OptimumBank Holdings (NYSEAM:OPHC) Q3 2025 Earnings Call November 13, 2025 10:00 AM ET Company ParticipantsSeth Denison - Managing Director of Investor RelationsElliot Nunez - CFOMoishe Gubin - ChairmanTim Terry - President and CEOOperatorLadies and gentlemen, thank you for joining us, and welcome to OptimumBank Holdings Q3 Earnings Call. After today's prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please raise your hand. If you have dialed into today's ca ...

Financial Data and Key Metrics Changes - Net income increased compared to the second quarter, driven by higher net interest and non-interest income, partially offset by a higher effective tax rate of 23.2% in the third quarter [5][6] - Total loans declined by approximately $223 million, primarily in commercial and industrial (C&I) loans [6][7] - Net interest income was $169.3 million, an increase of $5.7 million from the prior quarter, with a net interest margin (NIM) of 3.19%, up 8 basis points [9][10] Business Line Data and Key Metrics Changes - Total deposits increased by about $500 million in the third quarter, with commercial deposits rising by $135 million, while retail deposits declined by $43 million [8] - Non-interest income was $57.1 million, benefiting from higher swap income due to favorable market movements [10] Market Data and Key Metrics Changes - The state unemployment rate was 2.7% in August, lower than the national rate of 4.3%, with total visitor arrivals up 0.7% year-over-year [4] - Year-to-date visitor spending reached $4.6 billion, an increase of 4.5% compared to the same period last year [4] Company Strategy and Development Direction - The company aims to maintain a strong credit performance and is open to M&A opportunities, focusing on the mainland due to market share constraints in Hawaii [66][84] - The company is looking to grow loans in areas where it has expertise, such as residential pools of Hawaii loans [19][20] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the local economy's resilience despite potential hardships from a federal government shutdown [68][70] - There is an expectation of strong loan growth in the fourth quarter, with a focus on maintaining and strengthening community relationships [22][23] Other Important Information - The company repurchased approximately 965,000 shares at a total cost of $24 million, with $26 million remaining under the approved stock repurchase plan [6] - The allowance for credit losses decreased to $165.3 million, with coverage remaining at 117 basis points of total loans and leases [12] Q&A Session Summary Question: Growth outlook and pipeline demand - Management noted significant paydowns in dealer floor plans and expressed bullishness about the pipeline, expecting strong production in the fourth quarter [18] Question: Core deposit growth and liquidity deployment - Management highlighted success in core deposit growth driven by retail and commercial teams, with expectations of flat total balances by year-end [21][22] Question: NIM management amid Fed cuts - Management indicated that NIM expansion could continue depending on the timing and magnitude of Fed rate cuts, with sufficient loan growth to support this [25][30] Question: M&A strategy and criteria - The company remains open to M&A discussions, focusing on opportunities in the mainland and Western States [66][84] Question: Impact of federal spending and local economy - Management believes the long-term trend of defense-focused federal spending in Hawaii will remain strong, with no significant changes expected [74]

Financial Data and Key Metrics Changes - Net income increased compared to the second quarter, driven by higher net interest and non-interest income, partially offset by a higher effective tax rate of 23.2% [5][6] - Total loans declined by approximately $223 million in the quarter, primarily in Commercial and Industrial (C&I) loans [6][7] - Net interest income was $169.3 million, an increase of $5.7 million from the prior quarter, with a net interest margin (NIM) of 3.19%, up eight basis points [9][10] Business Line Data and Key Metrics Changes - Total deposits increased by about $500 million in the third quarter, with commercial deposits rising by $135 million, while retail deposits declined by $43 million [8] - Non-interest income was $57.1 million, benefiting from higher swap income due to favorable market movements [10] Market Data and Key Metrics Changes - The state unemployment rate was 2.7% in August, lower than the national rate of 4.3%, indicating a stable local economy [4] - Year-to-date visitor spending reached $4.6 billion, up 4.5% compared to the same period last year, reflecting a stable tourism sector [4] Company Strategy and Development Direction - The company aims to maintain a strong loan growth trajectory, focusing on areas where it has expertise, such as residential pools of Hawaii loans [20][21] - The investment portfolio is being held flat, with a strategy to restart purchases after a period of letting it run down [24] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the local economy's resilience despite potential hardships from a federal government shutdown [68][70] - The company anticipates a strong fourth quarter, with expectations for loan growth and continued positive NIM momentum [9][30] Other Important Information - The bank's credit performance