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Acquisition

9 Months Ended

Sep. 30, 2025

Note 2 – Acquisition

Completed Acquisitions

Bancorp Financial

On July 1, 2025, the Company completed its acquisition of Bancorp Financial and its wholly owned subsidiary, Evergreen Bank Group, based in Oakbrook, Illinois, with operations throughout our existing market footprint as well as Nevada. This acquisition brought increased scale and new markets to the Company, and provided new product offerings and line of business opportunities. At closing, the Company acquired $1.43 billion of assets, $1.19 billion of loans, $119.1 million of securities, and $1.23 billion of deposits, net of fair value adjustments. Under the terms of the merger agreement, each outstanding share of Bancorp Financial common stock was exchanged for 2.5814 shares of the Company’s common stock, plus $15.93 of cash. This resulted in merger consideration of $189.4 million, based on the closing price of the Company’s common stock on the date of acquisition, which consisted of 7.9 million shares of the Company’s common stock and $48.9 million of cash. Goodwill of $37.0 million associated with the acquisition was recorded by the Company, which was the result of expected synergies, operational efficiencies and other factors.

The acquisition of Bancorp Financial has been accounted for as a business combination. The Company recorded the estimate of fair value based on initial valuations available at July 1, 2025. The determination of estimated fair value required management to make assumptions related to discount rates, expected future cash flows, market conditions and other future events that are often subjective in nature and may require adjustments, which can be subject to adjustment for additional information received during the measurement period which cannot extend beyond July 1, 2026. None of the $37.0 million of goodwill recorded is expected to be deductible for income tax purposes.

As permitted by ASC No. 805-10-25, Business Combinations, the above estimated amounts may be adjusted up to one year after the closing date of the transaction to reflect any new information obtained about facts and circumstances existing at the acquisition date. While the Bank believes that the information available on the merger date provided a reasonable basis for estimating fair value, additional information and evidence may be provided during the fourth quarter of 2025 which will be utilized to finalize all valuations and record final adjustments during the one year subsequent measurement period. These adjustments may include: (i) changes in deferred tax assets or liabilities related to fair value estimates and changes in the expected realization of items considered to be net operating loss carryforwards due to tax calculations still in process, (ii) immaterial changes in loan valuations, and (iii) changes in goodwill as a result of the net effect of any adjustments. As such, any changes in the estimated fair value of assets, including acquired loans, will be recognized in the period the adjustment is identified.

The following table provides the preliminary purchase price allocation as of the July 1, 2025, acquisition date of Bancorp Financial and the assets acquired and liabilities assumed at their estimated fair values as of that date, as recorded by the Company:


Bancorp Financial Transaction Summary
As of Date of Transaction

	July 1, 2025
Assets
Cash and due from banks	$	59,385
Securities available-for-sale and held-to maturity, at fair value		119,068
FHLBC stock		1,958
Loans, net of purchase accounting adjustments		1,194,673
Premises and equipment		2,513
Core deposit intangible		6,206
Bank-owned life insurance ("BOLI")		13,916
Deferred tax assets		9,641
Other assets		18,814
Total assets	$	1,426,174

Liabilities
Noninterest bearing demand	$	73,744
Interest bearing deposits		1,158,778
Total deposits		1,232,522
Short-term borrowings		15,500
Long-term debt		14,800
Deferred tax liabilities		-
Other liabilities		10,978
Total liabilities		1,273,800

Cash consideration paid		48,884
Stock issued for acquisition		140,520
Total consideration		189,404
Total liabilities assumed and cash consideration received for transaction	$	1,463,204
Goodwill	$	37,030

Expenses related to the Bancorp Financial acquisition totaled $11.8 million for the quarter ended September 30, 2025, and $12.9 million during the nine months ended September 30, 2025, and are reported within noninterest expense based on the line items impacted, which are primarily salaries and employee benefits, occupancy, furniture and equipment, computer and data processing, legal fees, and other expense in the Consolidated Statements of Income. No significant expenses were recognized related to this business combination during the three and nine months ending September 30, 2024.

Purchased loans and leases that reflect a more-than-insignificant deterioration of credit from origination are considered purchased credit deteriorated (“PCD”) loans. For PCD loans, the initial estimate of expected credit losses was recognized in the allowance for credit losses (“ACL”) on the date of acquisition using the same methodology as other loans and leases held-for-investment. The following table provides a summary of loans purchased as part of the Bancorp Financial acquisition which were individually evaluated and determined to be PCD loans at acquisition.


	As of
Bancorp Financial Acquired PCD Loans	July 1, 2025
Par value of acquired loans	$	89,870
Allowance for credit losses		(17,540)
Non-credit premium		722
Purchase price of PCD loans at acquisition	$	73,052

The Company's operating results for the three and nine months ended September 30, 2025, includes the operating results of the acquired assets and assumed liabilities of Bancorp Financial subsequent to the acquisition on July 1, 2025. The following table presents pro forma information as if the acquisition of Bancorp Financial had occurred on January 1, 2024, under the pro forma presentation. The pro forma adjustments give effect to any change in interest income due to the accretion of the discount (premium) associated with the fair value adjustments to acquired loans and leases, any change in interest expense due to estimated premium amortization/discount accretion associated with the fair value adjustment to acquired interest-bearing deposits, and the amortization of the CDI that would have resulted had the deposits been acquired as of January 1, 2024. Pro forma results include Old Second and Bancorp Financial acquisition-related expenses which primarily included, but were not limited to, severance costs, professional services, data processing fees, and other expenses totaling $12.9 million for the nine months ended September 30, 2025. Additionally for the three months ended September 30, 2025, we recorded $1.2 million of loan accretion, $13.2 million of Day 2 provision for credit losses, and CDI amortization of $233,000 specific to this acquisition. The pro forma information does not necessarily reflect the results of operations that would have occurred had the Company acquired Bancorp Financial on January 1, 2024. Furthermore, cost savings and other business synergies related to the acquisition are not reflected in the pro forma amounts below.


		Three Months Ended September 30,				Nine Months Ended September 30,
		2025		2024		2025		2024
Net interest income	$	82,775	$	75,221	$	242,611	$	222,009
Noninterest income		13,109		11,278		35,841		34,061
Net income attributable to Old Second Bancorp, Inc.		29,586		25,125		80,941		42,622

First Merchants

On December 6, 2024, the Company completed its purchase of five Illinois branch locations in the southeast Chicago metropolitan statistical area from First Merchants Bank (“FRME”), the wholly owned subsidiary of First Merchants Corporation. This acquisition brought increased scale as the Company expanded its current branch network in the Chicago market. At closing, the Company recorded $24.8 million of assets, including $7.1 million of loans and $3.9 million of premises and equipment, and $268.0 million of deposits, net of fair value adjustments.

The Company recorded the estimate of fair value based on initial valuations available at December 6, 2024. Based on final valuations, $13.3 million of core deposit intangible was recorded. Goodwill of $6.8 million was ultimately recorded from the branch purchase transaction. None of the $6.8 million of goodwill recorded is expected to be deductible for income tax purposes.

The following table provides the purchase price allocation as of the December 6, 2024, branch purchase transaction with FRME, including the assets acquired and liabilities assumed at their estimated fair values as of that date, as recorded by the Company:


First Merchants Transaction Summary
As of Date of Transaction

	December 6, 2024
Assets
Cash and due from banks	$	419
Loans, net of purchase accounting adjustments		7,149
Premises and equipment		3,934
Core deposit intangible		13,254
Other assets		19
Total assets	$	24,775

Liabilities
Noninterest bearing demand	$	26,497
Savings, NOW and money market		157,126
Time		84,344
Total deposits		267,967
Other liabilities		585
Total liabilities		268,552

Cash consideration received		(237,023)
Total liabilities assumed and cash consideration received for transaction	$	31,529
Goodwill	$	6,754

Expenses related to the FRME branch transaction totaled $164,000 and $471,000 through the nine months ended September 30, 2025, and the nine months ended September 30, 2024, respectively. The expenses related to the transaction are reported within noninterest expense based on the line items impacted, which are primarily salaries and employee benefits, computer and data processing, legal fees, and other expense in the Consolidated Statements of Income.

All acquired loans are considered non-PCD as none of the loans met the definition of a purchase credit deteriorated loan.