Note 16. Stock Incentive Plans

Overview

During the second quarter of 2010, the Company adopted the First Busey Corporation 2010 Equity Incentive Plan (“2010 Equity Plan”), which was approved at the annual stockholders meeting on May 19, 2010. The Company no longer makes any additional grants under prior plans. The prior plans include: the First Busey Corporation 1993 Restricted Stock Award Plan, the First Busey Corporation 1999 Stock Option Plan, the Main Street Trust, Inc. 2000 Stock Incentive Plan, and the First Busey Corporation 2004 Stock Option Plan.

Subject to permitted adjustments for certain corporate transactions, the maximum number of shares that may be delivered to participants, or their beneficiaries, under the 2010 Equity Plan is 4,000,000 shares of First Busey common stock. To the extent that any shares of stock covered by an award (including non-vested stock awards) under the 2010 Equity Plan, or the prior plans, are not delivered for any reason, including because the award is forfeited, canceled, settled in cash or shares are withheld to satisfy tax withholding requirements, such shares will not be deemed to have been delivered for purposes of determining the maximum number of shares of stock available for delivery and will again become available for usage under the 2010 Equity Plan. If any option granted under the 2010 Equity Plan is exercised by tendering shares of stock, only the number of shares of stock issued net of the shares of stock tendered shall be counted for purposes of these limitations.

The 2010 Equity Plan’s effective date was May 19, 2010. The 2010 Equity Plan will continue in effect until terminated by the board of directors; provided that no awards may be granted under the 2010 Equity Plan after the ten-year anniversary of the effective date. Any awards that are outstanding after the tenth anniversary of the effective date will remain subject to the terms of the 2010 Equity Plan.

The following additional limits apply to awards under the 2010 Equity Plan:

· the maximum number of shares of stock that may be covered by options that are intended to be “performance-based compensation” which are granted to any one participant during any calendar year is 400,000 shares;

· the maximum number of shares of stock that may be covered by stock awards that are intended to be “performance-based compensation” which are granted to any one participant during any calendar year is 200,000 shares; and

· the maximum dollar amount of cash incentive awards or cash-settled stock awards intended to be “performance-based compensation” payable to any one participant with respect to any calendar year is $1,000,000.

Due to First Busey’s participation in the TARP CPP through August 25, 2011, it was not permitted to repurchase any shares of its common stock, other than in connection with benefit plans consistent with past practice. However, as described under “Note 13 — Capital,” as of August 25, 2011, the Company is no longer a participant in the TARP CPP, and therefore is no longer subject to these stock repurchase restrictions.

The Company grants share-based compensation awards to its employees and members of its board of directors as provided for under the Company’s 2010 Equity Incentive Plan. The Company currently grants share-based compensation in the form of restricted stock units and deferred stock units (considered non-vested stock awards under ASC Topic 718). The Company also has outstanding stock options granted prior to 2011. The Company’s 2010 Equity Incentive Plan is designed to encourage ownership of its common stock by its employees and directors, to provide additional incentive for them to promote the success of its business, and to attract and retain talented personnel. All of the Company’s employees and directors, and those of its subsidiaries, are eligible to receive awards under the plan.

Stock Option Plan

There were no stock options granted in 2012 and 2011. The fair value of the stock options granted in 2010, which vested over a one-year period, was estimated using the Black-Scholes option pricing model with the following weighted average assumptions.

	2010
	Director

Number of options granted	67,500
Risk-free interest rate	1.98		%
Expected life, in years	4.9
Estimated Forfeiture Rate	—
Expected volatility	47.17		%
Expected dividend yield	3.01		%

Estimated fair value per option	$	1.48

Expected life and estimated forfeiture rate is based on historical exercise and termination behavior. Expected stock price volatility is based on historical volatility of the Company’s common stock and correlates with the expected life of the options. The risk-free interest rate is based on the implied yield available on U.S. Treasury zero-coupon issues with a remaining term approximately equal to the expected life of the option. The expected dividend yield represents the annual dividend yield as of the date of grant. Management reviews and adjusts the assumptions used to calculate the fair value of an option as of each grant date to better reflect expected trends.

