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FIRST BUSEY CORP /NV/ - Quarter Report: 2022 June (Form 10-Q)

Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

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

For the Quarterly Period Ended June 30, 2022

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

Commission File No. 0-15950

FIRST BUSEY CORPORATION

(Exact name of registrant as specified in its charter)

Nevada

37-1078406

(State or other jurisdiction of incorporation
or organization)

(I.R.S. Employer Identification No.)

100 W. University Ave.
Champaign, Illinois

61820

(Address of principal executive offices)

(Zip code)

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

N/A

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

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

Title of each class

Trading Symbol (s)

Name of each exchange on which registered

Common Stock, $.001 par value

BUSE

The Nasdaq Stock Market LLC

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

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

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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

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

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

Class

Outstanding at August 4, 2022

Common Stock, $.001 par value

55,217,703

Table of Contents

FIRST BUSEY CORPORATION

FORM 10-Q

June 30, 2022

Table of Contents

GLOSSARY

3

Part I

FINANCIAL INFORMATION

5

Item 1.

FINANCIAL STATEMENTS (UNAUDITED)

5

CONSOLIDATED BALANCE SHEETS

6

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

7

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

8

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

9

CONSOLIDATED STATEMENTS OF CASH FLOWS

11

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

13

Note 1:

Significant Accounting Policies

13

Note 2:

Acquisitions

15

Note 3:

Securities

18

Note 4:

Portfolio Loans

21

Note 5:

Deposits

30

Note 6:

Borrowings

31

Note 7:

Regulatory Capital

33

Note 8:

Stock-Based Compensation

35

Note 9:

Outstanding Commitments and Contingent Liabilities

38

Note 10:

Derivative Financial Instruments

38

Note 11:

Fair Value Measurements

42

Note 12:

Earnings per Common Share

46

Note 13:

Accumulated Other Comprehensive Income (Loss)

48

Note 14:

Operating Segments and Related Information

49

Note 15:

Leases

51

Item 2.

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

53

Item 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

81

Item 4.

CONTROLS AND PROCEDURES

82

Part II

OTHER INFORMATION

82

Item 1.

LEGAL PROCEEDINGS

82

Item 1A.

RISK FACTORS

82

Item 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

83

Item 3.

DEFAULTS UPON SENIOR SECURITIES

83

Item 4.

MINE SAFETY DISCLOSURES

83

Item 5.

OTHER INFORMATION

83

Item 6.

EXHIBITS

84

SIGNATURES

85

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

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 Exchange Act

AOCI

Accumulated other comprehensive income (loss)

ASC

Accounting Standards Codification

ASU

Accounting Standards Update

Basel III

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

Basel III Rule

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

CAC

Cummins-American Corp.

CARES Act

Coronavirus Aid, Relief, and Economic Security Act

CECL

Current Expected Credit Losses

COVID-19

Coronavirus disease 2019

DSU

Deferred stock unit

ESPP

Employee Stock Purchase Plan

Exchange Act

Securities Exchange Act of 1934, as amended

Fair value

The price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date, as defined in ASC Topic 820 “Fair Value Measurement”

FDIC

Federal Deposit Insurance Corporation

Federal Reserve

Board of Governors of the Federal Reserve System

FHLB

Federal Home Loan Bank

First Busey

First Busey Corporation and its wholly-owned consolidated subsidiaries; also, “Busey,” the “Company,” “we,” “us,” and “our”

First Busey Risk Management

First Busey Risk Management, Inc.

FirsTech

FirsTech, Inc.

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 Interbank Offered Rate

LOCOM

Lower of Cost or Market, an accounting approach under which loans are carried at amortized historical cost less loan write-offs and downward market value adjustments, as may be applicable

NM

Not meaningful

NMTC

New Markets Tax Credit

OCI

Other comprehensive income (loss)

OREO

Other real estate owned

PCD

Purchased credit deteriorated

PPP

Paycheck Protection Program

PSU

Performance-based restricted stock unit

Quarterly Report

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

3

Table of Contents

Term

 

Definition

RSU

Restricted stock unit

SBA

U.S. Small Business Administration

SEC

U.S. Securities and Exchange Commission

SOFR

Secured Overnight Financing Rate published by the Federal Reserve

TDR

Troubled debt restructuring

U.S.

United States of America

U.S. Treasury

U.S. Department of the Treasury

4

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

5

Table of Contents

FIRST BUSEY CORPORATION

CONSOLIDATED BALANCE SHEETS (Unaudited)

(dollars in thousands)

As of

June 30,

December 31,

2022

    

2021

Assets

Cash and cash equivalents:

Cash and due from banks

$

131,113

$

102,983

Interest-bearing deposits

99,739

733,112

Total cash and cash equivalents

230,852

836,095

Debt securities available for sale

 

2,744,646

 

3,981,251

Debt securities held to maturity

953,012

Equity securities

11,264

13,571

Loans held for sale (2022 at LOCOM, 2021 at fair value)

 

4,813

 

23,875

Portfolio loans (net of ACL of $88,757 at June 30, 2022, and $87,887 at December 31, 2021)

 

7,409,021

 

7,101,111

Premises and equipment, net

 

130,892

 

136,147

Right of use assets

8,615

10,533

Goodwill

 

317,873

 

317,873

Other intangible assets, net

 

52,089

 

58,051

Cash surrender value of bank owned life insurance

 

178,575

 

176,940

Other assets

 

314,781

 

204,242

Total assets

$

12,356,433

$

12,859,689

Liabilities and Stockholders’ Equity

Liabilities

Deposits:

Noninterest-bearing

$

3,505,299

$

3,670,267

Interest-bearing

 

6,891,929

 

7,098,310

Total deposits

10,397,228

10,768,577

Securities sold under agreements to repurchase

 

228,383

 

270,139

Short-term borrowings

16,396

17,678

Long-term debt

 

36,000

 

46,056

Senior notes, net of unamortized issuance costs

39,944

Subordinated notes, net of unamortized issuance costs

281,304

182,773

Junior subordinated debt owed to unconsolidated trusts

71,721

71,635

Lease liabilities

8,655

10,591

Other liabilities

 

154,789

 

133,184

Total liabilities

11,194,476

11,540,577

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

Stockholders’ Equity

Common stock, ($.001 par value; 100,000,000 shares authorized)

 

58

 

58

Additional paid-in capital

 

1,317,675

 

1,316,984

Retained earnings

 

124,685

 

92,463

AOCI

 

(211,107)

 

(23,758)

Total stockholders’ equity before treasury stock

1,231,311

1,385,747

Treasury stock at cost

 

(69,354)

 

(66,635)

Total stockholders’ equity

1,161,957

1,319,112

Total liabilities and stockholders’ equity

$

12,356,433

$

12,859,689

Shares

Common shares issued

58,116,970

58,116,970

Less treasury shares

(2,781,267)

(2,682,060)

Common shares outstanding

55,335,703

55,434,910

See accompanying notes to unaudited consolidated financial statements.

6

Table of Contents

FIRST BUSEY CORPORATION

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(dollars in thousands, except per share amounts)

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2022

    

2021

    

2022

    

2021

Interest income

Interest and fees on loans

$

65,567

$

61,404

$

126,449

$

123,969

Interest and dividends on investment securities:

Taxable interest income

 

15,840

9,081

29,934

 

17,692

Non-taxable interest income

 

831

958

1,669

 

1,963

Other interest income

358

245

635

395

Total interest income

 

82,596

71,688

158,687

 

144,019

Interest expense

Deposits

 

2,146

3,295

4,270

 

7,027

Federal funds purchased and securities sold under agreements to repurchase

 

147

60

206

 

117

Short-term borrowings

 

147

64

236

 

83

Long-term debt

 

261

116

487

 

145

Senior notes

237

399

637

799

Subordinated notes

3,022

2,480

5,505

4,956

Junior subordinated debt owed to unconsolidated trusts

 

708

732

1,362

 

1,457

Total interest expense

 

6,668

7,146

12,703

 

14,584

Net interest income

 

75,928

64,542

145,984

 

129,435

Provision for credit losses

 

1,653

(1,700)

1,400

 

(8,496)

Net interest income after provision for credit losses

 

74,275

66,242

144,584

 

137,931

Noninterest income

Wealth management fees

 

14,135

13,002

29,914

 

25,586

Fees for customer services

 

9,588

8,611

18,495

 

16,648

Payment technology solutions

 

4,888

4,530

9,965

 

9,151

Mortgage revenue

 

284

1,747

1,259

 

4,413

Income on bank owned life insurance

874

1,476

1,758

2,440

Realized net gains (losses) on securities

 

20

94

126

 

119

Unrealized net gains (losses) recognized on equity securities

(1,734)

804

(2,454)

2,420

Other income

 

2,964

2,747

7,728

 

3,679

Total noninterest income

 

31,019

33,011

66,791

 

64,456

Noninterest expense

Salaries, wages, and employee benefits

 

38,110

34,889

77,464

 

65,273

Data processing

 

5,375

4,819

10,353

 

9,099

Net occupancy expense of premises

 

4,720

4,246

9,787

 

8,809

Furniture and equipment expenses

 

2,045

2,066

4,075

 

4,092

Professional fees

1,607

2,311

3,114

4,256

Amortization of intangible assets

 

2,951

2,650

5,962

 

5,051

Interchange expense

1,487

1,442

3,032

2,926

Other expense

 

12,797

10,202

25,681

 

17,618

Total noninterest expense

 

69,092

62,625

139,468

 

117,124

Income before income taxes

 

36,202

36,628

71,907

 

85,263

Income taxes

 

6,378

6,862

13,644

 

17,681

Net income

$

29,824

$

29,766

$

58,263

$

67,582

Basic earnings per common share

$

0.54

$

0.54

$

1.05

$

1.23

Diluted earnings per common share

$

0.53

$

0.53

$

1.04

$

1.22

Dividends declared per share of common stock

$

0.23

$

0.23

$

0.46

$

0.46

See accompanying notes to unaudited consolidated financial statements.

7

Table of Contents

FIRST BUSEY CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)

(dollars in thousands)

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2022

    

2021

    

2022

    

2021

Net income

$

29,824

$

29,766

$

58,263

$

67,582

OCI:

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

Net unrealized holding gains (losses) on debt securities available for sale, net of taxes of $27,162, ($2,700), $56,888, and $9,293, respectively

(68,126)

6,769

(142,682)

(23,310)

Unrealized gains (losses) on debt securities transferred to held to maturity from available for sale, net of taxes of $—, $—, $13,812, and $—, respectively

(34,644)

Reclassification adjustment for realized (gains) losses on debt securities available for sale included in net income, net of taxes of ($1), $1, $29, and $8, respectively

3

(2)

(73)

(20)

Amortization of unrealized losses on securities transferred to held to maturity, net of taxes of ($629), $—, ($881), and $—, respectively

1,578

2,209

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

(66,545)

6,767

(175,190)

(23,330)

Unrealized gains (losses) on cash flow hedges:

Net unrealized holding gains (losses) on cash flow hedges, net of taxes of $2,612, $28, $4,543, and ($136), respectively

 

(6,550)

 

(69)

 

(11,395)

 

341

Reclassification adjustment for realized (gains) losses on cash flow hedges included in net income, net of taxes of $160, ($82), $303, and ($161), respectively

(407)

206

(764)

405

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

(6,957)

137

(12,159)

746

Net change in AOCI

(73,502)

6,904

(187,349)

(22,584)

Total comprehensive income (loss)

$

(43,678)

$

36,670

$

(129,086)

$

44,998

See accompanying notes to unaudited consolidated financial statements.

8

Table of Contents

FIRST BUSEY CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)

(dollars in thousands, except per share amounts)

Three Months Ended June 30, 2022

Accumulated

Additional

Other

Total

Common

Paid-in

Retained

Comprehensive

Treasury

Stockholders'

    

Shares

    

Stock

    

Capital

    

Earnings

    

Income (Loss)

    

Stock

    

Equity

Balance, March 31, 2022

55,278,785

$

58

$

1,318,701

$

107,890

$

(137,605)

$

(71,019)

$

1,218,025

Net income

29,824

29,824

OCI, net of tax

(73,502)

(73,502)

Repurchase of stock

(70,000)

(1,604)

(1,604)

Issuance of treasury stock for ESPP

13,900

(88)

358

270

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

113,018

(3,590)

2,911

(679)

Cash dividends on common stock at $0.23 per share

(12,713)

(12,713)

Stock dividend equivalents on RSUs at $0.23 per share

316

(316)

Stock-based compensation

2,336

2,336

Balance, June 30, 2022

55,335,703

$

58

$

1,317,675

$

124,685

$

(211,107)

$

(69,354)

$

1,161,957

Six Months Ended June 30, 2022

Accumulated

Additional

Other

Total

Common

Paid-in

Retained

Comprehensive

Treasury

Stockholders'

    

Shares

    

Stock

    

Capital

    

Earnings

    

Income (Loss)

    

Stock

    

Equity

Balance, December 31, 2021

55,434,910

$

58

$

1,316,984

$

92,463

$

(23,758)

$

(66,635)

$

1,319,112

Net income

58,263

58,263

OCI, net of tax

(187,349)

(187,349)

Repurchase of stock

(258,614)

(6,824)

(6,824)

Issuance of treasury stock for ESPP

39,040

(194)

1,005

811

Net issuance of treasury stock for RSU/DSU vesting and related tax

120,367

(3,949)

3,100

(849)

Cash dividends on common stock at $0.46 per share

(25,452)

(25,452)

Stock dividend equivalents on RSUs at $0.46 per share

589

(589)

Stock-based compensation

4,245

4,245

Balance, June 30, 2022

55,335,703

$

58

$

1,317,675

$

124,685

$

(211,107)

$

(69,354)

$

1,161,957

9

Table of Contents

FIRST BUSEY CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)

(dollars in thousands, except per share amounts)

Three Months Ended June 30, 2021

Retained

Accumulated

Additional

Earnings

Other

Total

Common

Paid-in

(Accumulated

Comprehensive

Treasury

Stockholders'

    

Shares

    

Stock

    

Capital

    

Deficit)

    

Income (Loss)

    

Stock

    

Equity

Balance, March 31, 2021

54,345,379

$

56

$

1,255,044

$

45,897

$

3,821

$

(38,996)

$

1,265,822

Net income

 

 

 

29,766

 

 

 

29,766

OCI, net of tax

 

 

 

 

6,904

 

 

6,904

Stock issued in acquisition, net of stock issuance costs

2,206,237

 

2

 

58,982

 

 

 

 

58,984

Repurchase of stock

(221,000)

 

 

 

 

 

(5,738)

 

(5,738)

Cash dividends on common stock at $0.23 per share

 

 

 

(12,484)

 

 

 

(12,484)

Stock dividend equivalents on RSUs at $0.23 per share

 

 

253

 

(253)

 

 

 

Stock-based compensation

 

 

2,437

 

 

 

 

2,437

Balance, June 30, 2021

56,330,616

$

58

$

1,316,716

$

62,926

$

10,725

$

(44,734)

$

1,345,691

Six Months Ended June 30, 2021

Retained

Accumulated

Additional

Earnings

Other

Total

Common

Paid-in

(Accumulated

Comprehensive

Treasury

Stockholders'

    

Shares

    

Stock

    

Capital

    

Deficit)

    

Income (Loss)

    

Stock

    

Equity

Balance, December 31, 2020

54,404,379

$

56

$

1,253,360

$

20,830

$

33,309

$

(37,486)

$

1,270,069

Net income

67,582

 

67,582

OCI, net of tax

(22,584)

 

(22,584)

Stock issued in acquisition, net of stock issuance costs

2,206,237

 

2

 

58,982

58,984

Repurchase of stock

(280,000)

(7,248)

 

(7,248)

Cash dividends on common stock at $0.46 per share

(24,997)

 

(24,997)

Stock dividend equivalents on RSUs at $0.46 per share

489

(489)

 

Stock-based compensation

3,885

 

3,885

Balance, June 30, 2021

56,330,616

$

58

$

1,316,716

$

62,926

$

10,725

$

(44,734)

$

1,345,691

See accompanying notes to unaudited consolidated financial statements.

10

Table of Contents

FIRST BUSEY CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(dollars in thousands)

Six Months Ended June 30, 

    

2022

    

2021

Cash Flows Provided by (Used in) Operating Activities

Net income

$

58,263

$

67,582

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

Provision for credit losses

 

1,400

 

(8,496)

Amortization of intangible assets

5,962

5,051

Amortization of mortgage servicing rights

1,901

2,961

Amortization of NMTC

3,003

3,068

Depreciation and amortization of premises and equipment

 

5,438

 

5,709

Net amortization (accretion) on portfolio loans

1,140

(5,757)

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

 

11,069

 

10,460

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

(227)

(550)

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

577

416

Impairment of OREO and other repossessed assets

611

Impairment of fixed assets held for sale

 

100

 

Impairment of mortgage servicing rights

(9)

(506)

Impairment of leases

84

Unrealized (gains) losses recognized on equity securities

2,454

(2,420)

(Gain) loss on sales of equity securities, net

(24)

(Gain) loss on sales of debt securities, net

 

(102)

 

(119)

(Gain) loss on sales of loans, net

 

(1,451)

 

(6,133)

(Gain) loss on sales of OREO

39

161

(Gain) loss on sales of premises and equipment

(679)

(986)

(Gain) loss on life insurance proceeds

(488)

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

 

(1,758)

 

(1,953)

Provision for deferred income taxes

 

(2)

 

3,804

Stock-based compensation

 

4,245

 

3,885

Mortgage loans originated for sale

(47,305)

(157,670)

Proceeds from sales of mortgage loans

67,586

188,216

Net change in operating assets and liabilities:

(Increase) decrease in other assets

 

(30,313)

 

(12,063)

Increase (decrease) in other liabilities

 

(8,320)

 

(14,260)

Net cash provided by (used in) operating activities

$

73,682

$

79,912

Cash Flows Provided by (Used in) Investing Activities

Purchases of equity securities

$

(5,948)

$

(5,998)

Purchases of debt securities available for sale

(279,831)

(1,274,797)

Proceeds from sales of equity securities

6,546

1,235

Proceeds from sales of debt securities available for sale

 

 

290,955

Proceeds from paydowns and maturities of debt securities held to maturity

33,894

Proceeds from paydowns and maturities of debt securities available for sale

 

273,524

 

424,725

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

236,981

Net (increase) decrease in loans

 

(310,582)

 

81,441

Cash paid for premiums on bank-owned life insurance

(96)

(113)

Proceeds from life insurance

219

3,227

Purchases of premises and equipment

(2,672)

(3,093)

Proceeds from disposition of premises and equipment

 

3,068

 

5,158

Proceeds from sales of OREO

 

2,469

 

1,410

Net cash provided by (used in) investing activities

$

(279,409)

$

(238,869)

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FIRST BUSEY CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Continued)

(dollars in thousands)

Six Months Ended June 30, 

2022

2021

Cash Flows Provided by (Used in) Financing Activities

Net increase (decrease) in deposits

$

(371,122)

$

335,422

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

 

(41,756)

 

15,001

Proceeds from FHLB advances

5,000

Repayment of FHLB advances

(5,336)

(4,327)

Proceeds from other borrowings, net of debt issuance costs

98,094

72,500

Repayment of other borrowings

(46,000)

Cash dividends paid

(25,452)

(24,997)

Purchase of treasury stock

(6,824)

(7,248)

Cash paid for withholding taxes on stock-based payments

 

(849)

 

Issuance of treasury stock for ESPP

(271)

Common stock issuance costs

(121)

Net cash provided by (used in) financing activities

$

(399,516)

$

391,230

Net increase (decrease) in cash and cash equivalents

 

(605,243)

 

232,273

Cash and cash equivalents, beginning of period

 

836,095

 

688,537

Cash and cash equivalents, ending of period

$

230,852

$

920,810

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Cash payments for:

Interest

$

13,452

$

11,571

Income taxes

 

20,366

 

19,156

Non-cash investing and financing activities:

OREO acquired in settlement of loans

 

132

 

137

Transfer of debt securities available for sale to held to maturity

985,199

See accompanying notes to unaudited consolidated financial statements.

