FIRST BUSEY CORP /NV/ (BUSE) FY 2024 MD&A

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

Contents of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Unaudited) (“MD&A”)

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SCOPE OF DISCUSSION

The following is management’s discussion and analysis of the financial condition as of December 31, 2024, and 2023, and the results of operations for the years ended December 31, 2024, 2023, and 2022, of First Busey Corporation 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.

Detailed discussion and analysis of Busey’s financial condition and results of operation for 2024 as compared to 2023 can be found below. Comparison of 2023 to 2022 can be found in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of Busey's 2023 Annual Report.

BUSEY’S CONSERVATIVE BANKING STRATEGY

Busey’s financial strength is built on a long-term conservative operating approach. The quality of Busey’s core deposit franchise is a critical value driver of the institution. Busey remains substantially core deposit1 funded, with robust liquidity and significant market share in the communities Busey serves. As of December 31, 2024, Busey’s loan to deposit ratio was 77.1% and core deposits1 represented 96.5% of total deposits. Furthermore, Busey has sufficient on- and off-balance sheet liquidity to manage deposit fluctuations and the liquidity needs of its customers.

Busey’s credit performance reflects its highly diversified, conservatively underwritten loan portfolio, which has been originated predominantly to established customers with tenured relationships with Busey. Busey’s approach to lending and its underwriting standards are designed to emphasize relationship banking rather than transactional banking. In addition, as a matter of both policy and practice, Busey limits concentration exposures in any particular loan segment. As a result, asset quality remains strong by both Busey’s historical and current industry trends.

Busey’s conservative banking strategy is reflected in the strength of its capital base. Busey strives to consistently maintain capital ratios well in excess of thresholds required to be designated as well capitalized by applicable regulatory guidelines, thereby ensuring financial strength and flexibility across economic and operating cycles. At December 31, 2024, Busey’s leverage ratio of Tier 1 capital to average assets was 11.1%, its common equity Tier 1 capital to risk weighted assets ratio was 14.1%, and its total capital to risk weighted assets ratio was 18.5%.

Busey executed a two-part balance sheet repositioning strategy in 2024

During the first quarter of 2024, Busey sold the mortgage servicing rights on approximately $923.5 million of one- to four-family mortgage loans for a pre-tax gain of $7.7 million, which enabled Busey to sell available-for-sale investment securities with a book value of approximately $108.2 million for a pre-tax loss of $6.8 million with no resulting negative impact to tangible capital. At the time of the sale, the securities sold yielded a weighted average rate of 1.98% and had a weighted-average life of 2.3 years.

CRITICAL ACCOUNTING ESTIMATES

Busey has established various accounting policies that govern the application of GAAP in the preparation of its Consolidated Financial Statements. Significant accounting policies are described in “Note 1. Significant Accounting Policies” in the Notes to the Consolidated Financial Statements.

1 Core deposits is a non-GAAP financial measure. For a reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures, see “Item 1. Business—Non-GAAP Financial Information.”

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Critical accounting estimates are those that are critical to the portrayal and understanding of Busey’s financial condition and results of operations and require management to make assumptions that are subjective or complex. These estimates involve judgments, assumptions, and uncertainties that are susceptible to change. In the event that different assumptions or conditions were to prevail, and depending on the severity of such changes, the possibility of a materially different financial condition or materially different results of operations is a reasonable likelihood. Further, changes in accounting standards could impact Busey’s critical accounting estimates. Management has reviewed these critical accounting estimates and related disclosures with Busey’s Audit Committee. The following estimates could be deemed critical:

Fair Value of Assets Acquired and Liabilities Assumed in Business Combinations

Business combinations are accounted for using the acquisition method of accounting. Under the acquisition method of accounting, assets acquired and liabilities assumed are recorded at their estimated fair value on the date of acquisition. Fair values are determined based on the definition of “fair value” defined in ASC Topic 820 “Fair Value Measurement” as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” The determination of fair values is based on valuations using management’s assumptions of future growth rates, future attrition, discount rates, multiples of earnings or other relevant factors. In addition, Busey engages third party specialists to assist in the development of fair values.

The fair value of a loan portfolio acquired in a business combination generally requires greater levels of management estimates and judgment than other assets acquired or liabilities assumed. Acquired loans are within the scope of ASC Topic 326 “Financial Instruments-Credit Losses.” However, the offset to record the allowance on acquired loans at the date of acquisition depends on whether or not the loan is classified as PCD. The allowance for PCD loans is recorded through a gross-up effect, while the allowance for acquired non-PCD loans is recorded through provision expense, consistent with originated loans. Thus, the determination of which loans are PCD and non-PCD can have a significant effect on the accounting for these loans.

Goodwill

Goodwill represents the excess of purchase price over the fair value of net assets acquired using the acquisition method of accounting. Goodwill is not amortized; instead, Busey assesses the potential for impairment on an annual basis or more frequently if events and circumstances indicate that goodwill might be impaired. Management applies significant judgement when testing goodwill for impairment, such as the valuation approach chosen, market multiples for competitors used in the calculation, and forecasts of business outlook.

