Open Bank Reports 2015 First Quarter Financial Results

Open Bank (OTCQB:OPBK) today reported that the net income for the first quarter of 2015 was $1.3 million, or $0.10 per diluted share. This compares with net income of $984 thousand, or $0.08 per diluted share, for the fourth quarter of 2014, and net income of $1.0 million, or $0.13 per diluted share, for the first quarter of 2014. Pre-tax pre-provision income was $2.3 million for the first quarter 2015, $2.4 million for the fourth quarter 2014, and $2.0 million for the first quarter 2014.

“We had another solid quarter with our net income up 32% compared to the 4^th quarter of 2014. I am pleased that we continue to report consistently strong earnings and solid credit quality,” stated Min Kim, President and Chief Executive Officer. “We opened our loan production offices in Dallas, Seattle and New York in April to further support out SBA loan productions. Also, we are currently planning an additional full branch in the Los Angeles Koreatown area. This will bring our total to 7 branches.”

Results of Operations

Net interest income was $5.0 million for the three months ended March 31, 2015, compared to $4.7 million for the fourth quarter of 2014 and $3.6 million for the first quarter of 2014. This represents increases of 6.7% from the fourth quarter of 2014 and 38.6% from the first quarter of 2014, respectively. The increases were primarily the result of increases in average interest earning assets, mostly loans. Average gross loans increased to $417.1 million for the first quarter of 2015, an increase of $36.5 million, or 9.6% from $380.5 million for the fourth quarter 2014, and an increase of $110.5 million, or 36.1%, from $306.5 million for the first quarter of 2014.

The net interest margin for the first quarter of 2015 was 4.19%, a 16 basis point decrease from 4.35% for the fourth quarter of 2014, and a 32 basis decrease from 4.51% for the first quarter of 2014. The net interest margin compression was primarily due to the high level of cash/overnight fund balances during the first quarter of 2015, which have resulted in lower yield on interest-earning assets. The following table shows the asset yields, liability cost, spread and margin.

The bank recorded $77 thousand of provision for loan losses for the first quarter of 2015. This compares to the provision for loan losses of $740 thousand for the fourth quarter of 2014 and $210 thousand for the first quarter of 2014. The reduction in the provision for loan losses from the preceding quarter as well as the first quarter of 2014 reflected decreases in net charge-offs. There was a negative net charge-off (recovery) of $40 thousand during the first quarter of 2015. This compares with net charge off of $467 thousand during the fourth quarter and net charge-off of $32 thousand during the first quarter of 2014. During the fourth quarter of 2014, $474 thousand in one SBA loan was charged off.

Non-interest income for the first quarter 2015 was $1.8 million, compared to $1.8 million for the fourth quarter of 2014 and $2.1 million for the prior-year first quarter. The net gains on sale of SBA loans totaled $908 thousand for the first quarter of 2015, compared to $802 thousand for the preceding quarter. Sales of SBA loans for the first quarter of 2015 were $11.6 million, compared to $7.6 million for the fourth quarter of 2014. Service charges on deposits decreased $117 thousand, or 24.4%, to $362 thousand for the first quarter of 2015, compared to $479 thousand for the fourth quarter of 2014. The decrease is primarily due to closing of accounts from one large client, which had already been anticipated.

The decrease in non-interest income from the prior-year first quarter was primarily due to a $572 thousand decrease in net gains on sale of SBA loans. Sales of SBA loans for the first quarter of 2014 were $18.5 million with a net gain of $1.5 million. Service charges and other deposit related fees increased $213 thousand, or 143%, from $149 thousand for the prior-year first quarter. There was a significant increase in the number of demand deposit accounts as well as transactions such as wire transfers over those periods.

Non-interest expense for the first quarter 2015 was $4.6 million, compared to $4.1 million for the fourth quarter of 2014 and $3.7 million for the prior-year first quarter. The increase from the preceding quarter was primarily attributable to an increase of $268 thousand, or 9.9%, in salaries and employee benefits expense, driven by higher bonus reserves. During the fourth quarter of 2014, the reserve for 2014 profit sharing was lowered resulting in the reversal of expense that was previously reserved. The total number of full time employees was 103 as of March 31, 2015 and 101 as of December 31, 2014.

The increase in non-interest expense from the prior-year first quarter was primarily due to an increase in salaries and employee benefits expense, occupancy and FF&E expenses. Salaries and employee benefits expense increased $447 thousand, or 19%, from $2.5 million for the first quarter of 2014. The increase reflected an increase in the number of full-time employees from 83 as of March 31, 2014. Occupancy expense increased $112 thousand, or 39%, to $397 thousand for the first quarter of 2015, from $286 thousand for the first quarter of 2014. The increase was primarily due to an addition of new branch in mid-2014 as well as a relocation of headquarter office at the end of the first quarter of 2014, which resulted in higher lease expenses. FF&E expense increased primarily due to the bank’s continued expansion.

The effective tax rate for the first quarter was 41.2%, compared to 41.9% for the fourth quarter of 2014 and 41.5% for the first quarter of 2014.

Balance Sheet

Total assets were $554.7 million at March 31, 2015, an increase of $26.5 million, or 5.0%, from $528.2 million at December 31, 2014, and an increase of $171.0 million, or 44.6%, from $383.6 million at March 31, 2014. Gross loans, net of unearned income, were $429.6 million at March 31, 2015, an increase of $16.1 million, or 3.9%, from $413.5 million at December 31, 2014, and an increase of $129.0 million, or 42.9%, from $300.6 million a year ago. New loan originations for the first quarter of 2015 amounted to $46.1 million, including SBA loan origination of $13.3 million, compared to $71.0 million, including SBA loan origination of $17.9 million for the fourth quarter of 2014. The new loan originations for the first quarter of 2014 amounted to $44.1 million, including SBA loan origination of $13.2 million.

Total deposits were $453.3 million at March 31, 2015, an increase of $24.8 million, or 5.8%, from $428.5 million at December 31, 2014 and an increase of $104.8 million, or 30.1%, from $348.5 million at March 31, 2014. 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 with three months remaining maturity.

Non-interest bearing deposits accounted for 35.6% of total deposits at March 31, 2015. This is compared to 40.7% at December 31, 2014 and 37.5% at March 31, 2014.

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 March 31, 2015, the bank continued to exceed all regulatory capital requirements to be classified as a “well-capitalized”, as summarized in the following table.

At March 31, 2015, the tangible common equity represented 12.12% of tangible assets, compared to 12.39% at December 31, 2014 and 8.52% at March 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

Non-performing assets were $1.4 million, or 0.25% of total assets at March 31, 2015, compared to $1.3 million, or 0.26% of total assets at December 31, 2014 and $1.5 million, or 0.38% of total assets at March 31, 2014. There were no other real estate owned (“OREO”) at March 31, 2015, December 31, 2014 or March 31, 2014.

Non-performing loans to gross loans was 0.33% at March 31, 2015, compared to 0.33% at December 31, 2014 and 0.49% at March 31, 2014. Total classified loans were $1.7 million, or 0.38% of gross loans, at March 31, 2015, compared to $1.7 million, or 0.42% of gross loans at December 31, 2014 and $3.9 million, or 1.30% of gross loans at March 31, 2014.

The allowance for loan losses was $5.9 million at March 31, 2015, compared to $5.8 million at December 31, 2014, and $5.4 million at March 31, 2014. The allowance for loan losses was 1.37% of gross loans at March 31, 2014, compared to 1.39% at December 31, 2014 and 1.80% at March 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, 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.