm
commitments.
The Corporation has entered into certain contractual obligations and other commitments. Such
obligations generally relate to funding of operations through deposits, debt issuance, and property
and equipment leases. The following table summarizes significant contractual obligations and other
commitments as of December 31, 2005.
The following table summarizes significant contractual obligations and other commitments as of
December 31, 2005
| Junior | ||||||||||||||||||||
| Subordinated | ||||||||||||||||||||
| Short- and | Debt Owed to | |||||||||||||||||||
| Certificates of | Long-term | Operating | Unconsolidated | |||||||||||||||||
| Deposit | Borrowing | Leases | Trusts | Total | ||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||
2006 |
$ | 466,148 | $ | 25,898 | $ | 1,007 | $ | — | $ | 493,053 | ||||||||||
2007 |
149,804 | 23,198 | 911 | — | 173,913 | |||||||||||||||
2008 |
58,680 | 44,373 | 705 | — | 103,758 | |||||||||||||||
2009 |
36,659 | 14,373 | 210 | — | 51,242 | |||||||||||||||
2010 |
21,779 | 17,636 | 127 | — | 39,542 | |||||||||||||||
Thereafter |
680 | 44,405 | 153 | 50,000 | 95,238 | |||||||||||||||
Total |
$ | 733,750 | $ | 169,883 | $ | 3,113 | $ | 50,000 | $ | 956,746 | ||||||||||
| Commitments to extend credit | $ | 559,847 | ||||||||||||||||||
Net cash flows provided by operating activities totaled $30,309,000, $48,603,000 and $52,727,000 in
2005, 2004 and 2003, respectively. Significant items affecting the cash flows provided by
operating activities include net income, depreciation and amortization expense, the provision for
loan losses, and activities related to the origination and sale of mortgage loans held for sale.
Operating cash flows decreased during 2005 and 2004 relative to 2003 due primarily to lower
mortgage loan sale activity. Net cash provided by mortgage loans originated totaled $408,000 in
2005, $25,497,000 in 2004 and $36,415,000 in 2003.
Net cash used by investing activities totaled $126,222,000, $273,586,000 and $116,713,000 in 2005,
2004, and 2003, respectively. Significant activities affecting cash flows from investing
activities are those activities associated with managing the Corporation’s investment portfolio,
loans held in the Corporation’s portfolio, and subsidiary or business unit acquisition activities.
In 2005 First Busey’s proceeds from the sales and maturities of investment securities classified as
available-for-sale totaled $218,304,000, and the Corporation purchased $178,151,000 in securities
resulting in net cash provided by securities activity of 40,153,000. In 2004, First Busey’s
proceeds from the sales and maturities of securities classified as available-for-sale totaled
$195,885,000, and the Corporation purchased $271,763,000 in securities resulting in net cash used
by securities activity of $75,878,000. In 2003, sales and maturities totaled and purchases totaled
$221,526,000 and purchases totaled $212,444,000, resulting in net cash generated of $9,082,000.
Net loan portfolio growth totaled $156,573,000, $156,755,000, and $124,402,000, in 2005, 2004, and
2003, respectively. In July, 2005, First Busey purchased the outstanding shares of Tarpon Coast
Bancorp, Inc., resulting in the net use of $12,392,000. During June, 2004, the Corporation
purchased the outstanding shares of First Capital Bankshares resulting in the net use of
$35,990,000.
Net cash provided by financing activities was $108,879,000, $220,577,000, and $68,738,000 in 2005,
2004, 2003, respectively. Significant items affecting cash flows from financing activities are
deposits, short-term borrowings, and long-term debt. Deposits, which are the Corporation’s primary
funding source, grew $111,147,000 in 2005, $155,143,000 in 2004, and $42,990,000 in 2003. The
Corporation has increased its use of short-term and long-term advances from the Federal Home Loan
Banks of Chicago and Atlanta to fund growth in loan and investment
32
Table of Contents
balances. The Corporation issued junior subordinated debt and increased long-term debt to fund the
July, 2005, acquisition of Tarpon Coast Bancorp, Inc. and June, 2004, acquisition of First Capital
Bankshares, Inc.
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, 2005, the Corporation
earned $26,934,000 and paid dividends of $11,564,000 to stockholders, resulting in the retention of
current earnings of $15,370,000.
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, 2005, the
Corporation had a total capital to total risk-weighted asset ratio of 10.31%, a Tier 1 capital to
risk-weighted asset ratio of 8.70% and a Tier 1 leverage ratio of 6.93%; Busey Bank had ratios of
11.27%, 9.64%, and 7.56%, respectively. The Corporation’s thrift subsidiary, Busey Bank Florida,
had ratios of 13.17%, 11.91%, and 9.36%, respectively. Tarpon Coast National Bank had ratios of
11.47%, 10.59%, and 9.58%, respectively. As these ratios indicate, the Corporation and its bank
subsidiaries exceed the regulatory capital guidelines.
Regulatory Considerations
In accordance with Federal Reserve Board regulations in effect on December 31, 2005, First Busey is
allowed, for regulatory purposes, to include all $50,000,000 of the outstanding cumulative trust
preferred securities in Tier 1 capital (as defined by regulation). On March 1, 2005, the Federal
Reserve Board issued final regulations allowing for the continued limited inclusion of trust
preferred securities in the Tier 1 capital of bank holding companies, but with further restrictions
on the amount of trust preferred securities and other restricted core capital elements that may be
included in Tier 1 capital. The final rule allows for a five-year transition period to March 31,
2009, for application of the new limits. If those limitations had been in effect at December 31,
2005, First Busey would have been allowed to include approximately $34,838,000 of the cumulative
trust preferred securities in Tier 1 capital; the remainder would be included in Tier 2 capital.
The Corporation would have exceeded all regulatory minimum capital ratios if the newly adopted
regulations had been in effect on December 31, 2005.
New Accounting Pronouncements
Information relating to new accounting pronouncements appears in Note 1 in the Notes to 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” and Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
33
Table of Contents
| A. | Selected Statistical Information |
The following tables contain information concerning the consolidated financial condition and
operations of the Corporation for the periods, or as of the dates, shown. All average information
is provided on a daily average basis.
The following table shows the consolidated average balance sheets, detailing the major categories
of assets and liabilities, the interest income earned on interest-earning assets, the interest
expense paid for interest-bearing liabilities, and the related interest rates:
| Years Ended December 31, | |||||||||||||||||||||||||||||||||||||
| 2005 | 2004 | 2003 | |||||||||||||||||||||||||||||||||||
| Average | Income/ | Yield/ | Average | Income/ | Yield/ | Income/ | Yield/ | ||||||||||||||||||||||||||||||
| Balance | Expense | Rate | Balance | Expense | Rate | Average Balance | Expense | Rate | |||||||||||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||||||||||||||||
Assets
|
|||||||||||||||||||||||||||||||||||||
Interest-bearing bank deposits |
$ | 1,394 | $ | 43 | 3.08 | % | $ | 3,359 | $ | 46 | 1.37 | % | $ | 928 | $ | 8 | 0.86 | % | |||||||||||||||||||
Federal funds sold |
21,291 | 564 | 2.65 | % | 15,844 | 272 | 1.72 | % | 14,362 | 149 | 1.04 | % | |||||||||||||||||||||||||
Investment securities: |
|||||||||||||||||||||||||||||||||||||
U.S. Treasuries and Agencies |
213,287 | 6,449 | 3.02 | % | 172,812 | 4,533 | 2.62 | % | 164,633 | 5,098 | 3.10 | % | |||||||||||||||||||||||||
Obligations of states and political
subdivisions1 |
63,436 | 3,742 | 5.90 | % | 49,863 | 2,985 | 5.99 | % | 51,452 | 3,125 | 6.07 | % | |||||||||||||||||||||||||
Other securities |
48,258 | 1,844 | 3.82 | % | 42,839 | 1,631 | 3.81 | % | 26,153 | 960 | 3.67 | % | |||||||||||||||||||||||||
Loans (net of unearned (discount)1, 2 |
1,604,198 | 105,288 | 6.56 | % | 1,355,487 | 77,759 | 5.74 | % | 1,118,667 | 65,769 | 5.88 | % | |||||||||||||||||||||||||
Total interest-earning assets1 |
$ | 1,951,864 | $ | 117,930 | 6.04 | % | $ | 1,640,204 | $ | 87,226 | 5.32 | % | $ | 1,376,195 | $ | 75,109 | 5.46 | % | |||||||||||||||||||
Cash and due from banks |
49,865 | 45,905 | 38,247 | ||||||||||||||||||||||||||||||||||
Premises and equipment |
31,203 | 24,553 | 24,887 | ||||||||||||||||||||||||||||||||||
Allowance for loan losses |
(21,050 | ) | (17,716 | ) | (16,228 | ) | |||||||||||||||||||||||||||||||
Other assets |
90,204 | 63,900 | 44,858 | ||||||||||||||||||||||||||||||||||
Total assets |
$ | 2,102,086 | $ | 1,756,846 | $ | 1,467,959 | |||||||||||||||||||||||||||||||
Liabilities and Stockholders’ Equity
|
|||||||||||||||||||||||||||||||||||||
Interest bearing transaction deposits |
$ | 42,150 | $ | 420 | 1.00 | % | $ | 26,917 | $ | 188 | 0.70 | % | $ | 18,194 | $ | 87 | 0.48 | % | |||||||||||||||||||
Savings deposits |
116,978 | 867 | 0.74 | % | 111,796 | 704 | 0.63 | % | 105,649 | 733 | 0.69 | % | |||||||||||||||||||||||||
Money market deposits |
597,913 | 9,803 | 1.64 | % | 510,864 | 4,149 | 0.81 | % | 449,544 | 3,390 | 0.75 | % | |||||||||||||||||||||||||
Time deposits |
691,790 | 22,849 | 3.30 | % | 578,808 | 16,395 | 2.83 | % | 497,875 | 15,434 | 3.10 | % | |||||||||||||||||||||||||
Short-term borrowings: |
|||||||||||||||||||||||||||||||||||||
Federal funds purchased |
9,865 | 234 | 2.37 | % | 5,010 | 64 | 1.28 | % | 2,999 | 42 | 1.40 | % | |||||||||||||||||||||||||
Securities sold under agreements
to repurchase |
44,998 | 945 | 2.10 | % | 26,864 | 335 | 1.25 | % | 7,497 | 104 | 1.39 | % | |||||||||||||||||||||||||
Other |
4,112 | 100 | 2.44 | % | 9,293 | 158 | 1.70 | % | — | — | — | ||||||||||||||||||||||||||
Long-term debt |
163,865 | 6,669 | 4.07 | % | 136,513 | 5,372 | 3.94 | % | 81,405 | 3,578 | 4.40 | % | |||||||||||||||||||||||||
Junior subordinated debt issued to
unconsolidated trusts |
45,385 | 3,455 | 7.61 | % | 35,385 | 2,676 | 7.56 | % | 25,000 | 2,250 | 9.00 | % | |||||||||||||||||||||||||
Total interest-bearing liabilities |
$ | 1,717,056 | $ | 45,342 | 2.64 | % | $ | 1,441,450 | $ | 30,041 | 2.08 | % | $ | 1,188,163 | $ | 25,618 | 2.16 | % | |||||||||||||||||||
Net interest spread |
3.40 | % | 3.24 | % | 3.30 | % | |||||||||||||||||||||||||||||||
Demand deposits |
221,632 | 175,463 | 149,030 | ||||||||||||||||||||||||||||||||||
Other liabilities |
13,538 | 9,577 | 9,166 | ||||||||||||||||||||||||||||||||||
Stockholders’ equity |
149,860 | 130,356 | 121,600 | ||||||||||||||||||||||||||||||||||
Total liabilities and
stockholders’ equity |
$ | 2,102,086 | $ | 1,756,846 | $ | 1,467,959 | |||||||||||||||||||||||||||||||
Interest income/earning assets1 |
$ | 1,951,864 | $ | 117,930 | 6.04 | % | $ | 1,640,204 | $ | 87,226 | 5.32 | % | $ | 1,376,195 | $ | 75,109 | 5.46 | % | |||||||||||||||||||
Interest expense/earning assets |
$ | 1,951,864 | $ | 45,342 | 2.32 | % | $ | 1,640,204 | $ | 30,041 | 1.83 | % | $ | 1,376,195 | $ | 25,618 | 1.86 | % | |||||||||||||||||||
Net interest margin1 |
$ | 72,588 | 3.72 | % | $ | 57,185 | 3.49 | % | $ | 49,491 | 3.60 | % | |||||||||||||||||||||||||
| 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 |
34
Table of Contents
Changes in Net Interest Income:
| Years Ended December 31, 2005, 2004, and 2003 | ||||||||||||||||||||||||
| Year 2005 vs. 2004 Change due to1 | Year 2004 vs. 2003 Change due to1 | |||||||||||||||||||||||
| Average | Average | Total | Average | Average | Total | |||||||||||||||||||
| Volume | Yield/Rate | Change | Volume | Yield/Rate | Change | |||||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||||||
Increase (decrease) in interest income: |
||||||||||||||||||||||||
Interest-bearing bank deposits |
$ | 3 | $ | (6 | ) | $ | (3 | ) | $ | 31 | $ | 7 | $ | 38 | ||||||||||
Federal funds sold |
113 | 179 | 292 | 17 | 106 | 123 | ||||||||||||||||||
Investment securities: |
||||||||||||||||||||||||
U.S. Treasuries and Agencies |
1,160 | 756 | 1,916 | 272 | (837 | ) | (565 | ) | ||||||||||||||||
Obligations of state and political
subdivisions2 |
800 | (43 | ) | 757 | (96 | ) | (44 | ) | (140 | ) | ||||||||||||||
Other securities |
207 | 6 | 213 | 634 | 37 | 671 | ||||||||||||||||||
Loans2 |
15,419 | 12,110 | 27,529 | 13,542 | (1,552 | ) | 11,990 | |||||||||||||||||
Change in interest income2 |
$ | 17,702 | $ | 13,002 | $ | 30,704 | $ | 14,400 | $ | (2,283 | ) | $ | 12,117 | |||||||||||
Increase (decrease) in interest expense: |
||||||||||||||||||||||||
Interest bearing transaction deposits |
$ | 132 | $ | 100 | $ | 232 | $ | 52 | $ | 49 | $ | 101 | ||||||||||||
Savings deposits |
34 | 129 | 163 | 49 | (78 | ) | (29 | ) | ||||||||||||||||
Money market deposits |
810 | 4,844 | 5,654 | 485 | 274 | 759 | ||||||||||||||||||
Time deposits |
3,488 | 2,966 | 6,454 | 2,048 | (1,087 | ) | 961 | |||||||||||||||||
Federal funds purchased |
91 | 79 | 170 | 25 | (3 | ) | 22 | |||||||||||||||||
Securities sold under agreements to
repurchase |
303 | 307 | 610 | 240 | (9 | ) | 231 | |||||||||||||||||
Other short-term borrowings |
(260 | ) | 202 | (58 | ) | 158 | — | 158 | ||||||||||||||||
Long-term debt |
1,108 | 189 | 1,297 | 2,122 | (328 | ) | 1,794 | |||||||||||||||||
Junior subordinated debt owed
to unconsolidated trusts |
761 | 18 | 779 | 692 | (266 | ) | 426 | |||||||||||||||||
Change in interest expense |
$ | 6,467 | $ | 8,834 | $ | 15,301 | $ | 5,871 | $ | (1,448 | ) | $ | 4,423 | |||||||||||
Increase (decrease) in net interest income2 |
$ | 11,235 | $ | 4,168 | $ | 15,403 | $ | 8,529 | $ | (835 | ) | $ | 7,694 | |||||||||||
Percentage increase in net interest income
over prior period |
26.9 | % | 15.5 | % | ||||||||||||||||||||
| 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% |
Forward Looking Statements
This presentation includes forward looking statements that are intended to be covered by the
safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward
looking statements include but are not limited to comments with respect to the objectives and
strategies, financial condition, results of operations and business of First Busey Corporation.
These forward looking statements involve numerous assumptions, inherent risks and uncertainties,
both general and specific, and the risk that predictions and other forward looking statements will
not be achieved. The Corporation cautions you not to place undue reliance on these forward looking
statements as a number of important factors could cause actual future results to differ materially
from the plans, objectives, expectations, estimates and intentions expressed in such forward
looking statements.
These risks, uncertainties and other factors include the general state of the economy, both on a
local and national level, the ability of the Corporation to successfully complete acquisitions, the
continued growth of the geographic regions served by the Corporation, and the retention of key
individuals in the Corporation’s management structure.
35
Table of Contents
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Market risk is the risk of change in asset values due to movements in underlying market rates and
prices. Interest rate risk is the risk to earnings and capital arising from movements in interest
rates. Interest rate risk is the most significant market risk affecting the Corporation as other
types of market risk, such as foreign currency exchange rate risk and commodity price risk, do not
arise in the normal course of the Corporation’s business activities.
The Corporation’s subsidiary banks, Busey Bank, Busey Bank Florida and Tarpon Coast National Bank,
have asset-liability committees which meet at least quarterly to review current market conditions
and attempt to structure the banks’ balance sheets to ensure stable net interest income despite
potential changes in interest rates with all other variables constant.
The asset-liability committees use gap analysis to identify mismatches in the dollar value of
assets and liabilities subject to repricing within specific time periods. The Funds Management
Policies established by the asset liability committees and approved by the Corporation’s Board of
Directors establishes guidelines for maintaining the ratio of cumulative rate-sensitive assets to
rate-sensitive liabilities within prescribed ranges at certain intervals.
Interest rate sensitivity is a measure of the volatility of the net interest margin as a
consequence of changes in market rates. The rate-sensitivity chart shows the interval of time in
which given volumes of rate-sensitive earning assets and rate-sensitive interest-bearing
liabilities would be responsive to changes in market interest rates based on their contractual
maturities or terms for repricing. It is however, only a static, single-day depiction of the
Corporation’s rate sensitivity structure, which can be adjusted in response to changes in
forecasted interest rates.
