Michael Rechin - President and CEO Mark Hardwick - CFO John Martin - Chief Credit Officer.

Scott Siefers - Sandler O’Neill Damon DelMonte - KBW Brian Martin - FIG Partners Stephen Geyen - D.A. Davidson Daniel Cardenas - Raymond James.

Good day and welcome to the First Merchants Corporation First Quarter 2015 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions]. After today’s presentation there will be an opportunity to ask questions. [Operator Instructions]. We will be using user-controlled slides for our webcast today.

Slides may be viewed by following the URL instructions noted in the First Merchants news release dated Thursday, April 23, 2015 or by visiting the First Merchants Corporation shareholder relations website and clicking on the webcast URL hyperlink. The corporation may make forward-looking statements about its relative business outlook.

These forward-looking statements and all other statements made during this meeting that do not concern historical facts are subject to risks and uncertainties that may materially affect actual results.

Specific forward-looking statements include, but are not limited to, any indications regarding the financial services industry, the economy and future growth of the balance sheet or income statement.

Please refer to our press releases, Form-10Qs and 10-Ks concerning factors that could cause actual results to differ materially from any forward-looking statement. These slides contain non-GAAP financial measures.

For purposes of Regulation G, a non-GAAP financial measure as a numeral measure of the registrant's historical or future financial performance, financial position or cash flow that excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable measure calculated and presented in accordance with GAAP in the statement of income, balance sheet or statement of cash flows or equivalent statements of issuer; or includes amount or is subject to adjustments that have the effect of including amount that are excluded from the most directly comparable measure so calculated and presented.

In this regard, GAAP refers Generally Accepted Accounting Principles of the United States. Pursuant to their requirements of Regulation G, First Merchants Corporation has provided reconciliations within the slide as necessary of the non-GAAP financial measure to the most directly comparable GAAP financial measure.

Please note this event is being recorded. I’d now like to turn the conference over to Mr. Michael C. Rechin, President and CEO. Please go ahead..

Great, thank you, Amy. And thanks everyone for tuning in today, listening in our conference call. We’re going to cover along with the press release issued earlier in our webcast results for our first quarter ending March 31, 2015. Joining me today are Mark Hardwick, our Chief Financial Officer; and John Martin, our Chief Credit Officer.

As referenced earlier, we released our earnings in a press release at approximately 10 o'clock a.m.

Eastern Daylight Savings Time; our presentation speaks to material from that release, the direction that Amy covered the point that the webcast also contained in the back of that release and my comments will begin on page 3, the slide titled First Quarter 2015 Results.

So we’re happy to be with you and talk about our earnings per share which totaled $0.43 for the quarter, 13% increase over the first quarter of 2014's results of $0.38. Looking at it otherwise, $16.2 million over the net income, a 19% increase over the first quarter of '14's total of $13.6 million.

Our non-interest income totaled $16.2 million, also 5% over the first quarter of last year, mix details within that caption that Mark will cover a little bit later; really nice results in our mortgage business in our trust company. We look forward to having a little bit more growth in our service charges.

One of the components of that non-interest income is our OREO gains and income which was down I think is somewhat near is what we would hope to take place in OREO assets is that category along with all non-performers we look to continue to come down over time.

Turning on interest expense, really pleased to see it come down to $41.2 million, down 4% from last year’s first quarter, down more than 1% from the fourth quarter of 2014. And as the bullet point in the bottom half of this Slide 3 shows our first quarter results include the acquisition expenses of greater than a $0.5 million.

So all in, we produced a return on average assets of 1.11%, which we think is a nice add to the progress we’ve made over the last couple of years and sets us up for what we hope is a really successful 2015 in whole. Looking at the bottom of the page just for a moment.

The company is continuing to work through some really important milestones for us, namely, the first quarter of ’15 was our first full quarter of Community Bank operations and our results, and as we recognize the contribution that that bank is making with inside First Merchants at this point, we look forward to this weekend where the back office integration of Community Bank will take place, and that’s trying to get all folks on deck for that important client effort that starts this weekend.

In a press release that came out earlier this month where you might have seen that we completed our acquisition of Cooper State Bank in Columbus, Ohio to add to our commerce franchise. So we’re really excited about the early results and management contribution we’re getting from those folks.

