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 September 30, 20172020
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.) |
24772929 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, or a smaller reporting company, or an emerging growth company. See the definitiondefinitions of “large accelerated filer,” “accelerated filer” and, “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 | Smaller reporting company [X] | |
| Emerging |
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: 1,103,4472,951,353 shares of Common Stock,common stock, $.01 par value, issued and outstanding as of November 13, 2017.12, 2020.
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
INDEX
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Condensed Consolidated Balance Sheets
(Dollars in thousands, except per share amounts)
| September 30, 2017 | December 31, 2016 | 30-Sep-20 | 31-Dec-19 | |||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||
| Assets: | ||||||||||||||||
| Cash and due from banks | $ | 18,330 | $ | 17,563 | $ | 25,868 | $ | 2,111 | ||||||||
| Interest-bearing deposits with banks | 184 | 77 | 19,403 | 6,823 | ||||||||||||
| Total cash and cash equivalents | 18,514 | 17,640 | 45,271 | 8,934 | ||||||||||||
| Securities available for sale | 16,199 | 20,222 | ||||||||||||||
| Loans, net of allowance for loan losses of $3,903 and $3,915 | 69,194 | 76,999 | ||||||||||||||
| Debt securities available for sale | 7,460 | 5,409 | ||||||||||||||
| Debt securities held-to-maturity (fair value of $4,794 and $5,986) | 4,571 | 5,806 | ||||||||||||||
| Loans, net of allowance for loan losses of $2,145 and $2,009 | 144,532 | 102,233 | ||||||||||||||
| Federal Home Loan Bank stock | 979 | 1,113 | 1,092 | 642 | ||||||||||||
| Premises and equipment, net | 2,601 | 2,648 | 1,423 | 1,389 | ||||||||||||
| Right-of-use operating lease assets | 942 | 1,055 | ||||||||||||||
| Accrued interest receivable | 366 | 380 | 1,544 | 432 | ||||||||||||
| Foreclosed real estate | 681 | — | ||||||||||||||
| Other assets | 619 | 701 | 1,088 | 848 | ||||||||||||
| Total assets | $ | 108,472 | $ | 119,703 | $ | 208,604 | $ | 126,748 | ||||||||
| Liabilities and Stockholders’ Equity: | ||||||||||||||||
| Liabilities: | ||||||||||||||||
| Noninterest-bearing demand deposits | 8,813 | 7,131 | $ | 49,946 | $ | 10,545 | ||||||||||
| Savings, NOW and money-market deposits | 21,705 | 22,153 | 89,501 | 55,475 | ||||||||||||
| Time deposits | 46,856 | 56,725 | 28,269 | 35,352 | ||||||||||||
| Total deposits | 77,374 | 86,009 | 167,716 | 101,372 | ||||||||||||
| Federal Home Loan Bank advances | 20,500 | 23,500 | 23,000 | 13,000 | ||||||||||||
| Junior subordinated debenture | 5,155 | 5,155 | 2,580 | 2,580 | ||||||||||||
| Advanced payment by borrowers for taxes and insurance | 518 | 221 | ||||||||||||||
| Official checks | 44 | 114 | 143 | 208 | ||||||||||||
| Operating lease liabilities | 958 | 1,061 | ||||||||||||||
| Other liabilities | 2,252 | 1,623 | 523 | 1,320 | ||||||||||||
| Total liabilities | 105,843 | 116,622 | 194,920 | 119,541 | ||||||||||||
| Commitments and contingencies (Notes 1, 8 and 9) | ||||||||||||||||
| Commitments and contingencies (Notes 8 and 11) | ||||||||||||||||
| Stockholders’ equity: | ||||||||||||||||
| Preferred stock, no par value; 6,000,000 shares authorized, 7 shares issued and outstanding in 2017 and 2016 | — | — | ||||||||||||||
| Common stock, $.01 par value; 5,000,000 shares authorized, 1,103,447 shares issued and outstanding in 2017 and 2016 | 11 | 11 | ||||||||||||||
| Preferred stock, no par value; 6,000,000 shares authorized: | ||||||||||||||||
| Designated Series A, no par value, no shares issued and outstanding | — | — | ||||||||||||||
| Designated Series B, no par value, 280 shares issued and outstanding in 2020 | — | — | ||||||||||||||
| Common stock, $.01 par value; 10,000,000 shares authorized, 2,951,353 shares issued and outstanding in 2020 and 2,853,171 shares issued and outstanding in 2019 | 29 | 28 | ||||||||||||||
| Additional paid-in capital | 34,039 | 34,039 | 46,532 | 38,994 | ||||||||||||
| Accumulated deficit | (31,227 | ) | (30,717 | ) | (32,761 | ) | (31,610 | ) | ||||||||
| Accumulated other comprehensive loss | (194 | ) | (252 | ) | (116 | ) | (205 | ) | ||||||||
| Total stockholders’ equity | 2,629 | 3,081 | 13,684 | 7,207 | ||||||||||||
| Total liabilities and stockholders’ equity | $ | 108,472 | $ | 119,703 | $ | 208,604 | $ | 126,748 | ||||||||
See accompanying notes to condensed consolidated financial statements.
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Operations (Unaudited)
(in thousands, except per share amounts)
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
| September 30, | September 30, | Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||
| 2017 | 2016 | 2017 | 2016 | September 30, | September 30, | |||||||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||||||||
| Interest income: | ||||||||||||||||||||||||||||||||
| Loans | $ | 972 | $ | 1,082 | $ | 2,971 | $ | 3,156 | $ | 1,723 | $ | 1,140 | $ | 4,697 | $ | 3,328 | ||||||||||||||||
| Securities | 96 | 117 | 306 | 367 | ||||||||||||||||||||||||||||
| Debt securities | 41 | 63 | 136 | 184 | ||||||||||||||||||||||||||||
| Other | 65 | 24 | 162 | 75 | 7 | 58 | 67 | 184 | ||||||||||||||||||||||||
| Total interest income | 1,133 | 1,223 | 3,439 | 3,598 | 1,771 | 1,261 | 4,900 | 3,696 | ||||||||||||||||||||||||
| Interest expense: | ||||||||||||||||||||||||||||||||
| Deposits | 167 | 181 | 524 | 550 | 290 | 408 | 1,047 | 1,057 | ||||||||||||||||||||||||
| Borrowings | 141 | 91 | 378 | 260 | 96 | 130 | 322 | 415 | ||||||||||||||||||||||||
| Total interest expense | 308 | 272 | 902 | 810 | 386 | 538 | 1,369 | 1,472 | ||||||||||||||||||||||||
| Net interest income | 825 | 951 | 2,537 | 2,788 | 1,385 | 723 | 3,531 | 2,224 | ||||||||||||||||||||||||
| Provision for loan losses | — | — | — | — | 524 | 45 | 1,236 | 45 | ||||||||||||||||||||||||
| Net interest income after provision for loan losses | 825 | 951 | 2,537 | 2,788 | 861 | 678 | 2,295 | 2,179 | ||||||||||||||||||||||||
| Noninterest income: | ||||||||||||||||||||||||||||||||
| Service charges and fees | 44 | 22 | 55 | 63 | 1 | 4 | 52 | 11 | ||||||||||||||||||||||||
| Gain on sale of securities available for sale | 7 | 2 | 7 | 48 | ||||||||||||||||||||||||||||
| Other | 3 | 7 | 9 | 14 | 63 | 25 | 118 | 142 | ||||||||||||||||||||||||
| Total noninterest income | 54 | 31 | 71 | 125 | 64 | 29 | 170 | 153 | ||||||||||||||||||||||||
| Noninterest expenses: | ||||||||||||||||||||||||||||||||
| Salaries and employee benefits | 423 | 430 | 1,301 | 1,385 | 582 | 492 | 1,616 | 1,522 | ||||||||||||||||||||||||
| Professional fees | 121 | 114 | 368 | 341 | ||||||||||||||||||||||||||||
| Occupancy and equipment | 91 | 112 | 293 | 346 | 146 | 119 | 435 | 366 | ||||||||||||||||||||||||
| Data processing | 96 | 77 | 262 | 250 | 132 | 141 | 381 | 394 | ||||||||||||||||||||||||
| Professional fees | 134 | 151 | 526 | 480 | ||||||||||||||||||||||||||||
| Insurance | 24 | 27 | 72 | 78 | 21 | 24 | 66 | 66 | ||||||||||||||||||||||||
| Regulatory assessment | 50 | 74 | 152 | 221 | 59 | 18 | 129 | 40 | ||||||||||||||||||||||||
| Other | 117 | 89 | 512 | 461 | 360 | 79 | 621 | 511 | ||||||||||||||||||||||||
| Total noninterest expenses | 935 | 965 | 3,118 | 3,263 | 1,421 | 987 | 3,616 | 3,240 | ||||||||||||||||||||||||
| Net (loss) earnings | $ | (56 | ) | $ | 22 | $ | (510 | ) | $ | (308 | ) | |||||||||||||||||||||
| Net loss before income tax benefit | (496 | ) | (280 | ) | (1,151 | ) | (908 | ) | ||||||||||||||||||||||||
| Net (loss) earnings per share- | ||||||||||||||||||||||||||||||||
| Basic and diluted | $ | (.05 | ) | $ | .02 | $ | (.46 | ) | $ | (0.30 | ) | |||||||||||||||||||||
| Income tax benefit | — | — | — | (52 | ) | |||||||||||||||||||||||||||
| Net loss | $ | (496 | ) | $ | (280 | ) | $ | (1,151 | ) | $ | (856 | ) | ||||||||||||||||||||
| Net loss per share - Basic and diluted | $ | (0.17 | ) | $ | (.15 | ) | $ | (0.39 | ) | $ | (.45 | ) | ||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Comprehensive Loss (Unaudited)
(In thousands)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Net (loss) earnings | $ | (56 | ) | $ | 22 | (510 | ) | $ | (308 | ) | ||||||
| Other comprehensive income (loss): | ||||||||||||||||
| Unrealized Gain (loss) on securities available for sale: | ||||||||||||||||
| Unrealized Gain (loss) arising during the period | 29 | (281 | ) | 100 | 129 | |||||||||||
| Reclassification adjustment for realized gains on securities available for sale | (7 | ) | (2 | ) | (7 | ) | (48 | ) | ||||||||
| Net change in unrealized holding loss (gain) | 22 | (283 | ) | 93 | 81 | |||||||||||
| Deferred income taxes (benefit) on above change | 8 | (107 | ) | 35 | 33 | |||||||||||
| Total other comprehensive income (loss) | 14 | (176 | ) | 58 | 48 | |||||||||||
| Comprehensive loss | $ | (42 | ) | $ | (154 | ) | $ | (452 | ) | $ | (260 | ) | ||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Net loss | $ | (496 | ) | $ | (280 | ) | $ | (1,151 | ) | $ | (856 | ) | ||||
| Other comprehensive income: | ||||||||||||||||
| Change in unrealized gain on debt securities- | ||||||||||||||||
| Unrealized (loss) gain arising during the year | (30 | ) | 5 | 36 | 80 | |||||||||||
| Amortization of unrealized loss on debt securities transferred to held-to-maturity | 35 | 28 | 83 | 67 | ||||||||||||
| Other comprehensive income before income tax expense | 5 | 33 | 119 | 147 | ||||||||||||
| Deferred income tax expense on above change | (2 | ) | (8 | ) | (30 | ) | (37 | ) | ||||||||
| Total other comprehensive income | 3 | 25 | 89 | 110 | ||||||||||||
| Comprehensive loss | $ | (493 | ) | $ | (255 | ) | $ | (1,062 | ) | $ | (746 | ) | ||||
See accompanying notes to condensed consolidated financial statements.
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)
Three and Nine Months endedEnded September 30, 20172020 and 20162019
(Dollars in thousands)
| Accumulated | ||||||||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||||||||||
| Additional | Comprehensive | Total | ||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-In | Accumulated | Income | Stockholders’ | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | (Loss) | Equity | |||||||||||||||||||||||||
| Balance at December 31, 2015 | 4 | $ | — | 9,628,863 | $ | 96 | $ | 33,330 | $ | (30,321 | ) | $ | (138 | ) | $ | 2,967 | ||||||||||||||||
| Reverse common stock split (1-for-10) (unaudited) | — | — | (8,665,694 | ) | (87 | ) | 87 | — | — | — | ||||||||||||||||||||||
| Proceeds from sale of Preferred stock (unaudited) | 3 | — | — | 75 | — | — | 75 | |||||||||||||||||||||||||
| Proceeds from sale of common stock (unaudited) | — | — | 92,980 | 1 | 374 | — | — | 375 | ||||||||||||||||||||||||
| Common stock issued as compensation to directors (unaudited) | — | — | 53,855 | 1 | 231 | — | — | 232 | ||||||||||||||||||||||||
| Common stock issued for services (unaudited) | — | — | 36,118 | — | 128 | — | — | 128 | ||||||||||||||||||||||||
| Reversal of common stock issued as compensation to directors (unaudited) (See Note 13) | — | — | (46,296 | ) | — | (200 | ) | — | — | (200 | ) | |||||||||||||||||||||
| Net loss for the nine months ended September 30, 2016 (unaudited) | — | — | — | — | — | (308 | ) | — | (308 | ) | ||||||||||||||||||||||
| Net change in unrealized loss on securities available for sale, net of taxes (unaudited) | — | — | — | — | — | — | 48 | 48 | ||||||||||||||||||||||||
| Balance at September 30, 2016 (unaudited) | 7 | $ | — | 1,099,826 | $ | 11 | $ | 34,025 | $ | (30,629 | ) | $ | (90 | ) | $ | 3,317 | ||||||||||||||||
| Balance at December 31, 2016 | 7 | $ | - | 1,103,447 | $ | 11 | $ | 34,039 | $ | (30,717 | ) | $ | (252 | ) | $ | 3,081 | ||||||||||||||||
| Net loss for the nine months ended September 30, 2017 (unaudited) | — | — | — | — | — | (510 | ) | — | (510 | ) | ||||||||||||||||||||||
| Net change in unrealized loss on securities available for sale, net of taxes (unaudited) | — | — | — | — | — | — | 58 | 58 | ||||||||||||||||||||||||
| Balance at September 30, 2017 (unaudited) | 7 | — | 1,103,447 | $ | 11 | $ | 34,039 | $ | (31,227 | ) | $ | (194 | ) | $ | 2,629 | |||||||||||||||||
| 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, 2018 | - | $ | - | - | $ | - | $ | 1,858,020 | $ | 18 | $ | 36,128 | $ | (30,510 | ) | $ | (330 | ) | $ | 5,306 | ||||||||||||||||||||
| Net loss (unaudited) | - | - | - | - | - | - | - | (146 | ) | - | (146 | ) | ||||||||||||||||||||||||||||
| Net change in unrealized loss on securities available for sale, net of income taxes (unaudited) | - | - | - | - | - | - | - | - | 3 | 3 | ||||||||||||||||||||||||||||||
| Amortization of unrealized loss on debt securities transferred to held-to-maturity, net of income taxes (unaudited) | - | - | - | - | - | - | - | - | 14 | 14 | ||||||||||||||||||||||||||||||
| Balance at March 31, 2019 (unaudited) | - | $ | - | - | $ | - | $ | 1,858,020 | $ | 18 | $ | 36,128 | $ | (30,656 | ) | $ | (313 | ) | $ | 5,177 | ||||||||||||||||||||
| Common stock issued and reclassified from other liabilities (unaudited) | - | - | - | - | 11,250 | - | 28 | - | - | 28 | ||||||||||||||||||||||||||||||
| Common stock issued as compensation to directors (unaudited) | - | - | - | - | 58,309 | 1 | 200 | - | - | 201 | ||||||||||||||||||||||||||||||
| Net loss (unaudited) | - | - | - | - | - | - | - | (430 | ) | - | (430 | ) | ||||||||||||||||||||||||||||
| Net change in unrealized loss on securities available for sale, net of income taxes (unaudited) | - | - | - | - | - | - | - | - | 53 | 53 | ||||||||||||||||||||||||||||||
| Amortization of unrealized loss on debt securities transferred to held-to-maturity (unaudited) | - | - | - | - | - | - | - | - | 15 | 15 | ||||||||||||||||||||||||||||||
| Balance at June 30, 2019 (unaudited) | - | $ | - | - | $ | - | 1,927,579 | $ | 19 | $ | 36,356 | $ | (31,086 | ) | $ | (245 | ) | $ | 5,044 | |||||||||||||||||||||
| Common stock issued and reclassified from other liabilities (unaudited) | - | - | - | - | 1,197 | - | 3 | - | - | 3 | ||||||||||||||||||||||||||||||
| Net loss (unaudited) | - | - | - | - | - | - | - | (280 | ) | - | (280 | ) | ||||||||||||||||||||||||||||
| Net change in unrealized loss on securities available for sale, net of income taxes (unaudited) | - | - | - | - | - | - | - | - | 4 | 4 | ||||||||||||||||||||||||||||||
| Amortization of unrealized loss on securities transferred to held to maturity (unaudited) | - | - | - | - | - | - | - | - | 21 | 21 | ||||||||||||||||||||||||||||||
| Balance at September 30, 2019 (unaudited) | - | - | - | - | 1,928,776 | $ | 19 | $ | 36,359 | $ | (31,366 | ) | $ | (220 | ) | $ | 4,792 | |||||||||||||||||||||||
| 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 (unaudited) | - | - | - | - | - | - | - | (308 | ) | - | (308 | ) | ||||||||||||||||||||||||||||
| Net change in unrealized gain 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 | |||||||||||||||||||||
| Proceeds from the sale of preferred stock (unaudited) | - | - | 100 | - | - | - | 2,500 | - | - | 2,500 | ||||||||||||||||||||||||||||||
| Net loss (unaudited) | - | - | - | - | - | - | - | (347 | ) | - | (347 | ) | ||||||||||||||||||||||||||||
| Net change in unrealized gain on debt securities available for sale, net of income taxes (unaudited) | - | - | - | - | - | - | - | - | 15 | 15 | ||||||||||||||||||||||||||||||
| Amortization of unrealized loss on debt securities transferred to held-to-maturity, net of income taxes (unaudited) | - | - | - | - | - | - | - | - | 18 | 18 | ||||||||||||||||||||||||||||||
| Balance at June 30, 2020 (unaudited) | - | $ | - | 100 | $ | - | 2,951,353 | $ | 29 | $ | 42,032 | $ | (32,265 | ) | $ | (119 | ) | $ | 9,677 | |||||||||||||||||||||
| Proceeds from the sale of preferred stock (unaudited) | - | - | 180 | - | - | - | 4,500 | - | - | 4,500 | ||||||||||||||||||||||||||||||
| Net loss (unaudited) | - | - | - | - | - | - | - | (496 | ) | - | (496 | ) | ||||||||||||||||||||||||||||
| Net change in unrealized gain on debt securities available for sale, net of income taxes (unaudited) | - | - | - | - | - | - | - | - | (23 | ) | (23 | ) | ||||||||||||||||||||||||||||
| Amortization of unrealized loss on debt securities transferred to held-to-maturity, net of income taxes (unaudited) | - | - | - | - | - | - | - | - | 26 | 26 | ||||||||||||||||||||||||||||||
| Balance at September 30, 2020 (unaudited) | - | $ | - | 280 | $ | - | 2,951,353 | $ | 29 | $ | 46,532 | $ | (32,761 | ) | $ | (116 | ) | $ | 13,684 | |||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2017 | 2016 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (510 | ) | $ | (308 | ) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 117 | 118 | ||||||
| Gain on sale of securities available for sale | (7 | ) | (48 | ) | ||||
| Common stock issued as compensation to directors | — | 32 | ||||||
| Common stock issued as compensation for services | — | 128 | ||||||
| Net amortization of fees, premiums and discounts | 316 | 38 | ||||||
| Decrease in other assets | 47 | 79 | ||||||
| Decrease in accrued interest receivable | 14 | 73 | ||||||
| Increase in official checks and other liabilities | 559 | 225 | ||||||
| Net cash provided by operating activities | 536 | 337 | ||||||
| Cash flows from investing activities: | ||||||||
| Principal repayments and maturity of securities available for sale | 1,656 | 3,074 | ||||||
| Proceeds from sale of securities available for sale | 2,278 | 18,028 | ||||||
| Purchase of securities available for sale | — | (17,294 | ) | |||||
| Net decrease in loans | 7,678 | 1,342 | ||||||
| Purchase of premises and equipment | (70 | ) | (95 | ) | ||||
| Proceeds from sale of foreclosed real estate, net | — | 1,617 | ||||||
| Redemption (purchase) of Federal Home Loan Bank stock | 134 | (52 | ) | |||||
| Net cash provided by investing activities | 11,676 | 6,620 | ||||||
| Cash flows from financing activities: | ||||||||
| Net decrease in deposits | (8,635 | ) | (7,263 | ) | ||||
| Increase in advance payments by borrowers for taxes and insurance | 297 | 431 | ||||||
| Repayment Purchase of Federal Home Loan Bank advances, net | (3,000 | ) | 500 | |||||
| Proceeds from sale of common stock | — | 375 | ||||||
| Proceeds from sale of preferred stock | — | 75 | ||||||
| Net cash used in financing activities | (11,338 | ) | (5,882 | ) | ||||
| Net increase in cash and cash equivalents | 874 | 1,075 | ||||||
| Cash and cash equivalents at beginning of the period | 17,640 | 10,365 | ||||||
| Cash and cash equivalents at end of the period | $ | 18,514 | $ | 11,440 | ||||
Nine Months Ended September 30, | ||||||||
| 2020 | 2019 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (1,151 | ) | $ | (856 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Provision for loan losses | 1,236 | 45 | ||||||
| Depreciation and amortization | 132 | 132 | ||||||
| Stock-based compensation | 200 | 201 | ||||||
| Net amortization of fees, premiums and discounts | (27 | ) | 153 | |||||
| Increase in accrued interest receivable | (1,112 | ) | (40 | ) | ||||
| Amortization of right-of-use operating lease assets | 113 | 52 | ||||||
| Net decrease in operating lease liabilities | (103 | ) | (49 | ) | ||||
| Increase in other assets | (270 | ) | (614 | ) | ||||
| Decrease in official checks and other liabilities | (1,063 | ) | (117 | ) | ||||
| Net cash used in operating activities | (2,045 | ) | (1,093 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of debt securities available for sale | (3,638 | ) | (4,153 | ) | ||||
| Principal repayments of debt securities available for sale | 1,585 | 676 | ||||||
| Principal repayments of debt securities held-to-maturity | 1,276 | 977 | ||||||
| Net increase in loans | (44,109 | ) | (14,990 | ) | ||||
| Purchases of premises and equipment | (165 | ) | (217 | ) | ||||
| (Purchase) redemption of FHLB stock | (450 | ) | 490 | |||||
| Net cash used in investing activities | (45,501 | ) | (17,217 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Net increase in deposits | 66,344 | 30,887 | ||||||
| Net decrease in federal funds purchased | — | (560 | ) | |||||
| Net increase (decrease) in Federal Home Loan Bank advances | 10,000 | (11,600 | ) | |||||
| Proceeds from sale of common stock | 539 | — | ||||||
| Proceeds from sale of preferred stock | 7,000 | — | ||||||
| Net cash provided by financing activities | 83,883 | 18,727 | ||||||
| Net increase in cash and cash equivalents | 36,337 | 417 | ||||||
| Cash and cash equivalents at beginning of the period | 8,934 | 7,983 | ||||||
| Cash and cash equivalents at end of the period | $ | 45,271 | $ | 8,400 | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | 2,354 | $ | 1,249 | ||||
| Income taxes | $ | — | $ | — | ||||
| Noncash transaction - | ||||||||
| Change in accumulated other comprehensive loss, net change in unrealized gain on debt securities available for sale, net of income taxes | $ | 89 | $ | 110 | ||||
| Amortization of unrealized loss on debt securities transferred to held-to-maturity | $ | 83 | $ | 67 | ||||
| Common stock issued and reclassified from other liabilities | $ | — | $ | 31 | ||||
| Right-of use lease assets obtained in exchange for operating lease liabilities | $ | — | $ | 1,144 | ||||
| Transfer of loan to foreclosed real estate | $ | 681 | $ | — | ||||
See accompanying notes to condensed consolidated financial statements
(continued)
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows (Unaudited), Continued
(In thousands)
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2017 | 2016 | |||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | 748 | $ | 671 | ||||
| Income Taxes | $ | — | $ | — | ||||
| Noncash — Investing Activity | ||||||||
| Change in accumulated other comprehensive loss, net change in unrealized loss on securities available for sale | $ | 58 | $ | 48 | ||||
See accompanying notes to condensed consolidated financial statements
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (Unaudited)
| (1) | General.OptimumBank Holdings, Inc. (the |
| Basis of Presentation.In the opinion of management, the accompanying unaudited condensed consolidated financial statements of the Company contain all adjustments (consisting principally of normal recurring accruals) necessary to present fairly the financial position at September 30, | |
| Subsequent Events. The Company has evaluated subsequent events through November 12, 2020, which is the date the condensed consolidated financial statements were issued, determining no additional events required disclosure. | |
The Trust utilized the proceeds of $5,155,000 to purchase a junior subordinated debenture from the Company 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 2,575 of the Trust Preferred Securities to unaffiliated third parties. During 2019 and 2018, the Company issued 1,226,173 shares of the Company’s common stock in exchange for 2,575 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 $2,575,000 in principal amount of the Trust Preferred Securities, together with accrued interest of $974,000, and increased its stockholders’ equity by the same amount. The remaining principal owed by the Company in connection with the Junior Subordinated Debenture was $2,580,000 at September 30, 2020 and December 31, 2019, respectively. The Company has been in default under the Junior Subordinated Debenture due to
| |
| Comprehensive | |
Accumulated other comprehensive loss consists of the following (in thousands):
| September 30, | December 31, | |||||||
| 2020 | 2019 | |||||||
| Unrealized gain on debt securities available for sale | $ | 47 | $ | 11 | ||||
| Unamortized portion of unrealized loss related to debt securities available for sale transferred to securities held-to-maturity | (201 | ) | (284 | ) | ||||
| Income tax benefit | 38 | 68 | ||||||
| $ | (116 | ) | $ | (205 | ) | |||
| 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 September 30, | |
(continued)
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.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement ("ASU 2018-13"). ASU 2018-13 removes, modifies, and adds certain disclosure requirements associated with fair value measurements. ASU 2018-13 is effective for fiscal years, and interim periods, within those fiscal years, beginning after December 15, 2019. The removed and modified disclosures will be adopted on a prospective basis. The implementation had no significant impact on the Company's condensed consolidated financial statements.
In February 2016, the FASB issued ASU 2016-2,Leases (Topic 842) which will require lessees to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases with term of more than twelve months. Consistent with current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. The new ASU will require both types of leases to be recognized on the balance sheet. The ASU also will require disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements, providing additional information about the amounts recorded in the financial statements. The ASU is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2018. The Company is in the process of determining the effect of the ASU on its condensed consolidated financial statements. Early application will be permitted.
In March 2016, the FASB issued ASU No. 2016-09,Compensation-Stock Compensation (Topic 718) intended to improve the accounting for employee share-based payments. The ASU affects all organizations that issue share-based payment awards to their employees. The ASU simplifies several aspects of the accounting for share-based payment award transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the consolidated statement of cash flows. The ASU was effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company has evaluated the effect of ASU and determined it has no material effect on its condensed consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13Financial 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 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, 2019. Early adoption is permitted. The Company is in the process of determining the effect of the ASU on its condensed consolidated financial statements.
In July 2017, the FASB issued ASU 2017-11, The ASU amends ASC 815 which makes limited changes to the Board’s guidance on classifying certain financial instruments as either liabilities or equity. The ASU’s objective is to improve (1) the accounting for instruments with “down-round” provisions and (2) the readability of the guidance in ASC 480 on distinguishing liabilities from equity by replacing the indefinite deferral of certain pending content with scope exceptions. In addition, the ASU amends the guidance on the recognition and measurement of freestanding equity-classified instruments (e.g., warrants) by adding requirements to ASC 260 for entities that disclose earnings per share (EPS). The ASU is effective for annual reporting periods beginning after December 15, 2018, early adoption is permitted upon its issuance. The Company currently has no financials instruments related to this ASU. As a result, the adoption of this guidance is not expected to be material to the condensed consolidated financial statements.
In August 2017, the Financial Accounting Standards Board (“FASB”) issued ASU 2017-12, which amends the hedge accounting recognition and presentation requirements in ASC 815. The Board’s objectives in issuing the ASU are to improve the transparency and understandability of information conveyed to financial statement users about an entity’s risk management activities by better aligning the entity’s financial reporting for hedging relationships with those risk management activities and to reduce the complexity of and simplify the application of hedge accounting by preparers. The ASU is effective for fiscal years beginning after December 15, 2018, early adoption is permitted upon its issuance. The Company currently has no hedging relationships. As a result, the adoption of this guidance is not expected to be material to the condensed consolidated financial statements.
(continued)
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (Unaudited)
| (2) |
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | Gross | Gross | |||||||||||||||||||||||||||
| Amortized | Unrealized | Unrealized | Fair | |||||||||||||||||||||||||||||
| At September 30, 2017: | ||||||||||||||||||||||||||||||||
| Securities Available for Sale: | ||||||||||||||||||||||||||||||||
| Cost | Gains | Losses | Value | |||||||||||||||||||||||||||||
| At September 30, 2020: | ||||||||||||||||||||||||||||||||
| Held-to-maturity: | ||||||||||||||||||||||||||||||||
| Collateralized mortgage obligations | $ | 9,181 | $ | — | $ | (299 | ) | $ | 8,882 | $ | 3,208 | $ | 168 | $ | — | $ | 3,376 | |||||||||||||||
| Mortgage-backed securities | 1,363 | 55 | — | 1,418 | ||||||||||||||||||||||||||||
| Total | $ | 4,571 | $ | 223 | $ | - | $ | 4,794 | ||||||||||||||||||||||||
| Available for sale: | ||||||||||||||||||||||||||||||||
| SBA Pool Securities | 7,330 | 8 | (21 | ) | 7,317 | $ | 1,364 | $ | — | $ | (43 | ) | $ | 1,321 | ||||||||||||||||||
| Collateralized mortgage obligations | 582 | 35 | — | 617 | ||||||||||||||||||||||||||||
| Mortgage-backed securities | 5,467 | 55 | — | 5,522 | ||||||||||||||||||||||||||||
| Total | $ | 16,511 | $ | 8 | $ | (320 | ) | $ | 16,199 | $ | 7,413 | $ | 90 | $ | (43 | ) | $ | 7,460 | ||||||||||||||
| At December 31, 2016: | ||||||||||||||||||||||||||||||||
| Securities Available for Sale: | ||||||||||||||||||||||||||||||||
| At December 31, 2019: | ||||||||||||||||||||||||||||||||
| Held-to-maturity: | ||||||||||||||||||||||||||||||||
| Collateralized mortgage obligations | $ | 10,157 | $ | — | $ | (405 | ) | $ | 9,752 | $ | 4,218 | $ | 129 | — | $ | 4,347 | ||||||||||||||||
| Mortgage-backed securities | 1,588 | 51 | — | 1,639 | ||||||||||||||||||||||||||||
| Total | $ | 5,806 | $ | 180 | — | $ | 5,986 | |||||||||||||||||||||||||
| Available for sale: | ||||||||||||||||||||||||||||||||
| SBA Pool Securities | 10,470 | — | — | 10,470 | $ | 1,734 | $ | — | $ | (52 | ) | $ | 1,682 | |||||||||||||||||||
| Collateralized mortgage obligations | 998 | 18 | — | 1,016 | ||||||||||||||||||||||||||||
| Mortgage-backed securities | 2,666 | 45 | — | 2,711 | ||||||||||||||||||||||||||||
| Total | $ | 20,627 | $ | — | $ | (405 | ) | $ | 20,222 | $ | 5,398 | $ | 63 | $ | (52 | ) | $ | 5,409 | ||||||||||||||
The following summarizes theThere were no sales of debt securities (in thousands):during the three and nine months ended September 30, 2020 and 2019.
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Proceeds from sales of securities | $ | 2,278 | $ | 8,180 | $ | 2,278 | $ | 18,028 | ||||||||
| Gross gains from sale of securities | 7 | 20 | 7 | 66 | ||||||||||||
| Gross losses from sale of securities | — | (18 | ) | — | (18 | ) | ||||||||||
| Net gain from sales of securities | $ | 7 | $ | 2 | $ | 7 | $ | 48 | ||||||||
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 September 30, 2017 | ||||||||||||||||
| Over Twelve Months | Less Than Twelve Months | |||||||||||||||
| Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | |||||||||||||
| Securities Available for Sale: | ||||||||||||||||
| Collateralized mortgage obligations | $ | (299) | $ | 8,882 | $ | — | $ | — | ||||||||
| SBA Pool Securities | — | — | (21 | ) | 4,091 | |||||||||||
| $ | (299) | $ | 8,882 | $ | (21 | ) | $ | 4,091 | ||||||||
| At December 31, 2016 | ||||||||||||||||
| Over Twelve Months | Less Than Twelve Months | |||||||||||||||
| Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | |||||||||||||
| Securities Available for Sale- | ||||||||||||||||
| Collateralized mortgage obligations | $ | (46 | ) | $ | 864 | $ | (359 | ) | $ | 8,888 | ||||||
| Over Twelve | Less Than Twelve | |||||||||||||||
| Months | Months | |||||||||||||||
| Gross | Gross | |||||||||||||||
| Unrealized | Fair | Unrealized | Fair | |||||||||||||
| Losses | Value | Losses | Value | |||||||||||||
| At September 30, 2020- | ||||||||||||||||
| Available for Sale - | ||||||||||||||||
| SBA Pool securities | $ | 43 | $ | 1,321 | $ | — | $ | — | ||||||||
| At December 31, 2019- | ||||||||||||||||
| Available for Sale - | ||||||||||||||||
| SBA Pool Securities | $ | 52 | $ | 1,682 | $ | — | $ | — | ||||||||
(continued)
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
At September 30, |
| (continued) |
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (Unaudited)
| (3) | Loans.The components of loans are as follows (in thousands): |
| At | At | |||||||||||||||
| At September 30, 2017 | At December 31, 2016 | September 30, 2020 | December 31, 2019 | |||||||||||||
| Residential real estate | $ | 26,564 | $ | 27,334 | $ | 32,094 | $ | 28,266 | ||||||||
| Multi-family real estate | 6,142 | 5,829 | 16,052 | 8,396 | ||||||||||||
| Commercial real estate | 30,637 | 29,264 | 67,060 | 55,652 | ||||||||||||
| Land and construction | 3,037 | 5,681 | 4,332 | 2,496 | ||||||||||||
| Commercial | 5,390 | 10,514 | 22,611 | 4,476 | ||||||||||||
| Consumer | 1,025 | 1,829 | 5,080 | 4,903 | ||||||||||||
| Total loans | 72,795 | 80,451 | 147,229 | 104,189 | ||||||||||||
| Add (deduct): | ||||||||||||||||
| Net deferred loan fees, costs and premiums | 302 | 463 | ||||||||||||||
| Net deferred (loan fees), costs and premiums | (552 | ) | 53 | |||||||||||||
| Allowance for loan losses | (3,903 | ) | (3,915 | ) | (2,145 | ) | (2,009 | ) | ||||||||
| Loans, net | $ | 69,194 | $ | 76,999 | $ | 144,532 | $ | 102,233 | ||||||||
(continued)
| An analysis of the change in the allowance for loan losses follows (in thousands): |
| Residential Real | Multi- Family Real | Commercial | Land and | |||||||||||||||||||||||||||||
| Estate | Estate | Real Estate | Construction | Commercial | Consumer | Unallocated | Total | |||||||||||||||||||||||||
| Three Months Ended September 30, 2020: | ||||||||||||||||||||||||||||||||
| Beginning balance | $ | 717 | $ | 153 | $ | 888 | $ | 50 | $ | 620 | $ | 236 | $ | — | $ | 2,664 | ||||||||||||||||
| Provision (credit) for loan losses | 85 | 75 | 84 | (5 | ) | 292 | (7 | ) | — | 524 | ||||||||||||||||||||||
| Charge-offs | (259 | ) | — | — | — | (775 | ) | (17 | ) | — | (1,051 | ) | ||||||||||||||||||||
| Recoveries | 1 | — | — | 6 | — | 1 | — | 8 | ||||||||||||||||||||||||
| Ending balance | $ | 544 | $ | 228 | $ | 972 | $ | 51 | $ | 137 | $ | 213 | $ | — | $ | 2,145 | ||||||||||||||||
| Three Months Ended September 30, 2019: | ||||||||||||||||||||||||||||||||
| Beginning balance | $ | 537 | $ | 41 | $ | 658 | $ | 7 | $ | 558 | $ | 11 | $ | 241 | $ | 2,053 | ||||||||||||||||
| Provision (credit) for loan losses | (5 | ) | — | 87 | 7 | 32 | 165 | (241 | ) | 45 | ||||||||||||||||||||||
| Charge-offs | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| Recoveries | — | — | — | 6 | — | — | — | 6 | ||||||||||||||||||||||||
| Ending balance | $ | 532 | $ | 41 | $ | 745 | $ | 20 | $ | 590 | $ | 176 | $ | — | $ | 2,104 | ||||||||||||||||
| Nine Months Ended September 30, 2020: | ||||||||||||||||||||||||||||||||
| Beginning balance | $ | 531 | $ | 82 | $ | 624 | $ | 21 | $ | 573 | $ | 152 | $ | 26 | $ | 2,009 | ||||||||||||||||
| Provision (credit) for loan losses | 264 | 146 | 348 | 12 | 339 | 153 | (26 | ) | 1,236 | |||||||||||||||||||||||
| Charge-offs | (259 | ) | — | — | — | (775 | ) | (94 | ) | — | (1,128 | ) | ||||||||||||||||||||
| Recoveries | 8 | — | — | 18 | — | 2 | — | 28 | ||||||||||||||||||||||||
| Ending balance | $ | 544 | $ | 228 | $ | 972 | $ | 51 | $ | 137 | $ | 213 | $ | - | $ | 2,145 | ||||||||||||||||
| Nine Months Ended September 30, 2019: | ||||||||||||||||||||||||||||||||
| Beginning balance | $ | 544 | $ | 88 | $ | 545 | $ | 37 | $ | 850 | $ | 25 | $ | 154 | $ | 2,243 | ||||||||||||||||
| (Credit) provision for loan losses | (12 | ) | (47 | ) | 395 | (35 | ) | (260 | ) | 158 | (154 | ) | 45 | |||||||||||||||||||
| Charge-offs | — | — | (195 | ) | — | — | (7 | ) | — | (202 | ) | |||||||||||||||||||||
| Recoveries | — | — | — | 18 | — | — | — | 18 | ||||||||||||||||||||||||
| Ending balance | $ | 532 | $ | 41 | $ | 745 | $ | 20 | $ | 590 | $ | 176 | $ | — | $ | 2,104 | ||||||||||||||||
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (Unaudited)
| Residential Real Estate | Multi-Family Real Estate | Commercial Real Estate | Land and Construction | Commercial | Consumer | Unallocated | Total | |||||||||||||||||||||||||
| Three Months Ended September 30, 2017: | ||||||||||||||||||||||||||||||||
| Beginning balance | $ | 302 | $ | 62 | $ | 769 | $ | 61 | $ | 67 | $ | 148 | $ | 2,486 | $ | 3,895 | ||||||||||||||||
| Provision (credit) for loan losses | 322 | $ | — | $ | 6 | $ | (2 | ) | $ | (2 | ) | $ | (3 | ) | $ | (321 | ) | $ | — | |||||||||||||
| Charge-offs | — | $ | — | $ | — | $ | — | $ | — | $ | (3 | ) | $ | — | $ | (3 | ) | |||||||||||||||
| Recoveries | — | $ | — | $ | — | $ | 6 | $ | — | $ | 5 | $ | — | $ | 11 | |||||||||||||||||
| Ending balance | $ | 624 | $ | 62 | $ | 775 | $ | 65 | $ | 65 | $ | 147 | $ | 2,165 | $ | 3,903 | ||||||||||||||||
| Three Months Ended September 30, 2016: | ||||||||||||||||||||||||||||||||
| Beginning balance | $ | 262 | $ | 39 | $ | 1,012 | $ | 64 | $ | 200 | $ | 156 | $ | 2,507 | $ | 4,240 | ||||||||||||||||
| Provision (credit) for loan losses | 58 | 19 | 89 | (4 | ) | 48 | 75 | (285 | ) | — | ||||||||||||||||||||||
| Charge-offs | — | — | (14 | ) | — | — | (72 | ) | — | (86 | ) | |||||||||||||||||||||
| Recoveries | — | — | — | 6 | — | 9 | — | 15 | ||||||||||||||||||||||||
| Ending balance | $ | 320 | $ | 58 | $ | 1,087 | $ | 66 | $ | 248 | $ | 168 | $ | 2,222 | $ | 4,169 | ||||||||||||||||
| Nine Months ended September 30, 2017: | ||||||||||||||||||||||||||||||||
| Beginning balance | $ | 310 | $ | 58 | $ | 787 | $ | 120 | $ | 188 | $ | 165 | $ | 2,287 | $ | 3,915 | ||||||||||||||||
| Provision (credit) for loan losses | 314 | $ | 4 | $ | (12 | ) | $ | (73 | ) | $ | (123 | ) | $ | 12 | $ | (122 | ) | $ | — | |||||||||||||
| Charge-offs | — | $ | — | $ | — | $ | — | $ | — | $ | (43 | ) | $ | — | $ | (43 | ) | |||||||||||||||
| Recoveries | — | $ | — | $ | — | $ | 18 | $ | — | $ | 13 | $ | — | $ | 31 | |||||||||||||||||
| Ending balance | $ | 624 | $ | 62 | $ | 775 | $ | 65 | $ | 65 | $ | 147 | $ | 2,165 | $ | 3,903 | ||||||||||||||||
| Nine Months Ended September 30, 2016: | ||||||||||||||||||||||||||||||||
| Beginning balance | $ | 116 | $ | 26 | $ | 1,085 | $ | 77 | $ | 120 | $ | 151 | $ | 720 | $ | 2,295 | ||||||||||||||||
| Provision (credit) for loan losses | 204 | 32 | (2,033 | ) | (29 | ) | 128 | 196 | 1,502 | — | ||||||||||||||||||||||
| Charge-offs | — | — | (14 | ) | — | — | (195 | ) | — | (209 | ) | |||||||||||||||||||||
| Recoveries | — | — | 2,049 | 18 | — | 16 | — | 2,083 | ||||||||||||||||||||||||
| Ending balance | $ | 320 | 58 | 1,087 | 66 | 248 | 168 | 2,222 | 4,169 | |||||||||||||||||||||||
| Residential Real Estate | Multi- Family | Commercial Real Estate | Land and Construction | Commercial | Consumer | Unallocated | Total | |||||||||||||||||||||||||
| At September 30, 2020: | ||||||||||||||||||||||||||||||||
| Individually evaluated for impairment: | ||||||||||||||||||||||||||||||||
| Recorded investment | $ | — | $ | — | $ | 2,193 | $ | — | $ | — | $ | — | $ | — | $ | 2,193 | ||||||||||||||||
| Balance in allowance for loan losses | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||
| Collectively evaluated for impairment: | ||||||||||||||||||||||||||||||||
| Recorded investment | $ | 32,094 | $ | 16,052 | $ | 64,867 | $ | 4,332 | $ | 22,611 | $ | 5,080 | $ | — | $ | 145,036 | ||||||||||||||||
| Balance in allowance for loan losses | $ | 544 | $ | 228 | $ | 972 | $ | 51 | $ | 137 | $ | 213 | $ | — | $ | 2,145 | ||||||||||||||||
| At December 31, 2019: | ||||||||||||||||||||||||||||||||
| Individually evaluated for impairment: | ||||||||||||||||||||||||||||||||
| Recorded investment | $ | 944 | $ | — | $ | 2,206 | $ | — | $ | 812 | $ | — | $ | — | $ | 3,962 | ||||||||||||||||
| Balance in allowance for loan losses | $ | 258 | $ | — | $ | — | $ | — | $ | 531 | $ | — | $ | — | $ | 789 | ||||||||||||||||
| Collectively evaluated for impairment: | ||||||||||||||||||||||||||||||||
| Recorded investment | $ | 27,322 | $ | 8,396 | $ | 53,446 | $ | 2,496 | $ | 3,664 | $ | 4,903 | $ | — | $ | 100,227 | ||||||||||||||||
| Balance in allowance for loan losses | $ | 273 | $ | 82 | $ | 624 | $ | 21 | $ | 42 | $ | 152 | $ | 26 | $ | 1,220 | ||||||||||||||||
(continued)
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (Unaudited)
| Residential Real Estate | Multi- Family Real Estate | Commercial Real Estate | Land and Construction | Commercial | Consumer | Unallocated | Total | |||||||||||||||||||||||||
| At September 30, 2017: | ||||||||||||||||||||||||||||||||
| Individually evaluated for impairment: | ||||||||||||||||||||||||||||||||
| Recorded investment | $ | 1,354 | $ | — | $ | 981 | $ | — | $ | — | $ | — | $ | — | $ | 2,335 | ||||||||||||||||
| Balance in allowance for loan losses | $ | 336 | $ | — | $ | 76 | $ | — | $ | — | $ | — | $ | — | $ | 412 | ||||||||||||||||
| Collectively evaluated for impairment: | ||||||||||||||||||||||||||||||||
| Recorded investment | $ | 25,210 | $ | 6,142 | $ | 29,656 | $ | 3,037 | $ | 5,390 | $ | 1,025 | $ | — | $ | 70,460 | ||||||||||||||||
| Balance in allowance for loan losses | $ | 288 | $ | 62 | $ | 699 | $ | 65 | $ | 65 | $ | 147 | $ | 2,165 | $ | 3,491 | ||||||||||||||||
| At December 31, 2016: | ||||||||||||||||||||||||||||||||
| Individually evaluated for impairment: | ||||||||||||||||||||||||||||||||
| Recorded investment | $ | 375 | $ | — | $ | 1,004 | $ | — | $ | — | $ | — | $ | — | $ | 1,379 | ||||||||||||||||
| Balance in allowance for loan losses | $ | — | $ | — | $ | 104 | $ | — | $ | — | $ | — | $ | — | $ | 104 | ||||||||||||||||
| Collectively evaluated for impairment: | ||||||||||||||||||||||||||||||||
| Recorded investment | $ | 26,959 | $ | 5,829 | $ | 28,260 | $ | 5,681 | $ | 10,514 | $ | 1,829 | $ | — | $ | 79,072 | ||||||||||||||||
| Balance in allowance for loan losses | $ | 310 | $ | 58 | $ | 683 | $ | 120 | $ | 188 | $ | 165 | $ | 2,287 | $ | 3,811 | ||||||||||||||||
(continued)
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. |
| 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 | |
| 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)
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 | Pass | OLEM (Other Loans Especially Mentioned) | Sub- standard | Doubtful | Loss | Total | |||||||||||||||||||||||||||||||||||||
| At September 30, 2017: | ||||||||||||||||||||||||||||||||||||||||||||||||
| At September 30, 2020: | ||||||||||||||||||||||||||||||||||||||||||||||||
| Residential real estate | $ | 22,820 | $ | 3,375 | $ | 369 | $ | — | $ | — | $ | 26,564 | $ | 32,094 | $ | — | $ | — | $ | — | $ | — | $ | 32,094 | ||||||||||||||||||||||||
| Multi-family real estate | 6,142 | $ | — | $ | — | $ | — | $ | — | $ | 6,142 | 16,052 | — | — | — | — | 16,052 | |||||||||||||||||||||||||||||||
| Commercial real estate | 26,773 | $ | 2,883 | $ | 981 | $ | — | $ | — | $ | 30,637 | 63,055 | 1,812 | 2,193 | — | — | 67,060 | |||||||||||||||||||||||||||||||
| Land and construction | 651 | $ | 2,386 | $ | — | $ | — | $ | — | $ | 3,037 | 2,716 | 1,616 | — | — | — | 4,332 | |||||||||||||||||||||||||||||||
| Commercial | 3,133 | $ | 2,257 | $ | — | $ | — | $ | — | $ | 5,390 | 22,073 | 538 | — | — | — | 22,611 | |||||||||||||||||||||||||||||||
| Consumer | 1,025 | $ | — | $ | — | $ | — | $ | — | $ | 1,025 | 5,053 | — | 27 | — | — | 5,080 | |||||||||||||||||||||||||||||||
| Total | $ | 60,544 | $ | 10,901 | $ | 1,350 | $ | — | $ | — | $ | 72,795 | $ | 141,043 | $ | 3,966 | $ | 2,220 | $ | — | $ | — | $ | 147,229 | ||||||||||||||||||||||||
| — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| At December 31, 2016: | ||||||||||||||||||||||||||||||||||||||||||||||||
| At December 31, 2019: | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Residential real estate | $ | 25,326 | $ | 1,633 | $ | 375 | $ | — | $ | — | $ | 27,334 | $ | 27,322 | $ | — | $ | 944 | $ | — | $ | — | $ | 28,266 | ||||||||||||||||||||||||
| Multi-family real estate | 5,829 | — | — | — | — | 5,829 | 8,396 | — | — | — | — | 8,396 | ||||||||||||||||||||||||||||||||||||
| Commercial real estate | 25,979 | 1,174 | 2,111 | — | — | 29,264 | 53,011 | 435 | 2,206 | — | — | 55,652 | ||||||||||||||||||||||||||||||||||||
| Land and construction | 5,636 | 45 | — | — | — | 5,681 | 1,261 | 1,235 | — | — | — | 2,496 | ||||||||||||||||||||||||||||||||||||
| Commercial | 8,768 | — | 1,746 | — | — | 10,514 | 3,027 | 637 | 812 | — | — | 4,476 | ||||||||||||||||||||||||||||||||||||
| Consumer | 1,823 | — | 6 | — | — | 1,829 | 4,903 | — | — | — | — | 4,903 | ||||||||||||||||||||||||||||||||||||
| Total | $ | 73,361 | $ | 2,852 | $ | 4,238 | $ | — | $ | — | $ | 80,451 | $ | 97,920 | $ | 2,307 | $ | 3,962 | $ | — | $ | — | $ | 104,189 | ||||||||||||||||||||||||
Internally assigned loan grades are defined as follows:
| Pass – | |
| OLEM – | |
| Substandard – | |
| Doubtful – | |
| Loss – |
(continued)
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 | 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 | 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 September 30, 2017: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| At September 30, 2020: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Residential real estate | $ | — | $ | — | $ | — | $ | — | $ | 26,564 | $ | — | $ | 26,564 | $ | — | $ | — | $ | — | $ | — | $ | 32,094 | $ | — | $ | 32,094 | ||||||||||||||||||||||||||||||||||||||||||||
| Multi-family real estate | — | — | — | — | 6,142 | — | 6,142 | — | — | — | — | 16,052 | — | 16,052 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial real estate | — | — | — | — | 30,637 | — | 30,637 | — | — | — | — | 67,060 | — | 67,060 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Land and construction | — | — | — | — | 3,037 | — | 3,037 | — | — | — | — | 4,332 | — | 4,332 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial | — | — | — | — | 5,390 | — | 5,390 | — | — | — | — | 22,611 | — | 22,611 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Consumer | — | — | — | — | 1,025 | — | 1,025 | 14 | 13 | — | 27 | 5,053 | — | 5,080 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | — | $ | — | $ | $ | — | $ | 72,795 | $ | — | $ | 72,795 | $ | 14 | $ | 13 | $ | — | $ | 27 | $ | 147,202 | $ | — | $ | 147,229 | |||||||||||||||||||||||||||||||||||||||||||||
| At December 31, 2016: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| At December 31, 2019: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Residential real estate | $ | — | $ | — | $ | — | $ | — | $ | 26,959 | $ | 375 | $ | 27,334 | $ | 944 | $ | — | $ | — | $ | 944 | $ | 27,322 | $ | — | $ | 28,266 | ||||||||||||||||||||||||||||||||||||||||||||
| Multi-family real estate | — | — | — | — | 5,829 | — | 5,829 | — | — | — | — | 8,396 | — | 8,396 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial real estate | — | — | — | — | 29,264 | — | 29,264 | — | — | — | — | 55,652 | — | 55,652 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Land and construction | — | — | — | — | 5,681 | — | 5,681 | 1,235 | — | — | 1,235 | 1,261 | — | 2,496 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial | — | — | — | — | 10,514 | — | 10,514 | — | — | — | — | 3,664 | 812 | 4,476 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Consumer | — | 6 | — | 6 | 1,823 | — | 1,829 | — | — | — | — | 4,903 | — | 4,903 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | — | $ | 6 | $ | — | $ | 6 | $ | 80,070 | $ | 375 | $ | 80,451 | $ | 2,179 | $ | — | $ | — | $ | 2,179 | $ | 101,198 | $ | 812 | $ | 104,189 | ||||||||||||||||||||||||||||||||||||||||||||
The following summarizes the amount of impaired loans (in thousands):
| At September 30, 2017 | At December 31, 2016 | At September 30, 2020 | At December 31, 2019 | |||||||||||||||||||||||||||||||||||||||||||||
| Recorded Investment | Unpaid Principal Balance | Related Allowance | Recorded Investment | Unpaid Principal Balance | Related Allowance | Recorded Investment | Unpaid Principal Balance | Related Allowance | Recorded Investment | Unpaid Principal Balance | Related Allowance | |||||||||||||||||||||||||||||||||||||
| With no related allowance recorded: | ||||||||||||||||||||||||||||||||||||||||||||||||
| Residential real estate | $ | 370 | $ | 495 | $ | — | $ | 375 | $ | 501 | $ | — | ||||||||||||||||||||||||||||||||||||
| With no related allowance recorded- | ||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial real estate | 232 | 232 | — | — | — | — | $ | 2,193 | $ | 2,193 | $ | — | $ | 2,206 | $ | 2,206 | — | |||||||||||||||||||||||||||||||
| With related allowance recorded: | ||||||||||||||||||||||||||||||||||||||||||||||||
| Residential real estate | 984 | 984 | 336 | — | — | — | — | — | — | 944 | 944 | 258 | ||||||||||||||||||||||||||||||||||||
| Commercial real estate | $ | 749 | 749 | 76 | 1,004 | 1,004 | 104 | |||||||||||||||||||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial | — | — | — | 812 | 812 | 531 | ||||||||||||||||||||||||||||||||||||||||||
| Total: | ||||||||||||||||||||||||||||||||||||||||||||||||
| Residential real estate | $ | 1,354 | $ | 1,479 | $ | 336 | $ | 375 | $ | 501 | $ | — | $ | — | $ | — | $ | — | $ | 944 | 944 | 258 | ||||||||||||||||||||||||||
| Commercial real estate | $ | 981 | $ | 981 | $ | 76 | $ | 1,004 | $ | 1,004 | $ | 104 | $ | 2,193 | $ | 2,193 | $ | — | $ | 2,206 | 2,206 | — | ||||||||||||||||||||||||||
| Commercial | $ | — | $ | — | $ | — | $ | 812 | $ | 812 | $ | 531 | ||||||||||||||||||||||||||||||||||||
| Total | $ | 2,335 | $ | 2,460 | $ | 412 | $ | 1,379 | $ | 1,505 | $ | 104 | $ | 2,193 | $ | 2,193 | $ | — | $ | 3,962 | $ | 3,962 | $ | 789 | ||||||||||||||||||||||||
(continued)
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (Unaudited)
| (3) | Loans, Continued. The average net investment in impaired loans and interest income recognized and received on impaired loans are as follows (in thousands): |
| Three Months Ended September 30, | Three Months Ended September 30, | |||||||||||||||||||||||||||||||||||||||||||||||
| 2017 | 2016 | 2020 | 2019 | |||||||||||||||||||||||||||||||||||||||||||||
| Average | Interest | Interest | Average | Interest | Interest | Average | Interest | Interest | Average | Interest | Interest | |||||||||||||||||||||||||||||||||||||
| Recorded | Income | Income | Recorded | Income | Income | Recorded | Income | Income | Recorded | Income | Income | |||||||||||||||||||||||||||||||||||||
| Investment | Recognized | Received | Investment | Recognized | Received | Investment | Recognized | Received | Investment | Recognized | Received | |||||||||||||||||||||||||||||||||||||
| Residential real estate | $ | 385 | $ | 12 | $ | 12 | $ | 598 | $ | 3 | $ | 16 | $ | 626 | $ | — | $ | — | $ | 950 | $ | 19 | $ | 19 | ||||||||||||||||||||||||
| Commercial real estate | $ | 907 | $ | 14 | $ | 14 | $ | 1,829 | $ | 16 | $ | 22 | $ | 2,193 | $ | 26 | $ | — | $ | 2,280 | $ | 27 | $ | 27 | ||||||||||||||||||||||||
| Commercial | $ | 270 | $ | — | $ | — | $ | 812 | $ | — | $ | — | ||||||||||||||||||||||||||||||||||||
| Total | $ | 1,292 | $ | 26 | $ | 26 | $ | 2,427 | $ | 19 | $ | 38 | $ | 3,089 | $ | 26 | $ | — | $ | 4,042 | $ | 46 | $ | 46 | ||||||||||||||||||||||||
| Nine Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||||||||||||||
| 2017 | 2016 | 2020 | 2019 | |||||||||||||||||||||||||||||||||||||||||||||
| Average | Interest | Interest | Average | Interest | Interest | Average | Interest | Interest | Average | Interest | Interest | |||||||||||||||||||||||||||||||||||||
| Recorded | Income | Income | Recorded | Income | Income | Recorded | Income | Income | Recorded | Income | Income | |||||||||||||||||||||||||||||||||||||
| Investment | Recognized | Received | Investment | Recognized | Received | Investment | Recognized | Received | Investment | Recognized | Received | |||||||||||||||||||||||||||||||||||||
| Residential real estate | $ | 375 | $ | 36 | $ | 36 | $ | 1,057 | $ | 36 | $ | 64 | $ | 846 | $ | 18 | $ | 11 | $ | 950 | $ | 56 | $ | 56 | ||||||||||||||||||||||||
| Commercial real estate | $ | 899 | $ | 39 | $ | 39 | $ | 2,483 | $ | 63 | $ | 89 | $ | 2,194 | $ | 78 | $ | 60 | $ | 2,808 | $ | 88 | $ | 86 | ||||||||||||||||||||||||
| Commercial | $ | 649 | $ | — | $ | 18 | $ | 1,327 | 43 | $ | 39 | |||||||||||||||||||||||||||||||||||||
| Total | $ | 1,274 | $ | 75 | $ | 75 | $ | 3,540 | $ | 99 | $ | 153 | $ | 3,689 | $ | 96 | $ | 89 | $ | 5,085 | $ | 187 | $ | 181 | ||||||||||||||||||||||||
| No loans have been determined to be troubled debt restructurings (TDR’s) during the three and nine month periods ended September 30, |
(continued)
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (Unaudited)
| (4) |
| Bank | Consent Order Regulatory Requirement | ||||||||
| Tier I capital to total average assets | 8.54 | % | 8.00 | % | |||||
| Tier I capital to risk-weighted assets | 13.12 | % | NA | % | |||||
| Common equity Tier I capital to risk-weighted assets | 13.12 | % | NA | % | |||||
| Total capital to risk-weighted assets | 14.42 | % | 12.00 | % | |||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Weighted-average number of common shares outstanding used to calculate basic and diluted loss per common share | 2,951,353 | 1,928,269 | 2,920,961 | 1,889,592 | ||||||||||||
(continued)
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (Unaudited)
| (5) | |
| 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 | |
| During the second quarter of 2019, the Company recorded compensation expense of $201,000 with respect to 58,309 shares issued to a director for services performed. | |
| During the third quarter of 2020, the Company agreed to issue 74,626 shares to this director for services performed and recorded compensation expense of $200,000. The director has not yet taken delivery of the shares. As such, at September 30, 2020, the $200,000 is presented on the |
| (6) | Fair Value Measurements. Impaired collateral-dependent loans are carried at fair value when the current collateral value is lower than the carrying value of |
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Weighted-average number of common shares outstanding used to calculate basic and diluted (loss) earnings per common share | 1,103,447 | 1,097,644 | 1,103,447 | 1,024,704 | ||||||||||||
| Fair Value | Level 1 | Level 2 | Level 3 | Total Losses | Losses Recorded Operations December 31, 2019 | |||||||||||||||||||
| At December 31, 2019— | ||||||||||||||||||||||||
| Residential real estate | $ | 686 | $ | — | $ | — | $ | 686 | $ | 258 | $ | — | ||||||||||||
Foreclosed real estate is recorded at fair value less selling costs. Foreclosed real estate which is measured at fair value on a nonrecurring basis is as follows (in thousands):
| Fair Value | Level 1 | Level 2 | Level 3 | Total Losses | Losses Recorded Operations September 30, 2020 | |||||||||||||||||||
| At September 30, 2020— | ||||||||||||||||||||||||
| Foreclosed real estate | $ | 681 | $ | — | $ | — | $ | 681 | $ | — | $ | — | ||||||||||||
Debt securities available for sale measured at fair value on a recurring basis are summarized below (in thousands):
| Fair Value Measurements Using | ||||||||||||||||
| Quoted Prices In Active Markets for Identical Assets | Significant Other Observable Inputs | Significant Unobservable Inputs | ||||||||||||||
| Fair Value | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
| At September 30, 2020: | ||||||||||||||||
| SBA Pool Securities | $ | 1,321 | $ | — | $ | 1,321 | $ | — | ||||||||
| Collateralized mortgage obligations | 617 | — | 617 | — | ||||||||||||
| Mortgage-backed securities | 5,522 | — | 5,522 | — | ||||||||||||
| $ | 7,460 | — | 7,460 | — | ||||||||||||
| At December 31, 2019: | ||||||||||||||||
| SBA Pool Securities | $ | 1,682 | $ | — | $ | 1,682 | $ | — | ||||||||
| Collateralized mortgage obligations | 1,016 | — | 1,016 | — | ||||||||||||
| Mortgage-backed securities | 2,711 | — | 2,711 | — | ||||||||||||
| Total | $ | 5,409 | — | $ | 5,409 | $ | — | |||||||||
During the three and nine month periods ended September 30, 2020 and 2019, no debt securities were transferred in or out of Levels 1, 2 or 3.
(continued)
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (Unaudited)
| (7) |
Impaired Collateral Dependent Loans:
| Fair Value | Level 1 | Level 2 | Level 3 | Total Losses | Losses Recorded in Operations | |||||||||||||||||||
| At September 30, 2017- | ||||||||||||||||||||||||
| Residential real estate | $ | 1,018 | $ | — | $ | — | $ | 1,018 | $ | 461 | $ | — | ||||||||||||
| Fair Value | Level 1 | Level 2 | Level 3 | Total Losses | Losses Recorded in Operations | |||||||||||||||||||
| At December 31, 2016- | ||||||||||||||||||||||||
| Residential real estate | $ | 375 | $ | — | $ | — | $ | 375 | $ | 126 | $ | — | ||||||||||||
Available-for-sale securities 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 September 30, 2017: | ||||||||||||||||
| Collateralized mortgage obligations | $ | 8,882 | — | $ | 8,882 | — | ||||||||||
| SBA Pool Securities | 7,317 | — | 7,317 | — | ||||||||||||
| $ | 16,199 | — | $ | 16,199 | — | |||||||||||
| At December 31, 2016: | ||||||||||||||||
| Collateralized mortgage obligations | $ | 9,752 | $ | — | $ | 9,752 | $ | — | ||||||||
| SBA Pool Securities | 10,470 | — | 10,470 | — | ||||||||||||
| $ | 20,222 | $ | — | $ | 20,222 | $ | — | |||||||||
During the three and nine month periods ended September 30, 2017 and 2016, no securities were transferred in or out of Level 1, Level 2 or Level 3.
(continued)
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (Unaudited)
| 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 September 30, 2017 | At December 31, 2016 | At September 30, 2020 | At December 31, 2019 | |||||||||||||||||||||||||||||||||||||||||||||
| Carrying Amount | Fair Value | Level | Carrying Amount | Fair Value | Level | Carrying Amount | Fair Value | Level | Carrying Amount | Fair Value | Level | |||||||||||||||||||||||||||||||||||||
| Financial assets: | ||||||||||||||||||||||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 18,514 | $ | 18,514 | 1 | $ | 17,640 | $ | 17,640 | 1 | $ | 45,271 | $ | 45,271 | 1 | $ | 8,934 | $ | 8,934 | 1 | ||||||||||||||||||||||||||||
| Securities available for sale | 16,199 | 16,199 | 2 | 20,222 | 20,222 | 2 | ||||||||||||||||||||||||||||||||||||||||||
| Debt securities available for sale | 7,460 | 7,460 | 2 | 5,409 | 5,409 | 2 | ||||||||||||||||||||||||||||||||||||||||||
| Debt securities held-to-maturity | 4,571 | 4,794 | 2 | 5,806 | 5,986 | 2 | ||||||||||||||||||||||||||||||||||||||||||
| Loans | 69,194 | 69,095 | 3 | 76,999 | 76,829 | 3 | 144,532 | 144,641 | 3 | 102,233 | 102,060 | 3 | ||||||||||||||||||||||||||||||||||||
| Federal Home Loan Bank stock | 979 | 979 | 3 | 1,113 | 1,113 | 3 | 1,092 | 1,092 | 3 | 642 | 642 | 3 | ||||||||||||||||||||||||||||||||||||
| Accrued interest receivable | 366 | 366 | 3 | 380 | 380 | 3 | 1,544 | 1,544 | 3 | 432 | 432 | 3 | ||||||||||||||||||||||||||||||||||||
| Financial liabilities: | ||||||||||||||||||||||||||||||||||||||||||||||||
| Deposit liabilities | 77,374 | 77,935 | 3 | 86,009 | 86,364 | 3 | 167,716 | 168,003 | 3 | 101,372 | 101,256 | 3 | ||||||||||||||||||||||||||||||||||||
| Federal Home Loan Bank advances | 20,500 | 20,458 | 3 | 23,500 | 23,500 | 3 | 23,000 | 23,311 | 3 | 13,000 | 13,137 | 3 | ||||||||||||||||||||||||||||||||||||
| Junior subordinated debenture | 5,155 | NA | (1) | 3 | 5,155 | N/A | (1) | 3 | 2,580 | N/A | (1) | N/A | 2,580 | N/A | (1) | N/A | ||||||||||||||||||||||||||||||||
| Off-balance sheet financial instruments | — | — | — | — | — | — | — | — | 3 | — | — | 3 | ||||||||||||||||||||||||||||||||||||
| (1) | The Company is unable to determine |
| (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 |
The Company’s exposure to credit loss in the event of nonperformance 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 September 30, 2020 follows (in thousands):
| Commitments to extend credit | $ | 4,091 | ||
| Unused lines of credit | $ | 5,332 | ||
| 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. |
(continued)
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (Unaudited)
| (9) | Regulatory Matters, Continued. |
The following table shows the Bank’s capital amounts and ratios and regulatory thresholds at September 30, |
| Actual | For Capital Adequacy Purposes | Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions | Requirements of Consent Order | |||||||||||||||||||||||||||||
| Amount | % | Amount | % | Amount | % | Amount | % | |||||||||||||||||||||||||
| As of September 30, 2017: | ||||||||||||||||||||||||||||||||
| Total Capital to Risk-Weighted Assets | $ | 10,472 | 14.42 | % | $ | 5,809 | 8.0 | % | $ | 7,262 | 10.0 | % | $ | 8,714 | 12.00 | % | ||||||||||||||||
| Tier I Capital to Risk-Weighted Assets | 9,527 | 13.12 | % | 4,357 | 6.0 | % | 5,809 | 8.0 | % | NA | NA | |||||||||||||||||||||
| Common equity Tier I capital to Risk-Weighted Assets | 9,527 | 13.12 | % | 3,268 | 4.5 | % | 4,720 | 6.5 | % | NA | NA | |||||||||||||||||||||
| Tier I Capital to Total Assets | 9,527 | 8.54 | % | 4,463 | 4.0 | % | 5,579 | 5.0 | % | 8,926 | 8.00 | % | ||||||||||||||||||||
| As of December 31, 2016: | ||||||||||||||||||||||||||||||||
| Total Capital to Risk-Weighted Assets | $ | 10,662 | 12.79 | % | $ | 6,609 | 8.0 | % | $ | 8,261 | 10.0 | % | $ | 9,913 | 12.0 | % | ||||||||||||||||
| Tier I Capital to Risk-Weighted Assets | 9,498 | 11.50 | % | 4,957 | 6.0 | % | 6,609 | 8.0 | % | N/A | N/A | |||||||||||||||||||||
| Common equity Tier I capital to Risk-Weighted Assets | 9,498 | 11.50 | % | 3,718 | 4.5 | % | 5,370 | 6.5 | % | N/A | N/A | |||||||||||||||||||||
| Tier I Capital to Total Assets | 9,498 | 8.06 | % | 4,714 | 4.0 | % | 5,893 | 5.0 | % | 9,428 | 8.0 | % | ||||||||||||||||||||
(continued)
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (Unaudited)
| Actual | For Capital Purposes | Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions |
| |||||||||||||||||||||
| Amount | % | Amount | % | Amount | % | |||||||||||||||||||
| As of September 30, 2020— | ||||||||||||||||||||||||
| Tier I Capital to Total Assets | 16,175 | 8.70 | % | $ | 7,434 | 4.00 | % | $ | 9,292 | 5.00 | % | |||||||||||||
| As of December 31, 2019: | ||||||||||||||||||||||||
| Total Capital to Risk-Weighted Assets | $ | 12,212 | 12.03 | % | $ | 8,124 | 8.00 | % | $ | 10,154 | 10.00 | % | ||||||||||||
| Tier I Capital to Risk-Weighted Assets | 10,934 | 10.77 | 6,093 | 6.00 | % | 8,124 | 8.00 | % | ||||||||||||||||
| Common equity Tier I capital to Risk-Weighted Assets | 10,934 | 10.77 | 4,569 | 4.50 | % | 6,600 | 6.50 | % | ||||||||||||||||
| Tier I Capital to Total Assets | 10,934 | 8.73 | 5,010 | 4.00 | % | 6,263 | 5.00 | % | ||||||||||||||||
| (10) |
During 2020, the Company issued 280 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 $7,000,000. The related party is a significant common stockholder. The Preferred Stock has no par value. Except in the case of liquidation, if the Company |
| (11) | |
The Coronavirus global pandemic (“COVID-19”) has negatively impacted the | |
The Company | |
(continued)
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, 20162019 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.
Regulatory Enforcement ActionsCapital Levels
Bank Consent Order. On November 7, 2016, the Bank agreed to the issuanceAs of a Consent Order by the FDIC and the OFR (the “Consent Order”), which requires the Bank to take certain measures to improve its safety and soundness. The Consent Order supersedes the prior consent order that became effective in 2010. Pursuant to the Consent Order,September 30, 2020, the Bank is required to take certain measures to improve its management, condition and operations, including actions to improve management practices and board supervision and independence, assure that its allowance for loan losses is maintained at an appropriate level and improve liquidity.well capitalized under regulatory guidelines. The Consent Order requirescapital of the Bank was substantially increased in 2020 through capital contributions made by the Company to adopt and implement a compliance plan to address the Bank’s obligations under with the Bank Secrecy Act and related obligations related to anti-money laundering. The Consent Order prohibits the payment of dividends by the Bank. The Consent Order continues the requirement for the Bank to maintain a Tier 1 leverage ratio of at least 8% and a total risk-based capital ratio of 12% beginning 90 daysnet proceeds from the issuancesale of $7,000,000 in Series B Preferred Stock. See Note 10 to the Consent Order. At September 30, 2017, the Bank had a Tier 1 leverage ratio of 8.54%, and a total risk-based capital ratio of 14.42%.financial statements.
See Footnote 13Note 9 to the Consolidated Financial Statements included infinancial statements for a discussion of regulatory matters and the Company’s 2016 Form 10-K for additional information concerning the requirements of the Consent Order.Bank’s actual and required minimum capital ratios.
(continued)
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Management believes that the Bank has made substantial progress in improving its financial condition through a significant reduction in non-performing assetsItem 2. Management’s Discussion and the receiptAnalysis of capital increases from investors since the 2010 Consent Order. The Bank is also making significant progress in resolving the other issues raised by the FDICFinancial Condition and the OFR including strengthening the senior management team with the additionResults of David Edgar as Chief Financial Officer in October 2017. Although the Bank has been hampered by difficulties in raising capital due to the default under the Debenture and the limits placed on the Company and the Bank under the prior Consent Order and the Written Agreement. Management intends to continue its efforts to meet the conditions of the New Consent Order and the Written Agreement.
Company Written Agreement with Reserve Bank. On June 22, 2010, the Company and the Reserve Bank entered into a Written Agreement with respect to certain aspects of the operation and management of the Company. The Written Agreement prohibits, without the prior approval of the Reserve Bank, the payment of dividends, taking dividends or payments from the Bank, making any interest, principal or other distributions on trust preferred securities (including the Debenture), incurring, increasing or guaranteeing any debt, purchasing or redeeming any shares of stock, or appointing any new director or senior executive officer. Management believes that the Company is in substantial compliance with the requirements of the Written Agreement.Operations (Continued)
Capital Levels
Quantitative measures established by regulation and by the Consent Order to ensure capital adequacy require us to maintain minimum amounts and ratios (set forth in the following table) of Total and Tier 1 capital to risk-weighted assets and Tier 1 capital to average assets. As of September 30, 2017, the Bank met the minimum applicable capital adequacy requirements for Total Capital to Risk – Weighted Assets, and for Tier I Capital to Total Assets.
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
The Bank’s actual and required minimum capital ratios were as follows (in thousands):
Regulatory Capital Requirements
| Actual | For Capital Adequacy Purposes | Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions | Requirements of Consent Order | |||||||||||||||||||||||||||||
| Amount | % | Amount | % | Amount | % | Amount | % | |||||||||||||||||||||||||
| As of September 30, 2017: | ||||||||||||||||||||||||||||||||
| Total Capital to Risk-Weighted Assets | $ | 10,472 | 14.42 | % | $ | 5,809 | 8.0 | % | $ | 7,262 | 10.02 | % | $ | 8,714 | 12.00 | % | ||||||||||||||||
| Tier I Capital to Risk-Weighted Assets | 9,527 | 13.12 | % | 4,357 | 6.0 | % | 5,809 | 8.0 | % | NA | NA | |||||||||||||||||||||
| Common equity Tier I capital to Risk-Weighted Assets | 9,527 | 13.12 | % | 3,268 | 4.5 | % | 4,720 | 6.5 | % | NA | NA | |||||||||||||||||||||
| Tier I Capital to Total Assets | 9,527 | 8.54 | % | 4,463 | 4.0 | % | 5,579 | 5.0 | % | 8,926 | 8.00 | % | ||||||||||||||||||||
| As of December 31, 2016: | ||||||||||||||||||||||||||||||||
| Total Capital to Risk-Weighted Assets | $ | 10,662 | 12.79 | % | $ | 6,609 | 8.0 | % | $ | 8,261 | 10.0 | % | $ | 9,913 | 12.0 | % | ||||||||||||||||
| Tier I Capital to Risk-Weighted Assets | 9,498 | 11.50 | % | 4,957 | 6.0 | % | 6,609 | 8.0 | % | N/A | N/A | |||||||||||||||||||||
| Common equity Tier I capital to Risk-Weighted Assets | 9,498 | 11.50 | % | 3,718 | 4.5 | % | 5,370 | 6.5 | % | N/A | N/A | |||||||||||||||||||||
| Tier I Capital to Total Assets | 9,498 | 8.06 | % | 4,714 | 4.0 | % | 5,893 | 5.0 | % | 9,428 | 8.0 | % | ||||||||||||||||||||
Financial Condition at September 30, 20172020 and December 31, 20162019
Overview
The Company’s total assets decreasedincreased by $11.2approximately $81.8 million to $108.5$208.6 million at September 30, 2017,2020, from $119.7$126.8 million at December 31, 2016,2019, primarily due to a reductionan increase in total deposits.loans, and cash and cash equivalents corresponding to an increase in deposits, and FHLB advances. Total stockholders’ equity decreasedincreased by approximately $0.5$6.5 million to $13.7 million at September 30, 20172020, from $3.1$7.2 million at December 31, 2016 to $2.6 million,2019, primarily due to proceeds from the sale of preferred and common stock which more than offset the net loss of $510,000 for the nine monthsnine-month period ended September 30, 2017. As of September 30,2017, the Bank has provided for a reserve for BSA Compliancelookback of $210.000.2020.
The following table shows selected information for the periods ended or at the dates indicated:
| Nine Months | Nine Months | Year | Nine Month Period | |||||||||||||||||
| Ended | Ended | Ended | Ended | Year Ended | ||||||||||||||||
| September 30, 2017 | September 30, 2016 | December 31, 2016 | September 30, 2020 | December 31, 2019 | ||||||||||||||||
| Average equity as a percentage of average assets | 2.22 | % | 2.59 | % | 2.6 | % | 5.2 | % | 4.6 | % | ||||||||||
| Equity to total assets at end of period | 2.42 | % | 2.73 | % | 2.6 | % | 6.6 | % | 5.7 | % | ||||||||||
| Return on average assets (1) | (.45 | )% | (0.34 | )% | (0.3 | )% | (1.0 | )% | (1.0 | )% | ||||||||||
| Return on average equity (1) | (18.15 | )% | (12.96 | )% | (12.5 | )% | (18.4 | )% | (21.3 | )% | ||||||||||
| Noninterest expenses to average assets (1) | 2.74 | % | 3.51 | % | 3.3 | % | 3.02 | % | 4.0 | % | ||||||||||
(1) Annualized for the nine monthsmonth period ended September 30, 2017 and 2016.
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY2020.
Liquidity and Sources of Funds
The Bank’sCompany’s sources of funds include customer deposits, advances from the Federal Home Loan Bank of Atlanta (“FHLB”), salesprincipal repayments and principal repaymentssales of investment securities, loan repayments, foreclosed real estate sales, 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 BankCompany has priced its deposit rates competitively. The BankCompany will adjust rates on its deposits to attract or retain deposits as needed. Under
The Company increased deposits by $66.3 million during the Consent Order, the interest rate that the Bank pays on its market area deposits is restricted. It is possible that the Bank could experience a decrease in deposit inflows, or the migration of current depositsnine month period ended September 30, 2020. The proceeds were primarily used to competitor institutions, if other institutions offer higher interest rates than those permitted to be offered by the Bank. Despite these yield limitations, we believe that we have the ability to adjust rates on our deposits to attract or retain deposits as needed.originate new loans.
In addition to obtaining funds from depositors, wethe Company may borrow funds from other financial institutions. At September 30, 2017,2020, the BankCompany had outstanding borrowings of $20,500,000,$23 million, against its $31,300,000$65 million in established borrowing capacity with the FHLB. The Bank’sCompany’s borrowing facility is subject to collateral and stock ownership requirements, as well as prior FHLB consent to each advance. In 2010,At September 30, 2020, the Bank obtained an availableCompany also had lines of credit amounting to $9.5 million with four correspondent banks and a discount window credit line with the Federal Reserve Bank currently $643,700. The Federal Reserve Bank line isamounting to $430.000. Disbursements on the lines of credit are subject to collateral requirements and must be repaid within 90 days; each advance is subject to prior Federal Reserve Bank consent. The Bank also has a $2.5 million linethe approval of credit with SunTrust, $750,000 line of credit with Servis First Bank and a $2.5 million line of credit with AloStar Bank.the correspondent banks. We measure and monitor our liquidity daily and believe our liquidity sources are adequate to meet our operating needs.
In the past, the Company, on an unconsolidated basis, relied on dividends from the Bank to fund its operating expenses, primarily expenses of being publicly held, and to make interest payments on the Company’s junior subordinated debenture (the “Debenture”). Under the Consent Order, the Bank is currently unable to pay dividends to the Company without prior regulatory approval. Additionally, under the Written Agreement, the Company may not pay interest payments on the Debenture or dividends on the Company’s common stock, incur any additional indebtedness at the Company level, or redeem the Company’s common stock without the prior regulatory approval of the Federal Reserve Bank. Since January 2010, the Company has deferred interest payments on the Debenture, which has been in default since 2015. See “Junior Subordinated Debenture” below.
Off-Balance Sheet Arrangements
The Company is a partyRefer 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 and may involve, to varying degrees, elements of credit and interest-rate risk in excess of the amounts recognized in the condensed consolidated balance sheet. The contract amounts of these instruments reflect the extent of the Company’s involvement in these financial instruments.Note 8 for Off-Balance Sheet Financial 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. Since many of the commitments are expected to expire without being drawn upon, the total committed amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis.Junior Subordinated Debenture
The amount of collateral obtained, if it is deemed necessary by the Company upon extension of credit, is basedPlease refer to Note 1 for discussion on management’s credit evaluation of the counter party. As of September 30, 2017, the Company had commitments to extend credit totaling $4.3 million.this matter.
