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Fair Value Measurements | 9 Months Ended
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Sep. 30, 2023
Fair Value Disclosures [Abstract] |
Fair Value Measurements | Fair Value Measurements The fair value of an asset or liability is the price that would be received by selling that asset or paid in transferring that liability (exit price) in an orderly transaction occurring in the principal market (or most advantageous market in the absence of a principal market) for such asset or liability. ASC Topic 820 “Fair Value Measurement” establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows: •Level 1 Inputs—Unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. •Level 2 Inputs—Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means. •Level 3 Inputs—Unobservable inputs for determining the fair values of assets or liabilities that reflect the Company’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities. A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. These valuation methodologies were applied to those Company assets and liabilities that are carried at fair value. In general, fair value is based upon quoted market prices, when available. If such quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable data. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect, among other things, counterparty credit quality and the company's creditworthiness as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. While management believes Busey's valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. Financial Assets and Financial Liabilities Measured at Fair Value on a Recurring Basis Debt Securities Available for Sale Debt securities classified as available for sale are reported at fair value utilizing Level 2 inputs. Busey obtains fair value measurements from an independent pricing service. The independent pricing service utilizes evaluated pricing models that vary by asset class and incorporate available trade, bid, and other market information. Because many fixed income securities do not trade on a daily basis, the independent pricing service applies available information, focusing on observable market data such as benchmark curves, benchmarking of like securities, sector groupings, and matrix pricing, to prepare evaluations. The independent pricing service uses model processes, such as the Option Adjusted Spread model, to assess interest rate impact and develop prepayment scenarios. Models and processes take into account market conventions. For each asset class, a team of evaluators gathers information from market sources and integrates relevant credit information, perceived market movements, and sector news into the evaluated pricing applications and models. Market inputs that the independent pricing service normally seeks for evaluations of securities, listed in approximate order of priority, include: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including market research publications. The independent pricing service also monitors market indicators, industry, and economic events. For certain security types, additional inputs may be used or some of the market inputs may not be applicable. Evaluators may prioritize inputs differently on any given day for any security based on market conditions, and not all inputs listed are available for use in the evaluation process for each security evaluation on a given day. Because the data utilized was observable, the securities have been classified as Level 2. Equity Securities Equity securities are reported at fair value utilizing Level 1 or Level 2 inputs. Fair value measurements of mutual funds, when held, are determined using unadjusted quoted prices in active markets for identical assets at the measurement date and are classified as Level 1. Fair value measurements of stock utilize quoted prices for identical or similar assets in markets that are not active and are classified as Level 2. Derivative Assets and Derivative Liabilities The majority of our derivative assets and derivative liabilities are reported at fair value utilizing Level 2 or Level 3 inputs. Fair values of derivative assets and liabilities are determined based on prices that are obtained from a third-party which uses observable market inputs and, with the exception of our risk participation agreements, are classified as Level 2. Due to the significance of unobservable inputs, derivative assets related to our risk participation agreements are classified as Level 3. The following tables summarize financial assets and financial liabilities measured at fair value on a recurring basis as of September 30, 2023, and December 31, 2022, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value (dollars in thousands):