Lastly, John will be on talk about the overall asset quality not only from our core business but from our either community or Cooper, what to do for us is I'll kind of pause it and I’ll let my colleagues jump into it. So I'm going to go to Mark first who is going to get into greater detail on the financials himself..

Thanks, Mike. I appreciate everyone joining the call. I'm starting on Slide 5 where loan from line three increased year-over-year by 9.6%.

That’s an increase $204 million or 5.6% was the result of organic culling effort and a $145 million or 4% resulted from our acquisition of Community Bank of Noblesville in November of last year The allowance on line four in total dollars has declined $7 million during the last 12 months and $1.2 million since year end 2014.

The allowance now totals 1.58% of total loans in a 187% of non-purchased loans or loans without a fair value credit mark from acquisition accounting. The composition of our $4 billion loan portfolio on Slide 6 continues to be reflective of commercial banking continues to produce strong loan yield.

The portfolio yields for the first quarter 4.48% is compared to the first quarter of 2014 yields of 4.67%, and so we are seeing some compression in total loan yield. On Slide 7, our $1.2 billion bond portfolio continues to perform well producing higher than average yield with a moderately longer duration than our peer group.

Our 3.94% yield is actually 7 basis points better than a year ago and continues to compare favorably through peer averages of approximately 2.5%. Our effective duration is just 2.5 months longer than our peer and totals 3.1 years and our average life is 4.7 years.

The net unrealized gain in the portfolio totals $45.1 million, up from $20.8 million a year ago. Maturities for the remainder of 2015 total $127 million with a yield of 3.13% and our 2016 maturities totaled $181 million with a yield of 3.54% and 2017 maturities total $127 million with a yield of 3.40%.

The strength in our investment yield has helped us maintain our net interest margin. The variable nature of our loan portfolio was $1.8 billion where pricing daily allows us to take on a little more interest rate risks than our peer banks and we feel like the return is worth the risk.

Now on Slide 8, non-maturity deposits on line one represents 76% of total deposits and grew by $269 million or 8.3% over the first quarter of 2014. Of the increase, $76 million or 2.3% resulted from core organic growth.

If you look at the bottom of the slide on line nine, tangible common book value per share increased by $1.33 or 10.5% over the last 12 months, the number that we’re very pleased with. As I previously mentioned, the mix of our deposits, on Slide 9, continues to improve and our total deposit expense is now 40 basis points.

Our regulatory capital ratios on Slide 10 are well above the OCC and the Federal Reserve’s definition of well-capitalized under Basel III and our -- including all the Basel III calculations and our internal targets.

Due to the implementation of Basel III this quarter, our total risk based capital declined from 15.34 at year-end to 15.12 as of March 31, 2015, pretty modest impact all things considered. The corporation’s net interest margin, on Slide 11, totaled 3.78% for the quarter and when adjusted for fair value accretion of $2.2 million totaled 3.61%.

Net interest income totaled $49.2 million for the quarter and continues to be the driver of our operating income.

On a linked basis, when comparing the fourth quarter of 2014 to the first quarter of 2015, the loss of two days of interest income accounted for five basis points in our margin compression and those two days is just the way we calculate yields on commercial loans; losing a couple of days impact us by about $375,000 a day.

Our plan for '15 does not -- let’s see, does include growth in net interest income driven by growth in earning assets and stabilization in our net interest margin. As you already know, despite longer than peer and duration in the bond portfolio, the bank as a whole remains asset sensitive.

We budgeted for a prime rate increase in the second quarter but it looks like it’s moved out to probably the fourth quarter at the earliest.

Just as a reference our -- if you would have a 100 basis point move and interest rates up, it adds about 14 basis points to our net interest margin or a little over $7 million in net interest income on an annualized basis.

And as I mentioned, we’re asset sensitive and so gives you some base line to understand how much of an increase we would see with a rising rate. Total non-interest income on Slide 12 improved by $400,000 as line six gains from sale of mortgage loans accounted for all of the growth in the quarter.

The $766,000 improvement was a result of lower mortgage rates and a little bit higher percentage of sales out of our total originations during the quarter. Non-interest expense on Slide 13 totaled $41.2 million for the quarter, a decrease of $1.9 million over the prior year.

Of the decline $760,000 was a reduction in salary & benefit expense and $528,000 was the result of reductions in OREO and foreclosure expense.

