OP Bancorp

Net interest income, which represents the difference between interest income and interest expense, is the largest component of our total revenue and a key driver of our financial performance. Management monitors net interest income and the net interest margin, which are affected by the timing of premiums and discounts accretion on interest-earning assets, reversals of interest on nonaccrual loans, changes in prepayment speeds, and loan activity. We seek to maximize net interest income without assuming excessive interest rate risk through our asset and liability management policies, including monitoring the pricing, maturity, and repricing characteristics of interest-earning assets and interest-bearing 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)Interest income includes a one-time $739 thousand accrual adjustment related to the Federal Reserve Bank account.

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

(4)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 second quarter of 2026 increased modestly by $347 thousand, or 2%, primarily driven by balance-sheet growth and lower deposit costs. These favorable factors were partially offset by lower loan yields, reduced interest income on interest-bearing deposits in other banks resulting from lower market rates earned on Federal Reserve Bank balances and a one-time interest accrual adjustment related to the Federal Reserve Bank account, as well as higher interest expense associated with the subordinated note issued in November 2025.

Interest income on loans increased by $1.5 million, or 4%, primarily due to growth in average loan balances, reflecting expansion in CRE loan portfolio. The increase was partially offset by lower loan yields, resulting from the repricing of adjustable-rate loans and lower rates on new originations following last year's federal funds rate cuts, as well as the absence of elevated interest income recognized from nonaccrual loans in the prior period.

Interest expense on interest-bearing deposits decreased by $584 thousand, or 3%, mainly due to lower deposit costs as time deposits repriced following the federal funds rate cuts. The decrease was partially offset by growth in average interest-bearing deposit balances, primarily in time deposits.

Interest income on interest-bearing deposits in other banks decreased by $1.2 million, primarily due to the aforementioned accrual adjustment of $739 thousand on the Federal Reserve Bank account, as well as lower yields on Federal Reserve Bank balances.

Interest expense on subordinated note increased by $490 thousand, reflecting the issuance of the subordinated note in November 2025.

As a result, net interest margin decreased by 15 basis points, despite a five basis point increase in net interest spread, as average earning assets grew 7%, outpacing the 2% increase in net interest income.

Net interest income for the first half of 2026 increased by $3.5 million, or 9%, primarily due to continued balance-sheet growth and lower deposits costs. These factors were partially offset by lower yields and reduced interest income on interest-bearing deposits in other banks, reflecting the previously discussed accrual adjustment and lower market rates on the Federal Reserve Bank account balances.

Interest income on loans increased by $4.7 million, or 7%, driven primarily by growth in average loan balances, resulting from the expansion of the CRE and SBA portfolios. The increase was partially offset by lower loan yields, reflecting the repricing of adjustable-rate loans and lower rates on new originations following last year's federal funds rate cuts, as well as the absence of elevated interest income recognized from nonaccrual loans in the prior period.

Interest expense on interest-bearing deposits decreased by $347 thousand or 1%, primarily due to lower interest-bearing deposit costs, resulting from the repricing of time deposits following the federal funds rate cuts. The decrease was mostly offset by growth in average interest-bearing deposit balances, mainly in time deposits.

Interest income on interest-bearing deposits in other banks decreased by $1.3 million, primarily due to the previously discussed $739 thousand accrual adjustment related to the Federal Reserve Bank account, as well as lower market rates earned on those balances.

As a result, net interest margin increased by one basis point, as the 9% increase in net interest income slightly outpaced the 9% growth in average earning assets.