OP Bancorp

03/13/2026 | Press release | Distributed by Public on 03/13/2026 14:32

Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)

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,
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.
Year Ended December 31,
($ in thousands, except share and per share data) 2025 2024
Income Statement Data:
Interest income $ 150,328 $ 137,620
Interest expense 71,980 72,012
Net interest income 78,348 65,608
Provision for credit losses 3,580 2,757
Noninterest income 16,332 16,427
Noninterest expense 55,773 50,199
Income before income taxes 35,327 29,079
Income tax expense 9,692 8,010
Net income 25,635 21,069
Per Share Data:
Basic EPS $ 1.72 $ 1.39
Diluted EPS 1.72 1.39
Book value per common share, at period-end 15.31 13.83
Shares of common stock outstanding, at period-end 14,889,540 14,819,866
Performance Ratios:
Return on average assets ("ROA") 1.01 % 0.92 %
Return on average equity ("ROE") 11.91 10.68
Yield on average total loans 6.49 6.63
Yield on average interest-earning assets 6.13 6.26
Cost of average interest-bearing liabilities 4.13 4.74
Cost of deposits 3.13 3.48
Net interest margin 3.19 2.99
Efficiency ratio(1)
58.91 61.19
(1) Represent noninterest expense divided by the sum of net interest income and noninterest income.
As of December 31,
($ in thousands) 2025 2024
Balance Sheet Data:
Gross loans $ 2,193,669 $ 1,956,852
Allowance for credit losses on loans 27,975 24,796
Total assets 2,650,226 2,366,013
Total deposits 2,280,547 2,027,285
Shareholders' equity 227,893 204,993
Asset Quality Data:
Nonperforming loans to gross loans 0.64 % 0.40 %
Allowance for credit losses on loans to nonperforming loans 199 317
Allowance for credit losses on loans to gross loans 1.28 1.27
Balance Sheet and Capital Ratios:
Gross loans to deposits 96 % 97 %
Noninterest-bearing deposits to deposits 23 25
Average equity to average total assets 8 9
Tier 1 leverage capital ratio 8.99 9.27
Common equity tier 1 capital ratio 10.93 11.35
Tier 1 risk-based capital ratio 10.93 11.35
Total risk-based capital ratio 13.31 12.60
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
has identified several accounting policies that, due to the estimates, assumptions and judgments inherent in those policies, are critical in understanding our financial statements.
The following is a discussion of the critical accounting policies and significant estimates that require us to make complex and subjective judgments. For further information on the Company's accounting policies, refer to Note 1. Significant Accounting Policiesto the Consolidated Financial Statements in this Form 10-K.
Allowance for Credit Losses
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 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, 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, 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 $11.0 million and $15.9 million higher than our estimate for the allowance as of December 31, 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, 2025. Management believes that the estimate for the allowance for credit losses was reasonable and appropriate as of December 31, 2025.
In order to quantify the credit risk impact of other trends and changes within the loan portfolio, we utilize qualitative adjustments to the modeled estimated loss approaches. The parameters for making adjustments are established under a Credit Risk Matrix that provides different possible scenarios for each of the factors listed below. The Credit Risk Matrix and the possible scenarios enable the Bank to qualitatively adjust the loss rates. This matrix considers the following nine factors, which are patterned after the guidelines provided under the Federal Financial Institutions Examination Council Interagency Policy Statement on the Allowance for Credit Losses, updated to reflect the adoption of CECL:
• Changes in lending policies and procedures, including changes in underwriting standards and practices for collection, charge-offs, and recoveries;
• Actual and expected changes in national and local economic and business conditions and developments in which the institution operates that affect the collectivity of loans;
• Changes in the nature and volume of the loan portfolio;
• Changes in the experience, ability, and depth of lending management and staff;
• Changes in the volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified loans;
• Changes in the quality of the credit review function;
• Changes in the value of the underlying collateral for loans that are not collateral-dependent;
• The existence, growth, and effect of any concentrations of credit, and
• The effect of other external factors, such as the regulatory, legal and technological environments; competition; and events such as natural disasters.
