News Column

Open Bank Reports 2014 Second Quarter Financial Results

August 6, 2014

Financial highlights

  • Successfully raised $30 million of new capital in a private placement.
  • Income before taxes increased 15.8% from first quarter of 2014 and increased 117% from the second quarter of 2013.
  • Total assets increased to $439 million, up 15% from $384 million at March 31, 2014, and up 79% from $246 million a year ago.
  • Total deposits grew to $372 million, up 7% from $349 million at March 31, 2014, and up 73% from $215 million a year ago.
  • Non-interest bearing deposits represented 41% of total deposits at June 30, 2014, compared to 38% at March 31, 2014 and 30% at June 30, 2013.
  • Net interest margin was 4.13% for the second quarter of 2014, an improvement of 7 basis points from a year ago.

    LOS ANGELES--(BUSINESS WIRE)-- Open Bank (OTCBB:OPBK) today reported that income before taxes increased 15.8% to $2.0 million for the three months ended June 30, 2014, up from $1.8 million for the three months ended March 31, 2014 and up 117.3% from $933 thousand for the three months ended June 30, 2013. Second quarter 2014 net income was $1.2 million, or $0.14 per diluted share. This compares with net income of $1.0 million, or $0.13 per diluted share, for the first quarter of 2014 and net income of $903 thousand, or $0.12 per diluted share, for the second quarter of 2013. Pre-tax pre-provision income was $2.1 million, $2.0 million, and $1.6 million for the second quarter 2014, first quarter 2014, and second quarter 2013, respectively.

    Open Bank successfully closed a private placement on June 23, 2014 totaling $30 million. The proceeds from the capital raise will be used for general corporate purposes, including supporting the growth of the Bank. Open Bank issued 5,000,000 shares of common stock at $6.00 per share.

    “We are pleased to announce another very solid quarter,” stated Min Kim, President and Chief Executive Officer. “During the quarter, we raised $30 million in new capital through a private placement of which $24 million, or 80%, was raised through institutional investors. This reflects the strength of our franchise, management and business strategy. This new capital will further enhance our ability to grow our franchise. As part of our continued expansion strategy, we opened our 6th branch on Olympic Blvd. on July 14, 2014. This is our second branch in LA’s Koreatown and, together with our Aroma Center branch, will further support the needs of our customers in the vicinity of Koreatown.”

       

    Second Quarter Financial Highlights

    (in thousands, except per share data)

     
    As of or for the Three Months Ended

    June 30,

    2014

           

    March 31,

    2014

           

    June 30,

    2013

     
    Income Statement Data:      
    Net interest income $ 3,931 $ 3,642       $ 2,160
    Provision for loan losses 50 210 650
    Non-interest income 2,570 2,061 1,681
    Non-interest expense 4,424   3,743   2,258  
    Income before taxes 2,027 1,750 933
    Provision (benefit) for income taxes 825   727   30  
    Net Income $ 1,202   $ 1,023   $ 903  
    Balance Sheet Data:
    Gross loans, net of deferred cost $ 323,299 $ 300,626 $ 183,019
    Loans held for sale $ 6,994 $ 12,122 $ 6,241
    Allowance for loan losses $ 5,471 $ 5,407 $ 4,748
    Total assets $ 439,288 $ 383,630 $ 246,050
    Deposits $ 371,975 $ 348,535 $ 214,807
    Shareholders’ equity $ 62,518 $ 32,670 $ 30,118
    Credit Quality:
    Nonperforming loans $ 1,392 $ 1,476 $ 1,995
    Nonperforming assets $ 1,392 $ 1,476 $ 1,995
    Performance Ratios:
    Net interest margin 4.13 % 4.45 % 4.06 %
    Efficiency ratio 68.05 % 65.63 % 58.79 %

    Income before taxes and loan loss provision to average assets (annualized)

    2.06 % 2.26 % 2.77 %

    Net charge-offs to average gross loans (annualized)

