Opus Bank Announces First Quarter 2019 Results

IRVINE, Calif.–(BUSINESS WIRE)–lt;a href=”https://twitter.com/search?q=%24OPB&src=ctag” target=”_blank”gt;$OPBlt;/agt; lt;a href=”https://twitter.com/hashtag/Opus?src=hash” target=”_blank”gt;#Opuslt;/agt;–Opus Bank (“Opus”) (NASDAQ: “OPB”) announced today net income of $10.9
million, or $0.28 per diluted share, for the first quarter of 2019
compared to a net loss of $6.9 million, or $(0.20) per diluted share,
for the fourth quarter of 2018 and net income of $12.9 million, or $0.34
per diluted share, for the first quarter of 2018. Net income during the
first quarter of 2019 included a $1.4 million expense related to the
settlement of a longstanding legal matter that originated in January
2013 and a $489,000 charge related to the exiting of a line of business
included in Other Income. Together, these items impacted earnings by
$0.04 per diluted share.

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 May 23, 2019 to common stockholders, and a
common-equivalent payment to its Series A Preferred stockholders of
record as of May 9, 2019.

First Quarter 2019 Highlights

  • Loans held for investment increased 6%, or $296.3 million,
    compared to the prior quarter, driven by strong growth in multifamily
    loans.
  • Deposits increased 2%, or $124.9 million, compared to the prior
    quarter.
  • Net interest income increased 1% compared to the prior quarter,
    as higher interest income on loans and investment securities was
    partially offset by higher interest expense on deposits and borrowings.
  • Net interest margin expanded eight basis points to 3.15%
    compared to the prior quarter due to the benefit of loan repricing
    during the first quarter of 2019 and the repositioning of our
    securities portfolio in the fourth quarter of 2018. Our cost of
    deposits increased 13 basis points to 0.92% for the first quarter of
    2019.
  • Noninterest expense increased 2% compared to the prior quarter,
    excluding a $1.4 million expense related to a legal settlement during
    the quarter and $10.5 million of expenses related to a restructuring
    charge taken in the fourth quarter of 2018. The increase was driven by
    seasonally higher employer taxes in the first quarter of 2019.
  • Nonperforming assets decreased 17% compared to the prior
    quarter to $23.3 million, or 0.30% of total assets compared to 0.39%
    of total assets in the prior quarter.
  • Enterprise Value loans decreased 14% compared to the prior
    quarter to $105.0 million.
  • Provision for loan losses was $2.2 million, largely driven by
    quarterly loan growth, as Opus recorded net recoveries of $1.6 million
    in the first quarter of 2019, compared to net charge-offs of $12.0
    million in the prior quarter.
  • Tangible book value per common share increased $0.19 to $17.96,
    while our tangible common equity to tangible assets decreased 53 basis
    points to 8.88% due to growth in total assets during the first quarter
    of 2019.

Paul G. Greig, Chairman of the Board, Interim Chief Executive Officer
and President of Opus Bank, stated, “Our solid core earnings performance
during the first quarter of 2019 included higher net interest income,
expanding net interest margin, and further improvements in credit
quality. Strong quarterly loan growth was driven by high origination
volume of multifamily loans, as well as unusually low prepayments during
the first quarter. While we were successful in increasing our real
estate lending during the quarter, our focus on disciplined underwriting
has not changed. All of Opus’ team members are to be commended for the
contributions to our first quarter performance.”

Loans

Total loans held-for-investment increased $296.3 million, or 6%, to $5.5
billion as of March 31, 2019, from $5.2 billion as of December 31, 2018,
and increased $232.5 million, or 4%, from $5.2 billion as of March 31,
2018. The increase in total loans during the first quarter of 2019 was
driven by new loan fundings of $538.0 million, partially offset by loan
payoffs of $196.2 million, which included planned exits of $22.5 million.

