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Published: 2023-11-02 00:00:00 ET

buse-20230930

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q


þ			Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended September 30, 2023


o			Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File No. 0-15950

FIRST BUSEY CORPORATION

(Exact name of registrant as specified in its charter)


Nevada			37-1078406
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
100 W. University Ave. Champaign, Illinois			61820
(Address of principal executive offices)			(Zip code)

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

N/A

(Former name, former address, and former fiscal year, if changed since last report)

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

Title of each class

Trading Symbol (s)

Name of each exchange on which registered

Common Stock, $.001 par value

BUSE

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No o

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


Large accelerated filer þ	Accelerated filer o	Non-accelerated filer o
Smaller reporting company ☐	Emerging growth company ☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class

Outstanding at November 2, 2023

Common Stock, $.001 par value

55,258,904

Table of Contents

FIRST BUSEY CORPORATION

FORM 10-Q

September 30, 2023

Table of Contents


GLOSSARY		3

PART I	FINANCIAL INFORMATION	5

Item 1.	FINANCIAL STATEMENTS	5
	CONSOLIDATED BALANCE SHEETS (Unaudited)	6
	CONSOLIDATED STATEMENTS OF INCOME (Unaudited)	7
	CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)	8
	CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)	9
	CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)	11
	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)	13
	Note 1: Significant Accounting Policies	13
	Note 2: Debt Securities	16
	Note 3: Portfolio Loans	20
	Note 4: Leases	31
	Note 5: Deposits	32
	Note 6: Borrowings	33
	Note 7: Regulatory Capital	35
	Note 8: Stock-Based Compensation	37
	Note 9: Outstanding Commitments and Contingent Liabilities	41
	Note 10: Derivative Financial Instruments	41
	Note 11: Fair Value Measurements	47
	Note 12: Earnings per Common Share	52
	Note 13: Accumulated Other Comprehensive Income (Loss)	53
	Note 14: Operating Segments and Related Information	54

Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	57
Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	89
Item 4.	CONTROLS AND PROCEDURES	90

PART II	OTHER INFORMATION	91

Item 1.	LEGAL PROCEEDINGS	91
Item 1A.	RISK FACTORS	91
Item 2.	UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES	91
Item 3.	DEFAULTS UPON SENIOR SECURITIES	91
Item 4.	MINE SAFETY DISCLOSURES	91
Item 5.	OTHER INFORMATION	92
Item 6.	EXHIBITS	93

SIGNATURES		94

Table of Contents

GLOSSARY

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


Term						Definition
2020 Equity Plan						First Busey's 2020 Equity Incentive Plan
ACL						Allowance for credit losses
Amended 2020 Equity Plan						First Busey's Amended 2020 Equity Incentive Plan
Annual Report						Annual report filed with the SEC on Form 10-K pursuant to Section 13 or 15(d) of the Exchange Act
AOCI						Accumulated other comprehensive income (loss)

ASC						Accounting Standards Codification
ASU						Accounting Standards Update

Basel III						2010 capital accord adopted by the international Basel Committee on Banking Supervision
Basel III Rule						Regulations promulgated by U.S. federal banking agencies – the OCC, the Federal Reserve, and the FDIC – to both enforce implementation of certain aspects of the Basel III capital reforms and effect certain changes required by the Dodd-Frank Wall Street Reform and Consumer Protection Act

bps						basis points
CAC						Cummins-American Corp.

CECL						ASU 2016-13, codified as ASC Topic 326 “Financial Instruments-Credit Losses,” which established the Current Expected Credit Losses methodology for measuring credit losses on financial instruments


COVID-19						Coronavirus disease 2019







DSU						Deferred stock unit

ESPP						Employee Stock Purchase Plan
Exchange Act						Securities Exchange Act of 1934, as amended
Fair value						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, as defined in ASC Topic 820 “Fair Value Measurement”
FASB						Financial Accounting Standards Board
FDIC						Federal Deposit Insurance Corporation
Federal Reserve						Board of Governors of the Federal Reserve System
FHLB						Federal Home Loan Bank
First Busey						First Busey Corporation, together with its wholly-owned consolidated subsidiaries; also, “Busey,” the “Company,” “we,” “us,” and “our”
First Busey Risk Management						First Busey Risk Management, Inc.

FirsTech						FirsTech, Inc.
FOMC						Federal Open Market Committee
GAAP						U.S. Generally Accepted Accounting Principles



LIBOR						London Interbank Offered Rate

Nasdaq						National Association of Securities Dealers Automated Quotations

NMTC						New Markets Tax Credit


OCI						Other comprehensive income (loss)
OREO						Other real estate owned
PCD						Purchased credit deteriorated

PPP						Paycheck Protection Program

Table of Contents


Term						Definition
PSU						Performance-based restricted stock unit

Quarterly Report						Quarterly report filed with the SEC on Form 10-Q pursuant to Section 13 or 15(d) of the Exchange Act

RSU						Restricted stock unit
SBA						U.S. Small Business Administration
SEC						U.S. Securities and Exchange Commission

SOFR						Secured Overnight Financing Rate published by the Federal Reserve
TDR						Troubled debt restructuring

U.S.						United States of America
U.S. Treasury						U.S. Department of the Treasury

Table of Contents

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Table of Contents

FIRST BUSEY CORPORATION

CONSOLIDATED BALANCE SHEETS (Unaudited)

(dollars in thousands)


	As of
	September 30, 2023		December 31, 2022
Assets
Cash and cash equivalents:
Cash and due from banks	$	122,574	$	117,513
Interest-bearing deposits	215,345		109,651
Total cash and cash equivalents	337,919		227,164

Debt securities available for sale	2,182,841		2,461,393
Debt securities held to maturity	882,614		918,312
Equity securities	8,782		11,535
Loans held for sale	3,051		1,253
Portfolio loans (net of ACL of $91,710 at September 30, 2023, and $91,608 at December 31, 2022)	7,764,450		7,634,094
Premises and equipment, net	122,538		126,524
Right of use assets	11,500		12,829
Goodwill	317,873		317,873
Other intangible assets, net	38,470		46,423
Cash surrender value of bank owned life insurance	181,955		180,485
Other assets	406,257		398,792
Total assets	$	12,258,250	$	12,336,677

Liabilities and stockholders’ equity
Liabilities
Deposits:
Noninterest-bearing	$	2,918,574	$	3,393,666
Interest-bearing	7,413,788		6,677,614
Total deposits	10,332,362		10,071,280

Securities sold under agreements to repurchase	183,702		229,806
Short-term borrowings	12,000		351,054
Long-term debt	21,000		30,000

Subordinated notes, net of unamortized issuance costs	222,666		222,038
Junior subordinated debt owed to unconsolidated trusts	71,946		71,810
Lease liabilities	11,783		12,995
Other liabilities	212,633		201,717
Total liabilities	11,068,092		11,190,700

Outstanding commitments and contingent liabilities (see Notes 4 and 9)

Stockholders’ equity
Common stock, ($.001 par value; 100,000,000 shares authorized)	58		58
Additional paid-in capital	1,324,438		1,320,980
Retained earnings	224,698		168,769
AOCI	(290,730)		(273,278)
Total stockholders’ equity before treasury stock	1,258,464		1,216,529
Treasury stock at cost	(68,306)		(70,552)
Total stockholders’ equity	1,190,158		1,145,977
Total liabilities and stockholders’ equity	$	12,258,250	$	12,336,677

Shares
Common shares issued	58,116,969		58,116,970
Less: Treasury shares	(2,774,952)		(2,837,846)
Common shares outstanding	55,342,017		55,279,124

See accompanying Notes to Consolidated Financial Statements (Unaudited).

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FIRST BUSEY CORPORATION

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(dollars in thousands, except per share amounts)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Interest income
Interest and fees on loans	$	99,844	$	76,081	$	284,423	$	202,530
Interest and dividends on investment securities:
Taxable interest income	20,549		17,436		60,224		47,370
Non-taxable interest income	685		813		2,136		2,482
Other interest income	1,591		1,085		3,890		1,720
Total interest income	122,669		95,415		350,673		254,102

Interest expense
Deposits	37,068		3,565		78,576		7,835
Federal funds purchased and securities sold under agreements to repurchase	1,327		459		3,772		665
Short-term borrowings	1,964		190		12,527		426
Long-term debt	425		372		1,331		859
Senior notes	—		—		—		637
Subordinated notes	3,103		3,738		9,300		9,243
Junior subordinated debt owed to unconsolidated trusts	991		786		2,849		2,148
Total interest expense	44,878		9,110		108,355		21,813

Net interest income	77,791		86,305		242,318		232,289
Provision for credit losses	364		2,364		1,944		3,764
Net interest income after provision for credit losses	77,427		83,941		240,374		228,525

Noninterest income
Wealth management fees	14,235		12,508		43,594		42,422
Fees for customer services	7,502		7,627		21,560		26,122
Payment technology solutions	5,226		5,080		15,772		15,045
Mortgage revenue	311		438		871		1,697
Income on bank owned life insurance	1,001		958		3,682		2,716
Realized net gains (losses) on securities	(33)		(74)		(207)		52
Unrealized net gains (losses) recognized on equity securities	(252)		78		(2,753)		(2,376)
Other income	3,018		4,318		8,349		12,046
Total noninterest income	31,008		30,933		90,868		97,724

Noninterest expense
Salaries, wages, and employee benefits	39,677		39,762		119,867		117,226
Data processing	5,930		5,447		17,472		15,800
Net occupancy expense of premises	4,594		4,705		13,896		14,492
Furniture and equipment expenses	1,638		1,799		5,065		5,874
Professional fees	1,542		1,579		4,573		4,693
Amortization of intangible assets	2,555		2,871		7,953		8,833
Interchange expense	1,786		1,574		5,509		4,606
FDIC insurance	1,475		882		4,483		3,108
Other expense	11,748		12,117		31,735		35,572
Total noninterest expense	70,945		70,736		210,553		210,204

Income before income taxes	37,490		44,138		120,689		116,045
Income taxes	6,824		8,477		23,873		22,121
Net income	$	30,666	$	35,661	$	96,816	$	93,924

Basic earnings per common share	$	0.55	$	0.64	$	1.75	$	1.70
Diluted earnings per common share	$	0.54	$	0.64	$	1.72	$	1.67
Dividends declared per share of common stock	$	0.24	$	0.23	$	0.72	$	0.69

See accompanying Notes to Consolidated Financial Statements (Unaudited).

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FIRST BUSEY CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)

(dollars in thousands)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net income	$	30,666	$	35,661	$	96,816	$	93,924
OCI:
Unrealized/Unrecognized gains (losses) on debt securities:
Net unrealized holding gains (losses) on debt securities available for sale, net of taxes of $10,746, $27,631, $6,728, and $84,519, respectively	(26,950)		(69,306)		(16,872)		(211,988)
Net unrealized gains (losses) on debt securities transferred to held to maturity from available for sale, net of taxes of $0, $0, $0, and $13,812, respectively	—		—		—		(34,644)
Reclassification adjustment for realized (gains) losses on debt securities available for sale included in net income, net of taxes of $(9), $(21), $(59), and $8, respectively	24		53		148		(20)
Amortization of unrecognized losses on securities transferred to held to maturity, net of taxes of $(420), $(515), $(1,346), and $(1,396), respectively	1,056		1,291		3,379		3,500
Net change in unrealized/unrecognized gains (losses) on debt securities	(25,870)		(67,962)		(13,345)		(243,152)
Unrealized gains (losses) on cash flow hedges:
Net unrealized holding gains (losses) on cash flow hedges, net of taxes of $2,220, $4,061, $3,412, and $8,604, respectively	(5,577)		(10,192)		(8,563)		(21,587)
Reclassification adjustment for realized (gains) losses on cash flow hedges included in net income, net of taxes of $(652), ($104), $(1,776), and $199, respectively	1,638		266		4,456		(498)
Net change in unrealized gains (losses) on cash flow hedges	(3,939)		(9,926)		(4,107)		(22,085)
Net change in AOCI	(29,809)		(77,888)		(17,452)		(265,237)
Total comprehensive income (loss)	$	857	$	(42,227)	$	79,364	$	(171,313)

See accompanying Notes to Consolidated Financial Statements (Unaudited).

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FIRST BUSEY CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)

(dollars in thousands, except per share amounts)


	Three Months Ended September 30, 2023
	Shares	Common Stock		Additional Paid-in Capital		Retained Earnings		AOCI		Treasury Stock		Total Stockholders' Equity
Balance, June 30, 2023	55,290,847	$	58	$	1,325,173	$	207,660	$	(260,921)	$	(70,022)	$	1,201,948
Net income	—	—		—		30,666		—		—		30,666
OCI, net of tax	—	—		—		—		(29,809)		—		(29,809)
Repurchase of stock	(65,123)	—		—		—		—		(1,278)		(1,278)
Issuance of treasury stock for ESPP	11,291	—		(106)		—		—		290		184
Net issuance of treasury stock for RSU/PSU/DSU vesting and related tax	105,002	—		(3,593)		—		—		2,704		(889)


Cash dividends on common stock at $0.24 per share	—	—		—		(13,267)		—		—		(13,267)
Stock dividend equivalents on RSUs/PSUs/DSUs	—	—		361		(361)		—		—		—
Stock-based compensation	—	—		2,603		—		—		—		2,603
Balance, September 30, 2023	55,342,017	$	58	$	1,324,438	$	224,698	$	(290,730)	$	(68,306)	$	1,190,158


	Nine Months Ended September 30, 2023
	Shares	Common Stock		Additional Paid-in Capital		Retained Earnings		AOCI		Treasury Stock		Total Stockholders' Equity
Balance, December 31, 2022	55,279,124	$	58	$	1,320,980	$	168,769	$	(273,278)	$	(70,552)	$	1,145,977
Net income	—	—		—		96,816		—		—		96,816
OCI, net of tax	—	—		—		—		(17,452)		—		(17,452)
Repurchase of stock	(110,123)	—		—		—		—		(2,209)		(2,209)
Issuance of treasury stock for ESPP	51,885	—		(451)		—		—		1,335		884
Net issuance of treasury stock for RSU/PSU/DSU vesting and related tax	120,137	—		(4,083)		—		—		3,094		(989)

Net issuance of treasury stock for warrants exercised	994			(17)						26		9
Cash dividends on common stock at $0.72 per share	—	—		—		(39,806)		—		—		(39,806)
Stock dividend equivalents on RSUs/PSUs/DSUs	—	—		1,081		(1,081)		—		—		—
Stock-based compensation	—	—		6,928		—		—		—		6,928
Balance, September 30, 2023	55,342,017	$	58	$	1,324,438	$	224,698	$	(290,730)	$	(68,306)	$	1,190,158

(continued)

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FIRST BUSEY CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited) (Continued)

(dollars in thousands, except per share amounts)


	Three Months Ended September 30, 2022
	Shares	Common Stock		Additional Paid-in Capital		Retained Earnings		AOCI		Treasury Stock		Total Stockholders' Equity
Balance, June 30, 2022	55,335,703	$	58	$	1,317,675	$	124,685	$	(211,107)	$	(69,354)	$	1,161,957
Net income	—	—		—		35,661		—		—		35,661
OCI, net of tax	—	—		—		—		(77,888)		—		(77,888)

Repurchase of stock	(130,000)	—		—		—		—		(3,088)		(3,088)
Issuance of treasury stock for ESPP	10,993	—		(77)		—		—		283		206
Net issuance of treasury stock for RSU/DSU vesting and related tax	15,738			(434)		—		—		405		(29)
Cash dividends on common stock at $0.23 per share	—	—		—		(12,707)		—		—		(12,707)
Stock dividend equivalents on RSUs/DSUs at $0.23 per share	—	—		281		(281)		—		—		—
Stock-based compensation	—	—		2,476		—		—		—		2,476
Balance, September 30, 2022	55,232,434	$	58	$	1,319,921	$	147,358	$	(288,995)	$	(71,754)	$	1,106,588


	Nine Months Ended September 30, 2022
	Shares	Common Stock		Additional Paid-in Capital		Retained Earnings		AOCI		Treasury Stock		Total Stockholders' Equity
Balance, December 31, 2021	55,434,910	$	58	$	1,316,984	$	92,463	$	(23,758)	$	(66,635)	$	1,319,112
Net income	—	—		—		93,924		—		—		93,924
OCI, net of tax	—	—		—		—		(265,237)		—		(265,237)

Repurchase of stock	(388,614)	—		—		—		—		(9,912)		(9,912)
Issuance of treasury stock for ESPP	50,033	—		(271)		—		—		1,288		1,017
Net issuance of treasury stock for RSU/DSU vesting and related tax	136,105	—		(4,383)		—		—		3,505		(878)
Cash dividends on common stock at $0.69 per share	—	—		—		(38,159)		—		—		(38,159)
Stock dividend equivalents on RSUs/DSUs at $0.69 per share	—	—		870		(870)		—		—		—
Stock-based compensation	—	—		6,721		—		—		—		6,721
Balance, September 30, 2022	55,232,434	$	58	$	1,319,921	$	147,358	$	(288,995)	$	(71,754)	$	1,106,588

See accompanying Notes to Consolidated Financial Statements (Unaudited).

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FIRST BUSEY CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(dollars in thousands)


	Nine Months Ended September 30,
	2023		2022
Cash flows provided by (used in) operating activities
Net income	$	96,816	$	93,924
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision for credit losses	1,944		3,764
Amortization of intangible assets	7,953		8,833
Amortization of mortgage servicing rights	2,155		2,757
Amortization of NMTC	6,740		4,668
Depreciation and amortization of premises and equipment	7,052		8,035
Net amortization (accretion) on portfolio loans	5,399		2,524
Net amortization (accretion) of premium (discount) on investment securities	11,351		15,820
Net amortization (accretion) of premium (discount) on time deposits	(223)		(318)
Net amortization (accretion) of premium (discount) on FHLB advances and other borrowings	764		1,152
Impairment of OREO and other repossessed assets	113		611
Impairment of fixed assets held for sale	—		427
Impairment of mortgage servicing rights	1		(9)
Impairment of leases	—		84
Unrealized (gains) losses recognized on equity securities, net	2,753		2,376
(Gain) loss on sales of equity securities, net	—		(24)
(Gain) loss on sales of debt securities, net	207		(28)
(Gain) loss on sales of loans, net	(603)		(1,777)
(Gain) loss on sales of OREO	4		56
(Gain) loss on sales of premises and equipment	(197)		(666)
(Gain) loss on life insurance proceeds	(759)		—
(Increase) decrease in cash surrender value of bank owned life insurance	(2,923)		(2,716)
Provision for deferred income taxes	(2,000)		(3)
Stock-based compensation	6,928		6,721

Mortgage loans originated for sale	(28,663)		(63,986)
Proceeds from sales of mortgage loans	27,418		84,732
(Increase) decrease in other assets	(15,072)		(45,575)
Increase (decrease) in other liabilities	171		(3,364)
Net cash provided by (used in) operating activities	127,329		118,018

Cash flows provided by (used in) investing activities
Purchases of equity securities	(6,169)		(14,820)
Purchases of debt securities available for sale	(7,796)		(279,831)
Proceeds from sales of equity securities	6,169		15,418

Proceeds from paydowns and maturities of debt securities held to maturity	38,172		51,552
Proceeds from paydowns and maturities of debt securities available for sale	253,648		370,274
Purchases of FHLB and other bank stock	(30,957)		—
Proceeds from the redemption of FHLB and other bank stock	43,926		225

Net (increase) decrease in loans	(137,843)		(484,701)
Cash paid for premiums on bank-owned life insurance	(80)		(101)
Proceeds from life insurance	2,292		219
Purchases of premises and equipment	(6,750)		(4,006)
Proceeds from disposition of premises and equipment	3,881		4,182
Proceeds from sales of OREO	781		2,662
Net cash provided by (used in) investing activities	159,274		(338,927)

(continued)

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FIRST BUSEY CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Continued)

(dollars in thousands)


	Nine Months Ended September 30,
	2023		2022
Cash flows provided by (used in) financing activities
Net increase (decrease) in deposits	$	261,305	$	(166,862)
Net change in federal funds purchased and securities sold under agreements to repurchase	(46,104)		(35,542)
Proceeds from FHLB advances	265,000		—
Repayment of FHLB advances	(604,054)		(5,507)
Proceeds from other borrowings, net of debt issuance costs	—		98,094
Repayment of other borrowings	(9,000)		(109,000)
Cash dividends paid	(39,806)		(38,159)
Purchase of treasury stock	(2,209)		(9,912)
Cash paid for withholding taxes on stock-based payments	(989)		(878)

Proceeds from stock warrants exercised	9		—
Issuance of treasury stock for ESPP	—		(271)

Net cash provided by (used in) financing activities	(175,848)		(268,037)

Net increase (decrease) in cash and cash equivalents	$	110,755	$	(488,946)
Cash and cash equivalents, beginning of period	227,164		836,095
Cash and cash equivalents, ending of period	$	337,919	$	347,149

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Cash payments for:
Interest	$	89,572	$	19,465
Income taxes	23,594		30,506

Non-cash investing and financing activities:
OREO acquired in settlement of loans	144		132

Transfer of debt securities available for sale to held to maturity	—		985,199

See accompanying Notes to Consolidated Financial Statements (Unaudited).

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 1: Significant Accounting Policies

Nature of Operations

First Busey Corporation, a Nevada corporation organized in 1980, is a $12.3 billion financial holding company headquartered in Champaign, Illinois. Busey’s common stock is traded on The Nasdaq Global Select Market under the symbol “BUSE.”

First Busey operates and reports its business in three segments: Banking, Wealth Management, and FirsTech.

•The Banking operating segment provides a full range of banking services to individual and corporate customers through its banking center network in Illinois; the St. Louis, Missouri metropolitan area; southwest Florida; and Indianapolis, Indiana.

•The Wealth Management operating segment provides a full range of asset management, investment, brokerage, fiduciary, philanthropic advisory, tax preparation, and farm management services to individuals, businesses, and foundations.

