FIRST BUSEY CORP /NV/ 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Contents of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) SCOPE OF DISCUSSION 54 CRITICAL ACCOUNTING ESTIMATES 54 Fair Value of Debt Securities Available for Sale 55 Fair Value of Assets Acquired and Liabilities Assumed in Business Combinations 55 Goodwill 56 Income Taxes 56 Allowance for Credit Losses 56 RESULTS OF OPERATIONS — THREE YEARS ENDED DECEMBER 31, 2023 57 Net Income 57 Operating Performance Metrics 57 Net Interest Income 58 Noninterest Income 62 Noninterest Expense 65 Efficiency Ratio 67 Income Taxes 67 FINANCIAL CONDITION 68 Balance Sheet 68 Investment Securities 69 Portfolio Loans 72 Deposits 82 Borrowings 83 Liquidity 85 Off-Balance-Sheet Arrangements 87 Contractual Obligations 87 Cash Flows 88 Capital Resources 88 NEW ACCOUNTING PRONOUNCEMENTS 88 EFFECTS OF INFLATION 89 First Busey Corporation | 2023 — 53 Table of Contents Contents of Item 7. MD&A SCOPE OF DISCUSSION The following is management’s discussion and analysis of the financial condition as of December 31, 2023, and 2022, and the results of operations for the years ended December 31, 2023, 2022, and 2021, 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 the financial condition and results of operation for 2023 as compared to 2022 can be found below. Comparison of 2022 to 2021 can be found in “ Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations ” of our 2022 Annual Report . BUSEY’S CONSERVATIVE BANKING STRATEGY Busey’s financial strength is built on a long-term conservative operating approach. The quality of our core deposit franchise is a critical value driver of our institution. Since March 31, 2023, our deposit base has grown by $490.0 million, allowing us to reduce our higher cost FHLB borrowings to zero. Busey remains substantially core deposit 1 funded, with robust liquidity and significant market share in the communities we serve. As of December 31, 2023, our loan to deposit ratio was 74.4% and core deposits 1 represented 96.2% of total deposits. Furthermore, we have sufficient on- and off-balance sheet liquidity to manage deposit fluctuations and the liquidity needs of our customers. Our credit performance reflects our highly diversified, conservatively underwritten loan portfolio, which has been originated predominantly to established customers with tenured relationships with our Company. Our approach to lending and our underwriting standards are designed to emphasize relationship banking rather than transactional banking. In addition, as a matter of both policy and practice, we limit 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 our capital base. We strive 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, 2023, our leverage ratio of Tier 1 capital to average assets was 10.1%, our common equity Tier 1 capital to risk weighted assets ratio was 13.1%, and our total capital to risk weighted assets ratio was 17.4%. 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 . 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 difficult, 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 our critical accounting estimates. The following policies could be deemed critical: 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. ” First Busey Corporation | 2023 — 54 Table of Contents Contents of Item 7. MD&A Fair Value of Debt Securities Available for Sale Fair values of debt securities available for sale are measurements from an independent pricing service and are based on observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information, and the security’s terms and conditions, among other things. Different fair value estimates could result from the use of different judgments and estimates to determine the fair values of securities. Realized securities gains or losses are reported in the Consolidated Statements of Income . The cost of securities sold is based on the specific identification method. A debt security available for sale is impaired if the fair value of the security declines below its amortized cost basis. To determine the appropriate accounting, we must first determine if we intend to sell the security or if it is more likely than not that we will be required to sell the security before the fair value increases to at least the amortized cost basis. If either of those selling events is expected, we will write down the amortized cost basis of the security to its fair value. This is achieved by writing off any previously recorded allowance related to the debt security, if applicable, and recognizing any incremental impairment through earnings. If we do not intend to sell the security, nor believe it more likely than not that we will be required to sell the security before the fair value recovers to the amortized cost basis, we must determine whether any of the decline in fair value has resulted from a credit loss, or if it is entirely the result of noncredit factors. We consider the following factors in assessing whether the decline is due to a credit loss: • Extent to which the fair value is less than the amortized cost basis; • Adverse conditions specifically related to the security, an industry, or a geographic area (for example, changes in the financial condition of the issuer of the security, or in the case of an asset-backed debt security, in the financial condition of the underlying loan obligors); • Payment structure of the debt security and the likelihood of the issuer being able to make payments that increase in the future; • Failure of the issuer of the security to make scheduled interest or principal payments; and • Any changes to the rating of the security by a rating agency. Impairment related to a credit loss must be measured using the discounted cash flow method. Credit loss recognition is limited to the fair value of the security. Impairment is recognized by establishing an allowance for the debt security through the provision for credit losses. Impairment related to noncredit factors is recognized in AOCI, net of applicable taxes. 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.” First Busey Corporation | 2023 — 55 Table of Contents Contents of Item 7. MD&A 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 in 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. Determining the fair value often involves estimates based on third-party valuations, such as appraisals, or internal valuations based on discounted cash flow analyses or other valuation techniques. Goodwill is not amortized, instead, we assess the potential for impairment on an annual basis or more frequently if events and circumstances indicate that goodwill might be impaired. Income Taxes Busey estimates income tax expense based on amounts expected to be owed to federal and state tax jurisdictions. Estimated income tax expense is reported in the Consolidated Statements of Income . Accrued and deferred taxes, as reported in other assets or other liabilities in the Consolidated Balance Sheets , represent the net estimated amount due to or to be received from taxing jurisdictions either currently or in the future. Management judgment is involved in estimating accrued and deferred taxes, as it may be necessary to evaluate the risks and merits of the tax treatment of transactions, filing positions, and taxable income calculations after considering tax-related statutes, regulations, and other relevant factors. Because of the complexity of tax laws and interpretations, interpretation is subject to judgment. Allowance for Credit