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First Niagara Financial Group (NASDAQ:FNFG)

Q1 2013 Earnings Call

April 19, 2013 10:00 AM ET

Executives

Ram Shankar - SVP, IR

Gary Crosby - Interim President and CEO

Greg Norwood - CFO

Analysts

Bob Ramsey - Janney Capital Markets

Dave Rochester - Deutsche Bank

Damon Delmonte - KBW

Steve Moss - Janney Montgomery

Casey Haire - Jefferies

David Darst - Guggenheim Securities

Matthew Kelley - Sterne Agee

Operator

Welcome and thank you for standing by. At this time, all participants are in a listen-only mode until the question and answer session of the call. (Operator instructions). Today’s conference is being recorded. If you have any objections, you may disconnect at this time.

Now, I’d like to turn over the meeting to Ram Shankar. You may begin.

Ram Shankar

Thank you Angela and good morning everyone. Thank you for joining us this morning. With me today are Gary Crosby, Interim President and CEO and Greg Norwood, our Chief Financial Officer.

Before we begin, this presentation contains forward-looking information for First Niagara Financial Group. Such information constitutes forward-looking statements which involve significant risks and uncertainties. Actual results may differ materially from the results discussed on these forward-looking statements.

A copy of the earnings release and an earning’s review index are available under the investor relation section at firstniagara.com. With that, let me turn the call over to Gary. Gary?

Gary Crosby

Thank you Ram and good morning everyone, thanks for joining us. As we begin our call this morning, we are certainly very mindful of the tragic events in Boston. We have offices in the area and thankfully all of our people are safe. Our thoughts and prayers are with the people of Boston as they deal with the aftermath of this tragic and senseless act.

Let me start our presentation by saying that the First Niagara board and management team are committed to delivering enhanced value to our shareholders by capitalizing on the strong foundation that we have built. For us, it’s all about improved profitability. From an operational and organizational perspective, it is business as usual at First Niagara.

As Interim CEO, I want to be very clear that our focus is on leveraging the footprint and franchise that we have built over the last few years and translating our strong business fundamentals into strong financial performance and value to our shareholders.

Our customer-fetching businesses will continue to drive profitable organic growth across our entire footprint without compromising on credit quality and further diversifying our revenue sources through greater fee income penetration.

We will continue to generate industry leading in loan growth by attracting new customers, maintaining our discipline on credit and selling more to our growing customer base with a focus on cross-solving.

We will continue to reduce our securities portfolio by using our excess liquidity to fund more profitable loan growth. Obviously, organic growth alone will not compensate for industry headwinds. So we will remain focused on timely managing our operating expenses and concentrate on infrastructure investments that are accretive in the shorter term.

We’ll also continue to selectively invest in people, in products and services to enhance our capability and commitment to serve our customers and increase shareholder value. In short, we are laser-focused on profitability. Needless to say we remained firm in our commitment to a purely organic growth strategy. That means no change in direction and no distractions from achieving improved profitability.

I am going to change the subject now. I imagine many of you have questions on the CEO search. So let me answer in advance, those questions I am prepared to answer. The CEO search is well underway. Board member Nat Woodson is chairing the three person search committee, which includes Board member Carl Florio, and Carlton Highsmith. The committee has retained Korn/Ferry International to assist in the search process.

It would be only a guess to offer insights and how long this process might take, but know that the committee is working diligently and expeditiously. In terms of candidate credentials, the board is focused on leveraging the franchise we have built to increase shareholder value. To that end, we are looking for someone who sees the long term value of our strategy, able to enhance that strategy, and drive continued improvement in business results.

At the risk of stating the obvious of desired credential include a seasoned banker with a proven record of strong organizational and operational leadership, successful track record of driving business growth in financial service companies of our size or larger, the ability to further build on relationships with customers, investors, and communities. The overriding goal is to secure the best possible CEO to guide us as a strong independent banking franchise that will deliver increasing shareholder value in the years ahead.

With that let me turn it over to Greg to review the first quarter results.

Greg Norwood

Thanks Gary, and good morning. Let me start with the highlights for the quarter that include a net interest margin of 3.39%, sustained strong credit metrics with flat non-performing loans and a 20 basis point net charge-off ratio. We also saw $3.7 million reduction in adjusted operating expenses. What’s the take-away? We achieved positive operating leverage this quarter by controlling the expense side of the equation.

