BUSE

Business Context and Reporting Period

Company: First Busey Corporation (Nevada corporation)

Filing Type: Form 10-Q (Quarterly Report)

Reporting Period: Quarter and nine months ended September 30, 2006

Business Overview: First Busey operates through three reportable segments: Busey Bank (Illinois/Indiana), Busey Bank N.A. (Florida), and Busey Investment Group. The company provides full-service banking and investment services. On September 20, 2006, the company signed a definitive agreement to merge with Main Street Trust, Inc. in a stock-for-stock transaction.

Key Financial Metrics

Capital Ratios (Consolidated as of Sep 30, 2006):

• Total Capital to Risk-Weighted Assets: 10.40% (Required: 8.00%)
• Tier 1 Capital to Risk-Weighted Assets: 8.89% (Required: 4.00%)
• Tier 1 Capital to Average Assets: 7.38% (Required: 4.00%)

Material Changes vs. Prior Period

Performance Trends (Nine Months 2006 vs. 2005):

• Net Income: Increased 5.8% to $21.5 million from $20.4 million.
• Assets: Total assets grew 6.9% to $2.42 billion, driven primarily by an 8.9% increase in loans ($156 million growth).
• Deposits: Total deposits increased 7.7% to $1.95 billion. Interest-bearing deposits rose 11.0%, while noninterest-bearing deposits declined 11.2%.
• Net Interest Margin (NIM): Declined slightly to 3.69% (tax-equivalent) from 3.72% in the prior year, despite a rise in the average yield on earning assets to 6.79% from 5.93%.
• Provision for Loan Losses: Decreased significantly to $1.0 million from $2.8 million in the prior year.
• Non-Performing Assets: Total non-performing loans and assets increased 16.3% to $7.1 million, primarily due to an increase in loans 90+ days past due still accruing and other real estate owned.

Outlook, Risks, and Management Commentary

Management Commentary:

• Acquisition Impact: Growth in the Florida market (Busey Bank N.A.) following the 2005 acquisition of Tarpon Coast Bancorp continues to drive asset and deposit expansion.
• Expense Growth: Total other expenses rose 18.9% year-over-year, largely due to increased salaries and benefits associated with a rise in full-time equivalent employees (from 571 to 636) and expansion in Florida.
• Security Gains: The company recognized net security gains of $1.9 million for the nine-month period, compared to $0.3 million in 2005. Management noted an orderly liquidation of a marketable equity security with substantial appreciated value.
• Tax Rate: The effective tax rate increased to 34.6% from 32.5%, attributed to September tax filings. Management expects the rate to return to historical levels by year-end.

Risks and Contingencies:

• Interest Rate Risk: The company maintains a liability-sensitive gap structure (negative cumulative gap of $283.3 million through one year), meaning net interest income would benefit more from a decrease in interest rates over the next year.
• Merger Risk: The pending merger with Main Street Trust is subject to shareholder and regulatory approval.
• Asset Quality: While non-performing loans as a percentage of total loans improved to 0.33%, the absolute dollar amount of non-performing assets increased.

Investor Verification Checklist

• Merger Status: Verify the regulatory and shareholder approval status of the Main Street Trust, Inc. merger.
• Expense Run Rate: Assess whether the 18.9% increase in operating expenses is sustainable or if it will compress future margins.
• Asset Quality Trends: Monitor the increase in loans 90+ days past due and other real estate owned to ensure the allowance for loan losses remains adequate.
• Interest Rate Sensitivity: Evaluate the impact of the liability-sensitive gap on net interest income if interest rates rise as anticipated.
• Security Liquidation: Confirm the timeline and tax implications of the liquidation of the marketable equity security mentioned in management commentary.