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OP Bancorp Reports Net Income for 2023 Second Quarter of $6.1 Million and Diluted Earnings Per Share of $0.39

2023 Second Quarter Highlights compared with 2022 Second Quarter:

  • Financial Results:
    • Net income of $6.1 million, compared to $8.5 million
    • Diluted earnings per share of $0.39, compared to $0.54
    • Net interest income of $17.3 million, compared to $19.1 million
    • Net interest margin of 3.40%, compared to 4.21%
    • No provision for credit losses, compared to provision for credit losses of $996 thousand
    • Total assets of $2.2 billion, an 11% increase compared to $1.9 billion
    • Gross loans of $1.7 billion, a 16% increase compared to $1.5 billion
    • Total deposits of $1.9 billion, a 7% increase compared to $1.7 billion
  • Credit Quality:
    • Allowance for credit losses to gross loans of 1.21%, compared to 1.19%
    • Net charge-offs(1) to average gross loans(2) of 0.00%, compared to net recoveries of 0.01%
    • Nonperforming loans to gross loans of 0.20%, compared to 0.12%
    • Criticized loans(3) to gross loans of 0.44%, compared to 0.18%
  • Capital Levels:
    • Remained well-capitalized with a Common Equity Tier 1 (“CET1”) ratio of 11.92%.
    • Book value per common share increased to $12.16, compared to $11.16
    • Repurchased 221,494 shares of common stock at an average price of $8.40
    • Paid quarterly cash dividend of $0.12 per share, compared to $0.10 per share

___________________________________________________________

(1) Annualized.

(2) Includes loans held for sale.

(3) Includes special mention, substandard, doubtful, and loss categories.

OP Bancorp (the “Company”) (NASDAQ: OPBK), the holding company of Open Bank (the “Bank”), today reported its financial results for the second quarter of 2023. Net income for the second quarter of 2023 was $6.1 million, or $0.39 per diluted common share, compared with $7.5 million, or $0.48 per diluted common share, for the first quarter of 2023, and $8.5 million, or $0.54 per diluted common share, for the second quarter of 2022.

Min Kim, President and Chief Executive Officer:

“We continued to maintain strong liquidity, credit quality, and solid capital positions to withstand the recent turmoil in the banking industry. Our liquid assets and available borrowings were more than 47% of total assets,” said Min Kim, President and Chief Executive.

“The migration from noninterest-bearing to interest-bearing deposits has been stabilized during the quarter, and our noninterest-bearing deposits remained at 34% of total deposits. We are truly grateful for our customers’ loyalty and trust throughout these difficult times.

“Although we anticipate additional challenges in the short term, we remain optimistic about our future performance and will continue to focus on executing our strategic goals while maintaining appropriate risk and control environment.”

SELECTED FINANCIAL HIGHLIGHTS

 

 

 

 

 

 

 

 

 

 

 

($ in thousands, except per share data)

 

As of and For the Three Months Ended

 

% Change 2Q23 vs.

 

 

2Q2023

 

 

 

1Q2023

 

 

 

2Q2022

 

 

1Q2023

 

 

2Q2022

 

Selected Income Statement Data:

 

 

 

 

 

 

 

 

 

 

Net interest income

 

$

17,252

 

 

$

17,892

 

 

$

19,079

 

 

(3.6

)%

 

(9.6

)%

(Reversal of) provision for credit losses

 

 

 

 

 

(338

)

 

 

996

 

 

n/m

 

 

n/m

 

Noninterest income

 

 

3,605

 

 

 

4,295

 

 

 

5,359

 

 

(16.1

)

 

(32.7

)

Noninterest expense

 

 

12,300

 

 

 

11,908

 

 

 

11,503

 

 

3.3

 

 

6.9

 

Income tax expense

 

 

2,466

 

 

 

3,083

 

 

 

3,459

 

 

(20.0

)

 

(28.7

)

Net Income

 

 

6,091

 

 

 

7,534

 

 

 

8,480

 

 

(19.2

)

 

(28.2

)

Diluted earnings per share

 

 

0.39

 

 

 

0.48

 

 

 

0.54

 

 

(18.8

)

 

(27.8

)

Selected Balance Sheet Data:

 

 

 

 

 

 

 

 

 

 

Gross loans

 

$

1,716,197

 

 

$

1,692,485

 

 

$

1,484,718

 

 

1.4

%

 

15.6

%

Total deposits

 

 

1,859,639

 

 

 

1,904,818

 

 

 

1,741,623

 

 

(2.4

)

 

6.8

 

Total assets

 

 

2,151,701

 

 

 

2,170,594

 

 

 

1,934,242

 

 

(0.9

)

 

11.2

 

Average loans(1)

 

 

1,725,764

 

 

 

1,725,392

 

 

 

1,560,064

 

 

 

 

10.6

 

Average deposits

 

 

1,817,101

 

 

 

1,867,684

 

 

 

1,702,860

 

 

(2.7

)

 

6.7

 

Credit Quality:

 

 

 

 

 

 

 

 

 

 

Nonperforming loans

 

$

3,447

 

 

$

2,504

 

 

$

1,826

 

 

37.7

%

 

88.8

%

Net charge-offs (recoveries) to average gross loans(2)

 

 

0.00

%

 

 

0.02

%

 

 

(0.01

)%

 

(0.02

)

 

0.01

 

Allowance for credit losses to gross loans

 

 

1.21

 

 

 

1.23

 

 

 

1.19

 

 

(0.02

)

 

0.02

 

Allowance for credit losses to nonperforming loans

 

 

603

 

 

 

831

 

 

 

969

 

 

(228

)

 

(366

)

Financial Ratios:

 

 

 

 

 

 

 

 

 

 

Return on average assets(2)

 

 

1.15

%

 

 

1.43

%

 

 

1.79

%

 

(0.28

)%

 

(0.64

)%

Return on average equity(2)

 

 

13.27

 

 

 

16.82

 

 

 

20.29

 

 

(3.55

)

 

(7.02

)

Net interest margin(2)

 

 

3.40

 

 

 

3.57

 

 

 

4.21

 

 

(0.17

)

 

(0.81

)

Efficiency ratio(3)

 

 

58.97

 

 

 

53.67

 

 

 

47.07

 

 

5.30

 

 

11.90

 

Common equity tier 1 capital ratio

 

 

11.92

 

 

 

12.06

 

 

 

12.29

 

 

(0.14

)

 

(0.37

)

Leverage ratio

 

 

9.50

 

 

 

9.43

 

 

 

9.48

 

 

0.07

 

 

0.02

 

Book value per common share

 

$

12.16

 

 

$

12.02

 

 

$

11.16

 

 

1.2

 

 

9.0

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Includes loans held for sale.

(2)

Annualized.

(3)

Represents noninterest expense divided by the sum of net interest income and noninterest income.

INCOME STATEMENT HIGHLIGHTS

Net Interest Income and Net Interest Margin

 

 

 

 

 

 

 

 

 

 

 

($ in thousands)

 

For the Three Months Ended

 

% Change 2Q23 vs.

 

 

2Q2023

 

 

1Q2023

 

 

2Q2022

 

1Q2023

 

 

2Q2022

 

Interest Income

 

 

 

 

 

 

 

 

 

 

Interest income

 

$

30,102

 

$

28,594

 

$

20,148

 

5.3

%

 

49.4

%

Interest expense

 

 

12,850

 

 

10,702

 

 

1,069

 

20.1

 

 

1102.1

 

Net interest income

 

$

17,252

 

$

17,892

 

$

19,079

 

(3.6

)%

 

(9.6

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

($ in thousands)

 

For the Three Months Ended

 

2Q2023

 

 

1Q2023

 

 

2Q2022

 

 

Average Balance

 

Interest

and Fees

 

Yield/Rate(1)

 

Average Balance

 

Interest

and Fees

 

Yield/Rate(1)

 

Average Balance

 

Interest

and Fees

 

Yield/Rate(1)

Interest-earning Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

1,725,764

 

$

27,288

 

6.34

%

 

$

1,725,392

 

$

26,011

 

6.10

%

 

$

1,560,064

 

$

19,108

 

4.91

%

Total interest-earning assets

 

 

2,030,139

 

 

30,102

 

5.94

 

 

 

2,022,146

 

 

28,594

 

5.71

 

 

 

1,817,157

 

 

20,148

 

4.44

 

Interest-bearing Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing deposits

 

 

1,201,353

 

 

11,920

 

3.98

 

 

 

1,196,194

 

 

10,382

 

3.52

 

 

 

859,072

 

 

1,069

 

0.50

 

Total interest-bearing liabilities

 

 

1,283,939

 

 

12,850

 

4.01

 

 

 

1,222,362

 

 

10,702

 

3.55

 

 

 

859,072

 

 

1,069

 

0.50

 

Ratios:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income / interest rate spreads

 

 

 

 

17,252

 

1.93

 

 

 

 

 

17,892

 

2.16

 

 

 

 

 

19,079

 

3.94

 

Net interest margin

 

 

 

 

 

3.40

 

 

 

 

 

 

3.57

 

 

 

 

 

 

4.21

 

Total deposits / cost of deposits

 

 

1,817,101

 

 

11,920

 

2.63

 

 

 

1,867,684

 

 

10,382

 

2.25

 

 

 

1,702,860

 

 

1,069

 

0.25

 

Total funding liabilities / cost of funds

 

 

1,899,687

 

 

12,850

 

2.71

 

 

 

1,893,852

 

 

10,702

 

2.29

 

 

 

1,702,860

 

 

1,069

 

0.25

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Annualized.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

($ in thousands)

 

For the Three Months Ended

 

Yield Change 2Q23 vs.

