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FIRST BUSEY CORP /NV/ - Quarter Report: 2021 September (Form 10-Q)

Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

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

For the Quarterly Period Ended September 30, 2021

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

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

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

Accelerated filer

Non-accelerated filer

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.

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

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 4, 2021

Common Stock, $.001 par value

55,668,984

Table of Contents

FIRST BUSEY CORPORATION

FORM 10-Q

September 30, 2021

Table of Contents

GLOSSARY

3

Part I

FINANCIAL INFORMATION

Item 1.

FINANCIAL STATEMENTS (UNAUDITED)

4

CONSOLIDATED BALANCE SHEETS

5

CONSOLIDATED STATEMENTS OF INCOME

6

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

7

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

8

CONSOLIDATED STATEMENTS OF CASH FLOWS

10

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

12

Note 1:

Significant Accounting Policies

12

Note 2:

Acquisitions

13

Note 3:

Securities

15

Note 4:

Portfolio Loans

17

Note 5:

Deposits

25

Note 6:

Borrowings

26

Note 7:

Regulatory Capital

27

Note 8:

Employee Benefit Plans

29

Note 9:

Stock-Based Compensation

29

Note 10:

Outstanding Commitments and Contingent Liabilities

32

Note 11:

Derivative Financial Instruments

32

Note 12:

Fair Value Measurements

35

Note 13:

Earnings per Common Share

39

Note 14:

Accumulated Other Comprehensive Income

40

Note 15:

Operating Segments and Related Information

41

Note 16:

Leases

43

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

45

Item 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

68

Item 4.

CONTROLS AND PROCEDURES

69

Part II

OTHER INFORMATION

Item 1.

LEGAL PROCEEDINGS

70

Item 1A

RISK FACTORS

70

Item 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

70

Item 3.

DEFAULTS UPON SENIOR SECURITIES

70

Item 4.

MINE SAFETY DISCLOSURES

70

Item 5.

OTHER INFORMATION

70

Item 6.

EXHIBITS

71

SIGNATURES

72

2

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

2020 Annual Report

Annual report filed with the SEC on Form 10-K pursuant to Section 13 or 15(d) of the Exchange Act for the year ended December 31, 2020

ACL

Allowance for credit losses

ASC

Accounting Standards Codification

Basel III

2010 capital accord adopted by the international Basel Committee on Banking Supervision

Basel III Rule

Regulations promulgated by U.S. federal banking agenciesthe OCC, the Federal Reserve, and the FDICto both enforce implementation of certain aspects of the Basel III capital reforms and effect certain changes required by the Dodd-Frank Act

CAC

Cummins-American Corp.

CARES Act

Coronavirus Aid, Relief, and Economic Security Act

CECL

Current Expected Credit Losses

COVID-19

Coronavirus disease 2019

Dodd-Frank Act

Dodd-Frank Wall Street Reform and Consumer Protection Act

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 820

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 and 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.

GAAP

U.S. Generally Accepted Accounting Principles

GSB

Glenview State Bank

Interagency Statement

Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus, issued on March 22, 2020, and revised on April 7, 2020

LIBOR

London Interbank Offered Rate

OCI

Other comprehensive income (loss)

OREO

Other real estate owned

PCD

Purchased credit deteriorated

PSU

Performance-based restricted stock unit

PPP

Paycheck Protection Program

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

TDR

Troubled debt restructuring

U.S. Treasury

U.S. Department of the Treasury

3

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

4

Table of Contents

FIRST BUSEY CORPORATION

CONSOLIDATED BALANCE SHEETS (Unaudited)

(dollars in thousands)

As of

September 30, 

December 31, 

2021

2020

Assets

Cash and cash equivalents:

Cash and due from banks

$

151,372

$

118,824

Interest-bearing deposits

732,473

569,713

Total cash and cash equivalents

883,845

688,537

Debt securities available for sale

 

3,997,244

 

2,261,187

Equity securities

13,012

5,530

Loans held for sale, at fair value

 

20,225

 

42,813

Portfolio loans (net of ACL of $92,802 at September 30, 2021; $101,048 at December 31, 2020)

 

7,057,833

 

6,713,129

Premises and equipment, net

 

142,031

 

135,191

Right of use assets

11,068

7,714

Goodwill

 

317,766

 

311,536

Other intangible assets, net

 

61,125

 

51,985

Cash surrender value of bank owned life insurance

 

176,730

 

176,405

Other assets

 

218,451

 

150,020

Total assets

$

12,899,330

$

10,544,047

Liabilities and Stockholders’ Equity

Liabilities

Deposits:

Noninterest-bearing

$

3,453,906

$

2,552,039

Interest-bearing

 

7,363,961

 

6,125,810

Total deposits

10,817,867

8,677,849

Securities sold under agreements to repurchase

 

241,242

 

175,614

Short-term borrowings

17,673

4,658

Long-term debt

 

49,233

 

4,757

Senior notes, net of unamortized issuance costs

39,910

39,809

Subordinated notes, net of unamortized issuance costs

182,637

182,226

Junior subordinated debt owed to unconsolidated trusts

71,593

71,468

Lease liabilities

11,120

7,757

Other liabilities

 

134,979

 

109,840

Total liabilities

11,566,254

9,273,978

Outstanding commitments and contingent liabilities (see Notes 10 and 16)

Stockholders’ Equity

Common stock, ($.001 par value)

 

58

 

56

Additional paid-in capital

 

1,315,038

 

1,253,360

Retained earnings

 

75,643

 

20,830

Accumulated other comprehensive income (loss)

 

(1,366)

 

33,309

Total stockholders’ equity before treasury stock

1,389,373

1,307,555

Treasury stock at cost

 

(56,297)

 

(37,486)

Total stockholders’ equity

1,333,076

1,270,069

Total liabilities and stockholders’ equity

$

12,899,330

$

10,544,047

Shares

Common shares issued

58,116,970

55,910,733

Less treasury shares

(2,289,986)

(1,506,354)

Common shares outstanding

55,826,984

54,404,379

See accompanying notes to unaudited consolidated financial statements.

5

Table of Contents

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, 

    

2021

    

2020

    

2021

    

2020

Interest income

Interest and fees on loans

$

65,163

$

69,809

$

189,132

$

213,434

Interest and dividends on investment securities:

Taxable interest income

 

11,324

8,466

29,016

 

26,807

Non-taxable interest income

 

915

1,141

2,878

 

3,458

Other interest income

462

213

857

1,596

Total interest income

 

77,864

79,629

221,883

 

245,295

Interest expense

Deposits

 

3,059

6,105

10,086

 

26,053

Federal funds purchased and securities sold under agreements to repurchase

 

60

88

177

 

596

Short-term borrowings

 

112

30

195

 

215

Long-term debt

 

270

38

415

 

495

Senior notes

400

400

1,199

1,199

Subordinated notes

2,480

2,475

7,436

4,518

Junior subordinated debt owed to unconsolidated trusts

 

728

740

2,185

 

2,220

Total interest expense

 

7,109

9,876

21,693

 

35,296

Net interest income

 

70,755

69,753

200,190

 

209,999

Provision for credit losses

 

(1,869)

5,549

(10,365)

 

35,656

Net interest income after provision for credit losses

 

72,624

64,204

210,555

 

174,343

Noninterest income

Wealth management fees

 

13,749

10,548

39,335

 

32,296

Fees for customer services

 

9,288

8,014

25,936

 

23,400

Remittance processing

 

4,355

3,995

13,122

 

11,466

Mortgage revenue

 

1,740

5,793

6,153

 

9,879

Income on bank owned life insurance

999

1,022

3,439

4,361

Net gains (losses) on sales of securities

 

(5)

11

114

 

1,710

Unrealized gains (losses) recognized on equity securities

62

(437)

2,482

(1,234)

Other income

 

3,071

3,339

7,134

 

5,888

Total noninterest income

 

33,259

32,285

97,715

 

87,766

Noninterest expense

Salaries, wages, and employee benefits

 

41,949

32,839

107,222

 

95,397

Data processing

 

7,782

3,937

16,881

 

12,383

Net occupancy expense of premises

 

4,797

4,256

13,606

 

13,419

Furniture and equipment expenses

 

2,208

2,325

6,300

 

7,311

Professional fees

1,361

1,698

5,617

5,508

Amortization of intangible assets

 

3,149

2,493

8,200

 

7,569

Interchange expense

1,434

1,223

4,360

3,590

Other expense

 

10,807

7,771

28,425

 

24,947

Total noninterest expense

 

73,487

56,542

190,611

 

170,124

Income before income taxes

 

32,396

39,947

117,659

 

91,985

Income taxes

 

6,455

9,118

24,136

 

19,986

Net income

$

25,941

$

30,829

$

93,523

$

71,999

Basic earnings per common share

$

0.46

$

0.56

$

1.69

$

1.32

Diluted earnings per common share

$

0.46

$

0.56

$

1.67

$

1.31

Dividends declared per share of common stock

$

0.23

$

0.22

$

0.69

$

0.66

See accompanying notes to unaudited consolidated financial statements.

6

Table of Contents

FIRST BUSEY CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(dollars in thousands)

Three Months Ended September 30, 

Nine Months Ended September 30, 

    

2021

    

2020

    

2021

    

2020

Net income

$

25,941

$

30,829

$

93,523

$

71,999

Other comprehensive income (loss):

Unrealized gains (losses) on debt securities available for sale:

Net unrealized holding gains (losses) on debt securities available for sale, net of taxes of $4,902, $682, $14,195, and ($9,577), respectively

(12,296)

(1,710)

(35,606)

23,974

Reclassification adjustment for realized (gains) losses on debt securities available for sale included in net income, net of taxes of ($1), $3, $7, and $492, respectively

4

(8)

(16)

(1,218)

Net change in unrealized gains (losses) on debt securities available for sale

(12,292)

(1,718)

(35,622)

22,756

Unrealized gains (losses) on cash flow hedges:

Net unrealized holding gains (losses) on cash flow hedges, net of taxes of $2, ($6), ($134), and $890, respectively

 

(5)

 

14

 

336

 

(2,233)

Reclassification adjustment for realized (gains) losses on cash flow hedges included in net income, net of taxes of ($82), ($76), ($243), and ($16), respectively

206

192

611

42

Net change in unrealized gains (losses) on cash flow hedges

201

206

947

(2,191)

Net change in accumulated other comprehensive income (loss)

(12,091)

(1,512)

(34,675)

20,565

Total comprehensive income

$

13,850

$

29,317

$

58,848

$

92,564

See accompanying notes to unaudited consolidated financial statements.

7

Table of Contents

FIRST BUSEY CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)

(dollars in thousands, except per share amounts)

Three Months Ended September 30, 2021

Accumulated

Additional

Other

Total

Common

Paid-in

Retained

Comprehensive

Treasury

Stockholders'

    

Shares

    

Stock

    

Capital

    

Earnings

    

Income (Loss)

    

Stock

    

Equity

Balance, June 30, 2021

56,330,616

$

58

$

1,316,716

$

62,926

$

10,725

$

(44,734)

$

1,345,691

Net income

25,941

25,941

Other comprehensive income (loss)

(12,091)

(12,091)

Stock issued in acquisition, net of stock issuance costs

(29)

(29)

Repurchase of stock

(625,000)

(14,790)

(14,790)

Issuance of treasury stock for employee stock purchase plan

14,658

(16)

377

361

Net issuance of treasury stock for restricted/deferred stock unit vesting and related tax

106,710

(3,738)

2,850

(888)

Cash dividends common stock at $0.23 per share

(12,956)

(12,956)

Stock dividend equivalents restricted stock units at $0.23 per share

268

(268)

Stock-based compensation

1,837

1,837

Balance, September 30, 2021

55,826,984

$

58

$

1,315,038

$

75,643

$

(1,366)

$

(56,297)

$

1,333,076

Nine Months Ended September 30, 2021

Accumulated

Additional

Other

Total

Common

Paid-in

Retained

Comprehensive

Treasury

Stockholders'

    

Shares

    

Stock

    

Capital

    

Earnings

    

Income (Loss)

    

Stock

    

Equity

Balance, December 31, 2020

54,404,379

$

56

$

1,253,360

$

20,830

$

33,309

$

(37,486)

$

1,270,069

Net income

93,523

93,523

Other comprehensive income (loss)

(34,675)

(34,675)

Stock issued in acquisition, net of stock issuance costs

2,206,237

2

58,953

58,955

Repurchase of stock

(905,000)

(22,038)

(22,038)

Issuance of treasury stock for employee stock purchase plan

14,658

(16)

377

361

Net issuance of treasury stock for restricted/deferred stock unit vesting and related tax

106,710

(3,738)

2,850

(888)

Cash dividends common stock at $0.69 per share

(37,953)

(37,953)

Stock dividend equivalents restricted stock units at $0.69 per share

757

(757)

Stock-based compensation

5,722

5,722

Balance, September 30, 2021

55,826,984

$

58

$

1,315,038

$

75,643

$

(1,366)

$

(56,297)

$

1,333,076

8

Table of Contents

FIRST BUSEY CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)

(dollars in thousands, except per share amounts)

Three Months Ended September 30, 2020

Retained

Accumulated

Additional

Earnings

Other

Total

Common

Paid-in

(Accumulated

Comprehensive

Treasury

Stockholders'

    

Shares

    

Stock

    

Capital

    

Deficit)

    

Income (Loss)

    

Stock

    

Equity

Balance, June 30, 2020

54,516,000

$

56

$

1,248,045

$

(13,951)

$

37,037

$

(35,103)

$

1,236,084

Net income

 

 

 

30,829

 

 

 

30,829

Other comprehensive income (loss)

 

 

 

 

(1,512)

 

 

(1,512)

Issuance of treasury stock for employee stock purchase plan

6,119

(23)

116

93

Net issuance of treasury stock for restricted/deferred stock unit vesting and related tax

112

 

 

(2)

 

 

 

2

 

Cash dividends common stock at $0.22 per share

 

 

 

(11,994)

 

 

 

(11,994)

Stock dividend equivalents restricted stock units at $0.22 per share

 

 

166

 

(166)

 

 

 

Stock-based compensation

 

 

2,205

 

 

 

 

2,205

Balance, September 30, 2020

54,522,231

$

56

$

1,250,391

$

4,718

$

35,525

$

(34,985)

$

1,255,705

Nine Months Ended September 30, 2020

Retained

Accumulated

Additional

Earnings

Other

Total

Common

Paid-in

(Accumulated

Comprehensive

Treasury

Stockholders'

    

Shares

    

Stock

    

Capital

    

Deficit)

    

Income (Loss)

    

Stock

    

Equity

Balance, December 31, 2019

54,788,772

$

56

$

1,248,216

$

(14,813)

$

14,960

$

(27,985)

$

1,220,434

Cumulative effect of change in accounting principle

(15,922)

(15,922)

Net income

71,999

 

71,999

Other comprehensive income (loss)

20,565

 

20,565

Repurchase of stock

(407,850)

(9,669)

 

(9,669)

Issuance of treasury stock for employee stock purchase plan

26,651

(68)

504

436

Net issuance of treasury stock for restricted/deferred stock unit vesting and related tax

106,589

(2,648)

2,013

(635)

Net issuance of treasury stock for stock options exercised, net of shares redeemed and related tax

8,069

(51)

152

101

Cash dividends common stock at $0.66 per share

(36,017)

 

(36,017)

Stock dividend equivalents restricted stock units at $0.66 per share

529

(529)

 

Stock-based compensation

4,413

 

4,413

Balance, September 30, 2020

54,522,231

$

56

$

1,250,391

$

4,718

$

35,525

$

(34,985)

$

1,255,705

See accompanying notes to unaudited consolidated financial statements.

9

Table of Contents

FIRST BUSEY CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(dollars in thousands)

Nine Months Ended September 30, 

    

2021

    

2020

Cash Flows Provided by (Used in) Operating Activities

Net income

$

93,523

$

71,999

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Provision for credit losses

 

(10,365)

 

35,656

Amortization of intangible assets

8,200

7,569

Amortization of mortgage servicing rights

4,202

3,932

Depreciation and amortization of premises and equipment

 

8,723

 

9,384

Net amortization (accretion) of premium (discount) on portfolio loans acquired

(4,860)

(7,015)

Net amortization (accretion) of premium (discount) on investment securities

 

17,263

 

6,698

Net amortization (accretion) of premium (discount) on time deposits

(929)

(662)

Net amortization (accretion) of premium (discount) on FHLB advances and other borrowings

620

387

Impairment of OREO

43

Impairment of fixed assets held for sale

 

 

36

Impairment of mortgage servicing rights

(542)

604

Change in fair value of equity securities, net

(2,482)

1,234

(Gain) loss on sales of debt securities, net

 

(114)

 

(1,710)

(Gain) loss on sales of loans, net

 

(8,202)

 

(21,357)

(Gain) loss on sales of OREO

163

47

(Gain) loss on sales of premises and equipment

(1,007)

198

(Gain) loss on life insurance proceeds

(493)

(1,256)

Provision for deferred income taxes

 

2,326

 

(2,730)

Stock-based compensation

 

5,722

 

4,413

(Increase) decrease in cash surrender value of bank owned life insurance

 

(2,946)

 

(3,105)

Mortgage loans originated for sale

(214,096)

(770,186)

Proceeds from sales of mortgage loans

244,356

771,039

Net change in operating assets and liabilities:

(Increase) decrease in other assets

 

(12,791)

 

(3,435)

Increase (decrease) in other liabilities

 

(23,775)

 

(369)

Net cash provided by (used in) operating activities

$

102,496

$

101,414

Cash Flows Provided by (Used in) Investing Activities

Purchases of equity securities

$

(11,017)

$

(13,123)

Purchases of debt securities available for sale

(2,048,554)

(907,094)

Proceeds from sales of equity securities

7,254

33

Proceeds from sales of debt securities available for sale

 

290,955

 

Proceeds from paydowns and maturities of debt securities available for sale

 

641,754

 

477,370

Net cash received in (paid for) acquisitions (see Note 2)

228,279

Net (increase) decrease in loans

 

114,729

 

(439,679)

Cash paid for premiums on bank-owned life insurance

(118)

(120)

Purchases of premises and equipment

(4,041)

(3,158)

Proceeds from life insurance

3,232

2,512

Proceeds from disposition of premises and equipment

 

6,519

 

806

Proceeds from sales of OREO

 

1,452

 

492

Net cash provided by (used in) investing activities

$

(769,556)

$

(881,961)

10

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FIRST BUSEY CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Continued)

(dollars in thousands)

Nine Months Ended September 30, 

2021

2020

Cash Flows Provided by (Used in) Financing Activities

Net increase (decrease) in deposits

$

816,551

$

740,967

Net change in federal funds purchased and securities sold under agreements to repurchase

 

48,977

 

(3,850)

Proceeds from other borrowings

72,500

142,634

Repayment of other borrowings

(15,500)

(74,000)

Proceeds from FHLB advances

5,000

4,000

Repayment of FHLB advances

(4,492)

(32,551)

Cash dividends paid

(37,953)

(36,017)

Purchase of treasury stock

(22,038)

(9,669)

Cash paid for withholding taxes on stock-based payments

 

(888)

 

(635)

Proceeds from stock options exercised

101

Issuance of treasury stock for ESPP

361

Common stock issuance costs

(150)

Net cash provided by (used in) financing activities

$

862,368

$

730,980

Net increase (decrease) in cash and cash equivalents

 

195,308

 

(49,567)

Cash and cash equivalents, beginning of period

 

688,537

 

529,288

Cash and cash equivalents, ending of period

$

883,845

$

479,721

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Cash payments for:

Interest

$

16,257

$

41,987

Income taxes

 

9,641

 

19,395

Non-cash investing and financing activities:

OREO acquired in settlement of loans

 

228

 

2,482

See accompanying notes to unaudited consolidated financial statements.

