Market Overview

Opus Bank Announces First Quarter 2018 Results

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Opus Bank ("Opus") (NASDAQ: "OPB") announced today net income of $12.9
million, or $0.34 per diluted share, for the first quarter of 2018
compared to net income of $1.2 million, or $0.03 per diluted share, for
the fourth quarter of 2017 and net income of $7.7 million, or $0.21 per
diluted share, for the first quarter of 2017. Net income for the first
quarter of 2018 included $1.5 million of strategic initiative and
severance related expenses, $1.4 million of seasonally higher employer
payroll taxes, and a $2.9 million recovery of professional services
expense related to the settlement of a legal matter.

Additionally, Opus announced today that its Board of Directors has
approved increasing its quarterly cash dividend by 10% to $0.11 per
common share payable on May 17, 2018 to common stockholders and to its
Series A Preferred stockholders of record as of May 3, 2018.

First Quarter 2018 Highlights

  • Pre-tax pre-provision earnings increased 14% from the prior
    quarter to $20.9 million and increased 13% from the first quarter of
    2017.
  • Net interest margin increased five basis points to 3.20%, as
    the yield on Opus' originated loans increased six basis points to
    4.22%, while our cost of deposits increased two basis points to 0.47%.
  • New loan fundings were $452.3 million, an increase of 106% from
    the first quarter of 2017.
  • Total loans increased $55.8 million, driven by new loan
    fundings exceeding loan payoffs and sales of $271.4 million, which
    included planned exits of $52.2 million. Excluding planned exits,
    total loans would have increased by $108.0 million in the first
    quarter of 2018.
  • Total deposits increased $99.7 million, primarily driven by
    growth in low- or no-cost commercial business demand deposits.
  • Noninterest expense decreased 5% to $44.1 million and the
    efficiency ratio decreased to 68%,
    compared to 71% in the prior
    quarter.
  • Enterprise Value loans decreased $81.7 million, or 20%, in the
    first quarter of 2018 to $336.0 million.
  • Provision for loan losses was $3.9 million, compared to $3.0
    million for the prior quarter. Net charge-offs were $12.0 million in
    the first quarter of 2018, of which 95% were Enterprise Value or
    Technology loans with $8.2 million of specific reserves.
  • Opus' effective tax rate was 24% for the first quarter.

Stephen H. Gordon, Chief Executive Officer and President of Opus Bank,
stated, "Opus' first quarter results marked a successful beginning to
2018, demonstrated by our disciplined growth and improving
profitability, displaying continued momentum from 2017. We achieved $452
million in new loan fundings during the quarter, more than double the
level achieved in the first quarter of 2017. New loan fundings exceeded
loan payoffs of $271 million, which included planned exits of $52
million, as we successfully reduced the balances of Enterprise Value
loans by 20% in the first quarter. Deposit growth of $100 million was
driven by low- or no-cost commercial business demand deposits, which
enabled our overall cost of deposits to increase by only two basis
points. We also began to realize the benefit of our asset sensitive
balance sheet, as our net interest margin expanded by five basis points
during the quarter."

Mr. Gordon continued, "Consistent with past years, we estimate our
quarterly loan production will ramp over the course of 2018, driven by
our leading multifamily banking division and bolstered by the
contributions from numerous commercial bankers hired throughout our
footprint over the recent quarters. Deposit and full relationship growth
is a high priority across the organization, including and especially
among our Commercial and Specialty Banking teams, and is expected to
ramp throughout 2018. Our cost of deposits will likely increase in
coming quarters, but at a slower rate than our loan yields increase.
With our portfolio of Enterprise Value loans that are not eligible for
retention continuing to shrink, we anticipate planned exits will have
less of a negative impact on our quarterly net loan growth, loan yield,
and overall credit expenses. As we entered the second quarter, the
weighted average rate of our new loan fundings pipeline was
34-basis-points higher than at the start of the first quarter, which we
anticipate will contribute to a higher net interest margin going
forward. Our noninterest expense run rate was reduced in the first
quarter, and we remain confident in our ability to drive our efficiency
ratio below 65%."

Mr. Gordon concluded, "I thank all of the many Opus team members
responsible for our strong start to the year, as we take great pride in
their tireless efforts and commitment. Based on our earnings, strong
capital levels and overall performance in the first quarter of 2018, I
am proud to announce Opus' Board has authorized a 10% increase in our
quarterly cash dividend to $0.11 per diluted share."

Loans

Total loans held-for-investment increased $55.8 million, or 1%, to $5.2
billion as of March 31, 2018, from $5.2 billion as of December 31, 2017
and decreased $203.1 million, or 4%, from $5.4 billion as of March 31,
2017. The increase in total loans during the first quarter of 2018 was
driven by new loan fundings of $452.3 million, partially offset by loan
payoffs of $271.4 million, which included planned exits of $52.2 million.

