Opus Bank Announces Third Quarter 2017 Results

IRVINE, Calif.--(BUSINESS WIRE)-- Opus Bank (“Opus”) (NASDAQ: OPB) announced today net income of $20.5 million, or $0.54 per diluted share, for the third quarter of 2017 compared to net income of $18.2 million, or $0.48 per diluted share, for the second quarter of 2017 and a net loss of $3.0 million, or $(0.09) per diluted share, for the third quarter of 2016. Net income increased by 53% to $46.4 million for the nine months ended September 30, 2017 from $30.4 million for the nine months ended September 30, 2016. Net income for the third quarter of 2017 included a $4.8 million write-off of other repossessed assets, a $3.9 million gain on the sale of deposits and other assets primarily related to five banking offices, and a $618,000 gain on the sale of investment securities. Additionally, net income in the third quarter of 2017 included $569,000 of strategic initiative related expenses primarily related to infrastructure enhancements and the sale of banking offices during the quarter.

Stephen H. Gordon, Chairman, Chief Executive Officer and President of Opus Bank, stated, “Our performance during the third quarter of 2017 represents the exceptional effort and determination of Opus’ team members. Return on average assets increased to 1.09% and return on average tangible equity was 12.79%, driven by improved core profitability, improved credit, lower expenses, and continued strong contributions from Opus’ diverse lines of business and sources of noninterest income, including our alternative asset IRA custodian subsidiary and our Merchant Banking division.”

Mr. Gordon continued, “During the third quarter, we continued to rapidly reduce the portfolio loan balances we previously announced as targeted for planned exits, while our quarterly new loan fundings increased sequentially and surpassed loan payoffs net of these planned exits. As we enter the fourth quarter, our new loan pipeline continues its seasonal ramp and currently sits at its highest level of the year. The investments we made earlier this year to enhance our credit administration, enterprise risk management, and banking operations are now resulting in improved profitability, and despite carrying elevated expenses associated with legacy issues, total noninterest expense declined 6.4% from the prior quarter.”

Mr. Gordon concluded, “We remain diligently focused on the work still ahead of us. Our capital ratios remain healthy and continue to improve, with total risk-based capital at 15.00% and Tier 1 leverage at 9.28%, and tangible book value per share is approaching the peak levels of 2016. Furthermore, our balance sheet remains highly liquid and flexible, and we are well positioned for a potential rising interest rate environment, particularly due to our largely floating-rate loan portfolio, our strong relationship-based core deposits, and low deposit beta.”

Third Quarter 2017 Highlights

• Net income increased $2.3 million, or 13%, to $20.5 million for the third quarter of 2017 from $18.2 million for the second quarter of 2017. Pre-tax pre-provision income increased $575,000, or 3%, to $22.6 million for the third quarter of 2017 from $22.0 million for the second quarter of 2017.
• Return on average assets increased to 1.09% for the third quarter of 2017, compared to 0.94% for the second quarter of 2017, and return on average tangible equity increased to 12.79% for the third quarter of 2017, compared to 11.89% for the second quarter of 2017.
• Noninterest income increased 1% to $14.9 million, or 22% of total revenues, in the third quarter of 2017 from $14.7 million, or 21% of total revenues, in the prior quarter. Opus continued to generate strong noninterest income contributions from multiple and diverse sources during the third quarter of 2017, including $7.0 million of trust administrative fees from our alternative asset IRA custodian subsidiary, $2.0 million from our Merchant Banking division, $1.9 million of treasury management and deposit account fees, $1.5 million of escrow and exchange fees, $1.0 million of loan fees, $697,000 in positive net equity warrant valuation changes, and a $301,000 dividend from FHLB stock. Additionally, total noninterest income included a $4.8 million other repossessed asset write-off, $3.9 million of gains related to the sale of deposits and real estate assets, and $618,000 of gains on sales of investment securities.
• Our alternative asset IRA custodian subsidiary grew Assets Under Custody (“AUC”) by $1.0 billion during the third quarter of 2017 to over $16.0 billion and client accounts grew by more than 2,000 to over 52,000 as of September 30, 2017.
• Noninterest expense decreased $3.1 million, or 6%, during the third quarter of 2017 to $45.6 million compared to $48.7 million during the second quarter of 2017. Noninterest expense during the quarter included strategic initiative related expenses totaling $569,000, primarily in professional services.
• Opus' efficiency ratio improved to 66.9% for the third quarter of 2017, compared to 68.9% for the second quarter of 2017.
• Our Tier 1 leverage ratio increased 70 basis points to 9.28%, Common Equity Tier 1 ratio increased 41 basis points to 11.01%, Tier 1 risk-based ratio increased 85 basis points to 11.45%, and total risk-based capital ratio increased 92 basis points to 15.00%.
• Tangible book value per as converted common share increased $0.59, or 4%, to $17.22 as of September 30, 2017 from $16.63 as of June 30, 2017, and has increased $1.38, or 9%, since December 31, 2016.
• Enterprise value loans decreased $174.9 million, or 27%, to $479.3 million as of September 30, 2017 from $654.2 million as of June 30, 2017, and decreased $436.1 million, or 48%, from $915.4 million as of December 31, 2016.
• Technology Banking loans decreased $17.3 million, or 26%, to $49.1 million as of September 30, 2017 from $66.5 million as of June 30, 2017, and decreased $141.4 million, or 74%, from $190.5 million as of December 31, 2016. Technology Banking loans have decreased $230.4 million, or 82%, from their peak of $279.5 million as of June 30, 2016. As of September 30, 2017, $19.2 million of Technology Banking loans were also included in enterprise value loan balances.
• Healthcare Practice loans decreased $14.5 million, or 34%, to $28.5 million as of September 30, 2017 from $43.1 million as of June 30, 2017, and decreased $39.3 million, or 58%, from $67.8 million as of December 31, 2016. Healthcare Practice loans have decreased $108.1 million, or 79%, from their peak of $136.6 million as of September 30, 2016. As of September 30, 2017, $2.5 million of Healthcare Practice loans were also included in enterprise value loan balances.
• Total criticized loans were $290.6 million as of September 30, 2017, compared to $289.0 million as of June 30, 2017, and $359.4 million at their peak as of March 31, 2017. Classified loans decreased $13.0 million during the third quarter of 2017, while special mention loans increased $14.5 million.
• Nonperforming assets decreased $3.9 million, or 6%, to $65.1 million as of September 30, 2017 from $69.0 million as of June 30, 2017, and decreased $30.0 million, or 32%, from $95.1 million as of December 31, 2016. Nonperforming assets decreased to 0.89% of total assets as of September 30, 2017 from 0.90% of total assets as of June 30, 2017 and 1.21% of total assets as of December 31, 2016.
• Opus recorded net recoveries of $1.1 million in the third quarter of 2017, compared to net charge-offs of $17.4 million in the second quarter of 2017.
• Opus recorded a negative provision for loan losses of $10.6 million for the third quarter of 2017, compared to a negative provision of $7.1 million for the second quarter of 2017. Our allowance for loan losses was $78.2 million, or 1.54% of total loans, as of September 30, 2017, compared to $87.7 million, or 1.68% of total loans, as of June 30, 2017, and $111.4 million, or 1.97% of total loans, as of December 31, 2016.
• New loan fundings increased 4% to $375.4 million in the third quarter of 2017 compared to $362.2 million in the second quarter of 2017. Opus' loan origination pipeline entering the fourth quarter of 2017 was at its highest level of the year.
• During the third quarter of 2017, loan payoffs were $266.5 million, loan sales were $6.0 million, and planned exits of previously identified loan relationships were $161.2 million.
• Total deposits decreased $264.2 million, or 4%, during the third quarter of 2017 to $6.1 billion as of September 30, 2017, partially driven by the sale of five banking offices to optimize our branch network that included $96.2 million in deposits, as well as the intentional reduction of $25.0 million of higher-cost, more rate sensitive deposits in our Fiduciary Banking division. As of September 30, 2017, core transaction account deposits were 93% of total deposits and business deposits were 61% of total deposits.
• Opus' cost of deposits increased one basis point from the prior quarter to 0.45% and has increased only one basis point since the third quarter of 2016. Opus' cost of deposits has declined two basis points since the fourth quarter of 2015 when the Federal Reserve began raising its target Fed Funds interest rate.
• Cash and investment securities totaled $1.6 billion as of September 30, 2017, compared to $1.8 billion as of June 30, 2017 and $775.3 million as of September 30, 2016. The average balance of investment securities increased $163.3 million, or 18%, from the prior quarter, as purchases were weighted toward the end of the second quarter of 2017.

