OP Bancorp

The securities portfolio is the second largest component of our interest earning assets, and the structure and composition of this portfolio is important to an analysis of our financial condition. The portfolio serves the following purposes: (i) it provides a source of pledged assets for securing certain deposits and borrowed funds, as may be required by law or by specific agreement with a depositor or lender; (ii) it provides liquidity to even out cash flows from the loan and deposit activities of customers; (iii) it can be used as an interest rate risk management tool, because it provides a large base of assets, the maturity and interest rate characteristics of which can be changed more readily than the loan portfolio to better match changes in the deposit base and our other funding sources; and (iv) it is an alternative interest-earning use of funds when loan demand is weak or when deposits grow more rapidly than loans.

We classify our debt securities as either AFS or held-to-maturity at the time of purchase. Accounting guidance requires AFS debt securities to be marked to fair value with an offset to accumulated other comprehensive income (loss), a component of shareholders’ equity. Monthly adjustments are made to reflect changes in the fair value of our available-for-sale securities.

All securities in our investment portfolio were classified as AFS debt as of both June 30, 2025 and December 31, 2024. There were no held-to-maturity or trading securities in our investment portfolio as of June 30, 2025 and December 31, 2024. All AFS debt securities are carried at fair value and consist of U.S. government agencies or sponsored agency securities, and tax-exempt municipal securities.

The following table summarizes the fair value of the AFS debt securities portfolio as of the dates presented:

AFS debt securities decreased $10.9 million, or 6%, to $175.0 million as of June 30, 2025 from $185.9 million as of December 31, 2024, primarily due to a $14.1 million in paydowns of residential mortgage-backed securities and collateralized mortgage obligations, partially offset by a $3.2 million decrease in unrealized loss for the six months ended June 30, 2025. No issuer of the AFS debt securities, other than U.S. Government and its agencies, comprised more than ten percent of our shareholders’ equity as of June 30, 2025 and December 31, 2024.

Certain securities have fair values less than amortized cost and, therefore, contain unrealized losses. The unrealized losses were primarily attributable to interest rate movement, not credit quality. These securities (Fannie Mae, Ginnie Mae, and Freddie Mac) are guaranteed or sponsored by agencies of the U.S. government, and the issuers of the securities are of high credit quality. We believe that the net unrealized losses presented in the previous tables are temporary and no credit losses are expected. As a result, we expect full collection of the carrying amount of these securities, do not intend to sell the securities in an unrealized loss position, and believe it is more-likely-than-not we will not have to sell these securities prior to recovery of amortized cost. Accordingly, for AFS debt securities, we did not have allowance for credit losses as of June 30, 2025 and December 31, 2024.

The following table sets forth certain information regarding contractual maturities and the weighted average yields of our investment securities as of the dates presented. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties.