Opus Bank Announces First Quarter 2020 Financial Results
Opus Bank ("Opus") (Nasdaq: “OPB”) announced today a net loss of $84.8 million, or $(2.34) per diluted share, for the first quarter of 2020, compared to net income of $20.3 million, or $0.53 per diluted share, for the fourth quarter of 2019. Net loss during the first quarter of 2020 included a $96.2 million non-cash impairment charge to write off a portion of the balance of goodwill, as well as $2.9 million of merger related expenses. Together, these items negatively impacted earnings by $2.69 per diluted share for the first quarter of 2020. Pre-provision net revenue on an adjusted basis increased 10% from the prior quarter, primarily driven by higher net interest income.
Additionally, Opus announced today that its Board of Directors has approved the payment of a quarterly cash dividend of $0.11 per common share payable on May 22, 2020 to common stockholders of record as of May 8, 2020, and a common-equivalent payment to its Series A Preferred stockholders.
Earnings Summary
(unaudited)
For the three months ended
($ in thousands, except per share data)
March 31, 2020
December 31, 2019
March 31, 2019
Net income (loss)
$
(84,843
)
$
20,289
$
10,861
Earnings (loss) per diluted share
(2.34
)
0.53
0.28
Pre-provision net revenue ("PPNR")
(74,060
)
23,784
16,494
Return on average assets ("ROAA")
(4.26
)
%
1.02
%
0.60
%
Return on average stockholders' equity
(30.79
%)
7.37
%
4.19
%
Return on average tangible common equity1 ("ROATCE")
(47.74
%)
11.54
%
6.76
%
Efficiency ratio1
210.75
%
61.30
%
70.61
%
Adjusted Earnings1
Adjusted net income
$
13,399
$
19,553
$
12,305
Adjusted pre-provision net revenue
25,213
23,014
18,321
Adjusted earnings per diluted share
0.35
0.51
0.32
Adjusted return on average assets
0.67
%
0.98
%
0.68
%
Adjusted return on average stockholders' equity
4.86
%
7.10
%
4.75
%
Adjusted return on average tangible common equity
7.54
%
11.12
%
7.66
%
Adjusted efficiency ratio
59.21
%
61.17
%
67.93
%
[1] See reconciliation of non-GAAP financial measures to corresponding GAAP measures on pages 18-19.
Paul W. Taylor, President and Chief Executive Officer of Opus, stated, "Despite the rapidly evolving COVID-19 pandemic that has affected us all, we were pleased with our first quarter performance, including adjusted EPS of $0.35, which excludes merger-related expenses and the non-cash charge we incurred in the first quarter to write down a portion of our goodwill. The goodwill impairment had no impact on our regulatory ratios, tangible capital, or liquidity in the first quarter of 2020, and predominantly reflected the fact that stock market values of all banks are significantly lower in the current, highly stressed market environment. Adjusted pre-provision net revenue increased 10% from the prior quarter and our adjusted efficiency ratio improved to 59.2% for the first quarter of 2020. Furthermore, our net interest margin expanded from the prior quarter and expenses were contained.”
Mr. Taylor continued, “Major metropolitan areas on the West Coast were some of the earliest to report the spread of COVID-19, but thankfully, so far, have not seen as many cases as other areas in the country. Nevertheless, we took steps very early on to protect the health and safety of our team members and clients, and we continue to monitor the ongoing situation and take additional actions as necessary and appropriate. We have responded to clients' requests for loan payment deferrals through a coordinated and strategic effort and we are assisting where possible.”
Mr. Taylor concluded, “Our pending merger with Pacific Premier Bancorp remains on track to close during the second quarter of 2020, having already received regulatory approval, and shareholder approval is pending. The combination of Opus and Pacific Premier Bancorp will create one of the premier commercial banks in the western United States, provide scale and increased access to banking products and services for our clients, and result in a strong capital position to work through the current challenging environment.”
Response to COVID-19 Pandemic
During the first quarter of 2020, our operations began to be affected by the spread of the COVID-19 virus and the social, economic, and regulatory actions undertaken in response. Beginning in early March, we took steps to address the possible risks to our team members' and clients' health and well-being based on the guidance for businesses and employers provided by the Centers for Disease Control and Prevention. Our executive leadership team meets multiple times per week to ensure we are proactively addressing any COVID-19 related issues.
In mid-March, we instituted a work-from-home policy that applied to all Opus and PENSCO team members at our corporate offices, except for a handful of mission-critical roles, and eliminated all business-related travel. We provided personal protection equipment at all of our locations, including masks, gloves, hand sanitizer, and sneeze guards at our banking offices. We also limited our banking office hours to reduce the exposure time of our team members and to allow them extra time to accommodate changes in their personal lives.
For our clients, in addition to installing sneeze guards at teller stations to add an additional layer of protection between the client and employee when completing face to face transactions, we posted visual markers to encourage social distancing within the banking offices. Our banking offices are under a controlled access protocol, allowing a minimal number of clients to enter at one time to encourage social distancing. We also increased the frequency of cleaning all high-touch areas in our banking offices to help protect customers from infection. Finally, we enacted our previously developed business continuity plan, which includes work-from-home capabilities for employees with robust firewall protections and other cybersecurity measures to protect customers' personal information and sensitive financial data.
While our capital ratios and liquidity levels are healthy, we further bolstered our liquidity during the first quarter of 2020 as a precaution against further deterioration in economic conditions by temporarily increasing our cash position by $250 million through Federal Home Loan Bank (FHLB) advances and brokered funds. Additionally, we have access to over $2 billion of currently unused borrowing capacity with the FHLB.
