Opus Bank Announces Second Quarter 2016 Results

IRVINE, Calif.--(BUSINESS WIRE)-- Opus Bank ("Opus") (NASDAQ: “OPB”) announced today net income of $16.1 million, or $0.46 per diluted share, for the second quarter of 2016 compared to $17.3 million, or $0.51 per diluted share, for the first quarter of 2016 and $17.5 million, or $0.52 per diluted share, for the second quarter of 2015. Net income increased by 17% to $33.4 million, or $0.97 per diluted share, for the six months ended June 30, 2016 from $28.6 million, or $0.86 per diluted share, for the six months ended June 30, 2015. Net income in the second quarter included $3.4 million of merger and strategic initiative related expenses, including costs associated with the acquisition of PENSCO Services, LLC and its wholly-owned subsidiary PENSCO Trust Company ("PENSCO"), which closed on April 13, 2016, and the addition of $7.6 million of provision expense related to four specific loan relationships, including loans in our Technology Banking portfolio. Pre-tax pre-provision earnings increased 11% to $37.3 million for the second quarter of 2016 from $33.6 million in the prior quarter, and increased 26% to $70.9 million for the six months ended June 30, 2016 from $56.2 million for the six months ended June 30, 2015.

Additionally, Opus announced that its Board of Directors approved increasing its quarterly cash dividend by 11% to $0.20 per share payable on August 18, 2016 to common and preferred shareholders of record as of August 4, 2016.

Stephen H. Gordon, Founding Chairman, Chief Executive Officer and President of Opus Bank, stated, “Opus’ performance during the second quarter of 2016 was marked by record second quarter loan fundings, continued strong growth in both loans and low-cost core deposits, and record fee income contributed by our Merchant Bank, Escrow and Exchange divisions, and our PENSCO Trust Company subsidiary acquired during the quarter. We also achieved record levels of net interest income, total revenues, and pre-tax pre-provision earnings in the second quarter, aided by our continued focus on waste avoidance and efficiency improvement, and our initiatives undertaken earlier this year.” Gordon added, “The quarter was also marked by elevated provision for potential loan losses associated with Opus’ Technology Banking division loans, as well as provisions required due to our record second-quarter new loan fundings and continued success shifting the mix of our loan portfolio more heavily toward C&I loans.” Gordon concluded, “Given the recent volatility in the Tech markets, this quarter's resultant low risk-adjusted returns experienced in our Tech lending division, and that Opus’ second quarter earnings were masked in part by provisions due to downgrade-related movements in this portfolio, we’ve determined here at the start of the current third quarter to deemphasize our Technology Banking niche lending focus for the foreseeable future, and thereby unleash Opus’ true earnings potential. Strong growth within Opus' other Commercial and Specialty Banking divisions and its Income Property Banking division continue to drive strong risk-adjusted returns and result in no change to Opus' previously established growth goals.”

