Op bancorp earns record net income of $3.8 million in the second
quarter of 2018
Los angeles--(business wire)--op bancorp (the “company”) (nasdaq: opbk), the holding company of open bank (the “bank”), today reported unaudited financial results for the second quarter and first six months of 2018. net income for the second quarter of 2018 was $3.8 million, or $0.23 per diluted common share, compared with net income of $3.2 million, or $0.22 per diluted share for the first quarter of 2018, and net income of $2.5 million, or $0.18 per diluted share for the second quarter of 2017. “we are happy to announce another strong quarter, with record net income of $3.8 million for the three months ended june 30, 2018, a 53.9% increase compared to $2.5 million for the same period last year. our loan growth continues to be strong, growing 4.1% quarter-over-quarter and 17.6% year-over-year, while maintaining an excellent asset quality,” commented min kim, president and chief executive officer of op bancorp and open bank. results of operations net interest income before provision for loan losses for the second quarter of 2018 was $10.0 million, an increase of $428 thousand, or 4.5%, compared to $9.6 million for the first quarter of 2018, primarily due to an $882 thousand increase in interest income, partially offset by a $454 thousand increase in interest expense. interest income from the contractual interest rates on loans increased $861 thousand, or 8.5%, during the second quarter, reflecting a 5.4% increase in average loans, including loans held for sale, and a 10 basis point increase in the average contractual interest rate from the increase in fed funds rate in june 2018 of 25 basis points. the amount of discount accretion on sba loans decreased $86 thousand during the quarter due to a reduction in sba loan payoffs during the second quarter of 2018. the reported interest income on loans, net of sba discount accretions and other components, increased $822 thousand during the quarter. the reported interest income and yield on our loan portfolio are impacted by a number of components, including changes in the average contractual interest rate earned on loans and the amount of discount accretion on sba loans. the following table reconciles the contractual interest income and yield on our loan portfolio to the reported interest income and yield for the periods indicated. interest& fees interest& fees interest& fees interest &fees interest &fees interest expense for the second quarter of 2018 increased $454 thousand compared to the first quarter of 2018, due to an increase of $26.8 million, or 5.0% in average balance of interest-bearing liabilities and an increase of 25 basis points in average cost of interest-bearing liabilities, primarily due to the aforementioned increase in fed funds rate. net interest margin for the second quarter of 2018 decreased 10 basis points to 4.46% from 4.56% for the first quarter of 2018, primarily due to the increase in the cost of interest-bearing liabilities, partially offset by the increase in the reported yield on loans. net interest income before provision for loan losses for the second quarter of 2018 increased $1.4 million, or 16.2%, to $10.0 million, compared to $8.6 million for the second quarter of 2017, primarily due to a $2.5 million or 25.6%, increase in interest income, partially offset by an increase of $1.1 million in interest expense. the increase in interest income was primarily due to a 19.7% increase in average loans, including loans held for sale, and a 24 basis point increase in the yield on average loans to 5.64% from 5.40% for the second quarter of 2017. the increase in interest expense was due to a 26.1% increase in average interest-bearing liabilities and a 57 basis point increase in the cost of interest-bearing liabilities. the increases in the average yields on loans and average cost of deposits were primarily due to cumulative market rate increases by the federal reserve of 75 basis points through three rate hikes of 25 basis points in each of december 2017, march 2018 and june 2018. net interest margin for the second quarter of 2018 decreased 12 basis points to 4.46% from 4.58% for the second quarter of 2017. net interest income for the six months ended june 30, 2018 increased $2.7 million, or 16.3%, to $19.5 million, compared to $16.8 million for the same period last year, primarily due to a $4.5 million, or 23.7%, increase in interest income, partially offset by an increase of $1.7 million in interest expense. the increase in interest income for the six months ended june 30, 2018 was primarily due to a 17.3% increase in average loans, including loans held for sale, and a 27 basis point increase in the yield on average loans to 5.61% from 