Post integration of our Community Bank in Noblesville, our run rate and expenses should improve by about a $0.5 million per quarter, and that’s consistent with Mike's comments in the first slide where he highlighted the expenses related to acquisition activity in the first quarter of '15.

So now if you turn to Slide 14, net interest income totaled $16.2 million for the quarter or $0.43 per share, a $0.05 increase and 13% improvement over the first quarter of 2014. And then you can also see the results of our most recent five quarter run rate on Slide 15. Now, John will discuss our satisfying asset quality trends..

All right. Thanks, Mark, and good afternoon. I’ll be updating you on the trends in the loan portfolio starting on Slide 17, then review our third quarter asset quality position, and then close with a look at where we stand with respect to the allowance and fair value coverage and some general comments.

So turning to Slide 17, for the quarter, C&I on line 1, CRE construction in line 2 and public finance on Line 9 is the part of the other commercial category all saw meaningful gains for the quarter increasing 4.7%, 14.3%, and 38.2%, respectively.

Also as foreshadowed last quarter, we saw construction lines more heavily drawn in this quarter and would expect to see that trend to continue and through the second quarter. In the public finance area, we've increased our efforts to grow our municipal and non-profit portfolio.

We've continued to seek out and bid opportunities in our market area and I would expect to see continued to grow in this areas as we move forward. In contrast, CRE non-owner occupied on line 3, agricultural lines 5 and line 6, and resi mortgage on line 7 saw declines of between 1% and 9% for the quarter.

As I just mentioned, the construction volume on line 2 ultimately results in current market to take out, which is driving the $50.5 million reduction in non-owner occupied CRE on line 3. Our strategy continues to be construct, stabilize and transition to permanent market.

We continue to see strong demand for multifamily product moving through the construction portfolio with accelerating takeouts from the perfect -- permanent market.

And then, with wrapping up this slide in the quarter, we stopped adding additional 15-year conforming first position, residential mortgages to the portfolio, which contributed to the $7 million runoff on line seven. Turing to asset quality on Slide 18.

Non-accrual loans, other real estate owned, renegotiated loans and 90 plus day delinquent loans were all improved in the quarter, down $8.3 million in aggregate or 11% as highlighted on line five. We continue to make progress working through the initial downward spike asset quality associated with recent acquisition.

Dropping down to line seven and eight, classified assets declined 13% driving overall criticized assets, which includes the classified total lower in the fourth quarter. We saw improvement in several larger real estate relationships, which allowed for the upgraded asset quality in both categories. Turning to Slide 19.

Similar to prior quarters, this slide reconciles the migration of the asset quality. In the far right column labeled Q1 2015, on line one we started the quarter with roughly $75 million in NPAs in 90-day delinquent. The non-accrual ins and outs on lines two and three and OREO ins and outs on line four and eight were essentially offset this quarter.

The improvement asset quality resulted from the resolution of the larger 90-day past due loans on line 11 as discussed last quarter. Also, impacting the quarterly migration with the reduction in restructured loans on line 12 of $700,000 and $2 million of gross charge-offs in the quarter. Now, turning to Slide 20.

I include this slide last quarter highlights were we stand with respect to the allowance in the remaining credit marks. In the far right column is the most recent quarter's allowance and fair value position. The allowance on line one decreased to $62.8 million resulting from net charge-offs of $1.2 million in the quarter and a zero provision.

Dropping down to line four, specific reserves increased by $1.8 million, resulting primarily from an individual relationship with a $1.5 million specific reserve. On line six, our allowance coverage to non-accrual loans increased from 131% to 142% as the reduction in non-accrual loans outpaced the reduction in the allowance.

And then finally, allowance in fair value coverage on line seven, eight and lot nine are showed in multiple ways. One non-purchased loans, two purchased and non-purchased loans, and then on line nine the combination of the allowance and fair value adjustments as a percentage of loan balances and fair value adjustments.

The final measure on the bold line nine at 2.58% really I think demonstrates the relative strength or credit leverage remaining to cover charge-offs from both the purchased and core portfolios. So wrapping up on Slide 21, just few comments here.

As the economy continues to expand and with continue low interest in cap rates, we have been able to feed the construction pipeline with little compromise to desired credit structure. We continue to develop and build our public finance area with strong yield to low and new originations.

