10-Q: First Busey Reports Q2 Profit Surge Amid Acquisition Growth

First Busey Corporation reported significant balance sheet expansion and increased second-quarter net income, driven by the CrossFirst acquisition, despite a year-to-date decline in profitability due to integration costs and a substantial provision for credit losses.

Summary

• Total assets increased by 57.0% to $18.92 billion as of June 30, 2025, from $12.05 billion at December 31, 2024, primarily due to the CrossFirst acquisition.
• Net income for the three months ended June 30, 2025, rose 73.3% to $47.4 million, compared to $27.4 million in the prior year period.
• Diluted earnings per common share for the three months ended June 30, 2025, increased to $0.52 from $0.47 in the comparable period of 2024.
• Net income for the six months ended June 30, 2025, decreased 67.5% to $17.4 million, down from $53.6 million in the prior year period.
• Diluted earnings per common share for the six months ended June 30, 2025, fell to $0.22 from $0.94 in the comparable period of 2024.
• The loan portfolio grew 79.4% to $13.81 billion as of June 30, 2025, from $7.70 billion at December 31, 2024, largely due to the CrossFirst acquisition.
• Total deposits increased 58.3% to $15.80 billion as of June 30, 2025, from $9.98 billion at December 31, 2024.
• The provision for credit losses for the six months ended June 30, 2025, was $51.3 million, including a $42.4 million initial provision for non-PCD loans from the CrossFirst acquisition.
• Adjusted efficiency ratio improved to 55.3% for the three months ended June 30, 2025, from 60.9% in the prior year period, and to 56.7% for the six months ended June 30, 2025, from 61.6% in the prior year period.
• Annual pre-tax expense synergy estimates from the CrossFirst acquisition remain on track at $25.0 million, with 50% realization anticipated in 2025 and 100% in 2026.
• Non-performing loans increased to $54.6 million as of June 30, 2025, from $23.2 million at December 31, 2024, primarily due to purchased credit deteriorated (PCD) loans assumed in the CrossFirst acquisition.

Sentiment

Score: 6

Explanation: The sentiment is moderately positive. While year-to-date profitability metrics (net income, EPS) show a significant decline due to acquisition-related costs and a large provision for credit losses, these are largely expected consequences of a major merger. The underlying operational performance, as indicated by the improved adjusted efficiency ratio and strong balance sheet growth, is positive. The successful integration of CrossFirst and the on-track synergy targets are strong positives. However, the notable increase in non-performing loans (though largely acquired PCD) and the significant Illinois franchise tax dispute introduce a degree of uncertainty and risk, preventing a higher score.

Positives

• Significant balance sheet growth with total assets increasing 57.0% and total loans increasing 79.0% due to the CrossFirst acquisition, expanding market presence across 10 states.
• Second quarter net income increased 73.3% year-over-year to $47.4 million, and diluted EPS rose to $0.52 from $0.47.
• Adjusted efficiency ratio improved to 55.3% for Q2 2025 and 56.7% for YTD Q2 2025, indicating better operational efficiency after accounting for non-operating expenses.
• Annual pre-tax expense synergy estimates of $25.0 million from the CrossFirst acquisition are on track, with 50% realization expected in 2025 and 100% in 2026.
• Capital ratios remain strong, exceeding well-capitalized levels under applicable regulatory guidelines, with a Tier 1 capital leverage ratio of 11.26% and Common Equity Tier 1 capital ratio of 12.22% as of June 30, 2025.
• Core deposits represent a robust 92.5% of total deposits, indicating a stable funding base.
• Wealth management fees increased 5.4% for the three months and 8.5% for the six months ended June 30, 2025, driven by higher trust fee income.
• Treasury management services income surged 132.2% for Q2 and 97.7% for YTD, benefiting from the CrossFirst acquisition.