    0.02 % 0.04 % 1.86 %

    Nonperforming assets to gross loans plus OREO

    0.43 % 0.49 % 1.09 %
    ALLL to nonperforming loans 393 % 366 % 238 %
    ALLL to gross loans 1.69 % 1.80 % 2.59 %
    Capital Ratios:
    Tangible common equity to tangible assets 14.23 % 8.52 % 12.24 %
    Leverage Ratio 15.44 % 8.68 % 11.78 %
    Tier 1 risk-based capital ratio 19.14 % 9.79 % 13.06 %
    Total risk-based capital ratio 20.39 % 11.04 % 14.32 %
     


    Results of Operations

    Net interest income was $3.9 million for the three months ended June 30, 2014, compared to $3.6 million for the first quarter of 2014 and $2.2 million for the second quarter of 2013. This represents increases of 7.9% from the first quarter of 2014 and 82.0% from the second quarter of 2013. The increases were primarily the result of increases in average interest earning assets, specifically loans. Average loans, including loans held for sale, increased to $327.2 million for the second quarter of 2014, an increase of $20.4 million, or 6.6%, from $306.8 million for the first quarter 2014, and an increase of $151.4 million, or 86.1%, from $175.8 million for the second quarter of 2013.

    The net interest margin for the second quarter 2014 was 4.13%, a 32 basis point decrease from 4.45% for the first quarter 2014, and a 7 basis point increase from 4.06% for the second quarter 2013. The compression from the first quarter of 2014 is primarily due to a higher level of cash balances during the quarter from deposit increase and new capital. The yield on loans which was 5.15% for the second quarter of 2014, compared to 5.11% for the first quarter of 2014 and 5.34% for the second quarter of 2013. The cost of interest-bearing liabilities was 0.71% for the second quarter of 2014, compared to 0.72% for the same quarter of 2013. The following table shows the asset yields, liability cost, spread and margin.

               
    Three Months Ended Six Months Ended

    June 30,

    2014

         

    March 31,

    2014

         

    June 30,

    2013

    June 30,

    2014

         

    June 30,

    2013

     
    Yield on Loans 5.15 % 5.11 % 5.34 % 5.13 % 5.32 %
    Yield on interest-earning assets 4.54 % 4.90 % 4.55 % 4.70 % 4.80 %
    Cost of interest-bearing liabilities 0.71 % 0.67 % 0.72 % 0.69 % 0.73 %
    Cost of deposits 0.44 % 0.47 % 0.53 % 0.45 % 0.53 %
    Net interest spread 3.83 % 4.23 % 3.83 % 4.01 % 4.08 %
    Net interest margin 4.13 % 4.45 % 4.06 % 4.28 % 4.30 %
     


    The provision for loan losses was $50 thousand for the second quarter of 2014, compared to $210 thousand for the first quarter of 2014 and $650 thousand for the second quarter of 2013. The continued reduction in the provision for loan losses from quarter to quarter reflected a decrease in net charge-offs, which decreased to $18 thousand for the second quarter of 2014, compared to $32 thousand for the first quarter of 2014, and $809 thousand for the same quarter of 2013, offset by a provision required for the loan growth

    Non-interest income was $2.6 million in the second quarter of 2014, compared to $2.1 million in the first quarter of 2014 and $1.7 million in the prior-year second quarter. The increase from the preceding quarter was primarily attributable to a $262 thousand increase in net gains on sale of SBA loans, which were $1.8 million for the second quarter of 2014, compared to $1.5 million for the first quarter of 2014. Sales of SBA loans for the second quarter of 2014 were $22.3 million, compared to $18.5 million for the first quarter of 2014. Service charges on deposits increased $180 thousand, or 121%, to $329 thousand for the second quarter of 2014, compared to $149 thousand for the first quarter of 2014, primarily due to an increase in non-interest bearing deposit accounts with increased number of wires and other operational transactions.

    The increase in non-interest income from the prior year second quarter was primarily due to a $528 thousand increase in net gains on sale of SBA loans. Sales of SBA loans for the second quarter of 2013 were $14.0 million. Service charges and other deposit related fees increased $252 thousand, or 327%, from $77 thousand for the prior-year second quarter, as deposit accounts and their transactions significantly increased.

