OP Bancorp Reports Net Income for 2023 Second Quarter of $6.1 Million and Diluted Earnings Per Share of $0.39

July 27, 2023 at 16:30 PM EDT

2023 Second Quarter Highlights compared with 2022 Second Quarter:

Financial Results:
- Net income of $6.1 million, compared to $8.5 million
- Diluted earnings per share of $0.39, compared to $0.54
- Net interest income of $17.3 million, compared to $19.1 million
- Net interest margin of 3.40%, compared to 4.21%
- No provision for credit losses, compared to provision for credit losses of $996 thousand
- Total assets of $2.2 billion, an 11% increase compared to $1.9 billion
- Gross loans of $1.7 billion, a 16% increase compared to $1.5 billion
- Total deposits of $1.9 billion, a 7% increase compared to $1.7 billion
Credit Quality:
- Allowance for credit losses to gross loans of 1.21%, compared to 1.19%
- Net charge-offs⁽¹⁾ to average gross loans⁽²⁾ of 0.00%, compared to net recoveries of 0.01%
- Nonperforming loans to gross loans of 0.20%, compared to 0.12%
- Criticized loans⁽³⁾ to gross loans of 0.44%, compared to 0.18%
Capital Levels:
- Remained well-capitalized with a Common Equity Tier 1 (“CET1”) ratio of 11.92%.
- Book value per common share increased to $12.16, compared to $11.16
- Repurchased 221,494 shares of common stock at an average price of $8.40
- Paid quarterly cash dividend of $0.12 per share, compared to $0.10 per share

___________________________________________________________

⁽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 second quarter of 2023. Net income for the second quarter of 2023 was $6.1 million, or $0.39 per diluted common share, compared with $7.5 million, or $0.48 per diluted common share, for the first quarter of 2023, and $8.5 million, or $0.54 per diluted common share, for the second quarter of 2022.

Min Kim, President and Chief Executive Officer:

“We continued to maintain strong liquidity, credit quality, and solid capital positions to withstand the recent turmoil in the banking industry. Our liquid assets and available borrowings were more than 47% of total assets,” said Min Kim, President and Chief Executive.

“The migration from noninterest-bearing to interest-bearing deposits has been stabilized during the quarter, and our noninterest-bearing deposits remained at 34% of total deposits. We are truly grateful for our customers’ loyalty and trust throughout these difficult times.

“Although we anticipate additional challenges in the short term, we remain optimistic about our future performance and will continue to focus on executing our strategic goals while maintaining appropriate risk and control environment.”

SELECTED FINANCIAL HIGHLIGHTS

($ in thousands, except per share data)	As of and For the Three Months Ended									% Change 2Q23 vs.
($ in thousands, except per share data)		2Q2023			1Q2023			2Q2022		1Q2023		2Q2022
Selected Income Statement Data:
Net interest income	$	17,252		$	17,892		$	19,079		(3.6	)%	(9.6	)%
(Reversal of) provision for credit losses		—			(338	)		996		n/m		n/m
Noninterest income		3,605			4,295			5,359		(16.1	)	(32.7	)
Noninterest expense		12,300			11,908			11,503		3.3		6.9
Income tax expense		2,466			3,083			3,459		(20.0	)	(28.7	)
Net Income		6,091			7,534			8,480		(19.2	)	(28.2	)
Diluted earnings per share		0.39			0.48			0.54		(18.8	)	(27.8	)
Selected Balance Sheet Data:
Gross loans	$	1,716,197		$	1,692,485		$	1,484,718		1.4	%	15.6	%
Total deposits		1,859,639			1,904,818			1,741,623		(2.4	)	6.8
Total assets		2,151,701			2,170,594			1,934,242		(0.9	)	11.2
Average loans⁽¹⁾		1,725,764			1,725,392			1,560,064		—		10.6
Average deposits		1,817,101			1,867,684			1,702,860		(2.7	)	6.7
Credit Quality:
Nonperforming loans	$	3,447		$	2,504		$	1,826		37.7	%	88.8	%
Net charge-offs (recoveries) to average gross loans⁽²⁾		0.00	%		0.02	%		(0.01	)%	(0.02	)	0.01
Allowance for credit losses to gross loans		1.21			1.23			1.19		(0.02	)	0.02
Allowance for credit losses to nonperforming loans		603			831			969		(228	)	(366	)
Financial Ratios:
Return on average assets⁽²⁾		1.15	%		1.43	%		1.79	%	(0.28	)%	(0.64	)%
Return on average equity⁽²⁾		13.27			16.82			20.29		(3.55	)	(7.02	)
Net interest margin⁽²⁾		3.40			3.57			4.21		(0.17	)	(0.81	)
Efficiency ratio⁽³⁾		58.97			53.67			47.07		5.30		11.90
Common equity tier 1 capital ratio		11.92			12.06			12.29		(0.14	)	(0.37	)
Leverage ratio		9.50			9.43			9.48		0.07		0.02
Book value per common share	$	12.16		$	12.02		$	11.16		1.2		9.0

⁽¹⁾		Includes loans held for sale.
⁽²⁾		Annualized.
⁽³⁾		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 2Q23 vs.
($ in thousands)		2Q2023		1Q2023		2Q2022	1Q2023		2Q2022
Interest Income
Interest income	$	30,102	$	28,594	$	20,148	5.3	%	49.4	%
Interest expense		12,850		10,702		1,069	20.1		1102.1
Net interest income	$	17,252	$	17,892	$	19,079	(3.6	)%	(9.6	)%


($ in thousands)	For the Three Months Ended
	2Q2023						1Q2023						2Q2022
	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	$	1,725,764	$	27,288	6.34	%	$	1,725,392	$	26,011	6.10	%	$	1,560,064	$	19,108	4.91	%
Total interest-earning assets		2,030,139		30,102	5.94			2,022,146		28,594	5.71			1,817,157		20,148	4.44
Interest-bearing Liabilities:
Interest-bearing deposits		1,201,353		11,920	3.98			1,196,194		10,382	3.52			859,072		1,069	0.50
Total interest-bearing liabilities		1,283,939		12,850	4.01			1,222,362		10,702	3.55			859,072		1,069	0.50
Ratios:
Net interest income / interest rate spreads				17,252	1.93					17,892	2.16					19,079	3.94
Net interest margin					3.40						3.57						4.21
Total deposits / cost of deposits		1,817,101		11,920	2.63			1,867,684		10,382	2.25			1,702,860		1,069	0.25
Total funding liabilities / cost of funds		1,899,687		12,850	2.71			1,893,852		10,702	2.29			1,702,860		1,069	0.25

⁽¹⁾Annualized.


