Op bancorp reports third quarter result of 2019
Los angeles--(business wire)--op bancorp (the “company”) (nasdaq: opbk), the holding company of open bank (the “bank”), today reported unaudited financial results for the third quarter of 2019. net income for the third quarter of 2019 was $4.0 million, or $0.24 per diluted common share, compared with net income of $3.8 million, or $0.23 per diluted common share, for the second quarter of 2019, and net income of $3.5 million, or $0.21 per diluted share, for the third quarter of 2018. “we successfully completed our first stock repurchase program with total purchases of 395,000 shares and launched another stock repurchase program of up to 475,000 shares of common stock in august. we are also pleased to report another strong quarter, with net income of $4.0 million, or $0.24 per diluted common share for the three months ended september 30, 2019. we have continued to grow our loans and deposits by 14% and 11%, respectively, compared to the third quarter of 2018, while maintaining strong asset quality. our noninterest bearing deposits increased 7.9% during the quarter to reach 29.8% of total deposits as of september 30, 2019, in this challenging and competitive interest-rate environment,” commented min kim, president and chief executive officer of op bancorp and open bank. financial highlights (unaudited) (dollars in thousands, except per share data) as of or for the three months ended september 30, june 30, september 30, 2019 2019 2018 income statement data: interest income $ 15,112 $ 14,878 $ 13,006 interest expense 3,893 3,701 2,521 net interest income 11,219 11,177 10,485 provision for loan losses 290 401 439 noninterest income 2,732 2,647 2,284 noninterest expense 8,424 8,358 7,705 income before taxes 5,237 5,065 4,625 provision for income taxes 1,237 1,229 1,144 net income $ 4,000 $ 3,836 $ 3,481 diluted earnings per share $ 0.24 $ 0.23 $ 0.21 balance sheet data: loans held for sale $ 368 $ 1,245 $ 3,254 gross loans, net of unearned income 964,370 947,006 850,018 allowance for loan losses 9,640 9,525 9,551 total assets 1,151,934 1,127,556 1,035,028 deposits 995,993 974,672 896,891 shareholders’ equity 137,593 135,482 124,975 performance ratios: return on average assets (annualized) 1.41 % 1.39 % 1.42 % return on average equity (annualized) 11.74 % 11.50 % 11.28 % net interest margin (annualized) 4.13 % 4.26 % 4.44 % efficiency ratio (1) 60.39 % 60.45 % 60.34 % credit quality: nonperforming loans $ 1,570 $ 1,556 $ 1,233 nonperforming assets 3,387 1,556 1,233 net charge-offs to average gross loans (annualized) 0.08 % 0.21 % 0.29 % nonperforming assets to gross loans plus oreo 0.35 % 0.16 % 0.15 % all to nonperforming loans 614 % 612 % 775 % all to gross loans, net of unearned income 1.00 % 1.01 % 1.12 % capital ratios: total risk-based capital ratio 15.36 % 15.45 % 16.16 % tier 1 risk-based capital ratio 14.35 % 14.42 % 15.01 % common equity tier 1 ratio 14.35 % 14.42 % 15.01 % leverage ratio 12.11 % 12.24 % 12.77 % (1) represents noninterest expense divided by the sum of net interest income and noninterest income. (dollars in thousands, except per share data) for the nine months ended september 30, september 30, 2019 2018 income statement data: interest income $ 44,077 $ 36,248 interest expense 10,883 6,217 net interest income 33,194 30,031 provision for loan losses 691 1,047 noninterest income 8,912 7,279 noninterest expense 24,855 21,993 income before taxes 16,560 14,270 provision for income taxes 3,984 3,781 net income $ 12,576 $ 10,489 diluted earnings per share $ 0.77 $ 0.66 performance ratios: return on average assets 1.54 % 1.48 % return on average equity 12.55 % 12.43 % net interest margin 4.25 % 4.49 % efficiency ratio (1) 59.03 % 58.95 % (1) represents noninterest expense divided by the sum of net interest income and noninterest income. (dollars in thousands, except per share data) for the nine months ended september 30, september 30, 2019 2018 income before taxes, as reported $ 16,560 $ 14,270 gain on coli 1,228 — provision for income taxes 3,887 3,781 net income $ 11,445 $ 10,489 diluted earnings per share $ 0.70 $ 0.66 return on average assets 1.40 % 1.48 % return on average equity 11.42 % 12.43 % results of operations the reported interest income and yield on our loan portfolio are impacted by a number of components, including changes in the average contractual interest rate earned on loans and the amount of discount accretion on sba loans. the following table reconciles the contractual interest income and yield on our loan portfolio to the reported interest income and yield for the periods indicated. three months ended september 30, 2019 june 30, 2019 september 30, 2018 (dollars in thousands) interest & fees yield interest & fees yield interest & fees yield contractual interest rate $ 13,492 5.66 % $ 13,298 5.72 % $ 11,820 5.46 % sba discount accretion 717 0.30 % 703 0.30 % 611 0.28 % amortization of net deferred fees/(costs) 37 0.02 % 38 0.02 % 65 0.03 % interest recognized on nonaccrual loans (12 ) -0.01 % - 0.00 % (8 ) 0.00 % prepayment penalties and other fees 44 0.02 % 54 0.02 % 36 0.02 % yield on loans (as reported) $ 14,278 5.99 % $ 14,093 6.06 % $ 12,524 5.79 % nine months ended september 30, 2019 september 30, 2018 (dollars in thousands) interest & fees yield interest & fees yield contractual interest rate $ 39,285 5.69 % $ 33,016 5.35 % sba discount accretion 1,928 0.28 % 1,660 0.27 % amortization of net deferred fees/(costs) 192 0.03 % 215 0.03 % interest recognized on nonaccrual loans (12 ) 0.00 % 21 0.00 % prepayment penalties and other fees 332 0.05 % 130 0.02 % yield on loans (as reported) $ 41,725 6.05 % $ 35,042 5.67 % net interest margin for the third quarter of 2019 decreased 13 basis points to 4.13% from 4.26% for the second quarter of 2019 due to the decrease in the reported yield on interest-earning assets and the increase in cost of deposits. net interest income before the provision for loan losses for the third quarter of 2019 was $11.2 million, an increase of $42,000, or 0.4%, compared to the second quarter of 2019, primarily due to a $234,000 increase in interest income, partially offset by a $192,000 increase in interest expense. interest income on securities available for sale and other interest income increased $49,000, or 6.2%, during the third quarter of 2019 compared to the second quarter of 2019. the increase was primarily due to a $44,000 increase in other interest income as a result of a $12.0 million, or 18.0%, increase in the average balance of fed funds sold and other investments, compared to the second quarter of 2019. interest income from the contractual interest rates on loans increased $194,000, or 1.5%, during the third quarter of 2019 compared to the second quarter of 2019, reflecting a $14.4 million, or 1.5%, increase in average balance of loans, including loans held for sale. the amount of discount accretion on sba loans increased $14,000 during the third quarter of 2019 due to an increase in sba loan payoffs. the reported interest income on loans, net of sba discount accretions and other components, increased $185,000 during the third quarter of 2019. interest expense for the third quarter of 2019 increased $192,000, or 5.2%, compared to the second quarter of 2019, due to an increase of $26.4 million, or 3.9%, in the average balance of interest-bearing liabilities. net interest margin for the third quarter of 2019 decreased 31 basis points to 4.13% from 4.44% for the third quarter of 2018, primarily due to a greater increase in the cost of interest-bearing liabilities compared to the increase in the reported yield on interest-earning assets. net interest income before provision for loan losses for the third quarter of 2019 increased $734,000, or 7.0%, to $11.2 million, compared to $10.5 million for the third quarter of 2018, primarily due to a $2.1 million increase in interest income, partially offset by a $1.4 million increase in interest expense. interest income on securities available for sale and other interest income increased $352,000, or 73.1%, for the third quarter of 2019 compared to the third quarter of 2018. the increase was primarily due to a $269,000 increase in other interest income as a result of a $44.0 million increase in the average balance of fed funds sold and other investments and a $83,000 increase in interest income on securities available for sale from purchases of higher yielding securities during the fourth quarter of 2018. the increase of $1.8 million in contractual interest income on loans in the third quarter of 2019 was primarily due to a $87.2 million, or 10.1%, increase in the balance of average loans, including loans held for sale, compared to the third quarter of 2018, and a 20 basis point increase in the yield on average loans to 5.99% for the third quarter of 2019 from 5.79% for the same period of 2018. the increase in interest expense in the third quarter of 2019, compared to the third quarter of 2018 was due to a $109.4 million, or 18.5%, increase in the average balance of the total interest-bearing liabilities and a 51 basis point increase in the cost of interest-bearing liabilities. the increases in the average yield on loans and average cost of deposits in the third quarter of 2019, as compared to the third quarter of 2018, were primarily due to market interest rate increases by the federal reserve in september and december of 2018. the rate cuts by the federal reserve of 25 basis points each in august and september of 2019 did not have a full impact on loan yields or deposit costs in the third quarter of 2019. the following tables show the asset yields, liability costs, spreads and margins for the periods indicated. three months ended percentage change september 30, june 30, september 30, q3-19 q3-19 2019 2019 2018 vs. q2-19 vs. q3-18 yield on loans 5.99 % 6.06 % 5.79 % -0.07 % 