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Note 1: Significant Accounting Policies

Nature of Operations

First Busey Corporation, a Nevada corporation organized in 1980, is a $12.9 billion financial holding company headquartered in Champaign, Illinois. Our common stock is traded on The Nasdaq Global Select Market under the symbol “BUSE.”

The Company operates and reports its business in three segments: Banking, Remittance Processing, and Wealth Management. The Banking operating segment provides a full range of banking services to individual and corporate customers through the Company’s wholly-owned bank subsidiary, Busey Bank, with banking centers in Illinois; the St. Louis, Missouri metropolitan area; southwest Florida; and Indianapolis, Indiana. The Remittance Processing operating segment provides technology-driven payment solutions for walk-in, lockbox, interactive voice recognition, and online bill payments, among others, through the Company’s subsidiary, FirsTech. 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.

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 our 2020 Annual Report. These interim unaudited consolidated financial statements serve to update our 2020 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.

COVID-19

First Busey has continued to operate as an essential community resource during these challenging and unprecedented times. Federal bank regulatory agencies, along with their state counterparts, have issued a steady stream of guidance responding to the COVID-19 pandemic and have taken a number of steps to help banks navigate the pandemic and mitigate its impact.

The Company remains vigilant as the negative impacts of COVID-19, such as further margin compression and a deterioration in asset quality, could impact future quarters.

As part of the CARES Act, Congress appropriated approximately $349 billion for the creation of the PPP and then authorized a second phase for an additional $310 billion in PPP loans. The program provided payroll assistance for the nation’s nearly 30 million small businesses—and select nonprofits—in the form of 100% government-guaranteed low-interest loans from the SBA. On December 27, 2020, the Economic Aid Act extended the authority to make PPP loans through March 31, 2021, and revised certain PPP requirements. On March 30, 2021, the President signed the PPP Extension Act of 2021, which extended the PPP application deadline to May 31, 2021, or until funding was exhausted, which occurred on May 28, 2021. First Busey served as a bridge for these programs, actively helping existing and new business clients sign up for this important financial resource.

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The following table summarizes First Busey’s PPP loans as of September 30, 2021, (dollars in thousands):

CARES

Economic Aid

PPP Loan

    

Act

    

Act

    

Totals

Customers with PPP loans processed/acquired

4,595

2,753

7,348

PPP loans originated/acquired

$

765,212

$

324,593

$

1,089,805

Customers with PPP loans outstanding

121

1,499

1,620

PPP loans outstanding

$

17,364

$

165,746

$

183,110

PPP loans outstanding, amortized cost

17,325

160,906

178,231

PPP loan balance forgiveness:

Received

$

744,320

$

151,135

$

895,455

Balances submitted to the SBA for forgiveness

10,796

10,217

21,013

Use of Estimates

In preparing the accompanying unaudited consolidated financial statements in conformity with GAAP, the Company’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.

Subsequent Events

The Company 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. There were no significant subsequent events for the quarter ended September 30, 2021, through the filing date of these unaudited consolidated financial statements.

Note 2: Acquisitions

Cummins-American Corp.

Effective May 31, 2021, the Company completed its acquisition of CAC, the holding company for GSB. The partnership has enhanced the Company’s existing deposit, commercial banking, and wealth management presence in the Chicago-Naperville-Elgin, IL-IN-WI Metropolitan Statistical Area. GSB’s results of operations were included in the Company’s results of operations beginning June 1, 2021. First Busey operated GSB as a separate banking subsidiary until August 14, 2021, when it was merged with and into Busey Bank. At that time, all GSB banking centers became branches of Busey Bank.

Under terms of the definitive agreement, each share of CAC common stock issued and outstanding as of the effective date was converted into the right to receive 444.4783 shares of First Busey common stock and $14,173.96 in cash, which reflects the adjustments made to the cash consideration in accordance with the terms of the definitive agreement. The fair value of the common shares issued as part of the consideration paid for CAC was determined on the basis of the closing price of the Company’s common shares on the last trading day immediately preceding the acquisition date of May 31, 2021. As additional consideration provided to CAC’s shareholders in the merger, CAC paid a special dividend to its shareholders in the amount of $60.0 million, or $12,087.58 per share of CAC common stock, on May 28, 2021.

This transaction was accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed, and consideration exchanged was recorded at estimated fair values on the date of acquisition. Fair values are considered provisional until final fair values are determined, or the measurement period has passed, but no later than one year from the acquisition date. Measurement period adjustments of $0.2 million were recorded in the third quarter of 2021 as more information became available regarding unrecorded liabilities.

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As the total consideration paid for CAC exceeded the provisional fair value of net assets acquired, estimated goodwill of $6.2 million was recorded as a result of the acquisition. The amount of goodwill recognized as a result of this transaction is expected to be fully tax deductible for federal income tax purposes in accordance with the Company’s election pursuant to Section 338(h)(10) of the Internal Revenue Code. Goodwill recorded for this transaction reflects synergies expected from the acquisition and expansion within the Chicago-Naperville-Elgin, IL-IN-WI Metropolitan Statistical Area, and was assigned to the Banking operating segment.

The following table presents the estimated fair value of CAC’s assets acquired and liabilities assumed as of May 31, 2021 (dollars in thousands):

    

Fair Value

Assets acquired

  

Cash and cash equivalents

$

298,637

Securities

 

702,367

Portfolio loans, net of ACL

 

430,470

Premises and equipment

 

17,034

Other intangible assets

17,340

Mortgage servicing rights

 

629

Other assets

 

8,176

Total assets acquired

 

1,474,653

Liabilities assumed

Deposits

 

1,315,671

Other borrowings

 

16,651

Other liabilities

 

19,098

Total liabilities assumed

 

1,351,420

Net assets acquired

$

123,233

Consideration paid:

Cash

$

70,358

Common stock

 

59,105

Total consideration paid

$

129,463

Goodwill

$

6,230

The fair value of PCD financial assets was $60.5 million on the date of acquisition. Gross contractual amounts receivable relating to the PCD financial assets was $65.2 million. The Company estimated, on the date of acquisition, that $4.2 million of the contractual cash flows specific to the PCD financial assets will not be collected.

During three and nine months ended September 30, 2021, First Busey incurred $8.4 million and $11.4 million, respectively, in pre-tax acquisition expenses related to the acquisition of CAC, comprised primarily of professional fees, compensation expense, and data processing expense.

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Note 3: Securities

The table below provides the amortized cost, unrealized gains and losses, and fair values of debt securities summarized by major category (dollars in thousands):

As of September 30, 2021

Gross

Gross

Amortized

Unrealized

Unrealized

Fair

    

Cost

    

Gains

    

Losses

    

ACL

    

Value

Debt securities available for sale

U.S. Treasury securities

$

185,636

$

72

$

(255)

$

$

185,453

Obligations of U.S. government corporations and agencies

 

37,784

 

1,213

 

 

38,997

Obligations of states and political subdivisions

 

288,023

 

8,743

 

(754)

 

296,012

Commercial mortgage-backed securities

607,097

5,278

(9,078)

603,297

Residential mortgage-backed securities

 

2,108,388

 

13,973

 

(19,753)

 

2,102,608

Asset-backed securities

468,618

323

(134)

468,807

Corporate debt securities

 

301,878

 

1,374

 

(1,182)

 

302,070

Total debt securities available for sale

$

3,997,424

$

30,976

$

(31,156)

$

$

3,997,244

As of December 31, 2020

Gross

Gross

Amortized

Unrealized

Unrealized

Fair

    

Cost

    

Gains

    

Losses

    

ACL

    

Value

Debt securities available for sale

U.S. Treasury securities

$

27,481

$

356

$

$

$

27,837

Obligations of U.S. government corporations and agencies

 

67,406

 

2,162

 

(49)

 

69,519

Obligations of states and political subdivisions

 

292,940

 

11,779

 

(8)

 

304,711

Commercial mortgage-backed securities

408,716

10,212

(312)

418,616

Residential mortgage-backed securities

 

1,344,047

 

24,571

 

(303)

 

1,368,315

Corporate debt securities

 

70,953

 

1,237

 

(1)

 

72,189

Total debt securities available for sale

$

2,211,543

$

50,317

$

(673)

$

2,261,187

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, 2021

    

Amortized

    

Fair

    

Cost

    

Value

Debt securities available for sale

Due in one year or less

$

103,158

$

103,787

Due after one year through five years

 

603,868

 

608,074

Due after five years through ten years

 

385,479

 

393,540

Due after ten years

 

2,904,919

 

2,891,843

Total debt securities available for sale

$

3,997,424

$

3,997,244

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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, 

    

2021

    

2020

    

2021

    

2020

Realized gains and losses on sales of debt securities

Gross security gains

$

$

11

$

524

$

1,718

Gross security (losses)

(5)

(410)

(8)

Net gains (losses) on sales of debt securities

$

(5)

$

11

$

114

$

1,710

Debt securities with carrying amounts of $729.2 million on September 30, 2021, and $628.0 million December 31, 2020, were pledged as collateral for public deposits, securities sold under agreements to repurchase, and for other purposes as required.

The following information pertains to debt securities with gross unrealized 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, 2021

Less than 12 months

12 months or more

Total

Fair

    

Unrealized

    

Fair

    

Unrealized

    

Fair

    

Unrealized

    

Value

    

Losses

    

Value

    

Losses

    

Value

    

Losses

Debt securities available for sale

U.S. Treasury securities

$

180,317

$

(255)

$

$

$

180,317

$

(255)

Obligations of states and political subdivisions

55,434

(754)

55,434

(754)

Commercial mortgage-backed securities

434,220

(9,036)

3,063

(42)

437,283

(9,078)

Residential mortgage-backed securities

 

1,392,160

 

(19,707)

 

5,568

 

(46)

 

1,397,728

 

(19,753)

Asset-backed securities

51,183

(134)

51,183

(134)

Corporate debt securities

 

210,951

 

(1,182)

 

 

 

210,951

 

(1,182)

Total temporarily impaired securities

$

2,324,265

$

(31,068)

$

8,631

$

(88)

$

2,332,896

$

(31,156)

As of December 31, 2020

Less than 12 months

12 months or more

Total

Fair

    

Unrealized

    

Fair

    

Unrealized

    

Fair

    

Unrealized

    

Value

    

Losses

    

Value

    

Losses

    

Value

    

Losses

Debt securities available for sale

Obligations of U.S. government corporations and agencies

$

$

$

4,957

$

(49)

$

4,957

$

(49)

Obligations of states and political subdivisions

762

(8)

762

(8)

Commercial mortgage-backed securities

129,655

(312)

129,655

(312)

Residential mortgage-backed securities

 

89,997

 

(300)

 

139

 

(3)

 

90,136

 

(303)

Corporate debt securities

 

1,499

 

(1)

 

 

 

1,499

 

(1)

Total temporarily impaired securities

$

221,913

$

(621)

$

5,096

$

(52)

$

227,009

$

(673)

Debt securities available for sale are not within the scope of CECL, however, the accounting for credit losses on these securities is affected by ASC 326-30. The Company’s debt security portfolio consisted of 1,274 securities as of September 30, 2021, compared to 1,114 securities as of December 31, 2020. The number of debt securities in the investment portfolio in an unrealized loss position was 294, representing an unrealized loss of 1.3% of the aggregate fair value, as of September 30, 2021, compared to 23 securities representing an unrealized loss of 0.3% of the aggregate fair value as of December 31, 2020. Unrealized losses related to changes in market interest rates and market conditions that do not represent credit-related impairments. Furthermore, the Company does not intend to sell such securities 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, the

16

FIRST BUSEY CORPORATION

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Table of Contents

impairment related to noncredit factors is recognized in accumulated other comprehensive income (loss), net of applicable taxes. As of September 30, 2021, the Company did not hold general obligation bonds of any single issuer, the aggregate of which exceeded 10% of the Company’s stockholders’ equity.

Note 4: Portfolio Loans

Distributions of portfolio loans are as follows (dollars in thousands):

As of

September 30,

December 31,

    

2021

    

2020

Portfolio loans

Commercial

$

1,931,863

$

2,014,576

Commercial real estate

3,068,622

2,892,535

Real estate construction

430,857

461,786

Retail real estate

1,512,884

1,407,852

Retail other

206,409

37,428

Total portfolio loans

$

7,150,635

$

6,814,177

ACL

(92,802)

(101,048)

Portfolio loans, net

$

7,057,833

$

6,713,129

Net deferred loan origination costs included in the balances above were $4.9 million as of September 30, 2021, compared to $2.4 million as of December 31, 2020. Net accretable purchase accounting adjustments included in the balances above reduced loans by $10.1 million as of September 30, 2021, and $10.9 million as of December 31, 2020. The September 30, 2021, commercial balance includes loans originated under PPP with an amortized cost of $178.2 million, compared to $446.4 million in loans originated under PPP included in the December 31, 2020, balance.

There were no retail real estate loans purchased during the three months ended September 30, 2021 or 2020. During the nine months ended September 30, 2021, the Company purchased retail real estate loans totaling $32.2 million, compared to $43.9 million of retail real estate loan purchases in the nine months ended September 30, 2020.

The Company 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.

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FIRST BUSEY CORPORATION

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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. GSB’s policies were similar in nature to Busey Bank’s policies and the Company is migrating the legacy GSB portfolio and grading toward the Busey Bank policies. We acquired two non-accrual loans from GSB totaling $4.4 million, which are still outstanding as of September 30, 2021.

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

As of September 30, 2021

    

    

    

Special

    

    

Substandard

    

Pass

    

Watch

    

Mention

    

Substandard

    

Non-accrual

Portfolio loans

Commercial

$

1,718,398

$

115,108

$

62,094

$

26,033

$

10,230

Commercial real estate

 

2,623,243

 

338,270

 

81,525

 

18,964

 

6,620

Real estate construction

 

413,986

 

14,464

 

7

 

2,400

 

Retail real estate

 

1,486,172

 

11,724

 

2,008

 

4,498

 

8,482

Retail other

 

206,372

 

 

 

 

37

Total portfolio loans

$

6,448,171

$

479,566

$

145,634

$

51,895

$

25,369

As of December 31, 2020

    

    

    

Special

    

    

Substandard

    

Pass

    

Watch

    

Mention

    

Substandard

    

Non-accrual

Portfolio loans

Commercial

$

1,768,755

$

136,948

$

72,447

$

27,903

$

8,523

Commercial real estate

 

2,393,372

 

383,277

 

75,486

 

34,897

 

5,503

Real estate construction

 

434,681

 

24,481

 

77

 

2,546

 

1

Retail real estate

 

1,382,616

 

10,264

 

2,471

 

3,702

 

8,799

Retail other

 

37,324

 

 

 

 

104

Total portfolio loans

$

6,016,748

$

554,970

$

150,481

$

69,048

$

22,930

Risk grades of portfolio loans, further sorted by origination year are as follows (dollars in thousands):

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As of September 30, 2021

 

Term Loans Amortized Cost Basis by Origination Year

Revolving

Risk Grade Ratings

  

2021

  

2020

  

2019

  

2018

  

2017

  

Prior

  

loans

  

Total

Commercial

 

Pass

$

468,833

$

265,204

$

112,809

$

90,292

$

73,553

$

132,127

$

575,580

$

1,718,398

Watch

15,078

5,355

19,783

5,668

7,545

4,287

57,392

115,108

Special Mention

3,011

1,143

2,479

4,385

6,864

12,484

31,728

62,094

Substandard

3,357

3,504

3,321

1,437

1,244

5,552

7,618

26,033

Substandard non-accrual

4,305

444

1,597

1,821

63

2,000

10,230

Total commercial

494,584

275,649

139,989

101,782

91,027

154,513

674,318

1,931,863

Commercial real estate

Pass

655,907

690,244

463,830

289,396

257,618

245,795

20,453

2,623,243

Watch

41,596

40,404

130,282

62,312

27,226

34,572

1,878

338,270

Special Mention

27,115

7,056

7,551

18,661

10,436

10,430

276

81,525

Substandard

4,894

9,289

1,574

2,072

526

429

180

18,964

Substandard non-accrual

114

761

352

1,962

3,407

24

6,620

Total commercial real estate

729,627

747,753

603,588

374,403

299,213

291,250

22,787

3,068,622

Real estate construction

Pass

160,719

141,699

93,701

3,918

899

1,249

11,801

413,986

Watch

6,279

6,115

55

276

1,616

123

14,464

Special Mention

7

7

Substandard

2,400

2,400

Substandard non-accrual

Total real estate construction

166,999

150,214

93,763

4,193

2,516

1,372

11,801

430,857

Retail real estate

 

Pass

428,556

230,120

107,262

92,875

95,667

313,708

217,984

1,486,172

Watch

2,641

2,666

1,982

1,521

352

270

2,292

11,724

Special Mention

1,979

29

2,008

Substandard

1,630

321

14

73

166

2,210

84

4,498

Substandard non-accrual

500

145

72

546

1,369

4,582

1,268

8,482

Total retail real estate

435,305

233,281

109,330

95,015

97,553

320,771

221,629

1,512,884

Retail other

 

Pass

45,614

25,177

30,366

19,737

9,935

2,658

72,885

206,372

Watch

Special Mention

Substandard

Substandard non-accrual

11

7

5

14

37

Total retail other

45,614

25,188

30,373

19,742

9,949

2,658

72,885

206,409

Total portfolio loans

$

1,872,128

$

1,432,087

$

977,044

$

595,136

$

500,258

$

770,563

$

1,003,419

$

7,150,635

19

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Table of Contents

   

As of December 31, 2020

   

Term Loans Amortized Cost Basis by Origination Year

Revolving

Risk Grade Ratings

     

