Attached files
| file | filename |
|---|---|
| EX-32.2 - OptimumBank Holdings, Inc. | ex32-2.htm |
| EX-32.1 - OptimumBank Holdings, Inc. | ex32-1.htm |
| EX-31.2 - OptimumBank Holdings, Inc. | ex31-2.htm |
| EX-31.1 - OptimumBank Holdings, Inc. | ex31-1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| [X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2021
or
| [ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________ to _________
Commission File Number: 000-50755
OPTIMUMBANK HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
| Florida | 55-0865043 | |
| (State
or other jurisdiction of incorporation or organization) |
(IRS
Employer Identification No.) |
2929 East Commercial Boulevard, Fort Lauderdale, FL 33308
(Address of principal executive offices)
954-900-2800
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Common Stock, $.01 Par Value | OPHC | NASDAQ Capital Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act (check one):
| Large accelerated filer [ ] | Accelerated filer [ ] | |
| Non-accelerated filer [X] | Smaller reporting company [X] | |
| Emerging growth company [ ] |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes [ ] No [X]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 3,214,497 shares of common stock, $.01 par value, issued and outstanding as of May 12, 2021.
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
INDEX
| i |
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Condensed
Consolidated Balance Sheets
(Dollars in thousands, except per share amounts)
| March 31, 2021 | December 31, 2020 | |||||||
| (Unaudited) | ||||||||
| Assets: | ||||||||
| Cash and due from banks | $ | 25,841 | $ | 25,523 | ||||
| Interest-bearing deposits with banks | 27,853 | 29,106 | ||||||
| Total cash and cash equivalents | 53,694 | 54,629 | ||||||
| Debt securities available for sale | 22,380 | 18,893 | ||||||
| Debt securities held-to-maturity (fair value of $2,570 and $3,549) | 2,465 | 3,399 | ||||||
| Loans, net of allowance for loan losses of $1,890 and $1,906 | 168,309 | 152,469 | ||||||
| Federal Home Loan Bank stock | 793 | 1,092 | ||||||
| Premises and equipment, net | 1,411 | 1,413 | ||||||
| Right-of-use lease assets | 1,058 | 904 | ||||||
| Accrued interest receivable | 1,113 | 1,336 | ||||||
| Other assets | 1,353 | 977 | ||||||
| Total assets | $ | 252,576 | $ | 235,112 | ||||
| Liabilities and Stockholders’ Equity: | ||||||||
| Liabilities: | ||||||||
| Noninterest-bearing demand deposits | $ | 76,833 | $ | 58,312 | ||||
| Savings, NOW and money-market deposits | 112,851 | 110,704 | ||||||
| Time deposits | 19,825 | 21,743 | ||||||
| Total deposits | 209,509 | 190,759 | ||||||
| Federal Home Loan Bank advances | 18,000 | 23,000 | ||||||
| Junior subordinated debenture | 2,068 | 2,068 | ||||||
| Official checks | 36 | 142 | ||||||
| Operating lease liabilities | 1,079 | 923 | ||||||
| Other liabilities | 561 | 386 | ||||||
| Total liabilities | 231,253 | 217,278 | ||||||
| Commitments and contingencies (Notes 1, 8 and 11) | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, no par value; 6,000,000 shares authorized: | — | — | ||||||
| Designated Series B, no par value, 560 shares authorized, 560 and 400 shares issued and outstanding in 2020 | — | — | ||||||
| Common stock, $.01 par value; 10,000,000 shares authorized, 3,214,497 and 3,203,455 shares issued and outstanding | 32 | 32 | ||||||
| Additional paid-in capital | 54,304 | 50,263 | ||||||
| Accumulated deficit | (32,044 | ) | (32,392 | ) | ||||
| Accumulated other comprehensive loss | (969 | ) | (69 | ) | ||||
| Total stockholders’ equity | 21,323 | 17,834 | ||||||
| Total liabilities and stockholders’ equity | $ | 252,576 | $ | 235,112 | ||||
See accompanying notes to condensed consolidated financial statements.
| 1 |
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Condensed
Consolidated Statements of Operations (Unaudited)
(in thousands, except per share amounts)
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2021 | 2020 | |||||||
| Interest income: | ||||||||
| Loans | $ | 1,847 | $ | 1,413 | ||||
| Debt securities | 91 | 46 | ||||||
| Other | 27 | 44 | ||||||
| Total interest income | 1,965 | 1,503 | ||||||
| Interest expense: | ||||||||
| Deposits | 181 | 402 | ||||||
| Borrowings | 98 | 105 | ||||||
| Total interest expense | 279 | 507 | ||||||
| Net interest income | 1,686 | 996 | ||||||
| (Credit) provision for loan losses | (24 | ) | 189 | |||||
| Net interest income after (credit) provision for loan losses | 1,710 | 807 | ||||||
| Noninterest income: | ||||||||
| Service charges and fees | 151 | 67 | ||||||
| Other | 25 | 6 | ||||||
| Total noninterest income | 176 | 73 | ||||||
| Noninterest expenses: | ||||||||
| Salaries and employee benefits | 698 | 548 | ||||||
| Professional fees | 112 | 171 | ||||||
| Occupancy and equipment | 152 | 148 | ||||||
| Data processing | 178 | 117 | ||||||
| Insurance | 23 | 24 | ||||||
| Regulatory assessment | 61 | 41 | ||||||
| Other | 314 | 139 | ||||||
| Total noninterest expenses | 1,538 | 1,188 | ||||||
| Net earnings (loss) before income taxes | 348 | (308 | ) | |||||
| Income taxes | - | - | ||||||
| Net earnings (loss) | $ | 348 | $ | (308 | ) | |||
| Net earnings (loss) per share - Basic and diluted | $ | 0.11 | $ | (0.11 | ) | |||
See accompanying notes to condensed consolidated financial statements.
| 2 |
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Condensed
Consolidated Statements of Comprehensive Loss (Unaudited)
(In thousands)
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2021 | 2020 | |||||||
| Net earnings (loss) | $ | 348 | $ | (308 | ) | |||
| Other comprehensive (loss) income: | ||||||||
| Change in unrealized gain on debt securities- | ||||||||
| Unrealized (loss) gain arising during the year | (922 | ) | 53 | |||||
| Amortization of unrealized loss on debt securities transferred to held-to-maturity | 47 | 24 | ||||||
| Other comprehensive (loss) income before income taxes | (875 | ) | 77 | |||||
| Deferred income taxes | (25 | ) | (24 | ) | ||||
| Total other comprehensive (loss) income | (900 | ) | 53 | |||||
| Comprehensive loss | $ | (552 | ) | $ | (255 | ) | ||
See accompanying notes to condensed consolidated financial statements.
