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Operator
Welcome to the Old National Bancorp first-quarter 2010 earnings conference call.
This call is being recorded and has been made accessible to the public in accordance with the SEC's Regulation FD.
The call, along with the corresponding presentation slides, will be archived for 12 months on the Investor Relations page at www.OldNational.com.
A replay of the call will also be available beginning at 1 PM central time today through May 10.
To access the replay dial 1-800-642-1687, conference ID code 68255983.
Those participating today will be analysts and members of the financial community.
(Operator Instructions).
At this time the call will be turned over to Lynell Walton, Director of Investor Relations, for opening remarks.
Lynell Walton - SVP IR
Good morning to all of you.
We appreciate you joining us for Old National Bancorp's first-quarter 2010 earnings conference call.
With me today are Old National Bancorp management members, Bob Jones, Chris Wolking, Barbara Murphy, Daryl Moore and Joan Kissel.
As noted on slide three I would like to remind you that as we proceed our presentation today will contain forward-looking statements that are subject to certain risks and uncertainties that could cause the Company's actual future results to materially differ from those discussed.
These risks and uncertainties include, but are not limited to those which are contained in this slide and in Old National's filings with the SEC.
Slide four contains our non-GAAP financial measures information.
Various numbers in this presentation have been adjusted for certain items to provide more comparable data between periods and as an aid to you in establishing more realistic trends going forward.
Included in the presentation are the reconciliations for such non-GAAP data.
We feel that these adjusted metrics to be helpful in understanding Old National's results of operations and core performance trends.
If you will turn to slide five you will see our agenda for the call today.
First, Bob will review the highlights of our first-quarter 2010 performance.
Daryl will then provide commentary on our credit quality trends and our outlook on these trends going forward.
Next Chris will highlight our strong capital position with specific items impacting our net interest margins.
And He will also discuss Old National's noninterest expenses and initiatives in that area.
After that Tom will be happy to open the line and take your questions.
Just as a reminder, the appendix to this presentation does include our customary disclosures regarding our investment portfolio, as well as some additional credit and margin analysis slides that may be helpful to you in your review of Old National's first-quarter results.
With those opening remarks, I will turn the call over to our CEO, Bob Jones.
Bob Jones - President, CEO
Good morning.
My remarks will highlight our first-quarter earnings beginning on slide number seven.
I would characterize the quarter as relatively quiet, but more importantly the quarter reflected the items of focus that we have been discussing with you for the past few quarters, the stabilizing credit portfolio and a focus on expense control.
It was the improvement in these two areas, credit and expenses, that drove Old National reporting first-quarter 2010 earnings of $10.1 million or $0.12 per common share.
As we note on slide seven, the results of this quarter were driven by a $13.7 million reduction in our noninterest expense over the fourth quarter of 2009, and an expense run rate that was almost equal to the first quarter of 2009.
It is important to note that our first quarter of 2009 did not include the majority of expenses related to our acquisition of Charter One in Indianapolis, which was closed at the end of the first quarter of 2009.
Chris will give you more details on our expenses, but this quarter's expense reductions are the result of our goal of achieving a targeted efficiency ratio of 65% by the end of 2011.
As we mentioned last quarter, we have implemented a corporatewide initiative to achieve this goal, and we are seeing good, early returns.
I would caution you know though that while we have made good progress on expense control and we are confident that you should continue to see our expense base decrease, there are a few cost reductions that we have put in place in response to the ongoing challenging environment, and these expenses may return when we see a more normal operating environment.
Chief amongst these are our incentive programs, which we have frozen as a nod to the difficult environment and as a means of providing better support for our shareholders.
The quarter results were also improved by a lower provision as compared to both the first quarter of 2009 and to last quarter.
Our first-quarter to first-quarter comparison shows a reduction in provision of $8 million.
And when you compare this quarter's provision to last quarter, the improved provision is $12.5 million.
