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First Niagara Financial Group Inc. (NASDAQ:FNFG)

Q1 2008 Earnings Call

April 24, 2008 11:00 am ET

Executives

John Koelmel - President and CEO

Mike Harrington - CFO

Analysts

Tony Davis - Stifel Nicolaus

Theodore Kovaleff - Sky Capital

Tom Alonso - Fox-Pitt Kelton

Garaf Patankar - Sinova Capital

Rick Weiss - Janney

Damon DelMonte - KBW

Operator

Greetings ladies and gentlemen and welcome to the First Niagara first quarter earnings release call. At this time, all participants are in a listen-only mode, a brief question-and-answer session will follow the formal presentation. (Operator Instructions)

As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. John Koelmel, President and Chief Executive Officer of First Niagara. Thank you, Mr. Koelmel. You may now begin.

John Koelmel

Thank you, Chris, and good morning, everyone. As always, with me on the call today is Mike Harrington, our Chief Financial Officer. I am very pleased to report that we're out of the blocks in great fashion this year, as demonstrated by our first quarter results. I'm confident we're continuing to build more momentum as we head into the second quarter.

I am very proud to say our performance is not mere coincidence, nor just good fortune, but more importantly the result of our concerted efforts over the past year to transform our franchise and better position ourselves for longer-term success. Continuing to do that we're focusing relentlessly on our competitive strengths, keeping a longer-term perspective about all we do and not getting sidetracked by non-strategic business activities, nor otherwise fall prey to reaching for ill-advised growth.

We also continue to realign our resources in investment dollars to our best opportunities. That's well exemplified by our commercial franchise, which is generating superb loan and cross-sell growth. We remain on the offensive with our largest-ever branding campaign, as well as by leveraging the benefits in the Western New York market of the Greater Buffalo Savings Bank acquisition.

We have not wavered from our long-held credit discipline that we feel is a major point of distinction, that's allowed us to avoid the outsize credit charges taken by many others. In addition, our balance sheet is well positioned to take advantage of lower rates, while we focus our business activities on higher-yielding assets and even more lower-cost funding. We also continue to deploy capital in a disciplined but shareholder-friendly manner, but given current market uncertainties will ensure that we prudently remain at the well-capitalized level.

And finally, we recognize that the path to shareholder value can only be attained via highly motivated, energized employees and satisfied loyal customers who passionately refer First Niagara's services to others.

With those thoughts as a backdrop, let me briefly offer my perspective on the first quarter results, which I would characterize as quite positive, particularly in light of the current environment. As I already referenced, our commercial franchise continues to go great guns, with strong double-digit loan growth and we believe, more importantly, real opportunities to take even more market share in all areas of the C&I segment.

Revenues are up nicely, especially net interest income. Most encouraging was the beginnings of more rational deposit pricing, which triggered a healthy rise in our net interest margin, which had been under pressure for most of the past year. We're also off to a great start in assimilating the Greater Buffalo acquisition, with their additional branches and customer base providing terrific opportunities to further extend our reach in Western New York. We remain very, very proud of our relative credit performance at a time when the industry is wading through a myriad of troubled exposures.

Our net charge-offs actually declined in the quarter to an annualized rate of just 13 basis points. Obviously, our historic discipline has clearly held us in good stat during this volatile cycle. So all in all, we're definitely upbeat about the quarter.

On a more macro front, we're certainly well aware of the recessionary environment taking hold, but remain relatively confident about the upstate New York markets. As we've consistently told you, we have not gone through the boom or bust housing cycle that afflicted much of the country. In fact, some of our markets across upstate were even experiencing modest price appreciation over the past year. We also feel we're well-positioned to further grow our business, as the large banks are preoccupied, and our smaller competitors just can't match our robust product set or geographic reach.

Put all of that together, we now expect decent EPS growth this year of at least 5% to 6%, when as little as 90 days ago we were expecting a relatively flat year. So we like where we are. More importantly, we're cranked up about pushing our franchise forward for the balance of not only 2008, but into 2009.

With that, let me turn it over to Michael and he'll cover the quarter in more detail.

Mike Harrington

Thanks, John, and good morning. First quarter results reflect solid progress in a number of key areas. We grew revenues and improved operating leverage while maintaining our risk-return discipline. First quarter commercial loan growth continued at an accelerated pace, as we focused internal resources and external marketing to the strategically important business line.

Our net interest margin improved more than expected, as we benefited from the significant easing in deposit pricing, as well as improved spreads on new loan production. And credit performance was sound, with net charge-offs down and [NPAs] up only moderately from the prior quarter.

We are quite encouraged by our results this quarter, especially given the very challenging operating environment that currently confronts the banking industry. Before I start my review, please note that all balances will be stated as quarterly averages, unless I indicate otherwise. And I'll do my best to exclude the effects of the Great Lakes acquisition when discussing period-over-period trends and changes.

Operating earnings per share of $0.19 equaled the previous quarter's level, as well as the same period a year ago. Our reported GAAP earnings of $0.18 per share included $2 million or a penny per share of integration costs related to the acquisition of Greater Buffalo Savings Bank. I also remind you that we issued 5.4 million shares of common stock to complete that deal in mid-February.

As John mentioned, exceptionally strong growth continued in our commercial loan portfolios. Combined balances increased by $136 million, or [10%] annualized during the quarter. This was the largest quarterly increase in over two years, and commercial loans continue to represent 54% of total loans, up from 50% a year ago.

In particular, C&I balances averaged 41% above the previous quarter, driven by a combination of strong growth in production, particularly in the Central New York region; and higher line-of-credit balances, with usage up to 48% of availability from 42% at the end of 2007. Commercial real estate loan balances posted a solid 14% annualized gain, also benefiting from strong originations and advances, as well as lower than normal payoffs.

Overall, commercial lending demand continues to be strong, with committed pipeline activity higher at quarter end by $33 million, or 10%. We continue to reiterate that we have not altered credit standards or pricing to achieve these results. In fact, we are being more selective from a credit perspective and getting paid much better spreads in the current environment. Our results are evidence of the strength and quality of our lending team, as well as our ability to be responsive to the needs of the marketplace in these difficult times.

Turning to the home equity portfolio, loan balances sustained their levels from a year-end, as reduced demand reflected seasonal trends. However, this priority portfolio is up 7% from a year ago and continues to perform well, with no material change in delinquency statistics over the last year. Finally, residential mortgage and other consumer loan average balances trended downward by $48 million, or 9% annualized.

On the residential front, consumer demand continues to be for longer-term fixed-rate products, which we originate and sell into the secondary market, while other consumer loans continue to be deemphasized from a business strategy standpoint.

Looking at our funding activities, deposit balances remained stable from the linked quarter after adjusting for the Greater Buffalo acquisition and the sale of nine branches in the fourth quarter of last year. Average deposits increased by approximately $58 million from a year ago, as the addition of new business checking account relationships as well as municipal customers demonstrates our continued focus on commercial deposit gathering.

For the quarter, municipal deposits grew by $59 million, as local governments collected taxes and new relationships were added in the Rochester region. Also of note, municipalities moved funds from longer-term CDs to more liquid money market accounts.

Business deposits were lower by $40 million for the quarter, reflecting seasonal trends in balances of commercial banking customers. We also continue to witness the migration of savings balances to money market accounts, as customers seek higher-yielding instruments. And CD balances declined by $40 million for the quarter, reflecting our ongoing decision to replace these funds with lower cost wholesale borrowings.

This strategy, along with strong commercial loan growth, drove borrowings up by $150 million for the same time period. As a result, core deposit growth continues to be an ongoing focus of our organization.

Now turning to credit quality, our overall loan portfolio continues to perform well, and we continue to have no exposure to subprime or Alt-A loans. In fact, net charge-offs to average loans for the quarter decreased by $1.3 million to $2 million, or 13 basis points.

Non-performing loans increased by $5.4 million to 53 basis points of total loans, with $900,000 of the increase attributable to the acquired Greater Buffalo loan portfolio.

While the remainder was mostly concentrated in the commercial real estate loans, we remain confident that these increased levels of non-performers are not indicative of a broader deterioration in that portfolio.

Given the above-average loan growth during the last year or more, and the general level of uncertainty around future economic activity, we provided $3.1 million for credit losses during the quarter, compared to $2.5 million in the prior quarter and $1.6 million a year ago; leaving our coverage ratio solid, with the allowance to non-performing loans at 222% and 117 basis points of total loans.

Looking at some of our individual portfolios, our commercial loan growth has been focused in the regions known well to us, with 97% of the commercial real estate loans originated within our New York State footprint.

Another positive is the fact that 36% of this portfolio is secured by multifamily properties, traditionally a low-risk commercial asset. Additionally, construction lending, an area that has recently come under scrutiny nationally, comprises only 7% of our total commercial loans and continues to perform well.

Lastly, and as mentioned earlier, home equity portfolio continues to have strong credit profile, as past-due loans are only six tenths of 1% of the total portfolio at quarter-end, consistent with 2007 levels.

Moving on to operating results, net interest income was $4.9 million or 9% above last quarter, and benefited from higher loan volumes and a number of other factors, including considerable easing of deposit pricing in response to the dramatic Federal Reserve actions during the last quarter, and the attendant improvement in LIBOR spreads, which allowed us to decrease deposit pricing at a pace much greater than we anticipated when we talked to you last quarter.

The portfolio acquired from Greater Buffalo contributed $2 million of net interest income for the quarter, and the dilutive impact on margin was less than anticipated, given the favorable market changes.

Also helping net interest income was the sale of investment securities and the reinvestment of the proceeds into higher-yielding investments in the fourth quarter of 2007. Additionally, we continued to substitute lower cost wholesale borrowings in lieu of matching higher priced CDs offered by local as well as national competition.

The net result of these factors drove an increase of eight basis points in a tax-equivalent net interest margin to 333 basis points for the first quarter, well ahead of our expectations as previously shared with you during our last call.

Notably, it had only been a week since the Fed had stepped in and lowered rates by 75 basis points at that time. And at that time, it was unclear how the actions would ultimately impact retail deposit pricing. Therefore, we were guardedly optimistic, but continued to position for further margin pressure, assuming the environment as it existed then would persist. As I just mentioned, lower-than-expected deposit pricing did ultimately result, generating a positive improvement on the margin front.

Operating noninterest income of $29.3 million for the quarter was $1.4 million above last quarter's level, due to gains from partnership investments as well as normal seasonal increases in insurance commissions, inclusive of profit sharing from insurance carriers. Partially offsetting this increase was the continued softening in insurance pricing and seasonal reductions in activity-based checking and debit card fees.

On a year-over-year basis, the current quarter's operating noninterest income also increased 5% due to a 4% increase in activity-based electronic banking services, service fees, as well as strong lending activity that raised corresponding fees by 18%.

As for operating expenses, the current quarter increased by $2.2 million, or 4% over the previous quarter, primarily due to higher salaries and benefits levels. A portion of this increase represents the absorption of stat from Greater Buffalo, along with normal salary and benefits inflation. However, partially mitigating the cost increase was the benefit of last year's performance improvement initiatives whereby we reduced our personnel count by 5%.

Other discretionary spending was also lower in the first quarter, as we continued to be diligent and disciplined about spending the Corporation's resources. These factors, along with solid revenue growth, combined to drive positive operating leverage and reduce our efficiency ratio from 64% to 62%.

I remind you that GAAP noninterest expense included $2 million in costs related to the completion of the Greater Buffalo acquisition, which primarily represents charges related to real estate valuations, severance and other transaction costs.