0.20 % yield on interest-earning assets 5.56 % 5.67 % 5.51 % -0.11 % 0.05 % cost of interest-bearing liabilities 2.20 % 2.20 % 1.69 % 0.00 % 0.51 % cost of deposits 1.58 % 1.56 % 1.17 % 0.02 % 0.41 % cost of funds 1.58 % 1.56 % 1.18 % 0.02 % 0.40 % net interest spread 3.36 % 3.47 % 3.82 % -0.11 % -0.46 % net interest margin 4.13 % 4.26 % 4.44 % -0.13 % -0.31 % nine months ended percentage change september 30, september 30, 2019 ytd 2019 2018 vs. 2018 ytd yield on loans 6.05 % 5.67 % 0.38 % yield on interest-earning assets 5.65 % 5.41 % 0.24 % cost of interest-bearing liabilities 2.17 % 1.48 % 0.69 % cost of deposits 1.54 % 1.00 % 0.54 % cost of funds 1.54 % 1.01 % 0.53 % net interest spread 3.48 % 3.93 % -0.45 % net interest margin 4.25 % 4.49 % -0.24 % the company recorded the provision for loan losses of $290,000 for the third quarter of 2019 compared to $401,000 for the second quarter of 2019. the provision for loan losses in the second and third quarter of 2019 were primarily due to loan growth during the quarters. the provision for loan losses of $439,000 for the third quarter of 2018 was due to the loan growth as well as net charge-offs of $611,000. noninterest income for the third quarter of 2019 was $2.7 million, an increase of $85,000, or 3.2%, from $2.6 million for the second quarter of 2019, primarily due to an increase of $113,000 in gain on sale of sba loans, partially offset by a decrease of $30,000 in service charges on deposits and a decrease of $27,000 in other income. gain on sale of loans increased $126,000 to $1.7 million for the third quarter of 2019 from $1.6 million for the second quarter of 2019. the company sold $22.2 million in sba loans with an average premium of 8.85% in the third quarter of 2019, compared to the sale of $21.2 million in sba loans with an average premium of 8.99% in the second quarter of 2019. noninterest income for the third quarter of 2019 increased $448,000 to $2.7 million compared to $2.3 million for the third quarter of 2018, primarily due to an increase of $451,000 in gain on sale of sba loans, partially offset by a decrease of $67,000 in loan servicing fees, and a decrease of $49,000 in other income. gain on sale of loans for the third quarter of 2018 was $1.1 million from the sale of $22.8 million in sba loans with an average premium of 6.47%. loan servicing fees, net of amortization, decreased $67,000 to $243,000 for the third quarter of 2019 from $310,000 for the third quarter of 2018, primarily due to an increase in the amortization of sba servicing assets from the increase in sba loan payoffs. noninterest expense for the third quarter of 2019 was $8.4 million, an increase of $66,000, or 0.8%, compared to the second quarter of 2019. the increase in noninterest expense from the second quarter of 2019 to the third quarter of 2019 was primarily due to an increase of $100,000 in occupancy and equipment expense, an increase of $23,000 in our donation to our foundation and other contributions, and an increase of $28,000 in other expenses, partially offset by a decrease of $126,000 in fdic insurance and regulatory assessments. the increase in occupancy and equipment expense was primarily attributable to a branch opening in carrollton, texas in the second quarter of 2019. the decrease in fdic insurance and regulatory assessments was due to the small bank assessment credits that was applied to offset the fdic assessments starting from june 30, 2019. noninterest expense for the third quarter of 2019 increased $719,000, or 9.3%, to $8.4 million, compared to $7.7 million for the third quarter of 2018. the increase was primarily due to an increase of $546,000 in salary and employee benefits from an increase in employee headcount to 171 at september 30, 2019, from 157 at september 30, 2018. occupancy and equipment expense increased $256,000 primarily attributable to new loan production offices and a new branch opening in 2019. fdic insurance and regulatory assessments decreased $127,000, primarily due to the aforementioned credits. income tax provision was $1.2 million for the third quarter and second quarter of 2019 and $1.1 million for the third quarter of 2018. the effective tax rate for the third quarter of 2019 was 23.6%, compared to 24.3% for the second quarter of 2019 and 24.7% for the third quarter of 2018. balance sheet total assets at september 30, 2019, were $1.15 billion, an increase of $24.4 million, or 2.2%, compared to $1.13 billion at june 30, 2019, and an increase of $116.9 million, or 11.3%, compared to $1.04 billion at september 30, 2018. gross loans, net of unearned income, were $964.4 million at september 30, 2019, an increase of $17.4 million, or 1.8%, from $947.0 million at june 30, 2019, and an increase of $114.4 million, or 13.5%, from $850.0 million at september 30, 2018. new loan originations for the third quarter of 2019 totaled $100.9 million, including sba loan originations of $30.9 million, compared