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Opus Bank Reports Fourth Quarter and Year End 2018 Results

IRVINE, Calif.--(BUSINESS WIRE)--

Opus Bank ("Opus") (OPB) announced today a net loss of $6.9 million, or $(0.20) per diluted share, for the fourth quarter of 2018 and net income of $30.9 million, or $0.81 per diluted share, for the year ended December 31, 2018, compared to net income of $9.4 million, or $0.25 per diluted share, for the third quarter of 2018 and net income of $47.6 million, or $1.26 per diluted share, for the year ended December 31, 2017.

Net loss for the fourth quarter of 2018 included a pre-tax restructuring charge of $20.4 million related to the previously announced CEO transition, corporate strategy initiatives and actions intended to make Opus more profitable and efficient over time. These actions and initiatives address recent changes in interest rates and are expected to better enable the company to contain expense growth and improve operating leverage, helping Opus continue to remain competitive in today's business environment. The table below provides detail on the restructuring charge incurred during the fourth quarter of 2018. These items impacted net income for the fourth quarter and year ended December 31, 2018 by $17.2 million, or $0.47 per diluted share.

 
Type of Cost Amount

(in millions)

Bond Portfolio Repositioning $ 9.9
CEO Transition 7.1
Noninterest Expense Reduction Initiative 2.0
Professional Services and other charges   1.4
Total Restructuring Charge $ 20.4
 

Additionally, Opus announced today that its Board of Directors has approved the payment of a quarterly cash dividend of $0.11 per common share payable on February 21, 2019 to common stockholders and to its Series A Preferred stockholders of record as of February 7, 2019.

Fourth Quarter and Year End 2018 Highlights

  • Net interest income increased 3.2% compared to the prior quarter, driven by increases in interest income on loans and investment securities.
  • Net interest margin expanded nine basis points to 3.07% compared to the prior quarter due to the benefit of loan repricing during the fourth quarter and lower premium amortization on investment securities, partially offset by a higher cost of deposits.
  • Loans held for investment grew 5.0% on an annualized basis, excluding the impact of planned loan exits during the fourth quarter.
  • We repositioned our investment securities portfolio through the sale of $314.7 million available-for-sale securities yielding approximately 2.3%, resulting in the recognition through the income statement of $9.9 million of unrealized losses during the fourth quarter. Proceeds from the sale were reinvested in investment grade securities having an approximate yield of 4.0%, while the duration of the portfolio increased modestly from 3.3 years to 3.5 years. We anticipate a pre-tax income benefit of approximately $5.5 million in 2019 and a loss earn-back period of less than two years.
  • We implemented a cost reduction initiative during the fourth quarter of 2018 which is designed to make Opus more efficient and contain operating expense growth. As a result of these cost reductions, we expect that year-over-year expenses will remain relatively flat while continuing to allow us to fund necessary infrastructure enhancements that will improve our customer experience.
  • Enterprise Value loans decreased 34%, or $62.5 million, compared to the prior quarter to $122.0 million as of December 31, 2018, and decreased 71%, or $295.7 million, compared to December 31, 2017.
  • Nonperforming assets decreased 38%, or $17.1 million, compared to the prior quarter to $28.0 million, and decreased 52%, or $30.3 million, compared to December 31, 2017. NPAs to assets decreased 22 basis points to 0.39% as of December 31, 2018, and decreased 39 basis points compared to 0.78% as of December 31, 2017.
  • Total criticized loans decreased 19%, or $34.7 million, compared to the prior quarter to $150.3 million as of December 31, 2018, and decreased 40%, or $99.4 million, compared to December 31, 2017.
  • Provision for loan losses was $7.7 million for the fourth quarter of 2018, driven primarily by net charge-offs of $12.0 million. Three Enterprise Value loan relationships drove 96% of loan charge-offs during the quarter.
  • Tangible book value per share increased $0.13 to $17.81 and tangible common equity to tangible assets increased 36 basis points to 9.41%. The repositioning of our investment securities portfolio during the fourth quarter of 2018 had a negligible impact to shareholders' equity.

Paul G. Greig, Chairman of the Board, Interim Chief Executive Officer and President of Opus Bank, stated, "Our fourth quarter results included a sizable restructuring charge, much of which was related to actions intended to make Opus a more profitable institution and more closely align operations with our long-term strategic goals. We saw positive core earnings trends during the quarter, including higher net interest income, an expanding net interest margin, and improved credit metrics."

