Opus Bank Announces Second Quarter 2018 Results

IRVINE, Calif.--()--Opus Bank ("Opus") (NASDAQ: “OPB”) announced today net income of $15.5 million, or $0.40 per diluted share, for the second quarter of 2018 compared to net income of $12.9 million, or $0.34 per diluted share, for the first quarter of 2018 and net income of $18.2 million, or $0.48 per diluted share, for the second quarter of 2017. Net income for the six months ended June 30, 2018 was $28.4 million, or $0.74 per diluted share, compared to $25.9 million, or $0.69 per diluted share, for the first six months of 2017. Net income during the second quarter of 2018 included strategic initiative-related expenses of $180,000 and a reduction to our income tax expense of $268,000 resulting from excess tax benefits from the vesting of non-qualified stock awards.

Additionally, Opus announced today that its Board of Directors has approved the payment of a quarterly cash dividend of $0.11 per common share payable on August 16, 2018 to common stockholders and to its Series A Preferred stockholders of record as of August 2, 2018.

Second Quarter 2018 Highlights

  • Net interest income after provision for loan losses increased to $49.7 million from $47.8 million in the prior quarter.
  • Noninterest expense decreased to $43.1 million from $44.1 million in the prior quarter.
  • Return on average assets increased to 0.86% for the second quarter, compared to 0.72% in the prior quarter, and return on average tangible equity increased to 9.49% for the second quarter, compared to 8.07% in the prior quarter.
  • Nonperforming assets decreased $23.8 million, or 37%, to 0.56% of total assets, down from 0.87% in the prior quarter.
  • Total criticized loans decreased $48.3 million, or 20%, to $199.1 million, including reductions in both special mention and classified loan categories.
  • Enterprise Value loans decreased $75.6 million, or 23%, to $260.3 million.
  • We recorded a negative loan loss provision of $213,000 for the second quarter.
  • Total loans decreased $156.6 million, or 3%, as loan prepayments and payoffs of $357.9 million, which included $58.5 million of planned exits, outpaced quarterly new loan fundings of $295.6 million. Loan originations were unusually low during the month of May, but rebounded in June to more than triple May's level.
  • Our new loan fundings pipeline increased approximately 40% entering the third quarter compared to our loan pipeline at the start of the second quarter.
  • Total deposits decreased $109.4 million, or 2%, primarily due to seasonal outflows of balances related to two clients and are anticipated to return in future periods.
  • Assets Under Custody at PENSCO Trust Company, our alternative asset IRA custodian subsidiary, decreased to $14.0 billion. 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 of deposits stayed flat.
  • Tier 1 leverage and total risk-based capital ratios increased to 9.85% and 15.86%, respectively.

Stephen H. Gordon, Chief Executive Officer and President of Opus Bank, stated, “We are pleased with our results for the second quarter and first half of 2018, highlighted by significant improvements in our credit quality and growth in our earnings. We experienced meaningful reductions in our nonaccrual, total criticized, and Enterprise Value loans, and at the end of the quarter had only $2 million in remaining Technology loans. Despite our challenges, including elevated loan prepayments and increased competition for deposits, Opus’ earnings and profitability ratios increased from the prior quarter.”

Mr. Gordon continued, “We added 21 Commercial and Business bankers during the first six months of the year and are already seeing early successes as they begin to ramp up their activity. We anticipate they will continue to increase their contributions as we head into 2019 and complement the already deep talent that exists across our collaborative, synergistic lines of business.”

Mr. Gordon concluded, “Opus’ dedicated team members are the driving force behind our performance and I am extremely grateful to them for their tireless efforts and commitment. Given our healthy capital ratios, improved asset quality, and quarterly earnings, the Board of Directors has approved the payment of a quarterly cash dividend of $0.11 per common share.”

Loans

Total loans held-for-investment decreased $156.6 million, or 3%, to $5.1 billion as of June 30, 2018, from $5.2 billion as of March 31, 2018, and decreased $145.7 million, or 3%, from $5.2 billion as of June 30, 2017. The decrease in total loans during the second quarter of 2018 was driven by new loan fundings of $295.6 million, offset by loan payoffs of $358.0 million, which included planned exits of $58.5 million.

       
Loan Balance Roll Forward
(unaudited)  

Three Months Ended

($ in millions)

June 30,
2018

March 31,
2018

December 31,
2017

September 30,
2017

June 30,
2017

 
Beginning loan balance $ 5,229.0 $ 5,173.2 $ 5,060.6 $ 5,218.1 $ 5,432.1
New loan fundings 295.6 452.3 502.3 375.4 362.2
Loan payoffs (299.5 ) (219.2 ) (237.8 ) (267.1 ) (357.0 )
Loan sales¹ (6.0 ) (15.8 )
Planned exits (58.5 ) (52.2 ) (80.6 ) (161.2 ) (137.2 )
Other² (94.2 ) (125.1 ) (71.3 ) (98.6 ) (66.2 )
Ending loan balance $ 5,072.4   $ 5,229.0   $ 5,173.2   $ 5,060.6   $ 5,218.1  
 
[1] Loan sales that were not planned exits
[2] Includes normal amortization, paydowns, and charge-offs
 

New loan fundings in the second quarter of 2018 totaled $295.6 million, a decrease of $156.6 million, or 35%, from the first quarter of 2018 and a decrease of $66.5 million, or 18%, from the second quarter of 2017. Commercial Business loans comprised $80.8 million, or 27%, of total new loan fundings; and real estate related loans comprised $211.0 million, or 71%, of total new loan fundings in the second quarter. Although we experienced an atypical decline in the level of second quarter new loan fundings, our pipeline of new loan fundings entering the third quarter was approximately 40% greater than at the start of the second quarter.

Loan commitments originated during the second quarter of 2018 totaled $306.5 million, compared to $439.2 million during the first quarter of 2018 and $349.7 million during the second quarter of 2017. Our unfunded commitments on originated loans totaled $421.3 million as of June 30, 2018, compared to $413.6 million as of March 31, 2018 and $469.4 million as of June 30, 2017.

Our acquired loan portfolio totaled $121.6 million as of June 30, 2018, a decrease of 5% from $128.6 million as of March 31, 2018 and 19% from $149.6 million as of June 30, 2017. The acquired loan portfolio had a remaining discount of $2.0 million as of June 30, 2018.

Cash and Investment Securities

Cash and investment securities totaled $1.4 billion as of June 30, 2018, unchanged from the prior quarter, and a decrease from $1.8 billion as of June 30, 2017. Cash and cash equivalents as of June 30, 2018 increased $108.8 million, or 37%, to $401.0 million compared to March 31, 2018, and decreased $254.3 million, or 39%, from June 30, 2017. The increase in cash and cash equivalents in the second quarter of 2018 was primarily driven by paydowns and amortization within both our loan and securities portfolios. Investment securities decreased $73.9 million, or 7%, as of June 30, 2018 to $1.0 billion compared to March 31, 2018, and decreased $116.3 million, or 10%, from $1.1 billion as of June 30, 2017. During the second quarter of 2018, we purchased $20.0 million of investment grade securities with a weighted average rate of 3.38% and an average duration of approximately 2.6 years.

Deposits and Borrowings

Deposits decreased $109.4 million, or 2%, to $5.9 billion as of June 30, 2018, from $6.0 billion as of March 31, 2018. The linked-quarter decrease in total deposits was primarily driven by two Commercial Banking relationships that experience seasonal deposit outflows during the second quarter of 2018 totaling $172.0 million, which are anticipated to return beginning in the third quarter.

Total demand deposits, including both noninterest-bearing and interest-bearing, increased to 57% of total deposits as of June 30, 2018, compared to 56% as of March 31, 2018 and 53% as of June 30, 2017. As of June 30, 2018, business deposits represented 63% of total deposits.

Our loan to deposit ratio was 85% as of June 30, 2018 compared to 87% as of March 31, 2018 and 82% as of June 30, 2017.

Federal Home Loan Bank (FHLB) advances had zero balance as of June 30, 2018, compared to $10.0 million as of March 31, 2018 and June 30, 2017, respectively. The average balance of FHLB advances during the second quarter of 2018 was $69.1 million, compared to $16.4 million during the first quarter of 2018 and $10.0 million during the second quarter of 2017.

Net Interest Income

Net interest income was $49.5 million for the second quarter of 2018, compared to $51.7 million for the first quarter of 2018 and $56.0 million for the second quarter of 2017.

Interest income from loans decreased $830,000, or 2%, from the prior quarter to $53.8 million for the second quarter of 2018, driven by lower average loan balances as a result of loan payoffs and prepayments, including planned exits, and a lower net benefit from prepayments, partially offset by the positive impact on our loan yield of repricing due to rate increases. While planned exits decrease our potential future credit volatility, they had a negative impact on our loan interest income. Planned exits of $58.5 million for the second quarter of 2018 had a weighted average rate of 5.97%.

Interest income from cash and investment securities increased $329,000, or 5%, from the prior quarter to $6.4 million for the second quarter of 2018. Interest income from investment securities decreased $46,000, or 1%, from the prior quarter to $5.0 million for the second quarter of 2018, driven by lower average balances of investment securities compared to the prior quarter. Interest income from cash increased $375,000 from the prior quarter to $1.3 million for the second quarter of 2018, as the average balance of cash increased $57.3 million, or 24%.

Interest expense increased 19% to $10.7 million for the second quarter of 2018, compared to $9.0 million for the first quarter of 2018, and increased 18% compared to $9.1 million for the second quarter of 2017. The increase in interest expense during the second quarter of 2018 was driven by a shift in deposit mix due to the seasonal outflow from two, low-cost Commercial Banking clients and an increase in higher-cost Municipal Banking balances and CDs. These effects were partially offset by a $14.1 million, or 2%, increase in the average balance of noninterest-bearing DDAs during the second quarter.

Net Interest Margin

Net interest margin on a taxable equivalent basis decreased 13 basis points to 3.07% in the second quarter of 2018 from 3.20% in the first quarter of 2018, and decreased 15 basis points from 3.22% in the second quarter of 2017. The linked-quarter change was primarily driven by a 10 basis point increase in the cost of deposits to 0.57%, higher loan prepayments during the quarter, and the impact of planned loan exits. These were partially offset by the positive impact on 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 seven basis points during the second quarter of 2018. As of June 30, 2018, approximately 31.4% of our loan portfolio was comprised of loans that are contractually scheduled to mature or reset within the next 12 months. Additionally, the tax equivalent weighted average rate on new loan fundings during the second quarter of 2018 was 4.79%, compared to 4.17% for the first quarter of 2018.

Noninterest Income

Noninterest income decreased 3% to $12.9 million in the second quarter of 2018 from $13.3 million in the first quarter of 2018, and decreased 12% from $14.7 million in the second quarter of 2017. Noninterest income during the second quarter of 2018 included $1.8 million of treasury management and deposit account fees, $6.8 million in trust administrative fees from our alternative asset IRA custodian subsidiary, $1.5 million from our Escrow and Exchange divisions, and $774,000 from our Merchant Banking division.

Noninterest income made up 21% of total revenues during the second quarter of 2018, compared to 20% in the first quarter of 2018 and 21% in the second quarter of 2017.

Noninterest Expense

Noninterest expense decreased 2% to $43.1 million in the second quarter of 2018, compared to $44.1 million in the first quarter of 2018, and decreased 11% from $48.7 million in the second quarter of 2017. The linked-quarter decrease in noninterest expense was primarily driven by lower compensation and benefits expenses related to employer taxes and severance expense compared to the first quarter of 2018. The first quarter of 2018 included a $2.9 million recovery from the settlement of a legal matter within professional services expense. Noninterest expense during the second quarter of 2018 also included $180,000 of strategic initiative related expenses related to banking office optimization and infrastructure improvements.

Income Tax Expense

Our effective tax rate was 21% for the second quarter of 2018, compared to 24% for the first quarter of 2018 and 37% for the second quarter of 2017. Income tax expense for the second quarter of 2018 was reduced by excess tax benefits of $268,000 from the vesting of non-qualified stock awards.

Asset Quality

Asset quality improved significantly during the second quarter of 2018. Nonaccrual loans decreased $23.8 million, or 37%, to $40.0 million, or 0.79% of total loans, as of June 30, 2018, compared to $63.8 million, or 1.22% of total loans, as of March 31, 2018. Total criticized loans decreased $48.3 million, or 20%, to $199.1 million as of June 30, 2018, compared to $247.4 million as of March 31, 2018. We also continued to reduce our exposure to previously de-emphasized loan portfolios during the second quarter of 2018; total Enterprise Value loans were reduced by $75.6 million, or 23%, during the second quarter of 2018 and totaled $260.3 million as of June 30, 2018. Planned exits through loan payoffs and sales totaled $58.5 million in the second quarter of 2018, as we continued to reduce the balances of loans we previously announced as targeted for planned exits.

Our allowance for loan losses was $59.2 million, or 1.17% of our total loan portfolio, as of June 30, 2018, compared to $67.8 million, or 1.30%, as of March 31, 2018 and $87.7 million, or 1.68%, as of June 30, 2017. The reduction in the allowance for loan losses during the second quarter of 2018 was driven by charge-offs of $12.5 million and a negative provision for loan losses of $213,000, partially offset by recoveries of $4.1 million.

We recorded a negative provision expense of $213,000 in the second quarter of 2018, compared to a provision expense of $3.9 million in the first quarter of 2018 and a negative provision expense of $7.1 million in the second quarter of 2017. The negative provision expense during the second quarter of 2018 was driven by a $7.0 million decline in reserves as a result of the changes in portfolio mix, fundings, and planned exits of loan relationships, and a reduction of $5.6 million in specific reserves. These factors were partially offset by $8.4 million of net charge-offs, $3.1 million due to higher loss factors used to determine loan loss reserves in accordance with our methodology, $470,000 from risk rating migration, and $434,000 of provision for acquired loans.

We recorded net charge-offs of $8.4 million in the second quarter of 2018, compared to net charge-offs of $12.0 million in the first quarter of 2018 and $17.4 million in the second quarter of 2017. Charge-offs during the second quarter of 2018 were predominantly comprised of four Commercial Banking division loan relationships and two Corporate Finance loan relationships, which previously had specific reserves totaling $6.8 million.

Total nonperforming assets were $40.0 million, or 0.56% of total assets, as of June 30, 2018, compared to $63.8 million, or 0.87% of total assets, as of March 31, 2018, and $69.0 million, or 0.90% of total assets, as of June 30, 2017. The ratio of the allowance for loan losses to total nonaccrual loans was 148% as of June 30, 2018, compared to 106% as of March 31, 2018 and 138% as of June 30, 2017.

Total criticized loans decreased $48.3 million, or 20%, to $199.1 million as of June 30, 2018 compared to $247.4 million as of March 31, 2018, and decreased $89.9 million, or 31%, from $289.0 million as of June 30, 2017. The net decrease in total criticized loans during the second quarter of 2018 was driven by $38.6 million of upgrades and $43.5 million of loan exits, including payoffs, loan sales, charge-offs, and normal amortization during the quarter, partially offset by $33.8 million of downgrades. Special mention loans decreased $38.0 million in the second quarter of 2018 and classified loans decreased $10.4 million. The decrease in special mention loans was driven by $22.2 million of upgrades and $24.4 million of loan payoffs, normal amortization, and migration, partially offset by $8.6 million of downgrades. The decrease in classified loans was driven by upgrades of $16.4 million as well as payoffs, charge-offs, and normal amortization of $35.4 million, partially offset by downgrades of $41.4 million.

The net decrease in total criticized loans consisted primarily of a $39.4 million decrease in commercial business loans and a $16.2 million decrease in real estate secured loans, partially offset by a $7.4 million increase in SBA loans. Commercial business loans comprised $14.7 million of loans upgraded out of criticized categories and $38.2 million of loan exits, including loan payoffs, loan sales, charge-offs, and normal amortization, partially offset by $13.5 million of downgrades during the second quarter of 2018. Real estate secured loans comprised $23.7 million of loans upgraded out of criticized categories and $5.2 million of loan payoffs and amortization, partially offset by $12.7 million of downgrades during the second quarter of 2018.

Capital

As of June 30, 2018, our Tier 1 leverage ratio was 9.85%, Common Equity Tier 1 ratio was 11.80%, and total risk-based capital ratio was 15.86%, compared to 9.53%, 10.92%, and 14.91%, respectively, as of March 31, 2018. As of June 30, 2017, our Tier 1 leverage, Common Equity Tier 1, and total risk-based capital ratios were 8.58%, 10.77%, and 14.28%, respectively. Stockholders’ equity totaled over $1.0 billion as of June 30, 2018, unchanged from March 31, 2018 and June 30, 2017. Our tangible book value per as converted common share was $17.53 as of June 30, 2018 compared to $17.23 as of March 31, 2018 and $16.63 as of June 30, 2017.

Conference Call and Webcast Details

Date: Monday, July 23, 2018
Time: 8:00 a.m. PT (11:00 a.m. ET)

Phone Number: (855) 265-3237
Conference ID: 6088969
Webcast URL: http://investor.opusbank.com/event

Analysts, investors, and the general public may listen to our discussion of Opus' second quarter performance and participate in the question/answer session by using the phone number listed above or through a live webcast of the conference available through a link on the investor relations page of Opus' website at: http://investor.opusbank.com/event. The webcast will include a slide presentation, enabling conference participants to experience the discussion with greater impact. It is recommended that participants dial into the conference call or log into the webcast approximately 10 minutes prior to the call.

Replay Information: For those who are not able to listen to the call, an archived recording will be available beginning approximately two hours following the completion of the call. To listen to the call replay, dial (855) 859-2056, or for international callers dial (404) 537-3406. The access code for either replay number is 6088969. The call replay will be available through August 23, 2018.