Loan Balance Roll Forward        
(unaudited)     Three Months Ended
($ in millions)

March 31,
2019

December 31,
2018

September 30,
2018

June 30, 2018 March 31, 2018
 
Beginning loan balance $ 5,165.2 $ 5,159.9 $ 5,072.4 $ 5,229.0 $ 5,173.2
New loan fundings 538.0 412.3 435.7 295.6 452.3
Loan payoffs (173.7 ) (265.3 ) (197.4 ) (299.5 ) (219.2 )
Planned exits (22.5 ) (59.2 ) (60.6 ) (58.5 ) (52.2 )
Other1 (45.5 ) (82.5 ) (90.2 ) (94.2 ) (125.1 )
Ending loan balance $ 5,461.5   $ 5,165.2   $ 5,159.9   $ 5,072.4   $ 5,229.0  
 
[1] Includes normal amortization, paydowns, charge-offs, and loan
sales that were not planned exits
 
 

New loan fundings in the first quarter of 2019 totaled $538.0 million,
an increase of $125.7 million, or 30%, from the fourth quarter of 2018
and an increase of $85.7 million, or 19%, from the first quarter of
2018. Commercial Business loans comprised $56.9 million, or 11%, of
total new loan fundings; and real estate related loans comprised $480.3
million, or 89%, of total new loan fundings in the first quarter of
2019. Quarterly loan payoffs were $173.7 million, excluding planned loan
exits, compared to $265.3 million in the fourth quarter of 2018 and
$219.2 million in the first quarter of 2018.

Loan commitments originated during the first quarter of 2019 totaled
$550.3 million, compared to $399.8 million during the fourth quarter of
2018 and $439.2 million during the first quarter of 2018. Our unfunded
commitments on loans totaled $418.4 million as of March 31, 2019.

Cash and Investment Securities

Cash and investment securities totaled $1.5 billion as of March 31,
2019, an increase of $179.3 million, or 13%, compared to December 31,
2018, and an increase of $125.5 million, or 9%, compared to March 31,
2018. Cash and cash equivalents as of March 31, 2019 increased $166.9
million, or 66%, to $421.5 million compared to December 31, 2018, and
increased $129.3 million, or 44%, compared to March 31, 2018. The
balance of investment securities was relatively unchanged from the prior
period and the first quarter of 2018, increasing by $12.4 million
compared to December 31, 2018, and decreasing by $3.8 million compared
to March 31, 2018.

Deposits and Borrowings

Deposits increased $124.9 million, or 2%, to $6.1 billion as of
March 31, 2019, from $6.0 billion as of December 31, 2018 and increased
$33.2 million, or 1%, from $6.0 billion as of March 31, 2018. Deposit
growth in the first quarter of 2019 was driven by our Retail Banking,
Municipal Banking, and Commercial and Specialty Banking divisions.
Noninterest bearing demand deposits and money market and savings
increased 1% and 5%, respectively, in the first quarter of 2019, while
interest checking account balances decreased 4% from the prior quarter.
Time deposits increased $121.5 million compared to December 31, 2018.
The average balance of deposits in the first quarter of 2019 decreased
$84.3 million compared to the prior quarter, as deposit inflows occurred
later in the period.

Our loan to deposit ratio was 90% as of March 31, 2019, compared to 87%
as of December 31, 2018 and 87% as of March 31, 2018.

Federal Home Loan Bank (FHLB) advances increased to $330.0 million as of
March 31, 2019, compared to a zero balance as of December 31, 2018 and
$10.0 million as of March 31, 2018. The average balance of FHLB advances
during the first quarter of 2019 was $122.0 million, compared to $33,000
in the fourth quarter of 2018 and $16.4 million in the first quarter of
2018.

Net Interest Income

Net interest income increased 1% to $50.8 million for the first quarter
of 2019, compared to $50.4 million for the fourth quarter of 2018, and
decreased 2% from $51.7 million for the first quarter of 2018.

Interest income from loans increased 2% to $57.0 million for the first
quarter of 2019, driven by a 2% increase in the average balance of
loans, the benefit of repricing of loans, and interest recaptured on
nonaccrual loans, partially offset by fewer days in the first quarter.

Interest income from cash and investment securities increased 14% from
the fourth quarter of 2018 to $9.9 million for the first quarter of
2019, driven primarily by a higher yield on investment securities as a
result of the securities portfolio repositioning we executed near the
end of the fourth quarter of 2018. The average balance of cash and cash
equivalents decreased $84.9 million, or 27%, compared to the prior
quarter, as excess cash was redeployed into higher yielding loans and
investment securities.

Interest expense increased 15% to $16.1 million for the first quarter of
2019, compared to $14.0 million for the fourth quarter of 2018, and
increased 79% compared to $9.0 million for the first quarter of 2018.
The increase in interest expense during the first quarter of 2019 was
driven by a higher rate on interest-bearing deposits, a change in the
mix of deposits, and the addition of FHLB borrowings during the quarter.