($ in thousands)	For the Three Months Ended															Yield Change 2Q23 vs.
	2Q2023					1Q2023					2Q2022					Yield Change 2Q23 vs.
	Interest & Fees			Yield⁽¹⁾		Interest & Fees			Yield⁽¹⁾		Interest & Fees			Yield⁽¹⁾		1Q2023		2Q2022
Loan Yield Component:
Contractual interest rate	$	26,411		6.13	%	$	25,477		5.97	%	$	17,425		4.48	%	0.16	%	1.65	%
SBA discount accretion		1,078		0.25			974		0.23			1,151		0.30		0.02		(0.05	)
Amortization of net deferred fees		16		0.01			79		0.02			493		0.13		(0.01	)	(0.12	)
Amortization of premium		(452	)	(0.11	)		(392	)	(0.09	)		(197	)	(0.05	)	(0.02	)	(0.06	)
Net interest recognized on nonaccrual loans		40		0.01			(243	)	(0.06	)		5		—		0.07		0.01
Prepayment penalties⁽²⁾ and other fees		195		0.05			116		0.03			231		0.05		0.02		—
Yield on loans	$	27,288		6.34	%	$	26,011		6.10	%	$	19,108		4.91	%	0.24	%	1.43	%

Amortization of Net Deferred Fees:
PPP loan forgiveness⁽³⁾	$	—		—	%	$	3		—	%	$	351		0.09	%	—	%	(0.09	)%
Other		16		0.01			76		0.02			142		0.04		(0.01	)	(0.03	)
Total amortization of net deferred fees	$	16		0.01	%	$	79		0.02	%	$	493		0.13	%	(0.01	)%	(0.12	)%

⁽¹⁾		Annualized.
⁽²⁾		Prepayment penalty income of $110 thousand, $3 thousand and $118 thousand for the three months ended June 30, 2023, March 31, 2023 and June 30, 2022, respectively, was from commercial real estate and Commercial and Industrial (“C&I”) loans.
⁽³⁾		As of June 30, 2023, there were unamortized net deferred fees and unaccredited discounts of $4 thousand to be recognized over the estimated life of the loans as a yield adjustment on the 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)		2Q2023			1Q2023			2Q2022
Hana Loan Purchase:
Contractual interest rate	$	1,409		$	1,400		$	956
Purchased loan discount accretion		384			413			592
Other fees		16			24			24
Total interest income	$	1,809		$	1,837		$	1,572

Effect on average loan yield⁽¹⁾		0.23	%		0.24	%		0.19	%
Effect on net interest margin⁽¹⁾		0.27	%		0.28	%		0.20	%

($ in thousands)	For the Three Months Ended
					2Q2023						1Q2023						2Q2022
	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⁾	$	1,725,764	$	27,288	6.34	%	$	1,725,392	$	26,011	6.10	%	$	1,560,064	$	19,108	4.91	%
Adjusted average loan yield excluding purchased Hana loans⁽¹⁾⁽²⁾		1,670,530		25,479	6.11			1,667,155		24,174	5.86			1,490,884		17,536	4.72

Net interest margin⁽¹⁾		2,030,139		17,252	3.40			2,022,146		17,892	3.57			1,817,157		19,079	4.21
Adjusted interest margin excluding purchased Hana loans⁽¹⁾⁽²⁾		1,974,905		15,443	3.13			1,963,909		16,055	3.29			1,747,977		17,507	4.01

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

Second Quarter 2023 vs. First Quarter 2023

Net interest income decreased $0.6 million, or 3.6%, primarily due to higher interest expense on deposits and borrowings, partially offset by higher interest income on loans. Net interest margin was 3.40%, a decrease of 17 basis points from 3.57%.

A $1.5 million increase in interest expense on deposits was primarily due to a $5.2 million increase in average balance of interest-bearing deposits and a 46 basis point increase in average cost driven by the Federal Reserve’s rate increases.

A $610 thousand increase in interest expense on borrowings was primarily due to a $56.4 million increase in average balance.

A $1.3 million increase in interest income on loans was primarily due to a 24 basis point increase in loan yield as a result of the Federal Reserve’s rate increases.

Second Quarter 2023 vs. Second Quarter 2022

Net interest income decreased $1.8 million, or 9.6%, primarily due to higher interest expense on deposits, partially offset by higher interest income on loans. Net interest margin was 3.40%, a decrease of 81 basis points from 4.21%.

An $8.2 million increase in interest income on loans was primarily due to a $165.7 million increase in average balance of interest-bearing deposits and a 143 basis point increase in loan yield as a result of the Federal Reserve’s rate increases.

A $10.9 million increase in interest expense on deposits was primarily due to a $342.3 million increase in average balance and a 348 basis point increase in average cost driven by the Federal Reserve’s rate increases.

Provision for Credit Losses


($ in thousands)	For the Three Months Ended
($ in thousands)		2Q2023		1Q2023			2Q2022
(Reversal of) provision for credit losses on loans	$	—	$	(258	)	$	996
(Reversal of) provision for credit losses on off-balance sheet exposure⁽¹⁾		—		(80	)		23
Total (reversal of) provision for credit losses	$	—	$	(338	)	$	1,019

⁽¹⁾

Reversal of provision for credit losses on off-balance sheet exposure of $80 thousand for the three months ended March 31, 2023 was included in total (reversal of) provision for credit losses. Prior to CECL adoption, provisions for credit losses on off-balance sheet exposure of $23 thousand for the three months ended June 30, 2022 was included in other expenses.

Second Quarter 2023 vs. First Quarter 2023

The Company did not record provision for credit losses, compared with a $338 thousand reversal of credit losses.

A $163 thousand increase from qualitative factor adjustments in the second quarter of 2023 was primarily offset by decreases in specific reserve requirements on individually evaluated loans. The change in quantitative general reserve during the quarter was insignificant as the impact from a 1.4% growth in gross loans was mostly offset by a decrease in historical loss factors.

Second Quarter 2023 vs. Second Quarter 2022

The Company did not record provision for credit losses, compared with a $1.0 million provision for credit losses.

