CapStar Financial Holdings (CSTR) CEO Claire Tucker Hosts CapStar Financial Holdings, Inc. and Athens Bancshares Corporation Merger Conference (Transcript)

| About: CapStar Financial (CSTR)

CapStar Financial Holdings (NASDAQ:CSTR) CapStar Financial Holdings, Inc. and Athens Bancshares Corporation Merger Conference June 12, 2018 9:00 AM ET

Executives

Claire Tucker - President and CEO

Rob Anderson - CFO and CAO

Jeffrey Cunningham - President and CEO, Athens Bancshares Corporation

Analysts

Catherine Mealor - KBW

Laurie Hunsicker - Compass Point

Operator

Good morning, ladies and gentlemen, and welcome to CapStar Financial Holdings’ and Athens Bancshares Corporation Merger Conference Call. Hosting the call today from CapStar are Ms. Claire Tucker, President and Chief Executive Officer; Mr. Rob Anderson, Chief Financial Officer and Chief Administrative Officer; and Athens President and Chief Executive Officer, Jeffrey Cunningham.

Please note that today’s call is being recorded and will be made available for replay on CapStar’s Web site. Please note that CapStar’s press release, the presentation materials that will be referred to in this call and the Form 8-K that CapStar filed with the SEC are available on the SEC’s Web site at www.sec.gov and the Investor Relations page of CapStar’s Web site at www.ir.capstarbank.com.

Also during this presentation, CapStar may make certain comments that constitute forward-looking statements within the meaning of the federal securities laws. Forward-looking statements reflect CapStar’s current views with respect to, among other things, future events and its financial performance. Forward-looking statements are not historical facts and are based upon CapStar’s expectations, estimates and projections as of today.

Accordingly, forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties, many of which are difficult to predict and beyond CapStar’s control. Actual results may prove to be materially different from the results expressed or implied by the forward-looking statements. You are cautioned not to place undue reliance on forward-looking statements, which speak only as of today. Except as otherwise required by law, CapStar disclaims any obligation to update or revise any forward-looking statements contained in this presentation, whether as a result of new information, future events or otherwise.

In addition, this presentation may include certain non-GAAP financial measures. The risks, assumptions and uncertainties impacting forward-looking statements and the presentation of non-GAAP financial measures and a reconciliation of the non-GAAP measures to the most directly comparable GAAP measures are included in the press release and the presentation materials referred to in this call.

Finally, CapStar is not responsible for and does not edit nor guarantee the accuracy of its teleconference transcripts provided by third-parties. The only authorized live and archived webcast and transcripts are located on CapStar’s Web site.

With that, I am now going to turn the presentation over to Ms. Claire Tucker, CapStar’s President and Chief Executive Officer.

Claire Tucker

Thank you, operator, and good morning, everyone. We are really excited to be able to discuss with you this morning what we think is a very important point in the life of CapStar Financial Holdings.

As we’ve talked about over many calls in the past and what we stated publicly is that our four guidepost in terms of considering any M&A activity really center around four things, something that will create scale, because we believe that that will enhance our ability to leverage our infrastructure and improve our profitability profile. Certainly, something that would increase our sticky demand deposits as well as lower our cost of fund.

Third will be the addition of complimentary banking services and products, and the fourth item is the ability to generate additional noninterest income through various products and services that we do not currently have. I think as we go through this discussion, what you will see is that we hit on all four of those guideposts which make the transaction all the more compelling for us.

I think if you look at the deck on Page 4, the key themes of this really center around the fact that we have two growing organizations that have a common vision. We're all focused on our employees, our shareholders, our communities and our clients. This combination does bring together very seasoned bank operators with very deep experience, very talented and motivated workforces, and as I mentioned comparable and complementary corporate cultures.

The strategic rationale ahead on our four guidepost, Athens really represents very low beta deposit franchise with excess liquidity and capital to support the growth. This will create a leading Tennessee banking franchise in terms of scale, growth and continuing with an asset sensitive profile. The East Tennessee market is one that we've been very familiar with and like a lot Athens is in some growth areas, really spanning from the North City down towards Chattanooga, and we think that with the growth profile they are in the extremely talented bankers that they have, this will be very complementary opportunity to expand the company.

