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 6/30/~~2019~~2020


☐	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 ☑

~~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 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 ~~7, 2019~~6, 2020
Common Stock, $.001 par value		~~55,386,636~~54,516,112

Table of Contents

FIRST BUSEY CORPORATION

FORM 10-Q

June 30, ~~2019~~2020

Table of Contents


Part I	FINANCIAL INFORMATION

Item 1.	FINANCIAL STATEMENTS (UNAUDITED)	3
	CONSOLIDATED BALANCE SHEETS	4
	CONSOLIDATED STATEMENTS OF INCOME	5
	CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME	6
	CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY	7
	CONSOLIDATED STATEMENTS OF CASH FLOWS	9
	NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS	11
Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	3943
Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	5765
Item 4.	CONTROLS AND PROCEDURES	5866

Part II	OTHER INFORMATION

Item 1.	LEGAL PROCEEDINGS	5866
Item 1A.	RISK FACTORS	5867
Item 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	5969
Item 3.	DEFAULTS UPON SENIOR SECURITIES	5969
Item 4.	MINE SAFETY DISCLOSURES	5969
Item 5.	OTHER INFORMATION	5969
Item 6.	EXHIBITS	6070
	SIGNATURES	6171

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Table of Contents

FIRST BUSEY CORPORATION and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(Unaudited)


		June 30, 2019		December 31, 2018		June 30, 2020		December 31, 2019
		(dollars in thousands)				(dollars in thousands)
Assets
Cash and due from banks		$	113,346	$	128,838	$	125,261	$	136,546
Interest-bearing deposits			306,861		111,135		924,811		392,742
Total cash and cash equivalents			420,207		239,973		1,050,072		529,288

Debt securities available for sale			1,848,073		697,685		1,696,866		1,648,257
Debt securities held to maturity (fair value 2019 $15,934; 2018 $603,360)			15,708		608,660
Equity securities			5,362		6,169		5,126		5,952
Loans held for sale, at fair value			39,607		25,895		108,140		68,699
Portfolio loans (net of allowance for loan losses 2019 $51,375; 2018 $50,648)			6,480,751		5,517,780
Portfolio loans (net of allowance 2020 $96,046; 2019 $53,748)							7,132,974		6,633,501
Premises and equipment, net			149,726		117,672		146,951		151,267
Right of use asset			10,426		—		8,511		9,490
Goodwill			314,343		267,685		311,536		311,536
Other intangible assets, net			60,984		32,873		56,517		61,593
Cash surrender value of bank owned life insurance			173,150		128,491		174,544		173,595
Other assets			94,330		59,474		144,728		102,551
Total assets		$	9,612,667	$	7,702,357	$	10,835,965	$	9,695,729
Liabilities and Stockholders’ Equity
Liabilities
Deposits:
Noninterest-bearing		$	1,766,681	$	1,464,700	$	2,764,408	$	1,832,619
Interest-bearing			6,066,541		4,784,621		6,145,258		6,069,777
Total deposits	��		7,833,222		6,249,321		8,909,666		7,902,396

Securities sold under agreements to repurchase			190,846		185,796		194,249		205,491
Short-term borrowings			30,761		—		24,648		8,551
Long-term debt			86,772		50,000		35,101		83,600
Senior notes, net of unamortized issuance costs			39,607		39,539		39,741		39,674
Subordinated notes, net of unamortized issuance costs			59,197		59,147		181,995		59,248
Junior subordinated debt owed to unconsolidated trusts			71,230		71,155		71,387		71,308
Lease liability			10,531		—		8,601		9,552
Other liabilities			86,893		52,435		134,493		95,475
Total liabilities			8,409,059		6,707,393		9,599,881		8,475,295

Outstanding commitments and contingent liabilities (see Note 10)
Outstanding commitments and contingent liabilities (see Notes 10 and 15)

Stockholders’ Equity
Common stock, $.001 par value, authorized 66,666,667 shares; 55,910,733 shares issued 2019 and 49,185,581 shares issued 2018			56		49
Common stock, $.001 par value, authorized 2020 100,000,000 shares; authorized 2019 66,666,667 shares; 55,910,733 shares issued							56		56
Additional paid-in capital			1,246,160		1,080,084		1,248,045		1,248,216
Accumulated deficit			(44,878)		(72,167)		(13,951)		(14,813)
Accumulated other comprehensive income (loss)			14,627		(6,812)		37,037		14,960
Total stockholders’ equity before treasury stock			1,215,965		1,001,154		1,271,187		1,248,419

Treasury stock, at cost (2019 524,097 shares; 2018 310,745 shares)			(12,357)		(6,190)
Treasury stock at cost, 1,394,733 and 1,121,961 shares, respectively							(35,103)		(27,985)
Total stockholders’ equity			1,203,608		994,964		1,236,084		1,220,434
Total liabilities and stockholders’ equity		$	9,612,667	$	7,702,357	$	10,835,965	$	9,695,729

Common shares outstanding at period end			55,386,636		48,874,836		54,516,000		54,788,772

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

FIRST BUSEY CORPORATION and Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


		Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,				Six Months Ended June 30,
		2019		2018		2019		2018		2020		2019		2020		2019

	(dollars in thousands, except per share amounts)								(dollars in thousands, except per share amounts)
Interest income:
Interest and fees on loans	$	78,031	$	62,290	$	149,820	$	123,250	$	71,089	$	78,031	$	143,625	$	149,820
Interest and dividends on investment securities:
Taxable interest income		11,152		6,323		21,336		12,313		8,833		11,152		18,341		21,336
Non-taxable interest income		1,200		1,204		2,276		2,464		1,166		1,200		2,317		2,276
Other interest income		1,083		508		2,315		931		145		1,083		1,383		2,315
Total interest income		91,466		70,325		175,747		138,958		81,233		91,466		165,666		175,747
Interest expense:
Deposits		14,154		6,904		26,654		12,891		7,721		14,154		19,948		26,654
Federal funds purchased and securities sold under agreements to repurchase		627		372		1,210		713		100		627		508		1,210
Short-term borrowings		494		457		685		933		118		494		185		685
Long-term debt		741		213		1,320		377		34		741		457		1,320
Senior notes		399		399		799		799		399		399		799		799
Subordinated notes		731		794		1,462		1,587		1,312		731		2,043		1,462
Junior subordinated debt owed to unconsolidated trusts		892		814		1,806		1,529		736		892		1,480		1,806
Total interest expense		18,038		9,953		33,936		18,829		10,420		18,038		25,420		33,936
Net interest income		73,428		60,372		141,811		120,129		70,813		73,428		140,246		141,811
Provision for loan losses		2,517		2,258		4,628		3,266
Net interest income after provision for loan losses		70,911		58,114		137,183		116,863
Provision for credit losses										12,891		2,517		30,107		4,628
Net interest income after provision for credit losses										57,922		70,911		110,139		137,183
Non-interest income:
Wealth management fees										10,193		9,488		21,748		18,517
Fees for customer services		9,696		7,290		17,793		14,236		7,025		9,696		15,386		17,793
Trust fees		8,318		6,735		16,433		14,249
Commissions and brokers’ fees, net		1,170		883		2,084		1,979
Remittance processing		3,717		3,566		7,497		6,958		3,718		3,717		7,471		7,497
Mortgage revenue		2,851		1,573		4,796		3,216		2,705		2,851		4,086		4,796
Net (losses) gains on sales of securities		(10)		160		(184)		160
Unrealized (losses) gains recognized on equity securities		(1,016)		—		(800)		—
Income on bank owned life insurance										2,282		2,102		3,339		3,080
Net gains (losses) on sales of securities										125		(10)		1,699		(184)
Unrealized gains (losses) recognized on equity securities										190		(1,016)		(797)		(800)
Other income		3,170		2,595		6,222		4,490		1,726		1,068		2,549		3,142
Total non-interest income		27,896		22,802		53,841		45,288		27,964		27,896		55,481		53,841
Non-interest expense:
Salaries, wages and employee benefits		34,268		25,472		66,609		54,291		28,555		34,268		62,558		66,609
Data processing										4,051		5,616		8,446		10,017
Net occupancy expense of premises		4,511		3,689		8,713		7,510		4,448		4,511		9,163		8,713
Furniture and equipment expenses		2,352		1,790		4,447		3,703		2,537		2,352		4,986		4,447
Data processing		5,616		4,030		10,017		8,375
Professional fees										1,986		3,192		3,810		6,379
Amortization of intangible assets		2,412		1,490		4,506		3,005		2,519		2,412		5,076		4,506
Other expense		18,861		10,834		30,891		21,461		8,972		15,669		19,543		24,512
Total non-interest expense		68,020		47,305		125,183		98,345		53,068		68,020		113,582		125,183
Income before income taxes		30,787		33,611		65,841		63,806		32,818		30,787		52,038		65,841
Income taxes		6,702		8,749		16,287		17,027		7,012		6,702		10,868		16,287
Net income	$	24,085	$	24,862	$	49,554	$	46,779	$	25,806	$	24,085	$	41,170	$	49,554

Basic earnings per common share	$	0.43	$	0.51	$	0.91	$	0.96	$	0.47	$	0.43	$	0.75	$	0.91
Diluted earnings per common share	$	0.43	$	0.51	$	0.90	$	0.95	$	0.47	$	0.43	$	0.75	$	0.90
Dividends declared per share of common stock	$	0.21	$	0.20	$	0.42	$	0.40	$	0.22	$	0.21	$	0.44	$	0.42

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

FIRST BUSEY CORPORATION and Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

Three Months Ended

Six Months Ended

June 30,

June 30,


2019

2018

2019

2018

(dollars in thousands)
Net income

$
24,085

$
24,862

$
49,554

$
46,779
Other comprehensive income (loss), before tax:

Debt securities available for sale:

Unrealized net gains/(losses) on securities:

Unrealized net holding gains (losses) arising during
period

18,214

(1,666)

25,014

(10,420)
Unrealized gains on debt securities transferred from held
to maturity to available for sale

—

—

4,780

—
Reclassification adjustment for losses (gains) included in
net income

10

—

193

—
Other comprehensive income (loss), before tax

18,224

(1,666)

29,987

(10,420)
Income tax expense (benefit) related to items of other
comprehensive income

5,192

(475)

8,548

(2,970)
Other comprehensive income (loss), net of tax

13,032

(1,191)

21,439

(7,450)
Comprehensive income

$
37,117

$
23,671

$
70,993

$
39,329


	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019

	(dollars in thousands)
Net income	$	25,806	$	24,085	$	41,170	$	49,554
Other comprehensive income:
Unrealized gains (losses) on debt securities available for sale:
Net unrealized holding gains (losses) on debt securities available for sale, net of taxes of $(1,670), $(5,189), $(10,259) and $(7,129), respectively		4,187		13,025		25,684		17,885
Net unrealized losses on debt securities transferred from held to maturity to available for sale, net of taxes of $- , $-, $- and $(1,364), respectively		—		—		—		3,416
Reclassification adjustment for realized (gains) losses on debt securities available for sale included in net income, net of taxes of $41, $(3), $489 and $(55), respectively		(102)		7		(1,210)		138
Net change in unrealized gains (losses) on debt securities available for sale		4,085		13,032		24,474		21,439

Unrealized gains (losses) on cash flow hedges:
Net unrealized holding (losses) gains on cash flow hedges, net of taxes of $4, $-, $896 and $-, respectively		(10)		—		(2,247)		—
Reclassification adjustment for realized losses (gains) on cash flow hedges included in net income, net of taxes of $56, $-, $60 and $-, respectively		(139)		—		(150)		—
Net change in unrealized gains (losses) on derivative instruments		(149)		—		(2,397)		—
Net change in accumulated other comprehensive income (loss)		3,936		13,032		22,077		21,439
Total comprehensive income	$	29,742	$	37,117	$	63,247	$	70,993

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

FIRST BUSEY CORPORATION and Subsidiaries

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

(dollars in thousands, except per share amounts)

Accumulated

Additional

Other

Common

Paid-in

Accumulated

Comprehensive

Treasury

Shares

Stock

Capital

(Deficit)

Income (loss)

Stock

Total
Balance, March 31, 2019

55,624,627

$
56

$
1,247,340

$
(57,125)

$
1,595

$
(5,725)

$
1,186,141
Net income

—

—

—

24,085

—

—

24,085
Other comprehensive income

—

—

—

—

13,032

—

13,032
Repurchase of stock

(333,334)

—

—

—

—

(8,433)

(8,433)
Issuance of treasury stock for employee stock
purchase plan

4,419

—

29

—

—

84

113
Net issuance of treasury stock for
restricted/deferred stock unit vesting and
related tax

81,962

—

(2,364)

—

—

174

(2,190)
Net issuance of treasury stock for stock options
exercised, net of shares redeemed and related
tax

8,962

—

(19)

—

—

1,543

1,524
Cash dividends common stock at $0.21 per share

—

—

—

(11,681)

—

—

(11,681)
Stock dividend equivalents restricted stock units
at $0.21 per share

—

—

157

(157)

—

—

—
Stock-based compensation

—

—

1,017

—

—

—

1,017
Balance, June 30, 2019

55,386,636

$
56

$
1,246,160

$
(44,878)

$
14,627

$
(12,357)

$
1,203,608

Balance, December 31, 2018

48,874,836

$
49

$
1,080,084

$
(72,167)

$
(6,812)

$
(6,190)

$
994,964
Net income

—

—

—

49,554

—

—

49,554
Other comprehensive income

—

—

—

—

21,439

—

21,439
Stock issued in acquisition of Banc Ed, net of
stock issuance costs

6,725,152

7

166,274

—

—

—

166,281
Repurchase of stock

(333,334)

—

—

—

—

(8,433)

(8,433)
Issuance of treasury stock for employee stock
purchase plan

16,150

—

79

—

—

306

385
Net issuance of treasury stock for
restricted/deferred stock unit vesting and
related tax

91,032

—

(2,535)

—

—

345

(2,190)
Net issuance of treasury stock for stock options
exercised, net of shares redeemed and related
tax

12,800

—

(91)

—

—

1,615

1,524
Cash dividends common stock at $0.42 per share

—

—

—

(21,947)

—

—

(21,947)
Stock dividend equivalents restricted stock units
at $0.42 per share

—

—

318

(318)

—

—

—
Stock-based compensation

—

—

2,031

—

—

—

2,031
Balance, June 30, 2019

55,386,636

$
56

$
1,246,160

$
(44,878)

$
14,627

$
(12,357)

$
1,203,608


								Accumulated
				Additional				Other
		Common		Paid-in		Accumulated		Comprehensive		Treasury
	Shares	Stock		Capital		(Deficit)		Income (loss)		Stock		Total
For the Three Months Ended June 30, 2020
Balance, March 31, 2020	54,401,208	$	56	$	1,249,301	$	(27,599)	$	33,101	$	(37,274)	$	1,217,585
Net income	—		—		—		25,806		—		—		25,806
Other comprehensive income	—		—		—		—		3,936		—		3,936
Repurchase of stock	—		—		—		—		—		3		3
Issuance of treasury stock for employee stock purchase plan	6,296		—		(7)		—		—		119		112
Net issuance of treasury stock for restricted/deferred stock unit vesting and related tax	100,968		—		(2,467)		—		—		1,907		(560)
Net issuance of treasury stock for stock options exercised, net of shares redeemed and related tax	7,528		—		(41)		—		—		142		101
Cash dividends common stock at $0.22 per share	—		—		—		(11,968)		—		—		(11,968)
Stock dividend equivalents restricted stock units at $0.22 per share	—		—		190		(190)		—		—		—
Stock-based compensation	—		—		1,069		—		—		—		1,069
Balance, June 30, 2020	54,516,000	$	56	$	1,248,045	$	(13,951)	$	37,037	$	(35,103)	$	1,236,084

For the Six Months Ended June 30, 2020
Balance, December 31, 2019	54,788,772	$	56	$	1,248,216	$	(14,813)	$	14,960	$	(27,985)	$	1,220,434
Cumulative effect of change in accounting principle	—		—		—		(15,922)		—		—		(15,922)
Net income	—		—		—		41,170		—		—		41,170
Other comprehensive income	—		—		—		—		22,077		—		22,077
Repurchase of stock	(407,850)		—		—		—		—		(9,669)		(9,669)
Issuance of treasury stock for employee stock purchase plan	20,532		—		(45)		—		—		388		343
Net issuance of treasury stock for restricted/deferred stock unit vesting and related tax	106,477		—		(2,646)		—		—		2,011		(635)
Net issuance of treasury stock for stock options exercised, net of shares redeemed and related tax	8,069		—		(51)		—		—		152		101
Cash dividends common stock at $0.44 per share	—		—		—		(24,023)		—		—		(24,023)
Stock dividend equivalents restricted stock units at $0.44 per share	—		—		363		(363)		—		—		—
Stock-based compensation	—		—		2,208		—		—		—		2,208
Balance, June 30, 2020	54,516,000	$	56	$	1,248,045	$	(13,951)	$	37,037	$	(35,103)	$	1,236,084

Table of Contents

FIRST BUSEY CORPORATION and Subsidiaries

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Continued)

(Unaudited)

(dollars in thousands, except per share amounts)

Accumulated

Additional

Other

Common

Paid-in

Accumulated

Comprehensive

Treasury


Shares

Stock

Capital

(Deficit)

Income (loss)

Stock

Total
Balance, March 31, 2018

48,717,239

$
49

$
1,084,411

$
(119,467)

$
(9,674)

$
(13,173)

$
942,146
Net income

—

—

—

24,862

—

—

24,862
Other comprehensive loss

—

—

—

—

(1,191)

—

(1,191)
Issuance of treasury stock for employee stock
purchase plan

3,030

—

(80)

—

—

172

92
Net issuance of treasury stock for
restricted/deferred stock unit vesting and
related tax

31,832

—

(1,875)

—

—

1,803

(72)
Net issuance of treasury stock for stock options
exercised, net of shares redeemed and related
tax

24,303

—

(1,161)

—

—

1,377

216
Cash dividends common stock at $0.20 per share

—

—

—

(9,743)

—

—

(9,743)
Stock dividend equivalents restricted stock units
at $0.20 per share

—

—

154

(156)

—

—

(2)
Stock-based compensation

—

—

874

—

—

—

874
Balance, June 30, 2018

48,776,404

$
49

$
1,082,323

$
(104,504)

$
(10,865)

$
(9,821)

$
957,182

Balance, December 31, 2017

48,684,943

$
49

$
1,084,889

$
(132,122)

$
(2,810)

$
(15,003)

$
935,003
Net income

—

—

—

46,779

—

—

46,779
Other comprehensive loss

—

—

—

—

(7,450)

—

(7,450)
Tax Cuts and Jobs Act of 2017 reclassification

—

—

—

605

(605)

—

—
Issuance of treasury stock for employee stock
purchase plan

11,748

—

(328)

—

—

666

338
Net issuance of treasury stock for
restricted/deferred stock unit vesting and
related tax

31,832

—

(1,875)

—

—

1,803

(72)
Net issuance of treasury stock for stock options
exercised, net of shares redeemed and related
tax

47,881

—

(2,367)

—

—

2,713

346
Cash dividends common stock at $0.40 per share

—

—

—

(19,482)

—

—

(19,482)
Stock dividend equivalents restricted stock units
at $0.40 per share

—

—

282

(284)

—

—

(2)
Stock-based compensation

—

—

1,722

—

—

—

1,722
Balance, June 30, 2018

48,776,404

$
49

$
1,082,323

$
(104,504)

$
(10,865)

$
(9,821)

$
957,182


								Accumulated
				Additional				Other
		Common		Paid-in		Accumulated		Comprehensive		Treasury
	Shares	Stock		Capital		(Deficit)		Income (loss)		Stock		Total
For the Three Months Ended June 30, 2019
Balance, March 31, 2019	55,624,627	$	56	$	1,247,340	$	(57,125)	$	1,595	$	(5,725)	$	1,186,141
Net income	—		—		—		24,085		—		—		24,085
Other comprehensive income	—		—		—		—		13,032		—		13,032
Repurchase of stock	(333,334)		—		—		—		—		(8,433)		(8,433)
Issuance of treasury stock for employee stock purchase plan	4,419		—		29		—		—		84		113
Net issuance of treasury stock for restricted/deferred stock unit vesting and related tax	81,962		—		(2,364)		—		—		174		(2,190)
Net issuance of treasury stock for stock options exercised, net of shares redeemed and related tax	8,962		—		(19)		—		—		1,543		1,524
Cash dividends common stock at $0.21 per share	—		—		—		(11,681)		—		—		(11,681)
Stock dividend equivalents restricted stock units at $0.21 per share	—		—		157		(157)		—		—		—
Stock-based compensation	—		—		1,017		—		—		—		1,017
Balance, June 30, 2019	55,386,636	$	56	$	1,246,160	$	(44,878)	$	14,627	$	(12,357)	$	1,203,608

For the Six Months Ended June 30, 2019
Balance, December 31, 2018	48,874,836	$	49	$	1,080,084	$	(72,167)	$	(6,812)	$	(6,190)	$	994,964
Net income	—		—		—		49,554		—		—		49,554
Other comprehensive income	—		—		—		—		21,439		—		21,439
Stock issued in acquisition of Banc Ed, net of stock issuance costs	6,725,152		7		166,274		—		—		—		166,281
Repurchase of stock	(333,334)		—		—		—		—		(8,433)		(8,433)
Issuance of treasury stock for employee stock purchase plan	16,150		—		79		—		—		306		385
Net issuance of treasury stock for restricted/deferred stock unit vesting and related tax	91,032		—		(2,535)		—		—		345		(2,190)
Net issuance of treasury stock for stock options exercised, net of shares redeemed and related tax	12,800		—		(91)		—		—		1,615		1,524
Cash dividends common stock at $0.42 per share	—		—		—		(21,947)		—		—		(21,947)
Stock dividend equivalents restricted stock units at $0.42 per share	—		—		318		(318)		—		—		—
Stock-based compensation	—		—		2,031		—		—		—		2,031
Balance, June 30, 2019	55,386,636	$	56	$	1,246,160	$	(44,878)	$	14,627	$	(12,357)	$	1,203,608

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

FIRST BUSEY CORPORATION and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Six Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2020		2019
	(dollars in thousands)				(dollars in thousands)
Cash Flows from Operating Activities
Net income	$	49,554	$	46,779	$	41,170	$	49,554
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		4,628		3,266
Amortization of intangible assets (excluding Mortgage Servicing Rights ("MSR"))		4,506		3,005
Provision for credit losses						30,107		4,628
Amortization of intangible assets						5,076		4,506
Amortization of mortgage servicing rights		1,222		759		2,625		1,222
Depreciation and amortization of premises and equipment		5,674		4,748		6,316		5,674
Net amortization (accretion) of premium (discount) on portfolio loans		(5,729)		(6,375)		(4,663)		(5,729)
Net amortization (accretion) of premium (discount) on investment securities		2,843		4,485		4,061		2,843
Net amortization (accretion) of premium (discount) on time deposits		(802)		(121)		(709)		(802)
Net amortization (accretion) of premium (discount) on Federal Home Loan Bank ("FHLB") advances and other borrowings		125		72		220		125
Impairment of other real estate owned ("OREO")		18		—		—		54
Impairment of fixed assets held for sale		—		817		36		—
Impairment of MSR		1,822		—
Change in fair value of loans held for sale, net		(800)		—
Impairment of mortgage servicing rights						526		1,822
Impairment of leases						—		415
Change in fair value of equity securities, net		800		(1,071)		797		800
(Gain) loss on sales of securities, net		184		(160)
(Gain) loss on equity securities						—		(8)
(Gain) loss on sales of debt securities, net						(1,699)		192
(Gain) loss on sale of loans, net		(5,615)		(5,095)		(11,387)		(5,615)
(Gain) loss on sale of OREO		(83)		—		47		(86)
(Gain) loss on sale of premises and equipment		116		105		191		116
(Gain) loss life insurance proceeds		(1,016)		—
(Gain) loss on life insurance proceeds						(1,256)		(1,016)
Provision for deferred income taxes		3,816		3,601		(1,142)		3,816
Stock-based and non-cash compensation		2,031		1,722		2,208		2,031
Decrease in deferred compensation		(3,339)		—		—		(6,781)
Increase in cash surrender value of bank owned life insurance		(1,970)		(1,228)		(2,083)		(2,064)
Mortgage loans originated for sale		(244,781)		(219,252)		(511,670)		(245,581)
Proceeds from sales of mortgage loans		239,252		285,221		483,238		239,252
Net change in operating assets and liabilities:
(Increase) decrease in other assets		1,176		1,848
(Decrease) in other liabilities		(16,268)		(11,363)
Net cash provided by operating activities	$	37,364	$	111,763
Decrease (increase) in other assets						12,225		822
(Decrease) increase in other liabilities						496		(12,826)
Net cash (used in) provided by operating activities					$	54,730	$	37,364

Cash Flows from Investing Activities
Purchases of debt securities held to maturity		—		(85,050)
Purchase of equity securities						(4)		—
Purchases of debt securities available for sale		(227,182)		(93,591)		(356,700)		(227,182)
Purchase of FHLB stock		(3,700)		—		—		(3,700)
Proceeds from sales of equity securities		958		920		33		958
Proceeds from sales of debt securities available for sale		227,371		—		—		227,371
Proceeds from paydowns and maturities of debt securities held to maturity		13,922		18,033		—		13,922
Proceeds from paydowns and maturities of debt securities available for sale		146,566		82,817		315,988		146,566
Proceeds from the redemption of FHLB stock		3,720		2,114		—		3,720
Net cash (received) paid in acquisitions		(49,387)		—		—		(49,387)
Net change in loans		(89,642)		(36,080)		(546,599)		(89,642)
Cash paid for premiums on bank-owned life insurance		(3)		—		(116)		(3)
Purchases of premises and equipment		(5,918)		(8,594)		(3,029)		(5,918)
Proceeds from life insurance		1,672		—		2,512		1,672
Proceeds from disposition of premises and equipment		3		2		802		3
Capitalized expenditures on OREO		(2)		—		—		(2)
Proceeds from sale of OREO		1,119		722		413		1,119
Net cash provided by (used in) investing activities	$	19,497	$	(118,707)
Net cash (used in) provided by investing activities					$	(586,700)	$	19,497

Table of Contents

FIRST BUSEY CORPORATION and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Unaudited)


	Six Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2020		2019
	(dollars in thousands)				(dollars in thousands)
Cash Flows from Financing Activities
Net change in deposits	$	145,499	$	38,069	$	1,007,979	$	145,499
Net change in federal funds purchased and securities sold under agreements to repurchase		(45,549)		(64,457)		(11,242)		(45,549)
Proceeds from other borrowings		60,000		—		142,634		60,000
Repayment of FHLB advances, net		(2,297)		—
Repayment of other borrowings		(3,000)		(70,000)		(54,000)		(3,000)
Net change in short-term FHLB advances						1,609		(2,297)
Cash dividends paid		(21,947)		(19,482)		(24,023)		(21,947)
Purchase of treasury stock		(8,433)		—		(9,669)		(8,433)
Cash paid for withholding taxes on share based payments		(835)		(74)
Cash paid for withholding taxes on share-based payments						(635)		(835)
Proceeds from stock options exercised		169		346		101		169
Common stock issuance costs		(234)		—		—		(234)
Net cash provided by (used in) financing activities	$	123,373	$	(115,598)
Net cash (used in) provided by financing activities					$	1,052,754	$	123,373

Net increase in cash and cash equivalents		180,234		(122,542)
Net (decrease) increase in cash and cash equivalents						520,784		180,234
Cash and cash equivalents, beginning of period		239,973		353,272		529,288		239,973

Cash and cash equivalents, ending of period	$	420,207	$	230,730	$	1,050,072	$	420,207

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Cash Payments for:
Interest	$	33,122	$	17,212	$	25,761	$	33,122
Income taxes		10,555		4,322		4,510		10,555

Non-cash Investing and Financing Activities:
OREO acquired in settlement of loans		1,396		3,125		1,158		1,396
Transfer of debt securities held to maturity to available for sale		573,639		—		—		573,639

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

FIRST BUSEY CORPORATION and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1: Significant Accounting Policies

Basis of Financial Statement Presentation

When preparing these unaudited consolidated financial statements of First Busey Corporation, a Nevada corporation, and its subsidiaries ~~(“First~~(collectively, “First Busey,” “Company,” “we,” or “our”), ~~a Nevada corporation,~~ we have assumed that you have read the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 (“~~2018~~2019 Form 10-K”). These interim unaudited consolidated financial statements serve to update our ~~2018~~2019 Form 10-K 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 accordance with accounting principles generally accepted in the United States of America (“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.

Impacts of COVID-19

First Busey continues to operate as an essential community resource during these challenging and unprecedented times. The coronavirus disease 2019 (“COVID-19”) is not only impacting health and safety around the world, it is causing significant economic disruption for both individuals and businesses, making the Company’s promise of support even more important to customers. The Company entered this crisis from a position of strength and remains resolute in its focus on protecting its balance sheet. To further enhance the Company’s strong liquidity position, during the second quarter, the Company completed a successful public offering of $125.0 million of its 5.25% fixed-to-floating rate subordinated notes due 2030. The progression of the COVID-19 pandemic in the United States began to negatively impact the Company’s results of operations starting in the first quarter of 2020. In future quarters, COVID-19 is expected to have a complex and continued adverse impact on the economy, the banking industry and First Busey, all subject to a high degree of uncertainty as it relates to both timing and severity. Primary areas of potential future impact for First Busey may include continued margin compression, increased provision expense, a deterioration in asset quality and lower wealth management fees and fees for customer services.

The Company elected to participate in the Paycheck Protection Program (“PPP”) and at June 30, 2020 had $746.4 million in PPP loans outstanding, with an amortized cost of $729.3 million, representing 4,445 new and existing customers. The company received fees totaling approximately $25.0 million and incurred incremental direct origination costs of $4.9 million, both of which have been deferred and are being amortized over the contractual life of these loans, subject to prepayment. The Company recognized $3.0 million of this net amount into interest income in the second quarter of 2020.

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 on Form 10-Q were issued. Subsequent to quarter end, the Company decided to consolidate 12 banking centers. One-time expenses expected in relation to the banking center closings are anticipated to be incurred during the third and fourth quarters of 2020. There were no other significant subsequent events for the quarter ended June 30, ~~2019~~2020 through the issuance date of these unaudited consolidated financial statements that warranted adjustment to or disclosure in the unaudited consolidated financial statements.

