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FIRST BUSEY CORP /NV/ - Quarter Report: 2021 June (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 June 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 August 5, 2021

Common Stock, $.001 par value

56,267,775

Table of Contents

FIRST BUSEY CORPORATION

FORM 10-Q

June 30, 2021

Table of Contents

GLOSSARY

3

Part I

FINANCIAL INFORMATION

Item 1.

FINANCIAL STATEMENTS (UNAUDITED)

5

CONSOLIDATED BALANCE SHEETS

6

CONSOLIDATED STATEMENTS OF INCOME

7

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

8

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

9

CONSOLIDATED STATEMENTS OF CASH FLOWS

11

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

13

Item 2.

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

46

Item 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

70

Item 4.

CONTROLS AND PROCEDURES

71

Part II

OTHER INFORMATION

Item 1.

LEGAL PROCEEDINGS

72

Item 1A

RISK FACTORS

72

Item 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

72

Item 3.

DEFAULTS UPON SENIOR SECURITIES

72

Item 4.

MINE SAFETY DISCLOSURES

72

Item 5.

OTHER INFORMATION

72

Item 6.

EXHIBITS

73

SIGNATURES

74

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 for the year ended December 31, 2020

ACL

Allowance for credit losses

Annual Report

Annual report filed with the SEC on Form 10-K pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

ASC

Accounting Standards Codification

ASU

Accounting Standards Update

Banc Ed

The Banc Ed Corp.

Banks

Busey Bank and GSB combined

Basel III

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

Basel III Rule

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

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

FASB

Financial Accounting Standards Board

FDIC

Federal Deposit Insurance Corporation

Federal Reserve

Board of Governors of the Federal Reserve System

FHFA

Federal Housing Finance Agency

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

NM

Not meaningful

OCI

Other comprehensive income (loss)

OREO

Other real estate owned

PCD

Purchased credit deteriorated

PSU

Performance-based restricted stock unit

PPP

Paycheck Protection Program

3

Table of Contents

Term

    

Definition

Quarterly Report

Quarterly report filed with the SEC on Form 10-Q pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

RSU

Restricted stock unit

SBA

U.S. Small Business Administration

SEC

U.S. Securities and Exchange Commission

TDR

Troubled debt restructuring

U.S.

Unites States of America

U.S. Treasury

U.S. Department of the Treasury

4

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

5

Table of Contents

FIRST BUSEY CORPORATION

CONSOLIDATED BALANCE SHEETS (Unaudited)

(dollars in thousands)

As of

June 30, 

December 31, 

2021

2020

Assets

Cash and cash equivalents:

Cash and due from banks

$

300,884

$

118,824

Interest-bearing deposits

619,926

569,713

Total cash and cash equivalents

920,810

688,537

Debt securities available for sale

 

3,464,517

 

2,261,187

Equity securities

13,950

5,530

Loans held for sale, at fair value

 

17,834

 

42,813

Portfolio loans (net of ACL 2021 $95,410; 2020 $101,048)

 

7,090,240

 

6,713,129

Premises and equipment, net

 

145,437

 

135,191

Right of use assets

8,228

7,714

Goodwill

 

317,521

 

311,536

Other intangible assets, net

 

64,274

 

51,985

Cash surrender value of bank owned life insurance

 

175,732

 

176,405

Other assets

 

196,906

 

150,020

Total assets

$

12,415,449

$

10,544,047

Liabilities and Stockholders’ Equity

Liabilities

Deposits:

Noninterest-bearing

$

3,186,650

$

2,552,039

Interest-bearing

 

7,150,467

 

6,125,810

Total deposits

10,337,117

8,677,849

Securities sold under agreements to repurchase

 

207,266

 

175,614

Short-term borrowings

30,168

4,658

Long-term debt

 

52,409

 

4,757

Senior notes, net of unamortized issuance costs

39,876

39,809

Subordinated notes, net of unamortized issuance costs

182,503

182,226

Junior subordinated debt owed to unconsolidated trusts

71,551

71,468

Lease liabilities

8,280

7,757

Other liabilities

 

140,588

 

109,840

Total liabilities

11,069,758

9,273,978

Outstanding commitments and contingent liabilities (see Notes 9 and 15)

Stockholders’ Equity

Common stock, $.001 par value; 100,000,000 shares authorized;
2021 58,116,970 shares issued; 2020 55,910,733 shares issued

 

58

 

56

Additional paid-in capital

 

1,316,716

 

1,253,360

Retained earnings

 

62,926

 

20,830

Accumulated other comprehensive income (loss)

 

10,725

 

33,309

Total stockholders’ equity before treasury stock

1,390,425

1,307,555

Treasury stock at cost 2021 1,786,354 shares; 2020 1,506,354 shares

 

(44,734)

 

(37,486)

Total stockholders’ equity

1,345,691

1,270,069

Total liabilities and stockholders’ equity

$

12,415,449

$

10,544,047

Common shares outstanding at period end

56,330,616

54,404,379

See accompanying notes to unaudited consolidated financial statements.

6

Table of Contents

FIRST BUSEY CORPORATION

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(dollars in thousands, except per share amounts)

Three Months Ended June 30, 

Six Months Ended June 30, 

2021

2020

2021

2020

Interest income

Interest and fees on loans

$

61,404

$

71,089

$

123,969

$

143,625

Interest and dividends on investment securities:

Taxable interest income

 

9,081

8,833

17,692

 

18,341

Non-taxable interest income

 

958

1,166

1,963

 

2,317

Other interest income

245

145

395

1,383

Total interest income

 

71,688

81,233

144,019

 

165,666

Interest expense

Deposits

 

3,295

7,721

7,027

 

19,948

Federal funds purchased and securities sold under agreements to repurchase

 

60

100

117

 

508

Short-term borrowings

 

64

118

83

 

185

Long-term debt

 

116

34

145

 

457

Senior notes

399

399

799

799

Subordinated notes

2,480

1,312

4,956

2,043

Junior subordinated debt owed to unconsolidated trusts

 

732

736

1,457

 

1,480

Total interest expense

 

7,146

10,420

14,584

 

25,420

Net interest income

 

64,542

70,813

129,435

 

140,246

Provision for credit losses

 

(1,700)

12,891

(8,496)

 

30,107

Net interest income after provision for credit losses

 

66,242

57,922

137,931

 

110,139

Non-interest income

Wealth management fees

 

13,002

10,193

25,586

 

21,748

Fees for customer services

 

8,611

7,025

16,648

 

15,386

Remittance processing

 

4,349

3,718

8,767

 

7,471

Mortgage revenue

 

1,747

2,705

4,413

 

4,086

Income on bank owned life insurance

1,476

2,282

2,440

3,339

Net gains (losses) on sales of securities

 

94

125

119

 

1,699

Unrealized gains (losses) recognized on equity securities

804

190

2,420

(797)

Other income

 

2,928

1,726

4,063

 

2,549

Total non-interest income

 

33,011

27,964

64,456

 

55,481

Non-interest expense

Salaries, wages, and employee benefits

 

34,889

28,555

65,273

 

62,558

Data processing

 

4,819

4,051

9,099

 

8,446

Net occupancy expense of premises

 

4,246

4,448

8,809

 

9,163

Furniture and equipment expenses

 

2,066

2,537

4,092

 

4,986

Professional fees

2,311

1,986

4,256

3,810

Amortization of intangible assets

 

2,650

2,519

5,051

 

5,076

Interchange expense

1,442

1,198

2,926

2,367

Other expense

 

10,202

7,774

17,618

 

17,176

Total non-interest expense

 

62,625

53,068

117,124

 

113,582

Income before income taxes

 

36,628

32,818

85,263

 

52,038

Income taxes

 

6,862

7,012

17,681

 

10,868

Net income

$

29,766

$

25,806

$

67,582

$

41,170

Basic earnings per common share

$

0.54

$

0.47

$

1.23

$

0.75

Diluted earnings per common share

$

0.53

$

0.47

$

1.22

$

0.75

Dividends declared per share of common stock

$

0.23

$

0.22

$

0.46

$

0.44

See accompanying notes to unaudited consolidated financial statements.

7

Table of Contents

FIRST BUSEY CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(dollars in thousands)

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2021

    

2020

    

2021

    

2020

Net income

$

29,766

$

25,806

$

67,582

$

41,170

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 ($2,700), ($1,670), $9,293, and ($10,259), respectively

6,769

4,187

(23,310)

25,684

Reclassification adjustment for realized (gains) losses on debt securities available for sale included in net income, net of taxes of $1, $41, $8, and $489, respectively

(2)

(102)

(20)

(1,210)

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

6,767

4,085

(23,330)

24,474

Unrealized gains (losses) on cash flow hedges:

Net unrealized holding gains (losses) on cash flow hedges, net of taxes of $28, $4, ($136), and $896, respectively

 

(69)

 

(10)

 

341

 

(2,247)

Reclassification adjustment for realized (gains) losses on cash flow hedges included in net income, net of taxes of ($82), $56, ($161), and $60, respectively

206

(139)

405

(150)

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

137

(149)

746

(2,397)

Net change in accumulated other comprehensive income (loss)

6,904

3,936

(22,584)

22,077

Total comprehensive income

$

36,670

$

29,742

$

44,998

$

63,247

See accompanying notes to unaudited consolidated financial statements.

8

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FIRST BUSEY CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)

(dollars in thousands, except per share amounts)

Three Months Ended June 30, 2021

Accumulated

Additional

Other

Total

Common

Paid-in

Retained

Comprehensive

Treasury

Stockholders'

    

Shares

    

Stock

    

Capital

    

Earnings

    

Income (Loss)

    

Stock

    

Equity

Balance, March 31, 2021

54,345,379

$

56

$

1,255,044

$

45,897

$

3,821

$

(38,996)

$

1,265,822

Net income

29,766

29,766

Other comprehensive income (loss)

6,904

6,904

Stock issued in acquisition, net of stock issuance costs

2,206,237

2

58,982

58,984

Repurchase of stock

(221,000)

(5,738)

(5,738)

Cash dividends common stock at $0.23 per share

(12,484)

(12,484)

Stock dividend equivalents restricted stock units at $0.23 per share

253

(253)

Stock-based compensation

2,437

2,437

Balance, June 30, 2021

56,330,616

$

58

$

1,316,716

$

62,926

$

10,725

$

(44,734)

$

1,345,691

Six Months Ended June 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

67,582

67,582

Other comprehensive income (loss)

(22,584)

(22,584)

Stock issued in acquisition, net of stock issuance costs

2,206,237

2

58,982

58,984

Repurchase of stock

(280,000)

(7,248)

(7,248)

Cash dividends common stock at $0.46 per share

(24,997)

(24,997)

Stock dividend equivalents restricted stock units at $0.46 per share

489

(489)

Stock-based compensation

3,885

3,885

Balance, June 30, 2021

56,330,616

$

58

$

1,316,716

$

62,926

$

10,725

$

(44,734)

$

1,345,691

9

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FIRST BUSEY CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)

(dollars in thousands, except per share amounts)

Three Months Ended June 30, 2020

Retained

Accumulated

Additional

Earnings

Other

Total

Common

Paid-in

(Accumulated

Comprehensive

Treasury

Stockholders'

    

Shares

    

Stock

    

Capital

    

Deficit)

    

Income (Loss)

    

Stock

    

Equity

Balance, March 31, 2020

54,401,208

$

56

$

1,249,301

$

(27,599)

$

33,101

$

(37,274)

$

1,217,585

Net income

 

 

 

25,806

 

 

 

25,806

Other comprehensive income (loss)

 

 

 

 

3,936

 

 

3,936

Repurchase of stock

 

 

 

 

 

3

 

3

Issuance of treasury stock for employee stock purchase plan

6,296

(7)

119

112

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

100,968

 

 

(2,467)

 

 

 

1,907

 

(560)

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

7,528

(41)

142

101

Cash dividends common stock at $0.22 per share

 

 

 

(11,968)

 

 

 

(11,968)

Stock dividend equivalents restricted stock units at $0.22 per share

 

 

190

 

(190)

 

 

 

Stock-based compensation

 

 

1,069

 

 

 

 

1,069

Balance, June 30, 2020

54,516,000

$

56

$

1,248,045

$

(13,951)

$

37,037

$

(35,103)

$

1,236,084

Six Months Ended June 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

41,170

 

41,170

Other comprehensive income (loss)

22,077

 

22,077

Repurchase of stock

(407,850)

(9,669)

 

(9,669)

Issuance of treasury stock for employee stock purchase plan

20,532

(45)

388

343

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

106,477

(2,646)

2,011

(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 $0.44 per share

(24,023)

 

(24,023)

Stock dividend equivalents restricted stock units at $0.44 per share

363

(363)

 

Stock-based compensation

2,208

 

2,208

Balance, June 30, 2020

54,516,000

$

56

$

1,248,045

$

(13,951)

$

37,037

$

(35,103)

$

1,236,084

See accompanying notes to unaudited consolidated financial statements.

