Busey utilizes interest rate swap agreements as part of its asset liability management strategy to help manage its interest rate risk position. Additionally, Busey enters into derivative financial instruments, including interest rate lock commitments issued to residential loan customers for loans that will be held for sale; forward sales commitments to sell residential mortgage loans to investors; and interest rate swaps, risk participation agreements, and foreign currency exchange contracts with customers and other third parties. See “Note 13: Fair Value Measurements” for further discussion of the fair value measurement of such derivatives.

Busey entered into derivative instruments designated as cash flow hedges. For a derivative instrument that is designated and qualifies as a cash flow hedge, the change in fair value of the derivative instrument is reported as a component of OCI and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Changes in fair value of components excluded from the assessment of effectiveness are recognized in current earnings.

Interest rate swaps with notional amounts totaling $400.0 million as of September 30, 2024, and $350.0 million as of December 31, 2023, were designated as cash flow hedges. Busey entered into one $300.0 million receive-fixed, pay-floating interest rate swap to reduce Busey’s asset sensitivity (Prime Loan Swap). Duration was added to our loan portfolio by fixing a portion of floating prime-based loans. Interest rates had risen above their historical lows allowing Busey to lock in a portion of its loan portfolio to reduce asset sensitivity while creating a more stable margin in a volatile rate market. These hedges were determined to be highly effective during the period, and Busey expects its hedges to remain highly effective during the remaining terms of the swaps. Further, in 2024 Busey entered into one $100.0 million one year forward-starting SOFR-based receive-fixed pay-floating interest rate swap, with an effective date of March 5, 2025, to reduce Busey’s asset sensitivity (SOFR Loan Swap). During the three months ended September 30, 2024, one interest rate swap to hedge the risks of variability in cash flows for future interest payments attributable to changes in the 3-month CME Term SOFR benchmark interest rate on Busey’s junior subordinated debt owed to unconsolidated trusts (Debt Swap) matured. Changes in the fair value of these interest rate swaps were recorded net of tax in OCI.


		As of
	Location	September 30, 2024			December 31, 2023
Debt Swap
Notional amount		—			$	50,000
Weighted average rate: pay-fixed		—			1.79		%
Weighted average variable 3-month Fallback Rate (SOFR) receive rates		—			5.61		%
Weighted average maturity		—			0.71 years

Prime Loan Swap
Notional amount		$	300,000		$	300,000
Weighted average rate: receive-fixed		4.81		%	4.81		%
Weighted average variable Prime pay rates		8.25		%	8.50		%
Weighted average maturity		4.35 years			5.10 years

SOFR Loan Swap
Notional amount		$	100,000		$	—
Weighted average rate: receive-fixed		3.72		%	—

Weighted average maturity		4.43 years			—

Gross aggregate fair value of the swaps
Gross aggregate fair value of swap assets	Other assets	$	2,332		$	1,293
Gross aggregate fair value of swap liabilities	Other liabilities	19,176			25,411

Balances carried in AOCI
Unrealized gains (losses) on cash flow hedges, net of tax	AOCI	$	(11,487)		$	(16,694)

Busey expects to reclassify unrealized gains and losses from OCI to interest income and interest expense as shown in the following table, during the next 12 months (dollars in thousands). Amounts actually recognized could differ from these expectations due to changes in interest rates, hedge de-designations, and the addition of other hedges subsequent to September 30, 2024.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Interest on swap transactions
Increase (decrease) in interest income on swap transactions	$	(2,776)	$	(2,771)	$	(8,366)	$	(7,500)
(Increase) decrease in interest expense on swap transactions	412		481		1,378		1,268
Net increase (decrease) in net interest income on swap transactions	$	(2,364)	$	(2,290)	$	(6,988)	$	(6,232)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Unrealized gains (losses) on cash flow hedges
Net gain (loss) recognized in OCI, net of tax	$	7,439	$	(5,577)	$	211	$	(8,563)
(Gain) loss reclassified from OCI to interest income, net of tax	1,984		1,982		5,981		5,362
(Gain) loss reclassified from OCI to interest expense, net of tax	(294)		(344)		(985)		(906)
Net change in unrealized gains (losses) on cash flow hedges, net of tax	$	9,129	$	(3,939)	$	5,207	$	(4,107)

Busey may offer derivative contracts to its customers in connection with their risk management needs. Busey manages the risk associated with these contracts by entering into equal and offsetting derivative agreements with third-party dealers. These contracts supported variable rate, commercial loan relationships totaling $711.2 million as of September 30, 2024, and $663.1 million as of December 31, 2023. These derivatives generally worked together as an economic interest rate hedge, but Busey did not designate them for hedge accounting treatment. Consequently, changes in fair value of the corresponding derivative financial asset or liability were recorded as either a charge or credit to current earnings during the period in which the changes occurred.


