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, 2006

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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)

Registrant’s telephone number, including area code (217) 365-4556

Securities registered pursuant to Section 12(b) of the Act:

		Name of each exchange
Title of each class		on which registered
Common Stock ($.001 par value)		The Nasdaq Global Select Market

Securities registered pursuant to Section 12(g) of the Act: None

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

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

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

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. þ

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes o      No þ

The aggregate market value of the voting and nonvoting Common Stock held by non-affiliates on June 30, 2006 was $343,144,505, determined using a per share closing price on that date of $20.47, as quoted on The Nasdaq Global Select 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 2, 2007
Common Stock, $.001 par value			21,457,866

 

 

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FIRST BUSEY CORPORATION
Form 10-K Annual Report

Table of Contents

Part 1
Item 1   Business			4
Item 1A Risk Factors			10
Item 1B Unresolved Staff Comments			13
Item 2   Properties			13
Item 3   Legal Proceedings			13
Item 4   Submission of Matters to a Vote of Security Holders			13
Part II
Item 5   Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			14
Item 6   Selected Financial Data			16
Item 7   Management’s Discussion and Analysis of Financial Condition and Results of Operations			17
Item 7A Quantitative and Qualitative Disclosures About Market Risk			37
Item 8   Financial Statements and Supplementary Data			39
Item 9   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			39
Item 9A Controls and Procedures			39
Item 9B Other Information			40
Part III
Item 10 Directors, Executive Officers and Corporate Governance			40
Item 11 Executive Compensation			43
Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			58
Item 13 Certain Relationships and Related Transactions, and Director Independence			60
Item 14 Principal Accounting Fees and Services			62
Part IV
Item 15 Exhibits and Financial Statement Schedules			63
List of Subsidiaries
Consent of McGladrey & Pullen, LLP
Certification of Principal Executive Officer
Certification of Principal Financial Officer
Section 1350 Certification of CEO
Section 1350 Certification of CFO

Part I

Item 1. Business

Introduction

First Busey Corporation (“First Busey” or the “Corporation”), a Nevada Corporation, is a $2.5 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 35 locations. First Busey is headquartered in Urbana, Illinois, and its common stock is traded on The Nasdaq Global Select 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 22 locations in Illinois, one in Florida 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 banking activities of the two banks under one charter. Busey Bank, N.A. is a nationally-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 five branches in Lee County, Florida. The bank operated under the name, Tarpon Coast National Bank, in its Charlotte County and Sarasota County locations until January 1, 2007, at which time those branches transitioned to the Busey Bank name. All other Florida locations began operating under the Busey Bank 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.

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.

First Busey Statutory Trust IV, a statutory business trust was organized in the state of Delaware in May 2006. First Busey owns all of the common securities of First Busey Statutory Trust IV.

See Note 21 in the Notes to the Consolidated Financial Statements for an analysis of segment operations.

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 Summary of Deposits dated June 30, 2006, First Busey ranked in the top ten in total deposits in four counties, first in Champaign County, Illinois, first in Ford County, Illinois, fifth in McLean County, Illinois, and eighth in Peoria County, Illinois. 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 Illinois Department of Financial and Professional Regulation (“IDFRP”) and, secondarily, by the Federal Deposit Insurance Corporation (“FDIC”). Busey Bank, N.A. is a nationally 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, IDFRP, 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, Federal Reserve, IDFRP, 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 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 OCC, FDIC, and IDFRP, 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.

Pursuant to FDICIA, the Federal Reserve, the FDIC, and the OCC have adopted regulations setting forth a five regulatory category rating system 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 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, 2006, First Busey and its subsidiaries had a total of 640 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 66, has served as Chairman of the Board and Chief Executive Officer of First Busey Corporation since its incorporation. In 2006, Mr. Mills assumed the role of President of First Busey Corporation. 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 and Chief Operating Officer of Busey Bank.

Lee H. O’Neill. Mr. O’Neill, age 62, has served as Chairman of the Board and Chief Executive Officer of Busey Bank since September 2006. Previously, Mr. O’Neill served as Executive Vice President, Chief Credit Officer and Regional President of Busey Bank from 1985 to September 2006. Mr. O’Neill joined the Commercial Banking Division with Busey Bank in 1983.

David D. Mills. Mr. Mills, age 36, 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, President and Chief Executive Officer of First Busey Corporation.

Edwin A. Scharlau II. Mr. Scharlau, age 62, 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 47, 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 September 20, 2006, First Busey entered into a merger transaction pursuant to an Agreement and Plan of Merger (the “Merger Agreement”), by and between First Busey and Main Street Trust, Inc., an Illinois corporation (“Main Street”), to be effected through the merger of Main Street with and into First Busey (the “Merger”), with First Busey surviving the Merger. Following the effectiveness of the Merger, Busey Bank, a wholly-owned subsidiary of First Busey, and Main Street Bank & Trust, a wholly-owned subsidiary of Main Street, will be merged, with Busey Bank surviving the merger. Under the terms of the Merger Agreement, Main Street shareholders will receive 1.55 shares of common stock of First Busey for each share of common stock of Main Street (the “Exchange Ratio”) owned by the shareholder, with cash to be paid in lieu of fractional shares of First Busey common stock. The Merger Agreement has been approved by the Board of Directors and the majority of shareholders of First Busey and Main Street, and is subject to certain regulatory approvals, the receipt by Main Street and First Busey of opinions that the Merger will qualify as a tax-free transaction, and customary closing conditions.

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 and Sarasota 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 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 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 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 $2.383 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.

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.

Difficulty in combining the operations of acquired or merged entities with the operations of First Busey may prevent the achievement of the expected benefits of the transaction.

