Open Bank Reports 2015 Third Quarter Financial Results

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October 29, 2015 5:00 PM EDT

Financial highlights

  • Net income totaled $1.5 million, or $0.12 per diluted common share.
  • Total assets were $606 million at September 30, 2015, up 7.3% from $565 million at June 30, 2015, and up 35.5% from $447.4 million a year ago.
  • Net Loans receivable were $500 million at September 30, 2015, an increase of 8.7% from $460 million at June 30, 2015 and an increase of 39.4% from $359 million a year ago.
  • Total deposits were $510 million at September 30, 2015, an increase of 6.0% from $481 million at June 30, 2015 and an increase of 35.2% from $377 million a year ago.
  • Non-performing assets to total assets were 0.17% at September 30, 2015, compared to 0.20% at June 30, 2015 and 0.33% at September 30, 2014.
  • The seventh full-service branch was opened in Koreatown, Los Angeles.

LOS ANGELES--(BUSINESS WIRE)-- Open Bank (OTCQB: OPBK) today reported that net income for the third quarter of 2015 was $1.5 million, or $0.12 per diluted share. This compares with net income of $1.6 million, or $0.12 per diluted share, for the second quarter of 2015, and net income of $1.3 million, or $0.10 per diluted share, for the third quarter of 2014. Pre-tax pre-provision income was $3.1 million for the third quarter 2015, $2.7 million for the second quarter 2015, and $2.1 million for the third quarter 2014.

“We are pleased to report another solid quarter with total assets now exceeding the $600 million mark, our deposits exceeding the $500 million mark and our net loans are now at $500 million. During the quarter, we had a very strong loan production with $98 million in new loan originations,” stated Min Kim, President and Chief Executive Officer. “To put this in perspective, our total assets have more than doubled over the past two years and our deposit and net loan portfolios have also almost doubled over the same two year period. We are also excited to announce the opening of our seventh full-service branch this month in the heart of Koreatown on Western Ave. in Los Angeles, to support the bank’s continued growth and to provide greater convenience to our customers.”

 
Third Quarter Financial Highlights

(in thousands, except per share data)

 
As of or for the Three Months Ended
September 30, 2015     June 30,

2015

    September 30, 2014
 
Income Statement Data:  
Net interest income $ 5,953 $ 5,540   $ 4,417
Provision for loan losses 476 - -
Non-interest income 1,994 2,178 2,031
Non-interest expense 4,881   5,024   4,300  
Income before taxes 2,590 2,694 2,148
Provision for income taxes 1,067   1,109   873  
Net Income $ 1,523   $ 1,585   $ 1,275  
Balance Sheet Data:
Loans held for sale $ 300 $ 128 $ 4,120
Gross loans, net of unearned income 506,307 465,697 364,090
Allowance for loan losses 6,387 5,879 5,482
Total assets 606,224 564,772 447,358
Deposits 509,717 480,729 376,928
Shareholders’ equity 70,820 69,078 64,024
Credit Quality:
Nonperforming loans $ 1,003 $ 1,157 $ 1,466
Nonperforming assets 1,003 1,157 1,466
Performance Ratios:
Net interest margin 4.29 % 4.32 % 4.31 %
Efficiency ratio 61.43 % 65.10 % 66.69 %
Pre-tax pre-provision Income to average assets (annualized) 2.11 % 1.98 % 2.00 %
Net charge-offs to average gross loans (annualized) -0.03 % -0.01 % -0.01 %
Nonperforming assets to gross loans plus OREO 0.20 % 0.25 % 0.40 %
ALLL to nonperforming loans 637 % 508 % 374 %
ALLL to gross loans 1.26 % 1.26 % 1.51 %
Capital Ratios:
Tangible common equity to tangible assets 11.68 % 12.23 % 14.31 %
Leverage ratio 11.99 % 12.52 % 14.85 %
Common Equity Tier 1 ratio 13.80 % 14.53 % N/A
Tier 1 risk-based capital ratio 13.80 % 14.53 % 17.52 %
Total risk-based capital ratio 15.05 % 15.78 % 18.78 %