Negatives

• Net income for the six months ended June 30, 2025, decreased significantly by 67.5% to $17.4 million, and diluted EPS fell 76.6% to $0.22, primarily due to acquisition-related expenses and a substantial provision for credit losses.
• Provision for credit losses increased dramatically by 718.3% for the six months ended June 30, 2025, to $51.3 million, largely due to the initial provision for non-PCD loans from the CrossFirst acquisition.
• Net securities losses of $9.8 million were recorded for the six months ended June 30, 2025, primarily from a strategic balance sheet repositioning in Q1 2025.
• Non-performing loans increased to $54.6 million as of June 30, 2025, from $23.2 million at December 31, 2024, mainly due to PCD loans assumed in the CrossFirst acquisition.
• Non-performing assets increased to $58.2 million as of June 30, 2025, from $23.3 million at December 31, 2024.
• Other service charges on deposit accounts declined 34.8% for both three and six months ended June 30, 2025, due to changes in fee structure.
• The effective income tax rate for the six months ended June 30, 2025, was 45.3%, impacted by a first-quarter loss and non-recurring adjustments, including a $4.6 million deferred tax valuation expense related to the CrossFirst acquisition.

Risks

• The Illinois Secretary of State has scheduled an administrative hearing to ascertain over $28 million in purportedly due franchise taxes, penalties, interest, and fees, which Busey disputes and intends to vigorously defend, posing a potential material future liability.
• Unexpected results of acquisitions, including the CrossFirst acquisition, may include the failure to realize anticipated benefits and higher-than-anticipated transaction and integration costs.
• Changes in interest rates and prepayment rates of assets, including the impact of sustained elevated interest rates, could affect profitability.
• Increased competition in the financial services sector from non-bank competitors and the inability to attract new customers.
• Fluctuations in the value of securities held in the securities portfolio, including as a result of changes in interest rates.
• Credit risk and risk from concentrations within the loan portfolio (by type of borrower, geographic area, collateral, and industry), including commercial real estate loans.
• Concentration of large deposits from certain clients who have balances above current FDIC insurance limits and may withdraw deposits to diversify their exposure, with estimated uninsured deposits at $6.66 billion (42% of total deposits) as of June 30, 2025.
• The ability to successfully manage liquidity risk, which may increase dependence on non-core funding sources such as brokered deposits, and may negatively impact the cost of funds.
• The effectiveness of the risk management framework in mitigating various financial and operational risks.

Future Outlook

Annual pre-tax expense synergy estimates from the CrossFirst acquisition remain on track at $25.0 million, with 50% realization anticipated in 2025 and 100% in 2026. The company expects continued pressure from paydowns within its commercial real estate portfolio through the remainder of 2025. Management continues to monitor evolving federal and state tax legislation and its potential impact on operations. The company will continue to utilize a 12-month forecast period for its Allowance for Credit Losses (ACL) estimate due to continued economic uncertainty, with an immediate reversion to historical loss rates beyond this period.

Management Comments

• The financial strength is built on a long-term conservative operating approach.
• The quality of the core deposit franchise is a critical value driver of the institution.
• The company remains substantially core deposit funded, with robust liquidity and significant market share in the communities it serves.
• The credit performance reflects a highly diversified, conservatively underwritten loan portfolio, originated predominantly to established customers with tenured relationships.
• The approach to lending and underwriting standards emphasizes relationship banking rather than transactional banking.
• The company strives to consistently maintain capital ratios well in excess of thresholds required to be designated as well capitalized.
• Following the CrossFirst Bank Merger in June, the company is operating as one bank, with a singular credit policy, concentration limits, and monitoring that will continue to align with the pillars of credit quality.
• The operating mandate and focus remain on emphasizing credit quality over asset growth.

Industry Context

The banking sector continues to navigate an unpredictable interest-rate environment, with companies like First Busey employing off-balance sheet hedging and balance sheet repositioning strategies to stabilize net interest income. The industry is also seeing consolidation, as evidenced by First Busey's significant CrossFirst acquisition, aimed at expanding market presence and achieving synergies. The focus on core deposit funding and conservative underwriting reflects a broader industry trend towards strengthening financial resilience amidst economic uncertainties and increased regulatory scrutiny, particularly concerning asset quality and liquidity management. The rise in non-performing assets, while partly acquisition-driven, highlights ongoing credit quality challenges across the sector.