Loans
Average loans increased $134.0 million, or 2.3%, compared to the prior quarter to $5.9 billion for the first quarter of 2020, and increased $647.3 million, or 12.3%, from $5.3 billion for the first quarter of 2019. On a period-end basis, loans increased $89.7 million, or 1.5%, compared to the prior quarter to $6.0 billion, as of March 31, 2020, and increased $528.7 million, or 9.7%, compared to March 31, 2019. The increase in the average balance of loans compared to the prior quarter was primarily driven by the timing of new loan fundings, which occurred later in the fourth quarter of 2019.
Loan Balance Roll Forward
(unaudited)
Three Months Ended
($ in millions)
March 31,
2020
December 31,
2019
September 30,
2019
June 30,
2019
March 31,
2019
Beginning loan balance
$
5,900.5
$
5,802.0
$
5,789.0
$
5,461.5
$
5,165.2
New loan fundings
410.9
409.5
406.1
703.6
538.0
Loan payoffs
(237.9
)
(271.7
)
(300.0
)
(192.8
)
(173.7
)
Other1
(83.3
)
(39.3
)
(93.1
)
(183.3
)
(68.0
)
Ending loan balance
$
5,990.2
$
5,900.5
$
5,802.0
$
5,789.0
$
5,461.5
[1] Includes amortization, planned exits, charge-offs, and transfers to held-for-sale
New loan fundings in the first quarter of 2020 totaled $410.9 million, an increase of $1.5 million, or 0.4%, from the fourth quarter of 2019 and a decrease of $127.0 million, or 23.6%, from the first quarter of 2019. Loan fundings in the first quarter of 2020 were primarily driven by $254.9 million of loans from our Income Property Banking division, while our Commercial Banking division funded $112.2 million of new loans during the first quarter of 2020. Loan growth was also impacted by payoffs, which were $237.9 million in the first quarter of 2020, compared to $271.7 million in the fourth quarter of 2019 and $173.7 million in the first quarter of 2019.
Investment Securities
The average balance of investment securities increased $2.5 million, or 0.2%, during the first quarter of 2020 to $1.0 billion compared to the prior quarter, and decreased $76.1 million, or 6.9%, compared to the first quarter of 2019. On a period-end basis, investment securities decreased $48.3 million, or 4.6%, from the prior quarter to $991.3 million as of March 31, 2020, and decreased $102.7 million, or 9.4%, compared March 31, 2019. The decrease in the period-end balance of investment securities compared to the fourth quarter of 2019 was primarily driven by the timing of purchases during the fourth quarter and fluctuations in market valuations during the first quarter of 2020.
Deposits and Borrowings
Average deposits increased $52.8 million, or 0.8%, during the first quarter of 2020 to $6.5 billion compared to the prior quarter, and increased $522.4 million, or 8.8%, compared to the first quarter of 2019. Period-end deposit balances increased $229.2 million, or 3.5%, during the first quarter of 2020 to $6.7 billion as of March 31, 2020, and increased $626.1 million, or 10.3%, compared to March 31, 2019. The growth in average deposits during the first quarter of 2020 was driven by an increase of $96.5 million, or 4.4%, in average money market and savings balances, and an increase of $14.3 million, or 1.9%, in average noninterest bearing demand deposit balances, partially offset by a decrease of $67.7 million, or 8.0%, in the average balance of certificates of deposits from the prior quarter. Noninterest-bearing demand deposits measured 12.5% of total deposits as of March 31, 2020, as compared to 11.9% of total deposits as of December 31, 2019.
During the first quarter of 2020, we increased the balance of brokered deposits to $207.3 million as of March 31, 2020, compared to $3.9 million as of December 31, 2019, as we bolstered our liquidity ratios in response to the COVID-19 pandemic. Additionally, we borrowed $250 million of additional funds through FHLB advances at attractive rates to increase our liquidity ratios. As a result, the average balance of FHLB advances increased $23.6 million, or 11.8%, from the prior quarter to $223.6 million during the first quarter of 2020, and FHLB advances totaled $450.0 million as of March 31, 2020.
Our loan to deposit ratio was 89.4% as of March 31, 2020, compared to 91.1% as of December 31, 2019 and 89.9% as of March 31, 2019.
Net Interest Income
Taxable equivalent net interest income increased 3.0% to $51.6 million for the first quarter of 2020, compared to $50.1 million for the fourth quarter of 2019, and increased 0.8% compared to $51.2 million for the first quarter of 2019.
Interest income from loans increased 0.8% to $60.7 million for the first quarter of 2020, compared to $60.2 million for the fourth quarter of 2019, driven primarily by higher average loan balances. Interest on cash decreased 35.4% to $1.1 million, primarily driven by a 42 basis point decrease in yield due to the Federal Reserve rate cuts in March 2020 and October, 2019, and a $47.9 million decrease in average balances of interest-earning cash. Interest income on investment securities remained stable at $7.7 million for both the first quarter of 2020 and fourth quarter of 2019.
Interest expense decreased 8.4% to $17.8 million for the first quarter of 2020, compared to $19.5 million for the fourth quarter of 2019, and increased 11% compared to $16.1 million for the first quarter of 2019. The decrease in interest expense from the prior quarter was driven primarily by a 10 basis point decrease in the cost of deposits to 0.91%. Interest expense on FHLB advances was flat compared to the prior quarter at $1.2 million, as higher average balances were offset by lower rates.
Net Interest Margin
Taxable equivalent net interest margin (NIM) increased eight basis points to 2.84% in the first quarter of 2020 from 2.76% in the fourth quarter of 2019, and decreased 32 basis points from 3.15% in the first quarter of 2019. The linked-quarter increase was primarily driven by a nine basis point decrease in the cost of funds to 1.05% and higher average loan balances, partially offset by lower contribution from cash balances. Our cost of deposits decreased 10 basis points to 0.91% during the first quarter of 2020, driven by lower rates and higher average balances of noninterest bearing demand deposits.