Losses Busey calculates the ACL at each reporting date. We recognize an allowance for the lifetime expected credit losses for the amount we do 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, we may conclude a loan should be evaluated on an individual basis based on the 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 by management. Because of the nature of the judgments and assumptions made by management, actual results may differ from these judgments and assumptions. First Busey Corporation | 2023 — 56 Table of Contents Contents of Item 7. MD&A RESULTS OF OPERATIONS — THREE YEARS ENDED DECEMBER 31, 2023 Net Income Results of our operations are presented below, segregated by operating segment (dollars in thousands) : Years Ended December 31, 2023 2022 2021 Net income by operating segment Banking $ 123,853 $ 131,596 $ 117,844 Wealth Management 18,804 18,543 18,570 FirsTech 830 847 1,527 Other (20,922) (22,675) (14,492) Net income $ 122,565 $ 128,311 $ 123,449 Operating Performance Metrics Operating performance metrics presented in the table below have been derived from information used by management to monitor and manage our financial performance (dollars in thousands, except per share amounts) : Years Ended December 31, 2023 2022 2021 Reported: Net income $ 122,565 $ 128,311 $ 123,449 Adjusted: Net income 1 126,012 131,910 137,108 Reported: Diluted earnings per common share $ 2.18 $ 2.29 $ 2.20 Adjusted: Diluted earnings per common share 1 2.24 2.35 2.45 Reported: Return on average assets 1.00 % 1.03 % 1.04 % Adjusted: Return on average assets 1 1.03 % 1.06 % 1.15 % Reported: Return on average tangible common equity 1 14.62 % 15.56 % 12.96 % Adjusted: Return on average tangible common equity 1 15.03 % 15.99 % 14.40 % Reported: Pre-provision net revenue 1 $ 158,502 $ 168,493 $ 138,652 Adjusted: Pre-provision net revenue 1 172,290 179,424 160,792 Reported: Pre-provision net revenue to average assets 1 1.29 % 1.35 % 1.16 % Adjusted: Pre-provision net revenue to average assets 1 1.41 % 1.44 % 1.35 % ___________________________________________ 1. See “ Item 1. Business—Non-GAAP Financial Information .” First Busey Corporation | 2023 — 57 Table of Contents Contents of Item 7. MD&A Non-Operating Expenses and Non-GAAP Measures Busey views certain non-operating items, including acquisition-related 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) : Years Ended December 31, 2023 2022 2021 Non-operating costs Acquisition related expenses 1 $ 357 $ 1,059 $ 13,646 Restructuring charges 2 3,971 3,478 3,705 Total non-operating costs $ 4,328 $ 4,537 $ 17,351 ___________________________________________ 1. Acquisition expenses related to completed acquisitions, exploratory due diligence, and for 2023 the planned merger with M&M. 2. Restructuring charges related to previously disclosed restructuring and efficiency plans. A reconciliation of non-GAAP measures, which we believe facilitate the assessment of our 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 our 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) : First Busey Corporation | 2023 — 58 Table of Contents Contents of Item 7. MD&A Years Ended December 31, 2023 2022 2021 Average Balance Income/ Expense Yield/ Rate Average Balance Income/ Expense Yield/ Rate Average Balance Income/ Expense Yield/ Rate Assets Interest-bearing bank deposits and federal funds sold $ 214,422 $ 10,531 4.91 % $ 290,875 $ 3,097 1.06 % $ 630,687 $ 1,151 0.18 % Investment securities: U.S. Government obligations 79,669 578 0.73 % 179,557 1,079 0.60 % 180,041 1,692 0.94 % Obligations of states and political subdivisions 1 233,377 6,560 2.81 % 286,220 7,611 2.66 % 299,064 7,694 2.57 % Other securities 2,875,769 76,568 2.66 % 3,265,271 61,591 1.89 % 2,876,714 37,166 1.29 % Loans held for sale 1,885 116 6.13 % 5,178 192 3.71 % 21,803 506 2.32 % Portfolio loans 1, 2 7,759,472 387,193 4.99 % 7,445,962 288,615 3.88 % 6,969,807 252,946 3.63 % Total interest-earning assets 1, 3 11,164,594 $ 481,546 4.31 % 11,473,063 $ 362,185 3.16 % 10,978,116 $ 301,155 2.74 % Cash and due from banks 116,530 120,910 133,711 Premises and equipment 124,565 131,657 138,731 ACL (92,991) (89,387) (97,397) Other assets 933,520 856,705 751,774 Total assets $ 12,246,218 $ 12,492,948 $ 11,904,935 Liabilities and stockholders’ equity Interest-bearing transaction deposits $ 2,775,045 $ 43,268 1.56 % $ 2,785,439 $ 7,150 0.26 % $ 2,619,942 $ 1,922 0.07 % Savings and money market deposits 2,870,397 37,038 1.29 % 3,326,259 4,237 0.13 % 3,092,992 2,817 0.09 % Time deposits 1,406,928 43,679 3.10 % 846,738 4,725 0.56 % 1,040,709 7,844 0.75 % Federal funds purchased and repurchase agreements 200,894 5,203 2.59 % 244,004 1,475 0.60 % 218,454 227 0.10 % Borrowings 4 500,301 26,881 5.37 % 309,175 15,932 5.15 % 268,767 12,452 4.63 % Junior subordinated debt issued to unconsolidated trusts 71,894 3,853 5.36 % 71,716 3,029 4.22 % 71,545 2,840 3.97 % Total interest-bearing liabilities 7,825,459 $ 159,922 2.04 % 7,583,331 $ 36,548 0.48 % 7,312,409 $ 28,102 0.38 % Net interest spread 1 2.27 % 2.68 % 2.36 % Noninterest-bearing deposits 3,018,563 3,550,517 3,142,155 Other liabilities 204,685 163,929 125,509 Stockholders’ equity 1,197,511 1,195,171 1,324,862 Total liabilities and stockholders’ equity $ 12,246,218 $ 12,492,948 $ 11,904,935 Interest income / earning assets 1, 3 $ 11,164,594 $ 481,546 4.31 % $ 11,473,063 $ 362,185 3.16 % $ 10,978,116 $ 301,155 2.74 % Interest expense / earning assets 11,164,594 159,922 1.43 % 11,473,063 36,548 0.32 % 10,978,116 28,102 0.25 % Net interest margin 1 $ 321,624 2.88 % $ 325,637 2.84 % $ 273,053 2.49 % ___________________________________________ 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 $2.2 million for 2023, $2.2 million for 2022, and $2.4 million for 2021. Interest income includes an immaterial amount of fees, net of deferred costs, related to PPP loans for 2023, $1.9 million for 2022, and $14.0 million for 2021. 4. Borrowings include short-term borrowings, long-term debt, senior notes, and subordinated notes. Interest expense includes a non-usage fee on our revolving credit facility. First Busey Corporation | 2023 — 59 Table of Contents Contents of Item 7. MD&A 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) : Years Ended December 31, 2023 vs. 2022 Change Due To 2022 vs. 2021 Change Due To Average Volume Average Yield/Rate Total Change Average Volume Average Yield/Rate Total Change Increase (decrease) in interest income Interest-bearing bank deposits and federal funds sold $ (1,013) $ 8,447 $ 7,434 $ (921) $ 2,867 $ 1,946 Investment securities: U.S. Government obligations (691) 190 (501) (5) (608) (613) Obligations of state and political subdivisions (1,466) 415 (1,051) (337) 254 (83) Other securities (8,026) 23,003 14,977 5,544 18,881 24,425 Loans held for sale (161) 85 (76) (515) 201 (314) Portfolio loans 12,598 85,980 98,578 17,870 17,799 35,669 Change in interest income 1,241 118,120 119,361 21,636 39,394 61,030 Increase (decrease) in interest expense Interest-bearing transaction deposits (27) 36,145 36,118 129 5,099 5,228 Savings and money market deposits (752) 33,553 32,801 151 1,269 1,420 Time deposits 4,932 34,022 38,954 (1,303) (1,816) (3,119) Federal funds purchased and repurchase agreements (304) 4,032 3,728 30 1,218 1,248 Borrowings 9,485 1,464 10,949 1,611 1,869 3,480 Junior subordinated debt owed to unconsolidated trusts 8 816 824 7 182 189 Change in interest expense 13,342 110,032 123,374 625 7,821 8,446 Increase (decrease) in net interest income $ (12,101) $ 8,088 $ (4,013) $ 21,011 $ 31,573 $ 52,584 Percentage increase (decrease) in net interest income over prior period (1.2) % 19.3 % First Busey Corporation | 2023 — 60 Table of Contents Contents of Item 7. MD&A Notable changes in average assets and average liabilities are summarized as follows for the periods presented (dollars in thousands) : Years Ended December 31, 2023 2022 Change % Change Average interest-earning assets $ 11,164,594 $ 11,473,063 $ (308,469) (2.7) % Average interest-bearing liabilities 7,825,459 7,583,331 242,128 3.2 % Average noninterest-bearing deposits 3,018,563 3,550,517 (531,954) (15.0) % Total average deposits 10,070,933 10,508,953 (438,020) (4.2) % Total average liabilities 11,048,707 11,297,777 (249,070) (2.2) % Average noninterest-bearing deposits as a percent of total average deposits 30.0 % 33.8 % (380) bps Total average deposits as a percent of total average liabilities 91.2 % 93.0 % (180) bps Changes in net interest income and net interest margin are summarized as follows for the periods presented (dollars in thousands) : Years Ended December 31, 2023 2022 Change % Change Net interest income Interest income, on a tax-equivalent basis 1 $ 481,546 $ 362,185 $ 119,361 33.0 % Interest expense (159,922) (36,548) (123,374) (337.6) % Net interest income, on a tax-equivalent basis 1 $ 321,624 $ 325,637 $ (4,013) (1.2) % Net interest margin 1, 2 2.88 % 2.84 % 4 bps ___________________________________________ 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. The FOMC raised rates by a total of 100 basis points during 2023, and by a total of 525 basis points since the onset of the current FOMC tightening cycle that began in the first quarter of 2022. Rising rates initially have a positive impact on net interest margin, as assets, in particular commercial loans, reprice more quickly and to a greater extent than liabilities. As deposit and funding costs increase in response to the tightening rate cycle, and we experience deposit migration into higher cost offerings and funding alternatives, some of the net interest margin expansion is reversed. 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: Years Ended December 31, 2023 2022 2021 Net interest spread 1 2.27 % 2.68 % 2.36 % ___________________________________________ 1. Calculated on a tax-equivalent basis. First Busey Corporation | 2023 — 61 Table of Contents Contents of Item 7. MD&A The net interest margin discussion above is based upon the results and average balances for the years ended December 31, 2023, 2022, and 2021. Annualized net interest margins for the quarterly periods indicated were as follows: 2023 2022 2021 First Quarter 3.13 % 2.45 % 2.72 % Second Quarter 2.86 % 2.68 % 2.50 % Third Quarter 2.80 % 3.00 % 2.41 % Fourth Quarter 2.74 % 3.24 % 2.36 % 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) : Years Ended December 31, 2023 2022 Change % Change Noninterest income Wealth management and payment technology solutions income: Wealth management fees $ 57,309 $ 55,378 $ 1,931 3.5 % Payment technology solutions 21,192 20,067 1,125 5.6 % Combined, wealth management fees and payment technology solutions 78,501 75,445 3,056 4.1 % Fees for customer services 29,044 33,111 (4,067) (12.3) % Mortgage revenue 1,089 1,895 (806) (42.5) % Income on bank owned life insurance 4,701 3,663 1,038 28.3 % Securities income: Realized net gains (losses) on securities (28) 50 (78) (156.0) % Unrealized net gains (losses) recognized on equity securities (2,171) (2,183) 12 0.5 % Net securities gains (losses) (2,199) (2,133) (66) (3.1) % Other income 11,248 14,822 (3,574) (24.1) % Total noninterest income $ 122,384 $ 126,803 $ (4,419) (3.5) % Assets under care as of period end $ 12,136,869 $ 11,061,831 $ 1,075,038 9.7 % First Busey Corporation | 2023 — 62 Table of Contents Contents of Item 7. MD&A Years Ended December 31, 2022 2021 Change % Change Noninterest income Wealth management and payment technology solutions income: Wealth management fees $ 55,378 $ 53,086 $ 2,292 4.3 % Payment technology solutions 20,067 18,347 1,720 9.4 % Combined, wealth management fees and payment technology solutions 75,445 71,433 4,012 5.6 % Fees for customer services 33,111 35,604 (2,493) (7.0) % Mortgage revenue 1,895 7,239 (5,344) (73.8) % Income on bank owned life insurance 3,663 5,166 (1,503) (29.1) % Securities income: Realized net gains (losses) on securities 50 29 21 72.4 % Unrealized net gains (losses) recognized on equity securities (2,183) 3,041 (5,224) (171.8) % Net securities gains (losses) (2,133) 3,070 (5,203) (169.5) % Other income 14,822 10,292 4,530 44.0 % Total noninterest income $ 126,803 $ 132,804 $ (6,001) (4.5) % Assets under care $ 11,061,831 $ 12,731,319 $ (1,669,488) (13.1) % Total noninterest income was $122.4 million for the year ended December 31, 2023, a decrease of 3.5% when compared with $126.8 million for the year ended December 31, 2022. The year-over-year decrease in non-interest income is substantially attributable to Durbin Amendment impacts as described in further detail below. Total noninterest income represented 27.7% of total revenue 2 in 2023, compared to 28.2% in 2022. Combined, revenues from wealth management fees and payment technology solutions represented 64.1% and 59.5% of Busey’s noninterest income for the years ended December 31, 2023, and December 31, 2022, respectively, providing a complement to spread-based revenue from traditional banking activities. On a combined basis, revenue from these two critical operating areas was $78.5 million for the year ended December 31, 2023, a 4.1% increase from $75.4 million for the year ended December 31, 2022. Wealth management fees increased by 3.5% to $57.3 million in 2023, compared to $55.4 million in 2022. Busey’s Wealth Management division had $12.1 billion in assets under care as of December 31, 2023, compared to $11.1 billion as of December 31, 2022. Our 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 our payment processing company, FirsTech. Payment technology solutions revenue increased by 5.6% to $21.2 million in 2023, compared to $20.1 million in 2022. Results for 2023 marked a new record high reported annual revenue for FirsTech. 2 Total revenue consists of net interest income plus noninterest income. First Busey Corporation | 2023 — 63 Table of Contents Contents of Item 7. MD&A Fees for customer services decreased by 12.3% to $29.0 million in 2023, compared to $33.1 million in 2022. Beginning on July 1, 2022, we became subject to the Durbin Amendment, which requires the Federal Reserve to establish a maximum permissible interchange fee for many types of debit transactions. Reduced fee income is primarily attributable to the impact of the Durbin Amendment for all of 2023 versus only half of 2022, as well to modifications implemented to overdraft and non-sufficient funds fee structures. Mortgage revenue was $1.1 million in 2023, compared to $1.9 million in 2022. Decreases primarily resulted from declines in mortgage origination and sold-loan mortgage volume. General economic conditions and interest rate volatility may impact future fee income. Income on bank owned life insurance increased by 28.3% to $4.7 million in 2023, compared to $3.7 million in 2022, resulting from a $0.8 million increase in earnings on death proceeds and a $0.2 million increase in the cash surrender value of the insurance policies. Other income decreased by 24.1% to $11.2 million in 2023, compared to $14.8 million in 2022. Primary contributors to other income include