Rockville Financial's CEO Presents at United Bank Transformation Merger-of-Equals Investor Presentation Conference (Transcript)

Nov.15.13 | About: Rockville Financial, (RCKB)

Rockville Financial, Inc. (NASDAQ:RCKB)

United Bank Transformation Merger-of-Equals Investor Presentation Conference Call

November 15, 2013 11:00 AM ET

Executives

William H. W. Crawford, IV – President and Chief Executive-Rockville Financial Inc.

Richard B. Collins – President & Chief Executive Officer-United Bancorp, Inc.

J. Jeffrey Sullivan – Executive VP & Chief Operating Office-United Bancorp, Inc.

Eric R. Newell – Executive Vice President, Chief Financial Officer-Rockville Financial Inc.

Analysts

Theodore Kovaleff – Informed Sources Service Group

Damon P. DelMonte – Keefe, Bruyette & Woods, Inc.

Matthew Breese – Sterne, Agee & Leach, Inc.

Brad Rinschler – FIG Partners LLC

Eric J. Grubelich – Highlander Capital Management LLC

Operator

Good morning and welcome to the Rockville Financial and the United Financial Bancorp Investor Conference Call. All participants will be in a 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’d now like to turn the conference over to Bill Crawford, CEO of Rockville Financial. Please go ahead.

William H. W. Crawford IV

Good morning, everyone, and thanks for joining us today. Please be aware of the Safe Harbor advisement on our forward-looking statements that Investor deck filed this morning. As you’ve read in our news release, the Board of Directors of United Financial Bancorp and Rockville Financial approved a definitive merger agreement and a stock-for-stock transaction.

Joining me on the call this morning are Dick Collins, United’s Chairman, CEO and President; Jeff Sullivan, United’s Chief Operating Officer; and Eric Newell, Rockville’s newly appointed Chief Financial Officer. Strategic Merger-of-Equals are there for many reasons. Dick, Jeff and I with our respective board’s have found a way to structural transactions, that’s fair to both sets of shareholders and leads us many years ahead of one either company could achieve independently. Both management and board’s teams have spent considerable time together, getting to know one another, and working through the top issues. The more time we spent together the more apparent it become we share much in common.

Dick has done a terrific job leading United Bank for many years. He and United team have built a first-class bank with a solid reputation in their communities. Rockville also has a long history of serving customers, communities, and delivering solid financial performance. As CEO, I’m confident we have a workable governance and management structure in place. We are clear on roles and responsibilities and we’re well positioned to aggressively execute the plan that we have shortly.

Jeff Sullivan has been a key Executive leader for United for over a decade. He has a strong connection with employees, customers, and communities. He is a very talented leader serving as their COO and previously as their Head of Commercial Banking. Jeff will become President of bank and the holding company reporting to me, he will lead most of our key business units and serve on the Board with me. I’m very excited to work with Jeff and we are both committed to building a great organization together.

As we look to our go-forward management structure, we have three excellent candidates for the CFO job. I felt that Eric Newell was the right choice at this time to serve as Chief Financial Officer of the new company and both boards supported this decision. Eric Newell will assume the role of Rockville Bank CFO effective immediately.

We look forward to sharing with you details relating to this transformational opportunity for both of our companies. To begin scale matters, through cost saves, we become far more efficient and the model results reflecting that fact are compelling. For 2015, we are projecting a 57% efficiency ratio, a 1.04% return on average assets, and return on tangible common equity approaching 10% and 35% earnings accretion.

Furthermore, we have a 11% tangible common equity. We can further leverage to drive additional incremental earnings per share and return on tangible common equity growth. The combined company will achieve significantly increased scale, franchise value, and scarcity value with an asset size of $4.8 billion with over 50 branch locations and continuous states urban and suburban markets.

In 2015, the percentage of earnings per share accretion is approximately three times the tangible book value dilution. This compares favorably to recently announced Merger-Of-Equals transactions. We are confident we can achieve at least 15% cost saves. Additionally, while we model new revenue synergies, we believe our residential mortgage and financial advisory models will provide meaningful revenue lift on a combined footprint.

