OP Bancorp(OPBK) - 2024 Q3 - Quarterly Results

Financial and Operational Highlights OP Bancorp maintained stable net income and diluted EPS in Q3 2024, demonstrating solid asset and deposit growth while preserving strong credit quality and capital Q3 2024 Highlights OP Bancorp reported stable Q3 2024 net income and EPS, alongside robust growth in assets, loans, and deposits, maintaining strong credit quality Q3 2024 vs Q2 2024 Financial Results | Metric | Q3 2024 | Q2 2024 | Change | | :--- | :--- | :--- | :--- | | Net Income | $5.4 million | $5.4 million | No Change | | Diluted EPS | $0.36 | $0.36 | No Change | | Net Interest Income | $16.5 million | $16.2 million | +1.9% | | Net Interest Margin | 2.95% | 2.96% | -1 bp | | Total Assets | $2.39 billion | $2.29 billion | +4.2% | | Gross Loans | $1.93 billion | $1.87 billion | +3.3% | | Total Deposits | $2.06 billion | $1.94 billion | +6.4% | Q3 2024 vs Q2 2024 Credit Quality | Metric | Q3 2024 | Q2 2024 | | :--- | :--- | :--- | | Allowance for credit losses to gross loans | 1.19% | 1.22% | | Net charge-offs to average gross loans | 0.01% | (0.00)% | | Nonperforming loans to gross loans | 0.19% | 0.23% | Q3 2024 Capital Highlights | Metric | Q3 2024 | Q2 2024 | | :--- | :--- | :--- | | Common Equity Tier 1 (CET1) ratio | 11.57% | 12.01% | | Book value per common share | $13.75 | $13.23 | | Quarterly cash dividend per share | $0.12 | $0.12 | | Shares Repurchased | 4,610 | - | - The President and CEO, Min Kim, stated that the company continued to grow loans and deposits at double-digit annualized rates while maintaining stable net interest margin and strong credit quality[2] - Kim believes the diminishing pressure on funding costs positions the bank well for future growth[2] Selected Financial Highlights This section provides a concise overview of the company's key financial performance and balance sheet metrics across recent quarters Key Financial Data Summary Q3 2024 saw stable net income and EPS quarter-over-quarter, with strong year-over-year growth in loans and deposits despite net interest margin compression Selected Income Statement Data ($ in thousands) | Metric | Q3 2024 | Q2 2024 | Q3 2023 | | :--- | :--- | :--- | :--- | | Net interest income | $16,506 | $16,194 | $17,313 | | Provision for credit losses | $448 | $617 | $1,359 | | Net income | $5,436 | $5,436 | $5,121 | | Diluted EPS | $0.36 | $0.36 | $0.33 | Selected Balance Sheet Data ($ in thousands) | Metric | Q3 2024 | Q2 2024 | Q3 2023 | | :--- | :--- | :--- | :--- | | Gross loans | $1,931,007 | $1,870,106 | $1,759,525 | | Total deposits | $2,064,603 | $1,940,821 | $1,825,171 | | Total assets | $2,387,980 | $2,290,680 | $2,142,675 | Key Financial Ratios | Ratio | Q3 2024 | Q2 2024 | Q3 2023 | | :--- | :--- | :--- | :--- | | Return on average assets (ROA) | 0.94% | 0.95% | 0.96% | | Return on average equity (ROE) | 10.95% | 11.23% | 11.07% | | Net interest margin (NIM) | 2.95% | 2.96% | 3.38% | | Efficiency ratio | 61.31% | 59.81% | 57.92% | Income Statement Analysis This section analyzes the company's revenue, expenses, and profitability trends, highlighting key drivers and changes Net Interest Income and Net Interest Margin Net interest income increased QoQ due to loan growth but decreased YoY due to higher deposit interest expense, with NIM remaining stable QoQ but declining YoY Net Interest Income and Margin Performance | Metric | Q3 2024 | Q2 2024 | Q3 2023 | | :--- | :--- | :--- | :--- | | Net Interest Income | $16,506k | $16,194k | $17,313k | | QoQ Change | +1.9% | - | - | | YoY Change | -4.7% | - | - | | Net Interest Margin | 2.95% | 2.96% | 3.38% | | QoQ Change | -1 bp | - | - | | YoY Change | -43 bps | - | - | - QoQ Analysis: The $312 thousand increase in NII was driven by a $1.3 million increase in interest income on loans, partially offset by a $578 thousand increase