OP Bancorp

The management of interest income and expense is fundamental to our financial performance. Net interest income, the difference between interest income and interest expense, is the largest component of our total revenue. Management closely monitors both total net interest income and the net interest margin (net interest income divided by average earning assets). We seek to maximize net interest income without exposing ourselves to excessive interest rate risk through our asset and liability management policies. We manage interest rate risk by monitoring the pricing, maturity and repricing options of all classes of interest-bearing assets and liabilities. Our net interest margin also may be affected adversely from time to time when we are required to reverse previously accrued interest on loans that are reclassified as non-accrual.

The following table presents, for the periods indicated, information about: (i) weighted average balances, the total dollar amount of interest income from interest-earning assets and the resultant average yields, (ii) average balances, the total dollar amount of interest expense on interest-bearing liabilities and the resultant average rates, (iii) net interest income, (iv) the interest rate spread, and (v) the net interest margin.

(1)Annualized.

(2)Includes FHLB and PCBB stocks, CRA qualified mutual fund and interest-earning time deposits with banks.

(3)Include loans held-for-sale.

Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-earning assets and interest-bearing liabilities, as well as changes in average interest rates. The following tables set forth the effects of changing rates and volumes on our net interest income during the period shown. Information is provided with respect to (i) effects on interest income attributable to changes in volume (change in volume multiplied by prior rate) and (ii) effects on interest income attributable to changes in rate (changes in rate multiplied by prior volume). Change applicable to both volume and rate have been allocated to volume and rate ratably.

Net interest income for the third quarter of 2025 increased year-over-year, primarily driven by higher interest income on loans.

Interest income on loans increased by $3.1 million, or 10%, primarily due to growth in average loan balances, partially offset by a decline in loan yields, reflecting the impact of repricing on existing loans at lower interest rates following last year's decreases in the federal funds rate.

Interest expense on interest-bearing deposits decreased by $479 thousand or 3%, primarily driven by a decline in interest-bearing deposit costs, resulting from the repricing of deposit products in response to the federal funds rate cut implemented in 2024. This change was partially offset by an increase in average interest-bearing deposit balances.

As a result, net interest margin increased by 31 basis points, as a 23% increase in net interest income outpaced an 11% increase in average earning assets, primarily driven by a 62 basis point increase in net interest spread.

Net interest income for the first nine months of 2025 increased year-over-year, primarily driven by higher interest income on loans.

Interest income on loans increased by $8.3 million, or 9%, largely due to growth in average loan balances. This increase was partially offset by a decline in loan yields, reflecting the impact of downward repricing on adjustable-rate loans and lower rates on new originations following last year's decreases in the federal funds rate. The decline in loan yields was further impacted by reduced non-contractual components, notably lower discount accretion income..

Interest expense on interest-bearing liabilities decreased slightly by $329 thousand, or 1%, primarily due to lower average interest-bearing costs, reflecting the repricing of deposit products in response to the federal funds rate cut implemented in 2024. However, this decrease was mostly offset by an increase in average deposit costs.

As a result, net interest margin increased by 18 basis points, as an 18% increase in net interest income outpaced an 11% increase in average earning assets, primarily driven by a 45 basis point increase in net interest spread.