Opus Bank (OPB) CEO Paul Greig on Q1 2019 Results - Earnings Call Transcript

Apr. 29, 2019 4:52 PM ETOpus Bank (OPB)
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Opus Bank (NASDAQ:OPB) Q1 2019 Results Conference Call April 29, 2019 11:00 AM ET

Company Participants

Brett Villaume - Director, IR

Paul Greig - Chairman, President and Interim CEO

Brian Fitzmaurice - Vice Chairman and Senior Chief Credit Officer

Kevin Thompson - EVP and CFO

Conference Call Participants

Matthew Clark - Piper Jaffray

Jackie Bohlen - KBW

Chris York - JMP Securities

Tim O'Brien - Sandler O'Neill and Partners

Kevin Swanson - Hovde Group

Operator

Good morning. My name is Ian and I will be your conference operator today. At this time, I would like to welcome everyone to the Opus Bank First Quarter Earnings Conference Call. [Operator Instructions]

Brett Villaume, Director of Investor Relations, you may begin your conference.

Brett Villaume

Thank you. Good morning and welcome to Opus Bank's investor webcast and conference call. Today, I'm joined by Paul Greig, Chairman of the Board, Interim Chief Executive Officer and President; Brian Fitzmaurice, Vice Chairman and Senior Chief Credit Officer; and Kevin Thompson, Executive Vice President and Chief Financial Officer.

Our discussion today will cover the Company's performance during the first quarter of 2019 and information contained in the earnings press release issued earlier this morning. A slideshow presentation that accompanies today's call is available on the Opus Bank investor webpage at investor.opusbank.com.

Today's discussion may entail forward-looking statements, which are intended to be covered by the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. You'll find a discussion of these forward-looking statements in our recent FDIC filings and on page six of this morning's release.

Today's call will include a question-and-answer session following the discussion. For listeners who are participating via WebEx, should you have any questions, you may submit those using the Q&A feature located on the right-hand side of your WebEx window. The white triangle just to the left of the question mark and letters Q&A should be pointing down. Clicking on that triangle it opens and closes the Q&A dialog box.

Now, I will turn the call over to Paul Greig, Chairman, Interim CEO, and President

Paul Greig

Thank you, Brett, and good morning to everyone listening to our first quarter earnings conference call.

For the first quarter of 2019 Opus recorded net income of $10.9 million or $0.28 per diluted share compared to a net loss of $6.9 million or $0.20 per diluted share in the fourth quarter.

As you may recall, last quarter, we incurred a $20 million pretax restructuring charge that impacted our reported earnings per share by $0.47. This charge was related to initiatives and actions intended to make Opus more profitable and efficient over time. Our first quarter earnings included approximately $1.4 million of expenses related to the settlement of a legacy, legal matter that originated way back in January 2013 and was finally resolved, as well as a $489,000 charge related to the exiting of our broker-dealer Opus Financial Partners.

Opus Financial Partners has not achieved adequate performance results and is not considered an effective use of capital. Excluding these expenses, our first quarter earnings per share would have been $0.32, an improvement from an adjusted $0.27 in the prior quarter. Our first quarter results saw core earnings growth, driven by higher net interest income, solid loan growth and continued improvement in our credit quality. Kevin Thompson, our CFO; and Brian Fitzmaurice, our Senior Chief Credit Officer, will go into details of our financials and credit statistics in a moment. Overall, I am pleased with the earnings results for our first quarter of 2019.

Regarding the Board of Directors’ efforts in finding a permanent Chief Executive Officer, we have made significant progress over the past few months. We have performed a thorough evaluation of a number of candidates and the process is now nearing completion. We plan to make an announcement about the hiring of a new CEO in the near future.

I will now turn the discussion over to Kevin Thompson to go into more detail on our financial performance. Kevin?

Kevin Thompson

Thank you, Paul.

Turning to slide four. Loans increased $296 million from the prior quarter, driven by new loan fundings of $538 million, offset by loan payoffs of $196 million. Our loan growth was primarily driven by growth in multifamily loans, which increased $324 million and loan fundings were primarily weighted toward the end of the quarter. Following the success we've experienced in reducing our exposure to Enterprise Value loans over the past couple of years and with an optimistic view of Opus' strategic direction, we felt comfortable taking advantage of the opportunity to build upon our high quality multifamily portfolio.