Net Interest Margin

Net interest margin on a taxable equivalent basis increased eight basis
points to 3.15% in the first quarter of 2019 from 3.07% in the fourth
quarter of 2018, and decreased five basis points from 3.20% in the first
quarter of 2018. The linked-quarter change was primarily driven by an 11
basis point increase in the average yield on loans due to the benefit of
loan repricing, fewer days in the first quarter of 2019, and interest
recaptured on nonaccrual loans, as well as a 61 basis point increase in
the average yield on securities due to the repositioning of our
securities portfolio in the fourth quarter of 2018 and lower premium
amortization compared to the prior quarter. These were partially offset
by a 15 basis point increase in our cost of funds, driven primarily by
the increase in FHLB advances and lower balances of interest-bearing
demand and money market deposits.

Noninterest Income

Noninterest income increased 228% to $11.1 million in the first quarter
of 2019 from $3.4 million in the fourth quarter of 2018, and decreased
17% from $13.3 million in the first quarter of 2018. Noninterest income
during the first quarter of 2019 included $6.7 million of trust
administrative fees, $1.4 million from our Escrow & Exchange divisions,
and $1.4 million of treasury management and deposit account fees.
Noninterest income during the fourth quarter of 2018 included a $9.9
million loss on the sale of investment securities related to the
repositioning of our securities portfolio, as well as approximately $1.5
million of revenues generated by our Merchant Banking division that were
not repeated in the first quarter of 2019. Included in Other Income
during the first quarter of 2019 was a $49,000 net increase in equity
warrant valuations, compared to a net decrease of $354,000 in the prior
quarter, and an FHLB dividend of $304,000, compared to a dividend of
$584,000 in the prior quarter. Additionally, Other Income included an
expense of $489,000 primarily related to the exiting of Opus Financial
Partners, the company’s broker-dealer, as a line of business, which
triggered an impairment charge on a sublet property. Opus Bank is
discontinuing Opus Financial Partners as this line of business did not
achieve adequate performance results and was not considered an effective
use of capital.

Noninterest Expense

Noninterest expense decreased 15% to $45.4 million in the first quarter
of 2019, compared to $53.7 million in the fourth quarter of 2018, and
increased 3% from $44.1 million in the first quarter of 2018.
Noninterest expense during the first quarter of 2019 included a $1.4
million expense related to a legal settlement during the quarter, while
noninterest expense during the fourth quarter of 2018 included $10.5
million of expenses related to the restructuring charge taken in the
fourth quarter. Excluding these items, noninterest expense increased 2%
in the first quarter of 2019, primarily due to seasonally higher
employer taxes during the first quarter.

Our efficiency ratio for the first quarter of 2019 was 70.6%, compared
to 81.5% for the fourth quarter of 2018 and 65.5% for the first quarter
of 2018.

Income Tax Expense

We recorded an income tax expense of $3.4 million in the first quarter
of 2019, compared to an income tax benefit of $654,000 in the fourth
quarter of 2018 as a result of the pre-tax loss we incurred for the
quarter, and an income tax expense of $4.1 million in the first quarter
of 2018. Our effective tax rate for the first quarter of 2019 was 24.0%.

Asset Quality

Total nonperforming assets decreased 17% to $23.3 million, or 0.30% of
total assets, as of March 31, 2019, compared to $28.0 million, or 0.39%
of total assets, as of December 31, 2018, and $63.8 million, or 0.87% of
total assets, as of March 31, 2018. Total Enterprise Value loans were
reduced by $17.0 million, or 14%, during the first quarter of 2019 and
totaled $105.0 million as of March 31, 2019.

Total criticized loans increased $2.2 million, or 1%, to $152.5 million
as of March 31, 2019, compared to $150.3 million as of December 31, 2018,
and decreased $94.9 million, or 38%, from $247.4 million as of
March 31, 2018. Special mention loans decreased $13.2 million in the
first quarter of 2019, and classified loans increased $15.4 million. The
decrease in special mention loans was driven by $11.3 million of loans
downgraded to classified loans and payoffs, upgrades, and normal
amortization of $1.9 million. The increase in classified loans was
driven by downgrades of $26.2 million, partially offset by payoffs,
charge-offs, upgrades, and normal amortization of $10.8 million.