Results of Operations

Net interest income was $6.0 million for the three months ended September 30, 2015, compared to $5.5 million for the second quarter of 2015 and $4.4 million for the third quarter of 2014. This represents increases of 7.5% from the second quarter of 2015 and 34.8% from the third quarter of 2014, respectively. The increases were primarily the result of increases in average interest earning assets, mostly loans. Average gross loans increased to $493.2 million for the third quarter of 2015, an increase of $ 38.9 million, or 8.6% from $454.2 million for the second quarter 2015, and an increase of $149.6 million, or 43.5%, from $343.6 million for the third quarter of 2014.

The net interest margin for the third quarter of 2015 was 4.29%, a 3 basis point decrease from 4.32% for the second quarter of 2015, and a 2 basis point decrease from 4.31% for the third quarter of 2014. The net interest margin compression was primarily due to an increased cost of funds during the third quarter of 2015 compared to the second quarter of 2015 and the prior-year third quarter. The following table shows the asset yields, liability costs, spread and margin.

Three Months Ended
September 30, 2015   June 30, 2015   September 30, 2014
 
Yield on net loans 5.29% 5.27%

5.46%

Yield on interest-earning assets 4.83% 4.78% 4.68%
Cost of interest-bearing liabilities 0.83% 0.74% 0.70%
Cost of deposits 0.58% 0.51% 0.42%
Net interest spread 4.00% 4.04% 3.98%
Net interest margin 4.29% 4.32% 4.31%
 

Non-interest income for the third quarter 2015 was $2.0 million, compared to $2.2 million for the second quarter of 2015 and $2.0 million for the prior-year third quarter. Net gain on sale of SBA loans totaled $1.2 million for the third quarter of 2015, compared to $1.3 million for the second quarter of 2015. Sales of SBA loans for the third quarter of 2015 were $18.3 million, compared to $15.3 million for the second quarter of 2015. The lower net gain on sales of SBA loans during the quarter despite increased sales was primarily due to a decrease in average premium received. The average premium on sale of SBA loans for the third quarter of 2015 was 8.9%, compared to 11.0% for the second quarter of 2015.

The decrease in non-interest income from the prior-year third quarter was primarily due to a $105 thousand decrease in other service fee income on deposits. The decrease was primarily due to the termination of a relationship with a single large depositor with a high volume of wire transactions.

Non-interest expense for the third quarter 2015 was $4.9 million, compared to $5.0 million for the second quarter of 2015 and $4.3 million for the prior-year third quarter. Total salaries and employee benefits expense was $3.0 million for the third quarter of 2015, compared to $3.1 million for the second quarter of 2015. The total number of full time equivalent employees was 116.5 as of September 30, 2015 and 107.5 as of June 30, 2015. The increase in the number of employees was primarily due to a new branch that opened in October of 2015.

The increase in non-interest expense from the prior-year third quarter was primarily due to an increase in salaries and employee benefits expense, occupancy and FF&E expenses. Salaries and employee benefits expense increased $320 thousand, or 11.9%, from $2.7 million for the third quarter of 2014. The increase reflected an increase in the number of full-time equivalent employees from 101.5 as of September 30, 2014. Occupancy expense increased $240 thousand, or 56.7%, from $423 thousand for the third quarter of 2014. The increase was primarily due to addition of new branches in mid-2014 and 2015 as well as expense related to the expansion of the headquarters office, which resulted in higher lease expenses. FF&E expense increased primarily due to the bank’s continued expansion.

The effective tax rate for the third quarter was 41.2%, compared to 41.2% for the second quarter of 2015 and 40.6% for the third quarter of 2014.