Noninterest Income

($ in thousands)	For the Three Months Ended						% Change 2Q23 vs.
($ in thousands)		2Q2023		1Q2023		2Q2022	1Q2023		2Q2022
Noninterest Income
Service charges on deposits	$	573	$	418	$	427	37.1	%	34.2	%
Loan servicing fees, net of amortization		595		846		654	(29.7	)	(9.0	)
Gain on sale of loans		2,098		2,570		3,873	(18.4	)	(45.8	)
Other income		339		461		405	(26.5	)	(16.3	)
Total noninterest income	$	3,605	$	4,295	$	5,359	(16.1	)%	(32.7	)%

Second Quarter 2023 vs. First Quarter 2023

Noninterest income decreased $690 thousand, or 16.1%, primarily due to lower gain on sale of loans.

Gain on sale of loans was $2.1 million, a decrease of $472 thousand from $2.6 million, primarily due to a lower SBA loan sold amount and a lower average sales premium. The Bank sold $36.8 million in SBA loans at an average premium rate of 6.64%, compared to the sale of $44.7 million at an average premium rate of 7.33%.

Second Quarter 2023 vs. Second Quarter 2022

Noninterest income decreased $1.8 million, or 32.7%, primarily due to lower gain on sale of loans.

Gain on sale of loans was $2.1 million, a decrease of $1.8 million from $3.9 million, primarily due to a lower SBA loan sold amount and a lower average sales premium. The Bank sold $36.8 million in SBA loans at an average premium rate of 6.64%, compared to the sale of $58.6 million at an average premium rate of 7.02%.

Noninterest Expense


($ in thousands)	For the Three Months Ended						% Change 2Q23 vs.
($ in thousands)		2Q2023		1Q2023		2Q2022	1Q2023		2Q2022
Noninterest Expense
Salaries and employee benefits	$	7,681	$	7,252	$	7,109	5.9	%	8.0	%
Occupancy and equipment		1,598		1,570		1,489	1.8		7.3
Data processing and communication		546		550		492	(0.7	)	11.0
Professional fees		381		359		364	6.1		4.7
FDIC insurance and regulatory assessments		420		467		192	(10.1	)	118.8
Promotion and advertising		159		162		165	(1.9	)	(3.6	)
Directors’ fees		210		161		190	30.4		10.5
Foundation donation and other contributions		594		753		852	(21.1	)	(30.3	)
Other expenses		711		634		650	12.1		9.4
Total noninterest expense	$	12,300	$	11,908	$	11,503	3.3	%	6.9	%

Second Quarter 2023 vs. First Quarter 2023

Noninterest expense increased $392 thousand, or 3.3%, primarily due to higher salaries and employee benefits, partially offset by a lower foundation donation.

Salaries and employee benefits increased $429 thousand primarily due to an addition of four full-time employees and annual salary adjustments effective in the second quarter of 2023.

Foundation donations and other contributions decreased $159 thousand primarily due to lower donation accrual for Open Stewardship as a result of lower net income.

Second Quarter 2023 vs. Second Quarter 2022

Noninterest expense increased $797 thousand, or 6.9%, primarily due to higher salaries and employee benefits and FDIC insurance and regulatory assessments, mainly offset by a lower foundation donation.

Salaries and employee benefits increased $572 thousand primarily due to 22 additional full-time employees to support continued growth of the Company.

FDIC insurance and regulatory assessments increased $228 thousand primarily due to our deposit growth from the second quarter of 2022 and increases in FDIC assessment fees in 2023.

Foundation donations and other contributions decreased $258 thousand primarily due to lower donation accrual for Open Stewardship as a result of lower net income.

Income Tax Expense

Second Quarter 2023 vs. First Quarter 2023

Income tax expense was $2.5 million, and the effective tax rate was 28.8%, compared to income tax expense of $3.1 million and the effective rate of 29.0%.

Second Quarter 2023 vs. Second Quarter 2022

Income tax expense was $2.5 million and the effective tax rate was 28.8%, compared to income tax expense of $3.5 million and an effective rate of 29.0%.

BALANCE SHEET HIGHLIGHTS

Loans


($ in thousands)	As of						% Change 2Q23 vs.
($ in thousands)		2Q2023		1Q2023		2Q2022	1Q2023		2Q2022
Commercial real estate loans	$	847,863	$	833,615	$	776,785	1.7	%	9.2	%
SBA loans		238,785		238,994		247,413	(0.1	)	(3.5	)
C&I loans		112,160		117,841		128,620	(4.8	)	(12.8	)
Home mortgage loans		516,226		500,635		331,362	3.1		55.8
Consumer & other loans		1,163		1,400		538	(16.9	)	116.2
Gross loans	$	1,716,197	$	1,692,485	$	1,484,718	1.4	%	15.6	%

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


($ in thousands)	For the Three Months Ended						% Change 2Q23 vs.
($ in thousands)		2Q2023		1Q2023		2Q2022	1Q2023		2Q2022
Commercial real estate loans	$	29,976	$	24,200	$	61,924	23.9	%	(51.6	)%
SBA loans		34,312		16,258		55,085	111.0		(37.7	)
C&I loans		25,650		7,720		2,718	232.3		843.7
Home mortgage loans		22,788		20,617		30,345	10.5		(24.9	)
Gross loans	$	112,726	$	68,795	$	150,072	63.9	%	(24.9	)%

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


($ in thousands)	For the Three Months Ended
($ in thousands)		2Q2023			1Q2023			2Q2022
Loan Activities:
Gross loans, beginning	$	1,692,485		$	1,678,292		$	1,428,410
New originations		112,726			68,795			150,072
Net line advances		(25,961	)		10,356			(46,773	)
Purchases		6,359			12,142			56,455
Sales		(36,791	)		(45,021	)		(58,999	)
Paydowns		(17,210	)		(40,190	)		(15,977	)
Payoffs		(25,969	)		(28,326	)		(33,098	)
PPP Payoffs		—			(200	)		(14,347	)
Decrease in loans held for sale		7,534			36,802			18,988
Other		3,024			(165	)		(13	)
Total		23,712			14,193			56,308
Gross loans, ending	$	1,716,197		$	1,692,485		$	1,484,718

As of June 30, 2023 vs. March 31, 2023

Gross loans were $1.72 billion as of June 30, 2023, up $23.7 million from March 31, 2023, primarily due to new loan originations, partially offset by loan sales, and payoffs and paydowns.

New loan originations and loan payoffs and paydowns were $112.7 million and $43.2 million for the second quarter of 2023, respectively, compared with $68.8 million and $68.7 million for the first quarter of 2023, respectively.