Mr. Greig added, “As Interim CEO, I have worked closely with Opus’ executive management team to insure the day-to-day operations of the Company continue to function smoothly. The Board of Directors is making progress in the search for a permanent CEO and we have already received strong interest from well-qualified candidates for the position.”

Loans

Total loans held-for-investment were $5.2 billion as of December 31, 2018, compared to $5.2 billion as of both September 30, 2018 and December 31, 2017. New loan fundings during the fourth quarter of 2018 totaled $412.3 million and were partially offset by originated loan payoffs of $265.3 million and planned exits of $59.2 million, resulting in a $5.3 million increase in loans held-for-investment compared to September 30, 2018. New loan fundings for the year ended December 31, 2018 totaled $1.6 billion, which were offset by originated loan payoffs of $981.4 million and planned exits of $230.5 million, resulting in an $8.0 million decrease in loans held-for-investment compared to December 31, 2017.

 
Loan Balance Roll Forward        
(unaudited)   Three Months Ended
($ in millions) December 31,
2018
September 30,
2018
June 30,
2018

March 31,
2018

December 31,
2017

 
Beginning loan balance $ 5,159.9 $ 5,072.4 $ 5,229.0 $ 5,173.2 $ 5,060.6
New loan fundings 412.3 435.7 295.6 452.3 502.3
Loan payoffs (265.3 ) (197.4 ) (299.5 ) (219.2 ) (237.8 )
Planned exits (59.2 ) (60.6 ) (58.5 ) (52.2 ) (80.6 )
Other1 (82.5 ) (90.2 ) (94.2 ) (125.1 ) (71.3 )
Ending loan balance $ 5,165.2   $ 5,159.9   $ 5,072.4   $ 5,229.0   $ 5,173.2  
 
[1]   Includes normal amortization, paydowns, charge-offs, and loan sales that were not planned exits
 

New loan fundings in the fourth quarter of 2018 totaled $412.3 million, a 5% decrease compared to the prior quarter. New loan fundings for the year ended December 31, 2018 totaled $1.6 billion, compared to $1.5 billion for the year ended December 31, 2017. Commercial business loans comprised $87.4 million, or 21%, of total new loan fundings in the fourth quarter of 2018. Loan commitments originated during the fourth quarter of 2018 totaled $399.8 million compared to $438.6 million during the third quarter of 2018 and $454.1 million during the fourth quarter of 2017. As of December 31, 2018, our unfunded commitments on originated loans totaled $378.2 million.

Cash and Investment Securities

Cash and investment securities totaled $1.3 billion as of December 31, 2018, compared to $1.6 billion as of both September 30, 2018 and December 31, 2017. The decrease from the prior quarter was driven by a decrease in cash and cash equivalents of $278.6 million, or 52%, during the fourth quarter of 2018 to $254.6 million as of December 31, 2018, partially offset by an increase in investment securities of $62.7 million, or 6%, from the prior quarter to $1.1 billion as of December 31, 2018. The decrease in cash and investment securities from the prior year was driven by a decrease in cash and cash equivalents of $246.1 million, or 49%, from December 31, 2017, as well as a decrease in investment securities of $45.7 million, or 4%.

During the fourth quarter of 2018 we repositioned our investment securities portfolio through the sale of $314.7 million available-for-sale securities yielding approximately 2.3%, resulting in a pre-tax loss of $9.9 million. Proceeds from the sale were reinvested in investment grade securities having an approximate yield of 4.0%. The duration of the investment securities portfolio increased modestly from 3.3 years to 3.5 years. The impact on shareholders' equity as a result of the securities portfolio repositioning was negligible, as the unrealized loss position of the securities we sold was recognized through the income statement as a component of noninterest income.

Deposits and Borrowings

Deposits totaled $6.0 billion as of December 31, 2018, a decrease of $190.4 million, or 3%, compared to $6.1 billion as of September 30, 2018, and an increase of $8.0 million, or 0%, compared to $5.9 billion as of December 31, 2018. The decrease in deposits from the prior quarter was primarily driven by decreases in deposits from PENSCO (our alternative asset IRA custodian subsidiary), our Retail Banking division, and our Fiduciary Banking division, which were partially offset by an increase in deposits from our Commercial and Specialty Banking divisions.

Total demand deposits, including both noninterest-bearing and interest-bearing demand deposit accounts, measured 55% of total deposits as of December 31, 2018, compared to 56% as of September 30, 2018 and 55% as of December 31, 2017. As of December 31, 2018, business deposits represented 62% of total deposits.

