OP Bancorp Reports Third Quarter Result of 2020

OP Bancorp (the “Company”) (NASDAQ: OPBK), the holding company of Open Bank (the “Bank”), today reported unaudited financial results for the third quarter of 2020. Net income for the third quarter of 2020 was $3.6 million, or $0.23 per diluted common share, compared to net income of $2.4 million, or $0.16 per diluted common share, for the second quarter of 2020, and net income of $4.0 million, or $0.24 per diluted common share, for the third quarter of 2019.

“We are pleased to report a solid quarter with strong loan and deposit growth and an improved net interest margin during this challenging environment. We provided an additional loan loss provision of $1.4 million for the quarter resulting from further adjustments to our qualitative factors to reflect potential negative impact caused by COVID-19 pandemic. We will continue to be proactive in assisting our customers in navigating their businesses during this difficult and unprecedented period. Furthermore, we continue to put our priority in managing various risks to maintain safe and sound banking operations,” commented Min Kim, President and Chief Executive Officer of OP Bancorp and Open Bank.

Financial Highlights (unaudited)

(Dollars in thousands, except per share data)

As of or for the Three Months Ended

September 30,

June 30,

September 30,

2020

2020

2019

Income Statement Data:

Interest income

$

13,016

$

12,920

$

15,112

Interest expense

1,597

2,272

3,893

Net interest income

11,419

10,648

11,219

Provision for loan losses

1,399

1,988

290

Noninterest income

3,021

2,062

2,732

Noninterest expense

7,987

7,334

8,424

Income before taxes

5,054

3,388

5,237

Provision for income taxes

1,459

972

1,237

Net Income

$

3,595

$

2,416

$

4,000

Diluted earnings per share

$

0.23

$

0.16

$

0.24

Balance Sheet Data:

Loans held for sale

$

41,430

$

8,795

$

368

Gross loans, net of unearned income

1,072,790

1,043,506

964,370

Allowance for loan losses (ALL)

14,164

12,764

9,640

Total assets

1,339,821

1,288,011

1,151,934

Deposits

1,170,164

1,120,720

995,993

Shareholders’ equity

141,549

139,136

137,593

Performance Ratios:

Return on average assets (annualized)

1.11

%

0.77

%

1.41

%

Return on average equity (annualized)

10.22

%

6.97

%

11.74

%

Net interest margin (annualized)

3.66

%

3.55

%

4.13

%

Efficiency ratio (1)

55.31

%

57.70

%

60.39

%

Credit Quality:

Nonperforming loans

$

330

$

1,019

$

1,570

Nonperforming assets

330

1,019

3,387

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

0.00

%

-0.01

%

0.08

%

Nonperforming assets to gross loans plus OREO

0.03

%

0.10

%

0.35

%

ALL to nonperforming loans

4,295

%

1,252

%

614

%

ALL to gross loans, net of unearned income

1.32

%

1.22

%

1.00

%

Capital Ratios:

Total risk-based capital ratio

14.93

%

15.16

%

15.36

%

Tier 1 risk-based capital ratio

13.67

%

13.91

%

14.35

%

Common equity tier 1 ratio

13.67

%

13.91

%

14.35

%

Leverage ratio

10.85

%

10.98

%

12.11

%

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

Financial Highlights (unaudited)

(Dollars in thousands, except per share data)

For the Nine Months Ended

September 30,

September 30,

2020

2019

Income Statement Data:

Interest income

$

40,281

$

44,077

Interest expense

7,098

10,883

Net interest income

33,183

33,194

Provision for loan losses

4,130

691

Noninterest income

7,379

8,912

Noninterest expense

23,528

24,855

Income before taxes

12,904

16,560

Provision for income taxes

3,594

3,984

Net Income

$

9,310

$

12,576

Diluted earnings per share

$

0.60

$

0.77

Performance Ratios:

Return on average assets

1.00

%

1.54

%

Return on average equity

8.88

%

12.55

%

Net interest margin

3.71

%

4.25

%

Efficiency ratio (1)

58.00

%

59.03

%

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

Financial Highlights, excluding Gain on COLI

(Dollars in thousands, except per share data)

For the Nine Months Ended

September 30,

September 30,

2020

2019

Income before taxes, as reported

$

12,904

$

16,560

Gain on COLI

1,228

Provision for income taxes

3,594

3,887

Net Income, excluding gain on COLI

$

9,310

$

11,445

Diluted earnings per share

$

0.60

$

0.70

Return on average assets

1.00

%

1.40

%

Return on average equity

8.88

%

11.42

%

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

September 30,

June 30,

September 30,

2020

2020

2019

(Dollars in thousands)

Interest & Fees

Yield

Interest & Fees

Yield

Interest & Fees

Yield

Contractual interest rate

$

11,715

4.39

%

$

11,667

4.49

%

$

13,492

5.66

%

SBA discount accretion

389

0.15

%

413

0.16

%

717

0.30

%

Amortization of net deferred fees/(costs)

393

0.15

%

375

0.15

%

37

0.02

%

Interest recognized on nonaccrual loans

48

0.02

%

83

0.03

%

(12

)

-0.01

%

Prepayment penalties and other fees

36

0.01

%

11

0.00

%

44

0.02

%

Yield on loans (as reported)

$

12,581

4.72

%

$

12,549

4.83

%

$

14,278

5.99

%

Nine Months Ended

September 30,

September 30,

2020

2019

(Dollars in thousands)

Interest & Fees

Yield

Interest & Fees

Yield

Contractual interest rate

$

36,482

4.71

%

$

39,285

5.69

%

SBA discount accretion

1,359

0.17

%

1,928

0.28

%

Amortization of net deferred fees/(costs)

790

0.10

%

192

0.03

%

Interest recognized on nonaccrual loans

132

0.02

%

(12

)

0.00

%

Prepayment penalties and other fees

60

0.01

%

332

0.05

%

Yield on loans (as reported)

$

38,823

5.01

%

$

41,725

6.05

%

Net interest margin for the third quarter of 2020 increased 11 basis points to 3.66% from 3.55% for the second quarter of 2020 primarily due to a 30 basis point decrease in the cost of interest-bearing liabilities, partially offset by a 13 basis point decrease in the reported yield on interest-earning assets.