•The FirsTech operating segment provides comprehensive and innovative payment technology solutions including online, mobile, and voice-recognition bill payments; money management and credit card networks; direct debit services; lockbox remittance processing for payments made by mail; and walk-in payments. FirsTech also provides additional tools to help clients with billing, reconciliation, bill reminders, and treasury services.

For additional information about First Busey's operating segments, see “Note 14. Operating Segments and Related Information.”

Basis of Financial Statement Presentation

These unaudited consolidated financial statements and related notes should be read in conjunction with the audited consolidated financial statements included in Busey's 2022 Annual Report. These interim unaudited consolidated financial statements serve to update our 2022 Annual Report and may not include all information and notes necessary to constitute a complete set of financial statements.

We prepared these unaudited consolidated financial statements in conformity with GAAP. We have eliminated intercompany accounts and transactions. We have also reclassified certain prior year amounts to conform to the current period presentation. These reclassifications did not have a material impact on our consolidated financial condition or results of operations.

In our opinion, the unaudited consolidated financial statements reflect all normal, recurring adjustments needed to present fairly our results for the interim periods. The results of operations for interim periods are not necessarily indicative of the results that may be expected for the full year or any other interim period.

Use of Estimates

In preparing the accompanying unaudited consolidated financial statements in conformity with GAAP, Busey’s management is required to make estimates and assumptions that affect the amounts reported in the financial statements and the disclosures provided. Actual results could differ from those estimates. Material estimates which are particularly susceptible to significant change in the near term relate to the fair value of debt securities available for sale, fair value of assets acquired and liabilities assumed in business combinations, goodwill, income taxes, and the determination of the ACL.

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Impact of Recently Adopted Accounting Standards

In July 2023, the FASB issued ASU 2023-03 “Presentation of Financial Statements (Topic 205), Income Statement—Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation—Stock Compensation (Topic 718)” pursuant to: (i) SEC Staff Accounting Bulletin No. 120, which provided interpretive guidance related to estimating the fair value of share-based payment transactions while in possession of material non-public information; (ii) an SEC Staff Announcement at the March 24, 2022, Emerging Issues Task Force Meeting, which provided interpretive guidance on accounting for share-based payments to employees and non-employees; and (iii) Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280—General Revision of Regulation S-X: Income or Loss Applicable to Common Stock, which provided interpretive guidance on the reporting of income or loss applicable to common stock. This update was reflected in the Accounting Standards Codification upon issuance. Adoption of this standard did not have a material impact on Busey’s financial position or results of operations.

In March 2022, the FASB issued ASU 2022-02 “Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures,” which eliminates the TDR accounting model for creditors that have already adopted CECL. In lieu of the TDR accounting model, loan refinancing and restructuring guidance in ASC Subtopic 310-20-35-9 through 35-11 “Receivables—Nonrefundable Fees and Other Costs—Subsequent Measurement—Loan Refinancing or Restructuring” will apply to all loan modifications, including those made for borrowers experiencing financial difficulty. This standard also enhances disclosure requirements related to certain loan modifications. Additionally, this standard introduces new requirements to disclose gross write-off information in the vintage disclosures of financing receivables by credit quality indicator and class of financing receivable by year of origination. This standard applies prospectively. For the transition method related to the recognition and measurement of TDRs, there is an option to apply a modified retrospective transition method, resulting in a cumulative-effect adjustment to retained earnings in the period of adoption. This standard became effective for Busey beginning January 1, 2023. Adoption of this standard did not have a material impact on Busey’s financial position or results of operations.

In March 2022, the FASB issued ASU 2022-01 “Derivatives and Hedging (Topic 815): Fair Value Hedging—Portfolio Layer Method,” which replaces the current last-of-layer hedge accounting method with an expanded portfolio layer method that permits multiple hedged layers of a single closed portfolio. The scope of the portfolio layer method is also expanded to include non-prepayable financial assets. This update also provides additional guidance on the accounting for and disclosure of hedge basis adjustments that are applicable to the portfolio layer method, and specifies how hedge basis adjustments should be considered when determining credit losses for the assets included in the closed portfolio. Amendments related to hedge basis adjustments which are included in this standard apply on a modified retrospective basis by means of a cumulative-effect adjustment to the opening balance of retained earnings on the initial application date. Amendments related to disclosure which are included in this standard may be applied on a prospective basis from the initial application date, or on a retrospective basis to each prior period presented after the date of adoption of the amendments in ASU 2017-12 “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.” This standard became effective for Busey beginning January 1, 2023. Adoption of this standard did not have a material impact on Busey’s financial position or results of operations.

ASU 2021-08 “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers” requires measurement and recognition in accordance with ASC Topic 606 “Revenue from Contracts with Customers” for contract assets and contract liabilities acquired in a business combination. This update became effective for Busey beginning January 1, 2023. This standard applied prospectively to all business combinations that occurred on or after the date of adoption. Adoption of this standard did not have an impact on Busey’s financial position or results of operations.

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Recently Issued Accounting Standards Not Yet Adopted

In March 2023, the FASB issued ASU 2023-02 “Investments—Equity Method and Joint Ventures (Topic 323),” permitting an election to use the proportional amortization method to account for equity investments made primarily for the purpose of receiving income tax credits and other income tax benefits, regardless of the tax credit program from which the income tax credits are received, provided that certain conditions are met. The proportional amortization method results in the cost of the investment being amortized in proportion to the income tax credits and other income tax benefits received, with the amortization of the investment and the income tax credits being presented net in the income statement as a component of income tax expense. This standard must be applied on a retrospective or modified retrospective basis, and is applicable for Busey beginning on January 1, 2024. Early adoption is permitted. Busey is currently evaluating the potential effect on the Company’s financial position and results of operations, and upon adoption expects changes to be reflected in the Other Expense and Income Taxes line items in the Consolidated Statements of Income (Unaudited).

In March 2023, the FASB issued ASU 2023-01 “Leases (Topic 842): Common Control Arrangements,” which requires amortization over the useful life of leasehold improvements (not the lease term) when the lease is between entities under common control, and any value of such leasehold improvements remaining at the end of the lease term is to be accounted for as a transfer between entities under common control. This standard may be adopted either prospectively, or retrospectively, and is effective for Busey beginning January 1, 2024. Early adoption is permitted. Busey does not expect adoption of this standard to have a material impact on the Company’s financial position and results of operations.

In June 2022, the FASB issued ASU 2022-03 “Fair Value Measurements (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions,” which clarifies that contractual restrictions on the sale of equity securities are not considered in measuring the fair value of those equity securities, and further that contractual sale restrictions cannot be recognized and measured as a separate unit of account. This standard applies prospectively, and is effective for Busey beginning January 1, 2024. Early adoption is permitted. Busey is currently evaluating the potential effect on the Company’s financial position and results of operations.

Subsequent Events

Busey has evaluated subsequent events for potential recognition and/or disclosure through the date the unaudited consolidated financial statements included in this Quarterly Report were issued. The Company issued a Form 8‑K on October 24, 2023, regarding the departure of a named executive officer, and during the fourth quarter of 2023 expects to record related severance expenses according to Schedule 1 of the Separation Letter that was filed as Exhibit 10.1 to the Form 8‑K. Other than this, there were no significant subsequent events for the quarter ended September 30, 2023, through the filing date of these unaudited consolidated financial statements.

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 2: Debt Securities

Busey's portfolio of debt securities includes both available for sale and held to maturity securities. The tables below provide the amortized cost, unrealized gains and losses, and fair values of debt securities summarized by major category (dollars in thousands):


	As of September 30, 2023
	Amortized Cost		Unrealized				Fair Value
			Gross Gains		Gross Losses
Debt securities available for sale
U.S. Treasury securities	$	51,522	$	—	$	(1,392)	$	50,130
Obligations of U.S. government corporations and agencies	10,071		2		(254)		9,819
Obligations of states and political subdivisions1	254,549		6		(27,758)		226,797
Asset-backed securities	486,517		—		(7,069)		479,448
Commercial mortgage-backed securities	120,117		—		(19,817)		100,300
Residential mortgage-backed securities2	1,343,324		—		(254,528)		1,088,796
Corporate debt securities	251,194		91		(23,734)		227,551
Total debt securities available for sale	$	2,517,294	$	99	$	(334,552)	$	2,182,841

___________________________________________

1.Includes securities marked at par, with no gain or loss to report.

2.Gross gains on Residential mortgage-backed securities were insignificant, rounding to zero thousand.



	Amortized Cost		Unrecognized				Fair Value
			Gross Gains		Gross Losses
Debt securities held to maturity
Commercial mortgage-backed securities	$	459,866	$	—	$	(93,401)	$	366,465
Residential mortgage-backed securities	422,748		—		(87,537)		335,211
Total debt securities held to maturity	$	882,614	$	—	$	(180,938)	$	701,676

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


	As of December 31, 2022
	Amortized Cost		Unrealized				Fair Value
			Gross Gains		Gross Losses
Debt securities available for sale
U.S. Treasury securities	$	117,805	$	—	$	(3,744)	$	114,061
Obligations of U.S. government corporations and agencies	20,097		3		(321)		19,779
Obligations of states and political subdivisions	283,481		106		(26,075)		257,512
Asset-backed securities	489,558		—		(19,683)		469,875
Commercial mortgage-backed securities	124,423		—		(16,029)		108,394
Residential mortgage-backed securities	1,463,971		2		(220,717)		1,243,256
Corporate debt securities	273,118		33		(24,635)		248,516
Total debt securities available for sale	$	2,772,453	$	144	$	(311,204)	$	2,461,393



	Amortized Cost		Unrecognized				Fair Value
			Gross Gains		Gross Losses
Debt securities held to maturity
Commercial mortgage-backed securities	$	474,820	$	—	$	(63,738)	$	411,082
Residential mortgage-backed securities	443,492		—		(69,279)		374,213
Total debt securities held to maturity	$	918,312	$	—	$	(133,017)	$	785,295

Maturities of Debt Securities

Amortized cost and fair value of debt securities, by contractual maturity or pre-refunded date, are shown below. Mortgages underlying mortgage-backed securities and asset-backed securities may be called or prepaid; therefore, actual maturities could differ from the contractual maturities. All mortgage-backed securities were issued by U.S. government corporations and agencies (dollars in thousands):


	As of September 30, 2023
	Amortized Cost		Fair Value
Debt securities available for sale
Due in one year or less	$	109,189	$	106,940
Due after one year through five years	312,419		289,027
Due after five years through ten years	431,297		389,702
Due after ten years	1,664,389		1,397,172
Debt securities available for sale	$	2,517,294	$	2,182,841




Debt securities held to maturity

Due after one year through five years	$	63,474	$	58,144
Due after five years through ten years	40,076		34,985
Due after ten years	779,064		608,547
Debt securities held to maturity	$	882,614	$	701,676

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Gains and Losses on Debt Securities Available for Sale

Realized gains and losses related to sales and calls of debt securities available for sale are summarized as follows (dollars in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Realized gains and losses on debt securities
Gross gains on debt securities	$	10	$	—	$	20	$	114
Gross (losses) on debt securities	(43)		(74)		(227)		(86)
Realized net gains (losses) on debt securities1	$	(33)	$	(74)	$	(207)	$	28

___________________________________________

1.Net gains (losses) on sales of securities reported in the Consolidated Statements of Income (Unaudited) include sales of equity securities, excluded in this table.

Debt securities with carrying amounts of $819.8 million on September 30, 2023, and $746.7 million on December 31, 2022, were pledged as collateral for public deposits, securities sold under agreements to repurchase, and for other purposes as required.

Debt Securities in an Unrealized or Unrecognized Loss Position

The following information pertains to debt securities with gross unrealized or unrecognized losses, aggregated by investment category and the length of time that individual securities have been in a continuous loss position (dollars in thousands):


	As of September 30, 2023
	Less than 12 months				12 months or more				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Debt securities available for sale
U.S. Treasury securities	$	—	$	—	$	50,130	$	(1,392)	$	50,130	$	(1,392)
Obligations of U.S. government corporations and agencies	1,983		(6)		7,699		(248)		9,682		(254)
Obligations of states and political subdivisions	45,778		(1,219)		177,195		(26,539)		222,973		(27,758)
Asset-backed securities	—		—		479,448		(7,069)		479,448		(7,069)
Commercial mortgage-backed securities	—		—		100,300		(19,817)		100,300		(19,817)
Residential mortgage-backed securities	431		(10)		1,088,344		(254,518)		1,088,775		(254,528)
Corporate debt securities	1,457		(2)		219,074		(23,732)		220,531		(23,734)
Debt securities available for sale with gross unrealized losses	$	49,649	$	(1,237)	$	2,122,190	$	(333,315)	$	2,171,839	$	(334,552)



	12 months or more			Total
		Fair Value		Unrecognized Losses		Fair Value		Unrecognized Losses
Debt securities held to maturity
Commercial mortgage-backed securities		$	366,465	$	(93,401)	$	366,465	$	(93,401)
Residential mortgage-backed securities		335,211		(87,537)		335,211		(87,537)
Debt securities held to maturity with gross unrecognized losses		$	701,676	$	(180,938)	$	701,676	$	(180,938)

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


	As of December 31, 2022
	Less than 12 months				12 months or more				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Debt securities available for sale
U.S. Treasury securities1	$	74	$	—	$	113,987	$	(3,744)	$	114,061	$	(3,744)
Obligations of U.S. government corporations and agencies	19,603		(321)		—		—		19,603		(321)
Obligations of states and political subdivisions	166,147		(10,059)		75,217		(16,016)		241,364		(26,075)
Asset-backed securities	390,164		(15,648)		79,711		(4,035)		469,875		(19,683)
Commercial mortgage-backed securities	89,428		(12,623)		18,966		(3,406)		108,394		(16,029)
Residential mortgage-backed securities	366,221		(38,111)		876,668		(182,606)		1,242,889		(220,717)
Corporate debt securities	39,037		(5,079)		204,310		(19,556)		243,347		(24,635)
Debt securities available for sale with gross unrealized losses	$	1,070,674	$	(81,841)	$	1,368,859	$	(229,363)	$	2,439,533	$	(311,204)



	Less than 12 months				12 months or more				Total
	Fair Value		Unrecognized Losses		Fair Value		Unrecognized Losses		Fair Value		Unrecognized Losses
Debt securities held to maturity
Commercial mortgage-backed securities	$	58,065	$	(8,009)	$	353,017	$	(55,729)	$	411,082	$	(63,738)
Residential mortgage-backed securities	—		—		374,213		(69,279)		374,213		(69,279)
Debt securities held to maturity with gross unrecognized losses	$	58,065	$	(8,009)	$	727,230	$	(125,008)	$	785,295	$	(133,017)

___________________________________________

1.Unrealized losses for U.S. Treasury securities that had been in a continuous unrealized loss position for less than 12 months were insignificant, rounding to zero thousand.

Additional information about debt securities in an unrealized or unrecognized loss position is presented in the tables below (dollars in thousands):


	As of September 30, 2023
	Available for Sale			Held to Maturity			Total
Debt securities with gross unrealized or unrecognized losses, fair value	$	2,171,839		$	701,676		$	2,873,515
Gross unrealized or unrecognized losses on debt securities	334,552			180,938			515,490
Ratio of gross unrealized or unrecognized losses to debt securities with gross unrealized or unrecognized losses	15.4		%	25.8		%	17.9		%

Count of debt securities	1,001			55			1,056
Count of debt securities in an unrealized or unrecognized loss position	982			55			1,037

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


	As of December 31, 2022
	Available for Sale			Held to Maturity			Total
Debt securities with gross unrealized or unrecognized losses, fair value	$	2,439,533		$	785,295		$	3,224,828
Gross unrealized or unrecognized losses on debt securities	311,204			133,017			444,221
Ratio of gross unrealized or unrecognized losses to debt securities with gross unrealized or unrecognized losses	12.8		%	16.9		%	13.8		%

Count of debt securities	1,091			55			1,146
Count of debt securities in an unrealized or unrecognized loss position	1,032			55			1,087

Unrealized and unrecognized losses were related to changes in market interest rates and market conditions that do not represent credit-related impairments. Busey does not intend to sell securities that are in an unrealized or unrecognized loss position, and it is more likely than not that the Company will recover the amortized cost prior to being required to sell the debt securities. Full collection of the amounts due according to the contractual terms of the debt securities is expected; therefore, no ACL was recorded in relation to debt securities, and the impairment related to noncredit factors on debt securities available for sale is recognized in AOCI, net of applicable taxes. As of September 30, 2023, Busey did not hold general obligation bonds of any single issuer, the aggregate of which exceeded 10% of the Company’s stockholders’ equity.

Note 3: Portfolio Loans

Loan Categories

Busey’s lending can be summarized in two primary categories: commercial and retail. Lending is further classified into five primary areas of loans: commercial loans, commercial real estate loans, real estate construction loans, retail real estate loans, and retail other loans. Distributions of the loan portfolio by loan category and class is presented in the following table (dollars in thousands):


	As of
	September 30, 2023		December 31, 2022
Commercial loans
Commercial	$	1,943,449	$	1,974,154
Commercial real estate	3,353,753		3,261,873
Real estate construction	527,598		530,469
Total commercial loans	5,824,800		5,766,496
Retail loans
Retail real estate	1,715,445		1,657,082
Retail other	315,915		302,124
Total retail loans	2,031,360		1,959,206

Total portfolio loans	7,856,160		7,725,702
ACL	(91,710)		(91,608)
Portfolio loans, net	$	7,764,450	$	7,634,094

Net deferred loan origination costs included in the balances above were $13.4 million as of September 30, 2023, compared to $14.0 million as of December 31, 2022. Net accretable purchase accounting adjustments included in the balances above reduced loans by $4.9 million as of September 30, 2023, and $5.9 million as of December 31, 2022. Commercial balances include loans originated under the PPP with an amortized cost of $0.6 million as of September 30, 2023, and $0.8 million as of December 31, 2022.

Busey did not purchase any retail real estate loans during the three or nine months ended September 30, 2023, or 2022.

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Pledged Loans

Busey had loans pledged to the FHLB and Federal Reserve for liquidity as set forth in the table below (dollars in thousands):


	As of
	September 30, 2023		December 31, 2022
Pledged loans
FHLB	$	4,852,634	$	5,095,448
Federal Reserve Bank	858,312		804,718
Total pledged loans	$	5,710,946	$	5,900,166

Risk Grading

Busey utilizes a loan grading scale to assign a risk grade to all of its loans. A description of the general characteristics of each grade is as follows:

•Pass – This category includes loans that are all considered acceptable credits, ranging from investment or near investment grade, to loans made to borrowers who exhibit credit fundamentals that meet or exceed industry standards.

•Watch – This category includes loans that warrant a higher-than-average level of monitoring to ensure that weaknesses do not cause the inability of the credit to perform as expected. These loans are not necessarily a problem due to other inherent strengths of the credit, such as guarantor strength, but have above average concern and monitoring.

•Special mention – This category is for “Other Assets Specially Mentioned” loans that have potential weaknesses, which may, if not checked or corrected, weaken the asset or inadequately protect the Company’s credit position at some future date.

•Substandard – This category includes “Substandard” loans, determined in accordance with regulatory guidelines, for which the accrual of interest has not been stopped. Assets so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

•Substandard non-accrual – This category includes loans that have all the characteristics of a “Substandard” loan with additional factors that make collection in full highly questionable and improbable. Such loans are placed on non-accrual status and may be dependent on collateral with a value that is difficult to determine.

All loans are graded at their inception. Commercial lending relationships that are $1.0 million or less are usually processed through an expedited underwriting process. Most commercial loans greater than $1.0 million are included in a portfolio review at least annually. Commercial loans greater than $0.35 million that have a grading of special mention or worse are typically reviewed on a quarterly basis. Interim reviews may take place if circumstances of the borrower warrant a more frequent review.

