•Financial Results:

◦Net income of $6.1 million, compared to $8.5 million

◦Diluted earnings per share of $0.39, compared to $0.54

◦Net interest income of $17.3 million, compared to $19.1 million

◦Net interest margin of 3.40%, compared to 4.21%

◦No provision for credit losses, compared to provision for credit losses of $996 thousand

◦Total assets of $2.2 billion, an 11% increase compared to $1.9 billion

◦Gross loans of $1.7 billion, a 16% increase compared to $1.5 billion

◦Total deposits of $1.9 billion, a 7% increase compared to $1.7 billion

•Credit Quality:

◦Allowance for credit losses to gross loans of 1.21%, compared to 1.19%

◦Net charge-offs(1) to average gross loans(2) of 0.00%, compared to net recoveries of 0.01%

◦Nonperforming loans to gross loans of 0.20%, compared to 0.12%

◦Criticized loans(3) to gross loans of 0.44%, compared to 0.18%

•Capital Levels:

◦Remained well-capitalized with a Common Equity Tier 1 (“CET1”) ratio of 11.92%.

◦Book value per common share increased to $12.16, compared to $11.16

◦Repurchased 221,494 shares of common stock at an average price of $8.40

◦Paid quarterly cash dividend of $0.12 per share, compared to $0.10 per share

___________________________________________________________

(1)    Annualized.

(2)    Includes loans held for sale.

(3)    Includes special mention, substandard, doubtful, and loss categories.

LOS ANGELES, July 27, 2023 — OP Bancorp (the “Company”) (NASDAQ: OPBK), the holding company of Open Bank (the “Bank”), today reported its financial results for the second quarter of 2023. Net income for the second quarter of 2023 was $6.1 million, or $0.39 per diluted common share, compared with $7.5 million, or $0.48 per diluted common share, for the first quarter of 2023, and $8.5 million, or $0.54 per diluted common share, for the second quarter of 2022.

Min Kim, President and Chief Executive Officer:

“We continued to maintain strong liquidity, credit quality, and solid capital positions to withstand the recent turmoil in the banking industry. Our liquid assets and available borrowings were more than 47% of total assets,” said Min Kim, President and Chief Executive.

“The migration from noninterest-bearing to interest-bearing deposits has been stabilized during the quarter, and our noninterest-bearing deposits remained at 34% of total deposits. We are truly grateful for our customers’ loyalty and trust throughout these difficult times.

Although we anticipate additional challenges in the short term, we remain optimistic about our future performance and will continue to focus on executing our strategic goals while maintaining appropriate risk and control environment.”

(1)Includes loans held for sale.

(2)Annualized.

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

(1)Annualized.

(1)Annualized.

(2)Prepayment penalty income of $110 thousand, $3 thousand and $118 thousand for the three months ended June 30, 2023, March 31, 2023 and June 30, 2022, respectively, was from commercial real estate and Commercial and Industrial (“C&I”) loans.

(3)As of June 30, 2023, there were unamortized net deferred fees and unaccredited discounts of $4 thousand to be recognized over the estimated life of the loans as a yield adjustment on the loans.

During the second quarter of 2021, the Bank purchased an SBA portfolio of 638 loans with an ending balance of $100.0 million, excluding loan discount of $8.9 million from Hana Small Business Lending, Inc. (“Hana”). The following table presents impacts of the Hana loan purchase on average loan yield and net interest margin:

(1)Annualized.

(2)See reconciliation of GAAP to non-GAAP financial measures.

Net interest income decreased $0.6 million, or 3.6%, primarily due to higher interest expense on deposits and borrowings, partially offset by higher interest income on loans. Net interest margin was 3.40%, a decrease of 17 basis points from 3.57%.

◦A $1.5 million increase in interest expense on deposits was primarily due to a $5.2 million increase in average balance of interest-bearing deposits and a 46 basis point increase in average cost driven by the Federal Reserve’s rate increases.

◦A $610 thousand increase in interest expense on borrowings was primarily due to a $56.4 million increase in average balance.

◦A $1.3 million increase in interest income on loans was primarily due to a 24 basis point increase in loan yield as a result of the Federal Reserve’s rate increases.

Net interest income decreased $1.8 million, or 9.6%, primarily due to higher interest expense on deposits, partially offset by higher interest income on loans. Net interest margin was 3.40%, a decrease of 81 basis points from 4.21%.

◦An $8.2 million increase in interest income on loans was primarily due to a $165.7 million increase in average balance of interest-bearing deposits and a 143 basis point increase in loan yield as a result of the Federal Reserve’s rate increases.

◦A $10.9 million increase in interest expense on deposits was primarily due to a $342.3 million increase in average balance and a 348 basis point increase in average cost driven by the Federal Reserve’s rate increases.