		As of September 30, 2024				As of December 31, 2023
	Location	Notional Amount		Fair Value		Notional Amount		Fair Value
Derivative assets not designated as hedging instruments
Interest rate swaps: receive-fixed, pay-floating	Other assets	$	333,545	$	6,730	$	177,883	$	2,375
Interest rate swaps: receive-floating, pay-fixed	Other assets	377,609		18,648		485,253		26,289
Derivative assets not designated as hedging instruments		$	711,154	$	25,378	$	663,136	$	28,664

Derivative liabilities not designated as hedging instruments
Interest rate swaps: receive-fixed, pay-floating	Other liabilities	$	377,609	$	18,648	$	485,253	$	26,289
Interest rate swaps: receive-floating, pay-fixed	Other liabilities	333,545		6,730		177,883		2,375
Derivative liabilities not designated as hedging instruments		$	711,154	$	25,378	$	663,136	$	28,664


		Three Months Ended September 30,				Nine Months Ended September 30,
	Location	2024		2023		2024		2023
Interest rate swaps
Receive-fixed, pay-floating	Noninterest expense	$	(9,224)	$	9,007	$	(3,050)	$	4,646
Receive-floating, pay-fixed	Noninterest expense	9,224		(9,007)		3,050		(4,646)
Net change in fair value of interest rate swaps		$	—	$	—	$	—	$	—

To manage the credit risk exposure related to customer-facing swaps, Busey entered into risk participation agreements in conjunction with loan participation arrangements with other financial institutions. Under these risk participation agreements, Busey purchased credit risk participation, paying an up-front fee to a counterparty to accept a portion of its credit exposure, and will receive a payment from the counterparty if the swap customer defaults on its obligations.

Busey also entered into a risk participation agreement under which Busey sold credit risk participation, receiving an up-front fee from a counterparty in exchange for accepting a portion of the counterparty’s credit exposure. This agreement matured on June 30, 2024. The swap customer did not default on its obligations, and Busey was not required to make a payment to the counterparty of the risk participation agreement.

Notional amounts of the risk participation agreements reflect the participating banks’ pro-rata shares of the derivative instruments, consistent with their shares of the related participated loans. The risk participation agreements mature between August 2026 and January 2029, and are summarized as follows (dollars in thousands):


	As of
	September 30, 2024		December 31, 2023
Risk participation agreements purchased
Number of risk participation agreements	6		3
Notional amount	$	41,110	$	34,251
Fair value	16		15

Risk participation agreements sold
Number of risk participation agreements	—		1
Notional amount	—		$	20,001
Fair value	—		—

Interest rate lock commitments that meet the definition of derivative financial instruments under ASC Topic 815 “Derivatives and Hedging” are carried at their fair values in other assets or other liabilities on the Consolidated Balance Sheets (Unaudited), with changes in the fair values of the corresponding derivative financial assets or liabilities recorded as either a charge or credit to current earnings during the period in which the changes occurred.

Busey economically hedges mortgage loans held for sale and interest rate lock commitments issued to its residential loan customers related to loans that will be held for sale by obtaining corresponding forward sales commitments with an investor to sell the loans at an agreed-upon price at the time the interest rate locks are issued to the customers. Forward sales commitments that meet the definition of derivative financial instruments under ASC Topic 815 “Derivatives and Hedging” are carried at their fair values in other assets or other liabilities on the Consolidated Balance Sheets (Unaudited). While such forward sales commitments generally served as an economic hedge to mortgage loans held for sale and interest rate lock commitments, Busey did not designate them for hedge accounting treatment. Changes in fair value of the corresponding derivative financial asset or liability were recorded as either a charge or credit to current earnings during the period in which the changes occurred.


		As of September 30, 2024				As of December 31, 2023
	Location	Notional Amount		Fair Value		Notional Amount		Fair Value
Mortgage banking derivative assets
Interest rate lock commitments	Other assets	$	4,666	$	76	$	3,477	$	25
Forward sales commitments	Other assets	3,887		9		1,761		11
Mortgage banking derivative assets		$	8,553	$	85	$	5,238	$	36

Mortgage banking derivative liabilities
Interest rate lock commitments	Other liabilities	$	309	$	2	$	1,615	$	10
Forward sales commitments	Other liabilities	10,430		80		5,216		47
Mortgage banking derivative liabilities		$	10,739	$	82	$	6,831	$	57


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Net gains (losses) on mortgage banking derivatives
Gains (losses) on interest rate lock commitments	$	121	$	(16)	$	569	$	(28)
Gains (losses) on forward sales commitments	(91)		60		(165)		92


Net gains (losses) on mortgage banking derivatives	$	30	$	44	$	404	$	64