Daryl will give you additional detail on our credit portfolio, the highlights on an improvement in our net charge-offs and delinquencies, but problem loans remain elevated.
And given our always conservative nature when it comes to credit, we do believe it is too early to declare victory, but we are clearly seeing more positive trends this quarter than we have seen in some time.
We will remain diligent in our view of the credit environment.
All other financial measures remain stable.
We are particularly pleased that our tangible common equity increased to 8.62%.
Before I turn the presentation over to Daryl, as you can see from the continued reduction in loans on our balance sheet, loan demand has remained very soft.
We have begun to see some positive momentum in our pipelines over the last few weeks, but much like our view of credit, we cannot yet see where the demand has stabilizer or increased to the point where balance sheet growth of any degree will occur in the next few quarters.
The lack of loan growth, offset by a strong core deposit growth, has led to a continued expansion of our investment portfolio.
We continue to focus on keeping the duration of our investment portfolio short as a means of managing interest-rate risk, and we are not looking to this portfolio to be a significant contributor to our earnings.
Let me now during the presentation over to Daryl.
Daryl Moore - Chief Credit Officer
We start the credit presentation this morning on slide nine, where we show net charge-offs trends over a 12 quarter timeline.
As you can see from the chart, net charge-offs in the quarter were $6.7 million or 70 basis points of average loans in the period, the lowest level since the third quarter of 2008, and certainly much lower than last quarter's losses, which included the large shared national credit write-down.
With respect to a comparison to first-quarter 2009 results, not only were gross losses in the quarter better than first-quarter 2009 numbers, but recoveries were also roughly $900,000 higher in the linked period, which added to the improved results.
In the commercial/industrial portfolio loss results were good, but net losses at the lowest level seen over the last five quarters.
Traditional middle-market commercial losses were well-controlled, while small business losses were marginally higher than first-quarter 2009 levels.
While net losses in commercial real estate portfolio increased roughly $600,000 from last quarter's loss levels, total net losses in this area remained relatively well-controlled in the quarter at roughly $1.3 million.
Consumer loan losses were $3.1 million in the just ended quarter, not too different from the average of the last two quarters.
Losses in the home-equity line of credit portfolio in the first quarter remained at somewhat higher levels we experienced in the fourth quarter of 2009, and were marginally higher than first-quarter 2009 net losses.
That having been said, we will see later that HELOC delinquencies were at their lowest levels in some time at the end of the quarter.
Losses in the 1 to 4 family residential mortgage portfolio were higher in the quarter, coming on the heels of the higher loss rates we discussed last quarter.
While we now anticipate that losses in this area will be higher in 2010 than they were -- than what they were posted in 2009, we do not believe it will create material issues for us, simply due to the fact that we have a relatively small portfolio of roughly $400 million, which does not include any exotic mortgage products.
With respect to our allowance for loan and lease losses, as you know the provision expense for the quarter was approximately $9.3 million.
With net charge-offs of $6.7 million, the allowance balance increased by roughly $2.5 million in the quarter.
This increase, coupled with declining loan balances, resulted in allowance coverage of total loans of 1.94% at the end of the first quarter.
Additionally, with respect to nonperforming loans we were also able to improve allowance coverage of that subset of assets during the period.
As slide 10 reflects, nonaccrual loans rose slightly in the quarter, increasing by $1.1 million.
Nonaccruals now comprise 1.81% of the total portfolio compared to 1.71% at the end of last quarter.
With respect to the mix of nonaccrual changes in the quarter, we observed an increase in nonaccrual exposure in the commercial real estate portfolio, with the balance of the portfolios remaining relatively constant during the period.
Slide 11 depicts the trends in our largest nonaccrual exposures at quarter's end.
As you can see, we had a slight increase in exposure levels during the quarter.
We now have five loans in nonaccrual with $2 million or more in total exposure.
At quarter's end outstandings associated with these relationships were $18.3 million, and associated impairment was measured at $5.1 million.
