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Opus Bank Reports Fourth Quarter and Year End 2016 Results

Company Release - 1/30/2017 7:00 AM ET

-- Announces Private Placement of $50 Million of Common Stock --

IRVINE, Calif.--(BUSINESS WIRE)-- Opus Bank (“Opus” or the “Bank”) (NASDAQ: OPB) announced today a net loss of $19.0 million, or $(0.55) per diluted share, for the fourth quarter of 2016 and net income of $11.5 million, or $0.33 per diluted share, for the year ended December 31, 2016 as compared to a net loss of $3.0 million, or $(0.09) per diluted share, for the third quarter of 2016 and net income of $59.9 million, or $1.79 per diluted share, for the year ended December 31, 2015.

On January 29, 2017, Opus entered into purchase agreements with a limited number of institutional accredited investors, providing for the sale in a private placement of $53 million of its common stock at $18.50 per share, resulting in net proceeds of approximately $50 million. Closing of the transaction is subject to the receipt of a stock permit from the California Department of Business Oversight - Division of Financial Institutions and the satisfaction of customary closing conditions.

Opus’ fourth quarter 2016 earnings were impacted by a provision for loan losses totaling $69.5 million. The fourth quarter provision for loan losses was driven by the addition of $27.2 million for loan risk rating migration, $22.1 million for additional specific reserves on impaired loans and $19.2 million of net charge-offs recorded on impaired loans. The risk rating migration, specific reserve increases and charge-offs were concentrated in our commercial business loan portfolio, primarily in our Technology Banking, Healthcare Banking and Corporate Finance divisions.

Stephen H. Gordon, Founding Chairman, Chief Executive Officer and President of Opus Bank, stated, “We are deeply disappointed with the fourth quarter loss driven by credit deterioration in our commercial business loan portfolio. We take this very seriously and are acutely focused on addressing the related issues and restoring Opus to its historic levels of performance.”

Mr. Gordon continued, “We have taken decisive action to bolster our credit infrastructure and to assess our Commercial & Specialty Banking loan portfolios. We enhanced the credit administration leadership team, through the hiring of Brian Fitzmaurice as Opus’ new Senior Executive Vice President and Senior Chief Credit Officer, and we added a number of highly experienced commercial banking senior credit administrators. Further, we enhanced our enterprise risk management team and we promoted two key executives to the newly established roles of Co-Chief Lending Officers for Commercial Real Estate Banking and Commercial & Specialty Banking. We also strengthened underwriting and administration processes and augmented ongoing portfolio management and problem loan resolution. As part of our credit assessment process, our internal credit administration team, led by Mr. Fitzmaurice, performed a thorough review of the commercial business loan portfolio to supplement our comprehensive quarterly portfolio management process. In addition, we retained a nationally recognized third-party loan review firm to conduct an independent review of the same portfolio. The combination of these reviews covered substantially all of the commercial business loan portfolio, including our Commercial & Specialty Banking divisions, and confirmed that further deterioration in certain commercial business loans had occurred during the fourth quarter, which drove risk rating downgrades and resulted in increased specific reserves and charge-offs.”

On December 23, 2016, Opus completed the sale of $509.0 million of its multifamily loans through a Freddie Mac sponsored transaction, which resulted in a $14.2 million net gain on the sale of loans and $3.0 million of related noninterest expense. One class of Freddie Mac guaranteed Structured Pass-Through Certificates was issued, which was purchased entirely by Opus.

Mr. Gordon concluded, “The sale of a pool of our multifamily loans through a transaction with Freddie Mac was an important and strategic transaction that provides many benefits to Opus, including enhanced liquidity and reduces our commercial real estate loan concentrations and loan-to-deposit ratio. As we enter 2017, we believe the actions taken in the fourth quarter position Opus with a stronger credit administration and enterprise risk management infrastructure, enhanced credit culture, and a management team with the experience necessary to manage through our challenged credits. Opus possesses a strong core deposit base, a significant cash position, a largely floating-rate loan portfolio, and the ability to redeploy cash flows received from elevated loan prepayments. Opus’ balance sheet has become meaningfully more asset sensitive compared to the year-ago period, and as a result, the bank is better positioned for a potential rising interest rate environment.”