swap origination fees, gains on commercial loans sales, and changes in venture capital investment valuations. First Busey Corporation | 2023 — 64 Table of Contents Contents of Item 7. MD&A Noninterest Expense Changes in noninterest expense are summarized in the tables below for the periods presented (dollars in thousands) : Years Ended December 31, 2023 2022 Change % Change Noninterest expense Salaries, wages, and employee benefits $ 162,597 $ 159,016 $ 3,581 2.3 % Data processing 23,708 21,648 2,060 9.5 % Premises expenses: Net occupancy expense of premises 18,214 19,130 (916) (4.8) % Furniture and equipment expenses 6,759 7,645 (886) (11.6) % Combined, net occupancy expense of premises and furniture and equipment expenses 24,973 26,775 (1,802) (6.7) % Professional fees 7,147 6,125 1,022 16.7 % Amortization of intangible assets 10,432 11,628 (1,196) (10.3) % Interchange expense 6,864 6,298 566 9.0 % FDIC insurance 5,650 4,058 1,592 39.2 % Other expense 44,161 48,333 (4,172) (8.6) % Total noninterest expense $ 285,532 $ 283,881 $ 1,651 0.6 % Income taxes $ 31,339 $ 33,426 $ (2,087) (6.2) % Effective income tax rate 20.4 % 20.7 % (30) bps Efficiency ratio 1 61.7 % 59.9 % 180 bps Adjusted efficiency ratio 1 60.7 % 58.9 % 180 bps Full-time equivalent associates as of period-end 1,479 1,497 (18) (1.2) % ___________________________________________ 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 .” First Busey Corporation | 2023 — 65 Table of Contents Contents of Item 7. MD&A Years Ended December 31, 2022 2021 Change % Change Noninterest expense Salaries, wages, and employee benefits $ 159,016 $ 145,312 $ 13,704 9.4 % Data processing 21,648 21,862 (214) (1.0) % Premises expenses: Net occupancy expense of premises 19,130 18,346 784 4.3 % Furniture and equipment expenses 7,645 8,301 (656) (7.9) % Combined, net occupancy expense of premises and furniture and equipment expenses 26,775 26,647 128 0.5 % Professional fees 6,125 7,549 (1,424) (18.9) % Amortization of intangible assets 11,628 11,274 354 3.1 % Interchange expense 6,298 5,792 506 8.7 % FDIC insurance 4,058 3,083 975 31.6 % Other expense 48,333 40,261 8,072 20.0 % Total noninterest expense $ 283,881 $ 261,780 $ 22,101 8.4 % Income taxes $ 33,426 $ 33,374 $ 52 0.2 % Effective income tax rate 20.7 % 21.3 % (60) bps Efficiency ratio 1 59.9 % 62.2 % (230) bps Adjusted efficiency ratio 1 58.9 % 57.9 % 100 bps Full-time equivalent associates as of period-end 1,497 1,463 34 2.3 % ___________________________________________ 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 $285.5 million for the year ended December 31, 2023, compared to $283.9 million for the year ended December 31, 2022, representing a modest year-over-year increase of 0.6%. Non-operating acquisition and other restructuring expenses decreased to $4.3 million in 2023, compared to $4.5 million in 2022. We have effectively managed our noninterest expense during a time of decades-high inflation, and have been purposeful in our efforts to rationalize our expense base given our economic outlook and our view on the future of banking. Salaries, wages, and employee benefits increased to $162.6 million in 2023, compared to $159.0 million in 2022. Our total associate base consisted of 1,479 full-time equivalents as of December 31, 2023, compared to 1,497 at December 31, 2022. Non-operating costs contributed $0.8 million of the increase in salaries, wages, and employee benefits. Current trends continue to reflect a competitive labor market, maintaining pressure on costs related to attracting and maintaining our skilled workforce. Data processing expense increased to $23.7 million in 2023, compared to $21.6 million in 2022. Increases were primarily attributable to Company-wide investments in technology enhancements, as well as inflation-driven price increases. First Busey Corporation | 2023 — 66 Table of Contents Contents of Item 7. MD&A Combined, net occupancy expense of premises and furniture and equipment expenses decreased to $25.0 million in 2023, compared to $26.8 million in 2022. Decreases were primarily attributable to declines in depreciation expense and real estate taxes. Professional fees increased to $7.1 million in 2023, compared to $6.1 million in 2022. The increase was primarily attributable to higher expenses for audit and accounting fees and payroll services. Amortization of intangible assets decreased to $10.4 million in 2023, compared to $11.6 million in 2022, due to the continued use of an accelerated amortization methodology. Interchange expense increased to $6.9 million in 2023, compared to $6.3 million in 2022. Fluctuations in interchange expense were primarily the result of increased payment and volume activity at FirsTech. FDIC insurance expense increased to $5.7 million in 2023, compared to $4.1 million in 2022. Increases were the result of an FDIC final rule to increase the initial base deposit insurance assessment rate applicable to all depository institutions by two basis points beginning in 2023. Other expense decreased to $44.2 million in 2023, compared to $48.3 million in 2022. Primary contributors to other expense include business development, collection and preservation, OREO, fixed asset impairments, provision for unfunded commitments, and NMTC impairments. Decreases were across multiple expense categories as a result of expense discipline. Efficiency Ratio 3 The efficiency ratio 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. Our efficiency ratio was 61.7% for the year ended December 31, 2023, compared to 59.9% for the year ended December 31, 2022. Operating costs have been influenced by acquisition expenses and other restructuring costs, and the adjusted efficiency ratio 3 was 60.7% for the year ended December 31, 2023, compared to 58.9% for the year ended December 31, 2022. Income Taxes Effective income tax rates, calculated by dividing income taxes by income before taxes, were 20.4%, 20.7%, and 21.3% for the years ended December 31, 2023, 2022, and 2021, respectively. Busey's effective tax rates were 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, and investments in various tax credits. We continue to monitor evolving federal and state tax legislation and its potential impact on operations on an ongoing basis. As of December 31, 2023, we were not under income tax examination by any income tax authority. 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. ” First Busey Corporation | 2023 — 67 Table of Contents Contents of Item 7. MD&A FINANCIAL CONDITION Balance Sheet Changes in significant items included in our Consolidated Balance Sheets are summarized in the table below (dollars in thousands) : As of December 31, 2023 2022 Change % Change Assets Debt securities available for sale $ 2,087,571 $ 2,461,393 $ (373,822) (15.2) % Debt securities held to maturity 872,628 918,312 (45,684) (5.0) % Portfolio loans, net of ACL 7,559,294 7,634,094 (74,800) (1.0) % Total assets 12,283,415 12,336,677 (53,262) (0.4) % Liabilities Deposits: Noninterest-bearing 2,834,655 3,393,666 (559,011) (16.5) % Interest-bearing 7,456,501 6,677,614 778,887 11.7 % Total deposits 10,291,156 10,071,280 219,876 2.2 % Securities sold under agreements to repurchase 187,396 229,806 (42,410) (18.5) % Short-term borrowings 12,000 351,054 (339,054) (96.6) % Subordinated notes, net of unamortized issuance costs 222,882 222,038 844 0.4 % Total liabilities 11,011,434 11,190,700 (179,266) (1.6) % Stockholders’ equity 1,271,981 1,145,977 126,004 11.0 % Busey executed a two-part balance