10

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FIRST BUSEY CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(dollars in thousands)

Six Months Ended June 30, 

    

2021

    

2020

Cash Flows Provided by (Used in) Operating Activities

Net income

$

67,582

$

41,170

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

Provision for credit losses

 

(8,496)

 

30,107

Amortization of intangible assets

5,051

5,076

Amortization of mortgage servicing rights

2,961

2,625

Depreciation and amortization of premises and equipment

 

5,709

 

6,316

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

(3,404)

(4,663)

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

 

10,460

 

4,061

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

(550)

(709)

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

416

220

Impairment of fixed assets held for sale

 

 

36

Impairment of mortgage servicing rights

(506)

526

Change in fair value of equity securities, net

(2,420)

797

(Gain) loss on sales of debt securities, net

 

(119)

 

(1,699)

(Gain) loss on sales of loans, net

 

(6,133)

 

(11,387)

(Gain) loss on sales of OREO

161

47

(Gain) loss on sales of premises and equipment

(986)

191

(Gain) loss on life insurance proceeds

(488)

(1,256)

Provision for deferred income taxes

 

3,804

 

(1,142)

Stock-based and non-cash compensation

 

3,885

 

2,208

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

 

(1,953)

 

(2,083)

Mortgage loans originated for sale

(157,670)

(511,670)

Proceeds from sales of mortgage loans

188,216

483,238

Net change in operating assets and liabilities:

(Increase) decrease in other assets

 

(8,995)

 

12,225

Increase (decrease) in other liabilities

 

(14,260)

 

496

Net cash provided by (used in) operating activities

$

82,265

$

54,730

Cash Flows Provided by (Used in) Investing Activities

Purchases of equity securities

$

(5,998)

$

(4)

Purchases of debt securities available for sale

(1,274,797)

(356,700)

Proceeds from sales of equity securities

1,235

33

Proceeds from sales of debt securities available for sale

 

290,955

 

Proceeds from paydowns and maturities of debt securities available for sale

 

424,725

 

315,988

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

236,981

Net (increase) decrease in loans

 

79,088

 

(546,599)

Cash paid for premiums on bank-owned life insurance

(113)

(116)

Purchases of premises and equipment

(3,093)

(3,029)

Proceeds from life insurance

3,227

2,512

Proceeds from disposition of premises and equipment

 

5,158

 

802

Proceeds from sales of OREO

 

1,410

 

413

Net cash provided by (used in) investing activities

$

(241,222)

$

(586,700)

11

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FIRST BUSEY CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Continued)

(dollars in thousands)

Six Months Ended June 30, 

2021

2020

Cash Flows Provided by (Used in) Financing Activities

Net increase (decrease) in deposits

$

335,422

$

1,007,979

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

 

15,001

 

(11,242)

Proceeds from other borrowings

72,500

142,634

Repayment of other borrowings

(54,000)

Proceeds from FHLB advances

5,000

1,609

Repayment of FHLB advances

(4,327)

Cash dividends paid

(24,997)

(24,023)

Purchase of treasury stock

(7,248)

(9,669)

Cash paid for withholding taxes on stock-based payments

 

 

(635)

Proceeds from stock options exercised

101

Common stock issuance costs

(121)

Net cash provided by (used in) financing activities

$

391,230

$

1,052,754

Net increase (decrease) in cash and cash equivalents

 

232,273

 

520,784

Cash and cash equivalents, beginning of period

 

688,537

 

529,288

Cash and cash equivalents, ending of period

$

920,810

$

1,050,072

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Cash payments for:

Interest

$

11,571

$

25,761

Income taxes

 

9,211

 

4,510

Non-cash investing and financing activities:

OREO acquired in settlement of loans

 

137

 

1,158

See accompanying notes to unaudited consolidated financial statements.

12

FIRST BUSEY CORPORATION

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Note 1: Significant Accounting Policies

Nature of Operations

First Busey Corporation, a Nevada corporation organized in 1980, is a $12.4 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 subsidiaries, Busey Bank and GSB, with banking centers 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 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 June 30, 2021, (dollars in thousands):

CARES

Economic Aid

PPP Loan

    

Act

    

Act

    

Totals

Busey Bank customers with PPP loans processed

4,569

2,474

7,043

PPP loans originated by Busey Bank

$

749,429

$

296,346

$

1,045,775

GSB customers with PPP loans acquired

26

266

292

PPP loans acquired from GSB

$

15,783

$

27,694

$

43,477

Customers with PPP loans outstanding (1)

581

2,523

3,104

PPP loans outstanding (1)

$

93,455

$

306,249

$

399,704

PPP loans outstanding, amortized cost (1)

93,099

297,296

390,395

PPP loan balance forgiveness: (1)

Received

$

667,796

$

17,788

$

685,584

Balances submitted to the SBA for forgiveness

18,652

2,239

20,891

(1)Consolidated totals include Busey Bank and GSB.

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 investment 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. On July 27, 2021, the Company announced its Personal Banking Transformation Plan which includes plans to close and consolidate 15 Busey Bank banking centers. In addition, the Company announced plans to consolidate two GSB banking centers, with the banking centers in connection with the integration of the acquisition. Each of these banking center closures is expected to occur in the fourth quarter of 2021. There were no other significant subsequent events for the quarter ended June 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 will enhance 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 operation beginning June 1, 2021. Busey will operate GSB as a separate banking subsidiary of Busey until it is merged with Busey Bank, which is expected to occur in the third quarter of 2021. At the time of the bank merger, all GSB banking centers will become 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

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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 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. Reviews of third-party valuations for loans, deposits, and other intangible assets are still being performed by management. Therefore, amounts are subject to change, and could change materially from the provisional amounts discussed below.

As the total consideration paid for CAC exceeded the provisional fair value of net assets acquired, estimated goodwill of $6.0 million was recorded as of the acquisition date. 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

$

307,339

Securities

 

702,367

Portfolio loans, net of ACL

 

430,491

Premises and equipment

 

17,034

Other intangible assets

17,340

Mortgage servicing rights

 

629

Other assets

 

8,178

Total assets acquired

 

1,483,378

Liabilities assumed

Deposits

 

1,324,396

Other borrowings

 

16,651

Other liabilities

 

18,853

Total liabilities assumed

 

1,359,900

Net assets acquired

$

123,478

Consideration paid:

Cash

$

70,358

Common stock

 

59,105

Total consideration paid

$

129,463

Goodwill

$

5,985

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 estimates, 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 six months ended June 30, 2021, First Busey incurred $2.7 million and $3.0 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 June 30, 2021

Gross

Gross

Amortized

Unrealized

Unrealized

Fair

    

Cost

    

Gains

    

Losses

    

ACL

    

Value

Debt securities available for sale

U.S. Treasury securities

$

212,022

$

150

$

(279)

$

$

211,893

Obligations of U.S. government corporations and agencies

 

49,528

 

1,470

 

 

50,998

Obligations of states and political subdivisions

 

292,221

 

9,634

 

(513)

 

301,342

Commercial mortgage-backed securities

513,067

6,528

(5,543)

514,052

Residential mortgage-backed securities

 

1,837,271

 

16,875

 

(11,952)

 

1,842,194

Asset-backed securities

246,998

179

(180)

246,997

Corporate debt securities

 

296,397

 

1,457

 

(813)

 

297,041

Total debt securities available for sale

$

3,447,504

$

36,293

$

(19,280)

$

$

3,464,517

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 June 30, 2021

    

Amortized

    

Fair

    

Cost

    

Value

Debt securities available for sale

Due in one year or less

$

122,809

$

123,502

Due after one year through five years

 

573,422

 

579,219

Due after five years through ten years

 

398,111

 

407,150

Due after ten years

 

2,353,162

 

2,354,646

Total debt securities available for sale

$

3,447,504

$

3,464,517

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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 June 30, 

Six Months Ended June 30, 

    

2021

    

2020

    

2021

    

2020

Realized gains and losses on sales of debt securities

Gross security gains

$

499

$

146

$

524

$

1,707

Gross security (losses)

(405)

(3)

(405)

(8)

Net gains (losses) on sales of debt securities (1)

$

94

$

143

$

119

$

1,699

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

Debt securities with carrying amounts of $703.1 million on June 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 June 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

$

150,811

$

(279)

$

$

$

150,811

$

(279)

Obligations of states and political subdivisions

48,579

(513)

48,579

(513)

Commercial mortgage-backed securities

322,082

(5,543)

322,082

(5,543)

Residential mortgage-backed securities

 

1,073,263

 

(11,948)

 

344

 

(4)

 

1,073,607

 

(11,952)

Asset-backed securities

98,703

(180)

98,703

(180)

Corporate debt securities

 

200,076

 

(813)

 

 

 

200,076

 

(813)

Total temporarily impaired securities

$

1,893,514

$

(19,276)

$

344

$

(4)

$

1,893,858

$

(19,280)

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. As of June 30, 2021, the Company’s debt security portfolio consisted of 1,249 securities, compared to 1,114 securities as of December 31, 2020. The number of debt securities in the investment portfolio in an unrealized loss position as of June 30, 2021, was 252, representing an unrealized loss of 1.02% of the aggregate fair value, compared to 23 securities as of December 31, 2020, representing an unrealized loss of 0.30% of the aggregate fair value. 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

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collection of the amounts due according to the contractual terms of the debt securities is expected; therefore, the impairment related to noncredit factors is recognized in accumulated other comprehensive income (loss), net of applicable taxes. As of June 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

June 30, 

December 31, 

    

2021

    

2020

Portfolio loans

Commercial

$

2,054,550

$

2,014,576

Commercial real estate

2,920,312

2,892,535

Real estate construction

500,599

461,786

Retail real estate

1,525,810

1,407,852

Retail other

184,379

37,428

Total portfolio loans

$

7,185,650

$

6,814,177

ACL

(95,410)

(101,048)

Portfolio loans, net

$

7,090,240

$

6,713,129

Net deferred loan origination (fees) costs included in the balances above were ($0.3) million as of June 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 $11.5 million as of June 30, 2021, and $10.9 million as of December 31, 2020. The June 30, 2021, commercial balance includes loans originated under PPP with an amortized cost of $390.4 million, compared to $446.4 million in loans originated under PPP included in the December 31, 2020, balance.

During the three and six months ended June 30, 2021, the Company purchased retail real estate loans totaling $32.2 million, compared to no retail real estate loan purchases during the three months ended June 30, 2020, and $43.9 million of retail real estate loan purchases in the six months ended June 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.

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.

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FIRST BUSEY CORPORATION

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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 are similar in nature to Busey Bank’s policies and the Company is migrating such loan production and grading toward the Busey Bank policies.