RESULTS OF OPERATIONS
Net Interest Income
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. 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: (i) weighted average balances, the total interest income from interest-earning assets, and the resulting average yields; (ii) average balances, the total interest expense on interest-bearing liabilities, and the resulting average rates; (iii) net interest income; (iv) the interest rate spread; and (v) the net interest margin:
Year Ended December 31,
2025 2024
($ in thousands) Average
Balance 		Interest
and Fees 		Yield /
Rate 		Average
Balance 		Interest
and Fees 		Yield /
Rate
Interest-earning assets:
Interest-bearing deposits in other banks $ 135,551 $ 5,882 4.34 % $ 109,579 $ 5,766 5.26 %
Other investments(1)
16,934 1,260 7.44 16,371 1,266 7.74
AFS debt securities 190,798 6,312 3.31 194,969 6,227 3.19
CRE 1,053,827 65,298 6.20 929,890 56,883 6.12
SBA 279,600 26,223 9.38 263,442 27,978 10.62
C&I 203,997 14,827 7.27 178,533 13,765 7.71
Home mortgage 572,093 30,501 5.33 504,030 25,648 5.09
Consumer 261 25 9.62 835 87 10.32
Loans(2)
2,109,778 136,874 6.49 1,876,730 124,361 6.63
Total interest-earning assets 2,453,061 150,328 6.13 2,197,649 137,620 6.26
Noninterest-earning assets 81,066 87,745
Total assets $ 2,534,127 $ 2,285,394
Interest-bearing liabilities:
Money market deposits and others $ 394,603 $ 13,705 3.47 % $ 346,104 $ 14,135 4.08 %
Time deposits 1,273,661 55,144 4.33 1,084,107 53,986 4.98
Total interest-bearing deposits 1,668,264 68,849 4.13 1,430,211 68,121 4.76
Borrowings 72,235 2,853 3.95 88,186 3,891 4.41
Subordinated note, net 3,502 278 7.93 - - -
Total interest-bearing liabilities 1,744,001 71,980 4.13 1,518,397 72,012 4.74
Noninterest-bearing liabilities:
Noninterest-bearing deposits 532,823 528,877
Other noninterest-bearing liabilities 42,152 40,839
Total noninterest-bearing liabilities 574,975 569,716
Shareholders' equity 215,151 197,281
Total liabilities and shareholders' equity $ 2,534,127 $ 2,285,394
Net interest income / interest rate spreads $ 78,348 2.00 % $ 65,608 1.52 %
Net interest margin 3.19 % 2.99 %
Cost of deposits 3.13 % 3.48 %
Cost of funds 3.16 % 3.52 %
(1)Includes FHLBand PCBB stocks, CRA qualified mutual fund and interest-earning time deposits with banks.
(2)Include non-accrual loans and loans held-for-sale.
Changes 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.
Year Ended December 31,
2025 vs 2024
Increases (Decreases) Due to Change in
($ in thousands) Volume Rate Total
Interest-earning assets:
Interest-bearing deposits in other banks $ 1,247 $ (1,131) $ 116
Other investments 41 (47) (6)
AFS debt securities (93) 178 85
CRE 7,630 785 8,415
SBA 1,616 (3,371) (1,755)
Commercial and industrial 2,013 (951) 1,062
Home mortgage 4,241 612 4,853
Consumer (58) (4) (62)
Total loans 15,442 (2,929) 12,513
Total interest-earning assets 16,637 (3,929) 12,708
Interest-bearing liabilities:
Money market deposits and others 1,711 (2,141) (430)
Time deposits 8,840 (7,682) 1,158
Total interest-bearing deposits 10,551 (9,823) 728
Borrowings (667) (371) (1,038)
Subordinated note, net 139 139 278
Total interest-bearing liabilities 10,023 (10,055) (32)
Net interest income $ 6,614 $ 6,126 $ 12,740
2025 Net interest income increased year-over-year, primarily driven by higher interest income on loans.
Interest income on loans increased by $12.5 million or 10%, primarily due to growth in average loan balances, partially offset by a decline in loan yields, reflecting the impact of downward repricing on adjustable-rate loans and lower rates on new originations following federal funds rate cut.
Interest expense on interest-bearing liabilities remained relatively unchanged. Lower average interest-bearing costs, reflecting the repricing of deposit products in response to the federal funds rate cut was mostly offset by an increase in average deposit balances.
As a result, net interest margin increased by 20 basis points, as a 19% increase in net interest income outpaced a 12% increase in average earning assets, primarily driven by a 48 basis point increase in net interest spread.
Provision for Credit Losses
Provision for credit losses was $3.6 million for 2025, compared with $2.8 million in the same period a year ago. The increase primarily reflects higher quantitative reserves related to risk-rating downgrades and loan growth, higher net charge-offs, and increased qualitative reserves following management's reassessment of underlying assumptions. These increases were partially offset by lower specific reserves.
Noninterest Income
While interest income remains the largest single component of total revenues, noninterest income is also an important component. A portion of our noninterest income is associated with SBA lending activity, consisting of gains on the sale of loans sold in the secondary market and servicing income from loans sold with servicing retained. Other sources of noninterest income include service charges on deposit.
