OptimumBank Holdings, Inc. (OPHC) Earnings Call Transcript

Ladies and gentlemen, thank you for joining us, and welcome to OptimumBank Holdings, Inc. Q3 Earnings Call. [Operator Instructions] I will now hand the conference over to Seth Denison, Managing Director of Investor Relations. Please go ahead.

Good morning, everyone. My name is Seth Denison, the Managing Director of Investor Relations for OptimumBank Holdings, and we're here for our third quarter earnings call. To my left is Moishe Gubin, the Chairman of the Board. To Moishe's left is Tim Terry, our President and CEO; and to Tim's left is Elliot Nunez, who's our CFO. This quarter carries special significance as November marks OptimumBank's 25th anniversary. Since our founding in 2000, we've grown from a single branch in Plantation, Florida, into a $1.1 billion institution serving businesses and families across South Florida. It's a proud milestone that reflects the dedication of our team and the trust of our clients and shareholders. Today's call may include forward-looking statements based on management's current expectations, assumptions and beliefs about OptimumBank's business and the environment in which it operates. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those anticipated. The call is being recorded, and we refer you to our SEC filings, including our most recent Form 10-Q for additional information regarding risk factors and forward-looking statements. Additionally, references will be made during this call to non-GAAP financial results. Investors are encouraged to review these non-GAAP financial measures as identified in the presentation deck. Before I move into the results, I'd like to take a moment to introduce the leadership from our team. Here, you can see Moishe Gubin as the Chairman of the Board; Tim Terry, our President and CEO; and Elliot Nunez, our Chief Financial Officer and Executive Vice President. This leadership team has built the culture, stability and performance we're discussing today. I'm joined on the call by Moishe and Elliot, and Tim is also with us and will be available for Q&A following our prepared remarks. With that, I'll turn it over to Moishe Gubin to begin the presentation.

All right. Thank you, Seth, and good morning, everyone. This quarter carries special meaning as we celebrate 25 years of service to our communities. Since opening our doors in November 2000, OptimumBank has grown from a single branch in Plantation into a thriving financial institution with total assets approximately $1.1 billion as of September 30, 2025. As you see on this slide, it shows the time line of that journey from our founding vision to where we stand today. Our growth has been built on conservative lending, strong capital management and deep community relationships that reflect the core mission of a true community bank. Turning to Slide 5. Our net earnings for the third quarter were strong. I believe it's our best quarter we've ever had, increasing by just over $700,000 to about $4.3 million compared with roughly $3.6 million in the second quarter. This gain was driven by core banking strength and disciplined execution. Net interest income rose by about $800,000 quarter-over-quarter from a little over $10.2 million to just over $11 million, supported by a $733,000 increase in total interest income to approximately $16.3 million. While noninterest expenses increased modestly, up around $400,000 to about $6.6 million, revenue growth outpaced those costs. Noninterest income also improved sequentially, up nearly $150,000 to around $2 million. Profitability strengthened again this quarter with net earnings before income taxes up just over $800,000 from the prior period, a testament to balanced revenue growth and cost control. On Slide 6, we highlight how these results translate into profitability. Pretax pre-provision income reached approximately $17.35 million year-to-date, representing an annualized run rate of about $23.1 million. Our core return on average equity ROE, which adjusts for tax expense and provision for credit losses, was approximately 22.6% for the quarter, one of the highest levels among community banks nationwide. This performance demonstrates the resilience of our earnings engine and the effectiveness of our balance sheet strategy. On Slide 7, Slide 7 captures the transformation of OptimumBank as a franchise and as a team. Our employee base has expanded to close to 100 people from about 73 people a year ago, which underscores the culture of momentum and the depth of talent driving our performance. On the balance sheet side, total assets, like I said earlier, have now surpassed $1.08 billion, close to $1.1 billion, representing close to 35% compounded annual growth rate since 2021. That's a number we're very proud of. That acceleration reflects not just scale, but disciplined execution over multiple years. From a profitability standpoint, our net interest margin of 4.24% year-to-date and core pretax pre-provision earnings of $17.35 million or $23.1 million annualized show how the investments we have made in our people, our systems and our lending platforms are translating into sustained performance. This slide also highlights the evolution of our physical footprint. From our beginning in Plantation in 2000 to Deerfield in Fort Lauderdale in 2004 and now to the opening of Northland Beach in 2024, each step reflects an intentional expansion strategy. We have continuously aligned our branch presence with where our customers live, work and do business, ensuring that our growth remains anchored in community connectivity and long-term franchise value. Taken together, our growing team, our expanding asset base, our profitability trajectory and our broadened geographic reach tell the story of a franchise that is stronger, more resilient and more capable today than at any point in its history. It speaks to the discipline of our execution and the ambition of our vision as we move toward the next stage of our growth. With that, I'll turn it over to Elliot to walk through the financial details behind this momentum and discuss how these results position us for the quarters ahead. Elliot?