First Busey may not be able to achieve the expected strategic and operating benefits contemplated at the time of an acquisition or merger. Many uncertainties are inherent in a business combination. These uncertainties may lead to lower than plan realization of benefits following the business combination. First Busey operates in a highly competitive environment. First Busey may lose customers, either its own or that of the combined entity, due to the combination. First Busey may also lose key employees, either its own or that of the combined entity, as a result of the combination.

Obtaining required approvals and satisfying closing conditions may delay or prevent completion of the Merger with Main Street.

Completion of the Merger is conditioned upon the receipt of all material governmental authorizations, consents, orders and approvals. First Busey and Main Street intend to pursue all required approvals in accordance with the Merger Agreement. No assurance can be given that the required consents and approvals will be obtained or that the required conditions to closing will be satisfied, and, if all such consents and approvals are obtained and the conditions are satisfied, no assurance can be given as to the terms, conditions and timing of the approvals or that they will satisfy the terms of the Merger Agreement. The terms and conditions of such consents, orders and approvals may require the divestiture of certain assets or operations of the combined company following the Merger or may impose other conditions.

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 we 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 potential 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.

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, specifically, in Central Illinois or Southwest Florida, 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.

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. 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 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 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.

Most 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.

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.

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, 2006.

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 Global Select Stock Market.

		2006								2005
Market Prices of Common Stock		High				Low				High				Low
First Quarter		$	21.10			$	19.96			$	21.00			$	19.01
Second Quarter		$	21.10			$	19.81			$	20.00			$	18.25
Third Quarter		$	22.76			$	19.78			$	20.48			$	18.54
Fourth Quarter		$	23.87			$	22.16			$	21.23			$	18.06

During 2006 and 2005, First Busey declared cash dividends per share of common stock as follows:

		Common Stock
2006
January		$	.1600
April		$	.1600
July		$	.1600
October		$	.1600
2005
January		$	.1400
April		$	.1400
July		$	.1400
October		$	.1400

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 2, 2007, First Busey Corporation had approximately 899 holders of common stock.

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, 2006			—			$	—				—				603,955
February 1 – 28, 2006			10,000				20.30				10,000				593,955
March 1 – 31, 2006			20,000				20.55				20,000				573,955
April 1 – 30, 2006			—				—				—				573,955
May 1 – 31, 2006			20,000				20.47				20,000				553,955
June 1 – 30, 2006			15,000				20.37				15,000				538,955
July 1 – 31, 2006			—				—				—				538,955
August 1 – 31, 2006			—				—				—				538,955
September 1 – 30, 2006			—				—				—				538,955
October 1 – 31, 2006			—				—				—				538,955
November 1 – 30, 2006			31,000				22.93				31,000				507,955
December 1 – 31, 2006			—				—				—				507,955
Total			96,000			$	21.25				96,000

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, 2006, 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, 2006, 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.

		2006				2005(6)				2004(6)				2003				2002
		(dollars in thousands, except per share data)
Balance Sheet Items
Securities available for sale		$	365,608			$	331,237			$	352,256			$	224,733			$	233,830
Loans			1,956,927				1,749,162				1,475,900				1,192,396				1,101,043
Allowance for loan losses			23,588				23,190				19,217				16,228				15,460
Total assets			2,509,514				2,263,422				1,964,441				1,522,084				1,435,578
Total deposits			2,014,839				1,809,399				1,558,822				1,256,595				1,213,605
Long-term debt			156,650				169,883				165,374				92,853				71,759
Junior subordinated debt owed to unconsolidated trusts			55,000				50,000				40,000				25,000				25,000
Stockholders’ equity			185,274				169,714				138,872				125,177				115,163
Results of Operations
Interest and dividend income		$	146,366			$	116,304			$	85,919			$	73,849			$	76,085
Interest expense			69,851				45,342				30,041				25,618				30,494
Net interest income			76,515				70,962				55,878				48,231				45,591
Provision for loan losses			1,300				3,490				2,905				3,058				3,125
Net income(1)			28,888				26,934				22,454				19,864				17,904
Per Share Data(2)
Diluted earnings		$	1.35			$	1.29			$	1.09			$	0.97			$	0.87
Cash dividends			0.64				0.56				0.51				0.45				0.40
Book value(3)			8.64				7.89				6.74				6.10				5.66
Closing price			23.05				20.89				20.87				18.00				15.37
Other Information
Return on average assets			1.23	%			1.28	%			1.28	%			1.35	%			1.33	%
Return on average equity			16.52	%			17.97	%			17.23	%			16.34	%			16.31	%
Net interest margin (4)			3.62	%			3.72	%			3.49	%			3.60	%			3.74	%
Equity to assets ratio(5)			7.46	%			7.13	%			7.42	%			8.28	%			8.18	%
Dividend payout ratio			47.29	%			42.93	%			46.24	%			46.39	%			45.39	%

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, 2006, 2005, and 2004. 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.

The allowance consists of specific, general and unallocated components. The specific component considers loans that are classified as doubtful, substandard, or special mention. For such loans that are 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 classified loans not considered impaired, 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.

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.

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.

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 amount and percentage of the Corporation’s consolidated net income contributed by each direct subsidiary since January 1, 2004.

Subsidiary		Acquired				2006								2005								2004
		(dollars in thousands)
Busey Bank 1			3/20/1980			$	29,542				83.6	%		$	24,985				81.1	%		$	20,683				83.3	%
Busey Bank Florida2			10/29/1999				—				—				3,302				10.7	%			1,573				6.3	%
First Capital Bank3, 4			6/1/2004				—				—				—				—				1,170				4.7	%
Busey Bank N. A.5			7/29/2005				3,465				9.8	%			469				1.5	%			—				—
Busey Investment Group, Inc.6			—				2,299				6.5	%			2,141				6.9	%			1,989				8.0	%
First Busey Resources, Inc.7			—				32				0.1	%			(78	)			-0.2	%			(565	)			-2.3	%
Total						$	35,338				100.0	%		$	30,819				100.0	%		$	24,850				100.0	%

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.

