First Merchants exits Illinois retail banking with Old Second deal

Dive Brief:

Muncie, Indiana-based First Merchants Bank is selling five Chicago-area branches to Aurora, Illinois-based Old Second Bank, taking the Indiana lender out of the Chicago suburbs market.
Old Second, which has about $5.7 billion in assets, will also take on about $304 million in deposits and about $12 million in branch-related loans, the banks said in Tuesday’s release. Old Second had about $4.5 billion in deposits and $4 billion in loans as of June 30.
The deal, pending regulatory approval, is expected to close in the fourth quarter.

Dive Insight:

For 153-year-old Old Second, the deal “adds meaningfully to its existing branch network and in the Southeast Chicago market, allowing for improved scale and penetration,” the release said.

The bank’s presence now is concentrated in Chicago’s western suburbs. The five branches Old Second will acquire, pushing its footprint over 50 branches, are in the suburbs southeast of the city.

Those branches — in Illinois locales Darien, Palos Heights, Flossmoor, South Holland and Chicago neighborhood Hegewisch — will be rebranded under the Old Second name once the deal closes, the banks said Tuesday.

Old Second will pay First Merchants a deposit premium of 7.5%, or about $23 million in cash, and use acquired deposits to pay down existing borrowings, according to an investor presentation on the deal. Old Second will assume nearly $3 million in annual run rate branch operating expenses through the deal; the bank projects tangible book value dilution of 4.4%, which it expects to earn back in less than three years.

For First Merchants, the sale marks its exit from retail banking in Illinois. “The loan production office in Chicago and the Northwest Indiana branches will all remain and operate business as usual,” Nicole Weaver, First Merchants’ director of corporate administration, said in an email Wednesday.

The sale proceeds will allow First Merchants to “redeploy the capital in balance sheet restructuring efforts,” the bank wrote in a regulatory filing Tuesday. As of June 30, First Merchants had $18.3 billion in assets.

First Merchants has more than 100 branches across Indiana, Michigan and Ohio, as well as a wealth management company. In recent years, the lender has doubled down on its presence in Michigan, acquiring Farmington Hills-based Level One in 2022, and Monroe-based MBT in 2019. First Merchants also purchased Arlington Bank, based in the Columbus, Ohio, area, in 2017.