OP Bancorp 8K Reports Second Quarter Result of 2020 | OPBK 23 Jul 20

Exhibit 99.1

OP Bancorp Reports Second Quarter Result of 2020

2020 Second Quarter Highlights:

•

Net income totaled $2.4 million or $0.16 per diluted common share, compared to $3.8 million or $0.23 per diluted common share for the second quarter of 2019

•

Net interest margin was 3.55% compared to 4.26% for the second quarter of 2019

•

Return on average assets was 1.15% and return on average equity was 10.45% compared to 1.39% and 11.50%, respectively, for the second quarter of 2019

•

Total assets increased 14.2% to $1.29 billion at June 30, 2020, from $1.13 billion at June 30, 2019

•

Net loans receivable increased 9.9% to $1.03 billion at June 30, 2020, from $937.5 million at June 30, 2019

•

Total deposits increased 15.0% to $1.12 billion at June 30, 2020, from $974.7 million at June 30, 2019

•

Nonperforming assets to total assets was 0.08% at June 30, 2020, compared to 0.14% at June 30, 2019

•

Total risk-based capital ratio and leverage ratio were 15.15% and 10.98%, respectively, at June 30, 2020, compared to 15.45% and 12.24%, respectively, at June 30, 2019

•

Recorded provision for loan losses of $2.0 million, compared to $401,000 for the second quarter of 2019, in response to changes in economic and business conditions amid COVID-19 pandemic

•

Pre-tax pre-provision income was $5.4 million compared to $5.5 million for the second quarter of 2019

•

Originated 924 SBA PPP loans for an aggregate loan balance of $64.9 million during the second quarter of 2020

•

Processed 155 loan deferments for an aggregate of $191 million loan balances, which is approximately 18% of loan portfolio as of June 30, 2020

LOS ANGELES, July 23, 2020 — OP Bancorp (the “Company”) (NASDAQ: OPBK), the holding company of Open Bank (the “Bank”), today reported unaudited financial results for the second quarter of 2020. Net income for the second quarter of 2020 was $2.4 million, or $0.16 per diluted common share, compared to net income of $3.3 million, or $0.21 per diluted common share for first quarter of 2020, and net income of $3.8 million, or $0.23 per diluted common share for the second quarter of 2019.

“As COVID-19 has continued to weigh down on national and local economies and is adversely impacting many businesses, we provided an additional loan loss reserve of $2.0 million during the

second quarter, reflecting further adjustments to qualitative factors. We will continue to put efforts in taking necessary steps to help our customers, employees, and communities while focusing on maintaining our safe and sound banking operations,” commented Min Kim, President and Chief Executive Officer of OP Bancorp and Open Bank.

Financial Highlights (unaudited)
(Dollars in thousands, except per share data)	As of or for the Three Months Ended
	June 30,			March 31,			June 30,
	2020			2020			2019
Income Statement Data:
Interest income	$	12,920		$	14,345		$	14,878
Interest expense		2,272			3,229			3,701
Net interest income		10,648			11,116			11,177
Provision for loan losses		1,988			743			401
Noninterest income		2,062			2,296			2,647
Noninterest expense		7,334			8,207			8,358
Income before taxes		3,388			4,462			5,065
Provision for income taxes		972			1,163			1,229
Net Income	$	2,416		$	3,299		$	3,836
Diluted earnings per share	$	0.16		$	0.21		$	0.23
Balance Sheet Data:
Loans held for sale	$	8,795		$	4,382		$	1,245
Gross loans, net of unearned income		1,043,506			996,559			947,006
Allowance for loan losses		12,764			10,748			9,525
Total assets		1,288,011			1,209,593			1,127,556
Deposits		1,120,720			1,052,198			974,672
Shareholders’ equity		139,136			138,099			135,482
Performance Ratios:
Return on average assets (annualized)		1.15	%		1.12	%		1.39	%
Return on average equity (annualized)		10.45	%		9.44	%		11.50	%
Net interest margin (annualized)		3.55	%		3.95	%		4.26	%
Efficiency ratio (1)		57.70	%		61.19	%		60.45	%
Credit Quality:
Nonperforming loans	$	1,019		$	1,533		$	1,556
Nonperforming assets		1,019			1,533			1,556
Net charge-offs(recoveries) to average gross loans (annualized)		-0.01	%		0.02	%		0.21	%
Nonperforming assets to gross loans plus OREO		0.10	%		0.15	%		0.16	%
ALL to nonperforming loans		1252	%		701	%		612	%
ALL to gross loans, net of unearned income		1.22	%		1.08	%		1.01	%
Capital Ratios:
Total risk-based capital ratio		15.15	%		14.77	%		15.45	%
Tier 1 risk-based capital ratio		13.90	%		13.68	%		14.42	%
Common equity tier 1 ratio		13.90	%		13.68	%		14.42	%
Leverage ratio		10.98	%		11.58	%		12.24	%

(1) Represents noninterest expense divided by the sum of net interest income and noninterest income.

Financial Highlights (unaudited)
(Dollars in thousands, except per share data)	For the Six Months Ended
	June 30,			June 30,
	2020			2019
Income Statement Data:
Interest income	$	27,265		$	28,965
Interest expense		5,501			6,989
Net interest income		21,764			21,976
Provision for loan losses		2,731			401
Noninterest income		4,358			6,179
Noninterest expense		15,541			16,431
Income before taxes		7,850			11,323
Provision for income taxes		2,135			2,747
Net Income	$	5,715		$	8,576
Diluted earnings per share	$	0.37		$	0.52
Performance Ratios:
Return on average assets		0.94	%		1.60	%
Return on average equity		8.21	%		12.97	%
Net interest margin		3.74	%		4.32	%
Efficiency ratio (1)		59.49	%		58.36	%

(1) Represents noninterest expense divided by the sum of net interest income and noninterest income.