Quarter and Year End 2016 Highlights

  • New loan fundings were $429.9 million in the fourth quarter of 2016 compared to $634.1 million in the third quarter of 2016 and $763.1 million in the fourth quarter of 2015. Lower loan fundings in the fourth quarter of 2016 occurred as we assessed our commercial banking loan portfolio and focused on enhancements of our credit risk process. For the full year 2016, new loan fundings totaled $2.3 billion as compared to $2.4 billion during 2015. Loan commitments of $499.9 million were originated during the fourth quarter of 2016 compared to $751.1 million in the third quarter of 2016 and $819.9 million in the fourth quarter of 2015. Loan commitments originated during 2016 totaled $2.6 billion compared to $2.8 billion in 2015.
  • Total loans held-for-investment decreased by $621.0 million, or 10%, during the fourth quarter of 2016 to $5.7 billion as of December 31, 2016, and increased by $173.3 million, or 3.2%, from $5.5 billion as of December 31, 2015. The linked-quarter decrease in total loans was driven by new loan fundings being offset by the sale of $509.0 million of multifamily loans and $73.2 million of other originated and acquired loans, $353.9 million of loan payoffs during the quarter, and net loan charge-offs of $19.2 million.
  • As we discussed in prior quarters, we have de-emphasized our Technology Banking division. Total loan payoffs during the fourth quarter of 2016 included full payoffs of $41.6 million in our Technology Banking portfolio. The remaining balance of Technology Banking loans was $190.5 million as of December 31, 2016. During the fourth quarter of 2016, we also took steps to de-emphasize Healthcare Practice lending.
  • Total assets increased to a record $7.9 billion at December 31, 2016 from $7.7 billion at September 30, 2016 and $6.6 billion at December 31, 2015.
  • Total deposits grew $182.1 million, or 3%, during the fourth quarter to a record $6.7 billion at December 31, 2016, and increased by $1.4 billion, or 26%, from December 31, 2015. Noninterest bearing plus interest bearing demand deposits (“total demand deposits”) increased by $288.3 million, or 9%, during the fourth quarter of 2016 to $3.4 billion, and increased by $1.3 billion, or 59%, during the year ended December 31, 2016. Total demand deposits increased to 51% of total deposits as of December 31, 2016, up from 48% as of September 30, 2016 and 40% as of December 31, 2015.
  • Opus’ cost of deposits decreased one basis point to 0.43% for the fourth quarter of 2016 and the cost of funds decreased two basis points to 0.55% compared to the prior quarter. Our cost of deposits decreased four basis points for the year ended December 31, 2016 to 0.45% compared to 0.49% for the year ended December 31, 2015 and our cost of funds remained stable at 0.51% over the same periods.
  • During the fourth quarter of 2016, approximately $279.1 million of ancillary custodial cash balances were transferred to Opus. As of December 31, 2016, total ancillary balances related to our alternative asset IRA custodian subsidiary were $1.2 billion.
  • Net interest income decreased 1% to $60.2 million for the fourth quarter of 2016 compared to $60.7 million for the third quarter of 2016, and increased 6% compared to $56.7 million for the fourth quarter of 2015. The linked-quarter decrease was primarily due to a decline of $1.1 million in interest income from the acquired loan portfolio. Net interest income increased 16% to $242.5 million for the year ended December 31, 2016 from $208.3 million for the year ended December 31, 2015, mainly due to a 34% increase in interest income from originated loans during 2016. Interest income from our originated loan portfolio comprised 92% of loan interest income for the year ended December 31, 2016 as compared to 79% for the year ended December 31, 2015.
  • Net interest margin decreased 16 basis points to 3.36% for the fourth quarter of 2016 compared to 3.52% for the third quarter of 2016 and 3.86% for the fourth quarter of 2015. The linked-quarter decrease in net interest margin was primarily driven by lower income from acquired loans and the impact of loans placed on nonaccrual. Net interest margin decreased 33 basis points to 3.62% for the year ended December 31, 2016 compared to 3.95% for the year ended December 31, 2015, primarily due to lower interest income from acquired loans.
  • Contractual net interest margin for the fourth quarter of 2016 decreased 11 basis points from the prior quarter to 3.32% and decreased 10 basis points from the prior year. The linked-quarter decrease was due to lower average balances of acquired loans and the impact of loans placed on nonaccrual. Contractual net interest margin increased one basis point to 3.45% for the year ended December 31, 2016, primarily due to higher balances of originated loans.
  • Noninterest income increased 67% to $27.1 million during the fourth quarter of 2016 compared to $16.3 million in the third quarter of 2016 and $6.0 million in the fourth quarter of 2015. Noninterest income in the fourth quarter of 2016 included $15.2 million in gains on the sale of loans, $6.6 million in trust administrative fees, $1.7 million in escrow and exchange fees and $362,000 from our Merchant Banking division, including our broker-dealer subsidiary, Opus Financial Partners. Net equity warrant valuation changes reduced total noninterest income by $1.5 million during the fourth quarter of 2016. Noninterest income increased 151% to $61.9 million for the year ended December 31, 2016 from $24.7 million for the year ended December 31, 2015.
  • Noninterest expense during the fourth quarter of 2016 totaled $51.2 million compared to $42.3 million in the third quarter of 2016 and $28.0 million in the fourth quarter of 2015. The increase from the prior quarter was primarily due to a decrease of $3.7 million in origination-related deferred compensation during the quarter, $3.0 million in costs associated with the multifamily loan sale, and higher professional services fees, including legal and consulting-related expenses. Noninterest expense was $162.7 million for the year ended December 31, 2016 compared to $110.2 million for the year ended December 31, 2015. The year-over year increase was primarily due to increases in compensation and benefits and professional expenses related to the acquisition of our alternative asset IRA custodian, as well as merger and strategic initiative related expenses.
  • Our efficiency ratio was 58.6% for the fourth quarter of 2016 compared to 55.0% for the third quarter of 2016 and 44.7% for the fourth quarter of 2015. The efficiency ratio increased to 53.4% for the year ended December 31, 2016 compared to 47.3% for the year ended December 31, 2015.
  • Our total allowance for loan losses was $111.4 million, or 1.97% of total loans, as of December 31, 2016, compared to $61.1 million, or 0.97% of total loans, as of September 30, 2016, and $44.1 million, or 0.80% of total loans, as of December 31, 2015. Our coverage ratio, which includes the remaining discount on the acquired loan portfolio, was 2.03% as of December 31, 2016, compared to 1.04% as of September 30, 2016 and 1.08% as of December 31, 2015.
  • We recorded net charge-offs of $19.2 million during the fourth quarter of 2016, compared to $39.0 million during the third quarter of 2016 and $676,000 during the fourth quarter of 2015. Charge-offs recorded during the fourth quarter of 2016 included $15.9 million for loans that had specific reserves or charge-offs recorded in prior quarters. Technology Banking and Healthcare Practice loans accounted for $12.1 million and $4.8 million of the current quarter charge-offs, respectively.
  • Total criticized loans, which includes special mention and classified risk rating categories, were $317.3 million as of December 31, 2016 compared to $147.4 million as of September 30, 2016. The quarterly net change in total criticized loans was driven by $205.6 million of downgrades partially offset by $35.6 million of criticized loans that were resolved through either payoffs, loan sales or charge-offs during the quarter. Increases in criticized loans and related specific reserves were driven by deterioration in the underlying financial performance of the individual businesses or changes in financial circumstances during the current quarter.
  • Total nonperforming assets increased to $95.1 million, or 1.21% of total assets, as of December 31, 2016 compared to $44.8 million, or 0.58% of total assets, as of September 30, 2016 and $24.3 million, or 0.37% of total assets as of December 31, 2015. Increases in nonperforming assets during the fourth quarter of 2016 were driven mainly by Corporate Finance, Commercial Banking and Structured Finance division loans.
  • Opus’ capital ratios remain in excess of regulatory thresholds for a well-capitalized institution. Our Tier 1 leverage ratio, Common Equity Tier 1 ratio, and total risk-based capital ratios were 7.54%, 8.78%, and 12.11% as of December 31, 2016, compared to 8.11%, 9.15%, and 12.22% as of September 30, 2016 and 9.59%, 10.81%, and 11.65% as of December 31, 2015, respectively. Pro forma for the private placement of common stock on January 29, 2016, our Tier 1 leverage ratio, Common Equity Tier 1 ratio, and total risk-based capital ratios are 8.16%, 9.57%, and 12.89%.

Net Interest Income

Net interest income decreased 1% to $60.2 million for the fourth quarter of 2016 compared to $60.7 million for the third quarter of 2016 and increased 6% from $56.7 million for the fourth quarter of 2015. Interest income from originated loans increased by $137,000 from the third quarter of 2016 and increased by $11.9 million from the fourth quarter of 2015. Interest income from the acquired loan portfolio decreased by $1.1 million from the prior quarter and decreased by $7.2 million from the fourth quarter of 2015. Accretion income from the acquired loan portfolio totaled $717,000 during the fourth quarter of 2016, compared to $1.5 million during the third quarter of 2016 and $6.2 million during the fourth quarter of 2015. Interest expense was $9.2 million for the fourth quarter of 2016 compared to $9.1 million for the third quarter of 2016 and $6.7 million for the fourth quarter of 2015. The increase in interest expense was driven by the growth of $324.7 million in average interest bearing deposits from the third quarter of 2016 and $1.5 billion from the fourth quarter of 2015, as well as the addition of $132 million of subordinated debt during the second quarter of 2016.

Net interest income increased 16% to $242.5 million for the year ended December 31, 2016 from $208.3 million for the year ended December 31, 2015. Interest income for the year ended December 31, 2016 totaled $274.8 million, an increase of $41.4 million, or 18%, from $233.4 million for the year ended December 31, 2015, due to an increase of $62.4 million in interest income from the originated loan portfolio, offset by a decrease of $23.6 million in interest income from the acquired loan portfolio as the average balance of the acquired loan portfolio continues to decline. Interest expense for the year ended December 31, 2016 totaled $32.3 million, an increase of $7.2 million, or 29%, from $25.1 million for the year ended December 31, 2015. The year-over-year increase in interest expense was primarily due to higher average deposit balances and the interest expense related to subordinated debt issued during the second quarter of 2016.

Net interest margin decreased 16 basis points to 3.36% in the fourth quarter of 2016 from 3.52% in the third quarter of 2016 and decreased from 3.86% in the fourth quarter of 2015. The decrease from the prior quarter was primarily driven by lower income from acquired loans, including lower interest and accretion income, and the impact of loans placed on nonaccrual, partially offset by the net benefit from higher prepayments during the quarter and a lower cost of funds. Total loan yield during the fourth quarter of 2016 decreased to 4.29% from 4.37% in the third quarter of 2016 and 4.80% in the fourth quarter of 2015. Accretion income from the acquired loan portfolio contributed four basis points to the net interest margin during the fourth quarter of 2016 compared to nine basis points in the third quarter of 2016 and 44 basis points in the fourth quarter of 2015. The yield on originated loans decreased two basis points to 4.22% during the fourth quarter of 2016 primarily due to the impact of loans placed on nonaccrual.