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Use of Estimates

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

~~Leases~~

A determination is made at inception if an arrangement contains a lease. For arrangements that contain a lease, the Company recognizes the lease on the balance sheet as a right of use asset and corresponding lease liability. Lease-related assets, or right of use assets, are recognized on the lease commencement date at amounts equal to the respective lease liabilities, adjusted for prepaid lease payments, initial direct costs, and lease incentives received. Lease-related liabilities are recognized at the present value of the remaining contractual fixed lease payments, discounted using our incremental borrowing rate. Operating lease expense is recognized on a straight-line basis over the lease term, while variable lease payments are expensed as incurred.

Topic 842 requires the use of the rate implicit in the lease whenever this rate is readily determinable. If not readily determinable, the Company utilizes its incremental borrowing rate at lease inception, on a collateralized basis, over a similar term. For operating leases existing prior to January 1, 2019, the Company used a borrowing rate that corresponded to the remaining lease term.

~~Table of Contents~~

The Company’s lease agreements often include one or more options to renew at the Company’s discretion. If at lease inception, the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the right-of-use asset and lease liability.allowance.

Impact of recently adopted accounting standards

On January 1, ~~2019, the Company~~ 2020, First Busey adopted~~ASU No. 2016-02~~ ~~“Leases (Topic 842)~~Accounting Standards Update (“ASU”) 2016-13 Financial Instruments – Credit Losses (“Topic 326”): Measurement of Credit Losses on Financial Instruments, as amended, which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and ~~all subsequent ASUs~~held-to-maturity debt securities. It also applies to off-balance-sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor in accordance with Topic 842 on leases. In addition, Accounting Standards Codification (“ASC”) 326 made changes to the accounting for available-for-sale debt securities. One such change is to require credit losses to be presented as an allowance rather than as a write-down on available-for-sale debt securities management does not intend to sell or believes that ~~modified Topic 842. The Company made the following elections for all leases in connection with the adoption~~it is more likely than not they will not be required to sell before recovery of ~~this guidance:~~

●

~~The Company elected the package of practical expedients to not reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs;~~

●

~~The Company did not elect the hindsight practical expedient;~~

●

The Company elected the optional transition method that allows companies to use the effective date as the date of initial application on transition. As a result, the Company did not adjust comparative period financial information or make the newly required lease disclosures for periods before the effective date;

●

~~The Company elected not to apply the above guidance to short-term leases;~~

●

~~The Company elected to separate the lease components from the nonlease components and exclude the nonlease components from the right-of-use asset and lease liability; and~~

●

~~The Company did not elect the land easement practical expedient.~~

~~At the date of adoption, the Company recorded approximately $8.1 million on~~ its ~~Consolidated Balance Sheets to reflect the right of use asset and associated lease liability. The Company utilized its incremental borrowing rate, on a collateralized basis, for the remaining contractual lease term.~~amortized cost basis.

~~ASU 2017-08, "Receivables - Nonrefundable Fees~~First Busey adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost and ~~Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities."~~ ~~ASU 2017-08 shortens the amortization period~~off-balance-sheet credit exposures. Results for certain callable debt securities held at a premium, requiring the premium to be amortized to the earliest call date. ASU 2017-08 does not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. This guidance was effective for annual reporting periods beginning after ~~December 15, 2018, including interim periods within those fiscal years. The adoption~~January 1, 2020 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP which includes a change in terminology from Allowance/Provision for Loan Losses to Allowance/Provision for Credit Losses. First Busey recorded a net decrease to retained earnings of ~~this guidance did not have a material impact~~$15.9 million as of January 1, 2020 for the cumulative effect of adopting ASC 326. This transition adjustment included $12.0 million in allowance for credit losses on ~~the Company’s consolidated financial statements.~~loans and $3.9 million in reserve for off-balance-sheet credit exposures.

~~ASU 2017-12, "Derivatives~~First Busey adopted ASC 326 using the prospective transition approach for financial assets purchased with credit deterioration (“PCD”) that were previously classified as purchased credit impaired (“PCI”) and ~~Hedging (Topic 815): Targeted Improvements~~accounted for under ASC 310-30. In accordance with the standard, management did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption. In accordance with ASC 326, the amortized cost basis of PCD assets were adjusted to ~~Accounting~~reflect an allowance for ~~Hedging Activities."~~ ~~ASU 2017-12 amends Topic 815 to reduce~~credit losses for any remaining credit discount. Subsequent changes in expected cash flows will be adjusted through the ~~cost and complexity of applying hedge accounting and expands~~allowance for credit losses. The noncredit discount will be accreted into interest income at the types of relationships that qualify for hedge accounting. The guidance eliminates the requirement to separately measure and report hedge ineffectiveness, requires all items that affect earnings to be presented in the same income statement line as the hedged item, provides for applying hedge accounting to additional hedging strategies, provides for new approaches to measuring the hedged item in fair value hedges ofeffective interest rate risk, and eases the requirements for effective testing and hedge documentation. This guidance was effective for annual reporting periods beginning after December 15, 2018, including interim periods within those fiscal years. During the first quarteras of ~~2019, the Company adopted this guidance, reassessed classification of certain investments and transferred $573.6 million of securities from held to maturity to available for sale.~~January 1, 2020.

~~ASU 2018-07, "Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting."~~ ASU 2018-07 expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. This guidance was effective for annual reporting periods beginning after December 15, 2018, including interim periods within those fiscal years. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

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~~Recently issued~~The following table illustrates the impact of ASC 326 (dollars in thousands):


	January 1, 2020
					Pre-tax
	Post ASC 326		Pre-ASC 326		impact of ASC 326
	Adoption		Adoption		Adoption
Assets:
Allowance
Commercial	$	19,006	$	18,291	$	715
Commercial real estate		30,496		21,190		9,306
Real estate construction		6,158		3,204		2,954
Retail real estate		13,787		10,495		3,292
Retail other		1,134		568		566
Total allowance for credit losses	$	70,581	$	53,748	$	16,833

Liabilities:
Reserve for off-balance-sheet credit exposures	$	5,492		—		5,492

Allowance-debt securities available for sale

Debt securities available for sale are not within the scope of CECL, however, the accounting for credit losses on these securities is affected by ASC 326-30. A debt security available for sale is impaired if the fair value of the security declines below its amortized cost basis. To determine the appropriate accounting, the Company must first determine if it intends to sell the security or if it is more likely than not that it will be required to sell the security before the fair value increases to at least the amortized cost basis. If either of those selling events is expected, the Company will write down the amortized cost basis of the security to its fair value. This is achieved by writing off any previously recorded allowance, if applicable, and recognizing any incremental impairment through earnings. If the Company does not intend to sell the security nor believes it more likely than not will be required to sell the security before the fair value recovers to the amortized cost basis, the Company must determine whether any of the decline in fair value has resulted from a credit loss, or if it is entirely the result of noncredit factors.

The Company considers the following factors in assessing whether the decline is due to a credit loss:

●

Extent to which the fair value is less than the amortized cost basis.

●

Adverse conditions specifically related to the security, an industry, or a geographic area (for example, changes in the financial condition of the issuer of the security, or in the case of an asset-backed debt security, in the financial condition of the underlying loan obligors).

●

Payment structure of the debt security and the likelihood of the issuer being able to make payments that increase in the future.

●

Failure of the issuer of the security to make scheduled interest or principal payments.

●

Any changes to the rating of the security by a rating agency.

Impairment related to a credit loss must be measured using the discounted cash flow method. Credit loss recognition is limited to the fair value of the security. The impairment is recognized by establishing an allowance for credit losses through provision for credit losses. Impairment related to noncredit factors is recognized in accumulated other comprehensive income, net of applicable taxes.

Accrued interest receivable for debt securities available for sale totaled $6.1 million at June 30, 2020 and is excluded from the estimate of credit losses. Accrued interest receivable is reported in Other Assets on the unaudited Consolidated Balance Sheets.

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Allowance – portfolio loans

The allowance for credit losses is a significant estimate in the Company’s unaudited Consolidated Balance Sheet, affecting both earnings and capital. The allowance for credit losses is a valuation account that is deducted from the portfolio loans’ amortized cost bases to present the net amount expected to be collected on the portfolio loans. Portfolio loans are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed. Recoveries do not exceed the aggregate of amounts previously charged-off. The allowance for credit losses is established through provision for credit loss expense charged to income.

A loan’s amortized cost basis is comprised of the unpaid principal balance of the loan, accrued interest receivable, purchase premiums or discounts, and net deferred origination fees or costs. The Company has estimated its allowance on the amortized cost basis, exclusive of government guaranteed loans and accrued interest receivable. The Company writes-off uncollectible accrued interest receivable in a timely manner and has elected to not measure an allowance for accrued interest receivable.The Company presents the aggregate amount of accrued interest receivable for all financial instruments in other assets on the unaudited Consolidated Balance Sheets and the balance of accrued interest receivable is disclosed in “Note 14: Fair Value Measurements.”

Its methodology influences, and is influenced by, the Company’s overall credit risk management processes. The allowance for credit losses is managed 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. The allowance for credit losses is measured on a collective pool basis when similar risk characteristics exist. Loans that do not share risk characteristics are evaluated on an individual basis.

The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the amortized cost basis. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwiring standards, portfolio mix, delinquency level, or term as well as for changes in environmental conditions such as changes in unemployment rates, property values and other relevant factors. The calculation also contemplates that the Company may not be able to make or obtain such forecasts for the entire life of the financial assets and requires a reversion to historical credit loss information. At implementation, the Company selected an eight quarter forecast period with an immediate reversion to historical loss rates as management felt this period could be reasonably forecasted and was consistent with forecast periods used in other areas of finance. During the first quarter of 2020, the Company reduced its reasonable and supportable forecast period from eight quarters to four quarters. Due to rapidly changing forecasts around the impact of COVID-19, the Company does not believe it has the ability to incorporate reasonable and supportable forecasts into its CECL models extending beyond four quarters.

Ongoing impacts of the CECL methodology will be dependent upon changes in economic conditions and forecasts, originated and acquired loan portfolio composition, credit performance trends, portfolio duration, and other factors.

~~ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments."~~Reserve for Off-balance-sheet credit exposures

~~ASU 2016-13 implements a change from the current impaired loss model to an~~

In estimating expected credit ~~loss model~~losses for off-balance-sheet credit exposures, the Company is required to estimate expected credit losses over the ~~life of an instrument, including loans and securities held~~contractual period in which it is exposed to ~~maturity. The expected~~ credit ~~loss model~~risk via a present contractual obligation to extend credit, unless that obligation is ~~expected~~unconditionally cancellable by the issuer. To be considered unconditionally cancelable for accounting purposes, the Company must have the ability to, ~~result in earlier recognition of losses. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019 including interim periods~~at any time, with ~~those years.~~or without cause, refuse to extend credit under the commitment. Off-balance-sheet credit exposure segments share the same risk characteristics as portfolio loans. The Company ~~has developed~~incorporates a probability of funding and utilizes the allowance for credit losses loss rates to calculate the reserve. The reserve for off-balance-sheet credit exposure is ~~executing~~carried on the balance sheet in other liabilities rather than as a ~~project plan to implement this guidance.~~component of the allowance. The ~~project plan includes an assessment~~reserve for off-balance-sheet credit exposure is adjusted as a provision for off-balance-sheet credit exposure reported as a component of ~~data, development~~non-interest expense in the accompanying unaudited Consolidated Statement of ~~CECL methodologies, model validation, and parallel runs to assess the impact of CECL calculations on its consolidated financial statements and evaluation of related disclosures.~~Income.

Table of Contents

Note 2: ~~Acquisition~~Acquisitions

The Banc Ed Corp.

On January 31, 2019, the Company completed its acquisition of The Banc Ed Corp. (“Banc Ed”). TheBANK of Edwardsville (“TheBANK”), Banc Ed’s wholly-owned bank subsidiary, ~~will be~~was operated as a separate subsidiary from the completion of the acquisition until October 4, 2019 when it was merged with and into ~~First Busey’s bank subsidiary,~~ Busey ~~Bank, in the fourth quarter of 2019.~~Bank. At ~~the~~that time, ~~of the bank merger,~~ TheBANK’s banking ~~offices will become branches~~centers became banking centers of Busey Bank.

Under the terms of the ~~Merger Agreement~~merger agreement with Banc Ed, at the effective time of the acquisition, each share of Banc Ed common stock issued and outstanding was converted into the right to receive 8.2067 shares of the Company’s common stock, cash in lieu of fractional shares and $111.53 in cash consideration per share. The market value of the 6.7 million shares of First Busey common stock issued at the effective time of the acquisition was approximately $166.5 million based on First Busey’s closing stock price of $24.76 on January 31, 2019.

This transaction was accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed, and consideration exchanged was recorded at estimated fair values on the date of acquisition. ~~Fair values are considered provisional until final fair values are determined or~~As the ~~measurement period has passed, but no later than one year~~total consideration paid for Banc Ed exceeded the net assets acquired, goodwill of $41.4 million was recorded as a result of the acquisition. Goodwill recorded in the transaction, which reflected the synergies expected from the acquisition ~~date. Reviews of third party valuations are still being performed by management. Therefore amounts are subject~~and expansion within the St. Louis MSA, is not tax deductible and was assigned to ~~change and could change materially from~~ the ~~provisional amounts disclosed below.~~Banking operating segment.

First Busey did not incur any expenses related to the acquisition of Banc Ed for the three or six months ended June 30, 2020. First Busey incurred ~~$4.0~~$4.0 million and $5.0 million in pre-tax expenses related to the acquisition of Banc Ed for the three and six months ended June 30, 2019, respectively, primarily for professional and legal fees and deconversion ~~expenses,~~fees, all of which are reported as a component of non-interest expense in the accompanying unaudited Consolidated ~~Statements~~Statement of Income.

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Table of Contents

The following table presents the estimated fair value of Banc Ed’s assets acquired and liabilities assumed as of January 31, 2019 (dollars in thousands):


	Estimated
	Fair Value		Fair Value
Assets acquired:
Cash and cash equivalents	$	42,013	$	42,013
Securities		692,684		692,716
Loans held for sale		2,157		2,157
Portfolio loans		873,336		873,336
Premises and equipment		31,929		32,156
Other intangible assets		32,617		32,617
Mortgage servicing rights		6,946		6,946
Other assets		57,296		57,332
Total assets acquired		1,738,978		1,739,273

Liabilities assumed:
Deposits		1,439,203		1,439,203
Other borrowings		63,439		63,439
Other liabilities		25,079		20,153
Total liabilities assumed		1,527,721		1,522,795

Net assets acquired	$	211,257	$	216,478

Consideration paid:
Cash	$	91,400	$	91,400
Common stock		166,515		166,515
Total consideration paid	$	257,915	$	257,915

Goodwill	$	46,658	$	41,437

The loans acquired in this transaction were recorded at fair value with no carryover of any existing allowance for loan losses. Loans that were not deemed to be credit-impaired at the acquisition date were accounted for under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) ~~310-20, Receivables-Nonrefundable Fees and Other Costs~~~~, and were subsequently considered as part of the Company’s determination of the adequacy of the allowance for loan losses. Purchased credit impaired (“PCI”) loans were accounted for under~~ ~~ASC 310-30, Receivables — Loans and Debt Securities Acquired with Deteriorated Credit Quality~~. As of the acquisition date, the aggregate principal balance outstanding and aggregate fair value of the acquired performing loans were $889.3 and $871.0 million, respectively. The difference between the carrying value and aggregate fair value of $17.0 million will be accreted over the estimated remaining life of the respective loans in a manner that approximates the level yield method. As of the acquisition date, the aggregate principal balance outstanding of PCI loans totaled $3.9 million and the aggregate fair value of PCI loans totaled $2.3 million. The accretable discount of $0.2 million on PCI loans represents the amount by which the undiscounted expected cash flows on such loans exceed their carrying value. The amount by which the contractual payments exceeds the undiscounted expected cash flows represents the non-accretable difference. The difference between contractually required payments at the acquisition date and the cash flow expected to be collected is referred to as the non-accretable difference. Further, the excess of cash flows expected at acquisition over the fair value is referred to as the accretable yield. At June 30, 2019, the carrying value of PCI loans acquired from Banc Ed was ~~$1.7 million.~~

~~Table of Contents~~

Since the acquisition date, Banc Ed earned total revenues of $33.0 million and net income of $7.1 million, which are included in the Company’s unaudited Consolidated Statements of Income for the six months ended June 30, 2019. The following table provides the unaudited pro forma information for the results of operations for the three and six months ended June 30, 2019, ~~and 2018,~~ as if the acquisition had occurred January 1, ~~2018.~~2019. The pro forma results combine the historical results of Banc Ed into the Company’s unaudited Consolidated Statements of Income, including the impact of purchase accounting adjustments including loan discount accretion, intangible assets amortization, deposit accretion and premises accretion, net of taxes. The pro forma results have been prepared for comparative purposes only and are not necessarily indicative of the results that would have been obtained had the acquisition actually occurred on January 1, ~~2018.~~2019. No assumptions have been applied to the pro forma results of operations regarding possible revenue enhancements, expense efficiencies or asset dispositions (dollars in ~~thousands)~~thousands, except per share amounts):


		Pro Forma								Pro Forma
		Three Months Ended June 30,			Six Months Ended June 30,				Three Months Ended		Six Months Ended
		2019		2018		2019	2018			June 30, 2019	June 30, 2019
Total revenues (net interest income plus non- interest income)	$	101,324	$	105,517	$	201,976	$	206,635
Total revenues (net interest income plus non-interest income)									$	101,324	$	201,976
Net income		26,947		30,578		54,337		56,931		26,947		54,337
Diluted earnings per common share		0.48		0.55		0.97		1.02		0.48		0.97

Table of Contents

Investors’ Security Trust Company

On August 31, 2019, the Company completed the previously announced acquisition by Busey Bank of Investors’ Security Trust Company (“IST”), a Fort Myers, Florida wealth management firm. While the partnership is expected to add to the Company’s wealth management offerings, it is not expected to have any immediate, material impact on the Company’s earnings or overall business. 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.

First Busey incurred $0.1 million and $0.3 million in pre-tax expenses related to the acquisition of IST for the three and six months ended June 30, 2020, which is reported as a component of non-interest expense in the accompanying unaudited Consolidated Statements of Income. First Busey incurred $0.1 million and $0.3 million in pre-tax expenses related to the acquisition of IST for the three and six months ended June 30, 2019, primarily for professional and legal fees, which are reported as a component of non-interest expense in the accompanying unaudited Consolidated Statements of Income.

Note 3: Securities

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

Gross

Gross



Amortized

Unrealized

Unrealized

Fair
June 30, 2019:

Cost

Gains

Losses

Value
Debt securities available for sale

U.S. Treasury securities

$
58,308

$
260

$
(33)

$
58,535
Obligations of U.S. government corporations and
agencies

287,444

3,370

(48)

290,766
Obligations of states and political subdivisions

274,301

4,683

(54)

278,930
Commercial mortgage-backed securities

122,510

1,678

(33)

124,155
Residential mortgage-backed securities

951,998

10,394

(1,255)

961,137
Corporate debt securities

133,053

1,514

(17)

134,550
Total

$
1,827,614

$
21,899

$
(1,440)

$
1,848,073

Debt securities held to maturity








Obligations of states and political subdivisions⁽¹⁾

$
15,708

$
226

$
—

$
15,934

~~(1)~~

~~Gross unrealized losses less than one thousand dollars.~~


			Gross		Gross			Allowance
	Amortized		Unrealized		Unrealized			for Credit	Fair
June 30, 2020:	Cost		Gains		Losses			Losses	Value
Debt securities available for sale
U.S. Treasury securities	$	32,597	$	639	$	—	$	—	$	33,236
Obligations of U.S. government corporations and agencies		77,349		2,752		(57)		—		80,044
Obligations of states and political subdivisions		272,885		10,047		(38)		—		282,894
Commercial mortgage-backed securities		230,352		10,956		(3)		—		241,305
Residential mortgage-backed securities		940,842		29,475		(124)		—		970,193
Corporate debt securities		87,404		1,826		(36)		—		89,194
Total	$	1,641,429	$	55,695	$	(258)	$	—	$	1,696,866


			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
December 31, 2019:	Cost		Gains		Losses		Value
Debt securities available for sale
U.S. Treasury securities	$	51,472	$	265	$	—	$	51,737
Obligations of U.S. government corporations and agencies		160,364		2,684		(48)		163,000
Obligations of states and political subdivisions		262,492		5,810		(11)		268,291
Commercial mortgage-backed securities		137,733		1,700		(146)		139,287
Residential mortgage-backed securities		912,308		10,282		(624)		921,966
Corporate debt securities		102,696		1,280		—		103,976
Total	$	1,627,065	$	22,021	$	(829)	$	1,648,257

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Table of Contents

Gross

Gross



Amortized

Unrealized

Unrealized

Fair
December 31, 2018:

Cost

Gains

Losses

Value
Debt securities available for sale

U.S. Treasury securities

$
25,824

$
1

$
(414)

$
25,411
Obligations of U.S. government corporations and
agencies

53,096

7

(761)

52,342
Obligations of states and political subdivisions

171,131

484

(1,571)

170,044
Commercial mortgage-backed securities

2,003

—

(61)

1,942
Residential mortgage-backed securities

322,646

245

(7,143)

315,748
Corporate debt securities

132,513

61

(376)

132,198
Total

$
707,213

$
798

$
(10,326)

$
697,685

Debt securities held to maturity

Obligations of states and political subdivisions

$
33,947

$
68

$
(87)

$
33,928
Commercial mortgage-backed securities

59,054

11

(1,003)

58,062
Residential mortgage-backed securities

515,659

1,748

(6,037)

511,370
Total

$
608,660

$
1,827

$
(7,127)

$
603,360

In adopting ASU 2017-12, the Company reassessed the classification of certain investments during the first quarter of 2019 and transferred $573.6 million of securities from held to maturity to available for sale. The transfer occurred at fair value and had a related unrealized loss of $4.8 million recorded in other comprehensive income.

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

Debt securities available for sale

Debt securities held to maturity


Amortized

Fair

Amortized

Fair
June 30, 2019:

Cost

Value

Cost

Value
Due in one year or less

$
220,023

$
220,304

$
2,724

$
2,729
Due after one year through five
years

418,649

424,241

11,861

12,035
Due after five years through ten
years

263,388

267,989

1,123

1,170
Due after ten years

925,554

935,539

—

—
Total

$
1,827,614

$
1,848,073

$
15,708

$
15,934


	Debt securities available for sale
	Amortized		Fair
June 30, 2020:	Cost		Value
Due in one year or less	$	132,192	$	133,749
Due after one year through five years		241,337		250,413
Due after five years through ten years		241,496		252,566
Due after ten years		1,026,404		1,060,138
Total	$	1,641,429	$	1,696,866

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,


2019

2018

2019

2018
Gross security gains

$
391

$
—

$
391

$
—
Gross security (losses)

(401)

—

(584)

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

$
(10)

$
—

$
(193)

$
—


	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Gross security gains	$	146	$	391	$	1,707	$	391
Gross security (losses)		(3)		(400)		(8)		(583)
Net gains (losses) on sales of securities⁽¹⁾	$	143	$	(9)	$	1,699	$	(192)

(1)

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

Debt securities with carrying amounts of $638.1 million and $704.4 million on June 30, 2020 and December 31, 2019, respectively, were pledged as collateral for public deposits, securities sold under agreements to repurchase and for other purposes as required or permitted by law.

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


	Less than 12 months, gross				12 months or more, gross				Total, gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
June 30, 2020:	Value		Losses		Value		Losses		Value		Losses
Debt securities available for sale
U.S. Treasury securities	$	—	$	—	$	—	$	—	$	—	$	—
Obligations of U.S. government corporations and agencies		5,648		(57)		—		—		5,648		(57)
Obligations of states and political subdivisions		6,432		(38)		—		—		6,432		(38)
Commercial mortgage-backed securities		4,963		(3)		—		—		4,963		(3)
Residential mortgage-backed securities		35,830		(120)		937		(4)		36,767		(124)
Corporate debt securities		4,222		(36)		—		—		4,222		(36)
Total temporarily impaired securities	$	57,095	$	(254)	$	937	$	(4)	$	58,032	$	(258)

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Table of Contents

Debt securities with carrying amounts of $755.1 million and $498.3 million on June 30, 2019 and December 31, 2018, respectively, were pledged as collateral for public deposits, securities sold under agreements to repurchase and for other purposes as required or permitted by law.

~~Information pertaining to debt securities with gross unrealized losses aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows~~ ~~(dollars in thousands):~~


													Less than 12 months, gross				12 months or more, gross				Total, gross
	For less than				For greater								Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	12 months, gross				than 12 months, gross				Total, gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
June 30, 2019:	Value		Losses		Value		Losses		Value		Losses
December 31, 2019:													Value		Losses		Value		Losses		Value		Losses
Debt securities available for sale
U.S. Treasury securities	$	—	$	—	$	24,768	$	(33)	$	24,768	$	(33)	$	—	$	—	$	—	$	—	$	—	$	—
Obligations of U.S. government corporations and agencies⁽¹⁾		51		—		22,468		(48)		22,519		(48)
Obligations of states and political subdivisions		1,394		(8)		24,192		(46)		25,586		(54)
Obligations of U.S. government corporations and agencies														6,362		(48)		—		—		6,362		(48)
Obligations of states and political subdivisions⁽¹⁾														4,981		(11)		1,548		—		6,529		(11)
Commercial mortgage-backed securities		—		—		14,746		(33)		14,746		(33)		33,322		(144)		2,044		(2)		35,366		(146)
Residential mortgage-backed securities		13,629		(8)		183,552		(1,247)		197,181		(1,255)		78,326		(245)		50,259		(379)		128,585		(624)
Corporate debt securities		1,765		(7)		15,049		(10)		16,814		(17)		—		—		—		—		—		—
Total temporarily impaired securities	$	16,839	$	(23)	$	284,775	$	(1,417)	$	301,614	$	(1,440)	$	122,991	$	(448)	$	53,851	$	(381)	$	176,842	$	(829)

Debt securities held to maturity
Obligations of states and political subdivisions⁽¹⁾	$	—	$	—	$	500	$	—	$	500	$	—

(1)

Unrealized losses for 12 months or more, gross, was less than one thousand dollars.

For less than

For greater

12 months, gross

than 12 months, gross

Total, gross

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized
December 31, 2018:
Value

Losses

Value

Losses

Value

Losses
Debt securities available for sale

U.S. Treasury securities
$
995

$
(4)

$
24,343

$
(410)

$
25,338

$
(414)
Obligations of U.S. government corporations and
agencies

749

(3)

50,744

(758)

51,493

(761)
Obligations of states and political subdivisions

49,893

(460)

77,651

(1,111)

127,544

(1,571)
Commercial mortgage-backed securities

—

—

1,942

(61)

1,942

(61)
Residential mortgage-backed securities

48,387

(496)

247,573

(6,647)

295,960

(7,143)
Corporate debt securities

90,713

(268)

15,083

(108)

105,796

(376)
Total temporarily impaired securities
$
190,737

$
(1,231)

$
417,336

$
(9,095)

$
608,073

$
(10,326)

Debt securities held to maturity

Obligations of states and political subdivisions
$
9,531

$
(33)

$
9,538

$
(54)

$
19,069

$
(87)
Commercial mortgage-backed securities

12,067

(212)

45,041

(791)

57,108

(1,003)
Residential mortgage-backed securities

77,071

(974)

245,128

(5,063)

322,199

(6,037)
Total temporarily impaired securities
$
98,669

$
(1,219)

$
299,707

$
(5,908)

$
398,376

$
(7,127)

Debt securities available for sale are ~~periodically evaluated~~not within the scope of CECL, however, the accounting for ~~other-than-temporary impairment (“OTTI”).~~credit losses on these securities is affected by ASC 326-30. As of June 30, ~~2019,~~2020, the Company’s debt security portfolio consisted of ~~1,273~~1,106 securities. The total number of debt securities in the investment portfolio in an unrealized loss position as of June 30, ~~2019~~2020 was ~~126~~24 and represented an unrealized loss of ~~0.47%~~0.45% of the aggregate ~~amortized cost.~~fair value. The unrealized losses relate to changes in market interest rates and market conditions that do not represent credit-related impairments. Furthermore, the Company does not intend to sell such securities and it is more likely than not that the Company will recover the amortized cost prior to being required to sell the debt securities. Full collection of the amounts due according to the contractual terms of the debt securities is expected; therefore, the ~~Company does not consider these investments~~impairment related to ~~be OTTI~~noncredit factors is recognized in accumulated other comprehensive income, net of applicable taxes, at June 30, ~~2019.~~2020. As of June 30, ~~2019,~~2020, the Company did not hold general obligation bonds of any single issuer, the aggregate of which exceeded 10% of the Company’s stockholders’ equity.

~~Table of Contents~~

Note 4: Portfolio loans

The distribution of portfolio loans is as follows (dollars in thousands):


	June 30,		December 31,
	2019		2018		June 30, 2020		December 31, 2019
Commercial	$	1,668,098	$	1,405,106	$	2,357,954	$	1,748,368
Commercial real estate		2,661,905		2,366,823		2,847,014		2,793,417
Real estate construction		429,326		288,197		433,031		401,861
Retail real estate		1,721,370		1,480,133		1,548,215		1,693,769
Retail other		51,427		28,169		42,806		49,834
Portfolio loans	$	6,532,126	$	5,568,428	$	7,229,020	$	6,687,249

Allowance for loan losses		(51,375)		(50,648)
Allowance						(96,046)		(53,748)
Portfolio loans, net	$	6,480,751	$	5,517,780	$	7,132,974	$	6,633,501

Net deferred loan origination ~~costs~~fees included in the ~~table~~balances above were ~~$5.4~~$(11.1) million as of June 30, ~~2019 and $5.6~~2020 compared to $6.2 million of net deferred loan origination costs as of December 31, ~~2018.~~2019. Net accretable purchase accounting adjustments included in the ~~table~~balances above reduced loans by ~~$25.0~~$15.5 million as of June 30, ~~2019~~2020 and ~~$13.9~~$20.2 million as of December 31, ~~2018.~~2019. The June 30, 2020 commercial balance includes loans originated under PPP with an amortized cost of $729.3 million.

