FIRST BUSEY CORP /NV/ - Annual Report: 2021 (Form 10-K)

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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FORM 10-K

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For the fiscal year ended December 31, 2021

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Commission file number 0-15950

FIRST BUSEY CORPORATION

(Exact name of registrant as specified in its charter)

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100 W. University Avenue

Champaign, Illinois  61820

(Address of principal executive offices)  (Zip code)

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Registrant’s telephone number, including area code   (217) 365-4544

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

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

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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes  ☒  No  ☐

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Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes  ☐  No  ☒

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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  ☒  No  ☐

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Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes  ☒  No  ☐

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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

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Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  ☒

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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes  ☐  No  ☒

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The aggregate market value of the voting and non-voting common equity held by non-affiliates on the last business day of the registrant’s most recently completed second fiscal quarter was $1.3 billion, determined using a per share closing price for the registrant’s common stock on that date of $24.66, as quoted on The Nasdaq Global Select Market.

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As of February 24, 2022, there were 55,290,645 shares of the registrant’s common stock, $0.001 par value, outstanding.

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DOCUMENTS INCORPORATED BY REFERENCE

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Portions of the definitive Proxy Statement for the 2022 Annual Meeting of Stockholders of First Busey Corporation to be held May 25, 2022, are incorporated by reference in this Form 10-K in response to Part III.

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FIRST BUSEY CORPORATION

FORM 10-K ANNUAL REPORT

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TABLE OF CONTENTS

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GLOSSARY

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We use acronyms, abbreviations, and other terms throughout this Annual Report, as defined in the glossary below:

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PART I

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ITEM 1. BUSINESS

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Introduction

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First Busey, a Nevada corporation organized in 1980, is a $12.9 billion financial holding company.  First Busey conducts a broad range of financial services through its wholly-owned bank subsidiary, Busey Bank, with banking centers in Illinois, Missouri, Florida, and Indiana.  First Busey is headquartered in Champaign, Illinois, and its common stock is traded on The Nasdaq Global Select Market under the symbol “BUSE.”

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Acquisitions

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Over the last several years, First Busey completed the following acquisitions as part of our strategy to expand into new service areas and to provide broader coverage in areas where we already maintain a presence:

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Further information related to acquisitions made prior to January 1, 2021, has been presented in the Annual Reports previously filed with the SEC corresponding to the year of each acquisition.

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2021 Acquisition

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On May 31, 2021, First Busey acquired CAC, the holding company for GSB, through a merger transaction.  The partnership enhances the Company’s existing deposit, commercial banking, and wealth management presence in the Chicago-Naperville-Elgin, IL-IN-WI Metropolitan Statistical Area.  First Busey operated GSB as a separate banking subsidiary until August 14, 2021, when it was merged with and into Busey Bank.  At that time, all GSB banking centers became branches of Busey Bank.

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See “Note 2.  Acquisitions” in the Notes to the Consolidated Financial Statements for further information relating to acquisitions.

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Subsidiaries of First Busey

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First Busey conducts the business of banking, related banking services, asset management, brokerage, and fiduciary services through Busey Bank and payment technology solutions through FirsTech.

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Busey Bank is an Illinois state-chartered bank organized in 1868 with its headquarters in Champaign, Illinois.  Busey Bank has 46 banking centers in Illinois, eight in Missouri, three in southwest Florida, and one in Indianapolis, Indiana.

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Busey Bank offers a range of diversified financial products and services for consumers and businesses, including online and mobile banking capabilities to conveniently serve our customers’ needs.  Commercial services include commercial, commercial real estate, real estate construction, and agricultural loans, as well as commercial depository services such as cash management.  Retail banking services include residential real estate, home equity lines of credit and consumer loans, customary types of demand and savings deposits, money transfers, safe deposit services, and IRA and other fiduciary services through our banking center, ATM, and technology-based networks.

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Busey Bank’s principal sources of income are interest and fees on loans and investments, wealth management fees, and service fees.  Principal expenses are interest paid on deposits and general operating expenses.  Busey Bank’s primary markets are central Illinois, northern Illinois (including the Chicago metropolitan area), the St. Louis, Missouri metropolitan area, southwest Florida, and central Indiana.

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Busey Bank provides a full range of asset management, investment, brokerage, fiduciary, philanthropic advisory, tax preparation, and farm management services to individuals, businesses, and foundations through its Wealth Management business.  As of December 31, 2021, $12.7 billion of assets were under care.  For individuals, Busey Bank provides investment management, trust and estate advisory services, and financial planning.  For businesses, it provides investment management, business succession planning, and employee retirement plan services.  For foundations, Busey Bank provides investment management, investment strategy consulting, and fiduciary services.  Brokerage-related services are offered by Busey Investment Services, a division of Busey Bank, through a third-party arrangement.  In addition, Busey Bank provides professional farm management and brokerage services to the agricultural industry.

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FirsTech, a subsidiary of Busey Bank with offices across the Midwest, provides comprehensive and innovative payment technology solutions.  Through our payment platform, which utilizes an API cloud-based platform, our technology provides for fully integrated payments capabilities.  FirsTech's multi-channel payment platform allows businesses to collect payments from their customers across a variety of payment modules, ranging from online payment methods to offline payment methods, including but not limited to: text-based mobile bill pay, electronic payment concentration delivered to Automated Clearing House networks, money management and credit card networks, walk-in payment processing for customers at retail pay agents, customer service payments made over a telephone, direct debit services, and lockbox remittance processing for customers to make payments by mail.  FirsTech also provides additional tools to help clients with billing, reconciliation, bill reminders, and treasury services.  Our client base represents a diverse set of industries, but we generally cater to the utility, financial services (insurance companies, banks, and credit unions), and telecommunications industries.  The Company continues to make strategic investments in FirsTech which include the creation of our new BaaS platform.  This BaaS offering will provide white-labeled FirsTech architected payment technologies to financial institutions allowing them to offer payment solutions to their customer bases.  FirsTech continues to roll out new products and services to the First Busey customer base and has subsequently commercialized this platform across a dozen banks.  Initiated by onboarding two seasoned executives at the end of 2020, FirsTech is investing significantly across technology, human capital, and sales to expand its world class payments platform.

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First Busey Risk Management, a wholly-owned subsidiary of First Busey, incorporated in Nevada, is a captive insurance company that insures against certain risks unique to the operations of the Company and its subsidiaries and for which insurance may not be currently available or economically feasible in today’s insurance marketplace.  First Busey Risk Management pools resources with several other similar insurance company subsidiaries of financial institutions to spread a limited amount of risk among themselves.

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First Busey also has various other subsidiaries that are not significant to the consolidated entity.

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First Busey’s operations are managed through three operating segments consisting of Banking, FirsTech, and Wealth Management.  See “Note 21.  Operating Segments and Related Information” in the Notes to the Consolidated Financial Statements for an analysis of segment operations.

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Banking Center Markets

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Busey Bank has 46 banking centers in Illinois.  Our Illinois markets feature several Fortune 1000 companies.  Those organizations, coupled with large healthcare and higher education sectors, anchor the communities in which they are located and have provided a comparatively stable foundation for housing, employment, and small business.  Historically, the financial condition of the state of Illinois, in which the largest portion of Busey Bank’s customer base resides, has been characterized by low credit ratings and budget deficits.  However, with the recent improvement in the state’s financial outlook, during the second half of 2021 Illinois received improved ratings from Moody’s Investor Service, S&P Global Ratings, and Fitch.

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Busey Bank has eight banking centers in Missouri.  St. Louis, Missouri has a diverse economy with major employment sectors including health care, financial services, professional and business services, and retail.  Twelve of our banking centers in Illinois are located within the boundaries of the St. Louis Metropolitan Statistical Area.

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Busey Bank has three banking centers in southwest Florida, an area which has experienced above average population growth, job growth, and an expanded housing market over the last several years.

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Busey Bank has one banking center in the Indianapolis, Indiana area, which is the most populous city of Indiana with a diverse economy, including the headquarters of many large corporations.

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In November 2021, First Busey completed its previously announced service center closures as part of our Personal Banking Transformation Plan, which resulted in the consolidation of 17 branches across our various markets.

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Competition

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Busey Bank competes actively with national and state banks, savings and loan associations, and credit unions for deposits and loans mainly in Illinois; the St. Louis, Missouri metropolitan area; southwest Florida; and central Indiana.  Busey Bank competes for real estate and other loans primarily on the basis of type of loan, interest rates and loan fees, and the quality of services provided.  Busey Bank and FirsTech 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, payment technology solution companies, fintech companies, and certain governmental agencies, all of which actively engage in marketing various types of loans, deposit accounts, wealth management, and other products and services.

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Busey Bank faces substantial competition in attracting deposits from other commercial banks, savings institutions, money market and mutual funds, credit unions, insurance agencies, brokerage firms, and other investment vehicles.  Customers for banking services are generally influenced by convenience, quality of service, personal contacts, price of services, and availability of products.  Busey Bank attracts a significant amount of deposits through its banking centers, primarily from the communities in which those banking centers are located; therefore, competition for those deposits is principally from other commercial banks, savings institutions, and credit unions located in the same communities.  Busey Bank competes for deposits by offering a variety of deposit accounts at competitive rates, high-quality customer service, convenient business hours, technology enabled solutions including internet and mobile banking, and convenient banking centers with interbranch deposit and withdrawal privileges.

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Based on information obtained from the FDIC Summary of Deposits dated June 30, 2021, the most recent report available, Busey Bank ranked in the top 10 in total deposits in 12 Illinois counties:

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Supervision, Regulation and Other Factors

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General

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FDIC-insured institutions, like Busey Bank, as well as their holding companies and affiliates, are extensively regulated under federal and state law.  As a result, the Company’s growth and earnings performance may be affected not only by management decisions and general economic conditions, but also by the requirements of federal and state statutes and by the regulations and policies of various bank regulatory agencies, including the DFPR, the Federal Reserve, the FDIC and the CFPB.  Furthermore, taxation laws administered by the Internal Revenue Service and state taxing authorities, accounting rules developed by the FASB, securities laws administered by the SEC and state securities authorities, and anti-money laundering laws enforced by the U.S. Treasury have an impact on the Company’s business.  The effect of these statutes, regulations, regulatory policies, and accounting rules are significant to the Company’s operations and results.

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Federal and state banking laws impose a comprehensive system of supervision, regulation, and enforcement on the operations of FDIC-insured institutions, their holding companies, and affiliates that is intended primarily for the protection of the FDIC-insured deposits and depositors of banks, rather than stockholders.  These laws, and the regulations of the bank regulatory agencies issued under them, affect, among other things, the scope of the Company’s business; the kinds and amounts of investments the Company and Busey Bank may make; required capital levels relative to assets; the nature and amount of collateral for loans; the establishment of branches; the ability to merge, consolidate and acquire; dealings with the Company’s and Busey Bank’s insiders and affiliates; and the Company’s payment of dividends.

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In reaction to the global financial crisis and particularly following the passage of the Dodd-Frank Act in 2010, the Company experienced heightened regulatory requirements and scrutiny.  Although the reforms primarily targeted systemically important financial service providers (at the time, those with assets of $50 billion and greater), certain provisions of the law triggered at $10.0 billion in assets and the influence of other provisions filtered down in varying degrees to community banks over time, causing the Company’s compliance and risk management processes, and the costs thereof, to increase.  The Regulatory Relief Act provided meaningful relief for banks and their holding companies that were not considered systemically important (amended to be those with assets under $250 billion).  However, the $10.0 billion threshold remained in place for certain Dodd-Frank Act reforms that are now applicable to the Company, as discussed below.

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The supervisory framework for U.S. banking organizations subjects banks and bank holding companies to regular examination by their respective regulatory agencies, which results in examination reports and ratings that are not publicly available and that can impact the conduct and growth of their businesses.  These examinations consider not only compliance with applicable laws and regulations, but also capital levels, asset quality and risk, management ability and performance, earnings, liquidity, and various other factors.  The regulatory agencies generally have broad discretion to impose restrictions and limitations on the operations of a regulated entity where the agencies determine, among other things, that such operations are unsafe or unsound, fail to comply with applicable law, or are otherwise inconsistent with laws and regulations.

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The following is a summary of the material elements of the supervisory and regulatory framework applicable to the Company and Busey Bank.  It does not describe all of the statutes, regulations, and regulatory policies that apply, nor does it restate all of the requirements of those that are described.  The descriptions are qualified in their entirety by reference to particular statutory and regulatory provisions.

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COVID-19 Pandemic

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Federal bank regulatory agencies, along with their state counterparts, issued a steady stream of guidance responding to the COVID-19 pandemic and they took a number of unprecedented steps to help banks navigate the pandemic and mitigate its impact.  These included, without limitation: requiring banks to focus on business continuity and pandemic planning; adding pandemic scenarios to stress testing; encouraging bank use of capital buffers and reserves in lending programs; permitting certain regulatory reporting extensions; reducing margin requirements on swaps; permitting certain otherwise prohibited investments in investment funds; issuing guidance to encourage banks to work with customers affected by the pandemic; and providing credit under the CRA for certain pandemic-related loans, investments, and public service.  Because of the need for social distancing measures, the agencies revamped the manner in which they conducted periodic examinations of their regulated institutions, including making greater use of off-site reviews, and they have continued virtual examinations in 2022.

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Reference is made to “Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations—Impact of COVID-19” below for further information on the impact of the COVID-19 pandemic.  In addition, information as to selected topics is contained in the relevant sections of this Supervision and Regulation discussion provided below.

