There is some transactional activity that’s happening, but I held a real estate round table the other night with some of our clients and some of our senior executives and around the table it was pretty quiet in terms of transaction activity. They were — everybody’s sitting on the sidelines waiting for the next opportunity, but transaction volume in real estate right now is very, very slow.We are seeing some good opportunities in our median and entertainment area. We’re seeing some stuff in education, warehouse. Their balances were relatively flat, but they’re putting out some volume that’s just replacing stuff that’s running off and that’s working well. And on the C&I side, we actually had some good loan activity that would’ve grown, but for the $90 million, we decided not to renew just because we didn’t think the risk adjusted return was there and the deposit relationships weren’t there.
So we would’ve seen a little bit of activity there. It’s just a very kind of low volume market right now where we sit.Eric Spector Got it. That makes sense and then just also wanted to touch on the new commercial accounts you added. It looks like you added about 250 this quarter. Just curious, what’s attracting those clients to make California where you’re bringing those relationships over and like how you think about non-interest bearing balances going forward?Jared Wolff Yeah, so, thanks Eric. We are able to bring in clients through sophisticated treasury management solutions. We target businesses that need operating — that need those solutions. So, they’re — generally their accounts on earnings credit with analysis where the r earnings credit will offset the fees and charges if they keep sufficient balances.Oftentimes these are clients that need multiple accounts and want to have some sort of centralized reporting and oftentimes there are loans in lines of credit that go with it.
Not always, but when there are certain verticals that we target that have specialty needs in this area and so I don’t want to give away too much because it’s kind of how we differentiate ourselves in the market and compete against others, but it’s just something that we’ve been building for the four years that I’ve been here, and every year it gets better and better.When I was reading the reports that came out this morning, there were two things that that caught me a little bit by surprise. One was the heavy focus from a headline perspective on earnings, because it wasn’t more than three or four weeks ago that it was like Armageddon in banking and it was all about balance sheet strength and liquidity and access to available liquidity and uninsured deposit levels and like, nobody cared about earnings and so the headline to see about earnings missing by a penny or whatever, it just was — I just got a chuckle out of that.But the second thing has to do with deposit strength and I don’t think this is really the quarter for people to be annualizing what happened in the quarter.
It’s just — this was one of the most unusual quarters in history from my perspective and what happened this quarter is in no way indicative of what’s going to happen in the future unless we experience a repeat of it this quarter, but most likely things have stabilized. Again, we’ll see what happens with the First Republic.So the outlook for deposits, I don’t think people can annualize, a 2% outflow or whatever it was in any one category. I think they should look at kind of stability and strength and overall metrics. And we feel very good about where we sit with 36% not interest bearing. And I see that number maintaining or growing throughout the year. It could be up or down 1%, but overall we expect that to grow over time and get back to 38% and then to 40%.Eric Spector Yeah, I appreciate the color and then just wanted to touch on interest rate risk management and kind of your philosophy there.
You’ve been very active with the restructuring last quarter and the cash flow hedge this quarter. Can you just elaborate exactly what you’ve put on this quarter with the $300 million hedge? And then just curious how you’re thinking about managing rate risk at this point and whether you’re looking at additional hedges or derivatives or any tools you have to manage your rate sensitivity going forward.Jared Wolff So and Ray, I’ll let you jump in here on the hedge, but let me just give an introduction. We’re rate neutral at this point. We were slightly asset sensitive last quarter. We’re rate neutral at this point. We don’t manage to our margin. It’s an output we’re trying to manage to profitability in the quarter, but obviously we have a perspective on where we think the margin is going to go over time.I could see the margin going down at this point slightly just based on where I see things and then coming back because there is a lot of rate pressure.
But it’s really going to depend on how we grow non-interest bearing and how quickly we do it. Obviously low yields are not — loan yields are really good, but there’s not enough volume to offset kind of just the overall rate pressure at the bottom.We could make a lot more loans. We see loans all the time. It’s just we’re just not seeing stuff that we love enough to want to do it right now. There’s something I saw yesterday that we just turned down. It would’ve been safe, but it just didn’t feel like it was the right time to be doing it. So, again, margin’s a little bit of an output of just kind of how active we want to be.In terms of the hedge, we’re selectively looking at things that will protect against future rate changes, but we’re not going all in on any one direction.
We’re just doing kind of selectively bucketing a couple things. This hedge was $300 million and Ray what — it was a five-year hedge that we did, or was it three years?Raymond Rindone Five years? That’s correct.Jared Wolff So, was five years and we locked in it, I think it was at 3.8% for five years for a group of — thank you, for a group of deposits. And the idea was, okay, well we think that the cost of these deposits is going to go higher over time. There was — it was a whole group that was maturing and our idea was that, okay, well 3.8% for five year money is a good rate for us. And so, in kind of any environment you kind of borrow it 3.8% for five years.So if rates go down, well it was still a good — it was still a good cost at the time.
If rates go up, we kind of make a little more money. The model obviously said based on the Ford curve, that we were going to make a lot of money on this hedge, but we’re not — we’re not trying to bet really.We’re just trying to kind of bucket little things that we see that might be maturing where we can lock in cost and just — you got to be comfortable that the cost is fair at the time you do it. And so if rates move up or down, you’re kind of agnostic to it because you just thought it was a fair trade at the time. I hope that provides some color, Eric.Eric Spector Yeah, that’s helpful. Thanks for taking the questions and I’ll step back.Operator Our next question comes from Gary Tenner – D.A. Davidson. Please go ahead.Gary Tenner I wanted to ask about the brokerage CDs added in the quarter.
Can you give us a sense, right, in terms of the kind of term and rate just, so we have a basis for how we’re thinking about modelling those balances moving around going forward?Jared Wolff Ray, do you have the color on that?Raymond Rindone Sure. So, on the broker CDs, we ladder those out over time to manage our cost of funds and we have various durations that we use that to help manage our liquidity and give us some optionality to manage our interest expense.Jared Wolff We added about $300 million Gary. They were laddered as Ray said. So I don’t know that we can give you a blended rate. And the other thing is we might bring them down and take them all. But Ray, I don’t know if you have just as an example, like what the cost is for a 12-month broker CD right now, or a six month broker CD to give, because they were mostly shorter duration,Raymond Rindone Right?
Those would be in about the 4.85% to 5% range.Gary Tenner Okay, that’s fine. I appreciate that. And then just in terms of the headcount reduction that you mentioned, will we see sort of a benefit there in the second quarter temporarily before there’s reinvestment or does — what would be the annual savings from the cuts initially and kind of thoughts on reinvesting?Jared Wolff Yeah, I don’t think — I don’t think you’re going to see much because I think we’re going to just use it in other ways. We’ve guided to kind of the $48 million to $50 million quarterly operating expense number and we’re in the mid $49 million right now and so I think that between $49 million and $50 million is probably where we’re going to sit.Gary Tenner Okay, thanks.