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

Gross loans were $1.72 billion as of June 30, 2023, up $231.5 million from June 30, 2022, primarily due to new loan originations of $554.7 million and loan purchases of $105.6 million, primarily offset by loan sales of $173.3 million and loan payoffs and paydowns of $222.8 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
	2Q2023				1Q2023				2Q2022
	%		Rate		%		Rate		%		Rate
Fixed rate	36.2	%	4.82	%	36.5	%	4.76	%	34.9	%	4.19	%
Hybrid rate	34.7		4.99		34.2		4.94		28.2		4.47
Variable rate	29.1		9.05		29.3		8.76		36.9		5.77
Gross loans	100.0	%	6.11	%	100.0	%	5.99	%	100.0	%	4.85	%

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 June 30, 2023
	Within One Year				One Year Through Five Years				After Five Years				Total
	Amount		Rate		Amount		Rate		Amount		Rate		Amount		Rate
Fixed rate	$	50,591	5.33	%	$	331,824	4.78	%	$	239,489	4.77	%	$	621,904	4.82	%
Hybrid rate		—	—			83,789	4.63			510,775	5.05			594,564	4.99
Variable rate		82,254	8.87			116,620	8.65			300,855	9.25			499,729	9.05
Gross loans	$	132,845	7.52	%	$	532,233	5.60	%	$	1,051,119	6.21	%	$	1,716,197	6.11	%

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 2Q23 vs.
($ in thousands)		2Q2023			1Q2023			2Q2022		1Q2023		2Q2022
Allowance for credit losses on loans, beginning	$	20,814		$	19,241		$	16,672		8.2	%	24.8	%
Impact of CECL adoption		—			1,924			—		n/m		n/m
(Reversal of) provision for credit losses⁽¹⁾		—			(258	)		996		n/m		n/m
Gross charge-offs		(20	)		(116	)		(18	)	(82.8	)	11.1	%
Gross recoveries		8			23			52		(65.2	)	(84.6	)%
Net (charge-offs) recoveries		(12	)		(93	)		34		(87.1	)	n/m
Allowance for credit losses on loans, ending⁽²⁾	$	20,802		$	20,814		$	17,702		(0.1	)%	17.5	%

Allowance for credit losses on off-balance sheet exposure, beginning	$	367		$	263		$	172		39.5	%	113.4	%
Impact of CECL adoption		—			184			—		n/m		n/m
(Reversal of) provision for credit losses		—			(80	)		23		n/m		n/m
Allowance for credit losses on off-balance sheet exposure, ending⁽²⁾	$	367		$	367		$	195		—	%	88.2	%

⁽¹⁾		Excludes reversal of uncollectible accrued interest receivable of $205 thousand for the three months ended June 30, 2022.
⁽²⁾		Allowance for credit losses as of June 30, 2023 and March 31, 2023 were calculated under the CECL methodology while allowance for loan losses for June 30, 2022 was calculated under the incurred loss methodology.

Asset Quality

($ in thousands)	As of and For the Three Months Ended									% Change 2Q23 vs.
($ in thousands)		2Q2023			1Q2023			2Q2022		1Q2023		2Q2022
Nonperforming loans⁽¹⁾	$	3,447		$	2,504		$	1,826		37.7	%	88.8	%
Nonperforming assets⁽¹⁾		3,447			2,504			1,826		37.7		88.8
Nonperforming loans to gross loans		0.20	%		0.15	%		0.12	%	0.05		0.08
Nonperforming assets to total assets		0.16	%		0.12	%		0.09	%	0.04		0.07

Criticized loans⁽¹⁾⁽²⁾	$	7,538		$	5,772		$	2,673		30.6	%	182.0	%
Criticized loans to gross loans		0.44	%		0.34	%		0.18	%	0.10		0.26

Allowance for credit losses ratios:
As a % of gross loans		1.21	%		1.23	%		1.19	%	(0.02	)%	0.02	%
As an adjusted % of gross loans⁽³⁾		1.25			1.27			1.25		(0.02	)	—
As a % of nonperforming loans		603			831			969		(228	)	(366	)
As a % of nonperforming assets		603			831			969		(228	)	(366	)
As a % of criticized loans		276			361			662		(85	)	(386	)
Net charge-offs (recoveries)⁽⁴⁾ to average gross loans⁽⁵⁾		0.00			0.02			(0.01	)	(0.02	)	0.01

⁽¹⁾		Excludes the guaranteed portion of SBA loans that are in liquidation totaling $5.4 million, $1.9 million and $351 thousand as of June 30, 2023, March 31, 2023 and June 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 solid asset quality with low levels of nonperforming loans and net charge-offs. Nonperforming assets and criticized loans remained below our historical norms, a reflection of our conservative credit culture and expertise in the industries we serve. Our allowance remained strong with an adjusted allowance to gross loans ratio of 1.25%.

Criticized loans was $7.5 million, an increase of $4.9 million from a year ago, and represented 0.44% of gross loans. Criticized loans consist of loans categorized as Special Mention, Substandard, Doubtful and Loss categories defined by regulatory authorities.

Nonperforming assets was $3.4 million, an increase of $1.6 million from a year ago, and represented 0.16% of total assets. As of June 30, 2023, $5.4 million of nonaccrual assets consisted of guaranteed portion of SBA loans that are in liquidation. The Company did not have OREO as of June 30, 2023 or 2022.

Net charge-offs were $12 thousand or 0.00% of average loans in the second quarter of 2023, compared to net charge-offs of $93 thousand, or 0.02%, of average loans in the first quarter of 2023 and net recoveries of $34 thousand, or 0.01%, of average loans in the second quarter of 2022.

Deposits

($ in thousands)	As of												% Change 2Q23 vs.
	2Q2023				1Q2023				2Q2022				% Change 2Q23 vs.
	Amount		%		Amount		%		Amount		%		1Q2023		2Q2022
Noninterest-bearing deposits	$	634,745	34.1	%	$	643,902	33.8	%	$	820,311	47.1	%	(1.4	)%	(22.6	)%
Money market deposits and others		344,162	18.5			436,796	22.9			519,389	29.8		(21.2	)	(33.7	)
Time deposits		880,732	47.4			824,120	43.3			401,923	23.1		6.9		119.1
Total deposits	$	1,859,639	100.0	%	$	1,904,818	100.0	%	$	1,741,623	100.0	%	(2.4	)%	6.8	%

Estimated uninsured deposits	$	796,211	42.8	%	$	900,579	47.3	%	$	1,036,943	59.5	%	(11.6	)%	(23.2	)%

As of June 30, 2023 vs. March 31, 2023

Total deposits were $1.86 billion as of June 30, 2023, down $45.2 million from March 31, 2023, primarily due to decreases in money market deposits partially offset by growth in time deposits. The composition shift from money market deposits to time deposits was primarily due to customers’ continued preference for high-rate deposit products driven by the Federal Reserve’s rate increases. Noninterest-bearing deposits remained relatively stable at 34% of total deposits.