On the capital management front, the main event during the quarter was the acquisition of Greater Buffalo and the issuance of 5.4 million shares of common stock. We did repurchase 625,000 shares but have slowed the pace of buybacks given the current economic environment and uncertainty in our industry. Our tangible common equity ratio at March 31st was 7.6% compared to 8.2% at year-end. While we expect to continue to return capital to our shareholders via our ongoing dividend and buyback programs, we also recognize that preserving capital and remaining well capitalized is prudent under current circumstances.

In summary, we are very pleased with our strong start to 2008, and we feel the areas that we have focused on over the last 15 months have well positioned us for profitable growth, in spite of the challenging environment.

So what does all this mean for the rest of '08? As John stated earlier, we want to stay very grounded amidst the macro uncertainty and not get ahead of ourselves in any way. As good as our credit performance has been, and as strong as our loan growth has been, full impact of the slowing economy and the inflationary pressures from soaring energy and now food prices has yet to fully play out.

Despite all the professional opinions out there, no one knows for sure how soft or hard a landing we're all in for. Such divergence of viewpoint is even reflected in the wide range of analyst EPS estimates for us this year, with a low of $0.73 and a high of $0.87.

As John noted, given the results of the first quarter, the middle to upper end of that range is probably reasonable at this point, assuming the improvement in margin trend is sustained. We will continue to be vigilant on the credit front, understanding the need to prudently maintain our allowance, and also continue to invest in growth areas as we've been doing, but no matter what the environment is, we feel good about how we're improving the franchise and positioning ourselves competitively, which we are confident will lead to longer-term shareholder value creation.

With that, John and I would be happy to take your questions.

John Koelmel

Chris, do you want to open up for us?

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Mr. Tony Davis of Stifel Nicolaus.

Tony Davis - Stifel Nicolaus

Hey, John and Mike.

John Koelmel

Hey, good morning. How are you?

Tony Davis - Stifel Nicolaus

Congratulations on a solid performance here; that's a pretty rare event here this quarter.

John Koelmel

Thanks very much. Yes, we're real proud and happy.

Tony Davis - Stifel Nicolaus

You're obviously doing very well in the commercial services lending area. Could you give us a little more color on that, in terms of geography you mentioned sort of the capital reason, I guess, but first geography, and then secondly, it sounds like its both draw line increases and new business. And to the extent that it is new business, who do you feel you're being more successful with here, the local community guys or some of your larger competitors?

John Koelmel

First of all, I'll take a quick run at that laundry list, I think geographically, Tony, we're seeing it across the markets. I don't know that, sit here and tell you it's in any one location versus the other.

Terms of competition, yes, we are in the (inaudible) a little bit more. I think that's clearly what we've targeted, and where we think we've got the opportunities. Got a great team, tremendous talent, and they're working real hard at times when customers are increasingly focused on service and turnaround time, and flexibility and creativity. And that's what we've always brought. So that plays very, very well in particular uncertain circumstances, like we're seeing more and more of today.

So yes, we think that we're nicely positioned. We can provide the full range of services; do that in a very efficient and timely fashion. And hence, we see continued upside. No question, people are drawing lines down more than they have before. As Michael said, 48% historically; we've probably seen something around in the 40 zone.

Mike Harrington

Right.

John Koelmel

And there's no question that's been a big part of it. Paydowns, Mike talked earlier as well, have slowed. So all that's, I think, reflective of the economic environment but there's no question our production and productivity continues to bump along real nicely.

Tony Davis - Stifel Nicolaus

Just one more thing and this is just to deposits, the dramatic drop here in your money market rates, pretty demonstrable. Can you give us a little more color in that regard on local markets, and then maybe what you've done to deposit rates since quarter-end?

John Koelmel

We brought the rosary beads and from the backyard --

Mike Harrington

Well, deposit rates, finally got a break after that initial Fed easing late in January, right before our call, which I mentioned in my prepared remarks. And after that, we started to see LIBOR come down as well. So the rest of the larger players in the market that were holding up deposit costs started to lower their rates very aggressively, and we followed suit. So we're in a position to be able to do that because of the way we're structured and the way our balance sheet's structured, and took full advantage of it. I'd say since quarter-end we haven't seen a lot of change in deposit pricing.