| 3 |
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Stockholders’ Equity
Three Months Ended March 31, 2021 and 2020
(Dollars in thousands)
| Preferred Stock | Additional | Accumulated Other | ||||||||||||||||||||||||||||||||||||||
| Series A | Series B | Common Stock | Paid-In | Accumulated | Comprehensive | Stockholders’ | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Loss | Equity | |||||||||||||||||||||||||||||||
| Balance at December 31, 2019 | — | $ | — | — | $ | — | 2,853,171 | $ | 28 | $ | 38,994 | $ | (31,610 | ) | $ | (205 | ) | $ | 7,207 | |||||||||||||||||||||
| Proceeds from the sale of common stock (unaudited) | — | — | — | — | 98,182 | 1 | 538 | — | — | 539 | ||||||||||||||||||||||||||||||
| Net loss for the three months ended March 31, 2020 (unaudited) | — | — | — | — | — | — | — | (308 | ) | — | (308 | ) | ||||||||||||||||||||||||||||
| Net change in unrealized loss on debt securities available for sale, net of income taxes (unaudited) | — | — | — | — | — | — | — | — | 35 | 35 | ||||||||||||||||||||||||||||||
| Amortization of unrealized loss on debt securities transferred to held-to-maturity, net of income taxes (unaudited) | — | — | — | — | — | — | — | — | 18 | 18 | ||||||||||||||||||||||||||||||
| Balance at March 31, 2020 (unaudited) | — | — | — | — | 2,951,353 | 29 | 39,532 | (31,918 | ) | (152 | ) | 7,491 | ||||||||||||||||||||||||||||
| Balance at December 31, 2020 | — | — | 400 | — | 3,203,455 | 32 | 50,263 | (32,392 | ) | (69 | ) | 17,834 | ||||||||||||||||||||||||||||
| Proceeds from the sale of preferred stock (unaudited) | — | — | 160 | — | — | — | 4,000 | — | — | 4,000 | ||||||||||||||||||||||||||||||
| Common stock issued for junior subordinated debenture interest payable (unaudited) | — | — | — | — | 11,042 | — | 41 | — | — | 41 | ||||||||||||||||||||||||||||||
| Net change in unrealized gain on loss securities available for sale (unaudited) | — | — | — | — | — | — | — | — | (922 | ) | (922 | ) | ||||||||||||||||||||||||||||
Amortization of unrealized loss on debt securities transferred to held-to-maturity (unaudited) | — | — | — | — | — | — | — | — | 22 | 22 | ||||||||||||||||||||||||||||||
| Net earnings (unaudited) | — | — | — | — | — | — | — | 348 | — | 348 | ||||||||||||||||||||||||||||||
| Balance at March 31, 2021 (unaudited) | — | — | 560 | $ | — | 3,214,497 | $ | 32 | $ | 54,304 | $ | (32,044 | ) | $ | (969 | ) | $ | 21,323 | ||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements
| 4 |
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2021 | 2020 | |||||||
| Cash flows from operating activities: | ||||||||
| Net earnings (loss) | $ | 348 | $ | (308 | ) | |||
| Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities: | ||||||||
| (Credit) provision for loan losses | (24 | ) | 189 | |||||
| Depreciation and amortization | 51 | 46 | ||||||
| Net (accretion) amortization of fees, premiums and discounts | (59 | ) | 38 | |||||
| Decrease (increase) in accrued interest receivable | 223 | (8 | ) | |||||
| Amortization of right of use asset | 37 | 38 | ||||||
| Net decrease in operating lease liabilities | (35 | ) | (34 | ) | ||||
| (Increase) decrease in other assets | (401 | ) | 24 | |||||
| Increase (Decrease) in official checks and other liabilities | 110 | (17 | ) | |||||
| Net cash provided by (used in) operating activities | 250 | (32 | ) | |||||
| Cash flows from investing activities: | ||||||||
| Purchase of debt securities available for sale | (5,193 | ) | — | |||||
| Principal repayments of debt securities available for sale | 740 | 514 | ||||||
| Principal repayments of debt securities held-to-maturity | 954 | 340 | ||||||
| Net increase in loans | (15,686 | ) | (5,205 | ) | ||||
| Purchases of premises and equipment | (49 | ) | (140 | ) | ||||
| Redemption (purchase) of FHLB stock | 299 | (449 | ) | |||||
| Net cash used in investing activities | (18,935 | ) | (4,940 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Net increase in deposits | 18,750 | 4,387 | ||||||
| Net (decrease) increase in FHLB Advances | (5,000 | ) | 10,000 | |||||
| Proceeds from sale of preferred stock | 4,000 | — | ||||||
| Proceeds from sale of common stock | — | 539 | ||||||
| Net cash provided by financing activities | 17,750 | 14,926 | ||||||
| Net (decrease) increase in cash and cash equivalents | (935 | ) | 9,954 | |||||
| Cash and cash equivalents at beginning of the period | 54,629 | 8,934 | ||||||
| Cash and cash equivalents at end of the period | $ | 53,694 | $ | 18,888 | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | 290 | $ | 460 | ||||
| Income taxes | $ | — | $ | — | ||||
| Noncash transaction - | ||||||||
| Change in accumulated other comprehensive loss, net change in unrealized (loss) gain on debt securities available for sale, net of income taxes | $ | (900 | ) | $ | 53 | |||
| Amortization of unrealized loss on debt securities transferred to held-to-maturity | $ | 47 | $ | 24 | ||||
| Right-of use lease assets obtained in exchange for operating lease liabilities | $ | 191 | $ | — | ||||
| Issuance of common stock for Junior Subordinated Debenture interest payable | $ | 41 | $ | — | ||||
See accompanying notes to condensed consolidated financial statements
| 5 |
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (Unaudited)
| (1) | General. OptimumBank Holdings, Inc. (the “Company”) is a one-bank holding company and owns 100% of OptimumBank (the “Bank”), a Florida-chartered commercial bank. The Company’s only business is the operation of the Bank. The Bank’s deposits are insured up to applicable limits by the Federal Deposit Insurance Corporation (“FDIC”). The Bank offers a variety of community banking services to individual and corporate customers through its three banking offices located in Broward County, Florida. |
| Basis of Presentation. In the opinion of management, the accompanying condensed consolidated financial statements of the Company contain all adjustments (consisting principally of normal recurring accruals) necessary to present fairly the financial position at March 31, 2021, and the results of operations and cash flows for the three-month periods ended March 31, 2021 and 2020. All significant intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the three months ended March 31, 2021, are not necessarily indicative of the results to be expected for the full year. | |
| Subsequent Events. The Company has evaluated subsequent events through May 12, 2021, which is the date the condensed consolidated financial statements were issued, determining no additional events required disclosure. | |
| Coronavirus Global Pandemic (“COVID-19”). The Company is subject to risks related to the public health crisis associated with COVID-19. COVID-19 has negatively impacted the global economy, disrupted global supply chains, created significant volatility and disruption in financial markets and significantly increased unemployment levels. The extent to which COVID-19 impacts the Company’s business, results of operations, and financial condition, as well as loan quality, regulatory capital and liquidity ratios, will depend on future developments, the duration of the pandemic, and actions taken by governmental authorities to slow the spread of the disease or to mitigate its effects. | |
Junior Subordinated Debenture. In 2004, the Company formed OptimumBank Capital Trust I (the “Trust’’) for the purpose of raising capital through the sale of trust preferred securities. At that time, the Trust raised $5,155,000 through the sale of 5,000 trust preferred securities (the “Trust Preferred Securities”) to a third party investor and the issuance of 155 common trust securities to the Company.
The Trust utilized the proceeds of $5,155,000 to purchase a junior subordinated debenture from the Company (the “Junior Subordinated Debenture”). Under the Junior Subordinated Debenture, the Company is required to make interest payments on a periodic basis and to pay the outstanding principal amount plus accrued interest on October 7, 2034.
In May 2018, Preferred Shares, LLC (the “Purchaser”) acquired all 5,000 of the Trust Preferred Securities from a third party. The Purchaser is an affiliate of a director of the Company. The Purchaser has subsequently sold and/or transferred 3,087 of the Trust Preferred Securities to unaffiliated third parties.
The Company had been in default under the Junior Subordinated Debenture due to the failure to pay interest since 2015. In September 2020, the Company paid approximately $1.1 million to the holders of the outstanding Trust Preferred Securities, which represented all accrued interest through September 2020 under the Junior Subordinated Debenture attributable to the Trust Preferred Securities that had not been cancelled. The coupon interest rate floats quarterly at the three-month LIBOR rate plus 2.45% (2.67% at March 31, 2021).