The following table sets forth the static rate-sensitivity analysis of the Corporation as of
December 31, 2005.
| Rate Sensitive Within | ||||||||||||||||||||||||
| 181 Days – | ||||||||||||||||||||||||
| 1-30 Days | 31-90 Days | 91-180 Days | 1 Year | Over 1 Year | Total | |||||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||||||
Interest-bearing deposits |
$ | 954 | $ | — | $ | — | $ | — | $ | — | $ | 954 | ||||||||||||
Federal funds sold |
2,300 | — | — | — | — | 2,300 | ||||||||||||||||||
Investment securities |
||||||||||||||||||||||||
U.S. Treasuries and Agencies |
698 | 25,927 | 8,969 | 70,659 | 96,671 | 202,924 | ||||||||||||||||||
States and political subdivisions |
2,351 | 1,288 | 1,982 | 5,118 | 71,318 | 82,057 | ||||||||||||||||||
Other securities |
15,053 | 1,021 | 1,186 | 2,288 | 26,708 | 46,256 | ||||||||||||||||||
Loans (net of unearned interest) |
696,372 | 138,943 | 113,275 | 170,303 | 630,269 | 1,749,162 | ||||||||||||||||||
Total rate-sensitive assets |
$ | 717,728 | $ | 167,179 | $ | 125,412 | $ | 248,368 | $ | 824,966 | $ | 2,083,653 | ||||||||||||
Interest bearing transaction deposits |
$ | 48,042 | $ | — | $ | — | $ | — | $ | — | $ | 48,042 | ||||||||||||
Savings deposits |
117,090 | — | — | — | — | 117,090 | ||||||||||||||||||
Money market deposits |
645,347 | — | — | — | — | 645,347 | ||||||||||||||||||
Time deposits |
92,554 | 88,485 | 135,972 | 152,383 | 264,356 | 733,750 | ||||||||||||||||||
Federal funds purchased and
repurchase
agreements |
50,113 | — | — | — | — | 50,113 | ||||||||||||||||||
Short term borrowings
|
||||||||||||||||||||||||
Long-term debt |
55,058 | 19,000 | 1,845 | 14,655 | 79,325 | 169,883 | ||||||||||||||||||
Junior subordinated debt issued to
unconsolidated trusts |
— | 25,000 | — | — | 25,000 | 50,000 | ||||||||||||||||||
Total rate-sensitive liabilities |
$ | 1,008,204 | $ | 132,485 | $ | 137,817 | $ | 167,038 | $ | 368,681 | $ | 1,814,225 | ||||||||||||
Rate-sensitive assets less
rate-sensitive liabilities |
$ | (290,476 | ) | $ | 34,694 | $ | (12,405 | ) | $ | 81,330 | $ | 456,285 | $ | 269,428 | ||||||||||
Cumulative Gap |
$ | (290,476 | ) | $ | ( 255,782 | ) | $ | ( 268,187 | ) | $ | (186,857 | ) | $ | 269,428 | ||||||||||
Cumulative amounts as a percentage
of total rate-sensitive assets |
-13.94 | % | -12.28 | % | -12.87 | % | -8.97 | % | 12.93 | % | ||||||||||||||
Cumulative Ratio |
0.71 | 0.78 | 0.79 | 0.87 | 1.15 | |||||||||||||||||||
36
Table of Contents
First Busey Corporation’s funds management policy requires the subsidiary banks to maintain a
cumulative rate-sensitivity ration of .75 – 1.25 in the 90-day, 180-day, and 1-year time periods.
As of December 31, 2005, the Banks and the Corporation, on a consolidated basis, are within those
guidelines.
The foregoing table shows a negative (liability-sensitive) rate-sensitivity gap of $290.5 million
in the 1-30 day repricing category as more liabilities were subject to repricing during that time
period than assets were subject to repricing within that same time period. The volume of assets
subject to repricing exceeds the volume of liabilities subject to repricing for all time periods
beyond 180 days. On a cumulative basis, however, the gap remains liability sensitive through one
year. The composition of the gap structure as of December 31, 2005, indicates the Corporation
would benefit more if interest rates decrease during the next year by allowing the net interest
margin to grow as the volume of interest-bearing liabilities subject to repricing would be greater
than the volume of interest-earning assets subject to repricing during the same period.
The asset-liability committees do not rely solely on gap analysis to manage interest-rate risk as
interest rate changes do not impact all categories of assets and liabilities equally or
simultaneously. Other factors influence the effect of interest rate fluctuations on the
Corporation’s net interest margin. For example, a decline in interest rates may lead borrowers to
repay their loans more rapidly which could mitigate some of the expected benefit of the decline in
interest rates when negatively gapped. Conversely, a rapid rise in interest rates could lead to an
increase in the net interest margin if the increased rates on loans and other interest-earning
assets are higher than those on interest-bearing deposits and other liabilities.
The asset-liability committees supplement gap analysis with balance sheet and income simulation
analysis to determine the potential impact on net interest income of changes in market interest
rates. In these simulation models the balance sheet is projected out over a one-year period and
net interest income is calculated under current market rates, and then assuming permanent
instantaneous shifts in the yield curve of +/- 100 basis points, and +/- 200 basis points.
Management measures such changes assuming immediate and sustained shifts in the Federal funds rate
and the corresponding shifts in other rate indices based on their historical changes relative to
changes in the Federal funds rate. The model assumes asset and liability balances remain constant
at December 31 balances. The model uses repricing frequency on all variable-rate assets and
liabilities. The model also uses a historical decay rate on all fixed-rate core deposit balances.
Prepayment speeds on loans have been adjusted to incorporate expected prepayment speeds in both a
rising and declining rate environment. Utilizing this measurement concept the interest rate risk
of the Corporation, expressed as a change in net interest income as a percentage of the net income
calculated in the constant base model, due to changes in interest rates was as follows:
| Basis Point Changes | ||||||||||||
| -100 | +100 | +200 | ||||||||||
December 31, 2005 |
(0.18 | %) | (0.45 | %) | (1.29 | %) | ||||||
December 31, 2004 |
(3.88 | %) | 0.70 | % | 0.97 | % | ||||||
First Busey’s funds management policy defines a targeted range of +/- 10% change in net interest
margin in a 1-year time frame for interest rate shocks of +/- 100 basis points and +/- 200 basis
points. As indicated in the table above, the Corporation is within this targeted range on a
consolidated basis.
37
Table of Contents
Item 8. Financial Statements and Supplementary Data
The financial statements are presented beginning on page 45.
First Busey’s management is responsible for establishing and maintaining adequate internal control
over financial reporting. The corporation’s internal control over financial reporting is a process
designed under the supervision of the Corporation’s Chief Executive Officer and Chief Financial
Officer to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of the Corporation’s consolidated financial statements for external reporting purposes
in accordance with U.S. generally accepted accounting principles.
Management has performed a comprehensive review, evaluation, and assessment of the Corporation’s
internal control over financial reporting as of December 31, 2005. In making its assessment of
internal control over financial reporting, management used the criteria issued by the committee of
Sponsoring Organizations of the Treadway Commission (“COSO”) in “Internal Control – Integrated
Framework.”
Tarpon Coast National Bank (“TCNB”) has been excluded from management’s assessment of internal
controls as of December 31, 2005, because it was acquired by the Corporation in a purchase
combination on July 29, 2005, and it was not possible for management to conduct an assessment of
TCNB’s internal control over financial reporting in the period between the consummation date and
the date of management’s assessment. TCNB represented total assets of approximately $177 million
and net income of $769,000, of the Corporation’s related consolidated financial statement amounts
as of and for the year ended December 31, 2005.
Based on the assessment, management has determined that, as of December 31, 2005, the Corporation’s
internal control over financial reporting is effective, based on the COSO criteria. Management’s
assessment of the effectiveness of the Corporation’s internal control over financial reporting as
of December 31, 2005, has been audited by McGladrey & Pullen, LLP, an independent registered public
accounting firm, as stated in their report appearing on page 47.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Not applicable.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
An evaluation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the
Securities Exchange Act of 1934 (the “Act”)) was carried out as of December 31, 2005, under the
supervision and with the participation of our Chief Executive Officer, Chief Financial Officer and
several other members of our senior management. Our Chief Executive Officer and Chief Financial
Officer concluded that, as of December 31, 2005, our disclosure controls and procedures were
effective in ensuring that the information we are required to disclose in the reports we file or
submit under the Act is (i) accumulated and communicated to our management (including the Chief
Executive Officer and Chief Financial Officer) in a timely manner, and (ii) recorded, processed,
summarized, and reported within the time periods specified in the SEC’s rules and forms.
Management’s Annual Report on Internal Control over Financial Reporting
The annual report of management on the effectiveness of our internal control over financial
reporting and the attestation report thereon issued by our independent registered public accounting
firm are set forth under “Management’s Report on Internal Control Over Financial Reporting” and
“Report of Independent Registered Public Accounting Firm” under “Item 8. Financial Statements and
Supplementary Data.”
38
Table of Contents
Changes in Internal Control Over Financial Reporting
During the quarter ended December 31, 2005, no change occurred in our internal control over
financial reporting that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
Item 9B. Other information
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 4-6 of the 2006 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 10-11 of the 2006 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 and Related Stockholder
Matters
Incorporated by reference is the information set forth under the heading “Common Stock Ownership of
Certain Beneficial Owners and Management” on pages 8-9 of the 2006 Proxy Statement.
The following table discloses the number of outstanding options, warrants and rights granted by the
Corporation to participants in equity compensation plan, as well as the number of securities
remaining available for future issuance under these plans. The table provides this information
separately for equity compensation plans that have and have not been approved by security holders.
| (a) | (b) | (c) | ||||||||||
| Number of securities | ||||||||||||
| Number of securities | remaining available for | |||||||||||
| to be issued upon | future issuance under equity | |||||||||||
| exercise of | Weighted-average exercise | compensation plans | ||||||||||
| outstanding options, | price of outstanding options, | (excluding securities | ||||||||||
| Plan Category | warrants and rights | warrants and rights | reflected in column (a)) | |||||||||
Equity compensation
plans approved by
stockholders |
627,425 | $ | 17.62 | 1,829,275 | ||||||||
Equity compensation
plans not approved
by stockholders |
— | — | — | |||||||||
Total |
627,425 | $ | 17.62 | 1,829,275 | ||||||||
39
Table of Contents
Item 13. Certain Relationships and Related Transactions
Incorporated by reference is the information set forth under the heading “Certain Relationships and
Related Transactions” on page 15 of the 2006 Proxy Statement.
Item 14. Principal Accountant Fees and Services
Incorporated by reference is the information set forth under the heading “Audit Committee” on pages
5-6 of the 2006 Proxy statement.
40
Table of Contents
Part IV
Item 15. Exhibits and Financial Statement Schedules
Exhibits
| Exhibit | ||
| Number | Description of Exhibit | |
3.1
|
Restated Articles of Incorporation of First Busey Corporation (filed as Exhibit 3.1 to First Busey’s Form 10-Q for the quarterly period ended March 31, 2004, filed with the Commission on May 10, 2004, (Commission File No. 0-15950), and incorporated herein by reference) | |
3.2
|
First Busey Corporation Revised By-Laws (filed as Exhibit 3.2 to First Busey’s Form 10-Q for the quarterly period ended March 31, 2004, filed with the Commission on May 10, 2004 (Commission File No. 0-15950), and incorporated herein by reference) | |
10.1
|
First Busey Corporation 1993 Restricted Stock Award Plan (filed as Appendix E to First Busey’s definitive proxy statement filed with the Commission on April 5, 1993 (Commission File No. 0-15950), and incorporated herein by reference) | |
10.2
|
First Busey Corporation Profit Sharing Plan and Trust (filed as Exhibit 10.3 to First Busey’s Registration Statement on Form S-1 (Registration No. 33-13973), and incorporated herein by reference) | |
10.3
|
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) | |
10.4
|
First Busey Corporation 1999 Stock Option Plan (filed as Appendix B to First Busey’s definitive proxy statement filed with the Commission on March 25, 1999 (Commission File No. 0-15950), and incorporated herein by reference) | |
10.5
|
First Busey Corporation 2004 Stock Option Plan (filed as Annex D to First Busey’s definitive proxy statement filed with the Commission on March 12, 2004 (Commission File No. 0-15950), and incorporated herein by reference) | |
10.6
|
First Busey Corporation loan agreement with JPMorgan Chase N.A., formerly known as Bank One, to be filed as Exhibit A to First Busey’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004 | |
14.1
|
First Busey Corporation Code of Ethics (filed as Exhibit 14.1 to First Busey’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003 filed with the Commission on March 12, 2004 (Registration 0-015950), and incorporated herein by reference) | |
21.1
|
List of Subsidiaries of First Busey Corporation | |
23.1
|
Consent of McGladrey & Pullen, LLP | |
31.1
|
Certification of Principal Executive Officer | |
31.2
|
Certification of Principal Financial Officer | |
41
Table of Contents
32.1
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, from the Corporation’s Chief Executive Officer | |
32.2
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, from the Corporation’s Chief Financial Officer |
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 | ||||
| 45 | ||||
| 46 | ||||
| 48 | ||||
| 49 | ||||
| 50 | ||||
| 53 | ||||
| 56 | ||||
42
Table of Contents
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 16, 2006.
| FIRST BUSEY CORPORATION | ||
| BY //DOUGLAS C. MILLS// | ||
| Douglas C. Mills | ||
| Chairman of the Board, Chief Executive Officer |
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 16,
2006.
| Signature | Title | |
//DOUGLAS C. MILLS//
|
Chairman of the Board, Chief Executive Officer (Principal Executive Officer) | |
//BARBARA J. HARRINGTON//
|
Chief Financial Officer (Principal Financial Officer) |
|
//JOSEPH M. AMBROSE//
|
Director | |
//DAVID L. IKENBERRY/
|
Director | |
//E. PHILLIPS KNOX//
|
Director | |
//V. B. LEISTER, JR.//
|
Director | |
//JOSEPH E. O’BRIEN//
|
Director | |
//ARTHUR R. WYATT//
|
Director |
43
Table of Contents
FIRST BUSEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005, 2004, AND 2003
CONTENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON THE
CONSOLIDATED FINANCIAL STATEMENTS |
45 | |||
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON
INTERNAL CONTROL OVER FINANCIAL REPORTING |
46 | |||
CONSOLIDATED FINANCIAL STATEMENTS |
||||
Consolidated balance sheets |
48 | |||
Consolidated statements of income |
49 | |||
Consolidated statements of stockholders’ equity |
50 – 52 | |||
Consolidated statements of cash flows |
53 – 55 | |||
Notes to consolidated financial statements |
56 – 94 |
44
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON THE
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS
To the Stockholders and Board of Directors
First Busey Corporation
Urbana, Illinois
First Busey Corporation
Urbana, Illinois
We have audited the consolidated balance sheets of First Busey Corporation and subsidiaries as
of December 31, 2005 and 2004, and the related consolidated statements of income, stockholders’
equity and cash flows for each of the three years in the period ended December 31, 2005. These
financial statements are the responsibility of the Company’s management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). 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 provided 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, 2005 and 2004, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 2005, in conformity with U.S. generally
accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of First Busey Corporation’s and
subsidiaries’ internal control over financial reporting as of December 31, 2005, based on
criteria established in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 10, 2006
expressed an unqualified opinion on management’s assessment of the effectiveness of First Busey
Corporation’s internal control over financial reporting and an unqualified opinion on the
effectiveness of First Busey Corporation’s internal control over financial reporting.
Champaign, Illinois
March 10, 2006
March 10, 2006
McGladrey & Pullen LLP serves clients’ global business needs through its membership in
RSM International (an affiliation of separate and independent accounting and consulting firms).
45
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 0N
INTERNAL CONTROL OVER FINANCIAL REPORTING
INTERNAL CONTROL OVER FINANCIAL REPORTING
To the Stockholders and Board of Directors
First Busey Corporation
Urbana, Illinois
First Busey Corporation
Urbana, Illinois
We have audited management’s assessment, included in the accompanying Management’s Annual Report on
Internal Control over Financial Reporting, that First Busey Corporation maintained effective
internal control over financial reporting as of December 31, 2005, based on criteria established in
Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). First Busey Corporation’s management is responsible for maintaining
effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting. Our responsibility is to express an opinion on
management’s assessment and an opinion on the effectiveness of the company’s internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating management’s assessment, testing and evaluating the
design and operating effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
company’s internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
McGladrey & Pullen LLP serves clients’ global business needs through its membership in
RSM International (an affiliation of separate and independent accounting and consulting firms).
46
Table of Contents
In our opinion, management’s assessment that First Busey Corporation maintained effective internal
control over financial reporting as of December 31, 2005, is fairly stated, in all material
respects, based on criteria established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also in our opinion,
First Busey Corporation maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2005, based on criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO).
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated financial statements as of and for the year ended December
31, 2005 of First Busey Corporation and Subsidiaries and our report dated March 10, 2006 expressed
an unqualified opinion.