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

Total deposits were $1.86 billion as of June 30, 2023, up $118.0 million from June 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 and decreases in transaction volumes in escrow and 1031 exchanges accounts.

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


	As of June 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)	$	30,086		$	188,654		$	146,874		$	48,944		$	1,650		$	416,208
Time deposits ($250 or less)		67,165			174,086			90,045			90,721			42,507			464,524
Total time deposits	$	97,251		$	362,740		$	236,919		$	139,665		$	44,157		$	880,732
Weighted average rate		3.37	%		4.31	%		4.40	%		4.50	%		4.11	%		4.25	%

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)		2Q2023			1Q2023			4Q2022
Liquid assets:
Cash and cash equivalents	$	143,761		$	181,509		$	82,972
Available-for-sale debt securities		202,250			212,767			209,809
Liquid assets	$	346,011		$	394,276		$	292,781
Liquid assets to total assets		16.1	%		18.2	%		14.0	%

Available borrowings:
Federal Home Loan Bank—San Francisco	$	400,543		$	406,500		$	440,358
Federal Reserve Bank		172,316			174,284			175,605
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			24,950
Total available borrowings	$	672,859		$	680,784		$	715,913
Total available borrowings to total assets		31.3	%		31.4	%		34.2	%

Liquid assets and available borrowings to total assets		47.4	%		49.6	%		48.2	%

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 August 24, 2023 to all shareholders of record as of the close of business on August 10, 2023.

The Company repurchased 221,494 shares of its common stock at an average price of $8.40 during the second quarter of 2023. Since the announcement of the initial stock repurchase program in January 2019, the Company repurchased a total of 1.9 million shares of its common stock at an average repurchase price of $8.58 per share through June 30, 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	13.10	%	12.98	%	10.00	%	10.50	%
Tier 1 risk-based capital ratio	11.92		11.80		8.00		8.50
Common equity tier 1 ratio	11.92		11.80		6.50		7.00
Leverage ratio	9.50		9.41		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 2Q23 vs.
OP Bancorp		2Q2023			1Q2023			2Q2022		1Q2023		2Q2022
Risk-Based Capital Ratios:
Total risk-based capital ratio		13.10	%		13.27	%		13.51	%	(0.17	)%	(0.41	)%
Tier 1 risk-based capital ratio		11.92			12.06			12.29		(0.14	)	(0.37	)
Common equity tier 1 ratio		11.92			12.06			12.29		(0.14	)	(0.37	)
Leverage ratio		9.50			9.43			9.48		0.07		0.02
Risk-weighted Assets ($ in thousands)	$	1,700,205		$	1,659,584		$	1,465,707		2.45		16.00

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)			2Q2023		1Q2023			2Q2022
Interest income		$	30,102	$	28,594		$	20,148
Interest expense			12,850		10,702			1,069
Net interest income			17,252		17,892			19,079
Noninterest income			3,605		4,295			5,359
Noninterest expense			12,300		11,908			11,503
Pre-provision net revenue	(a)	$	8,557	$	10,279		$	12,935
Reconciliation to net income
(Reversal of) provision for credit losses	(b)	$	—	$	(338	)	$	996
Income tax expense	(c)		2,466		3,083			3,459
Net income	(a)+(b)+(c)	$	6,091	$	7,534		$	8,480

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 June 30, 2023, March 31, 2023 and June 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)			2Q2023			1Q2023			2Q2022
Yield on Average Loans
Interest income on loans		$	27,288		$	26,011		$	19,108
Less: interest income on purchased Hana loans			1,809			1,837			1,572
Adjusted interest income on loans	(a)	$	25,479		$	24,174		$	17,536

Average loans		$	1,725,764		$	1,725,392		$	1,560,064
Less: Average purchased Hana loans			55,234			58,237			69,180
Adjusted average loans	(b)	$	1,670,530		$	1,667,155		$	1,490,884

Average loan yield⁽¹⁾			6.34	%		6.10	%		4.91	%
Effect on average loan yield⁽¹⁾			0.23	%		0.24	%		0.19	%
Adjusted average loan yield⁽¹⁾	(a)/(b)		6.11	%		5.86	%		4.72	%

Net Interest Margin
Net interest income		$	17,252		$	17,892		$	19,079
Less: interest income on purchased Hana loans			1,809			1,837			1,572
Adjusted net interest income	(c)	$	15,443		$	16,055		$	17,507

Average interest-earning assets		$	2,030,139		$	2,022,146		$	1,817,157
Less: Average purchased Hana loans			55,234			58,237			69,180
Adjusted average interest-earning assets	(d)	$	1,974,905		$	1,963,909		$	1,747,977

Net interest margin⁽¹⁾			3.40	%		3.57	%		4.21	%
Effect on net interest margin⁽¹⁾			0.27			0.28			0.20
Adjusted net interest margin⁽¹⁾	(c)/(d)		3.13	%		3.29	%		4.01	%

⁽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)			2Q2023			1Q2023			2Q2022
Gross loans		$	1,716,197		$	1,692,485		$	1,484,718
Less: Purchased Hana loans			(54,016	)		(56,735	)		(66,946	)
PPP loans⁽¹⁾			(247	)		(247	)		(7,151	)
Adjusted gross loans	(a)	$	1,661,934		$	1,635,503		$	1,410,621

Accrued interest receivable on loans		$	6,815		$	6,440		$	4,602
Less: Accrued interest receivable on purchased Hana loans			(426	)		(432	)		(290	)
Accrued interest receivable on PPP loans⁽²⁾			(6	)		(5	)		(93	)
Add: Allowance on accrued interest receivable			—			—			—
Adjusted accrued interest receivable on loans	(b)	$	6,383		$	6,003		$	4,219

Adjusted gross loans and accrued interest receivable	(a)+(b)=(c)	$	1,668,317		$	1,641,506		$	1,414,840

