Business Overview and History
OP Bancorp, the holding company of Open Bank, is a California-based community bank that has demonstrated its ability to adapt and thrive in the face of industry headwinds. With a focus on serving the Korean-American community, the bank has carved out a niche for itself, leveraging its specialized expertise and deep customer relationships to navigate the dynamic financial landscape.
OP Bancorp was founded in 2005 with the establishment of its first Open Bank branch in Los Angeles, California. The company initially focused on serving the Korean-American community in the greater Los Angeles area, working to build relationships with small and medium-sized businesses in its target market. Over the years, OP Bancorp expanded its branch network, opening additional locations in California, Nevada, and Texas, which allowed the company to grow its deposit base and loan portfolio.
A significant milestone in the company's history came in 2016 when OP Bancorp reorganized to become a bank holding company, with Open Bank as its wholly-owned subsidiary. This restructuring provided the company with greater flexibility in its operations and capital management.
During its growth period, OP Bancorp faced challenges such as the 2008 financial crisis, which put pressure on the commercial real estate and small business lending sectors. However, the company successfully navigated this turbulent period by maintaining strict underwriting discipline and prudent risk management practices, allowing it to emerge from the crisis in a strong position to continue its expansion.
By the early 2020s, OP Bancorp had established itself as a well-capitalized and profitable community bank, operating 11 full-service branches and 5 loan production offices across its footprint. The company had also diversified its business lines beyond its traditional commercial lending focus, adding capabilities in areas like SBA lending and mortgage banking. This balanced business model has positioned OP Bancorp to better serve the diverse financial needs of its customers.
Financial Performance and Resilience
OP Bancorp has demonstrated its financial resilience, even in the face of industry-wide challenges. For the nine months ended September 30, 2024, the company reported net income of $16.1 million, or $1.06 per diluted share, compared to $18.7 million, or $1.21 per diluted share, for the same period in 2023. While the year-over-year decline in net income was primarily due to a $3.8 million decrease in net interest income, the bank has maintained solid profitability and a healthy balance sheet.
The bank's net interest margin was 2.99% for the nine-month period, compared to 3.45% in the prior-year period, reflecting the impact of rising interest rates on the company's cost of funds. However, OP Bancorp has proactively managed its asset-liability mix, maintaining a loans-to-deposits ratio of 93.5% as of September 30, 2024, which is within the bank's target range.
The company's credit quality metrics also remain strong, with nonperforming loans to gross loans at 0.19% as of the end of the third quarter of 2024, down from 0.34% as of December 31, 2023. The bank's allowance for credit losses to gross loans stood at 1.19%, providing a robust buffer against potential loan losses.
Financials
OP Bancorp's financial performance reflects its resilience and prudent management. The company's total assets stood at $2.3 billion as of September 30, 2024, with total loans of $1.9 billion and total deposits of $2.0 billion. The bank's net interest income for the first nine months of 2024 was $47.5 million, compared to $51.3 million for the same period in 2023. Non-interest income for the nine-month period was $7.1 million, slightly down from $7.3 million in the prior year.
For the most recent fiscal year (2023), OP Bancorp reported revenue of $82.87 million, net income of $23.92 million, operating cash flow of $67.84 million, and free cash flow of $65.66 million. In the most recent quarter (Q3 2024), the company achieved revenue of $35.30 million, net income of $5.44 million, operating cash flow of $13.39 million, and free cash flow of $13.56 million.
Year-over-year growth in Q3 2024 showed a 13.2% increase in interest income and a 35.5% increase in interest expense compared to Q3 2023, resulting in a 4.7% decrease in net interest income. The provision for credit losses decreased by $911,000 or 67.0%. Noninterest income increased by 63.0% primarily due to a $909,000 increase in gain on sale of loans. Noninterest expense increased by 10.3% mainly due to higher salaries and employee benefits and data processing and communication costs.
Liquidity
OP Bancorp maintains a strong liquidity position to support its operations and growth initiatives. As of September 30, 2024, the bank had $166.76 million in cash and cash equivalents, representing 7.2% of total assets. The company's debt-to-equity ratio stood at 0.3684, indicating a conservative capital structure. OP Bancorp's current ratio and quick ratio were both 271.31, reflecting strong short-term liquidity.
