Opus Bank Announces First Quarter 2020 Financial Results

Pending merger with Pacific Premier Bancorp, Inc. ("Pacific Premier Bancorp") remains on track to close in the second quarter
Net interest margin increased 8 basis points from the prior quarter to 2.84% for the first quarter of 2020
Nonperforming assets to total assets of 0.07%, unchanged from the prior quarter-end
Adoption of CECL and the estimated impact of the COVID-19 pandemic resulted in a provision for credit losses of $7.6 million related to loans and $1.2 million related to unfunded loan commitments, for a total impact of $8.7 million
Earnings for the first quarter of 2020 were impacted by a $96.2 million non-cash goodwill impairment charge and $2.9 million of merger-related expenses

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

330.0

Commercial Banking

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

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

Tangible common equity to tangible assets ratio

8.73

9.24

8.88

[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

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

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

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

1,415

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

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

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

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

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

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

($ 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

0.43

Non performing assets to total assets

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

290

47,908

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

586

3,184

483

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

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

614

3,156

508

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

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

649

4,345

535

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

Common equity

977,190

1,070,037

1,018,996

Less:

Goodwill

235,603

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

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

Other intangible assets, net

32,866

33,875

37,510

Tangible equity

737,831

733,440

678,764

Less: preferred stock

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

—

489

(Gains) and losses on sales of securities, loans, and other repossessed assets

)

(851

)

Adjustments to noninterest expense:

Goodwill Impairment

96,229

—

Strategic actions

2,973

(91

)

Litigation (recovery)

—

1,431

Pre-tax adjustments

99,273

(770

)

1,827

Tax effect

(1,031

)

(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

Average goodwill

330,775

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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20200428005281/en/

Kevin L. Thompson EVP, Chief Financial Officer 949-251-8196

Brett G. Villaume SVP, Director of Investor Relations 949-224-8866

Opus Bank (NASDAQ:OPB)
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