I mentioned the complementary products that those really overlap in terms of the work that Athens has done in the title business, in the mortgage business, things that mesh well with the CapStar profile. We do believe that it will be a financially attractive transaction. Our projected EPS accretion in 2020 is double-digit. We have phased in cost savings throughout '19 and '20. We have reasonable tangible book value per share dilution and the earn back is less than four years, which is something we’ve said we always wanted to strive for in an M&A opportunity.

The IRR is in excess of 20% and importantly the pro forma risk-based capital ratios are accretive. So we end up even stronger on the capital basis and it does help us accelerate the achievement of the near-term growth and profitability targets that we've spoken with you about in the past. We do believe that it's a low risk transaction.

Very important to the CapStar team as we talked with the Athens team was to be able to ensure the continuity of the leadership team here in Athens and we were successful in doing that. Jeff Cunningham will stay on with us as a Executive Vice President responsible for community banking strategy.

Additionally, two other key folks Jay Leggett, who is in our Cleveland and Chattanooga markets, and Mike Hutsell, who is the COO and CFO here in Athens, will be staying. We think that's very important as I said for continuity and endorsement buying across the organization. And I would say lastly, we do have a proven strong credit risk management practices at both institutions.

I reference the stated M&A objective. We do believe that it's a very good cultural fit. As I mentioned, we have four constituencies. Our employees, customers, communities and shareholders and we share a vision to really build a high-performing financial institution. One of the most attractive attributes of the Athens franchise to us really centers around the wonderful work they’ve done in creating a very sticky deposit base. This will significantly improve the deposit composition.

I referenced the DDA in money market accounts that Athens has the stability, the market share and importantly the cost of funds effectively CapStar's cost of funds today is about 88 basis points, Athens is 43 basis points, so we will come down about 45 basis points in terms of our cost of funds. And then outgrowth of that is certainly adding to the balance sheet liquidity in the capacity to fund our future growth.

We do believe that the market being adjacent to our middle Tennessee market is a natural extension for us as we expand the company. In prior earnings calls, we’ve talked about targets that we would be considering and I think we've noted that moving toward East Tennessee would certainly be very attractive to us. The business that Athens does is very complementary to the commercial banking expertise and the Middle Tennessee concentration of CapStar.

I referenced the new product capabilities. Athens has done a superior job of developing multiple businesses, including their investment retirement services which will complement what CapStar has. They have a consumer finance business as well as real estate settlement entitled services. Rob will get into the specifics of the financials here in a moment. But we do believe that this is an attract -- this has attractive financial impact and the return profile measured across EPS, TBV, IRR, and the pro forma ROA and ROE.

So I will hit on Page 6, a summary of the transaction. We do view this as a partnership that's very important to us. The consideration is a 100% stock. We have a fixed exchange ratio of 2.864 shares of CapStar common for each share of Athens Federal common. The calculated deal price per share is $57.54 with an aggregate transaction value of $113.5 million. And this is based on CapStar's closing price per share of $20.09 as of yesterday.

The ownership is roughly 69.3 CapStar, 30.7 for Athens. And it's important to note as well that we will be adding two Board members from the Athens Board to the Board of CapStar. I mentioned communities which we both share a passion for and accordingly CapStar has made a commitment to contribute $1.5 million to the Athens Federal Foundation over a 4-year period. We really believe that it's going to be important to continue to make contributions and support the growth of the community here and we're proud to be able to do that. The required approvals obviously just the customary regulatory and Board approvals. And we would expect to close this in the fourth quarter of 2018.

For those of you who may not be familiar with Athens Bancshares Corp., I'll give you a quick overview on Page 7. You'll note the map on the right hand side of the page that depicts the offices that Athens Federal has along I-75. Very complementary to the Middle Tennessee market that we have through CapStar. The company was established in 1934, headquartered in Athens, Tennessee with 10 branches across Eastern Tennessee.

