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FIRST BUSEY CORP /NV/ - Quarter Report: 2021 March (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 March 31, 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 May 6, 2021

Common Stock, $.001 par value

54,280,379

Table of Contents

FIRST BUSEY CORPORATION

FORM 10-Q

March 31, 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

10

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

12

Item 2.

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

40

Item 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

60

Item 4.

CONTROLS AND PROCEDURES

61

Part II

OTHER INFORMATION

Item 1.

LEGAL PROCEEDINGS

61

Item 1A

RISK FACTORS

61

Item 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

62

Item 3.

DEFAULTS UPON SENIOR SECURITIES

62

Item 4.

MINE SAFETY DISCLOSURES

62

Item 5.

OTHER INFORMATION

62

Item 6.

EXHIBITS

63

SIGNATURES

64

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.

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

Busey Bank (or "the Bank")

Busey Bank

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

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.

FOMC

Federal Open Market Committee

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 Inter-bank Offered Rate

Nasdaq

National Association of Securities Dealers Automated Quotations

NM

Not meaningful

OCI

Other comprehensive income (loss)

OREO

Other real estate owned

PCD

Purchased credit deteriorated

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

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

March 31, 

December 31, 

2021

2020

Assets

Cash and due from banks

$

110,979

$

118,824

Interest-bearing deposits

293,823

569,713

Total cash and cash equivalents

404,802

688,537

Debt securities available for sale

 

2,796,955

 

2,261,187

Equity securities

7,146

5,530

Loans held for sale, at fair value

 

38,272

 

42,813

Portfolio loans (net of ACL 2021 $93,943; 2020 $101,048)

 

6,685,357

 

6,713,129

Premises and equipment, net

 

132,669

 

135,191

Right of use assets

7,333

7,714

Goodwill

 

311,536

 

311,536

Other intangible assets, net

 

49,584

 

51,985

Cash surrender value of bank owned life insurance

 

177,466

 

176,405

Other assets

 

148,443

 

150,020

Total assets

$

10,759,563

$

10,544,047

Liabilities and Stockholders’ Equity

Liabilities

Deposits:

Noninterest-bearing

$

2,859,492

$

2,552,039

Interest-bearing

 

6,014,355

 

6,125,810

Total deposits

8,873,847

8,677,849

Securities sold under agreements to repurchase

 

210,132

 

175,614

Short-term borrowings

4,663

4,658

Long-term debt

 

4,584

 

4,757

Senior notes, net of unamortized issuance costs

39,843

39,809

Subordinated notes, net of unamortized issuance costs

182,370

182,226

Junior subordinated debt owed to unconsolidated trusts

71,509

71,468

Lease liabilities

7,380

7,757

Other liabilities

 

99,413

 

109,840

Total liabilities

9,493,741

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; 55,910,733 shares issued

 

56

 

56

Additional paid-in capital

 

1,255,044

 

1,253,360

Retained earnings

 

45,897

 

20,830

Accumulated other comprehensive income (loss)

 

3,821

 

33,309

Total stockholders’ equity before treasury stock

1,304,818

1,307,555

Treasury stock at cost 2021 1,565,354 shares; 2020 1,506,354 shares

 

(38,996)

 

(37,486)

Total stockholders’ equity

1,265,822

1,270,069

Total liabilities and stockholders’ equity

$

10,759,563

$

10,544,047

Common shares outstanding at period end

54,345,379

54,404,379

See accompanying notes to unaudited consolidated financial statements.

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FIRST BUSEY CORPORATION

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(dollars in thousands, except per share amounts)

Three Months Ended March 31, 

2021

2020

Interest income:

Interest and fees on loans

$

62,565

$

72,536

Interest and dividends on investment securities:

Taxable interest income

8,611

 

9,508

Non-taxable interest income

1,005

 

1,151

Other interest income

150

1,238

Total interest income

72,331

 

84,433

Interest expense:

Deposits

3,732

 

12,227

Federal funds purchased and securities sold under agreements to repurchase

57

 

408

Short-term borrowings

19

 

67

Long-term debt

29

 

423

Senior notes

400

400

Subordinated notes

2,476

731

Junior subordinated debt owed to unconsolidated trusts

725

 

744

Total interest expense

7,438

 

15,000

Net interest income

64,893

 

69,433

Provision for credit losses

(6,796)

 

17,216

Net interest income after provision for credit losses

71,689

 

52,217

Non-interest income:

Wealth management fees

12,584

 

11,555

Fees for customer services

8,037

 

8,361

Remittance processing

4,418

 

3,753

Mortgage revenue

2,666

 

1,381

Income on bank owned life insurance

964

1,057

Net gains (losses) on sales of securities

25

 

1,574

Unrealized gains (losses) recognized on equity securities

1,616

(987)

Other income

1,135

 

823

Total non-interest income

31,445

 

27,517

Non-interest expense:

Salaries, wages, and employee benefits

30,384

 

34,003

Data processing

4,280

 

4,395

Net occupancy expense of premises

4,563

 

4,715

Furniture and equipment expenses

2,026

 

2,449

Professional fees

1,945

1,824

Amortization of intangible assets

2,401

 

2,557

Interchange expense

1,484

1,169

Other expense

7,416

 

9,402

Total non-interest expense

54,499

 

60,514

Income before income taxes

48,635

 

19,220

Income taxes

10,819

 

3,856

Net income

$

37,816

$

15,364

Basic earnings per common share

$

0.69

$

0.28

Diluted earnings per common share

$

0.69

$

0.28

Dividends declared per share of common stock

$

0.23

$

0.22

See accompanying notes to unaudited consolidated financial statements.

7

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FIRST BUSEY CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(dollars in thousands)

Three Months Ended March 31, 

    

2021

    

2020

Net income

$

37,816

$

15,364

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 $11,993 and $(8,589), respectively

(30,079)

21,497

Reclassification adjustment for realized (gains) losses on debt securities available for sale included in net income, net of taxes of $7 and $448, respectively

(18)

(1,108)

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

(30,097)

20,389

Unrealized gains (losses) on cash flow hedges:

Net unrealized holding gains (losses) on cash flow hedges, net of taxes of $(164) and $892, respectively

 

410

 

(2,237)

Reclassification adjustment for realized (gains) losses on cash flow hedges included in net income, net of taxes of $(79) and $4, respectively

199

(11)

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

609

(2,248)

Net change in accumulated other comprehensive income (loss)

(29,488)

18,141

Total comprehensive income

$

8,328

$

33,505

See accompanying notes to unaudited consolidated financial statements.

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FIRST BUSEY CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)

(dollars in thousands, except per share amounts)

Retained

Accumulated

Additional

Earnings

Other

Total

Common

Paid-in

(Accumulated

Comprehensive

Treasury

Stockholders'

    

Shares

    

Stock

    

Capital

    

Deficit)

    

Income

    

Stock

    

Equity

For the Three Months Ended March 31, 2021

Balance, December 31, 2020

54,404,379

$

56

$

1,253,360

$

20,830

$

33,309

$

(37,486)

$

1,270,069

Net income

37,816

37,816

Other comprehensive income (loss)

(29,488)

(29,488)

Repurchase of stock

(59,000)

(1,510)

(1,510)

Cash dividends common stock at $0.23 per share

(12,513)

(12,513)

Stock dividend equivalents restricted stock units at $0.23 per share

236

(236)

Stock-based compensation

1,448

1,448

Balance, March 31, 2021

54,345,379

$

56

$

1,255,044

$

45,897

$

3,821

$

(38,996)

$

1,265,822

Retained

Accumulated

Additional

Earnings

Other

Total

Common

Paid-in

(Accumulated

Comprehensive

Treasury

Stockholders'

    

Shares

    

Stock

    

Capital

    

Deficit)

    

Income (Loss)

    

Stock

    

Equity

For the Three Months Ended March 31, 2020

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

15,364

 

15,364

Other comprehensive income (loss)

18,141

 

18,141

Repurchase of stock

(407,850)

(9,672)

 

(9,672)

Issuance of treasury stock for employee stock purchase plan

14,236

(38)

269

231

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

5,509

(179)

104

(75)

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

541

(10)

10

Cash dividends common stock at $0.22 per share

(12,055)

 

(12,055)

Stock dividend equivalents restricted stock units at $0.22 per share

173

(173)

 

Stock-based compensation

1,139

 

1,139

Balance, March 31, 2020

54,401,208

$

56

$

1,249,301

$

(27,599)

$

33,101

$

(37,274)

$

1,217,585

See accompanying notes to unaudited consolidated financial statements.

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Table of Contents

FIRST BUSEY CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(dollars in thousands)

Three Months Ended March 31, 

    

2021

    

2020

Cash Flows Provided by (Used in) Operating Activities

Net income

$

37,816

$

15,364

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

Provision for credit losses

 

(6,796)

 

17,216

Amortization of intangible assets

2,401

2,557

Amortization of mortgage servicing rights

1,616

1,276

Depreciation and amortization of premises and equipment

 

2,808

 

3,165

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

(1,947)

(2,487)

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

 

4,554

 

1,869

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

(246)

(374)

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

214

93

Impairment of mortgage servicing rights

(508)

177

Change in fair value of equity securities, net

(1,616)

987

(Gain) loss on sales of equity securities, net

(18)

(Gain) loss on sales of debt securities, net

 

(25)

 

(1,556)

(Gain) loss on sales of loans, net

 

(3,369)

 

(3,900)

(Gain) loss on sales of OREO

(1)

1

(Gain) loss on sales of premises and equipment

(134)

37

(Gain) loss on life insurance proceeds

(14)

Provision for deferred income taxes

 

2,448

 

1,722

Stock-based and non-cash compensation

 

1,448

 

1,139

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

 

(964)

 

(1,043)

Mortgage loans originated for sale

(91,479)

(182,203)

Proceeds from sales of mortgage loans

98,307

165,008

Net change in operating assets and liabilities:

(Increase) decrease in other assets

 

260

 

991

Increase (decrease) in other liabilities

 

750

 

(1,194)

Net cash provided by (used in) operating activities

$

45,537

$

18,813

Cash Flows Provided by (Used in) Investing Activities

Purchases of equity securities

(998)

Purchases of debt securities available for sale

(789,884)

(273,992)

Proceeds from sales of equity securities

998

29

Proceeds from paydowns and maturities of debt securities available for sale

 

207,490

 

158,536

Net (increase) decrease in loans

 

36,501

 

(64,338)

Cash paid for premiums on bank-owned life insurance

(97)

(111)

Purchases of premises and equipment

(1,911)

(2,314)

Proceeds from life insurance

274

Proceeds from disposition of premises and equipment

 

1,759

 

607

Proceeds from sales of OREO

 

294

 

81

Net cash provided by (used in) investing activities

$

(545,848)

$

(181,228)

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FIRST BUSEY CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Continued)

(dollars in thousands)

Three Months Ended March 31, 

2021

2020

Cash Flows Provided by (Used in) Financing Activities

Net increase (decrease) in deposits

$

196,244

$

71,211

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

 

34,518

 

(38,241)

Proceeds from other borrowings

20,000

Repayment of other borrowings

(54,000)

Repayment of FHLB advances

(163)

(1,193)

Cash dividends paid

(12,513)

(12,055)

Purchase of treasury stock

(1,510)

(9,672)

Cash paid for withholding taxes on stock-based payments

 

 

(75)

Net cash provided by (used in) financing activities

$

216,576

$

(24,025)

Net increase (decrease) in cash and cash equivalents

 

(283,735)

 

(186,440)

Cash and cash equivalents, beginning of period

 

688,537

 

529,288

Cash and cash equivalents, ending of period

$

404,802

$

342,848

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Cash Payments for:

Interest

$

1,767

$

14,391

Income taxes

 

 

500

Non-cash Investing and Financing Activities:

OREO acquired in settlement of loans

 

14

 

578

See accompanying notes to unaudited consolidated financial statements.