sheet repositioning strategy During the fourth quarter of 2023, Busey sold all 16,878 shares of Visa Class B common stock it previously held (the “Visa Sale”) resulting in a pre-tax gain of approximately $5.5 million, and also executed a balance sheet repositioning of its available-for-sale securities portfolio (the “Repositioning”). Busey sold securities with a carrying value of approximately $110 million yielding 1.56%, resulting in a pre-tax loss of $5.3 million. Proceeds were deposited into an interest-bearing account at the Federal Reserve yielding 5.40%, a higher-yielding lower risk-weighted asset. The increased net interest spread as a result of the Visa Sale and Repositioning is expected to increase net interest income by approximately $4.3 million on an annualized basis and improve Busey’s net interest margin run rate by 4 basis points. In addition, execution of these transactions further bolsters Busey’s liquidity position and balance sheet flexibility, while also strengthening its capital position. Busey anticipates reinvesting the proceeds into higher yielding organic growth opportunities over time. The combined impact of the gain generated from the Visa Sale and the loss generated from the Repositioning will have an immediate positive impact on consolidated stockholders’ equity and book value per share. Risk-based regulatory capital ratios will increase modestly as a result of the Repositioning proceeds rotating into lower risk-weighted assets. Busey expects the above transactions to be accretive to capital and earnings per share in future periods. First Busey Corporation | 2023 — 68 Table of Contents Contents of Item 7. MD&A Investment Securities The primary purposes of our 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. We consider many factors in determining the composition of our 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, 2023, we did not hold general obligation bonds of any single issuer, the aggregate of which exceeded 10% of the Company’s stockholders’ equity. Pledged securities totaled $837.4 million, or 28.3% of total debt securities, as of December 31, 2023, and $746.7 million, or 22.1% of total debt securities, as of December 31, 2022. 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, 2023, the fair value of debt securities available for sale was $2.1 billion, and the amortized cost was $2.3 billion. There were $0.2 million of gross unrealized gains and $247.2 million of gross unrealized losses, resulting in a net unrealized loss of $247.1 million. The composition of debt securities available for sale was as follows (dollars in thousands) : As of December 31, 2023 2022 Debt securities available for sale U.S. Treasury securities $ 15,946 $ 114,061 Obligations of U.S. government corporations and agencies 5,832 19,779 Obligations of states and political subdivisions 172,845 257,512 Asset-backed securities 468,223 469,875 Commercial mortgage-backed securities 103,509 108,394 Residential mortgage-backed securities 1,111,312 1,243,256 Corporate debt securities 209,904 248,516 Debt securities available for sale, fair value $ 2,087,571 $ 2,461,393 Debt securities available for sale, amortized cost $ 2,334,630 $ 2,772,453 Fair value as a percentage of amortized cost 89.42 % 88.78 % First Busey Corporation | 2023 — 69 Table of Contents Contents of Item 7. MD&A By maturity date, fair values and weighted average yields of debt securities available for sale as of December 31, 2023, are presented in the following table (dollars in thousands) : Due in 1 year or less Due after 1 year through 5 years Due after 5 years through 10 years Due after 10 years Fair Value Weighted Average Yield Fair Value Weighted Average Yield Fair Value Weighted Average Yield Fair Value Weighted Average Yield Debt securities available for sale 1 U.S. Treasury securities $ 15,946 0.25 % $ — — % $ — — % $ — — % Obligations of U.S. government corporations and agencies 3,757 2.69 % 1,951 5.16 % 124 7.00 % — — % Obligations of states and political subdivisions 2 20,680 2.82 % 48,028 2.46 % 76,167 2.28 % 27,970 2.65 % Asset-backed securities — — % — — % 158,964 7.06 % 309,259 6.88 % Commercial mortgage-backed securities 4,507 2.62 % 16,982 2.56 % 32,316 2.07 % 49,704 2.32 % Residential mortgage-backed securities 486 2.63 % 13,619 2.66 % 87,161 1.75 % 1,010,046 1.70 % Corporate debt securities 26,053 1.87 % 149,719 1.37 % 34,132 3.87 % — — % Debt securities available for sale $ 71,429 1.88 % $ 230,299 1.79 % $ 388,864 4.24 % $ 1,396,979 2.89 % ___________________________________________ 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%. First Busey Corporation | 2023 — 70 Table of Contents Contents of Item 7. MD&A 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 our portfolio of debt securities held to maturity as of December 31, 2023 or 2022. As of December 31, 2023, the amortized cost of debt securities held to maturity was $872.6 million, and the fair value was $730.4 million. There were no gross unrecognized gains and $142.2 million of gross unrecognized losses. The composition of debt securities held to maturity was as follows (dollars in thousands) : As of December 31, 2023 2022 Debt securities held to maturity Commercial mortgage-backed securities $ 428,526 $ 474,820 Residential mortgage-backed securities 444,102 443,492 Debt securities held to maturity, amortized cost $ 872,628 $ 918,312 Debt securities held to maturity, fair value $ 730,397 $ 785,295 Fair value as a percentage of amortized cost 83.70 % 85.52 % By maturity date, fair values and weighted average yields of debt securities held to maturity as of December 31, 2023, are presented in the following table (dollars in thousands) : Due after 1 year through 5 years Due after 5 years through 10 years Due after 10 years Fair Value Weighted Average Yield Fair Value Weighted Average Yield Fair Value Weighted Average Yield Debt securities held to maturity 1 Commercial mortgage-backed securities $ 69,373 2.23 % $ 25,824 2.20 % $ 262,329 2.43 % Residential mortgage-backed securities — — % — — % 372,871 2.21 % Debt securities held to maturity $ 69,373 2.23 % $ 25,824 2.20 % $ 635,200 2.30 % ___________________________________________ 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 $9.8 million as of December 31, 2023, compared to $11.5 million as of December 31, 2022. First Busey Corporation | 2023 — 71 Table of Contents Contents of Item 7. MD&A Portfolio Loans 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. First Busey Corporation | 2023 — 72 Table of Contents Contents of Item 7. MD&A 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. First Busey Corporation | 2023 — 73 Table of Contents Contents of Item 7. MD&A 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) : As of December 31, 2023 2022 Change % Change Commercial loans Commercial $ 1,835,994 $ 1,974,154 $ (138,160) (7.0) % Commercial real estate 3,337,337 3,261,873 75,464 2.3 % Real estate construction 461,717 530,469 (68,752) (13.0) % Total commercial loans 5,635,048 5,766,496 (131,448) (2.3) % Retail loans Retail real estate 1,720,455 1,657,082 63,373 3.8 % Retail other 295,531 302,124 (6,593) (2.2) % Total retail loans 2,015,986 1,959,206 56,780 2.9 % Total portfolio loans 7,651,034 7,725,702 (74,668) (1.0) % ACL (91,740) (91,608) (132) (0.1) % Portfolio loans, net of ACL $ 7,559,294 $ 7,634,094 $ (74,800) (1.0) % 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) : December 31, 2023 Illinois Missouri Florida Indiana Total Commercial loans Commercial $ 