First Financial Bancorp. (FFBC) Q2 2017 Earnings Report, Transcript and Summary

Good day. And welcome to the First Financial and MainSource Merger Announcement and Second Quarter 2017 Earnings Conference Call and Webcast. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Scott Crawley, Corporate Controller. Please go ahead.

Thank you. Thanks, Alston. Good morning. And welcome to the First Financial Bancorp and MainSource Financial Group merger announcement and second quarter 2017 earnings conference all and webcast. The merger press release and accompanying slide presentation issued yesterday and First Financial second quarter earnings release and accompanying presentation are available on First Financial website at www.bankatfirst.com under the Investor Relations section. MainSource’s second quarter earnings release is available to all on the company’s website at www.MainSourcebank.com, also under Investor Relations. We will make reference to the slides contained in the presentation accompanying yesterday’s merger announcement during today’s call. Additionally, please refer to the forward-looking statement disclosure contained in the second quarter 2017 earnings release, as well with SEC filings for a full discussion of the Company’s risk factors. The financial information provided today is accurate as of June 30, 2017, and First Financial and MainSource we will not be updating any forward-looking statements to reflect facts or circumstances after this call. Participating on today’s call from First Financial will be Claude Davis, Chief Executive Officer; Tony Stollings, Chief Banking Officer and John Gavigan, Chief Financial Officer. Also joining today from MainSource are Archie Brown, Chairman, President and Chief Executive Officer and Jamie Anderson, Chief Financial Officer. I would now turn the call over to Claude Davis.

Thank you, Scott. Good morning, everyone. Thanks for joining on today’s call. We are obviously very pleased and excited to announce the strategic merger between First Financial and MainSource. We both believe we are bringing together two strong companies that shared cultures, to create a high performing bank in certain communities throughout the Midwest. As Scott mentioned, in addition to the management team from First Financial, we also have two important guests with us from MainSource to help discuss the transaction. Archie Brown, Chairman, President CEO and Jamie Andersen, CFO. Due to the timing of the announcement in conjunction with our respective second quarter earnings releases, we'd like to take a few minutes and make some comments on quarterly results for both companies, and then focus the rest of our discussion on our merger. At the conclusion, we will open the call for questions. With that, I’ll now turn the call over to Tony, Jamie for remarks and quarterly results. Tony?

Thank you, Claude. Yesterday afternoon we announced our financial results for the second quarter including net income of $22.7 million or $0.37 per diluted share, representing another solid quarter of performance in our 107th consecutive quarter of profitability. Year-to-date through the second quarter we have grown earnings per share 12% compared to the same period last year. Our second quarter results reflect consistent earnings, strong loan and deposit growth, disciplined expense management and solid credit metrics. The overall performance fell slightly short of our expectation, primarily related to the net interest margin. From a balance sheet perspective, the quarters loan growth of $120 million was exceptionally strong, as both commercial and the commercial real estate contributed to an annualized to linked quarter rate of 8.3%. Average deposits grew $128 million during the quarter, as increases in both savings and non-interest-bearing deposits more than offset the intentional run-off of brokered CDs. Our credit metrics also improved, as declines in non-performing and classified assets jumped offset the impact from small net increase in not-accrual loans during the period. Turning to the income statement. Net interest margin under-whelmed and weighed on another wide dollar performance. Net interest income was $68.5 million, down slightly from the first quarter, as higher interest income and earning assets was offset by a sharp decline in loan fees and increased funding cost. Reflecting these impact was balance sheet fluctuations during the period, our net interest margin declined 14 basis points to 3.56% on a fully tax equivalent basis. Slide six in our second quarter earnings deck provides additional margin details for the quarter, showing a decline in loan prepayment fees was the primary driver of the lower margin, though higher non-accrual loan balances, our earning asset and funding mix and other factors contributed as well. It's worth noting that while prepayment fees can be volatile and the decline negatively impacted income margin this quarter, our preference over the long-term is always to retain client relationships, as well as earning asset balances. As to go forward expectations, our near-term outlook is for the basics net interest margin to remain stable, while loan fees still creating volatility in either direction. We're certainly disappointed with the margin performance this quarter and are taking steps to improve margins and offset the bottom line impact. First, we are increasing monitoring efforts around loan pricing and asset yields, balancing this with competitive market pressures. Second, we are taking steps to lower cost, including to shift away that we invest money for our products toward more advantage great products. Third, we continue to focus on strategies to grow the non-interest income and have seen year-over-year improvements from strategies implemented last year. And fourth, we have accelerated efficiency efforts, aimed at bringing our quarterly operating expense base down to approximately $50 million per quarter. As a result, we have lowered our full year expense guidance to 1% to 2% growth, excluding one-time charges associated with those efforts. We believe these efforts will help improve margin and bottom line result in future periods. Finally, we are optimistic that the late second quarter loan production and solid near-term pipeline expectations position us for continued growth during the second half of the year. With that, I will turn the call over to Jamie for some comments on MainSource second quarter results.

Thank you, Tony. We also announced our financial results yesterday afternoon to the second quarter of 2017 and we were pleased with our overall performance. Excluding non-operating items primarily related to the acquisition of FCB Bancorp, operating income was $13.6 million, which represents earnings per share of $0.53 and an 18% increase from $0.45 a year ago. The addition of FCB Bancorp in late April, organic loan growth over the past 12 months and a strong interest margin were key drivers of our improved earnings performance. In addition, we are achieving the operating leverage that we expected from our recent acquisitions, which helps drive our core efficiency ratio to 60% in the second quarter. While we were pleased with our earnings for the quarter, we did not achieve a loan growth we anticipated. Loan balances, excluding the loans acquired in the FCB acquisition were virtually flat on a linked quarter basis, as loan origination activity was softer than expected. However, our loan pipelines indicates stronger performance and we are optimistic that we can achieve loan growth in the second half of 2017, similar to our historic norms of mid to high single digits. Despite the lack of loan growth, our net interest margin remained strong and was 3.77% for the second quarter of 2017. This was an increase of 1 basis points on a linked quarter basis and an increase of 14 basis points from the same period a year ago. A slight increase in purchase accretion and the ability to lag deposit pricing as the Fed moves short term rates higher led to the increase in the margin. Credit quality remained excellent during the second quarter, as non-performing loans declined on a linked quarter basis. In addition, net charge-offs were at historic levels at only 2 basis points on an annualized basis. Credit quality trends, coupled with flat loan balances resulted in a low level of loan loss provision expense for the second quarter. As previously mentioned, we completed our acquisition of FCB Bancorp during the second quarter. This transaction closed on April 30 and we converted operating systems in late June. With the addition of their seven branches and 365 million in deposits, we improved to 9 in market share in the low MSA. So far the transition has gone very well and we are excited to have a meaningful presence and movable. I will now turn the call back over Claude, to discuss the transaction.

Thank you, Jamie. Before we get to details of the merger, I want to take the opportunity to welcome our future colleagues from MainSource. We believe this is an excellent partnership for both parties and look forward to working with you and your team to grow enhance the excellent franchise you worked so hard to establish. Turning our attention to slide 4 of the investor deck, after the market closed yesterday we announced that we’ve entered into an agreement to merge MainSource, creating a high performing $13 billion Midwest community bank. In our view this is a transaction that meets each of the criteria one could hope for in the deal of this magnitude. Geographically we view each others complimentary across Ohio, Indiana and Kentucky, with continued expansion in key markets with Cincinnati and Indianapolis, as well as MainSource’s recent entry into the attracted global markets, we believe that MainSource is perfect compliment to First Financials existing franchise. Operationally these two banks have longer [ph] history to build on strong core values. The more time spent discussing this business combination, if you can [indiscernible] some of our cultures and operating philosophies are. As a result we believe the organization will integrate and exclude in an efficient man. We have known and competed with MainSource for quite some time and our confident and due diligence process to currently strong cultural fit, solid credit portfolio, complimentary operational strength and ability to combine management in key associates to assist with the transition and help grow the collective franchise going forward. Finally, as we currently sit at $8.7 billion in assets, First Financial has evaluated the pros and cons of growing through the $10 billion asset threshold and weighed our potential strategic options, excuse me, by moving about $30 billion, we believe this transaction serves as an efficient and effective means of offsetting cost and looking beyond historical threshold. In terms of the economic impact, we believe we have structured the deal to be financially attractive for both parties, with room for upside for all shareholders. Additionally, both the companies have a history of successful acquisitions, which we believe serve us well in estimated potential cost saves, as well as planning and executing the integration, resulting in lower risk. We have been at due diligence process for over two months now and have been preparing for approximately $10 billion of several years. So we feel we are well prepared to move forward together successfully. John, will walk you through the financial details of transaction shortly, but the assumptions used in transaction modelling, as well as detail on our preparation for up into $10 billion threshold. On slide five of the investor presentation, we give you a view on just how complementary our geographic footprints are, while we’ve co-existed and competed in certain markets for years, this transaction introduces several new markets to both institutions. The combined map also detects the significance of our geographic redundancy we have which drives the expected efficiencies we will discuss in greater detail later. On slide six, we’re illustrating the growth of contribution of these two quality institutions and why this is viewed as a collaborative process from the asset of our conversations. Both companies bring strong balance sheet and capital for the partnership. Turning to slide seven, MainSource’s loan portfolio is the high quality, low risk portfolio that compliments our linear [ph] profile going forward. Together we will continue to maintain a diversified portfolio. Most importantly we believe that our broad commercial products suite and experience will create additional lending opportunities across MainSource’s existing customer base and new markets. Looking at slide eight, I do want to spend a moment to talk about the strength at MainSoure’s retail base. MainSource has an excellent franchise, favourable composition at the top, 97% of which are core which generate an extremely low deposit at 60 basis points. This is significantly more favourable than our own franchise and reduce our cost from 53 to 40 basis points on a combined basis. We still believe that core funding is a credible component of CD banking and we are excited to leverage MainSource’s strength in retail banking across footprint going forward. Turning to slide nine, slide nine covers the terms of the merger with MainSource shareholders having the right to receive 1.3875 shares of First Financial common stock for each share of MainSource stock that they own. This is an all stock deal with a fixed exchange ratio, so the economics are effectively fit as the deal value and effective purchase price per share will move tandem with First Financial stock price. Based on Tuesday closing price list, this translates to a purchase price at $38.99 for MainSource share or approximately 15% premium to their closing price on Tuesday. Upon closing of the merger, MainSource’s shareholders will own approximately 37% of the combined company. All of MainSource’s options and warrants will carry often the exercise for First Financial stock under their respective terms. Our company’s headquarter will remain here in Cincinnati and we anticipate the deal will close in the first quarter of next year. We have collaborated to assemble an executive team utilizing the talents of both organizations. Upon closing the transaction, I will assume the role of Executive Chairman and Archie will become President, and CEO of the combined company. Together we will jointly lead the company working on strategy, management and to performance. We also jointly lead the transition team to ensure its successful, cultural integration. A broader view of the team going forward is located in the appendix of the slide presentation. Before we discuss some of the financial details of the merger, I'd like to turn the call over to Archie to share some of his thoughts regarding their strategic rationale for this combination. Archie?

Thank you, Claude. First of all I would like to thank Claude and his team. This is been a very collaborative process from the beginning. We're very excited about combining with First Financial Bancorp and the opportunities that lie ahead. As you heard from Claude and we'll hear more detail from John in just a minute. This is a very compelling financial and strategic partnership that’s both attractive to shareholders today, as well longer term. In the last decade, we made significant progress moving our company from world franchise with limited top line growth to one that now has close to half of its footprint in nearby financials end markets with an ability to consistently grow earning assets, even so to move a higher level requires that we make significant additional investments in these markets. Doing so would likely have a much larger impact on our expenses over the intermediate term and on the growth and assets and revenue. Additionally, while in recent years we've made progress in treating our large number of branches, we continue to have a structurally emphasis branch network that would be exceedingly difficult to pair to a level needed to be competitive in the long-term. From a strategic view this combination accelerates our plans for the footprint by several years. We further benefited from combining the talent of two excellent banking companies with complimentary franchises and filling gaps that we – those currently have across the different aspects of our respective businesses. Particularly we’re excited about the ability to leverage the wealth management financial platform in First Financial across our branch network, which would have taken - otherwise taken years to build on our own. This is a powerful combination, we anticipate to combine the company - will be a top cortile performer from day one and we will be much better positioned for a long-term growth and success with the scale and strength to be one of the leading Midwest banking institutions. We’re very pleased with the positive impact this merger will have on the MainSource shareholders. We're seeing a very attractive premium over 15% at a time when we're trading at historically high level, along with approximately 10% earnings per share accretion and a significant increase of approximately 40% in common dividends to shareholders today. We believe for the strategic and financial reasons that partner with First Financial represents an outstanding opportunity for shareholders. At this point I’ll turn the call over to John for additional comments on the transaction.

Thank you, Archie. Looking at the assumptions and the financial impact on slide 10, we believe we have agreed to a deal with pricing and economics that are attractive on many level to the combined company and its shareholders. Excluding one-time costs, we expect total year earnings accretion in 2018 of approximately $0.09 per share or 5% and accretion of approximately $0.17 per share or 9% in 2019 which reflects the first full year of cost savings. Tangible book value dilution flows is estimated to be 5.4% and we project to earn FX in three years using the standard of practice [ph] based on a simple earned back methods, we would earn back the dilution in a little under 4 years using 2019 earnings accretion. And we calculate an internal rate of return in the upper teens exceeding our turnover. Regarding cost base, both management teams spent a significant amount of time working together to identify efficiency opportunities. We have identified 45 to 50 branches that can be consolidated and expense reductions across both companies totalling approximately 13% of the combined current expenses, which we will believe is conservative given the M&A expertise of both institutions and our demonstrated ability to execute. We have performed a detailed press review of each other's loan portfolios and have assumed a conservative 1% loan mark or 20 basis points when netted against MainSource’s current reserve, along with several other fair value marks as shown here on the slide. As a result of moving over $10 billion in assets upon closing, our estimates reflects three specific adjustments to have countered that impact. First, a combined $12 million of pre tax reduction in annual entertain [ph] fees from the Durbin Amendment. Second, that $2 million pre tax increase is annual regulatory compliance costs predominantly related to additional stress testing requirements and heightened regulatory oversight. And third, a $500,000 after tax reduction in annual dividend payment on federal reserve preferred stock due to the [indiscernible] In terms of timing, we expect Durbin Amendment to be applicable in the back half of 2019 and fully paid then for 2020, while the other two adjustments are expected to have a 50% phase-in during 2018 and 100% thereafter. As Claude mentioned earlier this deal certainly helps offset the cost of crossing the $10 billion assets threshold. Isolating this impact, the $10 billion hurdle reduces our combined net income by approximately $9.6 million after taxes or $0.10 per share after the merger. This is fully reflected in our earnings accretion estimates. Turning to slide 11, terms of impacts to the financial metrics, we obviously moved over $13 billion in assets on a combined basis or closer to $14 billion, if further organic growth expected between now and transaction closing is consistent. Given the all stock nature of the deal, our strong capital levels carry through to the combined company and we believe that we will be well-positioned for further growth when the organic or by acquisition once the merger is completed and successfully integrated. On a fully space [ph] in basis, this transaction result in an increase to our return ratios with refining assets increasing approximately 17 basis points and our return on tangible common equity improving by approximately 150 basis. With respect to the combined efficiency ratio, we believe the merger will enable us to move into the low 50% range. On slide 12, with respect to the due diligence process again, we feel that being experienced and disciplined acquirers gives us an advantage in successfully integrating the two companies. Both companies performed extensive at mutual due diligence over a few months period, focusing on credit, cost structures, branch networks, regulatory compliance, legal, as well as other areas. Neither party identified any material risks to moving forward. There is a possibility of a handful of required branch divestures due to deposit concentration, but this is very limited in our view and should not have a material impact on our financial results or strategy. In terms of $10 billion preparedness, First Financial has been preparing for this hurdle for several years. We believe we are well positioned to address these additional requirements. And it has accounted for all the various material cost that are incremental to our standalone forecast and our modelling assumptions. Finally, on slide 13, as we think about integration, we also want to note that we have not included revenue synergies in our modelling. However, we do see potential revenue upside in a few areas. First, commercial earning asset growth. We believe we can advance our expertise in commercial lending across MainSource’s customer base and geographic markets to create incremental lending volume. Second, we also believe we can apply the tenants [ph] of MainSource’s successful consumer ritual culture across our own existing customer base to attract new customers and generate additional business. Third, we see additional cross-sell opportunities for our wealth management business, including our retirement planning and private banking services. Fourth, and finally, we see the scale advantages to further optimizing our balance sheet and attracting somewhat of the clients. This concludes my comments, and I will now turn the call back to Claude.

Thanks, John. As we now have covered everything, but I would like to reiterate our real excitement about this combination. We believe that First Financial and MainSource together will be significantly better positioned to serve our client, communities and shareholders. We look forward to spending the rest of the year focusing on a smooth transition and positioning the combined company for continued success in the years come. As we are prepared to open the call up for questions, I'll just briefly mention that in interest in time, to be respectful of Archie, Jamie’s availability. We'd like to focus questions on some - questions regarding the merger first. But certainly if there are questions pertaining to second quarter results for either company, we ask you to just hold us to the end, that you can follow up to John or Jamie directly following this mornings call. They would be happy to discuss any of those questions with you. With that, I will turn it over you to open the call up for questions.

Thank you. [Operator Instructions] And our first question will come from Chris McGratty of KBW. Please go ahead.

Hey. Good morning, everyone. Congratulations on the deal.

Morning, Chirs.

Morning, Chris.

Good morning. Claude, maybe I start with just a kind of strategic question on the margin. Obviously this quarter had some pressures, but I think one of the merits of the deal is the funding, the low cost funding that MainSource brings. Could you comment on how you see the transition of the deposit base from the lower network deposits that have higher betas [ph] towards the more granular retail and how that's going to affect the margin maybe into next year? Thanks.

Sure, Chris. I’ll [indiscernible] and then John can add anything he’d like or Jamie. You know, one of the things that we see in this combination obviously a lot of strategic cultural fits. Obviously we also feel like that our business models fit well together and clearly one of the deal things that MainSource has done exceptionally well is to build a track of low cost out of these. And its one that we think fits well with our asset growth platforms, as well as their asset growth platform. And you know, with our – we feel good about our cost base. We’ve done a good job of building in as well. We have had some migration more towards some of our money market accounts which we’re working to change. So yeah, I think the fit is very solid and I think you’ll see a positive and a market impact as a result. And you know, obviously manifest itself [ph] an EPS accretion that we’ve outlined. I don’t know John if you add anything to that.

Yes. Chris, I’ll just add a few comments, I’ll speak, maybe a little bit more towards the current quarter and kind of near term. You know, certainly the market's fell short of our expectation here in the second quarter. As somebody said, it weighted on an otherwise solid performance you know, outside of the impact on loan fees there or a number of variables that impacted the margin and that's why we gave some of the additional detail in the earnings slide presentation, I think did that. But ultimately you know, I’d say we did see that lift that we expected on the asset volume and the results, some of those variables that I mentioned. So we're taking steps to improve the margin and stay focused both on the asset side here, as well kind of shifting course a little bit on the funding side. You know, we have focused on some of the index deposit which we were okay with when we expected the asset side to move up with that. Since we're not seeing that, that’s really what’s driving us to make that shift there and focus on managed rate deposits, a little more still in the core and trying to bring those costs down. And then you know, I would add to that to some of the comments earlier in addition to kind of balance sheet management strategies you know, continuing our efforts around non-interest income strategy, as well as managing expenses you know, even further to offset any bottom-line impact.