Champaign, Illinois
March 10, 2006
March 10, 2006
47
Table of Contents
FIRST BUSEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2005 and 2004
| 2005 | 2004 | |||||||
| (Dollars in thousands) | ||||||||
ASSETS |
||||||||
Cash and due from banks |
$ | 60,957 | $ | 47,991 | ||||
Federal funds sold |
2,300 | 3,100 | ||||||
Securities available for sale |
331,237 | 352,256 | ||||||
Loans held for sale (fair value 2005 $11,877; 2004 $9,717) |
11,737 | 9,574 | ||||||
Loans (net of allowance for loan losses 2005 $23,190; 2004 $19,217) |
1,714,235 | 1,447,109 | ||||||
Premises and equipment |
37,815 | 26,295 | ||||||
Goodwill |
54,102 | 31,785 | ||||||
Other intangible assets |
5,122 | 3,852 | ||||||
Cash surrender value of bank owned life insurance |
18,894 | 17,634 | ||||||
Other assets |
27,023 | 24,845 | ||||||
Total assets |
$ | 2,263,422 | $ | 1,964,441 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
Liabilities
|
||||||||
Deposits: |
||||||||
Noninterest bearing |
$ | 265,170 | $ | 213,921 | ||||
Interest bearing |
1,544,229 | 1,344,901 | ||||||
Total deposits |
1,809,399 | 1,558,822 | ||||||
Federal funds purchased and securities sold under agreements
to repurchase |
50,113 | 41,558 | ||||||
Short-term borrowings |
— | 11,250 | ||||||
Long-term debt |
169,883 | 165,374 | ||||||
Junior subordinated debt owed to unconsolidated trusts |
50,000 | 40,000 | ||||||
Other liabilities |
14,313 | 8,565 | ||||||
Total liabilities |
2,093,708 | 1,825,569 | ||||||
Commitments and contingencies (Note 19) |
||||||||
Stockholders’ Equity |
||||||||
Preferred stock, no par value, 1,000,000 shares authorized, no
shares issued |
— | — | ||||||
Common stock, 2005 $.001 par value; 2004 no par value, authorized
40,000,000 shares; 2005 22,082,024 shares issued; 2004 21,232,059 shares issued |
22 | 6,291 | ||||||
Common stock to be issued |
408 | — | ||||||
Surplus |
44,812 | 21,696 | ||||||
Retained earnings |
129,729 | 114,359 | ||||||
Accumulated other comprehensive income |
7,282 | 9,170 | ||||||
Total stockholders’ equity before treasury stock,
unearned ESOP shares and deferred compensation
for restricted stock awards |
182,253 | 151,516 | ||||||
Common stock in treasury, at cost, 577,942 shares 2005; 623,908
shares 2004 |
(10,477 | ) | (10,173 | ) | ||||
Unearned ESOP shares and deferred compensation for restricted
Stock awards |
(2,062 | ) | (2,471 | ) | ||||
Total stockholders’ equity |
169,714 | 138,872 | ||||||
Total liabilities and stockholders’ equity |
$ | 2,263,422 | $ | 1,964,441 | ||||
See accompanying notes to consolidated financial statements.
48
Table of Contents
FIRST BUSEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 2005, 2004 and 2003
| 2005 | 2004 | 2003 | ||||||||||
| (Dollars in thousands, except per share amounts) | ||||||||||||
Interest and dividend income: |
||||||||||||
Loans, including fees |
$ | 104,971 | $ | 77,499 | $ | 65,603 | ||||||
Debt securities |
||||||||||||
Taxable interest income |
7,624 | 5,487 | 5,321 | |||||||||
Nontaxable interest income |
2,432 | 1,939 | 2,031 | |||||||||
Dividends |
713 | 722 | 745 | |||||||||
Federal funds sold |
564 | 272 | 149 | |||||||||
Total interest and dividend income |
116,304 | 85,919 | 73,849 | |||||||||
Interest expense: |
||||||||||||
Deposits |
33,938 | 21,436 | 19,644 | |||||||||
Federal funds purchased and securities sold under
agreements to repurchase |
1,179 | 399 | 146 | |||||||||
Short-term borrowings |
100 | 158 | — | |||||||||
Long-term debt |
6,670 | 5,372 | 3,578 | |||||||||
Junior subordinated debt owed to unconsolidated trusts |
3,455 | 2,676 | 2,250 | |||||||||
Total interest expense |
45,342 | 30,041 | 25,618 | |||||||||
Net interest income |
70,962 | 55,878 | 48,231 | |||||||||
Provision for loan losses |
3,490 | 2,905 | 3,058 | |||||||||
Net interest income after provision
for loan losses |
67,472 | 52,973 | 45,173 | |||||||||
Other income: |
||||||||||||
Service charges on deposit accounts |
7,895 | 7,841 | 7,319 | |||||||||
Trust fees |
5,752 | 5,339 | 4,615 | |||||||||
Commissions and brokers’ fees, net |
2,327 | 2,335 | 2,103 | |||||||||
Other service charges and fees |
2,318 | 2,035 | 1,836 | |||||||||
Security (losses) gains, net |
(54 | ) | 1,373 | 975 | ||||||||
Gain on sales of loans |
2,571 | 2,689 | 6,183 | |||||||||
Other |
2,728 | 2,178 | 1,654 | |||||||||
Total other income |
23,537 | 23,790 | 24,685 | |||||||||
Other expenses: |
||||||||||||
Salaries and wages |
23,217 | 19,529 | 18,491 | |||||||||
Employee benefits |
5,271 | 4,297 | 3,823 | |||||||||
Net occupancy expense of premises |
4,576 | 3,921 | 3,158 | |||||||||
Furniture and equipment expenses |
3,099 | 2,384 | 2,446 | |||||||||
Data processing |
1,962 | 1,915 | 1,755 | |||||||||
Amortization of intangible assets |
1,101 | 631 | 414 | |||||||||
Stationery, supplies and printing |
1,123 | 1,020 | 1,061 | |||||||||
Other |
10,766 | 9,388 | 8,821 | |||||||||
Total other expenses |
51,115 | 43,085 | 39,969 | |||||||||
Income before income taxes |
39,894 | 33,678 | 29,889 | |||||||||
Income taxes |
12,960 | 11,224 | 10,025 | |||||||||
Net income |
$ | 26,934 | $ | 22,454 | $ | 19,864 | ||||||
Basic earnings per share |
$ | 1.29 | $ | 1.10 | $ | 0.98 | ||||||
Diluted earnings per share |
$ | 1.29 | $ | 1.09 | $ | 0.97 | ||||||
See accompanying notes to consolidated financial statements.
49
Table of Contents
FIRST BUSEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Years Ended December 31, 2005, 2004 and 2003
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||
| Deferred | ||||||||||||||||||||||||||||||||
| Accumulated | Compensation | |||||||||||||||||||||||||||||||
| Other | Unearned | for Restricted | ||||||||||||||||||||||||||||||
| Common | Retained | Comprehensive | Treasury | ESOP | Stock | |||||||||||||||||||||||||||
| Stock | Surplus | Earnings | Income (loss) | Stock | Shares | Awards | Total | |||||||||||||||||||||||||
Balance, December 31, 2002 |
$ | 6,291 | $ | 20,862 | $ | 91,639 | $ | 10,276 | $ | (12,050 | ) | $ | (1,759 | ) | $ | (96 | ) | $ | 115,163 | |||||||||||||
Comprehensive income: |
||||||||||||||||||||||||||||||||
Net income |
— | — | 19,864 | — | — | — | — | 19,864 | ||||||||||||||||||||||||
Other comprehensive income, net of tax: |
||||||||||||||||||||||||||||||||
Unrealized losses on securities available for sale
arising during period, net of tax benefit of ($306) |
— | — | — | — | — | — | — | (497 | ) | |||||||||||||||||||||||
Reclassification adjustment, net of taxes of ($387) |
— | — | — | — | — | — | — | (588 | ) | |||||||||||||||||||||||
Other comprehensive income, net of tax of ($693) |
— | — | — | (1,085 | ) | — | — | — | (1,085 | ) | ||||||||||||||||||||||
Comprehensive income |
— | — | — | — | — | — | — | 18,779 | ||||||||||||||||||||||||
Purchase of 235,200 shares for the treasury |
— | — | — | — | (4,079 | ) | — | — | (4,079 | ) | ||||||||||||||||||||||
Issuance of 265,263 shares of treasury stock for option
exercise and related tax benefit |
— | (126 | ) | — | — | 3,575 | — | — | 3,449 | |||||||||||||||||||||||
Issuance of 133,823 shares of treasury stock to benefit plans |
— | 173 | — | — | 1,887 | — | — | 2,060 | ||||||||||||||||||||||||
Cash dividends: |
||||||||||||||||||||||||||||||||
Common stock at $.45 per share |
— | — | (9,215 | ) | — | — | — | — | (9,215 | ) | ||||||||||||||||||||||
Employee stock ownership plan shares allocated |
— | 59 | — | — | — | 262 | — | 321 | ||||||||||||||||||||||||
Proceeds from employee stock ownership plan debt |
— | — | — | — | — | (1,356 | ) | — | (1,356 | ) | ||||||||||||||||||||||
Amortization of restricted stock issued under restricted stock
award plan |
— | — | — | — | — | — | 55 | 55 | ||||||||||||||||||||||||
Balance, December 31, 2003 |
$ | 6,291 | $ | 20,968 | $ | 102,288 | $ | 9,191 | $ | (10,667 | ) | $ | (2,853 | ) | $ | (41 | ) | $ | 125,177 | |||||||||||||
(continued)
50
Table of Contents
FIRST BUSEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)
Years Ended December 31, 2005, 2004, and 2003
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)
Years Ended December 31, 2005, 2004, and 2003
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||
| Deferred | ||||||||||||||||||||||||||||||||
| Accumulated | Compensation | |||||||||||||||||||||||||||||||
| Other | Unearned | for Restricted | ||||||||||||||||||||||||||||||
| Common | Retained | Comprehensive | Treasury | ESOP | Stock | |||||||||||||||||||||||||||
| Stock | Surplus | Earnings | Income (loss) | Stock | Shares | Awards | Total | |||||||||||||||||||||||||
Balance, December 31, 2003 |
$ | 6,291 | $ | 20,968 | $ | 102,288 | $ | 9,191 | $ | (10,667 | ) | $ | (2,853 | ) | $ | (41 | ) | $ | 125,177 | |||||||||||||
Comprehensive Income: |
||||||||||||||||||||||||||||||||
Net Income |
— | — | 22,454 | — | — | — | — | 22,454 | ||||||||||||||||||||||||
Other comprehensive income, net of tax: |
||||||||||||||||||||||||||||||||
Unrealized gains on securities available for sale arising
during the period, net of tax benefit of $535 |
— | — | — | — | — | — | — | 806 | ||||||||||||||||||||||||
Reclassification adjustment, net of taxes of ($546) |
— | — | — | — | — | — | — | (827 | ) | |||||||||||||||||||||||
Other comprehensive income, net of tax of ($11) |
— | — | — | (21 | ) | — | — | — | (21 | ) | ||||||||||||||||||||||
Comprehensive Income |
— | — | — | — | — | — | — | 22,433 | ||||||||||||||||||||||||
Purchase of 123,727 shares for the treasury |
— | — | — | — | (2,264 | ) | — | — | (2,264 | ) | ||||||||||||||||||||||
Issuance of 173,550 shares of treasury stock for option
exercise and related tax benefit |
— | 356 | — | — | 2,220 | — | — | 2,576 | ||||||||||||||||||||||||
Issuance of 42,113 shares of treasury stock to benefit plans |
— | 270 | — | — | 538 | — | — | 808 | ||||||||||||||||||||||||
Cash dividends: |
||||||||||||||||||||||||||||||||
Common stock at $.51 per share |
— | — | (10,383 | ) | — | — | — | — | (10,383 | ) | ||||||||||||||||||||||
Employee stock ownership plan shares allocated |
— | 102 | — | — | — | 397 | — | 499 | ||||||||||||||||||||||||
Amortization of restricted stock issued under restricted stock
award plan |
— | — | — | — | — | — | 26 | 26 | ||||||||||||||||||||||||
Balance, December 31, 2004 |
$ | 6,291 | $ | 21,696 | $ | 114,359 | $ | 9,170 | $ | (10,173 | ) | $ | (2,456 | ) | $ | (15 | ) | $ | 138,872 | |||||||||||||
(continued)
51
Table of Contents
FIRST BUSEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)
YEARS ENDED DECEMBER 31, 2005, 2004, AND 2003
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)
YEARS ENDED DECEMBER 31, 2005, 2004, AND 2003
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||
| Deferred | ||||||||||||||||||||||||||||||||||||
| Accumulated | Compensation | |||||||||||||||||||||||||||||||||||
| Common | Other | Unearned | for Restricted | |||||||||||||||||||||||||||||||||
| Common | Stock to be | Retained | Comprehensive | Treasury | ESOP | Stock | ||||||||||||||||||||||||||||||
| Stock | Issued | Surplus | Earnings | Income (loss) | Stock | Shares | Awards | Total | ||||||||||||||||||||||||||||
Balance, December 31, 2004 |
$ | 6,291 | $ | — | $ | 21,696 | $ | 114,359 | $ | 9,170 | $ | (10,173 | ) | $ | (2,456 | ) | $ | (15 | ) | $ | 138,872 | |||||||||||||||
Comprehensive Income: |
||||||||||||||||||||||||||||||||||||
Net Income |
— | — | — | 26,934 | — | — | — | — | 26,934 | |||||||||||||||||||||||||||
Other comprehensive income, net of tax: |
||||||||||||||||||||||||||||||||||||
Unrealized losses on securities available for sale
arising
during the period, net of tax benefit of $1,265 |
— | — | — | — | — | — | — | — | (1,921 | ) | ||||||||||||||||||||||||||
Reclassification adjustment, net of tax benefit of $21 |
— | — | — | — | — | — | — | — | 33 | |||||||||||||||||||||||||||
Other comprehensive loss, net of tax benefit of $1,244 |
— | — | — | — | (1,888 | ) | — | — | — | (1,888 | ) | |||||||||||||||||||||||||
Comprehensive Income |
— | — | — | — | — | — | — | — | 25,046 | |||||||||||||||||||||||||||
Reclassification of common stock from no par value to $.001
par value |
(6,270 | ) | — | 6,270 | — | — | — | — | — | — | ||||||||||||||||||||||||||
Issuance of 849,965 shares of common stock for
purchase of Tarpon Coast Bancorp, Inc. |
1 | 408 | 16,369 | — | — | — | — | — | 16,778 | |||||||||||||||||||||||||||
Purchase of 156,934 shares of treasury |
— | — | — | — | — | (3,235 | ) | — | — | (3,235 | ) | |||||||||||||||||||||||||
Issuance of 192,900 shares of treasury stock for option
exercise and related tax benefit |
— | — | 285 | — | — | 2,791 | — | — | 3,076 | |||||||||||||||||||||||||||
Issuance of 10,000 shares of treasury stock to benefit
plans |
— | — | 67 | — | — | 140 | — | — | 207 | |||||||||||||||||||||||||||
Cash dividends: |
||||||||||||||||||||||||||||||||||||
Common stock at $.56 per share |
— | — | — | (11,564 | ) | — | — | — | — | (11,564 | ) | |||||||||||||||||||||||||
Employee stock ownership plan shares allocated |
— | — | 125 | — | — | — | 398 | — | 523 | |||||||||||||||||||||||||||
Amortization of restricted stock issued under restricted
stock award plan |
— | — | — | — | — | — | — | 11 | 11 | |||||||||||||||||||||||||||
Balance, December 31, 2005 |
$ | 22 | $ | 408 | $ | 44,812 | $ | 129,729 | $ | 7,282 | $ | (10,477 | ) | $ | (2,058 | ) | $ | (4 | ) | $ | 169,714 | |||||||||||||||
See accompanying notes to consolidated financial statements
52
Table of Contents
FIRST BUSEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2005, 2004 and 2003
| 2005 | 2004 | 2003 | ||||||||||
| (Dollars in thousands) | ||||||||||||
Cash Flows from Operating Activities
|
||||||||||||
Net income |
$ | 26,934 | $ | 22,454 | $ | 19,864 | ||||||
Adjustments to reconcile net income to net cash provided by
operating activities: |
||||||||||||
Stock-based compensation |
11 | 26 | 55 | |||||||||
Depreciation and amortization |
4,720 | 3,525 | 3,534 | |||||||||
Provision for loan losses |
3,490 | 2,905 | 3,058 | |||||||||
Fair value adjustment on employee stock ownership plan
shares allocated |
125 | 102 | 59 | |||||||||
Provision for deferred income taxes |
(698 | ) | (1,071 | ) | 344 | |||||||
Stock dividends received |
(286 | ) | (457 | ) | (495 | ) | ||||||
Accretion of security discounts, net |
(1,027 | ) | (563 | ) | (293 | ) | ||||||
Security losses (gains), net |
54 | (1,373 | ) | (975 | ) | |||||||
Gain on sales of loans, net |
(2,571 | ) | (2,689 | ) | (6,183 | ) | ||||||
Loss (gain) on sales and dispositions of premises and
equipment |
4 | 42 | (423 | ) | ||||||||
Increase in cash surrender value of bank owned life
insurance |
(796 | ) | (798 | ) | (727 | ) | ||||||
Market valuation adjustment on ORE properties |
— | 760 | 989 | |||||||||
Net gains on sale of ORE properties |
(179 | ) | (19 | ) | (24 | ) | ||||||
Increase in deferred compensation |
142 | 577 | 415 | |||||||||
Change in assets and liabilities: |
||||||||||||
Increase in other assets |
(4,460 | ) | (875 | ) | (1,642 | ) | ||||||
Increase (decrease) in other liabilities |
4.438 | 560 | (1,244 | ) | ||||||||
Net cash provided by operating activities before
loan originations and sales |
29,901 | 23,106 | 16,312 | |||||||||
Loans originated for sale |
(178,404 | ) | (159,560 | ) | (400,967 | ) | ||||||
Proceeds from sales of loans |
178,812 | 185,057 | 437,382 | |||||||||
Net cash provided by operating activities |
30,309 | 48,603 | 52,727 | |||||||||
Cash Flows from Investing Activities
|
||||||||||||
Securities available for sale: |
||||||||||||
Purchases |
(178,151 | ) | (271,763 | ) | (212,444 | ) | ||||||
Proceeds from sales |
69,695 | 55,641 | 19,033 | |||||||||
Proceeds from maturities |
148,609 | 140,244 | 202,493 | |||||||||
Decrease (increase) in Federal funds sold |
4,546 | (1,507 | ) | — | ||||||||
Increase in loans |
(156,573 | ) | (156,755 | ) | (124,402 | ) | ||||||
Purchases of premises and equipment |
(6,293 | ) | (3,529 | ) | (3,724 | ) | ||||||
Proceeds from sales of premises and equipment |
70 | 7 | 6,216 | |||||||||
Proceeds from sale of ORE properties |
4,732 | 66 | 1,115 | |||||||||
Increase in investment in life insurance |
(465 | ) | — | (5,000 | ) | |||||||
Purchase of subsidiary, net of cash and due from banks
acquired |
(12,392 | ) | (35,990 | ) | — | |||||||
Net cash used in investing activities |
(126,222 | ) | (273,586 | ) | (116,713 | ) | ||||||
(continued)
53
Table of Contents
FIRST BUSEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Years Ended December 31, 2005, 2004 and 2003
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Years Ended December 31, 2005, 2004 and 2003
| 2005 | 2004 | 2003 | ||||||||||
| (Dollars in thousands) | ||||||||||||
Cash Flows from Financing Activities
|
$ | 47,257 | $ | 83,058 | $ | (27,254 | ) | |||||
Net increase (decrease) in certificates of deposit |
$ | 47,257 | $ | 83,058 | $ | (27,254 | ) | |||||
Net increase in demand deposits, money market and savings
accounts |
63,890 | 72,085 | 70,244 | |||||||||
Net increase in federal funds purchased and securities
sold under agreements to repurchase |
5,591 | 101 | 13,533 | |||||||||
Proceeds from short-term borrowings |
4,000 | 15,250 | — | |||||||||
Principal payments on short-term borrowings |
(15,250 | ) | (5,250 | ) | — | |||||||
Proceeds from long-term debt |
52,500 | 74,655 | 20,000 | |||||||||
Principal payments on long-term debt |
(47,593 | ) | (25,059 | ) | — | |||||||
Proceeds from issuance of junior subordinated debt owed to
unconsolidated trusts |
10,000 | 15,000 | — | |||||||||
Cash dividends paid |
(11,564 | ) | (10,383 | ) | (9,215 | ) | ||||||
Purchase of treasury stock |
(3,235 | ) | (2,264 | ) | (4,079 | ) | ||||||
Proceeds from sales of treasury stock |
3,283 | 3,384 | 5,509 | |||||||||
Net cash provided by financing activities |
108,879 | 220,577 | 68,738 | |||||||||
Net increase (decrease) in cash and due from banks |
12,966 | (4,406 | ) | 4,752 | ||||||||
Cash and due from banks, beginning |
47,991 | 52,397 | 47,645 | |||||||||
Cash and due from banks, ending |
$ | 60,957 | $ | 47,991 | $ | 52,397 | ||||||
54
Table of Contents
FIRST BUSEY CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Years Ended December 31, 2005, 2004 and 2003
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Years Ended December 31, 2005, 2004 and 2003
| 2005 | 2004 | 2003 | ||||||||||
| (Dollars in thousands) | ||||||||||||
Purchase of Subsidiary: |
||||||||||||
Cash payment |
$ | 19,131 | $ | 42,072 | $ | — | ||||||
Common stock issued |
16,778 | — | — | |||||||||
Total purchase price |
$ | 35,909 | $ | 42,072 | $ | — | ||||||
Assets acquired: |
||||||||||||
Cash and due from other banks |
$ | 6,739 | $ | 6,082 | $ | — | ||||||
Federal funds sold |
3,746 | 1,593 | — | |||||||||
Securities available for sale |
21,007 | 49,285 | — | |||||||||
Loans held for sale |
— | 1,853 | — | |||||||||
Loans (net of allowance for loan losses of
$1,208 and $2,069) |
114,744 | 147,758 | — | |||||||||
Premises and equipment |
8,787 | 3,483 | — | |||||||||
Goodwill |
22,317 | 24,405 | — | |||||||||
Other intangible assets |
2,371 | 2,383 | — | |||||||||
Other assets |
1,701 | 4,392 | — | |||||||||
Liabilities assumed: |
||||||||||||
Deposits |
(139,430 | ) | (147,084 | ) | — | |||||||
Securities sold under agreements to repurchase |
(2,964 | ) | (25,457 | ) | — | |||||||
Short-term borrowings |
— | (1,250 | ) | — | ||||||||
Long-term debt |
— | (23,322 | ) | — | ||||||||
Other liabilities |
(3,109 | ) | (2,049 | ) | — | |||||||
| $ | 35,909 | $ | 42,072 | $ | — | |||||||
Cash payments for: |
||||||||||||
Interest |
$ | 43,210 | $ | 28,707 | $ | 26,395 | ||||||
Income taxes |
$ | 13,991 | $ | 10,555 | $ | 9,864 | ||||||
Non-cash Investing and Financing Activities: |
||||||||||||
Other real estate acquired in settlement of loans |
$ | 701 | $ | 138 | $ | 527 | ||||||
Employee stock ownership plan shares allocated |
$ | 398 | $ | 397 | $ | 262 | ||||||
Proceeds from employee stock ownership plan debt |
$ | — | $ | — | $ | 1,356 | ||||||
See accompanying notes to consolidated financial statements.
