LOS ANGELES--(BUSINESS WIRE)--OP Bancorp (the "Company") (NASDAQ: OPBK), the holding company of Open Bank, today reported its financial results for the first quarter of 2023. Net income for the first quarter of 2023 was $7.5 million, or $0.48 per diluted common share, compared with $8.0 million, or $0.51 per diluted common share, for the fourth quarter of 2022, and $8.2 million, or $0.53 per diluted common share, for the first quarter of 2022.
Min Kim, President and Chief Executive Officer:
"With the unexpected recent turmoil in the banking industry, we have focused our effort on connecting with our customers to reassure them that the Company maintains strong liquidity and capital positions to withstand challenges in these unusual times," said Min Kim, President and Chief Executive.
"Although we have experienced migration from noninterest bearing to interest bearing deposits amid higher rate environment, we did not have much outflow during the quarter. We are grateful for our customers' loyalty and the trust that they have in us. As we continue to face many headwinds, we anticipate stress on our short-term earnings. However, we believe we are well positioned to build a stronger franchise as we remain focused in maintaining the safety and soundness of our operations."
SELECTED FINANCIAL HIGHLIGHTS | ||||||||||||||||||
($ in thousands, except per share data) | As of and For the Three Months Ended | % Change 1Q23 vs. | ||||||||||||||||
1Q2023 | 4Q2022 | 1Q2022 | 4Q2022 | 1Q2022 | ||||||||||||||
Selected Income Statement Data: | ||||||||||||||||||
Net interest income | $ | 17,892 | $ | 20,198 | $ | 17,290 | (11.4 | ) % | 3.5 | % | ||||||||
(Reversal of) provision for credit losses | (338 | ) | 977 | 341 | n/m | n/m | ||||||||||||
Noninterest income | 4,295 | 3,223 | 4,216 | 33.3 | 1.9 | |||||||||||||
Noninterest expense | 11,908 | 11,327 | 9,662 | 5.1 | 23.2 | |||||||||||||
Income tax expense | 3,083 | 3,089 | 3,351 | (0.2 | ) | (8.0 | ) | |||||||||||
Net Income | 7,534 | 8,028 | 8,152 | (6.2 | ) | (7.6 | ) | |||||||||||
Diluted earnings per share | 0.48 | 0.51 | 0.53 | (5.9 | ) | (9.4 | ) | |||||||||||
Selected Balance Sheet Data: | ||||||||||||||||||
Gross loans | $ | 1,692,485 | $ | 1,678,292 | $ | 1,428,410 | 0.8 | % | 18.5 | % | ||||||||
Total deposits | 1,904,818 | 1,885,771 | 1,672,003 | 1.0 | 13.9 | |||||||||||||
Total assets | 2,170,450 | 2,094,497 | 1,863,945 | 3.6 | 16.4 | |||||||||||||
Average loans (1) | 1,725,392 | 1,691,642 | 1,444,054 | 2.0 | 19.5 | |||||||||||||
Average deposits | 1,867,684 | 1,836,736 | 1,570,376 | 1.7 | 18.9 | |||||||||||||
Credit Quality: | ||||||||||||||||||
Nonperforming loans | $ | 4,358 | $ | 3,080 | $ | 2,806 | 41.5 | % | 55.3 | % | ||||||||
Net charge-offs to average gross loans (2) | 0.02 | % | 0.03 | % | 0.00 | % | (0.01 | ) % | 0.02 | % | ||||||||
Allowance for credit losses to gross loans | 1.23 | % | 1.15 | % | 1.17 | % | 0.08 | % | 0.06 | % | ||||||||
Allowance for credit losses to nonperforming loans | 478 | % | 625 | % | 594 | % | (147 | ) % | (116 | ) % | ||||||||
Financial Ratios: | ||||||||||||||||||
Return on average assets (2) | 1.43 | % | 1.56 | % | 1.85 | % | (0.13 | ) % | (0.42 | ) % | ||||||||
Return on average equity (2) | 16.82 | % | 18.58 | % | 19.54 | % | (1.76 | ) % | (2.72 | ) % | ||||||||
Net interest margin (2) | 3.56 | % | 4.08 | % | 4.12 | % | (0.52 | ) % | (0.56 | ) % | ||||||||
Efficiency ratio (3) | 53.67 | % | 48.36 | % | 44.93 | % | 5.31 | % | 8.74 | % | ||||||||
Common equity tier 1 capital ratio | 12.06 | % | 11.87 | % | 12.11 | % | 0.19 | % | (0.05 | ) % | ||||||||
Leverage ratio | 9.43 | % | 9.38 | % | 9.80 | % | 0.05 | % | (0.37 | ) % | ||||||||
Book value per common share | $ | 12.02 | $ | 11.59 | $ | 10.97 | 3.7 | % | 9.6 | % | ||||||||
| (1) | Includes loans held for sale. | |
| (2) | Annualized. | |
| (3) | Represents noninterest expense divided by the sum of net interest income and noninterest income. |
INCOME STATEMENT HIGHLIGHTS | |||||||||||||||
Net Interest Income and Net Interest Margin | |||||||||||||||
($ in thousands) | For the Three Months Ended | % Change 1Q23 vs. | |||||||||||||
1Q2023 | 4Q2022 | 1Q2022 | 4Q2022 | 1Q2022 | |||||||||||
Interest Income | |||||||||||||||
Interest income | $ | 28,594 | $ | 26,886 | $ | 17,944 | 6.4 | % | 59.4 | % | |||||
Interest expense | 10,702 | 6,688 | 654 | 60.0 | 1536.4 | ||||||||||
Net interest income | $ | 17,892 | $ | 20,198 | $ | 17,290 | (11.4 | ) % | 3.5 | % | |||||
($ in thousands) | For the Three Months Ended | ||||||||||||||||||||||||||
1Q2023 | 4Q2022 | 1Q2022 | |||||||||||||||||||||||||
Average Balance | Interest and Fees | Yield/Rate (1) | Average Balance | Interest and Fees | Yield/Rate (1) | Average Balance | Interest and Fees | Yield/Rate (1) | |||||||||||||||||||
Interest-earning Assets | |||||||||||||||||||||||||||
Loans | $ | 1,725,392 | $ | 26,011 | 6.10 | % | $ | 1,691,642 | $ | 24,719 | 5.81 | % | $ | 1,444,054 | $ | 17,257 | 4.84 | % | |||||||||
Total interest-earning assets | 2,022,146 | 28,594 | 5.71 | 1,966,165 | 26,886 | 5.43 | 1,698,799 | 17,944 | 4.28 | ||||||||||||||||||
Interest-bearing Liabilities | |||||||||||||||||||||||||||
Interest-bearing deposits | 1,196,194 | 10,382 | 3.52 | 1,085,331 | 6,598 | 2.41 | 786,915 | 654 | 0.34 | ||||||||||||||||||
Total interest-bearing liabilities | 1,222,362 | 10,702 | 3.55 | 1,093,489 | 6,688 | 2.43 | 786,915 | 654 | 0.34 | ||||||||||||||||||
Ratios | |||||||||||||||||||||||||||
Net interest Income/interest rate spreads | 17,892 | 2.16 | 20,198 | 3.00 | 17,290 | 3.94 | |||||||||||||||||||||
Net interest margin | 3.56 | 4.08 | 4.12 | ||||||||||||||||||||||||
Total deposits / cost of deposits | 1,867,684 | 10,382 | 2.25 | 1,836,736 | 6,598 | 1.43 | 1,570,376 | 654 | 0.17 | ||||||||||||||||||
Total funding liabilities / cost of funds | 1,893,852 | 10,702 | 2.29 | 1,844,894 | 6,688 | 1.44 | 1,570,376 | 654 | 0.17 | ||||||||||||||||||
(1) Annualized. | |||||||||||||||||||||||||||
($ in thousands) | For the Three Months Ended | Yield Change 1Q23 vs. | |||||||||||||||||||||||||
1Q2023 | 4Q2022 | 1Q2022 | |||||||||||||||||||||||||
Interest & Fees | Yield (1) | Interest & Fees | Yield (1) | Interest & Fees | Yield (1) | 4Q2022 | 1Q2022 | ||||||||||||||||||||
Loan Yield Component | |||||||||||||||||||||||||||
Contractual interest rate | $ | 25,477 | 5.97 | % | $ | 23,694 | 5.57 | % | $ | 15,312 | 4.29 | % | 0.40 | % | 1.68 | % | |||||||||||
SBA discount accretion | 974 | 0.23 | 1,034 | 0.24 | 1,433 | 0.40 | (0.01 | ) | (0.17 | ) | |||||||||||||||||
Amortization of net deferred fees | 79 | 0.02 | 46 | 0.01 | 500 | 0.14 | 0.01 | (0.12 | ) | ||||||||||||||||||
Amortization of premium | (392 | ) | (0.09 | ) | (344 | ) | (0.08 | ) | (188 | ) | (0.05 | ) | (0.01 | ) | (0.04 | ) | |||||||||||
Net interest recognized on nonaccrual loans | (243 | ) | (0.06 | ) | - | - | 34 | 0.01 | (0.06 | ) | (0.07 | ) | |||||||||||||||
Prepayment penalties (2) and other fees | 116 | 0.03 | 289 | 0.07 | 166 |
| 0.05 | (0.04 | ) | (0.02 | ) | ||||||||||||||||
Yield on loans | $ | 26,011 | 6.10 | % | $ | 24,719 | 5.81 | % | $ | 17,257 | 4.84 | % | 0.29 | % | 1.26 | % | |||||||||||
Amortization of net deferred fees: | |||||||||||||||||||||||||||
PPP loan forgiveness (3) | $ | 3 | - | % | $ | 15 | - | % | $ | 483 | 0.13 | % | - | % | (0.13 | ) % | |||||||||||
Other | 76 | 0.02 | 31 | 0.01 | 17 | 0.01 | 0.01 | 0.01 | |||||||||||||||||||
Total amortization of net deferred fees | $ | 79 | 0.02 | % | $ | 46 | 0.01 | % | $ | 500 | 0.14 | % | 0.01 | % | (0.12 | ) % | |||||||||||
| (1) | Annualized. | |
