Press Release

Email PDF view Print view Email Alert Social media sharing

Opus Bank Announces Third Quarter 2018 Results

Company Release - 10/22/2018 7:00 AM ET

IRVINE, Calif.--(BUSINESS WIRE)-- Opus Bank (“Opus”) (NASDAQ: OPB) announced today net income of $9.4 million, or $0.25 per diluted share, for the third quarter of 2018 compared to net income of $15.5 million, or $0.40 per diluted share, for the second quarter of 2018 and net income of $20.5 million, or $0.54 per diluted share, for the third quarter of 2017. Net income for the nine months ended September 30, 2018 was $37.8 million, or $0.99 per diluted share, compared to $46.4 million, or $1.23 per diluted share, for the nine months ended September 30, 2017. Net income during the third quarter of 2018 included severance and retention costs and strategic initiative-related expenses totaling $525,000 and an income tax benefit item of $2.3 million, which resulted in a negative income tax expense of $972,000, primarily related to the re-measurement of Opus’ deferred tax assets during the quarter.

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 November 15, 2018 to common stockholders and to its Series A Preferred stockholders of record as of November 1, 2018.

Third Quarter 2018 Highlights

  • Total loans increased $87.5 million, or 2%, as quarterly new loan fundings of $435.7 million outpaced loan prepayments and payoffs of $258.0 million, which included $60.6 million of planned exits. Excluding planned exits, total loans increased at a 12% annualized rate.
  • New loan fundings increased 47% to $435.7 million, compared to $295.6 million in the second quarter of 2018, and increased 16% compared to $375.4 million in the third quarter of 2017.
  • Total assets increased $201.7 million, or 3%, to $7.4 billion.
  • Total deposits increased $208.1 million, or 4%, to $6.1 billion, driven by growth across multiple divisions including Retail Banking, Commercial and Specialty Banking divisions, Commercial Real Estate Banking, and PENSCO Trust Company, our alternative asset IRA custodian subsidiary. Noninterest bearing demand deposits increased by $46.0 million, interest bearing demand deposits increased by $41.2 million, and time deposits increased by $136.7 million.
  • Net interest margin decreased nine basis points to 2.98%, driven primarily by a 14 basis point increase in the cost of deposits to 0.71% that was partially offset by a higher average yield on loans and investment securities.
  • Total criticized loans decreased $14.0 million, or 7%, to $185.1 million, and Enterprise Value loans decreased $75.9 million, or 29%, to $184.5 million.
  • Provision for loan losses was $8.2 million, driven primarily by net charge-offs of $8.4 million, or 0.66% of average loans annualized, on two Enterprise Value loans, which was unchanged from the prior quarter.

Stephen H. Gordon, Chief Executive Officer and President of Opus Bank, stated, “Opus’ performance during the third quarter of 2018 included growth in both loans and deposits, increasing loan and securities yields, a reduction in criticized loans, robust capital ratios, and strong liquidity to lend out at higher interest rates. We continue to battle through the industry-wide headwinds of elevated loan prepayments and rising cost of deposits, which negatively impacted our net interest margin. Additionally, during the third quarter we experienced losses on two Enterprise Value loan relationships which, unlike in prior quarters, were not equally offset by reserve releases and therefore resulted in an elevated provision expense for the quarter. Enterprise Value loans have decreased 80% since the fourth quarter of 2016 to $184.5 million as of September 30, 2018, of which 66% is pass-rated. Enterprise Value loans have been further reduced to $168.5 million as of October 19, 2018.”

Mr. Gordon continued, “We are seeing early contributions from the Commercial Banking team buildout we initiated earlier this year and expect the team to more fully ramp in 2019, complementing our existing, high-performing Income Property Banking division. We anticipate the team will contribute positively to C&I loan and deposit related growth, enhanced treasury management fee income, higher net interest margin, and improved efficiency. The associated comp and benefits expense of the Commercial Banking team investment will increasingly be deferred and amortized in accordance with FAS 91 as the bankers contribute and become more productive in future periods.”

Mr. Gordon concluded, “We remain focused on building Opus into one of the premier commercial banks in the western region, thereby creating long-term shareholder value and benefiting all of our constituents, including Opus’ clients, our team members, and the communities we serve. Based on our quarterly earnings and strong capital ratios, 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 increased $87.5 million, or 2%, to $5.2 billion as of September 30, 2018, from $5.1 billion as of June 30, 2018, and increased $99.3 million, or 2%, from $5.1 billion as of September 30, 2017. The increase in total loans during the third quarter of 2018 was driven by new loan fundings of $435.7 million, partially offset by loan payoffs of $258.0 million, which included planned exits of $60.6 million.

