Open Bank Reports 2015 Second Quarter Financial Results

Financial highlights

  • Net income for the second quarter of 2015 was $1.6 million, an increase of 22% from $1.3 million for the first quarter of 2015 and an increase of 32% from $1.2 million for the second quarter of 2014.
  • Total assets were $565 million at June 30, 2015, up 1.8% from $555 million at March 31, 2015, and up 28.6% from $439 million a year ago.
  • Net Loans receivables were $460 million at June 30, 2015, an increase of 8.5% from $424 million at March 31, 2015 and an increase of 44.7% from $318 million at June 30, 2014.
  • Total deposits were $481 million at June 30, 2015, an increase of 6.0% from $453 million at March 31, 2015 and an increase of 29.2% from $372 million at June 30, 2014.
  • Non-interest bearing deposits represented 35% of total deposits at June 30, 2015, compared to 36% at March 31, 2015 and 41% at June 30, 2014.
  • Non-performing assets to total assets was 0.20% at June 30, 2015, compared to 0.25% at March 31, 2015 and 0.32% at June 30, 2014.
  • Opened 3 new loan production offices in Dallas, Seattle and New York.

LOS ANGELES--()--Open Bank (OTCQB: OPBK) today reported that the net income for the second quarter of 2015 was $1.6 million, or $0.12 per diluted share. This compares with net income of $1.3 million, or $0.10 per diluted share, for the first quarter of 2015, and net income of $1.2 million, or $0.14 per diluted share, for the second quarter of 2014. Pre-tax pre-provision income was $2.7 million for the second quarter 2015, $2.3 million for the first quarter 2015, and $2.1 million for the second quarter 2014.

“We are pleased to report another solid quarter with net income up 22% compared to the first quarter of 2015,” stated Min Kim, President and Chief Executive Officer. “We are also excited to announce that we will be opening our 7th full service branch in the heart of Koreatown on Western Blvd. in Los Angeles. The branch is expected to open in the fourth quarter of 2015. During the quarter, we focused on growing our loan portfolio, which increased $36 million or 8.4% to $466 million for the quarter from $430 million for the previous quarter. Our net interest margin remained strong at 4.32%. We will continue to grow our franchise through our branch network and loan production offices while enhancing our risk management program to solidify the foundation and to support the bank’s future growth and expansion.”

 

Second Quarter Financial Highlights

(in thousands, except per share data)

 
      As of or for the Three Months Ended
June 30,       March 31,       June 30,
2015 2015 2014
 
Income Statement Data:
Net interest income $ 5,540 $ 5,049 $ 3,931
Provision for loan losses - 77 50
Non-interest income 2,178 1,819 2,570
Non-interest expense   5,024     4,582     4,424  
Income before taxes 2,694 2,209 2,027
Provision for income taxes   1,109     909     825  
Net Income $ 1,585   $ 1,300   $ 1,202  
Balance Sheet Data:
Loans held for sale $ 128 $ 3,264 $ 6,994
Gross loans, net of unearned income 465,697 429,630 323,299
Allowance for loan losses 5,879 5,871 5,471
Total assets 564,772 554,668 439,288
Deposits 480,729 453,314 371,975
Shareholders’ equity 69,078 67,232 62,518
Credit Quality:
Nonperforming loans $ 1,157 $ 1,410 $ 1,392
Nonperforming assets 1,157 1,410 1,392
Performance Ratios:
Net interest margin 4.32 % 4.19 % 4.15 %
Efficiency ratio 65.10 % 66.71 % 68.05 %
Pre-tax pre-provision Income to average assets (annualized) 1.98 % 1.77 % 2.06 %
Net charge-offs to average gross loans (annualized) -0.01 % -0.04 % -0.02 %
Nonperforming assets to gross loans plus OREO 0.25 % 0.33 % 0.43 %
ALLL to nonperforming loans 508 % 417 % 393 %
ALLL to gross loans 1.26 % 1.37 % 1.69 %
Capital Ratios:
Tangible common equity to tangible assets 12.23 % 12.12 % 14.23 %
Leverage ratio 12.84 % 12.81 % 15.44 %
Common Equity Tier 1 ratio 14.52 % 15.11 % N/A
Tier 1 risk-based capital ratio 14.52 % 15.11 % 19.14 %
Total risk-based capital ratio 15.77 % 16.36 % 20.39 %
 