| (2) | Prepayment penalty income of $3 thousand, $172 thousand and $95 thousand for the three months ended March 31, 2023, December 31, 2022 and March 31, 2022, respectively, was from commercial real estate and C&I loans. | |
| (3) | As of March 31, 2023, there were unamortized net deferred fees and unaccredited discounts of $4 thousand to be recognized over the estimated life of the loans as a yield adjustment on the loans. |
Impact of Hana Loan Purchase on Average Loan Yield and Net Interest Margin
During the second quarter of 2021, the Company purchased an SBA portfolio of 638 loans with an ending balance of $100.0 million, excluding loan discount of $8.9 million from Hana Small Business Lending, Inc. ("Hana"). The following table presents impacts of the Hana loan purchase on average loan yield and net interest margin:
($ in thousands) | For the Three Months Ended | |||||||||||
1Q2023 | 4Q2022 | 1Q2022 | ||||||||||
Hana Loan Purchase: | ||||||||||||
Contractual interest rate | $ | 1,400 | $ | 1,286 | $ | 976 | ||||||
Purchased loan discount accretion | 413 | 374 | 772 | |||||||||
Other fees | 24 | 25 | 7 | |||||||||
Total interest income | $ | 1,837 | $ | 1,685 | $ | 1,755 | ||||||
Effect on average loan yield (1) | 0.24 | % | 0.20 | % | 0.26 | % | ||||||
Effect on net interest margin (1) | 0.27 | % | 0.22 | % | 0.25 | % | ||||||
($ in thousands) | For the Three Months Ended | ||||||||||||||||||||||||||
1Q2023 | 4Q2022 | 1Q2022 | |||||||||||||||||||||||||
Average Balance | Interest and Fees | Yield/ Rate | Average Balance | Interest and Fees | Yield/ Rate | Average Balance | Interest and Fees | Yield/ Rate | |||||||||||||||||||
Average loan yield (1) | $ | 1,725,392 | $ | 26,011 | 6.10 | % | $ | 1,691,642 |
$ | 24,719 | 5.81 | % | $ | 1,444,054 | $ | 17,257 | 4.84 | % | |||||||||
Adjusted average loan yield excluding purchased Hana loans (1)(2) | 1,667,155 | 24,174 | 5.86 | 1,631,128 | 23,034 | 5.61 | 1,369,423 | 15,502 | 4.58 | ||||||||||||||||||
Net interest margin (1) | 2,022,146 | 17,892 | 3.56 | 1,966,165 | 20,198 | 4.08 | 1,698,799 | 17,290 | 4.12 | ||||||||||||||||||
Adjusted interest margin excluding purchased Hana loans (1)(2) | 1,963,909 | 16,055 | 3.29 | 1,905,651 | 18,513 | 3.86 | 1,624,168 | 15,535 | 3.87 | ||||||||||||||||||
| (1) | Annualized. | |
| (2) | See reconciliation of GAAP to non-GAAP financial measures. |
First Quarter 2023 vs. Fourth Quarter 2022
Net interest income decreased $2.3 million, or 11.4%, primarily due to higher interest expense on time deposits, partially offset by higher interest income on loans and available-for-sale debt securities. Net interest margin was 3.56%, a decrease of 52 basis points from 4.08%.
- A $1.3 million increase in interest income on loans was primarily due to a $33.8 million increase in average balance and a 29 basis point increase in contractual loan yield as a result of the Federal Reserve's rate increases.
- A $329 thousand increase in interest income on available-for-sale debt securities was primarily due to a $24.0 million increase in average balance and a 28 basis point increase in average yield due to higher yields on recently purchased securities.
- A $3.7 million increase in interest expense on time deposits was primarily due to a $216.8 million increase in average balance and a 126 basis point increase in average cost driven by the Federal Reserve's rate increases.
First Quarter 2023 vs. First Quarter 2022
Net interest income increased $602 thousand, or 3.5%, primarily due to higher interest income on loans and available-for-sale debt securities, mostly offset by higher interest expenses on time deposits and money market deposits. Net interest margin was 3.56%, a decrease of 56 basis point from 4.12%.
- An $8.8 million increase in interest income on loans was primarily due to a $281.3 million increase in average balance and a 126 basis point increase in contractual loan yield as a result of the Federal Reserve's rate increases.
- A $1.0 million increase in interest income on available-for-sale debt securities was primarily due to a $53.5 million increase in average balance and a 159 basis point increase in average yield due to higher yields on recently purchased securities.
- A $6.8 million increase in interest expense on time deposits was primarily due to a $411.8 million increase in average balance and a 329 basis point increase in average cost driven by the Federal Reserve's rate increases.
- A $2.9 million increase in interest expense on money market deposits was primarily due to a 287 basis point increase in average cost driven by the Federal Reserve's rate increases.
Provision for Credit Losses | ||||||||||||||
($ in thousands) | For the Three Months Ended | % Change 1Q23 vs. | ||||||||||||
1Q2023 | 4Q2022 | 1Q2022 | 4Q2022 | 1Q2022 | ||||||||||
(Reversal of) provision for credit losses on loans | $ | (258 | ) | $ | 977 | $ | 341 | n/m | n/m | |||||
(Reversal of) provision for credit losses on off-balance sheet exposure (1) | (80 | ) | 74 | 5 | n/m | n/m | ||||||||
Total (reversal of) provision for credit losses | $ | (338 | ) | $ | 1,051 | $ | 346 | n/m | n/m | |||||
(1) | Reversal of credit losses on off-balance sheet exposure of $80 thousand for the three months ended March 31, 2023 was included in total (reversal of) provision for credit losses. Prior to CECL adoption, provisions for credit losses on off-balance sheet exposure of $74 thousand and $5 thousand for the three months ended December 31, 2022 and March 31, 2022, respectively, were included in other expenses. |
First Quarter 2023 vs. Fourth Quarter 2022
The Company recorded a $338 thousand reversal of credit losses, a decrease of $1.4 million, compared with a $1.1 million provision for credit losses. The $258 thousand reversal of credit losses on loans and the $80 thousand reversal of credit losses on off-balance sheet exposure were primarily due to changes in the qualitative adjustments, reflecting improving trends in loan concentration ratios.
First Quarter 2023 vs. First Quarter 2022
The Company recorded a $338 thousand reversal of credit losses, a decrease of $684 thousand, compared with a $346 thousand provision for credit losses.
Noninterest Income | |||||||||||||||
($ in thousands) | For the Three Months Ended | % Change 1Q23 vs. | |||||||||||||
1Q2023 | 4Q2022 | 1Q2022 | 4Q2022 | 1Q2022 | |||||||||||
Noninterest income | |||||||||||||||
Service charges on deposits | $ | 418 | $ | 406 | $ | 388 | 3.0 | % | 7.7 | % | |||||
Loan servicing fees, net of amortization | 846 | 705 | 447 | 20.0 | 89.3 | ||||||||||
Gain on sale of loans | 2,570 | 1,684 | 3,238 | 52.6 | (20.6 | ) | |||||||||
Other income | 461 | 428 | 143 | 7.7 | 222.4 | ||||||||||
Total noninterest income | $ | 4,295 | $ | 3,223 | $ | 4,216 | 33.3 | % | 1.9 | % | |||||
First Quarter 2023 vs. Fourth Quarter 2022
Noninterest income increased $1.1 million, or 33.3%, primarily due to higher gain on sale of loans.
- Gain on sale of loans was $2.6 million, an increase of $886 thousand from $1.7 million, primarily due to a higher SBA loan sold amount and a higher average sales premium. The Company sold $44.7 million in SBA loans at an average premium rate of 7.33%, compared to the sale of $32.2 million at an average premium rate of 6.13%.
First Quarter 2023 vs. First Quarter 2022
Noninterest income increased $79 thousand, or 1.9%, due to an increase in loan servicing fees and other income, mostly offset by lower gain on sale of loans.
- Loan servicing fees were $846 thousand, an increase $399 thousand from $447 thousand, primarily due to an increase in servicing portfolio and a decrease in servicing asset amortization driven by slower loan prepayments in the first quarter of 2023.