remains strong, with low credit risk and stable metrics, although classified assets increased by $30.1 million due to a single borrower [11][12] - The company repurchased approximately 965,000 shares at a total cost of $24 million, with $26 million remaining under the approved stock repurchase plan [6] Q&A Session Summary Question: Growth outlook and pipeline demand - Management noted significant paydowns in dealer floor plans and expressed bullishness about the pipeline, expecting strong production in the fourth quarter [19] Question: Core deposit growth and liquidity deployment - The company expects total deposits to remain flat, with success attributed to retail and commercial teams strengthening community relationships [23] Question: Managing deposit costs amid Fed cuts - Management indicated that NIM expansion could be challenging depending on the timing and magnitude of Fed rate cuts, but loan growth is expected to support margin expansion [26][30] Question: Capital priorities and M&A strategy - The company remains open to M&A opportunities, focusing on the Western U.S. market, with no changes to previous guidance [38][66] Question: Impact of federal spending and local economy - Management believes the long-term trend of defense-focused federal spending in Hawaii will remain strong, despite current uncertainties [74]

Financial Data and Key Metrics Changes - The company reported an adjusted net loss of $0.07 per diluted share, a significant narrowing compared to the previous quarter [4][19] - The net interest margin expanded for the third consecutive quarter, increasing by 10 basis points to 1.91% [5][20] - Operating expenses decreased by approximately $800 million on an annualized basis, reflecting effective cost control measures [5][16] Business Line Data and Key Metrics Changes - The Commercial and Industrial (C and I) business experienced a breakout quarter with new loan originations of $1.7 billion and overall net loan growth of $448 million [5][9] - New commitments in the C and I sector increased by 26% to $2.4 billion, while originations grew by 41% [10] - Multifamily and Community Reinvestment Act (CRA) payoffs totaled $1.3 billion, continuing a trend of exceeding forecasts [5][25] Market Data and Key Metrics Changes - The company reported a decline in criticized and classified assets, down $600 million or 5% quarter-over-quarter, and $2.8 billion or 20% year-to-date [5][30] - Total Commercial Real Estate (CRE) balances decreased by $9.5 billion or 20% since year-end 2023 [25] - The reserve coverage on the multifamily portfolio remains strong at 1.83%, the highest among peers [26] Company Strategy and Development Direction - The company is focused on transforming into a top-performing regional bank, emphasizing a customer-centric relationship-based culture [33] - Plans to diversify the loan portfolio into a mix of one-third CRE, one-third C and I, and one-third consumer loans [25] - The company aims to continue growing its C and I business, with expectations of funding between $1.75 billion to $2 billion per quarter going forward [17][61] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the trajectory of profitability, citing improvements in key metrics and a strong pipeline for C and I loans [4][6] - The company anticipates continued net interest margin expansion driven by lower funding costs and growth in C and I and other portfolios [20][40] - Management noted that the fourth quarter is expected to be the low point for total assets, with growth anticipated in 2026 [58] Other Important Information - The company completed a holding company reorganization, simplifying its corporate structure and reducing regulatory burdens [33] - The CET1 capital ratio improved to 12.45%, ranking among the best capitalized regional banks [13][21] Q&A Session Summary Question: NII guidance for the year - Management indicated that the balance sheet is expected to stabilize in Q4, with continued NIM expansion anticipated [39][40] Question: C and I loan growth sustainability - Management expects C and I loan originations to maintain a run rate of $1.7 billion to $2.2 billion per quarter, with ongoing hiring to support growth [45][61] Question: Regulatory relief from holding company elimination - The elimination of the holding company reduces regulatory burdens and streamlines examinations, freeing up resources [62][64] Question: Expense outlook and cost-saving opportunities - Management highlighted ongoing efforts to reduce FDIC expenses and vendor costs, with technology projects expected to drive further efficiencies [71][74] Question: Non-interest bearing deposit growth - Growth in non-interest bearing deposits is anticipated from new C and I relationships, private banking, and retail branches [78][79]