During the first quarter of 2020, the Company purchased $43.9 million of retail real estate loans. There were 0 purchases during the second quarter of 2020.

Table of Contents

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 ~~strong~~acceptable credits, ranging from investment or near investment grade, to loans made to borrowers who exhibit credit fundamentals that meet or exceed industry ~~standards and loan policy guidelines and loans that exhibit acceptable credit fundamentals.~~standards.

●

Watch- This category includes loans ~~on management’s “Watch List”~~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 ~~is intended to be utilized on a temporary basis for a pass grade borrower where a significant risk-modifying action is anticipated in the near future.~~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. Most commercial lending relationships that are $1.0 million or less are processed through an expedited underwriting process. ~~If the credit receives a pass grade, it is aggregated into a homogenous pool of either:~~ ~~$0.35 million or less, or $0.35 million to $1.0~~ ~~million. These pools are monitored on a regular basis and reviewed annually.~~ Most commercial loans greater than $1.0 million are included in a portfolio review at least annually. Commercial loans greater than $0.35 million that have a grading of special mention or worse are reviewed on a quarterly basis. Interim reviews may take place if circumstances of the borrower warrant a more timely review.

~~Table of Contents~~

The following table is a summary of risk grades segregated by category of portfolio ~~loans (excluding accretable~~loans. June 30, 2020 includes purchase ~~accounting adjustments~~discounts and ~~clearings)~~clearings in the pass rating. December 31, 2019 excludes purchase discounts and clearings. (dollars in thousands):


	June 30, 2020
					Special				Substandard
	Pass		Watch		Mention		Substandard		Non-accrual
Commercial	$	2,078,284	$	136,817	$	94,439	$	41,978	$	6,436
Commercial real estate		2,476,189		233,826		93,676		34,314		9,009
Real estate construction		405,327		23,907		685		2,832		280
Retail real estate		1,518,644		12,124		3,617		4,613		9,217
Retail other		42,653		—		—		—		153
Total	$	6,521,097	$	406,674	$	192,417	$	83,737	$	25,095

June 30, 2019






Special



Substandard


Pass

Watch

Mention

Substandard

Non-accrual
Commercial

$
1,378,041

$
188,282

$
48,181

$
45,599

$
10,647
Commercial real estate

2,367,741

178,859

85,837

29,926

12,780
Real estate construction

394,416

34,348

450

1,273

826
Retail real estate

1,674,105

16,038

6,317

9,235

8,529
Retail other

51,848

99

—

—

34
Total

$
5,866,151

$
417,626

$
140,785

$
86,033

$
32,816

December 31, 2018






Special



Substandard


Pass

Watch

Mention

Substandard

Non-accrual
Commercial

$
1,126,257

$
172,449

$
47,000

$
42,532

$
17,953
Commercial real estate

2,106,711

137,214

85,148

36,205

10,298
Real estate construction

268,069

14,562

3,899

1,888

18
Retail real estate

1,448,964

6,425

6,792

5,435

6,698
Retail other

26,707

—

—

—

30
Total

$
4,976,708

$
330,650

$
142,839

$
86,060

$
34,997

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

June 30, 2019

Loans past due, still accruing

Non-accrual


30-59 Days

60-89 Days

90+Days

Loans
Commercial

$
2,745

$
593

$
—

$
10,647
Commercial real estate

4,519

608

38

12,780
Real estate construction

103

107

—

826
Retail real estate

8,140

987

220

8,529
Retail other

216

22

—

34
Total

$
15,723

$
2,317

$
258

$
32,816

December 31, 2018

Loans past due, still accruing

Non-accrual


30-59 Days

60-89 Days

90+Days

Loans
Commercial

$
158

$
140

$
775

$
17,953
Commercial real estate

148

558

—

10,298
Real estate construction

121

—

58

18
Retail real estate

4,578

1,368

766

6,698
Retail other

48

2

2

30
Total

$
5,053

$
2,068

$
1,601

$
34,997

The gross interest income that would have been recorded in the three months ended June 30, 2019 and 2018 if impaired loans had been current in accordance with their original terms was $0.4 million and $0.3 million, respectively. The gross interest income that would have been recorded in the six months ended June 30, 2019 and 2018 if impaired loans had been current in accordance with their original terms was $1.1 million and $0.7 million, 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 and six months ended June 30, 2019 and 2018.

~~Table of Contents~~

~~A summary of troubled debt restructurings (“TDR”) loans is as follows~~ ~~(dollars in thousands)~~:

June 30,

December 31,

2019

2018
In compliance with modified terms

$
8,288

$
8,319
30 — 89 days past due

321

127
Included in non-performing loans

3,503

392
Total

$
12,112

$
8,838

~~Loans classified as a TDR during the three and six months ended June 30, 2019, included one commercial loan for payment modification with a recorded investment of $0.6~~ ~~million. Loans classified as a TDR during the three and six months ended June 30, 2018 included~~ ~~one retail real estate modification for short-term interest rate relief, with a recorded investment of $0.1 million.~~

The gross interest income that would have been recorded in the three and six months ended June 30, 2019 and 2018 if TDRs had performed in accordance with their original terms compared with their modified terms was insignificant.

One commercial real estate TDR, with a recorded investment of $3.2 million, that was entered into during the last twelve months, was subsequently classified as non-performing and had payment defaults (a default occurs when a loan is 90 days or more past due or transferred to non-accrual) during the three and six months ended June 30, 2019. There were no TDRs that were entered into during the prior twelve months that were subsequently classified as non-performing and had payment defaults during the three and six months ended June 30, 2018.

~~At June 30, 2019, the Company had $2.6 million of residential real estate in the process of foreclosure.~~


	December 31, 2019
					Special				Substandard
	Pass		Watch		Mention		Substandard		Non-accrual
Commercial	$	1,458,416	$	172,526	$	66,337	$	41,273	$	9,096
Commercial real estate		2,477,398		186,963		105,487		26,204		9,178
Real estate construction		351,923		45,262		3,928		737		630
Retail real estate		1,661,691		9,125		5,355		7,001		8,935
Retail other		47,698		—		—		—		57
Total	$	5,997,126	$	413,876	$	181,107	$	75,215	$	27,896

~~Table of Contents~~

The following tables provide details of loans identified as impaired, segregated by category. The unpaid contractual principal balance represents the recorded balance prior to any partial charge-offs. The recorded investment represents customer balances net of any partial charge-offs recognized on the loan. The average recorded investment is calculated using the most recent four quarters ~~(dollars in thousands)~~.

June 30, 2019


Unpaid

Recorded












Contractual

Investment

Recorded

Total

Average

Principal

with No

Investment

Recorded

Related

Recorded


Balance

Allowance

with Allowance

Investment

Allowance

Investment
Commercial

$
16,668

$
7,511

$
3,856

$
11,367

$
2,358

$
15,425
Commercial real estate

19,784

10,498

7,686

18,184

1,367

17,730
Real estate
construction

1,329

1,186

—

1,186

—

656
Retail real estate

15,322

13,367

474

13,841

474

13,685
Retail other

62

34

—

34

—

39
Total

$
53,165

$
32,596

$
12,016

$
44,612

$
4,199

$
47,535

December 31, 2018


Unpaid

Recorded












Contractual

Investment

Recorded

Total

Average

Principal

with No

Investment

Recorded

Related

Recorded


Balance

Allowance

with Allowance

Investment

Allowance

Investment
Commercial

$
21,442

$
6,858

$
12,001

$
18,859

$
4,319

$
13,364
Commercial real estate

19,079

13,082

4,498

17,580

1,181

18,077
Real estate
construction

478

453

—

453

—

712
Retail real estate

14,418

13,196

61

13,257

61

14,110
Retail other

117

33

—

33

—

40
Total

$
55,534

$
33,622

$
16,560

$
50,182

$
5,561

$
46,303

The Company holds acquired loans from business combinations with uncollected principal balances. These loans are carried net of a fair value adjustment for credit risk and interest rates and are only included in the allowance calculation to the extent that the reserve requirement exceeds the fair value adjustment. As the acquired loans renew, it is generally necessary to establish an allowance, which represents an amount that, in management’s opinion, will be adequate to absorb probable credit losses in such loans. The recorded investment of all acquired loans as of June 30, 2019 totaled approximately ~~$1.8 billion.~~

Table of Contents

Risk grades of portfolio loans, further sorted by origination or renewal year at June 30, 2020 is as follows (dollars in thousand):


	Term Loans Amortized Cost Basis by Origination or Renewal Year
														Revolving
As of June 30, 2020	2020		2019		2018		2017		2016			Prior		loans		Total
Commercial:
Risk rating
Pass	$	931,544	$	193,072	$	139,275	$	129,906	$	79,484	$	94,852	$	510,151	$	2,078,284
Watch		23,426		22,915		20,322		8,145		3,017		15,488		43,504		136,817
Special Mention		5,947		5,442		3,226		7,039		6,930		15,579		50,276		94,439
Substandard		11,291		3,222		4,258		5,588		1,286		1,372		14,961		41,978
Substandard non-accrual		29		3,659		713		541		804		690		—		6,436
Total commercial	$	972,237	$	228,310	$	167,794	$	151,219	$	91,521	$	127,981	$	618,892	$	2,357,954
Commercial real estate:
Risk rating
Pass	$	315,356	$	577,080	$	473,528	$	496,679	$	226,747	$	357,509	$	29,290	$	2,476,189
Watch		40,462		69,029		44,938		28,018		27,333		23,329		717		233,826
Special Mention		12,212		16,494		17,895		14,233		6,800		24,553		1,489		93,676
Substandard		17,409		5,862		3,216		5,635		1,863		329		—		34,314
Substandard non-accrual		300		1,337		3,752		1,496		391		1,733		—		9,009
Total commercial real estate	$	385,739	$	669,802	$	543,329	$	546,061	$	263,134	$	407,453	$	31,496	$	2,847,014
Real estate construction:
Risk rating
Pass	$	61,660	$	200,254	$	122,501	$	1,535	$	407	$	1,299	$	17,671	$	405,327
Watch		9,071		10,092		2,411		2,128		205						23,907
Special Mention		673		12		—		—		—		—		—		685
Substandard		2,600		—		48		34		150		—		—		2,832
Substandard non-accrual		—		—		275		—		—		5		—		280
Total real estate construction	$	74,004	$	210,358	$	125,235	$	3,697	$	762	$	1,304	$	17,671	$	433,031
Retail real estate:
Risk rating
Pass	$	232,130	$	186,986	$	172,855	$	176,644	$	167,885	$	340,407	$	241,737	$	1,518,644
Watch		1,102		2,221		1,943		333		986		722		4,817		12,124
Special Mention		526		—		174		—		1,988		929		—		3,617
Substandard		1,487		214		333		160		751		1,216		452		4,613
Substandard non-accrual		280		175		793		732		248		5,437		1,552		9,217
Total retail real estate	$	235,525	$	189,596	$	176,098	$	177,869	$	171,858	$	348,711	$	248,558	$	1,548,215
Retail other:
Risk rating
Pass	$	6,101	$	12,360	$	8,099	$	4,079	$	1,253	$	1,084	$	9,677	$	42,653
Watch		—		—		—		—		—		—		—		—
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Substandard non-accrual		63		7		—		2		17		63		1		153
Total retail other	$	6,164	$	12,367	$	8,099	$	4,081	$	1,270	$	1,147	$	9,678	$	42,806

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):


	June 30, 2020
	Loans past due, still accruing						Non-accrual
	30-59 Days		60-89 Days		90+Days		Loans
Commercial	$	41	$	35	$	—	$	6,436
Commercial real estate		117		242		—		9,009
Real estate construction		—		—		—		280
Retail real estate		3,681		943		271		9,217
Retail other		71		36		14		153
Total	$	3,910	$	1,256	$	285	$	25,095

Table of Contents


	December 31, 2019
	Loans past due, still accruing						Non-accrual
	30-59 Days		60-89 Days		90+Days		Loans
Commercial	$	1,075	$	1,014	$	199	$	9,096
Commercial real estate		2,653		3,121		584		9,178
Real estate construction		19		—		—		630
Retail real estate		5,021		1,248		828		8,935
Retail other		52		68		—		57
Total	$	8,820	$	5,451	$	1,611	$	27,896

The gross interest income that would have been recorded in the three months ended June 30, 2020 and 2019 if non-accrual loans and 90+ days past due loans had been current in accordance with their original terms was $0.4 million. The gross interest income that would have been recorded in the six months ended June 30, 2020 and 2019 if non-accrual loans and 90+ days past due loans had been current in accordance with their original terms was $0.9 million and $1.1 million, 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 and six months ended June 30, 2020 and 2019.

A summary of troubled debt restructurings (“TDR”) loans is as follows (dollars in thousands):


		June 30,		December 31,
	2020		2019
In compliance with modified terms	$	4,191	$	5,005
30 — 89 days past due		125		—
Included in non-performing loans		1,662		702
Total	$	5,978	$	5,707

Loans newly classified as a TDR in compliance with modified terms during the three and six months ended June 30, 2020, included 1 retail real estate loan for payment modification with a recorded investment of $0.2 million. Loans newly classified as a TDR in compliance with modified terms during the three and six months ended June 30, 2019, included 1 commercial loan for payment modification with a recorded investment of $0.6 million.

The gross interest income that would have been recorded in the three and six months ended June 30, 2020 and 2019 if TDRs had performed in accordance with their original terms compared with their modified terms was insignificant.

There were 0 TDRs that were entered into during the last 12 months that were subsequently classified as non-performing and had payment defaults (a default occurs when a loan is 90 days or more past due or transferred to non-accrual) during the three and six months ended June 30, 2020. NaN commercial real estate TDR, with a recorded investment of $3.2 million, that was entered into during the prior 12 months, was subsequently classified as non-performing and had payment defaults during the three and six months ended June 30, 2019.

Modified loans with payment deferrals that fall under the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) or revised Interagency Statement on Loan Modifications and Reporting for Financial Institutions that suspended requirements under GAAP related to TDRs are not included in the Company’s TDR totals.

At June 30, 2020, the Company had $1.3 million of residential real estate in the process of foreclosure.

Table of Contents

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


	June 30, 2020
	Unpaid		Amortized
	Contractual		Cost		Amortized		Total				Average
	Principal		with No		Cost		Amortized		Related		Amortized
	Balance		Allowance		with Allowance		Cost		Allowance		Cost
Commercial	$	11,739	$	3,186	$	3,077	$	6,263	$	1,248	$	9,467
Commercial real estate		10,847		9,105		1,000		10,105		486		13,583
Real estate construction		576		559		—		559		—		836
Retail real estate		5,371		4,705		474		5,179		474		10,817
Retail other		—		—		—		—		—		30
Total	$	28,533	$	17,555	$	4,551	$	22,106	$	2,208	$	34,733


	December 31, 2019
	Unpaid		Amortized
	Contractual		Cost		Amortized		Total				Average
	Principal		with No		Cost		Amortized		Related		Amortized
	Balance		Allowance		with Allowance		Cost		Allowance		Cost
Commercial	$	14,415	$	4,727	$	5,026	$	9,753	$	3,330	$	13,774
Commercial real estate		14,487		9,883		2,039		11,922		1,049		16,678
Real estate construction		1,116		974		—		974		—		873
Retail real estate		15,581		13,898		474		14,372		474		14,003
Retail other		87		58		—		58		—		42
Total	$	45,686	$	29,540	$	7,539	$	37,079	$	4,853	$	45,370

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. They are written down to the lower of cost or fair value of underlying collateral, less estimated costs to sell. As of June 30, 2020, there were $17.3 million of collateral dependent loans which are secured by real estate or business assets.

Management estimates the allowance 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, 2020, the Company expects the markets in which it operates to experience a decline in economic conditions and an increase in the unemployment rate and level 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 allowance calculation as they are 100% government guaranteed.

Table of Contents

The following table details activity in the ~~allowance for loan losses.~~allowance. Allocation of a portion of the allowance to one category does not preclude its availability to absorb losses in other categories (dollars in thousands):


	As of and for the Three Months Ended June 30, 2019												As of and for the Three Months Ended June 30, 2020
			Commercial		Real Estate		Retail Real								Commercial		Real Estate		Retail Real
	Commercial		Real Estate		Construction		Estate		Retail Other		Total		Commercial		Real Estate		Construction		Estate		Retail Other		Total
Beginning balance	$	17,998	$	20,097	$	2,807	$	9,503	$	510	$	50,915	$	22,725	$	35,967	$	7,193	$	17,454	$	1,045	$	84,384
Provision for loan losses		1,161		(97)		411		941		101		2,517
Provision for credit losses														2,473		6,861		574		2,981		2		12,891
Charged-off		(2,563)		—		—		(200)		(178)		(2,941)		(1,140)		(165)		—		(292)		(105)		(1,702)
Recoveries		137		188		87		369		103		884		88		17		25		262		81		473
Ending balance	$	16,733	$	20,188	$	3,305	$	10,613	$	536	$	51,375	$	24,146	$	42,680	$	7,792	$	20,405	$	1,023	$	96,046

	As of and for the Six Months Ended June 30, 2019												As of and for the Six Months Ended June 30, 2020
			Commercial		Real Estate		Retail Real								Commercial		Real Estate		Retail Real
	Commercial		Real Estate		Construction		Estate		Retail Other		Total		Commercial		Real Estate		Construction		Estate		Retail Other		Total
Beginning balance	$	17,829	$	21,137	$	2,723	$	8,471	$	488	$	50,648
Provision for loan losses		2,954		(1,186)		413		2,298		149		4,628
Beginning balance, prior to adoption of ASC 326													$	18,291	$	21,190	$	3,204	$	10,495	$	568	$	53,748
Adoption of ASC 326														715		9,306		2,954		3,292		566		16,833
Provision for credit losses														8,146		13,387		1,463		7,018		93		30,107
Charged-off		(4,370)		(15)		—		(717)		(308)		(5,410)		(3,182)		(1,264)		—		(1,000)		(404)		(5,850)
Recoveries		320		252		169		561		207		1,509		176		61		171		600		200		1,208
Ending balance	$	16,733	$	20,188	$	3,305	$	10,613	$	536	$	51,375	$	24,146	$	42,680	$	7,792	$	20,405	$	1,023	$	96,046


	As of and for the Three Months Ended June 30, 2018												As of and for the Three Months Ended June 30, 2019
			Commercial		Real Estate		Retail Real								Commercial		Real Estate		Retail Real
	Commercial		Real Estate		Construction		Estate		Retail Other		Total		Commercial		Real Estate		Construction		Estate		Retail Other		Total
Beginning balance	$	17,577	$	22,090	$	2,799	$	9,836	$	347	$	52,649	$	17,998	$	20,097	$	2,807	$	9,503	$	510	$	50,915
Provision for loan losses		1,720		909		35		(548)		142		2,258		1,161		(97)		411		941		101		2,517
Charged-off		(1,916)		(110)		—		(412)		(115)		(2,553)		(2,563)		—		—		(200)		(178)		(2,941)
Recoveries		205		158		81		417		90		951		137		188		87		369		103		884
Ending balance	$	17,586	$	23,047	$	2,915	$	9,293	$	464	$	53,305	$	16,733	$	20,188	$	3,305	$	10,613	$	536	$	51,375

	As of and for the Six Months Ended June 30, 2018												As of and for the Six Months Ended June 30, 2019
			Commercial		Real Estate		Retail Real								Commercial		Real Estate		Retail Real
	Commercial		Real Estate		Construction		Estate		Retail Other		Total		Commercial		Real Estate		Construction		Estate		Retail Other		Total
Beginning balance	$	14,779	$	21,813	$	2,861	$	13,783	$	346	$	53,582	$	17,829	$	21,137	$	2,723	$	8,471	$	488	$	50,648
Provision for loan losses		4,723		2,445		37		(4,210)		271		3,266		2,954		(1,186)		413		2,298		149		4,628
Charged-off		(2,697)		(1,425)		(97)		(942)		(322)		(5,483)		(4,370)		(15)		—		(717)		(308)		(5,410)
Recoveries		781		214		114		662		169		1,940		320		252		169		561		207		1,509
Ending balance	$	17,586	$	23,047	$	2,915	$	9,293	$	464	$	53,305	$	16,733	$	20,188	$	3,305	$	10,613	$	536	$	51,375

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The following table presents the allowance ~~for loan losses~~ and ~~recorded investments in~~amortized cost of portfolio loans by category (dollars in thousands):

As of June 30, 2019




Commercial

Real Estate

Retail Real





Commercial

Real Estate

Construction

Estate

Retail Other

Total
Allowance for loan losses

Ending balance attributed to:

Loans individually evaluated for
impairment

$
2,358

$
1,367

$
—

$
474

$
—

$
4,199
Loans collectively evaluated for
impairment

14,375

18,821

3,305

10,139

536

47,176
Ending balance

$
16,733

$
20,188

$
3,305

$
10,613

$
536

$
51,375

Loans:

Loans individually evaluated for
impairment

$
11,336

$
15,723

$
751

$
12,668

$
34

$
40,512
Loans collectively evaluated for
impairment

1,656,731

2,643,721

428,140

1,707,529

51,393

6,487,514
PCI loans evaluated for
impairment

31

2,461

435

1,173

—

4,100
Ending balance

$
1,668,098

$
2,661,905

$
429,326

$
1,721,370

$
51,427

$
6,532,126


	As of December 31, 2018												As of June 30, 2020
			Commercial		Real Estate		Retail Real								Commercial		Real Estate		Retail Real
	Commercial		Real Estate		Construction		Estate		Retail Other		Total		Commercial		Real Estate		Construction		Estate		Retail Other		Total
Allowance for loan losses
Allowance
Ending balance attributed to:
Loans individually evaluated for impairment	$	4,319	$	1,181	$	—	$	61	$	—	$	5,561	$	1,248	$	486	$	—	$	474	$	—	$	2,208
Loans collectively evaluated for impairment		13,510		19,956		2,723		8,410		488		45,087		22,898		42,194		7,792		19,931		1,023		93,838
Ending balance	$	17,829	$	21,137	$	2,723	$	8,471	$	488	$	50,648	$	24,146	$	42,680	$	7,792	$	20,405	$	1,023	$	96,046

Loans:
Loans individually evaluated for impairment	$	18,441	$	15,318	$	453	$	13,159	$	33	$	47,404	$	6,263	$	10,105	$	559	$	5,179	$	—	$	22,106
Loans collectively evaluated for impairment		1,386,247		2,349,243		287,744		1,466,876		28,136		5,518,246		2,351,687		2,834,987		432,217		1,542,624		42,806		7,204,321
PCI loans evaluated for impairment		418		2,262		—		98		—		2,778
PCD loans evaluated for impairment														4		1,922		255		412		—		2,593
Ending balance	$	1,405,106	$	2,366,823	$	288,197	$	1,480,133	$	28,169	$	5,568,428	$	2,357,954	$	2,847,014	$	433,031	$	1,548,215	$	42,806	$	7,229,020


	As of December 31, 2019
			Commercial		Real Estate		Retail Real
	Commercial		Real Estate		Construction		Estate		Retail Other		Total
Allowance
Ending balance attributed to:
Loans individually evaluated for impairment	$	3,330	$	1,049	$	—	$	474	$	—	$	4,853
Loans collectively evaluated for impairment		14,961		20,141		3,204		10,021		568		48,895
Ending balance	$	18,291	$	21,190	$	3,204	$	10,495	$	568	$	53,748

Loans:
Loans individually evaluated for impairment	$	9,740	$	10,018	$	539	$	13,676	$	58	$	34,031
Loans collectively evaluated for impairment		1,738,615		2,781,495		400,887		1,679,397		49,776		6,650,170
PCI loans evaluated for impairment		13		1,904		435		696		—		3,048
Ending balance	$	1,748,368	$	2,793,417	$	401,861	$	1,693,769	$	49,834	$	6,687,249

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Note 5: Deposits

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


	June 30, 2019		December 31, 2018		June 30, 2020		December 31, 2019
Demand deposits, noninterest-bearing	$	1,766,681	$	1,464,700	$	2,764,408	$	1,832,619
Interest-bearing transaction deposits		1,926,502		1,435,574		2,226,488		1,989,854
Saving deposits and money market deposits		2,390,228		1,852,044		2,555,273		2,545,073
Time deposits		1,749,811		1,497,003		1,363,497		1,534,850
Total	$	7,833,222	$	6,249,321	$	8,909,666	$	7,902,396

The Company held brokered saving deposits and money market deposits of ~~$14.4~~$31.3 million and ~~$17.5~~$12.5 million at June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

The aggregate amount of time deposits with a minimum denomination of $100,000 was approximately ~~$934.5~~$745.1 million and ~~$673.7~~ $854.1million at June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. The aggregate amount of time deposits with a minimum denomination that meets or exceeds the Federal Deposit Insurance Corporation (“FDIC”) insurance limit of $250,000 was approximately $~~340.4~~282.9 million and ~~$264.1~~$297.4 million at June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. The Company held brokered time deposits of $~~108.8~~5.3 million and ~~$262.5~~$5.5 million at June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

As of June 30, ~~2019,~~2020, the scheduled maturities of time deposits are as follows (dollars in thousands):

July 1, 2019 – June 30, 2020

$
1,064,812
July 1, 2020 – June 30, 2021

389,392
July 1, 2021 – June 30, 2022

158,968
July 1, 2022 – June 30, 2023

63,863
July 1, 2023 – June 30, 2024

71,961
Thereafter

815

$
1,749,811


July 1, 2020 - June 31, 2021	$	893,481
July 1, 2021 - June 31, 2022		291,959
July 1, 2022 - June 31, 2023		80,966
July 1, 2023 - June 31, 2024		75,481
July 1, 2024 - June 31, 2025		21,596
Thereafter		14
	$	1,363,497

Note 6: Borrowings

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

Short-term borrowings include $4.6 million of FHLB advances which mature in less than one year from date of origination.

On January 29, 2019, the Company entered into an Amended and Restated Credit Agreement providing for a $60.0 million term loan (the “Term Loan”) with a maturity date of November 30, 2023. The Term Loan ~~has~~had an annual interest rate of one-month LIBOR plus a spread of 1.50%. The proceeds of the Term Loan were used to fund the cash consideration related to the acquisition of Banc Ed. The Company, ~~had~~ ~~$57.0 million outstanding indebtedness on June 30, 2019, comprised~~at its option, repaid the balance of ~~$6.0 million~~the Term Loan during the first quarter of ~~short-term debt and $51.0 million of long-term debt.~~2020.

The Amended and Restated Credit Agreement also retained the Company’s $20.0 million revolving facility with a maturity date of April 30, 2019. On April 19, 2019, the Company entered into an amendment to the Amended and Restated Credit Agreement to extend the maturity of its revolving loan facility to April 30, 2020. On April 24, 2020, the revolving loan facility maturity was extended one year to April 30, 2021 with an annual interest rate of one-month LIBOR plus a spread of 1.75%. The revolving facility incurs a non-usage fee based on the undrawn amount. ~~The Company had~~ ~~no outstanding balance under the revolving facility on~~At June 30, ~~2019 or December 31, 2018.~~

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2020 the Company had $20.0 million outstanding and recorded in short-term borrowings under the revolving facility. The Company had 0 outstanding balance under the revolving facility on December 31, 2019.

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


	June 30,		December 31,		June 30,		December 31,
	2019		2018		2020		2019
Notes payable, FHLB, ranging in original maturity from nineteen months to ten years, collateralized by FHLB deposits, residential and commercial real estate loans and FHLB stock.	$	35,772	$	50,000
Notes payable		51,000		—
Notes payable, FHLB, ranging in original maturity from 5 to 10 years, collateralized by FHLB deposits, residential and commercial real estate loans and FHLB stock.					$	35,101	$	35,600
Term Loan						—		48,000
Total long-term borrowings	$	86,772	$	50,000	$	35,101	$	83,600

As of June 30, ~~2019,~~2020, long-term debt from the FHLB consisted of variable-rate notes maturing through September 2024, with interest rates ranging from ~~2.15%~~0.05% to 3.04%. The weighted average rate on the long-term advances was ~~2.29%~~0.48% as of June 30, ~~2019.~~2020. As of December 31, ~~2018,~~2019, funds borrowed from the FHLB, listed above, consisted of variable-rate notes maturing through September 2024, with interest rates ranging from ~~2.20%~~1.25% to ~~2.41%~~3.04%. The weighted average rate on the long-term advances was ~~2.28%~~1.53% as of December 31, ~~2018.~~2019.

On May 25, 2017, the Company issued $40.0 million of 3.75% senior notes that mature on May 25, 2022. The senior notes are payable semi-annually on each May 25 and November 25, commencing on November 25, 2017. The senior notes are not subject to optional redemption by the Company. Additionally, on May 25, 2017, the Company issued ~~$60.0~~$60.0 million of fixed-to-floating rate subordinated notes that mature on May 25, 2027. The subordinated notes, which qualify as Tier 2 capital for First Busey, ~~are~~bear interest at an ~~initial~~annual rate of 4.75% for the first five years after issuance and thereafter bear interest at ~~an annual~~a floating rate equal to three-month LIBOR plus a spread of 2.919%., as calculated on each applicable determination date. The subordinated notes are payable semi-annually on each May 25 and November 25, commencing on November 25, 2017 during the ~~five year~~five-year fixed-term and thereafter on February 25, May 25, August 25 and November 25 of each year, commencing on August 25, 2022. The subordinated notes have an optional redemption in whole or in part on any interest payment date on or after May 25, 2022. The senior notes and subordinated notes are unsecured obligations of the Company. Unamortized debt issuance costs related to the senior notes and subordinated notes issued in 2017 totaled ~~$0.4~~$0.3 million and ~~$0.8~~$0.7 million, respectively, at June 30, ~~2019.~~2020. Unamortized debt issuance costs related to the senior notes and subordinated notes issued in 2017 totaled $~~0.5~~0.3 million and ~~$0.9~~$0.8 million, respectively, at December 31, ~~2018.~~

~~Note 7: Junior Subordinated Debt Owed to Unconsolidated Trusts~~

First Busey maintains statutory trusts for the sole purpose of issuing and servicing trust preferred securities and related trust common securities. The proceeds from such issuances were used by the trusts to purchase junior subordinated notes of the Company, which are the sole assets of each trust. Concurrent with the issuance of the trust preferred securities, the Company issued guarantees for the benefit of the holders of the trust preferred securities. The trust preferred securities are instruments that qualify, and are treated by the Company, as Tier 1 regulatory capital. The Company owns all of the common securities of each trust. The trust preferred securities issued by each trust rank equally with the common securities in right of payment, except that if an event of default under the indenture governing the notes has occurred and is continuing, the preferred securities will rank senior to the common securities in right of payment. In connection with the acquisition of Pulaski Financial Corp. (“Pulaski”) in 2016, the Company acquired similar statutory trusts maintained by Pulaski and the fair value adjustment is being accreted over the weighted average remaining life. The Company had $71.2 million of junior subordinated debt owed to unconsolidated trusts at June 30, 2019 and December 31, 2018.2019.