Net Interest Income

Total net interest income was $53.3 million in the third quarter of 2017, compared to $56.0 million in the second quarter of 2017 and $60.7 million in the third quarter of 2016. Net interest income for the nine months ended September 30, 2017 was $165.4 million, compared to $182.3 million for the nine months ended September 30, 2016.

Interest income from loans decreased $2.3 million, or 4%, to $55.6 million for the third quarter of 2017, as the average balance of loans decreased $192.5 million, or 4%, from the prior quarter due to loan payoffs and prepayments, including planned exits and loan sales. While planned exits decrease our potential future credit volatility, they had a negative impact on our loan interest income. Interest income from the acquired loan portfolio increased by $398,000 from the prior quarter to $2.4 million and decreased by $1.7 million from the third quarter of 2016, due to lower balances of acquired loans and fluctuations in accretion generated from payoffs.

Interest income from cash and investment securities decreased $484,000, or 7%, from the prior quarter to $6.8 million for the third quarter of 2017. Interest income from investment securities decreased $56,000, or 1%, during the third quarter to $5.2 million. While the average balance of investment securities increased $163.3 million, or 18%, from the prior quarter, due primarily to additional purchases of government agency securities near the end of the second quarter of 2017, higher prepayments during the third quarter of 2017 resulted in higher premium amortization that offset increased interest income from higher average balances. Interest income from cash decreased $428,000 from the prior quarter to $1.6 million for the third quarter of 2017, as the average balance of cash decreased $266.4 million, or 34%.

Interest expense decreased slightly to $9.0 million for the third quarter of 2017, compared to $9.1 million for the second quarter of 2017 and the third quarter of 2016. Opus' interest expense remained relatively flat from the linked-quarter and over the past year, as the average balance of interest bearing liabilities decreased 4% and 3%, respectively, and Opus' cost of interest bearing liabilities increased by 2 basis points from both the linked-quarter and the year-ago periods.

Net interest margin decreased five basis points to 3.15% in the third quarter of 2017 from 3.20% in the second quarter of 2017. The linked-quarter change was primarily due to less interest recovered on nonaccrual loans, lower net benefit from prepayments, planned exits, and higher cost of funds, partially offset by higher balances of investment securities and higher accretion on acquired loans. Opus' taxable equivalent net interest margin was 3.17% in the third quarter of 2017, compared to 3.22% in the second quarter of 2017.

Total loan yield during the third quarter of 2017 decreased six basis points to 4.29% from 4.35% in the second quarter of 2017 and decreased 8 basis points from 4.37% in the third quarter of 2016. The decrease from the second quarter of 2017 was due to a lower yield on originated loans, partially offset by a higher yield on acquired loans. The yield on originated loans decreased 10 basis points from the linked-quarter to 4.23%, due primarily to lower interest income recovered on nonaccrual loans, lower net benefit from prepayment activity, planned exits, and day count in the third quarter. Accretion income from the acquired loan portfolio had a four basis point impact on net interest margin in the third quarter of 2017, no impact in the second quarter of 2017, and a nine basis point impact in third quarter of 2016.

The yield on investment securities decreased to 1.89% in the third quarter of 2017, compared to 2.28% during the prior quarter, and 2.37% during the year-ago period, while the yield on cash during the third quarter of 2017 increased to 1.27%, compared to 1.07% during the prior quarter and 0.51% during the year-ago period. The decrease in yield on investment securities from the second quarter of 2017 was driven by higher premium amortization due to accelerated prepayments of the underlying loans, including the Freddie Mac security, which was partially offset by interest on higher average balances of securities. The Freddie Mac security relates to the sale of $509.0 million of Opus' multifamily loans through a Freddie Mac sponsored transaction in which one class of Freddie Mac guaranteed Structured Pass-Through Certificates was issued and subsequently purchased entirely by Opus. The increase in yield on interest-bearing cash during the third quarter of 2017 was primarily driven by the Federal Reserve rate increase announced in June 2017.

Our cost of funds was 0.57% for the third quarter of 2017, an increase of two basis points from the prior quarter and unchanged from the third quarter of 2016. Our cost of deposits was 0.45% for the third quarter of 2017, up one basis point from the prior quarter and the third quarter of 2016.

Noninterest Income and Noninterest Expense

Noninterest income increased 1% to $14.9 million in the third quarter of 2017 from $14.7 million in the second quarter of 2017, and decreased 8% from $16.3 million in the third quarter of 2016. Noninterest income for the nine months ended September 30, 2017 increased 21% to $42.2 million, compared to $34.8 million for the nine months ended September 30, 2016. Noninterest income made up 22% of total revenues during the third quarter of 2017, compared to 21% in the second quarter of 2017 and 21% in the third quarter of 2016.

Noninterest income during the third quarter of 2017 included $7.0 million in trust administrative fees, compared to $6.7 million in the second quarter of 2017, as our alternative asset IRA custodian subsidiary grew AUC by $1.0 billion to $16.0 billion as of September 30, 2017. Opus' Merchant Banking division, which includes its broker-dealer subsidiary, Opus Financial Partners, and its principal investing group, Opus Equity Partners, which manages Opus' bank-sponsored SBIC Fund, generated $2.0 million of noninterest income during the third quarter of 2017 compared to $842,000 during the second quarter of 2017. Additionally, our Escrow and Exchange divisions generated $1.5 million in noninterest income during each of the third and second quarters of 2017. Other noninterest income items included $697,000 of net equity warrant valuation increases and a $301,000 FHLB dividend.

Total noninterest income during the third quarter of 2017 included a $4.8 million loss on the write-off of intellectual property that was previously foreclosed and recorded as repossessed assets during the second quarter of 2017. Additionally, Opus recorded gains on the sale of deposits and other assets primarily related to five banking offices during the third quarter of 2017 totaling $3.9 million and gains on the sale of investment securities totaling $618,000.