Income Taxes

Busey is subject to the income tax laws of U.S., as well as the tax laws of the individual states and municipalities in which the Company conducts its operations. These laws are often complex and subject to nuanced interpretations.

Income taxes are estimated for the tax effects of the transactions reported on Busey’s Consolidated Financial Statements and consist of an expense for taxes currently due plus assets and/or liabilities for deferred taxes. Deferred taxes represent the future tax consequences of differences between the tax basis and accounting basis of certain assets and liabilities, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred tax assets and liabilities are estimates that are reflected at income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. Deferred taxes are reported in other assets or other liabilities on the Consolidated Balance Sheets. Estimated income tax expense is reported on the Consolidated Statements of Income.

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In establishing its provision for income taxes and its estimates of deferred tax assets and liabilities, Busey must make judgments and interpretations about the application of inherently complex tax laws. Busey must also make estimates about when in the future certain items will affect taxable income. Disputes over interpretations of the tax laws may be subject to review and adjudication by the court systems of the various tax jurisdictions or may be settled with the taxing authority upon examination or audit. Although Busey’s management believes that its judgments are sound and its tax estimates are reasonable, interpretations of tax law applied by the taxing jurisdictions could differ. As such, Busey may be exposed to losses or gains, which could be material. An unfavorable tax settlement would result in an increase in Busey’s effective income tax rate in the period of resolution. A favorable tax settlement would result in a reduction in Busey’s effective income tax rate in the period of resolution.

Allowance for Credit Losses

Busey calculates the ACL at each reporting date. Busey recognizes an allowance for the lifetime expected credit losses for the amount it does not expect to collect. Measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported book value. The calculation also contemplates that Busey may not be able to make or obtain such forecasts for the entire life of the financial assets and requires a reversion to historical credit loss information.

In determining the ACL, management relies predominantly on a disciplined credit review and approval process that extends to the full range of Busey’s credit exposure. The ACL must be determined on a collective (pool) basis when similar risk characteristics exist. On a case-by-case basis, Busey may conclude that a loan should be evaluated on an individual basis based on disparate risk characteristics.

Loans deemed uncollectible are charged against and reduce the ACL. A provision for credit losses is charged to current expense and acts to replenish the ACL in order to maintain the ACL at a level that management deems adequate.

Determining the ACL involves significant judgments and assumptions. Macroeconomic forecasts provided by a third party and the economic indices sourced are significant judgments used in determining the allowance. Changes in these economic forecasts could significantly affect the ACL and lead to materially different amounts from one period to the next. Additionally, prepayment assumptions impact model output. Further, Busey completes a quarterly evaluation of several qualitative factors to determine if there should be adjustments made to the ACL. These factors include economic conditions, collateral, concentrations, delinquency trends, portfolio composition, underwriting, and certain other risks. Significant downturns relating to loan quality and economic conditions could result in a requirement for an additional allowance. Likewise, an upturn in loan quality and improved economic conditions may allow for a reduction in the required allowance. Because of the nature of the judgments and assumptions made by management, actual results may differ from these judgments and assumptions.

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RESULTS OF OPERATIONS — THREE YEARS ENDED DECEMBER 31, 2024

Net Income

Results of Busey’s operations are presented below, segregated by operating segment (dollars in thousands):

Operating Performance Metrics

Operating performance metrics presented in the table below have been derived from information used by management to monitor and manage Busey’s financial performance (dollars in thousands, except per share amounts):

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1.See “Item 1. Business—Non-GAAP Financial Information.”

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Non-Operating Expenses and Non-GAAP Measures

Busey views certain non-operating items, such as acquisition-related expenses and restructuring charges, as adjustments to net income reported under GAAP. Non-operating pretax adjustments were as follows for the periods presented (dollars in thousands):

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1.Acquisition expenses in 2024 were related to the acquisition of M&M, which was completed on April 1, 2024, as well as the planned merger with CrossFirst. For 2023, acquisition expenses were related to the then planned acquisition of M&M, as well as to exploratory costs. For 2022, acquisition expenses related to the integration of Cummins-American Corp. and its wholly-owned subsidiary, Glenview State Bank, following completion of this acquisition in 2021, as well as to exploratory costs.

2.Restructuring expenses were related to previously disclosed restructuring and efficiency plans and to corporate strategy advisement.

A reconciliation of non-GAAP measures, which Busey believes facilitates the assessment of its financial results and peer comparability, is included in tabular form in this Annual Report. See “Item 1. Business—Non-GAAP Financial Information.”

Net Interest Income

Net interest income is the difference between interest income and fees earned on loans and investments (“interest-earning assets”) and interest expense incurred on deposits and borrowings (“interest-bearing liabilities”). Interest rate levels and volume fluctuations within interest-earning assets and interest-bearing liabilities impact net interest income. Net interest margin is tax-equivalent net interest income as a percent of average interest-earning assets.