5.34% for the six months ended june 30, 2017. the increase in interest expense was due to a 21.7% increase in average interest bearing liabilities and a 47 basis point increase in the cost of average interest-bearing liabilities to 1.36% from 0.89% for the six months ended june 30, 2017. the following table shows the asset yields, liability costs, spreads and margins. the provision for loan losses for the second quarter of 2018 decreased $542 thousand to $33 thousand from $575 thousand for the first quarter of 2018. the provision for loan losses for the second quarter of 2018 decreased $137 thousand compared to $170 thousand for the second quarter of 2017. noninterest income for the second quarter of 2018 was $2.8 million, an increase of $571 thousand, or 25.8%, from $2.2 million for the first quarter of 2018, primarily due to an increase in gain on sale of sba loans, partially offset by a decrease in service fees on deposits. gain on sale of sba loans increased $739 thousand to $1.7 million for the second quarter of 2018 from $989 thousand for the first quarter of 2018. we sold $24.8 million in sba loans with an average premium of 8.60% in the second quarter of 2018, compared to the sale of $13.4 million in sba loans with an average premium of 8.66% in the first quarter of 2018. service charges on deposit accounts decreased $139 thousand during the quarter due to decreased activities on noninterest bearing deposit accounts. noninterest income for the second quarter of 2018 increased $574 thousand, or 26.0%, compared to $2.2 million for the second quarter of 2017, primarily due to a $576 thousand increase in gain on sale of sba loans from $1.2 million in the second quarter of 2017. we sold $16.2 million in sba loans with an average premium of 8.63% in the second quarter of 2017. noninterest expense for the second quarter of 2018 was $7.5 million, an increase of $667 thousand, or 9.8%, compared to $6.8 million for the first quarter of 2018. the increase was primarily due to a $404 thousand increase in salary and employee benefits, a $94 thousand increase in other expenses, an $86 thousand increase in promotion and advertising and a $57 thousand increase in foundation donation and other contributions. the increases in salary and employee benefits, other expenses, and promotion and advertising were primarily driven by supporting continued growth of the company, and the increase in foundation donation and other contributions was in line with the increase in net income for the second quarter of 2018. noninterest expense for the second quarter of 2018 increased $926 thousand, or 14.1%, compared to $6.6 million for the second quarter of 2017. the increase was primarily due to a $490 thousand increase in salary and employee benefits, a $138 thousand increase in other expenses and a $133 thousand increase in foundation donation and other contributions, which were in line with the growth of the company. income tax provision for the second quarter of 2018 was $1.5 million, compared to $1.2 million for the first quarter of 2018 and $1.6 million for the second quarter of 2017. the effective tax rate for the second quarter of 2018 was 27.9%, compared to 26.7% for the first quarter of 2018 and 39.6% for the second quarter of 2017. balance sheet total assets were $979.4 million at june 30, 2018, an increase of $22.6 million, or 2.4%, from $956.8 million at march 31, 2018, and an increase of $144.0 million, or 17.2%, from $835.4 million at june 30, 2017. gross loans, net of unearned income, were $826.0 million at june 30, 2018, an increase of $32.2 million, or 4.1%, from $793.8 million at march 31, 2018, and an increase of $123.6 million, or 17.6%, from $702.4 million at june 30, 2017. new loan originations for the second quarter of 2018 totaled $92.0 million, including sba loan originations of $29.3 million, compared to $100.9 million, including sba loan originations of $16.4 million for the first quarter of 2018. new loan originations for the second quarter of 2017 were $69.6 million, including sba loan originations of $24.1 million. loan payoffs for the second quarter of 2018 were $30.1 million, compared to $32.2 million for the first quarter of 2018, and $32.4 million for the second quarter of 2017. total deposits were $823.4 million at june 30, 2018, an increase of $5.1 million, or 0.6%, from $818.3 million at march 31, 2018, and an increase of $90.4 million, or 12.3%, from $732.9 million at june 30, 2017. noninterest bearing deposits were $270.1 million at june 30, 2018, a decrease of $18.9 million, or 6.5%, from $289.0 million at march 31, 2018, and a decrease of $16.8 million, or 5.8%, from $286.9 million at june 30, 2017. noninterest bearing deposits accounted for 32.8% of total deposits