Note 3: Securities

Securities are classified as held to maturity when First Busey has the ability and management has the positive intent to hold those securities to maturity. Accordingly, they are stated at cost, adjusted for amortization of premiums and accretion of discounts. Securities are classified as available for sale when First Busey may decide to sell those securities due to changes in market interest rates, liquidity needs, changes in yields on alternative investments, and for other reasons. They are carried at fair value with unrealized gains and losses, net of taxes, reported in other comprehensive income.

The amortized cost, unrealized gains and losses and fair values of securities classified available for sale and held to maturity are summarized as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(dollars in thousands)
March 31, 2014:
Available for sale
U.S. Treasury securities	$	50,464	$	217	$	(11	)	$	50,670
Obligations of U.S. government corporations and agencies	229,335		2,201		(291		)	231,245
Obligations of states and political subdivisions	252,019		3,177		(1,474		)	253,722
Residential mortgage-backed securities	266,556		3,694		(796		)	269,454
Corporate debt securities	42,716		157		(117		)	42,756
Total debt securities	841,090		9,446		(2,689		)	847,847
Mutual funds and other equity securities	3,357		1,632		—			4,989
Total	$	844,447	$	11,078	$	(2,689	)	$	852,836

Held to maturity
Obligations of states and political subdivisions	$	831	$	5	$	—		$	836
Commercial mortgage-backed securities	1,026		—		(3		)	1,023
Total	$	1,857	$	5	$	(3	)	$	1,859

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(dollars in thousands)
December 31, 2013:
Available for sale
U.S. Treasury securities	$	102,463	$	244	$	(67	)	$	102,640
Obligations of U.S. government corporations and agencies	254,998		2,741		(328		)	257,411
Obligations of states and political subdivisions	272,077		2,887		(2,812		)	272,152
Residential mortgage-backed securities	174,699		3,571		(535		)	177,735
Corporate debt securities	25,384		155		(33		)	25,506
Total debt securities	829,621		9,598		(3,775		)	835,444
Mutual funds and other equity securities	4,114		1,752		—			5,866
Total	$	833,735	$	11,350	$	(3,775	)	$	841,310

Held to maturity
Obligations of states and political subdivisions	$	834	$	1	$	(4	)	$	831
Total	$	834	$	1	$	(4	)	$	831

The amortized cost and fair value of debt securities available for sale and held to maturity as of March 31, 2014, by contractual maturity, are shown below. Mutual funds and other equity securities do not have stated maturity dates and therefore are not included in the following maturity summary. Mortgages underlying the residential mortgage-backed securities may be called or prepaid without penalties; therefore, actual maturities could differ from the contractual maturities. All residential mortgage-backed securities were issued by U.S. government agencies and corporations.

	Available for sale				Held to maturity
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
	(dollars in thousands)				(dollars in thousands)
Due in one year or less	$	130,245	$	131,111	$	—	$	—
Due after one year through five years	374,490		377,005		319		320
Due after five years through ten years	165,832		168,511		1,538		1,539
Due after ten years	170,523		171,220		—		—
Total	$	841,090	$	847,847	$	1,857	$	1,859

Realized gains and losses related to sales of securities available for sale are summarized as follows:

	Three Months Ended March 31,
	2014			2013
	(dollars in thousands)
Gross security gains	$	57		$	—
Gross security (losses)	(14		)	—
Net security gains	$	43		$	—

The tax provision for the net realized gains and losses was insignificant for the three months ended March 31, 2014 and there was no tax provision related to net realized gains and losses for the three months ended March 31, 2013.

Investment securities with carrying amounts of $362.4 million and $428.7 million on March 31, 2014 and December 31, 2013, 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 securities with gross unrealized losses at March 31, 2014 and December 31, 2013 aggregated by investment category and length of time that individual securities have been in a continuous loss position follows:

	Continuous unrealized losses existing for less than 12 months, gross				Continuous unrealized losses existing for greater than 12 months, gross				Total, gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
	(dollars in thousands)
March 31, 2014:
Available for sale
U.S. Treasury securities	$	851	$	11	$	—	$	—	$	851	$	11
Obligations of U.S. government corporations and agencies	25,992		291		—		—		25,992		291
Obligations of states and political subdivisions	73,682		1,259		5,332		215		79,014		1,474
Residential mortgage-backed securities	111,493		796		—		—		111,493		796
Corporate debt securities	18,006		117		—		—		18,006		117
Total temporarily impaired securities	$	230,024	$	2,474	$	5,332	$	215	$	235,356	$	2,689

March 31, 2014:
Held to maturity
Obligations of states and political subdivisions (1)	$	280	$	—	$	—	$	—	$	280	$	—
Commercial mortgage-backed securities	1,023		3		—		—		1,023		3
Total temporarily impaired securities	$	1,303	$	3	$	—	$	—	$	1,303	$	3

(1) Unrealized losses existing for less than 12 months, gross, was less than one thousand dollars.