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

September 30,

2018

     

June 30,

2018

     

March 31,

2018

     

December 31,

2017

     

September 30,

2017

 
Beginning loan balance $ 5,072.4 $ 5,229.0 $ 5,173.2 $ 5,060.6 $ 5,218.1
New loan fundings 435.7 295.6 452.3 502.3 375.4
Loan payoffs (197.4 ) (299.5 ) (219.2 ) (237.8 ) (267.1 )

Loan sales1

(6.0 )
Planned exits (60.6 ) (58.5 ) (52.2 ) (80.6 ) (161.2 )

Other2

(90.2 ) (94.2 ) (125.1 ) (71.3 ) (98.6 )
Ending loan balance $ 5,159.9   $ 5,072.4   $ 5,229.0   $ 5,173.2   $ 5,060.6  
 

[1]

   

Loan sales that were not planned exits

[2]

Includes normal amortization, paydowns, and charge-offs

 

New loan fundings in the third quarter of 2018 totaled $435.7 million, an increase of $140.1 million, or 47%, from the second quarter of 2018 and an increase of $60.3 million, or 16%, from the third quarter of 2017. Commercial Business loans comprised $112.8 million, or 26%, of total new loan fundings; and real estate related loans comprised $319.3 million, or 73%, of total new loan fundings in the third quarter of 2018.

Loan commitments originated during the third quarter of 2018 totaled $438.6 million, compared to $306.5 million during the second quarter of 2018 and $367.0 million during the third quarter of 2017. Our unfunded commitments on originated loans totaled $400.2 million as of September 30, 2018, compared to $421.3 million as of June 30, 2018 and $455.3 million as of September 30, 2017.

Our acquired loan portfolio totaled $111.3 million as of September 30, 2018, a decrease of 8% from $121.6 million as of June 30, 2018 and a decrease of 21% from $141.1 million as of September 30, 2017. The acquired loan portfolio had a remaining discount of $1.8 million as of September 30, 2018.

Cash and Investment Securities

Cash and investment securities totaled $1.6 billion as of September 30, 2018, an increase of $127.2 million, or 9%, from June 30, 2018, and unchanged from September 30, 2017. Cash and cash equivalents as of September 30, 2018 increased $132.3 million, or 33%, to $533.3 million compared to June 30, 2018, and increased $63.0 million, or 13%, from September 30, 2017. The increase in cash and cash equivalents in the third quarter of 2018 was primarily driven by deposit growth, as well as paydowns and amortization within both our loan and securities portfolios. Investment securities decreased $5.0 million, or 0.5%, as of September 30, 2018 to $1.0 billion compared to June 30, 2018, and decreased $71.0 million, or 7%, from $1.1 billion as of September 30, 2017.

Deposits

Deposits increased $208.1 million, or 4%, to $6.1 billion as of September 30, 2018, from $5.9 billion as of June 30, 2018 and increased $72.5 million, or 1%, from $6.1 billion as of September 30, 2017. Deposit growth was driven by multiple divisions within Opus, including Retail Banking, Commercial and Specialty Banking divisions, Commercial Real Estate Banking, and PENSCO Trust Company, our alternative asset IRA custodian subsidiary. Noninterest bearing demand deposits increased by $46.0 million, interest bearing demand deposits increased by $41.2 million, and time deposits increased by $136.7 million.

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

Our loan to deposit ratio was 84% as of September 30, 2018, compared to 85% as of June 30, 2018 and 83% as of September 30, 2017.

Net Interest Income

Net interest income was $48.9 million for the third quarter of 2018, compared to $49.5 million for the second quarter of 2018 and $53.3 million for the third quarter of 2017.

Interest income from loans increased $303,000, or 1%, from the second quarter of 2018 to $54.1 million for the third quarter of 2018, driven by higher loan yield and greater net benefit from prepayments, partially offset by lower average balances, interest reversals due to loans placed on nonaccrual during the quarter, and the effect of higher-yielding planned loan exits. While planned exits decrease our potential future credit volatility, they had a negative impact on our loan interest income. Planned exits of $60.6 million for the third quarter of 2018 had a weighted average rate of 7.28%.

Interest income from cash and investment securities increased $1.0 million, or 16%, from the second quarter of 2018 to $7.4 million for the third quarter of 2018. Interest income from cash increased $787,000 from the second quarter of 2018 to $2.1 million for the third quarter of 2018, as the average balance of cash increased $131.0 million, or 44%. Interest income from investment securities increased $232,000, or 5%, from the second quarter of 2018 to $5.3 million for the third quarter of 2018, driven by lower premium amortization from fewer prepayments compared to the prior quarter.

Interest expense increased 18% to $12.6 million for the third quarter of 2018, compared to $10.7 million for the second quarter of 2018, and increased 39% compared to $9.0 million for the third quarter of 2017. The increase in interest expense during the third quarter of 2018 was driven by higher average balances and rate of interest bearing deposits, partially offset by lower average balances of FHLB advances.