So what you saw through the end of the first quarter is fairly consistent with what we've seen early on in the first quarter here. If anything, we've seen a little bump up in pricing in the beginnings of the second quarter. If you look at LIBOR from the end of the first quarter up till now, it's moved up a little bit. And so we've seen just a slight increase in pricing.

John Koelmel

And it's just evidence, Tony of the battle we've said for a number of quarters we've been fighting here. Challenge for us has been on the liability side, and deposit pricing in particular. So, we're happy to see a little more rationality beginning to creep back into it. Hopefully, will not only hold, but we'll see some further improvement there.

Tony Davis - Stifel Nicolaus

Last question, I promise. What's the LTV for the commercial real estate book right now? And you mentioned delinquencies were down year-over-year. I just wonder 38 to 39 days trends more recently, not bothersome?

Mike Harrington

Well, the first part of your question I believe that was commercial real estate portfolio?

Tony Davis - Stifel Nicolaus

Right.

Mike Harrington

I don't have the statistics with me at this point on what the LTV is of our commercial real estate portfolio. And the delinquencies statistics, the only one I believe I cited before is related to the home equity portfolio, which has been flat for a long period of time here. So it hasn't moved at all relative to the economic environment deteriorating. Our overall delinquencies of our total portfolio have been very consistent.

Tony Davis - Stifel Nicolaus

Okay.

Mike Harrington

That's all loans.

Tony Davis - Stifel Nicolaus

Okay.

John Koelmel

We're just not seeing any real trend surfacing at this point.

Tony Davis - Stifel Nicolaus

Thanks, guys, good quarter.

John Koelmel

Thanks again.

Mike Harrington

Okay, Tony.

Operator

Our next question comes from the line of Theodore Kovaleff with Sky Capital. Please proceed with your question.

Theodore Kovaleff - Sky Capital

Nice quarter.

John Koelmel

Thanks, Ted, good morning.

Theodore Kovaleff - Sky Capital

Quick question here, I've been listening to a number of conference calls with regards to further acquisitions. Some people are saying, well, it's too hard to do the due diligence at this point. And others are saying, well, the prices have come down, and so there are some opportunities that we might be interested in. I'm wondering where you folks come down on the potential of additional acquisitions.

John Koelmel

We have consistently represented, Ted, that we're actively in the market in terms of exploring opportunities. That certainly continues to be our posture today. Frankly wouldn't be all that concerned about diligence, the type of entities we're looking at. We think we'd be more than capable of getting our arms around whatever exposures might exist.

Pricing, frankly, is to be determined. It's a tough market to get deals done right now. We'll just have to see how all that plays out. But we've been a ready and willing participant. Our appetite is as strong as ever for the right deal, and we'll continue to shake the trees or keep our eyes wide open for the right opportunities.

Theodore Kovaleff - Sky Capital

Okay, thank you.

Mike Harrington

Thank you.

Operator

Thank you. Our next question comes from the line of Tom Alonso with Fox-Pitt Kelton. Please proceed with your question.

Tom Alonso - Fox-Pitt Kelton

Good morning, guys, how are you?

John Koelmel

Good morning, Tom.

Mike Harrington

Good morning.

Tom Alonso - Fox-Pitt Kelton

Just a quick one on the uptick, I know you sort of mentioned that there was nothing systematic with the increase in NPLs and the CRE portfolio. But any other color you could provide would be great.

John Koelmel

I think as we often talk about, a fairly limited number of credits that from time to time will creep on us. We continue to work those actively and aggressively, and don't really think they're indicative of any major movement in the portfolio overall. There are always specific circumstances that drive some movement there, but on an absolute dollar basis, it's relatively nominal. But at this point, we don't really see that as the beginning of a trend or the beginning of any broader-based deterioration.