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 1:  Significant Accounting Policies

Nature of Operations

First Busey Corporation, a Nevada corporation organized in 1980, is a $12.4 billion financial holding company headquartered in Champaign, Illinois.  Our common stock is traded on The Nasdaq Global Select Market under the symbol “BUSE.”

The Company operates and reports its business in three segments:  Banking, FirsTech, and Wealth Management.

Banking

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 58 banking centers in Illinois; the St. Louis, Missouri metropolitan area; southwest Florida; and Indianapolis, Indiana.

FirsTech

The FirsTech operating segment provides comprehensive and innovative payment technology solutions that include, but are not limited to, text-based mobile bill pay; electronic payment concentration delivered to Automated Clearing House networks, money management, and credit card networks; walk-in payment processing for customers at retail pay agents; customer service payments made over a telephone; direct debit services; and lockbox remittance processing for customers to make payments by mail.  FirsTech also provides additional tools to help clients with billing, reconciliation, bill reminders, and treasury services.

Wealth Management

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

Basis of Financial Statement Presentation

These unaudited consolidated financial statements and related notes should be read in conjunction with the audited consolidated financial statements included in our 2021 Annual Report.  These interim unaudited consolidated financial statements serve to update our 2021 Annual Report and may not include all information and notes necessary to constitute a complete set of financial statements.

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

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

Use of Estimates

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

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Change in Accounting Principle

Effective January 1, 2022, the Company elected to account for all newly originated loans held for sale at LOCOM.  Prior to this change, the Company accounted for loans held for sale at fair value.  This change did not have a material impact on our results of operations during the three or six months ended June 30, 2022.

Impact of Recently Adopted Accounting Standards

ASU 2021-10 “Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance” establishes disclosure requirements for transactions with a government that have been accounted for by analogizing to a grant or contribution accounting model.  Disclosures required under this standard include 1) the types of transactions, 2) the accounting for those transactions, and 3) the effect of those transactions on the consolidated financial statements.  This update is effective for annual periods beginning January 1, 2022, and applies prospectively to all transactions within the scope of the amendments that are reflected in financial statements at the date of initial application and new transactions that are entered into after the date of initial application.  Adoption of this standard did not have a material impact on First Busey’s financial position or results of operations.

ASU 2021-05 “Leases (Topic 842): Lessors—Certain Leases with Variable Lease Payments” amends the lessor’s classification of certain leases under ASC Topic 842.  Under this updated guidance, leases that would otherwise be classified as a sales-type or direct financing lease must be classified by a lessor as an operating lease when the following conditions are met: 1) the contract includes variable lease payments that do not depend on an index or rate and 2) classification as a sales-type or direct financing lease would result in recognition of a selling loss at lease commencement.  This guidance was effective for First Busey beginning January 1, 2022, and was applied on a prospective basis.  Adoption of this standard did not have a material impact on the Company’s financial position or results of operations.

ASU 2021-04 “Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options” clarifies how an issuer should account for modifications or exchanges of equity-classified written call options (i.e. a warrant to purchase the issuer’s common stock).  This accounting standard requires the issuer to treat a modification of an equity-classified warrant that does not cause the warrant to become liability-classified as an exchange of the original warrant for a new warrant.  This guidance applies whether the modification is structured as an amendment to the terms and conditions of the warrant or as termination of the original warrant and issuance of a new warrant.  This guidance was effective for First Busey beginning January 1, 2022, and was applied on a prospective basis.  Adoption of this standard did not have a material impact on the Company’s financial position or results of operations.

Recently Issued Accounting Standards

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

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

ASU 2022-02 “Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures” eliminates the TDR accounting model for creditors that have already adopted CECL.  In lieu of the TDR accounting model, loan refinancing and restructuring guidance in ASC Subtopic 310-20 “Investments—Debt Securities” will apply to all loan modifications, including those made for borrowers experiencing financial difficulty.  This standard also enhances disclosure requirements related to certain loan modifications.  Additionally, this standard introduces new requirements to disclose gross write-off information in the vintage disclosures of financing receivables by credit quality indicator and class of financing receivable by year of origination.  This standard applies prospectively.  For the transition method related to the recognition and measurement of TDRs, there is an option to apply a modified retrospective transition method, resulting in a cumulative-effect adjustment to retained earnings in the period of adoption.  This standard is effective for First Busey beginning January 1, 2023.  Early adoption is permitted.  First Busey is currently evaluating the potential effect on the Company’s financial position and results of operations.

ASU 2022-01 “Derivatives and Hedging (Topic 815): Fair Value Hedging—Portfolio Layer Method” replaces the current last-of-layer hedge accounting method with an expanded portfolio layer method that permits multiple hedged layers of a single closed portfolio.  The scope of the portfolio layer method is also expanded to include non-prepayable financial assets.  This update also provides additional guidance on the accounting for and disclosure of hedge basis adjustments that are applicable to the portfolio layer method, and specifies how hedge basis adjustments should be considered when determining credit losses for the assets included in the closed portfolio.  Amendments related to hedge basis adjustments which are included in this standard apply on a modified retrospective basis by means of a cumulative-effect adjustment to the opening balance of retained earnings on the initial application date.  Amendments related to disclosure which are included in this standard may be applied on a prospective basis from the initial application date, or on a retrospective basis to each prior period presented after the date of adoption of the amendments in ASU 2017-12 “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.”  This standard is effective for First Busey beginning January 1, 2023, and may be early adopted.  First Busey is currently evaluating the potential effect on the Company’s financial position and results of operations.

ASU 2021-08 “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers” requires measurement and recognition in accordance with ASC Topic 606 “Revenue from Contracts with Customers” for contract assets and contract liabilities acquired in a business combination.  This update is effective for First Busey beginning January 1, 2023, and may be adopted early.  This standard applies prospectively to all business combinations that occur on or after the date it is adopted and, if applicable, retrospectively to all business combinations for which the acquisition date occurs on or after the beginning of the fiscal year that includes the interim period of early application.  First Busey is currently evaluating the potential effect on the Company’s financial position and results of operations.

COVID-19

Throughout the COVID-19 pandemic, First Busey operated as an essential community resource, providing approximately $1.1 billion in payroll assistance for small businesses and select nonprofits through low-interest, 100% government-guaranteed loans as part of the PPP.  First Busey had $7.8 million in PPP loans outstanding, with an amortized cost of $7.6 million, as of June 30, 2022.  In comparison, First Busey had $76.9 million in PPP loans outstanding, with an amortized cost of $75.0 million, as of December 31, 2021.

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 June 30, 2022, through the filing date of these unaudited consolidated financial statements.

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 2:  Acquisitions

Cummins-American Corp.

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

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

This transaction was accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed, and consideration exchanged was recorded at estimated fair values on the date of acquisition.  Fair values were subject to refinement for up to one year after the closing date as additional information regarding the closing date fair values became available.  There were no fair value adjustments recorded during the three or six months ended June 30, 2022, and fair values are now final.

As the total consideration paid for CAC exceeded the estimated fair value of net assets acquired, goodwill of $6.3 million was recorded as a result of the acquisition.  The amount of goodwill recognized as a result of this transaction is expected to be fully tax deductible for federal income tax purposes in accordance with the Company’s election pursuant to Section 338(h)(10) of the Internal Revenue Code.  Goodwill recorded for this transaction reflects synergies expected from the acquisition and expansion within the Chicago-Naperville-Elgin, IL-IN-WI Metropolitan Statistical Area, and was assigned to the Banking operating segment.

During the three months ended June 30, 2022, First Busey did not incur any pre-tax acquisition expenses related to the acquisition of CAC.  During the six months ended June 30, 2022, First Busey incurred $0.8 million in pre-tax acquisition expenses related to the acquisition of CAC, comprised primarily of compensation expense and data processing expense.

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Estimated fair values of the assets acquired and liabilities assumed, as well as the fair value of consideration transferred, were as follows (dollars in thousands):

    

CAC

    

May 31, 2021

Assets acquired

  

Cash and cash equivalents

$

298,637

Securities

 

702,367

Portfolio loans, net of ACL

 

430,470

Premises and equipment

 

17,034

Other intangible assets

17,340

Mortgage servicing rights

 

629

Other assets

 

8,176

Total assets acquired

 

1,474,653

Liabilities assumed

Deposits

 

1,315,671

Other borrowings

 

16,651

Other liabilities

 

19,205

Total liabilities assumed

 

1,351,527

Net assets acquired

$

123,126

Consideration paid:

Cash

$

70,358

Common stock

 

59,105

Total consideration paid

$

129,463

Goodwill

$

6,337

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

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 3:  Debt Securities

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

As of June 30, 2022

Amortized

Unrealized

Fair

    

Cost

    

Gross Gains

    

Gross Losses

    

Value

Debt securities available for sale

U.S. Treasury securities

$

151,222

$

1

$

(4,083)

$

147,140

Obligations of U.S. government corporations and agencies

 

29,867

 

53

 

(81)

 

29,839

Obligations of states and political subdivisions

 

305,545

 

455

 

(18,388)

 

287,612

Asset-backed securities

490,932

(22,803)

468,129

Commercial mortgage-backed securities

105,584

(7,222)

98,362

Residential mortgage-backed securities

 

1,599,774

 

50

 

(158,667)

 

1,441,157

Corporate debt securities

 

293,667

 

49

 

(21,309)

 

272,407

Total debt securities available for sale

$

2,976,591

$

608

$

(232,553)

$

2,744,646

Debt securities held to maturity

    

    

    

Commercial mortgage-backed securities

$

492,924

$

$

(38,687)

$

454,237

Residential mortgage-backed securities

460,088

(37,587)

422,501

Total debt securities held to maturity

$

953,012

$

$

(76,274)

$

876,738

As of December 31, 2021

Amortized

Unrealized

Fair

    

Cost

    

Gross Gains

    

Gross Losses

    

Value

Debt securities available for sale

U.S. Treasury securities

$

166,768

$

41

$

(1,047)

$

165,762

Obligations of U.S. government corporations and agencies

 

37,579

 

891

 

 

38,470

Obligations of states and political subdivisions

 

300,602

 

7,760

 

(1,493)

 

306,869

Asset-backed securities

492,055

295

(164)

492,186

Commercial mortgage-backed securities

625,339

3,425

(13,766)

614,998

Residential mortgage-backed securities

 

2,095,104

 

8,889

 

(34,680)

 

2,069,313

Corporate debt securities

 

296,076

 

1,081

 

(3,504)

 

293,653

Total debt securities available for sale

$

4,013,523

$

22,382

$

(54,654)

$

3,981,251

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Maturities of debt securities

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

As of June 30, 2022

    

Amortized

    

Fair

    

Cost

    

Value

Debt securities available for sale

Due in one year or less

$

191,190

$

189,295

Due after one year through five years

 

421,603

 

399,194

Due after five years through ten years

 

326,834

 

307,336

Due after ten years

 

2,036,964

 

1,848,821

Debt securities available for sale

$

2,976,591

$

2,744,646

Debt securities held to maturity

Due after one year through five years

 

48,232

 

46,533

Due after five years through ten years

 

66,107

 

61,995

Due after ten years

 

838,673

 

768,210

Debt securities held to maturity

$

953,012

$

876,738

Gains and losses on debt securities

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

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2022

    

2021

    

2022

    

2021

Realized gains and losses on debt securities

Gross gains on debt securities

$

1

$

499

$

114

$

524

Gross (losses) on debt securities

(5)

(405)

(12)

(405)

Realized net gains (losses) on debt securities (1)

$

(4)

$

94

$

102

$

119

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

Debt securities with carrying amounts of $685.2 million on June 30, 2022, and $708.9 million on December 31, 2021, were pledged as collateral for public deposits, securities sold under agreements to repurchase, and for other purposes as required.

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Debt securities in an unrealized loss position

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

As of June 30, 2022

Less than 12 months

12 months or more

Total

Fair

    

Unrealized

    

Fair

    

Unrealized

    

Fair

    

Unrealized

    

Value

    

Losses

    

Value

    

Losses

    

Value

    

Losses

Debt securities available for sale

U.S. Treasury securities

$

21,976

$

(154)

$

124,094

$

(3,929)

$

146,070

$

(4,083)

Obligations of U.S. government corporations and agencies

17,078

(81)

17,078

(81)

Obligations of states and political subdivisions

192,737

(16,868)

11,056

(1,520)

203,793

(18,388)

Asset-backed securities

465,293

(22,632)

2,835

(171)

468,128

(22,803)

Commercial mortgage-backed securities

91,564

(6,560)

6,798

(662)

98,362

(7,222)

Residential mortgage-backed securities

 

1,035,112

 

(96,222)

 

399,554

 

(62,445)

 

1,434,666

 

(158,667)

Corporate debt securities

 

178,170

 

(14,790)

 

83,656

 

(6,519)

 

261,826

 

(21,309)

Debt securities available for sale with gross unrealized losses

$

2,001,930

$

(157,307)

$

627,993

$

(75,246)

$

2,629,923

$

(232,553)

Debt securities held to maturity

Commercial mortgage-backed securities

$

241,060

$

(19,840)

$

213,177

$

(18,847)

$

454,237

$

(38,687)

Residential mortgage-backed securities

382,897

(33,909)

39,603

(3,678)

422,500

(37,587)

Debt securities held to maturity with gross unrealized losses

$

623,957

$

(53,749)

$

252,780

$

(22,525)

$

876,737

$

(76,274)

As of December 31, 2021

Less than 12 months

12 months or more

Total

Fair

    

Unrealized

    

Fair

    

Unrealized

    

Fair

    

Unrealized

    

Value

    

Losses

    

Value

    

Losses

    

Value

    

Losses

Debt securities available for sale

U.S. Treasury securities

$

163,653

$

(1,047)

$

$

$

163,653

$

(1,047)

Obligations of states and political subdivisions

92,680

(1,493)

92,680

(1,493)

Asset-backed securities

89,983

(164)

89,983

(164)

Commercial mortgage-backed securities

389,078

(10,186)

85,905

(3,580)

474,983

(13,766)

Residential mortgage-backed securities

 

1,700,187

 

(33,453)

 

20,538

 

(1,227)

 

1,720,725

 

(34,680)

Corporate debt securities

 

241,153

 

(3,504)

 

 

 

241,153

 

(3,504)

Debt securities available for sale with gross unrealized losses

$

2,676,734

$

(49,847)

$

106,443

$

(4,807)

$

2,783,177

$

(54,654)

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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

As of June 30, 2022

    

Available for Sale

    

Held to Maturity

    

Total

Debt securities with gross unrealized losses, fair value

$

2,629,923

$

876,737

$

3,506,660

Gross unrealized losses on debt securities

$

232,553

$

76,274

$

308,827

Ratio of gross unrealized losses to debt securities with gross unrealized losses

8.8

%

8.7

%

8.8

%

Count of debt securities

1,177

55

1,232

Count of debt securities in an unrealized loss position

881

55

936

As of December 31, 2021

    

Available for Sale

    

Held to Maturity

    

Total

Debt securities with gross unrealized losses, fair value

$

2,783,177

$

$

2,783,177

Gross unrealized losses on debt securities

$

54,654

$

$

54,654

Ratio of gross unrealized losses to debt securities with gross unrealized losses

2.0

%

2.0

%

Count of debt securities

1,252

1,252

Count of debt securities in an unrealized loss position

373

373

Unrealized losses were related to changes in market interest rates and market conditions that do not represent credit-related impairments.  The Company does not intend to sell securities that are in an unrealized loss position, and it is more likely than not that the Company will recover the amortized cost prior to being required to sell the debt securities.  Full collection of the amounts due according to the contractual terms of the debt securities is expected; therefore, no ACL was recorded in relation to debt securities, and the impairment related to noncredit factors is recognized in AOCI, net of applicable taxes.  As of June 30, 2022, the Company did not hold general obligation bonds of any single issuer, the aggregate of which exceeded 10% of the Company’s stockholders’ equity.

Note 4:  Portfolio Loans

Loan Categories

The Company’s lending can be summarized into five primary categories: commercial loans, commercial real estate loans, real estate construction loans, retail real estate loans, and retail other loans.  Distributions of the loan portfolio by loan category were as follows (dollars in thousands):

As of

June 30,

December 31,

    

2022

    

2021

Portfolio loans

Commercial

$

1,919,680

$

1,943,886

Commercial real estate

3,228,090

3,119,807

Real estate construction

466,185

385,996

Retail real estate

1,590,913

1,512,976

Retail other

292,910

226,333

Total portfolio loans

7,497,778

7,188,998

ACL

(88,757)

(87,887)

Portfolio loans, net

$

7,409,021

$

7,101,111

21

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Net deferred loan origination costs included in the balances above were $12.9 million as of June 30, 2022, compared to $9.0 million as of December 31, 2021.  Net accretable purchase accounting adjustments included in the balances above reduced loans by $7.2 million as of June 30, 2022, and $8.8 million as of December 31, 2021.  Commercial balances include loans originated under the PPP with an amortized cost of $7.6 million as of June 30, 2022, and $75.0 million as of December 31, 2021.

There were no retail real estate loans purchased during the three or six months ended June 30, 2022.  In comparison, the Company purchased $32.2 million of retail real estate loans during the three and six months ended June 30, 2021.

Risk Grading

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.

