Executive Summary / Key Takeaways

• First Busey Corporation's recent acquisition of CrossFirst Bankshares significantly expanded its scale and geographic footprint, creating a premier commercial bank across the Midwest, Southwest, and Florida, though initial integration costs impacted Q1 2025 profitability.
• The company maintains a conservative banking strategy underpinned by a strong core deposit franchise (90.3% of total deposits as of March 31, 2025) and robust capital levels, exceeding well-capitalized thresholds with a Tier 1 Leverage Ratio of 12.9% and Common Equity Tier 1 Ratio of 12.0% as of the same date.
• While facing competitive pressures from larger regional banks and fintechs, Busey leverages its community-focused model and diversified revenue streams, particularly from its growing Wealth Management segment (revenue up 11.8% YoY in Q1 2025) and specialized FirsTech payment technology solutions.
• Asset quality metrics, while showing increases in non-performing and classified assets primarily due to the CrossFirst acquisition, remain within manageable levels with strong ACL coverage (3.57x non-performing loans), though macroeconomic conditions warrant continued monitoring.
• Management anticipates significant synergy realization from the CrossFirst merger (50% in 2025, 100% in 2026), which, alongside strategic balance sheet repositioning and ongoing technology investments, is expected to drive future earnings growth and efficiency improvements, aligning with analyst expectations for solid 2025 EPS growth.

A New Chapter Unfolds: BUSE's Strategic Expansion

First Busey Corporation, a financial holding company with roots tracing back to 1980, stands at a pivotal juncture. Headquartered in Leawood, Kansas, and managing approximately $19.46 billion in assets as of March 31, 2025, Busey operates through three distinct segments: Banking, Wealth Management, and FirsTech. The company's history is marked by strategic growth, notably through acquisitions that have expanded its geographic reach and service offerings.

The most recent and impactful of these was the acquisition of CrossFirst Bankshares, Inc., which became effective on March 1, 2025. This merger was designed to forge a premier commercial bank spanning the Midwest, Southwest, and Florida, significantly increasing Busey's presence to 78 full-service locations across ten states. The integration of CrossFirst Bank into Busey Bank is slated for June 20, 2025. Prior to this, Busey also expanded its footprint and product suite with the acquisition of Merchants and Manufacturers Bank Corporation (MM) in April 2024, adding specialized Life Equity Loan products and strengthening its position in the suburban Chicago market.

Busey's overarching strategy is grounded in a conservative operating approach, emphasizing a strong core deposit franchise, robust liquidity, a diversified loan portfolio, and a solid capital base. This foundation is intended to provide financial strength and flexibility across economic cycles. The company focuses on relationship banking, aiming to build deep connections with customers that extend beyond simple lending.

Within this strategic framework, Busey's three segments play distinct roles. The Banking segment serves as the core engine, providing traditional lending and deposit services. Wealth Management offers crucial revenue diversification and fee income through asset management, investment, and fiduciary services. FirsTech provides innovative payment technology solutions, positioning Busey to capture opportunities in the evolving digital payment landscape.

Competitive Arena: Navigating Scale and Technology

Operating in the regional banking sector, Busey competes with a range of institutions, from larger national players to smaller community banks and increasingly, non-bank financial technology companies. Key competitors like Fifth Third Bank (FITB), Huntington Bancshares (HBAN), and Regions Financial (RF) represent larger-scale rivals with broader geographic reach and deeper resources for technology investment.

Compared to these larger peers, Busey holds an estimated 1-2% aggregate market share in regional banking, with a stronger foothold in its core Illinois market (2-3%). While Busey's community-focused brand and emphasis on relationship banking provide a competitive advantage in fostering customer loyalty, particularly in niche regional segments, larger rivals often possess more advanced digital platforms and greater operational scale efficiencies. For instance, while Busey's FirsTech segment offers a range of payment solutions, larger banks and fintechs may offer faster processing speeds or lower fees for certain digital services, potentially pressuring Busey's non-interest income in these areas.

Busey's Wealth Management segment, which contributed $17.6 million in revenue in Q1 2025 (up 11.8% year-over-year), represents a key differentiator and a source of stable, fee-based income that helps balance the spread-based revenue from traditional banking. This segment's growth, driven by increases in trust fee income and a 7.2% increase in assets under care, highlights a strength that provides a competitive edge against rivals with less developed wealth management offerings.

However, Busey faces vulnerabilities, particularly in the pace of technological innovation and overall scale. While the company is investing in technology enhancements, the competitive landscape analysis suggests a potential lag in digital efficiency compared to some larger rivals, which could translate to higher operating costs per unit or slower service delivery in certain areas. This technological gap, alongside a smaller overall scale compared to national players, could impact Busey's ability to compete on price or efficiency in certain markets or product lines.

The strategic response to this competitive environment involves leveraging Busey's established regional brand and relationship banking model, expanding through accretive acquisitions like CrossFirst to gain scale and enter new, attractive markets, and investing in technology to enhance efficiency and service delivery across all segments. The success of the CrossFirst integration and the realization of expected synergies are critical steps in strengthening Busey's competitive position against larger, more technologically advanced rivals.

Financial Performance: A Quarter of Transformation

The first quarter of 2025 marked a period of significant change for Busey, with results heavily influenced by the CrossFirst acquisition effective March 1, 2025. Total assets grew substantially by 61.6% to $19.46 billion as of March 31, 2025, compared to $12.05 billion at December 31, 2024. The loan portfolio saw an 80.2% increase, reaching $13.87 billion, primarily driven by the addition of $6.04 billion in loans from CrossFirst Bank. Total deposits also surged by 64.9% to $16.46 billion.

