Opus Bank (OPB) Q1 2019 Earnings Call Transcript
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Opus Bank (NASDAQ: OPB)
Q1 2019 Earnings Call
April 29, 2019, 11:00 a.m. ET
Contents:
Prepared Remarks
Questions and Answers
Call Participants
Prepared Remarks:
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's First Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question-and-answer session (Operator Instructions).
Thank you. Brett Villaume, Director of Investor Relations, you may begin your conference.
Brett Villaume -- Senior Vice President & Director of Investor Relations
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 6 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 opens and closes the Q&A dialog box.
Now I will turn the call over to Paul Greig, Chairman, Interim CEO and President.
Paul G. Greig -- Chairman, Interim Chief Executive Officer and President
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 pre-tax 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'm 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 L. Thompson -- Executive Vice President & Chief Financial Officer
Thank you, Paul. Turning to Slide 4, loans increase $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 multi-family 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 multi-family 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 multi-family 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 have 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 and did 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 build out of this important initiative that began in 2018. The number of new business relationships increased 30% from the prior quarter. Total loan yield 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 recovered a non-accrual loans during the quarter.
On Slide 5, 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 borrowing 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 Slide 6, total deposits increased $125 million in the first quarter or 2%, driven by growth in non-interest bearing deposits, money market accounts and time deposits. During the first quarter, we added $46 million in broker 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 borrowings, wholesale funding sources comprise 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 adjustments 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 7, 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 increase in December as well as higher interest recovered on non-accrual 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 8, non-interest income was a $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 non-interest income provided continued stable contributions, including $6.7 million in trust administrative fees from Pensco, a $1.4 million from our Escrow and Exchange division. Non-interest income comprised 18% of total revenues.
Turning to Slide 9, our non-interest expense totaled $45.4 million. Included in non-interest expense was a $1.4 million legal settlement mentioned earlier. Excluding the legal settlement this quarter and $10.5 million of expenses related to the restructuring charge we incurred last quarter, non-interest 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 their restructuring related charges in the fourth quarter, our efficiency ratio would have been 65%.
On Slide 10, we saw our regulatory capital ratios at quarter-end, including Tier 1 leverage, which increased to 9.86% and our total risk-based capital ratio, which 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 -- Vice Chairman, Senior Chief Credit Officer
Thank you, Kevin. This morning, I will review our first quarter credit performance, which I view (ph) favorably based on our reduction in enterprise value loans of $17 million, a $4.7 million or 17% decrease in non-accrual loans, $1.6 million net recoveries and a $13.2 million or 32% decrease in special mentioned loans, which was tempered by a $15.4 million increase in substandard loans, resulting in a $2.2 million or 51.5% (ph) 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 predominately occurred in our multi-family 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 fundings, and additions to specific reserves of 94,000 -- $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 31st 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 L. Thompson -- Executive Vice President & Chief Financial Officer
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 the overall economy. Incorporating the long growth we had in the first quarter into our modeling, we have adjusted our estimate of loan growth for the full year 2019 to a rate in the low-double digits to mid teens.
This assumes solid growth for the remainder of the year, but also the expectation that loan prepayments and competitive pressure will return to the levels we've experienced over the past few years. Deposit rates are expected to continue to increase largely due to competitive pressures 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 experience 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 that 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 -- Senior Vice President & Director of Investor Relations
Thank you, Kevin, and thank you all for joining our earnings conference call today. Operator will you please open the line for questions?
Questions and Answers:
Operator
(Operator Instructions) Your first question comes from the line of a participant whose information could not be gathered. Please state your first and last name and company. Your line is open (Operator Instructions).
Matthew Clark -- Opus Bank -- Analyst
Matthew Clark, if this line's open.
Brett Villaume -- Senior Vice President & Director of Investor Relations
Hi Matt.
Matthew Clark -- Piper Jaffray -- Analyst
Hi, wasn't sure that was me. Can you give us the contribution of a lower premium amortization in the margin this quarter?
Kevin L. Thompson -- Executive Vice President & Chief Financial Officer
Yes. if you actually turn to slides that we've provided. Slide Number 7 provides kind of 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 -- Piper Jaffray -- Analyst
Okay, great. And then, how do you think about deposit growth this year relative to your updated loan growth expectations. Just trying to get a sense of where that loan-to-deposit ratio might go?