The following table sets forth the various components of our noninterest income for the years ended December 31, 2025 and 2024:
Year Ended December 31,
($ in thousands) 2025 2024 $ Change % Change
Noninterest income:
Service charges on deposits $ 3,204 $ 3,261 $ (57) (2) %
Loan servicing fees, net of amortization 3,281 2,898 383 13
Gains on sale of loans 7,070 8,313 (1,243) (15)
Other income 2,777 1,955 822 42
Total noninterest income $ 16,332 $ 16,427 $ (95) (1) %
Noninterest income for 2025 remained relatively stable year-over-year.
Gains on sale of loans decreased by $1.2 million, or 15%, primarily due to lower average premium rates. The Bank sold $121.7 million in SBA loans at an average premium of 7.20%, compared to sale of $127.2 million at an average premium of 7.97%.
Other income increased by $822 thousand, or 42%, primarily driven by higher credit related fees.
Noninterest Expense
The following table sets forth the various components of our noninterest expense for the years ended December 31, 2025 and 2024:
Year Ended December 31,
($ in thousands) 2025 2024 $ Change % Change
Noninterest expense:
Salaries and employee benefits $ 35,987 $ 31,717 $ 4,270 13 %
Occupancy and equipment 6,760 6,673 87 1
Data processing and communication 1,456 2,245 (789) (35)
Professional fees 1,793 1,535 258 17
FDIC insurance and regulatory assessments 1,783 1,672 111 7
Promotion and advertising 505 533 (28) (5)
Directors' fees 677 640 37 6
Foundation donation and other contributions 2,570 2,108 462 22
Other expenses 4,242 3,076 1,166 38
Total noninterest expense $ 55,773 $ 50,199 $ 5,574 11 %
Noninterest expense for 2025 increased by $5.6 million, or 11%, primarily due to higher salaries and employee benefits, and other expenses, partially offset by a reduction in data processing and communication.
Salaries and employee benefits increased by $4.3 million, or 13%, primarily due to staffing growth and annual salary adjustments in 2025. Higher incentive accruals further contributed to the increase.
Other expenses increased by $1.2 million, or 38%, primarily due to higher credit expenses.
Data processing and communication decreased by $789 thousand or 35%, primarily due to contractual credits received upon conversion to a new core banking system in the fourth quarter of 2024. These credits have now been largely utilized. Management expects that, even after the conversion credit are fully exhausted, the overall expense will remain at a structurally lower run rate, driven by improved vendor pricing and increased operating efficiencies realized from the new core platform.
Income Tax Expense
Income tax expense increased to $9.7 million in 2025, up from $8.0 million in 2024, primarily due to higher pre-tax income. The effective tax rate remained relatively stable at 27.4% in 2025, compared to 27.6% in 2024. For additional information on income taxes, see Note 10. Income Taxesto the Consolidated Financial Statements in this Form 10-K.
FINANCIAL CONDITION
Investment Portfolio
The securities portfolio is the second largest component of our interest earning assets, and the structure and composition of this portfolio is important to an analysis of our financial condition. The portfolio serves the following purposes: (i) it provides a source of pledged assets for securing certain deposits and borrowed funds, as may be required by law or by specific agreement with a depositor or lender; (ii) it provides liquidity to cushion for cash flows from customer loan and deposit activities; (iii) it can be used as an interest rate risk management tool, because it provides a large base of assets, the maturity and interest rate characteristics of which can be changed more readily than the loan portfolio to better match changes in the deposit base and our other funding sources; and (iv) it is an alternative interest-earning use of funds when loan demand is weak or when deposits grow more rapidly than loans.
We classify our debt securities as either AFS or held-to-maturity ("HTM") at the time of purchase. Accounting guidance requires AFS debt securities to be marked to fair value with an offset to accumulated other comprehensive income (loss), a component of shareholders' equity. Monthly adjustments are made to reflect changes in the fair value of our AFS debt securities.
