Diving certificate:

• Muncie, Indiana-based First Merchants Bank is selling five Chicago-area branches to Aurora, Illinois-based Old Second Bank, thereby withdrawing from the Chicago suburban market.
• Old Second, which has assets of about $5.7 billion, will also take over about $304 million in deposits and about $12 million in branch loans, the banks said. in the publication on TuesdayOld Second had approximately $4.5 billion in deposits and $4 billion in loans as of June 30.
• The transaction is expected to close in the fourth quarter, subject to regulatory approval.

Diving insight:

For the 153-year-old Old Second branch, the deal is “a significant expansion of its existing branch network and the Southeast Chicago market as it allows for greater size and penetration,” the press release said.

The bank’s presence is currently concentrated in Chicago’s western suburbs. Five stores that Old Second will acquire, bringing the company’s presence to over 50 stores, are located in the suburbs in the southeast of the city.

These branches – in the Illinois towns of Darien, Palos Heights, Flossmoor, South Holland and in the Chicago district of Hegewisch – will be renamed Old Second after the transaction is completed, the banks said on Tuesday.

Old Second will pay First Merchants a deposit premium of 7.5%, or approximately $23 million in cash, and use the acquired deposits to repay existing loans, according to an investor presentation on the dealThe deal will cost Old Second nearly $3 million in annual branch operating expenses, and the bank expects to be diluted to tangible book value by 4.4%, which it will recoup in less than three years.

For First Merchants, the sale means the exit from the retail banking business in Illinois. “The Chicago lending offices and the Northwest Indiana branches will all remain and continue to operate as usual,” Nicole Weaver, First Merchants’ director of corporate administration, said in an email Wednesday.

The proceeds from the sale will enable First Merchants to “use the capital to restructure its balance sheet,” the bank wrote in an official registration on TuesdayAs of June 30, First Merchants had assets of $18.3 billion.

First Merchants has more than 100 branches in Indiana, Michigan and Ohio, as well as an asset management company. In recent years, the lender has doubled its presence in Michigan, adding Farmington Hills-based Level One in 2022and based in Monroe MBT in 2019. The first merchants bought Arlington Bankbased in the Columbus, Ohio area in 2017.