Net Interest Margin

Net interest margin on a taxable equivalent basis decreased 9 basis points to 2.98% in the third quarter of 2018 from 3.07% in the second quarter of 2018, and decreased 19 basis points from 3.17% in the third quarter of 2017. The linked-quarter change was primarily driven by a 14 basis point increase in the cost of deposits to 0.71%, partially offset by a 3 basis point increase in the average yield on loans to 4.24% and a 12 basis point increase in the average yield on securities to 2.04%. The increase in the cost of deposits was primarily driven by growth and product mix within Retail Banking, while deposit growth in Commercial and Specialty Banking divisions, Commercial Real Estate Banking, and PENSCO Trust Company did not materially impact the cost of deposits. The increase in loan yield was driven by the net benefit from prepayments and repricing, partially offset by planned exits and interest reversals due to loans placed on nonaccrual. The increase in securities yield was driven by lower premium amortization due to fewer prepayments and purchases of $87.0 million of higher-yielding securities during the quarter.

As of September 30, 2018, approximately 29% 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 third quarter of 2018 was 4.65%, compared to the originated loan portfolio yield of 4.20% for the third quarter of 2018.

Noninterest Income

Noninterest income decreased 11% to $11.5 million in the third quarter of 2018 from $12.9 million in the second quarter of 2018, and decreased 23% from $14.9 million in the third quarter of 2017. The change in noninterest income from the second quarter of 2018 was primarily driven by Other Income, which included $118,000 from our Merchant Banking division, compared to $774,000 in the second quarter of 2018; and a net decrease in equity warrant valuations of $746,000, compared to a net increase of $91,000 in the second quarter of 2018. Noninterest income during the third quarter of 2018 included $1.7 million of treasury management and deposit account fees, $6.9 million in trust administrative fees from our alternative asset IRA custodian subsidiary, and $1.5 million from our Escrow and Exchange divisions. Noninterest income made up 19% of total revenues during the third quarter of 2018, compared to 21% in the second quarter of 2018 and 22% in the third quarter of 2017.

Noninterest Expense

Noninterest expense increased 1% to $43.7 million in the third quarter of 2018, compared to $43.1 million in the second quarter of 2018, and decreased 4% from $45.6 million in the third quarter of 2017. The linked-quarter increase in noninterest expense was primarily driven by an increase in compensation and benefits expenses due to increased hiring of commercial bankers, as well as severance and retention costs and strategic initiative related expenses related to banking office optimization totaling $525,000. Excluding these items, noninterest expense was unchanged from the second quarter of 2018.

Income Tax Expense

During the third quarter of 2018, we recorded an income tax benefit of $972,000, primarily driven by $2.3 million of net discrete income tax items relating to the re-measurement of our initial estimate of deferred tax assets in connection with the Tax Cuts and Jobs Act in the fourth quarter of 2017. Our estimated full-year 2018 annual effective tax rate is approximately 18%.

Asset Quality

Nonaccrual loans increased $5.1 million, or 13%, to $45.1 million, or 0.87% of total loans, as of September 30, 2018, compared to $40.0 million, or 0.79% of total loans, as of June 30, 2018. Total criticized loans decreased $14.0 million, or 7%, to $185.1 million as of September 30, 2018, compared to $199.1 million as of June 30, 2018. We also continued to reduce our exposure to previously de-emphasized loan portfolios during the third quarter of 2018; total Enterprise Value loans were reduced by $75.9 million, or 29%, during the third quarter of 2018 and totaled $184.5 million as of September 30, 2018. Planned exits through loan payoffs and sales totaled $60.6 million in the third quarter of 2018, as we continued to reduce the balance of loans we previously announced as targeted for planned exits.

Our allowance for loan losses was $59.0 million, or 1.14% of our total loan portfolio, as of September 30, 2018, compared to $59.2 million, or 1.17%, as of June 30, 2018 and $78.2 million, or 1.54%, as of September 30, 2017. The reduction in the allowance for loan losses during the third quarter of 2018 was driven by charge-offs of $10.0 million that were partially offset by a provision for loan losses of $8.2 million and recoveries of $1.6 million.

We recorded a provision for loan losses of $8.2 million in the third quarter of 2018, compared to a negative provision expense of $213,000 in the second quarter of 2018 and a negative provision expense of $10.6 million in the third quarter of 2017. The provision expense during the third quarter of 2018 was driven by $8.4 million of net charge-offs, $2.6 million of additional specific reserves, $2.5 million due to higher loss factors used to determine loan loss reserves in accordance with our methodology, and $1.9 million due to risk rating migration. These factors were partially offset 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 $178,000 provision recapture on the acquired loan portfolio.