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

As of June 30, 2021

    

    

    

Special

    

    

Substandard

    

Pass

    

Watch

    

Mention

    

Substandard

    

Non-accrual

Portfolio loans

Commercial

$

1,816,456

$

131,361

$

76,706

$

19,349

$

10,678

Commercial real estate

 

2,446,143

 

379,546

 

67,179

 

18,679

 

8,765

Real estate construction

 

482,718

 

15,473

 

8

 

2,400

 

Retail real estate

 

1,496,677

 

13,878

 

2,342

 

4,672

 

8,241

Retail other

 

184,338

 

 

 

 

41

Total portfolio loans

$

6,426,332

$

540,258

$

146,235

$

45,100

$

27,725

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 June 30, 2021

 

Term Loans Amortized Cost Basis by Origination Year

Revolving

Risk Grade Ratings

  

2021

  

2020

  

2019

  

2018

  

2017

  

Prior

  

loans

  

Total

Commercial

 

Pass

$

550,732

$

363,044

$

118,095

$

94,495

$

79,018

$

129,150

$

481,922

$

1,816,456

Watch

11,051

7,412

20,256

5,597

8,415

9,830

68,800

131,361

Special Mention

2,739

2,650

2,864

4,845

6,920

18,111

38,577

76,706

Substandard

3,794

4,588

3,504

1,807

1,338

80

4,238

19,349

Substandard non-accrual

4,356

469

1,591

2,144

118

2,000

10,678

Total commercial

572,672

378,163

146,310

106,744

97,835

157,289

595,537

2,054,550

Commercial real estate

Pass

420,841

691,476

441,952

313,315

269,126

291,896

17,537

2,446,143

Watch

39,642

53,762

130,096

84,131

28,486

41,473

1,956

379,546

Special Mention

22,415

7,389

6,780

9,907

10,285

9,794

609

67,179

Substandard

2,134

9,898

2,465

2,397

25

1,760

18,679

Substandard non-accrual

78

775

1,233

821

4,004

1,854

8,765

Total commercial real estate

485,110

763,300

582,526

410,571

311,926

346,777

20,102

2,920,312

Real estate construction

Pass

99,885

183,938

148,531

34,750

957

1,277

13,380

482,718

Watch

2,330

10,174

886

283

1,659

141

15,473

Special Mention

8

8

Substandard

2,400

2,400

Substandard non-accrual

Total real estate construction

102,215

196,512

149,425

35,033

2,616

1,418

13,380

500,599

Retail real estate

 

Pass

335,450

246,690

133,617

110,169

110,300

349,052

211,399

1,496,677

Watch

2,925

2,415

2,002

1,515

305

388

4,328

13,878

Special Mention

377

31

1,934

2,342

Substandard

730

967

73

98

235

2,485

84

4,672

Substandard non-accrual

339

161

74

536

1,200

4,673

1,258

8,241

Total retail real estate

339,821

250,264

135,766

112,318

112,040

358,532

217,069

1,525,810

Retail other

 

Pass

22,532

28,477

35,134

23,894

13,223

4,535

56,543

184,338

Watch

Special Mention

Substandard

Substandard non-accrual

13

7

5

14

2

41

Total retail other

22,532

28,490

35,141

23,899

13,237

4,537

56,543

184,379

Total portfolio loans

$

1,522,350

$

1,616,729

$

1,049,168

$

688,565

$

537,654

$

868,553

$

902,631

$

7,185,650

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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

21

FIRST BUSEY CORPORATION

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 June 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

$

241

$

$

2

$

10,678

Commercial real estate

330

8,765

Real estate construction

 

 

426

 

 

Retail real estate

2,014

814

587

8,241

Retail other

 

54

 

9

 

1

 

41

Total past due and non-accrual loans

$

2,639

$

1,249

$

590

$

27,725

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+ day 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 $0.4 million for the three months ended June 30, 2021 and 2020. Gross interest income recorded on 90+ day 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 $0.9 million for the six months ended June 30, 2021 and 2020. The amount of interest collected on those loans and recognized on a cash basis that was included in interest income was insignificant for the three and six months ended June 30, 2021 and 2020.

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

As of

June 30, 

December 31, 

    

2021

    

2020

Performing TDR loans:

In compliance with modified terms

$

2,518

$

3,814

30 89 days past due

15

Non-performing TDR loans

1,314

1,249

Total TDR loans

$

3,832

$

5,078

We did not newly classify any loans as performing TDRs during the three or six months ended June 30, 2021. Loans newly classified as performing TDRs during the three and six months ended June 30, 2020, included one retail real estate loan for $0.2 million for payment modification.

During the six months ended June 30, 2021, one commercial loan for $0.5 million was newly classified as a non-performing TDR for payment and rate modifications. This loan had been non-accrual since the second quarter of 2020. Also, during the six months ended June 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. During the six months ended June 30, 2020, three commercial loans for $0.5 million and one commercial real estate loan for $0.7 million were newly classified as non-performing TDRs for payment and rate modifications. These loans had been non-accrual since 2019.

22

FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Table of Contents

There were no TDRs that were entered into during the last 12 months that were subsequently classified as non-performing and 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 six months ended June 30, 2021 or 2020.

Gross interest income that would have been recorded in the three and six months ended June 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 June 30, 2021, the Company had $0.2 million of residential real estate in the process of foreclosure. The Company follows FHFA 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 existing moratoriums on single-family foreclosures expired on July 31, 2021; however, moratoriums on single-family real estate owned evictions have been extended until September 30, 2021.

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 June 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

$

14,624

$

2,237

$

8,348

$

10,585

$

4,470

$

8,156

Commercial real estate

 

9,647

8,360

 

8,360

 

 

7,683

Real estate construction

 

283

 

283

 

 

283

 

 

395

Retail real estate

 

4,295

 

3,911

 

25

 

3,936

 

25

 

4,933

Retail other

 

 

 

 

 

 

Total loans evaluated individually

$

28,849

$

14,791

$

8,373

$

23,164

$

4,495

$

21,167

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 June 30, 2021, there were $17.2 million of collateral dependent loans secured by real estate or business assets.

23

FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Table of Contents

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 June 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 June 30, 2021

    

Commercial

    

Real Estate

    

Retail Real

    

Commercial

    

Real Estate

    

Construction

    

Estate

    

Retail Other

    

Total

ACL beginning balance

$

23,025

$

43,306

$

6,879

$

19,978

$

755

$

93,943

Day 1 PCD

3,546

336

129

167

4,178

Provision for credit losses

 

(1,420)

 

(3,390)

 

671

 

404

 

2,035

 

(1,700)

Charged-off

 

(1,000)

 

(317)

 

(157)

 

(64)

 

(1,538)

Recoveries

 

205

 

39

 

49

 

151

 

83

 

527

ACL ending balance

$

24,356

$

39,974

$

7,599

$

20,505

$

2,976

$

95,410

As of and for the Six Months Ended June 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

3,546

336

129

167

4,178

Provision for credit losses

 

(2,084)

 

(6,085)

 

(579)

 

(1,873)

 

2,125

 

(8,496)

Charged-off

 

(1,262)

 

(620)

 

(209)

(160)

 

(251)

 

(2,502)

Recoveries

 

290

 

113

 

194

 

417

 

168

 

1,182

ACL ending balance

$

24,356

$

39,974

$

7,599

$

20,505

$

2,976

$

95,410

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

    

Commercial

    

Real Estate

    

Retail Real

    

Commercial

    

Real Estate

    

Construction

    

Estate

    

Retail Other

    

Total

ACL beginning balance

$

22,725

$

35,967

$

7,193

$

17,454

$

1,045

$

84,384

Provision for credit losses

 

2,473

 

6,861

 

574

 

2,981

2

 

12,891

Charged-off

 

(1,140)

 

(165)

 

(292)

(105)

 

(1,702)

Recoveries

 

88

 

17

 

25

 

262

81

 

473

ACL ending balance

$

24,146

$

42,680

$

7,792

$

20,405

$

1,023

$

96,046

As of and for the Six Months Ended June 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

 

8,146

 

13,387

 

1,463

 

7,018

 

93

 

30,107

Charged-off

 

(3,182)

 

(1,264)

 

(1,000)

 

(404)

 

(5,850)

Recoveries

 

176

 

61

 

171

 

600

 

200

 

1,208

ACL ending balance

$

24,146

$

42,680

$

7,792

$

20,405

$

1,023

$

96,046

24

FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Table of Contents

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

As of June 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

$

4,470

$

$

$

25

$

$

4,495

Loans collectively evaluated for impairment

 

19,886

 

39,974

 

7,599

 

20,480

 

2,976

 

90,915

ACL ending balance

$

24,356

$

39,974

$

7,599

$

20,505

$

2,976

$

95,410

Loans

Loans individually evaluated for impairment

$

10,585

$

8,360

$

283

$

3,936

$

$

23,164

Loans collectively evaluated for impairment

 

2,043,965

 

2,911,952

500,316

 

1,521,874

 

184,379

 

7,162,486

Loans ending balance

$

2,054,550

$

2,920,312

$

500,599

$

1,525,810

$

184,379

$

7,185,650

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

June 30, 

December 31, 

    

2021

    

2020

Deposits

Demand deposits, noninterest-bearing

$

3,186,650

$

2,552,039

Interest-bearing transaction deposits

 

2,722,053

 

2,263,093

Saving deposits and money market deposits

 

3,312,818

2,743,369

Time deposits

 

1,115,596

 

1,119,348

Total deposits

$

10,337,117

$

8,677,849

25

FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Table of Contents

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

    

As of

June 30, 

December 31, 

    

2021

    

2020

Brokered savings deposits and money market deposits

$

2,002

$

2,251

Brokered time deposits

261

5,257

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

377,832

568,735

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

171,460

192,563

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

    

As of

June 30, 

2021

Time deposits by schedule of maturities

July 1, 2021 – June 30, 2022

    

$

773,787

July 1, 2022 – June 30, 2023

 

193,316

July 1, 2023 – June 30, 2024

 

100,287

July 1, 2024 – June 30, 2025

 

23,990

July 1, 2025 – June 30, 2026

 

13,786

Thereafter

 

10,430

Total time deposits

$

1,115,596

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

June 30, 

December 31, 

    

2021

    

2020

 

Securities sold under agreements to repurchase

$

207,266

$

175,614

Weighted average rate for securities sold under agreements to repurchase

0.12

%

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.

26

FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Table of Contents

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

    

As of

June 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

$

5,668

$

4,658

Revolving line of credit

12,500

Term Loan, current portion due within 12 months

12,000

Total short-term debt

$

30,168

$

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 June 30, 2021, or December 31, 2020.

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

    

As of

June 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

$

4,409

$

4,757

Term Loan

48,000

Total long-term debt

$

52,409

$

4,757

As of June 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.

27

FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Table of Contents

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

    

As of

June 30, 

December 31, 

    

2021

    

2020

Unamortized debt issuance costs

Senior notes issued in 2017

$

124

$

191

Subordinated notes issued in 2017

600

651

Subordinated notes issued in 2020

1,897

2,123

Total unamortized debt issuance costs

$

2,621

$

2,965

Note 7: Regulatory Capital

The Company and its subsidiary banks 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.

Banking regulations identify five capital categories for insured depository institutions: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. As of June 30, 2021, and December 31, 2020, all capital ratios of the Company and its subsidiary banks exceeded the well capitalized levels under the applicable regulatory capital adequacy guidelines. Management believes that no events or changes have occurred subsequent to June 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. GSB adopted CECL as of the acquisition date, and based on the timing of the acquisition, GSB is not eligible for this deferral option.

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

As of June 30, 2021

Minimum

Minimum

To Be Well

 

Actual

Capital Requirement

Capitalized

 

    

Amount

    

Ratio

    

Amount

    

Ratio

    

Amount

    

Ratio

    

Total Capital (to Risk Weighted Assets)

Consolidated

$

1,322,889

 

16.41

%   

$

644,804

 

8.00

%   

$

806,004

 

10.00

%

Busey Bank

$

1,200,761

 

16.22

%   

$

592,339

 

8.00

%   

$

740,424

 

10.00

%

GSB

$

113,250

 

18.20

%   

$

49,779

 

8.00

%   

$

62,223

 

10.00

%

Tier 1 Capital (to Risk Weighted Assets)

Consolidated

$

1,062,182

 

13.18

%   

$

483,603

 

6.00

%   

$

644,804

 

8.00

%

Busey Bank

$

1,133,213

 

15.30

%   

$

444,254

 

6.00

%   

$

592,339

 

8.00

%

GSB

$

105,472

 

16.95

%   

$

37,334

 

6.00

%   

$

49,779

 

8.00

%

Common Equity Tier 1 Capital (to Risk Weighted Assets)

Consolidated

$

988,182

 

12.26

%   

$

362,702

 

4.50

%   

$

523,903

 

6.50

%

Busey Bank

$

1,133,213

 

15.30

%   

$

333,191

 

4.50

%   

$

481,275

 

6.50

%

GSB

$

105,472

 

16.95

%   

$

28,000

 

4.50

%   

$

40,445

 

6.50

%

Tier 1 Capital (to Average Assets)

Consolidated

$

1,062,182

 

9.62

%   

$

441,602

 

4.00

%   

 

N/A

 

N/A

Busey Bank

$

1,133,213

 

10.78

%   

$

420,434

 

4.00

%   

$

525,542

 

5.00

%

GSB

$

105,472

 

7.35

%   

$

57,425

 

4.00

%   

$

71,782

 

5.00

%

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

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FIRST BUSEY CORPORATION

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Table of Contents

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: Stock-Based Compensation

Under the terms of the 2020 Equity Plan, the Company has granted restricted stock units, deferred stock units and performance-based restricted stock unit awards. The Company grants restricted stock units to members of management periodically throughout the year. Each restricted stock unit 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 deferred stock units, which are restricted stock units with a deferred settlement date, to its directors and advisory directors. Each deferred stock unit is equivalent to one share of the Company’s common stock. Deferred stock units vest over a one-year period following the grant date. These units generally are subject to the same terms as restricted stock units under the 2020 Equity Plan, except that, following vesting, settlement occurs within 30 days following the earlier of separation from the board or a change in control of the Company. After vesting and prior to delivery, these units will continue to earn dividend equivalents.