United completed two acquisitions and the Rockville’s executive management team joined the company from large banks bringing with them significant merger integration experience. We have intensely modeled 50% of our cost saves in year one with a 100% achieved in year two. Given the size of this merger, it’s imperative that we do an excellent job with employees, customers and our communities, so I must do this carefully and methodically and not rest of assets.

While we are integrating the two companies, we will continue with our organic growth strategies to further leverage capital, drive revenue, and earnings per share growth. Both companies have historically paid attractive dividends and not been shy about buying back shares. We will continue to use all the capital management tools available to us at the appropriate times to maximize long-term shareholder value.

Rockville’s three year total share return is nearly 112% and United returns in conversion is almost 81%, both companies have a history of excellent asset quality, prudent earnings growth, sound capital management, including significant value for shareholders. Our combined formula for success remains the same. We’re becoming a quarter of choice to strive the customer experience and customer royalty, which in turn drives long-term revenue growth. We offer customers an attractive alternative to the mega banks and both companies have succeeded from years executing similar strategies.

This strategic Merger-of-Equals accelerates our progress by many years, and this is our one of our number one options on our list. Both banks have converted to mutual, transition successfully to a commercial bank model with similar cultures by combining the best from both companies and create a much more compelling bank and equity investment for employees, customers, communities, and shareholders.

I want to thank Jeff for his leadership along with our respected Board. I’m very much looking forward to working with Dick, Jeff, and our new partners to build a top performing bank here in New England.

Now, I’ll turn it over to Dick Collins.

Richard B. Collins

Thank you, Bill, and good morning, everyone. I’d like to share with our listeners that I’ve been thinking about a combination of United and Rockville for a long time. Probably United achieved much of its growth over the years through Merger-of-Equals between cooperative banks in Massachusetts. There were preliminary discussions about a possible merger vehicles between our two banks, even before Bill arrived on the scene and then much came in those talks, however, but the Bill’s credit does not taking long to understand the tremendous opportunity we had once he became President of Rockville. I’ve been talking about it now for a couple of years.

We both strongly believe the joining of two very good banks to become one great community bank. And we see the profit, earnings per share, efficiency, and size of the combined entity, I think he will agree if this transaction revolves in significant value creation for our shareholders. Combined company will better position to compete and serve our customers well into the future. This is not a deal either company had to do and looking out the options, we believe it is the best course of action for both companies, communities we serve, and the shareholders. We’re bringing together two outstanding institutions with complementary sets of products and a shared culture of superior customer service and strong asset quality.

I’m very excited about combining these two companies together then I’m confident with Bill’s ability and a combined management team’s ability to execute the integration and achieve the plan we outline today. I’m so confident in the team, in fact, but I can’t retire legal close. [indiscernible] bank and I will with pleasure.

I’d now like to turn the call over to Jeff Sullivan, United’s Chief Operating Officer.

J. Jeffrey Sullivan

Thank you, Dick, and good morning, everybody. I appreciate you joining us to learn more about the significant and exciting announcement. I’m very enthusiastic about the opportunities that this merger will present and I’m confident that will be a great success. I have worked with Dick Collins at United for the past decade. During that time our team has transformed $700 million mutual into $2.5 billion full-service banking organization with 38 offices.

We developed in a sustained momentum to produce consistent organic balance sheet growth and we’ve acquired two banks since 2009, bringing significant additional talent into our company, knowledge of how to be a good merger partner, and lots of new customer relationships. We’ve watched Rockville produce the same types of results in an adjacent market, which is very quickly becoming an overlapping market.

Our companies could exist for years as friendly competitors on parallel growth trajectories. When we started to talk more seriously, however, we found that the people side of the business really started to fit together. There were stock to prices and accommodations that were made by board members and members of the management team on both sides, signaling a willingness to do the right thing in the best interest of shareholders and customers.

This merger will allow us to take the best practices and high performing individuals from each company as we have done in our past mergers. By bringing the best of both teams together, we’re confident that we can execute on the integration plan as a high performing organization. We’re grateful to have such talented staff members to assist us through the data conversion in late 2014, and for our future growth.

As we have worked together through this process, it’s become very clear, how similar our cultures are. Both companies have a strong commitment to their employees, customers, and communities. The communities that we serve will continue to benefit from our charitable giving and the donations of our employees volunteer time. And, of course, customers will benefit from a wider branch network and enhance products and technology.

