Open Bank Reports 2014 Fourth Quarter Financial Results

Financial highlights

  • Total assets reached $531 million at December 31, 2014, up 19% from $447 million at September 30, 2014, and up 55% from $342 million a year ago.
  • Net Loans receivables were $408 million at December 31 2014, an increase of 14% from $359 million at September 30, 2014 and an increase of 48% from $276 million at December 31, 2013.
  • Total deposits were $429 million at December 31, 2014, an increase of 14% from $377 million at September 30, 2014 and an increase of 39% from $309 million at December 31, 2013.
  • Non-interest bearing deposits represented 41% of total deposits at December 31, 2014, compared to 43% at September 30, 2014 and 30% at December 31, 2013.
  • Non-performing assets to total assets was 0.25% at December 31, 2014, compared to 0.33% at September 30, 2014 and 0.46% at December 31, 2013.

LOS ANGELES--()--Open Bank (OTCBB:OPBK) today reported that income before taxes was $1.7 million for the fourth quarter of 2014, up 151.0% from $675 thousand for the same quarter of 2013, down 21.1% from $2.1 million for the three months ended September 30, 2014. The net income for the fourth quarter of 2014 was $984 thousand, or $0.08 per diluted share. This compares with net income of $1.3 million, or $0.10 per diluted share, for the third quarter of 2014 and net loss of $472 thousand, or $0.06 per diluted share, for the fourth quarter of 2013. Pre-tax pre-provision income was $2.4 million for the fourth quarter 2014, $2.1 million for the third quarter 2014, and $675 thousand for the fourth quarter 2013.

“I am excited to announce that for the first time in the Bank’s history, we have surpassed a half a billion dollars in assets, an impressive 55% year over year increase. Underlying this growth was an almost equally large 48% year-over-year increase in net loans receivable with non-interest bearing deposits rising from 30% of total deposits to over 40%,” stated Min Kim, President and Chief Executive Officer. “At the same time, our net interest margin remains at 4.34%, which we believe is among the highest in our peer group. This performance is the result of our concentrated focus on growing our core business combined with our commitment to serving the banking needs of our community and we feel well positioned to continue this momentum into 2015. We will continue to focus on growing our company through existing six full branches and through the additional planned branch and loan production offices.”

 
Fourth Quarter Financial Highlights
(in thousands, except per share data)
           
As of or for the Three Months Ended  
December 31, September 30,   December 31,
2014   2014     2013  
 
Income Statement Data:
Net interest income $ 4,730 $ 4,417 $ 3,230
Provision for loan losses 740 - -
Non-interest income 1,831 2,031 1,024
Non-interest expense 4,127   4,300   3,579  
Income before taxes 1,694 2,148 675
Provision for income taxes 710   873   1,147  
Net Income $ 984   $ 1,275   $ (472 )
Balance Sheet Data:
Loans held for sale $ 5,711 $ 4,120 $ 16,681
Gross loans, net of unearned income 413,527 364,090 281,251
Allowance for loan losses 5,755 5,482 5,228
Total assets 530,892 447,358 342,278
Deposits 428,519 376,929 309,302
Shareholders’ equity 65,442 64,024 31,190
Credit Quality:
Nonperforming loans $ 1,348 $ 1,466 $ 1,566
Nonperforming assets 1,348 1,466 1,566
Performance Ratios:
Net interest margin 4.34 % 4.31 % 4.47 %
Efficiency ratio 62.91 % 66.69 % 84.12 %

Pre-tax pre-provision Income to average assets (annualized)

2.10 % 2.00 % 0.89 %

Net charge-offs to average gross loans (annualized)

0.49 % - 0.01 % - 0.27 %

Nonperforming assets to gross loans plus OREO

0.33 % 0.40 % 0.56 %
ALLL to nonperforming loans 427 % 374 % 334 %
ALLL to gross loans 1.39 % 1.51 % 1.86 %
Capital Ratios:
Tangible common equity to tangible assets 12.33 % 14.31 % 9.11 %
Leverage Ratio 14.04 %

