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Edited Transcript of OPB earnings conference call or presentation 23-Jul-18 3:00pm GMT

Q2 2018 Opus Bank Earnings Call

Irvine Jul 24, 2018 (Thomson StreetEvents) -- Edited Transcript of Opus Bank earnings conference call or presentation Monday, July 23, 2018 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Brett Gerard Villaume

Opus Bank - Senior VP & Director of IR

* Brian Fitzmaurice

Opus Bank - Senior EVP & Senior Chief Credit Officer

* Kevin L. Thompson

Opus Bank - Executive VP & CFO

* Stephen H. Gordon

Opus Bank - President, CEO & Director

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Conference Call Participants

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* Brian James Zabora

Hovde Group, LLC, Research Division - Director

* Jacquelynne Chimera Bohlen

Keefe, Bruyette, & Woods, Inc., Research Division - MD, Equity Research

* Matthew Timothy Clark

Piper Jaffray Companies, Research Division - Principal & Senior Research Analyst

* Timothy O'Brien

Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research

* Timothy Norton Coffey

FIG Partners, LLC, Research Division - VP & Research Analyst

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Presentation

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Operator [1]

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Good morning. My name is Kathleen, and I will be your conference operator today. At this time, I would like to welcome everyone to the Opus Bank's Second Quarter Earnings Conference Call. (Operator Instructions) Thank you.

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

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Brett Gerard Villaume, Opus Bank - Senior VP & Director of IR [2]

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Thank you. Good morning, and welcome to Opus Bank's investor webcast and conference call. Today, I'm joined by Stephen Gordon, Opus Bank's Chief Executive Officer and President; Brian Fitzmaurice, Senior Executive Vice President 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 second quarter of 2018 and the information contained in the earnings press release issued earlier this morning. A slide show presentation that accompanies today's call is available on the Opus Bank investor web page 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 7 of this morning's release.

Today's call will include a question-and-answer session following the discussion. (Operator Instructions)

Now I will turn the call over to Stephen Gordon, CEO and President.

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Stephen H. Gordon, Opus Bank - President, CEO & Director [3]

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Thank you, Brett. I will now provide an overview of our results for the second quarter and then Kevin Thompson, Chief Financial Officer; and Brian Fitzmaurice, Senior Chief Credit Officer, will go into more detail on our financial performance and credit metrics. We will address questions at the end of our prepared remarks.

For the second quarter of 2018, Opus achieved net income of $15.5 million or $0.40 per diluted share compared to $12.9 million or $0.34 per diluted share in the prior quarter. Net income for the 6 months ended was $28.4 million or $0.74 per diluted share, up from $25.9 million or $0.69 per diluted share for the first 6 months of 2017. Additionally, return on average assets and return on average tangible equity increased to 0.86% on assets and 9.49% return on average tangible equity for the second quarter of 2018, respectively, from 0.72% on assets and 8.07% return on average tangible equity in the prior quarter. Our positive performance for the second quarter was highlighted by significant improvements in credit quality, which included meaningful reductions in our nonaccrual, total criticized and enterprise value loans. Additionally, at the end of the second quarter, we had only

(technical difficulty)

in June of 2016.

Nonperforming assets decreased 37% from the prior quarter and measured 56 basis points of total assets as of June 30, 2018, which is in line with our Western regional bank peers. Total criticized loans decreased 20% to just under $200 million, and the balance of total enterprise value loans decreased 23%. Brian will discuss in greater detail our continued progress in reducing the balances of targeted loans later in the call.

During the second quarter, we accelerated the build-out of our Commercial Banking effort and so far have added 21 commercial and business bankers during the first 6 months of the year. We are already seeing early successes as they begin to ramp up their activity, and we anticipate they will continue to increase their contribution as we head into 2019. These additional commercial and business bankers, which are being added throughout our footprint in the major metro markets up and down the West Coast, will complement the already deep talent that exists across our collaborative, synergistic lines of business. We are making the upfront G&A investment, and the net interest margin will be earned over time as the bankers ramp and mature. But as I'm sure you're all aware, at the time the loans are booked, the appropriate loan loss provisions will be established while the earnings contribution will be realized over time.