Noninterest expense decreased 6% to $45.6 million for the third quarter of 2017, compared to $48.7 million for the second quarter of 2017, and increased 8% from $42.3 million for the third quarter of 2016. Included in noninterest expense during the third quarter of 2017 was $569,000 of strategic initiative related expenses, primarily in professional services. Lower noninterest expenses for the third quarter of 2017 was primarily driven by a $1.2 million, or 5%, decrease in compensation and benefits expense, and a $2.2 million, or 35%, decrease in professional services expense. The linked-quarter decrease in professional services expense was primarily driven by lower legal expense.

Cash and Investment Securities

Cash and investment securities totaled $1.6 billion as of September 30, 2017, compared to $1.8 billion as of June 30, 2017 and $775.3 million as of September 30, 2016. Cash and cash equivalents decreased $185.1 million, or 28%, during the third quarter of 2017 to $470.2 million as of September 30, 2017, and decreased $148.3 million, or 24%, from the third quarter of 2016. Investment securities decreased $50.3 million, or 4%, during the third quarter of 2017 to $1.1 billion as of September 30, 2017, and increased $933.0 million, or 595%, from $156.8 million as of September 30, 2016.

At the end of the second quarter of 2017, we had commitments to purchase $103.3 million of investment securities that were included in other liabilities, and settled in the third quarter of 2017. We had no such commitments at the end of the third quarter, thus driving the linked-quarter fluctuation in other liabilities and correspondingly, total assets.

Loans

Total loans held-for-investment were $5.1 billion as of September 30, 2017, a decrease of $157.5 million, or 3%, from $5.2 billion as of June 30, 2017 and a decrease of $1.2 billion, or 20%, from $6.3 billion as of September 30, 2016. The decrease in total loans during the third quarter of 2017 was driven by new loan fundings of $375.4 million being offset by originated loan payoffs of $261.3 million, loan sales of $6.0 million, and planned exits of $161.2 million.

New loan fundings in the third quarter of 2017 increased 4% from the prior quarter to $375.4 million, including $226.5 million from Income Property Banking, $47.8 million from Commercial Banking, $45.1 million from Public Finance, $28.4 million from Structured Finance, $8.4 million from Media and Entertainment, $7.3 million from Healthcare Provider, $5.8 million from Corporate Finance, and $5.8 million from Institutional Syndications. Commercial business loans comprised $110.2 million, or 29%, of total new loan fundings in the third quarter. Loan commitments originated during the third quarter totaled $367.0 million as compared to $349.7 million during the second quarter of 2017 and $751.1 million during the third quarter of 2016. As of September 30, 2017, our unfunded commitments on originated loans totaled $455.3 million.

Our acquired loan portfolio totaled $141.1 million as of September 30, 2017, a decrease of 6% from $149.6 million as of June 30, 2017 and 24% from $186.3 million as of September 30, 2016. As of September 30, 2017, our acquired loan portfolio had a remaining discount of $2.4 million.

Deposits and Borrowings

Deposits totaled $6.1 billion as of September 30, 2017, a decrease of $264.2 million, or 4%, from $6.3 billion as of June 30, 2017, and a decrease of $429.9 million, or 7%, from $6.5 billion as of September 30, 2016. During the third quarter of 2017, Opus completed two transactions in which a total of $96.2 million in deposits related to five banking offices were sold. Additionally, during the third quarter of 2017 Opus intentionally reduced the balances of certain higher-cost, more rate sensitive deposits by $25.0 million, primarily in our Fiduciary Banking division.

Total demand deposits, including both noninterest-bearing and interest-bearing demand deposit accounts, were 53% of total deposits as of September 30, 2017, unchanged from June 30, 2017 and up from 48% as of September 30, 2016. As of September 30, 2017, business deposits represented 61% of total deposits, compared to 60% as of June 30, 2017 and September 30, 2016.

Our loan to deposit ratio was 83% as of September 30, 2017 compared to 82% as of June 30, 2017 and 97% as of September 30, 2016.

Federal Home Loan Bank advances were unchanged at $10.0 million as of September 30, 2017 compared to June 30, 2017 and decreased from $65.0 million as of September 30, 2016.

Asset Quality

During the third quarter of 2017, we continued to reduce our exposure to previously de-emphasized loan portfolios. Total enterprise value loans were reduced by $174.9 million, or 27%, during the third quarter of 2017 and totaled $479.3 million as of September 30, 2017. Technology Banking loans were reduced by $17.3 million, or 26%, during the third quarter of 2017 and totaled $49.1 million as of September 30, 2017. Healthcare Practice loans were reduced by $14.6 million, or 34%, during the third quarter of 2017 and totaled $28.5 million as of September 30, 2017. As of September 30, 2017, $19.2 million of Technology Banking loans and $2.5 million of Healthcare Practice loans were also included in enterprise value loan balances. Planned exits through loan payoffs and sales totaled $161.2 million in the third quarter of 2017, as Opus continued to reduce the balances of loans we previously announced as targeted for planned exits. As a result of the successful exit of previously identified loan relationships, the reserves associated with these loans were released, which reduced the allowance for loan losses as required under our methodology and contributed to the negative provision for loan losses for the third quarter of 2017.

Our allowance for loan losses was $78.2 million, or 1.54% of our total loan portfolio, as of September 30, 2017, compared to $87.7 million, or 1.68%, as of June 30, 2017 and $61.1 million, or 0.97%, as of September 30, 2016. The reduction in the allowance for loan losses during the third quarter of 2017 was driven by the negative provision described below, partially offset by net recoveries of $1.1 million. Our acquired loan portfolio had a remaining discount of $2.4 million as of September 30, 2017. The coverage ratio for the total loan portfolio, which includes the remaining discount on the acquired loan portfolio, was 1.59% as of September 30, 2017 compared to 1.74% as of June 30, 2017 and 1.04% as of September 30, 2016. Our allowance for loan losses on originated loans resulted in a coverage ratio of 1.58% as of September 30, 2017, compared to 1.72% as of June 30, 2017 and 0.99% as of September 30, 2016.

We recorded a negative provision of $10.6 million in the third quarter of 2017, compared to a negative provision of $7.1 million in the second quarter of 2017 and a provision expense of $40.4 million in the third quarter of 2016. The negative provision during the third quarter of 2017 was driven by a $9.6 million decline in reserves as a result of the changes in portfolio mix and decline in portfolio balances, including planned exits of loan relationships, a $5.0 million decline due to lower loss factors used to determine loan loss reserves on pass rated loans in accordance with our allowance methodology, and a net recovery of $1.1 million. These factors were partially offset by $2.9 million from risk rating migration and additions to specific reserves of $2.0 million. The allowance on the acquired loan portfolio totaled $585,000 in the third quarter of 2017, $468,000 in the second quarter of 2017, and $611,000 in the third quarter of 2016.

Opus recorded net recoveries in the third quarter of 2017 of $1.1 million, compared to net charge-offs of $17.4 million during the second quarter of 2017 and $39.0 million during the third quarter of 2016. Net recoveries during the third quarter of 2017 consisted of $472,000 of charge-offs and $1.5 million of recoveries, predominantly comprised of commercial business loan relationships. The remaining balance of originated loans for which charge-offs were previously recorded was $1.7 million as of September 30, 2017, comprised primarily of a Healthcare Practice loan relationship.

