Op bancorp reports second 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 second quarter of 2019. net income for the second quarter of 2019 was $3.8 million, or $0.23 per diluted common share, compared with net income of $4.7 million, or $0.29 per diluted common share for the first quarter of 2019, and net income of $3.8 million, or $0.23 per diluted share for the second quarter of 2018. excluding one-time gain on company owned life insurance, net income for the first quarter of 2019 was $3.8 million or $0.23 per diluted common share. “we are pleased to report another strong quarter, with a net income of $3.8 million, or $0.23 per diluted common share for the three months ended june 30, 2019. our loans and deposits grew 15% and 18%, respectively, from the prior year, while maintaining strong asset quality. we maintained our noninterest bearing deposits at 28.2% of total deposits during this challenging environment,” commented min kim, president and chief executive officer of op bancorp and open bank. ms. kim continued, “in april, we have successfully converted our dallas loan production office to a full service branch with a commercial lending center in carrollton, texas. with this expansion, we look forward to continued growth of our franchise not only in california but also in texas.” financial highlights (unaudited) (dollars in thousands, except per share data) as of or for the three months ended june 30, march 31, june 30, 2019 2019 2018 income statement data: interest income $ 14,878 $ 14,086 $ 12,062 interest expense 3,701 3,288 2,075 net interest income 11,177 10,798 9,987 provision for loan losses 401 0 33 noninterest income 2,647 3,533 2,783 noninterest expense 8,358 8,073 7,478 income before taxes 5,065 6,258 5,259 provision for income taxes 1,229 1,518 1,468 net income $ 3,836 $ 4,740 $ 3,791 diluted earnings per share $ 0.23 $ 0.29 $ 0.23 balance sheet data: loans held for sale $ 1,245 $ 246 $ 8,718 gross loans, net of unearned income 947,006 913,064 826,040 allowance for loan losses 9,525 9,619 9,723 total assets 1,127,556 1,077,235 979,441 deposits 974,672 929,402 823,373 shareholders’ equity 135,482 132,376 121,393 performance ratios: return on average assets (annualized) 1.39 % 1.83 % 1.61 % return on average equity (annualized) 11.50 % 14.46 % 12.70 % net interest margin (annualized) 4.26 % 4.38 % 4.46 % efficiency ratio (1) 60.45 % 56.33 % 58.56 % credit quality: nonperforming loans $ 1,556 $ 1,580 $ 991 nonperforming assets 1,556 2,726 991 net charge-offs to average gross loans (annualized) 0.21 % 0.01 % 0.01 % nonperforming assets to gross loans plus oreo 0.16 % 0.30 % 0.12 % all to nonperforming loans 612 % 609 % 981 % all to gross loans 1.01 % 1.05 % 1.18 % capital ratios: total risk-based capital ratio 15.45 % 15.76 % 16.09 % tier 1 risk-based capital ratio 14.42 % 14.68 % 14.90 % common equity tier 1 ratio 14.42 % 14.68 % 14.90 % leverage ratio 12.24 % 12.73 % 12.91 % (1) represents noninterest expense divided by the sum of net interest income and noninterest income. financial highlights, excluding gain on coli (dollars in thousands, except per share data) as of or for the three months ended june 30, march 31, june 30, 2019 2019 2018 income before taxes, as reported $ 5,065 $ 6,258 $ 5,259 gain on coli — 1,228 — provision for income taxes 1,229 1,254 1,468 net income $ 3,836 $ 3,776 $ 3,791 diluted earnings per share $ 0.23 $ 0.23 $ 0.23 return on average assets (annualized) 1.39 % 1.45 % 1.61 % return on average equity (annualized) 11.50 % 11.52 % 12.70 % financial highlights (unaudited) (dollars in thousands, except per share data) for the six months ended june 30, june 30, 2019 2018 income statement data: interest income $ 28,965 $ 23,242 interest expense 6,989 3,695 net interest income 21,976 19,547 provision for loan losses 401 609 noninterest income 6,179 4,996 noninterest expense 16,431 14,290 income before taxes 11,323 9,644 provision for income taxes 2,747 2,637 