OptimumBank Holdings, Inc. (OPHC) Earnings Call Transcript

Ladies and gentlemen, thank you for joining us, and welcome to the OptimumBank Holdings Inc. Fourth Quarter 2025 Earnings Call. [Operator Instructions] I will now hand the conference over to Seth Denison, Managing Director of Investor Relations. Please go ahead.

Good morning, everybody, and welcome to OptimumBank Holding Company Inc.'s Fourth Quarter 2025 Earnings Call. I'm joined here today with our CFO, Elliot Nunez; the Chairman of our bank, Moishe Gubin; and the CEO of our bank, Tim Terry. And today, we're going to spend some time going over some of the details for the last quarter and the last year of OptimumBank's performance. This quarter marks a defining period for OptimumBank, not just in terms of financial performance, but in terms of strategic progress across the franchise. As of December 31, 2025, we closed the year having surpassed $1.1 billion in total assets while delivering record quarterly and annual earnings, the strongest performance in the company's history. Beyond the financial results, 2025 was a milestone year for OptimumBank in several important ways. We celebrated our 25th anniversary, including the honor of ringing the opening bell at the New York Stock Exchange, a moment that reflects both the longevity of the franchise and its evolution into a scaled, high-performing institution. During the year, we continued to strengthen our leadership lending capabilities with the appointment of Jeni Chokron as Chief Lender, an exceptionally experienced and highly sought-after banking executive, further enhancing our ability to drive disciplined loan growth and deepen client relationships. We also achieved SBA Preferred Lender Program status in the first quarter of 2025, a designation that meaningfully expands our ability to serve small business clients more efficiently while supporting fee income and relationship-based growth. During 2025, we formed a new wholly owned subsidiary to deliver a bridge to HUD and FHA HUD insured financing solutions for multifamily and health care properties. We expect to roll this platform out in early 2026, leveraging our specialized expertise in skilled nursing, senior housing and multifamily sectors to further diversify revenue and expand our lending capabilities. Equally important, we made significant progress on the capital markets front. Our largest institutional investor, AllianceBernstein, took deliberate action to increase its economic ownership in OptimumBank, including converting common equity into preferred stock in order to build additional exposure to the company. We view this as a strong long-term vote of confidence in our strategy, governance and earnings power. At the same time, one of our directors, Michael Blisko, elected to convert a portion of his Series B preferred equity into common stock, increasing liquidity and market capitalization while remaining below the 9.9% ownership threshold. This threshold is a regulatory constraint rather than an economic preference, and we are hopeful that regulators will reconsider their position over time, which would allow both Moishe Gubin and Michael Blisko to convert additional Series B preferred equity in the future. The remaining 1,295 shares of Series B preferred are held entirely by long-standing Board members, with Moishe Gubin holding 680 shares convertible into approximately 5.56 million common equity shares and Michael Blisko holding 615 shares convertible into approximately 5.02 million common shares. In total, the remaining Series B preferred represents approximately 10.6 million common shares on an if-converted basis. Importantly, under GAAP, this structure now allows us to present standard diluted earnings per share figures that fully and transparently reflect both common and preferred equity, making our capital structure, ownership alignment and earnings power far cleaner, more understandable and easier for the market to model. Taken together, these milestones reflect not just growth and scale, but strategic execution, growing institutional confidence, improved liquidity and enhanced capital markets clarity. I want to give a cautionary note regarding forward-looking statements on today's call. 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 moving into the results, I'd like to take a moment to reflect on the leadership of the team we have installed here today. Earlier, I introduced you to Moishe Gubin, the Chairman of the Board; Tim Terry, our President and CEO; and Elliot Nunez, our Chief Financial Officer. Collectively, these gentlemen have nearly a century of experience. And more details can be found on this page, which I encourage you to take the time to review. The leadership team has built the culture, stability and performance we're discussing today. And with that, I'll turn it over to Moishe to begin the presentation.