in interest expense on deposits[7] - YoY Analysis: The $807 thousand decrease in NII was primarily due to a $4.9 million increase in interest expense on deposits, which was not fully offset by a $3.6 million increase in interest income on loans[8][9] Provision for Credit Losses Q3 2024 provision for credit losses significantly decreased QoQ and YoY, primarily driven by lower loan provisions and increased off-balance sheet exposure Provision for Credit Losses Breakdown ($ in thousands) | Component | Q3 2024 | Q2 2024 | Q3 2023 | | :--- | :--- | :--- | :--- | | Provision for credit losses on loans | $234 | $627 | $1,303 | | Provision for (reversal of) credit losses on off-balance sheet exposure | $214 | $(10) | $56 | | Total provision for credit losses | $448 | $617 | $1,359 | - The provision for credit losses on loans of $234 thousand was primarily due to a $215 thousand increase in the qualitative reserve, reflecting declining collateral values for CRE loans and weakening economic conditions[12] - The provision for off-balance sheet exposure of $214 thousand was mainly due to increases in unfunded commitment balances and utilization[12] Noninterest Income Noninterest income grew modestly QoQ and substantially YoY, primarily driven by increased gain on sale of loans and higher service charges Noninterest Income Breakdown ($ in thousands) | Component | Q3 2024 | Q2 2024 | Q3 2023 | | :--- | :--- | :--- | :--- | | Service charges on deposits | $889 | $793 | $575 | | Loan servicing fees, net | $693 | $575 | $468 | | Gain on sale of loans | $2,088 | $2,325 | $1,179 | | Other income | $570 | $491 | $379 | | Total noninterest income | $4,240 | $4,184 | $2,601 | - Gain on Sale of Loans: The Bank sold $35.6 million in SBA loans at an average premium of 7.30% in Q3 2024, compared to selling $32.1 million at 8.58% in Q2 2024 and $23.4 million at 6.50% in Q3 2023[15][16] - Loan Servicing Fees: Increased QoQ and YoY due to a decrease in servicing fee amortization driven by lower loan payoffs[17] Noninterest Expense Noninterest expense increased QoQ and YoY, mainly due to higher salaries, employee benefits, and data processing costs supporting business growth Noninterest Expense Breakdown ($ in thousands) | Component | Q3 2024 | Q2 2024 | Q3 2023 | | :--- | :--- | :--- | :--- | | Salaries and employee benefits | $8,031 | $7,568 | $7,014 | | Occupancy and equipment | $1,676 | $1,660 | $1,706 | | Data processing and communication | $634 | $530 | $369 | | Total noninterest expense | $12,720 | $12,189 | $11,535 | - QoQ Increase: Driven by a $463 thousand increase in salaries and benefits (due to higher incentive and vacation accruals) and a $104 thousand increase in data processing costs[20] - YoY Increase: Driven by a $1.0 million increase in salaries and benefits and a $265 thousand increase in data processing costs to support continued growth[21] Income Tax Expense Q3 2024 income tax expense was $2.1 million, with an effective tax rate of 28.3%, consistent QoQ but higher YoY due to prior year adjustments Effective Tax Rate Comparison | Period | Income Tax Expense | Effective Tax Rate | | :--- | :--- | :--- | | Q3 2024 | $2.1 million | 28.3% | | Q2 2024 | $2.1 million | 28.2% | | Q3 2023 | $1.9 million | 27.1% | Balance Sheet Analysis This section details the company's asset, liability, and equity composition, highlighting changes and key trends Loans Gross loans grew significantly QoQ and YoY to $1.93 billion, driven by a surge in new originations across C&I, SBA, and CRE segments Gross Loan Composition ($ in thousands) | Loan Type | Q3 2024 | Q2 2024 | Q3 2023 | | :--- | :--- | :--- | :--- | | CRE loans | $966,472 | $931,284 | $878,824 | | SBA loans | $252,379 | $242,395 | $240,154 | | C&I loans | $212,476 | $188,557 | $124,632 | | Home mortgage loans | $499,666 | $506,873 | $515,789 | | Gross loans | $1,931,007 | $1,870,106 | $1,759,525 | New Loan Originations ($ in thousands) | Loan Type | Q3 2024 | Q2 2024 | Q3 2023 | | :--- | :--- | :--- | :--- | | CRE loans | $68,525 | $41,990 | $33,222 | | SBA loans | $46,302 | $24,142 | $39,079 | | C&I loans | $27,771 | $21,271 | $14,617 | | Gross loans | $152,703 | $101,123 | $96,055 | - The loan portfolio's interest rate composition as of Q3 2024 was 35.7% fixed-rate, 34.7% hybrid-rate, and 29.6% variable-rate, with a weighted average contractual rate of 6.52%[30] Allowance for Credit Losses (ACL) ACL on loans slightly increased to $23.0 million, with the ACL to gross loans ratio decreasing to 1.19% due to strong loan growth Allowance for Credit Losses Roll-Forward ($ in thousands) | Description | Q3 2024 | Q2 2024 | | :--- | :--- | :--- | | ACL on Loans, beginning | $22,760 | $22,129 | | Provision for credit losses | $234 | $627 | | Net (charge-offs) recoveries | $(34) | $4 | | ACL on Loans, ending | $22,960 | $22,760 | | ACL on Off-Balance Sheet, ending | $672 | $458 | Asset Quality Asset quality remained strong in Q3 2024, with nonperforming loans decreasing and criticized loans stable, despite an increase in 30-89 day past due loans Key Asset Quality Metrics | Metric | Q3 2024 | Q2 2024 | Q3 2023 | | :--- | :--- | :--- | :--- | | Nonperforming loans to gross loans | 0.19% | 0.23% | 0.24% | | Nonperforming assets to total assets | 0.20% | 0.25% | 0.20% | | Criticized loans to gross loans | 0.85% | 0.88% | 0.78% | | Net charge-offs to average gross loans | 0.01% | (0.00)% | 0.11% | - Nonperforming loans decreased by 17.5% QoQ to $3.6 million[35] - Loans 30-89 days past due increased to $10.3 million (0.53% of gross loans) from $6.7 million (0.36%) in Q2 2024, largely due to four home mortgage loans and three SBA real estate loans[35][36] Deposits Total deposits grew significantly QoQ and YoY to $2.06 billion, primarily driven by increases in time deposits and noninterest-bearing deposits Deposit Composition ($ in thousands) | Deposit Type | Q3 2024 | Q2 2024 | Q3 2023 | | :--- | :--- | :--- | :--- | | Noninterest-bearing deposits | $561,801 | $518,456 | $605,509 | | Money market and others | $343,188 | $332,137 | $348,869 | | Time deposits | $1,159,614 | $1,090,228 | $870,793 | | Total deposits | $2,064,603 | $1,940,821 | $1,825,171 | - QoQ Growth: Driven by a $69.4 million increase in time deposits and a $43.3 million increase in noninterest-bearing deposits[38] - YoY Growth: Driven by a $288.8 million increase in time deposits, which offset a $43.7 million decrease in noninterest-bearing deposits[39] - Estimated uninsured deposits increased to $946.4 million, representing 45.8% of total deposits[40] Liquidity and Capital The company maintained strong liquidity with $366.1 million in liquid assets and robust capital ratios well above regulatory minimums, alongside continued dividend payments and share repurchases Liquidity Position ($ in thousands) | Metric | Q3 2024 | Q2 2024 | | :--- | :--- | :--- | | Liquid assets | $366,129 | $326,881 | | Total available borrowings | $705,399 | $635,021 | | Liquid assets and available borrowings to total deposits | 51.9% | 49.6% | - A quarterly cash dividend of $0.12 per share was declared[44] - The company repurchased 4,610 shares of common stock at an average price of $10.09 per share during Q3 2024[45] OP Bancorp Capital Ratios | Ratio | Q3 2024 | Q2 2024 | Minimum Well Capitalized | | :--- | :--- | :--- | :--- | | Common equity tier 1 ratio | 11.57% | 12.01% | 6.50% | | Tier 1 risk-based capital ratio | 11.57% | 12.01% | 8.00% | | Total risk-based capital ratio | 12.79% | 13.26% | 10.00% | | Leverage ratio | 9.30% | 9.28% | 5.00% | Consolidated Financial Statements This section presents the unaudited consolidated balance sheets and statements of income, along with key financial ratios and asset