OPBK 10-K & 10-Q changes, risk factors and insider trading

You should carefully consider the risks and uncertainties described below, together with the information included elsewhere in this ReportForm 10-K and other documents we file with the SEC. The following risks and uncertainties described below are those that we have identified as material. Events or circumstances arising from one or more of these risks could adversely affect our business, financial condition, operating results and prospects and the value and price of our common stock could decline. The risks identified below are not intended to be a comprehensive list of all risks we face. Additional risks and uncertainties not presently known to us, or that we may currently view as not material, may also adversely impact our business, financial condition, and results of operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidatedConsolidated financialFinancial statementsStatements and the related notes thereto contained in this Report.Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Report,Form 10-K, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review the sections titled “Cautionary Note Regarding Forward-Looking Statements” and “Part II, Item 1A. Risk Factors” for a discussion of forward-looking statements and important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Our results of operations depend primarily on net interest income generated through Open Bank, which represents the interest we earn on loans and related products, reduced by the interest we pay on deposits and other borrowings. In addition to our net interest income.income, Wethe driveBank ourderives incomeearnings from interest received on our loan portfolio, the fee income we receive in connection with our deposits, and from gains on the sale and service of SBA loans. Our major operating expenses are the interest we pay on deposits and other borrowings, the salaries and related benefits we pay our management and staff, and the rent we pay on our leased properties. We rely primarily on locally-generated deposits, mostly from the Korean-American market within California, to fund our loan activities.activities although, from time to time, we may rely on brokered deposits or other source or liquidity.

Banking Economy and RecentCurrent Developments

SELECTED FINANCIAL DATAREVIEW

The following is a discussion of the critical accounting policies and significant estimates that require us to make complex and subjective judgments. AdditionalFor further information about these policies can be found inon the “NotesCompany's accounting policies, refer to Note 1. Significant Accounting Policies to the Consolidated Financial Statements,Statements Notein 1.this BusinessForm and Summary of Significant Accounting Policies.”10-K.

We employ a modeled approach that takes into account current and future economic conditions to estimate lifetime expected losses on a collective basis. With the adoption of CECL,Current Expected Credit Losses ("CECL"), we elected not to consider accrued interest receivable in our estimated credit losses because we write off uncollectible accrued interest receivable in a timely manner. We consider writing off accrued interest amounts once the amounts become 90 days past due to be considered within a timely manner. We have elected to write off accrued interest receivable by reversing interest income. We use transition matrices to develop the Probability of Default ("PD") and Loss Given Default ("LGD") approach, incorporating quantitative factors and qualitative considerations in the calculation of the allowance for credit losses for collectively assessed loans. The model provides forecasts of PD and LGD based on national unemployment rates using regression analysis. We incorporate future economic conditions using a weighted multiple scenario approach: baseline and adverse. We apply a reasonable and supportable period of one year for the baseline scenario and two years for the adverse scenario, after which loss assumptions revert to historical loss information through a one-year reversion period for the baseline scenario and a two-year reversion period for the adverse scenario. We make critical accounting estimates, including the judgments made in the application of significant accounting policies, sensitivity to change, and the likelihood of materially different reported results if different assumptions were used.

As part of our process for determining allowance for credit losses process,losses, sensitivity analyses are performed to assess the impact of how changing certain key assumptions could impact our estimated allowance for credit losses as of December 31, 2024.2025. We calculated alternative values for the allowance for credit losses by severely changing key assumptions, such as macroeconomic inputs from the economic forecasts, prepayment rates, historical loss factors, among others, and the calculated allowance for the quantitative component would have been between $5.8$11.0 million and $12.4$15.9 million higher than our estimate for the allowance as of December 31, 2024,2025, depending on the forecast scenario. These sensitivity analyses provide approximations of possible outcomes under hypothetically severe conditions and assist management in making informed decisions on key assumptions. These analyses, however, are not intended to estimate changes in the overall allowance for credit losses as they do not capture all the potentially unknown variables that could arise in the forecast period, and do not represent management's view of expected credit losses as of December 31, 2024.2025. Management believes that the estimate for the allowance for credit losses was reasonable and appropriate as of December 31, 2024.2025.

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).margin. We seek to maximize net interest income without exposing us 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. Our net interest margin is also adversely impacted by the reversal of interest on nonaccrual loans and the reinvestment of loan payoffs into lower yielding investment securities and other short-term investments.