Second Quarter 2016 Highlights

• PENSCO's assets under custody increased to $12.0 billion as of June 30, 2016 compared to $10.7 billion as of the close of the acquisition on April 13, 2016. The referral agreement with Morgan Stanley Smith Barney LLC resulted in a bulk transfer of over 5,800 self-directed individual retirement accounts and $1 billion of assets during the second quarter, and has resulted in over 200 referral accounts representing $62 million of assets through June 30, 2016. Additionally, Opus entered into a successor custodian and referral agreement with UBS Financial Services Inc. during the second quarter.
• Following the close of the acquisition on April 13, 2016, PENSCO generated $6.3 million of trust administrative fee income during the second quarter of 2016.
• As of June 30, 2016, PENSCO ancillary custodial client cash balances held on deposit at Opus totaled $863.3 million with a weighted average rate of 0.02%. PENSCO's ancillary custodial cash balances still held at other financial institutions totaled $318.5 million at June 30, 2016.
• Opus' cost of deposits decreased four basis points to 0.44% for the second quarter of 2016 from 0.48% for the first quarter of 2016 due to the increase in low-cost core transaction account deposits from the transition of PENSCO ancillary custodial client cash balances during the quarter.
• New loan fundings increased to $660.6 million in the second quarter of 2016 compared to $551.7 million in the first quarter of 2016 and $543.8 million in the second quarter of 2015. Loan commitments of $767.2 million were originated during the second quarter of 2016 compared to $630.1 million in the first quarter of 2016 and $598.9 million during the second quarter of 2015. These levels of new loan fundings and loan commitments originated during the second quarter of 2016 were both record highs for second quarter volumes of any year.
• Total loans held-for-investment, including acquired loans, increased by $362.7 million, or 6%, during the second quarter of 2016 to $6.1 billion and increased by $1.5 billion, or 32%, from the second quarter of 2015. Originated loans increased by $398.5 million, or 7%, during the second quarter of 2016 to $5.9 billion, and increased by $1.7 billion, or 39%, from the second quarter of 2015.
• Commercial and Specialty Banking divisions represented 64% of total new loan commitments originated and 58% of new loan fundings during the second quarter of 2016.
• The loan origination pipeline remains robust entering the second quarter and continues to reflect the growth and maturation of our Commercial and Specialty Banking divisions, which represented 68% of the pipeline on July 1, 2016.
• Total assets increased 8% to a record $7.5 billion at June 30, 2016 from $6.9 billion at March 31, 2016 and increased 28% from $5.8 billion at June 30, 2015.
• Total deposits increased $940.5 million, or 18%, during the second quarter of 2016 and increased $1.6 billion, or 35%, from the second quarter of 2015, which included significant contribution from our PENSCO acquisition. Also, our Municipal Banking division, which banks local municipalities in western markets in which Opus operates, added $94.8 million of deposits during the second quarter of 2016. As a result, the percentage of low-cost core transaction account deposits rose to over 91% of total deposits as of June 30, 2016.
• FHLB advances decreased to $135.0 million as of June 30, 2016 compared to $750.0 million as of March 31, 2016 and $365.0 million at June 30, 2015.
• Opus' loan to deposit ratio decreased to 99% as of June 30, 2016 from 110% as of March 31, 2016, primarily as a result of the transition of PENSCO ancillary custodial client cash balances during the second quarter.
• Net interest income increased 6% to $62.5 million for the second quarter of 2016 compared to $59.1 million for the first quarter of 2016. Interest income from originated loans increased 4% due to higher average balances during the second quarter of 2016. Interest income from the acquired loan portfolio increased 10% from the first quarter of 2016 due to higher accretion income, partially offset by lower balances of acquired loans. During the second quarter of 2016, we recognized $4.4 million of accretion income from loans that closed through prepayment, foreclosure and sale, compared to $3.1 million during the first quarter of 2016.
• Noninterest income during the second quarter of 2016 increased to $13.2 million compared to $5.3 million in the first quarter of 2016 and $8.1 million in the second quarter of 2015. The increase from the prior quarter was primarily due to the addition of $6.3 million of trust administrative fees generated by our PENSCO subsidiary, which was acquired on April 13, 2016, a record $2.0 million of fees generated by our Escrow and Exchange divisions and $1.8 million of advisory fee income generated by our Merchant Bank, including our broker-dealer subsidiary, Opus Financial Partners. Net equity warrant valuation changes reduced total noninterest income by $942,000 during the second quarter.
• Noninterest expense was $38.4 million in the second quarter of 2016 compared to $30.9 million in the first quarter of 2016 and $28.6 million in the second quarter of 2015. The increase from the prior quarter was primarily due to $3.4 million of merger and strategic initiative related expenses, which includes costs associated with the acquisition of PENSCO, as well as higher compensation and benefits expense, occupancy expense, office services expense, and amortization of intangible assets due to the acquisition and integration of PENSCO.
• Our efficiency ratio was 50.7% for the second quarter of 2016 compared to 47.9% for the first quarter of 2016 and 45.3% for the second quarter of 2015. Excluding the $3.4 million in merger and strategic initiative related expenses incurred during the second quarter of 2016, our adjusted efficiency ratio was 46.3%.
• Return on average tangible equity was 11.14% for the second quarter of 2016 compared to 11.46% for the first quarter of 2016 and 12.54% for the second quarter of 2015. Return on average assets was 0.89% for the second quarter of 2016 compared to 1.03% for the first quarter of 2016 and 1.23% for the second quarter of 2015. Excluding merger and strategic initiative related expenses during the second quarter, our adjusted return on average tangible equity and return on average assets were 12.56% and 1.01%, respectively.
• Nonperforming assets totaled 1.06% of total assets at June 30, 2016 compared to 0.62% at March 31, 2016 and 0.22% at June 30, 2015. The linked quarter increase in nonperforming assets was primarily due to continued resolution efforts on three loan relationships, including two large Technology Banking division relationships which moved to nonaccrual status during the second quarter, impacting both nonperforming assets and the allowance for loan losses.
• Provision expense for the second quarter of 2016 was $10.9 million compared to $4.9 million for the first quarter of 2016 and $5.8 million for the second quarter of 2015. The increase in provision expense during the second quarter of 2016 was primarily due to four loan relationships, including two Technology Banking division loans, one Commercial Banking division loan, and one Healthcare Banking division loan, that experienced risk rating migration and required additional specific reserves representing $7.6 million of the total, as well as an additional $3.2 million provision for loan growth during the quarter. Net charge-offs were $24,000 for the second quarter of 2016, or 0.00% of average loans (annualized), compared to $302,000 and 0.02% of average loans (annualized), respectively, during the first quarter of 2016.
• During the third quarter of 2016, Opus decided to deemphasize our Technology Banking lending focus, as risk-adjusted returns within this division do not meet our standards for profitability at this stage of Opus' evolution. As of June 30, 2016, Technology Banking division loans outstanding totaled $279.5 million and total loan commitments were $316.4 million, or approximately 4.5% of Opus total loans outstanding and 4.7% of total loan commitments, respectively.
• Our allowance for loan losses increased to 0.97% of loans as of June 30, 2016 from 0.85% as of March 31, 2016, and our coverage ratio, which includes the remaining discount on the acquired loan portfolio, was 1.07% as of June 30, 2016, compared to 1.03% as of March 31, 2016.
• On June 29, 2016 we completed a public offering and sale of $135.0 million of 5.50% fixed-to-floating rate subordinated notes due 2026 (the "Notes"). The Notes were sold at par, resulting in net proceeds, after discounts and estimated offering expenses, of approximately $132.3 million. The Kroll Bond Rating Agency has assigned a rating of BBB+ to the Notes and the proceeds are treated as Tier 2 capital for regulatory purposes at June 30, 2016.