11

FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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Note 1: Significant Accounting Policies

Nature of Operations

First Busey Corporation, a Nevada corporation organized in 1980, is a $10.8 billion financial holding company headquartered in Champaign, Illinois. Our common stock is traded on The Nasdaq Global Select Market under the symbol “BUSE.”

The Company operates and reports its business in three segments: Banking, Remittance Processing, and Wealth Management. The Banking operating segment provides a full range of banking services to individual and corporate customers through the Company’s wholly-owned bank subsidiary, Busey Bank, with banking centers in Illinois; the St. Louis, Missouri metropolitan area; southwest Florida; and Indianapolis, Indiana. The Remittance Processing operating segment provides 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, and fiduciary services to individuals, businesses and foundations, tax preparation, philanthropic advisory services, farms, and brokerage services.

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 continues 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, given that 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. First Busey served as a bridge for the program, actively helping existing and new business clients sign up for this important financial resource. The Company originated a total of $749.4 million in first round PPP loans representing 4,569 new and existing customers. As of March 31, 2021, the Company had received approximately $478.5 million in loan forgiveness on these loans from the SBA and had submitted forgiveness applications to the SBA for another $131.6 million. Net fee income accretion recognized on these loans in the first quarter of 2021 was $3.3 million.

12

FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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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 is exhausted. As of March 31, 2021, the Company originated a total of $262.5 million in second round PPP loans representing 2,123 new and existing customers. Net fee income accretion recognized on the loans related to this new round of PPP in the first quarter of 2021 was $0.3 million.

At March 31, 2021, First Busey had $533.4 million in total PPP loans outstanding, with an amortized cost of $522.1 million, representing 3,441 customers.

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. There were no significant subsequent events for the quarter ended March 31, 2021, through the filing date of these unaudited consolidated financial statements.

Note 2: Acquisitions

Cummins-American Corp.

On January 19, 2021, the Company and CAC, the holding company for GSB, jointly announced the signing of a definitive agreement pursuant to which the Company will acquire CAC and GSB through a merger transaction. 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.

Under the terms of the merger agreement, CAC’s stockholders will have the right to receive 444.4783 shares of First Busey’s common stock and $27,969.67 in cash for each share of common stock of CAC with total consideration to consist of approximately 73% cash and 27% stock. Based upon the closing price of Busey’s common stock of $23.54 on January 15, 2021, the implied per share purchase price is $38,432.69 with an aggregate transaction value of approximately $190.8 million. The merger agreement provides that the cash consideration to be paid in the merger will be funded with a combination of cash from First Busey and a special dividend to be paid by CAC to its shareholders. Specifically, immediately prior to closing and subject to the completion of all closing conditions, CAC will cause GSB to pay a one-time special cash dividend of $60.0 million to CAC and, upon receipt, CAC will declare and issue a $60.0 million special cash dividend to CAC’s shareholders, which will be used to fund, in part, the cash consideration to be paid to CAC’s shareholders at closing. Further, the cash portion of the merger consideration is subject to downward adjustment in the event that CAC’s consolidated tangible common equity as of the closing date of the first-step merger, and as adjusted in accordance with the merger agreement, is less than $169.6 million. Specifically, in the event of a CAC tangible common equity shortfall, the cash portion of the merger consideration will be reduced on a dollar-for-dollar basis to the extent of such shortfall.

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The transaction is expected to close in the second quarter of 2021, subject to customary closing conditions and approval by CAC’s shareholders. Required regulatory approvals have been obtained. It is anticipated GSB will be merged with and into Busey Bank during the third quarter of 2021. At the time of the bank merger, GSB banking centers will become banking centers of Busey Bank.

During the three months ended March 31, 2021, First Busey incurred $0.3 million in pre-tax acquisition expenses related to the planned acquisition of CAC, comprised primarily of professional fees.

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):

Gross

Gross

    

Amortized

Unrealized

Unrealized

Fair

March 31, 2021:

    

Cost

    

Gains

    

Losses

    

ACL

    

Value

U.S. Treasury securities

$

23,514

$

243

$

$

$

23,757

Obligations of U.S. government corporations and agencies

 

64,903

 

1,720

 

(45)

 

66,578

Obligations of states and political subdivisions

 

280,150

 

8,854

 

(1,542)

 

287,462

Commercial mortgage-backed securities

499,996

5,308

(6,786)

498,518

Residential mortgage-backed securities

 

1,786,062

 

18,587

 

(18,329)

 

1,786,320

Corporate debt securities

 

134,783

 

964

 

(1,427)

 

134,320

Debt securities available for sale

$

2,789,408

$

35,676

$

(28,129)

$

$

2,796,955

Gross

Gross

    

Amortized

Unrealized

Unrealized

Fair

December 31, 2020:

    

Cost

    

Gains

    

Losses

    

ACL

    

Value

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

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 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 March 31, 2021

    

Amortized

    

Fair

    

Cost

    

Value

Due in one year or less

$

100,016

$

100,789

Due after one year through five years

 

291,357

 

297,624

Due after five years through ten years

 

303,453

 

309,672

Due after ten years

 

2,094,582

 

2,088,870

Debt securities available for sale

$

2,789,408

$

2,796,955

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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 March 31, 

    

2021

    

2020

Gross security gains

$

25

$

1,561

Gross security (losses)

(5)

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

$

25

$

1,556

(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 $562.6 million on March 31, 2021, and $628.0 million on 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):

Less than 12 months

12 months or more

Total

Fair

    

Unrealized

    

Fair

    

Unrealized

    

Fair

    

Unrealized

March 31, 2021:

    

Value

    

Losses

    

Value

    

Losses

    

Value

    

Losses

Debt securities available for sale

Obligations of U.S. government corporations and agencies

$

$

$

4,695

$

(45)

$

4,695

$

(45)

Obligations of states and political subdivisions

58,555

(1,542)

58,555

(1,542)

Commercial mortgage-backed securities

314,109

(6,786)

314,109

(6,786)

Residential mortgage-backed securities

 

1,019,462

 

(18,325)

 

352

 

(4)

 

1,019,814

 

(18,329)

Corporate debt securities

 

95,164

 

(1,427)

 

 

 

95,164

 

(1,427)

Total temporarily impaired securities

$

1,487,290

$

(28,080)

$

5,047

$

(49)

$

1,492,337

$

(28,129)

Less than 12 months

12 months or more

Total

Fair

    

Unrealized

    

Fair

    

Unrealized

    

Fair

    

Unrealized

December 31, 2020:

    

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 March 31, 2021, the Company’s debt security portfolio consisted of 1,108 securities, compared to 1,114 securities at December 31, 2020. The total number of debt securities in the investment portfolio in an unrealized loss position as of March 31, 2021, was 192 and represented an unrealized loss of 1.88% of the aggregate fair value. The total number of debt securities in the investment portfolio in an unrealized loss position as of December 31, 2020, was 23 and represented 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 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 March 31, 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.

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Note 4: Portfolio Loans

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

As of

March 31, 

December 31, 

    

2021

    

2020

Commercial

$

2,067,371

$

2,014,576

Commercial real estate

2,912,966

2,892,535

Real estate construction

422,633

461,786

Retail real estate

1,343,299

1,407,852

Retail other

33,031

37,428

Portfolio loans

$

6,779,300

$

6,814,177

ACL

(93,943)

(101,048)

Portfolio loans, net

$

6,685,357

$

6,713,129

Net deferred loan origination fees included in the balances above were ($3.4) million as of March 31, 2021, compared to $2.4 million of net deferred loan origination costs as of December 31, 2020. Net accretable purchase accounting adjustments included in the balances above reduced loans by $9.0 million as of March 31, 2021, and $10.9 million as of December 31, 2020. The March 31, 2021, commercial balance includes loans originated under PPP with an amortized cost of $522.1 million, compared to $446.4 million in loans originated under PPP included in the December 31, 2020, commercial balance.

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.

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.

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All loans are graded at their inception. Most commercial lending relationships that are $1.0 million or less are 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 reviewed on a quarterly basis. Interim reviews may take place if circumstances of the borrower warrant a more frequent review.

