Open Bank (OTCQB: OPBK) today reported that net income for the fourth quarter of 2015 was $1.6 million, or $0.12 per diluted share. This compares with net income of $1.5 million, or $0.12 per diluted share, for the third quarter of 2015, and net income of $984 thousand, or $0.08 per diluted share, for the fourth quarter of 2014. Pre-tax pre-provision income was $2.7 million for the fourth quarter 2015, $3.1 million for the third quarter 2015, and $2.4 million for the fourth quarter 2014.

“We are pleased to report a solid quarter rounding out a strong 2015 in which we continue to validate our current strategy. Our fourth quarter 2015 net income was up 61% compared to fourth quarter 2014 and our net interest margin remained above 4.0%, all despite significant competitive price pressure in both the lending and deposit markets” stated Min Kim, President and Chief Executive Officer. “In 2016, we intend to continue to organically grow our market share through our now seven branches and three loan production offices.”

 
Fourth Quarter Financial Highlights

(in thousands, except per share data)

 
  As of or for the Three Months Ended

December 31,
2015

    

September 30,
2015

    

December 31,
2014

 
Income Statement Data:  
Net interest income $ 5,962 $ 5,953   $ 4,730
Provision for loan losses - 476 740
Non-interest income 2,040 1,994 1,831
Non-interest expense 5,316 4,881 4,127
Income before taxes 2,686 2,590 1,694
Provision for income taxes 1,104 1,067 710
Net Income $ 1,582 $ 1,523 $ 984
Balance Sheet Data:
Loans held for sale $ 5,579 $ 300 $ 5,711
Gross loans, net of unearned income 507,286 506,307 413,527
Allowance for loan losses 6,390 6,387 5,755
Total assets 618,718 606,224 528,192
Deposits 519,721 509,717 428,519
Shareholders’ equity 72,506 70,820 65,442
Credit Quality:
Nonperforming loans $ 1,039 $ 1,003 $ 1,349
Nonperforming assets 1,039 1,003 1,349
Performance Ratios:
Net interest margin 4.02% 4.29% 4.35%
Efficiency ratio 66.44% 61.43% 62.91%
Pre-tax pre-provision Income to average assets (annualized) 1.73% 2.11% 2.10%
Net charge-offs to average gross loans (annualized) 0.00% -0.03% 0.49%
Nonperforming assets to gross loans plus OREO 0.20% 0.20% 0.33%
ALLL to nonperforming loans 615% 637% 427%
ALLL to gross loans 1.26% 1.26% 1.39%
Capital Ratios:
Tangible common equity to tangible assets 11.72% 11.68% 12.39%
Leverage ratio 11.55% 11.99% 14.04%
Common Equity Tier 1 ratio 14.03% 13.80% N/A
Tier 1 risk-based capital ratio 14.03% 13.80% 15.52%
Total risk-based capital ratio 15.28% 15.05% 16.77%
 

Results of Operations

Net interest income was $6.0 million for the three months ended December 31, 2015, compared to $6.0 million for the third quarter of 2015 and $4.7 million for the fourth quarter of 2014. There was no change from the prior quarter and an increase of 26.0% from the fourth quarter of 2014. The increase from the fourth quarter of 2014 was primarily the result of increase in average interest earning assets, mostly loans. Average gross loans were $506 million for the fourth quarter of 2015 and $381 million for the fourth quarter of 2014, which represented an increase of $125 million, or 32.9%.

The net interest margin for the fourth quarter of 2015 was 4.02%, a 27 basis point decrease from 4.29% for the third quarter of 2015, and a 33 basis point decrease from 4.35% for the fourth quarter of 2014. The net interest margin compression was due to lower yield on interest-earning assets and increased cost of funds during the fourth quarter of 2015 compared to the third quarter of 2015 and the fourth quarter of 2014. Lower yield on interest-earning assets was primarily attributable to higher level of cash balance, which only earned 25 basis points. The following table shows the asset yields, liability costs, spread and margin.