Financial Data and Key Metrics Changes - Earnings per share increased by 30% year-over-year, with a return on tangible equity of 20% [3] - Net interest income rose to $600 million, up $22 million from the previous quarter, driven by a tax equivalent margin of 4.06% [6][8] - Charge-offs were reported at 27 basis points for the quarter, with year-to-date charge-offs at 12 basis points [4][8] Business Line Data and Key Metrics Changes - Loan production reached nearly $3.4 billion, with a 67% increase in loan production in Texas and Colorado since the first quarter [3] - Commercial and industrial lending saw a 9% linked quarter annualized growth, while residential growth was about 6% [17][18] - Non-interest income increased to $99 million from $87 million, with capital markets contributing significantly [32] Market Data and Key Metrics Changes - The company identified approximately $90 billion in overlapping deposits in the Southeast, Texas, and Colorado, indicating potential growth opportunities [5] - The loan pipeline in Texas grew from $800 million to $1.2 billion, with Florida and Atlanta also showing significant pipeline growth [18] Company Strategy and Development Direction - The company is focused on organic growth and recruiting efforts in response to market disruptions, particularly in Texas and Colorado [5][19] - Management is contemplating adjustments to incentive structures to encourage recruiting and hiring in 2026 [42] Management's Comments on Operating Environment and Future Outlook - The management expressed confidence in achieving mid-single-digit loan growth for the remainder of 2025, with potential for higher growth in 2026 [17] - The company is well-positioned to capitalize on market disruptions and is focused on building out its infrastructure [4][5] Other Important Information - The company redeemed $405 million in subordinated debt late in the quarter, which is expected to positively impact net interest margin [6][7] - The tangible book value per share increased to $54.48, reflecting strong capital levels despite the dilutive impact of the Independent Financial merger [8] Q&A Session Summary Question: Can you walk us through the margin question? - Management discussed the impact of higher accretion and the dynamics of loan and deposit pricing in light of potential rate cuts [10][11] Question: What is the outlook for loan growth? - Management guided for mid-single-digit growth for the remainder of 2025, with a focus on commercial and industrial lending [16][17] Question: How do you feel about the credit portfolio? - Management confirmed the large charge-off was related to a specific credit and stated that the rest of the portfolio remains stable [24][25] Question: What is the optimal CET1 ratio? - Management indicated a healthy CET1 ratio of 11.5% and expressed no specific target but a preference for the 11% to 12% range [26] Question: Can you provide insights on non-interest income? - Management noted a significant increase in non-interest income, particularly from capital markets, and provided a cautious outlook for future quarters [31][32] Question: What are the expectations for deposit beta? - Management expects a deposit beta of around 27% to 30% in the next easing cycle, indicating a lag in response to rate cuts [39][66] Question: What is the guidance for NIE in the fourth quarter? - Management maintained guidance for NIE in the range of $345 million to $350 million for Q4 [67]

Financial Data and Key Metrics Changes - The third quarter reflected continued momentum in core earnings with net interest margin expanding by 11 basis points to 3.28% compared to the prior quarter [5] - Customer fees, excluding net credit valuation adjustment, grew by $10 million, while adjusted expenses declined by $1 million, leading to an improved efficiency ratio of 59.6% [5] - Diluted earnings per share was $1.48, down from $1.63 in the prior period, impacted by a $0.06 per share negative effect from net credit valuation adjustment [7] - The provision for credit loss was recorded at $49 million, with net charge-offs of $56 million or 37 basis points of loans on an annualized basis [6][21] Business Line Data and Key Metrics Changes - Net interest income increased by $52 million or 8% compared to Q3 2024, benefiting from fixed asset repricing and favorable shifts in the composition of average interest-earning assets [9] - Customer-related non-interest income was $163 million for the quarter, slightly down from $164 million in the prior period, but adjusted customer-related non-interest income increased by 6% compared to the second quarter [12][13] - Average loans decreased by 2.1% annualized over the previous quarter, while average non-interest-bearing deposits grew by approximately $192 million or 0.8% compared to the prior quarter [15][16] Market Data and Key Metrics Changes - Total borrowings declined by $1.8 billion during the quarter, with short-term FHLB advances decreasing by $2.3 billion [19] - The cost of total deposits declined sequentially by one basis point to 1.67% [18] - Non-performing assets remained low at 0.54% of loans and other real estate owned, compared to 0.51% in the prior quarter [21] Company Strategy and Development Direction - The company expects to continue producing positive operating leverage as revenue growth outpaces non-interest expense growth [24] - The outlook for net interest income for 2026 is moderately increasing relative to 2025, supported by continued earnings asset remix and growth in loans and deposits [11] - The company is focused on maintaining a strong credit quality and has established a full reserve against certain loans, viewing recent charge-offs as isolated incidents [6][30] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the credit quality and indicated that the recent charge-offs were isolated incidents, with no further exposure related to the borrowers involved [30][31] - The company anticipates