Total nonperforming assets were $65.1 million, or 0.89% of total assets, as of September 30, 2017, compared to $69.0 million, or 0.90% of total assets, as of June 30, 2017 and $44.8 million, or 0.58% of total assets, as of September 30, 2016. The change in nonperforming assets during the quarter was primarily due to the write-off of other repossessed assets foreclosed during the second quarter of 2017, partially offset by one commercial business loan relationship placed on nonaccrual during the third quarter of 2017. The ratio of the allowance for loan losses to total nonperforming assets was 120.1% as of September 30, 2017, compared to 127.2% as of June 30, 2017 and 136.4% as of September 30, 2016.

Total criticized loans increased $1.6 million, or 1%, to $290.6 million as of September 30, 2017 compared to $289.0 million as of June 30, 2017, and increased $143.2 million, or 97%, from $147.4 million as of September 30, 2016. The net increase in total criticized loans during the third quarter of 2017 was driven by $64.2 million of downgrades, partially offset by $23.8 million of upgrades and $38.9 million of loan exits, including payoffs, loan sales, and normal amortization during the quarter. The net increase in total criticized loans during the third quarter was comprised of a net increase in special mention loans of $14.5 million, partially offset by a net decrease in classified loans of $13.0 million. The increase in special mention loans was driven by $47.2 million of downgrades, partially offset by $12.4 million of upgrades and $20.3 million of loan payoffs, normal amortization, and migration. The decrease in classified loans was driven by upgrades of $11.4 million as well as payoffs and amortization of $26.2 million, partially offset by downgrades of $24.7 million.

The net increase in total criticized loans consisted of a $6.7 million increase in real estate secured loans and a $5.1 million decrease in commercial business loans. Commercial business loans comprised $12.4 million of loans upgraded out of criticized categories and $32.2 million of loan payoffs and amortization, partially offset by $39.5 million of downgrades during the third quarter of 2017. Real estate secured loans comprised $24.8 million of downgrades during the third quarter of 2017, partially offset by $11.4 million of loans upgraded out of criticized categories and $6.6 million of loan payoffs and amortization.

Commercial Business Loans

Commercial business loans on nonaccrual increased to $52.9 million as of September 30, 2017 from $51.4 million as of June 30, 2017 and were mainly comprised of two Corporate Finance relationships totaling $21.8 million, two Technology Banking relationships totaling $17.7 million, two Commercial Banking relationships totaling $11.5 million, and one Healthcare Practice relationship totaling $1.7 million. Total criticized commercial business loans as of September 30, 2017 were $187.5 million, or 14% of total commercial business loans, compared to $192.5 million, or 13%, as of June 30, 2017. As of September 30, 2017, we had specific reserves of $18.6 million on $51.0 million of criticized commercial business loans, compared to $16.6 million of specific reserves on $39.4 million of criticized commercial business loans as of June 30, 2017.

As of September 30, 2017, the total allowance recorded for commercial business loans, which includes general and specific reserves, equaled $56.4 million, or 4.3% of total commercial business loans, compared to $66.6 million, or 4.4% of total commercial business loans, as of June 30, 2017. At September 30, 2017, the $18.6 million of specific reserves for commercial business loans were comprised of $7.7 million for Technology Banking loans, $3.7 million for Commercial Banking loans, and $7.2 million for Corporate Finance loans.

Commercial Real Estate Loans

Opus’ $1.1 billion commercial real estate loan portfolio experienced no charge-offs in the third quarter of 2017, no charge-offs in the second quarter of 2017, and charge-offs of $2.9 million in the third quarter of 2016. Commercial real estate loans on nonaccrual totaled $11.5 million, or 1.0% of total commercial real estate loans as of September 30, 2017, compared to $11.6 million, or 1.0%, in the prior quarter. Total criticized commercial real estate loans were $82.5 million as of September 30, 2017, compared to $62.9 million as of June 30, 2017. The increase in commercial real estate total criticized loans was comprised of three loan relationships totaling $24.8 million downgraded into special mention, primarily driven by one Healthcare loan relationship, partially offset by $5.2 million of loan payoffs and amortization. As of September 30, 2017, commercial real estate loans had no specific reserves and a total allowance of $11.1 million, or 1.0% of total commercial real estate loans, compared to no specific reserves and a total allowance of $10.2 million, or 0.9% of total commercial real estate loans, as of June 30, 2017, and no specific reserves and a total allowance of $9.0 million, or 0.7% of total commercial real estate loans, as of September 30, 2016.

Multifamily Loans

Opus’ $2.4 billion multifamily loan portfolio has experienced no charge-offs since our inception in 2010. There were no multifamily loans on nonaccrual status as of September 30, 2017 and no delinquencies. There were no specific reserves for loans within the multifamily portfolio as of September 30, 2017 and total criticized multifamily loans were $15.7 million, or 0.7% of total multifamily loans, compared to $21.1 million, or 0.9% of total multifamily loans, as of June 30, 2017. The decrease in multifamily criticized loans was comprised of one loan relationship totaling $4.0 million upgraded out of special mention. As of September 30, 2017, our multifamily portfolio had a total allowance of $9.0 million, or 0.4% of total multifamily loans, as compared to $9.1 million, or 0.4%, in the prior quarter and $9.0 million, or 0.3%, as of September 30, 2016.

Capital

Our capital ratios increased from the prior quarter as a result of increased retained earnings, lower loan balances from planned loan exits and elevated loan payoffs, and improvements to the risk weightings of loans in our multifamily portfolio. As of September 30, 2017, our Tier 1 leverage ratio was 9.28%, Common Equity Tier 1 ratio was 11.01% and total risk-based capital ratio was 15.00%, compared to 8.58%, 10.60% and 14.08%, respectively, as of June 30, 2017. As of September 30, 2016, our Tier 1 leverage, Common Equity Tier 1, and total risk-based capital ratios were 8.11%, 9.15% and 12.22%, respectively. Stockholders’ equity totaled over $1.0 billion as of September 30, 2017, an increase of 2% from $1.0 billion as of June 30, 2017 and an increase of 8% from $943.9 million as of September 30, 2016. Our tangible book value per as converted common share increased to $17.22 as of September 30, 2017 from $16.63 as of June 30, 2017 and $16.42 as of September 30, 2016.

On August 17, 2017, we entered into an agreement with certain entities affiliated with Fortress Investment Group LLC ("Fortress") whereby Opus Bank and Fortress agreed to exchange 1,405,500 shares of common stock, no par value, held by Fortress for 28,110 newly issued shares of Opus' Series A Non-Cumulative Non-Voting Preferred Stock, no par value, which are convertible to common stock at an exchange ratio of 50 shares for each share of Series A Preferred Stock. The exchange transaction was an accommodation to Fortress to reduce its ownership of voting common stock and had no effect on Opus' total stockholders' equity or diluted earnings per share, and did not impact Fortress' beneficial ownership of Opus' capital stock on a fully diluted basis.