To further enhance the Company’s strong capital and liquidity positions, on June 1, 2020, the Company issued $125.0 million of fixed-to-floating rate subordinated notes that mature on June 1, 2030. The ~~trust preferred securities~~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 ~~subject to mandatory~~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 ~~upon repayment~~on any interest payment date on or after June 1, 2025. The subordinated notes are unsecured obligations of the ~~junior~~Company. Unamortized debt issuance costs related to the subordinated notes issued in 2020 totaled $2.3 million at par value at the stated maturity date or upon redemption. Each trust’s ability to pay amounts due on the trust preferred securities is solely dependent upon the Company making payment on the related junior subordinated notes. The Company’s obligations under the junior subordinated notes and other relevant trust agreements, in aggregate, constitute a full and unconditional guarantee by the Company of each trust’s obligations under the trust preferred securities issued by each trust. The Company has the right to defer payment of interest on the notes, in which case the distributions on the trust preferred securities will also be deferred, for up to five years, but not beyond the stated maturity date.June 30, 2020.

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Under current banking regulations, bank holding companies are allowed to include qualifying trust preferred securities in their Tier 1 Capital for regulatory capital purposes, subject to a 25% limitation to all core (Tier 1) capital elements, net of goodwill and other intangible assets less any associated deferred tax liability. As of June 30, 2019, 100% of the trust preferred securities qualified as Tier 1 capital under the final rule adopted in March 2005.

The Dodd-Frank Act mandated the Federal Reserve to establish minimum capital levels for holding companies on a consolidated basis as stringent as those required for FDIC-insured institutions. A result of this change is that the proceeds of hybrid instruments, such as trust preferred securities, are excluded from capital over a phase-out period. However, if such securities were issued prior to May 19, 2010 by bank holding companies with less than $15.0 billion of assets, they may be retained, subject to certain restrictions. Because the Company has assets of less than $15.0 billion, it is able to maintain its trust preferred proceeds as capital, but the Company has to comply with new capital mandates in other respects and will not be able to raise capital in the future through the issuance of trust preferred securities.

Note 8:7: Earnings Per Common Share

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


	Three Months Ended				Six Months Ended				Three Months Ended				Six Months Ended
	June 30,				June 30,				June 30,				June 30,
	2019		2018		2019		2018		2020		2019		2020		2019
Net income	$	24,085	$	24,862	$	49,554	$	46,779	$	25,806	$	24,085	$	41,170	$	49,554
Shares:
Weighted average common shares outstanding		55,638		48,815		54,464		48,796		54,489		55,638		54,576		54,464
Dilutive effect of outstanding options, warrants and restricted stock units as determined by the application of the treasury stock method		303		409		300		407		216		303		231		300

Weighted average common shares outstanding, as adjusted for diluted earnings per share calculation		55,941		49,224		54,764		49,203		54,705		55,941		54,807		54,764

Basic earnings per common share	$	0.43	$	0.51	$	0.91	$	0.96	$	0.47	$	0.43	$	0.75	$	0.91

Diluted earnings per common share	$	0.43	$	0.51	$	0.90	$	0.95	$	0.47	$	0.43	$	0.75	$	0.90

Basic earnings per share is computed by dividing net income for the period by the weighted average number of common shares outstanding, which include deferred stock units that are vested but not delivered.

Diluted earnings per common share is computed using the treasury stock method and reflects the potential dilution that could occur if the Company’s outstanding stock options and warrants were exercised and restricted stock units were vested. At June 30, ~~2019,~~2020, ~~169,258~~367,121 outstanding restricted stock units, ~~48,107~~39,525 outstanding stock options and 191,278 warrants were anti-dilutive and excluded from the calculation of common stock equivalents. At June 30, ~~2018,~~2019, 169,258 outstanding restricted stock equivalents, 48,107 outstanding stock options and 191,278 warrants were anti-dilutive and excluded from the calculation of common stock equivalents.

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Note 8: Accumulated Other Comprehensive Income (Loss)

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


		Three Months Ended
		June 30,
		2020						2019
		Before Tax		Tax Effect		Net of Tax		Before Tax		Tax Effect		Net of Tax
Unrealized gains (losses) on debt securities available for sale:
Balance at beginning of period	$	49,722	$	(14,173)	$	35,549	$	2,235	$	(640)	$	1,595
Unrealized holding gains (losses) on debt securities available for sale, net		5,857		(1,670)		4,187		18,214		(5,189)		13,025
Unrealized gains on debt securities transferred from held to maturity to available for sale		—		—		—		—		—		—
Amounts reclassified from accumulated other comprehensive income, net		(143)		41		(102)		10		(3)		7
Balance at end of period	$	55,436	$	(15,802)	$	39,634	$	20,459	$	(5,832)	$	14,627

Unrealized gains (losses) on cash flow hedges:
Balance at beginning of period	$	(3,424)	$	976	$	(2,448)	$	—	$	—	$	—
Unrealized holding gains (losses) on cash flow hedges, net		(14)		4		(10)		—		—		—
Amounts reclassified from accumulated other comprehensive income, net		(195)		56		(139)		—		—		—
Balance at end of period	$	(3,633)	$	1,036	$	(2,597)	$	—	$	—	$	—
Total accumulated other comprehensive income (loss)	$	51,803	$	(14,766)	$	37,037	$	20,459	$	(5,832)	$	14,627


		Six Months Ended
		June 30,
		2020						2019
		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	$	21,192	$	(6,032)	$	15,160	$	(9,528)	$	2,716	$	(6,812)
Unrealized holding gains (losses) on debt securities available for sale, net		35,943		(10,259)		25,684		25,014		(7,129)		17,885
Unrealized losses on debt securities transferred from held to maturity to available for sale		—		—		—		4,780		(1,364)		3,416
Amounts reclassified from accumulated other comprehensive income, net		(1,699)		489		(1,210)		193		(55)		138
Balance at end of period	$	55,436		(15,802)		39,634	$	20,459		(5,832)		14,627

Unrealized gains (losses) on cash flow hedges:
Balance at beginning of period	$	(280)	$	80	$	(200)	$	—	$	—	$	—
Unrealized holding gains (losses) on cash flow hedges, net		(3,143)		896		(2,247)		—		—		—
Amounts reclassified from accumulated other comprehensive income, net		(210)		60		(150)		—		—		—
Balance at end of period	$	(3,633)		1,036		(2,597)	$	—		—		—
Total accumulated other comprehensive income (loss)	$	51,803		(14,766)		37,037	$	20,459		(5,832)		14,627

Note 9: Share-based Compensation

The ~~Company currently grants share-based compensation~~First Busey 2020 Equity Incentive Plan (the “2020 Equity Plan”) was approved by stockholders at the 2020 Annual Meeting of Stockholders. A description of the 2020 Equity Plan can be found in the ~~form~~Company’s Proxy Statement for the 2020 Annual Meeting of ~~restricted stock units (“RSUs”) and deferred stock units (“DSUs”).~~Stockholders filed on April 9, 2020. The ~~Company grants RSUs to members of management periodically throughout~~2020 Equity Plan replaces 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. The Company annually grants share-based awards in the form of DSUs, which are RSUs with a deferred settlement date, to its board of directors and advisory directors. Each DSU is equivalent to one share of the Company’s common stock. The DSUs vest over a twelve-month period following the grant date or on the date of the2010 Equity Incentive

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~~next Annual Meeting~~Plan and the First Community Financial Partners, Inc. 2016 Equity Incentive Plan, which from time to time, the Company used to grant equity awards to legacy employees of ~~Stockholders, whichever~~First Community Financial Partners, Inc.

The Company currently grants share-based compensation in the form of restricted stock units and deferred stock units. Starting in July 2020, the Company granted performance-based restricted stock unit awards. The Company grants restricted stock units to members of management periodically throughout the year. Each restricted stock unit is ~~earlier.~~equivalent to 1 share of the Company’s common stock. These units have requisite service periods ranging from one to five years. The Company annually grants share-based awards in the form of deferred stock units, which are restricted stock units with a deferred settlement date, to its directors. Each deferred stock unit is equivalent to 1 share of the Company’s common stock. The deferred stock units vest over a 12-month period following the grant date. These units generally are subject to the same terms as ~~RSUs~~restricted stock units under the Company’s ~~2010 Equity Plan or the First Community 2016~~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. Subsequent to vesting and prior to delivery, these units will continue to earn dividend equivalents. The Company also has outstanding stock options granted prior to 2011 and stock options assumed from acquisitions.

A description of the 2010 Equity Incentive Plan, which was amended in 2015, can be found in the Company’s Proxy Statement for the 2015 Annual Meeting of Stockholders. A description of the First Community 2016 Equity Incentive Plan can be found in the Proxy Statement of First Community Financial Partners, Inc. for the 2016 Annual Meeting of Stockholders.

Stock Option Plan

A summary of the status of and changes in the Company's stock option awards for the six months ended June 30, ~~2019~~2020 follows:


		Weighted-		Weighted-		Weighted-		Weighted-
		Average		Average		Average		Average
		Exercise		Remaining Contractual		Exercise		Remaining Contractual
	Shares	Price		Term	Shares	Price		Term
Outstanding at beginning of period	87,600	$	20.58		53,185	$	22.00
Exercised	(21,799)		17.71		(12,956)		22.73
Forfeited	(2,271)		23.53		—		—
Expired	(5,176)		18.13		(704)		19.98
Outstanding at end of period	58,354	$	21.76	6.23	39,525	$	23.53	6.38
Exercisable at end of period	42,472	$	21.09	5.80	39,525	$	23.53	6.38

The Company did not record any stock option compensation expense for the three and six months ended June 30, 2020. The Company recorded an insignificant amount and $0.1 million inof stock option compensation expense for the three and six months ended June 30, 2019, respectively, related to the converted options from First Community. The Company recorded an insignificant amount and $0.1 million in stock option compensation expense for the three and six months ended June 30, 2018, respectively. As of June 30, 2019, the Company had $0.1 million of unrecognized stock option expense. This cost is expected to be recognized in 2019.Community Financial Partners, Inc.

Restricted Stock Unit Plan

A summary of the changes in the Company’s stock unit awards for the six months ended June 30, ~~2019,~~2020, is as follows:


		Weighted-		Director	Weighted-			Weighted-		Director	Weighted-
	Restricted	Average		Deferred	Average		Restricted	Average		Deferred	Average
	Stock	Grant Date		Stock	Grant Date		Stock	Grant Date		Stock	Grant Date
	Units	Fair Value		Units	Fair Value		Units	Fair Value		Units	Fair Value
Non-vested at beginning of period	690,495	$	26.14	20,449	$	27.93	778,317	$	27.27	21,261	$	23.18
Granted	—		—	—		—	3,808		26.26	—		—
Dividend equivalents earned	11,359		25.56	1,269		25.56	16,167		20.92	1,912		20.91
Vested	(104,760)		18.40	(20,195)		31.29	(117,641)		21.38	(23,173)		26.29
Forfeited	(4,712)		30.47	(1,523)		31.62	(13,522)		28.45	—		—
Non-vested at end of period	592,382	$	27.46	—	$	—	667,129	$	28.13	—	$	—
Outstanding at end of period	592,382	$	27.46	68,153	$	22.27	667,129	$	28.13	69,406	$	24.47

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

27On February 5, 2020, under the terms of the 2010 Equity Incentive Plan, the Company granted 3,808 restricted stock units to a member of management. As the stock price on the grant date of February 5, 2020 was $26.26, total compensation cost to be recognized is $0.1 million. This cost will be recognized over a period of three years. Subsequent to the requisite service period, the awards will become 100% vested.

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The Company recognized ~~$1.0~~$1.1 million and ~~$0.8~~$1.0 million of compensation expense related to both non-vested ~~RSUs~~restricted stock units and ~~DSUs~~deferred stock units for the three months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. The Company recognized ~~$1.9~~$2.2 million and ~~$1.6~~$1.9 million of compensation expense related to both non-vested ~~RSUs~~restricted stock units and ~~DSUs~~deferred stock units for the six months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. As of June 30, ~~2019,~~2020, there was $~~8.8~~9.8 million of total unrecognized compensation cost related to these non-vested stock awards. This cost is expected to be recognized over a weighted average period of ~~3.3~~3.2 years.

As of June 30, ~~2019, 766,824~~2020, 1,829,606 shares remain available for issuance pursuant to the Company’s ~~2010~~2020 Equity Incentive Plan ~~54,841~~and 24,761 shares remain available for issuance pursuant to the Company’s Employee Stock Purchase ~~Plan and 309,326 shares remain available for issuance pursuant to the First Community 2016 Equity Incentive~~ Plan.

Note 10: Outstanding Commitments and Contingent Liabilities

Legal Matters

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

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):


	June 30, 2019		December 31, 2018		June 30, 2020		December 31, 2019
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit	$	1,567,091	$	1,398,483	$	1,705,344	$	1,649,565
Standby letters of credit		37,560		32,156		47,886		42,581

Upon adoption of CECL, the Company recorded a $5.5 million reserve for unfunded commitments. The Company recorded provision expense of $0.6 million and $1.6 million in the three and six months ended June 30, 2020, respectively, in other non-interest expense for a total unfunded reserve of $7.1 million as of June 30, 2020.

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Note 11: Regulatory Capital

The Company and ~~the subsidiary banks~~Busey Bank are subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory—and possibly additional discretionary—actions by regulators that, if undertaken, could have a direct material effect on the Company's consolidated financial statements. The capital amounts and classification also are subject to qualitative judgments by the 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, ~~2019~~2020 and December 31, ~~2018,~~2019, all capital ratios of the Company and ~~the subsidiary banks~~Busey Bank exceeded the well capitalized levels under the applicable regulatory capital adequacy guidelines. Management believes that no events or changes have occurred subsequent to June 30, ~~2019~~2020 that would change this designation.

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

On June 1, 2020, the Company issued $125.0 million of fixed-to-floating rate subordinated notes that mature on June 1, 2030, which qualify as Tier 2 capital for regulatory purposes.

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


										Minimum												Minimum
						Minimum				To Be Well								Minimum				To Be Well
	Actual					Capital Requirement				Capitalized				Actual				Capital Requirement				Capitalized
	Amount			Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
As of June 30, 2019:
Total Capital (to Risk Weighted Assets)
Consolidated	$	1,015,740		13.96	%	$	581,993	8.00	%	$	727,491	10.00	%
Busey Bank	$	893,175		14.53	%	$	491,782	8.00	%	$	614,727	10.00	%
TheBANK	$	194,755		17.34	%	$	89,849	8.00	%	$	112,312	10.00	%

Tier 1 Capital (to Risk Weighted Assets)
Consolidated	$	904,365		12.43	%	$	436,495	6.00	%	$	581,993	8.00	%
Busey Bank	$	842,312		13.70	%	$	368,837	6.00	%	$	491,782	8.00	%
TheBANK	$	194,243		17.30	%	$	67,387	6.00	%	$	89,849	8.00	%

Common Equity Tier 1 Capital (to Risk Weighted Assets)
Consolidated	$	830,365		11.41	%	$	327,371	4.50	%	$	472,869	6.50	%
Busey Bank	$	842,312		13.70	%	$	276,628	4.50	%	$	399,573	6.50	%
TheBANK	$	194,243		17.30	%	$	50,540	4.50	%	$	73,003	6.50	%

Tier 1 Capital (to Average Assets)
Consolidated	$	904,365		9.87	%	$	366,386	4.00	%		N/A	N/A
Busey Bank	$	842,312		11.40	%	$	295,539	4.00	%	$	369,424	5.00	%
TheBANK	$	194,243		10.93	%	$	71,062	4.00	%	$	88,827	5.00	%


			��							Minimum
						Minimum				To Be Well
	Actual					Capital Requirement				Capitalized
	Amount			Ratio		Amount		Ratio		Amount		Ratio
As of December 31, 2018:
As of June 30, 2020:
Total Capital (to Risk Weighted Assets)
Consolidated	$	894,572		14.83	%	$	482,638	8.00	%	$	603,297	10.00	%	$	1,200,278	16.23	%	$	591,499	8.00	%	$	739,374	10.00	%
Busey Bank	$	854,351		14.19	%	$	481,701	8.00	%	$	602,126	10.00	%	$	1,056,068	14.30	%	$	590,746	8.00	%	$	738,433	10.00	%

Tier 1 Capital (to Risk Weighted Assets)
Consolidated	$	783,924		12.99	%	$	361,978	6.00	%	$	482,638	8.00	%	$	941,243	12.73	%	$	443,624	6.00	%	$	591,499	8.00	%
Busey Bank	$	803,703		13.35	%	$	361,276	6.00	%	$	481,701	8.00	%	$	982,033	13.30	%	$	443,060	6.00	%	$	590,746	8.00	%

Common Equity Tier 1 Capital (to Risk Weighted Assets)	Common Equity Tier 1 Capital (to Risk Weighted Assets)													Common Equity Tier 1 Capital (to Risk Weighted Assets)
Consolidated	$	709,924		11.77	%	$	271,484	4.50	%	$	392,143	6.50	%	$	867,243	11.73	%	$	332,718	4.50	%	$	480,593	6.50	%
Busey Bank	$	803,703		13.35	%	$	270,957	4.50	%	$	391,382	6.50	%	$	982,033	13.30	%	$	332,295	4.50	%	$	479,981	6.50	%

Tier 1 Capital (to Average Assets)
Consolidated	$	783,924		10.36	%	$	302,704	4.00	%		N/A	N/A		$	941,243	9.42	%	$	399,631	4.00	%		N/A	N/A
Busey Bank	$	803,703		10.64	%	$	302,232	4.00	%	$	377,789	5.00	%	$	982,033	9.82	%	$	399,926	4.00	%	$	499,907	5.00	%

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									Minimum
					Minimum				To Be Well
	Actual				Capital Requirement				Capitalized
	Amount		Ratio		Amount		Ratio		Amount		Ratio
As of December 31, 2019:
Total Capital (to Risk Weighted Assets)
Consolidated	$	1,036,143	14.03	%	$	590,826	8.00	%	$	738,532	10.00	%
Busey Bank	$	1,099,449	14.92	%	$	589,681	8.00	%	$	737,101	10.00	%

Tier 1 Capital (to Risk Weighted Assets)
Consolidated	$	922,395	12.49	%	$	443,120	6.00	%	$	590,826	8.00	%
Busey Bank	$	1,045,701	14.19	%	$	442,261	6.00	%	$	589,681	8.00	%

Common Equity Tier 1 Capital (to Risk Weighted Assets)
Consolidated	$	848,395	11.49	%	$	332,340	4.50	%	$	480,046	6.50	%
Busey Bank	$	1,045,701	14.19	%	$	331,696	4.50	%	$	479,116	6.50	%

Tier 1 Capital (to Average Assets)
Consolidated	$	922,395	9.88	%	$	373,360	4.00	%		N/A	N/A
Busey Bank	$	1,045,701	11.19	%	$	373,639	4.00	%	$	467,049	5.00	%

In July 2013, the 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 (“CET1”), which is added to the minimum risk-weighted asset ratios. The capital conservation buffer is not a

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minimum capital requirement; however, banking institutions with a ratio of CET1 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) CET1 to risk-weighted assets of at least ~~7.0%~~7.00%, (ii) ~~Tier~~tier 1 capital to risk-weighted assets of at least ~~8.5%~~8.50%, and (iii) ~~Total~~total capital to risk-weighted assets of at least ~~10.5%~~10.50%.

The ability of the Company to pay cash dividends to its stockholders and to service its debt is dependent on the receipt of cash dividends from its subsidiaries. Under applicable regulatory requirements, an Illinois state-chartered bank such as Busey Bank may not pay dividends in excess of its net profits. Because Busey Bank had been in an accumulated deficit position 2009 thru 2018, it was not able to pay dividends in prior years. With prior approval from its regulators, however, an Illinois state-chartered bank in that situation was able to reduce its capital stock by amending its charter to decrease the authorized number of shares, and then make a subsequent distribution to its holding company. Using this approach, and with the approval of its regulators, Busey Bank has distributed funds to the Company, the most recent of which was ~~$40.0~~ ~~million on October 12, 2018. Busey Bank returned to a positive retained earnings position in the second quarter of 2018 and, in 2019, returned to paying dividends.~~

Note 12: Operating Segments and Related Information

The Company has ~~three~~3 reportable operating ~~segments,~~segments: Banking, Remittance Processing and Wealth Management. The Banking operating segment provides a full range of banking services to individual and corporate customers through its banking center network in Illinois, the St. Louis, Missouri metropolitan area, southwest Florida and through its banking center in Indianapolis, Indiana. ~~Banking services for Busey Bank and TheBANK are aggregated into the banking operating segment as they have similar operations and activities.~~ The Remittance Processing operating segment provides for online bill payments, lockbox and walk-in payments. The Wealth Management operating segment provides a full range of asset management, investment and fiduciary services to individuals, businesses and foundations, tax preparation, philanthropic advisory services and farm and brokerage services.

The Company’s ~~three~~3 operating segments are strategic business units that are separately managed as they offer different products and services and have different marketing strategies. The “other” category consists of the Parent Company and the elimination of intercompany transactions.

The segment financial information provided below has been derived from information used by management to monitor and manage the financial performance of the Company. The accounting policies of the three segments are the same as those described in the summary of significant accounting policies in the “Note 1. Significant Accounting Policies” to Form 10-K. The Company accounts for intersegment revenue and transfers at current market value.

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


	Goodwill				Total Assets
	June 30, 2019		December 31, 2018		June 30, 2019		December 31, 2018		Goodwill				Total Assets
									June 30, 2020		December 31, 2019		June 30, 2020		December 31, 2019
Banking	$	293,657	$	246,999	$	9,568,148	$	7,656,709	$	288,436	$	288,436	$	10,765,956	$	9,632,368
Remittance Processing		8,992		8,992		42,083		39,278		8,992		8,992		45,334		44,209
Wealth Management		11,694		11,694		26,015		20,992		14,108		14,108		40,361		32,760
Other		—		—		(23,579)		(14,622)		—		—		(15,686)		(13,608)
Totals	$	314,343	$	267,685	$	9,612,667	$	7,702,357	$	311,536	$	311,536	$	10,835,965	$	9,695,729

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Three Months Ended June 30,

Six Months Ended June 30,


2019

2018

2019

2018

Net interest income:

Banking

$
75,944

$
62,109

$
146,582

$
123,525

Remittance Processing

18

16

36

32

Wealth Management

—

100

—

194

Other

(2,534)

(1,853)

(4,807)

(3,622)

Total net interest income

$
73,428

$
60,372

$
141,811

$
120,129

Non-interest income:

Banking

$
15,659

$
11,734

$
28,442

$
22,631

Remittance Processing

4,117

3,987

8,298

7,770

Wealth Management

9,594

7,808

18,727

16,449

Other

(1,474)

(727)

(1,626)

(1,562)

Total non-interest income

$
27,896

$
22,802

$
53,841

$
45,288

Non-interest expense:

Banking

$
56,895

$
37,855

$
102,066

$
79,241

Remittance Processing

2,589

2,624

5,353

5,090

Wealth Management

5,749

4,703

11,313

9,614

Other

2,787

2,123

6,451

4,400

Total non-interest expense

$
68,020

$
47,305

$
125,183

$
98,345

Income before income taxes:

Banking

$
32,191

$
33,730

$
68,330

$
63,649

Remittance Processing

1,546

1,379

2,981

2,712

Wealth Management

3,845

3,205

7,414

7,029

Other

(6,795)

(4,703)

(12,884)

(9,584)

Total income before income taxes

$
30,787

$
33,611

$
65,841

$
63,806

Net income:

Banking

$
24,441

$
24,904

$
51,106

$
46,749

Remittance Processing

1,105

986

2,130

1,939

Wealth Management

2,845

2,288

5,486

5,052

Other

(4,306)

(3,316)

(9,168)

(6,961)

Total net income

$
24,085

$
24,862

$
49,554

$
46,779


	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Net interest income:
Banking	$	73,318	$	75,944	$	144,891	$	146,582
Remittance Processing		19		18		38		36
Wealth Management		—		—		—		—
Other		(2,524)		(2,534)		(4,683)		(4,807)
Total net interest income	$	70,813	$	73,428	$	140,246	$	141,811

Non-interest income:
Banking	$	14,026	$	15,659	$	27,194	$	28,442
Remittance Processing		3,962		4,117		8,031		8,298
Wealth Management		10,310		9,594		22,019		18,727
Other		(334)		(1,474)		(1,763)		(1,626)
Total non-interest income	$	27,964	$	27,896	$	55,481	$	53,841

Non-interest expense:
Banking	$	41,659	$	56,895	$	90,174	$	102,066
Remittance Processing		3,243		2,589		6,146		5,353
Wealth Management		6,254		5,749		13,228		11,313
Other		1,912		2,787		4,034		6,451
Total non-interest expense	$	53,068	$	68,020	$	113,582	$	125,183

Income before income taxes:
Banking	$	32,794	$	32,191	$	51,804	$	68,330
Remittance Processing		738		1,546		1,923		2,981
Wealth Management		4,056		3,845		8,791		7,414
Other		(4,770)		(6,795)		(10,480)		(12,884)
Total income before income taxes	$	32,818	$	30,787	$	52,038	$	65,841

Net income:
Banking	$	25,985	$	24,441	$	40,909	$	51,106
Remittance Processing		528		1,105		1,388		2,130
Wealth Management		3,082		2,845		6,681		5,486
Other		(3,789)		(4,306)		(7,808)		(9,168)
Total net income	$	25,806	$	24,085	$	41,170	$	49,554

Note 13: 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 ~~loan~~ investors and ~~derivatives to customers for~~ interest rate ~~swaps.~~swaps with customers and other third parties. See “Note 14: Fair Value Measurements” for further discussion of the fair value measurement of such derivatives.

Interest Rate ~~Lock Commitments~~Swaps Designated as Cash Flow Hedges: ~~. At June 30,~~Starting in the third quarter of 2019, ~~and December 31, 2018,~~ the Company ~~had issued$73.5 million~~entered into derivative instruments designated as cash flow hedges. For derivative instruments that are designated and ~~$27.2~~ million, respectively, of unexpired interest rate lock commitments to loan customers. Such interest rate lock commitments that meet the definition of derivative financial instruments under ASC Topic 815, Derivatives andqualify as a

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cash flow hedge, the change in fair value of the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Change in fair value of components excluded from the assessment of effectiveness are recognized in current earnings.

Interest rate swaps with notional amounts totaling $70.0 million as of June 30, 2020 and December 31, 2019 were designated as cash flow hedges to hedge the risk of variability in cash flows (future interest payments) attributable to changes in the contractually specified 3 month LIBOR benchmark interest rate on the Company’s junior subordinated debt owed to unconsolidated trusts and were determined to be highly effective during the period. The gross aggregate fair value of the swaps of $3.6 million and $0.3 million is recorded in other liabilities in the unaudited consolidated financial statements at June 30, 2020 and December 31, 2019, respectively, with changes in fair value recorded net of tax in other comprehensive income (loss). The Company expects the hedges to remain highly effective during the remaining terms of the swaps.

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


	June 30, 2020			December 31, 2019
Notional amount	$	70,000		$	70,000
Weighted average fixed pay rates		1.80	%		1.80	%
Weighted average variable 3 month LIBOR receive rates		0.31	%		1.90	%
Weighted average maturity		3.36	yrs		3.86	yrs
Unrealized gains (losses), net of tax	$	(2,597)		$	(200)

Interest expense recorded on these swap transactions were $0.2 million during the three and six months ended June 30, 2020. The Company expects $0.3 million of the unrealized loss to be reclassified from Other Comprehensive Income (Loss) (“OCI”) to interest expense during the next 12 months. This reclassified amount could differ from amounts actually recognized due to changes in interest rates, hedge de-designations and the addition of other hedges subsequent to June 30, 2020.

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


	Three Months Ended June 30, 2020				Six Months Ended June 30, 2020
		Amount of (gain) loss recognized in OCI		Amount of (gain) loss reclassified from OCI to interest income		Amount of (gain) loss recognized in OCI		Amount of (gain) loss reclassified from OCI to interest income
Interest rate contracts	$	(10)	$	(139)	$	(2,247)	$	(150)

The Company pledged $3.8 million and $0.3 million in cash to secure its obligation under these contracts at June 30, 2020 and December 31, 2019, respectively.

Interest Rate Lock Commitments. At June 30, 2020 and December 31, 2019, the Company had issued$129.5 million and $69.1 million, respectively, of unexpired interest rate lock commitments to loan customers. Such interest rate lock commitments that meet the definition of derivative financial instruments under ASC Topic 815, Derivatives and Hedging, are carried at their fair values in other assets or other liabilities in the unaudited consolidated financial statements, with changes in the fair values of the corresponding derivative financial assets or liabilities recorded as either a charge or credit to current earnings during the period in which the changes occurred.

Forward Sales Commitments. At June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the Company had issued ~~$107.5~~$231.4 million and ~~$48.6~~$135.3 million, respectively, of unexpired forward sales commitments to mortgage loan investors. Typically, the Company economically hedges mortgage loans held for sale and interest rate lock commitments issued to its residential loan customers related to loans that will be held for sale by obtaining corresponding best-efforts forward sales commitments with an investor to sell the loans at an agreed-upon price at the time the interest rate locks are issued to the

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customers. Forward sales commitments that meet the definition of derivative financial instruments under ASC Topic 815, Derivatives and Hedging, are carried at their fair values in other assets or other liabilities in the unaudited consolidated financial statements. While such forward sales commitments generally ~~served~~serve as an economic hedge to the 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.