Additionally, the company had $705.40 million in available borrowing capacity from various sources as of September 30, 2024. This includes $397.62 million from the Federal Home Loan Bank, $207.78 million from the Federal Reserve Bank, $50.00 million from Pacific Coast Bankers Bank, $25.00 million from Zions Bank, and $25.00 million from First Horizon Bank. This robust liquidity position provides ample resources to meet funding needs and support future growth.
Product Segments and Business Activities
OP Bancorp operates primarily through its wholly-owned subsidiary, Open Bank, a California-chartered commercial bank. The company's main business activities and product segments include:
Commercial Real Estate Loans: As of September 30, 2024, OP Bancorp's commercial real estate loan portfolio totaled $966.47 million, representing 50.1% of its total gross loan portfolio. These loans include both owner-occupied and non-occupied commercial real estate, with both fixed and adjustable rate options. During the nine months ended September 30, 2024, the company originated $155.10 million in new commercial real estate loans.
SBA Loans: OP Bancorp is designated as an SBA Preferred Lender and offers primarily SBA 7(a) variable-rate loans. As of September 30, 2024, the company's SBA loan portfolio totaled $252.38 million, with $232.21 million secured by real estate and $20.17 million unsecured or secured by business assets. During the nine months ended September 30, 2024, the company originated $122.80 million in new SBA loans and sold $92.50 million of SBA loans in the secondary market with an average premium of 8.02%.
Commercial and Industrial (C&I) Loans: The company's C&I loan portfolio totaled $212.48 million as of September 30, 2024, representing 11% of its total gross loan portfolio. OP Bancorp originated $71.20 million in new C&I loans during the nine months ended September 30, 2024.
Home Mortgage Loans: OP Bancorp originates primarily non-qualified, alternative documentation single-family home mortgage loans through its retail branch network and correspondent lender network. As of September 30, 2024, the home mortgage loan portfolio was $499.67 million, and the company originated $26.30 million in new home mortgage loans during the nine months ended September 30, 2024.
Consumer Loans: The company's consumer loan portfolio was relatively small, totaling only $14.00 million as of September 30, 2024.
In addition to its lending activities, OP Bancorp generates noninterest income from service charges on deposits, loan servicing fees, and gains on the sale of loans, particularly SBA loans. For the three months ended September 30, 2024, the company reported $4.24 million in noninterest income, a 63% increase compared to the same period in 2023, primarily due to higher gains on SBA loan sales, increased service charges on deposits, and higher loan servicing fees.
Navigating Challenges with Prudence
OP Bancorp has weathered various industry challenges, including the COVID-19 pandemic, with resilience and prudence. During the height of the pandemic, the bank proactively worked with its borrowers to provide loan modifications and deferrals, helping to support its customers and maintain the overall health of its loan portfolio.
Furthermore, the bank has demonstrated its ability to adapt to the evolving regulatory landscape. In 2023, OP Bancorp successfully navigated the implementation of the Current Expected Credit Losses (CECL) accounting standard, which required significant changes to its allowance for credit losses methodology. The bank's proactive approach and strong risk management practices have allowed it to navigate these changes effectively.
Looking Ahead
As OP Bancorp navigates the current interest rate environment and economic uncertainty, the bank remains focused on its strategic priorities. The company is committed to sustained loan growth, enhancing its deposit franchise, and maintaining its strong credit quality. Additionally, OP Bancorp is continuously exploring opportunities to expand its geographic footprint and diversify its revenue streams, while preserving its niche focus on the Korean-American community.
The company's operations are primarily located in California, with additional locations in Texas and Nevada. This geographic concentration allows OP Bancorp to leverage its deep understanding of local markets and maintain strong relationships with its target customer base.
Conclusion
OP Bancorp's history of resilience, prudent risk management, and specialized expertise within the Korean-American market have positioned the bank well to navigate the evolving industry landscape. Despite the challenges presented by the recent operating environment, the company has demonstrated its ability to maintain profitability, strong credit quality, and a healthy balance sheet. With its diversified loan portfolio, strong liquidity position, and focus on key growth segments such as SBA lending, OP Bancorp is well-equipped to capitalize on future growth opportunities and deliver long-term value for its shareholders.