It's EOP balance sheet position, total assets of $482 million; loans $331 million and deposit of $422 million. So, this again is very attractive to CapStar and that it has the capacity for some additional funding given that their loan to deposit ratio is less than 80%. I referenced the capital, the TCE to tangible assets at 10.44%. Very, very strong credit metrics with NPAs, a 38 basis points and very low net charge-offs of 2 basis points.

The profitability is extremely impressive. What this team has done to build an extraordinary franchise I think is depicted at the very bottom. If you look at the ROA of 1.29%, ROE 11.60%, efficiency ratio of 65.2%, net interest margin 4.18%, that’s a function of both a good yielding loan book as well as the very low cost of the deposits at 43 basis points.

Very quickly I will move you over to Page 8. This just really shows you the result of the combination of the two. The transaction will create a $2 billion assets. Pro forma financial services franchise with top quartile profitability and will be very well-capitalized. If you look at the left-hand side, you will note that currently this is as of June 17. CapStar was number 21 in the state in terms of total deposits. Athens was 52 in terms of deposits.

If you go to the right hand side of the page, this is looking at banks in [indiscernible] in Tennessee with total assets of $1 billion to $10 billion and this is as of March 31 of 2018. So the first quarter, and what that shows is that elevate to number six on a pro forma basis for banks between $1 billion and $10 billion of total assets. So we think that's a meaningful move for the combined companies, and we are really, really excited about the of the partnership that we’re creating and what this can mean for our shareholders, our customers, our employees, and the communities going forward.

So I'll stop there and turn it over to Rob and let him walk you through some of the financial metrics.

Rob Anderson

All right. Thank you, Claire, and good morning, everyone. As Claire mentioned, this was certainly a strategic partnership with our Athens partners and we are here with them today taking the call. I do want to talk to you about the funding profile of the pro forma company going forward. I think this is going to be very attractive piece and certainly one of the bright spots -- meant one of the bright spots with the Athens franchise.

First of all, we have spoken to you guys in the past about our deposit challenges, especially in rising rates. And one of the pieces that Athens has done very well is their deposit gathering, with low cost sticky deposits. If you look at their deposit mix, its well-balanced with $425 million of deposits. The cost of funding is 43 basis points, which was 45 basis points lower than our funding. CapStar's funding in the first quarter.

Combined that would lower our funding to about 74 basis points with over $1.5 billion of deposits and with a good solid mix of deposits with DDA now, money market and CDS. Most importantly, also is the loan to deposit ratio. Athens a little lower loan-to-deposit ratio than we have in the past we are at 91.5. They are at 79, so certainly some excess liquidity which one -- on a combined balance sheet will be very attractive as we move forward.

To go to Page 10, I would like to talk you about their funding as they have managed that in a rising rate environment. If you look at just the deposit beta in total, we have managed roughly to around a 24% beta with the last 125 basis point increase in the fed funds rate.

Athens on the other hand has actually decreased their deposit cost over the same time period in a rising rate environment. And I would challenge a number of people to find an institution that has managed their deposit book as well as the Athens folks have, and that's going to be attractive to us as we move forward in a rising rate environment as well. Additionally, they’ve grown their deposits over that same time period. Roughly 16% on a point-to-point basis, which demonstrates their ability to grow lot low cost deposits and to manage the cost over a period of time.

Let me move on to Page 11 on the loan book. Certainly, there are complementary businesses here as Claire mentioned. Our profile is more on a commercial banking. Athens is more on a retail oriented and that needs to diversification not only on the business mix, but also in geographies as we move to East Tennessee along the I-75 corridor. Also we will have with us increased capital base.

We’re going to have an increased ability to be positioned as the lead bank in getting our clients relationships as a $2 billion institution versus a $1.4 billion institution. And as Claire mentioned, certainly the greater scale will help drive the efficiency and profitability of the bank on a pro forma type basis.