to $96.2 million, including sba loan originations of $27.9 million, for the second quarter of 2019, and $91.7 million, including sba loan originations of $30.3 million, for the third quarter of 2018. loan payoffs for the third quarter of 2019 were $38.7 million, compared to $38.6 million for the second quarter of 2019, and $29.3 million for the third quarter of 2018. total deposits were $996.0 million at september 30, 2019, an increase of $21.3 million, or 2.2%, from $974.7 million at june 30, 2019, and an increase of $99.1 million, or 11.0%, from $896.9 million at september 30, 2018. noninterest bearing deposits were $296.8 million at september 30, 2019, compared to $275.0 million at june 30, 2019, and $286.3 million at september 30, 2018. noninterest bearing deposits accounted for 29.8% of total deposits at september 30, 2019, compared to 28.2% at june 30, 2019, and 31.9% at september 30, 2018. as of september 30, june 30, september 30, 2019 2019 2018 noninterest bearing deposits 29.8 % 28.2 % 31.9 % interest bearing demand deposits 27.6 % 28.7 % 28.3 % savings 0.3 % 0.4 % 0.4 % time deposits over $250,000 22.1 % 21.7 % 17.6 % other time deposits 20.2 % 21.0 % 21.8 % total deposits 100.0 % 100.0 % 100.0 % the company had no borrowings from the federal home loan bank (“fhlb”) at september 30, 2019, june 30, 2019, and september 30, 2018. the adoption of the new lease accounting standard asu 2016-02, leases (topic 842) effective january 1, 2019, resulted in the recognition of $7.7 million and $9.6 million in right-of-use assets and lease liabilities, respectively, on the balance sheet. with the new branch opening, the company had right-of-use assets and lease liabilities of $8.6 million and $10.3 million, respectively, at september 30, 2019. the company’s lease agreements include options to renew at the company’s discretion. the extensions are not reasonably certain to be exercised, therefore it is not considered in the calculation of the right-of-use assets and liabilities. the company’s consolidated regulatory capital ratios exceeded regulatory guidelines and the bank’s capital ratios exceeded the regulatory guidelines for a well-capitalized financial institution under the basel iii regulatory requirements at september 30, 2019, as summarized in the following table. regulatory well-capitalized capital ratio financial requirements (1), institution including basel iii fully phased-in regulatory capital conservation capital ratios op bancorp open bank guidelines buffer total risk-based 15.36 % 15.03 % 10.00 % 10.50 % tier 1 risk-based 14.35 % 14.01 % 8.00 % 8.50 % common equity tier 1 risk-based 14.35 % 14.01 % 6.50 % 7.00 % leverage 12.11 % 11.83 % 5.00 % 4.00 % (1) fully phased in basel iii requirement for both op bancorp and open bank. includes a 2.5% capital conservation buffer, except the leverage ratio. the company announced a second stock repurchase program on august 28, 2019, which authorizes the company to repurchase up to 475,000 shares of its common stock following the completion of the company’s first stock repurchase program in august 2019. the company completed its first stock repurchase of 395,000 shares at an average price of $9.10 per share. since the announcement of the second stock repurchase program, the company has repurchased 103,724 shares of its common stock at an average repurchase price of $9.28 through october 24, 2019. asset quality nonperforming loans were $1.57 million at september 30, 2019, an increase of $14,000 from $1.56 million at june 30, 2019, and an increase of $337,000 from $1.2 million at september 30, 2018. the company had other real estate owned (“oreo”) of $1.8 million at september 30, 2019. the company had no oreo at june 30, 2019 and september 30, 2018. nonperforming assets were $3.4 million, or 0.29% of total assets, at september 30, 2019, $1.6 million, or 0.14% of total assets, at june 30, 2019 and $1.2 million, or 0.12% of total assets, at september 30, 2018. nonperforming loans to gross loans were 0.16% at september 30, 2019, compared to 0.16% at june 30, 2019 and 0.15% at september 30, 2018. total classified loans were $3.2 million, or 0.34% of gross loans, at september 30, 2019, compared to $4.2 million, or 0.44% of gross loans, at june 30, 2019, and $3.8 million, or 0.45% of gross loans, at september 30, 2018. the following tables shows the trend of classified loans by loan type as of the date stated. 