Executive Summary

First Busey Corporation recognized net income of $28,888,000 or $1.35 per share on a fully-diluted basis in 2006, as compared to net income of $26,934,000 or $1.29 per share on a fully diluted basis in 2005. This growth is due largely to growth in net interest income and other income, partially offset by modest growth in operating expenses. The growth in net interest income is a result of balance sheet growth combined with relatively higher interest rates. The higher interest rates paid for deposits offset a portion of the growth in interest income. The increase in other income is largely due to increased security gains. Operating expenses were higher in 2006 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.

First Busey ended 2006 with $2.5 billion in total assets, which include $2.0 billion at Busey Bank and $449 million at Busey Bank, N.A. First Busey consolidated loans at December 31, 2006 approached $2.0 billion while deposits exceeded $2.0 billion. The growth in loans and deposits is partially attributable to interest rate environment in 2006. Loan growth continued to be positive as long-term interest rates remained low throughout 2006. Deposit growth was driven by the interest-bearing deposit products as our customers found the rising yields on these products to be an attractive investment.

On September 20, 2006, First Busey entered into an Agreement and Plan of Merger (the “Merger Agreement”), by and between First Busey and Main Street Trust, Inc., with First Busey surviving the Merger. Under the terms of the Merger Agreement, Main Street shareholders will receive 1.55 shares of common stock of First Busey for each share of common stock of Main Street (the “Exchange Ratio”) owned by the shareholder, with cash to be paid in lieu of fractional shares of First Busey common stock. The combined entity is projected to have assets in excess of $4 billion and a market capitalization in excess of $800 million. The Merger Agreement has been approved by the Board of Directors and the majority of shareholders of First Busey and Main Street, and is subject to certain regulatory approvals, the receipt by Main Street and First Busey of opinions that the Merger will qualify as a tax-free transaction, and customary closing conditions. First Busey expects the merger of the holding companies to occur during the second quarter of 2007. The merger of Main Street Bank and Trust into Busey Bank will take place following the merger of the holding companies.

First Busey opened three new banking centers during the summer of 2006. Busey Bank expanded 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. Busey Bank, N.A. opened two new branches during 2006. The 14,000 square-foot two-story Cape Coral branch is a full-service banking center featuring mortgage, commercial, and retail lending products. The 2,300 square-foot Fort Myers, Florida branch is a smaller branch location focusing on retail customer transactions.

On April 25, 2006, the Corporation’s board of directors approved redemption of the trust preferred securities issued by First Busey Capital Trust I. These securities were redeemed at par value on June 19, 2006, plus accrued but unpaid distributions. The Corporation received regulatory approval and established a new series of preferred securities in an aggregate principal amount of $30,000,000 as part of a pooled trust preferred program, First Busey Statutory Trust IV. The proceeds of the new issue were used to redeem the securities of First Busey Capital Trust I and to repay certain outstanding indebtedness of the Corporation.

At the close of business on February 17, 2006, First Busey merged Busey Bank Florida into Tarpon Coast National Bank, forming Busey Bank, National Association (“Busey Bank, N.A.”). 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 continued to operate under the Tarpon Coast National Bank name until January 1, 2007, at which time all branches in Florida are operating under the Busey brand.

Results of Operations — Three Years Ended December 31, 2006

Summary

First Busey Corporation reported net income of $28,888,000 in 2006, up 7.3% from $26,934,000 in 2005, which itself represented an increase of 20.0% from $22,454,000 in 2004. Diluted earnings per share in 2006 increased 4.7% to $1.35 from $1.29 in 2005, which was an 18.3% increase from $1.09 in 2004. The main factors contributing to the increase in net income during 2006 were growth in the consolidated net interest margin and security gains, offset by increases in operating costs.

Security gains after the related tax benefits were $2,137,000 or 7.4% of net income in 2006. Security losses after the related tax benefits were $33,000 or 0.1% of net income in 2005, and $827,000 or 3.7% of net income in 2004. 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 1.23%, 1.28% and 1.28% for 2006, 2005, and 2004, respectively, and return on average equity was 16.52%, 17.97%, and 17.23% for 2006, 2005, and 2004, respectively.

Earning Assets, Sources of Funds, and Net Interest Margin

Average earning assets increased $218,582,000 or 11.2% to $2,170,446,000 in 2006 as compared to $1,951,864,000 in 2005. This growth is due primarily to the increase in average balance of loans. Interest-bearing liabilities averaged $1,910,218,000 for the year ended December 31, 2006, an increase of $193,162,000 or 11.2% from the average balance of $1,717,056,000 for 2005. The increase is primarily attributable to the growth in interest-bearing deposits. The increases also reflect a full year of balances from the July, 2005, addition of Tarpon Coast National Bank.

Interest income, on a tax equivalent basis increased $30,551,000 or 25.9% to $148,481,000 in 2006 from $117,930,000 in 2005, which was an increase of $30,704,000 or 35.2% from the $87,226,000 in interest income earned in 2004. Interest income grew in 2006 primarily due to growth in the average balance of outstanding loans. Increased yields across all categories, except other securities, was a significant factor contributing to the increase in interest income. The Corporation’s yield on average earning assets was 6.84% in 2006 compared to 6.04% in 2005 and 5.32% in 2004.

Interest expense increased during 2006 by $24,509,000 or 54.1% to $69,851,000 from $45,342,000 in 2005, which was an increase of $15,301,000 or 50.9% from the $30,041,000 interest expense in 2004. The increase in interest expense was due primarily to deposit growth and increased deposit rates in 2006. An overall increase in interest rates across all borrowings was a significant factor in the growth of interest expense. The average rate paid on interest-bearing liabilities was 3.66% in 2006 compared to 2.64% in 2005 and 2.08% in 2004.