Our allowance for loan losses was $58.5 million, or 1.07% of our total
loan portfolio, as of March 31, 2019, compared to $54.7 million, or
1.06%, as of December 31, 2018 and $67.8 million, or 1.30%, as of
March 31, 2018. The increase in the allowance for loan losses during the
first quarter of 2019 compared to the prior quarter was driven by a
provision for loan losses of $2.2 million and recoveries of $2.0 million
which were partially offset by charge-offs of $383,000. The ratio of the
allowance for loan losses to total nonaccrual loans was 251% as of
March 31, 2019, compared to 195% as of December 31, 2018 and 106% as of
March 31, 2018.

We recorded a provision expense for loan losses of $2.2 million in the
first quarter of 2019, compared to a provision expense of $7.7 million
in the fourth quarter of 2018 and a provision expense of $3.9 million in
the first quarter of 2018. The provision expense during the first
quarter of 2019 was primarily driven by net loan growth and risk rating
migration, partially offset by net recoveries and planned loan exits.

Capital

As of March 31, 2019, Opus exceeded all regulatory capital requirements
under Basel III and was considered to be a “well-capitalized” financial
institution, as summarized in the table below:

Capital Ratios     As of  

Well-Capitalized
Regulatory
Requirements

(unaudited) March 31, 2019¹  

December 31,
2018

  March 31,
2018
 
Tier 1 leverage ratio 9.86 % 9.69 % 9.53 % 5.00 %
Common Equity Tier 1 ratio 11.10 11.40 10.92 6.50
Tier 1 risk-based capital ratio 11.59 11.92 11.42 8.00
Total risk-based capital ratio 14.85 15.29 14.91 10.00
Tangible equity to tangible assets ratio 9.27 9.84 9.35 NA
Tangible common equity to tangible assets ratio 8.88 9.41 8.93 NA
 
[1] Regulatory capital ratios are preliminary until filing of our
March 31, 2019 FDIC call report.
 
 

Stockholders’ equity totaled over $1.0 billion as of March 31, 2019 and
increased $7.3 million from December 31, 2018 and $25.7 million from
March 31, 2018. Our tangible book value per common share increased $0.19
to $17.96 as of March 31, 2019 compared to $17.77 as of December 31,
2018, and increased $0.79 compared to $17.17 as of March 31, 2018.

Conference Call and Webcast Details

Date: Monday, April 29, 2019
Time: 8:00 a.m. PT (11:00 a.m. ET)

Phone Number: (855) 265-3237
Conference ID: 5876447
Webcast
URL: http://investor.opusbank.com/event

Analysts, investors, and the general public may listen to our discussion
of Opus’ first 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 5876447. The call replay will be
available through May 30, 2019.

About Opus Bank

Opus Bank is an FDIC insured California-chartered commercial bank with
$7.7 billion of total assets, $5.5 billion of total loans, and $6.1
billion in total deposits as of March 31, 2019. Opus Bank provides
commercial and retail banking products and solutions to its clients in
western markets from its headquarters in Irvine, California and through
47 banking offices, including 28 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 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. Additionally,
Opus Bank’s wholly-owned subsidiary, PENSCO Trust Company, has
approximately $14 billion of custodial IRA assets and approximately
47,000 client accounts, which are comprised of self-directed investors,
financial institutions, capital raisers and financial advisors. 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. 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 February 28, 2019. 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
($ in thousands, except per share amounts)