9/30/2019 6/30/2019 3/31/2019 12/31/2018 9/30/2018 classified loans by loan type (dollars in thousands) commercial real estate $ — $ — $ — $ — $ — sba loans—real estate 2,247 2,264 2,281 2,000 1,859 sba loans—non-real estate 36 41 49 57 354 commercial and industrial 710 1,892 1,906 1,516 1,587 home mortgage 256 — — — — consumer — — — — — total classified loans $ 3,249 $ 4,197 $ 4,236 $ 3,573 $ 3,800 sba guarantee balance retained sba loans—real estate 516 524 534 544 553 sba loans—non-real estate 36 41 49 57 282 total sba unsold guarantee portion $ 552 $ 565 $ 583 $ 601 $ 835 total classified loans, net of sba guarantee balance retained $ 2,697 $ 3,632 $ 3,653 $ 2,972 $ 2,965 the allowance for loan losses was $9.6 million at september 30, 2019, compared to $9.5 at june 30, 2019, and $9.6 million at september 30, 2018. the allowance for loan losses was 1.00% of gross loans at september 30, 2019, 1.01% at june 30, 2019 and 1.12% at september 30, 2018. the allowance for loan losses was 614% of nonperforming assets at september 30, 2019, 612% at june 30, 2019, and 775% at september 30, 2018. about op bancorp op bancorp, the holding company for open bank (the “bank”), is a california corporation whose common stock is quoted on the nasdaq global market under the ticker symbol, “opbk.” the bank is engaged in the general commercial banking business in los angeles, orange, and santa clara counties, california, and carrollton, texas 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 nine full branch offices in downtown los angeles, los angeles fashion district, los angeles koreatown, gardena, buena park, and santa clara, california and carrollton, texas. the bank also has four loan production offices in atlanta, georgia, aurora, colorado, and lynnwood and seattle, washington. the bank commenced its operations on june 10, 2005 as first standard bank and changed its name to open bank in october 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. cautionary note regarding forward-looking statements certain matters set forth herein (including any exhibits hereto) constitute “forward-looking statements” within the meaning of the private securities litigation reform act of 1995, including forward-looking statements relating to the company’s current business plans and expectations regarding future operating results. forward-looking statements may include, but are not limited to, the use of forward-looking language, such as “likely result in,” “expects,” “anticipates,” “estimates,” “forecasts,” “projects,” “intends to,” or may include other similar words or phrases, such as “believes,” “plans,” “trend,” “objective,” “continues,” “remains,” or similar expressions, or future or conditional verbs, such as “will,” “would,” “should,” “could,” “may,” “might,” “can,” or similar verbs. these forward-looking statements are subject to risks and uncertainties that could cause actual results, performance or achievements to differ materially from those projected. these risks and uncertainties, some of which are beyond our control, include, but are not limited to: business and economic conditions, particularly those affecting the financial services industry and our primary market areas; our ability to successfully manage our credit risk and the sufficiency of our allowance for loan loss; factors that can impact the performance of our loan portfolio, including real estate values and liquidity in our primary market areas, the financial health of our commercial borrowers and the success of construction projects that we finance; our ability to effectively execute our strategic plan and manage our growth; interest rate fluctuations, which could have an adverse effect on our profitability; liquidity issues, including fluctuations in the fair value and liquidity of the securities we hold for sale; external economic and/or market factors, such as changes in monetary and fiscal policies and laws, including the interest rate policies of the federal reserve, inflation or deflation, changes in the demand for loans, and fluctuations in consumer spending, borrowing and savings habits, which may have an adverse impact on our financial condition; continued or increasing competition from other financial institutions, credit unions, and non-bank financial services companies, many of which are subject to different regulations than we are; challenges arising from unsuccessful attempts to expand into new geographic markets, products, or services; restraints on the ability of the bank to pay dividends to the holding company; increased capital requirements imposed by banking regulators, which may require us to raise capital at a time when capital is not available on favorable terms or at all; a failure in the internal controls we have implemented to address the risks inherent to the business of banking; inaccuracies in our assumptions about future events, which could result in material differences between our financial projections and actual financial performance; changes in our management personnel or our inability to retain motivate and hire qualified management personnel; disruptions, security breaches, or other adverse events, failures or interruptions in, or attacks on, our information technology systems; disruptions, security breaches, or other adverse events affecting the third-party vendors who perform several of our critical processing functions; an inability to keep pace with the rate of technological advances due to