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

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

As of June 30, 2022

    

    

    

Special

    

    

Substandard

    

    

Pass

    

Watch

    

Mention

    

Substandard

    

Non-accrual

    

Total

Portfolio loans

Commercial

$

1,743,101

$

86,902

$

44,434

$

38,425

$

6,818

$

1,919,680

Commercial real estate

 

2,867,188

 

265,920

 

47,867

 

40,879

 

6,236

 

3,228,090

Real estate construction

 

450,887

 

12,848

 

3

 

2,400

 

47

 

466,185

Retail real estate

 

1,574,634

 

7,847

 

2,022

 

3,759

 

2,651

 

1,590,913

Retail other

 

292,822

 

 

 

 

88

 

292,910

Total portfolio loans

$

6,928,632

$

373,517

$

94,326

$

85,463

$

15,840

$

7,497,778

22

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

As of December 31, 2021

    

    

    

Special

    

    

Substandard

    

    

Pass

    

Watch

    

Mention

    

Substandard

    

Non-accrual

    

Total

Portfolio loans

Commercial

$

1,747,756

$

93,582

$

69,427

$

26,117

$

7,004

$

1,943,886

Commercial real estate

 

2,682,441

 

343,304

 

49,695

 

38,394

 

5,973

 

3,119,807

Real estate construction

 

369,797

 

13,793

 

6

 

2,400

 

 

385,996

Retail real estate

 

1,491,845

 

12,374

 

1,992

 

3,867

 

2,898

 

1,512,976

Retail other

 

226,262

 

 

 

 

71

 

226,333

Total portfolio loans

$

6,518,101

$

463,053

$

121,120

$

70,778

$

15,946

$

7,188,998

23

Table of Contents

FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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

 

As of June 30, 2022

 

Term Loans Amortized Cost Basis by Origination Year

Revolving

Risk Grade Ratings

 

2022

 

2021

 

2020

 

2019

 

2018

 

Prior

 

Loans

 

Total

Commercial

 

Pass

$

318,589

$

351,192

$

154,862

$

65,399

$

57,255

$

159,597

$

636,207

$

1,743,101

Watch

16,715

21,174

3,974

8,795

1,416

3,106

31,722

86,902

Special Mention

1,754

737

1,458

1,011

3,301

17,611

18,562

44,434

Substandard

3,332

1,408

2,754

7,212

597

5,486

17,636

38,425

Substandard non-accrual

3,766

326

139

519

2,068

6,818

Total commercial

340,390

378,277

163,374

82,556

62,569

186,319

706,195

1,919,680

Commercial real estate

Pass

594,333

921,519

529,485

341,259

186,369

273,412

20,811

2,867,188

Watch

44,855

26,003

50,638

95,099

20,877

22,983

5,465

265,920

Special Mention

5,777

5,412

13,455

842

6,630

15,482

269

47,867

Substandard

11,864

12,820

3,009

1,814

10,419

953

40,879

Substandard non-accrual

4,210

162

1,851

13

6,236

Total commercial real estate

656,829

969,964

596,749

439,014

226,146

312,843

26,545

3,228,090

Real estate construction

Pass

131,894

187,283

86,891

23,572

2,495

2,256

16,496

450,887

Watch

3,299

4,592

3,419

51

1,487

12,848

Special Mention

3

3

Substandard

2,400

2,400

Substandard non-accrual

47

47

Total real estate construction

135,193

191,875

92,757

23,626

2,495

3,743

16,496

466,185

Retail real estate

 

Pass

253,800

472,480

187,596

82,372

64,928

302,911

210,547

1,574,634

Watch

1,196

1,185

1,990

1,584

1,168

134

590

7,847

Special Mention

144

1,878

2,022

Substandard

1,184

215

87

15

2,175

83

3,759

Substandard non-accrual

436

115

43

1,653

404

2,651

Total retail real estate

255,140

477,163

189,916

84,043

66,154

306,873

211,624

1,590,913

Retail other

 

Pass

103,386

51,497

17,208

19,075

10,189

3,438

88,029

292,822

Substandard non-accrual

88

88

Total retail other

103,386

51,585

17,208

19,075

10,189

3,438

88,029

292,910

Total portfolio loans

$

1,490,938

$

2,068,864

$

1,060,004

$

648,314

$

367,553

$

813,216

$

1,048,889

$

7,497,778

24

Table of Contents

FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

As of December 31, 2021

 

Term Loans Amortized Cost Basis by Origination Year

Revolving

Risk Grade Ratings

  

2021

  

2020

  

2019

  

2018

  

2017

  

Prior

  

Loans

  

Total

Commercial

 

Pass

$

512,729

$

228,811

$

107,877

$

84,873

$

74,351

$

122,418

$

616,697

$

1,747,756

Watch

13,847

5,913

14,274

5,060

1,361

2,866

50,261

93,582

Special Mention

7,062

898

5,961

4,025

6,790

11,845

32,846

69,427

Substandard

3,595

3,362

3,136

1,855

1,125

5,459

7,585

26,117

Substandard non-accrual

4,126

364

142

320

52

2,000

7,004

Total commercial

541,359

239,348

131,390

95,813

83,947

142,640

709,389

1,943,886

Commercial real estate

Pass

969,548

637,550

425,850

235,928

200,373

198,002

15,190

2,682,441

Watch

51,560

38,820

123,324

48,088

46,761

32,608

2,143

343,304

Special Mention

9,542

7,060

6,585

10,098

6,357

9,870

183

49,695

Substandard

21,002

3,781

1,218

11,451

521

421

38,394

Substandard non-accrual

112

181

359

1,893

3,407

21

5,973

Total commercial real estate

1,051,764

687,392

557,336

307,458

257,419

240,922

17,516

3,119,807

Real estate construction

Pass

202,082

123,491

31,927

3,155

738

1,223

7,181

369,797

Watch

7,886

4,159

54

1,574

120

13,793

Special Mention

6

6

Substandard

2,400

2,400

Total real estate construction

209,968

130,050

31,987

3,155

2,312

1,343

7,181

385,996

Retail real estate

 

Pass

523,541

215,068

96,617

79,158

82,478

281,737

213,246

1,491,845

Watch

4,100

2,460

1,780

1,312

343

150

2,229

12,374

Special Mention

1,965

27

1,992

Substandard

1,369

232

12

71

165

1,687

331

3,867

Substandard non-accrual

235

63

16

227

1,705

652

2,898

Total retail real estate

531,210

217,850

98,409

80,557

83,213

285,279

216,458

1,512,976

Retail other

 

Pass

59,366

22,305

26,126

16,189

7,180

1,326

93,770

226,262

Substandard non-accrual

34

10

14

13

71

Total retail other

59,400

22,315

26,126

16,203

7,193

1,326

93,770

226,333

Total portfolio loans

$

2,393,701

$

1,296,955

$

845,248

$

503,186

$

434,084

$

671,510

$

1,044,314

$

7,188,998

25

Table of Contents

FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Past Due and Non-accrual Loans

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

As of June 30, 2022

Loans past due, still accruing

Non-accrual

    

30-59 Days

    

60-89 Days

    

90+Days

    

 Loans

Past due and non-accrual loans

Commercial

$

209

$

24

$

625

$

6,818

Commercial real estate

356

6,236

Real estate construction

 

 

 

 

47

Retail real estate

2,428

1,990

1,019

2,651

Retail other

 

143

 

7

 

10

 

88

Total past due and non-accrual loans

$

3,136

$

2,021

$

1,654

$

15,840

As of December 31, 2021

Loans past due, still accruing

Non-accrual

    

30-59 Days

    

60-89 Days

    

90+Days

    

 Loans

Past due and non-accrual loans

Commercial

$

363

$

10

$

213

$

7,004

Commercial real estate

 

151

441

5,973

Real estate construction

 

56

 

 

 

Retail real estate

 

3,312

1,830

693

2,898

Retail other

 

82

 

16

 

 

71

Total past due and non-accrual loans

$

3,964

$

2,297

$

906

$

15,946

Gross interest income recorded on 90+ days past due loans, and that would have been recorded on non-accrual loans if they had been accruing interest in accordance with their original terms, was $0.3 million and $0.5 million for the three and six months ended June 30, 2022, respectively.  Gross interest income recorded on 90+ days past due loans, and that would have been recorded on non-accrual loans if they had been accruing interest in accordance with their original terms, was $0.4 million and $0.9 million for the three and six months ended June 30, 2021, respectively.  The amount of interest collected on those loans and recognized on a cash basis that was included in interest income was insignificant for the three months ended June 30, 2022, and was $0.4 million for the six months ended June 30, 2022.  The amount of interest collected on those loans and recognized on a cash basis that was included in interest income was insignificant for the three and six months ended June 30, 2021.

Troubled Debt Restructurings

TDR loan balances are summarized as follows (dollars in thousands):

As of

June 30,

December 31,

    

2022

    

2021

TDRs

In compliance with modified terms

$

2,017

$

1,801

30 89 days past due

12

Non-performing TDRs

508

551

Total TDRs

$

2,537

$

2,352

26

Table of Contents

FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Loans that were newly designated as TDRs during the periods presented, are summarized as follows (dollars in thousands):

Three Months Ended June 30, 2022

Six Months Ended June 30, 2022

Recorded Investment

Recorded Investment

Number of

Rate

Payment

Number of

Rate

Payment

    

Contracts

    

Modification (1)

Modification (1)

    

Contracts

    

Modification (1)

Modification (1)

Commercial

1

$

$

446

1

$

$

446

Three Months Ended June 30, 2021

Six Months Ended June 30, 2021

Recorded Investment

Recorded Investment

Number of

Rate

Payment

Number of

Rate

Payment

    

Contracts

    

Modification (1)

Modification (1)

    

Contracts

    

Modification (1)

Modification (1)

Commercial

$

$

1

$

463

$

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

There were no TDRs entered into during the 12 months ended June 30, 2022, or 2021, that had subsequent defaults during the three or six months ended June 30, 2022, or 2021.  A default occurs when a loan is 90 days or more past due or transferred to non-accrual.

Gross interest income that would have been recorded in the three and six months ended June 30, 2022, and 2021, if TDRs had performed in accordance with their original terms compared with their modified terms, was insignificant.

As of June 30, 2022, the Company had $0.8 million of residential real estate in the process of foreclosure.  The Company follows Federal Housing Finance Agency guidelines on single-family foreclosures and real estate owned evictions on portfolio loans.

Loans Modified Under the CARES Act or Interagency Statement

The CARES Act provided financial institutions the option to temporarily suspend certain requirements under GAAP related to TDRs for a limited period of time to account for the effects of COVID-19.  Federal regulatory agencies, in consultation with FASB, also issued an Interagency Statement to encourage financial institutions to work with borrowers affected by COVID-19, and to update guidance which allowed banks to modify loans of customers stressed by COVID-19 without having to classify the loan as a TDR.  The Company’s TDR loan totals do not include the following modified loans with payment deferrals that fall under the CARES Act or Interagency Statement, which suspended GAAP requirements related to TDR classification (dollars in thousands):

As of June 30, 2022

As of December 31, 2021

Number of

Recorded

Number of

Recorded

    

Contracts

    

Investment

    

Contracts

    

Investment

COVID-19 loan modifications

Commercial loans:

Interest-only deferrals

11

$

31,925

32

$

128,730

Retail loans:

 

Mortgage and personal loan deferrals

1

99

2

137

Total COVID-19 loans modifications

12

$

32,024

34

$

128,867

27

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Loans Evaluated Individually

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

As of June 30, 2022

Unpaid

Recorded Investment

Average

Principal

With No

With

Related

Recorded

    

Balance

    

Allowance

    

Allowance

    

Total

    

Allowance

    

Investment

Loans evaluated individually

Commercial

$

10,282

$

932

$

6,092

$

7,024

$

2,826

$

8,317

Commercial real estate

 

8,099

1,923

4,100

 

6,023

 

2,000

 

5,748

Real estate construction

 

262

 

262

 

 

262

 

 

272

Retail real estate

 

2,290

 

2,121

 

25

 

2,146

 

25

 

2,890

Total loans evaluated individually

$

20,933

$

5,238

$

10,217

$

15,455

$

4,851

$

17,227

As of December 31, 2021

Unpaid

Recorded Investment

Average

Principal

With No

With

Related

Recorded

    

Balance

    

Allowance

    

Allowance

    

Total

    

Allowance

    

Investment

Loans evaluated individually

Commercial

$

10,247

$

498

$

6,490

$

6,988

$

3,564

$

8,791

Commercial real estate

 

6,456

5,750

 

5,750

 

 

6,390

Real estate construction

 

272

 

272

 

 

272

 

 

282

Retail real estate

 

2,514

 

2,345

 

25

 

2,370

 

25

 

4,093

Total loans evaluated individually

$

19,489

$

8,865

$

6,515

$

15,380

$

3,589

$

19,556

Management's evaluation as to the ultimate collectability of loans includes estimates regarding future cash flows from operations and the value of property, real and personal, pledged as collateral.  These estimates are affected by changing economic conditions and the economic prospects of borrowers.  Collateral dependent loans are loans in which repayment is expected to be provided solely by the underlying collateral and there are no other available and reliable sources of repayment.  Loans are written down to the lower of cost or fair value of underlying collateral, less estimated costs to sell.  The Company had $4.1 million and $7.9 million of collateral dependent loans secured by real estate or business assets as of June 30, 2022, and December 31, 2021, respectively.

Allowance for Credit Losses

Management estimates the ACL balance using relevant available information from internal and external sources relating to past events, current conditions, and reasonable and supportable forecasts.  Historical credit loss experience provides the basis for the estimation of expected credit losses.  The cumulative loss rate used as the basis for the estimate of credit losses is comprised of the Company’s historical loss experience beginning in 2010.  As of June 30, 2022, the Company expects continued economic uncertainty in the markets in which it operates, and around 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.

28

Table of Contents

FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The following tables summarize 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):

Three Months Ended June 30, 2022

    

Commercial

    

Real Estate

    

Retail

    

Commercial

    

Real Estate

    

Construction

    

Real Estate

    

Retail Other

    

Total

ACL balance, March 31, 2022

$

24,173

$

37,339

$

5,705

$

17,555

$

3,441

$

88,213

Provision for credit losses

 

(743)

 

1,028

 

(63)

 

312

 

1,119

 

1,653

Charged-off

 

(208)

 

(1,372)

 

(17)

 

(82)

 

(1,679)

Recoveries

 

137

 

187

 

27

 

134

 

85

 

570

ACL balance, June 30, 2022

$

23,359

$

37,182

$

5,669

$

17,984

$

4,563

$

88,757

Six Months Ended June 30, 2022

    

Commercial

    

Real Estate

    

Retail

    

Commercial

    

Real Estate

    

Construction

    

Real Estate

    

Retail Other

    

Total

ACL balance, December 31, 2021

$

23,855

$

38,249

$

5,102

$

17,589

$

3,092

$

87,887

Provision for credit losses

 

(492)

 

(190)

 

447

 

142

 

1,493

 

1,400

Charged-off

 

(208)

 

(1,372)

 

(33)

 

(191)

 

(1,804)

Recoveries

 

204

 

495

 

120

 

286

 

169

 

1,274

ACL balance, June 30, 2022

$

23,359

$

37,182

$

5,669

$

17,984

$

4,563

$

88,757

Three Months Ended June 30, 2021

    

Commercial

    

Real Estate

    

Retail Real

    

Commercial

    

Real Estate

    

Construction

    

Estate

    

Retail Other

    

Total

ACL balance, March 31, 2021

$

23,025

$

43,306

$

6,879

$

19,978

$

755

$

93,943

Day 1 PCD (1)

3,546

336

129

167

4,178

Provision for credit losses

 

(1,420)

 

(3,390)

 

671

 

404

 

2,035

 

(1,700)

Charged-off

 

(1,000)

 

(317)

 

(157)

 

(64)

 

(1,538)

Recoveries

 

205

 

39

 

49

 

151

 

83

 

527

ACL balance, June 30, 2021

$

24,356

$

39,974

$

7,599

$

20,505

$

2,976

$

95,410

Six Months Ended June 30, 2021

    

Commercial

    

Real Estate

    

Retail

    

Commercial

    

Real Estate

    

Construction

    

Real Estate

    

Retail Other

    

Total

ACL balance, December 31, 2020

$

23,866

$

46,230

$

8,193

$

21,992

$

767

$

101,048

Day 1 PCD (1)

3,546

336

129

167

4,178

Provision for credit losses

 

(2,084)

 

(6,085)

 

(579)

 

(1,873)

 

2,125

 

(8,496)

Charged-off

 

(1,262)

 

(620)

 

(209)

(160)

 

(251)

 

(2,502)

Recoveries

 

290

 

113

 

194

 

417

 

168

 

1,182

ACL balance, June 30, 2021

$

24,356

$

39,974

$

7,599

$

20,505

$

2,976

$

95,410

(1)The Day 1 PCD is attributable to the CAC acquisition in the second quarter of 2021.

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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

As of June 30, 2022

Portfolio Loans

ACL Attributed to Portfolio Loans

Collectively

Individually

Collectively

Individually

Evaluated for

Evaluated for

Evaluated for

Evaluated for

    

Impairment

    

Impairment

    

Total

    

Impairment

    

Impairment

    

Total

Portfolio loan category

Commercial

$

1,912,656

$

7,024

$

1,919,680

$

20,533

$

2,826

$

23,359

Commercial real estate

3,222,067

6,023

3,228,090

35,182

2,000

37,182

Real estate construction

465,923

262

466,185

5,669

5,669

Retail real estate

1,588,767

2,146

1,590,913

17,959

25

17,984

Retail other

292,910

292,910

4,563

4,563

Portfolio loans and related ACL

$

7,482,323

$

15,455

$

7,497,778

$

83,906

$

4,851

$

88,757

As of December 31, 2021

Portfolio Loans

ACL Attributed to Portfolio Loans

Collectively

Individually

Collectively

Individually

Evaluated for

Evaluated for

Evaluated for

Evaluated for

    

Impairment

    

Impairment

    

Total

    

Impairment

    

Impairment

    

Total

Portfolio loan category

Commercial

$

1,936,898

$

6,988

$

1,943,886

$

20,291

$

3,564

$

23,855

Commercial real estate

3,114,057

5,750

3,119,807

38,249

38,249

Real estate construction

385,724

272

385,996

5,102

5,102

Retail real estate

1,510,606

2,370

1,512,976

17,564

25

17,589

Retail other

226,333

226,333

3,092

3,092

Portfolio loans and related ACL

$

7,173,618

$

15,380

$

7,188,998

$

84,298

$

3,589

$

87,887

Note 5:  Deposits

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

    

As of

June 30, 

December 31, 

    

2022

    

2021

Deposits

Demand deposits, noninterest-bearing

$

3,505,299

$

3,670,267

Interest-bearing transaction deposits

 

2,751,722

 

2,720,417

Saving deposits and money market deposits

 

3,322,386

3,442,244

Time deposits

 

817,821

 

935,649

Total deposits

$

10,397,228

$

10,768,577

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

    

As of

June 30, 

December 31, 

    

2022

    

2021

Brokered savings deposits and money market deposits

$

2,002

$

2,248

Brokered time deposits

271

266

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

390,287

454,649

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

117,958

137,449

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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

    

As of

June 30, 2022

Time deposits by schedule of maturities

Remainder of 2022

    

$

362,919

2023

 

315,505

2024

 

89,743

2025

 

21,570

2026

 

18,018

2027

9,413

Thereafter

 

653

Time deposits

$

817,821

Note 6:  Borrowings

Securities Sold Under Agreements to Repurchase

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

    

As of

June 30,

December 31,

    

2022

    

2021

 

Securities sold under agreements to repurchase

$

228,383

$

270,139

Weighted average rate for securities sold under agreements to repurchase

0.55

%

0.08

%

Term Loan

On May 28, 2021, the Company entered into a Second Amended and Restated Credit Agreement, pursuant to which the Company has access to (i) a $40.0 million revolving line of credit with a termination date of April 30, 2022, and (ii) a $60.0 million term loan with a maturity date of May 31, 2026.  The loans had an annual interest rate of 1.75% plus the one-month LIBOR rate.  On April 30, 2022, the agreement was amended, effecting an extension of the termination date for the revolving line of credit to April 30, 2023, and providing for the transition from a LIBOR-indexed interest rate to a SOFR-indexed interest rate.  Under the terms of the amendment, the loans now have an annual interest rate of 1.80% plus the one-month forward-looking term rate based on SOFR.

Proceeds of the term loan were used to fund a part of the cash portion of the merger consideration related to the acquisition of CAC in the second quarter of 2021, and for general corporate purposes.  As of June 30, 2022, there was no balance outstanding on the revolving credit facility and a total of $48.0 million outstanding on the term loan, of which $12.0 million was short-term and $36.0 million was long-term.  The revolving credit facility incurs a non-usage fee based on any undrawn amounts.  Quarterly payments on the term loan reduce the outstanding principal balance by $3.0 million each quarter.

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Short-term Borrowings

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

    

As of

June 30,

December 31,

    

2022

    

2021

Short-term borrowings

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

$

4,396

$

5,678

Term Loan, current portion due within 12 months

12,000

12,000

Total short-term debt

$

16,396

$

17,678

Federal funds purchased are short-term borrowings that generally mature between one and 90 days.  The Company had no federal funds purchased as of June 30, 2022, or December 31, 2021.

Long-term Debt

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

    

As of

June 30,

December 31,

    

2022

    

2021

Long-term debt

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

$

$

4,056

Term Loan

36,000

42,000

Total long-term debt

$

36,000

$

46,056

As of December 31, 2021, funds borrowed from the FHLB, listed above, consisted of one variable-rate note maturing May 2023, with an interest rate of 3.04%.  This note became due within 12 months during the second quarter of 2022, and the balance is now fully reflected in short-term borrowings.

