OP Bancorp(OPBK) - 2024 Q4 - Annual Results

OP Bancorp Fourth Quarter 2024 Earnings Report OP Bancorp's Q4 2024 earnings report details financial performance, balance sheet changes, and capital position Financial Highlights OP Bancorp's Q4 2024 net income was $5.0 million, marked by increased credit loss provisions and loan growth, while maintaining strong capital Q4 2024 Key Financial Results vs. Q3 2024 | Metric | 4Q2024 | 3Q2024 | | :--- | :--- | :--- | | Net Income | $5.0 million | $5.4 million | | Diluted EPS | $0.33 | $0.36 | | Net Interest Income | $16.9 million | $16.5 million | | Net Interest Margin | 2.96% | 2.95% | | Provision for Credit Losses | $1.5 million | $448 thousand | | Gross Loans | $1.96 billion | $1.93 billion | | Total Deposits | $2.03 billion | $2.06 billion | | Total Assets | $2.37 billion | $2.39 billion | Q4 2024 Key Credit Quality & Capital Metrics vs. Q3 2024 | Metric | 4Q2024 | 3Q2024 | | :--- | :--- | :--- | | Nonperforming loans to gross loans | 0.40% | 0.19% | | Criticized loans to gross loans | 1.00% | 0.85% | | Allowance for credit losses to gross loans | 1.27% | 1.19% | | Common Equity Tier 1 (CET1) ratio | 11.35% | 11.57% | | Book value per common share | $13.83 | $13.75 | - CEO Min Kim highlighted ongoing challenges in increasing customer deposits and lowering deposit costs due to financial market uncertainty[4] - The bank is prudently managing a slight elevation in classified loans and is monitoring the impact of recent Los Angeles wildfires on its customers[4] Results of Operations Q4 2024 operations showed increased net interest income and noninterest income, offset by higher credit loss provisions and expenses Net Interest Income and Net Interest Margin Net interest income increased QoQ and YoY due to lower deposit interest expense and asset growth, despite a YoY margin decline Net Interest Income and Margin Analysis | Metric | 4Q2024 | 3Q2024 | 4Q2023 | | :--- | :--- | :--- | :--- | | Net Interest Income | $16.9M | $16.5M | $16.2M | | Net Interest Margin | 2.96% | 2.95% | 3.12% | | Yield on Loans | 6.49% | 6.66% | 6.43% | | Cost of Deposits | 3.37% | 3.57% | 3.09% | - QoQ NII increased by $423 thousand, mainly because interest expense on deposits fell by $739 thousand due to a 25 basis point decrease in average cost[8][11] - YoY NII increased by $699 thousand as a $2.8 million rise in loan interest income, driven by a $160.1 million increase in average balance, surpassed higher deposit interest expenses[9][12] Provision for Credit Losses The company recorded a substantial $1.5 million provision for credit losses in Q4 2024, driven by increased qualitative and specific reserves Provision for Credit Losses Breakdown ($ in thousands) | Component | 4Q2024 | 3Q2024 | 4Q2023 | | :--- | :--- | :--- | :--- | | Provision for credit losses on loans | $1,859 | $234 | $537 | | Provision for (reversal of) credit losses on off-balance sheet exposure | ($312) | $214 | $93 | | Total provision for credit losses | $1,547 | $448 | $630 | - The $1.9 million provision for credit losses on loans was primarily due to a $1.5 million increase in qualitative reserves (related to asset quality metrics and CRE value declines) and an $810 thousand increase in specific reserves (for two SBA relationships)[13][18] Noninterest Income Noninterest income grew to $4.4 million in Q4 2024, driven by higher loan servicing fees and increased gains on loan sales Noninterest Income Breakdown ($ in thousands) | Component | 4Q2024 | 3Q2024 | 4Q2023 | | :--- | :--- | :--- | :--- | | Service charges on deposits | $967 | $889 | $557 | | Loan servicing fees, net | $858 | $693 | $540 | | Gain on sale of loans | $2,197 | $2,088 | $1,996 | | Other income | $395 | $570 | $587 | | Total noninterest income | $4,417 | $4,240 | $3,680 | - Gain on sale of loans increased QoQ due to a higher average premium on SBA loan sales (7.82% in Q4 vs 7.30% in Q3), despite a slightly lower sales volume[19] - Other income decreased primarily due to an increase in unrealized losses on CRA-qualified mutual funds, driven by market interest rate changes[20] Noninterest Expense Noninterest expense rose to $13.1 million in Q4 2024, primarily due to higher salaries, employee benefits, and FDIC insurance assessments Noninterest Expense Breakdown ($ in thousands) | Component | 4Q2024 | 3Q2024 | 4Q2023 | | :--- | :--- | :--- | :--- | | Salaries and employee benefits | $8,277 | $8,031 | $7,646 | | FDIC insurance and regulatory assessments | $529 | $391 | $237 | | Other expenses | $950 | $788 | $694 | | Total noninterest expense | $13,133 | $12,720 | $11,983 | - Salaries and benefits increased by $246 thousand QoQ due to higher employee incentive accruals, and by $631 thousand YoY as employee headcount grew from 222 to 231[23][24][27] - FDIC insurance assessments increased by $138 thousand QoQ due to year-end accrual adjustments and by $292 thousand YoY due to balance sheet growth and increased reliance on brokered deposits[23][24][27] Income Tax Expense Income tax expense for Q4 2024 was $1.7 million, with a lower effective tax rate of 25.4% due to year-end adjustments Effective Tax Rate Comparison | Period | Income Tax Expense | Effective Tax Rate | | :--- | :--- | :--- | | 4Q2024 | $1.7 million | 25.4% | | 3Q2024 | $2.1 million | 28.3% | | 4Q2023 | $2.1 million | 29.1% | Financial Condition As of Q4 2024, total assets were $2.37 billion, with loan growth and deposit contraction, showing some asset quality deterioration but strong capital Loans Gross loans increased to $1.96 billion in Q4 2024, driven by new originations, particularly in home mortgages, with C&I loans showing significant YoY growth Gross Loan Portfolio Composition ($ in thousands) | Loan Type | 4Q2024 | 3Q2024 | 4Q2023 | | :--- | :--- | :--- | :--- | | CRE loans | $980,247 | $966,472 | $885,585 | | SBA loans | $253,710 | $252,379 | $239,692 | | C&I loans | $213,097 | $212,476 | $120,970 | | Home mortgage loans | $509,524 | $499,666 | $518,024 | | Gross loans | $1,956,852 | $1,931,007 | $1,765,845 | Quarterly Loan Originations ($ in thousands) | Loan Type | 4Q2024 | 3Q2024 | | :--- | :--- | :--- | | CRE loans | $64,827 | $68,525 | | SBA loans | $36,810 | $46,302 | | C&I loans | $7,783 | $27,771 | | Home mortgage loans | $17,937 | $10,105 | | Gross loan originations | $127,357 | $152,703 | - The loan portfolio's interest rate composition at year-end was 33.2% fixed rate, 37.0% hybrid rate, and 29.8% variable rate[31] Allowance for Credit Losses and Asset Quality Asset quality showed stress in Q4 2024 with nonperforming loans doubling to $7.8 million, leading to an increased allowance for credit losses Key Asset Quality Metrics | Metric | 4Q2024 | 3Q2024 | 4Q2023 | | :--- | :--- | :--- | :--- | | Nonperforming loans | $7.8M | $3.6M | $6.1M | | Nonperforming loans to gross loans | 0.40% | 0.19% | 0.34% | | Criticized loans | $19.6M | $16.5M | $13.3M | | Allowance for credit losses to gross loans | 1.27% | 1.19% | 1.25% | | Net charge-offs to average gross loans (annualized) | 0.00% | 0.01% | 0.04% | - The increase in nonperforming loans was mainly driven by three SBA relationships: one hotel property with fire damage and two separate apparel businesses[35] - The allowance for credit losses on loans increased by $1.8 million during the quarter to end at $24.8 million[33] Deposits Total deposits decreased to $2.03 billion in Q4 2024, driven by a decline in noninterest-bearing deposits and a shift towards higher-cost time deposits Deposit Composition ($ in thousands) | Deposit Type | 4Q2024 | 3Q2024 | 4Q2023 | | :--- | :--- | :--- | :--- | | Noninterest-bearing deposits | $504,928 | $561,801 | $522,751 | | Money market deposits and others | $329,095 | $343,188 | $399,018 | | Time deposits | $1,193,262 | $1,159,614 | $885,789 | | Total deposits | $2,027,285 | $2,064,603 | $1,807,558 | - The decrease in noninterest-bearing deposits was attributed to market expectations on the Federal Reserve's rate trajectory and economic uncertainty[39] - As of December 31, 2024, $682.5 million (57.2%) of total time deposits are set to mature within six months[41] Other Highlights The company maintains strong liquidity and capital positions, with a declared dividend and limited exposure to the Los Angeles wildfires Liquidity The company's liquidity position remains robust, with over $1 billion in liquid assets and available borrowings, covering 51.2% of total deposits Liquidity Position ($ in thousands) | Liquidity Source | 4Q2024 | 3Q2024 | | :--- | :--- | :--- | | Liquid assets | $320,852 | $366,129 | | Total available borrowings | $717,015 | $705,399 | | Total Liquidity Sources | $1,037,867 | $1,071,528 | | Liquid assets and available borrowings to total deposits | 51.2% | 51.9% | Capital and Capital Ratios The company's capital levels remain well-capitalized, with all ratios exceeding regulatory minimums, and a quarterly cash dividend of $0.12 per share declared OP Bancorp Capital Ratios | Ratio | 4Q2024 | 3Q2024 | Minimum Well Capitalized Ratio | | :--- | :--- | :--- | :--- | | Common equity tier 1 ratio | 11.35% | 11.57% | 6.50% | | Tier 1 risk-based capital ratio | 11.35% | 11.57% | 8.00% | | Total risk-based capital ratio | 12.60% | 12.79% | 