 

2Q2023

 

 

1Q2023

 

 

2Q2022

 

 

 

Interest

& Fees

 

Yield(1)

 

Interest

& Fees

 

Yield(1)

 

Interest

& Fees

 

Yield(1)

 

1Q2023

 

 

2Q2022

 

Loan Yield Component:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contractual interest rate

 

$

26,411

 

 

6.13

%

 

$

25,477

 

 

5.97

%

 

$

17,425

 

 

4.48

%

 

0.16

%

 

1.65

%

SBA discount accretion

 

 

1,078

 

 

0.25

 

 

 

974

 

 

0.23

 

 

 

1,151

 

 

0.30

 

 

0.02

 

 

(0.05

)

Amortization of net deferred fees

 

 

16

 

 

0.01

 

 

 

79

 

 

0.02

 

 

 

493

 

 

0.13

 

 

(0.01

)

 

(0.12

)

Amortization of premium

 

 

(452

)

 

(0.11

)

 

 

(392

)

 

(0.09

)

 

 

(197

)

 

(0.05

)

 

(0.02

)

 

(0.06

)

Net interest recognized on nonaccrual loans

 

 

40

 

 

0.01

 

 

 

(243

)

 

(0.06

)

 

 

5

 

 

 

 

0.07

 

 

0.01

 

Prepayment penalties(2) and other fees

 

 

195

 

 

0.05

 

 

 

116

 

 

0.03

 

 

 

231

 

 

0.05

 

 

0.02

 

 

 

Yield on loans

 

$

27,288

 

 

6.34

%

 

$

26,011

 

 

6.10

%

 

$

19,108

 

 

4.91

%

 

0.24

%

 

1.43

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of Net Deferred Fees:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PPP loan forgiveness(3)

 

$

 

 

%

 

$

3

 

 

%

 

$

351

 

 

0.09

%

 

%

 

(0.09

)%

Other

 

 

16

 

 

0.01

 

 

 

76

 

 

0.02

 

 

 

142

 

 

0.04

 

 

(0.01

)

 

(0.03

)

Total amortization of net deferred fees

 

$

16

 

 

0.01

%

 

$

79

 

 

0.02

%

 

$

493

 

 

0.13

%

 

(0.01

)%

 

(0.12

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Annualized.

(2)

Prepayment penalty income of $110 thousand, $3 thousand and $118 thousand for the three months ended June 30, 2023, March 31, 2023 and June 30, 2022, respectively, was from commercial real estate and Commercial and Industrial (“C&I”) loans.

(3)

As of June 30, 2023, there were unamortized net deferred fees and unaccredited discounts of $4 thousand to be recognized over the estimated life of the loans as a yield adjustment on the loans.

Impact of Hana Loan Purchase on Average Loan Yield and Net Interest Margin

During the second quarter of 2021, the Bank purchased an SBA portfolio of 638 loans with an ending balance of $100.0 million, excluding loan discount of $8.9 million from Hana Small Business Lending, Inc. (“Hana”). The following table presents impacts of the Hana loan purchase on average loan yield and net interest margin:

 

 

 

 

 

 

 

($ in thousands)

 

For the Three Months Ended

 

 

2Q2023

 

 

 

1Q2023

 

 

 

2Q2022

 

Hana Loan Purchase:

 

 

 

 

 

 

Contractual interest rate

 

$

1,409

 

 

$

1,400

 

 

$

956

 

Purchased loan discount accretion

 

 

384

 

 

 

413

 

 

 

592

 

Other fees

 

 

16

 

 

 

24

 

 

 

24

 

Total interest income

 

$

1,809

 

 

$

1,837

 

 

$

1,572

 

 

 

 

 

 

 

 

Effect on average loan yield(1)

 

 

0.23

%

 

 

0.24

%

 

 

0.19

%

Effect on net interest margin(1)

 

 

0.27

%

 

 

0.28

%

 

 

0.20

%

 

 

 

 

 

 

 

($ in thousands)

 

For the Three Months Ended

 

 

2Q2023

 

 

 

1Q2023

 

 

 

2Q2022

 

 

Average

Balance

 

Interest

and Fees

 

Yield/

Rate

 

Average

Balance

 

Interest

and Fees

 

Yield/

Rate

 

Average

Balance

 

Interest

and Fees

 

Yield/

Rate

Average loan yield(1)

 

$

1,725,764

 

$

27,288

 

6.34

%

 

$

1,725,392

 

$

26,011

 

6.10

%

 

$

1,560,064

 

$

19,108

 

4.91

%

Adjusted average loan yield excluding purchased Hana loans(1)(2)

 

 

1,670,530

 

 

25,479

 

6.11

 

 

 

1,667,155

 

 

24,174

 

5.86

 

 

 

1,490,884

 

 

17,536

 

4.72

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest margin(1)

 

 

2,030,139

 

 

17,252

 

3.40

 

 

 

2,022,146

 

 

17,892

 

3.57

 

 

 

1,817,157

 

 

19,079

 

4.21

 

Adjusted interest margin excluding purchased Hana loans(1)(2)

 

 

1,974,905

 

 

15,443

 

3.13

 

 

 

1,963,909

 

 

16,055

 

3.29

 

 

 

1,747,977

 

 

17,507

 

4.01

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Annualized.

(2)

See reconciliation of GAAP to non-GAAP financial measures.

Second Quarter 2023 vs. First Quarter 2023

Net interest income decreased $0.6 million, or 3.6%, primarily due to higher interest expense on deposits and borrowings, partially offset by higher interest income on loans. Net interest margin was 3.40%, a decrease of 17 basis points from 3.57%.

  • A $1.5 million increase in interest expense on deposits was primarily due to a $5.2 million increase in average balance of interest-bearing deposits and a 46 basis point increase in average cost driven by the Federal Reserve’s rate increases.
  • A $610 thousand increase in interest expense on borrowings was primarily due to a $56.4 million increase in average balance.
  • A $1.3 million increase in interest income on loans was primarily due to a 24 basis point increase in loan yield as a result of the Federal Reserve’s rate increases.

Second Quarter 2023 vs. Second Quarter 2022

Net interest income decreased $1.8 million, or 9.6%, primarily due to higher interest expense on deposits, partially offset by higher interest income on loans. Net interest margin was 3.40%, a decrease of 81 basis points from 4.21%.

  • An $8.2 million increase in interest income on loans was primarily due to a $165.7 million increase in average balance of interest-bearing deposits and a 143 basis point increase in loan yield as a result of the Federal Reserve’s rate increases.
  • A $10.9 million increase in interest expense on deposits was primarily due to a $342.3 million increase in average balance and a 348 basis point increase in average cost driven by the Federal Reserve’s rate increases.

Provision for Credit Losses

 

 

 

 

 

 

 

($ in thousands)

 

For the Three Months Ended

 

 

2Q2023

 

 

1Q2023

 

 

 

2Q2022

(Reversal of) provision for credit losses on loans

 

$

 

$

(258

)

 

$

996

(Reversal of) provision for credit losses on off-balance sheet exposure(1)

 

 

 

 

(80

)

 

 

23

Total (reversal of) provision for credit losses

 

$

 

$

(338

)

 

$

1,019

 

 

 

 

 

 

 

(1)

Reversal of provision for credit losses on off-balance sheet exposure of $80 thousand for the three months ended March 31, 2023 was included in total (reversal of) provision for credit losses. Prior to CECL adoption, provisions for credit losses on off-balance sheet exposure of $23 thousand for the three months ended June 30, 2022 was included in other expenses.

Second Quarter 2023 vs. First Quarter 2023

The Company did not record provision for credit losses, compared with a $338 thousand reversal of credit losses.