Financial Highlights, excluding Gain on COLI
(Dollars in thousands, except per share data)	For the Six Months Ended
	June 30,			June 30,
	2020			2019
Income before taxes, as reported	$	7,850		$	11,323
Gain on COLI		—			1,228
Provision for income taxes		2,135			2,565
Net Income	$	5,715		$	7,530
Diluted earnings per share	$	0.37		$	0.46
Return on average assets		0.94	%		1.41	%
Return on average equity		8.21	%		11.39	%

Results of Operations

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 both the contractual interest income and yield on our loan portfolio to the reported interest income and yield for the periods indicated.

	Three Months Ended
	June 30, 2020					March 31, 2020					June 30, 2019
(Dollars in thousands)	Interest & Fees		Yield			Interest & Fees		Yield			Interest & Fees		Yield
Contractual interest rate	$	11,920		4.59	%	$	13,000		5.23	%	$	13,298		5.72	%
SBA discount accretion		412		0.16	%		559		0.23	%		703		0.30	%
Amortization of net deferred fees/(costs)		107		0.04	%		104		0.04	%		38		0.02	%
Interest recognized on nonaccrual loans		83		0.03	%		-		0.00	%		-		0.00	%
Prepayment penalties and other fees		27		0.01	%		31		0.01	%		54		0.02	%
Yield on loans (as reported)	$	12,549		4.83	%	$	13,694		5.51	%	$	14,093		6.06	%

	Six Months Ended
	June 30, 2020					June 30, 2019
(Dollars in thousands)	Interest & Fees		Yield			Interest & Fees		Yield
Contractual interest rate	$	24,914		4.90	%	$	25,777		5.71	%
SBA discount accretion		971		0.19	%		1,212		0.27	%
Amortization of net deferred fees/(costs)		211		0.04	%		170		0.04	%
Interest recognized on nonaccrual loans		83		0.02	%		-		0.00	%
Prepayment penalties and other fees		64		0.01	%		288		0.06	%
Yield on loans (as reported)	$	26,243		5.16	%	$	27,447		6.08	%

Net interest margin for the second quarter of 2020 decreased 40 basis points to 3.55% from 3.95% for the first quarter of 2020 primarily due to a decrease in the reported yield on interest-earning assets, partially offset by a decrease in the cost of interest-bearing liabilities as a result of the cumulative market rate decreases of 150 basis points by the Federal Reserve in Mach 2020.

Net interest income before the provision for loan losses for the second quarter of 2020 was $10.6 million, a decrease of $468,000, or 4.2%, compared to the first quarter of 2020, primarily due to a $1.4 million decrease in interest income, partially offset by a $957,000 decrease in interest expense.

Interest income on securities available for sale and other interest income decreased $280,000, or 43.0%, during the second quarter of 2020 compared to the first quarter of 2020. The decrease was primarily due to a $242,000 decrease in other interest income as a result of a 132 basis point decrease in the yield on the average balance of Fed funds sold and other investments in the period and a $38,000 decrease in interest income on securities available for sale as a result of a 47 basis point decrease in the yield on the average balance of securities available for sale in the period.

Interest income from contractual interest rates on loans decreased $1.1 million, or 8.3%, during the second quarter of 2020 compared to the first quarter of 2020, reflecting a 64 basis point decrease in the average contractual interest rate on loans in the period, primarily resulting from the cumulative rate cuts by the Federal Reserve in March 2020. The amount of discount accretion on SBA loans decreased

$147,000 during the second quarter of 2020 due to a decrease in SBA loan payoffs. The reported interest income on loans, net of SBA discount accretions and other components, decreased $1.1 million, or 8.4% during the second quarter of 2020 compared to the first quarter of 2020.

Interest expense for the second quarter of 2020 decreased $957,000, or 29.6%, compared to the first quarter of 2020, due to a decrease of 54 basis points in the average cost of interest-bearing liabilities, primarily due to the rate cuts by the Federal Reserve in March.

Net interest margin for the second quarter of 2020 decreased 71 basis points to 3.55% from 4.26% for the second quarter of 2019, primarily due to a decrease in the reported yield on interest-earning assets, partially offset by a decrease in the cost of interest-bearing liabilities as a result of cumulative market rate cuts of 225 basis points by the Federal Reserve in the last half of 2019 and first quarter of 2020.

Net interest income before provision for loan losses for the second quarter of 2020 decreased $529,000, or 4.7%, to $10.6 million, compared to $11.2 million for the second quarter of 2019, primarily due to a $2.0 million decrease in interest income, partially offset by a $1.4 million decrease in interest expense.

Interest income on securities available for sale and other interest income for the second quarter of 2020 decreased $414,000, or 52.7%, compared to the second quarter of 2019. The decrease was primarily due to a $368,000 decrease in other interest income as a result of a 238 basis point decrease in the yield on the average balance of Fed funds sold and other investments and a $46,000 decrease in interest income on securities available for sale as a result of a 59 basis point decrease in the yield on the average balance of securities available for sale.

Interest income from contractual interest rates on loans for the second quarter of 2020 decreased $1.4 million, or 10.4%, compared to the second quarter of 2019, reflecting a 113 basis point decrease in the average contractual interest rate on loans in the period, primarily due to the cumulative market rate cuts by the Federal Reserve in the last half of 2019 and first quarter of 2020. The amount of discount accretion on SBA loans decreased $291,000 during the second quarter of 2020 due to a decrease in SBA loan payoffs. The reported interest income on loans, net of SBA discount accretions and other components, for the second quarter of 2020 decreased $1.5 million, or 11.0%, compared to the same period of 2019.