Normally, our strongest quarter of loan production is the fourth quarter. In the fourth quarter, we had fewer fundings than expected due to market turmoil and saw some of those fundings move to the first quarter. We observed that some of our competition was not as active in the multifamily space in the first quarter. We redoubled our efforts on our loan retention program and were more successful than in the past. Loan prepayments were much lower than we had seen recently, although we do not necessarily expect this to be a trend.

Finally, during the first quarter, we slightly adjusted our pricing from what I would characterize as high middle of competitor rates to the middle or lower middle of the range. Small changes in our loan pricing can indeed have a meaningful impact on our ability to attract and retain quality clients.

Our commercial and specialty banking divisions originated $87 million of loans in the first quarter. We continue to see progress from the buildout of this important initiative that began in 2018. The number of new business relationships increased 30% from the prior quarter. Total loan yields increased 11 basis points in the first quarter to 4.42%, primarily driven by the benefit from loan repricing, two fewer days, and higher interest recoveries on non-accrual loans during the quarter.

On slide five, we show the balance of cash and investment securities, which increased $179 million during the first quarter. The balance of investment securities increased $12 million and totaled $1.1 billion, while cash increased $167 million, largely due to FHLB borrowings that occurred near the end of the quarter. The yield on investment securities increased 61 basis points to 3.16%, largely due to the benefit of repositioning our securities portfolio during the fourth quarter of 2018, as well as fewer prepayments in the quarter.


Turning to slide six. Total deposits increased $125 million in the first quarter or 2%, driven by growth in noninterest-bearing deposits, money market accounts and time deposits. During the first quarter, we added $46 million in brokered deposits as rates moved favorably in this funding source, compared to some alternatives. Brokered CDs made up only 0.8% of total deposits at the end of the quarter, and inclusive of our FHLB borrowing’s wholesale funding sources comprised less than 6% of total liabilities.

Our cost of deposits rose 13 basis points to 0.92% as we responded to continued competitive rates being offered by our peers. Also with the backdrop of strong loan growth, we made pricing adjustment to certain deposit categories. We remain focused on developing our relationship approach to manage deposit pricing. We note that our cumulative cycle-to-date deposit beta is only 20%. Our loan to deposit ratio increased to 89.9% at the end of the first quarter from 86.8% previously.

Turning to slide seven. Net interest income increased 0.7% during the first quarter to $50.8 million driven by higher interest income on both loans and investment securities but largely offset by higher interest expense. Our loan interest income increased $1.3 million from the prior quarter, benefiting from higher average balances of interest earning assets. The Fed rate increased in December, as well as higher interest recovered on nonaccrual loans. Securities saw a $1.6 million increase in interest income, driven by higher yielding securities added in the fourth quarter and lower premium amortization due to fewer prepayments. Net interest margin increased 8 basis points from the prior quarter to 3.15% as earning asset yields outpaced our funding costs.

Proceeding to slide eight. Noninterest income was 11.9 -- $11.1 million and included an impairment charge on a sublet property of $489,000, related to the exiting of Opus Financial Partners. Our diverse sources of noninterest income provided continued stable contributions, including $6.7 million in trust administrative fees from PENSCO, and $1.4 million from our Escrow & Exchange division. Noninterest income priced 18% of total revenues.

Turning to slide nine. Our noninterest expense totaled $45.4 million. Included in noninterest expense was a $1.4 million legal settlement mentioned earlier. Excluding legal settlement this quarter and $10.5 million of expenses related to the restructuring charge we incurred last quarter. Noninterest expense increased 2% and this was largely due to seasonally higher first quarter employer taxes.

Our efficiency ratio was 70.6% compared to 81.5% in the prior quarter. In the first quarter, we began calculating our efficiency ratio exclusive of amortization of other intangible assets, and any sale-related gains or losses, and using tax equivalent net interest income, which is industry standard. Adjusting for the legal settlement expense and lease impairment charge this quarter, our efficiency ratio would have been 67.9%, and adjusting for the restructuring related charges in the fourth quarter, our efficiency ratio would have been 65%.

On slide 10, we show our regulatory capital ratios at quarter-end including tier 1 leverage which increased to 9.86% and our total risk-based capital ratio was decreased slightly to 14.85%. Tangible book value per common share increased $0.19 to $17.96. Going forward, we will be reporting tangible book value per common share without considering the impact of convertible preferred stock, which is industry standard.

Additionally, the Board has approved the payment of an $0.11 dividend per common share, payable in the second quarter, which is unchanged from the prior quarter.