Our loan to deposit ratio measured 87% as of December 31, 2018, compared to 84% as of September 30, 2018 and 87% as of December 31, 2017.

Net Interest Income

Net interest income increased 3.2% to $50.4 million for the fourth quarter of 2018, compared to $48.9 million for the third quarter of 2018, and decreased 3.0% from $52.0 million for the fourth quarter of 2017. Net interest income for the year ended December 31, 2018 was $200.5 million, compared to $217.4 million for the year ended December 31, 2017.

Interest income from loans increased 3% to $55.7 million for the fourth quarter of 2018, driven by a 1.3% increase in the average balances of loans and a seven basis point increase in loan yield. Interest income from loans decreased 4% to $218.3 million for the year ended December 31, 2018, as loan payoffs and prepayments, including planned exits and loan sales, and continued runoff of the acquired loan portfolio resulted in lower average balances of loans compared to the prior year.

Interest income from cash and investment securities increased $1.3 million, or 18%, to $8.7 million for the fourth quarter of 2018 compared to the prior quarter, driven by a higher yield on investment securities and lower premium amortization due to lower prepayment activity. Interest income from cash and investment securities for the year ended December 31, 2018 increased $2.2 million, or 8%, to $28.5 million compared to the year ended December 31, 2017, driven by a higher yield and higher average balances of investment securities.

Interest expense increased $1.3 million, or 11%, to $14.0 million for the fourth quarter of 2018, compared to $12.6 million for the third quarter of 2018, and increased $5.1 million, or 58%, compared to $8.8 million for the fourth quarter of 2017. Opus' interest expense increased compared to each of the linked-quarter and the fourth quarter of 2017, as the cost of funds increased nine basis points compared to the prior quarter and 34 basis points compared to the fourth quarter of 2017. Interest expense increased $10.1 million, or 28%, for the year ended December 31, 2018 compared to the year ended December 31, 2017, driven by higher cost of deposits.

Net Interest Margin

Net interest margin on a taxable equivalent basis increased nine basis points to 3.07% in the fourth quarter of 2018 compared to 2.98% in the third quarter of 2018. The linked-quarter change was primarily driven by an increase in the yield on loans due to the Federal Reserve rate increase in September 2018, as well as lower lost interest on nonaccrual loans and an increase in the yield on investment securities due to lower premium amortization. These were partially offset by an eight basis point increase in the cost of deposits in the fourth quarter of 2018. Net interest margin was 3.08% for the year ended December 31, 2018 compared to 3.17% for the prior year, as the cost of funds increased 19 basis points to 0.75% and was partially offset by a 10 basis point increase in the yield on interest earning assets to 3.79%.

Noninterest Income

Noninterest income decreased to $3.4 million in the fourth quarter of 2018 compared to $11.5 million in the third quarter of 2018 and $12.6 million in the fourth quarter of 2017. Noninterest income during the fourth quarter of 2018 included a $9.9 million loss on the sale of investment securities related to the repositioning of our securities portfolio during the fourth quarter. Noninterest income during the fourth quarter of 2018 also included $6.8 million of trust administrative fees, $1.6 million of treasury management and deposit account fees, $1.4 million from our Escrow and Exchange divisions, and $1.6 million from our Merchant Banking division. Other noninterest income in the fourth quarter of 2018 included a net decrease in equity warrant valuations of $354,000, compared to a net decrease of $746,000 in the prior quarter, and an FHLB dividend of $584,000 compared to a dividend of $301,000 in the prior quarter. Excluding the aforementioned loss on the sale of investment securities related to the repositioning of our securities portfolio during the fourth quarter, noninterest income increased 16% from the prior quarter.

Noninterest income for the year ended December 31, 2018 decreased to $41.1 million compared to $54.8 million for the year ended December 31, 2017. The decrease in noninterest income compared to the prior year was primarily driven by the $9.9 million loss on the sale of investment securities during the fourth quarter of 2018.

Noninterest Expense

Noninterest expense increased to $53.7 million for the fourth quarter of 2018, compared to $43.7 million for the third quarter of 2018 and $46.2 million for the fourth quarter of 2017. Noninterest expense during the fourth quarter of 2018 included $10.5 million of expenses related to the restructuring charge taken this quarter. Excluding these expenses, as well as $525,000 of expenses related to severance and retention costs and banking office optimization during the third quarter of 2018, noninterest expense was flat compared to the prior quarter.