   
Three Months Ended

December 31,
2015

   

September 30,
2015

   

December 31,
2014

 
Yield on net loans 5.22% 5.29% 5.28%
Yield on interest-earning assets 4.59% 4.83% 4.72%
Cost of interest-bearing liabilities 0.87% 0.83% 0.70%
Cost of deposits 0.62% 0.58% 0.41%
Net interest spread 3.73% 4.00% 4.02%
Net interest margin 4.02% 4.29% 4.35%
 

Non-interest income was $2.0 million for both the fourth quarter and third quarter of 2015, compared to $1.8 million for the fourth quarter of 2014. The increase in non-interest income from the fourth quarter of 2014 was primarily attributable to higher net gain on sale of SBA loans, which totaled $802 thousand for the fourth quarter 2014.

Net gain on sale of SBA loans totaled $1.2 million for the third and the fourth quarters of 2015, compared to $802 thousand for the fourth quarter of 2014. Sale of SBA loans for the fourth quarter of 2015 was $19.6 million, compared to $18.3 million for the third quarter of 2015 and $7.6 million for the fourth quarter of 2014. The average premium on the sale of SBA loans for the fourth quarter of 2015 was slightly lower at 8.32%, compared to 8.89% for the third quarter of 2015 and 10.62% for the fourth quarter of 2014.

Non-interest expense for the fourth quarter 2015 was $5.3 million, compared to $4.9 million for the third quarter of 2015 and $4.1 million for the fourth quarter of 2014. Total salaries and employee benefits expense was $3.3 million for the fourth quarter of 2015, compared to $3.0 million for the third quarter of 2015 and $2.5 million for the fourth quarter of 2014. The increase in salaries and employee benefits expense during the fourth quarter of 2015 compared to the third quarter of 2015 was primarily due to accruals for unused vacation and certain employee incentives. The total number of full time equivalent employees was 115.5 as of December 31, 2015 and 116.5 as of September 30, 2015.

The increase in non-interest expense from the fourth quarter of 2014 was primarily due to an increase in salaries and employee benefits expense, occupancy and FF&E expenses. Salaries and employee benefits expense increased $797 thousand, or 31%, from $2.5 million for the fourth quarter of 2014. The increase reflected an increase in the number of full-time equivalent employees from 100.5 as of December 31, 2014.

Occupancy expense increased $243 thousand, or 57%, from $430 thousand for the fourth quarter of 2014. The increase was primarily due to addition of new branch in 2015 as well as increased operating expense related to the headquarters office, which resulted in higher overall lease expenses. FF&E expense increased primarily due to the bank’s continued expansion.

The effective tax rate for the fourth quarter was 41.1%, compared to 41.2% for the third quarter of 2015 and 41.9% for the fourth quarter of 2014.

Balance Sheet

Total assets were $618.7 million at December 31, 2015, an increase of $12.5 million, or 2.1%, from $606.2 million at September 30, 2015, and an increase of $90.5 million, or 17.1%, from $528.2 million at December 31, 2014. Gross loans, net of unearned income, were $507.3 million at December 31, 2015, an increase of $1.0 million, or 0.2%, from $506.3 million at September 30, 2015, and an increase of $93.8 million, or 22.7%, from $413.5 at December 31, 2014. New loan originations for the fourth quarter of 2015 amounted to $65.7 million, including SBA loan originations of $32.8 million, compared to $97.8 million, including SBA loan originations of $20.7 million for the third quarter of 2015. New loan originations for the fourth quarter of 2014 amounted to $71.0 million, including SBA loan originations of $17.9 million.

Total deposits were $519.7 million at December 31, 2015, an increase of $10.0 million, or 2.0% from $509.7 million at September 30, 2015, and an increase of $91.2 million, or 21.3%, from $428.5 million at December 31, 2014. At December 31, 2015, the bank retained its borrowings of $20.0 million from the Federal Home Loan Bank (“FHLB”) which will mature during the second and the third quarters of 2016.

Non-interest bearing deposits accounted for 29.9% of total deposits at December 31, 2015, compared to 30.4% at September 30, 2015 and 40.7% at December 31, 2014.

