UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 20172021
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, FL33308
(Address of principal executive offices)
954-900-2800954-900-2800
(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):Act:
| Large accelerated filer | Accelerated filer | |
| Non-accelerated filer | Smaller reporting company | |
| Emerging | growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]☐
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: 1,103,447 shares of Common Stock,common stock, $.01 par value, issued and outstanding as of November 13, 2017.October 29, 2021.
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
INDEX
| i |
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
(Dollars in thousands, except per share amounts)
September 30, 2021 | December 31, 2020 | |||||||
| (Unaudited) | ||||||||
| Assets: | ||||||||
| Cash and due from banks | $ | 16,563 | $ | 25,523 | ||||
| Interest-bearing deposits with banks | 67,020 | 29,106 | ||||||
| Total cash and cash equivalents | 83,583 | 54,629 | ||||||
| Debt securities available for sale | 35,738 | 18,893 | ||||||
| Debt securities held-to-maturity (fair value of $1,375 and $3,549) | 1,327 | 3,399 | ||||||
| Loans, net of allowance for loan losses of $2,695 and $1,906 | 205,865 | 152,469 | ||||||
| Federal Home Loan Bank stock | 793 | 1,092 | ||||||
| Premises and equipment, net | 1,571 | 1,413 | ||||||
| Right-of-use lease assets | 969 | 904 | ||||||
| Accrued interest receivable | 863 | 1,336 | ||||||
| Other assets | 4,364 | 977 | ||||||
| Total assets | $ | 335,073 | $ | 235,112 | ||||
| Liabilities and Stockholders’ Equity: | ||||||||
| Liabilities: | ||||||||
| Noninterest-bearing demand deposits | $ | 114,011 | $ | 58,312 | ||||
| Savings, NOW and money-market deposits | 153,406 | 110,704 | ||||||
| Time deposits | 14,329 | 21,743 | ||||||
| Total deposits | 281,746 | 190,759 | ||||||
| Federal Home Loan Bank advances | 18,000 | 23,000 | ||||||
| Junior subordinated debenture | - | 2,068 | ||||||
| Official checks | 491 | 142 | ||||||
| Operating lease liabilities | 998 | 923 | ||||||
| Other liabilities | 666 | 386 | ||||||
| Total liabilities | 301,901 | 217,278 | ||||||
| Commitments and contingencies (Notes 1, 8 and 11) | - | |||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, 0 par value; shares authorized: | — | — | ||||||
| Designated Series B, 0 par value, shares authorized, and shares issued and outstanding | — | — | ||||||
| Common stock, $ par value; shares authorized, and shares issued and outstanding | 45 | 32 | ||||||
| Additional paid-in capital | 64,146 | 50,263 | ||||||
| Accumulated deficit | (30,683 | ) | (32,392 | ) | ||||
| Accumulated other comprehensive loss | (336 | ) | (69 | ) | ||||
| Total stockholders’ equity | 33,172 | 17,834 | ||||||
| Total liabilities and stockholders’ equity | $ | 335,073 | $ | 235,112 | ||||
See accompanying notes to condensed consolidated financial statements.
| 1 |
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Operations (Unaudited)
(in thousands, except per share amounts)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Interest income: | ||||||||||||||||
| Loans | $ | 2,795 | $ | 1,723 | $ | 6,820 | $ | 4,697 | ||||||||
| Debt securities | 150 | 41 | 327 | 136 | ||||||||||||
| Other | 28 | 7 | 81 | 67 | ||||||||||||
| Total interest income | 2,973 | 1,771 | 7,228 | 4,900 | ||||||||||||
| Interest expense: | ||||||||||||||||
| Deposits | 146 | 290 | 480 | 1,047 | ||||||||||||
| Borrowings | 62 | 96 | 241 | 322 | ||||||||||||
| Total interest expense | 208 | 386 | 721 | 1,369 | ||||||||||||
| Net interest income | 2,765 | 1,385 | 6,507 | 3,531 | ||||||||||||
| Provision for loan losses | 582 | 524 | 955 | 1,236 | ||||||||||||
| Net interest income after provision for loan losses | 2,183 | 861 | 5,552 | 2,295 | ||||||||||||
| Noninterest income: | ||||||||||||||||
| Service charges and fees | 375 | 1 | 816 | 52 | ||||||||||||
| Other | 48 | 63 | 86 | 118 | ||||||||||||
| Total noninterest income | 423 | 64 | 902 | 170 | ||||||||||||
| Noninterest expenses: | ||||||||||||||||
| Salaries and employee benefits | 921 | 582 | 2,347 | 1,616 | ||||||||||||
| Professional fees | 141 | 121 | 393 | 368 | ||||||||||||
| Occupancy and equipment | 156 | 146 | 467 | 435 | ||||||||||||
| Data processing | 195 | 132 | 542 | 381 | ||||||||||||
| Insurance | 23 | 21 | 69 | 66 | ||||||||||||
| Regulatory assessment | 20 | 59 | 147 | 129 | ||||||||||||
| Other | 233 | 360 | 780 | 621 | ||||||||||||
| Total noninterest expenses | 1,689 | 1,421 | 4,745 | 3,616 | ||||||||||||
| Net earnings (loss) before income taxes | 917 | (496 | ) | 1,709 | (1,151 | ) | ||||||||||
| Income taxes | — | — | — | — | ||||||||||||
| Net earnings (loss) | $ | 917 | $ | (496 | ) | $ | 1,709 | $ | (1,151 | ) | ||||||
| Net earnings (loss) per share - basic and diluted | $ | 0.21 | $ | (0.17 | ) | $ | 0.47 | $ | (0.39 | ) | ||||||
See accompanying notes to condensed consolidated financial statements.
| 2 |
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Condensed Consolidated Balance Sheets
Statements of Comprehensive Income (Loss) (Unaudited)
(Dollars in thousands, except per share amounts)In thousands)
| September 30, 2017 | December 31, 2016 | |||||||
| (Unaudited) | ||||||||
| Assets: | ||||||||
| Cash and due from banks | $ | 18,330 | $ | 17,563 | ||||
| Interest-bearing deposits with banks | 184 | 77 | ||||||
| Total cash and cash equivalents | 18,514 | 17,640 | ||||||
| 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 | ||||||
| Federal Home Loan Bank stock | 979 | 1,113 | ||||||
| Premises and equipment, net | 2,601 | 2,648 | ||||||
| Accrued interest receivable | 366 | 380 | ||||||
| Other assets | 619 | 701 | ||||||
| Total assets | $ | 108,472 | $ | 119,703 | ||||
| Liabilities and Stockholders’ Equity: | ||||||||
| Liabilities: | ||||||||
| Noninterest-bearing demand deposits | 8,813 | 7,131 | ||||||
| Savings, NOW and money-market deposits | 21,705 | 22,153 | ||||||
| Time deposits | 46,856 | 56,725 | ||||||
| Total deposits | 77,374 | 86,009 | ||||||
| Federal Home Loan Bank advances | 20,500 | 23,500 | ||||||
| Junior subordinated debenture | 5,155 | 5,155 | ||||||
| Advanced payment by borrowers for taxes and insurance | 518 | 221 | ||||||
| Official checks | 44 | 114 | ||||||
| Other liabilities | 2,252 | 1,623 | ||||||
| Total liabilities | 105,843 | 116,622 | ||||||
| Commitments and contingencies (Notes 1, 8 and 9) | ||||||||
| 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 | ||||||
| Additional paid-in capital | 34,039 | 34,039 | ||||||
| Accumulated deficit | (31,227 | ) | (30,717 | ) | ||||
| Accumulated other comprehensive loss | (194 | ) | (252 | ) | ||||
| Total stockholders’ equity | 2,629 | 3,081 | ||||||
| Total liabilities and stockholders’ equity | $ | 108,472 | $ | 119,703 | ||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Net earnings (loss) | $ | 917 | $ | (496 | ) | $ | 1,709 | $ | (1,151 | ) | ||||||
| Other comprehensive income (loss): | ||||||||||||||||
| Change in unrealized gain on debt securities: | ||||||||||||||||
| Unrealized gain (loss) arising during the period | 233 | (30 | ) | (340 | ) | 36 | ||||||||||
| Amortization of unrealized loss on debt securities transferred to held-to-maturity | 18 | 35 | 98 | 83 | ||||||||||||
| Other comprehensive income (loss) before income taxes | 251 | 5 | (242 | ) | 119 | |||||||||||
| Deferred income taxes | — | (2 | ) | (25 | ) | (30 | ) | |||||||||
| Total other comprehensive income (loss) | 251 | 3 | (267 | ) | 89 | |||||||||||
| Comprehensive income (loss) | $ | 1,168 | $ | (493 | ) | $ | 1,442 | $ | (1,062 | ) | ||||||
See accompanying notes to condensed consolidated financial statements.
