FIRST BUSEY CORP NV

We believe that making sound and profitable loans is a necessary and desirable means of employing funds available for investment. Busey maintains lending policies and procedures designed to focus lending efforts on the types, locations, and duration of loans most appropriate for its business model and markets. While not specifically limited, we attempt to focus our lending on short to intermediate-term (0-10 years) loans in geographic areas within 125 miles of our lending offices. Loans originated outside of these areas are generally to existing customers of Busey Bank. We attempt to utilize government-assisted lending programs, such as the SBA and U.S. Department of Agriculture lending programs, when prudent. Generally, loans are collateralized by assets, primarily real estate, and guaranteed by individuals. Loans are expected to be repaid primarily from cash flows of the borrowers or from proceeds from the sale of selected assets of the borrowers.

Management reviews and approves Busey Bank’s lending policies and procedures on a regular basis. Management routinely (at least quarterly) reviews the ACL in conjunction with reports related to loan production, loan quality, concentrations of credit, loan delinquencies, non-performing loans, and potential problem loans. Our underwriting standards are designed to encourage relationship banking rather than transactional banking. Relationship banking implies a primary banking relationship with the borrower that includes, at a minimum, an active deposit banking relationship in addition to the lending relationship. Significant underwriting factors in addition to location, duration, a sound and profitable cash flow basis, and the borrower’s character, include the quality of the borrower’s financial history, the liquidity of the underlying collateral, and the reliability of the valuation of the underlying collateral.

As a matter of policy and practice, we limit the level of concentration exposure in any particular loan segment with the goal of maintaining a well-diversified loan portfolio.

At no time is a borrower’s total borrowing relationship permitted to exceed Busey Bank’s regulatory lending limit. We generally limit such relationships to amounts substantially less than the regulatory limit. Loans to related parties, including executive officers and directors of First Busey Corporation and its subsidiaries, are reviewed for compliance with regulatory guidelines.

Busey maintains an independent loan review department that reviews loans for compliance with our loan policy on a periodic basis. In addition, the loan review department reviews risk assessments made by our credit department, lenders, and loan committees. Results of these reviews are presented to management and the audit committee at least quarterly.

Busey Bank’s lending activities can be summarized into two primary categories: commercial and retail. Within these primary categories, loans are further classified into five primary lending areas. The commercial category includes commercial loans, commercial real estate loans, and real estate construction loans. The retail category includes retail real estate loans and retail other loans.

Commercial Loans

Commercial loans typically comprise working capital loans or business expansion loans, including loans for asset purchases and other business loans. Commercial loans will generally be guaranteed, in full or a material percentage, by the primary owners of the business. Commercial loans are made based primarily on the borrower’s historical and projected cash flows and secondarily on the underlying assets pledged as collateral by the borrower. Cash flows of the borrower, however, may not perform consistently with historical or projected information. Further, collateral securing loans may fluctuate in value due to individual economic or other factors. Busey Bank has established minimum standards and underwriting guidelines for all commercial loan types.

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Commercial Real Estate Loans

The commercial environment, along with the academic presence in some of our markets, provides for the majority of our commercial lending opportunities to be commercial real estate related, including multi-unit housing. As the majority of our loan portfolio is within the commercial real estate class, our goal is to maintain a high quality, geographically diverse portfolio of commercial real estate loans. Commercial real estate loans are subject to underwriting standards and guidelines similar to commercial loans. Commercial real estate loans are generally guaranteed, in full or a material percentage, by the primary owners of the business. Repayment of these loans is primarily dependent on the cash flows of the underlying property. However, commercial real estate loans generally must be supported by an adequate underlying collateral value. The performance and the value of the underlying property may be adversely affected by economic factors or geographical and/or industry specific factors. These loans are subject to other industry guidelines which we closely monitor.