     

December 31,
2015

   

September 30,
2015

   

December 31,
2014

 
Non-interest bearing deposits 29.9% 30.4%

40.7%

Interest bearing demand deposits 34.5% 33.6% 30.8%
Savings 0.4% 0.4% 0.3%
Time deposits over $100,000 23.8% 23.7% 16.4%
Other time deposits 11.4% 11.9% 11.8%
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 December 31, 2015, the bank continued to exceed all regulatory capital requirements to be classified as “well-capitalized”, as summarized in the following table.

     

December 31,
2015

   

September 30,
2015

   

December 31,
2014

 
Tier 1 leverage capital ratio 11.55% 11.99% 14.04%
CET 1 capital ratio 14.03% 13.80% N/A
Tier 1 risk-based capital ratio 14.03% 13.80% 15.52%
Total risk-based capital ratio 15.28% 15.05% 16.77%
 

At December 31, 2015, the tangible common equity represented 11.72% of tangible assets, compared to 11.68% at September 30, 2015 and 12.39% at December 31, 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

No provision for loan losses was made during the fourth quarter of 2015, compared to a provision of $476 thousand for the third quarter of 2015 and $740 thousand for the fourth quarter of 2014. Non-performing assets were $1.0 million, or 0.17% of total assets at December 31, 2015, compared to $1.0 million, or 0.17% of total assets at September 30, 2015 and $1.3 million, or 0.26% of total assets at December 31, 2014. There was no other real estate owned (“OREO”) at December 31, 2015, September 30, 2015, or December 31, 2014.

Non-performing loans to gross loans were 0.20% at December 31, 2015, compared to 0.20% at September 30, 2015 and 0.33% at December 31, 2014. Total classified loans were $827 thousand, or 0.16% of gross loans, at December 31, 2015, compared to $758 thousand, or 0.15% of gross loans at September 30, 2015 and $1.7 million, or 0.42% of gross loans at December 31, 2014.

The allowance for loan losses was $6.4 million at December 31, 2015 and September 30, 2015, compared to $5.8 million at December 31, 2014. The allowance for loan losses was 1.26% of gross loans at December 31, 2015, compared to 1.26% at September 31, 2015 and 1.39% at December 31, 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, 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 currently operates with seven full branch offices in Downtown Los Angeles, Los Angeles Fashion District, Los Angeles Koreatown, Gardena and Buena Park. The Bank also has three loan production offices in Seattle, Washington; Dallas, Texas; and Flushing, New York. 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, including statements about plans to continue to grow the bank organically. 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, 2015 September 30, 2015

$ change

% change December 31, 2014

$ change

% change
(Unaudited) (Unaudited) (Audited)
Assets
 
Cash and due from banks $ 37,399 $ 49,247 $ (11,848 ) -24.1 % $ 64,748 $ (27,349 ) -42.2 %
Investment securities 43,889 26,200 17,689 67.5 % 22,863 21,026 92.0 %
Loans held for sale 5,579 300 5,279 1759.7 % 5,711 (132 ) -2.3 %
Gross loans, net of unearned income 507,286 506,307 979 0.2 % 413,527 93,759 22.7 %
Allowance for loan losses (6,390 ) (6,387 ) (3 ) 0.0 % (5,755 ) (635 ) -11.0 %
Net loans receivable 500,896 499,920 976 0.2 % 407,772 93,124 22.8 %
Bank premises and equipment, net 5,892 5,566 326 5.9 % 4,953 939 19.0 %
Accrued interest receivable 1,562 1,489 73 4.9 % 1,175 387 32.9 %
FHLB and Pacific Coast Bankers Bank Stock, at cost 2,655 2,655 0 0.0 % 1,900 755 39.7 %
Servicing assets 5,551 5,202 349 6.7 % 4,670 881 18.9 %
Net deferred taxes 3,003 2,858 145 5.1 % 2,903 100 3.4 %
Other assets   12,292     12,787     (495 )   -3.9 %   11,497     795     6.9 %
Total assets $ 618,718   $ 606,224   $ 12,494     2.1 % $ 528,192   $ 90,526     17.1 %
 