March 31,
2019

December 31,
2018

March 31,
2018

Interest income:
Loans $ 57,007 $ 55,701 $ 54,637
Investment securities 8,577 6,931 5,094
Due from banks 1,324   1,758   951  
Total interest income 66,908   64,390   60,682  
Interest expense:
Deposits 13,425 12,038 7,018
Federal Home Loan Bank advances 756 48
Subordinated debt 1,923   1,923   1,923  
Total interest expense 16,104   13,961   8,989  
Net interest income 50,804 50,429 51,693
Provision for loan losses 2,197   7,659   3,914  
Net interest income after provision for loan losses 48,607   42,770   47,779  
Noninterest income:
Fees and service charges on deposit accounts 1,440 1,615 1,722
Escrow and exchange fees 1,353 1,422 1,360
Trust administrative fees 6,685 6,800 6,978
Gain (loss) on sale of loans (111 ) 147 (69 )
Gain (loss) on sale of assets (137 ) 1
Gain from OREO and other repossessed assets 118
Gain (loss) on sale of investment securities 113 (9,892 ) 182
Bank-owned life insurance, net 980 958 1,053
Other income 640   2,469   1,964  
Total noninterest income 11,100   3,382   13,309  
Noninterest expense:
Compensation and benefits 26,875 33,042 26,808
Professional services 2,216 5,045 1,716
Occupancy expense 3,830 4,023 4,006
Depreciation and amortization 1,833 1,700 1,599
Deposit insurance and regulatory assessments 773 914 1,131
Insurance expense 344 317 338
Data processing 565 815 440
Software licenses and maintenance 1,301 1,293 1,149
Office services 1,639 1,821 1,880
Amortization of other intangible assets 1,415 1,437 1,479
Advertising and marketing 723 824 957
Other expenses 3,896   2,436   2,574  
Total noninterest expense 45,410   53,667   44,077  
Income before income tax (benefit) expense 14,297 (7,515 ) 17,011
Income tax (benefit) expense 3,436   (654 ) 4,107  
Net income (loss) $ 10,861   $ (6,861 ) $ 12,904  
Basic earnings per common share $ 0.29 $ (0.20 ) $ 0.34
Diluted earnings per common share 0.28 (0.20 ) 0.34
Weighted average shares – basic 36,187,431 36,059,713 35,967,779
Weighted average shares – diluted 38,133,705 36,059,713 38,316,243
 
 
Consolidated Balance Sheets        
(unaudited) As of
($ in thousands, except share amounts) March 31,
2019
December 31,
2018
March 31,
2018
 
Assets
Cash and due from banks $ 42,862 $ 39,860 $ 43,462
Due from banks – interest-bearing 378,671 214,776 248,763
Investment securities available-for-sale, at fair value 1,093,915 1,081,546 1,097,741
Loans held-for-investment 5,461,500 5,165,210 5,228,994
Less allowance for loan losses (58,483 ) (54,664 ) (67,842 )
Loans held-for-investment, net 5,403,017 5,110,546 5,161,152
Premises and equipment, net 25,771 23,863 26,649
Goodwill 331,832 331,832 331,832
Other intangible assets, net 37,510 38,926 43,321
Deferred tax assets, net 15,924 24,171 28,740
Cash surrender value of bank owned life insurance, net 155,279 154,271 150,819
Accrued interest receivable 24,292 23,260 19,978
Federal Home Loan Bank stock 17,250 17,250 17,250
Other assets 161,582   120,602   128,054  
Total assets $ 7,687,905   $ 7,180,903   $ 7,297,761  
Liabilities and Stockholders’ Equity
Deposits:
Noninterest-bearing demand $ 781,429 $ 771,141 $ 855,810
Interest-bearing demand 2,397,361 2,507,605 2,519,955
Money market and savings 2,099,058 1,995,684 2,267,648
Time deposits 798,918   677,458   400,203  
Total deposits 6,076,766 5,951,888 6,043,616
Federal Home Loan Bank advances 330,000 10,000
Subordinated debt, net 133,076 133,010 132,811
Accrued interest payable 2,702 4,032 2,118
Other liabilities 97,255   51,160   86,838  
Total liabilities 6,639,799   6,140,090   6,275,383  
Stockholders’ equity:
Preferred stock:
Authorized 200,000,000 shares; issued 31,111 and 31,111 and 31,111
shares, respectively
29,110 29,110 29,110
Common stock, no par value per share:
Authorized 200,000,000 shares; issued 37,227,637 and 36,637,870 and
36,460,468 shares, respectively
700,220 700,220 700,220
Additional paid-in capital 80,528 69,954 63,922
Retained earnings 267,021 260,304 254,701
Treasury stock, at cost; 1,048,657 and 577,495 and 458,887 shares,
respectively
(25,403 ) (14,983 ) (11,603 )
Accumulated other comprehensive loss (3,370 ) (3,792 ) (13,972 )
Total stockholders’ equity 1,048,106   1,040,813   1,022,378  
Total liabilities and stockholders’ equity $ 7,687,905   $ 7,180,903   $ 7,297,761  
 
 

Contacts

Kevin L. Thompson
EVP, Chief Financial Officer
949-251-8196

Brett G. Villaume
SVP, Director of Investor Relations
949-224-8866

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