 
Loan Balance Roll Forward
(unaudited)     Three Months Ended
($ in millions)     March 31,

2018

 

December 31,
2017

 

September 30,
2017

  June 30,

2017

 

March 31,
2017

 
Beginning loan balance $ 5,173.2 $ 5,060.6 $ 5,218.1 $ 5,432.1 $ 5,669.1
New loan fundings 452.3 502.3 375.4 362.2 219.1
Loan payoffs (219.2 ) (237.8 ) (267.1 ) (357.0 ) (239.8 )
Loan sales¹ -- -- (6.0 ) (15.8 ) (38.6 )
Planned exits (52.2 ) (80.6 ) (161.2 ) (137.2 ) (95.3 )
Other² (125.1 ) (71.3 ) (98.6 ) (66.2 ) (82.4 )
Ending loan balance $ 5,229.0   $ 5,173.2   $ 5,060.6   $ 5,218.1   $ 5,432.1  
 
[1] Loan sales that were not planned exits
[2] Includes normal amortization and charge-offs
 

New loan fundings in the first quarter of 2018 totaled $452.3 million, a
decrease of $50.1 million, or 10%, from the fourth quarter of 2017 and
an increase of $233.1 million, or 106%, from the first quarter of 2017.
Commercial and Specialty Banking division loans comprised $171.3
million, or 38%, of total new loan fundings, and Commercial Real Estate
Banking loans comprised $281.0, or 62%, of total new loan fundings in
the first quarter.

Loan commitments originated during the first quarter of 2018 totaled
$439.2 million, compared to $454.1 million during the fourth quarter of
2017 and $209.7 million during the first quarter of 2017. As of
March 31, 2018, our unfunded commitments on originated loans totaled
$413.6 million.

Our acquired loan portfolio totaled $128.6 million as of March 31, 2018,
a decrease of 3% from $132.1 million as of December 31, 2017 and 20%
from $160.3 million as of March 31, 2017. The acquired loan portfolio
had a remaining discount of $2.1 million as of March 31, 2018.

Cash and Investment Securities

Cash and investment securities totaled $1.4 billion as of March 31,
2018, compared to $1.6 billion as of December 31, 2017 and $1.9 billion
as of March 31, 2017. Cash and cash equivalents decreased $208.5
million, or 42%, during the first quarter of 2018 to $292.2 million, and
decreased $733.9 million, or 72%, from the first quarter of 2017. The
reduction in cash and cash equivalents in the first quarter of 2018 was
primarily driven by the payoff of $280.0 million of FHLB advances that
were added at the end of the fourth quarter of 2017. Investment
securities decreased $29.5 million, or 3%, during the first quarter of
2018 to $1.1 billion, and increased $197.8 million, or 22%, from $900.0
million as of March 31, 2017.

Deposits and Borrowings

Deposits increased $99.7 million, or 2%, to $6.0 billion as of March 31,
2018, from $5.9 billion as of December 31, 2017, and decreased by $676.5
million, or 10%, from $6.7 billion as of March 31, 2017. Deposit growth
during the first quarter was primarily driven by our Commercial and
Specialty Banking divisions.

Total demand deposits, including both noninterest-bearing and
interest-bearing demand deposit accounts, increased to 56% of total
deposits as of March 31, 2018, compared to 55% as of December 31, 2017
and 52% as of March 31, 2017. As of March 31, 2018, business deposits
represented 63% of total deposits.

Our loan to deposit ratio was 87% as of March 31, 2018, unchanged from
the prior quarter and an increase from 81% as of March 31, 2017.

Federal Home Loan Bank advances decreased to $10.0 million as of
March 31, 2018 compared to $290.0 million as of December 31, 2017, and
were unchanged compared to March 31, 2017. Borrowings from the Federal
Home Loan bank during the fourth quarter were paid off early in the
first quarter of 2018, reflected in the low first quarter average
balance of $16.4 million.

Net Interest Income

Net interest income was $51.7 million for the first quarter of 2018,
compared to $52.0 million for the fourth quarter of 2017 and $56.1
million for the first quarter of 2017.

Interest income from loans increased $1.0 million, or 2%, to $54.6
million for the first quarter of 2018, driven by higher average balances
of loans and loan rate resets, partially offset by loan payoffs and
prepayments, including planned exits during the quarter. While planned
exits decrease our potential future credit volatility, they had a
negative impact on our loan interest income.

Interest income from cash and investment securities decreased $1.2
million, or 17%, from the prior quarter to $6.0 million for the first
quarter of 2018. Interest income from investment securities decreased
$881,000, or 15%, during the first quarter to $5.1 million, driven by
lower average balances of investment securities compared to the prior
quarter and higher prepayments during the first quarter that resulted in
higher premium amortization. Interest income from cash decreased
$314,000 from the prior quarter to $951,000 for the first quarter of
2018, as the average balance of cash decreased $138.6 million, or 36%.

Interest expense increased 2% to $9.0 million for the first quarter of
2018, compared to $8.8 million for the fourth quarter of 2017, and
decreased 2% compared to $9.2 million for the first quarter of 2017.
While the average balance of deposits remained relatively flat compared
to the fourth quarter of 2017, interest expense on deposits increased 2%
as the weighted average rate of deposits increased during the quarter.

Net Interest Margin

Net interest margin on a taxable equivalent basis increased five basis
points to 3.20% in the first quarter of 2018 from 3.15% in the fourth
quarter of 2017, and increased six basis points from 3.14% in the first
quarter of 2017. The linked-quarter change was due to an increase in
total loan yield of three basis points to 4.25%, which was positively
impacted by loan rate resets, higher balances of originated loans, and
two fewer days in the quarter, offset by planned exits, which had a
weighted average rate of 7.38%. Net interest margin was negatively
impacted by a 21 basis point decrease in the yield on investment
securities to 1.87%, driven by higher premium amortization, and a higher
cost of deposits, which increased by two basis points to 0.47% for the
first quarter of 2018.

