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 total net interest income and the net interest margin. The timing and pace of recognizing premiums and discounts on interest-earning assets as well as the reversal of interest on nonaccrual loans affect our net interest margin, as changes in prepayment speeds and loan activity influence the effective yield on these assets. We seek to maximize net interest income without exposing the Company to excessive interest rate risk through our asset and liability policies. Interest rate risk is managed by monitoring the pricing, maturity and repricing options of all classes of interest-bearing assets and liabilities.

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 first quarter of 2026 increased year-over-year, primarily driven by higher interest income on loans.

Interest income on loans increased by $3.2 million, or 10%, primarily due to growth in average loan balances, reflecting strong loan production and portfolio growth.

Interest expense on interest-bearing deposits increased by $237 thousand or 1%, mainly due to an increase in average interest-bearing deposit balances. This was mostly offset by a reduction in interest-bearing deposit costs, driven by the repricing of time deposits following the federal funds rate cuts.

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 39 basis point increase in net interest spread.