Okay. Great. If I could just sneak one in. In terms of the follow up between the margin outlook and the expenses, I think you said 50 a quarter, it was kind of the near-term expectation. You guys have made a lot of success keeping the expense - expenses controlled. If we're thinking about the two items together, does the dynamic of the margin - is that more of a bit of a headwind net of the expense opportunities that you see or can you kind of – as you look out a few quarters perhaps get to kind of a breakeven between the two? Thanks.

Yes, I think Christ, it’s more of the latter and we're very focused on as I said, you know, offsetting any high margin impact there and not letting it impact our full year results.

Okay. Great. Thanks for taking the question.

Our next question will come from Kevin Reevey of D.A. Davidson. Please go ahead.

Good morning, gentlemen.

Good morning.

Morning, Kevin.

So either - this questions is for either John or Jamie. How in your modelling for the deal have you made any assumptions about any deposit attritions in your numbers and if so what kind of deposit attrition are you assuming? And this is on the MainSource part of the deal?

Yes, Sure, Kevin. This is John. You know, we've assumed some level of revenue loss related to the branch consolidation and that's embedded in that cost base figure that we disclosed there. We do not expect a significant deposit attrition as a result of this. I think both companies have a pretty strong track record of retaining their core deposit base and we expect to continue that go forward.

Great. And then as far - and for Jamie, if I heard you correctly, did you say that there will be limited branch closures and this should be – have a pretty much negligible effect on the outlook and assumptions?

No, actually in the Investor deck and in our comment, the branch closures, because of an overlap in braches now that’s a critical part for us getting to the cost savings and we are projecting between 45 and 50 branch closures last consolidation.

Great. That was all I had. Thank you.

Thanks.

Our next question will come from Erik Zwick of Stephens Inc. Please go ahead.

Good morning, everyone.

Morning.

Morning, Erik.

First Financial has traditionally been more of a commercial focused bank, well MainSource has been you know more balance between commercial and retail. What would you expect the growth mix of the pro forma company to look like?

I’ll start. This is Claude. I think you know, we would expect continued balance you know, in all of those areas. We don't see this with something growth that anything is MainSource has traditionally done or what we the First Financial has traditionally done, and I think that’s it. We see as a real synergy of this combination and then in fact we feel like there's things we can learn from each other to actually accelerate growth in areas certainly on the First Financial side, we feel like there are some areas that we can accelerate our growth and learning some other things that MainSource has been successful at. So we see this is as a real synergistic and value add. I don’t know Archie if you’d add…

Sure. You know, Erik, this is Archie. We [indiscernible] we looked at this and said if you look at First Financial from the commercial side, we think the you know, they are head a little bit of us and what they developed and how robust their commercial business is and we think that’s going to be a real positive to lay over on our footprint. And then [indiscernible] you know all about us. We think what we’ve been able to do on the retail side is a strength for us and we'll be able to again put that on both companies and grow the retail business and then first have a really good and holistic wealth management business that we think will help our franchise. So very complimentary. I think we'll see growth in all of the key business lines as a result.

And then would you expect any material change to the interest rate sensitivity profile of the pro forma company relative to the legacy First Financial?

Yes. Erik, this is John. You know based on our modelling you know, we're moderately asset sensitive, MainSource is moderately liability sensitivity. We project on a pro forma basis that it would be relatively neutral.

Great. That's all I have right now. Thanks, guys.

Thank you.

[Operator Instructions] Our next question will come from Andy Stapp of Hilliard Lyons. Please go ahead.

Good morning. Would you provide some details on the timing of the cost savings?

Yeah. Sure, Andy, this is John. As we said in the prepared remarks, we expect the deal is close sometime during the first quarter of 2018. So we expect to realize approximately 75% of the cost savings in the first 12 months, post-close and then 100% you know, thereafter.

Okay. And when will the systems conversion occur?

You know, given our first quarter ’18 expected close and we would expect system conversions to take place sometime 45 to 90 days post-closure and so probably mid to late second quarter of 2018.