Certain assets with tax-favorable treatment are evaluated on a tax-equivalent basis, assuming a federal income tax rate of 21.0%. Tax-favorable assets generally have lower contractual pre-tax yields than fully taxable assets. A tax-equivalent analysis is performed by adding the tax savings to the earnings on tax-favorable assets. After factoring in the tax-favorable effects of these assets, the yields may be more appropriately evaluated against alternative earning assets. In addition to yield, various other risks are factored into the evaluation process.

Consolidated Average Balance Sheets and Interest Rates

The table below presents Busey’s Consolidated Average Balance Sheets, detailing average balances for each major category of assets and liabilities, the interest income earned on interest-earning assets, the interest expense paid for interest-bearing liabilities, and the related interest yields for the periods indicated. Average information is provided on a daily average basis (dollars in thousands):

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1.On a tax-equivalent basis, assuming a federal income tax rate of 21.0%.

2.Non-accrual loans have been included in average portfolio loans.

3.Interest income includes tax-equivalent adjustments of $1.7 million for 2024, $2.2 million for each of 2023 and 2022. Interest income includes an immaterial amount of fees, net of deferred costs, related to Paycheck Protection Program loans for 2024 and 2023, and $1.9 million for 2022.

4.Borrowings include short-term borrowings, long-term debt, senior notes, and subordinated notes. Interest expense includes a non-usage fee on the revolving credit facility.

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The following table presents, for the major components of interest-earning assets and interest-bearing liabilities, a breakout of changes in interest income and interest expense attributable to (1) changes in average volume and (2) changes in average yield. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately, based on changes due to rate and changes due to volume (dollars in thousands):

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Notable changes in average assets and average liabilities are summarized as follows for the periods presented (dollars in thousands):

Changes in net interest income and net interest margin are summarized as follows for the periods presented (dollars in thousands):

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1.Assuming a federal income tax rate of 21.0%.

2.Net interest income expressed as a percentage of average earning assets, stated on a tax-equivalent basis.

After raising federal funds rates by a total of 525 bps between March 2022 and July 2023, the FOMC lowered rates by 100 bps beginning in September 2024. During 2024, in anticipation of the FOMC pivot to an easing cycle, Busey limited its exposure to term funding structures and intentionally priced savings specials to encourage maturing CD balances to migrate to managed rate non-maturity products. Beginning in September 2024 Busey began lowering rates on special priced deposit accounts and other managed rate products to benefit from the FOMC rate cuts. Busey continues to offer CD specials with shorter term structures as well as offering attractive premium savings rates to encourage rotation of maturing CD deposits into nimble pricing products. Beginning in the second quarter of 2024, Busey also saw the full benefit of the December 2023 and March 2024 targeted balance sheet repositioning in its net interest margin.

Net interest spread represents the difference between the average rate earned on earning assets and the average rate paid on interest-bearing liabilities, and is presented in the table below for the periods indicated:

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1.Calculated on a tax-equivalent basis.

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The net interest margin discussion above is based upon the results and average balances for the years ended December 31, 2024, 2023, and 2022. Annualized net interest margins for the quarterly periods indicated were as follows:

Management attempts to mitigate the effects of an unpredictable interest-rate environment through effective portfolio management, prudent loan underwriting and pricing discipline, and operational efficiencies.

Noninterest Income

Changes in noninterest income are summarized in the tables below for the periods presented (dollars in thousands):

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Total noninterest income was $139.7 million for the year ended December 31, 2024, an increase of 15.2% when compared with $121.2 million for the year ended December 31, 2023. Total noninterest income represented 30.2% of total revenue2 in 2024, compared to 27.4% in 2023.

Wealth management fees increased by 11.0% to $63.6 million in 2024, compared to $57.3 million in 2023. Busey’s Wealth Management division had $13.83 billion in assets under care as of December 31, 2024, compared to $12.14 billion as of December 31, 2023. Busey’s portfolio management team continues to focus on long-term returns and managing risk in the face of volatile markets.

Payment technology solutions revenue relates to Busey’s payment processing company, FirsTech. Payment technology solutions revenue increased by 3.7% to $22.0 million in 2024, compared to $21.2 million in 2023. Results for 2024 marked a new record high reported annual revenue for FirsTech.

Combined, revenues from wealth management fees and payment technology solutions represented 61.3% and 64.8% of Busey’s noninterest income for the years ended December 31, 2024, and December 31, 2023, respectively, providing a complement to spread-based revenue from traditional banking activities. On a combined basis, revenue from these two critical operating areas was $85.6 million for the year ended December 31, 2024, a 9.1% increase from $78.5 million for the year ended December 31, 2023.

Fees for customer services increased by 6.5% to $30.9 million in 2024, compared to $29.0 million in 2023.

Mortgage revenue was $2.1 million in 2024, compared to $1.1 million in 2023. Increases were primarily related to sold-loan mortgage volume. General economic conditions and interest rate volatility may impact future mortgage revenue.