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

(1)Includes incomeFHLB and averagePCBB balances for Federal Home Loan Bank (“FHLB”) and Pacific Coast Bankers Bank stock,stocks, CRA qualified mutual fund,fund term federal funds,and interest-earning time deposits andwith other miscellaneous interest-earning assets.banks.

(2)Average loan balances includeInclude non-accrual loans and loans held for sale.held-for-sale.

You should carefully consider the risks and uncertainties described below, together with the information included elsewhere in this ReportForm 10-Q and other documents we file with the SEC. The following risks and uncertainties described below are those that we have identified as material. Events or circumstances arising from one or more of these risks could adversely affect our business, financial condition, operating results and prospects and the value and price of our common stock could decline. The risks identified below are not a comprehensive list of all risks we face. Additional risks and uncertainties not presently known to us, or that we may currently view as not material, may also adversely impact our business, financial condition, and results of operations.

Although the Federal Reserve Open Markets Committee (commonly referred to as “the Fed”) has recently made modest incremental reductions in benchmark interest rates, the current interest rate environment remains significantly elevated from that of the recent past, and recent indications as of the date of this reportForm 10-Q are that further reductions are uncertain as to both timing and degree. Interest rates affect both our ability to reprice variable-rate loans and to originate new fixed-rate loans, and in times of significant uncertainty about interest rates, such as the present, clients and prospective investors often reduce their borrowing levels, which tends to have a deflating effect on our outstanding loan balances and thus on our interest income. In addition, geopolitical conflicts, including tensions in the Middle East, may contribute to volatility in global energy prices, which could increase inflationary pressures and operating costs across the economy and indirectly affect our borrowers' financial condition, credit quality, and demand for loans.

Changes in interest rates also can affect the value of loans, investment securities and other assets held in our portfolio or originated for sale. For example, rising interest rates would result in a decline in value of the fixed-rate debt securities we hold in our investment securities portfolio. The unrealized losses resulting from holding these securities would be recognized in accumulated other comprehensive incomeAOCI and would reduce total shareholders’ equity. Unrealized losses do not negatively impact our regulatory capital ratios. However, tangible common equity and the associated ratios would be reduced. If debt securities in an unrealized loss position are sold, such losses become realized and will reduce our regulatory capital ratios.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and the related notes thereto contained in this Report.Form 10-Q. Some of the information contained in this discussion and analysis or set forth elsewhere in this Report,Form 10-Q, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review “Part II, Item 1A. Risk Factors” for a discussion of forward-looking statements and important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

OP Bancorp (referred to herein on an unconsolidated basis as "OP Bancorp" and on a consolidated basis as the "Company") is a bank holding company headquartered in Los Angeles, California. Our commercial community banking activities are operated through Open Bank ("Open Bank" or the "Bank"), our wholly owned banking subsidiary, and we do not conduct material business operations other than through the Bank. We offer commercial banking services to small and medium-sized businesses, their owners and retail customers primarily in the Korean-American communities within our primary market areas. We currently operate twelve full service branches: nine branches across Los Angeles and Orange Counties in California, as well as one branch each in Santa Clara, California; Carrollton, Texas; and Las Vegas, Nevada. AsIn ofaddition,we Mayhave 2026, we operate twoone loan production offices, following the opening of a new office in Bellevue, WashingtonWashington, effectivewhich we opened in May 2026,2026. andDuring the closurefirst half of four2026, otherwe closed five loan production offices (due to limited market demand, including offices in Pleasanton, California; Atlanta, Georgia; Aurora, Colorado; and Fairfax, Virginia) in AprilMay 2026, withand theLynnwood, remaining office locatedWashington in Lynnwood,June Washington. We closed the four loan production offices due to limited market demand, Our results of operations depend primarily on net interest income, which represents the interest we earn on loans and related products, reduced by the interest we pay on deposits and other borrowings including our senior subordinated note. In addition to net interest income, we derive earnings from fee income we receive in connection with our deposits, and from gains on sale and service of SBA loans. Our major operating expenses are salaries and related benefits we pay our management and staff, and rent we pay on our leased properties. We rely primarily on locally-generated deposits, mostly from the Korean-American market within California, to fund our loan activities.2026.