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

March 31, 2021

    

    

    

Special

    

    

Substandard

    

Pass

    

Watch

    

Mention

    

Substandard

    

Non-accrual

Commercial

$

1,830,063

$

123,390

$

78,546

$

27,423

$

7,949

Commercial real estate

 

2,400,446

 

407,244

 

68,900

 

31,212

 

5,164

Real estate construction

 

400,306

 

19,918

 

9

 

2,400

 

Retail real estate

 

1,318,247

 

9,879

 

2,376

 

4,302

 

8,495

Retail other

 

32,933

 

 

 

 

98

Portfolio loans

$

5,981,995

$

560,431

$

149,831

$

65,337

$

21,706

December 31, 2020

    

    

    

Special

    

    

Substandard

    

Pass

    

Watch

    

Mention

    

Substandard

    

Non-accrual

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

Portfolio loans

$

6,016,748

$

554,970

$

150,481

$

69,048

$

22,930

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

Risk Grade Ratings

    

Term Loans Amortized Cost Basis by Origination Year

Revolving

As of March 31, 2021

    

2021

    

2020

    

2019

    

2018

    

2017

Prior

loans

Total

Commercial:

 

Pass

$

388,147

$

536,074

$

131,127

$

97,322

$

88,238

$

126,916

$

462,239

$

1,830,063

Watch

4,830

14,828

18,085

6,890

9,185

12,947

56,625

123,390

Special Mention

2,061

4,241

5,590

8,369

6,680

18,831

32,774

78,546

Substandard

587

8,912

3,569

2,993

1,815

125

9,422

27,423

Substandard non-accrual

501

2,392

336

2,168

552

2,000

7,949

Total commercial

395,625

564,556

160,763

115,910

108,086

159,371

563,060

2,067,371

Commercial real estate:

 

Pass

195,095

732,186

462,732

342,786

315,383

334,934

17,330

2,400,446

Watch

13,209

91,440

133,721

89,517

29,142

48,557

1,658

407,244

Special Mention

19,920

9,818

7,902

9,949

7,172

13,716

423

68,900

Substandard

2,500

15,325

3,557

2,425

4,400

3,005

31,212

Substandard non-accrual

784

739

821

882

1,938

5,164

Total commercial real estate

230,724

849,553

608,651

445,498

356,979

402,150

19,411

2,912,966

Real estate construction:

 

Pass

40,766

167,230

143,555

39,297

1,164

1,680

6,614

400,306

Watch

2,079

11,915

3,653

330

1,785

156

19,918

Special Mention

9

9

Substandard

2,400

2,400

Substandard non-accrual

Total real estate construction

42,845

181,545

147,217

39,627

2,949

1,836

6,614

422,633

Retail real estate:

 

Pass

161,016

207,536

144,201

118,052

117,359

351,700

218,383

1,318,247

Watch

189

2,557

2,040

1,407

291

846

2,549

9,879

Special Mention

377

33

18

1,948

2,376

Substandard

323

882

91

56

168

2,497

285

4,302

Substandard non-accrual

483

137

76

650

1,128

4,818

1,203

8,495

Total retail real estate

162,388

211,145

146,408

120,183

118,946

361,809

222,420

1,343,299

Retail other:

 

Pass

2,014

6,835

8,062

4,652

1,949

800

8,621

32,933

Watch

Special Mention

Substandard

Substandard non-accrual

14

7

5

14

58

98

Total retail other

2,014

6,849

8,069

4,657

1,963

858

8,621

33,031

Total portfolio loans

$

833,596

$

1,813,648

$

1,071,108

$

725,875

$

588,923

$

926,024

$

820,126

$

6,779,300

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Risk Grade Ratings

    

Term Loans Amortized Cost Basis by Origination Year

Revolving

As of December 31, 2020

    

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

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):

March 31, 2021

Loans past due, still accruing

Non-accrual

    

30-59 Days

    

60-89 Days

    

90+Days

    

 Loans

Commercial

$

52

$

2,614

$

$

7,949

Commercial real estate

4,377

5,164

Real estate construction

 

 

 

 

Retail real estate

2,248

621

1,149

8,495

Retail other

 

8

 

9

 

 

98

Past due and non-accrual loans

$

6,685

$

3,244

$

1,149

$

21,706

December 31, 2020

Loans past due, still accruing

Non-accrual

    

30-59 Days

    

60-89 Days

    

90+Days

    

 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

Past due and non-accrual loans

$

6,794

$

784

$

1,371

$

22,930

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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 $0.5 million for the three months ended March 31, 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 months ended March 31, 2021 and 2020.

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

As of

March 31, 

December 31, 

    

2021

    

2020

In compliance with modified terms

3,135

3,814

30 89 days past due

164

15

Included in non-performing loans

1,338

1,249

TDR loans

$

4,637

$

5,078

We did not newly classify any loans as TDRs during the three months ended March 31, 2021, that were in compliance with their modified terms or 30 – 89 days past due. During the three months ended March 31, 2021, one commercial loan for $0.5 million was newly classified as a non-performing TDR. This loan had been non-accrual since the second quarter of 2020. Also, during the three months ended March 31, 2021, one retail real estate loan for $0.1 million that had been a performing TDR for longer than 12 months became non-performing. During the three months ended March 31, 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. These loans had been non-accrual since 2019.

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 months ended March 31, 2021 or 2020.

Gross interest income that would have been recorded in the three months ended March 31, 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.

At March 31, 2021, the Company had $0.4 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. The agency has extended the moratoriums on single-family foreclosures and real estate owned evictions until at least June 30, 2021. Additionally, the Company follows all COVID-19 related state foreclosure and eviction orders. As these guidelines and orders may likely be updated, most foreclosures will be delayed into late-2021 or beyond.

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):

20

FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Table of Contents

March 31, 2021

    

Unpaid

    

Amortized

    

    

    

    

Contractual

Cost

Amortized

Total

Average

Principal

with No

Cost

Amortized

Related

Amortized

    

Balance

    

Allowance

    

with Allowance

    

Cost

    

Allowance

    

Cost

Commercial

$

16,008

$

2,987

$

4,817

$

7,804

$

2,483

$

7,524

Commercial real estate

 

6,523

5,552

 

5,552

 

 

8,075

Real estate construction

 

287

 

287

 

 

287

 

 

450

Retail real estate

 

5,342

 

4,959

 

25

 

4,984

 

25

 

5,560

Retail other

 

 

 

 

 

 

Loans evaluated individually

$

28,160

$

13,785

$

4,842

$

18,627

$

2,508

$

21,609

December 31, 2020

    

Unpaid

    

Amortized

    

    

    

    

Contractual

Cost

Amortized

Total

Average

Principal

with No

Cost

Amortized

Related

Amortized

    

Balance

    

Allowance

    

with Allowance

    

Cost

    

Allowance

    

Cost

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

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 March 31, 2021, there were $15.3 million of collateral dependent loans secured by real estate or business assets.

Management estimates the ACL balance using relevant available information from internal and external sources relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. The cumulative loss rate used as the basis for the estimate of credit losses is comprised of the Company’s historical loss experience beginning in 2010. As of March 31, 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 table details 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 March 31, 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

Provision for credit losses

 

(665)

 

(2,695)

 

(1,250)

 

(2,276)

 

90

 

(6,796)

Charged-off

 

(262)

 

(303)

 

(209)

(3)

 

(187)

 

(964)

Recoveries

 

86

 

74

 

145

 

265

 

85

 

655

ACL ending balance

$

23,025

$

43,306

$

6,879

$

19,978

$

755

$

93,943

21

FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Table of Contents

As of and for the Three Months Ended March 31, 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

 

5,673

 

6,526

 

889

 

4,037

 

91

 

17,216

Charged-off

 

(2,042)

 

(1,099)

 

(708)

 

(299)

 

(4,148)

Recoveries

 

88

 

44

 

146

 

338

 

119

 

735

ACL ending balance

$

22,725

$

35,967

$

7,193

$

17,454

$

1,045

$

84,384

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

As of March 31, 2021

    

Commercial

    

Real Estate

    

Retail Real

    

Commercial

    

Real Estate

    

Construction

    

Estate

    

Retail Other

    

Total

ACL:

Ending balance attributed to:

Loans individually evaluated for impairment

$

2,483

$

$

$

25

$

$

2,508

Loans collectively evaluated for impairment

 

20,542

 

43,306

 

6,879

 

19,953

 

755

 

91,435

ACL ending balance

$

23,025

$

43,306

$

6,879

$

19,978

$

755

$

93,943

Loans:

Loans individually evaluated for impairment

$

7,804

$

3,644

$

287

$

4,613

$

$

16,348

Loans collectively evaluated for impairment

 

2,059,567

 

2,907,414

422,346

 

1,338,315

 

33,031

 

6,760,673

PCD loans evaluated for impairment

1,908

371

2,279

Loans ending balance

$

2,067,371

$

2,912,966

$

422,633

$

1,343,299

$

33,031

$

6,779,300

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

$

4,161

$

292

$

5,149

$

$

17,974

Loans collectively evaluated for impairment

 

2,006,204

 

2,886,468

461,494

 

1,402,337

 

37,428

 

6,793,931

PCD loans evaluated for impairment

1,906

366

2,272

Loans ending balance

$

2,014,576

$

2,892,535

$

461,786

$

1,407,852

$

37,428

$

6,814,177

22

FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Table of Contents

Note 5: Deposits

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

    

As of

March 31, 

December 31, 

    

2021

    

2020

Demand deposits, noninterest-bearing

$

2,859,492

$

2,552,039

Interest-bearing transaction deposits

 

2,312,008

 

2,263,093

Saving deposits and money market deposits

 

2,679,879

2,743,369

Time deposits

 

1,022,468

 

1,119,348

Total deposits

$

8,873,847

$

8,677,849

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

    

As of

March 31, 

December 31, 

    

2021

    

2020

Brokered savings deposits and money market deposits

$

2,699

$

2,251

Brokered time deposits

5,259

5,257

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

502,968

568,735

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

155,401

192,563

As of March 31, 2021, the scheduled maturities of time deposits are as follows (dollars in thousands):

    

As of

March 31, 

Scheduled maturities of time deposits:

2021

April 1, 2021 – March 31, 2022

    

$

704,942

April 1, 2022 – March 31, 2023

 

175,252

April 1, 2023 – March 31, 2024

 

98,282

April 1, 2024 – March 31, 2025

 

29,736

April 1, 2025 – March 31, 2026

 

14,253

Thereafter

 

3

Total time deposits

$

1,022,468

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

March 31, 

December 31, 

    

2021

    

2020

 

Securities sold under agreements to repurchase

$

210,132

$

175,614

Weighted average rate for securities sold under agreements to repurchase

0.11

%

0.13

%

Federal funds purchased are short-term borrowings that generally mature between one and 90 days. The Company had no federal funds purchased at March 31, 2021, and December 31, 2020.

23

FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Table of Contents

Short-term borrowings of $4.7 million at March 31, 2021, and December 31, 2020, was composed of FHLB advances which mature in less than one year from date of origination and the portion of long-term FHLB debt which is due within the next 12 months.

On January 29, 2019, the Company entered into an Amended and Restated Credit Agreement providing for the Company’s $20.0 million revolving credit facility with an annual interest rate of one-month LIBOR plus a spread of 1.75%. The revolving credit facility was set to mature on April 30, 2021. Subsequent to quarter end, on April 21, 2021, the maturity was extended by amendment for an additional one year, to April 30, 2022. The revolving credit facility incurs a non-usage fee based on the undrawn amount. The Company had no outstanding balance under the revolving credit facility on March 31, 2021, or December 31, 2020.