Mike Harrington

We've had a lot of growth in that portfolio as well as the commercial loan portfolio, and we're going to reach some natural level of NPAs in that portfolio overtime. So we've had a lot of growth over the last couple years; we need to work our way into what the natural level of NPAs is.

Tom Alonso - Fox-Pitt Kelton

Okay, great, got you. And then that leads to sort of my second question. In terms of the provision, looking forward, is that going to be sort of more based on the commercial loan growth? Or how should we think about your provisioning levels going forward?

Mike Harrington

It's a combination of both those things. It's one that's predicated on how quickly we grow, and what the composition of that growth is, and also certainly what our coverage ratios look like and where we're comfortable with those.

Tom Alonso - Fox-Pitt Kelton

Okay. All right. Great.

Mike Harrington

On a go-forward basis, what you saw this quarter we would expect to be fairly consistent on a go-forward basis.

Tom Alonso - Fox-Pitt Kelton

Okay, great. Thanks very much.

John Koelmel

Thank you.

Mike Harrington

Thanks.

Operator

Our next question comes from the line of [Garaf Patankar with Sinova Capital]. Please proceed.

Garaf Patankar - Sinova Capital

Good morning, guys. Congratulations on the quarter.

John Koelmel

Good morning, thank you.

Garaf Patankar - Sinova Capital

A quick question, I think something similar was asked a little while before. Basically in terms of behavior, the response of some of your competitors, both large and small because a lot of them have been in the news and have had issues of their own with capital and whatever. What kinds of change in behavior are you seeing in the marketplace in terms of, for example, deposit pricing? Is it getting more aggressive or less? Or in terms of asset pricing, what kind of trends are you seeing? You talked a little bit about the asset yields kind of going up, but can you please give us some more color on that?

Mike Harrington

I'll start with deposit pricing from a competitive standpoint is as aggressive as it has been. The reason we really got some relief is just related to general market rates falling, which allowed us to reduce our deposit costs, but from a competitive standpoint, it's still very intense.

Where that intensity has abated somewhat is on the asset side, where there's just less dollars chasing credit assets, so spreads have widened out and, as we noted, has given us the opportunity to even be more selective in terms of the credits that we do because the demand is still there for financing, and we're able to select which customers we want to do business with, and also have a little more power than we've had in the past in terms of pricing.

Garaf Patankar - Sinova Capital

Got you, that's helpful. If I may, a quick follow-up on the M&A question. You've in the past talked about your focus on footprint acquisitions, (inaudible) kind of stuff. Has anything changed with the pricing of some of the potential opportunities that may have become quite an expensive, if one were to look west of where you are? Is that at all something that you guys would look at, or you would stick mostly to New York and Pennsylvania, if at all, as a stretch?

John Koelmel

I think at this point, our priority focus continues to be on footprint, or at best very adjacent geographies. We believe we can, and more importantly need to, squeeze more profitability and efficiency out of the franchise we already have, and strengthen our position in these markets before we stretch further, but as we always say, if the right opportunity's there, we're going to take a look if we think it makes sense, but certainly strategically, tactically, prefer to keep working the existing footprint and progressively creep outward, rather than make any quantum leaps, so that we can ensure we've got the business that we have operating at a level that we think is most appropriate before we further stretch our wings.

Garaf Patankar - Sinova Capital

Got you. Thank you.

John Koelmel

Yes.

Operator

Our next question comes from the line of Rick Weiss with Janney. Please proceed with your questions.

John Koelmel

Hey, Rick.

Rick Weiss - Janney

A question with regards to the insurance, with the increase, is any of that due to seasonal factors?

Mike Harrington

Yes, it is.

Rick Weiss - Janney

Okay.

Mike Harrington

The first quarter's typically our best renewal quarter. If you look back overtime, it's usually our best quarter.

Rick Weiss - Janney

All right. So then it would kind of --?

Mike Harrington

Especially when you look at Q4 --

Rick Weiss - Janney

Tail off a little bit, much like the prior years, I guess?