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BUSEY CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Significant Accounting Policies
Description of business:
First Busey Corporation (the Corporation) is a financial holding company whose subsidiaries provide
a full range of banking services, including security broker/dealer services and investment
management and fiduciary services, to individual and corporate customers through its locations in
Central Illinois, Indianapolis, Indiana, Fort Myers, Florida, and Port Charlotte, Florida. The
Corporation and subsidiaries are subject to competition from other financial institutions and
non-financial institutions providing financial products and services. First Busey Corporation and
its subsidiaries are also 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 subsidiary: BAT, Inc.; Busey Bank Florida; Tarpon Coast National
Bank and its subsidiary Tarpon Coast Financial Services; First Busey Resources, Inc.; Busey
Investment Group, Inc. and its subsidiaries: First Busey Trust & Investment Company, Inc., First
Busey Securities, Inc., Busey Insurance Services, Inc., and Busey Capital Management. The
financial statements also include the following wholly owned entities on a deconsolidated basis:
First Busey Capital Trust I, First Busey Statutory Trust II, and First Busey Statutory Trust, III.
All significant intercompany balances and transactions have been eliminated in consolidation.
The consolidated financial statements of First Busey Corporation have been prepared in conformity
with accounting principles generally accepted in the United States of America and conform to
predominant practice within the banking industry.
Use of estimates
In preparing the accompanying consolidated financial statements, the Corporation’s management is
required to make estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the financial statements and the reported amounts of revenues and
expenses for the reporting period. Actual results could differ from those estimates. Material
estimates which are particularly susceptible to significant change in the near term relate to the
market value of investment securities, the determination of the allowance for loan losses,
valuation of other real estate, or other properties acquired in connection with foreclosures or in
satisfaction of amounts due from borrowers on loans, and consideration of impairment of goodwill
and other intangible assets.
Trust assets
Assets held for customers in a fiduciary or agency capacity, other than trust cash on deposit at
the Corporation’s bank subsidiaries, are not assets of the Corporation and, accordingly, are not
included in the accompanying consolidated financial statements.
Cash flows
For purposes of the consolidated statement of 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. Cash flows from loans and
deposits are also treated as net increases or decreases.
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
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NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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, with unrealized gains and losses
excluded from earnings and
reported in other comprehensive income.
Purchase premiums and discounts are recognized in interest income using the interest method over
the terms of the securities. Declines in the fair value of available-for-sale securities below
their cost that are deemed to be other than temporary are reflected in earnings as realized losses.
In estimating other-than-temporary impairment losses, management considers the length of time and
extent to which the fair value has been less than cost, the financial condition and near-term
prospects of the issuer, and the intent and ability of the Corporation to retain its investment in
the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.
Gains and losses on the sale of securities are recorded on the trade date and are determined using
the specific identification method.
Loans held for sale
Loans held for sale are those loans the Corporation has the intent to sell in the foreseeable
future. They consist of fixed-rate mortgage loans conforming to established guidelines and held
for sale to investors and the secondary mortgage market. Loans held for sale are carried at the
lower of aggregate cost or estimated fair value, as determined by aggregate outstanding commitments
from investors or current investor yield requirements. Net unrealized losses, if any, are
recognized through a valuation allowance by charges to income. Gains and losses on sales of loans
are recognized at settlement dates and are determined by the difference between the sales proceeds
and the carrying amount of the loans after allocating cost to servicing rights retained.
The Corporation enters into commitments to originate loans whereby the interest rate on the loan is
determined prior to funding (rate lock commitments). Rate lock commitments on mortgage loans that
are intended to be sold are considered to be derivatives. Accordingly, such commitments along with
any related fees received from potential borrowers are recorded at fair value, with changes in fair
value recorded in the net gain or loss on sale of mortgage loans. Fair value is based on the
change in estimated fair value of the underlying mortgage loan. The fair value is subject to
change primarily due to changes in interest rates and is considered immaterial to the consolidated
financial statements.
Loan servicing
Servicing assets are recognized as separate assets when rights are acquired through the sale of
mortgage loans. The Corporation generally retains the right to service mortgage loans sold to
others. For sales of mortgage loans, a portion of the cost of originating the loan is allocated to
the servicing right based on relative fair value. Fair value is based on market prices for
comparable mortgage servicing contracts, when available, or alternatively, is based on a valuation
model that calculates the present value of estimated future net servicing income. Capitalized
servicing rights are reported in other assets and are amortized into other income in proportion to,
and over the period of, the estimated future net servicing income of the underlying financial
assets.
Mortgage servicing rights are periodically evaluated for impairment based on the fair value of
those rights as compared to amortized cost. Fair values are estimated using discounted cash flows
based on current expected future prepayment rates. For purposes of measuring impairment, the
rights must be stratified by one or more predominant risk characteristics of the underlying loans.
The Corporation stratifies its capitalized mortgage servicing rights based on the origination date,
interest rate, and type of the underlying loans. The amount of impairment recognized is the
amount, if any, by which the amortized cost of the rights for each stratum exceeds its fair value.
If the Corporation later determines that all or a portion of the impairment no longer exists for a
particular group of loans, a reduction of the allowance may be recorded as an increase to income.
Servicing fee income is recorded for fees earned for servicing loans. The fees are based on a
contractual percentage of the outstanding principal and are recorded as income when earned. The
amortization of mortgage servicing rights is netted against loan servicing fee income.
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NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Loans
Loans receivable that management has the intent and ability to hold for the foreseeable future or
until maturity or pay-off are stated at the amount of outstanding unpaid principal, adjusted for
chargeoffs, the allowance for loan losses, and any deferred fees or costs on originated loans.
Loan origination and commitment fees, net of certain direct loan origination costs, are deferred
and the net amount amortized as an adjustment of the related loan’s yield. The Corporation is
generally amortizing these amounts over the contractual life. However, for long-term fixed-rate
mortgages the Corporation has anticipated prepayments and assumes an estimated economic life of 5
years or less. Commitment fees and costs are generally based upon a percentage of a customer’s
unused line of credit and fees related to standby letters of credit and are recognized over the
commitment period when the likelihood of exercise is remote. If the commitment is subsequently
exercised during the commitment period, the remaining unamortized commitment fee at the time of
exercise is recognized over the life of the loan as an adjustment of the yield.
Interest is accrued daily on the outstanding balances. The accrual of interest on mortgage and
commercial loans is discontinued at the time the loan is 90 days past due unless the credit is
well-secured and in process of collection. Personal loans are typically charged off no later than
180 days past due. Past due status is based on contractual terms of the loan. In all cases, loans
are placed on non-accrual or charged off at an earlier date if collection of principal or interest
is considered doubtful.
Interest accrued in the current year but not collected for loans that are placed on nonaccrual
status or charged off is reversed against interest income. Interest accrued during the prior year
but not collected for loans that are placed on nonaccrual status or charged off is charged against
the allowance for loan losses. The interest on these loans is accounted for on the cash-basis or
cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status
when all the principal and interest amounts contractually due are brought current and future
payments are reasonably assured.
Allowance for loan losses
The allowance for loan losses is established as losses are estimated to have occurred through a
provision for loan losses charged to earnings. Loan losses are charged against the allowance for
loan losses when management believes the uncollectibility of the loan balance is confirmed.
Subsequent recoveries, if any, are credited to the allowance.
The allowance for loan losses is evaluated on a regular basis by management and is based upon
management’s periodic review of the collectibility of the loans in light of historical experience,
the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s
ability to repay, estimated value of any underlying collateral and prevailing economic conditions.
This evaluation is inherently subjective as it requires estimates that are susceptible to
significant revision as more information becomes available.
In addition, regulatory agencies as an integral part of their examination process, periodically
review the allowance for loan losses, and may require the Corporation to make additions to the
allowance based on their judgment about information available to them at the time of their
examinations.
The allowance consists of specific, general and unallocated components. The specific component
relates to loans that are classified as doubtful, substandard, or special mention. For such loans
that are also classified as impaired, an allowance is established when the discounted cash flows
(or collateral value or observable market price) of the impaired loan is lower than the carrying
amount of that loan. The general component covers non-classified loans and is based on historical
loss experience adjusted for qualitative factors. An unallocated component is maintained to cover
uncertainties that could affect management’s estimate of probable losses. The unallocated
component of the allowance reflects the margin of imprecision inherent in the underlying
assumptions used in the methodologies for estimating specific and general losses in the portfolio.
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NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
A loan is impaired when, based on current information and events, it is probable the Corporation
will be unable to collect scheduled payments of principal and interest payments when due according
to the terms of the loan agreement. Factors
considered by management in determining impairment include payment status, collateral value, and
the probability of collecting scheduled principal and interest payments when due. Loans that
experience insignificant payment delays and payment shortfalls generally are not classified as
impaired. Management determines the significance of payment delays and payment shortfalls on a
case-by-case basis, taking into consideration all of the circumstances surrounding the loans and
the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior
payment record, and the amount of the shortfall in relation to the principal and interest owed.
Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the
present value of the expected future cash flows discounted at the loan’s effective interest rate,
the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral
dependent.
Large groups of smaller balance homogenous loans are collectively evaluated for impairment.
Accordingly, the Corporation does not separately identify individual consumer and residential loans
for impairment disclosures unless such loans are the subject of a restructuring agreement .
Premises and equipment
Land is stated at cost. 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. The estimated useful lives for premises and equipment are:
| Asset Description | Estimated Useful Life | |
Buildings
|
20 — 40 years | |
Furniture and equipment
|
3 — 10 years | |
Data processing equipment
|
3 — 5 years | |
Software
|
2 — 3 years | |
Leasehold improvements
|
3 — 10 years | |
Long-lived assets
Management periodically reviews the carrying amount of its long-lived assets to determine if an
impairment has occurred or whether changes in circumstances have occurred that would require a
revision to the remaining useful lives of those assets. In making such determination, management
evaluates the performance, on an undiscounted basis, of the underlying operations or assets which
give rise to such amount.
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, which establishes
a new cost. 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. The Corporation recognized no
loss provision during the year ended December 31, 2005, and $760,000 and $989,000 during the years
ended December 31, 2004, and 2003 respectively in valuation allowances associated with the carrying
amount of properties held in OREO. Revenue and expense from the operations of foreclosed assets
and changes in the valuation allowance are included in operations. Other real estate owned
included in other assets was approximately $236,000 and $4,212,000 as of December 31, 2005, and
2004, respectively.
Goodwill and other intangible assets
Costs in excess of the estimated fair value of identifiable net tangible assets acquired consist of
goodwill and core deposit intangible assets. Goodwill is not amortized over its useful life, but
is subject to at least annual impairment assessments. The Corporation performs assessments by
comparing the fair value of outstanding assets less fair value of the entity to the book value of
equity for each reportable segment.
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NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Core deposit intangible assets are amortized on a straight-line basis over the estimated period
benefited up to 10 years. Total amortization expense was approximately $1,101,000, $631,000, and
$414,000 for the years ended December 31, 2005, 2004, and 2003, respectively.
Goodwill disclosures are as follows:
| Tarpon Coast | |||||||||||||||||
| Busey Bank | National Bank | Other | Total | ||||||||||||||
| (Dollars in thousands) | |||||||||||||||||
Balance, December
31, 2003 |
$ | 5,832 | — | $ | 1,548 | $ | 7,380 | ||||||||||
Acquired during year |
24,405 | — | — | 24,405 | |||||||||||||
Impairment losses |
— | — | — | — | |||||||||||||
Balance, December
31, 2004 |
$ | 30,237 | $ | — | $ | 1,548 | $ | 31,785 | |||||||||
Acquired during year |
— | 22,317 | — | 22,317 | |||||||||||||
Impairment losses |
— | — | — | — | |||||||||||||
Balance, December
31, 2005 |
$ | 30,237 | $ | 22,317 | $ | 1,548 | $ | 54,102 | |||||||||
Other intangible asset disclosures are as follows:
| As of December 31, 2005 | ||||||||
| Gross Carrying | Accumulated | |||||||
| Amount | Amortization | |||||||
| (Dollars in thousands) | ||||||||
Amortized intangible assets: |
||||||||
Core deposit intangibles |
$ | 12,760 | $ | 7,638 | ||||
Aggregate amortization expense: |
||||||||
2005 |
$ | 1,101 | ||||||
2004 |
631 | |||||||
2003 |
414 | |||||||
Estimated amortization expense: |
||||||||
2006 |
$ | 1,376 | ||||||
2007 |
934 | |||||||
2008 |
846 | |||||||
2009 |
807 | |||||||
2010 |
651 | |||||||
Thereafter |
508 | |||||||
| 5,122 | ||||||||
Intangible assets are reviewed for possible impairment when events or changed circumstances may
affect the underlying basis of the net assets. Such reviews include an analysis of current results
and take into consideration the discounted value of projected operating cash flows.
Cash surrender value of bank-owned life insurance
The Corporation has purchased life insurance policies on certain executives and senior officers.
Life insurance is recorded at its cash surrender value.
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BUSEY CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Income taxes
The Corporation and its subsidiaries file consolidated Federal and State income tax returns with
each subsidiary 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 in the opinion of management it
is more likely than not that a portion of deferred tax assets will not 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.
Reclassifications
Reclassifications have been made to certain account balances, with no effect on net income or
stockholders’ equity, as of and for the years ended December 31, 2004 and 2003, to be consistent
with the classifications adopted as of and for the year ended December 31, 2005.