We look forward to demonstrating these shared values to all our constituencies. This Merger-Of-Equals include the strong combination of the Board of Directors, which will be represented equally with tender access from Rockville and tender access from United, including Bill Crawford and myself. The Board members have already been working well together and enjoying a collaborative effort that’s pushing towards the best transaction for our shareholders.

I’m excited to speak with you today about the experienced management team that will be leading this new combined organization. The leadership team that we have identified has significant experience, intelligence and integration. These very talented individuals have already spend quite a bit of time together during the due diligence process and have been enjoying working together. We have completed two way due diligence and confirmed that these are two high quality companies with strong operational and risk management practices.

We are focused on delivering very strong operating results to our shareholders and look forward to generating an opportunity – for a significant value creation. The combined deposits are reflective of a top market share position among community banks in the Hartford MSA, in number two position in the Springfield MSA and ranks ninth and sixteenth in the New Haven and Worcester MSAs respectively.

Both New Haven and Worcester have strong demographics and opportunities for increasing market share by providing the customer service our banks are known for with an expanded product suite that we couldn’t as efficiently delivered independently.

And now, I will turn the call over to Rockville’s Chief Financial Officer, Eric Newell.

Eric R. Newell

Thanks, Jeff, and good morning. I’ll review the major assumption views in the modeling and modeling the combination of the two companies and pro forma impact. First, I would like to note that there are supplemental materials that will be referenced from today’s call that were released this morning and are available at both Rockville’s and United’s website. To access those materials you may go on to the Investor Relations section of either company website.

Rockville is deemed to be the accounting acquirer in this transaction and the United assets will come over to the surviving entity at fair value on legal close. To start, the deal value of $369 million is 100% stock with a fixed exchange ratio of 1.3472 of Rockville shares offered for each share of United. There are no colors, caps or floors on the exchange ratio. Based on the closing price from last night, the price exchange ratio will result in a premium of 14% or $18.35 per share.

The resulting ownership will be Rockville Financial at 49% and United Financial at 51% on a fully diluted basis. We are estimating 27 million shares to be issued to current United shareholders resulting the pro forma share account of $53 million accordingly. The price pace of United shareholders is 1.4 times tangible book value.

Major modeling assumptions on Page 13 of the debt [ph] include cost savings of 15% or $17.6 million on a combined basis, which were largely be achieved through the elimination of redundancy of back office staffing and other efficiencies that we expect to realize over two years. Through the estimated time that will take for or data conversion and the importance of maintaining legacy staff in certain operational back office area, we would expect to take actions to keep the majority of employees to conversion.

We also expect that nearly one-third of our planned reduction will be achieved through attrition. For these two reasons we’re facing the realization of cost savings by 50% in year one and 100% in year two in the model.

Pro forma non-interest expense for the company is approximately $100 million with an estimated 57% efficiency ratio. We have a high level of confidence that the 50% cost saving number is achievable and we will put a lot of energy behind achieving this numbers and we’ll periodically update our investors on the progress made. No revenue synergies are modeled. However, as noted on Page 16, we review achievable opportunities and mortgage banking and financial advisory services among other identified areas. We will speak you on future calls and meetings about opportunities as we realize that.

A pre-tax restructuring charge of $34 million is modeled with approximately 7% of this charge coming view on day one and the remainder taking in the latter part of the year one. There is no balance sheet restructuring included in net charge and we anticipate minimal restructuring is needed due of the favorable interest rate acquisitioning of both companies. We are anticipating approximately four branch consolidation. We have eight branches that are within two miles of each other. We are continuing to save the consolidation and we will update you on our findings at the appropriate time.

We model the core deposit intangible at 1.14% deposits or $13.8 million, which is amortized on an accelerated basis over 10 years. We have identified a gross credit market of $30 million, representing 1.6% of carrying value of United loan portfolio as of September 30, 2013. Remember that $554 million of loans on the balance sheet are carried at fair value as they were purchased from New England bank and CMB. Other fair value market totaled to a pre-tax $1.4 million – actually a negative 1.4 million fees with our amortized over values estimated lives of those assets.

