FIRST BUSEY CORP NV

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

Busey’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.

Uncertainty regarding economic conditions may result in changes in consumer and business spending, borrowing, and savings habits. Downturns in the markets where our banking operations occur could result in a decrease in demand for our 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. Such conditions could adversely affect the credit quality of our loans, financial condition, and results of operations.

Busey currently conducts its banking operations in central and suburban Chicago, Illinois; the St. Louis, Missouri metropolitan area; central Indiana; and southwest Florida. Busey operates in markets with a significant university and healthcare presence. These industries rely heavily on state and federal funding and contracts. Timely payments by the State of Illinois to its vendors and government-sponsored entities, as well as potential federal changes to healthcare laws, could affect Busey’s primary market areas, which could in turn affect its financial condition and results of operations. A small part of Busey’s business resides in Florida, which can be affected by inclement weather.

While high market volatility is not expected, managing “higher for longer” interest rates can put pressure on Busey’s deposit rates and liquidity.

Prolonged periods of high-interest rates pose several risks to Busey. Offering higher interest rates to attract deposits elevates the cost of funding. Concurrently, Busey may experience increased interest expenses on its borrowings and debt. Moreover, high-interest rates can deter borrowing and spending, potentially reducing demand for loans and impacting liquidity. In such an environment, heightened competition for deposits may necessitate maintaining competitive interest rates to retain and attract customers. Interest rates are sensitive to many factors beyond

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Busey’s control, including general economic conditions and policies of various governmental and regulatory agencies, such as the FOMC.

In March 2022, the Federal Reserve initiated a series of interest rate hikes to combat inflation. After 11 successive increases, as of December 2023, the fed funds target range stood at 5.25% - 5.5%, reaching its highest level since 2001. Throughout 2023, the health of the U.S. economy improved, surpassing expectations and reducing likelihood of a recession. Despite recent positive economic indicators, certain risks persist, including record-high U.S. credit card debt and increasing delinquencies in mortgages, auto loans, and credit cards. In December 2023, the FOMC projected U.S. GDP growth to slow to 1.4% in 2024. The Federal Reserve aims for a soft landing by maintaining its 2023 plan into 2024, hoping that sustained elevated interest rates will cool the economy and alleviate inflationary pressures. These effects, combined with other considerations, could have a material impact on our business, financial condition, liquidity, and results of operations.

In the context of the multifaceted factors influencing the U.S. economy, uncertainties loom over the persistence of inflation, exacerbated by geopolitical tensions such as the Russia-Ukraine and Israel-Hamas conflicts. Additionally, unforeseen disruptions in the global energy market and challenges in the tight labor market and supply chain add to the complexity. Earlier in the year, there was a substantial risk that central banks, including the Federal Reserve, might raise interest rates excessively, potentially constraining economic growth and triggering a recession. However, as inflation decelerated throughout the year and market data hinted at easing housing price pressures, there is potential for a positive impact on loan demand.

Ongoing monetary policy, including the persistence of elevated interest rates, significantly impacts not only the interest earned from loans and investment securities, as well as the interest paid on deposits and borrowings, but also influences Busey's ability to originate loans and attract deposits, and the fair value of its financial assets and liabilities. As interest rates remain elevated, intensified competition for deposits may persist, potentially altering Busey’s funding mix and cost of funding. In addition to the aforementioned risks, Busey acknowledges the potential challenges arising from falling interest rates. For example, a decrease in interest rates may adversely affect Busey’s floating rate loan portfolios, leading to a reduction in interest income. Any substantial, unexpected, and prolonged changes in market interest rates, even if they are maintained at a high level, could still have a material adverse effect on Busey’s business, financial condition, and results of operations.

The combination of factors such as changes in interest rates, an adverse credit quality outlook, economic uncertainties, and geopolitical events can contribute to increased fluctuations in market values.

The market value of investments may be affected by factors other than the underlying performance of the servicer of the securities or the mortgages underlying the securities, such as changes in the interest rate environment, negative trends in the residential and commercial real estate markets, ratings downgrades, adverse changes in the business climate, and a lack of liquidity in the secondary market for certain investment securities. On a quarterly basis, we formally evaluate investments and other assets for impairment indicators. Reduction in the value, or impairment of our investment securities, can impact our earnings and common stockholders' equity. Changes in market interest rates can affect the value of these investment securities, with increasing interest rates generally resulting in a reduction of value. Although the reduction in value from temporary increases in market rates does not affect our income until the security is sold, it does result in an unrealized loss recorded in OCI that can reduce our common stockholders’ equity. Further, we may have to record provision expense to establish an allowance for credit losses on our carried at fair value debt securities, and we must periodically test our investment securities for other-than-temporary impairment in value. In assessing whether the value of investment securities is impaired, we consider the length of time and extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability to retain our investment in the security for a period of time sufficient to allow for any anticipated recovery in fair value in the near term.

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Ongoing inflation trends pose potential risks to our business and operational performance.

Elevated inflation poses potential risks to our business and operational performance, impacting consumer purchasing power and necessitating careful consideration of potential effects on various facets of our operations. Successful measures by the Federal Reserve in stabilizing inflation through interest rate hikes could mitigate some of these risks and positively influence loan demand and mitigate challenges to our clients' ability to repay indebtedness. It is also possible that governmental responses to the current inflation environment, such as changes to monetary and fiscal policy that are too strict, or the imposition or threatened imposition of price controls, could adversely affect our business. The duration and severity of the current inflationary period cannot be estimated with precision.