During the fourth quarter of 2018, we implemented a cost reduction initiative and will be reinvesting much of the anticipated savings, which will allow us to hold year-over-year expenses relatively flat while continuing to fund necessary infrastructure enhancements that will improve our customer experience.

Income Tax Expense

During the fourth quarter of 2018, we recorded an income tax benefit of $654,000 as a result of the pre-tax loss we incurred for the quarter, compared to an income tax benefit of $972,000 recorded in the third quarter of 2018 that was driven by $2.3 million of net discrete income tax items relating to the re-measurement of our initial estimate of deferred tax assets in connection with the Tax Cuts and Jobs Act in the fourth quarter of 2017.

Asset Quality

Nonaccrual loans decreased $17.1 million, or 37.9%, to $28.0 million, or 0.54% of total loans, as of December 31, 2018, compared to $45.1 million, or 0.87% of total loans, as of September 30, 2018. Total criticized loans decreased $34.7 million, or 18.8%, to $150.3 million as of December 31, 2018, compared to $185.1 million as of September 30, 2018. We also continued to reduce our exposure to previously de-emphasized loan portfolios during the fourth quarter of 2018; total Enterprise Value loans were reduced by $62.5 million, or 34%, during the fourth quarter of 2018 and totaled $122.0 million as of December 31, 2018. Planned exits through loan payoffs and sales totaled $59.2 million during the fourth quarter of 2018, as we continued to reduce the balance of loans we previously announced as targeted for planned exits.

Our allowance for loan losses was $54.7 million, or 1.06% of our total loan portfolio, as of December 31, 2018, compared to $59.0 million, or 1.14% of total loans, as of September 30, 2018 and $75.9 million, or 1.47% of total loans, as of December 31, 2017. The reduction in the allowance for loan losses during the fourth quarter of 2018 was driven by charge-offs of $14.6 million that were partially offset by a provision for loan losses of $7.7 million and recoveries of $2.5 million.

We recorded a provision expense of $7.7 million in the fourth quarter of 2018, compared to a provision expense of $8.2 million in the third quarter of 2018 and a provision expense of $3.0 million in the fourth quarter of 2017. The provision expense during the fourth quarter of 2018 was driven by net charge-offs of $12.0 million, $2.8 million from risk rating migration, $2.1 million due to higher loss factors used to determine loan loss reserves in accordance with our allowance methodology, and $1.9 million due to changes in portfolio mix and fundings. These factors were partially offset by a $6.6 million decline in reserves as a result of planned exits of loan relationships and a $4.5 million decline in specific reserves.

We recorded net charge-offs of $12.0 million during the fourth quarter of 2018, compared to net charge-offs of $8.4 million during the third quarter of 2018, and net charge-offs of $5.2 million during the fourth quarter of 2017. Charge-offs during the fourth quarter of 2018 were predominantly comprised of three commercial business loan relationships that were also categorized as Enterprise Value loans.

Total nonperforming assets decreased to $28.0 million, or 0.39% of total assets, as of December 31, 2018, compared to $45.1 million, or 0.61% of total assets, as of September 30, 2018 and $58.3 million, or 0.78% of total assets, as of December 31, 2017. The decline in nonperforming assets during the quarter was primarily due to the resolution of five commercial business loan relationships, 88% of which were Enterprise Value loans. The ratio of the allowance for loan losses to total nonperforming assets was 195.1% as of December 31, 2018, compared to 130.8% as of September 30, 2018 and 130.3% as of December 31, 2017.

Total criticized loans decreased $34.7 million, or 19%, to $150.3 million as of December 31, 2018, compared to $185.1 million as of September 30, 2018, and decreased $99.4 million, or 40%, from $249.8 million as of December 31, 2017. The net decrease in total criticized loans during the fourth quarter of 2018 was driven by $20.6 million of upgrades and $48.7 million of loan exits, including payoffs, loan sales, and normal amortization during the quarter, partially offset by $34.6 million of downgrades. Special mention loans decreased $29.4 million in the fourth quarter of 2018 and classified loans decreased $5.3 million. The decrease in special mention loans was driven by $17.1 million of upgrades, $19.8 million of loan payoffs, normal amortization, and migration, and $3.4 million of loans downgraded from special mention to classified loans, partially offset by $10.9 million of downgrades. The decrease in classified loans was driven by upgrades of $3.5 million as well as payoffs, sales, and amortization of $28.9 million, partially offset by downgrades of $27.1 million.