We recorded net charge-offs of $8.4 million in the third quarter of 2018, unchanged from the second quarter of 2018 and compared to net recoveries of $1.1 million in the third quarter of 2017. Charge-offs during the third quarter of 2018 were predominantly comprised of relationships categorized as Enterprise Value loans.

Total nonperforming assets were $45.1 million, or 0.61% of total assets, as of September 30, 2018, compared to $40.0 million, or 0.56% of total assets, as of June 30, 2018, and $65.1 million, or 0.89% of total assets, as of September 30, 2017. The ratio of the allowance for loan losses to total nonaccrual loans was 131% as of September 30, 2018, compared to 148% as of June 30, 2018 and 120% as of September 30, 2017.

Total criticized loans decreased $14.0 million, or 7%, to $185.1 million as of September 30, 2018, compared to $199.1 million as of June 30, 2018, and decreased $105.5 million, or 36%, from $290.6 million as of September 30, 2017. The net decrease in total criticized loans during the third quarter of 2018 was driven by $11.9 million of upgrades and $45.6 million of loan exits, including payoffs, charge-offs, and normal amortization during the quarter, partially offset by $43.5 million of downgrades. Classified loans decreased $22.8 million in the third quarter of 2018 and special mention loans increased $8.8 million. The decrease in classified loans was driven by payoffs, charge-offs, and normal amortization of $37.6 million, partially offset by downgrades of $14.7 million. The increase in special mention loans was driven by $30.8 million of downgrades, partially offset by $11.9 million of upgrades, $8.1 million of loan payoffs, charge-offs, and normal amortization, and $2.0 million of loans downgraded from special mention loans to classified loans.

The net decrease in total criticized loans consisted primarily of a $22.7 million decrease in commercial business loans, partially offset by a $7.4 million increase in real estate secured loans and a $1.3 million increase in SBA loans. Commercial business loans comprised $11.9 million of loans upgraded out of criticized categories and $44.9 million of loan exits, including loan payoffs, charge-offs, and normal amortization, partially offset by $34.1 million of downgrades during the third quarter of 2018. Real estate secured loans comprised $7.9 million of loans downgraded to criticized categories, partially offset by $484,000 of loan payoffs and amortization during the third quarter of 2018.

Capital

As of September 30, 2018, 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)

September 30,

20181

     

June 30,

2018

     

September 30,

2017

Tier 1 leverage ratio 9.89% 9.85% 9.28% 5.00%
Common Equity Tier 1 ratio 11.75% 11.85% 11.14% 6.50%
Tier 1 risk-based capital ratio 12.27% 12.39% 11.58% 8.00%
Total risk-based capital ratio 15.75% 15.94% 15.16% 10.00%
Tangible equity to tangible assets ratio 9.47% 9.67% 9.28% NA
Tangible common equity to tangible assets ratio 9.05% 9.24% 8.89% NA
 
[1]     Regulatory capital ratios are preliminary until filing of our September 30, 2018 FDIC call report.
 

Stockholders’ equity totaled over $1.0 billion as of September 30, 2018, unchanged from June 30, 2018 and September 30, 2017. Our tangible book value per as converted common share was $17.68 as of September 30, 2018 compared to $17.53 as of June 30, 2018 and $17.22 as of September 30, 2017.

Conference Call and Webcast Details

Date: Monday, October 22, 2018
Time: 8:00 a.m. PT (11:00 a.m. ET)

Phone Number: (833) 636-6315
Conference ID: 6399838
Webcast URL: http://investor.opusbank.com/event

Analysts, investors, and the general public may listen to our discussion of Opus’ third 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 6399838. The call replay will be available through November 22, 2018.

About Opus Bank

Opus Bank is an FDIC insured California-chartered commercial bank with $7.4 billion of total assets, $5.2 billion of total loans, and $6.1 billion in total deposits as of September 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 approximately $14 billion of custodial assets and approximately 49,000 client accounts, which are comprised of self-directed investors, financial institutions, capital raisers and financial advisors. Opus Bank operates 48 banking offices, including 29 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 our Commercial Banking team; our expectations regarding C&I loan and deposit growth, enhanced treasury management fee income, higher net interest margin, and improved efficiency; our goal to build Opus into one of the premier commercial banks in the western region, thereby creating long-term shareholder value and benefiting all of our constituents, including our clients, our team members, and the communities we serve; and estimate regarding our full year effective tax rate. 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 nine months ended
($ in thousands, except per share amounts)

