OP Bancorp (the “Company”) (OTCQB: OPBK), the holding company of Open Bank (the “Bank”), today reported that net income for the fourth quarter of 2016 was $2.26 million, or $0.17 per diluted common share. This compares with net income of $2.05 million, or $0.15 per diluted share, for the third quarter of 2016, and net income of $1.56 million, or $0.12 per diluted share, for the fourth quarter of 2015. Pre-tax pre-provision income was $4.0 million for the fourth quarter 2016, compared to $4.1 million for the third quarter 2016, and $2.6 million for the fourth quarter 2015.

“We are very pleased to report record fourth quarter and record year to date earnings of $2.3 million and $7.4 million, respectively. We finished the year with total assets of $760 million, a 23% increase from the prior year-end. We had strong growth in both loans and deposits, with a 33% increase in net loans and a 27% increase in deposits year over year. Our non-interest bearing deposits increased 59% from the prior year-end and accounted for over 37% of total deposits at December 31, 2016. We have managed to grow our loan portfolio and our deposits to record highs while tightly managing our net interest margin.” stated Min Kim, President and Chief Executive Officer. “We believe that our strong growth in both loans and deposits is the result of our high level of customer service and effective cross selling program.

Quarter Financial Highlights

(in thousands, except per share data)

 
As of or for the Three Months Ended

December 31,
2016

  

September 30,
2016

  

December 31,
2015

 
Income Statement Data:
Net interest income $ 7,879 $ 7,421 $ 5,962
Provision for loan losses 323 677 0
Non-interest income 2,533 2,400 1,988
Non-interest expense 6,427   5,703   5,309  
Income before taxes 3,662 3,441 2,641
Provision for income taxes 1,407   1,389   1,085  
Net Income $ 2,255   $ 2,052   $ 1,556  
Balance Sheet Data:
Loans held for sale $ 1,646 $ 2,231 $ 5,579
Gross loans, net of unearned income 674,227 627,171 507,286
Allowance for loan losses 7,910 7,615 6,390
Total assets 759,658 721,667 617,350
Deposits 661,784 626,878 519,721
Shareholders’ equity 81,284 78,792 72,479
Credit Quality:
Nonperforming loans $ 576 $ 968 $ 1,039
Nonperforming assets 576 968 1,039
Performance Ratios:
Net interest margin 4.41 % 4.46 % 4.02 %
Efficiency ratio 61.73 % 58.07 % 66.78 %
Pre-tax pre-provision income to average assets (annualized) 2.13 % 2.37 % 1.70 %
Net charge-offs to average gross loans (annualized) 0.02 % 0.09 % 0.00 %
Nonperforming assets to gross loans plus OREO 0.09 % 0.15 % 0.20 %
ALLL to nonperforming loans 1,373 % 787 % 615 %
ALLL to gross loans 1.17 % 1.21 % 1.26 %
Capital Ratios:
Tangible common equity to tangible assets 10.70 % 10.92 % 11.74 %
Leverage ratio 10.89 % 11.29 % 11.70 %
Common Equity Tier 1 ratio 12.20 % 12.70 % 14.28 %
Tier 1 risk-based capital ratio 12.20 % 12.70 % 14.28 %
Total risk-based capital ratio 13.40 % 13.95 % 15.53 %
 

Results of Operations

Net interest income before loan loss provision was $7.9 million for the three months ended December 31, 2016, compared to $7.4 million for the third quarter of 2016, and $6.0 million for the fourth quarter of 2015. The increases from the third quarter of 2016 and the fourth quarter of 2015 were primarily the result of continued growth in interest earning assets, mostly loans. Average gross loans were $657 million for the fourth quarter of 2016, an increase of $49 million, or 8.1%, from $608 million for the third quarter of 2016 and an increase of $151 million, or 29.9%, from $506 million for the fourth quarter of 2015.

