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

(3)Include loans held-for-sale.

(4)Interest income includes a one-time $739 thousand accrual adjustment related to the Federal Reserve Bank account.

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 2026 increased by $1.9 million, or 9%, primarily driven by balance-sheet growth and lower deposit rates. These favorable factors were partially offset by lower loan yields.

Interest income on loans increased by $2.6 million, or 8%, 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 prior-year federal funds rate cuts and the repricing of adjustable-rate and newly originated loans.

Interest expense on interest-bearing deposits increased by $463 thousand, or 3%, mainly due to growth in average interest-bearing deposit balances, driven primarily by growth in time deposits. The increase was partially offset by lower deposit rates, reflecting the repricing of time deposits and money market accounts following the federal funds rate cuts in the prior year.

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

Net interest income for the first nine months of 2026 increased by $5.3 million, or 9%, primarily due to continued balance-sheet growth and lower deposit rates. These benefits were partially offset by lower yields and reduced interest income on interest-bearing deposits with other banks, primarily due to lower market rates on Federal Reserve Bank balances and a one-time accrual adjustment recorded in 2026.

Interest income on loans increased by $7.3 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 increased modestly by $116 thousand, primarily due to growth in average interest-bearing deposit balances, mainly in time deposits. The increase was mostly offset by lower interest-bearing deposit rates, resulting from the repricing of time deposits following the federal funds rate cuts.

Interest income on interest-bearing deposits with other banks decreased by $1.3 million, primarily due to the 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 modestly by one basis point, as the 9% increase in net interest income slightly outpaced the 9% growth in average earning assets.