OP Bancorp(OPBK) - 2020 Q4 - Annual Report

Loan Portfolio - As of December 31, 2020, the total loan portfolio amounted to $1,099.7 million, with commercial real estate loans constituting 59.2% at $651.7 million[33] - The small business administration (SBA) loans totaled $211.4 million, representing 19.2% of total loans, while home mortgage loans were $128.2 million, accounting for 11.7%[33] - The aggregate amount of loans to the 10 largest borrowers was approximately $161.3 million, or 14.7% of total loans, and to the 25 largest borrowers was $271.6 million, or 24.7%[35] - The commercial real estate loan portfolio had no non-performing loans as of December 31, 2020, with 65% of these loans being fixed-rate[46] - The SBA loan portfolio, including PPP loans, totaled $211.4 million, with $64.9 million classified as PPP loans[54] - Non-performing SBA loans amounted to $56,000 as of December 31, 2020[54] - The total commercial and industrial loan portfolio was $107.3 million, with non-performing loans at $330,000[59] - The company originated 978 loans with an aggregate balance of $66.3 million under the CARES Act and PPP/HCEA Act[53] - The total single-family residential real estate loan portfolio amounted to $128.2 million as of December 31, 2020[65] - Non-performing single-family residential real estate loans were $599,000 as of December 31, 2020[65] - The total consumer loan portfolio reached $1.2 million as of December 31, 2020, with no non-performing consumer loans reported[67] Risk Management - The company has implemented sound risk management practices to monitor concentrations in commercial real estate within its loan portfolio[34] - The Bank's commercial real estate concentration is a regulatory concern, with specific numerical indicators guiding risk management practices[151] - The company identified interest rate risk as its primary source of market risk, arising from timing differences in repricings and maturities of interest-earning assets and interest-bearing liabilities[503] - The company’s asset liability committee monitors interest rate risk sensitivity on a quarterly basis to ensure compliance with approved risk limits[505] - The company utilizes a net interest income simulation model to evaluate potential changes in net interest income under various hypothetical interest rate scenarios[509] Capital Adequacy - 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 of 4.5%[101] - As of December 31, 2020, the Bank's capital ratios exceeded the minimum capital adequacy guideline percentage requirements for "well capitalized" institutions under the Basel III Capital Rules[107] - The capital conservation buffer requirement is at its fully phased-in level of 2.5% as of January 1, 2019[104] - The Bank was required to maintain a CET1 capital ratio of at least 6.375% to avoid limitations on capital distributions during 2020[105] - The Bank's total capital ratio must be at least 8.0% to meet regulatory requirements[101] - The Company is subject to regulation and supervision by the Federal Reserve under the Bank Holding Company Act of 1956[112] - The Company must maintain capital in accordance with Federal Reserve capital adequacy requirements, as affected by the Dodd-Frank Act and Basel III[121] - The Bank exceeded its minimum capital requirements under applicable regulatory guidelines as of December 31, 2020[139] Regulatory Compliance - Federal law prohibits any person or company from acquiring control of an FDIC-insured depository institution without prior notice to the appropriate federal bank regulator[116] - The Federal Reserve requires bank holding companies to be well-capitalized and well-managed to complete interstate mergers or acquisitions[115] - The Company decided to opt out of the new community banking leverage framework intended to simplify regulatory capital requirements[110] - The Dodd-Frank Act increased the minimum designated reserve ratio of the DIF to 1.35% of the estimated amount of total insured deposits as of September 30, 2020[135] - 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[119] - The Federal Reserve has the authority to regulate the debt of bank holding companies, including imposing interest rate ceilings and reserve requirements[124] - The Dodd-Frank Act requires lenders to retain an economic interest in the credit risk relating to loans that do not comply with ability-to-repay standards, generally set at 5%[159] - The CFPB's final rules amending the ability-to-repay/qualified mortgage requirements are scheduled for mandatory compliance by July 1, 2021[160] - The Bank is subject to federal laws aimed at countering money laundering and terrorist financing, including the USA PATRIOT Act and the Bank Secrecy Act[148] - The Bank's policies and procedures are believed to comply with anti-money laundering and Office of Foreign Assets Control regulations[150] - The Dodd-Frank Act has created a more intense environment for consumer finance regulation, potentially increasing compliance costs[156] Operational Performance - The bank is the seventh-largest among eight banks in the Korean-American direct banking market in Southern California based on total assets as of December 31, 2020[77] - The bank aims to grow both organically and through potential acquisitions in overlapping markets with Chinese-American banks[78] - The bank has made significant investments in information technology systems to enhance capabilities and support future growth[84] - As of December 31, 2020, the bank employed approximately 173 full-time equivalent employees, with a gender distribution of 30% male and 70% female[91] - The executive team consists of four females and two males, with key executives having been with the company since 2010[91] - The bank has not experienced interruptions of operations due to labor disagreements, indicating a good relationship with employees[91] - There are currently no claims or legal proceedings filed against the bank[92] Insurance and Assessments - The Bank's deposit accounts are insured by the FDIC's Deposit Insurance Fund to the maximum extent provided under federal law[130] - As of December 31, 2020, the Bank paid $256,000 in aggregate FDIC deposit insurance premiums[135] - The Bank paid supervisory assessments to the DFPI totaling $112,000 during the year ended December 31, 2020[136] - The Company is permitted to pay dividends from retained earnings or net income, subject to certain conditions and regulatory approvals[138] Interest Rate Sensitivity - As of December 31, 2020, a 400 basis points increase in interest rates is projected to increase net interest income sensitivity by 30.27%[512] - The Federal Reserve's monetary policy significantly impacts the operating results of financial institutions, influencing loan growth and interest rates[172] - Future legislative and regulatory changes could affect the company's business and operations, as new laws may be introduced or existing ones amended[173] Cybersecurity and Data Protection - The company employs a layered cybersecurity approach to manage and maintain controls against cyber threats, although risks remain high due to evolving threats[171] - Federal and state regulators are increasingly active in implementing privacy and cybersecurity standards, with California leading in data protection laws[170] - The CFPB has announced intentions to enhance consumer control over financial data, aligning with California's CCPA and CPRA regulations[168] Community Reinvestment - The Bank had a Community Reinvestment Act (CRA) rating of "satisfactory" as of its most recent regulatory examination[146]