The Board of Governors of the Federal Reserve System ("Federal Reserve") maintained the Federal Funds Rate target range at 3.50% to 3.75% onat Aprilits July 29, 2026,2026 markingmeeting, thecontinuing thirdits consecutivepause in monetary policy pause this year.adjustments. The FOMCFederal reiteratedReserve indicated that future ratepolicy decisions will remain data‑dependent ason incoming economic data and evolving economic conditions, including inflation continuestrends, tolabor moderatemarket unevenlyconditions, economic growth, and labor‑marketbroader indicators show signs of softening. Uncertainty has been heightened by ongoing geopolitical tensions in the Middle East, which have contributed to elevated oil prices and added upward pressure on inflation.uncertainties. The current interest rate environment continues to influence loan demand, deposit pricing, funding costs, and credit riskquality trends across the banking industry. TheseEconomic economicuncertainty and geopoliticalpotential dynamicsfor alsofuture increasechanges thein difficultymonetary ofpolicy continue to present challenges in forecasting interest‑ rate movements and overall economic conditions, affectingwhich may affect the Company’sCompany's balance sheet management strategies and ourits ability to effectively price loans and longer‑term deposit products.

(2) RepresentRepresents noninterest expense divided by the sum of net interest income and noninterest income.

The Company's netNet income for the firstsecond quarter of 2026 was $7.2$8.0 million, up $1.7$1.6 million, or 30%,26%, compared with $5.6$6.3 million infor the same period ain year2025. ago.For Thethe year-over-yearfirst increasehalf of 2026, net income was primarily$15.2 drivenmillion, byup higher$3.3 netmillion, interestor income.28%, compared with $11.9 million for the same period in 2025. The following were notable elements of the Company's performance for the periods presented:

•Net interest income and net interest margin: FirstSecond quarter 2026 net interest income increased to $20.5$20.1 million, up $3.1$347 million,thousand, or 18%,2%, from the year ago quarter.quarter, Firstwhile quarternet 2026interest margin decreased 15 basis points to 3.08%. For the first half of 2026, net interest income increased to $40.6 million, up $3.5 million, or 9%, from the year ago period, and net interest margin expanded 18one basis pointspoint to 3.19%.3.13%.

•Profitability ratios: FirstSecond quarter 2026 ROAA and ROAE ofincreased 1.08%to 1.18% and 12.56%,13.61%, respectively, increasingup 1618 and 183164 basis points year-over-year,from respectively.the same period in 2025. For the first half of 2026, ROAA and ROAE increased to 1.13% and 13.09%, respectively, up 17 and 173 basis points from the year ago period.

•Efficiency Ratiosratios: FirstSecond quarter 2026 efficiency ratio was 57.64%, an improvement of 57.97% improved 416161 basis points from the same period in 2025.2025, Theprimarily reflecting higher noninterest income. For the first half of 2026, efficiency ratio was 57.80%, an improvement inof 285 basis points from the efficiencysame ratiosperiod in 2025, primarily reflecteddue anto increasegrowth in net interest income.

•Asset Growthgrowth: Total assets reachedwere $2.70$2.74 billion as of MarchJune 31,30, 2026, up $48.4$94.1 million, or 2%,4%, from December 31, 2025, primarily driven by a $40.6$65.4 million increase in gross loans.

•Deposit Growthgrowth: Total deposits were $2.33$2.37 billion, up $46.7$87.8 million, or 2%,4%, from December 31, 2025, reflecting growth acrossin allnoninterest-bearing majorand depositmoney categories.market and other deposits.

The management of interest income and expense is fundamental to our financial performance. Net interest income, which represents the difference between interest income and interest expense, is the largest component of our total revenue.revenue and a key driver of our financial performance. Management closely monitors total net interest income and the net interest margin.margin, Thewhich are affected by the timing and pace of recognizing premiums and discounts accretion on interest-earning assetsassets, as well as the reversalreversals of interest on nonaccrual loans affect our net interest margin, asloans, changes in prepayment speedsspeeds, and loan activity influence the effective yield on these assets.activity. We seek to maximize net interest income without exposing the Company toassuming excessive interest rate risk through our asset and liability policies.management Interestpolicies, rate risk is managed byincluding monitoring the pricing, maturitymaturity, and repricing optionscharacteristics of all classes of interest-bearinginterest-earning assets and interest-bearing liabilities.