Geographically the area with the highest concentration in these larger nonaccrual exposures is our Louisville region.
You might remember that up until this quarter the Indianapolis region had always held that position.
As slide 12 shows, our 90 plus delinquent loans fell by approximately $2.2 million in the quarter, and now stand at only 3 basis point of total loans.
Moving to slide 13, you can see that our total other real estate owned and repossessed property balances increased again in the quarter, moving up $1.5 million to $9.6 million.
The great majority of this increase came in the commercial real estate area and is generally related to the movement of one project to other real estate in the quarter with the book value of roughly $1.2 million.
We currently have two properties in our OREO portfolio with a carrying value of over $1 million.
Moving to slide 14, the dollar level of classified loans, which include nonaccrual loans rose approximately $3.4 million in the quarter to a level of roughly $160.5 million.
Classified loans now stand at 4.26% of total outstandings.
Noninvestment-grade securities with a book value of $158.5 million, which are categorized as classified assets, are not included in these totals.
Slide 15 reflects our criticized loan trends.
Criticized loans increased slightly in the quarter, moving up $1.4 million, and now stand at 2.79% of total loans.
This level represents the highest quarter in criticized loan levels posted in some time, and is generally reflective of the weakening effect the recession has had on borrowers, as well as our declining loan outstandings.
Until we see meaningful improvement in the economy we would expect to see continued movement of some of the more marginal credits in our portfolio into this category, with further downward grade movement of some portion of those downgrades likely.
As 30 plus delinquencies are somewhat predictive with respect to future credit issues, we obviously watch and attempt to manage them very closely.
As slide 16 shows, delinquency dollars and rates in our portfolio fell fairly significantly in the quarter, with 30 plus delinquency rates now at 55 basis points, the lowest quarter end level posted in some time.
Slide 17 shows by portfolio breakout of our 30 day and greater delinquency rates.
As you can see in the top half of the chart, we posted significant improvement in delinquency rates in all categories reflected.
Portfolio loan type composition showed little variation in the quarter, as reflected in the bottom half of the chart.
With those remarks, I will turn the call over to Chris.
Chris Wolking - CFO
As Bob said at the beginning of the call, we were pleased with our first-quarter results, particularly with the improvement in many of our credit metrics and lower operating expenses.
I was also pleased that net interest margin was flat at 333 compared to fourth-quarter in the face of the weak loan demand we experienced and lower investment portfolio yield.
But we will have comments on the margin and expenses in a moment, but first I want to update you on the changes in our capital ratios.
I will begin on slide 19 with our tangible common equity to tangible assets ratio.
Tangible common equity as a percentage of tangible assets increased from 8.25% in the fourth quarter to a 8.62% in the first quarter of 2010.
Tangible common shareholders equity increased from $643.6 million at December 31, 2009, to $657 million at March 31.
Major drivers of the increase in tangible common equity were net income of $10 million and positive other comprehensive income of $7.6 million, due primarily to the higher market value of our securities portfolio compared to December 31.
Tangible assets declined by $185.4 million due largely to the $120.6 million decline in our loan portfolio from December 31 to March 31.
The low point in our tangible common equity ratio is in the first quarter of 2009 after the purchase of the Indiana branches from Charter One.
Tangible common equity increased in the third quarter of 2009 due to the approximately $196 million in capital we raised in our common stock offering.
On slide 20 you can see that tangible common equity as a percentage of risk-weighted assets increased by 60 basis points from December 31, 2009, to March 31, 2010.
Risk-weighted assets declined $134.9 million during the quarter, driven by the decline in our loan portfolio.
Investments comprised 41.8% of total assets at March 31, when I include the cash balances at the Federal Reserve in total investments.
As you know from both slides 19 and 20, our tangible common equity ratios continue to be significantly higher than our pure banks.
Maintaining high capital continues to be an important -- continues to be important to our near-term strategy.
We continue to believe that our strong capital base puts us in a position to grow through acquisitions and organically as the economy and loan demand improve.