Noninterest Income

Noninterest income increased 5% to $13.3 million in the first quarter of
2018 from $12.6 million in the fourth quarter of 2017, and increased 6%
from $12.5 million in the first quarter of 2017. Noninterest income
during the first quarter of 2018 included $1.7 million of treasury
management and deposit account fees, $7.0 million in trust
administrative fees from our alternative asset IRA custodian subsidiary,
$1.4 million from our Escrow and Exchange divisions, and $838,000 from
Opus' Merchant Banking division. Total noninterest income in the first
quarter of 2018 included a net increase in equity warrant valuations of
$108,000, compared to a net decrease of $554,000 in the prior quarter,
as well as net gains on the sale of investment securities and other
assets totaling $232,000.

Noninterest income made up 20% of total revenues during the first
quarter of 2018, unchanged from the fourth quarter of 2017 and an
increase from 18% in the first quarter of 2017.

Noninterest Expense

Noninterest expense decreased 5% to $44.1 million in the first quarter
of 2018, compared to $46.2 million in the fourth quarter of 2017, and
decreased 12% from $50.1 million in the first quarter of 2017.
Noninterest expense during the first quarter of 2018 included $802,000
of strategic initiative related expenses, $735,000 of severance expense,
and $1.4 million of seasonally higher compensation and benefits expense
related to higher employer taxes paid in the first quarter. Offsetting
these expenses was a $2.9 million recovery of previously incurred
professional services expenses related to the settlement of a legal
matter during the quarter. This legal case had a $750,000 per quarter
professional services expense run rate that will not be incurred going
forward.

Income Tax Expense

During the fourth quarter of 2017, the Tax Cuts and Jobs Act (the "Tax
Act") was signed into law, which, among other items, reduced the federal
corporate tax rate from 35% to 21%, effective January 1, 2018, and
resulted in additional income tax expense totaling $9.0 million during
the fourth quarter of 2017. As a result, our effective tax rate
decreased to 24% in the first quarter of 2018, compared to an adjusted
effective tax rate of 34% in the fourth quarter of 2017 and an effective
tax rate of 39% in the first quarter of 2017.

Asset Quality

During the first quarter of 2018, we continued to reduce our exposure to
previously de-emphasized loan portfolios. Total Enterprise Value loans
were reduced by $81.7 million, or 20%, during the first quarter of 2018
and totaled $336.0 million as of March 31, 2018. Planned exits through
loan payoffs and sales totaled $52.2 million in the first quarter of
2018, as Opus continued to reduce the balances of loans we previously
announced as targeted for planned exits. As a result of the successful
exit of previously identified loan relationships, the reserves
associated with these loans were released, which reduced the allowance
for loan losses as required under our methodology.

Our allowance for loan losses was $67.8 million, or 1.30% of our total
loan portfolio, as of March 31, 2018, compared to $75.9 million, or
1.47%, as of December 31, 2017 and $112.2 million, or 2.07%, as of
March 31, 2017. The reduction in the allowance for loan losses during
the first quarter of 2018 was driven by charge-offs of $14.2 million,
partially offset by net recoveries of $2.2 million and a provision for
loan losses of $3.9 million.

We recorded a provision expense of $3.9 million in the first quarter of
2018, compared to a provision expense of $3.0 million in the fourth
quarter of 2017 and a provision expense of $6.0 million in the first
quarter of 2017. The provision expense during the first quarter of 2018
was driven by $12.0 million of net charge-offs, $4.4 million from risk
rating migration, and $3.2 million due to higher loss factors used to
determine loan loss reserves in accordance with our methodology. These
factors were partially offset by a $9.9 million decline in reserves as a
result of the changes in portfolio mix, fundings, and planned exits of
loan relationships, and a reduction of $5.8 million in specific reserves.

Opus recorded net charge-offs of $12.0 million in the first quarter of
2018, compared to net charge-offs of $5.2 million in the fourth quarter
of 2017 and $5.1 million in the first quarter of 2017. Charge-offs
during the first quarter of 2018 were predominantly comprised of one
Technology Banking loan relationship, two Commercial Banking division
loan relationships, and one Corporate Finance loan relationship, which
previously had specific reserves of $8.2 million.

Total nonperforming assets were $63.8 million, or 0.87% of total assets,
as of March 31, 2018, compared to $58.3 million, or 0.78% of total
assets, as of December 31, 2017, and $87.0 million, or 1.09% of total
assets, as of March 31, 2017. The ratio of the allowance for loan losses
to total nonaccrual loans was 106% as of March 31, 2018, compared to
130% as of December 31, 2017 and 129% as of March 31, 2017.

Total criticized loans decreased $2.3 million, or 1%, to $247.4 million
as of March 31, 2018 compared to $249.8 million as of December 31, 2017,
and decreased $112.0 million, or 31%, from $359.4 million as of
March 31, 2017. The net decrease in total criticized loans during the
first quarter of 2018 was driven by $9.6 million of upgrades and $51.1
million of loan exits, including payoffs, loan sales, charge-offs, and
normal amortization during the quarter, partially offset by $58.4
million of downgrades. Classified loans decreased $8.7 million and
special mention loans increased $6.4 million in the first quarter of
2018. The decrease in classified loans was driven by upgrades of $1.1
million as well as payoffs, charge-offs, and normal amortization of
$47.9 million, partially offset by downgrades of $40.3 million. The
increase in special mention loans was driven by $39.5 million of
downgrades, partially offset by $8.4 million of upgrades and $24.7
million of loan payoffs, normal amortization, and migration.