Contractual net interest margin, which excludes the impact of accretion and amortization of acquisition discounts and premiums on the acquired loan portfolio, decreased 11 basis points to 3.32% for the fourth quarter of 2016 from 3.43% in the prior quarter and decreased 10 basis points from 3.42% in the fourth quarter of 2015. The linked-quarter change in contractual net interest margin was primarily due to lower average balances of acquired loans and the impact of loans placed on nonaccrual. Our cost of funds decreased two basis points to 0.55% for the fourth quarter of 2016 compared to 0.57% for the third quarter of 2016 and 0.48% for the fourth quarter of 2015. Our cost of deposits decreased one basis point to 0.43% for the fourth quarter of 2016 as compared to 0.44% for the third quarter of 2016 and 0.47% for the fourth quarter of 2015.

Net interest margin decreased 33 basis points to 3.62% for the year ended December 31, 2016 compared to 3.95% for the year ended December 31, 2015. The yield on originated loans decreased to 4.27% for the year ended December 31, 2016 compared to 4.30% for the year ended December 31, 2015. The yield on the acquired loan portfolio decreased to 10.28% for the year ended December 31, 2016 compared to 12.36% for the year ended December 31, 2015, due primarily to lower accretion income from the sales of acquired loans. Accretion income from the acquired loan portfolio contributed 0.17% and 0.51% to net interest margin during the years ended December 31, 2016 and 2015, respectively. Contractual net interest margin increased one basis point to 3.45% for the year ended December 31, 2016 compared to 3.44% for the year ended December 31, 2015. Our cost of funds remained unchanged from 0.51% for the years ended December 31, 2016 and 2015, and our cost of deposits decreased to 0.45% for the year ended December 31, 2016 from 0.49% for the year ended December 31, 2015, primarily due to the addition of $1.2 billion in deposits with an average cost of two basis points from our alternative asset IRA custodian subsidiary, offset by the addition of subordinated debt during the year.

Noninterest Income and Noninterest Expense

Noninterest income increased 67% to $27.1 million in the fourth quarter of 2016 as compared to $16.3 million in the third quarter of 2016 and $6.0 million in the fourth quarter of 2015. Noninterest income increased 151% to $61.9 million for the year ended December 31, 2016 compared to $24.7 million for the year ended December 31, 2015. Noninterest income during the fourth quarter of 2016 included $15.2 million in gains on the sale of loans, including a $14.2 million net gain associated with the multifamily loan sale and approximately $1.0 million in gain on the sales of other originated and acquired loans totaling $73.2 million. Noninterest income in the fourth quarter of 2016 also included $6.6 million of trust administrative fees from our alternative asset IRA custodian subsidiary, $1.7 million in fees generated through our Escrow and Exchange divisions, and $362,000 of advisory fee income from our Merchant Banking division, including our broker-dealer subsidiary, Opus Financial Partners. Net equity warrant valuation changes reduced total noninterest income by $1.5 million during the fourth quarter of 2016.

Noninterest expense totaled $51.2 million in the fourth quarter of 2016 as compared to $42.3 million in the third quarter of 2016 and $28.0 million in the fourth quarter of 2015. The increase in noninterest expense from the prior quarter was primarily due to a decrease of $3.7 million in origination-related deferred compensation during the quarter, $3.0 million of costs associated with the multifamily loan sale, and higher professional services fees, including legal and consulting-related expenses. Noninterest expense for the year ended December 31, 2016 was $162.7 million compared to $110.2 million for the year ended December 31, 2015. The year-over year increase was primarily due to increases in compensation and benefits and professional expenses related to the acquisition of our alternative asset IRA custodian in April 2016, as well as merger and strategic initiative related expenses.

Loans

Total loans held-for-investment, net of the allowance for loan losses, were $5.6 billion at December 31, 2016, a decrease of $671.3 million, or 11%, from $6.2 billion at September 30, 2016 and an increase of $106.0 million, or 2%, from $5.5 billion at December 31, 2015. The decrease in total loans during the fourth quarter of 2016 was driven by new loan fundings of $429.9 million being offset by the sale of $509.0 million of multifamily loans, the sale of $73.2 million of other originated and acquired loans, $353.9 million of loan payoffs during the quarter and net loan charge-offs of $19.2 million.

On December 23, 2016, Opus completed the sale of $509.0 million of its multifamily loans through a Freddie Mac sponsored transaction, which met the requirements for true sale accounting treatment. One class of Freddie Mac guaranteed Structured Pass-Through Certificates were issued, which were purchased by Opus and held as available-for-sale. Additionally, Opus was appointed to be the sub-servicer of the loans. The transaction reduced Opus’ commercial real estate loan concentration and loan to deposit ratio, and increased our liquidity ratio. At December 31, 2016, the total loan portfolio was comprised of 40% originated multifamily loans with the remaining portion comprised primarily of originated commercial business loans.

During the fourth quarter of 2016 we originated $429.9 million of new loan fundings, compared to $634.1 million in the third quarter of 2016 and $763.1 million in the fourth quarter of 2015. New loan fundings during the fourth quarter of 2016 included $187.5 million from Income Property Banking, $59.6 million from Institutional Syndications, $59.2 million from Structured Finance, $58.0 million from Healthcare Banking, $29.1 million from Commercial Banking, $23.3 million from Corporate Finance, $7.4 million from Media & Entertainment Banking, and $5.0 million from Public Finance. Loan commitments originated during the fourth quarter totaled $499.9 million as compared to $751.1 million in the third quarter of 2016 and $819.9 million in the fourth quarter of 2015. At December 31, 2016, our unfunded commitments on originated loans totaled $668.6 million.

Originated loans increased by $264.8 million, or 5%, for the year ended December 31, 2016. New loan fundings totaled $2.3 billion for the year ended December 31, 2016, compared to $2.4 billion for the year ended December 31, 2015. Loan payoffs totaled $1.1 billion during the year ended December 31, 2016, compared to $688.6 million during the year ended December 31, 2015. Commercial and Specialty Banking divisions contributed 57% of total new loan fundings during 2016 compared to 52% during 2015. Loan commitments originated during the year ended December 31, 2016 totaled $2.6 billion as compared to $2.8 billion during the year ended December 31, 2015.

Our acquired loan portfolio totaled $176.9 million as of December 31, 2016, a decrease of 5% from $186.3 million as of September 30, 2016 and 34% from $268.4 million at December 31, 2015. As of December 31, 2016, our total unfunded commitments on acquired loans totaled $19.8 million.

Deposits and Borrowings

Deposits totaled $6.7 billion as of December 31, 2016, an increase of $182.1 million, or 3%, from $6.5 billion as of September 30, 2016 and $1.4 billion, or 26%, from $5.3 billion as of December 31, 2015. The growth in total deposits during the fourth quarter of 2016 was mainly due to the transfer to Opus of $279.1 million of additional ancillary IRA custodial client cash balances held at other banks.

Total demand deposits, including both noninterest-bearing and interest-bearing demand deposit accounts, increased $288.3 million, or 9.3%, during the fourth quarter of 2016, and now comprise 51% of total deposits as of December 31, 2016, an increase from 48% as of September 30, 2016 and an increase from 40% as of December 31, 2015. As of December 31, 2016, business deposits represented 53% of total deposits, compared to 52% as of September 30, 2016 and 52% as of December 31, 2015.

Our loan-to-deposit ratio decreased to 85% as of December 31, 2016 compared to 97% as of September 30, 2016 and 104% as of December 31, 2015.