Net Interest Income

Net interest income increased 6% to $62.5 million in the second quarter of 2016 from $59.1 million in the first quarter of 2016 and increased 14% from $55.0 million in the second quarter of 2015. Interest income from originated loans increased by $2.4 million, or 4%, from the first quarter of 2016 and $17.1 million, or 40%, from the second quarter of 2015 due to our continued loan growth and success in strategically shifting our loan mix. Interest income from the acquired loan portfolio increased by $714,000 from the prior quarter due to accelerated accretion income from loans that closed through prepayment, foreclosure and sale, partially offset by lower balances of acquired loans. Interest income from the acquired loan portfolio decreased by $8.9 million from the prior year's second quarter due to lower balances of acquired loans and lower accretion income from loans that closed through prepayment, foreclosure and sale. During the second quarter of 2016 we sold $22.9 million of acquired loans that generated $3.3 million of accretion income, compared to the sale of $13.2 million of acquired loans that contributed $1.2 million of accretion income during the first quarter of 2016, and the sale of $35.7 million of acquired loans that generated $8.2 million of accretion income during the second quarter of 2015. Interest expense was $7.0 million for the second quarter of 2016 compared to $7.1 million for the first quarter of 2016 and $6.1 million for the second quarter of 2015. The linked quarter decrease in interest expense was due to a decrease in the cost of funds driven by lower balances of FHLB advances due to payoffs during the second quarter of 2016.

Net interest income for the six months ended June 30, 2016 totaled $121.6 million, an increase of $21.5 million, or 21%, from $100.2 million for the six months ended June 30, 2015. Interest income for the six months ended June 30, 2016 totaled $135.7 million, an increase of $23.4 million, or 21%, from $112.3 million during the six months ended June 30, 2015 due to an increase of $35.0 million in interest income from the originated loan portfolio offset by a decrease of $12.2 million of interest income from the acquired loan portfolio. Interest expense for the six months ended June 30, 2016 totaled $14.1 million, an increase of $2.0 million, or 16%, from $12.1 million during the six months ended June 30, 2015 due to increased average deposit balances.

Net interest margin decreased four basis points to 3.80% in the second quarter of 2016 from 3.84% in the first quarter of 2016, primarily due to the lower net benefit from prepayments during the quarter and the impact of loans placed on nonaccrual, partially offset by lower cost of funds. Net interest margin decreased 49 basis points from 4.29% in the second quarter of 2015, due to lower accretion income from the acquired loan portfolio. Total loan yield during the second quarter of 2016 decreased to 4.66% from 4.69% in the first quarter of 2016, primarily due to lower net benefit from prepayment activity, and from 5.42% in the second quarter of 2015, due primarily to lower accretion income received from the acquired loan portfolio. Accretion income from the acquired loan portfolio contributed 0.31% to net interest margin during the second quarter of 2016 compared to 0.25% in the first quarter of 2016 and 0.91% in the second quarter of 2015. The yield on originated loans decreased nine basis points to 4.28% during the second quarter of 2016 primarily due to lower net benefit from prepayments. Contractual net interest margin, which excludes the impact of accretion of acquisition discounts on the acquired loan portfolio, decreased 10 basis points to 3.49% for the second quarter of 2016 from 3.59% in the prior quarter and increased 11 basis points from 3.38% in the second quarter of 2015. The linked-quarter change in contractual net interest margin was due to the decrease in average balances of acquired loans and lower net benefit from prepayments during the quarter, partially offset by a lower cost of funds. Our cost of funds decreased four basis points to 0.45% during the second quarter of 2016 from 0.49% during the first quarter of 2016 and decreased from 0.50% during the second quarter of 2015, primarily due to the addition of $800.3 million in PENSCO ancillary custodial client cash balances that transitioned to Opus and continued deposit growth from our Commercial Bank, including our Escrow and Exchange divisions, as well as the lower average balances of FHLB borrowings during the second quarter. Our cost of deposits decreased four basis points to 0.44% for the second quarter of 2016 as compared to 0.48% for the first quarter of 2016, and decreased from 0.49% for the second quarter of 2015.

Net interest margin decreased to 3.82% for the six months ended June 30, 2016 from 4.09% for the six months ended June 30, 2015. The yield on originated loans was unchanged at 4.32% for the six months ended June 30, 2016 and 2015. The yield on the acquired loan portfolio decreased 54 basis points to 12.46% for the six months ended June 30, 2016 compared to 13.00% for the six months ended June 30, 2015 due to lower accretion income from loan sales. Our cost of funds decreased 6 basis points to 0.47% for the six months ended June 30, 2016 compared to 0.53% for the six months ended June 30, 2015. Accretion income from the acquired loan portfolio contributed 0.28% and 0.67% to net interest margin during the six months ended June 30, 2016 and 2015, respectively.

Noninterest Income and Noninterest Expense

Noninterest income increased to $13.2 million in the second quarter of 2016 as compared to $5.3 million in the first quarter of 2016 and $8.1 million in the second quarter of 2015. Noninterest income increased to $18.5 million for the six months ended June 30, 2016 compared to $11.4 million for the six months ended June 30, 2015. Noninterest income during the second quarter of 2016 included $6.3 million in trust administrative fees from our PENSCO subsidiary; $2.0 million in fees generated through our Escrow and Exchange divisions; $1.9 million in service charges on deposit accounts; $1.8 million in advisory fee income generated by Opus' Merchant Bank, including its broker-dealer subsidiary, Opus Financial Partners; $935,000 in income from bank owned life insurance; and a $313,000 gain on the sale of Opus originated loans. Net equity warrant valuation changes reduced total noninterest income by $942,000 during the second quarter.

Noninterest expense totaled $38.4 million in the second quarter of 2016 compared to $30.9 million in the first quarter of 2016 and $28.6 million in the second quarter of 2015. Noninterest expense for the six months ended June 30, 2016 was $69.3 million, an increase of 25% from $55.3 million for the six months ended June 30, 2015. Noninterest expense during the second quarter of 2016 included $3.4 million of merger and strategic initiative related expenses, which includes costs associated with the acquisition of PENSCO, of which $1.2 million were compensation and benefits expenses and $2.0 million were professional services expenses. Excluding merger and strategic initiative related expenses, the change in noninterest expense from the prior quarter was primarily due to the addition of PENSCO. Total professional services expense during the second quarter of 2016 included the recapture of $1.2 million of legal fees previously expensed.