Thank you, Seth, and good morning, everyone. At the close of 2025, I want to start with a simple observation. This was the best year in OptimumBank's history. This wasn't just a year of growth, it was a year of elite execution. As you can see on this time line, the 25th anniversary coincided with our strongest financial performance ever, where we didn't just cross the $1.1 billion asset threshold, we dominated it, delivering full year net income of approximately $16.65 million. Our profitability metrics are frankly staggering. We've achieved a return on average equity of nearly 15% on a GAAP basis and a massive 21.6% on a core basis. But more important than any single metric is what those results represent. They reflect a bank that has successfully evolved from a fast-growing community institution into a scaled, high-performance and durable franchise. We have proven that we can achieve aggressive best-ever scale while maintaining the same conservative discipline that has defined us for 25 years. We are no longer just participating in the South Florida market, we are leading it. What began with $5 million in equity in November 2000 has grown to $126 million, if you include OCI as of 12/31/2025. Turning to our fourth quarter performance. The momentum we built throughout the year accelerated further and culminated in a record quarter. Net income for the fourth quarter was $4.85 million, increasing by about $0.5 million from the third quarter and by more than $900,000 from the prior year's quarter. This growth was driven by continued core banking strength and disciplined execution across the franchise. The earnings per share grew from $0.18 last year fourth quarter to $0.21 this past quarter. We are expecting to be able to maintain a range of $0.18 to $0.21 a quarter going forward. Net interest income rose by more than $800,000 quarter-over-quarter to $11.87 million, supported by higher loan balances, disciplined pricing and continued improvement in funding costs. This past quarter versus same quarter 2024 had an increase of over $2.6 million. We hope to break $50 million this year in net interest income, God willing. While noninterest expenses increased modestly during the quarter as we continue to invest in personnel, technology and infrastructure, revenue growth once again outpaced those costs. Noninterest income totaled $1.73 million for the quarter, remaining well above year ago levels despite lower loan prepayment activity. Going forward, we expect our staffing to be able to stay flat while being able to support our growth until around $3 billion in assets. As a result, profitability strengthened further, with pretax income increasing by approximately $800,000 from the third quarter. These results reflect balanced revenue growth, disciplined cost management and the operating leverage of a scaled banking platform. On Slide 6, we show our strong fourth quarter results translated into record profitability for the full year. For 2025, pretax pre-provision earnings reached approximately $24.21 million, an increase of about $4.35 million or nearly 22% compared to 2024. This reflects both strong revenue growth and disciplined expense management. Our core return on average equity for the year was approximately 21.6% with fourth quarter core ROE of 22.9%. These are exceptional levels of profitability, particularly for a bank that continues to grow at this pace. I am very proud of these year-over-year numbers, to go from $4.2 million in 2021 to $24 million, a 600% growth in 4 years. Slide 7 captures the continued transformation of OptimumBank as both a franchise and an organization. Our employee base expanded further during 2025 as we invested in talent across lending, operations and technology to support our growing platform. These investments are intentional and are already translating into stronger execution and operating leverage. On the balance sheet side, total assets grew to approximately $1.11 billion at year-end, representing nearly $179 million year-over-year growth during 2025 and a multiyear compound annual growth rate of 33.3% since 2021. From a profitability standpoint, full year net interest margin reached 4.28%, up 45 basis points from 2024, while core pretax pre-provision earnings of $24.2 million demonstrate how investments in people, systems and lending capabilities are driving sustained performance. This slide also reflects the continued evolution of our franchise footprint. Each phase of our expansion has been deliberate and aligned with where our customers live and do business, supporting relationship-driven growth and long-term franchise value. Collectively, these elements reinforce a simple message. OptimumBank is operating at a higher level of scale, efficiency and capability than at any point in its history, and we are well positioned for the next phase of disciplined growth. With that, I'll turn it over to Elliot to walk through the financial drivers behind these results in more detail.