The net interest margin for the fourth quarter of 2016 was 4.41%, a 5 basis point decrease from 4.46% for the third quarter of 2016, and a 39 basis point increase from 4.02% for the fourth quarter of 2015. Excluding impacts from non-recurring items, such as loan payoffs and FHLB special dividend, the net interest margin for the fourth quarter of 2016 was 4.29%, up 1 basis point compared to 4.28% for the third quarter of 2016, and up 40 basis points from 3.89% for the fourth quarter of 2015.

The net interest margin expansion from the fourth quarter of 2015 was attributable to improved yields on earning assets due to higher average gross loans and lower average Fed funds in the fourth quarter of 2016, and lower cost of funds due to significantly higher non-interest bearing deposits for the fourth quarter of 2016.

Average gross loans, net of unearned income, increased to 92% of earning assets for the fourth quarter 2016, compared to 86% for the fourth quarter 2015. Average Fed funds was 2% of earning assets in the fourth quarter of 2016, compared to 7% in the fourth quarter of 2015. Average non-interest bearing deposits was 36% of average total deposits for the fourth quarter of 2016, compared to 30% for the fourth quarter of 2015.

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

        Three Months Ended

December 31,
2016

 

September 30,
2016

 

December 31,
2015

 
Yield on net loans 5.16 % 5.31 % 5.22 %
Yield on interest-earning assets 4.90 % 4.96 % 4.59 %
Cost of interest-bearing liabilities 0.83 % 0.83 % 0.87 %
Cost of deposits 0.54 % 0.54 % 0.62 %
Cost of funds 0.53 % 0.54 % 0.62 %
Net interest spread 4.07 % 4.13 % 3.72 %
Net interest margin 4.41 % 4.46 % 4.02 %

Non-interest income was $2.5 million for the fourth quarter of 2016, up 5.5% compared to $2.4 million for the third quarter of 2016, and up 27.4% from $2.0 million for the fourth quarter of 2015. The increase from the fourth quarter of 2015 was primarily attributable to higher net gain on sale of SBA loans.

Net gain on sale of SBA loans totaled $1.5 million for the fourth quarter of 2016 and for the third quarter of 2016 and $1.2 million for the fourth quarter of 2015. Sale of SBA loans for the fourth quarter of 2016 was $21.4 million, compared to $25.3 million for the third quarter of 2016 and $19.6 million for the fourth quarter of 2015. The average premium on the sale of SBA loans for the fourth quarter of 2016 was 8.2%, compared to 8.3% for the third quarter of 2016 and for the fourth quarter of 2015.

Non-interest expense was $6.4 million for the fourth quarter of 2016, compared to $5.7 million for the third quarter of 2016 and $5.3 million for the fourth quarter of 2015. The increase from the third quarter 2016 was primarily due to increased accruals for unused vacation and bank-wide campaign incentives, and the increase from the fourth quarter of 2015 was due to increased operating expenses to support continued growth of the company.

The effective tax rate for the fourth quarter of 2016 was 38.4%, compared to 40.4% for the third quarter of 2016 and 41.1% for the fourth quarter of 2015. The lower fourth quarter tax rate reflects certain tax adjustments from the prior year.

Balance Sheet

Total assets were $759.7 million at December 31, 2016, an increase of $38.0 million, or 5.3% from $721.7 million at September 30, 2016, and an increase of $142.3 million, or 23.1%, from $617.4 million at December 31, 2015. Gross loans, net of unearned income, were $674.2 million at December 31, 2016, an increase of $47.1 million, or 7.5%, from $627.2 million at September 30, 2016, and an increase of $166.9 million, or 32.9%, from $507.3 million at December 31, 2015.

New loan originations for the fourth quarter of 2016 totaled $82.3 million, including SBA loan originations of $29.5 million, compared to $93.2 million, including SBA loan originations of $21.5 million for the third quarter of 2016. New loan originations for the fourth quarter of 2015 were $65.7 million, including SBA loan originations of $32.8 million.

