IRVINE, Calif.--(BUSINESS WIRE)--

Opus Bank (“Opus”) (NASDAQ: OPB) announced today net income of $18.2 million, or $0.48 per diluted share, for the second quarter of 2017 compared to net income of $7.7 million, or $0.21 per diluted share, for the first quarter of 2017 and net income of $16.1 million, or $0.46 per diluted share, for the second quarter of 2016. Net income for the second quarter of 2017 included strategic initiative related expenses of $371,000 resulting from an expense reduction strategy initiated in the first quarter of 2017 and additional tax expense of $769,000 resulting from the adoption of a new accounting standard for the tax impact associated with stock-based compensation that went into effect in 2017, which increased our effective tax rate by 2.64%. These two items impacted net income for the second quarter of 2017 by $1.0 million, or $0.03 per diluted share.

Stephen H. Gordon, Founding Chairman, Chief Executive Officer and President of Opus Bank, stated, “While we still have more work ahead of us, I look forward to building upon our accomplishments of the first half of the year. I am proud of the results we delivered in the second quarter, driven by contributions from all divisions across the firm. These results included return on average assets of nearly 1% and return on average tangible equity of nearly 12%, improved operating efficiency and leverage, increased net interest margin, a stable cost of deposits, and stronger new loan fundings.”

Mr. Gordon continued, “As a result of the tremendous effort by Opus team members during the second quarter, we reduced the levels of criticized loans by 20% and nonperforming assets by 21%, and we meaningfully decreased the portfolio loan balances we previously announced as targeted for planned exits, which we believe will reduce volatility to our earnings. We also further strengthened and effectively managed our balance sheet, ending the quarter with increased capital ratios and over $1.8 billion of cash and government agency investment securities.”

Mr. Gordon concluded, “Additionally, we continued to execute our previously announced expense reduction strategy, which contributed to the decline in total noninterest expense and improvement in our efficiency ratio. During the quarter, we also made investments to further enhance our credit administration, enterprise risk management, and banking operations, which are intended to make Opus a stronger institution going forward.”

Second Quarter 2017 Highlights

• Net income increased $10.6 million, or 138%, to $18.2 million for the second quarter of 2017 from $7.7 million for the first quarter of 2017, and increased $2.1 million, or 13%, from $16.1 million for the second quarter of 2016.
• Return on average assets increased to 0.94% for the second quarter of 2017, compared to 0.39% for the first quarter of 2017 and 0.89% for the second quarter of 2016, and return on average tangible equity increased to 11.89% for the second quarter, compared to 5.35% for the first quarter of 2017 and 11.14% for the second quarter of 2016.
• Total criticized loans decreased $70.4 million, or 20%, to $289.0 million as of June 30, 2017 from $359.4 million as of March 31, 2017, and $28.3 million, or 9%, from $317.3 million as of December 31, 2016. The linked-quarter decrease in total criticized loans was driven by a reduction of $84.0 million of criticized commercial business loans, offset by an increase of $13.3 million of criticized real estate secured loans. The increase in criticized real estate secured loans was primarily comprised of $11.2 million of commercial real estate loans and $2.0 million of multifamily loans.
• Enterprise value loans decreased $123.9 million, or 16%, to $654.2 million as of June 30, 2017 from $778.1 million as of March 31, 2017, and decreased $261.2 million, or 29%, from $915.4 million as of December 31, 2016.
• Technology Banking loans decreased $55.8 million, or 46%, to $66.5 million as of June 30, 2017 from $122.2 million as of March 31, 2017, and decreased $124.0 million, or 65%, from $190.5 million as of December 31, 2016. Technology banking loans have decreased $213.0 million, or 76%, from their peak of $279.5 million as of June 30, 2016.
• Nonperforming assets decreased $18.1 million, or 21%, to $69.0 million as of June 30, 2017 from $87.0 million as of March 31, 2017, and decreased $26.1 million, or 27%, from $95.1 million as of December 31, 2016. Nonperforming assets decreased to 0.90% of total assets as of June 30, 2017 from 1.09% of total assets as of March 31, 2017 and 1.21% of total assets as of December 31, 2016.
• Opus recorded a negative provision for loan losses of $7.1 million for the second quarter of 2017 compared to a provision expense of $6.0 million for the first quarter of 2017. Our allowance for loan losses was $87.7 million, or 1.68% of total loans, as of June 30, 2017, compared to $112.2 million, or 2.07% of total loans, as of March 31, 2017, and $111.4 million, or 1.97% of total loans, as of December 31, 2016.
• Net charge-offs were $17.4 million in the second quarter of 2017, compared to $5.1 million in the first quarter of 2017. Net charge-offs in the second quarter were primarily comprised of $12.1 million of Technology Banking loans and $5.1 million of enterprise value loans, and was mainly driven by five loan relationships.
• New loan fundings increased 65% to $362.2 million in the second quarter of 2017 compared to $219.1 million in the first quarter of 2017. Commercial business loans comprised $179.9 million, or 50%, of total new loan fundings. Loan commitments originated totaled $349.7 million in the second quarter of 2017, as compared to $209.7 million in the first quarter.
• During the second quarter of 2017, loan payoffs were $357.0 million, loan sales were $15.8 million and planned exits of previously identified loan relationships were $137.2 million.
• Investment securities increased $240.2 million, or 27%, during the second quarter of 2017 to $1.1 billion as of June 30, 2017, as we deployed lower-yielding excess cash into higher-yielding government agency securities. Cash and investment securities totaled $1.8 billion as of June 30, 2017, compared to $1.9 billion as of March 31, 2017, and contributed $7.3 million of interest income in the second quarter of 2017, compared to $5.0 million in the first quarter of 2017.
• Total deposits decreased $386.1 million, or 6%, during the second quarter of 2017 to $6.3 billion as of June 30, 2017, primarily due to our previously announced intention to reduce higher-cost, more rate sensitive deposits, which totaled $246.8 million with a weighted average interest rate of 0.84%, and seasonal outflows totaling $131.8 million, which are anticipated to rebuild over the course of subsequent quarters. Total demand deposits, including non-interest bearing and interest bearing demand deposits, increased to 53% of total deposits as of June 30, 2017, compared to 52% as of March 31, 2017 and 48% as of June 30, 2016. Opus’ cost of deposits was unchanged from the prior quarter at 0.44%, despite two Fed Funds rate increases by the Federal Reserve during the first half of 2017.
• Our loan to deposit ratio was 82% as of June 30, 2017 compared to 81% as of March 31, 2017 and 99% as of June 30, 2016.
• During the second quarter of 2017, our Tier 1 leverage ratio increased 39 basis points to 8.58%, Common Equity Tier 1 ratio increased 73 basis points to 10.60%, and total risk-based capital ratio increased 82 basis points to 14.08%.
• Net interest margin increased six basis points to 3.20% for the second quarter of 2017 compared to 3.14% for the first quarter of 2017.
• Noninterest income increased 18% to $14.7 million in the second quarter of 2017 from $12.5 million in the prior quarter. Opus’ multiple and diverse sources of noninterest income drove the increase in the second quarter, including $6.7 million of trust administrative fees, $2.0 million of deposit account fees, $1.5 million of escrow and exchange fees, $912,000 in positive net equity warrant valuation changes, $842,000 of fee income from our Merchant Banking division, $607,000 of commercial loan fees, and a $298,000 dividend from FHLB stock.
• Our alternative asset IRA custodian subsidiary has scaled its business significantly since its acquisition by Opus on April 13, 2016. Assets Under Custody (“AUC”) increased $1.5 billion during the second quarter of 2017 and have now increased nearly 40% to $15.0 billion as of June 30, 2017, compared to $10.7 billion as of the acquisition date. During that time period, the number of client accounts has increased 17% to over 50,000 and the average account size increased 20% to approximately $300,000.
• Noninterest expense decreased 3% during the second quarter of 2017 to $48.7 million compared to $50.1 million in the first quarter of 2017. We incurred $371,000 of strategic initiative related expenses during the second quarter of 2017.
• Opus’ efficiency ratio improved to 68.9% for the second quarter of 2017, compared to 73.0% in the first quarter of 2017.

Net Interest Income

Total net interest income was $56.0 million for the second quarter of 2017 compared to $56.1 million in the first quarter of 2017 and $62.5 million in the second quarter of 2016. Net interest income for the six months ended June 30, 2017 was $112.1 million compared to $121.6 million for the six months ended June 30, 2016.