A summary of the status of the Company’s stock options for the years ended December 31, 2012, 2011, and 2010, and the changes during the years ending on those dates is as follows:

	2012				2011				2010
			Weighted-				Weighted-				Weighted-
			Average				Average				Average
			Exercise				Exercise				Exercise
	Shares		Price		Shares		Price		Shares		Price

Outstanding at beginning of year	1,017,922		$	16.23	1,351,593		$	16.09	1,592,755		$	16.12
Granted	—		––		—		––		67,500		4.49
Exercised	—		––		—		––		—		––
Forfeited	(160,454	)	12.07		(333,671	)	15.67		(308,662	)	13.70
Outstanding at end of year	857,468		$	17.01	1,017,922		$	16.23	1,351,593		$	16.09

Exercisable at end of year	857,468		$	17.01	1,017,922		$	16.23	1,291,593		$	16.63

Intrinsic value of options exercised during the year			$	—			$	—			$	—
Weighted-average fair value per option for options granted during the year			$	—			$	—			$	1.48

The following table summarizes information about stock options outstanding at December 31, 2012:

								Options
		Options Outstanding						Exercisable
					Weighted-
			Weighted-		Average
Range of			Average		Remaining
Exercise			Exercise		Contractual	Intrinsic			Intrinsic
Prices		Number	Price		Life	Value		Number	Value

$	4.49-7.53	105,000	$	6.01	7.00			105,000
16.00-16.03		156,439	16.00		0.21			156,439
17.12-19.74		596,029	19.21		2.38			596,029

		857,468	$	17.01	2.55	$	8	857,468	$	8

The Company did not record any stock option compensation expense during 2012 and recorded an insignificant amount of expense during 2011 and 2010. As of December 31, 2012, the Company has no unrecognized stock option expense.

Restricted Stock Unit Plan

The Company grants restricted stock units (“RSUs”) to members of management periodically throughout the year. Each RSU is equivalent to one share of the Company’s common stock. These units have a requisite service period ranging from one to five years. In addition, all recipients earn quarterly dividend equivalents on their respective units. These dividend equivalents are not paid out during the vesting period, but instead entitle the recipients to additional units. Therefore, dividends earned each quarter compound based upon the updated unit balances. Upon vesting/delivery, shares will be issued from treasury.

A summary of the changes in the Company’s restricted stock units for the years ended December 31, 2012, 2011 and 2010 is as follows:

	2012				2011			2010
			Weighted-			Weighted-			Weighted-
			Average			Average			Average
			Grant Date			Grant Date			Grant Date
	Shares		Fair Value		Shares	Fair Value		Shares	Fair Value

Outstanding at beginning of year	455,352		$	4.98	194,914	$	4.75	—	$	—
Granted	266,258		4.83		250,728	5.16		191,579	4.75
Dividend equivalents earned	32,704		4.79		9,710	5.20		3,335	4.61
Vested	(9,925	)	4.19		—	––		—	––
Forfeited	(7,977	)	5.15		—	––		—	––
Outstanding at end of year	736,412		$	4.92	455,352	$	4.98	194,914	$	4.75

In 2012, the Company issued 6,804 treasury shares in conjunction with the vesting of RSUs. The difference between the number of shares issued and the number of vested units is due to shares issued under a net share settlement option. There were no cash proceeds from the vesting of RSUs in 2012, as the one vesting was net share settled.

On July 24, 2012, under the terms of the 2010 Equity Incentive Plan, the Company granted 204,452 RSUs to certain members of management and the chairman of the board. As the stock price on the grant date of July 24, 2012 was $4.72, total compensation cost to be recognized is $965,000. This cost will be recognized over the requisite service period of five years following which the awards will vest 100%.

On June 19, 2012, under the terms of the 2010 Equity Incentive Plan, the Company granted 2,092 RSUs to a member of management. As the stock price on the grant date of June 19, 2012 was $4.78, total compensation cost to be recognized is $10,000. This cost will be recognized over a period of one to three years. Per the agreement, 697 units vest over a requisite service period of one year, 697 units vest over a requisite service period of two years, and the remaining 698 units vest over a requisite service period of three years. Subsequent to each requisite service period, the awards will vest 100%.