Results of Operations

Net interest income was $5.5 million for the three months ended June 30, 2015, compared to $5.0 million for the first quarter of 2015 and $3.9 million for the second quarter of 2014. This represents increases of 9.7% from the first quarter of 2015 and 40.9% from the second quarter of 2014, respectively. The increases were primarily the result of increases in average interest earning assets, mostly loans. Average gross loans increased to $454.3 million for the second quarter of 2015, an increase of $ 29.5 million, or 6.9% from $424.8 million for the first quarter 2015, and an increase of $127.1 million, or 38.8%, from $327.2 million for the second quarter of 2014.

The net interest margin for the second quarter of 2015 was 4.32%, a 13 basis points increase from 4.19% for the first quarter of 2015, and a 17 basis points increase from 4.15% for the second quarter of 2014. The net interest margin improvement was primarily due to the lower level of cash/overnight fund balances during the second quarter of 2015 compared to the first quarter of 2015 and the prior-year second quarter. The following table shows the asset yields, liability cost, spread and margin.

 
      Three Months Ended
June 30,       March 31,       June 30,
2015

2015

2014
 
Yield on net loans 5.27 % 5.21 % 5.25 %
Yield on interest-earning assets 4.78 % 4.62 % 4.56 %
Cost of interest-bearing liabilities 0.74 % 0.71 % 0.72 %
Cost of deposits 0.51 % 0.47 % 0.44 %
Net interest spread 4.04 % 3.91 % 3.85 %
Net interest margin 4.32 % 4.19 % 4.15 %
 

No provision was recorded for the second quarter of 2015. This compares to the provision for loan losses of $77 thousand for the first quarter of 2015 and $50 thousand for the second quarter of 2014.

Non-interest income for the second quarter 2015 was $2.2 million, compared to $1.8 million for the first quarter of 2015 and $2.6 million for the prior-year second quarter. The net gains on sale of SBA loans totaled $1.3 million for the second quarter of 2015, compared to $908 thousand for the first quarter of 2015. Sales of SBA loans for the second quarter of 2015 were $15.3 million, compared to $11.6 million for the first quarter of 2015.

The decrease in non-interest income from the prior-year second quarter was primarily due to a $456 thousand decrease in net gains on sale of SBA loans. Sales of SBA loans for the second quarter of 2014 were $22.3 million with a net gain of $1.8 million.

Non-interest expense for the second quarter 2015 was $5.0 million, compared to $4.6 million for the first quarter of 2015 and $4.4 million for the prior-year second quarter. The increase from the preceding quarter was primarily attributable to an increase of $237 thousand, or 8%, in salaries and employee benefits expense. The increase is due to an annual salary adjustment effective April 1, 2015, addition of new employees, and increase in incentive payment. The total number of full time employees was 108 as of June 30, 2015 and 103 as of March 31, 2015. Occupancy expense increased $124 thousand, or 31%, to $521 thousand for the second quarter of 2015, from $397 thousand for the first quarter of 2015. The increase is primarily due to a lease for new branch location effective May of 2015.

The increase in non-interest expense from the prior-year second quarter was primarily due to an increase in salaries and employee benefits expense, occupancy and FF&E expenses. Salaries and employee benefits expense increased $243 thousand, or 8.6%, from $2.8 million for the second quarter of 2014. The increase reflected an increase in the number of full-time employees from 97 as of June 30, 2014. Occupancy expense increased $184 thousand, or 54.7%, from $337 thousand for the second quarter of 2014. The increase was primarily due to an addition of new branch in mid-2014 as well as the operating expense for headquarter 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 second quarter was 41.2%, compared to 41.2% for the first quarter of 2015 and 40.7% for the second quarter of 2014.