Despite our challenges, including elevated loan prepayments and competition for deposits, Opus' earnings and profitability ratios increased from the prior quarter. We continue to have confidence in our ability to achieve our growth goals for 2018 and are proactively executing strategies with the goals of leveraging our well-established credit and risk management infrastructure, expanding our net interest margin and improving efficiency.

Our balance sheet remains well positioned for further Federal Reserve rate increases, and we continue to expect our asset sensitivity will result in expanding net interest margin in future quarters. I want to make clear that the level of our new loan fundings during the second quarter should not be assumed to be our go-forward run rate. Loan originations were unusually low during the month of May but rebounded in June to more than triple May's levels, and our pipeline of new loan fundings was 40% higher as we entered the third quarter than at the start of the second quarter and is already an additional 35% higher today since the level when we entered this third quarter.

Noninterest expense decreased 2% from the prior quarter to $43 million and was down 11% compared to the second quarter of '17 as we have focused heavily on reducing legacy expenses associated with the credit issues we faced in the second half of '16 and the resulting third-party consulting fees and other noncore expenses that impacted our efficiency and profitability.

Assets under custody of PENSCO Trust Company, our alternative asset IRA custodian, decreased to $14 billion during the quarter. Importantly, the trust administrative fee income component of our noninterest income will not be materially affected as the related account fees were capped and minimal. Additionally, the dollar amount of PENSCO's ancillary custodial cash balances held as deposits at Opus Bank were materially unchanged, and the cost to deposits stayed flat. Our Tier 1 leverage ratio increased in the second quarter by 32 basis points to 9.85%, and total risk-based capital increased 95 basis points to 15.86%.

Based on our healthy capital ratios, our improved asset quality and our quarterly earnings, I'm pleased to announce that the Board of Directors approved paying an $0.11 dividend for the third quarter, providing additional return to shareholders.

Finally, I want to say thank you to all of our Opus team members. I cannot stress enough how proud I am of the efforts being put forth every day by our talented colleagues who display tremendous dedication and commitment to furthering our mission of being the premier provider of commercial banking products, services and solutions in the Western region.

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

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Kevin L. Thompson, Opus Bank - Executive VP & CFO [4]

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Thank you, Stephen.

Turning to Slide 4. Average loans decreased $80 million or 1.5% during the second quarter while period-end balances decreased $157 million or 3%. Elevated payoffs continued to be a hindrance to our net loan growth in the second quarter as total payoffs were $358 million, which included $59 million in planned loan exits and were greater than our loan -- new loan fundings of $296 million in the quarter.

As Stephen mentioned, our new loan fundings pipeline has rebounded and increased 40% as we entered the third quarter. 27% of new loan fundings in the second quarter were C&I loans and the remaining were real estate-related loans, primarily originated by our Income Property Banking division.

On Slide 5, we show the balance of cash and investment securities, which was largely unchanged from the prior quarter in terms of average balances at approximately $1.4 billion. Investment securities decreased $74 million or 6.7% from the prior quarter, driven by principal paydowns that were partially offset by purchases of investment-grade securities. The yield on investment securities increased 5 basis points to 1.92%, and the average duration of our securities portfolio is 3.8 years. Cash and investment securities totaled 20% of total assets as of quarter end.

Turning to Slide 6. Total deposits decreased $109 million in the second quarter, primarily due to seasonal and temporary outflows of low-cost, relationship-based deposits related to 2 client relationships that we anticipate will return in future quarters. Our cost of deposits rose 10 basis points to 0.57% as we responded to increasingly competitive rates being offered by our peers and due to the impact of the low-cost seasonal outflows.

Opus continues to enjoy the benefit of its diverse base of deposits from sources such as our Retail Bank, our Commercial Banking, PENSCO, Escrow and Exchange, Fiduciary Banking and Municipal Banking divisions. Our loan-to-deposit ratio decreased to 85% at the end of the quarter from 87% previously.