2020

  

2019

  

2018

  

2017

  

2016

  

Prior

  

loans

  

Total

Commercial

 

Pass

$

812,536

$

158,307

$

107,565

$

93,190

$

61,847

$

79,970

$

455,340

$

1,768,755

Watch

16,544

22,247

14,954

13,724

2,577

10,943

55,959

136,948

Special Mention

6,402

2,671

2,069

7,164

6,763

13,733

33,645

72,447

Substandard

7,772

3,791

2,371

1,939

819

1,233

9,978

27,903

Substandard non-accrual

150

3,045

451

2,168

641

68

2,000

8,523

Total commercial

843,404

190,061

127,410

118,185

72,647

105,947

556,922

2,014,576

Commercial real estate

Pass

717,559

503,977

360,573

384,843

180,555

227,068

18,797

2,393,372

Watch

88,297

110,526

90,412

33,734

32,887

27,023

398

383,277

Special Mention

16,490

8,858

10,490

10,505

7,102

21,808

233

75,486

Substandard

17,445

4,166

1,491

7,812

2,111

1,377

495

34,897

Substandard non-accrual

1,091

776

821

882

286

1,647

5,503

Total commercial real estate

840,882

628,303

463,787

437,776

222,941

278,923

19,923

2,892,535

Real estate construction

Pass

179,232

171,663

64,025

1,468

761

1,444

16,088

434,681

Watch

18,485

3,657

337

1,838

164

24,481

Special Mention

67

10

77

Substandard

2,400

146

2,546

Substandard non-accrual

1

1

Total real estate construction

200,184

175,330

64,362

3,306

1,071

1,445

16,088

461,786

Retail real estate

 

Pass

319,302

162,711

135,065

136,427

140,600

257,147

231,364

1,382,616

Watch

2,715

2,053

1,396

349

579

233

2,939

10,264

Special Mention

509

1,962

2,471

Substandard

899

96

56

26

727

1,631

267

3,702

Substandard non-accrual

687

78

646

1,147

233

4,815

1,193

8,799

Total retail real estate

324,112

164,938

137,163

137,949

144,101

263,826

235,763

1,407,852

Retail other

 

Pass

8,357

9,430

5,600

2,516

691

440

10,290

37,324

Watch

Special Mention

Substandard

Substandard non-accrual

14

7

5

15

5

57

1

104

Total retail other

8,371

9,437

5,605

2,531

696

497

10,291

37,428

Total portfolio loans

$

2,216,953

$

1,168,069

$

798,327

$

699,747

$

441,456

$

650,638

$

838,987

$

6,814,177

20

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Table of Contents

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, 2021

Loans past due, still accruing

Non-accrual

    

30-59 Days

    

60-89 Days

    

90+Days

    

 Loans

Past due and non-accrual loans

Commercial

$

1,092

$

202

$

$

10,230

Commercial real estate

882

6,620

Real estate construction

 

 

 

 

Retail real estate

2,068

2,020

491

8,482

Retail other

 

182

 

 

 

37

Total past due and non-accrual loans

$

4,224

$

2,222

$

491

$

25,369

As of December 31, 2020

Loans past due, still accruing

Non-accrual

    

30-59 Days

    

60-89 Days

    

90+Days

    

 Loans

Past due and non-accrual loans

Commercial

$

243

$

$

$

8,523

Commercial real estate

 

5,503

Real estate construction

 

237

 

235

 

 

1

Retail real estate

 

6,248

400

1,305

8,799

Retail other

 

66

 

149

 

66

 

104

Total past due and non-accrual loans

$

6,794

$

784

$

1,371

$

22,930

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 $0.3 million and $1.2 million for the three and nine months ended September 30, 2021, respectively. 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 $0.5 million and $1.4 million for the three and nine months ended September 30, 2020, respectively. The amount of interest collected on those loans and recognized on a cash basis that was included in interest income was $0.4 million for the three and nine months ended September 30, 2021, and was insignificant for the three and nine months ended September 30, 2020.

A summary of TDRs is as follows (dollars in thousands):

As of

September 30, 

December 31, 

    

2021

    

2020

TDRs

In compliance with modified terms

$

2,083

$

3,814

30 89 days past due

15

Non-performing TDRs

1,285

1,249

Total TDRs

$

3,368

$

5,078

21

FIRST BUSEY CORPORATION

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Table of Contents

The following tables summarize TDRs that occurred during the periods presented (dollars in thousands):

Three Months Ended September 30, 2021

Nine Months Ended September 30, 2021

Recorded Investment

Recorded Investment

Number of

Rate

Payment

Number of

Rate

Payment

    

Contracts

    

Modification (1)

Modification (1)

    

Contracts

    

Modification (1)

Modification (1)

Newly designated TDRs

Commercial

$

$

1

$

444

$

Three Months Ended September 30, 2020

Nine Months Ended September 30, 2020

Recorded Investment

Recorded Investment

Number of

Rate

Payment

Number of

Rate

Payment

    

Contracts

    

Modification (1)

Modification (1)

    

Contracts

    

Modification (1)

Modification (1)

Newly designated TDRs

Commercial

$

$

3

$

324

$

Commercial real estate

 

 

 

1

651

Retail real estate

 

1

 

 

167

2

353

(1)TDRs may include multiple concessions; those that include an interest rate concession and payment concession are shown in the rate modification columns.

There were no TDRs that were entered into during the last 12 months that subsequently had payment defaults (a default occurs when a loan is 90 days or more past due or transferred to non-accrual) during the three and nine months ended September 30, 2021 or 2020. During the nine months ended September 30, 2021, one retail real estate loan for $0.1 million that had been a performing TDR for longer than 12 months, with a rate modification, became non-performing.

Gross interest income that would have been recorded in the three and nine months ended September 30, 2021 and 2020, if TDRs had performed in accordance with their original terms compared with their modified terms, was insignificant.

Modified loans with payment deferrals that fall under the CARES Act or revised Interagency Statement that suspended requirements under GAAP related to TDR classification are not included in the Company’s TDR totals.

As of September 30, 2021, the Company had $0.2 million of residential real estate in the process of foreclosure. The Company follows Federal Housing Finance Agency guidelines on single-family foreclosures and real estate owned evictions on portfolio loans, as well as all COVID-19 related state foreclosure and eviction orders.

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

As of September 30, 2021

    

Unpaid

    

Amortized

    

    

    

    

Contractual

Cost

Amortized

Total

Average

Principal

with No

Cost

Amortized

Related

Amortized

    

Balance

    

Allowance

    

with Allowance

    

Cost

    

Allowance

    

Cost

Loans evaluated on an individual basis

Commercial

$

14,233

$

2,003

$

8,203

$

10,206

$

4,450

$

8,945

Commercial real estate

 

7,188

6,222

 

6,222

 

 

6,906

Real estate construction

 

276

 

276

 

 

276

 

 

338

Retail real estate

 

4,020

 

3,637

 

25

 

3,662

 

25

 

4,630

Retail other

 

 

 

 

 

 

Total loans evaluated individually

$

25,717

$

12,138

$

8,228

$

20,366

$

4,475

$

20,819

22

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Table of Contents

As of December 31, 2020

    

Unpaid

    

Amortized

    

    

    

    

Contractual

Cost

Amortized

Total

Average

Principal

with No

Cost

Amortized

Related

Amortized

    

Balance

    

Allowance

    

with Allowance

    

Cost

    

Allowance

    

Cost

Loans evaluated on an individual basis

Commercial

$

16,771

$

4,001

$

4,371

$

8,372

$

1,600

$

7,920

Commercial real estate

 

7,406

6,067

 

6,067

 

 

9,349

Real estate construction

 

292

 

292

 

 

292

 

 

581

Retail real estate

 

5,873

 

5,490

 

25

 

5,515

 

25

 

7,439

Retail other

 

 

 

 

 

 

10

Total loans evaluated individually

$

30,342

$

15,850

$

4,396

$

20,246

$

1,625

$

25,299

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. As of September 30, 2021, there were $15.5 million of collateral dependent loans secured by real estate or business assets.

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 the Company’s historical loss experience beginning in 2010. As of September 30, 2021, the Company expects the markets in which it operates to experience continued economic uncertainty around the levels of delinquencies over the next 12 months. Management adjusted the historical loss experience for these expectations with an immediate reversion to historical loss rate beyond this forecast period. PPP loans were excluded from the ACL calculation as they are 100% government guaranteed.

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

As of and for the Three Months Ended September 30, 2021

    

Commercial

    

Real Estate

    

Retail Real

    

Commercial

    

Real Estate

    

Construction

    

Estate

    

Retail Other

    

Total

ACL beginning balance

$

24,356

$

39,974

$

7,599

$

20,505

$

2,976

$

95,410

Provision for credit losses

 

657

 

(25)

 

(1,503)

 

(1,155)

 

157

 

(1,869)

Charged-off

 

(764)

 

(191)

 

(155)

 

(98)

 

(1,208)

Recoveries

 

157

 

73

 

25

 

157

 

57

 

469

ACL ending balance

$

24,406

$

39,831

$

6,121

$

19,352

$

3,092

$

92,802

As of and for the Nine Months Ended September 30, 2021

    

Commercial

    

Real Estate

    

Retail

    

Commercial

    

Real Estate

    

Construction

    

Real Estate

    

Retail Other

    

Total

ACL beginning balance

$

23,866

$

46,230

$

8,193

$

21,992

$

767

$

101,048

Day 1 PCD (1)

3,546

336

129

167

4,178

Provision for credit losses

 

(1,428)

 

(6,109)

 

(2,082)

 

(3,028)

 

2,282

 

(10,365)

Charged-off

 

(2,026)

 

(812)

 

(209)

(315)

 

(349)

 

(3,711)

Recoveries

 

448

 

186

 

219

 

574

 

225

 

1,652

ACL ending balance

$

24,406

$

39,831

$

6,121

$

19,352

$

3,092

$

92,802

(1)The Day 1 PCD is attributable to the CAC acquisition.

23

FIRST BUSEY CORPORATION

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Table of Contents

As of and for the Three Months Ended September 30, 2020

    

Commercial

    

Real Estate

    

Retail Real

    

Commercial

    

Real Estate

    

Construction

    

Estate

    

Retail Other

    

Total

ACL beginning balance

$

24,146

$

42,680

$

7,792

$

20,405

$

1,023

$

96,046

Provision for credit losses

 

2,593

 

3,703

 

(381)

 

(383)

17

 

5,549

Charged-off

 

(2,500)

 

(569)

 

(18)

(139)

(171)

 

(3,397)

Recoveries

 

124

 

103

 

26

 

301

89

 

643

ACL ending balance

$

24,363

$

45,917

$

7,419

$

20,184

$

958

$

98,841

As of and for the Nine Months Ended September 30, 2020

    

Commercial

    

Real Estate

    

Retail Real

    

Commercial

    

Real Estate

    

Construction

    

Estate

    

Retail Other

    

Total

Beginning balance, prior to adoption of ASC 326-30

$

18,291

$

21,190

$

3,204

$

10,495

$

568

$

53,748

Adoption of ASC 326-30

715

9,306

2,954

3,292

566

16,833

Provision for credit losses

 

10,739

 

17,090

 

1,082

 

6,635

 

110

 

35,656

Charged-off

 

(5,682)

 

(1,833)

 

(18)

(1,139)

 

(575)

 

(9,247)

Recoveries

 

300

 

164

 

197

 

901

 

289

 

1,851

ACL ending balance

$

24,363

$

45,917

$

7,419

$

20,184

$

958

$

98,841

The following table presents the ACL and amortized cost of portfolio loans by category (dollars in thousands):

As of September 30, 2021

    

Commercial

    

Real Estate

    

Retail Real

    

Commercial

    

Real Estate

    

Construction

    

Estate

    

Retail Other

    

Total

ACL

Ending balance attributed to:

Loans individually evaluated for impairment

$

4,450

$

$

$

25

$

$

4,475

Loans collectively evaluated for impairment

 

19,956

 

39,831

 

6,121

 

19,327

 

3,092

 

88,327

ACL ending balance

$

24,406

$

39,831

$

6,121

$

19,352

$

3,092

$

92,802

Loans

Loans individually evaluated for impairment

$

10,206

$

6,222

$

276

$

3,662

$

$

20,366

Loans collectively evaluated for impairment

 

1,921,657

 

3,062,400

430,581

 

1,509,222

 

206,409

 

7,130,269

Loans ending balance

$

1,931,863

$

3,068,622

$

430,857

$

1,512,884

$

206,409

$

7,150,635

24

FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Table of Contents

As of December 31, 2020

    

Commercial

    

Real Estate

    

Retail Real

    

Commercial

    

Real Estate

    

Construction

    

Estate

    

Retail Other

    

Total

ACL

Ending balance attributed to:

Loans individually evaluated for impairment

$

1,600

$

$

$

25

$

$

1,625

Loans collectively evaluated for impairment

 

22,266

 

46,230

 

8,193

 

21,967

 

767

 

99,423

ACL ending balance

$

23,866

$

46,230

$

8,193

$

21,992

$

767

$

101,048

Loans

Loans individually evaluated for impairment

$

8,372

$

6,067

$

292

$

5,515

$

$

20,246

Loans collectively evaluated for impairment

 

2,006,204

 

2,886,468

461,494

 

1,402,337

 

37,428

 

6,793,931

Loans ending balance

$

2,014,576

$

2,892,535

$

461,786

$

1,407,852

$

37,428

$

6,814,177

Note 5: Deposits

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

    

As of

September 30, 

December 31, 

    

2021

    

2020

Deposits

Demand deposits, noninterest-bearing

$

3,453,906

$

2,552,039

Interest-bearing transaction deposits

 

2,938,109

 

2,263,093

Saving deposits and money market deposits

 

3,398,917

2,743,369

Time deposits

 

1,026,935

 

1,119,348

Total deposits

$

10,817,867

$

8,677,849

Additional information about our deposits is as follows (dollars in thousands):

    

As of

September 30, 

December 31, 

    

2021

    

2020

Brokered savings deposits and money market deposits

$

2,002

$

2,251

Brokered time deposits

264

5,257

Aggregate amount of time deposits with a minimum denomination of $100,000

504,367

568,735

Aggregate amount of time deposits with a minimum denomination that meets or exceeds the FDIC insurance limit of $250,000

156,419

192,563

25

FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Table of Contents

As of September 30, 2021, the scheduled maturities of time deposits are as follows (dollars in thousands):

    

As of

September 30, 

2021

Time deposits by schedule of maturities

October 1, 2021 – September 30, 2022

    

$

719,932

October 1, 2022 – September 30, 2023

 

188,639

October 1, 2023 – September 30, 2024

 

85,339

October 1, 2024 – September 30, 2025

 

20,008

October 1, 2025 – September 30, 2026

 

12,280

Thereafter

 

737

Total time deposits

$

1,026,935

Note 6: Borrowings

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 the Company’s safekeeping agent. The Company 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, 

December 31, 

    

2021

    

2020

 

Securities sold under agreements to repurchase

$

241,242

$

175,614

Weighted average rate for securities sold under agreements to repurchase

0.08

%

0.13

%

On May 28, 2021, the Company entered into a Second Amended and Restated Credit Agreement, pursuant to which the Company 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 have an annual interest rate of 1.75% plus the one-month LIBOR rate. 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 and for general corporate purposes. The revolving credit facility incurs a non-usage fee based on any undrawn amounts. As of September 30, 2021, there was no balance outstanding on the revolving credit facility and a total of $57.0 million outstanding on the term loan.

Short-term borrowings are summarized as follows (dollars in thousands):

    

As of

September 30, 

December 31, 

    

2021

    

2020

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

$

5,673

$

4,658

Term Loan, current portion due within 12 months

12,000

Total short-term debt

$

17,673

$

4,658

Federal funds purchased are short-term borrowings that generally mature between one and 90 days. The Company had no federal funds purchased as of September 30, 2021 or December 31, 2020.

26

FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Table of Contents

Long-term debt is summarized as follows (dollars in thousands):

    

As of

September 30, 

December 31, 

    

2021

    

2020

Long-term debt

Notes payable, FHLB, original maturity of 5 years, collateralized by FHLB deposits, residential and commercial real estate loans and FHLB stock

$

4,233

$

4,757

Term Loan

45,000

Total long-term debt

$

49,233

$

4,757

As of September 30, 2021, and December 31, 2020, funds borrowed from the FHLB, listed above, consisted of one variable-rate note maturing May 2023, with an interest rate of 3.04%.

On May 25, 2017, the Company issued $40.0 million of 3.75% senior notes that mature on May 25, 2022. The senior notes are payable semi-annually on each May 25 and November 25, commencing on November 25, 2017. The senior notes are not subject to optional redemption by the Company. Additionally, on May 25, 2017, the Company issued $60.0 million of fixed-to-floating rate subordinated notes that mature on May 25, 2027. The subordinated notes, which qualify as Tier 2 capital for First Busey, bear interest at an annual rate of 4.75% for the first five years after issuance and thereafter bear interest at a floating rate equal to three-month LIBOR plus a spread of 2.919%, as calculated on each applicable determination date. The subordinated notes are payable semi-annually on each May 25 and November 25, commencing on November 25, 2017, during the five-year fixed-term, and thereafter on February 25, May 25, August 25, and November 25 of each year, commencing on August 25, 2022. The subordinated notes have an optional redemption in whole or in part on any interest payment date on or after May 25, 2022. The senior notes and subordinated notes are unsecured obligations of the Company.

On June 1, 2020, the Company 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 First 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. The subordinated notes are 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.

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

    

As of

September 30, 

December 31, 

    

2021

    

2020

Unamortized debt issuance costs

Senior notes issued in 2017

$

90

$

191

Subordinated notes issued in 2017

575

651

Subordinated notes issued in 2020

1,788

2,123

Total unamortized debt issuance costs

$

2,453

$

2,965

Note 7: Regulatory Capital

The Company and its subsidiary 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 the Company's consolidated financial statements. Capital amounts and classification also are subject to qualitative judgments by regulators about components, risk weightings, and other factors.

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Banking regulations identify five capital categories for insured depository institutions: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. As of September 30, 2021, and December 31, 2020, all capital ratios of the Company and its subsidiary 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, 2021, that would change this designation.

On March 27, 2020, the FDIC and other federal banking agencies published an interim final rule that provides those banking organizations adopting 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. On August 26, 2020, the CECL final rule was finalized and was substantially similar to the interim final rule. 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, from the adoption of CECL will be deferred for two years, until January 1, 2022. 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, will be added to the deferred transition amounts (“adjusted transition amounts”) and deferred for the two-year period. At the conclusion of the two-year period the adjusted transition amounts will 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.