Loans

Total loans held-for-investment, net of the allowance for loan losses, grew 6% to $6.1 billion at June 30, 2016 from $5.7 billion at March 31, 2016 and grew 32% from $4.6 billion at June 30, 2015.

Our originated loan portfolio totaled $5.9 billion as of June 30, 2016, an increase of 7% from $5.5 billion as of March 31, 2016 and 39% from $4.3 billion as of June 30, 2015. Our loan growth during the quarter was the result of strong new loan fundings of $660.6 million, including $280.4 million from Income Property Banking, $133.2 million from Commercial Banking, $78.3 million from Structured Finance, $75.1 million from Healthcare Banking, $64.1 million from Corporate Finance, $27.3 million from Technology Banking, and $2.0 million from Institutional Syndications. Our Commercial and Specialty Banking divisions contributed 58% of new loan fundings during the second quarter of 2016 compared to 54% during the first quarter of 2016 and 47% during the second quarter of 2015. Loan commitments originated during the second quarter totaled $767.2 million as compared to $630.1 million during the first quarter of 2016 and $598.9 million during the second quarter of 2015. At June 30, 2016, our unfunded commitments on originated loans totaled $565.3 million. As of June 30, 2016, originated loans made up 97% of our total loan portfolio as compared to 96% as of March 31, 2016 and 92% as of June 30, 2015.

Our acquired loan portfolio totaled $207.3 million as of June 30, 2016, a decrease of 15% from $243.2 million at March 31, 2016 and 43% from $364.6 million at June 30, 2015. At June 30, 2016, our acquired loan portfolio has a remaining discount of $6.1 million.

Deposits and Borrowings

Deposits totaled $6.2 billion as of June 30, 2016, an increase of 18% from $5.2 billion as of March 31, 2016 and an increase of 35% from $4.6 billion as of June 30, 2015. Much of the growth of total deposits during the second quarter of 2016 was attributable to the transition of $800.3 million of PENSCO's ancillary custodial client cash balances to Opus following the close of the acquisition on April 13, 2016. As of June 30, 2016, total PENSCO deposits were $863.3 million. PENSCO's ancillary custodial cash balances at other financial institutions totaled $318.5 million at June 30, 2016.

In addition to the strong deposit growth generated by PENSCO during the second quarter of 2016, our Municipal Banking division grew deposits by $94.8 million, an increase of 31% from the prior quarter, and Commercial Banking client deposits increased by $78.2 million, or 50%, from the prior quarter. Total demand deposits, including both noninterest-bearing and interest-bearing DDAs, increased $918.5 million, or 44%, during the second quarter of 2016, and now comprise 48% of total deposits as of June 30, 2016, an increase from 40% as of March 31, 2016 and 35% as of June 30, 2015. As of June 30, 2016, business deposits represented 52% of total deposits, as compared to 51% as of March 31, 2016 and 47% as of June 30, 2015. Our loan to deposit ratio was 99% as of June 30, 2016 compared to 110% as of March 31, 2016 and 101% as of June 30, 2015.

FHLB advances decreased to $135.0 million as of June 30, 2016 compared to $750.0 million as of March 31, 2016 and $365.0 million at June 30, 2015.

Asset Quality

Nonperforming assets totaled $79.4 million, or 1.06% of total assets as of June 30, 2016, compared to $42.8 million, or 0.62% of total assets as of March 31, 2016, and $12.6 million, or 0.22% of total assets as of June 30, 2015. The increase in nonperforming assets during the second quarter of 2016 was primarily due to three loan relationships, including two Technology Banking division relationships, which moved to nonaccrual status during the second quarter through efforts reflecting the bank's continued support for resolution.

We recorded a total provision for loan losses of $10.9 million in the second quarter of 2016 compared to $4.9 million in the first quarter of 2016 and $5.8 million in the second quarter of 2015. A provision for loan losses of $11.1 million was recorded on the originated loan portfolio during the second quarter of 2016 compared to $5.1 million in the first quarter of 2016 and $6.2 million in the second quarter of 2015. The provision for loan losses during the current quarter on the originated loan portfolio was comprised of $3.2 million for portfolio growth and $7.9 million for changes in specific reserves, individual risk ratings and loss factors, predominantly the increase in provision against four loan relationships, as the bank continues to work the relationships for optimal outcome. Net charge-offs totaled $24,000, or 0.00% of average loans (annualized), for the second quarter of 2016 compared to $302,000 and 0.02%, respectively, during the first quarter of 2015. The provision recapture on the acquired loan portfolio totaled $145,000 in the second quarter of 2016, $151,000 during the first quarter of 2016 and $387,000 in the second quarter of 2015.

Our allowance for loan losses represented 0.97% of our total loan portfolio at June 30, 2016 as compared to 0.85% at March 31, 2016 and 0.66% at June 30, 2015. As expected, we have continued to see the allowance as a percentage of total loans increase due to our strategic shift in the mix of our loan portfolio toward more commercial business loans, which require a higher allowance relative to our multifamily loans. At June 30, 2016, the total originated loan portfolio was comprised of 47% multifamily loans with the remaining portfolio comprised primarily of commercial business loans. This compares to 48% multifamily loans as of March 31, 2016 and 55% multifamily loans as of June 30, 2015. The coverage ratio for the total loan portfolio, which includes the remaining discount on the acquired loan portfolio, at June 30, 2016 was 1.07% compared to 1.03% at March 31, 2016 and 1.22% at June 30, 2015. The remaining discount on acquired loans was $6.1 million as of June 30, 2016, compared to $10.7 million as of March 31, 2016 and $26.1 million as of June 30, 2015. Our allowance for loan losses on originated loans resulted in a coverage ratio of 1.00% at June 30, 2016, an increase from 0.87% at March 31, 2016 and 0.67% at June 30, 2015.