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

    

As of

March 31, 

December 31, 

    

2021

    

2020

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

$

4,584

$

4,757

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

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

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

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

    

As of

March 31, 

December 31, 

    

2021

    

2020

Unamortized debt issuance costs related to:

Senior notes issued in 2017

$

157

$

191

Subordinated notes issued in 2017

625

651

Subordinated notes issued in 2020

2,005

2,123

Total unamortized debt issuance costs

$

2,787

$

2,965

24

FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Table of Contents

Note 7: Regulatory Capital

The Company and Busey Bank are subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory – and possibly additional discretionary – actions by regulators that, if undertaken, could have a direct material effect on 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  March 31, 2021, and  December 31, 2020, all capital ratios of the Company and Busey Bank exceeded the well capitalized levels under the applicable regulatory capital adequacy guidelines. Management believes that no events or changes have occurred subsequent to March 31, 2021, that would change this designation.

On March 27, 2020, the FDIC and other federal banking agencies published an interim final rule that provides those banking organizations adopting CECL during 2020 with the option to delay for two years the estimated impact of CECL on regulatory capital and to phase in the aggregate impact of the deferral on regulatory capital over a subsequent three year period. On August 26, 2020, the CECL final rule was finalized and was substantially similar to the interim final rule. Under this final rule, because the Company has elected to use the deferral option, the regulatory capital impact of our transition adjustments recorded on January 1, 2020, from the adoption of CECL will be deferred for two years, until January 1, 2022. In addition, 25 percent of the ongoing impact of CECL on our ACL, retained earnings, and average total consolidated assets from January 1, 2020, through the end of the two-year deferral period, each as reported for regulatory capital purposes, will be added to the deferred transition amounts (“adjusted transition amounts”) and deferred for the two-year period. At the conclusion of the two-year period the adjusted transition amounts will be phased-in for regulatory capital purposes at a rate of 25 percent per year, with the phased-in amounts included in regulatory capital at the beginning of each year.

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

Minimum

 

Minimum

To Be Well

 

Actual

Capital Requirement

Capitalized

 

    

Amount

    

Ratio

    

Amount

    

Ratio

    

Amount

    

Ratio

    

As of March 31, 2021:

Total Capital (to Risk Weighted Assets)

Consolidated

$

1,265,926

 

17.39

%   

$

582,526

 

8.00

%   

$

728,157

 

10.00

%

Busey Bank

$

1,167,199

 

16.06

%   

$

581,457

 

8.00

%   

$

726,821

 

10.00

%

Tier 1 Capital (to Risk Weighted Assets)

Consolidated

$

1,007,986

 

13.84

%   

$

436,894

 

6.00

%   

$

582,526

 

8.00

%

Busey Bank

$

1,094,260

 

15.06

%   

$

436,093

 

6.00

%   

$

581,457

 

8.00

%

Common Equity Tier 1 Capital (to Risk Weighted Assets)

Consolidated

$

933,986

 

12.83

%   

$

327,671

 

4.50

%   

$

473,302

 

6.50

%

Busey Bank

$

1,094,260

 

15.06

%   

$

327,070

 

4.50

%   

$

472,434

 

6.50

%

Tier 1 Capital (to Average Assets)

Consolidated

$

1,007,986

 

9.85

%   

$

409,360

 

4.00

%   

 

N/A

 

N/A

Busey Bank

$

1,094,260

 

10.71

%   

$

408,522

 

4.00

%   

$

510,652

 

5.00

%

25

FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Table of Contents

Minimum

Minimum

To Be Well

Actual

Capital Requirement

Capitalized

    

Amount

    

Ratio

    

Amount

    

Ratio

    

Amount

    

Ratio

 

As of December 31, 2020:

Total Capital (to Risk Weighted Assets)

Consolidated

$

1,245,997

 

17.04

%   

$

585,015

 

8.00

%   

$

731,269

 

10.00

%

Busey Bank

$

1,131,875

 

15.50

%   

$

584,082

 

8.00

%   

$

730,103

 

10.00

%

Tier 1 Capital (to Risk Weighted Assets)

Consolidated

$

983,033

 

13.44

%   

$

438,761

 

6.00

%   

$

585,015

 

8.00

%

Busey Bank

$

1,053,910

 

14.44

%   

$

438,062

 

6.00

%   

$

584,082

 

8.00

%

Common Equity Tier 1 Capital (to Risk Weighted Assets)

Consolidated

$

909,033

 

12.43

%   

$

329,071

 

4.50

%   

$

475,325

 

6.50

%

Busey Bank

$

1,053,910

 

14.44

%   

$

328,546

 

4.50

%   

$

474,567

 

6.50

%

Tier 1 Capital (to Average Assets)

Consolidated

$

983,033

 

9.79

%   

$

401,717

 

4.00

%   

 

N/A

 

N/A

Busey Bank

$

1,053,910

 

10.52

%   

$

400,581

 

4.00

%   

$

500,727

 

5.00

%

In July 2013, U.S. federal banking authorities approved the Basel III Rule for strengthening international capital standards. The Basel III Rule introduced a capital conservation buffer, composed entirely of Common Equity Tier 1 Capital, which is added to the minimum risk-weighted asset ratios. The capital conservation buffer is not a minimum capital requirement; however, banking institutions with a ratio of Common Equity Tier 1 to risk-weighted assets below the capital conservation buffer will face constraints on dividends, equity repurchases, and discretionary bonus payments based on the amount of the shortfall. In order to refrain from restrictions on dividends, equity repurchases, and discretionary bonus payments, banking institutions must maintain minimum ratios of (i) total capital to risk-weighted assets of at least 10.50%, (ii) Tier 1 Capital to risk-weighted assets of at least 8.50%, and (iii) Common Equity Tier 1 to risk-weighted assets of at least 7.00%.

Note 8: 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.

26

FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Table of Contents

Stock Option Plan

A summary of the status of, and changes in, the Company's stock option awards for the three months ended March 31, 2021, follows:

Weighted-

    

    

Weighted-

Average

Average

Remaining

Exercise

Contractual

    

Shares

    

Price

    

Life

Outstanding at beginning of period

 

39,085

 

$

23.53

5.88

Exercised

 

 

Forfeited

 

Expired

 

(5,279)

 

23.53

Outstanding at end of period

 

33,806

 

$

23.53

 

5.63

Exercisable at end of period

 

33,806

 

$

23.53

 

5.63

The Company did not record any stock option compensation expense for the three months ended March 31, 2021, or 2020. As of March 31, 2021, the Company did not have any unrecognized stock option expense.

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

A summary of changes in the Company’s restricted stock unit and deferred stock unit awards for the three months ended March 31, 2021, is as follows:

Weighted-

Director

Weighted-

Restricted

Average

Deferred

Average

Stock

Grant Date

Stock

Grant Date

    

Units

    

Fair Value

    

Units

    

Fair Value

Non-vested at beginning of period

 

1,017,038

 

$

23.87

 

34,263

 

$

17.18

Granted

 

212,426

 

24.54

 

33,288

 

24.54

Dividend equivalents earned

 

11,310

 

20.67

 

1,172

 

20.67

Vested

 

 

 

(791)

 

20.67

Forfeited

 

(13,422)

 

26.98

 

 

Non-vested at end of period

 

1,227,352

 

$

23.93

 

67,932

 

$

20.81

Outstanding at end of period

 

1,227,352

 

$

23.93

 

71,835

 

$

24.30

On March 24, 2021, under the terms of the 2020 Equity Incentive 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 is estimated to be $1.7 million and will be recognized in compensation expense over the performance period ending December 31, 2023. The Company expects to finalize the grant date fair value of these awards in the second quarter of 2021.

27

FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Table of Contents

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 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.

The Company recognized $1.4 million and $1.1 million of compensation expense related to non-vested restricted stock units, deferred stock units, and performance-based restricted stock awards for the three months ended March 31, 2021 and 2020, respectively. As of March 31, 2021, there was $17.5 million of total unrecognized compensation cost related to these non-vested stock awards. This cost is expected to be recognized over a weighted average period of 3.2 years.

As of March 31, 2021, 1,094,149 shares remain available for issuance pursuant to the 2020 Equity Plan. The First Busey Corporation Employee Stock Purchase Plan expired as of December 31, 2020. The Company has included a proposal for approval of a new 2021 Employee Stock Purchase Plan within its Definitive Proxy Statement filed April 8, 2021.

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.

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

March 31, 

December 31, 

   

2021

   

2020

Financial instruments whose contract amounts represent credit risk:

Commitments to extend credit

$

1,759,035

$

1,754,370

Standby letters of credit

 

39,643

 

38,937

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 March 31, 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

28

FIRST BUSEY CORPORATION

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debt owed to unconsolidated trusts and were determined to be highly effective during the period. The gross aggregate fair value of the swaps of $2.2 million and $3.1 million is recorded in other liabilities in the unaudited Consolidated Balance Sheets at March 31, 2021, and December 31, 2020, respectively, 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

March 31, 

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

0.18

%

0.22

%

Weighted average maturity, in years

2.61

yrs 

2.85

yrs

Unrealized gains (losses), net of tax

$

(1,575)

$

(2,184)

Interest expense recorded on these swap transactions was $0.3 million during the three months ended March 31, 2021. 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 March 31, 2021.

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

Three Months Ended March 31, 

Interest rate contracts

   

2021

    

2020

Gain (loss) recognized in OCI, net of tax

$

410

$

(2,237)

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

199

(11)

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

$

609

$

(2,248)

The Company pledged $2.4 million and $3.2 million in cash to secure its obligation under these contracts at March 31, 2021, and December 31, 2020, respectively.

Interest Rate Lock Commitments

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

Forward Sales Commitments

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

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

March 31, 2021

December 31, 2020

Notional

Fair

Notional

Fair

Derivatives with positive fair value

   

Location

   

Amount

   

Value

   

Amount

   

Value

Interest rate lock commitments

Other assets

$

24,142

$

474

$

45,004

$

1,201

Forward sales commitments

Other assets

7,035

59

978

32

Mortgage banking derivatives recorded in other assets

$

31,177

$

533

$

45,982

$

1,233

Derivatives with negative fair value

Interest rate lock commitments

Other liabilities

$

931

$

2

$

118

$

1

Forward sales commitments

Other liabilities

55,454

879

84,964

2,662

Mortgage banking derivatives recorded in other liabilities

$

56,385

$

881

$

85,082

$

2,663

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

    

Three Months Ended March 31, 

   

Location

2021

2020

Interest rate lock commitments

Mortgage revenue

$

472

$

4,849

Forward sales commitments

Mortgage revenue

 

(820)

(7,047)

Net gains (losses)

$

(348)

$

(2,198)

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 an equal and offsetting derivative with a third-party dealer. These contracts support variable rate, commercial loan relationships totaling $401.2 million and $395.0 million, at March 31, 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):

Derivative Asset

Derivative Liability

Notional

Fair

Notional

Fair

March 31, 2021

   

Amount

   

Value

   

Amount

   

Value

Interest rate swaps – pay floating, receive fixed

$

308,178

$

18,881

$

93,069

$

3,209

Interest rate swaps – pay fixed, receive floating

93,069

3,209

308,178

18,881

Derivatives not designated as hedging instruments

$

401,247

$

22,090

$

401,247

$

22,090

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Derivative Asset

Derivative Liability

Notional

Fair

Notional

Fair

December 31, 2020

   

Amount

   

Value

   

Amount

   

Value

Interest rate swaps – pay floating, receive fixed

$

394,954

$

32,685

$

$

Interest rate swaps – pay fixed, receive floating

394,954

32,685

Derivatives not designated as hedging instruments

$

394,954

$

32,685

$

394,954

$

32,685

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

Three Months Ended March 31, 

   

Location

   

2021

   

2020

Interest rate swaps – pay floating, receive fixed

Non-interest expense

$

(10,595)

$

23,478

Interest rate swaps – pay fixed, receive floating

Non-interest expense

10,595

(23,478)

Net change in fair value of interest rate swaps

$

$

The Company pledged $25.6 million and $36.0 million in cash to secure its obligation under these contracts at March 31, 2021, and December 31, 2020, respectively.

