OP Bancorp Exceeds Total Assets of $1 Billion in the Third Quarter of 2018

OP Bancorp (the Company) (NASDAQ: OPBK), the holding company of Open Bank (the Bank), today reported unaudited financial results for the third quarter and first nine months of 2018. Net income for the third quarter of 2018 was $3.5 million, or $0.21 per diluted common share, compared with net income of $3.8 million, or $0.23 per diluted share for the second quarter of 2018, and net income of $2.7 million, or $0.19 per diluted share for the third quarter of 2017.

We are happy to announce that our assets exceeded $1.0 billion for the first time in our history at September 30, 2018. During the third quarter, we experienced a strong deposit growth of 8.9% from the previous quarter in this challenging and competitive environment. Our loan growth continues to be solid while maintaining strong asset quality, commented Min Kim, President and Chief Executive Officer of OP Bancorp and Open Bank.

Financial Highlights (unaudited)

(Dollars in thousands, except per share data)

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As of or for the Three Months Ended
September 30,June 30,September 30,
201820182017
Income Statement Data:
Interest income$13,006$12,062$10,419
Interest expense2,5212,0751,211
Net interest income10,4859,9879,208
Provision for loan losses43933278
Noninterest income2,2842,7832,255
Noninterest expense7,7057,4786,744
Income before taxes4,6255,2594,441
Provision for income taxes1,1441,4681,713
Net Income$3,481$3,791$2,728
Diluted earnings per share$0.21$0.23$0.19
Balance Sheet Data:
Loans held for sale$3,254$8,718$12,893
Gross loans, net of unearned income850,018826,040736,058
Allowance for loan losses9,5519,7238,909
Total assets1,035,028979,441879,087
Deposits896,891823,373754,533
Shareholders equity124,975121,39389,478
Performance Ratios:
Return on average assets (annualized)1.42%1.61%1.31%
Return on average equity (annualized)11.28%12.70%12.35%
Net interest margin (annualized)4.44%4.46%4.68%
Efficiency ratio (1)60.34%58.56%58.83%
Credit Quality:
Nonperforming loans$1,233$990$734
Nonperforming assets1,233990734
Net charge-offs to average gross loans (annualized)0.29%0.01%-0.04%
Nonperforming assets to gross loans plus OREO0.15%0.12%0.10%
ALL to nonperforming loans775%982%1214%
ALL to gross loans1.12%1.18%1.21%
Capital Ratios:
Total risk-based capital ratio16.16%16.09%13.37%
Tier 1 risk-based capital ratio15.01%14.90%12.15%
Common equity tier 1 ratio15.01%14.90%12.15%
Leverage ratio12.77%12.91%10.77%
(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,
20182017
Income Statement Data:
Interest income$36,248$29,205
Interest expense6,2173,197
Net interest income30,03126,008
Provision for loan losses1,047989
Noninterest income7,2796,708
Noninterest expense21,99319,685
Income before taxes14,27012,042
Provision for income taxes3,7814,706
Net Income$10,489$7,336
Diluted earnings per share$0.66$0.52
Performance Ratios:
Return on average assets (annualized)1.48%1.22%
Return on average equity (annualized)12.43%11.45%
Net interest margin (annualized)4.49%4.58%
Efficiency ratio (1)58.94%60.17%
(1)Represents noninterest expense divided by the sum of net interest income and noninterest income.

Results of Operations

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

Three Months Ended
September 30,June 30,September 30,
201820182017
(Dollars in thousands)InterestInterestInterest
& FeesYield& FeesYield& FeesYield
Contractual interest rate$11,8205.46%$11,0325.33%$9,2965.12%
SBA discount accretion6110.28%4810.23%5920.33%
Amortization of net deferred fees/(costs)650.03%980.05%690.04%
Interest recognized on nonaccrual loans(8)0.00%90.00%1130.06%
Prepayment penalties and late fees360.02%500.02%410.02%
Yield on loans (as reported)$12,5245.79%$11,6705.64%$10,1115.57%
Nine Months Ended
September 30, 2018September 30, 2017
(Dollars in thousands)Interest &Interest &
FeesYieldFeesYield
Contractual interest rate$33,0165.34%$26,2995.02%
SBA discount accretion1,6600.27%1,6480.31%
Amortization of net deferred fees/(costs)2150.03%1780.03%
Interest recognized on nonaccrual loans210.00%1850.04%
Prepayment penalties and late fees1300.02%680.01%
Yield on loans (as reported)$35,0425.67%$28,3785.42%