| 3 |
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Operations (Unaudited)
Stockholders’ Equity
Three and Nine Months Ended September 30, 2021 and 2020
(Dollars in thousands, except per share amounts)thousands)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Interest income: | ||||||||||||||||
| Loans | $ | 972 | $ | 1,082 | $ | 2,971 | $ | 3,156 | ||||||||
| Securities | 96 | 117 | 306 | 367 | ||||||||||||
| Other | 65 | 24 | 162 | 75 | ||||||||||||
| Total interest income | 1,133 | 1,223 | 3,439 | 3,598 | ||||||||||||
| Interest expense: | ||||||||||||||||
| Deposits | 167 | 181 | 524 | 550 | ||||||||||||
| Borrowings | 141 | 91 | 378 | 260 | ||||||||||||
| Total interest expense | 308 | 272 | 902 | 810 | ||||||||||||
| Net interest income | 825 | 951 | 2,537 | 2,788 | ||||||||||||
| Provision for loan losses | — | — | — | — | ||||||||||||
| Net interest income after provision for loan losses | 825 | 951 | 2,537 | 2,788 | ||||||||||||
| Noninterest income: | ||||||||||||||||
| Service charges and fees | 44 | 22 | 55 | 63 | ||||||||||||
| Gain on sale of securities available for sale | 7 | 2 | 7 | 48 | ||||||||||||
| Other | 3 | 7 | 9 | 14 | ||||||||||||
| Total noninterest income | 54 | 31 | 71 | 125 | ||||||||||||
| Noninterest expenses: | ||||||||||||||||
| Salaries and employee benefits | 423 | 430 | 1,301 | 1,385 | ||||||||||||
| Occupancy and equipment | 91 | 112 | 293 | 346 | ||||||||||||
| Data processing | 96 | 77 | 262 | 250 | ||||||||||||
| Professional fees | 134 | 151 | 526 | 480 | ||||||||||||
| Insurance | 24 | 27 | 72 | 78 | ||||||||||||
| Regulatory assessment | 50 | 74 | 152 | 221 | ||||||||||||
| Other | 117 | 89 | 512 | 461 | ||||||||||||
| Total noninterest expenses | 935 | 965 | 3,118 | 3,263 | ||||||||||||
| Net (loss) earnings | $ | (56 | ) | $ | 22 | $ | (510 | ) | $ | (308 | ) | |||||
| Net (loss) earnings per share- | ||||||||||||||||
| Basic and diluted | $ | (.05 | ) | $ | .02 | $ | (.46 | ) | $ | (0.30 | ) | |||||
| Preferred Stock | Additional | Accumulated Other | ||||||||||||||||||||||||||||||||||||||
| Series A | Series B | Common Stock | Paid-In | Accumulated | Comprehensive | Stockholders’ | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Loss | Equity | |||||||||||||||||||||||||||||||
| Balance at December 31, 2019 | - | $ | - | -- | $ | - | 2,853,171 | $ | 28 | $ 38,994 | $ | (31,610 | ) | $ | (205 | ) | $ | 7,207 | ||||||||||||||||||||||
| Proceeds from the sale of preferred stock (unaudited) | ||||||||||||||||||||||||||||||||||||||||
| Proceeds from the sale of preferred stock (unaudited), shares | ||||||||||||||||||||||||||||||||||||||||
| Proceeds from the sale of common stock (unaudited) | - | - | - | - | 98,182 | 1 | 538 | - | - | 539 | ||||||||||||||||||||||||||||||
| Common stock issued for junior subordinated debenture interest payable (unaudited) | ||||||||||||||||||||||||||||||||||||||||
| Common stock issued for junior subordinated debenture interest payable (unaudited),shares | ||||||||||||||||||||||||||||||||||||||||
| Net loss for the three months ended March 31, 2020 (unaudited) | - | - | - | - | - | - | - | (308 | ) | - | (308 | ) | ||||||||||||||||||||||||||||
| Net change in unrealized loss on debt securities available for sale, net of income taxes (unaudited) | - | - | - | - | - | - | - | - | 35 | 35 | ||||||||||||||||||||||||||||||
| Amortization of unrealized loss on debt securities transferred to held-to-maturity, net of income taxes (unaudited) | - | - | - | - | - | - | - | - | 18 | 18 | ||||||||||||||||||||||||||||||
| Balance at March 31, 2020 (unaudited) | - | - | - | - | 2,951,353 | 29 | 39,532 | (31,918 | ) | (152 | ) | 7,491 | ||||||||||||||||||||||||||||
| Proceeds from the sale of preferred stock (unaudited) | — | — | 100 | — | — | — | 2,500 | — | — | 2,500 | ||||||||||||||||||||||||||||||
| Net loss for the three months ended June 30, 2020 (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 | |||||||||||||||||||||
| Balance at December 31, 2020 | — | — | 400 | — | 3,203,455 | 32 | 50,263 | (32,392 | ) | (69 | ) | 17,834 | ||||||||||||||||||||||||||||
| Proceeds from the sale of preferred stock (unaudited) | — | — | 160 | — | — | — | 4,000 | — | — | 4,000 | ||||||||||||||||||||||||||||||
| Common stock issued for junior subordinated debenture interest payable (unaudited) | — | — | — | — | 11,042 | — | 41 | — | — | 41 | ||||||||||||||||||||||||||||||
| Net change in unrealized gain on loss securities available for sale (unaudited) | — | — | — | — | — | — | — | — | (922 | ) | (922 | ) | ||||||||||||||||||||||||||||
| Amortization of unrealized loss on debt securities transferred to held-to-maturity (unaudited) | — | — | — | — | — | — | — | — | 22 | 22 | ||||||||||||||||||||||||||||||
| Net earnings (unaudited) | — | — | — | — | — | — | — | 348 | — | 348 | ||||||||||||||||||||||||||||||
| Balance at March 31, 2021 (unaudited) | — | $ | — | 560 | $ | — | 3,214,497 | $ | 32 | $ | 54,304 | $ | (32,044 | ) | $ | (969 | ) | $ | 21,323 | |||||||||||||||||||||
| Proceeds from the sale of preferred stock (unaudited) | — | — | 200 | — | — | — | 5,000 | — | — | 5,000 | ||||||||||||||||||||||||||||||
| Proceeds from the sale of common stock (unaudited) | — | — | — | — | 262,417 | 3 | 1,173 | — | — | 1,176 | ||||||||||||||||||||||||||||||
| Common stock issued for junior subordinated debenture (unaudited) | — | — | — | — | 282,377 | 3 | 844 | — | — | 847 | ||||||||||||||||||||||||||||||
| Net change in unrealized gain on debt securities available for sale (unaudited) | — | — | — | — | — | — | — | — | 349 | 349 | ||||||||||||||||||||||||||||||
| Amortization of unrealized loss on debt securities transferred to held-to-maturity (unaudited) | — | — | — | — | — | — | — | — | 33 | 33 | ||||||||||||||||||||||||||||||
| Net earnings for three months ended June 30, 2021 (unaudited) | — | — | — | — | — | — | — | 444 | — | 444 | ||||||||||||||||||||||||||||||
| Balance at June 30, 2021 (unaudited) | — | — | 760 | — | 3,759,291 | 38 | 61,321 | (31,600 | ) | (587 | ) | 29,172 | ||||||||||||||||||||||||||||
| Proceeds from the sale of common stock (unaudited) | — | — | — | — | 358,023 | 3 | 1,608 | — | — | 1,611 | ||||||||||||||||||||||||||||||
| Common stock issued for junior subordinated debenture (unaudited) | — | — | — | — | 407,195 | 4 | 1,217 | — | — | 1,221 | ||||||||||||||||||||||||||||||
| Net change in unrealized gain on debt securities available for sale (unaudited) | — | — | — | — | — | — | — | — | 233 | 233 | ||||||||||||||||||||||||||||||
| Amortization of unrealized loss on debt securities transferred to held-to-maturity (unaudited) | — | — | — | — | — | — | — | — | 18 | 18 | ||||||||||||||||||||||||||||||
| Net earnings for three months ended September 30, 2021 (unaudited) | — | — | — | — | — | — | — | 917 | — | 917 | ||||||||||||||||||||||||||||||
| Net earnings (loss) | — | — | — | — | — | — | — | 917 | — | 917 | ||||||||||||||||||||||||||||||
| Balance at September 30, 2021 (unaudited) | — | $ | — | 760 | $ | — | 4,524,509 | $ | 45 | $ | 64,146 | $ | (30,683 | ) | $ | (336 | ) | $ | 33,172 | |||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
| 4 |
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Comprehensive LossCash Flows (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 | ) | ||||
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2021 | 2020 | |||||||
| Cash flows from operating activities: | ||||||||
| Net earnings (loss) | $ | 1,709 | $ | (1,151 | ) | |||
| Adjustments to reconcile net earnings (loss) to net cash used in operating activities: | ||||||||
| Provision for loan losses | 955 | 1,236 | ||||||
| Depreciation and amortization | 156 | 132 | ||||||
| Stock - based compensation | 200 | 200 | ||||||
| Net accretion of fees, premiums and discounts | (586 | ) | (27 | ) | ||||
| Decrease (increase) in accrued interest receivable | 473 | (1,112 | ) | |||||
| Amortization of right of use asset | 126 | 113 | ||||||
| Net decrease in operating lease liabilities | (116 | ) | (103 | ) | ||||
| Increase in other assets | (3,412 | ) | (270 | ) | ||||
| Increase (decrease) in official checks and other liabilities | 470 | (1,063 | ) | |||||
| Net cash used in operating activities | (25 | ) | (2,045 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of debt securities available for sale | (19,513 | ) | (3,638 | ) | ||||
| Principal repayments of debt securities available for sale | 2,184 | 1,585 | ||||||
| Principal repayments of debt securities held-to-maturity | 2,113 | 1,276 | ||||||
| Net increase in loans | (53,564 | ) | (44,109 | ) | ||||
| Purchases of premises and equipment | (314 | ) | (165 | ) | ||||
| Redemption (purchase) of FHLB stock | 299 | (450 | ) | |||||
| Net cash used in investing activities | (68,795 | ) | (45,501 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Net increase in deposits | 90,987 | 66,344 | ||||||
| Net (decrease) increase in FHLB Advances | (5,000 | ) | 10,000 | |||||
| Proceeds from sale of preferred stock | 9,000 | 7,000 | ||||||
| Proceeds from sale of common stock | 2,787 | 539 | ||||||
| Net cash provided by financing activities | 97,774 | 83,883 | ||||||
| Net increase in cash and cash equivalents | 28,954 | 36,337 | ||||||
| Cash and cash equivalents at beginning of the period | 54,629 | 8,934 | ||||||
| Cash and cash equivalents at end of the period | $ | 83,583 | $ | 45,271 | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | 776 | $ | 2,354 | ||||
| Income taxes | $ | — | $ | — | ||||
| Noncash transactions: | ||||||||
| Change in accumulated other comprehensive loss, net change in unrealized (loss) gain on debt securities available for sale, net of income taxes | $ | (267 | ) | $ | 89 | |||
| Amortization of unrealized loss on debt securities transferred to held-to-maturity | $ | 98 | $ | 83 | ||||
| Right-of use lease assets obtained in exchange for operating lease liabilities | $ | 191 | $ | — | ||||
| Transfer of loans to foreclosed real estate | $ | — | $ | 681 | ||||
| Increase in other liabilities for Stock-based compensation | $ | 200 | $ | 200 | ||||
| Issuance of common stock for Junior Subordinated Debenture | $ | 2,068 | $ | — | ||||
| Issuance of common stock for Junior Subordinated Debenture interest payable | $ | 41 | $ | — | ||||
See accompanying notes to condensed consolidated financial statements.statements
| 5 |
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (Unaudited)
(1) General. OptimumBank Holdings, Inc. (the “Company”) is a one-bank holding company and owns 100% of Stockholders’ Equity (Unaudited)OptimumBank (the “Bank”), a Florida-chartered community bank. The Company’s only business is the operation of the Bank. The Bank’s deposits are insured up to applicable limits by the Federal Deposit Insurance Corporation (“FDIC”). The Bank offers a variety of community banking services to individual and corporate customers through its two banking offices located in Broward County, Florida.
Nine Months
Basis of Presentation. In the opinion of management, the accompanying condensed consolidated financial statements of the Company contain all adjustments (consisting principally of normal recurring accruals) necessary to present fairly the financial position at September 30, 2021, and the results of operations and cash flows for the three and nine month periods ended September 30, 20172021 and 20162020. All significant intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the three and nine months ended September 30, 2021, are not necessarily indicative of the results to be expected for the full year.
(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 | |||||||||||||||||
See accompanying notes toSubsequent Events. The Company has evaluated subsequent events through November 9, 2021, which is the date the condensed consolidated financial statements were issued.
Junior Subordinated Debenture. In 2004, the Company formed OptimumBank Capital Trust I (the “Trust’’) for the purpose of raising capital through the sale of trust preferred securities. At that time, the Trust raised $5,155,000 through the sale of 5,000 trust preferred securities (the “Trust Preferred Securities”) to a third-party investor and the issuance of 155 common trust securities to the Company. The Trust utilized the proceeds of $5,155,000 to purchase a junior subordinated debenture from the Company (the “Junior Subordinated Debenture”).
The outstanding principal amount of the Junior Subordinated Debenture at December 31, 2020, was $2,068,000, together with accrued interest of $30,000 at December 31, 2020. The accrued interest is presented on the accompanying condensed consolidated balance sheet under the caption “Other liabilities”.
During the first nine months of 2021, the Company acquired all of the outstanding Trust Preferred Securities and paid all accrued interest in exchange for shares of the Company’s common stock. These shares were issued in the following transactions:
During the first quarter of 2021, the Company issued shares of common stock to pay approximately $41,000 of accrued interest associated with the Junior Subordinated Debenture.
During the second quarter of 2021, the Company issued shares of common stock in exchange for 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 $840,000 in principal amount of the Trust Preferred Securities, together with accrued interest of $7,000, and increased its stockholders’ equity by the same amount.
During the third quarter of 2021, the Company issued shares of common stock in exchange for the remaining Trust Preferred Securities. For accounting purposes, the Trust Preferred Securities acquired by the Company were deemed to be cancelled. As a result, the Company cancelled $1,221,000 in principal amount of the Trust Preferred Securities and increased its stockholders’ equity by the same amount.
As of September 30, 2021, the Company had acquired all of the Trust Preferred Securities. Accordingly, there was no principal or accrued interest owed by the Company with respect to the Junior Subordinated Debenture or the Trust Preferred Securities at September 30, 2021.