Balance Sheet

Total assets were $564.8 million at June 30, 2015, an increase of $10.1 million, or 1.8%, from $554.7 million at March 31, 2015, and an increase of $125.5 million, or 28.6%, from $439.3 million at June 30, 2014. Gross loans, net of unearned income, were $465.7 million at June 30, 2015, an increase of $36.1 million, or 8.4%, from $429.6 million at March 31, 2015, and an increase of $142.4 million, or 44.0%, from $323.3 million a year ago. New loan originations for the second quarter of 2015 amounted to $76.6 million, including SBA loan origination of $20.7 million, compared to $46.1 million, including SBA loan origination of $13.3 million for the first quarter of 2015. The new loan originations for the second quarter of 2014 amounted to $51.1 million, including SBA loan origination of $23.2 million.

Total deposits were $480.7 million at June 30, 2015, an increase of $27.4 million, or 6.0% from $453.3 million at March 31, 2015, and an increase of $108.8 million, or 29.2%, from $372.0 million at June 30, 2014. At June 30, 2015, the bank borrowed $10.0 million from Federal Loan Home Bank (“FHLB”) with one year term.

Non-interest bearing deposits accounted for 34.7% of total deposits at June 30, 2015. This is compared to 35.6% at March 31, 2015 and 40.9% at June 30, 2014.

 
      June 30,       March 31,       June 30,
2015

2015

2014
 
Non-interest bearing deposits 34.7 % 35.6 %

40.9

%

Interest bearing demand deposits

34.3 % 35.6 % 32.5 %
Savings 0.3 % 0.3 % 0.4 %
Time deposits over $100,000 19.3 % 16.9 % 14.0 %
Other time deposits 11.4 % 11.6 % 12.2 %
Total deposits 100.0 % 100.0 % 100.0 %
 

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

 
      June 30,       March 31,       June 30,
2015 2015 2014
 
Tier 1 leverage capital ratio 12.84 % 12.81 % 15.44 %
CET 1 capital ratio 14.52 % 15.11 % N/A
Tier 1 risk-based capital ratio 14.52 % 15.11 % 19.14 %
Total risk-based capital ratio 15.77 % 16.36 % 20.39 %
 

At June 30, 2015, the tangible common equity represented 12.23% of tangible assets, compared to 12.12% at March 31, 2015 and 14.23% at June 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

Non-performing assets were $1.2 million, or 0.2% of total assets at June 30, 2015, compared to $1.4 million, or 0.25% of total assets at March 31, 2015 and $1.4 million, or 0.32% of total assets at June 30, 2014. There were no other real estate owned (“OREO”) at June 30, 2015, March 31, 2015, or June 30, 2014.

Non-performing loans to gross loans was 0.25% at June 30, 2015, compared to 0.33% at March 31, 2015 and 0.43% at June 30, 2014. Total classified loans were $1.6 million, or 0.34% of gross loans, at June 30, 2015, compared to $1.7 million, or 0.38% of gross loans at March 31, 2015 and $2.9 million, or 0.89% of gross loans at June 30, 2014.

The allowance for loan losses was $5.9 million at June 30, 2015, compared to $5.9 million at March 31, 2015, and $5.5 million at June 30, 2014. The allowance for loan losses was 1.26% of gross loans at June 30, 2015, compared to 1.37% at March 31, 2015 and 1.69% at June 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 the 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 are 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)

 

 

  June 30,   March 31,     June 30,      

 