The Company also grants performance-based restricted stock unit awards to members of management periodically throughout the year. Each performance-based restricted stock unit 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 Option Plan

A summary of the status of, and changes in, the Company's stock option awards for the six months ended June 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

 

(6,379)

 

23.53

Outstanding at end of period

 

32,706

 

$

23.53

 

5.38

Exercisable at end of period

 

32,706

 

$

23.53

 

5.38

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

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FIRST BUSEY CORPORATION

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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 six months ended June 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

 

212,426

 

24.54

 

99,159

 

23.91

 

35,664

 

24.59

Dividend equivalents earned

 

22,573

 

22.82

 

 

 

2,459

 

22.93

Vested

 

 

 

 

 

(1,452)

 

22.63

Forfeited

 

(19,907)

 

25.04

 

(459)

 

23.48

 

 

Nonvested at end of period

 

1,232,130

 

$

23.95

 

114,424

 

$

22.86

 

70,934

 

$

20.99

Vested and outstanding at end of period

 

 

72,496

 

$

24.30

(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 restricted stock units 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 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 deferred stock units 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 performance stock units 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 performance-based stock units with a maximum award of 39,682 units. The actual number of units issued at the vest 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 deferred stock units 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.

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Stock-based compensation expense related to nonvested restricted stock units, deferred stock units, and performance-based restricted stock awards is presented in the table below (dollars in thousands):

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2021

    

2020

    

2021

    

2020

Stock-based compensation expense

RSU awards

$

1,816

$

924

$

3,046

$

2,069

PSU awards

268

328

DSU awards

353

145

511

139

Total stock-based compensation expense

$

2,437

$

1,069

$

3,885

$

2,208

Unamortized stock-based compensation expense related to nonvested restricted stock units, deferred stock units, and performance-based restricted stock awards is presented in the table below (dollars in thousands):

As of

June 30, 

December 31, 

    

2021

    

2020

    

Unamortized stock-based compensation expense

RSU awards

$

12,094

$

10,411

PSU awards

1,690

179

DSU awards

660

294

Total unamortized stock-based compensation expense

$

14,444

$

10,884

Weighted average period over which expense is to be recognized

3.2

yrs

3.0

yrs

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 its Definitive Proxy Statement filed April 8, 2021. The first offering under this plan began on July 1, 2021.

The table below presents shares remaining available for issuance pursuant to authorized plans as of June 30, 2021:

Shares Remaining

Available for Issuance

   

Pursuant to the Plans

2020 Equity Plan

1,087,266

2021 Employee Stock Purchase Plan

600,000

Note 9: 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.

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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

June 30, 

December 31, 

   

2021

   

2020

Financial instruments whose contract amounts represent credit risk

Commitments to extend credit

$

1,785,205

$

1,754,370

Standby letters of credit

 

38,050

 

38,937

Total commitments

$

1,823,255

$

1,793,307

Note 10: 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 11: 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 $70.0 million as of June 30, 2021, and 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. The gross aggregate fair value of the swaps of $2.0 million as of June 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 the hedges to remain highly effective during the remaining terms of the swaps.

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

As of

June 30, 

December 31, 

   

2021

   

2020

   

Notional amount

$

70,000

$

70,000

Weighted average fixed pay rates

 

1.80

%

 

1.80

%

Weighted average variable 3-month LIBOR receive rates

0.12

%

0.22

%

Weighted average maturity, in years

2.36

yrs 

2.85

yrs

Unrealized gains (losses), net of tax

$

(1,438)

$

(2,184)

Interest expense recorded on these swap transactions was $0.3 million and $0.6 million during the three and six months ended June 30, 2021, respectively. The Company expects $0.3 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 June 30, 2021.

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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 June 30, 

Six Months Ended June 30, 

2021

2020

   

2021

    

2020

Interest rate contracts

Gain (loss) recognized in OCI, net of tax

$

(69)

$

(10)

$

341

$

(2,247)

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

206

(139)

405

(150)

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

$

137

$

(149)

$

746

$

(2,397)

The Company pledged $2.1 million in cash to secure its obligation under these contracts as of June 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.

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

As of June 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

$

25,373

$

496

$

45,004

$

1,201

Forward sales commitments

Other assets

172

3

978

32

Mortgage banking derivatives recorded in other assets

$

25,545

$

499

$

45,982

$

1,233

Derivatives with negative fair value

Interest rate lock commitments

Other liabilities

$

172

$

3

$

118

$

1

Forward sales commitments

Other liabilities

42,043

1,361

84,964

2,662

Mortgage banking derivatives recorded in other liabilities

$

42,215

$

1,364

$

85,082

$

2,663

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

Three Months Ended June 30, 

    

Six Months Ended June 30, 

   

Location

2021

2020

2021

2020

Net gains (losses) related to

Interest rate lock commitments

Mortgage revenue

$

493

$

2,213

$

965

$

7,062

Forward sales commitments

Mortgage revenue

 

(1,358)

(4,778)

 

(2,178)

(11,825)

Net gains (losses)

$

(865)

$

(2,565)

$

(1,213)

$

(4,763)

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 $408.5 million and $395.0 million as of June 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 June 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

$

326,513

$

21,981

$

81,964

$

1,373

Interest rate swaps – pay fixed, receive floating

81,964

1,373

326,513

21,981

Total derivatives not designated as hedging instruments

$

408,477

$

23,354

$

408,477

$

23,354

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

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

Three Months Ended June 30, 

Six Months Ended June 30, 

   

Location

2021

2020

   

2021

   

2020

Interest rate swaps

Pay floating, receive fixed

Non-interest expense

$

1,264

$

2,861

$

(9,331)

$

26,339

Pay fixed, receive floating

Non-interest expense

(1,264)

(2,861)

9,331

(26,339)

Net change in fair value of interest rate swaps

$

$

$

$

The Company pledged $28.3 million in cash to secure its obligation under these contracts as of June 30, 2021, compared to $36.0 million pledged as of December 31, 2020.

Note 11: Fair Value Measurements

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

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

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

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

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 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

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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 June 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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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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As of June 30, 2021

Level 1

Level 2

Level 3

Total

   

Inputs

   

Inputs

   

Inputs

   

Fair Value

Debt securities available for sale:

U.S. Treasury securities

$

$

211,893

$

$

211,893

Obligations of U.S. government corporations and agencies

50,998

50,998

Obligations of states and political subdivisions

301,342

301,342

Commercial mortgage-backed securities

514,052

514,052

Residential mortgage-backed securities

1,842,194

1,842,194

Asset-backed securities

246,997

246,997

Corporate debt securities

297,041

297,041

Equity securities

13,950

13,950

Loans held for sale

17,834

17,834

Derivative assets

23,853

23,853

Derivative liabilities

26,730

26,730

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 as of June 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):

As of June 30, 2021

Level 1

Level 2

Level 3

Total

   

Inputs

   

Inputs

   

Inputs

   

Fair Value

Loans evaluated individually

$

$

$

3,878

$

3,878

OREO

 

 

 

51

 

51

Bank property held for sale

 

 

 

7,379

 

7,379

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

June 30, 2021:

   

Estimate

   

Techniques

   

Input

   

(Weighted Average)

Loans evaluated individually

$

3,878

Appraisal of collateral

Appraisal adjustments

-17.0

% 

to 

-100.0

% 

(-53.7)

%

OREO

51

Appraisal of collateral

Appraisal adjustments

-33.0

% 

to 

-100.0

% 

(-67.9)

%

Bank property held for sale

7,379

Appraisal of collateral or real estate listing price

Appraisal adjustments

-6.2

% 

to 

-64.9

% 

(-38.5)

%

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 June 30, 2021

As of December 31, 2020

Carrying

    

Fair

    

Carrying

    

Fair

Amount

    

Value

    

Amount

    

Value

Financial assets

Level 1 inputs:

Cash and cash equivalents

$

920,810

$

920,810

$

688,537

$

688,537

Level 2 inputs:

Accrued interest receivable

 

32,689

 

32,689

 

33,240

 

33,240

Level 3 inputs:

Portfolio loans, net

 

7,090,240

 

7,161,247

 

6,713,129

 

6,755,425

Mortgage servicing rights

10,153

12,187

10,912

11,107

Other servicing rights

1,573

2,084

1,434

1,966

Financial liabilities

Level 2 inputs:

Time deposits

$

1,115,596

$

1,121,554

$

1,119,348

$

1,132,107

Securities sold under agreements to repurchase

 

207,266

 

207,266

 

175,614

 

175,614

Short-term borrowings

30,168

30,169

4,658

4,661

Long-term debt

 

52,409

 

52,532

4,757

 

5,014

Junior subordinated debt owed to unconsolidated trusts

 

71,551

 

62,141

 

71,468

 

59,943

Accrued interest payable

 

3,013

 

3,013

 

3,401

 

3,401

Level 3 inputs:

Senior notes, net of unamortized issuance costs

39,876

40,900

39,809

40,104

Subordinated notes, net of unamortized issuance costs

182,503

184,725

182,226

187,697

Note 12: Earnings Per Common Share

Basic earnings per share is computed by dividing net income for the period by the weighted average number of common shares outstanding, which include 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 restricted stock units were vested.

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

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2021

    

2020

    

2021

    

2020

Net income

$

29,766

$

25,806

$

67,582

$

41,170

Shares:

Weighted average common shares outstanding

 

55,050,071

 

54,489,403

 

54,762,563

 

54,575,595

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

 

680,812

 

215,870

 

622,379

 

231,575

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

 

55,730,883

 

54,705,273

 

55,384,942

 

54,807,170

Basic earnings per common share

$

0.54

$

0.47

$

1.23

$

0.75

Diluted earnings per common share

$

0.53

$

0.47

$

1.22

$

0.75

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 June 30, 

Six Months Ended June 30, 

    

2021

    

2020

    

2021

    

2020

Anti-dilutive common stock equivalents

Options

39,525

39,525

RSU and DSU awards

367,468

121,698

367,121

PSU awards

86,080

100,482

Total anti-dilutive common stock equivalents

86,080

406,993

222,180

406,646

Note 13: 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 June 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

$

7,547

$

(2,151)

$

5,396

$

49,722

$

(14,173)

$

35,549

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

9,469

(2,700)

6,769

5,857

(1,670)

4,187

Amounts reclassified from accumulated other comprehensive income, net

(3)

1

(2)

(143)

41

(102)

Balance at end of period

$

17,013

$

(4,850)

$

12,163

$

55,436

$

(15,802)

$

39,634

Unrealized gains (losses) on cash flow hedges

Balance at beginning of period

$

(2,203)

$

628

$

(1,575)

$

(3,424)

$

976

$

(2,448)

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

(97)

28

(69)

(14)

4

(10)

Amounts reclassified from accumulated other comprehensive income, net

288

(82)

206

(195)

56

(139)

Balance at end of period

$

(2,012)

$

574

$

(1,438)

$

(3,633)

$

1,036

$

(2,597)

Total accumulated other comprehensive income (loss)

$

15,001

$

(4,276)

$

10,725

$

51,803

$

(14,766)

$

37,037

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Six Months Ended June 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

(32,603)

9,293

(23,310)

35,943

(10,259)

25,684

Amounts reclassified from accumulated other comprehensive income, net

(28)

8

(20)

(1,699)

489

(1,210)

Balance at end of period

$

17,013

$

(4,850)

$

12,163

$

55,436

$

(15,802)

$

39,634

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

477

(136)

341

(3,143)

896

(2,247)

Amounts reclassified from accumulated other comprehensive income, net

566

(161)

405

(210)

60

(150)

Balance at end of period

$

(2,012)

$

574

$

(1,438)

$

(3,633)

$

1,036

$

(2,597)

Total accumulated other comprehensive income (loss)

$

15,001

$

(4,276)

$

10,725

$

51,803

$

(14,766)

$

37,037

Note 14: 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 through its banking center in Indianapolis, Indiana. Banking services for Busey Bank and GSB are aggregated into the Banking operating segment as they have similar operations and activities. 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. Wealth Management services for Busey Bank and GSB are aggregated into the Wealth Management operating segment as they have similar operations and activities.

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 “other” category consists of the Parent Company, First Busey Risk Management, and the elimination of intercompany transactions.