Turning to Slide 7. Net interest income decreased 4% during the second quarter to $49.5 million, primarily due to a higher interest expense on deposits and borrowings as well as less loan interest income due to lower balances of originated loans in the second quarter. Planned exits, which had a weighted average rate of 5.97% in the second quarter, continued to negatively affect our NIM as well as the growth of our loan balances but do serve to decrease our potential future credit volatility. Total interest expense increased 19% in the second quarter, driven by higher deposit rates and higher average balances of FHLB advances.

Net interest margin decreased 13 basis points from the prior quarter to 3.07%. The change was primarily driven by an increase in the cost of deposits, high loan prepayments and the impact of planned loan exits. These were partially offset by the positive impact of our loan portfolio of rising interest rates, which had an 11 basis point impact on the originated loan yield and benefited net interest margin by 7 basis points during the second quarter of 2018.

Proceeding to Slide 8. Noninterest income decreased slightly from the prior quarter, down 3% to $12.9 million. We had $6.8 million of trust administrative fees from PENSCO, $1.8 million of deposit and treasury management fees, $1.5 million of Escrow and Exchange fees, $1 million of BOLI income and $774,000 from our Merchant Banking division. Together, our diverse sources of noninterest income made up 21% of total revenues.

Turning to Slide 9. Our noninterest expense decreased 2% to $43.1 million for the second quarter. There were $180,000 of strategic initiative-related expenses that we incurred in the second quarter, primarily due to branch optimization efforts. In the first quarter, we had $2.9 million -- we had a $2.9 million recovery in professional services expense related to a legal matter that was not repeated this quarter. And adjusting for this, net interest income would have decreased $3.8 million.

Our efficiency ratio increased to 69.1% for the second quarter of 2018 compared to 67.8% for the first quarter due to the decrease in revenues this quarter that outpaced the decrease in expenses.

On Slide 10, we show our regulatory capital ratios at quarter end, including Tier 1 leverage, which increased to 9.85%; and our total risk-based capital ratio, which increased to 15.86%. Tangible book value per as converted common share increased $0.30 to $17.53, driven by the positive contribution of our quarterly net income to retained earnings that was only slightly offset by a decrease in our OCI this quarter.

As illustrated on Slide 11, our balance sheet continues to be asset-sensitive. Looking at the table in the bottom right, you can see that 31% of our loans have reset to maturities within the next 12 months and another 27% within 1 to 3 years. Our assets have an average duration of 1.8 years compared to an average duration of our liabilities of 2.9 years. Our Asset Liability Committee continues to assess our position to determine the appropriate strategy given balance sheet movements and our interest rate outlook.

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

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Brian Fitzmaurice, Opus Bank - Senior EVP & Senior Chief Credit Officer [5]

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Thank you, Kevin. Our credit quality improved during the second quarter on multiple fronts. Nonperforming assets decreased $24 million or 37% to $40 million or 0.56% of total assets, down from 0.87% in the first quarter. Total criticized loans decreased 20% to just under $200 million, and we reduced enterprise value loans another 23% to $260 million. Planned exits through loan payoffs and sales totaled $59 million in the second quarter.

Net charge-offs for the second quarter were $8.4 million or 0.66% of average loans annualized, which included $12.5 million of loan charge-offs and $4.1 million of recoveries. Out of the total charge-offs this quarter, 77% were EV loans that had specific reserves of $6.8 million, and approximately $9 million of the charge-offs were related to one enterprise value relationship that was previously on nonaccrual and had $6.6 million of specific reserves.

Notwithstanding our efforts to continuously derisk our balance sheet, we remind you that we still have $260.3 million of enterprise value loans, of which $77.1 million are criticized loans and $188.4 million or 72% are relationships we deem ineligible for retention because of unattractive risk attributes.

In many quarters, we have been fortunate to resolve problem loans at the same time we incurred further deterioration in the portfolio, including downgrades and charge-offs, which had the effect of reducing the required level of provisioning. Therefore, although we have significantly reduced the level of problem loans in the portfolio, we are still susceptible to loan defaults that could result in a spike in provisioning in future quarters if they are not offset by further simultaneous improvements in our loan portfolio.