Liabilities and Shareholders' Equity
 
Noninterest bearing deposits $ 155,147 $ 154,965 $ 182 0.1 % $ 174,449 $ (19,302 ) -11.1 %
Savings 2,000 2,052 (52 ) -2.5 % 1,394 606 43.5 %
Money market and others 179,833 170,989 8,844 5.2 % 131,659 48,174 36.6 %
Time deposits of $100,000 or more 123,558 121,023 2,535 2.1 % 70,435 53,123 75.4 %
Other time deposits   59,183     60,688     (1,505 )   -2.5 %   50,582     8,601     17.0 %
Total deposits 519,721 509,717 10,004 2.0 % 428,519 91,202 21.3 %
Other borrowings 20,000 20,000 0 0.0 % 30,000 (10,000 ) -33.3 %
Other liabilities   6,491     5,687     804     14.1 %   4,231     2,260     53.4 %
Total liabilities 546,212 535,404 10,808 2.0 % 462,750 83,462 18.0 %
Total shareholders' equity   72,506     70,820     1,686     2.4 %   65,442     7,064     10.8 %
Total Liabilities and Shareholders' Equity $ 618,718   $ 606,224   $ 12,494     2.1 % $ 528,192   $ 90,526     17.1 %
 
Statement of Operations
(Dollars in thousand, except per share data)
Three Months Ended Twelve Months Ended
December 31, 2015 September 30, 2015 % change December 31, 2014 % change December 31, 2015 December 31, 2014 % change
Interest income $ 6,811 $ 6,691 1.8 % $ 5,134 32.7 % $ 25,192 $ 18,260 38.0 %
Interest expense   849     738     15.0 %   404     110.1 %   2,689     1,539   74.7 %
Net interest income   5,962     5,953     0.2 %   4,730     26.0 %   22,503     16,721   34.6 %
Provision for loan losses - 476 -100.0 % 740 -100.0 % 553 1,000 -44.7 %
Non interest income 2,040 1,994 2.3 % 1,831 11.4 % 8,030 8,493 -5.5 %
Non interest expense   5,316     4,881     8.9 %   4,127     28.8 %   19,802     16,595   19.3 %
Income before income taxes 2,686 2,590 3.7 % 1,694 58.6 % 10,178 7,619 33.6 %
Provision for income taxes   1,104     1,067     3.5 %   710     55.5 %   4,188     3,135   33.6 %
Net income (loss) $ 1,582   $ 1,523     3.9 % $ 984     60.8 % $ 5,990   $ 4,484   33.6 %
 
Pre-tax Pre-provision Income $ 2,686 $ 3,066 -12.4 % $ 2,434 10.4 % $ 10,731 $ 8,619 24.5 %
 
Book Value $ 5.72 $ 5.59 $ 5.27 $ 5.72 $ 5.27
Basic EPS $ 0.12 $ 0.12 $ 0.08 $ 0.48 $ 0.45
Diluted EPS $ 0.12 $ 0.12 $ 0.08 $ 0.46 $ 0.42
 
Shares of common stock outstanding 12,682,510 12,660,080 12,411,089 12,682,510 12,411,089
Weighted Average Shares:
- Basic 12,662,733 12,625,784 12,400,245 12,549,915 9,944,339
- Diluted 13,182,377 13,157,639 13,104,355 13,091,941 10,693,083
 
Three Months Ended Twelve Months Ended
December 31, 2015 September 30, 2015 % change December 31, 2014 % change December 31, 2015 December 31, 2014 % change
Key Ratios
Return on average assets (ROA)* 1.02 % 1.05 % -0.03 % 0.85 % 0.17 % 1.06 % 1.09 % -0.03 %
Return on average equity (ROE) * 8.84 % 8.72 % 0.12 % 6.07 % 2.77 % 8.67 % 9.09 % -0.42 %
Net interest margin * 4.02 % 4.29 % -0.27 % 4.35 % -0.33 % 4.20 % 4.32 % -0.12 %
Efficiency ratio 66.44 % 61.43 % 5.01 % 62.91 % 3.53 % 64.85 % 65.82 % -0.97 %
Pre-tax Pre-provision Income to average assets 1.73 % 2.11 % -0.38 % 2.10 % -0.37 % 1.90 % 2.09 % -0.19 %
 