On July 23, 2004, First Busey Corporation’s Board of Directors approved a three-for-two stock
split. The stock split was effected in the form of a 50% dividend issued on August 3, 2004, for
shareholders of record at the close of business on August 2, 2004. Fractional share amounts
resulting from the split were paid to shareholders in cash. Share and per share data have been
retroactively adjusted as if the stock split had occurred on January 1, 2003.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock-based employee compensation
The Corporation has two stock-based employee compensation plans which have been in existence for
all periods presented, and which are more fully described in Note 16. As permitted under
accounting principles generally accepted in the United States of America, grants of options under
the plans are accounted for under the recognition and measurement principles of APB No. 25,
“Accounting for Stock Issued to Employees,” and related interpretations. Because options granted
under the plans had an exercise price equal to market value of the underlying common stock on the
date of grant, no stock-based employee compensation cost is included in determining net income.
The following table illustrates the effect on net income and earnings per share if the Corporation
had applied the fair value recognition provisions of Statement of Financial Accounting Standard No.
123, “Accounting for Stock-Based Compensation,” to stock-based employee compensation.
| 2005 | 2004 | 2003 | ||||||||||
| (in thousands, except per share data) | ||||||||||||
Net income: |
||||||||||||
As reported |
$ | 26,934 | $ | 22,454 | $ | 19,864 | ||||||
Deduct total stock-based compensation expense determined
under the fair value method for all awards, net of related
tax effects |
289 | 336 | 257 | |||||||||
Pro forma |
$ | 26,645 | $ | 22,118 | $ | 19,607 | ||||||
Basic earnings per share: |
||||||||||||
As reported |
$ | 1.29 | $ | 1.10 | $ | 0.98 | ||||||
Pro forma |
$ | 1.28 | $ | 1.09 | $ | 0.96 | ||||||
Diluted earnings per share: |
||||||||||||
As reported |
$ | 1.29 | $ | 1.09 | $ | 0.97 | ||||||
Pro forma |
$ | 1.27 | $ | 1.08 | $ | 0.95 | ||||||
The Black-Scholes option pricing model was developed for use in estimating the fair value of traded
options which have no vesting restrictions. 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.
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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.
| 2005 | 2004 | |||||||||||
| Block 1 | Block 2 | |||||||||||
Number of options granted |
54,000 | 54,000 | 300,000 | |||||||||
Risk-free interest rate |
3.28 | % | 1.40 | % | 2.12 | % | ||||||
Expected life, in years |
4.64 | 5 | 5 | |||||||||
Expected volatility |
18.02 | % | 18.20 | % | 18.02 | % | ||||||
Expected dividend yield |
2.82 | % | 2.80 | % | 2.60 | % | ||||||
Estimated fair value per option |
$ | 2.82 | $ | 2.04 | $ | 2.55 | ||||||
The Corporation awarded no stock options during 2003.
Earnings per share
Basic earnings per share are computed by dividing net income for the year by the weighted average
number of shares outstanding, including common stock to be issued.
Diluted earnings per share are 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 following reflects net income per share calculations for basic and diluted methods:
| For the Years Ended December 31, | ||||||||||||
| 2005 | 2004 | 2003 | ||||||||||
Net income available to common shareholders |
$ | 26,934,000 | $ | 22,454,000 | $ | 19,864,000 | ||||||
Basic average common shares outstanding |
20,804,804 | 20,370,473 | 20,343,180 | |||||||||
Dilutive potential due to stock options |
114,075 | 140,950 | 191,160 | |||||||||
Average number of common shares and dilutive
potential common shares outstanding |
20,918,879 | 20,511,423 | 20,534,340 | |||||||||
Basic net income per share |
$ | 1.29 | $ | 1.10 | $ | 0.98 | ||||||
Diluted net income per share |
$ | 1.29 | $ | 1.09 | $ | 0.97 | ||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Impact of new financial accounting standards
In December, 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial
Accounting Standard No. 123R (“SFAS No. 123R”), Share Based Payment ¸ which is an amendment of FASB
Statement Nos. 123 and 95. SFAS No. 123R changes, among other things, the manner in which
share-based compensation, such as stock options, will be accounted for by both public and
non-public companies. For public companies, the cost of employee services received in exchange for
equity instruments including options and restricted stock awards generally will be measured at fair
value at the grant date. The grant date fair value will be estimated using option-pricing models
adjusted for the unique characteristics of those options and instruments, unless observable market
prices for the same or similar options are available. The cost will be recognized over the
requisite service period, often the vesting period. Tax benefits will be recognized related to the
cost for share-based payments to the extent the equity instrument would ordinarily result in a
future tax deduction under existing law. Tax expense will be recognized to write off excess
deferred tax assets when the tax deduction upon settlement of a vested option is less than the
expense recorded in the statement of operations (to the extent not offset by prior tax credits for
settlements where the tax deduction was greater than the fair value cost).
The changes in accounting will replace existing requirements under SFAS No. 123, Accounting for
Stock-Based Compensation, and will eliminate the ability to account for share-based compensation
transactions using APB Opinion No. 25, Accounting for Stock Issued to Employees, which does not
require companies to expense options if the exercise price is equal to the trading price at the
date of grant. The accounting for similar transactions involving parties other than employees or
the accounting for employee stock ownership plans that are subject to AICPA Statement of Position
93-6, Employers’ Accounting for Employee Stock Ownership Plans, would remain unchanged.
The Corporation is required to implement SFAS No. 123R beginning January 1, 2006. As of December
31, 2005, the Corporation plans to continue issuing stock options. We currently estimate the
expense associated with 2006 equity-based compensation to be approximately $0.01 to $0.02 per
share. This amount is subject to revisions as we finalize certain assumptions related to 2006,
including the size and nature of awards and forfeiture rates. SFAS No. 123R also requires the
benefits of tax deductions in excess of recognized compensation cost be reported as financing cash
flow rather than as an operating cash flow as was previously required. We cannot estimate what the
future tax benefits will be as the amounts depend on, among other factors, future employee stock
option exercises.
On November 3, 2005, the FASB issued FASB Staff Position (“FSP”) No. FAS 115-1, “The Meaning of
Other-than-Temporary Impairment and Its Application to Certain Investments,” which provides
guidance for the determination as to when an investment is considered impaired, whether that
impairment is other than temporary, and the measurement of an impaired loss. This FSP is
applicable for debt and equity securities within the scope of SFAS No. 115, “Accounting for Certain
Investments in Debt and Equity Securities.” This guidance requires the evaluation of investments
that have a fair value less than its cost and the determination of whether the impairments are
other than temporary. This guidance also requires the disclosure of quantitative information as
well as additional information the Corporation used to reach its conclusion. FSP No. FAS 115-1
applies for reporting periods beginning after December 15, 2005. This FSP has been adopted and did
not have a material effect on the Corporation’s financial statements.
Comprehensive income
Accounting principles generally require that recognized revenue, expenses, gains and losses be
included in net income. Although certain changes in assets and liabilities, such as unrealized
gains and losses on available-for-sale securities, are reported as a separate component of the
equity section of the balance sheet, such items, along with net income, are components of
comprehensive income.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2. Business Combinations
On July 29, 2005, First Busey Corporation acquired all the outstanding common stock of Tarpon Coast
Bancorp, Inc. (Tarpon) and its subsidiary, Tarpon Coast National Bank, a $153 million bank
headquartered in Port Charlotte, Florida. First Busey Corporation issued 849,965 shares of common
stock and paid cash of $18,797,000 to Tarpon shareholders, which was funded through the issuance of
long-term debt and $10 million in additional trust preferred securities. Of the 849,965 shares of
common stock issued in the Tarpon acquisition, stock certificates representing 20,658 shares have
not been issued to shareholders by First Busey pending the receipt of the appropriate instructions
from Tarpon shareholders. The value of these shares has been included in “Common stock to be
issued” on First Busey’s consolidated balance sheet. These shares are also included in the
Corporation’s earnings-per-share calculations. The transaction has been accounted for as a purchase
and the results of operations since the acquisition date have been included in the consolidated
financial statements. The purchase price of $35,909,000 was allocated based upon the fair value of
the assets acquired and liabilities assumed. The excess of the total acquisition cost over the
fair value of the net tangible assets acquired has been allocated to core deposit intangible and
goodwill. The core deposit intangible of $2,371,000 is being amortized over periods ranging from
three to five years.
On June 1, 2004, First Busey Corporation acquired all the outstanding common stock of First Capital
Bankshares, Inc. and its subsidiary First Capital Bank, a $239 million bank headquartered in
Peoria, Illinois. This acquisition expands the Corporation’s banking presence in central Illinois
into Peoria and surrounding communities. The transaction has been accounted for as a purchase, and
the results of operations of both entities since the acquisition date have been included in the
consolidated financial statements. The purchase price of $42,072,000 was allocated based upon the
fair value of assets acquired and liabilities assumed. The excess of total acquisition cost over
the fair value of the net tangible assets acquired has been allocated to core deposit intangible
assets and goodwill. The core deposit intangibles of $2,383,000 are being amortized over periods
ranging from three to ten years.
On May 20, 2005, First Capital Bank merged into Busey Bank bringing all Illinois banking
locations under one state bank charter. Following the merger, Busey Bank has 21 banking centers
located in Illinois.
Pro forma unaudited operating results for the twelve months ended December 30, 2005 and
2004, giving effect to the Tarpon Coast acquisition as if it had occurred as of January 1, 2004 are
as follows:
| 2005 | 2004 | |||||||
| (Dollars in thousands except per share data | ||||||||
Interest income |
$ | 120,954 | $ | 97,032 | ||||
Interest expense |
46,601 | 34,220 | ||||||
Provision for loan losses |
3,550 | 3,520 | ||||||
Noninterest income |
24,206 | 25,959 | ||||||
Noninterest expense |
55,694 | 50,867 | ||||||
Income before income taxes |
$ | 39,315 | $ | 34,384 | ||||
Income taxes |
12,912 | 11,489 | ||||||
Net income |
$ | 26,403 | $ | 22,895 | ||||
Earnings per share – basic |
$ | 1.24 | $ | 1.08 | ||||
Earnings per share – diluted |
$ | 1.23 | $ | 1.07 | ||||
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FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pro forma unaudited operating results for the twelve months ended December 30, 2004 and
2003, giving effect to the First Capital acquisition as if it had occurred as of January 1, 2003
are as follows:
| 2004 | 2003 | |||||||
| (Dollars in thousands except per share data | ||||||||
Interest income |
$ | 90,344 | $ | 84,556 | ||||
Interest expense |
31,741 | 30,556 | ||||||
Provision for loan losses |
3,390 | 3,898 | ||||||
Noninterest income |
24,645 | 26,513 | ||||||
Noninterest expense |
45,272 | 44,541 | ||||||
Income before income taxes |
$ | 34,586 | $ | 32,074 | ||||
Income taxes |
11,585 | 10,682 | ||||||
Net income |
$ | 23,001 | $ | 21,392 | ||||
Earnings per
share — basic |
$ | 1.13 | $ | 1.05 | ||||
Earnings per
share — diluted |
$ | 1.12 | $ | 1.04 | ||||
Note 3. Cash and Due from Banks
The Corporation’s banking and thrift subsidiaries are required to maintain certain cash reserve
balances with the Federal Reserve Banks of Chicago and Atlanta, which may be offset by cash on
hand. The required reserve balances as of December 31, 2005 and 2004 were approximately
$20,963,000 and $16,004,000, respectively.
Busey Bank and First Capital Bank have established clearing balance requirements with the Federal
Reserve Bank of Chicago to use Federal Reserve Bank services. As of December 31, 2005, the
clearing balance requirements totaled $2,750,000. As of December 31, 2004, the clearing balance
requirement was $3,000,000.
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.
The Corporation maintains its cash in deposit accounts which, at times, may exceed federally
insured limits. The Corporation has not experienced any losses in such accounts. Management
believes the Corporation is not exposed to any significant credit risk on cash and cash
equivalents.
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FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4. Securities
The amortized cost and fair values of securities available for sale are summarized as
follows:
| Gross | Gross | |||||||||||||||
| Amortized | Unrealized | Unrealized | Fair | |||||||||||||
December 31, 2005: |
Cost | Gains | Losses | Value | ||||||||||||
| (Dollars in thousands) | ||||||||||||||||
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies |
$ | 204,538 | $ | 88 | $ | 1,702 | $ | 202,924 | ||||||||
Obligations of states and political
Subdivisions |
81,994 | 826 | 763 | 82,057 | ||||||||||||
Mortgage-backed securities |
16,803 | 106 | 72 | 16,837 | ||||||||||||
Corporate debt securities |
2,959 | 7 | 40 | 2,926 | ||||||||||||
| 306,294 | 1,027 | 2,577 | 304,744 | |||||||||||||
Mutual funds and other equity securities |
2,087 | 13,653 | 17 | 15,723 | ||||||||||||
Federal Home Loan Bank and Federal Reserve
Bank stock |
10,770 | — | — | 10,770 | ||||||||||||
| $ | 319,151 | $ | 14,680 | $ | 2,594 | $ | 331,237 | |||||||||
| Gross | Gross | |||||||||||||||
| Amortized | Unrealized | Unrealized | Fair | |||||||||||||
December 31, 2004: |
Cost | Gains | Losses | Value | ||||||||||||
| (Dollars in thousands) | ||||||||||||||||
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies |
$ | 249,946 | $ | 242 | $ | 1,038 | $ | 249,150 | ||||||||
Obligations of states and political
subdivisions |
49,949 | 1,839 | 20 | 51,768 | ||||||||||||
Mortgage-backed securities |
22,736 | 466 | 32 | 23,170 | ||||||||||||
Corporate securities |
2,184 | 43 | 7 | 2,220 | ||||||||||||
| 324,815 | 2,590 | 1,097 | 326,308 | |||||||||||||
Mutual funds and other equity securities |
3,220 | 13,736 | 10 | 16,946 | ||||||||||||
Federal Home Loan Bank and Federal Reserve
Bank stock |
9,002 | — | — | 9,002 | ||||||||||||
| $ | 337,037 | $ | 16,326 | $ | 1,107 | $ | 352,256 | |||||||||
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FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The amortized cost and fair value of securities available for sale as of December 31, 2005,
by contractual maturity, are shown below. Mutual funds and other equity securities do not have
stated maturity dates and therefore are not included in the following maturity summary.
| Amortized | Fair | |||||||
| Cost | Value | |||||||
| (Dollars in thousands) | ||||||||
Due in one year or less |
$ | 112,832 | $ | 112,054 | ||||
Due after one year through five years |
126,719 | 126,180 | ||||||
Due after five years through ten years |
34,525 | 34,530 | ||||||
Due after ten years |
32,218 | 31,980 | ||||||
| $ | 306,294 | $ | 304,744 | |||||
Gains and losses related to sales of securities are summarized as follows (in thousands):
| For the Years Ended December 31, | ||||||||||||
| 2005 | 2004 | 2003 | ||||||||||
Gross security gains |
$ | 584 | $ | 1,544 | $ | 1,133 | ||||||
Gross security losses |
(638 | ) | (171 | ) | (158 | ) | ||||||
Net security (losses) gains |
$ | (54 | ) | $ | 1,373 | $ | 975 | |||||
The tax (benefit) provisions for these net realized gains and losses amounted to $(21,000),
$546,000, and 387,000 for the years ended December 31, 2005, 2004 and 2003, respectively.
Investment securities with carrying amounts of $210,162,000 and $226,356,000 on December 31, 2005
and 2004, respectively, were pledged as collateral on public deposits, to secure securities sold
under agreements to repurchase and for other purposes as required or permitted by law.
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FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information pertaining to securities with gross unrealized losses at December 31, 2005 and
2004 aggregated by investment category and length of time that individual securities have been in
continuous loss position follows:
| Continuous unrealized losses | Continuous unrealized losses | |||||||||||||||||||||||
| existing for less than 12 | existing greater than 12 | |||||||||||||||||||||||
| months, gross | months, gross | Total, gross | ||||||||||||||||||||||
| Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
| Value | Losses | Value | Losses | Value | Losses | |||||||||||||||||||
| December 31, 2005: | (Dollars in thousands) | |||||||||||||||||||||||
U.S. Treasury securities and
obligations of U.S.
government corporations
and agencies |
$ | 103,344 | $ | 510 | $ | 88,711 | $ | 1,210 | $ | 192,055 | $ | 1,720 | ||||||||||||
Obligations of states and
political subdivisions |
46,800 | 711 | 2,134 | 52 | 48,934 | 763 | ||||||||||||||||||
Mortgage-backed securities |
5,532 | 52 | 382 | 2 | 5,914 | 54 | ||||||||||||||||||
Corporate securities |
1,285 | 12 | 909 | 28 | 2,194 | 40 | ||||||||||||||||||
Subtotal, debt securities |
$ | 156,961 | $ | 1,285 | $ | 92,136 | $ | 1,292 | $ | 249,097 | $ | 2,577 | ||||||||||||
Mutual funds and other
equity securities |
— | — | 64 | 17 | 64 | 17 | ||||||||||||||||||
Total temporarily
impaired securities |
$ | 156,961 | $ | 1,285 | $ | 192,200 | $ | 1,309 | $ | 249,161 | $ | 2,594 | ||||||||||||
| Continuous unrealized losses | Continuous unrealized losses | |||||||||||||||||||||||
| existing for less than 12 | existing greater than 12 | |||||||||||||||||||||||
| months, gross | months, gross | Total, gross | ||||||||||||||||||||||
| Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
| Value | Losses | Value | Losses | Value | Losses | |||||||||||||||||||
| December 31, 2004: | (Dollars in thousands) | |||||||||||||||||||||||
U.S. Treasury securities and
obligations of U.S.
government corporations
and agencies |
$ | 190,541 | $ | 917 | $ | 7,380 | $ | 121 | $ | 197,921 | $ | 1,038 | ||||||||||||
Obligations of states and
political subdivisions |
4,294 | 19 | 419 | 1 | 4,713 | 20 | ||||||||||||||||||
Mortgage-backed securities |
3,201 | 32 | — | — | 3,201 | 32 | ||||||||||||||||||
Corporate securities |
806 | 7 | — | — | 806 | 7 | ||||||||||||||||||
Subtotal, debt securities |
$ | 198,842 | $ | 975 | $ | 7,799 | $ | 122 | $ | 206,641 | $ | 1,097 | ||||||||||||
Mutual funds and other
equity securities |
54 | 10 | — | — | 54 | 10 | ||||||||||||||||||
Total temporarily
impaired securities |
$ | 198,896 | $ | 985 | $ | 7,799 | $ | 122 | $ | 206,695 | $ | 1,107 | ||||||||||||
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FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The total number of securities in the investments portfolio in an unrealized loss position
as of December 31, 2005, and December 31, 2004, were 270 and 156, respectively. All securities
with unrealized losses are reviewed by management at least quarterly to determine whether the
unrealized losses are other-than-temporary. Unrealized losses in the portfolio at December 31,
2005, and December 31, 2004, resulted from increased market interest rates and not from
deterioration in the creditworthiness of the issuers. Because the Corporation has the ability and
intent to hold these securities until market price recovery or maturity, these investments are not
considered by management to be other-than-temporarily impaired.