| As of September 30, 2023
| Level 1 Inputs |  | Level 2 Inputs |  | Level 3 Inputs |  | Total Fair Value
Debt securities available for sale: |  |  |  |  |  |  |
U.S. Treasury securities | $ | — |  |  | $ | 50,130 |  |  | $ | — |  |  | $ | 50,130 |
Obligations of U.S. government corporations and agencies | — |  |  | 9,819 |  |  | — |  |  | 9,819 |
Obligations of states and political subdivisions | — |  |  | 226,797 |  |  | — |  |  | 226,797 |
Asset-backed securities | — |  |  | 479,448 |  |  | — |  |  | 479,448 |
Commercial mortgage-backed securities | — |  |  | 100,300 |  |  | — |  |  | 100,300 |
Residential mortgage-backed securities | — |  |  | 1,088,796 |  |  | — |  |  | 1,088,796 |
Corporate debt securities | — |  |  | 227,551 |  |  | — |  |  | 227,551 |
Equity securities | — |  |  | 8,782 |  |  | — |  |  | 8,782 |
Derivative assets | — |  |  | 47,027 |  |  | 7 |  |  | 47,034 |
Derivative liabilities | — |  |  | 82,814 |  |  | — |  |  | 82,814 |
| As of December 31, 2022
| Level 1 Inputs |  | Level 2 Inputs |  | Level 3 Inputs |  | Total Fair Value
Debt securities available for sale: |  |  |  |  |  |  |
U.S. Treasury securities | $ | — |  |  | $ | 114,061 |  |  | $ | — |  |  | $ | 114,061 |
Obligations of U.S. government corporations and agencies | — |  |  | 19,779 |  |  | — |  |  | 19,779 |
Obligations of states and political subdivisions | — |  |  | 257,512 |  |  | — |  |  | 257,512 |
Asset-backed securities | — |  |  | 469,875 |  |  | — |  |  | 469,875 |
Commercial mortgage-backed securities | — |  |  | 108,394 |  |  | — |  |  | 108,394 |
Residential mortgage-backed securities | — |  |  | 1,243,256 |  |  | — |  |  | 1,243,256 |
Corporate debt securities | — |  |  | 248,516 |  |  | — |  |  | 248,516 |
Equity securities | — |  |  | 11,535 |  |  | — |  |  | 11,535 |
Derivative assets | — |  |  | 42,607 |  |  | 5 |  |  | 42,612 |
Derivative liabilities | — |  |  | 72,462 |  |  | — |  |  | 72,462 |
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis Certain financial assets and financial liabilities are measured at fair value on a non-recurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). Loans Evaluated Individually Busey does not record portfolio loans at fair value on a recurring basis. However, periodically, a loan is evaluated individually and is reported at the fair value of the underlying collateral, less estimated costs to sell, if repayment is expected solely from the collateral. If the collateral value is not sufficient, a specific reserve is recorded. Collateral values are estimated using a combination of observable inputs, including recent appraisals, and unobservable inputs based on customized discounting criteria. Due to the significance of unobservable inputs, fair values of individually evaluated collateral dependent loans have been classified as Level 3. OREO and Other Repossessed Assets Non-financial assets measured at fair value, upon initial recognition or subsequent impairment, include OREO and other repossessed assets. OREO properties and other repossessed assets are measured using a combination of observable inputs, including recent appraisals, and unobservable inputs. Due to the significance of unobservable inputs, the fair values of all OREO and other repossessed assets have been classified as Level 3. Bank Property Held for Sale Bank property held for sale represents certain banking center office buildings which Busey has closed and consolidated with other existing banking centers. Bank property held for sale is measured at the lower of amortized cost or fair value less estimated costs to sell. Fair values were based upon discounted appraisals or real estate listing prices. Due to the significance of unobservable inputs, fair values of all bank property held for sale have been classified as Level 3. The following tables summarize assets and liabilities measured at fair value on a non-recurring basis for the periods presented, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value (dollars in thousands):
