•Financial Results:

◦Net income of $5.1 million, compared to $6.1 million

◦Diluted earnings per share of $0.33, compared to $0.39

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

◦Net interest margin of 3.38%, compared to 3.40%

◦Provision for credit losses of $1.4 million, compared to none

◦Total assets of $2.14 billion, compared to $2.15 billion

◦Gross loans of $1.76 billion, compared to $1.72 billion

◦Total deposits of $1.83 billion, compared to $1.86 billion

•Credit Quality:

◦Allowance for credit losses to gross loans of 1.23%, compared to 1.21%

◦Net charge-offs(1) to average gross loans(2) of 0.11%, compared to 0.00%

◦Nonperforming loans to gross loans of 0.24%, compared to 0.20%

◦Criticized loans(3) to gross loans of 0.78%, compared to 0.44%

•Capital Levels:

◦Remained well-capitalized with a Common Equity Tier 1 (“CET1”) ratio of 12.09%

◦Book value per common share increased to $12.17, compared to $12.16

◦Paid quarterly cash dividend of $0.12 per share for the periods

◦Announced a new program to repurchase up to 750,000 shares of its common stock

___________________________________________________________

(1)    Annualized.

(2)    Includes loans held for sale.

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

LOS ANGELES, October 26, 2023 — OP Bancorp (the “Company”) (NASDAQ: OPBK), the holding company of Open Bank (the “Bank”), today reported its financial results for the third quarter of 2023. Net income for the third quarter of 2023 was $5.1 million, or $0.33 per diluted common share, compared with $6.1 million, or $0.39 per diluted common share, for the second quarter of 2023, and $8.7 million, or $0.55 per diluted common share, for the third quarter of 2022.

Min Kim, President and Chief Executive Officer:

“Recognizing the continued challenges in banking environment, we have been actively engaging with our borrowers to provide support in this high interest rate environment. As we maintain a healthy level of liquidity, our primary emphasis has been on fine-tuning our deposit composition to control costs effectively. Our noninterest-bearing deposits stand at 33% of total deposits showing promising signs of stability in our net interest margin,” said Min Kim, President and Chief Executive.

“We also expanded our branch network by opening our eleventh full service branch in Las Vegas, Nevada during the quarter. Although we anticipate additional challenges in the short term, we remain optimistic about achieving our longer-term goals.”

(1)Includes loans held for sale.

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

(3)Annualized.

(4)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 and $79 thousand for the three months ended June 30, 2023 and September 30, 2022, respectively, was from commercial real estate (“CRE”) and Commercial and Industrial (“C&I”) 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 increased $0.1 million, or 0.4%, primarily due to higher interest income on loans and interest-bearing deposits in other banks, mostly offset by higher interest expense on deposits. Net interest margin was 3.38%, a decrease of 2 basis points from 3.40%.

◦A $1.0 million increase in interest income on loans was primarily due to a 11 basis point increase in average yield as a result of the Federal Reserve’s rate increases.

◦A $113 thousand increase in interest income on interest-bearing deposits in other banks was primarily due the Federal Reserve’s rate increases.

◦A $1.1 million increase in interest expense on interest-bearing deposits was primarily due to a 24 basis point increase in average cost.

Net interest income decreased $3.0 million, or 14.9%, primarily due to higher interest expense on deposits, partially offset by higher interest income on loans. Net interest margin was 3.38%, a decrease of 93 basis points from 4.31%.

◦A $10.1 million increase in interest expense on deposits was primarily due to a $274.7 million increase in average balance and a 301 basis point increase in average cost driven by the Federal Reserve’s rate increases.

◦A $6.5 million increase in interest income on loans was primarily due to a $126.2 million increase in average balance and a 109 basis point increase in average yield as a result of the Federal Reserve’s rate increases.

(1)     Provision for credit losses on off-balance sheet exposure of $56 thousand for the three months ended September 30, 2023 was included in total provision for credit losses. Prior to CECL adoption, reversal of provisions for credit losses on off-balance sheet exposure of $6 thousand for the three months ended September 30, 2022 was included in other expenses.

The Company recorded a $1.4 million provision for credit losses, an increase of $1.4 million, compared with no provision for credit losses. The increase was primarily due to a $488 thousand in net charge-offs, a $356 thousand increase from loan balance and historical loss factor changes, and a $575 thousand increase in qualitative factor adjustments in the third quarter of 2023.

The Company recorded a $1.4 million provision for credit losses, compared with a $656 thousand provision for credit losses.

Noninterest income decreased $1.0 million, or 27.9%, primarily due to lower gain on sale of loans.

◦Gain on sale of loans was $1.2 million, a decrease of $919 thousand from $2.1 million, primarily due to a lower SBA loan sold amount and a lower average sales premium. The Bank sold $23.4 million in SBA loans at an average premium rate of 6.50%, compared to the sale of $36.8 million at an average premium rate of 6.64%.

Noninterest income decreased $2.2 million, or 46.0%, primarily due to lower gain on sale of loans.

◦Gain on sale of loans was $1.2 million, a decrease of $2.3 million from $3.5 million, primarily due to a lower SBA loan sold amount and a lower average sales premium. The Bank sold $23.4 million in SBA loans at an average premium rate of 6.50%, compared to the sale of $59.3 million at an average premium rate of 6.67%.

Noninterest expense decreased $765 thousand, or 6.2%, primarily due to lower salaries and employee benefits, and data processing communication, partially offset by a higher occupancy and equipment.