During the first quarter of 2017, we adopted ASU 2016-09, Improvements to Employee Share-Based Payment Accounting ("ASU 2016-09"). Under ASU 2016-09, excess tax benefits and deficiencies relating to employee share-based awards are recorded as income tax expense on a prospective basis as compared to additional paid-in capital in every period prior to 2017. As a result, during the third quarter of 2017 we recognized tax benefits of $18,000 in connection with the vesting of restricted stock awards through income tax expense rather than additional paid-in capital, which decreased our effective tax rate for the third quarter of 2017 by 0.06%. The adoption of ASU 2016-09 resulted in $248,000 and $769,000 of tax deficiencies in the first and second quarters of 2017, respectively, which increased our quarterly effective tax rates by 1.97% and 2.64%. There was no impact to the financial results of any prior periods reported.

Conference Call and Webcast DetailsDate: Monday, October 23, 2017Time: 8:00 a.m. PT (11:00 a.m. ET)

Phone Number: (855) 265-3237Conference ID: 92534484Webcast URL: http://investor.opusbank.com/event

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

Replay Information: For those who are not able to listen to the call, an 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 92534484. The call replay will be available through November 23, 2017.

About Opus Bank

Opus Bank is an FDIC insured California-chartered commercial bank with $7.3 billion of total assets, $5.1 billion of total loans, and $6.1 billion in total deposits as of September 30, 2017. Opus Bank provides superior ideas and solutions, and banking products 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, media and entertainment, corporate finance, multifamily residential, commercial real estate and structured finance, and is an SBA preferred lender. Opus Bank offers commercial escrow services and facilitates 1031 Exchange transactions through its Escrow and Exchange divisions. Opus Bank provides clients with financial and advisory services related to raising equity capital, targeted acquisition and divestiture strategies, general mergers and acquisitions, debt and equity financing, balance sheet restructuring, valuation, strategy and performance improvement through its Merchant Banking division and its broker-dealer subsidiary, Opus Financial Partners, LLC, Member FINRA/SIPC. Opus Bank’s alternative asset IRA custodian subsidiary has over $16 billion of custodial assets and approximately 52,000 client accounts, which are comprised of self-directed investors, financial institutions, capital raisers and financial advisors. Opus Bank operates 50 banking offices, including 31 in California, 16 in the Seattle/Puget Sound region in Washington, two in the Phoenix metropolitan area of Arizona and one in Portland, Oregon. Opus Bank is an Equal Housing Lender. For additional information about Opus Bank, please visit our website: www.opusbank.com.

Forward-Looking Statements

This release and the aforementioned conference call and webcast may include forward-looking statements related to Opus’ plans, beliefs and goals, which involve certain risks, and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Such risks and uncertainties include, but are not limited to, the following factors: competitive pressure in the banking industry; changes in the interest rate environment; the health of the economy, either nationally or regionally; the deterioration of credit quality, which would cause an increase in the provision for possible loan and lease losses; changes in the regulatory environment; changes in business conditions, particularly in California real estate; volatility of rate sensitive deposits; asset/liability matching risks and liquidity risks; and changes in the securities markets. For a discussion of these and other risks and uncertainties, see Opus' filings with the Federal Deposit Insurance Corporation, including, but not limited to, the risk factors in Opus' annual report on Form 10-K. These filings are available on the Investor Relations page of Opus' website at: http://investor.opusbank.com.

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

Consolidated Statements of Income (Loss)
(unaudited)				For the three months ended																		For the nine months ended
($ in thousands, except per share amounts)				September 30, 2017						June 30, 2017						September 30, 2016						September 30, 2017						September 30, 2016
Interest income:
Loans				$	55,566					$	57,834					$	68,191					$	173,632					$	201,560
Investment securities				5,156						5,212						939						13,436						1,984
Due from banks				1,627						2,055						641						5,643						1,955
Total interest income				62,349						65,101						69,771						192,711						205,499
Interest expense:
Deposits				7,099						7,122						6,917						21,402						19,747
Federal Home Loan Bank advances				25						25						232						117						1,443
Subordinated debt				1,923						1,923						1,923						5,768						1,964
Total interest expense				9,047						9,070						9,072						27,287						23,154
Net interest income				53,302						56,031						60,699						165,424						182,345
Provision (negative provision) for loan losses				(10,646		)				(7,098		)				40,446						(11,776		)				56,319
Net interest income after provision (negative provision) for loan losses				63,948						63,129						20,253						177,200						126,026
Noninterest income:
Fees and service charges on deposit accounts				1,863						1,984						2,025						5,770						5,892
Escrow and exchange fees				1,510						1,487						1,868						4,447						5,477
Trust administrative fees				6,961						6,717						7,285						20,060						13,550
Gain (loss) on sale of loans				(3		)				93						336						(209		)				649
Gain (loss) on sale of assets				3,862						(82		)				219						3,778						197
Gain (loss) from OREO and other repossessed assets				(4,798		)				78						15						(4,859		)				(38		)
Gain on sale of investment securities				618						39						—						1,175						—
Bank-owned life insurance, net				865						886						897						2,640						2,643
Other income				4,040						3,523						3,605						9,352						6,408
Total noninterest income				14,918						14,725						16,250						42,154						34,778
Noninterest expense:
Compensation and benefits				25,515						26,753						23,016						81,465						62,919
Professional services				4,005						6,189						2,937						14,733						7,834
Occupancy expense				3,777						4,108						3,557						11,664						9,992
Depreciation and amortization				1,755						1,789						2,021						5,429						5,302
Deposit insurance and regulatory assessments				1,208						812						1,059						4,082						3,366
Insurance expense				335						356						354						1,046						1,085
Data processing				858						821						830						2,463						2,499
Software licenses and maintenance				1,123						1,127						1,053						3,408						2,486
Office services				2,016						1,817						1,973						6,233						4,786
Amortization of other intangible assets				1,479						1,479						1,479						4,438						3,302
Advertising and marketing				587						584						555						1,831						1,150
Litigation expense (recovery)				43						(88		)				444						84						124
Other expenses				2,915						2,980						3,051						7,536						6,742
Total noninterest expense				45,616						48,727						42,329						144,412						111,587
Income (loss) before income tax expense (benefit)				33,250						29,127						(5,826		)				74,942						49,217
Income tax expense (benefit)				12,705						10,888						(2,805		)				28,500						18,809
Net income (loss)				$	20,545					$	18,239					$	(3,021	)				$	46,442					$	30,408
Basic earnings per common share				$	0.55					$	0.49					$	(0.09	)				$	1.26					$	0.90
Diluted earnings per common share				0.54						0.48						(0.09		)				1.23						0.87
Weighted average shares - basic				36,715,035						37,318,962						34,274,756						36,599,924						33,612,018
Weighted average shares - diluted				38,089,306						38,037,452						34,274,756						37,611,591						34,966,856