Noninterest Income
Noninterest income in the first quarter of 2020 was unchanged from the prior quarter at $13.9 million, and increased 25% from $11.1 million in the first quarter of 2019. Noninterest income from PENSCO increased 1% from the prior quarter to $7.4 million in the first quarter of 2020, and escrow and exchange fees decreased 3% from the prior quarter to $1.5 million. Noninterest income for the first quarter of 2020 included $3,000 in gains on the sale of securities, loans, and other assets, compared to a gain of $851,000 for the fourth quarter of 2019. Additionally, other noninterest income included a $1.4 million net increase in equity warrant valuations and a $74,000 lease impairment charge.
Noninterest Expense
Noninterest expense in the first quarter of 2020 was $139.0 million, compared to $39.7 million in the fourth quarter of 2019 and $45.4 million in the first quarter of 2019. Noninterest expense during the first quarter of 2020 included a $96.2 million goodwill impairment charge that reduced the previously recorded value of goodwill by 29.0%. Additionally, noninterest expense included $2.9 million of professional services expenses related to our previously announced acquisition by Pacific Premier Bancorp. Excluding these items, noninterest expense for the first quarter of 2020 was flat compared to the prior quarter.
On at least an annual basis, we evaluate our goodwill for potential impairment, taking into consideration trends in economic conditions, financial performance, business combinations, and industry-specific market factors. Given the recent volatility in the economy, triggered by the COVID-19 pandemic, we believed it was prudent to perform an evaluation of our goodwill for potential impairment during the quarter ended March 31, 2020. Based upon the results of our analysis, an impairment charge of $96.2 million was recognized during the first quarter of 2020, driven predominantly by the negative impact of COVID-19 on stock market valuations and the price of our common stock, which adversely impacted the valuation of goodwill as of March 31, 2020. The non-cash goodwill impairment charge had no impact to our regulatory ratios, tangible capital, cash flows, or liquidity.
As previously guided, we incurred seasonally higher compensation and benefits expense of approximately $1.5 million due to employer taxes paid in the first quarter of 2020. During the first quarter of 2020, we utilized $443,000 of the FDIC small bank assessment credit, compared to $461,000 in the fourth quarter of 2019.
As a result of our adoption of CECL during the first quarter of 2020, we recognized $1.2 million of provision for credit losses related to unfunded commitments, which is included in Other Expenses.
Our efficiency ratio for the first quarter of 2020 was 210.8%, or 59.2% on an adjusted basis, compared to 61.3% for the fourth quarter of 2020, or 61.2% on an adjusted basis.
Income Tax Expense
We recorded an income tax expense of $3.2 million in the first quarter of 2020, compared to an income tax expense of $6.2 million in the fourth quarter of 2019 and an income tax expense of $3.4 million in the first quarter of 2019. Our effective tax rate for the first quarter of 2020 was (4.0)%, compared to 23.3% for the fourth quarter of 2019 and 24.0% for the first quarter of 2019. The change in our effective tax rate for the first quarter of 2020 was primarily driven by nondeductible goodwill impairment (partially offset by tax benefits associated with tax-exempt earnings and income from bank-owned life insurance), which impacted our tax rate by approximately 28 percentage points.
Asset Quality
Total nonperforming assets decreased 3% to $5.8 million as of March 31, 2020, compared to $6.0 million as of December 31, 2019, and decreased 75% compared to $23.3 million as of March 31, 2019. Our ratio of nonperforming assets to total assets was 0.07% as of March 31, 2020, unchanged from the prior quarter, and a decrease from 0.30% as of March 31, 2019. Total criticized loans increased $7.3 million, or 10%, to $80.7 million as of March 31, 2020, compared to $73.5 million as of December 31, 2019. Classified loans decreased $5.1 million in the first quarter of 2020, while special mention loans increased $12.4 million from the prior quarter.
Opus's commercial loan and real estate portfolios will be impacted by the COVID-19 pandemic. Our commercial loan portfolio is well diversified across industry types and has minimal exposure to industries that have been initially impacted the most severely as a result of the COVID-19 pandemic, such as Restaurants, Hotels, Airlines, Energy, and Retail. A breakdown of C&I loan industry concentrations is shown in the table below.
Commercial & Industrial Loan Concentrations (by NAICS code)
(unaudited)
As of March 31, 2020
($ in millions)
Loan Balance
% of C&I Loans
Public Administration
$
205.1
23.7
%
Manufacturing
128.2
14.8
%
Information
117.9
13.6
%
Health Care and Social Assistance
94.7
10.9
%
Educational Services
62.0
7.2
%
Wholesale Trade
57.6
6.6
%
Restaurants and Drinking Places
30.0
3.5
%
Professional, Scientific, and Technical Services
30.0
3.5
%
Arts, Entertainment, and Recreation
28.5
3.3
%
Administrative and Support and Waste Management and Remediation Services
27.1
3.1
%
Other1
86.0
9.9
%
Total Commercial & Industrial Loans
$
867.0
100.0
%
[1] Includes hotels, which comprise less than 0.1% of C&I loans
Loans collateralized by commercial real estate (CRE) are well diversified by property types, as shown in the table below. Additionally, as of March 31, 2020, 72.5% of our real estate exposure is in multifamily properties, which have an average loan-to-value ratio (LTV) of 62.9%, average debt service coverage ratio (DSCR) of 1.52, and have experienced zero loan losses since the inception of Opus.