	Continuous unrealized losses existing for less than 12 months, gross				Continuous unrealized losses existing for greater than 12 months, gross				Total, gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
	(dollars in thousands)
December 31, 2013:
Available for sale
U.S. Treasury securities	$	25,830	$	67	$	—	$	—	$	25,830	$	67
Obligations of U.S. government corporations and agencies	25,946		328		—		—		25,946		328
Obligations of states and political subdivisions	92,703		2,518		8,492		294		101,195		2,812
Residential mortgage-backed securities	53,543		535		—		—		53,543		535
Corporate debt securities	1,614		33		—		—		1,614		33
Total temporarily impaired securities	$	199,636	$	3,481	$	8,492	$	294	$	208,128	$	3,775

December 31, 2013:
Held to maturity
Obligations of states and political subdivisions	$	597	$	4	$	—	$	—	$	597	$	4
Total temporarily impaired securities	$	597	$	4	$	—	$	—	$	597	$	4

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to the length of time and extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, and whether the Company has the intent to sell the security and it is more-likely-than-not it will have to sell the security before recovery of its cost basis.

The total number of securities in the investment portfolio in an unrealized loss position as of March 31, 2014 was 212, and represented a loss of 1.1% of the aggregate carrying value. Based upon a review of unrealized loss circumstances, the unrealized losses resulted from changes in market interest rates and liquidity, not from changes in the probability of receiving the contractual cash flows. The Company does not intend to sell the securities and it is more-likely-than-not that the Company will recover the amortized cost prior to being required to sell the securities. Full collection of the amounts due according to the contractual terms of the securities is expected; therefore, the Company does not consider these investments to be other-than-temporarily impaired at March 31, 2014.

The Company had available for sale obligations of state and political subdivisions with a fair value of $253.7 million and $272.2 million as of March 31, 2014 and December 31, 2013, respectively. In addition, the Company had held to maturity obligations of state and political subdivisions totaling $0.8 million at March 31, 2014 and December 31, 2013.

As of March 31, 2014, the Company’s obligations of state and political subdivisions portfolios were comprised of $206.1 million of general obligation bonds and $48.4 million of revenue bonds issued by 255 issuers, primarily consisting of states, counties, cities, towns, villages and school districts. The Company held investments in general obligation bonds in twenty-four states (including the District of Columbia), including seven states in which the aggregate fair value exceeded $5.0 million. The Company held investments in revenue bonds in twenty-one states, including two states where the aggregate fair value exceeded $5.0 million.

As of December 31, 2013, the Company’s obligations of state and political subdivisions portfolio was comprised of $223.5 million of general obligation bonds and $49.5 million of revenue bonds issued by 267 issuers, primarily consisting of states, counties, cities, towns, villages and school districts. The Company held investments in general obligation bonds in twenty-five states (including the District of Columbia), including seven states in which the aggregate fair value exceeded $5.0 million. The Company held investments in revenue bonds in twenty-one states, including two states where the aggregate fair value exceeded $5.0 million.

The amortized cost and fair values of the Company’s portfolio of general obligation bonds are summarized in the following tables by the issuers’ state:

		Average Exposure
March 31, 2014:	Number of	Per Issuer		Amortized		Fair
U.S. State	Issuers	(Fair Value)		Cost		Value
	(dollars in thousands)
Illinois	75	$	935	$	68,919	$	70,109
Wisconsin	41	981		39,996		40,203
Michigan	37	960		35,289		35,520
Pennsylvania	11	1,287		14,112		14,153
Ohio	11	1,012		11,220		11,129
Texas	7	1,051		7,474		7,355
Iowa	3	2,049		6,123		6,146
Other	25	861		20,986		21,528
Total general obligations bonds	210	$	982	$	204,119	$	206,143