Total deposits were $661.8 million at December 31, 2016, an increase of $34.9 million, or 5.6% from $626.9 million at September 30, 2016, and an increase of $142.1 million, or 27.3%, from $519.7 million at December 31, 2015. Non-interest bearing deposits were $247.4 million at December 31, 2016, an increase of $19.6 million, or 8.6%, from $227.7 million at September 30, 2016, and an increase of $92.2 million, or 59.4% from $155.1 million at December 31, 2015.

Non-interest bearing deposits accounted for 37.4% of total deposits at December 31, 2016, compared to 36.3% at September 30, 2016 and 29.9% at December 31, 2015.

       

December 31,
2016

 

September 30,
2016

 

December 31,
2015

 
Non-interest bearing deposits 37.4 % 36.3 %

29.9

%

Interest bearing demand deposits 34.7 % 34.3 % 34.6 %
Savings 0.5 % 0.4 % 0.4 %
Time deposits over $250,000 11.9 % 12.4 % 13.1 %
Other time deposits 15.5 % 16.6 % 22.0 %
Total deposits 100.0 % 100.0 % 100.0 %

Borrowings from the Federal Home Loan Bank (“FHLB”) were $10 million at December 31, 2016 and September 30, 2016, and $20.0 million at December 31, 2015.

At December 31, 2016, the Company continued to exceed all regulatory capital requirements to be classified as “well-capitalized,” as summarized in the following table.

         

December 31,
2016

 

September 30,
2016

 

December 31,
2015

 
Tier 1 leverage capital ratio 10.89 % 11.29 % 11.70 %
CET 1 capital ratio 12.20 % 12.70 % 14.28 %
Tier 1 risk-based capital ratio 12.20 % 12.70 % 14.28 %
Total risk-based capital ratio 13.40 % 13.95 % 15.53 %

At December 31, 2016, the tangible common equity represented 10.70% of tangible assets, compared to 10.92% at September 30, 2016 and 11.74% at December 31, 2015. The tangible common equity to tangible assets ratio is a non-GAAP financial measure that represents common equity less goodwill and other net intangible assets divided by total assets less goodwill and other net intangible assets. Management reviews the tangible common equity to tangible assets ratio to evaluate the Company’s capital levels.

Asset Quality

Loan loss provision for the fourth quarter of 2016 was $323 thousand, compared to $677 thousand for the third quarter of 2016 and no loan loss provision for the fourth quarter of 2015. Non-performing assets were $576 thousand, or 0.08% of total assets, at December 31, 2016 and $968 thousand, or 0.13% of total assets, at September 30, 2016 and $1.0 million, or 0.17% of total assets, at December 31, 2015. There was no other real estate owned (“OREO”) at December 31, 2016, September 30, 2016, or December 31, 2015.

Non-performing loans to gross loans were 0.09% at December 31, 2016, compared to 0.15% at September 30, 2016 and 0.20% at December 31, 2015. Total classified loans were $2.3 million, or 0.34% of gross loans, at December 31, 2016, compared to $1.3 million, or 0.21% of gross loans, at September 30, 2016 and $0.8 million, or 0.16% of gross loans, at December 31, 2015.

The allowance for loan losses was $7.9 million at December 31, 2016, compared to $7.6 million at September 30, 2016 and $6.4 million at December 31, 2015. The allowance for loan losses was 1.17% of gross loans at December 31, 2016 and 1.21% at September 30, 2016 and 1.26% at December 31, 2015.

Use of Non-GAAP Financial Measures. This document may contain GAAP financial measures and non-GAAP financial measures where management believes it to be helpful in understanding the Company’s results of operations or financial position. Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconciliation to the comparable GAAP financial measure, can be found in this earnings release, which can be found on Open Bank’s website at www.myopenbank.com.

About OP Bancorp

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

Safe Harbor Statement

This press release contains certain forward-looking information about OP Bancorp that is intended to be covered by the safe harbor for “forward-looking statements” provided by the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact are forward-looking statements, including statements about the Company’s successful implementation of its strategies resulting in significant increase in non-interest bearing deposits. These forward-looking statements may include, but are not limited to, such words as "believes," "expects," "anticipates," "intends," "plans," "estimates," "may," "will," "should," "could," "predicts," "potential," "continue," or the negative of such terms and other comparable terminology or similar expressions and may include statements about the Company’s focus on exploring new opportunities, building customer relationship through core deposits, growing core deposits, and improving asset quality. Forward-looking statements are not guarantees. Such statements involve inherent risks and uncertainties, many of which are difficult to predict and are generally beyond the control of OP Bancorp such as the ability of the new branch to attract sufficient number of customers, deposits and new business to become profitable. OP Bancorp cautions readers that a number of important factors could cause actual results to differ materially from those expressed in, or implied or projected by, such forward-looking statements. If any of these risks or uncertainties materializes or if any of the assumptions underlying such forward-looking statements proves to be incorrect, OP Bancorp’s results could differ materially from those expressed in, or implied or projected by such forward-looking statements. OP Bancorp assumes no obligation to update such forward-looking statements, except as required by law.

Balance Sheet              
 
(Dollars in thousand, except per share data) December 31, 2016 September 30, 2016 $ change % change   December 31, 2015 $ change % change  
(Unaudited) (Unaudited) (Audited)
Assets
 
Cash and due from banks $ 20,126 $ 29,986 $ (9,860 ) -32.9 % $ 37,399 $ (17,273 ) -46.2 %
Investment securities 35,463 38,038 (2,575 ) -6.8 % 43,889 (8,426 ) -19.2 %
Loans held for sale 1,646 2,231 (585 ) -26.2 % 5,579 (3,933 ) -70.5 %
Real Estate Loans 363,210 344,469 18,741 5.4 % 272,893 90,317 33.1 %
SBA Loans 102,926 97,598 5,328 5.5 % 81,340 21,586 26.5 %
C & I Loans 97,541 77,448 20,093 25.9 % 70,501 27,040 38.4 %
Home Mortgage Loans 104,654 102,219 2,435 2.4 % 76,744 27,910 36.4 %
Consumer & Other Loans   5,896     5,437     459   8.4 %   5,808     88   1.5 %
Gross loans, net of unearned income 674,227 627,171 47,056 7.5 % 507,286 166,941 32.9 %
Allowance for loan losses (7,910 ) (7,615 ) (295 ) -3.9 % (6,390 ) (1,520 ) -23.8 %
Net loans receivable 666,317 619,556 46,761 7.5 % 500,896 165,421 33.0 %
Bank premises and equipment, net 5,067 5,311 (244 ) -4.6 % 5,892 (825 ) -14.0 %
Accrued interest receivable 2,001 1,767 234 13.2 % 1,562 439 28.1 %
FHLB and Pacific Coast Bankers Bank Stock, at cost 3,438 3,438 0 0.0 % 2,655 783 29.5 %
Servicing assets 6,783 6,415 368 5.7 % 5,551 1,232 22.2 %
Net deferred taxes 1,684 1,436 248 17.3 % 1,635 49 3.0 %
Other assets   17,133     13,489     3,644   27.0 %   12,292     4,841   39.4 %
Total assets $ 759,658   $ 721,667   $ 37,991   5.3 % $ 617,350   $ 142,308   23.1 %
 
Liabilities and Shareholders' Equity
 
Noninterest bearing deposits $ 247,376 $ 227,745 $ 19,631 8.6 % $ 155,147 $ 92,229 59.4 %
Savings 3,207 2,668 539 20.2 % 2,000 1,207 60.4 %
Money market and others 229,566 214,582 14,984 7.0 % 179,833 49,733 27.7 %
Time deposits over $250,000 79,024 77,696 1,328 1.7 % 68,390 10,634 15.5 %
Other time deposits   102,611     104,187     (1,576 ) -1.5 %   114,351     (11,740 ) -10.3 %
Total deposits 661,784 626,878 34,906 5.6 % 519,721 142,063 27.3 %
Other borrowings 10,000 10,000 0 0.0 % 20,000 (10,000 ) -50.0 %
Other liabilities   6,590     5,997     593   9.9 %   5,150     1,440   28.0 %
Total liabilities 678,374 642,875 35,499 5.5 % 544,871 133,503 24.5 %
Total shareholders' equity   81,284     78,792     2,492   3.2 %   72,479     8,805   12.1 %
Total Liabilities and Shareholders' Equity $ 759,658   $ 721,667   $ 37,991   5.3 % $ 617,350   $ 142,308   23.1 %
Statement of Operations              
(Dollars in thousand, except per share data)
Three Months Ended Twelve Months Ended
December 31, 2016 September 30, 2016   % change   December 31, 2015   % change   December 31, 2016 December 31, 2015 % change  
Interest income $ 8,766 $ 8,254 6.2 % $ 6,811 28.7 % $ 31,701 $ 25,192 25.8 %
Interest expense   887     833     6.5 %   849     4.5 %   3,371     2,689   25.4 %
Net interest income   7,879       7,421     6.2 %   5,962     32.2 %   28,330     22,503   25.9 %
Provision for loan losses 323 677 -52.3 % - 0.0 % 1,682 553 204.2 %
Non interest income 2,533 2,400 5.5 % 1,988 27.4 % 9,007 7,978 12.9 %
Non interest expense   6,427     5,703     12.7 %   5,309     21.1 %   23,334     19,795   17.9 %
Income before income taxes 3,662 3,441 6.4 % 2,641 38.7 % 12,321 10,133 21.6 %
Provision for income taxes   1,407     1,389     1.3 %   1,085     29.7 %   4,894     4,170   17.4 %
Net income (loss) $ 2,255   $ 2,052     9.9 % $ 1,556     44.9 % $ 7,427   $ 5,963   24.6 %
 
Pre-tax Pre-provision Income $ 3,985 $ 4,118 -3.2 % $ 2,641 50.9 % $ 14,003 $ 10,686 31.0 %
 
Book Value $ 6.30 $ 6.12 3.0 % $ 5.71 10.3 % $ 6.30 $ 5.71 10.3 %
Basic EPS $ 0.18 $ 0.16 9.6 % $ 0.12 42.5 % $ 0.58 $ 0.48 22.2 %
Diluted EPS $ 0.17 $ 0.15 9.2 % $ 0.12 42.0 % $ 0.56 $ 0.46 22.6 %
 
Shares of common stock outstanding 12,896,548 12,873,906 0.2 % 12,682,510 1.7 % 12,896,548 12,682,510 1.7 %
Weighted Average Shares:
- Basic 12,879,956 12,840,826 0.3 % 12,662,733 1.7 % 12,788,378 12,549,915 1.9 %
- Diluted 13,374,569 13,285,855 0.7 % 13,107,695 2.0 % 13,233,582 13,025,087 1.6 %
 
Three Months Ended Twelve Months Ended
December 31, 2016 September 30, 2016   % change   December 31, 2015   % change   December 31, 2016 December 31, 2015 % change  

Key Ratios

Return on average assets (ROA)* 1.21 % 1.18 % 0.03 % 1.00 % 0.21 % 1.08 % 1.16 % -0.08 %
Return on average equity (ROE) * 11.27 % 10.51 % 0.76 % 8.69 % 2.58 % 9.69 % 9.46 % 0.23 %
Net interest margin * 4.41 % 4.46 % -0.05 % 4.02 % 0.39 % 4.51 % 4.69 % -0.18 %
Efficiency ratio 61.73 % 58.07 % 3.66 % 66.78 % -5.05 % 62.50 % 64.94 % -2.44 %
Pre-tax Pre-provision Income to average assets 2.13 % 2.37 % -0.24 % 1.70 % 0.43 % 2.04 % 2.08 % -0.04 %
 
Tangible common equity to tangible assets 10.70 % 10.92 % -0.22 % 11.74 % -1.04 % 10.70 % 11.74 % -1.04 %
Tier 1 Leverage Ratio 10.89 % 11.29 % -0.40 % 11.70 % -0.81 % 10.89 % 11.70 % -0.81 %
Common Equity Tier 1 Ratio 12.20 % 12.70 % -0.50 % 14.28 % -2.08 % 12.20 % 14.28 % -2.08 %
Tier 1 Capital Ratio 12.20 % 12.70 % -0.50 % 14.28 % -2.08 % 12.20 % 14.28 % -2.08 %
Total Risk Based Capital Ratio 13.40 % 13.95 % -0.55 % 15.53 % -2.13 % 13.40 % 15.53 % -2.13 %
 
Average Balances
Investments $ 54,369 $ 54,617 -0.5 % $ 82,758 -34.3 % $ 66,372 $ 64,164 3.4 %
Gross loans, including loans held for sale 657,078 607,636 8.1 % 505,861 29.9 % 586,628 466,220 25.8 %
Interest earning assets 711,448 662,252 7.4 % 588,619 20.9 % 653,000 530,384 23.1 %
Total assets $ 746,673 $ 694,998 7.4 % $ 620,549 20.3 % $ 685,617 $ 561,032 22.2 %
 
Noninterest bearing deposits $ 236,249 $ 213,023 10.9 % $ 156,402 51.1 % $ 198,413 $ 152,968 29.7 %
Interest bearing deposits 413,078 380,038 8.7 % 366,801 12.6 % 387,986 314,549 23.3 %
Total deposits 649,328 593,061 9.5 % 523,203 24.1 % 586,399 467,517 25.4 %
Interest bearing liabilities 423,405 398,914 6.1 % 386,804 9.5 % 404,972 334,550 21.0 %
Shareholders' equity 79,991 78,051 2.5 % 71,568 11.8 % 76,647 68,798 11.4 %
Net interest earning assets $ 288,043 $ 263,338 9.4 % $ 201,815 42.7 % $ 248,028 $ 195,834 26.7 %
 
Asset Quality   12/31/2016     9/30/2016     6/30/2016     3/31/2016     12/31/2015  
Nonaccrual Loans 209 597 650 624 657
Loans 90 days or more past due, accruing - - - - -
Accruing Restructured Loans   367     371     375     379     382  
Total Non-Performing Loans 576 968 1,025 1,003 1,039
Other Real Estate Loans (OREO)   -     -     -     -     -  
Total Non-Performing Assets 576 968 1,025 1,003 1,039
 
Classified Loans 2,304 1,297 1,225 1,203 827
 
Non-Performing Assets/Total Assets 0.08 % 0.13 % 0.15 % 0.15 % 0.17 %
Non-Performing Assets/(Gross Loans +OREO) 0.09 % 0.15 % 0.18 % 0.19 % 0.20 %
Non-Performing Loans/Gross Loans 0.09 % 0.15 % 0.18 % 0.19 % 0.20 %
Allowance for Loan Losses/Non-Performing Loans 1373 % 787 % 691 % 660 % 615 %
Allowance for Loan Losses/Non-Performing Assets 1373 % 787 % 691 % 660 % 615 %
Allowance for Loan Losses/Gross Loans 1.17 % 1.21 % 1.21 % 1.26 % 1.26 %
Classified Loans/Gross Loans 0.34 % 0.21 % 0.21 % 0.23 % 0.16 %
 
Net Charge-offs $ 28 $ 141 $ (6 ) $ (1 ) $ (3 )
Net Charge-offs to Average Gross Loans * 0.02 % 0.09 % 0.00 % 0.00 % 0.00 %
 

*  Annualized