Interest income from loans decreased $2.4 million, or 4%, to $57.8 million for the second quarter of 2017, as the average balance of loans decreased $242.8 million, or 4%, from the prior quarter due to elevated loan prepayments, payoffs, and sales that included planned exits of certain loan relationships, including enterprise value loans and Technology Banking loans, partially offset by interest recovered on nonaccrual loans and higher net benefit from prepayments. Interest income from the acquired loan portfolio decreased by $802,000 from the prior quarter to $2.0 million and decreased by $6.0 million from the second quarter of 2016. Accretion income from the acquired loan portfolio totaled $111,000 during the second quarter of 2017, compared to $673,000 during the first quarter of 2017 and $4.9 million during the second quarter of 2016.

Interest income from cash and investment securities increased $2.2 million, or 44%, from the prior quarter to $7.3 million, as the average balance of cash and investment securities increased $18.3 million, or 1%, due to the additional purchases of higher-yielding government agency securities, and the two Federal Reserve rate increases in March and June of 2017.

Interest expense was $9.1 million for the second quarter of 2017, compared to $9.2 million in the prior quarter and increased from $7.0 million for the second quarter of 2016. The increase in interest expense from the year-ago period was primarily due to the issuance of $132 million of subordinated debt at the end of the second quarter 2016 and growth in the deposit portfolio.

Net interest margin increased six basis points to 3.20% in the second quarter of 2017 from 3.14% in the first quarter of 2017. The linked-quarter change was primarily due to higher yield and volume on investment securities during the second quarter, higher yield on interest-earning cash balances, interest recovered on nonaccrual loans, higher net benefit from prepayments, and a stable cost of deposits, offset by lower average balances of originated loans and lower accretion on acquired loans.

Total loan yield during the second quarter of 2017 decreased four basis points to 4.35% from 4.39% in the first quarter of 2017 and decreased 31 basis points from 4.66% in the second quarter of 2016. The decrease from the first quarter of 2017 was primarily due to the yield on acquired loans, which declined 153 basis points as a result of lower accretion generated from payoff activity. Accretion income from the acquired loan portfolio had no impact to net interest margin in the second quarter of 2017 compared to 0.04% in the first quarter of 2017 and 0.31% in the second quarter of 2016. The originated loan yield increased two basis points from the linked-quarter to 4.33%, primarily due to interest income recovered on nonaccrual loans, and higher net benefit from prepayment activity.

The yields on cash and investment securities during the second quarter of 2017 increased to 1.07% and 2.28%, respectively, compared to 0.84% and 1.73% during the prior quarter, and 0.51% and 1.62% during the year-ago period. The increase in yield on investment securities was primarily driven by the deployment of lower-yielding excess cash into higher-yielding government agency securities, as well as lower premium amortization on the Freddie Mac security than in the prior quarter as a result of lower prepayments of the underlying loans. The Freddie Mac security relates to the sale of $509.0 million of Opus’ multifamily loans through a Freddie Mac sponsored transaction in which one class of Freddie Mac guaranteed Structured Pass-Through Certificates was issued and subsequently purchased entirely by Opus. The increase in yield on interest-bearing cash during the second quarter was primarily driven by the Federal Reserve rate increases announced in March and June 2017.

Our cost of funds was 0.55% for the second quarter of 2017, an increase of one basis point from the prior quarter and an increase of ten basis points from 0.45% for the second quarter of 2016. While our cost of deposits remained unchanged at 0.44% from both the prior quarter and the year-ago second quarter, our cost of funds increased in the second quarter due to a slight increase in the cost of interest-bearing deposits and borrowings, and increased from the prior year due to interest expense on the subordinated debt issued at the end of the second quarter of 2016.

Noninterest Income and Noninterest Expense

Noninterest income increased 18% to $14.7 million in the second quarter of 2017 from $12.5 million in the first quarter of 2017, and increased 12% from $13.2 million in the second quarter of 2016. Noninterest income for the six months ended June 30, 2017 increased 47% to $27.2 million compared to $18.5 million for the six months ended June 30, 2016.

Noninterest income during the second quarter of 2017 included $6.7 million in trust administrative fees generated by our alternative asset IRA custodian subsidiary, compared to $6.4 million in the first quarter of 2017. Opus’ Merchant Banking division, which includes its broker-dealer subsidiary, Opus Financial Partners, and its principal investing group, Opus Equity Partners, which manages Opus’ bank-sponsored SBIC Fund, generated $842,000 of noninterest fee income during the second quarter of 2017 compared to $829,000 during the first quarter of 2017. Additionally, our Escrow and Exchange divisions generated $1.5 million in noninterest income during each of the first and second quarters of 2017. Other noninterest income items also included $912,000 of net equity warrant valuation increases, $605,000 of additional fees received as a result of the planned exits of two loan relationships during the quarter, and a $298,000 FHLB dividend.