On slide 11, we display some of our asset liability metrics, which include the duration of key balance sheet items and our simulation of net interest income, assuming an instantaneous parallel shift in interest rates.

The anticipated duration of our assets and liabilities have increased slightly as a result of the change in interest rate environment. We continue to closely assess our position to determine the appropriate path, given our balance sheet movement, our outlook for rates and the market pricing of our loan and deposit offerings.

I will now turn the discussion over to Brian Fitzmaurice to go into more detail on our loan portfolio and credit metrics.

Brian Fitzmaurice

Thank you, Kevin.

This morning, I will review our first quarter credit performance, which I view favorably based on a reduction in Enterprise Value loans of $17 million, a $4.7 million or 17% decrease in nonaccrual loans, $1.6 million in net recoveries and a $13.2 million or 32% decrease in special mention loans, which was tempered by $15.4 million increase in substandard loans, resulting in a $2.2 million or 51.5% increase in total criticized loans.

We expect our Enterprise Value loan portfolio to continue to reduce over time. In fact, as of today, the EV portfolio has declined further to $97.4 million compared to $122 million at the end of the fourth quarter. And please note, this decline was not achieved through charge-offs. This represents a 20% reduction from 2018 year-end levels. There were no new non-accrual loans or charge-offs in the Enterprise Value loan portfolio during the first quarter, and total criticized classified EV loans were flat versus the prior quarter at $33.5 million, although the percentage increased as the size of the EV portfolio decreased.

Regarding the loan growth in the first quarter, which predominantly occurred in our multifamily portfolio, Kevin described our view of market conditions for the quarter. To assess the credit quality of the quarter's production, we compared the credit statistics of loans originated in the fourth quarter of 2018 to the first quarter of 2019. And the common underwriting metrics, without exception were equal to or more favorable than the fourth quarter metrics.

These metrics included the average debt-service coverage ratio, average loan-to-value, percentage of loans with an interest-only period and the percentage of recourse loans to total loan production, evidencing our continued disciplined approach to underwriting.

We recorded a provision for loan losses of $2.2 million, compared to $7.6 million provision expense last quarter. The material factors driving the provision this quarter were risk-rating migration of $4.4 million, $3.4 million for changes in portfolio mix and quarterly new funding and additions to specific reserve of $945,000. These were partially offset by a decline in reserves, due to loan exits of $4 million, net recoveries of $1.6 million and a decrease of $786,000 due to lower loss factors.

As of March 31, 2019, our allowance for loan losses totaled $58.5 million or 1.07% of total loans, an increase of $3.8 million or 1 basis-point from the prior quarter, and we had $5.3 million of specific reserves or 23% of non-accrual loans, compared to $4.3 million or 16% in the fourth quarter of 2018. Along with general reserves on C&I loans of $29.9 million, the reserve coverage ratio was 3.62% on our total C&I portfolio at quarter-end.

I continue to be optimistic that our credit performance for fiscal year 2019 will be favorable to both 2017 and 2018, and that our credit metrics will continue over time to align with peer bank performance. Please remember that notwithstanding our continued reduction in Enterprise Value loans, we could still incur losses in that portfolio.

I'll now hand the discussion back over to Kevin.

Kevin Thompson

Thank you, Brian.

On slide 14, we present a summary of our outlook for the future. We assume a continuation of the current economic and interest-rate environment. The conditions in our markets remain solid, despite some uncertainty in overall economy. Incorporating the loan growth we had in the first quarter and for modeling, we have adjusted our estimate of loan growth for the full-year 2019 to rate in the low double digits to mid-teens.

This assumes solid growth for the remainder of the year, but also the expectation of loan prepayments and competitive pressure will return to levels we've experienced over the past few years. Deposit rates are expected to continue to increase, largely due to competitive pressure in the near-term. We believe with the Federal Reserve potentially taking a pause that deposit costs could moderate later in the year.

We estimate our net interest margin for the full-year 2019 will be in the low 3s, revised from the previous estimate of 3.10%, due to the impact of higher deposit costs and the lack of repricing benefit we would experienced in our loan portfolio in an increasing rate environment.

We continue to anticipate elevated prepayments of flat yield curve and competitive deposit and loan pricing in the coming quarters. We are very focused on disciplined expense management and revenue growth initiatives to increase our operating leverage. We expect that our efficiency ratio for the full-year 2019 will be approximately 68% with quarterly levels gradually decreasing throughout the year.