Real Estate Construction Loans

Real estate construction loans are primarily commercial in nature. Loan proceeds are monitored by the Company and advanced for the improvement of real estate in which we hold a mortgage. Real estate construction loans will generally be guaranteed, in full or a material percentage, by the developer or primary owners of the business. These loans are subject to underwriting standards and guidelines similar to commercial loans. The loan generally must be supported by an adequate “as completed” value of the underlying project. In addition to the underlying project, the financial history of the developer and business owners weighs significantly in determining approval. Repayment of these loans is typically through permanent financing following completion of the construction. Real estate construction loans are inherently more risky than loans on completed properties as the unimproved nature and the financial risks of construction significantly enhance the risks of commercial real estate loans. These loans are closely monitored and subject to other industry guidelines.

Retail Real Estate Loans

Retail real estate loans are comprised of direct consumer loans that include residential real estate, home equity lines of credit, and home equity loans. In 2023, Busey retained a larger percentage of originated retail real estate loans in our portfolio, electing to sell a smaller percentage to secondary market purchasers. As retail real estate loan underwriting is subject to specific regulations, we typically underwrite our retail real estate loans to conform to widely accepted standards. Several factors are considered in underwriting including the debt-to-income ratio and credit history of the borrower, as well as the value of the underlying real estate.

Retail Other Loans

Retail other loans consist of installment loans to individuals, including automotive loans and indirect lending. These loans are centrally underwritten utilizing the borrower’s financial history, including credit scores, as well as information about the underlying collateral. Retail other loans also include whole-life loans which are secured by the cash value of underlying life insurance policies. Repayment of retail other loans is expected from the borrower’s cash flows.

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Portfolio Composition

The composition of our loan portfolio as of the dates indicated, as well as changes in portfolio loan balances, were as follows(dollars in thousands):

Commercial balances decreased by $131.4 million, or 2.3%, during the year ended December 31, 2023. Retail balances increased by $56.8 million, or 2.9%, during the year ended December 31, 2023. As has been our practice, we remain steadfast in our conservative approach to underwriting and disciplined approach to pricing, particularly given our outlook for the economy in the coming quarters, and this approach has impacted loan growth for 2023 as predicted.

Geographic distributions of portfolio loans, based on origination, by category were as follows (dollars in thousands):

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Commercial real estate loans are made across a variety of industries, as depicted in the table below(dollars in thousands). Balances reflected in the table below do not include loan origination fees or costs, purchase accounting adjustments, SBA discounts, or negative escrow amounts.

Paycheck Protection Program Loans

Throughout the COVID-19 pandemic, Busey operated as an essential community resource, providing approximately $1.1 billion in payroll assistance for small businesses and select nonprofits through low-interest, 100% government-guaranteed loans as part of the PPP. We had $0.3 million in PPP loans outstanding as of December 31, 2023, compared to $0.9 million in PPP loans outstanding as of December 31, 2022.

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Loan Commitments

Commitments to extend credit and standby letters of credit increased by $151.7 million, or 7.5%, to a total of $2.2 billion as of December 31, 2023, compared to $2.0 billion as of December 31, 2022.

Loan Maturities

The determination of loan maturities is based on contractual loan terms. Demand loans, loans having no stated schedule of repayments and no stated maturity, and overdrafts are considered to mature within one year.

The following table sets forth remaining maturities of portfolio loans at December 31, 2023,(dollars in thousands):

Interest Rate Structure

Portfolio loans maturing after one year are summarized below by interest rate structure and loan category, as of December 31, 2023,(dollars in thousands):

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Allowance and Provision for Credit Losses

The ACL is a significant estimate in our Consolidated Balance Sheets, affecting both earnings and capital. The methodology adopted influences, and is influenced by, Busey Bank’s overall credit risk management processes. The ACL is recorded in accordance with GAAP to provide an adequate reserve for expected credit losses that is reflective of management’s best estimate of what is expected to be collected. All estimates of credit losses are based on a careful consideration of all significant factors affecting the collectability as of the evaluation date. The ACL is established through the provision for credit loss expense charged to income. Provision expenses (releases) were recorded as follows for each of the years indicated(dollars in thousands):

The provision release in 2021 reflected improvements in macroeconomic conditions and asset quality, following a build-up of the ACL in the prior year attributable to the adoption of CECL in combination with the economic impacts of the COVID-19 pandemic.