A $163 thousand increase from qualitative factor adjustments in the second quarter of 2023 was primarily offset by decreases in specific reserve requirements on individually evaluated loans. The change in quantitative general reserve during the quarter was insignificant as the impact from a 1.4% growth in gross loans was mostly offset by a decrease in historical loss factors.

Second Quarter 2023 vs. Second Quarter 2022

The Company did not record provision for credit losses, compared with a $1.0 million provision for credit losses.

Noninterest Income

 

 

 

 

 

 

 

 

 

 

 

($ in thousands)

 

For the Three Months Ended

 

% Change 2Q23 vs.

 

 

2Q2023

 

 

1Q2023

 

 

2Q2022

 

1Q2023

 

 

2Q2022

 

Noninterest Income

 

 

 

 

 

 

 

 

 

 

Service charges on deposits

 

$

573

 

$

418

 

$

427

 

37.1

%

 

34.2

%

Loan servicing fees, net of amortization

 

 

595

 

 

846

 

 

654

 

(29.7

)

 

(9.0

)

Gain on sale of loans

 

 

2,098

 

 

2,570

 

 

3,873

 

(18.4

)

 

(45.8

)

Other income

 

 

339

 

 

461

 

 

405

 

(26.5

)

 

(16.3

)

Total noninterest income

 

$

3,605

 

$

4,295

 

$

5,359

 

(16.1

)%

 

(32.7

)%

 

 

 

 

 

 

 

 

 

 

 

Second Quarter 2023 vs. First Quarter 2023

Noninterest income decreased $690 thousand, or 16.1%, primarily due to lower gain on sale of loans.

  • Gain on sale of loans was $2.1 million, a decrease of $472 thousand from $2.6 million, primarily due to a lower SBA loan sold amount and a lower average sales premium. The Bank sold $36.8 million in SBA loans at an average premium rate of 6.64%, compared to the sale of $44.7 million at an average premium rate of 7.33%.

Second Quarter 2023 vs. Second Quarter 2022

Noninterest income decreased $1.8 million, or 32.7%, primarily due to lower gain on sale of loans.

  • Gain on sale of loans was $2.1 million, a decrease of $1.8 million from $3.9 million, primarily due to a lower SBA loan sold amount and a lower average sales premium. The Bank sold $36.8 million in SBA loans at an average premium rate of 6.64%, compared to the sale of $58.6 million at an average premium rate of 7.02%.

Noninterest Expense

 

 

 

 

 

 

 

 

 

 

 

($ in thousands)

 

For the Three Months Ended

 

% Change 2Q23 vs.

 

 

2Q2023

 

 

1Q2023

 

 

2Q2022

 

1Q2023

 

 

2Q2022

 

Noninterest Expense

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

$

7,681

 

$

7,252

 

$

7,109

 

5.9

%

 

8.0

%

Occupancy and equipment

 

 

1,598

 

 

1,570

 

 

1,489

 

1.8

 

 

7.3

 

Data processing and communication

 

 

546

 

 

550

 

 

492

 

(0.7

)

 

11.0

 

Professional fees

 

 

381

 

 

359

 

 

364

 

6.1

 

 

4.7

 

FDIC insurance and regulatory assessments

 

 

420

 

 

467

 

 

192

 

(10.1

)

 

118.8

 

Promotion and advertising

 

 

159

 

 

162

 

 

165

 

(1.9

)

 

(3.6

)

Directors’ fees

 

 

210

 

 

161

 

 

190

 

30.4

 

 

10.5

 

Foundation donation and other contributions

 

 

594

 

 

753

 

 

852

 

(21.1

)

 

(30.3

)

Other expenses

 

 

711

 

 

634

 

 

650

 

12.1

 

 

9.4

 

Total noninterest expense

 

$

12,300

 

$

11,908

 

$

11,503

 

3.3

%

 

6.9

%

 

 

 

 

 

 

 

 

 

 

 

Second Quarter 2023 vs. First Quarter 2023

Noninterest expense increased $392 thousand, or 3.3%, primarily due to higher salaries and employee benefits, partially offset by a lower foundation donation.

  • Salaries and employee benefits increased $429 thousand primarily due to an addition of four full-time employees and annual salary adjustments effective in the second quarter of 2023.
  • Foundation donations and other contributions decreased $159 thousand primarily due to lower donation accrual for Open Stewardship as a result of lower net income.

Second Quarter 2023 vs. Second Quarter 2022

Noninterest expense increased $797 thousand, or 6.9%, primarily due to higher salaries and employee benefits and FDIC insurance and regulatory assessments, mainly offset by a lower foundation donation.

  • Salaries and employee benefits increased $572 thousand primarily due to 22 additional full-time employees to support continued growth of the Company.
  • FDIC insurance and regulatory assessments increased $228 thousand primarily due to our deposit growth from the second quarter of 2022 and increases in FDIC assessment fees in 2023.
  • Foundation donations and other contributions decreased $258 thousand primarily due to lower donation accrual for Open Stewardship as a result of lower net income.

Income Tax Expense

Second Quarter 2023 vs. First Quarter 2023

Income tax expense was $2.5 million, and the effective tax rate was 28.8%, compared to income tax expense of $3.1 million and the effective rate of 29.0%.

Second Quarter 2023 vs. Second Quarter 2022

Income tax expense was $2.5 million and the effective tax rate was 28.8%, compared to income tax expense of $3.5 million and an effective rate of 29.0%.

BALANCE SHEET HIGHLIGHTS

Loans

 

 

 

 

 

 

 

 

 

 

 

($ in thousands)

 

As of

 

% Change 2Q23 vs.

 

 

2Q2023

 

 

1Q2023

 

 

2Q2022

 

1Q2023

 

 

2Q2022

 

Commercial real estate loans

 

$

847,863

 

$

833,615

 

$

776,785

 

1.7

%

 

9.2

%

SBA loans

 

 

238,785

 

 

238,994

 

 

247,413

 

(0.1

)

 

(3.5

)

C&I loans

 

 

112,160

 

 

117,841

 

 

128,620

 

(4.8

)

 

(12.8

)

Home mortgage loans

 

 

516,226

 

 

500,635

 

 

331,362

 

3.1

 

 

55.8

 

Consumer & other loans

 

 

1,163

 

 

1,400

 

 

538

 

(16.9

)

 

116.2

 

Gross loans

 

$

1,716,197

 

$

1,692,485

 

$

1,484,718

 

1.4

%

 

15.6

%

 

 

 

 

 

 

 

 

 

 

 

The following table presents new loan originations based on loan commitment amounts for the periods indicated:

 

 

 

 

 

 

 

 

 

 

 

($ in thousands)

 

For the Three Months Ended

 

% Change 2Q23 vs.

 

 

2Q2023

 

 

1Q2023

 

 

2Q2022

 

1Q2023

 

 

2Q2022

 

Commercial real estate loans

 

$

29,976

 

$

24,200

 

$

61,924

 

23.9

%

 

(51.6

)%

SBA loans

 

 

34,312

 

 

16,258

 

 

55,085

 

111.0

 

 

(37.7

)

C&I loans

 

 

25,650

 

 

7,720

 

 

2,718

 

232.3

 

 

843.7

 

Home mortgage loans

 

 

22,788

 

 

20,617

 

 

30,345

 

10.5

 

 

(24.9

)

Gross loans

 

$

112,726

 

$

68,795

 

$

150,072

 

63.9

%

 

(24.9

)%

 

 

 

 

 

 

 

 

 

 

 

The following table presents changes in gross loans by loan activity for the periods indicated:

 

 

 

 

 

 

 

($ in thousands)

 

For the Three Months Ended

 

 

2Q2023

 

 

 

1Q2023

 

 

 

2Q2022

 

Loan Activities:

 

 

 

 

 

 

Gross loans, beginning

 

$

1,692,485

 

 

$

1,678,292

 

 

$

1,428,410

 

New originations

 

 

112,726

 

 

 

68,795

 

 

 

150,072

 

Net line advances

 

 

(25,961

)

 

 

10,356

 

 

 

(46,773

)

Purchases

 

 

6,359

 

 

 

12,142

 

 

 

56,455

 

Sales

 

 

(36,791

)

 

 

(45,021

)

 

 

(58,999

)

Paydowns

 

 

(17,210

)

 

 

(40,190

)

 

 

(15,977

)

Payoffs

 

 

(25,969

)

 

 

(28,326

)

 

 

(33,098

)

PPP Payoffs

 

 

 

 

 

(200

)

 

 

(14,347

)

Decrease in loans held for sale

 

 

7,534

 

 

 

36,802

 

 

 

18,988

 

Other

 

 

3,024

 

 

 

(165

)

 

 

(13

)

Total

 

 

23,712

 

 

 

14,193

 

 

 

56,308

 

Gross loans, ending

 

$

1,716,197

 

 

$

1,692,485

 

 

$

1,484,718

 

 

 

 

 

 

 

 

As of June 30, 2023 vs. March 31, 2023

Gross loans were $1.72 billion as of June 30, 2023, up $23.7 million from March 31, 2023, primarily due to new loan originations, partially offset by loan sales, and payoffs and paydowns.