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The following table is a summary of risk grades segregated by category and class of portfolio loans (dollars in thousands):


	As of September 30, 2023
	Pass		Watch		Special Mention		Substandard		Substandard Non-accrual		Total
Commercial loans
Commercial	$	1,533,562	$	350,820	$	24,705	$	28,734	$	5,628	$	1,943,449
Commercial real estate	2,944,191		351,494		44,771		11,739		1,558		3,353,753
Real estate construction	513,218		9,027		—		5,353		—		527,598
Total commercial loans	4,990,971		711,341		69,476		45,826		7,186		5,824,800
Retail loans
Retail real estate	1,698,692		10,245		642		1,824		4,042		1,715,445
Retail other	315,845		—		—		—		70		315,915
Total retail loans	2,014,537		10,245		642		1,824		4,112		2,031,360
Total portfolio loans	$	7,005,508	$	721,586	$	70,118	$	47,650	$	11,298	$	7,856,160


	As of December 31, 2022
	Pass		Watch		Special Mention		Substandard		Substandard Non-accrual		Total
Commercial loans
Commercial	$	1,668,495	$	201,758	$	46,540	$	51,187	$	6,174	$	1,974,154
Commercial real estate	2,851,709		326,455		43,526		34,539		5,644		3,261,873
Real estate construction	502,904		25,164		1		2,400		—		530,469
Total commercial loans	5,023,108		553,377		90,067		88,126		11,818		5,766,496
Retail loans
Retail real estate	1,639,599		10,520		1,338		2,529		3,096		1,657,082
Retail other	301,971		—		—		—		153		302,124
Total retail loans	1,941,570		10,520		1,338		2,529		3,249		1,959,206
Total portfolio loans	$	6,964,678	$	563,897	$	91,405	$	90,655	$	15,067	$	7,725,702

Risk grades of portfolio loans and net charge-offs are presented in the tables below by loan class, further sorted by origination year (dollars in thousands):

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


	As of and For The Nine Months Ended September 30, 2023
	Term Loans Amortized Cost Basis by Origination Year												Revolving Loans		Total
Risk Grade Ratings	2023		2022		2021		2020		2019		Prior
Commercial
Pass	$	279,467	$	255,619	$	181,603	$	74,600	$	39,483	$	152,523	$	550,267	$	1,533,562
Watch	112,285		59,685		44,244		25,119		7,526		24,532		77,429		350,820
Special Mention	616		541		651		1,104		499		6,937		14,357		24,705
Substandard	8,901		912		1,119		445		3,948		1,859		11,550		28,734
Substandard non-accrual	583		—		2,605		103		130		507		1,700		5,628
Total commercial	401,852		316,757		230,222		101,371		51,586		186,358		655,303		1,943,449
Current period charge-offs	—		—		420		—		316		997		—		1,733

Commercial real estate
Pass	352,661		850,371		778,662		404,109		281,889		258,207		18,292		2,944,191
Watch	82,748		45,945		69,450		33,694		79,906		34,700		5,051		351,494
Special Mention	18,753		1,597		13,762		3,908		3,330		3,421		—		44,771
Substandard	1,882		193		904		2,987		1,831		3,898		44		11,739
Substandard non-accrual	225		533		165		25		—		610		—		1,558
Total commercial real estate	456,269		898,639		862,943		444,723		366,956		300,836		23,387		3,353,753
Current period charge-offs	—		—		—		—		239		936		—		1,175

Real estate construction
Pass	152,897		171,900		104,963		54,943		1,365		3,899		23,251		513,218
Watch	1,065		4,453		253		3,214		42		—		—		9,027

Substandard	5,353		—		—		—		—		—		—		5,353

Total real estate construction	159,315		176,353		105,216		58,157		1,407		3,899		23,251		527,598


Retail real estate
Pass	201,140		379,512		420,164		162,295		71,102		274,617		189,862		1,698,692
Watch	767		2,704		2,877		973		579		596		1,749		10,245
Special Mention	204		55		—		—		—		383		—		642
Substandard	73		73		295		53		82		1,010		238		1,824
Substandard non-accrual	—		538		56		187		101		2,434		726		4,042
Total retail real estate	202,184		382,882		423,392		163,508		71,864		279,040		192,575		1,715,445
Current period charge-offs	—		5		—		29		62		156		—		252

Retail other
Pass	86,096		102,834		25,977		8,172		6,388		1,539		84,839		315,845



Substandard non-accrual	—		63		—		3		3		1		—		70
Total retail other	86,096		102,897		25,977		8,175		6,391		1,540		84,839		315,915
Current period charge-offs	4		71		157		1		—		250		—		483

Total portfolio loans	$	1,305,716	$	1,877,528	$	1,647,750	$	775,934	$	498,204	$	771,673	$	979,355	$	7,856,160
Total current period charge-offs	$	4	$	76	$	577	$	30	$	617	$	2,339	$	—	$	3,643

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


	As of December 31, 2022
	Term Loans Amortized Cost Basis by Origination Year												Revolving Loans		Total
Risk Grade Ratings	2022		2021		2020		2019		2018		Prior
Commercial
Pass	$	479,893	$	266,122	$	136,445	$	52,046	$	50,764	$	135,000	$	548,225	$	1,668,495
Watch	54,195		49,382		3,288		7,201		1,258		2,160		84,274		201,758
Special Mention	1,958		937		1,642		974		1,000		17,024		23,005		46,540
Substandard	8,926		1,165		570		6,671		2,382		5,191		26,282		51,187
Substandard non-accrual	21		3,292		226		135		—		100		2,400		6,174
Total commercial	544,993		320,898		142,171		67,027		55,404		159,475		684,186		1,974,154

Commercial real estate
Pass	883,688		819,133		478,452		297,525		161,409		198,419		13,083		2,851,709
Watch	77,346		56,113		64,282		96,664		21,592		5,758		4,700		326,455
Special Mention	11,943		5,389		12,386		1,420		6,917		5,471		—		43,526
Substandard	5,340		13,528		3,454		1,907		10,248		62		—		34,539
Substandard non-accrual	—		3,959		33		—		1,647		5		—		5,644
Total commercial real estate	978,317		898,122		558,607		397,516		201,813		209,715		17,783		3,261,873

Real estate construction
Pass	219,112		191,724		68,015		1,490		1,901		1,751		18,911		502,904
Watch	8,530		12,019		3,169		48		—		1,398		—		25,164
Special Mention	—		—		—		1		—		—		—		1
Substandard	2,400		—		—		—		—		—		—		2,400

Total real estate construction	230,042		203,743		71,184		1,539		1,901		3,149		18,911		530,469

Retail real estate
Pass	396,547		456,158		175,148		77,569		56,887		267,387		209,903		1,639,599
Watch	2,928		2,991		1,846		1,444		1,063		27		221		10,520
Special Mention	945		—		—		—		—		393		—		1,338
Substandard	77		732		198		81		141		1,293		7		2,529
Substandard non-accrual	10		191		107		32		390		1,708		658		3,096
Total retail real estate	400,507		460,072		177,299		79,126		58,481		270,808		210,789		1,657,082

Retail other
Pass	134,567		43,512		13,141		13,086		5,646		991		91,028		301,971



Substandard non-accrual	14		134		3		—		—		2		—		153
Total retail other	134,581		43,646		13,144		13,086		5,646		993		91,028		302,124

Total portfolio loans	$	2,288,440	$	1,926,481	$	962,405	$	558,294	$	323,245	$	644,140	$	1,022,697	$	7,725,702

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Past Due and Non-accrual Loans

An analysis of the amortized cost basis of portfolio loans that are past due and still accruing, or on a non-accrual status, is as follows (dollars in thousands):


	As of September 30, 2023
	Loans past due, still accruing						Non-accrual Loans
	30-59 Days		60-89 Days		90+Days
Past due and non-accrual loans
Commercial loans:
Commercial	$	—	$	112	$	51	$	5,628
Commercial real estate	—		109		—		1,558
Real estate construction	—		244		—		—
Past due and non-accrual commercial loans	—		465		51		7,186
Retail loans:
Retail real estate	3,643		840		558		4,042
Retail other	914		72		100		70
Past due and non-accrual retail loans	4,557		912		658		4,112
Total past due and non-accrual loans	$	4,557	$	1,377	$	709	$	11,298


	As of December 31, 2022
	Loans past due, still accruing						Non-accrual Loans
	30-59 Days		60-89 Days		90+Days
Past due and non-accrual loans
Commercial loans:
Commercial	$	2	$	—	$	—	$	6,174
Commercial real estate	124		—		—		5,644

Past due and non-accrual commercial loans	126		—		—		11,818
Retail loans:
Retail real estate	4,709		1,239		673		3,096
Retail other	414		60		—		153
Past due and non-accrual retail loans	5,123		1,299		673		3,249
Total past due and non-accrual loans	$	5,249	$	1,299	$	673	$	15,067

Gross interest income recorded on 90+ days past due loans, and that would have been recorded on non-accrual loans if they had been accruing interest in accordance with their original terms, was $0.2 million and $0.9 million for the three and nine months ended September 30, 2023, respectively, and was $0.3 million and $0.8 million for the three and nine months ended September 30, 2022, respectively. The amount of interest collected on those loans and recognized on a cash basis that was included in interest income was insignificant for the three and nine months ended September 30, 2023. Interest collected on these loans and recognized on a cash basis was insignificant for the three months ended September 30, 2022, and was $0.4 million for the nine months ended September 30, 2022.

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Loan Modification Disclosures Pursuant to ASU 2022-02

The following tables show the amortized cost basis of loans that were modified for borrowers experiencing financial difficulty during the periods indicated, disaggregated by class of financing receivable and type of concession granted (dollars in thousands):


	Three Months Ended September 30, 2023
	Interest Rate Reduction1		% of Total Class of Financing Receivable2		Term Extension3		% of Total Class of Financing Receivable2
Loan class:
Commercial	$	—	—	%	$	12,026	0.6	%
Commercial real estate	880		—	%	553		—	%



Total of loans modified during the period4	$	880	—	%	$	12,579	0.2	%

___________________________________________

1.For one loan, the default rate was removed once forbearance was entered.

2.Modified loans represent an insignificant portion of commercial real estate loans, rounding to zero percent.

3.Modifications to extend loan terms also included, in some cases, interest rate increases during the extension period.

4.All modifications were for loans classified as substandard.


	Nine Months Ended September 30, 2023
	Interest Rate Reduction1		% of Total Class of Financing Receivable2		Payment Deferral3		% of Total Class of Financing Receivable2		Term Extension4		% of Total Class of Financing Receivable2
Loan class:
Commercial	$	—	—	%	$	—	—	%	$	17,334	0.9	%
Commercial real estate	880		—	%	225		—	%	1,003		—	%
Real estate construction	—		—	%	—		—	%	5,353		1.0	%


Total of loans modified during the period5	$	880	—	%	$	225	—	%	$	23,690	0.3	%

___________________________________________

1.For one loan, the default rate was removed once forbearance was entered.

2.Modified loans represent an insignificant portion of commercial real estate loans, rounding to zero percent.

3.A loan with payment deferral was modified to defer all principal payments until the end of the loan term, which was shortened.

4.Modifications to extend loan terms also included, in some cases, interest rate increases during the extension period.

5.Modifications include two loans on non-accrual status, and the remaining loans were classified as substandard.

The following table summarizes the effects of loan modifications made during the periods indicated, for borrowers experiencing financial difficulty:

Three Months Ended September 30, 2023

Nine Months Ended September 30, 2023

Weighted Average Interest Rate Reduction

Weighted Average Term Extension

Weighted Average Interest Rate Reduction

Weighted Average Term Extension

Loan class:

Commercial

15.3 months

14.3 months

Commercial real estate

2.50

9.0 months

2.50

11.2 months

Real estate construction

12.0 months

Total financial effect

2.50

15.0 months

2.50

13.7 months

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

No financing receivables had payment defaults during the three months ended September 30, 2023, after having been modified during the 12 months before default for borrowers experiencing financial difficulty. The following table provides the amortized cost basis of financing receivables that had a payment default during the nine months ended September 30, 2023, after having been modified during the 12 months before default for borrowers experiencing financial difficulty (dollars in thousands). A default occurs when a loan is 90 days or more past due or transferred to non-accrual status.


	Nine Months Ended September 30, 2023
	Payment Deferral		Term Extension
Loan class:
Commercial	$	—	$	500
Commercial real estate	225		—



Amortized cost of modified loans with subsequent defaults	$	225	$	500

Busey closely monitors the performance of the loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table depicts the payment performance of loans modified on or after January 1, 2023, the date we adopted ASU 2022-02 (dollars in thousands):


	As of September 30, 2023
	Current		Non-accrual
Loan class:
Commercial	$	16,834	$	500
Commercial real estate	1,883		225
Real estate construction	5,353		—


Amortized cost of modified loans	$	24,070	$	725

TDR Disclosures Prior to the Adoption of ASU 2022-02

At December 31, 2022, performing TDR’s were $3.0 million and non-performing TDR’s were $0.5 million.

No loans were newly designated as a TDR during the three months ended September 30, 2022, and one loan was newly designated as a TDR during the nine months ended September 30, 2022. There were no TDRs entered into during the 12 months ended September 30, 2022, that had subsequent defaults during the three or nine months ended September 30, 2022. Gross interest income that would have been recorded in the three and nine months ended September 30, 2022, if TDRs had performed in accordance with their original terms compared with their modified terms, was insignificant.

Collateral Dependent Loans

Management's evaluation as to the ultimate collectability of loans includes estimates regarding future cash flows from operations and the value of property, real and personal, pledged as collateral. These estimates are affected by changing economic conditions and the economic prospects of borrowers. Collateral dependent loans are loans in which repayment is expected to be provided solely by the underlying collateral and there are no other available and reliable sources of repayment. Loans are written down to the lower of cost or fair value of underlying collateral, less estimated costs to sell. The Company had $10.0 million and $14.0 million of collateral dependent loans secured by real estate or business assets as of September 30, 2023, and December 31, 2022, respectively.

Foreclosures

As of September 30, 2023, Busey had $1.0 million of residential real estate in the process of foreclosure. Busey follows Federal Housing Finance Agency guidelines on single-family foreclosures and real estate owned evictions on portfolio loans.

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Loans Evaluated Individually

Busey evaluates loans with disparate risk characteristics on an individual basis. The following tables provide details of loans evaluated individually, segregated by loan category and class. The unpaid principal balance represents customer outstanding contractual principal balances excluding any partial charge-offs. Recorded investment represents the amortized cost of customer balances net of any partial charge-offs recognized on the loan. Average recorded investment is calculated using the most recent four quarters (dollars in thousands):


	As of September 30, 2023
	Unpaid Principal Balance		Recorded Investment								Average Recorded Investment
			With No Allowance		With Allowance		Total		Related Allowance
Loans evaluated individually
Commercial loans:
Commercial	$	10,007	$	597	$	4,909	$	5,506	$	1,576	$	6,058
Commercial real estate	3,946		1,289		116		1,405		116		4,866
Real estate construction	—		—		—		—		—		100
Commercial loans evaluated individually	13,953		1,886		5,025		6,911		1,692		11,024
Retail loans:
Retail real estate	213		61		25		86		25		1,196

Retail loans evaluated individually	213		61		25		86		25		1,196
Total loans evaluated individually	$	14,166	$	1,947	$	5,050	$	6,997	$	1,717	$	12,220


	As of December 31, 2022
	Unpaid Principal Balance		Recorded Investment								Average Recorded Investment
			With No Allowance		With Allowance		Total		Related Allowance
Loans evaluated individually
Commercial loans:
Commercial	$	9,589	$	656	$	5,918	$	6,574	$	2,476	$	6,761
Commercial real estate	8,039		2,334		3,903		6,237		2,000		5,219
Real estate construction	247		247		—		247		—		260
Commercial loans evaluated individually	17,875		3,237		9,821		13,058		4,476		12,240
Retail loans:
Retail real estate	2,733		2,564		25		2,589		25		2,311

Retail loans evaluated individually	2,733		2,564		25		2,589		25		2,311
Total loans evaluated individually	$	20,608	$	5,801	$	9,846	$	15,647	$	4,501	$	14,551

Allowance for Credit Losses

Management estimates the ACL balance using relevant available information from internal and external sources relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. The cumulative loss rate used as the basis for the estimate of credit losses is comprised of Busey’s historical loss experience beginning in 2010. Due to the continued economic uncertainty in the markets in which the Company operates, Busey will continue to utilize a forecast period of 12 months with an immediate reversion to historical loss rates beyond this forecast period in its ACL estimate. PPP loans were excluded from the ACL calculation as they are 100% government guaranteed.

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The following tables summarize activity in the ACL attributable to each loan category. Allocation of a portion of the ACL to one category does not preclude its availability to absorb losses in other categories (dollars in thousands):


	Three Months Ended September 30, 2023
	Commercial		Commercial Real Estate		Real Estate Construction		Retail Real Estate		Retail Other		Total
ACL balance, June 30, 2023	$	24,510	$	33,656	$	5,071	$	24,675	$	3,727	$	91,639
Provision for credit losses	(1,306)		745		104		674		147		364
Charged-off	(758)		(102)		—		(144)		(111)		(1,115)
Recoveries	187		392		31		128		84		822
ACL balance, September 30, 2023	$	22,633	$	34,691	$	5,206	$	25,333	$	3,847	$	91,710


	Nine Months Ended September 30, 2023
	Commercial		Commercial Real Estate		Real Estate Construction		Retail Real Estate		Retail Other		Total
ACL balance, December 31, 2022	$	23,860	$	38,299	$	6,457	$	18,193	$	4,799	$	91,608
Provision for credit losses	79		(3,006)		(1,404)		6,975		(700)		1,944
Charged-off	(1,733)		(1,175)		—		(252)		(483)		(3,643)
Recoveries	427		573		153		417		231		1,801
ACL balance, September 30, 2023	$	22,633	$	34,691	$	5,206	$	25,333	$	3,847	$	91,710


	Three Months Ended September 30, 2022
	Commercial		Commercial Real Estate		Real Estate Construction		Retail Real Estate		Retail Other		Total
ACL balance, June 30, 2022	$	23,359	$	37,182	$	5,669	$	17,984	$	4,563	$	88,757

Provision for credit losses	615		598		216		684		251		2,364
Charged-off	(381)		—		—		(220)		(218)		(819)
Recoveries	102		19		86		172		41		420
ACL balance, September 30, 2022	$	23,695	$	37,799	$	5,971	$	18,620	$	4,637	$	90,722


	Nine Months Ended September 30, 2022
	Commercial		Commercial Real Estate		Real Estate Construction		Retail Real Estate		Retail Other		Total
ACL balance, December 31, 2021	$	23,855	$	38,249	$	5,102	$	17,589	$	3,092	$	87,887

Provision for credit losses	123		408		663		826		1,744		3,764
Charged-off	(589)		(1,372)		—		(253)		(409)		(2,623)
Recoveries	306		514		206		458		210		1,694
ACL balance, September 30, 2022	$	23,695	$	37,799	$	5,971	$	18,620	$	4,637	$	90,722

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The following tables present the ACL and amortized cost of portfolio loans by loan category and class (dollars in thousands):


	As of September 30, 2023
	Portfolio Loans						ACL Attributed to Portfolio Loans
	Collectively Evaluated for Impairment		Individually Evaluated for Impairment		Total		Collectively Evaluated for Impairment		Individually Evaluated for Impairment		Total
Portfolio loans and related ACL
Commercial loans:
Commercial	$	1,937,943	$	5,506	$	1,943,449	$	21,057	$	1,576	$	22,633
Commercial real estate	3,352,348		1,405		3,353,753		34,575		116		34,691
Real estate construction	527,598		—		527,598		5,206		—		5,206
Commercial loans and related ACL	5,817,889		6,911		5,824,800		60,838		1,692		62,530
Retail loans:
Retail real estate	1,715,359		86		1,715,445		25,308		25		25,333
Retail other	315,915		—		315,915		3,847		—		3,847
Retail loans and related ACL	2,031,274		86		2,031,360		29,155		25		29,180
Portfolio loans and related ACL	$	7,849,163	$	6,997	$	7,856,160	$	89,993	$	1,717	$	91,710


	As of December 31, 2022
	Portfolio Loans						ACL Attributed to Portfolio Loans
	Collectively Evaluated for Impairment		Individually Evaluated for Impairment		Total		Collectively Evaluated for Impairment		Individually Evaluated for Impairment		Total
Portfolio loans and related ACL
Commercial loans:
Commercial	$	1,967,580	$	6,574	$	1,974,154	$	21,384	$	2,476	$	23,860
Commercial real estate	3,255,636		6,237		3,261,873		36,299		2,000		38,299
Real estate construction	530,222		247		530,469		6,457		—		6,457
Commercial loans and related ACL	5,753,438		13,058		5,766,496		64,140		4,476		68,616
Retail loans:
Retail real estate	1,654,493		2,589		1,657,082		18,168		25		18,193
Retail other	302,124		—		302,124		4,799		—		4,799
Retail loans and related ACL	1,956,617		2,589		1,959,206		22,967		25		22,992
Portfolio loans and related ACL	$	7,710,055	$	15,647	$	7,725,702	$	87,107	$	4,501	$	91,608

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 4: Leases

Busey as the Lessee

Busey has operating leases consisting primarily of equipment leases and real estate leases for banking centers, ATM locations, and office space. The following table summarizes lease-related information and balances reported in our Consolidated Balance Sheets (Unaudited) for the periods presented (dollars in thousands):


	As of
	September 30, 2023			December 31, 2022
Lease balances
Right of use assets	$	11,500		$	12,829
Lease liabilities	11,783			12,995

Supplemental information
Year through which lease terms extend	2037			2037
Weighted average remaining lease term, in years	8.49			8.90
Weighted average discount rate	3.56		%	3.45		%

The following table represents lease costs and cash flows related to leases for the periods presented (dollars in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Lease costs
Operating lease costs	$	615	$	563	$	1,836	$	1,762
Variable lease costs	9		214		27		436
Short-term lease costs	15		5		37		15
Total lease cost1	$	639	$	782	$	1,900	$	2,213

Cash flows related to leases
Cash paid for amounts included in the measurement of lease liabilities:
Operating lease cash flows – Fixed payments	$	586	$	1,076	$	1,720	$	2,445
Operating lease cash flows – Liability reduction	483		464		1,423		1,741
Right of use assets obtained during the period in exchange for operating lease liabilities	199		1,127		208		1,182

___________________________________________

1.Lease costs are included in net occupancy and equipment expense in the Consolidated Statements of Income (Unaudited).

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Busey was obligated under noncancelable operating leases for office space and other commitments, as follows (dollars in thousands):


	As of September 30, 2023
Rent commitments
Remainder of 2023	$	566
2024	2,044
2025	1,764
2026	1,442
2027	1,276
2028	1,255
Thereafter	5,478
Total undiscounted cash flows	13,825
Less: Amounts representing interest	2,042
Present value of net future minimum lease payments	$	11,783

Busey as the Lessor

Busey occasionally leases parking lots and office space to outside parties. Revenues recorded in connection with these leases, reported in Other income on our Consolidated Statements of Income (Unaudited), are summarized as follows (dollars in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Rental income	$	152	$	146	$	526	$	519

Note 5: Deposits

The composition of Busey’s deposits is as follows (dollars in thousands):


	As of
	September 30, 2023		December 31, 2022
Deposits
Noninterest-bearing demand deposits	$	2,918,574	$	3,393,666
Interest-bearing transaction deposits	2,856,192		2,857,818
Saving deposits and money market deposits	2,890,944		2,964,421
Time deposits	1,666,652		855,375
Total deposits	$	10,332,362	$	10,071,280

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Additional information about Busey’s deposits follows (dollars in thousands):


	As of
	September 30, 2023		December 31, 2022
Brokered savings deposits and money market deposits	$	6,055	$	1,303
Brokered time deposits	283		275
Aggregate amount of time deposits with a minimum denomination of $100,000	976,513		416,445
Aggregate amount of time deposits with a minimum denomination that meets or exceeds the FDIC insurance limit of $250,000	350,276		120,377

Scheduled maturities of time deposits are as follows (dollars in thousands):


	As of September 30, 2023
Time deposits by schedule of maturities
Remainder of 2023	$	251,302
2024	1,322,335
2025	52,337
2026	19,438
2027	12,888
2028	7,813
Thereafter	539
Time deposits	$	1,666,652

Note 6: Borrowings

Securities Sold Under Agreements to Repurchase

Securities sold under agreements to repurchase, which are classified as secured borrowings, generally mature daily. Securities sold under agreements to repurchase are reflected at the amount of cash received in connection with the transaction. The underlying securities are held by Busey’s safekeeping agent. Busey may be required to provide additional collateral based on fluctuations in the fair value of the underlying securities. Securities sold under agreements to repurchase were as follows (dollars in thousands):


	As of
	September 30, 2023			December 31, 2022
Securities sold under agreements to repurchase	$	183,702		$	229,806
Weighted average rate for securities sold under agreements to repurchase	3.07		%	1.91		%

Term Loan

On May 28, 2021, Busey entered into a Second Amended and Restated Credit Agreement, pursuant to which Busey has access to (i) a $40.0 million revolving line of credit with a termination date of April 30, 2022, and (ii) 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.

