OP Bancorp(OPBK) - 2025 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited consolidated financial statements for OP Bancorp as of March 31, 2025, including balance sheets, income statements, and cash flows, showing increases in assets, loans, deposits, and net income year-over-year Consolidated Balance Sheets Total assets grew to $2.51 billion as of March 31, 2025, driven by increased loans and cash, with liabilities rising due to deposit growth and equity at $210.1 million Consolidated Balance Sheet Highlights (Unaudited) | ($ in thousands) | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $2,512,971 | $2,366,013 | | Cash and cash equivalents | $198,861 | $134,943 | | Loans receivable, net | $2,018,517 | $1,932,056 | | Total Liabilities | $2,302,882 | $2,161,020 | | Total deposits | $2,189,871 | $2,027,285 | | Total Shareholders' Equity | $210,089 | $204,993 | Consolidated Statements of Income Net income for Q1 2025 was $5.6 million, up 6.4% YoY, driven by increased net interest income and noninterest income, partially offset by higher expenses Q1 2025 vs Q1 2024 Income Statement (Unaudited) | ($ in thousands, except per share data) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net interest income | $17,418 | $15,979 | | Provision for credit losses | $736 | $145 | | Noninterest income | $4,816 | $3,586 | | Noninterest expense | $13,814 | $12,157 | | Net Income | $5,560 | $5,226 | | Earnings Per Share - Diluted | $0.37 | $0.34 | Consolidated Statements of Cash Flows Net cash from financing activities was $140.1 million in Q1 2025, primarily from deposit increases, leading to a $63.9 million overall cash increase Cash Flow Summary for Three Months Ended March 31 (Unaudited) | ($ in thousands) | 2025 | 2024 | | :--- | :--- | :--- | | Net cash from (used in) operating activities | $5,645 | $(3,154) | | Net cash used in investing activities | $(81,818) | $(34,524) | | Net cash from financing activities | $140,091 | $85,708 | | Net change in cash and cash equivalents | $63,918 | $48,030 | Notes to Unaudited Consolidated Financial Statements The notes detail accounting policies, loan portfolios, CECL, deposit maturities, borrowings, and regulatory capital, highlighting Open Bank's commercial banking focus - The company operates through its wholly owned subsidiary, Open Bank, with eleven full-service branches and five loan production offices across multiple states[26] - The loan portfolio is primarily composed of Commercial Real Estate ($1.02 billion) and Home Mortgages ($559.5 million), together representing over 77% of gross loans receivable as of March 31, 2025[37] - As of March 31, 2025, the Bank exceeded all regulatory capital requirements to be considered 'well-capitalized', with a Total risk-based capital ratio of 12.24% against a 10.00% requirement[106][193] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2025 financial performance, with net income up 6.4% to $5.6 million and total assets growing to $2.51 billion, driven by loan and deposit growth - Management attributes recent performance challenges and strategic shifts to interest rate fluctuations, impacting cost of funds, net interest margins, and loan volumes[114][115] Q1 2025 vs Q1 2024 Performance Highlights | ($ in thousands, except per share data) | 2025 | 2024 | | :--- | :--- | :--- | | Net income | $5,560 | $5,226 | | Diluted income per share | $0.37 | $0.34 | | Return on average assets | 0.92% | 0.96% | | Return on average equity | 10.73% | 10.83% | | Net interest margin | 3.01% | 3.06% | Balance Sheet Highlights (Q1 2025 vs YE 2024) | ($ in thousands) | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Gross loans | $2,043,885 | $1,956,852 | | Total assets | $2,512,971 | $2,366,013 | | Total deposits | $2,189,871 | $2,027,285 | | Shareholders' equity | $210,089 | $204,993 | Results of Operations Net income for Q1 2025 rose to $5.6 million from $5.2 million in Q1 2024, driven by increased net interest and noninterest income, partially offset by higher expenses - Net interest income increased by $1.4 million YoY, as a $1.9 million increase in interest income outpaced a $0.5 million increase in interest expense[128][136] - Noninterest income grew by $1.2 million (34.3%) YoY, driven by increases in service charges on deposits ($388 thousand), loan servicing fees ($235 thousand), and gain on