Total criticized loans decreased $48 million during the second quarter or 20% to $199 million. There were $39 million of upgrades out of criticized and $44 million of loan exits, including payoffs, loan sales, charge-offs and normal amortization. These were offset by downgrades into criticized categories of $34 million during the quarter, which included approximately $9 million of downgrades to special mention and $41 million to classified loans. In total, special mention loans decreased $38 million while classified loans decreased $10 million. As of June 30, 2018, total criticized loans measured approximately 27% of Tier 1 capital plus reserves, which is down from 34% in the prior quarter.

I would like to close the loop on the Weinstein loans we discussed during our first quarter earnings call. The debtor-in-possession and TWC loans totaling $5.6 million were just repaid during the third quarter, and the $5.4 million affiliated tax rebate loan is being assumed by a qualified counterparty. We expect the documentation to be completed shortly and the loan to be returned to past-accrual status. We recorded a negative provision for loan losses of $213,000 compared to a provision expense last quarter of $3.9 million and a negative provision in the second quarter of 2017 of $7.1 million. The material facts driving the negative provision this quarter were: $7 million decline in reserves due to changes in portfolio mix, fundings and planned exits of loan relationships; and a reduction of $5.6 million in specific reserves. These were partially offset by net charge-offs of $8.4 million, $3.1 million due to higher loss factors and $470,000 from risk-weighting migration.

As of June 30, 2018, our allowance for loan losses totaled $59.2 million or 1.17% of total loans, a reduction of $8.6 million, 13 basis points from the prior quarter. And we had $6.3 million of specific reserves or 16% of nonaccrual loans compared to $11.9 million or 19% in the first quarter of 2018. Along with general reserves on C&I loans of $32.2 million, the reserve coverage ratio was 3.55% on our total C&I portfolio at quarter end.

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

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Kevin L. Thompson, Opus Bank - Executive VP & CFO [6]

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Thank you, Brian. On Slide 16, we present a summary of our outlook for the future. The outlook is based on the current economic and interest rate environment. We are continuing to target new loan fundings for 2018 of approximately $2 billion, which is an increase from our $1.5 billion achieved in 2017. As we mentioned earlier, we expect gradually increasing loan fundings from our Commercial Banking divisions as our Commercial Banking strategy gains momentum and new bankers ramp production. Historically, the first quarter is our slowest quarter of the year for loan fundings as production typically ramps over the course of the year. This year, we had an unusually slow second quarter, but we anticipate we will have typical ramping of quarterly funding levels in the third and fourth quarters.

We began to see our cost of deposits increase in the second quarter, and we anticipate seeing further increases in the coming quarters, although at a lesser rate than the benefit we will realize on the asset side of our balance sheet due to our largely adjustable and variable rate loan portfolio and the short duration being realized on our loan and investment securities portfolios. We expect the pace of planned loan exits to slow during 2018, which has been a drag on our loan interest income. As a result, we are reiterating our guidance for net interest margin to gradually increase during the year to a range of 3.2% to 3.25%.

We anticipate that our focus on disciplined expense management will result in increased operating leverage in 2018. Despite the expense related to the greater-than-expected success in attracting commercial bankers, we expect their efficiency ratio will gradually improve, with the goal of being approximately 65% for the fourth quarter 2018. Therefore, our guidance is revised from last quarter when we projected a 65% efficiency ratio for the full year 2018.

We anticipate that the outstanding balances of legacy-targeted portfolios and problem loans will continue to decrease, and we remain focused on continuing to enhance our risk management infrastructure, including preparing for the implementation of CECL. We anticipate that our effective tax rate will be approximately 25% in 2018.

Finally, as stated previously, our Board of Directors approved a payment of a quarterly cash dividend of $0.11 per common share, unchanged from the prior quarter. We do not target a specific payout ratio but evaluate our dividend based on our quarterly earnings, overall profitability, our risk profile and capital levels and the outlook going forward.

I'll now hand the discussion back over to Stephen for closing remarks.

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Stephen H. Gordon, Opus Bank - President, CEO & Director [7]

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Thank you, Kevin. Thank you again for joining our conference call today. I look forward to sharing with you our future quarterly results and speaking with you all again soon. Operator, would you please open the call for questions?

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Questions and Answers

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Operator [1]

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(Operator Instructions)

Your first question comes from the line of Brian Zabora from Hovde.

