Open Bank Reports 2014 First Quarter Financial Results

Open Bank (OTCBB:OPBK) today reported that income before taxes increased 159% to $1.75 million for the three months ended March 31, 2014, up from $675 thousand for the three months ended December 31, 2013 and up 109% from $836 thousand for the three months ended March 31, 2013. First quarter 2014 net income was $1.0 million, or $0.13 per diluted share. This compares with net loss of $0.06 per diluted share for the fourth quarter of 2013 and net income of $3.6 million, or $0.50 per diluted share, for the first quarter of 2013. Net income for the fourth quarter of 2013 included a full year provision for income taxes of $1.1 million. Net income for the first quarter of 2013 included $2.7 million of tax benefits from the reversal of the remaining portion of the deferred tax valuation allowance. Pre-tax pre-provision income was $2.0 million, $675 thousand, and $1.3 million for the first quarter 2014, fourth quarter 2013, and first quarter 2013, respectively.

Min Kim, President and Chief Executive Officer, said, “We are very pleased to announce another successful quarter, after closing two consecutive years of profits for 2013 and 2012. During 2013, we opened branches in Gardena, Mid-Wilshire, Korea-town Los Angeles, and Buena Park, California, and we are currently working on opening another branch, our 6^th, in Korea-town Los Angeles, California. We are excited about the impact this expansion has had on our results, including the strong growth in our total deposits, particularly the demand deposits, and look forward to our further investment in Korea-town with the addition of this 6^th branch. Our net interest margin, a key measure of profitability, remains very strong at 4.45%. This is well above our peer banks in Korean-American banking, as well as other peer banks in the industry. We believe these results validate and support our further commitment to our local community.”

Results of Operations

Net interest income was $3.6 million for the three months ended March 31, 2014, compared to $3.2 million for the fourth quarter of 2013 and $2.1 million for the first quarter of 2013. These are increases of 12.8% from the fourth quarter of 2013 and 75.0% from the first 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 $306.8 million for the first quarter of 2014, an increase of $40.6 million, or 15% from fourth quarter 2013, and an increase of $135.5 million, or 79%, from $171.3 million for the first quarter of 2013.

The net interest margin for the first quarter 2014 was 4.45%, a 5 basis point decrease from 4.50% for the fourth quarter 2013, and a 7 basis increase from 4.38% for the first quarter 2013. The slight compression from the fourth quarter of 2013 is primarily due to a lower yield on loans which was 5.11% for the first quarter of 2014, compared to 5.24% for the fourth quarter of 2013. The improvement from the prior-year first quarter was primarily due to a lower cost of interest-bearing liabilities. The cost of interest-bearing liabilities was 0.67% for the first quarter of 2014, compared to 0.74% for the same quarter of 2013. The following table shows the asset yields, liability cost, spread and margin.

The provision for loan losses for the first quarter of 2014 was $210 thousand, compared to $500 thousand for the first quarter of 2013. There was no provision for loan losses for the fourth quarter of 2013. The reduction in the provision for loan losses from the first quarter of 2013 reflected a decrease in net charge-offs, which decreased to $32 thousand for the first quarter of 2014, compared to $769 thousand for the same quarter of 2013, offset by a provision required for the loan growth.

Non-interest income was $2.1 million in the first quarter of 2014, compared to $1.0 million in the fourth quarter of 2013 and $2.4 million in the prior-year first quarter. The increase from the preceding quarter was primarily attributable to $1.0 million increase in net gains on sale of SBA loans, which were $1.5 million for the first quarter of 2014, compared to $476 thousand for the fourth quarter of 2013. Sales of SBA loans for the first quarter of 2014 were $18.5 million, compared to $6.7 million for the fourth quarter of 2013.

The decrease in non-interest income from the prior year first quarter was primarily due to a $439 thousand decrease in net gains on sale of SBA loans. Sales of SBA loans for the first quarter of 2013 were $21.7 million. The timing of such sales is strategically managed based on the level of the bank’s liquidity, earnings, and sales premiums. The bank had $12.1 million in loans held for sale at March 31, 2014, compared to $16.7 million at December 31, 2013 and $3.5 million at March 31, 2013. All loans held for sale were SBA loans. Service charges and other deposit related fees increased $87 thousand, or 82%, to $193 thousand for the first quarter of 2014, compared to $106 thousand for the prior-year first quarter, as deposit accounts and transactions increased.