About Opus Bank

Opus Bank is an FDIC insured California-chartered commercial bank with $7.2 billion of total assets, $5.1 billion of total loans, and $5.9 billion in total deposits as of June 30, 2018. Opus Bank provides superior ideas and solutions, and banking products to its clients through its Retail Bank, Commercial Bank, and Merchant Bank. Opus Bank offers a suite of treasury and cash management and depository solutions and a wide range of loan products, including commercial, healthcare, media and entertainment, corporate finance, multifamily residential, commercial real estate and structured finance, and is an SBA preferred lender. Opus Bank offers commercial escrow services and facilitates 1031 Exchange transactions through its Escrow and Exchange divisions. Opus Bank provides clients with financial and advisory services related to raising equity capital, targeted acquisition and divestiture strategies, general mergers and acquisitions, debt and equity financing, balance sheet restructuring, valuation, strategy and performance improvement through its Merchant Banking division and its broker-dealer subsidiary, Opus Financial Partners, LLC, Member FINRA/SIPC. Opus Bank’s alternative asset IRA custodian subsidiary has $14 billion of custodial assets and over 49,000 client accounts, which are comprised of self-directed investors, financial institutions, capital raisers and financial advisors. Opus Bank operates 50 banking offices, including 31 in California, 16 in the Seattle/Puget Sound region in Washington, two in the Phoenix metropolitan area of Arizona and one in Portland, Oregon. Opus Bank is an Equal Housing Lender. For additional information about Opus Bank, please visit our website: www.opusbank.com.

Forward Looking Statements

This release and the aforementioned conference call and webcast includes forward-looking statements related to Opus’ plans, beliefs and goals. Forward-looking statements are neither historical facts nor assurances of future performance. Opus generally identifies forward-looking statements by terminology such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “could,” “should,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of those words or other comparable words. Any forward‐looking statements contained in this release and the aforementioned conference call and webcast are based on the historical performance of Opus and its subsidiaries or on its current plans, beliefs, estimates, expectations and goals, including, without limitation: our expectations regarding the seasonality of certain clients; and our expectations regarding the performance of our bankers. Such forward-looking statements are subject to various risks and uncertainties and assumptions relating to our operations, financial results, financial condition, business prospects, growth strategy and liquidity that could cause actual results to differ materially from those indicated by the forward-looking statements, including, without limitation: market and economic conditions, changes in interest rates, our liquidity position, the management of our growth, the risks associated with our loan portfolio, local economic conditions affecting retail and commercial real estate, our geographic concentration in the western region of the United States, competition within the industry, dependence on key personnel, government legislation and regulation, the risks associated with any future acquisitions, the effect of natural disasters, and risks related to our technology and information systems. For a discussion of these and other risks and uncertainties, see Opus' filings with the Federal Deposit Insurance Corporation, including, but not limited to, the risk factors in Opus' Annual Report on Form 10-K filed with the Federal Deposit Insurance Corporation on March 14, 2018. If one or more of these or other risks or uncertainties materialize, or if Opus’ underlying assumptions prove to be incorrect, Opus’ actual results may vary materially from those indicated in these statements. These filings are available on the Investor Relations page of Opus' website at: investor.opusbank.com.

Opus undertakes no obligation to revise or publicly release any revision to these forward-looking statements, whether as a result of new information, future developments or otherwise.

       
Consolidated Statements of Income
(unaudited)   For the three months ended For the six months ended
($ in thousands, except per share amounts) June 30,
2018
March 31,
2018
June 30,
2017
June 30,
2018
June 30,
2017
Interest income:
Loans $ 53,807 $ 54,637 $ 57,834 $ 108,444 $ 118,066
Investment securities 5,048 5,094 5,212 10,142 8,280
Due from banks 1,326   951   2,055   2,277   4,016  
Total interest income 60,181   60,682   65,101   120,863   130,362  
Interest expense:
Deposits 8,403 7,018 7,122 15,423 14,303
Federal Home Loan Bank advances 332 48 25 379 92
Subordinated debt 1,923   1,923   1,923   3,845   3,845  
Total interest expense 10,658   8,989   9,070   19,647   18,240  
Net interest income 49,523 51,693 56,031 101,216 112,122
Provision (negative provision) for loan losses (213 ) 3,914   (7,098 ) 3,700   (1,130 )
Net interest income after provision (negative provision) for loan losses 49,736   47,779   63,129   97,516   113,252  
Noninterest income:
Fees and service charges on deposit accounts 1,783 1,722 1,984 3,505 3,907
Escrow and exchange fees 1,498 1,360 1,487 2,858 2,937
Trust administrative fees 6,841 6,978 6,717 13,819 13,099
Gain (loss) on sale of loans (100 ) (69 ) 93 (169 ) (206 )
Gain (loss) on sale of assets 1 (82 ) (84 )
Gain (loss) from OREO and other repossessed assets 84 118 78 203 (69 )
Gain on sale of investment securities 182 39 182 557
Bank-owned life insurance, net 1,045 1,053 886 2,097 1,775
Other income 1,776   1,964   3,523   3,741   5,312  
Total noninterest income 12,927   13,309   14,725   26,236   27,228  
Noninterest expense:
Compensation and benefits 25,472 26,808 26,753 52,280 55,949
Professional services 2,619 1,716 6,189 4,336 10,729
Occupancy expense 3,751 4,006 4,108 7,757 7,887
Depreciation and amortization 1,763 1,599 1,789 3,362 3,674
Deposit insurance and regulatory assessments 959 1,131 812 2,089 2,874
Insurance expense 335 338 356 673 711
Data processing 318 440 821 758 1,604
Software licenses and maintenance 1,126 1,149 1,127 2,275 2,285
Office services 1,847 1,880 1,817 3,726 4,216
Amortization of other intangible assets 1,479 1,479 1,479 2,959 2,959
Advertising and marketing 843 957 584 1,800 1,244
Litigation expense (recovery) 9 (14 ) (88 ) (5 ) 42
Other expenses 2,620   2,588   2,980   5,210   4,615  
Total noninterest expense 43,141   44,077   48,727   87,220   98,789  
Income before income tax expense 19,522 17,011 29,127 36,532 41,691
Income tax expense 4,058   4,107   10,888   8,165   15,795  
Net income $ 15,464   $ 12,904   $ 18,239   $ 28,367   $ 25,896  
Basic earnings per common share $ 0.41 $ 0.34 $ 0.49 $ 0.76 $ 0.71
Diluted earnings per common share 0.40 0.34 0.48 0.74 0.69
Weighted average shares - basic 36,027,569 35,967,779 37,318,962 35,997,839 36,541,414
Weighted average shares - diluted 38,316,721 38,316,243 38,037,452 38,317,160 37,367,238
 