The fair values of derivative assets and liabilities related to interest rate lock commitments and forward sales commitments recorded in the unaudited Consolidated Balance Sheets are summarized as follows (dollars in thousands):


	June 30, 2019		December 31, 2018		June 30, 2020		December 31, 2019
Fair value recorded in other assets	$	1,135	$	624	$	2,410	$	1,046
Fair value recorded in other liabilities		1,949		1,205		4,974		2,187

The gross gains and losses on these derivative assets and liabilities related to interest rate lock commitments and forward sales commitments recorded in non-interest income and expense in the unaudited Consolidated Statements of Income are summarized as follows (dollars in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018			2020		2019		2020		2019
Gross gains	$	1,929	$	1,023	$	3,007	$	1,755	$	4,696	$	1,929	$	11,366	$	3,007
Gross (losses)		(1,949)		(1,054)		(3,067)		(2,108)		(4,974)		(1,949)		(12,318)		(3,067)
Net gains (losses)	$	(20)	$	(31)	$	(60)	$	(353)	$	(278)	$	(20)	$	(952)	$	(60)

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

~~Derivatives to Customers.~~Interest Rate Swaps Not Designated as Hedges. The Company may offer derivative contracts to its customers in connection with their risk management needs. ~~These derivatives are primarily interest rate swaps.~~ The Company manages the risk associated with these contracts by entering into an equal and offsetting derivative with a third-party dealer. With notional values of ~~$407.4~~$685.2 million and ~~$243.7~~$580.8 million at June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively, these contracts support variable rate, commercial loan relationships totaling ~~$203.7~~$342.6 million and ~~$121.8~~$290.4 million, 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.

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


		June 30, 2019		December 31, 2018		June 30, 2020		December 31, 2019
Fair value recorded in other assets	$	11,948	$	1,438	$	38,693	$	12,354
Fair value recorded in other liabilities		11,948		1,438		38,693		12,354

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The gross gains and losses on these derivative assets and liabilities recorded in non-interest income and non-interest expense in the unaudited Consolidated Statements of Income are summarized as follows (dollars in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018		2020		2019		2020		2019
Gross gains	$	73	$	489	$	164	$	1443	$	2,861	$	73	$	26,339	$	164
Gross losses		(73)		(489)		(164)		(1,443)		(2,861)		(73)		(26,339)		(164)
Net gains (losses)	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

The Company pledged ~~$12.3~~$38.8 million and $18.1 million in cash to secure its obligation under these contracts at June 30, ~~2019. The Company pledged~~ ~~$1.0 million in cash to secure its obligation under contracts at~~2020 and December 31, ~~2018.~~2019, respectively.

Note 14: Fair Value Measurements

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

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

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

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

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. These valuation methodologies were applied to those Company assets and liabilities that are carried at fair value.

In general, fair value is based upon quoted market prices, when available. If such quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable data. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect, among other things, counterparty credit quality and the company's creditworthiness as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. While management believes the Company's valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

~~Table of Contents~~

Debt ~~securities available~~Securities Available for ~~sale.~~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.

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

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

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

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

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

The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value (dollars in thousands):


	Level 1		Level 2		Level 3		Total
June 30, 2020	Inputs		Inputs		Inputs		Fair Value
Debt securities available for sale
U.S. Treasury securities	$	—	$	33,236	$	—	$	33,236
Obligations of U.S. government corporations and agencies		—		80,044		—		80,044
Obligations of states and political subdivisions		—		282,894		—		282,894
Commercial mortgage-backed securities		—		241,305		—		241,305
Residential mortgage-backed securities		—		970,193		—		970,193
Corporate debt securities		—		89,194		—		89,194
Equity securities		—		5,126		—		5,126
Loans held for sale		—		108,140		—		108,140
Derivative assets		—		41,103		—		41,103
Derivative liabilities		—		47,300		—		47,300

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Level 1

Level 2

Level 3

Total
June 30, 2019
Inputs

Inputs

Inputs

Fair Value
Fair value adjusted through comprehensive income:

Debt securities available for sale

U.S. Treasury securities
$
—

$
58,535

$
—

$
58,535
Obligations of U.S. government corporations and agencies

—

290,766

—

290,766
Obligations of states and political subdivisions

—

278,930

—

278,930
Commercial mortgage-backed securities

—

124,155

—

124,155
Residential mortgage-backed securities

—

961,137

—

961,137
Corporate debt securities

—

134,550

—

134,550
Fair value adjusted through current period earnings:

Equity securities

—

5,362

—

5,362
Loans held for sale

—

39,607

—

39,607
Derivative assets

—

13,083

—

13,083
Derivative liabilities

—

13,897

—

13,897


	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
December 31, 2018	Inputs		Inputs		Inputs		Fair Value
December 31, 2019									Inputs		Inputs		Inputs		Fair Value
Debt securities available for sale
U.S. Treasury securities	$	—	$	25,411	$	—	$	25,411	$	—	$	51,737	$	—	$	51,737
Obligations of U.S. government corporations and agencies		—		52,342		—		52,342		—		163,000		—		163,000
Obligations of states and political subdivisions		—		170,044		—		170,044		—		268,291		—		268,291
Commercial mortgage-backed securities		—		1,942		—		1,942		—		139,287		—		139,287
Residential mortgage-backed securities		—		315,748		—		315,748		—		921,966		—		921,966
Corporate debt securities		—		132,198		—		132,198		—		103,976		—		103,976
Fair value adjusted through period earnings:
Equity securities		6,169		—		—		6,169		—		5,952		—		5,952
Loans held for sale		—		25,895		—		25,895		—		68,699		—		68,699
Derivative assets		—		2,062		—		2,062		—		13,400		—		13,400
Derivative liabilities		—		2,643		—		2,643		—		14,821		—		14,821

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).

~~Impaired~~ Loans Evaluated Individually. The Company does not record portfolio loans at fair value on a recurring basis. However, periodically, a loan is ~~identified as impaired~~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. ~~Impaired loans measured at fair~~If the collateral value ~~typically consist of loans on non-accrual status and restructured loans in compliance with modified terms.~~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 the unobservable inputs, ~~all impaired loan~~the fair ~~values~~value of individually evaluated collateral dependent loans have been classified as level 3.

OREO. Non-financial assets and non-financial liabilities 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 the unobservable inputs, all OREO fair values have been classified as level 3.

~~Table of Contents~~

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. The fair values were based upon discounted appraisals or real estate listing price. Due to the significance of the unobservable inputs, all bank property held for sale fair values have been classified as level 3.

The following table summarizes assets and liabilities measured at fair value on a non-recurring basis, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value (dollars in thousands):


	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
	Inputs		Inputs		Inputs		Fair Value		Inputs		Inputs		Inputs		Fair Value
June 30, 2019
Impaired loans	$	—	$	—	$	7,817	$	7,817
June 30, 2020
Loans evaluated individually									$	—	$	—	$	2,343	$	2,343
OREO		—		—		84		84		—		—		55		55
Bank property held for sale		—		—		1,832		1,832		—		—		3,594		3,594

December 31, 2018












Impaired loans

$
—

$
—

$
10,999

$
10,999
OREO

—

—

55

55
Bank property held for sale

—

—

1,832

1,832

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


	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value		Valuation	Unobservable	Range
	Estimate		Techniques	Input	(Weighted Average)
June 30, 2019
Impaired loans	$	7,817	Appraisal of collateral	Appraisal adjustments	- 3.4	%	to	- 100.0	%
					(-29.4)%
December 31, 2019
Loans evaluated individually										$	—	$	—	$	2,686	$	2,686
OREO		84	Appraisal of collateral	Appraisal adjustments	- 25.0	%	to	- 100.0	%		—		—		55		55
					(-61.8)%
Bank property held for sale		1,832	Appraisal of collateral or real estate listing price	Appraisal adjustments	- 0.0	%	to	- 35.1	%		—		—		4,004		4,004
					(-28.3)%

December 31, 2018
Impaired loans	$	10,999	Appraisal of collateral	Appraisal adjustments	- 3.3	%	to	- 100.0	%
					(-24.1)%
OREO		55	Appraisal of collateral	Appraisal adjustments	- 25.0	%	to	- 100.0	%
					(-65.0)%
Bank property held for sale		1,832	Appraisal of collateral or real estate listing price	Appraisal adjustments	- 0.0	%	to	- 35.1	%
					(-28.3)%

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

Quantitative Information about Level 3 Fair Value Measurements

Fair Value

Valuation

Unobservable

Range

Estimate

Techniques

Input

(Weighted Average)

June 30, 2020

Loans evaluated

individually

2,343

Appraisal of collateral

Appraisal adjustments

-11.3% to -100% (-48.5)%

OREO

Appraisal of collateral

Appraisal adjustments

-25.0% to -100% (-65.0)%

Bank property held for sale

3,594

Appraisal of collateral or real estate listing price

Appraisal adjustments

-6.2% to -64.9% (-23.9)%

December 31, 2019

Loans evaluated

individually

2,686

Appraisal of collateral

Appraisal adjustments

-2.9% to -100% (-57.8)%

OREO

Appraisal of collateral

Appraisal adjustments

-25.0% to -100% (-65.0)%

Bank property held for sale

4,004

Appraisal of collateral or real estate listing price

Appraisal adjustments

-6.2% to -71.3% (-40.7)%

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


	June 30, 2019				December 31, 2018				June 30, 2020				December 31, 2019
	Carrying		Fair		Carrying		Fair		Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value		Amount		Value		Amount		Value
Financial assets:
Level 1 inputs:
Cash and cash equivalents	$	420,207	$	420,207	$	239,973	$	239,973	$	1,050,072	$	1,050,072	$	529,288	$	529,288
Level 2 inputs:
Debt securities held to maturity		15,708		15,934		608,660		603,360
Accrued interest receivable		28,614		28,614		22,314		22,314		34,035		34,035		27,109		27,109
Level 3 inputs:
Portfolio loans, net		6,480,751		6,447,502		5,517,780		5,473,063		7,132,974		7,148,040		6,633,501		6,648,560
Mortgage servicing rights		8,692		12,772		3,315		11,051		12,085		12,481		12,326		18,193
Other servicing rights		845		1,434		781		1,443		1,136		1,623		1,071		1,740

Financial liabilities:
Level 2 inputs:
Time deposits	$	1,749,811	$	1,747,766	$	1,497,003	$	1,482,301	$	1,363,497	$	1,381,268	$	1,534,850	$	1,538,597
Securities sold under agreements to repurchase		190,846		190,846		185,796		185,796		194,249		194,249		205,491		205,491
Short-term borrowings		30,761		30,748		—		—		24,648		24,642		8,551		8,552
Long-term debt		86,772		86,873		50,000		49,873		35,101		35,252		83,600		83,614
Junior subordinated debt owed to unconsolidated trusts		71,230		65,073		71,155		65,182		71,387		58,954		71,308		74,153
Accrued interest payable		7,380		7,380		6,568		6,568		4,659		4,659		5,000		5,000
Level 3 inputs:
Senior notes, net of unamortized issuance costs		39,607		40,419		39,539		39,452		39,741		40,111		39,674		40,099
Subordinated notes, net of unamortized issuance costs		59,197		59,719		59,147		58,186		181,995		175,284		59,248		61,514

~~A detailed description of the valuation methodologies used in estimating the fair value of financial instruments is set forth in the Company’s 2018 Form 10-K.~~

~~Note 15: Leases~~

The Company has operating leases consisting primarily of equipment leases and real estate leases. The Company leases real estate property for bank branches, ATM locations, and office space with terms extending through 2032. As of June 30, 2019, the Company reported $10.4 million of right-of-use asset and $10.5 million lease liability in its unaudited Consolidated Balance Sheets.

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Note 15: Leases

The Company has operating leases consisting primarily of equipment leases and real estate leases. The Company leases real estate property for banking centers, ATM locations, and office space with terms extending through 2032. As of June 30, 2020, the Company reported $8.5 million of right-of-use asset and $8.6 million lease liability in its unaudited Consolidated Balance Sheets.

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

Three Months Ended

Six Months Ended
Lease Costs
June 30, 2019

June 30, 2019
Operating lease costs
$
584

$
1,117
Variable lease costs

119

230
Short-term lease costs

8

23
Sublease income

-

-
Net lease cost
$
711

$
1,370

Other information

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

Operating lease cash flows – Fixed payments
$
570

$
1,083
Operating lease cash flows – Liability reduction

490

953
Right of use assets obtained during the period in exchange for
operating lease liabilities

764

764
Weighted average lease term (in years)

6.81

6.81
Weighted average discount rate

3.04%

3.04%


	Three Months Ended June 30,				Six Months Ended June 30,
Lease Costs	2020		2019			2020	2019
Operating lease costs	$	635	$	584	$	1,255	$	1,117
Variable lease costs		131		119		302		230
Short-term lease costs		15		8		30		23
Sublease income		-		-		-		-
Net lease cost	$	781	$	711	$	1,587	$	1,370
					��
Other information
Cash paid for amounts included in the measurement of lease liabilities:
Operating lease cash flows – Fixed payments	$	612	$	570	$	1,223	$	1,083
Operating lease cash flows – Liability reduction		534		490		1,064		953
Right of use assets obtained during the period in exchange for operating lease liabilities		—		764		128		764
Weighted average lease term (in years)		6.44		6.81		6.44		6.81
Weighted average discount rate		3.06%		3.04%		3.06%		3.04%

At June 30, ~~2019,~~2020, the Company was obligated under noncancelable operating leases for office space and other commitments. Rent expense under operating leases, included in net occupancy and equipment expense, was ~~$0.7~~$0.8 million for the three months ended June 30, 2020 and 2019, respectively and ~~2018. Rent expense under operating leases, included in net occupancy~~$1.6 million and ~~equipment expense, was~~ $1.4 million for the six months ended June 30, 2020 and 2019, ~~and 2018.~~respectively.

Rent commitments were as follows (dollars in thousands):

June 30, 2019
2019
$
1,150
2020

2,342
2021

1,730
2022

1,375
2023

1,217
Thereafter

3,896
Amounts representing interest

(1,179)
Present value of net future minimum lease payments
$
10,531


		Six Months Ended
		June 30, 2020
Remainder of 2020	$	1,218
2021		1,814
2022		1,411
2023		1,254
2024		1,022
Thereafter		2,876
Amounts representing interest		(994)
Present value of net future minimum lease payments	$	8,601

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

~~The~~The following ~~is management’s~~ discussion and analysis ofis intended to assist readers in understanding the financial condition ~~as of June 30, 2019 (unaudited), as compared with December 31, 2018~~ and ~~June 30, 2018 (unaudited), and the~~ results of operations ~~for~~of the Company during the three and six months ended June 30, ~~2019 (unaudited)~~2020 and ~~2018 (unaudited) and the three months ended March 31, 2019 (unaudited) when applicable. Management’s discussion and analysis~~ should be read in conjunction with the Company’s unaudited consolidated financial statements and notes thereto ~~appearing elsewhere~~included in this ~~Quarterly Report on~~ Form 10-Q, as well as the Company’s ~~2018~~2019 Form 10-K.

EXECUTIVE SUMMARY

Impact of COVID-19

In the face of the challenges and risks posed by COVID-19, the Company remains resolute in its focus on protecting the strength and flexibility of its balance sheet. The progression of the COVID-19 pandemic in the United States began to negatively impact the Company’s results of operations during the first quarter of 2020. In future quarters, COVID-19 is expected to have a complex and continued adverse impact on the economy, the banking industry and First Busey, all subject to a high degree of uncertainty as it relates to both timing and severity. Primary areas of potential future impact to the Company may include further margin compression, increased provision expense, a deterioration in credit quality and lower wealth management and fees for customer services.

Effects on Our Market Areas.

Our commercial and consumer banking products and services are delivered in Illinois, Missouri, Indiana and Florida. Each state has experienced a dramatic increase in unemployment claims as a result of the curtailment of business activities. Each state has taken different steps to reopen after COVID-19 thrust the country into lockdown starting in March 2020, and reopening across jurisdictions is subject to changes or further delays based on case monitoring in each state.

Policy and Regulatory Developments

Federal, state and local governments and regulatory authorities have enacted and issued a range of policy responses to the COVID-19 pandemic, including the following:

●

The Federal Reserve decreased the range for the Federal Funds Target Rate by 0.50% on March 3, 2020, and by another 1.0% on March 16, 2020.

●

On March 27, 2020, President Trump signed the CARES Act, which established a $2.0 trillion economic stimulus package, including cash payments to individuals, supplemental unemployment insurance benefits and a $349 billion loan program administered through the U.S. Small Business Administration (“SBA”), referred to as PPP. Under the PPP, small businesses, sole proprietorships, independent contractors and self-employed individuals could apply for loans from existing SBA lenders and other approved regulated lenders that enroll in the program, subject to limitations and eligibility criteria. On April 24, 2020, President Trump signed the Paycheck Protection Program and Health Care Enhancement Act, which authorized an additional $310 billion of PPP loans. The Bank participated as a lender in the PPP. The original timeframe for PPP lending expired on June 30, 2020, but Congress acted on June 30, 2020 to provide a 5-week PPP extension for lending to allow small business additional time to apply for the remaining PPP funds allocated by Congress in connection with the CARES Act. In addition, the CARES Act provides 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.

●

On April 7, 2020, federal banking regulators issued a revised Interagency Statement on Loan Modifications and Reporting for Financial Institutions, which, among other things, encouraged financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations because of the effects of COVID-19. Further, the statement made it clear that institutions generally do not

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need to categorize COVID-19-related modifications as TDRs if certain requirements are met and that the agencies will not direct supervised institutions to automatically categorize all COVID-19 related loan modifications as TDRs.

●

On April 9, 2020, the Federal Reserve announced additional measures aimed at supporting small and midsized business, as well as state and local governments impacted by COVID-19. The Federal Reserve announced the Main Street Business Lending Program, which provides for five loan facilities with total potential funding of up to $600 billion. The Main Street New Loan Facility ("MSNLF"), the Main Street Priority Loan Facility ("MSPLF") and the Main Street Expanded Loan Facility ("MSELF") are three credit facilities that provide eligible business borrowers impacted by COVID-19 with financing in amounts of $250 thousand to $300 million depending on facility. Similarly, the Nonprofit Organization New Loan Facility ("NONLF") and the Nonprofit Organization Expanded Loan Facility ("NOELF") provide eligible not-for-profit organizations with financing in amounts of $250 thousand to $10 million. As of June 30, 2020, the Company had not participated in the Main Street Business Lending Program.

Effects on Our Business

The COVID-19 pandemic will continue to have a significant impact on our business. In particular, we anticipate that a significant portion of the Bank’s borrowers in the hotel, restaurant, transportation, long-term healthcare and retail industries will continue to endure significant economic distress. This will adversely affect their ability to repay existing indebtedness, and could adversely impact the value of collateral pledged to Busey Bank. These developments, together with economic conditions generally, are also expected to impact our commercial real estate portfolio, particularly with respect to real estate with exposure to these industries, our consumer loan business and loan portfolio, and the value of certain collateral securing our loans. As a result, we anticipate that our financial condition, capital levels and results of operations could be significantly adversely affected.

Our Response

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

●

First Busey is offering an internalFinancial Relief Program to qualifying customers designed to alleviate some of the financial hardships that they may face as a result of COVID-19. This program offers solutions for all types of customers—including retail, personal loan and mortgage—as well as commercial clients and small businesses. The program includes options for loan payment deferrals as well as certain fee waivers. As of June 30, 2020, the Company had 1,122 commercial loan payment deferrals representing $1.1 billion in loans, 949 mortgage and personal loan payment deferrals representing $130.2 million in loans and an additional 638 deferrals for $80.9 million of mortgage loans in the serviced portfolio.

●

First Busey had served as a bridge for the PPP, actively helping existing and new business customers sign up for this important financial resource. At June 30, 2020, First Busey had $746.4 million in PPP loans outstanding, with an amortized cost of $729.3 million, representing 4,445 new and existing customers.

●

First Busey initiated its pandemic response plan, expanding social-distancing practices and remote work capabilities to ensure the safety of its associates. The Company has also instituted a new Emergency Sick Leave policy for all full-time and part-time associates.

●

First Busey suspended lobby access at its branches on March 19, 2020 and began servicing in-person customers exclusively from its drive-up windows. On July 20, 2020, with the exception of Florida, all other markets reopened lobbies with safety measures in place.

●

First Busey suspended open-market share repurchases under its share repurchase plan on March 16, 2020.

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Operating Results

~~The Company reported~~First Busey’s net income for the second quarter of ~~2019 of $24.1~~2020 was $25.8 million, or ~~$0.43~~$0.47 per diluted common share, as compared to ~~$25.5~~$15.4 million, or ~~$0.48~~$0.28 per diluted common share, for the first quarter of ~~2019~~2020 and ~~$24.9~~$24.1 million, or ~~$0.51~~$0.43 per diluted common share, for the second quarter of ~~2018.~~2019. Adjusted net income⁽¹⁾ for the second quarter of ~~2019~~2020 was ~~$29.5~~$26.2 million, or ~~$0.53~~$0.48 per diluted common share, as compared to ~~$26.6~~$15.5 million, or ~~$0.50~~$0.28 per diluted common share, for the first quarter of ~~2019~~2020 and ~~$25.6~~$29.5 million, or ~~$0.52~~$0.53 per diluted common share, for the second quarter of ~~2018.~~

~~Year-to-date~~2019. Pre-provision net ~~income through June 30, 2019~~revenue⁽¹⁾ for the second quarter of 2020 was ~~$49.6~~$45.4 million ~~or $0.90 per diluted common share,~~as compared to ~~net income of $46.8~~$35.8 million ~~or $0.95 per diluted common share,~~ for the ~~comparable period~~first quarter of ~~2018. Year-to-date~~2020 and $34.3 million for the second quarter of 2019. Adjusted pre-provision net revenue⁽¹⁾ for the second quarter of 2020 was $46.4 million as compared to $38.2 million for the first quarter of 2020 and $42.8 million for the second quarter of 2019. For the second quarter of 2020, annualized return on average assets and annualized return on average tangible common equity⁽¹⁾ were 1.00% and 12.02%, respectively. Based on adjusted net income⁽¹⁾, annualized return on average assets was 1.02% and annualized return on average tangible common equity⁽¹⁾ was 12.20% for the ~~first six months~~second quarter of ~~2019 was $56.1~~2020.

During the quarter, due to PPP loans and other factors, the Company’s total assets exceeded $10 billion. If the Company remains over $10 billion in assets at year-end, it will begin to face limitations on interchange fees and heightened supervision and regulation in 2021.

On January 1, 2020, the Company adopted the CECL methodology. During the second quarter of 2020, the Company recorded provision for credit losses of $12.9 million ~~or $1.02 per diluted common share, compared to $50.5~~and provision for unfunded commitments of $0.6 million ~~or $1.03 per diluted common share for the first six months of 2018.~~primarily driven by economic factors around COVID-19.

The Company views certain non-operating items, including acquisition-related and restructuring charges, as adjustments to net income reported under GAAP. Non-operating pretax adjustments for the second quarter of ~~2019~~2020 were ~~$4.1~~$0.1 million of expenses related to acquisitions ~~$1.4~~and $0.3 million of ~~expenses related to other~~ restructuring ~~costs and $1.8 million related to mortgage servicing rights impairment from TheBANK.~~expenses. The ~~reconciliation of~~Company believes that non-GAAP measures (including adjusted pre-provision net revenue, adjusted net income, adjusted earnings per share, adjusted return on average assets, adjusted net interest margin, adjusted efficiency ratio, tangible ~~book value,~~common equity, tangible common equity to tangible assets, tangible book value per share and return on average tangible common equity), ~~which the Company believes facilitates~~facilitate the assessment of its financial results and peer ~~comparability,~~comparability. A reconciliation of these non-GAAP measures is included in tabular form in this Quarterly Report on Form 10-Q in the “Non-GAAP Financial Information” section.

On January 31, 2019, the Company completed its acquisition of Banc ~~Ed,~~Ed. TheBANK, Banc Ed’s wholly-owned bank subsidiary, was operated as a separate subsidiary from the ~~holding company for TheBANK. TheBANK, founded in 1868, is a commercial bank headquartered in Edwardsville, Illinois. It is anticipated that TheBANK will be~~completion of the acquisition until October 4, 2019 when it was merged with and into ~~First Busey’s bank subsidiary,~~ Busey ~~Bank, in the fourth quarter of 2019. The Company’s operating results and financial condition were materially impacted by this acquisition.~~

On May 13, 2019, the Company announced the execution of an Agreement and Plan of Merger in connection with the proposed acquisition by Busey Bank of Investors’ Security Trust Company (“IST”), a Fort Myers, Florida wealth management firm. While the proposed acquisition is expected to add to the Company’s wealth management offerings, it is not expected to have any immediate, material impact to the Company’s earnings or overall business. Through this transaction, Busey Bank and IST broaden the expertise and level of service available to clients, from individuals and families to institutions and foundations. It is anticipated that IST will be merged with and into the wealth management division of Busey Bank in 2019, subject to customary closing conditions and required approvals.

Bank.

(1)	~~For a reconciliation of adjusted net income, a~~A non-GAAP financial measure, see “Non-GAAP Financial Information” included in this Quarterly Report on Form 10-Q.

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~~Asset Quality~~

~~As of~~Banking Center Markets – June 30, 2019, the Company reported non-performing loans of $33.1 million compared to $36.6 million at March 31, 2019. Non-performing loans were 0.51% of total portfolio loans as of June 30, 2019 compared to 0.56% as of March 31, 2019. With a continued commitment to asset quality and the strength of our balance sheet, near-term loan losses are expected to remain generally low. While these results are encouraging, asset quality metrics can be generally influenced by market-specific economic conditions, and specific measures may fluctuate from period to period. The key metrics are as follows ~~(dollars in thousands)~~:

As of

June 30,

March 31

December 31,

September 30,


2019

2019

2018

2018

Portfolio loans

$
6,532,126

$
6,515,081

$
5,568,428

$
5,623,741

Allowance for loan losses

51,375

50,915

50,648

52,743

Non-performing loans







Non-accrual loans

32,816

36,230

34,997

40,395

Loans 90+ days past due

258

356

1,601

364

Loans 30-89 days past due

18,040

10,780

7,121

8,189

Other non-performing assets

936

921

376

1,093

Allowance as a percentage of non-performing
loans

155.3
%

139.2
%

138.4
%

129.4
%
Allowance for loan losses to portfolio loans

0.79
%

0.78
%

0.91
%

0.94
%

~~Economic Conditions of Markets~~2020

Busey Bank has 4461 banking centers ~~serving~~in Illinois. Our Illinois markets ~~of Champaign, Macon, McLean, and Peoria counties and Southwest Chicago~~ 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. ~~TheBANK has 19 banking centers in Southern Illinois.~~

~~The State~~However, the financial condition of the state of Illinois, ~~where a large~~in which the largest portion of the Company’s customer base resides, is ~~located, continues to be troubled with pension under-funding, continued~~characterized by low credit ratings and budget ~~deficits and a declining credit outlook. Any possible payment lapses by the State of Illinois to its vendors and government sponsored entities may have negative effects on our primary market areas.~~deficits.

Busey Bank has 13 banking centers ~~serving the~~in Missouri. St. Louis, ~~metropolitan area, all of which are located in the city of St. Louis or the adjacent counties of St. Louis County and St. Charles County. The bi-state metropolitan area includes seven counties in~~ Missouri ~~and eight counties in Illinois; therefore, the Company’s geographic concentration in only three of these 15 counties gives the Company expansion opportunities into neighboring counties. St. Louis~~ has a diverse economy with major employment sectors including health care, financial services, professional and business services, and retail. ~~St. Charles County has been one~~Sixteen of our banking centers in Illinois are located within the boundaries of the ~~fastest-growing counties in the country for decades.~~St. Louis Metropolitan Statistical Area.

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

Busey Bank has one banking center in the Indianapolis, Indiana ~~area. Indianapolis~~area, which is the most populous city of Indiana with a diverse economy, ~~and it is~~including the headquarters toof many large corporations.

~~Table~~Banking Center Consolidation Plan

After careful consideration and analysis, the Company decided in July 2020 to consolidate 12 banking centers to ensure a balance between the Company’s physical banking center network and robust digital banking services. An efficient banking center footprint and strategic service models are necessary to keep First Busey competitive, responsive and independent. Selected banking centers will close in October 2020 and include eight banking centers in Illinois, three in Missouri and one in Florida. When fully realized, annualized expense savings net of ~~Contents~~expected associated revenue impacts are anticipated to be approximately $3.3 million with the impact of these cost savings beginning to be realized in the fourth quarter of 2020. One-time expenses expected in relation to the banking center closings are anticipated to be incurred during the third and fourth quarters of 2020.

Net ~~interest income~~Interest Income

Net interest income is the difference between interest income and fees earned on earning assets and interest expense incurred on interest-bearing liabilities. Interest rate levels and volume fluctuations within earning assets and interest-bearing liabilities impact net interest income. Net interest margin is tax-equivalent net interest income as a percent of average earning assets.

Certain assets with tax favorable treatment are evaluated on a tax-equivalent basis. Tax-equivalent basis assumes an income tax rate of 21%. Tax favorable assets generally have lower contractual pre-tax yields than fully taxable assets. A tax-equivalent analysis is performed by adding the tax savings to the earnings on tax favorable assets. After factoring in the tax favorable effects of these assets, the yields may be more appropriately evaluated against alternative earning assets. In addition to yield, various other risks are factored into the evaluation process.