The following tables summarize regulatory capital requirements applicable to the holding company its subsidiary bank (dollars in thousands):

As of September 30, 2021

Minimum

Minimum

To Be Well

 

Actual

Capital Requirement

Capitalized

 

    

Amount

    

Ratio

    

Amount

    

Ratio

    

Amount

    

Ratio

    

Total Capital (to Risk Weighted Assets)

Consolidated

$

1,313,989

 

15.91

%   

$

660,850

 

8.00

%   

$

826,062

 

10.00

%

Busey Bank

$

1,306,293

 

15.87

%   

$

658,612

 

8.00

%   

$

823,265

 

10.00

%

Tier 1 Capital (to Risk Weighted Assets)

Consolidated

$

1,060,756

 

12.84

%   

$

495,637

 

6.00

%   

$

660,850

 

8.00

%

Busey Bank

$

1,238,060

 

15.04

%   

$

493,959

 

6.00

%   

$

658,612

 

8.00

%

Common Equity Tier 1 Capital (to Risk Weighted Assets)

Consolidated

$

986,756

 

11.95

%   

$

371,728

 

4.50

%   

$

536,940

 

6.50

%

Busey Bank

$

1,238,060

 

15.04

%   

$

370,469

 

4.50

%   

$

535,123

 

6.50

%

Tier 1 Capital (to Average Assets)

Consolidated

$

1,060,756

 

8.60

%   

$

493,201

 

4.00

%   

 

N/A

 

N/A

Busey Bank

$

1,238,060

 

10.06

%   

$

492,170

 

4.00

%   

$

615,212

 

5.00

%

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As of December 31, 2020

Minimum

Minimum

To Be Well

Actual

Capital Requirement

Capitalized

    

Amount

    

Ratio

    

Amount

    

Ratio

    

Amount

    

Ratio

 

Total Capital (to Risk Weighted Assets)

Consolidated

$

1,245,997

 

17.04

%   

$

585,015

 

8.00

%   

$

731,269

 

10.00

%

Busey Bank

$

1,131,875

 

15.50

%   

$

584,082

 

8.00

%   

$

730,103

 

10.00

%

Tier 1 Capital (to Risk Weighted Assets)

Consolidated

$

983,033

 

13.44

%   

$

438,761

 

6.00

%   

$

585,015

 

8.00

%

Busey Bank

$

1,053,910

 

14.44

%   

$

438,062

 

6.00

%   

$

584,082

 

8.00

%

Common Equity Tier 1 Capital (to Risk Weighted Assets)

Consolidated

$

909,033

 

12.43

%   

$

329,071

 

4.50

%   

$

475,325

 

6.50

%

Busey Bank

$

1,053,910

 

14.44

%   

$

328,546

 

4.50

%   

$

474,567

 

6.50

%

Tier 1 Capital (to Average Assets)

Consolidated

$

983,033

 

9.79

%   

$

401,717

 

4.00

%   

 

N/A

 

N/A

Busey Bank

$

1,053,910

 

10.52

%   

$

400,581

 

4.00

%   

$

500,727

 

5.00

%

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 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) total capital to risk-weighted assets of at least 10.50%, (ii) Tier 1 Capital to risk-weighted assets of at least 8.50%, and (iii) Common Equity Tier 1 to risk-weighted assets of at least 7.00%.

Note 8: Employee Benefit Plans

The First Busey Corporation 2021 Employee Stock Purchase Plan was approved at the Company’s 2021 Annual Meeting of Stockholders and details can be found within First Busey’s Definitive Proxy Statement filed with the SEC on April 8, 2021. The first offering under this plan began on July 1, 2021. There were 585,342 shares available for issuance under the 2021 Employee Stock Purchase Plan as of September 30, 2021.

For additional information related to the Company’s employee benefit plans, see the Company’s 2020 Annual Report.

Note 9: Stock-Based Compensation

Under the terms of the 2020 Equity Plan, the Company has granted RSU, DSU, and PSU awards. The Company grants RSUs to members of management periodically throughout the year. Each RSU is equivalent to one share of the Company’s common stock. These units have requisite service periods ranging from one 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.

The Company 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 the Company’s common stock. DSUs vest over a one-year period following the grant date. These units generally are subject to the same terms as RSUs under the 2020 Equity Plan, except that, following vesting, settlement occurs within 30 days following the earlier of separation from the board or a

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change in control of the Company. After vesting and prior to delivery, these units will continue to earn dividend equivalents.

The Company also grants PSU awards to members of management periodically throughout the year. Each PSU is equivalent to one share of the Company’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.

The Company has outstanding stock options assumed from acquisitions.

Upon vesting/delivery, shares are expected (though not required) to be issued from treasury.

Stock Options

A summary of the status of, and changes in, the Company's stock option awards for the nine months ended September 30, 2021 follows:

Weighted-

    

    

Weighted-

Average

Average

Remaining

Exercise

Contractual

    

Shares

    

Price

    

Life

Outstanding at beginning of period

 

39,085

 

$

23.53

5.88

Expired

 

(7,479)

 

23.53

Outstanding at end of period

 

31,606

 

$

23.53

 

5.13

Exercisable at end of period

 

31,606

 

$

23.53

 

5.13

The Company did not record any stock option compensation expense for the three or nine months ended September 30, 2021, or 2020. As of September 30, 2021, the Company did not have any unrecognized stock option expense.

Restricted Stock Unit, Performance-Based Restricted Stock Unit, and Deferred Stock Unit Awards

A summary of changes in the Company’s RSU, PSU, and DSU awards for the nine months ended September 30, 2021, is as follows:

RSU Awards

PSU Awards

DSU Awards

Weighted-

Weighted-

Weighted-

Average

Average

Average

Grant Date

Grant Date

Grant Date

    

Shares

    

Fair Value

    

Shares (1)

    

Fair Value

    

Shares

    

Fair Value

Nonvested at beginning of period

 

1,017,038

 

$

23.87

 

15,724

 

$

16.25

 

34,263

 

$

17.18

Granted

 

260,231

 

24.26

 

99,159

 

23.91

 

35,664

 

24.59

Dividend equivalents earned

 

33,388

 

23.07

 

 

 

3,716

 

23.15

Vested

 

(128,824)

 

22.88

 

 

 

(39,813)

 

18.08

Forfeited

 

(29,883)

 

24.88

 

(968)

 

23.48

 

 

Nonvested at end of period

 

1,151,950

 

$

24.02

 

113,915

 

$

22.86

 

33,830

 

$

24.59

Vested and outstanding at end of period

 

 

96,427

 

$

21.99

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

On March 24, 2021, under the terms of the 2020 Equity Plan, the Company granted 212,426 RSUs to members of management, including the Vice-Chairman of the Board. The grant date fair value of the award totaled $5.2 million and will be recognized as compensation expense over the requisite service period ranging from one year to five years. The

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FIRST BUSEY CORPORATION

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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. Further, the Company granted 33,288 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.

During the first quarter of 2021, the Company also granted a target of 70,815 market-based PSUs with a maximum award of 113,304 units. The actual number of units issued at the vesting date could range from 0% to 160% of the initial grant, depending on attaining the market-based total shareholder return performance goal. The grant date fair value of the award was $1.7 million and will be recognized in compensation expense over the performance period ending December 31, 2023.

Further, during the first quarter of 2021, the Company granted a target of 28,344 PSUs with a maximum award of 39,682 units. The actual number of units issued at the vesting date could range from 0% to 140% of the initial grant, depending on attaining a performance goal based upon the compounded annual revenue growth rate of the Remittance Processing segment. The grant date fair value of the award is $0.7 million and will be recognized in compensation expense over the performance period ending August 31, 2023, subject to achievement of the performance goal.

On May 19, 2021, under the terms of the 2020 Equity Plan, the Company granted 2,376 DSUs to directors. The grant date fair value of the award totaled $0.1 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.

On September 22, 2021, under the terms of the 2020 Equity Plan, the Company granted 47,805 RSUs to members of management. The grant date fair value of the award totaled $1.1 million and will be recognized as compensation expense over the requisite service period ranging from three year to five years. Subsequent to the requisite service period, the awards will become 100% vested.

Stock-based compensation expense related to nonvested RSU, PSU, and DSU awards is presented in the table below (dollars in thousands):

Three Months Ended September 30, 

Nine Months Ended September 30, 

    

2021

    

2020

    

2021

    

2020

Stock-based compensation

RSU awards

$

1,316

$

2,029

$

4,362

$

3,952

PSU awards

290

41

619

41

DSU awards

231

135

741

420

Total stock-based compensation

$

1,837

$

2,205

$

5,722

$

4,413

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

As of

September 30, 

December 31, 

    

2021

    

2020

    

Unamortized stock-based compensation

RSU awards

$

11,650

$

10,411

PSU awards

1,554

179

DSU awards

430

294

Total unamortized stock-based compensation

$

13,634

$

10,884

Weighted average period over which expense is to be recognized

3.0

yrs

3.0

yrs

There were 1,038,975 shares remaining available for issuance pursuant to the 2020 Equity Incentive Plan as of September 30, 2021.

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Note 10: Outstanding Commitments and Contingent Liabilities

Legal Matters

The Company is a party to legal actions which arise in the normal course of its business activities. In the opinion of management, the ultimate resolution of these matters is not expected to have a material effect on the Company’s financial position or results of operations.

Credit Commitments and Contingencies

A summary of the contractual amount of the Company’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, 

December 31, 

   

2021

   

2020

Financial instruments whose contract amounts represent credit risk

Commitments to extend credit

$

1,836,815

$

1,754,370

Standby letters of credit

 

38,329

 

38,937

Total commitments

$

1,875,144

$

1,793,307

Note 11: Derivative Financial Instruments

The Company utilizes interest rate swap agreements as part of its asset liability management strategy to help manage its interest rate risk position. Additionally, the Company 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 with customers and other third parties. See “Note 12: Fair Value Measurements” for further discussion of the fair value measurement of such derivatives.

Interest Rate Swaps Designated as Cash Flow Hedges

The Company 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 other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. The change in fair value of components excluded from the assessment of effectiveness are recognized in current earnings.

Interest rate swaps with notional amounts totaling $50.0 million as of September 30, 2021, and $70.0 million as of December 31, 2020, were designated as cash flow hedges to hedge the risk of variability in cash flows (future interest payments) attributable to changes in the contractually specified 3-month LIBOR benchmark interest rate on the Company’s junior subordinated debt owed to unconsolidated trusts and were determined to be highly effective during the period. A $20.0 million swap matured on September 17, 2021, and the Company has one remaining swap. The gross aggregate fair value of the swaps of $1.7 million as of September 30, 2021, and $3.1 million as of December 31, 2020, is recorded in other liabilities in the unaudited Consolidated Balance Sheets, with changes in fair value recorded net of tax in other comprehensive income (loss). The Company expects its hedge to remain highly effective during the remaining term of the swap.

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

As of

September 30, 

December 31, 

   

2021

   

2020

   

Notional amount

$

50,000

$

70,000

Weighted average fixed pay rates

 

1.79

%

 

1.80

%

Weighted average variable 3-month LIBOR receive rates

0.12

%

0.22

%

Weighted average maturity, in years

2.96

yrs 

2.85

yrs

Unrealized gains (losses), net of tax

$

(1,237)

$

(2,184)

Interest expense recorded on these swap transactions was $0.3 million and $0.9 million during the three and nine months ended September 30, 2021, respectively, and was $0.3 million and $0.5 million during the three and nine months ended September 30, 2020, respectively. The Company expects $0.2 million of the unrealized loss to be reclassified from OCI to interest expense during the next three months. This reclassified amount could differ from amounts actually recognized due to changes in interest rates, hedge de-designations, and the addition of other hedges subsequent to September 30, 2021.

The following table reflects the net gains (losses) recorded in accumulated other comprehensive income (loss) and the unaudited Consolidated Statements of Income relating to cash flow derivative instruments for the periods presented (dollars in thousands):

Three Months Ended September 30, 

Nine Months Ended September 30, 

2021

2020

   

2021

    

2020

Interest rate contracts

Gain (loss) recognized in OCI, net of tax

$

(5)

$

14

$

336

$

(2,233)

(Gain) loss reclassified from OCI to interest expense, net of tax

206

192

611

42

Net change in unrealized gains (losses) on cash flow hedges

$

201

$

206

$

947

$

(2,191)

The Company pledged $1.8 million in cash to secure its obligation under these contracts as of September 30, 2021, compared to $3.2 million pledged as of December 31, 2020.

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 unaudited consolidated financial statements, 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

The Company 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 best-efforts 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 unaudited consolidated financial statements. While such forward sales commitments generally served as an economic hedge to mortgage loans held for sale and interest rate lock commitments, the Company 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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Amounts and fair values of mortgage banking derivatives included in the unaudited Consolidated Balance Sheets are summarized as follows (dollars in thousands):

As of September 30, 2021

As of December 31, 2020

Notional

Fair

Notional

Fair

   

Location

   

Amount

   

Value

   

Amount

   

Value

Derivatives with positive fair value

Interest rate lock commitments

Other assets

$

31,480

$

538

$

45,004

$

1,201

Forward sales commitments

Other assets

117

1

978

32

Mortgage banking derivatives recorded in other assets

$

31,597

$

539

$

45,982

$

1,233

Derivatives with negative fair value

Interest rate lock commitments

Other liabilities

$

117

$

1

$

118

$

1

Forward sales commitments

Other liabilities

49,418

1,439

84,964

2,662

Mortgage banking derivatives recorded in other liabilities

$

49,535

$

1,440

$

85,082

$

2,663

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

2021

2020

2021

2020

Net gains (losses)

Interest rate lock commitments

Mortgage revenue

$

537

$

1,405

$

1,502

$

8,467

Forward sales commitments

Mortgage revenue

 

(1,438)

(3,874)

 

(3,616)

(15,699)

Net gains (losses)

$

(901)

$

(2,469)

$

(2,114)

$

(7,232)

The impact of the net gains or losses on derivative financial instruments related to interest rate lock commitments issued to residential loan customers for loans that will be held for sale and forward sales commitments to sell residential mortgage loans to loan investors are almost entirely offset by a corresponding change in the fair value of loans held for sale.

Interest Rate Swaps Not Designated as Hedges

The Company may offer derivative contracts to its customers in connection with their risk management needs. The Company manages the risk associated with these contracts by entering into equal and offsetting derivative agreements with a third-party dealer. These contracts support variable rate, commercial loan relationships totaling $424.6 million and $395.0 million as of September 30, 2021, and December 31, 2020, respectively. These derivatives generally worked together as an economic interest rate hedge, but the Company did not designate them for hedge accounting treatment. Consequently, 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.

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

As of September 30, 2021

Derivative Asset

Derivative Liability

Notional

Fair

Notional

Fair

   

Amount

   

Value

   

Amount

   

Value

Derivatives not designated as hedging instruments

Interest rate swaps – pay floating, receive fixed

$

332,856

$

19,420

$

91,711

$

1,910

Interest rate swaps – pay fixed, receive floating

91,711

1,910

332,856

19,420

Total derivatives not designated as hedging instruments

$

424,567

$

21,330

$

424,567

$

21,330

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As of December 31, 2020

Derivative Asset

Derivative Liability

Notional

Fair

Notional

Fair

   

Amount

   

Value

   

Amount

   

Value

Derivatives not designated as hedging instruments

Interest rate swaps – pay floating, receive fixed

$

394,954

$

32,685

$

$

Interest rate swaps – pay fixed, receive floating

394,954

32,685

Total derivatives not designated as hedging instruments

$

394,954

$

32,685

$

394,954

$

32,685

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

Three Months Ended September 30, 

Nine Months Ended September 30, 

   

Location

   

2021

 

2020

   

2021

 

2020

Interest rate swaps

Pay floating, receive fixed

Noninterest expense

$

(2,024)

$

(549)

$

(11,355)

$

25,790

Pay fixed, receive floating

Noninterest expense

2,024

549

11,355

(25,790)

Net change in fair value of interest rate swaps

$

$

$

$

The Company pledged $26.3 million in cash to secure its obligation under these contracts as of September 30, 2021, compared to $36.0 million pledged as of December 31, 2020.

Note 12: 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.

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 the Company's valuation

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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.

Debt Securities Available for Sale

Debt securities classified as available for sale are reported at fair value utilizing Level 2 measurements. The Company 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 measurements. As applicable, for mutual funds, unadjusted quoted prices in active markets for identical assets are utilized to determine fair value at the measurement date and are classified as Level 1. For stock, quoted prices for identical or similar assets in markets that are not active are utilized and classified as Level 2.

Loans Held for Sale

Loans held for sale are reported at fair value utilizing Level 2 measurements. The fair value of the mortgage loans held for sale are measured using observable quoted market or contract prices or market price equivalents and are classified as Level 2.

Derivative Assets and Derivative Liabilities

Derivative assets and derivative liabilities are reported at fair value utilizing Level 2 measurements. Fair values of derivative assets and liabilities are determined based on prices that are obtained from a third-party which uses observable market inputs. Derivative assets and liabilities are classified as Level 2.

The following tables summarize financial assets and financial liabilities measured at fair value on a recurring basis as of September 30, 2021, and December 31, 2020, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value (dollars in thousands):

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As of September 30, 2021

Level 1

Level 2

Level 3

Total

   

Inputs

   

Inputs

   

Inputs

   

Fair Value

Debt securities available for sale:

U.S. Treasury securities

$

$

185,453

$

$

185,453

Obligations of U.S. government corporations and agencies

38,997

38,997

Obligations of states and political subdivisions

296,012

296,012

Commercial mortgage-backed securities

603,297

603,297

Residential mortgage-backed securities

2,102,608

2,102,608

Asset-backed securities

468,807

468,807

Corporate debt securities

302,070

302,070

Equity securities

13,012

13,012

Loans held for sale

20,225

20,225

Derivative assets

21,869

21,869

Derivative liabilities

24,501

24,501

As of December 31, 2020

Level 1

Level 2

Level 3

Total

   

Inputs

   

Inputs

   

Inputs

   

Fair Value

Debt securities available for sale:

U.S. Treasury securities

$

$

27,837

$

$

27,837

Obligations of U.S. government corporations and agencies

69,519

69,519

Obligations of states and political subdivisions

304,711

304,711

Commercial mortgage-backed securities

418,616

418,616

Residential mortgage-backed securities

1,368,315

1,368,315

Corporate debt securities

72,189

72,189

Equity securities

5,530

5,530

Loans held for sale

42,813

42,813

Derivative assets

33,918

33,918

Derivative liabilities

38,403

38,403

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

The Company 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.

OREO

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

Bank Property Held for Sale

Bank property held for sale represents certain banking center office buildings which the Company 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.