Note 5. Loans
The composition of loans is as follows:
| December 31, | ||||||||
| 2005 | 2004 | |||||||
| (Dollars in thousands) | ||||||||
Commercial |
$ | 219,134 | $ | 216,290 | ||||
Real estate construction |
345,454 | 235,547 | ||||||
Real estate — farmland |
10,188 | 11,750 | ||||||
Real estate — 1 to 4 family residential mortgage |
517,185 | 443,320 | ||||||
Real estate — multifamily mortgage |
104,502 | 106,163 | ||||||
Real estate — non-farm nonresidential mortgage |
470,779 | 363,993 | ||||||
Installment |
45,702 | 63,315 | ||||||
Agricultural |
23,433 | 25,224 | ||||||
| 1,736,377 | 1,465,602 | |||||||
Plus net deferred loan origination costs |
1,048 | 724 | ||||||
| 1,737,425 | 1,466,326 | |||||||
Less allowance for loan losses |
23,190 | 19,217 | ||||||
Net loans |
$ | 1,714,235 | $ | 1,447,109 | ||||
The loan portfolio includes a concentration of loans for commercial real estate amounting to
approximately $575,281,000 and $470,156,000 as of December 31, 2005 and 2004, respectively. The
loan portfolio also includes a concentration of loans for real estate construction amounting to
approximately $345,454,000 as of December 31, 2005. 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.
Geographic distribution of the commercial real estate loans as of December 31, 2005 and 2004
follows:
| December 31, | ||||||||
| 2005 | 2004 | |||||||
| (dollars in thousands) | ||||||||
Illinois |
$ | 335,702 | $ | 306,324 | ||||
Florida |
167,745 | 93,970 | ||||||
Indiana |
71,834 | 69,862 | ||||||
| $ | 575,281 | $ | 470,156 | |||||
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FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Management’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 affected by changing economic conditions and the economic
prospects of borrowers.
Loans contractually past due in excess of 90 days and loans classified as non-accrual are
summarized as follows:
| December 31, | ||||||||
| 2005 | 2004 | |||||||
| (Dollars in thousands) | ||||||||
Loans 90 days past due and still accruing |
$ | 1,420 | $ | 2,141 | ||||
Non-accrual loans |
4,483 | 1,523 | ||||||
| 5,903 | 3,664 | |||||||
The following table presents data on impaired loans:
| 2005 | 2004 | 2003 | ||||||||||
| (Dollars in thousands) | ||||||||||||
Impaired loans for which a specific allowance has
been provided |
$ | 2,361 | $ | 408 | $ | — | ||||||
Impaired loans for which no specific allowance has
been provided |
$ | 682 | $ | 503 | $ | 2,214 | ||||||
Total loans determined to be impaired |
$ | 3,043 | $ | 911 | $ | 2,214 | ||||||
Allowance for loan loss for impaired loans included
in the allowance for loan losses |
$ | 800 | $ | 168 | $ | — | ||||||
Average recorded investment in impaired loans |
$ | 881 | $ | 1,670 | $ | 1,193 | ||||||
Interest income recognized from impaired loans |
$ | 250 | $ | 28 | $ | — | ||||||
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FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6. Allowance for Loan Losses
Changes in the allowance for loan losses were as follows:
| Years Ended December 31, | ||||||||||||
| 2005 | 2004 | 2003 | ||||||||||
| (Dollars in thousands) |
||||||||||||
Balance, beginning of year |
$ | 19,217 | $ | 16,228 | $ | 15,460 | ||||||
Addition due to acquisition |
1,208 | 2,069 | — | |||||||||
Provision for loan losses |
3,490 | 2,905 | 3,058 | |||||||||
Recoveries applicable to loan balances previously
charged off |
215 | 202 | 225 | |||||||||
Loan balances charged off |
(940 | ) | (2,187 | ) | (2,515 | ) | ||||||
Balance, end of year |
$ | 23,190 | $ | 19,217 | $ | 16,228 | ||||||
Note 7. Loan Servicing
The unpaid principal balances of loans serviced by the Corporation for the benefit of other are not
included in the accompanying consolidated balance sheets. These unpaid principal balances were
$529,086,000 and $568,081,000 as of December 31, 2005 and 2004, respectively. Servicing loans for
others generally consists of collecting mortgage payments, maintaining escrow accounts, disbursing
payments to investors and collection and foreclosure processing. Loan servicing income is
recorded on the accrual basis and includes servicing fees from investors and certain charges
collected from borrowers, such as late payment fees and is net of amortization of capitalized
mortgage servicing rights.
The balance of capitalized servicing rights included in other assets at December 31, 2005 and 2004,
was $1,340,000 and $1,964,000, respectively. The fair values of these servicing rights were
$1,843,000 and $2,025,000, respectively, at December 31, 2005 and 2004. The following summarizes
mortgage servicing rights capitalized and amortized:
| For the Years Ended December 31, | ||||||||||||
| 2005 | 2004 | 2003 | ||||||||||
| (Dollars in thousands) |
||||||||||||
Mortgage servicing rights capitalized |
$ | 450 | $ | 838 | $ | 2,679 | ||||||
Mortgage servicing rights amortized |
$ | 1,074 | $ | 1,153 | $ | 1,874 | ||||||
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FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8. Premises and Equipment
Premises and equipment are summarized as follows:
| December 31, | ||||||||
| 2005 | 2004 | |||||||
| (Dollars in thousands) |
||||||||
Land |
$ | 11,131 | $ | 7,381 | ||||
Buildings and improvements |
32,830 | 25,045 | ||||||
Furniture and equipment |
22,462 | 21,386 | ||||||
| 66,423 | 53,812 | |||||||
Less accumulated depreciation |
28,608 | 27,517 | ||||||
| $ | 37,815 | $ | 26,295 | |||||
Depreciation expense was $3,487,000, $2,894,000, and $3,120,000 for the years ended December 31,
2005, 2004 and 2003, respectively.
Note 9. Deposits
The composition of deposits is as follows:
| December 31, | ||||||||
| 2005 | 2004 | |||||||
| (dollars in thousands) |
||||||||
Demand deposits, noninterest-bearing |
$ | 265,170 | $ | 213,921 | ||||
Interest-bearing transaction deposits |
48,042 | 31,129 | ||||||
Savings deposits |
117,090 | 113,822 | ||||||
Money market deposits |
645,347 | 538,560 | ||||||
Time deposits |
733,750 | 661,390 | ||||||
Total |
$ | 1,809,399 | $ | 1,558,822 | ||||
The aggregate amount of time deposits with a minimum denomination of $100,000 was approximately
$209,872,000 and $196,260,000 at December 31, 2005 and 2004, respectively. Brokered deposits of
$8,337,000 and $16,423,000 are included in the balance of time deposits with a minimum denomination
of $100,000 as of December 31, 2005 and 2004, respectively.
As of December 31, 2005, the scheduled maturities of certificates of deposit, in thousands, are as
follows:
2006 |
$ | 466,148 | ||
2007 |
149,804 | |||
2008 |
58,680 | |||
2009 |
36,659 | |||
2010 |
21,779 | |||
Thereafter |
680 | |||
| $ | 733,750 | |||
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FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10. Securities Sold Under Agreements to Repurchase
Securities sold under agreements to repurchase, which are classified as secured borrowings,
generally mature within one to four years from the transaction date. Securities sold under
agreements to repurchase are reflected at the amount of cash received in connection with the
transaction. The underlying securities are held by the Corporation’s safekeeping agent. The
Corporation may be required to provide additional collateral based on the fair value of the
underlying securities. Balances of securities sold under agreements to repurchase were $42,228,000
and $41,558,000 as of December 31, 2005 and 2004, respectively.
Note 11. Short-term Borrowings
Short-term borrowings consist of fixed-rate advances which mature in less than one year from
date of origination. The advances are borrowed from the Federal Home Loan Bank of Chicago,
collateralized by all unpledged U.S. Treasury and U.S. Agency securities, first mortgages on 1-4
family residential real estate and Federal Home Loan Bank of Chicago stock. The Corporation had no
short-term borrowings outstanding as of December 31, 2005. Interest rates on the short-term
advances outstanding as of December 31, 2004, ranged from 1.31% to 2.05% with an average weighted
rate of 1.86%.
At December 31, 2005, First Busey Corporation had an operating line in the amount of $10,000,000
from its primary correspondent bank. The entire balance was available as of December 31, 2005.
The line, which is collateralized by the outstanding shares of Busey Bank, matures on January 20,
2006.
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FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12. Long-term Debt
Long-term debt is summarized as follows:
| December 31, | ||||||||
| 2005 | 2004 | |||||||
| (Dollars in thousands) |
||||||||
Notes payable, JPMorgan Chase N.A., formerly known as Bank One, interest
payable quarterly |
||||||||
$250,000 term loan, at one-year LIBOR plus 1.25% (effective rate of
4.49% at December 31, 2005), principal payment of $25,000 due
annually on December 15, final payment due December 15, 2006,
collateralized by unallocated shares of First Busey Corporation common
stock purchased by employee stock ownership plan in August, 1997
(3,000 shares as of December 31, 2005; 6,000 shares as of December 31, 2004) |
$ | 25 | $ | 50 | ||||
$2,370,000 term loan, at one-year LIBOR plus 1.25% (effective rate of
4.49% at December 31, 2005), principal payment of $237,000 due
annually on December 15, final payment due December 15, 2009,
collateralized by unallocated shares of First Busey Corporation common
stock purchased by employee stock ownership plan in November, 1999
(60,000 shares as of December 31, 2005; 75,000 shares as of
December 31, 2004) |
$ | 948 | $ | 1,185 | ||||
$1,356,500 term loan at one-year LIBOR plus 1.25% (effective rate of
4.49% at December 31, 2005), principal payment of $135,650 due annually
on December 15, final payment due December 15, 2013, collateralized by
unallocated shares of First Busey Corporation common stock purchased by
employee stock ownership plan in December, 2003 (60,000 shares as of
December 31, 2005; 67,500 shares as of December 31, 2004) |
$ | 1,085 | $ | 1,221 | ||||
$42,000,000 term loan at six-month LIBOR plus 1.25% (effective rate of 4.49%
at December 31, 2005), principal payment of $4,000,000 due annually; next
annual payment due January 25, 2007, final payment due on June 1, 2011,
collateralized by the outstanding shares of Busey Bank. |
$ | 42,000 | $ | 30,000 | ||||
Notes payable, Federal Home Loan Banks of Chicago and Atlanta, collateralized
by all otherwise unpledged U.S. Treasury and U.S. Agency securities, first
mortgages on
1-4 family residential real estate and Federal Home Loan Bank stock. |
$ | 125,825 | $ | 132,918 | ||||
| $ | 169,883 | $ | 165,374 | |||||
In connection with the $42,000,000 term loan, the Corporation has agreed, among other things, not
to incur at the holding company level
additional debt exceeding $5,000,000, pledge as collateral any personal or real property, dispose
of assets exceeding ten percent of the consolidated assets of the Corporation, become a guarantor
of otherwise liable for debts of any other person, purchase the assets of or merge with another
institution without prior consent of the lender. Additionally, First Busey has agreed to maintain
an annual return on average total assets of 0.70% and to maintain sufficient capital to be
classified as “well capitalized” on both a consolidated basis and at the individual bank level.
75
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FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2005, funds borrowed from the Federal Home Loan Banks of Chicago and
Atlanta, listed above, consisted of fixed-rate advances maturing through January, 2013, with
interest rates ranging from 2.54% to 5.30%. The weighted average rate on these long-term advances
was 4.12% and 3.95% as of December 31, 2005 and 2004, respectively.
As of December 31, 2005, the scheduled maturities of long-term debt, in thousands, are as follows:
2006 |
$ | 25,898 | ||
2007 |
23,198 | |||
2008 |
44,373 | |||
2009 |
14,373 | |||
2010 |
17,636 | |||
Thereafter |
44,405 | |||
| $ | 169,883 | |||
Note 13. Junior Subordinated Debt Owed to Unconsolidated Trusts
First Busey Corporation has established statutory trusts for the sole purpose of issuing trust
preferred securities and related trust common securities. The proceeds from such issuances were
used by the trusts to purchase junior subordinated notes of the Corporation, which are the sole
assets of each trust. Concurrent with the issuance of the trust preferred securities, First Busey
issued guarantees for the benefit of the holders of the trust preferred securities. The trust
preferred securities are issues that qualify, and are treated by First Busey, as Tier I regulatory
capital. First Busey owns all of the common securities of each trust. The trust preferred
securities issued by each trust rank equally with the common securities in right of payment, except
that if an event of default under the indenture governing the notes has occurred and is continuing,
the preferred securities will rank senior to the common securities in right of payment.
The table below summarizes the outstanding junior subordinated notes and the related trust
preferred securities issued by each trust as of December 31, 2005:
| First Busey Capital Trust I | First Busey Statutory | First Busey Statutory Trust | ||||||||||
| Trust II | III(1) | |||||||||||
Junior Subordinated Notes: |
||||||||||||
Principal balance |
$ | 25,000,000 | $ | 15,000,000 | $ | 10,000,000 | ||||||
Annual interest rate |
9.00 | % | 3-mo LIBOR + 2.65% | 3-mo LIBOR + 1.75% | ||||||||
Stated maturity date |
June 18, 2031 | June 17, 2034 | June 15, 2035 | |||||||||
Call date |
June 18, 2006 | June 17, 2009 | June 15, 2010 | |||||||||
Trust Preferred Securities: |
||||||||||||
Face value |
$ | 25,000,000 | $ | 15,000,000 | $ | 10,000,000 | ||||||
Annual distribution rate |
9.00 | % | 3-mo LIBOR + 2.65% | 3-mo LIBOR + 1.75% | ||||||||
Issuance date |
June 18, 2001 | April 30, 2004 | June 15, 2005 | |||||||||
Distribution dates(2) |
Quarterly | Quarterly | Quarterly | |||||||||
| (1) Established June 15, 2005 |
| (2) All cash distributions are cumulative |
As of January 1, 2004, the Corporation
adopted FASB Interpretation No. 46, Consolidated of Variable
Interest Entities, as revised in December, 2003. Upon adoption, the Corporation deconsolidated the
capital trust entities outstanding as of that date. The trust preferred securities are subject to
mandatory redemption, in whole or in part, upon repayment of the junior subordinated notes at par
value at the stated maturity date or upon redemption of the junior subordinated notes on a date
no earlier than June 18, 2006, for First Busey Capital Trust I, June 17, 2009, for First Busey
Statutory Trust II, and June 15, 2010, for First Busey Statutory Trust III. Prior to these
respective redemption dates, the junior subordinated notes may also be redeemed by the Corporation
(in which case the trust preferred securities would also be redeemed) after the
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
occurrence of certain events that would have a negative tax effect on the Corporation or the
trusts, would cause the trust preferred securities to no longer qualify for Tier 1
capital, or would result in a trust being treated as an investment company. Each trust’s ability
to pay amounts due on the trust preferred securities is solely dependent upon the Corporation
making payment on the related junior subordinated notes. The Corporation’s obligations under the
junior subordinated notes and other relevant trust agreements, in aggregate, constitute a full and
unconditional guarantee by the Corporation of each trust’s obligations under the trust preferred
securities issued by each trust. The Corporation has the right to defer payment of interest on the
notes and, therefore, distributions on the trust preferred securities, for up to five years, but
not beyond the stated maturity date in the table above.
In March, 2005, the Board of Governors of the Federal Reserve System issued a final rule allowing
bank holding companies to continue to include qualifying trust preferred securities in their Tier I
Capital for regulatory capital purposes, subject to a 25% limitation to all core (Tier I) capital
elements, net of goodwill less any associated deferred tax liability. Any amount not included in
Tier 1 Capital can generally be included in Total Capital. The final rule provides a five-year
transition period, ending March 31, 2009, for applications of the aforementioned quantitative
limitation. As of December 31, 2005, $34,838,000 of the trust preferred securities noted in the
table above qualified as Tier I capital under the final rule adopted in March, 2005.
Note 14. Income Taxes
The components of income taxes consist of:
| Years Ended December 31, | ||||||||||||
| 2005 | 2004 | 2003 | ||||||||||
| (Dollars in thousands) |
||||||||||||
Current |
$ | 13,658 | $ | 12,295 | $ | 9,681 | ||||||
Deferred |
(698 | ) | (1,071 | ) | 344 | |||||||
Total income tax expense |
$ | 12,960 | $ | 11,224 | $ | 10,025 | ||||||
A reconciliation of federal and state income taxes at statutory rates to the income taxes included
in the statements of income is as follows:
| Years Ended December 31, | ||||||||||||||||||||||||
| 2005 | 2004 | 2003 | ||||||||||||||||||||||
| % of | % of | % of | ||||||||||||||||||||||
| Pretax | Pretax | Pretax | ||||||||||||||||||||||
| Amount | Income | Amount | Income | Amount | Income | |||||||||||||||||||
| (Dollars in thousands) |
||||||||||||||||||||||||
Income tax at statutory rate |
$ | 13,963 | 35.0 | % | $ | 11,787 | 35.0 | % | $ | 10,461 | 35.0 | % | ||||||||||||
Effect of: |
||||||||||||||||||||||||
Tax-exempt interest, net |
(966 | ) | (2.4 | %) | (797 | ) | (2.4 | %) | (819 | ) | (2.7 | %) | ||||||||||||
Income on bank owned life
insurance |
(316 | ) | (0.8 | %) | (317 | ) | (0.9 | %) | (287 | ) | (1.0 | %) | ||||||||||||
Amortization of intangibles |
(70 | ) | (0.2 | %) | 51 | 0.1 | % | (35 | ) | (0.1 | %) | |||||||||||||
Other |
349 | 0.9 | % | 500 | 1.5 | % | 705 | 2.3 | % | |||||||||||||||
| $ | 12,960 | 32.5 | % | $ | 11,224 | 33.3 | % | $ | 10,025 | 33.5 | % | |||||||||||||
The Corporation’s effective tax rate decreased during 2005 as a result of increased tax exempt
interest income.