The following table summarizes the fair value of the AFS debt securities portfolio as of the dates presented:
December 31, 2025 December 31, 2024
Ratings as of
December 31, 2025 (1)
($ in thousands)
Amortized
Cost
Fair
Value
Net
Unrealized
Loss
Amortized
Cost
Fair
Value
Net
Unrealized
Loss
AAA/AA
A
U.S. Government agencies or sponsored agency securities:
Residential mortgage-backed securities $ 35,279 $ 32,694 $ (2,585) $ 41,521 $ 37,076 $ (4,445) 100 % - %
Residential collateralized mortgage obligations 165,103 154,463 (10,640) 160,187 143,041 (17,146) 100 -
Municipal securities - tax exempt 5,913 5,628 (285) 5,830 5,792 (38) - 100
Total AFS debt securities $ 206,295 $ 192,785 $ (13,510) $ 207,538 $ 185,909 $ (21,629) 97 % 3 %
(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 $6.9 million, or 4%, to $192.8 million as of December 31, 2025 from December 31, 2024. The increase was primarily due to a $29.6 million increase in purchases in residential collateralized mortgage obligations during the third quarter of 2025 and a $8.1 million reduction in unrealized losses in 2025, partially offset by $30.7 million in paydowns of residential mortgage-backed securities and collateralized mortgage obligations. For additional information on AFS debt securities and the allowance for credit losses, see Note 1. Significant Accounting Policiesand Note 2. Securitiesto the Consolidated Financial Statements in this Form 10-K.
The following table sets forth certain information regarding contractual maturities and the weighted average yields of our investment securities as of the dates presented. Weighted-average yields are computed based on amortized cost balances and yields on tax-exempt securities are not presented on a tax-equivalent basis. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties.
December 31, 2025
Due in One Year or Less Due after One Year Through Five Years Due after Five Years Through Ten Years Due after Ten Years
($ in thousands)
Amortized
Cost
Weighted Average Yield
Amortized Cost
Weighted Average Yield
Amortized Cost
Weighted Average Yield
Amortized Cost
Weighted Average Yield
U.S. Government agencies or sponsored agency securities:
Residential mortgage-backed securities $ 30 2.25 % $ 524 2.18 % $ 15,391 2.27 % $ 19,334 2.12 %
Residential collateralized mortgage obligations - - 59 1.81 1,478 1.54 163,566 3.35
Municipal securities - tax exempt - - - - - - 5,913 5.69
Total AFS debt securities $ 30 2.25 % $ 583 2.15 % $ 16,869 2.20 % $ 188,813 3.30 %
Loans
Our loans represent the largest portion of our earning assets, substantially greater than the securities portfolio or any other asset category, and the quality and diversification of the loan portfolio is an important consideration when reviewing our financial condition.
The loan distribution table that follows sets forth our gross loans outstanding, and the percentage distribution in each category as of the dates indicated:
December 31, 2025 December 31, 2024
Change
($ in thousands) Amount % of Total Amount % of Total
$
%
CRE $ 1,132,223 52 % $ 980,247 50 % $ 151,976 2 %
SBA-real estate 242,041 11 231,962 12 10,079 (1)
SBA-non-real estate 22,482 1 21,748 1 734 -
C&I 221,270 10 213,097 11 8,173 (1)
Home mortgage 574,300 26 509,524 26 64,776 -
Consumer 1,353 0 274 0 1,079 -
Gross loans receivable 2,193,669 100 % 1,956,852 100 % 236,817 12 %
Allowance for credit losses (27,975) (24,796) (3,179) 13 %
Loans receivable, net(1)
$ 2,165,694 $ 1,932,056 $ 233,638 12 %
(1) Includes net deferred loan costs (fees) and net unamortized premiums (discounts) of $(331) thousand and $(702) thousand as of December 31, 2025 and 2024, respectively.
Gross loans increased $236.8 million, or 12%, to $2.19 billion as of December 31, 2025 from December 31, 2024. The growth was primarily attributable to new loan productions in CRE and home mortgage loans, partially offset by payoffs in CRE and home mortgage loans, SBA loan sales, and paydowns in CRE loans.
Our loan portfolio is concentrated in CRE, which includes unguaranteed balances in SBA loans, home mortgage and commercial (primarily manufacturing, wholesale, and services oriented entities). We do not have any material concentrations by industry or group of industries in the loan portfolio. However, 89% of our gross loans were secured by real property as of December 31, 2025, compared to 88% as of December 31, 2024.
The following tables presents the contractual loan maturities by loan category and the contractual distribution of loans to changes in interest rates as of December 31, 2025:
December 31, 2025
($ in thousands) Within one year After one year through five years After five years through fifteen years After fifteen years Total
CRE $ 161,165 $ 596,865 $ 346,170 $ 28,023 $ 1,132,223
SBA-real estate 587 18 18,866 222,570 242,041
SBA-non- real estate 162 2,867 19,453 - 22,482
C&I 150,509 37,077 33,684 - 221,270
Home mortgage 85 - 902 573,313 574,300
Consumer 1,353 - - - 1,353
Gross loans $ 313,861 $ 636,827 $ 419,075 $ 823,906 $ 2,193,669
Distribution of loans to changes in interest rates:
Fixed rate $ 218,538 $ 272,569 $ 15,287 $ 170,346 $ 676,740
Hybrid rate - 202,200 325,852 361,930 889,982
Variable rate 95,323 162,058 77,936 291,630 626,947
Gross loans $ 313,861 $ 636,827 $ 419,075 $ 823,906 $ 2,193,669
Loan Concentration:We have established concentration limits in our loan portfolio for CRE loans, C&I loans, and unsecured lending, among others. All loan types are within established limits. We use underwriting guidelines to assess the borrowers' historical cash flow to determine debt service, and we further stress test the debt service under higher interest rate scenarios. Financial and performance covenants are used in commercial lending agreements to allow us to react to a borrower's deteriorating financial condition, should that occur.