Thank you, Moishe. Let us look at the drivers behind this quarter's strong financial momentum, which you see detailed here on Slide #8. Moishe highlighted the strong growth in net earnings and net interest income. I'll focus on the engine driving that performance and the nuances in our expense management. Our total interest income increase of $733,000 was primarily fueled by a significant jump of $682,000 in other interest income, reaching $2.09 million for the quarter, an important indicator of diversified yield generation. On the noninterest side, the total increase of $148,000 was driven by strong improvement in service charges and fees, up $153,000 to $1.25 million. Regarding funding costs, total interest expense declined modestly by $73,000, reflecting a $49,000 drop in deposit interest expense and the virtual elimination of borrowing costs for this quarter. While total noninterest expenses increased by $423,000 to $6.6 million, this was mainly driven by planned investment in the franchise and in our personnel with a rise of $266,000 in salaries and employee benefits costs and $163,000 increase in data processing, all supporting our operational scale. High revenue growth successfully outpaced this planned operating expenses, resulting in the $808,000 increase in net earnings before income taxes. This growth translated into sequential increases for our shareholders. First, basic net earnings per share increased by $0.06 to $0.37. Undiluted net earnings per share increased by $0.03 to $0.18. Shifting to a year-over-year view for the first 9 months on Slide #9, the numbers illustrate the scale of our ongoing transformation. Net earnings year-to-date totaled $11.8 million, a strong $2.6 million increase compared to the first 9 months of 2024. This success was driven by a $5.2 million increase in net interest income compared to the prior year period. We achieved impressive control over our funding costs with total interest expense decreasing by $2.3 million year-over-year, reflecting strategic management of our liability structure. Total noninterest income also showed excellent growth by increasing nearly $1.5 million. In short, the year-to-date results confirm that our strategies focused on managing funding costs and expanding high-quality loan growth are delivering significant improvements in core profitability and the bottom line. Next, as we move on to Slide #10, let's review the growth and momentum across the key areas of loans and deposits. Gross loans ended the quarter at $813.7 million, up from $784.6 million last quarter. This increase of $29.1 million represents a strong acceleration of loan growth compared to last quarter, affirming our commitment to quality asset generation. Our loan compounded annual growth rate remains robust at 36.8% since 2021. Our portfolio is well diversified and our yield on loans remained strong at 6.95%. On the deposit side, total deposits grew to $959.5 million, meaning we brought in $80.6 million in new deposits during the third quarter alone. This growth included an increase in low-cost noninterest-bearing deposits, which represents 33% of the total mix, helping to keep our cost of interest-bearing deposits low at 3.51%. We also continue to see strong drive in noninterest income, which, on an annualized basis, is $6.7 million, representing a 42.7% compounded annual growth rate since 2021. Importantly, the composition of this income stream continues to expand and diversify. Of the year-to-date total of $5.1 million, approximately $3.4 million came from service charges, $903,000 from SBA loan sales and $755,000 from loan prepayment fees. This mix reflects both the stability of our core fee businesses and the incremental contribution from strategic lending activities. Next, as we look at Slide #11, we highlight our consistently well-managed credit trends. Our allowance for credit losses to loans ratio stands at 1.23%, ensuring we are appropriately reserved and above the national peer average of 1.17%. Our nonperforming assets to total assets ratio stands at just 0.33%, positioning us well below the national peer average of 0.56%. Most importantly, our year-to-date net charge-offs to average loan remains exceptionally low at 0.03%, underscoring the high quality and conservative underwriting that defines our loan book. Now turning to the balance sheet on Slide #12. We successfully crossed the $1 billion in total assets mark this quarter. Total assets grew by $83.9 million to $1.08 billion as of September 30, 2025. This strong asset growth was well funded as total deposits grew by $80.6 million to $959.5 million. We saw strong growth in noninterest-bearing demand deposits, which increased by $54.2 million and across time deposits, savings, NOW and money market deposits. We saw a rise of over $26.5 million. On the funding side, we maintain an excellent balance sheet discipline, reflecting no Federal Home Loan borrowings during the quarter. Finally, reflecting on strong earnings retention and capital management, total stockholders' equity increased by $5.5 million sequentially to a grand total of $116.9 million. As we move forward and we take a look at Slide #13, we can wrap up with a summary of our compelling investment opportunity. Our rapid organic growth continues to satisfy to significantly outpace peers as demonstrated by our loan growth compounded annual growth rate of 36.8% and deposit growth compounded annual growth rate of 37.3% since 2021, both far exceeding national peers. Tangible book value per share rose to $4.97 at quarter end on a fully diluted basis. The efficiency ratio remains highly competitive at 50.7%, well below the peer average of 68.02%. Our net interest margin of 424% year-to-date further highlights our strong earning capacity relative to peers. In short, this was another strong and disciplined quarter. We maintained solid capital, a well-managed balance sheet and the flexibility to continue delivering on consistent long-term value. At this moment, Moishe, back to you.