Consolidated net income for the three months ended March 31, 2025, was $29.99 million, down from $26.23 million in the comparable period of 2024. This decrease was largely attributable to significant non-recurring acquisition expenses totaling $71.60 million, including a $42.43 million Day 2 provision for credit losses to establish the initial allowance on acquired non-PCD loans and $26.03 million in other acquisition-related expenses. Excluding these non-operating expenses, adjusted net income stood at $39.90 million for Q1 2025, compared to $25.71 million in Q1 2024.

Net interest income, on a tax-equivalent basis, increased by 36.6% to $104.27 million in Q1 2025, up from $76.30 million in Q1 2024. This growth was primarily volume-driven due to the CrossFirst acquisition, despite a slight compression in the net interest margin to 3.16% from 2.79% in the prior year quarter. The average rate earned on interest-earning assets increased to 5.08% in Q1 2025 from 4.61% in Q1 2024, while the average rate paid on interest-bearing liabilities rose to 2.66% from 2.57%.

Noninterest income saw a decrease of 39.2% to $21.22 million in Q1 2025, compared to $34.91 million in Q1 2024. This decline was primarily due to net securities losses of $15.77 million realized in Q1 2025 as part of a strategic balance sheet repositioning, compared to net securities losses of $6.38 million in Q1 2024. Excluding these losses and other adjustments, adjusted noninterest income increased to $36.99 million from $33.82 million. Wealth management fees and fees for customer services both saw healthy increases, while payment technology solutions income experienced a decrease.

Noninterest expense totaled $115.17 million in Q1 2025, a significant 62.7% increase from $70.77 million in Q1 2024, predominantly due to the aforementioned acquisition expenses. Excluding non-operating expenses, adjusted noninterest expense increased by 22.2% to $86.00 million, reflecting the inclusion of CrossFirst's operating costs for one month, investments in technology, and inflationary pressures. The efficiency ratio, impacted by acquisition costs, was 79.4% in Q1 2025, while the adjusted efficiency ratio improved to 58.7% from 62.3% in Q1 2024.

Asset quality metrics showed changes following the acquisition. Non-performing loans increased to $54.70 million (0.39% of portfolio loans) from $23.24 million (0.30%) at December 31, 2024, with the majority of the increase attributable to CrossFirst. Similarly, non-performing assets rose to $59.48 million (0.31% of total assets) from $23.30 million (0.19%). Classified assets also increased to $190.60 million. Despite these increases, the allowance for credit losses (ACL) grew significantly to $195.21 million, providing strong coverage of 3.57 times non-performing loans. Net charge-offs totaled $31.40 million in Q1 2025, including $29.60 million related to acquired PCD loans that were fully reserved at acquisition.

Liquidity remains robust, supported by a strong core deposit base (90.3% of total deposits) and access to borrowing facilities. The loan-to-deposit ratio stood at 84.3% at March 31, 2025. Capital ratios comfortably exceed well-capitalized requirements, demonstrating financial strength.

Outlook and Risks

The outlook for Busey is heavily tied to the successful integration of CrossFirst and the realization of anticipated synergies. Management expects to achieve a 50% rate of synergy realization in 2025, increasing to 100% in 2026. This is expected to drive efficiency improvements and contribute to earnings growth. The strategic balance sheet repositioning undertaken in Q1 2025, involving the sale of lower-yielding securities to purchase higher-yielding ones, is also aimed at enhancing future net interest income.

Analyst expectations, as reflected in the Zacks Consensus Estimate, project 2025 EPS in the range of $2.54 to $2.56 per share, representing significant year-over-year growth, likely incorporating the benefits of the larger scale and synergies from the CrossFirst merger.

However, several risks could impact this outlook. Integration risk associated with the CrossFirst merger remains a key factor; failure to fully realize synergies or unexpected challenges in combining operations could hinder financial performance. The macroeconomic environment, including potential changes in interest rates and economic conditions, could affect loan demand, asset quality, and net interest margin. Credit risk, particularly within the expanded loan portfolio, requires vigilant monitoring, although current ACL coverage appears strong. Liquidity management remains critical, especially concerning uninsured deposits, though Busey's core deposit base and borrowing capacity provide significant buffers. Regulatory changes and ongoing tax matters, such as the inquiry from the Illinois Department of Revenue, also present potential uncertainties. Competition from larger, more technologically advanced institutions and agile fintechs continues to pose a challenge, requiring sustained investment in technology and strategic differentiation.

Conclusion

First Busey Corporation is navigating a transformative period, marked by the significant CrossFirst acquisition that has fundamentally reshaped its scale and market presence. While the initial phase involved substantial integration costs impacting reported Q1 2025 earnings, the strategic rationale for the merger—creating a larger, more diversified regional bank with expanded reach—remains compelling.

The investment thesis for Busey hinges on its ability to successfully integrate CrossFirst, realize anticipated synergies, and leverage its strengthened position to drive profitable growth. Supported by a conservative operating philosophy, a robust core deposit franchise, and strong capital levels, Busey appears well-positioned to manage potential macroeconomic headwinds and credit risks. The company's diversified revenue streams, particularly the growing Wealth Management segment and the specialized FirsTech offerings, provide resilience. While challenges remain, notably in technological competition and the execution of integration plans, the expected synergy benefits and strategic initiatives aimed at enhancing efficiency and asset yields offer a clear path for future value creation, aligning with positive analyst sentiment on the company's earnings trajectory.