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OP Bancorp Reports Third Quarter Result of 2019

LOS ANGELES--(BUSINESS WIRE)--

2019 Third Quarter Highlights:

  • Net income totaled $4.0 million or $0.24 per diluted common share, up 14.9%, compared to $3.5 million or $0.21 per diluted common share for the third quarter of 2018
  • Net interest margin was 4.13% compared to 4.44% for the third quarter of 2018
  • Return on average assets decreased to 1.41% and return on average equity improved to 11.74% compared to 1.42% and 11.28%, respectively, for the third quarter of 2018
  • Total assets increased 11.3% to $1.15 billion at September 30, 2019, compared to $1.04 billion at September 30, 2018
  • Net loans receivable increased 13.6% to $954.7 million at September 30, 2019, compared to $840.5 million at September 30, 2018
  • Total deposits increased 11.0% to $996.0 million at September 30, 2019, of which 3.7% were non-interest bearing, compared to $896.9 million at September 30, 2018
  • Nonperforming assets to total assets was 0.29% compared to 0.12% at September 30, 2018

 

OP Bancorp (the “Company”) (OPBK), the holding company of Open Bank (the “Bank”), today reported unaudited financial results for the third quarter of 2019. Net income for the third quarter of 2019 was $4.0 million, or $0.24 per diluted common share, compared with net income of $3.8 million, or $0.23 per diluted common share, for the second quarter of 2019, and net income of $3.5 million, or $0.21 per diluted share, for the third quarter of 2018.

“We successfully completed our first stock repurchase program with total purchases of 395,000 shares and launched another stock repurchase program of up to 475,000 shares of common stock in August. We are also pleased to report another strong quarter, with net income of $4.0 million, or $0.24 per diluted common share for the three months ended September 30, 2019. We have continued to grow our loans and deposits by 14% and 11%, respectively, compared to the third quarter of 2018, while maintaining strong asset quality. Our noninterest bearing deposits increased 7.9% during the quarter to reach 29.8% of total deposits as of September 30, 2019, in this challenging and competitive interest-rate environment,” commented Min Kim, President and Chief Executive Officer of OP Bancorp and Open Bank.

Financial Highlights (unaudited)

(Dollars in thousands, except per share data)

 

As of or for the Three Months Ended

 

 

September 30,

 

June 30,

 

September 30,

 

 

2019

 

2019

 

2018

Income Statement Data:

 

 

 

 

 

 

Interest income

 

$

15,112

 

 

$

14,878

 

 

$

13,006

 

Interest expense

 

 

3,893

 

 

 

3,701

 

 

 

2,521

 

Net interest income

 

 

11,219

 

 

 

11,177

 

 

 

10,485

 

Provision for loan losses

 

 

290

 

 

 

401

 

 

 

439

 

Noninterest income

 

 

2,732

 

 

 

2,647

 

 

 

2,284

 

Noninterest expense

 

 

8,424

 

 

 

8,358

 

 

 

7,705

 

Income before taxes

 

 

5,237

 

 

 

5,065

 

 

 

4,625

 

Provision for income taxes

 

 

1,237

 

 

 

1,229

 

 

 

1,144

 

Net Income

 

$

4,000

 

 

$

3,836

 

 

$

3,481

 

Diluted earnings per share

 

$

0.24

 

 

$

0.23

 

 

$

0.21

 

Balance Sheet Data:

 

 

 

 

 

 

Loans held for sale

 

$

368

 

 

$

1,245

 

 

$

3,254

 

Gross loans, net of unearned income

 

 

964,370

 

 

 

947,006

 

 

 

850,018

 

Allowance for loan losses

 

 

9,640

 

 

 

9,525

 

 

 

9,551

 

Total assets

 

 

1,151,934

 

 

 

1,127,556

 

 

 

1,035,028

 

Deposits

 

 

995,993

 

 

 

974,672

 

 

 

896,891

 

Shareholders’ equity

 

 

137,593

 

 

 

135,482

 

 

 

124,975

 

Performance Ratios:

 

 

 

 

 

 

Return on average assets (annualized)

 

 

1.41

%

 

 

1.39

%

 

 

1.42

%

Return on average equity (annualized)

 

 

11.74

%

 

 

11.50

%

 

 

11.28

%

Net interest margin (annualized)

 

 

4.13

%

 

 

4.26

%

 

 

4.44

%

Efficiency ratio (1)

 

 

60.39

%

 

 

60.45

%

 

 

60.34

%

Credit Quality:

 

 

 

 

 

 

Nonperforming loans

 

$

1,570

 

 

$

1,556

 

 

$

1,233

 

Nonperforming assets

 

 

3,387

 

 

 

1,556

 

 

 

1,233

 

Net charge-offs to average gross loans (annualized)

 

 

0.08

%

 

 

0.21

%

 

 

0.29

%

Nonperforming assets to gross loans plus OREO

 

 

0.35

%

 

 

0.16

%

 

 

0.15

%

ALL to nonperforming loans

 

 

614

%

 

 

612

%

 

 

775

%

ALL to gross loans, net of unearned income

 

 

1.00

%

 

 

1.01

%

 

 

1.12

%

Capital Ratios:

 

 

 

 

 

 

Total risk-based capital ratio

 

 

15.36

%

 

 

15.45

%

 

 

16.16

%

Tier 1 risk-based capital ratio

 

 

14.35

%

 

 

14.42

%

 

 

15.01

%

Common equity tier 1 ratio

 

 

14.35

%

 

 

14.42

%

 

 

15.01

%

Leverage ratio

 

 

12.11

%

 

 

12.24

%

 

 

12.77

%

 

 

 

 

 

 

 

(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,

 

 

2019

 

2018

Income Statement Data:

 

 

 

 

Interest income

 

$

44,077

 

 

$

36,248

 

Interest expense

 

 

10,883

 

 

 

6,217

 

Net interest income

 

 

33,194

 

 

 

30,031

 

Provision for loan losses

 

 

691

 

 

 

1,047

 

Noninterest income

 

 

8,912

 

 

 

7,279

 

Noninterest expense

 

 

24,855

 

 

 

21,993

 

Income before taxes

 

 

16,560

 

 

 

14,270

 

Provision for income taxes

 

 

3,984

 

 

 

3,781

 

Net Income

 

$

12,576

 

 

$

10,489

 

Diluted earnings per share

 

$

0.77

 

 

$

0.66

 

Performance Ratios:

 

 

 

 

Return on average assets

 

 

1.54

%

 

 

1.48

%

Return on average equity

 

 

12.55

%

 

 

12.43

%

Net interest margin

 

 

4.25

%

 

 

4.49

%

Efficiency ratio (1)

 

 

59.03

%

 

 

58.95

%

 

 

 

 

 

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

Financial Highlights, excluding Gain on COLI

(Dollars in thousands, except per share data)

 

For the Nine Months Ended

 

 

September 30,

 

September 30,

 

 

2019

 

2018

Income before taxes, as reported

 

$

16,560

 

 

$

14,270

 

Gain on COLI

1,228

 

Provision for income taxes

 

 

3,887

 

 

 

3,781

 

Net Income

 

$

11,445

 

 

$

10,489

 

Diluted earnings per share

 

$

0.70

 

 

$

0.66

 

Return on average assets

 

 

1.40

%

 

 

1.48

%

Return on average equity

 

 

11.42

%

 

 

12.43

%

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, 2019

 

June 30, 2019

 

September 30, 2018

(Dollars in thousands)

 

Interest & Fees

 

Yield

 

Interest & Fees

 

Yield

 

Interest & Fees

 

Yield

Contractual interest rate

 

$

13,492

 

 

 

5.66

%

 

$

13,298

 

 

 

5.72

%

 

$

11,820

 

 

 

5.46

%

SBA discount accretion

 

 

717

 

 

 

0.30

%

 

 

703

 

 

 

0.30

%

 

 

611

 

 

 

0.28

%

Amortization of net deferred fees/(costs)

 

 

37

 

 

 

0.02

%

 

 

38

 

 

 

0.02

%

 

 

65

 

 

 

0.03

%

Interest recognized on nonaccrual loans

 

 

(12

)

 

 

-0.01

%

 

 

-

 

 

 

0.00

%

 

 

(8

)

 

 

0.00

%

Prepayment penalties and other fees

 

 

44

 

 

 

0.02

%

 

 

54

 

 

 

0.02

%

 

 

36

 

 

 

0.02

%

Yield on loans (as reported)

 

$

14,278

 

 

 

5.99

%

 

$

14,093

 

 

 

6.06

%

 

$

12,524

 

 

 

5.79

%

 

 

Nine Months Ended

 

 

September 30, 2019

 

September 30, 2018

(Dollars in thousands)

 

Interest & Fees

 

Yield

 

Interest & Fees

 

Yield

Contractual interest rate

 

$

39,285

 

 

 

5.69

%

 

$

33,016

 

 

 

5.35

%

SBA discount accretion

 

 

1,928

 

 

 

0.28

%

 

 

1,660

 

 

 

0.27

%

Amortization of net deferred fees/(costs)

 

 

192

 

 

 

0.03

%

 

 

215

 

 

 

0.03

%

Interest recognized on nonaccrual loans

 

 

(12

)

 

 

0.00

%

 

 

21

 

 

 

0.00

%

Prepayment penalties and other fees

 

 

332

 

 

 

0.05

%

 

 

130

 

 

 

0.02

%

Yield on loans (as reported)

 

$

41,725

 

 

 

6.05

%

 

$

35,042

 

 

 

5.67

%

Net interest margin for the third quarter of 2019 decreased 13 basis points to 4.13% from 4.26% for the second quarter of 2019 due to the decrease in the reported yield on interest-earning assets and the increase in cost of deposits.

Net interest income before the provision for loan losses for the third quarter of 2019 was $11.2 million, an increase of $42,000, or 0.4%, compared to the second quarter of 2019, primarily due to a $234,000 increase in interest income, partially offset by a $192,000 increase in interest expense.

Interest income on securities available for sale and other interest income increased $49,000, or 6.2%, during the third quarter of 2019 compared to the second quarter of 2019. The increase was primarily due to a $44,000 increase in other interest income as a result of a $12.0 million, or 18.0%, increase in the average balance of Fed funds sold and other investments, compared to the second quarter of 2019.

Interest income from the contractual interest rates on loans increased $194,000, or 1.5%, during the third quarter of 2019 compared to the second quarter of 2019, reflecting a $14.4 million, or 1.5%, increase in average balance of loans, including loans held for sale. The amount of discount accretion on SBA loans increased $14,000 during the third quarter of 2019 due to an increase in SBA loan payoffs. The reported interest income on loans, net of SBA discount accretions and other components, increased $185,000 during the third quarter of 2019.

Interest expense for the third quarter of 2019 increased $192,000, or 5.2%, compared to the second quarter of 2019, due to an increase of $26.4 million, or 3.9%, in the average balance of interest-bearing liabilities.

Net interest margin for the third quarter of 2019 decreased 31 basis points to 4.13% from 4.44% for the third quarter of 2018, primarily due to a greater increase in the cost of interest-bearing liabilities compared to the increase in the reported yield on interest-earning assets.

Net interest income before provision for loan losses for the third quarter of 2019 increased $734,000, or 7.0%, to $11.2 million, compared to $10.5 million for the third quarter of 2018, primarily due to a $2.1 million increase in interest income, partially offset by a $1.4 million increase in interest expense.

Interest income on securities available for sale and other interest income increased $352,000, or 73.1%, for the third quarter of 2019 compared to the third quarter of 2018. The increase was primarily due to a $269,000 increase in other interest income as a result of a $44.0 million increase in the average balance of Fed funds sold and other investments and a $83,000 increase in interest income on securities available for sale from purchases of higher yielding securities during the fourth quarter of 2018.

The increase of $1.8 million in contractual interest income on loans in the third quarter of 2019 was primarily due to a $87.2 million, or 10.1%, increase in the balance of average loans, including loans held for sale, compared to the third quarter of 2018, and a 20 basis point increase in the yield on average loans to 5.99% for the third quarter of 2019 from 5.79% for the same period of 2018.

The increase in interest expense in the third quarter of 2019, compared to the third quarter of 2018 was due to a $109.4 million, or 18.5%, increase in the average balance of the total interest-bearing liabilities and a 51 basis point increase in the cost of interest-bearing liabilities.

The increases in the average yield on loans and average cost of deposits in the third quarter of 2019, as compared to the third quarter of 2018, were primarily due to market interest rate increases by the Federal Reserve in September and December of 2018. The rate cuts by the Federal Reserve of 25 basis points each in August and September of 2019 did not have a full impact on loan yields or deposit costs in the third quarter of 2019.

The following tables show the asset yields, liability costs, spreads and margins for the periods indicated.

 

 

Three Months Ended

 

Percentage Change

 

 

September 30,

 

June 30,

 

September 30,

 

Q3-19

 

Q3-19

 

 

2019

 

2019

 

2018

 

vs. Q2-19

 

vs. Q3-18

Yield on loans

 

5.99

%

 

6.06

%

 

5.79

%

 

-0.07

%

 

0.20

%

Yield on interest-earning assets

 

5.56

%

 

5.67

%

 

5.51

%

 

-0.11

%

 

0.05

%

Cost of interest-bearing liabilities

 

2.20

%

 

2.20

%

 

1.69

%

 

0.00

%

 

0.51

%

Cost of deposits

 

1.58

%

 

1.56

%

 

1.17

%

 

0.02

%

 

0.41

%

Cost of funds

 

1.58

%

 

1.56

%

 

1.18

%

 

0.02

%

 

0.40

%

Net interest spread

 

3.36

%

 

3.47

%

 

3.82

%

 

-0.11

%

 

-0.46

%

Net interest margin

 

4.13

%

 

4.26

%

 

4.44

%

 

-0.13

%

 

-0.31

%

 

 

Nine Months Ended

 

Percentage Change

 

 

September 30,

 

September 30,

 

2019 YTD

 

 

2019

 

2018

 

vs. 2018 YTD

Yield on loans

 

6.05

%

 

5.67

%

 

0.38

%

Yield on interest-earning assets

 

5.65

%

 

5.41

%

 

0.24

%

Cost of interest-bearing liabilities

 

2.17

%

 

1.48

%

 

0.69

%

Cost of deposits

 

1.54

%

 

1.00

%

 

0.54

%

Cost of funds

 

1.54

%

 

1.01

%

 

0.53

%

Net interest spread

 

3.48

%

 

3.93

%

 

-0.45

%

Net interest margin

 

4.25

%

 

4.49

%

 

-0.24

%

The Company recorded the provision for loan losses of $290,000 for the third quarter of 2019 compared to $401,000 for the second quarter of 2019. The provision for loan losses in the second and third quarter of 2019 were primarily due to loan growth during the quarters. The provision for loan losses of $439,000 for the third quarter of 2018 was due to the loan growth as well as net charge-offs of $611,000.

Noninterest income for the third quarter of 2019 was $2.7 million, an increase of $85,000, or 3.2%, from $2.6 million for the second quarter of 2019, primarily due to an increase of $113,000 in gain on sale of SBA loans, partially offset by a decrease of $30,000 in service charges on deposits and a decrease of $27,000 in other income.

Gain on sale of loans increased $126,000 to $1.7 million for the third quarter of 2019 from $1.6 million for the second quarter of 2019. The Company sold $22.2 million in SBA loans with an average premium of 8.85% in the third quarter of 2019, compared to the sale of $21.2 million in SBA loans with an average premium of 8.99% in the second quarter of 2019.

Noninterest income for the third quarter of 2019 increased $448,000 to $2.7 million compared to $2.3 million for the third quarter of 2018, primarily due to an increase of $451,000 in gain on sale of SBA loans, partially offset by a decrease of $67,000 in loan servicing fees, and a decrease of $49,000 in other income.

Gain on sale of loans for the third quarter of 2018 was $1.1 million from the sale of $22.8 million in SBA loans with an average premium of 6.47%. Loan servicing fees, net of amortization, decreased $67,000 to $243,000 for the third quarter of 2019 from $310,000 for the third quarter of 2018, primarily due to an increase in the amortization of SBA servicing assets from the increase in SBA loan payoffs.

Noninterest expense for the third quarter of 2019 was $8.4 million, an increase of $66,000, or 0.8%, compared to the second quarter of 2019. The increase in noninterest expense from the second quarter of 2019 to the third quarter of 2019 was primarily due to an increase of $100,000 in occupancy and equipment expense, an increase of $23,000 in our donation to our foundation and other contributions, and an increase of $28,000 in other expenses, partially offset by a decrease of $126,000 in FDIC insurance and regulatory assessments.

The increase in occupancy and equipment expense was primarily attributable to a branch opening in Carrollton, Texas in the second quarter of 2019. The decrease in FDIC insurance and regulatory assessments was due to the small bank assessment credits that was applied to offset the FDIC assessments starting from June 30, 2019.

Noninterest expense for the third quarter of 2019 increased $719,000, or 9.3%, to $8.4 million, compared to $7.7 million for the third quarter of 2018. The increase was primarily due to an increase of $546,000 in salary and employee benefits from an increase in employee headcount to 171 at September 30, 2019, from 157 at September 30, 2018. Occupancy and equipment expense increased $256,000 primarily attributable to new loan production offices and a new branch opening in 2019. FDIC insurance and regulatory assessments decreased $127,000, primarily due to the aforementioned credits.

Income tax provision was $1.2 million for the third quarter and second quarter of 2019 and $1.1 million for the third quarter of 2018. The effective tax rate for the third quarter of 2019 was 23.6%, compared to 24.3% for the second quarter of 2019 and 24.7% for the third quarter of 2018.

Balance Sheet

Total assets at September 30, 2019, were $1.15 billion, an increase of $24.4 million, or 2.2%, compared to $1.13 billion at June 30, 2019, and an increase of $116.9 million, or 11.3%, compared to $1.04 billion at September 30, 2018. Gross loans, net of unearned income, were $964.4 million at September 30, 2019, an increase of $17.4 million, or 1.8%, from $947.0 million at June 30, 2019, and an increase of $114.4 million, or 13.5%, from $850.0 million at September 30, 2018.

New loan originations for the third quarter of 2019 totaled $100.9 million, including SBA loan originations of $30.9 million, compared to $96.2 million, including SBA loan originations of $27.9 million, for the second quarter of 2019, and $91.7 million, including SBA loan originations of $30.3 million, for the third quarter of 2018. Loan payoffs for the third quarter of 2019 were $38.7 million, compared to $38.6 million for the second quarter of 2019, and $29.3 million for the third quarter of 2018.

Total deposits were $996.0 million at September 30, 2019, an increase of $21.3 million, or 2.2%, from $974.7 million at June 30, 2019, and an increase of $99.1 million, or 11.0%, from $896.9 million at September 30, 2018. Noninterest bearing deposits were $296.8 million at September 30, 2019, compared to $275.0 million at June 30, 2019, and $286.3 million at September 30, 2018.

Noninterest bearing deposits accounted for 29.8% of total deposits at September 30, 2019, compared to 28.2% at June 30, 2019, and 31.9% at September 30, 2018.

 

 

As of

 

 

September 30,

 

June 30,

 

September 30,

 

 

2019

 

2019

 

2018

Noninterest bearing deposits

 

29.8

%

 

28.2

%

 

31.9

%

Interest bearing demand deposits

 

27.6

%

 

28.7

%

 

28.3

%

Savings

 

0.3

%

 

0.4

%

 

0.4

%

Time deposits over $250,000

 

22.1

%

 

21.7

%

 

17.6

%

Other time deposits

 

20.2

%

 

21.0

%

 

21.8

%

Total deposits

 

100.0

%

 

100.0

%

 

100.0

%

The Company had no borrowings from the Federal Home Loan Bank (“FHLB”) at September 30, 2019, June 30, 2019, and September 30, 2018.

The adoption of the new lease accounting standard ASU 2016-02, Leases (Topic 842) effective January 1, 2019, resulted in the recognition of $7.7 million and $9.6 million in right-of-use assets and lease liabilities, respectively, on the balance sheet. With the new branch opening, the Company had right-of-use assets and lease liabilities of $8.6 million and $10.3 million, respectively, at September 30, 2019. The Company’s lease agreements include options to renew at the Company’s discretion. The extensions are not reasonably certain to be exercised, therefore it is not considered in the calculation of the right-of-use assets and liabilities.

The Company’s consolidated regulatory capital ratios exceeded regulatory guidelines and the Bank’s capital ratios exceeded the regulatory guidelines for a well-capitalized financial institution under the Basel III regulatory requirements at September 30, 2019, as summarized in the following table.

 

 

 

 

 

 

 

 

Regulatory

 

 

 

 

 

 

Well-capitalized

 

Capital Ratio

 

 

 

 

 

 

Financial

 

Requirements (1),

 

 

 

 

 

 

Institution

 

Including

 

 

 

 

 

 

Basel III

 

Fully Phased-in

 

 

 

 

 

 

Regulatory

 

Capital Conservation

Capital Ratios

 

OP Bancorp

 

Open Bank

 

Guidelines

 

Buffer

Total risk-based

 

15.36

%

 

15.03

%

 

10.00

%

 

10.50

%

Tier 1 risk-based

 

14.35

%

 

14.01

%

 

8.00

%

 

8.50

%

Common equity tier 1 Risk-Based

 

14.35

%

 

14.01

%

 

6.50

%

 

7.00

%

Leverage

 

12.11

%

 

11.83

%

 

5.00

%

 

4.00

%

 

 

 

 

 

 

 

 

 

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

The Company announced a second stock repurchase program on August 28, 2019, which authorizes the Company to repurchase up to 475,000 shares of its common stock following the completion of the Company’s first stock repurchase program in August 2019. The Company completed its first stock repurchase of 395,000 shares at an average price of $9.10 per share. Since the announcement of the second stock repurchase program, the Company has repurchased 103,724 shares of its common stock at an average repurchase price of $9.28 through October 24, 2019.

Asset Quality

Nonperforming loans were $1.57 million at September 30, 2019, an increase of $14,000 from $1.56 million at June 30, 2019, and an increase of $337,000 from $1.2 million at September 30, 2018.

The Company had other real estate owned (“OREO”) of $1.8 million at September 30, 2019. The Company had no OREO at June 30, 2019 and September 30, 2018.

Nonperforming assets were $3.4 million, or 0.29% of total assets, at September 30, 2019, $1.6 million, or 0.14% of total assets, at June 30, 2019 and $1.2 million, or 0.12% of total assets, at September 30, 2018.

Nonperforming loans to gross loans were 0.16% at September 30, 2019, compared to 0.16% at June 30, 2019 and 0.15% at September 30, 2018. Total classified loans were $3.2 million, or 0.34% of gross loans, at September 30, 2019, compared to $4.2 million, or 0.44% of gross loans, at June 30, 2019, and $3.8 million, or 0.45% of gross loans, at September 30, 2018.

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

null

 

 

9/30/2019

 

6/30/2019

 

3/31/2019

 

12/31/2018

 

9/30/2018

Classified loans by loan type

 

(Dollars in thousands)

Commercial real estate

 

$

 

$

 

$

 

$

 

$

SBA loans—real estate

 

 

2,247

 

 

2,264

 

 

2,281

 

 

2,000

 

 

1,859

SBA loans—non-real estate

 

 

36

 

 

41

 

 

49