Thanks, Elliot. As we conclude this presentation, I want to just add a few comments. One comment being that this was the first quarter where we cleaned up our capital stack and now the earnings per share is reads right of a diluted basis versus a nondiluted basis, and that should make it a lot easier for investors to see the value in our stock as we're trading at a very low multiple based on earnings. With that being said, most important for today is to reiterate how proud we are that November is our 25th anniversary year, and we're looking forward to making the next 25 years a lot better than these past 25 years. And for a quarter century, OptimumBank hasn't just been growing. We've been building a relationship-driven culture and a strategic operational model that truly punches above its weight. Our focus remains clear, which is utilizing our strong capital and dedicated team to reinforce our position as one of the most dynamic and rapidly growing community banks in South Florida, all while staying true to the roots we established in the year 2000. With that, I'll hand it back to Seth to open up Q&A.

Thank you, Moishe. Before we open it up for questions, I'd like to thank Moishe, Tim and Elliot for their insights today. OptimumBank continues to deliver strong financial performance, and we appreciate those taking the time to learn more about us. With that, let's open it up for questions.

[Operator Instructions] We have no questions in queue. I'll turn it over to Seth for any written Q&A provided.

Fantastic. Thanks, John. So we've had here with the 3 questions that have been e-mailed in so far. I'm going to read those e-mailed questions for anybody else who's listening that might want to e-mail any questions in, feel free to do so. Anybody who doesn't have my e-mail address, you can reach me at sdenison@optimumbank.com, that's sdenison@optimumbank.com. So with that, I'm going to start with our first e-mailed question. Moishe, this one is addressed to you. Q3 NIM increased to 4.37%, while year-to-date NIM stands at 4.24%. What drove that expansion in Q3? And how does year-to-date performance compare with margin levels going forward?

Well, that's a good question. Our model that we see is that as older loans are running off that are at a lower interest rate, newer loans are being put on the books and at a faster clip at a higher interest rate. And that's really helping our NIM. Our model or what we do is really we're a lender, right? So we're out there lending folks. And today's pricing in the marketplace is a SOFR, let's say, SOFR 350 to SOFR 400. And we're out there with a lot of loans in our pipeline and a lot of business that's being brought to us, and we should be able to keep doing that. At the same time, while that's going on, the folks in ALCO at the bank are actively looking at any opportunity to lower what our interest expense, right? So if our money gets cheaper and our money going out the door stays somewhat flat, right, that's your NIM expansion right there. In a nutshell, really nothing more complicated than that, easy banking.

Very good. Okay. This question is -- it's not addressed anybody in particular, so I'll just ask it and the 3 of you can opine. It has to do with deposit mix. Deposits grew by approximately $81 million, roughly a 9.25% quarter-over-quarter growth. What's driving this type of growth? And how is the deposit mix evolving interest-bearing versus noninterest-bearing? And any thoughts on future funding growth?

So I'll answer that one also. Easy enough. We've talked about year-over-year where our customer base is like a cult following. And that remains true. We -- as we continue to grow, we continue to add members to the family here, and we continue to grow our deposit base. And historically, if you look at our numbers year in and year out, we run about 1/3 of noninterest-bearing deposits. And then from the other 2/3, we run half of that is really relationship money that wants a higher interest rate, bigger depositors or this or that. So 2/3 of our real customers are our people. The last 1/3 is really quick rate and raising money where we don't really have a relationship so much with the customer. So we have to be within a market range to be able to attract deposits. So that being said, month-over-month, quarter-over-quarter, it remains true that the folks that are our people are -- their businesses are thriving and growing. And I think you see it nationally as well. I think deposits are up. And that's the same thing by us. And if we need more deposits, we're able to raise them and raise and quick rate. And so that's how our model works. And it's really centric to taking care of our people, and they remain loyal to us, and that's where our deposits come from.

Okay. Very good. Next question is asking about loan growth. It says total loans grew about $29 million. Which loan segments are driving that growth? Which segments are contracting? And how do you feel about overall credit risk?

I'll let Tim answer that.