a lack of resources to invest in new technologies; risks related to potential acquisitions; incremental costs and obligations associated with operating as a public company; the impact of any claims or legal actions to which we may be subject, including any effect on our reputation; compliance with governmental and regulatory requirements, including the dodd-frank act and others relating to banking, consumer protection, securities and tax matters, and our ability to maintain licenses required in connection with commercial mortgage origination, sale and servicing operations; changes in federal tax law or policy; the affect if any of the recent federal government shutdown on our sba loan program; and our ability the manage the foregoing and other factors set forth in the company’s public reports. we describe these and other risks that could affect our results in item 1a. “risk factors,” of our latest annual report on form 10-k for the year ended december 31, 2018 and in our other subsequent filings with the securities and exchange commission. if any of these risks or uncertainties materializes or if any of the assumptions underlying such forward-looking statements proves to be incorrect, our results could differ materially from those expressed in, implied or projected by such forward-looking statements. we assume no obligation to update such forward-looking statements. any forward-looking statements presented herein are made only as of the date of this press release, and we do not undertake any obligation to update or revise any forward-looking statements to reflect changes in assumptions, the occurrence of unanticipated events, or otherwise, except as required by law. consolidated balance sheet (unaudited) (dollars in thousands) 9/30/2019 6/30/2019 % change 9/30/2018 % change assets cash and cash equivalents $ 89,107 $ 83,111 7.2 % $ 95,787 -7.0 % securities available for sale, at fair value 52,295 51,829 0.9 % 46,324 12.9 % other investments 9,173 8,134 12.8 % 7,221 27.0 % loans held for sale 368 1,245 -70.4 % 3,254 -88.7 % real estate loans 594,447 583,634 1.9 % 489,828 21.4 % sba loans 136,232 130,957 4.0 % 132,505 2.8 % c & i loans 107,730 105,133 2.5 % 104,301 3.3 % home mortgage loans 123,092 123,951 -0.7 % 120,262 2.4 % consumer & other loans 2,869 3,331 -13.9 % 3,122 -8.1 % gross loans, net of unearned income 964,370 947,006 1.8 % 850,018 13.5 % allowance for loan losses (9,640 ) (9,525 ) 1.2 % (9,551 ) 0.9 % net loans receivable 954,730 937,481 1.8 % 840,467 13.6 % premises and equipment, net 5,367 5,341 0.5 % 4,757 12.8 % accrued interest receivable 3,140 3,301 -4.9 % 2,783 12.8 % servicing assets 6,959 6,996 -0.5 % 7,097 -1.9 % company owned life insurance 10,551 10,482 0.7 % 11,321 -6.8 % deferred tax assets 2,358 2,858 -17.5 % 4,257 -44.6 % other real estate owned (oreo) 1,817 - 100.0 % - 0.0 % operating right-of-use assets (1) 8,606 8,959 -3.9 % - 100.0 % other assets 7,463 7,819 -4.6 % 11,760 -36.5 % total assets $ 1,151,934 $ 1,127,556 2.2 % $ 1,035,028 11.3 % liabilities and shareholders' equity noninterest bearing deposits $ 296,831 $ 274,976 7.9 % $ 286,347 3.7 % savings 3,316 3,527 -6.0 % 3,240 2.3 % money market and others 274,698 279,748 -1.8 % 253,807 8.2 % time deposits over $250,000 219,547 211,305 3.9 % 157,687 39.2 % other time deposits 201,601 205,116 -1.7 % 195,810 3.0 % total deposits 995,993 974,672 2.2 % 896,891 11.0 % other borrowings - - 0.0 % - 0.0 % accrued interest payable 2,541 2,287 11.1 % 1,196 112.5 % operating lease liabilities (1) 10,335 10,737 -3.7 % - 100.0 % other liabilities 5,472 4,378 25.0 % 11,966 -54.3 % total liabilities 1,014,341 992,074 2.2 % 910,053 11.5 % common stock 87,085 88,455 -1.5 % 91,009 -4.3 % additional paid-in capital 7,154 6,965 2.7 % 5,886 21.5 % retained earnings 43,086 39,878 8.0 % 29,113 48.0 % accumulated other comprehensive income(loss) 268 184 45.7 % (1,033 ) -125.9 % total shareholders' equity 137,593 135,482 1.6 % 124,975 10.1 % total liabilities and shareholders' equity $ 1,151,934 $ 1,127,556 2.2 % $ 1,035,028 11.3 % (1) the adoption of asu 2016-02, leases (topic 842) in the first quarter of 2019 resulted in the recognition of right-of-use assets and lease liabilities on balance sheet. (dollars in thousands, except per share data) three months ended 9/30/2019 6/30/2019 % change 9/30/2018 % change interest income interest and fees on loans $ 14,278 $ 14,093 1.3 % $ 12,524 14.0 % interest on securities available for sale 332 327 1.5 % 249 33.3 % other interest income 502 458 9.6 % 233 115.5 % total interest income 15,112 14,878 1.6 % 13,006 16.2 % interest expense interest on deposits 3,893 3,701 5.2 % 2,477 57.2 % interest on borrowed funds - - 0.0 % 44 -100.0 % total interest expense 3,893 3,701 5.2 % 2,521 54.4 % net interest income 11,219 11,177 0.4 % 10,485 7.0 % provision for loan losses 290 401 -27.7 % 439 -33.9 % net interest income after provision for loan losses 10,929 10,776 1.4 % 