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 (dollars in thousands):

Goodwill

Total Assets

As of

As of

June 30, 

December 31, 

June 30, 

December 31, 

    

2021

    

2020

    

2021

    

2020

Operating segment

Banking

$

294,421

$

288,436

$

12,301,878

$

10,462,673

Remittance Processing

 

8,992

 

8,992

 

46,761

 

46,553

Wealth Management

 

14,108

 

14,108

 

63,529

 

46,504

Other

 

 

 

3,281

 

(11,683)

Consolidated total

$

317,521

$

311,536

$

12,415,449

$

10,544,047

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2021

    

2020

    

2021

    

2020

Net interest income

Banking

$

68,250

$

73,318

$

136,705

$

144,891

Remittance Processing

21

19

41

38

Wealth Management

 

 

 

 

Other

 

(3,729)

 

(2,524)

 

(7,311)

 

(4,683)

Total net interest income

$

64,542

$

70,813

$

129,435

$

140,246

Non-interest income

Banking

$

14,938

$

14,026

$

27,822

$

27,194

Remittance Processing

 

4,809

 

3,962

 

9,670

 

8,031

Wealth Management

 

13,000

 

10,310

 

25,587

 

22,019

Other

 

264

 

(334)

 

1,377

 

(1,763)

Total non-interest income

$

33,011

$

27,964

$

64,456

$

55,481

Non-interest expense

Banking

$

48,421

$

41,659

$

90,512

$

90,174

Remittance Processing

4,277

3,243

8,567

6,146

Wealth Management

6,717

6,254

13,282

13,228

Other

3,210

1,912

4,763

4,034

Total non-interest expense

$

62,625

$

53,068

$

117,124

$

113,582

Income before income taxes

Banking

$

36,467

$

32,794

$

82,511

$

51,804

Remittance Processing

553

738

1,144

1,923

Wealth Management

6,283

4,056

12,305

8,791

Other

(6,675)

(4,770)

(10,697)

(10,480)

Total income before income taxes

$

36,628

$

32,818

$

85,263

$

52,038

Net income

Banking

$

29,238

$

25,985

$

64,766

$

40,909

Remittance Processing

 

401

 

528

 

830

 

1,388

Wealth Management

 

4,884

 

3,082

 

9,566

 

6,681

Other

 

(4,757)

 

(3,789)

 

(7,580)

 

(7,808)

Total net income

$

29,766

$

25,806

$

67,582

$

41,170

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Note 15: 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

June 30, 

December 31, 

2021

    

2020

    

Lease balances

Right of use assets

$

8,228

$

7,714

Lease liabilities

8,280

7,757

Supplemental information

Year through which lease terms extend

2031

2032

Weighted average remaining lease term (in years)

5.28

5.93

Weighted average discount rate

2.38

%

2.82

%

The following tables represents lease costs and other lease information for the periods presented (dollars in thousands):

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2021

2020

2021

2020

Lease costs

Operating lease costs

$

608

$

635

$

1,172

$

1,255

Variable lease costs

126

131

300

302

Short-term lease costs

16

15

34

30

Total lease cost

$

750

$

781

$

1,506

$

1,587

Cash flows related to leases

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

Operating lease cash flows – Fixed payments

$

590

$

612

$

1,136

$

1,223

Operating lease cash flows – Liability reduction

546

534

1,041

1,064

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

1,462

1,610

128

(1)The three and six months ended June 30, 2021, include $371 related to a lease obtained in the acquisition of CAC.

As of June 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 for the three months ended June 30, 2021 and 2020. Rent expense under operating leases, included in net occupancy and equipment expense, was $1.5 million and $1.6 million for the six months ended June 30, 2021 and 2020, respectively.

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Rent commitments were as follows (dollars in thousands):

As of

June 30, 

    

2021

Rent commitments

Remainder of 2021

$

1,129

2022

 

1,945

2023

1,724

2024

1,289

2025

1,050

Thereafter

1,708

Amounts representing interest

(565)

Present value of net future minimum lease payments

$

8,280

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

OVERVIEW

First Busey is a $12.4 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, GSB, 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 six months ended June 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, Indiana, and Florida. 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 June 30, 2021, the Company had 49 commercial loans remaining on payment deferrals representing $143.5 million in loans,

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consisting of $10.4 million in full payment deferrals and $133.1 million in interest only modifications. In addition, as of June 30, 2021, the Company had eight retail loans on payment deferrals representing $0.8 million.

First Busey has served as a bridge for the PPP, actively helping existing and new business clients sign up for this important financial resource. The following table summarizes First Busey’s PPP loans as of June 30, 2021, (dollars in thousand):

CARES

Economic Aid

PPP Loan

    

Act

    

Act

    

Totals

Busey Bank customers with PPP loans processed

4,569

2,474

7,043

PPP loans originated by Busey Bank

$

749,429

$

296,346

$

1,045,775

GSB customers with PPP loans acquired

26

266

292

PPP loans acquired from GSB

$

15,783

$

27,694

$

43,477

Customers with PPP loans outstanding (1)

581

2,523

3,104

PPP loans outstanding (1)

$

93,455

$

306,249

$

399,704

PPP loans outstanding, amortized cost (1)

93,099

297,296

390,395

PPP loan balance forgiveness: (1)

Received

$

667,796

$

17,788

$

685,584

Balances submitted to the SBA for forgiveness

18,652

2,239

20,891

(1)Consolidated totals include Busey Bank and GSB.

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

Six Months Ended

June 30,

    

March 31,

 

June 30,

June 30,

    

June 30,

2021

    

2021

 

2020

2021

    

2020

Reported:  

Net income

$

29,766

$

37,816

$

25,806

$

67,582

$

41,170

Adjusted:  

Net income (1)

$

31,921

$

38,065

$

26,191

$

69,986

$

41,670

Reported:  

Diluted earnings per common share

$

0.53

$

0.69

$

0.47

$

1.22

$

0.75

Adjusted:  

Diluted earnings per common share (2)

$

0.57

$

0.69

$

0.48

$

1.26

$

0.76

Reported:  

Return on average assets (3)

1.05

%

1.45

%

1.00

%

1.24

%

0.83

%

Adjusted:  

Return on average assets (2), (3)

1.12

%

1.46

%

1.02

%

1.28

%

0.84

%

Reported:  

Return on average tangible common equity (1), (3)

12.26

%

16.80

%

12.02

%

14.44

%

9.69

%

Adjusted:  

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

13.14

%

16.91

%

12.20

%

14.96

%

9.80

%

Reported:  

Pre-provision net revenue (1)

$

34,030

$

40,198

$

45,394

$

74,228

$

81,243

Adjusted:  

Pre-provision net revenue (1)

$

37,486

$

42,753

$

46,448

$

80,239

$

84,659

Reported:  

Pre-provision net revenue to average assets (1), (3)

1.20

%

1.54

%

1.76

%

1.36

%

1.63

%

Adjusted:  

Pre-provision net revenue to average assets (1), (3)

1.32

%

1.64

%

1.80

%

1.47

%

1.70

%

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Table of Contents

(1)A non-GAAP financial measure.  See “Non-GAAP Financial Information” included in this Quarterly Report.
(2)Calculated using adjusted net income, a non-GAAP measure.  See “Non-GAAP Financial Information” included in this Quarterly Report.
(3)Annualized measure.

On May 31, 2021, the Company completed its acquisition of CAC, the holding company for GSB. GSB, founded in 1920, is a commercial bank headquartered in Glenview, Illinois. Busey will operate GSB as a separate banking subsidiary of Busey until it is merged with Busey Bank, which is expected to occur in the third quarter of 2021. Results for the three and six months ended June 30, 2021, include one month of operating results for GSB.

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 six months ended June 30, 2021, included $2.7 million and $3.0 million of expenses related to acquisitions, respectively. A reconciliation of non-GAAP measures – including adjusted pre-provision net revenue, adjusted net income, adjusted earnings per share, adjusted return on average assets, adjusted net interest margin, adjusted efficiency ratio, tangible common equity, tangible common equity to tangible assets, tangible book value per share, and return on average tangible common equity – which 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 June 30, 2021, we served the Illinois banking market with 53 Busey Bank banking centers and seven GSB 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 June 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 June 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 June 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.

The Company has evaluated and expects to close and consolidate 15 Busey Bank banking centers and two GSB banking centers in the fourth quarter of 2021.

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%. 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.

48

Table of Contents

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.

49

Table of Contents

Three Months Ended June 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

$

505,223

$

245

 

0.19

%  

$

441,764

$

145

 

0.13

%  

Investment securities:

 

  

 

  

 

  

 

  

 

  

 

  

U.S. Government obligations

 

151,612

 

476

 

1.26

%  

 

131,092

 

675

 

2.07

%  

Obligations of states and political subdivisions (1)

 

296,201

 

1,908

 

2.58

%  

 

283,424

 

2,092

 

2.97

%  

Other securities

 

2,583,437

 

7,909

 

1.23

%  

 

1,303,274

 

7,543

 

2.33

%  

Loans held for sale

 

22,393

 

146

 

2.62

%  

 

108,821

 

741

 

2.74

%  

Portfolio loans (1), (2)

 

6,889,551

 

61,583

 

3.59

%  

 

7,216,825

 

70,754

 

3.94

%  

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

$

10,448,417

$

72,267

 

2.77

%  

$

9,485,200

$

81,950

 

3.47

%  

Cash and due from banks

 

142,242

 

  

 

  

 

121,258

 

  

 

  

Premises and equipment

 

135,760

 

 

  

 

148,960

 

 

  

ACL

 

(96,626)

 

 

  

 

(85,509)

 

 

  

Other assets

 

768,862

 

  

 

  

 

704,911

 

  

 

  

Total assets

$

11,398,655

 

  

 

  

$

10,374,820

 

  

 

  

Liabilities and Stockholders’ Equity

 

  

 

  

 

  

 

  

 

  

 

  

Interest-bearing transaction deposits

$

2,479,380

$

495

 

0.08

%  

$

2,090,552

$

978

 

0.19

%  

Savings and money market deposits

 

2,911,791

 

705

 

0.10

%  

 

2,544,958

 

1,131

 

0.18

%  

Time deposits

 

1,041,165

 

2,095

 

0.81

%  

 

1,438,285

 

5,612

 

1.57

%  

Federal funds purchased and repurchase agreements

 

204,417

 

60

 

0.12

%  

 

184,208

 

100

 

0.22

%  

Borrowings (4)

 

257,770

 

3,059

 

4.76

%  

 

198,358

 

1,863

 

3.78

%  

Junior subordinated debt issued to unconsolidated trusts

 

71,523

 

732

 

4.11

%  

 

71,348

 

736

 

4.15

%  

Total interest-bearing liabilities

$

6,966,046

$

7,146

 

0.41

%  

$

6,527,709

$

10,420

 

0.64

%  

Net interest spread (1)

 

  

 

 

2.36

%  

 

  

 

 

2.83

%  

Noninterest-bearing deposits

 

2,970,890

 

  

 

  

 

2,472,568

 

  

 

  

Other liabilities

 

118,948

 

  

 

  

 

141,273

 

  

 

  

Stockholders’ equity

 

1,342,771

 

  

 

  

 

1,233,270

 

  

 

  

Total liabilities and stockholders’ equity

$

11,398,655

 

  

 

  

$

10,374,820

 

  

 

  

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

$

10,448,417

$

72,267

 

2.77

%  

$

9,485,200

$

81,950

 

3.47

%  

Interest expense / earning assets

$

10,448,417

$

7,146

 

0.27

%  

$

9,485,200

$

10,420

 

0.44

%  

Net interest margin (1)

 

  

$

65,121

 

2.50

%  

 

  

$

71,530

 

3.03

%  

(1)On a tax-equivalent basis and assuming a federal income tax rate of 21%.
(2)Non-accrual loans have been included in average portfolio loans.
(3)Interest income includes a tax-equivalent adjustment of $0.6 million and $0.7 million for the three months ended June 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

Six Months Ended June 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

$

464,128

$

395

 

0.17

%  

$

400,252

$

1,383

 

0.69

%  

Investment securities:

 

  

 

  

 

  

 

 

  

 

  

U.S. Government obligations

 

122,966

 

959

 

1.57

%  

 

160,952

 

1,766

 

2.21

%  

Obligations of states and political subdivisions (1)

 

296,112

 

3,872

2.64

%  

 

277,710

 

4,106

 

2.97

%  

Other securities

 

2,378,684

 

15,346

 

1.30

%  

 

1,289,515

 

15,402

 

2.40

%  

Loans held for sale

 

26,858

 

302

 

2.27

%  

 

85,392

 

1,218

 

2.87

%  

Portfolio loans (1), (2)

 

6,813,530

 

124,325

 

3.68

%  

 

6,937,551

 

143,238

 