     
Consolidated Balance Sheets
(unaudited) As of
($ in thousands, except share amounts)

June 30,
2018

March 31,
2018

June 30,
2017

 
Assets
Cash and due from banks $ 58,516 $ 43,462 $ 56,168
Due from banks – interest-bearing

342,483

248,763 599,169
Investment securities available-for-sale, at fair value 1,023,882 1,097,741 1,140,182
Loans held-for-investment 5,072,366 5,228,994 5,218,091
Less allowance for loan losses (59,197 ) (67,842 ) (87,745 )
Loans held-for-investment, net 5,013,169 5,161,152 5,130,346
OREO and other repossessed assets 5,208
Premises and equipment, net 25,718 26,649 33,684
Goodwill 331,832 331,832 331,832
Other intangible assets, net 41,842 43,321 47,759
Deferred tax assets, net 26,450 28,740 51,807
Cash surrender value of bank owned life insurance, net 152,215 150,819 122,635
Accrued interest receivable 19,915 19,978 19,463
Federal Home Loan Bank stock 17,250 17,250 17,250
Other assets 140,054   128,054   120,956  
Total assets $ 7,193,326   $ 7,297,761   $ 7,676,459  
Liabilities and Stockholders’ Equity
Deposits:
Noninterest-bearing demand $ 844,905 $ 855,810 $ 935,321
Interest-bearing demand 2,523,488 2,519,955 2,410,155
Money market and savings 2,047,309 2,267,648 2,538,588
Time deposits 518,481   400,203   449,995  
Total deposits 5,934,183 6,043,616 6,334,059
Federal Home Loan Bank advances 10,000 10,000
Subordinated debt, net 132,877 132,811 132,612
Accrued interest payable 4,008 2,118 3,921
Other liabilities 89,201   86,838   194,096  
Total liabilities 6,160,269   6,275,383   6,674,688  
Stockholders’ equity:
Preferred stock:
Authorized 200,000,000 shares; issued 31,111 and 31,111 and 612 shares, respectively 29,110 29,110 581
Common stock, no par value per share:
Authorized 200,000,000 shares; issued 36,618,447 and 36,460,468 and 37,790,356 shares, respectively 704,267 700,220 728,749
Additional paid-in capital 63,933 63,922 60,173
Retained earnings 266,033 254,701 223,259
Treasury stock, at cost; 568,794 and 458,887 and 408,987 shares, respectively (14,666 ) (11,603 ) (10,198 )
Accumulated other comprehensive income (loss) (15,620 ) (13,972 ) (793 )
Total stockholders’ equity 1,033,057   1,022,378   1,001,771  
Total liabilities and stockholders’ equity $ 7,193,326   $ 7,297,761   $ 7,676,459  
 
         
Selected Financial Data
As of or for the three months ended As of or for the six months ended
(unaudited) June 30,
2018
March 31,
2018
June 30,
2017
June 30,
2018
June 30,
2017
Return on average assets 0.86 % 0.72 % 0.94 % 0.79 % 0.67 %
Return on average stockholders' equity 6.03 5.11 7.35 5.57 5.33
Return on average tangible equity (1) 9.49 8.07 11.89 8.79 8.74
Efficiency ratio (2) 69.08 67.81 68.87 68.43 70.89
Noninterest expense to average assets 2.40 2.45 2.52 2.42 2.55
Yield on interest-earning assets (3) 3.73 3.75 3.74 3.74 3.70
Cost of deposits (4) 0.57 0.47 0.44 0.52 0.44
Cost of funds (5) 0.70 0.59 0.55 0.64 0.55
Net interest margin (3) 3.07 3.20 3.22 3.14 3.18
Loan to deposits 85.48 86.52 82.38 85.48 82.38
 
(1)   See computation in "Non-GAAP Financial Measures" section.
(2) The efficiency ratio is calculated by dividing noninterest expense by the sum of net interest income before provision for loan losses and noninterest income.
(3) Net interest margin and yield on interest-earning assets are presented on a tax equivalent basis using the federal effective tax rate.
(4) Calculated as interest expense on deposits divided by total average deposits.
(5) Calculated as total interest expense divided by average total deposits, FHLB advances and subordinated debt.
 
 
Capital Ratios As of
(unaudited) June 30, 2018(1)   March 31, 2018   June 30, 2017
Tier 1 leverage ratio 9.85 % 9.53 % 8.58 %
Tier 1 risk-based capital ratio 12.33 11.42 10.77
Total risk-based capital ratio 15.86 14.91 14.28
Common Equity Tier 1 ratio 11.80 10.92 10.77
 
(1) Ratios are preliminary until filing of our June 30, 2018 FDIC call report.
 
         
Loan Fundings
(unaudited) For the three months ended For the six months ended
($ in thousands)

June 30,
2018

March 31,
2018

June 30,
2017

June 30,
2018

June 30,
2017

Loans funded:
Real estate mortgage loans:
Single-family residential $ $ $ $ $
Multifamily residential 147,238 267,301 148,842 414,539 260,114
Commercial real estate 48,946 29,307 12,135 78,253 27,608
Construction and land loans 14,856 4,885 13,591 19,741 29,147
Commercial business loans 80,797 146,184 179,889 226,981 255,550
Small Business Administration loans 3,775 4,578 7,693 8,353 8,874
Consumer and other loans        
Total loan fundings $ 295,612   $ 452,255   $ 362,150   $ 747,867   $ 581,293
 
 
Composition of Loan Portfolio As of
(unaudited) June 30,
2018
  March 31,
2018
  June 30,
2017
($ in thousands) Amount   % of
Total loans
Amount   % of
Total loans
Amount   % of
Total loans
Originated loans held-for-investment
Real estate mortgage loans:
Single-family residential $ 46,815 0.9 % $ 56,913 1.1 % $ 66,484 1.3 %
Multifamily residential 2,641,314 52.1 2,667,313 51.0 2,250,464 43.1
Commercial real estate 1,060,824 20.9 1,044,276 20.0 1,161,241 22.3
Construction and land loans 93,697 1.8 79,080 1.5 84,687 1.6
Commercial business loans 1,075,271 21.2 1,221,517 23.4 1,484,361 28.4
Small Business Administration loans 32,815 0.6 31,278 0.6 20,962 0.4
Consumer and other loans 38   0.0   53   0.0   282   0.0  
Total originated loans 4,950,774 97.6 5,100,430 97.5 5,068,481 97.1
 