On page 15, we discuss the favorable pro forma impact to Rockville shareholders. For modeling purposes, we used three estimates for 2014 and 2015 for Rockville and management estimates for United. While near company provides earnings guidance, we wanted to conservatively model EPS accretion in their parts of the lower management estimate. When cost based our fully realized in 2015, we anticipate earnings per share accretion of approximately 30% for both sides of shareholders. Day one tangible book value dilution for Rockville shareholders is a 11.1% and earned back its 4.7 years using a crossover method.

We have added transparency along the calculation of a dilution on page 21 on the deck. We view our crossover method as the most conservative approach taking a pro forma Rockville Financial tangible book value per share on a standalone basis and comparing consolidated pro forma tangible book value per share. The 4.7 years being the inflection point when a consolidated tangible book value exceeds standalone.

Internal rate of return and return on invested capital through ratios we have discussed with investors and measure the success of capital deployment are approximately 19% and a 11%, both of which indicate long-term shareholder value creation. Return on invested capital or ROIC is Rockville’s preferred measure for value creation for shareholders on a capital deployment. Taking the contribution of the income provided by United and dividing it by a total invested capital, which is [indiscernible] of hurdle rate of tangible common equity of 8% on United’s pro forma tangible asset, intangibles created by the transaction in the restructuring charge. The difference between IRR and ROIC is that, IRR is the terminal multiple in the calculation and ROIC does not.

We anticipate tangible common equity to exceed a 11% at close, pretty much higher than many of our local peers and affording us a continued capital management strategy of opportunistically repurchasing shares and paying dividend. We expect to stabilize our dividend payout ratio between 50% and 55%. We’re currently modeling an annual dividend of $0.40 per share, which is flat to Rockville shareholders and it’s a 22.5% increase to United’s shareholders, when the exchange ratio is applied to the annualized dividend currently paid by United. We’ll consider share repurchases at the appropriate time.

On page 14 of the deck, we will review due diligence efforts of both Rockville and United on each other. Credit due diligence was performed using a team approach with members of our risk and commercial credit team and an outside loan review advisory team reviewing 73% of the individual loans, an impressive penetration of the portfolio, which gives us a high confidence on our growth credit market. Outside of credit there was a strong team which performed due diligence on financial reporting, controls, legal, and core technology providers.

Finally, I’d like to take a moment to discuss our integration approach, which we also highlight on page 11 of the deck. Bill and Dick established an integration management office or IMO, now will be the strategic focal point of all our integration efforts. The IMO which will have a small executive management team with many years of integration experience will drive the process and ultimate core progress to the combined Board of Directors and regulatory constituency.

Work groups and action teams have been and will be established to address many key areas, which include human resource integration, technology integration, financial reporting integration, and communication. The various teams have efforts underlay and will continue to work tirelessly to move us towards our anticipated close date in the middle of 2014, as well as data conversion in the second half of next year.

Thank you for your time this morning.

And now Dick, Bill, Jeff, and I would be happy to have any questions you have.

Question-and-Answer Session

Operator

We’ll now begin the question-and-answer session (Operator Instructions).Our first question is from Theodore Kovaleff of Informed Sources Service Group. Please go ahead.

Theodore Kovaleff – Informed Sources Service Group

Yes. So I’m interested in knowing how much interaction you’ve had with regulators that is to say, did you clear it with them before or?

William H. W. Crawford IV

Yes, Theodore. This is Bill Crawford, CEO of the company. We personally visited with the FDIC, the Federal Reserve and the State of Connecticut, and gave them a heads up is what we’re thinking about, and we’re encouraged by those meetings obviously, this is subject to regulatory approval. And we’ll be moving as we can to work through new approval process with our regulators.

Richard B. Collins

Theodore, this is Dick Collins from United Bank. I guess I’ll confirm that on our side, we have touched basically with our primary regulator [indiscernible], who indicated the interest in borrowing up of what we’re doing, and should be on track in that regard as well.

Theodore Kovaleff – Informed Sources Service Group

Okay. Good. Thank you.

Operator

Our next question is from Damon DelMonte of KBW. Please go ahead

Damon P. DelMonte – Keefe, Bruyette & Woods, Inc.

Hi. Good morning guys. How are you?

