Open Bank Reports 2015 Third Quarter Financial Results

Open Bank (OTCQB: OPBK) today reported that net income for the third quarter of 2015 was $1.5 million, or $0.12 per diluted share. This compares with net income of $1.6 million, or $0.12 per diluted share, for the second quarter of 2015, and net income of $1.3 million, or $0.10 per diluted share, for the third quarter of 2014. Pre-tax pre-provision income was $3.1 million for the third quarter 2015, $2.7 million for the second quarter 2015, and $2.1 million for the third quarter 2014.

“We are pleased to report another solid quarter with total assets now exceeding the $600 million mark, our deposits exceeding the $500 million mark and our net loans are now at $500 million. During the quarter, we had a very strong loan production with $98 million in new loan originations,” stated Min Kim, President and Chief Executive Officer. “To put this in perspective, our total assets have more than doubled over the past two years and our deposit and net loan portfolios have also almost doubled over the same two year period. We are also excited to announce the opening of our seventh full-service branch this month in the heart of Koreatown on Western Ave. in Los Angeles, to support the bank’s continued growth and to provide greater convenience to our customers.”

Results of Operations

Net interest income was $6.0 million for the three months ended September 30, 2015, compared to $5.5 million for the second quarter of 2015 and $4.4 million for the third quarter of 2014. This represents increases of 7.5% from the second quarter of 2015 and 34.8% from the third quarter of 2014, respectively. The increases were primarily the result of increases in average interest earning assets, mostly loans. Average gross loans increased to $493.2 million for the third quarter of 2015, an increase of $ 38.9 million, or 8.6% from $454.2 million for the second quarter 2015, and an increase of $149.6 million, or 43.5%, from $343.6 million for the third quarter of 2014.

The net interest margin for the third quarter of 2015 was 4.29%, a 3 basis point decrease from 4.32% for the second quarter of 2015, and a 2 basis point decrease from 4.31% for the third quarter of 2014. The net interest margin compression was primarily due to an increased cost of funds during the third quarter of 2015 compared to the second quarter of 2015 and the prior-year third quarter. The following table shows the asset yields, liability costs, spread and margin.

Non-interest income for the third quarter 2015 was $2.0 million, compared to $2.2 million for the second quarter of 2015 and $2.0 million for the prior-year third quarter. Net gain on sale of SBA loans totaled $1.2 million for the third quarter of 2015, compared to $1.3 million for the second quarter of 2015. Sales of SBA loans for the third quarter of 2015 were $18.3 million, compared to $15.3 million for the second quarter of 2015. The lower net gain on sales of SBA loans during the quarter despite increased sales was primarily due to a decrease in average premium received. The average premium on sale of SBA loans for the third quarter of 2015 was 8.9%, compared to 11.0% for the second quarter of 2015.

The decrease in non-interest income from the prior-year third quarter was primarily due to a $105 thousand decrease in other service fee income on deposits. The decrease was primarily due to the termination of a relationship with a single large depositor with a high volume of wire transactions.

Non-interest expense for the third quarter 2015 was $4.9 million, compared to $5.0 million for the second quarter of 2015 and $4.3 million for the prior-year third quarter. Total salaries and employee benefits expense was $3.0 million for the third quarter of 2015, compared to $3.1 million for the second quarter of 2015. The total number of full time equivalent employees was 116.5 as of September 30, 2015 and 107.5 as of June 30, 2015. The increase in the number of employees was primarily due to a new branch that opened in October of 2015.

The increase in non-interest expense from the prior-year third quarter was primarily due to an increase in salaries and employee benefits expense, occupancy and FF&E expenses. Salaries and employee benefits expense increased $320 thousand, or 11.9%, from $2.7 million for the third quarter of 2014. The increase reflected an increase in the number of full-time equivalent employees from 101.5 as of September 30, 2014. Occupancy expense increased $240 thousand, or 56.7%, from $423 thousand for the third quarter of 2014. The increase was primarily due to addition of new branches in mid-2014 and 2015 as well as expense related to the expansion of the headquarters office, which resulted in higher lease expenses. FF&E expense increased primarily due to the bank’s continued expansion.

The effective tax rate for the third quarter was 41.2%, compared to 41.2% for the second quarter of 2015 and 40.6% for the third quarter of 2014.

Balance Sheet

Total assets were $606.2 million at September 30, 2015, an increase of $41.5 million, or 7.3%, from $564.8 million at June 30, 2015, and an increase of $158.9 million, or 35.5%, from $447.4 million at September 30, 2014. Gross loans, net of unearned income, were $506.3 million at September 30, 2015, an increase of $40.6 million, or 8.7%, from $465.7 million at June 30, 2015, and an increase of $142.2 million, or 39.1%, from $364.1 million a year ago. New loan originations for the third quarter of 2015 amounted to $97.8 million, including SBA loan originations of $20.7 million, compared to $76.6 million, including SBA loan originations of $20.7 million for the second quarter of 2015. New loan originations for the third quarter of 2014 amounted to $63.6 million, including SBA loan originations of $20.9 million.

Total deposits were $509.7 million at September 30, 2015, an increase of $29.0 million, or 6.0% from $480.7 million at June 30, 2015, and an increase of $132.8 million, or 35.2%, from $376.9 million at September 30, 2014. At September 30, 2015, the bank borrowed $20.0 million from the Federal Home Loan Bank (“FHLB”) with a one year term.

Non-interest bearing deposits accounted for 30.4% of total deposits at September 30, 2015, compared to 34.7% at June 30, 2015 and 42.9% at September 30, 2014.

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 September 30, 2015, the bank continued to exceed all regulatory capital requirements to be classified as “well-capitalized”, as summarized in the following table.

At September 30, 2015, the tangible common equity represented 11.68% of tangible assets, compared to 12.23% at June 30, 2015 and 14.31% at September 30, 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

The provision for loan losses for the third quarter of 2015 was $476 thousand. No provisions were made for the second quarter of 2015 and third quarter of 2014.

Non-performing assets were $1.0 million, or 0.17% of total assets at September 30, 2015, compared to $1.2 million, or 0.20% of total assets at June 30, 2015 and $1.5 million, or 0.33% of total assets at September 30, 2014. There was no other real estate owned (“OREO”) at September 30, 2015, June 30, 2015, or September 30, 2014.

Non-performing loans to gross loans were 0.20% at September 30, 2015, compared to 0.25% at June 30, 2015 and 0.40% at September 30, 2014. Total classified loans were $758 thousand, or 0.15% of gross loans, at September 30, 2015, compared to $1.4 million, or 0.30% of gross loans at June 30, 2015 and $1.8 million, or 0.50% of gross loans at September 30, 2014.

The allowance for loan losses was $6.4 million at September 30, 2015, compared to $5.9 million at June 30, 2015, and $5.5 million at September 30, 2014. The allowance for loan losses was 1.26% of gross loans at September 30, 2015, compared to 1.26% at June 30, 2015 and 1.51% at September 30, 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 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 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. 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.

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