Income on bank owned life insurance increased by 9.1% to $5.1 million in 2024, compared to $4.7 million in 2023, resulting from a $0.1 million increase in earnings on death proceeds and a $0.3 million increase in the cash surrender value of the insurance policies.

A realized gain on the sale of mortgage servicing rights of $7.7 million was recognized in connection with Busey’s strategic two-part balance sheet repositioning completed during 2024. Busey sold the mortgage servicing rights on approximately $923.5 million of one- to four-family mortgage loans, which enabled Busey to sell available for sale investment securities with a book value of approximately $108.2 million for a pre-tax loss of $6.8 million with no resulting negative impact to tangible capital.

Other income increased by 42.0% to $14.3 million in 2024, compared to $10.1 million in 2023. Increases in other income were primarily attributable to increases in commercial loan sales gains and venture capital income, as well as the addition of Life Equity Loan® servicing income beginning in the second quarter of 2024.

2 Total revenue consists of net interest income plus noninterest income.

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Noninterest Expense

Changes in noninterest expense are summarized in the tables below for the periods presented (dollars in thousands):

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1.The efficiency ratio and adjusted efficiency ratio are both non-GAAP financial measures. For a reconciliation of non-GAAP financial measure to the most directly comparable GAAP financial measures, see “Item 1. Business—Non-GAAP Financial Information.”

Total noninterest expense increased to $300.4 million for the year ended December 31, 2024, compared to $285.5 million for the year ended December 31, 2023, representing a year-over-year increase of 5.2%. Non-operating acquisition and other restructuring expenses increased to $8.1 million in 2024, compared to $4.3 million in 2023. The remaining increases can be attributed primarily to operating M&M Bank as a stand-alone bank from April 1, 2024, through June 21, 2024, and general inflationary pressures on compensation and benefits and to a lesser extent certain other expense categories. Busey expects to continue to prudently manage its expenses and to realize the full extent of M&M acquisition synergies in 2025.

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Salaries, wages, and employee benefits increased to $175.6 million in 2024, compared to $162.6 million in 2023. Busey’s total associate base consisted of 1,509 full-time equivalents as of December 31, 2024, compared to 1,479 at December 31, 2023, with the increase largely relating to the M&M acquisition. Busey recorded $1.6 million and $3.8 million of non-operating expenses during 2024 and 2023, respectively. Current trends continue to reflect a competitive labor market, maintaining pressure on costs related to attracting and maintaining Busey’s skilled workforce.

Data processing expense increased to $27.1 million in 2024, compared to $23.7 million in 2023. Increases were primarily attributable to Company-wide investments in technology enhancements, as well as inflation-driven price increases.

Combined, net occupancy expense of premises and furniture and equipment expenses increased to $25.5 million in 2024, compared to $25.0 million in 2023. Primary cost drivers in these expense categories include lease costs, repairs and maintenance, depreciation expense, real estate taxes, and utilities.

Professional fees increased to $12.8 million in 2024, compared to $7.1 million in 2023. Busey recorded $4.9 million and $0.4 million of non-operating expenses during 2024 and 2023, respectively. The significant increase in non-operating professional fees related primarily to the acquisition of M&M, which was completed in the second quarter of 2024, and the planned merger with CrossFirst, which is expected to be completed in the first quarter of 2025.

Amortization of intangible assets decreased to $10.1 million in 2024, compared to $10.4 million in 2023. Decreases in 2024 were due to the use of an accelerated amortization methodology and were partially offset by the addition of $6.3 million of intangible assets related to the M&M acquisition.

Interchange expense decreased to $6.0 million in 2024, compared to $6.9 million in 2023. Fluctuations in interchange expense relate to payment and volume activity at FirsTech.

FDIC insurance expense decreased to $5.6 million in 2024, compared to $5.7 million in 2023.

Other expense decreased to $37.6 million in 2024, compared to $44.2 million in 2023. In connection with Busey’s adoption of ASU 2023-02 on January 1, 2024, Busey began recording amortization of New Markets Tax Credits as income tax expense instead of other noninterest expense, resulting in decreases in other noninterest expense of $9.0 million for the year ended December 31, 2024. Further changes in other noninterest expense are attributable to multiple items, including the provision for unfunded commitments, sales of other real estate owned, fixed asset impairment, marketing, and business development expenses.

Efficiency Ratio

The efficiency ratio3 is calculated as total noninterest expense, less amortization charges, as a percentage of tax-equivalent net interest income plus noninterest income, less security gains and losses. The efficiency ratio, which is a measure commonly used by management and the banking industry, measures the amount of expense incurred to generate a dollar of revenue. Busey’s efficiency ratio was 61.8% for the year ended December 31, 2024, compared to 61.7% for the year ended December 31, 2023.

Operating costs have been influenced by acquisition expenses and other restructuring costs, and the adjusted efficiency ratio3 was 61.0% for the year ended December 31, 2024, compared to 60.7% for the year ended December 31, 2023.

3 The efficiency ratio and adjusted efficiency ratio are both non-GAAP financial measures. For a reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures, see “Item 1. Business—Non-GAAP Financial Information.”