Senior and Subordinated Notes

On May 25, 2017, the Company issued $40.0 million of 3.75% senior notes that matured and were redeemed on May 25, 2022.  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 bore 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 the three-month LIBOR plus a spread of 2.919%, as calculated on each applicable determination date.  The subordinated notes were payable semi-annually on each May 25 and November 25, commencing on November 25, 2017, during the five-year fixed-term, and thereafter are payable 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, and the Company anticipates redeeming $60.0 million during the third quarter of 2022.  The full balance of the subordinated notes qualified as Tier 2 Capital for First Busey for the first five years, with a phase out beginning in the second quarter of 2022.  The senior notes were, and the subordinated notes are, unsecured obligations of the Company.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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.

On June 2, 2022, the Company issued $100.0 million aggregate principal amount of 5.000% fixed-to-floating rate subordinated notes due 2032, which qualify as Tier 2 Capital for regulatory purposes.  The price to the public for the subordinated notes was 100% of the principal amount of the subordinated notes.  Interest on the subordinated notes will accrue at a rate equal to (i) 5.000% per annum from the original issue date to, but excluding, June 15, 2027, payable semiannually in arrears, and (ii) a floating rate per annum equal to a benchmark rate, which is expected to be Three-Month Term SOFR (as defined in the subordinated notes), plus a spread of 252 basis points from and including, June 15, 2027, payable quarterly in arrears.  The subordinated notes have an optional redemption in whole or in part on any interest payment date on or after June 15, 2027.

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

    

As of

June 30,

December 31,

    

2022

    

2021

Unamortized debt issuance costs

Senior notes issued in 2017

$

$

56

Subordinated notes issued in 2017

338

549

Subordinated notes issued in 2020

1,452

1,678

Subordinated notes issued in 2022

1,906

Total unamortized debt issuance costs

$

3,696

$

2,283

Note 7:  Regulatory Capital

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

Banking regulations identify five capital categories for insured depository institutions: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized.  As of June 30, 2022, and December 31, 2021, all capital ratios of the Company and its subsidiary bank exceeded well capitalized levels under the applicable regulatory capital adequacy guidelines.  Management believes that no events or changes have occurred subsequent to June 30, 2022, that would change this designation.

Current Expected Credit Loss Model

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 was 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

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

capital purposes, has been 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 began to be phased-in for regulatory capital purposes at a rate of 25 percent per year, with the phased-in amounts included in regulatory capital at the beginning of each year.

Changes in Capital Relating to Subordinated Debt

On May 25, 2017, the Company issued $60.0 million of fixed-to-floating rate subordinated notes that mature on May 25, 2027.  The full balance of the subordinated note qualified as Tier 2 Capital for First Busey for the first five years, with a phase out beginning in the second quarter of 2022.  The subordinated notes have an optional redemption in whole or in part on any interest payment date on or after May 25, 2022, and the Company anticipates redeeming them in full during the third quarter of 2022.

On June 2, 2022, the Company issued $100.0 million aggregate principal amount of 5.000% fixed-to-floating rate subordinated notes due 2032, which qualify as Tier 2 Capital for regulatory purposes.

Capital Amounts and Ratios

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

As of June 30, 2022

Minimum

Minimum

To Be Well

 

Actual

Capital Requirement

Capitalized

 

    

Amount

    

Ratio

    

Amount

    

Ratio

    

Amount

    

Ratio

    

Common Equity Tier 1 Capital to Risk Weighted Assets

Consolidated

$

1,031,356

 

11.77

%   

$

394,196

 

4.50

%   

$

569,394

 

6.50

%

Busey Bank

$

1,265,418

 

14.50

%   

$

392,637

 

4.50

%   

$

567,142

 

6.50

%

Tier 1 Capital to Risk Weighted Assets

Consolidated

$

1,105,356

 

12.62

%   

$

525,594

 

6.00

%   

$

700,792

 

8.00

%

Busey Bank

$

1,265,418

 

14.50

%   

$

523,516

 

6.00

%   

$

698,021

 

8.00

%

Total Capital to Risk Weighted Assets

Consolidated

$

1,452,813

 

16.58

%   

$

700,792

 

8.00

%   

$

875,990

 

10.00

%

Busey Bank

$

1,339,875

 

15.36

%   

$

698,021

 

8.00

%   

$

872,526

 

10.00

%

Leverage Ratio of Tier 1 Capital to Average Assets

Consolidated

$

1,105,356

 

9.03

%   

$

489,513

 

4.00

%   

 

N/A

 

N/A

Busey Bank

$

1,265,418

 

10.37

%   

$

488,139

 

4.00

%   

$

610,174

 

5.00

%

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

As of December 31, 2021

Minimum

Minimum

To Be Well

Actual

Capital Requirement

Capitalized

    

Amount

    

Ratio

    

Amount

    

Ratio

    

Amount

    

Ratio

 

Common Equity Tier 1 Capital to Risk Weighted Assets

Consolidated

$

995,874

 

11.85

%   

$

378,334

 

4.50

%   

$

546,482

 

6.50

%

Busey Bank

$

1,241,303

 

14.81

%   

$

377,096

 

4.50

%   

$

544,695

 

6.50

%

Tier 1 Capital to Risk Weighted Assets

Consolidated

$

1,069,874

 

12.73

%   

$

504,445

 

6.00

%   

$

672,594

 

8.00

%

Busey Bank

$

1,241,303

 

14.81

%   

$

502,795

 

6.00

%   

$

670,394

 

8.00

%

Total Capital to Risk Weighted Assets

Consolidated

$

1,320,187

 

15.70

%   

$

672,594

 

8.00

%   

$

840,742

 

10.00

%

Busey Bank

$

1,306,616

 

15.59

%   

$

670,394

 

8.00

%   

$

837,992

 

10.00

%

Leverage Ratio of Tier 1 Capital to Average Assets

Consolidated

$

1,069,874

 

8.52

%   

$

502,336

 

4.00

%   

 

N/A

 

N/A

Busey Bank

$

1,241,303

 

9.91

%   

$

501,104

 

4.00

%   

$

626,379

 

5.00

%

Capital Conservation Buffer

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

Note 8:  Stock-Based Compensation

Stock Options

The Company has outstanding stock options assumed from acquisitions.  A summary of the status of, and changes in, the Company's stock option awards for the six months ended June 30, 2022, follows:

Weighted-

    

    

Weighted-

Average

Average

Remaining

Exercise

Contractual

    

Shares

    

Price

    

Life

Options outstanding at December 31, 2021

31,386

$

23.53

4.88

Expired

(220)

 

23.53

Options outstanding at June 30, 2022

31,166

$

23.53

4.38

Options exercisable at June 30, 2022

31,166

$

23.53

4.38

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

2020 Equity Plan

Under the terms of the 2020 Equity Plan, the Company has granted RSU, PSU, and DSU awards.  Upon vesting/delivery, shares are expected (though not required) to be issued from treasury.

RSU Awards

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

PSU Awards

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

DSU Awards

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

Award Grants and Activity

A summary of changes in the Company’s RSU, PSU, and DSU awards for the six months ended June 30, 2022, is as follows:

RSU Awards

PSU Awards

DSU Awards

Weighted-

Weighted-

Weighted-

Average

Average

Average

Grant Date

Grant Date

Grant Date

    

Shares

    

Fair Value

    

Shares (1)

    

Fair Value

    

Shares

    

Fair Value

Nonvested at December 31, 2021

 

1,147,927

 

$

23.97

 

113,915

 

$

22.86

 

34,135

 

$

24.59

Granted

 

156,483

 

25.79

 

195,240

 

25.79

 

32,658

 

25.79

Dividend equivalents earned

 

22,800

 

24.52

 

 

 

2,797

 

24.38

Vested

 

(136,084)

 

29.27

 

 

 

(39,065)

 

24.67

Forfeited

 

(23,966)

 

23.65

 

(2,339)

 

24.30

 

 

Nonvested at June 30, 2022

 

1,167,160

 

$

23.62

 

306,816

 

$

24.71

 

30,525

 

$

25.76

Vested and outstanding at June 30, 2022

 

 

115,208

 

$

22.80

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

On March 23, 2022, under the terms of the 2020 Equity Plan, the Company granted 156,483 RSUs to members of management.  The grant date fair value of the award totaled $4.0 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

On March 23, 2022, the Company granted a target of 78,233 market-based PSUs with a maximum award of 125,173 units.  The actual number of units issued at the vesting date could range from 0% to 160% of the initial grant, depending on attaining a market-based total shareholder return performance goal.  The grant date fair value of the award is estimated to be $2.0 million and will be recognized in compensation expense over the performance period ending December 31, 2024.  The Company expects to finalize the grant date fair value of these awards in the third quarter of 2022.

On March 23, 2022, the Company granted a target of 78,233 performance-based PSUs with a maximum award of 125,173 units.  The actual number of units issued at the vesting date could range from 0% to 160% of the initial grant, depending on attaining a core return on average tangible common equity performance goal.  The grant date fair value of the award is $2.0 million and will be recognized in compensation expense over the performance period ending December 31, 2024, subject to achievement of the performance goal.

Further, on March 23, 2022, the Company granted a target of 38,774 PSUs with a maximum award of 77,548 units.  The actual number of units issued at the vesting date could range from 0% to 200% of the initial grant, depending on attaining a performance goal based upon the compounded annual revenue growth rate of the FirsTech operating segment.  The grant date fair value of the award is $1.0 million and will be recognized in compensation expense over the performance period ending December 31, 2024, subject to achievement of the performance goal.

On March 23, 2022, the Company granted 32,658 DSUs to directors and advisory directors.  The grant date fair value of the award totaled $0.8 million and will be recognized as compensation expense over the requisite service period of one year.  Subsequent to the requisite service period, the awards will become 100% vested.

2021 Employee Stock Purchase Plan

The First Busey Corporation 2021 ESPP was approved at the Company’s 2021 Annual Meeting of Stockholders and details can be found within First Busey’s Definitive Proxy Statement filed with the SEC on April 8, 2021.  The purpose of the 2021 ESPP is to provide a means through which our employees may acquire a proprietary interest in the Company by purchasing shares of our common stock at a 15% discount through voluntary payroll deductions, to assist us in retaining the services of our employees and securing and retaining the services of new employees, and to provide incentives for our employees to exert maximum efforts toward our success.  The plan initially reserved for issuance and purchase an aggregate of 600,000 shares of the Company’s common stock.  The first offering under this plan began on July 1, 2021.

Stock-based Compensation Expense

The Company did not record any stock option compensation expense for the three or six months ended June 30, 2022, or 2021.  As of June 30, 2022, the Company did not have any unrecognized stock option expense.

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

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2022

    

2021

    

2022

    

2021

Stock-based compensation expense

RSU awards

$

1,273

$

1,816

$

2,449

$

3,046

PSU awards

758

268

1,170

328

DSU awards

257

353

483

511

2021 ESPP

48

143

Total stock-based compensation expense

$

2,336

$

2,437

$

4,245

$

3,885

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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

As of

June 30,

December 31,

    

2022

    

2021

    

Unamortized stock-based compensation

RSU awards

$

11,273

$

10,204

PSU awards

4,973

1,547

DSU awards

568

209

Total unamortized stock-based compensation

$

16,814

$

11,960

Weighted average period over which expense is to be recognized

2.8

yrs

2.9

yrs

Shares Available for Issuance Under Stock-based Compensation Plans

Shares remaining available for issuance pursuant to authorized stock-based compensation plans as of June 30, 2022, were as follows:

Shares Remaining

Available for Issuance

   

Pursuant to the Plan

2020 Equity Plan

644,174

2021 Employee Stock Purchase Plan

530,570

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

June 30,

December 31,

   

2022

    

2021

Financial instruments whose contract amounts represent credit risk

Commitments to extend credit

$

1,994,872

$

1,983,655

Standby letters of credit

 

32,482

 

32,552

Total commitments

$

2,027,354

$

2,016,207

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.

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The Company was holding collateral of $19.8 million to secure its obligation under derivative contracts as of June 30, 2022.  The Company pledged $28.6 million and $27.3 million in cash to secure its obligation under derivative contracts as of June 30, 2022, and December 31, 2021, respectively.

Derivative Instruments 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 OCI and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings.  Changes in fair value of components excluded from the assessment of effectiveness are recognized in current earnings.

Interest Rate Swaps Designated as Cash Flow Hedges

Interest rate swaps with notional amounts totaling $350.0 million as of June 30, 2022, and $50.0 million as of December 31, 2021, were designated as cash flow hedges.  The Company entered into one $50.0 million interest rate swap to hedge the risks of variability in cash flows (future interest payments) attributable to changes in the contractually specified 3-month LIBOR benchmark interest rate on the Company’s junior subordinated debt owed to unconsolidated trusts (Debt Swap).  In addition, the Company entered into one $300.0 million interest rate swap to reduce our balance sheet asset sensitive profile and to lock in earnings in the event future interest rate hikes do not materialize (Loan Swap).  These hedges were determined to be highly effective during the period, and the Company expects its hedges to remain highly effective during the remaining terms of the swaps.  Changes in fair value were recorded net of tax in OCI.

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

As of

June 30,

December 31,

   

Location

   

2022

    

2021

   

Debt Swap

Notional amount

$

50,000

$

50,000

Weighted average fixed pay rates

 

1.79

%

 

1.79

%

Weighted average variable 3-month LIBOR receive rates

1.83

%

0.20

%

Weighted average maturity, in years

2.21

yrs 

2.71

yrs

Loan Swap

Notional amount

$

300,000

$

Weighted average fixed receive rates

 

4.45

%

 

%

Weighted average variable Prime pay rates

4.81

%

%

Weighted average maturity, in years

6.61

yrs 

yrs

Gross aggregate fair value of the swaps

Gross aggregate fair value of swap assets

Other assets

$

1,412

$

Gross aggregate fair value of swap liabilities

Other liabilities

$

19,296

$

958

Balances carried in AOCI

Unrealized gains (losses) on cash flow hedges, net of tax

AOCI

$

(12,844)

$

(685)

The Company expects $0.1 million of unrealized gains to be reclassified from OCI to interest income.  Amounts actually recognized could differ from these expectations due to changes in interest rates, hedge de-designations, and the addition of other hedges subsequent to June 30, 2022.

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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

Three Months Ended June 30, 

Six Months Ended June 30, 

2022

2021

   

2022

    

2021

Interest income (expense) on swap transactions

$

567

$

(288)

$

1,067

$

(566)

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

Three Months Ended June 30, 

Six Months Ended June 30, 

2022

2021

   

2022

    

2021

Unrealized gains (losses) on cash flow hedges

Gain (loss) recognized in OCI, net of tax

$

(6,550)

$

(69)

$

(11,395)

$

341

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

(407)

206

(764)

405

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

$

(6,957)

$

137

$

(12,159)

$

746

Derivative Instruments Not Designated as Hedges

Interest Rate Swaps Not Designated as Hedges

The Company may offer derivative contracts to its customers in connection with their risk management needs.  The Company manages the risk associated with these contracts by entering into equal and offsetting derivative agreements with a third-party dealer.  These contracts support variable rate, commercial loan relationships totaling $443.8 million and $491.4 million as of June 30, 2022, and December 31, 2021, respectively.  These derivatives generally worked together as an economic interest rate hedge, but the Company did not designate them for hedge accounting treatment.  Consequently, changes in fair value of the corresponding derivative financial asset or liability were recorded as either a charge or credit to current earnings during the period in which the changes occurred.

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

As of June 30, 2022

Derivative Asset

Derivative Liability

Notional

Fair

Notional

Fair

   

Amount

   

Value

   

Amount

   

Value

Derivatives not designated as hedging instruments

Interest rate swaps – pay floating, receive fixed

$

74,892

$

1,798

$

368,937

$

21,761

Interest rate swaps – pay fixed, receive floating

368,937

21,761

74,892

1,798

Total derivatives not designated as hedging instruments

$

443,829

$

23,559

$

443,829

$

23,559

As of December 31, 2021

Derivative Asset

Derivative Liability

Notional

Fair

Notional

Fair

   

Amount

   

Value

   

Amount

   

Value

Derivatives not designated as hedging instruments

Interest rate swaps – pay floating, receive fixed

$

404,572

$

17,839

$

86,784

$

2,259

Interest rate swaps – pay fixed, receive floating

86,784

2,259

404,572

17,839

Total derivatives not designated as hedging instruments

$

491,356

$

20,098

$

491,356

$

20,098

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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

Three Months Ended June 30, 

Six Months Ended June 30, 

   

Location

   

2022

 

2021

   

2022

 

2021

Interest rate swaps

Pay floating, receive fixed

Noninterest expense

$

7,025

$

1,264

$

3,475

$

(9,331)

Pay fixed, receive floating

Noninterest expense

(7,025)

(1,264)

(3,475)

9,331

Net change in fair value of interest rate swaps

$

$

$

$

Risk Participation Agreement

To manage the credit risk exposure related to a customer-facing swap, the Company entered into one risk participation agreement in conjunction with a loan participation with another financial institution.  This risk participation agreement matures in 2028, and is summarized as follows (dollars in thousands):

As of

June 30,

December 31,

   

2022

   

2021

Risk participation agreement:

Notional amount

$

3,946

$

3,990

Fair value

3

11

Mortgage Banking Derivatives

Interest Rate Lock Commitments

Interest rate lock commitments that meet the definition of derivative financial instruments under ASC Topic 815 “Derivatives and Hedging” are carried at their fair values in other assets or other liabilities in the unaudited Consolidated Balance Sheets, 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 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 Balance Sheets.  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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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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

As of June 30, 2022

As of December 31, 2021

Notional

Fair

Notional

Fair

   

Location

   

Amount

   

Value

   

Amount

   

Value

Derivatives with positive fair value

Interest rate lock commitments

Other assets

$

7,201

$

151

$

19,384

$

206

Forward sales commitments

Other assets

931

4

1,884

10

Mortgage banking derivatives recorded in other assets

$

8,132

$

155

$

21,268

$

216

Derivatives with negative fair value

Interest rate lock commitments

Other liabilities

$

527

$

2

$

499

$

6

Forward sales commitments

Other liabilities

11,551

217

41,002

439

Mortgage banking derivatives recorded in other liabilities

$

12,078

$

219

$

41,501

$

445

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

Three Months Ended June 30, 

    

Six Months Ended June 30, 

   

Location

   

2022

   

2021

   

2022

   

2021

Net gains (losses)

Interest rate lock commitments

Mortgage revenue

$

134

$

493

$

149

$

965

Forward sales commitments

Mortgage revenue

 

(319)

(1,358)

 

(213)

(2,178)

Net gains (losses)

$

(185)

$

(865)

$

(64)

$

(1,213)

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.

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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.

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

Debt Securities Available for Sale

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

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

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

Equity Securities

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

Loans Held for Sale

Loans held for sale that were reported at fair value utilized Level 2 measurements at December 31, 2021.  The fair values of the mortgage loans held for sale were measured using observable quoted market or contract prices or market price equivalents and were classified as Level 2.

Derivative Assets and Derivative Liabilities

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

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The following tables summarize financial assets and financial liabilities measured at fair value on a recurring basis as of June 30, 2022, and December 31, 2021, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value (dollars in thousands):

As of June 30, 2022

Level 1

Level 2

Level 3

Total

   

Inputs

   

Inputs

   

Inputs

   

Fair Value

Debt securities available for sale:

U.S. Treasury securities

$

$

147,140

$

$

147,140

Obligations of U.S. government corporations and agencies

29,839

29,839

Obligations of states and political subdivisions

287,612

287,612

Asset-backed securities

468,129

468,129

Commercial mortgage-backed securities

98,362

98,362

Residential mortgage-backed securities

1,441,157

1,441,157

Corporate debt securities

272,407

272,407

Equity securities

11,264

11,264

Derivative assets

25,126

3

25,129

Derivative liabilities

43,074

43,074

As of December 31, 2021

Level 1

Level 2

Level 3

Total

   

Inputs

   

Inputs

   

Inputs

   

Fair Value

Debt securities available for sale:

U.S. Treasury securities

$

$

165,762

$

$

165,762

Obligations of U.S. government corporations and agencies

38,470

38,470

Obligations of states and political subdivisions

306,869

306,869

Asset-backed securities

492,186

492,186

Commercial mortgage-backed securities

614,998

614,998

Residential mortgage-backed securities

2,069,313

2,069,313

Corporate debt securities

293,653

293,653

Equity securities

13,571

13,571

Loans held for sale

23,875

23,875

Derivative assets

20,314

20,314

Derivative liabilities

21,501

21,501

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Loans Evaluated Individually

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).