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

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CONSOLIDATED AVERAGE BALANCE SHEETS AND INTEREST RATES

(UNAUDITED)


	Three Months Ended June 30,												Three Months Ended June 30,
	2019						2018						2020						2019
	Average		Income/		Yield/		Average		Income/		Yield/		Average		Income/		Yield/		Average		Income/		Yield/
(dollars in thousands)	Balance		Expense		Rate⁽⁵⁾		Balance		Expense		Rate⁽⁵⁾
													Balance		Expense		Rate⁽⁵⁾		Balance		Expense		Rate⁽⁵⁾
Assets
Interest-bearing bank deposits and federal funds sold	$	215,181		1,083	2.02	%	$	115,599	$	508	1.76	%	$	441,764	$	145	0.13	%	$	215,181	$	1,083	2.02	%
Investment securities:
U.S. Government obligations		354,327		2,151	2.43	%		155,009		636	1.65	%		131,092		675	2.07	%		354,327		2,151	2.43	%
Obligations of states and political subdivisions⁽¹⁾		294,371		2,181	2.97	%		290,802		1,882	2.60	%		283,424		2,092	2.97	%		294,371		2,181	2.97	%
Other securities		1,248,788		8,337	2.68	%		862,392		5,328	2.48	%		1,303,274		7,543	2.33	%		1,248,788		8,337	2.68	%
Loans held for sale		25,143		212	3.38	%		27,516		299	4.36	%		108,821		741	2.74	%		25,143		212	3.38	%
Portfolio loans^{(1), (2)}		6,528,326		78,279	4.81	%		5,533,168		62,233	4.51	%		7,216,825		70,754	3.94	%		6,528,326		78,279	4.81	%
Total interest-earning assets^{(1), (3)}	$	8,666,136	$	92,243	4.27	%	$	6,984,486	$	70,886	4.07	%	$	9,485,200	$	81,950	3.47	%	$	8,666,136	$	92,243	4.27	%

Cash and due from banks		113,233						102,640						121,258						113,233
Premises and equipment		149,334						120,595						148,960						149,334
Allowance for loan losses		(51,047)						(53,521)
Allowance														(85,509)						(51,047)
Other assets		645,022						499,341						704,911						645,022
Total assets	$	9,522,678					$	7,653,541					$	10,374,820					$	9,522,678

Liabilities and Stockholders’ Equity
Interest-bearing transaction deposits	$	1,821,827	$	2,489	0.55	%	$	1,214,863	$	782	0.26	%	$	2,090,552	$	978	0.19	%	$	1,821,827	$	2,489	0.55	%
Savings and money market deposits		2,400,751		3,581	0.60	%		2,004,299		1,641	0.33	%		2,544,958		1,131	0.18	%		2,400,751		3,581	0.60	%
Time deposits		1,747,830		8,084	1.86	%		1,400,548		4,481	1.28	%		1,438,285		5,612	1.57	%		1,747,830		8,084	1.86	%
Federal funds purchased and repurchase agreements		193,621		627	1.30	%		235,678		372	0.63	%		184,208		100	0.22	%		193,621		627	1.30	%
Borrowings ⁽⁴⁾		258,662		2,365	3.67	%		250,552		1,863	2.98	%		198,358		1,863	3.78	%		258,662		2,365	3.67	%
Junior subordinated debt issued to unconsolidated trusts		71,194		892	5.03	%		71,046		814	4.60	%		71,348		736	4.15	%		71,194		892	5.03	%
Total interest-bearing liabilities	$	6,493,885	$	18,038	1.11	%	$	5,176,986	$	9,953	0.77	%	$	6,527,709	$	10,420	0.64	%	$	6,493,885	$	18,038	1.11	%

Net interest spread⁽¹⁾					3.16	%					3.30	%					2.83	%					3.16	%

Noninterest-bearing deposits		1,747,746						1,492,251						2,472,568						1,747,746
Other liabilities		85,245						40,173						141,273						85,245
Stockholders’ equity		1,195,802						944,131						1,233,270						1,195,802
Total liabilities and stockholders’ equity	$	9,522,678					$	7,653,541					$	10,374,820					$	9,522,678


Interest income / earning assets^{(1), (3)}	$	8,666,136	$	92,243	4.27	%	$	6,984,486	$	70,886	4.07	%	$	9,485,200	$	81,950	3.47	%	$	8,666,136	$	92,243	4.27	%
Interest expense / earning assets	$	8,666,136	$	18,038	0.84	%	$	6,984,486	$	9,953	0.57	%	$	9,485,200	$	10,420	0.44	%	$	8,666,136	$	18,038	0.84	%
Net interest margin⁽¹⁾			$	74,205	3.43	%			$	60,933	3.50	%			$	71,530	3.03	%			$	74,205	3.43	%

(1)	On a tax-equivalent basis and assuming an income tax rate of 21%.

(2)	Non-accrual loans have been included in average portfolio loans.

(3)	Interest income includes a tax-equivalent adjustment of ~~$0.8~~$0.7 million and ~~$0.6~~$0.8 million for the three months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively.

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

(5)	Annualized.

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CONSOLIDATED AVERAGE BALANCE SHEETS AND INTEREST RATES

(UNAUDITED)


	Six Months Ended June 30,													Six Months Ended June 30,
	2019							2018						2020						2019
	Average			Income/		Yield/		Average		Income/		Yield/		Average		Income/		Yield/		Average		Income/		Yield/
(dollars in thousands)	Balance			Expense		Rate⁽⁵⁾		Balance		Expense		Rate⁽⁵⁾
														Balance		Expense		Rate⁽⁵⁾		Balance		Expense		Rate⁽⁵⁾
Assets
Interest-bearing bank deposits and federal funds sold	$	217,811			2,315	2.14	%	$	116,956	$	931	1.61	%	$	400,252	$	1,383	0.69	%	$	217,811	$	2,315	2.14	%
Investment securities:
U.S. Government obligations		343,773			4,217	2.47	%		158,272		1,285	1.64	%		160,952		1,766	2.21	%		343,773		4,217	2.47	%
Obligations of states and political subdivisions⁽¹⁾		280,405			4,118	2.96	%		299,976		3,861	2.60	%		277,710		4,106	2.97	%		280,405		4,118	2.96	%
Other securities		1,186,059	��		15,881	2.70	%		851,297		10,286	2.44	%		1,289,515		15,402	2.40	%		1,186,059		15,881	2.70	%
Loans held for sale		21,218			379	3.60	%		33,372		649	3.92	%		85,392		1,218	2.87	%		21,218		379	3.60	%
Portfolio loans^{(1), (2)}		6,329,596			150,291	4.79	%		5,520,584		123,085	4.50	%		6,937,551		143,238	4.15	%		6,329,596		150,291	4.79	%
Total interest-earning assets^{(1), (3)}	$	8,378,862		$	177,201	4.26	%	$	6,980,457	$	140,097	4.05	%	$	9,151,372	$	167,113	3.67	%	$	8,378,862	$	177,201	4.26	%

Cash and due from banks		109,714							105,667						119,880						109,714
Premises and equipment		146,776							119,481						150,087						143,776
Allowance for loan losses		(51,236)							(54,076)						(77,685)						(51,236)
Other assets		614,859							507,162						687,845						614,859
Total assets	$	9,198,975						$	7,658,691					$	10,031,499					$	9,195,975

Liabilities and Stockholders’ Equity
Interest-bearing transaction deposits	$	1,760,550		$	4,967	0.57	%	$	1,188,922	$	1,452	0.25	%	$	2,040,015	$	3,391	0.33	%	$	1,760,550	$	4,967	0.57	%
Savings and money market deposits		2,303,358			6,285	0.55	%		2,015,561		3,160	0.32	%		2,558,214		4,396	0.35	%		2,303,358		6,285	0.55	%
Time deposits		1,718,587			15,402	1.81	%		1,389,595		8,279	1.20	%		1,479,655		12,161	1.65	%		1,718,587		15,402	1.81	%
Federal funds purchased and repurchase agreements		199,045			1,210	1.23	%		246,802		713	0.58	%		183,244		508	0.56	%		199,045		1,210	1.23	%
Borrowings ⁽⁴⁾		227,460			4,266	3.78	%		264,205		3,696	2.82	%		187,507		3,484	3.74	%		227,460		4,266	3.78	%
Junior subordinated debt issued to unconsolidated trusts		71,175			1,806	5.12	%		71,028		1,529	4.34	%		71,329		1,480	4.17	%		71,175		1,806	5.12	%
Total interest-bearing liabilities	$	6,280,175		$	33,936	1.09	%	$	5,176,113	$	18,829	0.73	%	$	6,519,964	$	25,420	0.78	%	$	6,280,175	$	33,936	1.09	%

Net interest spread⁽¹⁾						3.17	%					3.32	%					2.89	%					3.17	%

Noninterest-bearing deposits		1,682,691							1,494,680						2,157,656						1,682,691
Other liabilities		80,034							48,923						128,164						80,034
Stockholders’ equity		1,153,075							938,975						1,225,715						1,153,075
Total liabilities and stockholders’ equity	$	9,195,975						$	7,658,691					$	10,031,499					$	9,195,975


Interest income / earning assets^{(1), (3)}	$	8,378,862		$	177,201	4.26	%	$	6,980,457	$	140,097	4.05	%	$	9,151,372	$	167,113	3.67	%	$	8,378,862	$	177,201	4.26	%
Interest expense / earning assets	$	8,378,862		$	33,936	0.81	%	$	6,980,457	$	18,829	0.55	%	$	9,151,372	$	25,420	0.56	%	$	8,378,862	$	33,936	0.81	%
Net interest margin⁽¹⁾				$	143,265	3.45	%			$	121,268	3.50	%			$	141,693	3.11	%			$	143,265	3.45	%

~~(1)On a tax-equivalent basis and assuming an income tax rate of 21%.~~

(1)

On a tax-equivalent basis and assuming an income tax rate of 21%.

(2)

Non-accrual loans have been included in average portfolio loans.

(3)

Interest income includes a tax-equivalent adjustment of ~~$1.5~~$1.4 million and ~~$1.1~~$1.5 million for the six months ended June 30, ~~2019~~2020 and ~~2018, respectively.~~2019.

(4)

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

(5)

Annualized.

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Earning Assets, Sources of Funds and Net Interest Margin

Total average interest-earning assets increased ~~$1.7 billion,~~$819.1 million, or ~~24.1%~~9.5%, to ~~$8.7~~$9.5 billion for the three months ended June 30, ~~2019,~~2020, as compared to ~~$7.0~~$8.7 billion for the same period in ~~2018. Total~~2019. The average ~~interest-earning assets increased $1.4 billion, or 20.0%, to $8.4 billion for~~amortized cost balance of PPP loans in the ~~six months ended June 30, 2019, as compared to $7.0 billion for the same period~~second quarter of 2018. Average loans have increased due to the Banc Ed acquisition and organic growth. Loans generally have notably higher yields compared to interest-bearing bank deposits and investment securities and our loan growth contributed to a positive effect on net interest margin.

2020 was $579.5 million. Total average interest-bearing liabilities increased ~~$1.3 billion, or 25.4%,~~$33.8 million to $6.5 billion for the three months ended June 30, ~~2019~~2020, as compared to ~~$5.2~~the same period in 2019. Average noninterest-bearing deposits increased $724.8 million, or 41.5%, to $2.5 billion for the three months ended June 30, 2020, as compared to $1.7 billion for the same period ~~in 2018.~~of 2019. Total average ~~interest-bearing liabilities~~interest-earning assets increased ~~$1.1 billion,~~$772.5 million, or ~~21.3%~~9.2%, to ~~$6.3~~$9.2 billion for the six months ended June 30, ~~2019~~2020, as compared to ~~$5.2~~$8.4 billion for the same period ~~of 2018. Average noninterest-bearing deposits~~in 2019. Total average interest-bearing liabilities increased ~~$255.5~~$239.8 million ~~or 17.1%,~~ to ~~$1.7 billion for the three months ended June 30, 2019, as compared to $1.5 billion for the same period of 2018. Average noninterest-bearing deposits increased $188.0 million, or 12.6%, to $1.7~~$6.5 billion for the six months ended June 30, ~~2019,~~2020, as compared to ~~$1.5~~$6.3 billion for the same period of ~~2018.~~

Interest income, on a tax-equivalent basis, increased $21.3 million, or 30.1%, to $92.2 million for the three months ended June 30, 2019, compared to $70.9 million in the same period of 2018. Interest income, on a tax-equivalent basis, increased $37.1 million, or 26.5%, to $177.2 million for the six months ended June 30, 2019, compared to $140.1 million in same period of 2018. The interest income increase related primarily to the increase in average loan balances. Interest expense increased during the three months ended June 30, 2019 by $8.0 million to $18.0 million, compared to $10.0 million in the same period of 2018. Interest expense increased during the six months ended June 30, 2019 by $15.1 million to $33.9 million, compared to $18.8 million in the same period of 2018. Funding costs have increased primarily due to resetting of time deposit rates to reflect market rate increases and additional borrowings in conjunction with the Banc Ed acquisition.2019.

Net interest income, on a tax-equivalent basis, ~~increased $13.3~~decreased $2.7 million ~~or 21.8%,~~to $71.5 million for the three months ended June 30, ~~2019~~2020 as compared to $74.2 million for the same period of ~~2018. Net interest income, on a tax-equivalent basis, increased $22.0~~2019, and decreased $1.6 million ~~or 18.1%,~~to $141.7 million for the six months ended June 30, ~~2019~~2020 as compared to $143.3 million for the same period of ~~2018.~~2019.

Net interest margin, our net interest income expressed as a percentage of average earning assets stated on a tax-equivalent basis, decreased to ~~3.43%~~3.03% for the three months ended June 30, ~~2019,~~2020, as compared to ~~3.50%~~3.43% for the same period of ~~2018,~~2019 and ~~decreased to 3.45%~~3.11% for the six months ended June 30, ~~2019,~~2020, compared to ~~3.50%~~3.45% for the same period of ~~2018. Net of~~2019. Excluding purchase accounting accretion, ~~and amortization,~~⁽¹⁾the net interest margin for the three months ended June 30, ~~2019~~2020 was ~~3.27%~~2.93%, a decrease from ~~3.33%~~3.27% for the same period in ~~2018,~~2019, and was ~~3.29%~~3.00% for the six months ended June 30, ~~2019, a decrease from 3.32%~~2020 compared to 3.29% for the same period of ~~2018.~~2019.

The Federal Open Market Committee (“FOMC”) lowered Federal Funds Target Rates for the first time in 11 years on July 31, 2019 and then again on September 18, 2019 and October 30, 2019, for a combined decrease of 75 basis points during 2019. In response to the potential economic risks posed by COVID-19, the FOMC took further action during the first quarter of 2020 by lowering the Federal Funds Target Rate by 50 basis points on March 3, 2020, followed by an additional 100 basis point reduction on March 15, 2020. These rate cuts contributed to the reported decline in net interest margin, as assets, in particular commercial loans, repriced more quickly and to a greater extent than liabilities.

Other factors contributing to the reported decline in net interest margin during the second quarter of 2020 include lower accretion income, the sizeable balance of lower-yielding PPP loans, the Company’s significant liquidity position, lower line utilization by commercial loan customers and the issuance of subordinated debt completed during the second quarter. The quarterly net interest margins were as follows:

2019

2018

First Quarter

3.46
%
3.51
%
Second Quarter

3.43
%
3.50
%
Third Quarter

—
%
3.41
%
Fourth Quarter

—
%
3.38
%

~~(1)~~

For a reconciliation of net interest margin net of purchase accounting accretion and amortization, a non-GAAP financial measure, see “Non-GAAP Financial Information” included in this Quarterly Report on Form 10-Q.


	2020		2019
First Quarter	3.20	%	3.46	%
Second Quarter	3.03	%	3.43	%
Third Quarter	—	%	3.35	%
Fourth Quarter	—	%	3.27	%

The 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 ~~3.16%~~2.83% for the three months ended June 30, ~~2019~~2020, as compared to ~~3.30%~~3.16% in the same period of ~~2018,~~2019 and was ~~3.17%~~2.89% for the six months ended June 30, ~~2019,~~2020 as compared to ~~3.32% for~~3.17% in the same period of ~~2018, each on a tax-equivalent basis.~~2019.

~~Table of Contents~~

Management attempts to mitigate the effects of the interest-rate environment through effective portfolio management, prudent loan underwriting and operational efficiencies. However, as a result of the reductions in the target interest rate, as well as the impact of the COVID-19 pandemic, our net interest income and margin may continue to decline in future periods.Please refer to the Notes to Consolidated Financial Statements in the Company’s ~~2018~~2019 Form 10-K for a description of accounting policies underlying the recognition of interest income and expense.

(1)	A non-GAAP financial measure, see “Non-GAAP Financial Information” included in this Quarterly Report on Form 10-Q.

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Non-Interest Income

~~Non-interest income~~(dollars in thousands):


	Three Months Ended June 30,								Six Months Ended June 30,
					$		%						$		%
	2020		2019		Change		Change		2020		2019		Change		Change
Wealth management fees	$	10,193	$	9,488	$	705	7.4	%	$	21,748	$	18,517	$	3,231	17.4	%
Fees for customer services		7,025		9,696		(2,671)	(27.5)	%		15,386		17,793		(2,407)	(13.5)	%
Remittance processing		3,718		3,717		1	0.0	%		7,471		7,497		(26)	(0.3)	%
Mortgage revenue		2,705		2,851		(146)	(5.1)	%		4,086		4,796		(710)	(14.8)	%
Income on bank owned life insurance		2,282		2,102		180	8.6	%		3,339		3,080		259	8.4	%
Net gains (losses) on sales of securities		125		(10)		135	NM			1,699		(184)		1,883	NM
Unrealized gains (losses) recognized on equity securities		190		(1,016)		1,206	118.7	%		(797)		(800)		3	0.4	%
Other income		1,726		1,068		658	61.6	%		2,549		3,142		(593)	(18.9)	%
Total non-interest income	$	27,964	$	27,896	$	68	0.2	%	$	55,481	$	53,841	$	1,640	3.0	%

Three Months Ended June 30,

Six Months Ended June 30,






    $

%




$

%

2019

2018

Change

Change

2019

2018

Change

Change

Fees for customer services

$
9,696

$
7,290

$
2,406

33.0
%

$
17,793

$
14,236

$
3,557

25.0
%
Trust fees

8,318

6,735

1,583

23.5
%

16,433

14,249

2,184

15.3
%
Commissions and brokers’ fees,
net

1,170

883

287

32.5
%

2,084

1,979

105

5.3
%
Remittance processing

3,717

3,566

151

4.2
%

7,497

6,958

539

7.7
%
Mortgage revenue

2,851

1,573

1,278

81.2
%

4,796

3,216

1,580

49.1
%
Net (losses) gains on sales of
securities

(10)

160

(170)

(106.3)
%

(184)

160

(344)

(215.0)
%
Unrealized (losses) gains
recognized on equity securities

(1,016)

—

(1,016)

(100.0)
%

(800)

—

(800)

(100.0)
%
Other income

3,170

2,595

575

22.2
%

6,222

4,490

1,732

38.6
%
Total non-interest income

$
27,896

$
22,802

$
5,094

22.3
%

$
53,841

$
45,288

$
8,553

18.9
%

NM=Not Meaningful

Total non-interest income of ~~$27.9~~$28.0 million for the ~~three months ended June 30, 2019~~second quarter of 2020 increased ~~by 22.3%~~ as compared to ~~$22.8~~$27.9 million ~~for~~in the ~~same period in 2018. Total non-interest income~~second quarter of ~~$53.8 million for the six months ended June 30, 2019 increased by 18.9% as compared to $45.3 million for the same period in 2018.~~2019. Revenues from ~~trust fees, commissions and brokers’~~wealth management fees and remittance processing activities represented ~~47.3%~~49.7% of the Company’s non-interest income for the quarter ended June 30, ~~2019,~~2020, providing a ~~balance~~complement to spread-based revenue from traditional banking activities. Total non-interest income of $55.5 million for the six months ended June 30, 2020 increased as compared to $53.8 million in the comparable period of 2019.

~~Trust~~Wealth management fees ~~and commissions and brokers’ fees~~ were $10.2 million for the second quarter of 2020, an increase from $9.5 million for the second quarter of 2019 ~~compared to $7.6 million for the second quarter of 2018. Trust fees~~ and ~~commissions and brokers’ fees~~ were ~~$18.5~~$21.7 million for the six months ended June 30, ~~2019~~2020, compared to ~~$16.2~~$18.5 million for the ~~same~~comparable period of ~~2018. The Company’s wealth management~~2019. First Busey’s Wealth Management division ended the second quarter of ~~2019~~2020 with $9.0 billion in assets under ~~care~~care. The Wealth Management division experienced solid new account activity during the second quarter of 2020 and the 90-day new asset pipeline remained strong at the end of the second quarter. Market volatility related to COVID-19, may impact fees in future quarters.

Fees for customer services decreased 27.5% for the three months ended June 30, 2020 compared to ~~$7.0 billion~~the same period of 2019 and 13.5% for the six months ended June 30, 2020 compared to the same period of 2019. The decrease relates to fee waivers provided in connection with the Company’s Financial Relief Program and changing customer behaviors resulting from COVID-19. Personal and business overdraft fees were the most impacted, decreasing by $1.6 million in the second quarter of ~~2018.~~2020 as compared to the first quarter of 2020.

Remittance processing revenue from the Company’s subsidiary, FirsTech, ofwas steady at $3.7 million for the second quarter of 2020 and 2019 ~~increased from $3.6 million for the second quarter of 2018. For the first six months of 2019, remittance processing revenue increased to~~and $7.5 ~~million compared to $7.0 million for the same period of 2018. FirsTech experienced growth from both new clients and expansion of existing clients.~~

Fees for customer services increased 33.0% and 25.0% for the three and six months ended June 30, 2019, respectively, compared to the same period of 2018 as a result of the Banc Ed acquisition. Evolving regulation, product changes and changing behaviors by our customer base impact fees for customer services.

~~The mortgage line of business generated $2.9 million of revenue in the second quarter of 2019, an increase compared to $1.6 million of revenue in the second quarter of 2018, and increased to $4.8~~ million for the six months ended June 30, ~~2019~~2020 and 2019. Remittance processing adds important diversity to our revenue stream while widening the array of service offerings available to our larger commercial clients within our footprint and nationally.

Mortgage revenue of $2.7 million in the second quarter of 2020 decreased compared to ~~$3.2~~$2.9 million in the second quarter of 2019. Mortgage revenue of $4.1 million for the six months ended June 30, 2020 decreased compared to $4.8 million in the comparable period of 2019.

Other income increased to $1.7 million for the second quarter of 2020 compared to $1.1 million in the second quarter of 2019, but decreased to $2.5 million for the six months ended June 30, 2020 compared to $3.1 million in the same period of ~~2018, following a period of restructuring~~2019. Other income variances are primarily driven by fluctuations in income generated from swap origination fees, data processing income and ~~additional revenue from TheBANK.~~

commercial loan sales gains.

4550

Table of Contents

~~Non-interest expense~~Non-Interest Expense

(dollars in thousands):


	Three Months Ended June 30,										Six Months Ended June 30,										Three Months Ended June 30,										Six Months Ended June 30,
							$		%								$		%								$		%								$		%
	2019			2018			Change		Change		2019			2018			Change		Change		2020			2019			Change		Change		2020			2019			Change		Change
Salaries, wages and employee benefits	$	34,268		$	25,472		$	8,796	34.5	%	$	66,609		$	54,291		$	12,318	22.7	%	$	28,555		$	34,268		$	(5,713)	(16.7)	%	$	62,558		$	66,609		$	(4,051)	(6.1)	%
Data processing																						4,051			5,616			(1,565)	(27.9)	%		8,446			10,017			(1,571)	(15.7)	%
Net occupancy expense of premises		4,511			3,689			822	22.3	%		8,713			7,510			1,203	16.0	%		4,448			4,511			(63)	(1.4)	%		9,163			8,713			450	5.2	%
Furniture and equipment expenses		2,352			1,790			562	31.4	%		4,447			3,703			744	20.1	%		2,537			2,352			185	7.9	%		4,986			4,447			539	12.1	%
Data processing		5,616			4,030			1,586	39.4	%		10,017			8,375			1,642	19.6	%
Professional fees																						1,986			3,192			(1,206)	(37.8)	%		3,810			6,379			(2,569)	(40.3)	%
Amortization of intangible assets		2,412			1,490			922	61.9	%		4,506			3,005			1,501	50.0	%		2,519			2,412			107	4.4	%		5,076			4,506			570	12.6	%
Other expense		18,861			10,834			8,027	74.1	%		30,891			21,461			9,430	43.9	%		8,972			15,669			(6,697)	(42.7)	%		19,543			24,512			(4,969)	(20.3)	%
Total non-interest expense	$	68,020		$	47,305		$	20,715	43.8	%	$	125,183		$	98,345		$	26,838	27.3	%	$	53,068		$	68,020		$	(14,952)	(22.0)	%	$	113,582		$	125,183		$	(11,601)	(9.3)	%

Income taxes	$	6,702		$	8,749		$	(2,047)	(23.4)	%	$	16,287		$	17,027		$	(740)	(4.3)	%	$	7,012		$	6,702		$	310	4.6	%	$	10,868		$	16,287		$	(5,419)	(33.3)	%
Effective rate on income taxes		21.8	%		26.0	%						24.7	%		26.7	%						21.4	%		21.8	%						20.9	%		24.7	%

Efficiency ratio		63.6	%		54.8	%						60.9	%		57.3	%						51.0	%		63.6	%						55.3	%		60.9	%
Full-time equivalent employees as of period-end		1,579			1,288																	1,480			1,579

Total non-interest expense of ~~$68.0~~$53.1 million for the three months ended June 30, ~~2019 increased~~2020 decreased as compared to ~~$47.3~~$68.0 million for the same period in ~~2018.~~2019. Total non-interest expense of ~~$125.2~~$113.6 million for the six months ended June 30, ~~2019 increased~~2020 decreased as compared to ~~$98.3~~$125.2 million for the same period in ~~2018.~~2019. The ~~three~~Company remains focused on expense discipline and ~~six months ended June 30, 2019 reflect increases~~expects expense reductions as a result of its planned branch closures, strategic actions in response to COVID-19 and as it realizes additional expense savings from ~~the Banc Ed acquisition.~~prior acquisitions.

Salaries, wages and employee benefits ~~increased to~~were $28.6 million in the second quarter of 2020, a decrease from $34.3 million ~~for~~in the ~~three months ended June 30,~~second quarter of 2019 ~~as compared to $25.5 million for the same period in 2018,~~ and ~~increased to $66.6~~were $62.6 million for the six months ended June 30, ~~2019 as~~2020 compared to ~~$54.3~~$66.6 million for the ~~same~~comparable period of 2019. The deferral of PPP loan origination costs of $3.8 million combined with a decrease in ~~2018. The increases in~~full-time equivalents contributed to the lower salaries, wages and employee benefits ~~primarily relates to fluctuations~~ in the second quarter of 2020. The number of ~~employees resulting from~~total full-time equivalents at June 30, 2020 was 1,480 compared to 1,507 at March 31, 2020, 1,531 at December 31, 2019 and 1,579 at June 30, 2019.

Data processing expense was $4.1 million in the ~~Banc Ed acquisition.~~second quarter of 2020, as compared to $5.6 million in the second quarter of 2019 and was $8.4 million in the six months ended June 30, 2020, as compared to $10.0 million in the same period of 2019. The 2019 data processing expense included conversion expenses and data processing related to TheBANK.

Combined net occupancy expense of premises and furniture and equipment expenses ~~were~~was $7.0 million for the three months ended June 30, 2020, as compared to $6.9 million for the three months ended June 30, 2019 and ~~$5.5 million for the three months ended June 30, 2018. Combined net occupancy expense of premises and furniture and equipment expenses were $13.2~~was $14.1 million for the six months ended June 30, 2020, as compared to $13.2 million in the same period of 2019. The Company continues to evaluate its banking center network and has decided to consolidate 12 banking centers in October 2020.

Professional fees decreased 37.8% for the three months ended June 30, 2020, as compared to the same period of 2019 and ~~$11.2 million~~decreased 40.3% for the six months ended June 30, ~~2018. The increase is primarily due to TheBANK adding 19 banking centers to our banking center network.~~

~~Data processing expense in the second quarter of 2019 of $5.6 million increased~~2020, as compared to ~~$4.0 million in the second quarter of 2018. In the first six months of 2019, data processing expense increased to $10.0 million compared to $8.4 million for~~ the same period of ~~2018. Variances are~~2019. The decrease is primarily related to ~~payment of conversion expenses~~a reduction in legal and ~~data processing~~consulting fees related to ~~TheBANK.~~acquisitions.

Amortization of intangible assets increased to $2.5 million for the three months ended June 30, 2020, as compared to $2.4 million for the three months ended June 30, 2019 ~~compared to $1.5 million for the three months ended June 30, 2018,~~ and increased to ~~$4.5~~$5.1 million for the six months ended June 30, ~~2019~~2020, as compared to ~~$3.0~~$4.5 million for the ~~six months ended June 30, 2018, as a result~~comparable period of ~~the Banc Ed acquisition.~~

~~Other expense of $18.9 million for the three months ended June 30, 2019~~2019. The increase was an increase compared to $10.8 million for the same period in 2018. Other expense of $30.9 million for the six months ended June 30, 2019 was an increase compared to $21.5 million for the same period in 2018. Variances are across multiple expense categories and include expenses related to acquisitions and other restructuring activities. In addition, included in other expense for the three and six months ended June 30, 2019 is MSR valuation impairment of $1.8 million and lease impairment of $0.4 million.

~~The effective income tax rate of 21.8% and 24.7% for the three and six months ended June 30, 2019, was lower than the combined federal and state statutory rate of approximately 28%~~ due to ~~tax exempt interest income, such as municipal bond interest and bank owned life insurance income, and investments~~increases in ~~various federal and state tax credits.~~intangible asset balances from acquisitions in 2019.

4651

Table of Contents

~~The Company continues~~Other expense in the second quarter of 2020 was $9.0 million as compared to ~~monitor evolving federal~~$15.7 million in the second quarter of 2019 and ~~state tax legislation and its potential impact on operations on an ongoing basis. At~~other expense of $19.5 million for the six months ended June 30, 2020 decreased compared to $24.5 million for the comparable period of 2019. One-time expenses relating to acquisitions and other restructuring activities included in other expense were $0.3 million and $7.7 million for the six months ended June 30, 2020 and 2019, respectively. The deferral of PPP loan origination costs of $1.1 million reduced other expense in the ~~Company was not under examination by any tax authority.~~second quarter of 2020. Provision for unfunded commitments of $0.6 million and $1.6 million for the three and six months ended June 30, 2020 were recorded in other expense.