Thank you, Moishe. As you discussed in Slide #5, the fourth quarter reflected strong growth in net income and net interest income. I'll build on that overview by walking through the underlying revenue drivers, funding costs and expense trends shown on Slide #8. Total interest income increased during the quarter, driven by continued loan growth, disciplined pricing and strong asset yields. Diversified interest income streams remain consistent and supported the expansion of our earnings asset base. When we look at noninterest income, it totaled $1.73 million for the quarter. While lower than the third quarter due to the reduced loan prepayment activity, core fee income, including service charges, remained strong and well above year ago levels. Funding costs continue to improve on a rate basis, while total interest expense increased modestly due to the balance growth, lower deposit pricing and disciplined funding mix supported margin expansion. Total noninterest expense increased to $6.74 million, reflecting planned investments in personnel and technology to support growth and scale. Importantly, revenue growth continued to outpace expense growth, resulting in $794,000 sequential increase in pretax income. This translated into sequential earnings growth for shareholders, with basic earnings per share increasing to approximately $0.42 and diluted earnings per share increasing to approximately $0.21 for the quarter. Now looking at Slide #9. Here, we see that it provides a year-over-year view of our full year performance and highlights the scale of OptimumBank's earnings growth in 2025. Net income for the year totaled $16.65 million, an increase of $3.52 million or nearly 27% compared to 2024. This profitability was driven by strong balance sheet growth, improved margins and disciplined expense management. Net interest income increased by $7.9 million year-over-year, reflecting continued loan growth and net interest margin expansion. We also achieved meaningful improvement in funding costs during the year. Total interest expense declined on a year-over-year basis, reflecting disciplined liability management and an improved funding mix. In addition, total noninterest income increased by $2.15 million compared to 2024, driven by growth in service charges, SBA-related activity and other fee-based revenue streams. Taken all together, these full year results confirm that our strategy is focused on managing funding costs, expanding high-quality loan growth and scaling fee-based income, which are delivering significant improvements in core profitability and the bottom line. Now as we move over to Slide #10, let us review the growth and momentum across our key areas of loans, deposits and noninterest income. Gross loans ended the year at $958.79 million at December 31, 2025, reflecting a year-over-year growth of $154.55 million or 19.2% as compared to December 31, 2024. Loan growth remained well diversified and relationship-driven, consistent with our focus on asset quality and disciplined underwriting. Our loan growth compound annual growth rate since 2021 is 39.75%. And our yield on loans averaged 6.98% for the year, reflecting strong pricing discipline and portfolio performance. On the deposit side, total deposits ended the year at $931.75 million, representing year-over-year growth of $159.56 million or 20.7%. Noninterest-bearing demand deposits totaled $266.52 million or 28.6% of total deposits. The cost of interest-bearing deposits averaged 3.47%, supporting a favorable funding mix across all deposits. We also continue to see strong momentum in noninterest income. For 2025, total noninterest income was $6.77 million, representing 46.5% year-over-year growth and a 39.79% compound annual growth rate since 2021. This growth continues to be driven by service charges, SBA-related activity and other relationship-based fee income, reflecting the increasing diversification and scalability of our revenue mix. Next, on Slide #11, we highlight our consistently well-managed credit trends. Our allowance for credit losses to loans ratio stood at 1.07% at December 31, 2025, reflecting appropriate reserving levels and continued discipline in credit risk management. Our nonperforming assets to total asset ratio stood at 0.32%, positioning us well below national peer levels and underscoring the conservative underwriting standards applied across the loan portfolio. Most importantly, our net charge-offs to average loans for the year were 0.04%, reinforcing the high quality and conservative underwriting that define our loan book. Turning to the balance sheet now on Slide #12. We closed 2025 having surpassed the $1 billion asset milestone. Total assets increased by $178.75 million year-over-year to $1.11 billion at December 31, 2025. This strong asset growth was well funded, with total deposits increasing by $159.56 million to $931.75 million over the same period. On the funding side, we maintained strong balance sheet discipline, supported by ample on and off-balance sheet liquidity. Finally, reflecting on strong earnings retention and disciplined capital management, total stockholders' equity increased by $18.71 million year-over-year to $121.9 million at December 31, 2025. Finally, as we move over to Slide #13, we wrap up with a summary of our compelling investment opportunity. Our rapid organic growth continues to significantly outpace peers, as demonstrated by our loan growth compound annual growth rate of 39.75% and our deposit growth compound annual growth rate of 33.6% from December 31, 2021, through December 31, 2025. Tangible book value per diluted share increased to $5.18 at year-end. The efficiency ratio remains highly competitive at 49.59%, well below the peer levels of 67.3%. Our net interest margin of 4.28% also compares favorably to the peer level of 3.83%, highlighting the strength of our earning capacity relative to peers. In short, this was another strong and disciplined year. We maintain solid capital, a well-managed balance sheet and the flexibility to continue delivering consistent long-term value. Moishe, now back to you.

Thank you, Elliot. As we conclude today's presentation, I want to reflect on the significance of this year for OptimumBank. In 2025, we marked our 25th anniversary, and we did so while delivering the strongest financial performance in the company's history. For a century, OptimumBank has remained focused on disciplined growth, conservative risk management and building long-term relationships with our customers and communities. This year's results demonstrate that those principles continue to scale effectively as the franchise grows. Looking ahead, our priorities remain unchanged. We will continue to deploy capital prudently, invest in our people and infrastructure and position the bank to deliver sustainable long-term value for our shareholders. With that, I'll turn it back to Seth to open the call for questions.

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

[Operator Instructions] As we currently have no questions in the queue, I will hand it back to Seth to handle the written Q&A.

Thank you, Aidan. Appreciate that. Well, we've got quite a number of questions that have come in over e-mail. I encourage those that are watching and listening that should they have any additional questions, they can feel free to e-mail me at this moment. My e-mail address, for anybody that needs it, is sdenison@optimumbank.com. And before we get started with a few of the written questions, I see that one of our analysts, Ken Billingsley, has a question. So let me turn it over to Ken for our first question. Ken, I think we got you.