Consolidated Balance Sheets
(unaudited)				As of
($ in thousands, except share amounts)				September 30, 2017						June 30, 2017						September 30, 2016
Assets
Cash and due from banks				$	42,918					$	56,168					$	49,753
Due from banks – interest-bearing				427,289						599,169						568,714
Investment securities available-for-sale, at fair value				1,089,844						1,140,182						156,813
Loans held-for-investment				5,060,556						5,218,091						6,290,107
Less allowance for loan losses				(78,176		)				(87,745		)				(61,103		)
Loans held-for-investment, net				4,982,380						5,130,346						6,229,004
OREO and other repossessed assets				—						5,208						558
Premises and equipment, net				27,935						33,684						37,937
Goodwill				331,832						331,832						328,285
Other intangible assets, net				46,280						47,759						52,198
Deferred tax assets, net				48,379						51,807						32,652
Cash surrender value of bank owned life insurance, net				136,613						122,635						120,119
Accrued interest receivable				19,534						19,463						21,848
Federal Home Loan Bank stock				17,250						17,250						17,250
Other assets				140,946						120,956						94,078
Total assets				$	7,311,200					$	7,676,459					$	7,709,209
Liabilities and Stockholders’ Equity
Deposits:
Noninterest-bearing demand				$	849,886					$	935,321					$	931,063
Interest-bearing demand				2,351,910						2,410,155						2,185,216
Money market and savings				2,462,268						2,538,588						2,838,433
Time deposits				405,787						449,995						544,989
Total deposits				6,069,851						6,334,059						6,499,701
Federal Home Loan Bank advances				10,000						10,000						65,000
Subordinated debt, net				132,678						132,612						132,391
Accrued interest payable				2,144						3,921						2,157
Other liabilities				73,525						194,096						66,102
Total liabilities				6,288,198						6,674,688						6,765,351
Stockholders’ equity:
Preferred stock:
Authorized 200,000,000 shares; issued 28,722 and 612 and 612 shares, respectively				26,875						581						581
Common stock, no par value per share:
Authorized 200,000,000 shares; issued 36,432,402 and 37,790,356 and 34,551,270 shares, respectively				702,455						728,749						678,291
Additional paid-in capital				62,216						60,173						54,349
Retained earnings				243,805						223,259						216,316
Treasury stock, at cost; 411,595 and 408,987 and 273,236 shares, respectively				(10,244		)				(10,198		)				(7,001		)
Accumulated other comprehensive income (loss)				(2,105		)				(793		)				1,322
Total stockholders’ equity				1,023,002						1,001,771						943,858
Total liabilities and stockholders’ equity				$	7,311,200					$	7,676,459					$	7,709,209

Selected Financial Data
				For the three months ended															For the nine months ended
(unaudited)				September 30, 2017					June 30, 2017					September 30, 2016					September 30, 2017					September 30, 2016
Return on average assets				1.09	%				0.94	%				(0.16	)%				0.81	%				0.57	%
Return on average stockholders' equity				8.02					7.35					(1.25	)				6.26					4.38
Return on average tangible equity (1)				12.79					11.89					(2.07	)				10.16					6.89
Efficiency ratio (2)				66.87					68.87					55.01					69.57					51.39
Noninterest expense to average assets				2.43					2.52					2.24					2.51					2.07
Yield on interest-earning assets				3.68					3.72					4.04					3.69					4.18
Cost of deposits (3)				0.45					0.44					0.44					0.44					0.45
Cost of funds (4)				0.57					0.55					0.57					0.55					0.50
Net interest margin				3.15					3.20					3.52					3.16					3.71
Net interest margin, tax equivalent (5)				3.17					3.22					3.52					3.18					3.71
Loan to deposits				83.37					82.38					96.78					83.37					96.78

(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, FHLB advances and subordinated debt.
(5)			Net interest margin, tax equivalent has been adjusted to a taxable equivalent basis using a 35% tax rate.

Capital Ratios		As of
(unaudited)		September 30, 2017 (1)		June 30, 2017		September 30, 2016
Tier 1 leverage ratio		9.28%		8.58%		8.11%
Tier 1 risk-based capital ratio		11.45		10.60		9.15
Total risk-based capital ratio		15.00		14.08		12.22
Common Equity Tier 1 ratio		11.01		10.60		9.15

(1)			Ratios are preliminary until filing of our September 30, 2017 call report.

Loan Fundings
(unaudited)				For the three months ended																		For the nine months ended
($ in thousands)				September 30, 2017						June 30, 2017						September 30, 2016						September 30, 2017						September 30, 2016
Loans funded:
Real estate mortgage loans:
Single-family residential				$	—					$	—					$	—					$	—					$	—
Multifamily residential				229,623						148,842						238,363						489,737						743,444
Commercial real estate				23,340						12,135						76,833						50,948						260,076
Construction and land loans				10,995						13,591						15,482						40,142						42,373
Commercial business loans				110,208						179,889						301,669						365,758						794,572
Small Business Administration loans				1,195						7,693						1,783						10,069						5,997
Consumer and other loans				—						—						—						—						—
Total loan fundings				$	375,361					$	362,150					$	634,130					$	956,654					$	1,846,462

Composition of Loan Portfolio				As of
(unaudited)				September 30, 2017											June 30, 2017											September 30, 2016
($ in thousands)				Amount						% ofTotal loans					Amount						% ofTotal loans					Amount						% ofTotal loans
Originated loans held-for-investment
Real estate mortgage loans:
Single-family residential				$	62,739					1.2	%				$	66,484					1.3	%				$	85,970					1.4	%
Multifamily residential				2,342,071						46.3					2,250,464						43.1					2,780,139						44.2
Commercial real estate				1,095,996						21.7					1,161,241						22.3					1,301,001						20.7
Construction and land loans				96,374						1.9					84,687						1.6					93,070						1.5
Commercial business loans				1,298,486						25.7					1,484,361						28.4					1,824,645						29.0
Small Business Administration loans				23,532						0.5					20,962						0.4					18,609						0.3
Consumer and other loans				274						0.0					282						0.0					352						0.0
Total originated loans				4,919,472						97.2					5,068,481						97.1					6,103,786						97.0
Acquired loans held-for-investment
Real estate mortgage loans:
Single-family residential				27,564						0.5					28,670						0.5					37,583						0.6
Multifamily residential				53,183						1.1					53,906						1.0					64,439						1.0
Commercial real estate				29,331						0.7					33,518						0.7					46,365						0.9
Construction and land loans				1,437						0.0					1,457						0.0					2,017						0.0
Commercial business loans				12,253						0.1					13,604						0.2					14,991						0.2
Small Business Administration loans				11,353						0.2					12,097						0.2					13,616						0.2
Consumer and other loans				5,963						0.1					6,358						0.1					7,310						0.1
Total acquired loans				141,084						2.8					149,610						2.9					186,321						3.0
Total gross loans				$	5,060,556					100.0	%				$	5,218,091					100.0	%				$	6,290,107					100.0	%

Composition of Deposits				As of
(unaudited)				September 30, 2017											June 30, 2017											September 30, 2016
($ in thousands)				Amount						% ofTotal deposits					Amount						% ofTotal deposits					Amount						% ofTotal deposits
Noninterest bearing				$	849,886					14.00	%				$	935,321					14.77	%				$	931,063					14.32	%
Interest bearing demand				2,351,910						38.75					2,410,155						38.05					2,185,216						33.62
Money market and savings				2,462,268						40.57					2,538,588						40.08					2,838,433						43.67
Time deposits				405,787						6.68					449,995						7.10					544,989						8.39
Total deposits				$	6,069,851					100.00	%				$	6,334,059					100.00	%				$	6,499,701					100.00	%