The net decrease in total criticized loans consisted primarily of a $40.8 million decrease in commercial business loans and a $1.1 million decrease in SBA loans, partially offset by a $7.1 million increase in real estate secured loans. Commercial business loans comprised $12.0 million of loans upgraded out of criticized categories and $38.1 million of loan payoffs, charge-offs, and amortization, partially offset by $9.3 million of downgrades during the fourth quarter of 2018. Real estate secured loans comprised $24.9 million of loans downgraded to criticized categories, partially offset by $8.4 million of loans upgraded from criticized categories and $9.4 million of loan payoffs and amortization during the fourth quarter of 2018.

Capital

As of December 31, 2018, Opus exceeded all regulatory capital requirements under Basel III and was considered to be a "well-capitalized" financial institution, as summarized in the table below:

   
Capital Ratios As of

Well-Capitalized
Regulatory
Requirements

(unaudited) December 31,
2018
  September 30,
2018
  December 31,
2017
Tier 1 leverage ratio 9.69 % 9.89 % 9.44 % 5.00 %
Common Equity Tier 1 ratio 11.40 % 11.75 % 10.94 % 6.50 %
Tier 1 risk-based capital ratio 11.92 % 12.27 % 11.42 % 8.00 %
Total risk-based capital ratio 15.29 % 15.75 % 14.97 % 10.00 %
Tangible equity to tangible assets ratio 9.84 % 9.47 % 9.10 % NA
Tangible common equity to tangible assets ratio 9.41 % 9.05 % 8.69 % NA
 
[1]   Regulatory capital ratios are preliminary until filing of our December 31, 2018 FDIC call report.
 

Stockholders’ equity totaled over $1.0 billion as of December 31, 2018, unchanged from both September 30, 2018 and December 31, 2017. Accumulated other comprehensive loss decreased $13.8 million in the fourth quarter of 2018 to $3.8 million, primarily driven by the repositioning of our investment securities portfolio during the fourth quarter, which offset an $11.0 million decrease in retained earnings. Our tangible book value per as converted common share increased to $17.81 as of December 31, 2018 from $17.68 as of September 30, 2018 and $17.26 as of December 31, 2017.

Conference Call and Webcast Details

Date: Monday, January 28, 2019
Time: 8:00 a.m. PT (11:00 a.m. ET)

Phone Number: (855) 265-3237
Conference ID: 1468516
Webcast URL: http://investor.opusbank.com/event

Analysts, investors, and the general public may listen to a discussion of Opus’ fourth quarter and annual performance and participate in the question/answer session by using the phone number listed below 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 archive of the call 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 1468516. The call replay will be available through February 28, 2019.

About Opus Bank

Opus Bank is an FDIC insured California-chartered commercial bank with $7.2 billion of total assets, $5.2 billion of total loans, and $6.0 billion in total deposits as of December 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 approximately $14 billion of custodial assets and approximately 48,000 client accounts, which are comprised of self-directed investors, financial institutions, capital raisers and financial advisors. Opus Bank operates 47 banking offices, including 28 in California, 16 in the Seattle/Puget Sound region in Washington, two in the Phoenix metropolitan area of Arizona and one in Portland, Oregon. Opus Bank is an Equal Housing Lender. For additional information about Opus Bank, please visit our website: www.opusbank.com.

Forward Looking Statements

This release and the aforementioned conference call and webcast includes forward-looking statements related to Opus’ plans, beliefs and goals. Forward-looking statements are neither historical facts nor assurances of future performance. Opus generally identifies forward-looking statements by terminology such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “could,” “should,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of those words or other comparable words. Any forward‐looking statements contained in this release and the aforementioned conference call and webcast are based on the historical performance of Opus and its subsidiaries or on its current plans, beliefs, estimates, expectations and goals, including, without limitation: our expectations regarding our corporate strategy and cost reduction initiatives; expectations regarding the repositioning of our investment securities portfolio; our expectation that the actions related to the restructuring charge will make Opus a more profitable institution and more closely align operations with our long-term strategic goals; and that our belief that our Board of Directors is making progress in the search for a permanent CEO. Such forward-looking statements are subject to various risks and uncertainties and assumptions relating to our operations, financial results, financial condition, business prospects, growth strategy and liquidity that could cause actual results to differ materially from those indicated by the forward-looking statements, including, without limitation: market and economic conditions, changes in interest rates, our liquidity position, the management of our growth, the risks associated with our loan portfolio, local economic conditions affecting retail and commercial real estate, our geographic concentration in the western region of the United States, competition within the industry, dependence on key personnel, government legislation and regulation, the risks associated with any future acquisitions, the effect of natural disasters, and risks related to our technology and information systems. For a discussion of these and other risks and uncertainties, see Opus' filings with the Federal Deposit Insurance Corporation, including, but not limited to, the risk factors in Opus' Annual Report on Form 10-K filed with the Federal Deposit Insurance Corporation on March 14, 2018. If one or more of these or other risks or uncertainties materialize, or if Opus’ underlying assumptions prove to be incorrect, Opus’ actual results may vary materially from those indicated in these statements. These filings are available on the Investor Relations page of Opus' website at: investor.opusbank.com.