Balance Sheet

Total assets were $606.2 million at September 30, 2015, an increase of $41.5 million, or 7.3%, from $564.8 million at June 30, 2015, and an increase of $158.9 million, or 35.5%, from $447.4 million at September 30, 2014. Gross loans, net of unearned income, were $506.3 million at September 30, 2015, an increase of $40.6 million, or 8.7%, from $465.7 million at June 30, 2015, and an increase of $142.2 million, or 39.1%, from $364.1 million a year ago. New loan originations for the third quarter of 2015 amounted to $97.8 million, including SBA loan originations of $20.7 million, compared to $76.6 million, including SBA loan originations of $20.7 million for the second quarter of 2015. New loan originations for the third quarter of 2014 amounted to $63.6 million, including SBA loan originations of $20.9 million.

Total deposits were $509.7 million at September 30, 2015, an increase of $29.0 million, or 6.0% from $480.7 million at June 30, 2015, and an increase of $132.8 million, or 35.2%, from $376.9 million at September 30, 2014. At September 30, 2015, the bank borrowed $20.0 million from the Federal Home Loan Bank (“FHLB”) with a one year term.

Non-interest bearing deposits accounted for 30.4% of total deposits at September 30, 2015, compared to 34.7% at June 30, 2015 and 42.9% at September 30, 2014.

  September 30, 2015   June 30, 2015   September 30, 2014
 
Non-interest bearing deposits 30.4% 34.7%

42.9%

Interest bearing demand deposits 33.6% 34.3% 29.0%
Savings 0.4% 0.3% 0.3%
Time deposits over $100,000 23.7% 19.3% 16.6%
Other time deposits 11.9% 11.4% 11.2%
Total deposits 100.0% 100.0% 100.0%
 

Effective January 1, 2015, the Basel III capital rules revised the definition of capital, introduced a minimum CET1 capital ratio and changed the risk weightings of certain balance sheet and off-balance sheet assets. The impact of changes in the risk weightings was minimal. At September 30, 2015, the bank continued to exceed all regulatory capital requirements to be classified as “well-capitalized”, as summarized in the following table.

  September 30, 2015   June 30, 2015   September 30, 2014
 
Tier 1 leverage capital ratio 11.99% 12.52% 14.85%
CET 1 capital ratio 13.80% 14.53% N/A
Tier 1 risk-based capital ratio 13.80% 14.53% 17.52%
Total risk-based capital ratio 15.05% 15.78% 18.78%
 

At September 30, 2015, the tangible common equity represented 11.68% of tangible assets, compared to 12.23% at June 30, 2015 and 14.31% at September 30, 2014. The tangible common equity to tangible assets ratio is a non-GAAP financial measure that represents common equity less goodwill and other net intangible assets divided by total assets less goodwill and other net intangible assets. Management reviews the tangible common equity to tangible assets ratio to evaluate the bank’s capital levels.

Asset Quality

The provision for loan losses for the third quarter of 2015 was $476 thousand. No provisions were made for the second quarter of 2015 and third quarter of 2014.

Non-performing assets were $1.0 million, or 0.17% of total assets at September 30, 2015, compared to $1.2 million, or 0.20% of total assets at June 30, 2015 and $1.5 million, or 0.33% of total assets at September 30, 2014. There was no other real estate owned (“OREO”) at September 30, 2015, June 30, 2015, or September 30, 2014.

Non-performing loans to gross loans were 0.20% at September 30, 2015, compared to 0.25% at June 30, 2015 and 0.40% at September 30, 2014. Total classified loans were $758 thousand, or 0.15% of gross loans, at September 30, 2015, compared to $1.4 million, or 0.30% of gross loans at June 30, 2015 and $1.8 million, or 0.50% of gross loans at September 30, 2014.

The allowance for loan losses was $6.4 million at September 30, 2015, compared to $5.9 million at June 30, 2015, and $5.5 million at September 30, 2014. The allowance for loan losses was 1.26% of gross loans at September 30, 2015, compared to 1.26% at June 30, 2015 and 1.51% at September 30, 2014.