2015 2015

$ change

% change   2014

$ change

% change

(Unaudited) (Unaudited) (Audited)
Assets
 
Cash and due from banks $ 50,181 $ 69,721 $ (19,540 ) -28.0 % $ 78,310 $ (28,129 ) -35.9 %
Investment securities 25,760 29,961 (4,201 ) -14.0 % 13,695 12,065 88.1 %
Loans held for sale 128 3,264 (3,136 ) -96.1 % 6,994 (6,866 ) -98.2 %
Gross loans, net of unearned income 465,697 429,630 36,067 8.4 % 323,299 142,398 44.0 %
Allowance for loan losses (5,879 ) (5,871 ) (8 ) -0.1 % (5,471 ) (408 ) -7.5 %
Net loans receivable 459,818 423,759 36,059 8.5 % 317,828 141,990 44.7 %
Bank premises and equipment, net 4,784 4,830 (46 ) -1.0 % 4,872 (88 ) -1.8 %
Accrued interest receivable 1,307 1,280 27 2.1 % 991 316 31.9 %
FHLB and Pacific Coast Bankers Bank Stock, at cost 2,655 1,900 755 39.7 % 1,900 755 39.7 %
Servicing assets 4,993 4,808 185 3.8 % 4,523 470 10.4 %
Net deferred taxes 2,888 2,833 55 1.9 % 5,653 (2,765 ) -48.9 %
Other assets   12,258     12,312     (54 )   -0.4 %   4,522     7,736     171.1 %
Total assets $ 564,772   $ 554,668   $ 10,104     1.8 % $ 439,288   $ 125,484     28.6 %
 
Liabilities and Shareholders' Equity
 
Noninterest bearing demand $ 166,977 $ 161,232 $ 5,745 3.6 % $ 151,969 $ 15,008 9.9 %
Savings 1,566 1,399 167 11.9 % 1,382 184 13.3 %
Money market and others 164,836 161,511 3,325 2.1 % 120,875 43,961 36.4 %
Time deposits of $100,000 or more 92,549 76,561 15,988 20.9 % 52,235 40,314 77.2 %
Other time deposits   54,801     52,611     2,190     4.2 %   45,514     9,287     20.4 %
Total deposits 480,729 453,314 27,415 6.0 % 371,975 108,754 29.2 %
Other borrowings 10,000 30,030 (20,030 ) -66.7 % - 10,000 NA
Other liabilities   4,965     4,092     873     21.3 %   4,795     170     3.5 %
Total liabilities 495,694 487,436 8,258 1.7 % 376,770 118,924 31.6 %
Total shareholders' equity   69,078     67,232     1,846     2.7 %   62,518     6,560     10.5 %
Total Liabilities and Shareholders' Equity $ 564,772   $ 554,668   $ 10,104     1.8 % $ 439,288   $ 125,484     28.6 %
 
Statement of Operations

(Dollars in thousand, except per share data)

 

Three Months Ended Six Months Ended

June 30,

March 31, June 30, June 30, June 30,

2015

2015

% change

2014   % change   2015 2014 % change
 
Interest income $ 6,130 $ 5,561 10.2 % $ 4,325 41.7 % $ 11,690 $ 8,330 40.3 %
Interest expense   590     512     15.2 %   394     49.7 %   1,102     758   45.4 %
Net interest income   5,540       5,049     9.7 %   3,931     40.9 %   10,588     7,572   39.8 %
Provision for loan losses - 77 -100.0 % 50 -100.0 % 77 260 -70.4 %
Non interest income 2,178 1,819 19.7 % 2,570 -15.3 % 3,997 4,631 -13.7 %
Non interest expense   5,024     4,582     9.6 %   4,424     13.6 %   9,605     8,166   17.6 %
Income before income taxes 2,694 2,209 22.0 % 2,027 32.9 % 4,903 3,777 29.8 %
Provision for income taxes   1,109     909     22.0 %   825     34.4 %   2,018     1,552   30.0 %
Net income (loss) $ 1,585   $ 1,300     21.9 % $ 1,202     31.9 % $ 2,885   $ 2,225   29.7 %
 
Pre-tax Pre-provision Income $ 2,694 $ 2,286 17.8 % $ 2,077 29.7 % $ 4,980 $ 4,037 23.4 %
 
Book Value $ 5.53 $ 5.39 $ 5.09 $ 5.53 $ 5.09
Basic EPS $ 0.13 $ 0.10 $ 0.16 $ 0.23 $ 0.30
Diluted EPS $ 0.12 $ 0.10 $ 0.14 $ 0.22 $ 0.27
 
