Note 4: Securities

Securities are classified as held to maturity when First Busey has the ability and management has the 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 as available for sale and held to maturity are summarized as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(dollars in thousands)
September 30, 2015:
Available for sale
U.S. Treasury securities	$	65,062	$	701	$	—		$	65,763
Obligations of U.S. government corporations and agencies	149,620		813		—			150,433
Obligations of states and political subdivisions	189,953		2,801		(157		)	192,597
Residential mortgage-backed securities	322,919		5,930		(17		)	328,832
Corporate debt securities	152,456		763		(318		)	152,901

Total debt securities	880,010		11,008		(492		)	890,526
Mutual funds and other equity securities	11,373		867		—			12,240

Total	$	891,383	$	11,875	$	(492	)	$	902,766


Held to maturity
Obligations of states and political subdivisions	$	48,810	$	457	$	(29	)	$	49,238
Commercial mortgage-backed securities	1,002		48		—			1,050

Total	$	49,812	$	505	$	(29	)	$	50,288

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(dollars in thousands)
December 31, 2014:
Available for sale
U.S. Treasury securities	$	50,280	$	328	$	(2	)	$	50,606
Obligations of U.S. government corporations and agencies	166,207		981		(178		)	167,010
Obligations of states and political subdivisions	218,250		2,672		(761		)	220,161
Residential mortgage-backed securities	230,596		5,062		(22		)	235,636
Corporate debt securities	79,087		296		(76		)	79,307

Total debt securities	744,420		9,339		(1,039		)	752,720
Mutual funds and other equity securities	4,944		1,401		—			6,345

Total	$	749,364	$	10,740	$	(1,039	)	$	759,065


Held to maturity
Obligations of states and political subdivisions	$	1,359	$	15	$	(3	)	$	1,371
Commercial mortgage-backed securities	1,014		40		—			1,054

Total	$	2,373	$	55	$	(3	)	$	2,425

The amortized cost and fair value of debt securities available for sale and held to maturity as of September 30, 2015, 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)
Due in one year or less	$	107,516	$	107,924	$	1,053	$	1,055
Due after one year through five years	417,157		420,229		13,845		13,955
Due after five years through ten years	112,909		116,344		27,764		28,056
Due after ten years	242,428		246,029		7,150		7,222

Total	$	880,010	$	890,526	$	49,812	$	50,288

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015			2014
	(dollars in thousands)
Gross security gains	$	—	$	—	$	1		$	57
Gross security (losses)	—		—		(22		)	(17		)

Net security (losses) gains	$	—	$	—	$	(21	)	$	40

The tax provision for the net realized gains and losses was insignificant for the three and nine months ended September 30, 2015 and 2014.

Investment securities with carrying amounts of $606.8 million and $536.2 million on September 30, 2015 and December 31, 2014, 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 September 30, 2015 and December 31, 2014 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)
September 30, 2015:
Available for sale
Obligations of states and political subdivisions	$	8,613	$	(53	)	$	11,478	$	(104	)	$	20,091	$	(157	)
Residential mortgage-backed Securities	6,412		(17		)	—		—			6,412		(17		)
Corporate debt securities	62,014		(318		)	—		—			62,014		(318		)

Total temporarily impaired Securities	$	77,039	$	(388	)	$	11,478	$	(104	)	$	88,517	$	(492	)


Held to maturity
Obligations of states and political subdivisions	$	5,188	$	(29	)	$	—	$	—		$	5,188	$	(29	)

Total temporarily impaired Securities	$	5,188	$	(29	)	$	—	$	—		$	5,188	$	(29	)

	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, 2014:
Available for sale
U.S. Treasury securities	$	—	$	—		$	366	$	(2	)	$	366	$	(2	)
Obligations of U.S. government corporations and agencies	—		—			25,118		(178		)	25,118		(178		)
Obligations of states and political subdivisions	40,385		(140		)	40,201		(621		)	80,586		(761		)
Residential mortgage-backed Securities	10,630		(22		)	—		—			10,630		(22		)
Corporate debt securities	16,400		(72		)	213		(4		)	16,613		(76		)

Total temporarily impaired Securities	$	67,415	$	(234	)	$	65,898	$	(805	)	$	133,313	$	(1,039	)


Held to maturity
Obligations of states and political subdivisions	$	534	$	(3	)	$	—	$	—		$	534	$	(3	)

Total temporarily impaired Securities	$	534	$	(3	)	$	—	$	—		$	534	$	(3	)

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 September 30, 2015 was 87, and represented a loss of 0.6% 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 September 30, 2015.