1,395,020 $ 369,767 $ 25,267 $ 45,940 $ 1,835,994 Commercial real estate 2,278,348 671,762 219,511 167,716 3,337,337 Real estate construction 255,879 74,805 72,121 58,912 461,717 Total commercial loans 3,929,247 1,116,334 316,899 272,568 5,635,048 Retail loans Retail real estate 1,284,362 225,610 129,454 81,029 1,720,455 Retail other 290,937 2,344 1,111 1,139 295,531 Total retail loans 1,575,299 227,954 130,565 82,168 2,015,986 Total portfolio loans $ 5,504,546 $ 1,344,288 $ 447,464 $ 354,736 $ 7,651,034 ACL (91,740) Portfolio loans, net of ACL $ 7,559,294 First Busey Corporation | 2023 — 74 Table of Contents Contents of Item 7. MD&A December 31, 2022 Illinois Missouri Florida Indiana Total Commercial loans Commercial $ 1,401,165 $ 466,904 $ 52,925 $ 53,160 $ 1,974,154 Commercial real estate 2,180,767 680,532 220,939 179,635 3,261,873 Real estate construction 326,154 131,782 31,212 41,321 530,469 Total commercial loans 3,908,086 1,279,218 305,076 274,116 5,766,496 Retail loans Retail real estate 1,253,069 210,048 122,397 71,568 1,657,082 Retail other 296,719 2,565 1,788 1,052 302,124 Total retail loans 1,549,788 212,613 124,185 72,620 1,959,206 Total portfolio loans $ 5,457,874 $ 1,491,831 $ 429,261 $ 346,736 $ 7,725,702 ACL (91,608) Portfolio loans, net of ACL $ 7,634,094 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. As of December 31, 2023 Investor Owned Owner Occupied Total % Owner Occupied Commercial Real Estate by Industry Industrial/Warehouse $ 301,464 $ 365,527 $ 666,991 54.8 % Retail 479,521 61,879 541,400 11.4 % Apartments 534,627 — 534,627 — % Traditional Office 257,149 111,612 368,761 30.3 % Specialty 80,047 233,022 313,069 74.4 % Medical Office 153,205 93,930 247,135 38.0 % Student Housing 208,763 — 208,763 — % Hotel 189,184 601 189,785 0.3 % Senior Housing 151,964 — 151,964 — % Restaurant 23,093 46,178 69,271 66.7 % Nursing Homes 24,101 1,498 25,599 5.9 % Health Care 20,000 737 20,737 3.6 % Other 544 200 744 26.8 % Total $ 2,423,662 $ 915,184 $ 3,338,846 27.4 % 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. First Busey Corporation | 2023 — 75 Table of Contents Contents of Item 7. MD&A 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) : Within 1 Year After 1 Year Through 5 Years After 5 Years Through 15 Years After 15 Years Total Portfolio loans Commercial $ 522,304 $ 942,390 $ 337,483 $ 33,817 $ 1,835,994 Commercial real estate 488,151 1,968,765 867,973 12,448 3,337,337 Real estate construction 173,939 212,219 51,941 23,618 461,717 Retail real estate 41,180 139,749 549,397 990,129 1,720,455 Retail other 40,721 191,588 44,581 18,641 295,531 Total portfolio loans $ 1,266,295 $ 3,454,711 $ 1,851,375 $ 1,078,653 $ 7,651,034 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) : Fixed Rate Adjustable Rate Total Portfolio loans maturing after 1 year Commercial $ 745,328 $ 568,362 $ 1,313,690 Commercial real estate 2,130,224 718,962 2,849,186 Real estate construction 116,875 170,903 287,778 Retail real estate 788,759 890,516 1,679,275 Retail other 208,765 46,045 254,810 Total portfolio loans maturing after 1 year $ 3,989,951 $ 2,394,788 $ 6,384,739 First Busey Corporation | 2023 — 76 Table of Contents Contents of Item 7. MD&A 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) : Years Ended December 31, 2023 2022 2021 Provision for credit losses $ 2,399 $ 4,623 $ (15,101) 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. First Busey Corporation | 2023 — 77 Table of Contents Contents of Item 7. MD&A 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) : ACL Average Portfolio Loans Outstanding Ratio of Net Charge-offs (Recoveries) To Average Portfolio Loans ACL balance, December 31, 2020 $ 101,048 Day 1 PCD 1 4,178 Net (charge-offs) recoveries and average portfolio loans by loan category: Commercial (1,397) $ 1,985,511 0.07 % Commercial real estate (666) 2,953,944 0.02 % Real estate construction 89 450,713 (0.02) % Retail real estate (76) 1,446,673 0.01 % Retail other (188) 132,966 0.14 % Net (charge-offs) recoveries and average portfolio loans (2,238) $ 6,969,807 0.03 % Provision for credit losses (15,101) ACL balance, December 31, 2021 87,887 Net (charge-offs) recoveries and average portfolio loans by loan category: Commercial (492) $ 1,919,227 0.03 % Commercial real estate (842) 3,200,166 0.03 % Real estate construction 213 466,045 (0.05) % Retail real estate 385 1,584,859 (0.02) % Retail other (166) 275,665 0.06 % Net (charge-offs) recoveries and average portfolio loans (902) $ 7,445,962 0.01 % Provision for credit losses 4,623 ACL balance, December 31, 2022 91,608 Net (charge-offs) recoveries and average portfolio loans by loan category: Commercial (1,877) $ 1,910,008 0.10 % Commercial real estate (379) 3,316,633 0.01 % Real estate construction 171 536,280 (0.03) % Retail real estate 183 1,689,868 (0.01) % Retail other (365) 306,683 0.12 % Net (charge-offs) recoveries and average portfolio loans (2,267) $ 7,759,472 0.03 % Provision for credit losses 2,399 ACL balance, December 31, 2023 $ 91,740 ___________________________________________ 1. The Day 1 PCD is attributable to the CAC acquisition. First Busey Corporation | 2023 — 78 Table of Contents Contents of Item 7. MD&A 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) : As of December 31, 2023 2022 ACL % of Loans to Total Loans ACL % of Loans to Total Loans Loan Category Commercial $ 21,256 24.0 % $ 23,860 25.6 % Commercial real estate 35,465 43.6 % 38,299 42.2 % Real estate construction 5,163 6.0 % 6,457 6.9 % Retail real estate 26,298 22.5 % 18,193 21.4 % Retail other 3,558 3.9 % 4,799 3.9 % Total $ 91,740 100.0 % $ 91,608 100.0 % 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. First Busey Corporation | 2023 — 79 Table of Contents Contents of Item 7. MD&A The following table sets forth information concerning non-performing loans and performing restructured loans (dollars in thousands) : As of December 31, 2023 2022 Portfolio loans $ 7,651,034 $ 7,725,702 Loans 30 – 89 days past due 5,779 6,548 Total assets 12,283,415 12,336,677 Non-performing assets Non-performing loans: Non-accrual loans $ 7,441 $ 15,067 Loans 90+ days past due and still accruing 375 673 Total non-performing loans 7,816 15,740 OREO and other repossessed assets 125 850 Total non-performing assets 7,941 16,590 Substandard (excludes 90+ days past due) 64,347 90,489 Classified assets $ 72,288 $ 107,079 ACL $ 91,740 $ 91,608 Bank Tier 1 Capital 1,362,962 1,306,716 Ratios ACL to portfolio loans 1.20 % 1.19 % ACL to non-accrual loans 1,232.90 % 608.00 % ACL to non-performing loans 1,173.75 % 582.01 % ACL to non-performing assets 1,155.27 % 552.19 % Non-accrual loans to portfolio loans 0.10 % 0.20 % Non-performing loans to portfolio loans 0.10 % 0.20 % Non-performing assets to total assets 0.06 % 0.13 % Non-performing assets to portfolio loans and OREO and other repossessed assets 0.10 % 0.21 % Classified assets to Bank Tier 1 Capital and ACL 4.97 % 7.66 % 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. First Busey Corporation | 2023 — 80 Table of Contents Contents of Item 7. MD&A 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. First Busey Corporation | 2023 — 81 Table of Contents Contents of Item 7. MD&A Deposits The following table shows the deposit mix for each of the periods presented (dollars in thousands) : As of December 31, 2023 2022 Balance % Total Balance % Total Change % Change Deposits Non-maturity deposits: Noninterest-bearing demand deposits $ 2,834,655 27.5 % $ 3,393,666 33.7 % $ (559,011) (16.5) % Interest-bearing