William H. W. Crawford IV

Hi, Damon.

Damon P. DelMonte – Keefe, Bruyette & Woods, Inc.

I guess my first question just regards to integration, who’s operating platform are you using? And do any upgrades need to be made to that or is that capable of handling a five plus billion in asset bank?

William H. W. Crawford IV

Eric, I’ll let you take that one.

Eric R. Newell

We have a technology committee that has brand names and we’ll start to meet and go through those questions that you asked Rockville is on Jack Henry, United is on Connecticut or COCC and we have not made any decisions at this point and we will be accessing both technology solutions on each sides to make sure to determine who has the best fit going forward.

Damon P. DelMonte – Keefe, Bruyette & Woods, Inc.

Okay. And you’d said that the systems integration will probably happen at the end of 2014.

Eric R. Newell

Our target is fourth quarter 2014. Yes.

Damon P. DelMonte – Keefe, Bruyette & Woods, Inc.

Okay. And then I guess, with regards to the pro forma numbers, you put in there the price to tangible price to 2014 estimate to 2015, the key part of equation is that Rockville’s $13.62. So, I guess, trying to say, I’m trying to back into what the implied EPS is for those 2014 and 2015.

Eric R. Newell

Damon, you had asked the question along with the answer too. Let me follow up with you on that I want to say is probably Rockville’s, but I got to confirm that.

Damon P. DelMonte – Keefe, Bruyette & Woods, Inc.

Okay. I guess ask differently, I just…

Eric R. Newell

You know what I got confirmation it is.

Damon P. DelMonte – Keefe, Bruyette & Woods, Inc.

Okay. So, then kind of frame from then just to kind of ballpark you’re looking at around $1 for 2014 and $4, $5 in earnings for 2015.

Eric R. Newell

Yes.

Damon P. DelMonte – Keefe, Bruyette & Woods, Inc.

Okay. And then I guess just my last question could you go through the $34 million restructuring charge, just give a little bit of detail as though what that’s comprised of?

Eric R. Newell

Yes. A big portion of that is some of all the executives that will be leading the combined entity have some change of control payments that’s a big portion of that we also have some severance, state pay and outplacement services for those that will be leasing us we have some accelerated vesting due to preferred stock in auctions that have to vest that legal close and we have some data conversion costs in their anticipate data conversion and probably the reminder is consultancy helping us with the deals, bankers, legal.

Damon P. DelMonte – Keefe, Bruyette & Woods, Inc.

Okay. So that’s all I had for now. I’ll hop out and let somebody else come in. Thank you very much.

Eric R. Newell

Thanks Damon.

Operator

Our next question is from Matthew Breese, Sterne Agee. Please go ahead.

Matthew Breese – Sterne, Agee & Leach, Inc.

Good morning everybody.

Richard B. Collins

Hey, Matthew.

Matthew Breese – Sterne, Agee & Leach, Inc.

On the revenue side could you talk a little bit more about the most complementary business lines between the two companies, both on the lending side and then on the non interest income side, the fee income side?

Richard B. Collins

Yeah. We’ve got on our financial advisory model right now we have five of those people on the combined footprint, we think we go to about 20 and those are all commission and financial advisors. Then on the mortgage lending side we have about 20 now at Rockville on the combined organization we would be somewhere around 45 and again those are commission sales people we don’t need any additional infrastructure to support this mortgage operations. And so we think that would provide meaningful revenue lift. Jeff you want to talk a little bit about the common analysis in commercial lending businesses and our retail businesses.

J. Jeffrey Sullivan

Yeah, absolutely thanks. Hey, Matt I think one other things that we found as we’re going through due diligence is that there was very little overlap in our commercial banking platforms. And we’ve got a strong the United folks have a strong team in Worcester and in Western Mass. And Rockville’s folks obviously have that presence east of the Connecticut River and extending our footprint down into New Haven County very nicely. And even we do overlap a little bit heading towards New Haven County. We’ve really got a strong team of folks down there, they’re going to work very well together. We’ve got United focuses on a little bit higher concentration of C&I business, and we’ve added a good deal of CRE from our Boston loan production offices.

And Rockville has a great commercial real estate office down here, that’s got a very wide reach and then get into couple of other complementary niche businesses as they have grown as well. So there is really a great complementary footprint with very little overlap and lots of room for us to grow it further.