14.85

% 9.43 %
Tier 1 risk-based capital ratio 15.42 % 17.52 % 9.85 %
Total risk-based capital ratio 16.67 % 18.78 % 11.11 %
 

Results of Operations

Net interest income was $4.7 million for the three months ended December 31, 2014, compared to $4.4 million for the third quarter of 2014 and $3.2 million for the fourth quarter of 2013. This represents increases of 7.1% from the third quarter of 2014 and 46.4% from the fourth quarter of 2013, respectively. The increases were primarily the result of increases in average interest earning assets, specifically loans. Average loans, including loans held for sale, increased to $380.6 million for the fourth quarter of 2014, an increase of $37.0 million, or 10.8% from $343.6 million for the third quarter 2014, and an increase of $114.4 million, or 43.0%, from $266.2 million for the fourth quarter of 2013.

The net interest margin for the fourth quarter of 2014 was 4.34%, a 3 basis point increase from 4.31% for the third quarter of 2014, and a 13 basis decrease from 4.47% for the fourth quarter of 2013. The following table shows the asset yields, liability cost, spread and margin.

       
Three Months Ended Twelve Months Ended
Dec. 31,     Sept. 30,     Dec. 31, Dec. 31,     Dec. 31,
2014 2014 2013 2014 2013
 
Yield on Loans 5.20 % 5.37 % 5.19 % 5.23 % 5.30 %
Yield on interest-earning assets 4.71 % 4.68 % 4.93 % 4.72 % 4.83 %
Cost of interest-bearing liabilities 0.70 % 0.70 % 0.70 % 0.70 % 0.72 %
Cost of deposits 0.41 % 0.42 % 0.49 % 0.43 % 0.51 %
Net interest spread 4.02 % 3.98 % 4.23 % 4.02 % 4.12 %
Net interest margin 4.34 % 4.31 % 4.47 % 4.32 % 4.35 %
 

The bank recorded $740 thousand of provision for loan losses for the fourth quarter of 2014. No provision for loan losses was recorded for the third quarter of 2014 as well as for the fourth quarter of 2013. The bank charged off $477 thousand in loans during the fourth quarter of 2014. This increase was primarily due to one SBA loan of $474 thousand. There were no charge offs during the third quarter of 2014 and the fourth quarter of 2013. Loan recovery was $10 thousand for the fourth quarter of 2014, compared to $11 thousand for the third quarter of 2014, and $182 thousand for the fourth quarter of 2013.

Non-interest income for the fourth quarter 2014 was $1.8 million, compared to $2.0 million for the third quarter of 2014 and $1.0 million for the prior-year fourth quarter. The decrease from the preceding quarter was primarily attributable to a $487 thousand decrease in net gains on sale of SBA loans, which was $816 thousand for the fourth quarter of 2014, compared to $1.3 million for the third quarter of 2014. Sales of SBA loans for the fourth quarter of 2014 were $7.6 million, compared to $17.5 million for the third quarter of 2014. Service charges on deposits increased $95 thousand, or 25%, to $479 thousand for the fourth quarter of 2014, compared to $384 thousand for the third quarter of 2014, primarily due to an increase in operational transactions from one large client.

The increase in non-interest income from the prior year fourth quarter was primarily due to a $341 thousand increase in net gains on sale of SBA loans. Sales of SBA loans for the fourth quarter of 2013 were $6.7 million. Service charges and other deposit related fees increased $376 thousand, or 367%, from $103 thousand for the prior-year fourth quarter. There was a significant increase in the number of demand deposit accounts as well as transactions such as wire transfers.

Non-interest expense for the fourth quarter 2014 was $4.1 million, compared to $4.3 million for the third quarter of 2014 and $3.6 million for the prior-year fourth quarter. The decrease from the preceding quarter was primarily attributable to a decrease of $171 thousand, or 6%, in salaries and employee benefits, driven by a decrease in bonus reserves. The total number of full time employees was 101 as of December 31, 2014, 102 as of September 30, 2014, and 84 as of December 31, 2013.

