OP Bancorp(OPBK) - 2019 Q4 - Annual Report

Loan Portfolio - As of December 31, 2019, the total loan portfolio amounted to $990.1 million, with commercial real estate loans constituting $630.7 million or 63.7% of total loans[34][35] - The Small Business Administration (SBA) loan portfolio totaled $132.3 million, representing 13.4% of total loans, with $122.4 million secured by real estate[54] - The commercial and industrial loan portfolio reached $103.9 million, accounting for 10.5% of total loans, with non-performing loans at $333,000[59] - The home mortgage loan portfolio was $120.7 million, making up 12.2% of total loans[35] - The aggregate amount of loans to the 10 largest borrowers was approximately $147.8 million, or 14.9% of total loans[37] - Approximately 61% of the commercial real estate loan portfolio consisted of fixed-rate loans[46] - The total commercial real estate loan portfolio was $630.7 million, with no non-performing loans as of December 31, 2019[48] - The total single-family residential real estate loan portfolio was $120.7 million as of December 31, 2019, with non-performing loans amounting to $698,000[65] - The consumer loan portfolio totaled $2.7 million as of December 31, 2019, with no non-performing consumer loans reported[68] Regulatory Compliance - The company is subject to extensive regulation under U.S. federal and state law, which impacts its growth and earnings performance[94] - The Bank must maintain a Tier 1 leverage ratio of at least 4.0% and a common equity Tier 1 (CET1) to risk-weighted assets ratio of 4.5%[100] - As of December 31, 2019, the Bank's capital ratios exceeded the minimum capital adequacy guideline percentage requirements for "well capitalized" institutions under the Basel III Capital Rules[106] - The capital conservation buffer requirement is being phased in, reaching 2.5% as of December 31, 2019, which is added on top of the minimum risk-weighted asset ratios[103] - The Bank is required to maintain a CET1 capital ratio of at least 6.375% and a total capital ratio of at least 9.875% to avoid limitations on capital distributions[104] - The Basel III Capital Rules increased risk weights for various asset classes, including certain commercial real estate mortgages[105] - The federal bank regulatory agencies adopted a final rule allowing community banking organizations with less than $10 billion in total consolidated assets to opt into a new community bank leverage ratio (CBLR) of greater than 9%[107] - The Company is legally obligated to act as a source of financial strength to the Bank and to commit resources to support the Bank[111] - The Federal Reserve requires bank holding companies to be well-capitalized and well-managed to complete interstate mergers or acquisitions[114] - The Company has not elected to be a financial holding company and has not engaged in nonbanking activities determined by the Federal Reserve to be financial in nature[118] - The Company continues to evaluate the final rules regarding the community banking leverage framework and has not made a decision to opt in[109] - The Company is required to act as a source of financial and managerial strength to its subsidiary bank, especially during financial stress[122] - The Federal Reserve's policy discourages bank holding companies from maintaining dividend levels that undermine their ability to support their banking subsidiaries[125] Cybersecurity and Risk Management - The Bank's compliance with anti-money laundering and OFAC programs is critical to avoid serious legal and reputational consequences[151] - The federal bank regulatory agencies have issued guidance on cybersecurity, requiring multiple layers of security controls[166] - The company employs a layered approach to cybersecurity, utilizing various tools to monitor and block suspicious activity, although the threat from cyber-attacks remains high[168] - The company has not detected significant compromises or material financial losses related to cybersecurity attacks to date, but risks remain high due to evolving threats[168] Interest Rate Risk - Interest rate risk is identified as the primary source of market risk, arising from changes in market interest rates affecting earnings and asset values[476] - The company's asset liability committee monitors interest rate risk sensitivity quarterly to ensure compliance with established risk limits[478] - As of December 31, 2019, a 400 basis point increase in interest rates is projected to increase net interest income sensitivity by 18.23%[485] - The economic value of equity sensitivity shows a decrease of 3.61% with a 400 basis point increase in interest rates as of December 31, 2019[485] - The company’s interest rate risk management includes monitoring loan and deposit flows and adjusting strategies based on market expectations[479] - The board's asset liability committee establishes broad policy limits for interest rate risk, while management's committee sets specific operating guidelines[478] - The company’s simulation model for interest rate risk incorporates various assumptions that may significantly impact results, aiding in asset-liability management strategies[483] Employee Relations and Corporate Strategy - The company has approximately 168 full-time equivalent employees as of December 31, 2019, with a good relationship with its employees[90] - The company aims to grow both organically and through potential acquisitions in markets where it operates, particularly in the Korean-American and Chinese-American banking sectors[79] - Significant investments have been made in information technology systems to enhance capabilities and support future growth and acquisitions[86] Investment Policies - The investment policy is reviewed and approved annually by the Asset/Liability Management Board Committee, ensuring compliance and monitoring of investment activities[71] - The investment transactions require varying levels of approval based on the transaction amount, with those exceeding $10 million needing pre-approval by the Asset/Liability Management Board[73]