10,046 8.8 % noninterest income service charges on deposits 469 499 -6.0 % 484 -3.1 % loan servicing fees, net of amortization 243 227 7.0 % 310 -21.6 % gain on sale of loans 1,714 1,588 7.9 % 1,135 51.0 % other income 306 333 -8.1 % 355 -13.8 % total noninterest income 2,732 2,647 3.2 % 2,284 19.6 % noninterest expense salaries and employee benefits 5,349 5,344 0.1 % 4,803 11.4 % occupancy and equipment 1,232 1,132 8.8 % 976 26.2 % data processing and communication 385 367 4.9 % 320 20.3 % professional fees 261 247 5.7 % 294 -11.2 % fdic insurance and regulatory assessments (21 ) 105 -120.0 % 106 -119.8 % promotion and advertising 182 183 -0.5 % 222 -18.0 % directors’ fees 228 223 2.2 % 216 5.6 % foundation donation and other contributions 402 379 6.1 % 369 8.9 % other expenses 406 378 7.4 % 399 1.8 % total noninterest expense 8,424 8,358 0.8 % 7,705 9.3 % income before income taxes 5,237 5,065 3.4 % 4,625 13.2 % provision for income taxes 1,237 1,229 0.7 % 1,144 8.1 % net income $ 4,000 $ 3,836 4.3 % $ 3,481 14.9 % book value per share $ 8.76 $ 8.62 1.6 % $ 7.92 10.6 % basic eps $ 0.25 $ 0.24 4.2 % $ 0.21 19.0 % diluted eps $ 0.24 $ 0.23 4.3 % $ 0.21 14.3 % shares of common stock outstanding 15,711,580 15,723,007 -0.1 % 15,770,576 -0.4 % weighted average shares: - basic 15,768,654 15,685,478 0.5 % 15,714,226 0.3 % - diluted 16,007,486 15,951,598 0.4 % 16,234,926 -1.4 % key ratios (dollars in thousands, except ratios) three months ended 9/30/2019 6/30/2019 % change 9/30/2018 % change return on average assets (roa)* 1.41 % 1.39 % 0.02 % 1.42 % -0.01 % return on average equity (roe) * 11.74 % 11.50 % 0.24 % 11.28 % 0.46 % net interest margin * 4.13 % 4.26 % -0.13 % 4.44 % -0.31 % efficiency ratio 60.39 % 60.45 % -0.06 % 60.34 % 0.05 % total risk based capital ratio 15.36 % 15.45 % -0.09 % 16.16 % -0.80 % tier 1 capital ratio 14.35 % 14.42 % -0.07 % 15.01 % -0.66 % common equity tier 1 ratio 14.35 % 14.42 % -0.07 % 15.01 % -0.66 % tier 1 leverage ratio 12.11 % 12.24 % -0.13 % 12.77 % -0.66 % * annualized (dollars in thousands, except per share data) nine months ended 9/30/2019 9/30/2018 % change interest income interest and fees on loans $ 41,725 $ 35,042 19.1 % interest on securities available for sale 1,019 645 58.0 % other interest income 1,333 561 137.6 % total interest income 44,077 36,248 21.6 % interest expense interest on deposits 10,883 6,071 79.3 % interest on borrowed funds - 146 -100.0 % total interest expense 10,883 6,217 75.1 % net interest income 33,194 30,031 10.5 % provision for loan losses 691 1,047 -34.0 % net interest income after provision for loan losses 32,503 28,984 12.1 % noninterest income service charges on deposits 1,495 1,419 5.4 % loan servicing fees, net of amortization 853 1,006 -15.2 % gain on sale of loans 4,379 3,852 13.7 % other income 2,185 1,002 118.1 % total noninterest income 8,912 7,279 22.4 % noninterest expense salaries and employee benefits 15,862 13,629 16.4 % occupancy and equipment 3,441 3,065 12.3 % data processing and communication 1,110 948 17.1 % professional fees 711 612 16.2 % fdic insurance and regulatory assessments 188 306 -38.6 % promotion and advertising 543 598 -9.2 % directors’ fees 680 633 7.4 % foundation donation and other contributions 1,169 1,084 7.8 % other expenses 1,151 1,118 3.0 % total noninterest expense 24,855 21,993 13.0 % income before income taxes 16,560 14,270 16.0 % provision for income taxes 3,984 3,781 5.4 % net income (loss) $ 12,576 $ 10,489 19.9 % book value per share $ 8.76 $ 7.92 10.6 % basic eps $ 0.78 $ 0.68 14.7 % diluted eps $ 0.77 $ 0.66 16.7 % shares of common stock outstanding 15,711,580 15,770,576 -0.4 % weighted average shares: - basic 15,756,886 14,870,232 6.0 % - diluted 15,992,015 15,376,982 4.0 % key ratios (dollars in thousands, except ratios) nine months ended 9/30/2019 9/30/2018 % change return on average assets (roa)* 1.54 % 1.48 % 0.06 % return on average equity (roe) * 12.55 % 12.43 % 0.12 % net interest margin * 4.25 % 4.49 % -0.24 % efficiency ratio 59.03 % 58.95 % 0.08 % total risk based capital ratio 15.36 % 16.16 % -0.80 % tier 1 capital ratio 14.35 % 15.01 % -0.66 % common equity tier 1 ratio 14.35 % 15.01 % -0.66 % tier 1 leverage ratio 12.11 % 12.77 % -0.66 % * annualized (dollars in thousands, except ratios) three months ended 9/30/2019 6/30/2019 3/31/2019 12/31/2018 9/30/2018 nonaccrual loans $ 1,234 $ 1,218 $ 1,239 $ 1,571 $ 888 loans 90 days or more past due, accruing - - - - - accruing restructured loans 336 338 341 343 345 nonperforming loans 1,570 1,556 1,580 1,914 1,233 other real estate owned (oreo) 1,817 - 1,146 - - nonperforming assets 3,387 1,556 2,726 1,914 1,233 classified loans 3,249 4,197 4,236 3,573 3,800 nonperforming assets/total assets 0.29 % 0.14 % 0.25 % 0.18 % 0.12 % nonperforming assets/gross loans plus oreo 0.35 % 0.16 % 0.30 % 0.22 % 0.15 % nonperforming loans/gross loans 0.16 % 0.16 % 0.17 % 0.22 % 0.15 % allowance for loan losses/nonperforming loans 614 % 612 % 609 % 503 % 775 % allowance for loan losses/nonperforming assets 285 % 612 % 353 % 503 % 775 % allowance for loan losses/gross loans 1.00 % 1.01 % 1.05 % 1.10 % 1.12 % classified loans/gross loans 0.34 % 0.44 % 0.46 % 0.41 % 0.45 % net charge-offs $ 176 $ 495 $ 17 $ 135 $ 611 net charge-offs to average gross loans * 0.08 % 0.21 % 0.01 % 0.06 % 0.29 % * annualized accruing delinquent loans 30-89 days past due 9/30/2019 6/30/2019 3/31/2019 12/31/2018 9/30/2018 30-59 days $ 2,580 $ 1,065 $ 2,073 $ 449 $ 1,007 60-89 days 580 2,207 - - - total 3,160 3,272 2,073 449 1,007 average balance sheet, interest and yield/rate analysis (dollars in thousands) three months ended september 30, 2019 june 30, 2019 september 30, 2018 average balance interest and fees yield/ rate average balance interest and fees yield/ rate average balance interest and fees yield/ rate interest-earning assets: federal funds sold and other investments $ 78,216 $ 502 2.52 % $ 66,277 $ 458 2.74 % $ 34,216 $ 233 2.68 % securities available for sale 54,472 332 2.44 53,329 327 2.45 44,441 249 2.24 total investments 132,688 834 2.49 119,606 785 2.61 78,657 482 2.43 real estate loans 573,102 7,978 5.52 562,256 7,837 5.59 483,625 6,472 5.31 sba loans 144,439 3,213 8.83 137,133 3,063 8.96 146,259 2,978 8.08 c & i loans 102,311 1,489 5.77 104,273 1,558 5.99 106,654 1,510 5.62 home mortgage loans 123,336 1,546 5.01 125,577 1,588 5.06 119,346 1,515 5.08 consumer & other loans 3,239 52 6.39 2,814 47 6.70 3,373 49 5.75 loans (1) 946,427 14,278 5.99 932,053 14,093 6.06 859,257 12,524 5.79 total interest-earning assets 1,079,115 15,112 5.56 1,051,659 14,878 5.67 937,914 13,006 5.51 noninterest-earning assets 51,680 50,387 45,913 total assets $ 1,130,795 $ 1,102,046 $ 983,827 interest-bearing liabilities: now and savings deposits $ 5,321 3 0.25 % $ 4,725 3 0.25 % $ 5,929 4 0.25 % money market deposits 275,259 1,295 1.87 281,239 1,335 1.90 254,510 948 1.48 time deposits 420,922 2,595 2.45 389,294 2,363 2.43 323,512 1,525 1.87 total interest-bearing deposits 701,502 3,893 2.20 675,258 3,701 2.20 583,951 2,477 1.68 borrowings 120 - 0.00 2 - 2.76 8,300 44 2.09 total interest-bearing liabilities 701,622 3,893 2.20 675,260 3,701 2.20 592,251 2,521 1.69 noninterest-bearing liabilities: noninterest-bearing deposits 275,316 276,569 258,252 other noninterest-bearing liabilities 17,628 16,778 9,817 total noninterest-bearing liabilities 292,944 293,347 268,069 shareholders’ equity 136,229 133,439 123,507 total liabilities and shareholders’ equity $ 1,130,795 $ 1,102,046 $ 983,827 net interest income / interest rate spreads $ 11,219 3.36 % $ 11,177 3.47 % $ 10,485 3.82 % net interest margin 4.13 % 4.26 % 4.44 % cost of deposits & cost of funds: total deposits / cost of deposits $ 976,818 $ 3,893 1.58 % $ 951,827 $ 3,701 1.56 % $ 842,203 $ 2,477 1.17 % total funding liabilities / cost of funds $ 976,938 $ 3,893 1.58 % $ 951,829 $ 3,701 1.56 % $ 850,503 $ 2,521 1.18 % (1) the average loan balance includes loans held for sale. (dollars in thousands) nine months ended september 30, 2019 september 30, 2018 average balance interest and fees yield/ rate average balance interest and fees yield/ rate interest-earning assets: federal funds sold and other investments $ 65,911 $ 1,332 2.67 % $ 27,699 $ 561 2.69 % securities available for sale 54,190 1,019 2.51 41,030 645 2.10 total investments 120,101 2,351 2.60 68,729 1,206 2.33 real estate loans 551,663 22,964 5.57 464,394 18,016 5.19 sba loans 137,663 9,209 8.94 141,641 8,242 7.78 c & i loans 104,405 4,641 5.94 104,819 4,348 5.55 home mortgage loans 125,788 4,770 5.06 111,414 4,286 5.13 consumer & other loans 2,864 141 6.58 3,536 150 5.67 loans (1) 922,383 41,725 6.05 825,804 35,042 5.67 total interest-earning assets 1,042,484 44,076 5.65 894,533 36,248 5.41 noninterest-earning assets 48,215 48,300 total assets $ 1,090,699 $ 942,833 interest-bearing liabilities: now and savings deposits $ 5,075 10 0.25 % $ 6,314 12 0.24 % money market deposits 269,446 3,751 1.86 256,171 2,460 1.28 time deposits 396,701 7,122 2.40 288,841 3,599 1.67 total interest-bearing deposits 671,222 10,883 2.17 551,326 6,071 1.47 borrowings 41 - 0.00 11,680 146 1.67 total interest-bearing liabilities 671,263 10,883 2.17 563,006 6,217 1.48 noninterest-bearing liabilities: noninterest-bearing deposits 271,517 257,717 other noninterest-bearing liabilities 14,317 9,603 total noninterest-bearing liabilities 285,834 267,320 shareholders’ equity 133,602 112,507 total liabilities and shareholders’ equity $ 1,090,699 $ 942,833 net interest income / interest rate spreads $ 33,193 3.48 % $ 30,031 3.93 % net interest margin 4.25 % 4.49 % cost of deposits & cost of funds: total deposits / cost of deposits $ 942,739 $ 10,883 1.54 % $ 809,043 $ 6,071 1.00 % total funding liabilities / cost of funds $ 942,780 $ 10,883 1.54 % $ 820,723 $ 6,217 1.10 % (1) the average loan balance includes loans held for sale.