The decrease from the fourth quarter of 2013 was primarily due to a decrease in professional service expenses. Professional service expenses were $12 thousand for the fourth quarter of 2014, a decrease of $187 thousand or 94%, compared to $198 thousand for the fourth quarter of 2013.

The effective tax rate for the third and fourth quarters of 2014 was 41% and 42%, respectively. During the fourth quarter of 2013, the provision for income taxes was $1.1 million.

Balance Sheet

Total assets were $530.9 million at December 31, 2014, an increase of $83.5 million or 18.7%, from $447.4 million at September 30, 2014, and an increase of $188.6 million, or 55.1%, from $342.3 million at December 31, 2013. Gross loans, net of unearned income, were $413.5 million at December 31, 2014, an increase of $49.4 million, or 13.6%, from $364.1 million at September 30, 2014, and an increase of $132.3 million, or 47.0%, from $281.3 million a year ago. New loan originations for the fourth quarter of 2014 amounted to $71.0 million, including SBA loan origination of $17.9 million, compared to $63.6 million, including SBA loan origination of $20.9 million for the third quarter of 2014. The new loan originations for the fourth quarter of 2013 amounted to $65.9 million, including SBA loan origination of $27.5 million.

Total deposits were $428.5 million at December 31, 2014, an increase of $51.6 million, or 13.7%, from $376.9 million at September 30, 2014 and an increase of $119.2 million, or 38.5%, from $309.3 million at December 31, 2013. The bank borrowed $30.0 million from Federal Loan Home Bank (“FHLB”); $10.0 million of overnight borrowing and $20.0 million of term borrowing for six months.

Non-interest bearing deposits accounted for 40.7% of total deposits at December 31, 2014. This is compared to 42.9% at September 30, 2014 and 29.9% at December 31, 2013.

               
December 31, September 30, December 31,
2014 2014 2013
 
Non-interest bearing deposits 40.7 %

42.9

%

29.9

%

Interest bearing demand deposits 30.8 %

29.0

%

37.3. %
Savings 0.3 %

0.3

%

0.3 %
Time deposits over $100,000 16.4 %

16.6

%

16.3 %
Other time deposits 11.8 %

11.2

%

16.2 %
Total deposits 100.0 % 100.0 % 100.0 %
 

At December 31, 2014, the leverage ratio was 14.04%, compared to 14.85% at September 30, 2014 and 9.43% at December 31, 2013; Tier 1 risk-based capital ratio was 15.42%, compared to 17.52% at September 30, 2014 and 9.85% at December 31, 2013; and total risk-based capital ratio was 16.67%, compared to 18.78% at September 30, 2014 and 11.11% at December 31, 2013.

At December 31, 2014, the tangible common equity represented 12.33% of tangible assets, compared to 14.31% at September 30, 2014 and 9.11% at December 31, 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 the bank’s capital levels.

Asset Quality

Non-performing assets were $1.3 million, or 0.25% of total assets at December 31, 2014, compared to $1.5 million, or 0.33% of total assets at September 30, 2014 and $1.6 million, or 0.46% of total assets at December 31, 2013. There were no other real estate owned (“OREO”) at December 31, 2014, September 30, 2014 or December 31, 2013.

Non-performing loans to gross loans decreased to 0.33% at December 31, 2014, compared to 0.40% at September 30, 2014 and 0.56% at December 31, 2013. The decrease versus prior year was primarily attributable to sales of problem loans during 2013. The allowance for loan losses was $5.8 million at December 31, 2014, compared to $5.5 million at September 30, 2014, and $5.2 million at December 31, 2013.

Total classified loans were $1.7 million, or 0.42% of gross loans, at December 31, 2014, compared to $1.8 million, or 0.50% of gross loans at September 30, 2014 and $4.8 million, or 1.71% of gross loans at December 31, 2013.

The allowance for loan losses was 1.39% of gross loans at December 31, 2014, compared to 1.51% at September 30, 2014 and 1.86% at December 31, 2013.