Moving to slide 21, note that net interest margin remained at 3.33% for the quarter, flat from our fourth-quarter 2009 margin.
Lower asset yields caused the margin to decline 8 basis points during the quarter.
The yield on earning assets declined 13 basis points during the quarter, with the decline in investment yields causing most of the change.
For the first quarter of 2010 we treated $254 million in average cash balances in the Federal Reserve accounts as an earning asset and as a component of investments.
This contributed to the lower reported investment yield.
I was pleased that we were able to lower the cost of our interest-bearing liabilities during the quarter to offset the decline in our earning asset yield.
The decline in interest-bearing liability costs during the first quarter lifted the margin 8 basis points.
The major contributor to our lower cost of interest-bearing liabilities was the fact that we are able to reduce our costs on other time deposits, made up mostly of certificates of deposit under $100,000, by 13 basis points during the quarter.
The Company also benefited in the first quarter from our decision in December 2009 to terminate $105 million of Federal Home Loan Bank advances.
This helped reduce the cost of our borrowed funding by 10 basis points during the first quarter of this year.
The only other impact of note was the shift in our funding from interest-bearing liabilities to noninterest-bearing deposits in the quarter.
Noninterest-bearing deposits increased on average $50.5 million during the first quarter and helped improve our margin by 2 basis points.
This is reflected on slide 21 in the change in margin due the mix and volume of liabilities.
On slide 22 you will see the trend in our monthly net interest margin during the quarter.
The net interest margin decreased during the quarter from 3.39% in January to 3.33% in March.
In March we sold $27.4 million in municipal bonds, with an average duration of approximately 11.4 and a fully taxable equivalent yield of 8.4%, as we continue to reduce the duration of our portfolio.
While we sold these bonds at a pretax gain of $3.5 million, much of the cash from this sale flowed into cash investments at a much lower yield.
We expect to further reduce the duration of our investment portfolio, and this may impact both earning asset yield and increase our asset sensitivity.
Slide 23 shows the trend in average loans and investments since first quarter 2007.
The decline in loans and increase in investment that impacted our earning asset yield during the quarter is visible in this trend, and continues the shift we saw in 2009.
We expect stronger loan production as the economy in our region improves.
Slide 24 shows the growth in noninterest-bearing deposits compared to the decline in our borrowed funding since first quarter 2007.
Note the very strong job growth in demand deposits in 2009 and into 2010.
Even though we recognize that some of the increase in demand deposits is likely due to the fact that customers are holding more cash in this weak economy, we believe the trend of our funding away from borrowings is significant, and that this should be an important contributor to improved net interest margin as the economy improves and interest rates rise.
Because we are asset sensitive our net interest margin should improve as short-term interest rates increase.
Additionally our margin should improve with stronger loan growth.
Until rates increase and our earning asset mix shifts more towards loans, our margin is likely to remain somewhat depressed.
Slide 25 highlights first-quarter noninterest expenses and the differences in expenses compared to the fourth quarter and the first quarters of 2009.
Noninterest expenses were $77.1 million for the first quarter, $13.7 million lower than the $90.8 million in expenses we recorded in the fourth quarter of 2009, and slightly lower than our expenses in the first quarter of 2009.
Salaries and benefits in the first quarter of 2010 were $4.6 million lower than in the fourth quarter of 2009.
Fourth-quarter salaries and benefits included approximately $1.8 million in severance expense accrual related to reduction in work force we previously announced.
As Bob mentioned earlier, we accrued no incentive compensation expense in the first quarter of 2010, resulting in savings of approximately $1.3 million compared to the fourth quarter of 2009.
For the full year eliminating incentives should save us approximately $6 million in 2010 compared to 2009.
Additionally, salary and benefits expense were approximately $700,000 lower than fourth quarter.
Many of our staff reductions occurred in mid to late first quarter, so we should see some additional expense benefit for the full second quarter after absorbing salary increases.