4.15

%  

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

$

10,102,278

$

145,199

 

2.90

%  

$

9,151,372

$

167,113

 

3.67

%  

Cash and due from banks

 

128,139

 

  

 

  

 

119,880

 

  

 

  

Premises and equipment

 

135,168

 

 

  

 

150,087

 

 

  

ACL

 

(99,458)

 

 

  

 

(77,685)

 

 

  

Other assets

 

732,545

 

  

 

  

 

687,845

 

  

 

  

Total assets

$

10,998,672

 

  

 

  

$

10,031,499

 

  

 

  

Liabilities and Stockholders’ Equity

 

  

 

  

 

  

 

  

 

  

 

  

Interest-bearing transaction deposits

$

2,395,358

$

1,007

 

0.08

%  

$

2,040,015

$

3,391

 

0.33

%  

Savings and money market deposits

 

2,784,383

 

1,340

 

0.10

%  

 

2,558,214

 

4,396

 

0.35

%  

Time deposits

 

1,054,335

 

4,680

 

0.90

%  

 

1,479,655

 

12,161

 

1.65

%  

Federal funds purchased and repurchase agreements

 

194,610

117

 

0.12

%  

 

183,244

 

508

 

0.56

%  

Borrowings (4)

 

244,661

5,983

 

4.93

%  

 

187,507

 

3,484

 

3.74

%  

Junior subordinated debt issued to unconsolidated trusts

 

71,503

1,457

 

4.11

%  

 

71,329

 

1,480

 

4.17

%  

Total interest-bearing liabilities

$

6,744,850

$

14,584

 

0.44

%  

$

6,519,964

$

25,420

 

0.78

%  

Net interest spread (1)

 

  

 

 

2.46

%  

 

  

 

 

2.89

%  

Noninterest-bearing deposits

 

2,830,646

 

  

 

  

 

2,157,656

 

  

 

  

Other liabilities

 

113,758

 

  

 

  

 

128,164

 

  

 

  

Stockholders’ equity

 

1,309,418

 

  

 

  

 

1,225,715

 

  

 

  

Total liabilities and stockholders’ equity

$

10,998,672

 

  

 

  

$

10,031,499

 

  

 

  

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

$

10,102,278

$

145,199

 

2.90

%  

$

9,151,372

$

167,113

 

3.67

%  

Interest expense / earning assets

$

10,102,278

$

14,584

 

0.29

%  

$

9,151,372

$

25,420

 

0.56

%  

Net interest margin (1)

 

  

$

130,615

 

2.61

%  

 

  

$

141,693

 

3.11

%  

(1)On a tax-equivalent basis and assuming a federal income tax rate of 21%.
(2)Non-accrual loans have been included in average portfolio loans.
(3)Interest income includes a tax-equivalent adjustment of $1.2 million and $1.4 million for the six months ended June 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 June 30, 

   

2021

    

2020

    

Change

    

% Change

 

Average interest-earning assets

$

10,448,417

$

9,485,200

$

963,217

10.2

%

Average interest-bearing liabilities

6,966,046

6,527,709

438,337

6.7

%

Average noninterest-bearing deposits

2,970,890

2,472,568

498,322

20.2

%

Total average deposits

9,403,226

8,546,363

856,863

10.0

%

Total average liabilities

10,055,884

9,141,550

914,334

10.0

%

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

31.6

%

28.9

%

Total average deposits as a percent of total average liabilities

93.5

%

93.5

%

Six Months Ended June 30, 

   

2021

    

2020

    

Change

    

% Change

 

Average interest-earning assets

$

10,102,278

$

9,151,372

$

950,906

10.4

%

Average interest-bearing liabilities

6,744,850

6,519,964

224,886

3.4

%

Average noninterest-bearing deposits

2,830,646

2,157,656

672,990

31.2

%

Total average deposits

9,064,722

8,235,540

829,182

10.1

%

Total average liabilities

9,689,254

8,805,784

883,470

10.0

%

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

31.2

%

26.2

%

Total average deposits as a percent of total average liabilities

93.6

%

93.5

%

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

Three Months Ended June 30, 

 

   

2021

    

2020

    

Change

    

% Change

 

Net interest income

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

$

72,267

$

81,950

$

(9,683)

(11.8)

%

Interest expense

7,146

10,420

(3,274)

(31.4)

%

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

$

65,121

$

71,530

$

(6,409)

(9.0)

%

Net interest margin (1), (2)

2.50

%

3.03

%

(1)Assuming a federal income tax rate of 21%.
(2)Net interest income expressed as a percentage of average earning assets, stated on a tax-equivalent basis.

52

Table of Contents

Six Months Ended June 30, 

   

2021

    

2020

    

Change

    

% Change

 

Net interest income

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

$

145,199

$

167,113

$

(21,914)

(13.1)

%

Interest expense

14,584

25,420

(10,836)

(42.6)

%

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

$

130,615

$

141,693

$

(11,078)

(7.8)

%

Net interest margin (1), (2)

2.61

%

3.11

%

(1)Assuming a federal income tax rate of 21%.
(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 over the past year, as assets, in particular commercial loans, repriced more quickly and to a greater extent than liabilities. The net interest margin has also been negatively impacted by the balance of lower-yielding PPP loans, 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.

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 2.36% for the three months ended June 30, 2021, compared to 2.83% for the same period in 2020, and was 2.46% for the six months ended June 30, 2021, compared to 2.89% for the same period in 2020, each on a tax equivalent basis.

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

 

2.86

%

Fourth Quarter

 

3.06

%

Factors contributing to the 22-basis point decline in net interest margin during the second quarter of 2021, compared to the first quarter of 2021, include:

Reduced recognition of purchase accounting accretion contributed -2 basis points
Reduction in PPP fee recognition contributed -3 basis points
Inclusion of GSB for one month contributed -5 basis points
Asset rate volume mix contributed -15 basis points
Funding costs improved +3 basis points, partially offsetting the declines

Management attempts to mitigate the effects of an unpredictable interest-rate environment through effective portfolio management, prudent loan underwriting, effective funding cost control, meaningful non-interest 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

Non-Interest Income

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

Three Months Ended June 30, 

    

2021

    

2020

    

Change

    

% Change

Non-interest income

Wealth management fees

$

13,002

$

10,193

$

2,809

27.6

%

Fees for customer services

8,611

7,025

1,586

22.6

%

Remittance processing

 

4,349

3,718

 

631

17.0

%

Mortgage revenue

 

1,747

2,705

 

(958)

(35.4)

%

Income on bank owned life insurance

 

1,476

2,282

 

(806)

(35.3)

%

Net gains (losses) on sales of securities

 

94

125

 

(31)

(24.8)

%

Unrealized gains (losses) recognized on equity securities

804

190

614

323.2

%

Other income

2,928

1,726

1,202

69.6

%

Total non-interest income

$

33,011

$

27,964

$

5,047

18.0

%

Six Months Ended June 30, 

    

2021

    

2020

    

Change

    

% Change

 

Non-interest income

Wealth management fees

$

25,586

$

21,748

$

3,838

17.6

%

Fees for customer services

16,648

15,386

1,262

8.2

%

Remittance processing

 

8,767

7,471

 

1,296

17.3

%

Mortgage revenue

 

4,413

4,086

 

327

8.0

%

Income on bank owned life insurance

 

2,440

3,339

 

(899)

(26.9)

%

Net gains (losses) on sales of securities

 

119

1,699

 

(1,580)

(93.0)

%

Unrealized gains (losses) recognized on equity securities

2,420

(797)

3,217

403.6

%

Other income

4,063

2,549

1,514

59.4

%

Total non-interest income

$

64,456

$

55,481

$

8,975

16.2

%

Total non-interest income increased by 18.0% to $33.0 million for the three months ended June 30, 2021, compared to $28.0 million for the three months ended June 30, 2020. Total non-interest income increased by 16.2% to $64.5 million for the six months ended June 30, 2021, compared to $55.5 million for the six months ended June 30, 2020. Revenues from wealth management fees and remittance processing activities represented 52.6% and 53.3% of the Company’s non-interest income for the three and six months ended June 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 increased by 24.7% to $17.4 million for the three months ended June 30, 2021, compared to $13.9 million for the same period in 2020, and increased by 17.6% to $34.4 million for the six months ended June 30, 2021, compared to $29.2 million for the same period in 2020.

Wealth management fees increased by 27.6% to $13.0 million for the three months ended June 30, 2021, compared to $10.2 million for the same period in 2020. Wealth management fees increased by 17.6% to $25.6 million for the six months ended June 30, 2021, compared to $21.7 million for the same period in 2020. First Busey’s Wealth Management division ended the second quarter of 2021 with $12.3 billion in assets under care, compared to $10.2 billion as of December 31, 2020, a 20.3% increase. The increase in assets under care was comprised of $0.8 billion in organic and market related growth with an additional $1.3 billion obtained in the acquisition of CAC.

Fees for customer services increased by 22.6% to $8.6 million for the three months ended June 30, 2021, compared to $7.0 million for the same period in 2020. Fees for customer services increased by 8.2% to $16.6 million for the six months ended June 30, 2021, compared to $15.4 million for the same 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 increased by 17.0% to $4.3 million for the three months ended June 30, 2021, compared to $3.7 million for the same period in 2020. Remittance processing revenue increased by 17.3% to $8.8 million for the six months ended June 30, 2021, compared to $7.5 million for the same period in 2020. Fluctuations in remittance processing revenue were primarily the result of increased payment and volume activity at FirsTech. Remittance processing adds 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 further enhance future growth.

Mortgage revenue decreased 35.4% to $1.7 million for the three months ended June 30, 2021, compared to $2.7 million for the same period in 2020, primarily as a result of declines in sold-loan mortgage volume. Mortgage revenue increased 8.0% to $4.4 million for the six months ended June 30, 2021, compared to $4.1 million for the same period in 2020. General economic conditions and interest rate volatility may impact fees in future quarters.

Income on bank owned life insurance decreased 35.3%, to $1.5 million for the three months ended June 30, 2021, compared to $2.3 million for the same period in 2020. Income on bank owned life insurance decreased 26.9%, to $2.4 million for the six months ended June 30, 2021, compared to $3.3 million for the same period in 2020. Decreases primarily resulted from a $0.8 million decline in earnings on death proceeds for the three and six months ended June 30, 2021.

Other income increased 69.6% to $2.9 million for the three months ended June 30, 2021, compared to $1.7 million for the same period in 2020.  Other income increased 59.4% to $4.1 million for the six months ended June 30, 2021, compared to $2.5 million for the same 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.

Non-Interest Expense

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

Three Months Ended June 30, 

    

2021

    

2020

    

Change

    

% Change

Non-interest expense

Salaries, wages, and employee benefits

$

34,889

$

28,555

$

6,334

22.2

%

Data processing

4,819

4,051

768

19.0

%

Net occupancy expense of premises

 

4,246

 

4,448

 

(202)

(4.5)

%

Furniture and equipment expenses

 

2,066

 

2,537

 

(471)

(18.6)

%

Professional fees

 

2,311

 

1,986

 

325

16.4

%

Amortization of intangible assets

 

2,650

 

2,519

 

131

5.2

%

Interchange expense

1,442

1,198

244

20.4

%

Other expense

 

10,202

 

7,774

 

2,428

31.2

%

Total non-interest expense

$

62,625

$

53,068

$

9,557

18.0

%

Income taxes

$

6,862

$

7,012

$

(150)

(2.1)

%

Effective income tax rate

 

18.7

%  

 

21.4

%  

 

Efficiency ratio (1)

 

61.7

%  

 

51.0

%  

 

Adjusted efficiency ratio (1)

58.9

%  

50.5

%  

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

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Six Months Ended June 30, 

    

2021

    

2020

    

Change

    

% Change

 

Non-interest expense

Salaries, wages, and employee benefits

$

65,273

$

62,558

$

2,715

4.3

%

Data processing

9,099

8,446

653

7.7

%

Net occupancy expense of premises

 

8,809

 

9,163

 

(354)

(3.9)

%

Furniture and equipment expenses

 

4,092

 

4,986

 

(894)

(17.9)

%

Professional fees

 

4,256

 

3,810

 

446

11.7

%

Amortization of intangible assets

 

5,051

 

5,076

 

(25)

(0.5)

%

Interchange expense

2,926

2,367

559

23.6

%

Other expense

 

17,618

 

17,176

 

442

2.6

%

Total non-interest expense

$

117,124

$

113,582

$

3,542

3.1

%

Income taxes

$

17,681

$

10,868

$

6,813

62.7

%

Effective income tax rate

 

20.7

%  

 

20.9

%  

 

Efficiency ratio (1)

 

58.2

%  

 

55.3

%  

 

Adjusted efficiency ratio (1)

56.6

%  

55.0

%  

Full-time equivalent employees as of period-end

 

1,503

1,480

 

23

1.6

%

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

Total non-interest expense increased by 18.0% to $62.6 million for the three months ended June 30, 2021, compared to $53.1 million for three months ended June 30, 2020. Total non-interest expense increased by 3.1% to $117.1 million for the six months ended June 30, 2021, compared to $113.6 million for six months ended June 30, 2020. Contributing to the increases, non-operating acquisition related expenses of $2.7 million and $3.0 million were included in total non-interest expense for the three and six months ended June 30, 2021, respectively, compared to $0.5 million and $0.6 million for the three and six months ended June 30, 2020, respectively. Deferral of origination costs on PPP loans lowered expenses by $0.4 million and $2.7 million for the three and six months ended June 30, 2021, respectively, compared to $4.9 million for the three and six months ended June 30, 2020. Results for the three and six months ended June 30, 2021, include one month of operating expenses for GSB totaling $2.5 million, excluding non-operating items, and the Company expects efficiencies associated with the acquisition of CAC to be realized after the banks merge.