Non-interest expense was $3.7 million in the first quarter of 2014, compared to $3.6 million in the fourth quarter of 2013 and $3.2 million in the prior-year first quarter. The increase from the preceding quarter was primarily attributable to an increase in our charitable contribution expense that is directly tied to the income before taxes. The increase from the prior-year first quarter was primarily due to increases in salaries and employee benefits and directors’ fee expenses. Salaries and employee benefits were $2.4 million for the first quarter of 2014, an increase of $503 thousand, or 27%, compared to $1.9 million for the first quarter of 2013. The number of full-time equivalent employees increased to 83 at March 31, 2014, compared to 64 at March 31, 2013. Directors’ fees increased $102 thousand, or 129%, to $181 thousand for the first quarter of 2014, compared to $79 thousand for the first quarter of 2013, as a result of additional restricted stock grants in July of 2013.

As the bank reversed the remaining deferred tax valuation allowance and recognized tax benefits in the first quarter of 2013, it provided for income taxes in first quarter of 2014 using an effective tax rate of 41.5%. During the fourth quarter of 2013, the bank provided a full year of tax provision of $1.1 million.

Balance Sheet

Total assets were $383.6 million at March 31, 2014, an increase of $41.4 million, or 12%, from $342.3 million at December 31, 2013, and $163.2 million, or 74%, from $220.4 million at March 31, 2013. Gross loans receivable were $300.6 million at March 31, 2014, an increase of $19.4 million, or 7%, from $281.3 million at December 31, 2013, and an increase of $136.4 million, or 83%, from $164.2 million a year ago. The bank began the residential mortgage business in June of 2013, and these loans accounted for 12% of gross loans at March 31, 2014, compared to 9% of gross loans at December 31, 2013. The increase in loans was also attributable to the branch expansion which enabled the bank to increase marketing to local businesses.

Total deposits were $348.5 million at March 31, 2014, an increase of $39.2 million, or 13%, from $309.3 million at December 31, 2013 and an increase of $159.0 million, or 84%, from $189.5 million at March 31, 2013. The increase from December 31, 2013 was primarily attributable to an increase in non-interest bearing deposits of $38.4 million, or 42%, to $130.8 million at March 31, 2014, from $92.4 million at December 31, 2013. At March 31, 2014, non-interest bearing deposits accounted for 38% of total deposits, compared to 30% at December 31, 2013 and 28% at March 31, 2013. All categories of deposits, except for savings, increased significantly from a year ago, with 151% increase in non-interest bearing deposits, 54% increase in money market and other demand deposits, and 68% increase in time deposits. The deposit mix is detailed in the table below at dates indicated.

The bank’s business expansion into new local markets with a high concentration of Korean-American businesses with our new branch openings in 2013 and 2012 has allowed it to significantly increase its presence and increase loan and deposit production. The bank opened its second branch in October of 2012, followed by three more branches in 2013.

At March 31, 2014, the leverage ratio was 8.68%, compared to 9.43% at December 31, 2013 and 12.90% at March 31, 2013; Tier 1 risk-based capital ratio was 9.79%, compared to 9.85% at December 31, 2013 and 14.21% at March 31, 2013; and total risk-based capital ratio was 11.04%, compared to 11.11% at December 31, 2013 and 15.47% at March 31, 2013. The capital ratios decreased significantly due to the asset growth during these periods. Total assets grew 12% from December 31, 2013 and 74% from a year ago.

At March 31, 2014, our tangible common equity represented 8.52% of tangible assets, compared to 9.11% at December 31, 2013 and 13.39% at March 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 our capital levels.

Asset Quality

Non-performing assets were $1.5 million, or 0.38% of total assets, at March 31, 2014, compared to $1.6 million, or 0.46% of total assets at December 31, 2013 and $2.1 million, or 0.96% of total assets at March 31, 2013. There was no OREO at March 31, 2014, December 31, 2013 or March 31, 2013. Non-performing loans to gross loans decreased to 0.49% at March 31, 2014, compared to 0.56% at December 31, 2013 and 1.29% at March 31, 2013. The decrease is primarily attributable to sales of problem loans during 2013. The allowance for loan losses was $5.4 million at March 31, 2014, compared to $5.2 million at December 31, 2013 and $4.1 million at March 31, 2013. The allowance for loan losses was 1.80% of gross loans at March 31, 2014, compared to 1.86% at December 31, 2013 and 2.52% at March 31, 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 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 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.