Loans - CRE: Our CRE loans include owner-occupied and non-occupied properties. We originate a mix of fixed- and adjustable-rate loans, with adjustable rate tied to the Wall Street Journalprime rate. As of December 31, 2025, our CRE loans totaled $1.13 billion, up from $980.2 million as of December 31, 2024. In 2025, we originated $269.8 million in new CRE loans. Approximately 80% of the CRE portfolio consisted of fixed/hybrid rated loans as of December 31, 2025, compared to 76% as of December 31, 2024. Our policy sets the maximum loan-to-value ("LTV") for CRE at 70%. Our weighted average LTV ratio was 49% as of December 31, 2025, compared to 54% as of December 31, 2024.
Loans - SBA: We are designated as an SBA Preferred Lender under the SBA Preferred Lender Program. We offer mostly SBA 7(a) variable-rate loans. We generally sell the 75% guaranteed portion of the SBA loans that we originate. Our SBA loans are typically made to small-sized manufacturing, wholesale, retail, hotel/motel and service businesses for working capital needs or business expansions. SBA loans have maturities up to 25 years. Typically, non-real estate secured loans mature in less than 10 years. Collateral may also include inventory, accounts receivable and equipment, and may include personal guarantees. Our unguaranteed SBA loans collateralized by real estate are monitored by collateral type and included in our CRE Concentration Guidance.
As of December 31, 2025, our SBA portfolio totaled $264.5 million, up from $253.7 million as of December 31, 2024. Of the total portfolio, $242.0 million was secured by real estate, while $22.5 million was unsecured or secured by business assets as of December 31, 2025. In comparison, as of December 31, 2024, $232.0 million was secured by real estate and $21.7 million was either unsecured or secured by business assets.
Loans - C&l:C&I loans totaled $221.3 million as of December 31, 2025, up from $213.1 million as of December 31, 2024.
Loans - Home Mortgage: We primarily originate non-qualified, alternative documentation single-family home mortgage loans through our retail branches and our correspondent lender network. Our primary loan product is a five-year or seven-year hybrid adjustable-rate mortgage, which reprices after the initial five- or
seven-year lock period to a selected SOFR plus applicable margin. We also purchase residential mortgage loans from third-party originators based on the underwriting quality and file review as opportunities arise.
Home mortgage loans totaled $574.3 million as of December 31, 2025, up from $509.5 million as of December 31, 2024. In 2025, we originated $136.9 million in new home mortgage loans.
Allowance for Credit Losses on Loans
The Company maintains its allowance for credit losses at a level it believes is adequate to absorb expected credit losses in accordance with GAAP. For further details on the policies, methodologies and significant judgments used in determining the allowance, refer to Item 7. MD&A. Critical Accounting Estimates and Note 1. Significant Accounting Policiesand Note 3. Loans and Allowance for Credit Losses on Loansto the Consolidated Financial Statements in this Form 10-K.
The allowance for credit losses on loans was $28.0 million as of December 31, 2025, an increase of $3.2 million from $24.8 million as of December 31, 2024. The increase was primarily driven by higher quantitative reserves related to risk-rating downgrades and loan growth, higher net charge-offs, and increased qualitative reserves following management's reassessment of underlying assumptions. These increases were partially offset by lower specific reserves.
The following table presents net charge-offs and the net charge-offs to average gross loans ratios based on the loan categories as of December 31, 2025 and 2024:
December 31,
2025 2024
($ in thousands) Net (Charge-offs) Recoveries
Average Gross Loans (1)
% of Net Charge-offs (Recoveries) to Average Gross Loans Net (Charge-offs) Recoveries
Average Gross Loans (1)
% of Net Charge-offs (Recoveries) to Average Gross Loans
CRE $ (49) $ 1,053,364 0.00 % $ - $ 928,583 - %
SBA-real estate (413) 240,195 (0.17) (66) 232,758 (0.03)
SBA-non- real estate (14) 22,363 (0.06) - 19,440 -
C&I 80 203,793 0.04 (44) 178,085 (0.02)
Home mortgage (91) 572,093 (0.02) - 504,030 -
Consumer - $ 261 - - 835 -
Total $ (487) $ 2,092,069 (0.02) % - $ (110) $ 1,863,731 (0.01) %
Gross loans $ 2,193,669 $ 1,956,852
Allowance for credit losses to gross loans 1.28 % 1.27 %
(1)Excludes loans held-for-sale.