The Company had available for sale obligations of state and political subdivisions with a fair value of $192.6 million and $220.2 million as of September 30, 2015 and December 31, 2014, respectively. In addition, the Company had held to maturity obligations of state and political subdivisions with a fair value of $49.2 million and $1.4 million at September 30, 2015 and December 31, 2014, respectively.

As of September 30, 2015, the fair value of the Company’s obligations of state and political subdivisions portfolio was comprised of $206.2 million of general obligation bonds and $35.6 million of revenue bonds issued by 292 issuers, primarily consisting of states, counties, cities, towns, villages and school districts. The Company held investments in general obligation bonds in 30 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 17 states, including two states where the aggregate fair value exceeded $5.0 million.

As of December 31, 2014, the Company’s obligations of state and political subdivisions portfolio was composed of $183.7 million of general obligation bonds and $37.9 million of revenue bonds issued by 220 issuers, primarily consisting of states, counties, cities, towns, villages and school districts. The Company held investments in general obligation bonds in 23 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 15 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:

September 30, 2015:

						Average Exposure
	Number of	Amortized		Fair		Per Issuer
U.S. State	Issuers	Cost		Value		(Fair Value)
	(dollars in thousands)
Illinois	88	$	71,965	$	73,122	$	831
Wisconsin	38	32,955		33,304		876
Michigan	39	29,111		29,600		759
Pennsylvania	10	12,815		12,908		1,291
Ohio	10	10,995		11,055		1,105
Texas	18	12,179		12,279		682
Iowa	3	5,551		5,617		1,872
Other	49	27,775		28,362		579

Total general obligations bonds	255	$	203,346	$	206,247	$	809

December 31, 2014:

						Average Exposure
	Number of	Amortized		Fair		Per Issuer
U.S. State	Issuers	Cost		Value		(Fair Value)
	(dollars in thousands)
Illinois	63	$	59,979	$	61,058	$	969
Wisconsin	39	36,165		36,365		932
Michigan	33	30,400		30,739		931
Pennsylvania	10	12,756		12,761		1,276
Ohio	8	9,954		9,922		1,240
Texas	7	7,364		7,313		1,045
Iowa	3	6,116		6,142		2,047
Other	24	18,862		19,370		807

Total general obligations bonds	187	$	181,596	$	183,670	$	982

The general obligation bonds are diversified across many issuers, with $3.4 million being the largest exposure to a single issuer at September 30, 2015 and December 31, 2014. Accordingly, as of September 30, 2015 and December 31, 2014, 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, 97.5% had been rated by at least one nationally recognized statistical rating organization and 2.5% were unrated, based on the fair value as of September 30, 2015. Of the general obligation bonds in the Company’s portfolio, 97.1% had been rated by at least one nationally recognized statistical rating organization and 2.9% were unrated, based on the fair value as of December 31, 2014.

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

September 30, 2015:

						Average Exposure
	Number of	Amortized		Fair		Per Issuer
U.S. State	Issuers	Cost		Value		(Fair Value)
	(dollars in thousands)
Illinois	7	$	8,908	$	8,925	$	1,275
Indiana	9	10,194		10,255		1,139
Other	21	16,315		16,408		781

Total revenue bonds	37	$	35,417	$	35,588	$	962

December 31, 2014:

						Average Exposure
	Number of	Amortized		Fair		Per Issuer
U.S. State	Issuers	Cost		Value		(Fair Value)
	(dollars in thousands)
Illinois	4	$	6,772	$	6,708	$	1,677
Indiana	8	12,520		12,469		1,559
Other	21	18,721		18,685		890

Total revenue bonds	33	$	38,013	$	37,862	$	1,147

The revenue bonds are diversified across many issuers and revenue sources with $3.0 million being the largest exposure to a single issuer at each of September 30, 2015 and December 31, 2014. Accordingly, as of September 30, 2015 and December 31, 2014, 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 September 30, 2015 and December 31, 2014. 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, 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/micropolitan statistical areas/metropolitan statistical areas in which an office of Busey Bank is located. The investment policy states fixed income investments that are not Office of the Comptroller of the Currency 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 Busey Bank’s obligations of state and political subdivision securities portfolio are subject to ongoing 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 September 30, 2015, 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.