September 30,

2018

June 30,

2018

September 30,

2017

September 30,

2018

September 30,

2017

Interest income:
Loans $ 54,110 $ 53,807 $ 55,566 $ 162,554 $ 173,632
Investment securities 5,280 5,048 5,156 15,422 13,436
Due from banks 2,113   1,326   1,627   4,390   5,643  
Total interest income 61,503   60,181   62,349   182,366   192,711  
Interest expense:
Deposits 10,702 8,403 7,099 26,125 21,402
Federal Home Loan Bank advances (5 ) 332 25 374 117
Subordinated debt 1,923   1,923   1,923   5,768   5,768  
Total interest expense 12,620   10,658   9,047   32,267   27,287  
Net interest income 48,883 49,523 53,302 150,099 165,424
Provision (negative provision) for loan losses 8,241   (213 ) (10,646 ) 11,942   (11,776 )
Net interest income after provision (negative provision) for loan losses 40,642   49,736   63,948   138,157   177,200  
Noninterest income:
Fees and service charges on deposit accounts 1,735 1,783 1,863 5,240 5,770
Escrow and exchange fees 1,548 1,498 1,510 4,407 4,447
Trust administrative fees 6,884 6,841 6,961 20,703 20,060
Gain (loss) on sale of loans (100 ) (3 ) (169 ) (209 )
Gain (loss) on sale of assets 3,862 3,778
Gain (loss) from OREO and other repossessed assets 84 (4,798 ) 203 (4,859 )
Gain on sale of investment securities 618 182 1,175
Bank-owned life insurance, net 1,048 1,045 865 3,145 2,640
Other income 246   1,776   4,040   3,986   9,352  
Total noninterest income 11,461   12,927   14,918   37,697   42,154  
Noninterest expense:
Compensation and benefits 26,004 25,472 25,515 78,283 81,465
Professional services 2,489 2,619 4,005 6,824 14,733
Occupancy expense 3,764 3,751 3,777 11,521 11,664
Depreciation and amortization 1,652 1,763 1,755 5,014 5,429
Deposit insurance and regulatory assessments 977 959 1,208 3,066 4,082
Insurance expense 337 335 335 1,011 1,046
Data processing 230 318 858 987 2,463
Software licenses and maintenance 1,371 1,126 1,123 3,646 3,408
Office services 1,642 1,847 2,016 5,369 6,233
Amortization of other intangible assets 1,479 1,479 1,479 4,438 4,438
Advertising and marketing 909 843 587 2,709 1,831
Other expenses 2,809   2,629   2,958   8,014   7,620  
Total noninterest expense 43,663   43,141   45,616   130,882   144,412  
Income before income tax (benefit) expense 8,440 19,522 33,250 44,972 74,942
Income tax (benefit) expense (972 ) 4,058   12,705   7,193   28,500  
Net income $ 9,412   $ 15,464   $ 20,545   $ 37,779   $ 46,442  
Basic earnings per common share $ 0.25 $ 0.41 $ 0.55 $ 1.00 $ 1.26
Diluted earnings per common share 0.25 0.40 0.54 0.99 1.23
Weighted average shares - basic 36,115,204 36,027,569 36,715,035 36,043,060 36,599,924
Weighted average shares - diluted 38,362,739 38,316,721 38,089,306 38,338,423 37,611,591
 
 
                 
Consolidated Balance Sheets
(unaudited) As of
($ in thousands, except share amounts)

September 30,

2018

June 30,

2018

September 30,

2017

Assets
Cash and due from banks $ 57,126 $ 58,516 $ 42,918
Due from banks – interest-bearing 476,129 342,483 427,289
Investment securities available-for-sale, at fair value 1,018,855 1,023,882 1,089,844
Loans held-for-investment 5,159,881 5,072,366 5,060,556
Less allowance for loan losses (59,029 ) (59,197 ) (78,176 )
Loans held-for-investment, net 5,100,852 5,013,169 4,982,380
OREO and other repossessed assets
Premises and equipment, net 24,955 25,718 27,935
Goodwill 331,832 331,832 331,832
Other intangible assets, net 40,362 41,842 46,280
Deferred tax assets, net 22,847 26,450 48,379
Cash surrender value of bank owned life insurance, net 153,289 152,215 136,613
Accrued interest receivable 21,680 19,915 19,534
Federal Home Loan Bank stock 17,250 17,250 17,250
Other assets 129,897   140,054   157,946  
Total assets $ 7,395,074   $ 7,193,326   $ 7,328,200  
 