Allowance for credit losses		$	20,802		$	20,814		$	17,702
Add: Allowance on accrued interest receivable			—			—			—
Adjusted Allowance	(d)	$	20,802		$	20,814		$	17,702

Adjusted allowance to gross loans ratio	(d)/(c)		1.25	%		1.27	%		1.25	%

⁽¹⁾		Excludes purchased PPP loans of $942 thousand as of June 30, 2022.
⁽²⁾		Excludes purchased accrued interest receivable on PPP loans of $13 thousand as of June 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 ten full-service branch offices in Downtown Los Angeles, Los Angeles Fashion District, Los Angeles Koreatown, Cerritos, Gardena, Buena Park, and Santa Clara, California and Carrollton, Texas. 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 mitigate and manage deposit liabilities 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 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; 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 2Q23 vs.
($ in thousands)		2Q2023			1Q2023			2Q2022		1Q2023		2Q2022
Assets
Cash and due from banks	$	21,295		$	16,781		$	14,937		26.9	%	42.6	%
Interest-bearing deposits in other banks		122,466			164,728			117,760		(25.7	)	4.0
Cash and cash equivalents		143,761			181,509			132,697		(20.8	)	8.3
Available-for-sale debt securities, at fair value		202,250			212,767			174,814		(4.9	)	15.7
Other investments		16,183			12,172			12,205		33.0		32.6
Loans held for sale		—			7,534			67,255		n/m		n/m
Commercial real estate loans		847,863			833,615			776,785		1.7		9.2
SBA loans		238,785			238,994			247,413		(0.1	)	(3.5	)
C&I loans		112,160			117,841			128,620		(4.8	)	(12.8	)
Home mortgage loans		516,226			500,635			331,362		3.1		55.8
Consumer loans		1,163			1,400			538		(16.9	)	116.2
Gross loans receivable		1,716,197			1,692,485			1,484,718		1.4		15.6
Allowance for credit losses		(20,802	)		(20,814	)		(17,702	)	(0.1	)	17.5
Net loans receivable		1,695,395			1,671,671			1,467,016		1.4		15.6
Premises and equipment, net		5,093			4,647			4,493		9.6		13.4
Accrued interest receivable, net		7,703			7,302			5,112		5.5		50.7
Servicing assets		12,654			12,898			12,708		(1.9	)	(0.4	)
Company owned life insurance		21,913			21,762			21,317		0.7		2.8
Deferred tax assets, net		13,360			12,323			13,371		8.4		(0.1	)
Operating right-of-use assets		9,487			9,459			8,036		0.3		18.1
Other assets		23,902			16,550			15,218		44.4		57.1
Total assets	$	2,151,701		$	2,170,594		$	1,934,242		(0.9	)%	11.2	%
Liabilities and Shareholders' Equity
Liabilities:
Noninterest-bearing	$	634,745		$	643,902		$	820,311		(1.4	)%	(22.6	)%
Money market and others		344,162			436,796			519,389		(21.2	)	(33.7	)
Time deposits greater than $250		416,208			411,648			237,634		1.1		75.1
Other time deposits		464,524			412,472			164,289		12.6		182.7
Total deposits		1,859,639			1,904,818			1,741,623		(2.4	)	6.8
Federal Home Loan Bank advances		75,000			50,000			—		50.0		n/m
Accrued interest payable		9,354			5,751			612		62.6		1428.4
Operating lease liabilities		10,486			10,513			9,335		(0.3	)	12.3
Other liabilities		13,452			15,731			13,180		(14.5	)	2.1
Total liabilities		1,967,931			1,986,813			1,764,750		(1.0	)	11.5
Shareholders' equity:
Common stock		77,464			79,475			78,718		(2.5	)	(1.6	)
Additional paid-in capital		10,297			10,056			9,089		2.4		13.3
Retained earnings		114,177			109,908			92,659		3.9		23.2
Accumulated other comprehensive loss		(18,168	)		(15,658	)		(10,974	)	16.0		65.6
Total shareholders’ equity		183,770			183,781			169,492		—		8.4
Total liabilities and shareholders' equity	$	2,151,701		$	2,170,594		$	1,934,242		(0.9	)%	11.2	%

CONSOLIDATED STATEMENTS OF INCOME (unaudited)

($ in thousands, except share and per share data)	For the Three Months Ended							% Change 2Q23 vs.
($ in thousands, except share and per share data)		2Q2023		1Q2023			2Q2022	1Q2023		2Q2022
Interest income
Interest and fees on loans	$	27,288	$	26,011		$	19,108	4.9	%	42.8	%
Interest on available-for-sale debt securities		1,562		1,566			703	(0.3	)	122.2
Other interest income		1,252		1,017			337	23.1		271.5
Total interest income		30,102		28,594			20,148	5.3		49.4
Interest expense
Interest on deposits		11,920		10,382			1,069	14.8		1015.1
Interest on borrowings		930		320			—	190.6		n/m
Total interest expense		12,850		10,702			1,069	20.1		1102.1
Net interest income		17,252		17,892			19,079	(3.6	)	(9.6	)
(Reversal of) provision for credit losses		—		(338	)		996	n/m		n/m
Net interest income after provision for credit losses		17,252		18,230			18,083	(5.4	)	(4.6	)
Noninterest income
Service charges on deposits		573		418			427	37.1		34.2
Loan servicing fees, net of amortization		595		846			654	(29.7	)	(9.0	)
Gain on sale of loans		2,098		2,570			3,873	(18.4	)	(45.8	)
Other income		339		461			405	(26.5	)	(16.3	)
Total noninterest income		3,605		4,295			5,359	(16.1	)	(32.7	)
Noninterest expense
Salaries and employee benefits		7,681		7,252			7,109	5.9		8.0
Occupancy and equipment		1,598		1,570			1,489	1.8		7.3
Data processing and communication		546		550			492	(0.7	)	11.0
Professional fees		381		359			364	6.1		4.7
FDIC insurance and regulatory assessments		420		467			192	(10.1	)	118.8
Promotion and advertising		159		162			165	(1.9	)	(3.6	)
Directors’ fees		210		161			190	30.4		10.5
Foundation donation and other contributions		594		753			852	(21.1	)	(30.3	)
Other expenses		711		634			650	12.1		9.4
Total noninterest expense		12,300		11,908			11,503	3.3		6.9
Income before income tax expense		8,557		10,617			11,939	(19.4	)	(28.3	)
Income tax expense		2,466		3,083			3,459	(20.0	)	(28.7	)
Net income	$	6,091	$	7,534		$	8,480	(19.2	)%	(28.2	)%