The following table presents an allocation of the allowance for credit losses by portfolio as of December 31, 2025 and 2024:
December 31, 2025 December 31, 2024
Change
($ in thousands) Amount % to Total Amount % to Total
$
%
CRE $ 10,427 37 % $ 9,290 38 % $ 1,137 12 %
SBA-real estate 6,385 23 5,557 22 828 15
SBA-non- real estate 587 2 418 2 169 40
C&I 1,611 6 1,844 7 (233) (13)
Home mortgage 8,956 32 7,684 31 1,272 17
Consumer 9 0 3 0 6 200
Total $ 27,975 100 % $ 24,796 100 % $ 3,179 13 %
Nonperforming Assets
Loans are considered delinquent when principal or interest payments are past due 30 days or more. Delinquent loans may remain on accrual status between 30 days and 90 days past due. Loans on which the accrual of interest has been discontinued are designated as non-accrual loans. Typically, the accrual of interest on loans is discontinued when principal or interest payments are 90 days past due or when, in the opinion of management, there is a reasonable doubt as to collectability in the normal course of business. When loans are placed on non-accrual status, all interest previously accrued, but not collected, is reversed against current period interest income. Income on non-accrual loans is subsequently recognized only to the extent that cash is received, and the loan's principal balance is deemed collectible. Loans are restored to accrual status when loans become well-secured and management believes full collectability of principal and interest is probable.
Nonperforming loans include loans that are 90 days past due and still accruing, loans accounted for on a non-accrual basis, and accruing restructured loans. Nonperforming assets consist of nonperforming loans plus other real estate owned ("OREO").
Nonperforming loans increased by $6.3 million to $14.1 million as of December 31, 2025 from December 31, 2024. The increase was primarily driven by reclassifications of $5.9 million in SBA - real estate loans and $1.8 million in C&I from performing loans.
Real estate acquired through foreclosure or by deed-in-lieu of foreclosure is classified as OREO until sold, and is initially recorded at fair value less costs to sell at the time of acquisition, establishing a new cost basis. Subsequent declines in fair value are recognized through valuation allowance and charged to expense. During 2025, the Company recorded declines in the fair value of OREO, a portion of which was charged to expense, with the remaining amount representing the SBA-guaranteed portion recorded as a receivable. The OREO, which was secured by a mixed-use property in Los Angeles, and 90% guaranteed by the SBA, was sold during the fourth quarter of 2025.
The following table sets forth the allocation of our nonperforming assets among our different asset categories as of the dates indicated. Nonperforming loans include non-accrual loans, loans past due 90 days or more and still accruing interest, and loans modified under troubled debt restructurings.
Change
($ in thousands) December 31, 2025 December 31, 2024
$
% or Basis Point
Nonaccrual loans $ 14,071 $ 7,820 $ 6,251 80 %
Past due loans 90 days or more and still accruing - - - - %
Total nonperforming loans(1)
14,071 7,820 6,251 80 %
OREO - 1,237 (1,237) (100) %
Total nonperforming assets $ 14,071 $ 9,057 $ 5,014 55 %
Nonperforming loans to gross loans 0.64 % 0.40 % NA 24
Nonperforming assets to total assets 0.53 0.38 NA 15
Allowance for credit losses on loans to nonperforming loans 199 317 NA (118) %
(1)Excludes guaranteed portion of SBA loans of $20.9 million and $16.3 million as of December 31, 2025 and 2024, respectively.
Deposits and Other Sources of Funds
We gather deposits primarily through our branch locations. We offer a variety of deposit products including demand deposits accounts, interest-bearing products, savings accounts and certificate of deposits. We dedicate continuing effort into gathering noninterest demand deposits accounts through marketing to our existing and new loan customers, customer referrals, our marketing staff and various involvement with community networks.