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.

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FIRST BUSEY CORPORATION

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Debt Securities Available for Sale

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

The independent pricing service uses model processes, such as the Option Adjusted Spread model, to assess interest rate impact and develop prepayment scenarios. The 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. For mutual funds, unadjusted quoted prices in active markets for identical assets are utilized to determine fair value at the measurement date and have been 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. The fair value of derivative assets and liabilities is 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.

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The following tables summarize financial assets and financial liabilities measured at fair value on a recurring basis as of March 31, 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):

Level 1

Level 2

Level 3

Total

March 31, 2021

   

Inputs

   

Inputs

   

Inputs

   

Fair Value

Debt securities available for sale:

U.S. Treasury securities

$

$

23,757

$

$

23,757

Obligations of U.S. government corporations and agencies

66,578

66,578

Obligations of states and political subdivisions

287,462

287,462

Commercial mortgage-backed securities

498,518

498,518

Residential mortgage-backed securities

1,786,320

1,786,320

Corporate debt securities

134,320

134,320

Equity securities

7,146

7,146

Loans held for sale

38,272

38,272

Derivative assets

22,623

22,623

Derivative liabilities

25,173

25,173

Level 1

Level 2

Level 3

Total

December 31, 2020

   

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.

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FIRST BUSEY CORPORATION

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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. 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 March 31, 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):

Level 1

Level 2

Level 3

Total

March 31, 2021

   

Inputs

   

Inputs

   

Inputs

   

Fair Value

Loans evaluated individually

$

$

$

2,334

$

2,334

OREO

 

 

 

51

 

51

Bank property held for sale

 

 

 

9,101

 

9,101

Level 1

Level 2

Level 3

Total

December 31, 2020

   

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

March 31, 2021

   

Estimate

   

Techniques

   

Input

   

(Weighted Average)

Loans evaluated individually

$

2,334

Appraisal of collateral

Appraisal adjustments

-42.8

%

to 

-100.0

%

(-51.8)

%

OREO

51

Appraisal of collateral

Appraisal adjustments

-33.0

%

to 

-100.0

%

(-67.9)

%

Bank property held for sale

9,101

Appraisal of collateral or real estate listing price

Appraisal adjustments

-6.2

%

to 

-64.9

%

(-41.3)

%

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)

%

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Table of Contents

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):

March 31, 2021

December 31, 2020

Carrying

    

Fair

    

Carrying

    

Fair

Amount

    

Value

    

Amount

    

Value

Financial assets:

Level 1 inputs:

Cash and cash equivalents

$

404,802

$

404,802

$

688,537

$

688,537

Level 2 inputs:

Accrued interest receivable

 

31,876

 

31,876

 

33,240

 

33,240

Level 3 inputs:

Portfolio loans, net

 

6,685,357

 

6,740,655

 

6,713,129

 

6,755,425

Mortgage servicing rights

10,409

12,461

10,912

11,107

Other servicing rights

1,528

2,055

1,434

1,966

Financial liabilities:

Level 2 inputs:

Time deposits

$

1,022,468

$

1,031,778

$

1,119,348

$

1,132,107

Securities sold under agreements to repurchase

 

210,132

 

210,132

 

175,614

 

175,614

Short-term borrowings

4,663

4,669

4,658

4,661

Long-term debt

 

4,584

 

4,806

4,757

 

5,014

Junior subordinated debt owed to unconsolidated trusts

 

71,509

 

56,511

 

71,468

 

59,943

Accrued interest payable

 

5,671

 

5,671

 

3,401

 

3,401

Level 3 inputs:

Senior notes, net of unamortized issuance costs

39,843

40,066

39,809

40,104

Subordinated notes, net of unamortized issuance costs

182,370

184,819

182,226

187,697

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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

March 31, 

    

2021

    

2020

Net income

$

37,816

$

15,364

Shares:

Weighted average common shares outstanding

 

54,471,860

 

54,661,787

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

 

563,946

 

251,542

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

 

55,035,806

 

54,913,329

Basic earnings per common share

$

0.69

$

0.28

Diluted earnings per common share

$

0.69

$

0.28

Common stock equivalents excluded from the earning per common share calculations because their effect would have been anti-dilutive

358,279

244,242

Note 13: Accumulated Other Comprehensive Income (Loss)

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

Three Months Ended March 31, 

    

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

(42,072)

11,993

(30,079)

30,086

(8,589)

21,497

Amounts reclassified from accumulated other comprehensive income, net

(25)

7

(18)

(1,556)

448

(1,108)

Balance at end of period

$

7,547

$

(2,151)

$

5,396

$

49,722

$

(14,173)

$

35,549

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

574

(164)

410

(3,129)

892

(2,237)

Amounts reclassified from accumulated other comprehensive income, net

278

(79)

199

(15)

4

(11)

Balance at end of period

$

(2,203)

$

628

$

(1,575)

$

(3,424)

$

976

$

(2,448)

Total accumulated other comprehensive income (loss)

$

5,344

$

(1,523)

$

3,821

$

46,298

$

(13,197)

$

33,101

36

FIRST BUSEY CORPORATION

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Table of Contents

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. 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, and fiduciary services to individuals, businesses and foundations, tax preparation, philanthropic advisory services, farms, and brokerage services.

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.

Following is a summary of selected financial information for the Company’s operating segments (dollars in thousands):

Goodwill

Total Assets

As of

As of

March 31, 

December 31, 

March 31, 

December 31, 

    

2021

    

2020

    

2021

    

2020

Banking

$

288,436

$

288,436

$

10,674,402

$

10,462,673

Remittance Processing

 

8,992

 

8,992

 

46,765

 

46,553

Wealth Management

 

14,108

 

14,108

 

50,392

 

46,504

Other

 

 

 

(11,996)

 

(11,683)

Totals

$

311,536

$

311,536

$

10,759,563

$

10,544,047

37

FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Table of Contents

Three Months Ended March 31, 

    

2021

    

2020

Net interest income:

Banking

$

68,455

$

71,573

Remittance Processing

20

19

Wealth Management

 

 

Other

 

(3,582)

 

(2,159)

Total net interest income

$

64,893

$

69,433

Non-interest income:

Banking

$

12,884

$

13,168

Remittance Processing

 

4,861

 

4,069

Wealth Management

 

12,587

 

11,709

Other

 

1,113

 

(1,429)

Total non-interest income

$

31,445

$

27,517

Non-interest expense:

Banking

$

42,091

$

48,515

Remittance Processing

4,290

2,903

Wealth Management

6,565

6,974

Other

1,553

2,122

Total non-interest expense

$

54,499

$

60,514

Income before income taxes:

Banking

$

46,044

$

19,010

Remittance Processing

591

1,185

Wealth Management

6,022

4,735

Other

(4,022)

(5,710)

Total income before income taxes

$

48,635

$

19,220

Net income:

Banking

$

35,528

$

14,924

Remittance Processing

 

429

 

860

Wealth Management

 

4,682

 

3,599

Other

 

(2,823)

 

(4,019)

Total net income

$

37,816

$

15,364

38

FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Table of Contents

Note 15: Leases

The Company has operating leases consisting primarily of equipment leases and real estate leases. The Company leases real estate property for banking centers, ATM locations, and office space with terms extending through 2032. As of March 31, 2021, the Company reported $7.3 million of right-of-use assets and $7.4 million lease liabilities in its unaudited Consolidated Balance Sheets.

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

Three Months Ended March 31, 

Lease Costs

    

2021

2020

Operating lease costs

$

564

$

620

Variable lease costs

174

171

Short-term lease costs

18

15

Total lease cost

$

756

$

806

Other information

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

Operating lease cash flows – Fixed payments

$

546

$

611

Operating lease cash flows – Liability reduction

495

530

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

148

128

Weighted average lease term (in years)

5.83

6.51

Weighted average discount rate

2.80

%

3.05

%

At March 31, 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 March 31, 2021 and 2020.

Rent commitments were as follows (dollars in thousands):

As of

March 31, 

    

2021

Remainder of 2021

$

1,440

2022

 

1,604

2023

1,409

2024

974

2025

840

Thereafter

1,792

Amounts representing interest

(679)

Present value of net future minimum lease payments

$

7,380

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Table of Contents

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

OVERVIEW

First Busey is a $10.8 billion financial holding company headquartered in Champaign, Illinois. Our common stock is traded on The Nasdaq Global Select Market under the symbol “BUSE.”

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

The following discussion and analysis is intended to assist readers in understanding the financial condition and results of operations of the Company during the three months ended March 31, 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

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 progression of the COVID-19 pandemic in the United States has impacted the Company’s results of operations. 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 experienced a dramatic increase in unemployment claims as a result of the curtailment of business activities. 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. Further, 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, and providing additional assistance to small businesses. An additional $7.25 billion in PPP funding was provided, and eligibility criteria was expanded to include some non-profit organizations.

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 March 31, 2021, the Company had 72 commercial loans remaining on payment deferrals representing $197.1 million in loans, consisting of $29.7 million in full payment deferrals and $167.4 million in interest only deferrals. In addition, as of March 31, 2021, the Company had 178 retail loans on payment deferrals representing $24.9 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, and originated a total of $749.4 million in first round PPP loans representing 4,569 new and existing customers. As of March 31, 2021, the Company had received approximately $478.5 million in borrower loan forgiveness from the SBA and had submitted forgiveness applications to the

40

Table of Contents

SBA on behalf of borrowers for another $131.6 million. 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 is exhausted. As of March 31, 2021, the Company originated a total of $262.5 million in second round PPP loans representing 2,123 new and existing customers. At March 31, 2021, First Busey had $533.4 million in total PPP loans outstanding, with an amortized cost of $522.1 million, representing 3,441 customers.