Other expenses declined by $7.1 million compared to fourth quarter.
Recall that in the fourth quarter we terminated FHLB advances, which cost approximately $3.5 million.
And in the first quarter we reversed $800,000 in provisions for unfunded commitments that we had charged in the fourth quarter.
Comparing the first quarter of 2010 to the first quarter of 2009, noninterest expenses were essentially flat.
You will recall that the first quarter of 2009 included less than two weeks of salary expense associated with the acquisition of the Charter One branches.
First-quarter 2010 includes a full quarter of salary and benefits for the Charter One acquisition, representing approximately $3.1 million.
My last slide, slide 26, shows the count of full-time equivalent personnel at the Company quarterly since the second quarter of 2009.
The second quarter of 2009 includes personnel from the acquired Charter One branches in the headcount.
You will note that our FTE headcount is down 167 since the second quarter of 2009 and down 104 when compared to the fourth quarter of 2009.
As Linnell mentioned, in the appendix of the slide deck I've included information on our investment portfolio.
And that concludes our formal comments.
And, Christy, we will take questions at this time.
Operator
(Operator Instructions).
Scott Siefers, Sandler O'Neill.
Scott Siefers - Analyst
Let's see, just a couple of questions.
I guess, Daryl, probably the first one is best for you.
Just the decision to provide in excess of charge-offs, I think it is the first time you have done that in a couple of quarters.
I guess the commentary sounds more positive, but yet the decision to over provide, just any color on how you're thinking about that decision might be helpful.
Daryl Moore - Chief Credit Officer
I think it goes back to that comment I made about the special mention loans.
We just see the recession having weakened the balance sheet of a lot of our commercial customers.
Our retail areas still -- we are not sure that we are past all of that.
So as we looked at our formulas and our loss rates, they allowed for us to do that within a range.
We just thought it was prudent at this point in time until, as Bob suggested, we are confident that all of this is behind us.
Scott Siefers - Analyst
Okay, perfect.
Then, Chris, I think the next one is probably for you.
Just in the color on the margin you said depressed margin until loan growth improves or rates rise.
Just in terms of the pieces it sounds like the asset yields are expected to continue to come under some pressure.
Would you say that means more pressure from this quarter's level or are there levers you can pull on the funding side that might help to alleviate that and keep things more stable?
Chris Wolking - CFO
It is really hard to say.
I think we are all looking for an improved economy to generate some more loans.
We have said for a couple of quarters now that the duration of our investment portfolio is a longer than we would like.
So we will continue to reduce the duration in the investment portfolio.
And I think that in and of itself is one of those that could contribute to lower asset yield.
Scott Siefers - Analyst
Then, finally, Bob, just a couple of questions for you.
One, if you can maybe provide just a little more commentary on the general economic trends that you're seeing.
I think you guys mentioned at the outset that the pipelines might be improving on the loan side.
So I guess any color you can provide their from the loan growth side.
And then separately just any thoughts you might have on the M&A environment.
I guess Sheila Bair is basically saying, failures will be fewer than they thought.
I guess what you are seeing in your market -- willingness to go out of market, etc.
Bob Jones - President, CEO
We have seen just glimmers of optimism throughout the franchise, which I think is the leading to the increase in pipeline.
And Barbara can make a few more comments on the pipeline, but clearly we are seeing more activity.
And it is interesting, Northern Indiana has probably got at least the more positive news coming, but they are coming from a point that was pretty difficult.
Central Indiana, I was just up there last week, and I would say as I talked to business leaders, it is the first positive comments I am seeing out of Central Indiana.
Southern Indiana continues to be just stable is what I would say.
So all in all, we are starting to see at least some glimmers.
Barbara, a little bit on the pipeline maybe.
Barbara Murphy - Chief Banking Officer
On the pipeline there has been an increase since mid-March in our commercial pipeline.
It is really up quite a bit.