Real Estate Property Types
(unaudited)
As of March 31, 2020
($ in millions)
Loan Balance
% of Total RE Loans
Multifamily Properties
$
3,616.7
72.5
%
Commercial Real Estate:
Mixed Use Building
287.5
5.8
%
Retail Building
282.6
5.7
%
Industrial Building / Warehouse
267.9
5.4
%
Office Building
246.5
4.9
%
Other
287.5
5.8
%
Total Multifamily and CRE Secured Loans
$
4,988.7
100.0
%
Real Estate Loan Credit Metrics
(unaudited)
As of March 31, 2020
($ in millions)
Loan Balance
Average Size
LTV
DSCR
Multifamily
$
3,912.3
$
2.3
62.9
%
1.52x
Commercial Real Estate
1,076.5
2.4
57.9
%
1.68x
Beginning late in the first quarter of 2020, Opus's Commercial Banking and Income Property Banking customers began to contact us to request modifications of their scheduled loan payments due to the COVID-19 pandemic. As of April 24, 2020, we had processed modifications on 128 lending relationships on a total principal balance of $393.9 million, 94% of which were 90-day deferrals of principal and/or interest. Note that these loan modifications related to COVID-19 were not classified as Troubled Debt Restructured (TDR) loans.
Completed Loan Modifications Related to COVID-191
(unaudited)
As of April 24, 2020
($ in millions)
# of
Relationships
Principal
Balance
Income Property Banking
88
$
330.0
Commercial Banking
40
63.9
Total Completed Loan Modifications
128
$
393.9
[1] Excludes SFR and SBA 7(a) CARES ACT loans
Allowance for Credit Losses and CECL Adoption
On January 1, 2020, we adopted ASC 326, also known as the Current Expected Credit Losses (CECL) methodology, which affects how we determine our allowance for credit losses. The adoption of CECL increased the opening balance for the allowance for credit losses in the first quarter of 2020. The "Day-1" adjustment to the allowance for credit losses was $2.4 million for loans and $1.4 million for unfunded loan commitments, for a cumulative adjustment of $3.8 million. Our provision for credit losses in the first quarter of 2020 was $7.6 million related to loans and $1.2 million related to unfunded loan commitments, for a total provision of $8.7 million.
Allowance for Credit Losses
(unaudited)
($ in thousands)
Loans
Unfunded Loan
Commitments
Total
Balance at 12/31/2019
$
40,844
$
1,014
$
41,858
Cumulative Adjustment
2,397
1,449
3,846
Balance at 1/1/2020
43,241
2,463
45,704
Provision for credit losses
7,557
—
7,557
Provision for unfunded loan commitments
—
1,185
1,185
Total provision
7,557
1,185
8,742
Charge-offs
(202
)
—
(202
)
Recoveries
828
—
828
Balance at 3/31/2020
$
51,424
$
3,648
$
55,072
Although our asset quality remains strong, exhibited by stable credit metrics and net recoveries during the first quarter of 2020, the increase in our provision for credit losses from the prior quarter was primarily driven by the effects of the current economic outlook due to the COVID-19 pandemic. As of March 31, 2020, the allowance for credit losses on loans was $51.4 million and the reserve for unfunded commitments was $3.6 million, included in Other Liabilities on our Consolidated Balance Sheet. The ratio of the allowance for credit losses on loans to total loans was 0.86% as of March 31, 2020, compared to 0.69% as of December 31, 2019 and 1.07% as of March 31, 2019.
Capital
As of March 31, 2020, Opus exceeded all minimum 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)
March 31,
2020¹
December 31,
2019
March 31,
2019
Tier 1 leverage ratio
9.64
%
9.70
%
9.86
%
5.00
%
Common Equity Tier 1 ratio
11.66
11.68
11.10
6.50
Tier 1 risk-based capital ratio
12.14
12.17
11.59
8.00
Total risk-based capital ratio
15.11
15.08
14.85
10.00
Tangible equity to tangible assets ratio
9.09
9.62
9.27
NA
Tangible common equity to tangible assets ratio
8.73
9.24
8.88
NA
[1] Regulatory capital ratios are preliminary until filing of our March 31, 2020 FDIC call report.
In connection with our adoption of CECL on January 1, 2020, we chose to exercise the option to delay for two years the Day 1 impact to regulatory capital, followed by a three-year transition period, based upon recent inter-agency regulatory guidance. Our regulatory capital ratios as of March 31, 2020 reflect this decision.
Stockholders’ equity decreased $92.8 million during the first quarter of 2020 to $1.0 billion as of March 31, 2020, as retained earnings was reduced by the amount of the goodwill impairment charge incurred during the quarter. Our tangible book value per common share increased $0.10 to $19.48 as of March 31, 2020, compared to $19.38 as of December 31, 2019 and increased $1.52 compared to $17.96 as of March 31, 2019.
About Opus Bank
Opus Bank is an FDIC insured California-chartered commercial bank with $8.4 billion of total assets, $6.0 billion of total loans, and $6.7 billion in total deposits as of March 31, 2020. Opus Bank provides commercial and retail banking products and solutions to its clients in western markets from its headquarters in Irvine, California and through 46 banking offices, including 28 in California, 16 in the Seattle/Puget Sound region in Washington, one in the Phoenix metropolitan area of Arizona and one in Portland, Oregon. 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. Additionally, Opus Bank’s wholly-owned subsidiary, PENSCO Trust Company, has approximately $14 billion of custodial IRA assets and approximately 45,000 client accounts, which are comprised of self-directed investors, financial institutions, capital raisers and financial advisors. 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’s plans, beliefs and goals. Statements regarding Opus's proposed merger with Pacific Premier Bancorp, including the benefits and effects thereof, are forward-looking statements. 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: the anticipated timing of our pending merger with Pacific Premier Bancorp; our expectations regarding the scale, increased access to banking products and services for our clients, and future earnings growth as a result of the merger; and the impact of the COVID-19 pandemic on our business, including our commercial loan and real estate portfolios. 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: uncertainties regarding the duration and severity of the COVID-19 pandemic and measures intended to reduce its spread, including their impact on our ability to attract and retain customer deposits and our ability to access sources of liquidity on acceptable terms or at all; uncertainties regarding the ability of us or Pacific Premier Bancorp to satisfy the closing conditions required to consummate the merger, including shareholder approvals; and other factors described under “Risk Factors” in the joint proxy statement/prospectus of Opus and Pacific Premier Bancorp filed with the SEC and the FDIC and which was distributed to the shareholders of Opus on or about April 7, 2020, available at the FDIC’s website, www.fdic.gov, and Opus’s website, www.opusbank.com under the tab “Investor Relations” and then under the heading “Presentations & Filings”; market and economic conditions, changes in interest rates, our liquidity position, the management of our growth, the risks associated with our loan portfolio, risks that our expected efficiencies and savings from our expense reduction initiatives will be less than anticipated, 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, risks related to our technology and information systems, and the management of our operating expenses, including the effectiveness of certain strategic cost reduction initiatives. For a discussion of these and other risks and uncertainties, see Opus's filings with the FDIC, including, but not limited to, the risk factors in Opus's Annual Report on Form 10-K filed with the FDIC on February 28, 2020, as such risk factors may be amended, supplemented or superseded from time to time by other reports Opus files with the FDIC. If one or more of these or other risks or uncertainties materialize, or if Opus’s underlying assumptions prove to be incorrect, Opus’s actual results may vary materially from those indicated in these statements. These filings are available on the Investor Relations page of Opus's 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.