Kevin L. Thompson -- Executive Vice President & Chief Financial Officer
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, feel that 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.
Brian Fitzmaurice -- Vice Chairman, Senior Chief Credit Officer
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 -- Piper Jaffray -- Analyst
Okay. And then just on the loan yields, on an organic basis, excluding the runoff of the acquired portfolio, do you happen to have that organic loan yield, excluding interest income reversals and any purchase accounting?
Kevin L. Thompson -- Executive Vice President & Chief Financial Officer
Yes, excluding all those items, the organic wear on loans is 4.3% in the quarter.
Matthew Clark -- Piper Jaffray -- Analyst
Okay. And then on the efficiency ratio guidance, is that on an adjusted basis excluding CDI amortization, or is that including --?
Kevin L. Thompson -- Executive Vice President & Chief Financial Officer
It excludes.
Unidentified Participant -- -- Analyst
Okay, thank you.
Kevin L. Thompson -- Executive Vice President & Chief Financial Officer
Thank you.
Operator
Your next question comes from the line of Jackie Bohlen of KBW. Your line is open.
Jacquelynne Bohlen -- Keefe, Bruyette & Woods -- Analyst
Hi. Good morning, everyone.
Kevin L. Thompson -- Executive Vice President & Chief Financial Officer
Good Morning.
Jacquelynne Bohlen -- Keefe, Bruyette & Woods -- Analyst
Following up on Matthew's question, I'm looking at the adjusted efficiency ratio of the guidance of approximately 68% for the full year, and then expecting it to gradually decrease. We were roughly there in the first quarter. So what events do you expect to impact that ratio for the remainder of the year?
Kevin L. Thompson -- Executive Vice President & Chief Financial Officer
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 at lower prepayments. Deposit cost pressure among 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 assets 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 kind of baseline perspective that's what we expect.
Jacquelynne Bohlen -- Keefe, Bruyette & Woods -- Analyst
Okay. So it sounds like the net interest margin and maybe loan growth just based on what those prepayments will have on impact forward earnings estimate internally?
Kevin L. Thompson -- Executive Vice President & Chief Financial Officer
That's right. Among other things, but yes, that's one of the biggest drivers.
Jacquelynne Bohlen -- Keefe, Bruyette & Woods -- Analyst
Okay. And then when I think about the NIM, which obviously perform very well in the quarter. Look at that versus the roughly 3% guide for the full year. Is that largely a function of deposits 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?
Kevin L. Thompson -- Executive Vice President & Chief Financial Officer
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 multi-family loan funding, yes, you're correct, our pricing changed in the quarter, really mostly driven by the LIBOR quarter. So our multi-family loans really are on the West Coast, the pricing is highly correlated with the three to five year LIBOR rate.
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 4.60s, and now we're funding more around in the 4.20s and 4.30s in the 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 interest margin when it right sizes there's a lot of upside as well.
Jacquelynne Bohlen -- Keefe, Bruyette & Woods -- Analyst
Okay. Most of it had more to do with 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 L. Thompson -- Executive Vice President & Chief Financial Officer
That had some impact, but to to your point mostly driven by the LIBOR curve.
Paul G. Greig -- Chairman, Interim Chief Executive Officer and President
And Jackie, customer behavior is surprisingly sensitive to just several basis points of pricing change.
Jacquelynne Bohlen -- Keefe, Bruyette & Woods -- Analyst
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.
Christopher York -- JMP Securities -- Analyst
Good morning, guys, and thanks for taking my question.
Kevin L. Thompson -- Executive Vice President & Chief Financial Officer
Morning.
Paul G. Greig -- Chairman, Interim Chief Executive Officer and President
Good morning.
Christopher York -- JMP Securities -- Analyst
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 it's showing a little bit of softness over the past couple of 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?
Kevin L. Thompson -- Executive Vice President & Chief Financial Officer
No problem. Can you repeat your second part of the question?
Christopher York -- JMP Securities -- Analyst
The second part was just an update on the state of Pensco today, and then the growth in assets under custody?