Net interest income, on a tax-equivalent basis, increased 8.3% in 2006 to $78,630,000 from $72,588,000 in 2005, which reflected a 26.9% increase from $57,185,000 in 2004. Net interest margin, the Corporation’s net interest income expressed as a percentage of average earning assets stated on a tax equivalent basis, decreased to 3.62% during 2006, from 3.72% in 2005, which had increased from 3.49% in 2004. The net interest margin expressed as a percentage of average total assets, also on a tax equivalent basis, was 3.35% in 2006, compared to 3.45% in 2005, and 3.25% in 2004.

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 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 $1,300,000 during 2006 compared to $3,490,000 in 2005. The decrease in provision expense during 2006 is reflective of management’s interpretation of the current risk in the loan portfolio as compared to the allowance for loan losses. During 2005, the Corporation added a significant amount to the allowance for loan losses due primarily to two significant credits and the short-term construction lending program in the Florida market. One of the significant credits has experienced substantial improvement and the Corporation has reduced the short-term construction lending program significantly without experiencing the level of losses anticipated during 2005. Non-accrual loans and loans 90-days past due and still accruing increased 31.5% to $7,765,000 in 2006 from $5,903,000 in 2005. The increase in non-accrual loans 90 days past due is due primarily to the construction lending program loans remaining in the Corporation’s loan portfolio. The Corporation ceased issuing new loans under the construction lending program in 2005. The provision and net charge-offs of $902,000 resulted in the allowance for loan losses representing 1.21% of total outstanding loans and 304% of non-performing loans as of December 31, 2006, as compared to the allowance representing 1.33% of outstanding loans and 393% of non-performing loans as of December 31, 2005.

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 increased $4,924,000 or 20.9% to $28,461,000 in 2006 from $23,537,000 in 2005, which reflected a decrease of 1.06% or $253,000 from $23,790,000 in 2004. The variability in other income is due primarily to changes in the level of gains and losses recognized on the sale of investment securities and other service charges and fees. First Busey Corporation recognized gains of $3,563,000 and losses of $16,000 for a net gain of $3,547,000 on the sale of securities. These gains were recognized in order to reposition the investment portfolio for better performance under current interest-rate conditions, to restructure maturities of certain securities to better meet the Corporation’s liquidity needs and to carry out an orderly liquidation of a certain security. These gains on the sale of securities represented 12.5% of other income during 2006. During the 2005 and 2004, the Corporation recognized net security losses of $54,000 and net security gains $1,373,000 respectively.

In 2006, the Corporation recognized gains of $2,443,000 on the sale of $177,139,000 in mortgage loans compared to $2,571,000 on the sale of $176,241,000 in loans in 2005 and $2,689,000 on the sale of $182,368,000 in loans in 2004. The interest-rate environment and debt markets have strong influence on the level of mortgage loan origination and sales volumes.

Additional components of other income were service charge and other fee income, trust fees, and brokerage commissions. Service charges and other fees totaled $11,088,000 (39.0%), $10,213,000 (43.4%), and $9,876,000 (41.5%) in 2006, 2005, and 2004, 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 $6,020,000, $5,752,000, and $5,339,000 in 2006, 2005, and 2004 respectively. Commissions and brokerage fees were $2,653,000 in 2006, compared to $2,327,000 and $2,335,000 in 2005 and 2004, respectively. Remaining other income decreased 0.7% or $18,000 to $2,710,000 in 2006 from $2,728,000 in 2005 which was an increase of 25.3% or $550,000 from $2,178,000 in 2004. Other income includes $883,000 on the increase in the cash surrender value of bank owned life insurance during 2006, compared to $796,000 in 2005 and $798,000 in 2004.

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 $469,000 in 2006, $344,000 in 2005 and $243,000 in 2004.

Other Expenses

Operating expenses increased 17.6% or $8,972,000 to $60,087,000 in 2006 from $51,115,000 in 2005, which had increased by 18.6% or $8,030,000 from $43,085,000 in 2004. As a percentage of total income, other expenses were 34.4%, 36.6%, and 39.3% in 2006, 2005, and 2004, respectively.

Employee-related expenses, including salaries and wages and employee benefits, increased by 21.5% or $6,123,000 to $34,611,000 in 2006 from $28,488,000 in 2005, which had increased by $4,662,000 from $23,826,000 in 2004. When expressed as a percentage of average assets, employee-related expenses were 1.48%, 1.36%, and 1.36% in 2006, 2005, and 2004, respectively. The Corporation had 640, 608, and 548 full-time equivalent employees at December 31, 2006, 2005, and 2004, respectively. The increase in salaries and wages in 2006 is primarily related to a full year of employee-related expenses from the July 2005, acquisition of Tarpon Coast National Bank. Additionally, the Corporation retired the debt associated with its leveraged Employee Stock Ownership Plan (ESOP), which was the primary reason for the significant increase in the employee benefits expense. Following the ESOP debt retirement, all unallocated shares of the plan were allocated to plan participants. In addition to the complete allocation, all ESOP participants’ accounts became fully vested. The increase in employee-related expenses in 2005 compared to 2004 is related to the addition of associates of Tarpon Coast National Bank and a full year of employee-related expenses from the June 2004, acquisition of First Capital Bank.

Occupancy expense increased 11.9% or $545,000 to $5,121,000 in 2006, from $4,576,000 in 2005 from $3,921,000 in 2004. These increases are primarily due to the three additional branches opened during 2006 and the additions of Tarpon Coast National Bank and First Capital Bank.

Other expenses increased 15.6% or $1,681,000 to $12,447,000 in 2006 from $10,766,000 in 2005, which had increased 14.7% or $1,378,000 from $9,388,000 in 2004. The increase in other operating expenses in both 2006 and 2005 is due primarily to the acquisitions previously discussed. Higher marketing costs related to consumer programs also contributed to the increase during 2006. 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.