The net decrease in total criticized loans consisted primarily of a
$16.8 million decrease in commercial business loans and a $14.6 million
increase in real estate secured loans. Commercial business loans
comprised $5.1 million of loans upgraded out of criticized categories
and $49.0 million of loan exits, including loan payoffs, loan sales,
charge-offs, and normal amortization, partially offset by $37.3 million
of downgrades during the first quarter of 2018. Real estate secured
loans comprised $21.0 million of downgrades during the first quarter of
2018, partially offset by $4.4 million of loans upgraded out of
criticized categories and $2.0 million of loan payoffs and amortization.

Capital

As of March 31, 2018, our Tier 1 leverage ratio was 9.53%, Common Equity
Tier 1 ratio was 10.92% and total risk-based capital ratio was 14.91%,
compared to 9.44%, 10.94% and 14.97%, respectively, as of December 31,
2017. As of March 31, 2017, our Tier 1 leverage, Common Equity Tier 1,
and total risk-based capital ratios were 8.19%, 10.03% and 13.45%,
respectively. Stockholders' equity totaled over $1.0 billion as of
March 31, 2018, unchanged from over $1.0 billion as of December 31, 2017
and an increase of 4% from $985.6 million as of March 31, 2017. Our
tangible book value per as converted common share was $17.23 as of
March 31, 2018 compared to $17.26 as of December 31, 2017 and $16.23 as
of March 31, 2017.

Conference Call and Webcast Details

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

Phone Number: (855) 265-3237
Conference ID: 1857796
Webcast
URL: http://investor.opusbank.com/event

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

Replay Information: For those who are not able to listen to the call, an
archived recording will be available beginning approximately two hours
following the completion of the call. To listen to the call replay, dial
(855) 859-2056, or for international callers dial (404) 537-3406. The
access code for either replay number is 1857796. The call replay will be
available through May 23, 2018.

About Opus Bank

Opus Bank is an FDIC insured California-chartered commercial bank with
$7.3 billion of total assets, $5.2 billion of total loans, and $6.0
billion in total deposits as of March 31, 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 over $16 billion of custodial assets
and over 50,000 client accounts, which are comprised of self-directed
investors, financial institutions, capital raisers and financial
advisors. Opus Bank operates 50 banking offices, including 31 in
California, 16 in the Seattle/Puget Sound region in Washington, two in
the Phoenix metropolitan area of Arizona and one in Portland, Oregon.
Opus Bank is an Equal Housing Lender. For additional information about
Opus Bank, please visit our website: www.opusbank.com.

Forward Looking Statements

This release and the aforementioned conference call and webcast includes
forward-looking statements related to Opus' plans, beliefs and goals,
which involve certain risks and uncertainties that could cause actual
results to differ materially from those in the forward-looking
statements, including, without limitation, the increase in our quarterly
loan production and deposit and full relationship growth; lower negative
impact of planned exits on our quarterly net loan growth, loan yield and
overall credit expenses; the expected increase in our net interest
margin; and our ability to drive our efficiency ratio below 65%. 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 Statements of Income

   
(unaudited)     Three Months Ended
($ in thousands, except per share amounts) March 31,
2018
December 31,
2017
March 31,
2017
Interest income:
Loans $ 54,637 $ 53,592 $ 60,232
Investment securities 5,094 5,975 3,069
Due from banks 951   1,265   1,961  
Total interest income 60,682   60,832   65,262  
Interest expense:
Deposits 7,018 6,855 7,181
Federal Home Loan Bank advances 48 68 67
Subordinated debt 1,923   1,923   1,923  
Total interest expense 8,989   8,846   9,171  
Net interest income 51,693 51,986 56,091
Provision for loan losses 3,914   2,955   5,968  
Net interest income after provision for loan losses 47,779   49,031   50,123  
Noninterest income:
Fees and service charges on deposit accounts 1,722 1,822 1,922
Escrow and exchange fees 1,360 1,568 1,450
Trust administrative fees 6,978 6,879 6,382
Gain (loss) on sale of loans (69 ) (2 ) (299 )
Gain (loss) on sale of assets 1 (6 ) (2 )
Gain (loss) from OREO and other repossessed assets 118 86 (147 )
Gain on sale of investment securities 182 330 519
Bank-owned life insurance, net 1,053 1,088 890
Other income 1,964   861   1,788  
Total noninterest income 13,309   12,626   12,503  
Noninterest expense:
Compensation and benefits 26,808 25,273 29,197
Professional services 1,716 5,308 4,540
Occupancy expense 4,006 3,617 3,780
Depreciation and amortization 1,599 1,585 1,884
Deposit insurance and regulatory assessments 1,131 799 2,062
Insurance expense 338 341 355
Data processing 440 689 783
Software licenses and maintenance 1,149 1,148 1,157
Office services 1,880 1,750 2,400
Amortization of other intangible assets 1,479 1,479 1,479
Advertising and marketing 957 1,395 660
Litigation expense (recovery) (14 ) (2 ) 129
Other expenses 2,588   2,801   1,635  
Total noninterest expense 44,077   46,183   50,061  
Income before income tax expense 17,011 15,474 12,565
Income tax expense 4,107   14,273   4,908  
Net income $ 12,904   $ 1,201   $ 7,657  
Basic earnings per common share $ 0.34 $ 0.03 $ 0.21
Diluted earnings per common share 0.34 0.03 0.21
Weighted average shares - basic 35,967,779 35,935,614 35,755,228
Weighted average shares - diluted 38,316,243 38,229,787 36,687,680
 