Kevin L. Thompson -- Executive Vice President & Chief Financial Officer
You bet. The first part of your question, the change in the non-interest income base, it's just there's 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 customers that come in or leave, but also based on valuations and that these ourselves are self directed IRAs that may have underlying sources, such as private equity, real estate and other types of non-traditional IRA accounts. And the valuation of those over time can impact that amount.
Christopher York -- JMP Securities -- Analyst
Is it safe to kind of maybe read between the lines to say that maybe the volume of clients was a driver to the year-over-year decline?
Kevin L. Thompson -- Executive Vice President & Chief Financial Officer
In expense?
Christopher York -- JMP Securities -- Analyst
In the fee side, the trust.
Kevin L. Thompson -- Executive Vice President & Chief Financial Officer
No, I wouldn't say that. I would say its timing is 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 consistent.
Christopher York -- JMP Securities -- Analyst
Okay, fair enough. And then commercial business loan fundings was one of the lowest on record, despite the significant investment the bank made and growing up that business with hires over the last year. So could you explain what drove the light production there?
Brian Fitzmaurice -- Vice Chairman, Senior Chief Credit Officer
Yes. Let me take that. The thing that is very difficult to estimate quarter-to-quarter is the number of accounts that will come in 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 extensions, 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.
Christopher York -- JMP Securities -- Analyst
Great colors. Helpful. And then clarification, I did hear the new yield on multifamily loans, but I think like for 4.20 to 4.40, and forgive me if I missed this but what was the weighted average yield on total loan fundings in the quarter?
Kevin L. Thompson -- Executive Vice President & Chief Financial Officer
Total loan funding for the quarter was in the mid 4.30s.
Christopher York -- JMP Securities -- Analyst
4.30s. Okay. And last question, I'll step back. It's been I think maybe five months and Steven resigned as CEO. And obviously, investors understand that the search process will take time, in finding the right leader for growth is incredible burden 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 G. Greig -- Chairman, Interim Chief Executive Officer and President
Yes, as I commented in my prepared comments a lot of program 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.
Christopher York -- JMP Securities -- Analyst
Fair enough. Thanks guys.
Operator
Your next question comes from line of Tim O'Brien of Sandler O'Neill & Partners. Your line is open.
Tim O'Brien -- Sandler O'Neill & Partners -- Analyst
Good morning.
Matthew Clark -- Piper Jaffray -- Analyst
Good morning.
Tim O'Brien -- Sandler O'Neill & Partners -- Analyst
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 might come to reflect, what are your thoughts there?
Kevin L. Thompson -- Executive Vice President & Chief Financial Officer
A lot of the loans funded near the end of the quarter. And so, we'll see -- that's a one time impact of the balance sheet. We'll 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 a year from the first quarter's mix.
Tim O'Brien -- Sandler O'Neill & Partners -- Analyst
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 the remainder of the year?
Kevin L. Thompson -- Executive Vice President & Chief Financial Officer
It was about $1 million higher than usual due to the payroll tax.
Tim O'Brien -- Sandler O'Neill & Partners -- Analyst
So could dip down below $26 (ph) here pretty easily?
Kevin L. Thompson -- Executive Vice President & Chief Financial Officer
Yes, it could. And that of course, depends on a number of factors with loan funding and FAS 91 offsets et cetera. But directionally (ph) that seems correct, yes.
Tim O'Brien -- Sandler O'Neill & Partners -- Analyst
Yes, 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 L. Thompson -- Executive Vice President & Chief Financial Officer
Yes it was 760 at quarter-end. At the end of the year was 794.
Tim O'Brien -- Sandler O'Neill & Partners -- Analyst
Is it possible that we'll 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 L. Thompson -- Executive Vice President & Chief Financial Officer
Those numbers are really the initiatives 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.
Tim O'Brien -- Sandler O'Neill & Partners -- Analyst
Great. Thanks for answering my questions.
Matthew Clark -- Piper Jaffray -- Analyst
You bet. Thank you.
Operator
Your next question comes from the line of Kevin Swanson of FIG Partners. Your line is open.