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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 $33.0 million as of September 30, 2023, of which $12.0 million was short-term and $21.0 million was long-term. Quarterly payments on the term loan reduce the outstanding principal balance by $3.0 million each quarter.

As of September 30, 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.

Short-term Borrowings

Busey’s short-term borrowings include loans maturing within one year of the loan origination date, as well as the current portion of long-term debt that is due within 12 months. Short-term borrowings are summarized as follows (dollars in thousands):


	As of
	September 30, 2023		December 31, 2022
Short-term borrowings

FHLB advances maturing in less than one year from date of origination, and the current portion of long-term FHLB advances due within 12 months	$	—	$	339,054

Term Loan, current portion due within 12 months	12,000		12,000
Total short-term debt	$	12,000	$	351,054

Funds borrowed from the FHLB, listed above, consisted of four notes with a weighted average interest rate of 4.28% and a weighted average maturity period of five days as of December 31, 2022.

Federal funds purchased are short-term borrowings that generally mature between one day and 90 days. During the first quarter of 2023, Busey purchased federal funds to test operational availability to access funds if needed. Busey had no federal funds purchased as of September 30, 2023, or December 31, 2022.

Long-term Debt

Busey’s long-term debt consists of loans maturing more than one year from the loan origination date, excluding the current portion that is due within 12 months. Long-term debt is summarized as follows (dollars in thousands):


	As of
	September 30, 2023		December 31, 2022
Long-term debt

Term Loan	$	21,000	$	30,000
Total long-term debt	$	21,000	$	30,000

Subordinated Notes

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

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

On June 2, 2022, Busey issued $100.0 million aggregate principal amount of 5.000% fixed-to-floating rate subordinated notes maturing June 15, 2032, which qualify as Tier 2 capital for regulatory purposes. The price to the public for the subordinated notes was 100% of the principal amount of the subordinated notes. Interest on the subordinated notes accrues at a rate equal to (i) 5.000% per annum from the original issue date to, but excluding, June 15, 2027, payable semiannually in arrears, and (ii) 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 senior notes and subordinated notes are presented in the following table (dollars in thousands):


	As of
	September 30, 2023		December 31, 2022
Unamortized debt issuance costs
Subordinated notes issued in 2020	$	859	$	1,220
Subordinated notes issued in 2022	1,475		1,742
Total unamortized debt issuance costs	$	2,334	$	2,962

Note 7: Regulatory Capital

First Busey Corporation and Busey Bank are subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory—and possibly additional discretionary—actions by regulators that, if undertaken, could have a direct material effect on Busey's consolidated financial statements. Capital amounts and classification also are subject to qualitative judgments by regulators about components, risk weightings, and other factors.

Banking regulations identify five capital categories for insured depository institutions: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. As of September 30, 2023, and December 31, 2022, all capital ratios of First Busey Corporation and Busey Bank exceeded well capitalized levels under the applicable regulatory capital adequacy guidelines. Management believes that no events or changes have occurred subsequent to September 30, 2023, that would change this designation.

Current Expected Credit Loss Model

On August 26, 2020, the FDIC and other federal banking agencies adopted a final rule which provided banking organizations that adopted CECL during 2020 with the option to delay for two years the estimated impact of CECL on regulatory capital and to phase in the aggregate impact of the deferral on regulatory capital over a subsequent three-year period. Under this final rule, because the Company has elected to use the deferral option, the regulatory capital impact of our transition adjustments recorded on January 1, 2020, arising from the adoption of CECL, was deferred for two years. In addition, 25 percent of the ongoing impact of CECL on our ACL, retained earnings, and average total consolidated assets from January 1, 2020, through the end of the two-year deferral period, each as reported for regulatory capital purposes, has been added to the deferred transition amounts (“adjusted transition amounts”) and deferred for the two-year period. On January 1, 2022, at the conclusion of the two-year period, the adjusted transition amounts began to be phased-in for regulatory capital purposes at a rate of 25 percent per year, with the phased-in amounts included in regulatory capital at the beginning of each year.

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Capital Amounts and Ratios

The following tables summarize regulatory capital requirements applicable to First Busey Corporation and Busey Bank (dollars in thousands):


	As of September 30, 2023
	Actual				Minimum Capital Requirement				Minimum To Be Well Capitalized
	Amount		Ratio		Amount		Ratio		Amount		Ratio
Common equity Tier 1 capital to risk weighted assets
First Busey	$	1,144,403	12.52	%	$	411,165	4.50	%	$	593,905	6.50	%
Busey Bank	$	1,356,565	14.89	%	$	409,979	4.50	%	$	592,192	6.50	%

Tier 1 capital to risk weighted assets
First Busey	$	1,218,403	13.33	%	$	548,220	6.00	%	$	730,960	8.00	%
Busey Bank	$	1,356,565	14.89	%	$	546,639	6.00	%	$	728,852	8.00	%

Total capital to risk weighted assets
First Busey	$	1,527,627	16.72	%	$	730,960	8.00	%	$	913,700	10.00	%
Busey Bank	$	1,440,789	15.81	%	$	728,852	8.00	%	$	911,064	10.00	%

Leverage ratio of Tier 1 capital to average assets
First Busey	$	1,218,403	10.08	%	$	483,272	4.00	%	N/A		N/A
Busey Bank	$	1,356,565	11.26	%	$	481,856	4.00	%	$	602,321	5.00	%

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


	As of December 31, 2022
	Actual				Minimum Capital Requirement				Minimum To Be Well Capitalized
	Amount		Ratio		Amount		Ratio		Amount		Ratio
Common equity Tier 1 capital to risk weighted assets
First Busey	$	1,081,686	11.96	%	$	406,980	4.50	%	$	587,861	6.50	%
Busey Bank	$	1,306,716	14.49	%	$	405,736	4.50	%	$	586,063	6.50	%

Tier 1 capital to risk weighted assets
First Busey	$	1,155,686	12.78	%	$	542,640	6.00	%	$	723,521	8.00	%
Busey Bank	$	1,306,716	14.49	%	$	540,981	6.00	%	$	721,308	8.00	%

Total capital to risk weighted assets
First Busey	$	1,457,994	16.12	%	$	723,521	8.00	%	$	904,401	10.00	%
Busey Bank	$	1,384,024	15.35	%	$	721,308	8.00	%	$	901,635	10.00	%

Leverage ratio of Tier 1 capital to average assets
First Busey	$	1,155,686	9.45	%	$	489,124	4.00	%	N/A		N/A
Busey Bank	$	1,306,716	10.72	%	$	487,541	4.00	%	$	609,426	5.00	%

Capital Conservation Buffer

In July 2013, U.S. federal banking authorities approved the Basel III Rule for strengthening international capital standards. The Basel III Rule introduced a capital conservation buffer, composed entirely of common equity Tier 1 capital, which is added to the minimum risk-weighted asset ratios. The capital conservation buffer is not a minimum capital requirement; however, banking institutions with a ratio of common equity Tier 1 capital to risk-weighted assets below the capital conservation buffer will face constraints on dividends, equity repurchases, and discretionary bonus payments based on the amount of the shortfall. In order to refrain from restrictions on dividends, equity repurchases, and discretionary bonus payments, banking institutions must maintain minimum ratios of (i) common equity Tier 1 capital to risk-weighted assets of at least 7.0%, (ii) Tier 1 capital to risk-weighted assets of at least 8.5%, and (iii) total capital to risk-weighted assets of at least 10.5%.

Note 8: Stock-Based Compensation

Stock Options

Busey has outstanding stock options assumed from acquisitions. A summary of the status of, and changes in, the Company's stock option awards for the nine months ended September 30, 2023, follows:


	Shares	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life
Options outstanding at December 31, 2022	26,106	$	23.53	3.88

Forfeited	(4,180)	23.53

Options outstanding at September 30, 2023	21,926	23.53		3.13

Options exercisable at September 30, 2023	21,926	23.53		3.13

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Amended 2020 Equity Plan

The 2020 Equity Plan was approved by stockholders at the 2020 Annual Meeting of Stockholders. A description of the 2020 Equity Plan can be found in Appendix A within Busey’s Proxy Statement for the 2020 Annual Meeting of Stockholders filed on April 9, 2020. The Amended 2020 Equity Plan was approved by stockholders at the 2023 Annual Meeting of Stockholders. The terms of the Amended 2020 Equity Plan are substantially identical to those of the stockholder approved 2020 Equity Plan, other than a 1,350,000 increase in the number of shares authorized for issuance under the plan. More information can be found in Appendix A within Busey’s Proxy Statement for the 2023 Annual Meeting of Stockholders filed on April 14, 2023.

Under the terms of the 2020 Equity Plan, Busey has granted RSU, PSU, and DSU awards. Upon vesting and delivery, shares are expected, though not required, to be issued from treasury. There were 1,525,987 shares available for issuance under the Amended 2020 Equity Plan as of September 30, 2023.

RSU Awards

Busey grants RSUs to members of management periodically throughout the year. Each RSU is equivalent to one share of Busey’s common stock. These units have requisite service periods ranging from one year to five years, subject to accelerated vesting upon eligible retirement from the Company. Recipients earn quarterly dividend equivalents on their respective units which entitle the recipients to additional units. Therefore, dividends earned each quarter compound based upon the updated unit balances.

On March 22, 2023, under the terms of the 2020 Equity Plan, Busey granted 224,316 RSUs to members of management. The grant date fair value of the award totaled $4.6 million and will be recognized as compensation expense over the requisite service period ranging from one year to five years. The terms of these awards included an accelerated vesting provision upon eligible retirement from the Company, after a one-year minimum requisite service period. Subsequent to the requisite service period, the awards will become 100% vested.

A summary of changes in Busey’s RSU awards for the nine months ended September 30, 2023, is as follows:


	RSU Awards
	Shares	Weighted- Average Grant Date Fair Value
Nonvested at December 31, 2022	1,096,931	$	23.61
Granted	224,316	20.44
Dividend equivalents earned	43,841	20.53
Vested	(150,806)	29.91
Forfeited	(14,145)	22.00
Nonvested at September 30, 2023	1,200,137	22.13

PSU Awards

Busey grants PSUs, which are restricted stock units that are subject to certain performance criteria, to members of management periodically throughout the year. Each PSU is equivalent to one share of Busey’s common stock. The number of units that ultimately vest will be determined based on the achievement of the market or other performance goals, subject to accelerated service-based vesting conditions upon eligible retirement from the Company.

On March 22, 2023, under the terms of the 2020 Equity Plan, Busey granted a target of 104,643 PSUs with a maximum award of 167,429 units. The actual number of units issued at the vesting date could range from 0% to 160% of the initial grant, depending on attaining a market-based total stockholder return performance goal. The grant date fair value of the award was $2.0 million and will be recognized in compensation expense over the performance period ending December 31, 2025.

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

On March 22, 2023, under the terms of the 2020 Equity Plan, Busey granted a target of 104,643 PSUs with a maximum award of 167,429 units. The actual number of units issued at the vesting date could range from 0% to 160% of the initial grant, depending on attaining an adjusted return on average tangible common equity performance goal. The grant date fair value of the award was $2.1 million and will be recognized in compensation expense over the performance period ending December 31, 2025. The actual amount of compensation expense recognized may vary, subject to achievement of the performance goal.

On March 22, 2023, under the terms of the 2020 Equity Plan, Busey granted a target of 15,045 PSUs with a maximum award of 30,090 units. The actual number of units issued at the vesting date could range from 0% to 200% of the initial grant, depending on attaining a performance goal based upon the compounded annual revenue growth rate of the FirsTech operating segment. The grant date fair value of the award was $0.3 million and will be recognized in compensation expense over the performance period ending December 31, 2025, subject to achievement of the performance goal.

A summary of changes in Busey’s PSU awards for the nine months ended September 30, 2023, is as follows:


	PSU Awards
	Shares1	Weighted- Average Grant Date Fair Value
Nonvested at December 31, 2022	285,351	$	25.40
Granted	224,331	20.04
Dividend equivalents earned	92	22.85
Vested	(13,155)	25.50
Forfeited	(40,159)	24.98

Nonvested at September 30, 2023	456,460	22.80

Vested and outstanding at September 30, 2023²	13,063	25.52

___________________________________________

1.Shares for PSU awards represent target shares at the grant date.

2.Reported at target, as performance determination and settlement activity will take place in the fourth quarter of 2023.

DSU Awards

Busey grants DSUs, which are restricted stock units with a deferred settlement date, to its directors and advisory directors. Each DSU is equivalent to one share of Busey’s common stock. DSUs vest over a one-year period following the grant date. Under both the 2020 Equity Plan and the Amended 2020 Equity Plan, DSUs are generally are subject to the same terms as RSUs, except that following vesting of DSUs, settlement occurs within 30 days following the earlier of separation from the board or a change in control of the Company. After vesting and prior to delivery, these units will continue to earn dividend equivalents.

On March 22, 2023, under the terms of the 2020 Equity Plan, Busey granted 41,548 DSUs to directors and advisory directors. The grant date fair value of the award totaled $0.8 million and will be recognized as compensation expense over the requisite service period of one year. Subsequent to the requisite service period, the awards will become 100% vested.

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

A summary of changes in Busey’s DSU awards for the nine months ended September 30, 2023, is as follows:


	DSU Awards
	Shares	Weighted- Average Grant Date Fair Value
Nonvested at December 31, 2022	31,085	$	25.75
Granted	41,548	20.44
Dividend equivalents earned	6,010	20.48
Vested	(36,078)	25.04
Forfeited	(73)	20.44
Nonvested at September 30, 2023	42,492	20.42

Vested and outstanding at September 30, 2023	142,347	23.58

2021 Employee Stock Purchase Plan

The First Busey Corporation 2021 ESPP was approved at Busey’s 2021 Annual Meeting of Stockholders and details can be found in Appendix A within First Busey’s Definitive Proxy Statement filed with the SEC on April 8, 2021. The purpose of the 2021 ESPP is to provide a means through which our employees may acquire a proprietary interest in the Company by purchasing shares of our common stock at a 15% discount through voluntary payroll deductions, to assist us in retaining the services of our employees and securing and retaining the services of new employees, and to provide incentives for our employees to exert maximum efforts toward our success.

The 2021 ESPP initially reserved for issuance and purchase an aggregate of 600,000 shares of Busey’s common stock. The first offering under the 2021 ESPP began on July 1, 2021. There were 460,340 shares available for issuance under the 2021 ESPP as of September 30, 2023.

Stock-based Compensation Expense

Busey did not record any stock option compensation expense for the three or nine months ended September 30, 2023, or 2022. As of September 30, 2023, the Company did not have any unrecognized stock option compensation expense.

Busey recognized compensation expense related to nonvested RSU, PSU, and DSU awards, as well as the 2021 ESPP, as summarized in the table below (dollars in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Stock-based compensation expense

RSU awards	$	1,177	$	1,072	$	3,428	$	3,521
PSU awards1	1,180		1,172		2,724		2,342
DSU awards	213		196		620		679
2021 ESPP	33		36		156		179
Total stock-based compensation expense	$	2,603	$	2,476	$	6,928	$	6,721

___________________________________________

1.Expense for PSU awards with a market-based total stockholder return performance goal represents amounts based on target shares at the grant date. Expense for PSU awards with return on average tangible common equity and compounded annual revenue growth rate performance goals represents amounts based on target shares at the grant date, adjusted for performance expectations as of the date indicated.

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Unamortized compensation expense related to nonvested RSU, PSU, and DSU awards is summarized in the table below (dollars in thousands):


	As of
	September 30, 2023		December 31, 2022
Unamortized stock-based compensation
RSU awards	$	9,437	$	8,570
PSU awards1	5,942		4,279
DSU awards	403		175
Total unamortized stock-based compensation	$	15,782	$	13,024

Weighted average period over which expense is to be recognized	2.5 years		2.5 years

___________________________________________

1.Unamortized expense for PSU awards with a market-based total stockholder return performance goal represents amounts based on target shares at grant date. Unamortized expense for PSU awards with return on average tangible common equity and compounded annual revenue growth rate performance goals represents amounts based on target shares at grant date, adjusted for performance expectations as of the date indicated.

Note 9: Outstanding Commitments and Contingent Liabilities

Legal Matters

Busey is a party to legal actions which arise in the normal course of its business activities. Legal and administrative proceedings are subject to inherent uncertainties, and while unfavorable outcomes could occur, Busey does not believe at this time that any potential liabilities relating to pending or potential legal matters are likely to have a material impact on Busey's results of operations or financial position.

Credit Commitments and Contingencies

A summary of the contractual amount of Busey’s exposure to off-balance-sheet risk relating to the Company’s commitments to extend credit and standby letters of credit follows (dollars in thousands):


	As of
	September 30, 2023		December 31, 2022
Financial instruments whose contract amounts represent credit risk
Commitments to extend credit	$	2,130,938	$	1,991,769
Standby letters of credit	36,847		33,008
Total commitments	$	2,167,785	$	2,024,777

Note 10: Derivative Financial Instruments

Busey utilizes interest rate swap agreements as part of its asset liability management strategy to help manage its interest rate risk position. Additionally, Busey enters into derivative financial instruments, including interest rate lock commitments issued to residential loan customers for loans that will be held for sale; forward sales commitments to sell residential mortgage loans to investors; and interest rate swaps, risk participation agreements, and foreign currency exchange contracts with customers and other third parties. See “Note 11: Fair Value Measurements” for further discussion of the fair value measurement of such derivatives.

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

To secure its obligations under derivative contracts, Busey pledged cash and held collateral as follows (dollars in thousands):


	As of
	September 30, 2023		December 31, 2022
Cash pledged to secure obligations under derivative contracts	$	34,210	$	38,609
Collateral held to secure obligations under derivative contracts	34,620		29,830

Derivative Instruments Designated as Hedges

Busey entered into derivative instruments designated as cash flow hedges. For a derivative instrument that is designated and qualifies as a cash flow hedge, the change in fair value of the derivative instrument is reported as a component of OCI and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Changes in fair value of components excluded from the assessment of effectiveness are recognized in current earnings.

Interest Rate Swaps Designated as Cash Flow Hedges

Interest rate swaps with notional amounts totaling $350.0 million as of both September 30, 2023, and December 31, 2022, were designated as cash flow hedges. Busey entered into one $50.0 million interest rate swap to hedge the risks of variability in cash flows for future interest payments attributable to changes in the contractually specified 3-month LIBOR benchmark interest rate on the Busey’s junior subordinated debt owed to unconsolidated trusts (Debt Swap). In addition, Busey entered into one $300.0 million receive fixed pay floating interest rate swap to reduce Busey’s asset sensitivity (Loan Swap). Duration was added to our loan portfolio by fixing a portion of floating prime based loans. Interest rates had risen above their historical lows allowing Busey to lock in a portion of its loan portfolio to reduce asset sensitivity while creating a more stable margin in a volatile rate market. These hedges were determined to be highly effective during the period, and Busey expects its hedges to remain highly effective during the remaining terms of the swaps. Changes in fair value were recorded net of tax in OCI.

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

A summary of the interest-rate swaps designated as cash flow hedges is presented below (dollars in thousands):


		As of
	Location	September 30, 2023			December 31, 2022
Debt Swap
Notional amount		$	50,000		$	50,000
Weighted average fixed pay rates		1.79		%	1.79		%
Weighted average variable 3-month LIBOR receive rates		5.55		%	4.77		%
Weighted average maturity		0.96 years			1.71 years

Loan Swap
Notional amount		$	300,000		$	300,000
Weighted average fixed receive rates		4.81		%	4.81		%
Weighted average variable Prime pay rates		8.50		%	7.32		%
Weighted average maturity		5.35 years			6.10 years

Gross aggregate fair value of the swaps
Gross aggregate fair value of swap assets	Other assets	$	1,886		$	2,535
Gross aggregate fair value of swap liabilities	Other liabilities	37,725			32,367

Balances carried in AOCI
Unrealized gains (losses) on cash flow hedges, net of tax	AOCI	$	(25,092)		$	(20,985)

Busey expects to reclassify unrealized gains and losses from OCI to interest income and interest expense as shown in the following table, during the next 12 months (dollars in thousands). Amounts actually recognized could differ from these expectations due to changes in interest rates, hedge de-designations, and the addition of other hedges subsequent to September 30, 2023.


	As of September 30, 2023
Unrealized gains (losses) in OCI expected to be recognized in income
Unrealized losses expected to be reclassified from OCI to interest income	$	(922)
Unrealized gains expected to be reclassified from OCI to interest expense	481
Net unrealized gains (losses) in OCI expected to be recognized in net interest income	$	(441)

Interest expense recorded on these swap transactions was as follows for the periods presented (dollars in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Interest on swap transactions
Increase (decrease) in interest income on swap transactions	$	(2,771)	$	(405)	$	(7,500)	$	947
(Increase) decrease in interest expense on swap transactions	481		35		1,268		(250)
Net increase (decrease) in net interest income on swap transactions	$	(2,290)	$	(370)	$	(6,232)	$	697

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The following table reflects the net gains (losses) relating to cash flow derivative instruments that were recorded in AOCI and the Consolidated Statements of Income (Unaudited) during the periods presented (dollars in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Unrealized gains (losses) on cash flow hedges
Net gain (loss) recognized in OCI, net of tax	$	(5,577)	$	(10,192)	$	(8,563)	$	(21,587)
(Gain) loss reclassified from OCI to interest income, net of tax	1,982		(24)		5,362		(992)
(Gain) loss reclassified from OCI to interest expense, net of tax	(344)		290		(906)		494
Net change in unrealized gains (losses) on cash flow hedges, net of tax	$	(3,939)	$	(9,926)	$	(4,107)	$	(22,085)

Derivative Instruments Not Designated as Hedges

Interest Rate Swaps Not Designated as Hedges

Busey may offer derivative contracts to its customers in connection with their risk management needs. Busey manages the risk associated with these contracts by entering into equal and offsetting derivative agreements with third-party dealers. These contracts support variable rate, commercial loan relationships totaling $628.3 million as of September 30, 2023, and $576.9 million as of December 31, 2022. These derivatives generally work together as an economic interest rate hedge, but Busey did not designate them for hedge accounting treatment. Consequently, changes in fair value of the corresponding derivative financial asset or liability are recorded as either a charge or credit to current earnings during the period in which the changes occurred.