New loan originations and loan payoffs and paydowns were $112.7 million and $43.2 million for the second quarter of 2023, respectively, compared with $68.8 million and $68.7 million for the first quarter of 2023, respectively.

As of June 30, 2023 vs. June 30, 2022

Gross loans were $1.72 billion as of June 30, 2023, up $231.5 million from June 30, 2022, primarily due to new loan originations of $554.7 million and loan purchases of $105.6 million, primarily offset by loan sales of $173.3 million and loan payoffs and paydowns of $222.8 million.

The following table presents the composition of gross loans by interest rate type accompanied with the weighted average contractual rates as of the periods indicated:

 

 

 

 

 

 

 

 

 

 

 

 

 

($ in thousands)

 

As of

 

2Q2023

 

 

 

1Q2023

 

 

 

2Q2022

 

 

 

%

 

Rate

 

%

 

Rate

 

%

 

Rate

Fixed rate

 

36.2

%

 

4.82

%

 

36.5

%

 

4.76

%

 

34.9

%

 

4.19

%

Hybrid rate

 

34.7

 

 

4.99

 

 

34.2

 

 

4.94

 

 

28.2

 

 

4.47

 

Variable rate

 

29.1

 

 

9.05

 

 

29.3

 

 

8.76

 

 

36.9

 

 

5.77

 

Gross loans

 

100.0

%

 

6.11

%

 

100.0

%

 

5.99

%

 

100.0

%

 

4.85

%

 

 

 

 

 

 

 

 

 

 

 

 

 

The following table presents the maturity of gross loans by interest rate type accompanied with the weighted average contractual rates for the periods indicated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

($ in thousands)

 

As of June 30, 2023

 

Within One Year

 

One Year Through Five Years

 

After Five Years

 

Total

 

Amount

 

Rate

 

Amount

 

Rate

 

Amount

 

Rate

 

Amount

 

Rate

Fixed rate

 

$

50,591

 

5.33

%

 

$

331,824

 

4.78

%

 

$

239,489

 

4.77

%

 

$

621,904

 

4.82

%

Hybrid rate

 

 

 

 

 

 

83,789

 

4.63

 

 

 

510,775

 

5.05

 

 

 

594,564

 

4.99

 

Variable rate

 

 

82,254

 

8.87

 

 

 

116,620

 

8.65

 

 

 

300,855

 

9.25

 

 

 

499,729

 

9.05

 

Gross loans

 

$

132,845

 

7.52

%

 

$

532,233

 

5.60

%

 

$

1,051,119

 

6.21

%

 

$

1,716,197

 

6.11

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for Credit Losses

The Company adopted the CECL accounting standard effective as of January 1, 2023 under a modified retrospective approach. The adoption resulted in a $1.9 million increase to the allowance for credit losses on loans, a $184 thousand increase to the allowance for credit losses on off-balance sheet exposure, a $624 thousand increase to deferred tax assets, and a $1.5 million charge to retained earnings.

The following table presents impact of CECL adoption for allowance for credit losses and related items on January 1, 2023:

 

 

 

 

 

 

 

 

 

($ in thousands)

 

Allowance For Credit Losses on Loans

 

Allowance For Credit Losses on Off-Balance Sheet Exposure

 

Deferred Tax Assets

 

Retained Earnings

As of December 31, 2022

 

$

19,241

 

$

263

 

$

14,316

 

$

105,690

 

Day 1 adjustments on January 1, 2023

 

 

1,924

 

 

184

 

 

624

 

 

(1,484

)

After Day 1 adjustments

 

$

21,165

 

$

447

 

$

14,940

 

$

104,206

 

 

 

 

 

 

 

 

 

 

The following table presents allowance for credit losses and provision for credit losses as of and for the periods presented:

 

 

 

 

 

 

 

 

 

 

 

($ in thousands)

 

As of and For the Three Months Ended

 

% Change 2Q23 vs.

 

 

2Q2023

 

 

 

1Q2023

 

 

 

2Q2022

 

 

1Q2023

 

 

2Q2022

 

Allowance for credit losses on loans, beginning

 

$

20,814

 

 

$

19,241

 

 

$

16,672

 

 

8.2

%

 

24.8

%

Impact of CECL adoption

 

 

 

 

 

1,924

 

 

 

 

 

n/m

 

 

n/m

 

(Reversal of) provision for credit losses(1)

 

 

 

 

 

(258

)

 

 

996

 

 

n/m

 

 

n/m

 

Gross charge-offs

 

 

(20

)

 

 

(116

)

 

 

(18

)

 

(82.8

)

 

11.1

%

Gross recoveries

 

 

8

 

 

 

23

 

 

 

52

 

 

(65.2

)

 

(84.6

)%

Net (charge-offs) recoveries

 

 

(12

)

 

 

(93

)

 

 

34

 

 

(87.1

)

 

n/m

 

Allowance for credit losses on loans, ending(2)

 

$

20,802

 

 

$

20,814

 

 

$

17,702

 

 

(0.1

)%

 

17.5

%

 

 

 

 

 

 

 

 

 

 

 

Allowance for credit losses on off-balance sheet exposure, beginning

 

$

367

 

 

$

263

 

 

$

172

 

 

39.5

%

 

113.4

%

Impact of CECL adoption

 

 

 

 

 

184

 

 

 

 

 

n/m

 

 

n/m

 

(Reversal of) provision for credit losses

 

 

 

 

 

(80

)

 

 

23

 

 

n/m

 

 

n/m

 

Allowance for credit losses on off-balance sheet exposure, ending(2)

 

$

367

 

 

$

367

 

 

$

195

 

 

%

 

88.2

%

 

 

 

 

 

 

 

 

 

 

 

(1)

Excludes reversal of uncollectible accrued interest receivable of $205 thousand for the three months ended June 30, 2022.

(2)

Allowance for credit losses as of June 30, 2023 and March 31, 2023 were calculated under the CECL methodology while allowance for loan losses for June 30, 2022 was calculated under the incurred loss methodology.

Asset Quality

 

 

 

 

 

 

 

 

 

 

 

($ in thousands)

 

As of and For the Three Months Ended

 

% Change 2Q23 vs.

 

 

2Q2023

 

 

 

1Q2023

 

 

 

2Q2022

 

 

1Q2023

 

 

2Q2022

 

Nonperforming loans(1)

 

$

3,447

 

 

$

2,504

 

 

$

1,826

 

 

37.7

%

 

88.8

%

Nonperforming assets(1)

 

 

3,447

 

 

 

2,504

 

 

 

1,826

 

 

37.7

 

 

88.8

 

Nonperforming loans to gross loans

 

 

0.20

%

 

 

0.15

%

 

 

0.12

%

 

0.05

 

 

0.08

 

Nonperforming assets to total assets

 

 

0.16

%

 

 

0.12

%

 

 

0.09

%

 

0.04

 

 

0.07

 

 

 

 

 

 

 

 

 

 

 

 

Criticized loans(1)(2)

 

$

7,538

 

 

$

5,772

 

 

$

2,673

 

 

30.6

%

 

182.0

%

Criticized loans to gross loans

 

 

0.44

%

 

 

0.34

%

 

 

0.18

%

 

0.10

 

 

0.26

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for credit losses ratios:

 

 

 

 

 

 

 

 

 

 

As a % of gross loans

 

 

1.21

%

 

 

1.23

%

 

 

1.19

%

 

(0.02

)%

 

0.02

%

As an adjusted % of gross loans(3)

 

 

1.25

 

 

 

1.27

 

 

 

1.25

 

 

(0.02

)

 

 

As a % of nonperforming loans

 

 

603

 

 

 

831

 

 

 

969

 

 

(228

)

 

(366

)

As a % of nonperforming assets

 

 

603

 

 

 

831

 

 

 

969

 

 

(228

)

 

(366

)

As a % of criticized loans

 

 

276

 

 

 

361

 

 

 

662

 

 

(85

)

 

(386

)

Net charge-offs (recoveries)(4) to average gross loans(5)

 

 

0.00

 

 

 

0.02

 

 

 

(0.01

)

 

(0.02

)

 

0.01

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Excludes the guaranteed portion of SBA loans that are in liquidation totaling $5.4 million, $1.9 million and $351 thousand as of June 30, 2023, March 31, 2023 and June 30, 2022, respectively.

(2)

Consists of special mention, substandard, doubtful and loss categories.