transaction deposits 2,717,139 26.4 % 2,857,818 28.4 % (140,679) (4.9) % Saving deposits and money market deposits 2,920,088 28.4 % 2,964,421 29.4 % (44,333) (1.5) % Total non-maturity deposits 8,471,882 82.3 % 9,215,905 91.5 % (744,023) (8.1) % Time deposits 1,819,274 17.7 % 855,375 8.5 % 963,899 112.7 % Total deposits $ 10,291,156 100.0 % $ 10,071,280 100.0 % $ 219,876 2.2 % Total deposits increased by 2.2% to $10.3 billion as of December 31, 2023, compared to $10.1 billion as of December 31, 2022. Growth in our deposit base coupled with cash flows from our securities portfolio allows us to fund loan growth while limiting our reliance on higher cost wholesale funding alternatives. We focus on deepening our relationship with customers to maintain and protect our strong core deposit 4 franchise, allowing us to reduce our reliance on wholesale funding. As of December 31, 2023, our average customer tenure was 16.5 years for retail customers and 12.4 years for commercial customers. Core deposits 4 include non-brokered transaction accounts, money market deposit accounts, and time deposits of $250,000 or less. Core deposits 4 represented 96.2% of total deposits as of December 31, 2023, compared to 98.8% as of December 31, 2022. 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 $3.8 billion at December 31, 2023. The portion of our deposit base that was uninsured and not otherwise collateralized was estimated to be $2.8 billion at December 31, 2023, which represented 27% of total deposits. Of that amount, $350.1 million represented time deposits. The following table presents estimates of the uninsured portion of time deposits by maturity date (dollars in thousands) : As of December 31, 2023 Estimated uninsured time deposits by schedule of maturities 3 months or less $ 115,498 Over 3 months through 6 months 123,186 Over 6 months through 12 months 88,335 Thereafter 23,059 Uninsured time deposits $ 350,078 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. First Busey Corporation | 2023 — 82 Table of Contents Contents of Item 7. MD&A Borrowings Term Loan On May 28, 2021, Busey entered into a Second Amended and Restated Credit Agreement, pursuant to which we have 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 loans now have an annual interest rate of 1.80% plus the one-month forward-looking term rate based on SOFR. On April 30, 2023, the agreement was further amended to extend the term for the revolving line of credit to April 30, 2024. Proceeds of the Term Loan were used to fund a part of the cash portion of the merger consideration related to the acquisition of CAC in the second quarter of 2021, and for general corporate purposes. The total outstanding balance on the Term Loan was $30.0 million as of December 31, 2023, of which $12.0 million was short-term and $18.0 million was long-term. Quarterly payments on the Term Loan reduce the outstanding principal balance by $3.0 million each quarter. As of December 31, 2023, there was no balance outstanding on the revolving credit facility. The revolving credit facility incurs a non-usage fee based on any undrawn amounts. Securities Sold Under Agreements to Repurchase and Short-term Borrowings Securities sold under agreements to repurchase, which are classified as secured borrowings, generally mature daily. 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. First Busey Corporation | 2023 — 83 Table of Contents Contents of Item 7. MD&A The following table sets forth the distribution of securities sold under agreements to repurchase and short-term borrowings, as well as the weighted average interest rates thereon (dollars in thousands) : Years Ended December 31, 2023 2022 2021 Securities sold under agreements to repurchase Balance at end of period $ 187,396 $ 229,806 $ 270,139 Weighted average interest rate at end of period 3.26 % 1.91 % 0.08 % Maximum outstanding at any month end in year-to-date period $ 248,850 $ 283,664 $ 270,139 Average daily balance for the year-to-date period 200,702 243,690 218,454 Weighted average interest rate during period 1 2.58 % 0.60 % 0.10 % FHLB advances, current portion due within 12 months Balance at end of period $ — $ 339,054 $ 5,678 Weighted average interest rate at end of period — % 4.28 % 0.36 % Maximum outstanding at any month end in year-to-date period $ 603,881 $ 339,054 $ 5,678 Average daily balance for the year-to-date period 241,382 25,845 4,934 Weighted average interest rate during period 1 4.90 % 4.28 % 0.41 % Term Loan, current portion due within 12 months Balance at end of period $ 12,000 $ 12,000 $ 12,000 Weighted average interest rate at end of period 7.14 % 5.92 % 1.88 % Maximum outstanding at any month end in year-to-date period $ 12,000 $ 12,000 $ 12,000 Average daily balance for the year-to-date period 12,000 12,000 7,167 Weighted average interest rate during period 1 6.88 % 3.55 % 1.79 % ___________________________________________ 1. The weighted average interest rate is computed by dividing total interest for the period by the average daily balance outstanding. Senior and Subordinated Notes On May 25, 2017, we issued $40.0 million of 3.75% senior notes that matured and were redeemed on May 25, 2022. Additionally, on May 25, 2017, we issued $60.0 million of fixed-to-floating rate subordinated notes that were scheduled to mature on May 25, 2027, with an optional redemption in whole or in part on any interest payment date on or after May 25, 2022. We redeemed all $60.0 million of the outstanding fixed-to-floating rate subordinated notes during the third quarter of 2022. At the time of redemption, the redeemed subordinated notes carried interest at a floating rate of 3-month LIBOR plus 2.919%. 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. First Busey Corporation | 2023 — 84 Table of Contents Contents of Item 7. MD&A 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 will accrue 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 basis points 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. Unamortized debt issuance costs related to subordinated notes are presented in the following table (dollars in thousands) : As of December 31, 2023 2022 Unamortized debt issuance costs Subordinated notes issued in 2020 $ 735 $ 1,220 Subordinated notes issued in 2022 1,383 1,742 Total unamortized debt issuance costs $ 2,118 $ 2,962 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, we 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. In connection with the Pulaski acquisition in 2016, we acquired similar statutory trusts previously maintained by Pulaski and the fair value adjustment is being accreted over their weighted average remaining life, with a balance remaining to be accreted of $2.6 million at December 31, 2023. We had $72.0 million and $71.8 million of junior subordinated debt owed to unconsolidated trusts at December 31, 2023, and 2022, respectively. Liquidity Liquidity management is the process by which we ensure that adequate liquid funds are available to meet the present and future cash flow obligations arising in the daily operations of our 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. Our most liquid assets are cash and due from banks, interest-bearing bank deposits, and federal funds sold. Balances of these assets are dependent on our operating, investing, lending, and financing activities during any given period. First Busey Corporation | 2023 — 85 Table of Contents Contents of Item 7. MD&A Average liquid assets are summarized in the table below (dollars in