Important Information About the Merger and Where to Find It
This press release does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval. In connection with the proposed acquisition transaction, a registration statement on Form S-4 was filed with and declared effective by the SEC, which registration statement included a joint proxy statement/prospectus filed with the SEC and the FDIC and which was distributed to the shareholders of Opus and Pacific Premier Bancorp in connection with their votes on the acquisition.
INVESTORS AND SECURITY HOLDERS ARE ENCOURAGED TO READ THE REGISTRATION STATEMENT AND JOINT PROXY STATEMENT/PROSPECTUS (AND ANY OTHER DOCUMENTS FILED WITH THE SEC OR THE FDIC IN CONNECTION WITH THE TRANSACTION OR INCORPORATED BY REFERENCE INTO THE JOINT PROXY STATEMENT/PROSPECTUS) BECAUSE SUCH DOCUMENTS CONTAIN IMPORTANT INFORMATION REGARDING THE PROPOSED MERGER AND RELATED MATTERS. The final joint proxy statement/prospectus was mailed to shareholders of Opus and Pacific Premier Bancorp on or about April 7, 2020. Investors and security holders are able to obtain the documents, and any other documents Pacific Premier Bancorp has filed with the SEC, free of charge at the SEC’s website, www.sec.gov or by accessing Pacific Premier Bancorp’s website at www.ppbi.com under the tab “Investors” and then under the heading “SEC Filings”. Investors and security holders are able to obtain the documents, and any other documents Opus has filed with the FDIC, free of charge at Opus’s website at www.opusbank.com under the tab “Investor Relations” and then under the heading “Presentations & Filings”. In addition, documents filed with the SEC by Pacific Premier Bancorp or with the FDIC by Opus will be available free of charge by (1) writing Pacific Premier Bancorp at 17901 Von Karman Avenue, Suite 1200, Irvine, CA 92614, Attention: Investor Relations, or (2) writing Opus at 19900 MacArthur Boulevard, 12th Floor, Irvine, CA 92612, Attention: Investor Relations.
Before making any voting or investment decision, shareholders of Pacific Premier Bancorp and Opus are urged to read carefully the entire registration statement and joint proxy statement/prospectus, including any amendments thereto, because they contain important information about the proposed transaction, Pacific Premier Bancorp and Opus. Free copies of these documents may be obtained as described above.
Participants in Solicitation
The directors, executive officers and certain other members of management and employees of Pacific Premier Bancorp may be deemed to be participants in the solicitation of proxies in connection with the proposed transaction from the shareholders of Pacific Premier Bancorp. Information about Pacific Premier Bancorp’s directors and executive officers is included in the proxy statement for its 2020 annual meeting of Pacific Premier Bancorp’s shareholders, which was filed with the SEC on April 8, 2020. The directors, executive officers and certain other members of management and employees of Opus may also be deemed to be participants in the solicitation of proxies in connection with the proposed transaction from the shareholders of Opus. Information about the directors and executive officers of Opus is included in the Amendment No. 1 to the Annual Report on Form 10-K, which was filed with the FDIC on March 24, 2020. Additional information regarding the interests of those participants and other persons who may be deemed participants in the transaction may be obtained by reading the joint proxy statement/prospectus regarding the proposed acquisition when it becomes available. Free copies of this document may be obtained as described above.