I guess, could you expand on the opportunity for the bridge to HUD financing to FHA and just the platform for loans to skilled nursing and senior housing? Can you talk about the potential and where you see that fits in and how large that can get?

Yes. So Ken, thank you for the coverage. Thank you for the question. And so -- this is Moishe. So the strategy behind it, first of all, just to give you an idea is our bank as a stand-alone bank is thriving. And one of our areas where we're thriving is the nursing home space, skilled nursing facility space, their need for accounts receivable financing. And separately for lending on property companies, the landlords. So we started doing that. That's my background, as most people that are on this call probably know. And we're well known in the space, and we've so far accumulated between 50 and 100 clients at the bank that are -- have accounts receivable loans or facilities. And it's continuing to grow. We go to the conferences. And we had stayed away from the property lending because of the risk associated with the building getting decertified, that's a big risk for a bank. We stayed away from that for the most part. But we started doing it recently, knowing full well that the transition would be to go from the regular propco loan to a bridge or a propco plus a bridge and then go take to HUD, where that takes us out. So what we expect to occur -- and I can elaborate on this. If anybody wants to talk about it separately offline, I'm glad to go into the real details on how this thing grows. But easily, this would bring value to the holding company as a separate vertical outside of the bank. The -- all the transactions as far as bank accounts, escrows and all the servicing, the bank would be earning fee income and would have noninterest-bearing deposits at the bank. And our side of our balance sheet, that's a separate vertical, we expect that easily to get to within like 2 years, 3 years to get to $0.25 billion. And exponentially, that portfolio should grow. And in the long run, we expect to be able to make a SOFR 5, SOFR 6 handle on the interest rate. And in the long run, the residual value will be the servicing that the bank is going to have where we could build up a whole servicing portfolio. And that should hopefully grow $1 billion, $2 billion, even larger. Really, sky is the limit here. We have good relationships. We're well known in the marketplace, and it should grow. And the way we're going to handle the growth is we will be lending based on HUD standards. That's going to be the HUD lending protocol, which is not what the bank does. Banks -- we're doing -- we have loan policies on how we lend. And on the HUD protocols, we're going to be following along their guidelines with only exceptions based on look-back period of how long we're looking at for the financials or some minor thing that we're able to underwrite to. And again, we expect to be able to get a line of credit from, at this point, the big banks that want to lend us, CIBC, Huntington Bank and others that potentially will be a lender for that vertical. And we expect it to be a really strong contributor to our bottom line. So Ken, I hope that answered your question.

Okay. Aidan, unless you have any others from any of the analysts, I'm going to move on to a couple of e-mail questions that we've received.

Yes. There is no one else in the queue, so please go ahead.

Okay. Fantastic. Very good. So first e-mail question that we have has to do with our EPS. So it says you were guiding to roughly $0.18 to $0.21 quarterly EPS going forward. What assumptions on loan growth, margin and funding costs underpin that range?

Okay. So we're guiding to $0.18 to $0.21 because that's what we're currently running. Like we said earlier in the remarks, we really don't expect labor or payroll to increase, other than inflationary cost increases. We expect that to stay relatively flat. So everything going forward for the next $1 billion of growth, we should be able to add mainly to the bottom line. Again, I add back provisioning as we haven't had a bad loan in many, many years. So I had that back in my thought process. So I would say that we really expect to grow our loan portfolio between 25 -- 25% is really the bogey, but we expect to beat that. The funding, we expect to be able to maintain our spread that we have, which today is like 4 -- our NIM is like a 4.28%, which is what we said. We expect to be able to keep that. All loans -- we still have loans that are repricing that are from where rates were at 5% that are getting repriced at 7% plus. And all of our new loans are at still SOFR 350, SOFR 400 for the most part. So we expect our margins to stay the same. And to model out, we're just going to be modeling out the increase in interest income between the top line and the cost of our money. And so that's why we're giving that guidance. We expect to beat it, but even more so, first quarter will really be -- and really, first quarter probably ain't the best judge. Second quarter, we'll know really how the whole year, and I'll probably revise what we expect the year number to be as $0.80 seems like something that we should be able to beat. And so we'll see where that goes.

Okay. Very good. What is -- I got another question here regarding loan growth. The question is loan growth was around $155 million in 2025, seemingly around 20%. What is sustainable long-term growth rate without compromising on credit quality?

So again, our portfolio and our borrowing base, the people that come to us, our borrowers are loyal customers of the bank. And like we had at the client appreciation, we called it a family reunion as our borrowers really are part of the family. And so we really expect that our growth should be 25% or higher. And I don't see us having a problem doing that. I think we already closed out January with more than $60 million in loans out the door. So we're already on our way to hitting and breaking 25%.