Federal Home Loan Bank advances totaled $65.0 million as of December 31, 2016 and September 30, 2016 compared to $420.0 million as of December 31, 2015. Subordinated debt issued during the second quarter of 2016 totaled $132.5 million as of December 31, 2016, compared to zero outstanding as of December 31, 2015.

Asset Quality

Our allowance for loan losses was $111.4 million, or 1.97% of our total loan portfolio, as of December 31, 2016 compared to $61.1 million, or 0.97%, as of September 30, 2016 and $44.1 million, or 0.80%, as of December 31, 2015. Our acquired loan portfolio had a remaining discount of $3.7 million as of December 31, 2016. The coverage ratio for the total loan portfolio, which includes the remaining discount on the acquired loan portfolio, as of December 31, 2016 was 2.03% compared to 1.04% as of September 30, 2016 and 1.08% as of December 31, 2015. Our allowance for loan losses on originated loans resulted in a coverage ratio of 2.02% as of December 31, 2016, compared to 0.99% as of September 30, 2016 and 0.82% as of December 31, 2015. The increase in our coverage ratio as of December 31, 2016 was primarily driven by specific reserves and risk rating migration within our commercial business loan portfolio, specifically the Technology Banking, Healthcare Practice and Corporate Finance divisions which comprised 40% of our commercial business loan portfolio and 12% of our total loan portfolio at year end.

Net charge-offs recorded during the fourth quarter of 2016 totaled $19.2 million, compared to $39.0 million during the third quarter of 2016 and $676,000 during the fourth quarter of 2015. Net charge-offs during the fourth quarter of 2016 included $15.9 million for loans that had specific reserves or charge-offs recorded in prior quarters. Technology Banking and Healthcare Practice loans accounted for $12.1 million and $4.8 million of the current quarter net charge-offs, respectively. The remaining balance of Opus originated loans for which charge-offs were previously recorded was $21.4 million as of December 31, 2016, $21.2 million of which was comprised of four loan relationships in our Technology and Healthcare Practice portfolios that were on nonaccrual.

We recorded a provision for loan losses of $69.5 million in the fourth quarter of 2016 compared to $40.4 million in the third quarter of 2016 and $8.0 million in the fourth quarter of 2015. The provision for loan losses during the fourth quarter was driven by $27.2 million for risk rating migration, an increase of $22.1 million in specific reserves, net charge-offs of $19.2 million and $5.3 million in higher reserves for increased loss factors, partially offset by a $4.3 million decrease for the quarterly decline in the loan portfolio primarily due to the multifamily loan sale. The provision recapture on the acquired loan portfolio totaled $47,000 in the fourth quarter of 2016, $173,000 in the third quarter of 2016 and $359,000 in the fourth quarter of 2015.

Total criticized loans were $317.3 million as of December 31, 2016 compared to $147.4 million as of September 30, 2016 and $94.9 million as of December 31, 2015. The quarterly net change in total criticized loans was driven by $205.6 million of downgrades offset by $35.6 million of criticized loans that were resolved through either payoffs, loan sales or charge-offs during the quarter. Commercial business loans comprised $171.8 million of loans downgraded into criticized categories during the fourth quarter of 2016.

Total nonperforming assets increased to $95.1 million, or 1.21% of total assets, as of December 31, 2016 compared to $44.8 million, or 0.58% of total assets, as of September 30, 2016, and $24.3 million, or 0.37% of total assets, as of December 31, 2015.

Commercial Business Loans

Commercial business loans accounted for $19.0 million of Opus’ net charge-offs in the fourth quarter of 2016, down from $36.2 million in the third quarter of 2016. Of the net charge-offs recorded on commercial business loans during the fourth quarter of 2016, $12.1 million was related to two Technology Banking division relationships that had either specific reserves or charge-offs recorded in prior quarters and experienced additional deterioration in the underlying businesses or changes in financial circumstances during the quarter. Healthcare Practice loans comprised $4.8 million of the net charge-offs recorded on commercial business loans during the fourth quarter and were related to five loan relationships, including three that had either specific reserves or charge-offs recorded in prior quarters. The remaining amount of net charge-offs on commercial business loans during the fourth quarter consisted of one Corporate Finance relationship for $1.1 million and smaller Business Banking relationships totaling $883,000. As of December 31, 2016, commercial business loan relationships that have experienced charge-offs had a remaining balance of $21.4 million.

Commercial business loans on nonaccrual totaled $82.0 million as of December 31, 2016 and were mainly comprised of three Technology Banking relationships totaling $31.8 million and two Corporate Finance division relationships totaling $27.5 million. Total criticized commercial business loans as of December 31, 2016 were $264.7 million, or 15% of total commercial business loans, compared to $113.3 million, or 6%, as of September 30, 2016. Commercial business loans downgraded to criticized during the fourth quarter were primarily concentrated in the Technology Banking, Corporate Finance and Healthcare Provider divisions. As of December 31, 2016, we had specific reserves of $23.8 million on commercial business loans compared to $1.7 million of specific reserves as of September 30, 2016. Increases in criticized loans and related specific reserves were driven by deterioration during the current quarter in the underlying financial performance of the individual businesses or changes in financial circumstances during the quarter.

As of December 31, 2016, the total allowance recorded for commercial business loans, which includes general and specific reserves, equaled $91.2 million, or 5.2% of total commercial business loans, compared to $41.5 million, or 2.3% of total commercial business loans, as of September 30, 2016. At December 31, 2016, there were specific reserves of $23.8 million for commercial business loans, comprised of $10.1 million for Corporate Finance loans, $6.0 million for Technology Banking loans and $7.7 million for other Commercial and Business Banking loans.

As we discussed in prior quarters, we have de-emphasized our Technology Banking division, as evidenced by the $41.6 million in full loan payoffs in the Technology Banking loan portfolio during the fourth quarter of 2016. During the fourth quarter of 2016, we also took steps to de-emphasize Healthcare Practice lending. Opus continues to originate Healthcare Provider loans to hospitals, skilled nursing facilities, outpatient centers, and other corporate providers of healthcare and the ancillary businesses that support them.

Commercial Real Estate Loans

Net charge-offs in Opus’ $1.4 billion commercial real estate loan portfolio were $189,000 in the fourth quarter of 2016, compared to $2.9 million in the third quarter of 2016. Commercial real estate loans on nonaccrual totaled $12.3 million, or 0.9% of total commercial real estate loans as of December 31, 2016 compared to $7.2 million, or 0.5%, as of September 30, 2016. Total criticized commercial real estate loans were $36.8 million as of December 31, 2016 compared to $26.6 million as of September 30, 2016. The increase in criticized loans was driven by one loan downgrade in the Healthcare Provider portfolio. As of December 31, 2016, commercial real estate loans had no specific reserves and a total allowance of $9.6 million, or 0.7% of total commercial real estate loans, compared to zero specific reserves and a total allowance of $9.0 million, or 0.7% of total commercial real estate loans, as of September 30, 2016.

Multifamily Loans

Opus’ $2.3 billion multifamily loan portfolio has experienced zero charge-offs since our inception in 2010. There were no multifamily loans on nonaccrual status as of December 31, 2016 and no delinquencies. There were no specific reserves for loans within the multifamily portfolio at December 31, 2016 and total criticized multifamily loans were $10.9 million, or 0.5% of total multifamily loans as of December 31, 2016, compared to $2.1 million, or 0.1% of total multifamily loans, as of September 30, 2016. As of December 31, 2016, our multifamily portfolio had a total allowance of $8.9 million, or 0.4% of total multifamily loans, as compared to $9.0 million, or 0.3%, in the prior quarter.