◦Salaries and employee benefits decreased $667 thousand primarily due to a lower accrual on employee incentives.

◦Data processing and communication decreased $177 thousand primarily due to an accrual adjustment for a credit received on data processing fees.

◦Occupancy and equipment increased $108 thousand primarily due to increases in leasehold improvements and equipment expense accrual adjustments.

Noninterest expense decreased $803 thousand, or 6.5%, primarily due to lower foundation donation and other contributions, salaries and employee benefits, and data processing and communication.

◦Foundation donations and other contributions decreased $346 thousand, primarily due to a lower donation accrual for Open Stewardship as a result of lower net income.

◦Salaries and employee benefits decreased $329 thousand, primarily due to a lower accrual on employee incentives.

◦Data processing and communication decreased $217 thousand, primarily due to an accrual adjustment for a credit received on data processing fees.

Income tax expense was $1.9 million and the effective tax rate was 27.1%, compared to income tax expense of $2.5 million and the effective rate of 28.8%. The decrease in the effective tax rate was primarily due to adjustments for differences between the prior year tax provision and the final tax returns that were applied in the third quarter of 2023.

Income tax expense was $1.9 million and the effective tax rate was 27.1%, compared to income tax expense of $3.5 million and an effective rate of 28.9%. The decrease in the effective tax rate was primarily due to return to provision adjustments applied in the third quarter of 2023.

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 $1.76 billion as of September 30, 2023, up $43.3 million from June 30, 2023, primarily due to new loan originations and net line advances, partially offset by loan sales, and payoffs and paydowns.

New loan originations, net line advances, and loan payoffs and paydowns were $96.1 million $25.5 million, and $58.4 million for the third quarter of 2023, respectively, compared with $112.7 million $(26.0) million and $43.2 million for the second quarter of 2023, respectively.

Gross loans were $1.76 billion as of September 30, 2023, up $141.5 million from September 30, 2022, primarily due to new loan originations of $451.8 million and loan purchases of $71.9 million, primarily offset by loan sales of $136.2 million and loan payoffs and paydowns of $217.2 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)    Allowance for credit losses as of September 30, 2023 and June 30, 2023 were calculated under the CECL methodology while allowance for loan losses for September 30, 2022 was calculated under the incurred loss methodology.

(1)Excludes the guaranteed portion of SBA loans that are in liquidation totaling $5.2 million, $5.4 million and $442 thousand as of September 30, 2023, June 30, 2023 and September 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 low levels of nonperforming loans and net charge-offs. Our allowance remained strong with an adjusted allowance to gross loans ratio of 1.26%.

◦Loans 30-89 days past due and still accruing were $8.4 million or 0.47% of gross loans as of September 30, 2023, compared with $5.2 million or 0.30% as of June 30, 2023. The increase was mainly due to one home mortgage loan and one CRE and C&I relationship. Subsequent to September 30, 2023, past due payments on five loans totaling $3.5 million were collected, and the loans are now current.

◦Nonperforming loans were $4.2 million or 0.24% of gross loans as of September 30, 2023, compared with $3.4 million or 0.20% as of June 30, 2023. The increase was due to one home mortgage loan in Los Angeles with loan to value below 60% and one USDA loan with 80% government guaranty which has been written down to its fair value per the impairment analysis.

◦Nonperforming assets were $4.2 million or 0.20% of total assets as of September 30, 2023, compared with $3.4 million or 0.16% as of June 30, 2023. The Company did not have OREO as of September 30, 2023 or 2022.

◦Criticized loans were $13.8 million or 0.78% of gross loans as of September 30, 2023, compared with $7.5 million or 0.44% as of June 30, 2023. The increase was mainly due to one CRE loan to a motel in San Diego for $4.4 million and two relationships already mentioned under the nonperforming loans above.

Subsequent to September 30, 2023, two loans totaling $1.4 million have been upgraded to Pass risk rating based on satisfactory cash flows.

◦Net charge-offs were $488 thousand or 0.11% of average loans in the third quarter of 2023, compared to net charge-offs of $12 thousand, or 0.00%, of average loans in the second quarter of 2023 and net recoveries of $5 thousand, or 0.00%, of average loans in the third quarter of 2022.

Total deposits were $1.83 billion as of September 30, 2023, down $34.5 million from June 30, 2023, primarily due to decreases in noninterest-bearing deposits. Noninterest-bearing deposits, as a percentage of total deposits, decreased to 33.2% from 34.1%. The composition shift to money market and time deposits was primarily due to customers’ continued preference for high-rate deposit products driven by the Federal Reserve’s rate increases.

Total deposits were $1.83 billion as of September 30, 2023, up $8.4 million from September 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.

The following table sets forth the maturity of time deposits as of September 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 November 23, 2023 to all shareholders of record as of the close of business on November 9, 2023.

The Company has an active stock repurchase program to repurchase up to 750,000 shares of its common stock, which was announced in August 2023. There was no repurchase during the third quarter of 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 September 30, 2023, June 30, 2023 and September 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 $57 thousand as of September 30, 2022.

(2)Excludes purchased accrued interest receivable on PPP loans of $1 thousand as of September 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 eleven full-service branch offices in Downtown Los Angeles, Los Angeles Fashion District, Los Angeles Koreatown, Cerritos, Gardena, Buena Park, and Santa Clara, California, Carrollton, Texas and Las Vegas, Nevada. 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 manage deposit liabilities and liquidity sources 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 to assess, adjust and monitor 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; the impacts of credit quality on our earnings and the related effects of increases to the reserve on our net income; 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)