And I think it is – add to Bill’s take that, we did model layering on each of their top strength of revenue producers on the other platform when we did our projections, we really looked at standalone projections, to come up with the accretion numbers. So we think that there is a lot of additional opportunities that we did not model, because we wanted to be as conservative as possible.

William H. W. Crawford IV

Now, one other things, we will be examining operational efficiency in each of our major lines in terms of commercial banking, retail, mortgage, because we do think, we’re going to have an opportunity in terms of technology and putting these two companies together to become a lot more efficient and how we do things. And so we’re very much looking forward to that exercise.

Matthew Breese – Sterne, Agee & Leach, Inc.

As we think about organic loan growth with the combined institution and the ability for you to cross-sell a little bit, so you’re thinking that there is a lag up in terms of organic loan growth potential?

William H. W. Crawford IV

One thing the United has done very well is on the cross-sell. And we’re looking forward to working with their systems to better penetrate our existing customers. But yes, in terms of our organic loan growth what we’ve done in the past, we’re going to certainly be able to do that. I think with this merger we’ll also be able to continue to attract high-quality loan teams, who want to join us and move their books, that remains the focus for us.

Eric R. Newell

And then I’ll add a little color on that. We have been very judicious, both companies have with not pushing the – accelerated the floor in terms of trying to get to the legal lending limit. In a combined company, our legal lending limit is going to be north of $75 million. But the core of where our growth is going to come from is still going to be from organic, small, medium-sized business, C&I opportunities. We just think that platform and the convenience factor and the technology is going to allow us to get there.

So we’re now looking to be something that we haven’t been in the past. I think we’re just looking to do in even better job of what our core strengths are…

Matthew Breese – Sterne, Agee & Leach, Inc.

Okay. And then in terms of the margin, outside of a simple weighted average of the two companies, how much will the creditable income affect the margin, day one in the first quarter?

William H. W. Crawford IV

Eric, I’ll let you take that one. The interest mark that we put in the model is $1.4 million on a pre-tax basis. So – because it’s so de minimis, it won’t be impactful to the margin in the first quarter.

Matthew Breese – Sterne, Agee & Leach, Inc.

Do we – really should we be thinking about a weighted average then?

William H. W. Crawford IV

Yes.

Matthew Breese – Sterne, Agee & Leach, Inc.

Okay. And then my last question, regarding the dividend Rockville had a current run rate of $0.40 a year, and in the deck you noted that a payout ratio of 50% to 55% is what you are targeting. So should we be reading into that little bit as we look out over the next couple of years?

William H. W. Crawford IV

I think for the 2014 and 2015, for the model purposes, we kept the dividend – Rockville dividend flat. But certainly as the companies two balance sheets come together and stabilize. We – our goal for capital management is to payout between 50% and 55% payout ratio.

Eric R. Newell

And that said Matt, obviously we’re going to always evaluate all of our capital deployment alternatives and make the best choices for where we are.

Matthew Breese – Sterne, Agee & Leach, Inc.

Go ahead. Thank you very much.

William H. W. Crawford IV

Thanks.

Operator

Our next question is from Brad Rinschler of FIG Partners. Please go ahead.

Brad Rinschler – FIG Partners LLC

Hey, good morning, guys. Congratulations.

William H. W. Crawford IV

Thanks, Brad.

Brad Rinschler – FIG Partners LLC

Just, quickly my other question was already answered. Just on the footprint, one, you had said that you guys probably going to close four branches, because that would be potential more as you go along, are you actually – you think it’s actually going to be four?

William H. W. Crawford IV

Yes, we’re going to work together and evaluate efficiency in all of our lines of business and all of our back room areas. And sell, as we go through that process, we’ll work to look and see what opportunities there are now. But there were four that we’re obvious and so we will be working on those shortly.

Brad Rinschler – FIG Partners LLC

And Bill, did you acquire those branches on these eastern part of state and it’s actually started to built out there. That’s something you guys would look to do maybe in the future and build out by that Boston area also as branches, because obviously yeah – that’s kind of a whole in your footprint now, it’s actually an interested area for you guys especially with the aligned company?