Interest expense for the second quarter of 2020 decreased $1.4 million, or 38.6%, compared to the second quarter of 2019, primarily due to a 96 basis point decrease in the cost of interest-bearing liabilities in the period, partially offset by a $60.3 million, or 8.9%, increase in the average balance of total interest-bearing liabilities.

The following tables show the asset yields, liability costs, spreads and margins for the periods indicated, along with the percentage changes in the periods indicated.

	Three Months Ended									Percentage Change
	June 30,			March 31,			June 30,			Q2-20			Q2-20
	2020			2020			2019			vs. Q1-20			vs. Q2-19
Yield on loans		4.83	%		5.51	%		6.06	%		-0.68	%		-1.23	%
Yield on interest-earning assets		4.31	%		5.10	%		5.67	%		-0.79	%		-1.36	%
Cost of interest-bearing liabilities		1.24	%		1.78	%		2.20	%		-0.54	%		-0.96	%
Cost of deposits		0.83	%		1.27	%		1.56	%		-0.44	%		-0.73	%
Cost of funds		0.83	%		1.27	%		1.56	%		-0.44	%		-0.73	%
Net interest spread		3.07	%		3.32	%		3.47	%		-0.25	%		-0.40	%
Net interest margin		3.55	%		3.95	%		4.26	%		-0.40	%		-0.71	%

	Six Months Ended						Percentage Change
	June 30,			June 30,			2020 YTD
	2020			2019			vs. 2019 YTD
Yield on loans		5.16	%		6.08	%		-0.92	%
Yield on interest-earning assets		4.69	%		5.70	%		-1.01	%
Cost of interest-bearing liabilities		1.51	%		2.15	%		-0.64	%
Cost of deposits		1.05	%		1.52	%		-0.47	%
Cost of funds		1.04	%		1.52	%		-0.48	%
Net interest spread		3.18	%		3.55	%		-0.37	%
Net interest margin		3.74	%		4.32	%		-0.58	%

The Company recorded provision for loan losses of $2.0 million for the second quarter of 2020. Major economic forecasts, including the California Economic Forecasts show a significant decline in GDP and a substantial rise in unemployment for 2020. Management has made further adjustments to qualitative factors on all loan types during the second quarter of 2020 to reflect adverse impacts on national, state, and local economies caused by COVID-19 pandemic. The increases in qualitative factors accounted for $2.0 million, or 100%, of the provision for loan losses for the quarter. The Company recorded provision for loan losses of $743,000 for the first quarter of 2020 and $401,000 for the second quarter of 2019.

Noninterest income for the second quarter of 2020 was $2.1 million, a decrease of $234,000, or 10.2%, from $2.3 million for the first quarter of 2020, primarily due to a decrease of $219,000 in gain on sale of loans and a decrease of $138,000 in service charges on deposits, partially offset by an increase of $122,000 in loan servicing fees.

Gain on sale of loans for the second quarter of 2020 was $936,000, a decrease of $219,000, compared to $1.2 million for the first quarter of 2020. The Company sold $14.9 million in SBA loans with an average premium of 7.94% in the second quarter of 2020, compared to the sale of $17.5 million in SBA loans with an average premium of 8.41% in the first quarter of 2020.

Noninterest income for the second quarter of 2020 decreased $585,000 to $2.1 million compared to $2.6 million for the second quarter of 2019, primarily due to a decrease of $652,000 in gain on sale of loans and a decrease of $269,000 in service charges on deposits, partially offset by an increase of $287,000 in loan servicing fees and $49,000 in other income. Gain on sale of loans for the second

quarter of 2019 was $1.6 million from the sale of $21.2 million in SBA loans with an average premium of 8.99%.

Noninterest expense for the second quarter of 2020 was $7.3 million, a decrease of $873,000, or 10.6%, compared to $8.2 million for the first quarter of 2020. The decrease was primarily due to a decrease of $724,000 in salary and employee benefits and a decrease of $85,000 in foundation donation and other contributions. The decrease in salary and employee benefits was primarily due to an increase in deferred loan origination costs from originating 924 SBA’s Paycheck Protection Program (PPP) loans for an aggregate loan balance of $64.9 million during the quarter.

Noninterest expense for the second quarter of 2020 was $7.3 million, a decreased $1.0 million, or 12.3%, compared to $8.4 million for the second quarter of 2019. The decrease was primarily due to a decrease of $997,000 in salary and employee benefits and a decrease of $134,000 in foundation donation and other contributions, partially offset by an increase of $109,000 in occupancy and equipment expense. The decrease in salary and employee benefits was primarily due to the aforementioned increase in deferred loan origination costs for SBA PPP loans and the decrease in foundation donation tied to the Company’s net income. The increase in occupancy and equipment expense was primarily due to a new branch opening in the second quarter of 2019.

Income tax provision was $972,000 for the second quarter of 2020, $1.2 million for the first quarter of 2020 and for the second quarter of 2019. The effective tax rate for the second quarter of 2020 was 28.7%, compared to 26.1% for the first quarter of 2020 and 24.3% for the second quarter of 2019. The higher effective tax rate for the second quarter of 2020 compared to the first quarter of 2020 and the second quarter of 2019 was primarily due to less tax benefits realized because of a decrease in non-qualified stock option exercises during the second quarter of 2020.

Balance Sheet

Total assets were $1.29 billion at June 30, 2020, an increase of $78.4 million, or 6.5%, compared to $1.21 billion at March 31, 2020, and an increase of $160.5 million, or 14.2%, compared to $1.13 billion at June 30, 2019.

Gross loans, net of unearned income, were $1.04 billion at June 30, 2020, an increase of $46.9 million, or 4.7%, from $996.6 million at March 31, 2020, and an increase of $96.5 million, or 10.2%, from $947.0 million at June 30, 2019.