During 2018, the Company issued 301,778 shares of common stock in exchange for 694 Trust Preferred Securities. For accounting purposes, the Trust Preferred Securities acquired by the Company were deemed to be cancelled. As a result, the Company cancelled $694,000 in principal amount of the Trust Preferred Securities, together with accrued interest of $211,000, and increased its stockholders’ equity by the same amount.
During 2019, the Company issued 924,395 shares of common stock in exchange for 1,881 Trust Preferred Securities. For accounting purposes, the Trust Preferred Securities acquired by the Company were deemed to be cancelled. As a result, the Company cancelled $1,881,000 in principal amount of the Trust Preferred Securities, together with accrued interest of $763,000, and increased its stockholders’ equity by the same amount.
During December 2020, the Company issued 171,500 shares of common stock in exchange for 512 Trust Preferred Securities. For accounting purposes, the Trust Preferred Securities acquired by the Company were deemed to be cancelled. As a result, the Company cancelled $512,000 in principal amount of the Trust Preferred Securities, together with accrued interest of $2,000, and increased its stockholders’ equity by the same amount.
During the first quarter of 2021, the Company issued 11,042 shares of common stock to pay approximately $41,000 of accrued interest associated with the outstanding Trust Preferred Securities.
The principal owed by the Company in connection with the Junior Subordinated Debenture was $2,068,000 at March 31, 2021 and December 31, 2020, respectively. There was no accrued interest owed by the Company associated with the Junior Subordinated Debenture at March 31, 2021. The accrued interest owed by the Company associated with the Junior Subordinated Debenture was $30,000 at December 31, 2020 and is presented on the accompanying consolidated balance sheet under the caption “Other liabilities”.
The Company currently intends to acquire the remaining Trust Preferred Securities in 2021 in exchange for shares its common stock in the second quarter, although it has not yet entered into any agreement or commitment with respect to such an exchange. | |
| Comprehensive Loss. GAAP generally requires that recognized revenue, expenses, gains and losses be included in net earnings (loss). Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale debt securities, are reported as a separate component of the equity section of the condensed consolidated balance sheets, such items along with net loss, are components of comprehensive loss. |
Accumulated other comprehensive loss consists of the following (in thousands):
| March 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Unrealized (loss) gain on debt securities available for sale | $ | (872 | ) | $ | 50 | |||
| Unamortized portion of unrealized loss related to debt securities available for sale transferred to securities held-to-maturity | (97 | ) | (144 | ) | ||||
| Income tax benefit | - | 25 | ||||||
| $ | (969 | ) | $ | (69 | ) | |||
| Income Taxes. The Company assessed its earnings history and trends and estimates of future earnings, and determined that the deferred tax asset could not be realized as of March 31, 2021. Accordingly, a valuation allowance was recorded against the net deferred tax asset. | |
| Reclassifications. Certain amounts have been reclassified to allow for consistent presentation for the periods presented. |
(continued)
| 6 |
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (Unaudited)
| (1) | General, Continued. |
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13 Financial Instruments-Credit Losses (Topic 326). The ASU improves financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by the Company. The ASU requires the Company to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. The Company will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. The ASU requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the condensed consolidated financial statements. Additionally, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The ASU will take effect for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. The Company is in the process of determining the effect of the ASU on its condensed consolidated financial statements.
(continued)
| 7 |
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (Unaudited)
| (2) | Debt Securities. Debt Securities have been classified according to management’s intent. The carrying amount of debt securities and approximate fair values are as follows (in thousands): |
| Gross | Gross | |||||||||||||||
| Amortized | Unrealized | Unrealized | Fair | |||||||||||||
| Cost | Gains | Losses | Value | |||||||||||||
| At March 31, 2021: | ||||||||||||||||
| Available for sale: | ||||||||||||||||
| SBA Pool Securities | $ | 1,272 | $ | — | $ | (39 | ) | $ | 1,233 | |||||||
| Collateralized mortgage obligations | 369 | 23 | — | 392 | ||||||||||||
| Taxable municipal securities | 10,249 | — | (591 | ) | 9,658 | |||||||||||
| Mortgage-backed securities | 11,362 | 38 | (303 | ) | 11,097 | |||||||||||
| Total | $ | 23,252 | $ | 61 | $ | (933 | ) | $ | 22,380 | |||||||
| Held-to-maturity: | ||||||||||||||||
| Collateralized mortgage obligations | $ | 1,864 | $ | 86 | — | $ | 1,950 | |||||||||
| Mortgage-backed securities | 601 | 19 | — | 620 | ||||||||||||
| Total | $ | 2,465 | $ | 105 | — | $ | 2,570 | |||||||||
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||
| At December 31, 2020: | ||||||||||||||||
| Available for sale: | ||||||||||||||||
| SBA Pool Securities | $ | 1,338 | $ | — | $ | (41 | ) | $ | 1,297 | |||||||
| Collateralized mortgage obligations | 458 | 27 | — | 485 | ||||||||||||
| Taxable municipal securities | 5,063 | 29 | (7 | ) | 5,085 | |||||||||||
| Mortgage-backed securities | 11,984 | 53 | (11 | ) | 12,026 | |||||||||||
| Total | $ | 18,843 | $ | 109 | $ | (59 | ) | $ | 18,893 | |||||||
| Held-to-maturity: | ||||||||||||||||
| Collateralized mortgage obligations | $ | 2,420 | $ | 116 | — | $ | 2,536 | |||||||||
| Mortgage-backed securities | 979 | 34 | — | 1,013 | ||||||||||||
| Total | $ | 3,399 | $ | 150 | — | $ | 3,549 | |||||||||
There were no sales of debt securities during the three months ended March 31, 2021 and 2020.
Debt Securities available for sale with gross unrealized losses, aggregated by investment category and length of time that individual debt securities have been in a continuous loss position, is as follows (in thousands):
| At March 31, 2021 | ||||||||||||||||
| Less Than Twelve | ||||||||||||||||
| Over Twelve Months | Months | |||||||||||||||
| Gross | Gross | |||||||||||||||
| Unrealized | Fair | Unrealized | Fair | |||||||||||||
| Losses | Value | Losses | Value | |||||||||||||
| Available for Sale : | ||||||||||||||||
| SBA Pool Securities | 39 | 1,233 | — | — | ||||||||||||
| Taxable municipal securities | — | — | 591 | 9,658 | ||||||||||||
| Mortgage-backed securities | — | — | 303 | 9,830 | ||||||||||||
| Total | $ | 39 | $ | 1,233 | $ | 894 | $ | 19,488 | ||||||||
| At December 31, 2020 | ||||||||||||||||
| Over Twelve Months | Less Than Twelve Months | |||||||||||||||
| Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | |||||||||||||
| Available for Sale : | ||||||||||||||||
| SBA Pool Securities | 41 | 1,297 | — | — | ||||||||||||
| Taxable municipal securities | — | — | 7 | 1,413 | ||||||||||||
| Mortgage-backed securities | — | — | 11 | 3,583 | ||||||||||||
| Total | $ | 41 | $ | 1,297 | $ | 18 | $ | 4,996 | ||||||||
(continued)
| 8 |
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (Unaudited)
| (2) | Debt Securities Continued.
Management evaluates debt securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospectus of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.