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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 for the periods presented, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value (dollars in thousands):

As of June 30, 2022

Level 1

Level 2

Level 3

Total

   

Inputs

   

Inputs

   

Inputs

   

Fair Value

Loans evaluated individually, net of related allowance

$

$

$

5,366

$

5,366

OREO with subsequent impairment

 

 

 

274

 

274

Bank property held for sale with impairment

 

 

 

7,923

 

7,923

As of December 31, 2021

Level 1

Level 2

Level 3

Total

   

Inputs

   

Inputs

   

Inputs

   

Fair Value

Loans evaluated individually, net of related allowance

$

$

$

2,926

$

2,926

OREO with subsequent impairment

 

 

 

51

 

51

Bank property held for sale with impairment

 

 

10,103

 

10,103

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

As of June 30, 2022

Fair Value

Valuation

Unobservable

Range

   

Estimate

   

Techniques

   

Input

   

(Weighted Average)

Quantitative Information about Level 3 Fair Value Measurements

Loans evaluated individually, net of related allowance

$

5,366

Appraisal of collateral

Appraisal adjustments

-39.8

to 

-100.0

(-47.5)

%

OREO with subsequent impairment

274

Appraisal of collateral

Appraisal adjustments

-16.0

to 

-100.0

(-35.4)

%

Bank property held for sale with impairment

7,923

Appraisal of collateral or real estate listing price

Appraisal adjustments

-0.7

to 

-70.1

(-35.1)

%

As of December 31, 2021

Fair Value

Valuation

Unobservable

Range

   

Estimate

   

Techniques

   

Input

   

(Weighted Average)

Quantitative Information about Level 3 Fair Value Measurements

Loans evaluated individually, net of related allowance

$

2,926

Appraisal of collateral

Appraisal adjustments

-50.0

to 

-100.0

(-55.1)

%

OREO with subsequent impairment

51

Appraisal of collateral

Appraisal adjustments

-33.0

to 

-100.0

(-67.9)

%

Bank property held for sale with impairment

10,103

Appraisal of collateral or real estate listing price

Appraisal adjustments

-0.7

to 

-70.1

(-41.3)

%

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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

Estimated fair values of financial instruments that are not carried at fair value in 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):

As of June 30, 2022

As of December 31, 2021

Carrying

    

Fair

    

Carrying

    

Fair

Amount

    

Value

    

Amount

    

Value

Financial assets

Level 1 inputs:

Cash and cash equivalents

$

230,852

$

230,852

$

836,095

$

836,095

Level 2 inputs:

Debt securities held to maturity

953,012

876,738

Loans held for sale (1)

4,813

4,818

Accrued interest receivable

 

32,886

 

32,886

 

31,064

 

31,064

Level 3 inputs:

Portfolio loans, net

 

7,409,021

 

7,293,303

 

7,101,111

 

7,161,466

Mortgage servicing rights

7,282

17,967

8,608

12,133

Other servicing rights

1,829

2,235

1,830

2,268

Financial liabilities

Level 2 inputs:

Time deposits

$

817,821

$

800,416

$

935,649

$

935,778

Securities sold under agreements to repurchase

 

228,383

 

228,383

 

270,139

 

270,139

Short-term borrowings

16,396

16,480

17,678

17,673

Long-term debt

 

36,000

 

36,101

46,056

 

46,164

Junior subordinated debt owed to unconsolidated trusts

 

71,721

 

61,349

 

71,635

 

63,586

Accrued interest payable

 

1,978

 

1,978

 

2,728

 

2,728

Level 3 inputs:

Senior notes, net of unamortized issuance costs

39,944

40,400

Subordinated notes, net of unamortized issuance costs

281,304

280,275

182,773

195,600

(1)Effective January 1, 2022, recorded at LOCOM.

Note 12:  Earnings Per Common Share

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

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2022

    

2021

    

2022

    

2021

Net income

$

29,824

$

29,766

$

58,263

$

67,582

Weighted average number of common shares outstanding, basic

 

55,421,887

 

55,050,071

 

55,424,776

 

54,762,563

Dilutive effect of common stock equivalents:

Options

2,806

2,284

1,453

Warrants

1,686

1,789

1,770

1,746

RSU awards

655,368

667,181

679,471

614,660

PSU awards

14,534

2,888

15,456

1,444

DSU awards

3,039

6,148

16,206

3,076

ESPP

7,503

9,503

Weighted average number of common shares outstanding, diluted

56,104,017

55,730,883

56,149,466

55,384,942

Basic earnings per common share

$

0.54

$

0.54

$

1.05

$

1.23

Diluted earnings per common share

$

0.53

$

0.53

$

1.04

$

1.22

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

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2022

    

2021

    

2022

    

2021

Anti-dilutive common stock equivalents

Options

31,166

15,583

RSU awards

155,649

77,824

106,213

PSU awards

278,472

86,080

259,962

100,482

DSU awards

15,485

Total anti-dilutive common stock equivalents

465,287

86,080

353,369

222,180

47

Table of Contents

FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 13:  Accumulated Other Comprehensive Income (Loss)

The following table represents changes in AOCI by component, net of tax, for the period below (dollars in thousands):

Three Months Ended June 30, 

    

2022

2021

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

$

(184,233)

$

52,515

$

(131,718)

$

7,547

$

(2,151)

$

5,396

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

(95,288)

27,162

(68,126)

9,469

(2,700)

6,769

Amounts reclassified from AOCI, net

4

(1)

3

(3)

1

(2)

Amortization of unrealized losses on securities transferred to held to maturity

2,207

(629)

1,578

Balance at end of period

$

(277,310)

$

79,047

$

(198,263)

$

17,013

$

(4,850)

$

12,163

Unrealized gains (losses) on cash flow hedges

Balance at beginning of period

$

(8,234)

$

2,347

$

(5,887)

$

(2,203)

$

628

$

(1,575)

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

(9,162)

2,612

(6,550)

(97)

28

(69)

Amounts reclassified from AOCI, net

(567)

160

(407)

288

(82)

206

Balance at end of period

$

(17,963)

$

5,119

$

(12,844)

$

(2,012)

$

574

$

(1,438)

Total AOCI

$

(295,273)

$

84,166

$

(211,107)

$

15,001

$

(4,276)

$

10,725

Six Months Ended June 30, 

    

2022

2021

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

$

(32,272)

$

9,199

$

(23,073)

$

49,644

$

(14,151)

$

35,493

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

(199,570)

56,888

(142,682)

(32,603)

9,293

(23,310)

Unrealized losses on debt securities transferred to held to maturity from available for sale

(48,456)

13,812

(34,644)

Amounts reclassified from AOCI, net

(102)

29

(73)

(28)

8

(20)

Amortization of unrealized losses on securities transferred to held to maturity

3,090

(881)

2,209

Balance at end of period

$

(277,310)

$

79,047

$

(198,263)

$

17,013

$

(4,850)

$

12,163

Unrealized gains (losses) on cash flow hedges

Balance at beginning of period

$

(958)

$

273

$

(685)

$

(3,055)

$

871

$

(2,184)

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

(15,938)

4,543

(11,395)

477

(136)

341

Amounts reclassified from AOCI, net

(1,067)

303

(764)

566

(161)

405

Balance at end of period

$

(17,963)

$

5,119

$

(12,844)

$

(2,012)

$

574

$

(1,438)

Total AOCI

$

(295,273)

$

84,166

$

(211,107)

$

15,001

$

(4,276)

$

10,725

48

Table of Contents

FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 14:  Operating Segments and Related Information

The Company has three reportable operating segments:  Banking, FirsTech, and Wealth Management.  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 Banking operating segment provides a full range of banking services to individual and corporate customers through its banking center network in Illinois; the St. Louis, Missouri metropolitan area; southwest Florida; and Indianapolis, Indiana.  The FirsTech operating segment provides solutions for online, mobile, and voice-recognition bill payments; lockbox; and walk-in payments.  The Wealth Management operating segment provides a full range of asset management, investment, brokerage, fiduciary, philanthropic advisory, tax preparation, and farm management services to individuals, businesses, and foundations.

The 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” in the Company’s 2021 Annual Report.  The Company accounts for intersegment revenue and transfers at current market value.

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

Goodwill

Total Assets

As of

As of

June 30, 

December 31, 

June 30, 

December 31, 

    

2022

    

2021

    

2022

    

2021

Operating segment

Banking

$

294,773

$

294,773

$

12,226,414

$

12,746,833

FirsTech

 

8,992

 

8,992

 

47,209

 

47,481

Wealth Management

 

14,108

 

14,108

 

75,985

 

65,587

Other

 

 

 

6,825

 

(212)

Consolidated total

$

317,873

$

317,873

$

12,356,433

$

12,859,689

49

Table of Contents

FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2022

    

2021

    

2022

    

2021

Net interest income

Banking

$

80,072

$

68,250

$

153,904

$

136,705

FirsTech

17

21

35

41

Other

 

(4,161)

 

(3,729)

 

(7,955)

 

(7,311)

Total net interest income

$

75,928

$

64,542

$

145,984

$

129,435

Noninterest income

Banking

$

13,982

$

14,938

$

29,268

$

27,822

FirsTech

 

5,336

 

4,809

 

10,755

 

9,670

Wealth Management

 

14,135

 

13,000

 

29,911

 

25,587

Other

 

(2,434)

 

264

 

(3,143)

 

1,377

Total noninterest income

$

31,019

$

33,011

$

66,791

$

64,456

Noninterest expense

Banking

$

54,380

$

48,421

$

109,947

$

90,512

FirsTech

4,809

4,277

9,492

8,567

Wealth Management

7,586

6,717

15,851

13,282

Other

2,317

3,210

4,178

4,763

Total noninterest expense

$

69,092

$

62,625

$

139,468

$

117,124

Income before income taxes

Banking

$

38,021

$

36,467

$

71,825

$

82,511

FirsTech

544

553

1,298

1,144

Wealth Management

6,549

6,283

14,060

12,305

Other

(8,912)

(6,675)

(15,276)

(10,697)

Total income before income taxes

$

36,202

$

36,628

$

71,907

$

85,263

Net income

Banking

$

30,499

$

29,238

$

56,950

$

64,766

FirsTech

 

397

 

401

 

947

 

830

Wealth Management

 

5,092

 

4,884

 

10,932

 

9,566

Other

 

(6,164)

 

(4,757)

 

(10,566)

 

(7,580)

Total net income

$

29,824

$

29,766

$

58,263

$

67,582

50

Table of Contents

FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 15:  Leases

Busey as the Lessee

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

As of

June 30,

December 31,

2022

    

2021

    

Lease balances

Right of use assets

$

8,615

$

10,533

Lease liabilities

8,655

10,591

Supplemental information

Year through which lease terms extend

2031

2031

Weighted average remaining lease term (in years)

6.25

6.47

Weighted average discount rate

2.04

%

2.16

%

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

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2022

    

2021

    

2022

    

2021

Lease costs

Operating lease costs

$

582

$

608

$

1,199

$

1,172

Variable lease costs

94

126

222

300

Short-term lease costs

6

16

10

34

Total lease cost (1)

$

682

$

750

$

1,431

$

1,506

Cash flows related to leases

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

Operating lease cash flows – Fixed payments

$

738

$

590

$

1,369

$

1,136

Operating lease cash flows – Liability reduction

692

546

1,277

1,041

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

1,462

55

1,610

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

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FIRST BUSEY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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

As of

    

June 30, 2022

Rent commitments

Remainder of 2022

$

1,066

2023

 

1,833

2024

1,500

2025

1,265

2026

995

2027

701

Thereafter

1,853

Total undiscounted cash flows

9,213

Less: Amounts representing interest

558

Present value of net future minimum lease payments

$

8,655

Busey as the Lessor

Busey occasionally leases parking lots and office space to outside parties.  Further, in connection with the acquisition of CAC in the second quarter of 2021, the Company acquired office buildings in Glenview, IL and Northbrook, IL, along with operating leases for space within these buildings that is rented to third parties.  Revenues recorded in connection with these leases and reported in other income on our unaudited Consolidated Statements of Income are summarized as follows (dollars in thousands):

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2022

    

2021

    

2022

    

2021

Rental income

$

143

$

87

$

373

$

131

52

Table of Contents

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

Table of Contents

OVERVIEW

54

EXECUTIVE SUMMARY

54

Operating Results

54

Acquisitions

54

Non-operating Expenses and Non-GAAP Measures

55

Banking Center Markets

55

Net Interest Income

55

Noninterest Income

60

Noninterest Expense

62

FINANCIAL CONDITION

65

Balance Sheet

65

Portfolio Loans

65

Deposits

70

LIQUIDITY

70

OFF-BALANCE SHEET ARRANGEMENTS

71

CAPITAL RESOURCES

71

NON-GAAP FINANCIAL INFORMATION

72

FORWARD LOOKING STATEMENTS

79

CRITICAL ACCOUNTING ESTIMATES

79

Fair Value of Debt Securities Available for Sale

79

Fair Value of Assets Acquired and Liabilities Assumed in Business Combinations

80

Goodwill

80

Income Taxes

81

Allowance for Credit Losses

81

53

Table of Contents

OVERVIEW

First Busey is a $12.4 billion financial holding company headquartered in Champaign, Illinois.  Our common stock is traded on The Nasdaq Global Select Market under the symbol “BUSE.”

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

The following discussion and analysis are intended to assist readers in understanding First Busey’s financial condition and results of operations during the three and six months ended June 30, 2022, and should be read in conjunction with our unaudited consolidated financial statements and notes thereto included in this Quarterly Report, as well as our 2021 Annual Report.

EXECUTIVE SUMMARY

Operating Results

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

Three Months Ended

Six Months Ended

June 30,

    

June 30,

June 30,

    

June 30,

2022

    

2021

2022

    

2021

Reported:  

Net income

$

29,824

$

29,766

$

58,263

$

67,582

Adjusted:  

Net income (1)

$

30,081

$

31,921

$

59,185

$

69,986

Reported:  

Diluted earnings per common share

$

0.53

$

0.53

$

1.04

$

1.22

Adjusted:  

Diluted earnings per common share (1)

$

0.54

$

0.57

$

1.05

$

1.26

Reported:  

Return on average assets (2)

0.96

%

1.05

%

0.94

%

1.24

%

Adjusted:  

Return on average assets (1), (2)

0.97

%

1.12

%

0.95

%

1.28

%

Reported:  

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

14.50

%

12.26

%

13.57

%

14.44

%

Adjusted:  

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

14.62

%

13.14

%

13.79

%

14.96

%

Reported:  

Pre-provision net revenue (1)

$

39,569

$

34,030

$

75,635

$

74,228

Adjusted:  

Pre-provision net revenue (1)

$

41,267

$

37,486

$

80,621

$

80,239

Reported:  

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

1.27

%

1.20

%

1.21

%

1.36

%

Adjusted:  

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

1.33

%

1.32

%

1.29

%

1.47

%

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

Acquisitions

On May 31, 2021, First Busey completed its acquisition of CAC, the holding company for GSB.  GSB was operated as a separate banking subsidiary from June 1, 2021, until August 14, 2021, when it was merged with and into Busey Bank.  At that time GSB’s banking centers became banking centers of Busey Bank.  Upon completion of the GSB acquisition, we reset the baseline for the future financial performance of First Busey in a multitude of positive ways.

54

Table of Contents

Non-operating Expenses and Non-GAAP Measures

First Busey views certain non-operating items, including acquisition-related and restructuring charges, as adjustments to net income reported under GAAP.  Non-operating pre-tax adjustments for the three and six months ended June 30, 2022, included $0.3 million and $1.1 million of expenses, respectively, related to acquisitions and restructuring.  A reconciliation of non-GAAP measures—including pre-provision net revenue, adjusted pre-provision net revenue, pre-provision net revenue to average assets, adjusted pre-provision net revenue to average assets, adjusted net income, adjusted diluted earnings per share, adjusted return on average assets, return on average tangible common equity, adjusted return on average tangible common equity, adjusted net interest income, adjusted net interest margin, adjusted noninterest expense, adjusted core expense, efficiency ratio, adjusted efficiency ratio, adjusted core efficiency ratio, tangible book value per common share, tangible common equity, tangible common equity to tangible assets, core loans, core loans to portfolio loans, core deposits, core deposits to total deposits, and core loans to core deposits—which First Busey believes facilitates the assessment of its financial results and peer comparability, is included in tabular form in Item 2.  Management’s Discussion and Analysis—Non-GAAP Financial Information included in this Quarterly Report.

Banking Center Markets

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

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

Busey Bank has three banking centers in southwest Florida, an area which has experienced strong population growth, job growth, and an expanded housing market over the last several years.

Busey Bank has 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, assuming a federal income tax rate of 21.0%.  Tax favorable assets generally have lower contractual pre-tax yields than fully taxable assets.  A tax-equivalent analysis is performed by adding the tax savings to the earnings on tax favorable assets.  After factoring in the tax favorable effects of these assets, the yields may be more appropriately evaluated against alternative earning assets.  In addition to yield, various other risks are factored into the evaluation process.

Consolidated Average Balance Sheets and Interest Rates (Unaudited)

The following tables show our unaudited Consolidated Average Balance Sheets (dollars in thousands), and details the major categories of assets and liabilities, the interest income earned on interest-earning assets, the interest expense paid for interest-bearing liabilities, and the related interest yields for the periods shown.  Average information is provided on a daily average basis.