Use of Non-GAAP Financial Measures. This document may contain GAAP financial measures and non-GAAP financial measures where management believes it to be helpful in understanding Open Bank’s results of operations or financial position. Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconciliation to the comparable GAAP financial measure, can be found in this earnings release, conference call slides, or the Form 8-K related to this document, all of which can be found on Open Bank’s website at www.myopenbank.com.

About Open Bank

Open Bank (the "Bank") is engaged in the general commercial banking business in Los Angeles and Orange County and is focused on serving the banking needs of small- and medium-sized businesses, professionals, and residents with a particular emphasis on Korean and other ethnic minority communities. The Bank has branches in Downtown Los Angeles, Los Angeles Fashion District, Los Angeles Koreatown, Gardena and Buena Park. The Bank commenced its operations on June 10, 2005 as First Standard Bank and changed its name to Open Bank on September 20, 2010. Its headquarters is located at 1000 Wilshire Blvd., Suite 500, Los Angeles, California 90017. Phone 213.892.9999; www.myopenbank.com Member FDIC, Equal Housing Lender

Safe Harbor

This press release contains certain forward-looking information about Open Bank that is intended to be covered by the safe harbor for “forward-looking statements” provided by the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact are forward-looking statements. These forward-looking statements may include, but are not limited to, such words as "believes," "expects," "anticipates," "intends," "plans," "estimates," "may," "will," "should," "could," "predicts," "potential," "continue," or the negative of such terms and other comparable terminology or similar expressions and may include statements about the bank’s focus on exploring new opportunities, building customer relationship through core deposits, growing core deposits, and improving asset quality. Forward-looking statements are not guarantees. Such statements involve inherent risks and uncertainties, many of which are difficult to predict and are generally beyond the control of Open Bank such as the ability of the new branch to attract sufficient number of customers, deposits and new business to become profitable. Open Bank cautions readers that a number of important factors could cause actual results to differ materially from those expressed in, or implied or projected by, such forward-looking statements. If any of these risks or uncertainties materializes or if any of the assumptions underlying such forward-looking statements proves to be incorrect, Open Bank’s results could differ materially from those expressed in, or implied or projected by such forward-looking statements. Open Bank assumes no obligation to update such forward-looking statements, except as required by law.

       
Balance Sheet
(Dollars in thousand, except per share data)   September 30, 2015   June 30, 2015  

$ change

  % change September 30, 2014

$ change

% change
(Unaudited) (Unaudited) (Audited)
Assets
 
Cash and due from banks $ 49,247 $ 50,181 $ (934 ) -1.9 % $ 40,906 $ 8,341 20.4 %
Investment securities 26,200 25,760 440 1.7 % 23,311 2,889 12.4 %
Loans held for sale 300 128 172 134.4 % 4,120 (3,820 ) -92.7 %
Gross loans, net of unearned income 506,307 465,697 40,610 8.7 % 364,090 142,217 39.1 %
Allowance for loan losses (6,387 ) (5,879 ) (508 ) -8.6 % (5,482 ) (905 ) -16.5 %
Net loans receivable 499,920 459,818 40,102 8.7 % 358,608 141,312 39.4 %
Bank premises and equipment, net 5,566 4,784 782 16.3 % 5,084 482 9.5 %
Accrued interest receivable 1,489 1,307 182 13.9 % 1,056 433 41.0 %
FHLB and Pacific Coast Bankers Bank Stock, at cost 2,655 2,655 0 0.0 % 1,900 755 39.7 %
Servicing assets 5,202 4,993 209 4.2 % 4,729 473 10.0 %
Net deferred taxes 2,858 2,888 (30 ) -1.0 % 5,675 (2,817 ) -49.6 %
Other assets   12,787     12,258     529     4.3 %   1,969     10,818     549.4 %
Total assets $ 606,224   $ 564,772   $ 41,452     7.3 % $ 447,358   $ 158,866     35.5 %
 