At March 31, 2021 and December 31, 2020, the unrealized losses on twenty-seven and eleven debt securities respectively, were caused by market conditions. It is expected that the debt securities would not be settled at a price less than the book value of the investments. Because the decline in fair value is attributable to market conditions and not credit quality, and because the Company has the ability and intent to hold these investments until a market price recovery or maturity, these investments are not considered other-than-temporarily impaired. |
| (continued) |
| 9 |
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (Unaudited)
| (3) | Loans. The components of loans are as follows (in thousands): |
| March 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Residential real estate | $ | 29,001 | $ | 30,254 | ||||
| Multi-family real estate | 20,229 | 20,637 | ||||||
| Commercial real estate | 70,896 | 71,714 | ||||||
| Land and construction | 4,415 | 4,750 | ||||||
| Commercial | 36,515 | 21,849 | ||||||
| Consumer | 10,217 | 5,715 | ||||||
| Total loans | 171,273 | 154,919 | ||||||
| Deduct: | ||||||||
| Net deferred loan fees, costs and premiums | (1,074 | ) | (544 | ) | ||||
| Allowance for loan losses | (1,890 | ) | (1,906 | ) | ||||
| Loans, net | $ | 168,309 | $ | 152,469 | ||||
| An analysis of the change in the allowance for loan losses follows (in thousands): |
| Residential | Multi-Family | Commercial | Land and | |||||||||||||||||||||||||||||
| Real Estate | Real Estate | Real Estate | Construction | Commercial | Consumer | Unallocated | Total | |||||||||||||||||||||||||
| Three Months Ended March 31, 2021: | ||||||||||||||||||||||||||||||||
| Beginning balance | 463 | 253 | 884 | 52 | 103 | 151 | — | 1,906 | ||||||||||||||||||||||||
| (Credit) Provision for loan losses | (91 | ) | (15 | ) | (41 | ) | (10 | ) | (4 | ) | 137 | — | (24 | ) | ||||||||||||||||||
| Charge-offs | — | — | — | — | — | (20 | ) | — | (20 | ) | ||||||||||||||||||||||
| Recoveries | 24 | — | — | 4 | — | — | — | 28 | ||||||||||||||||||||||||
| Ending balance | $ | 396 | $ | 238 | $ | 843 | $ | 46 | $ | 99 | $ | 268 | $ | — | $ | 1,890 | ||||||||||||||||
| Three Months Ended March 31, 2020: | ||||||||||||||||||||||||||||||||
| Beginning balance | $ | 531 | $ | 82 | $ | 624 | $ | 21 | $ | 573 | $ | 152 | $ | 26 | $ | 2,009 | ||||||||||||||||
| Provision (credit) for loan losses | 47 | 41 | 105 | 23 | 5 | (6 | ) | (26 | ) | 189 | ||||||||||||||||||||||
| Charge-offs | — | — | — | — | — | (10 | ) | — | (10 | ) | ||||||||||||||||||||||
| Recoveries | 4 | — | — | 6 | — | — | — | 10 | ||||||||||||||||||||||||
| Ending balance | $ | 582 | $ | 123 | $ | 729 | $ | 50 | $ | 578 | $ | 136 | $ | — | $ | 2,198 | ||||||||||||||||
Residential Real Estate | Multi-Family Real Estate | Commercial Real Estate | Land and Construction | Commercial | Consumer | Unallocated | Total | |||||||||||||||||||||||||
| At March 31, 2021: | ||||||||||||||||||||||||||||||||
| Individually evaluated for impairment: | ||||||||||||||||||||||||||||||||
| Recorded investment | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||
| Balance in allowance for loan losses | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||
| Collectively evaluated for impairment: | ||||||||||||||||||||||||||||||||
| Recorded investment | $ | 29,001 | $ | 20,229 | $ | 70,896 | $ | 4,415 | $ | 36,515 | $ | 10,217 | $ | — | $ | 171,273 | ||||||||||||||||
| Balance in allowance for loan losses | $ | 396 | $ | 238 | $ | 843 | $ | 46 | $ | 99 | $ | 268 | $ | — | $ | 1,890 | ||||||||||||||||
| At December 31, 2020: | ||||||||||||||||||||||||||||||||
| Individually evaluated for impairment: | ||||||||||||||||||||||||||||||||
| Recorded investment | $ | — | $ | — | $ | 2,193 | $ | — | $ | — | $ | — | $ | — | $ | 2,193 | ||||||||||||||||
| Balance in allowance for loan losses | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||
| Collectively evaluated for impairment: | ||||||||||||||||||||||||||||||||
| Recorded investment | $ | 30,254 | $ | 20,637 | $ | 69,521 | $ | 4,750 | $ | 21,849 | $ | 5,715 | $ | — | $ | 152,726 | ||||||||||||||||
| Balance in allowance for loan losses | $ | 463 | $ | 253 | $ | 884 | $ | 52 | $ | 103 | $ | 151 | $ | — | $ | 1,906 | ||||||||||||||||
(continued)
| 10 |
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (Unaudited)
| (3) | Loans, Continued.
The Company has divided the loan portfolio into six portfolio segments, each with different risk characteristics and methodologies for assessing risk. All loans are underwritten based upon standards set forth in the policies approved by the Company’s Board of Directors (the “Board”). The Company identifies the portfolio segments as follows:
Residential Real Estate, Multi-Family Real Estate, Commercial Real Estate, Land and Construction. Residential real estate loans are underwritten based on repayment capacity and source, value of the underlying property, credit history and stability. The Company offers first and second one-to-four family mortgage loans; the collateral for these loans is generally the clients’ owner-occupied residences. Although these types of loans present lower levels of risk than commercial real estate loans, risks do still exist because of possible fluctuations in the value of the real estate collateral securing the loan, as well as changes in the borrowers’ financial condition. Multi-family and commercial real estate loans are secured by the subject property and are underwritten based upon standards set forth in the policies approved by the Board. Such standards include, among other factors, loan to value limits, cash flow coverage and general creditworthiness of the obligors. Construction loans to borrowers finance the construction of owner occupied and leased properties. These loans are categorized as construction loans during the construction period, later converting to commercial or residential real estate loans after the construction is complete and amortization of the loan begins. Real estate development and construction loans are approved based on an analysis of the borrower and guarantor, the viability of the project and on an acceptable percentage of the appraised value of the property securing the loan. Real estate development and construction loan funds are disbursed periodically based on the percentage of construction completed. The Company carefully monitors these loans with on-site inspections and requires the receipt of lien waivers on funds advanced. Development and construction loans are typically secured by the properties under development or construction, and personal guarantees are typically obtained. Further, to assure that reliance is not placed solely on the value of the underlying property, the Company considers the market conditions and feasibility of proposed projects, the financial condition and reputation of the borrower and guarantors, the amount of the borrower’s equity in the project, independent appraisals, cost estimates and pre-construction sales information. The Company also makes loans on occasion for the purchase of land for future development by the borrower. Land loans are extended for future development for either commercial or residential use by the borrower. The Company carefully analyzes the intended use of the property and the viability thereof. |
| Commercial. Commercial business loans and lines of credit consist of loans to small- and medium-sized companies in the Company’s market area. Commercial loans are generally used for working capital purposes or for acquiring equipment, inventory or furniture. Primarily all of the Company’s commercial loans are secured loans, along with a small amount of unsecured loans. The Company’s underwriting analysis consists of a review of the financial statements of the borrower, the lending history of the borrower, the debt service capabilities of the borrower, the projected cash flows of the business, the value of the collateral, if any, and whether the loan is guaranteed by the principals of the borrower. These loans are generally secured by accounts receivable, inventory and equipment. Commercial loans are typically made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business, which makes them of higher risk than residential loans and the collateral securing loans may be difficult to appraise and may fluctuate in value based on the success of the business. The Company seeks to minimize these risks through its underwriting standards. The Company took action to prepare its employees, support its clients, and help its communities. The Company has supported small business owners by making loans through the Small Business Administration Paycheck Protection Program (“PPP”). As of March 31, 2021, the Bank had originated 407 PPP loans for a total dollar amount of $34.9 million. These loans are 100% guaranteed by the Small Business Administration (the “SBA”). At March 31, 2021 outstanding PPP loans total approximately $32.7 million. | |