55

Table of Contents

Three Months Ended June 30, 

2022

2021

    

Average

    

Income/

    

Yield/

Average

    

Income/

    

Yield/

Balance

    

Expense

    

Rate (5)

    

Balance

    

Expense

    

Rate (5)

Assets

Interest-bearing bank deposits and federal funds sold

$

230,129

$

358

 

0.62

%  

$

505,223

$

245

 

0.19

%  

Investment securities:

 

  

 

  

 

  

 

 

  

 

  

U.S. Government obligations

 

187,785

 

281

 

0.60

%  

 

151,612

 

476

 

1.26

%  

Obligations of states and political subdivisions (1)

 

293,276

 

1,947

 

2.66

%  

 

296,201

 

1,908

 

2.58

%  

Other securities

 

3,359,950

 

14,664

 

1.75

%  

 

2,583,437

 

7,909

 

1.23

%  

Loans held for sale

 

3,089

 

32

 

4.16

%  

 

22,393

 

146

 

2.62

%  

Portfolio loans (1), (2)

 

7,378,969

 

65,860

 

3.58

%  

 

6,889,551

 

61,583

 

3.59

%  

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

$

11,453,198

$

83,142

 

2.91

%  

$

10,448,417

$

72,267

 

2.77

%  

Cash and due from banks

 

121,568

 

  

 

  

 

142,242

 

  

 

  

Premises and equipment

 

133,242

 

 

  

 

135,760

 

 

  

ACL

 

(88,753)

 

 

  

 

(96,626)

 

 

  

Other assets

 

832,815

 

  

 

  

 

768,862

 

  

 

  

Total assets

$

12,452,070

 

  

 

  

$

11,398,655

 

  

 

  

Liabilities and Stockholders’ Equity

 

  

 

  

 

  

 

  

 

  

 

  

Interest-bearing transaction deposits

$

2,662,976

$

500

 

0.08

%  

$

2,479,380

$

495

 

0.08

%  

Savings and money market deposits

 

3,459,414

 

692

 

0.08

%  

 

2,911,791

 

705

 

0.10

%  

Time deposits

 

848,693

 

954

 

0.45

%  

 

1,041,165

 

2,095

 

0.81

%  

Federal funds purchased and repurchase agreements

 

235,733

 

147

 

0.25

%  

 

204,417

 

60

 

0.12

%  

Borrowings (4)

 

296,168

 

3,667

 

4.97

%  

 

257,770

 

3,059

 

4.76

%  

Junior subordinated debt issued to unconsolidated trusts

 

71,693

 

708

 

3.96

%  

 

71,523

 

732

 

4.11

%  

Total interest-bearing liabilities

$

7,574,677

$

6,668

 

0.35

%  

$

6,966,046

$

7,146

 

0.41

%  

Net interest spread (1)

 

  

 

 

2.56

%  

 

  

 

 

2.36

%  

Noninterest-bearing deposits

 

3,535,110

 

  

 

  

 

2,970,890

 

  

 

  

Other liabilities

 

145,231

 

  

 

  

 

118,948

 

  

 

  

Stockholders’ equity

 

1,197,052

 

  

 

  

 

1,342,771

 

  

 

  

Total liabilities and stockholders’ equity

$

12,452,070

 

  

 

  

$

11,398,655

 

  

 

  

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

$

11,453,198

$

83,142

 

2.91

%  

$

10,448,417

$

72,267

 

2.77

%  

Interest expense / earning assets

$

11,453,198

$

6,668

 

0.23

%  

$

10,448,417

$

7,146

 

0.27

%  

Net interest margin (1)

 

  

$

76,474

 

2.68

%  

 

  

$

65,121

 

2.50

%  

(1)On a tax-equivalent basis and assuming a federal income tax rate of 21.0%.  For a reconciliation of non-GAAP measures to the most directly comparable GAAP financial measures, see Item 2.  Management’s Discussion and Analysis—Non-GAAP Financial Information included in this Quarterly Report.
(2)Non-accrual loans have been included in average portfolio loans.
(3)Interest income includes a tax-equivalent adjustment of $0.5 million and $0.6 million for the three months ended June 30, 2022, and 2021, respectively.
(4)Includes short-term and long-term borrowings.  Interest expense includes a non-usage fee on a revolving loan.
(5)Annualized.

56

Table of Contents

Six Months Ended June 30, 

2022

2021

    

Average

    

Income/

    

Yield/

Average

    

Income/

    

Yield/

Balance

    

Expense

    

Rate (5)

    

Balance

    

Expense

    

Rate (5)

Assets

Interest-bearing bank deposits and federal funds sold

$

394,562

$

635

 

0.32

%  

$

464,128

$

395

 

0.17

%  

Investment securities:

 

  

 

  

 

  

 

 

  

 

  

U.S. Government obligations

 

192,660

 

569

 

0.60

%  

 

122,966

 

959

 

1.57

%  

Obligations of states and political subdivisions (1)

 

297,781

 

3,862

2.62

%  

 

296,112

 

3,872

 

2.64

%  

Other securities

 

3,414,885

 

27,615

 

1.63

%  

 

2,378,684

 

15,346

 

1.30

%  

Loans held for sale

 

7,485

 

115

 

3.10

%  

 

26,858

 

302

 

2.27

%  

Portfolio loans (1), (2)

 

7,270,506

 

126,983

 

3.52

%  

 

6,813,530

 

124,325

 

3.68

%  

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

$

11,577,879

$

159,779

 

2.78

%  

$

10,102,278

$

145,199

 

2.90

%  

Cash and due from banks

 

124,085

 

  

 

  

 

128,139

 

  

 

  

Premises and equipment

 

134,304

 

 

  

 

135,168

 

 

  

ACL

 

(88,604)

 

 

  

 

(99,458)

 

 

  

Other assets

 

808,264

 

  

 

  

 

732,545

 

  

 

  

Total assets

$

12,555,928

 

  

 

  

$

10,998,672

 

  

 

  

Liabilities and Stockholders’ Equity

 

  

 

  

 

  

 

  

 

  

Interest-bearing transaction deposits

$

2,671,606

$

864

 

0.07

%  

$

2,395,358

$

1,007

 

0.08

%  

Savings and money market deposits

 

3,444,744

 

1,252

 

0.07

%  

 

2,784,383

 

1,340

 

0.10

%  

Time deposits

 

882,779

 

2,154

 

0.49

%  

 

1,054,335

 

4,680

 

0.90

%  

Federal funds purchased and repurchase agreements

 

253,316

206

 

0.16

%  

 

194,610

 

117

 

0.12

%  

Borrowings (4)

 

290,331

6,865

 

4.77

%  

 

244,661

 

5,983

 

4.93

%  

Junior subordinated debt issued to unconsolidated trusts

 

71,672

1,362

 

3.83

%  

 

71,503

 

1,457

 

4.11

%  

Total interest-bearing liabilities

$

7,614,448

$

12,703

 

0.34

%  

$

6,744,850

$

14,584

 

0.44

%  

Net interest spread (1)

 

 

 

2.44

%  

 

  

 

 

2.46

%  

Noninterest-bearing deposits

 

3,562,380

 

  

 

  

 

2,830,646

 

  

 

  

Other liabilities

 

140,040

 

  

 

  

 

113,758

 

  

 

  

Stockholders’ equity

 

1,239,060

 

  

 

  

 

1,309,418

 

  

 

  

Total liabilities and stockholders’ equity

$

12,555,928

 

  

 

  

$

10,998,672

 

  

 

  

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

$

11,577,879

$

159,779

 

2.78

%  

$

10,102,278

$

145,199

 

2.90

%  

Interest expense / earning assets

$

11,577,879

$

12,703

 

0.22

%  

$

10,102,278

$

14,584

 

0.29

%  

Net interest margin (1)

 

  

$

147,076

 

2.56

%  

 

  

$

130,615

 

2.61

%  

(1)On a tax-equivalent basis and assuming a federal income tax rate of 21.0%.  For a reconciliation of non-GAAP measures to the most directly comparable GAAP financial measures, see Item 2.  Management’s Discussion and Analysis—Non-GAAP Financial Information included in this Quarterly Report.
(2)Non-accrual loans have been included in average portfolio loans.
(3)Interest income includes a tax-equivalent adjustment of $1.1 million and $1.2 million for the six months ended June 30, 2022, and 2021, 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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Notable changes are summarized as follows for the periods presented (dollars in thousands):

Three Months Ended June 30, 

   

2022

    

2021

    

Change

    

% Change

 

Average interest-earning assets

$

11,453,198

$

10,448,417

$

1,004,781

9.6

%

Average interest-bearing liabilities

7,574,677

6,966,046

608,631

8.7

%

Average noninterest-bearing deposits

3,535,110

2,970,890

564,220

19.0

%

Total average deposits

10,506,193

9,403,226

1,102,967

11.7

%

Total average liabilities

11,255,018

10,055,884

1,199,134

11.9

%

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

33.6

%

31.6

%

Total average deposits as a percent of total average liabilities

93.3

%

93.5

%

Six Months Ended June 30, 

   

2022

    

2021

    

Change

    

% Change

 

Average interest-earning assets

$

11,577,879

$

10,102,278

$

1,475,601

14.6

%

Average interest-bearing liabilities

7,614,448

6,744,850

869,598

12.9

%

Average noninterest-bearing deposits

3,562,380

2,830,646

731,734

25.9

%

Total average deposits

10,561,509

9,064,722

1,496,787

16.5

%

Total average liabilities

11,316,868

9,689,254

1,627,614

16.8

%

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

33.7

%

31.2

%

Total average deposits as a percent of total average liabilities

93.3

%

93.6

%

Three Months Ended June 30, 

 

   

2022

    

2021

    

Change

    

% Change

 

Net interest income

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

$

83,142

$

72,267

$

10,875

15.0

%

Interest expense

6,668

7,146

(478)

(6.7)

%

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

$

76,474

$

65,121

$

11,353

17.4

%

Net interest margin (1), (2)

2.68

%

2.50

%

Six Months Ended June 30, 

   

2022

    

2021

    

Change

    

% Change

 

Net interest income

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

$

159,779

$

145,199

$

14,580

10.0

%

Interest expense

12,703

14,584

(1,881)

(12.9)

%

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

$

147,076

$

130,615

$

16,461

12.6

%

Net interest margin (1), (2)

2.56

%

2.61

%

(1)Assuming a federal income tax rate of 21.0%.  For a reconciliation of non-GAAP measures to the most directly comparable GAAP financial measures, see Item 2.  Management’s Discussion and Analysis—Non-GAAP Financial Information included in this Quarterly Report.
(2)Net interest income expressed as a percentage of average earning assets, stated on a tax-equivalent basis.

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The FOMC raised its target benchmark rate by 25 basis points during the first quarter of 2022, the first increase in three years, and again by 50 basis points in May, and by another 75 basis points June 2022.  Rising rates have a positive impact on net interest margin, as assets, in particular commercial loans, reprice more quickly and to a greater extent than liabilities.  Given the timing of the FOMC meetings in May and June, the full benefit of the associated movement in rates to our net interest margin will be largely realized in subsequent quarters.  Subsequent to quarter end, in July 2022 the FOMC raised the target interest rate an additional 75 basis points, which will further positively impact future quarters.  In general, net interest margins have been impacted over the last two years by PPP loans, significant growth in the Company’s liquidity position, and the Company’s issuance of debt.

First Busey remains substantially core deposit(1) funded, with robust liquidity and significant market share in the communities we serve.  As of June 30, 2022, our loan to deposit ratio was 72.1% and core deposits represented 98.9% of total deposits.

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 2.56% and 2.44% for the three and six months ended June 30, 2022, respectively, compared to 2.36% and 2.46% for the three and six months ended June 30, 2021, each on a tax-equivalent basis.

The net interest margin discussion above is based upon the results and average balances for the three and six months ended June 30, 2022 and 2021.  Annualized net interest margins for the quarterly periods indicated were as follows:

2022

    

2021

    

First Quarter

2.45

%

 

2.72

%

Second Quarter

2.68

%

 

2.50

%

Third Quarter

 

2.41

%

Fourth Quarter

 

2.36

%

Management attempts to mitigate the effects of an unpredictable interest-rate environment through effective portfolio management, prudent loan underwriting and pricing discipline, and operational efficiencies.  For a description of accounting policies underlying the recognition of interest income and expense, refer to the Notes to Consolidated Financial Statements in the Company’s 2021 Annual Report.

(1) Core deposits is a non-GAAP financial measure. For a reconciliation of non-GAAP measures to the most directly comparable GAAP financial measures, see Item 2. Management’s Discussion and AnalysisNon-GAAP Financial Information included in this Quarterly Report.

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Table of Contents

Noninterest Income

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

Three Months Ended June 30, 

    

2022

    

2021

    

Change

    

% Change

Noninterest income

Wealth management and payment technology income:

Wealth management fees

$

14,135

$

13,002

$

1,133

8.7

%

Payment technology solutions

 

4,888

4,530

 

358

7.9

%

Combined, wealth management fees and payment technology solutions

19,023

17,532

1,491

8.5

%

Fees for customer services

9,588

8,611

977

11.3

%

Mortgage revenue

 

284

1,747

 

(1,463)

(83.7)

%

Income on bank owned life insurance

 

874

1,476

 

(602)

(40.8)

%

Securities income:

Realized net gains (losses) on securities

 

20

94

 

(74)

(78.7)

%

Unrealized net gains (losses) recognized on equity securities

(1,734)

804

(2,538)

(315.7)

%

Net securities gains (losses)

(1,714)

898

(2,612)

(290.9)

%

Other income

2,964

2,747

217

7.9

%

Total noninterest income

$

31,019

$

33,011

$

(1,992)

(6.0)

%

Six Months Ended June 30, 

    

2022

    

2021

    

Change

    

% Change

 

Noninterest income

Wealth management and payment technology income:

Wealth management fees

$

29,914

$

25,586

$

4,328

16.9

%

Payment technology solutions

 

9,965

9,151

 

814

8.9

%

Combined, wealth management fees and payment technology solutions

39,879

34,737

5,142

14.8

%

Fees for customer services

18,495

16,648

1,847

11.1

%

Mortgage revenue

 

1,259

4,413

 

(3,154)

(71.5)

%

Income on bank owned life insurance

 

1,758

2,440

 

(682)

(28.0)

%

Securities income:

Realized net gains (losses) on securities

 

126

119

 

7

5.9

%

Unrealized net gains (losses) recognized on equity securities

(2,454)

2,420

(4,874)

(201.4)

%

Net securities gains (losses)

(2,328)

2,539

(4,867)

(191.7)

%

Other income

7,728

3,679

4,049

110.1

%

Total noninterest income

$

66,791

$

64,456

$

2,335

3.6

%

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Table of Contents

Total noninterest income was $31.0 million for the three months ended June 30, 2022, a 6.0% decrease from the comparable period in 2021, and was $66.8 million for the six months ended June 30, 2022, a 3.6% increase from the comparable period in 2021.  Results for the three and six months ended June 30, 2021, included one month of operating income for GSB, whereas results for the same periods in 2022 reflect the fully integrated acquisition for the complete periods.  Revenues from wealth management fees and payment technology solutions represented 61.3% and 59.7% of the Company’s noninterest income for the three and six months ended June 30, 2022, respectively, providing a complement to spread-based revenue from traditional banking activities.  On a combined basis, revenue from these two critical operating areas was $19.0 million for the three months ended June 30, 2022, an 8.5% increase from the comparable period in 2021, and was $39.9 million for the six months ended June 30, 2022, a 14.8% increase from the comparable period in 2021.

Wealth management fees were $14.1 million for the three months ended June 30, 2022, an 8.7% increase from the comparable period in 2021, and were $29.9 million for the six months ended June 30, 2022, a 16.9% increase from the comparable period for 2021.  First Busey’s Wealth Management division ended the second quarter of 2022 with $11.5 billion in assets under care, compared to $12.7 billion as of December 31, 2021.  The decrease in assets under care was principally due to a reduction in market valuations, offset partially by relative outperformance from our investment management team as well as new asset under care inflows.

Payment technology solutions revenue relates to our payment processing company, FirsTech.  Payment technology solutions revenue was $4.9 million for the three months ended June 30, 2022, a 7.9% increase from the comparable period in 2021, and was $10.0 million for the six months ended June 30, 2022, an 8.9% increase from the comparable period in 2021.  FirsTech segment revenue was $5.4 million for the three months ended June 30, 2022, a 10.8% increase from the comparable period of 2021, and was $10.8 million for the six months ended June 30, 2022, a 11.1% increase from the comparable period in 2021.  FirsTech operations add important diversity to our revenue stream while widening our array of service offerings to larger commercial clients both within our footprint and nationally.  We are currently making strategic investments in FirsTech to enhance future growth including further upgrades to the product and engineering teams to build an Application Programming Interface (API) cloud-based platform to provide for fully integrated payment capabilities as well as the continued development of our Banking as a Service (BaaS) platform.

Fees for customer services were $9.6 million for the three months ended June 30, 2022, an 11.3% increase from the comparable period in 2021, and were $18.5 million for the six months ended June 30, 2022, an 11.1% increase from the comparable period in 2021.  Beginning on July 1, 2022, we became subject to the Durbin Amendment of the Dodd-Frank Act.  The Durbin Amendment requires the Federal Reserve to establish a maximum permissible interchange fee for many types of debit transactions, which will negatively impact fees for customer services in the second half of 2022 and in future years.

Mortgage revenue was $0.3 million for the three months ended June 30, 2022, an 83.7% decrease from the comparable period in 2021, and was $1.3 million for the six months ended June 30, 2022, a 71.5% decrease from the comparable period in 2021.  Decreases primarily resulted from lower sold-loan mortgage volume as a greater portion of closed loan volume was directed in adjustable-rate mortgage loans held in portfolio.  General economic conditions and interest rate volatility may impact fees in future quarters.

Income on bank owned life insurance was $0.9 million for the three months ended June 30, 2022, a 40.8% decrease from the comparable period in 2021, and was $1.8 million for the six months ended June 30, 2022, a 28.0% decrease from the comparable period in 2021.  Decreases resulted from lower life insurance proceeds and a decline in earnings on the cash surrender value of the policies.

Other income was $3.0 million for the three months ended June 30, 2022, a $0.2 million increase from the comparable period in 2021, and was $7.7 million for the six months ended June 30, 2022, a $4.0 million increase from the comparable period in 2021.  Other income benefited from higher income recognized on venture capital investments, check sales, rental income, and swap origination fees, partially offset by losses on fixed asset disposal and lower SBA loan sale gains recorded during the three and six months ended June 30, 2022.

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Table of Contents

Noninterest Expense

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

Three Months Ended June 30, 

    

2022

    

2021

    

Change

    

% Change

Noninterest expense

Salaries, wages, and employee benefits

$

38,110

$

34,889

$

3,221

9.2

%

Data processing

5,375

4,819

556

11.5

%

Premises expenses:

Net occupancy expense of premises

 

4,720

 

4,246

 

474

11.2

%

Furniture and equipment expenses

 

2,045

 

2,066

 

(21)

(1.0)

%

Combined, net occupancy expense of premises and furniture and equipment expenses

6,765

6,312

453

7.2

%

Professional fees

 

1,607

 

2,311

 

(704)

(30.5)

%

Amortization of intangible assets

 

2,951

 

2,650

 

301

11.4

%

Interchange expense

1,487

1,442

45

3.1

%

Other expense

 

12,797

 

10,202

 

2,595

25.4

%

Total noninterest expense

$

69,092

$

62,625

$

6,467

10.3

%

Income taxes

$

6,378

$

6,862

$

(484)

(7.1)

%

Effective income tax rate

 

17.6

%  

 

18.7

%  

 

Efficiency ratio (1)

 

60.6

%  

 

61.7

%  

 

Adjusted efficiency ratio (1)

60.3

%  

58.9

%  

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

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Table of Contents

Six Months Ended June 30, 

    

2022

    

2021

    

Change

    

% Change

 

Noninterest expense

Salaries, wages, and employee benefits

$

77,464

$

65,273

$

12,191

18.7

%

Data processing

10,353

9,099

1,254

13.8

%

Premises expenses:

Net occupancy expense of premises

 

9,787

 

8,809

 

978

11.1

%

Furniture and equipment expenses

 

4,075

 

4,092

 

(17)

(0.4)

%

Combined, net occupancy expense of premises and furniture and equipment expenses

13,862

12,901

961

7.4

%

Professional fees

 

3,114

 

4,256

 

(1,142)

(26.8)

%

Amortization of intangible assets

 

5,962

 

5,051

 

911

18.0

%

Interchange expense

3,032

2,926

106

3.6

%

Other expense

 

25,681

 

17,618

 

8,063

45.8

%

Total noninterest expense

$

139,468

$

117,124

$

22,344

19.1

%

Income taxes

$

13,644

$

17,681

$

(4,037)

(22.8)

%

Effective income tax rate

 

19.0

%  

 

20.7

%  

 

Efficiency ratio (1)

 

61.8

%  

 

58.2

%  

 

Adjusted efficiency ratio (1)

61.2

%  

56.6

%  

Full-time equivalent employees as of period-end

 

1,493

1,503

 

(10)

(0.7)

%

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

Total noninterest expense was $69.1 million for the three months ended June 30, 2022, a 10.3% increase from the comparable period in 2021, and was $139.5 million for the six months ended June 30, 2022, a 19.1% increase from the comparable period in 2021. Results for the three and six months ended June 31, 2021, included one month of operating expenses for GSB, whereas results for the same periods in 2022 reflect the fully integrated acquisition for the complete periods.