Capital

Our capital ratios continue to be strong and well in excess of bank regulatory requirements. As of June 30, 2016, our Tier 1 leverage ratio was 8.52%, Common Equity Tier 1 ratio was 9.74% and total risk-based capital ratio was 12.93%, compared to 9.30%, 10.80% and 11.70%, respectively, as of March 31, 2016. As of June 30, 2015, our Tier 1 leverage, Common Equity Tier 1 ratio and total risk-based capital ratios were 9.98%, 11.08% and 12.92%, respectively. During the second quarter of 2016 we issued $135.0 million of the Notes in a public offering, resulting in net proceeds, after discounts and estimated offering expenses, of approximately $132.3 million. The Notes and the proceeds are treated as Tier 2 capital. Stockholders’ equity totaled $951.2 million as of June 30, 2016, an increase of 8% from $881.7 million as of March 31, 2016 and an increase of 13% from $838.9 million as of June 30, 2015. Our tangible book value per as converted common share decreased to $16.60 as of June 30, 2016 from $18.73 as of March 31, 2016 and $17.48 at June 30, 2015, due to the dilutive effect of our acquisition of PENSCO.

Additionally, on July 21, 2016 the Board of Directors approved increasing our quarterly cash dividend by 11% to $0.20 per share payable on August 18, 2016 to common and preferred shareholders of record as of August 4, 2016.

Conference Call and Webcast DetailsDate: Monday, July 25, 2016Time: 8:00 a.m. PT (11:00 a.m. ET)

Phone Number: (855) 265-3237Conference ID: 31231394Webcast URL: http://investor.opusbank.com/event

Analysts, investors, and the general public may listen to a discussion of Opus' second quarter earnings and 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's 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 archive of the call will be available beginning approximately 2 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 31231394. The call replay will be available through August 25, 2016.

About Opus Bank

Opus Bank is an FDIC insured California-chartered commercial bank with $7.5 billion of total assets, $6.1 billion of total loans, and $6.2 billion in total deposits as of June 30, 2016. Opus Bank provides high-value, relationship-based banking products, services, and solutions 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, technology, 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. Opus Bank’s subsidiary, PENSCO Trust Company, is a leading tech-enabled alternative asset IRA custodian with approximately $12 billion of custodial assets and over 48,000 client accounts, which are comprised of self-directed investors, financial institutions, capital raisers, and financial advisors. Opus Bank operates 58 banking offices, including 33 in California, 22 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 may include forward-looking statements related to the Opus’s 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's filings with the Federal Deposit Insurance Corporation, including, but not limited to, the risk factors in Opus's annual report on Form 10-K. These filings are available on the Investor Relations page of Opus's website at: http://investor.opusbank.com.

Opus undertakes no obligation to revise or publicly release any revision to these forward-looking statements.

Consolidated Statements of Income
(unaudited)			For the three months ended															For the six months ended
($ in thousands, except per share amounts)			June 30, 2016					March 31, 2016					June 30, 2015					June 30, 2016					June 30, 2015
Interest income:
Loans			$	68,231				$	65,139				$	60,097				$	133,370				$	110,616
Investment securities			599					445					686					1,044					1,177
Due from banks			739					575					279					1,314					504
Total interest income			69,569					66,159					61,062					135,728					112,297
Interest expense:
Deposits			6,496					6,333					5,487					12,830					10,933
Federal Home Loan Bank advances			489					723					597					1,211					1,195
Subordinated debt			41					—					—					41					—
Total interest expense			7,026					7,056					6,084					14,082					12,128
Net interest income			62,543					59,103					54,978					121,646					100,169
Provision for loan losses			10,930					4,943					5,797					15,873					9,357
Net interest income after provision for loan losses			51,613					54,160					49,181					105,773					90,812
Noninterest income:
Service charges on deposit accounts			1,929					1,938					1,683					3,867					3,219
Escrow and exchange fees			1,989					1,620					1,668					3,609					1,668
Trust administrative fees			6,265					—					—					6,265					—
Gain on sale of loans			313					—					—					313					—
Gain (loss) on sale of assets			(16		)			(7		)			(28		)			(22		)			106
Loss from real estate owned, net			(28		)			(24		)			(261		)			(52		)			(198		)
Gain on sale of investment securities			—					—					363					—					363
Bank-owned life insurance, net			935					811					689					1,747					1,404
Other income			1,819					985					3,963					2,802					4,805
Total noninterest income			13,206					5,323					8,077					18,529					11,367
Noninterest expense:
Compensation and benefits			22,174					17,728					16,467					39,902					31,160
Professional services			2,603					2,293					1,774					4,897					3,740
Occupancy expense			3,436					2,999					2,950					6,435					5,716
Depreciation and amortization			1,806					1,475					1,383					3,280					2,709
Deposit insurance and regulatory assessments			1,247					1,060					859					2,307					1,630
Insurance expense			406					325					303					732					609
Data processing			799					870					862					1,668					1,679
Software licenses and maintenance			803					631					489					1,433					943
Office services			1,923					889					1,025					2,813					2,033
Amortization of other intangible assets			1,195					627					627					1,822					1,254
Advertising and marketing			366					228					227					594					465
Litigation expense (recovery)			(270		)			(50		)			25					(320		)			275
Other expenses			1,918					1,778					1,589					3,696					3,119
Total noninterest expense			38,406					30,853					28,580					69,259					55,332
Income before income tax expense			26,413					28,630					28,678					55,043					46,847
Income tax expense			10,264					11,350					11,194					21,614					18,286
Net income			$	16,149				$	17,280				$	17,484				$	33,429				$	28,561
Basic earnings per common share			$	0.47				$	0.53				$	0.54				$	1.00				$	0.89
Diluted earnings per common share			0.46					0.51					0.52					0.97					0.86
Weighted average shares - basic			34,032,042					32,521,972					28,684,002					33,277,007					28,420,540
Weighted average shares - diluted			35,453,621					33,786,500					33,537,721					34,621,246					33,203,785