- Other income was $461 thousand, an increase of $318 thousand from $143 thousand, primarily due to an increase of $226 thousand in fair value of equity investment.
- Gain on sale of loans was $2.6 million, a decrease of $668 thousand from $3.2 million, primarily due to a lower average sales premium partially offset by a higher SBA loans sold amount. The Company sold $44.7 million in SBA loans at an average premium rate of 7.33%, compared to the sale of $31.8 million at an average premium rate of 11.02%.
Noninterest Expense | |||||||||||||||
($ in thousands) | For the Three Months Ended | % Change 1Q23 vs. | |||||||||||||
1Q2023 | 4Q2022 | 1Q2022 | 4Q2022 | 1Q2022 | |||||||||||
Noninterest expense | |||||||||||||||
Salaries and employee benefits | $ | 7,252 | $ | 7,080 | $ | 5,657 | 2.4 | % | 28.2 | % | |||||
Occupancy and equipment | 1,570 | 1,560 | 1,378 | 0.6 | 13.9 | ||||||||||
Data processing and communication | 550 | 514 | 493 | 7.0 | 11.6 | ||||||||||
Professional fees | 359 | 330 | 324 | 8.8 | 10.8 | ||||||||||
FDIC insurance and regulatory assessments | 467 | 176 | 207 | 165.3 | 125.6 | ||||||||||
Promotion and advertising | 162 | 12 | 189 | 1,250.0 | (14.3 | ) | |||||||||
Directors' fees | 161 | 145 | 177 | 11.0 | (9.0 | ) | |||||||||
Foundation donation and other contributions | 753 | 851 | 815 | (11.5 | ) | (7.6 | ) | ||||||||
Other expenses | 634 | 659 | 422 | (3.8 | ) | 50.2 | |||||||||
Total noninterest expense | $ | 11,908 | $ | 11,327 | $ | 9,662 | 5.1 | % | 23.2 | % | |||||
First Quarter 2023 vs. Fourth Quarter 2022
Noninterest expense increased $581 thousand, or 5.1%, primarily due to increases in FDIC insurance and regulatory assessments, salaries and employee benefits, and promotion and advertising.
- FDIC insurance and regulatory assessments increased $291 thousand due to increases in FDIC assessment fees in 2023.
- Salaries and employee benefits increased $172 thousand primarily due to lower employee incentive accruals in the fourth quarter of 2022.
- Promotion and advertising increased $150 thousand primarily due to lower expense in the fourth quarter of 2022 from year-end accrual adjustments.
First Quarter 2023 vs. First Quarter 2022
Noninterest expense increased $2.2 million, or 23.2%, primarily due to higher salaries and employee benefits and FDIC insurance and regulatory assessments.
- Salaries and employee benefits increased $1.6 million primarily due to 23 additional full-time employees to support continued growth of the Company.
- FDIC insurance and regulatory assessments increased $260 thousand primarily due to our deposit growth from the first quarter of 2022 and increases in FDIC assessment fees in 2023.
Income Tax Expense
First Quarter 2023 vs. Fourth Quarter 2022
Income tax expense was $3.1 million, and the effective tax rate was 29.0%, compared to income tax expense of $3.1 million and the effective rate of 27.8%.
First Quarter 2023 vs. First Quarter 2022
Income tax expense was $3.1 million and the effective tax rate was 29.0%, compared to income tax expense of $3.4 million and an effective rate of 29.1%.
BALANCE SHEET HIGHLIGHTS | |||||||||||||||
Loans | |||||||||||||||
($ in thousands) | As of | % Change 1Q23 vs. | |||||||||||||
1Q2023 | 4Q2022 | 1Q2022 | 4Q2022 | 1Q2022 | |||||||||||
Real estate loans | $ | 833,615 | $ | 842,208 | $ | 730,841 | (1.0 | ) % | 14.1 | % | |||||
SBA loans | 238,994 | 234,717 | 253,064 | 1.8 | (5.6 | ) | |||||||||
C&I loans | 117,841 | 116,951 | 176,934 | 0.8 | (33.4 | ) | |||||||||
Home mortgage loans | 500,635 | 482,949 | 266,465 | 3.7 | 87.9 | ||||||||||
Consumer & other loans | 1,400 | 1,467 | 1,106 | (4.6 | ) | 26.6 | |||||||||
Gross loans | $ | 1,692,485 | $ | 1,678,292 | $ | 1,428,410 | 0.8 | % | 18.5 | % | |||||
The following table presents new loan originations based on loan commitment amounts for the periods indicated:
($ in thousands) | For the Three Months Ended | % Change 1Q23 vs. | |||||||||||||
1Q2023 | 4Q2022 | 1Q2022 | 4Q2022 | 1Q2022 | |||||||||||
Real estate loans | $ | 24,200 | $ | 44,416 | $ | 49,868 | (45.5 | ) % | (51.5 | ) % | |||||
SBA loans | 16,258 | 55,594 | 37,400 | (70.8 | ) | (56.5 | ) | ||||||||
C&I loans | 7,720 | 46,014 | 11,876 | (83.2 | ) | (35.0 | ) | ||||||||
Home mortgage loans | 20,903 | 28,188 | 22,785 | (25.8 | ) | (8.3 | ) | ||||||||
Gross loans | $ | 69,081 | $ | 174,212 | $ | 121,929 | (60.3 | ) % | (43.3 | ) % | |||||
The following table presents changes in gross loans by loan activity for the periods indicated:
($ in thousands) | For the Three Months Ended | |||||||||||
1Q2023 | 4Q2022 | 1Q2022 | ||||||||||
Loan activities: | ||||||||||||
Gross loans, beginning | $ | 1,678,292 | $ | 1,618,018 | $ | 1,314,019 | ||||||
New originations | 69,081 | 174,212 | 121,929 | |||||||||
Net line advances | 9,949 | (80,144 | ) | 17,455 | ||||||||
Purchases | 12,142 | 49,980 | 81,552 | |||||||||
Sales | (41,032 | ) | (32,204 | ) | (31,819 | ) | ||||||
Paydowns | (40,190 | ) | (22,939 | ) | (15,972 | ) | ||||||
Payoffs | (28,326 | ) | (23,238 | ) | (45,391 | ) | ||||||
PPP Payoffs | (200 | ) | (657 | ) | (19,079 | ) | ||||||
Decrease / (increase) in loans held for sale | 36,802 | (7,693 | ) | 3,185 | ||||||||
Other | (4,033 | ) | 2,957 | 2,531 | ||||||||
Total | 14,193 | 60,274 | 114,391 | |||||||||
Gross loans, ending | $ | 1,692,485 | $ | 1,678,292 | $ | 1,428,410 | ||||||
As of March 31, 2023 vs. December 31, 2022
Gross loans were $1.69 billion as of March 31, 2023, up $14.2 million from December 31, 2022, primarily due to new loan originations and a decrease in loans held for sale, partially offset by loan sales, payoffs and paydowns.
New loan originations and loan payoffs and paydowns were $69.1 million and $68.7 million for the first quarter of 2023, respectively, compared with $174.2 million and $46.8 million for the fourth quarter of 2022, respectively.
As of March 31, 2023 vs. March 31, 2022
Gross loans were $1.69 billion as of March 31, 2023, up $264.1 million from March 31, 2022, primarily due to new loan originations of $592.3 million and loan purchases of $155.7 million, primarily offset by loan sales of $191.5 million and loan payoffs and paydowns of $243.1 million.
The following table presents the composition of gross loans by interest rate type accompanied with the weighted average contractual rates as of the periods indicated:
($ in thousands) | As of | |||||||||||||||||
1Q2023 | 4Q2022 | 1Q2022 | ||||||||||||||||
% | Rate | % | Rate | % | Rate | |||||||||||||
Fixed rate | 36.5 | % | 4.76 | % | 36.0 | % | 4.63 | % | 33.3 | % | 4.11 | % | ||||||
Hybrid rate | 34.2 | 4.94 | 33.8 | 4.79 | 25.6 | 4.30 | ||||||||||||
Variable rate | 29.3 | 8.76 | 30.2 | 8.46 | 41.1 | 5.09 | ||||||||||||
Gross loans | 100.0 | % | 5.99 | % | 100.0 | % | 5.84 | % | 100.0 | % | 4.56 | % | ||||||
The following table presents the maturity of gross loans by interest rate type accompanied with the weighted average contractual rates for the periods indicated:
($ in thousands) | As of March 31, 2023 | |||||||||||||||||||||||
Within One Year | One Year Through Five Years | After Five Years | Total | |||||||||||||||||||||
Amount | Rate | Amount | Rate | Amount | Rate | Amount | Rate | |||||||||||||||||
Fixed rate | $ | 35,609 | 5.49 | % | $ | 342,741 | 4.68 | % | $ | 239,129 | 4.76 | % | $ | 617,479 | 4.76 | % | ||||||||
Hybrid rate | 5,703 | 7.54 | 76,729 | 4.71 | 496,995 | 4.94 | 579,427 | 4.94 | ||||||||||||||||
Variable rate | 78,333 | 8.54 | 117,492 | 8.39 | 299,754 | 8.96 | 495,579 | 8.76 | ||||||||||||||||
Gross loans | $ | 119,645 | 7.58 | % | $ | 536,962 | 5.49 | % | $ | 1,035,878 | 6.06 | % | $ | 1,692,485 | 5.99 | % | ||||||||
Allowance for Credit Losses
The Company adopted the CECL accounting standard effective as of January 1, 2023 under a modified retrospective approach. The adoption resulted in a $1.9 million increase to the allowance for credit losses on loans, a $184 thousand increase to the allowance for credit losses on off-balance sheet exposure, a $624 thousand increase to deferred tax assets, and a $1.5 million charge to retained earnings.
The following table presents impact of CECL adoption for allowance for credit losses and related items on January 1, 2023:
($ in thousands) | Allowance For Credit Losses on Loans | Allowance For Credit Losses on Off-Balance Sheet Exposure | Deferred Tax Assets | Retained Earnings | ||||
As of December 31, 2022 | $ 19,241 | $ 263 | $ 14,316 | $ 105,690 | ||||
Day 1 adjustments on January 1, 2023 | 1,924 | 184 | 624 | (1,484) | ||||
After Day 1 adjustments | $ 21,165 | $ 447 | $ 14,940 | $ 104,206 | ||||
The following table presents allowance for credit losses and provision for credit losses as of and for the periods presented:
($ in thousands) | As of and For the Three Months Ended | % Change 1Q23 vs. | ||||||||||||||||
1Q2023 | 4Q2022 | 1Q2022 | 4Q2022 | 1Q2022 | ||||||||||||||
Allowance for credit losses on loans, beginning | $ | 19,241 | $ | 18,369 | $ | 16,123 | 4.7 | % | 19.3 | % | ||||||||
Impact of CECL adoption | 1,924 | - | - | n/m | n/m | |||||||||||||
(Reversal of) provision for credit losses (1) | (258 | ) | 977 | 341 | n/m | n/m | ||||||||||||
Gross charge-offs | (116 | ) | (109 | ) | (14 | ) | 6.4 | 728.6 | % | |||||||||
Gross recoveries | 23 | 4 | 17 | 475.0 | 35.3 | % | ||||||||||||
Net (charge-offs) recoveries | (93 | ) | (105 | ) | 3 | (11.4 | ) | n/m | ||||||||||
Allowance for credit losses on loans, ending (2) | $ | 20,814 | $ | 19,241 | $ | 16,467 | 8.2 | % | 26.4 | % | ||||||||
Allowance for credit losses on off-balance sheet exposure, beginning | $ | 263 | $ | 189 | $ | 167 | 39.2 | % | 57.5 | % | ||||||||
Impact of CECL adoption | 184 | - | - | n/m | n/m | |||||||||||||
(Reversal of) provision for credit losses | (80 | ) | 74 | 5 | n/m | n/m | ||||||||||||
Allowance for credit losses on off-balance sheet exposure, ending (2) | $ | 367 | $ | 263 | $ | 172 | 39.5 | % | 113.4 | % | ||||||||
(1) | Excludes reversal of uncollectible accrued interest receivable of $205 thousand for the three months ended March 31, 2022. | |
(2) | Allowance for credit losses as of March 31, 2023 was calculated under the CECL methodology while allowance for loan losses for prior periods were calculated under the incurred loss methodology. |
Asset Quality | ||||||||||||||||||
($ in thousands) | % Change 1Q23 vs. | |||||||||||||||||
1Q2023 | 4Q2022 | 1Q2022 | 4Q2022 | 1Q2022 | ||||||||||||||
Nonperforming loans (1) | $ | 4,358 | $ | 3,080 | $ | 2,806 | 41.5 | % | 55.3 | % | ||||||||
Nonperforming assets (1) | $ | 4,358 | $ | 3,080 | $ | 2,806 | 41.5 | % | 55.3 | % | ||||||||
Nonperforming loans to gross loans | 0.26 | % | 0.18 | % | 0.20 | % | 0.08 | % | 0.06 | % | ||||||||
Nonperforming assets to total assets | 0.20 | % | 0.15 | % | 0.15 | % | 0.05 | % | 0.05 | % | ||||||||
Criticized loans (2): | ||||||||||||||||||
Special mention loans | $ | 2,617 | $ | 563 | $ | -- | 364.8 | % | n/m | |||||||||
Classified loans (3) | 4,763 | 3,307 | 3,848 | 44.0 | 23.8 | |||||||||||||
Total criticized loans | $ | 7,380 | $ | 3,870 | $ | 3,848 | 90.7 | % | 91.8 | % | ||||||||
Criticized loans (2) to gross loans | 0.44 | % | 0.23 | % | 0.27 | % | 0.21 | % | 0.17 | % | ||||||||
Classified loans (3) to gross loans | 0.28 | % | 0.20 | % | 0.27 | % | 0.08 | % | 0.01 | % | ||||||||
Allowance for credit losses ratios: | ||||||||||||||||||
As a % of gross loans | 1.23 | % | 1.15 | % | 1.17 | % | 0.08 | % | 0.06 | % | ||||||||
As an adjusted % of gross loans (4) | 1.27 | 1.18 | 1.24 | 0.09 | 0.03 | |||||||||||||
As a % of nonperforming loans | 478 | 625 | 594 | (147 | ) | (116 | ) | |||||||||||
As a % of nonperforming assets | 478 | 625 | 594 | (147 | ) | (116 | ) | |||||||||||
Net charge-offs (5) to average gross loans (6) | 0.02 | 0.03 | 0.00 | (0.01 | ) | 0.02 | ||||||||||||
| (1) | Includes the guaranteed portion of SBA loans totaling $1.6 million, $1.0 million and $899 thousand as of March 31, 2023, December 31, 2022 and March 31, 2022, respectively. | |
| (2) | Consists of special mention, substandard, doubtful and loss categories. | |
| (3) | Consists of substandard, doubtful and loss categories. | |
| (4) | See the Reconciliation of GAAP to NON-GAAP Financial Measures. | |
| (5) | Annualized. | |
| (6) | Includes loans held for sale |
Overall, the Company continued to maintain solid asset quality with low levels of nonperforming loans and net charge-offs. Nonperforming assets and criticized loans remained below our historical norms, a reflection of our conservative credit culture and expertise in the industries we serve. Our allowance remained strong with an adjusted allowance to gross loans ratio of 1.27%.
- Criticized loans increased by $3.5 million or 91.8% from a year ago, and the criticized loans to gross loans ratio increased by 17 basis points. Criticized loans consist of loans categorized as Special Mention, Substandard, Doubtful and Loss categories defined by regulatory authorities.
- Nonperforming assets increased $1.6 million to $4.4 million, or 0.20% of total assets from a year ago. As of March 31, 2023, $1.6 million of nonaccrual assets consisted of guaranteed portion of SBA loans that are in liquidation. The Company did not have OREO as of March 31, 2023 or 2022.
- Net charge-offs were $93 thousand or 0.02% of average loans in the first quarter of 2023, compared to net charge-offs of $105 thousand, or 0.03%, of average loans in the fourth quarter of 2022 and net recoveries of $3 thousand, or 0.00%, of average loans in the first quarter of 2022.
Deposits | ||||||||||||||||||||||||
($ in thousands) | As of | % Change 1Q23 vs. | ||||||||||||||||||||||
1Q2023 | 4Q2022 | 1Q2022 | ||||||||||||||||||||||
Amount | % | Amount | % | Amount | % | 4Q2022 | 1Q2022 | |||||||||||||||||
Noninterest bearing deposits | $ | 643,902 | 33.8 | % | $ | 701,584 | 37.2 | % | $ | 848,531 | 50.8 | % | (8.2 | ) % | (24.1 | ) % | ||||||||
Money market deposits and others | 436,796 | 22.9 | 526,321 | 27.9 | 456,890 | 27.3 | (17.0 | ) | (4.4 | ) | ||||||||||||||
Time deposits | 824,120 | 43.3 | 657,866 | 34.9 | 366,582 | 21.9 | 25.3 | 124.8 | ||||||||||||||||
Total deposits | $ | 1,904,818 | 100.0 | % | $ | 1,885,771 | 100.0 | % | $ | 1,672,003 | 100.0 | % | 1.0 | % | 13.9 | % | ||||||||
Estimated uninsured deposits | $ | 900,579 | 47.3 | % | $ | 938,329 | 49.8 | % | $ | 952,501 | 57.0 | % | (4.0 | ) % | (5.5 | ) % | ||||||||
As of March 31, 2023 vs. December 31, 2022
Total deposits were $1.90 billion as of March 31, 2023, up $19.0 million from December 31, 2022, primarily due to growth in time deposits, mostly offset by decreases in noninterest bearing deposits and money market deposits and others. Time deposits grew $166.3 million to $824.1 million from $657.9 million, due to management's actions to support loan growth during the third quarter of 2022 including upward adjustments of interest rates on customer deposits and increases in wholesale deposits. Noninterest-bearing deposits decreased $57.7 million to $643.9 million from $701.6 million, primarily due to decreases in transaction volumes in escrow and 1031 exchanges accounts and other decreases affected by market rate increases by the Federal Reserve. Money market deposits and others decreased $89.5 million to $436.8 million from $526.3 million, primarily due to market rate increases as a result of the Federal Reserve's rate increases.
As of March 31, 2023 vs. March 31, 2022
Total deposits were $1.90 billion as of March 31, 2023, up $232.8 million from March 31, 2022, primarily driven by growth in time deposits, partially offset by a decrease in noninterest bearing deposits. Time deposits grew $457.5 million to $824.1 million from $366.6 million, primarily due to customers' preference for high-rate deposit products driven by market rate increases as a result of the Federal Reserve's rate increases. Noninterest-bearing deposits decreased $204.6 million to $643.9 million from $848.5 million, primarily due to decreases in transaction volumes in escrow and 1031 exchanges accounts and other decreases affected by market rate increases by the Federal Reserve.
The following table sets forth the maturity of time deposits as of March 31, 2023:
As of March 31, 2023 | ||||||||||||||||||||||||
($ in thousands) | Within Three Months | Three to Six Months | Six to Nine Months | Nine to Twelve Months | After Twelve Months | Total | ||||||||||||||||||
Time deposits (more than $250) | $ | 84,818 | $ | 29,657 | $ | 138,288 | $ | 158,140 | $ | 745 | $ | 411,648 | ||||||||||||
Time deposits ($250 or less) | 48,402 | 65,444 | 163,976 | 92,110 | 42,540 | 412,472 | ||||||||||||||||||
Total time deposits | $ | 133,220 | $ | 95,101 | $ | 302,264 | $ | 250,250 | $ | 43,285 | $ | 824,120 | ||||||||||||
Weighted average rate | 3.88 | % | 3.18 | % | 4.19 | % | 4.41 | % | 4.06 | % | 4.12 | % | ||||||||||||
OTHER HIGHLIGHTS
Liquidity
The Company maintains ample access to liquidity, including highly liquid assets on our balance sheet and available unused borrowings from other financial institutions. The following table presents the Company's liquid assets and available borrowings as of dates presented:
($ in thousands) | March 31, 2023 | December 31, 2022 | % Change | ||||||||
Liquid assets: | |||||||||||
Cash and cash equivalents | $ | 181,509 | $ | 82,972 | 118.8 | % | |||||
Available-for-sale debt securities | 212,767 | 209,809 | 1.4 | % | |||||||
Liquid assets | $ | 394,276 | $ | 292,781 | 34.7 | % | |||||
Liquid assets to total assets | 18.2 | % | 14.0 | % | |||||||
Available borrowings: | |||||||||||
Federal Home Loan Bank-San Francisco | $ | 406,500 | $ | 440,358 | (7.7 | ) % | |||||
Federal Reserve Bank | 174,284 | 175,605 | (0.8 | ) % | |||||||
Pacific Coast Bankers Bank | 50,000 | 50,000 | - | % | |||||||
Zions Bank | 25,000 | 25,000 | - | % | |||||||
First Horizon Bank | 25,000 | 24,950 | 0.2 | % | |||||||
Total available borrowings | $ | 680,784 | $ | 715,913 | (4.9 | ) % | |||||
Total available borrowings to total assets | 31.4 | % | 34.2 | % | |||||||
Liquid assets and available borrowings to total assets | 49.5 | % | 48.2 | % | |||||||
Capital and Capital Ratios
The Company's Board of Directors declared a quarterly cash dividend of $0.12 per share of its common stock. The cash dividend is payable on or about May 25, 2023 to all shareholders of record as of the close of business on May 11, 2023.
The Company repurchased 76,990 shares of its common stock at an average price of $9.25 during the first quarter of 2023. Since the announcement of the initial stock repurchase program in January 2019, the Company repurchased a total of 1.65 million shares of its common stock at an average repurchase price of $8.61 per share through March 31, 2023.
Basel III | ||||||||||||
OP Bancorp (1) | Open Bank | Minimum Well Capitalized Ratio | Minimum Capital Ratio+ Conservation Buffer (2) | |||||||||
Risk-Based Capital Ratios: | ||||||||||||
Total risk-based capital ratio | 13.31 | % | 13.08 | % | 10.00 | % | 10.50 | % | ||||
Tier 1 risk-based capital ratio | 12.06 | 11.80 | 8.00 | 8.50 | ||||||||
Common equity tier 1 ratio | 12.06 | 11.80 | 6.50 | 7.00 | ||||||||
Leverage ratio | 9.43 | 9.24 | 5.00 | 4.00 | ||||||||
| (1) | The capital requirements are only applicable to the Bank, and the Company's ratios are included for comparison purpose. | |
| (2) | An additional 2.5% capital conservation buffer above the minimum capital ratios are required in order to avoid limitations on distributions, including dividend payments and certain discretionary bonus to executive officers. |
OP Bancorp | Basel III | % Change 1Q23 vs. | ||||||||||||||||
1Q2023 | 4Q2022 | 1Q2022 | 4Q2022 | 1Q2022 | ||||||||||||||
Risk-Based Capital Ratios: | ||||||||||||||||||
Total risk-based capital ratio | 13.31 | % | 13.06 | % | 13.29 | % | 0.25 | % | 0.02 | % | ||||||||
Tier 1 risk-based capital ratio | 12.06 | 11.87 | 12.11 | 0.19 | (0.05 | ) | ||||||||||||
Common equity tier 1 ratio | 12.06 | 11.87 | 12.11 | 0.19 | (0.05 | ) | ||||||||||||
Leverage ratio | 9.43 | 9.38 | 9.80 | 0.05 | (0.37 | ) | ||||||||||||
Risk-weighted Assets ($ in thousands) | $ | 1,659,737 | $ | 1,638,040 | $ | 1,427,569 | 1.32 | 16.26 | ||||||||||
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
In addition to GAAP measures, management uses certain non-GAAP financial measures to provide supplemental information regarding the Company's performance.
Pre-provision net revenue removes provision for credit losses and income tax expense. Management believes that this non-GAAP measure, when taken together with the corresponding GAAP financial measures (as applicable), provides meaningful supplemental information regarding our performance. This non-GAAP financial measure also facilitates a comparison of our performance to prior periods.
($ in thousands) | For the Three Months Ended | |||||||||
1Q2023 | 4Q2022 | 1Q2022 | ||||||||
Interest income | $ | 28,594 | $ | 26,886 | $ | 17,944 | ||||
Interest expense | 10,702 | 6,688 | 654 | |||||||
Net interest income | 17,892 | 20,198 | 17,290 | |||||||
Noninterest income | 4,295 | 3,223 | 4,216 | |||||||
Noninterest expense | 11,908 | 11,327 | 9,662 | |||||||
Pre-provision net revenue | (a) | $ | 10,279 | $ | 12,094 | $ | 11,844 | |||
Reconciliation to net income: | ||||||||||
(Reversal of) provision for credit losses | (b) | $ | (338 | ) | $ | 977 | $ | 341 | ||
Income tax expense | (c) | 3,083 | 3,089 | 3,351 | ||||||
Net income | (a)+(b) +(c) | $ | 7,534 | $ | 8,028 | $ | 8,152 | |||
During the second quarter of 2021, the Company purchased 638 loans from Hana for a total purchase price of $97.6 million. The Company evaluated $100.0 million of the loans purchased in accordance with the provisions of ASC 310-20, Nonrefundable Fees and Other Costs, which were recorded with a $8.9 million discount. As a result, the fair value discount on these loans is being accreted into interest income over the expected life of the loans using the effective yield method. Adjusted loan yield and net interest margin for the three months ended March 31, 2023, December 31, 2022 and March 31, 2022 excluded the impacts of contractual interest and discount accretion of the purchased Hana loans as management does not consider purchasing loan portfolios to be normal or recurring transactions. Management believes that presenting the adjusted average loan yield and net interest margin provide comparability to prior periods and these non-GAAP financial measures provide supplemental information regarding the Company's performance.
($ in thousands) | For the Three Months Ended | |||||||||||
1Q2023 | 4Q2022 | 1Q2022 | ||||||||||
Yield on Average Loans | ||||||||||||
Interest income on loans | $ | 26,011 | $ | 24,719 | $ | 17,257 | ||||||
Less: interest income on purchased Hana loans | 1,837 | 1,685 | 1,755 | |||||||||
Adjusted interest income on loans | (a) | $ | 24,174 | $ | 23,034 | $ | 15,502 | |||||
Average loans | $ | 1,725,392 | $ | 1,691,642 | $ | 1,444,054 | ||||||
Less: Average purchased Hana loans | 58,237 | 60,514 | 74,631 | |||||||||
Adjusted average loans | (b) | $ | 1,667,155 | $ | 1,631,128 | $ | 1,369,423 | |||||
Average loan yield (1) | 6.10 | % | 5.81 | % | 4.84 | % | ||||||
Effect on average loan yield (1) | 0.24 | % | 0.20 | % | 0.26 | % | ||||||
Adjusted average loan yield (1) | (a)/(b) | 5.86 | % | 5.61 | % | 4.58 | % | |||||
Net Interest Margin | ||||||||||||
Net interest income | $ | 17,892 | $ | 20,198 | $ | 17,290 | ||||||
Less: interest income on purchased Hana loans | 1,837 | 1,685 | 1,755 | |||||||||
Adjusted net interest income | (c) | $ | 16,055 | $ | 18,513 | $ | 15,535 | |||||
Average interest-earning assets | $ | 2,022,146 | $ | 1,966,165 | $ | 1,698,799 | ||||||
Less: Average purchased Hana loans | 58,237 | 60,514 | 74,631 | |||||||||
Adjusted average interest-earning assets | (d) | $ | 1,963,909 | $ | 1,905,651 | $ | 1,624,168 | |||||
Net interest margin (1) | 3.56 | % | 4.08 | % | 4.12 | % | ||||||
Effect on net interest margin (1) | 0.27 | 0.22 | 0.25 | |||||||||
Adjusted net interest margin (1) | (c)/(d) | 3.29 | % | 3.86 | % | 3.87 | % | |||||
| (1) Annualized. | ||||||||||||
Adjusted allowance to gross loans ratio removes the impacts of purchased Hana loans, PPP loans and allowance on accrued interest receivable. Management believes that this ratio provides greater consistency and comparability between the Company's results and those of its peer banks.
($ in thousands) | For the Three Months Ended | |||||||||||
1Q2023 | 4Q2022 | 1Q2022 | ||||||||||
Gross loans | $ | 1,692,485 | $ | 1,678,292 | $ | 1,428,410 | ||||||
Less: Purchased Hana loans | (56,717 | ) | (58,966 | ) | (71,377 | ) | ||||||
PPP loans (1) | (247 | ) | (434 | ) | (21,016 | ) | ||||||
Adjusted gross loans | (a) | $ | 1,635,521 | $ | 1,618,892 | $ | 1,336,017 | |||||
Accrued interest receivable on loans | $ | 6,440 | $ | 6,413 | $ | 4,494 | ||||||
Less: Accrued interest receivable on purchased Hana loans | (432 | ) | (397 | ) | (295 | ) | ||||||
Accrued interest receivable on PPP loans (2) | (5 | ) | (8 | ) | (229 | ) | ||||||
Add: Allowance on accrued interest receivable | - | - | - | |||||||||
Adjusted accrued interest receivable on loans | (b) | $ | 6,003 | $ | 6,008 | $ | 3,970 | |||||
Adjusted gross loans and accrued interest receivable | (a)+(b) =(c) | $ | 1,641,524 | $ | 1,624,900 | $ | 1,339,987 | |||||
Allowance for credit losses | $ | 20,814 | $ | 19,241 | $ | 16,672 | ||||||
Add: Allowance on accrued interest receivable | - | - | - | |||||||||
Adjusted Allowance | (d) | $ | 20,814 | $ | 19,241 | $ | 16,672 | |||||
Adjusted allowance to gross loans ratio | (d)/(c) | 1.27 | % | 1.18 | % | 1.24 | % | |||||
| (1) | Excludes purchased PPP loans of $8 thousand and $1.0 million as of December 31, 2022 and March 31, 2022, respectively. | |
| (2) | Excludes purchased accrued interest receivable on PPP loans of $11 thousand as of March 31, 2022. |
ABOUT OP BANCORP
OP Bancorp, the holding company for Open Bank (the "Bank"), is a California corporation whose common stock is quoted on the Nasdaq Global Market under the ticker symbol, "OPBK." The Bank is engaged in the general commercial banking business in Los Angeles, Orange, and Santa Clara Counties, California, and Carrollton, Texas and is focused on serving the banking needs of small- and medium-sized businesses, professionals, and residents with a particular emphasis on Korean and other ethnic minority communities. The Bank currently operates ten full-service branch offices in Downtown Los Angeles, Los Angeles Fashion District, Los Angeles Koreatown, Cerritos, Gardena, Buena Park, and Santa Clara, California and Carrollton, Texas. The Bank also has four loan production offices in Pleasanton, California, Atlanta, Georgia, Aurora, Colorado, and Lynnwood, Washington. The Bank commenced its operations on June 10, 2005 as First Standard Bank and changed its name to Open Bank in October 2010. Its headquarters is located at 1000 Wilshire Blvd., Suite 500, Los Angeles, California 90017. Phone 213.892.9999; www.myopenbank.com.
Cautionary Note Regarding Forward-Looking Statements
Certain matters set forth herein constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, including forward-looking statements relating to the Company's current business plans and expectations regarding future operating results. These forward-looking statements are subject to risks and uncertainties that could cause actual results, performance or achievements to differ materially from those projected. These risks and uncertainties, some of which are beyond our control, include, but are not limited to: business and economic conditions, particularly those affecting the financial services industry and our primary market areas; the continuing effects of inflation and monetary policies, and the impacts of those circumstances upon our current and prospective borrowers and depositors; our ability to mitigate and manage deposit liabilities in a manner that balances the need to meet current and expected withdrawals while investing a sufficient portion of our assets to promote strong earning capacity; our ability to successfully manage our credit risk and the sufficiency of our allowance for credit losses; factors that can impact the performance of our loan portfolio, including real estate values and liquidity in our primary market areas, the financial health of our commercial borrowers, the success of construction projects that we finance, including any loans acquired in acquisition transactions; our ability to effectively execute our strategic plan and manage our growth; interest rate fluctuations, which could have an adverse effect on our profitability; external economic and/or market factors, such as changes in monetary and fiscal policies and laws, including the interest rate policies of the Federal Reserve, inflation or deflation, changes in the demand for loans, and fluctuations in consumer spending, borrowing and savings habits, which may have an adverse impact on our financial condition; continued or increasing competition from other financial institutions, credit unions, and non-bank financial services companies, many of which are subject to less restrictive or less costly regulations than we are; challenges arising from unsuccessful attempts to expand into new geographic markets, products, or services; restraints on the ability of Open Bank to pay dividends to us, which could limit our liquidity; increased capital requirements imposed by banking regulators, which may require us to raise capital at a time when capital is not available on favorable terms or at all; a failure in the internal controls we have implemented to address the risks inherent to the business of banking; inaccuracies in our assumptions about future events, which could result in material differences between our financial projections and actual financial performance, particularly with respect to the effects of predictions of future economic conditions as those circumstances affect our estimates for the adequacy of our allowance for credit losses and the related provision expense; changes in our management personnel or our inability to retain motivate and hire qualified management personnel; disruptions, security breaches, or other adverse events, failures or interruptions in, or attacks on, our information technology systems; disruptions, security breaches, or other adverse events affecting the third-party vendors who perform several of our critical processing functions; an inability to keep pace with the rate of technological advances due to a lack of resources to invest in new technologies; risks related to potential acquisitions; political developments, uncertainties or instability, catastrophic events, acts of war or terrorism, or natural disasters, such as earthquakes, fires, drought, pandemic diseases (such as the coronavirus) or extreme weather events, any of which may affect services we use or affect our customers, employees or third parties with which we conduct business; incremental costs and obligations associated with operating as a public company; the impact of any claims or legal actions to which we may be subject, including any effect on our reputation; compliance with governmental and regulatory requirements, including the Dodd-Frank Act and others relating to banking, consumer protection, securities and tax matters, and our ability to maintain licenses required in connection with commercial mortgage origination, sale and servicing operations; changes in federal tax law or policy; and our ability the manage the foregoing and other factors set forth in the Company's public reports. We describe these and other risks that could affect our results in Item 1A. "Risk Factors," of our latest Annual Report on Form 10-K for the year ended December 31, 2022 and in our other subsequent filings with the Securities and Exchange Commission.
CONSOLIDATED BALANCE SHEETS (unaudited) | ||||||||||||||||||
($ in thousands) | As of | % Change 1Q23 vs. | ||||||||||||||||
1Q2023 | 4Q2022 | 1Q2022 | 4Q2022 | 1Q2022 | ||||||||||||||
Assets | ||||||||||||||||||
Cash and due from banks | $ | 16,781 | $ | 12,952 | $ | 18,206 | 29.6 | % | (7.8 | ) % | ||||||||
Interest-bearing deposits in other banks | 164,728 | 70,020 | 111,770 | 135.3 | 47.4 | |||||||||||||
Cash and cash equivalents | 181,509 | 82,972 | 129,976 | 118.8 | 39.6 | |||||||||||||
Available-for-sale debt securities, at fair value | 212,767 | 209,809 | 161,182 | 1.4 | 32.0 | |||||||||||||
Other investments | 12,172 | 12,098 | 10,836 | 0.6 | 12.3 | |||||||||||||
Loans held for sale | 7,534 | 44,335 | 86,243 | (83.0 | ) | (91.3 | ) | |||||||||||
Commercial real estate loans | 833,615 | 842,208 | 730,841 | (1.0 | ) | 14.1 | ||||||||||||
SBA loans | 238,994 | 234,717 | 253,064 | 1.8 | (5.6 | ) | ||||||||||||
C&I loans | 117,841 | 116,951 | 176,934 | 0.8 | (33.4 | ) | ||||||||||||
Home mortgage loans | 500,635 | 482,949 | 266,465 | 3.7 | 87.9 | |||||||||||||
Consumer loans | 1,400 | 1,467 | 1,106 | (4.6 | ) | 26.6 | ||||||||||||
Gross loans receivable | 1,692,485 | 1,678,292 | 1,428,410 | 0.8 | 18.5 | |||||||||||||
Allowance for credit losses | (20,814 | ) | (19,241 | ) | (16,672 | ) | 8.2 | 24.8 | ||||||||||
Net loans receivable | 1,671,671 | 1,659,051 | 1,411,738 | 0.8 | 18.4 | |||||||||||||
Premises and equipment, net | 4,647 | 4,400 | 4,570 | 5.6 | 1.7 | |||||||||||||
Accrued interest receivable, net | 7,302 | 7,180 | 4,893 | 1.7 | 49.2 | |||||||||||||
Servicing assets | 12,898 | 12,759 | 12,341 | 1.1 | 4.5 | |||||||||||||
Company owned life insurance | 21,762 | 21,613 | 11,197 | 0.7 | 94.4 | |||||||||||||
Deferred tax assets, net | 12,008 | 14,316 | 10,882 | (16.1 | ) | 10.3 | ||||||||||||
Operating right-of-use assets | 9,459 | 9,097 | 8,471 | 4.0 | 11.7 | |||||||||||||
Other assets | 16,721 | 16,867 | 11,616 | (0.9 | ) | 43.9 | ||||||||||||
Total assets | $ | 2,170,450 | $ | 2,094,497 | $ | 1,863,945 | 3.6 | % | 16.4 | % | ||||||||
Liabilities and Shareholders' Equity | ||||||||||||||||||
Liabilities: | ||||||||||||||||||
Noninterest bearing | $ | 643,902 | $ | 701,584 | $ | 848,531 | (8.2 | ) % | (24.1 | ) % | ||||||||
Money market and others | 436,796 | 526,321 | 456,890 | (17.0 | ) | (4.4 | ) | |||||||||||
Time deposits greater than $250 | 411,648 | 356,197 | 192,849 | 15.6 | 113.5 | |||||||||||||
Other time deposits | 412,472 | 301,669 | 173,733 | 36.7 | 137.4 | |||||||||||||
Total deposits | 1,904,818 | 1,885,771 | 1,672,003 | 1.0 | 13.9 | |||||||||||||
Federal Home Loan Bank advances | 50,000 | - | - | n/m | n/m | |||||||||||||
Accrued interest payable | 5,751 | 2,771 | 548 | 107.5 | 949.5 | |||||||||||||
Operating lease liabilities | 10,513 | 10,213 | 9,839 | 2.9 | 6.9 | |||||||||||||
Other liabilities | 15,587 | 18,826 | 15,564 | (17.2 | ) | 0.1 | ||||||||||||
Total liabilities | 1,986,669 | 1,917,581 | 1,697,954 | 3.6 | 17.0 | |||||||||||||
Shareholders' equity: | ||||||||||||||||||
Common stock | 79,475 | 79,326 | 78,718 | 0.2 | 1.0 | |||||||||||||
Additional paid-in capital | 10,056 | 9,743 | 8,860 | 3.2 | 13.5 | |||||||||||||
Retained earnings | 109,908 | 105,690 | 85,694 | 4.0 | 28.3 | |||||||||||||
Accumulated other comprehensive loss | (15,658 | ) | (17,843 | ) | (7,281 | ) | (12.2 | ) | 115.1 | |||||||||
Total shareholders' equity | 183,781 | 176,916 | 165,991 | 3.9 | 10.7 | |||||||||||||
Total liabilities and shareholders' equity | $ | 2,170,450 | $ | 2,094,497 | $ | 1,863,945 | 3.6 | % | 16.4 | % | ||||||||
CONSOLIDATED STATEMENTS OF INCOME (unaudited) | ||||||||||||||||
($ in thousands, except share and per share data) | For the Three Months Ended | % Change 1Q23 vs. | ||||||||||||||
1Q2023 | 4Q2022 | 1Q2022 | 4Q2022 | 1Q2022 | ||||||||||||
Interest income | ||||||||||||||||
Interest and fees on loans | $ | 26,011 | $ | 24,719 | $ | 17,257 | 5.2 | % | 50.7 | % | ||||||
Interest on available-for-sale debt securities | 1,566 | 1,237 | 530 | 26.6 | 195.5 | |||||||||||
Other interest income | 1,017 | 930 | 157 | 9.4 | 547.8 | |||||||||||
Total interest income | 28,594 | 26,886 | 17,944 | 6.4 | 59.4 | |||||||||||
Interest expense | ||||||||||||||||
Interest on deposits | 10,382 | 6,597 | 654 | 57.4 | 1487.5 | |||||||||||
Interest on borrowings | 320 | 91 | - | 252 | % | n/m | ||||||||||
Total interest expense | 10,702 | 6,688 | 654 | 60.0 | n/m | |||||||||||
Net interest income | 17,892 | 20,198 | 17,290 | (11.4 | ) | 3.5 | ||||||||||
(Reversal of) provision for credit losses | (338 | ) | 977 | 341 | n/m | n/m | ||||||||||
Net interest income after provision for credit losses | 18,230 | 19,221 | 16,949 | (5.2 | ) | 7.6 | ||||||||||
Noninterest income | ||||||||||||||||
Service charges on deposits | 418 | 406 | 388 | 3.0 | 7.7 | |||||||||||
Loan servicing fees, net of amortization | 846 | 705 | 447 | 20.0 | 89.3 | |||||||||||
Gain on sale of loans | 2,570 | 1,684 | 3,238 | 52.6 | (20.6 | ) | ||||||||||
Other income | 461 | 428 | 143 | 7.7 | 222.4 | |||||||||||
Total noninterest income | 4,295 | 3,223 | 4,216 | 33.3 | 1.9 | |||||||||||
Noninterest expense | ||||||||||||||||
Salaries and employee benefits | 7,252 | 7,080 | 5,657 | 2.4 | 28.2 | |||||||||||
Occupancy and equipment | 1,570 | 1,560 | 1,378 | 0.6 | 13.9 | |||||||||||
Data processing and communication | 550 | 514 | 493 | 7.0 | 11.6 | |||||||||||
Professional fees | 359 | 330 | 324 | 8.8 | 10.8 | |||||||||||
FDIC insurance and regulatory assessments | 467 | 176 | 207 | 165.3 | 125.6 | |||||||||||
Promotion and advertising | 162 | 12 | 189 | 1250.0 | (14.3 | ) | ||||||||||
Directors' fees | 161 | 145 | 177 | 11.0 | (9.0 | ) | ||||||||||
Foundation donation and other contributions | 753 | 851 | 815 | (11.5 | ) | (7.6 | ) | |||||||||
Other expenses | 634 | 659 | 422 | (3.8 | ) | 50.2 | ||||||||||
Total noninterest expense | 11,908 | 11,327 | 9,662 | 5.1 | 23.2 | |||||||||||
Income before income tax expense | 10,617 | 11,117 | 11,503 | (4.5 | ) | (7.7 | ) | |||||||||
Income tax expense | 3,083 | 3,089 | 3,351 | (0.2 | ) | (8.0 | ) | |||||||||
Net income | $ | 7,534 | $ | 8,028 | $ | 8,152 | (6.2 | ) % | (7.6 | ) % | ||||||
Book value per share | $ | 12.02 | $ | 11.59 | $ | 10.97 | 3.7 | % | 9.6 | % | ||||||
Earnings per share - Basic | $ | 0.48 | 0.52 | $ | 0.53 | (7.7 | ) | (9.4 | ) | |||||||
Earnings per share - Diluted | $ | 0.48 | 0.51 | $ | 0.53 | (5.9 | ) | (9.4 | ) | |||||||
Shares of common stock outstanding, at period end | 15,286,558 | 15,270,344 | 15,137,808 | 0.1 | 1.0 | |||||||||||
Weighted average shares: | ||||||||||||||||
- Basic | 15,284,350 | 15,208,308 | 15,137,808 | 0.5 | 1.0 | |||||||||||
- Diluted | 15,312,673 | 15,264,971 | 15,242,214 | 0.3 | 0.5 | |||||||||||
Key Ratios | |||||||||||||||
For the Three Months Ended | Change 1Q23 vs. | ||||||||||||||
1Q2023 | 4Q2022 | 1Q2022 | 4Q2022 | 1Q2022 | |||||||||||
Return on average assets (ROA) (1) | 1.43 | % | 1.56 | % | 1.85 | % | (0.1 | ) % | (0.4 | ) % | |||||
Return on average equity (ROE) (1) | 16.82 | 18.58 | 19.54 | (1.8 | ) | (2.7 | ) | ||||||||
Net interest margin (1) | 3.56 | 4.08 | 4.12 | (0.5 | ) | (0.6 | ) | ||||||||
Efficiency ratio | 53.67 | 48.36 | 44.93 | 5.3 | 8.7 | ||||||||||
Total risk-based capital ratio | 13.31 | % | 13.06 | % | 13.29 | % | 0.3 | % | - | % | |||||
Tier 1 risk-based capital ratio | 12.06 | 11.87 | 12.11 | 0.2 | (0.1 | ) | |||||||||
Common equity tier 1 ratio | 12.06 | 11.87 | 12.11 | 0.2 | (0.1 | ) | |||||||||
Leverage ratio | 9.43 | 9.38 | 9.80 | 0.1 | (0.4 | ) | |||||||||
| (1) Annualized. | |||||||||||||||
ASSET QUALITY | ||||||||||||
($ in thousands) | As of and For the Three Months Ended | |||||||||||
1Q2023 | 4Q2022 | 1Q2022 | ||||||||||
Nonaccrual loans (1) | $ | 4,112 | $ | 2,639 | $ | 2,806 | ||||||
Loans 90 days or more past due, accruing (2) | 246 | 441 | - | |||||||||
Nonperforming loans | 4,358 | 3,080 | 2,806 | |||||||||
Other real estate owned ("OREO") | - | - | - | |||||||||
Nonperforming assets | $ | 4,358 | $ | 3,080 | $ | 2,806 | ||||||
Criticized loans (3) by loan type: | ||||||||||||
Commercial real estate | $ | 560 | $ | 563 | $ | - | ||||||
SBA loans | 5,284 | 1,472 | 2,543 | |||||||||
C&I loans | 271 | 555 | 305 | |||||||||
Home mortgage loans | 1,265 | 1,280 | 1,000 | |||||||||
Total criticized loans (3) | $ | 7,380 | $ | 3,870 | $ | 3,848 | ||||||
Nonperforming assets/total assets | 0.20 | % | 0.15 | % | 0.15 | % | ||||||
Nonperforming assets / gross loans plus OREO | 0.26 | 0.18 | 0.20 | |||||||||
Nonperforming loans / gross loans | 0.26 | 0.18 | 0.20 | |||||||||
Allowance for credit losses / nonperforming loans | 478 | 625 | 594 | |||||||||
Allowance for credit losses / nonperforming assets | 478 | 625 | 594 | |||||||||
Allowance for credit losses / gross loans | 1.23 | 1.15 | 1.17 | |||||||||
Criticized loans (3) / gross loans | 0.44 | 0.23 | 0.27 | |||||||||
Classified loans / gross loans | 0.28 | 0.20 | 0.27 | |||||||||
Net charge-offs (recoveries) | $ | 93 | $ | 105 | $ | (3 | ) | |||||
Net charge-offs (recoveries) to average gross loans (4) | 0.02 | % | 0.03 | % | (0.00 | ) % | ||||||
| (1) | Includes the guaranteed portion of SBA loans that are in liquidation totaling $1.6 million, $606 thousand and $899 thousand as of March 31, 2023, December 31, 2022 and March 31, 2022, respectively. | |
| (2) | Includes the guaranteed portion of PPP loans totaling $441 thousand as of December 31, 2022. | |
| (3) | Consists of special mention, substandard, doubtful and loss categories. | |
| (4) | Annualized. |
($ in thousands) | 1Q2023 | 4Q2022 | 1Q2022 | ||||||
Accruing delinquent loans 30-89 days past due | |||||||||
30-59 days | $ | 4,866 | $ | 1,918 | $ | 201 | |||
60-89 days | - | 1,559 | - | ||||||
Total (1) | $ | 4,866 | $ | 3,477 | $ | 201 | |||
| (1) Includes the guaranteed portion of PPP loans totaling $9 thousand as of March 31, 2022. | |||||||||
AVERAGE BALANCE SHEET, INTEREST AND YIELD/RATE ANALYSIS | |||||||||||||||||||||||||||
For the Three Months Ended | |||||||||||||||||||||||||||
1Q2023 | 4Q2022 | 1Q2022 | |||||||||||||||||||||||||
($ in thousands) | Average Balance | Interest and Fees | Yield/ Rate (1) | Average Balance | Interest and Fees | Yield/ Rate (1) | Average Balance | Interest and Fees | Yield/ Rate (1) | ||||||||||||||||||
Interest-earning assets: | |||||||||||||||||||||||||||
Interest-bearing deposits in other banks | $ | 74,162 | $ | 846 | 4.56 | % | $ | 75,988 | $ | 734 | 3.78 | % | $ | 86,875 | $ | 42 | 0.19 | % | |||||||||
Federal funds sold and other investments | 12,130 | 171 | 5.65 | 12,074 | 196 | 6.47 | 10,957 | 115 | 4.19 | ||||||||||||||||||
Available-for-sale debt securities, at fair value | 210,462 | 1,566 | 2.94 | 186,461 | 1,237 | 2.66 | 156,913 | 530 | 1.35 | ||||||||||||||||||
Commercial real estate loans | 840,402 | 11,179 | 5.39 | 836,609 | 11,172 | 5.30 | 710,993 | 7,802 | 4.45 | ||||||||||||||||||
SBA loans | 274,889 | 6,982 | 10.30 | 289,408 | 6,681 | 9.16 | 358,725 | 5,834 | 6.60 | ||||||||||||||||||
C&I loans | 121,915 | 2,200 | 7.32 | 114,265 | 1,917 | 6.66 | 156,355 | 1,536 | 3.98 | ||||||||||||||||||
Home mortgage loans | 486,800 | 5,633 | 4.63 | 449,684 | 4,929 | 4.38 | 217,103 | 2,074 | 3.82 | ||||||||||||||||||
Consumer loans | 1,386 | 17 | 5.07 | 1,676 | 20 | 4.80 | 878 | 11 | 4.88 | ||||||||||||||||||
Loans (2) | 1,725,392 | 26,011 | 6.10 | 1,691,642 | 24,719 | 5.81 | 1,444,054 | 17,257 | 4.84 | ||||||||||||||||||
Total interest-earning assets | 2,022,146 | 28,594 | 5.71 | 1,966,165 | 26,886 | 5.43 | 1,698,799 | 17,944 | 4.28 | ||||||||||||||||||
Noninterest-earning assets | 82,538 | 87,189 | 63,016 | ||||||||||||||||||||||||
Total assets | $ | 2,104,684 | $ | 2,053,354 | $ | 1,761,815 | |||||||||||||||||||||
| |||||||||||||||||||||||||||
Interest-bearing liabilities: | |||||||||||||||||||||||||||
Money market deposits and others | $ | 409,813 | $ | 3,150 | 3.12 | % | $ | 515,747 | $ | 3,045 | 2.34 | % | $ | 412,295 | $ | 251 | 0.25 | % | |||||||||
Time deposits | 786,381 | 7,232 | 3.73 | 569,584 | 3,553 | 2.47 | 374,620 | 403 | 0.44 | ||||||||||||||||||
Total interest-bearing deposits | 1,196,194 | 10,382 | 3.52 | 1,085,331 | 6,598 | 2.41 | 786,915 | 654 | 0.34 | ||||||||||||||||||
Borrowings | 26,168 | 320 | 4.95 | 8,158 | 90 | 4.35 | - | - | - | ||||||||||||||||||
Total interest-bearing liabilities | 1,222,362 | 10,702 | 3.55 | 1,093,489 | 6,688 | 2.43 | 786,915 | 654 | 0.34 | ||||||||||||||||||
Noninterest-bearing liabilities: | |||||||||||||||||||||||||||
Noninterest-bearing deposits | 671,490 | 751,405 | 783,461 | ||||||||||||||||||||||||
Other noninterest-bearing liabilities | 31,648 | 35,593 | 24,599 | ||||||||||||||||||||||||
Total noninterest-bearing liabilities | 703,138 | 786,998 | 808,060 | ||||||||||||||||||||||||
Shareholders' equity | 179,184 | 172,867 | 166,840 | ||||||||||||||||||||||||
Total liabilities and shareholders' equity | $ | 2,104,684 | 2,053,354 | 1,761,815 | |||||||||||||||||||||||
Net interest income / interest rate spreads | $ | 17,892 | 2.16 | % | $ | 20,198 | 3.00 | % | $ | 17,290 | 3.94 | % | |||||||||||||||
Net interest margin | 3.56 | % | 4.08 | % | 4.12 | % | |||||||||||||||||||||
Cost of deposits & cost of funds: | |||||||||||||||||||||||||||
Total deposits / cost of deposits | $ | 1,867,684 | $ | 10,382 | 2.25 | % | $ | 1,836,736 | $ | 6,598 | 1.43 | % | 1,570,376 | $ | 654 | 0.17 | % | ||||||||||
Total funding liabilities / cost of funds | $ | 1,893,852 | $ | 10,702 | 2.29 | % | $ | 1,844,894 | $ | 6,688 | 1.44 | % | 1,570,376 | $ | 654 | 0.17 | % | ||||||||||
| (1) | Annualized. | |
| (2) | Includes loans held for sale. |
Contacts
Investor Relations
OP Bancorp
Christine Oh
EVP & CFO
213.892.1192
Christine.oh@myopenbank.com