Okay. And would you provide some color on MainSource’s retail CRE loans?

Say that again Andy.

Yeah. This is Archie. It's just very granular, quite a bit of that came over from a couple of the recent acquisitions, First Capital and Global [ph] had a very granular small kind of dollar retail CRE portfolio that’s very stable, performed well. We don’t really have any kind of credit - national credit and that kind of exposure in most of the portfolio. So it's a strong solid, smaller dollar, performed well with limited risk in some of the things that we read about today.

Okay. And then if I could get one last question, how did the deal impact the effective tax rate for First Financial?

Yeah, Andy. This is John. You know, if you look at our effective tax rate approximately 33% means or is obviously historically has drawn in a slightly lower effected tax rate you know, kind of in the upper mid to upper 20% range there. On a pro forma basis we expect a lot of plus tax planning strategy, that MainSource is [indiscernible] to carry over the combined company and it will be blend and will probably be in the low 30% range.

Okay. Great. Thank you.

Our next question will come from Nathan Race of Piper Jaffray. Please go ahead.

Hey, guys. Good morning.

Hi, Nathan.

Morning, Nathan.

A quick question on capital levels. Obviously the deals going to be creative across most levels, but I was just curious if the transaction changes you're thinking in terms of tapping the ATM program that was announced in March?

Yeah, Nathan. This is John. You know, if you look at the pro forma’s on slide 11 of the investor presentation you know, the capital ratios on a pro forma basis really don’t change materially. So I don't really see a change in our view on capital right now. We think on a combined basis will be - you know, will continue to be well capitalized and positioned for further growth.

Got you. And that's what kind of growth assumptions are assuming at the pro forma company as we get into late 2018 and early 2019?

We both followed a kind of mid-single digit to mid high single digit type organic growth model. So we just assume those are part of our transaction.

Got it. Congrats on the transaction, guys.

Great, thank you. And thanks, Nathan.

[Operator Instructions] Our next question will come from Alexander Hamilton with MainSource [ph] Please go ahead.

Yes. How you are doing today?

Good.

Okay. I just want to make a quick question. So how would this affect our customers as far as our interest rates, do we expect any like big change with that?

You are talking about deposit rate?

Yes.

No, I think we will continue to run the retail business. I think very similar - both companies do recently already, so we’ll continue to do what I think we're accustomed to doing.

Okay. Great.

And our next question will come from Daniel Cardenas with Raymond James. Please go ahead.

Hey, guys. How are you?

Good.

Good morning, Dan.

Morning. Just a quick question pro forma concentration ratios, what would those numbers look like, excuse me, for your CRE portfolio and your construction portfolio as a percentage of risk capital - risk weighted capital?

Yes. Dan, we’ve included those on slide seven of the investor presentation found on in the middle left side of slide. You know, our pro forma base is 51% and construction and development at 218% on the CRE, so well below the kind of regulatory guidelines there.

Perfect, perfect. All right. And then I know you just announced this deal, but as you think about the transaction once it closes, I mean, do you have an appetite for additional M&A or is that kind of on the shelf as you digest this pretty sizable deal?

Yes. Dan, I’ll start. This is Claude. I think where we’ve been focus for now on getting this deal integrated and make sure our associates and client and communities are taking care of. And once we get through that, then Archie [ph] talked about we certainly like to see what the core, obviously not the organic growth side, but also you know are there other partners out there that would make sense for us to patwelldown the road. We need to do this integration first.

Okay. And then last question here the one-time cost associated. Are those going to get spread out throughout the remainder of this year in Q1 or is it mostly a Q1 event?

Yes, it’s probably about 50/50 pre and post-close.

All right. Thanks, guys. Congrats on the deal.

Thank you, Dan.

And having no further questions, this will conclude our question-and-answer session. I would like to turn the conference back over to Mr. Claude Davis for any closing remarks.

Great, Alston. Thank you. And again, thanks for your interest in First Financial and MainSource and again just to reiterate how excited as we both our - the potential of this combination. So thank you for joining our call today.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.