The efficiency ratio⁽¹⁾ is calculated as total non-interest expense, less amortization charges, as a percentage of tax-equivalent net interest income plus non-interest income, less security gains and losses. The efficiency ratio, which is a measure commonly used by management and the banking industry, measures the amount of expense incurred to generate a dollar of revenue. The efficiency ratio was ~~63.6% in~~50.97% for the ~~second~~ quarter ~~of 2019 as~~ended June 30, 2020 compared to ~~54.8% in~~59.69% for the ~~same period of 2018~~quarter ended March 31, 2020 and 63.62% for the quarter ended June 30, 2019. The adjusted efficiency ratio⁽¹⁾ was ~~60.9%~~50.48% for the quarter ended June 30, 2020, 59.54% for the quarter ended March 31, 2020, and 56.55% for the quarter ended June 30, 2019. The efficiency ratio for the six months ended June 30, ~~2019 as~~2020 was 55.28% compared to ~~57.3% in~~60.92% for the ~~comparable~~same period of ~~2018. Operating costs have been influenced by acquisition, restructuring and other non-recurring items~~2019 and the adjusted efficiency ratio⁽¹⁾~~, excluding the impact of such costs,~~ was ~~56.6%~~54.96% for the ~~quarter~~six months ended June 30, ~~2019~~2020 compared to ~~53.7%~~56.49% for the ~~same~~comparable period of ~~2018.~~2019. The ~~adjusted efficiency ratio~~Company remains focused on expense discipline.⁽¹⁾

~~was 56.5%~~

Income Taxes

The effective income tax rate of 21.4% and ~~54.6%~~20.9% for the three and six ~~month periods~~months ended June 30, ~~2019~~2020 was lower than the combined federal and ~~2018, respectively. While acquisition expenses may have a negative~~state statutory rate of approximately 28% due to tax exempt interest income, such as municipal bond interest and bank owned life insurance income, and investments in various federal and state tax credits, including an Illinois new market tax credit. The Company continues to monitor evolving federal and state tax legislation and its potential impact on ~~the efficiency ratios,~~operations on an ongoing basis. At June 30, 2020, the Company ~~expects~~was not under examination by any tax authority; however, Banc Ed, which the Company acquired on January 31, 2019, is under examination by the Illinois Department of Revenue for its 2009 to ~~realize operating efficiencies creating a positive impact in future years.~~2016 income tax filings.

(1)

~~For a reconciliation of efficiency ratio and adjusted efficiency ratio, non-GAAP~~Non-GAAP financial measures, see “Non-GAAP Financial Information”. included in this Quarterly Report on Form 10-Q.

Table of Contents

FINANCIAL CONDITION

Significant Consolidated Balance Sheet ~~items~~Items (dollars in thousands):


	June 30,		December 31,						June 30,		December 31,
	2019		2018		$ Change		% Change		2020		2019		$ Change		% Change
Assets
Debt securities available for sale	$	1,848,073	$	697,685	$	1,150,388	164.9	%	$	1,696,866	$	1,648,257	$	48,609	2.9	%
Debt securities held to maturity		15,708		608,660		(592,952)	(97.4)	%
Portfolio loans, net		6,480,751		5,517,780		962,971	17.5	%		7,132,974		6,633,501		499,473	7.5	%

Total assets	$	9,612,667	$	7,702,357	$	1,910,310	24.8	%	$	10,835,965	$	9,695,729	$	1,140,236	11.8	%

Liabilities
Deposits:
Noninterest-bearing	$	1,766,681	$	1,464,700	$	301,981	20.6	%	$	2,764,408	$	1,832,619	$	931,789	50.8	%
Interest-bearing		6,066,541		4,784,621		1,281,920	26.8	%		6,145,258		6,069,777		75,481	1.2	%
Total deposits	$	7,833,222	$	6,249,321	$	1,583,901	25.3	%	$	8,909,666	$	7,902,396	$	1,007,270	12.7	%

Securities sold under agreements to repurchase	$	190,846	$	185,796	$	5,050	2.7	%	$	194,249	$	205,491	$	(11,242)	(5.5)	%
Short-term borrowings		30,761		—		30,761	100.0	%		24,648		8,551		16,097	188.2	%
Long-term debt		86,772		50,000		36,772	73.5	%		35,101		83,600		(48,499)	(58.0)	%
Senior notes, net of unamortized issuance costs		39,607		39,539		68	0.2	%		39,741		39,674		67	0.2	%
Subordinated notes, net of unamortized issuance costs		59,197		59,147		50	0.1	%		181,995		59,248		122,747	207.2	%
Junior subordinated debt owed to unconsolidated trusts		71,230		71,155		75	0.1	%		71,387		71,308		79	0.1	%

Total liabilities	$	8,409,059	$	6,707,393	$	1,701,666	25.4	%	$	9,599,881	$	8,475,295	$	1,124,586	13.3	%

Stockholders’ equity	$	1,203,608	$	994,964	$	208,644	21.0	%	$	1,236,084	$	1,220,434	$	15,650	1.3	%

Portfolio Loans

The Company believes that making sound and profitable loans is a necessary and desirable means of employing funds available for investment. ~~Authorized personnel are expected to make sound, profitable loans that resources permit and that opportunity affords.~~ The Company maintains lending policies and procedures designed to focus lending efforts on the

~~Table of Contents~~

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

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

Table of Contents

borrower’s financial history, the liquidity of the underlying collateral and the reliability of the valuation of the underlying collateral.

As a matter of policy and practice, the Company limits the level of concentration exposure in any particular loan segment with the goal of maintaining a well-diversified loan portfolio. In anticipation of the potential risks associated with COVID-19, the Company took actions starting in early March 2020 to escalate the monitoring of susceptible industry sectors within its portfolio. The Company anticipates that organic loan growth will slow in future quarters as a result of COVID-19 and the related impact on economic conditions in the Company’s market areas.

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

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

The Company’s lending activities can be summarized ~~into~~in 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 ~~2018~~2019 Form 10-K. The significant majority of the Company’s portfolio lending activity occurs in its Illinois and Missouri markets, with the remainder in the Indiana and Florida markets.

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


	June 30, 2019										June 30, 2020
	Illinois		Missouri		Florida		Indiana		Total		Illinois		Missouri		Florida		Indiana		Total
Commercial	$	1,185,675	$	438,141	$	15,991	$	28,291	$	1,668,098	$	1,568,941	$	653,937	$	67,625	$	67,451	$	2,357,954
Commercial real estate		1,766,237		557,318		154,533		183,817		2,661,905		1,794,985		735,169		151,197		165,663		2,847,014
Real estate construction		175,619		141,991		28,997		82,719		429,326		220,086		100,995		31,747		80,203		433,031
Retail real estate		1,136,955		449,793		101,623		32,999		1,721,370		1,051,587		352,089		97,682		46,857		1,548,215
Retail other		47,597		1,601		1,481		748		51,427		37,755		2,328		1,572		1,151		42,806
Portfolio loans	$	4,312,083	$	1,588,844	$	302,625	$	328,574	$	6,532,126	$	4,673,354	$	1,844,518	$	349,823	$	361,325	$	7,229,020

Allowance for loan losses										(51,375)
Allowance																				(96,046)
Portfolio loans, net									$	6,480,751									$	7,132,974


	December 31, 2019
	Illinois		Missouri		Florida		Indiana		Total
Commercial	$	1,220,088	$	457,416	$	20,589	$	50,275	$	1,748,368
Commercial real estate		1,782,442		679,217		150,935		180,823		2,793,417
Real estate construction		168,621		139,540		20,311		73,389		401,861
Retail real estate		1,139,173		412,811		99,976		41,809		1,693,769
Retail other		44,158		2,535		1,611		1,530		49,834
Portfolio loans	$	4,354,482	$	1,691,519	$	293,422	$	347,826	$	6,687,249

Allowance										(53,748)
Portfolio loans, net									$	6,633,501

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December 31, 2018


Illinois

Missouri

Florida

Indiana

Total
Commercial

$
972,072

$
394,043

$
17,954

$
21,037

$
1,405,106
Commercial real estate

1,448,937

579,536

158,337

180,013

2,366,823
Real estate construction

78,489

122,385

17,859

69,464

288,197
Retail real estate

874,910

475,739

102,117

27,367

1,480,133
Retail other

24,849

1,294

1,455

571

28,169
Portfolio loans

$
3,399,257

$
1,572,997

$
297,722

$
298,452

$
5,568,428

Allowance for loan losses









(50,648)
Portfolio loans, net









$
5,517,780

Portfolio loans increased ~~$963.7~~$541.8 million, or ~~17.3%~~8.1%, as of June 30, ~~2019~~2020 compared to December 31, ~~2018,~~2019, primarily ~~due to the Banc Ed acquisition. Commercial balances (consisting~~as a result of commercial, commercial real estate and real estate construction loans) increased $699.2 million from December 31, 2018. Retail real estate and retail other loans increased $264.5 million from December 31, 2018.PPP loans.

Allowance and Provision for ~~Loan~~Credit Losses

The ~~Company recorded net charge-offs of $2.1 million~~allowance for credit losses is a significant estimate in the ~~second quarter of 2019~~Company’s unaudited Consolidated Balance Sheet, affecting both earnings and ~~$3.9 million for the six months ended June 30, 2019.~~capital. Its methodology influences, and is influenced by, Busey Bank’s overall credit risk management processes. The allowance for ~~loan~~credit losses is managed 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 allowance for credit losses is established through provision for credit loss ~~as a percentage of portfolio loans was 0.79% at June 30, 2019 as compared~~expense charged to 0.78% at March 31, 2019 and 0.91% at December 31, 2018. The decline in the allowance coverage ratio in 2019 is primarily attributed to the Banc Ed acquisition. Acquired loans are initially recorded at their acquisition date fair value so a separate allowance is not initially recognized. An allowance is recorded subsequent to acquisition to the extent the reserve requirement exceeds the recorded fair value adjustment.income.

~~Provision for Loan Losses~~

The provision for loan losses is a current charge against income and represents an amount which management believes is sufficient to maintain an appropriate allowance for known and probable losses in the loan portfolio. In assessing the appropriateness ofCompany calculates the allowance for ~~loan~~credit losses ~~management considers~~at each reporting date. The Company recognizes an allowance for the ~~size~~lifetime expected credit losses for the amount the Company does not expect to collect. Subsequent changes in expected credit losses are recognized immediately in earnings. The allowance for credit losses is measured on a collective pool basis when similar risk characteristics exist. Loans that do not share risk characteristics are evaluated on an individual basis. Management estimates the allowance balance using relevant available information from internal and ~~quality~~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 ~~loan portfolio measured against prevailing~~Company’s historical loss experience from 2010-2019. As of June 30, 2020, the Company expects the markets in which it operates to experience a decline in economic conditions ~~regulatory guidelines,~~and an increase in the unemployment rate and level of delinquencies over the next 12 months. Management adjusted the historical ~~loan~~ loss experience ~~and credit quality of the portfolio.~~ for these expectations with an immediate reversion to historical loss rate beyond this forecast period.

When a determination is made by management to charge-off a loan balance, a write-off is charged against the allowance for ~~loan~~credit losses. ~~We continue~~Net charge-offs totaled $1.2 million for the quarter ended June 30, 2020 compared to ~~attempt to identify problem loan situations on a proactive basis. Once problem loans are identified, adjustments to~~$3.4 million for the quarter ended March 31, 2020, $1.6 million for the quarter ended December 31, 2019 and $2.1 million for the quarter ended June 30, 2019.

During the second quarter of 2020, the Company recorded provision for ~~loan~~credit losses ~~are made based upon all information available~~of $12.9 million and provision for unfunded commitments of $0.6 million primarily driven by economic factors around COVID-19.

With the adoption of CECL, the allowance as a percentage of portfolio loans was 1.33% at ~~that time.~~June 30, 2020, as compared to 1.25% at March 31, 2020, 0.80% at December 31, 2019 and 0.79% at June 30, 2019. The allowance as a percentage of portfolio loans, excluding the amortized cost of PPP loans, was 1.48% at June 30, 2020. The allowance as a percentage of non-performing loans increased to 378.43% at June 30, 2020 as compared to 310.10% at March 31, 2020, 182.15% at December 31, 2019 and 155.33% at June 30, 2019.

The ~~provision for~~ongoing impacts of the CECL methodology will be dependent upon changes in economic conditions and forecasts, originated and acquired loan ~~losses was $2.5 million~~portfolio composition, credit performance trends, portfolio duration, and ~~$2.3 million for the three months ended June 30, 2019 and 2018, respectively, and was $4.6 million and $3.3 million for the six months ended June 30, 2019 and 2018, respectively. As~~other factors. If economic conditions deteriorate further than current forecast factors as a result of ~~acquisitions,~~COVID-19, the Company ~~is holding acquired loans that are carried net of a fair value adjustment~~would expect the provision for credit ~~and interest rate marks and are only included~~losses to increase in the allowance calculation to the extent that the reserve requirement exceeds the fair value adjustment. However, as the acquired loans renew and as the Company originates new loan production, it is necessary to establish an allowance for loan losses, which represents an amount that, in management’s opinion, will be adequate to absorb probable credit losses.future periods.

Sensitive assets include non-accrual loans, loans on our classified loan reports and other loans identified as having more than reasonable potential for loss. Management reviews sensitive assets on at least a quarterly basis for changes in each applicable customer’s ability to pay and changes in valuation of underlying collateral in order to estimate probable losses. The majority of these loans are being repaid in conformance with their contracts.

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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 the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

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

The following table sets forth information concerning ~~non-performing loans~~key asset quality metrics as of each of the dates indicated (dollars in thousands):


	June 30,			March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			June 30,
													2020			2020			2019			2019			2019
Loans 30-89 days past due													$	5,166		$	10,150		$	14,271		$	12,434		$	18,040
	2019			2019			2018			2018
Non-accrual loans	$	32,816		$	36,230		$	34,997		$	40,395			25,095			25,672			27,896			31,827			32,816
Loans 90+ days past due and still accruing		258			356			1,601			364			285			1,540			1,611			1,276			258
Total non-performing loans		33,074			36,586			36,598			40,759			25,380			27,212			29,507			33,103			33,074

OREO		936			921			376			1,093			3,755			3,553			3,057			926			936

Total non-performing assets	$	34,010		$	37,507		$	36,974		$	41,852		$	29,135		$	30,765		$	32,564		$	34,029		$	34,010

Allowance for loan losses	$	51,375		$	50,915		$	50,648		$	52,743
Allowance for loan losses to portfolio loans		0.79	%		0.78	%		0.91	%		0.94	%
Allowance for loan losses to non-performing loans		155.3	%		139.2	%		138.4	%		129.4	%
Non-performing loans to portfolio loans, before allowance for loan losses		0.5	%		0.6	%		0.7	%		0.7	%
Non-performing assets to portfolio loans and OREO, before allowance for loan losses		0.5	%		0.6	%		0.7	%		0.7	%
Performing TDRs													$	4,316		$	4,949		$	5,005		$	8,778		$	8,609
Allowance														96,046			84,384			53,748			52,965			51,375

Allowance to portfolio loans														1.33	%		1.25	%		0.80	%		0.79	%		0.79	%
Allowance to portfolio loans, excluding PPP loans														1.48	%		1.25	%		0.80	%		0.79	%		0.79	%
Allowance to non-performing loans														378.43	%		310.10	%		182.15	%		160.00	%		155.33	%
Non-performing assets to total assets														0.27	%		0.32	%		0.34	%		0.35	%		0.35	%
Non-performing loans to portfolio loans														0.35	%		0.40	%		0.44	%		0.50	%		0.51	%
Non-performing loans to portfolio loans, excluding PPP loans														0.39	%		0.40	%		0.44	%		0.50	%		0.51	%
Non-performing assets to portfolio loans and OREO														0.40	%		0.46	%		0.49	%		0.51	%		0.52	%

~~Total~~Loans 30-89 days past due were $5.2 million as of June 30, 2020, a decrease from $10.2 million as of March 31, 2020, and $18.0 million as of June 30, 2019. Non-performing loans totaled $25.4 million as of June 30, 2020, a decrease from $27.2 million as of March 31, 2020, and $33.1 million as of June 30, 2019. Continued disciplined credit management resulted in non-performing ~~assets were $34.0 million at June~~ ~~30, 2019, compared to $37.0 million at December 31, 2018. Non-performing assets~~loans as a percentage of ~~portfolio~~total loans of 0.35% at June 30, 2020 as compared to 0.40% at March 31, 2020 and ~~OREO continued to be favorably low~~0.51% at ~~0.5% on~~ June 30, 2019. ~~Asset quality metrics can be generally influenced by market-specific~~Non-performing loans as a percentage of total loans, excluding the amortized cost of PPP loans, was 0.39% at June 30, 2020.

If economic conditions ~~beyond the control~~deteriorate further as a result of COVID-19, the Company would expect the credit quality of our loan portfolio to decline and ~~specific measures may fluctuate from quarter~~loan defaults to ~~quarter.~~increase.

Potential Problem Loans

Potential problem loans are those loans which are not categorized as ~~impaired,~~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 probable loan losses.~~ Potential problem loans totaled ~~$79.2~~$83.6 million at June 30, ~~2019,~~2020, compared to ~~$70.9~~$74.6 million at December 31, ~~2018.~~2019. 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, ~~2019,~~2020, management identified no other loans that represent or result from trends or uncertainties which would be expected to materially impact future operating results, liquidity or capital resources.

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To alleviate some of the financial hardships qualifying customers may face as a result of COVID-19, the Company is offering an internal Financial Relief Program. The program includes options for short-term loan payment deferrals and certain fee waivers. As of June 30, 2020, the Company had commercial loan payment deferrals representing $1.1 billion in loans, mortgage/personal loan payment deferrals representing $130.2 million in loans and additional deferrals of $80.9 million for mortgage loans in the serviced portfolio. As these deferrals expire, the Company will continue to monitor credits for potential problem loans.

Deposits

Total deposits were $8.9 billion at June 30, 2020, as compared to $7.9 billion at December 31, 2019. The increase in deposits at June 30, 2020 is attributable to retention of PPP loan funding in customer deposit accounts, other core deposit growth and seasonality in public funds. The Company remains funded primarily through core deposits with significant market share in its primary markets.

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. The balances of these assets are dependent on the Company’s operating, investing, lending, and financing activities during any given period.

First Busey’s primary sources of funds consist of deposits, investment maturities and sales, loan principal repayments and capital funds. Additional liquidity is provided by the ability to borrow from the FHLB, the Federal Reserve, First Busey’s revolving credit facility, or to utilize brokered deposits. As of June 30, ~~2019,~~2020, the Company had additional capacity to borrow from the FHLB and Federal Reserve of ~~$1.1~~$1.6 billion and ~~$470.1~~$474.4 million, respectively. ~~Additionally, the~~

The Company has ~~an unused revolving facility of $20.0 million.~~the ability to pledge PPP loans as collateral to either the FHLB, Federal Reserve Discount Window or the Paycheck Protection Program Liquidity Facility to increase the availability to borrow against any potential short-term funding needs.

As of June 30, ~~2019,~~2020, management believed that adequate liquidity existed to meet all projected cash flow obligations. We seek to achieve a satisfactory degree of liquidity by actively managing both assets and liabilities. Asset management guides the proportion of liquid assets to total assets, while liability management monitors future funding requirements and prices liabilities accordingly.

OFF-BALANCE-SHEET ARRANGEMENTS

The ~~banks~~Bank routinely ~~enter~~enters into commitments to extend credit and standby letters of credit in the normal course of business to meet the financing needs of its customers. As of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, we had outstanding loan commitments and standby letters of credit of ~~$1.6~~$1.8 billion and ~~$1.4~~$1.7 billion, respectively. 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.

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, bank holding companies and their subsidiary banks are required to maintain, including the

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capital conservation buffer, a total capital to total risk-weighted asset ratio of not less than 10.50%, Tier 1 capital to total risk-weighted asset ratio of not less than 8.50%, Common Equity Tier 1 capital to total risk-weighted asset ratio of not less than ~~7.0%~~7.00% and a Tier 1 leverage ratio of not less than 4.00%. ~~The Basel III Rule was fully phased-in on January 1, 2019.~~ See “Note 11: Regulatory Capital” for ratios and further discussion.

NON-GAAP FINANCIAL INFORMATION

This Quarterly Report on Form 10-Q contains certain financial information determined by methods other than in accordance with GAAP. These measures include adjusted pre-provision net revenue, adjusted net income, adjusted earnings per share, adjusted return on average assets, adjusted net interest margin, adjusted efficiency ratio, tangible common equity, tangible common equity to tangible assets, tangible book value per share and ~~adjusted~~ return on average tangible common equity. Management uses these non-GAAP measures, together with the related GAAP measures, to analyze the Company’s performance and to make business decisions. Management also uses these measures for peer comparisons.

A reconciliation to what management believes to be the most ~~direct compared~~directly comparable GAAP financial measures, ~~for example,~~specifically total net interest income in the case of adjusted pre-provision net revenue, net income in the case of adjusted net income, adjusted earnings per share and adjusted return on average assets, total net interest income in the case of adjusted net interest margin, total non-interest income and total non-interest expense in the case of adjusted efficiency ratio and total stockholders’ equity in the

~~Table of Contents~~

case of ~~the~~tangible common equity, tangible common equity to tangible assets, tangible book value per share and return on average tangible common equity appears ~~below.~~below (dollars in thousands, except per share data). The Company believes ~~each of~~ the adjusted measures isare useful for investors and management to understand the effects of certain non-recurring non-interest items and provides additional perspective on the Company’s performance over time as well as comparison to the Company’s peers.

These non-GAAP disclosures have inherent limitations and are not audited. They should not be considered in isolation or as a substitute for the results reported in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. Tax effected numbers included in these non-GAAP disclosures are based on estimated statutory ~~rates.~~rates and effective rates as appropriate.

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

(dollars in thousands)


	Three Months Ended									Six Months Ended
	June 30,			March 31,			June 30,			June 30,			June 30,
	2020			2020			2019			2020			2019
Net interest income	$	70,813		$	69,433		$	73,428		$	140,246		$	141,811
Non-interest income		27,964			27,517			27,896			55,481			53,841
Less net (gains) losses on sales of securities and unrealized (gains) losses recognized on equity securities		(315)			(587)			1,026			(902)			984
Non-interest expense		(53,068)			(60,514)			(68,020)			(113,582)			(125,183)
Pre-provision net revenue	$	45,394		$	35,849		$	34,330		$	81,243		$	71,453

Acquisition and other restructuring expenses		487			145			7,293			632			8,772
Provision for unfunded commitments		567			1,017			—			1,584			—
New Market Tax Credit amortization		—			1,200			1,200			1,200			1,200
Adjusted: pre-provision net revenue	$	46,448		$	38,211		$	42,823		$	84,659		$	81,425


Average total assets	$	10,374,820		$	9,688,177		$	9,522,678		$	10,031,499		$	9,195,975

Reported: Pre-provision net revenue to average assets⁽¹⁾		1.76	%		1.49	%		1.45	%		1.63	%		1.57	%
Adjusted: Pre-provision net revenue to average assets⁽¹⁾		1.80	%		1.59	%		1.80	%		1.70	%		1.78	%

⁽¹⁾ Annualized measure

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

(dollars in thousands)


	Three Months Ended										Six Months Ended					Three Months Ended									Six Months Ended
	June 30,			March 31,			June 30,				June 30,			June 30,		June 30,			March 31,			June 30,			June 30,			June 30,
	2019			2019			2018				2019			2018		2020			2020			2019			2020			2019
Net income	$	24,085		$	25,469		$	24,862		$	49,554		$	46,779		$	25,806		$	15,364		$	24,085		$	41,170		$	49,554
Acquisition expenses
Salaries, wages, and employee benefits		43			—			—			43			1,233			—			—			43			—			43
Data processing		327			7			34			334			406			—			—			327			—			334
Lease or fixed asset impairment																	—			—			415			—			415
Other (includes professional and legal)		3,293			1,205			107			4,498			2,057			141			145			3,293			286			4,498
Lease impairment		415			—			—			415			—
Other restructuring costs
Salaries, wages, and employee benefits		275			—			—			275			417			346			—			275			346			275
Data processing		292			100			—			392			—			—			—			292			—			392
Fixed asset impairment		—			—			817			—			817
Other (includes professional and legal)		826			167			—			993			—			—			—			826			—			993
MSR valuation impairment		1,822			—			—			1,822			—			—			—			1,822			—			1,822
Related tax benefit		(1,880)			(334)			(230)			(2,214)			(1,197)			(102)			(30)			(1,880)			(132)			(2,214)
Adjusted net income	$	29,498		$	26,614		$	25,590		$	56,112		$	50,512		$	26,191		$	15,479		$	29,498		$	41,670		$	56,112

Dilutive average common shares outstanding																	54,705,273			54,913,329			55,941,117			54,807,170			54,764,129

Reported: Diluted earnings per share																$	0.47		$	0.28		$	0.43		$	0.75		$	0.90
Adjusted: Diluted earnings per share																	0.48			0.28			0.53			0.76			1.02

Average total assets	$	9,522,678		$	8,865,642		$	7,653,541		$	9,198,975		$	7,658,691		$	10,374,820		$	9,688,177		$	9,522,678		$	10,031,499		$	9,195,975

Reported: Return on average assets⁽¹⁾		1.01	%		1.17	%		1.30	%		1.09	%		1.23	%		1.00	%		0.64	%		1.01	%		0.83	%		1.09	%
Adjusted: Return on average assets⁽¹⁾		1.24	%		1.22	%		1.34	%		1.23	%		1.33	%		1.02	%		0.64	%		1.24	%		0.84	%		1.23	%

⁽¹⁾ Annualized measure

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

(dollars in thousands)


	Three Months Ended									Six Months Ended
	June 30,			March 31,			June 30,			June 30,			June 30,			Three Months Ended									Six Months Ended
	2019			2019			2018			2019			2018			June 30,			March 31,			June 30,			June 30,			June 30,
																2020			2019			2019			2020			2019
Reported: Net interest income	$	73,428		$	68,383		$	60,372	��	$	141,811		$	120,129		$	70,813		$	69,433		$	73,428		$	140,246		$	141,811
Tax-equivalent adjustment		777			677			561			1,454			1,139			717			730			777			1,447			1,454
Purchase accounting accretion		(3,471)			(2,994)			(3,015)			(6,465)			(6,425)
Purchase accounting accretion related to business combinations																	(2,477)			(2,827)			(3,471)			(5,304)			(6,465)
Adjusted: Net interest income	$	70,734		$	66,066		$	57,918		$	136,800		$	114,843		$	69,053		$	67,336		$	70,734		$	136,389		$	136,800

Average interest-earning assets	$	8,666,136		$	8,088,396		$	6,984,486		$	8,378,862		$	6,980,457		$	9,485,200		$	8,817,544		$	8,666,136		$	9,151,372		$	8,378,862

Reported: Net interest margin⁽¹⁾		3.43	%		3.46	%		3.50	%		3.45	%		3.50	%		3.03	%		3.20	%		3.43	%		3.11	%		3.45	%
Adjusted: Net Interest margin⁽¹⁾		3.27	%		3.31	%		3.33	%		3.29	%		3.32	%		2.93	%		3.07	%		3.27	%		3.00	%		3.29	%

⁽¹⁾ Annualized measure

Reconciliation of Non-GAAP Financial Measures — Adjusted Efficiency Ratio

(dollars in thousands)


	Three Months Ended									Six Months Ended						Three Months Ended									Six Months Ended
	June 30,			March 31,			June 30,				June 30,			June 30,		June 30,			March 31,			June 30,			June 30,			June 30,
	2019			2019			2018			2019			2018			2020			2020			2019			2020			2019
Reported: Net Interest income	$	73,428		$	68,383		$	60,372		$	141,811		$	120,129		$	70,813		$	69,433		$	73,428		$	140,246		$	141,811
Tax-equivalent adjustment		777			677			561			1,454			1,139			717			730			777			1,447			1,454
Tax equivalent interest income	$	74,205		$	69,060		$	60,933		$	143,265		$	121,268
Tax-equivalent interest income																$	71,530		$	70,163		$	74,205		$	141,693		$	143,265

Reported: Non-interest income		27,896			25,945			22,802			53,841			45,288			27,964			27,517			27,896			55,481			53,841
Net (losses) gains on sales of securities and unrealized (losses) gains recognized on equity securities		(1,026)			42			160			(984)			160
Less net (gains) losses on sales of securities and unrealized (gains) losses recognized on equity securities																	(315)			(587)			1,026			(902)			984
Adjusted: Non-interest income	$	28,922		$	25,903		$	22,642		$	54,825		$	45,128		$	27,649		$	26,930		$	28,922		$	54,579		$	54,825
																										��
Reported: Non-interest expense		68,020			57,163			47,305			125,183			98,345			53,068			60,514			68,020			113,582			125,183
Amortization of intangible assets		(2,412)			(2,094)			(1,490)			(4,506)			(3,005)			(2,519)			(2,557)			(2,412)			(5,076)			(4,506)
Non-operating adjustments:
Salaries, wages, and employee benefits		(318)			—			—			(318)			(1,650)			(346)			—			(318)			(346)			(318)
Data processing		(619)			(107)			(34)			(726)			(406)			—			—			(619)			—			(726)
Other		(6,356)			(1,372)			(924)			(7,728)			(2,429)			(141)			(145)			(6,356)			(286)			(7,728)
Adjusted: Non-interest expense	$	58,315		$	53,590		$	44,857		$	111,905		$	90,855		$	50,062		$	57,812		$	58,315		$	107,874		$	111,905

Reported: Efficiency ratio		63.62	%		57.99	%		54.82	%		60.92	%		57.30	%		50.97	%		59.69	%		63.62	%		55.28	%		60.92	%
Adjusted: Efficiency ratio		56.55	%		56.43	%		53.67	%		56.49	%		54.60	%		50.48	%		59.54	%		56.55	%		54.96	%		56.49	%

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Reconciliation of Non-GAAP Financial Measures — Tangible ~~common equity~~Common Equity, Tangible Common Equity to ~~tangible assets,~~ Tangible ~~book value~~Assets, Tangible Book Value per ~~share,~~Share, and Return on ~~average tangible common equity~~Average Tangible Common Equity

(dollars in thousands)


	Three Months Ended
	June 30,			March 31,			June 30,			As of and for the Three Months Ended
	2019			2019			2018			June 30,			March 31,			June 30,
										2020			2020			2019
Total Assets	$	9,612,667		$	9,537,334		$	7,775,544		$	10,835,965		$	9,721,405		$	9,612,667
Goodwill and other intangible assets, net		(375,327)			(377,739)			(303,407)			(368,053)			(370,572)			(375,327)
Tax effect of other intangible assets, net		17,075			17,751			9,288			15,825			16,530			17,075
Tangible assets	$	9,254,415		$	9,177,346		$	7,481,425		$	10,483,737		$	9,367,363		$	9,254,415

Total stockholders’ equity		1,203,608			1,186,141			957,182			1,236,084			1,217,585			1,203,608
Goodwill and other intangible assets, net		(375,327)			(377,739)			(303,407)			(368,053)			(370,572)			(375,327)
Tax effect of other intangible assets, net		17,075			17,751			9,288			15,825			16,530			17,075
Tangible common equity	$	845,356		$	826,153		$	663,063		$	883,856		$	863,543		$	845,356

Ending number of common shares outstanding											54,516,000			54,401,208			55,386,636

Tangible common equity to tangible assets⁽¹⁾		9.13	%		9.00	%		8.86	%		8.43	%		9.22	%		9.13	%
Tangible book value per share	$	14.95		$	14.53		$	13.40		$	15.92		$	15.57		$	14.95

Average stockholders’ common equity	$	1,195,802		$	1,109,872		$	944,131		$	1,233,270		$	1,218,160		$	1,195,802
Average goodwill and other intangible assets, net		(376,851)			(352,587)			(304,379)			(369,699)			(372,240)			(376,851)
Average tangible stockholders’ common equity	$	818,951		$	757,285		$	639,752		$	863,571		$	845,920		$	818,951

Reported: Return on average tangible common equity⁽²⁾		11.80	%		13.64	%		15.59	%		12.02	%		7.30	%		11.80	%
Adjusted: Return on average tangible common equity^{(2), (3)}		14.45	%		14.25	%		16.04	%
Adjusted: Return on average tangible common equity⁽²⁾⁽³⁾											12.20	%		7.36	%		14.45	%


		Six Months Ended									Six Months Ended
		June 30,			June 30,						June 30,			June 30,
		2019			2018						2020			2019
Average stockholders’ common equity	$	1,153,075		$	938,975					$	1,225,715		$	1,153,075
Average goodwill and other intangible assets, net		(364,786)			(305,666)						(370,969)			(364,786)
Average tangible stockholders’ common equity	$	788,289		$	633,309					$	854,746		$	788,289

Reported: Return on average tangible common equity⁽²⁾		12.68	%		14.90	%					9.69	%		12.68	%
Adjusted: Return on average tangible common equity^{(2), (3)}		14.35	%		16.08	%					9.80	%		14.35	%

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

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FORWARD-LOOKING STATEMENTS

Statements made in this document, other than those concerning historical financial information, may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the financial condition, results of operations, plans, objectives, future performance and business of the Company. Forward-looking statements, which may be based upon beliefs, expectations and assumptions of the Company’s management and on information currently available to management, are generally identifiable by the use of words such as “believe,” “expect,” “anticipate,” “plan,” “intend,” “estimate,” “may,” “will,” “would,” “could,” “should” or other similar expressions. Additionally, all statements in this document, including forward-looking statements, speak only as of the date they are made, and ~~we undertake~~the Company undertakes no obligation to update any statement in light of new information or future events. A number of factors, many of which are beyond ~~our~~the Company’s ability to control or predict, could cause actual results to differ materially from those in ~~our~~the Company’s forward-looking statements. These factors include, among others, the following:

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(i) the strength of the local, state, national and international economy (including the impact of the 2020 presidential election and the impact of tariffs, a U.S. withdrawal from or significant ~~renegotiation~~negotiation of trade agreements, trade wars and other changes in trade regulations); (ii) the economic impact of any future terrorist threats or attacks, widespread disease or pandemics (including the COVID-19 pandemic in the United States), or other adverse external events that could cause economic deterioration or instability in credit markets; (iii) changes in state and federal laws, regulations and governmental policies concerning the Company’s general business; ~~(iii)~~(iv) changes in accounting policies and practices, including CECL, that changed how the Company estimates credit losses; (v) changes in interest rates and prepayment rates of the Company’s ~~assets; (iv)~~assets (including the impact of The London Inter-bank Offered Rate phase-out); (vi) increased competition in the financial services sector and the inability to attract new customers; ~~(v)~~(vii) changes in technology and the ability to develop and maintain secure and reliable electronic systems; ~~(vi)~~(viii) the loss of key executives or ~~employees; (vii)~~associates; (ix) changes in consumer spending; ~~(viii)~~(x) unexpected results of current and/or future acquisitions, which may include failure to realize the anticipated benefits of ~~any~~the acquisition and the possibility that the transaction costs may be greater than anticipated; ~~(ix)~~(xi) unexpected outcomes of existing or new litigation involving the Company; ~~(x) the economic impact of any future terrorist threats or attacks; (xi)~~and (xii) the economic impact of exceptional weather occurrences such as tornadoes, hurricanes, floods, and ~~blizzards; and (xii) changes in accounting policies and practices.~~blizzards. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Additional information concerning the Company and its business, including additional factors that could materially affect its financial results, is included in the Company’s filings with the Securities and Exchange Commission.