The following table show the composition of deposits by type as of the dates presented:
December 31, 2025 December 31, 2024
Change
($ in thousands) Amount Percent Amount Percent
$
%
Noninterest-bearing demand $ 520,865 23 % $ 504,928 25 % $ 15,937 3 %
Interest-bearing:
Money market and others 388,066 17 329,095 16 58,971 18
Time deposits (greater than $250) 683,956 30 565,813 28 118,143 21
Time deposits ($250 or less) 687,660 30 627,449 31 60,211 10
Total interest-bearing 1,759,682 77 1,522,357 75 237,325 16
Total deposits $ 2,280,547 100 % $ 2,027,285 100 % $ 253,262 12 %
The following tables set forth the maturity of time deposits as of December 31, 2025:
Maturity Within:
($ in thousands) Three
Months 		Three to
Six Months 		Six to Twelve
Months 		After
Twelve Months 		Total
Time deposits (greater than $250) $ 319,815 $ 119,285 $ 94,984 $ 149,872 $ 683,956
Time deposits ($250 or less) 323,978 141,651 121,394 100,637 687,660
Total time deposits $ 643,793 $ 260,936 $ 216,378 $ 250,509 $ 1,371,616
Other than deposits, we also utilized FHLB advances as a supplementary funding source to finance our operations. The advances from the FHLB are collateralized by residential and CRE loans. As of December 31, 2025 and 2024, we had maximum borrowing capacity from the FHLB of $806.1 million and $677.0 million, respectively. We had borrowings from FHLB of $75.0 million and $95.0 million as of December 31, 2025 and 2024, respectively. We had estimated uninsured deposits of $1.09 billion, or 48% of total deposits, and $961.7 million, or 47% of total deposits, as of December 31, 2025 and 2024, respectively.
Liquidity and Capital Resources
Liquidity refers to our ability to meet the cash flow requirements of depositors and borrowers, while at the same time meeting our operating, capital and strategic cash flow needs, while also effectively balancing the related costs. We continuously monitor our liquidity position to ensure that assets and liabilities are managed in a manner that will meet all short-term and long-term cash requirements. Our primarily objective concerning liquidity is to manage our position to meet our customers' daily cash flow needs, while maintaining an appropriate balance between assets and liabilities to promote an appropriate return on invested capital. We strive to meet our short-term and long-term liquidity requirements through cash flow from operations, redeployment of prepaying and maturing balances in our loan and investment portfolios, and increases in customer deposits. We expect that other alternative sources of funds will be available to supplement these primary sources to the extent necessary to meet additional liquidity requirements on either a short-term or long-term basis.
Deposits are the primary funding source for the Bank. Deposits provide a stable source of funding and reduce our reliance on the wholesale funding markets. The following table presents the loan and deposit balances, the loans-to-deposit ratios, and deposits as a percentage of total liabilities as of December 31, 2025 and 2024:
Change
($ in thousands) December 31, 2025 December 31, 2024
$
%
Deposits $ 2,280,547 $ 2,027,285 $ 253,262 12 %
Deposits as a % of total liabilities 94 % 94 % NA - %
Loans, net $ 2,165,694 $ 1,932,056 $ 233,638 12 %
Loans-to-deposits ratio 95 % 95 % NA - %
In addition to deposits, we have access to various sources of wholesale funding, as well as borrowing capacity at the FHLB, Federal Reserve, and correspondent banks to sustain an adequate liquid asset portfolio, meet daily cash demands and allow management flexibility to execute the business strategy. Economic conditions and the stability of capital markets impact the access to and the cost of wholesale funding. The access to capital markets is also affected by the ratings received from various credit rating agencies.
We had $100.0 million of unsecured federal funds lines with no amounts advanced as of both December 31, 2025 and 2024. In addition, on such dates we had lines of credit from the Federal Reserve discount window of $208.9 million and $215.1 million, respectively. The Federal Reserve discount window lines were collateralized by a pool of CRE loans and commercial and industrial loans totaling $290.7 million and $278.9 million as of December 31, 2025 and 2024, respectively. We had no borrowings outstanding with the Federal Reserve as of December 31, 2025 or 2024. Our borrowing capacity on these lines of credits is based upon our eligible collateral and thus may fluctuate from time to time.
Based on the values of loans pledged as collateral, we had $443.6 million of additional borrowing availability with the FHLB as of December 31, 2025. We also maintain relationships in the capital markets with brokers to issue certificates of deposit and money market accounts.
