8-K: First Busey Reports Strong Q2 Earnings Amidst Successful CrossFirst Merger Integration

First Busey Corporation announced robust second-quarter 2025 financial results, driven by the successful integration of CrossFirst Bank and significant improvements in profitability and efficiency, despite facing an ongoing Illinois franchise tax dispute.

Summary

• Net income for Q2 2025 was $47.4 million, or $0.52 per diluted common share, a significant improvement from a net loss of $29.99 million, or $0.44 per diluted common share, in Q1 2025.
• Adjusted net income reached $57.4 million, or $0.63 per diluted common share, up from $39.9 million, or $0.57 per diluted common share, in Q1 2025.
• Net interest income increased to $153.2 million in Q2 2025, compared to $103.7 million in Q1 2025.
• Net interest margin (NIM) expanded to 3.49% in Q2 2025, up from 3.16% in Q1 2025, with adjusted NIM (excluding purchase accounting accretion) at 3.33%.
• Total assets stood at $18.92 billion as of June 30, 2025, down from $19.46 billion at March 31, 2025, but significantly up from $11.97 billion at June 30, 2024.
• Portfolio loans totaled $13.81 billion at June 30, 2025, a slight decrease from $13.87 billion at March 31, 2025.
• Total deposits were $15.80 billion at June 30, 2025, with core deposits accounting for 92.5% of the total.
• Non-performing loans to portfolio loans were 0.40% and non-performing assets to total assets were 0.31% as of June 30, 2025.
• The allowance for credit losses was $183.3 million, representing 1.33% of total portfolio loans and providing 3.36 times coverage of non-performing loans.
• Wealth Management assets under care grew to $14.10 billion as of June 30, 2025, an 8% year-over-year increase.
• The CrossFirst Bank merger into Busey Bank was successfully completed on June 20, 2025, expanding the banking center network to 78 locations across 10 states.
• Annual pre-tax expense synergy estimates from the CrossFirst acquisition remain on track at $25.0 million, with 50% expected to be realized in 2025 and 100% in 2026.
• Redeemed $125.0 million of 5.25% Fixed-to-Floating Rate Subordinated Notes due 2030 on June 1, 2025, and issued 8,600,000 depositary shares of 8.25% Fixed-Rate Series B Non-Cumulative Perpetual Preferred Stock on May 20, 2025.
• Repurchased 1,012,000 shares of common stock for $21.7 million during Q2 2025, with 2,687,275 shares remaining available for repurchase.
• An administrative hearing has been scheduled by the Illinois Secretary of State (ISOS) regarding a franchise tax matter, with ISOS preliminarily estimating an amount due in excess of $28 million, including over $17.4 million in interest and over $250.7 thousand in penalties; Busey disputes this and intends to vigorously defend itself.

Sentiment

Score: 8

Explanation: The company delivered strong financial results, successfully integrated a major acquisition, and demonstrated improved efficiency and asset quality. While there is an ongoing, material legal dispute regarding franchise taxes, the overall operational and financial performance is highly positive and exceeds many industry benchmarks.

Positives

• Net income and diluted EPS significantly rebounded in Q2 2025, moving from a loss to strong profitability.
• Adjusted net income and diluted EPS showed consistent quarter-over-quarter growth, indicating strong core earnings performance.
• Net interest income and net interest margin experienced substantial expansion, benefiting from the CrossFirst acquisition and balance sheet optimization.
• Adjusted efficiency ratio improved to 55.3% in Q2 2025, indicating better operational efficiency compared to previous quarters and industry peers.
• Asset quality metrics, including non-performing loans to portfolio loans (0.40%) and non-performing assets to total assets (0.31%), remain strong and generally better than industry medians.
• Allowance for credit losses provides robust coverage of non-performing loans at 3.36 times.
• Wealth Management assets under care continued to grow, contributing to revenue diversification.
• Successful integration of CrossFirst Bank and its customers, expanding geographic footprint and service offerings.
• On-track to achieve $25.0 million in annual pre-tax expense synergies from the CrossFirst acquisition.
• Strong capital foundation with estimated Common Equity Tier 1 ratio of 12.22% and Total Capital ratio of 15.75%, providing a buffer of over $870 million above well-capitalized levels.
• Tangible book value per common share increased by 13.0% year-over-year to $19.18.
• Maintained a consistent common stock dividend of $0.25 per share and actively engaged in share repurchases, returning capital to shareholders.
• Reduced brokered deposit balances by $368.6 million in Q2 2025, improving funding mix and reducing cost of funds.

