OP Bancorp (OPBK)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

OVERVIEW

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 Form 10-Q. Some of the information contained in this discussion and analysis or set forth elsewhere in this 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. In addition,we have one loan production office in Bellevue, Washington, which we opened in May 2026. During the first half of 2026, we closed five loan production offices due to limited market demand, including offices in Pleasanton, California; Atlanta, Georgia; Aurora, Colorado; and Fairfax, Virginia in May 2026, and Lynnwood, Washington in June 2026.

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.

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Current Developments

Interest Rate Environment

The Board of Governors of the Federal Reserve System ("Federal Reserve") maintained the Federal Funds Rate target range at 3.50% to 3.75% at its July 29, 2026 meeting, continuing its pause in monetary policy adjustments. The Federal Reserve indicated that future policy decisions will remain dependent on incoming economic data and evolving economic conditions, including inflation trends, labor market conditions, economic growth, and broader uncertainties. The current interest rate environment continues to influence loan demand, deposit pricing, funding costs, and credit quality trends across the banking industry. Economic uncertainty and potential for future changes in monetary policy continue to present challenges in forecasting interest rate movements and economic conditions, which may affect the Company's balance sheet management strategies and its ability to effectively price loans and deposit products.

SEC Rulemaking Developments

In May 2026, the SEC issued proposed rule amendments that, if adopted, would permit public companies to elect semiannual reporting in lieu of quarterly reporting and would simplify the public company filer status framework while expanding certain reporting accommodations available to smaller issuers. The proposals remain subject to the SEC rulemaking process and public comment. The Company is monitoring these developments and evaluating their potential impact on its reporting and compliance obligations.

Community Bank Leverage Ratio

The Community Bank Leverage Ratio (“CBLR”) framework is an optional regulatory capital framework that allows qualifying community banking organizations to use a simple leverage ratio rather than calculating certain risk-based capital ratios. The Company plans to elect the CBLR framework beginning in the third quarter of 2026 and believes the election will simplify regulatory capital reporting and compliance requirements while remaining appropriate for the Company’s capital and risk profile.

The Company continues to monitor changes in the banking environment and adjust its operating, funding, and risk management strategies as appropriate.

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FINANCIAL REVIEW

(1)    Annualized.

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

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Net income for the second quarter of 2026 was $8.0 million, up $1.6 million, or 26%, compared with $6.3 million for the same period in 2025. For the first half of 2026, net income was $15.2 million, up $3.3 million, or 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: Second quarter 2026 net interest income increased to $20.1 million, up $347 thousand, or 2%, from the year ago quarter, while net interest 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 one basis point to 3.13%.

•Profitability ratios: Second quarter 2026 ROAA and ROAE increased to 1.18% and 13.61%, respectively, up 18 and 164 basis points from 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 ratios: Second quarter 2026 efficiency ratio was 57.64%, an improvement of 161 basis points from the same period in 2025, primarily reflecting higher noninterest income. For the first half of 2026, efficiency ratio was 57.80%, an improvement of 285 basis points from the same period in 2025, primarily due to growth in net interest income.

•Asset growth: Total assets were $2.74 billion as of June 30, 2026, up $94.1 million, or 4%, from December 31, 2025, primarily driven by a $65.4 million increase in gross loans.

•Loan growth: Gross loans were $2.26 billion, up $65.4 million, or 3%, from December 31, 2025, primarily reflecting $57.9 million of CRE loan growth.

•Deposit growth: Total deposits were $2.37 billion, up $87.8 million, or 4%, from December 31, 2025, reflecting growth in noninterest-bearing and money market and other deposits.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company's significant accounting policies are described in Note 1. Significant Accounting Policies to Consolidated Financial Statements in the 2025 Annual Report on Form 10-K. Certain policies involve critical

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accounting estimates requiring management judgment, and actual results may differ materially under different assumptions. Allowance for credit losses is considered critical to the Company's Consolidated Financial Statements, and there have been no material changes to our critical accounting policies and estimates since those described in our 2025 Annual Report on Form 10-K.

RESULTS OF OPERATIONS

Net Interest Income

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 perfo

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Item 7. Management’s Discussion and Analysis of 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 Consolidated Financial Statements and the related notes thereto contained in this Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this 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.

OVERVIEW

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, and with the general description of our holding company, our subsidiary bank, and our business set forth in Part I. Item 1. Business above. Some of the information contained in this discussion and analysis or set forth elsewhere in this Report, 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 I, 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, the Bank derives earnings from 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 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 although, from time to time, we may rely on brokered deposits or other source or liquidity.

Current Developments

Interest Rate Environment

The Federal Reserve maintained the federal funds rate at 3.50% to 3.75% at its January 2026 meeting, following three consecutive reductions in late 2025. The decision reflects a labor market that has softened but stabilized in recent months, reducing the urgency for additional easing. At the same time, inflation remains above the Federal Reserve’s 2% objective, and recent readings have been affected by data distortions tied to the prior government shutdown. Policymakers signaled a shift to a wait‑and‑see approach as they assess the outlook for employment and inflation. The pause also occurs against a politically sensitive backdrop, with a new Federal Reserve Chair expected later this year; however, monetary policy decisions remain committee‑driven, limiting the potential for abrupt directional changes. The current rate environment continues to influence lending activity, deposit pricing, funding costs, and overall balance‑sheet management.