net income $ 8,576 $ 7,007 diluted earnings per share $ 0.52 $ 0.45 performance ratios: return on average assets 1.60 % 1.52 % return on average equity 12.97 % 13.11 % net interest margin 4.32 % 4.51 % efficiency ratio (1) 58.36 % 58.22 % (1) represents noninterest expense divided by the sum of net interest income and noninterest income. financial highlights, excluding gain on coli (dollars in thousands, except per share data) for the six months ended june 30, june 30, 2019 2018 income before taxes, as reported $ 11,323 $ 9,644 gain on coli 1,228 — provision for income taxes 2,565 2,637 net income $ 7,530 $ 7,007 diluted earnings per share $ 0.46 $ 0.45 return on average assets 1.41 % 1.52 % return on average equity 11.39 % 13.11 % 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 june 30, 2019 march 31, 2019 june 30, 2018 (dollars in thousands) interest & fees yield interest & fees yield interest & fees yield contractual interest rate $ 13,298 5.72 % $ 12,480 5.69 % $ 11,046 5.34 % sba discount accretion 703 0.30 % 509 0.23 % 481 0.23 % amortization of net deferred fees/(costs) 38 0.02 % 132 0.06 % 98 0.05 % interest recognized on nonaccrual loans - 0.00 % - 0.00 % 9 0.00 % prepayment penalties and other fees 54 0.02 % 233 0.11 % 36 0.02 % yield on loans (as reported) $ 14,093 6.06 % $ 13,354 6.09 % $ 11,670 5.64 % six months ended june 30, 2019 june 30, 2018 (dollars in thousands) interest & fees yield interest & fees yield contractual interest rate $ 25,777 5.71 % $ 21,229 5.29 % sba discount accretion 1,212 0.27 % 1,048 0.26 % amortization of net deferred fees/(costs) 170 0.04 % 150 0.04 % interest recognized on nonaccrual loans - 0.00 % 29 0.01 % prepayment penalties and other fees 288 0.06 % 61 0.02 % yield on loans (as reported) $ 27,447 6.08 % $ 22,517 5.61 % net interest income before provision for loan losses for the second quarter of 2019 was $11.2 million, an increase of $379,000, or 3.5%, compared to $10.8 million for the first quarter of 2019, primarily due to a $792,000 increase in interest income, partially offset by a $413,000 increase in interest expense. interest income on securities available for sale and other investments increased $53,000, or 7.3%, during the second quarter of 2019 compared to the prior quarter. the increase was primarily due to a $83,000 increase in other investment income from a $12.7 million, or 27.7%, increase in average balance of fed funds. interest income from the contractual interest rates on loans increased $818,000, or 6.6%, during the second quarter of 2019 compared to the first quarter of 2019, reflecting a 5.0% increase in average balance of loans, including loans held for sale, and a three basis point increase in contractual yield. the amount of discount accretion on sba loans increased $194,000 during the second quarter due to an increase in sba loan payoffs. the reported interest income on loans, net of sba discount accretions and other components, increased $739,000 during the quarter. interest expense for the second quarter of 2019 increased $413,000, or 12.6%, compared to the first quarter of 2019, due to an increase of $39.1 million, or 6.1%, in average balance of interest-bearing liabilities and an increase of 10 basis points in average cost of interest-bearing liabilities, primarily due to a continued repricing of interest-bearing deposits following cumulative market rate increases in 2018. net interest margin for the second quarter of 2019 decreased 12 basis points to 4.26% from 4.38% for the first quarter of 2019 because of the increase in the cost of interest-bearing liabilities and the decrease in the reported yield on earning assets. net interest income before provision for loan losses for the second quarter of 2019 increased $1.2 million, or 11.9%, to $11.2 million, compared to $10.0 million for the second quarter of 2018, primarily due to a $2.8 million increase in interest income, partially offset by a $1.6 million increase