We expect full-year core operating expenses to be flat to those in 2018. Regarding credit quality, we expect net charge-offs to decrease in 2019 and the credit metrics will be more aligned with peer bank performance in the coming year. We remain focused on maintaining a strong risk management infrastructure, including preparing for the implementation of CECL. We anticipate that our effective tax rate will be approximately 24% for the full-year 2019.

Finally, as stated previously, our Board of Directors approved the payment of a quarterly cash dividend of $0.11 per common share. We do not target a specific payout ratio, but evaluate our dividend based on earnings, our risk profile, capital levels and market conditions.

This concludes our prepared remarks. I'll now hand the floor back over to Brett.

Brett Villaume

Thank you, Kevin, and thank you all for joining our earnings conference call today. Operator, will you please open the line for questions?

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of -- participant's information could not be gathered. Please state your first and last name and company. Your line is open.

Matthew Clark

Matthew Clark, if this line is open.

Paul Greig

Hey, Matt.

Matthew Clark

Can you give us the contribution of lower premium amortization in the margin, this quarter?

Kevin Thompson

Yes. If you actually turn to slides that we provided, slide number seven provides kind of a roll forward of that. So, you can see that from a percentage basis, I guess, we didn’t break that out specifically, but it is about $1 million incremental benefit quarter-over-quarter and less premium amortization.

Matthew Clark

And then, how do you think about deposit growth this year [technical difficulty] your updated loan growth expectations, just trying to get a sense of where that level of deposit ratio might go?

Kevin Thompson

We have a number of efficient sources of funding that we can tap into. And we have good client relationships. We have the commercial team growing deposits over time. We also have access to the wholesale markets and have done so on a limited basis this quarter due to the benefits of different durations and pricing at different points of time. So, we feel that -- we feel we shouldn’t have a problem matching our loan growth. And I wouldn’t say that our loan to deposit ratio will need to get too much higher.

Paul Greig

And this deposit attraction is a very important initiative, each line of business and each specialty unit has very specific deposit attraction goals. So, we remain very-focused on deposit growth from an organic perspective, core deposit growth.

Matthew Clark

And then, just on the loan yields more on an organic basis, excluding the run-off of the acquired portfolio. Do you happen to have that organic loan yield excluding interest income reversals and purchase accounting?

Kevin Thompson

Yes. Excluding all those items -- the organic where on loans was 4.34% in the quarter.

Matthew Clark

Okay. And then on the efficiency ratio guidance, is that on an adjusted basis, excluding CDI amortization or is that including?

Kevin Thompson

It excludes.

Operator

Your next question comes from the line of Jackie Bohlen of KBW. Your line is open.

Jackie Bohlen

Following up on Matthew’s question, I am looking at the adjusted efficiency ratios of the guidance of approximately 68% for the full-year and then expecting it to gradually decrease. We were roughly there in first quarter. And so, what events do you expect to impact that ratio for the remainder of the year?

Kevin Thompson

For the remainder of the year, we continue to face headwinds of prepayments. So, we did have low prepayments in the quarter, and we’re excited to see that, but we don't know that that is necessarily a trend yet. So, we may have benefited from which we have seen in the past certain quarters out lower prepayments. Deposit costs pressure amongst our peers continues, and so we expect that to continue and hopefully moderate near the end of the year. We don't have -- we're not expecting any Fed rate increases for the rest of the year. And with our asset-sensitive balance sheet, we do benefit from repricing in our portfolio when there is a Fed rate increase. So, we don't expect that as well. So, there is upside and downside in those metrics. But at this point from a baseline perspective that's what we expect.

Jackie Bohlen

Okay. So, it sounds like the net interest margin maybe loan growth is just based on what those prepayments will do, have the impact on forward earnings estimate, internally?

Paul Greig

That's right, among other things. But, yes, that's one of the biggest drivers.

Jackie Bohlen

Okay. And then, when I think about the NIM, which obviously performed very well in the quarter, and then look at that versus the roughly 3% guide for the full-year, is that largely a function of deposit repricing without getting the benefit of loan yields? And then, as a follow-up on that, what impact is all the multifamily generation that had in the quarter -- have on forward loan yields, especially given how you changed pricing on that portfolio?

Paul Greig

Yes. And really, the answer is very similar to the last answer. The go forward NIM impact is really based on prepayments, the impact of deposit costs, the lack of repricing during the year. All those of course go into our NIM. And then, when it comes to multifamily loan funding, yes, you're correct, our pricing changed in the quarter really mostly driven by the LIBOR quarter. So, our multifamily loans really on the West Coast the pricing is highly correlated with the three to five-year LIBOR rate.