Liabilities and Stockholders’ Equity
Deposits:
Noninterest-bearing demand $ 890,925 $ 844,905 $ 849,886
Interest-bearing demand 2,564,737 2,523,488 2,351,910
Money market and savings 2,031,468 2,047,309 2,462,268
Time deposits 655,172   518,481   405,787  
Total deposits 6,142,302 5,934,183 6,069,851
Federal Home Loan Bank advances 10,000
Subordinated debt, net 132,944 132,877 132,678
Accrued interest payable 2,350 4,008 2,144
Other liabilities 80,428   89,201   90,525  
Total liabilities 6,358,024   6,160,269   6,305,198  
Stockholders’ equity:
Preferred stock:
Authorized 200,000,000 shares; issued 31,111 and 31,111 and 28,722 shares, respectively 29,110 29,110 26,875
Common stock, no par value per share:
Authorized 200,000,000 shares; issued 36,635,132 and 36,618,447 and 36,432,402 shares, respectively 700,220 700,220 702,455
Additional paid-in capital 68,975 67,980 62,216
Retained earnings 271,304 266,033 243,805
Treasury stock, at cost; 576,547 and 568,794 and 411,595 shares, respectively (14,965 ) (14,666 ) (10,244 )
Accumulated other comprehensive income (loss) (17,594 ) (15,620 ) (2,105 )
Total stockholders’ equity 1,037,050   1,033,057   1,023,002  
Total liabilities and stockholders’ equity $ 7,395,074   $ 7,193,326   $ 7,328,200  
 
 
                             
Selected Financial Data
As of or for the three months ended As of or for the nine months ended
(unaudited)

September 30,

2018

June 30,

2018

September 30,

2017

September 30,

2018

September 30,

2017

Return on average assets 0.51 % 0.86 % 1.09 % 0.70 % 0.81 %
Return on average stockholders' equity 3.59 6.03 8.02 4.90 6.26

Return on average tangible equity(1)

5.60 9.49 12.79 7.70 10.16

Efficiency ratio(2)

72.36 69.08 66.87 69.69 69.57
Noninterest expense to average assets 2.39 2.40 2.43 2.41 2.51

Yield on interest-earning assets(3)

3.75 3.73 3.70 3.74 3.70

Cost of deposits(4)

0.71 0.57 0.45 0.58 0.44

Cost of funds(5)

0.81 0.70 0.57 0.70 0.55

Net interest margin(3)

2.98 3.07 3.17 3.09 3.18
Loan to deposits 84.01 85.48 83.37 84.01 83.37
 
(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.
 
 
                             
Loan Fundings
(unaudited) For the three months ended For the nine months ended
($ in thousands)

September 30,

2018

June 30,

2018

September 30,

2017

September 30,

2018

September 30,

2017

Loans funded:
Real estate mortgage loans:
Single-family residential $ $ $ $ $
Multifamily residential 257,775 147,238 229,623 672,314 489,737
Commercial real estate 55,807 48,946 23,340 136,086 50,948
Construction and land loans 5,674 14,856 10,995 22,915 40,142
Commercial business loans 112,791 80,797 110,208 340,246 365,758
Small Business Administration loans 3,644 3,775 1,195 11,997 10,069
Consumer and other loans        
Total loan fundings $ 435,691   $ 295,612   $ 375,361   $ 1,183,558   $ 956,654
 
 
     
Composition of Loan Portfolio As of
(unaudited)

September 30,

2018

     

June 30,

2018

     

September 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 $ 44,001 0.9 % $ 46,815 0.9 % $ 62,739 1.2 %
Multifamily residential 2,808,463 54.4 2,641,314 52.1 2,342,071 46.3
Commercial real estate 1,058,389 20.5 1,060,824 20.9 1,095,996 21.7
Construction and land loans 73,668 1.4 93,697 1.8 96,374 1.9
Commercial business loans 1,030,793 20.0 1,075,271 21.2 1,298,486 25.7
Small Business Administration loans 33,263 0.6 32,815 0.6 23,532 0.5
Consumer and other loans 34   0.0   38   0.0   274   0.0  
Total originated loans 5,048,611 97.8 4,950,774 97.6 4,919,472 97.2
 
Acquired loans held-for-investment
Real estate mortgage loans:
Single-family residential 19,697 0.4 20,758 0.4 27,564 0.5
Multifamily residential 48,209 0.9 50,038 1.0 53,183 1.1
Commercial real estate 23,413 0.5 24,056 0.5 29,331 0.7
Construction and land loans 288 0.0 1,380 0.0 1,437 0.0
Commercial business loans 6,039 0.1 10,225 0.2 12,253 0.1
Small Business Administration loans 8,907 0.2 10,409 0.2 11,353 0.2
Consumer and other loans 4,717   0.1   4,726   0.1   5,963   0.1  
Total acquired loans 111,270   2.2   121,592   2.4   141,084   2.8  
Total gross loans $ 5,159,881   100.0 % $ 5,072,366   100.0 % $ 5,060,556   100.0 %
 
 
     
Composition of Deposits As of
(unaudited)

September 30,

2018

     

June 30,

2018

     