CRITICAL ACCOUNTING ESTIMATES

Critical accounting estimates are those that are critical to the portrayal and understanding of First Busey’s financial condition and results of operations and require management to make assumptions that are difficult, subjective or complex. These estimates involve judgments, assumptions and uncertainties that are susceptible to change. In the event that different assumptions or conditions were to prevail, and depending on the severity of such changes, the possibility of a materially different financial condition or materially different results of operations is a reasonable likelihood. Further, changes in accounting standards could impact the Company’s critical accounting estimates.

Our significant accounting policies are described in Note 1 of the Company’s ~~2018~~2019 Form 10-K. The majority of these accounting policies do not require management to make difficult, subjective or complex judgments or estimates or the variability of the estimates is not material. However, the following policies could be deemed critical:

Fair Value of Investment Securities. The fair values of investment securities 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. ~~Declines in~~

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Debt securities available for sale are not within the scope of CECL, however, the accounting for credit losses on these securities is affected by ASC 326-30. A debt security available for sale is impaired if the fair value of ~~debt securities~~the security declines below ~~their~~its amortized cost ~~are evaluated to~~basis. To determine ~~whether such declines are temporary or OTTI. If~~the appropriate accounting, the Company ~~(a) has the intent~~must first determine if it intends to sell ~~a debt~~the security or ~~(b)~~if it is more likely than not that it will ~~more-likely-than-not~~ be required to sell the ~~debt~~ security before ~~its anticipated recovery, then~~the fair value increases to at least the amortized cost basis. If either of those selling events is expected, the Company ~~recognizes~~will write down the ~~entire~~amortized cost basis of the security to its fair value. This is achieved by writing off any previously recorded allowance, if applicable, and recognizing any incremental impairment through earnings. If the Company does not intend to sell the security nor believes it more likely than not will be required to sell the security before the fair value recovers to the amortized cost basis, the Company must determine whether any of the decline in fair value ~~as an OTTI loss. If neither of these conditions are met, the Company evaluates whether~~has resulted from a credit loss, ~~exists.~~ or if it is entirely the result of noncredit factors.

The Company considers the following factors in assessing whether the decline is due to a credit loss:

●

Extent to which the fair value is less than the amortized cost basis.

●

Payment structure of the debt security and the likelihood of the issuer being able to make payments that increase in the future.

●

Failure of the issuer of the security to make scheduled interest or principal payments.

●

Any changes to the rating of the security by a rating agency.

Impairment related to a credit loss must be measured using the discounted cash flow method. Credit loss recognition is limited to the fair value of the security. The impairment is ~~separated into the amount of impairment~~recognized by establishing an allowance through provision for credit losses. Impairment related to the credit loss and the amount of impairment related to all other factors. The amount of the impairment related to credit loss is recognized in earnings, and the amount of impairment related to all othernoncredit factors is recognized in accumulated other comprehensive income, ~~(loss).~~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 FASB 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. AtAcquired loans are in the scope of the CECL methodology. However, the offset to record the allowance at the date of acquisition ~~when~~on acquired loans ~~have evidence of credit deterioration since origination and it~~depends on whether or not the loan is ~~probable that the Company will not collect all contractually~~

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~~required principal and interest payments, the difference between contractually required payments and the cash flows expected to be collected at acquisition~~classified as PCD. The allowance for PCD loans is referred to as the non-accretable difference. At each future reporting date, the Company re-estimates the expected cash flows of the loans. Subsequent decreases in the expected cash flows will generally result inrecorded through a ~~provision for loan losses. Subsequent increases in the expected cash flows will generally be offset against~~gross-up effect, while the allowance for ~~loan losses to~~acquired non-PCD loans is recorded through provision expense, consistent with originated loans. Thus, the ~~extent an allowance has been established or will be recognized as interest income prospectively.~~determination of which loans are PCD and non-PCD can have a significant effect on the accounting for these loans.

Goodwill. Goodwill represents the excess of purchase price over the fair value of net assets acquired using the acquisition method of accounting. Determining the fair value often involves estimates based on third-party valuations, such as appraisals, or internal valuations based on discounted cash flow analyses or other valuation techniques. Goodwill is not amortized, instead, the Company assess the potential for impairment on an annual basis or more frequently if events and circumstances indicate that goodwill might be impaired. The Company will continue to monitor events around COVID-19 and its potential impact on goodwill.

Income Taxes. The Company estimates income tax expense based on amounts expected to be owed to federal and state tax jurisdictions. Estimated income tax expense is reported in the unaudited Consolidated Statements of Income. Accrued and deferred taxes, as reported in other assets or other liabilities in the unaudited Consolidated Balance Sheets, represent the net estimated amount due to or to be received from taxing jurisdictions either currently or in the future. Management judgment is involved in estimating accrued and deferred taxes, as it may be necessary to evaluate the risks and merits of the tax treatment of transactions, filing positions, and taxable income calculations after considering ~~tax-related~~tax-

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related statutes, regulations and other relevant factors. Because of the complexity of tax laws and interpretations, interpretation is subject to judgment.

Allowance for ~~Loan~~Credit Losses. ~~First Busey has established~~The Company calculates the allowance for credit losses at each reporting date. The Company recognizes an allowance for ~~loan~~the lifetime expected credit losses ~~which represents its estimate~~for the amount the Company does not expect to collect. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the ~~probable losses inherent in~~reported book value. The calculation also contemplates that the ~~loan portfolio as~~Company may not be able to make or obtain such forecasts for the entire life of the ~~date~~financial assets and requires a reversion to historical credit loss information.

In determining the allowance, management relies predominantly on a disciplined credit review and approval process that extends to the full range of the ~~consolidated financial statements and reduces~~Company’s credit exposure. The allowance for credit losses must be determined on a collective (pool) basis when similar risk characteristics exists. On a case-by-case basis, the ~~total loans outstanding by~~Company may conclude a loan should be evaluated on an ~~estimate of uncollectible loans.~~ individual basis based on the disparate risk characteristics.

Loans deemed uncollectible are charged against and reduce the allowance. A provision for ~~loan~~credit losses is charged to current expense and acts to replenish the allowance for ~~loan~~credit losses in order to maintain the allowance at a level that management deems adequate. ~~Acquired loans from business combinations with uncollected principal balances are carried net of a fair value adjustment for credit and interest rates. These loans are only included in~~Determining the allowance calculation to the extent that the reserve requirement exceeds the fair value adjustment. However, as the acquired loans renew, it is generally necessary to establish an allowance which represents an amount that, in management’s opinion, will be adequate to absorb probable credit losses in such loans.

~~To determine the adequacy~~involves significant judgments and assumptions by management. Because of the allowance for loan losses, a formal analysis is completed quarterly to assess the risk within the loan portfolio. This assessment is reviewed by the Company’s senior management. The analysis includes a review of historical performance, dollar amount and trends of past due loans, dollar amount and trends in non-performing loans, certain impaired loans, and loans identified as sensitive assets. Sensitive assets include non-accrual loans, past-due loans, loans on First Busey’s watch loan reports and other loans identified as having probable potential for loss.

The allowance consists of specific and general components. The specific component considers loans that are classified as impaired. For such loans that are classified as impaired, an allowance is established when either the discounted cash flows or collateral value or observable market pricenature of the ~~impaired loan is lower than the carrying amount of that loan. The general component covers non-classified loans~~judgments and ~~classified loans not considered impaired~~assumptions made by management, actual results may differ from these judgments and is based on historical loss experience adjusted for qualitative factors. Other adjustments may be made to the allowance for pools of loans after an assessment of internal or external influences on credit quality that are not fully reflected in the historical loss experience.

A loan is considered to be impaired when, based on current information and events, it is probable First Busey will not be able to collect all principal and interest amounts due according to the contractual terms of the loan agreement. When a loan becomes impaired, management generally calculates the impairment based on the fair value of the collateral, if the loan is collateral-dependent or based on the discounted cash flows of the loan at the loan’s effective interest rate. The amount of impairment and any subsequent changes are recorded through a charge to the provision for loan losses. For collateral dependent loans, the allowance is based upon the estimated fair value, net of selling costs, of the applicable

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collateral. The required allowance or actual loss on an impaired loan could differ significantly if the ultimate fair value of the collateral is significantly different from the fair value estimate.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 ~~maximize stable~~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,~~+200 and +300 basis points. Due to the current low interest rate environment, a downward adjustment in federal fund rates was not meaningful at June 30, 2020. The model assumes immediate and sustained shifts in the federal funds rate and other market rate indices and corresponding shifts in other non-market rate indices based on their historical changes relative to changes in the federal funds rate and other market indices. Assets and liabilities are assumed to remain constant as of ~~the~~ measurement date; variable-rate assets and liabilities are repriced based on repricing frequency; and prepayment speeds on loans are projected for both declining and rising rate environments.

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The interest rate risk of First Busey as a result of immediate and sustained changes in interest rates, expressed as a change in net interest income as a percentage of the net interest income calculated in the constant base model, was as follows:


	Year-One: Basis Point Changes										Year-One: Basis Point Changes
	- 200		- 100		+100		+200		+300		- 100		+100		+200		+300
June 30, 2020											NM		8.72	%	17.24	%	25.47	%

June 30, 2019	(8.51)	%	(4.58)	%	1.10	%	2.77	%	4.26	%

December 31, 2018	(9.86)	%	(3.58)	%	1.08	%	2.01	%	2.88	%
December 31, 2019											(5.94)	%	5.39	%	10.24	%	15.01	%


	Year-Two: Basis Point Changes										Year-Two: Basis Point Changes
	- 200		- 100		+100		+200		+300		- 100		+100		+200		+300
June 30, 2020											NM		10.90	%	21.36	%	31.44	%

June 30, 2019	(11.53)	%	(6.79)	%	2.87	%	5.68	%	8.25	%

December 31, 2018	(13.71)	%	(5.13)	%	1.97	%	3.70	%	5.32	%
December 31, 2019											(8.19)	%	6.96	%	13.16	%	19.28	%

Interest rate risk is monitored and managed within approved policy limits. The calculation of potential effects of hypothetical interest rate changes is based on numerous assumptions and should not be relied upon as indicative of actual results. Actual results would likely differ from simulated results due to the timing, magnitude and frequency of interest rate changes as well as changes in market conditions and management strategies. ~~The above results do not take into account any management action to mitigate potential risk.~~

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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~~Act) was carried out as of June 30, ~~2019,~~2020, 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, ~~2019,~~2020, our disclosure controls and procedures were effective in ensuring that the information we are required to disclose in the reports we file or submit under the Exchange Act was (i) accumulated and communicated to our management (including the Chief Executive Officer and Chief Financial Officer) to allow timely decisions regarding required disclosure, and (ii) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms.

Changes in Internal Control over Financial Reporting

During the quarter ended June 30, ~~2019,~~2020, First Busey did not make any changes in its internal control over financial reporting or other factors that have materially affected, or are reasonably likely to materially affect, its 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.

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ITEM 1A. RISK FACTORS

~~There have been no material changes~~In addition to the risk factors ~~disclosed in~~set forth under Part I, Item 1A ~~of Part I of~~“Risk Factors” in the Company’s ~~2018~~2019 Form ~~10-K.~~10-K, the following risk factors apply to First Busey:

Our business, financial condition, liquidity and results of operations have been, and will likely continue to be, adversely affected by the COVID-19 pandemic.

The COVID-19 pandemic has created an economic recession and has caused severe financial disruptions that have adversely affected, and are likely to continue to adversely affect, our business, financial condition, liquidity and results of operations. The extent to which COVID-19 will continue to negatively affect our business, financial condition, liquidity and results of operations will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic, the continued effectiveness of our business continuity plan (including work-from-home arrangements and staffing in operational facilities), the direct and indirect impact of the pandemic on our employees, customers, clients, counterparties and service providers, as well as other market participants, and actions taken by governmental authorities and other third parties in response to the pandemic.

The COVID-19 pandemic has or could contribute to:

●

Increased unemployment and decreased consumer confidence and business generally, leading to an increased risk of delinquencies, defaults and foreclosures.

●

Ratings downgrades, credit deterioration and defaults in many industries, including hotel, restaurant, transportation, long-term healthcare, retail and commercial real estate, which may lead to increased provision expense.

●

A sudden and significant reduction in the valuation of the equity, fixed-income and commodity marketsand the significant increase in the volatility of those markets.

●

A decrease in interest rates and yields, which may lead to decreased net interest income.

●

Significant draws on credit lines, as customers and clients seek to increase liquidity.

●

A decrease in fees for customer services.

●

Increased demands on capital and liquidity.

●

A sustained decline in our stock price or the occurrence of what management would deem to be a triggering event that could, under certain circumstances, cause management to perform impairment testing on our goodwill and other intangible assets that could result in an impairment charge being recorded for that period, which would adversely impact our results of operations and the ability of Busey Bank to pay dividends to the Company.

●

A reduction in the value of the assets that the Company manages or otherwise administers or services for others, affecting related fee income and demand for the Company’s services.

●

Heightened cybersecurity, information security and operational risks as a result of work-from-home arrangements.

The outbreak of COVID-19 has resulted in a decline in our clients’ businesses, a decrease in consumer confidence, an increase in unemployment and disruptions in the services provided by our vendors. Continued disruptions to our clients’ businesses could result in increased risk of delinquencies, defaults, foreclosures and losses on our loans, declines in assets under management and wealth management revenues, negatively impact regional economic conditions, result in declines in local loan demand, liquidity of loan guarantors, loan collateral (particularly in real estate), loan originations and deposit availability and negatively impact the implementation of our growth strategy. Although governmental authorities have introduced a number of programs designed to soften the impact of COVID-19 on small businesses, once these programs expire, our borrowers may not be able to satisfy their financial obligations to us.

In general, the success of the unprecedented measures taken by governmental authorities to provide economic assistance to individual households and businesses, stabilize the markets and support economic growth is unknown and they may not be sufficient to fully mitigate the negative impact of the COVID-19 pandemic. Additionally, some measures, such as a suspension of mortgage and other loan payments and foreclosures, may have a negative impact on our business, financial condition, liquidity and results of operations. We also face an increased risk of litigation and governmental and

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regulatory scrutiny as a result of the effects of COVID-19 on market and economic conditions and actions governmental authorities take in response to those conditions.

The length of the pandemic and the efficacy of the extraordinary measures being put in place to address it are unknown. Until the pandemic subsides, we expect draws on lines of credit, reduced revenues in our businesses and increased customer and client defaults. Even after the pandemic subsides, the U.S. economy may continue to experience a recession, and we anticipate our businesses would be materially and adversely affected by a prolonged recession. To the extent the pandemic adversely affects our business, financial condition, liquidity or results of operations, it may also have the effect of heightening many of the other risks described in the section entitled “Risk Factors” in our 2019 Annual Report on Form 10-K and any subsequent Quarterly Reports on Form 10-Q.

The U.S. government and banking regulators, including the Federal Reserve, have taken a number of unprecedented actions in response to the COVID-19 pandemic, which could ultimately have a material adverse effect on our business and results of operations.

The CARES Act established a $2.0 trillion economic stimulus package, including cash payments to individuals, supplemental unemployment insurance benefits and a $349 billion loan program administered through the SBA, referred to as the PPP. In addition to implementing the programs contemplated by the CARES Act, the federal bank regulatory agencies have issued a steady stream of guidance in response to the COVID-19 pandemic and have taken a number of unprecedented steps to help banks navigate the pandemic and mitigate its impact. These include, without limitation:

●

requiring banks to focus on business continuity and pandemic planning;

●

adding pandemic scenarios to stress testing;

●

encouraging bank use of capital buffers and reserves in lending programs;

●

permitting certain regulatory reporting extensions;

●

reducing margin requirements on swaps;

●

permitting certain otherwise prohibited investments in investment funds;

●

issuing guidance to encourage banks to work with customers affected by the pandemic and encourage loan workouts; and

●

providing credit under the Community Reinvestment Act for certain pandemic-related loans, investments and public service.

The COVID-19 pandemic has significantly affected the financial markets, and the Federal Reserve has taken a number of actions in response. In March 2020, the Federal Reserve dramatically reduced the target federal funds rate and announced a $700 billion quantitative easing program in response to the expected economic downturn caused by the COVID-19 pandemic. In addition, the Federal Reserve reduced the interest that it pays on excess reserves. We expect that these reductions in interest rates, especially if prolonged, could adversely affect our net interest income and margins and our profitability. The Federal Reserve also launched the Main Street Lending Program, which will offer deferred interest on four-year loans to small and mid-sized businesses. The full impact of the COVID-19 pandemic on our business activities as a result of new government and regulatory laws, policies, programs and guidelines, as well as market reactions to such activities, remains uncertain but may ultimately have a material adverse effect on our business and results of operations.

COVID-19 has disrupted banking and other financial activities in the areas in which we operate and could potentially create widespread business continuity issues for us.

The COVID-19 pandemic has negatively impacted the ability of our employees and clients to engage in banking and other financial transactions in the geographic area in which we operate and could create widespread business continuity issues for us. We also could be adversely affected if key personnel or a significant number of employees were to become unavailable due to the effects and restrictions of an outbreak or escalation of the COVID-19 pandemic in our market area, including because of illness, quarantines, government actions or other restrictions in connection with the COVID-19 pandemic. Although we have business continuity plans and other safeguards in place, there is no assurance that such plans and safeguards will be effective. Further, we rely upon our third-party vendors to conduct business and to process, record, and monitor transactions. If any of these vendors are unable to continue to provide us with these services, it could negatively impact our ability to serve our clients.

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As a participating lender in the PPP, the Company is subject to additional risks of litigation from its customers or other parties regarding the processing of loans for the PPP and risks that the SBA may not fund some or all PPP loan guaranties.

On March 27, 2020, President Trump signed the CARES Act, which included a $349 billion loan program administered through the SBA referred to as the PPP. Under the PPP, small businesses and other entities and individuals could apply for loans from existing SBA lenders and other approved regulated lenders that enroll in the program, subject to numerous limitations and eligibility criteria. The PPP opened on April 3, 2020; however, because of the short timeframe between the passing of the CARES Act and the opening of the PPP, there was some ambiguity in the laws, rules and guidance regarding the operation of the PPP, which exposes the Company to risks relating to noncompliance with the PPP. On or about April 16, 2020, the SBA notified lenders that the $349 billion earmarked for the PPP was exhausted. Congress then authorized an additional $310 billion funding for PPP loans.

Since the opening of the PPP, several other larger banks have been subject to litigation regarding the process and procedures that such banks used in processing applications for the PPP and claims related to agent fees. The Company may be exposed to the risk of similar litigation, from both customers and non-customers that approached the banks regarding PPP loans, regarding their process and procedures used in processing applications for the PPP. If any such litigation is filed against us and is not resolved in a manner favorable to us, it may result in significant financial liability or adversely affect our reputation. In addition, litigation can be costly, regardless of outcome. Any financial liability, litigation costs or reputational damage caused by PPP related litigation could have a material adverse impact on our business, financial condition and results of operations.

We also have credit risk on PPP loans if a determination is made by the SBA that there is a deficiency in the manner in which the loan was originated, funded, or serviced by the Company, such as an issue with the eligibility of a borrower to receive a PPP loan, which may or may not be related to the ambiguity in the laws, rules and guidance regarding the operation of the PPP. In the event of a loss resulting from a default on a PPP loan and a determination by the SBA that there was a deficiency in the manner in which the PPP loan was originated, funded, or serviced by us, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty, or, if it has already paid under the guaranty, seek recovery of any loss related to the deficiency from us.

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 and replaced the prior repurchase plan originally approved in 2008. 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. Further, on February 5, 2020, First Busey’s board of directors approved an amendment to increase the authorized shares under the repurchase program by 2,000,000 shares. On ~~June 14, 2019,~~March 16, 2020, due to uncertainties related to COVID-19, the Company ~~repurchased 333,334~~suspended share repurchases under the plan and it is uncertain when the Company will resume the repurchase of shares as part of this program in ~~a private transaction for $25.30 per share.~~the future.

There were no purchases made by or on behalf of First Busey of its common stock shares during the quarter ended June 30, 2020. At June 30, ~~2019,~~2020, the Company had ~~1,000,000~~1,982,088 shares that may still be purchased under the plan.

Period
Total number of shared purchased
Average price paid per share
Total Number of Shares Purchased as Part of Publicly Announced Programs
Maximum number of Shares that May Yet Be Repurchased Under the Program
April 1-30, 2019
—
—
—
333,334
May 1-31, 2019
—
—
—
1,333,334
June 1-30, 2019
333,334
$ 25.30
333,334
1,000,000

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS


*10.1		~~Employment Agreement Addendum by and between First Busey Corporation and Christopher M. Shroyer, dated April 23, 2019 (filed as Exhibit 99.2 to the Company’s~~ Form ~~8-K filed with the Commission on April 23, 2019 (Commission No. 0-15950), and incorporated herein by reference).~~of Director Deferred Stock Unit Award

10.2		~~Letter~~Form of Performance-Based Restricted Stock Unit Agreement ~~by and between First Busey Corporation and Robin N. Elliott, dated April 23, 2019~~ (filed as Exhibit ~~99.3~~10.1 to the Company’s Form 8-K, filed with the ~~Commission~~SEC on July 9, 2020, and incorporated herein by reference).

10.3		First Busey Corporation 2020 Equity Incentive Plan (filed as Appendix A to the Company’s Proxy Statement on Form DEF 14A, filed with the SEC on April ~~23, 2019 (Commission No. 0-15950),~~9, 2020, and incorporated herein by reference).

10.4		Form of Restricted Stock Unit Award (filed as Exhibit 4.5 to the Company’s Form S-8, filed with the SEC on May 29, 2020, and incorporated herein by reference).

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

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

*32.1		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, from the Company’s Chief Executive Officer.

*32.2		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, from the Company’s Chief Financial Officer.

101.INS		iXBRL Instance Document

101.SCH		iXBRL Taxonomy Extension Schema

101.CAL		iXBRL Taxonomy Extension Calculation Linkbase

101.LAB		iXBRL Taxonomy Extension Label Linkbase

101.PRE		iXBRL Taxonomy Extension Presentation Linkbase

101.DEF		iXBRL Taxonomy Extension Definition Linkbase

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

*	Filed herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

FIRST BUSEY CORPORATION

(Registrant)


	By:	/s/ VAN A. DUKEMAN
		Van A. Dukeman
		President and Chief Executive Officer (Principal Executive Officer)

	By:	/s/ ~~ROBIN N. ELLIOTT~~JEFFREY D. JONES
		~~Robin N. Elliott~~Jeffrey D. Jones
		Chief Financial Officer (Principal Financial ~~Officer and Principal Accounting~~ Officer)

	By:	/s/ LYNETTE M. STRODE
		Lynette M. Strode
		Principal Accounting Officer

Date: August ~~7, 2019~~6, 2020

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	June 30, 2019
	Unpaid		Recorded
	Contractual		Investment		Recorded		Total				Average
	Principal		with No		Investment		Recorded		Related		Recorded
	Balance		Allowance		with Allowance		Investment		Allowance		Investment
Commercial	$	16,668	$	7,511	$	3,856	$	11,367	$	2,358	$	15,425
Commercial real estate		19,784		10,498		7,686		18,184		1,367		17,730
Real estate construction		1,329		1,186		—		1,186		—		656
Retail real estate		15,322		13,367		474		13,841		474		13,685
Retail other		62		34		—		34		—		39
Total	$	53,165	$	32,596	$	12,016	$	44,612	$	4,199	$	47,535


	As of June 30, 2019
			Commercial		Real Estate		Retail Real
	Commercial		Real Estate		Construction		Estate		Retail Other		Total
Allowance for loan losses
Ending balance attributed to:
Loans individually evaluated for impairment	$	2,358	$	1,367	$	—	$	474	$	—	$	4,199
Loans collectively evaluated for impairment		14,375		18,821		3,305		10,139		536		47,176
Ending balance	$	16,733	$	20,188	$	3,305	$	10,613	$	536	$	51,375

Loans:
Loans individually evaluated for impairment	$	11,336	$	15,723	$	751	$	12,668	$	34	$	40,512
Loans collectively evaluated for impairment		1,656,731		2,643,721		428,140		1,707,529		51,393		6,487,514
PCI loans evaluated for impairment		31		2,461		435		1,173		—		4,100
Ending balance	$	1,668,098	$	2,661,905	$	429,326	$	1,721,370	$	51,427	$	6,532,126


July 1, 2019 – June 30, 2020	$	1,064,812
July 1, 2020 – June 30, 2021		389,392
July 1, 2021 – June 30, 2022		158,968
July 1, 2022 – June 30, 2023		63,863
July 1, 2023 – June 30, 2024		71,961
Thereafter		815
	$	1,749,811


	June 30, 2019
2019	$	1,150
2020		2,342
2021		1,730
2022		1,375
2023		1,217
Thereafter		3,896
Amounts representing interest		(1,179)
Present value of net future minimum lease payments	$	10,531


	As of
	June 30,			March 31			December 31,			September 30,
	2019			2019			2018			2018
Portfolio loans	$	6,532,126		$	6,515,081		$	5,568,428		$	5,623,741
Allowance for loan losses		51,375			50,915			50,648			52,743
Non-performing loans
Non-accrual loans		32,816			36,230			34,997			40,395
Loans 90+ days past due		258			356			1,601			364
Loans 30-89 days past due		18,040			10,780			7,121			8,189
Other non-performing assets		936			921			376			1,093
Allowance as a percentage of non-performing loans		155.3	%		139.2	%		138.4	%		129.4	%
Allowance for loan losses to portfolio loans		0.79	%		0.78	%		0.91	%		0.94	%


Period	Total number of shared purchased	Average price paid per share	Total Number of Shares Purchased as Part of Publicly Announced Programs	Maximum number of Shares that May Yet Be Repurchased Under the Program
April 1-30, 2019	—	—	—	333,334
May 1-31, 2019	—	—	—	1,333,334
June 1-30, 2019	333,334	$ 25.30	333,334	1,000,000