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

March 31, 

    

December 31,

    

March 31, 

2021

    

2020

    

2020

Reported:  

Net income

$

37,816

$

28,345

$

15,364

Adjusted:  

Net income (1)

$

38,065

$

34,255

$

15,479

Reported:  

Diluted earnings per common share

$

0.69

$

0.52

$

0.28

Adjusted:  

Diluted earnings per common share (2)

$

0.69

$

0.62

$

0.28

Reported:  

Return on average assets (3)

1.45

%

1.08

%

0.64

%

Adjusted:  

Return on average assets (2), (3)

1.46

%

1.31

%

0.64

%

Reported:  

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

16.80

%

12.58

%

7.30

%

Adjusted:  

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

16.91

%

15.21

%

7.36

%

Reported:  

Pre-provision net revenue (1)

$

40,198

$

38,507

$

35,849

Adjusted:  

Pre-provision net revenue (1)

$

42,753

$

47,156

$

38,211

Reported:  

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

1.54

%

1.47

%

1.49

%

Adjusted:  

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

1.64

%

1.80

%

1.59

%

(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.

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 months ended March 31, 2021, included $0.3 million of expenses related to prior acquisitions. 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

At March 31, 2021, Busey Bank had 53 banking centers in Illinois. 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.

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Table of Contents

At March 31, 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.

At March 31, 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.

At March 31, 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.

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 an 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.

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Table of Contents

Consolidated Average Balance Sheets and Interest Rates (Unaudited)

The following table shows 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.

Three Months Ended March 31, 

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

$

422,577

$

150

 

0.14

%  

$

358,740

$

1,238

 

1.39

%  

Investment securities:

 

  

 

  

 

  

 

 

  

 

  

U.S. Government obligations

 

94,003

 

483

 

2.08

%  

 

190,812

 

1,091

 

2.30

%  

Obligations of states and political subdivisions (1)

 

296,023

 

1,964

2.69

%  

 

271,995

 

2,014

 

2.98

%  

Other securities

 

2,171,654

 

7,437

 

1.39

%  

 

1,275,757

 

7,859

 

2.48

%  

Loans held for sale

 

31,373

 

156

 

2.02

%  

 

61,963

 

477

 

3.10

%  

Portfolio loans (1), (2)

 

6,736,664

 

62,742

 

3.78

%  

 

6,658,277

 

72,484

 

4.38

%  

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

$

9,752,294

$

72,932

 

3.03

%  

$

8,817,544

$

85,163

 

3.88

%  

Cash and due from banks

 

113,880

 

  

 

  

 

118,502

 

  

 

  

Premises and equipment

 

134,570

 

 

  

 

151,214

 

 

  

ACL

 

(102,322)

 

 

  

 

(69,862)

 

 

  

Other assets

 

695,823

 

  

 

  

 

670,779

 

  

 

  

Total assets

$

10,594,245

 

  

 

  

$

9,688,177

 

  

 

  

Liabilities and Stockholders’ Equity

 

  

 

  

 

  

 

  

 

  

 

  

Interest-bearing transaction deposits

$

2,310,402

$

512

 

0.09

%  

$

1,989,478

$

2,413

 

0.49

%  

Savings and money market deposits

 

2,655,559

 

635

 

0.10

%  

 

2,571,469

 

3,265

 

0.51

%  

Time deposits

 

1,067,652

 

2,585

 

0.98

%  

 

1,521,025

 

6,549

 

1.73

%  

Federal funds purchased and repurchase agreements

 

184,694

 

57

 

0.13

%  

 

182,280

 

408

 

0.90

%  

Borrowings (4)

 

231,406

 

2,924

 

5.12

%  

 

176,655

 

1,621

 

3.69

%  

Junior subordinated debt issued to unconsolidated trusts

 

71,482

 

725

 

4.11

%  

 

71,310

 

744

 

4.20

%  

Total interest-bearing liabilities

$

6,521,195

$

7,438

 

0.46

%  

$

6,512,217

$

15,000

 

0.93

%  

Net interest spread (1)

 

  

 

 

2.57

%  

 

  

 

 

2.95

%  

Noninterest-bearing deposits

 

2,688,845

 

  

 

  

 

1,842,743

 

  

 

  

Other liabilities

 

108,511

 

  

 

  

 

115,057

 

  

 

  

Stockholders’ equity

 

1,275,694

 

  

 

  

 

1,218,160

 

  

 

  

Total liabilities and stockholders’ equity

$

10,594,245

 

  

 

  

$

9,688,177

 

  

 

  

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

$

9,752,294

$

72,932

 

3.03

%  

$

8,817,544

$

85,163

 

3.88

%  

Interest expense / earning assets

$

9,752,294

$

7,438

 

0.31

%  

$

8,817,544

$

15,000

 

0.68

%  

Net interest margin (1)

 

  

$

65,494

 

2.72

%  

 

  

$

70,163

 

3.20

%  

(1)On a tax-equivalent basis and assuming an 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 March 31, 2021 and 2020, respectively.
(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 March 31, 

   

2021

    

2020

    

Change

    

% Change

 

Average interest-earning assets

$

9,752,294

$

8,817,544

$

934,750

10.6

%

Average interest-bearing liabilities

6,521,195

6,512,217

8,978

0.1

%

Average noninterest-bearing deposits

2,688,845

1,842,743

846,102

45.9

%

Total average deposits

8,722,458

7,924,715

797,743

10.1

%

Total average liabilities

9,318,551

8,470,017

848,534

10.0

%

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

30.8

%

23.3

%

Total average deposits as a percent of total average liabilities

93.6

%

93.6

%

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

Three Months Ended March 31, 

   

2021

    

2020

    

Change

    

% Change

 

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

$

72,932

$

85,163

$

(12,231)

(14.4)

%

Interest expense

7,438

15,000

(7,562)

(50.4)

%

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

$

65,494

$

70,163

$

(4,669)

(6.7)

%

Net interest margin (1), (2)

2.72

%

3.20

%

(1)Assuming an 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 FOMC rate cuts during the first quarter of 2020 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 subordinated debt completed during the second quarter of 2020. Those impacts were partially offset by the Company’s efforts to lower deposit funding costs as well as the fees recognized on PPP loans, although variability in the timing and amount of net fee recognition tied to forgiveness of PPP loans has had a disparate impact on net interest margin from quarter to quarter.

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 2.57% for the three months ended March 31, 2021, as compared to 2.95% in the same period of 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

 

3.03

%

Third Quarter

 

2.86

%

Fourth Quarter

 

3.06

%

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Table of Contents

During the first quarter of 2021, PPP loan interest and net fees contributed $4.8 million to net interest income, compared to $9.5 million, in the fourth quarter of 2020, accounting for approximately 20 basis points of the decline in net interest margin. Management attempts to mitigate the effects of an unpredictable interest-rate environment through effective portfolio management, prudent loan underwriting, and operational efficiencies. However, as a result of the reductions in the target interest rate, as well as the impact of the COVID-19 pandemic, our net interest income and margin may continue to decline in future periods. 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.

Non-Interest Income

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

Three Months Ended March 31, 

    

2021

    

2020

    

Change

    

% Change

 

Wealth management fees

$

12,584

$

11,555

$

1,029

8.9

%

Fees for customer services

8,037

8,361

(324)

(3.9)

%

Remittance processing

 

4,418

3,753

 

665

17.7

%

Mortgage revenue

 

2,666

1,381

 

1,285

93.0

%

Income on bank owned life insurance

 

964

1,057

 

(93)

(8.8)

%

Net gains (losses) on sales of securities

 

25

1,574

 

(1,549)

NM

Unrealized gains (losses) recognized on equity securities

1,616

(987)

2,603

263.7

%

Other income

1,135

823

312

37.9

%

Total non-interest income

$

31,445

$

27,517

$

3,928

14.3

%

Total non-interest income increased by 14.3% to $31.4 million for the three months ended March 31, 2021, compared to $27.5 million for the three months ended March 31, 2020. Revenues from wealth management fees and remittance processing activities represented 54.1% of the Company’s non-interest income for the three months ended March 31, 2021, providing a complement to spread-based revenue from traditional banking activities. On a combined basis, revenue from these two critical operating segments increased 11.1% year-over-year, from $15.3 million in the first quarter of 2020 to $17.0 million in the first quarter of 2021.

Wealth management fees increased by 8.9% to $12.6 million for the three months ended March 31, 2021, compared to $11.6 million for the same period in 2020. First Busey’s Wealth Management division ended the first quarter of 2021 with $10.7 billion in assets under care, compared to $8.9 billion at the end of the first quarter of 2020.

Fees for customer services decreased by 3.9% to $8.0 million for the three months ended March 31, 2021, compared to $8.4 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.

Remittance processing revenue relates to our payment processing company, FirsTech. Remittance processing revenue increased by 17.7% to $4.4 million for the three months ended March 31, 2021, compared to $3.8 million for the same period in 2020. Remittance processing adds important diversity to our revenue stream while widening our array of service offerings to larger commercial clients within our footprint and nationally. The Company is currently making strategic investments in FirsTech to further enhance future growth.

Mortgage revenue increased 93.0% to $2.7 million for the three months ended March 31, 2021, compared to $1.4 million for the same period in 2020. Decreased recognition of deferred loan origination expenses of $1.2 million during the three months ended March 31, 2021, compared to $2.4 million for same period in 2020, was a significant driver of the increase. During the three months ended March 31, 2021, we also released $0.4 million of the repurchase reserve, compared to an insignificant amount of expense for same period in 2020. In addition, net gain on sale yields increased during the three months ended March 31, 2021, compared to the three months ended March 31, 2020, but were partially offset by a decline in mortgage volumes. General economic conditions and interest rate volatility may impact fees in future quarters.

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Table of Contents

Income on bank owned life insurance decreased 8.8%, to $1.0 million for the three months ended March 31, 2021, compared to $1.1 million for the same period in 2020, primarily as a result of lower earnings on life insurance policies.

