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OP Bancorp Reports First Quarter Result of 2021

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·21-min read
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2021 First Quarter Highlights:

  • Net income totaled $5.1 million, or $0.33 per diluted common share, compared to $3.8 million, or $0.25 per diluted common share, for the fourth quarter of 2020 and $3.3 million, or $0.21 per diluted common share, for the first quarter of 2020

  • Net interest margin was 3.80%, compared to 3.73% for the fourth quarter of 2020 and 3.95% for the first quarter of 2020

  • Return on average assets was 1.44% and return on average equity was 14.02%, compared to 1.13% and 10.72%, respectively, for the fourth quarter of 2020 and 1.12% and 9.44%, respectively, for the first quarter of 2020

  • Total assets increased 20.3% to $1.46 billion at March 31, 2021, from $1.21 billion at March 31, 2020

  • Net loans receivable increased 15.7% to $1.14 billion at March 31, 2021, from $985.8 million at March 31, 2020

  • Total deposits increased 22.2% to $1.29 billion at March 31, 2021, from $1.05 billion at March 31, 2020

  • Noninterest-bearing deposits accounted for 44.5% of total deposits at March 31, 2021, compared to 29.0% at March 31, 2020

  • Nonperforming assets to total assets was 0.08% at March 31, 2021, compared to 0.13% at March 31, 2020

  • Total risk-based capital ratio and leverage ratio were 15.04% and 10.38%, respectively, at March 31, 2021, compared to 14.78% and 11.59%, respectively at March 31, 2020

  • The provision for loan losses was $620,000, compared to $1.8 million for the fourth quarter of 2020 and $743,000 for the first quarter of 2020

  • The allowance for loan losses, excluding fully guaranteed SBA PPP loans, was 1.47% of gross loans at March 31, 2021, compared to 1.08% of gross loans at March 31, 2020

  • Pre-provision net revenue was $7.8 million, compared to $7.2 million for the fourth quarter of 2020 and $5.2 million for the first quarter of 2020

  • Originated $74.2 million and 1,336 loans under the second draw of the SBA PPP loans; and $22.9 million and 429 loans from the first draw of SBA PPP loans have been forgiven

  • Remaining loan deferments under the CARES Act were 1.6% of our loan portfolio as of March 31, 2021, down from 2.7% of our loan portfolio as of December 31, 2020

OP Bancorp (the "Company") (NASDAQ: OPBK), the holding company of Open Bank (the "Bank"), today reported unaudited financial results for the first quarter of 2021. Net income for the first quarter of 2021 was $5.1 million, or $0.33 per diluted common share, compared to net income of $3.8 million, or $0.25 per diluted common share, for the fourth quarter of 2020, and net income of $3.3 million, or $0.21 per diluted common share, for the first quarter of 2020.

"I am pleased to report a record quarter with the quarterly net income of $5.1 million. During the first quarter, we have put our priority in assisting our existing and new customers with the second draw of SBA PPP loans and have originated 1,336 loans in the amount of $74.2 million. We have also began processing the forgiveness of the first draw of PPP loans which totaled $22.9 million during the quarter. We are expecting to close the purchase of SBA loan portfolio of Hana Small Business Lending, Inc. in the second quarter of 2021. As the vaccine distribution is accelerated and the counties begin to allow reopening and increased capacity of businesses, we are confident that most of our business customers will soon resume their operation to full capacity. The focus in managing risks and maintaining safe and sound banking operations will continue to remain as our highest priority," commented Min Kim, President and Chief Executive Officer of OP Bancorp and Open Bank.

Financial Highlights (unaudited)

(Dollars in thousands, except per share data)

As of or for the Three Months Ended

March 31,

December 31,

March 31,

2021

2020

2020

Income Statement Data:

Interest income

$

13,632

$

13,375

$

14,345

Interest expense

877

1,194

3,229

Net interest income

12,755

12,181

11,116

Provision for loan losses

620

1,831

743

Noninterest income

2,966

3,392

2,296

Noninterest expense

7,966

8,412

8,207

Income before taxes

7,135

5,330

4,462

Provision for income taxes

2,058

1,513

1,163

Net Income

$

5,077

$

3,817

$

3,299

Diluted earnings per share

$

0.33

$

0.25

$

0.21

Balance Sheet Data:

Loans held for sale

$

28,575

$

26,659

$

4,382

Gross loans, net of unearned income

1,155,872

1,099,736

996,559

Allowance for loan losses (ALL)

15,339

15,352

10,748

Total assets

1,455,334

1,366,826

1,209,593

Deposits

1,285,390

1,200,090

1,052,198

Shareholders’ equity

146,993

143,366

138,099

Performance Ratios:

Return on average assets (annualized)

1.44

%

1.13

%

1.12

%

Return on average equity (annualized)

14.02

%

10.72

%

9.44

%

Net interest margin (annualized)

3.80

%

3.73

%

3.95

%

Efficiency ratio (1)

50.67

%

54.02

%

61.19

%

Credit Quality:

Nonperforming loans

$

1,148

$

985

$

1,533

Nonperforming assets

1,148

985

1,533

Net charge-offs to average gross loans (annualized)

0.00

%

0.00

%

0.02

%

Nonperforming assets to gross loans plus OREO

0.10

%

0.09

%

0.15

%

ALL to nonperforming loans

1,337

%

1,558

%

701

%

ALL to gross loans, net of unearned income

1.33

%

1.40

%

1.08

%

Capital Ratios:

Total risk-based capital ratio

15.04

%

14.81

%

14.78

%

Tier 1 risk-based capital ratio

13.79

%

13.56

%

13.69

%

Common equity tier 1 ratio

13.79

%

13.56

%

13.69

%

Leverage ratio

10.38

%

10.55

%

11.59

%

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

Pre-Provision Net Revenue

(Dollars in thousands)

For the Three Months Ended

March 31,

December 31,

March 31,

2021

2020

2020

Interest income

$

13,632

$

13,375

$

14,345

Interest expense

877

1,194

3,229

Net interest income

12,755

12,181

11,116

Noninterest income

2,966

3,392

2,296

Noninterest expense

7,966

8,402

8,207

Pre-provision net revenue

$

7,755

$

7,171

$

5,205

Reconciliation to Net Income:

Provision for loan losses

620

1,790

743

Provision for income taxes

2,058

1,513

1,163

Net Income

$

5,077

$

3,868

$

3,299

Note: Pre-provision net revenue is a non-GAAP measure. Pre-provision net revenue excludes income taxes and provision for loan losses from net income. Management believes that this information provides useful information with a better comparison to the financial results of each periods and a better understanding of the operating results of the Bank.

Results of Operations

The reported interest income and yield on our loan portfolio are impacted by a number of components, including changes in the average contractual interest rate earned on loans and the amount of discount accretion on SBA loans. The following table reconciles both the contractual interest income and yield on our loan portfolio to the reported interest income and yield for the periods indicated.

Three Months Ended

March 31,

December 31,

March 31,

2021

2020

2020

(Dollars in thousands)

Interest

& Fees

Yield

Interest

& Fees

Yield

Interest

& Fees

Yield

Contractual interest rate

$

12,166

4.23

%

$

12,156

4.35

%

$

13,088

5.27

%

SBA discount accretion

507

0.18

%

619

0.22

%

558

0.22

%

Amortization of net deferred fees

540

0.19

%

242

0.09

%

22

0.01

%

Net interest recognized on nonaccrual loans

(2

)

0.00

%

(20

)

-0.01

%

1

0.00

%

Prepayment penalties (1) and other fees

73

0.02

%

9

0.00

%

25

0.01

%

Yield on loans (as reported)

$

13,284

4.62

%

$

13,006

4.65

%

$

13,694

5.51

%

(1) Prepayment penalty income of $69,000 and $18,000 for the three months ended March 31, 2021 and March 31, 2020, respectively, are from commercial real estate loans.

Net interest margin for the first quarter of 2021 increased 7 basis points to 3.80% from 3.73% for the fourth quarter of 2020, primarily due to a 19 basis point decrease in the cost of interest-bearing liabilities, partially offset by a 3 basis point decrease in the reported yield on interest-earning assets.

Net interest income before provision for loan losses for the first quarter of 2021 was $12.8 million, an increase of $574,000, or 4.7%, compared to $12.2 million for the fourth quarter of 2020, primarily due to a $317,000 decrease in interest expense and a $257,000 increase in interest income.

Interest income on securities available for sale and other investments for the first quarter of 2021 decreased $21,000, or 5.8%, to $348,000, compared to $369,000 for the fourth quarter of 2020. The decrease was primarily due to a $21,000 decrease in interest income on securities available for sale. The decrease was the result of an 8 basis point decrease in the yield on the average balance of securities available for sale in the period, which is primarily due to lower yields on securities purchased during the fourth quarter of 2020 and the first quarter of 2021.

Interest income from contractual interest rates on loans for the first quarter of 2021 increased $10,000, or 0.1%, compared to the fourth quarter of 2020, reflecting an increase of $52.3 million, or 4.7% in the average balance of loans, partially offset by a 12 basis point decrease in average contractual interest rate on loans. The amount of discount accretion on SBA loans for the first quarter of 2021 decreased $112,000 compared to the fourth quarter of 2020 due to a decrease in SBA loan payoffs. The reported interest income on loans, net of SBA discount accretions and other components, for the first quarter of 2021 increased $278,000, or 2.1%, compared to the fourth quarter of 2020.

Interest expense for the first quarter of 2021 was $877,000, a decrease of $317,000, or 26.5%, compared to $1.2 million for the fourth quarter of 2020. The decrease was primarily due to downward adjustments of the Bank’s deposit rates during the fourth quarter, partially offset by an increase of $23.5 million, or 3.5%, in the average balance of interest-bearing liabilities.

Net interest margin for the first quarter of 2021 decreased 15 basis points to 3.80% from 3.95% for the first quarter of 2020, primarily due to a 103 basis point decrease in the reported yield on interest-earning assets, partially offset by a 127 basis point decrease in the cost of interest-bearing liabilities.

Net interest income before provision for loan losses for the first quarter of 2021 increased $1.6 million, or 14.7%, to $12.8 million, compared to $11.1 million for the first quarter of 2020, primarily due to a $2.4 million decrease in interest expense, partially offset by a $713,000 decrease in interest income.

Interest income on securities available for sale and other investments for the first quarter of 2021 decreased $303,000, or 46.6%, to $348,000, compared to $651,000, for the first quarter of 2020. The interest income on other investments decreased $220,000 as a result of a 123 basis point decrease in the yield on the average balance of Fed funds sold and other investments in the period. The interest income on securities available for sale decreased $83,000, primarily due to a 131 basis point decrease in the yield on the average balance of securities available for sale and higher premium amortizations from accelerated prepayments during the first quarter of 2021 compared to the first quarter of 2020.

Interest income from contractual interest rates on loans for the first quarter of 2021 decreased $922,000, or 7.0%, compared to the first quarter of 2020, reflecting a 104 basis point decrease in average contractual interest rate on loans. The decrease in the average contractual interest rate was primarily due to cumulative market rate cuts of 150 basis points by the Federal Reserve in the first quarter of 2020. The decrease in interest income from contractual interest was partially offset by an increase of $167.1 million, or 16.7% in average balance of loans. The amount of discount accretion on SBA loans for the first quarter of 2021 decreased $51,000 compared to the first quarter of 2020, primarily due to a decrease in SBA loan payoffs, partially offset by an increase in monthly discount accretions in line with an increase in SBA loan balance at March 31, 2021, compared to March 31, 2020. The reported interest income on loans, net of SBA discount accretions and other components, for the first quarter of 2021 decreased $410,000, or 3.0%, compared to the first quarter of 2020.

Interest expense for the first quarter of 2021 decreased $2.4 million, or 72.8%, to $877,000, compared to $3.2 million for the first quarter of 2020, primarily due to the Bank’s downward adjustments in deposit rates after the rate cuts by the Federal Reserve in March of 2020 and a decrease of $25.4 million, or 3.5%, in the average balance of interest-bearing liabilities.

The following tables show the asset yields, liability costs, net interest spread, and net interest margin for the periods indicated, along with the percentage changes in the periods indicated.

Three Months Ended

Percentage Change

March 31,

December 31,

March 31,

Q1-21

Q1-21

2021

2020

2020

vs. Q4-20

vs. Q1-20

Yield on loans

4.62

%

4.65

%

5.51

%

-0.03

%

-0.89

%

Yield on interest-earning assets

4.07

%

4.10

%

5.10

%

-0.03

%

-1.03

%

Cost of interest-bearing liabilities

0.51

%

0.70

%

1.78

%

-0.19

%

-1.27

%

Cost of deposits

0.29

%

0.40

%

1.27

%

-0.11

%

-0.98

%

Cost of funds

0.28

%

0.40

%

1.27

%

-0.12

%

-0.99

%

Net interest spread

3.56

%

3.40

%

3.32

%

0.16

%

0.24

%

Net interest margin

3.80

%

3.73

%

3.95

%

0.07

%

-0.15

%

The Bank recorded $620,000 in provision for loan losses for the first quarter of 2021, which includes $636,000 for accrued interest receivables on deferred loans and loans that are no longer on deferral but have not fully caught up on their accrued interest, and $12,000 in net reversal from loss factor change and loan balance change. Management continues to evaluate the qualitative and quantitative factors on all loan types. The Bank recorded a provision for loan losses of $1.8 million for the fourth quarter of 2020 and $743,000 for the first quarter of 2020.

Noninterest income for the first quarter of 2021 was $3.0 million, a decrease of $426,000, or 12.6%, from $3.4 million for the fourth quarter of 2020, primarily due to a decrease of $306,000 in gain on sale of loans and a decrease of $275,000 in other income, partially offset by an increase of $164,000 in loan servicing fees from a decrease in SBA loan payoffs. Gain on sale of loans for the first quarter of 2021 was $1.9 million from the sale of $22.4 million in SBA loans with an average premium of 10.51%, whereas gain on sale of loans for the fourth quarter of 2020 was $2.2 million from the sale of $28.5 million in SBA loans with an average premium of 8.83%. The decrease in other income was primarily due to a gain from a property sale during the fourth quarter of 2020.

Noninterest income for the first quarter of 2021 was $3.0 million, an increase of $670,000, compared to $2.3 million for the first quarter of 2020, primarily due to an increase of $727,000 in gain on sale of loans and an increase of $139,000 in loan servicing fees, partially offset by a decrease of $94,000 in service charges on deposits and a decrease of $102,000 in other income. Gain on sale of loans for the first quarter of 2020 was $1.2 million from the sale of $17.5 million in SBA loans with an average premium of 8.41%. The increase of $139,000 in loan servicing fees was due to a decrease in SBA loan payoffs during the first quarter of 2021 compared to the first quarter of 2020.

Noninterest expense for the first quarter of 2021 was $8.0 million, a decrease of $446,000, or 5.3%, compared to $8.4 million for the fourth quarter of 2020. The decrease was primarily due to a decrease of $874,000 in salary and employee benefits, partially offset by an increase of $115,000 promotion and advertising expense, an increase of $107,000 in foundation donation and other contributions expenses, and an increase of $110,000 in other expenses. The decrease in salary and employee benefits was primarily due to an increase in deferred loan origination costs from originating 1,336 SBA’s second draw Paycheck Protection Program (PPP) loans for an aggregate loan balance of $74.2 million during the quarter. The increase in promotion and advertising expense was primarily due to a reduction in promotion and advertising expense in the fourth quarter of 2020, and the increase in foundation donation expense was a result of the increase in net income in the first quarter of 2021.

Noninterest expense for the first quarter of 2021 was $8.0 million, a decrease of $241,000, or 2.9%, compared to $8.2 million for the first quarter of 2020. The decrease was primarily due to a decrease of $409,000 in salary and employee benefits and a decrease of $117,000 in director’s fees expense, partially offset by an increase of $177,000 in foundation donation and other contributions expenses. The decrease in salary and employee benefits was primarily due to the aforementioned increase in deferred loan origination costs for SBA PPP loans, partially offset by additional accruals made to employee incentives during the first quarter of 2021. The decrease in director’s expense was due to a decrease of $108,000 in restricted stock unit expense resulting from the full vesting of the restricted stock units in July 2020.

Income tax provision was $2.1 million for the first quarter, $1.5 million for the fourth quarter of 2020, and $1.2 million for the first quarter of 2020. The effective tax rate for the first quarter of 2021 was 28.8%, compared to 28.4% for the fourth quarter of 2020 and 26.1% for the first quarter of 2020. The higher effective tax rate for the first quarter of 2021 compared to the first quarter of 2020 was primarily due to realizing a lower amount of tax benefits as a result of a decrease in the number of non-qualified stock option exercises.

Balance Sheet

Total assets were $1.46 billion at March 31, 2021, an increase of $88.5 million, or 6.5%, compared to $1.37 billion at December 31, 2020, and an increase of $245.7 million, or 20.3%, compared to $1.21 billion at March 31, 2020.

Gross loans, net of unearned income, were $1.16 billion at March 31, 2021, an increase of $56.1 million, or 5.1%, from $1.10 billion at December 31, 2020, and an increase of $159.3 million, or 16.0%, from $996.6 million at March 31, 2020.

The following table shows new loan originations for the periods indicated.

Three Month Ended

March 31,

December 31,

March 31,

2021

2020

2020

Real estate loans

$

42,748

$

30,828

$

58,854

SBA loans (1)

105,340

16,634

26,347

C & I loans

9,505

47,308

6,342

Home mortgage loans

11,563

17,027

6,924

Total

$

169,156

$

111,797

$

98,467

(1) Includes SBA Paycheck Protection Program (PPP) loans of $74.2 million at March 31, 2021.

Loan payoffs were $59.9 million for the first quarter of 2021, compared to $41.2 million for the fourth quarter of 2020, and $44.3 million for the first quarter of 2020.

Total deposits were $1.29 billion at March 31, 2021, an increase of $85.3 million, or 7.1%, from $1.20 billion at December 31, 2020, and an increase of $233.2 million, or 22.2%, from $1.05 billion at March 31, 2020. Noninterest-bearing deposits were $572.0 million at March 31, 2021, compared to $522.8 million at December 31, 2020, and $304.8 million at March 31, 2020. The increase in noninterest-bearing deposits during the first quarter of 2021 was primarily due to the SBA PPP loans funded to customers’ noninterest-bearing deposits and new accounts opened during the quarter.

Noninterest-bearing deposits accounted for 44.5% of total deposits at March 31, 2021, compared to 43.6% at December 31, 2020, and 29.0% at March 31, 2020. The following table shows the Bank’s deposits, by type, as a percentage of total deposits as of the periods indicated.

As of

March 31,

December 31,

March 31,

2021

2020

2020

Noninterest-bearing deposits

44.5

%

43.6

%

29.0

%

Money market deposits and others

27.5

%

27.3

%

28.2

%

Time deposits over $250,000

14.9

%

16.7

%

20.0

%

Other time deposits

13.1

%

12.4

%

22.8

%

Total deposits

100.0

%

100.0

%

100.0

%

The Bank had $5.0 million in borrowings from the Federal Home Loan Bank (FHLB) at March 31, 2021 and December 31, 2020, which has a 0% interest rate under the Zero-Rate Recovery Advance Program, FHLB’s pandemic relief initiative. The Bank had no borrowings from the FHLB at March 31, 2020.

The Company’s consolidated regulatory capital ratios exceeded regulatory guidelines and the Bank’s capital ratios exceeded the regulatory guidelines for a well-capitalized financial institution under the Basel III regulatory requirements at March 31, 2021, as summarized in the following table.

Well-

capitalized

Regulatory

Capital Ratio

Financial

Requirements (1),

Institution

Including

Basel III

Fully Phased-in

Regulatory

Capital Conservation

Capital Ratios

OP Bancorp

Open Bank

Guidelines

Buffer

Total risk-based capital ratio

15.04

%

14.77

%

10.00

%

10.50

%

Tier 1 risk-based capital ratio

13.79

%

13.51

%

8.00

%

8.50

%

Common equity tier 1 ratio

13.79

%

13.51

%

6.50

%

7.00

%

Leverage ratio

10.38

%

10.28

%

5.00

%

4.00

%

(1) Fully phased in Basel III requirement for both OP Bancorp and Open Bank includes a 2.5% capital conservation buffer, except the leverage ratio.

The Company has repurchased 3,830 shares of its common stock at an average price of $7.50 during the first 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 March 31, 2021.

Asset Quality

Nonperforming loans were $1.1 million at March 31, 2021, an increase of $163,000 from $985,000 at December 31, 2020 and a decrease of $385,000 from $1.5 million at March 31, 2020.

The Bank had no other real estate owned (OREO) at March 31, 2021, December 31, 2020 and March 31, 2020.

Nonperforming assets were $1.1 million, or 0.08% of total assets, at March 31, 2021, compared to $985,000, or 0.07% of total assets, at December 31, 2020, and $1.5 million, or 0.13% of total assets, at March 31, 2020. Nonperforming loans to gross loans were 0.10% at March 31, 2021, compared to 0.09% at December 31, 2020, and 0.15% at March 31, 2020.

Total classified loans were $6.6 million, or 0.57% of gross loans, at March 31, 2021, compared to $7.3 million, or 0.67% of gross loans, at December 31, 2020, and $3.6 million, or 0.36% of gross loans, at March 31, 2020. The decrease of $739,000 in classified loans from December 31, 2020 was primarily due to two SBA real estate loans, which were reclassified to watch grade loans. Classified loans of $5.9 million as of March 31, 2021 are fully secured by real estate collaterals.

The following tables shows the trend of classified loans by loan type as of the date stated.

As of

March 31,

December 31,

September 30,

June 30,

March 31,

2021

2020

2020

2020

2020

Classified loans by loan type

(Dollars in thousands)

SBA loans—real estate

$

769

$

1,523

$

774

$

786

$

2,021

SBA loans—non-real estate

385

198

...

121

124

159

Commercial and industrial

4,832

5,004

1,207

1,211

686

Home mortgage

600

600

...

689

694

Total classified loans

$

6,586

$

7,325

$

2,102

$

2,810

$

3,560

SBA guarantee balance retained

SBA loans—real estate

357

SBA loans—non-real estate

166

33

Total SBA unsold guarantee portion

$

166

$

$

$

$

390

Total classified loans, net of SBA guarantee balance retained

$

6,420

$

7,325

$

2,102

$

2,810

$

3,170

The Bank had 14 loans in deferred status with an aggregate balance of $19.0 million, or 1.6% of total loans at March 31, 2021, compared to 18 loans in deferred status with an aggregate balance of $31.2 million, or 2.7% of total loans at December 31, 2020. Since we started loan deferments under the CARES Act in the second quarter of 2020, 171 loans with an aggregate balance of $217.8 million have resumed regular payments or have been paid off through March 31, 2021.

The allowance for loan losses (ALL) was $15.3 million at March 31, 2021, compared to $15.4 million at December 31, 2020, and $10.7 million at March 31, 2020. The ALL was 1.33% of gross loans at March 31, 2021, 1.40% of gross loans at December 31, 2020, and 1.08% of gross loans at March 31, 2020. Excluding fully guaranteed SBA PPP loans, the ALL was 1.47% of gross loans at March 31, 2021, 1.48% of gross loans at December 31, 2020, and 1.08% of gross loans at March 31, 2020. The ALL was 1,337% of nonperforming assets at March 31, 2021, 1,558% of nonperforming assets at December 31, 2020, and 701% at March 31, 2020.

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)

(Dollars in thousands)

As of

03/31/2021

12/31/2020

% change

03/31/2020

% change

Assets

Cash and cash equivalents

$

127,524

$

106,405

19.8

%

$

110,999

14.9

%

Securities available for sale, at fair value

102,413

91,791

11.6

%

52,179

96.3

%

Other investments

9,953

10,006

-0.5

%

9,253

7.6

%

Loans held for sale

28,575

26,659

7.2

%

4,382

552.1

%

Real estate loans

662,445

651,684

1.7

%

639,411

3.6

%

SBA loans

263,185

211,376

24.5

%

133,909

96.5

%

C & I loans

103,883

107,308

-3.2

%

99,860

4.0

%

Home mortgage loans

125,285

128,211

-2.3

%

119,984

4.4

%

Consumer & other loans

1,074

1,157

-7.2

%

3,395

-68.4

%

Gross loans, net of unearned income

1,155,872

1,099,736

5.1

%

996,559

16.0

%

Allowance for loan losses

(15,339

)

(15,352

)

-0.1

%

(10,748

)

42.7

%

Net loans receivable

1,140,533

1,084,384

5.2

%

985,811

15.7

%

Premises and equipment, net

4,368

4,544

-3.9

%

5,141

-15.0

%

Accrued interest receivable, net

3,096

3,985

-22.3

%

3,056

1.3

%

Servicing assets

7,492

7,360

1.8

%

6,963

7.6

%

Company owned life insurance

10,941

10,879

0.6

%

10,683

2.4

%

Deferred tax assets

5,391

5,242

2.8

%

2,709

99.0

%

Operating right-of-use assets

6,443

6,786

-5.1

%

7,885

-18.3

%

Other assets

8,605

8,785

-2.0

%

10,532

-18.3

%

Total assets

$

1,455,334

$

1,366,826

6.5

%

$

1,209,593

20.3

%

Liabilities and Shareholders' Equity

Noninterest-bearing deposits

$

571,985

$

522,754

9.4

%

$

304,845

87.6

%

Money market deposits and others

354,148

328,323

7.9

%

296,357

19.5

%

Time deposits over $250,000

190,960

200,210

-4.6

%

210,507

-9.3

%

Other time deposits

168,297

148,803

13.1

%

240,489

-30.0

%

Total deposits

1,285,390

1,200,090

7.1

%

1,052,198

22.2

%

Other borrowings

5,000

5,000

0.0

%

-

100.0

%

Accrued interest payable

622

1,021

-39.1

%

2,592

-76.0

%

Operating lease liabilities

8,016

8,429

-4.9

%

9,701

-17.4

%

Other liabilities

9,313

8,920

4.4

%

7,003

33.0

%

Total liabilities

1,308,341

1,223,460

6.9

%

1,071,494

22.1

%

Common stock

78,654

78,657

0.0

%

80,422

-2.2

%

Additional paid-in capital

8,652

8,521

1.5

%

7,882

9.8

%

Retained earnings

59,373

55,348

7.3

%

48,695

21.9

%

Accumulated other comprehensive income

314

840

-62.6

%

1,100

-71.5

%

Total shareholders' equity

146,993

143,366

2.5

%

138,099

6.4

%

Total Liabilities and Shareholders' Equity

$

1,455,334

$

1,366,826

6.5

%

$

1,209,593

20.3

%

Consolidated Statements of Income (unaudited)

(Dollars in thousands, except per share data)

Three Months Ended

3/31/2021

12/31/2020

% change

3/31/2020

% change

Interest income

Interest and fees on loans

$

13,284

$

13,006

2.1

%

$

13,694

-3.0

%

Interest on securities available for sale

236

257

-8.2

%

319

-26.0

%

Other interest income

112

112

0.0

%

332

-66.3

%

Total interest income

13,632

13,375

1.9

%

14,345

-5.0

%

Interest expense

Interest on deposits

877

1,194

-26.5

%

3,229

-72.8

%

Total interest expense

877

1,194

-26.5

%

3,229

-72.8

%

Net interest income

12,755

12,181

4.7

%

11,116

14.7

%

Provision for loan losses

620

1,831

-66.1

%

743

-16.6

%

Net interest income after provision for loan losses

12,135

10,350

17.2

%

10,373

17.0

%

Noninterest income

Service charges on deposits

274

283

-3.2

%

368

-25.5

%

Loan servicing fees, net of amortization

531

367

44.7

%

392

35.5

%

Gain on sale of loans

1,882

2,188

-14.0

%

1,155

62.9

%

Other income

279

554

-49.6

%

381

-26.8

%

Total noninterest income

2,966

3,392

-12.6

%

2,296

29.2

%

Noninterest expense

Salaries and employee benefits

4,662

5,536

-15.8

%

5,071

-8.1

%

Occupancy and equipment

1,235

1,237

-0.2

%

1,230

0.4

%

Data processing and communication

448

435

3.0

%

409

9.5

%

Professional fees

314

265

18.5

%

273

15.0

%

FDIC insurance and regulatory assessments

132

115

14.8

%

106

24.5

%

Promotion and advertising

177

62

185.5

%

162

9.3

%

Directors’ fees

116

97

19.6

%

233

-50.2

%

Foundation donation and other contributions

507

400

26.8

%

330

53.6

%

Other expenses

375

265

41.5

%

393

-4.6

%

Total noninterest expense

7,966

8,412

-5.3

%

8,207

-2.9

%

Income before income taxes

7,135

5,330

33.9

%

4,462

59.9

%

Provision for income taxes

2,058

1,513

36.0

%

1,163

77.0

%

Net income

$

5,077

$

3,817

33.0

%

$

3,299

53.9

%

Book value per share

$

9.77

$

9.55

2.3

%

$

9.14

6.9

%

Basic EPS

$

0.33

$

0.25

32.0

%

$

0.21

57.1

%

Diluted EPS

$

0.33

$

0.25

32.0

%

$

0.21

57.1

%

Shares of common stock outstanding

15,037,635

15,016,700

0.1

%

15,115,868

-0.5

%

Weighted Average Shares:

- Basic

15,022,876

15,079,407

-0.4

%

15,486,549

-3.0

%

- Diluted

15,069,444

15,103,029

-0.2

%

15,586,255

-3.3

%

Key Ratios

(Dollars in thousands, except ratios)

Three Months Ended

3/31/2021

12/31/2020

% change

3/31/2020

% change

Return on average assets (ROA)*

1.44

%

1.13

%

0.31

%

1.12

%

0.32

%

Return on average equity (ROE)*

14.02

%

10.72

%

3.30

%

9.44

%

4.58

%

Net interest margin *

3.80

%

3.73

%

0.07

%

3.95

%

-0.15

%

Efficiency ratio

50.67

%

54.02

%

-3.35

%

61.19

%

-10.52

%

Total risk-based capital ratio

15.04

%

14.81

%

0.23

%

14.78

%

0.26

%

Tier 1 risk-based capital ratio

13.79

%

13.56

%

0.23

%

13.69

%

0.10

%

Common equity tier 1 ratio

13.79

%

13.56

%

0.23

%

13.69

%

0.10

%

Leverage ratio

10.38

%

10.55

%

-0.17

%

11.59

%

-1.21

%

* Annualized

Asset Quality

(Dollars in thousands, except ratios)

Three Months Ended

3/31/2021

12/31/2020

9/30/2020

6/30/2020

3/31/2020

Nonaccrual Loans

$

1,148

$

985

$

-

$

689

$

1,203

Loans 90 days or more past due, accruing

-

-

-

-

-

Accruing restructured loans

-

-

330

330

330

Nonperforming loans

1,148

985

330

1,019

1,533

Other real estate owned (OREO)

-

-

-

-

-

Nonperforming assets

1,148

985

330

1,019

1,533

Classified loans

6,586

7,325

2,102

2,810

3,560

Nonperforming assets/total assets

0.08

%

0.07

%

0.02

%

0.08

%

0.13

%

Nonperforming assets/gross loans plus OREO

0.10

%

0.09

%

0.03

%

0.10

%

0.15

%

Nonperforming loans/gross loans

0.10

%

0.09

%

0.03

%

0.10

%

0.15

%

Allowance for loan losses/nonperforming loans

1,337

%

1,558

%

4,295

%

1,252

%

701

%

Allowance for loan losses/nonperforming assets

1,337

%

1,558

%

4,295

%

1,252

%

701

%

Allowance for loan losses/gross loans

1.33

%

1.40

%

1.32

%

1.22

%

1.08

%

Classified loans/gross loans

0.57

%

0.67

%

0.20

%

0.27

%

0.36

%

Net charge-offs(recoveries)

$

(3

)

$

-

$

-

$

(28

)

$

45

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

0.00

%

0.00

%

0.00

%

-0.01

%

0.02

%

* Annualized

Accruing delinquent loans 30-89 days past due

3/31/2021

12/31/2020

9/30/2020

6/30/2020

3/31/2020

30-59 days

$

-

$

-

$

600

$

565

$

1,788

60-89 days

-

-

-

-

2,277

Total

-

-

600

565

4,065

Average Balance Sheet, Interest and Yield/Rate Analysis

(Dollars in thousands)

Three Months Ended

March 31, 2021

December 31, 2020

March 31, 2020

Average

Balance

Interest

and Fees

Yield/

Rate

Average

Balance

Interest

and Fees

Yield/

Rate

Average

Balance

Interest

and Fees

Yield/

Rate

Interest-Earning assets:

Federal funds sold and other investments

$

99,349

$

112

0.45

%

$

92,774

$

112

0.48

%

$

78,256

$

332

1.68

%

Securities available for sale

92,951

236

1.02

93,238

257

1.10

54,647

319

2.33

Total investments

192,300

348

0.72

186,012

369

0.79

132,903

651

1.95

Real estate loans

653,498

7,466

4.63

644,643

7,457

4.60

633,963

8,198

5.20

SBA loans

268,440

3,280

4.95

251,541

3,231

5.11

138,900

2,667

7.72

C & I loans

116,327

1,072

3.74

90,618

843

3.70

100,686

1,277

5.10

Home mortgage loans

125,698

1,451

4.62

124,763

1,456

4.67

121,768

1,514

4.97

Consumer & other loans

1,187

15

5.12

1,325

19

5.70

2,774

38

5.51

Loans (1)

1,165,150

13,284

4.62

1,112,890

13,006

4.65

998,091

13,694

5.51

Total interest-earning assets

1,357,450

13,632

4.07

1,298,902

13,375

4.10

1,130,994

14,345

5.10

Noninterest-earning assets

52,376

49,123

48,188

Total assets

$

1,409,826

$

1,348,025

$

1,179,182

Interest-bearing liabilities:

Money market deposits and others

$

336,796

270

0.33

%

$

328,044

340

0.41

%

$

297,202

957

1.29

%

Time deposits

361,803

607

0.68

344,139

854

0.99

431,772

2,272

2.12

Total interest-bearing deposits

698,599

877

0.51

672,183

1,194

0.71

728,974

3,229

1.78

Borrowings

5,000

-

-

7,938

-

-

45

-

-

Total interest-bearing liabilities

703,599

877

0.51

680,121

1,194

0.70

729,019

3,229

1.78

Noninterest-bearing liabilities:

Noninterest-bearing deposits

544,492

507,694

292,453

Other noninterest-bearing liabilities

16,865

17,769

17,921

Total noninterest-bearing liabilities

561,357

525,463

310,374

Shareholders’ equity

144,870

142,441

139,789

Total liabilities and shareholders’ equity

$

1,409,826

$

1,348,025

$

1,179,182

Net interest income / interest rate spreads

$

12,755

3.56

%

$

12,181

3.40

%

$

11,116

3.32

%

Net interest margin

3.80

%

3.73

%

3.95

%

Cost of deposits & cost of funds:

Total deposits / cost of deposits

$

1,243,091

$

877

0.29

%

$

1,179,877

$

1,194

0.40

%

$

1,021,427

$

3,229

1.27

%

Total funding liabilities / cost of funds

$

1,248,091

$

877

0.28

%

$

1,187,815

$

1,194

0.40

%

$

1,021,472

$

3,229

1.27

%

(1) The average loan balance includes loans held for sale.

Loan Portfolio Breakdown by Industry

Excluding home mortgage and consumer loans

(Dollars in thousands)

As of March 31, 2021

Industry

Number of

accounts

% of total

Balance

% of total

Hotel / motel

225

7.5

%

$

150,375

14.1

%

Wholesale

375

12.4

77,331

7.2

Food services / restaurant

432

14.3

62,716

5.9

Laundry services

152

5.0

21,196

2.0

Real estate lessor

240

8.0

396,092

37.1

Car washes

52

1.7

36,459

3.4

Educational service

32

1.1

7,166

0.7

Other

1,505

50.0

315,396

29.6

Total

3,013

100.0

%

$

1,066,731

100.0

%

Loan Deferment Summary by Industry

As of March 31, 2021

Excluding home mortgage and consumer loans

(Dollars in thousands)

Number of accounts

Loan balance

Industry

Number of

accounts

% of

deferment

% of

total loans

Balance

% of

deferment

% of

total loans

Hotel / motel

6

66.7

%

2.7

%

$

15,188

93.6

%

10.1

%

Wholesale

1

11.1

0.3

486

3.0

0.6

Food services / restaurant

1

11.1

0.2

465

2.9

0.7

Laundry services

1

11.1

0.7

90

0.6

0.4

Total

9

100.0

%

0.3

%

$

16,229

100.0

%

1.5

%

Loan Deferment Summary by Loan Type

As of March 31, 2021

(Dollars in thousands)

Number of accounts

Loan balance

Loan Type

Number of

accounts

% of

deferment

% of

total loans

Balance

% of

deferment

% of

total loans

Real estate loans

6

42.9

%

1.7

%

$

15,188

80.0

%

2.3

%

C & I loans

3

21.4

1.3

1,041

5.5

1.0

Loans, excluding home mortgage and consumer loans

9

64.3

0.3

16,229

85.5

1.5

Home mortgage loans

5

35.7

1.6

2,761

14.5

2.2

Total

14

100.0

%

0.4

%

$

18,990

100.0

%

1.6

%

Loan Deferment Status Change by Loan Type

Total deferments

Payment resumed

under the CARES Act

or paid off

Remaining deferments

(Dollars in thousands)

through March 31, 2021

through March 31, 2021

as of March 31, 2021

Loan Type

Number

of accounts

Balance

Number

of accounts

Balance

Number

of accounts

Balance

Loans, excluding home mortgage and consumer loans

116

206,582

107

190,353

9

16,229

Home mortgage loans

69

30,205

64

27,444

5

2,761

Total

185

$

236,787

171

$

217,797

14

$

18,990

View source version on businesswire.com: https://www.businesswire.com/news/home/20210422005840/en/

Contacts

Investor Relations
OP Bancorp
Christine Oh
EVP & CFO
213.892.1192
Christine.oh@myopenbank.com