Noninterest expense decreased 3% to $48.7 million for the second quarter of 2017 compared to $50.1 million for the first quarter of 2017, and increased 27% from $38.4 million for the second quarter of 2016. Noninterest expenses during the second quarter of 2017 included strategic initiative related expenses of $371,000, which resulted from an expense reduction strategy initiated in the first quarter of 2017. These efforts, in combination with higher deferrals of loan origination costs, contributed to a $2.4 million, or 8%, decline in compensation and benefits from the prior quarter. Other factors affecting noninterest expense during the second quarter of 2017 were a reduction in deposit insurance expense by $1.3 million, or 61%, offset by an increase in professional services expense of $1.6 million, or 36%, as compared to the first quarter of 2017.

Cash and Investment Securities

Cash and investment securities totaled $1.8 billion as of June 30, 2017, compared to $1.9 billion as of March 31, 2017 and $723.5 million as of June 30, 2016. Investment securities increased $240.2 million, or 27%, during the second quarter of 2017 to $1.1 billion as of June 30, 2017, compared to $900.0 million as of March 31, 2017, and increased $989.8 million, or 658%, compared to $150.4 million as of June 30, 2016. The increase in investment securities during the second quarter of 2017 was driven by the purchase of $328.3 million of government agency mortgage backed securities, offset by the sale of $47.5 million of securities and normal amortization.

Loans

Total loans held-for-investment were $5.2 billion as of June 30, 2017, a decrease of $214.0 million, or 4%, from $5.4 billion as of March 31, 2017 and a decrease of $907.0 million, or 15%, from $6.1 billion as of June 30, 2016. The decrease in total loans during the second quarter of 2017 was driven by new loan fundings of $362.2 million being offset by payoffs of $357.0 million, loan sales of $15.8 million, planned exits of $137.2 million and net loan charge-offs of $17.4 million. Technology Banking loans were reduced by $55.8 million, or 46%, during the second quarter of 2017 and totaled $66.5 million as of June 30, 2017. Total enterprise value loans were reduced by $123.9 million, or 16%, during the second quarter of 2017 and totaled $654.2 million as of June 30, 2017. The Healthcare Practice loan portfolio, which was de-emphasized in the fourth quarter of 2016, decreased by $1.1 million from the prior quarter to $43.0 million.

New loan fundings in the second quarter of 2017 increased 65% from the prior quarter to $362.2 million, including $136.4 million from Income Property Banking, $83.4 million from Institutional Syndications, $59.6 million from Public Finance, $28.4 million from Structured Finance, $21.8 million from Healthcare Provider, $17.0 million from Commercial Banking, and $14.2 million from Media and Entertainment. Commercial business loans comprised $179.9 million, or 50%, of total new loan fundings in the second quarter. Loan commitments originated during the second quarter totaled $349.7 million as compared to $209.7 million during the first quarter of 2017 and $767.2 million during the second quarter of 2016. As of June 30, 2017, our unfunded commitments on originated loans totaled $469.4 million.

Our acquired loan portfolio totaled $149.6 million as of June 30, 2017, a decrease of 7% from $160.3 million as of March 31, 2017 and 28% from $207.3 million as of June 30, 2016. As of June 30, 2017, our acquired loan portfolio had a remaining discount of $3.0 million.

Deposits and Borrowings

Deposits totaled $6.3 billion as of June 30, 2017, a decrease of $386.1 million, or 6%, from $6.7 billion as of March 31, 2017, and an increase of $153.7 million, or 2%, from $6.2 billion as of June 30, 2016. During the second quarter of 2017, Opus initiated its previously announced strategy to intentionally reduce the balances of certain higher-cost, more rate sensitive deposits that comprised $246.8 million of the overall reduction in total deposits. Seasonal outflows totaling $131.8 million of deposits, which are anticipated to rebuild over the course of subsequent quarters, also contributed to the decrease in total deposits. Total demand deposits, including both noninterest-bearing and interest-bearing demand deposit accounts, increased to 53% of total deposits as of June 30, 2017 from 52% as of March 31, 2017 and from 48% as of June 30, 2016. As of June 30, 2017, business deposits represented 54% of total deposits, compared to 53% as of March 31, 2017 and 52% as of June 30, 2016.