Salaries, wages, and employee benefits were $38.1 million for the three months ended June 30, 2022, a 9.2% increase from the comparable period in 2021, and were $77.5 million for the six months ended June 30, 2022, an 18.7% increase from the comparable period in 2021.  Full-time equivalents were 1,493 as of June 30, 2022, compared to 1,503 at June 30, 2021.  Salaries, wages, and employee benefits increases are attributable to the Company’s acquisition of GSB as well as investments in its regional operating model, business line leadership, and risk management professionals.  In addition, current labor market trends reflect a shrinking labor supply, while job growth reflects increasing demand for a skilled workforce, putting further upward pressure on salaries, wages, and employee benefits.

Data processing expense was $5.4 million for the three months ended June 30, 2022, an 11.5% increase from the comparable period in 2021, and was $10.4 million for the six months ended June 30, 2022, a 13.8% increase from the comparable period in 2021.  Increases were primarily attributable to higher expenses for software maintenance, web hosting, internet, and general data processing.

Combined, net occupancy expense of premises and furniture and equipment expense totaled $6.8 million for the three months ended June 30, 2022, a 7.2% increase from the comparable period in 2021, and $13.9 million for the six months ended June 30, 2022, a 7.4% increase from the comparable period in 2021.  Increases are primarily attributable to higher maintenance costs, elevated utility costs, and increased real estate taxes.

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Table of Contents

Professional fees were $1.6 million for the three months ended June 30, 2022, a 30.5% decrease from the comparable period in 2021, and $3.1 million for the six months ended June 30, 2022, a 26.8% decrease from the comparable period in 2021.  Non-operating expenses contributed $0.7 million and $1.0 of the decrease in professional fees for the three and six months ended June 30, 2022, compared to the three and six months ended June 30, 2021, respectively.

Amortization of intangible assets was $3.0 million for the three months ended June 30, 2022, an 11.4% increase from the comparable period in 2021, and $6.0 million for the six months ended June 30, 2022, an 18.0% increase from the comparable period for 2021.  Increases primarily related to intangible assets acquired in the acquisition of CAC during the second quarter of 2021.

Interchange expense was $1.5 million for the three months ended June 30, 2022, a 3.1% increase from the comparable period in 2021, and was $3.0 million for the six months ended June 30, 2022, a 3.6% increase from the comparable period in 2021.  Fluctuations in interchange expense were primarily the result of increased payment and volume activity at FirsTech.

Other expense was $12.8 million for the three months ended June 30, 2022, a $2.6 million increase from the comparable period in 2021, and was $25.7 million for the six months ended June 30, 2022, an $8.1 million increase from the comparable period in 2021.  Increases were across multiple expense categories including business development, NMTC amortization, regulatory expenses and fluctuations in provision for unfunded commitments.

The efficiency ratio(1), which is a measure commonly used by management and the banking industry, measures the amount of expense incurred to generate a dollar of revenue.  The efficiency ratios(1) were 60.6% and 61.8% for the three and six months ended June 30, 2022, respectively, compared to 61.7% and 58.2% for the three and six months ended June 30, 2021, respectively.

The adjusted efficiency ratios(1) were 60.3% and 61.2% for the three and six months ended June 30, 2022, respectively, compared to 58.9% and 56.6% for three and six months ended June 30, 2021.  The Company remains focused on expense discipline, while making necessary investments to support the organic growth of our key business lines and related support and risk management functions.

Taxes

Effective income tax rates of 17.6% and 19.0% for the three and six months ended June 30, 2022, respectively, were lower than the combined federal and state statutory rate of approximately 28% due to tax exempt interest income, such as municipal bond interest and bank owned life insurance income, and investments in various federal and state tax credits.  We continue to monitor evolving federal and state tax legislation and its potential impact on operations on an ongoing basis.  As of June 30, 2022, we were not under examination by any tax authority; however, we have received an inquiry from the State of Illinois regarding our prior franchise tax filings.  In the event the Company is required to amend our prior franchise tax filings, we could incur additional expenses.

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

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Table of Contents

FINANCIAL CONDITION

Balance Sheet

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

As of

June 30, 

December 31, 

    

2022

    

2021

    

Change

    

% Change

 

Assets

 

  

 

  

 

  

 

  

Debt securities available for sale

$

2,744,646

$

3,981,251

$

(1,236,605)

 

(31.1)

%

Debt securities held to maturity

953,012

953,012

 

NM

Portfolio loans, net of ACL

 

7,409,021

 

7,101,111

 

307,910

 

4.3

%

Total assets

$

12,356,433

$

12,859,689

$

(503,256)

 

(3.9)

%

Liabilities

 

  

 

  

 

  

 

  

Deposits:

 

  

 

  

 

  

 

  

Noninterest-bearing

$

3,505,299

$

3,670,267

$

(164,968)

 

(4.5)

%

Interest-bearing

 

6,891,929

 

7,098,310

 

(206,381)

 

(2.9)

%

Total deposits

$

10,397,228

$

10,768,577

$

(371,349)

 

(3.4)

%

Securities sold under agreements to repurchase

$

228,383

$

270,139

$

(41,756)

 

(15.5)

%

Subordinated notes, net of unamortized issuance costs

 

281,304

 

182,773

 

98,531

 

53.9

%

Junior subordinated debt owed to unconsolidated trusts

 

71,721

 

71,635

 

86

 

0.1

%

Total liabilities

$

11,194,476

$

11,540,577

$

(346,101)

 

(3.0)

%

Stockholders’ equity

$

1,161,957

$

1,319,112

$

(157,155)

 

(11.9)

%

Portfolio Loans

We believe that making sound and profitable loans is a necessary and desirable means of employing funds available for investment.  First Busey maintains lending policies and procedures designed to focus lending efforts on the types, locations, and duration of loans most appropriate for its business model and markets.  While not specifically limited, we attempt to focus our lending on short to intermediate-term (0-10 years) loans in geographic areas within 125 miles of our lending offices.  Loans originated outside of these areas are generally residential mortgage loans originated for sale in the secondary market or loans to existing customers of Busey Bank.  We attempt to utilize government-assisted lending programs, such as the SBA and U.S. Department of Agriculture lending programs, when prudent.  Generally, loans are collateralized by assets, primarily real estate, and guaranteed by individuals.  Loans are expected to be repaid primarily from cash flows of the borrowers or from proceeds from the sale of selected assets of the borrowers.

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

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

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At no time is a borrower’s total borrowing relationship permitted to exceed Busey Bank’s regulatory lending limit.  We generally limit such relationships to amounts substantially less than the regulatory limit.  Loans to related parties, including executive officers and directors of First Busey and its subsidiaries, are reviewed for compliance with regulatory guidelines.

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

Busey Bank’s lending activities can be summarized into 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 2021 Annual Report.  A significant majority of our portfolio lending activity occurs in the Illinois and Missouri markets, with the remainder in the Florida and Indiana markets.

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

June 30, 2022

    

Illinois

    

Missouri

    

Florida

    

Indiana

    

Total

Portfolio loans

Commercial

$

1,352,370

$

464,002

$ 

50,997

$ 

52,311

$

1,919,680

Commercial real estate

2,175,947

682,013

205,289

164,841

3,228,090

Real estate construction

 

258,643

 

140,998

 

37,627

 

28,917

 

466,185

Retail real estate

1,197,150

210,838

115,543

67,382

1,590,913

Retail other

 

287,502

 

1,783

 

2,215

 

1,410

 

292,910

Total portfolio loans

$

5,271,612

$

1,499,634

$  

411,671

$  

314,861

$

7,497,778

ACL

 

  

 

  

 

  

 

  

 

(88,757)

Portfolio loans, net

 

  

 

  

 

  

 

  

$

7,409,021

December 31, 2021

    

Illinois

    

Missouri

    

Florida

    

Indiana

    

Total

Portfolio loans

Commercial

$

1,372,584

$

463,085

$ 

55,180

$ 

53,037

$

1,943,886

Commercial real estate

 

2,063,681

691,969

191,303

172,854

 

3,119,807

Real estate construction

 

199,471

 

120,785

 

31,265

 

34,475

 

385,996

Retail real estate

 

1,124,486

235,083

96,563

56,844

 

1,512,976

Retail other

 

219,000

 

3,684

 

2,181

 

1,468

 

226,333

Total portfolio loans

$

4,979,222

$

1,514,606

$  

376,492

$  

318,678

$

7,188,998

ACL

 

  

 

  

 

  

 

  

 

(87,887)

Portfolio loans, net

 

  

 

  

 

  

 

  

$

7,101,111

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Changes in portfolio loan balances were as follows (dollars in thousands):

As of

June 30, 

December 31, 

    

2022

    

2021

    

Change

    

% Change

 

Portfolio loans

Commercial loans:

Commercial

$

1,919,680

$

1,943,886

$

(24,206)

(1.2)

%

Commercial real estate

3,228,090

3,119,807

108,283

3.5

%

Real estate construction

 

466,185

 

385,996

 

80,189

 

20.8

%

Commercial loan balances

5,613,955

5,449,689

164,266

3.0

%

Retail loans:

Retail real estate

1,590,913

1,512,976

77,937

5.2

%

Retail other

 

292,910

 

226,333

 

66,577

29.4

%

Retail loan balances

1,883,823

1,739,309

144,514

8.3

%

Total portfolio loans

7,497,778

7,188,998

308,780

4.3

%

ACL

 

(88,757)

 

(87,887)

 

(870)

 

(1.0)

%

Portfolio loans, net

$

7,409,021

$

7,101,111

$

307,910

 

4.3

%

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

As of

June 30,

December 31,

    

2022

    

2021

    

Change

    

% Change

 

Commercial loan balances

$

5,613,955

$

5,449,689

$

164,266

3.0

%

PPP Loans amortized cost

(7,616)

(74,958)

67,342

(89.8)

%

Commercial loan balances, excluding PPP loans

$

5,606,339

$

5,374,731

$

231,608

4.3

%

Allowance and Provision for Credit Losses

The ACL is a significant estimate in our unaudited consolidated financial statements, affecting both earnings and capital.  The methodology adopted influences, and is influenced by, Busey Bank’s overall credit risk management processes.  The ACL is recorded in accordance with GAAP to provide an adequate reserve for expected credit losses that is reflective of management’s best estimate of what is expected to be collected.  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.

The provision for credit loss expense increased for the three months ended June 30, 2022, due to a provision expense of $1.7 million, compared to a provision release of $1.7 million for the same period in 2021.  Provision expense increased for the six months ended June 30, 2022, due to a provision expense of $1.4 million, compared to a provision release of $8.5 million for the same period in 2021.

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

As of

June 30,

March 31,

December 31,

September 30,

June 30,

    

2022

    

2022

    

2021

    

2021

    

2021

    

Portfolio loans

[a]

$

7,497,778

$

7,272,873

$

7,188,998

$

7,150,635

$

7,185,650

Non-GAAP adjustments:

PPP loans, amortized cost

(7,616)

(31,769)

(74,958)

(178,231)

(390,395)

Core loans

[b]

$

7,490,162

$

7,241,104

$

7,114,040

$

6,972,404

$

6,795,255

ACL

[c]

$

88,757

$

88,213

$

87,887

$

92,802

$

95,410

Ratios

ACL to portfolio loans

[c÷a]

1.18

%

1.21

%

1.22

%

1.30

%

1.33

%

ACL to core loans

[c÷b]

1.18

%

1.22

%

1.24

%

1.33

%

1.40

%

As of June 30, 2022, 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

June 30,

March 31,

December 31,

September 30,

June 30,

    

2022

    

2022

    

2021

    

2021

    

2021

    

Portfolio loans

[a]

$

7,497,778

$

7,272,873

$

7,188,998

$

7,150,635

$

7,185,650

Non-GAAP adjustments:

PPP loans, amortized cost

(7,616)

(31,769)

(74,958)

(178,231)

(390,395)

Core loans

[b]

$

7,490,162

$

7,241,104

$

7,114,040

$

6,972,404

$

6,795,255

Loans 30 – 89 days past due

$

5,157

$

3,916

$

6,261

$

6,446

$

3,888

Total assets

[c]

12,356,433

12,567,509

12,859,689

12,899,330

12,415,449

Non-performing assets

Non-performing loans:

Non-accrual loans

[d]

15,840

12,488

15,946

25,369

27,725

Loans 90+ days past due and still accruing

 

1,654

 

197

 

906

 

491

 

590

Total non-performing loans

[e]

17,494

12,685

16,852

25,860

28,315

OREO and other repossessed assets

[f]

1,429

3,606

4,416

3,184

3,137

Total non-performing assets

[g]

18,923

16,291

21,268

29,044

31,452

Substandard (excludes 90+ days past due)

84,411

79,962

70,565

51,740

44,877

Classified assets

[h]

$

103,334

$

96,253

$

91,833

$

80,784

$

76,329

Performing TDRs (includes 30 – 89 days past due)

$

2,029

$

1,771

$

1,801

$

2,083

$

2,518

ACL

[i]

88,757

88,213

87,887

92,802

95,410

Bank Tier 1 Capital

[j]

1,265,418

1,247,370

1,241,303

1,238,060

1,238,685

Ratios

ACL to non-accrual loans

[i÷d]

560.33

%

706.38

%

551.15

%

365.81

%

344.13

%

ACL to non-performing loans

[i÷e]

507.36

%

695.41

%

521.52

%

358.86

%

336.96

%

ACL to non-performing assets

[i÷g]

469.04

%

541.48

%

413.24

%

319.52

%

303.35

%

Non-accrual loans to portfolio loans

[d÷a]

0.21

%

0.17

%

0.22

%

0.35

%

0.39

%

Non-performing loans to portfolio loans

[e÷a]

0.23

%

0.17

%

0.23

%

0.36

%

0.39

%

Non-performing loans to core loans

[e÷b]

0.23

%

0.18

%

0.24

%

0.37

%

0.42

%

Non-performing assets to total assets

[g÷c]

0.15

%

0.13

%

0.17

%

0.23

%

0.25

%

Non-performing assets to portfolio loans and OREO

[g÷(a+f)]

0.25

%

0.22

%

0.30

%

0.41

%

0.44

%

Classified assets to Bank Tier 1 Capital and ACL

[h÷(i+j)]

7.63

%

7.21

%

6.91

%

6.07

%

5.72

%

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Non-performing loan balances increased by 3.8% to $17.5 million as of June 30, 2022, compared with $16.9 million as of December 31, 2021.  The increase in non-performing loans in the second quarter of 2022 is largely attributable to a single borrower in the skilled nursing industry.  Continued disciplined credit management resulted in non-performing loans as a percentage of portfolio loans of 0.23% as of both June 30, 2022, and December 31, 2021.  Excluding the amortized cost of PPP loans, non-performing loans as a percentage of portfolio loans was 0.23% as of June 30, 2022, and 0.24% as of December 31, 2021.

Asset quality metrics remain dependent upon market-specific economic conditions, which may fluctuate from period to period.  If economic conditions were to deteriorate, we would expect the credit quality of our loan portfolio to decline and loan defaults to increase.

Potential Problem Loans

Potential problem loans are loans classified as substandard which are not individually evaluated, restructured, non-accrual, or 90+ days past due, but where current information indicates that the borrower may not be able to comply with loan repayment terms.  Management assesses the potential for loss on such loans and considers the effect of any potential loss in determining its provision for expected credit losses.  Potential problem loans increased to $83.9 million as of June 30, 2022, compared to $70.5 million as of December 31, 2021.  Management continues to monitor these credits and anticipates that restructurings, guarantees, additional collateral, or other planned actions will result in full repayment of the debts.  As of June 30, 2022, management identified no other loans that represent or result from trends or uncertainties which would be expected to materially impact future operating results, liquidity, or capital resources.

COVID-19 Modifications

To alleviate some of the financial hardships faced as a result of COVID-19, the Company offered a Financial Relief Program to qualifying customers.  The program included options for short-term loan payment deferrals and certain fee waivers.  As of June 30, 2022, the Company had no loans remaining on full payment deferral, 11 commercial loans on interest-only payment deferral representing $31.9 million in loans, and one payment deferred retail loan representing $0.1 million in loans.  In comparison, the Company had 32 commercial loans on interest-only payment deferral representing $128.7 million in loans, and two payment deferred retail loans representing $0.1 million as of December 31, 2021.  As these deferrals expire, the Company will continue to monitor credits for potential problem loans.

Deposits

Total deposits decreased by 3.4% to $10.4 billion as of June 30, 2022, compared to $10.8 billion as of December 31, 2021.  We focus on deepening our relationships with customers to foster core deposit(1) growth, allowing us to reduce our reliance on wholesale funding.  Core deposits include non-brokered transaction accounts, money market deposit accounts, and time deposits of $250,000 or less.  Fluctuations in deposit balances can be attributed to the retention of PPP loan funding in customer deposit accounts, the impacts of economic stimulus, transfer of funds from bank deposits to assets under care, time deposit attrition, other core deposit growth, and the seasonality of public funds.

LIQUIDITY

Liquidity management is the process by which we ensure that adequate liquid funds are available to meet the present and future cash flow obligations arising in the daily operations of our business.  These financial obligations consist of needs for funds to meet commitments to borrowers for extensions of credit, fund capital expenditures, honor withdrawals by customers, pay dividends to stockholders, and pay operating expenses.  Our most liquid assets are cash and due from banks, interest-bearing bank deposits, and federal funds sold.  Balances of these assets are dependent on our operating, investing, lending, and financing activities during any given period.

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

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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 summarized in the table below (dollars in thousands):

As of

June 30,

December 31,

    

2022

    

2021

Additional borrowing capacity available from:

FHLB

$

1,761,890

$

1,536,019

Federal Reserve

778,335

624,627

Revolving credit facility

 

40,000

 

40,000

Additional borrowing capacity

$

2,580,225

$

2,200,646

As of June 30, 2022, management believed that adequate liquidity existed to meet all projected cash flow obligations.  We seek to achieve a satisfactory degree of liquidity by actively managing both assets and liabilities.  Asset management guides the proportion of liquid assets to total assets, while liability management monitors future funding requirements and prices liabilities accordingly.

OFF-BALANCE-SHEET ARRANGEMENTS

Busey Bank routinely enters into commitments to extend credit and standby letters of credit in the normal course of business to meet the financing needs of its customers.  We had outstanding loan commitments and standby letters of credit of $2.0 billion as of both June 30, 2022, and December 31, 2021.  The balance of commitments to extend credit represents future cash requirements and some of these commitments may expire without being drawn upon.  We anticipate we will have sufficient funds available to meet current loan commitments, including loan applications received and in process prior to the issuance of firm commitments.

As of June 30, 2022, our reserve for unfunded commitments was $7.4 million, compared to $6.5 million as of December 31, 2021.  The Company recorded a $0.3 million release of the provision for unfunded commitments for the three months ended June 30, 2022, compared with a provision release of $0.5 million for the same period in 2021.  We recorded $0.8 million of expenses for the provision for unfunded commitments for the six months ended June 30, 2022, compared to provision releases totaling $0.1 million of for the same period in 2021.

