Note 3: Securities

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

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
June 30, 2018:
Available for sale
U.S. Treasury securities(1)	$	61,035	$	—	$	(1,077	)	$	59,958
Obligations of U.S. government corporations and agencies	96,454		4		(1,961		)	94,497
Obligations of states and political subdivisions	249,092		441		(2,879		)	246,654
Residential mortgage-backed securities	363,309		233		(9,487		)	354,055
Corporate debt securities	116,645		45		(516		)	116,174

Total	$	886,535	$	723	$	(15,920	)	$	871,338


Held to maturity
Obligations of states and political subdivisions	$	38,870	$	60	$	(164	)	$	38,766
Commercial mortgage-backed securities	60,282		—		(1,562		)	58,720
Residential mortgage-backed securities	408,628		74		(9,473		)	399,229

Total	$	507,780	$	134	$	(11,199	)	$	496,715

(1)The gross unrealized gains on U.S. Treasury securities was less than one thousand dollars.

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
December 31, 2017:
Available for sale
U.S. Treasury securities	$	60,829	$	7	$	(488	)	$	60,348
Obligations of U.S. government corporations and agencies	104,807		1		(1,143		)	103,665
Obligations of states and political subdivisions	280,216		1,160		(1,177		)	280,199
Residential mortgage-backed securities	400,661		612		(3,837		)	397,436
Corporate debt securities	30,946		132		(44		)	31,034

Total	$	877,459	1,912		(6,689		)	872,682


Held to maturity
Obligations of states and political subdivisions	$	41,300	$	228	$	(64	)	$	41,464
Commercial mortgage-backed securities	60,474		41		(297		)	60,218
Residential mortgage-backed securities	341,776		25		(2,431		)	339,370

Total	$	443,550	$	294	$	(2,792	)	$	441,052

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. 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.

The Company held equity securities, consisting of money market mutual funds, with fair values of $5.7 million at June 30, 2018. The Company held equity securities, consisting of common stock and money market mutual funds, with fair values of $0.8 million and $4.6 million, respectively, at December 31, 2017. The Company recorded $0.1 million of unrealized losses recorded in non-interest income in the accompanying unaudited Consolidated Financial Statements during the six months ended June 30, 2018, related to recording the common stock at fair value. The common stock was sold in the second quarter of 2018 and realized security gains recorded during the three and six months ended June 30, 2018 was $0.2 million.

The amortized cost and fair value of debt securities as of June 30, 2018, 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).

	Available for sale				Held to maturity
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
Due in one year or less	$	77,340	$	77,103	$	8,505	$	8,484
Due after one year through five years	324,776		320,789		58,742		57,794
Due after five years through ten years	164,557		162,163		30,266		29,571
Due after ten years	319,862		311,283		410,267		400,866

Total	$	886,535	$	871,338	$	507,780	$	496,715

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

	Three Months Ended June 30,					Six Months Ended June 30,
	2018		2017			2018		2017
Gross security gains	$	—	$	1		$	—	$	969
Gross security (losses)	—		(5		)	—		(116		)

Security (losses) gains, net(1)	$	—	$	(4	)	$	—	$	853

(1)Security gains, net reported on the Consolidated Statements of Income in 2018 relate to the sale of equity securities as noted above.

The tax provision for the net realized gains and losses was insignificant for the three months ended June 30, 2017. The tax provision for the net realized gains and losses was $0.3 million for the six months ended June 30, 2017.

Investment securities with carrying amounts of $593.5 million and $638.2 million on June 30, 2018 and December 31, 2017, 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 June 30, 2018 and December 31, 2017, aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows (dollars in thousands):

	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
June 30, 2018:
Available for sale
U.S. Treasury securities	$	59,885	$	(1,077	)	$	—	$	—		$	59,885	$	(1,077	)
Obligations of U.S. government corporations and agencies	69,054		(1,284		)	24,593		(677		)	93,647		(1,961		)
Obligations of states and political subdivisions	195,490		(2,668		)	14,978		(211		)	210,468		(2,879		)
Residential mortgage-backed securities	246,040		(5,288		)	84,148		(4,199		)	330,188		(9,487		)
Corporate debt securities	84,425		(516		)	—		—			84,425		(516		)

Total temporarily impaired securities	$	654,894	$	(10,833	)	$	123,719	$	(5,087	)	$	778,613	$	(15,920	)


Held to maturity
Obligations of states and political subdivisions	$	27,304	$	(164	)	$	—	$	—		$	27,304	$	(164	)
Commercial mortgage-backed securities	56,453		(1,398		)	2,267		(164		)	58,720		(1,562		)
Residential mortgage-backed securities	359,073		(9,473		)	—		—			359,073		(9,473		)

Total temporarily impaired securities	$	442,830	$	(11,035	)	$	2,267	$	(164	)	$	445,097	$	(11,199	)

	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
December 31, 2017:
Available for sale
U.S. Treasury securities	$	59,773	$	(488	)	$	—	$	—		$	59,773	$	(488	)
Obligations of U.S. government corporations and agencies	78,610		(636		)	24,831		(507		)	103,441		(1,143		)
Obligations of states and political subdivisions	162,213		(1,027		)	12,045		(150		)	174,258		(1,177		)
Residential mortgage-backed securities	223,261		(1,428		)	90,930		(2,409		)	314,191		(3,837		)
Corporate debt securities	16,176		(44		)	—		—			16,176		(44		)

Total temporarily impaired securities	$	540,033	$	(3,623	)	$	127,806	$	(3,066	)	$	667,839	$	(6,689	)


Held to maturity
Obligations of states and political subdivisions	$	17,939	$	(64	)	$	—	$	—		$	17,939	$	(64	)
Commercial mortgage-backed securities	44,514		(214		)	2,374		(83		)	46,888		(297		)
Residential mortgage-backed securities	277,826		(2,431		)	—		—			277,826		(2,431		)

Total temporarily impaired securities	$	340,279	$	(2,709	)	$	2,374	$	(83	)	$	342,653	$	(2,792	)

Securities are periodically evaluated for other-than-temporary impairment (“OTTI”). The total number of securities in the investment portfolio in an unrealized loss position as of June 30, 2018 was 834, and represented a loss of 2.17% of the aggregate carrying value. As of June 30, 2018, 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 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 OTTI at June 30, 2018.