Kevin Thompson

In the first quarter, the average three to five-year LIBOR rate was down about 43 basis points, and that impacts our multifamily yield. So, we told you in the call last quarter that we were funding around the 460s, and now we're funding more around in the 420s and 430s in a multi portfolio, mostly driven by that LIBOR curve. If this inverted to flat yield curve continues, then we continue to see some compression in our net interest margin; when it right sizes, there's a lot of upside as well.

Jackie Bohlen

Okay. So, most of it had more to do with the yield curve than -- and I apologize if I misunderstood or misheard what you said in the prepared remarks. But from the movement from the high middle of competitive range to the low middle, so that didn't have much of an impact?

Kevin Thompson

That had some impact, but to your point, mostly driven by the LIBOR curve.

Paul Greig

And Jackie, customer behavior is surprisingly sensitive to just several basis points of pricing change.

Jackie Bohlen

Okay, understood. Thank you. That's very helpful. I'll step back now.

Operator

Your next question comes from the line of Chris York of JMP Securities. Your line is open.

Chris York

So, I just wanted to focus on core fees this quarter as trust fees were down, I think it was about 4% year-over-year, and then showing a little bit of softness over the past couple quarters. So, could you describe what drove the decline? And then, maybe step back and update us on the state of PENSCO and the growth in assets under custody?

Paul Greig

No problem. Can you continue repeat your second part of the question?

Chris York

The second part was just on update on the state of PENSCO today and then the growth in assets under custody.

Paul Greig

You bet. The first part of your question, the change in the noninterest income base, it's just there is no incremental thing happening with PENSCO. It continues as a great source of income for us. And that can be somewhat volatile. And so, I would say there's no systemic process happening on an underlying basis. We do see some movement in the underlying number of accounts, and that is the real driver of our fees. And that can change over time. In terms of the assets under custody, that can change over time, based on the customers that come in or leave but also based on valuations, and that these are self-directed IRAs that may have underlying sources such as private equity, real estate and other types of nontraditional IRA accounts and the valuation of both over time can impact that amount.

Chris York

So, is it safe to kind of maybe read between the lines to say that maybe the volume declines was a driver to the year-over-year decline?

Paul Greig

In expenses?

Chris York

In the fee side, the trust?

Paul Greig

I wouldn't say that. I would say, it’s timing; it’s based on a number of factors, and we don't expect it to continue declining over time. On average, we expect it to be very, very consistent.

Chris York

Okay. Fair enough. And then, commercial business loan fundings was one of the lowest on record despite a significant investment the bank made and growing up that business with hires over the last year. So, could you explain, what drove to light production there?

Kevin Thompson

Yes. Let me take that. The thing that is very difficult to estimate quarter to quarter is a number of accounts that will come in a quarter and whether or not those customers will be borrowers or significant borrowers. The actual number of accounts, that relationships that were generated by commercial banking, as mentioned in the prepared remarks, was up 30% quarter-over-quarter. A number of those relationships were very well-capitalized companies with credit expansion such as lines of credit that were not used. We anticipate that the progress in this business is going to continue evolving over the next several quarters, and that lines of credit will be utilized as time goes on.

Chris York

And then, a clarification, I did hear the new yield on the multifamily loans was I think like 420 to 440. And forgive me if I missed this, but what was the weighted yield on total new loan fundings in the quarter?

Kevin Thompson

Total loan fundings for the quarter was in the mid-430s.

Chris York

430s? Okay. And last question and I'll step back. It’s been I think maybe five months since Stephen as CEO, and obviously investors understand that the search process will take time, and finding the right leader for Opus is incredibly important. So, Paul maybe can you elaborate on the health of the search process and maybe the type of experience the Board is looking forward to lead the bank forward?

Paul Greig

As I commented in my prepared comments, a lot of progress has been made. I made the comment that the process is nearing completion and then an announcement would be forthcoming shortly. Rather than talking about the characteristics of general candidates, I think it’d probably be better to wait for that announcement and you'll see the characteristics of the chosen individual.

Operator

Your next question comes from the line of Tim O'Brien of Sandler O'Neill and Partners. Your line is open.

Tim O’Brien

First question, just a little more color on multifamily growth outlook here going forward. Obviously, you guys had phenomenal production this quarter. As far as contribution to the overall loan book and percentage of total loans that that might come to reflect? What are your thoughts there?

