Opus Bank (OPB) Misses Q4 EPS by 49c

Opus Bank (NASDAQ: OPB) reported Q4 EPS of ($0.20), $0.49 worse than the analyst estimate of $0.29.

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.”

For earnings history and earnings-related data on Opus Bank (OPB) click here.

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