The Company had available for sale obligations of state and political subdivisions with a fair value of $246.6 million and $280.2 million as of June 30, 2018 and December 31, 2017, respectively. In addition, the Company had held to maturity obligations of state and political subdivisions with a fair value of $38.8 million and $41.5 million as of June 30, 2018 and December 31, 2017, respectively.

As of June 30, 2018, the fair value of the Company’s obligations of state and political subdivisions portfolio was comprised of $239.2 million of general obligation bonds and $46.2 million of revenue bonds issued by 405 issuers, primarily consisting of states, counties, cities, towns, villages and school districts. The Company held investments in general obligation bonds in 35 states, including eight states in which the aggregate fair value exceeded $5.0 million. The Company held investments in revenue bonds in 21 states, including three states where the aggregate fair value exceeded $5.0 million.

As of December 31, 2017, the fair value of the Company’s obligations of state and political subdivisions portfolio was comprised of $271.7 million of general obligation bonds and $50.0 million of revenue bonds issued by 446 issuers, primarily consisting of states, counties, cities, towns, villages and school districts. The Company held investments in general obligation bonds in 36 states (including the District of Columbia), including nine states in which the aggregate fair value exceeded $5.0 million. The Company held investments in revenue bonds in 22 states, including three 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 (dollars in thousands):

June 30, 2018:

						Average Exposure
	Number of	Amortized		Fair		Per Issuer
U.S. State	Issuers	Cost		Value		(Fair Value)
Illinois	89	$	88,096	$	87,384	$	982
Wisconsin	29	19,713		19,511		673
Texas	45	25,639		25,287		562
Michigan	27	14,243		14,316		530
Ohio	20	15,068		14,969		748
Pennsylvania	18	10,995		10,970		609
New Jersey	14	6,319		6,277		450
Missouri	9	5,582		5,533		615
Other	94	55,629		54,924		584

Total general obligations bonds	345	$	241,284	$	239,171	$	693

December 31, 2017:

						Average Exposure
	Number of	Amortized		Fair		Per Issuer
U.S. State	Issuers	Cost		Value		(Fair Value)
Illinois	97	$	95,340	$	95,344	$	983
Wisconsin	41	27,852		27,809		678
Texas	46	27,485		27,514		598
Michigan	34	19,641		19,849		584
Ohio	20	15,172		15,162		758
Pennsylvania	18	12,189		12,174		676
New Jersey	15	7,755		7,760		517
Missouri	10	5,759		5,747		575
Minnesota	8	5,657		5,667		708
Other	92	54,649		54,633		594

Total general obligations bonds	381	$	271,499	$	271,659	$	713

The general obligation bonds are diversified across many issuers, with $3.9 million and $4.0 million being the largest exposure to a single issuer at June 30, 2018 and December 31, 2017, respectively. Accordingly, as of June 30, 2018 and December 31, 2017, 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, 99.3% had been rated by at least one nationally recognized rating organization and 0.7% were unrated, based on the aggregate fair value as of June 30, 2018 and December 31, 2017.

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

June 30, 2018:

						Average Exposure
	Number of	Amortized		Fair		Per Issuer
U.S. State	Issuers	Cost		Value		(Fair Value)
Indiana	14	$	11,953	$	11,894	$	850
Missouri	5	7,048		6,987		1,397
Illinois	6	5,622		5,561		927
Other	35	22,055		21,807		623

Total revenue bonds	60	$	46,678	$	46,249	$	771

December 31, 2017:

						Average Exposure
	Number of	Amortized		Fair		Per Issuer
U.S. State	Issuers	Cost		Value		(Fair Value)
Indiana	14	$	12,001	$	12,054	$	861
Missouri	6	7,376		7,336		1,223
Illinois	7	6,477		6,456		922
Other	38	24,163		24,158		636

Total revenue bonds	65	$	50,017	$	50,004	$	769

The revenue bonds are diversified across many issuers and revenue sources with $3.5 million and $3.6 million being the largest exposure to a single issuer at each of June 30, 2018 and December 31, 2017, respectively. Accordingly, as of June 30, 2018 and December 31, 2017, 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. Of the revenue bonds in the Company’s portfolio, 100.0% had been rated by at least one nationally recognized rating organization as of June 30, 2018. Of the revenue bonds in the Company’s portfolio, 99.4% had been rated by at least one nationally recognized rating organization and 0.6% were unrated, based on the fair value as of December 31, 2017. Some of the primary types of revenue bonds held 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.

At June 30, 2018, all of the Company’s obligations of state and political subdivision securities are owned by its subsidiary bank, which has adopted First Busey’s investment policy requiring that state and political subdivision securities purchased be investment grade. Such investment policy also limits the amount of rated state and political subdivision securities to an aggregate 100% of the subsidiary bank’s total capital (as defined by federal regulations) at the time of purchase and an aggregate 15% of total 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 is located.

All securities in First Busey’s obligations of state and political subdivision securities portfolio are subject to periodic review. Factors that may be considered as part of monitoring of state and political subdivision securities include credit rating changes by nationally recognized 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.