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 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.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)

   

December 31,
2014

   

September 30,
2014

    $ change     % change    

December 31,
2013

    $ change     % change    
(Unaudited) (Unaudited) (Audited)
Assets
 
Cash and due from banks $ 64,748 $ 40,906 $ 23,842 58.3 % $ 18,514 $ 46,234 249.7 %
Investment securities 22,863 23,311 (448 ) -1.9 % 12,463 10,400 83.4 %
Loans held for sale 5,711 4,120 1,591 38.6 % 16,681 (10,970 ) -65.8 %
Gross loans, net of unearned income 413,527 364,090 49,437 13.6 % 281,251 132,276 47.0 %
Allowance for loan losses (5,755 ) (5,482 ) (273 ) -5.0 % (5,228 ) (527 ) -10.1 %
Net loans receivable 407,772 358,608 49,164 13.7 % 276,023 131,749 47.7 %
Bank premises and equipment, net 4,953 5,084 (131 ) -2.6 % 3,148 1,805 57.3 %
Accrued interest receivable 1,175 1,056 119 11.3 % 820 355 43.3 %
FHLB and Pacific Coast Bankers Bank Stock, at cost 1,900 1,900 0 0.0 % 1,075 825 76.7 %
Servicing assets 4,670 4,729 (59 ) -1.2 % 3,648 1,022 28.0 %
Net deferred taxes 5,602 5,675 (73 ) -1.3 % 5,757 (155 ) -2.7 %
Other assets   11,498     1,969     9,529     484.0 %   4,149     7,349     177.1 %
Total assets $ 530,892   $ 447,358   $ 83,534     18.7 % $ 342,278   $ 188,614     55.1 %
 
Liabilities and Shareholders' Equity
 
Noninterest bearing demand $ 174,449 $ 161,832 $ 12,617 7.8 % $ 92,394 $ 82,055 88.8 %
Savings 1,394 1,164 230 19.8 % 866 528 61.0 %
Money market and others 131,659 109,112 22,547 20.7 % 115,569 16,090 13.9 %
Time deposits of $100,000 or more 70,435 62,724 7,711 12.3 % 50,437 19,998 39.6 %
Other time deposits   50,582     42,097     8,485     20.2 %   50,036     546     1.1 %
Total deposits 428,519 376,929 51,590 13.7 % 309,302 119,217 38.5 %
Other borrowings 30,000 - 30,000 NA - 30,000 NA
Other liabilities 6,931 6,405 526 8.2 % 1,786 5,145 288.1 %
Total liabilities 465,450 383,334 82,116 21.4 % 311,088 154,362 49.6 %
Total shareholders' equity   65,442     64,024     1,418     2.2 %   31,190     34,252     109.8 %
Total Liabilities and Shareholders' Equity $ 530,892   $ 447,358   $ 83,534     18.7 % $ 342,278   $ 188,614     55.1 %
 
Statement of Operations
(Dollars in thousand, except per share data)
Three Months Ended Twelve Months Ended

December 31,
2014

September 30,
2014

% change

December 31,
2013

% change

December 31,
2014

December 31,
2013

% change
Interest income $ 5,134 $ 4,795 7.1 % $ 3,565 44.0 % $ 18,260 $ 11,268 62.1 %
Interest expense   404     378     6.9 %   335     20.6 %   1,539     1,118   37.7 %
Net interest income   4,730     4,417     7.1 %   3,230     46.4 %   16,721     10,150   64.7 %
Provision for loan losses 740 - 0.0 % - 0.0 % 1,000 1,376 -27.3 %
Non interest income 1,831 2,031 -9.8 % 1,024 78.8 % 8,493 6,769 25.5 %
Non interest expense   4,127     4,300     -4.0 %   3,579     15.3 %   16,595     12,133   36.8 %
Income before income taxes 1,694 2,148 -21.1 % 675 151.0 % 7,619 3,410 123.4 %
Provision for income taxes   710     873     -18.7 %   1,147     -38.1 %   3,135     (1,544 ) 303.0 %
Net income (loss) $ 984   $ 1,275     -22.8 % $ (472 )   308.5 % $ 4,484   $ 4,954   -9.5 %
 