    Non-interest expense was $4.4 million in the second quarter of 2014, compared to $3.7 million in the first quarter of 2014 and $2.3 million in the prior-year second quarter. The increase from the preceding quarter was primarily attributable to an increase in salaries and employee benefits, which increased $468 thousand or 20%. The increase is reflected the growth in full time employees (FTE) as the bank added employees for a new branch and lending department. The total number of FTE was 97 as of June 30, 2014, 83 as of March 31, 2014, and 71 as of June 30, 2013. The increase from the prior-year second quarter was primarily due to increases in salaries and employee benefits, occupancy expense, business development and directors’ expenses. Salaries and employee benefits were $2.8 million for the second quarter of 2014, an increase of $1.2 million, or 72%, compared to $1.6 million for the second quarter of 2013. The increase is primarily due to an increase in FTE as previously mentioned, as the bank added three new branches over the period. The business development expenses increased $126 thousand, or 185%, primarily due to an increased marketing effort. Directors’ expenses increased $127 thousand, or 198%, to $191 thousand for the second quarter of 2014, compared to $64 thousand for the second quarter of 2013, as a result of additional restricted stock grants in July of 2013.

    The effective tax rate for the second quarter of 2014 was 41%, compared with 42% for the first quarter of 2014. During the second quarter of 2013, the provision for income taxes was minimal due to tax benefits recognized from the reversal of deferred tax valuation allowance.

    Balance Sheet

    Total assets were $439.3 million at June 30, 2014, an increase of $55.7 million, of which $30 million were the result of new capital raise, or 15%, from $383.6 million at March 31, 2014, and an increase of $193.2 million, or 79%, from $246.1 million at June 30, 2013. Gross loans receivable were $323.3 million at June 30, 2014, an increase of $22.7 million, or 8%, from $300.6 million at March 31, 2014, and an increase of $140.3 million, or 77%, from $183.0 million a year ago. The bank began the residential mortgage business in June of 2013, and these loans accounted for 13% of gross loans at June 30, 2014, compared to 12% of gross loans at March 31, 2014.

    The new loan originations for the second quarter of 2014 amounted to $51.1 million, including SBA loan origination of $23.2 million, compared to $44.1 million, including SBA loan origination of $13.2 million for the first quarter of 2014. The new loan originations for the second quarter of 2013 amounted to $41.4 million, including SBA loan origination of $21.0 million.

    Total deposits were $372.0 million at June 30, 2014, an increase of $23.4 million, or 7%, from $348.5 million at March 31, 2014 and an increase of $157.2 million, or 73%, from $214.8 million at June 30, 2013. The increase from March 31, 2014 was primarily attributable to an increase in non-interest bearing deposits of $21.2 million, or 16%, to $152.0 million at June 30, 2014, from $130.8 million at March 31, 2014. At June 30, 2014, non-interest bearing deposits accounted for 41% of total deposits, compared to 38% at March 31, 2014 and 30% at June 30, 2013. All categories of deposits, except for savings, increased significantly from a year ago, with 137% increase in non-interest bearing deposits, 43% increase in money market and other demand deposits, and 103% increase in time deposits. The deposit mix is detailed in the table below at dates indicated.

                             

    June 30, 2014

    March 31, 2014June 30, 2013

     

     

    Non-interest bearing deposits

    40.8% 37.5%

    29.9%

    Interest bearing demand deposits 32.5% 32.2% 39.5%
    Savings 0.4% 0.4% 0.3%
    Time deposits over $100,000 14.1% 14.8% 14.2%
    Other time deposits 12.2% 15.1% 16.1%
    Total deposits 100.0% 100.0% 100.0%
     


    With the new capital injection of $30 million, the capital ratios have significantly improved. At June 30, 2014, the leverage ratio was 15.44%, compared to 8.68% at March 31, 2014 and 11.78% at June 30, 2013; Tier 1 risk-based capital ratio was 19.14%, compared to 9.79% at March 31, 2014 and 13.06% at June 30, 2013; and total risk-based capital ratio was 20.39%, compared to 11.04% at March 31, 2014 and 14.32% at June 30, 2013.