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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, 2021

Level 1

Level 2

Level 3

Total

   

Inputs

   

Inputs

   

Inputs

   

Fair Value

Loans evaluated individually

$

$

$

3,753

$

3,753

OREO

 

 

 

51

 

51

Bank property held for sale

 

 

 

6,150

 

6,150

As of December 31, 2020

Level 1

Level 2

Level 3

Total

   

Inputs

   

Inputs

   

Inputs

   

Fair Value

Loans evaluated individually

$

$

$

2,771

$

2,771

OREO

 

 

 

106

 

106

Bank property held for sale

 

 

10,676

 

10,676

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):

Quantitative Information about Level 3 Fair Value Measurements

Fair Value

Valuation

Unobservable

Range

September 30, 2021:

   

Estimate

   

Techniques

   

Input

   

(Weighted Average)

Loans evaluated individually

$

3,753

Appraisal of collateral

Appraisal adjustments

-18.0

% 

to 

-100.0

% 

(-54.4)

%

OREO

51

Appraisal of collateral

Appraisal adjustments

-33.0

% 

to 

-100.0

% 

(-67.9)

%

Bank property held for sale

6,150

Appraisal of collateral or real estate listing price

Appraisal adjustments

-6.2

% 

to 

-64.9

% 

(-41.2)

%

December 31, 2020:

Loans evaluated individually

$

2,771

Appraisal of collateral

Appraisal adjustments

-30.0

% 

to 

-100.0

% 

(-37.0)

%

OREO

106

Appraisal of collateral

Appraisal adjustments

-25.0

% 

to 

-100.0

% 

(-54.5)

%

Bank property held for sale

10,676

Appraisal of collateral or real estate listing price

Appraisal adjustments

-6.2

% 

to 

-64.9

% 

(-42.8)

%

Estimated fair values of financial instruments that are reported at amortized cost in the Company’s unaudited Consolidated Balance Sheets, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value, were as follows (dollars in thousands):

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As of September 30, 2021

As of December 31, 2020

Carrying

    

Fair

    

Carrying

    

Fair

Amount

    

Value

    

Amount

    

Value

Financial assets

Level 1 inputs:

Cash and cash equivalents

$

883,845

$

883,845

$

688,537

$

688,537

Level 2 inputs:

Accrued interest receivable

 

33,545

 

33,545

 

33,240

 

33,240

Level 3 inputs:

Portfolio loans, net

 

7,057,833

 

7,108,483

 

6,713,129

 

6,755,425

Mortgage servicing rights

9,247

11,011

10,912

11,107

Other servicing rights

1,680

2,127

1,434

1,966

Financial liabilities

Level 2 inputs:

Time deposits

$

1,026,935

$

1,029,879

$

1,119,348

$

1,132,107

Securities sold under agreements to repurchase

 

241,242

 

241,242

 

175,614

 

175,614

Short-term borrowings

17,673

17,671

4,658

4,661

Long-term debt

 

49,233

 

49,323

4,757

 

5,014

Junior subordinated debt owed to unconsolidated trusts

 

71,593

 

62,840

 

71,468

 

59,943

Accrued interest payable

 

5,435

 

5,435

 

3,401

 

3,401

Level 3 inputs:

Senior notes, net of unamortized issuance costs

39,910

40,700

39,809

40,104

Subordinated notes, net of unamortized issuance costs

182,637

196,350

182,226

187,697

Note 13: 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 deferred stock units 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 the Company’s outstanding stock options and warrants were exercised and RSUs were vested.

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, 

    

2021

    

2020

    

2021

    

2020

Net income

$

25,941

$

30,829

$

93,523

$

71,999

Shares:

Weighted average common shares outstanding

 

56,227,816

 

54,585,998

 

55,256,348

 

54,579,088

Dilutive effect of outstanding options, warrants, and restricted stock units as determined by the application of the treasury stock method

 

597,148

 

151,922

 

613,969

 

217,266

Dilutive effect of ESPP shares

7,554

2,518

Weighted average common shares outstanding, as adjusted for diluted earnings per share calculation

 

56,832,518

 

54,737,920

 

55,872,835

 

54,796,354

Basic earnings per common share

$

0.46

$

0.56

$

1.69

$

1.32

Diluted earnings per common share

$

0.46

$

0.56

$

1.67

$

1.31

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:

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Three Months Ended September 30, 

Nine Months Ended September 30, 

    

2021

    

2020

    

2021

    

2020

Anti-dilutive common stock equivalents

Options

39,085

39,085

RSU and DSU awards

47,805

261,091

97,067

261,091

PSU awards

85,571

95,511

Total anti-dilutive common stock equivalents

133,376

300,176

192,578

300,176

Note 14: Accumulated Other Comprehensive Income (Loss)

The following tables represent changes in accumulated other comprehensive income (loss) by component, net of tax, for the periods below (dollars in thousands):

Three Months Ended September 30, 

    

2021

2020

Before Tax

Tax Effect

Net of Tax

Before Tax

Tax Effect

Net of Tax

Unrealized gains (losses) on debt securities available for sale

Balance at beginning of period

$

17,013

$

(4,850)

$

12,163

$

55,436

$

(15,802)

$

39,634

Unrealized holding gains (losses) on debt securities available for sale, net

(17,198)

4,902

(12,296)

(2,392)

682

(1,710)

Amounts reclassified from accumulated other comprehensive income, net

5

(1)

4

(11)

3

(8)

Balance at end of period

$

(180)

$

51

$

(129)

$

53,033

$

(15,117)

$

37,916

Unrealized gains (losses) on cash flow hedges

Balance at beginning of period

$

(2,012)

$

574

$

(1,438)

$

(3,633)

$

1,036

$

(2,597)

Unrealized holding gains (losses) on cash flow hedges, net

(7)

2

(5)

20

(6)

14

Amounts reclassified from accumulated other comprehensive income, net

288

(82)

206

268

(76)

192

Balance at end of period

$

(1,731)

$

494

$

(1,237)

$

(3,345)

$

954

$

(2,391)

Total accumulated other comprehensive income (loss)

$

(1,911)

$

545

$

(1,366)

$

49,688

$

(14,163)

$

35,525

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Nine Months Ended September 30, 

    

2021

2020

Before Tax

Tax Effect

Net of Tax

Before Tax

Tax Effect

Net of Tax

Unrealized gains (losses) on debt securities available for sale

Balance at beginning of period

$

49,644

$

(14,151)

$

35,493

$

21,192

$

(6,032)

$

15,160

Unrealized holding gains (losses) on debt securities available for sale, net

(49,801)

14,195

(35,606)

33,551

(9,577)

23,974

Amounts reclassified from accumulated other comprehensive income, net

(23)

7

(16)

(1,710)

492

(1,218)

Balance at end of period

$

(180)

$

51

$

(129)

$

53,033

$

(15,117)

$

37,916

Unrealized gains (losses) on cash flow hedges

Balance at beginning of period

$

(3,055)

$

871

$

(2,184)

$

(280)

$

80

$

(200)

Unrealized holding gains (losses) on cash flow hedges, net

470

(134)

336

(3,123)

890

(2,233)

Amounts reclassified from accumulated other comprehensive income, net

854

(243)

611

58

(16)

42

Balance at end of period

$

(1,731)

$

494

$

(1,237)

$

(3,345)

$

954

$

(2,391)

Total accumulated other comprehensive income (loss)

$

(1,911)

$

545

$

(1,366)

$

49,688

$

(14,163)

$

35,525

Note 15: Operating Segments and Related Information

The Company has three reportable operating segments: Banking, Remittance Processing, and Wealth Management. 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 Remittance Processing operating segment provides solutions for online bill payments, lockbox, and walk-in payments. 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 Company’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 segment financial information provided below has been derived from information used by management to monitor and manage the financial performance of the Company. The accounting policies of the three segments are the same as those described in the summary of significant accounting policies in “Note 1. Significant Accounting Policies” to the Company’s 2020 Annual Report. The Company accounts for intersegment revenue and transfers at current market value.

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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, 

December 31, 

September 30, 

December 31, 

    

2021

    

2020

    

2021

    

2020

Operating segment

Banking

$

294,666

$

288,436

$

12,788,398

$

10,462,673

Remittance Processing

 

8,992

 

8,992

 

47,528

 

46,553

Wealth Management

 

14,108

 

14,108

 

60,496

 

46,504

Other

 

 

 

2,908

 

(11,683)

Consolidated total

$

317,766

$

311,536

$

12,899,330

$

10,544,047

Three Months Ended September 30, 

Nine Months Ended September 30, 

    

2021

    

2020

    

2021

    

2020

Net interest income

Banking

$

74,672

$

73,330

$

211,377

$

218,221

Remittance Processing

19

21

60

59

Wealth Management

 

 

 

 

Other

 

(3,936)

 

(3,598)

 

(11,247)

 

(8,281)

Total net interest income

$

70,755

$

69,753

$

200,190

$

209,999

Noninterest income

Banking

$

14,976

$

18,523

$

42,798

$

45,717

Remittance Processing

 

5,030

 

4,287

 

14,700

 

12,318

Wealth Management

 

13,746

 

10,662

 

39,333

 

32,681

Other

 

(493)

 

(1,187)

 

884

 

(2,950)

Total noninterest income

$

33,259

$

32,285

$

97,715

$

87,766

Noninterest expense

Banking

$

59,520

$

44,863

$

150,032

$

135,037

Remittance Processing

4,519

3,523

13,086

9,669

Wealth Management

7,679

6,497

20,961

19,725

Other

1,769

1,659

6,532

5,693

Total noninterest expense

$

73,487

$

56,542

$

190,611

$

170,124

Income before income taxes

Banking

$

31,996

$

41,441

$

114,507

$

93,245

Remittance Processing

530

785

1,674

2,708

Wealth Management

6,068

4,165

18,373

12,956

Other

(6,198)

(6,444)

(16,895)

(16,924)

Total income before income taxes

$

32,396

$

39,947

$

117,659

$

91,985

Net income

Banking

$

25,123

$

31,744

$

89,889

$

72,653

Remittance Processing

 

384

 

578

 

1,214

 

1,966

Wealth Management

 

4,719

 

3,166

 

14,285

 

9,847

Other

 

(4,285)

 

(4,659)

 

(11,865)

 

(12,467)

Total net income

$

25,941

$

30,829

$

93,523

$

71,999

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Note 16: Leases

The Company 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 the Company reported in its unaudited Consolidated Balance Sheets for the periods presented (dollars in thousands):

As of

September 30, 

December 31, 

2021

    

2020

    

Lease balances

Right of use assets

$

11,068

$

7,714

Lease liabilities

11,120

7,757

Supplemental information

Year through which lease terms extend

2031

2032

Weighted average remaining lease term (in years)

6.60

5.93

Weighted average discount rate

2.15

%

2.82

%

The following tables 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, 

    

2021

    

2020

    

2021

    

2020

Lease costs

Operating lease costs

$

656

$

622

$

1,828

$

1,877

Variable lease costs

94

99

394

401

Short-term lease costs

9

15

43

45

Total lease cost

$

759

$

736

$

2,265

$

2,323

Cash flows related to leases

Cash paid for amounts included in the measurement of lease liabilities:

Operating lease cash flows – Fixed payments

$

620

$

616

$

1,756

$

1,839

Operating lease cash flows – Liability reduction

569

546

1,610

1,610

Right of use assets obtained during the period in exchange for operating lease liabilities (1)

3,408

5,018

128

(1)The nine months ended September 30, 2021, includes $371 related to a lease obtained in the acquisition of CAC.

As of September 30, 2021, the Company was obligated under noncancelable operating leases for office space and other commitments. Rent expense under operating leases, included in net occupancy and equipment expense, was $0.8 million and $2.3 million for the three and nine months ended September 30, 2021, respectively, compared to $0.7 million and $2.3 million for the three and nine months ended September 30, 2020, respectively.

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Rent commitments were as follows (dollars in thousands):

As of

September 30, 

    

2021

Rent commitments

Remainder of 2021

$

621

2022

 

2,288

2023

2,071

2024

1,645

2025

1,416

Thereafter

3,921

Amounts representing interest

(842)

Present value of net future minimum lease payments

$

11,120

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Table of Contents

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

OVERVIEW

First Busey is a $12.9 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, remittance processing, and wealth management services 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 the financial condition and results of operations of the Company during the three and nine months ended September 30, 2021, and should be read in conjunction with the Company’s unaudited consolidated financial statements and notes thereto included in this Quarterly Report, as well as the Company’s 2020 Annual Report.

EXECUTIVE SUMMARY

COVID-19

Although the progression of the COVID-19 pandemic in the United States has impacted the Company’s results of operations, the Company continues to navigate the economic environment caused by COVID-19 effectively and prudently and remains resolute in its focus on serving its customers, communities, and associates while protecting its balance sheet. The Company remains vigilant, given that negative impacts of COVID-19, such as further margin compression and a deterioration in asset quality, could impact future quarters.

Our commercial and consumer banking products and services are delivered in Illinois, Missouri, Florida, and Indiana. Each state has taken different steps to reopen after COVID-19 thrust the country into lockdown starting in March 2020, and these efforts are subject to changes and delays based on case monitoring in each state.

Federal, state, and local governments, and regulatory authorities have enacted and issued a range of policy responses to the COVID-19 pandemic. See the Company’s 2020 Annual Report for information on policy and regulatory actions taken during 2020. Regulatory actions taken during 2021 include the following:

On March 11, 2021, President Biden signed the American Rescue Plan Act of 2021, a $1.9 trillion relief package providing a third round of Economic Impact Payments to millions of eligible Americans, expanding unemployment benefits and tax credits, providing additional assistance to small businesses, and creating a $10 billion homeowner assistance fund. This fund can be used toward delinquent mortgage payments and is intended to minimize foreclosures in the coming months. An additional $7.25 billion in PPP funding was provided, and eligibility criteria was expanded to include some non-profit organizations.

On March 30, 2021, President Biden signed the PPP Extension Act of 2021, which extended the PPP application deadline to May 31, 2021, or until funding was exhausted. PPP funding for loans originated by lenders other than community financial institutions was exhausted as of May 6, 2021. All PPP funding was exhausted as of May 28, 2021.

We have taken, and continue to take, numerous steps in response to the COVID-19 pandemic, including the following:

First Busey offered a Financial Relief Program to qualifying customers designed to alleviate some of the financial hardships that they faced as a result of COVID-19. This program offered solutions for all types of customers—including retail, personal loan, and mortgage—as well as commercial clients and small businesses. The program included options for loan payment deferrals as well as certain fee waivers. As of September 30, 2021, the Company had 27 commercial loans remaining on interest-only payment deferrals

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representing $116.6 million in loans. In addition, as of September 30, 2021, the Company had three retail loans on payment deferrals representing $0.4 million.

First Busey has served as a bridge for the PPP, actively helping 7,348 existing and new business clients sign up for this important financial resource. The Company originated and acquired a total of $1.1 billion in PPP loans, of which $178.2 million remains outstanding as of September 30, 2021. Additional information about the Company’s PPP loans is included in the COVID-19 section of “Note 1. Significant Accounting Policies” in this Quarterly Report.

Operating Results

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

Three Months Ended

Nine Months Ended

September 30,

    

June 30,

 

September 30,

September 30,

    

September 30,

2021

    

2021

 

2020

2021

    

2020

Reported:  

Net income

$

25,941

$

29,766

$

30,829

$

93,523

$

71,999

Adjusted:  

Net income (1)

$

32,845

$

31,921

$

32,803

$

102,831

$

74,473

Reported:  

Diluted earnings per common share

$

0.46

$

0.53

$

0.56

$

1.67

$

1.31

Adjusted:  

Diluted earnings per common share (1)

$

0.58

$

0.57

$

0.60

$

1.84

$

1.36

Reported:  

Return on average assets (2)

0.81

%

1.05

%

1.15

%

1.08

%

0.94

%

Adjusted:  

Return on average assets (1), (2)

1.03

%

1.12

%

1.22

%

1.19

%

0.97

%

Reported:  

Return on average tangible common equity (1), (2)

10.60

%

12.26

%

13.92

%

13.12

%

11.14

%

Adjusted:  

Return on average tangible common equity (1), (2)

13.43

%

13.14

%

14.81

%

14.43

%

11.52

%

Reported:  

Pre-provision net revenue (1)

$

30,470

$

34,030

$

45,922

$

104,698

$

127,165

Adjusted:  

Pre-provision net revenue (1)

$

39,409

$

37,486

$

48,701

$

119,648

$

133,360

Reported:  

Pre-provision net revenue to average assets (1), (2)

0.95

%

1.20

%

1.71

%

1.21

%

1.66

%

Adjusted:  

Pre-provision net revenue to average assets (1), (2)

1.23

%

1.32

%

1.81

%

1.38

%

1.74

%

(1)A non-GAAP financial measure.  See “Non-GAAP Financial Information” included in this Quarterly Report.
(2)Annualized measure.

On May 31, 2021, the Company completed its acquisition of CAC, the holding company for GSB. GSB was operated as a separate banking subsidiary from June 1, 2021, until August 14, 2021, when it was merged with and into Busey Bank. At that time GSB’s banking centers became banking centers of Busey Bank. When we completed the GSB acquisition, we reset the baseline for the future financial performance of First Busey in a multitude of positive ways. With GSB now merged and integrated, we expect to see the full contribution of synergies of GSB reflected in the Company’s financial performance in the quarters ahead.

The Company views certain non-operating items, including acquisition-related and restructuring charges, as adjustments to net income reported under GAAP. Non-operating pre-tax adjustments for the three and nine months ended September 30, 2021, included $8.7 million and $11.7 million of expenses related to acquisitions and other restructuring, respectively. A reconciliation of non-GAAP measuresincluding adjusted pre-provision net revenue, adjusted net income, adjusted earnings per share, adjusted return on average assets, adjusted net interest margin, adjusted efficiency

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ratio, tangible common equity, tangible common equity to tangible assets, tangible book value per share, and return on average tangible common equitywhich the Company believes facilitates the assessment of its financial results and peer comparability, is included in tabular form in this Quarterly Report. See “Non-GAAP Financial Information.”

Banking Center Markets

As of September 30, 2021, we served the Illinois banking market with 60 Busey Bank 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. However, the financial condition of the state of Illinois, in which the largest portion of the Company’s customer base resides, is characterized by low credit ratings and budget deficits.

As of September 30, 2021, Busey Bank had 10 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. Fourteen of our banking centers in Illinois are located within the boundaries of the St. Louis Metropolitan Statistical Area.

As of September 30, 2021, Busey Bank had four banking centers in southwest Florida, an area which has experienced above average population growth, job growth, and an expanded housing market over the last several years.

As of September 30, 2021, Busey Bank had one banking center in the Indianapolis, Indiana area, which is the most populous city of Indiana with a diverse economy, including the headquarters of many large corporations.