New loan originations totaled $104.1 million for the second quarter of 2020, including $64.9 million in SBA PPP loans and $19.3 million in other SBA loans, compared to $77.9 million for the first quarter of 2020, including $25.7 million in SBA loans, and $93.8 million for the second quarter of 2019, including $27.9 million in SBA loans. Loan payoffs were $21.7 million for the second quarter of 2020, compared to $33.5 million for the first quarter of 2020, and $22.5 million for the second quarter of 2019.

Total deposits were $1.12 billion at June 30, 2020, an increase of $68.5 million, or 6.5%, from $1.05 billion at March 31, 2020, and an increase of $146.0 million, or 15.0%, from $974.7 million at June 30, 2019. Noninterest-bearing deposits were $428.4 million at June 30, 2020, compared to $304.8 million at March 31, 2020, and $275.0 million at June 30, 2019. The increase in noninterest-bearing deposits during the second quarter of 2020 was partially due to the SBA PPP loans funded to customers’ noninterest-bearing deposits.

Noninterest-bearing deposits accounted for 38.2% of total deposits at June 30, 2020, compared to 29.0% at March 31, 2020, and 28.2% at June 30, 2019. The following table shows the Company’s deposits, by type as a percentage of total deposits as of the periods indicated.

	As of
	June 30,			March 31,			June 30,
	2020			2020			2019
Noninterest-bearing deposits		38.2	%		29.0	%		28.2	%
Interest-bearing demand deposits		26.2	%		27.7	%		28.7	%
Savings		0.5	%		0.5	%		0.4	%
Time deposits over $250,000		18.8	%		20.0	%		21.7	%
Other time deposits		16.3	%		22.8	%		21.0	%
Total deposits		100.0	%		100.0	%		100.0	%

The Company had $10.0 million in borrowings from the Federal Home Loan Bank (FHLB) at June 30, 2020, which had 0% rate under the Zero-Rate Recovery Advance Program, FHLB’s pandemic relief initiatives. The Company had no borrowings from the FHLB at March 31, 2020 and June 30, 2019.

The Company’s consolidated regulatory 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, 2020, as summarized in the following table.

										Regulatory
							Well-capitalized			Capital Ratio
							Financial			Requirements (1),
							Institution			Including
							Basel III			Fully Phased-in
							Regulatory			Capital Conservation
Capital Ratios	OP Bancorp			Open Bank			Guidelines			Buffer
Total risk-based capital ratio		15.15	%		15.03	%		10.00	%		10.50	%
Tier 1 risk-based capital ratio		13.90	%		13.78	%		8.00	%		8.50	%
Common equity tier 1 ratio		13.90	%		13.78	%		6.50	%		7.00	%
Leverage ratio		10.98	%		10.87	%		5.00	%		4.00	%

(1) Fully phased in Basel III requirement for both OP Bancorp and Open Bank includes a 2.5% capital conservation buffer, except the leverage ratio.

The Company completed its third stock repurchase program in May 2020 with an aggregate purchase of 500,000 shares of common stock at an average price of $7.77. Since the announcement of the initial stock repurchase program in January 2019, the Company has repurchased an aggregate of 1.37 million shares of its common stock at an average repurchase price of $8.84 per share through May 2020.

Asset Quality

Nonperforming loans were $1.02 million at June 30, 2020, a decrease of $514,000 from $1.53 million at March 31, 2020 and a decrease of $537,000 from $1.56 million at June 30, 2019.

The Company had no other real estate owned (OREO) at June 30, 2020, March 31, 2020, and June 30, 2019.

Nonperforming assets were $1.02 million, or 0.08% of total assets, at June 30, 2020, compared to $1.53 million, or 0.13% of total assets, at March 31, 2020, and $1.56 million, or 0.14% of total assets, at June 30, 2019.

Nonperforming loans to gross loans were 0.10% at June 30, 2020, compared to 0.15% at March 31, 2020, and 0.16% at June 30, 2019. Total classified loans were $2.8 million, or 0.27% of gross loans, at June 30, 2020, compared to $3.6 million, or 0.36% of gross loans, at March 31, 2020, and $4.2 million, or 0.44% of gross loans, at June 30, 2019.

The following tables shows the trend of classified loans by loan type as of the date stated.

	As of
	June 30,		March 31,		December 31,		September 30,		June 30,
	2020		2020		2019		2019		2019
Classified loans by loan type	(Dollars in thousands)
Commercial real estate	$	—	$	—	$	—	$	—	$	—
SBA loans—real estate		786		2,021		2,036		2,247		2,264
SBA loans—non-real estate		124		159		33		36		41
Commercial and industrial		1,211		686		697		710		1,892
Home mortgage		689		694		698		256		—
Consumer		—		—		—		—		—
Total classified loans	$	2,810	$	3,560	$	3,464	$	3,249	$	4,197
SBA guarantee balance retained
SBA loans—real estate		—		357		363		516		524
SBA loans—non-real estate		—		33		33		36		41
Total SBA unsold guarantee portion	$	—	$	390	$	396	$	552	$	565
Total classified loans, net of SBA guarantee balance retained	$	2,810	$	3,170	$	3,068	$	2,697	$	3,632

The allowance for loan losses (ALL) was $12.8 million at June 30, 2020, compared to $10.7 million at March 31, 2020, and $9.5 million at June 30, 2019. The ALL was 1.22% of gross loans at June 30, 2020, 1.08% of gross loans at March 31, 2020 and 1.01% at June 30, 2019. Excluding fully guaranteed SBA PPP loans, the ALL was 1.30% of gross loans at June 30, 2020. The allowance for loan losses was 1,252% of nonperforming assets at June 30, 2020, 701% at March 31, 2020, and 612% at June 30, 2019.