It is almost a 20% increase overall.
And the Indy area has been the slowest to fall and it seems to be the longest to come back.
But we are seeing a nice increase in those pipelines right now.
We are also seeing a little bit of activity on our direct and indirect car loan volume.
So both those areas have been a little bit more optimistic than they were all of last year, and certainly where they were in January and February.
Bob Jones - President, CEO
Relative to M&A, Scott, what we have learned, it is a pretty low batting average business.
We continue to look at all opportunities on the FDIC front.
I think the Commissioner did say she thinks there will be less opportunities, but as we look at, particularly, some of our expansion markets we think there will be opportunities.
As we have said before, we would venture into considering Southwest Michigan if it made strategic sense for us.
I think we have explained to all of you that our view of FDIC deals begins with a strategic view first.
It has to make sense to us from a longer-term strategy versus just the financial impact that you get.
But what I would tell you looking over two weeks ago the activity in Florida and weekend -- over the weekend or the activity over the weekend in Chicago, it is clear that bids are getting skinnier.
It is clear that banks are becoming more creative with both more aggressive loss share agreements using equity appreciation.
I think what you are seeing is an advantage in the FDIC deals, particularly on large transactions, going to those banks that are a little larger in size.
I think with TD Banknorth and their deals in Florida, and with Harris' acquisition of Amcore.
But we continue to look at all opportunities.
And we continue to lay track for when traditional M&A returns in terms of making all the contacts we need to go.
As I have said, I've got the capital but it is not burning a hole in my pocket.
I want to make sure what I do is right from our shareholders, so patience is a virtue during these times.
Scott Siefers - Analyst
Perfect.
That sounds great.
Thank you.
Operator
Jon Arfstrom, RBC Capital Markets.
Jon Arfstrom - Analyst
Maybe a question for Daryl.
Can you talk a little bit about the decline in delinquencies, and what do you think is driving it?
Obviously it looks like a positive sign, but is it too simple to make -- to draw the conclusion that this is going to lead to some lower provisions going forward?
Daryl Moore - Chief Credit Officer
Yes, I think you're absolutely right.
I think it is too early to really say it is going to drive lower provisions.
If you think about the first quarter, we always get better delinquency results in the first quarter, because you have a lot of your clients who are getting tax returns.
Now having said that, you take our first quarter of 2010 and compare it to first quarter of 2009, and it is still better results.
I would say we are not ready to throw the victory flag up yet and say, hey, all of this is going to continue and we're going to see lower provisions.
I think when we get to the end of the second quarter and into the third quarter, if we are still seeing lower delinquencies, then I think we are all going to probably perk our ears up a little bit and say, maybe there is some wind behind these sails, and it is going to ultimately translate into lower losses.
But I think we all, as we sit around this table, think it is just a little early to make that conclusion just based upon the delinquencies.
Jon Arfstrom - Analyst
That may be the most optimistic statement Daryl has ever made.
I combine that with the comments about the pipeline.
I think it is -- from an outsider's point of view that is encouraging.
Maybe, Chris, a question for you on the securities portfolio.
How large are you willing to take that as a percentage of earning assets?
And certainly there are some very successful banks out there that carry large securities portfolios.
I know that your preference would be to grow loans, but just give us an idea of how you're thinking about loans in terms of size?
Chris Wolking - CFO
I didn't really have -- we don't have a number there that we like.
I think it is important there to consider duration and the mix as well as the size.
Our intent now, and our belief now is that it is appropriate to let that thing come down and really becomes a -- replaced with loans.
It really isn't a strategic asset from our perspective or an earnings driver.
It is more a repository of liquidity and an opportunity to use that cash flow for loans.
I think another element there too is we want to continue to watch our rate sensitivity.
We are asset sensitive now.
We believe that that is the appropriate long-term position for us.
And that -- when you think about a large portfolio and a desire to stay relatively asset sensitive, those two don't quite mix.