Acquired loans held-for-investment
Real estate mortgage loans:
Single-family residential 20,758 0.4 21,653 0.4 28,670 0.5
Multifamily residential 50,038 1.0 51,611 1.0 53,906 1.0
Commercial real estate 24,056 0.5 27,221 0.5 33,518 0.7
Construction and land loans 1,380 0.0 1,398 0.0 1,457 0.0
Commercial business loans 10,225 0.2 10,869 0.2 13,604 0.2
Small Business Administration loans 10,409 0.2 10,718 0.2 12,097 0.2
Consumer and other loans 4,726   0.1   5,094   0.1   6,358   0.1  
Total acquired loans 121,592   2.4   128,564   2.5   149,610   2.9  
Total gross loans $ 5,072,366   100.0 % $ 5,228,994   100.0 % $ 5,218,091   100.0 %
 
 
Composition of Deposits As of
(unaudited)

June 30,
2018

 

March 31,
2018

 

June 30,
2017

($ in thousands) Amount   % of
Total deposits
Amount   % of
Total deposits
Amount   % of
Total deposits
 
Noninterest bearing $ 844,905 14.3 % $ 855,810 14.2 % $ 935,321 14.8 %
Interest bearing demand 2,523,488 42.5 2,519,955 41.7 2,410,155 38.0
Money market and savings 2,047,309 34.5 2,267,648 37.5 2,538,588 40.1
Time deposits 518,481   8.7   400,203   6.6   449,995   7.1  
Total deposits $ 5,934,183   100.0 % $ 6,043,616   100.0 % $ 6,334,059   100.0 %
 
       
Consolidated average balance sheet, interest, yield and rates
 

For the three months ended
June 30,

 

For the three months ended
March 31,

For the three months ended
June 30,

(unaudited) 2018 2018 2017
($ in thousands) Average
Balance
 

Interest(1)

  Yields/
Rates
Average
Balance
   

Interest(1)

Yields/
Rates
Average
Balance
Interest (1) Yields/
Rates
Assets:  
Interest-earning assets:
Due from banks $ 299,987 $ 1,326 1.77 % $ 242,663 $ 951 1.59 % $ 772,900 $ 2,055 1.07 %
Investment securities 1,054,258 5,048 1.92 1,103,477 5,094 1.87 916,362 5,212 2.28
Acquired loans 124,564 1,797 5.79 130,918 1,779 5.51 155,404 2,029 5.24
Originated Loans 5,031,860   52,387   4.18   5,105,690   53,114   4.22   5,171,997   56,104   4.35  
Total loans $ 5,156,424   $ 54,184   4.21   $ 5,236,608   $ 54,893     4.25   $ 5,327,401   $ 58,133   4.38  
Total interest-earning assets $ 6,510,669 $ 60,558 3.73 $ 6,582,748 $ 60,938 3.75 $ 7,016,663 $ 65,400 3.74
Noninterest-earning assets 701,454   726,341   728,489  
Total assets $ 7,212,123   $ 7,309,089   $ 7,745,152  
 
Liabilities and stockholders’ equity:
Interest-bearing deposits
Interest-bearing demand $ 2,496,827 $ 1,801 0.29 % $ 2,531,947 $ 1,277 0.20 % $ 2,393,563 $ 1,154 0.19 %
Money market and savings 2,127,242 5,028 0.95 2,289,530 4,699 0.83 2,657,816 4,856 0.73
Time deposits 445,392   1,574   1.42   381,647   1,043   1.11   472,716   1,112   0.94  
Total interest bearing deposits $ 5,069,461 $ 8,403 0.66 $ 5,203,124 $ 7,019 0.55 $ 5,524,095 $ 7,122 0.52
Subordinated debt 132,843 1,923 5.81 132,777 1,923 5.87 132,575 1,923 5.82
FHLB advances 69,121   332   1.93   16,444   48   1.18   10,000   25   1.00  

Total interest-bearing liabilities

$ 5,271,425 $ 10,658 0.81 $ 5,352,345 $ 8,990 0.68 $ 5,666,670 $ 9,070 0.64
Noninterest-bearing deposits 847,027 832,888 934,961
Other liabilities 65,535   99,598   147,980  
Total liabilities $ 6,183,987 $ 6,284,831 $ 6,749,611
 
Total stockholders’ equity $ 1,028,136   $ 1,024,258   $ 995,541  
Total liabilities and
stockholders’ equity
$ 7,212,123   $ 7,309,089   $ 7,745,152  
 
Net interest spread (2) 2.92 % 3.07 % 3.10 %

Net interest income and margin, tax equivalent (3, 4)

$ 49,900   3.07 % $ 51,948   3.20 % $ 56,330   3.22 %
 

Reconciliation of tax equivalent net interest income to reported net interest income

Tax equivalent adjustment (377 ) (255 ) (299 )
Net interest income, as reported $ 49,523   $ 51,693   $ 56,031  
 
(1)   Interest income is presented on a taxable equivalent basis using the federal effective tax rate.
(2) Net interest spread represents the average yield on interest-earning assets less the average rate on interest-bearing liabilities.
(3) Net interest margin is computed by dividing net interest income by total average interest-earning assets.
(4) Net interest margin, tax equivalent has been adjusted to a taxable equivalent basis using the federal effective tax rate.
 
