OP Bancorp Reports Net Income for Second Quarter 2021 of $6.4 Million and Diluted Earnings Per Share of $0.42

·7 min read

2021 Second Quarter Highlights compared with 2020 Second Quarter:

  • Loans Portfolio Purchase:

    • On May 24, 2021, the Company completed an asset purchase of loan portfolio from Hana Small Business Lending, Inc. ("Hana"). The Company paid Hana approximately $97.6 million that included loans of $100.0 million at a fair value discount of $8.9 million, servicing assets of $6.1 million and accrued interest receivable of $398 thousand.

  • Financial Results:

    • Net income of $6.4 million, up $4.0 million, or 164%

    • Diluted earnings per share of $0.42, up $0.26, or 163%

    • Net interest income of $14.6 million, up $3.9 million, or 37%

    • Reversal of provision for loan losses of $1.1 million, a $3.1 million decrease in provision for loan losses.

    • Noninterest income of $2.2 million, up $158 thousand, or 8%

    • Noninterest expense of $8.8 million, up $1.5 million, or 20%

    • Pre-provision net revenue (1) of $8.0 million, up $2.6 million, or 49%

    • Total assets of $1.60 billion, up $316.9 million, or 25%

    • Total loans (2) of $1.31 billion, up $262.0 million, or 25%; Average loans (2) of $1.24 billion, up $197.1 million, or 19%

    • Total deposits of $1.43 billion, up $313.4 million, or 28%; Average deposits of $1.35 billion, up $254.5 million, or 23%

    • Noninterest-bearing deposits to total deposits of 47%, up from 38%

    • Net interest margin of 3.98%, up from 3.55%

    • Return on average equity of 17.10%, up from 6.97%

    • Return on average assets of 1.68%, up from 0.77%

    • Efficiency ratio of 52.30%, an improvement from 57.70%

  • Credit Quality:

    • Allowance for loan losses to gross loans of 1.18%, down from 1.22%

    • Adjusted allowance to gross loans (1) of 1.46%, up from 1.30%

    • Net loan charge-offs remained minimal at 0.01%.

    • Nonperforming loans remained flat at 0.10% of gross loans.

  • Capital Levels:

    • Quarterly cash dividend increased by $0.03 per share, or 43%, to $0.10 per share from $0.07 per share.

    • Capital position remained solid with a Common Equity Tier 1 ("CET1") ratio of 12.77%.

    • Book value per common share rose 9% to $10.04.

    • Returned $1.1 million of capital to shareholders through cash dividend

_______________________________________
(1) See reconciliation of GAAP to non-GAAP financial measures.
(2) Includes loans held for sale.

LOS ANGELES, July 22, 2021--(BUSINESS WIRE)--OP Bancorp (the "Company") (NASDAQ: OPBK), the holding company of Open Bank, today reported its financial results for the second quarter of 2021. Net income for the second quarter of 2021 was $6.4 million, or $0.42 per diluted common share, compared with $5.1 million, or $0.33 per diluted common share, for the first quarter of 2021, and $2.4 million, or $0.16 per diluted common share, for the second quarter of 2020.

Min Kim, President and Chief Executive Officer:

"Our team produced exceptional results this quarter, reflecting successful completion of the purchase of Hana’s loan portfolio, continued strong credit quality, and record levels of deposits. We generated second quarter earnings of $6.4 million, an increase of $4.0 million, or 164% from the same quarter prior year. I am pleased to announce that OP Bancorp’s Board of Directors approved a 43% increase to the quarterly cash dividend to $0.10 per share, up from $0.07 per share. Our credit results continued to demonstrate the strength of our balance sheet, as we have maintained our disciplined client selection, adhered to our underwriting standards, and continued to manage our balance sheet exposures with a focus on the long-term performance horizon. Our work to build the appropriate risk and control environment remains our top priority. Based on the loan and deposit growth, we remain optimistic about the future as we emerge from the pandemic and the economic recovery continues."

SELECTED FINANCIAL HIGHLIGHTS

($ in thousands, except per share data)

As of and For the Three Months Ended

% Change 2Q21 vs.

Selected Income Statement Data:

2Q21

1Q21

2Q20

1Q21

2Q20

Net interest income

$

14,586

$

12,755

$

10,648

14.4

%

37.0

%

(Reversal of) provision for loan losses

(1,112

)

620

1,988

-279.4

%

-155.9

%

Noninterest income

2,220

2,966

2,062

-25.2

%

7.7

%

Noninterest expense

8,789

7,966

7,334

10.3

%

19.8

%

Income tax expense

2,750

2,058

972

33.6

%

182.9

%

Net Income

$

6,379

$

5,077

$

2,416

25.6

%

164.0

%

Diluted earnings per share

$

0.42

$

0.33

$

0.16

27.3

%

162.5

%

Selected Balance Sheet Data:

Total loans (1)

$

1,314,262

$

1,184,447

$

1,052,300

11.0

%

24.9

%

Total deposits

$

1,434,103

$

1,285,390

$

1,120,720

11.6

%

28.0

%

Total assets

$

1,604,960

$

1,455,334

$

1,288,011

10.3

%

24.6

%

Average loans (1)

$

1,242,058

$

1,165,150

$

1,044,944

6.6

%

18.9

%

Average deposits

$

1,348,910

$

1,243,091

$

1,094,365

8.5

%

23.3

%

Credit Quality:

Nonperforming loans

$

1,263

$

1,148

$

1,019

10.0

%

23.9

%

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

0.01

%

0.00

%

-0.01

%

0.01

%

0.02

%

Allowance for loan losses to gross loans

1.18

%

1.33

%

1.22

%

-0.15

%

-0.04

%

Financial Ratios:

Return on average assets (2)

1.68

%

1.44

%

0.77

%

0.24

%

0.91

%

Return on average equity (2)

17.10

%

14.02

%

6.97

%

3.08

%

10.13

%

Net interest margin (2)

3.98

%

3.80

%

3.55

%

0.18

%

0.43

%

Common equity tier 1 capital ratio

12.77

%

13.79

%

13.91

%

-1.02

%

-1.14

%

Leverage ratio

9.96

%

10.38

%

10.98

%

-0.42

%

-1.02

%

Efficiency ratio (3)

52.30

%

50.67

%

57.70

%

1.63

%

-5.40

%

Book value per common share

$

10.04

$

9.77

$

9.23

2.8

%

8.8

%

(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

For the Three Months Ended

% Change 2Q21 vs.

($ in thousands)

2Q21

1Q21

2Q20

1Q21

2Q20

Interest Income

Interest income

$

15,349

$

13,632

$

12,920

12.6

%

18.8

%

Interest expense

763

877

2,272

-13.0

%

-66.4

%

Net interest income

$

14,586

$

12,755

$

10,648

14.4

%

37.0

%

For the Three Months Ended

2Q21

1Q21

2Q20

($ in thousands)

Average

Balance

Interest

Yield/

Rate

Average

Balance

Interest

and Fees

Yield/

Rate

Average

Balance

Interest

and Fees

Yield/

Rate

Interest-earning Assets

Loans

$

1,242,058

$

14,971

4.83

%

$

1,165,150

$

13,284

4.62

%

$

1,044,944

$

12,549

4.83

%

Total interest-earning assets

$

1,468,623

$

15,349

4.19

%

$

1,357,450

$

13,632

4.07

%

$

1,205,571

$

12,920

4.31

%

Interest-bearing Liabilities

Interest-bearing deposits

$

733,525

$

763

0.42

%

$

698,599

$

877

0.51

%

$

731,586

$

2,272

1.25

%

Total interest-bearing liabilities

$

736,550

$

763

0.42

%

$

703,599

$

877

0.51

%

$

735,545

$

2,272

1.24

%

Ratios

Net interest Income/interest rate spreads

$

14,586

3.77

%

$

12,755

3.56

%

$

10,648

3.07

%

Net interest margin (1)

3.98

%

3.80

%

3.55

%

Cost of deposits

$

1,348,910

$

763

0.23

%

$

1,243,091

$

877

0.29

%

$

1,094,365

$

2,272

0.83

%

Cost of funds

$

1,351,935

$

763

0.23

%

$

1,248,091

$

877

0.28

%

$

1,098,324

$

2,272

0.83

%

(1) Annualized.

For the Three Months Ended

Yield % Change

2Q21 vs.

2Q21

1Q21

2Q20

($ in thousands)

Interest

& Fees

Yield

Interest

& Fees

Yield

Interest

& Fees

Yield

1Q21

2Q20

Loan Yield Component

Contractual interest rate

$

13,023

%

$

12,166

4.23

%

$

11,667

4.49

%

-0.03

%

-0.29

%

SBA discount accretion

1,161

0.38

%

507

0.18

%

413

0.16

%

0.20

%

0.22

%

Amortization of net deferred fees

618

0.20

%

540

0.19

%

375

0.15

%

0.01

%

0.05

%

Net interest recognized on nonaccrual loans

37

0.01

%

(2

)

0.00

%

83

0.03

%

0.01

%

-0.02

%

Prepayment penalties (1) and other fees

132

0.04

%

73

0.02

%

11

0.00

%

0.02

%

0.04

%

Yield on loans

$

14,971

4.83

%

$

13,284

4.62

%

$

12,549

4.83

%

0.21

%

0.00

%

(1) Prepayment penalty income of $116 thousand and $69 thousand for the three months ended June 30, 2021 and March 31, 2021 are from commercial real estate loans. For three months ended June 30, 2020, there was no prepayment penalty income.

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

During the second quarter of 2021, the Company purchased an SBA portfolio of 638 loans with an ending balance of $100.0 million, excluding loan discount of $8.9 million from Hana. The following table presents the average loan yield and net interest margin of the Hana Loan Purchase to provide the change in loan contractual yields:

For the Three

Months Ended

($ in thousands)

2Q21

Hana Loan Purchase:

Contractual interest rate

$

479

Purchased loan discount accretion

381

Total interest income

$

860

Effect on average loan yield (1)

0.13

%

Effect on net interest margin (1)

0.13

%

($ in thousands)

Average

Balance

Interest

Average

Yield/Rate

Average loan yield (1)

$

1,242,058

$

14,971

4.83

%

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

$

1,204,532

$

14,111

4.70

%

Net interest margin (1)

$

1,468,623

$

14,586

3.98

%

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

$

1,431,097

$

13,726

3.85

%

(1) Annualized.

(2) See reconciliation of GAAP to non-GAAP financial measures.

Second Quarter 2021 vs. First Quarter 2021

Net interest income increased $1.8 million, or 14%, primarily due to an elevated average loan balance, higher interest income resulting from the Hana loan purchase and a lower average cost of deposits. Net interest margin was 3.98%, an increase of 18 basis points from 3.80%.

  • An increase of $1.7 million in interest income from loans was primarily due to higher loan balances and higher loan yields driven by the accretion of discounts from purchased loans.

  • A decrease of $114 thousand in interest expense from interest-bearing deposits was primarily due to the impact of lower interest rates, which drove a repricing of interest-bearing deposits.

  • An increase of 18 basis points in net interest margin was primarily driven by a 12 basis point increase in the yield on average interest-earning assets and a nine basis point decrease in the cost of interest-bearing liabilities.

  • Average loan yield was 4.83%, an increase of 21 basis points from 4.62%, reflecting the impact of average loan growth and the accretion of discounts resulting from the Hana loan purchase.

  • Average cost of deposits was 0.23%, a decrease of six basis points from 0.29%. The decrease in the cost of deposits primarily reflects continued downward repricing of time deposits.

Second Quarter 2021 vs. Second Quarter 2020

Net interest income increased $3.9 million, or 37%, primarily due to higher average loan balance and lower average cost of deposits. Net interest margin was 3.98%, an increase of 43 basis points from 3.55%.

  • An increase of $2.4 million in interest income from loans was primarily due to average loan growth.

  • A decrease of $1.5 million in interest expense from interest-bearing deposits was primarily due to continued downward adjustment in deposit rates.

  • The improvement of 43 basis points in net interest margin was primarily driven by an 82 basis point decrease in the cost of interest-bearing liabilities, partially offset by a 12 basis point decrease in the yield on average interest-earning assets.

  • Average loan yield remained flat at 4.83%.

  • Average cost of deposits was 0.23%, a decrease of 60 basis points from 0.83%. The decrease in the cost of deposits primarily reflects the impact of lower interest rates and changes in deposit mix.

Provision for loan losses

Second Quarter 2021 vs. First Quarter 2021

Provision for loan losses decreased $1.7 million, or 279%, primarily due to continued improvements in the economic environment and reductions in estimates of uncollectible accrued interest receivable as compared with the first quarter of 2021.

Second Quarter 2021 vs. Second Quarter 2020

Provision for loan losses decreased $3.1 million, or 156%, primarily due to the aforementioned factors above.

Noninterest Income

For the Three Months Ended

% Change 2Q21 vs.

($ in thousands)

2Q21

1Q21

2Q20

1Q21

2Q20

Noninterest income

Service charges on deposits

$

393

$

355

$

298

10.7

%

31.9

%

Loan servicing fees, net of amortization

302

531

514

-43.1

%

-41.2

%

Gain on sale of loans

1,210

1,882

936

-35.7

%

29.3

%

Other income

315

198

314

59.1

%

0.3

%

Total noninterest income

$

2,220

$

2,966

$

2,062

-25.2

%

7.7

%

Second Quarter 2021 vs. First Quarter 2021

Noninterest income decreased $746 thousand, or 25%, primarily due to lower gains on sale of loans and loan servicing fees, net of amortization.

  • Gains on sale of loans were $1.2 million, down $672 thousand from first quarter 2021. The decrease resulted primarily from reduced gain on sale of SBA loans due to lower SBA loan sale activity. The Company sold $10.6 million in SBA loans at an average premium of 11.48%, compared with the sale of $22.4 million at an average premium of 10.51%.

  • Loan servicing fees, net of amortization, were $302 thousand, down $229 thousand from first quarter 2021. The decrease was primarily due to higher amortization of servicing assets associated with loan payoffs, partially offset by higher servicing fee income resulting from purchased loans. Servicing fee income, net of amortization, from the Hana loan purchase was $27 thousand.

Second Quarter 2021 vs. Second Quarter 2020

Noninterest income increased $158 thousand, or 8%, primarily due to higher gains on sale of loans and service charges on deposits, partially offset by lower loan servicing fees, net of amortization.

  • Gains on sales of loans were $1.2 million, up $274 thousand from second quarter 2020. The increase was mainly driven by higher sales premiums. The Company sold $10.6 million in SBA loans at an average premium of 11.48%, compared with the sale of $14.9 million at an average premium of 7.94%.

  • Servicing charges on deposits were $393 thousand, up $95 thousand from second quarter 2020. The increase was driven by increases in account analysis fees and wire fees.

  • Loan servicing fees, net of amortization, were $302 thousand, down $212 thousand from the second quarter of 2020. The decrease was primarily due to aforementioned factors above.

Noninterest Expense

For the Three Months Ended

% Change 2Q21 vs.

($ in thousands)

2Q21

1Q21

2Q20

1Q21

2Q20

Noninterest expense

Salaries and employee benefits

$

5,307

$

4,662

$

4,347

13.8

%

22.1

%

Occupancy and equipment

1,234

1,235

1,241

-0.1

%

-0.6

%

Data processing and communication

467

448

414

4.2

%

12.8

%

Professional fees

303

314

276

-3.5

%

9.8

%

FDIC insurance and regulatory assessments

123

132

117

-6.8

%

5.1

%

Promotion and advertising

176

177

163

-0.6

%

8.0

%

Directors’ fees

128

116

223

10.3

%

-42.6

%

Foundation donation and other contributions

640

507

245

26.2

%

161.2

%

Other expenses

411

375

308

9.6

%

33.4

%

Total noninterest expense

$

8,789

$

7,966

$

7,334

10.3

%

19.8

%

Second Quarter 2021 vs. First Quarter 2021

Noninterest expense increased $823 thousand, or 10%, primarily due to higher salaries and employee benefits, and foundation donation and other contributions.

  • Salaries and employee benefits were $5.3 million, up $645 thousand from first quarter 2021. The increase was primarily due to lower deferred loan origination costs. During the first quarter of 2021, the deferred loan origination costs were higher due to the origination of a second draw of PPP loans.

  • Foundation donation and other contributions were $640 thousand, up $133 thousand from first quarter 2021. The increase was primarily due to higher donation accruals for Open Stewardship Foundation as a result of higher net income compared to first quarter of 2021.

Second Quarter 2021 vs. Second Quarter 2020

Noninterest expense increased $1.5 million, or 20%, primarily due to higher salaries and employee benefits, and foundation donation and other contributions.

  • Salaries and employee benefits were $5.3 million, up $960 thousand from second quarter 2020. The increase was primarily due to higher SBA incentive expense and an increase in the number of employees to support continued growth of the Company.

  • Foundation donation and other contributions were $640 thousand, up $395 thousand from second quarter 2020. The increase was primarily due to higher donation accruals for Open Stewardship Foundation as a result of higher net income compared to second quarter of 2020.

Income Tax Expense

Second Quarter 2021 vs. First Quarter 2021

Second quarter 2021 income tax expense was $2.8 million and the effective tax rate was 30%, compared to income tax expense of $2.1 million and the effective rate of 29% for the first quarter of 2021.

Second Quarter 2021 vs. Second Quarter 2020

Second quarter 2021 income tax expense was $2.8 million and the effective tax rate was 30%, compared to income tax expense of $972 thousand and the effective rate of 29% for the second quarter of 2020.

BALANCE SHEET HIGHLIGHTS

Loans

As of

% Change 2Q21 vs.

($ in thousands)

2Q21

1Q21

2Q20

1Q21

2Q20

Real estate loans

$

684,082

$

662,445

$

637,295

3.3

%

7.3

%

SBA loans (1)

338,751

263,185

195,605

28.7

%

73.2

%

C & I loans

102,562

103,883

88,375

-1.3

%

16.1

%

Home mortgage loans

119,319

125,285

120,597

-4.8

%

-1.1

%

Consumer & other loans

1,152

1,074

1,634

7.3

%

-29.5

%

Total gross loans

$

1,245,866

$

1,155,872

$

1,043,506

7.8

%

19.4

%

(1) Includes SBA Paycheck Protection Program ("PPP") loans of $103.9 million, $113.6 million and $63.4 million as of June 30, 2021, March 31, 2021 and June 30, 2020, respectively.

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

As of

% Change 2Q21 vs.

($ in thousands)

2Q21

1Q21

2Q20

1Q21

2Q20

Real estate loans

$

51,107

$

42,748

$

8,594

19.6

%

494.7

%

SBA loans (1)

77,722

105,340

84,285

-26.2

%

-7.8

%

C & I loans

40,771

9,505

2,123

328.9

%

1820.4

%

Home mortgage loans

13,262

11,563

9,092

14.7

%

45.9

%

Total gross loans

$

182,862

$

169,156

$

104,094

8.1

%

75.7

%

(1) Includes PPP loans of $13.9 million, $74.2 million and $65.0 million as of June 30, 2021, March 31, 2021 and June 30, 2020, respectively.

Impact of Hana Loan Purchase on Balance sheet

During the second quarter of 2021, the Company purchased the SBA loan portfolio from Hana and paid approximately $97.6 million that included loans of $100.0 million at a fair value discount of $8.9 million and servicing assets of $6.1 million. The following table summarizes the consideration paid for the SBA loan portfolio and the amounts of assets purchased:

($ in thousands)

Consideration

Cash

$

97,631

Recognized amounts of identifiable assets purchased:

Loans (1)

$

100,003

Loan discounts

(8,867

)

Accrued interest receivable

398

Servicing assets

6,097

Total recognized identifiable assets

$

97,631

(1) Consists of $92.2 million of SBA loans, $6.9 million of PPP loans and $919 thousand of real estate loans.

Second Quarter 2021 vs. First Quarter 2021

Gross loan balances were $1.25 billion at June 30, 2021, up $90.0 million from March 31, 2021, primarily due to the Hana loan purchase during the second quarter 2021. New loan originations and loan payoffs were $182.9 million and $83.2 million for the second quarter of 2021, compared with $169.2 million and $59.9 million for the first quarter of 2021, respectively.

Second Quarter 2021 vs. Second Quarter 2020

Gross loan balances were $1.25 billion at June 30, 2021, up $202.4 million from June 30, 2020, primarily due to the Hana loan purchase during the second quarter of 2021. Participation in the PPP and an increase in commercial real estate loans have also contributed to the growth. New loan originations and loan payoffs were $182.9 million and $83.2 million for the second quarter of 2021, compared with $104.1 million and $21.7 million for the second quarter of 2020, respectively.

Deposits

As of

($ in thousands)

2Q21

1Q21

2Q20

% Change

2Q21 vs.

Amount

%

Amount

%

Amount

%

1Q21

2Q20

Noninterest-bearing deposits

$

668,244

46.6

%

$

571,985

44.5

%

$

428,416

38.2

%

16.8

%

56.0

%

Money market deposits and others

386,612

27.0

%

354,148

27.6

%

299,033

26.7

%

9.2

%

29.3

%

Time deposits

379,247

26.4

%

359,257

27.9

%

393,271

35.1

%

5.6

%

-3.6

%

Total deposits

$

1,434,103

100.0

%

$

1,285,390

100.0

%

$

1,120,720

100.0

%

11.6

%

28.0

%

Second Quarter 2021 vs. First Quarter 2021

Deposit balances were $1.43 billion at June 30, 2021, up $148.7 million from March 31, 2021, primarily driven by growth in noninterest-bearing, money market and time deposits. Noninterest-bearing deposits reached a record $668.2 million or 47% of total deposits as of June 30, 2021, up from $572.0 million or 44% as of March 31, 2021. Deposit growth was primarily due to continued addition of new customers and increased balances of existing customers, as well as growth related to PPP funds.

Second Quarter 2021 vs. Second Quarter 2020

Deposit balances were $1.43 billion at June 30, 2021, up $313.4 million from June 30, 2020, primarily driven by growth in noninterest bearing and money market. Noninterest-bearing deposits were $668.2 million or 47% of total deposits, up from $428.4 million or 38% of total deposits as of June 30, 2020. Deposit growth was primarily driven by customers’ preferences for liquidity given the economic uncertainty associated with the COVID-19 pandemic, as well as PPP funds held in deposit accounts.

Capital and Cash Dividend

Basel III

Minimum

Well

Capital Ratio+

Capitalized

Conservation

OP Bancorp

Open Bank

Ratio

Buffer (1)

Risk-Based Capital Ratios:

Total risk-based capital ratio

14.03

%

13.79

%

10.00

%

10.50

%

Tier 1 risk-based capital ratio

12.77

%

12.54

%

8.00

%

8.50

%

Common equity tier 1 ratio

12.77

%

12.54

%

6.50

%

7.00

%

Leverage ratio

9.96

%

9.77

%

5.00

%

4.00

%

(1) 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 bonus to executive officers.

Basel III

% Change 2Q21 vs.

($ in thousands)

2Q21

1Q21

2Q20

1Q21

2Q20

Risk-Based Capital Ratios:

Total risk-based capital ratio

14.03

%

15.04

%

15.16

%

-1.01

%

-1.13

%

Tier 1 risk-based capital ratio

12.77

%

13.79

%

13.91

%

-1.02

%

-1.14

%

Common equity tier 1 ratio

12.77

%

13.79

%

13.91

%

-1.02

%

-1.14

%

Leverage ratio

9.96

%

10.38

%

10.98

%

-0.42

%

-1.02

%

Risk-weighted Assets

$

1,183,095

$

1,061,131

$

991,092

11.5

%

19.4

%

Capital ratios remained strong during the quarter. Our CET1 and total risk-based capital ratios were 12.77% and 14.03% as of June 30, 2021, respectively, down from a year ago due to year-over-year asset growth.

The Company’s Board of Directors has declared a quarterly cash dividend of $0.10 per share of its common stock. This represents an increase of $0.03 per share, or 43%, to the quarterly cash dividend, up from $0.07 per share previously. The cash dividend is payable on or about August 19, 2021 to all shareholders of record as of the close of business on August 5, 2021.

The Company did not repurchase any shares during the second quarter of 2021. Since the announcement of the initial stock repurchase program in January 2019, the Company has repurchased a total of 1.57 million shares of its common stock at an average repurchase price of $8.58 per share through June 30, 2021.

Asset Quality

($ in thousands)

As of and For the Three Months Ended

% Change 2Q21 vs.

Asset Quality Summary

2Q21

1Q21

2Q20

1Q21

2Q20

Nonperforming loans

$

1,263

$

1,148

$

1,019

10.0

%

23.9

%

OREO

-

-

-

0.0

%

0.0

%

Total nonperforming assets

1,263

1,148

1,019

10.0

%

23.9

%

Nonperforming loans to gross loans

0.10

%

0.10

%

0.10

%

0.00

%

0.00

%

Nonperforming assets to total assets

0.08

%

0.08

%

0.08

%

0.00

%

0.00

%

Classified loans

7,150

6,586

2,810

8.6

%

154.4

%

Classified loans to gross loans

0.57

%

0.57

%

0.27

%

0.00

%

0.30

%

Allowance for loan losses, beginning

$

15,339

$

15,352

$

10,748

-0.1

%

42.7

%

(Reversal of) provision for loan losses (1)

(625

)

(16

)

1,988

3806.3

%

-131.4

%

Gross charge-offs

(27

)

-

-

100.0

%

100.0

%

Gross recoveries

-

3

28

-100.0

%

-100.0

%

Allowance for loan losses, ending (2)

$

14,687

$

15,339

$

12,764

-4.3

%

15.1

%

Allowance for loan losses ratios:

As a % of gross loans

1.18

%

1.33

%

1.22

%

-0.2

%

0.0

%

As a % of nonperforming loans

1,163

%

1,337

%

1,252

%

-174.0

%

-89.0

%

As a % of nonperforming assets

1,163

%

1,337

%

1,252

%

-174.0

%

-89.0

%

Net charge-offs(recoveries) to average gross loans

0.01

%

0.00

%

-0.01

%

0.01

%

0.02

%

(1) Excludes (reversal of) provision for uncollectible accrued interest receivable of $(487) thousand and $636 thousand for the three months ended June 30, 2021 and March 31, 2021, respectively. There was no provision for uncollectible accrued interest receivable for the three months ended June 30, 2020.

(2) Excludes allowance for uncollectible accrued interest receivable of $792 thousand and $1.3 million as of June 30, 2021 and March 31, 2021, respectively. There was no allowance for uncollectible accrued interest receivable as of June 30, 2020.

Overall, the Company maintained solid asset quality with low levels of nonperforming loans and net charge-offs. Nonperforming assets to gross loans remained flat at 0.10% from the second quarter of 2020. Economic conditions, including employment and consumer spending, improved through the quarter. However, the economic outlook continues to be uncertain with the unprecedented impacts of the COVID-19 pandemic. Therefore, we maintained our allowance to 1.18% of gross loans, and our allowance to nonperforming loans was strong at 12 times. We continued to work closely with our customers, carefully reviewing current and projected financial performance, providing assistance as warranted, and adjusting risk ratings as appropriate, which was reflected in the increase in classified loans.

  • Allowance for loan losses increased $1.9 million to $14.7 million from a year ago.

    • Excluding the impacts of the purchased Hana loans, PPP loans, and the allowance for uncollectible accrued interest receivable, adjusted allowance to gross loans ratio was 1.46% as of June 30, 2021. There was no allowance for loan losses required for the purchased Hana loans as of June 30, 2021. (See the Reconciliation of GAAP to Non-GAAP Financial Measures.)

  • Classified loans increased $4.3 million to $7.2 million, or 0.57% of gross loans from a year ago. Classified loans are generally consistent with the Substandard and Doubtful categories defined by regulatory authorities.

    • The increase in classified loans was primarily due to $3.4 million in one C&I relationship, which is fully secured by a single family residence, and $1.6 million in SBA loans from purchased loans.

  • Nonperforming assets increased $244 thousand to $1.3 million, or 0.08% of total assets from a year ago.

    • The increase in nonperforming assets was primarily due to $940 thousand of nonperforming assets from the Hana loan purchase, partially offset by a decrease of $689 thousand in home mortgage loans.

    • The Company did not have OREO as of both June 30, 2021 and 2020.

  • Net charge-offs were $27 thousand or 0.01% of average loans compared to net recoveries of $28 thousand, or 0.01% of average loans for the second quarter of 2020.

COVID-19 Pandemic Update

Total deferments

Payment resumed

under the CARES Act

or paid off

Remaining deferments

($ in thousands)

through June 30, 2021

through June 30, 2021

as of June 30, 2021

Loan Type

Number

of

accounts

Balance

Number

of

accounts

Balance

Number

of

accounts

Balance

Loans, excluding home mortgage and consumer loans

156

$

220,522

150

$

206,551

6

$

13,971

Home mortgage loans

69

30,205

66

28,497

3

1,708

Total

225

$

250,727

216

$

235,048

9

$

15,679

Total outstanding balance of remaining in deferment status as of June 30, 2021, represented 1.2% of the total loan portfolio.

The Company continue to carefully monitor the trajectory of the economic recovery, which could be impacted by the emergence of new variants and continued spread of COVID-19. In addition, we continue to support our clients, employees and communities. During the second quarter of 2021, we originated $13.9 million PPP loans.

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 loan 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.

During the second quarter of 2021, the Company 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, 2021 excluded the impacts of contractual interest and discount accretion of the purchased 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.

Adjusted allowance to gross loans ratio removes the impacts of purchased 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.

For the Three Months Ended

($ in thousands)

2Q21

1Q21

2Q20

Interest income

$

15,349

$

13,632

$

12,920

Interest expense

763

877

2,272

Net interest income

14,586

12,755

10,648

Noninterest income

2,220

2,966

2,062

Noninterest expense

8,789

7,966

7,334

Pre-provision net revenue

(a)

$

8,017

$

7,755

$

5,376

Reconciliation to Net Income:

(Reversal of) provision for loan losses

(b)

(1,112

)

620

1,988

Income tax expense

(c)

2,750

2,058

972

Net Income

(a) + (b) + (c)

$

6,379

$

5,077

$

2,416

For the Three Months Ended

($ in thousands)

2Q21

1Q21

2Q20

Yield on Average Loans

Interest income on loans

$

14,971

$

13,284

$

12,549

Less: interest income on purchased loans

860

Adjusted interest income on loans

(a)

$

14,111

$

13,284

$

12,549

Average loans

$

1,242,058

$

1,165,150

$

1,044,944

Less: Average purchased loans

37,526

Adjusted average loans

(b)

$

1,204,532

$

1,165,150

$

1,044,944

Average loan yield (1)

4.83

%

4.62

%

4.83

%

Effect on average loan yield (1)

0.13

%

0.00

%

0.00

%

Adjusted average loan yield (1)

(a)/(b)

4.70

%

4.62

%

4.83

%

Net Interest Margin

Net interest income

$

14,586

$

12,755

$

10,648

Less: interest income on purchased loans

860

Adjusted net interest income

(c)

$

13,726

$

12,755

$

10,648

Average interest-earning assets

$

1,468,623

$

1,357,450

$

1,205,571

Less: Average purchased loans

37,526

Adjusted average interest-earning assets

(d)

$

1,431,097

$

1,357,450

$

1,205,571

Net interest margin (1)

3.98

%

3.80

%

3.55

%

Effect on net interest margin (1)

0.13

%

0.00

%

0.00

%

Adjusted net interest margin (1)

(c)/(d)

3.85

%

3.80

%

3.55

%

(1) Annualized.

For the Three Months Ended

($ in thousands)

2Q21

1Q21

2Q20

Gross loans

$

1,245,866

$

1,155,872

$

1,043,506

Less: Purchased loans

(88,438

)

PPP loans (1)

(97,673

)

(113,551

)

(63,424

)

Adjusted gross loans

(a)

$

1,059,755

$

1,042,321

$

980,082

Accrued interest receivable on loans

$

3,179

$

2,839

$

4,578

Less: Accrued interest receivable on purchased loans

(290

)

Accrued interest receivable on PPP loans (2)

(461

)

(481

)

(115

)

Add: Allowance on accrued interest receivable

792

1,279

Adjusted accrued interest receivable on loans

(b)

$

3,220

$

3,637

$

4,463

Adjusted gross loans and accrued interest receivable

(a) + (b) = (c)

$

1,062,975

$

1,045,958

$

984,545

Allowance for loan losses

$

14,687

$

15,339

$

12,764

Add: Allowance on accrued interest receivable

792

1,279

Adjusted Allowance

(d)

$

15,479

$

16,618

$

12,764

Adjusted allowance to gross loans ratio

(d)/(c)

1.46

%

1.59

%

1.30

%

(1) Excludes purchased PPP loans of $6.3 million as of June 30, 2021.

(1) Excludes purchased accrued interest receivable on PPP loans of $26 thousand as of June 30, 2021.

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 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: the uncertainties related to the coronavirus pandemic including, but not limited to, the potential adverse effect of the pandemic on the economy, our employees and customers, and our financial performance; the impact of the federal CARES Act and the significant additional lending activities undertaken by the Company in connection with the Small Business Administration’s Paycheck Protection Program enacted thereunder, including risks to the Company with respect to the uncertain application by the Small Business Administration of new borrower and loan eligibility, forgiveness and audit criteria; 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 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; liquidity issues, including fluctuations in the fair value and liquidity of the securities we hold for sale and our ability to raise additional capital, if necessary; 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 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; 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, 2020 and in our other subsequent filings with the Securities and Exchange Commission.

Consolidated Balance Sheet (unaudited)

($ in thousands)

As of

% Change 2Q21 vs.

2Q21

1Q21

2Q20

1Q21

2Q20

Assets

Cash and cash equivalents

$

128,687

$

127,429

$

112,123

1.0

%

14.8

%

Securities available for sale, at fair value

111,832

102,414

75,402

9.2

%

48.3

%

Other investments

11,028

10,047

10,081

9.8

%

9.4

%

Loans held for sale

68,396

28,575

8,795

139.4

%

677.7

%

Real estate loans

684,082

662,445

637,295

3.3

%

7.3

%

SBA loans (1)

338,751

263,185

195,605

28.7

%

73.2

%

C & I loans

102,562

103,883

88,375

-1.3

%

16.1

%

Home mortgage loans

119,319

125,285

120,597

-4.8

%

-1.1

%

Consumer & other loans

1,152

1,074

1,634

7.3

%

-29.5

%

Gross loans, net of unearned income

1,245,866

1,155,872

1,043,506

7.8

%

19.4

%

Allowance for loan losses

(14,687

)

(15,339

)

(12,764

)

-4.3

%

15.1

%

Net loans receivable

1,231,179

1,140,533

1,030,742

7.9

%

19.4

%

Premises and equipment, net

4,271

4,368

4,881

-2.2

%

-12.5

%

Accrued interest receivable, net

3,469

3,096

4,823

12.0

%

-28.1

%

Servicing assets

12,903

7,492

6,972

72.2

%

85.1

%

Company owned life insurance

11,005

10,941

10,748

0.6

%

2.4

%

Deferred tax assets

4,861

5,391

3,535

-9.8

%

37.5

%

Operating right-of-use assets

6,065

6,443

7,517

-5.9

%

-19.3

%

Other assets

11,264

8,605

12,392

30.9

%

-9.1

%

Total assets

$

1,604,960

$

1,455,334

$

1,288,011

10.3

%

24.6

%

Liabilities and Shareholders' Equity

Noninterest-bearing deposits

$

668,244

$

571,985

$

428,416

16.8

%

56.0

%

Money market deposits and others

386,612

354,148

299,033

9.2

%

29.3

%

Time deposits over $250,000

193,704

190,960

210,691

1.4

%

-8.1

%

Other time deposits

185,543

168,297

182,580

10.2

%

1.6

%

Total deposits

1,434,103

1,285,390

1,120,720

11.6

%

28.0

%

Federal Home Loan Bank advances

-

5,000

10,000

-100.0

%

-100.0

%

Accrued interest payable

608

622

1,964

-2.3

%

-69.0

%

Operating lease liabilities

7,567

8,016

9,282

-5.6

%

-18.5

%

Other liabilities

10,720

9,313

6,909

15.1

%

55.2

%

Total liabilities

1,452,998

1,308,341

1,148,875

11.1

%

26.5

%

Common stock

78,718

78,654

79,925

0.1

%

-1.5

%

Additional paid-in capital

8,324

8,652

8,218

-3.8

%

1.3

%

Retained earnings

64,700

59,373

50,056

9.0

%

29.3

%

Accumulated other comprehensive income

220

314

937

-29.9

%

-76.5

%

Total shareholders' equity

151,962

146,993

139,136

3.4

%

9.2

%

Total Liabilities and Shareholders' Equity

$

1,604,960

$

1,455,334

$

1,288,011

10.3

%

24.6

%

(1) Includes SBA Paycheck Protection Program ("PPP") loans of $103.9 million, $113.6 million and $63.4 million as of June 30, 2021, March 31, 2021 and June 30, 2020, respectively.

Consolidated Statements of Income (unaudited)

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

For the Three Months Ended

% Change 2Q21 vs.

2Q21

1Q21

2Q20

1Q21

2Q20

Interest income

Interest and fees on loans

$

14,971

$

13,284

$

12,549

12.7

%

19.3

%

Interest on securities available for sale

218

236

281

-7.6

%

-22.4

%

Other interest income

160

112

90

42.9

%

77.8

%

Total interest income

15,349

13,632

12,920

12.6

%

18.8

%

Interest expense

Interest on deposits

763

877

2,272

-13.0

%

-66.4

%

Total interest expense

763

877

2,272

-13.0

%

-66.4

%

Net interest income

14,586

12,755

10,648

14.4

%

37.0

%

(Reversal of) provision for loan losses

(1,112

)

620

1,988

-279.4

%

-155.9

%

Net interest income after (reversal of) provision for loan losses

15,698

12,135

8,660

29.4

%

81.3

%

Noninterest income

Service charges on deposits

393

355

298

10.7

%

31.9

%

Loan servicing fees, net of amortization

302

531

514

-43.1

%

-41.2

%

Gain on sale of loans

1,210

1,882

936

-35.7

%

29.3

%

Other income

315

198

314

59.1

%

0.3

%

Total noninterest income

2,220

2,966

2,062

-25.2

%

7.7

%

Noninterest expense

Salaries and employee benefits

5,307

4,662

4,347

13.8

%

22.1

%

Occupancy and equipment

1,234

1,235

1,241

-0.1

%

-0.6

%

Data processing and communication

467

448

414

4.2

%

12.8

%

Professional fees

303

314

276

-3.5

%

9.8

%

FDIC insurance and regulatory assessments

123

132

117

-6.8

%

5.1

%

Promotion and advertising

176

177

163

-0.6

%

8.0

%

Directors’ fees

128

116

223

10.3

%

-42.6

%

Foundation donation and other contributions

640

507

245

26.2

%

161.2

%

Other expenses

411

375

308

9.6

%

33.4

%

Total noninterest expense

8,789

7,966

7,334

10.3

%

19.8

%

Income before income tax expense

9,129

7,135

3,388

27.9

%

169.5

%

Income tax expense

2,750

2,058

972

33.6

%

182.9

%

Net income

$

6,379

$

5,077

$

2,416

25.6

%

164.0

%

Book value per share

$

10.04

$

9.77

$

9.23

2.8

%

8.8

%

Basic EPS

$

0.42

$

0.33

$

0.16

27.3

%

162.5

%

Diluted EPS

$

0.42

$

0.33

$

0.16

27.3

%

162.5

%

Shares of common stock outstanding

15,133,407

15,037,635

15,068,030

0.6

%

0.4

%

Weighted Average Shares:

- Basic

15,056,484

15,022,876

15,072,423

0.2

%

-0.1

%

- Diluted

15,129,451

15,069,444

15,112,618

0.4

%

0.1

%

Key Ratios

As of and For the Three Months Ended

% Change 2Q21 vs.

2Q21

1Q21

2Q20

1Q21

2Q20

Return on average assets (ROA)*

1.68

%

1.44

%

0.77

%

0.24

%

0.91

%

Return on average equity (ROE) *

17.10

%

14.02

%

6.97

%

3.08

%

10.13

%

Net interest margin *

3.98

%

3.80

%

3.55

%

0.18

%

0.43

%

Efficiency ratio

52.30

%

50.67

%

57.70

%

1.63

%

-5.40

%

Total risk-based capital ratio

14.03

%

15.04

%

15.16

%

-1.01

%

-1.13

%

Tier 1 risk-based capital ratio

12.77

%

13.79

%

13.91

%

-1.02

%

-1.14

%

Common equity tier 1 ratio

12.77

%

13.79

%

13.91

%

-1.02

%

-1.14

%

Leverage ratio

9.96

%

10.38

%

10.98

%

-0.42

%

-1.02

%

* Annualized.

Consolidated Statements of Income (unaudited)

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

For the Six Months Ended

2Q21

2Q20

% change

Interest income

Interest and fees on loans

$

28,255

$

26,243

7.7

%

Interest on securities available for sale

454

600

-24.3

%

Other interest income

272

422

-35.5

%

Total interest income

28,981

27,265

6.3

%

Interest expense