(1)     Reversal of provision for credit losses on off-balance sheet exposure of $80 thousand for the three months ended March 31, 2023 was included in total (reversal of) provision for credit losses. Prior to CECL adoption, provisions for credit losses on off-balance sheet exposure of $23 thousand for the three months ended June 30, 2022 was included in other expenses.

The Company did not record provision for credit losses, compared with a $338 thousand reversal of credit losses.

A $163 thousand increase from qualitative factor adjustments in the second quarter of 2023 was primarily offset by decreases in specific reserve requirements on individually evaluated loans. The change in quantitative general reserve during the quarter was insignificant as the impact from a 1.4% growth in gross loans was mostly offset by a decrease in historical loss factors.

The Company did not record provision for credit losses, compared with a $1.0 million provision for credit losses.

Noninterest income decreased $690 thousand, or 16.1%, primarily due to lower gain on sale of loans.

◦Gain on sale of loans was $2.1 million, a decrease of $472 thousand from $2.6 million, primarily due to a lower SBA loan sold amount and a lower average sales premium. The Bank sold $36.8 million in SBA loans at an average premium rate of 6.64%, compared to the sale of $44.7 million at an average premium rate of 7.33%.

Noninterest income decreased $1.8 million, or 32.7%, primarily due to lower gain on sale of loans.

◦Gain on sale of loans was $2.1 million, a decrease of $1.8 million from $3.9 million, primarily due to a lower SBA loan sold amount and a lower average sales premium. The Bank sold $36.8 million in SBA loans at an average premium rate of 6.64%, compared to the sale of $58.6 million at an average premium rate of 7.02%.

Noninterest expense increased $392 thousand, or 3.3%, primarily due to higher salaries and employee benefits, partially offset by a lower foundation donation.

◦Salaries and employee benefits increased $429 thousand primarily due to an addition of four full-time employees and annual salary adjustments effective in the second quarter of 2023.

◦Foundation donations and other contributions decreased $159 thousand primarily due to lower donation accrual for Open Stewardship as a result of lower net income.

Noninterest expense increased $797 thousand, or 6.9%, primarily due to higher salaries and employee benefits and FDIC insurance and regulatory assessments, mainly offset by a lower foundation donation.

◦Salaries and employee benefits increased $572 thousand primarily due to 22 additional full-time employees to support continued growth of the Company.

◦FDIC insurance and regulatory assessments increased $228 thousand primarily due to our deposit growth from the second quarter of 2022 and increases in FDIC assessment fees in 2023.

◦Foundation donations and other contributions decreased $258 thousand primarily due to lower donation accrual for Open Stewardship as a result of lower net income.

Income tax expense was $2.5 million, and the effective tax rate was 28.8%, compared to income tax expense of $3.1 million and the effective rate of 29.0%.

Income tax expense was $2.5 million and the effective tax rate was 28.8%, compared to income tax expense of $3.5 million and an effective rate of 29.0%.

The following table presents new loan originations based on loan commitment amounts for the periods indicated:

The following table presents changes in gross loans by loan activity for the periods indicated:

Gross loans were $1.72 billion as of June 30, 2023, up $23.7 million from March 31, 2023, primarily due to new loan originations, partially offset by loan sales, and payoffs and paydowns.

New loan originations and loan payoffs and paydowns were $112.7 million and $43.2 million for the second quarter of 2023, respectively, compared with $68.8 million and $68.7 million for the first quarter of 2023, respectively.

Gross loans were $1.72 billion as of June 30, 2023, up $231.5 million from June 30, 2022, primarily due to new loan originations of $554.7 million and loan purchases of $105.6 million, primarily offset by loan sales of $173.3 million and loan payoffs and paydowns of $222.8 million.

The following table presents the composition of gross loans by interest rate type accompanied with the weighted average contractual rates as of the periods indicated:

The following table presents the maturity of gross loans by interest rate type accompanied with the weighted average contractual rates for the periods indicated:

The Company adopted the CECL accounting standard effective as of January 1, 2023 under a modified retrospective approach. The adoption resulted in a $1.9 million increase to the allowance for credit losses on loans, a $184 thousand increase to the allowance for credit losses on off-balance sheet exposure, a $624 thousand increase to deferred tax assets, and a $1.5 million charge to retained earnings.

The following table presents impact of CECL adoption for allowance for credit losses and related items on January 1, 2023:

The following table presents allowance for credit losses and provision for credit losses as of and for the periods presented:

(1)    Excludes reversal of uncollectible accrued interest receivable of $205 thousand for the three months ended June 30, 2022.

(2)    Allowance for credit losses as of June 30, 2023 and March 31, 2023 were calculated under the CECL methodology while allowance for loan losses for June 30, 2022 was calculated under the incurred loss methodology.