Our loan to deposit ratio was 82% as of June 30, 2017 compared to 81% as of March 31, 2017 and 99% as of June 30, 2016.

Federal Home Loan Bank advances were unchanged at $10.0 million as of June 30, 2017 compared to $10.0 million as of March 31, 2017 and decreased from $135.0 million as of June 30, 2016.

Asset Quality

During the second quarter of 2017, we continued to reduce our exposure to previously de-emphasized loan portfolios. The Technology Banking loan portfolio was reduced by $55.8 million, or 46%, to $66.5 million, and loans categorized as enterprise value loans were reduced by $123.9 million, or 16%, to $654.2 million during the second quarter. Planned exits through loan payoffs and sales totaled $137.2 million in the second quarter of 2017, as Opus continued to reduce the balances of loans we previously announced as targeted for planned exits. As a result of the successful exit of previously identified loan relationships, the reserves associated with these loans were released, impacting our overall allowance and contributing to the negative provision for loan losses for the second quarter of 2017 which, in addition to net charge-offs, reduced the allowance for loan losses as required under our methodology.

Our allowance for loan losses was $87.7 million, or 1.68% of our total loan portfolio, as of June 30, 2017 compared to $112.2 million, or 2.07%, as of March 31, 2017 and $59.7 million, or 0.97%, as of June 30, 2016. The reduction in the allowance for loan losses during the second quarter of 2017 was driven by net charge-offs of $17.4 million, a reduction in specific reserves for impaired loans resolved during the quarter, and a decline in loan balances driven by loan sales, payoffs and pay-downs. Our acquired loan portfolio had a remaining discount of $3.0 million as of June 30, 2017. The coverage ratio for the total loan portfolio, which includes the remaining discount on the acquired loan portfolio, was 1.74% as of June 30, 2017 compared to 2.12% as of March 31, 2017 and 1.07% as of June 30, 2016. Our allowance for loan losses on originated loans resulted in a coverage ratio of 1.72% as of June 30, 2017, compared to 2.12% as of March 31, 2017 and 1.00% as of June 30, 2016.

We recorded a negative provision of $7.1 million in the second quarter of 2017, compared to a provision expense of $6.0 million in the first quarter of 2017 and $10.9 million in the second quarter of 2016. The negative provision during the second quarter was driven by a $22.8 million decline in reserves as a result of the changes in portfolio mix and decline in portfolio balances, including exits of loan relationships, as well as a reduction to specific reserves of $8.0 million. These factors were partially offset by $17.4 million of net charge-offs, $2.7 million from risk rating migration, and $3.6 million in higher reserves for increased loss factors. The allowance reduction on the acquired loan portfolio totaled $2,000 in the second quarter of 2017, $94,000 in the first quarter of 2017 and $145,000 in the second quarter of 2016.

Net charge-offs recorded during the second quarter of 2017 totaled $17.4 million, compared to $5.1 million during the first quarter of 2017 and $24,000 during the second quarter of 2016. Net charge-offs during the second quarter of 2017 included $11.7 million for loans that had specific reserves of $7.3 million recorded in prior quarters. Technology and Commercial Banking loans accounted for $12.1 million and $3.4 million of the current quarter net charge-offs, respectively. The remaining balance of originated loans for which charge-offs were previously recorded was $6.0 million as of June 30, 2017, comprised of three relationships in our Technology and Healthcare Practice divisions.

Total criticized loans decreased $70.4 million, or 20%, to $289.0 million as of June 30, 2017 compared to $359.4 million as of March 31, 2017, and increased $142.5 million, or 97%, from $146.5 million as of June 30, 2016. The net decrease in total criticized loans during the second quarter was comprised of a net decrease in classified loans of $93.5 million and a net increase in special mention loans of $23.1 million. The net decrease in total criticized loans consisted of a $84.1 million decrease in commercial business loans and a $13.3 million increase in real estate secured loans.

