[July 23, 2018]

Opus Bank Announces Second Quarter 2018 Results

Opus Bank ("Opus") (NASDAQ: "OPB") announced today net income of $15.5 million, or $0.40 per diluted share, for the second quarter of 2018 compared to net income of $12.9 million, or $0.34 per diluted share, for the first quarter of 2018 and net income of $18.2 million, or $0.48 per diluted share, for the second quarter of 2017. Net income for the six months ended June 30, 2018 was $28.4 million, or $0.74 per diluted share, compared to $25.9 million, or $0.69 per diluted share, for the first six months of 2017. Net income during the second quarter of 2018 included strategic initiative-related expenses of $180,000 and a reduction to our income tax expense of $268,000 resulting from excess tax benefits from the vesting of non-qualified stock awards.

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 August 16, 2018 to common stockholders and to its Series A Preferred stockholders of record as of August 2, 2018.

Second Quarter 2018 Highlights

• Net interest income after provision for loan losses increased to $49.7 million from $47.8 million in the prior quarter.
• Noninterest expense decreased to $43.1 million from $44.1 million in the prior quarter.
• Return on average assets increased to 0.86% for the second quarter, compared to 0.72% in the prior quarter, and return on average tangible equity increased to 9.49% for the second quarter, compared to 8.07% in the prior quarter.
• Nonperforming assets decreased $23.8 million, or 37%, to 0.56% of total assets, down from 0.87% in the prior quarter.
• Total criticized loans decreased $48.3 million, or 20%, to $199.1 million, including reductions in both special mention and classified loan categories.
• Enterprise Value loans decreased $75.6 million, or 23%, to $260.3 million.
• We recorded a negative loan loss provision of $213,000 for the second quarter.
• Total loans decreased $156.6 million, or 3%, as loan prepayments and payoffs of $357.9 million, which included $58.5 million of planned exits, outpaced quarterly new loan fundings of $295.6 million. Loan originations were unusually low during the month of May, but rebounded in June to more than triple May's level.
• Our new loan fundings pipeline increased approximately 40% entering the third quarter compared to our loan pipeline at the start of the second quarter.
• Total deposits decreased $109.4 million, or 2%, primarily due to seasonal outflows of balances related to two clients and are anticipated to return in future periods.
• Assets Under Custody at PENSCO Trust Company, our alternative asset IRA custodian subsidiary, decreased to $14.0 billion. Importantly, the trust administrative fee income component of our noninterest income will not be materially affected, as the related account fees were capped and minimal. Additionally, the dollar amount of PENSCO's ancillary custodial cash balances held as deposits at Opus Bank were materially unchanged, and the cost of deposits stayed flat.
• Tier 1 leverage and total risk-based capital ratios increased to 9.85% and 15.86%, respectively.

Stephen H. Gordon, Chief Executive Officer and President of Opus Bank, stated, "We are pleased with our results for the second quarter and first half of 2018, highlighted by significant improvements in our credit quality and growth in our earnings. We experienced meaningful reductions in our nonaccrual, total criticized, and Enterprise Value loans, and at the end of the quarter had only $2 million in remaining Technology loans. Despite our challenges, including elevated loan prepayments and increased competition for deposits, Opus' earnings and profitability ratios increased from the prior quarter."

Mr. Gordon continued, "We added 21 Commercial and Business bankers during the first six months of the year and are already seeing early successes as they begin to ramp up their activity. We anticipate they will continue to increase their contributions as we head into 2019 and complement the already deep talent that exists across our collaborative, synergistic lines of business."

Mr. Gordon concluded, "Opus' dedicated team members are the driving force behind our performance and I am extremely grateful to them for their tireless efforts and commitment. Given our healthy capital ratios, improved asset quality, and quarterly earnings, the Board of Directors has approved the payment of a quarterly cash dividend of $0.11 per common share."

Loans

Total loans held-for-investment decreased $156.6 million, or 3%, to $5.1 billion as of June 30, 2018, from $5.2 billion as of March 31, 2018, and decreased $145.7 million, or 3%, from $5.2 billion as of June 30, 2017. The decrease in total loans during the second quarter of 2018 was driven by new loan fundings of $295.6 million, offset by loan payoffs of $358.0 million, which included planned exits of $58.5 million.

New loan fundings in the second quarter of 2018 totaled $295.6 million, a decrease of $156.6 million, or 35%, from the first quarter of 2018 and a decrease of $66.5 million, or 18%, from the second quarter of 2017. Commercial Business loans comprised $80.8 million, or 27%, of total new loan fundings; and real estate related loans comprised $211.0 million, or 71%, of total new loan fundings in the second quarter. Although we experienced an atypical decline in the level of second quarter new loan fundings, our pipeline of new loan fundings entering the third quarter was approximately 40% greater than at the start of the second quarter.

