OP Bancorp Reports Fourth Quarter and Year End Financial Results for 2018

2018 Fourth Quarter Highlights:

• Net income totaled $3.8 million or $0.23 per diluted common share, up from $0.21 from the prior quarter
• Net interest income increased to $10.9 million, up 4.2% from the prior quarter
• Net interest margin increased to 4.50% from 4.44% for the prior quarter
• Return on average assets was 1.49% for the fourth quarter and year of 2018
• Return on average equity was 11.84% for the fourth quarter of 2018 and 12.27% for the year of 2018
• Total assets of $1.04 billion, a 15.9% increase over 2018
• Net loans receivable of $865 million, a 17.1% increase over 2018
• Total deposits of $905 million, a 17.1% increase over 2018
• Nonperforming assets to total assets was 0.18%

OP Bancorp (the "Company") OPBK, the holding company of Open Bank (the "Bank"), today reported unaudited financial results for the fourth quarter and full year ended December 31, 2018. Net income for the fourth quarter of 2018 was $3.8 million, or $0.23 per diluted common share, compared with net income of $3.5 million, or $0.21 per diluted share for the third quarter of 2018, and net income of $1.9 million, or $0.13 per diluted share for the fourth quarter of 2017. For the 2018, net income was $14.3 million, or $0.89 per diluted share, compared with $9.2 million, or $0.66 per diluted share, for 2017.

"We are pleased to announce another strong quarter and year end results for our first year as a public company. Our net income year over year increased 54.3%, or $0.23 to $0.89 earnings per share on a fully diluted basis, compared to $0.66 for the year ended 2017. Our loans and deposits continued to grow with 17% increases from the prior year, while we maintained strong asset quality and retained noninterest bearing deposits at 31.5% of total deposits," commented Min Kim, President and Chief Executive Officer of OP Bancorp and Open Bank. Ms. Kim continued, "We are also pleased to announce that our Board of Directors have declared a quarterly cash dividend for the first quarter of $0.05 per shares. Our Board also approved a stock repurchase program for up to 400,000 of our outstanding shares subject to market conditions."

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

Net interest income before provision for loan losses for the fourth quarter of 2018 was $10.9 million, an increase of $441 thousand, or 4.2%, compared to $10.5 million for the third quarter of 2018, primarily due to a $814 thousand increase in interest income, partially offset by a $373 thousand increase in interest expense.

Interest income on securities available for sale and other investment increased $272 thousand, or 56.5% during the fourth quarter compared to the prior quarter and $409 thousand, or 118.9% compared to the same period of 2017. The increase was primarily due to purchases of higher yielding securities and Federal Home Loan Bank's special dividend during the fourth quarter of 2018.

Interest income from the contractual interest rates on loans increased $307 thousand, or 2.6%, during the fourth quarter compared to the third quarter of 2018, reflecting a 12 basis point increase in the average contractual interest rate from the increase in Fed funds rate in September 2018 of 25 basis points. The amount of discount accretion on SBA loans increased $356 thousand during the fourth quarter due to an increase in SBA loan payoffs. The reported interest income on loans, net of SBA discount accretions and other components, increased $542 thousand during the quarter.

Interest expense for the fourth quarter of 2018 increased $373 thousand, or 14.8%, compared to the third quarter of 2018, due to an increase of $10.5 million, or 1.8% in average balance of interest-bearing liabilities and an increase of 21 basis points in average cost of interest-bearing liabilities, primarily due to the increase in Fed funds rate.

Net interest margin for the fourth quarter of 2018 increased 6 basis points to 4.50% from 4.44% for the third quarter of 2018, primarily due to the increase in the reported yield on earning assets, partially offset by the increase in the cost of interest-bearing liabilities.

Net interest income before provision for loan losses for the fourth quarter of 2018 increased $1.2 million, or 12.6%, to $10.9 million, compared to $9.7 million for the fourth quarter of 2017, primarily due to a $2.7 million increase in interest income, partially offset by an increase of $1.5 million in interest expense.

The increase in interest income was primarily due to a 14.0% increase in average loans, including loans held for sale, and a 38 basis point increase in the yield on average loans to 6.01% for the fourth quarter of 2018 from 5.63% for the fourth quarter of 2017.

