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Muncie, Indiana-based First Merchants Corp. has agreed to sell five branches and select loans and deposits to Old Second Bancorp of Aurora, Illinois, in a deal that will result in the company’s exit from the Chicago market.
The $5.8 billion Old Second, parent of the 153-year-old Old Second National Bank, has deep roots in Chicago. Tuesday’s deal would expand Old Second’s presence in Chicago’s southeastern suburbs, where its branch network is less dense. It would have an immediate impact on its bottom line. Old Second plans to use the $304 million in deposits it is acquiring to pay down more expensive loans. Old Second is also taking out $12 million in loans.
In an investor presentation filed with the Securities and Exchange Commission on Tuesday, Old Second said it is paying $23 million in cash for the First Merchants stores. Old Second expects earnings per share to grow 5% in 2025 and 2026, and expects to recoup the 4.4% dilution to tangible book value in less than three years.
Old Second expects to close the deal, which would increase deposits in the Chicago area to about $4.8 billion, in the fourth quarter. “Overall, we view this transaction as a positive for Old Second as it makes strategic sense and is financially attractive,” Brian Martin, who covers the company for Janney Montgomery Scott, wrote in a research note Tuesday.
According to analyst Brendan Nosal, who covers First Merchants for Hovde, the Muncie, Indiana-based company has had a presence in Illinois for more than a decade. In recent years, however, First Merchants, the holding company of the 131-year-old First Merchants Bank with $18.3 billion in assets, had shown more interest in expanding in Michigan and Ohio. “As such, the Chicago stub’s presence felt a bit out of place,” Nosal wrote in a research note Tuesday.
Over the past five years, First Mechants has expanded significantly in the Detroit area and acquired
First Merchants increased its presence in the Columbus, Ohio market through the acquisition of $309 million in assets Arlington Bank in May 2017.
First Merchants plans to use the money from the store sale to fund balance sheet restructuring, Nosal wrote. The deal will increase Old Second’s annual non-interest expenses by about $2.9 million, with no expected closures or cost savings.
Neither Bradley Adams, Old Second’s chief operating officer and chief financial officer, nor Nicole Weaver, First Merchants’ director of corporate administration, had responded to a request for comment by press time.