Income Taxes

Income tax expense in 2006 was $14,701,000 as compared to $12,960,000 in 2005 and $11,224,000 in 2004. The provision for income taxes as a percent of income before income taxes was 33.7%, 32.5% and 33.3% for 2006, 2005, and 2004, respectively.

Balance Sheet — December 31, 2006 and December 31, 2005

Total assets on December 31, 2006, were $2,509,514,000, an increase of 10.9% or $246,092,000 from $2,263,422,000 on December 31, 2005. The increase in assets was driven primarily by loan growth. Total loans, net of unearned interest, increased 11.9% or $207,765,000 to $1,956,927,000 on December 31, 2006, as compared to $1,749,162,000 on December 31, 2005. Busey Bank generated net loan growth of $188,466,000 and Busey Bank N.A. generated net loan growth $22,179,000 during 2006. Loan growth was driven by an ongoing focus on growth in our core markets combined with a low interest-rate environment for borrowers, offset by the reduction in loans resulting from termination of the short-term construction lending program in our southwest Florida market in 2005. Securities available for sale increased $34,371,000 or 10.4% to $365,608,000 at December 31, 2006 from $331,237,000 at December 31, 2005.

Total deposits increased 11.4% or $205,440,000 to $2,014,839,000 on December 31, 2006, as compared to $1,809,399,000 on December 31, 2005. Non-interest bearing deposits decreased 7.1% or $18,730,000 during 2006. Interest-bearing deposits increased 14.5% or $224,170,000 during 2006. Increases in deposit yields resulted in customers moving into interest-bearing deposits, leading to the decline in noninterest bearing deposits and growth in interest-bearing deposits. Of the increase in interest-bearing deposits, time deposits accounted for $148,854,000 of the increase, representing a 20.3% increase in the category from 2005.

Total stockholders’ equity increased 9.2% or $15,560,000 to $185,274,000 on December 31, 2006, as compared to $169,714,000 on December 31, 2005. The growth in total equity was due primarily to $15,227,000 in current year earnings retained in the Corporation and the full allocation of the leveraged shares in the Corporation’s ESOP. 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 are anticipated to 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 92.6%, 92.9%, and 93.4% of average total assets for the years ended December 31, 2006, 2005, and 2004 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 and liquidity objectives or for other operational needs. Securities available for sale are carried at fair value. As of December 31, 2006, the fair value of these securities was $365,608,000 and the amortized cost was $356,489,000. There were $10,081,000 of gross unrealized gains and $962,000 of gross unrealized losses for a net unrealized gain of $9,119,000. The after-tax effect of $5,494,000 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,
		2006				2005				2004				2003				2002
		(dollars in thousands)
U.S. Treasury securities and obligations of U.S. government corporations and Agencies		$	228,612			$	202,924			$	249,150			$	150,898			$	158,324
Obligations of states and political Subdivisions			85,453				82,057				51,768				48,235				51,434
Mortgage-backed securities			25,230				16,837				23,170				—				—
Corporate debt securities			3,294				2,926				2,220				4,265				3,746
Mutual funds and other equity securities			23,019				26,493				25,948				21,335				20,326
Fair value of securities available for sale		$	365,608			$	331,237			$	352,256			$	224,733			$	233,830
Amortized cost		$	356,489			$	319,151			$	337,037			$	209,482			$	216,801
Fair value as a percentage of amortized cost			102.56	%			103.79	%			104.52	%			107.28	%			107.85	%

The maturities, fair values and weighted average yields of debt securities available for sale as of December 31, 2006 are:

										Due after 1 year								Due after 5 years								Due after
		Due in 1 year or less								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		$	158,757				4.35	%		$	69,537				5.10	%		$	319				1.88	%		$	—				—	%
Obligations of states and political subdivisions 2			9,119				7.22	%			29,247				6.27	%			32,169				5.70	%			14,918				6.13	%
Mortgage-backed securities			—				—	%			17				5.62	%			18,110				5.36	%			7,103				5.12	%
Corporate debt securities			495				4.35	%			2,612				4.77	%			186				5.04	%			—				—	%
Total		$	168,371				4.51	%		$	101,413				5.43	%		$	50,784				5.55	%		$	22,021				5.80	%

U.S. government and agency securities as a percentage of total securities increased to 62.5% at December 31, 2006, from 61.3% at December 31, 2005, while obligations of state and political subdivisions (tax-exempt obligations) as a percentage of total securities increased to 23.4% at December 31, 2006, from 24.8% at December 31, 2005. The mix between U.S. Treasury and agency securities and obligations of state and political sub-divisions is partially based upon an analysis of tax-adjusted yields. Additional factors held constant, such as duration and regulatory, the Corporation will invest in the security that allows for the highest yield on a tax-equivalent basis.

Loan Portfolio

Loans, including loans held for sale, before allowance for loan losses, increased 11.9% to $1,956,927,000 as of December 31, 2006 from $1,749,162,000 at December 31, 2005. A significant portion of the overall loan growth occurred in real estate construction loans which grew 35.3% or $122,023,000 to $467,477,000 at December 31, 2006, compared to $345,454,000 at the end of 2005. The growth in real estate construction loans was primarily a result of continued focus on growth in the southwest Florida market. The net growth in real estate construction was offset by a decline in the category due to the termination of short-term construction lending program in Florida.

The Corporation also experienced significant growth in non-farm nonresidential mortgages, which increased 8.8% or $41,560,000 to $512,339,000 at December 31, 2006 from $470,779,000 at the end of 2005. Also, 1-to-4 family residential real estate mortgage loans (not held for sale) increased $14,277,000, or 2.8%, to $531,462,000 as of December 31, 2006, from $517,185,000 at December 31, 2005.

