425: Old Second Bancorp to Acquire Bancorp Financial, Expanding Consumer Lending Capabilities

Old Second Bancorp announces the acquisition of Bancorp Financial, Inc., aiming to diversify its lending portfolio and enhance profitability through Evergreen Bank Group's consumer lending expertise.

Summary

• Old Second Bancorp has announced the acquisition of Bancorp Financial, Inc., including its subsidiary Evergreen Bank Group.
• The acquisition is expected to enhance Old Second's competitive position and profitability profile.
• Evergreen Bank Group specializes in consumer lending, particularly in the power sports sector, with originations yielding 9.5% as of December 2024.
• The transaction is valued at approximately $197 million, or 1.31x tangible book value, with Evergreen shareholders expected to own approximately 15% of the pro forma Old Second.
• The merger is projected to be 16% EPS accretive to Old Second shareholders, improving ROA by approximately 13 basis points and ROTCE by approximately 267 basis points.
• The deal is expected to close in the third quarter of 2025.
• Darin Campbell, CEO of Evergreen, will join Old Second's Board of Directors and executive management team to lead consumer lending efforts.
• Old Second anticipates achieving approximately 30% cost savings without impacting the business.

Sentiment

Score: 8

Explanation: The document conveys a positive outlook due to the expected financial benefits of the acquisition, the strategic fit between the two companies, and the experienced leadership team. The identified risks are typical for such transactions and are addressed with confidence by management.

Positives

• The acquisition is expected to be 16% accretive to Old Second's EPS.
• The deal will improve Old Second's ROA by approximately 13 basis points and ROTCE by approximately 267 basis points.
• Evergreen's consumer power sport loans had December 2024 originations yielding 9.5%.
• The transaction is expected to close in the third quarter of 2025.
• Old Second anticipates achieving approximately 30% cost savings without impacting the business.
• The acquisition diversifies Old Second's lending portfolio by adding a strong consumer lending franchise.
• The combined entity will have a balance sheet with less interest rate sensitivity.
• Darin Campbell's leadership is expected to enhance Old Second's consumer lending efforts.

Negatives

• Closing of the transaction will result in higher funding costs for Old Second.
• The earn back period is three years assuming an unchanged interest rate environment.
• Modest balance sheet restructuring, including the sale of certain securities and loans, is anticipated.

Risks

• Failure to obtain necessary regulatory approvals or stockholder approval.
• Failure to realize anticipated benefits of the transaction, including cost savings and strategic gains.
• Potential adverse reactions from customers, suppliers, employees, or other business partners.
• Business disruptions following the merger.
• Changes in asset quality and credit risk.
• Changes in interest rates and capital markets.
• The integration of the businesses and operations of Old Second and Bancorp Financial may take longer than anticipated or be more costly than anticipated or have unanticipated adverse results relating to Old Second's and Bancorp Financial's existing businesses.

Future Outlook

The acquisition is expected to be a catalyst for continued earnings and balance sheet growth. Old Second anticipates opportunities to improve profitability further by acquiring additional deposit franchises.

Management Comments

• James Eccher: 'We believe we have a strong future together, and we look forward to working with you.'
• James Eccher: 'This transaction is an important step forward in continuing to build a better and more diversified lending franchise.'
• Bradley Adams: 'We view this transaction as an attractive use of a portion of our excess capital.'
• Bradley Adams: 'We believe this is such an opportunity, but not the only one.'

Industry Context

This announcement reflects a trend of consolidation in the banking industry, with institutions seeking to diversify their portfolios and improve profitability through strategic acquisitions. The focus on consumer lending aligns with the growing demand for specialized financial services.

Comparison to Industry Standards

• The acquisition of Bancorp Financial at 1.31x tangible book value is within the typical range for bank mergers, but the 16% EPS accretion is notably high, suggesting a well-structured deal.
• Evergreen's 9.5% yield on power sport loans is competitive within the consumer lending market, reflecting a strong risk-adjusted return profile.
• The projected 30% cost savings is ambitious but achievable, based on industry benchmarks for successful bank integrations.
• Compared to other recent bank mergers, this deal stands out due to its focus on asset generation and diversification, rather than pure deposit gathering.

Management Changes

Stakeholder Impact

• Shareholders are expected to benefit from increased EPS, ROA, and ROTCE.
• Employees of both companies may experience changes as a result of the integration.
• Customers of both banks will have access to a broader range of products and services.
• The combined entity will be a stronger competitor in the Chicago market.

Next Steps

• Obtain regulatory approvals.
• Obtain Bancorp Financial stockholder approval.
• Close the transaction, expected in the third quarter of 2025.
• Integrate Evergreen Bank Group into Old Second Bancorp.
• Achieve projected cost savings and synergies.
• Welcome Darin Campbell to the Board of Directors and executive management team.

Key Dates