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Acquisitions

12 Months Ended

Dec. 31, 2019

Note 2. Acquisitions

First Community Financial Partners, Inc.

On July 2, 2017, the Company completed its acquisition of First Community, which was headquartered in Joliet, Illinois. First Busey operated First Community Financial Bank as a separate subsidiary from July 3, 2017 until November 3, 2017, when it was merged with and into Busey Bank. At that time, First Community Financial Bank’s banking centers became banking centers of Busey Bank.

Under the terms of the merger agreement with First Community, at the effective time of the acquisition, each share of First Community common stock issued and outstanding was converted into the right to receive 0.396 shares of the Company’s common stock, cash in lieu of fractional shares and $1.35 cash consideration per share. The market value of the 7.2 million shares of First Busey common stock issued at the effective time of the acquisition was approximately $211.1 million based on First Busey’s closing stock price of $29.32 on June 30, 2017. In addition, certain options to purchase shares of First Community common stock that were outstanding at the acquisition date were converted into options to purchase shares of First Busey common stock, adjusted for the 0.44 option exchange ratio, and the fair value was included in the purchase price. The purchase price included cash payouts relating to unconverted stock options and restricted stock units outstanding as of the acquisition date.

This transaction was accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed, and consideration exchanged were recorded at their estimated fair values on the date of acquisition. The total consideration paid, which was used to determine the amount of goodwill resulting from the transaction, also included the fair value of outstanding First Community stock options that were converted into options to purchase

common shares of First Busey and cash paid out relating to stock options and restricted stock units not converted. As the total consideration paid for First Community exceeded the net assets acquired, goodwill of $116.0 million was recorded as a result of the acquisition. Goodwill recorded in the transaction, which reflected the synergies expected from the acquisition and the greater revenue opportunities from the Company’s broader service capabilities in the Chicagoland area, is not tax deductible, and was assigned to the Banking operating segment.

First Busey did not incur any expenses for the 12 months ended December 31, 2019 related to the acquisition of First Community and incurred $0.1 million in pre-tax expenses related to the acquisition of First Community for the 12 months ended December 31, 2018, primarily for professional and legal fees. First Busey incurred $4.5 million in pre-tax expenses related to the acquisition of First Community for the 12 months ended December 31, 2017, including professional and legal fees of $1.6 million to directly consummate the acquisition, all of which were reported as a component of non-interest expense in the accompanying Consolidated Financial Statements. The remainder of the expenses primarily related to data processing conversion expenses and restructuring expenses.

The following table presents the fair value of First Community assets acquired and liabilities assumed as of July 2, 2017 (dollars in thousands):



	Fair Value
Assets acquired:
Cash and cash equivalents	$	60,686
Securities		165,843
Loans held for sale		905
Portfolio loans		1,096,583
Premises and equipment		18,094
OREO		722
Other intangible assets		13,979
Other assets		41,755
Total assets acquired		1,398,567

Liabilities assumed:
Deposits		1,134,355
Other borrowings		125,751
Other liabilities		11,862
Total liabilities assumed		1,271,968

Net assets acquired	$	126,599

Consideration paid:
Cash	$	24,557
Cash payout of options and restricted stock units		6,182
Common stock		211,120
Fair value of stock options assumed		722
Total consideration paid	$	242,581

Goodwill	$	115,982

aggregate principal outstanding and aggregate fair value of the acquired performing loans, including loans held for sale, was $1.1 billion. The difference between the aggregate principal balance outstanding and aggregate fair value of $14.4 million is expected to 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 $17.9 million and the aggregate fair value of PCI loans totaled $12.5 million, which became such loans’ new carrying value. At December 31, 2019, PCI loans related to this transaction with a carrying value of $1.7 million were outstanding.

The following table provides the unaudited pro forma information for the results of operations for the 12 months ended December 31, 2017, as if the acquisition had occurred January 1, 2017. The pro forma results combine the historical results of First Community into the Company's 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, 2017. No assumptions have been applied to the pro forma results of operations regarding possible revenue enhancements, expense efficiencies or asset dispositions (dollars in thousands, except per share data):


		Pro Forma
	Year Ended
		December 31, 2017
Total revenues (net interest income plus non-interest income)	$	316,417
Net income		67,413
Diluted earnings per common share		1.47

Mid Illinois Bancorp, Inc.

On October 1, 2017, the Company completed its acquisition of Mid Illinois and its wholly owned bank subsidiary South Side Bank, under which each share of Mid Illinois common stock issued and outstanding as of the effective time was converted into, at the election of the stockholder the right to receive, either (i) $227.94 in cash, (ii) 7.5149 shares of the Company’s common stock, or (iii) mixed consideration of $68.38 in cash and 5.2604 shares of the Company’s common stock, subject to certain adjustments and proration. In the aggregate, total consideration consisted of 70% stock and 30% cash. Mid Illinois stockholders electing the cash consideration option were subject to proration under the terms of the merger agreement with Mid Illinois and ultimately received a mixture of cash and stock consideration. First Busey operated South Side Bank as a separate bank subsidiary from October 2, 2017 until March 16, 2018, when it was merged with and into Busey Bank. At that time, South Side Bank’s banking centers became banking centers of Busey Bank.