Capital

Our capital ratios continue to exceed bank regulatory requirements for a well-capitalized institution. As of December 31, 2016, our Tier 1 leverage ratio was 7.54%, Common Equity Tier 1 ratio was 8.78%, and total risk-based capital ratio was 12.11%, compared to 8.11%, 9.15%, and 12.22% for the third quarter of 2016, respectively. As of December 31, 2015, our Tier 1 leverage, Common Equity Tier 1 ratio and total risk-based capital ratios were 9.59%, 10.81%, and 11.65%, respectively. Stockholders’ equity totaled $925.9 million as of December 31, 2016, a decrease of 2% from $943.9 million as of September 30, 2016 and an increase of 7% from $867.0 million as of December 31, 2015. Our tangible book value per as converted common share decreased to $15.84 as of December 31, 2016 from $16.42 as of September 30, 2016 and $18.28 as of December 31, 2015. Opus will not be paying a dividend in connection with the fourth quarter.

On January 29, 2017, Opus entered into purchase agreements with a limited number of institutional accredited investors, providing for the sale in a private placement of $53 million of its common stock at $18.50 per share, resulting in net proceeds of approximately $50 million. Closing of the transaction is subject to the receipt of a stock permit from the California Department of Business Oversight - Division of Financial Institutions and the satisfaction of customary closing conditions. Pro forma for the private placement, our December 31, 2016 Tier 1 leverage ratio, Common Equity Tier 1 ratio, and total risk-based capital ratios are 8.16%, 9.57%, and 12.89%, respectively. Pro forma tangible book value per as converted common share is $15.97 as of December 31, 2016.

Conference Call and Webcast Details
Date: Monday, January 30, 2017
Time: 8:00 a.m. PT (11:00 a.m. ET)

Phone Number (855) 265-3237
Conference Id: 61960903
Webcast URL: http://investor.opusbank.com/event

Analysts, investors, and the general public may listen to the Bank’s discussion of its fourth quarter and annual 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 unable to participate in the call, an archive of the call will be available beginning approximately 2 hours following the end 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 61960903. The call replay will be available until March 1, 2017.

About Opus Bank

Opus Bank is an FDIC insured California-chartered commercial bank with $7.9 billion of total assets, $5.7 billion of total loans, and $6.7 billion in total deposits as of December 31, 2016. Opus Bank provides superior ideas and solutions, and banking products to its clients through its Retail Bank, Commercial Bank, Merchant Bank and Correspondent 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. Opus Bank’s subsidiary, PENSCO Trust Company, is a leading tech-enabled alternative asset IRA custodian with over $12 billion of custodial assets and approximately 48,000 client accounts, which are comprised of self-directed investors, financial institutions, capital raisers and financial advisors. Opus Bank operates 56 banking offices, including 32 in California, 21 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 at: www.opusbank.com

Forward-Looking Statements

This release and the aforementioned conference call and webcast may include forward-looking statements related to the Opus’ plans, beliefs and goals, which involve certain risks, and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Such risks and uncertainties include, but are not limited to, the following factors: competitive pressure in the banking industry; changes in the interest rate environment; the health of the economy, either nationally or regionally; the deterioration of credit quality, which would cause an increase in the provision for possible loan and lease losses; changes in the regulatory environment; changes in business conditions, particularly in California real estate; volatility of rate sensitive deposits; asset/liability matching risks and liquidity risks; and changes in the securities markets. 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. 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.

 
Consolidated Statement of Operations
(unaudited)   Three Months Ended   Year Ended

($ in thousands, except per share amounts)

December 31,   September 30,   December 31, December 31,   December 31,

 

2016 2016 2015 2016 2015
Interest income:
Loans $ 67,192 $ 68,191 $ 62,532 $ 268,752 $ 230,000
Investment securities 1,194 939 552 3,178 2,345
Due from banks   946     641     333   2,900     1,066
Total interest income   69,332     69,771     63,417   274,830     233,411
Interest expense:
Deposits 7,090 6,917 6,136 26,836 22,755
Federal Home Loan Bank advances 160 232 557 1,603 2,331
Subordinated debt   1,922     1,923       3,886    
Total interest expense   9,172     9,072     6,693   32,325     25,086
Net interest income 60,160 60,699 56,724 242,505 208,325
Provision for loan losses   69,459     40,446     8,014   125,778     24,967

Net interest income (loss) after provision for loan losses

  (9,299 )   20,253     48,710   116,727     183,358
Noninterest income:

Fees and service charges on deposit accounts

1,951 2,025 1,694 7,843 6,580
Escrow and exchange fees 1,737 1,868 1,777 7,214 5,074
Trust administrative fees 6,622 7,285 20,171
Gain on sale of loans 15,187 336 399 15,836 399
Gain (loss) on sale of assets (2 ) 219 14 195 120
Gain (loss) from real estate owned, net (27 ) 15 153 (65 ) 28
Gain (loss) on sale of securities 800
Bank-owned life insurance, net 850 897 923 3,494 3,197
Other income   765     3,605     1,048   7,173     8,471
Total noninterest income   27,083     16,250     6,008   61,861     24,669
Noninterest expense:
Compensation and benefits 26,068 23,016 14,979 88,987 60,831
Professional services 6,982 2,937 1,926 14,816 7,246
Occupancy expense 3,617 3,557 3,011 13,609 11,768
Depreciation and amortization 1,867 2,021 1,484 7,169 5,608

Deposit insurance and regulatory assessments

1,799 1,059 975 5,165 3,490
Insurance expense 357 354 317 1,442 1,229
Data processing 882 830 842 3,381 3,283
Software licenses and maintenance 975 1,053 579 3,462 2,092
Office services 2,114 1,973 985 6,900 4,008
Amortization of other intangible assets 1,479 1,479 627 4,781 2,508
Advertising and marketing 727 555 291 1,877 1,166
Litigation expense (recovery) 121 444 18 246 293
Other expenses   4,172     3,051     2,000   10,912     6,727
Total noninterest expense   51,160     42,329     28,034   162,747     110,249

Income (loss) before income tax expense (benefit)

(33,376 ) (5,826 ) 26,684 15,841 97,778
Income tax expense (benefit)   (14,422 )   (2,805 )   10,012   4,387     37,835
Net income (loss) $ (18,954 ) $ (3,021 ) $ 16,672 $ 11,454   $ 59,943
Basic earnings (loss) per common share $ (0.55 ) $ (0.09 ) $ 0.51 $ 0.34 $ 1.86
Diluted earnings (loss) per common share (0.55 ) (0.09 ) 0.50 0.33 1.79
Weighted average shares - basic 34,285,683 34,274,756 30,429,049 33,781,354 29,003,588
Weighted average shares - diluted 34,285,683 34,274,756 33,670,728 35,103,431 33,448,090
 
 
Consolidated Balance Sheets
(unaudited)   As of
December 31,   September 30,   December 31,
($ in thousands, except share amounts) 2016 2016 2015
 