Net interest income before provision for loan losses for the third quarter of 2020 was $11.4 million, an increase of $771,000, or 7.2%, compared to the second quarter of 2020, primarily due to a $675,000 decrease in interest expense and a $96,000 increase in interest income.

Interest income on securities available for sale and other investments for the third quarter of 2020 increased $64,000, or 17.3%, compared to the second quarter of 2020. The increase was primarily due to a $38,000 increase in interest income on securities available for sale from investment purchases during the second and third quarters of 2020 and a $26,000 increase in dividend accrual on Federal Home Loan Bank stock.

Interest income from contractual interest rates on loans for the third quarter of 2020 increased $48,000, or 0.4% compared to the second quarter of 2020, reflecting an increase of $17.2 million, or 1.6% in the average balance of loans, partially offset by a 10 basis point decrease in the average contractual interest rate on loans. The amount of discount accretion on SBA loans for the third quarter of 2020 decreased $24,000 compared to the second 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 third quarter of 2020 increased $32,000, or 0.3%, compared to the second quarter of 2020.

Interest expense for the third quarter of 2020 decreased $675,000, or 29.7%, compared to the second quarter of 2020, primarily due to continued downward adjustments of the Bank’s deposit rates after the rate cuts by the Federal Reserve in March of 2020 and a decrease of $61.7 million, or 8.4%, in the average balance of interest-bearing liabilities.

Net interest margin for the third quarter of 2020 decreased 47 basis points to 3.66% from 4.13% for the third quarter of 2019, primarily due to a 138 basis point decrease in the reported yield on interest-earning assets, partially offset by a 126 basis point decrease in the cost of interest-bearing liabilities as a result of cumulative market rate cuts of 175 basis points by the Federal Reserve in the last quarter of 2019 and first quarter of 2020.

Net interest income before provision for loan losses for the third quarter of 2020 increased $200,000, or 1.8%, to $11.4 million, compared to $11.2 million for the third quarter of 2019, primarily due to a $2.3 million decrease in interest expense, partially offset by a $2.1 million decrease in interest income.

Interest income on securities available for sale and other investments for the third quarter of 2020 decreased $399,000, or 47.8%, compared to the third quarter of 2019. The decrease was primarily due to a $362,000 decrease in interest income on Fed funds as a result of the aforementioned cumulative rate cuts.

Interest income from contractual interest rates on loans for the third quarter of 2020 decreased $1.8 million, or 13.2%, compared to the third quarter of 2019, reflecting a 127 basis point decrease in the average contractual interest rate on loans, primarily due to the aforementioned cumulative rate cuts, partially offset by an increase of $115.7 million, or 12.2% in the average balance of loans. The amount of discount accretion on SBA loans for the third quarter of 2020 decreased $328,000 compared to the third quarter of 2019, due to a decrease in SBA loan payoffs. The reported interest income on loans, net of SBA discount accretions and other components, for the third quarter of 2020 decreased $1.7 million, or 11.9%, compared to the third quarter of 2019.

Interest expense for the third quarter of 2020 decreased $2.3 million, or 59.0%, compared to the third quarter of 2019, 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 $27.8 million, or 4.0%, 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

September 30,

June 30,

September 30,

Q3-20

Q3-20

2020

2020

2019

vs. Q2-20

vs. Q3-19

Yield on loans

4.72

%

4.83

%

5.99

%

-0.11

%

-1.27

%

Yield on interest-earning assets

4.18

%

4.31

%

5.56

%

-0.13

%

-1.38

%

Cost of interest-bearing liabilities

0.94

%

1.24

%

2.20

%

-0.30

%

-1.26

%

Cost of deposits

0.56

%

0.83

%

1.58

%

-0.27

%

-1.02

%

Cost of funds

0.56

%

0.83

%

1.58

%

-0.27

%

-1.02

%

Net interest spread

3.24

%

3.07

%

3.36

%

0.17

%

-0.12

%

Net interest margin

3.66

%

3.55

%

4.13

%

0.11

%

-0.47

%

Nine Months Ended

Percentage Change

September 30,

September 30,

2020 YTD

2020

2019

vs. 2019 YTD

Yield on loans

5.01

%

6.05

%

-1.04

%

Yield on interest-earning assets

4.51

%

5.65

%

-1.14

%

Cost of interest-bearing liabilities

1.33

%

2.17

%

-0.84

%

Cost of deposits

0.88

%

1.54

%

-0.66

%

Cost of funds

0.87

%

1.54

%

-0.67

%

Net interest spread

3.18

%

3.48

%

-0.30

%

Net interest margin

3.71

%

4.25

%

-0.54

%

The Bank recorded $1.4 million in provision for loan losses for the third quarter of 2020. Management has made further adjustments to the qualitative factors on all loan types during the third quarter of 2020 to reflect persistent adverse impacts on national, state, and local economies caused by the COVID-19 pandemic. The increases in qualitative factors accounted for $1.2 million, or 80%, of provision for loan losses for the quarter. The Bank recorded provision for loan losses of $2.0 million for the second quarter of 2020 and $290,000 for the third quarter of 2019.

