8-K: Old Second Bancorp to Acquire Five Chicago-Area Branches from First Merchants Bank

Old Second Bancorp will acquire five branch locations from First Merchants Bank in a deal that includes approximately $304 million in deposits and $12 million in loans.

Summary

• Old Second National Bank, a subsidiary of Old Second Bancorp, has agreed to purchase five branch locations in the greater Chicago area from First Merchants Bank.
• The transaction includes the acquisition of approximately $304 million in deposits and $12 million in loans.
• Old Second will pay a deposit premium of 7.5%, or approximately $23 million, in cash consideration to First Merchants.
• The acquisition is expected to close in the fourth quarter of 2024, pending regulatory approval and other customary closing conditions.
• The acquired branches will be rebranded as Old Second branches immediately upon closing.

Sentiment

Score: 7

Explanation: The sentiment is positive due to the strategic acquisition, but there are some risks and costs associated with the transaction. The deal is expected to be accretive to Old Second's business.

Positives

• The acquisition will significantly increase Old Second's branch network and market penetration in the Southeast Chicago area.
• The deal adds a substantial amount of deposits ($304 million) and loans ($12 million) to Old Second's balance sheet.
• The acquisition allows Old Second to expand its presence in the Chicago market.
• The transaction is expected to close relatively quickly, by the end of 2024.

Negatives

• Old Second will pay a $23 million premium for the deposits, which could impact short-term profitability.
• The integration of the new branches could present operational challenges and costs.
• The transaction is subject to regulatory approval, which could introduce uncertainty.

Risks

• The anticipated benefits of the transaction may not be fully realized or may take longer than expected.
• Integrating the operations of the acquired branches may be more costly or difficult than anticipated.
• The announcement of the transaction could negatively impact employee and customer relationships.
• The transaction is subject to regulatory approvals, which may not be granted or may be delayed.

Future Outlook

The company anticipates closing the transaction in the fourth quarter of 2024, subject to regulatory approval and other customary closing conditions. The acquired branches will be rebranded as Old Second branches immediately upon closing.

Management Comments

• Old Second's management believes the acquisition will enhance their position as one of the largest banks headquartered in the Chicagoland area.
• Management expects the acquisition to add meaningfully to its existing branch network and in the Southeast Chicago market, allowing for improved scale and penetration.

Industry Context

This acquisition is part of a trend of consolidation in the banking industry, where larger banks are acquiring smaller branches to expand their market share and improve efficiency. First Merchants' exit from the suburban Chicago market is also indicative of banks focusing on core markets.

Comparison to Industry Standards

• The acquisition of five branches with $304 million in deposits and $12 million in loans is a relatively small transaction compared to larger bank mergers, but it is significant for Old Second's regional strategy.
• The 7.5% deposit premium is within the typical range for branch acquisitions, although the specific premium can vary based on the quality of the deposits and the competitive landscape.
• Other regional banks such as Wintrust Financial Corporation (WTFC) and Byline Bancorp (BY) also operate in the Chicago area and have engaged in similar branch acquisitions to expand their footprint.

Stakeholder Impact

• Shareholders of Old Second Bancorp may see a positive impact from the increased market presence and potential for future growth.
• Customers of the acquired branches will be transitioned to Old Second, which may require some adjustments.
• Employees of the acquired branches will likely become employees of Old Second, which could lead to changes in roles and responsibilities.

Next Steps

• Old Second will seek regulatory approval for the transaction.
• The company will work to integrate the acquired branches into its existing operations.
• The acquired branches will be rebranded as Old Second branches upon closing.

Key Dates

Keywords

branch acquisition, bank acquisition, Old Second Bancorp, First Merchants Bank, Chicago, deposits, loans, financial transaction, banking