So with that, let me get into maybe the transaction multiples and some of the assumptions on the deal. As Claire mentioned, the deal is for $113.5 million, which equates to 17.3x last quarter annualized EPS, 2.09x tangible book value per share and a core deposit premium of 15.7x. The cost savings that we have modeled into the deal are around 25% of their noninterest expense base and those are conservatively phased-in at 60% in year one and a 100% after that.

The one-time costs are fully in their -- in the deal at $11.5 million pre-tax. And the accounting marks are -- purchase accounting marks, certainly on the loan side is around $4.2 million, that is a credit mark not an interest rate mark. And there are other purchase accounting adjustments that equates to about $5.5 million with a bulk of that being the real state that Athens owns and has fully depreciated or near depreciated on their books and the value of those are higher than the book value. There's also a smaller piece on the mortgage servicing business. But the bulk of that would be around the real state.

On the core deposit intangible, there's a 1.5% core deposit intangible on the non-time deposits that’s certainly amortized over the sum-of-years digits for 10 years. Also in addition to the transaction multiples, I did want to note that the Board did declare a dividend yesterday in view of the company's strong performance and certainly in anticipation of the performance of the combined company. They declared a dividend of $0.04 a quarter yesterday and that will be paid in the third quarter of 2018. Additionally, we have identified revenue synergies across the new franchise. Those are not included in the modeling, but we have identified them with our new partners. 21% effective tax rate, so let's see what that does to the numbers on a pro forma type basis on Page 13.

As Claire mentioned, the tangible book value dilution using the crossover method is 6.8%. Day one that will be earned back under four years, which was a marker for us as we looked at M&A. Certainly the EPS accretion with conservative cost saves is very attractive with 6% in year one and then over 10% or 10.5% and more specifically in year two. Again, we -- our pro forma -- with a pro forma company on a combined basis of $2 billion company, we’re advancing our ROA targets. We believe we can pro forma at a 125 once cost saves are fully phased-in.

As Claire mentioned, Athens recorded a 130 or a 129 ROA in this past quarter. So this is a strong profitability franchise on a standalone basis and that will be accretive to the CapStar organization as we go forward. Certainly, the deposit pieces is attractive with excess deposits.

We will have a slightly lower loan to deposit ratio which will create some room for us as we grow our loan book. And the cost of the deposits will be anchoring some low-cost funding for us. On a combined basis, first quarter will give us about a 74 basis point cost deposits down from 88. And certainly the organizations are going to be well-capitalized going forward on both a combined basis to support organic growth and future acquisitions.

So those are some of the quick summaries. I will turn it back to Claire for some closing comments and then we will get into some questions.

Claire Tucker

Thank you, Rob. Just briefly to summarize, as I mentioned, this does combine two organizations that have a shared and common vision of creating a high-performing financial institution across the state. The deal is significantly accretive to CapStar's deposit base and our overall funding needs. We do believe that’s financially compelling as well as strategically compelling, double-digit earnings accretion. Rob mentioned the TBV dilution and earn back and an enhanced pro forma capital position.

The diversity is a good play, both industry business mix and geography, certainly balance sheet diversity. Athens is an established highly profitable community bank with a dominant market share in its primary market, and we're counting on the leaders that that will be staying as part of CapStar to continue doing what they've done so successfully to continue to enhance profitability.

The combination will create a very strong financial institution, attractive funding, enhanced scale to drive efficiency and expanded product fit. So to wrap and circle back to my original comments, this does hit on four -- of the four guideposts that we've always laid out to you in terms of what would constitute an attractive partner for us and we are absolutely delighted to be able to bring it to you today.

So with that, operator, we will open it up for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Catherine Mealor with KBW. Your line is now open.

Catherine Mealor

Thanks. Good morning and congrats.

Claire Tucker

Thanks, Catherine.

Catherine Mealor

Maybe one question on the Athens' residential mortgage portfolio. It's about 40% of loans. Can you just give us a little bit more color on the products in that portfolio and maybe the duration of that portfolio as well? And maybe on that, as a follow-up to that, maybe just how you think about the growth of that book or do you feel like you can bring some of your expertise in on the commercial side legacy CapStar to kind of grow the commercial side at Athens further more? Thanks.