Now a little color on the income statement. Our NII this quarter was essentially flat. An 8% quarter-over-quarter increase in average earning asset was offset by a 3 basis point reduction in net interest margin. Loan yields declined 14 basis points quarter-over-quarter driven by the continued elevated levels of prepayments and reinvestment at lower yields or as we call it the asset churn.

New production spreads in our commercial book held up relatively in line with fourth quarter of last year and importantly with our own expectations for the first quarter. The impact of the churn was primarily mitigated by its lower cash flows from CMO prepayments as well as a four basis point decrease in the cost of interest bearing deposits.

Turning the slide four, as is typical, the first quarter was a mix bag for fee income given the seasonality. Deposit service charge were lower primarily due to seasonality and to a lesser extent lower NSF incident rates. We also experienced the same industry-wide contraction in mortgage gained on sale revenues that you’ve already heard about from other firms. Capital markets revenues decreased 15% from the linked-quarter as the number of completed swap transactions declined from the all-time high we experienced last quarter.

We saw strong traction in our syndications operation where we had the best quarter ever leading seven transactions. Merchant and credit card fees declined 5% quarter-over-quarter due to low customer activity that is typical for the first quarter.

We had another strong quarter for wealth management with assets under management increasing an annualized 18% driving wealth management fees higher by 7% following a similar 8% increase last quarter.

On credit, the provision expense was 20.2 million with net charge-offs at 27 basis points compared to 35 basis for the full year last year, non-performing loan balance stayed flat and the ratio relative to our originated book declined four basis points.

Let me round off the P&L discussion by discussing operating expenses as outlined on page four. On a reported basis, expanses were 237.7 million which included 6.3 million in non-recurring charges related to the two executive departures we announced in March.

Excluding these charges, expenses were 231.4 million or 3.7 below the prior quarter notwithstanding a 4.8 million increase in compensation expense driven by seasonal increases in payroll taxes and merit increases to employees. Reduction in market expense was almost 5 million as our marketing plan leveraged the prior quarter brand launch of ‘Do Great Things’ and the related benefits we’ve seen in our unaided awareness ratios and our favorability index. We are now focused on product marketing campaign. To another way, we are focused on marketing spend where there is a near-term revenue component associated with it.

Let me talk about the key loan takeaways on slide five and six. The growth in commercial platform continues across all geographies, all posted double-digits gains. Our western and eastern Pennsylvania markets as well as New England increased loans in access of 25% on an annualized basis.

Our recent healthcare hires in eastern Pennsylvania and New England markets continue to gain traction in that segment while other specialty lending businesses like equipment financing continued its rapid growth driven by leveraging synergies with our other lines of business.

Additionally, we had a 10% increase in our New York state footprint. Since closing HSBC in May of last year, our commercial loan growth in New York has been very strong at a 9% annualized despite our already robust pre-acquisition market share. This further demonstrates the continued opportunity in our legacy markets further bolstered by the HSBC brands transaction.

This quarter we strengthen our presence in the New York metro area with the establishment of the formal tri-state footprint stretching across Fairfield County Connecticut, the Lower Hudson and Northern New Jersey.

Our new regional president Cathie Schaffer comes from the market where she had a similar role with the top five banks. This is a very attractive market with a highest population density and medium household income in our footprint. There are over a 150,000 commercial firms in the footprint with significant concentrations in the manufacturing, the healthcare industries. In addition through our offices in Connecticut, we expect First Niagara insurance businesses see a lift from our expanded coverage and commitment to this market.

Let me talk about the lending environment for a minute. Overall new loan growth was strong but slower than prior quarters. The declines in the capital markets and other lending businesses while modest are reflective of our response to the competitive environment. We continue to walk deals in these businesses. We are seeing structures that are unreasonable and pricing is getting silly at an increasing rate. From our perspective, we will not do bad structures given the unpredictable credit uncertainty. On pricing, we’re still pretty much getting our average IRR hurdle rate and so the right customer will make sure that we look at the IRR but we’ll also look at fee income to enhance the overall IRR.

As we said in the past, we get enough looks at new business given our track record quality of talent and product mix that we can walk deals and still have strong growth. Even in this environment we remain confident about our outlook for loan growth and let me tell you why.

First, we are significantly under penetrated share on our newer markets. Additionally, we’ve added new product and services like healthcare and equipment financings that still have not fully ramped up even in our existing customer base. We still have a lot to mine within our customer base.

We’ve hired top lenders over the last few years who continue to build their books of business particularly in our newer geographies. Finally, we have a strong loan pipeline at the end of March and through the first couple of weeks in April, we have seen this pipeline materialize into new business activity.