Loan commitments originated during the second quarter of 2018 totaled $306.5 million, compared to $439.2 million during the first quarter of 2018 and $349.7 million during the second quarter of 2017. Our unfunded commitments on originated loans totaled $421.3 million as of June 30, 2018, compared to $413.6 million as of March 31, 2018 and $469.4 million as of June 30, 2017.

Our acquired loan portfolio totaled $121.6 million as of June 30, 2018, a decrease of 5% from $128.6 million as of March 31, 2018 and 19% from $149.6 million as of June 30, 2017. The acquired loan portfolio had a remaining discount of $2.0 million as of June 30, 2018.

Cash and Investment Securities

Cash and investment securities totaled $1.4 billion as of June 30, 2018, unchanged from the prior quarter, and a decrease from $1.8 billion as of June 30, 2017. Cash and cash equivalents as of June 30, 2018 increased $108.8 million, or 37%, to $401.0 million compared to March 31, 2018, and decreased $254.3 million, or 39%, from June 30, 2017. The increase in cash and cash equivalents in the second quarter of 2018 was primarily driven by paydowns and amortization within both our loan and securities portfolios. Investment securities decreased $73.9 million, or 7%, as of June 30, 2018 to $1.0 billion compared to March 31, 2018, and decreased $116.3 million, or 10%, from $1.1 billion as of June 30, 2017. During the second quarter of 2018, we purchased $20.0 million of investment grade securities with a weighted average rate of 3.38% and an average duration of approximately 2.6 years.

Deposits and Borrowings

Deposits decreased $109.4 million, or 2%, to $5.9 billion as of June 30, 2018, from $6.0 billion as of March 31, 2018. The linked-quarter decrease in total deposits was primarily driven by two Commercial Banking relationships that experience seasonal deposit outflows during the second quarter of 2018 totaling $172.0 million, which are anticipated to return beginning in the third quarter.

Total demand deposits, including both noninterest-bearing and interest-bearing, increased to 57% of total deposits as of June 30, 2018, compared to 56% as of March 31, 2018 and 53% as of June 30, 2017. As of June 30, 2018, business deposits represented 63% of total deposits.

Our loan to deposit ratio was 85% as of June 30, 2018 compared to 87% as of March 31, 2018 and 82% as of June 30, 2017.

Federal Home Loan Bank (FHLB) advances had zero balance as of June 30, 2018, compared to $10.0 million as of March 31, 2018 and June 30, 2017, respectively. The average balance of FHLB advances during the second quarter of 2018 was $69.1 million, compared to $16.4 million during the first quarter of 2018 and $10.0 million during the second quarter of 2017.

Net Interest Income

Net interest income was $49.5 million for the second quarter of 2018, compared to $51.7 million for the first quarter of 2018 and $56.0 million for the second quarter of 2017.

Interest income from loans decreased $830,000, or 2%, from the prior quarter to $53.8 million for the second quarter of 2018, driven by lower average loan balances as a result of loan payoffs and prepayments, including planned exits, and a lower net benefit from prepayments, partially offset by the positive impact on our loan yield of repricing due to rate increases. While planned exits decrease our potential future credit volatility, they had a negative impact on our loan interest income. Planned exits of $58.5 million for the second quarter of 2018 had a weighted average rate of 5.97%.

Interest income from cash and investment securities increased $329,000, or 5%, from the prior quarter to $6.4 million for the second quarter of 2018. Interest income from investment securities decreased $46,000, or 1%, from the prior quarter to $5.0 million for the second quarter of 2018, driven by lower average balances of investment securities compared to the prior quarter. Interest income from cash increased $375,000 from the prior quarter to $1.3 million for the second quarter of 2018, as the average balance of cash increased $57.3 million, or 24%.

Interest expense increased 19% to $10.7 million for the second quarter of 2018, compared to $9.0 million for the first quarter of 2018, and increased 18% compared to $9.1 million for the second quarter of 2017. The increase in interest expense during the second quarter of 2018 was driven by a shift in deposit mix due to the seasonal outflow from two, low-cost Commercial Banking clients and an increase in higher-cost Municipal Banking balances and CDs. These effects were partially offset by a $14.1 million, or 2%, increase in the average balance of noninterest-bearing DDAs during the second quarter.

