OP Bancorp — 2022 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2022. OP Bancorp is a Los Angeles-based bank holding company operating through Open Bank, serving small and midsize businesses and consumers, with a focus on Korean-American communities. The audited financial statements received an unqualified opinion; management reported effective disclosure controls.
Financial performance and position
Amounts in millions of dollars unless otherwise noted.
| Metric | 2022 | 2021 |
|---|---|---|
| Total assets at year-end | $2,094.5 | $1,726.7 |
| Gross loans at year-end | $1,678.3 | $1,314.0 |
| Deposits at year-end | $1,885.8 | $1,534.1 |
| Shareholders’ equity at year-end | $176.9 | $165.2 |
| Net interest income | $76.9 | $61.0 |
| Net income | $33.3 | $28.8 |
| Diluted earnings per share | $2.14 | $1.88 |
| Net interest margin | 4.18% | 4.02% |
| Efficiency ratio | 47.42% | 46.55% |
- Net interest income rose 26.0%, driven by loan growth and higher asset yields. Average loan yield increased to 5.25% from 4.94%; average cost of interest-bearing deposits rose to 1.22% from 0.42%, and overall deposit cost increased to 0.65% from 0.22%.
- Noninterest income increased 10.0% to $17.6 million, including $12.3 million in loan-sale gains and $2.4 million in servicing fees. Noninterest expense rose 25.0% to $44.8 million, led by salaries and benefits, which increased $5.9 million.
- Provision for loan losses was $3.0 million, versus $0.5 million in 2021. The allowance ended the year at $19.2 million, or 1.15% of gross loans, compared with $16.1 million, or 1.23%.
- Net cash provided by operating activities was $83.7 million; investing activities used $461.8 million and financing activities provided $345.6 million. Cash and cash equivalents declined $32.5 million to $83.0 million.
- Cash and available-for-sale securities totaled $292.8 million at year-end. The Bank had no FHLB or Federal Reserve borrowings outstanding; it reported $50,000 of First Horizon borrowing in other liabilities. It disclosed $715.9 million of available borrowing capacity across listed facilities.
- The Bank remained well-capitalized: year-end CET1 was 11.75%, total risk-based capital was 12.94%, and the leverage ratio was 9.29%. The company-wide ratios were 11.87%, 13.06%, and 9.38%, respectively.
Material changes versus 2021
- Assets grew 21.3%, deposits 22.9%, and gross loans 27.7%. Home mortgage loans increased to $482.9 million from $173.3 million; commercial real estate loans rose to $842.2 million from $701.5 million. C&I loans fell to $117.0 million from $162.5 million, and SBA loans fell to $234.7 million from $275.9 million.
- Net income rose 15.5%, but return on average assets edged down to 1.74% from 1.83%; return on average equity increased to 19.57% from 18.90%. The efficiency ratio worsened to 47.42% from 46.55%.
- Noninterest-bearing deposits declined to 37.2% of deposits from 50.5%. Core deposits, as defined by the company, represented 81.1% of deposits; wholesale deposits were $401.6 million, or 21.3%.
- Unrealized losses on available-for-sale debt securities increased to $25.3 million from $1.7 million, primarily attributed to interest-rate changes. Accumulated other comprehensive loss was $17.8 million at year-end.
- Nonperforming loans decreased to $3.1 million, or 0.18% of gross loans, from $3.2 million, or 0.24%. There were no loans in COVID-related payment deferral and no other real estate owned at year-end.
Outlook, management commentary and key risks
- Management emphasized organic growth, relationship banking, expanding commercial lending and increasing lower-cost deposits. It anticipated opening a Las Vegas branch in the second quarter of 2023; the filing provides no specific earnings or balance-sheet guidance.
- The company adopted CECL on January 1, 2023 and estimated an approximately 10%–15% increase in its allowance for credit losses; the actual adoption adjustment was not stated in this filing and could differ with economic conditions and portfolio composition.
- Credit concentration is a central risk: 50.1% of gross loans were commercial real estate and 92.1% were secured by real property as primary or secondary collateral. The company also identifies risks from commercial borrowers, geographic concentration, non-qualified residential mortgages and a relatively young loan portfolio.
- Rising rates contributed to higher funding costs and materially reduced the fair value of securities. In the year-end model, a parallel +400-basis-point shock projected a 1.23% decline in net interest income and a 66.09% decline in economic value of equity; these are model sensitivities, not forecasts.
- Other risks include deposit competition and concentration, reliance on SBA loan-sale income, regulatory and capital requirements, cybersecurity and third-party service providers, and the company’s commitment to contribute 10% of consolidated after-tax income to its foundation. Management said it did not expect legal claims to be material.
- The quarterly dividend was increased to $0.12 per share in July 2022, equivalent to $0.48 annualized. Future dividends remain subject to regulatory limits, capital, liquidity and financial performance.
Most important facts for investors to verify
- How deposit pricing and mix evolve, particularly the decline in noninterest-bearing deposits and the cost of replacing wholesale or concentrated funding.
- Whether rapid growth in home mortgage and commercial real estate lending is accompanied by stable delinquencies, collateral values and allowance adequacy.
- The realized CECL adoption adjustment and subsequent credit-loss trends, especially under weaker economic or real estate conditions.
- The sensitivity of earnings and capital to further rate changes, including the effect of unrealized securities losses if liquidity needs require sales.
- Whether SBA loan-sale premiums and servicing income remain sustainable as origination volumes, sale premiums and borrower prepayments change.