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Junior Subordinated Debenture
On September 30, 2004, the Company issued a $5,155,000 junior subordinated debenture to an unconsolidated subsidiary (the “Debenture”). The Debenture has a termItem 2. Management’s Discussion and Analysis of thirty years. The interest rate was fixed at 6.4% for the first five years,Financial Condition and thereafter, the coupon rate floats quarterly at the three-month LIBOR rate plus 2.45% (3.78% at September 30, 2017). The Debenture is redeemable in certain circumstances. The termsResults of the Debenture allow the Company to defer payments of interest on the Debenture by extending the interest payment period at any time during the term of the Debenture for up to twenty consecutive quarterly periods. Beginning in 2010, the Company exercised its right to defer payment of interest on the Debenture. Interest payments deferred as of September 30, 2017 totaled $1,314,000. The Company has deferred interest payments with respect to the Debenture for the maximum allowable twenty consecutive quarterly payments. The holder of the Debenture can accelerate the $5,155,000 principal balance as a result of this default. Under the Written Agreement, the Company is not able to make these interest payments without the prior approval of the Federal Reserve Bank of Atlanta. Regulatory approval to pay accrued and unpaid interest has been denied.
A Director of the Company has offered to purchase the Debenture and this offer has been approved by certain equity owners of the Trust that holds the Debenture. The Director has also agreed to enter into a forbearance agreement with the Company with respect to payments due under the Debenture upon consummation of the Director’s purchase of the debenture.
In March of 2016, the Trustee received a direction from certain equity owners of the Trust that hold the Debenture to Sell the Debenture to a Director of the Company. Based upon the receipt of other conflicting directions, in August 26, 2016, the Trustee commenced an action in a Minnesota State Court seeking directions from the Court. The case was subsequently transferred to the United States District Court for the Southern District of New York, were the case is currently pending. The Company continues to pursue mechanisms for paying the accrued interest, such as raising additional capital.
In the event the amounts due under the Debenture were accelerated, then the Trustee could undertake legal proceedings to obtain a judgment against the Company with respect to such amounts due under the Debenture. If this action were successful, then the Trustee could seek to affect a sale of the Bank to pay the amounts due under the Debenture.
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARYOperations (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 September 30, | ||||||||||||||||||||||||
| 2017 | 2016 | |||||||||||||||||||||||
| Average Balance | Interest and Dividends | Average Yield/ Rate | Average Balance | Interest and Dividends | Average Yield/ Rate | |||||||||||||||||||
| ($ in thousands) | ||||||||||||||||||||||||
| Interest-earning assets: | ||||||||||||||||||||||||
| Loans | $ | 72,777 | $ | 972 | 5.34 | % | $ | 85,020 | $ | 1,082 | 5.09 | % | ||||||||||||
| Securities | 19,207 | 96 | 2.00 | 22,779 | 117 | 2.05 | ||||||||||||||||||
| Other (1) | 17,908 | 65 | 1.45 | 11,225 | 24 | 0.86 | ||||||||||||||||||
| Total interest-earning assets/interest income | 109,892 | 1,133 | 4.12 | 119,024 | 1,223 | 4.11 | ||||||||||||||||||
| Cash and due from banks | 1,156 | 910 | ||||||||||||||||||||||
| Premise and equipment | 2,612 | 2,696 | ||||||||||||||||||||||
| Other | (3,345 | ) | (1,005 | ) | ||||||||||||||||||||
| Total assets | $ | 110,315 | $ | 121,625 | ||||||||||||||||||||
| Interest-bearing liabilities: | ||||||||||||||||||||||||
| Savings, NOW and money-market deposits | $ | 21,657 | 27 | .50 | $ | 22,960 | 29 | 0.51 | ||||||||||||||||
| Time deposits | 49,945 | 140 | 1.12 | 59,069 | 152 | 1.03 | ||||||||||||||||||
| Borrowings (2) | 25,655 | 141 | 2.20 | 25,663 | 91 | 1.42 | ||||||||||||||||||
| Total interest-bearing liabilities/ interest expense | 97,257 | 308 | 1.27 | 107,692 | 272 | 1.01 | ||||||||||||||||||
| Noninterest-bearing demand deposits | 8,376 | 8,039 | ||||||||||||||||||||||
| Other liabilities | 2,026 | 2,534 | ||||||||||||||||||||||
| Stockholders’ equity | 2,656 | 3,360 | ||||||||||||||||||||||
| Total liabilities and stockholders’ equity | $ | 110,315 | $ | 121,625 | ||||||||||||||||||||
| Net interest income | $ | 825 | $ | 951 | ||||||||||||||||||||
| Interest-rate spread (3) | 2.85 | % | 3.10 | % | ||||||||||||||||||||
| Net interest-earnings assets | $ | 12,635 | $ | 11,332 | ||||||||||||||||||||
| Net interest margin (4) | 3.00 | % | 3.20 | % | ||||||||||||||||||||
| Ratio of average interest-earning assets to average interest-bearing liabilities | 1.13 | 1.11 | ||||||||||||||||||||||
| Nine Months Ended September 30, | Three Months Ended September 30, | |||||||||||||||||||||||||||||||||||||||||||||||
| 2017 | 2016 | 2020 | 2019 | |||||||||||||||||||||||||||||||||||||||||||||
| Average Balance | Interest and Dividends | Average Yield/ Rate | Average Balance | Interest and Dividends | Average Yield/ Rate | Interest | Average | Interest | Average | |||||||||||||||||||||||||||||||||||||||
| ($ in thousands) | Average | and | Yield/ | Average | and | Yield/ | ||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | Balance | Dividends | Rate(5) | Balance | Dividends | Rate(5) | ||||||||||||||||||||||||||||||||||||||||||
| Interest-earning assets: | ||||||||||||||||||||||||||||||||||||||||||||||||
| Loans | $ | 76,583 | $ | 2,971 | 5.17 | % | $ | 84,173 | $ | 3,156 | 5.00 | % | $ | 142,138 | $ | 1,723 | 4.85 | % | $ | 86,895 | $ | 1,140 | 5.25 | % | ||||||||||||||||||||||||
| Securities | 19,622 | 306 | 2.08 | 23,454 | 367 | 2.09 | 9,092 | 41 | 1.80 | % | 12,508 | 63 | 2.01 | % | ||||||||||||||||||||||||||||||||||
| Other (1) | 16,985 | 162 | 1.27 | 11,433 | 75 | 0.87 | 18,928 | 7 | 0.15 | % | 9,768 | 58 | 2.38 | % | ||||||||||||||||||||||||||||||||||
| Total interest-earning assets/interest income | 113,190 | 3,439 | 4.05 | 119,060 | 3,598 | 4.03 | 170,158 | 1,771 | 4.16 | % | 109,171 | 1,261 | 4.62 | % | ||||||||||||||||||||||||||||||||||
| Cash and due from banks | 1,162 | 887 | 14,480 | 2,106 | ||||||||||||||||||||||||||||||||||||||||||||
| Premise and equipment | 2,624 | 2,694 | ||||||||||||||||||||||||||||||||||||||||||||||
| Premises and equipment | 1,439 | 2,927 | ||||||||||||||||||||||||||||||||||||||||||||||
| Other | (3,164 | ) | (393 | ) | 1,312 | (411 | ) | |||||||||||||||||||||||||||||||||||||||||
| Total assets | $ | 113,812 | $ | 122,248 | $ | 187,389 | $ | 113,793 | ||||||||||||||||||||||||||||||||||||||||
| Interest-bearing liabilities: | ||||||||||||||||||||||||||||||||||||||||||||||||
| Savings, NOW and money-market deposits | $ | 22,052 | 82 | 0.50 | $ | 23,719 | 89 | 0.50 | $ | 89,383 | 168 | 0.75 | % | $ | 46,789 | 222 | 1.90 | % | ||||||||||||||||||||||||||||||
| Time deposits | 53,609 | 442 | 1.10 | 62,203 | 461 | 0.99 | 28,583 | 122 | 1.71 | % | 31,055 | 186 | 2.40 | % | ||||||||||||||||||||||||||||||||||
| Borrowings (2) | 25,677 | 378 | 1.96 | 25,700 | 260 | 1.35 | 26,758 | 96 | 1.44 | % | 18,155 | 130 | 2.86 | % | ||||||||||||||||||||||||||||||||||
| Total interest-bearing liabilities/ interest expense | 101,338 | 902 | 1.29 | 111,622 | 810 | 0.97 | ||||||||||||||||||||||||||||||||||||||||||
| Total interest-bearing liabilities/interest expense | 144,724 | 386 | 1.07 | % | 95,999 | 538 | 2.24 | % | ||||||||||||||||||||||||||||||||||||||||
| Noninterest-bearing demand deposits | 7,471 | 5,249 | 29,970 | 10,733 | ||||||||||||||||||||||||||||||||||||||||||||
| Other liabilities | 2,193 | 2,208 | 2,367 | 2,149 | ||||||||||||||||||||||||||||||||||||||||||||
| Stockholders’ equity | 2,810 | 3,169 | 10,328 | 4,912 | ||||||||||||||||||||||||||||||||||||||||||||
| Total liabilities and stockholders’ equity | $ | 113,812 | $ | 122,248 | $ | 187,389 | $ | 113,793 | ||||||||||||||||||||||||||||||||||||||||
| Net interest income | $ | 2,537 | $ | 2,788 | $ | 1,385 | $ | 723 | ||||||||||||||||||||||||||||||||||||||||
| Interest-rate spread (3) | 2.76 | % | 3.06 | % | ||||||||||||||||||||||||||||||||||||||||||||
| Net interest-earning assets | $ | 11,852 | $ | 7,438 | ||||||||||||||||||||||||||||||||||||||||||||
| Interest rate spread (3) | 3.09 | % | 2.38 | % | ||||||||||||||||||||||||||||||||||||||||||||
| Net interest margin (4) | 2.99 | % | 3.12 | % | 3.26 | % | 2.65 | % | ||||||||||||||||||||||||||||||||||||||||
| Ratio of average interest-earning assets to average interest-bearing liabilities | 1.21 | 1.07 | 1.18 | % | 1.14 | % | ||||||||||||||||||||||||||||||||||||||||||
| (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. |
| Annualized. |
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
| Nine Months Ended September 30, | ||||||||||||||||||||||||
| 2020 | 2019 | |||||||||||||||||||||||
| Interest | Average | Interest | Average | |||||||||||||||||||||
| Average | and | Yield/ | Average | and | Yield/ | |||||||||||||||||||
| (dollars in thousands) | Balance | Dividends | Rate(5) | Balance | Dividends | Rate(5) | ||||||||||||||||||
| Interest-earning assets: | ||||||||||||||||||||||||
| Loans | $ | 125,090 | $ | 4,697 | 5.01 | % | $ | 83,271 | $ | 3,328 | 5.33 | % | ||||||||||||
| Securities | 10,016 | 136 | 1.81 | % | 11,384 | 184 | 2.16 | % | ||||||||||||||||
| Other (1) | 14,526 | 67 | 0.61 | % | 9,835 | 184 | 2.49 | % | ||||||||||||||||
| Total interest-earning assets/interest income | 149,632 | 4,900 | 4.37 | % | 104,490 | 3,696 | 4.72 | % | ||||||||||||||||
| Cash and due from banks | 7,748 | 2,161 | ||||||||||||||||||||||
| Premises and equipment | 1,423 | 2,879 | ||||||||||||||||||||||
| Other | 1,043 | (826 | ) | |||||||||||||||||||||
| Total assets | $ | 159,846 | $ | 108,704 | ||||||||||||||||||||
| Interest-bearing liabilities: | ||||||||||||||||||||||||
| Savings, NOW and money-market deposits | $ | 72,348 | 607 | 1.12 | % | $ | 41,826 | 567 | 1.81 | % | ||||||||||||||
| Time deposits | 30,466 | 440 | 1.93 | % | 29,144 | 490 | 2.24 | % | ||||||||||||||||
| Borrowings (2) | 24,990 | 322 | 1.72 | % | 19,276 | 415 | 2.87 | % | ||||||||||||||||
| Total interest-bearing liabilities/interest expense | 127,804 | 1,369 | 1.43 | % | 90,246 | 1,472 | 2.17 | % | ||||||||||||||||
| Noninterest-bearing demand deposits | 21,255 | 11,155 | ||||||||||||||||||||||
| Other liabilities | 2,447 | 2,246 | ||||||||||||||||||||||
| Stockholders’ equity | 8,340 | 5,051 | ||||||||||||||||||||||
| Total liabilities and stockholders’ equity | $ | 159,846 | $ | 108,698 | ||||||||||||||||||||
| Net interest income | $ | 3,531 | $ | 2,224 | ||||||||||||||||||||
| Interest rate spread (3) | 2.94 | % | 2.55 | % | ||||||||||||||||||||
| Net interest margin (4) | 3.15 | % | 2.84 | % | ||||||||||||||||||||
| Ratio of average interest-earning assets to average interest-bearing liabilities | 1.17 | % | 1.16 | % | ||||||||||||||||||||
| (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. |
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 September 30, 20172020 and 20162019:
| Three Months Ended | Increase / | |||||||||||||||
| September 30, | (Decrease) | |||||||||||||||
| (dollars in thousands) | 2020 | 2019 | Amount | Percentage | ||||||||||||
| Total interest income | $ | 1,771 | $ | 1,261 | $ | 510 | 40 | % | ||||||||
| Total interest expense | 386 | 538 | (152 | ) | (28 | )% | ||||||||||
| Net interest income | 1,385 | 723 | 662 | 92 | % | |||||||||||
| Provision for loan losses | 524 | 45 | 479 | 1064 | % | |||||||||||
| Net interest income after provision for loan losses | 861 | 678 | 183 | 27 | % | |||||||||||
| Total noninterest income | 64 | 29 | 35 | 121 | % | |||||||||||
| Total noninterest expenses | 1,421 | 987 | 434 | 44 | % | |||||||||||
| Net loss before income tax benefit | (496 | ) | (280 | ) | (216 | ) | 77 | % | ||||||||
| Income tax benefit | - | - | - | - | ||||||||||||
| Net Loss | $ | (496 | ) | $ | (280 | ) | (216 | ) | 77 | % | ||||||
| Net loss per share - Basic and diluted | $ | (0.17 | ) | $ | (.15 | ) | ||||||||||
General.Net Loss. The Company had a net loss of ($496,000) for the three monthsmonth period ended September 30, 2017, was $(56,000) or $(.05) loss per basic and diluted share2020 compared to a net earningsloss of $22,000 or $0.02 earnings per basic and diluted share($280,000) for the three month period ended September 30, 2016.2019. The Company recorded provision for loan losses amounting to $524,000 during the three month period ended September 30, 2020, which was largely due to the economic environment associated with the COVID-19 pandemic. The Company recorded provision for loan losses amounting to $45,000 during the three month period ended September 30, 2019. Excluding the provision for loan losses, the Company would have had net earnings of $28,000 for the three month period ended September 30, 2020 and a net loss of ($235,000) for the three month period ended September 30, 2019. Excluding the provision for loan losses, net loss decreased $263,000 for the three month period ended September 30, 2020 as compared to the three month period ended September 30, 2019.