The increase in interest expense in the fourth quarter of 2018 compared to the fourth quarter of 2017 was due to a 19.3% increase in average interest-bearing liabilities and an 82 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 100 basis points through four rate hikes of 25 basis points in each of December 2017, March 2018, June 2018 and September 2018.

Net interest margin for the fourth quarter of 2018 decreased 19 basis points to 4.50% from 4.69% for the fourth quarter of 2017.

Net interest income for the full year of 2018 increased $5.2 million, or 14.7%, to $41.0 million, compared to $35.7 million for 2017, primarily due to a $9.8 million increase in interest income, partially offset by an increase of $4.5 million in interest expense.

The increase in interest income for the year ended December 31, 2018 was primarily due to a 16.9% increase in average loans, including loans held for sale, and a 28 basis point increase in the yield on average loans to 5.76% from 5.48% for 2017. The increase in interest expense was due to a 21.8% increase in average interest-bearing liabilities and a 62 basis point increase in the cost of average interest-bearing liabilities to 1.59% for 2018 from 0.97% for 2017.

Net interest margin for the full year of 2018 decreased 12 basis points to 4.49% from 4.61% for 2017.

The following table shows the asset yields, liability costs, spreads and margins.

The provision for loan loss for the fourth quarter of 2018 was $220 thousand, a $219 thousand decrease from $439 thousand for the third quarter of 2018, and a $102 thousand decrease from $322 thousand for the fourth quarter of 2017. The decreases were primarily due to a decrease in the required reserve for loan losses as a percentage of gross loans for December 31, 2018 as overall loss factors used in the fourth quarter of 2018 were lower than those for the third quarter of 2018 and the fourth quarter of 2017.

Noninterest income for the fourth quarter of 2018 was $2.1 million, a decrease of $234 thousand, or 10.2%, from $2.3 million for the third quarter of 2018, primarily due to a decrease of $238 thousand in loan servicing fees, a decrease of $107 thousand in gain on sale of SBA loans, partially offset by an increase of $62 thousand in credit related fees and an increase of $43 thousand in other gain.

Loan servicing fees decreased $238 thousand to $72 thousand for the fourth quarter of 2018 from $310 for the prior quarter. The decrease in loan servicing fees was primarily due to an increase in the amortization of SBA servicing assets from the increase in SBA loan payoffs.

Gain on sale of SBA loans decreased $107 thousand to $1.0 million for the fourth quarter of 2018 from $1.1 million for the third quarter of 2018. We sold $24.7 million in SBA loans with an average premium of 5.65% in the fourth quarter of 2018, compared to the sale of $22.8 million in SBA loans with an average premium of 6.47% in the third quarter of 2018.

Noninterest income for the fourth quarter of 2018 decreased $228 thousand compared to $2.3 million for the fourth quarter of 2017, primarily due to a decrease of $374 thousand in gain on sale of SBA loans, partially offset by an increase of $72 thousand in credit related fees and an increase of $42 thousand in service charges on deposits. Gain on sale of SBA loans for the fourth quarter of 2017 was $1.4 million. We sold $18.6 million in SBA loans with an average premium of 9.35% in the fourth quarter of 2017. Decrease in average premium rates on SBA loans sold to 5.65% from 9.35% year over year was primarily due to the acceleration of prepayments in SBA loans as more borrowers are refinancing SBA loans to conventional loans with lower interest rates.

Noninterest expense for the fourth quarter of 2018 was $7.6 million, a decrease of $137 thousand, or 1.8%, compared to $7.7 million for the third quarter of 2018. The decrease was primarily due to a $236 thousand decrease in salary and employee benefits, partially offset by an increase of $77 thousand in other expenses.

Noninterest expense for the fourth quarter of 2018 increased $997 thousand, or 15.2%, to $7.6 million, compared to $6.6 million for the fourth quarter of 2017. The increase was primarily due to a $506 thousand increase in salary and employee benefits from an increase of 25 in employee headcount from 129 at December 31, 2017. Professional fees increased $154 thousand, primarily resulting from our financial and legal requirements as a public company. Foundation donation and other contributions increased $154 thousand, which were tied to the Company's increased net income.