Claire Tucker

Okay. Catherine, I think first let me see if I can summarize. You want to get a little bit of color around the residential portfolio this year in Athens, and then talk about how we would see that going forward? Do I have that correct?

Catherine Mealor

That’s right.

Claire Tucker

Okay. I’m going to ask Jeff Cunningham, the President and CEO of Athens to give you a little overview of the residential book and Mike Hutsell, who is their COO and CFO will also add some color on that.

Jeffrey Cunningham

Sure. Thanks, Claire. Good morning. This is Jeff Cunningham. As you know, our bank started as a savings and a loan. We’ve been in home loan business since our inception. We think we are very knowledgeable in our portfolio. We sell a lot of loans to Freddie Mac or Freddie Mac Servicer, but we do portfolios and loans as well. We rarely do a -- would portfolio a loan that has more than a 5-year interest rate lock. We have portfolio loans that have a 1-year adjustable, 3-years, 5-years from time-to-time, for someone we might stretch out a little farther than that. But as far as the residential portfolio rates that are involved, all of our loans are practically 5-years or less, or the great majority of them is 90% something.

Catherine Mealor

Great. Do you think the majority of that book is an ARM product, not a longer term fixed rate product?

Jeffrey Cunningham

That’s correct.

Catherine Mealor

Okay, great. And then how do you think about the composition of growth in the loan book moving forward? Do you anticipate they continue to grow the residential mortgage products at a similar pace that we’ve seen or do you expect to see more commercial growth in these markets over time?

Jeffrey Cunningham

I think if you look at our performance over the last few years and with the last few quarters, our book is expanding pretty much in all the products that we have. We are very strong in the central part of our -- the Athens and surrounding areas in the home loan, but we also have a lot of commercial and other non-1-to-4. When you stretch out into the market closer to Cleveland, Ooltewah, Chattanooga, on the northern side in Loudon, West Knox County, we tend to do more commercial, but we tend to still do real estate based commercials. So being with CapStar they're going to allow us to do C&I, we practically don't do any C&I. They’re going to bring that expertise in the SBA as well, but it's been our strategic plan for the last few years to continue to develop our home loans in our outlying areas as well heading into the Knoxville and Chattanooga markets and we have relationships with builders in Chattanooga. We think that’s a great market and a great opportunity for expansion into the future in both of those places as well as where we operate in the central geographic area of our marketplace.

Claire Tucker

And Catherine, I will add to that. We think it's very complementary because as you know CapStar currently doesn't do much in terms of the residential mortgage lending. On balance sheet we do have home-equity lines that we offer to consumers private banking clients, but this really is one area that’s a nice diversification of loan book. It's very complementary and doesn't create any issues from the standpoint of any real estate concentration guidelines. So we're very excited about it.

Catherine Mealor

Makes sense. That’s great. And then one quick question maybe for Rob is on the markup, on the $5.5 million fair value write up. You said most of that was just from the real estate. Is there any interest rate loan mark included in that number and how should we be thinking about that and maybe on your accretable yield as well moving forward?

Rob Anderson

Yes, we don’t have the interest rate marks on any of that. The only interest rate mark that we have on right now is on their investment portfolio, which is negligible. The credit mark is all credit not interest rate, and then on the fixed asset right up that’s just the value of those properties.

Catherine Mealor

Okay. And do you anticipate to take an interest rate mark if [technical difficulty]?

Rob Anderson

Yes, there would be some. We will figure that out down the road, but certainly there will be some. But certainly that would accrete back in once that is determined.

Catherine Mealor

Got it. Okay, got it. And then, lastly, also on the core deposit intangible, as we think about that U.S rates continued to rise in the back half of this year if we get a June hike, have you kind of thought about the risk of that core deposit intangible moving higher with another rate hike and just the core deposits will have more value and kind of any sensitivity that may have on the upfront book dilution?

Rob Anderson

Yes, we have a 1.5 CDI on the non-time deposits right now are roughly $6 million. Certainly I think that's a fair mark where we have that currently. As we said, we will probably close it in the fourth quarter. I would not expect it to move materially from that point.

