425: Old Second Bancorp to Acquire Bancorp Financial in $197 Million Deal

Old Second Bancorp will acquire Bancorp Financial for approximately $197 million in a strategic move to expand its presence in the Chicago market and enhance its consumer lending capabilities.

Summary

• Old Second Bancorp, Inc. and Bancorp Financial, Inc. have entered into a definitive merger agreement.
• Old Second will acquire Bancorp Financial and its subsidiary, Evergreen Bank Group, in a cash and stock transaction.
• Bancorp Financial stockholders will receive 2.5814 shares of Old Second common stock and $15.93 in cash for each share.
• The total consideration is approximately 75% stock and 25% cash.
• Based on Old Second's closing price of $18.08 on February 24, 2025, the implied purchase price is $62.60 per Bancorp Financial share.
• The aggregate transaction value is approximately $197 million.
• The pro forma company will have approximately $7.1 billion in assets, $6.0 billion in deposits, and $5.2 billion in loans.
• The merger is expected to close in the third quarter of 2025, pending regulatory and stockholder approvals.
• The merger is expected to deliver approximately 16% EPS accretion to Old Second stockholders in the first full year, including expected cost savings.
• The transaction is projected to increase Old Second's return on assets by over 13 bps and return on tangible common equity by over 267 bps, including expected cost savings.
• Old Second expects to deploy existing excess capital at a 20%+ internal rate of return while maintaining strong capital ratios.

Sentiment

Score: 8

Explanation: The document expresses a positive outlook on the merger, highlighting strategic benefits, financial improvements, and growth opportunities. The management comments are optimistic, and the projected financial metrics indicate a favorable outcome for Old Second.

Positives

• The merger significantly enhances Old Second's scale, creating the second-largest community bank under $10 billion in assets in the Chicago market.
• Evergreen Bank's loan products will expand Old Second's reach into new markets, particularly in powersports lending.
• The combination leverages Old Second's low-cost deposit franchise.
• The pro forma company will have meaningful excess liquidity and capital generating capacity.
• The merger is expected to improve profitability, with projected increases in return on assets and return on tangible common equity.
• The acquisition provides Old Second with the opportunity to deploy existing excess capital at a high internal rate of return.

Risks

• Failure to obtain necessary regulatory approvals or the imposition of conditions that could adversely affect the combined company.
• Failure of Bancorp Financial to obtain stockholder approval.
• Failure to satisfy other closing conditions on a timely basis or at all.
• Occurrence of any event, change, or other circumstances that could give rise to the right of one or both parties to terminate the merger agreement.
• The possibility that the anticipated benefits of the transaction are not realized when expected or at all.
• Diversion of management's attention from ongoing business operations and opportunities.
• Potential adverse reactions or changes to business or employee relationships.
• The outcome of any legal proceedings that may be instituted against Old Second or Bancorp Financial.
• Business disruptions following the merger.
• Changes in asset quality and credit risk, interest rates, capital markets, inflation, and general economic conditions.

Future Outlook

The merger is expected to close in the third quarter of 2025 and is anticipated to create a stronger banking institution with enhanced services and opportunities for employees, customers, and communities.

Management Comments

• Darin Campbell stated that the merger is expected to create a stronger banking institution for customers and communities.
• James Eccher commented that the partnership provides an exciting opportunity to expand Old Second's presence in the greater Chicago markets and add meaningful consumer lending capabilities.
• James Eccher believes the combined income statement offers significantly less volatility and a stronger earnings profile in all rate environments.

Industry Context

The acquisition reflects a trend of consolidation in the banking industry, particularly among community banks seeking to gain scale, expand their market presence, and diversify their revenue streams.

Comparison to Industry Standards

• The pro forma company will be the second largest community bank under $10 billion in assets in the Chicago market, indicating a significant market presence.
• The projected 16% EPS accretion is a key metric for evaluating the financial attractiveness of the merger, and is a common benchmark for similar transactions.
• The projected increases in return on assets and return on tangible common equity are important indicators of improved profitability and efficiency, and are often compared to industry averages and peer performance.

Management Changes

Stakeholder Impact

• Stockholders of Bancorp Financial will receive a combination of Old Second stock and cash.
• Customers of both banks are expected to benefit from enhanced services and opportunities.
• Employees of both banks may experience changes as a result of the integration of the two companies.
• The merger is expected to have a positive impact on the communities served by both banks.

Next Steps

• Obtain required regulatory approvals.
• Obtain approval from Bancorp Financial stockholders.
• Close the merger, expected in the third quarter of 2025.
• Integrate the businesses and operations of Old Second and Bancorp Financial.

Key Dates