moderate loan growth driven by commercial loans, despite some recent reductions in C&I classified levels [15][76] - Management noted that the current economic environment presents both challenges and opportunities, with a focus on strategic investments in revenue-generating businesses [14][93] Other Important Information - The common equity Tier one ratio was reported at 11.3%, indicating a strong capital position [23] - The company has been actively pursuing new products and marketing strategies to enhance loan growth and customer acquisition [73][93] Q&A Session Summary Question: Can you talk about the isolated incident related to the charge-offs? - Management confirmed that the charge-offs were an isolated incident and that a thorough review of the portfolio did not reveal similar issues [29][30] Question: What is the outlook for net interest income? - The company expects a slight to moderate increase in net interest income, factoring in fixed asset repricing and loan growth [11][39] Question: How is loan demand changing? - Loan spreads have improved slightly, and while there has been some runoff in C&I, production remains strong [88][90] Question: What is the company's risk appetite following recent events? - Management stated that the risk appetite remains unchanged and that they will continue to underwrite loans as they have historically [107] Question: How does the company view the NDFI portfolio? - Management believes that concerns regarding the NDFI portfolio are somewhat overblown, emphasizing the safety of certain categories within it [120]

Financial Data and Key Metrics Changes - The company reported a net income of $11.3 million, or $1.45 per share, which is an increase of $0.08 from the previous quarter and $0.43 from a year ago [3][4] - Net interest margin (NIM) expanded for the fifth consecutive quarter to 4.04%, a 13 basis point increase from the prior quarter [4][9] - Return on assets (ROA) increased by two basis points to 1.31% [4] Business Line Data and Key Metrics Changes - Loans grew by $17.3 million in the second quarter, approximately 3%, but were negatively impacted by slower commercial construction activity and $20 million in paydowns [4][9] - Noninterest-bearing deposits increased by $41.9 million, remaining at 27% of total deposits at the end of the quarter [5][13] - Classified and nonperforming loans increased primarily due to four loans downgraded during the quarter totaling $18 million [5][11] Market Data and Key Metrics Changes - Deposits increased at an annual rate of 11% in the second quarter, with a focus on funding loan growth with core deposits [5][13] - The cost of interest-bearing liabilities decreased by three basis points to 2.71% due to strong deposit growth [13] Company Strategy and Development Direction - The company is committed to finding partners for mergers and acquisitions that are a good long-term fit, with solid capital levels and improving valuation [6][7] - The focus has shifted towards core deposit growth, with changes in incentive plans to prioritize core deposits over loan growth [43] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's outlook and ability to deliver on high expectations, citing a strong leadership team with a track record of outperforming peers [8] - There is an expectation that loan growth will pick up if there are one or two rate cuts in the second half of the year [4][5] Other Important Information - Noninterest expenses increased by $828,000 to $22.4 million, primarily due to compensation-related expenses [14][15] - The company has repurchased 147,000 shares at an average price of $43.72, with about 391,000 shares remaining on the buyback plan [17][18] Q&A Session Summary Question: Can you provide more color on loan growth trends and the need for rate cuts? - Management indicated that there is some demand waiting for lower interest rates, and paydowns have negatively impacted growth rates [23][24] Question: What is the best-case scenario for net interest income (NII) in a rate cut environment? - Management believes that a steeper rate curve with rate cuts could still support an expanding NIM, with new higher-yielding investments coming in [26][27] Question: How productive are the new branch locations expected to be? - Management expects the new branches to be considerably productive, especially in attracting more deposits from commercial customers [41][42] Question: Were there any one-time factors that accelerated NIM expansion this quarter? - Management confirmed there were no one-time adjustments impacting NIM in an upward trajectory [48] Question: What are the criteria for potential M&A opportunities? - The company is looking at opportunities in the $350 million to $1 billion range, primarily in Texas and Louisiana [58][60]