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Brian James Zabora, Hovde Group, LLC, Research Division - Director [2]

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First, on the hires, you made significant numbers of additions. Are you done with that process? Or can we see additional hires in the second half of the year?

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Stephen H. Gordon, Opus Bank - President, CEO & Director [3]

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So this is Stephen. So we're ahead of schedule from what we had originally forecasted. And what we're doing at this point is more opportunistic, meaning that in each one of our regions, we've hired those bankers that we had hoped to hire plus additional. And periodically now, opportunities are arising to hire additional talented, very seasoned, experienced bankers. And we're evaluating those opportunities each time and determining whether we want to bring them on or not.

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Brian James Zabora, Hovde Group, LLC, Research Division - Director [4]

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Great. And then on the expanding loan pipeline that you have, how is the mix, is it -- are you -- compared to the second quarter? And are you seeing an increase in C&I?

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Stephen H. Gordon, Opus Bank - President, CEO & Director [5]

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So from a percentage mix standpoint, it's pretty flat to the previous quarter, but what we are seeing is increasing in total volumes across the board. So we're seeing contribution to the pipeline in all of our Commercial Banking, Business Banking and Specialty Banking-related niches. But then we're also seeing growth in our Income Property Banking and Structured Finance areas. So the percentage mix is staying pretty flat. But in absolute dollars, we're seeing increase in C&I. So yes.

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Brian James Zabora, Hovde Group, LLC, Research Division - Director [6]

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Great. And just lastly, the enterprise value loans that are higher yielding, do you have the yield on that portfolio as of second quarter?

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Brian Fitzmaurice, Opus Bank - Senior EVP & Senior Chief Credit Officer [7]

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So it's 6.29%.

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Operator [8]

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Your next question comes from the line of Matthew Clark from Piper Jaffray.

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Matthew Timothy Clark, Piper Jaffray Companies, Research Division - Principal & Senior Research Analyst [9]

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Brian, is there any way to isolate that $188 million that's ineligible for retention within the EV portfolio to give us a weighted average rate on that? Just trying to get a sense for the stuff that you plan to kind of run off, unless it's similar to that 6.29%.

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Brian Fitzmaurice, Opus Bank - Senior EVP & Senior Chief Credit Officer [10]

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I mean, it's inclusive. The only -- I guess, the higher rating would be in the criticized/classified if they're still paying where we would have default interest being paid as well as charging additional fees. Otherwise, it would be included.

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Matthew Timothy Clark, Piper Jaffray Companies, Research Division - Principal & Senior Research Analyst [11]

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Okay. And then just on the comp expense. Again, been doing a fair amount of hiring here, but the comp expense was down. I guess, how should we think about comp expense with the step-up in hiring? And what might be the kind of offsets or additional savings?

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Kevin L. Thompson, Opus Bank - Executive VP & CFO [12]

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We are continually looking at optimizing our expense base. And yes, we are -- we have hired a little ahead of schedule based on talent and the success we've had in attracting talent. However, we are continually looking at room for opportunity. We've had elevated professional fees, and et cetera, as we've gone through our own credit cycle in the past few years, and that continues to decrease. And our marketing, you can see, has decreased over time. There are other areas where we take the opportunity to bring these expenses down and to optimize. But we still believe, for the fourth quarter of 2018, we will be at the 65% efficiency ratio level.

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Stephen H. Gordon, Opus Bank - President, CEO & Director [13]

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Kevin, I would also add that the second quarter loan originations were very light. So that impacted the amount of our noninterest expense that was associated with origination that we would have deferred through FAS 91. So as we start seeing the ramping continuing up through the year, and as I had indicated, we're already seeing that the loan pipeline in this third quarter just over the course of the last few weeks now entering into this third quarter has ramped an additional 35% from when we entered the third quarter, so I think that's giving us pretty good indicative color going into the second half of the year that originations will be higher. Therefore, FAS 91 deferral will be higher. And then as the C&I bankers begin to ramp, then their -- some of their compensation would actually start getting deferred as opposed to right now it's all hitting the books as pure G&A.