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Income Taxes

Effective income tax rates, calculated by dividing income taxes by income before taxes, were 25.8%, 20.4%, and 20.7% for the years ended December 31, 2024, 2023, and 2022, respectively. Busey’s effective tax rates increased in 2024 due to the adoption of ASU 2023-02 in January 2024, yet remained lower than the combined federal and state statutory rate of approximately 28.0% due to tax exempt interest income, such as municipal bond interest and bank owned life insurance income.

Busey’s effective income tax rate for the year ended December 31, 2024, includes an estimated one-time deferred tax valuation adjustment of $1.4 million resulting from a change to the Illinois apportionment rate due to recently enacted regulations. These new regulations are expected to lower Busey’s ongoing tax obligation in future periods.

Busey continues to monitor evolving federal and state tax legislation and its potential impact on operations on an ongoing basis. As of December 31, 2024, Busey Bank is under examination by the Florida Department of Revenue for its 2020 to 2022 corporate income tax filings. Further, in February of 2025, Busey received a notice of audit initiation from the Illinois Department of Revenue for M&M’s tax filings for the tax years 2022 and 2023.

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FINANCIAL CONDITION

Balance Sheet

Changes in significant items included on Busey’s Consolidated Balance Sheets are summarized in the table below (dollars in thousands):

Investment Securities

The primary purposes of Busey’s investment securities portfolio are to provide a source of earnings by deploying funds that are not needed to fulfill loan demand, deposit redemptions, or other liquidity purposes; to serve as a tool for interest rate risk positioning; and to provide collateral for pledging purposes against public deposits and repurchase agreements, all while providing a source of liquidity.

Busey considers many factors in determining the composition of its investment portfolio including, but not limited to, credit quality, duration, interest rate risk, liquidity, tax-equivalent yield, regulatory considerations, and overall portfolio allocation. As of December 31, 2024, Busey did not hold general obligation bonds of any single issuer, the aggregate of which exceeded 10% of Busey’s stockholders’ equity.

Pledged securities totaled $871.4 million, or 33.0% of total debt securities, as of December 31, 2024, and $837.4 million, or 28.3% of total debt securities, as of December 31, 2023.

Debt Securities Available for Sale

Debt securities available for sale are carried at fair value. Net unrealized gains or losses, net of tax, are recorded in stockholders’ equity, through AOCI. As of December 31, 2024, the fair value of debt securities available for sale was $1.81 billion, and the amortized cost was $2.04 billion. There were $0.6 million of gross unrealized gains and $230.3 million of gross unrealized losses, resulting in a net unrealized loss of $229.7 million.

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The composition of debt securities available for sale was as follows (dollars in thousands):

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By maturity date, fair values and weighted average yields of debt securities available for sale as of December 31, 2024, are presented in the following table (dollars in thousands):

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1.Securities are presented based upon final contractual maturity or pre-refunded date.

2.Weighted average yield calculated on a tax-equivalent basis, assuming a federal income tax rate of 21.0%.

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Debt Securities Held to Maturity

Debt securities held to maturity are carried at amortized cost. Unrecognized losses are included in OCI and amortized into income over the contractual lives of the securities. An ACL balance will be established for debt securities held to maturity when applicable. No ACL was recorded for Busey’s portfolio of debt securities held to maturity as of December 31, 2024 or 2023.

As of December 31, 2024, the amortized cost of debt securities held to maturity was $826.6 million, and the fair value was $675.1 million. There were no gross unrecognized gains and $151.6 million of gross unrecognized losses.

The composition of debt securities held to maturity was as follows (dollars in thousands):

By maturity date, fair values and weighted average yields of debt securities held to maturity as of December 31, 2024, are presented in the following table (dollars in thousands):

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1.Securities are presented based upon final contractual maturity or pre-refunded date.

Equity Securities

Equity securities are carried at fair value. The fair value of equity securities was $15.9 million as of December 31, 2024, compared to $9.8 million as of December 31, 2023.

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Portfolio Loans

Busey believes 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. M&M’s policies were similar in nature to Busey Bank’s policies, and Busey is in the process of migrating the legacy M&M portfolio toward Busey Bank’s policies. While not specifically limited, Busey attempts to focus its lending on short to intermediate-term loans (0-10 years) in geographic areas within 125 miles of its lending offices. Loans originated outside of these areas are generally to existing customers of Busey Bank. Busey attempts 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. Busey’s 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.

At no time is a borrower’s total borrowing relationship permitted to exceed Busey Bank’s regulatory lending limit. Busey generally limits 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 Busey’s loan policy on a periodic basis. In addition, the loan review department reviews risk assessments made by Busey’s 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 can be summarized into five primary lending activities, which can be further categorized as either commercial or retail lending. Commercial lending activities consist of C&I and other commercial loans, CRE loans, and real estate construction loans while retail lending activities consist of retail real estate loans and retail other loans.

