OptimumBank (OPHC) Q2 FY26 earnings call: guidance and Q&A

Is the $1-$1.15 annual EPS guidance for FY26 or a run rate going forward? Is the $0.28 Q2 EPS recurring?

The guidance is a forward-looking annual estimate, with the $0.28 quarterly run rate expected to be replicable. The range accounts for potential future equity raises to support balance sheet growth. The $0.28 was clean and recurring.

“Based on our current quarterly earnings run rate of approximately $0.28 per share, we believe it is reasonable to increase our forward-looking annual earnings estimate to a range of approximately $1 per share to approximately $1.15 per share.”

asked by Gaurav Mehta · answered by Moishe Gubin

What drove the Q2 performance, especially compared to the prior $0.18-$0.21 estimate? Were there any upside surprises?

Noninterest expenses have been flat, and the company is at full employment, so payroll is not expected to increase significantly. Net interest income continues to rise due to new loans being originated at higher rates (7%+) compared to older loans paying off (5% or below).

“Every loan that gets paid off is being paid off at most likely a rate around 5% or below 5% and the money going out the door is 7% plus. So every day, our financial strength is getting better and better.”

asked by Gaurav Mehta · answered by Moishe Gubin

Can you provide color on OptimumFinance, demand, and target sectors?

OptimumFinance is seen as a significant future growth driver, potentially overshadowing the bank. It lends to 'non-bankable' but sensible deals, primarily CRE loans across the country, with an average yield over 18%. It allows for higher yields due to less traditional banking policies.

“I think that, to me, is they might even overshadow the bank 5, 10 years from now as far as what they're going to make and what the size of that portfolio is going to be. It's -- without having the guardrails of bank regulation, we're -- being able to act prudently and lend money to deals that aren't bankable deals, but are deals that make a lot of sense.”

asked by Gaurav Mehta · answered by Moishe Gubin

Why did OptimumFinance loans not fit the bank's criteria? Are most loans to existing bank customers?

Loans didn't fit bank criteria due to factors like timing (e.g., modifying a loan soon after closing) or specific borrower situations (e.g., divorce complications). OptimumFinance provides flexibility to meet borrower needs while securing higher yields. Loans are to known borrowers, not random strangers, emphasizing 'common sense lending.'

“It's risky from the sense of it doesn't fit bank policy, but it's not risky in the sense of common sense lending of knowing your borrower and taking care of the borrower.”

asked by Kenneth Billingsley · answered by Moishe Gubin

Clarify the 10% note payable and 18% yield for OptimumFinance.

The 10% note payable is the cost of borrowing for OptimumFinance. The money lent to borrowers yields over 18% (with 2 points in, 1 point out). The current portfolio yield is around 18.5%. The company is negotiating with banks for a dedicated line of credit for OptimumFinance.

“The money out the door to the borrower at the end of the day is 18%, with 2 points in and 1 point out. And our cost of money today is 10%.”

asked by Kenneth Billingsley · answered by Moishe Gubin

Was the ATM opportunistic? Would future capital raises support bank growth or OptimumFinance?

ATM usage is opportunistic, primarily to increase stock liquidity and attract larger institutional investors by increasing shares outstanding. Future capital raises would primarily support the bank's core growth, as the bank is the 'core engine.' The current loan pipeline of over $700 million indicates a need for capital to maintain a 10% capital ratio.

“The ATM strategy all along has been based on opportunity. And the biggest goal for me there is that I want to have more liquidity in the stock, and I want to have more ability for bigger institutions and investors to be shareholders.”

asked by Kenneth Billingsley · answered by Moishe Gubin

What drives success in raising new deposits? Is it broader relationships, new customers, or specific rates?

Success is attributed to expanding existing relationships through a dedicated internal team and bringing in new relationships, particularly on the treasury side. The bank maintains discipline on deposit pricing.

“part of that success has been that team being very successful in expanding existing relationships that we had... And secondly, the team has done a really fantastic job, especially on the treasury side of bringing in new relationships to the bank.”

asked by Chris Marinac · answered by Braden Smith

Why has ACL declined from 1.2% in 2022 to 0.91% today, given loan growth and CRE concentration?

The bank's policy for calculating ACL hasn't changed. The decline is due to the absence of bad loans and the removal of specific reserves as loan quality improved. The general reserve has been positively impacted by improved Q factors and a positive forward look. Management expects the ACL to rise closer to 1% in H2 2026 due to shrinking forward look and higher qualitative factors for concentration and growth.

“Our battle is the fact that we have no bad loans. So the history is dictating we should be at zero bad debt, and therefore, zero allowance, but we are fighting that.”

asked by Unnamed · answered by Moishe Gubin