Net interest income before provision for loan losses for the third quarter of 2018 was $10.5 million, an increase of $498 thousand, or 5.0%, compared to $10.0 million for the second quarter of 2018, primarily due to a $944 thousand increase in interest income, partially offset by a $446 thousand increase in interest expense.

Interest income from the contractual interest rates on loans increased $788 thousand, or 7.1%, during the third quarter compared to the second quarter of 2018, reflecting a 3.5% increase in average loans, including loans held for sale, and a 13 basis point increase in the average contractual interest rate from the increase in Fed funds rate in June 2018 of 25 basis points. The amount of discount accretion on SBA loans increased $130 thousand during the third quarter due to an increase in SBA loan payoffs. The reported interest income on loans, net of SBA discount accretions and other components, increased $854 thousand during the quarter.

Interest expense for the third quarter of 2018 increased $446 thousand, or 21.5%, compared to the second quarter of 2018, due to an increase of $30.8 million, or 5.5% in average balance of interest-bearing liabilities and an increase of 21 basis points in average cost of interest-bearing liabilities, primarily due to the aforementioned increase in Fed funds rate.

Net interest margin for the third quarter of 2018 decreased 2 basis points to 4.44% from 4.46% for the second quarter of 2018, primarily due to the increase in the cost of interest-bearing liabilities, partially offset by the increase in the reported yield on loans.

Net interest income before provision for loan losses for the third quarter of 2018 increased $1.3 million, or 13.9%, to $10.5 million, compared to $9.2 million for the third quarter of 2017, primarily due to a $2.6 million increase in interest income, partially offset by an increase of $1.3 million in interest expense.

The increase in interest income was primarily due to a 19.2% increase in average loans, including loans held for sale, and a 22 basis point increase in the yield on average loans to 5.79% for the third quarter of 2018 from 5.57% for the third quarter of 2017.

The increase in interest expense in the third quarter of 2018 compared to the third quarter of 2017 was due to a 24.9% increase in average interest-bearing liabilities and a 68 basis point increase in the cost of interest-bearing liabilities. The increases in the average yields on loans and average cost of deposits were primarily due to cumulative market rate increases by the Federal Reserve of 75 basis points through three rate hikes of 25 basis points in each of December 2017, March 2018 and June 2018.

Net interest margin for the third quarter of 2018 decreased 24 basis points to 4.44% from 4.68% for the third quarter of 2017.

Net interest income for the nine months ended September 30, 2018 increased $4.0 million, or 15.5%, to $30.0 million, compared to $26.0 million for the same period last year, primarily due to a $7.0 million increase in interest income, partially offset by an increase of $3.0 million in interest expense.

The increase in interest income for the nine months ended September 30, 2018 was primarily due to a 18.0% increase in average loans, including loans held for sale, and a 25 basis point increase in the yield on average loans to 5.67% from 5.42% for the nine months ended September 30, 2017. The increase in interest expense was due to a 22.8% increase in average interest-bearing liabilities and a 55 basis point increase in the cost of average interest-bearing liabilities to 1.48% for the nine months ended September 30, 2018 from 0.93% for the same period last year.

Net interest margin for the nine months ended September 30, 2018 decreased 9 basis points to 4.49% from 4.58% for the nine months ended September 30, 2017.

The following table shows the asset yields, liability costs, spreads and margins.

Three Months EndedPercentage Change
September 30,June 30,September 30,Q3-18Q3-18
201820182017vs. Q2-18vs. Q3-17
Yield on loans5.79%5.64%5.57%0.15%0.22%
Yield on interest-earning assets5.51%5.39%5.29%0.12%0.22%
Cost of interest-bearing liabilities1.69%1.48%1.01%0.21%0.68%
Cost of deposits1.17%1.02%0.64%0.15%0.53%
Cost of funds1.18%1.02%0.65%0.16%0.53%
Net interest spread3.82%3.91%4.28%-0.09%-0.46%
Net interest margin4.44%4.46%4.68%-0.02%-0.24%
Percentage
Nine Months EndedChange
September 30,September 30,2018 YTD
20182017vs. 2017 YTD
Yield on loans5.67%5.42%0.25%
Yield on interest-earning assets5.41%5.14%0.27%
Cost of interest-bearing liabilities1.48%0.93%0.55%
Cost of deposits1.00%0.60%0.40%
Cost of funds1.01%0.60%0.41%
Net interest spread3.94%4.21%-0.27%
Net interest margin4.49%4.58%-0.09%

The provision for loan losses for the third quarter of 2018 increased $406 thousand to $439 thousand, compared to $33 thousand for the second quarter of 2018, primarily due to an increase in the loan portfolio and the change in historical loss factors (including a charge off of $566 thousand in one C&I loan relationship). The provision for loan losses for the third quarter of 2018 increased $161 thousand compared to $278 thousand for the third quarter of 2017, primarily due to an increase in the loan portfolio.

Noninterest income for the third quarter of 2018 was $2.3 million, a decrease of $499 thousand, or 17.9%, from $2.8 million for the second quarter of 2018, primarily due to a decrease of $593 thousand in gain on sale of SBA loans, partially offset by an increase of $86 thousand in service charges on deposits.

Gain on sale of SBA loans decreased $593 thousand to $1.1 million for the third quarter of 2018 from $1.7 million for the second quarter of 2018. We sold $22.8 million in SBA loans with an average premium of 6.47% in the third quarter of 2018, compared to the sale of $24.8 million in SBA loans with an average premium of 8.60% in the second quarter of 2018. The significant decrease in average premium in the secondary market was primarily due to faster prepayment speed in SBA loans as more borrowers are refinancing SBA loans to conventional loans with lower interest rates, which in turn shortens investors duration and reducing investment value.

Noninterest income for the third quarter of 2018 increased $29 thousand compared to $2.3 million for the third quarter of 2017, primarily due to an increase of $90 thousand in service charges on deposit accounts, partially offset by a decrease of $56 thousand in gain on sale of SBA loans. Gain on sale of SBA loans for the third quarter of 2017 was $1.2 million. We sold $15.0 million in SBA loans with an average premium of 9.97% in the third quarter of 2017.

Noninterest expense for the third quarter of 2018 was $7.7 million, an increase of $227 thousand, or 3.0%, compared to $7.5 million for the second quarter of 2018. The increase was primarily due to a $188 thousand increase in salary and employee benefits and a $128 thousand increase in professional fees, partially offset by a decrease of $88 thousand in occupancy and equipment expenses. The increase in salary and employee benefits was primarily due to an increase in employee headcount to support the continued growth of the Company. The employee headcount increased to 157 at September 30, 2018 from 138 at June 30, 2018. The increase in professional fees was due to increased expense related to other corporate matters during the quarter.

Noninterest expense for the third quarter of 2018 increased $961 thousand, or 14.2%, to $7.7 million, compared to $6.7 million for the third quarter of 2017. The increase was primarily due to a $539 thousand increase in salary and employee benefits, consisted of an increase of 25 person in employee headcount from 132 at September 30,2017. Professional fees were increased of $145 thousand and other expenses were increased of $129 thousand, which were in line with the growth of the Company.

Noninterest expense for the third quarter of 2018 increased $961 thousand, or 14.2%, to $7.7 million, compared to $6.7 million for the third quarter of 2017. The increase was primarily due to a $539 thousand increase in salary and employee benefits, a $145 thousand increase in professional fees, and a $129 thousand increase in other expense, which were in line with the growth of the Company. The employee headcount increased by 25 to 157 from 132 at September 30, 2017.

Income tax provision for the third quarter of 2018 was $1.1 million, compared to $1.5 million for the second quarter of 2018 and $1.7 million for the third quarter of 2017. The effective tax rate for the third quarter of 2018 was 24.7%, compared to 27.9% for the second quarter of 2018 and 38.6% for the third quarter of 2017. The decrease in the effective tax rate in the third quarter of 2018 compared to the second quarter of 2018 was due to additional tax benefits from vesting of restricted stock units during the quarter. The effective tax rates were 26.5% and 39.1% for the nine months ended September 30, 2018 and 2017, respectively. The significant decrease in the effective tax rate was due to the enactment the Tax Cuts and Jobs Act signed into law on December 22, 2017.

Balance Sheet

Total assets were $1.0 billion at September 30, 2018, an increase of $55.6 million, or 5.7%, from $979.4 million at June 30, 2018, and an increase of $156.0 million, or 17.7%, from $879.1 million at September 30, 2017. Gross loans, net of unearned income, were $850.0 million at September 30, 2018, an increase of $24.0 million, or 2.9%, from $826.0 million at June 30, 2018, and an increase of $114.0 million, or 15.5%, from $736.1 million at September 30, 2017.

New loan originations for the third quarter of 2018 totaled $91.1 million, including SBA loan originations of $30.3 million, compared to $92.0 million, including SBA loan originations of $29.3 million for the second quarter of 2018. New loan originations for the third quarter of 2017 were $87.5 million, including SBA loan originations of $34.6 million. Loan payoffs for the third quarter of 2018 were $29.3 million, compared to $30.1 million for the second quarter of 2018, and $28.2 million for the third quarter of 2017.

Total deposits were $896.9 million at September 30, 2018, an increase of $73.5 million, or 8.9%, from $823.4 million at June 30, 2018, and an increase of $142.4 million, or 18.9%, from $754.5 million at September 30, 2017. Noninterest bearing deposits were $286.3 million at September 30, 2018, an increase of $16.2 million, or 6.0%, from $270.1 million at June 30, 2018, and a decrease of $2.8 million, or 1.0%, from $289.2 million at September 30, 2017.

Noninterest bearing deposits accounted for 31.9% of total deposits at September 30, 2018, compared to 32.8% at June 30, 2018 and 38.3% at September 30, 2017.

As of
September 30,June 30,September 30,
201820182017
Noninterest bearing deposits31.9%32.8%38.3%
Interest bearing demand deposits28.3%29.7%34.6%
Savings0.4%0.4%0.5%
Time deposits over $250,00017.6%17.2%12.8%
Other time deposits21.8%19.9%13.8%
Total deposits100.0%100.0%100.0%

The Company had no borrowings from the Federal Home Loan Bank (FHLB) at September 30, 2018, compared to the advances from the FHLB of $25 million at June 30, 2018 and September 30, 2017. The payoff advances from the FHLB were funded by the increase in total deposits.

The Companys consolidated regulatory capital ratios exceeded regulatory guidelines and the Banks capital ratios exceeded the regulatory guidelines for a well-capitalized financial institution under the Basel III regulatory requirements at September 30, 2018, as summarized in the following table.

Well-capitalizedFully Phased-in
FinancialBasel III
InstitutionMinimal
Basel IIIRequirements (1)
RegulatoryEffective
Capital RatiosOP BancorpOpen BankGuidelinesJanuary 1, 2019
Total risk-based16.16%16.15%10.00%10.50%
Tier 1 risk-based15.01%15.00%8.00%8.50%
Common equity tier 1 Risk-Based15.01%15.00%6.50%7.00%
Leverage12.77%12.76%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.

Asset Quality

Nonperforming loans were $1.2 million at September 30, 2018, an increase of $243 thousand from $990 thousand at June 30, 2018 and an increase of $499 thousand from $734 thousand at September 30, 2017.

Nonperforming assets were $1.2 million, or 0.12% of total assets, at September 30, 2018, $990 thousand, or 0.10% of total assets, at June 30, 2018 and $734 thousand, or 0.08% of total assets, at September 30, 2017. There was no other real estate owned (OREO) at September 30, 2018, June 30, 2018, or September 30, 2017.

Nonperforming loans to gross loans were 0.15% at September 30, 2018, compared to 0.12% at June 30, 2018 and 0.10% at September 30, 2017. Total classified loans were $3.0 million, or 0.35% of gross loans, at September 30, 2018, compared to $3.1 million, or 0.37% of gross loans, at June 30, 2018 and $2.1 million, or 0.29% of gross loans, at September 30, 2017.

The allowance for loan losses was $9.6 million at September 30, 2018, compared to $9.7 million at June 30, 2018 and $8.9 million at September 30, 2017. The allowance for loan losses was 1.12% of gross loans at September 30, 2018, 1.18% at June 30, 2018 and 1.21% at September 30, 2017. The allowance for loan losses was 775% of nonperforming assets at September 30, 2018, 982% at June 30, 2018 and 1,214% at September 30, 2017.

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 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 eight full branch offices in Downtown Los Angeles, Los Angeles Fashion District, Los Angeles Koreatown, Gardena, Buena Park, and Santa Clara. The Bank also has three loan production offices in Seattle, Washington; Dallas, Texas; and Atlanta, Georgia. 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 Companys current business plans and expectations regarding future operating results. Forward-looking statements may include, but are not limited to, the use of forward-looking language, such as likely result in, expects, anticipates, estimates, forecasts, projects, intends to, or may include other similar words or phrases, such as believes, plans, trend, objective, continues, remains, or similar expressions, or future or conditional verbs, such as will, would, should, could, may, might, can, or similar verbs. These forward-looking statements are subject to risks and uncertainties that could cause actual results, performance or achievements to differ materially from those projected. These risks and uncertainties, some of which are beyond our control, include, but are not limited to: business and economic conditions, particularly those affecting the financial services industry and our primary market areas; our ability to successfully manage our credit risk and the sufficiency of our allowance for loan loss; factors that can impact the performance of our loan portfolio, including real estate values and liquidity in our primary market areas, the financial health of our commercial borrowers and the success of construction projects that we finance, 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 the 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; 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 Companys public reports including its Registration Statement on Form S-1 effective as of March 27, 2018, and particularly the discussion of risk factors within that document. If any of these risks or uncertainties materializes or if any of the assumptions underlying such forward-looking statements proves to be incorrect, our results could differ materially from those expressed in, implied or projected by such forward-looking statements. We assume no obligation to update such forward-looking statements. Any forward-looking statements presented herein are made only as of the date of this press release, and we do not undertake any obligation to update or revise any forward-looking statements to reflect changes in assumptions, the occurrence of unanticipated events, or otherwise, except as required by law.

Consolidated Balance Sheet (unaudited)
(Dollars in thousands)
9/30/20186/30/2018% change9/30/2017% change
Assets
Cash and due from banks$95,787$61,25256.4%$53,96177.5%
Securities available for sale, at fair value46,32445,0062.9%43,5786.3%
Other investments7,2217,226-0.1%4,28668.5%
Loans held for sale3,2548,718-62.7%12,893-74.8%
Real Estate Loans489,828465,1255.3%405,45320.8%
SBA Loans132,505125,3785.7%116,68013.6%
C & I Loans104,301117,353-11.1%107,476-3.0%
Home Mortgage Loans120,262114,7104.8%102,28317.6%
Consumer & Other Loans3,1223,474-10.1%4,166-25.1%
Gross loans, net of unearned income850,018826,0402.9%736,05815.5%
Allowance for loan losses(9,551)(9,723)-1.8%(8,909)7.2%
Net loans receivable840,467816,3173.0%727,14915.6%
Premises and equipment, net4,7574,818-1.3%4,4427.1%
Accrued interest receivable2,7832,5987.1%2,18227.5%
Servicing assets7,0976,9941.5%6,9572.0%
Company owned life insurance11,32111,2430.7%11,0122.8%
Deferred tax assets4,2574,2390.4%4,2141.0%
Other assets11,76011,0306.6%8,41339.8%
Total assets$1,035,028$979,4415.7%$879,08717.7%
Liabilities and Shareholders’ Equity
Noninterest bearing deposits$286,347$270,1446.0%$289,154-1.0%
Savings3,2403,0974.6%3,809-14.9%
Money market and others253,807244,6203.8%260,930-2.7%
Time deposits over $250,000157,687141,82311.2%96,64263.2%
Other time deposits195,810163,68919.6%103,99888.3%
Total deposits896,891823,3738.9%754,53318.9%
Other borrowings25,000-100.0%25,000-100.0%
Accrued interest payable1,19687337.0%377217.2%
Other liabilities11,9668,80235.9%9,69923.4%
Total liabilities910,053858,0486.1%789,60915.3%
Common stock91,00990,8940.1%67,82934.2%
Additional paid-in capital5,8865,7202.9%5,04316.7%
Retained earnings29,11325,63113.6%16,72474.1%
Accumulated other comprehensive loss(1,033)(852)21.2%(118)775.4%
Total shareholders’ equity124,975121,3933.0%89,47839.7%
Total Liabilities and Shareholders’ Equity$1,035,028$979,4415.7%$879,08717.7%

Consolidated Statements of Income (unaudited)

(Dollars in thousands, except per share data)

Three Months Ended
9/30/20186/30/2018% change9/30/2017% change
Interest income
Interest and fees on loans$12,524$11,6707.3%$10,11123.9%
Interest on securities available for sale24920819.7%18633.9%
Other interest income23318426.6%12291.0%
Total interest income13,00612,0627.8%10,41924.8%
Interest expense
Interest on deposits2,4772,06020.2%1,154114.6%
Interest on borrowed funds4415193.3%57-22.8%
Total interest expense2,5212,07521.5%1,211108.2%
Net interest income10,4859,9875.0%9,20813.9%
Provision for loan losses439331230.3%27857.9%
Net interest income after provision for loan losses10,0469,9540.9%8,93012.5%
Noninterest income
Service charges on deposits48439821.6%39422.8%
Loan servicing fees, net of amortization310372-16.7%318-2.5%
Gain on sale of loans1,1351,728-34.3%1,192-4.8%
Other income35528524.6%3511.1%
Total noninterest income2,2842,783-17.9%2,2551.3%
Noninterest expense
Salaries and employee benefits4,8034,6154.1%4,26412.6%
Occupancy and equipment9761,064-8.3%986-1.0%
Data processing and communication3202977.7%331-3.3%
Professional fees29416677.1%14997.3%
FDIC insurance and regulatory assessments1061041.9%1015.0%
Promotion and advertising222231-3.9%15741.4%
Directors fees2162093.3%2026.9%
Foundation donation and other contributions369386-4.4%28429.9%
Other expenses399406-1.7%27047.8%
Total noninterest expense7,7057,4783.0%6,74414.2%
Income before income taxes4,6255,259-12.1%4,4414.1%
Provision for income taxes1,1441,468-22.1%1,713-33.2%
Net income (loss)$3,481$3,791-8.2%$2,72827.6%
Book value per share$7.92$7.771.9%$6.8016.5%
Basic EPS$0.22$0.24-8.3%$0.2010.0%
Diluted EPS$0.21$0.23-8.7%$0.1910.5%
Shares of common stock outstanding15,770,57615,629,2150.9%13,162,73219.8%
Weighted Average Shares:
– Basic15,714,22615,577,7720.9%13,132,23719.7%
– Diluted16,234,92616,110,4570.8%13,560,14019.7%

Key Ratios

(Dollars in thousands, except ratios)

Three Months Ended
9/30/20186/30/2018% change9/30/2017% change
Return on average assets (ROA)*1.42%1.61%-0.19%1.31%0.11%
Return on average equity (ROE) *11.28%12.70%-1.42%12.35%-1.07%
Net interest margin *4.44%4.46%-0.02%4.68%-0.24%
Efficiency ratio60.34%58.56%1.78%58.83%1.51%
Total Risk Based Capital Ratio16.16%16.09%0.07%13.37%2.79%
Tier 1 Capital Ratio15.01%14.90%0.11%12.15%2.86%
Common Equity Tier 1 Ratio15.01%14.90%0.11%12.15%2.86%
Tier 1 Leverage Ratio12.77%12.91%-0.14%10.77%2.00%
* Annualized

Consolidated Statements of Income (unaudited)

(Dollars in thousands, except per share data)

Nine Months Ended
9/30/20189/30/2017% change
Interest income
Interest and fees on loans$35,042$28,37823.5%
Interest on securities available for sale64547635.5%
Other interest income56135159.8%
Total interest income36,24829,20524.1%
Interest expense
Interest on deposits6,0713,12694.2%
Interest on borrowed funds14671105.6%
Total interest expense6,2173,19794.5%
Net interest income30,03126,00815.5%
Provision for loan losses1,0479895.9%
Net interest income after provision for loan losses28,98425,01915.8%
Noninterest income
Service charges on deposits1,4191,20118.2%
Loan servicing fees, net of amortization1,0061,058-4.9%
Gain on sale of loans3,8523,5378.9%
Other income1,0029129.9%
Total noninterest income7,2796,7088.5%
Noninterest expense
Salaries and employee benefits13,62912,4129.8%
Occupancy and equipment3,0652,9195.0%
Data processing and communication948997-4.9%
Professional fees61243540.7%
FDIC insurance and regulatory assessments3063011.7%
Promotion and advertising59845830.6%
Directors fees6335985.9%
Foundation donation and other contributions1,08475244.1%
Other expenses1,11881337.5%
Total noninterest expense21,99319,68511.7%
Income before income taxes14,27012,04218.5%
Provision for income taxes3,7814,706-19.7%
Net income (loss)$10,489$7,33643.0%
Book value per share$7.92$6.8016.5%
Basic EPS$0.68$0.5425.9%
Diluted EPS$0.66$0.5226.9%
Shares of common stock outstanding15,770,57613,162,73219.8%
Weighted Average Shares:
– Basic14,870,23213,023,14514.2%
– Diluted15,376,98213,432,74614.5%

Key Ratios

(Dollars in thousands, except ratios)

Nine Months Ended
9/30/20189/30/2017% change
Return on average assets (ROA)*1.48%1.22%0.26%
Return on average equity (ROE) *12.43%11.45%0.98%
Net interest margin *4.49%4.58%-0.09%
Efficiency ratio58.95%60.17%-1.22%
Total Risk Based Capital Ratio16.16%13.37%2.79%
Tier 1 Capital Ratio15.01%12.15%2.86%
Common Equity Tier 1 Ratio15.01%12.15%2.86%
Tier 1 Leverage Ratio12.77%10.77%2.00%
* Annualized

Asset Quality

(Dollars in thousands, except ratios)

Three Months Ended
9/30/20186/30/20183/31/201812/31/20179/30/2017
Nonaccrual Loans$888$642$241$683$377
Loans 90 days or more past due, accruing
Accruing restructured loans345348351354357
Nonperforming loans1,2339905921,037734
Other real estate loans (OREO)
Nonperforming assets1,2339905921,037734
Classified loans2,9653,0653,3562,0882,138
Nonperforming assets/total assets0.12%0.10%0.06%0.12%0.08%
Nonperforming assets/gross loans plus OREO0.15%0.12%0.07%0.14%0.10%
Nonperforming loans/gross loans0.15%0.12%0.07%0.14%0.10%
Allowance for loan losses/nonperforming loans775%982%1641%881%1214%
Allowance for loan losses/nonperforming assets775%982%1641%881%1214%
Allowance for loan losses/gross loans1.12%1.18%1.22%1.22%1.21%
Classified loans/gross loans0.35%0.37%0.43%0.28%0.29%
Net charge-offs$611$26$(2)$92$(75)
Net charge-offs to average gross loans *0.29%0.01%0.00%0.05%-0.04%
* Annualized
Average Balance Sheet, Interest and Yield/Rate Analysis

(Dollars in thousands)

Three Months Ended
September 30, 2018June 30, 2018September 30, 2017
AverageInterestYield/AverageInterestYield/AverageInterestYield/
Balanceand FeesRateBalanceand FeesRateBalanceand FeesRate
Earning assets:
Federal funds sold and other investments$34,216$2332.68%$26,857$1842.72%$21,119$1222.30%
Securities available for sale44,4412492.2440,3722082.0639,6471861.87
Total investments78,6574822.4367,2293922.3360,7663082.02
Real estate483,6256,4725.31464,8996,0085.18391,8324,8734.93
SBA146,2592,9788.08143,6042,7147.58126,8182,4297.60
C & I106,6541,5105.62107,5461,4735.4996,0161,3945.76
Home Mortgage119,3461,5155.08110,4761,4255.16102,0021,3255.20
Consumer3,373495.753,608505.564,212908.46
Loans (1)859,25712,5245.79830,13311,6705.64720,88010,1115.57
Total earning assets937,91413,0065.51897,36212,0625.39781,64610,4195.29
Noninterest-earning assets45,91346,97048,245
Total assets$983,827$944,332$829,891
Interest-bearing liabilities:
NOW and savings deposits$5,92940.25%$6,61540.24%$6,61740.25%
Money market deposits254,5109481.48253,1628041.27256,2055990.93
Time deposits323,5121,5251.87298,5351,2521.68192,1735511.14
Total interest-bearing deposits583,9512,4771.68558,3122,0601.48454,9951,1541.01
Borrowings8,300442.093,132151.9219,359571.17
Total interest-bearing liabilities592,2512,5211.69561,4442,0751.48474,3541,2111.01
Noninterest-bearing liabilities:
Noninterest-bearing deposits258,252254,700260,863
Other noninterest-bearing liabilities9,8178,8146,301
Total noninterest-bearing liabilities268,069263,514267,164
Shareholders equity123,507119,37488,373
Total liabilities and shareholders equity$983,827$944,332$829,891
Net interest income / interest rate spreads$10,4853.82%$9,9873.91%$9,2084.28%
Net interest margin4.44%4.46%4.68%
Cost of deposits & cost of funds:
Total deposits / cost of deposits$842,203$2,4771.17%$813,012$2,0601.02%$715,858$1,1540.64%
Total funding liabilities / cost of funds$850,503$2,5211.18%$816,144$2,0751.02%$735,217$1,2110.65%
(1) Includes loans held for sale.
Average Balance Sheet, Interest and Yield/Rate Analysis

(Dollars in thousands)

Nine Months Ended
September 30, 2018September 30, 2017
AverageInterestYield/AverageInterestYield/
Balanceand FeesRateBalanceand FeesRate
Earning assets:
Federal funds sold and other investments$27,699$5612.69%$23,088$3512.02%
Securities available for sale41,0306452.1035,8894761.77
Total investments68,7291,2062.3358,9778271.87
Real estate464,39418,0165.19373,42513,5114.84
SBA141,6418,2427.78120,0296,6237.38
C & I104,8194,3485.5598,5724,0065.43
Home Mortgage111,4144,2865.13103,4154,0235.19
Consumer3,5361505.674,5042156.40
Loans (1)825,80435,0425.67699,94528,3785.42
Total earning assets894,53336,2485.41758,92229,2055.14
Noninterest-earning assets48,30042,847
Total assets$942,833$801,769
Interest-bearing liabilities:
NOW and savings deposits$6,314120.24%$6,013110.25%
Money market deposits256,1712,4601.28254,7641,6890.89
Time deposits288,8413,5991.67188,9111,4261.01
Total interest-bearing deposits551,3266,0711.47449,6883,1260.93
Borrowings11,6801461.678,854711.07
Total interest-bearing liabilities563,0066,2171.48458,5423,1970.93
Noninterest-bearing liabilities:
Noninterest-bearing deposits257,717252,080
Other noninterest-bearing liabilities9,6035,699
Total noninterest-bearing liabilities267,320257,779
Shareholders equity112,50785,448
Total liabilities and shareholders equity$942,833$801,769
Net interest income / interest rate spreads$30,0313.93%$26,0084.21%
Net interest margin4.49%4.58%
Cost of deposits & cost of funds:
Total deposits / cost of deposits$809,043$6,0711.00%$701,768$3,1260.60%
Total funding liabilities / cost of funds$820,723$6,2171.01%$710,622$3,1970.60%
(1) Includes loans held for sale.

Investor Relations:
OP Bancorp
Christine Oh
EVP & CFO
213.892.1192
[email protected]