Consolidated Statements of Income
(unaudited)
For the three months ended
($ in thousands, except per share amounts)
March 31,
2020
December 31,
2019
March 31,
2019
Interest income:
Loans
$
60,148
$
59,694
$
57,007
Investment securities
7,694
7,726
8,577
Due from banks
1,057
1,637
1,324
Total interest income
68,899
69,057
66,908
Interest expense:
Deposits
14,696
16,334
13,425
Federal Home Loan Bank advances
1,204
1,200
756
Subordinated debt
1,923
1,923
1,923
Total interest expense
17,823
19,457
16,104
Net interest income
51,076
49,600
50,804
Provision (negative provision) for credit losses
7,557
(2,685
)
2,197
Net interest income after provision (negative provision) for credit losses
43,519
52,285
48,607
Noninterest income:
Fees and service charges on deposit accounts
1,328
1,441
1,440
Escrow and exchange fees
1,502
1,545
1,353
Trust administrative fees
7,366
7,308
6,685
Loss on sale of loans
—
—
(111
)
Gain on sale of assets
3
851
—
Gain on sale of investment securities
—
—
113
Bank-owned life insurance, net
1,046
1,252
980
Other income
2,655
1,465
640
Total noninterest income
13,900
13,862
11,100
Noninterest expense:
Compensation and benefits
22,803
23,557
26,875
Professional services
4,325
2,048
2,216
Occupancy expense
3,814
3,917
3,830
Depreciation and amortization
1,599
1,712
1,833
Deposit insurance and regulatory assessments
28
60
773
Insurance expense
335
341
344
Data processing
1,010
1,043
565
Software licenses and maintenance
1,277
1,253
1,301
Office services
1,630
1,641
1,639
Amortization of other intangible assets
1,009
1,009
1,415
Advertising and marketing
952
897
723
Goodwill impairment loss
96,229
—
—
Other expenses
4,025
2,200
3,896
Total noninterest expense
139,036
39,678
45,410
Income (loss) before income tax expense
(81,617
)
26,469
14,297
Income tax expense
3,226
6,180
3,436
Net income (loss)
$
(84,843
)
$
20,289
$
10,861
Basic earnings (loss) per common share
$
(2.34
)
$
0.54
$
0.29
Diluted earnings (loss) per common share
(2.34
)
0.53
0.28
Weighted average shares - basic
36,373,280
36,324,267
36,187,431
Weighted average shares - diluted
36,373,280
38,299,878
38,133,705
Consolidated Balance Sheets
(unaudited)
As of
($ in thousands, except share amounts)
March 31,
2020
December 31,
2019
March 31,
2019
Assets
Cash and due from banks
$
30,808
$
30,451
$
42,862
Due from banks – interest-bearing
768,107
317,190
378,671
Investment securities available-for-sale, at fair value
991,261
1,039,596
1,093,915
Loans
5,990,190
5,900,520
5,461,500
Less allowance for credit losses (1)
(51,424
)
(40,844
)
(58,483
)
Loans, net
5,938,766
5,859,676
5,403,017
Premises and equipment, net
20,803
21,339
25,771
Goodwill
235,603
331,832
331,832
Other intangible assets, net
32,866
33,875
37,510
Deferred tax assets, net
21,958
8,107
15,924
Cash surrender value of bank owned life insurance, net
188,808
190,435
155,279
Accrued interest receivable
26,163
25,690
24,292
Federal Home Loan Bank stock
17,250
17,250
17,250
Other assets
110,801
116,959
161,582
Total assets
$
8,383,194
$
7,992,400
$
7,687,905
Liabilities and Stockholders’ Equity
Deposits:
Noninterest-bearing demand
$
836,301
$
768,936
$
781,429
Interest-bearing demand
2,686,803
2,680,793
2,397,361
Money market and savings
2,332,912
2,196,603
2,099,058
Time deposits
846,805
827,261
798,918
Total deposits
6,702,821
6,473,593
6,076,766
Federal Home Loan Bank advances
450,000
200,000
330,000
Subordinated debt, net
133,342
133,275
133,076
Accrued interest payable
2,299
4,175
2,702
Other liabilities
88,432
82,210
97,255
Total liabilities
7,376,894
6,893,253
6,639,799
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 37,640,279 and 37,571,545 and 37,227,637 shares, respectively
700,220
700,220
700,220
Additional paid-in capital
90,241
87,702
80,528
Retained earnings
213,588
305,399
267,021
Treasury stock, at cost; 1,265,361 and 1,223,930 and 1,048,657 shares, respectively
(30,721
)
(29,611
)
(25,403
)
Accumulated other comprehensive income (loss)
3,862
6,327
(3,370
)
Total stockholders’ equity
1,006,300
1,099,147
1,048,106
Total liabilities and stockholders’ equity
$
8,383,194
$
7,992,400
$
7,687,905
(1) The bank adopted CECL in the first quarter of 2020. Prior periods reflect results under the incurred loss methodology.
Selected Financial Data
(unaudited)
As of or for the three months ended
March 31,
2020
December 31,
2019
March 31,
2019
Yield on interest-earning assets1
3.83
%
3.83
%
4.13
%
Net interest margin1
2.84
2.76
3.15
Cost of deposits2
0.91
1.01
0.92
Cost of funds3
1.05
1.14
1.05
Noninterest expense to average assets
6.98
1.99
2.51
Loan to deposits
89.37
91.15
89.88
(1) Yield on interest-earning assets and net interest margin are presented on a tax equivalent basis using the federal effective tax rate.
(2) Calculated as interest expense on deposits divided by total average deposits.
(3) Calculated as total interest expense divided by average total deposits, FHLB advances and subordinated debt.