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Brian Fitzmaurice, Opus Bank - Senior EVP & Senior Chief Credit Officer [14]

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Matt, Brian. The eligible for retention, the $72 million has an interest rate of 5.34%. And so I'll let you do the math, but the total portfolio is 6.29%. So kind of consistent with our -- yes, consistent to our approach is that if there's an issue on what we want to exit, we're increasing rate, et cetera, and it manifests itself in those 2 differences.

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Matthew Timothy Clark, Piper Jaffray Companies, Research Division - Principal & Senior Research Analyst [15]

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Okay, great. And then just last one for me, just on the -- in terms of the balance sheet size. It's been coming down in terms of earning assets. Given the step-up in the pipeline, do you feel like you can -- but knowing you're also working out those EV loans, I guess, what's your sense for when the balance sheet can stabilize and begin to grow again?

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Stephen H. Gordon, Opus Bank - President, CEO & Director [16]

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Well, it depends on what occurs as far as loan prepayment activity even outside of the planned exits. We as well as a lot of the industry have experienced heightened loan prepayment activity, especially in the real estate loan portfolios as cap rates have stayed down and NOIs continue to increase on these underlying assets. And so that's been a bit of a drag and -- on our growth capability. So I would hope that as we ramp up in the second half of the year that, that should outpace the loan prepayments, but we'll see.

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Operator [17]

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

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Jacquelynne Chimera Bohlen, Keefe, Bruyette, & Woods, Inc., Research Division - MD, Equity Research [18]

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Just touching on the lighter May volume. Was that more driven by just demand fluctuations within the month? Or were you seeing heightened competition in the market that went away in June?

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Stephen H. Gordon, Opus Bank - President, CEO & Director [19]

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No, I don't think it was the heightened competition. I think it was more that we saw some sort of a -- a little bit of a slowdown a couple of months earlier in activity really for right around about a 30-day period. And then that rolls forward into impacting the pipeline and hit us in May. And -- but then we saw activity significantly pick up, and the month of June was triple the amount of volume of funding than we had in the month of May. And now the pipeline has grown meaningfully subsequent to that. So we're feeling pretty good about going into the second half of the year as opposed to -- we haven't had a month like that in years.

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Jacquelynne Chimera Bohlen, Keefe, Bruyette, & Woods, Inc., Research Division - MD, Equity Research [20]

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Okay. And do you -- I guess, are you willing to get a baseline between the -- I mean, I know that activity was triple what it was in June for 1st of May. But how did April compare to that? Or I'm trying to get a sense for the run rate that ramps later on in the year. And so I wanted to see what the exact variance was between May and June.

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Stephen H. Gordon, Opus Bank - President, CEO & Director [21]

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I think the better way to look at it, perhaps, and since we don't generally go into absolute underlying specifics of month by month, is that our guidance for the year is still remaining pretty much where it was as far as total new loan fundings, and you can just run the math from there.

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Jacquelynne Chimera Bohlen, Keefe, Bruyette, & Woods, Inc., Research Division - MD, Equity Research [22]

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Okay, fair enough. And then just one last one for me. The net interest margin guidance, which is also unchanged, do you have any additional rate increases that are in that?

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Kevin L. Thompson, Opus Bank - Executive VP & CFO [23]

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Yes. We're assuming 2 rate increases for the remainder of the year based on economic consensus.

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Jacquelynne Chimera Bohlen, Keefe, Bruyette, & Woods, Inc., Research Division - MD, Equity Research [24]

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Okay. And I had in my note that the last quarter's guidance had 2 rate increases. So the 4 rate increases for the year, that's an increase from where you were originally planning last quarter?

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Stephen H. Gordon, Opus Bank - President, CEO & Director [25]

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No. That's still what we were saying last quarter. Last quarter -- yes, we were still assuming that there'd be a September and December or a third quarter, fourth quarter increase. But last year, at the end of the year, the talk was that there'd only be 2 increases this year. And once we got further into this year, we've been looking at the third and fourth quarter.

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Jacquelynne Chimera Bohlen, Keefe, Bruyette, & Woods, Inc., Research Division - MD, Equity Research [26]

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Okay. And then the outflow of the $172 million related to the customers, does that inflow back and play into your margin guidance going forward?