September 30,

2017

($ in thousands) Amount      

% of

Total deposits

Amount      

% of

Total deposits

Amount      

% of

Total deposits

 
Noninterest bearing $ 890,925 14.5 % $ 844,905 14.3 % $ 849,886 14.0 %
Interest bearing demand 2,564,737 41.8 2,523,488 42.5 2,351,910 38.7
Money market and savings 2,031,468 33.0 2,047,309 34.5 2,462,268 40.6
Time deposits 655,172   10.7   518,481   8.7   405,787   6.7  
Total deposits $ 6,142,302   100.0 % $ 5,934,183   100.0 % $ 6,069,851   100.0 %
 
 
               
Consolidated average balance sheet, interest, yield and rates
 
   

For the three months

ended September 30,

   

For the three months

ended June 30,

For the three months

ended September 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 $ 430,991 $ 2,113 1.95 % $ 299,987 $ 1,326 1.77 % $ 506,502 $ 1,627 1.27 %
Investment securities 1,027,950 5,280 2.04 1,054,258 5,048 1.92 1,079,627 5,156 1.89
Acquired loans 116,050 1,807 6.18 124,564 1,797 5.79 145,453 2,427 6.62
Originated Loans 4,975,101   52,665   4.20   5,031,860   52,387   4.18   4,989,405   53,538   4.26  
Total loans $ 5,091,151   $ 54,472   4.24   $ 5,156,424   $ 54,184     4.21   $ 5,134,858   $ 55,965     4.32  
Total interest-earning assets $ 6,550,092 $ 61,865 3.75 $ 6,510,669 $ 60,558 3.73 $ 6,720,987 $ 62,748 3.70
Noninterest-earning assets 704,117   701,454   725,844  
Total assets $ 7,254,209   $ 7,212,123   $ 7,446,831  
 
Liabilities and stockholders’ equity:
Interest-bearing deposits
Interest-bearing demand $ 2,546,443 $ 2,279 0.36 % $ 2,496,827 $ 1,801 0.29 % $ 2,361,961 $ 1,089 0.18 %
Money market and savings 2,015,781 5,753 1.13 2,127,242 5,028 0.95 2,534,236 4,916 0.77
Time deposits 594,089   2,670   1.78   445,392   1,574   1.42   426,390   1,094   1.02  

Total interest-bearing deposits

$ 5,156,313 $ 10,702 0.82 $ 5,069,461 $ 8,403 0.66 $ 5,322,587 $ 7,099 0.53
Subordinated debt 132,909 1,923 5.74 132,843 1,923 5.81 132,641 1,923 5.75
FHLB advances   (5 ) 0.00   69,121   332   1.93   10,000   25   0.99  

Total interest-bearing liabilities

$ 5,289,222 $ 12,620 0.95 $ 5,271,425 $ 10,658 0.81 $ 5,465,228 $ 9,047 0.66
Noninterest-bearing deposits 855,036 847,027 881,752
Other liabilities 70,443   65,535   83,702  
Total liabilities $ 6,214,701 $ 6,183,987 $ 6,430,682
 
Total stockholders’ equity $ 1,039,508   $ 1,028,136   $ 1,016,149  
Total liabilities and
stockholders’ equity
$ 7,254,209   $ 7,212,123   $ 7,446,831  
 

Net interest spread(2)

2.80 % 2.92 % 3.04 %

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

$ 49,245   2.98 % $ 49,900   3.07 % $ 53,701   3.17 %
 
Reconciliation of tax equivalent net interest income to reported net interest income
Tax equivalent adjustment (362 ) (377 ) (399 )
Net interest income, as reported $ 48,883   $ 49,523   $ 53,302  
 
(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 nine months ended September 30,
2018     2017
(In thousands)

Average

Balance

   

Interest(1)

   

Yields/

Rates

Average

Balance

   

Interest(1)

Yields/

Rates

Assets:
Interest-earning assets
Due from banks $ 325,237 $ 4,390 1.80 % $ 741,916 $ 5,643 1.02 %
Investment securities 1,061,619 15,422 1.94 906,566 13,436 1.98
Acquired loans 123,789 5,383 5.81 156,702 7,286 6.22
Originated Loans 5,037,072   158,165   4.20   5,185,848   167,083   4.31  
Total loans $ 5,160,861   $ 163,548   4.24   $ 5,342,550   $ 174,369   4.36  
Total interest-earning assets $ 6,547,717 $ 183,360 3.74 $ 6,991,032 $ 193,448 3.70
Noninterest-earning assets 710,556   696,724  
Total assets $ 7,258,273   $ 7,687,756  
 
Liabilities and stockholders’ equity:
Interest-bearing deposits
Interest-bearing deposits $ 2,525,125 $ 5,356 0.28 % $ 2,416,532 $ 3,376 0.19 %
Money market and savings 2,143,182 15,482 0.97 2,650,565 14,729 0.74
Time deposits 474,488   5,287   1.49   467,310   3,297   0.94  