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 $555,358,000 as of December 31, 2006.

The loan portfolio includes a concentration of loans for commercial real estate amounting to approximately $637,883,000 and $575,281,000 as of December 31, 2006 and 2005, 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,
		2006				2005				2004				2003				2002
		(dollars in thousands)
Commercial and financial		$	224,271			$	219,134			$	216,290			$	138,272			$	118,004
Agricultural			22,692				23,433				25,224				22,300				22,034
Real estate-farmland			16,237				10,188				11,750				11,890				13,421
Real estate-construction			467,539				345,454				235,547				168,141				129,872
Real estate-mortgage			1,186,635				1,104,798				923,291				790,089				761,901
Installment loans to individuals			39,553				46,155				63,798				61,704				55,811
Loans		$	1,956,927			$	1,749,162			$	1,475,900			$	1,192,396			$	1,101,043

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, 2006

		1 Year or Less				1 to 5 Years				Over 5 Years				Total
						(dollars in thousands)
Commercial, financial and agricultural		$	140,513			$	60,125			$	46,325			$	246,963
Real estate-construction			260,917				162,254				44,368				467,539
Total		$	401,430			$	222,379			$	90,693			$	714,502
Interest rate sensitivity of selected loans
Fixed rate		$	118,284			$	62,164			$	25,635			$	206,083
Adjustable rate			283,146				160,215				65,058				508,419
Total		$	401,430			$	222,379			$	90,693			$	714,502

Allowance for Loan Losses

The following table shows activity affecting the allowance for loan losses:

		Years ended December 31
		2006				2005				2004				2003				2002
		(dollars in thousands)
Average loans outstanding during Period		$	1,832,800			$	1,604,198			$	1,355,487			$	1,118,667			$	1,015,073
Allowance for loan losses:
Balance at beginning of period		$	23,190			$	19,217			$	16,228			$	15,460			$	13,688
Loans charged-off:
Commercial, financial and Agricultural		$	372			$	152			$	1,782			$	2,123			$	775
Real estate-construction			205				—				48				—				76
Real estate-mortgage			295				628				141				172				659
Installment loans to individuals			264				160				216				220				319
Total charge-offs		$	1,136			$	940			$	2,187			$	2,515			$	1,829
Recoveries:
Commercial, financial and agricultural		$	50			$	133			$	57			$	69			$	349
Real estate-construction			6				—				—				—				—
Real estate-mortgage			82				7				28				6				26
Installment loans to individuals			96				75				117				150				101
Total recoveries		$	234			$	215			$	202			$	225			$	476
Net loans charged-off		$	902			$	725			$	1,985			$	2,290			$	1,353
Provision for loan losses		$	1,300			$	3,490			$	2,905			$	3,058			$	3,125
Net additions due to acquisition		$	—			$	1,208			$	2,069			$	—			$	—
Balance at end of period		$	23,588			$	23,190			$	19,217			$	16,228			$	15,460
Ratios:
Net charge-offs to average loans			0.05	%			0.05	%			0.15	%			0.20	%			0.13	%
Allowance for loan losses to total loans at period end			1.21	%			1.33	%			1.30	%			1.36	%			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:

		2006								2005								2004								2003								2002
						% of								% of								% of																% of
						Loans								Loans								Loans								% of Loans								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		$	3,160				13.5	%		$	4,221				14.4	%		$	4,337				17.2	%		$	2,295				14.5	%		$	2,143				13.9	%
Real estate-construction			6,547				28.0	%			5,743				19.8	%			27				16.0	%			—				14.1	%			—				11.8	%
Real estate-mortgage			13,248				56.6	%			12,455				63.2	%			13,053				62.5	%			12,752				66.2	%			12,451				69.2	%
Installment loans to individuals			441				1.9	%			268				2.6	%			481				4.3	%			821				5.2	%			779				5.1	%
Unallocated			192				N/A				503				N/A				1,319				N/A				360				N/A				87				N/A
Total		$	23,588				100.0	%		$	23,190				100.0	%		$	19,217				100.0	%		$	16,228				100.0	%		$	15,460				100.0	%

This table indicates growth in the allowance for loan losses for real estate construction as of December 31, 2006, as compared to December 31, 2005. This increase is due primarily to growth in the non-performing assets and outstanding balances in this loan category.

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,
		2006				2005				2004				2003				2002
		(dollars in thousands)
Non-accrual loans		$	5,763			$	4,483			$	1,523			$	2,638			$	1,265
Loans 90 days past due and still accruing			2,002				1,420				2,141				581				963
Restructured loans			—				—				—				—				—
Total non-performing loans		$	7,765			$	5,903			$	3,664			$	3,219			$	2,228
Repossessed assets		$	720			$	236			$	4,212			$	4,781			$	5,724
Other assets acquired in satisfaction of debts previously contracted			1				1				23				10				1
Total non-performing other assets		$	721			$	237			$	4,235			$	4,791			$	5,725
Total non-performing loans and non- performing other assets		$	8,486			$	6,140			$	7,899			$	8,010			$	7,953
Non-performing loans to loans, before allowance for loan losses			0.40	%			0.34	%			0.25	%			0.27	%			0.20	%
Non-performing loans and non-performing other assets to loans, before allowance for loan losses			0.44	%			0.35	%			0.54	%			0.67	%			0.72	%

The ratio of non-performing loans and non-performing other assets to loans, before allowance for loan losses, increased to 0.44% as of December 31, 2006 from 0.35% as of December 31, 2005, due to increases across all categories of non-performing assets. The increases are due primarily to remaining loans from the short-term construction lending program in the southwest Florida market. Additionally, the central Illinois market experienced an increase across all non-performing loan categories in single family residential mortgages.

