OP Bancorp(OPBK) - 2020 Q1 - Quarterly Report

Financial Performance - For the three months ended March 31, 2020, net income was $3.3 million, a decrease of 30.5% compared to $4.7 million for the same period in 2019[108] - Net income for the three months ended March 31, 2020, was $3.3 million, a decrease of 30.4% from $4.7 million in the same period of 2019[122] - Noninterest income decreased by $1.2 million, or 35.0%, to $2.3 million for the three months ended March 31, 2020 compared to the same period in 2019[141] - The efficiency ratio for Q1 2020 was 61.19%, compared to 56.48% in Q1 2019, indicating increased operational costs relative to income[108] Loan Loss Provisions - The provision for loan losses increased to $743,000 in Q1 2020, compared to no provision in Q1 2019, reflecting a proactive approach to potential credit losses[108] - The provision for loan losses for the three months ended March 31, 2020 was $743,000, an increase from $0 in the same period in 2019, primarily due to the pandemic's impact on the economy and loan growth[139] - Qualitative factors accounted for $593,000, or 80%, of the provision for loan losses for the three months ended March 31, 2020[139] - The allowance for loan losses (ALL) was $10.75 million, representing 1.08% of gross loans, up from 1.02% as of December 31, 2019[109] - The allowance for loan losses increased to $10.7 million at March 31, 2020, representing 1.08% of gross loans, compared to $10.1 million, or 1.02% at December 31, 2019[175] - The allowance for loan losses increased to 701% of non-performing loans as of March 31, 2020, up from 503% as of March 31, 2019[188] Asset and Liability Management - Total assets as of March 31, 2020, were $1.21 billion, an increase of 2.5% from $1.18 billion as of December 31, 2019[109] - Cash and cash equivalents increased by $25.0 million, or 29.0%, contributing to total assets rising by $30.1 million, or 2.3%, to $1.21 billion at March 31, 2020[149] - Average loans increased by $110.1 million, or 12.4%, to $998.1 million for the three months ended March 31, 2020, compared to $888.0 million for the same period in 2019[131] - Total earning assets increased by $135.2 million, or 13.6%, to $1.13 billion for the three months ended March 31, 2020, from $995.8 million for the same period in 2019[131] - Average interest-bearing liabilities increased by $92.8 million, or 14.6%, to $729.0 million for the three months ended March 31, 2020, compared to $636.2 million for the same period in 2019[135] - The gross loan to deposit ratio was 94.7% at March 31, 2020, compared to 97.0% at December 31, 2019[195] Loan Portfolio - As of March 31, 2020, gross loans totaled $996.6 million, an increase of $6.4 million, or 0.6% from $990.1 million at December 31, 2019, driven by organic growth in commercial real estate and SBA loans[159] - The commercial real estate loan portfolio amounted to $639.4 million, representing 64% of total gross loans, compared to $630.7 million at December 31, 2019[163] - The SBA loan portfolio increased to $133.9 million, up $1.6 million, or 1.2% from $132.3 million at December 31, 2019, with $25.7 million of SBA loans originated in Q1 2020[166] - Commercial and industrial loans decreased to $99.9 million at March 31, 2020, down from $103.9 million at December 31, 2019[167] - Home mortgage loans totaled $120.0 million, a decrease of $0.7 million, or 0.6% from $120.7 million at December 31, 2019[168] Community Support and Donations - The company donated $1.1 million to support local communities affected by the COVID-19 pandemic[111] Capital Adequacy - The total risk-based capital ratio was 14.78% as of March 31, 2020, down from 15.18% at the end of 2019[109] - The bank's Tier 1 capital to risk-weighted assets ratio was 13.50% as of March 31, 2020, above the required minimum of 8.00%[201] - The consolidated CET1 capital to risk-weighted assets ratio was 13.69% as of March 31, 2020, exceeding the minimum requirement of 4.50%[201] - The bank's total capital to risk-weighted assets ratio was 14.96% as of December 31, 2019, indicating strong capital adequacy[202] Interest Rate Risk - Interest rate risk is identified as the primary source of market risk, impacting earnings and asset values[209] - The company utilizes a net interest income simulation model to evaluate potential changes in net interest income under various interest rate scenarios[215] - As of March 31, 2020, net interest income sensitivity to a +400 basis points shift is projected at 22.13%, compared to 18.23% as of December 31, 2019[218] - A downward shift of the yield curve by 100 basis points results in a net interest income decrease of (5.45)% as of March 31, 2020[218] Operational Commitments - Total contractual obligations as of March 31, 2020, amounted to $1,065,707,000, with $601,202,000 due within one year[203] - Commitments to extend credit increased to $68,917,000 as of March 31, 2020, compared to $66,153,000 as of December 31, 2019[208] - Operating lease commitments totaled $10,721,000 as of March 31, 2020, reflecting ongoing operational obligations[203] Internal Controls - The company has maintained effective disclosure controls and procedures as evaluated by the President and CEO and CFO[220] - There have been no changes in the company's internal control over financial reporting that materially affect its effectiveness during the fiscal quarter[221]