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The $10.0 billion Threshold

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As indicated in the introduction above, the Dodd-Frank Act included a number of requirements that triggered when a banking entity crossed over $10.0 billion in assets.  Those included requirements for stress testing capital, maintenance of a risk committee, adherence to the Volcker Rule’s complicated prohibitions on proprietary trading and ownership of private funds, limitations on interchange fees for certain debit transactions, clearing of swap agreements, and examination and enforcement related to consumer financial services by the CFPB, in addition to a number of heightened reporting requirements.  The Regulatory Relief Act eliminated the stress test and risk committee requirements for banking entities between $10.0 billion and $50 billion, but the other Dodd-Frank regulations and reporting requirements were not changed.

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The Company crossed the $10.0 billion threshold in 2020.  However, the federal bank regulatory agencies issued an Interim Final Rule on November 20, 2020, that provided temporary relief for certain community banking organizations as a result of growth in size from the COVID-19 response.  That relief expired December 31, 2021.

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The material consequences to the Company of crossing the $10.0 billion threshold are as follows:

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Interchange Fees

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The Durbin Amendment to the Dodd-Frank Act required the Federal Reserve to establish a maximum permissible interchange fee for many types of debit transactions.  Interchange fees, also known as “swipe” fees, are charges that merchants pay to card-issuing banks, such as Busey Bank, for processing electronic payment transactions.  The Federal Reserve set the maximum interchange fee at 21 cents, plus five basis points of the transaction value.  The Federal Reserve also adopted a rule to allow a debit card issuer to recover one cent per transaction for fraud prevention purposes if the issuer complies with certain fraud-related requirements required by the Federal Reserve.  Durbin limitations are applicable to any banking entity with over $10.0 billion in assets and will be applicable to Busey Bank after a six-month transition period.  Management believes that compliance with Durbin will materially reduce Busey Bank’s earnings on the covered debit transactions.

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Volcker Rule

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The Volcker Rule (also a part of the Dodd-Frank Act) restricts the ability of banking entities (holding companies and their affiliates) with over $10.0 billion in assets to sponsor or invest in private funds, or to engage in certain types of proprietary trading.  In October 2019, the Federal Reserve, OCC, FDIC, Commodity Futures Trading Commission, and SEC finalized rules to tailor the application of the Volcker Rule based on the size and scope of a banking entity’s trading activities and to clarify and amend certain definitions, requirements, and exemptions.  Banking entities have two years (with a possibility of extensions) to comply with the Volcker requirements after crossing the $10.0 billion threshold.  The Company does not materially engage in the activities prohibited by the Volcker Rule; therefore, the application of the rule will not have a material effect on the operations of the Company and its subsidiaries.

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CFPB Examination and Enforcement

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Although the CFPB’s rules issued under federal consumer financial protection laws are applicable to all providers of consumer financial services, the CFPB only has examination and enforcement authority over banks with more than $10.0 billion in assets (measured over four consecutive quarters).  Busey Bank continues to be examined for compliance with consumer laws by its primary federal regulatory agency, the FDIC, but the CFPB is in the process of assuming supervisory authority in that regard.

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Clearing Swaps Agreements

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Banks with over $10.0 billion in assets are required to clear swaps agreements on exchanges.  The requirement was not deferred by the Interim Final Rule.  Busey Bank began to comply with the exchange requirement beginning in 2021.

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Risk Committee

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The Dodd Frank Act required publicly traded bank holding companies with more than $10.0 billion in total consolidated assets to establish and maintain a risk committee.  Pursuant to the Federal Reserve’s final rules issued under the Regulatory Relief Act, that threshold was increased to $50.0 billion.  Although it is not yet required to have a risk committee in place, the Company established a committee comprised of holding company directors in 2018 to oversee risk matters in preparation for future growth.

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The Role of Capital

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Regulatory capital represents the net assets of a banking organization available to absorb losses.  Because of the risks attendant to their business, FDIC-insured institutions generally are required to hold more capital than other businesses, which directly affects the Company’s earnings capabilities.  Although capital historically has been one of the key measures of the financial health of both bank holding companies and banks, its role became fundamentally more important in the wake of the global financial crisis, as the banking regulators recognized that the amount and quality of capital held by banks prior to the crisis was insufficient to absorb losses during periods of severe stress.

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Capital Levels

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Banks have been required to hold minimum levels of capital based on guidelines established by the bank regulatory agencies since 1983.  The minimums have been expressed in terms of ratios of “capital” divided by “total assets.”  The capital guidelines for U.S. banks beginning in 1989 have been based upon international capital accords, known as “Basel” rules, adopted by the Basel Committee on Banking Supervision, a committee of central banks and bank supervisors that acts as the primary global standard-setter for prudential regulation, as implemented by the U.S. bank regulatory agencies on an interagency basis.  The accords recognized that bank assets for the purpose of the capital ratio calculations needed to be risk weighted (the theory being that riskier assets should require more capital) and that off-balance sheet exposures needed to be factored into the calculations.  Following the global financial crisis, the Group of Governors and Heads of Supervision, the oversight body of the Basel Committee on Banking Supervision, announced agreement on a strengthened set of capital requirements for banking organizations around the world, known as Basel III, to address deficiencies recognized in connection with the global financial crisis.

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The Basel III Rule

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U.S. federal banking agencies adopted the Basel III regulatory capital reforms in pertinent part, and, at the same time, promulgated rules effecting certain changes required by the Dodd-Frank Act (the “Basel III Rule”) in regulations that were effective (with a number of phase-ins) in 2015.  The Basel III Rule established capital standards for banks and bank holding companies that are meaningfully more stringent than those in place previously: it increased the required quantity and quality of capital; and it required a more complex, detailed, and calibrated assessment of risk in the calculation of risk weightings.  The Basel III Rule is applicable to all banking organizations that are subject to minimum capital requirements, including federal and state banks and savings and loan associations, as well as to most bank and savings and loan holding companies.  The Company and the Bank are each subject to the Basel III Rule as described below.

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Not only did the Basel III Rule increase most of the required minimum capital ratios in effect prior to January 1, 2015, but also, in requiring that forms of capital be of higher quality to absorb loss, it introduced the concept of Common Equity Tier 1 Capital, which consists primarily of common stock, related surplus (net of Treasury stock), retained earnings, and Common Equity Tier 1 minority interests subject to certain regulatory adjustments.  The Basel III Rule also changed the definition of capital by establishing more stringent criteria that instruments must meet to be considered Additional Tier 1 Capital (primarily non-cumulative perpetual preferred stock that meets certain requirements) and Tier 2 Capital (primarily other types of preferred stock and subordinated debt, subject to limitations).  The Basel III Rule also constrained the inclusion of minority interests, mortgage-servicing assets, and deferred tax assets in capital and required deductions from Common Equity Tier 1 Capital in the event that such assets exceeded a percentage of a banking institution’s Common Equity Tier 1 Capital.

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Minimum Capital Ratio Requirements

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The Basel III Rule requires minimum capital ratios as follows:

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Capital Conservation Buffer

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In addition, institutions that seek the freedom to make capital distributions (including for dividends and repurchases of stock) and pay discretionary bonuses to executive officers without restriction also must maintain 2.5% in Common Equity Tier 1 Capital attributable to a capital conservation buffer.  The purpose of the conservation buffer is to ensure that banking institutions maintain a buffer of capital that can be used to absorb losses during periods of financial and economic stress.  Factoring in the conservation buffer increases the minimum ratios depicted above to 7% for Common Equity Tier 1 Capital, 8.5% for Tier 1 Capital and 10.5% for Total Capital.  Federal bank regulators released a joint statement in response to the COVID-19 pandemic reminding the industry that capital and liquidity buffers were meant to give banks the means to support the economy in adverse situations, and that the agencies would support banks that use the buffers for that purpose if undertaken in a safe and sound manner.

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Well-Capitalized Requirements

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The ratios described above are minimum standards for banking organizations to be considered “adequately capitalized.”  Bank regulatory agencies uniformly encourage banks to hold more capital and be “well-capitalized” and, to that end, federal law and regulations provide various incentives for banking organizations to maintain regulatory capital at levels in excess of minimum regulatory requirements.  For example, a banking organization that is well-capitalized may: (i) qualify for exemptions from prior notice or application requirements otherwise applicable to certain types of activities; (ii) qualify for expedited processing of other required notices or applications; and (iii) accept, roll-over or renew brokered deposits.  Higher capital levels also could be required if warranted by the particular circumstances or risk profiles of individual banking organizations.  For example, the Federal Reserve’s capital guidelines contemplate that additional capital may be required to take adequate account of, among other things, interest rate risk, the risks posed by concentrations of credit, nontraditional activities, or securities trading activities.  Further, any banking organization experiencing or anticipating significant growth would be expected to maintain capital ratios, including tangible capital positions (i.e., Tier 1 Capital less all intangible assets), well above the minimum levels.

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Under the capital regulations of the FDIC and Federal Reserve, in order to be well-capitalized, a banking organization must maintain all of the following:

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It is possible under the Basel III Rule to be well-capitalized while remaining out of compliance with the capital conservation buffer discussed above.

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As of December 31, 2021: (i) Busey Bank was not subject to a directive from the FDIC to increase its capital and (ii) Busey Bank was well-capitalized, as defined by FDIC regulations.  As of December 31, 2021, the Company had regulatory capital in excess of the Federal Reserve’s requirements and met the requirements to be well-capitalized.  The Company also is in compliance with the capital conservation buffer.

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Prompt Corrective Action

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The concept of an institution being “well-capitalized” is part of a regulatory enforcement regime that provides the federal banking regulators with broad power to take “prompt corrective action” to resolve the problems of depository institutions based on the capital level of each particular institution.  The extent of the regulators’ powers depends on whether the institution in question is “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized,” in each case as defined by regulation.  Depending upon the capital category to which an institution is assigned, the regulators’ corrective powers include: (i) requiring the institution to submit a capital restoration plan; (ii) limiting the institution’s asset growth and restricting its activities; (iii) requiring the institution to issue additional capital stock (including additional voting stock) or to sell itself; (iv) restricting transactions between the institution and its affiliates; (v) restricting the interest rate that the institution may pay on deposits; (vi) ordering a new election of directors of the institution; (vii) requiring that senior executive officers or directors be dismissed; (viii) prohibiting the institution from accepting deposits from correspondent banks; (ix) requiring the institution to divest certain subsidiaries; (x) prohibiting the payment of principal or interest on subordinated debt; and (xi) ultimately, appointing a receiver for the institution.

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Supervision and Regulation of the Company

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General

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The Company, as the sole stockholder of Busey Bank, is a bank holding company.  As a bank holding company, the Company is registered with, and subject to regulation, supervision, and enforcement by, the Federal Reserve under the BHCA.  The Company is legally obligated to act as a source of financial and managerial strength to Busey Bank and to commit resources to support it in circumstances where we might not otherwise do so.  Under the BHCA, the Company is subject to periodic examination by the Federal Reserve and is required to file with the Federal Reserve periodic reports of its operations and such additional information regarding the Company and Busey Bank as the Federal Reserve may require.

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Acquisitions, Activities and Financial Holding Company Election

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The primary purpose of a bank holding company is to control and manage banks.  The BHCA generally requires the prior approval of the Federal Reserve for any merger involving a bank holding company or any acquisition by a bank holding company of another bank or bank holding company.  Subject to certain conditions (including deposit concentration limits established by the BHCA), the Federal Reserve may allow a bank holding company to acquire banks located in any state of the U.S.  In approving interstate acquisitions, the Federal Reserve is required to give effect to applicable state law limitations on the aggregate amount of deposits that may be held by the acquiring bank holding company and its FDIC-insured institution affiliates in the state in which the target bank is located (provided that those limits do not discriminate against out-of-state institutions or their holding companies) and state laws that require that the target bank have been in existence for a minimum period of time (not to exceed five years) before being acquired by an out-of-state bank holding company.  Furthermore, in accordance with the Dodd-Frank Act, bank holding companies must be well-capitalized and well-managed in order to effect interstate mergers or acquisitions.  For a discussion of the capital requirements, see “Item 1.  Business—Supervision, Regulation and Other Factors—The Role of Capital” above.

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The BHCA generally prohibits the Company from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company that is not a bank and from engaging in any business other than that of banking, managing, and controlling banks, or furnishing services to banks and their subsidiaries.  This general prohibition is subject to a number of exceptions.  The principal exception allows bank holding companies to engage in, and to own shares of companies engaged in, certain businesses found by the Federal Reserve prior to November 11, 1999, to be “so closely related to banking ... as to be a proper incident thereto.”  This authority permits the Company to engage in a variety of banking-related businesses, including the ownership and operation of a savings association, or any entity engaged in consumer finance, equipment leasing, the operation of a computer service bureau (including software development) and mortgage banking and brokerage services.  The BHCA does not place territorial restrictions on the domestic activities of nonbank subsidiaries of bank holding companies.