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 gross interest income that would have been recorded in the years ended December 31, 2006, 2005 and 2004 if the non-accrual loans had been current in accordance with their original terms was $921,000, $380,000, and $307,000, respectively. The amount of interest collected on those loans that was included in interest income was $151,000 for the year ended December 31, 2006, $250,000 for the year ended December 31, 2005, $28,000 for the year ended December 31, 2004.

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 $11,875,000 at December 31, 2006 and $11,691,000 at December 31, 2005. 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 decreased to 13.0% for the year ended December 31, 2006, from 13.3% for the year ended December 31, 2005, which was an increase from 12.5% for the year ended December 31, 2004. The decline in non-interest bearing deposits in 2006 from 2005 reflects the increasing rate environment for deposits during 2006.

		December 31,
		2006												2005												2004
		(dollars in thousands)
		Average								Average				Average								Average				Average								Average
		Balance				% Total				Rate				Balance				% Total				Rate				Balance				% Total				Rate
Non-interest bearing demand deposits		$	242,707				13.0	%			0.00	%		$	221,632				13.3	%			0.00	%		$	175,463				12.5	%			0.00	%
Interest bearing demand deposits			70,365				3.7	%			2.25	%			42,150				2.5	%			1.00	%			26,917				1.9	%			0.70	%
Savings/Money Market			764,967				41.0	%			2.57	%			714,891				42.8	%			1.49	%			622,660				44.4	%			0.78	%
Time deposits			789,019				42.3	%			4.28	%			691,790				41.4	%			3.30	%			578,808				41.2	%			2.83	%
Total		$	1,867,058				100.0	%			2.95	%		$	1,670,463				100.0	%			2.03	%		$	1,403,848				100.0	%			1.53	%

Certificates of deposit of $100,000 and over and other time deposits of $100,000 and over at December 31, 2006 had the following maturities (dollars in thousands):

Under 3 months		$	115,318
3 to 6 months			80,022
6 to 12 months			59,899
Over 12 months			43,167
Total		$	298,406

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
		Federal funds				under agreements to				Other short-term
		purchased				repurchase				borrowings
		(dollars in thousands)
2006
Balance, December 31, 2006		$	6,300			$	48,470			$	25,000
Weighted average interest rate at end of period			5.44	%			4.09	%			5.31	%
Maximum outstanding at any month end		$	46,500			$	58,104			$	25,000
Average daily balance		$	18,465			$	50,642			$	3,267
Weighted average interest rate during period 1			5.40	%			3.65	%			5.08	%
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	%

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,
		2006				2005				2004
		(dollars in thousands)
Cash and due from banks		$	53,020			$	49,865			$	45,905
Interest-bearing bank deposits			488				1,394				3,359
Federal funds sold			6,923				21,291				15,844
Total		$	60,431			$	72,550			$	65,108
Percent of average total assets			2.6	%			3.5	%			3.7	%

The Corporation’s primary sources of funds consist of 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, 2006 and 2005. 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 2006, the Corporation originated $181,658,000 and sold $177,139,000 in mortgage loans held for sale compared to originations of $178,404,000 and sales of $176,241,000 in 2005, and originations of $159,560,000 and sales of $182,368,000 in 2004. As of December 31, 2006 and 2005, the Corporation held $16,256,000 and $11,737,000 in loans held for sale, respectively.

On April 25, 2006, the Corporation’s board of directors approved redemption of the trust preferred securities issued by First Busey Capital Trust I. These securities were redeemed at par value on June 19, 2006, plus accrued but unpaid distributions. The Corporation received regulatory approval and established a new series of preferred securities in an aggregate principal amount of $30,000,000 as part of a pooled trust preferred program, First Busey Statutory Trust IV. The proceeds of the new issue were used to redeem the securities of First Busey Capital Trust I and to repay certain outstanding indebtedness of the Corporation.

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 1.15%. During 2006, the Corporation paid down $12,000,000 on the note, leaving a $30,000,000 balance as of December 31, 2006.

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, 2006 and 2005, the Corporation had outstanding loan commitments including lines of credit of $536,763,000, and $559,847,000 respectively. The balance of commitments to extend credit represents 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, 2006.

														Junior
														Subordinated
						Short- and								Debt Owed to
		Certificates of				Long-term				Operating				Unconsolidated
		Deposit				Borrowing				Leases				Trusts				Total
		(dollars in thousands)
2007		$	677,278			$	43,825			$	1,058			$	—			$	722,161
2008			99,026				30,000				904				—				129,930
2009			57,326				10,000				279				—				67,605
2010			29,144				25,500				127				—				54,771
2011			19,405				53,325				24				—				72,754
Thereafter			425				19,000				129				55,000				74,554
Total		$	882,604			$	181,650			$	2,521			$	55,000			$	1,121,775
Commitments to extend credit																		$	536,763

Net cash flows provided by operating activities totaled $29,283,000, $30,309,000 and $48,603,000 in 2006, 2005 and 2004, respectively. Significant items affecting the cash flows provided by operating activities include net income, depreciation and amortization expense, the provision for loan losses, deferred income taxes, security gains and activities related to the origination and sale of mortgage loans held for sale. Operating cash flows decreased during 2006 and 2005 relative to 2004 due primarily to lower mortgage loan sale activity. Net cash used in mortgage loans originated totaled $2,076,000 in 2006. Net cash provided by mortgage loans totaled $408,000 in 2005 and $25,497,000 in 2004.