Comparison to Industry Standards

• First Busey's loan to deposit ratio of 87.4% as of June 30, 2025, is indicative of a conservative banking strategy, generally aligning with or being lower than many regional bank peers, which often range from 85% to 95% or higher, suggesting strong liquidity management.
• The core deposits representing 92.5% of total deposits is a strong indicator of funding stability, comparing favorably to many regional banks that may have a lower percentage of core deposits, relying more on wholesale funding.
• The adjusted efficiency ratio of 55.3% for Q2 2025 shows an improvement and is competitive within the regional banking sector, where ratios typically range from 50% to 65%, indicating effective cost management post-acquisition.
• Capital ratios (Tier 1 leverage ratio of 11.26%, Common Equity Tier 1 capital ratio of 12.22%) significantly exceed well-capitalized regulatory minimums, positioning First Busey strongly compared to industry benchmarks and providing a buffer against potential economic downturns, similar to well-capitalized peers like UMB Financial Corporation or Commerce Bancshares, Inc. which also maintain robust capital levels.
• The increase in non-performing loans to 0.40% of portfolio loans, while higher than December 31, 2024 (0.30%), is still relatively low compared to historical industry averages during periods of economic uncertainty, though it warrants close monitoring.

Management Changes

Legal Proceedings

• Busey received a notice of hearing from the Illinois Secretary of State on July 2, 2025, regarding an administrative hearing to ascertain over $28 million in purportedly due franchise taxes, penalties, interest, and charges for tax filings from 2020 to 2023.
• Busey disputes the proposed methodology for calculating paid-in capital and believes the request is inconsistent with past practice and existing statutory/case law.
• On July 31, 2025, First Busey filed a special appearance to contest the jurisdiction of the Illinois Secretary of State to initiate and conduct the administrative hearing.
• The potential future liabilities related to this matter could be material if an accrual is required.

Stakeholder Impact

• Shareholders: Impacted by diluted EPS decline year-to-date due to acquisition costs, but also benefit from increased Q2 EPS and potential future synergies. Dividends on common stock were $0.25 per share for Q2 2025 and $0.50 per share for YTD Q2 2025. Preferred stock dividends commenced for Series A and are expected for Series B.
• Employees: Workforce expanded by 430 full-time equivalent associates over the past year, mostly due to the CrossFirst acquisition, leading to increased salaries, wages, and employee benefits expenses.
• Customers: Benefit from an expanded banking center network (78 full-service locations across 10 states) and a broader suite of financial services due to the CrossFirst acquisition.
• Regulatory Authorities: Capital ratios remain well above minimum requirements, indicating strong compliance and financial health from a regulatory perspective.
• Creditors: The redemption of $125.0 million in subordinated notes on June 1, 2025, impacts debt structure.

Next Steps

• Continue unwinding non-core funding by deploying excess cash as brokered CDs mature.
• Monitor and work with borrowers on restructurings, guarantees, additional collateral, or other planned actions for potential problem loans.
• Vigorously defend against the Illinois Secretary of State's franchise tax matter, including through appropriate judicial relief if necessary.
• Continue to evaluate and execute off-balance sheet hedging and balance sheet repositioning strategies.
• Continue to embed rate protection in asset originations to stabilize net interest income in lower rate environments.
• Focus on deepening customer relationships to maintain and protect the strong core deposit franchise.
• Monitor evolving federal and state tax legislation and its potential impact on operations.

Key Dates

Recommendation

The filing presents a mixed financial picture. While the CrossFirst acquisition has significantly expanded the company's scale, assets, and market presence, it has also led to a substantial decline in year-to-date net income and diluted EPS due to integration costs and a large provision for credit losses. The improved adjusted efficiency ratio and on-track synergy targets are positive indicators for future performance. However, the notable increase in non-performing loans (even if largely acquired PCD) and the significant, unresolved Illinois franchise tax dispute, which could result in material liabilities, introduce considerable uncertainty. Given the ongoing integration, the short-term profitability headwinds, and the legal risk, a 'hold' recommendation is appropriate. Investors should monitor the successful realization of synergies, the resolution of the tax matter, and the continued integration of the acquired loan portfolio before considering a stronger position.

Keywords

Banking, Financial Services, SEC Filing, 10-Q, Quarterly Report, Acquisition, CrossFirst, Loan Growth, Deposit Growth, Net Interest Income, Credit Quality, Efficiency Ratio, Capital Ratios, Wealth Management, Payment Technology, Illinois Franchise Tax, BUSE