Jon Arfstrom - Analyst
Then just maybe one for you, Bob.
When you talk to the Board about capital targets and capital uses, how do you go through and really prioritize what you would like to do with some of the excess capital that you have?
Bob Jones - President, CEO
Clearly back to the question from Scott, our Board and management would like to use that to grow the franchise.
As I said, we have been aggressive on the M&A front in terms of the at-bats.
We have been aggressive in the contacts.
We look at all the FDICs.
But as with all, I think, we are pretty conservative.
Our Board believes in that conservative view.
And I think our desire is to use it to do a deal.
But I am also -- been around long enough and have enough grey hair that I don't want to get caught up in the need to do a deal without doing the right deal.
Operator
Stephen Geyen, Stifel Nicolaus.
Bob Jones - President, CEO
Congratulations to you guys on your new deal.
Stephen Geyen - Analyst
Thank you.
A couple of questions on the efficiency ratio.
You mentioned that some improvements are likely -- or you thought that there might be some improved by the end of 2011.
If you can give a little bit more color on where that might come from, whether it be topline or it is the bottom line, it is the revenue side, there might be some improvement there?
And what your expectations might be as far as interest rates heading into 2011?
Bob Jones - President, CEO
I would tell you -- sorry, Stephen -- as we look at that 65% efficiency ratio our modeling really looks at a relatively slightly improved margin, nothing significant, with very little topline growth.
We are really focused on where we can reduce costs.
Now the added benefit of looking at it that way is when we get revenue growth and when the balance sheets sheet starts to expand due to good efforts of Barbara and her team, we get -- we may be able to hit that target a little sooner.
But our focus is really how do we become more efficient.
And that efficiency is really an across-the-board, but it is really driven by how do we make it easier for our clients to do business with us, and how do we make it easier for our associates to get deals done.
So we are really focused on the bottom line and driving through costs.
Stephen Geyen - Analyst
Chris, I am just wondering what the security portfolio, what the duration is looking like now and where that might go?
Chris Wolking - CFO
In fact, I think in the appendix there, Stephen, is some detail.
Let me just --.
Barbara Murphy - Chief Banking Officer
534.
Chris Wolking - CFO
534.
When you look at the portfolio, as of March 31 our duration was 4.45, down from 4.63 at the end of the year.
So we're headed in the right direction.
You know, again, as I have said before, it is all about mix and relative asset sensitivity in terms of where that number goes.
Stephen Geyen - Analyst
Last question.
The insurance business, there is certainly some seasonality to that, but if I look back the decline in the first quarter this year was a little bit more than I was expecting, I guess.
But if you can just comment on pricing or change in focus (inaudible)?
Bob Jones - President, CEO
It is all contingency revenues.
We actually got more in contingency revenue than we expected, but what we got was less than what we got in the first quarter.
This is a very difficult portion of the business.
As you know, it has been under pressure for some time.
Our actual net sales in insurance are up quarter-over-quarter, but that drop first quarter of 2009 to 2010 is all driven by our contingency revenue.
Stephen Geyen - Analyst
Okay, thank you.
Operator
Eileen Rooney, KBW.
Eileen Rooney - Analyst
I just had one question left on the service charge line.
It was down again this quarter.
I know 1Q is seasonally a low quarter, but can you just talk about what your expectations are there going forward in terms of the new NSF regulation?
Bob Jones - President, CEO
Barbara can add some color, but it is safe to say we view that this line will be under pressure for the full year.
We are seeing a lot less presentments in terms of NSF on both our debit and traditional.
And I think as to any modeling we aren't going to give specific guidance, because it is too early to look at Reg E, but clearly this is a line that is going to be under pressure for the full year.
Barbara, anything you would add to that?
Barbara Murphy - Chief Banking Officer
The only thing that I would say is that we are looking at some other services that we don't offer today as ways to increase that service charge line.
And we are trying to get more activity into the centers to increase that line item.