Book value per share	$	12.16	$	12.02		$	11.16	1.2	%	9.0	%
Earnings per share - Basic		0.39		0.48			0.55	(18.8	)	(29.1	)
Earnings per share - Diluted		0.39		0.48			0.54	(18.8	)	(27.8	)

Shares of common stock outstanding, at period end		15,118,268		15,286,558			15,189,203	(1.1	)%	(0.5	)%
Weighted average shares:
- Basic		15,158,365		15,284,350			15,141,975	(0.8	)%	0.1	%
- Diluted		15,169,794		15,312,673			15,234,577	(0.9	)	(0.4	)

KEY RATIOS

	For the Three Months Ended						Change 2Q23 vs.
	2Q2023		1Q2023		2Q2022		1Q2023		2Q2022
Return on average assets (ROA)⁽¹⁾	1.15	%	1.43	%	1.79	%	(0.3	)%	(0.6	)%
Return on average equity (ROE)⁽¹⁾	13.27		16.82		20.29		(3.6	)	(7.0	)
Net interest margin⁽¹⁾	3.40		3.57		4.21		(0.2	)	(0.8	)
Efficiency ratio	58.97		53.67		47.07		5.3		11.9

Total risk-based capital ratio	13.10	%	13.27	%	13.51	%	(0.2	)%	(0.4	)%
Tier 1 risk-based capital ratio	11.92		12.06		12.29		(0.1	)	(0.4	)
Common equity tier 1 ratio	11.92		12.06		12.29		(0.1	)	(0.4	)
Leverage ratio	9.50		9.43		9.48		0.1		—

⁽¹⁾ Annualized.

CONSOLIDATED STATEMENTS OF INCOME (unaudited)

($ in thousands, except share and per share data)	For the Six Months Ended
($ in thousands, except share and per share data)		2Q2023			2Q2022	% Change
Interest income
Interest and fees on loans	$	53,299		$	36,365	46.6	%
Interest on available-for-sale debt securities		3,128			1,233	153.7
Other interest income		2,269			494	359.3
Total interest income		58,696			38,092	54.1
Interest expense
Interest on deposits		22,302			1,723	1194.4
Interest on borrowings		1,250			—	n/m
Total interest expense		23,552			1,723	1266.9
Net interest income		35,144			36,369	(3.4	)
(Reversal of) provision for credit losses		(338	)		1,337	n/m
Net interest income after provision for credit losses		35,482			35,032	1.3
Noninterest income
Service charges on deposits		991			815	21.6
Loan servicing fees, net of amortization		1,441			1,101	30.9
Gain on sale of loans		4,668			7,111	(34.4	)
Other income		800			548	46.0
Total noninterest income		7,900			9,575	(17.5	)
Noninterest expense
Salaries and employee benefits		14,933			12,766	17.0
Occupancy and equipment		3,168			2,867	10.5
Data processing and communication		1,096			985	11.3
Professional fees		740			688	7.6
FDIC insurance and regulatory assessments		887			399	122.3
Promotion and advertising		321			354	(9.3	)
Directors’ fees		371			367	1.1
Foundation donation and other contributions		1,347			1,667	(19.2	)
Other expenses		1,345			1,072	25.5
Total noninterest expense		24,208			21,165	14.4
Income before income tax expense		19,174			23,442	(18.2	)
Income tax expense		5,549			6,810	(18.5	)
Net income	$	13,625		$	16,632	(18.1	)%

Book value per share	$	12.16		$	11.16	9.0	%
Earnings per share - Basic		0.88			1.08	(18.5	)
Earnings per share - Diluted		0.88			1.07	(17.8	)

Shares of common stock outstanding, at period end		15,118,268			15,189,203	(0.5	)%
Weighted average shares:
- Basic		15,221,010			15,139,903	0.5	%
- Diluted		15,241,903			15,238,113	—

KEY RATIOS

	For the Six Months Ended
	2Q2023		2Q2022		% Change
Return on average assets (ROA)⁽¹⁾	1.29	%	1.82	%	(0.5	)%
Return on average equity (ROE)⁽¹⁾	15.02		19.92		(4.9	)
Net interest margin⁽¹⁾	3.48		4.16		(0.7	)
Efficiency ratio	56.24		46.07		10.2

Total risk-based capital ratio	13.10	%	13.51	%	(0.4	)%
Tier 1 risk-based capital ratio	11.92		12.29		(0.4	)
Common equity tier 1 ratio	11.92		12.29		(0.4	)
Leverage ratio	9.50		9.48		—

⁽¹⁾Annualized.

ASSET QUALITY

($ in thousands)	As of and For the Three Months Ended
($ in thousands)		2Q2023			1Q2023			2Q2022
Nonaccrual loans⁽¹⁾	$	3,447		$	2,504		$	1,826
Loans 90 days or more past due, accruing⁽²⁾		—			—			—
Nonperforming loans		3,447			2,504			1,826
Other real estate owned ("OREO")		—			—			—
Nonperforming assets	$	3,447		$	2,504		$	1,826

Criticized loans by risk categories:
Special mention loans	$	2,909		$	2,617		$	—
Classified loans⁽¹⁾⁽³⁾		4,629			3,155			2,673
Total criticized loans	$	7,538		$	5,772		$	2,673

Criticized loans by loan type:
Commercial real estate	$	—		$	560		$	—
SBA		4,784			3,676			1,391
C&I		200			271			297
Home mortgage		2,554			1,265			985
Total criticized loans	$	7,538		$	5,772		$	2,673

Nonperforming loans / gross loans		0.20	%		0.15	%		0.12	%
Nonperforming assets / gross loans plus OREO		0.20			0.15			0.12
Nonperforming assets / total assets		0.16			0.12			0.09
Classified loans / gross loans		0.27			0.19			0.18
Criticized loans / gross loans		0.44			0.34			0.18

Allowance for credit losses ratios:
As a % of gross loans		1.21	%		1.23	%		1.19	%
As an adjusted % of gross loans⁽⁴⁾		1.25			1.27			1.25
As a % of nonperforming loans		603			831			969
As a % of nonperforming assets		603			831			969
As a % of classified loans		449			660			662
As a % of criticized loans		276			361			662

Net charge-offs (recoveries)	$	12		$	93		$	(34	)
Net charge-offs (recoveries)⁽⁵⁾ to average gross loans⁽⁶⁾		0.00	%		0.02	%		(0.01	)%