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 with nine full branch offices in Downtown Los Angeles, Los Angeles Fashion District, Los Angeles Koreatown, Gardena, Buena Park, and Santa Clara, California and Carrollton, Texas. The Bank also has four loan production offices in Atlanta, Georgia, Aurora, Colorado,

and Lynnwood and Seattle, 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 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 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; 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 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; 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, 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; the rapidly changing uncertainties related to the Coronavirus pandemic including, but not limited to, the potential adverse effect of the pandemic on the economy, our employees and customers, and our financial performance; the impact of the federal CARES Act and the significant additional lending activities undertaken by the Company in connection with the Small Business Administration’s Paycheck Protection Program enacted thereunder, including risks to the Company with respect to the uncertain application by the Small Business Administration of new borrower and loan eligibility, forgiveness and audit criteria; 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, 2019 and in our other subsequent filings with the Securities and Exchange Commission. The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this report. Because of these risks and other uncertainties, our actual future results, performance or achievement, or industry results, may be materially different from the results indicated by the forward looking statements in this report. In addition, our past results of operations are not necessarily indicative of our future results. You should not rely on any forward looking statements, which represent our beliefs, assumptions and estimates only as of the dates on which they were made, as predictions of future events. Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.

Contact

Investor Relations

OP Bancorp

Christine Oh

EVP & CFO

213.892.1192

Christine.oh@myopenbank.com

Consolidated Balance Sheet (unaudited)
(Dollars in thousands)
	As of
	06/30/2020			03/31/2020			% change			06/30/2019			% change
Assets
Cash and cash equivalents	$	112,217		$	110,999			1.1	%	$	83,111			35.0	%
Securities available for sale, at fair value		75,402			52,179			44.5	%		51,829			45.5	%
Other investments		9,987			9,253			7.9	%		8,134			22.8	%
Loans held for sale		8,795			4,382			100.7	%		1,245			606.4	%
Real Estate Loans		637,295			639,411			-0.3	%		583,634			9.2	%
SBA Loans		195,605			133,909			46.1	%		130,957			49.4	%
C & I Loans		88,375			99,860			-11.5	%		105,133			-15.9	%
Home Mortgage Loans		120,597			119,984			0.5	%		123,951			-2.7	%
Consumer & Other Loans		1,634			3,395			-51.9	%		3,331			-50.9	%
Gross loans, net of unearned income		1,043,506			996,559			4.7	%		947,006			10.2	%
Allowance for loan losses		(12,764	)		(10,748	)		18.8	%		(9,525	)		34.0	%
Net loans receivable		1,030,742			985,811			4.6	%		937,481			9.9	%
Premises and equipment, net		4,881			5,141			-5.1	%		5,341			-8.6	%
Accrued interest receivable		4,823			3,056			57.8	%		3,301			46.1	%
Servicing assets		6,972			6,963			0.1	%		6,996			-0.3	%
Company owned life insurance		10,748			10,683			0.6	%		10,482			2.5	%
Deferred tax assets		3,535			2,709			30.5	%		2,858			23.7	%
Operating right-of-use assets (1)		7,517			7,885			-4.7	%		8,959			-16.1	%
Other assets		12,392			10,532			17.7	%		7,819			58.5	%
Total assets	$	1,288,011		$	1,209,593			6.5	%	$	1,127,556			14.2	%

Liabilities and Shareholders' Equity
Noninterest-bearing deposits	$	428,416		$	304,845			40.5	%	$	274,976			55.8	%
Savings		5,868			5,220			12.4	%		3,527			66.4	%
Money market and others		293,165			291,137			0.7	%		279,748			4.8	%
Time deposits over $250,000		210,691			210,507			0.1	%		211,305			-0.3	%
Other time deposits		182,580			240,489			-24.1	%		205,116			-11.0	%
Total deposits		1,120,720			1,052,198			6.5	%		974,672			15.0	%
Other borrowings		10,000			-			100.0	%		-			100.0	%
Accrued interest payable		1,964			2,592			-24.2	%		2,287			-14.1	%
Operating lease liabilities (1)		9,282			9,701			-4.3	%		10,737			-13.6	%
Other liabilities		6,909			7,003			-1.3	%		4,378			57.8	%
Total liabilities		1,148,875			1,071,494			7.2	%		992,074			15.8	%

Common stock		79,925			80,422			-0.6	%		88,455			-9.6	%
Additional paid-in capital		8,218			7,882			4.3	%		6,965			18.0	%
Retained earnings		50,056			48,695			2.8	%		39,878			25.5	%
Accumulated other comprehensive income(loss)		937			1,100			-14.8	%		184			409.2	%
Total shareholders' equity		139,136			138,099			0.8	%		135,482			2.7	%

Total Liabilities and Shareholders' Equity	$	1,288,011		$	1,209,593			6.5	%	$	1,127,556			14.2	%