(continued)
| 6 |
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (Unaudited)
(1) General, Continued.
Comprehensive Income (Loss). GAAP generally requires that recognized revenue, expenses, gains and losses be included in net earnings (loss). Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale debt securities, are reported as a separate component of the equity section of the condensed consolidated balance sheets, such items along with net earnings (loss), are components of comprehensive income (loss).
Accumulated other comprehensive loss consists of the following (in thousands):
Schedule of Accumulated Other Comprehensive Loss
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Unrealized (loss) gain on debt securities available for sale | $ | (290 | ) | $ | 50 | |||
| Unamortized portion of unrealized loss related to debt securities available for sale transferred to securities held-to-maturity | (46 | ) | (144 | ) | ||||
| Income tax benefit | — | 25 | ||||||
| Accumulated other comprehensive loss | $ | (336 | ) | $ | (69 | ) | ||
Income Taxes. The Company assessed its earnings history and trends and estimates of future earnings, and determined that the deferred tax asset could not be realized as of September 30, 2021. Accordingly, a valuation allowance was recorded against the net deferred tax asset.
Reclassifications. Certain amounts have been reclassified to allow for consistent presentation for the periods presented.
Condensed Consolidated StatementsRecent Pronouncements.
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 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 | ||||
See accompanying notescredit 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 statementsstatements. Additionally, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The ASU will take effect for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. The Company is in the process of determining the effect of the ASU on its condensed consolidated financial statements.
(continued)
| 7 |
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (Unaudited)
(2) Debt Securities. Debt Securities have been classified according to management’s intent. The carrying amount of Cash Flows (Unaudited), Continueddebt securities and approximate fair values are as follows (in thousands):
(In thousands)Schedule of Amortized Cost and Approximate Fair Values of Debt Securities
| Gross | Gross | |||||||||||||||
| Amortized | Unrealized | Unrealized | Fair | |||||||||||||
| Cost | Gains | Losses | Value | |||||||||||||
| At September 30, 2021: | ||||||||||||||||
| Available for sale: | ||||||||||||||||
| SBA Pool Securities | $ | 1,139 | $ | 1 | $ | (27 | ) | $ | 1,113 | |||||||
| Collateralized mortgage obligations | 237 | 13 | — | 250 | ||||||||||||
| Taxable municipal securities | 16,776 | 58 | (165 | ) | 16,669 | |||||||||||
| Mortgage-backed securities | 17,876 | 31 | (201 | ) | 17,706 | |||||||||||
| Total | $ | 36,028 | $ | 103 | $ | (393 | ) | $ | 35,738 | |||||||
| Held-to-maturity: | ||||||||||||||||
| Collateralized mortgage obligations | $ | 1,061 | $ | 43 | — | $ | 1,104 | |||||||||
| Mortgage-backed securities | 266 | 5 | — | 271 | ||||||||||||
| Total | $ | 1,327 | $ | 48 | — | $ | 1,375 | |||||||||
| Gross | Gross | |||||||||||||||
| Amortized | Unrealized | Unrealized | Fair | |||||||||||||
| Cost | Gains | Losses | Value | |||||||||||||
| At December 31, 2020: | ||||||||||||||||
| Available for sale: | ||||||||||||||||
| SBA Pool Securities | $ | 1,338 | $ | — | $ | (41 | ) | $ | 1,297 | |||||||
| Collateralized mortgage obligations | 458 | 27 | — | 485 | ||||||||||||
| Taxable municipal securities | 5,063 | 29 | (7 | ) | 5,085 | |||||||||||
| Mortgage-backed securities | 11,984 | 53 | (11 | ) | 12,026 | |||||||||||
| Total | $ | 18,843 | $ | 109 | $ | (59 | ) | $ | 18,893 | |||||||
| Held-to-maturity: | ||||||||||||||||
| Collateralized mortgage obligations | $ | 2,420 | $ | 116 | — | $ | 2,536 | |||||||||
| Mortgage-backed securities | 979 | 34 | — | 1,013 | ||||||||||||
| Total | $ | 3,399 | $ | 150 | — | $ | 3,549 | |||||||||
| 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 | ||||
There were 0 sales of debt securities during the three and nine months ended September 30, 2021 and 2020.
See accompanying notes to condensed consolidated financial statements
(continued)
| 8 |
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (Unaudited)
| |
(2) Debt Securities Continued. Debt Securities available for sale | |
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (Unaudited)
| |
| |
(continued)
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (Unaudited)
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||
| At September 30, 2017: | ||||||||||||||||
| Securities Available for Sale: | ||||||||||||||||
| Collateralized mortgage obligations | $ | 9,181 | $ | — | $ | (299 | ) | $ | 8,882 | |||||||
| SBA Pool Securities | 7,330 | 8 | (21 | ) | 7,317 | |||||||||||
| Total | $ | 16,511 | $ | 8 | $ | (320 | ) | $ | 16,199 | |||||||
| At December 31, 2016: | ||||||||||||||||
| Securities Available for Sale: | ||||||||||||||||
| Collateralized mortgage obligations | $ | 10,157 | $ | — | $ | (405 | ) | $ | 9,752 | |||||||
| SBA Pool Securities | 10,470 | — | — | 10,470 | ||||||||||||
| Total | $ | 20,627 | $ | — | $ | (405 | ) | $ | 20,222 | |||||||
The following summarizes the sales of securities (in thousands):
| 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 | ||||||||
Securities 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):
Schedule of Debt Securities with Gross Unrealized Losses, by Investment Category
| 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 September 30, 2021 | ||||||||||||||||
| Over Twelve Months | Less Than Twelve Months | |||||||||||||||
| Gross | Gross | |||||||||||||||
| Unrealized | Fair | Unrealized | Fair | |||||||||||||
| Losses | Value | Losses | Value | |||||||||||||
| Available for Sale : | ||||||||||||||||
| SBA Pool Securities | (27 | ) | 907 | — | — | |||||||||||
| Taxable municipal securities | — | — | (165 | ) | 12,124 | |||||||||||
| Mortgage-backed securities | (39 | ) | 1,613 | (162 | ) | 15,205 | ||||||||||
| Total | $ | (66 | ) | $ | 2,520 | $ | (327 | ) | $ | 27,329 | ||||||
| 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 | ||||||
| At December 31, 2020 | ||||||||||||||||
| Over Twelve Months | Less Than Twelve Months | |||||||||||||||
| Gross | Gross | |||||||||||||||
| Unrealized | Fair | Unrealized | Fair | |||||||||||||
| Losses | Value | Losses | Value | |||||||||||||
| Available for Sale : | ||||||||||||||||
| SBA Pool Securities | (41 | ) | 1,297 | — | — | |||||||||||
| Taxable municipal securities | — | — | (7 | ) | 1,413 | |||||||||||
| Mortgage-backed securities | — | — | (11 | ) | 3,583 | |||||||||||
| Total | $ | (41 | ) | $ | 1,297 | $ | (18 | ) | $ | 4,996 | ||||||
(continued)
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (Unaudited)
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):
Schedule of Components of Loans
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Residential real estate | $ | 30,721 | $ | 28,997 | ||||
| Multi-family real estate | 41,159 | 19,210 | ||||||
| Commercial real estate | 102,416 | 74,398 | ||||||
| Land and construction | 4,694 | 4,750 | ||||||
| Commercial | 18,269 | 21,849 | ||||||
| Consumer | 12,085 | 5,715 | ||||||
| Total loans | 209,344 | 154,919 | ||||||
| Deduct: | ||||||||
| Net deferred loan fees, costs and premiums | (784 | ) | (544 | ) | ||||
| Allowance for loan losses | (2,695 | ) | (1,906 | ) | ||||
| Loans, net | $ | 205,865 | $ | 152,469 | ||||
| At September 30, 2017 | At December 31, 2016 | |||||||
| Residential real estate | $ | 26,564 | $ | 27,334 | ||||
| Multi-family real estate | 6,142 | 5,829 | ||||||
| Commercial real estate | 30,637 | 29,264 | ||||||
| Land and construction | 3,037 | 5,681 | ||||||
| Commercial | 5,390 | 10,514 | ||||||
| Consumer | 1,025 | 1,829 | ||||||
| Total loans | 72,795 | 80,451 | ||||||
| Add (deduct): | ||||||||
| Net deferred loan fees, costs and premiums | 302 | 463 | ||||||
| Allowance for loan losses | (3,903 | ) | (3,915 | ) | ||||
| Loans, net | $ | 69,194 | $ | 76,999 | ||||
(continued)
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (Unaudited)
Schedule of Change in Allowance for Loan Losses
| Residential Real Estate | Multi-Family Real Estate | Commercial Real Estate | Land and Construction | Commercial | Consumer | Unallocated | Total | Real Estate | Real Estate | Commercial Real Estate | Land and Construction | Commercial | Consumer | Unallocated | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended September 30, 2017: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Residential | Multi-Family | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Real Estate | Real Estate | Commercial Real Estate | Land and Construction | Commercial | Consumer | Unallocated | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended September 30, 2021: | �� | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Beginning balance | $ | 472 | $ | 392 | $ | 938 | $ | 57 | $ | 58 | $ | 314 | $ | — | $ | 2,231 | ||||||||||||||||||||||||||||||||||||||||||||||||
| (Credit) provision for loan losses | (29 | ) | 102 | 349 | (10 | ) | 39 | 131 | — | 582 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Charge-offs | — | — | — | — | (10 | ) | (111 | ) | — | (121 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Recoveries | 3 | — | — | — | — | — | — | 3 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Ending balance | $ | 446 | $ | 494 | $ | 1,287 | $ | 47 | $ | 87 | $ | 334 | $ | — | $ | 2,695 | ||||||||||||||||||||||||||||||||||||||||||||||||
| 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 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Nine Months Ended September 30, 2021: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Beginning balance | $ | 463 | $ | 253 | $ | 884 | $ | 52 | $ | 103 | $ | 151 | $ | — | $ | 1,906 | ||||||||||||||||||||||||||||||||||||||||||||||||
| (Credit) provision for loan losses | (46 | ) | 241 | 403 | (13 | ) | 4 | 366 | — | 955 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Charge-offs | — | — | — | — | (20 | ) | (191 | ) | — | (211 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Recoveries | 29 | — | — | $ | 8 | — | 8 | — | 45 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Ending balance | $ | 446 | $ | 494 | $ | 1,287 | $ | 47 | $ | 87 | $ | 334 | $ | — | $ | 2,695 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Nine Months Ended September 30, 2020: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Beginning balance | $ | 302 | $ | 62 | $ | 769 | $ | 61 | $ | 67 | $ | 148 | $ | 2,486 | $ | 3,895 | $ | 531 | $ | 82 | $ | 624 | $ | 21 | $ | 573 | $ | 152 | $ | 26 | $ | 2,009 | ||||||||||||||||||||||||||||||||
| Provision (credit) for loan losses | 322 | $ | — | $ | 6 | $ | (2 | ) | $ | (2 | ) | $ | (3 | ) | $ | (321 | ) | $ | — | 264 | 146 | 348 | 12 | 339 | 153 | (26 | ) | 1,236 | ||||||||||||||||||||||||||||||||||||
| Charge-offs | — | $ | — | $ | — | $ | — | $ | — | $ | (3 | ) | $ | — | $ | (3 | ) | (259 | ) | — | — | — | (775 | ) | (94 | ) | — | (1,128 | ) | |||||||||||||||||||||||||||||||||||
| Recoveries | — | $ | — | $ | — | $ | 6 | $ | — | $ | 5 | $ | — | $ | 11 | 8 | — | — | 18 | — | 2 | — | 28 | |||||||||||||||||||||||||||||||||||||||||
| Ending balance | $ | 624 | $ | 62 | $ | 775 | $ | 65 | $ | 65 | $ | 147 | $ | 2,165 | $ | 3,903 | $ | 544 | $ | 228 | $ | 972 | $ | 51 | $ | 137 | $ | 213 | $ | - | $ | 2,145 | ||||||||||||||||||||||||||||||||
| 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 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
(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)(3) Loans, Continued.