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Additionally, bank holding companies that meet certain eligibility requirements prescribed by the BHCA and elect to operate as financial holding companies may engage in, or own shares in companies engaged in, a wider range of nonbanking activities, including securities and insurance underwriting and sales, merchant banking and any other activity that the Federal Reserve, in consultation with the Secretary of the Treasury, determines by regulation or order is financial in nature or incidental to any such financial activity, or that the Federal Reserve determines by order to be complementary to any such financial activity, as long as the activity does not pose a substantial risk to the safety or soundness of FDIC-insured institutions or the financial system generally.  The Company has elected to operate as a financial holding company.  In order to maintain its status as a financial holding company, the Company and Busey Bank must be well-capitalized, well-managed, and Busey Bank must have a least a satisfactory CRA rating.  If the Federal Reserve determines that a financial holding company is not well-capitalized or well-managed, the company has a period of time in which to achieve compliance, but during the period of noncompliance, the Federal Reserve may place any limitations on the company it believes to be appropriate.  Furthermore, if the Federal Reserve determines that a financial holding company’s subsidiary bank has not received a satisfactory CRA rating, that company will not be able to commence any new financial activities or acquire a company that engages in such activities.

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Change in Control

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Federal law also prohibits any person or company from acquiring “control” of an FDIC-insured depository institution or its holding company without prior notice to the appropriate federal bank regulator.  “Control” is conclusively presumed to exist upon the acquisition of 25% or more of the outstanding voting securities of a bank or bank holding company, but may arise under certain circumstances between 10% and 24.99% ownership.

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Capital Requirements

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Bank holding companies are required to maintain capital in accordance with Federal Reserve capital adequacy requirements.  For a discussion of capital requirements, see “Item 1.  Business—Supervision, Regulation and Other Factors—The Role of Capital” above.

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Dividend Payments

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The Company’s ability to pay dividends to its stockholders may be affected by both general corporate law considerations and the policies of the Federal Reserve applicable to bank holding companies.  As a Nevada corporation, the Company is subject to the limitations of Nevada law, which allows the Company to pay dividends unless, after such dividend, (i) the Company would not be able to pay its debts as they become due in the usual course of business or (ii) the Company’s total assets would be less than the sum of its total liabilities plus any amount that would be needed, if the Company were to be dissolved at the time of the dividend payment, to satisfy the preferential rights upon dissolution of stockholders whose rights are superior to the rights of the stockholders receiving the distribution.

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As a general matter, the Federal Reserve has indicated that the board of directors of a bank holding company should eliminate, defer or significantly reduce dividends to stockholders if: (i) the company’s net income available to stockholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends; (ii) the prospective rate of earnings retention is inconsistent with the company’s capital needs and overall current and prospective financial condition; or (iii) the company will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios.  The Federal Reserve also possesses enforcement powers over bank holding companies and their nonbank subsidiaries to prevent or remedy actions that represent unsafe or unsound practices or violations of applicable statutes and regulations.  Among these powers is the ability to proscribe the payment of dividends by banks and bank holding companies.  In addition, under the Basel III Rule, institutions that seek the freedom to pay dividends have to maintain 2.5% in Common Equity Tier 1 Capital attributable to the capital conservation buffer.  See “Item 1.  Business—Supervision, Regulation and Other Factors—The Role of Capital” above.

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Incentive Compensation

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There have been a number of developments in recent years focused on incentive compensation plans sponsored by bank holding companies and banks, reflecting recognition by the bank regulatory agencies and Congress that flawed incentive compensation practices in the financial industry were one of many factors contributing to the global financial crisis.  Layered on top of that are the abuses in the headlines dealing with product cross-selling incentive plans.  The result is interagency guidance on sound incentive compensation practices.

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The interagency guidance recognized three core principles.  Effective incentive plans should: (i) provide employees incentives that appropriately balance risk and reward; (ii) be compatible with effective controls and risk-management; and (iii) be supported by strong corporate governance, including active and effective oversight by the organization’s board of directors.  Much of the guidance addresses large banking organizations and, because of the size and complexity of their operations, the regulators expect those organizations to maintain systematic and formalized policies, procedures, and systems for ensuring that the incentive compensation arrangements for all executive and non-executive employees covered by this guidance are identified and reviewed, and appropriately balance risks and rewards.  Smaller banking organizations, like the Company, that use incentive compensation arrangements are expected to be less extensive, formalized, and detailed than those of the larger banks.

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Monetary Policy

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The monetary policy of the Federal Reserve has a significant effect on the operating results of financial or bank holding companies and their subsidiaries, and this has come into play during the COVID-19 pandemic.  Among the tools available to the Federal Reserve to affect the money supply are open market transactions in U.S. government securities and changes in the discount rate on bank borrowings.  These tools are used in varying combinations to influence overall growth and distribution of bank loans, investments, and deposits, and their use may affect interest rates charged on loans or paid on deposits.

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Federal Securities Regulation

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The Company’s common stock is registered with the SEC under the Securities Act and the Exchange Act.  Consequently, the Company is subject to the information, proxy solicitation, insider trading and other restrictions and requirements of the SEC under the Exchange Act.

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Corporate Governance

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The Dodd-Frank Act addressed many investor protection, corporate governance, and executive compensation matters that will affect most U.S. publicly traded companies.  It increased stockholder influence over boards of directors by requiring companies to give stockholders a nonbinding vote on executive compensation and so-called “golden parachute” payments, and authorizing the SEC to promulgate rules that would allow stockholders to nominate and solicit voters for their own candidates using a company’s proxy materials.  The legislation also directed the Federal Reserve to promulgate rules prohibiting excessive compensation paid to executives of bank holding companies, regardless of whether such companies are publicly traded.

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Supervision and Regulation of Busey Bank

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General

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Busey Bank is an Illinois-chartered bank.  Its deposit accounts are insured by the DIF to the maximum extent provided under federal law and FDIC regulations, currently $250,000 per insured depositor category.  As an Illinois-chartered FDIC-insured bank, Busey Bank is subject to the examination, supervision, reporting, and enforcement requirements of the DFPR, the chartering authority for Illinois banks.  Busey Bank is also regulated by the FDIC, designated by federal law as the primary federal regulator of insured state banks that, like Busey Bank, are not members of the Federal Reserve System.

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Deposit Insurance

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As an FDIC-insured institution, Busey Bank is required to pay deposit insurance premium assessments to the FDIC.  The FDIC has adopted a risk-based assessment system whereby FDIC-insured institutions pay insurance premiums at rates based on their risk classification.  FDIC assessment rates for institutions that have more than $10.0 billion in assets, such as Busey Bank, are calculated based on a “scorecard” methodology that seeks to capture both the probability that an individual large institution will fail and the magnitude of the impact on the DIF if such a failure occurs, based primarily on the difference between the institution’s average of total assets and average tangible equity.  The FDIC has the ability to make discretionary adjustments to the total score, up or down, based upon significant risk factors that are not adequately captured in the scorecard.  For institutions like Busey Bank, after accounting for potential base-rate adjustments, the total assessment rate could range from 1.5 to 40 basis points on an annualized basis.  An institution’s assessment is determined by multiplying its assessment rate by its assessment base, which is asset based.

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The reserve ratio is the FDIC insurance fund balance divided by estimated insured deposits.  The Dodd-Frank Act altered the minimum reserve ratio of the DIF, increasing the minimum from 1.15% to 1.35% of the estimated amount of total insured deposits.  The reserve ratio reached 1.36% as of September 30, 2018.  As a result, the FDIC provided assessment credits to insured depository institutions, like Busey Bank at the time, with total consolidated assets of less than $10.0 billion for the portion of their regular assessments that contributed to growth in the reserve ratio between 1.15% and 1.35%.  The FDIC applied the small bank credits for quarterly assessment periods beginning July 1, 2019.  However, the reserve ratio fell to 1.30% in 2020 because of extraordinary insured deposit growth caused by an unprecedented inflow of more than $1.0 trillion in estimated insured deposits in the first half of 2020, stemming mainly from the COVID-19 pandemic.  Although the FDIC could have ceased the small bank credits, it waived the requirement that the reserve ratio be at least 1.35% for full remittance of the remaining assessment credits, and it refunded all small bank credits as of September 30, 2020.

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The DIF balance was $121.9 billion on September 30, 2021, up $1.4 billion from the end of the second quarter.  The reserve ratio remained at 1.27%, as growth in the fund balance kept pace with growth in insured deposits.  The FDIC staff continues to closely monitor the factors that affect the reserve ratio, and any change could impact FDIC assessments.

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Supervisory Assessments

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All Illinois-chartered banks are required to pay supervisory assessments to the DFPR to fund the operations of that agency.  The amount of the assessment is calculated on the basis of each bank’s total assets.  During the year ended December 31, 2021, Busey Bank paid supervisory assessments to the DFPR totaling approximately $0.8 million.

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Capital Requirements

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Banks are generally required to maintain capital levels in excess of other businesses.  For a discussion of capital requirements, see “Item 1.  Business—Supervision, Regulation and Other Factors—The Role of Capital” above.

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Liquidity Requirements

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Liquidity is a measure of the ability and ease with which bank assets may be converted to cash.  Liquid assets are those that can be converted to cash quickly if needed to meet financial obligations.  To remain viable, FDIC-insured institutions must have enough liquid assets to meet their near-term obligations, such as withdrawals by depositors.  Because the global financial crisis was in part a liquidity crisis, Basel III also includes a liquidity framework that requires FDIC-insured institutions to measure their liquidity against specific liquidity tests.  One test, referred to as the LCR, is designed to ensure that the banking entity has an adequate stock of unencumbered high-quality liquid assets that can be converted easily and immediately in private markets into cash to meet liquidity needs for a 30-calendar day liquidity stress scenario.  The other test, known as the NSFR, is designed to promote more medium- and long-term funding of the assets and activities of FDIC-insured institutions over a one-year horizon.  These tests provide an incentive for banks and holding companies to increase their holdings in Treasury securities and other sovereign debt as a component of assets, increase the use of long-term debt as a funding source and rely on stable funding like core deposits (in lieu of brokered deposits).

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In addition to liquidity guidelines already in place, federal bank regulatory agencies implemented the Basel III LCR in September 2014, which requires large financial firms to hold levels of liquid assets sufficient to protect against constraints on their funding during times of financial turmoil, and in 2016 proposed implementation of the NSFR.  While these rules do not, and will not, apply to Busey Bank, it continues to review its liquidity risk management policies in light of developments.

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Dividend Payments

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The primary source of funds for the Company is dividends from Busey Bank.  Under Illinois banking law, Illinois-chartered banks generally may pay dividends only out of undivided profits.  The DFPR may restrict the declaration or payment of a dividend by an Illinois-chartered bank.  The payment of dividends by any FDIC-insured institution is affected by the requirement to maintain adequate capital pursuant to applicable capital adequacy guidelines and regulations, and a FDIC-insured institution generally is prohibited from paying any dividends if, following payment thereof, the institution would be undercapitalized.  Notwithstanding the availability of funds for dividends, the FDIC and the DFPR may prohibit the payment of dividends by Busey Bank if either or both determine such payment would constitute an unsafe or unsound practice.  In addition, under the Basel III Rule, institutions that seek the freedom to pay dividends have to maintain 2.5% in Common Equity Tier 1 Capital attributable to the capital conservation buffer.

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State Bank Investments and Activities

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Busey Bank is permitted to make investments and engage in activities directly or through subsidiaries as authorized by Illinois law.  However, under federal law and FDIC regulations, FDIC-insured state banks are prohibited, subject to certain exceptions, from making or retaining equity investments of a type, or in an amount, that are not permissible for a national bank.  Federal law and FDIC regulations also prohibit FDIC-insured state banks and their subsidiaries, subject to certain exceptions, from engaging as principal in any activity that is not permitted for a national bank unless the bank meets, and continues to meet, its minimum regulatory capital requirements, and the FDIC determines that the activity would not pose a significant risk to the DIF.  These restrictions have not had, and are not currently expected to have, a material impact on the operations of Busey Bank.

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Insider Transactions

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Busey Bank is subject to certain restrictions imposed by federal law on “covered transactions” between Busey Bank and its “affiliates.”  The Company is an affiliate of Busey Bank for purposes of these restrictions, and covered transactions subject to the restrictions include extensions of credit to the Company, investments in the stock or other securities of the Company, and the acceptance of the stock or other securities of the Company as collateral for loans made by Busey Bank.  The Dodd-Frank Act enhanced the requirements for certain transactions with affiliates, including an expansion of the definition of “covered transactions” and an increase in the amount of time for which collateral requirements regarding covered transactions must be maintained.

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Certain limitations and reporting requirements are also placed on extensions of credit by Busey Bank to its directors and officers, to directors and officers of the Company and its subsidiaries, to principal stockholders of the Company, and to “related interests” of such directors, officers, and principal stockholders.  In addition, federal law and regulations may affect the terms upon which any person who is a director or officer of the Company or Busey Bank, or a principal stockholder of the Company, may obtain credit from banks with which Busey Bank maintains a correspondent relationship.

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Safety and Soundness Standards/Risk Management

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Federal banking agencies have adopted operational and managerial standards to promote the safety and soundness of FDIC-insured institutions.  The standards apply to internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, fees and benefits, asset quality, and earnings.

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In general, the safety and soundness standards prescribe the goals to be achieved in each area, and each institution is responsible for establishing its own procedures to achieve those goals.  While regulatory standards do not have the force of law, if an institution operates in an unsafe and unsound manner, the FDIC-insured institution’s primary federal regulator may require the institution to submit a plan for achieving and maintaining compliance.  If an FDIC-insured institution fails to submit an acceptable compliance plan, or fails in any material respect to implement a compliance plan that has been accepted by its primary federal regulator, the regulator is required to issue an order directing the institution to cure the deficiency.  Until the deficiency cited in the regulator’s order is cured, the regulator may restrict the FDIC-insured institution’s rate of growth, require the FDIC-insured institution to increase its capital, restrict the rates the institution pays on deposits, or require the institution to take any action the regulator deems appropriate under the circumstances.  Noncompliance with safety and soundness may also constitute grounds for other enforcement action by the federal bank regulatory agencies, including cease and desist orders and civil money penalty assessments.