Net deferred taxes, included in other liabilities in the accompanying balances sheets, includes the
following amounts of deferred tax assets and liabilities:
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 2005 | 2004 | |||||||
| (Dollars in thousands) |
||||||||
Deferred tax assets: |
||||||||
Allowance for loan losses |
$ | 8,990 | $ | 7,473 | ||||
Property acquired in settlement of loans |
— | 825 | ||||||
Loans held for sale |
56 | 50 | ||||||
Deferred compensation |
692 | 641 | ||||||
Accrued vacation |
220 | 178 | ||||||
Other |
182 | 129 | ||||||
| 10,140 | 9,296 | |||||||
Deferred tax liabilities: |
||||||||
Investment securities: |
||||||||
Unrealized gains on securities available for sale |
(4,805 | ) | (6,049 | ) | ||||
Other |
(786 | ) | (592 | ) | ||||
Basis in premises and equipment |
(2,810 | ) | (1,553 | ) | ||||
Mortgage servicing assets |
(532 | ) | (779 | ) | ||||
Basis in deposit intangibles |
(1,282 | ) | (601 | ) | ||||
Deferred loan origination costs |
(319 | ) | (288 | ) | ||||
| (10,534 | ) | (9,862 | ) | |||||
Net deferred tax liability |
$ | (394 | ) | $ | (566 | ) | ||
Note 15. Employee Benefit Plans
Employees’ Stock Ownership Plan
The First Busey Corporation Employees’ Stock Ownership Plan (ESOP) is available to all full-time
employees who meet certain age and length of service requirements. The ESOP purchased common
shares of the Corporation using the proceeds of bank borrowings which is 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
employees’ 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 dividends on unallocated shares are used to service the bank borrowings. All
shares held by the ESOP, which were acquired prior to the issuance of Statement of Position 93-6,
are included in the computation of average common shares and common share equivalents. This
accounting treatment is grandfathered under AICPA Statement of Position 93-6, “Employers’
Accounting for Employee Stock Ownership Plans” for shares purchased prior to December 31, 1992.
In December, 2003, First Busey Corporation’s Employees’ Stock Ownership Plan purchased an
additional 75,000 shares of the Corporation’s common stock using proceeds of $1,356,000 from bank
borrowings which are secured by the stock.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As permitted by Statement of Position (SOP) 93-6, compensation expense for shares released
is equal to the original acquisition cost of the shares if they were acquired prior to December 31,
1992. Compensation expense for shares released is equal to the fair market value of the shares when
released if they were acquired on or after January 1, 1993. All shares released in 2005, 2004, and
2003 were acquired after January 1, 1993. During 2005, $574,000 of compensation expense was
recognized for the ESOP, releasing 25,500 shares to participant accounts. During 2004, $467,000 of
compensation expense was recognized for the ESOP, releasing 25,500 shares to participant accounts.
During 2003, $327,000 of compensation expense was recognized for the ESOP releasing 18,000 shares
to participant accounts. Compensation expense related to the ESOP is included in the chart below
under “Employee Benefits”. Compensation expense related to the ESOP plan, including related
interest expense, was $684,000, $635,000, and $431,000, in the years ended December 31, 2005, 2004
and 2003.
Shares held in the ESOP which were acquired prior to December 31, 1992 were as follows:
| 2005 | 2004 | |||||||
Allocated shares |
1,054,275 | 1,074,256 | ||||||
Unallocated shares |
— | — | ||||||
Total |
1,054,275 | 1,074,256 | ||||||
Fair value of allocated shares at December 31 |
$ | 22,024,000 | $ | 22,420,000 | ||||
Shares held in the ESOP which were acquired after December 31, 1992 and their fair values were as
follows:
| 2005 | 2004 | |||||||||||||||
| Fair | Fair | |||||||||||||||
| Shares | Value | Shares | Value | |||||||||||||
Allocated shares |
121,649 | $ | 2,541,000 | 99,600 | $ | 2,079,000 | ||||||||||
Unallocated shares |
123,000 | 2,570,000 | 148,500 | 3,099,000 | ||||||||||||
Total |
244,649 | $ | 5,111,000 | 248,100 | $ | 5,178,000 | ||||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Profit Sharing Plan
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. Contributions to the plan
were $1,129,000, $855,000, and $880,000 for the years ended December 31, 2005, 2004, and 2003,
respectively.
Expenses related to the employee benefit plans are included in the statements of income as follows:
| Years Ended December 31, | ||||||||||||
| 2005 | 2004 | 2003 | ||||||||||
| (Dollars in thousands) |
||||||||||||
Employee benefits |
$ | 1,703 | $ | 1,401 | $ | 1,259 | ||||||
Interest on employee stock ownership plan debt |
109 | 89 | 52 | |||||||||
Total employer contributions |
$ | 1,812 | $ | 1,490 | $ | 1,311 | ||||||
First Busey Corporation sponsors a deferred compensation plan for executive officers for deferral
of performance bonuses. The deferred compensation expense reported for the years ended December
31, 2005, 2004, and 2003 was $142,000, $577,000, and $415,000 respectively. The deferred
compensation liability was $1,722,000 at December 31, 2005, and $1,580,000 at December 31, 2004.
Note 16. 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 1,350,000 shares of common stock may be
granted by the Executive Compensation and Succession 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 1,350,000 to 2,250,000.
In January of 1999, the Corporation adopted the 1999 Stock Option Plan pursuant to which
nonqualified stock options for up to 750,000 shares of common stock may be granted by the Executive
Compensation and Succession Committee of the Board of Directors to certain executive officers and
key personnel of First Busey Corporation and its subsidiaries.
In April, 2004, the Corporation adopted the 2004 Stock Option Plan pursuant to which nonqualified
stock options for up to 1,500,000 shares of common stock may be granted by the Executive
Compensation and Succession Committee of the Board of Directors to certain executive officers and
key personnel of First Busey Corporation and its subsidiaries.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of the status of the Corporation’s stock option plan for the years ended December
31, 2005, 2004, and 2003, and the changes during the years ending on those dates is as follows:
| 2005 | 2004 | 2003 | ||||||||||||||||||||||
| Weighted- | Weighted- | Weighted- | ||||||||||||||||||||||
| Average | Average | Average | ||||||||||||||||||||||
| Exercise | Exercise | Exercise | ||||||||||||||||||||||
| Shares | Price | Shares | Price | Shares | Price | |||||||||||||||||||
Outstanding at beginning of year |
770,025 | $ | 16.47 | 596,400 | $ | 12.19 | 871,488 | $ | 12.51 | |||||||||||||||
Granted |
54,000 | 19.83 | 354,000 | 19.36 | — | — | ||||||||||||||||||
Exercised |
(192,900 | ) | 13.45 | (173,550 | ) | 12.31 | (265,263 | ) | 10.19 | |||||||||||||||
Forfeited |
(5,200 | ) | 19.59 | (6,825 | ) | 16.18 | (9,825 | ) | 12.23 | |||||||||||||||
Outstanding at end of year |
625,925 | $ | 17.67 | 770,025 | $ | 16.47 | 596,400 | $ | 13.54 | |||||||||||||||
Exercisable at end of year |
279,525 | $ | 15.24 | 82,125 | $ | 11.95 | 252,600 | $ | 12.19 | |||||||||||||||
Weighted-average fair value per
option for options granted during
the year |
$ | 2.82 | $ | 2.47 | N/A | |||||||||||||||||||
The following table summarizes information about stock options outstanding at December 31, 2005:
| Options | ||||||||||||
| Options Outstanding | Exercisable | |||||||||||
| Weighted- | ||||||||||||
| Average | ||||||||||||
| Remaining | ||||||||||||
| Exercise | Contractual | |||||||||||
| Prices | Number | Life | Number | |||||||||
$14.56 |
225,525 | 4.96 years | 225,525 | |||||||||
18.07 |
54,000 | 2.96 years | 54,000 | |||||||||
19.59 |
292,400 | 3.70 years | — | |||||||||
19.83 |
54,000 | 3.96 years | — | |||||||||
| 625,925 | 4.11 years | 279,525 | ||||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Restricted Stock Award Plan:
The 1993 Restricted Stock Award Plan provides for restricted stock awards of up to 675,000 shares
of common stock which 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. There were 1,500 and 3,225
shares under grant as of December 31, 2005 and 2004.
| Number of Shares | ||||||||||||
| 2005 | 2004 | 2003 | ||||||||||
Under restriction, beginning of year |
3,225 | 6,450 | 10,425 | |||||||||
Granted |
— | — | — | |||||||||
Restrictions released |
1,725 | 3,225 | 3,975 | |||||||||
Forfeited and reissuable |
— | — | — | |||||||||
Under restriction, end of year |
1,500 | 3,225 | 6,450 | |||||||||
Available to grant, end of year |
597,300 | 597,300 | 597,300 | |||||||||
Compensation expense is recognized for financial statement purposes over the period of performance.
Compensation expense of $11,000, $26,000, and $55,000 was recognized for financial statement
purposes during the years ended December 31, 2005, 2004, and 2003, respectively.
Note 17. 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, 2005:
Balance at beginning of year |
$ | 14,670 | ||
Addition due to acquisition |
1,910 | |||
Deletion due to retirement of directors |
(5,646 | ) | ||
New loans |
6,570 | |||
Repayments |
(3,956 | ) | ||
Balance at end of year |
$ | 13,548 | ||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 18. Capital
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 Banks 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 Banks’ financial
statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Corporation and Banks 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 Banks’ capital amounts and
classification are also subject to qualitative judgments by the regulators about components, risk
weightings, and other factors. Prompt corrective action provisions are not applicable to bank
holding companies.
Quantitative measures established by regulation to ensure capital adequacy require the Corporation
and the Banks 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, 2005,
that the Corporation and the Banks meet all capital adequacy requirements to which they are
subject.
As of December 31, 2005, the most recent notification from the federal and state regulatory
agencies categorized the Banks as well-capitalized under the regulatory framework for prompt
corrective action. To be categorized as well-capitalized, the Banks 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 Banks’
categories. The Corporation’s and the Banks’ actual capital amounts and ratios as of December 31,
2005 and 2004, are also presented in the table.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| Minimum | ||||||||||||||||||||||||
| To Be Well | ||||||||||||||||||||||||
| Minimum | Capitalized Under | |||||||||||||||||||||||
| Capital | Prompt Corrective | |||||||||||||||||||||||
| Actual | Requirement | Action Provisions | ||||||||||||||||||||||
| Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||
| (Dollars in Thousands) | ||||||||||||||||||||||||
As of December 31, 2005: |
||||||||||||||||||||||||
Total Capital (to Risk Weighted Assets) |
||||||||||||||||||||||||
Consolidated |
$ | 180,244 | 10.31 | % | $ | 139,915 | 8.00 | % | N/A | N/A | ||||||||||||||
Busey Bank |
$ | 158,614 | 11.27 | % | $ | 112,607 | 8.00 | % | $ | 140,758 | 10.00 | % | ||||||||||||
Busey Bank Florida |
$ | 25,217 | 13.17 | % | $ | 15,320 | 8.00 | % | $ | 19,150 | 10.00 | % | ||||||||||||
Tarpon Coast National Bank |
$ | 15,717 | 11.47 | % | $ | 10,964 | 8.00 | % | $ | 13,705 | 10.00 | % | ||||||||||||
Tier I Capital (to Risk Weighted Assets) |
||||||||||||||||||||||||
Consolidated |
$ | 152,230 | 8.70 | % | $ | 69,958 | 4.00 | % | N/A | N/A | ||||||||||||||
Busey Bank |
$ | 135,717 | 9.64 | % | $ | 56,304 | 4.00 | % | $ | 84,455 | 6.00 | % | ||||||||||||
Busey Bank Florida |
$ | 22,808 | 11.91 | % | $ | 7,660 | 4.00 | % | $ | 11,490 | 6.00 | % | ||||||||||||
Tarpon Coast National Bank |
$ | 14,509 | 10.59 | % | $ | 5,482 | 4.00 | % | $ | 8,223 | 6.00 | % | ||||||||||||
Tier I Capital (to Average Assets) |
||||||||||||||||||||||||
Consolidated |
$ | 152,230 | 6.93 | % | $ | 87,911 | 4.00 | % | N/A | N/A | ||||||||||||||
Busey Bank |
$ | 135,717 | 7.56 | % | $ | 78,401 | 4.00 | % | $ | 98,001 | 5.00 | % | ||||||||||||
Busey Bank Florida |
$ | 22,808 | 9.36 | % | $ | 10,659 | 4.00 | % | $ | 13,324 | 5.00 | % | ||||||||||||
Tarpon Coast National Bank |
$ | 14,509 | 9.58 | % | $ | 7,534 | 4.00 | % | $ | 9,418 | 5.00 | % | ||||||||||||
As of December 31, 2004: |
||||||||||||||||||||||||
Total Capital (to Risk Weighted Assets) |
||||||||||||||||||||||||
Consolidated |
$ | 157,328 | 10.92 | % | $ | 115,292 | 8.00 | % | N/A | N/A | ||||||||||||||
Busey Bank |
$ | 128,706 | 11.24 | % | $ | 91,580 | 8.00 | % | $ | 114,475 | 10.00 | % | ||||||||||||
Busey Bank Florida |
15,133 | 11.56 | % | 10,473 | 8.00 | % | 13,091 | 10.00 | % | |||||||||||||||
First Capital Bank |
17,827 | 11.96 | % | 11,926 | 8.00 | % | 14,908 | 10.00 | % | |||||||||||||||
Tier I Capital (to Risk Weighted Assets) |
||||||||||||||||||||||||
Consolidated |
$ | 133,122 | 9.24 | % | $ | 57,646 | 4.00 | % | N/A | N/A | ||||||||||||||
Busey Bank |
$ | 108,992 | 9.52 | % | $ | 45,790 | 4.00 | % | $ | 68,685 | 6.00 | % | ||||||||||||
Busey Bank Florida |
13,495 | 10.31 | % | 5,237 | 4.00 | % | 7,855 | 6.00 | % | |||||||||||||||
First Capital Bank |
15,960 | 10.71 | % | 5,963 | 4.00 | % | 8,945 | 6.00 | % | |||||||||||||||
Tier I Capital (to Average Assets) |
||||||||||||||||||||||||
Consolidated |
$ | 133,122 | 6.88 | % | $ | 77,382 | 4.00 | % | N/A | N/A | ||||||||||||||
Busey Bank |
$ | 108,992 | 7.15 | % | $ | 60,945 | 4.00 | % | $ | 76,181 | 5.00 | % | ||||||||||||
Busey Bank Florida |
13,495 | 8.06 | % | 6,694 | 4.00 | % | 8,368 | 5.00 | % | |||||||||||||||
First Capital Bank |
15,960 | 6.91 | % | 9,233 | 4.00 | % | 11,541 | 5.00 | % | |||||||||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 19. 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.
As of December 31, 2005, Busey Bank had entered into contractual commitments for the construction
of a new branch location in Normal, Illinois. Busey Bank Florida had entered into separate
contractual commitments for the construction of a new branch location in Cape Coral, Florida.
Total commitment for these two projects is approximately $4,129,000. As of December 31, 2005,
$2,232,000 remains outstanding under these contracts. Both projects are expected to be completed
during the first quarter of 2006.
The Corporation and its subsidiaries are parties to credit related 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 and standby letters of
credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk
in excess of the amount recognized in the consolidated balance sheets.
The Corporation and its subsidiaries’ exposure to credit loss is represented by the contractual
amount of those commitments. The Corporation and its subsidiaries use the same credit policies in
making commitments and conditional obligations as it does for on-balance-sheet instruments.
A summary of the contractual amount of the Corporation’s exposure to off-balance-sheet risk
follows:
| December 31, | ||||||||
| 2005 | 2004 | |||||||
| (Dollars in thousands) |
||||||||
| Financial instruments whose contract amounts represent credit risk: | |
|||||||
Commitments to extend credit |
$ | 559,847 | $ | 413,679 | ||||
Standby letters of credit |
12,567 | 12,507 | ||||||
Commitments to extend credit are agreements to lend to a customer as long as no condition
established in the contract has been violated. 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. The commitments for equity lines of credit may expire without being
drawn upon. Therefore, the total commitment amounts do not necessarily represent future cash
requirements. 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 customer.
Standby letters of credit are conditional commitments issued by the Corporation to guarantee the
performance of a customer to a third party. Those guarantees are primarily issued to support
public and private borrowing arrangements, including bond financing and similar transactions and
primarily have terms of one year or less. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to customers. The Corporation
holds collateral, which may include accounts receivable, inventory, property and equipment, income
producing properties, supporting those commitments if deemed necessary. In the event the customer
does not perform in accordance with the terms of the agreement with the third party, the
corporation would be required to fund the commitment.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The maximum potential amount of future payments the Corporation could be required to make is
represented by the contractual amount shown in the summary above. If the commitment is funded, the
Corporation would be entitled to seek recovery from the customer. At December 31, 2005 and 2004,
no amounts have been recorded as liabilities for the corporation’s potential obligations under
these guarantees.
As of December 31, 2005, the Corporation has no futures, forwards, swaps or option contracts, or
other financial instruments with similar characteristics with the exception of rate lock
commitments on mortgage loans to be held for sale.
Lease Commitments
At December 31, 2005, 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 $1,041,000, $992,000, and $790,000 the years ended December
31, 2005, 2004 and 2003, respectively.