Catherine Mealor

Okay. That’s great. Thanks for the color and congrats.

Claire Tucker

Thank you, Catherine. We appreciate it.

Operator

[Operator Instructions] Our next question comes from Laurie Hunsicker with Compass Point. Your line is now open.

Laurie Hunsicker

Hi, Claire, Rob, and Jeff, good morning.

Claire Tucker

Good morning, Laurie.

Rob Anderson

Good morning, Laurie.

Laurie Hunsicker

Rob, can you spend some time just walking me through what pro forma tangible book is going to look like, because I think I've got some discrepancies versus back end of your slide deck? So maybe just starting with intangibles, do you have a pro forma intangible number?

Rob Anderson

Yes. So with the deal of $113 million you’re probably going to come up with about $51 million of goodwill and then probably $6 million on the CDI, which is roughly about $57 million.

Laurie Hunsicker

Okay. And then, perhaps plus another interest rate mark if -- if we’re adding somewhere in the neighborhood of $68 million for total intangibles. Does that sound about right?

Rob Anderson

I don't think I would go that high. I mean …

Laurie Hunsicker

Okay. Okay or maybe at 65 or somewhere in that neighborhood?

Jeffrey Cunningham

Depends on what you [indiscernible] for the interest [multiple speakers].

Rob Anderson

Yes, it would be -- that’s -- I wouldn’t want to go there. I mean the way we've done is plus the cost saves. I mean, you’re going to have about 6.8% tangible book value per share dilution at close. You might not have the preferred marked in there, so maybe I could walk through the share count with you if that’s helpful?

Laurie Hunsicker

Yes, that would be helpful, but I just -- hang on, I just want to make sure I’m getting this piece right. So, basically I’m just looking at the premium over deposits, right. If I’m just looking at what did you pay over equity, it round numbers to almost $64 million over their tangible common equity or tangible common is 50?

Rob Anderson

Right.

Laurie Hunsicker

Right. So I'm starting with $64 million, okay? Then I'm obviously, I’m netting the credit whatever rate marks I'm assuming, I’m adding back the net write-up. I mean round numbers, even if I net $70 million and then I'm also adding your current intangibles of $6 million. I mean somewhere your pro forma intangibles even assuming virtually nothing in terms of an additional rate mark, it's going to be about $70 million. Am I thinking about at the right way? That’s pro forma all in you and them combined?

Claire Tucker

Yes, I don’t know if I would get to that number. Maybe we -- yes, I will take it offline. We can certainly go through that, but …

Laurie Hunsicker

Okay. Just even -- okay here. We will just assume zero rate mark. Your pro forma intangibles will be $69 million? And then I’ve got one-time charges, that you've got pre-tax one-time charges of $11.5 million, so that’s $9 million after tax. So it's another $9 million that come out which gets me to pro forma tangible common equity of $175 million on round number 17.5 million shares. So I mean, almost a $1.30 or so hit to your tangible book. My tangible book is up $10. So when you -- or maybe this is a better question, when you talk about your 7% tangible book dilution at close, are you including the one-time charges?

Rob Anderson

Yes, fully in there, it's 6.8%. I wouldn’t round up to 7%.

Laurie Hunsicker

So you’re 6% -- because -- all right. So if I’m just sitting here and I back out the $9 million, I mean, that’s $0.52, that’s getting me to 6.9%. So somewhere I missing something and I feel like I'm not sure what it is. So where would you have your or maybe let me ask you this. Maybe this is about our number. What is your pro forma tangible common equity at close and what is your denominator? What is your share count?

Rob Anderson

Yes. So the share count, let me walk you through kind of the pieces of our shares, which I think would be helpful to your modeling.

Laurie Hunsicker

Absolutely.

Rob Anderson

So our common in CapStar is 11,000,773. We have preferred of 878. We are going to issue shares for Athens which will add about 5.2 at the exchange ratio. So they’ve about $1.8 million of shares at the 2.864 that’s an additional 5.2. So you’re going to come down to about with the common and preferred 17.9 million shares altogether. You add in some of our options and warrants about 430,000 plus impact of Athens options that we're rolling, it's another 590, you’re going to come in just under 19 million on a fully diluted basis around 9 -- 18.9 shares.

Laurie Hunsicker

Okay. Okay. And then what is your tangible common equity that you’re working off of?

Rob Anderson

So, CapStar at close will be around 150, you got around 56, so we’re going to be over $200 million on a pro forma type basis, tangible common.

Laurie Hunsicker

Okay. And that does include -- that fully reflects the $9 million of after-tax of one-time charges?

Rob Anderson

Yes.

Laurie Hunsicker

Okay. So round numbers you’re at a tangible book of $10.5 million including that. Yes, so maybe I just need to spend a little bit of time understanding the total pro forma intangibles, because I feel like there's a disconnect. So maybe I can catch up with you later today.

Rob Anderson

Yes, I would be glad to do that.

Laurie Hunsicker

That would be helpful. Okay. And then, just going back to the question that Catherine had on accretion, can you help us understand how you’re modeling in accretion income or maybe if you want to think about it more macro, what would the impact to margin be and obviously it's very front ended, but how should we be thinking about that?

Rob Anderson

Yes, right now there's very negligible purchase accounting marks in there. So it's going to be very small. There's like 170,000 on the portfolio and that's coming in over five years. So it's going to be very negligible to our numbers on pro forma type basis.

Laurie Hunsicker

So the purchase accounting accretion impact into net interest income is going to be very negligible?

Rob Anderson

Negligible right now.

Laurie Hunsicker

Okay. Okay. And then just that I fully understand too, because I think this is close to where I backed into. When you talked about double-digit earnings accretion, I mean, round numbers I was using a fully phased-in of $0.11 per share pick up?

Rob Anderson

It might be a little bit more than that, if I’m getting too specific. I mean, on the deal here is the way I would think about it. I mean pro forma we’re going to be a $2 billion organization. Right now we profile little bit over a 1% ROA. Athens profile is at a 1.30% ROA. Their margin in cost of deposits are better. So the two pieces that are going to move the dial for us are really the margin pick up that’s going to be accretable by layering in Athens with stable funding. The second piece is the cost saves, which we’ve modeled conservatively at 25% of their noninterest expense base which is roughly 16 million. And that's going to get phased-in over a period of time, which we think is conservative and reasonable given the deal on how we will put the two organizations together. So on a pro forma basis we’re going to profile to about 1.25% ROA in 2020, once full cost saves are modeled in. Credit profiles are similar between the two companies in terms of clean credit. The tax line is going to be clean, so it's really on the margin and the expense line and as we said this is a strategic acquisition with cost of funding excess liquidity and scale and the efficiency and we leverage the two. I mean that’s how we’re going to get to the 1.25% improved profitability profile.

Laurie Hunsicker

Okay. And then just last question, do you plan to keep all 10 branches open, is that correct?

Claire Tucker

Laurie what I would say is that we will be working very closely with the leadership team here at Athens. There's probably some strategic planning that they have entered into before we ever came on to the scene and we want to be cognizant about and really work closely with them.

Laurie Hunsicker

Okay, great. Thanks. I will leave it there.

Claire Tucker

Thank you.

Operator

And at this time, I’m showing no further questions. I’d like to turn the call back over for closing remarks.

Claire Tucker

Thank you operator and thanks to all of you who have joined us today. As I said, we’re really, really excited about the prospects that exist here with our combination with Athens. We believe it's going to be the beginning of a very strong partnership going forward and it's important that everyone realize we really viewed it as a partnership. There are a lot of very, very complementary attributes on both sides. So we think it's going to be a great combination and we look forward to our first earnings call when we are together after we close it later on this year. So thank you for your interest. We greatly appreciate it. Have a good day.

Operator

Ladies and gentlemen, thank you for your participation in today’s conference. This does conclude the program. You may now disconnect. Everyone have a great day.

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