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During the past decade, bank regulatory agencies have increasingly emphasized the importance of sound risk management processes and strong internal controls when evaluating the activities of the FDIC-insured institutions they supervise.  Properly managing risk has been identified as critical to the conduct of safe and sound banking activities, and has become even more important as new technologies, product innovation, and the size and speed of financial transactions have changed the nature of banking markets.  The agencies have identified a spectrum of risks facing a banking institution including, but not limited to, credit, market, liquidity, operational, legal, and reputational risk.  The key risk themes identified by the Company for 2022 are discussed under “Item 1A.  Risk Factors” below.  Busey Bank is expected to have active board and senior management oversight; adequate policies, procedures, and limits; adequate risk measurement, monitoring, and management information systems; and comprehensive internal controls.

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Privacy and Cybersecurity

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Busey Bank is subject to many U.S. federal and state laws and regulations governing requirements for maintaining policies and procedures to protect non-public confidential information of its customers.  These laws require Busey Bank to periodically disclose its privacy policies and practices relating to sharing such information and permit consumers to opt out of their ability to share information with unaffiliated third parties under certain circumstances.  They also impact Busey Bank’s ability to share certain information with affiliates and non-affiliates for marketing and/or non-marketing purposes, or to contact customers with marketing offers.  In addition, Busey Bank is required to implement a comprehensive information security program that includes administrative, technical, and physical safeguards to ensure the security and confidentiality of customer records and information.  These security and privacy policies and procedures, for the protection of personal and confidential information, are in effect across all businesses and geographic locations.

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Branching Authority

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Illinois banks, such as Busey Bank, have the authority under Illinois law to establish branches anywhere in the State of Illinois, subject to receipt of all required regulatory approvals.  The Dodd-Frank Act permits well-capitalized and well-managed banks to establish new interstate branches or acquire individual branches of a bank in another state (rather than the acquisition of an out-of-state bank in its entirety) without impediments.  Federal law permits state and national banks to merge with banks in other states subject to: (i) regulatory approval; (ii) federal and state deposit concentration limits; and (iii) state law limitations requiring the merging bank to have been in existence for a minimum period of time (not to exceed five years) prior to the merger.

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Transaction Account Reserves

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Federal law requires FDIC-insured institutions to maintain reserves against their transaction accounts (primarily NOW and regular checking accounts) to provide liquidity.  The amount of reserves is determined by the Federal Reserve based on tranches of zero, three, and ten percent of a bank’s transaction account deposits.  However, in March 2020, in an unprecedented move, the Federal Reserve announced that the banking system had ample reserves, and, as reserve requirements no longer played a significant role in this regime, it reduced all reserve tranches to zero percent, thereby freeing banks from the legally mandated reserve maintenance requirement.  The action permits Busey Bank to loan or invest funds that previously were unavailable.  The Federal Reserve has indicated that it expects to continue to operate in an ample reserves regime for the foreseeable future.

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Community Reinvestment Act Requirements

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The CRA requires Busey Bank to have a continuing and affirmative obligation in a safe and sound manner to help meet the credit needs of the entire community, including low- and moderate-income neighborhoods.  Federal regulators regularly assess Busey Bank’s record of meeting the credit needs of its communities.  Applications for additional acquisitions would be affected by the evaluation of Busey Bank’s effectiveness in meeting its CRA requirements.  In a joint statement responding to the COVID-19 pandemic, the bank regulatory agencies announced favorable CRA consideration for banks providing retail banking services and lending activities in their assessment areas, consistent with safe and sound banking practices, that are responsive to the needs of low- and moderate-income individuals, small businesses, and small farms affected by the pandemic.  Those activities include waiving certain fees, easing restrictions on out-of-state and non-customer checks, expanding credit products, increasing credit limits for creditworthy borrowers, providing alternative service options, and offering prudent payment accommodations.  The joint statement also provided favorable CRA consideration for certain pandemic-related community development activities.

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Anti-Money Laundering

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The USA PATRIOT Act, the Bank Secrecy Act and other similar laws are designed to deny terrorists and criminals the ability to obtain access to the U.S. financial system and have significant implications for FDIC-insured institutions and other businesses involved in the transfer of money.  These laws mandate financial services companies to have policies and procedures with respect to measures designed to address the following matters: (i) customer identification programs; (ii) money laundering; (iii) terrorist financing; (iv) identifying and reporting suspicious activities and currency transactions; (v) currency crimes; and (vi) cooperation between FDIC-insured institutions and law enforcement authorities.

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Concentrations in Commercial Real Estate

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Concentration risk exists when FDIC-insured institutions deploy too many assets to any one industry or segment.  A concentration in CRE is one example of regulatory concern.  The interagency CRE Guidance provides supervisory criteria, including the following numerical indicators, to assist bank examiners in identifying banks with potentially significant CRE loan concentrations that may warrant greater supervisory scrutiny: (i) CRE loans exceeding 300% of capital and increasing 50% or more in the preceding three years; or (ii) construction and land development loans exceeding 100% of capital.  The CRE Guidance does not limit banks’ levels of CRE lending activities, but rather guides institutions in developing risk management practices and levels of capital that are commensurate with the level and nature of their CRE concentrations.  On December 18, 2015, federal banking agencies issued a statement to reinforce prudent risk-management practices related to CRE lending, having observed substantial growth in many CRE asset and lending markets, increased competitive pressures, rising CRE concentrations in banks, and an easing of CRE underwriting standards.  Federal bank agencies reminded FDIC-insured institutions to maintain underwriting discipline and exercise prudent risk-management practices to identify, measure, monitor, and manage the risks arising from CRE lending.  In addition, FDIC-insured institutions must maintain capital commensurate with the level and nature of their CRE concentration risk.  As of December 31, 2021, Busey Bank did not exceed these guidelines.

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Consumer Financial Services

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The historical structure of federal consumer protection regulation applicable to all providers of consumer financial products and services changed significantly on July 21, 2011, when the CFPB commenced operations to supervise and enforce consumer protection laws.  The CFPB has broad rulemaking authority for a wide range of consumer protection laws that apply to all providers of consumer products and services, including Busey Bank, as well as the authority to prohibit “unfair, deceptive or abusive” acts and practices.  The CFPB has examination and enforcement authority over providers with more than $10.0 billion in assets.  The CFPB is in the process of assuming supervisory authority over Busey Bank in that regard.

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Because abuses in connection with residential mortgages were a significant factor contributing to the financial crisis, many new rules issued by the CFPB and required by the Dodd-Frank Act addressed mortgage and mortgage-related products, their underwriting, origination, servicing, and sales.  The Dodd-Frank Act significantly expanded underwriting requirements applicable to loans secured by 1-4 family residential real property, and augmented federal law combating predatory lending practices.  In addition to numerous disclosure requirements, the Dodd-Frank Act imposed new standards for mortgage loan originations on all lenders, including banks and savings associations, in an effort to strongly encourage lenders to verify a borrower’s ability to repay, while also establishing a presumption of compliance for certain “qualified mortgages.”  The CFPB has from time to time released additional rules as to qualified mortgages and the borrower’s ability to repay.  The CFPB’s rules have not had a significant impact on the Bank’s operations, except for higher compliance costs.

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Supervision and Regulation of Busey Risk Management

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First Busey Risk Management, incorporated in Nevada, is a captive insurance company which insures against certain risks unique to the operations of the Company and its subsidiaries and for which insurance may not be currently available or economically feasible in today’s insurance marketplace.  First Busey Risk Management is subject to regulations of the State of Nevada and periodic examinations by the Nevada Division of Insurance.

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Executive Officers

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Following is a description of the business experience for at least the past five years of our executive officers.

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Van A. Dukeman.  Mr. Dukeman, age 63, has served as a Director, Chief Executive Officer and President of First Busey since August 2007.  Prior to August 2007, Mr. Dukeman served as a Director, Chief Executive Officer and President of Main Street Trust, Inc. from May 1998 until its merger with First Busey.

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Robin N. Elliott.  Mr. Elliott, age 45, was appointed President and Chief Executive Officer of Busey Bank in April 2019.  Prior to that, he served as Chief Operating Officer of First Busey since February 2016 and Chief Financial Officer of First Busey since January 2014.  Mr. Elliott had previously served as Director of the Business Banking Group of Busey Bank since November 2011.  Prior to that appointment, he had served as Director of Finance & Treasury since joining the organization in 2006.

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Jeffrey D. Jones.  Mr. Jones, age 48, was appointed Chief Financial Officer of First Busey in July 2019.  Prior to that, he was Co-Head of the US Depository Group and Head of Depository Investment Banking with Stephens, Inc., since 2015.

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Monica L. Bowe.  Ms. Bowe, age 48, has served as Chief Risk Officer of First Busey since January 2020.  Prior to that, she served as Senior Director of Operational Risk Program Management at KeyBank, a subsidiary of KeyCorp headquartered in Cleveland, Ohio since 2015.

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John J. Powers.  Mr. Powers, age 66, has served as General Counsel of First Busey since December 2011.  Prior to that, he was a stockholder of Meyer Capel, P.C., a law firm based in Champaign, Illinois, since 1998.

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Amy L. Randolph.  Mrs. Randolph, age 47, was appointed Chief of Staff in April 2017.  Prior to that appointment she served as Executive Vice President and Chief Brand Officer since March 2014.  Prior to March 2014, she served as Senior Vice President of Growth Strategies since 2008.

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Human Capital

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First Busey was built upon a strong commitment to associate, customer, stockholder, and community experiences.  Our associates are the cornerstone of this unwavering commitment.  Busey’s vision, Service Excellence in Everything We Do, starts with dedication to our associates.  We are deeply humbled to be consistently recognized nationally and locally throughout our footprint for this steadfastness.  Busey Bank has been named among America’s Best Banks by Forbes magazine. Ranked 52nd overall on the 2022 list, Busey was the top-ranked bank headquartered in Illinois, and only three other Illinois-based banks were included.  The organization has also been named among American Banker’s Best Banks to Work For since 2016; voted as one of the Best Places to Work in Illinois since 2016; recognized as one of the 2018 & 2019 Top Workplaces in St. Louis; recognized as a Best Company to Work For in Florida since 2017; recognized among the Best Places to Work in Money Management since 2018 by Pensions & Investments; and recognized as a Best Place to Work in Indiana by the Indiana Chamber of Commerce since 2019 – all in addition to various wellness, training and development, philanthropic and other workplace awards.  From exceeding the needs of customers and colleagues to serving our communities selflessly, our associates show unmatched dedication to Busey.  Their shared experiences are what make these and other awards possible.  Since we opened our doors over 150 years ago, we have maintained our core values, creating a strong foundation and shaping our inclusive culture.

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First Busey remains committed to bringing diversity and inclusion to our organization, the banking profession, and the communities where we live and work.  Busey is dedicated to attracting and retaining talent across a variety of backgrounds and experiences.  A diverse team – one with varying beliefs and opinions – promotes productivity, creativity, and innovation, while better meeting and exceeding the needs of a diverse customer base.  Recruiting, supporting, and retaining a diversified workforce with varying perspectives and ideas, while having an inclusive culture, is the foundation of our core values – One Busey.  We strive to maintain an inclusive environment free from discrimination of any kind.  Busey recognizes the richness diversity brings to our workplace.  Our endeavors in this regard are reported to the Employee Benefit and Compensation Committee, which holds the organization accountable to this core value at the highest levels of management.  We maintain an Affirmative Action Plan, the results of which – including proactive steps for inclusion – are reviewed by this same group.  Busey supports and empowers women in the workplace as reflected in our gender-diverse workforce.  In 2021, women comprised of 59% of Team Busey and made up 26% of our senior leadership, providing meaningful contributions not only within the organization but throughout the communities we serve.

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Associate engagement is an important barometer of our cultural health.  We regularly solicit feedback and understand views of our associates about their work environment and Busey’s culture.  The results from engagement surveys are used to implement programs and processes designed to enhance engagement and improve the associate experience.  One such way to keep associates informed and engaged is through our quarterly update calls, which are conducted by Busey leadership.  The recordings are available for all associates.  These calls provide important information about the financial health of the company, but more importantly they provide a cultural touchpoint to solidify Busey’s commitment to our number one asset – our associates.  A tenet of our engaged culture is a commitment to investing in associates through unique, award-winning training and development programs.  In 2021, 51% of our associate base engaged in talent and leadership development programs.  As a result of these programs, 49% of Busey’s open roles were filled internally during 2021 by associates who were promoted or who transferred to new roles.  Since 2017, Busey has been a proud recipient of the Association for Talent Development’s BEST Award, which is presented to organizations that demonstrate enterprise-wide success as a result of employee talent development.

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Additionally, we care about the health and wellbeing of our associates and their families, as evidenced in the 97% participation rate in our innovative health and wellness program, B Well.  Investments in B Well include a stress management component, lifesaving biometric screenings, a corporate health and wellness coach, health club reimbursements, and Health Savings Account (HSA) investments funded by the Company.  Busey is honored to be recognized among the 2021 Illinois' Healthiest Employers, presented by Cigna and Crain’s Content Studio.

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As of December 31, 2021, First Busey and our subsidiaries had a total of 1,463 full-time equivalents.