Opus undertakes no obligation to revise or publicly release any revision to these forward-looking statements, whether as a result of new information, future developments or otherwise.

 
Consolidated Statement of Operations      
(unaudited)   Three Months Ended Year Ended
($ in thousands, except per share amounts) December 31,
2018
  September 30,
2018
December 31,
2017
December 31,
2018
December 31,
2017
Interest income:
Loans $ 55,701 $ 54,110 $ 53,592 $ 218,255 $ 227,224
Investment securities 6,931 5,280 5,975 22,353 19,411
Due from banks 1,758   2,113   1,265   6,148   6,908  
Total interest income 64,390   61,503   60,832   246,756   253,543  
Interest expense:
Deposits 12,038 10,702 6,855 38,163 28,259
Federal Home Loan Bank advances (5 ) 68 374 185
Subordinated debt 1,923   1,923   1,923   7,690   7,690  
Total interest expense 13,961   12,620   8,846   46,227   36,134  
Net interest income 50,429 48,883 51,986 200,529 217,409
Provision (negative provision) for loan

losses

7,659   8,241   2,955   19,601   (8,823 )
Net interest income after provision

(negative provision) for loan losses

42,770   40,642   49,031   180,928   226,232  
Noninterest income:

Fees and service charges on deposit

accounts

1,615 1,735 1,822 6,855 7,592
Escrow and exchange fees 1,422 1,548 1,568 5,829 6,015
Trust administrative fees 6,800 6,884 6,879 27,503 26,939
Gain (loss) on sale of loans 147 (2 ) (22 ) (211 )
Gain (loss) on sale of assets (137 ) (6 ) (137 ) 3,773
Gain (loss) from OREO and other

repossessed assets

86 203 (4,773 )
Gain (loss) on sale of securities (9,892 ) 330 (9,710 ) 1,505
Bank-owned life insurance, net 958 1,048 1,088 4,104 3,728
Other income 2,469   246   861   6,454   10,212  
Total noninterest income 3,382   11,461   12,626   41,079   54,780  
Noninterest expense:
Compensation and benefits 33,042 26,004 25,273 111,325 106,738
Professional services 5,045 2,489 5,308 11,869 20,041
Occupancy expense 4,023 3,764 3,617 15,545 15,281
Depreciation and amortization 1,700 1,652 1,585 6,714 7,014

Deposit insurance and regulatory

assessments

914 977 799 3,981 4,881
Insurance expense 317 337 341 1,327 1,387
Data processing 815 230 689 1,803 3,151
Software licenses and maintenance 1,293 1,371 1,148 4,939 4,556
Office services 1,821 1,642 1,750 7,189 7,983
Amortization of other intangible assets 1,437 1,479 1,479 5,875 5,918
Advertising and marketing 824 909 1,395 3,533 3,226
Other expenses 2,436   2,809   2,799   10,450   10,419  
Total noninterest expense 53,667   43,663   46,183   184,550   190,595  
Income (loss) before income tax

expense (benefit)

(7,515 ) 8,440 15,474 37,457 90,417
Income tax expense (benefit) (654 ) (972 ) 14,273   6,539   42,774  
Net income (loss) $ (6,861 ) $ 9,412   $ 1,201   $ 30,918   $ 47,643  
Basic earnings (loss) per common share $ (0.20 ) $ 0.25 $ 0.03 $ 0.82 $ 1.29
Diluted earnings (loss) per common share (0.20 ) 0.25 0.03 0.81 1.26
Weighted average shares - basic 36,059,713 36,115,204 35,935,614 36,028,025 36,432,482
Weighted average shares - diluted 36,059,713 38,362,739 38,229,787 38,270,650 37,770,993
 
 
Consolidated Balance Sheets      
(unaudited) As of
($ in thousands, except share amounts) December 31,
2018
September 30,
2018
December 31,
2017
 
