First Financial Bancorp in Cincinnati has agreed to buy MainSource Financial Group in Greensburg, Ind.

The $8.7 billion-asset First Financial said in a press release late Tuesday that it will pay $1 billion in stock for the $4.6 billion-asset MainSource. The deal, which is expected to close in early next year, priced MainSource at 272% of its tangible book value.

First Financial CEO Claude Davis.
Claude Davis, First Financial's CEO, plans to step aside as part of his company's purchase of MainSource Financial. He will become executive chairman.

The deal is the fifth-largest bank acquisition of the year. It also represents the second-highest premium paid for a bank in 2017.

The transaction will push First Financial above the $10 billion-asset threshold where it faces mandatory stress testing and caps on interchange fees, among other things. The company will have 200 branches, $8.9 billion in loans, $10 billion in deposits and $4 billion in assets under management.

Archie Brown Jr., MainSource’s chairman, president and CEO, will become First Financial’s president and CEO. Claude Davis, First Financial’s CEO, will become executive chairman. After three years, Davis will become non-executive chairman.

"By taking the best of both banks, we believe that the combined company will be even more effective in meeting the lending, economic development and financial education needs of the communities we serve," Davis said in the release. "With both companies having proven records of success in organic performance as well as through acquisitions, we see this as a tremendous opportunity to partner with MainSource to create a new company that is even better positioned for growth and continued success."

First Financial said it expects the deal to be 5% accretive to 2018 diluted earnings per share and 9% accretive the next year, excluding $63 million in merger-related charges. Those estimates include an expected $12 million in lost revenue tied to the Durbin Amendment’s cap on interchange fees and $2 million of added annual regulatory and compliance costs.

First Financial said it should take about three years to earn back any dilution to its tangible book value.

As part of the merger, the companies will develop a community development plan that will include a commitment of 100 jobs and $1 million in community support to Greensburg.

Sandler O'Neill and Squire Patton Boggs advised First Financial, with RBC Capital Markets providing assistance. Keefe, Bruyette & Woods and Smith Amundsen advised MainSource.

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