The projected minimum rental payments under the terms of the leases at December 31, 2005, in
thousands, are as follows:
2006 |
$ | 1,007 | ||
2007 |
911 | |||
2008 |
705 | |||
2009 |
210 | |||
2010 |
127 | |||
Thereafter |
153 | |||
| $ | 3,113 | |||
Note 20. Disclosures about Fair Value of Financial Instruments
The fair value of a financial instrument is the current amount that would be exchanged between
willing parties, other than in a forced liquidation. Fair value is best determined based upon
quoted market prices. However, in many instances, there are no quoted market prices for the
Corporation’s various financial instruments. In cases where quoted market prices are not
available, fair values are based on estimates using present value or other valuation techniques.
Those techniques are significantly affected by the assumptions used, including the discount rate
and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in
an immediate settlement of the instrument. SFAS 107 excludes certain financial instruments and all
non-financial instruments from its disclosure requirements. Accordingly, the aggregate fair value
amounts presented may not necessarily represent the underlying fair value of the Corporation.
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.
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FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Mortgage loans held for sale
Fair value of mortgage loans held for sale are based on commitments on hand from investors or
prevailing market prices.
Fair values for on-balance-sheet commitments to originate loans held for sale are based on fees currently charged to enter into similar agreements, and for fixed-rate commitments also consider the difference between current levels of interest rates and the committed rates. The fair value of interest-rate lock commitments are considered immaterial.
Fair values for on-balance-sheet commitments to originate loans held for sale are based on fees currently charged to enter into similar agreements, and for fixed-rate commitments also consider the difference between current levels of interest rates and the committed rates. The fair value of interest-rate lock commitments are considered immaterial.
Loans
For variable rate loans that reprice frequently with no significant change in credit risk, fair
values are based on carrying amount. 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. Fair values for nonperforming loans are estimated using discounted cash
flow analysis or underlying collateral values, when applicable. The carrying amount of accrued
interest receivable approximates fair value.
Deposits and securities sold under agreements to repurchase
The fair value of demand deposits, savings accounts, interest-bearing transaction 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 a discounted
cash flow calculation that applies interest rates currently offered for deposits of similar
remaining maturities. The carrying amounts reported in the balance sheet for securities sold
under agreements to repurchase approximate those assets’ fair values. The carrying amount
of accrued interest payable approximates fair value.
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.
Junior subordinated debt owed to unconsolidated trusts
Fair values are based upon quoted market prices or dealer quotes. For variable rate instruments,
fair values are based on carrying values. 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, 2005 and 2004, these items are immaterial.
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FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The estimated fair values of the Corporation’s financial instruments are as follows:
| 2005 | 2004 | |||||||||||||||
| Carrying | Fair | Carrying | Fair | |||||||||||||
| Amount | Value | Amount | Value | |||||||||||||
| (Dollars in thousands) | ||||||||||||||||
Financial assets: |
||||||||||||||||
Cash and cash equivalents |
$ | 60,957 | $ | 60,957 | $ | 47,991 | $ | 47,991 | ||||||||
Federal funds sold |
2,300 | 2,300 | 3,100 | 3,100 | ||||||||||||
Securities |
331,237 | 331,237 | 352,256 | 352,256 | ||||||||||||
Loans, net |
1,725,972 | 1,717,381 | 1,456,683 | 1,463,112 | ||||||||||||
Accrued interest receivable |
11,618 | 11,618 | 8,566 | 8,566 | ||||||||||||
Financial liabilities: |
||||||||||||||||
Deposits |
1,809,399 | 1,804,208 | 1,558,822 | 1,559,370 | ||||||||||||
Federal funds purchased and
securities sold
under agreements to repurchase |
50,113 | 50,113 | 41,558 | 41,558 | ||||||||||||
Short-term borrowings |
— | — | 11,250 | 11,250 | ||||||||||||
Long-term debt |
169,883 | 168,073 | 165,374 | 165,928 | ||||||||||||
Junior subordinated debt owed to
unconsolidated trusts |
50,000 | 50,625 | 40,000 | 42,550 | ||||||||||||
Accrued interest payable |
5,988 | 5,988 | 3,799 | 3,799 | ||||||||||||
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 21. Reportable Segments and Related Information
First Busey Corporation has four reportable segments, Busey Bank, Busey Bank Florida, Tarpon Coast
National Bank, and Busey Investment Group. Busey Bank provides a full range of banking services to
individual and corporate customers through its branch network in Champaign, McLean, Peoria,
Tazewell, and Ford Counties in Illinois, through its branch in Indianapolis, Indiana, and through
its loan production office in Fort Myers, Florida. Busey Bank Florida provides a full range of
banking services to individual and corporate customers in Fort Myers and Cape Coral, Florida.
Tarpon Coast National Bank provides a full range of banking services to individuals and commercial
customers in Charlotte and Sarasota Counties in Southwest Florida.
First Capital Bank, acquired by First Busey Corporation on June 1, 2004, merged into Busey Bank on
May 20, 2005. Prior to this merger, First Capital Bank was a separate reportable segment providing
a full range of banking services to individual and corporate customers in Peoria and Pekin,
Illinois. Following the merger, the assets and operating results of the Peoria and Pekin markets
are included in Busey Bank. Segment information for the period ended September 30, 2004, has been
restated to reflect the combination of Busey Bank and First Capital Bank.
In prior periods, First Busey has reported First Busey Trust & Investment Co. as a separate
segment. Over time, the three subsidiaries of Busey Investment Group have converged and are now
directed by a common management team in a similar operating style, share similar marketing
strategies, and share common office locations. Likewise, the financial results of these three
subsidiaries are reviewed and monitored on a consolidated basis. Therefore, management of First
Busey Corporation has identified Busey Investment Group as the more appropriate reportable
segment. The Corporation’s four reportable segments are strategic business units that are separately
managed as they offer different products and services and have different marketing strategies.
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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 four segments are the same as those described in the
summary of significant accounting policies in the annual report. The Corporation accounts for
intersegment revenue and transfers at current market value.
The following summarized information relates to the Corporation’s reportable segments:
| December 31, | ||||||||||||
| 2005 | 2004 | 2003 | ||||||||||
| (Dollars in thousands) | ||||||||||||
Interest Income: |
||||||||||||
Busey Bank |
96,571 | 77,165 | 68,869 | |||||||||
Busey Bank Florida |
16,015 | 8,475 | 4,716 | |||||||||
Tarpon Coast Bancorp |
3,544 | — | — | |||||||||
Busey Investment Group |
184 | 147 | 150 | |||||||||
All Other |
(10 | ) | 132 | 114 | ||||||||
Total Interest Income |
116,304 | 85,919 | 73,849 | |||||||||
Interest Expense: |
||||||||||||
Busey Bank |
34,299 | 24,068 | 21,229 | |||||||||
Busey Bank Florida |
5,505 | 2,744 | 2,126 | |||||||||
Tarpon Coast Bancorp |
747 | — | — | |||||||||
Busey Investment Group |
— | — | — | |||||||||
All Other |
4,791 | 3,229 | 2,263 | |||||||||
Total Interest Expense |
45,342 | 30,041 | 25,618 | |||||||||
Other Income: |
||||||||||||
Busey Bank |
15,253 | 16,228 | 17,996 | |||||||||
Busey Bank Florida |
672 | 504 | 552 | |||||||||
Tarpon Coast Bancorp |
553 | — | — | |||||||||
Busey Investment Group |
7,490 | 7,310 | 6,531 | |||||||||
All Other |
(431 | ) | (252 | ) | (394 | ) | ||||||
Total Other Income |
23,537 | 23,790 | 24,685 | |||||||||
Net Income: |
||||||||||||
Busey Bank |
24,985 | 21,853 | 19,758 | |||||||||
Busey Bank Florida |
3,302 | 1,573 | 287 | |||||||||
Tarpon Coast Bancorp |
469 | — | — | |||||||||
Busey Investment Group |
2,141 | 1,989 | 1,620 | |||||||||
All Other |
(3,963 | ) | (2,961 | ) | (1,801 | ) | ||||||
Total Net Income |
26,934 | 22,454 | 19,864 | |||||||||
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FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| December 31, | ||||||||||||
| 2005 | 2004 | 2003 | ||||||||||
| (Dollars in thousands) | ||||||||||||
Goodwill: |
||||||||||||
Busey Bank |
30,237 | 30,237 | 5,832 | |||||||||
Busey Bank Florida |
— | — | — | |||||||||
Tarpon Coast Bancorp |
22,317 | — | — | |||||||||
Busey Investment Group |
— | — | — | |||||||||
All Other |
1,548 | 1,548 | 1,548 | |||||||||
Total Goodwill |
54,102 | 31,785 | 7,380 | |||||||||
Assets: |
||||||||||||
Busey Bank |
1,840,102 | 1,773,223 | 1,394,354 | |||||||||
Busey Bank Florida |
245,660 | 175,778 | 113,441 | |||||||||
Tarpon Coast Bancorp |
177,046 | — | — | |||||||||
Busey Investment Group |
6,849 | 6,053 | 5,265 | |||||||||
All Other |
(6,235 | ) | 9,387 | 9,024 | ||||||||
Total Assets |
2,263,422 | 1,964,441 | 1,522,084 | |||||||||
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FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 22. Parent Company Only Financial Information
Condensed financial data for First Busey Corporation is presented below.
BALANCE SHEETS
| December 31, | ||||||||
| 2005 | 2004 | |||||||
| (Dollars in thousands) | ||||||||
| ASSETS | ||||||||
Cash and due from subsidiary bank |
$ | 3,628 | $ | 7,376 | ||||
Securities available for sale |
2,917 | 2,766 | ||||||
Loans |
3,292 | 2,585 | ||||||
Investments in subsidiaries: |
||||||||
Bank |
237,113 | 180,916 | ||||||
Non-bank |
10,976 | 11,011 | ||||||
Premises and equipment, net |
435 | 118 | ||||||
Goodwill |
1,548 | 1,548 | ||||||
Other assets |
6,999 | 6,512 | ||||||
Total assets |
$ | 266,908 | $ | 212,832 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
||||||||
Liabilities: |
||||||||
Long-term debt |
$ | 42,000 | $ | 30,000 | ||||
Long-term ESOP debt |
2,058 | 2,456 | ||||||
Junior subordinated debentures due to unconsolidated
trusts |
50,000 | 40,000 | ||||||
Other liabilities |
3,136 | 1,504 | ||||||
Total liabilities |
97,194 | 73,960 | ||||||
Stockholders’ equity before unearned ESOP shares and deferred
compensation for restricted stock awards |
171,776 | 141,343 | ||||||
Unearned ESOP shares and deferred compensation for restricted
stock awards |
(2,062 | ) | (2,471 | ) | ||||
Total stockholders’ equity |
169,714 | 138,872 | ||||||
Total liabilities and stockholders’ equity |
$ | 266,908 | $ | 212,832 | ||||
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FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STATEMENTS OF INCOME
| Years Ended December 31, | ||||||||||||
| 2005 | 2004 | 2003 | ||||||||||
| (Dollars in thousands) | ||||||||||||
Operating income: |
||||||||||||
Dividends from subsidiaries: |
||||||||||||
Bank |
$ | 15,000 | $ | 12,600 | $ | 12,000 | ||||||
Non-bank |
2,100 | 1,000 | 1,500 | |||||||||
Interest and dividend income |
221 | 199 | 154 | |||||||||
Other income |
1,437 | 1,275 | 1,101 | |||||||||
Total operating income |
18,758 | 15,074 | 14,755 | |||||||||
Expenses: |
||||||||||||
Salaries and employee benefits |
2,766 | 1,838 | 1,633 | |||||||||
Interest expense |
4,995 | 3,305 | 2,303 | |||||||||
Operating expense |
1,493 | 952 | 882 | |||||||||
Total expenses |
9,254 | 6,095 | 4,818 | |||||||||
Income before income tax benefit
and equity in undistributed
income of subsidiaries |
9,504 | 8,979 | 9,937 | |||||||||
Income tax benefit |
3,710 | 2,225 | 1,723 | |||||||||
Income before equity in
undistributed income of
subsidiaries |
13,214 | 11,204 | 11,660 | |||||||||
Equity in undistributed income of subsidiaries: |
||||||||||||
Bank |
13,756 | 10,826 | 8,044 | |||||||||
Non-bank |
(36 | ) | 424 | 160 | ||||||||
Net income |
$ | 26,934 | $ | 22,454 | $ | 19,864 | ||||||
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FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STATEMENTS OF CASH FLOWS
| Years Ended December 31, | ||||||||||||
| 2005 | 2004 | 2003 | ||||||||||
| (Dollars in thousands) | ||||||||||||
Cash Flows from Operating Activities |
||||||||||||
Net income |
$ | 26,934 | $ | 22,454 | $ | 19,864 | ||||||
Adjustments to reconcile net income to net cash provided
by operating activities: |
||||||||||||
Depreciation and amortization |
137 | 72 | 63 | |||||||||
Equity in undistributed net income of subsidiaries |
(13,720 | ) | (11,250 | ) | (8,204 | ) | ||||||
Stock-based compensation |
11 | 26 | 55 | |||||||||
Fair value adjustment on employee stock ownership plan
shares allocated |
125 | 102 | 59 | |||||||||
Security gains, net |
— | (164 | ) | (93 | ) | |||||||
Gain on disposal of premises and equipment |
(1 | ) | — | — | ||||||||
Changes in assets and liabilities: |
||||||||||||
(Increase) decrease in other assets |
(539 | ) | (4,222 | ) | 46 | |||||||
Increase (decrease) in other liabilities |
1,632 | 1,309 | (57 | ) | ||||||||
Net cash provided by operating activities |
14,579 | 8,327 | 11,733 | |||||||||
Cash Flows from Investing Activities |
||||||||||||
Proceeds from sales of securities available for sale |
80 | 575 | 3,770 | |||||||||
Purchases of securities available for sale |
(100 | ) | (194 | ) | (3,718 | ) | ||||||
Increase in loans |
(707 | ) | (112 | ) | (335 | ) | ||||||
Proceeds from sales of premises and equipment |
45 | — | — | |||||||||
Purchases of premises and equipment |
(498 | ) | (89 | ) | (36 | ) | ||||||
Capital contribution to subsidiary |
(27,631 | ) | (42,366 | ) | — | |||||||
Net cash used in investing activities |
(28,811 | ) | (42,186 | ) | (319 | ) | ||||||
Cash Flows from Financing Activities |
||||||||||||
Proceeds from short-term borrowings |
3,000 | — | — | |||||||||
Principal payments on short-term borrowings |
(3,000 | ) | — | — | ||||||||
Proceeds from issuance of long-term debt |
21,000 | 42,000 | — | |||||||||
Principal payments on long-term debt |
(9,000 | ) | (12,000 | ) | — | |||||||
Proceeds from issuance of junior subordinated debentures
due to unconsolidated trusts |
10,000 | 15,000 | — | |||||||||
Purchases of treasury stock |
(3,235 | ) | (2,264 | ) | (4,079 | ) | ||||||
Proceeds from sales of treasury stock |
3,283 | 3,384 | 5,509 | |||||||||
Cash dividends paid |
(11,564 | ) | (10,383 | ) | (9,215 | ) | ||||||
Net cash provided by (used in) financing
activities |
10,484 | 35,737 | (7,785 | ) | ||||||||
Net increase in cash and due from subsidiary
banks |
(3,748 | ) | 1,878 | 3,629 | ||||||||
Cash and due from subsidiary banks, beginning |
7,376 | 5,498 | 1,869 | |||||||||
Cash and due from subsidiary banks, ending |
$ | 3,628 | $ | 7,376 | $ | 5,498 | ||||||
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FIRST BUSEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 23. Unaudited Interim Financial Data
The following table reflects summarized quarterly data for the periods described (unaudited),
in thousands, except per share data:
| 2005 | ||||||||||||||||
| December 31 | September 30 | June 30 | March 31 | |||||||||||||
Interest income |
$ | 32,811 | $ | 30,445 | $ | 27,485 | $ | 25,563 | ||||||||
Interest expense |
13,733 | 11,971 | 10,336 | 9,302 | ||||||||||||
Net interest income |
19,078 | 18,474 | 17,149 | 16,261 | ||||||||||||
Provision for loan losses |
725 | 650 | 1,425 | 690 | ||||||||||||
Noninterest income |
5,900 | 6,118 | 5,964 | 5,555 | ||||||||||||
Noninterest expense |
14,551 | 13,163 | 12,152 | 11,249 | ||||||||||||
Income before income taxes |
9,702 | 10,779 | 9,536 | 9,877 | ||||||||||||
Income taxes |
3,139 | 3,220 | 3,260 | 3,341 | ||||||||||||
Net income |
$ | 6,563 | $ | 7,559 | $ | 6,276 | $ | 6,536 | ||||||||
Basic earnings per share |
$ | 0.31 | $ | 0.36 | $ | 0.31 | $ | 0.32 | ||||||||
Diluted earnings per share |
$ | 0.31 | $ | 0.36 | $ | 0.31 | $ | 0.32 | ||||||||
| 2004 | ||||||||||||||||
| December 31 | September 30 | June 30 | March 31 | |||||||||||||
Interest income |
$ | 24,470 | $ | 23,281 | $ | 19,912 | $ | 18,256 | ||||||||
Interest expense |
9,092 | 8,437 | 6,618 | 5,894 | ||||||||||||
Net interest income |
15,378 | 14,844 | 13,294 | 12,362 | ||||||||||||
Provision for loan losses |
585 | 1,240 | 655 | 425 | ||||||||||||
Noninterest income |
6,041 | 6,021 | 6,034 | 5,694 | ||||||||||||
Noninterest expense |
12,272 | 11,150 | 10,196 | 9,467 | ||||||||||||
Income before income taxes |
8,562 | 8,475 | 8,477 | 8,164 | ||||||||||||
Income taxes |
2,793 | 2,691 | 2,936 | 2,804 | ||||||||||||
Net income |
$ | 5,769 | $ | 5,784 | $ | 5,541 | $ | 5,360 | ||||||||
Basic earnings per share |
$ | 0.28 | $ | 0.28 | $ | 0.27 | $ | 0.26 | ||||||||
Diluted earnings per share |
$ | 0.28 | $ | 0.28 | $ | 0.27 | $ | 0.26 | ||||||||
94