Net Interest Margin

Net interest margin on a taxable equivalent basis decreased 13 basis points to 3.07% in the second quarter of 2018 from 3.20% in the first quarter of 2018, and decreased 15 basis points from 3.22% in the second quarter of 2017. The linked-quarter change was primarily driven by a 10 basis point increase in the cost of deposits to 0.57%, higher loan prepayments during the quarter, and the impact of planned loan exits. These were partially offset by the positive impact on our loan portfolio of rising interest rates, which had an 11 basis point impact on the originated loan yield and benefited net interest margin by seven basis points during the second quarter of 2018. As of June 30, 2018, approximately 31.4% of our loan portfolio was comprised of loans that are contractually scheduled to mature or reset within the next 12 months. Additionally, the tax equivalent weighted average rate on new loan fundings during the second quarter of 2018 was 4.79%, compared to 4.17% for the first quarter of 2018.

Noninterest Income

Noninterest income decreased 3% to $12.9 million in the second quarter of 2018 from $13.3 million in the first quarter of 2018, and decreased 12% from $14.7 million in the second quarter of 2017. Noninterest income during the second quarter of 2018 included $1.8 million of treasury management and deposit account fees, $6.8 million in trust administrative fees from our alternative asset IRA custodian subsidiary, $1.5 million from our Escrow and Exchange divisions, and $774,000 from our Merchant Banking division.

Noninterest income made up 21% of total revenues during the second quarter of 2018, compared to 20% in the first quarter of 2018 and 21% in the second quarter of 2017.

Noninterest Expense

Noninterest expense decreased 2% to $43.1 million in the second quarter of 2018, compared to $44.1 million in the first quarter of 2018, and decreased 11% from $48.7 million in the second quarter of 2017. The linked-quarter decrease in noninterest expense was primarily driven by lower compensation and benefits expenses related to employer taxes and severance expense compared to the first quarter of 2018. The first quarter of 2018 included a $2.9 million recovery from the settlement of a legal matter within professional services expense. Noninterest expense during the second quarter of 2018 also included $180,000 of strategic initiative related expenses related to banking office optimization and infrastructure improvements.

Income Tax Expense

Our effective tax rate was 21% for the second quarter of 2018, compared to 24% for the first quarter of 2018 and 37% for the second quarter of 2017. Income tax expense for the second quarter of 2018 was reduced by excess tax benefits of $268,000 from the vesting of non-qualified stock awards.

Asset Quality

Asset quality improved significantly during the second quarter of 2018. Nonaccrual loans decreased $23.8 million, or 37%, to $40.0 million, or 0.79% of total loans, as of June 30, 2018, compared to $63.8 million, or 1.22% of total loans, as of March 31, 2018. Total criticized loans decreased $48.3 million, or 20%, to $199.1 million as of June 30, 2018, compared to $247.4 million as of March 31, 2018. We also continued to reduce our exposure to previously de-emphasized loan portfolios during the second quarter of 2018; total Enterprise Value loans were reduced by $75.6 million, or 23%, during the second quarter of 2018 and totaled $260.3 million as of June 30, 2018. Planned exits through loan payoffs and sales totaled $58.5 million in the second quarter of 2018, as we continued to reduce the balances of loans we previously announced as targeted for planned exits.

Our allowance for loan losses was $59.2 million, or 1.17% of our total loan portfolio, as of June 30, 2018, compared to $67.8 million, or 1.30%, as of March 31, 2018 and $87.7 million, or 1.68%, as of June 30, 2017. The reduction in the allowance for loan losses during the second quarter of 2018 was driven by charge-offs of $12.5 million and a negative provision for loan losses of $213,000, partially offset by recoveries of $4.1 million.

We recorded a negative provision expense of $213,000 in the second quarter of 2018, compared to a provision expense of $3.9 million in the first quarter of 2018 and a negative provision expense of $7.1 million in the second quarter of 2017. The negative provision expense during the second quarter of 2018 was driven by a $7.0 million decline in reserves as a result of the changes in portfolio mix, fundings, and planned exits of loan relationships, and a reduction of $5.6 million in specific reserves. These factors were partially offset by $8.4 million of net charge-offs, $3.1 million due to higher loss factors used to determine loan loss reserves in accordance with our methodology, $470,000 from risk rating migration, and $434,000 of provision for acquired loans.

We recorded net charge-offs of $8.4 million in the second quarter of 2018, compared to net charge-offs of $12.0 million in the first quarter of 2018 and $17.4 million in the second quarter of 2017. Charge-offs during the second quarter of 2018 were predominantly comprised of four Commercial Banking division loan relationships and two Corporate Finance loan relationships, which previously had specific reserves totaling $6.8 million.