This transaction was accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed, and consideration exchanged were recorded at their estimated fair values on the date of acquisition. An adjustment to the fair value was recorded in the first quarter of 2018 as additional information became available. As the total consideration paid for Mid Illinois exceeded the net assets acquired, goodwill of $48.9 million was recorded as a result of the acquisition. Goodwill recorded in the transaction, which reflected the synergies expected from the acquisition and expansion within the greater Peoria area, is not tax deductible, and was assigned to the Banking operating segment.

First Busey did not incur any expenses for the 12 months ended December 31, 2019 related to the acquisition of Mid Illinois. First Busey incurred $3.1 million of pre-tax expenses related to the acquisition of Mid Illinois for the 12 months ended December 31, 2018, primarily for salaries, wages and employee benefits expense, professional and legal fees and data conversion expenses, all of which are reported as a component of non-interest expense in the accompanying Consolidated Financial Statements. First Busey incurred $2.5 million in pre-tax expenses related to the acquisition of Mid Illinois for the 12 months ended December 31, 2017, including professional and legal fees of $1.3 million to directly consummate the acquisition, all of which were reported as a component of non-interest expense in the accompanying Consolidated Financial Statements.

The following table presents the fair value of Mid Illinois assets acquired and liabilities assumed as of October 1, 2017 (dollars in thousands):



	Fair Value
Assets acquired:
Cash and cash equivalents	$	39,443
Securities		208,003
Loans held for sale		5,031
Portfolio loans		356,651
Premises and equipment		16,551
Other intangible assets		11,531
Other assets		29,564
Total assets acquired		666,774

Liabilities assumed:
Deposits		505,917
Other borrowings		61,040
Other liabilities		10,497
Total liabilities assumed		577,454

Net assets acquired	$	89,320

Consideration paid:
Cash	$	40,507
Common stock		97,702
Total consideration paid	$	138,209

Goodwill	$	48,889

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 FASB 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. 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 outstanding was $362.4 million and aggregate fair value of the acquired performing loans was $357.0 million, including loans held for sale. The difference between the aggregate principal balance outstanding and aggregate fair value of $5.4 million is expected to 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 $7.6 million and the aggregate fair value of PCI loans totaled $4.7 million, which became such loans’ new carrying value. At December 31, 2019, PCI loans related to this transaction with a carrying value of $0.1 million were outstanding.

The Banc Ed Corp.

On January 31, 2019, the Company completed its acquisition of Banc Ed. TheBANK, Banc Ed’s wholly-owned bank subsidiary, was operated as a separate subsidiary from the completion of the acquisition until October 4, 2019 when it was merged with and into Busey Bank. At that time, TheBANK’s banking centers became banking centers of Busey Bank.

Under the terms of the 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 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. Recorded fair value adjustments were disclosed as of March 31, 2019 and adjustments totaling $5.2 million were made to the fair value assigned to various assets and liabilities as more information became available. The measurement period adjustments included a clarification in the interpretation of tax regulations that resulted in the $4.6 million reversal of a deferred tax liability that was initially recorded in connection with the acquisition. As the 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 and expansion within the St. Louis MSA, is not tax deductible and was assigned to the Banking operating segment.

First Busey incurred $13.7 million in pre-tax expenses related to the acquisition of Banc Ed for the 12 months ended December 31, 2019, primarily for salaries, wages and employee benefits, professional and legal fees and deconversion expenses, all of which are reported as a component of non-interest expense in the accompanying Consolidated Financial Statements. Of this amount, $2.3 million were considered transaction costs and primarily related to legal and professional fees associated with the acquisition. First Busey incurred $0.4 million in pre-tax expenses related to the acquisition of Banc Ed for the 12 months ended December 31, 2018, primarily for professional and legal fees, all of which are reported as a component of non-interest expense in the accompanying Consolidated Financial Statements.

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



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

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

Net assets acquired	$	216,478

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

Goodwill	$	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 FASB 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. 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 million 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. At December 31, 2019, the carrying value of PCI loans acquired from Banc Ed was $1.3 million.

The following table provides the unaudited pro forma information for the results of operations for the 12 months ended December 31, 2019 and 2018, as if the acquisition had occurred January 1, 2018. The pro forma results combine the historical results of Banc Ed into the Company’s Consolidated Statements of Income, including the impact of purchase accounting adjustments such as 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. No

assumptions have been applied to the pro forma results of operations regarding possible revenue enhancements, expense efficiencies or asset dispositions (dollars in thousands, except per share amounts):



	Years Ended December 31,
		2019	2018
Total revenues (net interest income plus non-interest income)	$	409,324	$	411,633
Net income		113,640		118,361
Diluted earnings per common share		2.03		2.15

Investors’ Security Trust Company

On August 31, 2019, the Company completed its acquisition by Busey Bank of 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. Fair values are considered provisional until final fair values are determined or the measurement period has passed, but no later than one year from the acquisition date. Reviews of third party valuations are still being performed by management.

First Busey incurred $0.9 million in pre-tax expenses related to the acquisition of IST for the 12 months ended December 31, 2019, primarily for professional and legal fees, which are reported as a component of non-interest expense in the accompanying Consolidated Financial Statements.