| Multi- | ||||||||||||||||||||||||||||||||
| Residential | Family | |||||||||||||||||||||||||||||||
Real Estate | Real Estate | Commercial Real Estate | Land and Construction | Commercial | Consumer | Unallocated | Total | |||||||||||||||||||||||||
| At September 30, 2021: | ||||||||||||||||||||||||||||||||
| Individually evaluated for impairment: | ||||||||||||||||||||||||||||||||
| Recorded investment | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||
| Balance in allowance for loan losses | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||
| Collectively evaluated for impairment: | ||||||||||||||||||||||||||||||||
| Recorded investment | $ | 30,721 | $ | 41,159 | $ | 102,416 | $ | 4,694 | $ | 18,269 | $ | 12,085 | $ | — | $ | 209,344 | ||||||||||||||||
| Balance in allowance for loan losses | $ | 446 | $ | 494 | $ | 1,287 | $ | 47 | $ | 87 | $ | 334 | $ | — | $ | 2,695 | ||||||||||||||||
| At December 31, 2020: | ||||||||||||||||||||||||||||||||
| Individually evaluated for impairment: | ||||||||||||||||||||||||||||||||
| Recorded investment | $ | — | $ | — | $ | 2,193 | $ | — | $ | — | $ | — | $ | — | $ | 2,193 | ||||||||||||||||
| Balance in allowance for loan losses | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||
| Collectively evaluated for impairment: | ||||||||||||||||||||||||||||||||
| Recorded investment | $ | 28,997 | $ | 19,210 | $ | 72,205 | $ | 4,750 | $ | 21,849 | $ | 5,715 | $ | — | $ | 152,726 | ||||||||||||||||
| Balance in allowance for loan losses | $ | 463 | $ | 253 | $ | 884 | $ | 52 | $ | 103 | $ | 151 | $ | — | $ | 1,906 | ||||||||||||||||
(continued)
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (Unaudited)
| |
(continued)(3) Loans, Continued. The Company has divided the loan portfolio into six portfolio segments, each with different risk characteristics and methodologies for assessing risk. All loans are underwritten based upon standards set forth in the policies approved by the Company’s Board of Directors (the “Board”). The Company identifies the portfolio segments as follows:
Residential Real Estate, Multi-Family Real Estate, Commercial Real Estate, Land and Construction. Residential real estate loans are underwritten based on repayment capacity and source, value of the underlying property, credit history and stability. The Company offers first and second one-to-four family mortgage loans; the collateral for these loans is generally the clients’ owner-occupied residences. Although these types of loans present lower levels of risk than commercial real estate loans, risks do still exist because of possible fluctuations in the value of the real estate collateral securing the loan, as well as changes in the borrowers’ financial condition. Multi-family and commercial real estate loans are secured by the subject property and are underwritten based upon standards set forth in the policies approved by the Board. Such standards include, among other factors, loan to value limits, cash flow coverage and general creditworthiness of the obligors. Construction loans to borrowers finance the construction of owner occupied and leased properties. These loans are categorized as construction loans during the construction period, later converting to commercial or residential real estate loans after the construction is complete and amortization of the loan begins. Real estate development and construction loans are approved based on an analysis of the borrower and guarantor, the viability of the project and on an acceptable percentage of the appraised value of the property securing the loan. Real estate development and construction loan funds are disbursed periodically based on the percentage of construction completed. The Company carefully monitors these loans with on-site inspections and requires the receipt of lien waivers on funds advanced. Development and construction loans are typically secured by the properties under development or construction, and personal guarantees are typically obtained. Further, to assure that reliance is not placed solely on the value of the underlying property, the Company considers the market conditions and feasibility of proposed projects, the financial condition and reputation of the borrower and guarantors, the amount of the borrower’s equity in the project, independent appraisals, cost estimates and pre-construction sales information. The Company also makes loans on occasion for the purchase of land for future development by the borrower. Land loans are extended for future development for either commercial or residential use by the borrower. The Company carefully analyzes the intended use of the property and the viability thereof.
Commercial. Commercial business loans and lines of credit consist of loans to small- and medium-sized companies in the Company’s market area. Commercial loans are generally used for working capital purposes or for acquiring equipment, inventory or furniture. Primarily all of the Company’s commercial loans are secured loans, along with a small amount of unsecured loans. The Company’s underwriting analysis consists of a review of the financial statements of the borrower, the lending history of the borrower, the debt service capabilities of the borrower, the projected cash flows of the business, the value of the collateral, if any, and whether the loan is guaranteed by the principals of the borrower. These loans are generally secured by accounts receivable, inventory and equipment. Commercial loans are typically made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business, which makes them of higher risk than residential loans and the collateral securing loans may be difficult to appraise and may fluctuate in value based on the success of the business. The Company seeks to minimize these risks through its underwriting standards. The Company has supported small business owners by making loans through the Small Business Administration Paycheck Protection Program (“PPP”). As of September 30, 2021, the Bank had originated 502 PPP loans for a total dollar amount of $37.4 million. These loans are 100% guaranteed by the Small Business Administration (the “SBA”). At September 30, 2021 outstanding PPP loans total approximately $14.3 million.
Consumer. Consumer loans are extended for various purposes, including purchases of automobiles, recreational vehicles, and boats. Also offered are home improvement loans, lines of credit, personal loans, and deposit account collateralized loans. Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Loans to consumers are extended after a credit evaluation, including the creditworthiness of the borrower(s), the purpose of the credit, and the secondary source of repayment. Consumer loans are made at fixed and variable interest rates. Risk is mitigated by the fact that the loans are of smaller individual amounts.
(continued)
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (Unaudited)
(3) Loans, Continued. The following summarizes the loan credit quality (in thousands):
Schedule of Loans by Credit Quality
OLEM (Other Loans Especially | Sub- | |||||||||||||||||||||||
| Pass | Mentioned) | Standard | Doubtful | Loss | Total | |||||||||||||||||||
| At September 30, 2021: | ||||||||||||||||||||||||
| Residential real estate | $ | 28,212 | $ | — | $ | 2,509 | $ | — | $ | — | $ | 30,721 | ||||||||||||
| Multi-family real estate | 41,159 | — | — | — | — | 41,159 | ||||||||||||||||||
| Commercial real estate | 99,825 | 2,591 | — | — | — | 102,416 | ||||||||||||||||||
| Land and construction | 4,694 | — | — | — | — | 4,694 | ||||||||||||||||||
| Commercial | 17,992 | 277 | — | — | — | 18,269 | ||||||||||||||||||
| Consumer | 12,085 | — | — | — | — | 12,085 | ||||||||||||||||||
| Total | $ | 203,967 | $ | 2,868 | $ | 2,509 | $ | — | $ | — | $ | 209,344 | ||||||||||||
| At December 31, 2020: | ||||||||||||||||||||||||
| Residential real estate | $ | 28,151 | $ | — | $ | 846 | $ | — | $ | — | $ | 28,997 | ||||||||||||
| Multi-family real estate | 19,210 | — | — | — | — | 19,210 | ||||||||||||||||||
| Commercial real estate | 66,089 | 4,449 | 3,860 | — | — | 74,398 | ||||||||||||||||||
| Land and construction | 4,750 | — | — | — | — | 4,750 | ||||||||||||||||||
| Commercial | 20,735 | 1,114 | — | — | — | 21,849 | ||||||||||||||||||
| Consumer | 5,715 | — | — | — | — | 5,715 | ||||||||||||||||||
| Total | $ | 144,650 | $ | 5,563 | $ | 4,706 | $ | — | $ | — | $ | 154,919 | ||||||||||||
Internally assigned loan grades are defined as follows:
| Pass | OLEM (Other Loans Especially Mentioned) | Sub- standard | Doubtful | Loss | Total | |||||||||||||||||||
| At September 30, 2017: | ||||||||||||||||||||||||
| Residential real estate | $ | 22,820 | $ | 3,375 | $ | 369 | $ | — | $ | — | $ | 26,564 | ||||||||||||
| Multi-family real estate | 6,142 | $ | — | $ | — | $ | — | $ | — | $ | 6,142 | |||||||||||||
| Commercial real estate | 26,773 | $ | 2,883 | $ | 981 | $ | — | $ | — | $ | 30,637 | |||||||||||||
| Land and construction | 651 | $ | 2,386 | $ | — | $ | — | $ | — | $ | 3,037 | |||||||||||||
| Commercial | 3,133 | $ | 2,257 | $ | — | $ | — | $ | — | $ | 5,390 | |||||||||||||
| Consumer | 1,025 | $ | — | $ | — | $ | — | $ | — | $ | 1,025 | |||||||||||||
| Total | $ | 60,544 | $ | 10,901 | $ | 1,350 | $ | — | $ | — | $ | 72,795 | ||||||||||||
| At December 31, 2016: | ||||||||||||||||||||||||
| Residential real estate | $ | 25,326 | $ | 1,633 | $ | 375 | $ | — | $ | — | $ | 27,334 | ||||||||||||
| Multi-family real estate | 5,829 | — | — | — | — | 5,829 | ||||||||||||||||||
| Commercial real estate | 25,979 | 1,174 | 2,111 | — | — | 29,264 | ||||||||||||||||||
| Land and construction | 5,636 | 45 | — | — | — | 5,681 | ||||||||||||||||||
| Commercial | 8,768 | — | 1,746 | — | — | 10,514 | ||||||||||||||||||
| Consumer | 1,823 | — | 6 | — | — | 1,829 | ||||||||||||||||||
| Total | $ | 73,361 | $ | 2,852 | $ | 4,238 | $ | — | $ | — | $ | 80,451 | ||||||||||||
| Pass – | |
| OLEM – | |
| Substandard – | |
| Doubtful – | |
| Loss – |
(continued)
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (Unaudited)
| Accruing Loans | ||||||||||||||||||||||||||||||||||||||||||||
| 30-59 Days Past Due | 60-89 Days Past Due | Greater Than 90 Days Past Due | Total Past Due | Current | Nonaccrual Loans | Total Loans | ||||||||||||||||||||||||||||||||||||||
| At September 30, 2017: | ||||||||||||||||||||||||||||||||||||||||||||
| Residential real estate | $ | — | $ | — | $ | — | $ | — | $ | 26,564 | $ | — | $ | 26,564 | ||||||||||||||||||||||||||||||
| Multi-family real estate | — | — | — | — | 6,142 | — | 6,142 | |||||||||||||||||||||||||||||||||||||
| Commercial real estate | — | — | — | — | 30,637 | — | 30,637 | |||||||||||||||||||||||||||||||||||||
| Land and construction | — | — | — | — | 3,037 | — | 3,037 | |||||||||||||||||||||||||||||||||||||
| Commercial | — | — | — | — | 5,390 | — | 5,390 | |||||||||||||||||||||||||||||||||||||