Income tax provision for the fourth quarter of 2018 was $1.4 million, compared to $1.1 million for the third quarter of 2018 and $3.2 million for the fourth quarter of 2017. The effective tax rate for the fourth quarter of 2018 was 27.4%, compared to 24.7% for the third quarter of 2018 and 62.6% for the fourth quarter of 2017. The effective tax rates were 26.8% and 46.1% for the full year ended December 31, 2018 and 2017, respectively. The significant decreases in the effective tax rate for 2018 compared to 2017 were due to the enactment the Tax Cuts and Jobs Act signed into law on December 22, 2017.

Balance Sheet

Total assets at December 31, 2018 were $1.04 billion, an increase of $9.2 million, or 0.9%, from the preceding quarter, and an increase of $143.0 million, or 15.9%, from a year ago. Gross loans, net of unearned income, were $875.1 million at December 31, 2018, an increase of $25.0 million, or 2.9%, from $850.0 million at September 30, 2018, and an increase of $127.0 million, or 17.0%, from $748.0 million at December 31, 2017.

New loan originations for the fourth quarter of 2018 totaled $62.4 million, including SBA loan originations of $23.5 million, compared to $91.7 million, including SBA loan originations of $30.3 million for the third quarter of 2018. New loan originations for the fourth quarter of 2017 were $57.1 million, including SBA loan originations of $18.0 million. Loan payoffs for the fourth quarter of 2018 were $13.2 million, compared to $29.3 million for the third quarter of 2018, and $22.9 million for the fourth quarter of 2017.

Total deposits were $905.2 million at December 31, 2018, an increase of $8.3 million, or 0.9%, from $896.9 million at September 30, 2018, and an increase of $131.9 million, or 17.1%, from $773.3 million at December 31, 2017. Noninterest bearing deposits were $285.1 million at December 31, 2018, a decrease of $1.2 million, or 0.4%, from $286.3 million at September 30, 2018, and a decrease of $4.3 million, or 1.5%, from $289.4 million at December 31, 2017.

Noninterest bearing deposits accounted for 31.5% of total deposits at December 31, 2018, compared to 31.9% at September 30, 2018 and 37.4% at December 31, 2017.

The Company had no borrowings from the Federal Home Loan Bank ("FHLB") at December 31, 2018 and September 30, 2018, compared to the advances from the FHLB of $25 million at December 31, 2017. The payoff advances from the FHLB were funded by the increase in total deposits.

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 December 31, 2018, as summarized in the following table.

Asset Quality

Nonperforming loans were $1.9 million at December 31, 2018, an increase of $681 thousand from $1.2 million at September 30, 2018 and an increase of $877 thousand from $1.0 million at December 31, 2017. There were two loans added to nonaccrual status during the fourth quarter, but an allocation of the allowance for loan losses was not required for these nonperforming loans.

Nonperforming assets were $1.9 million, or 0.18% of total assets, at December 31, 2018, $1.2 million, or 0.12% of total assets, at September 30, 2018 and $1.0 million, or 0.12% of total assets, at December 31, 2017. There was no other real estate owned ("OREO") at December 31, 2018, September 30, 2018, or December 31, 2017.

Nonperforming loans to gross loans were 0.22% at December 31, 2018, compared to 0.15% at September 30, 2018 and 0.14% at December 31, 2017. Total classified loans were $3.1 million, or 0.36% of gross loans, at December 31, 2018, compared to $3.0 million, or 0.35% of gross loans, at September 30, 2018 and $2.1 million, or 0.28% of gross loans, at December 31, 2017.

The allowance for loan losses was $9.6 million at December 31, 2018 and September 30, 2018, compared to $9.1 million at December 31, 2017. The allowance for loan losses was 1.10% of gross loans at December 31, 2018, 1.12% at September 30, 2018 and 1.22% at December 31, 2017. The allowance for loan losses was 503% of nonperforming assets at December 31, 2018, 775% at September 30, 2018 and 881% at December 31, 2017. An additional reserve for loan losses was not required for the fourth quarter, primarily due to decreases in overall loss factors as management's reassessment adjusted qualitative factors lower in the fourth quarter of 2018.

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; 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; 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; 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; the affect if any of the recent federal government shutdown on our SBA loan program; 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.