Tangible common equity to tangible assets 11.72 % 11.68 % 0.04 % 12.39 % -0.67 % 11.72 % 12.39 % -0.67 %
Tier 1 Leverage Ratio 11.55 % 11.99 % -0.44 % 14.04 % -2.49 % 11.55 % 14.04 % -2.49 %
Common Equity Tier 1 Ratio 14.03 % 13.80 % 0.23 % N/A 14.03 % N/A
Tier 1 Capital Ratio 14.03 % 13.80 % 0.23 % 15.52 % -1.49 % 14.03 % 15.52 % -1.49 %
Total Risk Based Capital Ratio 15.28 % 15.05 % 0.23 % 16.77 % -1.49 % 15.28 % 16.77 % -1.49 %
 
Average Balances
Investments $ 82,758 $ 57,253 44.5 % $ 51,386 61.1 % $ 65,540 $ 46,922 39.7 %
Gross loans, including loans held for sale 505,861 493,220 2.6 % 380,596 32.9 % 469,832 339,779 38.3 %
Interest earning assets 588,619 550,473 6.9 % 431,982 36.3 % 535,373 386,701 38.4 %
Total assets $ 620,549 $ 581,973 6.6 % $ 463,899 33.8 % $ 566,167 $ 411,489 37.6 %
 
Noninterest bearing deposits $ 156,402 $ 152,926 2.3 % $ 162,866 -4.0 % $ 153,435 $ 137,031 12.0 %
Interest bearing deposits 366,801 337,286 8.8 % 229,256 60.0 % 318,878 219,211 45.5 %
Total deposits 523,203 490,212 6.7 % 392,122 33.4 % 472,313 356,241 32.6 %
Interest bearing liabilities 386,804 354,135 9.2 % 229,589 68.5 % 338,879 220,376 53.8 %
Shareholders' equity 71,568 69,829 2.5 % 64,852 10.4 % 69,069 49,313 40.1 %
Net interest earning assets $ 201,815 $ 196,338 2.8 % $ 202,393 -0.3 % $ 196,493 $ 166,325 18.1 %
 
Asset Quality 12/31/2015 9/30/2015 6/30/2015 3/31/2015 12/31/2014
Nonaccrual Loans 657 617 767 1,016 951
Loans 90 days or more past due, accruing - - - - -
Accruing Restructured Loans   382     386     390     394     397  
Total Non-Performing Loans 1,039 1,003 1,157 1,410 1,349
Other Real Estate Loans (OREO)   -     -     -     -     -  
Total Non-Performing Assets 1,039 1,003 1,157 1,410 1,349
 
Classified Loans 827 758 1,382 1,651 1,736
 
Non-Performing Assets/Total Assets 0.17 % 0.17 % 0.20 % 0.25 % 0.26 %
Non-Performing Assets/(Gross Loans +OREO) 0.20 % 0.20 % 0.25 % 0.33 % 0.33 %
Non-Performing Loans/Gross Loans 0.20 % 0.20 % 0.25 % 0.33 % 0.33 %
Allowance for Loan Losses/Non-Performing Loans 615 % 637 % 508 % 417 % 427 %
Allowance for Loan Losses/Non-Performing Assets 615 % 637 % 508 % 417 % 427 %
Allowance for Loan Losses/Gross Loans 1.26 % 1.26 % 1.26 % 1.37 % 1.39 %
Classified Loans/Gross Loans 0.16 % 0.15 % 0.30 % 0.38 % 0.42 %
 
Net Charge-offs $ (3 ) $ (31 ) $ (8 ) $ (40 ) $ 467
Net Charge-offs to Average Gross Loans * 0.00 % -0.03 % -0.01 % -0.04 % 0.49 %
 
* Annualized