Consolidated Balance Sheets
(unaudited)			As of
($ in thousands, except share amounts)			June 30, 2016					March 31, 2016					June 30, 2015
Assets
Cash and due from banks			$	41,873				$	38,221				$	31,742
Due from banks – interest-bearing			531,239					463,198					424,046
Investment securities available-for-sale, at fair value			150,419					145,587					234,766
Loans held-for-sale			—					—					—
Loans held-for-investment			6,125,073					5,762,410					4,629,232
Less allowance for loan losses			(59,694		)			(48,788		)			(30,660		)
Loans held-for-investment, net			6,065,379					5,713,622					4,598,572
Real estate owned			1,415					1,446					3,965
Premises and equipment, net			38,206					30,225					33,979
Goodwill			328,285					262,115					262,115
Other intangible assets, net			53,677					9,472					11,354
Deferred tax assets, net			31,481					46,707					61,707
Cash surrender value of bank owned life insurance, net			119,179					117,804					94,560
Accrued interest receivable			20,341					19,178					15,531
Federal Home Loan Bank stock			17,250					20,250					17,250
Other assets			69,339					62,639					43,300
Total assets			$	7,468,083				$	6,930,464				$	5,832,887
Liabilities and Stockholders’ Equity
Deposits:
Noninterest-bearing demand			$	964,045				$	913,175				$	803,082
Interest-bearing demand			2,032,461					1,164,835					814,095
Money market and savings			2,637,804					2,605,349					2,369,962
Time deposits			546,006					556,424					604,263
Total deposits			6,180,316					5,239,783					4,591,402
Federal Home Loan Bank advances			135,000					750,000					365,000
Subordinated debt, net			132,331					—					—
Accrued interest payable			223					348					354
Other liabilities			69,022					58,675					37,187
Total liabilities			6,516,892					6,048,806					4,993,943
Stockholders’ equity:
Preferred stock:
Authorized 200,000,000 shares; issued 612 and 612 and 72,411 shares, respectively			581					581					68,768
Common stock, no par value per share:
Authorized 200,000,000 shares; issued 34,537,724 and 32,767,746 and 28,930,431 shares, respectively			678,291					621,677					550,248
Additional paid-in capital			52,695					49,082					44,947
Retained earnings			226,198					216,222					179,559
Treasury stock, at cost; 268,145 and 234,494, and 207,784 shares, respectively			(6,884		)			(5,732		)			(4,838		)
Accumulated other comprehensive (loss) income			310					(172		)			260
Total stockholders’ equity			951,191					881,658					838,944
Total liabilities and stockholders’ equity			$	7,468,083				$	6,930,464				$	5,832,887

Selected Financial Data
			For the three months ended												For the six months ended
(unaudited)			June 30, 2016				March 31, 2016				June 30, 2015				June 30, 2016				June 30, 2015
Return on average assets			0.89	%			1.03	%			1.23	%			0.96	%			1.05	%
Return on average stockholders' equity			6.90				7.91				8.42				7.39				7.02
Return on average tangible equity (1)			11.14				11.46				12.54				11.30				10.32
Efficiency ratio (2)			50.70				47.89				45.32				49.41				49.61
Noninterest expense to average assets			2.12				1.84				2.01				1.99				2.03
Yield on interest-earning assets			4.22				4.29				4.76				4.26				4.58
Cost of deposits (3)			0.44				0.48				0.49				0.46				0.52
Cost of funds (4)			0.45				0.49				0.50				0.47				0.53
Net interest margin			3.80				3.84				4.29				3.82				4.09
Loan to deposits			99.11				109.97				100.82				99.11				100.82

(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
(unaudited)			June 30, 2016 (1)			March 31, 2016			June 30, 2015
Tier 1 leverage ratio			8.52%			9.30%			9.98%
Tier 1 risk-based capital ratio			9.74			10.80			12.21
Total risk-based capital ratio			12.93			11.70			12.92
Common Equity Tier 1 ratio			9.74			10.80			11.08%

(1)		Ratios are preliminary until filing of our June 30, 2016 call report.

Loan Fundings
(unaudited)			For the three months ended															For the six months ended
($ in thousands)			June 30, 2016					March 31, 2016					June 30, 2015					June 30, 2016					June 30, 2015
Loans funded:
Real estate mortgage loans:
Single-family residential			$	—				$	—				$	—				$	—				$	—
Multifamily residential			285,563					219,519					219,988					505,082					365,819
Commercial real estate			71,622					111,620					134,734					183,242					208,229
Construction and land loans			12,504					14,387					2,604					26,891					4,849
Commercial business loans			290,947					201,955					186,448					492,902					432,494
Small Business Administration loans			—					4,215					60					4,215					886
Consumer and other loans			—					—					—					—					—
Total loan fundings			$	660,636				$	551,696				$	543,834				$	1,212,332				$	1,012,277