(1)Excludes the guaranteed portion of SBA loans that are in liquidation totaling $5.4 million, $1.9 million and $351 thousand as of June 30, 2023, March 31, 2023 and June 30, 2022, respectively.

(2)Consists of special mention, substandard, doubtful and loss categories.

(3)See the Reconciliation of GAAP to NON-GAAP Financial Measures.

(4)Annualized.

(5)Includes loans held for sale.

Overall, the Bank continued to maintain solid asset quality with low levels of nonperforming loans and net charge-offs. Nonperforming assets and criticized loans remained below our historical norms, a reflection of our conservative credit culture and expertise in the industries we serve. Our allowance remained strong with an adjusted allowance to gross loans ratio of 1.25%.

◦Criticized loans was $7.5 million, an increase of $4.9 million from a year ago, and represented 0.44% of gross loans. Criticized loans consist of loans categorized as Special Mention, Substandard, Doubtful and Loss categories defined by regulatory authorities.

◦Nonperforming assets was $3.4 million, an increase of $1.6 million from a year ago, and represented 0.16% of total assets. As of June 30, 2023, $5.4 million of nonaccrual assets consisted of guaranteed portion of SBA loans that are in liquidation. The Company did not have OREO as of June 30, 2023 or 2022.

◦Net charge-offs were $12 thousand or 0.00% of average loans in the second quarter of 2023, compared to net charge-offs of $93 thousand, or 0.02%, of average loans in the first quarter of 2023 and net recoveries of $34 thousand, or 0.01%, of average loans in the second quarter of 2022.

Total deposits were $1.86 billion as of June 30, 2023, down $45.2 million from March 31, 2023, primarily due to decreases in money market deposits partially offset by growth in time deposits. The composition shift from money market deposits to time deposits was primarily due to customers’ continued preference for high-rate deposit products driven by the Federal Reserve’s rate increases. Noninterest-bearing deposits remained relatively stable at 34% of total deposits.

Total deposits were $1.86 billion as of June 30, 2023, up $118.0 million from June 30, 2022, primarily driven by growth in time deposits, partially offset by decreases in noninterest-bearing deposits, and money market and others. The composition shift to time deposits was primarily due to customers’ preference for high-rate deposit products driven by market rate increases as a result of the Federal Reserve’s rate increases and decreases in transaction volumes in escrow and 1031 exchanges accounts.

The following table sets forth the maturity of time deposits as of June 30, 2023:

The Company maintains ample access to liquidity, including highly liquid assets on our balance sheet and available unused borrowings from other financial institutions. The following table presents the Company's liquid assets and available borrowings as of dates presented:

The Company’s Board of Directors declared a quarterly cash dividend of $0.12 per share of its common stock. The cash dividend is payable on or about August 24, 2023 to all shareholders of record as of the close of business on August 10, 2023.

The Company repurchased 221,494 shares of its common stock at an average price of $8.40 during the second quarter of 2023. Since the announcement of the initial stock repurchase program in January 2019, the Company repurchased a total of 1.9 million shares of its common stock at an average repurchase price of $8.58 per share through June 30, 2023.

(1)The capital requirements are only applicable to the Bank, and the Company's ratios are included for comparison purpose.

(2)An additional 2.5% capital conservation buffer above the minimum capital ratios are required in order to avoid limitations on distributions, including dividend payments and certain discretionary bonuses to executive officers.

In addition to GAAP measures, management uses certain non-GAAP financial measures to provide supplemental information regarding the Company’s performance.

Pre-provision net revenue removes provision for credit losses and income tax expense. Management believes that this non-GAAP measure, when taken together with the corresponding GAAP financial measures (as applicable), provides meaningful supplemental information regarding our performance. This non-GAAP financial measure also facilitates a comparison of our performance to prior periods.

During the second quarter of 2021, the Bank purchased 638 loans from Hana for a total purchase price of $97.6 million. The Company evaluated $100.0 million of the loans purchased in accordance with the provisions of ASC 310-20, Nonrefundable Fees and Other Costs, which were recorded with a $8.9 million discount. As a result, the fair value discount on these loans is being accreted into interest income over the expected life of the loans using the effective yield method. Adjusted loan yield and net interest margin for the three months ended June 30, 2023, March 31, 2023 and June 30, 2022 excluded the impacts of contractual interest and discount accretion of the purchased Hana loans as management does not consider purchasing loan portfolios to be normal or recurring transactions. Management believes that presenting the adjusted average loan yield and net interest margin provide comparability to prior periods and these non-GAAP financial measures provide supplemental information regarding the Company’s performance.

(1)Annualized.

Adjusted allowance to gross loans ratio removes the impacts of purchased Hana loans, PPP loans and allowance on accrued interest receivable. Management believes that this ratio provides greater consistency and comparability between the Company’s results and those of its peer banks.