Assets
Cash and due from banks $ 47,986 $ 49,753 $ 33,419
Due from banks – interest-bearing 887,137 568,714 451,458
Investment securities available-for-sale, at fair value 666,589 156,813 151,761
Loans held-for-investment 5,669,067 6,290,107 5,495,804
Less allowance for loan losses   (111,410 )   (61,103 )   (44,147 )
Loans held-for-investment, net 5,557,657 6,229,004 5,451,657
Real estate owned 428 558 1,251
Premises and equipment, net 33,978 37,937 31,008
Goodwill 331,832 328,285 262,115
Other intangible assets, net 50,718 52,198 10,099
Deferred tax assets, net 55,954 32,652 48,813
Cash surrender value of bank owned life insurance, net 120,969 120,119 116,760
Accrued interest receivable 20,814 21,848 18,056
Federal Home Loan Bank stock 17,250 17,250 17,250
Other assets   91,251     94,078     56,186  
Total assets $ 7,882,563   $ 7,709,209   $ 6,649,833  
Liabilities and Stockholders’ Equity
Deposits:
Noninterest-bearing demand $ 899,159 $ 931,063 $ 975,588
Interest-bearing demand 2,505,468 2,185,216 1,161,272
Money market and savings 2,761,808 2,838,433 2,598,852
Time deposits   515,326     544,989     571,336  
Total deposits 6,681,761 6,499,701 5,307,048
Federal Home Loan Bank advances 65,000 65,000 420,000
Subordinated debt, net 132,479 132,391
Accrued interest payable 4,108 2,157 332
Other liabilities   73,280     66,102     55,415  
Total liabilities   6,956,628     6,765,351     5,782,795  
Stockholders’ equity:
Preferred stock:
Authorized 200,000,000 shares; issued 612 and 612 and 612 shares, respectively 581 581 581
Common stock, no par value per share:
Authorized 200,000,000 shares; issued 34,565,063 and 34,551,270 and 32,717,359 shares, respectively 678,291 678,291 621,677
Additional paid-in capital 56,582 54,349 46,371
Retained earnings 197,363 216,316 203,823
Treasury stock, at cost; 287,942 and 273,236 and 217,168 shares, respectively (7,509 ) (7,001 ) (5,189 )
Accumulated other comprehensive income (loss)   627     1,322     (225 )
Total stockholders’ equity   925,935     943,858     867,038  
Total liabilities and stockholders’ equity $ 7,882,563   $ 7,709,209   $ 6,649,833  
 
Selected Financial Data
  As of or for the three months ended   As of or for the year ended
December 31,   September 30,   December 31, December 31,   December 31,
(unaudited) 2016 2016 2015 2016 2015
Return on average assets (0.97 )% (0.16 )% 1.03 % 0.16 % 1.03 %
Return on average stockholders' equity (7.87 ) (1.25 ) 7.66 1.22 7.15
Return on average tangible equity (1) (13.03 ) (2.07 ) 11.19 1.95 10.50
Efficiency ratio (2) 58.64 55.01 44.69 53.37 47.32
Noninterest expense to average assets 2.61 2.24 1.74 2.22 1.89
Yield on interest-earning assets 3.87 4.04 4.31 4.10 4.42
Cost of deposits (3) 0.43 0.44 0.47 0.45 0.49
Cost of funds (4) 0.55 0.57 0.48 0.51 0.51
Net interest margin 3.36 3.52 3.86 3.62 3.95
Loans to deposits 84.84 % 96.78 % 103.56 % 84.84 % 103.56 %
 

(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) Calculated as interest expense on deposits divided by total average deposits.

(4) Calculated as total interest expense divided by average total deposits and FHLB advances.

 
Capital Ratios As of
December 31,   September 30,   December 31,
(unaudited) 2016 2016 2015
Tier 1 leverage ratio 7.54 % 8.11 % 9.59 %
Tier 1 risk-based capital ratio 8.78 9.15 10.81
Total risk-based capital ratio 12.11 12.22 11.65
Common Equity Tier 1 ratio 8.78 9.15 10.81
 
 
Loan Fundings
(unaudited)   Three Months Ended   Year Ended
December 31,   September 30,   December 31, December 31,   December 31,
($ in thousands) 2016 2016 2015 2016 2015
Loans funded:
Real estate mortgage loans:
Single-family residential $ $ $ $ $
Multifamily residential 185,244 238,363 279,088 928,687 906,255
Commercial real estate 83,813 76,833 146,371 343,888 430,945
Construction and land loans 17,069 15,482 16,684 59,443 40,826
Commercial business loans 143,742 301,669 318,927 938,314 1,031,180
Small Business Administration loans 1,783 1,980 5,997 4,413
Consumer and other loans          
Total loan fundings $ 429,868 $ 634,130 $ 763,050 $ 2,276,329 $ 2,413,619
 
 
Composition of Loan Portfolio As of
December 31,   September 30,   December 31,
(unaudited) 2016 2016 2015
  % of   % of   % of
Total Total Total
($ in thousands) Amount loans Amount loans Amount loans
Originated loans held-for-investment
Real estate mortgage loans:
Single-family residential $ 79,065 1.4 % $ 85,970 1.4 % $ 100,988 1.8 %
Multifamily residential 2,241,095 39.5 2,780,139 44.2 2,584,667 47.0
Commercial real estate 1,311,064 23.1 1,301,001 20.7 1,113,250 20.3
Construction and land loans 110,005 1.9 93,070 1.5 56,095 1.0
Commercial business loans 1,732,348 30.6 1,824,645 29.0 1,348,666 24.5
Small Business Administration loans 18,257 0.3 18,609 0.3 23,347 0.5
Consumer and other loans   338 0.0     352 0.0     397 0.0  
Total originated loans 5,492,172 96.9 6,103,786 97.0 5,227,410 95.1
 
Acquired loans held-for-investment
Real estate mortgage loans:
Single-family residential 34,713 0.6 37,583 0.6 50,016 0.9
Multifamily residential 61,882 1.1 64,439 1.0 76,498 1.4
Commercial real estate 42,579 0.8 46,365 0.7 63,520 1.2
Construction and land loans 2,001 0.0 2,017 0.0 2,061 0.0
Commercial business loans 15,821 0.3 14,991 0.2 19,898 0.4
Small Business Administration loans 13,159 0.2 13,616 0.2 48,781 0.9
Consumer and other loans   6,740 0.1     7,310 0.1     7,620 0.1  
Total acquired loans   176,895 3.1     186,321 3.0     268,394 4.9  
Total gross loans $ 5,669,067 100.0 % $ 6,290,107 100.0 % $ 5,495,804 100.0 %
 
 
Composition of Deposits As of
December 31,   September 30,   December 31,
(unaudited) 2016 2016 2015
  % of   % of   % of
Total Total Total
($ in thousands) Amount deposits Amount deposits Amount deposits
 
Noninterest bearing $ 899,159 13.5 % $ 931,063 14.3 % $ 975,588 18.4 %
Interest bearing demand 2,505,468 37.5 2,185,216 33.6 1,161,272 21.9
Money market and savings 2,761,808 41.3 2,838,433 43.7 2,598,852 49.0
Time deposits   515,326 7.7     544,989 8.4     571,336 10.7  
Total deposits $ 6,681,761 100.0 % $ 6,499,701 100.0 % $ 5,307,048 100.0 %
 
 
Consolidated average balance sheet, interest, yield and rates
                   
For the three months ended   For the three months ended For the three months ended
December 31,   September 30, December 31,
(unaudited) 2016 2016 2015
Average     Yields/ Average     Yields/ Average     Yields/
($ in thousands) Balance Interest Rates Balance Interest Rates Balance Interest Rates
Assets:
Interest-earning assets:
Due from banks $ 690,414 $ 946 0.55 % $ 498,881 $ 641 0.51 % $ 458,586 $ 333 0.29 %
Investment securities 203,139 1,194 2.34 157,334 939 2.37 202,828 552 1.08
Acquired loans 182,925 3,019 6.57 197,904 4,155 8.35 299,382 10,247 13.58
Originated Loans   6,051,628   64,173 4.22     6,014,394   64,036 4.24     4,874,189   52,285 4.26  
Total loans $ 6,234,553 $ 67,192 4.29   $ 6,212,298 $ 68,191   4.37   $ 5,173,571 $ 62,532   4.80  
Total interest-earning assets 7,128,106 $ 69,332 3.87 6,868,513 $ 69,771 4.04 5,834,985 $ 63,417 4.31
Noninterest-earning assets   681,694   661,332   556,088
Total assets $ 7,809,800 $ 7,529,845 $ 6,391,073
 