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The following table summarizes, by loan category, activity affecting the ACL and average portfolio loans outstanding for the years indicated, as well as the related ratios of net charge-offs (recoveries) to average portfolio loans(dollars in thousands):

1. The Day 1 PCD is attributable to the CAC acquisition.

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The following table sets forth the ACL by loan categories and percentage of loans to total loans as of December 31 for each of the years indicated (dollars in thousands):

The ongoing impacts of CECL will be dependent upon changes in economic conditions and forecasts, originated and acquired loan portfolio composition, credit performance trends, portfolio duration, and other factors. As of December 31, 2023, Busey management believed the level of the allowance to be appropriate based upon the information available. However, additional losses may be identified in our loan portfolio as new information is obtained.

Non-Performing Loans and Non-Performing Assets

Loans are considered past due if the required principal or interest payments have not been received as of the date such payments were due. Loans are placed on non-accrual status when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory guidelines. Loans may be placed on non-accrual status regardless of whether or not such loans are considered past due. Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Typically, loans are secured by collateral. When a loan is classified as non-accrual and determined to be collateral dependent, it is appropriately reserved or charged down through the ACL to the fair value of our interest in the underlying collateral less estimated costs to sell. Our loan portfolio is collateralized primarily by real estate.

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The following table sets forth information concerning non-performing loans and performing restructured loans(dollars in thousands):

Asset quality remains strong by both Busey’s historical and current industry trends, and our operating mandate and focus have been on emphasizing credit quality over asset growth.

As a result of continued disciplined credit management, non-performing loan balances declined by 50.34% to $7.8 million as of December 31, 2023, compared to $15.7 million as of December 31, 2022. Non-performing loans represented 0.10% of portfolio loans as of December 31, 2023, compared to 0.20% as of December 31, 2022. Our allowance coverage of non-performing loans increased to 1,173.75% at December 31, 2023, compared to 582.01% at December 31, 2022.

Non-performing assets declined by 52.13% to $7.9 million as of December 31, 2023, compared to $16.6 million as of December 31, 2022. Non-performing assets represented 0.06% of total assets as of December 31, 2023, compared to 0.13% as of December 31, 2022. Our allowance for credit losses provided 1,155.27% coverage of our non-performing assets at December 31, 2023, up from 552.19% at December 31, 2022.

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Classified assets, which includes non-performing assets and substandard loans, decreased to $72.3 million as of December 31, 2023, compared to $107.1 million as of December 31, 2022. Classified assets represented 4.97% of Busey Bank’s Tier 1 capital and ACL at December 31, 2023, down from 7.66% at December 31, 2022.

Net charge-offs totaled $2.3 million in 2023, representing 0.03% of average loans, compared with net charge-offs of $0.9 million in 2022, representing 0.01% of average loans.

Asset quality metrics remain dependent upon market-specific economic conditions, and specific measures may fluctuate from period to period. If economic conditions were to deteriorate, we would expect the credit quality of our loan portfolio to decline and loan defaults to increase.

Potential Problem Loans

Potential problem loans are loans classified as substandard which are not individually evaluated, restructured, non-accrual, or 90+ days past due, but where current information indicates that the borrower may not be able to comply with loan repayment terms. Management assesses the potential for loss on such loans and considers the effect of any potential loss in determining its provision for expected credit losses. Potential problem loans decreased to $64.3 million at December 31, 2023, compared to $89.2 million at December 31, 2022. Management continues to monitor these credits and anticipates that restructurings, guarantees, additional collateral, or other planned actions will result in full repayment of the debts. As of December 31, 2023, management identified no other loans that represent or result from trends or uncertainties that would be expected to materially impact future operating results, liquidity, or capital resources.

COVID-19 Modifications

To alleviate some of the financial hardships faced as a result of COVID-19, Busey offered a Financial Relief Program to qualifying customers. The program included options for short-term loan payment deferrals and certain fee waivers. We had no commercial or retail loans remaining in the program as of December 31, 2023. In comparison, we had eight payment deferred commercial loans totaling $20.6 million that were on interest-only payment terms, and one payment deferred retail loan totaling $0.1 million as of December 31, 2022.

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