On July 27, 2021, the Company announced its Personal Banking Transformation Plan to close and consolidate 15 Busey Bank banking centers, with the closures expected to occur in the fourth quarter of 2021. In addition, as part of the acquisition integration plan, during the fourth quarter of 2021 the Company plans to close and consolidate two banking centers that were formerly GSB banking centers. Following the completion of these banking center closures and consolidations, the Company expects to have a total of 58 banking centers in operation across its markets.

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. Tax-equivalent basis assumes 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 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. All average information is provided on a daily average basis.

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Three Months Ended September 30, 

2021

2020

    

Average

    

Income/

    

Yield/

Average

    

Income/

    

Yield/

Balance

    

Expense

    

Rate (5)

    

Balance

    

Expense

    

Rate (5)

Assets

Interest-bearing bank deposits and federal funds sold

$

860,200

$

462

 

0.21

%  

$

715,899

$

213

 

0.12

%  

Investment securities:

 

  

 

  

 

  

 

  

 

  

 

  

U.S. Government obligations

 

251,553

 

416

 

0.66

%  

 

112,867

 

593

 

2.09

%  

Obligations of states and political subdivisions (1)

 

299,024

 

1,900

 

2.52

%  

 

301,796

 

2,122

 

2.80

%  

Other securities

 

3,171,163

 

10,167

 

1.27

%  

 

1,409,664

 

7,195

 

2.03

%  

Loans held for sale

 

15,589

 

99

 

2.52

%  

 

104,965

 

662

 

2.51

%  

Portfolio loans (1), (2)

 

7,133,108

 

65,418

 

3.64

%  

 

7,160,757

 

69,481

 

3.86

%  

Total interest-earning assets (1), (3)

$

11,730,637

$

78,462

 

2.65

%  

$

9,805,948

$

80,266

 

3.26

%  

Cash and due from banks

 

149,550

 

  

 

  

 

120,198

 

  

 

  

Premises and equipment

 

144,334

 

 

  

 

145,948

 

 

  

ACL

 

(96,682)

 

 

  

 

(97,127)

 

 

  

Other assets

 

769,956

 

  

 

  

 

706,028

 

  

 

  

Total assets

$

12,697,795

 

  

 

  

$

10,680,995

 

  

 

  

Liabilities and Stockholders’ Equity

 

  

 

  

 

  

 

  

 

  

 

  

Interest-bearing transaction deposits

$

2,809,669

$

522

 

0.07

%  

$

2,312,804

$

774

 

0.13

%  

Savings and money market deposits

 

3,369,482

 

811

 

0.10

%  

 

2,557,732

 

869

 

0.14

%  

Time deposits

 

1,074,091

 

1,726

 

0.64

%  

 

1,298,841

 

4,462

 

1.37

%  

Federal funds purchased and repurchase agreements

 

221,813

 

60

 

0.11

%  

 

190,046

 

88

 

0.18

%  

Borrowings (4)

 

296,185

 

3,262

 

4.37

%  

 

263,736

 

2,943

 

4.44

%  

Junior subordinated debt issued to unconsolidated trusts

 

71,565

 

728

 

4.04

%  

 

71,402

 

740

 

4.12

%  

Total interest-bearing liabilities

$

7,842,805

$

7,109

 

0.36

%  

$

6,694,561

$

9,876

 

0.59

%  

Net interest spread (1)

 

  

 

 

2.29

%  

 

  

 

 

2.67

%  

Noninterest-bearing deposits

 

3,365,823

 

  

 

  

 

2,592,130

 

  

 

  

Other liabilities

 

137,751

 

  

 

  

 

145,856

 

  

 

  

Stockholders’ equity

 

1,351,416

 

  

 

  

 

1,248,448

 

  

 

  

Total liabilities and stockholders’ equity

$

12,697,795

 

  

 

  

$

10,680,995

 

  

 

  

Interest income / earning assets (1), (3)

$

11,730,637

$

78,462

 

2.65

%  

$

9,805,948

$

80,266

 

3.26

%  

Interest expense / earning assets

$

11,730,637

$

7,109

 

0.24

%  

$

9,805,948

$

9,876

 

0.40

%  

Net interest margin (1)

 

  

$

71,353

 

2.41

%  

 

  

$

70,390

 

2.86

%  

(1)On a tax-equivalent basis and assuming a federal income tax rate of 21.0%.
(2)Non-accrual loans have been included in average portfolio loans.
(3)Interest income includes a tax-equivalent adjustment of $0.6 million for the three months ended September 30, 2021, and 2020.
(4)Includes short-term and long-term borrowings.  Interest expense includes a non-usage fee on a revolving loan.
(5)Annualized.

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Table of Contents

Nine Months Ended September 30, 

2021

2020

    

Average

    

Income/

    

Yield/

Average

    

Income/

    

Yield/

Balance

    

Expense

    

Rate (5)

    

Balance

    

Expense

    

Rate (5)

Assets

Interest-bearing bank deposits and federal funds sold

$

597,960

$

857

 

0.19

%  

$

506,235

$

1,596

 

0.42

%  

Investment securities:

 

  

 

  

 

  

 

 

  

 

  

U.S. Government obligations

 

166,300

 

1,375

 

1.11

%  

 

144,807

 

2,359

 

2.18

%  

Obligations of states and political subdivisions (1)

 

297,094

 

5,772

2.60

%  

 

286,097

 

6,228

 

2.91

%  

Other securities

 

2,645,746

 

25,513

 

1.29

%  

 

1,329,557

 

22,597

 

2.27

%  

Loans held for sale

 

23,060

 

401

 

2.32

%  

 

91,964

 

1,880

 

2.73

%  

Portfolio loans (1), (2)

 

6,921,226

 

189,743

 

3.67

%  

 

7,012,497

 

212,721

 

4.05

%  

Total interest-earning assets (1), (3)

$

10,651,386

$

223,661

 

2.81

%  

$

9,371,157

$

247,381

 

3.53

%  

Cash and due from banks

 

134,998

 

  

 

  

 

119,987

 

  

 

  

Premises and equipment

 

138,257

 

 

  

 

148,697

 

 

  

ACL

 

(98,522)

 

 

  

 

(84,213)

 

 

  

Other assets

 

745,151

 

  

 

  

 

693,950

 

  

 

  

Total assets

$

11,571,270

 

  

 

  

$

10,249,578

 

  

 

  

Liabilities and Stockholders’ Equity

 

  

 

  

 

  

 

  

 

  

 

  

Interest-bearing transaction deposits

$

2,534,979

$

1,529

 

0.08

%  

$

2,131,608

$

4,165

 

0.26

%  

Savings and money market deposits

 

2,981,559

 

2,151

 

0.10

%  

 

2,558,053

 

5,265

 

0.27

%  

Time deposits

 

1,060,993

 

6,406

 

0.81

%  

 

1,418,944

 

16,623

 

1.56

%  

Federal funds purchased and repurchase agreements

 

203,777

177

 

0.12

%  

 

185,528

 

596

 

0.43

%  

Borrowings (4)

 

262,024

9,245

 

4.72

%  

 

213,101

 

6,427

 

4.03

%  

Junior subordinated debt issued to unconsolidated trusts

 

71,524

2,185

 

4.08

%  

 

71,353

 

2,220

 

4.16

%  

Total interest-bearing liabilities

$

7,114,856

$

21,693

 

0.41

%  

$

6,578,587

$

35,296

 

0.72

%  

Net interest spread (1)

 

  

 

 

2.40

%  

 

  

 

 

2.81

%  

Noninterest-bearing deposits

 

3,010,999

 

  

 

  

 

2,303,538

 

  

 

  

Other liabilities

 

121,844

 

  

 

  

 

134,105

 

  

 

  

Stockholders’ equity

 

1,323,571

 

  

 

  

 

1,233,348

 

  

 

  

Total liabilities and stockholders’ equity

$

11,571,270

 

  

 

  

$

10,249,578

 

  

 

  

Interest income / earning assets (1), (3)

$

10,651,386

$

223,661

 

2.81

%  

$

9,371,157

$

247,381

 

3.53

%  

Interest expense / earning assets

$

10,651,386

$

21,693

 

0.27

%  

$

9,371,157

$

35,296

 

0.51

%  

Net interest margin (1)

 

  

$

201,968

 

2.54

%  

 

  

$

212,085

 

3.02

%  

(1)On a tax-equivalent basis and assuming a federal income tax rate of 21.0%.
(2)Non-accrual loans have been included in average portfolio loans.
(3)Interest income includes a tax-equivalent adjustment of $1.8 million and $2.1 million for the nine months ended September 30, 2021 and 2020.
(4)Includes short-term and long-term borrowings.  Interest expense includes a non-usage fee on a revolving loan.
(5)Annualized.

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Table of Contents

Earning Assets, Sources of Funds, and Net Interest Margin

Changes in average earning assets are summarized as follows for the periods presented (dollars in thousands):

Three Months Ended September 30, 

   

2021

    

2020

    

Change

    

% Change

 

Average interest-earning assets

$

11,730,637

$

9,805,948

$

1,924,689

19.6

%

Average interest-bearing liabilities

7,842,805

6,694,561

1,148,244

17.2

%

Average noninterest-bearing deposits

3,365,823

2,592,130

773,693

29.8

%

Total average deposits

10,619,065

8,761,507

1,857,558

21.2

%

Total average liabilities

11,346,379

9,432,547

1,913,832

20.3

%

Average noninterest-bearing deposits as a percent of total average deposits

31.7

%

29.6

%

Total average deposits as a percent of total average liabilities

93.6

%

92.9

%

Nine Months Ended September 30, 

   

2021

    

2020

    

Change

    

% Change

 

Average interest-earning assets

$

10,651,386

$

9,371,157

$

1,280,229

13.7

%

Average interest-bearing liabilities

7,114,856

6,578,587

536,269

8.2

%

Average noninterest-bearing deposits

3,010,999

2,303,538

707,461

30.7

%

Total average deposits

9,588,530

8,412,143

1,176,387

14.0

%

Total average liabilities

10,247,699

9,016,230

1,231,469

13.7

%

Average noninterest-bearing deposits as a percent of total average deposits

31.4

%

27.4

%

Total average deposits as a percent of total average liabilities

93.6

%

93.3

%

Changes in sources of funds and net interest margin are summarized as follows (dollars in thousands):

Three Months Ended September 30, 

 

   

2021

    

2020

    

Change

    

% Change

 

Net interest income

Interest income, on a tax-equivalent basis (1)

$

78,462

$

80,266

$

(1,804)

(2.2)

%

Interest expense

7,109

9,876

(2,767)

(28.0)

%

Net interest income, on a tax equivalent basis (1)

$

71,353

$

70,390

$

963

1.4

%

Net interest margin (1), (2)

2.41

%

2.86

%

(1)Assuming a federal income tax rate of 21.0%.
(2)Annualized, net interest income expressed as a percentage of average earning assets, stated on a tax-equivalent basis.

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Table of Contents

Nine Months Ended September 30, 

   

2021

    

2020

    

Change

    

% Change

 

Net interest income

Interest income, on a tax-equivalent basis (1)

$

223,661

$

247,381

$

(23,720)

(9.6)

%

Interest expense

21,693

35,296

(13,603)

(38.5)

%

Net interest income, on a tax equivalent basis (1)

$

201,968

$

212,085

$

(10,117)

(4.8)

%

Net interest margin (1), (2)

2.54

%

3.02

%

(1)Assuming a federal income tax rate of 21.0%.
(2)Net interest income expressed as a percentage of average earning assets, stated on a tax-equivalent basis.

The Consolidated Average Balance Sheets and interest rates were impacted in 2021 and 2020 by numerous factors surrounding COVID-19. The Federal Open Market Committee rate cuts during the first quarter of 2020 have contributed to the decline in net interest margin, as assets, in particular commercial loans, repriced more quickly and to a greater extent than liabilities. Net interest margin has also been negatively impacted by existing loan amortization and paydowns at higher rates than new loan production, significant growth in the Company’s liquidity position, and the issuance of debt. Those impacts were partially offset by the Company’s efforts to lower deposit funding costs as well as the fees recognized on PPP loans.

The Company remains substantially core deposit funded, with robust liquidity and significant market share in the communities we serve. As of September 30, 2021, the Company’s loan to deposit ratio was 66.1% and core deposits represented 98.5% of total deposits outstanding (excluding time deposits with balances greater than $250,000).

Net interest spread, which represents the difference between the average rate earned on earning assets and the average rate paid on interest-bearing liabilities, was 2.29% and 2.40% for the three and nine months ended September 30, 2021, respectively, compared to 2.67% and 2.81% for the three and nine months ended September 30, 2020, respectively, each 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, 2021 and 2020. Annualized net interest margins for the quarterly periods indicated were as follows:

2021

    

2020

    

First Quarter

2.72

%

 

3.20

%

Second Quarter

2.50

%

 

3.03

%

Third Quarter

2.41

%

 

2.86

%

Fourth Quarter

 

3.06

%

Management attempts to mitigate the effects of an unpredictable interest-rate environment through effective portfolio management, prudent loan underwriting, effective funding cost control, meaningful noninterest income contribution, and operational efficiencies. Please refer to the Notes to Consolidated Financial Statements in the Company’s 2020 Annual Report for a description of accounting policies underlying the recognition of interest income and expense.

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Table of Contents

Noninterest Income

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

Three Months Ended September 30, 

    

2021

    

2020

    

Change

    

% Change

Noninterest income

Wealth management fees

$

13,749

$

10,548

$

3,201

30.3

%

Fees for customer services

9,288

8,014

1,274

15.9

%

Remittance processing

 

4,355

3,995

 

360

9.0

%

Mortgage revenue

 

1,740

5,793

 

(4,053)

(70.0)

%

Income on bank owned life insurance

 

999

1,022

 

(23)

(2.3)

%

Net gains (losses) on sales of securities

 

(5)

11

 

(16)

(145.5)

%

Unrealized gains (losses) recognized on equity securities

62

(437)

499

114.2

%

Other income

3,071

3,339

(268)

(8.0)

%

Total noninterest income

$

33,259

$

32,285

$

974

3.0

%

Nine Months Ended September 30, 

    

2021

    

2020

    

Change

    

% Change

 

Noninterest income

Wealth management fees

$

39,335

$

32,296

$

7,039

21.8

%

Fees for customer services

25,936

23,400

2,536

10.8

%

Remittance processing

 

13,122

11,466

 

1,656

14.4

%

Mortgage revenue

 

6,153

9,879

 

(3,726)

(37.7)

%

Income on bank owned life insurance

 

3,439

4,361

 

(922)

(21.1)

%

Net gains (losses) on sales of securities

 

114

1,710

 

(1,596)

(93.3)

%

Unrealized gains (losses) recognized on equity securities

2,482

(1,234)

3,716

301.1

%

Other income

7,134

5,888

1,246

21.2

%

Total noninterest income

$

97,715

$

87,766

$

9,949

11.3

%

Total noninterest income was $33.3 million for the three months ended September 30, 2021, a 3.0% increase from the comparable period in 2020, and was $97.7 million for the nine months ended September 30, 2021, an 11.3% increase from the comparable period in 2020. Revenues from wealth management fees and remittance processing activities represented 54.4% and 53.7% of the Company’s noninterest income for the three and nine months ended September 30, 2021, respectively, providing a complement to spread-based revenue from traditional banking activities. On a combined basis, revenue from these two critical operating areas was $18.1 million for the three months ended September 30, 2021, a 24.5% increase from the comparable period in 2020, and was $52.5 million for the nine months ended September 30, 2021, a 19.9% increase from the comparable period in 2020.

Wealth management fees were $13.7 million for the three months ended September 30, 2021, a 30.3% increase from the comparable period in 2020, and were $39.3 million for the nine months ended September 30, 2021, a 21.8% increase from the comparable period for 2020. First Busey’s Wealth Management division ended the third quarter of 2021 with $12.4 billion in assets under care, compared to $10.2 billion as of December 31, 2020, a 20.9% increase. The increase in assets under care includes $1.2 billion related to assets obtained in the acquisition of CAC.

Fees for customer services were $9.3 million for the three months ended September 30, 2021, a 15.9% increase from the comparable period in 2020, and were $25.9 million for the nine months ended September 30, 2021, a 10.8% increase from the comparable period in 2020. Fees for customer services have been impacted since March 2020 due to changing customer behaviors resulting from COVID-19 and related government stimulus programs, and continue to rebound with improving economic conditions and customer activity levels.

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Remittance processing revenue relates to our payment processing company, FirsTech. Remittance processing revenue was $4.4 million for the three months ended September 30, 2021, a 9.0% increase from the comparable period in 2020, and was $13.1 million for the nine months ended September 30, 2021, a 14.4% increase from the comparable period in 2020. Fluctuations in remittance processing revenue were primarily the result of increased payment and volume activity as well as growth in customers served by FirsTech. In addition to reported remittance processing revenue, FirsTech generated additional revenue of $0.3 million in the three months and $0.7 million in the nine months ended September 30, 2021, related to professional programming services, excluding intercompany eliminations and consolidation. These revenues are reported separately within the “Other income” component of our noninterest income. FirsTech operations add important diversity to our revenue stream while widening our array of service offerings to larger commercial clients both within our footprint and nationally. The Company is currently making strategic investments in FirsTech to enhance future growth including upgrades to the product and engineering teams to build an application programming interface cloud-based platform and expansion of the sales organization to drive increased market reach.

Mortgage revenue was $1.7 million for the three months ended September 30, 2021, a 70.0% decrease from the comparable period in 2020, primarily as a result of declines in sold-loan mortgage volume. Mortgage revenue was $6.2 million for the nine months ended September 30, 2021, a 37.7% decrease from the comparable period in 2020. 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, 2021, a 2.3% decrease from the comparable period in 2020, and was $3.4 million for the nine months ended September 30, 2021, a 21.1% decrease from the comparable period in 2020. Decreases primarily resulted from a $0.8 million decline in earnings on death proceeds for the nine months ended September 30, 2021.

Other income was $3.1 million for the three months ended September 30, 2021, an 8.0% decrease from the comparable period in 2020, and was $7.1 million for the nine months ended September 30, 2021, a 21.2% increase from the comparable period in 2020.  Other income variances are primarily driven by fluctuations in income generated from swap origination fees, commercial loan sales gains, and gains and losses on fixed asset disposal.