Noninterest income for the third quarter of 2020 was $3.0 million, an increase of $959,000, or 46.5%, from $2.1 million for the second quarter of 2020, primarily due to an increase of $877,000 in gain on sale of loans and an increase of $69,000 in loan servicing fees from slower SBA loan payoffs.

Gain on sale of loans for the third quarter of 2020 was $1.8 million, an increase of $877,000, compared to $936,000 for the second quarter of 2020. The Bank sold $24.0 million in SBA loans with an average premium of 9.66% in the third quarter of 2020, compared to the sale of $14.9 million in SBA loans with an average premium of 7.94% in the second quarter of 2020.

Noninterest income for the third quarter of 2020 was $3.0 million, an increase of $289,000, compared to $2.7 million for the third quarter of 2019, primarily due to an increase of $340,000 in loan servicing fees from slower SBA loan payoffs and an increase of $99,000 in gain on sale of loans, partially offset by a decrease of $140,000 in service charges on deposits. Gain on sale of loans for the third quarter of 2019 was $1.7 million from the sale of $22.2 million in SBA loans with an average premium of 8.85%.

Noninterest expense for the third quarter of 2020 was $8.0 million, an increase of $653,000, or 8.9%, compared to $7.3 million for the second quarter of 2020. The increase was primarily due to an increase of $739,000 in salary and employee benefits and an increase of $115,000 in foundation donation and other contributions. The increase in salary and employee benefits was primarily due to a decrease in deferred loan origination costs. The deferred loan origination costs for the third quarter of 2020 was $612,000, a decrease of $801,000, compared to $1.4 million for the second quarter of 2020 with the origination of 924 SBA Paycheck Protection Program (PPP) loans.

Noninterest expense for the third quarter of 2020 was $8.0 million, a decrease of $437,000, or 5.2%, compared to $8.4 million for the third quarter of 2019. The decrease was primarily due to a decrease of $263,000 in salary and employee benefits, a decrease of $101,000 in promotion and advertising expenses, and a decrease of $182,000 in other expenses, partially offset by an increase of $133,000 in FDIC insurance and regulatory assessments expenses. The decrease in salary and employee benefits was primarily due to an increase in deferred loan origination costs. The deferred loan origination costs of $612,000 for the third quarter of 2020 was $339,000 higher than $273,000 for the third quarter of 2019, primarily due to more loan originations in the third quarter of 2020. The FDIC insurance and regulatory assessments expenses was lower during the second half of 2019 due to the small bank assessment credits that were applied. Management continues to monitor and manage overhead expenses as earnings have been adversely impacted by a lower rate environment and higher loan loss provisions in 2020.

Income tax provision was $1.5 million for the third quarter of 2020, $972,000 for the second quarter of 2020 and $1.2 million for the third quarter of 2019. The effective tax rate for the third quarter of 2020 was 28.9%, compared to 28.7% for the second quarter of 2020 and 23.6% for the third quarter of 2019. The higher effective tax rate for the third quarter of 2020 compared to the third quarter of 2019 was primarily due to realizing a lower amount of tax benefits resulting from the exercise of non-qualified stock options during the third quarter of 2020.

Balance Sheet

Total assets were $1.34 billion at September 30, 2020, an increase of $51.8 million, or 4.0%, compared to $1.29 billion at June 30, 2020, and an increase of $187.9 million, or 16.3%, compared to $1.15 billion at September 30, 2019.

Gross loans, net of unearned income, were $1.07 billion at September 30, 2020, an increase of $29.3 million, or 2.8.%, from $1.04 billion at June 30, 2020, and an increase of $108.4 million, or 11.2%, from $964.4 million at September 30, 2019.

New loan originations totaled $140.2 million for the third quarter of 2020, including $1.3 million in SBA PPP loans and $76.3 million in other SBA loans, compared to $104.1 million for the second quarter of 2020, including $64.9 million in SBA PPP loans and $19.3 million in other SBA loans, and $100.3 million for the third quarter of 2019, including $30.9 million in SBA loans. Loan payoffs were $47.1 million for the third quarter of 2020, compared to $21.7 million for the second quarter of 2020, and $38.7 million for the third quarter of 2019.

Total deposits were $1.17 billion at September 30, 2020, an increase of $49.4 million, or 4.4%, from $1.12 billion at June 30, 2020, and an increase of $174.2 million, or 17.5%, from $996.0 million at September 30, 2019. Noninterest-bearing deposits were $488.8 million at September 30, 2020, compared to $428.8 million at June 30, 2020, and $296.8 million at September 30, 2019. The increase in noninterest-bearing deposits during the third quarter of 2020 was primarily due to new accounts being opened during the quarter as well as increased balances from our existing accounts.

Noninterest-bearing deposits accounted for 41.8% of total deposits at September 30, 2020, compared to 38.2% at June 30, 2020, and 29.8% at September 30, 2019. The following table shows the Bank’s deposits, by type as a percentage of total deposits as of the periods indicated.

As of

September 30,

June 30,

September 30,

2020

2020

2019

Noninterest-bearing deposits

41.8

%

38.2

%

29.8

%

Interest-bearing demand deposits

28.6

%

26.2

%

27.6

%

Savings

0.5

%

0.5

%

0.3

%

Time deposits over $250,000

16.6

%

18.8

%

22.1

%

Other time deposits

12.5

%

16.3

%

20.2

%

Total deposits

100.0

%

100.0

%

100.0

%

The Bank had $10.0 million in borrowings from the Federal Home Loan Bank (FHLB) at September 30, 2020 and June 30, 2020, which has a 0% rate under the Zero-Rate Recovery Advance Program, FHLB’s pandemic relief initiatives. The Bank had no borrowings from the FHLB at September 30, 2019.