Liabilities and Shareholders' Equity
 
Noninterest bearing deposits $ 154,965 $ 166,977 $ (12,012 ) -7.2 % $ 161,832 $ (6,867 ) -4.2 %
Savings 2,052 1,566 486 31.0 % 1,164 888 76.3 %
Money market and others 170,989 164,836 6,153 3.7 % 109,111 61,878 56.7 %
Time deposits of $100,000 or more 121,023 92,549 28,474 30.8 % 62,724 58,299 92.9 %
Other time deposits   60,688     54,801     5,887     10.7 %   42,097     18,591     44.2 %
Total deposits 509,717 480,729 28,988 6.0 % 376,928 132,789 35.2 %
Other borrowings 20,000 10,000 10,000 100.0 % - 20,000 NA
Other liabilities   5,687     4,965     722     14.5 %   6,406     (719 )   -11.2 %
Total liabilities 535,404 495,694 39,710 8.0 % 383,334 152,070 39.7 %
Total shareholders' equity   70,820     69,078     1,742     2.5 %   64,024     6,796     10.6 %
Total Liabilities and Shareholders' Equity $ 606,224   $ 564,772   $ 41,452     7.3 % $ 447,358   $ 158,866     35.5 %
 
Statement of Operations
(Dollars in thousand, except per share data)
Three Months Ended Nine Months Ended
September 30, 2015 June 30, 2015   % change   September 30, 2014   % change   September 30, 2015 September 30, 2014 % change  
Interest income $ 6,691 $ 6,130 9.2 % $ 4,795 39.5 % $ 18,381 $ 13,126 40.0 %
Interest expense   738     590     25.1 %   378     95.2 %   1,840     1,135   62.1 %
Net interest income   5,953       5,540     7.5 %   4,417     34.8 %   16,541     11,991   37.9 %
Provision for loan losses 476 - 0.0 % - 0.0 % 553 260 112.7 %
Non interest income 1,994 2,178 -8.4 % 2,031 -1.8 % 5,990 6,662 -10.1 %
Non interest expense   4,881     5,024     -2.8 %   4,300     13.5 %   14,485     12,468   16.2 %
Income before income taxes 2,590 2,694 -3.9 % 2,148 20.6 % 7,493 5,925 26.5 %
Provision for income taxes   1,067     1,109     -3.8 %   873     22.2 %   3,085     2,425   27.2 %
Net income (loss) $ 1,523   $ 1,585     -3.9 % $ 1,275     19.5 % $ 4,408   $ 3,500   25.9 %
 
Pre-tax Pre-provision Income $ 3,066 $ 2,694 13.8 % $ 2,148 42.7 % $ 8,046 $ 6,185 30.1 %
 
Book Value $ 5.59 $ 5.53 $ 5.16 $ 5.59 $ 5.16
Basic EPS $ 0.12 $ 0.13 $ 0.10 $ 0.35 $ 0.38
Diluted EPS $ 0.12 $ 0.12 $ 0.10 $ 0.34 $ 0.35
 
Shares of common stock outstanding 12,660,080 12,490,649 12,398,584 12,660,080 12,398,584
Weighted Average Shares:
- Basic 12,625,784 12,484,588 12,316,963 12,511,895 9,116,195
- Diluted 13,157,639 13,052,008 13,078,694 13,072,160 9,878,079
 
Three Months Ended Nine Months Ended
September 30, 2015 June 30, 2015 % change September 30, 2014 % change September 30, 2015 September 30, 2014 % change  
Key Ratios
Return on average assets (ROA)* 1.05 % 1.17 % -0.12 % 1.19 % -0.14 % 1.07 % 1.18 % -0.11 %
Return on average equity (ROE) * 8.72 % 9.27 % -0.55 % 8.07 % 0.65 % 8.61 % 10.59 % -1.98 %
Net interest margin * 4.29 % 4.32 % -0.03 % 4.31 % -0.02 % 4.27 % 4.31 % -0.04 %
Efficiency ratio 61.43 % 65.10 % -3.67 % 66.69 % -5.26 % 64.29 % 66.84 % -2.55 %
Pre-tax Pre-provision Income to average assets 2.11 % 1.98 % 0.13 % 2.00 % 0.11 % 1.96 % 2.09 % -0.13 %
 