We continue to build out consumer loan capabilities and are seeing solid growth in the consumer lending pipeline. And then just recently, given the size and complexion of the Cooper State Bank portfolio, not really expecting much real change in the credit profile return related to the acquisition.

So with that, I'll turn the call back over to Mike Rechin..

Thanks, John. That's a good summary. I hope it's absorbed. As I look at the numbers that John spoke to has a declining risk business banking model that's positioned to grow well with our couple of smart acquisition. So I'm looking at Slide 23, which I think is a nice comprehensive look at the balance of our work paralleling our 2015 plan.

So at the top of the page, focusing on the customer experience we have a big mid-summer event where we're going to bring significant more technology capability through an upgraded and new online banking platform to our client schedule for the middle of the third quarter. We were planning for that for more than a year now.

We have to really attack it and earn it once the Community Bank integration work is completed. Second bullet point talks about organic growth through the franchise, which is really dropped one for us.

Talking about net growth and then the prior calls, I talked about having a mid-to-higher-single-digit goal for net growth and that continues to be our goal, I think 5% to 7%, 6% to 8%. We clearly have the opportunity to achieve.

And so by virtue of reiterating that you can see that our first quarter was mildly beneath that target and we'd love to talk about why I continue to feel that a marginally higher number will happen for us. And then, developing and retaining people.

The Cooper, as an example, is great locations in the highest growth market in Ohio and really without dedicated mortgage people.

So it’s just one example of around the business that we can feel out with some back half of the year recruitment to provide that market place and their customers with a mortgage capability especially given that success we’ve had over the last couple of months and year to date in a kind of rejuvenated run rate of our mortgage business.

I was referenced a couple times as if my colleagues the work right in front of us is weekend and fully integrating community bank in Noblesville which will take place; it's been planned significantly since the legal closing in November, and then the technology work that I refer to a moment ago on online banking scheduled for the summer, and then in the fall and in October 1 timeframe integrate Cooper State Bank, which legally closed with us earlier this month.

I think we’re confident in all of those exercises; we look forward and take some satisfaction and making those clients more pleased to choosing us as their bank. Talk about organic growth a moment ago.

Cash expanded platform that we talk about, we saw more deeply into those acquired clients; firstly, have to earn their trust, get them through the conversion period, and then show them some ideas that have them put more bit wallet towards First Merchants Bank.

We are looking it all of a distribution channel now as a net investor in technology, looking at what that means for our branch configuration, and as we talked about with Community Bank as an example by the end of the second quarter we will have reduced our banking center account by three just in some Community redundancy that allowed us to look at Community as such an attractive add for us.

So past those three, I would expect us to continue to asses every market we are in for transaction accounts and balance trends knowing that so many of our clients are using different channels to asses our product capabilities. Looking at the bottom of the page, we still see like there is opportunities for us to grow in the marketplaces we know best.

So the two acquisitions we have reference significantly in this call are in our most historical growth market. And so they were negotiated opportunities, fairly straightforward; we just have to acclimate ourselves to their clients and vice versa; its important word for us, we’re excited about it.

One of the neat things is given that the markets we are in we already have significant existing management strength and then through Community and Cooper add depth and experience from each of those companies. So, I feel like if opportunities like that continue to be available we'll clearly be interested.

We are looking at other growth markets much like we did six quarters ago in North West Indiana with Citizens Financial, now our Lakeshore business, that if something like that would it be in a risk profile where we could get in and execute we would look at it, but I think our most recent actions kind of frame for you geographically where we think we operate the best.

At this point, Amy, I was going to open up the lines for call for any of the three of us..

[Operator Instructions]. And our first question comes from Scott Siefers with Sandler O’Neill..

Let's see. Mark, maybe first question for you is just on the margin. So I think the core margin came down about 10 basis points, maybe a little more than you suggested last quarter. You gave I think some color suggesting that day count might have, if I caught that correctly, it's been about five basis points of the decline.

But I guess first question is you can just sort of review the puts and takes on the margin this quarter? And then two just on in terms of core compression going forward, what are you thinking, and then particularly in light of perhaps a more conservative that great outlook?.

Yes, we did have a little compression in the first quarter than anticipated. The - I know when we talked last I thought two or three basis points for quarters is where we would probably land.