sale of loans ($316 thousand)[143] - Noninterest expense rose by $1.7 million (13.6%) YoY, primarily due to a $935 thousand increase in salaries and benefits and an $816 thousand increase in other expenses[148][149] Financial Condition As of March 31, 2025, total assets reached $2.51 billion, with gross loans at $2.04 billion and deposits at $2.19 billion, while nonperforming loans rose to $10.4 million - Gross loans increased by $87.0 million (4.4%) to $2.04 billion in Q1 2025, driven by $205.8 million in new originations, offset by $31.1 million in sales and $87.7 million in payoffs[161] - Nonperforming loans rose to $10.4 million as of March 31, 2025, from $7.8 million at year-end 2024, with the ratio to gross loans increasing to 0.51% from 0.40%[179][182] - Total deposits increased by $162.6 million (8.0%) to $2.19 billion in Q1 2025, with noninterest-bearing deposits growing to 25.2% of total deposits[120][184] Liquidity and Capital Resources The company maintains strong liquidity with $381.3 million in liquid assets and $699.0 million in available borrowings, remaining well-capitalized with a 12.24% total risk-based capital ratio Liquidity Position as of March 31, 2025 | ($ in thousands) | March 31, 2025 | | :--- | :--- | | Liquid assets (Cash + AFS securities) | $381,341 | | Total available borrowings | $699,019 | | Total liquid assets and available borrowings | $1,080,360 | | Ratio to total deposits | 49.3% | Bank Regulatory Capital Ratios as of March 31, 2025 | Ratio | Actual | Well-Capitalized Minimum | | :--- | :--- | :--- | | CET1 capital ratio | 10.99% | 6.50% | | Tier 1 capital ratio | 10.99% | 8.00% | | Total capital ratio | 12.24% | 10.00% | | Tier 1 leverage ratio | 9.15% | 5.00% | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk, managed by ALM, projecting a 1.91% NII increase for a +100 bps rate shift and a 1.03% decrease for a -100 bps shift - The company's primary market risk is interest rate risk, stemming from repricing differences, option risk, yield curve risk, and basis risk[195][196] Interest Rate Sensitivity Analysis as of March 31, 2025 | Rate Shock | Net Interest Income Sensitivity (12-month) | Economic Value of Equity (EVE) Sensitivity | | :--- | :--- | :--- | | +300 bps | +4.24% | -21.95% | | +200 bps | +3.48% | -10.67% | | +100 bps | +1.91% | -3.39% | | -100 bps | -1.03% | +2.19% | Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal control over financial reporting - The President and CEO and the CFO concluded that the Company's disclosure controls and procedures were effective as of March 31, 2025[205] - No material changes to the Company's internal control over financial reporting were identified during the quarter[206] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company is subject to normal course legal proceedings, with no expected material impact on financial statements - Management has reviewed all legal claims and does not expect any to have a material impact on the company's financial statements[209] Item 1A. Risk Factors This section details material risks including cybersecurity, vendor dependence, geographic concentration, commercial real estate loan concentration, management transitions, and growth restrictions - The company identifies significant risk from constantly evolving and sophisticated cybersecurity threats, potentially causing material harm to the business[211][215] - A significant portion of the loan portfolio (89.0% as of March 31, 2025) is secured by real estate, making the company vulnerable to real estate market downturns, especially in Southern California[240] - The company is highly dependent on its management team and is undergoing a significant leadership succession in 2025, with a new CEO, COO, and CFO, which carries transition risk[243][244] - Growth outside of California and other permitted markets is restricted by a Coexistence Agreement with Open Bank, S.A. of Spain regarding the use of the "Open Bank" name[254][255] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities occurred during the period - None[285] Item 6. Exhibits This section lists exhibits filed with Form 10-Q, including corporate governance documents, officer certifications, and Inline XBRL data - Exhibits filed include CEO and CFO certifications under Sarbanes-Oxley Act Sections 302 and 906, and Inline XBRL documents[289]