| Consumer | — | — | — | — | 1,025 | — | 1,025 | |||||||||||||||||||||||||||||||||||||
| Total | $ | — | $ | — | $ | $ | — | $ | 72,795 | $ | — | $ | 72,795 | |||||||||||||||||||||||||||||||
| At December 31, 2016: | ||||||||||||||||||||||||||||||||||||||||||||
| Residential real estate | $ | — | $ | — | $ | — | $ | — | $ | 26,959 | $ | 375 | $ | 27,334 | ||||||||||||||||||||||||||||||
| Multi-family real estate | — | — | — | — | 5,829 | — | 5,829 | |||||||||||||||||||||||||||||||||||||
| Commercial real estate | — | — | — | — | 29,264 | — | 29,264 | |||||||||||||||||||||||||||||||||||||
| Land and construction | — | — | — | — | 5,681 | — | 5,681 | |||||||||||||||||||||||||||||||||||||
| Commercial | — | — | — | — | 10,514 | — | 10,514 | |||||||||||||||||||||||||||||||||||||
| Consumer | — | 6 | — | 6 | 1,823 | — | 1,829 | |||||||||||||||||||||||||||||||||||||
| Total | $ | — | $ | 6 | $ | — | $ | 6 | $ | 80,070 | $ | 375 | $ | 80,451 | ||||||||||||||||||||||||||||||
(3) Loans, Continued. Age analysis of past-due loans is as follows (in thousands):
Schedule of Age Analysis of Past-due Loans
| Accruing Loans | ||||||||||||||||||||||||||||
| Greater | ||||||||||||||||||||||||||||
| 30-59 | 60-89 | Than 90 | ||||||||||||||||||||||||||
Days Past | Days Past | Days Past | Total Past | Nonaccrual | Total | |||||||||||||||||||||||
| Due | Due | Past | Due | Current | Loans | Loans | ||||||||||||||||||||||
| At September 30, 2021: | ||||||||||||||||||||||||||||
| Residential real estate | $ | — | $ | — | $ | — | $ | — | $ | 30,721 | $ | — | $ | 30,721 | ||||||||||||||
| Multi-family real estate | — | — | — | — | 41,159 | — | 41,159 | |||||||||||||||||||||
| Commercial real estate | — | — | — | — | 102,416 | — | 102,416 | |||||||||||||||||||||
| Land and construction | — | — | — | — | 4,694 | — | 4,694 | |||||||||||||||||||||
| Commercial | — | — | — | — | 18,269 | — | 18,269 | |||||||||||||||||||||
| Consumer | 21 | 22 | — | 43 | 12,042 | — | 12,085 | |||||||||||||||||||||
| Total | $ | 21 | $ | 22 | $ | — | $ | 43 | $ | 209,301 | $ | — | $ | 209,344 | ||||||||||||||
| Accruing Loans | ||||||||||||||||||||||||||||
| Greater | ||||||||||||||||||||||||||||
| 30-59 Days | 60-89 Days | Than 90 Days | Total | |||||||||||||||||||||||||
| Past | Past | Past | Past | Nonaccrual | Total | |||||||||||||||||||||||
| Due | Due | Due | Due | Current | Loans | Loans | ||||||||||||||||||||||
| At December 31, 2020: | ||||||||||||||||||||||||||||
| Residential real estate | $ | 977 | $ | — | $ | — | $ | 977 | $ | 28,020 | $ | — | $ | 28,997 | ||||||||||||||
| Multi-family real estate | — | — | — | — | 19,210 | — | 19,210 | |||||||||||||||||||||
| Commercial real estate | — | — | — | — | 72,205 | 2,193 | 74,398 | |||||||||||||||||||||
| Land and construction | — | — | — | — | 4,750 | — | 4,750 | |||||||||||||||||||||
| Commercial | — | — | — | — | 21,849 | — | 21,849 | |||||||||||||||||||||
| Consumer | 6 | — | — | 6 | 5,709 | — | 5,715 | |||||||||||||||||||||
| Total | $ | 983 | $ | — | $ | — | $ | 983 | $ | 151,743 | $ | 2,193 | $ | 154,919 | ||||||||||||||
There were no impaired loans at September 30, 2021. The following summarizes the amount of impaired loans at December 31, 2020 (in thousands):
Schedule of Impaired Loans
| At September 30, 2017 | At December 31, 2016 | |||||||||||||||||||||||
| 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 | $ | — | ||||||||||||
| Commercial real estate | 232 | 232 | — | — | — | — | ||||||||||||||||||
| With related allowance recorded: | ||||||||||||||||||||||||
| Residential real estate | 984 | 984 | 336 | — | — | — | ||||||||||||||||||
| Commercial real estate | $ | 749 | 749 | 76 | 1,004 | 1,004 | 104 | |||||||||||||||||
| Total | ||||||||||||||||||||||||
| Residential real estate | $ | 1,354 | $ | 1,479 | $ | 336 | $ | 375 | $ | 501 | $ | — | ||||||||||||
| Commercial real estate | $ | 981 | $ | 981 | $ | 76 | $ | 1,004 | $ | 1,004 | $ | 104 | ||||||||||||
| Total | $ | 2,335 | $ | 2,460 | $ | 412 | $ | 1,379 | $ | 1,505 | $ | 104 | ||||||||||||
| December 31, 2020 | ||||||||||||
| Unpaid | ||||||||||||
| Recorded | Principal | Related | ||||||||||
| Investment | Balance | Allowance | ||||||||||
| With no related allowance recorded: | ||||||||||||
| Commercial real estate | $ | 2,193 | $ | 2,193 | — | |||||||
(continued)
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (Unaudited)
(3) Loans, Continued. The average recorded investment in impaired loans and interest income recognized and received on impaired loans are as follows (in thousands):
Schedule of Interest Income Recognized and Received on Impaired Loans
| Three Months Ended September 30, | ||||||||||||||||||||||||
| 2021 | 2020 | |||||||||||||||||||||||
| Average | Interest | Interest | Average | Interest | Interest | |||||||||||||||||||
| Recorded | Income | Income | Recorded | Income | Income | |||||||||||||||||||
| Investment | Recognized | Received | Investment | Recognized | Received | |||||||||||||||||||
| Residential real estate | $ | — | $ | — | $ | — | $ | 626 | $ | — | $ | — | ||||||||||||
| Commercial real estate | $ | — | $ | — | $ | — | $ | 2,193 | $ | 26 | $ | — | ||||||||||||
| Commercial | $ | — | $ | — | $ | — | $ | 270 | $ | — | $ | — | ||||||||||||
| Total | $ | — | $ | — | $ | — | $ | 3,089 | $ | 26 | $ | — | ||||||||||||
| Nine Months Ended September 30, | ||||||||||||||||||||||||
| 2021 | 2020 | |||||||||||||||||||||||
| Average | Interest | Interest | Average | Interest | Interest | |||||||||||||||||||
| Recorded | Income | Income | Recorded | Income | Income | |||||||||||||||||||
| Investment | Recognized | Received | Investment | Recognized | Received | |||||||||||||||||||
| Residential real estate | $ | — | $ | — | $ | — | $ | 846 | $ | 18 | $ | 11 | ||||||||||||
| Commercial real estate | $ | 658 | $ | 7 | $ | 7 | $ | 2,194 | $ | 78 | $ | 60 | ||||||||||||
| Commercial | $ | — | $ | — | $ | — | $ | 649 | $ | — | $ | 18 | ||||||||||||
| Total | $ | 658 | $ | 7 | $ | 7 | $ | 3,689 | $ | 96 | $ | 89 | ||||||||||||
| Three Months Ended September 30, | ||||||||||||||||||||||||
| 2017 | 2016 | |||||||||||||||||||||||
| Average | Interest | Interest | Average | Interest | Interest | |||||||||||||||||||
| Recorded | Income | Income | Recorded | Income | Income | |||||||||||||||||||
| Investment | Recognized | Received | Investment | Recognized | Received | |||||||||||||||||||
| Residential real estate | $ | 385 | $ | 12 | $ | 12 | $ | 598 | $ | 3 | $ | 16 | ||||||||||||
| Commercial real estate | $ | 907 | $ | 14 | $ | 14 | $ | 1,829 | $ | 16 | $ | 22 | ||||||||||||
| Total | $ | 1,292 | $ | 26 | $ | 26 | $ | 2,427 | $ | 19 | $ | 38 | ||||||||||||
| Nine Months Ended September 30, | ||||||||||||||||||||||||
| 2017 | 2016 | |||||||||||||||||||||||
| Average | Interest | Interest | Average | Interest | Interest | |||||||||||||||||||
| Recorded | Income | Income | Recorded | Income | Income | |||||||||||||||||||
| Investment | Recognized | Received | Investment | Recognized | Received | |||||||||||||||||||
| Residential real estate | $ | 375 | $ | 36 | $ | 36 | $ | 1,057 | $ | 36 | $ | 64 | ||||||||||||
| Commercial real estate | $ | 899 | $ | 39 | $ | 39 | $ | 2,483 | $ | 63 | $ | 89 | ||||||||||||
| Total | $ | 1,274 | $ | 75 | $ | 75 | $ | 3,540 | $ | 99 | $ | 153 | ||||||||||||
| No loans have been determined to be troubled debt restructurings (TDR’s) during the three and nine month periods ended September 30, |
| 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 | % | |||||
| 2020. At September 30, |
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Weighted-average number of common shares outstanding used to calculate basic and diluted loss per common share | 4,346,211 | 2,951,353 | 3,611,814 | 2,920,961 | ||||||||||||
(continued)
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (Unaudited)
| 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 | ||||||||||||
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARYThe Company is authorized to grant stock options, stock grants and other forms of equity-based compensation under its 2018 Equity Incentive Plan (the “2018 Plan”). The plan has been approved by the shareholders. The Company is authorized to issue up to shares of common stock under the 2018 Plan, of which shares remain available for grant. stock options are outstanding at September 30, 2021.
NotesDuring the first quarter of 2021, the Company agreed to Condensed Consolidated Financial Statements (Unaudited)issue shares to a director for services performed and recorded compensation expense of $. At September 30, 2021 the director had not yet taken delivery of the shares. As such, at September 30, 2021, the $200,000 is presented on the accompanying condensed consolidated balance sheets under the caption of “other liabilities”. During October 2021, the director took delivery of the shares.
Impaired Collateral Dependent Loans:(6) Fair Value Measurements. There were 0 impaired collateral dependent loans measured at fair value on a nonrecurring basis at September 30, 2021 and December 31, 2020.
| 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-saleDebt securities available for sale measured at fair value on a recurring basis are summarized below (in thousands):
| Fair Value Measurements Using | ||||||||||||||||
| Fair Value | Quoted Prices In Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
| At 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 | $ | — | |||||||||
Schedule of Debt Securities Available-for-sale Measured at Fair Value on Recurring Basis
During
| Fair Value Measurements Using | ||||||||||||||||
| Quoted Prices | Significant | |||||||||||||||
| In Active Markets for | Other Observable | Significant Unobservable | ||||||||||||||
| Fair Value | Identical Assets (Level 1) | Inputs (Level 2) | Inputs (Level 3) | |||||||||||||
| At September 30, 2021 : | ||||||||||||||||
| SBA Pool Securities | $ | 1,113 | $ | — | $ | 1,113 | — | |||||||||
| Collateralized mortgage obligations | 250 | — | 250 | — | ||||||||||||
| Taxable municipal securities | 16,669 | — | 16,669 | — | ||||||||||||
| Mortgage-backed securities | 17,706 | — | 17,706 | — | ||||||||||||
| Total | $ | 35,738 | — | $ | 35,738 | — | ||||||||||
| 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 December 31, 2020 : | ||||||||||||||||
| SBA Pool Securities | $ | 1,297 | $ | — | $ | 1,297 | — | |||||||||
| Collateralized mortgage obligations | 485 | — | 485 | — | ||||||||||||
| Taxable municipal securities | 5,085 | — | 5,085 | — | ||||||||||||
| Mortgage-backed securities | 12,026 | — | 12,026 | — | ||||||||||||
| Total | $ | 18,893 | — | $ | 18,893 | — | ||||||||||
(7) Fair Value of Financial Instruments. The estimated fair values and fair value measurement method with respect to the three and nine month periods ended September 30, 2017 and 2016, no securitiesCompany’s financial instruments were transferred in or outas follows (in thousands):
Schedule of Level 1, Level 2 or Level 3.