| Consumer. Consumer loans are extended for various purposes, including purchases of automobiles, recreational vehicles, and boats. Also offered are home improvement loans, lines of credit, personal loans, and deposit account collateralized loans. Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Loans to consumers are extended after a credit evaluation, including the creditworthiness of the borrower(s), the purpose of the credit, and the secondary source of repayment. Consumer loans are made at fixed and variable interest rates. Risk is mitigated by the fact that the loans are of smaller individual amounts. |
(continued)
| 11 |
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (Unaudited)
| (3) | Loans, Continued. The following summarizes the loan credit quality (in thousands): |
| Pass | OLEM (Other Loans Especially Mentioned) | Sub- Standard | Doubtful | Loss | Total | |||||||||||||||||||
| At March 31, 2021: | ||||||||||||||||||||||||
| Residential real estate | $ | 26,490 | $ | — | $ | 2,511 | $ | — | $ | — | $ | 29,001 | ||||||||||||
| Multi-family real estate | 20,229 | — | — | — | — | 20,229 | ||||||||||||||||||
| Commercial real estate | 66,403 | 4,493 | — | — | — | 70,896 | ||||||||||||||||||
| Land and construction | 4,415 | — | — | — | — | 4,415 | ||||||||||||||||||
| Commercial | 35,480 | 1,035 | — | — | — | 36,515 | ||||||||||||||||||
| Consumer | 10,217 | — | — | — | — | 10,217 | ||||||||||||||||||
| Total | $ | 163,234 | $ | 5,528 | $ | 2,511 | $ | — | $ | — | $ | 171,273 | ||||||||||||
| At December 31, 2020: | ||||||||||||||||||||||||
| Residential real estate | $ | 29,408 | $ | — | $ | 846 | $ | — | $ | — | $ | 30,254 | ||||||||||||
| Multi-family real estate | 20,637 | — | — | — | — | 20,637 | ||||||||||||||||||
| Commercial real estate | 63,405 | 4,449 | 3,860 | — | — | 71,714 | ||||||||||||||||||
| Land and construction | 4,750 | — | — | — | — | 4,750 | ||||||||||||||||||
| Commercial | 20,735 | 1,114 | — | — | — | 21,849 | ||||||||||||||||||
| Consumer | 5,715 | — | — | — | — | 5,715 | ||||||||||||||||||
| Total | $ | 144,650 | $ | 5,563 | $ | 4,706 | $ | — | $ | — | $ | 154,919 | ||||||||||||
Internally assigned loan grades are defined as follows:
| Pass – a Pass loan’s primary source of loan repayment is satisfactory, with secondary sources very likely to be realized if necessary. These are loans that conform in all aspects to bank policy and regulatory requirements, and no repayment risk has been identified. | |
| OLEM – an Other Loan Especially Mentioned has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in the deterioration of the repayment prospects for the asset or the Company’s credit position at some future date. | |
| Substandard – a Substandard loan is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Included in this category are loans that are current on their payments, but the Bank is unable to document the source of repayment. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. | |
| Doubtful – a loan classified as Doubtful has all the weaknesses inherent in one classified as Substandard, with the added characteristics that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future. The Company charges off any loan classified as Doubtful. | |
| Loss – a loan classified Loss is considered uncollectible and of such little value that continuance as a bankable asset is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be effected in the future. The Company fully charges off any loan classified as Loss. |
(continued)
| 12 |
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (Unaudited)
| (3) | Loans, Continued. Age analysis of past-due loans is as follows (in thousands): |
| Accruing Loans | ||||||||||||||||||||||||||||
30-59 Days Past Due | 60-89 Days Past Due | Greater Than 90 Days Past Past | Total Past Due | Current | Nonaccrual Loans | Total Loans | ||||||||||||||||||||||
| At March 31, 2021: | ||||||||||||||||||||||||||||
| Residential real estate | $ | 104 | $ | — | $ | — | $ | 104 | $ | 28,897 | $ | — | $ | 29,001 | ||||||||||||||
| Multi-family real estate | 124 | — | — | 124 | 20,105 | — | 20,229 | |||||||||||||||||||||
| Commercial real estate | — | — | — | — | 70,896 | — | 70,896 | |||||||||||||||||||||
| Land and construction | — | — | — | — | 4,415 | — | 4,415 | |||||||||||||||||||||
| Commercial | — | — | — | — | 36,515 | — | 36,515 | |||||||||||||||||||||
| Consumer | 7 | 20 | — | 27 | 10,190 | — | 10,217 | |||||||||||||||||||||
| Total | $ | 235 | $ | 20 | $ | — | $ | 255 | $ | 171,018 | $ | — | $ | 171,273 | ||||||||||||||
| Accruing Loans | ||||||||||||||||||||||||||||
30-59 Days Past Due | 60-89 Days Past Due | Greater Than 90 Days Past Due | Total Past Due | Current | Nonaccrual Loans | Total Loans | ||||||||||||||||||||||
| At December 31, 2020: | ||||||||||||||||||||||||||||
| Residential real estate | $ | 977 | $ | — | $ | — | $ | 977 | $ | 29,277 | $ | — | $ | 30,254 | ||||||||||||||
| Multi-family real estate | — | — | — | — | 20,637 | — | 20,637 | |||||||||||||||||||||
| Commercial real estate | — | — | — | — | 69,521 | 2,193 | 71,714 | |||||||||||||||||||||
| Land and construction | — | — | — | — | 4,750 | — | 4,750 | |||||||||||||||||||||
| Commercial | — | — | — | — | 21,849 | — | 21,849 | |||||||||||||||||||||
| Consumer | 6 | — | — | 6 | 5,709 | — | 5,715 | |||||||||||||||||||||
| Total | $ | 983 | $ | — | $ | — | $ | 983 | $ | 151,743 | $ | 2,193 | $ | 154,919 | ||||||||||||||
There were no impaired loans at March 31, 2021. The following summarizes the amount of impaired loans at December 31, 2020 (in thousands):
| Unpaid | ||||||||||||
| Recorded | Principal | Related | ||||||||||
| Investment | Balance | Allowance | ||||||||||
| With no related allowance recorded: | ||||||||||||
| Commercial real estate | $ | 2,193 | $ | 2,193 | — | |||||||
(continued)
| 13 |
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (Unaudited)
| (3) | Loans, Continued. The average recorded investment in impaired loans and interest income recognized and received on impaired loans are as follows (in thousands): |
| Three Months Ended | Three Months Ended | |||||||||||||||||||||||
| March 31, 2021 | March 31, 2020 | |||||||||||||||||||||||
| Average | Interest | Interest | Average | Interest | Interest | |||||||||||||||||||
| Recorded | Income | Income | Recorded | Income | Income | |||||||||||||||||||
| Investment | Recognized | Received | Investment | Recognized | Received | |||||||||||||||||||
| Residential real estate | $ | — | — | — | $ | 940 | 18 | 11 | ||||||||||||||||
| Commercial real estate | $ | 1,644 | 7 | 7 | $ | 2,200 | 26 | 30 | ||||||||||||||||
| Commercial | $ | — | — | — | $ | 808 | - | 18 | ||||||||||||||||
| Total | $ | 1,644 | 7 | 7 | $ | 3,948 | 44 | 59 | ||||||||||||||||
| No loans have been determined to be troubled debt restructurings (TDR’s) during the three month periods ended March 31, 2021 or 2020. At March 31, 2021 and 2020, there were no loans modified and entered into TDR’s within the past twelve months, that subsequently defaulted during the three month periods ended March 31, 2021 or 2020. |
(continued)
| 14 |
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (Unaudited)
| (4) | Earnings (Loss) Per Share. Basic earnings (loss) per share has been computed on the basis of the weighted-average number of shares of common stock outstanding during the period. During the three month period ended March 31, 2021, basic and diluted earnings per share is the same as there were no outstanding potentially dilutive securities. During the three month period ended March 31, 2020, basic and diluted loss per share is the same due to the net loss incurred by the Company. Earnings (loss) per common share have been computed based on the following: |