Shares of common stock outstanding 12,490,649 12,463,574 12,275,484 12,490,649 12,275,484
Weighted Average Shares:
- Basic 12,484,588 12,423,085 7,715,044 12,454,007 7,489,285
- Diluted 13,054,367 13,073,444 8,502,463 13,057,860 8,251,233
 
Key Ratios
Return on average assets (ROA)* 1.17 % 1.01 % 0.16 % 1.19 % -0.02 % 1.09 % 1.18 %

-0.09

%
ROA, excluding tax benefit * 1.98 % 1.71 % 0.27 % 2.01 % -0.03 % 1.85 % 2.01 % -0.16 %
Return on average equity (ROE) * 9.27 % 7.83 % 1.44 % 13.04 % -3.77 % 8.56 % 12.95 % -4.39 %
ROE, excluding tax benefit * 15.76 % 13.30 % 2.46 % 22.00 % -6.24 % 14.55 % 21.99 % -7.44 %
Net interest margin * 4.32 % 4.19 % 0.13 % 4.15 % 0.17 % 4.26 % 4.31 % -0.05 %
Efficiency ratio 65.10 % 66.71 % -1.61 % 68.05 % -2.95 % 65.85 % 66.92 % -1.07 %
Pre-tax Pre-provision Income to average assets 1.98 % 1.77 % 0.21 % 2.06 % -0.08 % 1.88 % 2.15 % -0.27 %
 
Tangible common equity to tangible assets 12.23 % 12.12 % 0.11 % 14.23 % -2.00 % 12.23 % 14.23 % -2.00 %
Tier 1 Leverage Ratio 12.84 % 12.81 % 0.03 % 15.44 % -2.60 % 12.84 % 15.44 % -2.60 %
Common Equity Tier 1 Ratio 14.52 % 15.11 % -0.59 % N/A 14.52 % N/A
Tier 1 Capital Ratio 14.52 % 15.11 % -0.59 % 19.14 % -4.62 % 14.52 % 19.14 % -4.62 %
Total Risk Based Capital Ratio 15.77 % 16.36 % -0.59 % 20.39 % -4.62 % 15.77 % 20.39 % -4.62 %
 
Asset Quality   6/30/2015     3/31/2015     12/31/2014     9/30/2014     6/30/2014  
Nonaccrual Loans 767 1,016 951 1,065 983
Loans 90 days or more past due, accruing - - - - -
Accruing Restructured Loans   390     394     397     401     409  
Total Non-Performing Loans 1,157 1,410 1,349 1,466 1,392
Other Real Estate Loans (OREO)   -     -     -     -     -  
Total Non-Performing Assets 1,157 1,410 1,349 1,466 1,392
 
Classified Loans 1,564 1,651 1,736 1,822 2,875
 
Non-Performing Assets/Total Assets 0.20 % 0.25 % 0.26 % 0.33 % 0.32 %
Non-Performing Assets/(Gross Loans +OREO) 0.25 % 0.33 % 0.33 % 0.40 % 0.43 %
Non-Performing Loans/Gross Loans 0.25 % 0.33 % 0.33 % 0.40 % 0.43 %
Allowance for Loan Losses/Non-Performing Loans 508 % 417 % 427 % 374 % 393 %
Allowance for Loan Losses/Non-Performing Assets 508 % 417 % 427 % 374 % 393 %
Allowance for Loan Losses/Gross Loans 1.26 % 1.37 % 1.39 % 1.51 % 1.69 %
Classified Loans/Gross Loans 0.34 % 0.38 % 0.42 % 0.50 % 0.89 %
 
Net Charge-offs $ (8 ) $ (40 ) $ 467 $ (11 ) $ (14 )
Net Charge-offs to Average Gross Loans * -0.01 % -0.04 % 0.49 % -0.01 % -0.02 %
 
* Annualized
 

Contacts

Open Bank
Christine Oh, 213-892-1192
EVP & CFO
Christine.oh@myopenbank.com

Contacts

Open Bank
Christine Oh, 213-892-1192
EVP & CFO
Christine.oh@myopenbank.com