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Stephen H. Gordon, Opus Bank - President, CEO & Director [27]

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Yes. I saw that you said in your note this morning that, that was all going to come back in the third quarter. What we actually said in the -- is beginning in the third quarter. So I just want to make that clear for everybody that we do anticipate these balances growing back into the balance sheet in future periods, and that's the nature of these 2 particular accounts or clients. And those were lower, meaningfully lower cost-of-deposit related clients. And so that had a negative impact. It's just like a double negative. It had an impact on our net interest margin for the quarter and on our cost of deposits. And we anticipate that those will be beneficial for us when they come back in not just in volume, but in actual rate.

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Jacquelynne Chimera Bohlen, Keefe, Bruyette, & Woods, Inc., Research Division - MD, Equity Research [28]

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Okay, yes. That was my assumption. But it's -- so it's not all of it coming back in, in third quarter. It's just starting to come back in, in third quarter?

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Kevin L. Thompson, Opus Bank - Executive VP & CFO [29]

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Correct. We expect it to rebuild over the course of the year.

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Operator [30]

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

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Timothy O'Brien, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research [31]

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Just a couple of odds and ends. Loan prepayment income benefit dollar amount in the second quarter versus last quarter. Do you have those numbers handy?

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Kevin L. Thompson, Opus Bank - Executive VP & CFO [32]

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Actually, it was a net decrease, and so it actually impacted us. So around $600 million last quarter to -- yes, excuse me, $600,000 last quarter, $1.5 million this quarter impact to our NIM.

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Timothy O'Brien, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research [33]

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So $1.5 million lower this quarter?

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Kevin L. Thompson, Opus Bank - Executive VP & CFO [34]

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That's the actual amount.

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Timothy O'Brien, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research [35]

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Actual amount of prepayment income was $1.5 million this quarter versus $600,000 last quarter?

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Kevin L. Thompson, Opus Bank - Executive VP & CFO [36]

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That's the amount -- actual amount of detriment, the downward impact to the net interest margin.

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Timothy O'Brien, Sandler O'Neill + Partners, L.P., Research Division - MD of Equity Research [37]

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Okay. And then next question, occupancy costs were down a little bit this quarter, linked quarter. Can you give a little color -- any more plans or any expectations to some change in that number here in the second half?

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Kevin L. Thompson, Opus Bank - Executive VP & CFO [38]

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We did have, as we announced in first quarter, some costs related to branch optimization. And we continually are looking at our branch footprint and optimizing that. So nothing as of now, but we will continually optimize that over time.

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Operator [39]

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Your next question comes from the line of Tim Coffey from FIG Partners.

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Timothy Norton Coffey, FIG Partners, LLC, Research Division - VP & Research Analyst [40]

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All of my questions have already been asked and answered, but I did have a question on your reserves and how much of the reserves are allocated to the remaining balances of enterprise value, Healthcare and Technology Banking?

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Brian Fitzmaurice, Opus Bank - Senior EVP & Senior Chief Credit Officer [41]

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Okay. So Healthcare Provider is a total of $6.2 million. EV is a total of $16.4 million. And what was the other one?

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Timothy Norton Coffey, FIG Partners, LLC, Research Division - VP & Research Analyst [42]

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Technology Banking?

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Brian Fitzmaurice, Opus Bank - Senior EVP & Senior Chief Credit Officer [43]

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Technology Banking is de minimis. Yes.

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Timothy Norton Coffey, FIG Partners, LLC, Research Division - VP & Research Analyst [44]

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Yes. Great. And then you've given quite a bit of color on the loan pipelines building as well as some of what was impacting payoffs this quarter. My question is, are you seeing any trends -- any changing trends within the paydowns that could move those numbers going forward?

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Stephen H. Gordon, Opus Bank - President, CEO & Director [45]

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Nothing that's really changed from previous periods.

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Operator [46]

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There are no further telephone questions at this time. I will turn the call back over to Stephen Gordon for closing remarks.

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Stephen H. Gordon, Opus Bank - President, CEO & Director [47]

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Thank you all for joining us on the call, and we'll look forward to following up with everyone in future quarters. Thank you.

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Operator [48]

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