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Geographic distribution of our associates is as follows:

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Securities and Exchange Commission Reporting and Other Information

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First Busey’s website address is www.busey.com.  We make available on this website our Annual Reports, Quarterly Reports, Current Reports, and any amendments thereto, as soon as reasonably practicable after such reports are filed or furnished with the SEC, and in any event, on the same day as such filing with the SEC.  Reference to this website does not constitute incorporation by reference of the information contained on the website and it should not be considered part of this document.  First Busey 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 our website.

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Non-GAAP Financial Information

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This Annual Report contains certain financial information determined by methods other than in accordance with GAAP.  These measures include pre-provision net revenue, adjusted pre-provision net revenue, pre-provision net revenue to average assets, adjusted pre-provision net revenue to average assets, adjusted net income, adjusted diluted earnings per share, adjusted return on average assets, adjusted net interest income, adjusted net interest margin, adjusted noninterest income, adjusted noninterest expense, efficiency ratio, adjusted efficiency ratio, tangible common equity, tangible common equity to tangible assets, tangible book value per common share, and return on average tangible common equity.  Management uses these non-GAAP measures, together with the related GAAP measures, to analyze the Company’s performance and to make business decisions.  Management also uses these measures for peer comparisons.

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A reconciliation to what management believes to be the most direct compared GAAP financial measures, specifically total net interest income in the case of pre-provision net revenue, adjusted pre-provision net revenue, pre-provision net revenue to average assets, and adjusted pre-provision net revenue to average assets; net income in the case of adjusted net income, adjusted diluted earnings per share, and adjusted return on average assets; total net interest income in the case of adjusted net interest margin; total noninterest income and total noninterest expense in the case of adjusted noninterest expense, efficiency ratio, and adjusted efficiency ratio; and total stockholders’ equity in the case of tangible common equity, tangible common equity to tangible assets, tangible book value per common share, and return on average tangible common equity, appears below.  The Company believes the adjusted measures are useful for investors and management to understand the effects of certain non-recurring noninterest items and provide additional perspective on the Company’s performance over time as well as comparison to the Company’s peers.

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These non-GAAP disclosures have inherent limitations and are not audited.  They should not be considered in isolation or as a substitute for the results reported in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.  Tax effected numbers included in these non-GAAP disclosures are based on estimated statutory rates and effective rates as appropriate.

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RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (unaudited)

Pre-Provision Net Revenue, Adjusted Pre-Provision Net Revenue,

Pre-Provision Net Revenue to Average Assets, and Adjusted Pre-Provision Net Revenue to Average Assets (dollars in thousands)

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RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (unaudited)

Adjusted Net Income, Adjusted Diluted Earnings Per Share, and

Adjusted Return on Average Assets

(dollars in thousands, except per share amounts)

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RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (unaudited)

Adjusted Net Interest Margin

(dollars in thousands)

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RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (unaudited)

Adjusted Noninterest Expense, Efficiency Ratio, and Adjusted Efficiency Ratio

(dollars in thousands)

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RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (unaudited)

Tangible Common Equity, Tangible Common Equity to Tangible Assets,

Tangible Book Value Per Common Share, Return on Average Tangible Common Equity

(dollars in thousands, except per share amounts)

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Special Cautionary Note Regarding Forward-Looking Statements

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Statements contained in or incorporated by reference into this Annual Report that are not historical facts may constitute forward-looking statements within the meaning of Section 27A Securities Act, and Section 21E of the Exchange Act.  These forward-looking statements are covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.  These statements, which are based on certain assumptions and estimates and describe our future plans, strategies, and expectations, can generally be identified by the use of the words “may,” “will,” “should,” “could,” “would,” “goal,” “plan,” “potential,” “estimate,” “project,” “believe,” “intend,” “anticipate,” “expect,” “target,” “aim” and similar expressions.  These forward-looking statements include statements relating to our projected growth, anticipated future financial performance, financial condition, credit quality, and management’s long-term performance goals, as well as statements relating to the anticipated effects on results of operations and financial condition from expected developments or events, our business and growth strategies, and any other statements that are not historical facts.

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These forward-looking statements are subject to significant risks, assumptions, and uncertainties, and could be affected by many factors.  Factors that could have a material adverse effect on our financial condition, results of operations, and future prospects can be found under “Item 1A.  Risk Factors” in this Annual Report and elsewhere in our periodic and current reports filed with the SEC.  These factors include, but are not limited to, the following:

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Because of those risks and other uncertainties, our actual future results, performance, achievement, or industry results, may be materially different from the results indicated by these forward-looking statements.  In addition, our past results of operations are not necessarily indicative of our future results.

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You should not place undue reliance on any forward-looking statements, which speak only as of the dates on which they were made.  We are not undertaking an obligation to update these forward-looking statements, even though circumstances may change in the future, except as required under federal securities law.  We qualify all of our forward-looking statements by these cautionary statements.

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ITEM 1A. RISK FACTORS

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This section highlights the risks management believes could adversely affect our financial performance.  Additional possible risks that could affect the Company adversely and cannot be predicted may arise at any time.  Other risks that are immaterial at this time may also have an adverse impact on our future financial condition.

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Economic and Market Risks

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The COVID-19 pandemic continues to create disruptions that affect our business, financial condition, liquidity, and results of operations.

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The extent to which COVID-19 will continue to affect business operations, financial condition, credit quality, and results of operations will depend on future developments that cannot be predicted, including the duration and scope of the pandemic.  The direct or indirect impact on employees, customers, counterparties, and service providers, as well as other market participants, is likely to continue through 2022 as the world attempts to gain control over the virus and emerging variants.  The impact that the virus continues to have on global markets, the economy, business restrictions, and employment is ongoing as a projected return to pre-pandemic operating conditions is unknown.

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In the past year, the U.S. economy began to rebound from severe disruptions caused by the onset of the pandemic in March 2020.  Economic conditions have begun to normalize with the availability of vaccines and treatments, increasing workforce employment and participation, the lessening of business and education restrictions, and demand for services beginning to return.  The financial conditions of households and businesses was bolstered significantly by government stimulus, which contributed to the economic recovery but also brought about growing pains as evidenced by supply chain problems and rising prices.  Although current economic conditions are more favorable than the prior year, the outlook for continued growth is characterized by elevated uncertainty with potential for unevenness across markets and sectors.  Although household and business credit and liquidity is strong currently, further pandemic-related disruptions could result in increased risk of delinquencies, defaults, foreclosures, and losses on our loans; declines in assets under management, affecting wealth management revenues; negative impacts on regional economic conditions resulting in declines in local loan demand, liquidity of loan guarantors, loan collateral (particularly in real estate), loan originations, and deposit availability; and impacts on the implementation of our growth strategy.  While the recovery this past year has been strong, the pace of growth in the U.S. and globally could decline as a result of rising inflation, higher interest rates, the pervasiveness of supply chain challenges across industries, and the persistence of the virus in variant forms.

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Overall, we believe that the economic impact from COVID-19 will continue for some time and could have a material and adverse impact on our business and result in significant losses in our loan portfolio, all of which would adversely and materially impact our earnings and capital.  Even after the COVID-19 pandemic has subsided, we may continue to experience materially adverse impacts to our business as a result of the global economic impact of the COVID-19 pandemic, including the availability of credit, adverse impacts on liquidity, and any recession that has occurred or may occur in the future.  There are no comparable recent events that provide guidance as to the effect the spread of COVID-19 as a global pandemic may have, nor are there historical indicators to rely on in terms of how markets will react, and as a result, the ultimate impact of the pandemic is highly uncertain and subject to change.

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Conditions in the financial market and economic conditions, including conditions in the states in which it operates, generally may adversely affect the Company’s business.

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The Company’s general financial performance is highly dependent upon the business environment in the markets where it operates and, in particular, the ability of borrowers to pay interest on and repay principal of outstanding loans and value of collateral securing those loans, as well as demand for loans and other products and services it offers.  A favorable business environment is generally characterized by, among other factors, economic growth, efficient capital markets, low inflation, low unemployment, high business and investor confidence, and strong business earnings.  Unfavorable or uncertain economic and market conditions can be caused by declines in economic growth, business activity or investor or business confidence; limitations on the availability or increases in the cost of credit and capital; increases in inflation or interest rates; high unemployment, natural disasters, or a combination of these or other factors.

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The Company currently conducts its banking operations in downstate Illinois; suburban Chicago, Illinois; the St. Louis, Missouri metropolitan area; central Indiana; and southwest Florida.  Economic conditions within Busey’s markets were adversely impacted by the COVID-19 pandemic, and although conditions have improved this past year, elevated unemployment, economic decline, on-going business restrictions and operational uncertainty continue to impact the markets overall, and in particular, certain industry sectors.  The financial condition of the State of Illinois, in which the largest portion of the Company’s customer base resides, is characterized with low credit ratings, pension under-funding, budget deficits, and lower job growth rates than most of the country; furthermore, Illinois was one of three states in the country to lose population in the last decade.  Notably, with the recent improvement in the state’s financial outlook, during the second half of 2021 Illinois received improved ratings from Moody’s Investor Service, S&P Global Ratings, and Fitch.  The Company operates in markets with significant university and healthcare presence, which rely heavily on state and federal funding and contracts.  Payment delays by the State of Illinois to its vendors and government-sponsored entities, as well as potential federal changes to healthcare laws, could affect the Company’s primary market areas, which could in turn adversely affect its financial condition and results of operations.  The partial shutdown of colleges and universities across the state may also impact businesses heavily reliant on the colleges and universities for revenue generation.  Recent downturns in local operating markets where banking operations occur could result in a decrease in demand for the Company’s products and services, an increase in loan delinquencies and defaults, high or increased levels of problem assets and foreclosures, and reduced wealth management fees resulting from lower asset values.

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Market volatility and changes in interest rates could have an adverse effect on the Company.

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Changes in interest rates could affect the level of assets and liabilities held on the Company’s balance sheet and the revenue that the Company earns from net interest income, as earnings and profitability depend significantly on our net interest income.  Net interest income represents the difference between interest income and fees earned on interest-earning assets, such as loans and investment securities, and interest expense incurred on interest-bearing liabilities, such as deposits and borrowed funds.  Interest rates are sensitive to many factors that are beyond the Company’s control, including general economic conditions and policies of various governmental and regulatory agencies, including the FOMC.  Changes in monetary policy, including changes in interest rates, could influence not only the interest the Company receives on loans and investment securities and the amount of interest it pays on deposits and borrowings, but such changes could also affect the Company’s ability to originate loans and obtain deposits and the fair value of the Company’s financial assets and liabilities.  In addition, a rise in interest rates could result in decreased demand for first mortgages as well as mortgage refinancing, activities which have historically contributed to a significant portion of the Company’s mortgage revenue.  Furthermore, if the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and investment securities, the Company’s net interest income, and therefore earnings, could be adversely affected.  Earnings could also be adversely affected if the interest rates received on loans and other investments fall more quickly than the interest rates paid on deposits and other borrowings.  Finally, when interest rates rise, competition for deposits often increases, which can lead to a change in the Company’s funding mix and cost of funding.  Any substantial, unexpected, prolonged change in market interest rates could have a material adverse effect on the Company’s business, financial condition, and results of operations.

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In March 2020, the Federal Reserve reduced the target federal funds rate and announced a $700.0 billion quantitative easing program in response to the expected economic downturn caused by the COVID-19 pandemic and reduced the interest it pays on excess reserves.  The prolonged reduction in interest rates is likely to continue to have an adverse effect on our net interest income and margins and our profitability.  The impact of the prolonged low rates will also continue to affect rate spreads and return on earning assets.

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The Company’s wealth management business may also be negatively impacted by changes in general economic conditions and the conditions in the financial and securities markets, which could affect the values of assets under care.  Management contracts generally provide for fees payable for wealth management services based on the market value of assets under care.  Because most of the Company’s contracts provide for a fee based on market values of securities, declines in securities prices may have an adverse effect on the Company’s results of operations from this business.  Market declines and reductions in the value of customers’ wealth management accounts, could also result in the loss of wealth management customers, including those who are also banking customers.

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The Federal Reserve has signaled that it will begin to increase rates, taper its quantitative easing program, and reduce its balance sheet of bonds and other assets in 2022, but will do so with the goal of avoiding abrupt or unpredictable changes in economic or financial conditions so as not to disrupt the financial systems, also known as “shocks;” despite this, the impact of these changes cannot be certain.  Vulnerabilities in the financial system can amplify the impact of an initial shock following rate increases, potentially leading to unintended volatility, as well to disruptions in the provision of financial services, such as clearing payments, the provision of liquidity, and the availability of credit.  Furthermore, asset liquidation pressures can be amplified by liquidity mismatches and the leverage of certain nonbank financial intermediaries such as hedge funds.  The financial crisis in March 2020 also demonstrated that pressures on dealer intermediation can limit the availability of liquidity during times of market stress.  Given the interconnectedness of the global financial system, these vulnerabilities could impact the Company’s business operations and financial condition.

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The transition to an alternative reference rate could cause instability and have a negative effect on financial market conditions.

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LIBOR represents the interest rate at which banks offer to lend funds to one another in the international interbank market for short-term loans.  On July 27, 2017, the United Kingdom Financial Conduct Authority announced that it will no longer persuade or compel banks to submit rates for the calculation of LIBOR rates after 2021.  End dates for LIBOR have now been set, and U.S. Regulators have issued guidance as of October 2021 that urges market participants to address their existing LIBOR exposures and transition to robust and sustainable alternative rates by December 31, 2021.  The Alternative Reference Rate Committee has proposed that SOFR is the rate that represents best practice as the alternative to U.S. dollar-LIBOR for use in derivatives and other financial contracts that are currently indexed to LIBOR, but has also advised market participants to conduct a comprehensive evaluation of any alternative reference rates being considered for use.