If the day count for commercial loan was about five basis points when you just compare linked quarters over quarter, but when I talk about two or three per quarter it's kind of anticipating that level as we have made our way through the entire year to add up two or three across the board that’s kind of where we thought we would be by year end.

I still feel like we’re going to be in a similar range and we pick-up a little bit by the day count in the second quarter compared to the first quarter. And I wouldn’t give much different guidance then even last quarter although maybe from a lower base. The pressure is all coming on the kind of loan yield.

So if you look at our bond yields are holding in, our deposit cost are -- or cost of funding is relatively flat, and so it's just competitive pressure across the board with renewals and new origination.

So we were anticipating 25 basis points in the second quarter in our internal budget and it does look like that’s been pushed out to the fourth quarter. So, just a little added pressure to maybe where we were last presentation that we had with the same two or three basis points off a little lower base line..

Okay, all right. I appreciate that. And then can you also review what you’re thinking about the expense outlook? I think you had suggested in your prepared remarks that cost might improve by about $500,000 per quarter.

Is that beyond the second quarter or -- I guess I want to make sure I understand it correctly in that there was roughly $500,000 of one-time costs related to the merger in the first quarter? So are you just suggesting that it will be flat with kind of a core base or should we indeed expect another $0.5 million to come our per quarter through the remainder of the year?.

No, to be clear, I think you said flat compared to the core, after backing out the one-time expenses, I'm not sure effectively the cost of running that entity that we won’t have post-immigration. We’re just saying that our run rate should be less than on a go forward basis than where we were in the first quarter of '15 by around $500,000..

All right, perfect. That’s helpful, thank you. And then could you speak to the service charge decline? I mean, first quarter is of course seasonally weak but I think the magnitude of the decline was a little bigger than I had anticipated, I think probably the most significant impact in a few years.

Just curious about one, what drove the sequential decline and then, two, your thoughts on magnitude of rebound?.

Yes, I really view on them as more flat, Scott, and yet, as that level, well its disappointing to me. In many of our activities leading us to an integration, we allow for some free periods or a discounted pricing for the clients that are about to change technologies, old bank into our bank.

But to your point, the absolute level of over draft activity has been down and so it’s something that we didn’t plan to be a high growth item but we do find as a low growth line item, and it’s a big one within our mix.

So I don’t have a height confidence, I know that we will have some normalizing and actually post online banking conversion when we’re offering our clients materially better products, the service charge components, the treasury management should actually begin the grow, but I wouldn’t anticipate modeling that in until the second half of the year..

And our NSF and ODCs are generally like the first quarter just stays on tax refunds..

Yes, okay. All right that’s helpful. Thank you very much guys..

Sure..

[Operator Instructions]. We have a question from Damon DelMonte at KBW..

Just wondering if you could talk a little bit about your outlook for loan growth and maybe where throughout the footprint you’re seeing the greatest opportunity, and maybe you could help frame a little bit about the full year growth expectation?.

Sure, so I referenced a moment ago really consistent with our prior call even that I think of 5%, 6%, 7%, 8% annualized rate is where we clearly have the opportunity to be; our sales force is targeted for that kind of a thing.

It’s backed in, I think we have knowledge of what's taken place in the market but also the asset quality that we want to attract.

So when I think about why the remaining quarters of the year should be stronger than the first quarter, I look at the originations and the productivity that we had in the first quarter, and so our originations in every line of business we’re really quite strong.

Our mortgage business, I referenced and you can see it in the press release that our mortgage business first quarter-over-first quarter in units and in dollars closed really solid year-over-year results in the 15% to 20% up range.

We made some people investments in retail banking about 18 months ago that are beginning to rejuvenate what had been a really a slow grow line but just not a shrinking line in the 2012-2013 time period.

So while it’s not going to be a dominant source of our loan growth the steadiness of it and the yield on it helps to offset some of the commercial origination pressure that Mark referenced in the prior question.

The commercial activity for obligations greater than $250,000 really delivered nice growth; same thing about 20% up over the -- 20% up over both the first quarter of last year and the fourth quarter of 2014. So I look at that as a basic run rate about what we have done and I look at our pipeline. Our pipeline is strong.