Turning to consumer finance on slide seven, in the first quarter indirect auto saw some price compression but still yield 3.34% net of dealer reserves. The average FICO for the quarter of the originations was 735. On cards our first quarter promotional credit card campaign targeting the existing deposit customers generated better than average response rates. As a result of this campaign, we opened 12,000 new card customers just in the first quarter with over 50% activation rate to-date.

On the mortgage side, trends were similar to you have seen so far for the rest of the industry. Gain on sale revenues were down as margins on locked loans declined almost 30% from prior quarters. Locked volumes declined 12% from the prior quarter while application volumes increased 10%. We had a strong quarter in terms of cross-referral from our retail deposit franchise with a 27% increase in mortgage apps from the retail bank.

Moving to deposits on page eight, our cost of interest bearing deposits came down four basis points to 25 basis points driven by continued pricing actions that we took on non-transactional accounts like online savings and money market deposits. Average transactional balances, which includes both (NYSE:NOW) and DDA increased modestly quarter over quarter. And 19% annualized increase in (NOW) was offset by seasonal declines in DDA balances. The increase in (NOW) balances reflects our continued success in attracting and retaining mass affluent customers through our Pinnacle family of checking products.

Finally, the number of new checking accounts opened per branch increased 15% from the prior quarter with particularly strong in the New York markets. On the product development side in retail, we successfully launched our mobile banking platform to further enhance our customer service delivery. Since its launch less than 90 days ago nearly 80,000 of our online customers have enrolled. We will continue to augment our offerings by being one of the first retail banks to offer remote deposit capture in the near future.

Turning to slide nine and 10 on credit, we had another clean and simple credit quarter. First the originated provision expense was down slightly from prior quarters due to lower new net originated loans and this charge-off also remained low for this quarter. Non-performing loans were essentially flat from the prior quarter as the percentage of originated loans decreased four basis points to 1.03%. Let me help you with a year-over-year comparison as well. More than half of the increase in the originated NPLs was due to OCC guidance junior liens and HELOC that we all talked about last year. These changes had virtually no impact on our provision expense or our credit risk profile but did increase the reported nonperforming loans.

Classified and criticized loans moved up relative to prior quarter but remained better than or consistent to a year ago. On a trends basis they continued to decline as a percentage of the total portfolio. Finally our reserve to originated loans has remained consistent at around the 1.2% mark and we remain comfortable with the allowance levels.

For the acquired loan portfolio another benign quarter, still a simple story. We feel good about the credit marks against this portfolio, on the remaining portfolio we have a 149 million in credit marks or about 30 basis points of tangible capital and it represents approximately 2.5% of our acquired balances.

Let me quickly touch upon our investment book on page 11. As we disclosed at the KBW conference and in our form 10-K, the CMBS and CLO portfolio has significant protection in the form of credit enhancements, are highly rated averaging AA- and based on when we purchased the bond provide attractive yields. The credit quality of these bonds is superior to traditional middle market lending.

On page 11 we added a chart to lay out what we've been saying since July of 2011. Overall commercial credit portfolio which includes our CNI and creed loans plus our CMBS, CLO and corporate security balances, expressed as a percentage of deposits are in line with the peer group. Said another way, while we may have a larger portion of credit assets in our investment portfolio, the total commercial credit exposure whether it's in loans or investment security is consistent with our peers.

In total, measured this way, we would have a loan to deposit ratio of 92%, consistent with the 95% target that we've given before and consistent with our peers. While this is not a long-term strategy as we're focused on a relationship, fee income generation and cross solving. We will continue to rotate the balance sheet and bring down our investment portfolio to the targeted 20% to 25% of assets gradually.

Our CMO cash flows in the quarter were approximately 450 million relative to a $550 million projection when we marked the portfolio at December 31. The investment book had an average balance of 12.2 billion which is consistent with what we've guided in the past. On an end of period basis balance declined 220 million from the prior quarter.

At the end of the quarter, we designated 2.9 billion of CMOs to held to maturity status from AFS, essentially this positions us more like other banks relative to the held to maturity available for sell ratio of investment securities.

Now, let’s talk about our outlook for the second quarter of 2013. As I noted earlier, through the first couple of weeks of April, our pipeline is translating to new business on the commercial side with spreads that are consistent with the prior quarter.