William H. W. Crawford IV

Yes. I know, obviously in the New Haven area, we’ve been very aggressive there, we think New Haven County is a great opportunity for us Worcester also. Jeff, do you want to talk a little bit about United strategy, do you think the Worcester and as you go towards Boston, it gets really interesting.

J. Jeffrey Sullivan

Yes, absolutely. Thanks, Bill. I think that’s the story, Worcester has been a real success story in terms of its economy recovering from the recession and lot of emerging industries there. We know Worcester well. We’ve got a good lending team there. Dick Collins was the CEO of a bank in Worcester for 25 years, at one point in his career. And so, we value that market and we’ve been growing it steadily. In terms of the retail side, as you move east far most the demographics start to become even more compelling and there is good as anything you would find anywhere on our footprint.

So that represents an obvious opportunity for us going forward and on a combined scale we will be able to do some continued de novo expansion without harming our earnings.

Brad Rinschler – FIG Partners LLC

Okay. Thanks, guys.

Operator

Our next question is from [Indiscernible]. Please go ahead.

Unidentified Analyst

Yes. Hi, folks, thanks for taking my call.

William H. W. Crawford IV

Hi, Howard.

Unidentified Analyst

Could you expand a little bit maybe I know Eric mentioned probably about four branches likely will be surplus, is there at this point any sense of where there those might be located and total number perhaps of anticipated job reductions as part of the restructuring, can you tell us that?

William H. W. Crawford IV

Yeah, Howard like I said, what we’ve done is, we’ve looked at each business line and try to figure out where we need to be from a staffing perspective. And so we’ve done a lot of preliminary work on that. We’re going to do more detailed work on that. And we’re going to be able to do this over two years. And so I think there will be an opportunity as Eric mentioned for us to get some attrition – says through attrition, but there will be job loss. But at this point, we’re not ready to specify specific numbers, and we continue to work on the branches and we will get communication out on what specific branches later on in this process.

Unidentified Analyst

Okay. Thank you very much.

William H. W. Crawford IV

Thanks, Howard.

Operator

(Operator Instructions) And our next question is from Adam [Indiscernible]. Please go ahead.

Unidentified Analyst

Hi, good morning. I’m looking at Slide 8, I’m looking your capital position on a pro forma basis and looking at your guidance on a 50% payout ratio on earnings, that looks like you are going to be managing your capital position primarily to the share buyback, am I thinking about it correctly and would it be fair to say, you’ve got approximately $2 of excess capital per share, again, based upon slide 8, that you’ve gotten in terms of flexibility going forward?

William H. W. Crawford IV

Yeah, I think about it as a $160 million of excess capital approximately and we’re always going to look at all of our ways to deploy capital effectively. Buyback is certainly one to both companies have been aggressive with in the past and we’ll evaluate that and we will be able to do it. We also have organic growth as another lever and obviously the dividend. Eric, would you have anymore comments on that.

Eric R. Newell

No.

William H. W. Crawford IV

All right.

Unidentified Analyst

Thank you very much.

William H. W. Crawford IV

Yep.

Operator

Our next question is from Eric Grubelich of Highlander.Please go ahead.

Eric J. Grubelich – Highlander Capital Management LLC

Hi, good morning. Just as a follow-up on the buyback issue, your buyback that’s currently in place, is any of it under a 10b5 plan, where you will be able to continue to do that, or you effectively frozen now until the deal closes?

William H. W. Crawford IV

We are effectively frozen now until the deal closes.

William H. W. Crawford IV

We are effectively frozen now, until the deal closes.

Eric J. Grubelich – Highlander Capital Management LLC

Okay, that’s what I thought. Thanks.

William H. W. Crawford IV

Thanks.

Eric J. Grubelich – Highlander Capital Management LLC

Good color.

Operator

At this time, I’m not showing any further questions. So I’d like to turn the conference back over to Mr. Crawford for any closing remarks.

William H. W. Crawford IV

Okay. Well, thank you for joining us. Obviously, we’re all very excited about this transformational opportunity for our two companies. And we’re always glad to take questions and we look forward to getting out in the road and hopefully seen plenty of you. So everybody have a wonderful weekend and thanks for joining us.

Operator

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

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