Noninterest Expense

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

Three Months Ended September 30, 

    

2021

    

2020

    

Change

    

% Change

Noninterest expense

Salaries, wages, and employee benefits

$

41,949

$

32,839

$

9,110

27.7

%

Data processing

7,782

3,937

3,845

97.7

%

Net occupancy expense of premises

 

4,797

 

4,256

 

541

12.7

%

Furniture and equipment expenses

 

2,208

 

2,325

 

(117)

(5.0)

%

Professional fees

 

1,361

 

1,698

 

(337)

(19.8)

%

Amortization of intangible assets

 

3,149

 

2,493

 

656

26.3

%

Interchange expense

1,434

1,223

211

17.3

%

Other expense

 

10,807

 

7,771

 

3,036

39.1

%

Total noninterest expense

$

73,487

$

56,542

$

16,945

30.0

%

Income taxes

$

6,455

$

9,118

$

(2,663)

(29.2)

%

Effective income tax rate

 

19.9

%  

 

22.8

%  

 

Efficiency ratio (1)

 

67.3

%  

 

52.4

%  

 

Adjusted efficiency ratio (1)

59.0

%  

50.0

%  

(1)For a reconciliation of efficiency ratio and adjusted efficiency ratio, non-GAAP financial measures, see Non-GAAP Financial Information.

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Table of Contents

Nine Months Ended September 30, 

    

2021

    

2020

    

Change

    

% Change

 

Noninterest expense

Salaries, wages, and employee benefits

$

107,222

$

95,397

$

11,825

12.4

%

Data processing

16,881

12,383

4,498

36.3

%

Net occupancy expense of premises

 

13,606

 

13,419

 

187

1.4

%

Furniture and equipment expenses

 

6,300

 

7,311

 

(1,011)

(13.8)

%

Professional fees

 

5,617

 

5,508

 

109

2.0

%

Amortization of intangible assets

 

8,200

 

7,569

 

631

8.3

%

Interchange expense

4,360

3,590

770

21.4

%

Other expense

 

28,425

 

24,947

 

3,478

13.9

%

Total noninterest expense

$

190,611

$

170,124

$

20,487

12.0

%

Income taxes

$

24,136

$

19,986

$

4,150

20.8

%

Effective income tax rate

 

20.5

%  

 

21.7

%  

 

Efficiency ratio (1)

 

61.4

%  

 

54.3

%  

 

Adjusted efficiency ratio (1)

57.5

%  

53.2

%  

Full-time equivalent employees as of period-end

 

1,462

1,371

 

91

6.6

%

(1)For a reconciliation of efficiency ratio and adjusted efficiency ratio, non-GAAP financial measures, see Non-GAAP Financial Information.

Total noninterest expense was $73.5 million for the three months ended September 30, 2021, a 30.0% increase from the comparable period in 2020, and was $190.6 million for the nine months ended September 30, 2021, a 12.0% increase from the comparable period in 2020. Non-operating acquisition and other restructuring expenses contributed $8.7 million to total noninterest expense for the three months ended September 30, 2021, compared to $2.5 million for the comparable period in 2020, and contributed $11.7 million to total noninterest expense for the nine months ended September 30, 2021, compared to $3.2 million for the comparable period in 2020. GSB’s results of operations were included in the Company’s results of operations beginning June 1, 2021.

Salaries, wages, and employee benefits were $41.9 million for the three months ended September 30, 2021, a 27.7% increase from the comparable period in 2020, and were $107.2 million for the nine months ended September 30, 2021, a 12.4% increase from the comparable period in 2020. Non-operating expenses contributed $2.7 million and $3.5 million of the increases for the three and nine months ended September 30, 2021, over the comparable periods in 2020, respectively. Salaries, wages, and employee benefit expenses were impacted by increases in full-time equivalent employees since June 1, 2021, related to the CAC acquisition, and we began to see synergies in late August after the banks were merged.

Data processing expense was $7.8 million for the three months ended September 30, 2021, a 97.7% increase from the comparable period in 2020, and was $16.9 million for the nine months ended September 30, 2021, a 36.3% increase from the comparable period in 2020. Acquisition related non-operating expenses contributed $3.2 million and $3.6 million of the increases for the three and nine months ended September 30, 2021, respectively.

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Combined, net occupancy expense of premises and furniture and equipment expense was $7.0 million for the three months ended September 30, 2021, a 6.4% increase from the comparable period in 2020, and was $19.9 million for the nine months ended September 30, 2021, a 4.0% decrease from the comparable period in 2020. GSB added 7 branches in 2021. The Company closed 12 banking centers in October 2020, and has evaluated and expects to close and consolidate 17 Busey Bank banking centers, two of which were formerly GSB banking centers, in the fourth quarter of 2021.

Professional fees were $1.4 million for the three months ended September 30, 2021, a 19.8% decrease from the comparable period in 2020, and were $5.6 million for the nine months ended September 30, 2021, a 2.0% increase from the comparable period in 2020. Non-operating expenses contributed $0.1 million and $1.4 million in professional fees for the three and nine months ended September 30, 2021, compared to $0.2 million for the three and nine months ended September 30, 2020.

Amortization of intangible assets was $3.1 million for the three months ended September 30, 2021, a 26.3% increase from the comparable period in 2020, and was $8.2 million for the nine months ended September 30, 2021, an 8.3% increase from the comparable period for 2020. The increase primarily related to intangibles acquired in the CAC acquisition.

Interchange expense was $1.4 million for the three months ended September 30, 2021, a 17.3% increase from the comparable period in 2020, and was $4.4 million for the nine months ended September 30, 2021, a 21.4% increase from the comparable period in 2020. Fluctuations in interchange expense were primarily the result of increased payment and volume activity at FirsTech.

Other expense was $10.8 million for the three months ended September 30, 2021, a 39.1% increase from the comparable period in 2020, and was $28.4 million for the nine months ended September 30, 2021, a 13.9% increase from the comparable period in 2020. Increases were across multiple expense categories including New Market Tax Credit amortization, regulatory expenses, marketing, business development, recruiting and onboarding, director compensation, and card service fees, partially offset by lower MSR valuation impairment and releases in the provision for unfunded commitments.

The efficiency ratio(1), which is a measure commonly used by management and the banking industry, measures the amount of expense incurred to generate a dollar of revenue. The efficiency ratios were 67.3% and 61.4% for the three and nine months ended September 30, 2021, respectively, compared to 52.4% and 54.3% for the three and nine months ended September 30, 2020, respectively.

The adjusted efficiency ratios(1) were 59.0% and 57.5% for the three and nine months ended September 30, 2021, respectively, compared to 50.0% and 53.2% for three and nine months ended September 30, 2020, respectively. The Company remains focused on expense discipline.

Income Taxes

The effective income tax rates of 19.9% and 20.5% for the three and nine months ended September 30, 2021, respectively, were lower than the combined federal and state statutory rate of approximately 28% due to tax exempt interest income, such as municipal bond interest and bank owned life insurance income, and investments in various federal and state tax credits, including an Illinois new market tax credit. The Company continues to monitor evolving federal and state tax legislation and its potential impact on operations on an ongoing basis. As of September 30, 2021, the Company was not under examination by any tax authority.

(1) A Non-GAAP financial measure. See “Non-GAAP Financial Information” for reconciliation.

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FINANCIAL CONDITION

Balance Sheet

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

As of

September 30, 

December 31, 

    

2021

    

2020

    

Change

    

% Change

 

Assets

 

  

 

  

 

  

 

  

Debt securities available for sale

$

3,997,244

$

2,261,187

$

1,736,057

 

76.8

%

Portfolio loans, net

 

7,057,833

 

6,713,129

 

344,704

 

5.1

%

Total assets

$

12,899,330

$

10,544,047

$

2,355,283

 

22.3

%

Liabilities

 

  

 

  

 

  

 

  

Deposits:

 

  

 

  

 

  

 

  

Noninterest-bearing

$

3,453,906

$

2,552,039

$

901,867

 

35.3

%

Interest-bearing

 

7,363,961

 

6,125,810

 

1,238,151

 

20.2

%

Total deposits

$

10,817,867

$

8,677,849

$

2,140,018

 

24.7

%

Securities sold under agreements to repurchase

$

241,242

$

175,614

$

65,628

 

37.4

%

Senior notes, net of unamortized issuance costs

 

39,910

 

39,809

 

101

 

0.3

%

Subordinated notes, net of unamortized issuance costs

 

182,637

 

182,226

 

411

 

0.2

%

Junior subordinated debt owed to unconsolidated trusts

 

71,593

 

71,468

 

125

 

0.2

%

Total liabilities

$

11,566,254

$

9,273,978

$

2,292,276

 

24.7

%

Stockholders’ equity

$

1,333,076

$

1,270,069

$

63,007

 

5.0

%

Portfolio Loans

The Company believes that making sound and profitable loans is a necessary and desirable means of employing funds available for investment. The Company 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. GSB’s policies were similar in nature to Busey Bank’s policies and the Company is migrating the legacy GSB portfolio toward Busey Bank’s policies. While not specifically limited, the Company attempts to focus its lending on short to intermediate-term (0-7 years) loans in geographic areas within 125 miles of its lending offices. Loans originated outside of these areas are generally residential mortgage loans originated for sale in the secondary market or loans to existing customers of Busey Bank. The Company attempts to utilize government-assisted lending programs, such as the SBA and U.S. Department of Agriculture lending programs, when prudent. Generally, loans are collateralized by assets, primarily real estate, and guaranteed by individuals. Loans are expected to be repaid primarily from cash flows of the borrowers or from proceeds from the sale of selected assets of the borrowers.

Management reviews and approves the Company’s lending policies and procedures on a regular basis. Management routinely (at least quarterly) reviews the Company’s ACL in conjunction with reports related to loan production, loan quality, concentrations of credit, loan delinquencies, and non-performing and potential problem loans. The Company’s underwriting standards are designed to encourage relationship banking rather than transactional banking. Relationship banking implies a primary banking relationship with the borrower that includes, at a minimum, an active deposit banking relationship in addition to the lending relationship. Significant underwriting factors, in addition to location, duration, a sound and profitable cash flow basis, and the borrower’s character, include the quality of the borrower’s financial history, the liquidity of the underlying collateral, and the reliability of the valuation of the underlying collateral.

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Table of Contents

As a matter of policy and practice, the Company limits the level of concentration exposure in any particular loan segment with the goal of maintaining a well-diversified loan portfolio. In anticipation of the potential risks associated with COVID-19, the Company took actions starting in early March 2020 to escalate the monitoring of susceptible industry sectors within its portfolio.

At no time is a borrower’s total borrowing relationship permitted to exceed the Company’s regulatory lending limit. The Company generally limits such relationships to amounts substantially less than the regulatory limit. Loans to related parties, including executive officers and directors of the Company and its subsidiaries, are reviewed for compliance with regulatory guidelines by the Company’s board of directors at least annually.

The Company maintains an independent loan review department that reviews loans for compliance with the Company’s loan policy on a periodic basis. In addition, the loan review department reviews risk assessments made by the Company’s credit department, lenders, and loan committees. Results of these reviews are presented to management and the audit committee at least quarterly.

The Company’s lending activities can be summarized 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 lending areas can be found in the Company’s 2020 Annual Report. The significant majority of the Company’s portfolio lending activity occurs in its Illinois and Missouri markets, with the remainder in the Florida and Indiana markets.

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

September 30, 2021

    

Illinois

    

Missouri

    

Florida

    

Indiana

    

Total

Portfolio loans

Commercial

$

1,340,421

$

490,939

$ 

54,092

$ 

46,411

$

1,931,863

Commercial real estate

2,061,455

668,014

181,352

157,801

3,068,622

Real estate construction

 

186,171

 

133,385

 

65,637

 

45,664

 

430,857

Retail real estate

1,127,787

237,966

94,429

52,702

1,512,884

Retail other

 

195,329

 

4,025

 

2,320

 

4,735

 

206,409

Total portfolio loans

$

4,911,163

$

1,534,329

$  

397,830

$  

307,313

$

7,150,635

ACL

 

  

 

  

 

  

 

  

 

(92,802)

Portfolio loans, net

 

  

 

  

 

  

 

  

$

7,057,833

December 31, 2020

    

Illinois

    

Missouri

    

Florida

    

Indiana

    

Total

Portfolio loans

Commercial

$

1,386,587

$

529,281

$ 

50,878

$ 

47,830

$

2,014,576

Commercial real estate

 

1,880,437

715,680

154,234

142,184

 

2,892,535

Real estate construction

 

192,971

 

115,227

 

57,381

 

96,207

 

461,786

Retail real estate

 

963,538

295,352

94,748

54,214

 

1,407,852

Retail other

 

32,678

 

2,415

 

1,188

 

1,147

 

37,428

Total portfolio loans

$

4,456,211

$

1,657,955

$  

358,429

$  

341,582

$

6,814,177

ACL

 

  

 

  

 

  

 

  

 

(101,048)

Portfolio loans, net

 

  

 

  

 

  

 

  

$

6,713,129

Portfolio loans increased by 4.9% to $7.2 billion as of September 30, 2021, compared to $6.8 billion as of December 31, 2020. Commercial balances (consisting of commercial, commercial real estate, and real estate construction loans), excluding PPP loans, increased $330.6 million since December 31, 2020. Retail real estate and retail other loans increased $274.0 million since December 31, 2020. September 30, 2021, portfolio loan balances included balances acquired in the CAC acquisition.

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Table of Contents

Allowance and Provision for Credit Losses

The ACL is a significant estimate in the Company’s unaudited consolidated financial statements, affecting both earnings and capital. The methodology adopted influences, and is influenced by, the Company’s overall credit risk management processes. The ACL is recorded in accordance with GAAP to provide an adequate reserve for expected credit losses that is reflective of management’s best estimate of what is expected to be collected. All estimates of credit losses should be based on a careful consideration of all significant factors affecting the collectability as of the evaluation date. The ACL is established through the provision for credit loss expense charged to income.

As a result of continued strength in asset quality performance metrics, as well as improved macro-economic outlooks, the third quarter of 2021 results reflect a provision release, as compared to a reserve build at the onset of the COVID-19 pandemic. Provision for credit loss expense decreased due to a reserve release of $1.9 million for the three months ended September 30, 2021, compared to a $5.5 million provision expense for the same period in 2020. Provision for credit loss expense decreased due to a reserve release of $10.4 million for the nine months ended September 30, 2021, compared to a $35.7 million provision expense for the same period in 2020. In addition to the effects of the provision, the ACL was increased by $4.2 million in the second quarter of 2021 by the Day 1 PCD related to the CAC acquisition.

The relationship between our portfolio loan balances and our ACL is summarized as follows, as of each of the dates indicated (dollars in thousands):

As of

September 30,

June 30,

March 31,

December 31,

September 30,

    

2021

    

2021

    

2021

    

2020

    

2020

    

Portfolio loans

Portfolio loans, excluding PPP loans

$

6,972,404

$

6,795,255

$

6,257,196

$

6,367,774

$

6,384,916

PPP loans, amortized cost

178,231

390,395

522,104

446,403

736,395

Total portfolio loans

$

7,150,635

$

7,185,650

$

6,779,300

$

6,814,177

$

7,121,311

ACL

$

92,802

$

95,410

$

93,943

$

101,048

$

98,841

ACL to portfolio loans

1.30

%

1.33

%

1.39

%

1.48

%

1.39

%

ACL to portfolio loans, excluding PPP loans

1.33

%

1.40

%

1.50

%

1.59

%

1.55

%

ACL to non-performing loans

358.86

%

336.96

%

411.04

%

415.82

%

408.82

%

ACL to non-performing assets

319.52

%

303.35

%

346.05

%

349.99

%

339.02

%

As of September 30, 2021, 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, credit performance trends, portfolio duration, and other factors.

Non-performing Loans and Non-performing Assets

Loans are considered past due if the required principal and 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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Table of Contents

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,

June 30,

March 31,

December 31,

September 30,

    

2021

    

2021

    

2021

    

2020

    

2020

    

Loans 30 – 89 days past due

$

6,446

$

3,888

$

9,929

$

7,578

$

6,708

Non-performing assets

Non-performing loans:

Non-accrual loans

25,369

27,725

21,706

22,930

23,898

Loans 90+ days past due and still accruing

 

491

 

590

 

1,149

 

1,371

 

279

Total non-performing loans

25,860

28,315

22,855

24,301

24,177

OREO

3,184

3,137

4,292

4,571

4,978

Total non-performing assets

29,044

31,452

27,147

28,872

29,155

Substandard (excludes 90+ days past due)

51,740

44,877

65,088

68,924

77,939

Classified assets

$

80,784

$

76,329

$

92,235

$

97,796

$

107,094

Performing TDRs (includes 30 – 89 days past due)

$

2,083

$

2,518

$

3,299

$

3,829

$

4,218

Non-performing assets to total assets

0.23

%

0.25

%

0.25

%

0.27

%

0.28

%

Non-performing loans to portfolio loans

0.36

%

0.39

%

0.34

%

0.36

%

0.34

%

Non-performing loans to portfolio loans, excluding PPP loans

0.37

%

0.42

%

0.37

%

0.38

%

0.38

%

Non-performing assets to portfolio loans and OREO

0.41

%

0.44

%

0.40

%

0.42

%

0.41

%

Classified assets to Busey Bank Tier 1 Capital and ACL

6.07

%

5.72

%

7.76

%

8.47

%

9.58

%

Non-performing loan balances increased by 6.4% to $25.9 million as of September 30, 2021, compared with $24.3 million as of December 31, 2020. Non-performing loans acquired from GSB were $4.4 million at September 30, 2021. Continued disciplined credit management resulted in non-performing loans as a percentage of total loans of 0.36% as of September 30, 2021, and December 31, 2020. Excluding the amortized cost of PPP loans, non-performing loans as a percentage of total loans was 0.37% as of September 30, 2021, compared to 0.38% as of December 31, 2020.

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, the Company would expect the credit quality of our loan portfolio to decline and loan defaults to increase.

Potential Problem Loans

Potential problem loans are loans classified as substandard which are not categorized as impaired, restructured, non-accrual, or 90+ days past due, but where current information indicates that the borrower may not be able to comply with loan repayment terms. Management assesses the potential for loss on such loans and considers the effect of any potential loss in determining its provision for expected credit losses. Potential problem loans decreased by 25.0% to $51.6 million as of September 30, 2021, compared to $68.8 million as of December 31, 2020. Management continues to monitor these credits and anticipates that restructurings, guarantees, additional collateral, or other planned actions will result in full repayment of the debts. As of September 30, 2021, 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.

To alleviate some of the financial hardships faced as a result of COVID-19, the Company offered a Financial Relief Program to qualifying customers. The program included options for short-term loan payment deferrals and certain fee waivers. As of September 30, 2021, the Company had no loans remaining on full payment deferral, and 27 commercial loans on interest-only payment deferrals representing $116.6 million in loans. In addition, as of September 30, 2021, the

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Company had three retail loans on payment deferrals representing $0.4 million in loans. As these deferrals expire, the Company will continue to monitor credits for potential problem loans.