Other income increased 37.9% to $1.1 million for the three months ended March 31, 2021, compared to $0.8 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 March 31, 

    

2021

    

2020

    

Change

    

% Change

 

Salaries, wages, and employee benefits

$

30,384

$

34,003

$

(3,619)

(10.6)

%

Data processing

4,280

4,395

(115)

(2.6)

%

Net occupancy expense of premises

 

4,563

 

4,715

 

(152)

(3.2)

%

Furniture and equipment expenses

 

2,026

 

2,449

 

(423)

(17.3)

%

Professional fees

 

1,945

 

1,824

 

121

6.6

%

Amortization of intangible assets

 

2,401

 

2,557

 

(156)

(6.1)

%

Interchange expense

1,484

1,169

315

26.9

%

Other expense

 

7,416

 

9,402

 

(1,986)

(21.1)

%

Total non-interest expense

$

54,499

$

60,514

$

(6,015)

(9.9)

%

Income taxes

$

10,819

$

3,856

$

6,963

180.6

%

Effective income tax rate

 

22.2

%  

 

20.1

%  

 

  

  

Efficiency ratio (1)

 

54.7

%  

 

59.7

%  

 

  

  

Adjusted efficiency ratio (1)

54.3

%  

59.5

%  

Full-time equivalent employees as of period-end

 

1,332

1,507

 

  

  

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

Total non-interest expense decreased by 9.9% to $54.5 million for the three months ended March 31, 2021, compared to $60.5 million for three months ended March 31, 2020. The Company remains focused on expense discipline and has seen expense reductions as a result of its branch closures in 2020, staffing model enhancements, strategic actions in response to COVID-19, and the realization of remaining expense savings from prior acquisitions.

Salaries, wages, and employee benefits decreased by 10.6% to $30.4 million for the three months ended March 31, 2021, compared to $34.0 million for the same period in 2020. Total full-time equivalents at March 31, 2021, numbered 1,332, compared to 1,346 at December 31, 2020, and 1,507 at March 31, 2020, a decline of 11.6% year-over-year. Further, deferral of PPP loan origination costs contributed $1.8 million to the lower salaries, wages, and benefits expense for the three months ended March 31, 2021.

Data processing expense decreased by 2.6% to $4.3 million for the three months ended March 31, 2021, compared to $4.4 million for the same period in 2020.

Combined, net occupancy expense of premises and furniture and equipment expense decreased by 8.0% to $6.6 million for the three months ended March 31, 2021, compared to $7.2 million for the same period in 2020. The decrease in 2021 primarily related to savings achieved through the closure of 12 banking centers in October of 2020.

Professional fees increased by 6.6% to $1.9 million for the three months ended March 31, 2021, compared to $1.8 million for the same period of 2020. Professional fee variances were largely influenced by acquisition expenses.

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Amortization of intangible assets decreased by 6.1% to $2.4 million for the three months ended March 31, 2021, compared to $2.6 million for the same period in 2020.

Interchange expense increased by 26.9% to $1.5 million for the three months ended March 31, 2021, compared to $1.2 million for the same period in 2020, as a result of increased payment and volume activity at FirsTech.

Other expense decreased by 21.1% to $7.4 million for the three months ended March 31, 2021, compared to $9.4 million for the same period in 2020. Deferral of PPP loan origination costs reduced other expense by $0.5 million for the three months ended March 31, 2021. Other variances are across multiple expense categories, including business development and travel expenses, mortgage servicing rights valuations, provision for unfunded commitments, and new market tax credit impairment.

The efficiency ratio1, 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 54.7% for the three months ended March 31, 2021, compared to 59.7% for the three months ended December 31, 2020, and 59.7% for the three months ended March 31, 2020. The adjusted efficiency ratio1 was 54.3% for the three months ended March 31, 2021, compared to 52.4% for the three months ended December 31, 2020, and 59.5% for the three months ended March 31, 2020. The Company remains focused on expense discipline.

Income Taxes

The effective income tax rate of 22.2% for the three months ended March 31, 2021, was 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. At March 31, 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

March 31, 

December 31, 

    

2021

    

2020

    

Change

    

% Change

 

Assets

 

  

 

  

 

  

 

  

Debt securities available for sale

$

2,796,955

$

2,261,187

$

535,768

 

23.7

%

Portfolio loans, net

 

6,685,357

 

6,713,129

 

(27,772)

 

(0.4)

%

Total assets

$

10,759,563

$

10,544,047

$

215,516

 

2.0

%

Liabilities

 

  

 

  

 

  

 

  

Deposits:

 

  

 

  

 

  

 

  

Noninterest-bearing

$

2,859,492

$

2,552,039

$

307,453

 

12.0

%

Interest-bearing

 

6,014,355

 

6,125,810

 

(111,455)

 

(1.8)

%

Total deposits

$

8,873,847

$

8,677,849

$

195,998

 

2.3

%

Securities sold under agreements to repurchase

$

210,132

$

175,614

$

34,518

 

19.7

%

Senior notes, net of unamortized issuance costs

 

39,843

 

39,809

 

34

 

0.1

%

Subordinated notes, net of unamortized issuance costs

 

182,370

 

182,226

 

144

 

0.1

%

Junior subordinated debt owed to unconsolidated trusts

 

71,509

 

71,468

 

41

 

0.1

%

Total liabilities

$

9,493,741

$

9,273,978

$

219,763

 

2.4

%

Stockholders’ equity

$

1,265,822

$

1,270,069

$

(4,247)

 

(0.3)

%

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. While not specifically limited, the Company attempts to focus its lending on short to intermediate-term (0-7 years) loans in geographic areas within 125 miles of its lending offices. Loans originated outside of these areas are generally residential mortgage loans originated for sale in the secondary market or loans to existing customers of Busey Bank. The Company attempts to utilize government-assisted lending programs, such as the SBA and U.S. Department of Agriculture lending programs, when prudent. Generally, loans are collateralized by assets, primarily real estate, and guaranteed by individuals. Loans are expected to be repaid primarily from cash flows of the borrowers or from proceeds from the sale of selected assets of the borrowers.

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

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

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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):

March 31, 2021

    

Illinois

    

Missouri

    

Florida

    

Indiana

    

Total

Commercial

$

1,424,066

$

519,324

$ 

72,740

$ 

51,241

$

2,067,371

Commercial real estate

1,852,506

706,144

170,445

183,871

2,912,966

Real estate construction

 

203,218

 

107,708

 

56,489

 

55,218

 

422,633

Retail real estate

934,607

262,000

94,676

52,016

1,343,299

Retail other

 

27,961

 

2,220

 

1,508

 

1,342

 

33,031

Portfolio loans

$

4,442,358

$

1,597,396

$  

395,858

$  

343,688

$

6,779,300

ACL

 

  

 

  

 

  

 

  

 

(93,943)

Portfolio loans, net

 

  

 

  

 

  

 

  

$

6,685,357

December 31, 2020

    

Illinois

    

Missouri

    

Florida

    

Indiana

    

Total

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

Portfolio loans

$

4,456,211

$

1,657,955

$  

358,429

$  

341,582

$

6,814,177

ACL

 

  

 

  

 

  

 

  

 

(101,048)

Portfolio loans, net

 

  

 

  

 

  

 

  

$

6,713,129

Portfolio loans decreased by 0.5% as of March 31, 2021, compared to December 31, 2020. Commercial balances (consisting of commercial, commercial real estate and real estate construction loans), excluding PPP loans, decreased $41.6 million from December 31, 2020. The Company’s commercial customer base is sound, and the majority of the decrease is related to line utilization. Retail real estate and retail other loans decreased $69.0 million from December 31, 2020. The retail real estate and retail other loans decrease is primarily a result of loan run-off.

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Allowance and Provision for Credit Losses

The ACL is a significant estimate in the Company’s unaudited Consolidated Balance Sheets, affecting both earnings and capital. The methodology adopted influences, and is influenced by, Busey Bank’s overall credit risk management processes. The ACL is recorded in accordance with GAAP to provide an adequate reserve for expected credit losses that is reflective of management’s best estimate of what is expected to be collected. All estimates of credit losses 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 by 139.5% due to a reserve release of ($6.8) million for the three months ended March 31, 2021, compared to a $17.2 million expense for the same period in 2020. As a result of continued strength in asset quality performance metrics, as well as improved macro-economic outlooks and unguaranteed loan balance declines, the first quarter 2021 results reflect a provision release, as compared to a reserve build at the onset of the COVID-19 pandemic in the first quarter of 2020.

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

March 31, 

December 31,

September 30,

June 30,

March 31, 

    

2021

    

2020

    

2020

    

2020

    

2020

    

Portfolio loans, excluding PPP loans

$

6,257,196

$

6,367,774

$

6,384,916

$

6,499,734

$

6,745,499

PPP loans, amortized cost

522,104

446,403

736,395

729,286

Portfolio loans

$

6,779,300

$

6,814,177

$

7,121,311

$

7,229,020

$

6,745,499

ACL

$

93,943

$

101,048

$

98,841

$

96,046

$

84,384

ACL to portfolio loans

1.39

%

1.48

%

1.39

%

1.33

%

1.25

%

ACL to portfolio loans, excluding PPP loans

1.50

%

1.59

%

1.55

%

1.48

%

1.25

%

ACL to non-performing loans

411.04

%

415.82

%

408.82

%

378.43

%

310.10

%

ACL to non-performing assets

346.05

%

349.99

%

339.02

%

329.66

%

274.29

%

As of March 31, 2021, management believed the level of the ACL to be appropriate based upon the information available. However, additional losses may be identified in our loan portfolio as new information is obtained. The ongoing impacts of CECL will be dependent upon changes in economic conditions and forecasts, originated and acquired loan portfolio composition, credit performance trends, portfolio duration, and other factors.

Non-performing Loans and Non-performing Assets

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

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

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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

March 31, 

December 31,

September 30,

June 30,

March 31, 

    

2021

    

2020

    

2020

    

2020

    

2020

    

Loans 30 – 89 days past due

$

9,929

$

7,578

$

6,708

$

5,166

$

10,150

Non-accrual loans

21,706

22,930

23,898

25,095

25,672

Loans 90+ days past due and still accruing

 

1,149

 

1,371

 

279

 

285

 

1,540

Non-performing loans

22,855

24,301

24,177

25,380

27,212

OREO

4,292

4,571

4,978

3,755

3,553

Non-performing assets

27,147

28,872

29,155

29,135

30,765

Substandard (excludes 90+ days past due)

65,088

68,924

77,939

83,704

77,908

Classified assets

$

92,235

$

97,796

$

107,094

$

112,839

$

108,673

Performing TDRs (includes 30 – 89 days past due)

$

3,299

$

3,829

$

4,218

$

4,316

$

4,949

Non-performing assets to total assets

0.25

%

0.27

%

0.28

%

0.27

%

0.32

%

Non-performing loans to portfolio loans

0.34

%

0.36

%

0.34

%

0.35

%

0.40

%

Non-performing loans to portfolio loans, excluding PPP loans

0.37

%

0.38

%

0.38

%

0.39

%

0.40

%

Non-performing assets to portfolio loans and OREO

0.40

%

0.42

%

0.41

%

0.40

%

0.46

%

Classified assets to Busey Bank Tier 1 Capital and ACL

7.76

%

8.47

%

9.58

%

10.47

%

10.53

%

Non-performing loan balances decreased 6.0% to $22.9 million at March 31, 2021, compared with $24.3 million at December 31, 2020. Continued disciplined credit management resulted in non-performing loans as a percentage of total loans of 0.34% at March 31, 2021, compared to 0.36% at December 31, 2020, and 0.40% at March 31, 2020. Excluding the amortized cost of PPP loans, non-performing loans as a percentage of total loans was 0.37% at March 31, 2021, compared to 0.38% at December 31, 2020.