		Average Exposure
December 31, 2013:	Number of	Per Issuer		Amortized		Fair
U.S. State	Issuers	(Fair Value)		Cost		Value
	(dollars in thousands)
Illinois	82	$	1,022	$	82,884	$	83,804
Wisconsin	41	1,052		43,117		43,122
Michigan	37	956		35,350		35,365
Pennsylvania	11	1,285		14,132		14,133
Ohio	12	952		11,709		11,426
Texas	7	1,039		7,510		7,270
Iowa	3	2,020		6,126		6,060
Other	26	857		21,865		22,290
Total general obligations bonds	219	$	1,020	$	222,693	$	223,470

The general obligation bonds are diversified across many issuers, with $3.4 million and $5.0 million being the largest exposure to a single issuer at March 31, 2014 and December 31, 2013, respectively. Accordingly, as of March 31, 2014 and December 31, 2013, the Company did not hold general obligation bonds of any single issuer, the aggregate book or market value of which exceeded 10% of the Company’s stockholders’ equity. Of the general obligation bonds in the Company’s portfolio, 96.9% had been rated by at least one nationally recognized statistical rating organization and 3.1% were unrated, based on the fair value as of March 31, 2014. Of the general obligation bonds in the Company’s portfolio, 96.4% had been rated by at least one nationally recognized statistical rating organization and 3.6% were unrated, based on the fair value as of December 31, 2013.

The amortized cost and fair values of the Company’s portfolio of revenue bonds are summarized in the following tables by the issuers’ state:

		Average Exposure
March 31, 2014:	Number of	Per Issuer		Amortized		Fair
U.S. State	Issuers	(Fair Value)		Cost		Value
	(dollars in thousands)
Illinois	4	$	1,803	$	7,354	$	7,213
Indiana	11	1,202		13,321		13,219
Other	30	933		28,056		27,983
Total revenue bonds	45	$	1,076	$	48,731	$	48,415

		Average Exposure
December 31, 2013:	Number of	Per Issuer		Amortized		Fair
U.S. State	Issuers	(Fair Value)		Cost		Value
	(dollars in thousands)
Illinois	4	$	1,780	$	7,356	$	7,121
Indiana	14	1,034		14,740		14,481
Other	30	930		28,122		27,911
Total revenue bonds	48	$	1,032	$	50,218	$	49,513

The revenue bonds are diversified across many issuers and revenue sources with $3.0 million being the largest exposure to a single issuer at March 31, 2014 and December 31, 2013. Accordingly, as of March 31, 2014 and December 31, 2013, the Company did not hold revenue bonds of any single issuer, the aggregate book or market value of which exceeded 10% of the Company’s stockholders’ equity. All of the revenue bonds in the Company’s portfolio had been rated by at least one nationally recognized statistical rating organization as of March 31, 2014 and December 31, 2013. Some of the primary types of revenue bonds owned in the Company’s portfolio include: primary education or government building lease rentals secured by ad valorem taxes, utility systems secured by utility system net revenues, housing authorities secured by mortgage loans or principal receipts on mortgage loans, secondary education secured by student fees/tuitions, contracts subject to annual state appropriation, and pooled issuances (i.e. bond bank) consisting of multiple underlying municipal obligors.

Substantially all of the Company’s obligations of state and political subdivision securities are owned by Busey Bank, whose investment policy requires that state and political subdivision securities purchased be investment grade. Busey Bank’s investment policy also limits the amount of rated state and political subdivision securities to an aggregate 100% of the Bank’s Total Risk Based Capital at the time of purchase and an aggregate 15% of Total Risk Based Capital for unrated state and political subdivision securities issued by municipalities having taxing authority or located in counties/MSAs in which an office of the Bank is located. The investment policy states fixed income investments that are not OCC Type 1 securities (U.S. Treasuries, agencies, municipal government general obligation and, for well-capitalized institutions, most municipal revenue bonds) should be analyzed prior to acquisition to determine that (1) the security has low risk of default by the obligor, and (2) the full and timely repayment of principal and interest is expected over the expected life of the investment. All securities in the Bank’s obligations of state and political subdivision securities portfolio are subject to such review. Factors that may be considered as part of ongoing monitoring of state and political subdivision securities include credit rating changes by nationally recognized statistical rating organizations, market valuations, third-party municipal credit analysis, which may include indicative information regarding the issuer’s capacity to pay, market and economic data and such other factors as are available and relevant to the security or the issuer such as its budgetary position and sources, strength and stability of taxes and/or other revenue.

As of March 31, 2014, the Company’s regular monitoring of its obligations of state and political subdivisions portfolio had not uncovered any facts or circumstances resulting in significantly different credit ratings than those assigned by a nationally recognized statistical rating organization.