Amounts and fair values of derivative assets and liabilities related to customer interest rate swaps recorded in the Consolidated Balance Sheets (Unaudited) are summarized as follows (dollars in thousands):


	As of September 30, 2023
	Derivative Asset				Derivative Liability
	Notional Amount		Fair Value		Notional Amount		Fair Value
Derivatives not designated as hedging instruments
Interest rate swaps – pay floating, receive fixed	$	9,320	$	99	$	618,971	$	44,914
Interest rate swaps – pay fixed, receive floating	618,971		44,914		9,320		99
Total derivatives not designated as hedging instruments	$	628,291	$	45,013	$	628,291	$	45,013


	As of December 31, 2022
	Derivative Asset				Derivative Liability
	Notional Amount		Fair Value		Notional Amount		Fair Value
Derivatives not designated as hedging instruments
Interest rate swaps – pay floating, receive fixed	$	48,728	$	370	$	528,183	$	39,685
Interest rate swaps – pay fixed, receive floating	528,183		39,685		48,728		370
Total derivatives not designated as hedging instruments	$	576,911	$	40,055	$	576,911	$	40,055

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Changes in fair value of these derivative assets and liabilities are recorded in noninterest expense in the Consolidated Statements of Income (Unaudited) and summarized as follows (dollars in thousands):


		Three Months Ended September 30,				Nine Months Ended September 30,
	Location	2023		2022		2023		2022
Interest rate swaps
Pay floating, receive fixed	Noninterest expense	$	9,007	$	18,317	$	4,646	$	21,792
Pay fixed, receive floating	Noninterest expense	(9,007)		(18,317)		(4,646)		(21,792)
Net change in fair value of interest rate swaps		$	—	$	—	$	—	$	—

Risk Participation Agreements

To manage the credit risk exposure related to customer-facing swaps, Busey entered into risk participation agreements in conjunction with loan participation arrangements with other financial institutions. Under these risk participation agreements, Busey purchased a portion of the credit exposure, paying an up-front fee, and will receive a payment from the counterparty if the loan customer defaults on its obligations.

Busey also entered into a risk participation agreement under which Busey sold a portion of its credit exposure, receiving an up-front fee, and will be required to make a payment to the counterparty if the loan customer defaults on its obligations.

The notional amount of the risk participation agreements reflect Busey's pro-rata share of the derivative instrument, consistent with its share of the related participated loan. The risk participation agreements mature between 2024 and 2029, and are summarized as follows (dollars in thousands):


	As of
	September 30, 2023		December 31, 2022
Risk participation agreements purchased
Number of risk participation agreements	3		2
Notional amount	$	34,274	$	18,899
Fair value	7		5

Risk participation agreements sold
Number of risk participation agreements	1		—
Notional amount	$	20,001	—
Fair value	—		—

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Foreign Currency Forward Contracts

Busey entered into foreign currency exchange contracts to support the business requirements of its customers. Foreign currency contracts involve the exchange of one currency for another on a specified date and at a specified rate. These contracts are executed on behalf of Busey's customers and are used by customers to manage fluctuations in foreign exchange rates. Busey minimizes its exposure by entering into similar offsetting positions with other financial institutions. Busey is subject to the credit risk that another party will fail to perform. Amounts and fair values of derivative assets and liabilities related to foreign currency contracts recorded in the Consolidated Balance Sheets (Unaudited) are summarized as follows (dollars in thousands):


	As of September 30, 2023
	Derivative Asset				Derivative Liability
	Notional Amount		Fair Value		Notional Amount		Fair Value
Foreign currency forward contracts
Foreign currency exchange forward contract (Buy)	$	354	$	58	$	—	$	—
Foreign currency exchange forward contract (Sell)	—		—		344		(48)
Total foreign currency forward contracts	$	354	$	58	$	344	$	(48)

Mortgage Banking Derivatives

Interest Rate Lock Commitments

Interest rate lock commitments that meet the definition of derivative financial instruments under ASC Topic 815 “Derivatives and Hedging” are carried at their fair values in other assets or other liabilities in the Consolidated Balance Sheets (Unaudited), with changes in the fair values of the corresponding derivative financial assets or liabilities recorded as either a charge or credit to current earnings during the period in which the changes occurred.

Forward Sales Commitments

Busey economically hedges mortgage loans held for sale and interest rate lock commitments issued to its residential loan customers related to loans that will be held for sale by obtaining corresponding forward sales commitments with an investor to sell the loans at an agreed-upon price at the time the interest rate locks are issued to the customers. Forward sales commitments that meet the definition of derivative financial instruments under ASC Topic 815 “Derivatives and Hedging” are carried at their fair values in other assets or other liabilities in the Consolidated Balance Sheets (Unaudited). While such forward sales commitments generally served as an economic hedge to mortgage loans held for sale and interest rate lock commitments, Busey did not designate them for hedge accounting treatment. Changes in fair value of the corresponding derivative financial asset or liability were recorded as either a charge or credit to current earnings during the period in which the changes occurred.

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Amounts and fair values of mortgage banking derivatives included in the Consolidated Balance Sheets (Unaudited) are summarized as follows (dollars in thousands):


		As of September 30, 2023				As of December 31, 2022
	Location	Notional Amount		Fair Value		Notional Amount		Fair Value
Derivatives with positive fair value
Interest rate lock commitments	Other assets	$	715	$	4	$	1,517	$	16
Forward sales commitments	Other assets	3,249		66		83		1
Mortgage banking derivatives recorded in other assets		$	3,964	$	70	$	1,600	$	17

Derivatives with negative fair value
Interest rate lock commitments	Other liabilities	$	1,366	$	16	$	83	$	1
Forward sales commitments	Other liabilities	1,795		12		2,757		39
Mortgage banking derivatives recorded in other liabilities		$	3,161	$	28	$	2,840	$	40

Net gains (losses) relating to these derivative instruments are summarized as follows for the periods presented (dollars in thousands):


		Three Months Ended September 30,				Nine Months Ended September 30,
	Location	2023		2022		2023		2022
Net gains (losses)
Interest rate lock commitments	Mortgage revenue	$	(16)	$	(111)	$	(28)	$	38
Forward sales commitments	Mortgage revenue	60		295		92		82
Net gains (losses)		$	44	$	184	$	64	$	120

Note 11: Fair Value Measurements

The fair value of an asset or liability is the price that would be received by selling that asset or paid in transferring that liability (exit price) in an orderly transaction occurring in the principal market (or most advantageous market in the absence of a principal market) for such asset or liability. ASC Topic 820 “Fair Value Measurement” establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

•Level 1 Inputs—Unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

•Level 2 Inputs—Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.

•Level 3 Inputs—Unobservable inputs for determining the fair values of assets or liabilities that reflect the Company’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. These valuation methodologies were applied to those Company assets and liabilities that are carried at fair value.

In general, fair value is based upon quoted market prices, when available. If such quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable data. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect, among other things, counterparty credit quality and the company's creditworthiness as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. While management believes Busey's valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

Financial Assets and Financial Liabilities Measured at Fair Value on a Recurring Basis

Debt Securities Available for Sale

Debt securities classified as available for sale are reported at fair value utilizing Level 2 inputs. Busey obtains fair value measurements from an independent pricing service. The independent pricing service utilizes evaluated pricing models that vary by asset class and incorporate available trade, bid, and other market information. Because many fixed income securities do not trade on a daily basis, the independent pricing service applies available information, focusing on observable market data such as benchmark curves, benchmarking of like securities, sector groupings, and matrix pricing, to prepare evaluations.

The independent pricing service uses model processes, such as the Option Adjusted Spread model, to assess interest rate impact and develop prepayment scenarios. Models and processes take into account market conventions. For each asset class, a team of evaluators gathers information from market sources and integrates relevant credit information, perceived market movements, and sector news into the evaluated pricing applications and models.

Market inputs that the independent pricing service normally seeks for evaluations of securities, listed in approximate order of priority, include: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including market research publications. The independent pricing service also monitors market indicators, industry, and economic events. For certain security types, additional inputs may be used or some of the market inputs may not be applicable. Evaluators may prioritize inputs differently on any given day for any security based on market conditions, and not all inputs listed are available for use in the evaluation process for each security evaluation on a given day. Because the data utilized was observable, the securities have been classified as Level 2.

Equity Securities

Equity securities are reported at fair value utilizing Level 1 or Level 2 inputs. Fair value measurements of mutual funds, when held, are determined using unadjusted quoted prices in active markets for identical assets at the measurement date and are classified as Level 1. Fair value measurements of stock utilize quoted prices for identical or similar assets in markets that are not active and are classified as Level 2.

Derivative Assets and Derivative Liabilities

The majority of our derivative assets and derivative liabilities are reported at fair value utilizing Level 2 or Level 3 inputs. Fair values of derivative assets and liabilities are determined based on prices that are obtained from a third-party which uses observable market inputs and, with the exception of our risk participation agreements, are classified as Level 2. Due to the significance of unobservable inputs, derivative assets related to our risk participation agreements are classified as Level 3.

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The following tables summarize financial assets and financial liabilities measured at fair value on a recurring basis as of September 30, 2023, and December 31, 2022, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value (dollars in thousands):


	As of September 30, 2023
	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
Debt securities available for sale:
U.S. Treasury securities	$	—	$	50,130	$	—	$	50,130
Obligations of U.S. government corporations and agencies	—		9,819		—		9,819
Obligations of states and political subdivisions	—		226,797		—		226,797
Asset-backed securities	—		479,448		—		479,448
Commercial mortgage-backed securities	—		100,300		—		100,300
Residential mortgage-backed securities	—		1,088,796		—		1,088,796
Corporate debt securities	—		227,551		—		227,551
Equity securities	—		8,782		—		8,782
Derivative assets	—		47,027		7		47,034
Derivative liabilities	—		82,814		—		82,814


	As of December 31, 2022
	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
Debt securities available for sale:
U.S. Treasury securities	$	—	$	114,061	$	—	$	114,061
Obligations of U.S. government corporations and agencies	—		19,779		—		19,779
Obligations of states and political subdivisions	—		257,512		—		257,512
Asset-backed securities	—		469,875		—		469,875
Commercial mortgage-backed securities	—		108,394		—		108,394
Residential mortgage-backed securities	—		1,243,256		—		1,243,256
Corporate debt securities	—		248,516		—		248,516
Equity securities	—		11,535		—		11,535
Derivative assets	—		42,607		5		42,612
Derivative liabilities	—		72,462		—		72,462

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Certain financial assets and financial liabilities are measured at fair value on a non-recurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).

Loans Evaluated Individually

Busey does not record portfolio loans at fair value on a recurring basis. However, periodically, a loan is evaluated individually and is reported at the fair value of the underlying collateral, less estimated costs to sell, if repayment is expected solely from the collateral. If the collateral value is not sufficient, a specific reserve is recorded. Collateral values are estimated using a combination of observable inputs, including recent appraisals, and unobservable inputs based on customized discounting criteria. Due to the significance of unobservable inputs, fair values of individually evaluated collateral dependent loans have been classified as Level 3.

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

OREO and Other Repossessed Assets

Non-financial assets measured at fair value, upon initial recognition or subsequent impairment, include OREO and other repossessed assets. OREO properties and other repossessed assets are measured using a combination of observable inputs, including recent appraisals, and unobservable inputs. Due to the significance of unobservable inputs, the fair values of all OREO and other repossessed assets have been classified as Level 3.

Bank Property Held for Sale

Bank property held for sale represents certain banking center office buildings which Busey has closed and consolidated with other existing banking centers. Bank property held for sale is measured at the lower of amortized cost or fair value less estimated costs to sell. Fair values were based upon discounted appraisals or real estate listing prices. Due to the significance of unobservable inputs, fair values of all bank property held for sale have been classified as Level 3.

The following tables summarize assets and liabilities measured at fair value on a non-recurring basis for the periods presented, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value (dollars in thousands):


	As of September 30, 2023
	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
Loans evaluated individually, net of related allowance	$	—	$	—	$	3,333	$	3,333

Bank property held for sale with impairment	—		—		4,286		4,286


	As of December 31, 2022
	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
Loans evaluated individually, net of related allowance	$	—	$	—	$	5,345	$	5,345

Bank property held for sale with impairment	—		—		7,923		7,923

The following table presents additional quantitative information about assets measured at fair value on a non-recurring basis for which the Company has utilized Level 3 inputs to determine fair value (dollars in thousands):

As of September 30, 2023

Fair Value

Valuation
Techniques

Unobservable
Input

Range
(Weighted Average)

Loans evaluated individually, net of related allowance

3,333

Appraisal of collateral

Appraisal adjustments

-10.5% to -100.0%

(-34.0)%

Bank property held for sale with impairment

4,286

Appraisal of collateral or real estate listing price

Appraisal adjustments

-6.2% to -64.9%

(-38.4)%

As of December 31, 2022

Fair Value

Valuation

Techniques

Unobservable

Input

Range

(Weighted Average)

Loans evaluated individually, net of related allowance

5,345

Appraisal of collateral

Appraisal adjustments

-22.7% to -100.0%

(-45.7)%

Bank property held for sale with impairment

7,923

Appraisal of collateral or real estate listing price

Appraisal adjustments

-0.7% to -70.1%

(-35.1)%

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Financial Assets and Financial Liabilities That Are Not Carried at Fair Value

Estimated fair values of financial instruments that are not carried at fair value in Busey’s Consolidated Balance Sheets (Unaudited), segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value, were as follows (dollars in thousands):


	As of September 30, 2023				As of December 31, 2022
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets
Level 1 inputs:
Cash and cash equivalents	$	337,919	$	337,919	$	227,164	$	227,164
Level 2 inputs:
Debt securities held to maturity	882,614		701,676		918,312		785,295
Loans held for sale	3,051		3,059		1,253		1,276
Accrued interest receivable	47,889		47,889		43,372		43,372
Level 3 inputs:
Portfolio loans, net	7,764,450		7,241,479		7,634,094		7,320,422
Mortgage servicing rights	3,870		18,758		5,861		18,284
Other servicing rights	1,675		2,144		1,914		2,331

Financial liabilities
Level 2 inputs:
Time deposits	$	1,666,652	$	1,643,625	$	855,375	$	830,596
Securities sold under agreements to repurchase	183,702		183,702		229,806		229,806
Short-term borrowings	12,000		12,027		351,054		351,085
Long-term debt	21,000		21,020		30,000		30,052
Junior subordinated debt owed to unconsolidated trusts	71,946		55,662		71,810		59,111
Accrued interest payable	22,761		22,761		3,978		3,978
Level 3 inputs:

Subordinated notes, net of unamortized issuance costs	222,666		198,812		222,038		208,562

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 12: Earnings Per Common Share

Basic earnings per share is computed by dividing net income for the period by the weighted average number of common shares outstanding, which include DSUs that are vested but not delivered. Diluted earnings per common share is computed using the treasury stock method and reflects the potential dilution that could occur if Busey’s outstanding stock options and warrants were exercised, stock units were vested, and ESPP shares were issued.

Earnings per common share have been computed as follows (dollars in thousands, except per share amounts):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net income	$	30,666	$	35,661	$	96,816	$	93,924

Weighted average number of common shares outstanding, basic	55,486,700		55,349,547		55,441,980		55,399,424
Dilutive effect of common stock equivalents:
Options	—		249		—		1,606
Warrants	—		1,708		432		1,749
RSU awards	640,714		624,576		638,495		661,173
PSU awards	165,868		81,268		126,787		37,393
DSU awards	16,792		10,414		14,996		14,275
ESPP	5,418		5,402		7,934		8,136
Weighted average number of common shares outstanding, diluted	56,315,492		56,073,164		56,230,624		56,123,756

Basic earnings per common share	$	0.55	$	0.64	$	1.75	$	1.70
Diluted earnings per common share	$	0.54	$	0.64	$	1.72	$	1.67

Average shares that were excluded from the computation of diluted earnings per common share because their effect would have been anti-dilutive are summarized in the table below for the periods presented:


	Three Months Ended September 30,		Nine Months Ended September 30,
	2023	2022	2023	2022
Anti-dilutive common stock equivalents
Options	21,926	—	22,219	10,389

RSU awards	—	—	52,594	51,883
PSU awards	85,074	160,391	137,918	226,771

Total anti-dilutive common stock equivalents	107,000	160,391	212,731	289,043

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 13: Accumulated Other Comprehensive Income (Loss)

The following tables present changes in AOCI by component, net of tax, for the periods indicated (dollars in thousands):


	Three Months Ended September 30,
	2023						2022
	Before Tax		Tax Effect		Net of Tax		Before Tax		Tax Effect		Net of Tax
Unrealized/Unrecognized gains (losses) on debt securities
Balance at beginning of period	$	(335,359)	$	95,591	$	(239,768)	$	(277,310)	$	79,047	$	(198,263)
Unrealized holding gains (losses) on debt securities available for sale, net	(37,696)		10,746		(26,950)		(96,937)		27,631		(69,306)

Amounts reclassified from AOCI, net	33		(9)		24		74		(21)		53
Amortization of unrecognized losses on securities transferred to held to maturity	1,476		(420)		1,056		1,806		(515)		1,291
Balance at end of period	$	(371,546)	$	105,908	$	(265,638)	$	(372,367)	$	106,142	$	(266,225)

Unrealized gains (losses) on cash flow hedges
Balance at beginning of period	$	(29,586)	$	8,433	$	(21,153)	$	(17,963)	$	5,119	$	(12,844)
Unrealized holding gains (losses) on cash flow hedges, net	(7,797)		2,220		(5,577)		(14,253)		4,061		(10,192)
Amounts reclassified from AOCI, net	2,290		(652)		1,638		370		(104)		266
Balance at end of period	$	(35,093)	$	10,001	$	(25,092)	$	(31,846)	$	9,076	$	(22,770)

Total AOCI	$	(406,639)	$	115,909	$	(290,730)	$	(404,213)	$	115,218	$	(288,995)

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


	Nine Months Ended September 30,
	2023						2022
	Before Tax		Tax Effect		Net of Tax		Before Tax		Tax Effect		Net of Tax
Unrealized/Unrecognized gains (losses) on debt securities
Balance at beginning of period	$	(352,878)	$	100,585	$	(252,293)	$	(32,272)	$	9,199	$	(23,073)
Unrealized holding gains (losses) on debt securities available for sale, net	(23,600)		6,728		(16,872)		(296,507)		84,519		(211,988)
Unrecognized losses on debt securities transferred to held to maturity from available for sale	—		—		—		(48,456)		13,812		(34,644)
Amounts reclassified from AOCI, net	207		(59)		148		(28)		8		(20)
Amortization of unrecognized losses on securities transferred to held to maturity	4,725		(1,346)		3,379		4,896		(1,396)		3,500
Balance at end of period	$	(371,546)	$	105,908	$	(265,638)	$	(372,367)	$	106,142	$	(266,225)

Unrealized gains (losses) on cash flow hedges
Balance at beginning of period	$	(29,350)	$	8,365	$	(20,985)	$	(958)	$	273	$	(685)
Unrealized holding gains (losses) on cash flow hedges, net	(11,975)		3,412		(8,563)		(30,191)		8,604		(21,587)
Amounts reclassified from AOCI, net	6,232		(1,776)		4,456		(697)		199		(498)
Balance at end of period	$	(35,093)	$	10,001	$	(25,092)	$	(31,846)	$	9,076	$	(22,770)

Total AOCI	$	(406,639)	$	115,909	$	(290,730)	$	(404,213)	$	115,218	$	(288,995)

Note 14: Operating Segments and Related Information

Busey has three reportable operating segments: Banking, FirsTech, and Wealth Management. Busey’s three operating segments are strategic business units that are separately managed, as they offer different products and services and have different marketing strategies.

The Banking Operating Segment

The Banking operating segment provides a full range of banking services to individual and corporate customers through First Busey Corporation’s wholly-owned bank subsidiary, Busey Bank, with 58 banking centers in Illinois; the St. Louis, Missouri, metropolitan area; southwest Florida; and Indianapolis, Indiana.

Banking services offered to individual customers include customary types of demand and savings deposits, money transfers, safe deposit services, individual retirement accounts and other fiduciary services, automated teller machines, and technology-based networks, as well as a variety of loan products including residential real estate, home equity lines of credit, and consumer loans. Banking services offered to corporate customers include commercial, commercial real estate, real estate construction, and agricultural loans, as well as commercial depository services such as cash management.

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The Wealth Management Operating Segment

The Wealth Management operating segment provides a full range of asset management, investment, brokerage, fiduciary, philanthropic advisory, tax preparation, and farm management services to individuals, businesses, and foundations. Services are provided through Busey Capital Management, Inc., a wholly-owned subsidiary of Busey Bank, and Busey Wealth Management, a division of Busey Bank.

Wealth management services tailored to individuals include trust and estate advisory services and financial planning. Business services include business succession planning and employee retirement plan services. Services for foundations include investment strategy consulting and fiduciary services.