Negatives

• Total assets and portfolio loans experienced a slight quarter-over-quarter decrease, partly due to deliberate run-off of higher-cost deposits and commercial real estate portfolio seasoning.
• Total deposits decreased by $658 million quarter-over-quarter, primarily due to the run-off of higher-cost brokered deposits and seasonal tax payments.
• Deposit cost of funds increased from 1.91% in Q1 2025 to 2.21% in Q2 2025, due to the higher mix of acquired CrossFirst indexed/managed rate customer products and brokered deposits.
• Non-performing loans increased by $45.5 million compared to June 30, 2024, primarily due to loans purchased with credit deterioration (PCD loans) from the CrossFirst acquisition.
• Loans 30-89 days past due increased by $23.6 million compared to March 31, 2025, although one significant commercial credit was brought current post-quarter.
• The Illinois Secretary of State (ISOS) is seeking over $28 million in purportedly due franchise taxes, penalties, and interest, which Busey views as inconsistent with past practice and law, posing a potential material liability.

Risks

• The strength of local, state, national, and international economies and financial markets, including effects of inflationary pressures, tariffs, trade wars, and changes to immigration policy.
• Changes in, and the interpretation and prioritization of, local, state, and federal laws, regulations, and governmental policies.
• The economic impact of any future terrorist threats or attacks, widespread disease or pandemics, or other adverse external events, including the Russia-Ukraine conflict and the Middle East conflict.
• Unexpected results of acquisitions, including the failure to realize anticipated benefits and the possibility that transaction and integration costs may be greater than anticipated.
• The imposition of tariffs or other governmental policies impacting the value of products produced by commercial borrowers.
• New or revised accounting policies and practices adopted by regulatory agencies.
• Changes in interest rates and prepayment rates of assets, including the impact of sustained elevated interest rates.
• Increased competition in the financial services sector from non-bank competitors, credit unions, and fintech companies.
• Technological changes implemented by the company and third-party vendors, which may have unforeseen consequences, including the development and implementation of tools incorporating artificial intelligence.
• The loss of key executives or associates, talent shortages, and employee turnover.
• Unexpected outcomes and costs of existing or new litigation, investigations, or other legal proceedings, inquiries, and regulatory actions, specifically with respect to Illinois franchise taxes.
• 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 (by type of borrower, geographic area, collateral, and industry) within the loan portfolio and large loans to certain borrowers, including commercial real estate loans.
• The concentration of large deposits from certain clients who have balances above current Federal Deposit Insurance Corporation insurance limits and may withdraw deposits.
• The level of non-performing assets on the balance sheets.
• Interruptions involving information technology and communications systems or third-party servicers.
• Breaches or failures of information security controls or cybersecurity-related incidents.
• The economic impact of climate change, natural disasters, and exceptional weather occurrences.
• 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 ability to maintain an adequate level of allowance for credit losses on loans.
• The effectiveness of the risk management framework.
• The ability to manage the risks associated with the aforementioned factors.

Future Outlook

The company expects to realize 50% of the identified $25.0 million in annual pre-tax expense synergies from the CrossFirst acquisition in 2025 and 100% in 2026. Management anticipates the deposit beta will lessen during the year and normalize in a range between 45% and 50% of the upper limit of the federal funds target range. Deposit growth is projected to be in-line with loan growth in the second half of 2025. The company will continue to deploy excess cash to pay down non-core and non-relationship high-cost funding, which is expected to compress the asset base in the short term while reducing overall funding costs. Approximately $20 million of remaining acquisition expenses related to the CrossFirst transaction are anticipated to be recognized over the next four to five quarters. Based on the most recent ALCO model, a +100 basis point parallel rate shock is expected to increase net interest income by 2.8% over the subsequent twelve-month period.

Management Comments

• "This quarter's bank merger and data conversion represents a significant milestone for our organization, as we officially welcome CrossFirst Bank customers to Busey Bank."
• "We are proud to offer a premier, full-service banking experience for both consumer and commercial clients, with 78 locations spanning 10 states."
• "Our comprehensive services also include a robust wealth management platform and cutting-edge payment technology solutions through FirsTech, Inc."
• "This transformational partnership allows us to enhance Busey's rich 157-year legacy of service excellence, further advancing our organization for the benefit of all our Pillars—associates, customers, communities, and shareholders."

Industry Context

The banking industry continues to navigate a dynamic interest rate environment, with First Busey demonstrating strong performance in expanding its net interest margin and managing funding costs. The successful integration of CrossFirst Bank aligns with a broader trend of consolidation among regional banks seeking to achieve economies of scale and diversify their market presence. The focus on fee-based businesses like wealth management and payment technology solutions reflects an industry-wide effort to diversify revenue streams beyond traditional lending. The noted seasoning and payoffs in the commercial real estate portfolio are consistent with broader market trends as properties reach stabilization or are refinanced.