(continued)
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed ConsolidatedEstimated Fair Value of Financial Statements (Unaudited)Instruments
| Carrying Amount | Fair Value | Level | Carrying Amount | Fair Value | Level | |||||||||||||||||||
| At September 30, 2021 | At December 31, 2020 | |||||||||||||||||||||||
| Carrying Amount | Fair Value | Level | Carrying Amount | Fair Value | Level | |||||||||||||||||||
| Financial assets: | ||||||||||||||||||||||||
| Cash and cash equivalents | $ | 83,583 | $ | 83,583 | 1 | $ | 54,629 | $ | 54,629 | 1 | ||||||||||||||
| Debt securities available for sale | 35,738 | 35,738 | 2 | 18,893 | 18,893 | 2 | ||||||||||||||||||
| Debt securities held-to-maturity | 1,327 | 1,375 | 2 | 3,399 | 3,549 | 2 | ||||||||||||||||||
| Loans | 205,865 | 205,807 | 3 | 152,469 | 153,276 | 3 | ||||||||||||||||||
| Federal Home Loan Bank stock | 793 | 793 | 3 | 1,092 | 1,092 | 3 | ||||||||||||||||||
| Accrued interest receivable | 863 | 863 | 3 | 1,336 | 1,336 | 3 | ||||||||||||||||||
| Financial liabilities: | ||||||||||||||||||||||||
| Deposit liabilities | 281,746 | 281,813 | 3 | 190,759 | 191,011 | 3 | ||||||||||||||||||
| Federal Home Loan Bank advances | 18,000 | 18,185 | 3 | 23,000 | 23,254 | 3 | ||||||||||||||||||
| Junior subordinated debenture | — | — | 3 | 2,068 | N/A | (1) | 3 | |||||||||||||||||
| Off-balance sheet financial instruments | — | — | 3 | — | — | 3 | ||||||||||||||||||
| At September 30, 2017 | At December 31, 2016 | |||||||||||||||||||||||
| 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 | ||||||||||||||
| Securities available for sale | 16,199 | 16,199 | 2 | 20,222 | 20,222 | 2 | ||||||||||||||||||
| Loans | 69,194 | 69,095 | 3 | 76,999 | 76,829 | 3 | ||||||||||||||||||
| Federal Home Loan Bank stock | 979 | 979 | 3 | 1,113 | 1,113 | 3 | ||||||||||||||||||
| Accrued interest receivable | 366 | 366 | 3 | 380 | 380 | 3 | ||||||||||||||||||
| Financial liabilities: | ||||||||||||||||||||||||
| Deposit liabilities | 77,374 | 77,935 | 3 | 86,009 | 86,364 | 3 | ||||||||||||||||||
| Federal Home Loan Bank advances | 20,500 | 20,458 | 3 | 23,500 | 23,500 | 3 | ||||||||||||||||||
| Junior subordinated debenture | 5,155 | NA | (1) | 3 | 5,155 | N/A | (1) | 3 | ||||||||||||||||
| Off-balance sheet financial instruments | — | — | — | — | — | — | ||||||||||||||||||
| (1) | The Company is unable to determine |
(continued)
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (Unaudited)
| |
| 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)(8) Off- Balance Sheet Financial Instruments. The Company is party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments are commitments to extend credit, unused lines of credit, and standby letters of credit and may involve, to varying degrees, elements of credit and interest-rate risk in excess of the amount recognized in the condensed consolidated balance sheet. The contract amounts of these instruments reflect the extent of involvement the Company has in these financial instruments.
The Company’s exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments as it does for on-balance-sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Because some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company, upon extension of credit, is based on management’s credit evaluation of the counterparty.
Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit to customers is essentially the same as that involved in extending loan facilities to customers. The Bank generally holds collateral supporting those commitments. Standby letters of credit generally have expiration dates within one year.
Commitments to extend credit, unused lines of credit, and standby letters of credit typically result in loans with a market interest rate when funded. A summary of the contractual amounts of the Company’s financial instruments with off-balance-sheet risk at September 30, 2021 follows (in thousands):
Schedule of Off-Balance Sheet Risks of Financial Instruments
| Commitments to extend credit | $ | 16,153 | ||
| Unused lines of credit | $ | 11,532 | ||
| Standby letters of credit | $ | 4,550 |
(9) Regulatory Matters. The Bank is subject to various regulatory capital requirements administered by the bank regulatory agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company and Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of its assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
In 2019, the federal banking agencies jointly issued a final rule that provides for an optional, simplified measure of capital adequacy, the community bank leverage ratio framework (CBLR framework), for qualifying community banking organizations. The final rule became effective on January 1, 2020 and was elected by the Bank. In April 2020, the federal banking agencies issued an interim final rule that makes temporary changes to the CBLR framework, pursuant to section 4012 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, and a second interim final rule that provides a graduated increase in the community bank leverage ratio requirement after the expiration of the temporary changes implemented pursuant to section 4012 of the CARES Act.
The community bank leverage ratio removes the requirement for qualifying banking organizations to calculate and report risk-based capital but rather only requires a Tier 1 to average assets (leverage) ratio. Qualifying community banking organizations that elect to use the community bank leverage ratio framework and that maintain a leverage ratio of greater than required minimums will be considered to have satisfied the generally applicable risk based and leverage capital requirements in the agencies’ capital rules (generally applicable rule) and, if applicable, will be considered to have met the well capitalized ratio requirements for purposes of section 38 of the Federal Deposit Insurance Act. Under the interim final rules, the community bank leverage ratio minimum requirement is 8% as of December 31, 2020, 8.5% for calendar year 2021, and 9% for calendar year 2022 and beyond. The interim rule allows for a two-quarter grace period to correct a ratio that falls below the required amount, provided that the Bank maintains a leverage ratio of 7% as of December 31, 2020, 7.5% for calendar year 2021, and 8% for calendar year 2022 and beyond. Under the final rule, an eligible community banking organization can opt out of the CBLR framework and revert back to the risk-weighting framework without restriction.
(continued)
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (Unaudited)
(continued)(9) Regulatory Matters, Continued.
Management believes, as of September 30, 2021 and December 31, 2020, that the Bank meets all capital adequacy requirements to which it is subject. The Bank’s actual capital amounts and percentages are presented in the table ($ in thousands):
Schedule of Capital Amounts, Ratios and Regulatory Thresholds
| Actual | To Be Well Capitalized Under Prompt Corrective Action Regulations (CBLR Framework) | |||||||||||||||
| Amount | % | Amount | % | |||||||||||||
| As of September 30, 2021: | ||||||||||||||||
| Tier I Capital to Total Assets | 32,980 | 10.96 | % | 25,567 | 8.5 | % | ||||||||||
| Actual | To Be Well Capitalized Under Prompt Corrective Action Regulations (CBLR Framework) | |||||||||||||||
| Amount | % | Amount | % | |||||||||||||
| As of December 31, 2020: | ||||||||||||||||
| Tier I Capital to Total Assets | 19,261 | 9 | % | 17,116 | 8 | % | ||||||||||
(10) Preferred Stock
During the first quarter of 2021, the Company issued shares of Series B Participating Preferred Stock (the “Series B Preferred Stock”) to a related party at a cash price of $ per share, or an aggregate of $4,000,000. The related party is a significant common stockholder.
During the second quarter of 2021, the Company issued shares of Series B Participating Preferred Stock (the “Series B Preferred Stock”) to a non-related party at a cash price of $ per share, or an aggregate of $5,000,000.
The Series B Preferred Stock has no par value. Except in the case of liquidation, if the Company declares or pays a dividend or distribution on the common stock, the Company shall simultaneously declare and pay a dividend on the Series B Preferred Stock on a pro rata basis with the common stock determined on an as-converted basis assuming all Shares of Series B Preferred Stock had been converted immediately prior to the record date of the applicable dividend. At September 30, 2021, the Company had shares of Series B Preferred Stock outstanding, which are convertible into shares of common stock, at the option of the Company, subject to the prior fulfilment of the following conditions: (i) such conversion shall have been approved by the holders of a majority of the outstanding common stock of the Company; and (ii) such conversion shall not result in any holder of the Series B Preferred Stock and any persons with whom the holder may be acting in concert, becoming beneficial owners of more than % of the outstanding shares of the common stock. The number of shares issuable upon conversion is subject to adjustment based on the terms of the amended Certificate of Designation in the Amendment to the Company’s Articles of Incorporation filed on June 25, 2021 (the “Certificate of Designation”) The Preferred Stock has preferential liquidation rights over common stockholders and holders of junior securities. The liquidation price is the greater of $25,000 per share of preferred stock or such amount per share of preferred stock that would have been payable had all shares of the preferred stock been converted into common stock per the terms of the Certificate of Designation immediately prior to a liquidation. The Preferred Stock generally has no voting rights except as provided in the Certificate of Designation.
(11) Contingencies. Various claims arise from time to time in the normal course of business. In the opinion of management, none have occurred that will have a material effect on the Company’s condensed consolidated financial statements.
(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, 20162020 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 Actions
Bank Consent Order. On November 7, 2016, the Bank agreed to the issuance 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, 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. The Consent Order requires the Bank to adopt and implement a compliance plan to address the Bank’s obligations under 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 days from the issuance of 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%.
See Footnote 13 to the Consolidated Financial Statements included in the Company’s 2016 Form 10-K for additional information concerning the requirements of the Consent Order.
(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 assets and the receipt 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 FDIC and the OFR including strengthening the senior management team with the addition 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.
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, 2017,2021, the Bank metis well capitalized under regulatory guidelines.
Refer to Note 9 for 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):ratios.
Regulatory Capital Requirements(continued)
| 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 | % | ||||||||||||||||||||
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Financial Condition at September 30, 20172021 and December 31, 20162020
Overview
The Company’s total assets decreasedincreased by $11.2approximately $100 million to $108.5$335.1 million at September 30, 2017,2021, from $119.7$235.1 million at December 31, 2016,2020, primarily due to a reductionincreases in total deposits.loans, cash and cash equivalents and debt securities. The growth in assets was attributable to the success of the Company’s efforts to increase deposits from new customers. Total stockholders’ equity decreaseddeposits grew by approximately $0.5$91 million to $281.7 million at September 30, 20172021, from $3.1$190.8 million at December 31, 20162020. Total stockholders’ equity increased by approximately $15.3 million to $2.6$33.2 million at September 30, 2021, from $17.8 million at December 31, 2020, primarily due to proceeds from the sale of preferred stock, common stock, the issuance of common stock in exchange for Trust Preferred Securities and net earnings. The increase in stockholders’ equity was partially offset by the change in accumulated other comprehensive loss of $510,000 for the three and nine months ended September 30, 2017. As of September 30,2017, the Bank has provided for a reserve for BSA Compliancelookback of $210.000.2021.
The following table shows selected information for the periods ended or at the dates indicated:
| Nine Months | Nine Months | Year | ||||||||||||||||||
| Ended | Ended | Ended | ||||||||||||||||||
| September 30, 2017 | September 30, 2016 | December 31, 2016 | Nine Months Ended September 30, 2021 | Year Ended December 31, 2020 | ||||||||||||||||
| Average equity as a percentage of average assets | 2.22 | % | 2.59 | % | 2.6 | % | 8.7 | % | 5.8 | % | ||||||||||
| Equity to total assets at end of period | 2.42 | % | 2.73 | % | 2.6 | % | 9.9 | % | 7.6 | % | ||||||||||
| Return on average assets (1) | (.45 | )% | (0.34 | )% | (0.3 | )% | 0.9 | % | (0.5 | )% | ||||||||||
| Return on average equity (1) | (18.15 | )% | (12.96 | )% | (12.5 | )% | 9.5 | % | (7.8 | )% | ||||||||||
| Noninterest expenses to average assets (1) | 2.74 | % | 3.51 | % | 3.3 | % | 2.3 | % | 2.9 | % | ||||||||||
(1) Annualized for the nine months ended September 30, 2017 and 2016.2021.