in interest expense. interest income on securities available for sale and other investments increased $393,000, or 100.2% compared to the same period of 2018. the increase was primarily due to a $119,000 increase in interest income on securities available for sale from purchases of higher yielding securities during the second and third quarters of 2018 and a $274,000 increase in other investment income from a $39.4 million increase in average fed funds and a 40 basis point increase in fed funds rate. the increase in interest income on loans was primarily due to a 12.3% increase in average loans, including loans held for sale, and a 42 basis point increase in the yield on average loans to 6.06% for the second quarter of 2019 from 5.64% for the same period of 2018. the increase in interest expense in the second quarter of 2019 compared to the second quarter of 2018 was due to a 20.3% increase in average interest-bearing liabilities and a 72 basis point increase in the cost of interest-bearing liabilities. the increases in the average yield on loans and average cost of deposits were primarily due to cumulative market rate increases by the federal reserve during the second half of 2018. net interest margin for the second quarter of 2019 decreased 20 basis points to 4.26% from 4.46% for the second quarter of 2018. the following table shows the asset yields, liability costs, spreads and margins. three months ended percentage change june 30, march 31, june 30, q2-19 q2-19 2019 2019 2018 vs. q1-19 vs. q2-18 yield on loans 6.06 % 6.09 % 5.64 % -0.03 % 0.42 % yield on interest-earning assets 5.67 % 5.72 % 5.39 % -0.05 % 0.28 % cost of interest-bearing liabilities 2.20 % 2.10 % 1.48 % 0.10 % 0.72 % cost of deposits 1.56 % 1.48 % 1.02 % 0.08 % 0.54 % cost of funds 1.56 % 1.48 % 1.02 % 0.08 % 0.54 % net interest spread 3.47 % 3.62 % 3.91 % -0.15 % -0.44 % net interest margin 4.26 % 4.38 % 4.46 % -0.12 % -0.20 % six months ended percentage change june 30, june 30, 2019 ytd 2019 2018 vs. 2018 ytd yield on loans 6.08 % 5.61 % 0.47 % yield on interest-earning assets 5.70 % 5.36 % 0.34 % cost of interest-bearing liabilities 2.15 % 1.36 % 0.79 % cost of deposits 1.52 % 0.91 % 0.61 % cost of funds 1.52 % 0.92 % 0.60 % net interest spread 3.55 % 4.00 % -0.45 % net interest margin 4.32 % 4.51 % -0.19 % the provision for loan losses for the second quarter of 2019 was $401,000 compared to $33,000 for the second quarter of 2018. a provision for loan losses was not required for the first quarter of 2019. the second quarter provision for loan losses was primarily due to a $33.9 million increase in loan balances during the quarter. noninterest income for the second quarter of 2019 was $2.6 million, a decrease of $886,000, or 25.1%, from $3.5 million for the first quarter of 2019, primarily due to the gain on company owned life insurance of $1.2 million received in the first quarter and a decrease of $156,000 in loan servicing fees, partially offset by an increase of $511,000 in gain on sale of sba loans. loan servicing fees decreased $156,000 to $227,000 for the second quarter of 2019 from $383,000 for the prior quarter. the decrease in loan servicing fees was primarily due to an increase in the amortization of sba servicing assets from the increase in sba loan payoffs. gain on sale of sba loans increased $511,000 to $1.6 million for the second quarter of 2019 from $1.1 million for the first quarter of 2019. we sold $21.2 million in sba loans with an average premium of 8.99% in the second quarter of 2019, compared to the sale of $17.7 million in sba loans with an average premium of 8.19% in the first quarter of 2019. noninterest income for the second quarter of 2019 decreased $136,000 compared to $2.8 million for the second quarter of 2018, primarily due to a decrease of $145,000 in loan servicing fees, a decrease of $140,000 in gain on sale of sba loans, partially offset by an increase of $101,000 in service charges on