 
Consolidated Balance Sheets        
(unaudited) As of
($ in thousands, except share amounts) March 31,
2018
December 31,
2017
March 31,
2017
 
Assets
Cash and due from banks $ 43,462 $ 45,828 $ 47,747
Due from banks – interest-bearing 248,763 454,941 978,416
Investment securities available-for-sale, at fair value 1,097,741 1,127,288 899,967
Loans held-for-investment 5,228,994 5,173,193 5,432,108
Less allowance for loan losses (67,842 ) (75,930 ) (112,230 )
Loans held-for-investment, net 5,161,152 5,097,263 5,319,878
OREO and other repossessed assets 288
Premises and equipment, net 26,649 27,644 33,941
Goodwill 331,832 331,832 331,832
Other intangible assets, net 43,321 44,800 49,239
Deferred tax assets, net 28,740 24,260 56,830
Cash surrender value of bank owned life insurance, net 150,819 149,744 121,908
Accrued interest receivable 19,978 19,317 20,098
Federal Home Loan Bank stock 17,250 17,250 17,250
Other assets 128,054   146,642   106,288  
Total assets $ 7,297,761   $ 7,486,809   $ 7,983,682  
Liabilities and Stockholders' Equity
Deposits:
Noninterest-bearing demand $ 855,810 $ 817,330 $ 1,023,891
Interest-bearing demand 2,519,955 2,435,293 2,453,251
Money market and savings 2,267,648 2,307,258 2,748,181
Time deposits 400,203   384,057   494,829  
Total deposits 6,043,616 5,943,938 6,720,152
Federal Home Loan Bank advances 10,000 290,000 10,000
Subordinated debt, net 132,811 132,745 132,546
Accrued interest payable 2,118 4,086 2,053
Other liabilities 86,838   92,576   133,303  
Total liabilities 6,275,383   6,463,345   6,998,054  
Stockholders' equity:
Preferred stock:
Authorized 200,000,000 shares; issued 31,111 and 31,111 and 612
shares, respectively
29,110 29,110 581
Common stock, no par value per share:
Authorized 200,000,000 shares; issued 36,460,468 and 36,330,546 and
37,547,040 shares, respectively
700,220 700,220 728,749
Additional paid-in capital 63,922 63,545 59,041
Retained earnings 254,701 245,006 205,020
Treasury stock, at cost; 458,887 and 415,387 and 328,666 shares,
respectively
(11,603 ) (10,354 ) (8,344 )
Accumulated other comprehensive income (loss) (13,972 ) (4,063 ) 581  
Total stockholders' equity 1,022,378   1,023,464   985,628  
Total liabilities and stockholders' equity $ 7,297,761   $ 7,486,809   $ 7,983,682  
 
 
Selected Financial Data
    As of or for the three months ended
(unaudited) March 31,
2018
  December 31,
2017
  March 31,
2017
Return on average assets 0.72 % 0.06 % 0.39 %
Return on average assets, tax adjusted (1) 0.72 0.55 0.39
Return on average stockholders' equity 5.11 0.46 3.23
Return on average stockholders' equity, tax adjusted (1) 5.11 3.91 3.23
Return on average tangible equity (2) 8.07 0.73 5.35
Return on average tangible equity, tax adjusted (1,2) 8.07 6.16 5.35
Efficiency ratio (3) 67.81 71.48 72.98
Noninterest expense to average assets 2.45 2.49 2.58
Yield on interest-earning assets (4) 3.75 3.68 3.66
Cost of deposits (5) 0.47 0.45 0.44
Cost of funds (6) 0.59 0.56 0.54
Net interest margin (4) 3.20 3.15 3.14
Loan to deposits 86.52 87.03 80.83
 
(1)     Tax adjusted for the three months ended December 31, 2017 due to
impacts of the Tax Cuts and Jobs Act. See computation in "Non-GAAP
Financial Measures" Section.
(2) See computation in "Non-GAAP Financial Measures" section.
(3) The efficiency ratio is calculated by dividing noninterest expense
by the sum of net interest income before provision for loan losses
and noninterest income.
(4) Net interest margin and yield on interest-earning assets are
presented on a tax equivalent basis using the federal effective tax
rate.
(5) Calculated as interest expense on deposits divided by total average
deposits.
(6) Calculated as total interest expense divided by average total
deposits, FHLB advances and subordinated debt.
 
 
Capital Ratios     As of
(unaudited) March 31, 2018 (1)   December 31, 2017   March 31, 2017
Tier 1 leverage ratio 9.53 % 9.44 % 8.19 %
Tier 1 risk-based capital ratio 11.42 11.42 10.03
Total risk-based capital ratio 14.91 14.97 13.45
Common Equity Tier 1 ratio 10.92 10.94 10.03
 
(1)   Ratios are preliminary until filing of our March 31, 2018 call
report.
 