(1)Excludes purchased PPP loans of $942 thousand as of June 30, 2022.

(2)Excludes purchased accrued interest receivable on PPP loans of $13 thousand as of June 30, 2022.

OP Bancorp, the holding company for Open Bank (the “Bank”), is a California corporation whose common stock is quoted on the Nasdaq Global Market under the ticker symbol, “OPBK.” The Bank is engaged in the general commercial banking business in Los Angeles, Orange, and Santa Clara Counties, California, and Carrollton, Texas and is focused on serving the banking needs of small- and medium-sized businesses, professionals, and residents with a particular emphasis on Korean and other ethnic minority communities. The Bank currently operates ten full-service branch offices in Downtown Los Angeles, Los Angeles Fashion District, Los Angeles Koreatown, Cerritos, Gardena, Buena Park, and Santa Clara, California and Carrollton, Texas. The Bank also has four loan production offices in Pleasanton, California, Atlanta, Georgia, Aurora, Colorado, and Lynnwood, Washington. The Bank commenced its operations on June 10, 2005 as First Standard Bank and changed its name to Open Bank in October 2010. Its headquarters is located at 1000 Wilshire Blvd., Suite 500, Los Angeles, California 90017. Phone 213.892.9999; www.myopenbank.com.

Certain matters set forth herein constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including forward-looking statements relating to the Company’s current business plans and expectations regarding future operating results. These forward-looking statements are subject to risks and uncertainties that could cause actual results, performance or achievements to differ materially from those projected. These risks and uncertainties, some of which are beyond our control, include, but are not limited to: business and economic conditions, particularly those affecting the financial services industry and our primary market areas; the continuing effects of inflation and monetary policies, and the impacts of those circumstances upon our current and prospective borrowers and depositors; our ability to mitigate and manage deposit liabilities in a manner that balances the need to meet current and expected withdrawals while investing a sufficient portion of our assets to promote strong earning capacity; our ability to successfully manage our credit risk and the sufficiency of our allowance for credit losses; factors that can impact the performance of our loan portfolio, including real estate values and liquidity in our primary market areas, the financial health of our commercial borrowers, the success of construction projects that we finance, including any loans acquired in acquisition transactions; our ability to effectively execute our strategic plan and manage our growth; interest rate fluctuations, which could have an adverse effect on our profitability; external economic and/or market factors, such as changes in monetary and fiscal policies and laws, including the interest rate policies of the Federal Reserve, inflation or deflation, changes in the demand for loans, and fluctuations in consumer spending, borrowing and savings habits, which may have an adverse impact on our financial condition; continued or increasing competition from other financial institutions, credit unions, and non-bank financial services companies, many of which are subject to less restrictive or less costly regulations than we are; challenges arising from unsuccessful attempts to expand into new geographic markets, products, or services; restraints on the ability of Open Bank to pay dividends to us, which could limit our liquidity; increased capital requirements imposed by banking regulators, which may require us to raise capital at a time when capital is not available on favorable terms or at all; a failure in the internal controls we have implemented to address the risks inherent to the business of banking; inaccuracies in our assumptions about future events, which could result in material differences between our financial projections and actual financial performance, particularly with respect to the effects of predictions of future economic conditions as those circumstances affect our estimates for the adequacy of our allowance for credit losses and the related provision expense; changes in our management personnel or our inability to retain motivate and hire qualified management personnel; disruptions, security breaches, or other adverse events, failures or interruptions in, or attacks on, our information technology systems; disruptions, security breaches, or other adverse events affecting the third-party vendors who perform several of our critical processing functions; an inability to keep pace with the rate of technological advances due to a lack of resources to invest in new technologies; risks related to potential acquisitions; political developments, uncertainties or instability, catastrophic events, acts of war or terrorism, or natural disasters, such as earthquakes, fires, drought, pandemic diseases (such as the coronavirus) or extreme weather events, any of which may affect services we use or affect our customers, employees or third parties with which we conduct business; incremental costs and obligations associated with operating as a public company; the impact of any claims or legal actions to which we may be subject, including any effect on our reputation; compliance with governmental and regulatory requirements, including the Dodd-Frank Act and others relating to banking, consumer protection, securities and tax matters, and our ability to maintain licenses required in connection with commercial mortgage origination, sale and servicing operations; changes in federal tax law or policy; and our ability the manage the foregoing and other factors set forth in the Company’s public reports.

We describe these and other risks that could affect our results in Item 1A. “Risk Factors,” of our latest Annual Report on Form 10-K for the year ended December 31, 2022 and in our other subsequent filings with the Securities and Exchange Commission.

213.892.1192

Christine.oh@myopenbank.com

CONSOLIDATED BALANCE SHEETS (unaudited)