We maintain access to additional liquidity that we believe is more than adequate, including highly liquid assets on our balance sheet and available unused borrowings from other financial institutions. The following table presents our liquid assets and available borrowings as of December 31, 2025 and 2024:
Change
($ in thousands) December 31, 2025 December 31, 2024
$
%
Liquid assets:
Cash and cash equivalents $ 167,311 $ 134,943 $ 32,368 24 %
AFS debt securities 192,785 185,909 6,876 4
Liquid assets $ 360,096 $ 320,852 $ 39,244 12 %
Liquid assets to total assets 14 % 14 %
Available borrowings:
FHLB $ 443,629 $ 401,900 $ 41,729 10 %
Federal Reserve Bank 208,859 215,115 (6,256) (3)
Pacific Coast Bankers Bank 50,000 50,000 - -
Zions Bank 25,000 25,000 - -
First Horizon Bank 25,000 25,000 - -
Total available borrowings $ 752,488 $ 717,015 $ 35,473 5 %
Total available borrowings to total assets 28 % 30 % (2) %
Liquid assets and available borrowings to total deposits 49 % 51 % (2) %
In addition to contractual obligations, other commitments of us impact liquidity. These include unused commitments to extend credit, standby letters of credit and commercial letters of credit. Since many of these commitments expire without being drawn upon, and each customer must continue to meet the conditions established in the contract, the total amount of these commercial commitments does not necessarily represent
the future cash requirements of us. Our liquidity sources have been, and are expected to be, sufficient to meet the cash requirements of our lending activities. Information about our loan commitments, standby letters of credit and commercial letters of credit is provided in Note 11. Commitments and Contingenciesto the Consolidated Financial Statements in this Form 10-K.
Capital Requirements
We are subject to regulatory capital requirements administered by federal and state banking regulators; however, as a "smaller bank holding company," most of these standards apply only at the Bank level. The Bank, must meet capital guidelines under the Basel III framework and the prompt corrective action regulations, which include quantitative measures of capital based on risk-weighted assets and the leverage ratio. These capital amounts and classifications are subject to qualitative judgments by the federal banking regulators regarding classifications also involve qualitative judgments by regulators regarding risk-weighting and other factors.
On November 7, 2025, the Company issued a $25.0 million subordinated note. This qualified as Tier 2 capital at the consolidated level and Tier 1 capital at the Bank level under current regulatory guidelines and interpretations.
The table below presents the regulatory "well-capitalized" requirements and the Company's and the Bank's capital ratios as of December 31, 2025 and 2024:
As of December 31, 2025
Actual(1)
Regulatory Capital Ratio Requirements Minimum to be Considered "Well Capitalized" Regulatory Capital Ratio Requirements, including fully phased in Capital Conservation Buffer
($ in thousands) Amount Ratio Amount Ratio Amount Ratio Amount Ratio
Total capital (to risk-weighted assets)
Consolidated $ 289,562 13.31 % N/A N/A N/A N/A N/A N/A
Bank 289,464 13.30 $ 174,139 8.00 % $ 217,673 10.00 % $ 228,557 10.50 %
Tier 1 capital (to risk-weighted assets)
Consolidated 237,791 10.93 N/A N/A N/A N/A N/A N/A
Bank 262,255 12.05 130,604 6.00 174,139 8.00 185,022 8.50
CET1 capital (to risk-weighted assets)
Consolidated 237,791 10.93 N/A N/A N/A N/A N/A N/A
Bank 262,255 12.05 97,953 4.50 141,488 6.50 152,371 7.00
Tier 1 leverage (to average assets)
Consolidated 237,791 8.99 N/A N/A N/A N/A N/A N/A
Bank 262,255 9.91 105,826 4.00 132,282 5.00 105,826 4.00
As of December 31, 2024
Actual(1)
Regulatory Capital Ratio Requirements Minimum to be Considered "Well Capitalized" Regulatory Capital Ratio Requirements, including fully phased in Capital Conservation Buffer
($ in thousands) Amount Ratio Amount Ratio Amount Ratio Amount Ratio
Total capital (to risk-weighted assets)
Consolidated $ 244,659 12.60 % N/A N/A N/A N/A N/A N/A
Bank 242,966 12.50 $ 155,463 8.00 % $ 194,328 10.00 % $ 204,053 10.50 %
Tier 1 capital (to risk-weighted assets)
Consolidated 220,390 11.35 N/A N/A N/A N/A N/A N/A
Bank 218,675 11.25 116,597 6.00 155,463 8.00 165,186 8.50
CET1 capital (to risk-weighted assets)
Consolidated 220,390 11.35 N/A N/A N/A N/A N/A N/A
Bank 218,675 11.25 87,448 4.50 126,313 6.50 136,035 7.00
Tier 1 leverage (to average assets)
Consolidated 220,390 9.27 N/A N/A N/A N/A N/A N/A
Bank 218,675 9.20 95,055 4.00 118,819 5.00 95,055 4.00
(1) The capital requirements are only applicable to the Bank, and our ratios are included for comparison purpose.
OP Bancorp published this content on March 13, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on March 13, 2026 at 20:32 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]