thousands) : Years Ended December 31, 2023 2022 2021 Average liquid assets Cash and due from banks $ 116,530 $ 120,910 $ 133,711 Interest-bearing bank deposits 214,422 290,875 630,687 Total average liquid assets $ 330,952 $ 411,785 $ 764,398 Average liquid assets as a percent of average total assets 2.7 % 3.3 % 6.4 % Cash and unencumbered securities on our Consolidated Balance Sheets are summarized as follows for the periods presented (dollars in thousands) : As of December 31, 2023 2022 Cash and unencumbered securities Total cash and cash equivalents $ 719,581 $ 227,164 Debt securities available for sale 2,087,571 2,461,393 Debt securities available for sale pledged as collateral (649,769) (746,675) Cash and unencumbered securities $ 2,157,383 $ 1,941,882 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 our revolving credit facility, as summarized in the table below (dollars in thousands) : As of December 31, 2023 2022 Additional available borrowing capacity FHLB $ 1,898,737 $ 1,765,388 Federal Reserve Bank 598,878 659,680 Federal funds purchased 482,500 482,500 Revolving credit facility 40,000 40,000 Additional borrowing capacity $ 3,020,115 $ 2,947,568 Further, the company could utilize brokered deposits as additional sources of liquidity, as needed. As of December 31, 2023, management believed that adequate liquidity existed to meet all projected cash flow obligations. We seek 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. Our ability to pay cash dividends to our stockholders and to service our debt is dependent on the receipt of cash dividends from our subsidiaries. Busey Bank paid dividends to First Busey Corporation totaling $90.0 million and $95.0 million for the years ended December 31, 2023, and 2022, respectively. First Busey Corporation | 2023 — 86 Table of Contents Contents of Item 7. MD&A 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 our outstanding commitments and reserves for unfunded commitments (dollars in thousands) : As of December 31, 2023 2022 Outstanding loan commitments and standby letters of credit $ 2,176,496 $ 2,024,777 Reserve for unfunded commitments 7,062 6,601 The following table summarizes our provision for unfunded commitments expenses (releases) for the periods presented (dollars in thousands) : Years Ended December 31, 2023 2022 2021 Provision for unfunded commitments expense (release) $ 461 $ 61 $ (774) We anticipate we 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 We have entered into certain contractual obligations and other commitments that generally relate to funding of operations through deposits, debt issuance, and property and equipment leases. The following table summarizes significant contractual obligations and other commitments, excluding short-term borrowings and the current portion of long-term debt, as of December 31, 2023, (dollars in thousands) : Certificates of Deposit Operating Leases Junior Subordinated Debt Owed to Unconsolidated Trusts Long-term Debt Subordinated Notes, Net of Unamortized Issuance Costs Total Contractual obligations by schedule of maturities 2024 $ 1,705,846 $ 2,023 $ — $ — $ — $ 1,707,869 2025 68,738 1,768 — 12,000 — 82,506 2026 21,222 1,443 — 6,000 — 28,665 2027 12,470 1,277 — — — 13,747 2028 10,451 1,255 — — — 11,706 Thereafter 547 5,478 71,993 — 222,882 300,900 Contractual obligations $ 1,819,274 $ 13,244 $ 71,993 $ 18,000 $ 222,882 $ 2,145,393 Commitments to extend credit and standby letters of credit $ 2,176,496 First Busey Corporation | 2023 — 87 Table of Contents Contents of Item 7. MD&A Cash Flows Busey’s cash flows consist of operating activities, investing activities, and financing activities. Net cash flows provided by operating activities totaled $173.4 million in 2023, compared to $165.9 million provided by operating activities in 2022. Significant operating activities affecting cash flows include net income, depreciation and amortization, and mortgage loan sale activity. Fluctuations in sales of loans held for sale are a function of changes in market rates for mortgage loans, which influence refinance activity. Net cash provided by investing activities totaled $551.0 million in 2023, compared to $291.0 million used in investing activities in 2022. Significant investing activities are those associated with managing Busey’s investment and loan portfolios. Net cash used in financing activities totaled $232.0 million in 2023, compared to $483.9 million used in financing activities in 2022. Significant financing activities affecting cash flows include deposit and other borrowings, as well as cash dividends paid. For additional detail, see the Consolidated Statemen ts of Cash F lo ws . Capital Resources Our capital ratios are in excess of those required to be considered “well-capitalized” pursuant to applicable regulatory guidelines. The Federal Reserve uses capital adequacy guidelines in its examination and regulation of bank holding companies and their subsidiary banks. Risk-based capital ratios are established by allocating assets and certain off-balance-sheet commitments into risk-weighted categories. These balances are then multiplied by the factor appropriate for that risk-weighted category. In order to refrain from restrictions on dividends, equity repurchases, and discretionary bonus payments, banking institutions must maintain capital in excess of regulatory minimum capital requirements. The table below presents minimum capital ratios that include the capital conservation buffer in comparison to the capital ratios for First Busey and Busey Bank as of December 31, 2023. Minimum Capital Requirements with Capital Buffer As of December 31, 2023 First Busey Busey Bank Common Equity Tier 1 Capital to Risk Weighted Assets 7.00 % 13.09 % 15.48 % Tier 1 Capital to Risk Weighted Assets 8.50 % 13.93 % 15.48 % Total Capital to Risk Weighted Assets 10.50 % 17.44 % 16.45 % Leverage Ratio of Tier 1 Capital to Average Assets 6.50 % 10.08 % 11.19 % Management believes that no conditions or events have occurred since December 31, 2023, that would materially adversely change First Busey’s or Busey Bank’s capital classifications. NEW ACCOUNTING PRONOUNCEMENTS We review new accounting standards as issued. Information relating to accounting pronouncements applicable to Busey appears in “ Note 1. Significant Accounting Policies ” in the Notes to the Consolidated Financial Statements. First Busey Corporation | 2023 — 88 Table of Contents Contents of Item 7. MD&A EFFECTS OF INFLATION The effect of inflation on a financial institution differs significantly from the effect on an industrial company. While a financial institution’s operating expenses, particularly salaries, wages, and employee benefits, are affected by general inflation, the asset and liability structure of a financial institution consists largely of monetary items. Monetary items, such as cash, loans, and deposits, are those assets and liabilities which are or will be converted into a fixed number of dollars regardless of changes in prices. As a result, changes in interest rates have a more significant impact on a financial institution’s performance than does general inflation. For additional information regarding interest rates and changes in net interest income see “ Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operation — Three Years Ended December 31, 2023—Consolidated Average Balance Sheets and Interest Rates ” and “ Item 7A. Quantitative and Qualitative Disclosures About Market Risk .” First Busey Corporation | 2023 — 89 Table of Contents