The net decrease in criticized loans was driven by $26.0 million of upgrades and $101.3 million of loan exits, including payoffs, loan sales, foreclosures, charge-offs and normal amortization during the quarter, offset by $57.0 million of downgrades. Commercial business and SBA loans comprised $17.7 million of loans upgraded out of criticized categories and $99.6 million of loan exits and foreclosures, offset by $33.8 million of downgrades during the second quarter of 2017. Real estate secured loans comprised $8.3 million of loans upgraded out of criticized categories and $1.6 million of loan exits, offset by $23.2 million of downgrades during the second quarter of 2017.

Total nonperforming assets were $69.0 million, or 0.90% of total assets, as of June 30, 2017, compared to $87.0 million, or 1.09% of total assets, as of March 31, 2017 and $79.4 million, or 1.06% of total assets, as of June 30, 2016. Other real estate owned and other repossessed assets increased to $5.2 million as of June 30, 2017 from $288,000 as of March 31, 2017 as we received assets as part of the workout plan for one commercial business loan relationship. The ratio of the allowance for loan losses to total nonperforming assets was 127.2% as of June 30, 2017, compared to 129.0% as of March 31, 2017 and 75.2% as of June 30, 2016.

Commercial Business Loans

Commercial business loans accounted for all of our $17.4 million of net charge-offs in the second quarter of 2017, up from $4.7 million in the first quarter of 2017. Of the net charge-offs recorded on commercial business loans during the second quarter of 2017, $12.1 million was related to Technology Banking division loan relationships that had either charge-offs or specific reserves recorded in prior quarters. Two Commercial Banking loans comprised $3.4 million of the net charge-offs recorded on commercial business loans during the second quarter and had specific reserves recorded in prior quarters, but no charge-offs. As of June 30, 2017, commercial business loan relationships that have experienced charge-offs had a remaining balance of $6.0 million.

Commercial business loans on nonaccrual declined to $51.4 million as of June 30, 2017 from $73.7 million as of March 31, 2017 and were mainly comprised of two Technology Banking relationships totaling $24.3 million, one Corporate Finance relationships totaling $9.2 million, three Commercial Banking relationships totaling $12.1 million, and two Healthcare Practice relationships totaling $5.6 million. Total criticized commercial business loans as of June 30, 2017 were $192.5 million, or 13% of total commercial business loans, compared to $276.6 million, or 18%, as of March 31, 2017. As of June 30, 2017, we had specific reserves of $16.6 million on $39.4 million of criticized commercial business loans, compared to $24.6 million of specific reserves on $57.3 million of criticized commercial business loans as of March 31, 2017.

As of June 30, 2017, the total allowance recorded for commercial business loans, which includes general and specific reserves, equaled $66.6 million, or 4.4% of total commercial business loans, compared to $90.6 million, or 5.8% of total commercial business loans, as of March 31, 2017. At June 30, 2017, the $16.6 million of specific reserves for commercial business loans were comprised of $9.0 million for Technology Banking loans, $5.6 million for Commercial Banking loans, and $2.0 million for Corporate Finance loans.

Commercial Real Estate Loans

There were no net charge-offs in Opus’ $1.2 billion commercial real estate loan portfolio in the second quarter of 2017, compared to $340,000 in the first quarter of 2017 and none in the second quarter of 2016. Commercial real estate loans on nonaccrual totaled $11.6 million, or 1.0% of total commercial real estate loans as of June 30, 2017, compared to $12.3 million, or 1.0%, in the prior quarter. Total criticized commercial real estate loans were $62.9 million as of June 30, 2017 compared to $51.7 million as of March 31, 2017. The increase in commercial real estate criticized loans was comprised of two loan relationships totaling $11.4 million downgraded into special mention. As of June 30, 2017, commercial real estate loans had no specific reserves and a total allowance of $10.2 million, or 0.9% of total commercial real estate loans, compared to no specific reserves and a total allowance of $10.1 million, or 0.8% of total commercial real estate loans, as of March 31, 2017, and no specific reserves and a total allowance of $6.3 million, or 0.5% of total commercial real estate loans, as of June 30, 2016.

Multifamily Loans

Opus’ $2.3 billion multifamily loan portfolio has experienced zero charge-offs since our inception in 2010. There were no multifamily loans on nonaccrual status as of June 30, 2017 and no delinquencies. There were no specific reserves for loans within the multifamily portfolio as of June 30, 2017 and total criticized multifamily loans were $21.1 million, or 0.9% of total multifamily loans, compared to $19.1 million, or 0.8% of total multifamily loans, as of March 31, 2017. The increase in multifamily criticized loans was comprised of three loan relationships totaling $9.8 million downgraded into special mention. As of June 30, 2017, our multifamily portfolio had a total allowance of $9.1 million, or 0.4% of total multifamily loans, as compared to $9.6 million, or 0.4%, in the prior quarter and $9.5 million, or 0.3%, as of June 30, 2016.