Assets
Cash and due from banks $ 39,860 $ 57,126 $ 45,828
Due from banks – interest-bearing 214,776 476,129 454,941
Investment securities available-for-sale, at fair value 1,081,546 1,018,855 1,127,288
Loans held-for-investment 5,165,210 5,159,881 5,173,193
Less allowance for loan losses (54,664 ) (59,029 ) (75,930 )
Loans held-for-investment, net 5,110,546 5,100,852 5,097,263
Premises and equipment, net 23,863 24,955 27,644
Goodwill 331,832 331,832 331,832
Other intangible assets, net 38,926 40,362 44,800
Deferred tax assets, net 24,171 22,847 24,260
Cash surrender value of bank owned life insurance, net 154,271 153,289 149,744
Accrued interest receivable 23,260 21,680 19,317
Federal Home Loan Bank stock 17,250 17,250 17,250
Other assets 120,602   129,897   146,642  
Total assets $ 7,180,903   $ 7,395,074   $ 7,486,809  
Liabilities and Stockholders’ Equity
Deposits:
Noninterest-bearing demand $ 771,141 $ 890,925 $ 817,330
Interest-bearing demand 2,507,605 2,564,737 2,435,293
Money market and savings 1,995,684 2,031,468 2,307,258
Time deposits 677,458   655,172   384,057  

Total deposits

5,951,888 6,142,302 5,943,938
Federal Home Loan Bank advances 290,000
Subordinated debt, net 133,010 132,944 132,745
Accrued interest payable 4,032 2,350 4,086
Other liabilities 51,160   80,428   92,576  
Total liabilities 6,140,090   6,358,024   6,463,345  
Stockholders’ equity:
Preferred stock:
Authorized 200,000,000 shares; issued 31,111 and 31,111 and 31,111 shares, respectively 29,110 29,110 29,110
Common stock, no par value per share:
Authorized 200,000,000 shares; issued 36,637,870 and 36,635,132 and 36,330,546 shares, respectively 700,220 700,220 700,220
Additional paid-in capital 69,954 68,975 63,545
Retained earnings 260,304 271,304 245,006
Treasury stock, at cost; 577,495 and 576,547 and 415,387 shares, respectively (14,983 ) (14,965 ) (10,354 )
Accumulated other comprehensive income (loss) (3,792 ) (17,594 ) (4,063 )
Total stockholders’ equity 1,040,813   1,037,050   1,023,464  
Total liabilities and stockholders’ equity $ 7,180,903   $ 7,395,074   $ 7,486,809  
 
 
Selected Financial Data  
As of or for the three months ended   As of or for the year ended
(unaudited) December 31,
2018
  September 30,
2018
  December 31,
2017
December 31,
2018
  December 31,
2017
Return on average assets (0.38 )% 0.51 % 0.06 % 0.43 % 0.63 %
Return on average assets, tax adjusted (1) (0.38 ) 0.51 0.55 0.43 0.74
Return on average stockholders' equity (2.61 ) 3.59 0.46 2.99 4.76
Return on average stockholders' equity, tax adjusted (1) (2.61 ) 3.59 3.91 2.99 5.65
Return on average tangible equity (2) (4.06 ) 5.60 0.73 4.68 7.66
Return on average tangible equity, tax adjusted (1) (4.06 ) 5.60 6.16 4.68 9.10
Efficiency ratio (3) 99.73 72.36 71.48 76.38 70.02
Noninterest expense to average assets 2.93 2.39 2.49 2.54 2.51
Yield on interest-earning assets (4) 3.92 3.75 3.68 3.79 3.69
Cost of deposits (5) 0.79 0.71 0.45 0.64 0.45
Cost of funds (6) 0.90 0.81 0.56 0.75 0.56
Net interest margin (4) 3.07 2.98 3.15 3.08 3.17
Loans to deposits 86.78 84.01 87.03 86.78 87.03
 
(1)     Tax adjusted for the three months and year ended December 31, 2017 due to impacts from 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.
 
 
Loan Fundings          
(unaudited) Three Months Ended Year Ended
($ in thousands) December 31,
2018
September 30,
2018
December 31,
2017
December 31,
2018
December 31,
2017
Loans funded:
Real estate mortgage loans:
Single-family residential $ $ $ $ $
Multifamily residential 252,315 257,775 300,539 924,629 790,275
Commercial real estate 66,931 55,807 58,103 203,017 109,052
Construction and land loans 5,622 5,674 8,170 28,538 48,312
Commercial business loans 87,390 112,791 131,728 427,636 497,487
Small Business Administration loans 43 3,644 3,768 12,040 13,837
Consumer and other loans        
Total loan fundings $ 412,301   $ 435,691   $ 502,308   $ 1,595,860   $ 1,458,963
 
 
Composition of Loan Portfolio   As of
(unaudited) December 31,
2018
  September 30,
2018
  December 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 $ 43,042 0.8 % $ 44,001 0.9 % $ 59,497 1.2 %
Multifamily residential 2,884,636 55.8 2,808,463 54.4 2,495,818 48.3
Commercial real estate 1,043,060 20.2 1,058,389 20.5 1,079,637 20.9
Construction and land loans 70,271 1.4 73,668 1.4 94,348 1.8
Commercial business loans 986,363 19.1 1,030,793 20.0 1,284,500 24.8
Small Business Administration loans 31,512 0.6 33,263 0.6 27,152 0.5
Consumer and other loans 18   0.0   34   0.0   96   0.0  
Total originated loans 5,058,902 97.9 5,048,611 97.8 5,041,048 97.5
 
Acquired loans held-for-investment
Real estate mortgage loans:
Single-family residential 18,871 0.4 19,697 0.4 22,964 0.4
Multifamily residential 46,761 0.9 48,209 0.9 52,453 1.0
Commercial real estate 21,303 0.4 23,413 0.5 27,889 0.6
Construction and land loans 286 0.0 288 0.0 1,418 0.0
Commercial business loans 6,380 0.1 6,039 0.1 10,978 0.2
Small Business Administration loans 8,299 0.2 8,907 0.2 10,957 0.2
Consumer and other loans 4,408   0.1   4,717   0.1   5,486   0.1  
Total acquired loans 106,308   2.1   111,270   2.2   132,145   2.5  
Total gross loans $ 5,165,210   100.0 % $ 5,159,881   100.0 % $ 5,173,193   100.0 %
 
Composition of Deposits   As of
(unaudited) December 31,
2018
  September 30,
2018
  December 31,
2017
($ in thousands) Amount   % of
Total deposits
Amount   % of
Total deposits
Amount   % of
Total deposits
 
Noninterest bearing $ 771,141 13.0 % $ 890,925 14.5 % $ 817,330 13.7 %
Interest bearing demand 2,507,605 42.1 2,564,737 41.8 2,435,293 41.0
Money market and savings 1,995,684 33.5 2,031,468 33.0 2,307,258 38.8
Time deposits 677,458   11.4   655,172   10.7   384,057   6.5  
Total deposits $ 5,951,888   100.0 % $ 6,142,302   100.0 % $ 5,943,938   100.0 %
null
 
Consolidated average balance sheet, interest, yield and rates        
                 
For the three months ended December 31,   For the three months ended September 30, For the three months ended December 31,
(unaudited) 2018   2018 2017
($ in thousands) Average
Balance
  Interest (1)   Yields/
Rates
Average
Balance
  Interest (1) Yields/
Rates
Average
Balance
Interest (1) Yields/
Rates
Assets:
Interest-earning assets:
Due from banks $ 319,456 $ 1,758 2.18 % $ 430,991 $ 2,113 1.95 % $ 381,265 $ 1,265 1.32 %
Investment securities 1,080,262 6,931 2.55 1,027,950 5,280 2.04 1,141,865 5,975 2.08
Acquired loans 109,265 1,857 6.74 116,050 1,807 6.18 135,977 2,089 6.10
Originated Loans 5,050,276   54,245   4.26   4,975,101   52,665   4.20   4,947,185   51,916   4.16  
Total loans $ 5,159,541   $ 56,102   4.31   $ 5,091,151   $ 54,472     4.24   $ 5,083,162   $ 54,005   4.22  
Total interest-earning assets 6,559,259 $ 64,791 3.92 6,550,092 $ 61,865 3.75 6,606,292 $ 61,245 3.68
Noninterest-earning assets 699,059   704,117   743,798  
Total assets $ 7,258,318   $ 7,254,209   $ 7,350,090  
 
Liabilities and stockholders’ equity:
Interest-bearing deposits
Interest-bearing demand $ 2,509,049 $ 2,520 0.40 % $ 2,546,443 $ 2,279 0.36 % $ 2,456,936 $ 1,137 0.18 %
Money market and savings 2,030,476 6,232 1.22 2,015,781 5,753 1.13 2,356,079 4,689 0.79
Time deposits