Consolidated Statements of Income (unaudited)
(Dollars in thousands, except per share data)	Three Months Ended
	06/30/2020		03/31/2020		% change			06/30/2019		% change
Interest income
Interest and fees on loans	$	12,549	$	13,694		-8.4	%	$	14,093		-11.0	%
Interest on securities available for sale		281		319		-11.9	%		327		-14.1	%
Other interest income		90		332		-72.9	%		458		-80.3	%
Total interest income		12,920		14,345		-9.9	%		14,878		-13.2	%
Interest expense
Interest on deposits		2,272		3,229		-29.6	%		3,701		-38.6	%
Total interest expense		2,272		3,229		-29.6	%		3,701		-38.6	%
Net interest income		10,648		11,116		-4.2	%		11,177		-4.7	%
Provision for loan losses		1,988		743		167.6	%		401		395.8	%
Net interest income after provision for loan losses		8,660		10,373		-16.5	%		10,776		-19.6	%
Noninterest income
Service charges on deposits		230		368		-37.5	%		499		-53.9	%
Loan servicing fees, net of amortization		514		392		31.1	%		227		126.4	%
Gain on sale of loans		936		1,155		-19.0	%		1,588		-41.1	%
Other income		382		381		0.3	%		333		14.7	%
Total noninterest income		2,062		2,296		-10.2	%		2,647		-22.1	%
Noninterest expense
Salaries and employee benefits		4,347		5,071		-14.3	%		5,344		-18.7	%
Occupancy and equipment		1,241		1,230		0.9	%		1,132		9.6	%
Data processing and communication		414		409		1.2	%		367		12.8	%
Professional fees		276		273		1.1	%		247		11.7	%
FDIC insurance and regulatory assessments		117		106		10.4	%		105		11.4	%
Promotion and advertising		163		162		0.6	%		183		-10.9	%
Directors’ fees		223		233		-4.3	%		223		0.0	%
Foundation donation and other contributions		245		330		-25.8	%		379		-35.4	%
Other expenses		308		393		-21.6	%		378		-18.5	%
Total noninterest expense		7,334		8,207		-10.6	%		8,358		-12.3	%
Income before income taxes		3,388		4,462		-24.1	%		5,065		-33.1	%
Provision for income taxes		972		1,163		-16.4	%		1,229		-20.9	%
Net income	$	2,416	$	3,299		-26.8	%	$	3,836		-37.0	%

Book value per share	$	9.23	$	9.14		1.0	%	$	8.62		7.1	%
Basic EPS	$	0.16	$	0.21		-23.8	%	$	0.24		-33.3	%
Diluted EPS	$	0.16	$	0.21		-23.8	%	$	0.23		-30.4	%

Shares of common stock outstanding		15,068,030		15,115,868		-0.3	%		15,723,007		-4.2	%
Weighted Average Shares:
- Basic		15,072,423		15,486,549		-2.7	%		15,685,478		-3.9	%
- Diluted		15,112,618		15,586,255		-3.0	%		15,951,598		-5.3	%

Key Ratios
(Dollars in thousands, except ratios)	Three Months Ended
	06/30/2020			03/31/2020			% change			06/30/2019			% change
Return on average assets (ROA)*		1.15	%		1.12	%		0.03	%		1.39	%		-0.24	%
Return on average equity (ROE) *		10.45	%		9.44	%		1.01	%		11.50	%		-1.05	%
Net interest margin *		3.55	%		3.95	%		-0.40	%		4.26	%		-0.71	%
Efficiency ratio		57.70	%		61.19	%		-3.49	%		60.45	%		-2.75	%

Total risk-based capital ratio		15.15	%		14.77	%		0.38	%		15.45	%		-0.30	%
Tier 1 risk-based capital ratio		13.90	%		13.68	%		0.22	%		14.42	%		-0.52	%
Common equity tier 1 ratio		13.90	%		13.68	%		0.22	%		14.42	%		-0.52	%
Leverage ratio		10.98	%		11.58	%		-0.60	%		12.24	%		-1.26	%

* Annualized

Consolidated Statements of Income (unaudited)
(Dollars in thousands, except per share data)	Six Months Ended
	06/30/2020		06/30/2019		% change
Interest income
Interest and fees on loans	$	26,243	$	27,447		-4.4	%
Interest on securities available for sale		600		687		-12.7	%
Other interest income		422		831		-49.2	%
Total interest income		27,265		28,965		-5.9	%
Interest expense
Interest on deposits		5,501		6,989		-21.3	%
Total interest expense		5,501		6,989		-21.3	%
Net interest income		21,764		21,976		-1.0	%
Provision for loan losses		2,731		401		581.0	%
Net interest income after provision for loan losses		19,033		21,575		-11.8	%
Noninterest income
Service charges on deposits		598		1,026		-41.7	%
Loan servicing fees, net of amortization		906		610		48.5	%
Gain on sale of loans		2,091		2,665		-21.5	%
Other income		763		1,878		-59.4	%
Total noninterest income		4,358		6,179		-29.5	%
Noninterest expense
Salaries and employee benefits		9,418		10,513		-10.4	%
Occupancy and equipment		2,471		2,209		11.9	%
Data processing and communication		823		725		13.5	%
Professional fees		549		451		21.7	%
FDIC insurance and regulatory assessments		222		210		5.7	%
Promotion and advertising		324		360		-10.0	%
Directors’ fees		456		452		0.9	%
Foundation donation and other contributions		575		767		-25.0	%
Other expenses		703		744		-5.5	%
Total noninterest expense		15,541		16,431		-5.4	%
Income before income taxes		7,850		11,323		-30.7	%
Provision for income taxes		2,135		2,747		-22.3	%
Net income	$	5,715	$	8,576		-33.4	%

Book value per share	$	9.23	$	8.62		7.1	%
Basic EPS	$	0.37	$	0.53		-30.2	%
Diluted EPS	$	0.37	$	0.52		-28.8	%

Shares of common stock outstanding		15,068,030		15,723,007		-4.2	%
Weighted Average Shares:
- Basic		15,279,486		15,750,905		-3.0	%
- Diluted		15,334,287		16,006,499		-4.2	%

Key Ratios
(Dollars in thousands, except ratios)	Six Months Ended
	06/30/2020			06/30/2019			% change
Return on average assets (ROA)*		0.94	%		1.60	%		-0.66	%
Return on average equity (ROE) *		8.21	%		12.97	%		-4.76	%
Net interest margin *		3.74	%		4.32	%		-0.58	%
Efficiency ratio		59.49	%		58.36	%		1.13	%