(3)

See the Reconciliation of GAAP to NON-GAAP Financial Measures.

(4)

Annualized.

(5)

Includes loans held for sale.

Overall, the Bank continued to maintain solid asset quality with low levels of nonperforming loans and net charge-offs. Nonperforming assets and criticized loans remained below our historical norms, a reflection of our conservative credit culture and expertise in the industries we serve. Our allowance remained strong with an adjusted allowance to gross loans ratio of 1.25%.

  • Criticized loans was $7.5 million, an increase of $4.9 million from a year ago, and represented 0.44% of gross loans. Criticized loans consist of loans categorized as Special Mention, Substandard, Doubtful and Loss categories defined by regulatory authorities.
  • Nonperforming assets was $3.4 million, an increase of $1.6 million from a year ago, and represented 0.16% of total assets. As of June 30, 2023, $5.4 million of nonaccrual assets consisted of guaranteed portion of SBA loans that are in liquidation. The Company did not have OREO as of June 30, 2023 or 2022.
  • Net charge-offs were $12 thousand or 0.00% of average loans in the second quarter of 2023, compared to net charge-offs of $93 thousand, or 0.02%, of average loans in the first quarter of 2023 and net recoveries of $34 thousand, or 0.01%, of average loans in the second quarter of 2022.

Deposits

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

($ in thousands)

 

As of

 

% Change 2Q23 vs.

 

2Q2023

 

 

1Q2023

 

 

2Q2022

 

 

 

Amount

 

%

 

Amount

 

%

 

Amount

 

%

 

1Q2023

 

 

2Q2022

 

Noninterest-bearing deposits

 

$

634,745

 

34.1

%

 

$

643,902

 

33.8

%

 

$

820,311

 

47.1

%

 

(1.4

)%

 

(22.6

)%

Money market deposits and others

 

 

344,162

 

18.5

 

 

 

436,796

 

22.9

 

 

 

519,389

 

29.8

 

 

(21.2

)

 

(33.7

)

Time deposits

 

 

880,732

 

47.4

 

 

 

824,120

 

43.3

 

 

 

401,923

 

23.1

 

 

6.9

 

 

119.1

 

Total deposits

 

$

1,859,639

 

100.0

%

 

$

1,904,818

 

100.0

%

 

$

1,741,623

 

100.0

%

 

(2.4

)%

 

6.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Estimated uninsured deposits

 

$

796,211

 

42.8

%

 

$

900,579

 

47.3

%

 

$

1,036,943

 

59.5

%

 

(11.6

)%

 

(23.2

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of June 30, 2023 vs. March 31, 2023

Total deposits were $1.86 billion as of June 30, 2023, down $45.2 million from March 31, 2023, primarily due to decreases in money market deposits partially offset by growth in time deposits. The composition shift from money market deposits to time deposits was primarily due to customers’ continued preference for high-rate deposit products driven by the Federal Reserve’s rate increases. Noninterest-bearing deposits remained relatively stable at 34% of total deposits.

As of June 30, 2023 vs. June 30, 2022

Total deposits were $1.86 billion as of June 30, 2023, up $118.0 million from June 30, 2022, primarily driven by growth in time deposits, partially offset by decreases in noninterest-bearing deposits, and money market and others. The composition shift to time deposits was primarily due to customers’ preference for high-rate deposit products driven by market rate increases as a result of the Federal Reserve’s rate increases and decreases in transaction volumes in escrow and 1031 exchanges accounts.

The following table sets forth the maturity of time deposits as of June 30, 2023:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of June 30, 2023

($ in thousands)

 

Within Three

Months

 

Three to

Six Months

 

Six to Nine Months

 

Nine to Twelve

Months

 

After

Twelve Months

 

Total

Time deposits (more than $250)

 

$

30,086

 

 

$

188,654

 

 

$

146,874

 

 

$

48,944

 

 

$

1,650

 

 

$

416,208

 

Time deposits ($250 or less)

 

 

67,165

 

 

 

174,086

 

 

 

90,045

 

 

 

90,721

 

 

 

42,507

 

 

 

464,524

 

Total time deposits

 

$

97,251

 

 

$

362,740

 

 

$

236,919

 

 

$

139,665

 

 

$

44,157

 

 

$

880,732

 

Weighted average rate

 

 

3.37

%

 

 

4.31

%

 

 

4.40

%

 

 

4.50

%

 

 

4.11

%

 

 

4.25

%

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER HIGHLIGHTS

Liquidity

The Company maintains ample access to liquidity, including highly liquid assets on our balance sheet and available unused borrowings from other financial institutions. The following table presents the Company's liquid assets and available borrowings as of dates presented:

 

 

 

 

 

($ in thousands)

 

 

2Q2023

 

 

 

1Q2023

 

 

 

4Q2022

 

Liquid assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

143,761

 

 

$

181,509

 

 

$

82,972

 

Available-for-sale debt securities

 

 

202,250

 

 

 

212,767

 

 

 

209,809

 

Liquid assets

 

$

346,011

 

 

$

394,276

 

 

$

292,781

 

Liquid assets to total assets

 

 

16.1

%

 

 

18.2

%

 

 

14.0

%

 

 

 

 

 

 

 

Available borrowings:

 

 

 

 

 

 

Federal Home Loan Bank—San Francisco

 

$

400,543

 

 

$

406,500

 

 

$

440,358

 

Federal Reserve Bank

 

 

172,316

 

 

 

174,284

 

 

 

175,605

 

Pacific Coast Bankers Bank

 

 

50,000

 

 

 

50,000

 

 

 

50,000

 

Zions Bank

 

 

25,000

 

 

 

25,000

 

 

 

25,000

 

First Horizon Bank

 

 

25,000

 

 

 

25,000

 

 

 

24,950

 

Total available borrowings

 

$

672,859

 

 

$

680,784

 

 

$

715,913

 

Total available borrowings to total assets

 

 

31.3

%

 

 

31.4

%

 

 

34.2

%

 

 

 

 

 

 

 

Liquid assets and available borrowings to total assets

 

 

47.4

%

 

 

49.6

%

 

 

48.2

%

 

 

 

 

 

Capital and Capital Ratios

The Company’s Board of Directors declared a quarterly cash dividend of $0.12 per share of its common stock. The cash dividend is payable on or about August 24, 2023 to all shareholders of record as of the close of business on August 10, 2023.

The Company repurchased 221,494 shares of its common stock at an average price of $8.40 during the second quarter of 2023. Since the announcement of the initial stock repurchase program in January 2019, the Company repurchased a total of 1.9 million shares of its common stock at an average repurchase price of $8.58 per share through June 30, 2023.

 

 

 

 

 

 

 

 

 

 

 

Basel III

 

OP Bancorp(1)

 

Open Bank

 

Minimum Well

Capitalized

Ratio

 

Minimum

Capital Ratio+

Conservation

Buffer(2)

Risk-Based Capital Ratios:

 

 

 

 

 

 

 

 

Total risk-based capital ratio

 

13.10

%

 

12.98

%

 

10.00

%

 

10.50

%

Tier 1 risk-based capital ratio

 

11.92

 

 

11.80

 

 

8.00

 

 

8.50

 

Common equity tier 1 ratio

 

11.92

 

 

11.80

 

 

6.50

 

 

7.00

 

Leverage ratio

 

9.50

 

 

9.41

 

 

5.00

 

 

4.00

 

 

 

 

 

 

 

 

 

 

(1)

The capital requirements are only applicable to the Bank, and the Company's ratios are included for comparison purpose.

(2)

An additional 2.5% capital conservation buffer above the minimum capital ratios are required in order to avoid limitations on distributions, including dividend payments and certain discretionary bonuses to executive officers.

 

 

 

 

 

 

 

 

 

 

 

OP Bancorp

 

Basel III

 

% Change 2Q23 vs.

 

 

2Q2023

 

 

 

1Q2023

 

 

 

2Q2022

 

 

1Q2023

 

 

2Q2022

 

Risk-Based Capital Ratios:

 

 

 

 

 

 

 

 

 

 

Total risk-based capital ratio

 

 

13.10

%

 

 

13.27

%

 

 

13.51

%

 

(0.17

)%

 

(0.41

)%

Tier 1 risk-based capital ratio

 

 

11.92

 

 

 

12.06

 

 

 

12.29

 

 

(0.14

)

 

(0.37

)

Common equity tier 1 ratio

 

 

11.92

 

 

 

12.06

 

 

 

12.29

 

 

(0.14

)

 

(0.37

)

Leverage ratio

 

 

9.50

 

 

 

9.43

 

 

 

9.48

 

 

0.07

 

 

0.02

 

Risk-weighted Assets ($ in thousands)

 

$

1,700,205

 

 

$

1,659,584

 

 

$

1,465,707

 

 

2.45

 

 

16.00

 

 

 

 

 

 

 

 

 

 

 

 

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

In addition to GAAP measures, management uses certain non-GAAP financial measures to provide supplemental information regarding the Company’s performance.

