LOS ANGELES--(BUSINESS WIRE)--OP Bancorp (the “Company”) (NASDAQ: OPBK), the holding company of Open Bank (the “Bank”), today reported unaudited financial results for the fourth quarter of 2020. Net income for the fourth quarter of 2020 was $3.9 million, or $0.25 per diluted common share, compared to net income of $3.6 million, or $0.23 per diluted common share, for the third quarter of 2020, and net income of $4.2 million, or $0.26 per diluted common share, for the fourth quarter of 2019.

“I am pleased to report another strong quarter with solid financial results in this challenging environment. We have exceeded our expectations in all key financial areas through proactive management of the risks, margin, and expenses during this historically difficult period. As we start a new year, we will continue to put our best efforts in supporting our customers who are still experiencing many challenges through new PPP, loan deferments, and any other means of assistance. In addition, we continue to put our priority in the well-being of employees and will promote safer working environment through expanding remote capabilities and more automated platforms. The contribution to our communities will remain a focus as we seek more ways to work with various organizations to help those who are in need. Lastly and most importantly, managing risks and maintaining safe and sound banking operations will continue to be our key focus this year,” 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
	December 31,			September 30,			December 31,
	2020			2020			2019
Income Statement Data:
Interest income	$	13,375		$	13,016		$	14,703
Interest expense		1,194			1,597			3,625
Net interest income		12,181			11,419			11,078
Provision for loan losses		1,790			1,399			411
Noninterest income		3,392			3,021			2,513
Noninterest expense		8,402			7,987			7,665
Income before taxes		5,381			5,054			5,515
Provision for income taxes		1,513			1,459			1,334
Net Income	$	3,868		$	3,595		$	4,181
Diluted earnings per share	$	0.25		$	0.23		$	0.26
Balance Sheet Data:
Loans held for sale	$	26,659		$	41,430		$	2,100
Gross loans, net of unearned income		1,099,736			1,072,790			990,138
Allowance for loan losses (ALL)		15,321			14,164			10,050
Total assets		1,366,867			1,339,821			1,179,520
Deposits		1,200,090			1,170,164			1,020,711
Shareholders’ equity		143,407			141,549			140,576
Performance Ratios:
Return on average assets (annualized)		1.15	%		1.11	%		1.45	%
Return on average equity (annualized)		10.86	%		10.22	%		12.05	%
Net interest margin (annualized)		3.73	%		3.66	%		3.99	%
Efficiency ratio (1)		53.96	%		55.31	%		56.40	%
Credit Quality:
Nonperforming loans	$	985		$	330		$	1,548
Nonperforming assets		985			330			1,548
Net charge-offs(recoveries) to average gross loans (annualized)		0.00	%		0.00	%		0.00	%
Nonperforming assets to gross loans plus OREO		0.09	%		0.03	%		0.16	%
ALL to nonperforming loans		1,555	%		4,295	%		649	%
ALL to gross loans, net of unearned income		1.39	%		1.32	%		1.02	%
Capital Ratios:
Total risk-based capital ratio		14.82	%		14.93	%		15.18	%
Tier 1 risk-based capital ratio		13.56	%		13.67	%		14.16	%
Common equity tier 1 ratio		13.56	%		13.67	%		14.16	%
Leverage ratio		10.55	%		10.85	%		12.14	%

(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 Twelve Months Ended
	December 31,			December 31,
	2020			2019
Income Statement Data:
Interest income	$	53,655		$	58,779
Interest expense		8,291			14,507
Net interest income		45,364			44,272
Provision for loan losses		5,920			1,102
Noninterest income		10,771			11,426
Noninterest expense		31,930			32,520
Income before taxes		18,285			22,076
Provision for income taxes		5,107			5,319
Net Income	$	13,178		$	16,757
Diluted earnings per share	$	0.85		$	1.03
Performance Ratios:
Return on average assets		1.04	%		1.51	%
Return on average equity		9.38	%		12.42	%
Net interest margin		3.72	%		4.19	%
Efficiency ratio (1)		56.88	%		58.39	%

(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 Twelve Months Ended
	December 31,			December 31,
	2020			2019
Income before taxes, as reported	$	18,285		$	22,076
Gain on COLI		—			1,228
Provision for income taxes		5,107			5,319
Net Income, excluding gain on COLI	$	13,178		$	15,529
Diluted earnings per share	$	0.85		$	0.95
Return on average assets		1.04	%		1.40	%
Return on average equity		9.38	%		11.51	%

Pre-Provision Net Revenue
(Dollars in thousands)	For the Three Months Ended						For the Twelve Months Ended
	December 31,		September 30,		December 31,		December 31,		December 31,
	2020		2020		2019		2020		2019
Interest income	$	13,375	$	13,016	$	14,703	$	53,655	$	58,779
Interest expense		1,194		1,597		3,625		8,291		14,507
Net interest income		12,181		11,419		11,078		45,364		44,272
Noninterest income		3,392		3,021		2,513		10,771		11,426
Noninterest expense		8,402		7,987		7,665		31,930		32,520
Pre-provision net revenue	$	7,171	$	6,453	$	5,926	$	24,205	$	23,178
Reconciliation to Net Income:
Provision for loan losses		1,790		1,399		411		5,920		1,102
Provision for income taxes		1,513		1,459		1,334		5,107		5,319
Net Income	$	3,868	$	3,595	$	4,181	$	13,178	$	16,757
(1) Pre-provision net revenue is a non-GAAP measure. Pre-provision net revenue excludes income taxes and provision for loan losses from net income. Management believes that this information provides useful information with a better comparison to the financial results of each periods and a better understanding of the operating results of the Bank.

Results of Operations

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

	Three Months Ended
	December 31,						September 30,					December 31,
	2020						2020					2019
(Dollars in thousands)	Interest & Fees			Yield			Interest & Fees		Yield			Interest & Fees		Yield
Contractual interest rate	$	12,156			4.35	%	$	11,715		4.39	%	$	13,337		5.44	%
SBA discount accretion		619			0.22	%		389		0.15	%		589		0.24	%
Amortization of net deferred fees		242			0.09	%		393		0.15	%		41		0.02	%
Net interest recognized on nonaccrual loans		(20	)		-0.01	%		48		0.02	%		-		0.00	%
Prepayment penalties and other fees		9			0.00	%		36		0.01	%		28		0.01	%
Yield on loans (as reported)	$	13,006			4.65	%	$	12,581		4.72	%	$	13,995		5.71	%

	Twelve Months Ended
	December 31,					December 31,
	2020					2019
(Dollars in thousands)	Interest & Fees		Yield			Interest & Fees			Yield
Contractual interest rate	$	48,639		4.60	%	$	52,866			5.66	%
SBA discount accretion		1,978		0.19	%		2,518			0.27	%
Amortization of net deferred fees		1,032		0.10	%		232			0.02	%
Net interest recognized on nonaccrual loans		111		0.01	%		(12	)		0.00	%
Prepayment penalties and other fees		69		0.01	%		116			0.01	%
Yield on loans (as reported)	$	51,829		4.91	%	$	55,720			5.96	%

Net interest margin for the fourth quarter of 2020 increased 7 basis points to 3.73% from 3.66% for the third quarter of 2020, primarily due to a 24 basis point decrease in the cost of interest-bearing liabilities, partially offset by an 8 basis point decrease in the reported yield on interest-earning assets.

Net interest income before provision for loan losses for the fourth quarter of 2020 was $12.2 million, an increase of $762,000, or 6.7%, compared to $11.4 million for the third quarter of 2020, primarily due to a $403,000 decrease in interest expense and a $359,000 increase in interest income.

Interest income on securities available for sale and other investments for the fourth quarter of 2020 decreased $66,000, or 15.2%, to $369,000, compared to $435,000 for the third quarter of 2020. The decrease was primarily due to a $62,000 decrease in interest income on securities available for sale primarily due to lower yields on securities purchased during the third and fourth quarters of 2020 and increased premium amortizations from prepayments on investment portfolio.

Interest income from contractual interest rates on loans for the fourth quarter of 2020 increased $441,000, or 3.8%, compared to the third quarter of 2020, reflecting an increase of $50.7 million, or 4.8% in average balance of loans, partially offset by a 4 basis point decrease in average contractual interest rate on loans. The amount of discount accretion on SBA loans for the fourth quarter of 2020 increased $230,000 compared to the third quarter of 2020 due to an increase in SBA loan payoffs. The reported interest income on loans, net of SBA discount accretions and other components, for the fourth quarter of 2020 increased $425,000, or 3.4%, compared to the third quarter of 2020.

Interest expense for the fourth quarter of 2020 was $1.2 million, a decrease of $403,000, or 25.2%, compared to $1.6 million for the third quarter of 2020, primarily due to continued downward adjustments of the Bank’s deposit rates, partially offset by an increase of $6.3 million, or 0.9%, in the average balance of interest-bearing liabilities.

Net interest margin for the fourth quarter of 2020 decreased 26 basis points to 3.73% from 3.99% for the fourth quarter of 2019, primarily due to a 120 basis point decrease in the reported yield on interest-earning assets, partially offset by a 133 basis point decrease in the cost of interest-bearing liabilities as a result of cumulative market rate cuts of 150 basis points by the Federal Reserve in first quarter of 2020.

Net interest income before provision for loan losses for the fourth quarter of 2020 increased $1.1 million, or 10.0%, to $12.2 million, compared to $11.1 million for the fourth quarter of 2019, primarily due to a $2.4 million decrease in interest expense, partially offset by a $1.3 million decrease in interest income.

Interest income on securities available for sale and other investments for the fourth quarter of 2020 decreased $339,000, or 47.8%, to $369,000, compared to $708,000, for the fourth quarter of 2019. The decrease was primarily due to a decrease in interest income on Fed funds as a result of the aforementioned cumulative rate cuts, a decrease in interest income on other investments from lower FHLB dividend income, and a decrease in interest income on securities available for sale as a result of lower yields from investment purchases and higher premium amortizations from accelerated prepayments in 2020.

Interest income from contractual interest rates on loans for the fourth quarter of 2020 decreased $1.2 million, or 8.9%, compared to the fourth quarter of 2019, reflecting a 109 basis point decrease in average contractual interest rate on loans, primarily due to the aforementioned cumulative rate cuts, partially offset by an increase of $139.5 million, or 14.3% in average balance of loans. The amount of discount accretion on SBA loans for the fourth quarter of 2020 increased $30,000 compared to the fourth quarter of 2019, primarily due to an increase in monthly discount accretions in line with an increase in SBA loan balance in 2020. The reported interest income on loans, net of SBA discount accretions and other components, for the fourth quarter of 2020 decreased $989,000, or 7.1%, compared to the fourth quarter of 2019.

Interest expense for the fourth quarter of 2020 decreased $2.4 million, or 67.1%, to $1.2 million, compared to $3.6 million for the fourth quarter of 2019, primarily due to the Bank’s downward adjustments in deposit rates after the rate cuts by the Federal Reserve in March of 2020 and a decrease of $26.8 million, or 3.8%, in the average balance of interest-bearing liabilities.

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

	Three Months Ended									Percentage Change
	December 31,			September 30,			December 31,			Q4-20			Q4-20
	2020			2020			2019			vs. Q3-20			vs. Q4-19
Yield on loans		4.65	%		4.72	%		5.71	%		-0.07	%		-1.06	%
Yield on interest-earning assets		4.10	%		4.18	%		5.30	%		-0.08	%		-1.20	%
Cost of interest-bearing liabilities		0.70	%		0.94	%		2.03	%		-0.24	%		-1.33	%
Cost of deposits		0.40	%		0.56	%		1.44	%		-0.16	%		-1.04	%
Cost of funds		0.40	%		0.56	%		1.44	%		-0.16	%		-1.04	%
Net interest spread		3.40	%		3.24	%		3.27	%		0.16	%		0.13	%
Net interest margin		3.73	%		3.66	%		3.99	%		0.07	%		-0.26	%

	Twelve Months Ended						Percentage Change
	December 31,			December 31,			2020 YTD
	2020			2019			vs. 2019 YTD
Yield on loans		4.91	%		5.96	%		-1.05	%
Yield on interest-earning assets		4.40	%		5.56	%		-1.16	%
Cost of interest-bearing liabilities		1.18	%		2.13	%		-0.95	%
Cost of deposits		0.75	%		1.52	%		-0.77	%
Cost of funds		0.75	%		1.52	%		-0.77	%
Net interest spread		3.22	%		3.43	%		-0.21	%
Net interest margin		3.72	%		4.19	%		-0.47	%

The Bank recorded $1.8 million in provision for loan losses for the fourth quarter of 2020. Management evaluates the qualitative and quantitative factors on all loan types to reflect continued adverse impacts on national, state, and local economies caused by the COVID-19 pandemic. The changes in quantitative factors accounted for $1.3 million, or 70%, of provision for loan losses for the quarter, which includes $633,000 for accrued interest receivables on deferred loans, $440,000 for an increase in loan balance, and $226,000 for loan balance migration to classified loans. The Bank recorded a provision for loan losses of $1.4 million for the third quarter of 2020 and $411,000 for the fourth quarter of 2019.

Noninterest income for the fourth quarter of 2020 was $3.4 million, an increase of $371,000, or 12.3%, from $3.0 million for the third quarter of 2020, primarily due to an increase of $375,000 in gain on sale of loans and an increase of $180,000 in other income, partially offset by a decrease of $216,000 in loan servicing fees from an increase in SBA loan payoffs. Gain on sale of loans for the fourth quarter of 2020 was $2.2 million, an increase of $375,000, compared to $1.8 million for the third quarter of 2020. The Bank sold $28.5 million in SBA loans with an average premium of 8.83% in the fourth quarter of 2020, compared to the sale of $24.0 million in SBA loans with an average premium of 9.66% in the third quarter of 2020.

Noninterest income for the fourth quarter of 2020 was $3.4 million, an increase of $879,000, compared to $2.5 million for the fourth quarter of 2019, primarily due to an increase of $661,000 in gain on sale of loans and an increase of $343,000 in other income, partially offset by a decrease of $159,000 in service charges on deposits. Gain on sale of loans for the fourth quarter of 2019 was $1.5 million from the sale of $23.9 million in SBA loans with an average premium of 7.73%. The Bank sold a property that had been used for the Bank’s internal use with a gain of $213,000 during the fourth quarter of 2020, while the Bank sold OREO with a loss of $145,000 during the fourth quarter of 2019.

Noninterest expense for the fourth quarter of 2020 was $8.4 million, an increase of $415,000, or 5.2%, compared to $8.0 million for the third quarter of 2020. The increase was primarily due to an increase of $440,000 in salary and employee benefits as a result of year-end adjustments in employee bonus and incentive accruals.

Noninterest expense for the fourth quarter of 2020 was $8.4 million, an increase of $737,000, or 9.6%, compared to $7.7 million for the fourth quarter of 2019. The increase was primarily due to an increase of $1.1 million in salary and employee benefits, partially offset by a decrease of $201,000 in promotion and advertising expenses, and a decrease of $131,000 in director’s fees expenses. The increase in salary and employee benefits was primarily due to additional accruals made to employee bonus and incentives during the fourth quarter of 2020 compared to accrual reversals made to employee bonus during the fourth quarter of 2019. The decrease in promotion and advertising expenses was primarily due to Management’s proactive management of overhead expenses amid the COVID-19 pandemic. The decrease in director’s expense was due to a decrease of $108,000 in restricted stock unit expense resulting from the full vesting of the restricted stock units in July 2020.

Income tax provision was $1.5 million for the fourth quarter and for the third quarter of 2020, and $1.3 million for the fourth quarter of 2019. The effective tax rate for the fourth quarter of 2020 was 28.1%, compared to 28.9% for the third quarter of 2020 and 24.2% for the fourth quarter of 2019. The higher effective tax rate for the fourth quarter of 2020 compared to the fourth quarter of 2019 was primarily due to realizing a lower amount of tax benefits resulting from the exercise of non-qualified stock options. There was no non-qualified stock option exercised during the fourth quarter of 2020.

Balance Sheet

Total assets were $1.37 billion at December 31, 2020, an increase of $27.0 million, or 2.0%, compared to $1.34 billion at September 30, 2020, and an increase of $187.3 million, or 15.9%, compared to $1.18 billion at December 31, 2019.

Gross loans, net of unearned income, were $1.10 billion at December 31, 2020, an increase of $26.9 million, or 2.5%, from $1.07 billion at September 30, 2020, and an increase of $109.6 million, or 11.1%, from $990.1 million at December 31, 2019.

The Following tables shows new loan originations for the periods indicated.

	Three Month Ended
	December 31,		September 30,			December 31,
	2020		2020			2019
Real estate loans	$	30,828	$	39,476		$	58,854
SBA loans		16,634		77,479	(1)		26,347
C & I loans		47,308		10,458			6,342
Home mortgage loans		17,027		12,835			6,924
Total	$	111,797	$	140,248		$	98,467
(1) Include SBA Paycheck Protection Program (PPP) loans of $1.3 million.

Loan payoffs were $41.2 million for the fourth quarter of 2020, compared to $47.1 million for the third quarter of 2020, and $35.9 million for the fourth quarter of 2019.

Total deposits were $1.20 billion at December 31, 2020, an increase of $29.9 million, or 2.6%, from $1.17 billion at September 30, 2020, and an increase of $179.4 million, or 17.6%, from $1.02 billion at December 31, 2019. Noninterest-bearing deposits were $522.8 million at December 31, 2020, compared to $488.8 million at September 30, 2020, and $294.3 million at December 31, 2019. The increase in noninterest-bearing deposits during the fourth quarter of 2020 was primarily due to new accounts being opened during the quarter.

Noninterest-bearing deposits accounted for 43.6% of total deposits at December 31, 2020, compared to 41.8% at September 30, 2020, and 28.8% at December 31, 2019. The following table shows the Bank’s deposits, by type as a percentage of total deposits as of the periods indicated.

	As of
	December 31,			September 30,			December 31,
	2020			2020			2019
Noninterest-bearing deposits		43.6	%		41.8	%		28.8	%
Money market deposits and others		27.3	%		29.1	%		29.1	%
Time deposits over $250,000		16.7	%		16.6	%		20.9	%
Other time deposits		12.4	%		12.5	%		21.2	%
Total deposits		100.0	%		100.0	%		100.0	%

The Bank had $5.0 million in borrowings from the Federal Home Loan Bank (FHLB) at December 31, 2020 and $10.0 million at September 30, 2020, which has a 0% interest rate under the Zero-Rate Recovery Advance Program, FHLB’s pandemic relief initiatives. The Bank had no borrowings from the FHLB at December 31, 2019.

The Company’s consolidated regulatory capital ratios exceeded regulatory guidelines and the Bank’s capital ratios exceeded the regulatory guidelines for a well-capitalized financial institution under the Basel III regulatory requirements at December 31, 2020, as summarized in the following table.

										Regulatory
							Well-capitalized			Capital Ratio
							Financial			Requirements (1),
							Institution			Including
							Basel III			Fully Phased-in
							Regulatory			Capital Conservation
Capital Ratios	OP Bancorp			Open Bank			Guidelines			Buffer
Total risk-based capital ratio		14.82	%		14.53	%		10.00	%		10.50	%
Tier 1 risk-based capital ratio		13.56	%		13.27	%		8.00	%		8.50	%
Common equity tier 1 ratio		13.56	%		13.27	%		6.50	%		7.00	%
Leverage ratio		10.55	%		10.32	%		5.00	%		4.00	%

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

The Company announced a fourth stock repurchase program on September 9, 2020, which authorizes the Company to repurchase up to 500,000 shares of its common stock. As of January 25, 2021, the Company has repurchased 201,000 shares of its common stock at an average price of $6.66 in the fourth stock repurchase program. Since the announcement of the initial stock repurchase program in January 2019, the Company has repurchased a total of 1.57 million shares of its common stock at an average repurchase price of $8.64 per share through January 25, 2021.

Asset Quality

Nonperforming loans were $985,000 at December 31, 2020, an increase of $655,000 from $330,000 at September 30, 2020 and a decrease of $563,000 from $1.5 million at December 31, 2019.

The Bank had no other real estate owned (OREO) at December 31, 2020, September 30, 2020 and December 31, 2019.

Nonperforming assets were $985,000, or 0.07% of total assets, at December 31, 2020, compared to $330,000, or 0.02% of total assets, at September 30, 2020, and $1.5 million, or 0.13% of total assets, at December 31, 2019. Nonperforming loans to gross loans were 0.09% at December 31, 2020, compared to 0.03% at September 30, 2020, and 0.16% at December 31, 2019.

Total classified loans were $7.3 million, or 0.67% of gross loans, at December 31, 2020, compared to $2.1 million, or 0.20% of gross loans, at September 30, 2020, and $3.5 million, or 0.35% of gross loans, at December 31, 2019. The increase of $5.2 million was primarily due to a commercial loan of $3.8 million, two SBA real estate loans of $751,000, which were reclassified from special mentioned loans, and a home mortgage loan of $600,000, which was newly classified and placed on a nonaccrual status. All of these loans are fully secured by real estate collaterals.

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

As of

December 31,

September 30,

June 30,

OP Bancorp Reports Fourth Quarter and Year End Results For 2020