 
Loan Fundings
(unaudited)     Three Months Ended
($ in thousands) March 31,
2018
  December 31,
2017
  March 31,
2017
Loans funded:
Real estate mortgage loans:
Single-family residential $ $ $
Multifamily residential 267,301 300,539 111,272
Commercial real estate 29,307 58,103 15,473
Construction and land loans 4,885 8,170 15,556
Commercial business loans 146,184 131,728 75,661
Small Business Administration loans 4,578 3,768 1,181
Consumer and other loans    
Total loan fundings $ 452,255   $ 502,308   $ 219,143
 
 
Composition of Loan Portfolio     As of
(unaudited) March 31,
2018
  December 31,
2017
  March 31,
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 $ 56,913 1.1 % $ 59,497 1.2 % $ 69,046 1.3 %
Multifamily residential 2,667,313 51.0 2,495,818 48.3 2,285,039 42.1
Commercial real estate 1,044,276 20.0 1,079,637 20.9 1,251,877 23.0
Construction and land loans 79,080 1.5 94,348 1.8 100,303 1.8
Commercial business loans 1,221,517 23.4 1,284,500 24.8 1,550,120 28.5
Small Business Administration loans 31,278 0.6 27,152 0.5 15,123 0.3
Consumer and other loans 53   0.0   96   0.0   296   0.0  
Total originated loans 5,100,430 97.5 5,041,048 97.5 5,271,804 97.0
 
Acquired loans held-for-investment
Real estate mortgage loans:
Single-family residential 21,653 0.4 22,964 0.4 30,457 0.6
Multifamily residential 51,611 1.0 52,453 1.0 56,480 1.0
Commercial real estate 27,221 0.5 27,889 0.6 37,205 0.9
Construction and land loans 1,398 0.0 1,418 0.0 1,980 0.0
Commercial business loans 10,869 0.2 10,978 0.2 14,864 0.2
Small Business Administration loans 10,718 0.2 10,957 0.2 12,862 0.2
Consumer and other loans 5,094   0.1   5,486   0.1   6,456   0.1  
Total acquired loans 128,564   2.5   132,145   2.5   160,304   3.0  
Total gross loans $ 5,228,994   100.0 % $ 5,173,193   100.0 % $ 5,432,108   100.0 %
 
 
Composition of Deposits     As of
(unaudited) March 31,
2018
  December 31,
2017
  March 31,
2017
($ in thousands) Amount   % of
Total deposits
Amount   % of
Total deposits
Amount   % of
Total deposits
 
Noninterest bearing $ 855,810 14.2 % $ 817,330 13.8 % $ 1,023,891 15.2 %
Interest bearing demand 2,519,955 41.7 2,435,293 41.0 2,453,251 36.5
Money market and savings 2,267,648 37.5 2,307,258 38.8 2,748,181 40.9
Time deposits 400,203   6.6   384,057   6.5   494,829   7.4  
Total deposits $ 6,043,616   100.0 % $ 5,943,938   100.1 % $ 6,720,152   100.0 %
 
 
Consolidated average balance sheet, interest, yield and rates
   

For the three months ended
March 31,

 

For the three months ended
December 31,

 

For the three months ended
March 31,

(unaudited) 2018 2017 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 $ 242,663 $ 951 1.59 % $ 381,265 $ 1,265 1.32 % $ 951,235 $ 1,961 0.84 %
Investment securities 1,103,477 5,094 1.87 1,141,865 5,975 2.08 719,754 3,069 1.73
Acquired loans 130,918 1,779 5.51 135,977 2,089 6.10 169,511 2,831 6.77
Originated Loans 5,105,690   53,114   4.22   4,947,185   51,916   4.16   5,400,662   57,440   4.31  
Total loans $ 5,236,608   $ 54,893   4.25   $ 5,083,162   $ 54,005     4.22   $ 5,570,173   $ 60,271     4.39  
Total interest-earning assets $ 6,582,748 $ 60,938 3.75 $ 6,606,292 $ 61,245 3.68 $ 7,241,162 $ 65,301 3.66
Noninterest-earning assets 726,341   743,798   634,841  
Total assets $ 7,309,089   $ 7,350,090   $ 7,876,003  
 
Liabilities and stockholders' equity:
Interest-bearing deposits
Interest-bearing demand $ 2,531,947 $ 1,277 0.20 % $ 2,456,936 $ 1,137 0.18 % $ 2,495,540 $ 1,133 0.18 %
Money market and savings 2,289,530 4,699 0.83 2,356,079 4,689 0.79 2,762,146 4,957 0.73
Time deposits 381,647   1,043   1.11   393,755   1,029   1.04   503,673   1,091   0.88  
Total interest bearing deposits $ 5,203,124 $ 7,019 0.55 $ 5,206,770 $ 6,855 0.52 $ 5,761,359 $ 7,181 0.51
Subordinated debt 132,777 1,923 5.87 132,711 1,923 5.75 132,507 1,923 5.89
FHLB advances 16,444   48   1.18   21,989   68   1.23   27,722   67   0.98  

Total interest-bearing liabilities

 

$ 5,352,345 $ 8,990 0.68 $ 5,361,470 $ 8,846 0.65 $ 5,921,588 $ 9,171 0.63
Noninterest-bearing deposits 832,888 852,057 921,208
Other liabilities 99,598   103,795   71,180  
Total liabilities $ 6,284,831 $ 6,317,322 $ 6,913,976
 