Kevin Swanson -- Hovde Group -- Analyst
Hey, it's Kevin Swanson, Hovde Group, how are you?
Kevin L. Thompson -- Executive Vice President & Chief Financial Officer
Good Morning.
Paul G. Greig -- Chairman, Interim Chief Executive Officer and President
Good morning.
Kevin Swanson -- Hovde Group -- Analyst
So the EV loans I think in the presentation are 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 or the last full stretch of the loans there?
Brian Fitzmaurice -- Vice Chairman, Senior Chief Credit Officer
It's Brian. I think they'll continue to decrease at a pretty good pace, and then, I think it'll get to a point that it slows down. So we have criticized classified, those are going to be harder to exit than those companies that are taking actions on their own, they're either refinancing or they're 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 -- Hovde Group -- Analyst
Okay. And then obviously, the asset quality, I mean in terms of problem loans to total loans, it's more than half or less than half of what it was a year ago, may be just kind of talk about probably how do you see that progressing, and then, maybe kind of the current credit environment just in your current markets, please?
Brian Fitzmaurice -- Vice Chairman, Senior Chief Credit Officer
Obviously, on the real estate side of the house, especially from (inaudible) in multi-family, that continues to be very strong. We're seeing an increase in NOI. And over the last couple of years, we've obviously worked through significant amount of our issues in the C&I. So I said in my comments, I see it favorably. We have problems that come and go, but we had virtually no inflow, in fact, zero inflow, special mention, this quarter. So, I think we'll kind of just migrate to the norm of -- at points in time, customers have problems.
Paul G. Greig -- Chairman, Interim Chief Executive Officer and President
The statistics, Brian, are mentioning suggest that the economy in our markets continues to be very strong -- stable and strong.
Brian Fitzmaurice -- Vice Chairman, Senior Chief Credit Officer
I would say that 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.
Kevin Swanson -- Hovde Group -- Analyst
Okay. Thanks for taking my question.
Operator
(Operator Instructions) Your next question comes from line of Matthew Clark of Piper Jaffray. Your line is open.
Matthew Clark -- Piper Jaffray -- Analyst
Hey. Brian, just curious with the increasing classified assets this quarter, the $15 million, what drove that just in terms of the types of credits underlying?
Brian Fitzmaurice -- Vice Chairman, Senior Chief Credit Officer
Yes. Approximately 15% of that was simply the migration of an EV loan from special to sub, so that's 50% of it. The other was kind of a mixed bag of no correlated reason. In one case, for instance, it's an SBA 504. We get record -- we get financials once a year, so it was, as I kind of indicated for the rest, just kind of event driven out of that company-specific clients, no macro reasons.
Matthew Clark -- Piper Jaffray -- Analyst
Okay. And then, on the outlook for the margin kind of beyond this year, I guess knowing that you guys are positioned to be asset-sensitive still, are you guys doing anything to adjust the balance sheet to reduce that asset sensitivity, assuming the Fed's on hold from here?
Kevin L. Thompson -- Executive Vice President & Chief Financial Officer
We're watching that 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've -- we are very strategically looking in that and making sure that we're well-positioned in the future for both an upside and downside in Fed rate.
Matthew Clark -- Piper Jaffray -- Analyst
Okay. Great, thanks.
Operator
There are no further questions over the phone lines at this time. I turn the call back over to the presenters.
Brett Villaume -- Senior Vice President & Director of Investor Relations
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.
Duration: 38 minutes
Call participants:
Brett Villaume -- Senior Vice President & Director of Investor Relations
Paul G. Greig -- Chairman, Interim Chief Executive Officer and President
Kevin L. Thompson -- Executive Vice President & Chief Financial Officer
Brian Fitzmaurice -- Vice Chairman, Senior Chief Credit Officer
Matthew Clark -- Opus Bank -- Analyst
Matthew Clark -- Piper Jaffray -- Analyst
Unidentified Participant -- -- Analyst
Jacquelynne Bohlen -- Keefe, Bruyette & Woods -- Analyst
Christopher York -- JMP Securities -- Analyst
Tim O'Brien -- Sandler O'Neill & Partners -- Analyst
Kevin Swanson -- Hovde Group -- Analyst
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