Pre-provision net revenue removes provision for credit losses and income tax expense. Management believes that this non-GAAP measure, when taken together with the corresponding GAAP financial measures (as applicable), provides meaningful supplemental information regarding our performance. This non-GAAP financial measure also facilitates a comparison of our performance to prior periods.

 

 

 

 

 

 

 

($ in thousands)

 

For the Three Months Ended

 

 

2Q2023

 

 

1Q2023

 

 

 

2Q2022

Interest income

 

$

30,102

 

$

28,594

 

 

$

20,148

Interest expense

 

 

12,850

 

 

10,702

 

 

 

1,069

Net interest income

 

 

17,252

 

 

17,892

 

 

 

19,079

Noninterest income

 

 

3,605

 

 

4,295

 

 

 

5,359

Noninterest expense

 

 

12,300

 

 

11,908

 

 

 

11,503

Pre-provision net revenue

(a)

$

8,557

 

$

10,279

 

 

$

12,935

Reconciliation to net income

 

 

 

 

 

 

(Reversal of) provision for credit losses

(b)

$

 

$

(338

)

 

$

996

Income tax expense

(c)

 

2,466

 

 

3,083

 

 

 

3,459

Net income

(a)+(b)+(c)

$

6,091

 

$

7,534

 

 

$

8,480

 

 

 

 

 

 

 

During the second quarter of 2021, the Bank purchased 638 loans from Hana for a total purchase price of $97.6 million. The Company evaluated $100.0 million of the loans purchased in accordance with the provisions of ASC 310-20, Nonrefundable Fees and Other Costs, which were recorded with a $8.9 million discount. As a result, the fair value discount on these loans is being accreted into interest income over the expected life of the loans using the effective yield method. Adjusted loan yield and net interest margin for the three months ended June 30, 2023, March 31, 2023 and June 30, 2022 excluded the impacts of contractual interest and discount accretion of the purchased Hana loans as management does not consider purchasing loan portfolios to be normal or recurring transactions. Management believes that presenting the adjusted average loan yield and net interest margin provide comparability to prior periods and these non-GAAP financial measures provide supplemental information regarding the Company’s performance.

 

 

 

 

 

 

 

($ in thousands)

 

For the Three Months Ended

 

 

2Q2023

 

 

 

1Q2023

 

 

 

2Q2022

 

Yield on Average Loans

 

 

 

 

 

 

Interest income on loans

 

$

27,288

 

 

$

26,011

 

 

$

19,108

 

Less: interest income on purchased Hana loans

 

 

1,809

 

 

 

1,837

 

 

 

1,572

 

Adjusted interest income on loans

(a)

$

25,479

 

 

$

24,174

 

 

$

17,536

 

 

 

 

 

 

 

 

Average loans

 

$

1,725,764

 

 

$

1,725,392

 

 

$

1,560,064

 

Less: Average purchased Hana loans

 

 

55,234

 

 

 

58,237

 

 

 

69,180

 

Adjusted average loans

(b)

$

1,670,530

 

 

$

1,667,155

 

 

$

1,490,884

 

 

 

 

 

 

 

 

Average loan yield(1)

 

 

6.34

%

 

 

6.10

%

 

 

4.91

%

Effect on average loan yield(1)

 

 

0.23

%

 

 

0.24

%

 

 

0.19

%

Adjusted average loan yield(1)

(a)/(b)

 

6.11

%

 

 

5.86

%

 

 

4.72

%

 

 

 

 

 

 

 

Net Interest Margin

 

 

 

 

 

 

Net interest income

 

$

17,252

 

 

$

17,892

 

 

$

19,079

 

Less: interest income on purchased Hana loans

 

 

1,809

 

 

 

1,837

 

 

 

1,572

 

Adjusted net interest income

(c)

$

15,443

 

 

$

16,055

 

 

$

17,507

 

 

 

 

 

 

 

 

Average interest-earning assets

 

$

2,030,139

 

 

$

2,022,146

 

 

$

1,817,157

 

Less: Average purchased Hana loans

 

 

55,234

 

 

 

58,237

 

 

 

69,180

 

Adjusted average interest-earning assets

(d)

$

1,974,905

 

 

$

1,963,909

 

 

$

1,747,977

 

 

 

 

 

 

 

 

Net interest margin(1)

 

 

3.40

%

 

 

3.57

%

 

 

4.21

%

Effect on net interest margin(1)

 

 

0.27

 

 

 

0.28

 

 

 

0.20

 

Adjusted net interest margin(1)

(c)/(d)

 

3.13

%

 

 

3.29

%

 

 

4.01

%

 

 

 

 

 

 

 

(1) Annualized.

Adjusted allowance to gross loans ratio removes the impacts of purchased Hana loans, PPP loans and allowance on accrued interest receivable. Management believes that this ratio provides greater consistency and comparability between the Company’s results and those of its peer banks.

 

 

 

 

 

 

 

($ in thousands)

 

For the Three Months Ended

 

 

2Q2023

 

 

 

1Q2023

 

 

 

2Q2022

 

Gross loans

 

$

1,716,197

 

 

$

1,692,485

 

 

$

1,484,718

 

Less: Purchased Hana loans

 

 

(54,016

)

 

 

(56,735

)

 

 

(66,946

)

PPP loans(1)

 

 

(247

)

 

 

(247

)

 

 

(7,151

)

Adjusted gross loans

(a)

$

1,661,934

 

 

$

1,635,503

 

 

$

1,410,621

 

 

 

 

 

 

 

 

Accrued interest receivable on loans

 

$

6,815

 

 

$

6,440

 

 

$

4,602

 

Less: Accrued interest receivable on purchased Hana loans

 

 

(426

)

 

 

(432

)

 

 

(290

)

Accrued interest receivable on PPP loans(2)

 

 

(6

)

 

 

(5

)

 

 

(93

)

Add: Allowance on accrued interest receivable

 

 

 

 

 

 

 

 

 

Adjusted accrued interest receivable on loans

(b)

$

6,383

 

 

$

6,003

 

 

$

4,219

 

 

 

 

 

 

 

 

Adjusted gross loans and accrued interest receivable

(a)+(b)=(c)

$

1,668,317

 

 

$

1,641,506

 

 

$

1,414,840

 

 

 

 

 

 

 

 

Allowance for credit losses

 

$

20,802

 

 

$

20,814

 

 

$

17,702

 

Add: Allowance on accrued interest receivable

 

 

 

 

 

 

 

 

 

Adjusted Allowance

(d)

$

20,802

 

 

$

20,814

 

 

$

17,702

 

 

 

 

 

 

 

 

Adjusted allowance to gross loans ratio

(d)/(c)

 

1.25

%

 

 

1.27

%

 

 

1.25

%

 

 

 

 

 

 

 

(1)

Excludes purchased PPP loans of $942 thousand as of June 30, 2022.

(2)

Excludes purchased accrued interest receivable on PPP loans of $13 thousand as of June 30, 2022.

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 ten full-service branch offices in Downtown Los Angeles, Los Angeles Fashion District, Los Angeles Koreatown, Cerritos, Gardena, Buena Park, and Santa Clara, California and Carrollton, Texas. The Bank also has four loan production offices in Pleasanton, California, Atlanta, Georgia, Aurora, Colorado, and Lynnwood, 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.

Cautionary Note Regarding Forward-Looking Statements

Certain matters set forth herein 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. 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; the continuing effects of inflation and monetary policies, and the impacts of those circumstances upon our current and prospective borrowers and depositors; our ability to mitigate and manage deposit liabilities in a manner that balances the need to meet current and expected withdrawals while investing a sufficient portion of our assets to promote strong earning capacity; our ability to successfully manage our credit risk and the sufficiency of our allowance for credit losses; 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, the success of construction projects that we finance, including any loans acquired in acquisition transactions; our ability to effectively execute our strategic plan and manage our growth; interest rate fluctuations, which could have an adverse effect on our profitability; 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 less restrictive or less costly regulations than we are; challenges arising from unsuccessful attempts to expand into new geographic markets, products, or services; restraints on the ability of Open Bank to pay dividends to us, which could limit our liquidity; 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, particularly with respect to the effects of predictions of future economic conditions as those circumstances affect our estimates for the adequacy of our allowance for credit losses and the related provision expense; 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; political developments, uncertainties or instability, catastrophic events, acts of war or terrorism, or natural disasters, such as earthquakes, fires, drought, pandemic diseases (such as the coronavirus) or extreme weather events, any of which may affect services we use or affect our customers, employees or third parties with which we conduct business; 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; 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, 2022 and in our other subsequent filings with the Securities and Exchange Commission.