Total stockholders' equity $ 1,024,258   $ 1,032,768   $ 962,027  
Total liabilities and
stockholders' equity
$ 7,309,089   $ 7,350,090   $ 7,876,003  
 
Net interest spread (2) 3.07 % 3.03 % 3.03 %
Net interest income and margin, tax equivalent (3, 4) $ 51,948   3.20 % $ 52,399   3.15 % $ 56,130   3.14 %
 
Reconciliation of tax equivalent net interest income to reported net
interest income
Tax equivalent adjustment (255 ) (413 ) (39 )
Net interest income, as reported $ 51,693   $ 51,986   $ 56,091  
 
(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)     Three Months Ended
($ in thousands) March 31,
2018
  December 31,
2017
  March 31,
2017
Allowance for loan losses-balance at beginning of period $ 75,930 $ 78,176 $ 111,410
(Recapture) Provision for loan losses:
Acquired loans (27 ) (94 )
Originated loans 3,914   2,982   6,062  
Total provision for loan losses 3,914 2,955 5,968
Charge-offs:
Acquired loans
Originated loans (14,155 ) (5,821 ) (5,716 )
Total charge-offs (14,155 ) (5,821 ) (5,716 )
Recoveries:
Acquired loans
Originated loans 2,153   620   568  
Total recoveries 2,153   620   568  
Total net recoveries (charge-offs) (12,002 ) (5,201 ) (5,148 )
Allowance for loan losses-balance at end of period $ 67,842   $ 75,930   $ 112,230  
 
 
Asset Quality Information
(unaudited)     As of or for the three months ended
($ in thousands) March 31,
2018
  December 31,
2017
  March 31,
2017
Nonperforming assets
Nonaccrual loans $ 63,813 $ 58,274 $ 86,740
OREO and other repossessed assets     288  
Total nonperforming assets 63,813 58,274 87,028
 
Loans 30 - 89 days past due 13,304 12,805 11,381
Accruing loans 90 days or more past due 299 299 296
Accruing troubled debt restructured loans 139 139 160
 
Non performing loans to total loans 1.22 % 1.13 % 1.60 %
Non performing assets to total assets 0.87 % 0.78 % 1.09 %
Loans 30 - 89 days past due to total loans 0.25 % 0.25 % 0.21 %
Allowance for loan losses to total loans 1.30 % 1.47 % 2.07 %
Allowance for loan losses to non-accrual loans 106.31 % 130.30 % 129.39 %
Net charge-offs to average loans (annualized) 0.93 % 0.41 % 0.37 %
 
 
Risk Rating by Loan Product
(Unaudited)
($ in thousands)     Pass  

Special
Mention

  Classified   Total Loans  

Nonaccrual
loans

 

Total
allowance

As of March 31, 2018  
Real estate mortgage loans:
Single-family residential $ 77,789 $ 79 $ 697 $ 78,565 $ $ 224
Multifamily residential 2,709,851 1,942 7,131 2,718,924 1,209 10,286
Commercial real estate 1,016,147 41,447 13,904 1,071,498 2,512 8,859
Construction and land loans 70,767 9,711 80,478 1,083
Commercial business loans 1,064,187 44,987 123,212 1,232,386 59,496 47,032
Small Business Administration loans 38,468 1,562 1,966 41,996 347
Consumer and other loans 4,351   61   735   5,147   596   11
Total loans $ 4,981,560   $ 99,789   $ 147,645   $ 5,228,994   $ 63,813   $ 67,842
 
As of December 31, 2017
Real estate mortgage loans:
Single-family residential $ 81,681 $ 80 $ 700 $ 82,461 $ $ 254
Multifamily residential 2,539,405 5,657 3,209 2,548,271 9,097
Commercial real estate 1,056,889 44,759 5,878 1,107,526 8,908
Construction and land loans 95,766 95,766 961
Commercial business loans 1,110,445 41,251 143,782 1,295,478 57,618 56,334
Small Business Administration loans 34,527 1,597 1,985 38,109 363
Consumer and other loans 4,723   62   797   5,582   656   13
Total loans $ 4,923,436   $ 93,406   $ 156,351   $ 5,173,193   $ 58,274   $ 75,930
 
As of March 31, 2017
Real estate mortgage loans:
Single-family residential $ 98,684 $ 83 $ 736 $ 99,503 $ $ 254
Multifamily residential 2,322,418 8,318 10,783 2,341,519 9,631
Commercial real estate 1,237,392 34,514 17,176 1,289,082 12,276 10,087
Construction and land loans 94,931 7,352 102,283 1,469
Commercial business loans 1,288,371 32,210 244,403 1,564,984 73,708 90,569
Small Business Administration loans 25,152 983 1,850 27,985 191
Consumer and other loans 5,736   65   951   6,752   756   29
Total loans $ 5,072,684   $ 83,525   $ 275,899   $ 5,432,108   $ 86,740   $ 112,230
 