Interest expense on interest-bearing deposits increaseddecreased by $237$584 thousandthousand, or 1%,3%, mainly due to an increase in average interest-bearinglower deposit balances.costs This was mostly offset by a reduction in interest-bearing deposit costs, driven by the repricing ofas 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.

As a result, net interest margin increaseddecreased by 1815 basis points, as an 18% increase in net interest income outpaced an 11% increase in average earning assets, primarily driven bydespite a 39five basis point increase in net interest spread.spread, as average earning assets grew 7%, outpacing the 2% increase in net interest income.

Provision for credit losses was $412a reversal of $149 thousand for the firstsecond quarter of 2026, compared with $736a thousandprovision expense of $1.2 million in the same period a year ago. The decrease was primarily reflectedattributable to lower qualitative reservesreserve requirements, reflecting a reduced impact from loan growth due to a lower growth rate relative to the prior period and an improved economic outlook, as well as a smaller quantitative reserve build driven by slower loan growth and less adverse changes in historical loss factors compared with the prior year period. In addition, the provision benefited from a lower specific reserve requirement resulting from shifts in portfolio characteristics, partially offset by the highersale specificof reserves associated with additionalone nonaccrual CRE loans.loan.

The following table presents the components of noninterest income for the thirdsecond quarters of 2026 and 2025:

Noninterest income for the firstsecond quarter of 2026 decreasedincreased year-over-year, primarily due to higher gains on sale of loans, partially offset by lower service charges on deposits and reduced loan servicing fees.deposits.

Service charges on deposit decreased by $537$502 thousand, or 54%,49%, largely reflecting lower balances in existing business analysis accounts and the closure of certain currency exchange-related accounts during the third quarter of 2025.

The following table presents the components of noninterest incomeexpense for the thirdsecond quarters of 20252026 and 20242025:

Noninterest expense for the firstsecond quarter of 2026 increased year-over-year, primarily due to higher salaries and employee benefitsbenefits, and increased occupancy and equipment, partially offset by lower other expenses.equipment.

Salaries and employee benefits for the firstsecond quarter of 2026 increased $500$658 thousand, or 6%,7%, mainly driven by staffing growth and annual merit-based salary adjustments effective April 2025, and higher benefits costs, including health insurance. This increase was partially offset by lower incentive accruals.2026.

Occupancy and equipment for the firstsecond quarter of 2026 increased $230$317 thousand, or 15%,20%, primarily due to the expiration of a common-area-maintenance concession on a lease that benefited the prior period.

OtherSalaries expensesand employee benefits for the first quarterhalf of 2026 decreasedincreased $446$1.2 thousand,million, or 32%,6%, primarily reflectingdue lowerto higher staffing levels to support business developmentgrowth, annual salary adjustments, and credit-relatedincreased expenses.health insurance costs.

We recorded net deferred tax assets of $12.5 million and $12.4 million as of bothJune March30, 31, 20262026, and December 31, 2025, respectively. After evaluating all available positive and negative evidence, including recent financial performance, projected future taxable income, and tax planning strategies, we have concluded that it was more- likely-than-not that net deferred tax assets as of MarchJune 31,30, 2026, will be fully realized in future periods.

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),AOCI, a component of shareholders’ equity. Monthly adjustments are made to reflect changes in the fair value of our available-for-sale securities.

(1)Credit ratings are independent assessments of the credit quality of debt securities. The Company determines the credit rating of a debt security based on the lowest rating assigned by any of the nationally recognized statistical rating organizations (“NRSROs”) that have rated the security. Investment grade debt securities are those rated BBB- or higher (as defined by NRSROs), and are generally considered by the rating agencies and market participants to represent low credit risk. Ratings percentages are presented based on fair value.

AFS debt securities increased by $16.2$9.7 million, or 8%,5%, to $209.0$202.5 million as of MarchJune 31,30, 20262026, from December 31, 2025. ThisThe increase was primarily due to a $29.7$34.5 million of purchases in residential collateralized mortgage obligations and mortgage-backed securities during the first quarterhalf of 2026, partially offset by $11.8$22.7 million in paydowns/matured/called of residential collateralized mortgage obligations and mortgage-backed securities, and a $1.5$1.9 million increase in unrealized losses for the threesix months ended MarchJune 31,30, 2026.

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 March 31, 2026 and December 31, 2025.