Total risk-based capital ratio		15.15	%		14.77	%		0.38	%
Tier 1 risk-based capital ratio		13.90	%		13.68	%		0.22	%
Common equity tier 1 ratio		13.90	%		13.68	%		0.22	%
Leverage ratio		10.98	%		11.58	%		-0.60	%

* Annualized

Asset Quality
(Dollars in thousands, except ratios)	Three Months Ended
	06/30/2020			03/31/2020			12/31/2019			09/30/2019			06/30/2019
Nonaccrual Loans	$	689		$	1,203		$	1,215		$	1,234		$	1,218
Loans 90 days or more past due, accruing		-			-			-			-			-
Accruing restructured loans		330			330			333			336			338
Nonperforming loans		1,019			1,533			1,548			1,570			1,556
Other real estate owned (OREO)		-			-			-			1,817			-
Nonperforming assets		1,019			1,533			1,548			3,387			1,556

Classified loans		2,810			3,560			3,464			3,249			4,197

Nonperforming assets/total assets		0.08	%		0.13	%		0.13	%		0.29	%		0.14	%
Nonperforming assets/gross loans plus OREO		0.10	%		0.15	%		0.16	%		0.35	%		0.16	%
Nonperforming loans/gross loans		0.10	%		0.15	%		0.16	%		0.16	%		0.16	%
Allowance for loan losses/nonperforming loans		1252	%		701	%		649	%		614	%		612	%
Allowance for loan losses/nonperforming assets		1252	%		701	%		649	%		285	%		612	%
Allowance for loan losses/gross loans		1.22	%		1.08	%		1.02	%		1.00	%		1.01	%
Classified loans/gross loans		0.27	%		0.36	%		0.35	%		0.34	%		0.44	%

Net charge-offs(recoveries)	$	(28	)	$	45		$	(1	)	$	175		$	495
Net charge-offs(recoveries) to average gross loans *		-0.01	%		0.02	%		0.00	%		0.07	%		0.21	%

* Annualized

Accruing delinquent loans 30-89 days past due	06/30/2020			03/31/2020			12/31/2019			09/30/2019			06/30/2019
30-59 days	$	565		$	1,788		$	3,899		$	2,580		$	1,065
60-89 days		-			2,277			126			580			2,207
Total		565			4,065			4,025			3,160			3,272

Average Balance Sheet, Interest and Yield/Rate Analysis
(Dollars in thousands)	Three Months Ended
	June 30, 2020							March 31, 2020							June 30, 2019
	Average Balance		Interest and Fees		Yield/ Rate			Average Balance		Interest and Fees		Yield/ Rate			Average Balance		Interest and Fees		Yield/ Rate
Interest-Earning assets:
Federal funds sold and other investments	$	100,083	$	90		0.36	%	$	78,256	$	332		1.68	%	$	66,277	$	458		2.74	%
Securities available for sale		60,544		281		1.86			54,647		319		2.33			53,329		327		2.45
Total investments		160,627		371		0.92			132,903		651		1.95			119,606		785		2.61
Real estate loans		638,359		7,500		4.73			633,963		8,198		5.20			562,256		7,837		5.59
SBA loans		190,042		2,615		5.53			138,900		2,667		7.72			137,133		3,063		8.96
C & I loans		93,633		920		3.95			100,686		1,277		5.10			104,273		1,558		5.99
Home Mortgage loans		119,998		1,476		4.92			121,768		1,514		4.97			125,577		1,588		5.06
Consumer & other loans		2,912		38		5.28			2,774		38		5.51			2,814		47		6.70
Loans (1)		1,044,944		12,549		4.83			998,091		13,694		5.51			932,053		14,093		6.06
Total interest-earning assets		1,205,571		12,920		4.31			1,130,994		14,345		5.10			1,051,659		14,878		5.67
Noninterest-earning assets		49,837							48,189							50,387
Total assets	$	1,255,408						$	1,179,183						$	1,102,046

Interest-bearing liabilities:
NOW and savings deposits	$	8,614		2		0.10	%	$	7,988		5		0.25	%	$	4,725		3		0.25	%
Money market deposits		296,327		481		0.65			289,214		952		1.32			281,239		1,335		1.90
Time deposits		426,645		1,789		1.69			431,772		2,272		2.12			389,294		2,363		2.43
Total interest-bearing deposits		731,586		2,272		1.25			728,974		3,229		1.78			675,258		3,701		2.20
Borrowings		3,959		-		-			45		-		-			2		-		2.76
Total interest-bearing liabilities		735,545		2,272		1.24			729,019		3,229		1.78			675,260		3,701		2.20

Noninterest-bearing liabilities:
Noninterest-bearing deposits		362,779							292,453							276,569
Other noninterest-bearing liabilities		18,362							17,921							16,778
Total noninterest-bearing liabilities		381,141							310,374							293,347
Shareholders’ equity		138,722							139,790							133,439
Total liabilities and shareholders’ equity	$	1,255,408						$	1,179,183						$	1,102,046

Net interest income / interest rate spreads			$	10,648		3.07	%			$	11,116		3.32	%			$	11,177		3.47	%

Net interest margin						3.55	%						3.95	%						4.26	%

Cost of deposits & cost of funds:
Total deposits / cost of deposits	$	1,094,365	$	2,272		0.83	%	$	1,021,427	$	3,229		1.27	%	$	951,827	$	3,701		1.56	%
Total funding liabilities / cost of funds	$	1,098,324	$	2,272		0.83	%	$	1,021,472	$	3,229		1.27	%	$	951,829	$	3,701		1.56	%

(1) The average loan balance includes loans held for sale.