The FirsTech Operating Segment

The FirsTech operating segment provides comprehensive and innovative payment technology solutions through Busey Bank’s wholly-owned subsidiary, FirsTech. FirsTech's multi-channel payment platform allows businesses to collect payments from their customers in a variety of ways to enable fast, frictionless payments. Payment method vehicles include, but are not limited to, text-based mobile bill pay; interactive voice response; electronic payment concentration delivered to Automated Clearing House networks, money management, and credit card networks; walk-in payment processing for customers at retail pay agents; customer service payments made over a telephone; direct debit services; and lockbox remittance processing for customers to make payments by mail. FirsTech also provides additional tools to help clients with billing, reconciliation, bill reminders, and treasury services.

FirsTech's client base represents a diverse set of industries, with a higher concentration in highly regulated industries, such as financial institutions, utility, insurance, and telecommunications industries.

Segment Financial Information

The segment financial information provided below has been derived from information used by management to monitor and manage Busey’s financial performance. The accounting policies of the three operating segments are the same as those described in the summary of significant accounting policies in “Note 1. Significant Accounting Policies” in Busey’s 2022 Annual Report. The Company accounts for intersegment revenue and transfers at current market value.

Following is a summary of selected financial information for the Company’s operating segments. The “other” category included in the tables below consists of the parent company, First Busey Risk Management, and the elimination of intercompany transactions (dollars in thousands):


	Goodwill				Total Assets
	As of				As of
	September 30, 2023		December 31, 2022		September 30, 2023		December 31, 2022
Operating segment
Banking	$	294,773	$	294,773	$	12,104,706	$	12,199,960
Wealth Management	14,108		14,108		98,755		84,082
FirsTech	8,992		8,992		50,689		48,715
Other	—		—		4,100		3,920
Consolidated total	$	317,873	$	317,873	$	12,258,250	$	12,336,677

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net interest income
Banking	$	81,794	$	90,916	$	254,394	$	244,820

FirsTech	14		15		41		50
Other	(4,017)		(4,626)		(12,117)		(12,581)
Total net interest income	$	77,791	$	86,305	$	242,318	$	232,289

Noninterest income
Banking	$	11,983	$	13,559	$	34,716	$	42,827
Wealth Management	14,350		12,514		43,993		42,425
FirsTech	5,665		5,578		16,954		16,333
Other	(990)		(718)		(4,795)		(3,861)
Total noninterest income	$	31,008	$	30,933	$	90,868	$	97,724

Noninterest expense
Banking	$	55,172	$	55,273	$	163,314	$	165,220
Wealth Management	8,059		7,682		24,821		23,533
FirsTech	5,245		5,109		16,303		14,601
Other	2,469		2,672		6,115		6,850
Total noninterest expense	$	70,945	$	70,736	$	210,553	$	210,204

Income before income taxes
Banking	$	38,241	$	46,838	$	123,852	$	118,663
Wealth Management	6,291		4,832		19,172		18,892
FirsTech	434		484		692		1,782
Other	(7,476)		(8,016)		(23,027)		(23,292)
Total income before income taxes	$	37,490	$	44,138	$	120,689	$	116,045

Net income
Banking	$	31,189	$	37,082	$	98,689	$	94,032
Wealth Management	4,781		3,756		14,571		14,688
FirsTech	317		353		505		1,300
Other	(5,621)		(5,530)		(16,949)		(16,096)
Total net income	$	30,666	$	35,661	$	96,816	$	93,924

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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OVERVIEW		58

OPERATING PERFORMANCE		59
	Key Performance Metrics	59
	Banking Center Markets	60

	Net Interest Income	60
	Noninterest Income	65
	Noninterest Expense	68

FINANCIAL CONDITION		71
	Balance Sheet	71
	Portfolio Loans	71
	Deposits	76
	Liquidity	76
	Off-Balance Sheet Arrangements	77
	Capital Resources	78

NON-GAAP FINANCIAL INFORMATION		79

FORWARD LOOKING STATEMENTS		87

CRITICAL ACCOUNTING ESTIMATES		87
	Fair Value of Debt Securities Available for Sale	87
	Fair Value of Assets Acquired and Liabilities Assumed in Business Combinations	88
	Goodwill	88
	Income Taxes	89
	Allowance for Credit Losses	89

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OVERVIEW

First Busey Corporation is a $12.3 billion financial holding company headquartered in Champaign, Illinois. Our common stock is traded on The Nasdaq Global Select Market under the symbol “BUSE.”

Our three operating segments provide a full range of banking, wealth management, and payment technology solutions through our subsidiaries, Busey Bank and FirsTech, in Illinois; the St. Louis, Missouri metropolitan area; southwest Florida; and Indianapolis, Indiana.

The following discussion and analysis are intended to assist readers in understanding Busey’s financial condition and results of operations during the three and nine months ended September 30, 2023, and should be read in conjunction with our Consolidated Financial Statements (unaudited) and the related Notes to the Consolidated Financial Statements (unaudited) included in this Quarterly Report, as well as our 2022 Annual Report.

Busey’s Conservative Banking Strategy

Busey’s financial strength is built on a long-term conservative operating approach. That focus will not change now or in the future.

The quality of our core deposit franchise is a critical value driver of our institution, and we have seen relative stability in our deposit franchise. Busey remains substantially core deposit1 funded, with robust liquidity and significant market share in the communities we serve. As of September 30, 2023, our loan to deposit ratio was 76.0% and core deposits represented 96.6% 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 September 30, 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 12.5%, and our total capital to risk weighted assets ratio was 16.7%.

1 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 2. Management’s Discussion and Analysis—Non-GAAP Financial Information” included in this Quarterly Report.

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OPERATING PERFORMANCE

Key Performance Metrics

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


		Three Months Ended September 30,						Nine Months Ended September 30,
		2023			2022			2023			2022
Reported:	Net income	$	30,666		$	35,661		$	96,816		$	93,924
Adjusted:	Net income1	$	30,730		$	36,435		$	96,889		$	95,620

Reported:	Diluted earnings per common share	$	0.54		$	0.64		$	1.72		$	1.67
Adjusted:	Diluted earnings per common share1	$	0.55		$	0.65		$	1.72		$	1.70

Reported:	Return on average assets2	1.00		%	1.13		%	1.06		%	1.00		%
Adjusted:	Return on average assets1, 2	1.00		%	1.15		%	1.06		%	1.02		%

Reported:	Return on average tangible common equity1, 2	14.31		%	17.41		%	15.50		%	14.81		%
Adjusted:	Return on average tangible common equity1, 2	14.34		%	17.79		%	15.51		%	15.08		%

Reported:	Pre-provision net revenue1	$	38,139		$	46,498		$	125,593		$	122,133
Adjusted:	Pre-provision net revenue1	$	40,491		$	48,800		$	132,067		$	129,421

Reported:	Pre-provision net revenue to average assets1, 2	1.24		%	1.47		%	1.37		%	1.30		%
Adjusted:	Pre-provision net revenue to average assets1, 2	1.32		%	1.54		%	1.44		%	1.38		%

___________________________________________

1.A non-GAAP financial measure. For a reconciliation of non-GAAP measures to the most directly comparable GAAP financial measures, see “Item 2. Management’s Discussion and Analysis—Non-GAAP Financial Information” included in this Quarterly Report.

2.Annualized measure.

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):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Non-operating costs
Acquisition related expenses1	$	79	$	4	$	91	$	1,043
Restructuring charges2	—		953		—		1,052
Total non-operating costs	$	79	$	957	$	91	$	2,095

___________________________________________

1.Acquisition expenses related to completed acquisitions and exploratory due diligence.

2.Restructuring charges related to previously disclosed restructuring and efficiency plans.

A reconciliation of non-GAAP measures, which Busey believes facilitates the assessment of its financial results and peer comparability, is included in tabular form in this Quarterly Report. See “Item 2. Management’s Discussion and Analysis—Non-GAAP Financial Information.”

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Banking Center Markets

Busey Bank serves the Illinois banking market with 46 banking centers. Our Illinois markets feature several Fortune 1000 companies. Those organizations, coupled with large healthcare and higher education sectors, anchor the communities in which they are located and have provided a comparatively stable foundation for housing, employment, and small business. Ten of our banking centers in Illinois are located within the Chicago Metropolitan Statistical Area, and 12 of our banking centers in Illinois are located within the St. Louis Metropolitan Statistical Area.

Busey Bank has eight banking centers in Missouri. St. Louis, Missouri has a diverse economy with major employment sectors including health care, financial services, professional and business services, and retail. We have a total of 20 banking centers within the boundaries of the St. Louis Metropolitan Statistical Area, including branches in both Illinois and Missouri.

Busey Bank has three banking centers in southwest Florida, an area which has experienced strong population growth, job growth, and an expanded housing market, as well as the benefits of a tourism and winter resort economy.

Busey Bank has one banking center in the Indianapolis, Indiana area, which is the most populous city of Indiana with a diverse economy, due in part to it serving as the headquarters of many large corporations.

Net Interest Income

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

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Consolidated Average Balance Sheets and Interest Rates (Unaudited)

The following tables show our unaudited Consolidated Average Balance Sheets (dollars in thousands), and details the major categories 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 shown. Average information is provided on a daily average basis.


	Three Months Ended September 30,
	2023						2022
	Average Balance		Income/ Expense		Yield/ Rate5		Average Balance		Income/ Expense		Yield/ Rate5
Assets
Interest-bearing bank deposits and federal funds sold	$	132,856	$	1,591	4.75	%	$	207,917	$	1,085	2.07	%
Investment securities:
U.S. Government obligations	64,904		135		0.83	%	174,357		267		0.61	%
Obligations of states and political subdivisions1	234,158		1,654		2.80	%	284,069		1,900		2.65	%
Other securities	2,849,697		19,627		2.73	%	3,209,327		16,298		2.01	%
Loans held for sale	2,267		37		6.48	%	4,195		53		5.01	%
Portfolio loans1, 2	7,834,285		100,178		5.07	%	7,617,918		76,355		3.98	%
Total interest-earning assets1, 3	11,118,167		$	123,222	4.40	%	11,497,783		$	95,958	3.31	%

Cash and due from banks	119,874						123,480
Premises and equipment	122,955						130,367
ACL	(93,070)						(89,019)
Other assets	934,857						869,245
Total assets	$	12,202,783					$	12,531,856

Liabilities and stockholders’ equity
Interest-bearing transaction deposits	$	2,818,124	$	12,443	1.75	%	$	2,880,802	$	1,582	0.22	%
Savings and money market deposits	2,828,673		11,108		1.56	%	3,311,327		1,058		0.13	%
Time deposits	1,570,666		13,517		3.41	%	800,996		925		0.46	%
Federal funds purchased and repurchase agreements	190,112		1,327		2.77	%	233,032		459		0.78	%
Borrowings4	384,864		5,492		5.66	%	307,255		4,300		5.55	%
Junior subordinated debt issued to unconsolidated trusts	71,916		991		5.47	%	71,736		786		4.35	%
Total interest-bearing liabilities	7,864,355		$	44,878	2.26	%	7,605,148		$	9,110	0.48	%

Net interest spread1					2.13	%					2.83	%

Noninterest-bearing deposits	2,925,244						3,583,693
Other liabilities	204,777						161,567
Stockholders’ equity	1,208,407						1,181,448
Total liabilities and stockholders’ equity	$	12,202,783					$	12,531,856

Interest income / earning assets1, 3	$	11,118,167	$	123,222	4.40	%	$	11,497,783	$	95,958	3.31	%
Interest expense / earning assets	11,118,167		44,878		1.60	%	11,497,783		9,110		0.31	%
Net interest margin1			$	78,344	2.80	%			$	86,848	3.00	%

___________________________________________

1.On a tax-equivalent basis and assuming a federal income tax rate of 21.0%. For a reconciliation of non-GAAP measures to the most directly comparable GAAP financial measures, see “Item 2. Management’s Discussion and Analysis—Non-GAAP Financial Information” included in this Quarterly Report.

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

3.Interest income includes tax-equivalent adjustments of $0.6 million and $0.5 million for the three months ended September 30, 2023, and 2022, respectively.

4.Includes short-term and long-term borrowings. Interest expense includes non-usage fees on a revolving loan.

5.Annualized.

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	Nine Months Ended September 30,
	2023						2022
	Average Balance		Income/ Expense		Yield/ Rate5		Average Balance		Income/ Expense		Yield/ Rate5
Assets
Interest-bearing bank deposits and federal funds sold	$	119,393	$	3,890	4.36	%	$	331,664	$	1,720	0.69	%
Investment securities:
U.S. Government obligations	91,468		478		0.70	%	186,493		836		0.60	%
Obligations of states and political subdivisions1	244,139		5,123		2.81	%	293,161		5,762		2.63	%
Other securities	2,918,447		57,327		2.63	%	3,345,611		43,913		1.75	%
Loans held for sale	1,955		86		5.87	%	6,376		168		3.52	%
Portfolio loans1, 2	7,767,378		285,441		4.91	%	7,387,582		203,338		3.68	%
Total interest-earning assets1, 3	11,142,780		$	352,345	4.23	%	11,550,887		$	255,737	2.96	%

Cash and due from banks	117,977						123,881
Premises and equipment	125,069						132,977
ACL	(92,912)						(88,744)
Other assets	932,318						828,815
Total assets	$	12,225,232					$	12,547,816

Liabilities and stockholders’ equity
Interest-bearing transaction deposits	$	2,745,757	$	28,930	1.41	%	$	2,742,105	$	2,446	0.12	%
Savings and money market deposits	2,847,211		22,777		1.07	%	3,399,782		2,310		0.09	%
Time deposits	1,293,309		26,869		2.78	%	855,219		3,079		0.48	%
Federal funds purchased and repurchase agreements	207,014		3,772		2.44	%	246,481		665		0.36	%
Borrowings4	583,056		23,158		5.31	%	296,034		11,165		5.04	%
Junior subordinated debt issued to unconsolidated trusts	71,871		2,849		5.30	%	71,693		2,148		4.01	%
Total interest-bearing liabilities	7,748,218		$	108,355	1.87	%	7,611,314		$	21,813	0.38	%

Net interest spread1					2.36	%					2.58	%

Noninterest-bearing deposits	3,082,884						3,569,562
Other liabilities	198,272						147,295
Stockholders’ equity	1,195,858						1,219,645
Total liabilities and stockholders’ equity	$	12,225,232					$	12,547,816

Interest income / earning assets1, 3	$	11,142,780	$	352,345	4.23	%	$	11,550,887	$	255,737	2.96	%
Interest expense / earning assets	11,142,780		108,355		1.30	%	11,550,887		21,813		0.25	%
Net interest margin1			$	243,990	2.93	%			$	233,924	2.71	%

___________________________________________

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

3.Interest income includes tax-equivalent adjustments of $1.7 million and $1.6 million for the nine months ended September 30, 2023, and 2022, respectively.

4.Includes short-term and long-term borrowings. Interest expense includes non-usage fees on a revolving loan.

5.Annualized.

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


	Three Months Ended September 30,
	2023			2022			Change		% Change
Average interest-earning assets	$	11,118,167		$	11,497,783		$	(379,616)	(3.3)	%
Average interest-bearing liabilities	7,864,355			7,605,148			259,207		3.4	%
Average noninterest-bearing deposits	2,925,244			3,583,693			(658,449)		(18.4)	%

Total average deposits	10,142,707			10,576,818			(434,111)		(4.1)	%
Total average liabilities	10,994,376			11,350,408			(356,032)		(3.1)	%

Average noninterest-bearing deposits as a percent of total average deposits	28.8		%	33.9		%	(510) bps
Total average deposits as a percent of total average liabilities	92.3		%	93.2		%	(90) bps


	Nine Months Ended September 30,
	2023			2022			Change		% Change
Average interest-earning assets	$	11,142,780		$	11,550,887		$	(408,107)	(3.5)	%
Average interest-bearing liabilities	7,748,218			7,611,314			136,904		1.8	%
Average noninterest-bearing deposits	3,082,884			3,569,562			(486,678)		(13.6)	%

Total average deposits	9,969,161			10,566,668			(597,507)		(5.7)	%
Total average liabilities	11,029,374			11,328,171			(298,797)		(2.6)	%

Average noninterest-bearing deposits as a percent of total average deposits	30.9		%	33.8		%	(290) bps
Total average deposits as a percent of total average liabilities	90.4		%	93.3		%	(290) bps

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


	Three Months Ended September 30,
	2023			2022			Change		% Change
Net interest income
Interest income, on a tax-equivalent basis1	$	123,222		$	95,958		$	27,264	28.4	%
Interest expense	(44,878)			(9,110)			(35,768)		(392.6)	%
Net interest income, on a tax-equivalent basis1	$	78,344		$	86,848		$	(8,504)	(9.8)	%

Net interest margin1, 2	2.80		%	3.00		%	(20) bps


	Nine Months Ended September 30,
	2023			2022			Change		% Change
Net interest income
Interest income, on a tax-equivalent basis1	$	352,345		$	255,737		$	96,608	37.8	%
Interest expense	(108,355)			(21,813)			(86,542)		(396.7)	%
Net interest income, on a tax-equivalent basis1	$	243,990		$	233,924		$	10,066	4.3	%

Net interest margin1, 2	2.93		%	2.71		%	22 bps

___________________________________________

1.Assuming a federal income tax rate of 21.0%. For a reconciliation of non-GAAP measures to the most directly comparable GAAP financial measures, see “Item 2. Management’s Discussion and Analysis—Non-GAAP Financial Information” included in this Quarterly Report.

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

The FOMC raised rates by 25 basis points during the third quarter of 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:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net interest spread1	2.13	%	2.83	%	2.36	%	2.58	%

___________________________________________

1.Calculated on a tax-equivalent basis

The net interest margin discussion above is based upon the results and average balances for the three and nine months ended September 30, 2023, and 2022. Annualized net interest margins for the quarterly periods indicated were as follows:


	2023		2022
First Quarter	3.13	%	2.45	%
Second Quarter	2.86	%	2.68	%
Third Quarter	2.80	%	3.00	%
Fourth Quarter			3.24	%

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. For a description of accounting policies underlying the recognition of interest income and expense, refer to the Notes to Consolidated Financial Statements in Busey’s 2022 Annual Report.

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Noninterest Income

Changes in noninterest income are summarized as follows for the periods presented (dollars in thousands):


	Three Months Ended September 30,
	2023		2022		Change		% Change
Noninterest income
Wealth management and payment technology income:
Wealth management fees	$	14,235	$	12,508	$	1,727	13.8	%
Payment technology solutions	5,226		5,080		146		2.9	%
Combined, wealth management fees and payment technology solutions	19,461		17,588		1,873		10.6	%

Fees for customer services	7,502		7,627		(125)		(1.6)	%
Mortgage revenue	311		438		(127)		(29.0)	%
Income on bank owned life insurance	1,001		958		43		4.5	%

Securities income:
Realized net gains (losses) on securities	(33)		(74)		41		55.4	%
Unrealized net gains (losses) recognized on equity securities	(252)		78		(330)		(423.1)	%
Net securities gains (losses)	(285)		4		(289)		(7225.0)	%

Other income	3,018		4,318		(1,300)		(30.1)	%
Total noninterest income	$	31,008	$	30,933	$	75	0.2	%

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	Nine Months Ended September 30,
	2023		2022		Change		% Change
Noninterest income
Wealth management and payment technology solutions income:
Wealth management fees	$	43,594	$	42,422	$	1,172	2.8	%
Payment technology solutions	15,772		15,045		727		4.8	%
Combined, wealth management fees and payment technology solutions	59,366		57,467		1,899		3.3	%

Fees for customer services	21,560		26,122		(4,562)		(17.5)	%
Mortgage revenue	871		1,697		(826)		(48.7)	%
Income on bank owned life insurance	3,682		2,716		966		35.6	%

Securities income:
Realized net gains (losses) on securities	(207)		52		(259)		(498.1)	%
Unrealized net gains (losses) recognized on equity securities	(2,753)		(2,376)		(377)		(15.9)	%
Net securities gains (losses)	(2,960)		(2,324)		(636)		(27.4)	%

Other income	8,349		12,046		(3,697)		(30.7)	%
Total noninterest income	$	90,868	$	97,724	$	(6,856)	(7.0)	%

Assets under care as of period end	$	11,547,697	$	10,748,756	$	798,941	7.4	%

Total noninterest income was $31.0 million for the three months ended September 30, 2023, an increase of 0.2% from the comparable period in 2022, and was $90.9 million for the nine months ended September 30, 2023, a decrease of 7.0% from the comparable period in 2022. Combined, revenues from wealth management fees and payment technology solutions represented 62.8% and 65.3% of Busey’s noninterest income for the three and nine months ended September 30, 2023, respectively, providing a complement to spread-based revenue from traditional banking activities. On a combined basis, revenue from these two critical operating areas was $19.5 million for the three months ended September 30, 2023, a 10.6% increase from the comparable period in 2022, and was $59.4 million for the nine months ended September 30, 2023, a 3.3% increase from the comparable period in 2022.

Wealth management fees were $14.2 million for the three months ended September 30, 2023, a 13.8% increase from the comparable period in 2022, and were $43.6 million for the nine months ended September 30, 2023, a 2.8% increase from the comparable period for 2022. Busey’s Wealth Management division ended the third quarter of 2023 with $11.5 billion in assets under care, an increase of 7.4% compared to the balance on September 30, 2022. Our portfolio management team continues to produce solid results in the face of volatile markets.

Payment technology solutions revenue relates to our payment processing company, FirsTech. Payment technology solutions revenue was $5.2 million for the three months ended September 30, 2023, a 2.9% increase from the comparable period in 2022, and was $15.8 million for the nine months ended September 30, 2023, a 4.8% increase from the comparable period in 2022. Increased merchant processing, lockbox processing, and online bill payment income drove the increases, which were partially offset by reductions in agent and programming income.

Fees for customer services were $7.5 million for the three months ended September 30, 2023, a 1.6% decrease from the comparable period in 2022, and were $21.6 million for the nine months ended September 30, 2023, a 17.5% decrease from the comparable period in 2022. Beginning on July 1, 2022, we became subject to the Durbin Amendment of the Dodd-Frank Act. The Durbin Amendment required the Federal Reserve to establish a maximum permissible interchange fee for many types of debit transactions, which resulted in a reduction in fee income. Year-over-year declines are attributable primarily to the impact of the Durbin Amendment and modifications implemented to overdraft and non-sufficient funds fee structures.