Three Months Ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| Weighted-average number of common shares outstanding used to calculate basic and diluted earnings (loss) per common share | 3,203,576 | 2,859,844 | ||||||
(continued)
| 15 |
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (Unaudited)
| (5) | Stock-Based Compensation |
| The Company is authorized to grant stock options, stock grants and other forms of equity-based compensation under its 2018 Equity Incentive Plan (the “2018 Plan”). The plan has been approved by the shareholders. The Company is authorized to issue up to 550,000 shares of common stock under the 2018 Plan, of which 250,096 shares remain available for grant. | |
| During the first quarter of 2021, the Company agreed to issue 62,112 shares to a director for services performed and recorded compensation expense of $200,000. The director has not yet taken delivery of the shares. As such, at March 31, 2021, the $200,000 is presented on the accompanying condensed consolidated balance sheet under the caption of “other liabilities”. |
| (6) | Fair Value Measurements. There were no impaired collateral dependent loans measured at fair value on a nonrecurring basis at March 31, 2021 and December 31, 2020. |
Debt securities available for sale measured at fair value on a recurring basis are summarized below (in thousands):
| Fair Value Measurements Using | ||||||||||||||||
| Fair Value | Quoted Prices In Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
| At March 31, 2021 : | ||||||||||||||||
| SBA Pool Securities | $ | 1,233 | $ | — | $ | 1,233 | — | |||||||||
| Collateralized mortgage obligations | 392 | — | 392 | — | ||||||||||||
| Taxable municipal securities | 9,658 | 9,658 | ||||||||||||||
| Mortgage-backed securities | 11,097 | — | 11,097 | — | ||||||||||||
| Total | $ | 22,380 | — | $ | 22,380 | — | ||||||||||
| Fair Value Measurements Using | ||||||||||||||||
| Fair Value | Quoted Prices In Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
| At December 31, 2020 : | ||||||||||||||||
| SBA Pool Securities | $ | 1,297 | $ | — | $ | 1,297 | — | |||||||||
| Collateralized mortgage obligations | 485 | — | 485 | — | ||||||||||||
| Taxable municipal securities | 5,085 | 5,085 | ||||||||||||||
| Mortgage-backed securities | 12,026 | — | 12,026 | — | ||||||||||||
| Total | $ | 18,893 | — | $ | 18,893 | — | ||||||||||
(continued)
| 16 |
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (Unaudited)
| (7) | Fair Value of Financial Instruments. The estimated fair values and fair value measurement method with respect to the Company’s financial instruments were as follows (in thousands): |
| At March 31, 2021 | At December 31, 2020 | |||||||||||||||||||||||
Carrying Amount | Fair Value | Level | Carrying Amount | Fair Value | Level | |||||||||||||||||||
| Financial assets: | ||||||||||||||||||||||||
| Cash and cash equivalents | $ | 53,694 | $ | 53,694 | 1 | $ | 54,629 | $ | 54,629 | 1 | ||||||||||||||
| Debt securities available for sale | 22,380 | 22,380 | 2 | 18,893 | 18,893 | 2 | ||||||||||||||||||
| Debt securities held-to-maturity | 2,465 | 2,570 | 2 | 3,399 | 3,549 | 2 | ||||||||||||||||||
| Loans | 168,309 | 168,267 | 3 | 152,469 | 153,276 | 3 | ||||||||||||||||||
| Federal Home Loan Bank stock | 793 | 793 | 3 | 1,092 | 1,092 | 3 | ||||||||||||||||||
| Accrued interest receivable | 1,113 | 1,113 | 3 | 1,336 | 1,336 | 3 | ||||||||||||||||||
| Financial liabilities: | ||||||||||||||||||||||||
| Deposit liabilities | 209,509 | 209,665 | 3 | 190,759 | 191,011 | 3 | ||||||||||||||||||
| Federal Home Loan Bank advances | 18,000 | 18,088 | 3 | 23,000 | 23,254 | 3 | ||||||||||||||||||
| Junior subordinated debenture | 2,068 | N/A | (1) | 3 | 2,068 | N/A | (1) | 3 | ||||||||||||||||
| Off-balance sheet financial instruments | — | — | 3 | — | — | 3 | ||||||||||||||||||
| (1) | The Company is unable to determine value based on significant unobservable inputs required in the calculation. |
| (8) | Off- Balance Sheet Financial Instruments. The Company is party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments are commitments to extend credit, unused lines of credit, and standby letters of credit and may involve, to varying degrees, elements of credit and interest-rate risk in excess of the amount recognized in the condensed consolidated balance sheet. The contract amounts of these instruments reflect the extent of involvement the Company has in these financial instruments. |
The Company’s exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments as it does for on-balance-sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Because some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company, upon extension of credit, is based on management’s credit evaluation of the counterparty.
Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit to customers is essentially the same as that involved in extending loan facilities to customers. The Bank generally holds collateral supporting those commitments. Standby letters of credit generally have expiration dates within one year.
Commitments to extend credit, unused lines of credit, and standby letters of credit typically result in loans with a market interest rate when funded. A summary of the contractual amounts of the Company’s financial instruments with off-balance-sheet risk at March 31, 2021 follows (in thousands):
| Commitments to extend credit | $ | 9,221 | ||
| Unused lines of credit | $ | 10,718 | ||
| Standby letters of credit | $ | 4,550 |
| (9) | Regulatory Matters. The Bank is subject to various regulatory capital requirements administered by the bank regulatory agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company and Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of its assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. |
| In 2019, the federal banking agencies jointly issued a final rule that provides for an optional, simplified measure of capital adequacy, the community bank leverage ratio framework (CBLR framework), for qualifying community banking organizations. The final rule became effective on January 1, 2020 and was elected by the Bank. In April 2020, the federal banking agencies issued an interim final rule that makes temporary changes to the CBLR framework, pursuant to section 4012 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, and a second interim final rule that provides a graduated increase in the community bank leverage ratio requirement after the expiration of the temporary changes implemented pursuant to section 4012 of the CARES Act. | |
| The community bank leverage ratio removes the requirement for qualifying banking organizations to calculate and report risk-based capital but rather only requires a Tier 1 to average assets (leverage) ratio. Qualifying community banking organizations that elect to use the community bank leverage ratio framework and that maintain a leverage ratio of greater than required minimums will be considered to have satisfied the generally applicable risk based and leverage capital requirements in the agencies’ capital rules (generally applicable rule) and, if applicable, will be considered to have met the well capitalized ratio requirements for purposes of section 38 of the Federal Deposit Insurance Act. Under the interim final rules, the community bank leverage ratio minimum requirement is 8% as of December 31, 2020, 8.5% for calendar year 2021, and 9% for calendar year 2022 and beyond. The interim rule allows for a two-quarter grace period to correct a ratio that falls below the required amount, provided that the Bank maintains a leverage ratio of 7% as of December 31, 2020, 7.5% for calendar year 2021, and 8% for calendar year 2022 and beyond. Under the final rule, an eligible community banking organization can opt out of the CBLR framework and revert back to the risk-weighting framework without restriction. |
(continued)
| 17 |
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (Unaudited)
| (9) | Regulatory Matters, Continued.