On May 15, 2012, under the terms of the 2010 Equity Incentive Plan, the Company granted 3,275 RSUs to a member of management. As the stock price on the grant date of May 15, 2012 was $4.58, total compensation cost to be recognized is $15,000. This cost will be recognized over a period of one to three years. Per the agreement, 1,092 units vest over a requisite service period of one year, 1,092 units vest over a requisite service period of two years, and the remaining 1,091 units vest over a requisite service period of three years. Subsequent to each requisite service period, the awards will vest 100%.

On April 24, 2012, under the terms of the 2010 Equity Incentive Plan, the Company granted 3,205 RSUs to a member of management. As the stock price on the grant date of April 24, 2012 was $4.68, total compensation cost to be recognized is $15,000. This cost will be recognized over a period of one to three years. Per the agreement, 1,068 units vest over a requisite service period of one year, 1,068 units vest over a requisite service period of two years, and the remaining 1,069 units vest over a requisite service period of three years. Subsequent to each requisite service period, the awards will vest 100%.

On January 24, 2012, under the terms of the 2010 Equity Incentive Plan, the Company granted 53,234 RSUs to certain members of management. As the stock price on the grant date of January 24, 2012 was $5.26, total compensation cost to be recognized is $280,011. This cost will be recognized over a period of one to three years. Per the respective agreements, 17,745 RSUs vest over a requisite service period of one year, 17,745 RSUs vest over a requisite service period of two years, and the remaining 17,744 RSUs vest over a requisite service period of three years. Subsequent to each requisite service period, the awards will vest 100%.

A listing of RSUs granted in 2011 and 2010 under the terms of the 2010 Equity Incentive Plan can be found in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

Deferred Stock Unit Plan

The Company annually grants share-based awards in the form of restricted stock units with a deferred settlement date (“DSUs”) to its board of 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. These units generally are subject to the same terms as RSUs under the Company’s 2010 Equity Incentive 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.

A summary of the changes in the Company’s deferred stock units for the years ended December 31, 2012 and 2011 is as follows (DSUs were initially granted in 2011):

	2012				2011
			Weighted-			Weighted-
			Average			Average
			Grant Date			Grant Date
	Shares		Fair Value		Shares	Fair Value

Non-vested at beginning of year	22,771		$	5.23	—	$	—
Granted	31,897		4.77		22,426	5.23
Dividend equivalents earned	2,252		4.76		345	5.22
Vested	(23,929	)	5.21		—	—
Forfeited	—		—		—	—
Non-vested at end of year	32,991		$	4.77	22,771	$	5.23
Outstanding at end of year	56,920		$	4.96	22,771	$	5.23

On July 24, 2012, under the terms of the 2010 Equity Incentive Plan, the Company granted 5,297 DSUs to the Chairman of the Board. As the stock price on the grant date of July 24, 2012 was $4.72, total compensation cost to be recognized is $25,000. This cost will be recognized over the requisite service period of one year from the date of grant or the next Annual Shareholder’s meeting; whichever is earlier. Subsequent to the requisite service period, the award will vest 100%.

On June 19, 2012, under the terms of the 2010 Equity Incentive Plan, the Company granted 26,600 DSUs to directors. As the stock price on the grant date of June 19, 2012 was $4.78, total compensation cost to be recognized is $127,148. This cost will be recognized over the requisite service period of one year from the date of grant or the next Annual Shareholder’s meeting; whichever is earlier. Subsequent to the requisite service period, the awards will vest 100%.

A listing of grants in 2011 under the terms of the 2010 Equity Incentive Plan can be found in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

The Company recognized $1.0 million and $0.4 million of compensation expense related to both non-vested RSUs and DSUs for the years ended December 31, 2012 and December 31, 2011, respectively. As of December 31, 2012, there was $2.2 million of total unrecognized compensation cost related to these non-vested stock awards. This cost is expected to be recognized over a period of 2.9 years.