Average Balance Sheet, Interest and Yield/Rate Analysis
(Dollars in thousands)	Six Months Ended
	June 30, 2020							June 30, 2019
	Average Balance		Interest and Fees		Yield/ Rate			Average Balance		Interest and Fees		Yield/ Rate
Interest-Earning assets:
Federal funds sold and other investments	$	89,169	$	422		0.94	%	$	59,657	$	831		2.77	%
Securities available for sale		57,595		600		2.08			54,046		687		2.54
Total investments		146,764		1,022		1.39			113,703		1,518		2.66
Real estate loans		636,161		15,698		4.96			540,766		14,986		5.59
SBA loans		164,471		5,282		6.46			134,219		5,996		9.01
C & I loans		97,160		2,197		4.55			105,469		3,152		6.03
Home Mortgage loans		120,883		2,990		4.95			127,034		3,224		5.08
Consumer & other loans		2,843		76		5.40			2,674		89		6.71
Loans (1)		1,021,518		26,243		5.16			910,162		27,447		6.08
Total interest-earning assets		1,168,282		27,265		4.69			1,023,865		28,965		5.70
Noninterest-earning assets		49,012							46,453
Total assets	$	1,217,294						$	1,070,318

Interest-bearing liabilities:
NOW and savings deposits	$	8,300		6		0.15	%	$	4,949		6		0.25	%
Money market deposits		292,771		1,434		0.98			266,493		2,456		1.86
Time deposits		429,208		4,061		1.90			384,389		4,527		2.38
Total interest-bearing deposits		730,279		5,501		1.51			655,831		6,989		2.15
Borrowings		2,002		-		0.00			1		-		2.76
Total interest-bearing liabilities		732,281		5,501		1.51			655,832		6,989		2.15

Noninterest-bearing liabilities:
Noninterest-bearing deposits		327,616							269,585
Other noninterest-bearing liabilities		18,142							12,634
Total noninterest-bearing liabilities		345,758							282,219
Shareholders’ equity		139,255							132,267
Total liabilities and shareholders’ equity	$	1,217,294						$	1,070,318

Net interest income / interest rate spreads			$	21,764		3.18	%			$	21,976		3.55	%

Net interest margin						3.74	%						4.32	%

Cost of deposits & cost of funds:
Total deposits / cost of deposits	$	1,057,895	$	5,501		1.05	%	$	925,416	$	6,989		1.52	%
Total funding liabilities / cost of funds	$	1,059,897	$	5,501		1.04	%	$	925,417	$	6,989		1.52	%

(1) The average loan balance includes loans held for sale.

Loan Portfolio Breakdown by Industry
Excluding Home mortgage and consumer loans
(Dollars in thousands)	As of June 30, 2020
Industry	Number of accounts		% of total			Balance		% of total
Real estate lessors		220		11.1	%	$	354,060		37.7	%
- Retail		91		4.6			162,281		17.3
- Mixed use		16		0.8			29,889		3.2
- Office		11		0.6			20,452		2.2
- Industrial		45		2.3			91,293		9.7
- Multifamily		7		0.4			3,950		0.4
- Other		50		2.5			46,194		4.9
Hotel / motel		181		9.2			139,755		14.9
Food services / restaurant		275		13.9			38,912		4.1
Gas station		206		10.4			132,746		14.2
Educational service		13		0.7			9,187		1.0
Wholesale		276		14.0			56,268		6.0
Laundry services		82		4.1			23,726		2.5
Church		22		1.1			12,582		1.3
Other		703		35.5			170,835		18.2
Total		1,978		100.0	%	$	938,069		100.0	%

Loan Deferment Summary by Industry
As of June 30, 2020
Excluding Home mortgage and consumer loans
(Dollars in thousands)	Number of accounts								Loan balance
Industry	Number of accounts		% of deferment			% of total loans			Balance		% of deferment			% of total loans
Real estate lessors		40		45.5	%		18.2	%	$	76,465		47.3	%		21.6	%
- Retail		24		27.3			26.4			44,305		27.4			27.3
- Mixed use		3		3.4			18.8			17,477		10.8			58.5
- Office		4		4.5			36.4			5,488		3.4			26.8
- Industrial		4		4.5			8.9			4,810		3.0			5.3
- Multifamily		1		1.1			14.3			457		0.3			11.6
- Other		4		4.5			8.0			3,929		2.4			8.5
Hotel / motel		14		15.9			7.7			39,082		24.2			28.0
Food services / restaurant		9		10.2			3.3			9,274		5.7			23.8
Gas station		5		5.7			2.4			9,037		5.6			6.8
Educational service		2		2.3			15.4			8,686		5.4			94.5
Wholesale		6		6.8			2.2			7,172		4.4			12.7
Laundry services		4		4.5			4.9			2,724		1.7			11.5
Church		3		3.4			13.6			2,316		1.4			18.4
Other		5		5.7			0.7			6,858		4.2			4.0
Total		88		100.0	%		4.4	%	$	161,614		100.0	%		17.2	%

* Number of accounts and balance information were as of June 30, 2020.

Loan Deferment Summary by Loan Type
As of June 30, 2020
(Dollars in thousands)	Number of accounts								Loan balance
Loan Type	Number of accounts		% of deferment			% of total loans			Balance		% of deferment			% of total loans
Real estate loans		72		46.5	%		20.4	%	$	150,452		78.8	%		23.6	%
C & I loans		16		10.3			8.0			11,162		5.8			12.6
Loans, excluding home mortgage and consumer loans		88		56.8			4.4			161,614		84.7			17.2
Home Mortgage loans		67		43.2			21.8			29,267		15.3			24.3
Total		155		100.0	%		6.8	%	$	190,881		100.0	%		18.0	%

* Number of accounts and balance information were as of June 30, 2020.

OP Bancorp (OPBK) 8-KOP Bancorp Reports Second Quarter Result of 2020