Our commercial pipeline, is kind of drawn at the left hand side of the balance sheet for us to -- as it relates to the loan, is up 25% or 28%, up 28% from the end of the year, which I think is a better comparison point only thing about what most likely to hit your balance sheet in the upcoming period.

And when you reference where it's coming from, our home monthly market significantly stronger, probably higher than it's been monthly in the eastern half of the State of Indiana, higher than it's been in some period of time.

And then we continue to see as we should the investments that we've made in Central Indiana, Indianapolis primarily, show growth not only in new names but in C&I new names, as John referenced, as the fastest growing part of the portfolio.

So, but our expectation is with work that we've been putting in and the market knowledge that we have in some of the fill-in acquisition that every market should grow, and so when I look at our pipeline that’s kind of what these numbers lead me to expect in the next couple of quarters..

Okay. That’s great color, thank you.

And then I guess it’s kind of a from a profitability standpoint probably directed to Mark, when you look into your efficiency ratio, do you think it’s reasonable for you guys to get that down to 60% level or possibly below by the end of the year?.

Well I think with some margin compression it becomes -- it’s challenging but that’s clearly the goal. We are looking for ways to continue to reduce expense and grow revenue and trying to maximize the efficiency ratio. So we have a handful of strategies that we’re working through and with that goal in mind..

If I could just add in this is Bryan speaks to the question that we got from Scott earlier, I think the $41 million quarterly run rate, and we are just over that in the first quarter.

When you back out the $0.5 million of expenses and Mark referenced to get to a number that’s beneath that by $200,000 we will make some people investments in lines of business that can grow, but it should be pretty steady with the marginal reduction.

I didn’t factor into that some of that branch consolidation that are clearly didn’t manifest itself in the first quarter but we ought to see in the third quarter it’s the latest.

So Damon, does that help?.

Yes, it did. Yes, that’s great. Okay, perfect. That’s all that I had for now. Thanks a lot guys..

Thank you..

Our next question comes from Brian Martin at FIG Partners..

Maybe could you just talk about, Mike, the yield that you’re getting in new production? Just how -- just given the pressure on the margin this quarter, I mean, what is the new volume coming on that relative to kind of what the existing margin is?.

Yes, so we looked at that. On a floating rate basis we’re around 300 basis point above the index. Having said that, it's clearly 20 to 35 basis points in these where we were a year ago.

That’s why the consumer lending comment that I made earlier having some augmentation being strategic with what we do and don’t put on in the mortgage business makes the difference, even the public finance business that John cited a couple of times, is beneath the spread level and risk level for that matter.

The C&I portfolio, so we’re trying to play all those levers and then public finance in particular if we’re going to take less yield on extending credits, making sure we’re picking up other products for funding in particular. Construction lending is a little bit higher in that paradigm.

So when we have great developers, we want to make sure we take advantage of the opportunity there..

Okay. That’s helpful, and then maybe just two other things.

The any commentary, just any change in the outlook on M&A or just the level of activity you're seeing maybe now versus a quarter or two ago, is it better pick-up, is it pretty steady or kind of status quo?.

It seems very steady to me. It seems like there is a franchise or two per quarter.

They are just investigating their best future, and we typically get ask to evaluate them, so we try and do them in the context of execution risk and what it does for us around some key criteria, whether that’s earnings accretion or pricing relative to tangible book value on there. I would expect us to continue to do that.

Now I’ll be hopeful in our most recent forays into having management teams and franchise join us, I look upon pretty favorably, so I would hope look like opportunity come about..

Okay, and maybe just back to the expenses, just maybe I missed what Mark said earlier as far as -- maybe can you just go back a little bit one more time, Mark, what you said on the expense line, I think I just missed that or maybe I just misunderstood as far as the impact following the acquisition here?.

Yes. We used the term one-time related to the Community Bank in the first quarter, and a lot of that is -- are the expenses related to the operation itself that will -- that we won't have post integration.

And so it's more anticipating but on a quarterly basis, going forward, that we'll have about $500,000 left in expense then what we had to run the first quarter, and based on the integration that is occurring this weekend of the Community Bank in Noblesville.

So, some streamlining of locations, reduction in back office cost, technology, etcetera where we’re leveraging the infrastructure of First Merchants Corporation to take care of those customers..

The next question comes from Stephen Geyen, D.A. Davidson..