Based on where interest rates have receded since March high and particularly where mortgage rates are today and the competition in the market, we believe the second quarter consensus NIM at 3.31% plus or minus is consistent with what we expect for the second quarter. Additionally, we feel comfortable with our outlook on CMO prepayments in the second quarter, following our fourth quarter adjustment last year.

The loan compensation that I discussed earlier will continue to drive a few basis points of NIM compression, offset by the rotation of the lower yield in invest securities into higher yielding commercial and consumer loans. The consensus for average earning assets of 32.5 billion is also consistent with our expectations. We expect GAAP net interest income to be up slightly from the first quarter levels.

Looking at fee income, we would expect fee income to improve in the low single digits from the first quarter of 2013 levels but likely lower than where the Street estimates have it. Seasonal increases from the first quarter levels in deposit fees and card income together with sustained growth in our wealth management will likely be offset by other category.

The current median 231 estimate for second quarter operating expenses is consistent with our expectations. As we disclosed in the 10-K, CDI amortization expense will decline. Salaries and benefits should increase slightly quarter over quarter for the full impact of merit increases.

Headcount will remain relatively flat for the second quarter. Looking at credit, we expect net charge-offs and originated loans to be consistent with the 35 basis points plus or minus and the overall provision expense consistent with the current consensus estimate. More holistically for 2013 without getting into the detail, we feel comfortable with the consensus estimate of $0.74.

As we noted at the KBW conference, we are targeting at least a 400 basis point improvement in our efficiency ratio by the fourth quarter of 2013. Most importantly, this improvement is largely expense driven and is that a very selective investment in people and new products that we continue to make in our franchise.

Before we go to Q&A, let me reiterate, we are committed to executing on a strategy that we have embarked on, to continue profitable growth without compromising credit, to keep expenses in check and to rotate the balance sheet profitably to improve our return profile.

With that, Angela we can begin the Q&A session. Angela, we can open it up now for questions?

Question-and-Answer Session

Operator

Thank you. We will now begin the question and answer session. (Operator Instructions). Our first question comes from Bob Ramsey. Your line is open.

Bob Ramsey - Janney Capital Markets

Hey good morning guys, I guess I want to talk a little bit about margin. Obviously margin this quarter came in better than the guidance you all had given. Was it sole premium amortization that was the big difference on where you ended up versus sort of what you thought at during the quarter?

Greg Harwood

It wasn’t the sole driver but it was partly given to that Bob. It was also a lower deposit cost that we might have anticipated. So the combination of them provided us a little bit of lift over. I think the range we would kind of guided to was 234 to 237 for the quarter.

Bob Ramsey - Janney Capital Markets

Okay. And then as you look forward, I know you said that the 331 consensuses consistent with your expectations. I guess that implies with another sort of 8 basis points downside here, which is, (inaudible) in this quarter. I am just curious what are the underlying assumptions behind that outlook? And where you are feeling the most pressure, obviously it’s a lower rate environment.

Greg Harwood

Yes, when I think about commercial loans, the decline of about 14 basis points this quarter moderates a little bit and then it’s offset to the benefit by rotating securities book. So we continue to expect compression in the commercial book from competition, but believe that will be partially offset by the benefits of rotating out of the investment security book.

Bob Ramsey - Janney Capital Markets

Okay, and then as you sort of look into the back half of the year without caring too precise, I mean it’s obviously competitive, do you feel a similar amount of pressure or do you start to get to a point where the book is re-priced, our mortgage is re-priced and the incremental pressure is less, or how do you think about margin in the back half of the year?

Greg Harwood

I would say it bounces around in that low 330s range when we look forward.

Bob Ramsey - Janney Capital Markets

Okay, so you then expect margin let’s say above 330 for the year?

Greg Harwood

Plus or minus, I think, that’s a good place to be thinking.

Bob Ramsey - Janney Capital Markets

Okay. Great, thank you guys.

Operator

Dave Rochester, your line is open

Dave Rochester - Deutsche Bank

Back on your margin guidance, does that assume at all more downticks in securities amortization?

Greg Harwood

Now that assumes the estimates that made as we closed out last year which has we said just in the first quarter we estimated 550 million in cash flows and we only received 450, so it still assumes an elevated prepayment versus what we saw in the first quarter. Sorry Dave, reduced prepayment from, the back half of the year should track more like the 550 is our expectation, so if that’s better then we’ll do better.

Dave Rochester - Deutsche Bank

Got you and was some of that decline this quarter just due to roll-off of securities or was that just what you’re talking about with the model assumptions?