Capital

Our capital ratios increased from the prior quarter as a result of increased retained earnings, lower average loan balances from planned loan exits and elevated loan payoffs, higher balances of investment securities at lower risk-weightings, and improvements to the risk weightings of loans in our multifamily portfolio. As of June 30, 2017, our Tier 1 leverage ratio was 8.58%, Common Equity Tier 1 ratio was 10.60% and total risk-based capital ratio was 14.08%, compared to 8.19%, 9.87% and 13.26%, respectively, as of March 31, 2017. As of June 30, 2016, our Tier 1 leverage, Common Equity Tier 1 ratio and total risk-based capital ratios were 8.52%, 9.74% and 12.93%, respectively. Stockholders’ equity totaled $1.0 billion as of June 30, 2017, an increase of 2% from $985.6 million as of March 31, 2017 and an increase of 5% from $951.2 million as of June 30, 2016. Our tangible book value per as converted common share increased to $16.63 as of June 30, 2017 from $16.23 as of March 31, 2017 and $16.60 as of June 30, 2016.

During the first quarter of 2017, we adopted ASU 2016-09, Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). Under ASU 2016-09, excess tax benefits and deficiencies relating to employee share-based awards are recorded as income tax expense on a prospective basis as compared to additional paid-in capital in every period prior to 2017. As a result, during the second quarter of 2017 we recognized $769,000 of tax deficiencies in connection with the vesting of restricted stock awards through income tax expense rather than additional paid-in capital, which totaled $0.02 of diluted earnings per share and increased our effective tax rate for the second quarter of 2017 by 2.64%. The adoption of ASU 2016-09 resulted in $248,000 of tax deficiencies in the first quarter of 2017, which totaled $0.01 of diluted earnings per share and increased our effective tax rate for the first quarter by 1.97%. There was no impact to the financial results of any prior periods reported.

Conference Call and Webcast Details

Date: Monday, July 24, 2017

Time: 8:00 a.m. PT (11:00 a.m. ET)

Phone Number: (855) 265-3237

Conference ID: 43753649

Webcast URL: http://investor.opusbank.com/event

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

Replay Information: For those who are not able to listen to the call, an archive of the call will be available beginning approximately 2 hours following the completion of the call. To listen to the call replay, dial (855) 859-2056, or for international callers dial (404) 537-3406. The access code for either replay number is 43753649. The call replay will be available through August 24, 2017.

About Opus Bank

Opus Bank is an FDIC insured California-chartered commercial bank with $7.7 billion of total assets, $5.2 billion of total loans, and $6.3 billion in total deposits as of June 30, 2017. Opus Bank provides superior ideas and solutions, and banking products to its clients through its Retail Bank, Commercial Bank, Merchant Bank and Correspondent Bank. Opus Bank offers a suite of treasury and cash management and depository solutions and a wide range of loan products, including commercial, healthcare, media and entertainment, corporate finance, multifamily residential, commercial real estate and structured finance, and is an SBA preferred lender. Opus Bank offers commercial escrow services and facilitates 1031 Exchange transactions through its Escrow and Exchange divisions. Opus Bank provides clients with financial and advisory services related to raising equity capital, targeted acquisition and divestiture strategies, general mergers and acquisitions, debt and equity financing, balance sheet restructuring, valuation, strategy and performance improvement through its Merchant Banking Division and its broker-dealer subsidiary, Opus Financial Partners, LLC, Member FINRA/SIPC. Opus Bank’s alternative asset IRA custodian subsidiary has over $15 billion of custodial assets and approximately 50,000 client accounts, which are comprised of self-directed investors, financial institutions, capital raisers and financial advisors. Opus Bank operates 56 banking offices, including 32 in California, 21 in the Seattle/Puget Sound region in Washington, two in the Phoenix metropolitan area of Arizona and one in Portland, Oregon. Opus Bank is an Equal Housing Lender. For additional information about Opus Bank, please visit our website: www.opusbank.com.

Forward Looking Statements

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

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

Non-GAAP Financial Measures

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

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

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