Loan Fundings
(unaudited)
For the three months ended
($ in thousands)
March 31,
2020
December 31,
2019
March 31,
2019
Real estate mortgage loans:
Multifamily residential
$
259,560
$
216,651
$
426,916
Commercial real estate
70,050
88,139
47,127
Construction and land loans
11,056
4,154
6,212
Commercial business loans
66,883
93,939
56,879
Small Business Administration loans
3,294
6,594
836
Consumer and other loans
100
—
—
Total loan fundings
$
410,943
$
409,477
$
537,970
Composition of Loan Portfolio
As of
(unaudited)
March 31,
2020
December 31,
2019
March 31,
2019
($ in thousands)
Amount
% of
Total loans
Amount
% of
Total loans
Amount
% of
Total loans
Real estate mortgage loans:
Single-family residential
$
47,908
0.8
%
$
49,949
0.9
%
$
60,255
1.1
%
Multifamily residential
3,912,287
65.3
3,784,461
64.1
3,255,025
59.6
Commercial real estate:
Owner occupied
313,421
5.2
279,744
4.7
187,631
3.4
Non-owner occupied
763,061
12.7
792,824
13.4
887,852
16.3
Construction and land loans
49,253
0.8
55,739
0.9
57,223
1.0
Commercial business loans
867,038
14.5
901,006
15.3
969,916
17.8
Small Business Administration loans
34,038
0.6
33,641
0.6
39,253
0.7
Consumer and other loans
3,184
0.1
3,156
0.1
4,345
0.1
Total loans
$
5,990,190
100.0
%
$
5,900,520
100.0
%
$
5,461,500
100.0
%
Consolidated average balance sheet, interest, yield and rates
(unaudited)
For the three months ended
March 31,
For the three months ended
December 31,
For the three months ended
March 31,
2020
2019
2019
($ 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
$
358,825
$
1,057
1.18
%
$
406,763
$
1,637
1.60
%
$
234,590
$
1,324
2.29
%
Investment securities
1,024,899
7,694
3.02
1,022,444
7,726
3.00
1,101,044
8,577
3.16
Loans
5,913,798
60,670
4.13
5,779,765
60,167
4.13
5,266,475
57,411
4.42
Total interest-earning assets
7,297,522
69,421
3.83
7,208,972
69,530
3.83
6,602,109
67,312
4.13
Noninterest-earning assets
710,283
711,169
726,313
Total assets
$
8,007,805
$
7,920,141
$
7,328,422
Liabilities and stockholders’ equity:
Interest-bearing deposits
Interest-bearing demand
$
2,640,077
$
2,577
0.39
%
$
2,630,401
$
3,005
0.45
%
$
2,465,245
$
2,811
0.46
%
Money market and savings
2,273,879
8,053
1.42
2,177,402
8,540
1.56
1,996,557
6,957
1.41
Time deposits
774,491
4,066
2.11
842,160
4,789
2.26
712,240
3,657
2.08
Total interest bearing deposits
5,688,447
14,696
1.04
5,649,963
16,334
1.15
5,174,042
13,425
1.05
Subordinated debt
133,300
1,923
5.80
133,236
1,923
5.72
133,042
1,923
5.86
FHLB advances
223,626
1,204
2.17
200,033
1,200
2.38
122,000
756
2.51
Total interest-bearing
liabilities
6,045,373
17,823
1.19
5,983,232
19,457
1.29
5,429,084
16,104
1.20
Noninterest-bearing deposits
774,700
760,361
766,716
Other liabilities
79,609
83,688
81,655
Total liabilities
6,899,682
6,827,281
6,277,455
Total stockholders’ equity
1,108,123
1,092,860
1,050,967
Total liabilities and
stockholders’ equity
$
8,007,805
$
7,920,141
$
7,328,422
Net interest spread (2)
2.64
%
2.54
%
2.93
%
Net interest income and margin, tax equivalent (3, 4)
$
51,598
2.84
%
$
50,073
2.76
%
$
51,208
3.15
%
Reconciliation of tax equivalent net interest income to reported net interest income
Tax equivalent adjustment
(522
)
(473
)
(404
)
Net interest income, as reported
$
51,076
$
49,600
$
50,804
(1) Interest income is presented on a taxable equivalent basis using the federal effective tax rate.
(2) Net interest spread represents the average yield on interest-earning assets less the average rate on interest-bearing liabilities.
(3) Net interest margin is computed by dividing net interest income by total average interest-earning assets.
(4) Net interest margin, tax equivalent has been adjusted to a taxable equivalent basis using the federal effective tax rate
Allowance for Credit Losses on Loans
(unaudited)
For the three months ended
($ in thousands)
March 31,
2020
December 31,
2019
March 31,
2019
Allowance for credit losses-balance at beginning of period (1)
$
43,241
$
45,156
$
54,664
Provision (negative provision) for credit losses
7,557
(2,685
)
2,197
Charge-offs
(202
)
(1,772
)
(383
)
Recoveries
828
145
2,005
Total net (charge-offs) recoveries
626
(1,627
)
1,622
Allowance for credit losses-balance at end of period
$
51,424
$
40,844
$
58,483
(1) The beginning balance of the allowance for credit losses for the first quarter of 2020 includes a $2,397 adjustment from the adoption of CECL in January 2020.
Asset Quality Information
(unaudited)
As of
($ in thousands)
March 31,
2020
December 31,
2019
March 31,
2019
Nonperforming assets
Nonaccrual loans
$
5,767
$
5,974
$
23,330
OREO and other repossessed assets
—
—
—
Total nonperforming assets
$
5,767
$
5,974
$
23,330
Loans 30 - 89 days past due
$
846
$
4,490
$
4,652
Accruing loans 90 days or more past due
—
—
—
Non performing loans to total loans
0.10
%
0.10
%
0.43
%
Non performing assets to total assets
0.07
0.07
0.30
Loans 30 - 89 days past due to total loans
0.01
0.08
0.09
Allowance for credit losses on loans to total loans
0.86
0.69
1.07
Allowance for credit losses on loans to nonaccrual loans
891.69
683.70
250.68
Net charge-offs to average loans (annualized)
(0.04
)
0.11
(0.12
)
Risk Rating by Loan Product
(Unaudited)
($ in thousands)
Pass
Special
Mention
Classified
Total Loans
Nonaccrual
loans
Allowance for
Credit Losses
on Loans
As of March 31, 2020
Real estate mortgage loans:
Single-family residential
$
47,551
$
67
$
290
$
47,908
$
75
$
564
Multifamily residential
3,909,785
—
2,502
3,912,287
1,636
17,508
Commercial real estate
1,047,435
25,165
3,882
1,076,482
2,396
11,184
Construction and land loans
29,956
19,297
—
49,253
—
2,285
Commercial business loans