The Company’s consolidated regulatory capital ratios exceeded regulatory guidelines and the Bank’s capital ratios exceeded the regulatory guidelines for a well-capitalized financial institution under the Basel III regulatory requirements at September 30, 2020, as summarized in the following table.

Regulatory

Well-capitalized

Capital Ratio

Financial

Requirements (1),

Institution

Including

Basel III

Fully Phased-in

Regulatory

Capital Conservation

Capital Ratios

OP Bancorp

Open Bank

Guidelines

Buffer

Total risk-based capital ratio

14.93

%

14.51

%

10.00

%

10.50

%

Tier 1 risk-based capital ratio

13.67

%

13.26

%

8.00

%

8.50

%

Common equity tier 1 ratio

13.67

%

13.26

%

6.50

%

7.00

%

Leverage ratio

10.85

%

10.52

%

5.00

%

4.00

%

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

The Company announced a fourth stock repurchase program on September 9, 2020, which authorizes the Company to repurchase up to 500,000 shares of its common stock. As of October 19, 2020, as part of its fourth stock repurchase program, the Company repurchased 82,000 shares of its common stock at an average price of $6.10. Since the announcement of the initial stock repurchase program in January 2019, the Company has repurchased a total of 1.45 million shares of its common stock at an average repurchase price of $8.69 per share through October 19, 2020.

Asset Quality

Nonperforming loans were $330,000 at September 30, 2020, a decrease of $689,000 from $1.0 million at June 30, 2020 and a decrease of $1.2 million from $1.6 million at September 30, 2019.

The Bank had no other real estate owned (OREO) at September 30, 2020 and June 30, 2020. The Bank had OREO of $1.8 million at September 30, 2019.

Nonperforming assets were $330,000, or 0.02% of total assets, at September 30, 2020, compared to $1.0 million, or 0.08% of total assets, at June 30, 2020, and $3.4 million, or 0.29% of total assets, at September 30, 2019.

Nonperforming loans to gross loans were 0.3% at September 30, 2020, compared to 0.10% at June 30, 2020, and 0.16% at September 30, 2019. Total classified loans were $2.1 million, or 0.20% of gross loans, at September 30, 2020, compared to $2.8 million, or 0.27% of gross loans, at June 30, 2020, and $3.2 million, or 0.34% of gross loans, at September 30, 2019.

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

As of

September 30,

June 30,

March 31,

December 31,

September 30,

2020

2020

2020

2019

2019

Classified loans by loan type

(Dollars in thousands)

Commercial real estate

$

$

$

$

$

SBA loans—real estate

774

786

2,021

2,036

2,247

SBA loans—non-real estate

121

124

159

33

36

Commercial and industrial

1,207

1,211

686

697

710

Home mortgage

689

694

698

256

Consumer

Total classified loans

$

2,102

$

2,810

$

3,560

$

3,464

$

3,249

SBA guarantee balance retained

SBA loans—real estate

357

363

516

SBA loans—non-real estate

33

33

36

Total SBA unsold guarantee portion

$

$

$

390

$

396

$

552

Total classified loans, net of SBA guarantee balance retained

$

2,102

$

2,810

$

3,170

$

3,068

$

2,697

Loans in deferred status were 42 loans for an aggregate balance of $56.9 million, or 5% of total loans at September 30, 2020, compared to 155 loans for an aggregate balance of $190.9 million, or 18% of total loans at June 30, 2020. Since we started loan deferments under the CARES Act in the second quarter of 2020, 130 loans for an aggregate balance of $173.0 million have resumed regular payments or paid off through September 30, 2020.

The allowance for loan losses (ALL) was $14.2 million at September 30, 2020, compared to $12.8 million at June 30, 2020, and $9.6 million at September 30, 2019. The ALL was 1.32% of gross loans at September 30, 2020, 1.22% of gross loans at June 30, 2020 and 1.00% at September 30, 2019. Excluding fully guaranteed SBA PPP loans, the ALL was 1.40% of gross loans at September 30, 2020, 1.30% of gross loans at June 30, 2020, and 1.00% of gross loans at September 30, 2019. The ALL was 4,295% of nonperforming assets at September 30, 2020, 1,252% at June 30, 2020, and 285% at September 30, 2019.

About OP Bancorp

OP Bancorp, the holding company for Open Bank (the “Bank”), is a California corporation whose common stock is quoted on the Nasdaq Global Market under the ticker symbol, “OPBK.” The Bank is engaged in the general commercial banking business in Los Angeles, Orange, and Santa Clara Counties, California, and Carrollton, Texas and is focused on serving the banking needs of small- and medium-sized businesses, professionals, and residents with a particular emphasis on Korean and other ethnic minority communities. The Bank currently operates with nine full branch offices in Downtown Los Angeles, Los Angeles Fashion District, Los Angeles Koreatown, Gardena, Buena Park, and Santa Clara, California and Carrollton, Texas. The Bank also has four loan production offices in Atlanta, Georgia, Aurora, Colorado, and Lynnwood and Seattle, Washington. The Bank commenced its operations on June 10, 2005 as First Standard Bank and changed its name to Open Bank in October 2010. Its headquarters is located at 1000 Wilshire Blvd., Suite 500, Los Angeles, California 90017. Phone 213.892.9999; www.myopenbank.com Member FDIC, Equal Housing Lender.

Cautionary Note Regarding Forward-Looking Statements

Certain matters set forth herein (including any exhibits hereto) constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including forward-looking statements relating to the Company’s current business plans and expectations regarding future operating results. Forward-looking statements may include, but are not limited to, the use of forward-looking language, such as “likely result in,” “expects,” “anticipates,” “estimates,” “forecasts,” “projects,” “intends to,” or may include other similar words or phrases, such as “believes,” “plans,” “trend,” “objective,” “continues,” “remains,” or similar expressions, or future or conditional verbs, such as “will,” “would,” “should,” “could,” “may,” “might,” “can,” or similar verbs. These forward-looking statements are subject to risks and uncertainties that could cause actual results, performance or achievements to differ materially from those projected. These risks and uncertainties, some of which are beyond our control, include, but are not limited to: business and economic conditions, particularly those affecting the financial services industry and our primary market areas; our ability to successfully manage our credit risk and the sufficiency of our allowance for loan 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, 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; the rapidly changing 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; 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, 2019 and in our other subsequent filings with the Securities and Exchange Commission. The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this report. Because of these risks and other uncertainties, our actual future results, performance or achievement, or industry results, may be materially different from the results indicated by the forward looking statements in this report. In addition, our past results of operations are not necessarily indicative of our future results. You should not rely on any forward looking statements, which represent our beliefs, assumptions and estimates only as of the dates on which they were made, as predictions of future events. Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.

Consolidated Balance Sheet (unaudited)

(Dollars in thousands)

As of

09/30/2020

06/30/2020

% change

09/30/2019

% change

Assets

Cash and cash equivalents

$

87,983

$

112,217

-21.6

%

$

89,107

-1.3

%

Securities available for sale, at fair value

93,482

75,402

24.0

%

52,295

78.8

%

Other investments

10,002

9,987

0.2

%

9,173

9.0

%

Loans held for sale

41,430

8,795

371.1

%

368

11158.2

%

Real Estate Loans

640,281

637,295

0.5

%

594,447

7.7

%

SBA Loans

213,678

195,605

9.2

%

136,232

56.8

%

C & I Loans

91,814

88,375

3.9

%

107,730

-14.8

%

Home Mortgage Loans

125,656

120,597

4.2

%

123,092

2.1

%

Consumer & Other Loans

1,361

1,634

-16.7

%

2,869

-52.6

%

Gross loans, net of unearned income

1,072,790

1,043,506

2.8

%

964,370

11.2

%

Allowance for loan losses

(14,164

)

(12,764

)

11.0

%

(9,640

)

46.9

%

Net loans receivable

1,058,626

1,030,742

2.7

%

954,730

10.9

%

Premises and equipment, net

4,756

4,881

-2.6

%

5,367

-11.4

%

Accrued interest receivable

4,968

4,823

3.0

%

3,140

58.2

%

Servicing assets

7,222

6,972

3.6

%

6,959

3.8

%

Company owned life insurance

10,815

10,748

0.6

%

10,551

2.5

%

Deferred tax assets

3,911

3,535

10.6

%

2,358

65.9

%

Other real estate owned (OREO)

-

-

0.0

%

1,817

-100.0

%

Operating right-of-use assets

7,151

7,517

-4.9

%

8,606

-16.9

%

Other assets

9,475

12,392

-23.5

%

7,463

27.0

%

Total assets

$

1,339,821

$

1,288,011

4.0

%

$

1,151,934

16.3

%

Liabilities and Shareholders' Equity

Noninterest-bearing deposits

$

488,815

$

428,416

14.1

%

$

296,831

64.7

%

Savings

5,382

5,868

-8.3

%

3,316

62.3

%

Money market and others

334,599

293,165

14.1

%

274,698

21.8

%

Time deposits over $250,000

194,630

210,691

-7.6

%

219,547

-11.3

%

Other time deposits

146,738

182,580

-19.6

%

201,601

-27.2

%

Total deposits

1,170,164

1,120,720

4.4

%

995,993

17.5

%

Other borrowings

10,000

10,000

0.0

%

-

100.0

%

Accrued interest payable

1,355

1,964

-31.0

%

2,541

-46.7

%

Operating lease liabilities

8,857

9,282

-4.6

%

10,335

-14.3

%

Other liabilities

7,896

6,909

14.3

%

5,472

44.3

%

Total liabilities

1,198,272

1,148,875

4.3

%

1,014,341

18.1

%

Common stock

79,600

79,925

-0.4

%

87,085

-8.6

%

Additional paid-in capital

8,382

8,218

2.0

%

7,154

17.2

%

Retained earnings

52,590

50,056

5.1

%

43,086

22.1

%

Accumulated other comprehensive income

977

937

4.3

%

268

264.6

%

Total shareholders' equity

141,549

139,136

1.7

%

137,593

2.9

%

Total Liabilities and Shareholders' Equity

$

1,339,821

$

1,288,011

4.0

%

$

1,151,934

16.3

%

Consolidated Statements of Income (unaudited)

(Dollars in thousands, except per share data)

Three Months Ended

09/30/2020

06/30/2020

% change

09/30/2019

% change

Interest income

Interest and fees on loans

$

12,581

$

12,549

0.3

%

$

14,278

-11.9

%

Interest on securities available for sale

319

281

13.5

%

332

-3.9

%

Other interest income

116

90

28.9

%

502

-76.9

%

Total interest income

13,016

12,920

0.7

%

15,112

-13.9

%

Interest expense

Interest on deposits

1,597

2,272

-29.7

%

3,893

-59.0

%

Total interest expense

1,597

2,272

-29.7

%

3,893

-59.0

%

Net interest income

11,419

10,648

7.2

%

11,219

1.8

%

Provision for loan losses

1,399

1,988

-29.6

%

290

382.4

%

Net interest income after provision for loan losses

10,020

8,660

15.7

%

10,929

-8.3

%

Noninterest income

Service charges on deposits

251

230

9.1

%

391

-35.8

%

Loan servicing fees, net of amortization

583

514

13.4

%

243

139.9

%

Gain on sale of loans

1,813

936

93.7

%

1,714

5.8

%

Other income

374

382

-2.1

%

384

-2.6

%

Total noninterest income

3,021

2,062

46.5

%

2,732

10.6

%

Noninterest expense

Salaries and employee benefits

5,086

4,347

17.0

%

5,349

-4.9

%

Occupancy and equipment

1,266

1,241

2.0

%

1,232

2.8

%

Data processing and communication

424

414

2.4

%

385

10.1

%

Professional fees

287

276

4.0

%

261

10.0

%

FDIC insurance and regulatory assessments

112

117

-4.3

%

(21

)

-633.3

%

Promotion and advertising

81

163

-50.3

%

182

-55.5

%

Directors’ fees

147

223

-34.1

%

228

-35.5

%

Foundation donation and other contributions

360

245

46.9

%

402

-10.4

%

Other expenses

224

308

-27.3

%

406

-44.8

%

Total noninterest expense

7,987

7,334

8.9

%

8,424

-5.2

%

Income before income taxes

5,054

3,388

49.2

%

5,237

-3.5

%

Provision for income taxes

1,459

972

50.1

%

1,237

17.9

%

Net income

$

3,595

$

2,416

48.8

%

$

4,000

-10.1

%

Book value per share

$

9.36

$

9.23

1.4

%

$

8.76

6.8

%

Basic EPS

$

0.23

$

0.16

43.8

%

$

0.25

-8.0

%

Diluted EPS

$

0.23

$

0.16

43.8

%

$

0.24

-4.2

%

Shares of common stock outstanding

15,126,270

15,068,030

0.4

%

15,711,580

-3.7

%

Weighted Average Shares:

- Basic

15,148,833

15,072,423

0.5

%

15,768,654

-3.9

%

- Diluted

15,182,733

15,112,618

0.5

%

16,007,486

-5.2

%

Key Ratios

(Dollars in thousands, except ratios)

Three Months Ended

9/30/2020

6/30/2020

% change

9/30/2019

% change

Return on average assets (ROA)*

1.11

%

0.77

%

0.34

%

1.41

%

-0.30

%

Return on average equity (ROE) *

10.22

%

6.97

%

3.25

%

11.74

%

-1.52

%

Net interest margin *

3.66

%

3.55

%

0.11

%

4.13

%

-0.47

%

Efficiency ratio

55.31

%

57.70

%

-2.39

%

60.39

%

-5.08

%

Total risk-based capital ratio

14.93

%

15.16

%

-0.23

%

15.36

%

-0.43

%

Tier 1 risk-based capital ratio

13.67

%

13.91

%

-0.24

%

14.35

%

-0.68

%

Common equity tier 1 ratio

13.67

%

13.91

%

-0.24

%

14.35

%

-0.68

%

Leverage ratio

10.85

%

10.98

%

-0.13

%

12.11

%

-1.26

%

* Annualized

Consolidated Statements of Income (unaudited)

(Dollars in thousands, except per share data)

Nine Months Ended

09/30/2020

09/30/2019

% change

Interest income

Interest and fees on loans

$

38,823

$

41,725

-7.0

%

Interest on securities available for sale

920

1,019

-9.7

%

Other interest income

538

1,333

-59.6

%

Total interest income

40,281

44,077

-8.6

%

Interest expense

Interest on deposits

7,098

10,883

-34.8

%

Total interest expense

7,098

10,883

-34.8

%

Net interest income

33,183

33,194

0.0

%

Provision for loan losses

4,130

691

497.7

%

Net interest income after provision for loan losses

29,053

32,503

-10.6

%

Noninterest income

Service charges on deposits

849

1,252

-32.2

%

Loan servicing fees, net of amortization

1,489

853

74.6

%

Gain on sale of loans

3,904

4,379

-10.8

%

Other income

1,137

2,428

-53.2

%

Total noninterest income

7,379

8,912

-17.2

%

Noninterest expense

Salaries and employee benefits

14,505

15,862

-8.6

%

Occupancy and equipment

3,737

3,441

8.6

%

Data processing and communication

1,247

1,110

12.3

%

Professional fees

836

711

17.6

%

FDIC insurance and regulatory assessments

334

188

77.7

%

Promotion and advertising

405

543

-25.4

%

Directors’ fees

603

680

-11.3

%

Foundation donation and other contributions

935

1,169

-20.0

%

Other expenses

926

1,151

-19.5

%

Total noninterest expense

23,528

24,855

-5.3

%

Income before income taxes

12,904

16,560

-22.1

%

Provision for income taxes

3,594

3,984

-9.8

%

Net income

$

9,310

$

12,576

-26.0

%

Book value per share

$

9.36

$

8.76

6.8

%

Basic EPS

$

0.60

$

0.78

-23.1

%

Diluted EPS

$

0.60

$

0.77

-22.1

%

Shares of common stock outstanding

15,126,270

15,711,580

-3.7

%

Weighted Average Shares:

- Basic

15,235,617

15,756,886

-3.3

%

- Diluted

15,284,190

15,992,015

-4.4

%

Key Ratios

(Dollars in thousands, except ratios)

Nine Months Ended

9/30/2020

9/30/2019

% change

Return on average assets (ROA)*

1.00

%

1.54

%

-0.54

%

Return on average equity (ROE) *

8.88

%

12.55

%

-3.67

%

Net interest margin *

3.71

%

4.25

%

-0.54

%

Efficiency ratio

58.00

%

59.03

%

-1.03

%

Total risk-based capital ratio

14.93

%

15.36

%

-0.43

%

Tier 1 risk-based capital ratio

13.67

%

14.35

%

-0.68

%

Common equity tier 1 ratio

13.67

%

14.35

%

-0.68

%

Leverage ratio

10.85

%

12.11

%

-1.26

%

* Annualized

Asset Quality

(Dollars in thousands, except ratios)

Three Months Ended

9/30/2020

6/30/2020

3/31/2020

12/31/2019

9/30/2019

Nonaccrual Loans

$

-

$

689

$

1,203

$

1,215

$

1,234

Loans 90 days or more past due, accruing

-

-

-

-

-

Accruing restructured loans

330

330

330

333

336

Nonperforming loans

330

1,019

1,533

1,548

1,570

Other real estate owned (OREO)

-

-

-

-

1,817

Nonperforming assets

330

1,019

1,533

1,548

3,387

Classified loans

2,102

2,810

3,560

3,464

3,249

Nonperforming assets/total assets

0.02

%

0.08

%

0.13

%

0.13

%

0.29

%

Nonperforming assets/gross loans plus OREO

0.03

%

0.10

%

0.15

%

0.16

%

0.35

%

Nonperforming loans/gross loans

0.03

%

0.10

%

0.15

%

0.16

%

0.16

%

Allowance for loan losses/nonperforming loans

4295

%

1252

%

701

%

649

%

614

%

Allowance for loan losses/nonperforming assets

4295

%

1252

%

701

%

649

%

285

%

Allowance for loan losses/gross loans

1.32

%

1.22

%

1.08

%

1.02

%

1.00

%

Classified loans/gross loans

0.20

%

0.27

%

0.36

%

0.35

%

0.34

%

Net charge-offs(recoveries)

$

-

$

(28

)

$

45

$

(1

)

$

175

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

0.00

%

-0.01

%

0.02

%

0.00

%

0.07

%

* Annualized

Accruing delinquent loans 30-89 days past due

9/30/2020

6/30/2020

3/31/2020

12/31/2019

9/30/2019

30-59 days

$

600

$

565

$

1,788

$

3,899

$

2,580

60-89 days

-

-

2,277

126

580

Total

600

565

4,065

4,025

3,160

Average Balance Sheet, Interest and Yield/Rate Analysis

(Dollars in thousands)

Three Months Ended

September 30, 2020

June 30, 2020

September 30, 2019

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

$

93,827

$

116

0.49

%

$

100,083

$

90

0.36

%

$

78,216

$

502

2.52

%

Securities available for sale

84,869

319

1.50

60,544

281

1.86

54,472

332

2.44

Total investments

178,696

435

0.97

160,627

371

0.92

132,688

834

2.49

Real estate loans

630,255

7,461

4.71

638,359

7,500

4.73

573,102

7,978

5.52

SBA loans

219,183

2,719

4.94

190,042

2,615

5.53

144,439

3,213

8.83

C & I loans

89,103

847

3.78

93,633

920

3.95

102,311

1,489

5.77

Home Mortgage loans

122,222

1,531

5.01

119,998

1,476

4.92

123,336

1,546

5.01

Consumer & other loans

1,412

23

6.48

2,912

38

5.28

3,239

52

6.39

Loans (1)

1,062,175

12,581

4.72

1,044,944

12,549

4.83

946,427

14,278

5.99

Total interest-earning assets

1,240,871

13,016

4.18

1,205,571

12,920

4.31

1,079,115

15,112

5.56

Noninterest-earning assets

52,145

49,837

51,680

Total assets

$

1,293,016

$

1,255,408

$

1,130,795

Interest-bearing liabilities:

NOW and savings deposits

$

9,430

2

0.08

%

$

8,614

2

0.10

%

$

5,321

3

0.25

%

Money market deposits

289,512

392

0.54

296,327

481

0.65

275,259

1,295

1.87

Time deposits

364,928

1,203

1.31

426,645

1,789

1.69

420,922

2,595

2.45

Total interest-bearing deposits

663,870

1,597

0.96

731,586

2,272

1.25

701,502

3,893

2.20

Borrowings

10,001

-

-

3,959

-

-

120

-

0.00

Total interest-bearing liabilities

673,871

1,597

0.94

735,545

2,272

1.24

701,622

3,893

2.20

Noninterest-bearing liabilities:

Noninterest-bearing deposits

460,965

362,779

275,316

Other noninterest-bearing liabilities

17,507

18,362

17,628

Total noninterest-bearing liabilities

478,472

381,141

292,944

Shareholders’ equity

140,673

138,722

136,229

Total liabilities and shareholders’ equity

$

1,293,016

$

1,255,408

$

1,130,795

Net interest income / interest rate spreads

$

11,419

3.24

%

$

10,648

3.07

%

$

11,219

3.36

%

Net interest margin

3.66

%

3.55

%

4.13

%

Cost of deposits & cost of funds:

Total deposits / cost of deposits

$

1,124,835

$

1,597

0.56

%

$

1,094,365

$

2,272

0.83

%

$

976,818

$

3,893

1.58

%

Total funding liabilities / cost of funds

$

1,134,836

$

1,597

0.56

%

$

1,098,324

$

2,272

0.83

%

$

976,938

$

3,893

1.58

%

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

Average Balance Sheet, Interest and Yield/Rate Analysis

(Dollars in thousands)

Nine Months Ended

September 30, 2020

September 30, 2019

Average

Balance

Interest

and Fees

Yield/ Rate

Average

Balance

Interest

and Fees

Yield/ Rate

Interest-Earning assets:

Federal funds sold and other investments

$

90,733

$

538

0.78

%

$

65,911

$

1,332

2.67

%

Securities available for sale

66,752

920

1.84

54,190

1,019

2.51

Total investments

157,485

1,458

1.23

120,101

2,351

2.60

Real estate loans

634,178

23,159

4.88

551,663

22,964

5.57

SBA loans

182,842

8,001

5.85

137,663

9,209

8.94

C & I loans

94,455

3,044

4.30

104,405

4,641

5.94

Home Mortgage loans

121,332

4,521

4.97

125,788

4,770

5.06

Consumer & other loans

2,362

98

5.60

2,864

141

6.58

Loans (1)

1,035,169

38,823

5.01

922,383

41,725

6.05

Total interest-earning assets

1,192,654

40,281

4.51

1,042,484

44,076

5.65

Noninterest-earning assets

50,065

48,215

Total assets

$

1,242,719

$

1,090,699

Interest-bearing liabilities:

NOW and savings deposits

$

8,680

9

0.14

%

$

5,075

10

0.25

%

Money market deposits

291,676

1,826

0.84

269,446

3,751

1.86

Time deposits

407,625

5,263

1.72

396,701

7,122

2.40

Total interest-bearing deposits

707,981

7,098

1.34

671,222

10,883

2.17

Borrowings

4,688

-

0.00

41

-

0.00

Total interest-bearing liabilities

712,669

7,098

1.33

671,263

10,883

2.17

Noninterest-bearing liabilities:

Noninterest-bearing deposits

372,390

271,517

Other noninterest-bearing liabilities

17,929

14,317

Total noninterest-bearing liabilities

390,319

285,834

Shareholders’ equity

139,731

133,602

Total liabilities and shareholders’ equity

$

1,242,719

$

1,090,699

Net interest income / interest rate spreads

$

33,183

3.18

%

$

33,193

3.48

%

Net interest margin

3.71

%

4.25

%

Cost of deposits & cost of funds:

Total deposits / cost of deposits

$

1,080,371

$

7,098

0.88

%

$

942,739

$

10,883

1.54

%

Total funding liabilities / cost of funds

$

1,085,059

$

7,098

0.87

%

$

942,780

$

10,883

1.54

%

(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 September 30, 2020

Industry

Number of accounts

% of total

Balance

% of total

Real estate lessors

226

11.0

%

$

356,315

35.8

%

- Retail

91

4.4

154,921

15.6

- Industrial

45

2.2

91,728

9.2

- Mixed use

15

0.7

30,444

3.1

- Office

13

0.6

21,120

2.1

- Multifamily

8

0.4

5,682

0.6

- Other

54

2.6

52,420

5.3

Hotel / motel

194

9.4

159,911

16.1

Gas station

213

10.3

142,057

14.3

Wholesale

286

13.9

66,800

6.7

Food services / restaurant

284

13.8

40,461

4.1

Car washes

52

2.5

39,009

3.9

Laundry services

84

4.1

20,547

2.1

Church

23

1.1

14,048

1.4

Educational service

14

0.7

6,504

0.7

Other

684

33.2

149,845

15.1

Total

2,060

100.0

%

$

995,497

100.0

%

Loan Deferment Summary by Industry

As of September 30, 2020

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

Real estate lessors

6

25.0

%

2.7

%

$

7,097

14.5

%

2.0

%

- Retail

4

16.7

4.4

5,600

11.4

3.6

- Industrial

-

0.0

0.0

-

0.0

0.0

- Mixed use

-

0.0

0.0

-

0.0

0.0

- Office

-

0.0

0.0

-

0.0

0.0

- Multifamily

-

0.0

0.0

-

0.0

0.0

- Other

2

8.3

3.7

1,497

3.1

2.9

Hotel / motel

10

41.7

5.2

32,191

65.6

20.1

Gas station

-

0.0

0.0

-

0.0

0.0

Wholesale

-

0.0

0.0

-

0.0

0.0

Food services / restaurant

4

16.7

1.4

4,693

9.6

11.6

Car washes

2

8.3

3.8

3,954

8.1

10.1

Laundry services

1

4.2

1.2

329

0.7

1.6

Church

1

4.2

4.3

786

1.6

5.6

Educational service

-

0.0

0.0

-

0.0

0.0

Other

-

0.0

0.0

-

0.0

0.0

Total

24

100.0

%

1.2

%

$

49,050

100.0

%

4.9

%

* Number of accounts and balance information were as of September 30, 2020.

Loan Deferment Summary by Loan Type

As of September 30, 2020

(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

18

42.9

%

5.1

%

$

43,806

77.0

%

6.8

%

C & I loans

6

14.3

3.0

5,244

9.2

5.7

Loans, excluding home mortgage and consumer loans

24

57.1

1.2

49,050

86.2

4.9

Home Mortgage loans

18

42.9

5.7

7,862

13.8

6.3

Total

42

100.0

%

1.8

%

$

56,912

100.0

%

5.1

%

* Number of accounts and balance information were as of September 30, 2020.

Loan Deferment Status Change by Loan Type

Total deferments

Payment resumed

under the CARES Act

or paid off

Remaining deferments

(Dollars in thousands)

through September 30, 2020

through September 30, 2020

as of September 30, 2020

Loan Type

Number of accounts

Balance

Number of accounts

Balance

Number of accounts

Balance

Loans, excluding home mortgage and consumer loans

103

199,728

79

150,677

24

49,050

Home Mortgage loans

69

30,205

51

22,344

18

7,862

Total

172

$

229,933

130

$

173,021

42

$

56,912

Contacts:

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

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