    At June 30, 2014, our tangible common equity represented 14.23% of tangible assets, compared to 8.52% at March 31, 2014 and 12.24% at June 30, 2013. 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 our capital levels.

    Asset Quality

    Non-performing assets were $1.4 million, or 0.32% of total assets, at June 30, 2014, compared to $1.5 million, or 0.38% of total assets at March 31, 2014 and $2.0 million, or 0.81% of total assets at June 30, 2013. There was no OREO at June 30, 2014, March 31, 2014 or June 30, 2013.

    Non-performing loans to gross loans decreased to 0.43% at June 30, 2014, compared to 0.49% at March 31, 2014 and 1.09% at June 30, 2013. The decrease over a year ago was primarily attributable to sales of problem loans during 2013. The allowance for loan losses was $5.5 million at June 30, 2014, compared to $5.4 million at March 31, 2014 and $4.8 million at June 30, 2013.

    Total classified loans were $2.9 million, or 0.89% of gross loans, at June 30, 2014, compared to $3.8 million, or 1.25% of gross loans, at March 31, 2014 and $4.9 million, or 2.67% of gross loans, at June 30, 2013.

    The allowance for loan losses was 1.69% of gross loans at June 30, 2014, compared to 1.80% at March 31, 2014 and 2.59% at June 30, 2013. The decrease in this ratio was primarily due to improved asset quality.

    About Open Bank

    Open Bank (the "Bank") is engaged in the general commercial banking business in Los Angeles County 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.comMember 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, 2014March 31, 2014% changeDecember 31, 2013% changeJune 30, 2013% change
    (Unaudited)(Unaudited)(Audited)(Unaudited)
    Assets
     
    Cash and due from banks $ 78,310 $ 44,149 77.4 % $ 18,514 323.0 % $ 33,422 134.3 %
    Investment securities 13,695 11,590 18.2 % 12,464 9.9 % 11,600 18.1 %
    Loans held for sale 6,994 12,122 -42.3 % 16,681 -58.1 % 6,241 12.1 %
    Loans receivable, net 317,828 295,219 7.7 % 276,022 15.1 % 178,271 78.3 %
    Allowance for loan losses 5,471 5,407 1.2 % 5,228 4.6 % 4,748 15.2 %
    Net loans 324,822 307,341 5.7 % 292,703 11.0 % 184,511 76.0 %
    Bank premises and equipment, net 4,872 3,423 42.3 % 3,148 54.8 % 1,701 186.4 %
    Accrued interest receivable 991 929 6.7 % 820 20.9 % 555 78.6 %
    FHLB and Pacific Coast Bankers Bank Stock, at cost 1,900 1,075 76.7 % 1,075 76.7 % 1,075 76.7 %
    Servicing assets 4,523 4,032 12.2 % 3,649 24.0 % 3,375 34.0 %
    Net deferred taxes 5,653 5,705 -0.9 % 5,757 -1.8 % 6,737 -16.1 %
    Other assets   4,522     5,386     -16.0 %   4,148   9.0 %   3,074     47.1 %
    Total assets $ 439,288   $ 383,630     14.5 % $ 342,278   28.3 % $ 246,050     78.5 %
     
    Liabilities and Shareholders' Equity
     
    Noninterest bearing demand $ 151,969 $ 130,795 16.2 % $ 92,395 64.5 % $ 64,222 136.6 %
    Savings 1,710 1,273 34.3 % 866 97.5 % 651 162.8 %
    Money market and others 120,547 112,119 7.5 % 115,569 4.3 % 84,773 42.2 %
    Time deposits of $100,000 or more 52,484 51,592 1.7 % 50,437 4.1 % 34,596 51.7 %
    Other time deposits   45,265     52,756     -14.2 %   50,036   -9.5 %   30,566     48.1 %
    Total deposits 371,975 348,535 6.7 % 309,303 20.3 % 214,807 73.2 %
    Other liabilities 4,795 2,425 97.7 % 1,785 168.6 % 1,124 326.5 %
    Total liabilities 376,770 350,960 7.4 % 311,088 21.1 % 215,932 74.5 %
    Total shareholders' equity   62,518     32,670     91.4 %   31,190   100.4 %   30,118     107.6 %
    Total Liabilities and Shareholders' Equity $ 439,288   $ 383,630     14.5 % $ 342,278   28.3 % $ 246,050     78.5 %
     