Deposits

Total deposits increased by 24.7% to $10.8 billion as of September 30, 2021, compared to $8.7 billion as of December 31, 2020. We focus on deepening our relationships with customers to foster core deposit growth, allowing us to reduce our reliance on wholesale funding. Fluctuations in deposit balances can be attributed to the retention of PPP loan funding in customer deposit accounts, the impacts of economic stimulus payments to consumers, other core deposit growth, the seasonality of public funds, and the CAC acquisition. Approximately $1.3 billion of deposits were acquired in the CAC acquisition.

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 the Company’s operating, investing, lending, and financing activities during any given period.

First 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, First Busey’s revolving credit facility, or to utilize brokered deposits. As of September 30, 2021, the Company had additional capacity to borrow $1.2 billion from the FHLB and $603.6 million from the Federal Reserve. The Company has the ability to pledge PPP loans as collateral to either the FHLB or Federal Reserve Discount Window to increase the availability to borrow against any potential short-term funding needs.

As of September 30, 2021, 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. As of September 30, 2021, we had outstanding loan commitments and standby letters of credit of $1.9 billion, compared to $1.8 billion as of December 31, 2020. The balance of commitments to extend credit represents future cash requirements and some of these commitments may expire without being drawn upon. 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.

As of September 30, 2021, our reserve for unfunded commitments was $6.2 million, compared to $7.3 million as of December 31, 2020. Provision expense for unfunded commitments decreased due to a reserve release of $1.0 million and $1.1 million for the three and nine months ended September 30, 2021, respectively, compared to an expense of $0.3 million and $1.8 million for the three and nine months ended September 30, 2020.

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

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discretionary bonus payments, banking institutions must maintain capital in excess of regulatory minimum capital requirements. The table below presents minimum capital ratios with capital buffer and September 30, 2021, capital ratios for First Busey and Busey Bank.

Minimum Capital

As of September 30, 2021

Requirements with

First Busey

Busey

    

Capital Buffer

    

Corporation

    

Bank

Total Capital to Risk Weighted Assets

10.50

%   

15.91

%   

15.87

%

Tier 1 Capital to Risk Weighted Assets

8.50

%   

12.84

%   

15.04

%

Common Equity Tier 1 Capital to Risk Weighted Assets

7.00

%   

11.95

%   

15.04

%

Tier 1 Capital to Average Assets

8.60

%   

10.06

%

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

NON-GAAP FINANCIAL INFORMATION

This Quarterly Report contains certain financial information determined by methods other than in accordance with GAAP. These measures include adjusted pre-provision net revenue, adjusted net income, adjusted diluted earnings per share, adjusted return on average assets, adjusted net interest margin, efficiency ratio, adjusted efficiency ratio, tangible common equity, tangible common equity to tangible assets, tangible book value per share, and return on average tangible common equity. Management uses these non-GAAP measures, together with the related GAAP measures, to analyze the Company’s performance and to make business decisions. Management also uses these measures for peer comparisons.

A reconciliation to what management believes to be the most directly comparable GAAP financial measuresspecifically net revenue in the case of adjusted pre-provision net revenue, net income in the case of adjusted net income, adjusted diluted earnings per share, and adjusted return on average assets; total net interest income in the case of adjusted net interest margin; total noninterest income and total noninterest expense in the case of efficiency ratio and adjusted efficiency ratio; and total stockholders’ equity in the case of tangible common equity, tangible common equity to tangible assets, tangible book value per share, and return on average tangible common equityappears below. The Company believes the adjusted measures are useful for investors and management to understand the effects of certain non-recurring noninterest items and provides additional perspective on the Company’s performance over time as well as comparison to the Company’s peers.

These 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.

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Reconciliation of Non-GAAP Financial Measures — Adjusted Pre-Provision Net Revenue

(unaudited, dollars in thousands)

Three Months Ended

Nine Months Ended

September 30,

    

June 30,

    

September 30,

    

September 30,

    

September 30,

    

2021

    

2021

    

2020

    

2021

    

2020

Pre-provision net revenue

Net interest income

$

70,755

$

64,542

$

69,753

$

200,190

$

209,999

Noninterest income

33,259

33,011

32,285

97,715

87,766

Less net (gains) losses on sales of securities and unrealized (gains) losses recognized on equity securities

 

(57)

 

(898)

 

426

 

(2,596)

 

(476)

Noninterest expense

 

(73,487)

 

(62,625)

 

(56,542)

 

(190,611)

 

(170,124)

Total pre-provision net revenue

$

30,470

$

34,030

$

45,922

$

104,698

$

127,165

Adjustments to pre-provision net revenue

Acquisition and other restructuring expenses

8,677

2,713

2,529

11,710

3,161

Provision for unfunded commitments

(978)

(496)

250

(1,068)

1,834

New Market Tax Credit amortization

1,240

1,239

4,308

1,200

Adjusted pre-provision net revenue

$

39,409

$

37,486

$

48,701

$

119,648

$

133,360

Average total assets

$

12,697,795

$

11,398,655

$

10,680,995

$

11,571,270

$

10,249,578

Reported: Pre-provision net revenue to average assets (1)

0.95

%

1.20

%

1.71

%

1.21

%

1.66

%

Adjusted: Pre-provision net revenue to average assets (1)

1.23

%

1.32

%

1.81

%

1.38

%

1.74

%

(1)Annualized measure.

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Reconciliation of Non-GAAP Financial Measures — Adjusted Net Income, Adjusted Diluted Earnings Per Share, and Adjusted Return on Average Assets

(unaudited, dollars in thousands, except per share amounts)

Three Months Ended

Nine Months Ended

September 30,

    

June 30,

    

September 30,

    

September 30,

    

September 30,

    

    

2021

    

2021

    

2020

    

2021

    

2020

    

Net income

$

25,941

$

29,766

$

30,829

$

93,523

$

71,999

Adjustments to net income

Acquisition expenses:

 

  

 

  

 

  

 

  

 

  

Salaries, wages, and employee benefits

 

4,462

 

1,125

 

 

5,587

 

Data processing

 

3,182

 

368

 

 

3,557

 

Lease or fixed asset impairment

 

 

234

 

 

234

Professional fees, occupancy, and other

776

1,220

 

99

2,309

385

Other restructuring costs:

 

  

 

  

 

  

 

  

 

  

Salaries, wages, and employee benefits

 

257

 

 

2,011

 

257

 

2,357

Professional fees, occupancy, and other

 

 

 

185

 

 

185

Related tax benefit

(1,773)

(558)

(555)

(2,402)

(687)

Adjusted net income

$

32,845

$

31,921

$

32,803

$

102,831

$

74,473

Dilutive average common shares outstanding

56,832,518

55,730,883

54,737,920

55,872,835

54,796,354

Reported: Diluted earnings per share

$

0.46

$

0.53

$

0.56

$

1.67

$

1.31

Adjusted: Diluted earnings per share

0.58

0.57

0.60

1.84

1.36

Average total assets

$

12,697,795

$

11,398,655

$

10,680,995

$

11,571,270

$

10,249,578

Reported: Return on average assets (1)

0.81

%

1.05

%

1.15

%

1.08

%

0.94

%

Adjusted: Return on average assets (1)

1.03

%

1.12

%

1.22

%

1.19

%

0.97

%

(1)Annualized measure.

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Reconciliation of Non-GAAP Financial Measures — Adjusted Net Interest Margin

(unaudited, dollars in thousands)

Three Months Ended

Nine Months Ended

    

September 30,

    

June 30,

    

September 30,

    

September 30,

    

September 30,

    

    

2021

    

2021

    

2020

    

2021

    

2020

    

Net interest income

$

70,755

$

64,542

$

69,753

$

200,190

$

209,999

Adjustments to net interest income

Tax-equivalent adjustment

 

598

 

579

 

638

 

1,778

 

2,085

Acquisition-related purchase accounting accretion

 

(1,799)

 

(1,726)

 

(2,618)

 

(5,682)

 

(7,922)

Adjusted net interest income

$

69,554

$

63,395

$

67,773

$

196,286

$

204,162

Average interest-earning assets

$

11,730,637

$

10,448,417

$

9,805,948

$

10,651,386

$

9,371,157

Reported: Net interest margin (1)

 

2.41

%

 

2.50

%

 

2.86

%

 

2.54

%

 

3.02

%

Adjusted: Net Interest margin (1)

 

2.35

%

 

2.43

%

 

2.75

%

 

2.46

%

 

2.91

%

(1)Annualized measure.

Reconciliation of Non-GAAP Financial Measures — Efficiency Ratio and Adjusted Efficiency Ratio

(unaudited, dollars in thousands)

    

Three Months Ended

Nine Months Ended

September 30,

    

June 30,

    

September 30,

    

September 30,

    

September 30,

    

2021

    

2021

    

2020

    

2021

    

2020

    

Net interest income

$

70,755

$

64,542

$

69,753

$

200,190

$

209,999

Tax-equivalent adjustment

 

598

 

579

 

638

 

1,778

2,085

Tax-equivalent interest income

$

71,353

$

65,121

$

70,391

$

201,968

$

212,084

Noninterest income

 

33,259

 

33,011

 

32,285

 

97,715

 

87,766

Less net (gains) losses on sales of securities and unrealized (gains) losses recognized on equity securities

 

(57)

 

(898)

 

426

 

(2,596)

 

(476)

Adjusted noninterest income

$

33,202

$

32,113

$

32,711

$

95,119

$

87,290

Noninterest expense

 

73,487

 

62,625

 

56,542

 

190,611

 

170,124

Amortization of intangible assets

 

(3,149)

 

(2,650)

 

(2,493)

 

(8,200)

 

(7,569)

Non-operating adjustments:

 

 

 

 

  

 

  

Salaries, wages, and employee benefits

 

(4,719)

 

(1,125)

 

(2,011)

 

(5,844)

 

(2,357)

Data processing

 

(3,182)

 

(368)

 

 

(3,557)

 

Lease or fixed asset impairment

(234)

(234)

Professional fees and other

 

(776)

 

(1,220)

 

(284)

 

(2,309)

 

(570)

Adjusted noninterest expense

$

61,661

$

57,262

$

51,520

$

170,701

$

159,394

Reported: Efficiency ratio (1)

 

67.27

%

 

61.68

%

 

52.42

%

 

61.40

%

 

54.30

%

Adjusted: Efficiency ratio (2)

 

58.97

%

 

58.89

%

 

49.97

%

 

57.46

%

 

53.24

%

(1)Calculated as total noninterest expense, less amortization charges, as a percentage of tax-equivalent net interest income, plus noninterest income, less security gains and losses.
(2)Calculated as adjusted noninterest expense, as a percentage of tax-equivalent net interest income plus noninterest income, less security gains and losses.

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Reconciliation of Non-GAAP Financial Measures — Tangible Common Equity, Tangible Common Equity to Tangible Assets, Tangible Book Value per Share, and Return on Average Tangible Common Equity

(unaudited, dollars in thousands)

As of and for the Three Months Ended

 

    

September 30,

    

June 30,

 

September 30,

 

    

2021

    

2021

 

2020

 

Total Assets

$

12,899,330

$

12,415,449

$

10,539,628

Goodwill and other intangible assets, net

 

(378,891)

 

(381,795)

 

(365,960)

Tax effect of other intangible assets, net

 

17,115

 

17,997

 

15,239

Tangible assets

$

12,537,554

$

12,051,651

$

10,188,907

Total stockholders’ equity

 

1,333,076

 

1,345,691

 

1,255,705

Goodwill and other intangible assets, net

 

(378,891)

 

(381,795)

 

(365,960)

Tax effect of other intangible assets, net

 

17,115

 

17,997

 

15,239

Tangible common equity

$

971,300

$

981,893

$

904,984

Ending number of common shares outstanding

55,826,984

56,330,616

54,522,231

Tangible common equity to tangible assets (1)

 

7.75

%  

 

8.15

%

 

8.88

%

Tangible book value per share

$

17.09

$

17.11

$

16.32

Average common equity

$

1,351,416

$

1,342,771

$

1,248,448

Average goodwill and other intangible assets, net

 

(380,885)

 

(368,709)

 

(367,490)

Average tangible common equity

$

970,531

$

974,062

$

880,958

Reported: Return on average tangible common equity (2)

 

10.60

%

 

12.26

%

 

13.92

%

Adjusted: Return on average tangible common equity (2), (3)

 

13.43

%

 

13.14

%

 

14.81

%

(1)Tax-effected measure, 28.0% estimated deferred tax rate.
(2)Annualized measure.
(3)Calculated using adjusted net income.

Nine Months Ended

September 30, 

September 30, 

2021

2020

Average stockholders’ common equity

$

1,323,571

$

1,233,348

Average goodwill and other intangible assets, net

 

(370,829)

 

(369,801)

Average tangible stockholders’ common equity

$

952,742

$

863,547

Reported: Return on average tangible common equity (1)

13.12

%

11.14

%

Adjusted: Return on average tangible common equity (1), (2)

14.43

%

11.52

%

(1)Annualized measure.
(2)Calculated using adjusted net income.

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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 the financial condition, results of operations, plans, objectives, future performance, and business of the Company. Forward-looking statements, which may be based upon beliefs, expectations, and assumptions of the Company’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 the Company undertakes no obligation to update any statement in light of new information or future events. A number of factors, many of which are beyond the Company’s ability to control or predict, could cause actual results to differ materially from those in the Company’s forward-looking statements. These factors include, among others, the following: (i) the strength of the local, state, national, and international economy (including the impact of the current presidential administration); (ii) the economic impact of any future terrorist threats or attacks, widespread disease or pandemics (including the COVID-19 pandemic), or other adverse external events that could cause economic deterioration or instability in credit markets; (iii) changes in state and federal laws, regulations, and governmental policies concerning the Company’s general business; (iv) changes in accounting policies and practices; (v) changes in interest rates and prepayment rates of the Company’s assets (including the impact of the LIBOR phase-out); (vi) increased competition in the financial services sector 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 the Company; and (xii) the economic impact of exceptional weather occurrences such as tornadoes, hurricanes, floods, and blizzards. 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 the Company and its business, including additional factors that could materially affect its financial results, is included in the Company’s filings with the SEC.

CRITICAL ACCOUNTING ESTIMATES

First 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 the Company’s 2020 Annual Report.

Critical accounting estimates are those that are critical to the portrayal and understanding of First 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 the Company’s critical accounting estimates. The following policies could be deemed critical:

Fair Value of Debt Securities Available for Sale

The 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. The use of different judgments and estimates to determine the fair value of securities could result in a different fair value estimate.

Realized securities gains or losses are reported in the Consolidated Statements of Income. The cost of securities sold is based on the specific identification method.

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Debt securities available for sale are not within the scope of CECL; however, the accounting for credit losses on these securities is affected by ASC 326-30. 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, the Company must first determine if it intends to sell the security or if it is more likely than not that it 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, the Company will write down the amortized cost basis of the security to its fair value. This is achieved by writing off any previously recorded ACL balance related to the debt security, if applicable, and recognizing any incremental impairment through earnings. If the Company does not intend to sell the security, nor believes it more likely than not will be required to sell the security before the fair value recovers to the amortized cost basis, the Company 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.

The Company considers 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.
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. The impairment is recognized by establishing an ACL balance for the debt security through the provision for credit losses. Impairment related to noncredit factors is recognized in accumulated other comprehensive income, 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 820 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 326-30. However, the offset to record the ACL at the date of acquisition on acquired loans depends on whether or not the loan is classified as PCD. The ACL for PCD loans is recorded through a gross-up effect, while the ACL 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, the Company assess the potential for impairment on an annual basis or more frequently if events and circumstances indicate that goodwill might be impaired. The Company will continue to monitor events around COVID-19 and its potential impact on goodwill.

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Income Taxes

The Company 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 unaudited Consolidated Statements of Income. Accrued and deferred taxes, as reported in other assets or other liabilities in the unaudited Consolidated Balance Sheets, represent the net estimated amount due to or to be received from taxing jurisdictions either currently or in the future. Management judgment is involved in estimating accrued and deferred taxes, as it may be necessary to evaluate the risks and merits of the tax treatment of transactions, filing positions, and taxable income calculations after considering tax-related statutes, regulations, and other relevant factors. Because of the complexity of tax laws and interpretations, interpretation is subject to judgment.

Allowance for Credit Losses

The Company calculates the ACL at each reporting date. The Company recognizes an ACL for the lifetime expected credit losses for the amount the Company does not expect to collect. The 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 the Company 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 the Company’s credit exposure. The ACL must be determined on a collective (pool) basis when similar risk characteristics exists. On a case-by-case basis, the Company may conclude a loan should be evaluated on an individual basis based on the disparate risk characteristics.

Loans deemed uncollectible are charged against and reduce the ACL. A provision for credit losses is charged to current expense and acts to replenish the ACL in order to maintain the ACL at a level that management deems adequate. Determining the ACL involves significant judgments and assumptions by management. Because of the nature of the judgments and assumptions made by management, actual results may differ from these judgments and assumptions.

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 First 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 First Busey’s business activities.

First 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 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 and +300 basis points. Due to the current low interest rate environment, a downward adjustment in federal fund rates was not meaningful as of September 30, 2021 or December 31, 2020. 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.

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The interest rate risk of First Busey as a result of 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

    

+100

    

+200

    

+300

    

September 30, 2021

 

8.44

%  

16.43

%  

24.32

%  

December 31, 2020

 

7.40

%  

14.16

%  

20.20

%  

 

Year-Two: Basis Point Changes

    

+100

    

+200

    

+300

    

September 30, 2021

 

9.12

%  

17.39

%  

25.45

%  

December 31, 2020

 

9.59

%  

17.95

%  

25.40

%  

Interest rate risk is monitored and managed within approved policy limits. 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, 2021, 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, 2021, 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 quarter ended September 30, 2021, 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 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 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 First Busey in which any director, officer, or affiliate of First 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 Item 1A of Part 1 of the Company’s 2020 Annual Report.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On February 3, 2015, First 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. On May 22, 2019, First Busey’s board of directors approved an amendment to increase the authorized shares under the repurchase program by 1,000,000 shares, and on February 5, 2020, First Busey’s board of directors approved another amendment to increase the authorized shares under the repurchase program by an additional 2,000,000 shares. During the third quarter of 2021, the company purchased 625,000 shares under the plan. As of September 30, 2021, the Company had 953,824 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, 2021

137,000

$

23.84

137,000

1,441,824

August 1-31, 2021

288,000

$

23.73

288,000

1,153,824

September 1-30, 2021

200,000

$

23.45

200,000

953,824

Total

625,000

$

23.66

625,000

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS

Exhibit 

Number

Description of Exhibit

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

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

*

Filed herewith

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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.

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/ LYNETTE M. STRODE

Lynette M. Strode

Principal Accounting Officer

Date: November 4, 2021

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