C&I and Other Commercial Loans

C&I and other commercial loans typically comprise working capital loans or business expansion loans, including loans for asset purchases and other business loans. C&I and other commercial loans will generally be guaranteed, in full or a material percentage, by the primary owners of the business. C&I and other 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 C&I and other commercial loan types.

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Commercial Real Estate Loans

The commercial environment, along with the academic presence in some of the markets in which Busey operates, provides for the majority of Busey’s commercial lending opportunities to be CRE related, including multi-unit housing. As the majority of Busey’s loan portfolio is within the CRE class, Busey’s goal is to maintain a high quality, geographically diverse portfolio of CRE loans. CRE loans are subject to underwriting standards and guidelines similar to commercial loans. CRE 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, CRE 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 Busey closely monitors.

Real Estate Construction Loans

Real estate construction loans are primarily commercial in nature. Loan proceeds are monitored by Busey and advanced for the improvement of real estate in which Busey holds 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 2024, Busey retained a smaller percentage of originated retail real estate loans in its portfolio, electing to sell a larger percentage to secondary market purchasers. As retail real estate loan underwriting is subject to specific regulations, Busey typically underwrites 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 Busey’s loan portfolio as of the dates indicated, as well as changes in portfolio loan balances, were as follows (dollars in thousands):

Portfolio loan growth in 2024 was due to the M&M acquisition. As has been Busey’s practice, the Company remains steadfast in its conservative approach to underwriting and disciplined approach to pricing, particularly given Busey’s outlook for the economy in the coming quarters. This posture will continue to impact loan growth, which Busey expects to remain modest over the next several quarters.

Concentration of Credit Risk

As a matter of policy and practice, Busey limits the level of concentration exposure in any particular loan segment with the goal of maintaining a well-diversified loan portfolio. The following table presents the percentage of total portfolio loans for each lending activity.

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A significant majority of Busey’s portfolio lending activity occurs in the Illinois and Missouri markets, with the remainder in the Florida and Indiana markets. The geographic distribution of loans originated in each of these markets is presented in the tables below (dollars in thousands):

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CRE loans made up 42.5% of Busey’s total loan portfolio as of December 31, 2024, and were 27.9% owner occupied. CRE 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.

Loan Commitments

Commitments to extend credit and standby letters of credit increased by $371.7 million, or 17.1%, to a total of $2.55 billion as of December 31, 2024, compared to $2.18 billion as of December 31, 2023.

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 the remaining maturities of portfolio loans at December 31, 2024, (dollars in thousands):

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Interest Rate Structure

Portfolio loans maturing after one year are summarized below by interest rate structure and lending activity, as of December 31, 2024, (dollars in thousands):

Allowance and Provision for Credit Losses

The ACL is a significant estimate on Busey’s Consolidated Financial Statements, affecting both earnings and capital. The methodology adopted influences, and is influenced by, Busey’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. 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):

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The following table summarizes, by lending activity, net charge-off and recovery activity affecting the ACL balance, together with average portfolio loans outstanding and the related ratios of net charge-offs (recoveries) to average portfolio loans (dollars in thousands):

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1.The Day 1 PCD is attributable to the M&M 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):

Busey did not record an allowance for credit loss for its Life Equity Loan® portfolio, a component of its retail other lending activity, due to no expected credit loss at default, as permitted under the practical expedient provided within ASC 326-20-35-6. The Life Equity Loan® portfolio balance was $264.2 million as of December 31, 2024.

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, 2024, Busey management believed the level of the allowance to be appropriate based upon the information available. However, additional losses may be identified in the 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 Busey’s interest in the underlying collateral less estimated costs to sell. Busey’s 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 Busey’s operating mandate and focus have been on emphasizing credit quality over asset growth.

Non-performing loan balances increased by 197.30% to $23.2 million as of December 31, 2024, compared to $7.8 million as of December 31, 2023. The increase was primarily related to one CRE loan that was classified in the fourth quarter of 2023 and was moved to non-accrual during the fourth quarter of 2024. This loan carries a remaining balance of $15.0 million following a $3.0 million charge-off in the fourth quarter of 2024. Non-performing loans represented 0.30% of portfolio loans as of December 31, 2024, compared to 0.10% as of December 31, 2023. Busey’s ACL coverage decreased to 3.59 times its non-performing loan balance at December 31, 2024, compared to 11.74 times its non-performing loan balance at December 31, 2023.

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Non-performing assets, which includes non-performing loans, OREO, and other repossessed assets, increased by 193.41% to $23.3 million as of December 31, 2024, compared to $7.9 million as of December 31, 2023. Non-performing assets represented 0.19% of total assets as of December 31, 2024, compared to 0.06% as of December 31, 2023. Busey’s ACL provided coverage of 3.58 times its non-performing assets at December 31, 2024, down from 11.55 times its non-performing assets at December 31, 2023.

Classified assets, which include non-performing assets and substandard loans, increased to $85.3 million as of December 31, 2024, compared to $72.3 million as of December 31, 2023. Classified assets represented 5.61% of Busey Bank’s Tier 1 capital and ACL at December 31, 2024, up from 4.97% at December 31, 2023.