CAPITAL RESOURCES

Our capital ratios are in excess of those required to be considered “well-capitalized” pursuant to applicable regulatory guidelines.  The Federal Reserve Board uses capital adequacy guidelines in its examination and regulation of bank holding companies and their subsidiary banks.  Risk-based capital ratios are established by allocating assets and certain off-balance-sheet commitments into risk-weighted categories.  These balances are then multiplied by the factor appropriate for that risk-weighted category.  In order to refrain from restrictions on dividends, equity repurchases, and discretionary bonus payments, banking institutions must maintain capital in excess of regulatory minimum capital requirements.  The table below presents minimum capital ratios that include the capital conservation buffer in comparison to the capital ratios for First Busey and Busey Bank as of June 30, 2022:

Minimum Capital

As of June 30, 2022

Requirements with

First Busey

Busey

    

Capital Buffer

    

Corporation

    

Bank

Common Equity Tier 1 Capital to Risk Weighted Assets

7.00

%   

11.77

%   

14.50

%

Tier 1 Capital to Risk Weighted Assets

8.50

%   

12.62

%   

14.50

%

Total Capital to Risk Weighted Assets

10.50

%   

16.58

%   

15.36

%

Leverage Ratio of Tier 1 Capital to Average Assets

6.50

%   

9.03

%   

10.37

%

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

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NON-GAAP FINANCIAL INFORMATION

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

A reconciliation of non-GAAP financial measures to what management believes to be the most directly comparable GAAP financial measures—specifically, net interest income, total noninterest income, net security gains and losses, and total noninterest expense in the case of pre-provision net revenue, adjusted pre-provision net revenue, pre-provision net revenue to average assets, and adjusted pre-provision net revenue to average assets; net income in the case of adjusted net income, adjusted diluted earnings per share, adjusted return on average assets, return on average tangible common equity, and adjusted return on average tangible common equity; net interest income in the case of adjusted net interest income and adjusted net interest margin; net interest income, total noninterest income, and total noninterest expense in the case of adjusted noninterest expense, adjusted core expense, efficiency ratio, adjusted efficiency ratio, and adjusted core efficiency ratio; total stockholders’ equity in the case of tangible book value per common share; total assets and total stockholders’ equity in the case of tangible common equity and tangible common equity to tangible assets; portfolio loans in the case of core loans and core loans to portfolio loans; total deposits in the case of core deposits and core deposits to total deposits; and portfolio loans and total deposits in the case of core loans to core deposits—appears below.

These non-GAAP disclosures have inherent limitations and are not audited.  They should not be considered in isolation or as a substitute for operating 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 or effective rates as appropriate.

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RECONCILIAITON OF NON-GAAP FINANCIAL MEASURES (unaudited)

Pre-Provision Net Revenue, Adjusted Pre-Provision Net Revenue,

Pre-Provision Net Revenue to Average Assets, and Adjusted Pre-Provision Net Revenue to Average Assets

(dollars in thousands)

Three Months Ended

Six Months Ended

June 30,

    

June 30,

    

June 30,

    

June 30,

    

2022

    

2021

    

2022

    

2021

PRE-PROVISION NET REVENUE 

Net interest income

$

75,928

$

64,542

$

145,984

$

129,435

Total noninterest income

31,019

33,011

66,791

64,456

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

 

1,714

 

(898)

 

2,328

 

(2,539)

Total noninterest expense

 

(69,092)

 

(62,625)

 

(139,468)

 

(117,124)

Pre-provision net revenue

39,569

34,030

75,635

74,228

Non-GAAP adjustments:

Acquisition and other restructuring expenses

303

2,713

1,138

3,033

Provision for unfunded commitments

(267)

(496)

845

(90)

Amortization of NMTC

1,662

1,239

3,003

3,068

Adjusted pre-provision net revenue

$

41,267

$

37,486

$

80,621

$

80,239

Pre-provision net revenue, annualized

[a]

$

158,711

$

136,494

$

152,524

$

149,686

Adjusted pre-provision net revenue, annualized

[b]

165,521

150,356

162,578

161,808

Average total assets

[c]

12,452,070

11,398,655

12,555,928

10,998,672

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

[a÷c]

1.27

%

1.20

%

1.21

%

1.36

%

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

[b÷c]

1.33

%

1.32

%

1.29

%

1.47

%

(1)Annualized measure.

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RECONCILIAITON OF NON-GAAP FINANCIAL MEASURES (unaudited)

Adjusted Net Income, Adjusted Diluted Earnings Per Share, Adjusted Return on Average Assets

Return on Average Tangible Common Equity, and Adjusted Return on Average Tangible Common Equity

(dollars in thousands, except per share amounts)

Three Months Ended

Six Months Ended

June 30,

    

June 30,

    

June 30,

    

June 30,

    

    

2022

    

2021

    

2022

    

2021

    

NET INCOME ADJUSTED FOR NON-OPERATING ITEMS

Net income

[a]

$

29,824

$

29,766

$

58,263

$

67,582

Non-GAAP adjustments:

Acquisition expenses:

 

  

 

  

 

  

 

  

Salaries, wages, and employee benefits

 

 

1,125

 

587

 

1,125

Data processing

 

 

368

 

214

 

375

Professional fees, occupancy, and other

204

 

1,220

238

1,533

Other restructuring costs:

 

  

 

  

 

  

 

  

Lease or fixed asset impairment

99

99

Related tax benefit

(46)

(558)

(216)

(629)

Adjusted net income

[b]

$

30,081

$

31,921

$

59,185

$

69,986

DILUTED EARNINGS PER SHARE

Dilutive average common shares outstanding

[c]

56,104,017

55,730,883

56,149,466

55,384,942

Reported: Diluted earnings per share

[a÷c]

$

0.53

$

0.53

$

1.04

$

1.22

Adjusted: Diluted earnings per share

[b÷c]

0.54

0.57

1.05

1.26

RETURN ON AVERAGE ASSETS

Net income, annualized

[d]

$

119,624

$

119,391

$

117,492

$

136,284

Adjusted net income, annualized

[e]

120,655

128,035

119,351

141,132

Average total assets

[f]

12,452,070

11,398,655

12,555,928

10,998,672

Reported: Return on average assets (1)

[d÷f]

0.96

%

1.05

%

0.94

%

1.24

%

Adjusted: Return on average assets (1)

[e÷f]

0.97

%

1.12

%

0.95

%

1.28

%

RETURN ON AVERAGE TANGIBLE COMMON EQUITY

Average common equity

$

1,197,052

$

1,342,771

$

1,239,060

$

1,309,418

Average goodwill and other intangible assets, net

(371,890)

(368,709)

(373,342)

(365,718)

Average tangible common equity

[g]

$

825,162

$

974,062

$

865,718

$

943,700

Reported: Return on average tangible common equity (1)

[d÷g]

14.50

%

12.26

%

13.57

%

14.44

%

Adjusted: Return on average tangible common equity (1)

[e÷g]

14.62

%

13.14

%

13.79

%

14.96

%

(1)Annualized measure.

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Table of Contents

RECONCILIAITON OF NON-GAAP FINANCIAL MEASURES (unaudited)

Adjusted Net Interest Income and Adjusted Net Interest Margin

(dollars in thousands)

Three Months Ended

Six Months Ended

    

June 30,

    

June 30,

    

June 30,

    

June 30,

    

    

2022

    

2021

    

2022

    

2021

    

Net interest income

$

75,928

$

64,542

$

145,984

$

129,435

Non-GAAP adjustments:

Tax-equivalent adjustment

 

546

 

579

 

1,092

 

1,180

Tax-equivalent net interest income

76,474

65,121

147,076

130,615

Acquisition-related purchase accounting accretion

 

(599)

 

(1,726)

 

(1,758)

 

(3,883)

Adjusted net interest income

$

75,875

$

63,395

$

145,318

$

126,732

Tax-equivalent net interest income, annualized

[a]

$

306,736

$

261,200

$

296,590

$

263,395

Adjusted net interest income, annualized

[b]

304,334

254,277

293,045

255,565

Average interest-earning assets

[c]

11,453,198

10,448,417

11,577,879

10,102,278

Reported: Net interest margin (1)

[a÷c]

 

2.68

%

 

2.50

%

 

2.56

%

 

2.61

%

Adjusted: Net Interest margin (1)

[b÷c]

 

2.66

%

 

2.43

%

 

2.53

%

 

2.53

%

(1)Annualized measure.

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RECONCILIAITON OF NON-GAAP FINANCIAL MEASURES (unaudited)

Adjusted Noninterest Expense, Adjusted Core Expense,

Efficiency Ratio, Adjusted Efficiency Ratio, and Adjusted Core Efficiency Ratio

(dollars in thousands)

    

Three Months Ended

Six Months Ended

June 30,

    

June 30,

    

June 30,

    

June 30,

    

2022

    

2021

    

2022

    

2021

    

Net interest income

$

75,928

$

64,542

$

145,984

$

129,435

Non-GAAP adjustments:

Tax-equivalent adjustment

 

546

 

579

 

1,092

1,180

Tax-equivalent net interest income

76,474

65,121

147,076

130,615

Total noninterest income

 

31,019

 

33,011

 

66,791

 

64,456

Non-GAAP adjustments:

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

 

1,714

 

(898)

 

2,328

 

(2,539)

Noninterest income excluding net securities gains and losses

32,733

32,113

69,119

61,917

Tax-equivalent net interest income plus noninterest income excluding net securities gains and losses

[a]

$

109,207

$

97,234

$

216,195

$

192,532

Total noninterest expense

 

69,092

 

62,625

 

139,468

 

117,124

Non-GAAP adjustments:

Amortization of intangible assets

[b]

 

(2,951)

 

(2,650)

 

(5,962)

 

(5,051)

Non-interest expense excluding amortization of intangible assets

[c]

66,141

59,975

133,506

112,073

Non-operating adjustments:

 

 

  

 

  

Salaries, wages, and employee benefits

 

 

(1,125)

 

(587)

 

(1,125)

Data processing

 

 

(368)

 

(214)

 

(375)

Lease or fixed asset impairment

(99)

(99)

Professional fees and other

 

(204)

 

(1,220)

 

(238)

 

(1,533)

Adjusted noninterest expense

[d]

65,838

57,262

132,368

109,040

Provision for unfunded commitments

267

 

496

 

(845)

 

90

Amortization of NMTC

(1,662)

(1,239)

 

(3,003)

 

(3,068)

Adjusted core expense

[e]

$

64,443

$

56,519

$

128,520

$

106,062

Noninterest expense, excluding non-operating adjustments

[d-b]

68,789

59,912

138,330

114,091

Reported: Efficiency ratio

[c÷a]

 

60.56

%

 

61.68

%

 

61.75

%

 

58.21

%

Adjusted: Efficiency ratio

[d÷a]

 

60.29

%

 

58.89

%

61.23

%

56.63

%

Adjusted: Core efficiency ratio

[e÷a]

 

59.01

%

 

58.13

%

 

59.45

%

 

55.09

%

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RECONCILIAITON OF NON-GAAP FINANCIAL MEASURES (unaudited)

Tangible Book Value Per Common Share

(dollars in thousands, except per share amounts)

As of

    

June 30,

 

December 31,

    

2022

 

2021

Total stockholders’ equity

$

1,161,957

$

1,319,112

Goodwill and other intangible assets, net

 

(369,962)

 

(375,924)

Tangible book value

[a]

$

791,995

$

943,188

Ending number of common shares outstanding

[b]

55,335,703

55,434,910

Tangible book value per common share

[a÷b]

$

14.31

$

17.01

Tangible Common Equity and Tangible Common Equity to Tangible Assets

(dollars in thousands)

As of

    

June 30,

    

December 31,

 

    

2022

    

2021

 

Total assets

$

12,356,433

$

12,859,689

Non-GAAP adjustments:

Goodwill and other intangible assets, net

 

(369,962)

 

(375,924)

Tax effect of other intangible assets (1)

 

9,905

 

16,254

Tangible assets

[a]

$

11,996,376

$

12,500,019

Total stockholders’ equity

$

1,161,957

$

1,319,112

Non-GAAP adjustments:

Goodwill and other intangible assets, net

 

(369,962)

 

(375,924)

Tax effect of other intangible assets (1)

 

9,905

 

16,254

Tangible common equity

[b]

$

801,900

$

959,442

Tangible common equity to tangible assets (2)

[b÷a]

 

6.68

%  

 

7.68

%

(1)Net of estimated deferred tax liability.
(2)Tax-effected measure.

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RECONCILIAITON OF NON-GAAP FINANCIAL MEASURES (unaudited)

Core Loans, Core Loans to Portfolio Loans,

Core Deposits, Core Deposits to Total Deposits, and Core Loans to Core Deposits

(dollars in thousands)

As of

    

June 30,

    

December 31,

 

    

2022

    

2021

 

Portfolio loans

[a]

$

7,497,778

$

7,188,998

Non-GAAP adjustments:

PPP Loans amortized cost

 

(7,616)

 

(74,958)

Core loans

[b]

$

7,490,162

$

7,114,040

Total deposits

[c]

$

10,397,228

$

10,768,577

Non-GAAP adjustments:

Brokered transaction accounts

(2,002)

(2,248)

Time deposits of $250,000 or more

 

(117,957)

 

(137,449)

Core deposits

[d]

$

10,277,269

$

10,628,880

RATIOS

Core loans to portfolio loans

[b÷a]

 

99.90

%  

 

98.96

%  

Core deposits to total deposits

[d÷c]

98.85

%  

98.70

%  

Core loans to core deposits

[b÷d]

72.88

%  

66.93

%  

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Table of Contents

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 First Busey’s financial condition, results of operations, plans, objectives, future performance, and business.  Forward-looking statements, which may be based upon beliefs, expectations, and assumptions of 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 we undertake no obligation to update any statement in light of new information or future events.  A number of factors, many of which are beyond our ability to control or predict, could cause actual results to differ materially from those in our forward-looking statements.  These factors include, among others, the following: (i) the strength of the local, state, national, and international economy (including effects of inflationary pressures and supply chain constraints); (ii) the economic impact of any future terrorist threats or attacks, widespread disease or pandemics (including the COVID-19 pandemic), or other adverse external events that could cause economic deterioration or instability in credit markets (including Russia’s invasion of Ukraine); (iii) changes in state and federal laws, regulations, and governmental policies concerning First Busey’s general business; (iv) changes in interest rates and prepayment rates of First Busey’s assets (including the impact of the LIBOR phase-out) (v) increased competition in the financial services sector and the inability to attract new customers; (vi) changes in technology and the ability to develop and maintain secure and reliable electronic systems; (vii) the loss of key executives or associates; (viii) changes in consumer spending; (ix) unexpected results of current and/or future acquisitions, which may include failure to realize the anticipated benefits of any acquisition and the possibility that transaction costs may be greater than anticipated; (x) unexpected outcomes of existing or new litigation involving First Busey; (xi) the economic impact of exceptional weather occurrences such as tornadoes, hurricanes, floods, and blizzards; and (xii) changes in accounting policies and practices.  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 First Busey and our business, including additional factors that could materially affect our financial results, is included in our filings with the SEC.

CRITICAL ACCOUNTING ESTIMATES

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 2021 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 our critical accounting estimates.  Management has reviewed these critical accounting estimates and related disclosures with our Audit Committee.  The following accounting policies could be deemed critical:

Fair Value of Debt Securities Available for Sale

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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A debt security available for sale is impaired if the fair value of the security declines below its amortized cost basis.  To determine the appropriate accounting, we must first determine if we intend to sell the security or if it is more likely than not that we will be required to sell the security before the fair value increases to at least the amortized cost basis.  If either of those selling events is expected, we will write down the amortized cost basis of the security to its fair value.  This is achieved by writing off any previously recorded ACL balance related to the debt security, if applicable, and recognizing any incremental impairment through earnings.  If we do not intend to sell the security, nor believe it more likely than not that we will be required to sell the security before the fair value recovers to the amortized cost basis, we must determine whether any of the decline in fair value has resulted from a credit loss, or if it is entirely the result of noncredit factors.

We consider the following factors in assessing whether the decline is due to a credit loss:

Extent to which the fair value is less than the amortized cost basis;
Adverse conditions specifically related to the security, an industry, or a geographic area (for example, changes in the financial condition of the issuer of the security, or in the case of an asset-backed debt security, in the financial condition of the underlying loan obligors);
Payment structure of the debt security and the likelihood of the issuer being able to make payments that increase in the future;
Failure of the issuer of the security to make scheduled interest or principal payments; and
Any changes to the rating of the security by a rating agency.

Impairment related to a credit loss must be measured using the discounted cash flow method.  Credit loss recognition is limited to the fair value of the security.  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 AOCI, net of applicable taxes.

Fair Value of Assets Acquired and Liabilities Assumed in Business Combinations

Business combinations are accounted for using the acquisition method of accounting.  Under the acquisition method of accounting, assets acquired and liabilities assumed are recorded at their estimated fair value on the date of acquisition.  Fair values are determined based on the definition of “fair value” defined in ASC Topic 820 “Fair Value Measurement” as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.”

The fair value of a loan portfolio acquired in a business combination generally requires greater levels of management estimates and judgment than other assets acquired or liabilities assumed.  Acquired loans are in the scope of ASC Topic 326 “Financial Instruments—Credit Losses.”  However, the offset to record the ACL on acquired loans at the date of acquisition 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, we assess the potential for impairment on an annual basis or more frequently if events and circumstances indicate that goodwill might be impaired.

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Table of Contents

Income Taxes

First Busey estimates income tax expense based on amounts expected to be owed to federal and state tax jurisdictions.  Estimated income tax expense is reported in the 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

First Busey calculates the ACL at each reporting date.  We recognize an allowance for the lifetime expected credit losses for the amount the Company does not expect to collect.  Measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported book value.  The calculation also contemplates that First Busey may not be able to make or obtain such forecasts for the entire life of the financial assets and requires a reversion to historical credit loss information.

In determining the ACL, management relies predominantly on a disciplined credit review and approval process that extends to the full range of First Busey’s credit exposure.  The ACL must be determined on a collective (pool) basis when similar risk characteristics exist.  On a case-by-case basis, we may conclude a loan should be evaluated on an individual basis based on disparate risk characteristics.

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of changes in asset values due to movements in underlying market rates and prices.  Interest rate risk is a type of market risk to earnings and capital arising from movements in interest rates.  Interest rate risk is the most significant market risk affecting 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 low interest rate environment, a downward adjustment in federal fund rates was not meaningful as of December 31, 2021.  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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Table of Contents

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

    

+100

    

+200

    

+300

    

June 30, 2022

 

(7.15)

%  

4.33

%  

8.57

%  

12.79

%  

December 31, 2021

 

NM

8.77

%  

17.19

%  

25.64

%  

 

Year-Two: Basis Point Changes

    

- 100

    

+100

    

+200

    

+300

    

June 30, 2022

 

(8.93)

%  

5.23

%  

10.48

%  

15.75

%  

December 31, 2021

 

NM

9.51

%  

18.22

%  

26.84

%  

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

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

An evaluation of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Exchange Act, was carried out as of June 30, 2022, under the supervision and with the participation of our Chief Executive Officer, Chief Financial Officer, and several other members of our senior management.  Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2022, our disclosure controls and procedures were effective in ensuring that the information we are required to disclose in the reports we file or submit under the Exchange Act was (i) accumulated and communicated to our management (including the Chief Executive Officer and Chief Financial Officer) to allow timely decisions regarding required disclosure, and (ii) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms.

Changes in Internal Control over Financial Reporting

During the three months ended June 30, 2022, 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 Part I—Item 1A of First Busey’s 2021 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.  During the second quarter of 2022, the Company purchased 70,000 shares under the plan.  As of June 30, 2022, the Company had 277,210 shares that may still be purchased under the plan.

Period

Total Number of Shares Purchased

Weighted Average Price Paid per Common Share

Number of Shares Purchased as Part of Publicly Announced Plans or Programs

Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs

April 1-30, 2022

4,000

$

25.92

4,000

343,210

May 1-31, 2022

$

343,210

June 1-30, 2022

66,000

$

22.73

66,000

277,210

Three Months Ended June 30, 2022

70,000

$

22.91

70,000

Six Months Ended June 30, 2022

258,614

$

26.39

258,614

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.

ITEM 5. OTHER INFORMATION

None.

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Table of Contents

ITEM 6. EXHIBITS

Exhibit
Number

  

Description of Exhibit

  

Filed
Herewith

31.1

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

X

31.2

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

X

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

X

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

X

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)

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SIGNATURES

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

Date:  August 4, 2022

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

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