Eileen Rooney - Analyst
Could you just expand on what other types of services you are thinking about, and also what you're doing to get your current customers to opt in?
Bob Jones - President, CEO
Too early to tell on the other services.
We have a general idea, but I would hate to have you build it in any model.
Barbara can talk a little bit about the opt in process.
Barbara Murphy - Chief Banking Officer
We do have a very active process on the opt in side.
We are educating our consumers, and we have two processes in play right now.
One is at the new account opening process.
We are seeing very favorable opt ins there.
And we are also talking to existing customers who are users of overdraft courtesy, and we are having very favorable results there.
So it is too early to know what that will mean come July and August, but right now we are having favorable conversations.
Bob Jones - President, CEO
The good news is we have been at this now for a little over a month, maybe even two months, in terms of training our folks in the branches and building tools in which to educate clients on the advantage of opting in.
As Barbara said, the early indications are fairly positive from the reaction from both new accounts and existing accounts.
That is why it is too early to tell what the effect will be once Reg E is implemented.
Eileen Rooney - Analyst
Okay, got it.
But is that service charge line, is that primarily NSF related?
Barbara Murphy - Chief Banking Officer
It is a mixture --.
Bob Jones - President, CEO
It is a mixture of NSF, traditional service charge, others service charges on checking.
So we can get you a breakdown of how much of that is related to NSF at all.
Eileen Rooney - Analyst
Okay, that's great.
Thank you guys.
Bob Jones - President, CEO
Thanks.
Again, congratulations.
Eileen Rooney - Analyst
Thank you, Bob.
Bob Jones - President, CEO
Bob is a great name by the way.
Operator
John Rodis, Howe Barnes.
John Rodis - Analyst
Good morning.
Nice quarter.
Most of my questions were answered, but just maybe one quick question on expenses.
The other expense line item, $4.2 million, was that a pretty clean number to model going forward?
Chris Wolking - CFO
Probably the biggest change with the unfunded commitments, I mentioned we had $800,000 in the fourth quarter that was reversed in the first quarter, and that, obviously, was a one-time number.
Bob Jones - President, CEO
But other than that it is fairly clean?
Chris Wolking - CFO
Yes, pretty clean.
John Rodis - Analyst
Okay.
Thanks guys.
Nice quarter.
Operator
Dennis Klaeser, Raymond James.
Dennis Klaeser - Analyst
Actually all my questions have been already covered, so thanks.
Bob Jones - President, CEO
Well, great, welcome.
We appreciate having you on the phone.
Dennis Klaeser - Analyst
Thank you.
I appreciate that.
Operator
Bryce Rowe, Robert W.
Baird.
Bryce Rowe - Analyst
Just one question on the number of offices at the end of the quarter.
And any plans for additional closures over the next year or two?
Bob Jones - President, CEO
No closures.
We did in the first quarter -- we opened one new office in Northern Indiana, right across from the campus of Notre Dame.
Then we consolidated two offices in Paoli, Indiana into one office.
But we have no real actions planned for the balance of the year, other than we have previously announced a few closures up in our Charter One facilities.
Five?
Barbara Murphy - Chief Banking Officer
Yes, five.
And they will happen this month and next month.
Bob Jones - President, CEO
Yes.
Can't talk about those and so --.
Bryce Rowe - Analyst
That's right.
Okay, thank you.
I appreciate it.
Operator
There are no further questions at this time.
Are there any closing remarks?
Bob Jones - President, CEO
Other than, as always, if you have any further questions call Lindell.
And we appreciate everybody's interest.
Thank you.
Operator
This concludes Old National's call.
Once again, a replay, along with the presentation slides, will be available for 12 months on the Investor Relations page of Old National's website at www.OldNational.com.
A replay of the call will also be available by dialing 1-800-642-1687, conference ID code 68255983.
This replay will be available through May 10.
If anyone has additional questions, please contact Lynell Walton at 812-454-1366.
Thank you participation in today's conference call.