deposits. gain on sale of sba loans for the second quarter of 2018 was $1.7 million from the sale of $24.8 million in sba loans with an average premium of 8.60%. an $85,000 of other operation fee income was reclassified to service charges on deposits for the second quarter of 2019. noninterest expense for the second quarter of 2019 was $8.4 million, an increase of $285,000, or 3.5%, compared to $8.1 million for the first quarter of 2019. the increase was primarily due to an increase of $176,000 in salary and employee benefits and an increase of $55,000 in occupancy and equipment. the increases in salary and employee benefits were primarily driven by supporting continued growth of the company, and the increase in occupancy and equipment was primarily attributable to a branch opening in carrollton, texas in the second quarter of 2019. noninterest expense for the second quarter of 2019 increased $880,000, or 11.8%, to $8.4 million, compared to $7.5 million for the second quarter of 2018. the increase was primarily due to an increase of $729,000 in salary and employee benefits from an increase in employee headcount to 168 at june 30, 2019 from 138 at june 30, 2018. occupancy and equipment expense increased $68,000 primarily attributable to the new loan production offices and a new branch opening in 2019. professional fees increased $81,000 primarily due to an increase in financial reporting and auditing costs as additional regulatory reporting requirements became applicable in 2019. income tax provision for the second quarter of 2019 was $1.2 million, compared to $1.5 million for the first quarter of 2019 and the second quarter of 2018. the effective tax rates for the second quarter of 2019 and the first quarter of 2019 were 24.3%, compared to 27.9% for the second quarter of 2018. the decrease in the effective tax rate in the second quarter of 2019 compared to the second quarter of 2018 was primarily due to additional tax benefits from an increase in non-qualified stock option exercises during the second quarter of 2019. balance sheet total assets at june 30, 2019 were $1.13 billion, an increase of $50.3 million, or 4.7%, compared to $1.08 billion at march 31, 2019, and an increase of $148.1 million, or 15.1%, compared to $979.4 million at june 30, 2018. gross loans, net of unearned income, were $947.0 million at june 30, 2019, an increase of $33.9 million, or 3.7%, from $913.1 million at march 31, 2019, and an increase of $121.0 million, or 14.6%, from $826.0 million at june 30, 2018. new loan originations for the second quarter of 2019 totaled $93.8 million, including sba loan originations of $27.9 million, compared to $92.8 million, including sba loan originations of $24.3 million, for the first quarter of 2019. new loan originations for the second quarter of 2018 were $92.0 million, including sba loan originations of $29.3 million. loan payoffs for the second quarter of 2019 were $33.5 million, compared to $22.5 million for the first quarter of 2019, and $30.1 million for the second quarter of 2018. total deposits were $974.7 million at june 30, 2019, an increase of $45.3 million, or 4.9%, from $929.4 million at march 31, 2019, and an increase of $151.3 million, or 18.4%, from $823.4 million at june 30, 2018. noninterest bearing deposits were $275.0 million at june 30, 2019, compared to $272.5 million at march 31, 2019, and $270.1 million at june 30, 2018. noninterest bearing deposits accounted for 28.2% of total deposits at june 30, 2019, compared to 29.3% at march 31, 2019 and 32.8% at june 30, 2018. as of june 30, march 31, june 30, 2019 2019 2018 noninterest bearing deposits 28.2 % 29.3 % 32.8 % interest bearing demand deposits 28.7 % 27.7 % 29.7 % savings 0.4 % 0.4 % 0.4 % time deposits over $250,000 21.7 % 20.3 % 17.2 % other time deposits 21.0 % 22.3 % 19.9 % total deposits 100.0 % 100.0 % 100.0 % the company had no borrowings from the federal home loan bank (“fhlb”) at june 30, 2019 and march 31, 2019, compared to the advances from the fhlb of $25 million at june 30, 2018. the payoff of advances from the fhlb were funded by the increase in total deposits. 