Asset quality metrics remain dependent upon market-specific economic conditions, and specific measures may fluctuate from period to period. If economic conditions were to deteriorate 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 probable credit losses. Potential problem loans decreased by 5.5% to $65.0 million at March 31, 2021, compared to $68.8 million at 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 March 31, 2021, management identified no other loans that represent or result from trends or uncertainties which would be expected to materially impact future operating results, liquidity, or capital resources.

To alleviate some of the financial hardships faced as a result of COVID-19, the Company offered a Financial Relief Program to qualifying customers. The program included options for short-term loan payment deferrals and certain fee waivers. As of March 31, 2021, the Company had 72 commercial loans on payment deferrals representing $197.1 million in loans. Of this balance, $29.7 million remained on full payment deferral, with the remaining $167.4 million on

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interest only deferral. In addition, as of March 31, 2021, the Company had 178 retail loans on payment deferrals representing $24.9 million in loans. As these deferrals expire, the Company will continue to monitor credits for potential problem loans.

Deposits

Total deposits increased 2.3% on a year-to-date basis to $8.9 billion at March 31, 2021, as compared to $8.7 billion at December 31, 2020. We focus on deepening our relationships with customers to foster core deposit growth, allowing us to reduce our reliance on wholesale funding. During the three months ended March 31, 2021, our deposit balances were impacted by the retention of PPP loan funding in customer deposit accounts, the impacts of economic stimulus payments to consumers, and other core deposit growth.

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 March 31, 2021, the Company had additional capacity to borrow $1.6 billion from the FHLB and $483.8 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 March 31, 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 Bank routinely enters into commitments to extend credit and standby letters of credit in the normal course of business to meet the financing needs of its customers. As of March 31, 2021, and December 31, 2020, we had outstanding loan commitments and standby letters of credit of $1.8 billion. 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 March 31, 2021, our reserve for unfunded commitments was $7.7 million, compared to $7.3 million at December 31, 2020. Unfunded provision expense for the three months ended March 31, 2021, was $0.4 million, compared to $1.0 million for the three months ended March 31, 2020.

CAPITAL RESOURCES

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

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requirements. The table below presents minimum capital ratios with capital buffer and March 31, 2021, capital ratios for First Busey and Busey Bank.

Minimum Capital

As of March 31, 2021

Requirements with

First Busey

Busey

    

Capital Buffer

    

Corporation

    

Bank

    

Total Capital to Risk Weighted Assets

10.50

%   

17.39

%   

16.06

%   

Tier 1 Capital to Risk Weighted Assets

8.50

%   

13.84

%   

15.06

%   

Common Equity Tier 1 Capital to Risk Weighted Assets

7.00

%   

12.83

%   

15.06

%   

Tier 1 Capital to Average Assets

9.85

%   

10.71

%   

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 income in the case of adjusted net income, adjusted 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

    

March 31, 

December 31,

March 31, 

    

2021

2020

2020

Net interest income

$

64,893

$

72,936

$

69,433

Non-interest income

31,445

30,499

27,517

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

 

(1,641)

 

(855)

 

(587)

Non-interest expense

 

(54,499)

 

(64,073)

 

(60,514)

Pre-provision net revenue

$

40,198

$

38,507

$

35,849

Acquisition and other restructuring expenses

320

7,550

145

Provision for unfunded commitments

406

(12)

1,017

New Market Tax Credit amortization

1,829

1,111

1,200

Adjusted: Pre-provision net revenue

$

42,753

$

47,156

$

38,211

Average total assets

$

10,594,245

$

10,419,364

$

9,688,177

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

 

1.54

%  

 

1.47

%  

 

1.49

%

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

1.64

%  

1.80

%  

1.59

%  

(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

March 31, 

    

December 31,

    

March 31, 

    

    

2021

    

2020

    

2020

    

Reported: Net income

$

37,816

$

28,345

$

15,364

Acquisition expenses:

 

  

 

  

 

  

Salaries, wages, and employee benefits

 

 

 

Data processing

 

7

 

56

 

Lease or fixed asset impairment

 

 

245

Professional fees and other

313

479

 

145

Other restructuring costs:

 

  

 

  

 

  

Salaries, wages, and employee benefits

 

 

113

 

Data processing

Lease or fixed asset impairment

6,657

Professional fees and other

 

 

 

Related tax benefit

(71)

(1,640)

(30)

Adjusted: Net income

$

38,065

$

34,255

$

15,479

Dilutive average common shares outstanding

55,035,806

54,911,458

54,913,329

Reported: Diluted earnings per share

$

0.69

$

0.52

$

0.28

Adjusted: Diluted earnings per share

0.69

0.62

0.28

Average total assets

$

10,594,245

$

10,419,364

$

9,688,177

Reported: Return on average assets(1)

 

1.45

%

 

1.08

%

 

0.64

%

Adjusted: Return on average assets(1)

 

1.46

%

 

1.31

%

 

0.64

%

(1)Annualized measure.

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

(unaudited, dollars in thousands)

Three Months Ended

    

March 31, 

    

December 31,

    

March 31, 

    

    

2021

    

2020

    

2020

    

Reported: Net interest income

$

64,893

$

72,936

$

69,433

Tax-equivalent adjustment

 

601

 

655

 

730

Acquisition-related purchase accounting accretion

 

(2,157)

 

(2,469)

 

(2,827)

Adjusted: Net interest income

$

63,337

$

71,122

$

67,336

Average interest-earning assets

$

9,752,294

$

9,557,265

$

8,817,544

Reported: Net interest margin(1)

 

2.72

%  

 

3.06

%  

 

3.20

%  

Adjusted: Net Interest margin(1)

 

2.63

%  

 

2.96

%  

 

3.07

%  

(1)Annualized measure.

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Reconciliation of Non-GAAP Financial Measures — Adjusted Efficiency Ratio

(unaudited, dollars in thousands)

    

Three Months Ended

March 31, 

    

December 31,

    

March 31, 

    

2021

    

2020

    

2020

    

Reported: Net Interest income

$

64,893

$

72,936

$

69,433

Tax-equivalent adjustment

 

601

 

655

 

730

Tax-equivalent interest income

$

65,494

$

73,591

$

70,163

Reported: Non-interest income

 

31,445

 

30,499

 

27,517

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

 

(1,641)

 

(855)

 

(587)

Adjusted: Non-interest income

$

29,804

$

29,644

$

26,930

Reported: Non-interest expense

 

54,499

 

64,073

 

60,514

Amortization of intangible assets

 

(2,401)

 

(2,439)

 

(2,557)

Non-operating adjustments:

 

 

 

Salaries, wages, and employee benefits

 

 

(113)

 

Data processing

 

(7)

 

(56)

 

Lease or fixed asset impairment

(6,902)

Professional fees and other

 

(313)

 

(479)

 

(145)

Adjusted: Non-interest expense

$

51,778

$

54,084

$

57,812

Reported: Efficiency ratio(1)

 

54.67

%

 

59.70

%

 

59.69

%

Adjusted: Efficiency ratio(2)

 

54.33

%

 

52.39

%

 

59.54

%

(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

 

    

March 31, 

    

December 31,

 

March 31, 

 

    

2021

    

2020

 

2020

 

Total Assets

$

10,759,563

$

10,544,047

$

9,721,405

Goodwill and other intangible assets, net

 

(361,120)

 

(363,521)

 

(370,572)

Tax effect of other intangible assets, net

 

13,883

 

14,556

 

16,530

Tangible assets

$

10,412,326

$

10,195,082

$

9,367,363

Total stockholders’ equity

 

1,265,822

 

1,270,069

 

1,217,585

Goodwill and other intangible assets, net

 

(361,120)

 

(363,521)

 

(370,572)

Tax effect of other intangible assets, net

 

13,883

 

14,556

 

16,530

Tangible common equity

$

918,585

$

921,104

$

863,543

Ending number of common shares outstanding

54,345,379

54,404,379

54,401,208

Tangible common equity to tangible assets(1)

 

8.82

%  

 

9.03

%

 

9.22

%

Tangible book value per share

$

16.65

$

16.66

$

15.57

Average common equity

$

1,275,694

$

1,261,298

$

1,218,160

Average goodwill and other intangible assets, net

 

(362,693)

 

(365,120)

 

(372,240)

Average tangible common equity

$

913,001

$

896,178

$

845,920

Reported: Return on average tangible common equity(2)

 

16.80

%  

 

12.58

%

 

7.30

%

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

 

16.91

%  

 

15.21

%

 

7.36

%

(1)Tax-effected measure, 28% estimated deferred tax rate.
(2)Annualized measure.
(3)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 new 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 the 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 at March 31, 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

    

March 31, 2021

 

6.06

%  

11.26

%  

15.92

%  

December 31, 2020

 

7.40

%  

14.16

%  

20.20

%  

 

Year-Two: Basis Point Changes

    

+100

    

+200

    

+300

    

March 31, 2021

 

8.16

%  

14.99

%  

21.11

%  

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 March 31, 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 March 31, 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 March 31, 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.

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.

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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. On March 11, 2021, the Company decided to resume open-market share repurchases under its share repurchase program. During the first quarter of 2021, the company purchased 59,000 shares under the plan. At March 31, 2021, the Company had 1,799,824 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

January 1-31, 2021

$

1,858,824

February 1-28, 2021

$

1,858,824

March 1-31, 2021

59,000

$

25.58

59,000

1,799,824

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

2.1**

Agreement and Plan of Merger by and among First Busey Corporation, Energizer Acquisition Corp., and Cummins-American Corp., dated January 19, 2021 (filed as Exhibit 2.1 to the Company’s Form 8-K filed with the Commission on January 19, 2021 (Commission No. 0-15950), and incorporated herein by reference)

10.33†*

Gregory B. Lykins Letter of Understanding, dated April 1, 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

**

First Busey has omitted schedules and similar attachments to the subject agreement pursuant to Item 601(b) of Regulation S-K. First Busey hereby agrees to furnish a copy of any omitted schedule or similar attachment to the SEC upon request.

Management contract or compensatory plan

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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: May 6, 2021

64