Tangible common equity to tangible assets 11.68 % 12.23 % -0.55 % 14.31 % -2.63 % 11.68 % 14.31 % -2.63 %
Tier 1 Leverage Ratio 11.99 % 12.52 % -0.53 % 14.85 % -2.86 % 11.99 % 14.85 % -2.86 %
Common Equity Tier 1 Ratio 13.80 % 14.53 % -0.73 % N/A 13.80 % N/A
Tier 1 Capital Ratio 13.80 % 14.53 % -0.73 % 17.52 % -3.72 % 13.80 % 17.52 % -3.72 %
Total Risk Based Capital Ratio 15.05 % 15.78 % -0.73 % 18.78 % -3.73 % 15.05 % 18.78 % -3.73 %
 
Average Balances
Investments $ 57,253 $ 59,482 -3.7 % $ 63,102 -9.3 % $ 59,738 $ 45,418 31.5 %
Gross loans, including loans held for sale 493,220 454,296 8.6 % 343,594 43.5 % 457,691 326,024 40.4 %
Interest earning assets 550,473 513,778 7.1 % 406,696 35.4 % 517,429 371,442 39.3 %
Total assets $ 581,973 $ 544,041 7.0 % $ 429,720 35.4 % $ 547,840 $ 393,827 39.1 %
 
Noninterest bearing deposits $ 152,926 $ 150,894 1.3 % $ 145,712 5.0 % $ 152,435 $ 128,324 18.8 %
Interest bearing deposits 337,286 297,506 13.4 % 214,187 57.5 % 302,728 215,825 40.3 %
Total deposits 490,212 448,399 9.3 % 359,899 36.2 % 455,163 344,149 32.3 %
Interest bearing liabilities 354,135 320,473 10.5 % 214,188 65.3 % 322,729 217,272 48.5 %
Shareholders' equity 69,829 68,356 2.2 % 63,203 10.5 % 68,227 44,077 54.8 %
Net interest earning assets $ 196,338 $ 193,305 1.6 % $ 192,508 2.0 % $ 194,700 $ 154,170 26.3 %
 
Asset Quality   9/30/2015     6/30/2015     3/31/2015     12/31/2014     9/30/2014  
Nonaccrual Loans 617 767 1,016 951 1,065
Loans 90 days or more past due, accruing - - - - -
Accruing Restructured Loans   386     390     394     397     401  
Total Non-Performing Loans 1,003 1,157 1,410 1,349 1,466
Other Real Estate Loans (OREO)   -     -     -     -     -  
Total Non-Performing Assets 1,003 1,157 1,410 1,349 1,466
 
Classified Loans 758 1,382 1,651 1,736 1,822
 
Non-Performing Assets/Total Assets 0.17 % 0.20 % 0.25 % 0.26 % 0.33 %
Non-Performing Assets/(Gross Loans +OREO) 0.20 % 0.25 % 0.33 % 0.33 % 0.40 %
Non-Performing Loans/Gross Loans 0.20 % 0.25 % 0.33 % 0.33 % 0.40 %
Allowance for Loan Losses/Non-Performing Loans 637 % 508 % 417 % 427 % 374 %
Allowance for Loan Losses/Non-Performing Assets 637 % 508 % 417 % 427 % 374 %
Allowance for Loan Losses/Gross Loans 1.26 % 1.26 % 1.37 % 1.39 % 1.51 %
Classified Loans/Gross Loans 0.15 % 0.30 % 0.38 % 0.42 % 0.50 %
 
Net Charge-offs $ (31 ) $ (8 ) $ (40 ) $ 467 $ (11 )
Net Charge-offs to Average Gross Loans * -0.03 % -0.01 % -0.04 % 0.49 % -0.01 %
 
* Annualized

Open Bank
Christine Oh
EVP & CFO
213.892.1192
[email protected]

Source: Open Bank


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