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 balance sheet. with the new branch opening, the company had right-of-use assets and lease liabilities of $9.0 million and $10.7 million, respectively, at june 30, 2019. 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 june 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 15.45 % 15.37 % 10.00 % 10.50 % tier 1 risk-based 14.42 % 14.35 % 8.00 % 8.50 % common equity tier 1 risk-based 14.42 % 14.35 % 6.50 % 7.00 % leverage 12.24 % 12.18 % 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. since the announcement of a share repurchase program to buy back up to 400,000 shares of its common stock on january 25, 2019, the company has repurchased 333,270 shares of its common stock at an average repurchase price of $9.11 through july 25, 2019. asset quality nonperforming loans were $1.56 million at june 30, 2019, a decrease of $24,000 from $1.58 million at march 31, 2019 and an increase of $566,000 from $990,000 at june 30, 2018. the company had no other real estate owned (“oreo”) at june 30, 2019 and 2018 but had $1.1 million in oreo at march 31, 2019. the company sold oreo of $1.1 million during the second quarter and no loss was recorded on the sale. nonperforming assets were $1.6 million, or 0.14% of total assets, at june 30, 2019, $2.7 million, or 0.25% of total assets, at march 31, 2019 and $990,000, or 0.10% of total assets, at june 30, 2018. nonperforming loans to gross loans were 0.16% at june 30, 2019, compared to 0.17% at march 31, 2019 and 0.12% at june 30, 2018. total classified loans were $4.2 million, or 0.44% of gross loans, at june 30, 2019, compared to $4.2 million, or 0.46% of gross loans, at march 31, 2019, and $3.7 million, or 0.45% of gross loans, at june 30, 2018. the following tables shows the trend of classified loans by loan type. 6/30/2019 3/31/2019 12/31/2018 9/30/2018 6/30/2018 classified loans by loan type commercial real estate $ — $ — $ — $ — $ — sba loans—real estate 2,264 2,281 2,000 1,859 1,892 sba loans—non-real estate 41 49 57 354 141 commercial and industrial 1,892 1,906 1,516 1,587 1,688 home mortgage — — — — — consumer — — — — — total classified loans $ 4,197 $ 4,236 $ 3,573 $ 3,800 $ 3,721 sba guarantee balance retained sba loans—real estate 524 534 544 553 572 sba loans—non-real estate 41 49 57 282 84 total sba unsold guarantee portion $ 565 $ 583 $ 601 $ 835 $ 656 total classified loans, net of sba guarantee balance retained $ 3,632 $ 3,653 $ 2,972 $ 2,965 $ 3,065 the allowance for loan losses was $9.5 million at june 30, 2019, compared to $9.6 at march 31, 2019, and $9.7 million at june 30, 2018. the allowance for loan losses was 1.01% of gross loans at june 30, 2019, 1.05% at march 31, 2019 and 1.18% at june 30, 2018. the allowance for loan losses was 612% of nonperforming assets at june 30, 2019, 353% at march 31, 2019 and 982% at june 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) 6/30/2019 3/31/2019 % change 6/30/2018 % change assets cash and due from banks $ 83,111 $ 65,796 26.3 % $ 61,252 35.7 % securities available for sale, at fair value 51,829 54,116 -4.2 % 45,006 15.2 % other investments 8,134 7,306 11.3 % 7,226 12.6 % loans held for sale 1,245 246 406.1 % 8,718 -85.7 % real estate loans 583,634 545,481 7.0 % 465,125 25.5 % sba loans 130,957 130,478 0.4 % 125,378 4.4 % c & i loans 105,133 106,796 -1.6 % 117,353 -10.4 % home mortgage loans 123,951 127,851 -3.1 % 114,710 8.1 % consumer & other loans 3,331 2,458 35.5 % 3,474 -4.1 % gross loans, net of unearned income 947,006 913,064 3.7 % 826,040 14.6 % allowance for loan losses (9,525 ) (9,619 ) -1.0 % (9,723 ) -2.0 % net loans receivable 937,481 903,445 3.8 % 816,317 14.8 % premises and equipment, net 5,341 5,083 5.1 % 4,818 10.9 % accrued interest receivable 3,301 3,368 -2.0 % 2,598 27.1 % servicing assets 6,996 7,046 -0.7 % 6,994 0.0 % company owned life insurance 10,482 10,414 0.7 % 11,243 -6.8 % deferred tax assets 2,858 3,665 -22.0 % 4,239 -32.6 % oreo - 1,146 -100.0 % - 0.0 % operating right-of-use assets (1) 8,959 7,738 15.8 % - 100.0 % other assets 7,819 7,866 -0.6 % 11,030 -29.1 % total assets $ 1,127,556 $ 1,077,235 4.7 % $ 979,441 15.1 % liabilities and shareholders' equity noninterest bearing deposits $ 274,976 $ 272,482 0.9 % $ 270,144 1.8 % savings 3,527 3,527 0.0 % 3,097 13.9 % money market and others 279,748 257,694 8.6 % 244,620 14.4 % time deposits over $250,000 211,305 188,162 12.3 % 141,823 49.0 % other time deposits 205,116 207,537 -1.2 % 163,689 25.3 % total deposits 974,672 929,402 4.9 % 823,373 18.4 % other borrowings - - 0.0 % 25,000 -100.0 % accrued interest payable 2,287 2,178 5.0 % 873 162.0 % operating lease liabilities (1) 10,737 9,566 12.2 % - 100.0 % other liabilities 4,378 3,713 17.9 % 8,802 -50.3 % total liabilities 992,074 944,859 5.0 % 858,048 15.6 % common stock 88,455 89,120 -0.7 % 90,894 -2.7 % additional paid-in capital 6,965 6,626 5.1 % 5,720 21.8 % retained earnings 39,878 36,824 8.3 % 25,631 55.6 % accumulated other comprehensive income(loss) 184 (194 ) -194.8 % (852 ) -121.6 % total shareholders' equity 135,482 132,376 2.3 % 121,393 11.6 % total liabilities and shareholders' equity $ 1,127,556 $ 1,077,235 4.7 % $ 979,441 15.1 % (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. consolidated statements of income (unaudited) (dollars in thousands, except per share data) three months ended 6/30/2019 3/31/2019 % change 6/30/2018 % change interest income interest and fees on loans $ 14,093 $ 13,354 5.5 % $ 11,670 20.8 % interest on securities available for sale 327 360 -9.2 % 208 57.2 % other interest income 458 372 23.1 % 184 148.9 % total interest income 14,878 14,086 5.6 % 12,062 23.3 % interest expense interest on deposits 3,701 3,288 12.6 % 2,060 79.7 % interest on borrowed funds - - 0.0 % 15 -100.0 % total interest expense 3,701 3,288 12.6 % 2,075 78.4 % net interest income 11,177 10,798 3.5 % 9,987 11.9 % provision for loan losses 401 - 100.0 % 33 1115.2 % net interest income after provision for loan losses 10,776 10,798 -0.2 % 9,954 8.3 % noninterest income service charges on deposits 499 448 11.4 % 398 25.4 % loan servicing fees, net of amortization 227 383 -40.7 % 372 -39.0 % gain on sale of loans 1,588 1,077 47.4 % 1,728 -8.1 % other income 333 1,625 -79.5 % 285 16.8 % total noninterest income 2,647 3,533 -25.1 % 2,783 -4.9 % noninterest expense salaries and employee benefits 5,344 5,168 3.4 % 4,615 15.8 % occupancy and equipment 1,132 1,077 5.1 % 1,064 6.4 % data processing and communication 367 359 2.2 % 297 23.6 % professional fees 247 203 21.7 % 166 48.8 % fdic insurance and regulatory assessments 105 104 1.0 % 104 1.0 % promotion and advertising 183 178 2.8 % 231 -20.8 % directors’ fees 223 229 -2.6 % 209 6.7 % foundation donation and other contributions 379 388 -2.3 % 386 -1.8 % other expenses 378 367 3.0 % 406 -6.9 % total noninterest expense 8,358 8,073 3.5 % 7,478 11.8 % income before income taxes 5,065 6,258 -19.1 % 5,259 -3.7 % provision for income taxes 1,229 1,518 -19.0 % 1,468 -16.3 % net income $ 3,836 $ 4,740 -19.1 % $ 3,791 1.2 % book value per share $ 8.62 $ 8.42 2.4 % $ 7.77 10.9 % basic eps $ 0.24 $ 0.29 -17.2 % $ 0.24 0.0 % diluted eps $ 0.23 $ 0.29 -20.7 % $ 0.23 0.0 % shares of common stock outstanding 15,723,007 15,719,583 0.0 % 15,629,215 0.6 % weighted average shares: - basic 15,685,478 15,817,060 -0.8 % 15,577,775 0.7 % - diluted 15,951,598 16,112,725 -1.0 % 16,110,460 -1.0 % key ratios (dollars in thousands, except ratios) three months ended 6/30/2019 3/31/2019 % change 6/30/2018 % change return on average assets (roa)* 1.39 % 1.83 % -0.44 % 1.61 % -0.22 % return on average equity (roe) * 11.50 % 14.46 % -2.96 % 12.70 % -1.20 % net interest margin * 4.26 % 4.38 % -0.12 % 4.46 % -0.20 % efficiency ratio 60.45 % 56.33 % 4.12 % 58.56 % 1.89 % total risk based capital ratio 15.45 % 15.76 % -0.31 % 16.09 % -0.64 % tier 1 capital ratio 14.42 % 14.68 % -0.26 % 14.90 % -0.48 % common equity tier 1 ratio 14.42 % 14.68 % -0.26 % 14.90 % -0.48 % tier 1 leverage ratio 12.24 % 12.73 % -0.49 % 12.91 % -0.67 % * annualized consolidated statements of income (unaudited) (dollars in thousands, except per share data) six months ended 6/30/2019 6/30/2018 % change interest income interest and fees on loans $ 27,447 $ 22,517 21.9 % interest on securities available for sale 687 396 73.5 % other interest income 831 329 152.6 % total interest income 28,965 23,242 24.6 % interest expense interest on deposits 6,989 3,593 94.5 % interest on borrowed funds - 102 -100.0 % total interest expense 6,989 3,695 89.1 % net interest income 21,976 19,547 12.4 % provision for loan losses 401 609 -34.2 % net interest income after provision for loan losses 21,575 18,938 13.9 % noninterest income service charges on deposits 1,026 935 9.7 % loan servicing fees, net of amortization 610 696 -12.4 % gain on sale of loans 2,665 2,717 -1.9 % other income 1,878 648 189.8 % total noninterest income 6,179 4,996 23.7 % noninterest expense salaries and employee benefits 10,513 8,826 19.1 % occupancy and equipment 2,209 2,089 5.7 % data processing and communication 725 627 15.6 % professional fees 451 318 41.8 % fdic insurance and regulatory assessments 210 200 5.0 % promotion and advertising 360 377 -4.5 % directors’ fees 452 418 8.1 % foundation donation and other contributions 767 715 7.3 % other expenses 744 720 3.3 % total noninterest expense 16,431 14,290 15.0 % income before income taxes 11,323 9,644 17.4 % provision for income taxes 2,747 2,637 4.2 % net income (loss) $ 8,576 $ 7,007 22.4 % book value per share $ 8.62 $ 7.77 11.0 % basic eps $ 0.53 $ 0.47 12.8 % diluted eps $ 0.52 $ 0.45 15.6 % shares of common stock outstanding 15,723,007 15,629,215 0.6 % weighted average shares: - basic 15,750,905 14,441,241 9.1 % - diluted 16,006,499 14,951,581 7.1 % key ratios (dollars in thousands, except ratios) six months ended 6/30/2019 6/30/2018 % change return on average assets (roa)* 1.60 % 1.52 % 0.08 % return on average equity (roe) * 12.97 % 13.11 % -0.14 % net interest margin * 4.32 % 4.51 % -0.19 % efficiency ratio 58.36 % 58.22 % 0.14 % total risk based capital ratio 15.45 % 16.09 % -0.64 % tier 1 capital ratio 14.42 % 14.90 % -0.48 % common equity tier 1 ratio 14.42 % 14.90 % -0.48 % tier 1 leverage ratio 12.24 % 12.91 % -0.67 % * annualized asset quality (dollars in thousands, except ratios) three months ended 6/30/2019 3/31/2019 12/31/2018 9/30/2018 6/30/2018 nonaccrual loans $ 1,218 $ 1,239 $ 1,571 $ 888 $ 642 loans 90 days or more past due, accruing - - - - - accruing restructured loans 338 341 343 345 348 nonperforming loans 1,556 1,580 1,914 1,233 990 other real estate loans (oreo) - 1,146 - - - nonperforming assets 1,556 2,726 1,914 1,233 990 classified loans 4,197 4,236 3,573 3,800 3,721 nonperforming assets/total assets 0.14 % 0.25 % 0.18 % 0.12 % 0.10 % nonperforming assets/gross loans plus oreo 0.16 % 0.30 % 0.22 % 0.15 % 0.12 % nonperforming loans/gross loans 0.16 % 0.17 % 0.22 % 0.15 % 0.12 % allowance for loan losses/nonperforming loans 612 % 609 % 503 % 775 % 982 % allowance for loan losses/nonperforming assets 612 % 353 % 503 % 775 % 982 % allowance for loan losses/gross loans 1.01 % 1.05 % 1.10 % 1.12 % 1.18 % classified loans/gross loans 0.44 % 0.46 % 0.41 % 0.45 % 0.45 % net charge-offs $ 495 $ 17 $ 135 $ 611 $ 26 net charge-offs to average gross loans * 0.21 % 0.01 % 0.06 % 0.29 % 0.01 % * annualized accruing delinquent loans 30-89 days past due 6/30/2019 3/31/2019 12/31/2018 9/30/2018 6/30/2018 30-59 days $ 1,065 $ 2,073 $ 449 $ 1,007 $ 577 60-89 days 2,207 - - - 57 total 3,272 2,073 449 1,007 634 (dollars in thousands) three months ended june 30, 2019 march 31, 2019 june 30, 2018 average balance interest