 
Consolidated average balance sheet, interest, yield and rates
  For the six months ended June 30,
2018   2017
(In thousands) Average
Balance
 

Interest(1)

  Yields/
Rates
Average
Balance
 

Interest(1)

Yields/
Rates
Assets:
Interest-earning assets
Due from banks $ 271,483 $ 2,277 1.69 % $ 861,574 $ 4,016 0.94 %
Investment securities 1,078,732 10,142 1.90 818,601 8,280 2.04
Acquired loans 127,723 3,577 5.65 162,419 4,860 6.03
Originated Loans 5,068,571   105,499   4.20   5,285,698   113,544   4.33  
Total loans $ 5,196,294   $ 109,076   4.23   $ 5,448,117   $ 118,404   4.38  
Total interest-earning assets $ 6,546,509 $ 121,495 3.74 $ 7,128,292 $ 130,700 3.70
Noninterest-earning assets 713,829   681,924  
Total assets $ 7,260,338   $ 7,810,216  
 
Liabilities and stockholders’ equity:
Interest-bearing deposits
Interest-bearing deposits $ 2,514,290 $ 3,078 0.25 % $ 2,444,270 $ 2,287 0.19 %
Money market and savings 2,207,938 9,728 0.89 2,709,693 9,813 0.73
Time deposits 413,696   2,617   1.28   488,109   2,203   0.91  
Total interest bearing deposits $ 5,135,924 $ 15,423 0.61 $ 5,642,072 $ 14,303 0.51
Subordinated debt 132,810 3,845 5.84 132,541 3,845 5.85
FHLB advances 42,928   379   1.78   18,812   92   0.99  
Total interest-bearing liabilities $ 5,311,662 $ 19,647 0.75 $ 5,793,425 $ 18,240 0.63
Noninterest-bearing deposits 839,997 928,123
Other liabilities 82,472   109,791  
Total liabilities $ 6,234,131 $ 6,831,339
 
Total stockholders’ equity $ 1,026,207   $ 978,877  
Total liabilities and
stockholders’ equity
$ 7,260,338   $ 7,810,216  
 
Net interest spread (2) 2.99 % 3.07 %

Net interest income and margin, tax equivalent (3, 4)

$ 101,848   3.14 % $ 112,460   3.18 %
 

Reconciliation of tax equivalent net interest income to reported net interest income

Tax equivalent adjustment (632 ) (338 )
Net interest income, as reported $ 101,216   $ 112,122  
 
(1)   Interest income is presented on a taxable equivalent basis using the federal effective tax rate.
(2) Net interest spread represents the average yield on interest-earning assets less the average rate on interest-bearing liabilities.
(3) Net interest margin is computed by dividing net interest income by total average interest-earning assets.
(4) Net interest margin, tax equivalent has been adjusted to a taxable equivalent basis using the federal effective tax rate.
 
   
Allowance for Loan Losses
(unaudited)   For the three months ended For the six months ended
($ in thousands)

June 30,
2018

 

March 31,
2018

 

June 30,
2017

June 30,
2018

June 30,
2017

 
Allowance for loan losses-balance at beginning of period $ 67,842 $ 75,930 $ 112,230 $ 75,930 $ 111,410
(Recapture) Provision for loan losses:
Acquired loans 434 (2 ) 434 (96 )
Originated loans (647 ) 3,914   (7,096 ) 3,267   (1,034 )
Total provision for loan losses (213 ) 3,914 (7,098 ) 3,701 (1,130 )
Charge-offs:
Acquired loans
Originated loans (12,508 ) (14,155 ) (17,799 ) (26,663 ) (23,515 )
Total charge-offs (12,508 ) (14,155 ) (17,799 ) (26,663 ) (23,515 )
Recoveries:
Acquired loans
Originated loans 4,076   2,153   412   6,229   980  
Total recoveries 4,076   2,153   412   6,229   980  
Total net recoveries (charge-offs) (8,432 ) (12,002 ) (17,387 ) (20,434 ) (22,535 )
Allowance for loan losses-balance at end of period $ 59,197   $ 67,842   $ 87,745   $ 59,197   $ 87,745  
 
     
Asset Quality Information
(unaudited) As of
($ in thousands)

June 30,
2018

March 31,
2018

June 30,
2017

Nonperforming assets
Nonaccrual loans $ 39,992 $ 63,813 $ 63,754
OREO and other repossessed assets     5,208  
Total nonperforming assets 39,992 63,813 68,962
 
Loans 30 - 89 days past due 5,761 13,304 202
Accruing loans 90 days or more past due 436 299 503
Accruing troubled debt restructured loans 139 139 155
 
Non performing loans to total loans 0.79 % 1.22 % 1.22 %
Non performing assets to total assets 0.56 % 0.87 % 0.90 %
Loans 30 - 89 days past due to total loans 0.11 % 0.25 % 0.00 %
Allowance for loan losses to total loans 1.17 % 1.30 % 1.68 %
Allowance for loan losses to non-accrual loans 148.02 % 106.31 % 137.6 %
Net charge-offs to average loans (annualized) 0.66 % 0.93 % 1.31 %
 
 
Risk Rating by Loan Product
(Unaudited)
($ in thousands)   Pass  

Special
Mention

  Classified   Total Loans  

Nonaccrual
loans

 

Total
allowance

As of June 30, 2018
Real estate mortgage loans:
Single-family residential $ 66,812 $ 78 $ 683 $ 67,573 $ $ 183
Multifamily residential 2,687,143 2,081 2,128 2,691,352 9,395
Commercial real estate 1,042,675 11,096 31,109 1,084,880 2,512 9,282
Construction and land loans 83,575 11,502 95,077 1,202
Commercial business loans 956,730 34,859 93,907 1,085,496 36,902 38,506
Small Business Administration loans 32,337 2,138 8,749 43,224 622
Consumer and other loans 3,990   60   714   4,764   578   7
Total loans $ 4,873,262   $ 61,814   $ 137,290   $ 5,072,366   $ 39,992   $ 59,197
 
As of March 31, 2018
Real estate mortgage loans:
Single-family residential $ 77,789 $ 79 $ 697 $ 78,565 $ $ 224
Multifamily residential 2,709,851 1,942 7,131 2,718,924 1,209 10,286
Commercial real estate 1,016,147 41,447 13,904 1,071,498 2,512 8,859
Construction and land loans 70,767 9,711 80,478 1,083
Commercial business loans 1,064,187 44,987 123,212 1,232,386 59,496 47,032
Small Business Administration loans 38,468 1,562 1,966 41,996 347
Consumer and other loans 4,351   61   735   5,147   596   11
Total loans $ 4,981,560   $ 99,789   $ 147,645   $ 5,228,994   $ 63,813   $ 67,842
 