at june 30, 2018, compared to 35.3% at march 31, 2018 and 39.1% at june 30, 2017. the company had a $25 million advance from the federal home loan bank (“fhlb”) at june 30, 2018, which was paid off on july 2, 2018 as scheduled. the company had advances of $10 million at march 31, 2018 and june 30, 2017. the company’s consolidated capital ratios exceeded regulatory guidelines and the bank’s capital ratios exceeded the regulatory guidelines for a well-capitalized financial institution under the basel iii regulatory requirements at june 30, 2018, as summarized in the following table. asset quality nonperforming loans were $991 thousand at june 30, 2018, an increase of $399 thousand from $592 thousand at march 31, 2018 and an increase of $210 thousand from $781 thousand at june 30, 2017. nonperforming assets were $991 thousand, or 0.10% of total assets, at june 30, 2018, $592 thousand, or 0.06% of total assets, at march 31, 2018 and $781 thousand, or 0.09% of total assets, at june 30, 2017. there was no other real estate owned (“oreo”) at june 30, 2018, march 31, 2018, or june 30, 2017. nonperforming loans to gross loans were 0.12% at june 30, 2018, compared to 0.07% at march 31, 2018 and 0.11% at june 30, 2017. total classified loans were $3.6 million, or 0.44% of gross loans, at june 30, 2018, compared to $3.4 million, or 0.43% of gross loans, at march 31, 2018 and $2.6 million, or 0.36% of gross loans, at june 30, 2017. the allowance for loan losses was $9.7 million at june 30, 2018 and at march 31, 2018, and $8.6 million at june 30, 2017. the allowance for loan losses was 1.18% of gross loans at june 30, 2018 and 1.22% of gross loans at march 31, 2018 and at june 30, 2017. the allowance for loan losses was 981% of nonperforming assets at june 30, 2018, 1,641% at march 31, 2018 and 1,096% at june 30, 2017. 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 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 with eight full branch offices in downtown los angeles, los angeles fashion district, los angeles koreatown, gardena, buena park, and santa clara. the bank also has three loan production offices in seattle, washington, dallas, texas, and atlanta, georgia. 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 member fdic, equal housing lender. cautionary note regarding forward-looking statements certain matters set forth herein (including any exhibits hereto) 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. forward-looking statements may include, but are not limited to, the use of forward-looking language, such as “likely result in,” “expects,” “anticipates,” “estimates,” “forecasts,” “projects,” “intends to,” or may include other similar words or phrases, such as “believes,” “plans,” “trend,” “objective,” “continues,” “remains,” or similar expressions, or future or conditional verbs, such as “will,” “would,” “should,” “could,” “may,” “might,” “can,” or similar verbs. 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; our ability to successfully manage our credit risk and the sufficiency of our allowance for loan loss; 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 and 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; liquidity issues, including fluctuations in the fair value and liquidity of the securities we hold for sale and our ability to raise additional capital, if necessary; 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 different regulations than we are; challenges arising from unsuccessful attempts to expand into new geographic markets, products, or services; restraints on the ability of the 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; 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; 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 including its registration statement on form s-1 effective as of march 27, 2018, and particularly the discussion of risk factors within that document. if any of these risks or uncertainties materializes or if any of the assumptions underlying such forward-looking statements proves to be incorrect, our results could differ materially from those expressed in, implied or projected by such forward-looking statements. we assume no obligation to update such forward-looking statements. any forward-looking statements presented herein are made only as of the date of this press release, and we do not undertake any obligation to update or revise any forward-looking statements to reflect changes in assumptions, the occurrence of unanticipated events, or otherwise, except as required by law. averagebalance interestand fees yield/rate averagebalance interestand fees yield/rate averagebalance interestand fees yield/rate averagebalance interestand fees yield/rate averagebalance interestand fees yield/rate