| As of September 30, 2023
| Level 1 Inputs |  | Level 2 Inputs |  | Level 3 Inputs |  | Total Fair Value
Loans evaluated individually, net of related allowance | $ | — |  |  | $ | — |  |  | $ | 3,333 |  |  | $ | 3,333 |
Bank property held for sale with impairment | — |  |  | — |  |  | 4,286 |  |  | 4,286 |
| As of December 31, 2022
| Level 1 Inputs |  | Level 2 Inputs |  | Level 3 Inputs |  | Total Fair Value
Loans evaluated individually, net of related allowance | $ | — |  |  | $ | — |  |  | $ | 5,345 |  |  | $ | 5,345 |
Bank property held for sale with impairment | — |  |  | — |  |  | 7,923 |  |  | 7,923 |
The following table presents additional quantitative information about assets measured at fair value on a non-recurring basis for which the Company has utilized Level 3 inputs to determine fair value (dollars in thousands):
| As of September 30, 2023
| Fair Value |  | Valuation Techniques |  | Unobservable Input |  | Range (Weighted Average)
Loans evaluated individually, net of related allowance | $ | 3,333 |  |  | Appraisal of collateral |  | Appraisal adjustments |  | -10.5% to -100.0% (-34.0)%
Bank property held for sale with impairment | 4,286 |  |  | Appraisal of collateral or real estate listing price |  | Appraisal adjustments |  | -6.2% to -64.9% (-38.4)%
| As of December 31, 2022
| Fair Value |  | Valuation Techniques |  | Unobservable Input |  | Range (Weighted Average)
Loans evaluated individually, net of related allowance | $ | 5,345 |  |  | Appraisal of collateral |  | Appraisal adjustments |  | -22.7% to -100.0% (-45.7)%
Bank property held for sale with impairment | 7,923 |  |  | Appraisal of collateral or real estate listing price |  | Appraisal adjustments |  | -0.7% to -70.1% (-35.1)%
Financial Assets and Financial Liabilities That Are Not Carried at Fair Value Estimated fair values of financial instruments that are not carried at fair value in Busey’s Consolidated Balance Sheets (Unaudited), segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value, were as follows (dollars in thousands):
| As of September 30, 2023 |  | As of December 31, 2022
| Carrying Amount |  | Fair Value |  | Carrying Amount |  | Fair Value
Financial assets |  |  |  |  |  |  |
Level 1 inputs: |  |  |  |  |  |  |
Cash and cash equivalents | $ | 337,919 |  |  | $ | 337,919 |  |  | $ | 227,164 |  |  | $ | 227,164 |
Level 2 inputs: |  |  |  |  |  |  |
Debt securities held to maturity | 882,614 |  |  | 701,676 |  |  | 918,312 |  |  | 785,295 |
Loans held for sale | 3,051 |  |  | 3,059 |  |  | 1,253 |  |  | 1,276 |
Accrued interest receivable | 47,889 |  |  | 47,889 |  |  | 43,372 |  |  | 43,372 |
Level 3 inputs: |  |  |  |  |  |  |
Portfolio loans, net | 7,764,450 |  |  | 7,241,479 |  |  | 7,634,094 |  |  | 7,320,422 |
Mortgage servicing rights | 3,870 |  |  | 18,758 |  |  | 5,861 |  |  | 18,284 |
Other servicing rights | 1,675 |  |  | 2,144 |  |  | 1,914 |  |  | 2,331 |
Financial liabilities |  |  |  |  |  |  |
Level 2 inputs: |  |  |  |  |  |  |
Time deposits | $ | 1,666,652 |  |  | $ | 1,643,625 |  |  | $ | 855,375 |  |  | $ | 830,596 |
Securities sold under agreements to repurchase | 183,702 |  |  | 183,702 |  |  | 229,806 |  |  | 229,806 |
Short-term borrowings | 12,000 |  |  | 12,027 |  |  | 351,054 |  |  | 351,085 |
Long-term debt | 21,000 |  |  | 21,020 |  |  | 30,000 |  |  | 30,052 |
Junior subordinated debt owed to unconsolidated trusts | 71,946 |  |  | 55,662 |  |  | 71,810 |  |  | 59,111 |
Accrued interest payable | 22,761 |  |  | 22,761 |  |  | 3,978 |  |  | 3,978 |
Level 3 inputs: |  |  |  |  |  |  |
Subordinated notes, net of unamortized issuance costs | 222,666 |  |  | 198,812 |  |  | 222,038 |  |  | 208,562 |

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Publisher FASB -URI https://asc.fasb.org//1943274/2147482106/820-10-50-2 + Details
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