Consolidated average balance sheet, interest, yield and rates
				For the three months ended September 30,														For the three months ended June 30,														For the three months ended September 30,
(unaudited)				2017														2017														2016
($ in thousands)				AverageBalance					Interest					Yields/Rates				AverageBalance					Interest					Yields/Rates				AverageBalance					Interest					Yields/Rates
Assets:
Interest-earning assets:
Due from banks				$	506,502				$	1,627				1.27	%			$	772,900				$	2,055				1.07	%			$	498,881				$	641				0.51	%
Investment securities				1,079,627					5,156					1.89				916,362					5,212					2.28				157,334					939					2.37
Acquired loans				145,453					2,427					6.62				155,404					2,029					5.24				197,904					4,155					8.35
Originated Loans				4,989,405					53,139					4.23				5,171,997					55,805					4.33				6,014,394					64,036					4.24
Total loans				$	5,134,858				$	55,566				4.29				$	5,327,401				$	57,834				4.35				$	6,212,298				$	68,191				4.37
Total interest-earning assets				$	6,720,987				$	62,349				3.68				$	7,016,663				$	65,101				3.72				$	6,868,513				$	69,771				4.04
Noninterest-earning assets				725,659														728,489														661,332
Total assets				$	7,446,646													$	7,745,152													$	7,529,845
Liabilities and stockholders’ equity:
Interest-bearing deposits
Interest-bearing demand				$	2,361,961				$	1,089				0.18	%			$	2,393,563				$	1,154				0.19	%			$	2,067,238				$	810				0.16	%
Money market and savings				2,534,236					4,916					0.77				2,657,816					4,856					0.73				2,739,540					4,936					0.72
Time deposits				426,390					1,094					1.02				472,716					1,112					0.94				547,603					1,171					0.85
Total interest-bearing deposits				$	5,322,587				$	7,099				0.53				$	5,524,095				$	7,122				0.52				$	5,354,381				$	6,917				0.51
Subordinated debt				132,641					1,923					5.75				132,575					1,923					5.82				132,350					1,923					5.78
FHLB advances				10,000					25					0.99				10,000					25					1.00				127,011					232					0.73
Total interest-bearing liabilities				$	5,465,228				$	9,047				0.66				$	5,666,670				$	9,070				0.64				$	5,613,742				$	9,072				0.64
Noninterest-bearing deposits				881,752														934,961														889,051
Other liabilities				83,517														147,980														65,238
Total liabilities				$	6,430,497													$	6,749,611													$	6,568,031
Total stockholders’ equity				$	1,016,149													$	995,541													$	961,814
Total liabilities and stockholders’ equity				$	7,446,646													$	7,745,152													$	7,529,845
Net interest income									$	53,302													$	56,031													$	60,699
Net interest spread (1)														3.02	%													3.08	%													3.40	%
Net interest margin (2)														3.15	%													3.20	%													3.52	%
Net interest margin, tax equivalent (3)														3.17	%													3.22	%													3.52	%

(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.
(3)			Net interest margin, tax equivalent has been adjusted to a taxable equivalent basis using a 35% tax rate.

Consolidated average balance sheet, interest, yield and rates
				For the nine months ended September 30,
				2017																	2016
(In thousands)				AverageBalance						Interest						Yields/Rates					AverageBalance						Interest						Yields/Rates
Assets:
Interest-earning assets
Due from banks				$	741,916					$	5,643					1.02	%				$	514,607					$	1,955					0.51	%
Investment securities				906,566						13,436						1.98					151,855						1,984						1.75
Acquired loans				156,702						7,286						6.22					230,216						19,426						11.27
Originated Loans				5,185,848						166,346						4.29					5,668,443						182,134						4.29
Total loans				$	5,342,550					$	173,632					4.35					$	5,898,659					$	201,560					4.56
Total interest-earning assets				$	6,991,032					$	192,711					3.69					$	6,565,121					$	205,499					4.18
Noninterest-earning assets				696,662																	621,784
Total assets				$	7,687,694																$	7,186,905
Liabilities and stockholders’ equity:
Interest-bearing deposits
Interest-bearing deposits				$	2,416,532					$	3,376					0.19	%				$	1,705,134					$	2,245					0.18	%
Money market and savings				2,650,565						14,729						0.74					2,658,903						14,059						0.71
Time deposits				467,310						3,297						0.94					553,581						3,443						0.83
Total interest-bearing deposits				$	5,534,407					$	21,402					0.52					$	4,917,618					$	19,747					0.54
Subordinated debt				132,575						5,768						5.82					45,404						1,964						5.78
FHLB advances				15,842						117						0.99					338,650						1,443						0.57
Total interest-bearing liabilities				$	5,682,824					$	27,287					0.64					$	5,301,672					$	23,154					0.58
Noninterest-bearing deposits				912,496																	896,089
Other liabilities				100,937																	62,228
Total liabilities				$	6,696,257																$	6,259,989
Total stockholders’ equity				$	991,437																$	926,916
Total liabilities and stockholders’ equity				$	7,687,694																$	7,186,905
Net interest income										$	165,424																$	182,345
Net interest spread (1)																3.05	%																3.60	%
Net interest margin (2)																3.16	%																3.71	%
Net interest margin, tax equivalent (3)																3.18	%																3.71	%

(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.
(3)			Net interest margin, tax equivalent has been adjusted to a taxable equivalent basis using a 35% tax rate.

Allowance for Loan Losses
(unaudited)				For the three months ended																		For the nine months ended
($ in thousands)				September 30, 2017						June 30, 2017						September 30, 2016						September 30, 2017						September 30, 2016
Allowance for loan losses-balance at beginning of period				$	87,745					$	112,230					$	59,694					$	111,410					$	44,147
(Recapture) Provision for loan losses:
Acquired loans				117						(2		)				(173		)				21						(469		)
Originated loans				(10,763		)				(7,096		)				40,619						(11,797		)				56,788
Total provision for loan losses				(10,646		)				(7,098		)				40,446						(11,776		)				56,319
Charge-offs:
Acquired loans				—						—						—						—						—
Originated loans				(472		)				(17,799		)				(39,075		)				(23,987		)				(39,440		)
Total charge-offs				(472		)				(17,799		)				(39,075		)				(23,987		)				(39,440		)
Recoveries:
Acquired loans				—						—						—						—						—
Originated loans				1,549						412						38						2,529						77
Total recoveries				1,549						412						38						2,529						77
Total net recoveries (charge-offs)				1,077						(17,387		)				(39,037		)				(21,458		)				(39,363		)
Allowance for loan losses-balance at end of period				$	78,176					$	87,745					$	61,103					$	78,176					$	61,103

Asset Quality Information
(unaudited)				As of
($ in thousands)				September 30, 2017						June 30, 2017						September 30, 2016
Nonperforming assets
Nonaccrual loans				$	65,082					$	63,754					$	44,244
OREO and other repossessed assets				—						5,208						558
Total nonperforming assets				65,082						68,962						44,802
Nonperforming assets to total assets				0.89		%				0.90		%				0.58		%
Accruing loans 90 days or more past due				$	478					$	503					$	720
Accruing troubled debt restructured loans				140						155						170
Allowance for loan losses - Originated loans				77,591						87,277						60,492
Allowance for loan losses - Acquired loans				585						468						611
Total allowance for loan losses				$	78,176					$	87,745					$	61,103
Remaining acquisition discount on acquired loans				$	2,432					$	2,971					$	4,630
Allowance for loan losses to non-accrual loans				120.1		%				137.6		%				138.1		%
Allowance for loan losses acquired loans to acquired loans				0.41						0.31						0.33
Allowance for loan losses originated loans to originated loans				1.58						1.72						0.99
Total allowance for loan losses to total loans				1.54						1.68						0.97
Allowance for loan losses and remaining acquisition discount on acquired loans to gross acquired loans (1)				2.10						2.25						2.74
Allowance for loan losses and remaining acquisition discount to total gross loans (1)				1.59						1.74						1.04

(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.