Just curious about the e-com, maybe follow on question what Brian was asking, but you talked about the operational costs being taken out from the acquisition.

Are there some other related cost, acquisition related cost in there that might be and pulled into -- or not pulled into, but similar in the second quarter related to Cooper as they were from the prior acquisition?.

There will be at a more modest level. The company itself is half the size of Community Bank and we have already incurred some of the expense. So if you think about the $0.50 million that Mark was sharing in the first quarter, it was about three quarters Community Bank related, one quarter Cooper Bank related.

And so the Cooper Bank piece probably stays with us here for the next couple quarters as we approach their integration. And just about everything at Community will be gone absent the payroll fees which run through this month, which is obviously the first month of the second quarter.

So the full realization of that really won't happen as a Community Bank overheads piece until the end of this quarter, but it will clearly be less than a full quarter or like a third of a quarter, that would be my expectation.

And then, we will get some additional branch operation savings offset by some people investments in a modest way through the balance of the year.

Does that help?.

Okay. That does. Thank you. And then last question. The comments on the fed funds, as far as anticipating increase I guess in June maybe that being pushed out, likely being pushed our later in the year or in the 2016.

Is there any -- how do you run your business or has that impacted how you run your business as far as that rate expectation, does it give you an opportunity to move to a more asset-sensitive position?.

Not really. We've been very comfortable for five years as being extended in the bond portfolio.

And with every signal that we seem to get it, rates maybe going up, we've stayed consistent and continue to invest longer term in the bond portfolio, and its seems like it's worked for five years, that every time there is an expectation of rates going up, it kind of moderates.

And so we just try to keep ourselves in a position where whenever rates do rise that it's beneficial to us but we're not trying to bend on rising rates. And even where we stand today, I guess I'm not willing or no recommending that we make up that and try to minimize the duration of the bond portfolio to bet on rising rate.

So we think our current structure is adequate in a rising rate environment than given the numbers that I mentioned previously at 14 basis points of improvement margin; if we're up by 100 and we think that's -- I guess that's the enough little bet for rising rates..

Our next question is from Daniel Cardenas of Raymond James..

Good afternoon guys..

Hi Dan..

Just a couple quick questions here.

On the lending side we know it's very competitive pricing, but are you seeing any structural gives by competitors in your footprint?.

I think structure and pricing each are vulnerable in this environment; great time to be a borrower. Our Chief Banking Officer and our troops are really disciplined about what we’re doing. We have a great relationship between our credit process and our credit policy and what we’re trying to do in the marketplace.

I feel like there's still opportunity to grow at really reasonable tradeoffs, multi product revenue scenario to the company I think that’s an attraction point and kind of an imperative in the sales process, and I think our business owners are upbeat. I think they’re looking for new ideas.

Central Ohio, Central Indiana, both enjoying big job growth, meaningful decreases in unemployment year-over-year. Our customer base, by and large, are dominated by energy consumers, not energy producers.

And so to the extent that that’s a phenomenon that sticks with us through the balance of 2015 that’s positive for our business owners and so I think it makes a fine environment for us to think about and execute..

Okay, good.

And then on the deposit side, maybe some comments on whether you guys you’re seeing any competitive pressures out there, and then how should we think about deposit growth looking forward?.

We’re really pleased with our core deposit origination. We kind of feel like you’re always going to outpace your core deposit growth with loan growth, and that’s why acquisitions make some sense to pick up inexpensive core deposits with a trading multiple that’s better than the selling bank.

In terms of pricing though on deposits, it’s been a little volatile when rates look like they were going up every one was kind of offering CDs that are just 1% or slightly higher and -- in the late third quarter we went to kind of a 1% one-year CD rate and we pulled that back into 65 basis points and something it looks more like the thermal banker the broker deposit yield curve.

So I think it’s a reflection of kind of start and stops in terms of where everyone things rates in the economy are going..

At this time I show no further questions.

Would you like to make any closing remarks?.

Well thank you, Amy. And I thank everyone that chose to listen in this afternoon. I like the momentum of the business, I appreciate the questions. Hopefully our strategy is clear and the results continue to reflect our efforts towards trying to be a lead bank in our marketplace.

I appreciate your attention; look forward to talking to you again in a couple of months at the end of the second quarter. Have a great day..

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