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Mortgage revenue was $0.3 million for the three months ended September 30, 2023, a 29.0% decrease from the comparable period in 2022, and was $0.9 million for the nine months ended September 30, 2023, a 48.7% decrease from the comparable period in 2022. Decreases primarily resulted from declines in mortgage origination and sold-loan mortgage volume. General economic conditions and interest rate volatility may impact fees in future quarters.

Income on bank owned life insurance was $1.0 million for the three months ended September 30, 2023, a 4.5% increase from the comparable period in 2022, and was $3.7 million for the nine months ended September 30, 2023, a 35.6% increase from the comparable period in 2022. Year to date increases resulted from $0.8 million earnings on death proceeds and a $0.2 million increase in the cash surrender value of the insurance policies.

Net securities losses were $0.3 million for the three months ended September 30, 2023, compared to an insignificant amount of net securities gains during the three months ended September 30, 2022. Losses for the three months ended September 30, 2023, were comprised primarily of unrealized net losses recognized on equity securities. Net securities losses were $3.0 million for the nine months ended September 30, 2023, a 27.4% increase from the comparable period in 2022, and were comprised of $0.2 million of realized net losses on securities and $2.8 million of unrealized net losses recognized on equity securities.

Other income was $3.0 million for the three months ended September 30, 2023, a 30.1% decrease from the comparable period in 2022, and was $8.3 million for the nine months ended September 30, 2023, a 30.7% decrease from the comparable period in 2022. Primary drivers of the fluctuation in other income during the three and nine months ended September 30, 2023, included lower income recognized on venture capital investments, reduced gains on commercial loan sales, and declines in swap origination fees, partially offset by increased dividend income on FHLB stock. In addition, gains on fixed asset disposals were lower for the nine months ended September 30, 2023.

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Noninterest Expense

Changes in noninterest expense are summarized as follows for the periods presented (dollars in thousands):


	Three Months Ended September 30,
	2023			2022			Change		% Change
Noninterest expense
Salaries, wages, and employee benefits	$	39,677		$	39,762		$	(85)	(0.2)	%
Data processing	5,930			5,447			483		8.9	%

Premises expenses:
Net occupancy expense of premises	4,594			4,705			(111)		(2.4)	%
Furniture and equipment expenses	1,638			1,799			(161)		(8.9)	%
Combined, net occupancy expense of premises and furniture and equipment expenses	6,232			6,504			(272)		(4.2)	%

Professional fees	1,542			1,579			(37)		(2.3)	%
Amortization of intangible assets	2,555			2,871			(316)		(11.0)	%
Interchange expense	1,786			1,574			212		13.5	%
FDIC insurance	1,475			882			593		67.2	%
Other expense	11,748			12,117			(369)		(3.0)	%
Total noninterest expense	$	70,945		$	70,736		$	209	0.3	%

Income taxes	$	6,824		$	8,477		$	(1,653)	(19.5)	%
Effective income tax rate	18.2		%	19.2		%	(100) bps

Efficiency ratio1	62.4		%	57.6		%	480 bps
Adjusted efficiency ratio1	62.3		%	56.8		%	550 bps

___________________________________________

1.The efficiency ratio and adjusted efficiency ratio are non-GAAP financial measures. For a reconciliation of non-GAAP measures to the most directly comparable financial GAAP measures, see “Item 2. Management’s Discussion and Analysis—Non-GAAP Financial Information” included in this Quarterly Report.

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	Nine Months Ended September 30,
	2023			2022			Change		% Change
Noninterest expense
Salaries, wages, and employee benefits	$	119,867		$	117,226		$	2,641	2.3	%
Data processing	17,472			15,800			1,672		10.6	%

Premises expenses:
Net occupancy expense of premises	13,896			14,492			(596)		(4.1)	%
Furniture and equipment expenses	5,065			5,874			(809)		(13.8)	%
Combined, net occupancy expense of premises and furniture and equipment expenses	18,961			20,366			(1,405)		(6.9)	%

Professional fees	4,573			4,693			(120)		(2.6)	%
Amortization of intangible assets	7,953			8,833			(880)		(10.0)	%
Interchange expense	5,509			4,606			903		19.6	%
FDIC insurance	4,483			3,108			1,375		44.2	%
Other expense	31,735			35,572			(3,837)		(10.8)	%
Total noninterest expense	$	210,553		$	210,204		$	349	0.2	%

Income taxes	$	23,873		$	22,121		$	1,752	7.9	%
Effective income tax rate	19.8		%	19.1		%	70 bps

Efficiency ratio1	60.0		%	60.3		%	(30) bps
Adjusted efficiency ratio1	60.0		%	59.7		%	30 bps

Full-time equivalent associates as of period-end	1,484			1,513			(29)		(1.9)	%

___________________________________________

Total noninterest expense was $70.9 million for the three months ended September 30, 2023, a 0.3% increase from the comparable period in 2022, and was $210.6 million for the nine months ended September 30, 2023, a 0.2% increase from the comparable period in 2022. During a time of decades-high inflation, we have effectively managed our noninterest expense, 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 were $39.7 million for the three months ended September 30, 2023, a 0.2% decrease from the comparable period in 2022, and were $119.9 million for the nine months ended September 30, 2023, a 2.3% increase from the comparable period in 2022. Our total associate base consisted of 1,484 full-time equivalents as of September 30, 2023, compared to 1,513 at September 30, 2022. Current trends continue to reflect a competitive labor market, maintaining pressure on costs related to attracting and maintaining our skilled workforce.

Data processing expense was $5.9 million for the three months ended September 30, 2023, a 8.9% increase from the comparable period in 2022, and was $17.5 million for the nine months ended September 30, 2023, a 10.6% increase from the comparable period in 2022. Increases were primarily attributable to Company-wide investments in technology enhancements, as well as inflation-driven price increases.

Combined, net occupancy expense of premises and furniture and equipment expense totaled $6.2 million for the three months ended September 30, 2023, a 4.2% decrease from the comparable period in 2022, and $19.0 million for the nine months ended September 30, 2023, a 6.9% decrease from the comparable period in 2022. Decreases were primarily attributable to declines in depreciation expense, lease costs, and taxes.

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Professional fees were $1.5 million for the three months ended September 30, 2023, a 2.3% decrease from the comparable period in 2022. The decrease was primarily attributable to reduced consulting fees during the quarter, partially offset by increased legal and payroll service fees. Professional fees were $4.6 million for the nine months ended September 30, 2023, a 2.6% decrease from the comparable period in 2022. The decrease was primarily attributable to a recapture of legal expenses related to the payoff of a large classified asset in the second quarter of 2023, partially offset by increases in payroll service and audit fees.

Amortization of intangible assets was $2.6 million for the three months ended September 30, 2023, an 11.0% decrease from the comparable period in 2022, and $8.0 million for the nine months ended September 30, 2023, a 10.0% decrease from the comparable period for 2022, due to the use of an accelerated amortization methodology.

Interchange expense was $1.8 million for the three months ended September 30, 2023, a 13.5% increase from the comparable period in 2022, and was $5.5 million for the nine months ended September 30, 2023, a 19.6% increase from the comparable period in 2022. Fluctuations in interchange expense were primarily the result of increased payment and volume activity at FirsTech.

FDIC insurance expense was $1.5 million for the three months ended September 30, 2023, a 67.2% increase from the comparable period in 2022, and $4.5 million for the nine months ended September 30, 2023, a 44.2% increase from the comparable period 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 was $11.7 million for the three months ended September 30, 2023, a 3.0% decrease from the comparable period in 2022, and was $31.7 million for the nine months ended September 30, 2023, a 10.8% decrease from the comparable period in 2022. Decreases were across multiple expense categories as a result of expense discipline.

The efficiency ratio2, 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 62.4% for the three months ended September 30, 2023, compared to 57.6% for the same period in 2022, and was 60.0% for the nine months ended September 30, 2023, compared to 60.3% for the same period in 2022.

Our adjusted efficiency ratio2 was 62.3% for the three months ended September 30, 2023, compared to 56.8% for the same period in 2022, and was 60.0% for the nine months ended September 30, 2023, compared to 59.7% for the same period in 2022.

Taxes

Effective income tax rates of 18.2% and 19.8% for the three and nine months ended September 30, 2023, respectively, 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 September 30, 2023, we were not under examination by any tax authority; however, we have received an inquiry from the State of Illinois regarding our prior franchise tax filings. In the event the Company is required to amend our prior franchise tax filings, we could incur additional expenses.

2 The efficiency ratio and adjusted efficiency ratio are non-GAAP financial measures. For a reconciliation of non-GAAP measures to the most directly comparable GAAP financial measures, see “Item 2. Management’s Discussion and Analysis—Non-GAAP Financial Information” included in this Quarterly Report.

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FINANCIAL CONDITION

Balance Sheet

Changes in significant items included in our Consolidated Balance Sheets (Unaudited) are summarized as follows as of each of the dates indicated (dollars in thousands):


	As of
	September 30, 2023		December 31, 2022		Change		% Change
Assets
Debt securities available for sale	$	2,182,841	$	2,461,393	$	(278,552)	(11.3)	%
Debt securities held to maturity	882,614		918,312		(35,698)		(3.9)	%
Portfolio loans, net of ACL	7,764,450		7,634,094		130,356		1.7	%
Total assets	$	12,258,250	$	12,336,677	$	(78,427)	(0.6)	%

Liabilities
Deposits:
Noninterest-bearing	$	2,918,574	$	3,393,666	$	(475,092)	(14.0)	%
Interest-bearing	7,413,788		6,677,614		736,174		11.0	%
Total deposits	10,332,362		10,071,280		261,082		2.6	%
Securities sold under agreements to repurchase	183,702		229,806		(46,104)		(20.1)	%
Short-term borrowings	12,000		351,054		(339,054)		(96.6)	%


Subordinated notes, net of unamortized issuance costs	222,666		222,038		628		0.3	%

Total liabilities	$	11,068,092	$	11,190,700	$	(122,608)	(1.1)	%

Stockholders’ equity	$	1,190,158	$	1,145,977	$	44,181	3.9	%

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.

Busey Bank maintains a well-diversified loan portfolio and, as a matter of policy and practice, limits concentration exposure in any particular loan segment.

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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. Lending is further classified into five primary areas: commercial loans, commercial real estate loans, real estate construction loans, retail real estate loans, and retail other loans. A description of each of the five primary areas can be found in Busey’s 2022 Annual Report. A significant majority of our portfolio lending activity occurs in the Illinois and Missouri markets, with the remainder in the Florida and Indiana markets.

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


	September 30, 2023
	Illinois		Missouri		Florida		Indiana		Total
Commercial loans
Commercial	$	1,486,278	$	384,978	$	26,368	$	45,825	$	1,943,449
Commercial real estate	2,269,230		692,680		222,827		169,016		3,353,753
Real estate construction	318,865		90,541		59,477		58,715		527,598
Total commercial loans	4,074,373		1,168,199		308,672		273,556		5,824,800
Retail loans
Retail real estate	1,278,795		228,397		128,646		79,607		1,715,445
Retail other	311,326		1,877		1,367		1,345		315,915
Total retail loans	1,590,121		230,274		130,013		80,952		2,031,360
Total portfolio loans	$	5,664,494	$	1,398,473	$	438,685	$	354,508	$	7,856,160
ACL									(91,710)
Portfolio loans, net of ACL									$	7,764,450


	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

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Busey generated $130.5 million, or 1.7%, in net loan growth during the nine months ended September 30, 2023. Reported loan growth figures over that period have been dampened by a $146.6 million decline in line utilization, consistent with trends seen across the industry, as well as a $47.5 million reduction in classified assets achieved by Busey over the same period. Changes in portfolio loan balances were as follows (dollars in thousands):


	As of
	September 30, 2023		December 31, 2022		Change		% Change
Commercial loans
Commercial	$	1,943,449	$	1,974,154	$	(30,705)	(1.6)	%
Commercial real estate	3,353,753		3,261,873		91,880		2.8	%
Real estate construction	527,598		530,469		(2,871)		(0.5)	%
Total commercial loans	5,824,800		5,766,496		58,304		1.0	%
Retail loans
Retail real estate	1,715,445		1,657,082		58,363		3.5	%
Retail other	315,915		302,124		13,791		4.6	%
Total retail loans	2,031,360		1,959,206		72,154		3.7	%
Total portfolio loans	7,856,160		7,725,702		130,458		1.7	%
ACL	(91,710)		(91,608)		(102)		(0.1)	%
Portfolio loans, net of ACL	$	7,764,450	$	7,634,094	$	130,356	1.7	%

Excluding the amortized cost of PPP loans, changes in commercial loan balances were as follows (dollars in thousands):


	As of
	September 30, 2023		December 31, 2022		Change		% Change
Total commercial loans	$	5,824,800	$	5,766,496	$	58,304	1.0	%
Less: PPP loans amortized cost	(598)		(845)		247		29.2	%
Commercial loan balances, excluding PPP loans	$	5,824,202	$	5,765,651	$	58,551	1.0	%

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. This posture will continue to impact loan growth, which we expect to remain modest over the next several quarters.

Allowance and Provision for Credit Losses

The ACL is a significant estimate in our unaudited consolidated financial statements, 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. Estimates of credit losses are based on a careful consideration of all significant factors affecting collectability as of the evaluation date. The ACL is established through the provision for credit loss expense charged to income. Provision expenses were recorded as follows for each of the periods indicated (dollars in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Provision for credit losses	$	364	$	2,364	$	1,944	$	3,764

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The ACL and the ratio of ACL to portfolio loan balances is presented below by loan category and class, as of each of the dates indicated (dollars in thousands):


	As of September 30, 2023						As of December 31, 2022
	Portfolio Loans		ACL		Ratio of ACL to Portfolio Loans		Portfolio Loans		ACL		Ratio of ACL to Portfolio Loans
Commercial
Commercial	$	1,943,449	$	22,633	1.16	%	$	1,974,154	$	23,860	1.21	%
Commercial real estate	3,353,753		34,691		1.03	%	3,261,873		38,299		1.17	%
Real estate construction	527,598		5,206		0.99	%	530,469		6,457		1.22	%
Total commercial	5,824,800		62,530		1.07	%	5,766,496		68,616		1.19	%
Retail
Retail real estate	1,715,445		25,333		1.48	%	1,657,082		18,193		1.10	%
Retail other	315,915		3,847		1.22	%	302,124		4,799		1.59	%
Total retail	2,031,360		29,180		1.44	%	1,959,206		22,992		1.17	%
Total	$	7,856,160	$	91,710	1.17	%	$	7,725,702	$	91,608	1.19	%

As of September 30, 2023, management believed the level of the ACL to be appropriate based upon the information available. However, additional losses may be identified in our loan portfolio as new information is obtained. The ongoing impacts of CECL will be dependent upon changes in economic conditions and forecasts, originated and acquired loan portfolio composition, prepayment speeds, credit performance trends, portfolio duration, and other factors.

Non-Performing Loans and Non-Performing Assets

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

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

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The following table sets forth information concerning non-performing loans and performing restructured loans, as of each of the dates indicated (dollars in thousands):


	As of
	September 30, 2023			December 31, 2022			Change		% Change
Portfolio loans	$	7,856,160		$	7,725,702		$	130,458	1.7	%
Loans 30 – 89 days past due	5,934			6,548			(614)		(9.4)	%
Total assets	12,258,250			12,336,677			(78,427)		(0.6)	%

Non-performing assets
Non-performing loans:
Non-accrual loans	$	11,298		$	15,067		$	(3,769)	(25.0)	%
Loans 90+ days past due and still accruing	709			673			36		5.3	%
Total non-performing loans	12,007			15,740			(3,733)		(23.7)	%
OREO and other repossessed assets	96			850			(754)		(88.7)	%
Total non-performing assets	12,103			16,590			(4,487)		(27.0)	%
Substandard (excludes 90+ days past due)	47,518			90,489			(42,971)		(47.5)	%
Classified assets	$	59,621		$	107,079		$	(47,458)	(44.3)	%

ACL	$	91,710		$	91,608		$	102	0.1	%
Bank Tier 1 Capital	1,356,565			1,306,716			49,849		3.8	%

Ratios
ACL to portfolio loans	1.17		%	1.19		%	(2) bps
ACL to non-accrual loans	811.74		%	608.00		%	20,374 bps
ACL to non-performing loans	763.80		%	582.01		%	18,179 bps
ACL to non-performing assets	757.75		%	552.19		%	20,556 bps
Non-accrual loans to portfolio loans	0.14		%	0.20		%	(6) bps
Non-performing loans to portfolio loans	0.15		%	0.20		%	(5) bps
Non-performing assets to total assets	0.10		%	0.13		%	(3) bps
Non-performing assets to portfolio loans and OREO and other repossessed assets	0.15		%	0.21		%	(6) bps
Classified assets to Bank Tier 1 Capital and ACL	4.12		%	7.66		%	(354) bps

Asset quality remains strong by both historical and current industry trends, and our operating mandate and focus have been on emphasizing credit quality over asset growth. Non-performing loan balances decreased by 23.7% to $12.0 million as of September 30, 2023, compared to $15.7 million as of December 31, 2022. We saw a 44.3% decline in classified assets from $107.1 million as of December 31, 2022 to $59.6 million as of September 30, 2023. Classified assets represented 4.1% of the Busey Bank’s Tier 1 Capital and reserves at September 30, 2023, down from 7.7% at December 31, 2022. Continued disciplined credit management resulted in non-performing loans as a percentage of portfolio loans of 0.15% as of September 30, 2023, compared to 0.20% as of December 31, 2022. Meanwhile, non-performing assets declined to 0.10% of total assets at September 30, 2023, from 0.13% at December 31, 2022. Our allowance for credit losses provided 757.7% coverage of our non-performing assets at September 30, 2023, up from 552.2% at December 31, 2022.

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.

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Potential Problem Loans

Potential problem loans are loans classified as substandard which are not individually evaluated, non-accrual, or 90+ days past due, but where current information indicates that the borrower may not be able to comply with loan repayment terms. Management assesses the potential for loss on such loans and considers the effect of any potential loss in determining its provision for expected credit losses. Potential problem loans decreased to $47.5 million as of September 30, 2023, compared to $89.2 million as of December 31, 2022. Management continues to monitor these loans and anticipates that restructurings, guarantees, additional collateral, or other planned actions will result in full repayment of the debts. As of September 30, 2023, management identified no other loans that represent or result from trends or uncertainties which 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 September 30, 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 loans totaling $0.1 million as of December 31, 2022.

Deposits

Total deposits increased by 2.6% to $10.3 billion as of September 30, 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 relationships with customers to maintain and protect our strong core deposit3 franchise. As of September 30, 2023, our average customer tenure was 16.4 years for retail customers and 12.3 years for commercial customers. Core deposits include non-brokered transaction accounts, money market and savings deposit accounts, and time deposits of $250,000 or less. Core deposits represented 96.6% of total deposits as of September 30, 2023, compared to 98.8% as of December 31, 2022.

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


	Three Months Ended September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
Average liquid assets
Cash and due from banks	$	119,874		$	123,480		$	117,977		$	123,881
Interest-bearing bank deposits	132,856			207,917			119,393			331,664

Total average liquid assets	$	252,730		$	331,397		$	237,370		$	455,545

Average liquid assets as a percent of average total assets	2.1		%	2.6		%	1.9		%	3.6		%

3 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 2. Management’s Discussion and Analysis—Non-GAAP Financial Information” included in this Quarterly Report.

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Cash and unencumbered securities on our Consolidated Balance Sheets (Unaudited) are summarized as follows (dollars in thousands):


	As of
	September 30, 2023		December 31, 2022
Cash and unencumbered securities
Total cash and cash equivalents	$	337,919	$	227,164
Debt securities available for sale	2,182,841		2,461,393
Debt securities available for sale pledged as collateral	(621,740)		(746,675)
Cash and unencumbered securities	$	1,899,020	$	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, and our revolving credit facility, as summarized in the table below (dollars in thousands):


	As of
	September 30, 2023		December 31, 2022
Additional borrowing capacity available from:
FHLB	$	1,785,012	$	1,765,388
Federal Reserve Bank	710,198		659,680
Federal funds purchased	482,500		482,500
Revolving credit facility	40,000		40,000
Additional borrowing capacity	$	3,017,710	$	2,947,568

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

As of September 30, 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.

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
	September 30, 2023		December 31, 2022
Outstanding loan commitments and standby letters of credit	$	2,167,785	$	2,024,777
Reserve for unfunded commitments	6,244		6,601

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Provision for unfunded commitments expense (release)	$	13	$	(320)	$	(357)	$	525

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.

Capital Resources

Our capital ratios are in excess of those required to be considered “well-capitalized” pursuant to applicable regulatory guidelines. The Federal Reserve Board 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 September 30, 2023:


	Minimum Capital Requirements with Capital Buffer		As of September 30, 2023
			First Busey		Busey Bank
Common Equity Tier 1 Capital to Risk Weighted Assets	7.00	%	12.52	%	14.89	%
Tier 1 Capital to Risk Weighted Assets	8.50	%	13.33	%	14.89	%
Total Capital to Risk Weighted Assets	10.50	%	16.72	%	15.81	%
Leverage Ratio of Tier 1 Capital to Average Assets	6.50	%	10.08	%	11.26	%

For further discussion of capital resources and requirements, see “Note 7: Regulatory Capital.”

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NON-GAAP FINANCIAL INFORMATION

This Quarterly Report contains certain financial information determined by methods other than in accordance with GAAP. Management uses these non-GAAP financial measures and non-GAAP ratios, together with the related GAAP financial measures, in analysis of Busey’s performance and in making business decisions, as well as for comparison to Busey’s peers. We believe the adjusted measures are useful for investors and management to understand the effects of certain non-core and non-recurring noninterest items and provide additional perspective on our performance over time.

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

A listing of Busey's non-GAAP financial measures and ratios are shown in the table below, together with the related GAAP financial measures.