Risk Rating by Loan Product
(Unaudited)
($ in thousands)				Pass						Special Mention						Classified						Total Loans						Nonaccrual loans						Total allowance
As of September 30, 2017
Real estate mortgage loans:
Single-family residential				$	89,507					$	81					$	715					$	90,303					$	—					$	236
Multifamily residential				2,379,520						12,553						3,181						2,395,254						—						8,990
Commercial real estate				1,042,854						58,454						24,019						1,125,327						11,476						11,067
Construction and land loans				97,811						—						—						97,811						—						1,068
Commercial business loans				1,123,254						49,099						138,386						1,310,739						52,859						56,437
Small Business Administration loans				31,792						872						2,221						34,885						—						356
Consumer and other loans				5,238						63						936						6,237						746						22
Total loans				$	4,769,976					$	121,122					$	169,458					$	5,060,556					$	65,081					$	78,176
As of June 30, 2017
Real estate mortgage loans:
Single-family residential				$	94,347					$	82					$	725					$	95,154					$	—					$	247
Multifamily residential				2,283,268						16,556						4,546						2,304,370						—						9,127
Commercial real estate				1,131,835						46,231						16,693						1,194,759						11,581						10,220
Construction and land loans				78,685						7,459						—						86,144						—						1,327
Commercial business loans				1,305,418						35,286						157,261						1,497,965						51,409						66,551
Small Business Administration loans				29,896						898						2,265						33,059						—						249
Consumer and other loans				5,621						63						956						6,640						764						24
Total loans				$	4,929,070					$	106,575					$	182,446					$	5,218,091					$	63,754					$	87,745
As of September 30, 2016
Real estate mortgage loans:
Single-family residential				$	121,795					$	1,128					$	630					$	123,553					$	—					$	333
Multifamily residential				2,842,445						2,133						—						2,844,578						—						9,025
Commercial real estate				1,320,721						15,690						10,955						1,347,366						7,175						9,043
Construction and land loans				95,069						18						—						95,087						—						944
Commercial business loans				1,726,305						51,168						62,163						1,839,636						36,628						41,535
Small Business Administration loans				29,423						1,045						1,757						32,225						—						188
Consumer and other loans				6,930						41						691						7,662						441						35
Total loans				$	6,142,688					$	71,223					$	76,196					$	6,290,107					$	44,244					$	61,103

Risk Rating by Lending Division
(Unaudited)
($ in thousands)				Pass						Special Mention						Classified						Total Loans						Nonaccrual loans
As of September 30, 2017
Income Property Banking				$	3,020,098					$	19,802					$	984					$	3,040,884					$	—
Commercial Banking				388,323						52,340						53,515						494,178						11,543
Structured Finance				321,618						6,861						13,736						342,215						11,477
Healthcare Provider				222,044						34,075						25,999						282,118						—
Healthcare Practice				21,370						2,446						4,688						28,504						1,656
Corporate Finance				225,277						3,845						40,609						269,731						21,773
Institutional Syndication				258,355						—						(209		)	1			258,146						—
Public Finance				127,147						—						—						127,147						—
Technology Banking				21,497						—						27,613						49,110						17,705
Other divisions (2)				164,247						1,753						2,523						168,523						927
Total loans				$	4,769,976					$	121,122					$	169,458					$	5,060,556					$	65,081
As of June 30, 2017
Income Property Banking				$	2,920,926					$	21,465					$	991					$	2,943,382					$	—
Commercial Banking				443,247						33,697						60,962						537,906						12,078
Structured Finance				347,451						17,912						15,201						380,564						11,581
Healthcare Provider				305,456						25,466						18,633						349,555						—
Healthcare Practice				33,830						527						8,692						43,049						5,614
Corporate Finance				308,003						—						37,103						345,106						9,192
Institutional Syndication				297,382						—						(241		)	1			297,141						—
Public Finance				84,524						—						—						84,524						—
Technology Banking				21,810						6,205						38,437						66,452						24,313
Other divisions (2)				166,441						1,303						2,668						170,412						976
Total loans				$	4,929,070					$	106,575					$	182,446					$	5,218,091					$	63,754
As of September 30, 2016
Income Property Banking				$	3,453,124					$	4,239					$	—					$	3,457,363					$	—
Commercial Banking				628,858						18,620						10,047						657,525						770
Structured Finance				499,460						11,602						—						511,062						—
Healthcare Provider				362,980						8,532						—						371,512						—
Healthcare Practice				111,943						4,320						20,315						136,578						14,221
Corporate Finance				431,637						12,616						1,119						445,372						1,119
Institutional Syndication				287,480						(427		)				(338		)	1			286,715						—
Public Finance				—						—						—						—						—
Technology Banking				203,035						7,325						43,374						253,734						27,420
Other divisions (2)				164,171						4,396						1,679						170,246						714
Total loans				$	6,142,688					$	71,223					$	76,196					$	6,290,107					$	44,244

(1)			Represents unamortized net deferred loan origination fees on syndicated lines of credit that have no outstanding principal balances at period end.
(2)			Other divisions is comprised of single-family residential loans, consumer and other loans, and specialty banking divisions including Business Banking and Media and Entertainment Banking.

Non-GAAP Financial Measures

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

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

Non-GAAP return on average tangible equity
(unaudited)				For the three months ended																		For the nine months ended
($ in thousands)				September 30, 2017						June 30, 2017						September 30, 2016						September 30, 2017						September 30, 2016
Average tangible equity:
Average stockholders' equity				$	1,016,149					$	995,541					$	961,814					$	991,437					$	926,916
Less:
Average goodwill				331,832						331,832						328,285						331,832						308,584
Average other intangible assets				47,105						48,583						52,996						48,589						28,570
Average tangible equity				637,212						615,126						580,533						611,016						589,762
Net income				$	20,545					$	18,239					$	(3,021	)				$	46,442					$	30,408
Return on average stockholders' equity				8.02		%				7.35		%				(1.25		)%				6.26		%				4.38		%
Non-GAAP return on average tangible equity				12.79						11.89						(2.07		)				10.16						6.89

Non-GAAP tangible book value per as converted common share
(unaudited)				As of
($ In thousands, except share amounts)				September 30, 2017						June 30, 2017						September 30, 2016
Tangible equity:
Total stockholders' equity				$	1,023,002					$	1,001,771					$	943,858
Less:
Goodwill				331,832						331,832						328,285
Other intangible assets, net				46,280						47,759						52,198
Tangible equity				644,890						622,180						563,375
Shares of common stock outstanding				36,020,807						37,381,369						34,278,034
Shares of common stock to be issued upon conversion of preferred stock				1,436,100						30,600						30,600
Total as converted shares of common stock outstanding (1)				37,456,907						37,411,969						34,308,634
Book value per as converted common share				27.31						26.78						27.51
Tangible book value per as converted common share				17.22						16.63						16.42

(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/20171023005430/en/

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

Source: Opus Bank