We believe we have responded effectively to the evolving dynamics of the banking environment and that we are well-positioned to do so in the future. Our ability to navigate recent challenges is largely attributable to the continued loyalty of our customers and the dedication and expertise of our employees and management team.

FDIC Inflation-based Adjustments

Effective January 1, 2026, amendments to the Federal Deposit Insurance Corporation Improvement Act (“FDICIA”) increased the asset‑size threshold for institutions subject to the audit and reporting requirements under Part 363. The FDIC has affirmed that institutions falling below a particular revised threshold as of the effective date are not required to comply with Part 363 requirements for any fiscal year still open prior to January 1, 2026, including 2025. Because the Bank was below the $5 billion total assets as of January 1, 2026,

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it is no longer required to obtain a Part 363 independent audit of internal control over financial reporting (“ICFR”) for the year ended December 31, 2025. However, as an accelerated filer, we remain subject to Section 404(b) of the Sarbanes‑Oxley Act, and therefore our ICFR continues to be subject to an annual auditor attestation under SEC rules. Management will continue to monitor our asset levels and regulatory status to assure compliance with applicable FDIC and SEC requirements.

Recent Changes to SBA Program Eligibility

On February 2, 2026, the SBA announced that, effective March 1, 2026, it eliminated a longstanding rule that, subject to certain restrictions, permitted SBA lending to borrowers that included equity ownership of up to 5% by noncitizens or non U.S.-resident aliens. The Company implemented this change in its SBA lending activities as of the effective date. Given that a substantial portion of our banking activities includes SBA lending, management has assessed the impact of this rule change on our lending operations, including sold loans and loans held-for-sale, and loans held-to-maturity, and has not identified a material adverse impact on those portfolios as of the date of this report.

Management continues to monitor the effect of the rule change on future SBA loan originations and customer relationships, including borrowers that were previously eligible under SBA loan programs. To date, the Company has not experienced, and does not currently expect, a material adverse effect on its SBA lending volume, asset quality, results of operations, or financial condition as a result of this regulatory update, and will continue to monitor developments in SBA program requirements and related federal policies as part of its ongoing regulatory compliance and risk management processes.

FINANCIAL REVIEW

Our MD&A reviews the financial condition and results of operations of the Company for 2025 and 2024. Some tables may include additional periods to comply with disclosure requirements or to illustrate trends in greater depth. The page locations of specific sections and notes that we refer to are presented in the table of contents. To review our financial condition and results of operations for 2024 and a comparison between the 2024 and 2023 results, see Item 7. MD&A of our 2024 Form 10-K filed with the SEC on March 28, 2025, which discussion is incorporated herein by reference.

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(1)     Represent noninterest expense divided by the sum of net interest income and noninterest income.

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The Company's net income for 2025 was $25.6 million, up $4.6 million, or 22%, from 2024 net income of $21.1 million. The increase was primarily driven by higher net interest income, partially offset by increases in noninterest expense and income tax expense. The following were notable elements of the Company's performance for 2025:

•Net interest income and net interest margin: 2025 net interest income increased to $78.3 million, up $12.7 million, or 19%, from 2024. 2025 net interest margin expanded 20 basis points to 3.19%.

•Profitability ratios: 2025 ROA and ROE of 1.01% and 11.91%, respectively, were up year-over-year. ROA and ROE of 0.92% and 10.68%, respectively.

•Efficiency Ratios: 2025 efficiency ratio of 58.91% improved 228 basis points from 2024. The improvement in the efficiency ratios primarily reflected an increase in net interest income.

•Asset Growth: Total assets increased to $2.65 billion as of December 31, 2025, representing a $284.2 million, or 12% increase from December 31, 2024, driven primarily by growth of $152.0 million in CRE loans, $64.8 million in home mortgage loans and $32.4 million in cash and cash equivalents.

•Loans Growth: Gross loans were $2.19 billion, up $236.8 million, or 12%, from December 31, 2024, primarily reflecting growth in CRE and home mortgage loans.

•Deposits Growth: Total deposits were $2.28 billion, up $253.3 million, or 12%, from December 31, 2024, reflecting growth in time deposits and money market and others.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our accounting and reporting policies conform to accounting principles generally accepted in GAAP and conform to general practices within the industry in which we operate. To prepare financial statements in conformity with GAAP, management makes estimates, assumptions and judgments based on available information. These estimates, assumptions and judgments affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions and judgments are based on information available as of the date of the financial statements and, as this information changes, actual results could differ from the estimates, assumptions and judgments reflected in the financial statement. In particular, management

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has identified several accounting policies that, due to the estimates, assum

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