Greg Harwood

Actually it was more frankly driven by the fact that the securities didn’t prepay so we had elevated yields slightly above our expectations.

Dave Rochester - Deutsche Bank

Got you. And your expense guidance it sounds like it assumes flat core expense but you’ve got the big drop in amortization coming in 2Q, so just wanted to understand where you’re seeing the big increases and the other expenses going forward and you mentioned there was an uptick in comp a little bit that was coming, can you talk about where the other increases will be?

Greg Harwood

Yes, I think I’d stay consistent with what we said back at KBW, we think we’ll do better than our $225 million run rate in the fourth quarter. Salaries will be a main focus of ours in managing that at consistent levels throughout the back half of the year also other expenses relative to marketing of the projects. As we mentioned in the marketing case, we’re going to stay focused through most of 2013 on product delivery marketing, product selling marketing, and not brand. You will also see both in technology expenses to moderate slightly or stay about where they’re.

Dave Rochester - Deutsche Bank

Great, and one last one you had mentioned that loan spreads seem to be decently stable versus last quarter, I was just wondered if you could refresh us on where those are today either on the spread basis or yield basis for C&I, CRE?

Greg Harwood

Yes, it’s actually as we talked about it for middle markets about LIBOR plus 250 as normal CRE is about 20 basis points below that so LIBOR plus about 230 and frankly most of the competition seems to focused on the CRE so we would see that probably moderate down more than C&I yields.

Operator

Damon Delmonte, your line is open.

Damon Delmonte - KBW

My first question deals with your outlook for loan growth. You commented that new loan growths seem to be slow in the first quarter. Is that more of a seasonal effect do you think and does that change your outlook at all for the full year expectation?

Greg Harwood

Couple of thoughts, Damon. I mean certainly, I think we all saw some lending pull forward into the fourth quarter. So, I think that had a, an industry wide impact on loan growth. Also as we said, we consciously walked some deals more deals than we had in the fourth quarter mostly around structure. I mean, people doing long term deals, people doing way more nonrecourse credits that we’re just not going to get into.

And well again, as we said for the loan growth, we feel confident that we’re going to continue to grow but as I’ve said in the past, it’s never really been a goal to have 17% double-digit loan growth. So, I think we’ll continue to grow but it would be moderated down from those types of percentages.

Damon Delmonte - KBW

Overall on a net basis, do you think it’s still achievable to get high single-digit growth potentially low double-digit growth?

Greg Harwood

Yes. I think that’s fair.

Damon Delmonte - KBW

And then with regards to your earnings estimates could you kind of frame out for us little bit what you expect it to look like at the end of the year as far as the rotation between securities into loans. I think right now you’re somewhere around 38%?

Greg Harwood

Well, I hope we’re not really going to forecast the ending balance sheet but I think what we’ve said is that about 50% of the net new originations would be funded by rotating the balance sheet. So, you think about that, that’s about 200 million in cash flow that would be funding the loan growth over the reminder of the year per quarter.

Operator

Steve Moss, your line is open.

Steve Moss - Janney Montgomery

Steve Moss for (inaudible). Well, I just want to touch base on asset quality here in just one of the recent front on line trends. You’ve had a little bit of an uptake care as NPLs and actually you guiding higher for low mass provision.

Greg Harwood

Well, one, we’re not seeing any negative trends that cause us to pause and we continue to feel comfortable with our allowance you know hovering around that 1.2%. When you look at NPLs, again I think you have to look at the change in reporting from the OCC when you are looking at trends year-over-year and on multiyear basis. Certainly as we move into credit cards in particular you will see a higher credit cost clearly more than offset by better net interest income contribution. So, you will also see the indirect book starting to have some charge-offs as it just normally matures from what we began last year now into a more level state of performance.

Steve Moss - Janney Montgomery

Okay great thank you very much.

Operator

Casey Haire your line is open.

Casey Haire - Jefferies

One more follow up just I guess on the loan growth I was just curious it obviously came in a little bit later versus last quarter but I was wondering was the progression month to month stronger each month?

Greg Harwood

Well, I do not really want to get into month to month but I would say when we looked at kind of banks hitting aggressive flows out the quarter that’s when we saw probably some more of the crazy structures. So, I think other folks that wanted to hit a certain goal near the end of the quarter we saw sort of little bit more unusual activity in the back half of the quarter.

Operator

Next question comes from David Darst.

David Darst - Guggenheim Securities

Could you go back over your efficiency goals and kind of where you would like to be at for 2014 or maybe how much more leverage you have on the cost side?

Greg Harwood

Sure, sure so what we have said in the fourth quarter earnings call in January is that we saw the efficiency ratio would come down 300 to 400 basis points from the 65% that we reported in the fourth quarter of 2012. We updated that at KBW saying that we anticipated in the fourth quarter of 2013 the efficiency ratio would come down at least 400 basis points from that 65% level in the fourth quarter of ’12.

So year over year quarter to quarter we at least 400 basis point drop and if I said most of that is coming from reducing expenses leveraging the capacity and productivity we have optimizing staff. If you remember we had a staff right sizing in the third quarter that has helped us in going into the beginning of 2013 and we will continue to look at hiring frankly to make sure that we are putting the people where we need them and not just growing the franchise overall.

On marketing again we talked about it something, we're going to be more products specific. Also, while there's a cost in the current period we believe we'll still close 5 to 10 branches in 2013 that we’ve talked about and then smaller vendor stays across occupancy, technology and others, you can see that in professional fees this quarter coming down compared to fourth quarter.

David Darst - Guggenheim Securities

Okay, and do you think you've kind of, generally speaking optimized your franchise by year end or is there more that you would like to take forward after that?

Greg Harwood

As Gary said, it is clear a focus of ours to look at expenses and continue to reengineer. So, not to get into 2014, but no is a core competency, we're looking at reengineering processes, enhancing processes with better technology, so it'll continue to be a main focus of our for the foreseeable future and again pretty consistent with what we started saying last year when we talked about being in an operate-operate-operate mode.

David Darst - Guggenheim Securities

Okay, follow up question, have you changed or toned down your internal growth goals or maybe the pace or pressure that you put on ways to pursue new relationships and grow their books?

Greg Harwood

What I think about Dan and his team are focused on particularly the commercial side, I think we set very realistic goals at the end of last year moving into 2013 and I think those goals were realistic from a perspective of what we anticipated the market to do, and as we talk about it and others, the search for credit assets in latter part of last year we anticipated to persist throughout 2013.

You can see that in just the number of CLO, the volume of CLO issuances in the first quarter, the competition that we refer to. I think we were realistic and didn't have overly aggressive goals, so we really haven't adjusted goals from where we thought we would enter 2013.

Operator

(Operator Instructions). Matthew Kelley your line is open.

Matthew Kelley - Sterne Agee

I was wondering just on the indirect auto business the (CSPD) has been taking a hard look at dealer markups and just kind of banks' responsibility and role in that business. Any thoughts on just how those changes might impact your ability to grow balances in that line of business?

Greg Harwood

When we look at the changing landscape from a regulatory perspective, when we looked at this as a business case in late 2011, anticipated the types of things that might happen, this being one of them. And when we look at our capacity to grow, we continue to believe that by adding dealers, I thinking we have added north of 50 dealers this quarter that the season team we have brought in was very well positioned to grow and so I don’t see a meaningful impact at this stage that I would predict.

Matthew Kelley - Sterne Agee

Okay and then in the syndication business you said you closed seven deals, how much of those credits were retained and what’s that dollar amount that contributed to your commercial loan growth?

Greg Harwood

I don’t know the dollar amounts of it, what we said is we led seven deals. So we were the lead. We normally would settle down to hold levels, we kind of think of it in the 20 to 25 range so again I don’t have a specific in summarizing each one of those deals. But if you look at that kind of business, it will be episodic, quarter to quarter. And overall if you look at our snickbook, it did go up call at 80+ million quarter-over-quarter and this would have been a big driver of it.

Matthew Kelley - Sterne Agee

Okay and last question. What geography did you see the largest change in structuring on deals during the quarter that you were uncomfortable doing across your entire footprint, what geography was the worst?

Greg Harwood

That’s an interesting question. If I had to pick one, I would say probably more eastern PA, in the Philadelphia market. I think that’s the market where we have both large and small competitors so it’s a very competitive market. One of things we like about that market is the team we have there, led by Bob Kane, a seasoned banker. He has been in that market for a long time. So we feel very confident that we know the marketplace, we know the companies and we know the competitors. We know what to expect from other folks, you know having been there, done that kind of leadership team. So feel good about the team there, and being able to know what deals to do and what deals not to do.

Operator

We have no further questions.

Ram Shankar

Thank you very much and I appreciate you all joining us today and we are looking forward to second quarter.

Gary Crosby

Thanks everybody.

Operator

This concludes today’s conference please disconnect at this time.

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