| FIRST BUSEY CORP /NV/ 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 US 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 US 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 |
| 9 _________________________________________________________________ [59]Table of Contents 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 10 _________________________________________________________________ [60]Table of Contents 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 |