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Contracts linked to LIBOR are vast in number and value, are intertwined with numerous financial products and services, and have diverse parties.  Although the Company has actively worked to plan for the transition away from LIBOR, the transition is both complex and challenging and the downstream effect of unwinding or transitioning such contracts could cause instability and negatively impact financial markets and individual institutions.  If the Company’s selected alternative rate is based on a small transaction volume, it could be susceptible to volatility and disruption during times of market stress.  Furthermore, if the Company fails to properly address legacy contracts by adding robust fallback positions, it will be exposed to interest rate risks and potential loss of yields.  Finally, if the Company or other market participants fail to properly plan to implement alternative rates other than LIBOR, it could have an adverse effect on the Company and the financial system as a whole.  In 2021, we began the transition to SOFR and other interest rate benchmarks in anticipation of the cessation of the publication of LIBOR.

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Continued elevated levels of inflation could adversely impact our business and results of operations.

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The U.S. has recently experienced elevated levels of inflation, with the consumer price index climbing approximately 7.0% in 2021.  Continued levels of inflation could have complex effects on our business and results of operations, some of which could be materially adverse.  For example, if interest rates were to rise in response to, or as a result of, elevated levels of inflation, the value of our securities portfolio would be negatively impacted.  In addition, while we generally expect any inflation-related increases in our interest expense to be offset by increases in our interest revenue, inflation-driven increases in our levels of non-interest expense could negatively impact our results of operations.  Continued elevated levels of inflation could also cause increased volatility and uncertainty in the business environment, which could adversely affect loan demand and our clients’ ability to repay indebtedness.  It is also possible that governmental responses to the current inflation environment could adversely affect our business, such as changes to monetary and fiscal policy that are too strict, or the imposition or threatened imposition of price controls.  The duration and severity of the current inflationary period cannot be estimated with precision.

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Labor shortages and failure to attract and retain qualified employees could negatively impact our business, results of operations and financial condition.

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A number of factors may adversely affect the labor force available to us or increase labor costs, including high employment levels, decreased labor force size and participation rates as a result of the COVID-19 pandemic, expanded unemployment benefits offered in response to the ongoing COVID-19 pandemic, and other government actions.  Although we have not experienced any material labor shortage to date, we have recently observed an overall tightening and increasingly competitive local labor market.  A sustained labor shortage or increased turnover rates within our employee base could lead to increased costs, such as increased compensation expense to attract and retain employees.

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In addition, if we are unable to hire and retain employees capable of performing at a high-level, or if mitigation measures we may take to respond to a decrease in labor availability have unintended negative effects, our business could be adversely affected.  An overall labor shortage, lack of skilled labor, increased turnover, or labor inflation, caused by COVID-19 or as a result of general macroeconomic factors, could have a material adverse impact on our operations, results of operations, liquidity, or cash flows.

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Regulatory and Legal Risks

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Legislative and regulatory actions taken now or in the future may increase our costs and impact our business, governance structure, financial condition, or results of operations.

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Laws, regulations, rules, policies, and regulatory interpretations governing the Company continue to evolve and will likely continue to change over time as Congress and various regulatory agencies react to adverse economic conditions or other matters.  The 2021 change of the presidential administration and Congressional control has prompted new or revitalized financial services regulation.  The extent and scope of potential financial regulations is hard to predict, but continued changes are expected to occur as leadership and priorities in various regulatory bodies shifts.

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Implementation of current or proposed regulatory or legislative changes to laws applicable to the financial industry may impact the profitability of the Company’s business activities and may change certain business practices, including the ability to offer new products, obtain financing, attract deposits, make loans, achieve satisfactory interest spreads, and enter into acquisition and merger agreements, and could expose the Company to additional expense, including increased compliance costs.  Appointments to the primary banking regulatory agencies affect monetary policy and interest rates, and changes in fiscal policy could affect broader patterns of trade and economic growth.  Executive orders, future legislation, regulation, and government policy could affect the banking industry as a whole, including our business and results of operations, in ways that are difficult to predict.  In addition, our results of operations also could be adversely affected by changes in the way in which existing statutes and regulations are interpreted or applied by courts and government agencies.

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These rule and regulatory changes may also require the Company to invest significant management attention and resources so as to make necessary changes to operations in order to comply.  In addition to the expense and uncertainty related to increased regulation, the financial services industry in recent years has faced more intense scrutiny from regulatory agencies in the examination process and more aggressive enforcement of regulations on both the federal and state levels, particularly with respect to mortgage-related practices; fee-based products and other consumer compliance matters, and compliance with the Bank Secrecy Act, anti-money laundering laws, and the USA PATRIOT Act, which focuses on money laundering in the form of terrorist financing.  Federal law grants substantial enforcement powers to financial services’ regulators including, among other things, the ability to assess significant civil or criminal monetary penalties, fines, or restitution; to issue cease and desist orders; and to initiate injunctive actions against banking organizations.  These enforcement actions may be initiated for violations of laws or regulations and for unsafe or unsound practices.  If the Company were the subject of an enforcement action, it could have an adverse impact on the Company.

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As the Company continues to grow in asset size and complexity, regulatory expectations and scrutiny will likely increase and could have a potential impact on the Company’s operations and business.

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The Company has grown steadily over the past several years, increasing size through both organic growth and strategic acquisitions.  As financial institutions grow, so do the expectations of regulatory agencies regarding the financial institution’s ability to control for increasingly complex and sophisticated business operations.  Certain regulations and laws have embedded asset thresholds that change regulatory expectations, have different financial statement impacts, require different committee and management compositions, or enhance certain reporting requirements.  For example, as further discussed in the Supervision and Regulation section, the Dodd-Frank Act included a number of requirements that trigger when a banking entity crosses over $10.0 billion in assets.  The Company anticipated crossing the $10.0 billion threshold for some time, and it did so in 2020.

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On November 20, 2020, the federal bank regulatory agencies announced an Interim Final Rule, providing temporary relief for certain community banking organizations related to certain regulations and reporting requirements as a result of growth in size from the COVID-19 response.  The Company has been provided temporary relief under this rule with respect to the interchange revenue impacts of the Durbin Amendment.  The Company did not reduce its asset size back below the $10.0 billion threshold and has instead increased assets to $12.9 billion as of December 31, 2021.  The relief expired December 31, 2021, and as a result, regulatory expectations, scrutiny, and reporting requirements are expected to continue to increase, and may affect the Company’s operations and strategies.

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Laws impacting cannabis-related businesses in Illinois and other states may have an impact on the Company’s operations and risk profile.

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The Controlled Substances Act makes it illegal under federal law to manufacture, distribute, or dispense marijuana.  Starting January 1, 2020, however, the Illinois Cannabis Regulation and Tax Act began permitting adults to legally purchase marijuana for recreational use from licensed dispensaries.  It is Busey Bank’s current practice to avoid knowingly providing banking products or services to entities or individuals that: (i) directly or indirectly manufacture, distribute, or dispense marijuana or hemp products, or those with a significant financial interest in such entities; or (ii) derive a material amount of revenue from providing products or services to, or other involvement with, such entities.  Busey Bank is taking reasonable measures, including appropriate new account screening and customer due diligence measures, to ensure that existing and potential customers that operate in the states in which the Bank operates do not engage in any such activities.  Nonetheless, shifts in Illinois law legalizing cannabis use, along with shifts in Missouri and Florida law allowing medicinal use and decriminalizing possession, have increased the number of direct and indirect cannabis-related businesses in some of the states in which the Company operates, and therefore increases the likelihood that Busey Bank could interact with such businesses, as well as their owners and employees.  Such interactions could create additional legal, regulatory, strategic, and reputational risk to Busey Bank and the Company.

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Credit and Lending Risks

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Heightened credit risk associated with lending activities may result in insufficient loan loss provisions, which could have material adverse effect on the Company’s results of operations and financial condition.

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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 cash flows available to service debt, and risks resulting from economic and market conditions.  The Company attempts to reduce its credit risk through loan application approval procedures, monitoring the concentration of loans within specific industries and geographic locations, and periodic independent reviews of outstanding loans by its loan review and audit departments as well as external parties.  However, while such procedures help reduce risks, they cannot be expected to completely eliminate the Company’s credit risks.  Borrowers may experience difficulties in repaying their loans for any of a variety of reasons resulting in a rise in the level of nonperforming loans, charge-offs, delinquencies, and/or a need for increases in the provision for loan losses.  When economic conditions decline or significant shifts in demand change, as they have during the COVID-19 pandemic, increases in non-performing loans, charge-offs, and delinquencies become more likely.

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The Company estimates and establishes reserves for credit losses and maintains them at a level considered adequate by management to absorb probable credit losses based on a continual analysis of the Company’s portfolio and market environment.  These reserves represent the Company’s estimate of probable losses in the portfolio at each balance sheet date and are based upon other relevant information available.

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In 2016, the FASB published CECL, which requires recording loss estimates for the life of the instrument for loans, a change from the 40-year standard in which losses are recorded under the “incurred loss” concept.  Adoption of CECL in 2020 resulted in additional reserves being set aside to protect against future credit losses.  Although management believes the reserves are adequate to absorb losses on existing loans that may become uncollectible, management cannot guarantee that additional provisions for credit losses will not be required in the future.

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Non-performing assets take significant time to resolve and adversely affect the Company’s results of operations and financial condition and could result in further losses in the future.

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The Company’s non-performing assets adversely affect its net income in various ways.  While the Company pays interest expense to fund non-performing assets, it does not record interest income on non-accrual loans or other real estate owned, thereby adversely affecting its income and returns on assets and equity.  In addition, loan administration costs increase, and the Company’s efficiency ratio is adversely affected.  When the Company takes collateral in foreclosures and similar proceedings, it is required to mark the collateral to its then-fair market value, which, when compared to the outstanding balance of the loan, may result in a loss.  Non-performing loans and other real estate owned also increase the Company’s risk profile and the capital its regulators believe is appropriate in light of such risks.  The resolution of non-performing assets requires significant time commitments from management, which can be detrimental to the performance of their other responsibilities.  Although it is hard to fully predict the affect the COVID-19 pandemic will have on the Company’s asset quality, it’s performance may be adversely affected if it experiences increases in non-performing loans and non-performing assets in the future.

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Federal regulatory agencies, in consultation with FASB, issued updated guidance on March 22, 2020, for classifying loans as TDRs, which allowed banks to modify loans of customers stressed by COVID-19 without having to classify the loan as a TDR.  While this updated guidance provided temporary relief for both borrowers and banks, these loan modifications may not be sufficient to keep the assets the Company holds from deteriorating if the duration of the pandemic is prolonged.

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Concentrations of credit and market risk could increase the potential for significant losses.

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The Company may have higher credit risk, or experience higher credit losses, to the extent its loans are concentrated by loan type, industry segment, borrower type, or geographic location of the borrower or collateral.  A significant portion of the Company’s loan portfolio is made up of commercial, commercial real estate, and retail real estate loans.  Thus, deterioration in economic conditions or real estate values could result in higher credit costs and losses to the Company.  The global pandemic in 2020 significantly impacted both global and domestic markets and economies as shutdowns and restrictions to prevent the spread of the virus affected several different business sectors.  Although many business sectors rebounded as restrictions lifted during 2021, the full impact of the shutdowns and restrictions, along with the effect of changing demands resulting from the pandemic cannot be known at this time.  The Company has taken additional steps to quantify the potential risk and impacted industries that are likely to experience stress to cash flows and pose higher potential default risk.

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The Company’s commercial loans are primarily made based on the identified cash flow of the borrower and secondarily on the underlying collateral provided by the borrower.  Credit support provided by the borrower for most of these loans and the probability of repayment is based on the liquidation of the pledged collateral and enforcement of a personal guarantee, which the Company requires whenever appropriate on commercial loans.  As a result, in the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.  The collateral securing other loans may depreciate over time, may be difficult to appraise, and may fluctuate in value based on the success of the business.  As a result of the larger average size of each commercial loan, as well as collateral that is generally less readily-marketable, losses incurred on a small number of commercial loans could have a material adverse impact on the Company’s financial condition and results of operations.

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A significant portion of the Company’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 area in which the real estate is located.  Adverse changes in the economy affecting real estate values and liquidity generally, and in markets in which the Company has banking operations, could significantly impair the value of property pledged as collateral on loans and affect the Company’s ability to sell the collateral upon foreclosure without a loss or additional losses.  Collateral may have to be sold for less than the outstanding balance of the loan which would result in losses.

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Real estate construction, land acquisition and development loans are based upon estimates of costs and values associated with the complete project.  These estimates may be inaccurate, and the Company may be exposed to significant losses on loans for these projects.

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Construction, land acquisition, and development loans involve additional risks because funds are advanced upon the security of the project, which is of uncertain value prior to its completion, and costs may exceed realizable values in declining real estate markets.  Because of the uncertainties inherent in estimating construction costs and the realizable market value of the completed project, and the effects of governmental regulation on 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 the Company’s appraisal of the value of the completed project proves to be overstated or market values or rental rates decline, there may be inadequate security for the repayment of the loan upon completion of construction of the project.  If the Company is forced to foreclose on a project prior to or at completion due to a default, there can be no assurance that it 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, the Company may be required to fund additional amounts to complete the project and may have to hold the property for an unspecified period of time while it attempts to dispose of it.

