FIRST BUSEY CORP NV

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.

Consolidated Average Balance Sheets and Interest Rates (Unaudited)

The following tables show our unaudited consolidated average balance sheets (dollars in thousands), detailing 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.

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 $0.4 million and $0.6 million for the three months ended March 31, 2024, and 2023, respectively.

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

5. Annualized.

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

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

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 a total of 525 basis points since the onset of the current FOMC tightening cycle that began in the first quarter of 2022, with no further increases during the first quarter of 2024. 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, some of the net interest margin expansion is reversed. As lower yielding securities and loans have continued to mature or renew at higher current market rates, expansion in asset yields has outpaced any remaining lagged pressure on funding costs. Our deposit cost of funds peaked in the beginning of the first quarter of 2024, and we have been able to reduce interest expense by offering lower CD specials as well as applying rate management on higher priced non-maturity deposit products. We have also begun to benefit from recent actions taken to proactively bolster our net interest margin, including completion of targeted balance sheet repositionings in both the fourth quarter of 2023 and the first quarter of 2024, the reversal of the wealth management sweep accounts, and the pay off of the remaining balance on our Term Loan.

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:

1. Calculated on a tax-equivalent basis.

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

Management attempts to mitigate the effects of an unpredictable interest-rate environment through effective portfolio management, prudent loan underwriting and pricing discipline, and operational efficiencies. 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 2023 Annual Report.