Net charge-offs totaled $18.2 million in 2024, representing 0.23% of average loans, compared with net charge-offs of $2.3 million in 2023, representing 0.03% of average loans. Increases in net charge-offs during the year ended December 31, 2024, were significantly attributable to a single C&I credit relationship and the CRE loan relationship mentioned above.

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, Busey would expect the credit quality of its 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, 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 $62.0 million at December 31, 2024, compared to $64.3 million at December 31, 2023. Management continues to monitor these loans and work with the borrowers on restructurings, guarantees, additional collateral, or other planned actions. As of December 31, 2024, 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.

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Deposits

The following table shows the deposit mix for each of the periods presented (dollars in thousands):

Total deposits decreased by 3.0% to $9.98 billion as of December 31, 2024, compared to $10.29 billion as of December 31, 2023. The quality of Busey’s core deposit4 franchise coupled with cash flows from its securities portfolio allows Busey to fund loan growth while limiting its reliance on higher cost wholesale funding alternatives. Busey focuses on deepening its customer relationships to maintain and protect its strong core deposit franchise. As of December 31, 2024, Busey average customer tenure was 16.9 years for retail customers and 12.8 years for commercial customers. Core deposits include non-brokered transaction accounts, money market and savings deposit accounts, and time deposits of $250,000 or less. Core deposits represented 96.5% of total deposits as of December 31, 2024, compared to 96.2% as of December 31, 2023.

Deposits are federally insured up to the FDIC insurance limit of $250,000. When a portion of a deposit account exceeds the FDIC insurance limit, that portion is uninsured. Estimated uninsured deposits were $3.78 billion at December 31, 2024. The portion of Busey’s deposit base that was uninsured and not otherwise collateralized was estimated to be $2.96 billion at December 31, 2024, which represented 30% of total deposits. Of that amount, $286.4 million represented time deposits. The following table presents estimates of the uninsured portion of time deposits by maturity date (dollars in thousands):

4 Core deposits is a non-GAAP financial measure. For a reconciliation of non-GAAP measures to the most directly comparable GAAP financial measures, see “Item 1. Business—Non-GAAP Financial Information” included in this Annual Report.

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Borrowings

Term Loan

On May 28, 2021, Busey entered into a Second Amended and Restated Credit Agreement, pursuant to which it has access to (1) a $40.0 million revolving line of credit with an initial termination date of April 30, 2022, and (2) a $60.0 million Term Loan with a maturity date of May 31, 2026. The loans had an annual interest rate of 1.75% plus the one-month LIBOR rate. On April 30, 2022, the agreement was amended, effecting an extension of the termination date for the revolving line of credit to April 30, 2023, and providing for the transition from a LIBOR-indexed interest rate to a SOFR-indexed interest rate. Under the terms of the amendment, the annual interest rate for the loans was established at 1.80% plus the one-month forward-looking term rate based on SOFR. The agreement has subsequently been amended twice to extend the termination date for the revolving line of credit, which is currently April 30, 2025.

During the first quarter of 2024, Busey paid the full $30.0 million balance remaining on the Term Loan, at which time the Term Loan carried interest at a rate of 7.13%. As of December 31, 2024, there was no balance outstanding on the revolving credit facility. The revolving credit facility incurs a non-usage fee based on any undrawn amounts.

Short-term Borrowings and Securities Sold Under Agreements to Repurchase

Short-term borrowings include FHLB advances that mature in less than one year from the date of origination, and the current portion of long-term debt due within 12 months. Securities sold under agreements to repurchase, which are classified as secured borrowings, generally mature daily.

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The following table sets forth the distribution of short-term borrowings and securities sold under agreements to repurchase, as well as the weighted average interest rates thereon (dollars in thousands):

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1.The weighted average interest rate is computed by dividing total interest for the period by the average daily balance outstanding.

Subordinated Notes

On June 1, 2020, Busey issued $125.0 million of fixed-to-floating rate subordinated notes that mature on June 1, 2030. The subordinated notes, which qualify as Tier 2 capital for regulatory purposes, bear interest at an annual rate of 5.25% for the first five years after issuance and thereafter bear interest at a floating rate equal to a three-month benchmark rate plus a spread of 5.11%, as calculated on each applicable determination date. Interest on the subordinated notes is payable semi-annually on each June 1 and December 1 during the five-year fixed-term, and thereafter on March 1, June 1, September 1, and December 1 of each year, commencing on September 1, 2025. The subordinated notes have an optional redemption in whole or in part on any interest payment date on or after June 1, 2025. The subordinated notes are unsecured obligations of the Company.

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On June 2, 2022, Busey issued $100.0 million aggregate principal amount of 5.000% fixed-to-floating rate subordinated notes maturing June 15, 2032, which qualify as Tier 2 Capital for regulatory purposes. The price to the public for the subordinated notes was 100% of the principal amount of the subordinated notes. Interest on the subordinated notes accrues at a rate equal to (1) 5.000% per annum from the original issue date to, but excluding, June 15, 2027, payable semiannually in arrears, and (2) a floating rate per annum equal to a benchmark rate, which is expected to be the Three-Month Term SOFR (as defined in the subordinated notes), plus a spread of 252 bps from and including June 15, 2027, payable quarterly in arrears. The subordinated notes have an optional redemption in whole or in part on any interest payment date on or after June 15, 2027.