Pre-tax Pre-provision Income $ 2,434 $ 2,148 13.3 % $ 675 260.6 % $ 8,619 $ 4,786 80.1 %
 
Book Value $ 5.27 $ 5.16 $ 4.31 $ 5.27 $ 4.31
Basic EPS $ 0.08 $ 0.10 $ (0.07 ) $ 0.45 $ 0.69
Diluted EPS $ 0.08 $ 0.10 $ (0.06 ) $ 0.42 $ 0.65
 
Shares of common stock outstanding 12,411,089 12,398,584 7,233,484 12,411,089 7,233,484
Weighted Average Shares:
- Basic 12,400,245 12,316,963 7,233,484 9,944,339 7,214,613
- Diluted 13,104,355 13,078,694 7,868,547 10,693,083 7,600,361
 
Key Ratios
Return on average assets (ROA)* 0.85 % 1.19 % -0.34 % -0.62 % 1.47 % 1.09 % 1.99 % -0.90 %
ROA, excluding tax benefit * 1.46 % 2.00 % -0.54 % 0.89 % 0.57 % 1.85 % 1.37 % 0.48 %
Return on average equity (ROE) * 6.07 % 8.07 % -2.00 % -5.93 % 12.00 % 9.09 % 16.70 % -7.61 %
ROE, excluding tax benefit * 10.45 % 13.60 % -3.15 % 8.48 % 1.97 % 15.45 % 11.49 % 3.96 %
Net interest margin * 4.34 % 4.31 % 0.03 % 4.47 % -0.13 % 4.32 % 4.35 % -0.03 %
Efficiency ratio 62.91 % 66.69 % -3.78 % 84.12 % -21.21 % 65.82 % 71.71 % -5.89 %
Pre-tax Pre-provision Income to average assets 2.10 % 2.00 % 0.10 % 0.89 % 1.21 % 2.09 % 1.92 % 0.17 %
 
Tangible common equity to tangible assets 12.33 % 14.31 % -1.98 % 9.11 % 3.22 % 12.33 % 9.11 % 3.22 %
Tier 1 leverage 14.04 % 14.85 % -0.81 % 9.43 % 4.61 % 14.04 % 9.43 % 4.61 %
Tier 1 risk-based capital 15.42 % 17.52 % -2.10 % 9.85 % 5.57 % 15.42 % 9.85 % 5.57 %
Total risk-based capital 16.67 % 18.78 % -2.11 % 11.11 % 5.56 % 16.67 % 11.11 % 5.56 %
 
Asset Quality   12/31/2014     9/30/2014     6/30/2014     3/31/2014     12/31/2013  
Nonaccrual Loans 951 1,065 983 1,000 1,077
Loans 90 days or more past due, accruing - - - - -
Accruing Restructured Loans   397     401     409     476     489  
Total Non-Performing Loans 1,348 1,466 1,392 1,476 1,566
Other Real Estate Loans (OREO)   -     -     -     -     -  
Total Non-Performing Assets 1,348 1,466 1,392 1,476 1,566
 
Classified Loans 1,736 1,822 2,875 3,904 4,806
 
Non-Performing Assets/Total Assets 0.25 % 0.33 % 0.32 % 0.38 % 0.46 %
Non-Performing Loans/Gross Loans 0.33 % 0.40 % 0.43 % 0.49 % 0.56 %
Allowance for Loan Losses/Non-Performing Loans 427 % 374 % 393 % 366 % 334 %
Allowance for Loan Losses/Non-Performing Assets 427 % 374 % 393 % 366 % 334 %
Allowance for Loan Losses/Gross Loans 1.39 % 1.51 % 1.69 % 1.80 % 1.86 %
Classified Loans/Gross Loans 0.42 % 0.50 % 0.89 % 1.30 % 1.71 %
 
Net Charge-offs $ 467 $ (11 ) $ (14 ) $ 32 $ (182 )
Net Charge-offs to Average Gross Loans * 0.49 % -0.01 % -0.02 % 0.04 % -0.27 %

*  Annualized

Contacts

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

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