Net cash used by investing activities totaled $241,017,000, $126,222,000 and $273,586,000 in 2006, 2005, and 2004, 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 2006, First Busey’s proceeds from the sales and maturities of investment securities classified as available-for-sale totaled $135,147,000, and the Corporation purchased $166,606,000 in securities resulting in net cash used by securities activity of $31,459,000. In 2005, First Busey’s proceeds from the sales and maturities of 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, sales and maturities totaled $195,885,000 and purchases totaled $271,763,000, resulting in net cash used by securities activity of $75,878,000. Net loan portfolio growth totaled $205,276,000, $156,573,000, and $156,755,000, in 2006, 2005, and 2004, 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 $214,093,000, $108,879,000, and $220,577,000 in 2006, 2005, 2004, 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 $205,440,000 in 2006, $111,147,000 in 2005, and $155,143,000 in 2004. The Corporation has increased its use of short-term and long-term advances from the Federal Home Loan Banks of Chicago to fund growth in loan and investment balances. The Corporation issued junior subordinated debt in June 2006, to redeem an existing junior suboridinated debt issuance and repay certain indebtedness. During 2005, junior subordinated debt was issued and as well an increase in 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, 2006, the Corporation earned $28,888,000 and paid dividends of $13,661,000 to stockholders, resulting in the retention of current earnings of $15,227,000.

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, 2006, the Corporation had a total capital to total risk-weighted asset ratio of 10.49%, a Tier 1 capital to risk-weighted asset ratio of 9.07% and a Tier 1 leverage ratio of 7.38%; Busey Bank had ratios of 10.70%, 9.33%, and 7.67%, respectively. Busey Bank N.A. had ratios of 13.97%, 12.71%, and 9.74%, 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 $55,000,000 of the outstanding cumulative trust preferred securities in Tier 1 capital (as defined by regulation). In March, 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 transition period to March 31, 2009, for application of the new limits. If those limitations had been in effect at December 31, 2006, First Busey would have been allowed to include approximately $41,798,000 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, 2006.

New Accounting Pronouncements

Effective January 1, 2006, the Corporation adopted the fair value recognition provision of FASB Statement No. 123(R), Share-Based Payment, using the modified-prospective transition method. Under that transition method, compensation cost recognized in the year ended December 31, 2006 includes: (a) compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of Statement 123, and (b) compensation costs for all share-based payments granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of Statement 123(R) . Results for prior periods have not been restated.

Information relating to additional 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.

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,
		2006												2005												2004
		Average				Income/				Yield/				Average				Income/				Yield/				Average				Income/				Yield/
		Balance				Expense				Rate				Balance				Expense				Rate				Balance				Expense				Rate
		(dollars in thousands)
Assets
Interest-bearing bank deposits		$	488			$	24				4.92	%		$	1,394			$	43				3.08	%		$	3,359			$	46				1.37	%
Federal funds sold			6,923				349				5.04	%			21,291				564				2.65	%			15,844				272				1.72	%
Investment securities:
U.S. Treasuries and Agencies			199,891				8,103				4.05	%			213,287				6,449				3.02	%			172,812				4,533				2.62	%
Obligations of states and political subdivisions1			84,973				5,077				5.97	%			63,436				3,742				5.90	%			49,863				2,985				5.99	%
Other securities			45,371				1,729				3.81	%			48,258				1,844				3.82	%			42,839				1,631				3.81	%
Loans (net of unearned (discount)1, 2			1,832,800				133,199				7.27	%			1,604,198				105,288				6.56	%			1,355,487				77,759				5.74	%
Total interest-earning assets1		$	2,170,446			$	148,481				6.84	%		$	1,951,864			$	117,930				6.04	%		$	1,640,204			$	87,226				5.32	%
Cash and due from banks			53,020												49,865												45,905
Premises and equipment			40,431												31,203												24,553
Allowance for loan losses			(23,454	)											(21,050	)											(17,716	)
Other assets			104,109												90,204												63,900
Total assets		$	2,344,552											$	2,102,086											$	1,756,846
Liabilities and Stockholders’ Equity
Interest-bearing transaction deposits		$	70,365			$	1,582				2.25	%		$	42,150			$	420				1.00	%		$	26,917			$	188				0.70	%
Savings deposits			109,596				1,002				0.91	%			116,978				867				0.74	%			111,796				704				0.63	%
Money market deposits			655,371				18,695				2.85	%			597,913				9,803				1.64	%			510,864				4,149				0.81	%
Time deposits			789,019				33,767				4.28	%			691,790				22,849				3.30	%			578,808				16,395				2.83	%
Short-term borrowings:
Federal funds purchased			18,465				997				5.40	%			9,865				234				2.37	%			5,010				64				1.28	%
Securities sold under agreements to repurchase			50,642				1,848				3.65	%			44,998				945				2.10	%			26,864				335				1.25	%
Other			3,267				166				5.08	%			4,112				100				2.44	%			9,293				158				1.70	%
Long-term debt			160,801				7,734				4.81	%			163,865				6,669				4.07	%			136,513				5,372				3.94	%
Junior subordinated debt issued to unconsolidated trusts			52,692				4,060				7.71	%			45,385				3,455				7.61	%			35,385				2,676				7.56	%
Total interest-bearing liabilities		$	1,910,218			$	69,851				3.66	%		$	1,717,056			$	45,342				2.64	%		$	1,441,450			$	30,041				2.08	%
Net interest spread											3.18	%											3.40	%											3.24	%
Demand deposits			242,707												221,632												175,463
Other liabilities			16,803												13,538												9,577
Stockholders’ equity			174,824												149,860												130,356
Total liabilities and stockholders’ equity		$	2,344,552											$	2,102,086											$	1,756,846
Interest income/earning assets1		$	2,170,446			$	148,481				6.84	%		$	1,951,864			$	117,930				6.04	%		$	1,640,204			$	87,226				5.32	%
Interest expense/earning assets		$	2,170,446			$	69,851				3.22	%		$	1,951,864			$	45,342				2.32	%		$	1,604,204			$	30,041				1.83	%
Net interest margin1						$	78,630				3.62	%						$	72,588				3.72	%						$	57,185				3.49	%