Interest Income.Income. Interest income decreased $90,000increased $510,000 for the three monthsmonth period ended September 30, 20172020 compared to the three months Endedmonth period ended September 30, 2016.2019 primarily due to growth in the loan portfolio.
Interest Expense.Interest expense decreased $152,000 to $386,000 for the three month period ended September 30, 2020 compared to the prior period. Decrease in interest expense is due to a reduction in the rates paid on deposits and borrowings increasedoffset by $36,000 for the three months ended September 30, 2017 from $272,000 for the three months Ended September 30, 2016. Interest expense increased primarily due to higher interest paid on borrowings during the secondvolume increases in deposits and third quarter of 2017. In late March 2017, the Bank extended the maturities of $15.5 million in Federal Home loan Advances into longer fixed rate terms with higher interest rates. The weighted average rate of these advances increased from 0.49% to 1.19%.borrowings.
Provision for Loan Losses. There was noProvision for loan losses amounted to $524,000 for the three month period ended September 30, 2020. The Company recorded provision for losses amounting to $45,000 during the 2017 or 2016 period.three month period ended September 30, 2019. The provision for loan losses is charged to operations as losses are estimated to have occurred in order to bring the total allowance for loan losses to a level deemed appropriate by management to absorb losses inherent in the portfolio at September 30, 2017.2020 and 2019. 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 $3.9$2.1 million or 5.37%1.46% of loans outstanding at September 30, 2017, as2020, compared to $4.2$2.0 million or 4.91%1.93% of loans outstanding at September 30, 2016. Management believes the balance in the allowanceDecember 31, 2019. The provision for loan losses at September 30, 2017 is significantly overfunded.during the third quarter of 2020 was primarily due to the increase in the loan portfolio, and an evaluation of the other factors noted above.
Noninterest Income.Total noninterest income increased by $23,000to $64,000 for the three monthsmonth period ended September 30, 2017,2020, from $31,000$29,000 for the three months Endedmonth period ended September 30, 2016 due2019. The increase is primarily related to significant fees collected on previously impaired loans.services charges and fees.
Noninterest Expenses.Expenses. Total noninterest expenses decreased $25,000increased to $935,000$1,421,000 for the three monthsmonth period ended September 30, 20172020 compared to $960,000 million$987,000 for the three months Endedmonth period ended September 30, 2016.2019 primarily due to an increase in salaries and employee benefits and stock-based compensation to a director included in other noninterest expense.
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Comparison of the Nine-Month Periods Ended September 30, 20172020 and 20162019:
| Nine Months Ended | Increase / | |||||||||||||||
| September 30, | (Decrease) | |||||||||||||||
| (dollars in thousands) | 2020 | 2019 | Amount | Percentage | ||||||||||||
| Total interest income | $ | 4,900 | $ | 3,696 | $ | 1,204 | 33 | % | ||||||||
| Total interest expense | 1,369 | 1,472 | (103 | ) | (7 | )% | ||||||||||
| Net interest income | 3,531 | 2,224 | 1,307 | 59 | % | |||||||||||
| Provision for loan losses | 1,236 | 45 | 1,191 | 2647 | % | |||||||||||
| Net interest income after provision for loan losses | 2,295 | 2,179 | 116 | 5 | % | |||||||||||
| Total noninterest income | 170 | 153 | 17 | 11 | % | |||||||||||
| Total noninterest expenses | 3,616 | 3,240 | 376 | 12 | % | |||||||||||
| Net loss before income tax benefit | (1,151 | ) | (908 | ) | (243 | ) | 27 | % | ||||||||
| Income tax benefit | - | (52 | ) | 52 | (100 | )% | ||||||||||
| Net Loss | $ | (1,151 | ) | $ | (856 | ) | (295 | ) | 34 | % | ||||||
| Net loss per share - Basic and diluted | $ | (0.39 | ) | $ | (.45 | ) | ||||||||||
General.Net Loss. The Company had a net loss of $1.2 million for the nine monthsmonth period ended September 30, 2017, was $(510,000) or $(.46) loss per basic and diluted share2020 compared to a net loss of $(308,000) or $(0.30) loss per basic and diluted share($856,000) for the nine nonths Endedmonth period ended September 30, 2016.2019. The increase inCompany recorded provision for loan losses amounting to $1.2 million during the nine month period ended September 30, 2020, which was largely due to the economic environment associated with the COVID-19 pandemic. The Company recorded provision for loan losses amounting to $45,000 during the nine month period ended September 30, 2019. Excluding the provision for loan losses, the Company would have had net earnings of $85,000 for the nine month period ended September 30, 2020 and a net loss was dueof ($811,000) for the nine month period ended September 30, 2019. Excluding the provision for loan losses, net loss decreased $896,000 for the nine month period ended September 30, 2020 compared to a decrease in net interest income and a combination of higher professional fees and other non-interest expenses and a lower level of loan fees included in noninterest income.the nine month period ended September 30, 2019.
Interest Income. Interest income decreased by $159,000increased to $4.9 million for the nine monthsmonth period ended September 30, 20172020 from $3,598,000$3.7 million for the nine months Endedmonth period ended September 30, 2016,2019, primarily due to a decreasean increase in interest earnings assets.loan volume.
Interest Expense.Interest expense on deposits and borrowings increaseddecreased $103,000 to $902,000$1,369,000 for the nine monthsmonth period ended September 30, 2017 from $810,000 for2020 compared to the nine months Ended September 30, 2016. Interestprior period. The decrease in interest expense increased primarily due to higherwas caused by a reduction in interest rates paid on deposits and borrowings during 2017. In late March 2017, the Bank extended the maturities of $15.5 millionoffset by volume increases in Federal Home Loan Advances into longer fixed rate terms with higher interest rates. The weighted average rate of these advances increased from 0.49% to 1.19%.deposits and borrowings.
Provision for Loan Losses.There was no The provision for losses during the nine monthsmonth period ended September 30, 2017 or 2016.2020 amounted to $1.2 million. The provision for loan losses is charged to operations in order to bring the total allowance for loan losses to a level deemed appropriate by management to absorb losses inherent in the portfolio.portfolio at September 30, 2020 and 2019. 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 $3.9$2.1 million or 5.37%1.46% of loans outstanding at September 30, 2017,2020, as compared to $4.2$2.0 million or 4.91%1.93% of loans outstanding at September 30, 2016. Management believes the balance in the allowance for loan losses at September 30, 2017 is significantly overfunded.December 31, 2019.
Noninterest Income. Total noninterest income decreasedincreased to $71,000 from $125,000$170,000 for the nine monthsmonth period ended September 30, 2017, compared to2020, from $153,000 for the nine months Endedmonth period ended September 30, 2016 due2019. The increase is primarily related to gains on securities sales of $48,000 in 2016 compared to $7,000 in 2017 and reduced serviceservices charges and other fees.
Noninterest Expenses.Expenses.Total noninterest expenses decreasedincreased $376,000 to $3,118,000$3.6 million for the nine monthsmonth period ended September 30, 20172020 compared to $3,221,000$3.2 million for the nine months Endedmonth period ended September 30, 2016,2019 primarily due to decreasedan increase in salaries and employee benefits, occupancy data processing, and regulatory assessments.equipment, and other.
COVID-19 Related Loan Data
Loan Forbearance. During the nine month period ended September 30, 2020 we granted 180-day forbearances on 60 loans totaling $43.8 million. At September 30, 2020, we had loans under forbearances amounting to $38.1 million, which represents 25.9% of our gross loan portfolio.
Paycheck Protection Program (“PPP”). We closed 204 PPP loans totaling $19.2 million during the nine month period ended September 30, 2020.
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 OfficerChairman of the Board 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 September 30, 2017,2020, that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARYPART II. OTHER INFORMATION
PART II. OTHER INFORMATIONItem 1. Legal Proceedings
None
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Non-Employee Director Share Issuances
On March 31, 2017,During the first quarter of 2020, the Company agreed to issue 4,550 shares of its common stock to the Company’s non-employee directors under the Company’s 2011 Equity Incentive Plan and the Company’s Non-Employee Director Compensation Plan (the “Director Compensation Plan”) for attendance fees at board meetings of the Company. Under the Director Compensation Plan, which became effective on January 1, 2012, fees for attendance at board and committee meetings are payable 75% inissued 98,182 shares of common stock and 25% in cash on a quarterly basis. The shares were issued at thefor an aggregate purchase price of $3.15, the fair market value of the shares on the date of issuance. Pursuant to the Director Compensation Plan, a director must remain on the board as of the end of the year to earn the shares. Therefore, these shares with an aggregate value of $14,333 are recorded as a liability as of September 30, 2017.$539,000. The issuance of the shares wasin this transaction were exempt from registration pursuant to Section 4(2)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 pay for operating expenses.
Other Significant Share Issuance
On March 27, 2017,During the second and third quarter of 2020, the Company allocated 59,523issued 280 shares of preferred stock to the Bank’s Chairman under the 2011 Equity Incentive Plan as compensationa related party for services as a director at thean aggregate purchase price of $3.36 per share, the fair market value of the shares on the date of issuance.$7,000,000. The aggregate value of $200,000 was also recorded asrelated party is a liability because the Bank’s Chairman has yet to take delivery of the shares. In addition, in March 2016 the Company allocated 46,296 shares to the Bank’ s Chairman under the 2011 Equity Incentive Plan as compensation for services as a director at the price of $4.32 per share, the fair market value of the shares on the date of issuance. The aggregate value of $200,000 was also recorded as a liability because the Bank’s Chairman has yet to take delivery of the shares. The total liability recorded for these allocated shares is $400,000 as of September 30, 2017.significant common stockholder. The issuance of the shares wasin these transactions were exempt from registration pursuant to Section 4(2)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.
Junior Subordinated DebentureItem 4. Mine Safety Disclosures
On September 30, 2004, the Company issued a $5,155,000 junior subordinated debenture to an unconsolidated subsidiary (the “Debenture”). The Debenture has a term of thirty years. The interest rate was fixed at 6.4% for the first five years, and thereafter, the coupon rate floats quarterly at the three-month LIBOR rate plus 2.45% (3.78% at September 30, 2017). The Debenture is redeemable in certain circumstances. The terms of the Debenture allow the Company to defer payments of interest on the Debenture by extending the interest payment period at any time during the term of the Debenture for up to twenty consecutive quarterly periods. Beginning in 2010, the Company exercised its right to defer payment of interest on the Debenture. Interest payments deferred as of September 30, 2017 totaled $1,314,000. The Company has deferred interest payments with respect to the Debenture for the maximum allowable twenty consecutive quarterly payments. The holder of the Debenture can accelerate the $5,155,000 principal balance as a result of this default. Under the Written Agreement, the Company is not able to make these interest payments without the prior approval of the Federal Reserve Bank of Atlanta. Regulatory approval to pay accrued and unpaid interest has been denied.None
A Director of the Company has offered to purchase the Debenture and this offer has been approved by certain equity owners of the Trust that holds the Debenture. The Director has also agreed to enter into a forbearance agreement with the Company with respect to payments due under the Debenture upon consummation of the Director’s purchase of the debenture.Item 5. Other Information
In March of 2016, the Trustee received a direction from certain equity owners of the Trust that hold the Debenture to Sell the Debenture to a Director of the Company. Based upon the receipt of other conflicting directions, in August 26, 2016, the Trustee commenced an action in a Minnesota State Court seeking directions from the Court. The case was subsequently transferred to the United States District Court for the Southern District of New York, were the case is currently pending. The Company continues to pursue mechanisms for paying the accrued interest, such as raising additional capital.None
In the event the amounts due under the Debenture were accelerated, then the Trustee could undertake legal proceedings to obtain a judgment against the Company with respect to such amounts due under the Debenture. If this action were successful, then the Trustee could seek to affect a sale of the Bank to pay the amounts due under the Debenture.
The exhibits containedlisted in the Exhibit Index following the signature page are filed with or incorporated by reference into this report.
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: | November | By: | /s/ | |
| By: | /s/ | |||
| Principal Financial Officer | ||||
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
EXHIBIT INDEX
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 |