|
| Management believes, as of March 31, 2021 and December 31, 2020, that the Bank meets all capital adequacy requirements to which it is subject. The Bank’s actual capital amounts and percentages are presented in the table ($ in thousands): |
| Actual | To Be Well Capitalized Under Prompt Corrective Action Regulations (CBLR Framework) | |||||||||||||||
| Amount | % | Amount | % | |||||||||||||
| As of March 31, 2021: | ||||||||||||||||
| Tier I Capital to Total Assets | 23,905 | 9.66 | % | 21,031 | 8.5 | % | ||||||||||
| Actual | To Be Well Capitalized Under Prompt Corrective Action Regulations (CBLR Framework) | |||||||||||||||
| Amount | % | Amount | % | |||||||||||||
| As of December 31, 2020: | ||||||||||||||||
| Tier I Capital to Total Assets | 19,261 | 9.00 | % | 17,116 | 8.00 | % | ||||||||||
| (10) | Preferred Stock
During the first quarter of 2021, the Company issued 160 shares of Series B Participating Preferred Stock (the “Series B Preferred Stock”) to a related party at a cash price of $25,000 per share, or an aggregate of $4,000,000. The related party is a significant common stockholder. The Preferred Stock has no par value. Except in the case of liquidation, if the Company declares or pays a dividend or distribution on the common stock, the Company shall simultaneously declare and pay a dividend on the Series B Preferred Stock on a pro rata basis with the common stock determined on an as-converted basis assuming all Shares of Series B Preferred Stock had been converted immediately prior to the record date of the applicable dividend. The Preferred Stock is convertible into 1,600,000 shares of common stock, at the option of the Company, subject to the prior fulfilment of the following conditions: (i) such conversion shall have been approved by the holders of a majority of the outstanding common stock of the Company; and (ii) such conversion shall not result in any holder of the Series B Preferred Stock and any persons with whom the holder may be acting in concert, becoming beneficial owners of more than 9.9% of the outstanding shares of the common stock. The number of shares issuable upon conversion is subject to adjustment based on the terms of the amended Certificate of Designation in the Amendment to the Company’s Articles of Incorporation filed on September 29, 2020 (the “Certificate of Designation”) The Preferred Stock has preferential liquidation rights over common stockholders and holders of junior securities. The liquidation price is the greater of $25,000 per share of preferred stock or such amount per share of preferred stock that would have been payable had all shares of the preferred stock been converted into common stock per the terms of the Certificate of Designation immediately prior to a liquidation. The Preferred Stock generally has no voting rights except as provided in the Certificate of Designation. |
| (11) |
Contingencies. Various claims arise from time to time in the normal course of business. In the opinion of management, none have occurred that will have a material effect on the Company’s condensed consolidated financial statements. |
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OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto presented elsewhere in this report. For additional information, refer to the consolidated financial statements and footnotes for the year ended December 31, 2020 in the Annual Report on Form 10-K.
The following discussion and analysis should also be read in conjunction with the condensed consolidated financial statements and notes thereto appearing elsewhere in this report. This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements involve known and unknown risks and uncertainties, many of which are beyond the control of the Company, including adverse changes in economic, political and market conditions, losses from the Company’s lending activities and changes in market conditions, the possible loss of key personnel, the impact of increasing competition, the impact of changes in government regulation, the possibility of liabilities arising from violations of federal and state securities laws and the impact of changes in technology in the banking industry. Although the Company believes that its forward-looking statements are based upon reasonable assumptions regarding its business and future market conditions, there can be no assurances that the Company’s actual results will not differ materially from any results expressed or implied by the Company’s forward-looking statements. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Readers are cautioned that any forward-looking statements are not guarantees of future performance.
Capital Levels
As of March 31, 2021, the Bank is well capitalized under regulatory guidelines.
Refer to Note 9 for the Bank’s actual and required minimum capital ratios.
(continued)
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OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Financial Condition at March 31, 2021 and December 31, 2020
Overview
The Company’s total assets increased by approximately $17.5 million to $252.6 million at March 31, 2021, from $235.1 million at December 31, 2020, primarily due to an increase in loans and debt securities. Total stockholders’ equity increased by approximately $3.5 to $21.3 million at March 31, 2021, from $17.8 million at December 31, 2020, primarily due to proceeds from the sale of preferred stock and net earnings which was partially offset by the change in accumulated other comprehensive loss for the three months ended March 31, 2021.
The following table shows selected information for the periods ended or at the dates indicated:
Three Months Ended March 31, 2021 | Year Ended December 31, 2020 | |||||||
| Average equity as a percentage of average assets | 7.3 | % | 5.8 | % | ||||
| Equity to total assets at end of period | 8.4 | % | 7.6 | % | ||||
| Return on average assets (1) | 0.6 | % | (0.5 | )% | ||||
| Return on average equity (1) | 7.7 | % | (7.8 | )% | ||||
| Noninterest expenses to average assets (1) | 2.5 | % | 2.9 | % | ||||
(1) Annualized for the three months ended March 31, 2021.
Liquidity and Sources of Funds
The Company’s sources of funds include customer deposits, advances from the Federal Home Loan Bank of Atlanta (“FHLB”), principal repayments and sales of debt securities, loan repayments, the use of Federal Funds markets, net earnings, if any, and loans taken out at the Federal Reserve Bank discount window.
Deposits are our primary source of funds. In order to increase its core deposits, the Company has priced its deposit rates competitively. The Company will adjust rates on its deposits to attract or retain deposits as needed.
The Company increased deposits by $18.8 million during the three month period ending March 31, 2021. The proceeds were used to originate new loans and purchase debt securities.
In addition to obtaining funds from depositors, the Company may borrow funds from other financial institutions. At March 31, 2021, the Company had outstanding borrowings of $18 million, against its $58.7 million in established borrowing capacity with the FHLB. The Company’s borrowing facility is subject to collateral and stock ownership requirements, as well as prior FHLB consent to each advance. The Company has an available discount window credit line with the Federal Reserve Bank, currently $430,000. The Federal Reserve Bank line is subject to collateral requirements and must be repaid within 90 days; each advance is subject to prior Federal Reserve Bank consent. At March 31, 2021, the Company also had available lines of credit amounting to $9.5 million with four correspondent banks to purchase federal funds. Disbursements on the lines of credit are subject to the approval of the correspondent banks. We measure and monitor our liquidity daily and believe our liquidity sources are adequate to meet our operating needs.
Off-Balance Sheet Arrangements
Refer to Note 8 for Off-Balance Sheet Arrangements.
Junior Subordinated Debenture
Please refer to Note 1 for discussion on this matter.