 
Risk Rating by Lending Division
(Unaudited)
($ in thousands)     Pass  

Special
Mention

Classified Total Loans  

Nonaccrual
loans

As of March 31, 2018
Income Property Banking $ 3,230,456 $ 6,938 $ 15,358 $ 3,252,752 $ 3,721
Commercial Banking 401,996 27,478 52,107 481,581 18,882
Structured Finance 304,420 15,487 319,907
Healthcare Provider 209,912 33,489 33,771 277,172
Healthcare Practice 21,174 973 22,147
Corporate Finance 132,250 14,916 22,443 169,609 21,675
Institutional Syndication 339,451 (145 ) (1 ) 339,306
Public Finance 178,539 178,539
Technology Banking 19,232 9,944 29,176 7,649
Other divisions (2) 144,130   1,481   13,194   158,805   11,886
Total loans $ 4,981,560   $ 99,789   $ 147,645   $ 5,228,994   $ 63,813
 
December 31, 2017
Income Property Banking $ 3,140,183 $ 18,811 $ 2,250 $ 3,161,244 $
Commercial Banking 414,183 22,903 47,742 484,828 11,477
Structured Finance 339,410 1,084 340,494
Healthcare Provider 220,329 33,648 23,792 277,769
Healthcare Practice 22,673 2,640 25,313 1,638
Corporate Finance 184,058 11,866 44,162 240,086 25,655
Institutional Syndication 289,397 (177 ) (1 ) 289,220
Public Finance 148,454 148,454
Technology Banking 21,238 25,009 46,247 18,677
Other divisions (2) 143,511   6,178   9,849   159,538   827
Total loans $ 4,923,436   $ 93,406   $ 156,351   $ 5,173,193   $ 58,274
 
As of March 31, 2017
Income Property Banking $ 2,910,884 $ 20,132 $ 7,803 $ 2,938,819 $ 696
Commercial Banking 476,078 24,301 69,900 570,279 15,946
Structured Finance 441,257 10,945 15,322 467,524 11,580
Healthcare Provider 354,611 13,480 55,057 423,148
Healthcare Practice 35,260 539 8,358 44,157 5,624
Corporate Finance 346,405 2,389 52,668 401,462 24,932
Institutional Syndication 289,162 (322 ) (1 ) (274 ) (1 ) 288,566
Public Finance 24,798 24,798
Technology Banking 47,296 10,818 64,108 122,222 26,968
Other divisions (2) 146,933   1,243   2,957   151,133   994
Total loans $ 5,072,684   $ 83,525   $ 275,899   $ 5,432,108   $ 86,740
 
(1)     Represents unamortized net deferred loan origination fees on
syndicated lines of credit that have no outstanding principal
balances at period end.
(2) Other divisions is comprised of single family residential loans,
consumer and other loans, and specialty banking divisions including
Business Banking and Media and Entertainment Banking.
 

Non-GAAP Financial Measures

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

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

 
Non-GAAP tax adjusted return on average assets
(unaudited)     Three Months Ended
($ in thousands) March 31,
2018
  December 31,
2017
  March 31,
2017
Average assets $ 7,309,089   $ 7,350,090   $ 7,876,003
Tax adjusted net income
Net income $ 12,904 $ 1,201 $ 7,657
Less: Adjustments due to the Tax Cuts and Jobs Act   8,968    
Tax adjusted net income 12,904 10,169 7,657
Return on average assets 0.72 % 0.06 % 0.39 %
Non-GAAP tax adjusted return on average assets (1) 0.72 % 0.55 % 0.39 %
 
(1)     Tax adjusted for the three months ended December 31, 2017 due to
impacts of the Tax Cuts and Jobs Act.
 
 
Non-GAAP return on average tangible equity
(unaudited)     Three Months Ended
($ in thousands) March 31,
2018
  December 31,
2017
  March 31,
2017
Average tangible equity:
Average stockholders' equity $ 1,024,258 $ 1,032,768 $ 962,027
Less:
Average goodwill 331,832 331,832 331,832
Average other intangible assets 44,083   45,551   50,112  
Average tangible equity $ 648,343 $ 655,385 $ 580,083
Tax adjusted net income:
Net income $ 12,904 $ 1,201 $ 7,657
Less: Adjustments for revaluation of deferred tax assets   8,968    
Tax adjusted net income $ 12,904 $ 10,169 $ 7,657
Return on average stockholders' equity 5.11 % 0.46 % 3.23 %
Non-GAAP return on average tangible equity 8.07 % 0.73 % 5.35 %
 
Non-GAAP tax adjusted return on average stockholders' equity (1) 5.11 % 3.91 % 3.23 %
Non-GAAP tax adjusted return on average tangible equity (1) 8.07 % 6.16 % 5.35 %
 
(1)     Tax adjusted for the three months ended December 31, 2017 due to
impacts of the Tax Cuts and Jobs Act.
 
 
Non-GAAP tangible book value per as converted common share
(unaudited)     As of
($ In thousands, except share amounts) March 31,
2018
  December 31,
2017
  March 31,
2017
Tangible equity:
Total stockholders' equity $ 1,022,378 $ 1,023,464 $ 985,628
Less:
Goodwill 331,832 331,832 331,832
Other intangible assets, net 43,321   44,800   49,239
Tangible equity 647,225 646,832 604,557
Shares of common stock outstanding 36,001,581 35,915,159 37,218,374
Shares of common stock to be issued upon conversion of preferred
stock
1,555,550   1,555,550   30,600
Total as converted shares of common stock outstanding (1) 37,557,131   37,470,709   37,248,974
Book value per as converted common share 27.22 27.31 26.46
Tangible book value per as converted common share 17.23 17.26 16.23
 
(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.
 

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