Salaries, wages, and employee benefits increased by 22.2% to $34.9 million for the three months ended June 30, 2021, compared to $28.6 million for the same period in 2020. Salaries, wages, and employee benefits increased by 4.3% to $65.3 million for the six months ended June 30, 2021, compared to $62.6 million for the same period in 2020. The increase was driven by the addition of 137 full-time equivalents from GSB. Results for the three and six months ended June 30, 2021, include $2.4 million of GSB expenses for salaries, wages, and employee benefits for the one month since acquisition, which included $1.1 million of non-operating acquisition related expenses. In addition, deferral of PPP loan origination costs lowered expenses for salaries, wages, and employee benefits by $0.3 million and $2.1 million for the three and six months ended June 30, 2021, respectively, compared to $3.8 million for the three and six months ended June 30, 2020.

Data processing expense increased by 19.0% to $4.8 million for the three months ended June 30, 2021, compared to $4.1 million for the same period in 2020. Data processing expense increased by 7.7% to $9.1 million for the six months ended June 30, 2021, compared to $8.4 million for the same period in 2020. Results for the three and six months ended June 30, 2021, include $0.2 million of GSB operating data processing expenses for the one month since acquisition. Further, the Company recorded an additional $0.4 million of non-operating data processing expenses related to the acquisition.

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Combined, net occupancy expense of premises and furniture and equipment expense decreased by 9.6% to $6.3 million for the three months ended June 30, 2021, compared to $7.0 million for the same period in 2020. Combined, net occupancy expense of premises and furniture and equipment expense decreased by 8.8% to $12.9 million for the six months ended June 30, 2021, compared to $14.1 million for the same period in 2020. These decreases in 2021 were primarily related to savings achieved through the closure of 12 banking centers in October of 2020. On July 27, 2021, the Company announced its Personal Banking Transformation Plan to close and consolidate 15 Busey Bank banking centers as well as two GSB banking centers to be consolidated as part of the acquisition integration plan, with the banking center closures expected to occur in the fourth quarter of 2021.

Professional fees increased by 16.4% to $2.3 million for the three months ended June 30, 2021, compared to $2.0 million for the same period of 2020. Professional fees increased by 11.7% to $4.3 million for the six months ended June 30, 2021, compared to $3.8 million for the same period of 2020. Professional fee variances were largely influenced by acquisition expenses. Results for the three and six months ended June 30, 2021, include $0.9 million and $1.3 million, respectively, of non-operating professional fee expenses related to the acquisition.

Amortization of intangible assets increased by 5.2% to $2.7 million for the three months ended June 30, 2021, compared to $2.5 million for the same period in 2020. Amortization of intangible assets was $5.1 million for the six months ended June 30, 2021 and 2020. Results for the three and six months ended June 30, 2021, include $0.3 million of amortization expense related to GSB.

Interchange expense increased by 20.4% to $1.4 million for the three months ended June 30, 2021, compared to $1.2 million for the same period in 2020. Interchange expense increased by 23.6% to $2.9 million for the six months ended June 30, 2021, compared to $2.4 million for the same period in 2020. Fluctuations in interchange expense were primarily the result of increased payment and volume activity at FirsTech.

Other expense increased by 31.2% to $10.2 million for the three months ended June 30, 2021, compared to $7.8 million for the same period in 2020. Other expense increased by 2.6% to $17.6 million for the six months ended June 30, 2021, compared to $17.2 million for the same period in 2020. Increases were across multiple expense categories, including New Market Tax Credit amortization and business development expenses, partially offset by lower MSR valuation impairment and provision for unfunded commitments. Also contributing to the increase, deferral of PPP loan origination costs lowered other expenses by $0.1 million and $0.6 million for the three and six months ended June 30, 2021, respectively, compared to $1.1 million during the three and six months ended June 30, 2020. Results for the three and six months ended June 30, 2021, include one month of other expenses for GSB totaling $0.4 million.

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 ratio was 61.7% for the three months ended June 30, 2021, compared to 51.0% for the three months ended June 30, 2020. The efficiency ratio was 58.2% for the six months ended June 30, 2021, compared to 55.3% for the same period in 2020.

The adjusted efficiency ratio(1) was 58.9% for the three months ended June 30, 2021, compared to 50.5% for the three months ended June 30, 2020. The adjusted efficiency ratio was 56.6% for the six months ended June 30, 2021, compared to 55.0% for the same period in 2020. The Company remains focused on expense discipline.

Income Taxes

The effective income tax rates of 18.7% and 20.7% for the three and six months ended June 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 June 30, 2021, the Company was not under examination by any tax authority; however, Banc Ed, which the Company acquired on January 31, 2019, is under examination by the Illinois Department of Revenue for its 2009 to 2016 income tax filings.

(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

June 30, 

December 31, 

    

2021

    

2020

    

Change

    

% Change

 

Assets

 

  

 

  

 

  

 

  

Debt securities available for sale

$

3,464,517

$

2,261,187

$

1,203,330

 

53.2

%

Portfolio loans, net

 

7,090,240

 

6,713,129

 

377,111

 

5.6

%

Total assets

$

12,415,449

$

10,544,047

$

1,871,402

 

17.7

%

Liabilities

 

  

 

  

 

  

 

  

Deposits:

 

  

 

  

 

  

 

  

Noninterest-bearing

$

3,186,650

$

2,552,039

$

634,611

 

24.9

%

Interest-bearing

 

7,150,467

 

6,125,810

 

1,024,657

 

16.7

%

Total deposits

$

10,337,117

$

8,677,849

$

1,659,268

 

19.1

%

Securities sold under agreements to repurchase

$

207,266

$

175,614

$

31,652

 

18.0

%

Senior notes, net of unamortized issuance costs

 

39,876

 

39,809

 

67

 

0.2

%

Subordinated notes, net of unamortized issuance costs

 

182,503

 

182,226

 

277

 

0.2

%

Junior subordinated debt owed to unconsolidated trusts

 

71,551

 

71,468

 

83

 

0.1

%

Total liabilities

$

11,069,758

$

9,273,978

$

1,795,780

 

19.4

%

Stockholders’ equity

$

1,345,691

$

1,270,069

$

75,622

 

6.0

%

GSB contributed $1.4 billion in assets, $422.4 million in portfolio loans, net of $8.0 million ACL, and $1.3 billion in total deposits as of June 30, 2021.

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 are similar in nature to Busey Bank’s policies and the Company is migrating such loan production toward Busey Bank’s policies in advance of the merger of the banks. 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 the Banks. 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

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sound and profitable cash flow basis, and the borrower’s character, include the quality of the borrower’s financial history, the liquidity of the underlying collateral, and the reliability of the valuation of the underlying collateral.

As a matter of policy and practice, 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. The Company anticipates that organic loan growth will slow in future quarters as a result of COVID-19 and the related impact on economic conditions in the Company’s market areas.

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 Indiana and Florida markets.

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

June 30, 2021

    

Illinois

    

Missouri

    

Florida

    

Indiana

    

Total

Portfolio loans

Commercial

$

1,408,607

$

519,822

$ 

76,572

$ 

49,549

$

2,054,550

Commercial real estate

1,881,596

686,474

170,371

181,871

2,920,312

Real estate construction

 

256,990

 

135,879

 

63,476

 

44,254

 

500,599

Retail real estate

1,136,549

243,643

93,738

51,880

1,525,810

Retail other

 

179,204

 

2,202

 

1,610

 

1,363

 

184,379

Total portfolio loans

$

4,862,946

$

1,588,020

$  

405,767

$  

328,917

$

7,185,650

ACL

 

  

 

  

 

  

 

  

 

(95,410)

Portfolio loans, net

 

  

 

  

 

  

 

  

$

7,090,240

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

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Portfolio loans increased by 5.5% to $7.2 billion as of June 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 $162.6 million since December 31, 2020. Retail real estate and retail other loans increased $264.9 million since December 31, 2020. As of June 30, 2021, loan balances included $144.3 million of GSB commercial loans and $286.1 million of GSB retail real estate and retail other loans.

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.

Provision for credit loss expense decreased due to a reserve release of $1.7 million for the three months ended June 30, 2021, compared to a provision expense of $12.9 million for the same period in 2020. Provision for credit loss expense decreased due to a reserve release of $8.5 million for the six months ended June 30, 2021, compared to a provision expense of $30.1 million for the same period in 2020. Specifically, during the three and six months ended June 30, 2021, Busey Bank recorded a $5.5 million and $12.3 million negative provision for credit losses, respectively, amid improved US economic outlooks. Also, during the three and six months ended June 30, 2021, as a result of the acquisition, GSB recorded a Day 1 ACL of $4.2 million for PCD loans and a provision for credit losses of $3.8 million.

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

June 30, 

March 31,

December 31,

September 30,

June 30, 

    

2021

    

2021

    

2020

    

2020

    

2020

    

Portfolio loans

Portfolio loans, excluding PPP loans

$

6,795,255

$

6,257,196

$

6,367,774

$

6,384,916

$

6,499,734

PPP loans, amortized cost

390,395

522,104

446,403

736,395

729,286

Total portfolio loans

$

7,185,650

$

6,779,300

$

6,814,177

$

7,121,311

$

7,229,020

ACL

$

95,410

$

93,943

$

101,048

$

98,841

$

96,046

ACL to portfolio loans

1.33

%

1.39

%

1.48

%

1.39

%

1.33

%

ACL to portfolio loans, excluding PPP loans

1.40

%

1.50

%

1.59

%

1.55

%

1.48

%

ACL to non-performing loans

336.96

%

411.04

%

415.82

%

408.82

%

378.43

%

ACL to non-performing assets

303.35

%

346.05

%

349.99

%

339.02

%

329.66

%

As of June 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.

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Table of Contents

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.

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

June 30, 

March 31,

December 31,

September 30,

June 30, 

    

2021

    

2021

    

2020

    

2020

    

2020

    

Loans 30 – 89 days past due

$

3,888

$

9,929

$

7,578

$

6,708

$

5,166

Non-performing assets

Non-performing loans:

Non-accrual loans

27,725

21,706

22,930

23,898

25,095

Loans 90+ days past due and still accruing

 

590

 

1,149

 

1,371

 

279

 

285

Total non-performing loans

28,315

22,855

24,301

24,177

25,380

OREO

3,137

4,292

4,571

4,978

3,755

Total non-performing assets

31,452

27,147

28,872

29,155

29,135

Substandard (excludes 90+ days past due)

44,877

65,088

68,924

77,939

83,704

Classified assets

$

76,329

$

92,235

$

97,796

$

107,094

$

112,839

Performing TDRs (includes 30 – 89 days past due)

$

2,518

$

3,299

$

3,829

$

4,218

$

4,316

Non-performing assets to total assets

0.25

%

0.25

%

0.27

%

0.28

%

0.27

%

Non-performing loans to portfolio loans

0.39

%

0.34

%

0.36

%

0.34

%

0.35

%

Non-performing loans to portfolio loans, excluding PPP loans

0.42

%

0.37

%

0.38

%

0.38

%

0.39

%

Non-performing assets to portfolio loans and OREO

0.44

%

0.40

%

0.42

%

0.41

%

0.40

%

Classified assets to the Banks Tier 1 Capital and ACL

5.72

%

7.76

%

8.47

%

9.58

%

10.47

%

Non-performing loan balances increased 16.5% to $28.3 million as of June 30, 2021, compared with $24.3 million as of December 31, 2020, primarily as a result of $4.4 million of acquired GSB non-performing loans. Continued disciplined credit management resulted in non-performing loans as a percentage of total loans of 0.39% as of June 30, 2021, compared to 0.34% as of March 31, 2021, and 0.35% as of June 30, 2020. Excluding the amortized cost of PPP loans, non-performing loans as a percentage of total loans was 0.42% as of June 30, 2021, compared to 0.37% as of March 31, 2021, and 0.39% as of June 30, 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 as a result of COVID-19, 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 34.9% to $44.8 million as of June 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 June 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.