Comparison to Industry Standards

• Adjusted Return on Average Assets (ROAA) of 1.21% for Q2 2025 is better than the KRX Median of 1.13%.
• Adjusted Return on Average Tangible Common Equity (ROATCE) of 13.6% for Q2 2025 is better than the KRX Median of 12.9%.
• Net Interest Margin (NIM) of 3.49% for Q2 2025 is better than the KRX Median of 3.36%.
• Adjusted Noninterest Income as a percentage of Operating Revenue of 20.2% for Q2 2025 is better than the KRX Median of 18.0%.
• Adjusted Efficiency Ratio of 55.3% for Q2 2025 is better (lower) than the KRX Median of 56.9%.
• Non-performing Assets (NPA) to Total Assets of 0.31% for Q2 2025 is better (lower) than the KRX Median of 0.44%.
• Net Charge-offs (NCOs) to Average Loans of 0.37% for Q2 2025 is better (lower) than the KRX Median of 0.46%.
• Cost of Deposits of 2.21% for Q2 2025 is worse (higher) than the KRX Median of 2.00%.

Legal Proceedings

• First Busey Corporation is involved in an ongoing dispute with the Illinois Secretary of State (ISOS) regarding franchise tax filings and the calculation of amounts due. The ISOS requested a determination of an amount due preliminarily estimated to be in excess of $28 million, including over $17.4 million in interest and over $250.7 thousand in penalties. First Busey Corporation disputes the ISOS's proposed methodology and estimate, viewing it as inconsistent with past practice, statutory, and case law. An administrative hearing has been scheduled, and First Busey Corporation intends to vigorously defend itself, including through appropriate judicial relief if necessary. The potential loss cannot be reasonably estimated as of June 30, 2025, but could be material if accrual becomes required in future periods.

Stakeholder Impact

• Shareholders: Benefited from increased adjusted earnings, improved return metrics, and continued capital returns through dividends and share repurchases. Face potential material financial impact from the ongoing Illinois franchise tax dispute.
• Customers: Gained access to an expanded network of 78 banking centers across 10 states and a broader suite of services, including enhanced wealth management and payment technology solutions, following the CrossFirst merger.
• Employees (Associates): The workforce expanded by 430 full-time equivalents (FTEs) over the past year due to the CrossFirst acquisition, though expense synergies may lead to some personnel adjustments.
• Communities: The company's expanded footprint into new markets like Kansas City, Dallas, Denver, Phoenix, Oklahoma City, and Wichita signifies increased presence and potential economic contributions.
• Creditors: The redemption of subordinated debt and the issuance of preferred stock demonstrate active capital management, while strong capital ratios provide a buffer for financial stability.

Next Steps

• Realize the remaining 50% of identified $25.0 million in annual pre-tax expense synergies from the CrossFirst acquisition in 2025, with full realization expected in 2026.
• Continue to deploy excess cash to pay down non-core and non-relationship high-cost funding to reduce the bank's overall funding cost.
• Continue to evaluate and execute off-balance sheet hedging and balance sheet repositioning strategies.
• Continue embedding rate protection in asset originations to stabilize net interest income in lower rate environments.
• Vigorously defend against the Illinois Secretary of State's franchise tax notice, including through appropriate judicial relief if necessary.
• Monitor the likelihood of potential liabilities related to the franchise tax matter and accrue if the loss becomes reasonably estimable.
• Achieve deposit growth in-line with loan growth in the second half of 2025.
• Continue the strategic share repurchase program, with 2,687,275 shares remaining available for repurchase.
• Recognize approximately $20 million of remaining acquisition expenses related to the CrossFirst transaction over the next four to five quarters.

Key Dates

Recommendation

While First Busey Corporation delivered strong Q2 2025 results, showcasing successful integration of CrossFirst Bank, improved profitability metrics (Adjusted EPS, ROAA, ROATCE, NIM), and robust asset quality that generally outperforms industry benchmarks, the ongoing and material Illinois franchise tax dispute introduces a significant unquantified financial risk. The potential liability exceeding $28 million, while currently unestimable, represents a notable overhang that warrants a cautious stance despite the otherwise positive operational performance. A 'hold' recommendation reflects the balance between strong core business execution and this unresolved legal uncertainty.

Keywords

Banking, Financial Services, Regional Bank, SEC Filing, Earnings Report, Net Interest Margin, Loan Portfolio, Deposits, Wealth Management, Payment Technology, CrossFirst Acquisition, Capital Ratios, Asset Quality, Share Repurchase, Subordinated Debt, Preferred Stock, Franchise Tax, Illinois, BUSE