Regulatory Capital

3 Months Ended

Mar. 31, 2020

Regulatory Capital

Regulatory Capital

Note 11: Regulatory Capital

The Company and Busey Bank are subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory—and possibly additional discretionary—actions by regulators that, if undertaken, could have a direct material effect on the Company's consolidated financial statements. The capital amounts and classification also are subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Banking regulations identify five capital categories for insured depository institutions: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. As of March 31, 2020 and December 31, 2019, all capital ratios of the Company and Busey Bank exceeded the well capitalized levels under the applicable regulatory capital adequacy guidelines. Management believes that no events or changes have occurred subsequent to March 31, 2020 that would change this designation.

On March 27, 2020, the FDIC and other federal banking agencies published an interim final rule that provides those banking organizations adopting CECL during 2020 with the option to delay for two years the estimated impact of CECL on regulatory capital and to phase in the aggregate impact of the deferral on regulatory capital over a subsequent three year period. Under this interim final rule, because the Company has elected to use the deferral option, the regulatory capital impact of our transition adjustments recorded on January 1, 2020 from the adoption of CECL will be deferred for two years. In addition, 25 percent of the ongoing impact of CECL on our allowance for loan losses, retained earnings, and average total consolidated assets from January 1, 2020 through the end of the two-year deferral period, each as reported for regulatory capital purposes, will be added to the deferred transition amounts (“adjusted transition amounts”) and deferred for the two-year period. At the conclusion of the two-year period (January 1, 2022), the adjusted transition amounts will be phased-in for regulatory capital purposes at a rate of 25 percent per year, with the phased-in amounts included in regulatory capital at the beginning of each year.

The following tables summarize the applicable holding company and bank regulatory capital requirements (dollars in thousands):

									Minimum
					Minimum				To Be Well
	Actual				Capital Requirement				Capitalized
	Amount		Ratio		Amount		Ratio		Amount		Ratio
As of March 31, 2020:
Total Capital (to Risk Weighted Assets)
Consolidated	$	1,046,689	13.85	%	$	604,488	8.00	%	$	755,610	10.00	%
Busey Bank	$	1,012,447	13.42	%	$	603,538	8.00	%	$	754,422	10.00	%
Tier 1 Capital (to Risk Weighted Assets)
Consolidated	$	921,827	12.20	%	$	453,366	6.00	%	$	604,488	8.00	%
Busey Bank	$	947,583	12.56	%	$	452,653	6.00	%	$	603,538	8.00	%
Common Equity Tier 1 Capital (to Risk Weighted Assets)
Consolidated	$	847,827	11.22	%	$	340,025	4.50	%	$	491,147	6.50	%
Busey Bank	$	947,583	12.56	%	$	339,490	4.50	%	$	490,374	6.50	%
Tier 1 Capital (to Average Assets)
Consolidated	$	921,827	9.89	%	$	372,696	4.00	%		N/A	N/A
Busey Bank	$	947,583	10.19	%	$	371,799	4.00	%	$	464,749	5.00	%

									Minimum
					Minimum				To Be Well
	Actual				Capital Requirement				Capitalized
	Amount		Ratio		Amount		Ratio		Amount		Ratio
As of December 31, 2019:
Total Capital (to Risk Weighted Assets)
Consolidated	$	1,036,143	14.03	%	$	590,826	8.00	%	$	738,532	10.00	%
Busey Bank	$	1,099,449	14.92	%	$	589,681	8.00	%	$	737,101	10.00	%
Tier 1 Capital (to Risk Weighted Assets)
Consolidated	$	922,395	12.49	%	$	443,120	6.00	%	$	590,826	8.00	%
Busey Bank	$	1,045,701	14.19	%	$	442,261	6.00	%	$	589,681	8.00	%
Common Equity Tier 1 Capital (to Risk Weighted Assets)
Consolidated	$	848,395	11.49	%	$	332,340	4.50	%	$	480,046	6.50	%
Busey Bank	$	1,045,701	14.19	%	$	331,696	4.50	%	$	479,116	6.50	%
Tier 1 Capital (to Average Assets)
Consolidated	$	922,395	9.88	%	$	373,360	4.00	%		N/A	N/A
Busey Bank	$	1,045,701	11.19	%	$	373,639	4.00	%	$	467,049	5.00	%

In July 2013, the U.S. federal banking authorities approved the Basel III Rule for strengthening international capital standards. The Basel III Rule introduced a capital conservation buffer, composed entirely of Common Equity Tier 1 Capital (“CET1”), which is added to the minimum risk-weighted asset ratios. The capital conservation buffer is not a

minimum capital requirement; however, banking institutions with a ratio of CET1 to risk-weighted assets below the capital conservation buffer will face constraints on dividends, equity repurchases and discretionary bonus payments based on the amount of the shortfall. In order to refrain from restrictions on dividends, equity repurchases and discretionary bonus payments, banking institutions must maintain minimum ratios of (i) CET1 to risk-weighted assets of at least 7.00%, (ii) Tier 1 capital to risk-weighted assets of at least 8.50%, and (iii) Total capital to risk-weighted assets of at least 10.50%.