10.00% | | Leverage ratio | 9.27% | 9.30% | 5.00% | - A quarterly cash dividend of $0.12 per share was declared, payable on or about February 20, 2025[43] - The company did not repurchase any shares of its common stock during the fourth quarter of 2024[44] Los Angeles Wildfires Impact The company's exposure to the Los Angeles wildfires is limited, with only a small number of borrowers directly impacted and minimal potential for payment adjustments - Overall exposure from Los Angeles wildfires is limited to $23.5 million (1.3% of net loans)[37] - Only three borrowers with a total of $6.3 million in outstanding principal were directly impacted, with only $2.2 million potentially requiring temporary loan payment adjustments[37] Consolidated Financial Statements The consolidated financial statements provide detailed breakdowns of the company's balance sheet, income statement, key ratios, and asset quality for Q4 and full year 2024 Consolidated Balance Sheets As of Q4 2024, total assets were $2.37 billion, with growth in net loans receivable and an increase in total shareholders' equity Consolidated Balance Sheet Highlights ($ in thousands) | Account | 4Q2024 | 3Q2024 | 4Q2023 | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $134,943 | $166,756 | $91,216 | | Net loans receivable | $1,932,056 | $1,908,047 | $1,743,852 | | Total assets | $2,366,013 | $2,387,980 | $2,147,730 | | Total deposits | $2,027,285 | $2,064,603 | $1,807,558 | | Total liabilities | $2,161,020 | $2,184,377 | $1,955,104 | | Total shareholders' equity | $204,993 | $203,603 | $192,626 | Consolidated Statements of Income Q4 2024 net income was $5.0 million, while full-year 2024 net income decreased to $21.1 million due to lower net interest income and higher credit loss provisions Quarterly Income Statement Highlights ($ in thousands) | Account | 4Q2024 | 3Q2024 | 4Q2023 | | :--- | :--- | :--- | :--- | | Net interest income | $16,929 | $16,506 | $16,230 | | Provision for credit losses | $1,547 | $448 | $630 | | Noninterest income | $4,417 | $4,240 | $3,680 | | Noninterest expense | $13,133 | $12,720 | $11,983 | | Net income | $4,971 | $5,436 | $5,172 | Annual Income Statement Highlights ($ in thousands) | Account | Year 2024 | Year 2023 | % Change | | :--- | :--- | :--- | :--- | | Net interest income | $65,608 | $68,687 | (4.5)% | | Provision for credit losses | $2,757 | $1,651 | 67.0% | | Noninterest income | $16,427 | $14,181 | 15.8% | | Noninterest expense | $50,199 | $47,726 | 5.2% | | Net income | $21,069 | $23,918 | (11.9)% | Key Ratios Key profitability ratios, including ROA and ROE, declined in Q4 and full year 2024, reflecting margin pressure and increased provisions, while capital ratios remained strong Quarterly Performance Ratios | Ratio | 4Q2024 | 3Q2024 | 4Q2023 | | :--- | :--- | :--- | :--- | | Return on average assets (ROA) | 0.84% | 0.94% | 0.96% | | Return on average equity (ROE) | 9.75% | 10.95% | 11.18% | | Net interest margin | 2.96% | 2.95% | 3.12% | | Efficiency ratio | 61.52% | 61.31% | 60.19% | Annual Performance Ratios | Ratio | Year 2024 | Year 2023 | | :--- | :--- | :--- | | Return on average assets (ROA) | 0.92% | 1.13% | | Return on average equity (ROE) | 10.68% | 13.05% | | Net interest margin | 2.99% | 3.37% | | Efficiency ratio | 61.19% | 57.59% | Detailed Asset Quality Detailed asset quality showed nonperforming assets at $9.1 million and criticized loans at $19.6 million in Q4 2024, with a decrease in 30-89 day delinquent loans Criticized Loans by Risk Category ($ in thousands) | Category | 4Q2024 | 3Q2024 | 4Q2023 | | :--- | :--- | :--- | :--- | | Special mention loans | $6,309 | $4,540 | $1,428 | | Classified loans | $13,261 | $11,960 | $11,921 | | Total criticized loans | $19,570 | $16,500 | $13,349 | Average Balance Sheet and Yield/Rate Analysis Q4 2024 average balance sheet analysis shows an interest rate spread of 1.54%, with full-year compression to 1.52% due to rising cost of funds Quarterly Average Balance and Yield/Rate Analysis | Category | 4Q2024 | 3Q2024 | 4Q2023 | | :--- | :--- | :--- | :--- | | Avg. Interest-Earning Assets Yield | 6.12% | 6.30% | 6.10% | | Avg. Interest-Bearing Liabilities Cost | 4.58% | 4.82% | 4.53% | | Interest Rate Spread | 1.54% | 1.48% | 1.57% | | Net Interest Margin | 2.96% | 2.95% | 3.12% | Annual Average Balance and Yield/Rate Analysis | Category | Year 2024 | Year 2023 | | :--- | :--- | :--- | | Avg. Interest-Earning Assets Yield | 6.26% | 5.96% | | Avg. Interest-Bearing Liabilities Cost | 4.74% | 4.10% | | Interest Rate Spread | 1.52% | 1.86% | | Net Interest Margin | 2.99% | 3.37% |