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Credit risk associated with concentration of securities in the Company’s investment portfolio may increase the potential for loss.

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The Company’s investment portfolio consists, in part, of securities issued by government or government sponsored agencies and non-government entities.  A downturn in the financial condition of the issuers, the performance of the underlying collateral, or the financial condition of the individual mortgagors with respect to the underlying securities could create results such as rating agency downgrades of the securities and default by issuers or individual mortgagors.  Any of the foregoing factors could result in realized losses, which could adversely affect the Company’s financial condition and results of operations.

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Capital and Liquidity Risks

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The Company is required to maintain capital to meet regulatory requirements, and if it fails to maintain sufficient capital, whether as a result of losses, inability to raise additional capital, or otherwise, its financial condition, liquidity, and results of operations, as well as its ability to maintain regulatory compliance would be adversely affected.

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First Busey and Busey Bank must meet regulatory capital requirements and maintain sufficient liquidity.  The Company’s ability to raise additional capital, when and if needed, will depend on conditions in the capital markets, economic conditions, and a number of other factors, including investor perceptions regarding the banking industry and market condition, and governmental activities, many of which are outside the Company’s control, and on its financial condition and performance.  Accordingly, the Company cannot guarantee that it will be able to raise additional capital if needed or on terms acceptable to the Company.  If it fails to meet these capital and other regulatory requirements, its financial condition, liquidity, and results of operations would be materially and adversely affected.

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The Company’s failure to continue to maintain capital ratios in excess of the amounts necessary to be considered “well-capitalized” for bank regulatory purposes could affect customer confidence, its ability to grow, its costs of funds and FDIC insurance costs, its ability to pay dividends to its stockholders on outstanding stock, its ability to make acquisitions, and its business, results of operations, and financial condition.  Furthermore, under FDIC rules, if the Company ceases to meet the requirements to be considered a “well-capitalized” institution for bank regulatory purposes, the interest rates it pays on deposits and its ability to accept, renew, or rollover deposits, particularly brokered deposits, may be restricted.

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Liquidity risks could affect operations and jeopardize the Company’s business, financial condition, and results of operations.

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Liquidity is essential to the Company’s business.  An inability to raise funds through deposits, borrowings, the sale of loans, and other sources could have a substantial negative effect on liquidity.  The Company’s primary sources of funds consist of deposits and funds from sales of investment securities, investment maturities and sales, and cash from operations.  Additional liquidity is available through repurchase agreements, brokered deposits, and the ability to borrow from the Federal Reserve Bank and the FHLB.  Access to funding sources in amounts adequate to finance or capitalize the Company’s activities or on terms that are acceptable to the Company could be impaired by factors that affect it directly or the financial services industry or economy in general, such as disruptions in the financial markets or negative views and expectations about the prospects for the financial services industry.

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During periods of economic turmoil, the financial services industry and the credit markets generally may be materially and adversely affected by significant declines in asset values and depressed levels of liquidity.  These and other factors could negatively affect the Company’s ability to engage in routine funding and other transactions with other financial institutions and lead to market-wide liquidity problems, loss of depositor, creditor, and counterparty confidence, which could lead to losses or defaults by the Company or by other institutions.  Although the Company is not currently experiencing liquidity stress, pandemic-related market conditions remain uncertain.  Any decline in available funding and/or capital could adversely impact the Company’s ability to originate loans, invest in securities, meet its expenses, pay dividends to its stockholders, or meet deposit withdrawal demands, any of which could have a material adverse impact on its liquidity, business, financial condition, and results of operations.

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The soundness of other financial institutions could negatively affect the Company.

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As indicated in the “Item 1A.  Risk Factors—Economic and Market Risks” section above, the Company’s ability to engage in routine funding and other transactions could be negatively affected by the actions and commercial soundness of other financial institutions.  Financial services institutions are interrelated as a result of trading, clearing, counterparty, or other relationships.  Defaults by, or even rumors or questions about, one or more financial services institutions, or the financial services industry generally, have led to market-wide liquidity problems and losses of depositor, creditor, and counterparty confidence and could lead to losses or defaults by the Company or by other institutions.  The Company could experience growth as a result of the difficulties or failures of other banks or government-sponsored financial institutions, which would increase its funding needs.

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Competitive and Strategic Risks

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If securities or industry analysts do not publish or cease publishing research reports about us, if they adversely change their recommendations regarding our stock, or if our operating results do not meet their expectations, the price of our stock could decline.

​

The trading market for our common stock will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market, or our competitors.  If there is limited or no securities or industry analyst coverage of us, the market price for our stock would be negatively impacted.  Moreover, if any of the analysts who elect to cover us downgrade our common stock, provide more favorable relative recommendations about our competitors, or if our operating results or prospects do not meet their expectations, the market price of our common stock may decline.  If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our stock could decrease, which could cause our stock price and trading volume to decline.

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The Company faces strong competition from financial service companies and other companies that offer banking and wealth management services, which could harm its business.

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The Company currently conducts its banking operations in downstate Illinois; suburban Chicago, Illinois; the St. Louis, Missouri, metropolitan area; central Indiana; and southwest Florida.  In addition, the Company currently offers fiduciary and wealth management services, which account for a significant portion of its non-interest income.  Many competitors offer the same, or a wider variety of, banking and wealth management services within the Company’s market areas.  These competitors include national banks, regional banks, and other community banks.  The Company also faces competition from many other types of financial institutions, including savings and loan institutions, finance companies, brokerage firms, insurance companies, credit unions, mortgage banks and online lenders, and other financial intermediaries.  In addition, a number of out-of-state financial intermediaries have opened production offices or otherwise solicit deposits in the Company’s market areas.  Also, technology and other changes have lowered barriers to entry and made it possible for non-banks or financial technology companies, as well as other large technology corporations, to offer products and services traditionally provided by banks.  For example, customers can maintain funds that would have historically been held as bank deposits in brokerage accounts or mutual funds, can apply for and receive credit, and can also complete transactions such as paying bills and/or transferring funds without the assistance of banks.  The process of eliminating banks as intermediaries, known as “disintermediation,” could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits.  Increased competition in the Company’s markets may result in reduced loans, deposits, and commissions and brokers’ fees, as well as reduced net interest margin and profitability.  Ultimately, the Company may not be able to compete successfully against current and future competitors.  If the Company is unable to attract and retain banking and wealth management customers, it may be unable to grow its loan and deposit portfolios or its wealth management commissions, which could adversely affect its business, results of operations, and financial condition.

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Rapid speed of disruptive innovations enabled by new and emerging technologies and/or other market forces may outpace the Company’s ability to compete.

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The financial services industry is undergoing rapid technological changes with frequent introductions of new technology driven products and services.  In addition to better serving clients, the effective use of technology increases efficiency and enables financial institutions to both reduce costs and service customers beyond the bank’s traditional branch footprint.  Our future success will depend in part upon our ability to address the needs of our clients by using technology to provide products and services that will satisfy client demands for convenience as well as to create additional efficiencies in our operations.  Ultimately, if we fall behind in our ability to be adaptive and innovative, attracting new customers and sustaining customer loyalty and retention may be increasingly difficult as a result of evolving customer preferences and/or demographic shifts in our existing customer base.

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Our strategy of pursuing acquisitions exposes us to financial, execution, and operational risks that could negatively affect us.

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To help us fulfill our strategic objectives and enhance our earnings, part of our strategy is to supplement organic growth by acquiring other financial institutions in our market areas and in nearby markets.  As our capital position and asset quality allow, we may continue to supplement organic growth through acquisitions, as we have in the past.  There are risks associated with acquisition strategies, including the following:

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New lines of business or new products and services may subject us to additional risks.

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From time to time, we may seek to implement new lines of business or offer new products, services, or delivery channels within existing lines of business in our current markets or new markets.  There are substantial risks and uncertainties associated with these efforts, particularly in instances where the markets are either highly competitive or, conversely, not fully developed.  In developing and marketing new lines of business and/or new products and services, we may invest significant time and resources.  Initial timetables for the introduction and development of new lines of business and/or new products or services may not be achieved, and price and profitability targets may not prove feasible, which could in turn have a material negative effect on our operating results.

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Accounting and Tax Risks

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Financial statements are created, in part, by estimates and assumptions and methods used by management, which, if incorrect, could cause unexpected losses in the future.

​

The Company’s financial performance is impacted by accounting principles, policies, and guidelines.  Some of these policies require the use of estimates and assumptions that may affect the value of assets or liabilities and financial results.  Certain accounting policies are critical and require management to make difficult, subjective, and complex judgments about matters that are inherently uncertain, and materially different amounts could be reported under different conditions or using different assumptions.  If such estimates or assumptions underlying the Company’s Consolidated Financial Statements are incorrect, the Company may experience material losses.

​

One such assumption and estimate is the valuation analysis of its goodwill and other intangible assets.  Although the Company’s analysis does not indicate impairments exist, the Company is required to perform additional impairment assessments on at least an annual basis, and perhaps more frequently, which could result in further impairment charges.  Any future goodwill or other intangible assets impairment charges, based on the current balances or future balances arising out of acquisitions, could have a material adverse effect on the results of operations by reducing net income or increasing net losses.

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The Company is subject to changes in accounting principles, policies, or guidelines.

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Periodically, agencies such as the FASB or the SEC change the financial accounting and reporting standards or the interpretation of those standards that govern the preparation of the Company’s Financial Statements.  These changes are beyond the Company’s control, can be difficult to predict, and could materially impact how the Company reports its financial condition and results of operations.  Changes in these standards are continuously occurring and the implementation of such changes could have a material adverse effect on the Company’s financial condition and results of operations.

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The Company is subject to changes in tax law and may not realize tax benefits which could adversely affect our results of operations.

​

Changes in tax laws at national or state levels could have an effect on the Company’s short-term and long-term earnings.  Tax law changes are both difficult to predict and are beyond the Company’s control.  Changes in tax laws could affect the Company’s earnings as well as its customers’ financial positions, or both.

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Deferred tax assets are designed to reduce subsequent period’s income tax expense and arise, in part, as a result of net loss carry-overs, and other book accounting to tax accounting differences including expected credit losses, stock-based compensation, and deferred compensation.  Such items are recorded as assets when it is anticipated the tax consequences will be recorded in future periods.  A valuation allowance is established against a deferred tax asset when it is unlikely the future tax effects will be realized.  Significant judgment by management about matters that are by nature uncertain is required to record a deferred tax asset and establish a valuation allowance.

​

In evaluating the need for a valuation allowance, the Company estimates future taxable income based on management forecasts and tax planning strategies that may be available to us.  While the Company has determined that no valuation allowance is currently required for any deferred tax assets, if future events differ significantly from our current forecasts, it may need to establish a valuation allowance against its net deferred tax assets, which would have a material adverse effect on its results of operations and financial condition.  The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods prior to the expiration of the related net operating losses and may be limited by Section 382 of the Internal Revenue Code.

​

Further, the Company’s investments in certain tax-advantaged projects may not generate returns as anticipated and may have an adverse impact on the Company’s financial results.  The Company invests in certain tax-advantaged projects promoting affordable housing, community development and other community revitalization projects.  The Company’s investments in these projects are designed to generate a return primarily through the realization of federal and state income tax credits, and other tax benefits, over specified time periods.  The Company is subject to the risk that previously recorded tax credits, which remain subject to recapture by taxing authorities based on compliance features required to be met at the project level, will fail to meet certain government compliance requirements and will not be able to be realized.  The possible inability to realize these tax credit and other tax benefits can have a negative impact on the Company’s financial results.  The ultimate realization of the tax credits and other tax benefits depends upon having sufficient taxable income and on many factors outside of the Company’s control, including changes in the applicable tax code and the ability of the projects to be completed.

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Operational Risks

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The Company’s framework for managing risks may not be effective in mitigating risk and loss.

​

The Company’s risk management framework seeks to mitigate risk and loss.  It has established processes and procedures intended to identify, measure, monitor, report, and analyze the types of risk to which it is subject, compliance risk and reputational risk, among others.  However, as with any risk management framework, there are inherent limitations.  Risks may exist, or emerge in the future, that have not been appropriately identified or anticipated.  As it continues to grow, the Company’s ability to successfully identify and manage the risks it faces is an important factor that can significantly impact results.  If its risk management framework is not commensurate with its risk profile, the Company could suffer unexpected losses and could be materially adversely affected.

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The Company relies on the integrity of its operating systems and employees, and those of third-parties, and certain failures of such systems or error by employees or customers could materially and adversely affect the Company’s operations.

​

Communications and information systems are essential to conduct the Company’s business, as it uses such systems to manage customer transactions and relationships, the general ledger, and deposits, loans, and investments.  However, the computer systems and network infrastructure the Company uses could be vulnerable to unforeseen problems as operations are dependent upon the protection of computer equipment against damage from physical theft, fire, power loss, telecommunications failure, or a similar catastrophic event, as well as from security events.

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In addition, the Company outsources certain processing functions to third-party providers.  If third-party providers encounter difficulties or if the Company has difficulty in communicating with them, the ability to adequately process and account for customer transactions may be affected and business operations may be adversely impacted.  If third-party providers are unable to meet service expectations, experience system or processing failure, or incur disruptions affecting operations, results could adversely impact the Company.  While the Company follows certain due diligence procedures in reviewing and vetting its third-parties, it cannot control their actions.