and fees yield/ rate average balance interest and fees yield/ rate average balance interest and fees yield/ rate earning assets: federal funds sold and other investments $ 66,277 $ 458 2.74 % $ 52,963 $ 372 2.81 % $ 26,857 $ 184 2.72 % securities available for sale 53,329 327 2.45 54,771 360 2.63 40,372 208 2.06 total investments 119,606 785 2.61 107,734 732 2.72 67,229 392 2.33 real estate 562,256 7,837 5.59 519,037 7,149 5.59 464,899 6,008 5.18 sba 137,133 3,063 8.96 131,272 2,933 9.06 143,604 2,714 7.58 c & i 104,273 1,558 5.99 106,680 1,594 6.06 107,546 1,473 5.49 home mortgage 125,577 1,588 5.06 128,507 1,636 5.09 110,476 1,425 5.16 consumer 2,814 47 6.70 2,532 42 6.68 3,608 50 5.56 loans (1) 932,053 14,093 6.06 888,028 13,354 6.09 830,133 11,670 5.64 total earning assets 1,051,659 14,878 5.67 995,762 14,086 5.72 897,362 12,062 5.39 noninterest-earning assets 50,387 42,476 46,970 total assets $ 1,102,046 $ 1,038,238 $ 944,332 interest-bearing liabilities: now and savings deposits $ 4,725 3 0.25 % $ 5,176 3 0.25 % $ 6,615 4 0.24 % money market deposits 281,239 1,335 1.90 251,583 1,121 1.81 253,162 804 1.27 time deposits 389,294 2,363 2.43 379,430 2,164 2.31 298,535 1,252 1.68 total interest-bearing deposits 675,258 3,701 2.20 636,189 3,288 2.10 558,312 2,060 1.48 borrowings 2 - 2.76 - - - 3,132 15 1.92 total interest-bearing liabilities 675,260 3,701 2.20 636,189 3,288 2.10 561,444 2,075 1.48 noninterest-bearing liabilities: noninterest-bearing deposits 276,569 262,524 254,700 other noninterest-bearing liabilities 16,778 8,444 8,814 total noninterest-bearing liabilities 293,347 270,968 263,514 shareholders’ equity 133,439 131,081 119,374 total liabilities and shareholders’ equity $ 1,102,046 $ 1,038,238 $ 899,412 net interest income / interest rate spreads $ 11,177 3.47 % $ 10,798 3.62 % $ 9,987 3.91 % net interest margin 4.26 % 4.38 % 4.46 % cost of deposits & cost of funds: total deposits / cost of deposits $ 951,827 $ 3,701 1.56 % $ 898,713 $ 3,288 1.48 % $ 813,012 $ 2,060 1.02 % total funding liabilities / cost of funds $ 951,829 $ 3,701 1.56 % $ 898,713 $ 3,288 1.48 % $ 816,144 $ 2,075 1.02 % (1) includes loans held for sale. (dollars in thousands) six months ended june 30, 2019 june 30, 2018 average balance interest and fees yield/ rate average balance interest and fees yield/ rate earning assets: federal funds sold and other investments $ 59,657 $ 831 2.77 % $ 24,386 $ 327 2.67 securities available for sale 54,046 687 2.54 39,297 397 2.02 total investments 113,703 1,518 2.66 63,683 724 2.26 real estate 540,766 14,986 5.59 454,619 11,543 5.12 sba 134,219 5,996 9.01 139,293 5,264 7.62 c & i 105,469 3,152 6.03 103,887 2,839 5.51 home mortgage 127,034 3,224 5.08 107,382 2,770 5.16 consumer 2,674 89 6.71 3,619 101 5.63 loans (1) 910,162 27,447 6.08 808,800 22,517 5.61 total earning assets 1,023,865 28,965 5.70 872,483 23,241 5.36 noninterest-earning assets 46,453 49,512 total assets $ 1,070,318 $ 921,995 interest-bearing liabilities: now and savings deposits $ 4,949 6 0.25 % $ 6,511 7 0.22 money market deposits 266,493 2,456 1.86 257,015 1,512 1.19 time deposits 384,389 4,527 2.38 271,218 2,074 1.54 total interest-bearing deposits 655,831 6,989 2.15 534,744 3,593 1.35 borrowings 1 - 2.76 13,398 102 1.54 total interest-bearing liabilities 655,832 6,989 2.15 548,142 3,695 1.36 noninterest-bearing liabilities: noninterest-bearing deposits 269,585 257,445 other noninterest-bearing liabilities 12,634 9,493 total noninterest-bearing liabilities 282,219 266,938 shareholders’ equity 132,267 106,915 total liabilities and shareholders’ equity $ 1,070,318 $ 921,995 net interest income / interest rate spreads $ 21,976 3.55 % $ 19,546 4.00 net interest margin 4.32 % 4.51 cost of deposits & cost of funds: total deposits / cost of deposits $ 925,416 $ 6,989 1.52 % $ 792,189 $ 3,593 0.91 total funding liabilities / cost of funds $ 925,417 $ 6,989 1.52 % $ 805,587 $ 3,695 0.92 (1) includes loans held for sale.