Financial Data and Key Metrics Changes - The company reported a net income of $11.3 million, or $0.45 per share, which is an increase of $0.08 from the previous quarter and $0.43 from a year ago [4] - Net interest margin (NIM) expanded for the fifth consecutive quarter to 4.04%, a 13 basis point increase from the prior quarter [5][9] - Return on assets (ROA) increased by two basis points to 1.31% [5] Business Line Data and Key Metrics Changes - Loans grew by $17.3 million in the second quarter, approximately 3%, but were negatively impacted by slower commercial construction activity and $20 million in paydowns [5][10] - Noninterest bearing deposits increased by $41.9 million, remaining at 27% of total deposits at the end of the quarter [6][14] - Classified and nonperforming loans increased primarily due to four loans downgraded during the quarter totaling $18 million [6][12] Market Data and Key Metrics Changes - The company experienced an 11% annual rate increase in deposits during the second quarter [6] - The cost of interest-bearing liabilities decreased by three basis points to 2.71% [14] - The overall cost of deposits in Q2 was 1.84%, a decline of one basis point quarter over quarter [15] Company Strategy and Development Direction - The company is focused on funding loan growth with core deposits and reducing the loan-to-deposit ratio to a target range of 90% to 92% [6] - There is a commitment to finding long-term partners for mergers and acquisitions, with a focus on maintaining solid capital levels and improving valuation [7][18] - The company aims to attract more deposits through upgraded branch locations, particularly in Houston [35] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's outlook and ability to deliver on high expectations, citing strong leadership and a track record of outperforming peers [8] - The management anticipates that loan growth will pick up if there are one or two rate cuts in the second half of the year [5] - The company expects to see margin and revenue growth as a significant portion of the investment portfolio is projected to be paid off over the next three years [11] Other Important Information - Noninterest expenses increased by $828,000 to $22.4 million, primarily due to compensation-related expenses [15][16] - The company has repurchased 147,000 shares at an average price of $43.72, with about 391,000 shares remaining on the buyback plan [17] - The tangible book value per share has grown at an 8% annualized growth rate since February 2019 [18] Q&A Session Summary Question: Can you provide more details on loan growth trends and the need for rate cuts? - Management indicated that some demand is waiting for lower interest rates, and paydowns have negatively impacted growth rates [23][25] Question: What is the best-case scenario for net interest income (NII) in a rate cut environment? - Management believes that a steeper rate curve with rate cuts could still support an expanding NIM, and they expect NII to continue to increase [26][27] Question: How productive will the new branch locations be? - Management expects the new branches to be considerably productive, especially in attracting more deposits from commercial customers [35] Question: Has there been any change in strategy for growing DDA balances? - The company has focused on core deposit growth and changed its incentive plan to prioritize core deposits over loan growth [37] Question: Were there any one-time factors that accelerated NIM expansion this quarter? - Management confirmed that there were no one-time adjustments impacting NIM in an upward trajectory [39] Question: What are the criteria for potential M&A opportunities? - The company is looking at larger acquisitions now that its stock is trading at a higher valuation, primarily focusing on Texas and Louisiana [48][49]

Investment Rating - The report assigns a "Buy" rating to PKO Bank Polski with a 12-month price target of PLN 88.00, indicating an upside potential of 20.7% from the current price of PLN 72.88 [11][12]. Core Insights - Management expects a resilient net interest income (NII) and return on equity (ROE) outlook, reiterating an ROE expectation of over 18% in the medium term [2][7]. - The macroeconomic outlook suggests a more expansionary fiscal policy from the ruling party, which is anticipated to stimulate economic and lending growth in the banking sector [3]. - The company expects significant corporate lending growth due to the disbursement of European Union funds for energy transition and infrastructure projects [3]. - The interest rate outlook is leaning towards a "higher-for-longer" scenario, which is expected to support NIMs in the short term, with FY25E NIM guidance reaffirmed at no less than 4.8% [4][7]. - PKO anticipates that 2025 will be the last year of material provisioning for CHF-denominated mortgages, with costs expected to be lower than in 2024 [10]. Summary by Sections Macro and Banking Sector Outlook - The company anticipates a more expansionary fiscal policy that will stimulate economic growth and lending in the banking sector [3]. - A significant boost to corporate lending is expected from EU funds allocated for energy transition projects [3]. Net Interest Margins and Policy Rates - The Monetary Policy Council's hawkish stance suggests no rate cuts are expected in the near term, supporting a "higher-for-longer" interest rate environment [4]. - PKO has reaffirmed its FY25E NIM guidance at a minimum of 4.8% [4]. Lending and Fee Income - Despite potential headwinds for NIMs, PKO expects strong growth in lending volumes and improving fee income, supported by disciplined cost management [7]. Regulatory Environment - There is currently no political momentum for increasing bank taxes in Poland, and no reductions to existing bank levies are expected [8]. - The company does not foresee material risks related to the ongoing legal challenges against WIBOR-based benchmarks [9].