Opus Bank (OPB) Misses Q3 EPS by 12c

Opus Bank (NASDAQ: OPB) reported Q3 EPS of $0.25, $0.12 worse than the analyst estimate of $0.37. Revenue for the quarter came in at $61.5 million versus the consensus estimate of $65.85 million.

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

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

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

Mr. Gordon concluded, “We remain focused on building Opus into one of the premier commercial banks in the western region, thereby creating long-term shareholder value and benefiting all of our constituents, including Opus’ clients, our team members, and the communities we serve. Based on our quarterly earnings and strong capital ratios, the Board of Directors has approved the payment of a quarterly cash dividend of $0.11 per common share.”

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

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