Total interest-bearing deposits

$ 5,142,795 $ 26,125 0.68 $ 5,534,407 $ 21,402 0.52
Subordinated debt 132,843 5,768 5.81 132,575 5,768 5.82
FHLB advances 28,462   374   1.76   15,842   117   0.99  
Total interest-bearing liabilities $ 5,304,100 $ 32,267 0.81 $ 5,682,824 $ 27,287 0.64
Noninterest-bearing deposits 845,065 912,496
Other liabilities 78,418   100,999  
Total liabilities $ 6,227,583 $ 6,696,319
 
Total stockholders’ equity $ 1,030,690   $ 991,437  

Total liabilities and stockholders’ equity

$ 7,258,273   $ 7,687,756  
 

Net interest spread(2)

2.93 % 3.06 %

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

$ 151,093   3.09 % $ 166,161   3.18 %
 
Reconciliation of tax equivalent net interest income to reported net interest income
Tax equivalent adjustment (994 ) (737 )
Net interest income, as reported $ 150,099   $ 165,424  
 
(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 nine months ended
($ in thousands)

September 30,

2018

     

June 30,

2018

     

September 30,

2017

September 30,

2018

September 30,

2017

 
Allowance for loan losses-balance at beginning of period $ 59,197 $ 67,842 $ 87,745 $ 75,930 $ 111,410
(Recapture) Provision for loan losses:
Acquired loans (179 ) 434 117 255 21
Originated loans 8,420   (647 ) (10,763 ) 11,687   (11,797 )
Total provision for loan losses 8,241 (213 ) (10,646 ) 11,942 (11,776 )
Charge-offs:
Acquired loans
Originated loans (10,023 ) (12,508 ) (472 ) (36,686 ) (23,987 )
Total charge-offs (10,023 ) (12,508 ) (472 ) (36,686 ) (23,987 )
Recoveries:
Acquired loans
Originated loans 1,614   4,076   1,549   7,843   2,529  
Total recoveries 1,614   4,076   1,549   7,843   2,529  
Total net recoveries (charge-offs) (8,409 ) (8,432 ) 1,077 (28,843 ) (21,458 )
Allowance for loan losses-balance at end of period $ 59,029   $ 59,197   $ 78,176   $ 59,029   $ 78,176  
 
 
                 
Asset Quality Information
(unaudited) As of
($ in thousands)

September 30,

2018

June 30,

2018

September 30,

2017

Nonperforming assets
Nonaccrual loans $ 45,136 $ 39,992 $ 65,082
OREO and other repossessed assets      
Total nonperforming assets 45,136 39,992 65,082
 
Loans 30 - 89 days past due 9,856 5,761 2,406
Accruing loans 90 days or more past due 390 436 478
Accruing troubled debt restructured loans 138 139 140
 
Non performing loans to total loans 0.87 % 0.79 % 1.29 %
Non performing assets to total assets 0.61 % 0.56 % 0.89 %
Loans 30 - 89 days past due to total loans 0.19 % 0.11 % 0.05 %
Allowance for loan losses to total loans 1.14 % 1.17 % 1.54 %

Allowance for loan losses to nonaccrual loans

130.78 % 148.02 % 120.1 %
Net charge-offs to average loans (annualized) 0.66 % 0.66 % (0.08 )%
 
 
 
Risk Rating by Loan Product
(Unaudited)
($ in thousands)       Pass      

Special

Mention

      Classified       Total Loans      

Nonaccrual

loans

     

Total

allowance

As of September 30, 2018
Real estate mortgage loans:
Single-family residential $ 63,199 $ 77 $ 422 $ 63,698 $ $ 171
Multifamily residential 2,852,490 2,066 2,116 2,856,672 9,677
Commercial real estate 1,033,707 17,848 30,247 1,081,802 2,512 9,009
Construction and land loans 60,644 13,313 73,957 904
Commercial business loans 930,748 36,105 69,979 1,036,832 35,085 38,966
Small Business Administration loans 30,028 1,162 10,979 42,169 6,973 295
Consumer and other loans 3,992   59   700   4,751   566   7
Total loans $ 4,974,808   $ 70,630   $ 114,443   $ 5,159,881   $ 45,136   $ 59,029
 
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 September 30, 2017
Real estate mortgage loans:
Single-family residential $ 89,507 $ 81 $ 715 $ 90,303 $ $ 236
Multifamily residential 2,379,520 12,553 3,181 2,395,254 8,990
Commercial real estate 1,042,854 58,454 24,019 1,125,327 11,476 11,067
Construction and land loans 97,811 97,811 1,068
Commercial business loans 1,123,254 49,099 138,386 1,310,739 52,859 56,437
Small Business Administration loans 31,792 872 2,221 34,885 356
Consumer and other loans 5,238   63   936   6,237   746   22
Total loans $ 4,769,976   $ 121,122   $ 169,458   $ 5,060,556   $ 65,081   $ 78,176