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
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”), sales and principal repayments and sales of investmentdebt 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 approximately $91 million during the Consent Order, the interest rate that thenine-month period ending September 30, 2021. The proceeds were used to originate new loans, purchase debt securities and repay Federal Home Loan 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 deposits 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.advances.
In addition to obtaining funds from depositors, wethe Company may borrow funds from other financial institutions. At September 30, 2017,2021, the BankCompany had outstanding borrowings of $20,500,000,$18 million, against its $31,300,000$55 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, the Bank obtainedThe Company has an available discount window credit line with the Federal Reserve Bank, currently $643,700.$430,000. The Federal Reserve Bank line is subject to collateral requirements and must be repaid within 90 days; each advance is subject to prior Federal Reserve Bank consent. The BankAt September 30, 2021, the Company also has a $2.5 million linehad available lines of credit amounting to $9.5 million with SunTrust, $750,000 linefour correspondent banks to purchase federal funds. Disbursements on the lines of credit with Servis First Bank and a $2.5 million lineare subject to the approval 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 recognizedNote 8 in the condensed consolidated balance sheet. The contract amounts of these instruments reflect the extent of the Company’s involvement in these financial instruments.statements for Off-Balance Sheet Arrangements.
CommitmentsJunior Subordinated Debenture
Please refer to extend credit are agreements to lend to a customer as long as there is no violation of any condition establishedNote 1 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 creditworthinesscondensed consolidated financial statements for discussion on a case-by-case basis.this matter.
The amount of collateral obtained, if it is deemed necessary by the Company upon extension of credit, is based 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.(continued)
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 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.
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 SUBSIDIARY
Results of Operations (Continued)
Results of Operations
The following table sets forth, for the periods indicated, information regarding (i) the total dollar amount of interest and dividend income of the Company from interest-earning assets and the resultant average yields; (ii) the total dollar amount of interest expense on interest-bearing liabilities and the resultant average cost; (iii) net interest income; (iv) interest-rate spread; (v) net interest margin; and (vi) the ratio of average interest-earning assets to average interest-bearing liabilities.
| Three Months Ended September 30, | Three Months Ended September 30, | |||||||||||||||||||||||||||||||||||||||||||||||
| 2017 | 2016 | 2021 | 2020 | |||||||||||||||||||||||||||||||||||||||||||||
| 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 | $ | 72,777 | $ | 972 | 5.34 | % | $ | 85,020 | $ | 1,082 | 5.09 | % | $ | 203,983 | $ | 2,795 | 5.48 | % | $ | 142,138 | $ | 1,723 | 4.85 | % | ||||||||||||||||||||||||
| Securities | 19,207 | 96 | 2.00 | 22,779 | 117 | 2.05 | 34,044 | 150 | 1.76 | % | 9,092 | 41 | 1.80 | % | ||||||||||||||||||||||||||||||||||
| Other (1) | 17,908 | 65 | 1.45 | 11,225 | 24 | 0.86 | 48,596 | 28 | 0.23 | % | 18,928 | 7 | 0.15 | % | ||||||||||||||||||||||||||||||||||
| Total interest-earning assets/interest income | 109,892 | 1,133 | 4.12 | 119,024 | 1,223 | 4.11 | 286,623 | 2,973 | 4.15 | % | 170,158 | 1,771 | 4.16 | % | ||||||||||||||||||||||||||||||||||
| Cash and due from banks | 1,156 | 910 | 12,080 | 14,480 | ||||||||||||||||||||||||||||||||||||||||||||
| Premise and equipment | 2,612 | 2,696 | ||||||||||||||||||||||||||||||||||||||||||||||
| Premises and equipment | 1,402 | 1,439 | ||||||||||||||||||||||||||||||||||||||||||||||
| Other | (3,345 | ) | (1,005 | ) | 1,626 | 1,312 | ||||||||||||||||||||||||||||||||||||||||||
| Total assets | $ | 110,315 | $ | 121,625 | $ | 301,731 | $ | 187,389 | ||||||||||||||||||||||||||||||||||||||||
| Interest-bearing liabilities: | ||||||||||||||||||||||||||||||||||||||||||||||||
| Savings, NOW and money-market deposits | $ | 21,657 | 27 | .50 | $ | 22,960 | 29 | 0.51 | $ | 128,844 | 124 | 0.38 | % | $ | 89,383 | 168 | 0.75 | % | ||||||||||||||||||||||||||||||
| Time deposits | 49,945 | 140 | 1.12 | 59,069 | 152 | 1.03 | 15,429 | 22 | 0.57 | % | 28,583 | 122 | 1.71 | % | ||||||||||||||||||||||||||||||||||
| Borrowings (2) | 25,655 | 141 | 2.20 | 25,663 | 91 | 1.42 | 18,387 | 62 | 1.35 | % | 26,758 | 96 | 1.44 | % | ||||||||||||||||||||||||||||||||||
| Total interest-bearing liabilities/ interest expense | 97,257 | 308 | 1.27 | 107,692 | 272 | 1.01 | ||||||||||||||||||||||||||||||||||||||||||
| Total interest-bearing liabilities/interest expense | 162,660 | 208 | 0.51 | % | 144,724 | 386 | 1.07 | % | ||||||||||||||||||||||||||||||||||||||||
| Noninterest-bearing demand deposits | 8,376 | 8,039 | 105,843 | 29,970 | ||||||||||||||||||||||||||||||||||||||||||||
| Other liabilities | 2,026 | 2,534 | 1,744 | 2,367 | ||||||||||||||||||||||||||||||||||||||||||||
| Stockholders’ equity | 2,656 | 3,360 | 31,484 | 10,328 | ||||||||||||||||||||||||||||||||||||||||||||
| Total liabilities and stockholders’ equity | $ | 110,315 | $ | 121,625 | $ | 301,731 | $ | 187,389 | ||||||||||||||||||||||||||||||||||||||||
| Net interest income | $ | 825 | $ | 951 | $ | 2,765 | $ | 1,385 | ||||||||||||||||||||||||||||||||||||||||
| Interest-rate spread (3) | 2.85 | % | 3.10 | % | ||||||||||||||||||||||||||||||||||||||||||||
| Net interest-earnings assets | $ | 12,635 | $ | 11,332 | ||||||||||||||||||||||||||||||||||||||||||||
| Interest rate spread (3) | 3.64 | % | 3.09 | % | ||||||||||||||||||||||||||||||||||||||||||||
| Net interest margin (4) | 3.00 | % | 3.20 | % | 3.86 | % | 3.26 | % | ||||||||||||||||||||||||||||||||||||||||
| Ratio of average interest-earning assets to average interest-bearing liabilities | 1.13 | 1.11 | 1.76 | 1.18 | ||||||||||||||||||||||||||||||||||||||||||||
| Nine 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 | $ | 76,583 | $ | 2,971 | 5.17 | % | $ | 84,173 | $ | 3,156 | 5.00 | % | ||||||||||||
| Securities | 19,622 | 306 | 2.08 | 23,454 | 367 | 2.09 | ||||||||||||||||||
| Other (1) | 16,985 | 162 | 1.27 | 11,433 | 75 | 0.87 | ||||||||||||||||||
| Total interest-earning assets/interest income | 113,190 | 3,439 | 4.05 | 119,060 | 3,598 | 4.03 | ||||||||||||||||||
| Cash and due from banks | 1,162 | 887 | ||||||||||||||||||||||
| Premise and equipment | 2,624 | 2,694 | ||||||||||||||||||||||
| Other | (3,164 | ) | (393 | ) | ||||||||||||||||||||
| Total assets | $ | 113,812 | $ | 122,248 | ||||||||||||||||||||
| Interest-bearing liabilities: | ||||||||||||||||||||||||
| Savings, NOW and money-market deposits | $ | 22,052 | 82 | 0.50 | $ | 23,719 | 89 | 0.50 | ||||||||||||||||
| Time deposits | 53,609 | 442 | 1.10 | 62,203 | 461 | 0.99 | ||||||||||||||||||
| Borrowings (2) | 25,677 | 378 | 1.96 | 25,700 | 260 | 1.35 | ||||||||||||||||||
| Total interest-bearing liabilities/ interest expense | 101,338 | 902 | 1.29 | 111,622 | 810 | 0.97 | ||||||||||||||||||
| Noninterest-bearing demand deposits | 7,471 | 5,249 | ||||||||||||||||||||||
| Other liabilities | 2,193 | 2,208 | ||||||||||||||||||||||
| Stockholders’ equity | 2,810 | 3,169 | ||||||||||||||||||||||
| Total liabilities and stockholders’ equity | $ | 113,812 | $ | 122,248 | ||||||||||||||||||||
| Net interest income | $ | 2,537 | $ | 2,788 | ||||||||||||||||||||
| Interest-rate spread (3) | 2.76 | % | 3.06 | % | ||||||||||||||||||||
| Net interest-earning assets | $ | 11,852 | $ | 7,438 | ||||||||||||||||||||
| Net interest margin (4) | 2.99 | % | 3.12 | % | ||||||||||||||||||||
| Ratio of average interest-earning assets to average interest-bearing liabilities | 1.21 | 1.07 | ||||||||||||||||||||||
| (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. |
(continued)
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, | ||||||||||||||||||||||||
| 2021 | 2020 | |||||||||||||||||||||||
| 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 | $ | 183,068 | $ | 6,820 | 4.97 | % | $ | 125,090 | $ | 4,697 | 5.01 | % | ||||||||||||
| Securities | 28,024 | 327 | 1.56 | % | 10,016 | 136 | 1.81 | % | ||||||||||||||||
| Other (1) | 38,457 | 81 | 0.28 | % | 14,526 | 67 | 0.61 | % | ||||||||||||||||
| Total interest-earning assets/interest income | 249,549 | 7,228 | 3.86 | % | 149,632 | 4,900 | 4.37 | % | ||||||||||||||||
| Cash and due from banks | 21,338 | 7,748 | ||||||||||||||||||||||
| Premises and equipment | 1,344 | 1,423 | ||||||||||||||||||||||
| Other | 1,940 | 1,043 | ||||||||||||||||||||||
| Total assets | $ | 274,171 | $ | 159,846 | ||||||||||||||||||||
| Interest-bearing liabilities: | ||||||||||||||||||||||||
| Savings, NOW and money-market deposits | $ | 121,077 | 380 | 0.42 | % | $ | 72,348 | 607 | 1.12 | % | ||||||||||||||
| Time deposits | 18,170 | 100 | 0.73 | % | 30,466 | 440 | 1.93 | % | ||||||||||||||||
| Borrowings (2) | 21,023 | 241 | 1.53 | % | 24,990 | 322 | 1.72 | % | ||||||||||||||||
| Total interest-bearing liabilities/interest expense | 160,270 | 721 | 0.60 | % | 127,804 | 1,369 | 1.43 | % | ||||||||||||||||
| Noninterest-bearing demand deposits | 88,387 | 21,255 | ||||||||||||||||||||||
| Other liabilities | 1,642 | 2,447 | ||||||||||||||||||||||
| Stockholders’ equity | 23,872 | 8,340 | ||||||||||||||||||||||
| Total liabilities and stockholders’ equity | $ | 274,171 | $ | 159,846 | ||||||||||||||||||||
| Net interest income | $ | 6,507 | $ | 3,531 | ||||||||||||||||||||
| Interest rate spread (3) | 3.26 | % | 2.94 | % | ||||||||||||||||||||
| Net interest margin (4) | 3.48 | % | 3.15 | % | ||||||||||||||||||||
| Ratio of average interest-earning assets to average interest-bearing liabilities | 1.56 | 1.17 | ||||||||||||||||||||||
| (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. |
(continued)
| 22 |
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, 20172021 and 20162020
| Three Months Ended | Increase / | |||||||||||||||
| September 30, | (Decrease) | |||||||||||||||
| (dollars in thousands) | 2021 | 2020 | Amount | Percentage | ||||||||||||
| Total interest income | $ | 2,973 | $ | 1,771 | $ | 1,202 | 68 | % | ||||||||
| Total interest expense | 208 | 386 | (178 | ) | (46 | )% | ||||||||||
| Net interest income | 2,765 | 1,385 | 1,380 | 100 | % | |||||||||||
| Provision for loan losses | 582 | 524 | 58 | 11 | % | |||||||||||
| Net interest income after provision for loan losses | 2,183 | 861 | 1,322 | 154 | % | |||||||||||
| Total noninterest income | 423 | 64 | 359 | 561 | % | |||||||||||
| Total noninterest expenses | 1,689 | 1,421 | 268 | 19 | % | |||||||||||
| Net earnings (loss) before income taxes | 917 | (496 | ) | 1,413 | (284 | )% | ||||||||||
| Income taxes | - | - | - | - | ||||||||||||
| Net earnings (loss) | $ | 917 | $ | (496 | ) | 1,413 | (284 | )% | ||||||||
| Net earnings (loss) per share - basic and diluted | $ | 0.21 | $ | (0.17 | ) | |||||||||||
General.Net lossearnings (loss). Net earnings for the three months ended September 30, 2017, was $(56,000)2021, were $917,000 or $(.05) loss$0.21 per basic and diluted share compared to a net earningsloss of $22,000$(496,000) or $0.02 earnings$(0.17) per basic and diluted share for the periodthree months ended September 30, 2016.2020. The increase in net earnings during the three months ended September 30, 2021 compared to three months ended September 30, 2020 is primarily attributed to an increase in net interest income and noninterest income, partially offset by the increase in noninterest expense.