Mike Harrington

Yes.

John Koelmel

Correct.

Rick Weiss - Janney

Okay. And second question I guess would be I think I got this right, but why did the average yield on the investment securities rise to 5% for this quarter, versus 4.72 for the fourth quarter of '07?

Mike Harrington

It's a combination of two things. One would have been the restructuring that we did late in the fourth quarter. So we restructured, sold some assets, and then redeployed those dollars. And also the acquisition --

John Koelmel

Greater Buffalo.

Mike Harrington

That was all mark-to-market. That came over current yields.

Rick Weiss - Janney

Okay.

Mike Harrington

And those yields were accretive to our existing portfolio. So the combination led us to put the yield off.

Rick Weiss - Janney

Got you. And so, of those purchase accounting adjustments, did that also affect the margin?

Mike Harrington

Yes.

Rick Weiss - Janney

Okay.

Mike Harrington

Yes, they're modest, though.

Rick Weiss - Janney

Okay. And also, I guess, one final question, with regard to the $2 million merger-related charges, more of a technical thing, but with the real estate write-downs related to that acquisition, just kind of curious, why would that be expensed versus just writing it down at the time of acquisition?

Mike Harrington

Those costs were our costs related to our real estate. If you recall when we did this acquisition, we were going to close and consolidate some of our branches into their branches.

Rick Weiss - Janney

Okay.

Mike Harrington

So it's our real estate on our book. So we had to recognize that as a transaction cost at the time embedded in the accounting for the --

John Koelmel

Otherwise your accounting is correct, Rick.

Rick Weiss - Janney

No, no, I don't doubt your accounting. I was thinking, I'm missing you on that one.

John Koelmel

Right.

Rick Weiss - Janney

Okay, that's helpful. Thank you.

John Koelmel

Yes. The write-down from their side isn't reflective in ours.

Rick Weiss - Janney

No, got it now. Thank you.

John Koelmel

Yes.

Operator

Our next question comes from the line of Damon DelMonte with KBW. Please proceed with your question.

Damon DelMonte - KBW

Hi, good morning, guys. How are you?

Mike Harrington

Good morning, Damon.

John Koelmel

Good, Damon, how are you?

Damon DelMonte - KBW

Hey, just a couple of quick housekeeping questions, with regard to the $2 million of non-recurring charges, what's the breakout in the line items?

John Koelmel

Half of it was real estate lenders.

Mike Harrington

Yes, occupancy.

John Koelmel

A little bit of severance, and --

Mike Harrington

Some other technologies.

John Koelmel

Some other nickels and dimes flopped through there, but about half of it was real estate-related, Damon.

Damon DelMonte - KBW

Okay. Great.

And then, with regards to achieving cost savings, have you been able to quantify what you have so far, or what you expect to get in the future quarters?

Mike Harrington

Well, we're confident we achieved the cost savings are going to generate the incremental earnings that we expected from a pro forma basis. If anything, it might be a little bit better than that, because the margin that we acquired is better than what we expected.

Damon DelMonte - KBW

And was all that realized in the first quarter's numbers?

John Koelmel

Yes.

Mike Harrington

Well, first quarter is limited

John Koelmel

Yes appreciate, this isn't a traditional deal, where you're phasing in and transitioning operations here, Damon. All we really were doing was absorbing about a half dozen branches on a net-net basis. So from a personnel standpoint and all the rest of that, we're able to realize the cost saves relatively instantly.

Damon DelMonte - KBW

Great.

Okay, thank you very much. Nice quarter.

Mike Harrington

Thanks, Damon.

John Koelmel

Thanks again.

Operator

Gentlemen, there are no further questions at this time. I'd like to turn the floor back over to management for any closing comments.

John Koelmel

Terrific. Thanks very much, Chris. And more importantly, appreciate everyone's attendance, and thoughts and comments. And we look forward to being back at you in another 90 days. Have a great day.

Operator

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time and thank you for your participation.

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