Total nonperforming assets were $40.0 million, or 0.56% of total assets, as of June 30, 2018, compared to $63.8 million, or 0.87% of total assets, as of March 31, 2018, and $69.0 million, or 0.90% of total assets, as of June 30, 2017. The ratio of the allowance for loan losses to total nonaccrual loans was 148% as of June 30, 2018, compared to 106% as of March 31, 2018 and 138% as of June 30, 2017.

Total criticized loans decreased $48.3 million, or 20%, to $199.1 million as of June 30, 2018 compared to $247.4 million as of March 31, 2018, and decreased $89.9 million, or 31%, from $289.0 million as of June 30, 2017. The net decrease in total criticized loans during the second quarter of 2018 was driven by $38.6 million of upgrades and $43.5 million of loan exits, including payoffs, loan sales, charge-offs, and normal amortization during the quarter, partially offset by $33.8 million of downgrades. Special mention loans decreased $38.0 million in the second quarter of 2018 and classified loans decreased $10.4 million. The decrease in special mention loans was driven by $22.2 million of upgrades and $24.4 million of loan payoffs, normal amortization, and migration, partially offset by $8.6 million of downgrades. The decrease in classified loans was driven by upgrades of $16.4 million as well as payoffs, charge-offs, and normal amortization of $35.4 million, partially offset by downgrades of $41.4 million.

The net decrease in total criticized loans consisted primarily of a $39.4 million decrease in commercial business loans and a $16.2 million decrease in real estate secured loans, partially offset by a $7.4 million increase in SBA loans. Commercial business loans comprised $14.7 million of loans upgraded out of criticized categories and $38.2 million of loan exits, including loan payoffs, loan sales, charge-offs, and normal amortization, partially offset by $13.5 million of downgrades during the second quarter of 2018. Real estate secured loans comprised $23.7 million of loans upgraded out of criticized categories and $5.2 million of loan payoffs and amortization, partially offset by $12.7 million of downgrades during the second quarter of 2018.

Capital

As of June 30, 2018, our Tier 1 leverage ratio was 9.85%, Common Equity Tier 1 ratio was 11.80%, and total risk-based capital ratio was 15.86%, compared to 9.53%, 10.92%, and 14.91%, respectively, as of March 31, 2018. As of June 30, 2017, our Tier 1 leverage, Common Equity Tier 1, and total risk-based capital ratios were 8.58%, 10.77%, and 14.28%, respectively. Stockholders' equity totaled over $1.0 billion as of June 30, 2018, unchanged from March 31, 2018 and June 30, 2017. Our tangible book value per as converted common share was $17.53 as of June 30, 2018 compared to $17.23 as of March 31, 2018 and $16.63 as of June 30, 2017.

Conference Call and Webcast Details

Date: Monday, July 23, 2018
Time: 8:00 a.m. PT (11:00 a.m. ET)

Phone Number: (855) 265-3237
Conference ID: 6088969
Webcast URL: http://investor.opusbank.com/event

Analysts, investors, and the general public may listen to our discussion of Opus' 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 archived recording will be available beginning approximately two 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 6088969. The call replay will be available through August 23, 2018.

About Opus Bank

Opus Bank is an FDIC insured California-chartered commercial bank with $7.2 billion of total assets, $5.1 billion of total loans, and $5.9 billion in total deposits as of June 30, 2018. Opus Bank provides superior ideas and solutions, and banking products to its clients through its Retail Bank, Commercial Bank, and Merchant 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 $14 billion of custodial assets and over 49,000 client accounts, which are comprised of self-directed investors, financial institutions, capital raisers and financial advisors. Opus Bank operates 50 banking offices, including 31 in California, 16 in the Seattle/Puget Sound region in Washington, two in the Phoenix metropolitan area of Arizona and one in Portland, Oregon. Opus Bank is an Equal Housing Lender. For additional information about Opus Bank, please visit our website: www.opusbank.com.

Forward Looking Statements

This release and the aforementioned conference call and webcast includes forward-looking statements related to Opus' plans, beliefs and goals. 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: our expectations regarding the seasonality of certain clients; and our expectations regarding the performance of our bankers. 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: market and economic conditions, changes in interest rates, our liquidity position, the management of our growth, the risks associated with our loan portfolio, 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, and risks related to our technology and information systems. 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 filed with the Federal Deposit Insurance Corporation on March 14, 2018. If one or more of these or other risks or uncertainties materialize, or if Opus' underlying assumptions prove to be incorrect, Opus' actual results may vary materially from those indicated in these statements. These filings are available on the Investor Relations page of Opus' 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.

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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