CONSOLIDATED BALANCE SHEETS (unaudited)

 

 

 

 

 

 

 

 

 

 

 

($ in thousands)

 

As of

 

% Change 2Q23 vs.

 

 

2Q2023

 

 

 

1Q2023

 

 

 

2Q2022

 

 

1Q2023

 

 

2Q2022

 

Assets

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

21,295

 

 

$

16,781

 

 

$

14,937

 

 

26.9

%

 

42.6

%

Interest-bearing deposits in other banks

 

 

122,466

 

 

 

164,728

 

 

 

117,760

 

 

(25.7

)

 

4.0

 

Cash and cash equivalents

 

 

143,761

 

 

 

181,509

 

 

 

132,697

 

 

(20.8

)

 

8.3

 

Available-for-sale debt securities, at fair value

 

 

202,250

 

 

 

212,767

 

 

 

174,814

 

 

(4.9

)

 

15.7

 

Other investments

 

 

16,183

 

 

 

12,172

 

 

 

12,205

 

 

33.0

 

 

32.6

 

Loans held for sale

 

 

 

 

 

7,534

 

 

 

67,255

 

 

n/m

 

 

n/m

 

Commercial real estate loans

 

 

847,863

 

 

 

833,615

 

 

 

776,785

 

 

1.7

 

 

9.2

 

SBA loans

 

 

238,785

 

 

 

238,994

 

 

 

247,413

 

 

(0.1

)

 

(3.5

)

C&I loans

 

 

112,160

 

 

 

117,841

 

 

 

128,620

 

 

(4.8

)

 

(12.8

)

Home mortgage loans

 

 

516,226

 

 

 

500,635

 

 

 

331,362

 

 

3.1

 

 

55.8

 

Consumer loans

 

 

1,163

 

 

 

1,400

 

 

 

538

 

 

(16.9

)

 

116.2

 

Gross loans receivable

 

 

1,716,197

 

 

 

1,692,485

 

 

 

1,484,718

 

 

1.4

 

 

15.6

 

Allowance for credit losses

 

 

(20,802

)

 

 

(20,814

)

 

 

(17,702

)

 

(0.1

)

 

17.5

 

Net loans receivable

 

 

1,695,395

 

 

 

1,671,671

 

 

 

1,467,016

 

 

1.4

 

 

15.6

 

Premises and equipment, net

 

 

5,093

 

 

 

4,647

 

 

 

4,493

 

 

9.6

 

 

13.4

 

Accrued interest receivable, net

 

 

7,703

 

 

 

7,302

 

 

 

5,112

 

 

5.5

 

 

50.7

 

Servicing assets

 

 

12,654

 

 

 

12,898

 

 

 

12,708

 

 

(1.9

)

 

(0.4

)

Company owned life insurance

 

 

21,913

 

 

 

21,762

 

 

 

21,317

 

 

0.7

 

 

2.8

 

Deferred tax assets, net

 

 

13,360

 

 

 

12,323

 

 

 

13,371

 

 

8.4

 

 

(0.1

)

Operating right-of-use assets

 

 

9,487

 

 

 

9,459

 

 

 

8,036

 

 

0.3

 

 

18.1

 

Other assets

 

 

23,902

 

 

 

16,550

 

 

 

15,218

 

 

44.4

 

 

57.1

 

Total assets

 

$

2,151,701

 

 

$

2,170,594

 

 

$

1,934,242

 

 

(0.9

)%

 

11.2

%

Liabilities and Shareholders' Equity

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing

 

$

634,745

 

 

$

643,902

 

 

$

820,311

 

 

(1.4

)%

 

(22.6

)%

Money market and others

 

 

344,162

 

 

 

436,796

 

 

 

519,389

 

 

(21.2

)

 

(33.7

)

Time deposits greater than $250

 

 

416,208

 

 

 

411,648

 

 

 

237,634

 

 

1.1

 

 

75.1

 

Other time deposits

 

 

464,524

 

 

 

412,472

 

 

 

164,289

 

 

12.6

 

 

182.7

 

Total deposits

 

 

1,859,639

 

 

 

1,904,818

 

 

 

1,741,623

 

 

(2.4

)

 

6.8

 

Federal Home Loan Bank advances

 

 

75,000

 

 

 

50,000

 

 

 

 

 

50.0

 

 

n/m

 

Accrued interest payable

 

 

9,354

 

 

 

5,751

 

 

 

612

 

 

62.6

 

 

1428.4

 

Operating lease liabilities

 

 

10,486

 

 

 

10,513

 

 

 

9,335

 

 

(0.3

)

 

12.3

 

Other liabilities

 

 

13,452

 

 

 

15,731

 

 

 

13,180

 

 

(14.5

)

 

2.1

 

Total liabilities

 

 

1,967,931

 

 

 

1,986,813

 

 

 

1,764,750

 

 

(1.0

)

 

11.5

 

Shareholders' equity:

 

 

 

 

 

 

 

 

 

 

Common stock

 

 

77,464

 

 

 

79,475

 

 

 

78,718

 

 

(2.5

)

 

(1.6

)

Additional paid-in capital

 

 

10,297

 

 

 

10,056

 

 

 

9,089

 

 

2.4

 

 

13.3

 

Retained earnings

 

 

114,177

 

 

 

109,908

 

 

 

92,659

 

 

3.9

 

 

23.2

 

Accumulated other comprehensive loss

 

 

(18,168

)

 

 

(15,658

)

 

 

(10,974

)

 

16.0

 

 

65.6

 

Total shareholders’ equity

 

 

183,770

 

 

 

183,781

 

 

 

169,492

 

 

 

 

8.4

 

Total liabilities and shareholders' equity

 

$

2,151,701

 

 

$

2,170,594

 

 

$

1,934,242

 

 

(0.9

)%

 

11.2

%

 

 

 

 

 

 

 

 

 

 

 

CONSOLIDATED STATEMENTS OF INCOME (unaudited)

 

 

 

 

 

 

 

 

 

 

 

($ in thousands, except share and per share data)

 

For the Three Months Ended

 

% Change 2Q23 vs.

 

 

2Q2023

 

 

1Q2023

 

 

 

2Q2022

 

1Q2023

 

 

2Q2022

 

Interest income

 

 

 

 

 

 

 

 

 

 

Interest and fees on loans

 

$

27,288

 

$

26,011

 

 

$

19,108

 

4.9

%

 

42.8

%

Interest on available-for-sale debt securities

 

 

1,562

 

 

1,566

 

 

 

703

 

(0.3

)

 

122.2

 

Other interest income

 

 

1,252

 

 

1,017

 

 

 

337

 

23.1

 

 

271.5

 

Total interest income

 

 

30,102

 

 

28,594

 

 

 

20,148

 

5.3

 

 

49.4

 

Interest expense

 

 

 

 

 

 

 

 

 

 

 

Interest on deposits

 

 

11,920

 

 

10,382

 

 

 

1,069

 

14.8

 

 

1015.1

 

Interest on borrowings

 

 

930

 

 

320

 

 

 

 

190.6

 

 

n/m

 

Total interest expense

 

 

12,850

 

 

10,702

 

 

 

1,069

 

20.1

 

 

1102.1

 

Net interest income

 

 

17,252

 

 

17,892

 

 

 

19,079

 

(3.6

)

 

(9.6

)

(Reversal of) provision for credit losses

 

 

 

 

(338

)

 

 

996

 

n/m

 

 

n/m

 

Net interest income after provision for credit losses

 

 

17,252

 

 

18,230

 

 

 

18,083

 

(5.4

)

 

(4.6

)

Noninterest income

 

 

 

 

 

 

 

 

 

 

Service charges on deposits

 

 

573

 

 

418

 

 

 

427

 

37.1

 

 

34.2

 

Loan servicing fees, net of amortization

 

 

595

 

 

846

 

 

 

654

 

(29.7

)

 

(9.0

)

Gain on sale of loans

 

 

2,098

 

 

2,570

 

 

 

3,873

 

(18.4

)

 

(45.8

)

Other income

 

 

339

 

 

461

 

 

 

405

 

(26.5

)

 

(16.3

)

Total noninterest income

 

 

3,605

 

 

4,295

 

 

 

5,359

 

(16.1

)

 

(32.7

)

Noninterest expense

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

7,681

 

 

7,252

 

 

 

7,109

 

5.9

 

 

8.0

 

Occupancy and equipment

 

 

1,598

 

 

1,570

 

 

 

1,489

 

1.8

 

 

7.3

 

Data processing and communication

 

 

546

 

 

550

 

 

 

492

 

(0.7

)

 

11.0

 

Professional fees

 

 

381

 

 

359

 

 

 

364

 

6.1

 

 

4.7

 

FDIC insurance and regulatory assessments

 

 

420

 

 

467

 

 

 

192

 

(10.1

)

 

118.8

 

Promotion and advertising

 

 

159

 

 

162

 

 

 

165

 

(1.9

)

 

(3.6

)

Directors’ fees

 

 

210

 

 

161

 

 

 

190

 

30.4

 

 

10.5

 

Foundation donation and other contributions

 

 

594

 

 

753

 

 

 

852

 

(21.1

)

 

(30.3

)

Other expenses

 

 

711

 

 

634

 

 

 

650

 

12.1

 

 

9.4

 

Total noninterest expense

 

 

12,300

 

 

11,908

 

 

 

11,503

 

3.3

 

 

6.9

 

Income before income tax expense

 

 

8,557

 

 

10,617

 

 

 

11,939

 

(19.4

)

 

(28.3

)

Income tax expense

 

 

2,466

 

 

3,083

 

 

 

3,459

 

(20.0

)

 

(28.7

)

Net income

 

$

6,091

 

$

7,534

 

 

$

8,480

 

(19.2

)%

 

(28.2

)%

 

 

 

 

 

 

 

 

 

 

 

Book value per share

 

$

12.16

 

$

12.02

 

 

$

11.16

 

1.2

%

 

9.0

%

Earnings per share - Basic

 

 

0.39

 

 

0.48

 

 

 

0.55

 

(18.8

)

 

(29.1

)

Earnings per share - Diluted

 

 

0.39

 

 

0.48

 

 

 

0.54

 

(18.8

)

 

(27.8

)

 

 

 

 

 

 

 

 

 

 

 

Shares of common stock outstanding, at period end

 

 

15,118,268

 

 

15,286,558

 

 

 

15,189,203

 

(1.1

)%

 

(0.5

)%

Weighted average shares:

 

 

 

 

 

 

 

 

 

 

- Basic

 

 

15,158,365

 

 

15,284,350

 

 

 

15,141,975

 

(0.8

)%

 

0.1

%

- Diluted

 

 

15,169,794

 

 

15,312,673

 

 

 

15,234,577

 

(0.9

)

 

(0.4

)

 

 

 

 

 

 

 

 

 

 

 

KEY RATIOS

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

Change 2Q23 vs.

 

2Q2023

 

 

1Q2023

 

 

2Q2022

 

 

1Q2023

 

 

2Q2022

 

Return on average assets (ROA)(1)

 

1.15

%

 

1.43

%

 

1.79

%

 

(0.3

)%

 

(0.6

)%

Return on average equity (ROE)(1)

 

13.27

 

 

16.82

 

 

20.29

 

 

(3.6

)

 

(7.0

)

Net interest margin(1)

 

3.40

 

 

3.57

 

 

4.21

 

 

(0.2

)

 

(0.8

)

Efficiency ratio

 

58.97

 

 

53.67

 

 

47.07

 

 

5.3

 

 

11.9

 

 

 

 

 

 

 

 

 

 

 

 

Total risk-based capital ratio

 

13.10

%

 

13.27

%

 

13.51

%

 

(0.2

)%

 

(0.4

)%

Tier 1 risk-based capital ratio

 

11.92

 

 

12.06

 

 

12.29

 

 

(0.1

)

 

(0.4

)

Common equity tier 1 ratio

 

11.92

 

 

12.06

 

 

12.29

 

 

(0.1

)

 

(0.4

)

Leverage ratio

 

9.50

 

 

9.43

 

 

9.48

 

 

0.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Annualized.

CONSOLIDATED STATEMENTS OF INCOME (unaudited)

 

 

 

 

 

 

 

($ in thousands, except share and per share data)

 

For the Six Months Ended

 

 

2Q2023

 

 

 

2Q2022

 

% Change

Interest income

 

 

 

 

 

 

Interest and fees on loans

 

$

53,299

 

 

$

36,365

 

46.6

%

Interest on available-for-sale debt securities

 

 

3,128

 

 

 

1,233

 

153.7

 

Other interest income

 

 

2,269

 

 

 

494

 

359.3

 

Total interest income

 

 

58,696

 

 

 

38,092

 

54.1

 

Interest expense

 

 

 

 

 

 

Interest on deposits

 

 

22,302

 

 

 

1,723

 

1194.4

 

Interest on borrowings

 

 

1,250

 

 

 

 

n/m

 

Total interest expense

 

 

23,552

 

 

 

1,723

 

1266.9

 

Net interest income

 

 

35,144

 

 

 

36,369

 

(3.4

)

(Reversal of) provision for credit losses

 

 

(338

)

 

 

1,337

 

n/m

 

Net interest income after provision for credit losses

 

 

35,482

 

 

 

35,032

 

1.3

 

Noninterest income

 

 

 

 

 

 

Service charges on deposits

 

 

991

 

 

 

815

 

21.6

 

Loan servicing fees, net of amortization

 

 

1,441

 

 

 

1,101

 

30.9

 

Gain on sale of loans

 

 

4,668

 

 

 

7,111

 

(34.4

)

Other income

 

 

800

 

 

 

548

 

46.0

 

Total noninterest income

 

 

7,900

 

 

 

9,575

 

(17.5

)

Noninterest expense

 

 

 

 

 

 

Salaries and employee benefits

 

 

14,933

 

 

 

12,766

 

17.0

 

Occupancy and equipment

 

 

3,168

 

 

 

2,867

 

10.5

 

Data processing and communication

 

 

1,096

 

 

 

985

 

11.3

 

Professional fees

 

 

740

 

 

 

688

 

7.6

 

FDIC insurance and regulatory assessments

 

 

887

 

 

 

399

 

122.3

 

Promotion and advertising

 

 

321

 

 

 

354

 

(9.3

)

Directors’ fees

 

 

371

 

 

 

367

 

1.1

 

Foundation donation and other contributions

 

 

1,347

 

 

 

1,667

 

(19.2

)

Other expenses

 

 

1,345

 

 

 

1,072

 

25.5

 

Total noninterest expense

 

 

24,208

 

 

 

21,165

 

14.4

 

Income before income tax expense

 

 

19,174

 

 

 

23,442

 

(18.2

)

Income tax expense

 

 

5,549

 

 

 

6,810

 

(18.5

)

Net income

 

$

13,625

 

 

$

16,632

 

(18.1

)%

 

 

 

 

 

 

 

Book value per share

 

$

12.16

 

 

$

11.16

 

9.0

%

Earnings per share - Basic

 

 

0.88

 

 

 

1.08

 

(18.5

)

Earnings per share - Diluted

 

 

0.88

 

 

 

1.07

 

(17.8

)

 

 

 

 

 

 

 

Shares of common stock outstanding, at period end

 

 

15,118,268

 

 

 

15,189,203

 

(0.5

)%

Weighted average shares:

 

 

 

 

 

 

- Basic

 

 

15,221,010

 

 

 

15,139,903

 

0.5

%

- Diluted

 

 

15,241,903

 

 

 

15,238,113

 

 

 

 

 

 

 

 

 

KEY RATIOS

 

 

 

 

 

 

 

 

 

For the Six Months Ended

 

2Q2023

 

 

2Q2022

 

 

% Change

Return on average assets (ROA)(1)

 

1.29

%

 

1.82

%

 

(0.5

)%

Return on average equity (ROE)(1)

 

15.02

 

 

19.92

 

 

(4.9

)

Net interest margin(1)

 

3.48

 

 

4.16

 

 

(0.7

)

Efficiency ratio

 

56.24

 

 

46.07

 

 

10.2

 

 

 

 

 

 

 

 

Total risk-based capital ratio

 

13.10

%

 

13.51

%

 

(0.4

)%

Tier 1 risk-based capital ratio

 

11.92

 

 

12.29

 

 

(0.4

)

Common equity tier 1 ratio

 

11.92

 

 

12.29

 

 

(0.4

)

Leverage ratio

 

9.50

 

 

9.48

 

 

 

 

 

 

 

 

 

 

(1) Annualized.

ASSET QUALITY

 

 

 

 

 

 

 

($ in thousands)

 

As of and For the Three Months Ended

 

 

2Q2023

 

 

 

1Q2023

 

 

 

2Q2022

 

Nonaccrual loans(1)

 

$

3,447

 

 

$

2,504

 

 

$

1,826

 

Loans 90 days or more past due, accruing(2)

 

 

 

 

 

 

 

 

 

Nonperforming loans

 

 

3,447

 

 

 

2,504

 

 

 

1,826

 

Other real estate owned ("OREO")

 

 

 

 

 

 

 

 

 

Nonperforming assets