In a deal that will result in its exit from the Chicago market, the Muncie, Indiana-based First Merchants Corp. has agreed to sell five branches along with selected loans and deposits to Old Second Bancorp in Aurora, Illinois.
The $5.8 billion-asset Old Second, parent to the 153-year-old Old Second National Bank, has deep roots in Chicagoland. Tuesday's transaction would expand Old Second's footprint in Chicago's southeast suburbs, where its branch network is less dense. It would produce an immediate bottom-line impact. Old Second intends to use the $304 million in deposits it is acquiring to pay down higher-cost borrowings. Old Second is also acquiring $12 million in loans.
In an investor presentation filed Tuesday with the Securities and Exchange Commission, Old Second stated it is paying $23 million in cash for the First Merchants branches. Old Second is projecting 5% earnings-per-share accretion in both 2025 and 2026. Tangible-book-value dilution of 4.4% is expected to be earned back in less than three years.
Old Second expects to close the deal, which would boost its Chicago-area deposits to approximately $4.8 billion, in the fourth quarter. "Overall, we see 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 Tuesday in a research note.
According to Analyst Brendan Nosal, who covers First Merchants for Hovde, the Muncie, Indiana, company had maintained a presence in Illinois for more than a decade. In recent years, however, the $18.3 billion-asset First Merchants, holding company for the 131-year-old First Merchants Bank, had demonstrated more interest in expanding in Michigan and Ohio. "As such, the stub Chicago presence felt somewhat out of place," Nosal wrote Tuesday in a research note.
Over the past five years, First Mechants has expanded significantly in the Detroit area, acquiring
First Merchants boosted its presence in the Columbus, Ohio, market, acquiring the $309 million-asset Arlington Bank in May 2017.
First Merchants expects to use the cash from the branch sale to fund balance-sheet restructuring efforts, Nosal wrote. The deal will add about $2.9 million to Old Second's annual non-interest expense run rate with no closings or cost-saves assumed.
Neither Bradley Adams, who serves as 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 at deadline.