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GAAP Financial Measures

Related Non-GAAP Financial Measures

Related Non-GAAP Ratios

Net interest income
Total noninterest income
Net security gains and losses
Total noninterest expense

Pre-provision net revenue

Pre-provision net revenue to average assets

Adjusted pre-provision net revenue

Adjusted pre-provision net revenue to average assets

Net income

Adjusted net income

Adjusted diluted earnings per share

Adjusted return on average assets

Adjusted return on average tangible common equity

Average common equity

Average tangible common equity

Return on average tangible common equity

Adjusted return on average tangible common equity

Net interest income

Tax-equivalent net interest income

Net interest margin

Adjusted net interest income

Adjusted net interest margin

Net interest income
Total noninterest income
Net security gains and losses

Tax-equivalent revenue

Efficiency ratio

Adjusted efficiency ratio

Adjusted core efficiency ratio

Total noninterest expense
Amortization of intangible assets

Non-interest expense excluding amortization of intangible assets

Efficiency ratio

Adjusted noninterest expense

Adjusted efficiency ratio

Adjusted core expense

Adjusted core efficiency ratio

Total noninterest expense

Noninterest expense, excluding non-operating adjustments

Total assets
Goodwill and other intangible assets, net

Tangible assets

Tangible common equity to tangible assets

Total stockholders’ equity
Goodwill and other intangible assets, net

Tangible common equity

Tangible common equity to tangible assets

Tangible book value

Tangible book value per common share

Portfolio loans

Core loans

Core loans to portfolio loans

Core loans to core deposits

Total deposits

Core deposits

Core deposits to total deposits

Core loans to core deposits

A reconciliation of non-GAAP financial measures to what management believes to be the most directly comparable GAAP financial measures appears below.

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RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (unaudited)


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

		Three Months Ended September 30,			Nine Months Ended September 30,
		2023			2022			2023			2022
PRE-PROVISION NET REVENUE
Net interest income		$	77,791		$	86,305		$	242,318		$	232,289
Total noninterest income		31,008			30,933			90,868			97,724
Net security (gains) losses		285			(4)			2,960			2,324
Total noninterest expense		(70,945)			(70,736)			(210,553)			(210,204)
Pre-provision net revenue		38,139			46,498			125,593			122,133
Non-GAAP adjustments:
Acquisition and other restructuring expenses		79			957			91			2,095
Provision for unfunded commitments		13			(320)			(357)			525
Amortization of New Markets Tax Credits		2,260			1,665			6,740			4,668
Adjusted pre-provision net revenue		$	40,491		$	48,800		$	132,067		$	129,421

Pre-provision net revenue, annualized	[a]	$	151,312		$	184,476		$	167,917		$	163,291
Adjusted pre-provision net revenue, annualized	[b]	160,644			193,609			176,573			173,035
Average total assets	[c]	12,202,783			12,531,856			12,225,232			12,547,816

Reported: Pre-provision net revenue to average assets1	[a÷c]	1.24		%	1.47		%	1.37		%	1.30		%
Adjusted: Pre-provision net revenue to average assets1	[b÷c]	1.32		%	1.54		%	1.44		%	1.38		%

___________________________________________

1.Annualized measure.

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RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (unaudited)


Adjusted Net Income, Adjusted Diluted Earnings Per Share, Adjusted Return on Average Assets, Average Tangible Common Equity, Return on Average Tangible Common Equity, and Adjusted Return on Average Tangible Common Equity
(dollars in thousands, except per share amounts)

		Three Months Ended September 30,			Nine Months Ended September 30,
		2023			2022			2023			2022
NET INCOME ADJUSTED FOR NON-OPERATING ITEMS
Net income	[a]	$	30,666		$	35,661		$	96,816		$	93,924
Non-GAAP adjustments:
Acquisition expenses:
Salaries, wages, and employee benefits		—			—			—			587
Data processing		—			—			—			214

Professional fees, occupancy, and other		79			4			91			242
Other restructuring expenses:


Loss on leases or fixed asset impairment		—			877			—			976
Professional fees, occupancy, and other		—			76			—			76

Related tax benefit1		(15)			(183)			(18)			(399)

Adjusted net income	[b]	$	30,730		$	36,435		$	96,889		$	95,620

DILUTED EARNINGS PER SHARE
Diluted average common shares outstanding	[c]	56,315,492			56,073,164			56,230,624			56,123,756

Reported: Diluted earnings per share	[a÷c]	$	0.54		$	0.64		$	1.72		$	1.67
Adjusted: Diluted earnings per share	[b÷c]	$	0.55		$	0.65		$	1.72		$	1.70

RETURN ON AVERAGE ASSETS
Net income, annualized	[d]	$	121,664		$	141,481		$	129,443		$	125,576
Adjusted net income, annualized	[e]	121,918			144,552			129,540			127,844
Average total assets	[f]	12,202,783			12,531,856			12,225,232			12,547,816

Reported: Return on average assets2	[d÷f]	1.00		%	1.13		%	1.06		%	1.00		%
Adjusted: Return on average assets2	[e÷f]	1.00		%	1.15		%	1.06		%	1.02		%

RETURN ON AVERAGE TANGIBLE COMMON EQUITY
Average common equity		$	1,208,407		$	1,181,448		$	1,195,858		$	1,219,645
Average goodwill and other intangible assets, net		(358,025)			(368,981)			(360,654)			(371,873)
Average tangible common equity	[g]	$	850,382		$	812,467		$	835,204		$	847,772

Reported: Return on average tangible common equity2	[d÷g]	14.31		%	17.41		%	15.50		%	14.81		%
Adjusted: Return on average tangible common equity2	[e÷g]	14.34		%	17.79		%	15.51		%	15.08		%

___________________________________________

1.The year-to-date tax benefits were calculated by multiplying year-to-date acquisition expenses and other restructuring expenses by the effective tax rates for the year-to-date periods. The annual effective tax rates used in this calculation were 19.8% for the nine months ended September 30, 2023, and 19.1% for the nine months ended September 30, 2022. Quarterly tax benefits were calculated as the year-to-date amounts less the sum of amounts applied to previous quarters.

2.Annualized measure.

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RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (unaudited)


Adjusted Net Interest Income and Adjusted Net Interest Margin
(dollars in thousands)

		Three Months Ended September 30,			Nine Months Ended September 30,
		2023			2022			2023			2022
Net interest income		$	77,791		$	86,305		$	242,318		$	232,289
Non-GAAP adjustments:
Tax-equivalent adjustment1		553			543			1,672			1,635
Tax-equivalent net interest income		78,344			86,848			243,990			233,924
Purchase accounting accretion related to business combinations		(277)			(830)			(1,093)			(2,588)
Adjusted net interest income		$	78,067		$	86,018		$	242,897		$	231,336

Tax-equivalent net interest income, annualized	[a]	$	310,821		$	344,560		$	326,214		$	312,756
Adjusted net interest income, annualized	[b]	309,722			341,267			324,752			309,295
Average interest-earning assets	[c]	11,118,167			11,497,783			11,142,780			11,550,887

Reported: Net interest margin2	[a÷c]	2.80		%	3.00		%	2.93		%	2.71		%
Adjusted: Net interest margin2	[b÷c]	2.79		%	2.97		%	2.91		%	2.68		%

___________________________________________

1.The tax-equivalent adjustments were calculated using an estimated federal income tax rate of 21%, applied to non-taxable interest income on investments and loans.

2.Annualized measure.

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RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (unaudited)


Noninterest Expense Excluding Amortization of Intangible Assets, Adjusted Noninterest Expense, Adjusted Core Expense, Noninterest Expense Excluding Non-operating Adjustments, Efficiency Ratio, Adjusted Efficiency Ratio, and Adjusted Core Efficiency Ratio
(dollars in thousands)

		Three Months Ended September 30,			Nine Months Ended September 30,
		2023			2022			2023			2022
Net interest income		$	77,791		$	86,305		$	242,318		$	232,289
Non-GAAP adjustments:
Tax-equivalent adjustment1		553			543			1,672			1,635
Tax-equivalent net interest income		78,344			86,848			243,990			233,924

Total noninterest income		31,008			30,933			90,868			97,724
Non-GAAP adjustments:
Net security (gains) losses		285			(4)			2,960			2,324
Noninterest income excluding net securities gains and losses		31,293			30,929			93,828			100,048

Tax-equivalent revenue	[a]	$	109,637		$	117,777		$	337,818		$	333,972

Total noninterest expense		$	70,945		$	70,736		$	210,553		$	210,204
Non-GAAP adjustments:
Amortization of intangible assets	[b]	(2,555)			(2,871)			(7,953)			(8,833)
Non-interest expense excluding amortization of intangible assets	[c]	68,390			67,865			202,600			201,371
Non-operating adjustments:
Salaries, wages, and employee benefits		—			—			—			(587)
Data processing		—			—			—			(214)
Lease or fixed asset impairment		—			(877)			—			(976)
Professional fees and other		(79)			(80)			(91)			(318)
Adjusted noninterest expense	[f]	68,311			66,908			202,509			199,276
Provision for unfunded commitments		(13)			320			357			(525)
Amortization of New Markets Tax Credits		(2,260)			(1,665)			(6,740)			(4,668)
Adjusted core expense	[g]	$	66,038		$	65,563		$	196,126		$	194,083

Noninterest expense, excluding non-operating adjustments	[f-b]	$	70,866		$	69,779		$	210,462		$	208,109

Reported: Efficiency ratio	[c÷a]	62.38		%	57.62		%	59.97		%	60.30		%
Adjusted: Efficiency ratio	[f÷a]	62.31		%	56.81		%	59.95		%	59.67		%
Adjusted: Core efficiency ratio	[g÷a]	60.23		%	55.67		%	58.06		%	58.11		%

___________________________________________

1.The tax-equivalent adjustments were calculated using an estimated federal income tax rate of 21%, applied to non-taxable interest income on investments and loans.

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RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (unaudited)


Tangible Book Value and Tangible Book Value Per Common Share
(dollars in thousands, except per share amounts)

		As of
		September 30, 2023		December 31, 2022
Total stockholders' equity		$	1,190,158	$	1,145,977
Goodwill and other intangible assets, net		(356,343)		(364,296)
Tangible book value	[a]	$	833,815	$	781,681

Ending number of common shares outstanding	[b]	55,342,017		55,279,124

Tangible book value per common share	[a÷b]	$	15.07	$	14.14


Tangible Assets, Tangible Common Equity, and Tangible Common Equity to Tangible Assets
(dollars in thousands)

		As of
		September 30, 2023		December 31, 2022
Total assets		$	12,258,250	$	12,336,677
Non-GAAP adjustments:
Goodwill and other intangible assets, net		(356,343)		(364,296)
Tax effect of other intangible assets1		7,354		8,847
Tangible assets2	[a]	$	11,909,261	$	11,981,228

Total stockholders' equity		$	1,190,158	$	1,145,977
Non-GAAP adjustments:
Goodwill and other intangible assets, net		(356,343)		(364,296)
Tax effect of other intangible assets1		7,354		8,847
Tangible common equity2	[b]	$	841,169	$	790,528

Tangible common equity to tangible assets2	[b÷a]	7.06%		6.60%

___________________________________________

1.Net of estimated deferred tax liability, calculated using the estimated statutory tax rate of 28%.

2.Tax-effected measure.

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RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (unaudited)


Core Loans, Core Loans to Portfolio Loans, Core Deposits, Core Deposits to Total Deposits, and Core Loans to Core Deposits
(dollars in thousands)

		As of
		September 30, 2023		December 31, 2022
Portfolio loans	[a]	$	7,856,160	$	7,725,702
Non-GAAP adjustments:
PPP loans amortized cost		(598)		(845)

Core loans	[b]	$	7,855,562	$	7,724,857

Total deposits	[c]	$	10,332,362	$	10,071,280
Non-GAAP adjustments:
Brokered transaction accounts		(6,055)		(1,303)
Time deposits of $250,000 or more		(350,276)		(120,377)

Core deposits	[d]	$	9,976,031	$	9,949,600

RATIOS
Core loans to portfolio loans	[b÷a]	99.99%		99.99%
Core deposits to total deposits	[d÷c]	96.55%		98.79%
Core loans to core deposits	[b÷d]	78.74%		77.64%

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FORWARD-LOOKING STATEMENTS

Statements made in this document, other than those concerning historical financial information, may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to Busey’s financial condition, results of operations, plans, objectives, future performance, and business. Forward-looking statements, which may be based upon beliefs, expectations, and assumptions of Busey’s management, and on information currently available to management, are generally identifiable by the use of words such as “believe,” “expect,” “anticipate,” “plan,” “intend,” “estimate,” “may,” “will,” “would,” “could,” “should,” or other similar expressions. Additionally, all statements in this document, including forward-looking statements, speak only as of the date they are made, and we undertake no obligation to update any statement in light of new information or future events. A number of factors, many of which are beyond our ability to control or predict, could cause actual results to differ materially from those in our forward-looking statements. These factors include, among others, the following: (i) the strength of the local, state, national, and international economy (including effects of inflationary pressures and supply chain constraints); (ii) the economic impact of any future terrorist threats or attacks, widespread disease or pandemics (including the Coronavirus Disease 2019 pandemic), or other adverse external events that could cause economic deterioration or instability in credit markets (including Russia’s invasion of Ukraine and the Israeli-Palestinian conflict); (iii) changes in state and federal laws, regulations, and governmental policies concerning Busey's general business (including changes in response to the recent failures of other banks); (iv) changes in accounting policies and practices (v) changes in interest rates and prepayment rates of Busey’s assets (including the impact of the LIBOR phase-out and the recent and potential additional rate increases by the Federal Reserve); (vi) increased competition in the financial services sector (including from non-bank competitors such as credit unions and fintech companies) and the inability to attract new customers; (vii) changes in technology and the ability to develop and maintain secure and reliable electronic systems; (viii) the loss of key executives or associates; (ix) changes in consumer spending; (x) unexpected results of current and/or future acquisitions, which may include failure to realize the anticipated benefits of any acquisition and the possibility that transaction costs may be greater than anticipated; (xi) unexpected outcomes of existing or new litigation involving Busey; (xii) fluctuations in the value of securities held in our securities portfolio; (xiii) concentrations within our loan portfolio, large loans to certain borrowers, and large deposits from certain clients; (xiv) the concentration of large deposits from certain clients who have balances above current FDIC insurance limits and may withdraw deposits to diversify their exposure; (xv) the level of non-performing assets on our balance sheets; (xvi) interruptions involving our information technology and communications systems or third-party servicers; (xvii) breaches or failures of our information security controls or cybersecurity-related incidents; and (xviii) the economic impact of exceptional weather occurrences such as tornadoes, hurricanes, floods, blizzards, and droughts. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Additional information concerning Busey and our business, including additional factors that could materially affect our financial results, is included in our filings with the SEC.

CRITICAL ACCOUNTING ESTIMATES

Busey has established various accounting policies that govern the application of GAAP in the preparation of its unaudited consolidated financial statements. Significant accounting policies are described in “Note 1. Significant Accounting Policies” of Busey’s 2022 Annual Report.

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. Management has reviewed these critical accounting estimates and related disclosures with our Audit Committee. The following accounting policies could be deemed critical:

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 (Unaudited). The cost of securities sold is based on the specific identification method.

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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.”

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.

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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 (Unaudited). Accrued and deferred taxes, as reported in other assets or other liabilities in the Consolidated Balance Sheets (Unaudited), 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 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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of changes in asset values due to movements in underlying market rates and prices. Interest rate risk is a type of market risk to earnings and capital arising from movements in interest rates. Interest rate risk is the most significant market risk affecting Busey as other types of market risk, such as foreign currency exchange rate risk and commodity price risk, have minimal impact or do not arise in the normal course of Busey’s business activities.

Busey has an asset-liability committee, whose policy is to meet at least quarterly, to review current market conditions and to structure the Consolidated Balance Sheets (Unaudited) to optimize stability in net interest income in consideration of projected future changes in interest rates.

As interest rate changes do not impact all categories of assets and liabilities equally or simultaneously, the asset-liability committee primarily relies on balance sheet and income simulation analysis to determine the potential impact of changes in market interest rates on net interest income. In these standard simulation models, the balance sheet is projected over a one-year and a two-year time horizon and net interest income is calculated under current market rates and assuming permanent instantaneous shifts of +/-100, +/-200, +/-300, and +/-400 basis points. The model assumes immediate and sustained shifts in the federal funds rate and other market rate indices and corresponding shifts in other non-market rate indices based on their historical changes relative to changes in the federal funds rate and other market indices. Assets and liabilities are assumed to remain constant as of the measurement date; variable-rate assets and liabilities are repriced based on repricing frequency; and prepayment speeds on loans are projected for both declining and rising rate environments.

Busey’s interest rate risk resulting from immediate and sustained changes in interest rates, expressed as a change in net interest income as a percentage of the net interest income calculated in the constant base model, was as follows:


	Year-One: Basis Point Changes
	-400		-300	-200		- 100	+100	+200	+300	+400
September 30, 2023	(7.11)	%	(5.45)%	(3.66)	%	(1.87)%	1.59%	3.21%	4.86%	6.55%
December 31, 2022	(21.24)	%	(14.74)%	(8.08)	%	(3.95)%	3.05%	6.11%	9.18%	12.27%

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	Year-Two: Basis Point Changes
	-400		-300	-200		- 100	+100	+200	+300	+400
September 30, 2023	(10.93)	%	(8.11)%	(5.33)	%	(2.67)%	1.90%	3.85%	5.86%	7.94%
December 31, 2022	(27.82)	%	(19.56)%	(10.76)	%	(5.27)%	3.94%	7.91%	11.94%	16.02%

Interest rate risk is monitored and managed within approved policy limits and any temporary exceptions to policy in periods of rapid rate movement are approved and documented. The calculation of potential effects of hypothetical interest rate changes is based on numerous assumptions and should not be relied upon as indicative of actual results. Actual results would likely differ from simulated results due to the timing, magnitude, and frequency of interest rate changes as well as changes in market conditions and management strategies.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

An evaluation of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Exchange Act, was carried out as of September 30, 2023, under the supervision and with the participation of our Chief Executive Officer, Chief Financial Officer, and several other members of our senior management. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2023, our disclosure controls and procedures were effective in ensuring that the information we are required to disclose in the reports we file or submit under the Exchange Act was (i) accumulated and communicated to our management (including the Chief Executive Officer and Chief Financial Officer) to allow timely decisions regarding required disclosure, and (ii) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms.

Changes in Internal Control over Financial Reporting

During the three months ended September 30, 2023, no change occurred in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

As part of the ordinary course of business, First Busey Corporation and its subsidiaries are parties to litigation that is incidental to their regular business activities.

There is no material pending litigation, other than ordinary routine litigation incidental to its business, in which First Busey Corporation or any of its subsidiaries is involved or of which any of their property is the subject. Furthermore, there is no pending legal proceeding that is adverse to Busey in which any director, officer, or affiliate of Busey, or any associate of any such director or officer, is a party, or has a material interest.

ITEM 1A. RISK FACTORS

There have been no material changes to the risk factors disclosed in Part I—Item 1A of Busey’s 2022 Annual Report.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES

On February 3, 2015, Busey’s board of directors authorized the Company to repurchase up to an aggregate of 666,667 shares of its common stock. The repurchase plan has no expiration date, and has been amended to increase the number of shares available for repurchase as follows:

•On May 22, 2019, Busey’s board of directors approved an amendment to increase the authorized shares under the repurchase plan by 1,000,000 shares.

•On February 5, 2020, Busey’s board of directors approved an amendment to increase the authorized shares under the repurchase plan by an additional 2,000,000 shares.

•On May 24, 2023, Busey’s board of directors approved an amendment to increase the authorized shares under the repurchase plan by an additional 2,000,000 shares.

During the third quarter of 2023, Busey purchased 65,123 shares under the repurchase plan. As of September 30, 2023, the Company had 2,037,087 shares that may still be purchased under the plan.


Period	Total Number of Shares Purchased	Weighted Average Price Paid per Common Share		Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs






July 1-31, 2023	9,365	$	19.82	9,365	2,092,845
August 1-31, 2023	4,194	$	20.01	4,194	2,088,651
September 1-30, 2023	51,564	$	19.56	51,564	2,037,087



Three months ended September 30, 2023	65,123	$	19.63	65,123

Nine months ended September 30, 2023	110,123	$	20.06	110,123

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.

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ITEM 5. OTHER INFORMATION

During the fiscal quarter ended September 30, 2023, none of the Company’s directors or executive officers adopted or terminated any contract, instruction, or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any non-Rule 10b5-1 trading arrangement.

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ITEM 6. EXHIBITS

Incorporated herein by reference

Exhibit
Number

Description of Exhibit

Filing Entity1

(File No.)

Form

Exhibit

Filing Date

Filed
Herewith

31.1

Certification of Principal Executive Officer, pursuant to Rule 13a-14(a) and Rule 15d-14(a)

31.2

Certification of Principal Financial Officer, pursuant to Rule 13a-14(a) and Rule 15d-14(a)

32.1

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, from First Busey’s Chief Executive Officer

32.2

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, from First Busey’s Chief Financial Officer

101.INS

iXBRL Instance Document

101.SCH

iXBRL Taxonomy Extension Schema

101.CAL

iXBRL Taxonomy Extension Calculation Linkbase

101.LAB

iXBRL Taxonomy Extension Label Linkbase

101.PRE

iXBRL Taxonomy Extension Presentation Linkbase

101.DEF

iXBRL Taxonomy Extension Definition Linkbase

104.0

Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101)

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SIGNATURES

Pursuant to the requirements of the Exchange Act, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


Date: November 2, 2023	FIRST BUSEY CORPORATION (Registrant)

	By:	/s/ VAN A. DUKEMAN
		Van A. Dukeman
		Chairman, President and Chief Executive Officer (Principal Executive Officer)

	By:	/s/ JEFFREY D. JONES
		Jeffrey D. Jones
		Chief Financial Officer (Principal Financial Officer)

	By:	/s/ SCOTT A. PHILLIPS
		Scott A. Phillips
		Corporate Controller and Principal Accounting Officer (Principal Accounting Officer)