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OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Results of Operations
The following table sets forth, for the periods indicated, information regarding (i) the total dollar amount of interest and dividend income of the Company from interest-earning assets and the resultant average yields; (ii) the total dollar amount of interest expense on interest-bearing liabilities and the resultant average cost; (iii) net interest income; (iv) interest-rate spread; (v) net interest margin; and (vi) the ratio of average interest-earning assets to average interest-bearing liabilities.
| Three Months Ended March 31, | ||||||||||||||||||||||||
| 2021 | 2020 | |||||||||||||||||||||||
| Interest | Average | Interest | Average | |||||||||||||||||||||
| Average | and | Yield/ | Average | and | Yield/ | |||||||||||||||||||
| Balance | Dividends | Rate(5) | Balance | Dividends | Rate(5) | |||||||||||||||||||
| Interest-earning assets: | ||||||||||||||||||||||||
| Loans | $ | 163,086 | $ | 1,847 | 4.53 | % | $ | 106,875 | $ | 1,413 | 5.29 | % | ||||||||||||
| Debt securities | 25,722 | 91 | 1.42 | % | 10,903 | 46 | 1.69 | |||||||||||||||||
| Other (1) | 27,500 | 27 | 0.39 | % | 11,447 | 44 | 1.54 | |||||||||||||||||
| Total interest-earning assets/interest income | 216,308 | 1,965 | 3.63 | % | 129,225 | 1,503 | 4.65 | |||||||||||||||||
| Cash and due from banks | 28,067 | 2,792 | ||||||||||||||||||||||
| Premises and equipment | 1,306 | 1,467 | ||||||||||||||||||||||
| Other | 2,506 | 515 | ||||||||||||||||||||||
| Total assets | $ | 248,187 | $ | 133,999 | ||||||||||||||||||||
| Interest-bearing liabilities: | ||||||||||||||||||||||||
| Savings, NOW and money-market deposits | 112,908 | $ | 133 | 0.47 | % | 57,258 | 226 | 1.58 | ||||||||||||||||
| Time deposits | 20,810 | 48 | 0.92 | % | 33,292 | 176 | 2.11 | |||||||||||||||||
| Borrowings (2) | 24,625 | 98 | 1.59 | % | 19,143 | 105 | 2.2 | |||||||||||||||||
| Total interest-bearing liabilities/interest expense | 158,343 | 279 | 0.70 | % | 109,693 | 507 | 1.85 | |||||||||||||||||
| Noninterest-bearing demand deposits | 70,267 | 14,565 | ||||||||||||||||||||||
| Other liabilities | 1,490 | 2,477 | ||||||||||||||||||||||
| Stockholders’ equity | 18,087 | 7,264 | ||||||||||||||||||||||
| Total liabilities and stockholders’ equity | $ | 248,187 | $ | 133,999 | ||||||||||||||||||||
| Net interest income | $ | 1,686 | $ | 996 | ||||||||||||||||||||
| Interest rate spread (3) | 2.93 | % | 2.80 | % | ||||||||||||||||||||
| Net interest margin (4) | 3.12 | % | 3.08 | % | ||||||||||||||||||||
| Ratio of average interest-earning assets to average interest-bearing liabilities | 1.37 | % | 1.18 | % | ||||||||||||||||||||
| (1) | Includes interest-earning deposits with banks and Federal Home Loan Bank stock dividends. |
| (2) | Includes Federal Home Loan Bank advances, other borrowings and the junior subordinated debenture. |
| (3) | Interest-rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. |
| (4) | Net interest margin is net interest income divided by average interest-earning assets. |
| (5) | Annualized. |
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OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Comparison of the Three-Month Periods Ended March 31, 2021 and 2020
| Three Months Ended | Increase / | |||||||||||||||
| March 31, | (Decrease) | |||||||||||||||
| (dollars in thousands) | 2021 | 2020 | Amount | Percentage | ||||||||||||
| Total interest income | $ | 1,965 | $ | 1,503 | $ | 462 | 31 | % | ||||||||
| Total interest expense | 279 | 507 | (228 | ) | -45 | % | ||||||||||
| Net interest income | 1,686 | 996 | 690 | 69 | % | |||||||||||
| (Credit) provision for loan losses | (24 | ) | 189 | (213 | ) | -113 | % | |||||||||
| Net interest income after provision for loan losses | 1,710 | 807 | 903 | 112 | % | |||||||||||
| Total noninterest income | 176 | 73 | 103 | 141 | % | |||||||||||
| Total noninterest expenses | 1,538 | 1,188 | 350 | 29 | % | |||||||||||
| Net earnings (loss) before income taxes | 348 | (308 | ) | 656 | -213 | % | ||||||||||
| Income taxes | - | - | - | - | ||||||||||||
| Net earnings (loss) | $ | 348 | $ | (308 | ) | 656 | -213 | % | ||||||||
| Net earnings (loss) per share - Basic and diluted | $ | 0.11 | $ | (0.11 | ) | |||||||||||
Net earnings (loss). Net earnings for the three months ended March 31, 2021, was $348,000 or $0.11 per basic and diluted share compared to a net loss of $(308,000) or $(0.11) per basic and diluted share for the three months ended March 31, 2020. The increase in net earnings (loss) during the three months ended March 31, 2021 compared to three months ended March 31, 2020 is primarily attributed to a decrease in the provision for loan losses, increase in noninterest income and net interest income, partially offset by the increase in non interest expense.
Interest Income. Interest income increased $462,000 for the three months ended March 31, 2021 compared to the three months ended March 31, 2021 due primarily to growth in the loan portfolio.
Interest Expense. Interest expense decreased $228,000 to $279,000 for the three months ended March 31, 2021 compared to the prior period, primarily due to a decrease in interest bearing deposit rates.
(Credit) Provision for Loan Losses. Credit for loan losses amounted to $24,000 for the three months ended March 31, 2021. The provision for losses amounted to $189,000 for the three months ended March 31, 2021. The provision for loan losses is charged to operations as losses are estimated to have occurred in order to bring the total loan allowance for loan losses to a level deemed appropriate by management to absorb losses inherent in the portfolio at March 31, 2021. Management’s periodic evaluation of the adequacy of the allowance is based upon historical experience, the volume and type of lending conducted by us, adverse situations that may affect the borrower’s ability to repay, estimated value of the underlying collateral, loans identified as impaired, general economic conditions, particularly as they relate to our market areas, and other factors related to the estimated collectability of our loan portfolio. The allowance for loan losses totaled $1.9 million or 1.10% of loans outstanding at March 31, 2021, compared to $1.9 million or 1.23% of loans outstanding at December 31, 2020. The credit for loan losses during the first quarter of 2021 was primarily due to the an evaluation of the other factors noted above.
Noninterest Income. Total noninterest income increased to $176,000 for the three months ended March 31, 2021, from $73,000 for the three months ended March 31, 2020 due to increased wire transfer related fees.
Noninterest Expenses. Total noninterest expenses increased to $1,538,000 for the three months ended March 31, 2021 compared to $1,188,000 for the three months ended March 31, 2020 primarily due to an increase in salaries and employee benefits, data processing, and other.
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OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Item 4. Controls and Procedures
The Company’s management evaluated the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report, and, based on this evaluation, the Principal Executive Officer and Principal Financial Officer concluded that these disclosure controls and procedures are effective.
There have been no changes in the Company’s internal control over financial reporting during the quarter ended March 31, 2021, that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.
None
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the first quarter of 2021, the Company issued 11,042 shares of common stock to pay approximately $41,000 of accrued interest associated with the outstanding junior subordinated debentures. The issuance of the shares in this transaction was exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933 as a transaction by an issuer not involving a public offering.
During the first quarter of 2021, the Company issued a total of 160 shares of preferred stock to a related party for a purchase price of $4,000,000. The related party is a significant common stockholder. The issuance of the shares in these transactions were exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933 as a transaction by an issuer not involving a public offering. The Company used the proceeds to augment the Bank’s regulatory capital ratios.
Item 3. Defaults on Senior Securities
Previously disclosed.
Item 4. Mine Safety Disclosures
None
None
The exhibits listed in the Exhibit Index following the signature page are filed with or incorporated by reference into this report.
| 23 |
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| OPTIMUMBANK HOLDINGS, INC. | ||
| (Registrant) | ||
| Date: May 12, 2021 | By: | /s/ Timothy Terry |
| Timothy Terry | ||
| Principal Executive Officer | ||
| By: | /s/ Joel Klein | |
| Joel Klein | ||
| Principal Financial Officer | ||
| 24 |
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
EXHIBIT INDEX
| 25 |
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
EXHIBIT INDEX
| Exhibit No. |
Description | |
| 101.INS | XBRL Instance Document | |
| 101.SCH | XBRL Taxonomy Extension Schema Document | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
| 26 |