quality details Consolidated Balance Sheets Total assets reached $2.39 billion and total deposits $2.06 billion by Q3 2024, reflecting growth in net loans and shareholders' equity Consolidated Balance Sheet Highlights ($ in thousands) | Account | Sep 30, 2024 | Jun 30, 2024 | Sep 30, 2023 | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $166,756 | $127,676 | $105,740 | | Net loans receivable | $1,908,047 | $1,847,346 | $1,737,908 | | Total assets | $2,387,980 | $2,290,680 | $2,142,675 | | Total deposits | $2,064,603 | $1,940,821 | $1,825,171 | | Total liabilities | $2,184,377 | $2,094,694 | $1,958,368 | | Total shareholders' equity | $203,603 | $195,986 | $184,307 | Consolidated Statements of Income Q3 2024 net income remained stable at $5.4 million, while nine-month net income decreased 14.1% year-over-year due to lower net interest income Consolidated Income Statement (Quarterly, $ in thousands) | Account | Q3 2024 | Q2 2024 | Q3 2023 | | :--- | :--- | :--- | :--- | | Net interest income | $16,506 | $16,194 | $17,313 | | Provision for credit losses | $448 | $617 | $1,359 | | Total noninterest income | $4,240 | $4,184 | $2,601 | | Total noninterest expense | $12,720 | $12,189 | $11,535 | | Net income | $5,436 | $5,436 | $5,121 | | Earnings per share - diluted | $0.36 | $0.36 | $0.33 | Consolidated Income Statement (Nine Months Ended, $ in thousands) | Account | 9M 2024 | 9M 2023 | % Change | | :--- | :--- | :--- | :--- | | Net interest income | $48,679 | $52,457 | (7.2)% | | Provision for credit losses | $1,210 | $1,021 | 18.5% | | Net income | $16,098 | $18,746 | (14.1)% | | Earnings per share - diluted | $1.06 | $1.21 | (12.4)% | Key Ratios Q3 2024 key ratios included ROA of 0.94%, ROE of 10.95%, NIM of 2.95%, and a strong total risk-based capital ratio of 12.79% Key Ratios (Quarterly) | Ratio | Q3 2024 | Q2 2024 | Q3 2023 | | :--- | :--- | :--- | :--- | | Return on average assets (ROA) | 0.94% | 0.95% | 0.96% | | Return on average equity (ROE) | 10.95% | 11.23% | 11.07% | | Net interest margin | 2.95% | 2.96% | 3.38% | | Efficiency ratio | 61.31% | 59.81% | 57.92% | Key Ratios (Nine Months Ended) | Ratio | 9M 2024 | 9M 2023 | | :--- | :--- | :--- | | Return on average assets (ROA) | 0.95% | 1.18% | | Return on average equity (ROE) | 11.00% | 13.69% | | Net interest margin | 2.99% | 3.45% | | Efficiency ratio | 61.08% | 56.77% | Asset Quality Details Q3 2024 asset quality showed decreased nonperforming assets to $4.9 million and stable criticized loans, despite an increase in 30-89 day past due loans Nonperforming and Criticized Loans ($ in thousands) | Category | Q3 2024 | Q2 2024 | Q3 2023 | | :--- | :--- | :--- | :--- | | Nonperforming loans | $3,620 | $4,389 | $4,211 | | OREO | $1,237 | $1,237 | $0 | | Nonperforming assets | $4,857 | $5,626 | $4,211 | | Special mention loans | $4,540 | $3,339 | $3,651 | | Classified loans | $11,960 | $13,089 | $10,139 | | Total criticized loans | $16,500 | $16,428 | $13,790 | Average Balance Sheet and Yield/Rate Analysis Q3 2024 average yield on interest-earning assets was 6.30%, with a net interest margin of 2.95% and an average cost of total deposits at 3.57% Quarterly Average Yield/Rate Analysis | Metric | Q3 2024 | Q2 2024 | Q3 2023 | | :--- | :--- | :--- | :--- | | Yield on total interest-earning assets | 6.30% | 6.29% | 6.08% | | Cost of total interest-bearing liabilities | 4.82% | 4.81% | 4.23% | | Net interest rate spread | 1.48% | 1.48% | 1.85% | | Net interest margin | 2.95% | 2.96% | 3.38% | | Cost of total deposits | 3.57% | 3.54% | 2.83% | Nine-Month Average Yield/Rate Analysis | Metric | 9M 2024 | 9M 2023 | | :--- | :--- | :--- | | Yield on total interest-earning assets | 6.30% | 5.91% | | Cost of total interest-bearing liabilities | 4.80% | 3.94% | | Net interest rate spread | 1.50% | 1.97% | | Net interest margin | 2.99% | 3.45% |