Liabilities and stockholders’ equity:
Interest-bearing deposits
Interest-bearing demand $ 2,380,363 $ 1,010 0.17 % $ 2,067,238 $ 810 0.16 % $ 1,042,901 $ 602 0.23 %
Money market and savings 2,773,442 4,963 0.71 2,739,540 4,936 0.72 2,600,594 4,346 0.66
Time deposits   525,230   1,117 0.85     547,603   1,171 0.85     581,747   1,188 0.81  
Total interest-bearing

deposits

$ 5,679,035 $ 7,090 0.50 $ 5,354,381 $ 6,917 0.51 $ 4,225,242 $ 6,136 0.58
Subordinated debt 132,437 1,922 5.77 132,350 1,923 5.78 0.00
FHLB advances   65,033   160 0.98     127,011   232 0.73     337,772   557 0.65  
Total interest-bearing

liabilities

$ 5,876,505 $ 9,172 0.62 $ 5,613,742 $ 9,072 0.64 $ 4,563,014 $ 6,693 0.58
Noninterest-bearing deposits 910,158 889,051 915,233
Other liabilities   64,441   65,238   49,294
Total liabilities $ 6,851,104 $ 6,568,031 $ 5,527,541
 
Total stockholders’ equity $ 958,696 $ 961,814 $ 863,532
Total liabilities and
stockholders’ equity
$ 7,809,800 $ 7,529,845 $ 6,391,073
 
Net interest income $ 60,160 $ 60,699 $ 56,724
 

Net interest spread (1)

3.25 % 3.40 % 3.73 %
 

Net interest margin (2)

3.36 % 3.52 % 3.86 %
 

(1) Net interest spread represents the average yield on interest-earning assets less the average rate on interest-bearing liabilities.

(2) Net interest margin is computed by dividing net interest income by total average interest-earning assets.

 
Consolidated average balance sheet, interest, yield and rates
   
For the year ended December 31,
(unaudited) 2016   2015
Average     Yields/ Average     Yields/
($ In thousands) Balance Interest Rates Balance Interest Rates
Assets:
Interest-earning assets
Due from banks $ 558,798 $ 2,900 0.52 % $ 407,372 $ 1,066 0.26 %
Investment securities 164,748 3,178 1.93 220,310 2,345 1.06
Acquired loans 218,328 22,445 10.28 372,711 46,073 12.36
Originated Loans   5,764,763   246,307 4.27     4,275,063   183,927 4.30  
Total loans $ 5,983,091 $ 268,752 4.49   $ 4,647,774 $ 230,000   4.95  
Total interest-earning assets $ 6,706,637 $ 274,830 4.10 $ 5,275,456 $ 233,411 4.42
Noninterest-earning assets   635,215   556,899
Total assets $ 7,341,852 $ 5,832,355
 
Liabilities and stockholders’ equity:
Interest-bearing deposits
Interest-bearing demand $ 1,874,864 $ 3,254 0.17 % $ 772,258 $ 1,620 0.21 %
Money market and savings 2,687,695 19,022 0.71 2,424,336 16,216 0.67
Time deposits   546,454   4,560 0.83     600,902   4,919 0.82  
Total interest bearing deposits $ 5,109,013 $ 26,836 0.53 $ 3,797,496 $ 22,755 0.60
Subordinated debt 67,281 3,886 5.78 0.00
FHLB advances   269,872   1,603 0.59     356,827   2,331 0.65  
Total interest-bearing liabilities $ 5,446,166 $ 32,325 0.59 $ 4,154,323 $ 25,086 0.60
Noninterest-bearing deposits 899,625 800,895
Other liabilities   61,020   38,256
Total liabilities $ 6,406,811 $ 4,993,474
 
Total stockholders’ equity   935,041   838,881
Total liabilities and stockholders’ equity $ 7,341,852 $ 5,832,355
 
Net interest income $ 242,505 $ 208,325
 

Net interest spread (1)

3.51 % 3.82 %
 

Net interest margin (2)

3.62 % 3.95 %
 

(1) Net interest spread represents the average yield on interest-earning assets less the average rate on interest-bearing liabilities.

(2) Net interest margin is computed by dividing net interest income by total average interest-earning assets.

 
Allowance for Loan Losses
(unaudited)
  Three Months Ended   Year Ended
December 31,   September 30,   December 31, December 31,   December 31,
($ in thousands) 2016 2016 2015 2016 2015
Allowance for loan losses - balance at beginning of period $ 61,103 $ 59,694 $ 36,809 $ 44,147 $ 23,043
(Recapture) Provision for loan losses:
Acquired loans (47 ) (173 ) (359 ) (517 ) (1,657 )
Originated loans   69,506     40,619     8,373     126,295     26,624  
Total provision for loan losses 69,459 40,446 8,014 125,778 24,967
Charge-offs:
Acquired loans
Originated loans   (19,770 )   (39,075 )   (756 )   (59,209 )   (3,943 )
Total charge-offs (19,770 ) (39,075 ) (756 ) (59,209 ) (3,943 )
Recoveries
Acquired loans
Originated loans   618     38     80     694     80  
Total recoveries   618     38     80     694     80  
Total net charge-offs   (19,152 )   (39,037 )   (676 )   (58,515 )   (3,863 )
Allowance for loan losses - balance at end of period $ 111,410   $ 61,103   $ 44,147   $ 111,410   $ 44,147  
 
 
Asset Quality Information
(unaudited)   As of
December 31,   September 30,   December 31,
($ in thousands) 2016 2016 2015
Nonperforming assets
Nonaccrual loans $ 94,667 $ 44,244 $ 23,050
Real estate owned   428     558     1,251  
Total nonperforming assets 95,095 44,802 24,301
Nonperforming assets to total assets 1.21 % 0.58 % 0.37 %
 
Accruing loans 90 days or more past due $ 596 $ 720 $ 324
 
Accruing troubled debt restructured loans 165 170 281
 
Allowance for loan losses - Originated loans 110,846 60,492 $ 43,066
Allowance for loan losses - Acquired loans   564     611     1,081  
Total allowance for loan losses 111,410 61,103 44,147
Remaining acquisition discount on acquired loans $ 3,728 $ 4,630 $ 15,409
Allowance for loan losses to non-accrual loans 117.7 % 138.1 % 191.5 %
Allowance for loan losses acquired loans to acquired loans 0.32 0.33 0.40
Allowance for loan losses originated loans to originated loans 2.02 0.99 0.82
Total allowance for loan losses to total loans 1.97 0.97 0.80

Allowance for loan losses and remaining acquisition discount on acquired loans to gross acquired loans (1)

2.38 2.74 5.81

Allowance for loan losses and remaining acquisition discount to total gross loans (1)

2.03 1.04 1.08
 

(1) Remaining acquisition discount is added back to acquired loans held for investment to calculate gross loans and added to allowance for loan losses to calculate the coverage ratios.