844,230
6,106
16,702
867,038
—
19,083
Small Business Administration loans
27,975
1,970
4,093
34,038
1,177
778
Consumer and other loans
2,546
52
586
3,184
483
22
Total loans
$
5,909,478
$
52,657
$
28,055
$
5,990,190
$
5,767
$
51,424
As of December 31, 2019
Real estate mortgage loans:
Single-family residential
$
49,442
$
69
$
438
$
49,949
$
215
$
114
Multifamily residential
3,783,589
—
872
3,784,461
—
14,191
Commercial real estate
1,052,918
12,753
6,897
1,072,568
2,409
6,598
Construction and land loans
36,983
18,756
—
55,739
—
602
Commercial business loans
874,118
8,471
18,417
901,006
—
18,799
Small Business Administration loans
27,525
154
5,962
33,641
2,842
538
Consumer and other loans
2,489
53
614
3,156
508
2
Total loans
$
5,827,064
$
40,256
$
33,200
$
5,900,520
$
5,974
$
40,844
As of March 31, 2019
Real estate mortgage loans:
Single-family residential
$
59,696
$
74
$
485
$
60,255
$
254
$
144
Multifamily residential
3,251,009
117
3,899
3,255,025
—
11,603
Commercial real estate
1,020,851
8,273
46,359
1,075,483
2,449
10,581
Construction and land loans
42,760
14,463
—
57,223
—
599
Commercial business loans
904,471
4,896
60,549
969,916
12,420
35,158
Small Business Administration loans
26,552
159
12,542
39,253
7,672
390
Consumer and other loans
3,639
57
649
4,345
535
8
Total loans
$
5,308,978
$
28,039
$
124,483
$
5,461,500
$
23,330
$
58,483
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 net income, earnings per diluted share, pre-provision net revenue, return on average assets, return on average stockholders' equity, return on average tangible common equity, efficiency ratio, tangible book value per common share, and tangible common equity ratio. 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 tangible book value per common share
(unaudited)
As of
($ In thousands, except share amounts)
March 31, 2020
December 31, 2019
March 31, 2019
Tangible equity:
Total stockholders' equity
$
1,006,300
$
1,099,147
$
1,048,106
Less:
Preferred stock
29,110
29,110
29,110
Common equity
977,190
1,070,037
1,018,996
Less:
Goodwill
235,603
331,832
331,832
Other intangible assets, net
32,866
33,875
37,510
Tangible common equity
708,721
704,330
649,654
Shares of common stock outstanding
36,374,918
36,347,615
36,178,980
Book value per common share
$
26.86
$
29.44
$
28.17
Tangible book value per common share
19.48
19.38
17.96
Non-GAAP tangible common equity ratio
(unaudited)
As of
($ In thousands)
March 31, 2020
December 31, 2019
March 31, 2019
Total assets
$
8,383,194
$
7,992,400
$
7,687,905
Less:
Goodwill
235,603
331,832
331,832
Other intangible assets, net
32,866
33,875
37,510
Tangible assets
8,114,725
7,626,693
7,318,563
Total stockholders' equity
1,006,300
1,099,147
1,048,106
Less:
Goodwill
235,603
331,832
331,832
Other intangible assets, net
32,866
33,875
37,510
Tangible equity
737,831
733,440
678,764
Less: preferred stock
29,110
29,110
29,110
Tangible common equity
708,721
704,330
649,654
Total stockholders' equity to total assets
12.00
%
13.75
%
13.63
%
Tangible equity to tangible assets ratio
9.09
%
9.62
%
9.27
%
Total common equity to total assets
11.66
%
13.39
%
13.25
%
Tangible common equity to tangible assets ratio
8.73
%
9.24
%
8.88
%
Non-GAAP Financial Measures
(unaudited)
For the three months ended
($ in thousands)
March 31,
2020
December 31,
2019
March 31,
2019
Net income (loss)
$
(84,843
)
$
20,289
$
10,861
Adjustments to noninterest income:
Impairment
74
—
489
(Gains) and losses on sales of securities, loans, and other repossessed assets
(3
)
(851
)
(2
)
Adjustments to noninterest expense:
Goodwill Impairment
96,229
—
—
Strategic actions
2,973
81
(91
)
Litigation (recovery)
—
—
1,431
Pre-tax adjustments
99,273
(770
)
1,827
Tax effect
(1,031
)
34
(383
)
Tax-effected adjustments (1)
98,242
(736
)
1,444
Adjusted net income
$
13,399
$
19,553
$
12,305
Average assets
$
8,007,805
$
7,920,141
$
7,328,422
Average stockholders' equity
1,108,123
1,092,860
1,050,967
Less:
Average preferred stock
29,110
29,110
29,110
Average goodwill
330,775
331,832
331,832
Average other intangible assets
33,506
34,467
38,234
Average tangible common equity
$
714,732
$
697,451
$
651,791
Earnings (loss) per diluted share
$
(2.34
)
$
0.53
$
0.28
Adjusted earnings per diluted share
0.35
0.51
0.32
Return on average assets
(4.26
%)
1.02
%
0.60
%
Adjusted return on average assets
0.67
0.98
0.68
Return on average stockholders' equity
(30.79
)
7.37
4.19
Adjusted return on average stockholders' equity
4.86
7.10
4.75
Return on average tangible common equity
(47.74
)
11.54
6.76
Adjusted return on average tangible common equity
7.54
11.12
7.66
Efficiency ratio (2)
210.75
61.30
70.61
Adjusted efficiency ratio
59.21
61.17
67.93
Pre-provision net revenue(3)
(74,060
)
23,784
16,494
Adjusted pre-provision net revenue
25,213
23,014
18,321
(1) The tax effect of adjustments was computed using the combined federal and state marginal tax rate of 24.1%, 23.9%, and 23.7% for the three months ended March 31, 2020, December 31, 2019, and March 31, 2019, respectively, adjusted for the tax effect of nondeductible strategic action expenses.
(2) The efficiency ratio equals noninterest expense adjusted to exclude the amortization of other intangible assets divided by the sum of tax-equivalent net interest income and noninterest income adjusted to exclude the gains and losses on the sale of investment securities, loans, and other repossessed assets.
(3) Pre-provision net revenue equals income or loss before income tax expense adjusted to exclude the provision (negative provision) for loan losses.
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