Kevin Thompson

A lot of the loans funded near the end of the quarter. And so, we will see -- that’s a onetime impact, the balance sheet will see some benefits of that to the income statement over time. I don't necessarily see much of a change in mix going forward for the rest of year from the first quarter’s mix.

Tim O’Brien

Okay, great. And then, separately, moving on to the P&L, compensation costs in the first quarter were $2.6875 million, and that included some seasonal accruals for payroll taxes and other and the like. Where do you see that number heading here through of the remainder year?

Kevin Thompson

It was about a $1 million higher than usual, due to the payroll tax.

Tim O’Brien

So, could dip down below 26 here pretty easily?

Kevin Thompson

Yes, it could. And that of course depends on a number of factors with loan fundings and FAS 91 offsets et cetera. But that seems correct. Yes.

Tim O’Brien

So, volatility in that line. And then, last question, just do you happen to have the FTE headcount at quarter-end versus -- and also just for comparison sake, what it was at the end of the year?

Kevin Thompson

Yes, it was 760 at quarter end. At the end of the year, it was 794.

Tim O’Brien

Is it possible that will move some more here? Obviously it's going to move one, but beyond that here in the second quarter and beyond in near term?

Kevin Thompson

That those numbers are really the initiatives that we take but also as a result of attrition in the Company. I don't expect that moving. I think we’re at a really good spot when it comes to our workforce.

Operator

Your next question comes from the line of Kevin Swanson of FIG Partners (sic) [Hovde Group]. Your line is open.

Kevin Swanson

Hey. It’s Kevin Swanson, Hovde Group. So, the EV loans, I think in the presentation it’s just under $100 million, obviously that number has stepped down quickly over the past year. How do you see kind of the timeline for say the last mile over the last full stretch of the loans there?

Brian Fitzmaurice

I think, they’ll continue to decrease at a pretty good pace, and then I think it will get to a point that it slows down. So, we have criticized classified, those are going to be a harder to exit. And those companies that are taking actions on their own, refinancing or they are selling themselves or their next round of capital raise, and so, we push hard on the problem side and then those companies will take whatever steps fit their business model.

Kevin Swanson

And then, obviously the asset quality, I mean in terms of problem loans to total loans that’s more than half -- or less than a half of what it was a year ago. Maybe just kind of talk about broadly how you see that progressing and then maybe kind of in current credit environment, just in your current markets, please?

Brian Fitzmaurice

Obviously, on the real estate side of the house, especially since we play in multifamily, that continues to be very strong. We’ve seen increase in NOI. And over the last couple of years we’ve obviously worked through a significant amount of our issues in C&I. So, I said in my comments, I see it favorably to -- we have problems that come and go but we had virtually no influence, in fact zero influence, especially we mentioned this quarter. So, I think we’ll kind of just migrate to the norm of at points in time customers have problems.

Paul Greig

The statistics, Brain, are mentioning suggest that the economy in our markets continues to be very strong, stable and strong.

Brian Fitzmaurice

Yes. I would say, whenever we see a problem, it's a problem to a particular company; it's not driven by any -- it hasn’t been driven by any macro event.

Operator

[Operator Instructions] Your next question comes from the line of Matthew Clark of Piper Jaffray. Your line is open.

Matthew Clark

Brain, just curious, with the increasing classified assets this quarter, the $15 million, what drove that, just in terms of the types of credits underline?

Brian Fitzmaurice

Yes. Approximately 15% of that was simply the migration of an EV loan from special to sub. So, that's 15% of that. And the other was kind of a mix bag of no correlated reason. In one case, for instance, it’s an SBA 504, we get financials once-a-year. So, it was, as I kind of indicated for the rest, just kind of event driven that's company-specific clients, no macro reason.

Matthew Clark

Okay. And then, on the outlook for the margin beyond this year, I know that you guys are positioned to be asset sensitive still. Are you guys doing anything to adjust the balance sheet or to reduce that asset sensitivity assuming the Fed is on hold from here?

Paul Greig

We’re watching very closely. Yes, we are asset sensitive. And the probability of rates coming down goes up every day as almost, as much as rates going up. So, we are very strategically looking in that making and making sure that we are well-positioned in the future for both an upside and downside in Fed rate.

Operator

There are no further questions over the phone lines at this time. I turn the call back over to the presenters.

Paul Greig

Thank you very much for joining today's conference call, and we look forward to speaking with you again soon.

Operator

This concludes today's conference call. You may now disconnect.

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