 
Risk Rating by Loan Product
(Unaudited)            
Special Nonaccrual Total
($ in thousands) Pass Mention Classified Total Loans loans allowance
As of December 31, 2016
Real estate mortgage loans:
Single-family residential $ 112,298 $ 1,125 $ 355 $ 113,778 $ $ 308
Multifamily residential 2,292,041 244 10,692 2,302,977 8,881
Commercial real estate 1,316,879 18,580 18,184 1,353,643 12,284 9,643
Construction and land loans 111,997 9 112,006 1,161
Commercial business loans 1,483,510 63,205 201,454 1,748,169 81,964 91,188
Small Business Administration loans 28,692 1,168 1,556 31,416 200
Consumer and other loans   6,369   40   669   7,078   419   29
Total loans $ 5,351,786 $ 84,371 $ 232,910 $ 5,669,067 $ 94,667 $ 111,410
 
As of September 30, 2016
Real estate mortgage loans:
Single-family residential $ 121,795 $ 1,128 $ 630 $ 123,553 $ $ 333
Multifamily residential 2,842,445 2,133 2,844,578 9,025
Commercial real estate 1,320,721 15,690 10,955 1,347,366 7,175 9,043
Construction and land loans 95,069 18 95,087 944
Commercial business loans 1,726,305 51,168 62,163 1,839,636 36,628 41,535
Small Business Administration loans 29,423 1,045 1,757 32,225 188
Consumer and other loans   6,930   41   691   7,662   441   35
Total loans $ 6,142,688 $ 71,223 $ 76,196 $ 6,290,107 $ 44,244 $ 61,103
 
As of December 31, 2015
Real estate mortgage loans:
Single-family residential $ 146,985 $ 2,559 $ 1,460 $ 151,004 $ $ 621
Multifamily residential 2,658,955 2,210 2,661,165 8,931
Commercial real estate 1,163,644 1,216 11,910 1,176,770 11,910 5,757
Construction and land loans 58,112 44 58,156 505
Commercial business loans 1,304,686 14,203 49,675 1,368,564 10,487 28,060
Small Business Administration loans 61,912 3,144 7,072 72,128 171
Consumer and other loans   6,657   207   1,153   8,017   653   102
Total loans $ 5,400,951 $ 23,583 $ 71,270 $ 5,495,804 $ 23,050 $ 44,147
 
 
Risk Rating by Lending Division
(Unaudited)      
Special Nonaccrual
($ in thousands) Pass Mention Classified Total Loans loans
As of December 31, 2016
Income Property Banking $ 2,912,605 $ 245 $ 6,883 $ 2,919,733 $ 704
Commercial Banking 585,985 20,658 37,474 644,117 15,993
Structured Finance 493,126 3,603 16,160 512,889 11,580
Healthcare Provider 389,722 23,821 41,034 454,577
Healthcare Practice 54,856 550 12,375 67,781 6,191
Corporate Finance 377,312 2,484 56,349 436,144 27,492
Institutional Syndication 273,901 (374 )

1

(306 )

1

273,221
Technology Banking 99,341 29,809 61,319 190,470 31,781
Other divisions (2)   164,938   3,575     1,622     170,135   926
Total loans $ 5,351,786 $ 84,371   $ 232,910   $ 5,669,067 $ 94,667
 
As of September 30, 2016
Income Property Banking $ 3,453,124 $ 4,239 $ $ 3,457,363 $
Commercial Banking 628,858 18,620 10,047 657,525 770
Structured Finance 499,460 11,602 511,062
Healthcare Provider 362,980 8,532 371,512
Healthcare Practice 111,943 4,320 20,315 136,578 14,221
Corporate Finance 431,637 12,616 1,119 445,372 1,119
Institutional Syndication 287,480 (427 )

1

(338 )

1

286,715
Technology Banking 203,035 7,325 43,374 253,734 27,420

Other divisions (2)

  164,171   4,396     1,679     170,246   714
Total loans $ 6,142,688 $ 71,223   $ 76,196   $ 6,290,107 $ 44,244
 
As of December 31, 2015
Income Property Banking $ 3,212,795 $ 2,723 $ $ 3,215,518 $
Commercial Banking 494,759 10,996 23,198 528,953 8,210
Structured Finance 429,819 44 429,863
Healthcare Provider 284,607 284,607
Healthcare Practice 57,281 2,337 15,598 75,216 11,850

Corporate Finance

266,764 3,703 7,603 278,070
Institutional Syndication 221,419 221,419
Technology Banking 255,530 21,742 277,272 1,901
Other divisions (2)   177,977   3,780     3,129     184,886   1,089
Total loans $ 5,400,951 $ 23,583   $ 71,270   $ 5,495,804 $ 23,050
 

 

(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 with portfolio balances under $50 million, which includes Business Banking, Media and Entertainment Banking and Public Finance.

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 assessing our financial results. These non-GAAP measures include our return on average tangible equity, net interest income excluding acquisition accounting and tangible book value per as converted common share. These non-GAAP measures should be taken together with the corresponding GAAP measures and ratios and should not be considered a substitute of the GAAP measures and ratios.

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)   Three Months Ended   Year Ended
December 31,   September 30,   December 31, December 31,   December 31,
($ in thousands) 2016 2016 2015 2016 2015
Average tangible equity:
Average stockholders' equity $ 958,696 $ 961,814 $ 863,532 $ 935,041 $ 838,881
Less:
Average goodwill 328,324 328,285 262,115 313,546 256,363
Average other intangible assets   51,463     52,996     10,401     34,325     11,362  
Average tangible equity 578,909 580,533 591,016 587,170 571,156
Net income (loss) (18,954 ) (3,021 ) 16,672 11,454 59,943
Return on average stockholders' equity (7.87 )% (1.25 )% 7.66 % 1.22 % 7.15 %
Non-GAAP return on average tangible equity (13.03 ) (2.07 ) 11.19 1.95 10.50
 
 
Non-GAAP net interest margin
(unaudited)   Three Months Ended   Year Ended
December 31,   September 30,   December 31,   December 31,   December 31,
($ in thousands) 2016 2016 2015 2016 2015
Net interest income $ 60,160 $ 60,699 $ 56,724 $ 242,505 $ 208,325

Less: Accretion/amortization of

acquisition discount/premium (1)

  (717 )   (1,504 )   (6,225 )   (10,887 )   (25,906 )
Non-GAAP net interest income 59,443 59,195 50,499 231,618 182,419
 
Average interest earning assets $ 7,128,106 $ 6,868,513 $ 5,834,985 $ 6,706,637 $ 5,275,456

Add: Average unamortized acquisition discounts

  4,382     5,831     24,559     8,522     35,002  
Non-GAAP average interest-earning assets 7,132,488 6,874,344 5,859,544 6,715,159 5,310,458
 
Net interest margin impact 0.04 % 0.09 % 0.44 % 0.17 % 0.51 %
 

(1) Accretion income on acquired loans only includes interest income recognized in excess of what would be accrued under the contractual terms as a result of acquisition accounting and loan exits through full payoff or charge-off, foreclosure or sale.

 
Non-GAAP tangible book value per as converted common share
(unaudited)   As of
December 31,   September 30,   December 31,
($ in thousands, except share amounts) 2016 2016 2015
Tangible equity:
Total stockholders' equity $ 925,935 $ 943,858 $ 867,038
Less:
Goodwill 331,832 328,285 262,115
Other intangible assets, net   50,718   52,198   10,099
Tangible equity 543,385 563,375 594,824
Shares of common stock outstanding 34,277,121 34,278,034 32,500,191

Shares of common stock to be issued upon conversion of preferred stock

  30,600   30,600   30,600

Total as converted shares of common stock outstanding (1)

  34,307,721   34,308,634   32,530,791
Book value per as converted common share 26.99 27.51 26.65
Tangible book value per as converted common share 15.84 16.42 18.28
 

(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.

Opus Bank
Nicole M. Carrillo
EVP, Chief Financial Officer
949-251-8133
or
Mr. Brett G. Villaume
SVP, Director of Investor Relations
949-224-8866

Source: Opus Bank