    Statement of Operations
    (Dollars in thousand, except per share data)
    Three Months EndedSix Months Ended
    June 30, 2014March 31, 2014% change   June 30, 2013% changeJune 30, 2014June 30, 2013% change
    Interest income $ 4,325 $ 4,005 8.0 % $ 2,419 78.8 % $ 8,330 $ 4,735 75.9 %
    Interest expense   394       363     8.5 %   259   52.1 %   757     494   53.2 %
    Net interest income   3,931       3,642     7.9 %   2,160   82.0 %   7,573     4,241   78.6 %
    Provision for loan losses 50 210 -76.2 % 650 -92.3 % 260 1,150 -77.4 %
    Non interest income 2,570 2,061 24.7 % 1,681 52.9 % 4,631 4,122 12.3 %
    Non interest expense   4,424       3,743     18.2 %   2,258   95.9 %   8,167     5,444   50.0 %
    Income before income taxes 2,027 1,750 15.8 % 933 117.3 % 3,777 1,769 113.5 %
    Provision for income taxes   825     727     13.5 %   30   2650.0 %   1,552     (2,707 ) -157.3 %
    Net income (loss) $ 1,202   $ 1,023     17.5 % $ 903   33.1 % $ 2,225   $ 4,476   -50.3 %
     
    Book Value $ 5.09 $ 4.49 $ 4.17 $ 5.09 $ 4.17
    Basic EPS $ 0.16 $ 0.14 $ 0.13 $ 0.30 $ 0.62
    Diluted EPS $ 0.14 $ 0.13 $ 0.12 $ 0.27 $ 0.61
    Shares of common stock outstanding 12,275,484 7,275,484 7,223,484 12,275,484 7,223,484
     
    Key Ratios
    Return on average assets (ROA)* 1.19 % 1.18 % 1.58 % 1.18 % 4.15 %

    Return on average equity (ROE)*

    13.07 % 12.86 % 12.09 % 12.97 % 31.88 %

    Net interest margin*

    4.13 % 4.45 % 4.06 % 4.28 % 4.30 %
    Efficiency ratio 68.05 % 65.63 % 58.79 % 66.92 % 65.10 %
     
    Tangible common equity to tangible assets 14.23 % 8.52 % 12.24 % 14.23 % 12.24 %
    Tier 1 leverage 15.44 % 8.68 % 11.78 % 15.44 % 11.78 %
    Tier 1 risk-based capital 19.14 % 9.79 % 13.06 % 19.14 % 13.06 %
    Total risk-based capital 20.39 % 11.04 % 14.32 % 20.39 % 14.32 %
     
    Asset Quality6/30/20143/31/201412/31/20136/30/2013
    Nonaccrual Loans 983 1,000 1,077 1,480
    Loans 90 days or more past due, accruing - - - -
    Accruing Restructured Loans   409     476     489     515  
    Total Non-Performing Loans 1,392 1,476 1,566 1,995
    Other Real Estate Loans (OREO)   -     -     -     -  
    Total Non-Performing Assets 1,392 1,476 1,566 1,995
     
    Non-Performing Assets/Total Assets 0.32 % 0.38 % 0.46 % 0.81 %
    Non-Performing Loans/Gross Loans Receivable 0.43 % 0.49 % 0.56 % 1.09 %
    Allowance for Loan Losses/Non-Performing Loans 393 % 366 % 334 % 238 %
    Allowance for Loan Losses/Non-Performing Assets 393 % 366 % 334 % 238 %
    Allowance for Loan Losses/Gross Loans Receivable 1.69 % 1.80 % 1.86 % 2.59 %
     
    YTD Net Charge-offs $ 18 $ 32 $ 554 $ 809

    YTD Net Charge-offs to Average Loans*

    0.01 % 0.04 % 0.27 % 0.93 %
     
    * Annualized





    Open Bank

    Christine Oh, 213.892.1192

    Christine.oh@myopenbank.com

    Source: Open Bank


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