Composition of Loan Portfolio			As of
(unaudited)			June 30, 2016									March 31, 2016									June 30, 2015
($ in thousands)			Amount					% ofTotal loans				Amount					% ofTotal loans				Amount					% ofTotal loans
Originated loans held-for-investment
Real estate mortgage loans:
Single-family residential			$	93,550				1.5	%			$	97,276				1.7	%			$	114,227				2.5	%
Multifamily residential			2,773,243					45.3				2,665,566					46.3				2,347,656					50.7
Commercial real estate			1,241,827					20.3				1,179,003					20.5				896,659					19.4
Construction and land loans			82,959					1.3				70,409					1.2				20,045					0.4
Commercial business loans			1,700,713					27.8				1,480,860					25.7				857,442					18.5
Small Business Administration loans			25,082					0.4				25,422					0.4				25,860					0.6
Consumer and other loans			376					0.0				669					0.0				2,747					0.1
Total originated loans			5,917,750					96.6				5,519,205					95.8				4,264,636					92.2
Acquired loans held-for-investment
Real estate mortgage loans:
Single-family residential			43,317					0.7				44,499					0.8				85,476					1.8
Multifamily residential			71,330					1.2				73,341					1.3				93,113					2.1
Commercial real estate			50,927					0.9				62,178					1.1				94,459					2.0
Construction and land loans			2,032					0.0				2,046					0.0				2,121					0.0
Commercial business loans			16,850					0.2				18,505					0.3				24,876					0.5
Small Business Administration loans			15,324					0.3				34,895					0.6				55,718					1.2
Consumer and other loans			7,543					0.1				7,741					0.1				8,833					0.2
Total acquired loans			207,323					3.4				243,205					4.2				364,596					7.8
Total gross loans			$	6,125,073				100.0	%			$	5,762,410				100.0	%			$	4,629,232				100.0	%

Composition of Deposits			As of
(unaudited)			June 30, 2016									March 31, 2016									June 30, 2015
($ in thousands)			Amount					% ofTotaldeposits				Amount					% ofTotaldeposits				Amount					% ofTotaldeposits
Noninterest bearing			$	964,045				15.60	%			$	913,175				17.43	%			$	803,082				17.49	%
Interest bearing demand			2,032,461					32.89				1,164,835					22.23				814,095					17.73
Money market and savings			2,637,804					42.68				2,605,349					49.72				2,369,962					51.62
Time deposits			546,006					8.83				556,424					10.62				604,263					13.16
Total deposits			$	6,180,316				100.00	%			$	5,239,783				100.00	%			$	4,591,402				100.00	%

Consolidated average balance sheet, interest, yield and rates
			For the three months endedJune 30,														For the three months endedMarch 31,														For the three months endedJune 30,
(unaudited)			2016														2015														2015
($ in thousands)			AverageBalance					Interest					Yields/Rates				AverageBalance					Interest					Yields/Rates				AverageBalance					Interest					Yields/Rates
Assets:
Interest-earning assets:
Due from banks			$	586,542				$	739				0.51	%			$	458,569				$	575				0.50	%			$	445,758				$	279				0.25	%
Investment securities			148,945					599					1.62				149,228					445					1.20				254,617					686					1.08
Acquired loans			232,857					7,993					13.81				260,243					7,279					11.25				400,551					16,930					16.95
Originated Loans			5,659,767					60,238					4.28				5,327,366					57,860					4.37				4,042,875					43,167					4.28
Total loans			$	5,892,624				$	68,231				4.66				$	5,587,609				$	65,139				4.69				$	4,443,426				$	60,097				5.42
Total interest-earning assets			$	6,628,111				$	69,569				4.22				$	6,195,406				$	66,159				4.29				$	5,143,801				$	61,062				4.76
Noninterest-earning assets			649,774														555,493														565,195
Total assets			$	7,277,885													$	6,750,899													$	5,708,996
Liabilities and stockholders’ equity:
Interest-bearing deposits
Interest-bearing demand			$	1,839,069				$	748				0.16	%			$	1,205,116				$	687				0.23	%			$	745,927				$	343				0.18	%
Money market and savings			2,648,183					4,618					0.70				2,588,103					4,504					0.70				2,333,423					3,897					0.67
Time deposits			550,381					1,130					0.83				562,824					1,142					0.82				609,660					1,247					0.82
Total interest bearing deposits			$	5,037,633				$	6,496				0.52				$	4,356,043				$	6,333				0.58				$	3,689,010				$	5,487				0.60
Subordinated debt			2,907					41					5.67				—					—					—				—					—					—
FHLB advances			351,648					489					0.56				539,615					723					0.54				365,000					597					0.66
Total interest-bearing liabilities			$	5,392,188				$	7,026				0.52				$	4,895,658				$	7,056				0.58				$	4,054,010				$	6,084				0.60
Noninterest-bearing deposits			883,769														915,522														785,516
Other liabilities			61,105														61,443														36,554
Total liabilities			$	6,337,062													$	5,872,623													$	4,876,080
Total stockholders’ equity			$	940,823													$	878,276													$	832,916
Total liabilities and stockholders’ equity			$	7,277,885													$	6,750,899													$	5,708,996
Net interest income								$	62,543													$	59,103													$	54,978
Net interest spread (1)													3.70	%													3.71	%													4.16	%
Net interest margin (2)													3.80	%													3.84	%													4.29	%