Interest Income.Income. Interest income decreased $90,000increased $1,202,000 for the three months ended September 30, 20172021 compared to the three months Endedended September 30, 2016.2020 due primarily to growth in the loan portfolio.
Interest Expense.Interest expense on deposits and borrowings increased by $36,000decreased $178,000 to $208,000 for the three months ended September 30, 2017 from $272,000 for2021 compared to the three months Ended September 30, 2016. Interest expense increasedprior period, primarily due to highera decrease in interest paid on borrowings during the second 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 interestbearing deposit rates. The weighted average rate of these advances increased from 0.49% to 1.19%.
Provision for Loan Losses. ThereProvision for loan losses was no provision$582,000 for losses during the 2017 or 2016 period.three months ended September 30, 2021 compared to $524,000 for the three months ended September 30, 2020. The provision for loan losses is charged to operations as losses are estimated to have occurred in order to bring the total loan allowance for loan losses to a level deemed appropriate by management to absorb losses inherent in the portfolio at September 30, 2017.2021. Management’s periodic evaluation of the adequacy of the allowance is based upon historical experience, the volume and type of lending conducted by us, adverse situations that may affect the borrower’s ability to repay, estimated value of the underlying collateral, loans identified as impaired, general economic conditions, particularly as they relate to our market areas, and other factors related to the estimated collectability of our loan portfolio. The allowance for loan losses totaled $3.9$2.7 million or 5.37%1.29% of loans outstanding at September 30, 2017, as2021, compared to $4.2$1.9 million or 4.91%1.23% of loans outstanding at September 30, 2016. Management believes the balance in the allowanceDecember 31, 2020. The provision for loan losses at September 30, 2017 is significantly overfunded.during the second quarter of 2021 was primarily due to loan volume growth and the evaluation of the other factors noted above.
Noninterest Income.Total noninterest income increased by $23,000to $423,000 for the three months ended September 30, 2017,2021, from $31,000 for the three months Ended September 30, 2016 due to significant fees collected on previously impaired loans.
Noninterest Expenses. Total noninterest expenses decreased $25,000 to $935,000$64,000 for the three months ended September 30, 2017 compared2020 due to $960,000increased wire transfer and ACH fees related to an increase in business checking accounts of approximately $14.5 million during the three month period ended September 30, 2021.
Noninterest Expenses. Total noninterest expenses increased to $1,689,000 for the three months Endedended September 30, 2016.2021 compared to $1,421,000 for the three months ended September 30, 2020 primarily due to an increase in salaries and employee benefits, professional fees and data processing.
| 23 |
Comparison of the Nine-Month Periods Ended September 30, 20172021 and 20162020
| Nine Months Ended | Increase / | |||||||||||||||
| September 30, | (Decrease) | |||||||||||||||
| (dollars in thousands) | 2021 | 2020 | Amount | Percentage | ||||||||||||
| Total interest income | $ | 7,228 | $ | 4,900 | $ | 2,328 | 48 | % | ||||||||
| Total interest expense | 721 | 1,369 | (648 | ) | (47 | )% | ||||||||||
| Net interest income | 6,507 | 3,531 | 2,976 | 84 | % | |||||||||||
| Provision for loan losses | 955 | 1,236 | (281 | ) | (23 | )% | ||||||||||
| Net interest income after provision for loan losses | 5,552 | 2,295 | 3,257 | 142 | % | |||||||||||
| Total noninterest income | 902 | 170 | 732 | 431 | % | |||||||||||
| Total noninterest expenses | 4,745 | 3,616 | 1,129 | 31 | % | |||||||||||
| Net earnings (loss) before income taxes | 1,709 | (1,151 | ) | 2,860 | (248 | )% | ||||||||||
| Income taxes | - | - | - | - | ||||||||||||
| Net earnings (loss) | $ | 1,709 | $ | (1,151 | ) | 2,860 | (248 | )% | ||||||||
| Net earnings (loss) per share - basic and diluted | $ | 0.47 | $ | (0.39 | ) | |||||||||||
General.Net lossearnings (loss). Net earnings for the nine months ended September 30, 2017, was $(510,000)2021, were $1,709,000 or $(.46) loss$0.47 per basic and diluted share compared to a net loss of $(308,000)$(1.2 million) or $(0.30) loss$(0.39) per basic and diluted share for the nine nonths Endedmonths ended September 30, 2016.2020. The increase in net loss was dueearnings during the nine months ended September 30, 2021 compared to nine months ended September 30, 2020 is primarily attributed to a decrease in the provision for loan losses, increase in net interest income and a combination of higher professional fees and other non-interest expenses and a lower level of loan fees includednoninterest income, partially offset by the increase in noninterest income.expense.
Interest Income.Income. Interest income decreased by $159,000increased $2,328,000 for the nine months ended September 30, 2017 from $3,598,0002021 compared to the nine months ended September 30, 2020 due primarily to growth in the loan portfolio.
Interest Expense. Interest expense decreased $648,000 to $721,000 for the nine months Endedended September 30, 2016,2021 compared to the prior period, primarily due to a decrease in interest earnings assets.bearing deposit rates.
Interest Expense.Provision for Loan Losses. Interest expense on deposits and borrowings increasedProvision for loan losses amounted to $902,000$955,000 for the nine months ended September 30, 2017 from $810,000 for the nine months Ended September 30, 2016. Interest expense increased primarily due2021 compared to higher interest paid on borrowings during 2017. In late March 2017, the Bank extended the maturities of $15.5$1.2 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%.
Provision for Loan Losses.There was no provision for the nine months ended September 30, 2017 or 2016.2020. The provision for loan losses is charged to operations as losses are estimated to have occurred in order to bring the total loan allowance for loan losses to a level deemed appropriate by management to absorb losses inherent in the portfolio.portfolio at September 30, 2021. Management’s periodic evaluation of the adequacy of the allowance is based upon historical experience, the volume and type of lending conducted by us, adverse situations that may affect the borrower’s ability to repay, estimated value of the underlying collateral, loans identified as impaired, general economic conditions, particularly as they relate to our market areas, and other factors related to the estimated collectability of our loan portfolio. The allowance for loan losses totaled $3.9$2.7 million or 5.37%1.29% of loans outstanding at September 30, 2017,2021, compared to $4.2$1.9 million or 4.91%1.23% of loans outstanding at September 30, 2016. Management believes the balance in the allowanceDecember 31, 2020. The provision for loan losses atduring nine months ended September 30, 2017 is significantly overfunded.2021 was primarily due to loan volume growth and an evaluation of the other factors noted above.
Noninterest Income. Total noninterest income decreasedincreased to $71,000 from $125,000$902,000 for the nine months ended September 30, 2017, compared to the nine months Ended September 30, 2016 due to gains on securities sales of $48,000 in 2016 compared to $7,000 in 2017 and reduced service charges and other fees.
Noninterest Expenses.Total noninterest expenses decreased to $3,118,0002021, from $170,000 for the nine months ended September 30, 2017 compared2020 due to $3,221,000increased wire transfer and ACH fees related to an increase in business checking accounts of approximately $23.7 million during the nine month period ended September 30, 2021.
Noninterest Expenses. Total noninterest expenses increased to $4,745,000 for the nine months Endedended September 30, 2016,2021 compared to $3,616,000 for the nine months ended September 30, 2020 primarily due to decreasedan increase in salaries and employee benefits occupancy,and data processing, and regulatory assessments.processing.
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OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Item 4. Controls and Procedures
The Company’s management evaluated the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report, and, based on this evaluation, the Principal Executive Officer and Principal Financial Officer concluded that these disclosure controls and procedures are effective.
There have been no changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2017,2021, that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
None
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Non-Employee Director Share Issuances
On March 31, 2017,During the third quarter of 2021, the Company agreed to issue 4,550issued 358,023 shares of its common stock in a private placement transaction to 18 accredited investors at a price of $4.50 per share. None of these investors was an officer, director or affiliate of 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 meetingsCompany other than Martin Schmidt, who is a director 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% in shares of common stock and 25% in cash on a quarterly basis.Mr. Schmidt purchased 10,323 shares. The shares wereCompany issued at the 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. The issuance of the shares was exempt from registration pursuant toin reliance on Section 4(2)4(a)(2) of the Securities Act as a transaction by an issuer not involving a public offering.
Other Significant Share Issuance
On March 27, 2017,During October 2021, the Company allocated 59,523issued an additional 188,660 shares of its common stock in a private placement transaction to the Bank’s Chairman under the 2011 Equity Incentive Plan as compensation for services asan accredited investor at a director at the price of $3.36$4.50 per share, the fair market valueshare. The investor was not an officer, director or affiliate of the Company. The Company issued these shares in reliance 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. 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. The issuance of the shares was exempt from registration pursuant to Section 4(2)4(a)(2) of the Securities Act as a transaction by an issuer not involving a public offering.offering.
Item 3. Defaults on Senior Securities
Junior Subordinated DebentureNot applicable.
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.Item 4. Mine Safety Disclosures
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.
Not applicable.
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.Item 5. Other Information
Not applicable.
Item 6. Exhibits
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 9, 2021 | /s/ Timothy Terry | |||
| Timothy Terry | ||||
| Principal Executive Officer | ||||
| By: | /s/ | |||
| Principal Financial Officer | ||||
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
EXHIBIT INDEX
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
EXHIBIT INDEX
| Exhibit No. | Description | |
| 101.INS | Inline XBRL Instance Document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |