OP Bancorp Reports Net Income for 2023 Third Quarter of $5.1 Million and Diluted Earnings Per Share of $0.33

October 26, 2023 at 18:24 PM EDT

2023 Third Quarter Highlights compared with 2023 Second Quarter:

Financial Results:
- Net income of $5.1 million, compared to $6.1 million
- Diluted earnings per share of $0.33, compared to $0.39
- Net interest income of $17.3 million, compared to $17.3 million
- Net interest margin of 3.38%, compared to 3.40%
- Provision for credit losses of $1.4 million, compared to none
- Total assets of $2.14 billion, compared to $2.15 billion
- Gross loans of $1.76 billion, compared to $1.72 billion
- Total deposits of $1.83 billion, compared to $1.86 billion
Credit Quality:
- Allowance for credit losses to gross loans of 1.23%, compared to 1.21%
- Net charge-offs⁽¹⁾ to average gross loans⁽²⁾ of 0.11%, compared to 0.00%
- Nonperforming loans to gross loans of 0.24%, compared to 0.20%
- Criticized loans⁽³⁾ to gross loans of 0.78%, compared to 0.44%
Capital Levels:
- Remained well-capitalized with a Common Equity Tier 1 (“CET1”) ratio of 12.09%
- Book value per common share increased to $12.17, compared to $12.16
- Paid quarterly cash dividend of $0.12 per share for the periods
- Announced a new program to repurchase up to 750,000 shares of its common stock

___________________________________________________________

⁽¹⁾ Annualized.

⁽²⁾ Includes loans held for sale.

⁽³⁾ Includes special mention, substandard, doubtful, and loss categories.

OP Bancorp (the “Company”) (NASDAQ: OPBK), the holding company of Open Bank (the “Bank”), today reported its financial results for the third quarter of 2023. Net income for the third quarter of 2023 was $5.1 million, or $0.33 per diluted common share, compared with $6.1 million, or $0.39 per diluted common share, for the second quarter of 2023, and $8.7 million, or $0.55 per diluted common share, for the third quarter of 2022.

Min Kim, President and Chief Executive Officer:

“Recognizing the continued challenges in banking environment, we have been actively engaging with our borrowers to provide support in this high interest rate environment. As we maintain a healthy level of liquidity, our primary emphasis has been on fine-tuning our deposit composition to control costs effectively. Our noninterest-bearing deposits stand at 33% of total deposits showing promising signs of stability in our net interest margin,” said Min Kim, President and Chief Executive.

“We also expanded our branch network by opening our eleventh full service branch in Las Vegas, Nevada during the quarter. Although we anticipate additional challenges in the short term, we remain optimistic about achieving our longer-term goals.”

SELECTED FINANCIAL HIGHLIGHTS


($ in thousands, except per share data)	As of and For the Three Months Ended									% Change 3Q23 vs.
($ in thousands, except per share data)	3Q2023			2Q2023			3Q2022			2Q2023		3Q2022
Selected Income Statement Data:
Net interest income	$	17,313		$	17,252		$	20,344		0.4	%	(14.9	)%
Provision for credit losses		1,359			—			662		n/m		105.3
Noninterest income		2,601			3,605			4,821		(27.9	)	(46.0	)
Noninterest expense		11,535			12,300			12,338		(6.2	)	(6.5	)
Income tax expense		1,899			2,466			3,515		(23.0	)	(46.0	)
Net income		5,121			6,091			8,650		(15.9	)	(40.8	)
Diluted earnings per share		0.33			0.39			0.55		(15.4	)	(40.0	)
Selected Balance Sheet Data:
Gross loans	$	1,759,525		$	1,716,197		$	1,618,018		2.5	%	8.7	%
Total deposits		1,825,171			1,859,639			1,816,811		(1.9	)	0.5
Total assets		2,142,675			2,151,701			2,029,575		(0.4	)	5.6
Average loans⁽¹⁾		1,740,188			1,725,764			1,614,000		0.8		7.8
Average deposits		1,821,361			1,817,101			1,753,726		0.2		3.9
Credit Quality:
Nonperforming loans	$	4,211		$	3,447		$	1,809		22.2	%	132.8	%
Nonperforming loans to gross loans		0.24	%		0.20	%		0.11	%	20.0		118.2
Criticized loans⁽²⁾ to gross loans		0.78			0.44			0.19		77.3		310.5
Net charge-offs (recoveries) to average gross loans⁽³⁾		0.11			0.00			(0.00	)	0.11		0.11
Allowance for credit losses to gross loans		1.23			1.21			1.14		0.02		0.09
Allowance for credit losses to nonperforming loans		513			603			1015		(90	)	(502	)
Financial Ratios:
Return on average assets⁽³⁾		0.96	%		1.15	%		1.77	%	(0.19	)%	(0.81	)%
Return on average equity⁽³⁾		11.07			13.27			19.91		(2.20	)	(8.84	)
Net interest margin⁽³⁾		3.38			3.40			4.31		(0.02	)	(0.93	)
Efficiency ratio⁽⁴⁾		57.92			58.97			49.03		(1.05	)	8.89
Common equity tier 1 capital ratio		12.09			11.92			11.92		0.17		0.17
Leverage ratio		9.63			9.50			9.52		0.13		0.11
Book value per common share	$	12.17		$	12.16		$	11.19		0.1		8.8

⁽¹⁾		Includes loans held for sale.
⁽²⁾		Includes special mention, substandard, doubtful, and loss categories.
⁽³⁾		Annualized.
⁽⁴⁾		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 3Q23 vs.
($ in thousands)	3Q2023		2Q2023		3Q2022		2Q2023		3Q2022
Interest Income
Interest income	$	31,186	$	30,102	$	23,234	3.6	%	34.2	%
Interest expense		13,873		12,850		2,890	8.0		380.0
Net interest income	$	17,313	$	17,252	$	20,344	0.4	%	(14.9	)%


($ in thousands)	For the Three Months Ended
	3Q2023						2Q2023						3Q2022
	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	$	1,740,188	$	28,250	6.45	%	$	1,725,764	$	27,288	6.34	%	$	1,614,000	$	21,780	5.36	%
Total interest-earning assets		2,038,321		31,186	6.08			2,030,139		30,102	5.94			1,874,516		23,234	4.92
Interest-bearing Liabilities:
Interest-bearing deposits		1,222,099		13,006	4.22			1,201,353		11,920	3.98			947,437		2,889	1.21
Total interest-bearing liabilities		1,301,990		13,873	4.23			1,283,939		12,850	4.01			947,567		2,890	1.21
Ratios:
Net interest income / interest rate spreads				17,313	1.85					17,252	1.93					20,344	3.71
Net interest margin					3.38						3.40						4.31
Total deposits / cost of deposits		1,821,361		13,006	2.83			1,817,101		11,920	2.63			1,753,726		2,889	0.65
Total funding liabilities / cost of funds		1,901,252		13,873	2.90			1,899,687		12,850	2.71			1,753,856		2,890	0.65

⁽¹⁾

Annualized.


($ in thousands)	For the Three Months Ended															Yield Change 3Q23 vs.
	3Q2023					2Q2023					3Q2022					Yield Change 3Q23 vs.
	Interest & Fees			Yield⁽¹⁾		Interest & Fees			Yield⁽¹⁾		Interest & Fees			Yield⁽¹⁾		2Q2023		3Q2022
Loan Yield Component:
Contractual interest rate	$	27,319		6.24	%	$	26,411		6.13	%	$	20,419		5.02	%	0.11	%	1.22	%
SBA discount accretion		1,263		0.29			1,078		0.25			1,336		0.33		0.04		(0.04	)
Amortization of net deferred fees		1		—			16		0.01			122		0.03		(0.01	)	(0.03	)
Amortization of premium		(445	)	(0.10	)		(452	)	(0.11	)		(250	)	(0.06	)	0.01		(0.04	)
Net interest recognized on nonaccrual loans		(26	)	(0.01	)		40		0.01			—		—		(0.02	)	(0.01	)
Prepayment penalties⁽²⁾ and other fees		138		0.03			195		0.05			153		0.04		(0.02	)	(0.01	)
Yield on loans	$	28,250		6.45	%	$	27,288		6.34	%	$	21,780		5.36	%	0.11	%	1.09	%

Amortization of Net Deferred Fees:
PPP loan forgiveness	$	3		—	%	$	—		—	%	$	351		0.04	%	—	%	(0.04	)%
Other		(2	)	—			16		0.01			142		-0.01		(0.01	)	0.01
Total amortization of net deferred fees	$	1		—	%	$	16		0.01	%	$	493		0.03	%	(0.01	)%	(0.03	)%

⁽¹⁾		Annualized.
⁽²⁾		Prepayment penalty income of $110 thousand and $79 thousand for the three months ended June 30, 2023 and September 30, 2022, respectively, was from commercial real estate (“CRE”) and Commercial and Industrial (“C&I”) loans.

Impact of Hana Loan Purchase on Average Loan Yield and Net Interest Margin

During the second quarter of 2021, the Bank 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
($ in thousands)	3Q2023			2Q2023			3Q2022
Hana Loan Purchase:
Contractual interest rate	$	1,383		$	1,409		$	1,114
Purchased loan discount accretion		513			384			594
Other fees		27			16			9
Total interest income	$	1,923		$	1,809		$	1,717

Effect on average loan yield⁽¹⁾		0.25	%		0.23	%		0.21	%
Effect on net interest margin⁽¹⁾		0.30	%		0.27	%		0.22	%


($ in thousands)	For the Three Months Ended
	3Q2023						2Q2023						3Q2022
	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⁾	$	1,740,188	$	28,250	6.45	%	$	1,725,764	$	27,288	6.34	%	$	1,614,000	$	21,780	5.36	%
Adjusted average loan yield excluding purchased Hana loans⁽¹⁾⁽²⁾		1,688,404		26,327	6.20			1,670,530		25,479	6.11			1,549,313		20,063	5.15

Net interest margin⁽¹⁾		2,038,321		17,313	3.38			2,030,139		17,252	3.40			1,874,516		20,344	4.31
Adjusted interest margin excluding purchased Hana loans⁽¹⁾⁽²⁾		1,986,537		15,390	3.08			1,974,905		15,443	3.13			1,809,829		18,627	4.09

⁽¹⁾		Annualized.
⁽²⁾		See reconciliation of GAAP to non-GAAP financial measures.

Third Quarter 2023 vs. Second Quarter 2023

Net interest income increased $0.1 million, or 0.4%, primarily due to higher interest income on loans and interest-bearing deposits in other banks, mostly offset by higher interest expense on deposits. Net interest margin was 3.38%, a decrease of 2 basis points from 3.40%.

A $1.0 million increase in interest income on loans was primarily due to a 11 basis point increase in average yield as a result of the Federal Reserve’s rate increases.

A $113 thousand increase in interest income on interest-bearing deposits in other banks was primarily due the Federal Reserve’s rate increases.

A $1.1 million increase in interest expense on interest-bearing deposits was primarily due to a 24 basis point increase in average cost.

Third Quarter 2023 vs. Third Quarter 2022

Net interest income decreased $3.0 million, or 14.9%, primarily due to higher interest expense on deposits, partially offset by higher interest income on loans. Net interest margin was 3.38%, a decrease of 93 basis points from 4.31%.

A $10.1 million increase in interest expense on deposits was primarily due to a $274.7 million increase in average balance and a 301 basis point increase in average cost driven by the Federal Reserve’s rate increases.

A $6.5 million increase in interest income on loans was primarily due to a $126.2 million increase in average balance and a 109 basis point increase in average yield as a result of the Federal Reserve’s rate increases.

Provision for Credit Losses


($ in thousands)	For the Three Months Ended
($ in thousands)	3Q2023		2Q2023		3Q2022
Provision for credit losses on loans	$	1,303	$	—	$	662
Provision for (reversal of) credit losses on off-balance sheet exposure⁽¹⁾		56		—		(6	)
Total provision for credit losses	$	1,359	$	—	$	656

⁽¹⁾

Provision for credit losses on off-balance sheet exposure of $56 thousand for the three months ended September 30, 2023 was included in total provision for credit losses. Prior to CECL adoption, reversal of provisions for credit losses on off-balance sheet exposure of $6 thousand for the three months ended September 30, 2022 was included in other expenses.

Third Quarter 2023 vs. Second Quarter 2023

The Company recorded a $1.4 million provision for credit losses, an increase of $1.4 million, compared with no provision for credit losses. The increase was primarily due to a $488 thousand in net charge-offs, a $356 thousand increase from loan balance and historical loss factor changes, and a $575 thousand increase in qualitative factor adjustments in the third quarter of 2023.

Third Quarter 2023 vs. Third Quarter 2022

The Company recorded a $1.4 million provision for credit losses, compared with a $656 thousand provision for credit losses.

Noninterest Income


($ in thousands)	For the Three Months Ended						% Change 3Q23 vs.
($ in thousands)	3Q2023		2Q2023		3Q2022		2Q2023		3Q2022
Noninterest Income
Service charges on deposits	$	575	$	573	$	454	0.3	%	26.7	%
Loan servicing fees, net of amortization		468		595		610	(21.3	)	(23.3	)
Gain on sale of loans		1,179		2,098		3,490	(43.8	)	(66.2	)
Other income		379		339		267	11.8		41.9
Total noninterest income	$	2,601	$	3,605	$	4,821	(27.9	)%	(46.0	)%

Third Quarter 2023 vs. Second Quarter 2023

Noninterest income decreased $1.0 million, or 27.9%, primarily due to lower gain on sale of loans.

Gain on sale of loans was $1.2 million, a decrease of $919 thousand from $2.1 million, primarily due to a lower SBA loan sold amount and a lower average sales premium. The Bank sold $23.4 million in SBA loans at an average premium rate of 6.50%, compared to the sale of $36.8 million at an average premium rate of 6.64%.

Third Quarter 2023 vs. Third Quarter 2022

Noninterest income decreased $2.2 million, or 46.0%, primarily due to lower gain on sale of loans.

Gain on sale of loans was $1.2 million, a decrease of $2.3 million from $3.5 million, primarily due to a lower SBA loan sold amount and a lower average sales premium. The Bank sold $23.4 million in SBA loans at an average premium rate of 6.50%, compared to the sale of $59.3 million at an average premium rate of 6.67%.

Noninterest Expense


($ in thousands)	For the Three Months Ended						% Change 3Q23 vs.
($ in thousands)	3Q2023		2Q2023		3Q2022		2Q2023		3Q2022
Noninterest Expense
Salaries and employee benefits	$	7,014	$	7,681	$	7,343	(8.7	)%	(4.5	)%
Occupancy and equipment		1,706		1,598		1,537	6.8		11.0
Data processing and communication		369		546		586	(32.4	)	(37.0	)
Professional fees		440		381		602	15.5		(26.9	)
FDIC insurance and regulatory assessments		333		420		238	(20.7	)	39.9
Promotion and advertising		207		159		177	30.2		16.9
Directors’ fees		164		210		170	(21.9	)	(3.5	)
Foundation donation and other contributions		529		594		875	(10.9	)	(39.5	)
Other expenses		773		711		810	8.7		(4.6	)
Total noninterest expense	$	11,535	$	12,300	$	12,338	(6.2	)%	(6.5	)%

Third Quarter 2023 vs. Second Quarter 2023

Noninterest expense decreased $765 thousand, or 6.2%, primarily due to lower salaries and employee benefits, and data processing communication, partially offset by a higher occupancy and equipment.

Salaries and employee benefits decreased $667 thousand primarily due to a lower accrual on employee incentives.

Data processing and communication decreased $177 thousand primarily due to an accrual adjustment for a credit received on data processing fees.

Occupancy and equipment increased $108 thousand primarily due to increases in leasehold improvements and equipment expense accrual adjustments.

Third Quarter 2023 vs. Third Quarter 2022

Noninterest expense decreased $803 thousand, or 6.5%, primarily due to lower foundation donation and other contributions, salaries and employee benefits, and data processing and communication.

Foundation donations and other contributions decreased $346 thousand, primarily due to a lower donation accrual for Open Stewardship as a result of lower net income.

Salaries and employee benefits decreased $329 thousand, primarily due to a lower accrual on employee incentives.

Data processing and communication decreased $217 thousand, primarily due to an accrual adjustment for a credit received on data processing fees.

Income Tax Expense

Third Quarter 2023 vs. Second Quarter 2023

Income tax expense was $1.9 million and the effective tax rate was 27.1%, compared to income tax expense of $2.5 million and the effective rate of 28.8%. The decrease in the effective tax rate was primarily due to adjustments for differences between the prior year tax provision and the final tax returns that were applied in the third quarter of 2023.

Third Quarter 2023 vs. Third Quarter 2022

Income tax expense was $1.9 million and the effective tax rate was 27.1%, compared to income tax expense of $3.5 million and an effective rate of 28.9%. The decrease in the effective tax rate was primarily due to return to provision adjustments applied in the third quarter of 2023.

BALANCE SHEET HIGHLIGHTS

Loans


($ in thousands)	As of						% Change 3Q23 vs.
($ in thousands)	3Q2023		2Q2023		3Q2022		2Q2023		3Q2022
CRE loans	$	878,824	$	847,863	$	830,125	3.7	%	5.9	%
SBA loans		240,154		238,785		232,569	0.6		3.3
C&I loans		124,632		112,160		133,855	11.1		(6.9	)
Home mortgage loans		515,789		516,226		419,469	(0.1	)	23.0
Consumer & other loans		126		1,163		2,000	(89.2	)	(93.7	)
Gross loans	$	1,759,525	$	1,716,197	$	1,618,018	2.5	%	8.7	%

The following table presents new loan originations based on loan commitment amounts for the periods indicated:


($ in thousands)	For the Three Months Ended						% Change 3Q23 vs.
($ in thousands)	3Q2023		2Q2023		3Q2022		2Q2023		3Q2022
CRE loans	$	33,222	$	29,976	$	43,929	10.8	%	(24.4	)%
SBA loans		39,079		34,312		43,984	13.9		(11.2	)
C&I loans		14,617		25,650		39,720	(43.0	)	(63.2	)
Home mortgage loans		9,137		22,788		68,842	(59.9	)	(86.7	)
Gross loans	$	96,055	$	112,726	$	198,975	(14.8	)%	(51.7	)%

The following table presents changes in gross loans by loan activity for the periods indicated:


($ in thousands)	For the Three Months Ended
($ in thousands)	3Q2023			2Q2023			3Q2022
Loan Activities:
Gross loans, beginning	$	1,716,197		$	1,692,485		$	1,484,718
New originations		96,055			112,726			198,975
Net line advances		25,464			(25,961	)		(6,337	)
Purchases		3,415			6,359			37,146
Sales		(22,137	)		(36,791	)		(64,314	)
Paydowns		(22,169	)		(17,210	)		(19,087	)
Payoffs		(36,024	)		(25,969	)		(37,817	)
PPP payoffs		(250	)		—			(7,206	)
Decrease in loans held for sale		—			7,534			30,613
Other		(1,026	)		3,024			1,327
Total		43,328			23,712			133,300
Gross loans, ending	$	1,759,525		$	1,716,197		$	1,618,018

As of September 30, 2023 vs. June 30, 2023

Gross loans were $1.76 billion as of September 30, 2023, up $43.3 million from June 30, 2023, primarily due to new loan originations and net line advances, partially offset by loan sales, and payoffs and paydowns.

New loan originations, net line advances, and loan payoffs and paydowns were $96.1 million $25.5 million, and $58.4 million for the third quarter of 2023, respectively, compared with $112.7 million $(26.0) million and $43.2 million for the second quarter of 2023, respectively.

As of September 30, 2023 vs. September 30, 2022

Gross loans were $1.76 billion as of September 30, 2023, up $141.5 million from September 30, 2022, primarily due to new loan originations of $451.8 million and loan purchases of $71.9 million, primarily offset by loan sales of $136.2 million and loan payoffs and paydowns of $217.2 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
	3Q2023				2Q2023				3Q2022
	%		Rate		%		Rate		%		Rate
Fixed rate	36.3	%	4.95	%	36.2	%	4.82	%	35.2	%	4.39	%
Hybrid rate	34.0		5.08		34.7		4.99		34.1		4.59
Variable rate	29.7		9.23		29.1		9.05		30.7		6.97
Gross loans	100.0	%	6.27	%	100.0	%	6.11	%	100.0	%	5.25	%

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 September 30, 2023
	Within One Year				One Year Through Five Years				After Five Years				Total
	Amount		Rate		Amount		Rate		Amount		Rate		Amount		Rate
Fixed rate	$	77,850	5.84	%	$	316,120	4.82	%	$	243,749	4.83	%	$	637,719	4.95	%
Hybrid rate		—	—			96,038	4.49			502,942	5.19			598,980	5.08
Variable rate		91,108	9.18			113,209	8.83			318,509	9.39			522,826	9.23
Gross loans	$	168,958	7.52	%	$	525,367	5.63	%	$	1,065,200	6.36	%	$	1,759,525	6.27	%

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 3Q23 vs.
($ in thousands)	3Q2023			2Q2023			3Q2022			2Q2023		3Q2022
Allowance for credit losses on loans, beginning	$	20,802		$	20,814		$	17,702		(0.1	)%	17.5	%
Provision for credit losses		1,303			—			662		n/m		96.8
Gross charge-offs		(492	)		(20	)		—		n/m		n/m
Gross recoveries		4			8			5		(50.0	)	(20.0	)
Net (charge-offs) recoveries		(488	)		(12	)		5		n/m		n/m
Allowance for credit losses on loans, ending⁽¹⁾	$	21,617		$	20,802		$	18,369		3.9	%	17.7	%

Allowance for credit losses on off-balance sheet exposure, beginning	$	367		$	367		$	195		—	%	88.2	%
Impact of CECL adoption		—			—			—		n/m		n/m
Provision for (reversal of) credit losses		56			—			(6	)	n/m		n/m
Allowance for credit losses on off-balance sheet exposure, ending⁽¹⁾	$	423		$	367		$	189		15.3	%	123.8	%

⁽¹⁾

Allowance for credit losses as of September 30, 2023 and June 30, 2023 were calculated under the CECL methodology while allowance for loan losses for September 30, 2022 was calculated under the incurred loss methodology.

Asset Quality


($ in thousands)	As of and For the Three Months Ended									Change 3Q2023 vs.
($ in thousands)	3Q2023			2Q2023			3Q2022			2Q2023		3Q2022
Loans 30-89 days past due and still accruing	$	8,356		$	5,215		$	1,205		60.2	%	593.4	%
As a % of gross loans		0.47	%		0.30	%		0.07	%	0.17	%	0.40	%

Nonperforming loans⁽¹⁾	$	4,211		$	3,447		$	1,809		22.2	%	132.8	%
Nonperforming assets⁽¹⁾		4,211			3,447			1,809		22.2		132.8
Nonperforming loans to gross loans		0.24	%		0.20	%		0.11	%	0.04		0.13
Nonperforming assets to total assets		0.20	%		0.16	%		0.09	%	0.04		0.11

Criticized loans⁽¹⁾⁽²⁾	$	13,790		$	7,538		$	3,100		82.9	%	344.8	%
Criticized loans to gross loans		0.78	%		0.44	%		0.19	%	0.34		0.59

Allowance for credit losses ratios:
As a % of gross loans		1.23	%		1.21	%		1.14	%	0.02	%	0.09	%
As an adjusted % of gross loans⁽³⁾		1.26			1.25			1.18		0.01		0.08
As a % of nonperforming loans		513			603			1,015		(90	)	(502	)
As a % of nonperforming assets		513			603			1,015		(90	)	(502	)
As a % of criticized loans		157			276			593		(119	)	(436	)
Net charge-offs (recoveries)⁽⁴⁾ to average gross loans⁽⁵⁾		0.11			0.00			(0.00	)	0.11		0.11

⁽¹⁾		Excludes the guaranteed portion of SBA loans that are in liquidation totaling $5.2 million, $5.4 million and $442 thousand as of September 30, 2023, June 30, 2023 and September 30, 2022, respectively.
⁽²⁾		Consists of special mention, substandard, doubtful and loss categories.
⁽³⁾		See the Reconciliation of GAAP to NON-GAAP Financial Measures.
⁽⁴⁾		Annualized.
⁽⁵⁾		Includes loans held for sale.

Overall, the Bank continued to maintain low levels of nonperforming loans and net charge-offs. Our allowance remained strong with an adjusted allowance to gross loans ratio of 1.26%.

Loans 30-89 days past due and still accruing were $8.4 million or 0.47% of gross loans as of September 30, 2023, compared with $5.2 million or 0.30% as of June 30, 2023. The increase was mainly due to one home mortgage loan and one CRE and C&I relationship. Subsequent to September 30, 2023, past due payments on five loans totaling $3.5 million were collected, and the loans are now current.

Nonperforming loans were $4.2 million or 0.24% of gross loans as of September 30, 2023, compared with $3.4 million or 0.20% as of June 30, 2023. The increase was due to one home mortgage loan in Los Angeles with loan to value below 60% and one USDA loan with 80% government guaranty which has been written down to its fair value per the impairment analysis.

Nonperforming assets were $4.2 million or 0.20% of total assets as of September 30, 2023, compared with $3.4 million or 0.16% as of June 30, 2023. The Company did not have OREO as of September 30, 2023 or 2022.

Criticized loans were $13.8 million or 0.78% of gross loans as of September 30, 2023, compared with $7.5 million or 0.44% as of June 30, 2023. The increase was mainly due to one CRE loan to a motel in San Diego for $4.4 million and two relationships already mentioned under the nonperforming loans above. Subsequent to September 30, 2023, two loans totaling $1.4 million have been upgraded to Pass risk rating based on satisfactory cash flows.

Net charge-offs were $488 thousand or 0.11% of average loans in the third quarter of 2023, compared to net charge-offs of $12 thousand, or 0.00%, of average loans in the second quarter of 2023 and net recoveries of $5 thousand, or 0.00%, of average loans in the third quarter of 2022.

Deposits


($ in thousands)	As of												% Change 3Q23 vs.
	3Q2023				2Q2023				3Q2022				% Change 3Q23 vs.
	Amount		%		Amount		%		Amount		%		2Q2023		3Q2022
Noninterest-bearing deposits	$	605,509	33.2	%	$	634,745	34.1	%	$	794,631	43.7	%	(4.6	)%	(23.8	)%
Money market deposits and others		348,869	19.1			344,162	18.5			524,911	28.9		1.4		(33.5	)
Time deposits		870,793	47.7			880,732	47.4			497,269	27.4		(1.1	)	75.1
Total deposits	$	1,825,171	100.0	%	$	1,859,639	100.0	%	$	1,816,811	100.0	%	(1.9	)%	0.5	%

Estimated uninsured deposits	$	1,061,964	58.2	%	$	1,091,753	58.7	%	$	1,073,483	59.1	%	(2.7	)%	(1.1	)%

As of September 30, 2023 vs. June 30, 2023

Total deposits were $1.83 billion as of September 30, 2023, down $34.5 million from June 30, 2023, primarily due to decreases in noninterest-bearing deposits. Noninterest-bearing deposits, as a percentage of total deposits, decreased to 33.2% from 34.1%. The composition shift to money market and time deposits was primarily due to customers’ continued preference for high-rate deposit products driven by the Federal Reserve’s rate increases.

As of September 30, 2023 vs. September 30, 2022

Total deposits were $1.83 billion as of September 30, 2023, up $8.4 million from September 30, 2022, primarily driven by growth in time deposits, partially offset by decreases in noninterest-bearing deposits, and money market and others. The composition shift to time deposits was 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.

The following table sets forth the maturity of time deposits as of September 30, 2023:


	As of September 30, 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)	$	184,757		$	141,526		$	46,464		$	45,929		$	1,486		$	420,162
Time deposits ($250 or less)		178,507			92,788			88,265			49,049			42,022			450,631
Total time deposits	$	363,264		$	234,314		$	134,729		$	94,978		$	43,508		$	870,793
Weighted average rate		4.39	%		4.41	%		4.70	%		4.67	%		4.02	%		4.46	%

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)	3Q2023			2Q2023			3Q2022
Liquidity Assets:
Cash and cash equivalents	$	105,740		$	143,761		$	107,281
Available-for-sale debt securities		191,313			202,250			186,438
Liquid assets	$	297,053		$	346,011		$	293,719
Liquid assets to total assets		13.9	%		16.1	%		14.5	%

Available borrowings:
Federal Home Loan Bank—San Francisco	$	375,874		$	400,543		$	406,523
Federal Reserve Bank		186,380			172,316			179,942
Pacific Coast Bankers Bank		50,000			50,000			50,000
Zions Bank		25,000			25,000			25,000
First Horizon Bank		25,000			25,000			25,000
Total available borrowings	$	662,254		$	672,859		$	686,465
Total available borrowings to total assets		30.9	%		31.3	%		33.8	%

Liquid assets and available borrowings to total deposits		52.6	%		54.8	%		54.0	%

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 November 23, 2023 to all shareholders of record as of the close of business on November 9, 2023.

The Company has an active stock repurchase program to repurchase up to 750,000 shares of its common stock, which was announced in August 2023. There was no repurchase during the third quarter of 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	%	13.20	%	10.00	%	10.50	%
Tier 1 risk-based capital ratio	12.09		11.98		8.00		8.50
Common equity tier 1 ratio	12.09		11.98		6.50		7.00
Leverage ratio	9.63		9.55		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 bonuses to executive officers.


OP Bancorp	Basel III									Change 3Q2023 vs.
OP Bancorp	3Q2023			2Q2023			3Q2022			2Q2023		3Q2022
Risk-Based Capital Ratios:
Total risk-based capital ratio		13.31	%		13.10	%		13.10	%	0.21	%	0.21	%
Tier 1 risk-based capital ratio		12.09			11.92			11.92		0.17		0.17
Common equity tier 1 ratio		12.09			11.92			11.92		0.17		0.17
Leverage ratio		9.63			9.50			9.52		0.13		0.11
Risk-weighted Assets ($ in thousands)	$	1,707,318		$	1,700,205		$	1,571,593		0.42		8.64

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
($ in thousands)		3Q2023		2Q2023		3Q2022
Interest income		$	31,186	$	30,102	$	23,234
Interest expense			13,873		12,850		2,890
Net interest income			17,313		17,252		20,344
Noninterest income			2,601		3,605		4,821
Noninterest expense			11,535		12,300		12,338
Pre-provision net revenue	(a)	$	8,379	$	8,557	$	12,827
Reconciliation to net income
Provision for credit losses	(b)	$	1,359	$	—	$	662
Income tax expense	(c)		1,899		2,466		3,515
Net income	(a)-(b)-(c)	$	5,121	$	6,091	$	8,650

During the second quarter of 2021, the Bank 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 September 30, 2023, June 30, 2023 and September 30, 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
($ in thousands)		3Q2023			2Q2023			3Q2022
Yield on Average Loans
Interest income on loans		$	28,250		$	27,288		$	21,780
Less: interest income on purchased Hana loans			1,923			1,809			1,717
Adjusted interest income on loans	(a)	$	26,327		$	25,479		$	20,063

Average loans		$	1,740,188		$	1,725,764		$	1,614,000
Less: Average purchased Hana loans			51,784			55,234			64,687
Adjusted average loans	(b)	$	1,688,404		$	1,670,530		$	1,549,313

Average loan yield⁽¹⁾			6.45	%		6.34	%		5.36	%
Effect on average loan yield⁽¹⁾			0.25	%		0.23	%		0.21	%
Adjusted average loan yield⁽¹⁾	(a)/(b)		6.20	%		6.11	%		5.15	%

Net Interest Margin
Net interest income		$	17,313		$	17,252		$	20,344
Less: interest income on purchased Hana loans			1,923			1,809			1,717
Adjusted net interest income	(c)	$	15,390		$	15,443		$	18,627

Average interest-earning assets		$	2,038,321		$	2,030,139		$	1,874,516
Less: Average purchased Hana loans			51,784			55,234			64,687
Adjusted average interest-earning assets	(d)	$	1,986,537		$	1,974,905		$	1,809,829

Net interest margin⁽¹⁾			3.38	%		3.40	%		4.31	%
Effect on net interest margin⁽¹⁾			0.30			0.27			0.22
Adjusted net interest margin⁽¹⁾	(c)/(d)		3.08	%		3.13	%		4.09	%

⁽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
($ in thousands)		3Q2023			2Q2023			3Q2022
Gross loans		$	1,759,525		$	1,716,197		$	1,618,018
Less: Purchased Hana loans			(48,780	)		(54,016	)		(61,899	)
PPP loans⁽¹⁾			(1	)		(247	)		(1,022	)
Adjusted gross loans	(a)	$	1,710,744		$	1,661,934		$	1,555,097

Accrued interest receivable on loans		$	7,057		$	6,815		$	5,203
Less: Accrued interest receivable on purchased Hana loans			(402	)		(426	)		(323	)
Accrued interest receivable on PPP loans⁽²⁾			—			(6	)		(16	)
Adjusted accrued interest receivable on loans	(b)	$	6,655		$	6,383		$	4,864
Adjusted gross loans and accrued interest receivable	(a)+(b)=(c)	$	1,717,399		$	1,668,317		$	1,559,961

Allowance for credit losses		$	21,617		$	20,802		$	18,369
Add: Allowance on accrued interest receivable			—			—			—
Adjusted Allowance	(d)	$	21,617		$	20,802		$	18,369
Adjusted allowance to gross loans ratio	(d)/(c)		1.26	%		1.25	%		1.18	%

⁽¹⁾		Excludes purchased PPP loans of $57 thousand as of September 30, 2022.
⁽²⁾		Excludes purchased accrued interest receivable on PPP loans of $1 thousand as of September 30, 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 eleven full-service branch offices in Downtown Los Angeles, Los Angeles Fashion District, Los Angeles Koreatown, Cerritos, Gardena, Buena Park, and Santa Clara, California, Carrollton, Texas and Las Vegas, Nevada. 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 manage deposit liabilities and liquidity sources 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 to assess, adjust and monitor 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; the impacts of credit quality on our earnings and the related effects of increases to the reserve on our net income; 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 3Q23 vs.
($ in thousands)	3Q2023			2Q2023			3Q2022			2Q2023		3Q2022
Assets
Cash and due from banks	$	21,748		$	21,295		$	25,516		2.1	%	(14.8	)%
Interest-bearing deposits in other banks		83,992			122,466			81,765		(31.4	)	2.7
Cash and cash equivalents		105,740			143,761			107,281		(26.4	)	(1.4	)
Available-for-sale debt securities, at fair value		191,313			202,250			186,438		(5.4	)	2.6
Other investments		16,100			16,183			12,074		(0.5	)	33.3
Loans held for sale		—			—			36,642		n/m		n/m
CRE loans		878,824			847,863			830,125		3.7		5.9
SBA loans		240,154			238,785			232,569		0.6		3.3
C&I loans		124,632			112,160			133,855		11.1		(6.9	)
Home mortgage loans		515,789			516,226			419,469		(0.1	)	23.0
Consumer loans		126			1,163			2,000		(89.2	)	(93.7	)
Gross loans receivable		1,759,525			1,716,197			1,618,018		2.5		8.7
Allowance for credit losses		(21,617	)		(20,802	)		(18,369	)	3.9		17.7
Net loans receivable		1,737,908			1,695,395			1,599,649		2.5		8.6
Premises and equipment, net		5,378			5,093			4,383		5.6		22.7
Accrued interest receivable, net		7,996			7,703			5,856		3.8		36.5
Servicing assets		11,931			12,654			12,889		(5.7	)	(7.4	)
Company owned life insurance		22,071			21,913			21,464		0.7		2.8
Deferred tax assets, net		15,061			13,360			17,296		12.7		(12.9	)
Operating right-of-use assets		8,993			9,487			8,265		(5.2	)	8.8
Other assets		20,184			23,902			17,338		(15.6	)	16.4
Total assets	$	2,142,675		$	2,151,701		$	2,029,575		(0.4	)%	5.6	%
Liabilities and Shareholders' Equity
Liabilities:
Noninterest-bearing	$	605,509		$	634,745		$	794,631		(4.6	)%	(23.8	)%
Money market and others		348,869			344,162			524,911		1.4		(33.5	)
Time deposits greater than $250		420,162			416,208			277,785		1.0		51.3
Other time deposits		450,631			464,524			219,484		(3.0	)	105.3
Total deposits		1,825,171			1,859,639			1,816,811		(1.9	)	0.5
Federal Home Loan Bank advances		95,000			75,000			10,000		26.7		850.0
Accrued interest payable		13,552			9,354			1,099		44.9		1133.1
Operating lease liabilities		9,926			10,486			9,485		(5.3	)	4.6
Other liabilities		14,719			13,452			22,085		9.4		(33.4	)
Total liabilities		1,958,368			1,967,931			1,859,480		(0.5	)	5.3
Shareholders' equity:
Common stock		77,632			77,464			78,782		0.2		(1.5	)
Additional paid-in capital		10,606			10,297			9,424		3.0		12.5
Retained earnings		117,483			114,177			99,487		2.9		18.1
Accumulated other comprehensive loss		(21,414	)		(18,168	)		(17,598	)	17.9		21.7
Total shareholders’ equity		184,307			183,770			170,095		0.3		8.4
Total liabilities and shareholders' equity	$	2,142,675		$	2,151,701		$	2,029,575		(0.4	)%	5.6	%

CONSOLIDATED STATEMENTS OF INCOME (unaudited)


($ in thousands, except share and per share data)	For the Three Months Ended						% Change 3Q23 vs.
($ in thousands, except share and per share data)	3Q2023		2Q2023		3Q2022		2Q2023		3Q2022
Interest income
Interest and fees on loans	$	28,250	$	27,288	$	21,780	3.5	%	29.7	%
Interest on available-for-sale debt securities		1,519		1,562		881	(2.8	)	72.4
Other interest income		1,417		1,252		573	13.2		147.3
Total interest income		31,186		30,102		23,234	3.6		34.2
Interest expense
Interest on deposits		13,006		11,920		2,890	9.1		350.0
Interest on borrowings		867		930		—	(6.8	)	n/m
Total interest expense		13,873		12,850		2,890	8.0		380.0
Net interest income		17,313		17,252		20,344	0.4		(14.9	)
Provision for credit losses		1,359		—		662	n/m		105.3
Net interest income after provision for credit losses		15,954		17,252		19,682	(7.5	)	(18.9	)
Noninterest income
Service charges on deposits		575		573		454	0.3		26.7
Loan servicing fees, net of amortization		468		595		610	(21.3	)	(23.3	)
Gain on sale of loans		1,179		2,098		3,490	(43.8	)	(66.2	)
Other income		379		339		267	11.8		41.9
Total noninterest income		2,601		3,605		4,821	(27.9	)	(46.0	)
Noninterest expense
Salaries and employee benefits		7,014		7,681		7,343	(8.7	)	(4.5	)
Occupancy and equipment		1,706		1,598		1,537	6.8		11.0
Data processing and communication		369		546		586	(32.4	)	(37.0	)
Professional fees		440		381		602	15.5		(26.9	)
FDIC insurance and regulatory assessments		333		420		238	(20.7	)	39.9
Promotion and advertising		207		159		177	30.2		16.9
Directors’ fees		164		210		170	(21.9	)	(3.5	)
Foundation donation and other contributions		529		594		875	(10.9	)	(39.5	)
Other expenses		773		711		810	8.7		(4.6	)
Total noninterest expense		11,535		12,300		12,338	(6.2	)	(6.5	)
Income before income tax expense		7,020		8,557		12,165	(18.0	)	(42.3	)
Income tax expense		1,899		2,466		3,515	(23.0	)	(46.0	)
Net income	$	5,121	$	6,091	$	8,650	(15.9	)%	(40.8	)%

Book value per share	$	12.17	$	12.16	$	11.19	0.1	%	8.8	%
Earnings per share - basic		0.33		0.39		0.56	(15.4	)	(41.1	)
Earnings per share - diluted		0.33		0.39		0.55	(15.4	)	(40.0	)

Shares of common stock outstanding, at period end		15,149,203		15,118,268		15,199,840	0.2	%	(0.3	)%
Weighted average shares:
- Basic		15,131,587		15,158,365		15,195,826	(0.2	)%	(0.4	)%
- Diluted		15,140,577		15,169,794		15,275,156	(0.2	)	(0.9	)

KEY RATIOS


	For the Three Months Ended						Change 3Q23 vs.
	3Q2023		2Q2023		3Q2022		2Q2023		3Q2022
Return on average assets (ROA)⁽¹⁾	0.96	%	1.15	%	1.77	%	(0.2	)%	(0.8	)%
Return on average equity (ROE)⁽¹⁾	11.07		13.27		19.91		(2.2	)	(8.8	)
Net interest margin⁽¹⁾	3.38		3.40		4.31		—		(0.9	)
Efficiency ratio	57.92		58.97		49.03		(1.1	)	8.9

Total risk-based capital ratio	13.31	%	13.10	%	13.10	%	0.2	%	0.2	%
Tier 1 risk-based capital ratio	12.09		11.92		11.92		0.2		0.2
Common equity tier 1 ratio	12.09		11.92		11.92		0.2		0.2
Leverage ratio	9.63		9.50		9.52		0.1		0.1

⁽¹⁾

Annualized.

CONSOLIDATED STATEMENTS OF INCOME (unaudited)


($ in thousands, except share and per share data)	For the Nine Months Ended
($ in thousands, except share and per share data)	3Q2023		3Q2022		% Change
Interest income
Interest and fees on loans	$	81,549	$	58,145	40.3	%
Interest on available-for-sale debt securities		4,647		2,114	119.8
Other interest income		3,686		1,067	245.5
Total interest income		89,882		61,326	46.6
Interest expense
Interest on deposits		35,308		4,613	665.4
Interest on borrowings		2,117		—	n/m
Total interest expense		37,425		4,613	711.3
Net interest income		52,457		56,713	(7.5	)
Provision for credit losses		1,021		1,999	(48.9	)
Net interest income after provision for credit losses		51,436		54,714	(6.0	)
Noninterest income
Service charges on deposits		1,566		1,269	23.4
Loan servicing fees, net of amortization		1,909		1,711	11.6
Gain on sale of loans		5,847		10,601	(44.8	)
Other income		1,179		815	44.7
Total noninterest income		10,501		14,396	(27.1	)
Noninterest expense
Salaries and employee benefits		21,947		20,109	9.1
Occupancy and equipment		4,874		4,404	10.7
Data processing and communication		1,465		1,571	(6.7	)
Professional fees		1,180		1,290	(8.5	)
FDIC insurance and regulatory assessments		1,220		637	91.5
Promotion and advertising		528		531	(0.6	)
Directors’ fees		535		537	(0.4	)
Foundation donation and other contributions		1,876		2,542	(26.2	)
Other expenses		2,118		1,882	12.5
Total noninterest expense		35,743		33,503	6.7
Income before income tax expense		26,194		35,607	(26.4	)
Income tax expense		7,448		10,325	(27.9	)
Net income	$	18,746	$	25,282	(25.9	)%

Book value per share	$	12.17	$	11.19	8.8	%
Earnings per share - basic		1.21		1.63	(25.8	)
Earnings per share - diluted		1.21		1.62	(25.3	)

Shares of common stock outstanding, at period end		15,149,203		15,199,840	(0.3	)%
Weighted average shares:
- Basic		15,190,874		15,158,749	0.2	%
- Diluted		15,200,612		15,246,345	(0.3	)

KEY RATIOS


	For the Nine Months Ended
	3Q2023		3Q2022		% Change
Return on average assets (ROA)⁽¹⁾	1.18	%	1.80	%	(0.6	)%
Return on average equity (ROE)⁽¹⁾	13.69		19.91		(6.2	)
Net interest margin⁽¹⁾	3.45		4.22		(0.8	)
Efficiency ratio	56.77		47.11		9.7

Total risk-based capital ratio	13.31	%	13.10	%	0.2	%
Tier 1 risk-based capital ratio	12.09		11.92		0.2
Common equity tier 1 ratio	12.09		11.92		0.2
Leverage ratio	9.63		9.52		0.1

⁽¹⁾

Annualized.

ASSET QUALITY


($ in thousands)	As of and For the Three Months Ended
($ in thousands)	3Q2023			2Q2023			3Q2022
Nonaccrual loans⁽¹⁾	$	4,211		$	3,447		$	1,809
Loans 90 days or more past due, accruing⁽²⁾		—			—			—
Nonperforming loans		4,211			3,447			1,809
Other real estate owned ("OREO")		—			—			—
Nonperforming assets	$	4,211		$	3,447		$	1,809

Criticized loans by risk categories:
Special mention loans	$	3,651		$	2,909		$	—
Classified loans⁽¹⁾⁽³⁾		10,139			4,629			3,100
Total criticized loans	$	13,790		$	7,538		$	3,100

Criticized loans by loan type:
CRE loans	$	5,130		$	—		$	—
SBA loans		6,169			4,784			1,375
C&I loans		—			200			742
Home mortgage loans		2,491			2,554			983
Total criticized loans	$	13,790		$	7,538		$	3,100

Nonperforming loans / gross loans		0.24	%		0.20	%		0.11	%
Nonperforming assets / gross loans plus OREO		0.24			0.20			0.11
Nonperforming assets / total assets		0.20			0.16			0.09
Classified loans / gross loans		0.58			0.27			0.19
Criticized loans / gross loans		0.78			0.44			0.19

Allowance for credit losses ratios:
As a % of gross loans		1.23	%		1.21	%		1.14	%
As an adjusted % of gross loans⁽⁴⁾		1.26			1.25			1.18
As a % of nonperforming loans		513			603			1015
As a % of nonperforming assets		513			603			1015
As a % of classified loans		213			449			593
As a % of criticized loans		157			276			593

Net charge-offs (recoveries)	$	488		$	12		$	(5	)
Net charge-offs (recoveries)⁽⁵⁾ to average gross loans⁽⁶⁾		0.11	%		0.00	%		(0.00	)%

⁽¹⁾		Excludes the guaranteed portion of SBA loans that are in liquidation totaling $5.2 million, $5.1 million and $442 thousand as of September 30, 2023, June 30, 2023 and September 30, 2022, respectively.
⁽²⁾		Excludes the guaranteed portion of SBA loans that are in liquidation totaling $246 thousand as of June 30, 2023.
⁽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.


($ in thousands)	3Q2023		2Q2023		3Q2022
Accruing delinquent loans 30-89 days past due
30-59 days	$	5,979	$	3,647	$	360
60-89 days		2,377		1,568		845
Total	$	8,356	$	5,215	$	1,205

AVERAGE BALANCE SHEET, INTEREST AND YIELD/RATE ANALYSIS


	For the Three Months Ended
	3Q2023						2Q2023						3Q2022
($ 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	$	82,752	$	1,116	5.28	%	$	79,200	$	1,003	5.01	%	$	75,599	$	427	2.21	%
Federal funds sold and other investments		16,176		301	7.44			15,374		249	6.46			12,221		146	4.78
Available-for-sale debt securities, at fair value		199,205		1,519	3.05			209,801		1,562	2.98			172,696		881	2.04
CRE loans		856,911		12,207	5.65			838,526		11,823	5.66			810,158		10,144	4.97
SBA loans		248,960		7,303	11.64			262,825		7,174	10.95			286,903		5,850	8.09
C&I loans		117,578		2,340	7.90			114,103		2,232	7.85			140,098		1,952	5.53
Home mortgage loans		516,465		6,393	4.95			508,976		6,043	4.75			375,804		3,820	4.07
Consumer loans		274		7	10.01			1,334		16	4.77			1,037		14	4.88
Loans⁽²⁾		1,740,188		28,250	6.45			1,725,764		27,288	6.34			1,614,000		21,780	5.36
Total interest-earning assets		2,038,321		31,186	6.08			2,030,139		30,102	5.94			1,874,516		23,234	4.92
Noninterest-earning assets		84,580						84,991						83,398
Total assets	$	2,122,901					$	2,115,130					$	1,957,914

Interest-bearing liabilities:
Money market deposits and others	$	352,424	$	3,487	3.93	%	$	357,517	$	3,201	3.59	%	$	502,166	$	1,506	1.19	%
Time deposits		869,675		9,519	4.34			843,836		8,719	4.14			445,271		1,383	1.23
Total interest-bearing deposits		1,222,099		13,006	4.22			1,201,353		11,920	3.98			947,437		2,889	1.21
Borrowings		79,891		867	4.31			82,586		930	4.52			130		1	—
Total interest-bearing liabilities		1,301,990		13,873	4.23			1,283,939		12,850	4.01			947,567		2,890	1.21
Noninterest-bearing liabilities:
Noninterest-bearing deposits		599,262						615,748						806,289
Other noninterest-bearing liabilities		36,620						31,810						30,258
Total noninterest-bearing liabilities		635,882						647,558						836,547
Shareholders’ equity		185,029						183,633						173,800
Total liabilities and shareholders’ equity	$	2,122,901						2,115,130						1,957,914

Net interest income / interest rate spreads			$	17,313	1.85	%			$	17,252	1.93	%			$	20,344	3.71	%
Net interest margin					3.38	%					3.40	%					4.31	%

Cost of deposits & cost of funds:
Total deposits / cost of deposits	$	1,821,361	$	13,006	2.83	%	$	1,817,101	$	11,920	2.63	%	$	1,753,726	$	2,889	0.65	%
Total funding liabilities / cost of funds		1,901,252		13,873	2.90			1,899,687		12,850	2.71			1,753,856		2,890	0.65

⁽¹⁾		Annualized.
⁽²⁾		Includes loans held for sale.

AVERAGE BALANCE SHEET, INTEREST AND YIELD/RATE ANALYSIS


	For the Nine Months Ended
	3Q2023						3Q2022
($ in thousands)	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	$	78,736	$	2,965	4.97	%	$	80,659	$	665	1.09	%
Federal funds sold and other investments		14,575		721	6.59			11,720		402	4.59
Available-for-sale debt securities, at fair value		206,448		4,647	3.00			165,094		2,114	1.71
CRE loans		845,340		35,208	5.57			757,950		26,689	4.71
SBA loans		262,130		21,459	10.94			332,659		17,392	6.99
C&I loans		117,850		6,772	7.68			152,189		5,300	4.66
Home mortgage loans		504,188		18,070	4.78			296,331		8,731	3.93
Consumer & other loans		994		40	5.40			866		33	5.04
Loans⁽²⁾		1,730,502		81,549	6.30			1,539,995		58,145	5.05
Total interest-earning assets		2,030,261		89,882	5.91			1,797,468		61,326	4.56
Noninterest-earning assets		84,044						73,410
Total assets	$	2,114,305					$	1,870,878

Interest-bearing liabilities:
Money market deposits and others	$	373,041	$	9,837	3.53	%	$	461,821	$	2,260	0.65	%
Time deposits		833,603		25,471	4.09			403,242		2,352	0.78
Total interest-bearing deposits		1,206,644		35,308	3.91			865,063		4,612	0.71
Borrowings		63,078		2,117	4.49			44		1	3.00
Total interest-bearing liabilities		1,269,722		37,425	3.94			865,107		4,613	0.71
Noninterest-bearing liabilities:
Noninterest-bearing deposits		628,569						811,263
Other noninterest-bearing liabilities		33,377						25,213
Total noninterest-bearing liabilities		661,946						836,476
Shareholders’ equity		182,637						169,295
Total liabilities and shareholders’ equity	$	2,114,305						1,870,878

Net interest income / interest rate spreads			$	52,457	1.97	%			$	56,713	3.85	%
Net interest margin					3.45	%					4.22	%

Cost of deposits & cost of funds:
Total deposits / cost of deposits	$	1,835,213	$	35,308	2.57	%	$	1,676,326	$	4,612	0.37	%
Total funding liabilities / cost of funds		1,898,291		37,425	2.64	%		1,676,370		4,613	0.37	%

⁽¹⁾		Annualized.
⁽²⁾		Includes loans held for sale.

View source version on businesswire.com: https://www.businesswire.com/news/home/20231026605249/en/

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Investor Relations

OP Bancorp

Christine Oh

EVP & CFO

213.892.1192

Christine.oh@myopenbank.com

OP Bancorp Reports Net Income for 2023 Third Quarter of $5.1 Million and Diluted Earnings Per Share of $0.33

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