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Although the Company has procedures in place to prevent or limit the effects of any of these potential problems and intends to continue to implement security technology and establish operational procedures to prevent such occurrences, technology-related disruptions, failures, and cybersecurity risks are a constant threat, both for the Company and for the third-parties it works with.  Therefore, it cannot guarantee that these measures will be successful.  Any failure, interruption in, or breach in security of, its computer systems and network infrastructure, as well as those of its customers engaging in internet banking activities or electronic funds transfers, could have a material adverse effect on its financial condition and results of operations.

​

Similarly, the Company is reliant upon its employees.  Such dependencies create risks for potential losses resulting from employee errors, breakdowns in process or control, failures to properly execute change management, negligence, or a number of other factors outside the Company’s control.  The Company maintains a system of internal controls and insurance coverage to mitigate operational risks, including data processing system failures and errors, customer or employee fraud, and other disruptions which might impact its business.  In addition, the Company’s Internal Audit department routinely reviews operations and high-risk areas for error, deficient controls, and failure to adhere to policy.

​

Potential legal actions, fines, and civil money penalties could arise as results of an operational deficiency or as a result of noncompliance with applicable regulatory standards, adverse business decisions or their implementation, and customer attrition due to potential negative publicity.

​

A breach in the security of the Company’s systems could disrupt its businesses, result in the disclosure of confidential information, damage its reputation, and create significant financial and legal exposure for the Company.

​

Although the Company devotes significant resources to maintain and regularly upgrade systems and processes designed to protect the security of its computer systems, software, networks, and other technology assets, these measures do not provide absolute security.  In the past year, a myriad of industries and institutions have reported breaches in the security of their websites or other systems, some of which have involved sophisticated and targeted attacks intended to obtain unauthorized access to confidential information, destroy data, disable or degrade service, or sabotage systems, often through the introduction of computer viruses or malware, cyber-attacks, and other means.  In addition, cyber attackers have taken advantage of the pandemic to create campaigns to leverage individuals fears and uncertainties as well as capitalize on the increased number of transactions occurring on digital channels.  The implementation of remote working arrangements that use virtual private networks, virtual conferencing services, and telecommunication technologies can increase insider risk, cybersecurity vulnerabilities, and other operational exposures.  Industry trends in ransomware, phishing, and other intrusion methods have increased significantly and will continue to pose increased risk.

​

Threats to security also exist in the processing of customer information through various other third-parties, their personnel, and their use of subcontractors.  Advances in computer capabilities, new discoveries in the field of cryptography or other developments could result in a compromise or breach of the algorithms the Company and its third-party service providers use to encrypt and protect customer transaction data.  Such cyber incidents may go undetected for a period of time.  An inability by our third-party providers, and their third-party providers, known as “supply chain risk,” to anticipate, detect,

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or adequately mitigate, breaches of security could result in a number of negative events, including losses to us or our clients, loss of business or clients, damage to our reputation, the incurrence of additional expenses, additional regulatory scrutiny or penalties, or exposure to civil litigation and possible financial liability, any of which could have a material adverse effect on our business, financial condition, results of operations, and growth prospects.

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The Company also faces risks related to cyber-attacks and other security breaches in connection with credit card, debit card and other payment-related transactions that typically involve the transmission of sensitive information regarding the Company’s customers through various third-parties, including merchant acquiring banks, payment processors, payment card networks, and its processors.  Cyber-attacks or other breaches, whether affecting the Company or others, could intensify consumer concern and regulatory focus and result in breach and fraud-related losses as well as increased costs, all of which could have a material adverse effect on the Company’s business.

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Penetration or circumvention of the Company’s security systems could result in serious negative consequences for the Company, including significant disruption of the Company’s operations, misappropriation of confidential information of the Company or that of its customers or employees, or damage to computers or systems of the Company and those of its customers and counterparties.  Such events could result in violations of applicable privacy and other laws, financial loss to the Company or its customers, loss of confidence in the Company’s security measures, customer dissatisfaction, significant litigation exposure and harm to the Company’s reputation, all of which would adversely affect the Company.

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These risks have increased for all financial institutions globally as new technologies, the use of the Internet and telecommunications technologies, including mobile devices, to conduct financial and other business transactions, and the sophistication and activities of malicious individuals and organizations have increased substantially.  Despite the Company’s significant investment in security resources and its continued efforts to prevent or limit the effects of potential threats, it is possible that the Company may not be able to anticipate or implement effective preventative measures against all security incidents.

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Customer or employee misconduct or fraud may affect operations, result in significant financial loss, and have an adverse impact on the Company’s reputation.

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Misconduct by employees and customers could include hiding unauthorized activities, conducting improper or unauthorized activities, or improper use of confidential information.  Customer or other outsiders may also attempt to perpetuate fraud or scams in the form of identity theft, money laundering, fraudulent or altered deposits, or use of counterfeit instruments, as a few examples.  The Company also faces fraud risk associated with the origination of loans, including the intentional misstatement of information in property appraisals or other underwriting documentation provided to it by customers or by third-parties.  Customers may expose the Company to certain fraud risks associated with the compromise of their computing systems or accounts, as well.

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Both the number and sophistication level of attempted fraudulent transactions are increasing.  Should our internal controls fail to prevent or detect an occurrence of fraud, or if any resulting loss is not insured or exceeds applicable insurance limits, it could have a material adverse effect on the Company’s business, results of operations, and financial condition.

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The Company’s ability to attract and retain management and key personnel may affect future growth and earnings and legislation imposing new compensation restrictions could adversely affect its ability to do so.

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Much of the Company’s success and growth has been influenced by its ability to attract and retain management experienced in banking and financial services and familiar with the communities in its market areas.  The Company’s ability to retain executive officers, current management teams, lending and retail banking officers, and administrative staff of its subsidiaries continues to be important to the successful implementation of its strategy.  In addition, the Company’s ability to retain key personnel at acquired financial institutions is vitally important to the Company’s strategy to grow through mergers and acquisitions.  Also critical is the Company’s ability to attract and retain diverse and qualified staff with the appropriate level of experience and knowledge about its market areas so as to implement its community-based operating strategy.  Recent changes in labor market conditions have contributed to heightened levels of employee attrition and increased competition for talent, which has in turn driven wage rates higher and may contribute to an increase in operating expenses.  The unexpected loss of services of key personnel, or the inability to recruit and retain qualified personnel in the future, could have an adverse effect on the Company’s business, financial condition, and results of operation.

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Damage resulting from negative publicity could harm the Company’s reputation and adversely impact its business and financial condition.

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The Company’s ability to attract and maintain customers, investors, and employees is contingent upon maintaining trust.  Negative public opinion could result from the Company’s actual or alleged conduct in a number of activities, including, but not limited to, employee misconduct, a failure or perceived failure to deliver appropriate standards of service and quality or to treat customers fairly, faulty lending practices, compliance failures, security breaches, corporate governance, sharing or inadequate protection of customer information, failure to comply with laws or regulations, and actions taken by government regulators and community organizations in response to that conduct.  The results of such actual or alleged misconduct could include customer dissatisfaction, inability to attract potential acquisition prospects, litigation, and heightened regulatory scrutiny, all of which could lead to lost revenue, higher operating costs, and harm to the Company’s reputation.  No assurance can be made, despite the cost or efforts made by the Company to address the issues arising from reputational harm, that results could not adversely affect the Company’s business, financial condition, and results of operations.

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Climate change or other adverse external events could significantly impact the Company’s business.

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Severe weather, natural disasters, geopolitical risks and acts of terrorism or war, widespread disease or pandemics, as is currently being experienced, and other adverse external events could have a significant impact on the Company’s ability to conduct business.  Climate change, in particular, presents multi‐faceted risks including: operational risk from the physical effects of climate events on our and our customers’ facilities and other assets; credit risk from borrowers with significant exposure to climate risk; and reputational risk from stakeholder concerns about our practices related to climate change.

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Climate change exposes the Company to physical risk as its effects may lead to more frequent shifts in weather patterns and more extreme weather events that could damage, destroy, or otherwise impact the value or productivity of our properties and other assets; reduce the availability of insurance to cover losses; and/or disrupt our operations through prolonged outages.  Such events and long‐term shifts may also have a significant impact on our customers, which could amplify credit risk by diminishing borrowers’ repayment capacity or collateral values, and other businesses and counterparties with whom we transact, which could have a broader impact on the economy, supply chains, and distribution networks.

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Furthermore, banking regulators and other supervisory authorities, investors and other stakeholders have increasingly viewed financial institutions as important in helping to address the risks related to climate change both directly and with respect to their customers, which may result in financial institutions coming under increased pressure regarding the disclosure and management of their climate risks and related lending and investment activities.  Given that climate change could impose systemic risks upon the financial sector, either via disruptions in economic activity resulting from the physical impacts of climate change or changes in policies as the economy transitions to a less carbon‐intensive environment, we face regulatory risk of increasing focus on our resilience to climate‐related risks, including in the context of stress testing for various climate stress scenarios.  Ongoing legislative or regulatory changes regarding climate risk management and practices may result in higher regulatory, compliance, credit and reputational risks and costs.

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ITEM 1B. UNRESOLVED STAFF COMMENTS

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None.

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ITEM 2. PROPERTIES

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First Busey and Busey Bank’s headquarters are located at 100 West University Avenue, Champaign, Illinois.  FirsTech’s headquarters is located at 130 North Water Street, Decatur, Illinois.  These facilities, which are owned by the Company, house the executive and primary administrative offices of each respective entity.  First Busey and its subsidiaries also own or lease other facilities, such as banking centers of Busey Bank, for business operations.

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The Company considers its properties to be suitable and adequate for its present needs.  None of the properties are subject to any material encumbrance.

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ITEM 3. LEGAL PROCEEDINGS

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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.

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There is no material pending litigation, other than ordinary routine litigation incidental to its business, 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.

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ITEM 4. MINE SAFETY DISCLOSURES

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Not applicable.

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PART II

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ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

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Common Stock

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First Busey’s common stock is traded on The Nasdaq Global Select Market under the symbol “BUSE.”

​

The Company’s board of directors and management are currently committed to continue paying regular cash dividends; however, no guarantee can be given with respect to future dividends, as they are dependent on certain regulatory restrictions, future earnings, capital requirements, and financial condition of the Company and its subsidiaries.  See “Item 1.  Business—Supervision, Regulation and Other Factors—Supervision and Regulation of the Company—Dividend Payments” and “Item 1.  Business—Supervision, Regulation and Other Factors—Supervision and Regulation of Busey Bank—Dividend Payments” for further discussion of these matters.

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As of February 24, 2022, First Busey Corporation had 55,290,645 shares of common stock outstanding held by 2,269 holders of record.  Additionally, there were an estimated 11,536 beneficial holders whose stock was held in street name by brokerage houses and nominees as of that date.

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Stock Repurchases

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On February 3, 2015, First Busey’s board of directors authorized the Company to repurchase up to an aggregate of 666,667 shares of its common stock.  The repurchase plan has no expiration date.  On May 22, 2019, First Busey’s board of directors approved an amendment to increase the authorized shares under the repurchase program by 1,000,000 shares, and on February 5, 2020, First Busey’s board of directors approved another amendment to increase the authorized shares under the repurchase program by an additional 2,000,000 shares.  During the fourth quarter of 2021, the Company purchased 418,000 shares under the plan.  At December 31, 2021, the Company had 535,824 shares that may still be purchased under the plan.

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Performance Graph

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The following graph compares First Busey’s performance, as measured by the change in price of its common stock plus reinvested dividends, with the Nasdaq Composite and the S&P US BMI Banks – Midwest Region for the five years ended December 31, 2021.

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In prior years, the Company used the SNL Midwest Bank Index, which was retired as of August 7, 2021.  The S&P U.S. BMI Banks – Midwest Region is deemed the closest replacement currently available.

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Banks in the S&P U.S. BMI Banks - Midwest Region represent all Major Exchange Traded Banks in S&P Capital IQ’s coverage universe headquartered in Illinois, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Missouri, Ohio, South Dakota, and Wisconsin.

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ITEM 6. [Reserved]

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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The following is management’s discussion and analysis of the financial condition as of December 31, 2021, and 2020, and the results of operations for the years ended December 31, 2021, 2020, and 2019, of First Busey and its subsidiaries.  It should be read in conjunction with “Item 1.  Business,” the Consolidated Financial Statements, and the related Notes to the Consolidated Financial Statements included in this Annual Report.

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Detailed discussion and analysis of the financial condition and results of operation for 2021 as compared to 2020 can be found below.  Comparison of 2020 to 2019 can be found in “Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the 2020 Annual Report.

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Impact of COVID-19

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Although the progression of the COVID-19 pandemic in the U.S. has impacted First Busey’s results of operations, we continue to navigate the economic environment caused by COVID-19 effectively and prudently and remain resolute in our focus on serving our customers, communities, and associates while protecting our balance sheet.  We remain vigilant, given that negative impacts of COVID-19, such as further margin compression and a deterioration in asset quality, could impact future quarters.

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Effects on Our Market Areas

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Our commercial and consumer banking products and services are delivered in Illinois, Missouri, Florida, and Indiana.  Each state has taken different steps to reopen after COVID-19 thrust the country into lockdown starting in March 2020, and these efforts are subject to changes and delays based on case monitoring in each state.

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Policy and Regulatory Developments

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Federal, state, and local governments, and regulatory authorities have enacted and issued a range of policy responses to the COVID-19 pandemic.  Regulatory actions taken during 2021 include the following:

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Our Response

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We have taken, and continue to take, numerous steps in response to the COVID-19 pandemic, including the following:

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