As of June 30, 2017
Real estate mortgage loans:
Single-family residential $ 94,347 $ 82 $ 725 $ 95,154 $ $ 247
Multifamily residential 2,283,268 16,556 4,546 2,304,370 9,127
Commercial real estate 1,131,835 46,231 16,693 1,194,759 11,581 10,220
Construction and land loans 78,685 7,459 86,144 1,327
Commercial business loans 1,305,418 35,286 157,261 1,497,965 51,409 66,551
Small Business Administration loans 29,896 898 2,265 33,059 249
Consumer and other loans 5,621   63   956   6,640   764   24
Total loans $ 4,929,070   $ 106,575   $ 182,446   $ 5,218,091   $ 63,754   $ 87,745
 
 
Risk Rating by Lending Division
(Unaudited)
($ in thousands)   Pass  

Special
Mention

  Classified Total Loans  

Nonaccrual
loans

As of June 30, 2018
Income Property Banking $ 3,231,386 $ 6,475 $ 10,901 $ 3,248,762 $ 2,512
Commercial Banking 395,460 25,838 49,288 470,586 14,272
Structured Finance 294,396 17,262 311,658
Healthcare Provider 217,496 47,775 265,271
Healthcare Practice 20,539 946 21,485
Corporate Finance 103,321 11,529 12,968 127,818 11,645
Institutional Syndication 292,657 292,657
Public Finance 192,180 192,180
Technology Banking 2,000 2,000
Other divisions (2) 125,827   710   13,412   139,949   11,563
Total loans $ 4,873,262   $ 61,814   $ 137,290   $ 5,072,366   $ 39,992
 
March 31, 2018
Income Property Banking $ 3,230,456 $ 6,938 $ 15,358 $ 3,252,752 $ 3,721
Commercial Banking 401,996 27,478 52,107 481,581 18,882
Structured Finance 304,420 15,487 319,907
Healthcare Provider 209,912 33,489 33,771 277,172
Healthcare Practice 21,174 973 22,147
Corporate Finance 132,250 14,916 22,443 169,609 21,675
Institutional Syndication 339,451 (145 ) 1 339,306
Public Finance 178,539 178,539
Technology Banking 19,232 9,944 29,176 7,649
Other divisions (2) 144,130   1,481   13,194   158,805   11,886
Total loans $ 4,981,560   $ 99,789   $ 147,645   $ 5,228,994   $ 63,813
 
As of June 30, 2017
Income Property Banking $ 2,920,926 $ 21,465 $ 991 $ 2,943,382 $
Commercial Banking 443,247 33,697 60,962 537,906 12,078
Structured Finance 347,451 17,912 15,201 380,564 11,581
Healthcare Provider 305,456 25,466 18,633 349,555
Healthcare Practice 33,830 527 8,692 43,049 5,614
Corporate Finance 308,003 37,103 345,106 9,192
Institutional Syndication 297,382 (241 ) 1 297,141
Public Finance 84,524 84,524
Technology Banking 21,810 6,205 38,437 66,452 24,313
Other divisions (2) 166,441   1,303   2,668   170,412   976
Total loans $ 4,929,070   $ 106,575   $ 182,446   $ 5,218,091   $ 63,754
 
(1)   Represents unamortized net deferred loan origination fees on syndicated lines of credit that have no outstanding principal balances at period end.
(2) Other divisions is comprised of single family residential loans, consumer and other loans, and specialty banking divisions including Business Banking and Media and Entertainment Banking.
 

Non-GAAP Financial Measures

Our accounting and reporting policies conform to generally accepted accounting principles in the United States ("GAAP"). We believe that the presentation of certain non-GAAP financial measures assists investors in evaluating our financial results. These non-GAAP measures include our return on average tangible equity and tangible book value per as converted common share. These non-GAAP measures should be taken together with the corresponding GAAP measures and should not be considered a substitute of the GAAP measures.

The following tables present a reconciliation of the most comparable GAAP financial measures and ratios to the non-GAAP financial measures and ratios:

   
Non-GAAP return on average tangible equity
(unaudited)   For the three months ended For the six months ended
($ in thousands)

June 30,
2018

 

March 31,
2018

 

June 30,
2017

June 30,
2018

June 30,
2017

Average tangible equity:
Average stockholders' equity $ 1,028,136 $ 1,024,258 $ 995,541 $ 1,026,207 $ 978,877
Less:
Average goodwill 331,832 331,832 331,832 331,832 331,832
Average other intangible assets 42,606   44,083   48,583   43,340   49,343  
Average tangible equity $ 653,698 $ 648,343 $ 615,126 651,035 597,702
Net income $ 15,464 $ 12,904 $ 18,239 $ 28,367 $ 25,896
Return on average stockholders' equity 6.03 % 5.11 % 7.35 % 5.57 % 5.33 %
Non-GAAP return on average tangible equity 9.49 % 8.07 % 11.89 % 8.79 8.74
 
 
Non-GAAP tangible book value per as converted common share
(unaudited)   As of
($ In thousands, except share amounts)

June 30,
2018

 

March 31,
2018

 

June 30,
2017

Tangible equity:
Total stockholders' equity $ 1,033,057 $ 1,022,378 $ 1,001,771
Less:
Goodwill 331,832 331,832 331,832
Other intangible assets, net 41,842   43,321   47,759
Tangible equity 659,383 647,225 622,180
Shares of common stock outstanding 36,049,653 36,001,581 37,381,369
Shares of common stock to be issued upon conversion of preferred stock 1,555,550   1,555,550   30,600
Total as converted shares of common stock outstanding (1) 37,605,203   37,557,131   37,411,969
Book value per as converted common share $ 27.47 $ 27.22 $ 26.78
Tangible book value per as converted common share 17.53 17.23 16.63
 
(1)   Common stock outstanding includes additional shares of common stock that would be issued upon conversion of all outstanding shares of preferred stock to common stock and excludes shares issuable upon exercise of warrants and options.

Contacts

Opus Bank
Kevin L. Thompson, 949-251-8196
EVP, Chief Financial Officer
or
Brett G. Villaume, 949-224-8866
SVP, Director of Investor Relations

$Cashtags

Contacts

Opus Bank
Kevin L. Thompson, 949-251-8196
EVP, Chief Financial Officer
or
Brett G. Villaume, 949-224-8866
SVP, Director of Investor Relations