(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 six months ended June 30,
			2016														2015
(In thousands)			AverageBalance					Interest					Yields/Rates				AverageBalance					Interest					Yields/Rates
Assets:
Interest-earning assets
Due from banks			$	522,556				$	1,314				0.51	%			$	405,003				$	504				0.25	%
Investment securities			149,087					1,044					1.41				224,303					1177					1.06
Acquired loans			246,549					15,272					12.46				426,442					27,486					13.00
Originated Loans			5,493,567					118,098					4.32				3,884,941					83,130					4.32
Total loans			$	5,740,116				$	133,370				4.67				$	4,311,383				$	110,616				5.17
Total interest-earning assets			$	6,411,759				$	135,728				4.26				$	4,940,689				$	112,297				4.58
Noninterest-earning assets			602,633														551,404
Total assets			$	7,014,392													$	5,492,093
Liabilities and stockholders’ equity:
Interest-bearing deposits
Interest-bearing deposits			$	1,522,093				$	1,434				0.19	%			$	600,717				$	625				0.21	%
Money market and savings			2,618,143					9,124					0.70				2,317,771					7,799					0.68
Time deposits			556,602					2,272					0.82				615,019					2,509					0.82
Total interest bearing deposits			$	4,696,838				$	12,830				0.55				$	3,533,507				$	10,933				0.62
Subordinated debt			1,453					41					5.67				—					—					—
FHLB advances			445,632					1,211					0.55				370,138					1,195					0.65
Total interest-bearing liabilities			$	5,143,923				$	14,082				0.55				$	3,903,645				$	12,128				0.63
Noninterest-bearing deposits			899,646														738,567
Other liabilities			61,307														29,067
Total liabilities			$	6,104,876													$	4,671,279
Total stockholders’ equity			$	909,516													$	820,814
Total liabilities and stockholders’ equity			$	7,014,392													$	5,492,093
Net interest income								$	121,646													$	100,169
Net interest spread (1)													3.71	%													3.95	%
Net interest margin (2)													3.82	%													4.09	%

(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.

Asset Quality Information
(unaudited)			As of
($ in thousands)			June 30, 2016					March 31, 2016					June 30, 2015
Nonperforming assets
Nonaccrual loans			$	77,964				$	41,345				$	8,624
Real estate owned			1,415					1,446					3,965
Total nonperforming assets			79,379					42,791					12,589
Nonperforming assets to total assets			1.06		%			0.62		%			0.22		%
Accruing loans 90 days or more past due			$	1,244				$	1,315				$	814
Accruing troubled debt restructured loans			373					648					291
Allowance for loan losses - Originated loans			58,909					47,858					28,512
Allowance for loan losses - Acquired loans			785					930					2,148
Total allowance for loan losses			59,694					48,788					30,660
Remaining acquisition discount on acquired loans			$	6,140				$	10,659				$	26,090
Allowance for loan losses to non-accrual loans			76.6		%			118.00		%			355.52		%
Allowance for loan losses acquired loans to acquired loans			0.38					0.38					0.59
Allowance for loan losses originated loans to originated loans			1.00					0.87					0.67
Total allowance for loan losses to total loans			0.97					0.85					0.66
Allowance for loan losses and remaining acquisition discount on acquired loans to gross acquired loans (1)			3.24					4.57					7.23
Allowance for loan losses and remaining acquisition discount to total gross loans (1)			1.07					1.03					1.22

(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.

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, 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 should not be considered a substitute of the GAAP measures.

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

Non-GAAP return on average tangible equity
(unaudited)			For the three months ended															For the six months ended
($ in thousands)			June 30, 2016					March 31, 2016					June 30, 2015					June 30, 2016					June 30, 2015
Average tangible equity:
Average stockholders' equity			$	940,823				$	878,276				$	832,916				$	909,516				$	820,814
Less:
Average goodwill			335,135					262,115					262,115					298,625					250,517
Average other intangible assets			22,643					9,803					11,680					16,223					12,005
Average tangible equity			583,045					606,358					559,121					594,668					558,292
Net income			$	16,149				$	17,280				$	17,484				$	33,429				$	28,561
Return on average stockholders' equity			6.90		%			7.91		%			8.42		%			7.39		%			7.02		%
Non-GAAP return on average tangible equity			11.14					11.46					12.54					11.30					10.32

Non-GAAP net interest margin
(unaudited)			For the three months ended															For the six months ended
($ in thousands)			June 30, 2016					March 31, 2016					June 30, 2015					June 30, 2016					June 30, 2015
Net interest income			$	62,543				$	59,103				$	54,978				$	121,646				$	100,169
Less: Accretion/amortization of acquisition discount/premium (1)			(4,943		)			(3,724		)			(11,356		)			(8,666		)			(15,808		)
Non-GAAP net interest income			57,600					55,379					43,622					112,980					84,361
Average interest earning assets			$	6,628,111				$	6,195,406				$	5,143,801				$	6,411,759				$	4,940,689
Add: Average unamortized acquisition discounts			9,575					14,376					37,488					11,975					39,553
Non-GAAP average interest-earning assets			6,637,686					6,209,782					5,181,289					6,423,734					4,980,242
Net interest margin impact			0.31		%			0.25		%			0.91		%			0.28		%			0.67		%

(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
($ In thousands, except share amounts)			June 30, 2016					March 31, 2016					June 30, 2015
Tangible equity:
Total stockholders' equity			$	951,191				$	881,658				$	838,944
Less:
Goodwill			328,285					262,115					262,115
Other intangible assets, net			53,677					9,472					11,354
Tangible equity			569,229					610,071					565,475
Shares of common stock outstanding			34,269,579					32,533,252					28,722,647
Shares of common stock to be issued upon conversion of preferred stock			30,600					30,600					3,620,550
Total as converted shares of common stock outstanding (1)			34,300,179					32,563,852					32,343,197
Book value per as converted common share			27.73					27.07					25.94
Tangible book value per as converted common share			16.60					18.73					17.48

(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.

View source version on businesswire.com: http://www.businesswire.com/news/home/20160725005246/en/

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

Source: Opus Bank

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