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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 June 30, 2021, the Company had 49 commercial loans on payment deferrals representing $143.5 million in loans. Of this balance, $10.4 million remained on full payment deferral, with the remaining $133.1 million on interest only modification. In addition, as of June 30, 2021, the Company had eight retail loans on payment deferrals representing $0.8 million in loans. As these deferrals expire, the Company will continue to monitor credits for potential problem loans.

Deposits

Total deposits increased 19.1% to $10.3 billion as of June 30, 2021, compared to $8.7 billion as of December 31, 2020. GSB deposits accounted for $1.3 billion of the increase. We focus on deepening our relationships with customers to foster core deposit growth, allowing us to reduce our reliance on wholesale funding. Recent 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, and the seasonality of public funds.

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 June 30, 2021, the Company had additional capacity to borrow $1.2 billion from the FHLB and $476.5 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 June 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

The Banks routinely enter into commitments to extend credit and standby letters of credit in the normal course of business to meet the financing needs of their customers. As of June 30, 2021, we had outstanding loan commitments and standby letters of credit of $1.8 billion, consistent with our December 31, 2020, balances. 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 June 30, 2021, our reserve for unfunded commitments was $7.2 million, compared to $7.3 million as of December 31, 2020. Provision expense for unfunded commitments decreased due to a reserve release of $0.5 million and $0.1 million for the three and six months ended June 30, 2021, respectively, compared to an expense of $0.6 million and $1.6 million for the three and six months ended June 30, 2020. During the three and six months ended June 30, 2021, Busey Bank recorded a $0.6 million negative provision, and a $0.2 million negative provision, respectively, which was partially offset by a Day 1 provision of $0.2 million recorded by GSB as a result of the acquisition.

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CAPITAL RESOURCES

Our capital ratios are in excess of those required to be considered “well-capitalized” pursuant to applicable regulatory guidelines. The Federal Reserve Board uses capital adequacy guidelines in its examination and regulation of bank holding companies and their subsidiary banks. Risk-based capital ratios are established by allocating assets and certain off-balance-sheet commitments into risk-weighted categories. These balances are then multiplied by the factor appropriate for that risk-weighted category. In order to refrain from restrictions on dividends, equity repurchases, and discretionary bonus payments, banking institutions must maintain capital in excess of regulatory minimum capital requirements. The table below presents minimum capital ratios with capital buffer and June 30, 2021, capital ratios for First Busey, Busey Bank, and GSB.

Minimum Capital

As of June 30, 2021

Requirements with

First Busey

Busey

    

Capital Buffer

    

Corporation

    

Bank

    

GSB

    

Total Capital to Risk Weighted Assets

10.50

%   

16.41

%   

16.22

%   

18.20

%

Tier 1 Capital to Risk Weighted Assets

8.50

%   

13.18

%   

15.30

%   

16.95

%

Common Equity Tier 1 Capital to Risk Weighted Assets

7.00

%   

12.26

%   

15.30

%   

16.95

%

Tier 1 Capital to Average Assets

9.62

%   

10.78

%   

7.35

%

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 measures – specifically 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 non-interest income and total non-interest 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 equity – appears below. The Company believes the adjusted measures are useful for investors and management to understand the effects of certain non-recurring non-interest 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

Six Months Ended

June 30,

    

March 31,

    

June 30,

    

June 30,

    

June 30,

    

2021

    

2021

    

2020

    

2021

    

2020

Pre-provision net revenue

Net interest income

$

64,542

$

64,893

$

70,813

$

129,435

$

140,246

Non-interest income

33,011

31,445

27,964

64,456

55,481

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

 

(898)

 

(1,641)

 

(315)

 

(2,539)

 

(902)

Non-interest expense

 

(62,625)

 

(54,499)

 

(53,068)

 

(117,124)

 

(113,582)

Total pre-provision net revenue

$

34,030

$

40,198

$

45,394

$

74,228

$

81,243

Adjustments to pre-provision net revenue

Acquisition and other restructuring expenses

2,713

320

487

3,033

632

Provision for unfunded commitments

(496)

406

567

(90)

1,584

New Market Tax Credit amortization

1,239

1,829

3,068

1,200

Adjusted pre-provision net revenue

$

37,486

$

42,753

$

46,448

$

80,239

$

84,659

Average total assets

$

11,398,655

$

10,594,245

$

10,374,820

$

10,998,672

$

10,031,499

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

1.20

%

1.54

%

1.76

%

1.36

%

1.63

%

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

1.32

%

1.64

%

1.80

%

1.47

%

1.70

%

(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

Six Months Ended

June 30,

    

March 31,

    

June 30,

    

June 30,

    

June 30,

    

    

2021

    

2021

    

2020

    

2021

    

2020

    

Net income

$

29,766

$

37,816

$

25,806

$

67,582

$

41,170

Adjustments to net income

Acquisition expenses:

 

  

 

  

 

  

 

  

 

  

Salaries, wages, and employee benefits

 

1,125

 

 

 

1,125

 

Data processing

 

368

 

7

 

 

375

 

Professional fees, occupancy, and other

1,220

313

 

141

1,533

286

Other restructuring costs:

 

  

 

  

 

  

 

  

 

  

Salaries, wages, and employee benefits

 

 

 

346

 

 

346

Related tax benefit

(558)

(71)

(102)

(629)

(132)

Adjusted net income

$

31,921

$

38,065

$

26,191

$

69,986

$

41,670

Dilutive average common shares outstanding

55,730,883

55,035,806

54,705,273

55,384,942

54,807,170

Reported: Diluted earnings per share

$

0.53

$

0.69

$

0.47

$

1.22

$

0.75

Adjusted: Diluted earnings per share

0.57

0.69

0.48

1.26

0.76

Average total assets

$

11,398,655

$

10,594,245

$

10,374,820

$

10,998,672

$

10,031,499

Reported: Return on average assets (1)

1.05

%

1.45

%

1.00

%

1.24

%

0.83

%

Adjusted: Return on average assets (1)

1.12

%

1.46

%

1.02

%

1.28

%

0.84

%

(1)Annualized measure.

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

(unaudited, dollars in thousands)

Three Months Ended

Six Months Ended

    

June 30,

    

March 31,

    

June 30,

    

June 30,

    

June 30,

    

    

2021

    

2021

    

2020

    

2021

    

2020

    

Net interest income

$

64,542

$

64,893

$

70,813

$

129,435

$

140,246

Adjustments to net interest income

Tax-equivalent adjustment

 

579

 

601

 

717

 

1,180

 

1,447

Acquisition-related purchase accounting accretion

 

(1,726)

 

(2,157)

 

(2,477)

 

(3,883)

 

(5,304)

Adjusted net interest income

$

63,395

$

63,337

$

69,053

$

126,732

$

136,389

Average interest-earning assets

$

10,448,417

$

9,752,294

$

9,485,200

$

10,102,278

$

9,151,372

Reported: Net interest margin (1)

 

2.50

%

 

2.72

%

 

3.03

%

 

2.61

%

 

3.11

%

Adjusted: Net Interest margin (1)

 

2.43

%

 

2.63

%

 

2.93

%

 

2.53

%

 

3.00

%

(1)Annualized measure.

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

(unaudited, dollars in thousands)

    

Three Months Ended

Six Months Ended

June 30,

    

March 31,

    

June 30,

    

June 30,

    

June 30,

    

2021

    

2021

    

2020

    

2021

    

2020

    

Net interest income

$

64,542

$

64,893

$

70,813

$

129,435

$

140,246

Tax-equivalent adjustment

 

579

 

601

 

717

 

1,180

1,447

Tax-equivalent interest income

$

65,121

$

65,494

$

71,530

$

130,615

$

141,693

Non-interest income

 

33,011

 

31,445

 

27,964

 

64,456

 

55,481

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

 

(898)

 

(1,641)

 

(315)

 

(2,539)

 

(902)

Adjusted non-interest income

$

32,113

$

29,804

$

27,649

$

61,917

$

54,579

Non-interest expense

 

62,625

 

54,499

 

53,068

 

117,124

 

113,582

Amortization of intangible assets

 

(2,650)

 

(2,401)

 

(2,519)

 

(5,051)

 

(5,076)

Non-operating adjustments:

 

 

 

 

  

 

  

Salaries, wages, and employee benefits

 

(1,125)

 

 

(346)

 

(1,125)

 

(346)

Data processing

 

(368)

 

(7)

 

 

(375)

 

Lease or fixed asset impairment

Professional fees and other

 

(1,220)

 

(313)

 

(141)

 

(1,533)

 

(286)

Adjusted non-interest expense

$

57,262

$

51,778

$

50,062

$

109,040

$

107,874

Reported: Efficiency ratio (1)

 

61.68

%

 

54.67

%

 

50.97

%

 

58.21

%

 

55.28

%

Adjusted: Efficiency ratio (2)

 

58.89

%

 

54.33

%

 

50.48

%

 

56.63

%

 

54.96

%

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

 

    

June 30,

    

March 31,

 

June 30,

 

    

2021

    

2021

 

2020

 

Total Assets

$

12,415,449

$

10,759,563

$

10,835,965

Goodwill and other intangible assets, net

 

(381,795)

 

(361,120)

 

(368,053)

Tax effect of other intangible assets, net

 

17,997

 

13,883

 

15,825

Tangible assets

$

12,051,651

$

10,412,326

$

10,483,737

Total stockholders’ equity

 

1,345,691

 

1,265,822

 

1,236,084

Goodwill and other intangible assets, net

 

(381,795)

 

(361,120)

 

(368,053)

Tax effect of other intangible assets, net

 

17,997

 

13,883

 

15,825

Tangible common equity

$

981,893

$

918,585

$

883,856

Ending number of common shares outstanding

56,330,616

54,345,379

54,516,000

Tangible common equity to tangible assets (1)

 

8.15

%  

 

8.82

%

 

8.43

%

Tangible book value per share

$

17.11

$

16.65

$

15.92

Average common equity

$

1,342,771

$

1,275,694

$

1,233,270

Average goodwill and other intangible assets, net

 

(368,709)

 

(362,693)

 

(369,699)

Average tangible common equity

$

974,062

$

913,001

$

863,571

Reported: Return on average tangible common equity (2)

 

12.26

%

 

16.80

%

 

12.02

%

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

 

13.14

%

 

16.91

%

 

12.20

%

(1)Tax-effected measure, 28% estimated deferred tax rate.
(2)Annualized measure.
(3)Calculated using adjusted net income.

Six Months Ended

June 30, 

June 30, 

2021

2020

Average stockholders’ common equity

$

1,309,418

$

1,225,715

Average goodwill and other intangible assets, net

 

(365,718)

 

(370,969)

Average tangible stockholders’ common equity

$

943,700

$

854,746

Reported: Return on average tangible common equity(1)

14.44

%

9.69

%

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

14.96

%

9.80

%

(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, including FASB’s CECL impairment standards; (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 June 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

    

June 30, 2021

 

7.07

%  

12.86

%  

17.90

%  

December 31, 2020

 

7.40

%  

14.16

%  

20.20

%  

 

Year-Two: Basis Point Changes

    

+100

    

+200

    

+300

    

June 30, 2021

 

8.81

%  

15.72

%  

21.63

%  

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 June 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 June 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 June 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 second quarter of 2021, the company purchased 221,000 shares under the plan. As of June 30, 2021, the Company had 1,578,824 shares that may still be purchased under the plan.

Period

Total Number of Shares Purchased

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

April 1-30, 2021

65,000

$

25.64

65,000

1,734,824

May 1-31, 2021

39,000

$

25.64

39,000

1,695,824

June 1-30, 2021

117,000

$

26.26

117,000

1,578,824

Total

221,000

$

25.97

221,000

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

10.34

Second Amended and Restated Credit Agreement, dated as of May 28, 2021, by and between First Busey Corporation and U.S. Bank National Association (filed as Exhibit 10.34 to the Company’s Form 8-K filed on June 2, 2021)

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 Securities Exchange Act of 1934, 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: August 5, 2021

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