Associated with the M&M acquisition completed on April 1, 2024 (see “Note 2. Mergers and Acquisitions”), Busey acquired $4.0 million of 5.25% fixed-to-floating rate subordinated notes maturing December 4, 2030, which qualify as Tier 2 capital for regulatory purposes. Interest on the subordinated notes accrues at a rate equal to (1) 5.25% per annum from the original issue date to December 4, 2025, and (2) a floating rate per annum equal to a benchmark rate, which is expected to be the Three-Month Term SOFR (as defined in the subordinated notes), plus a spread of 497 bps from December 4, 2025. The subordinated notes have an optional redemption, in whole or in part, on or after December 4, 2025. At December 31, 2024, there was $0.1 million of fair value discount outstanding, to be accreted through the earliest optional redemption date.

Unamortized debt issuance costs related to subordinated notes are presented in the following table (dollars in thousands):

Junior Subordinated Debt Owed to Unconsolidated Trusts

Busey maintains statutory trusts for the sole purpose of issuing and servicing trust preferred securities and related trust common securities. Proceeds from such issuances were used by the trusts to purchase junior subordinated notes of Busey, which are the sole assets of each trust. Concurrent with the issuance of the trust preferred securities, Busey issued guarantees for the benefit of the holders of the trust preferred securities. The trust preferred securities are instruments that qualify, and are treated, as Tier 1 regulatory capital. Busey owns all of the common securities of each trust. The trust preferred securities issued by each trust rank equally with the common securities in right of payment, except that if an event of default under the indenture governing the notes has occurred and is continuing, the preferred securities will rank senior to the common securities in right of payment. Busey had $74.8 million and $72.0 million of junior subordinated debt owed to unconsolidated trusts at December 31, 2024, and 2023, respectively. In connection with its acquisitions of Pulaski Financial Corp. in 2016 and M&M in 2024, Busey has acquired similar statutory trusts and the fair value adjustment is being accreted over their weighted average remaining lives, with a balance remaining to be accreted of $2.9 million and $2.6 million at December 31, 2024, and 2023, respectively.

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Liquidity

Liquidity management is the process by which Busey ensures that adequate liquid funds are available to meet the present and future cash flow obligations arising in the daily operations of its business. These financial obligations consist of needs for funds to meet commitments to borrowers for extensions of credit, fund capital expenditures, honor withdrawals by customers, pay dividends to stockholders, and pay operating expenses. Busey’s most liquid assets are cash and due from banks, interest-bearing bank deposits, and federal funds sold. Balances of these assets are dependent on Busey’s operating, investing, lending, and financing activities during any given period.

Average liquid assets are summarized in the table below (dollars in thousands):

Cash and unencumbered securities on Busey’s Consolidated Balance Sheets are summarized as follows for the periods presented (dollars in thousands):

Busey’s primary sources of funds consist of deposits, investment maturities and sales, loan principal repayments, and capital funds. Additional liquidity is provided by the ability to borrow from the FHLB, the Federal Reserve Bank, and Busey’s revolving credit facility, as summarized in the table below (dollars in thousands):

Further, Busey could utilize brokered deposits as additional sources of liquidity, as needed.

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As of December 31, 2024, management believed that adequate liquidity existed to meet all projected cash flow obligations. Busey seeks to achieve a satisfactory degree of liquidity by actively managing both assets and liabilities. Asset management guides the proportion of liquid assets to total assets, while liability management monitors future funding requirements and prices liabilities accordingly.

Busey’s ability to pay cash dividends to its stockholders and to service its debt is dependent on the receipt of cash dividends from its subsidiaries. Busey Bank paid dividends to First Busey Corporation totaling $100.0 million and $90.0 million for the years ended December 31, 2024, and 2023, respectively.

Off-Balance-Sheet Arrangements

Busey Bank routinely enters into commitments to extend credit and standby letters of credit in the normal course of business to meet the financing needs of its customers. The balance of commitments to extend credit represents future cash requirements and some of these commitments may expire without being drawn upon.

The following table summarizes Busey’s outstanding commitments and reserves for unfunded commitments (dollars in thousands):

The following table summarizes Busey’s provision for unfunded commitments expenses (releases) for the periods presented (dollars in thousands):

Busey anticipates that it will have sufficient funds available to meet current loan commitments, including loan applications received and in process prior to the issuance of firm commitments.

Contractual Obligations

Busey has entered into certain contractual obligations and other commitments that generally relate to funding of operations through deposits, debt issuance, and property and equipment leases.

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The following table summarizes significant contractual obligations and other commitments, excluding, when applicable, short-term borrowings and the current portion of long-term debt, as of December 31, 2024, (dollars in thousands):