⁽¹⁾		Excludes the guaranteed portion of SBA loans that are in liquidation totaling $5.1 million, $1.6 million and $346 thousand as of June 30, 2023, March 31, 2023 and June 30, 2022, respectively.
⁽²⁾		Excludes the guaranteed portion of SBA loans that are in liquidation totaling $246 thousand, $246 thousand and $5 thousand as of June 30, 2023, March 31, 2023 and June 30, 2022, respectively.
⁽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)		2Q2023		1Q2023		2Q2022
Accruing delinquent loans 30-89 days past due
30-59 days	$	3,647	$	4,866	$	447
60-89 days		1,568		—		—
Total	$	5,215	$	4,866	$	447

AVERAGE BALANCE SHEET, INTEREST AND YIELD/RATE ANALYSIS

	For the Three Months Ended
					2Q2023						1Q2023						2Q2022
($ 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	$	79,200	$	1,003	5.01	%	$	74,162	$	846	4.56	%	$	79,628	$	197	0.98	%
Federal funds sold and other investments		15,374		249	6.46			12,130		171	5.65			11,966		140	4.70
Available-for-sale debt securities, at fair value		209,801		1,562	2.98			210,462		1,566	2.98			165,499		703	1.70
Commercial real estate loans		838,526		11,823	5.66			840,402		11,179	5.39			751,610		8,743	4.67
SBA loans		262,825		7,174	10.95			274,889		6,982	10.30			353,138		5,707	6.48
C&I loans		114,103		2,232	7.85			121,915		2,200	7.32			160,291		1,811	4.53
Home mortgage loans		508,976		6,043	4.75			486,800		5,633	4.63			294,341		2,837	3.86
Consumer loans		1,334		16	4.77			1,386		17	5.07			684		10	5.49
Loans⁽²⁾		1,725,764		27,288	6.34			1,725,392		26,011	6.10			1,560,064		19,108	4.91
Total interest-earning assets		2,030,139		30,102	5.94			2,022,146		28,594	5.71			1,817,157		20,148	4.44
Noninterest-earning assets		84,991						82,538						73,594
Total assets	$	2,115,130					$	2,104,684					$	1,890,751

Interest-bearing liabilities:
Money market deposits and others	$	357,517	$	3,201	3.59	%	$	409,813	$	3,150	3.12	%	$	470,013	$	503	0.43	%
Time deposits		843,836		8,719	4.14			786,381		7,232	3.73			389,059		566	0.58
Total interest-bearing deposits		1,201,353		11,920	3.98			1,196,194		10,382	3.52			859,072		1,069	0.50
Borrowings		82,586		930	4.52			26,168		320	4.95			—		—	—
Total interest-bearing liabilities		1,283,939		12,850	4.01			1,222,362		10,702	3.55			859,072		1,069	0.50
Noninterest-bearing liabilities:
Noninterest-bearing deposits		615,748						671,490						843,788
Other noninterest-bearing liabilities		31,810						31,648						20,720
Total noninterest-bearing liabilities		647,558						703,138						864,508
Shareholders’ equity		183,633						179,184						167,171
Total liabilities and shareholders’ equity	$	2,115,130						2,104,684						1,890,751

Net interest income / interest rate spreads			$	17,252	1.93	%			$	17,892	2.16	%			$	19,079	3.94	%
Net interest margin					3.40	%					3.57	%					4.21	%

Cost of deposits & cost of funds:
Total deposits / cost of deposits	$	1,817,101	$	11,920	2.63	%	$	1,867,684	$	10,382	2.25	%	$	1,702,860	$	1,069	0.25	%
Total funding liabilities / cost of funds		1,899,687		12,850	2.71			1,893,852		10,702	2.29			1,702,860		1,069	0.25

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

AVERAGE BALANCE SHEET, INTEREST AND YIELD/RATE ANALYSIS

	For the Six Months Ended
					2Q2023						2Q2022
($ 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	$	76,695	$	1,849	4.79	%	$	83,231	$	238	0.57	%
Federal funds sold and other investments		13,761		420	6.10			11,465		256	4.45
Available-for-sale debt securities, at fair value		210,130		3,128	2.98			161,230		1,233	1.53
Commercial real estate loans		839,459		23,002	5.53			731,413		16,545	4.56
SBA loans		268,823		14,156	10.62			355,916		11,542	6.54
C&I loans		117,988		4,432	7.58			158,334		3,348	4.26
Home mortgage loans		497,949		11,676	4.69			255,936		4,911	3.84
Consumer & other loans		1,360		33	4.92			780		19	5.15
Loans⁽²⁾		1,725,579		53,299	6.22			1,502,379		36,365	4.88
Total interest-earning assets		2,026,165		58,696	5.83			1,758,305		38,092	4.36
Noninterest-earning assets		83,771						68,334
Total assets	$	2,109,936					$	1,826,639

Interest-bearing liabilities:
Money market deposits and others	$	383,521	$	6,351	3.34	%	$	441,314	$	754	0.34	%
Time deposits		815,267		15,952	3.95			381,879		969	0.51
Total interest-bearing deposits		1,198,788		22,303	3.75			823,193		1,723	0.42
Borrowings		54,533		1,249	4.62			—		—	—
Total interest-bearing liabilities		1,253,321		23,552	3.79			823,193		1,723	0.42
Noninterest-bearing liabilities:
Noninterest-bearing deposits		643,465						813,791
Other noninterest-bearing liabilities		31,729						22,649
Total noninterest-bearing liabilities		675,194						836,440
Shareholders’ equity		181,421						167,006
Total liabilities and shareholders’ equity	$	2,109,936						1,826,639

Net interest income / interest rate spreads			$	35,144	2.04	%			$	36,369	3.94	%
Net interest margin					3.48	%					4.16	%

Cost of deposits & cost of funds:
Total deposits / cost of deposits	$	1,842,253	$	22,303	2.44	%	$	1,636,984	$	1,723	0.21	%
Total funding liabilities / cost of funds		1,896,786		23,552	2.50	%		1,636,984		1,723	0.21	%

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

View source version on businesswire.com: https://www.businesswire.com/news/home/20230727654337/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 Second Quarter of $6.1 Million and Diluted Earnings Per Share of $0.39

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OP Bancorp Reports Net Income for 2023 Second Quarter of $6.1 Million and Diluted Earnings Per Share of $0.39

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