UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement
Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment (Amendment No. 1)
Filed by the Registrantx [X]
Filed by a Party other than the Registrant¨ [ ]
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Preliminary Proxy Statement |
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[ ] | Definitive Proxy Statement |
[ ] | Definitive Additional Materials |
[ ] | Soliciting Material Pursuant to |
OptimumBank Holdings, Inc.
OPTIMUMBANK HOLDINGS, INC.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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OPTIMUMBANK HOLDINGS, INC.
2477 East Commercial BoulevardPROXY STATEMENT
Fort Lauderdale, Florida 333082019 ANNUAL MEETING OF SHAREHOLDERS
PROXY VOTING OPTIONS
(954) 776-2332YOUR VOTE IS IMPORTANT!
December 3, 2008
Dear Shareholder:
You are cordially invited to attend a special meeting of shareholders of OptimumBank Holdings, Inc. The meeting will be held on December 30, 2008 at 10:00 a.m., local time, at the executive offices of OptimumBank, located at 2477 East Commercial Boulevard, Fort Lauderdale, Florida 33308.
The enclosed notice of special meeting and proxy statement describe the formal business to be transacted at the special meeting, which will include a proposal to approve an amendment to our articles of incorporation to authorize our board of directors to issue shares of preferred stock. We are asking for your approval of this amendment in order to enable us to take advantage of what we believe is a very attractive capital raising opportunity proposed by the U.S. government. Recently, the U.S. Department of Treasury announced the establishment of the Troubled Asset Relief Program Capital Purchase Program (the “TARP Capital Purchase Program”), under which Treasury plans to invest up to $250 billion in U.S. financial institutions by purchasing preferred stock from these institutions. Our current articles of incorporation do not permit the issuance of preferred stock. Therefore, in order for us to participate in the TARP Capital Purchase Program, we are asking our shareholders to approve a proposed amendment to our articles of incorporation to authorize the issuance of preferred stock. The proposed amendment would also provide our board of directors with the flexibility to issue additional shares of preferred stock in other capital raising transactions, though no specific issuances of preferred stock outside of the TARP Capital Purchase Program are presently contemplated.
Although we currently have capital well in excess of that required to be considered well-capitalized under banking regulations, we, like other financial institutions, continue to face extremely challenging market conditions. Our board of directors believes that the TARP Capital Purchase Program will provide us with additional capital on favorable terms and afford us additional flexibility in addressing the challenges and opportunities in current markets.
If we are allowed to participate in the TARP Capital Purchase Program, we would issue and sell to the U.S. Department of the Treasury shares of new preferred stock for cash consideration of approximately $4.6 million.
Our board of directors unanimously recommends that you voteFORthe proposed amendment to our articles of incorporation.
Whether or not you expect to attend the special meeting in person, please complete, sign and date the enclosed proxy as promptly as possible and return it in the enclosed envelope (to which no postage need be affixed if mailed in the United States) or submit your proxy over the Internet or by telephone. For further details, see “About the Special Meeting - How do I vote?” in the enclosed proxy statement.
OPTIMUMBANK HOLDINGS, INC.
2477 East Commercial Boulevard
Fort Lauderdale, Florida 33308
(954) 776-2332
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To be held on December 30, 2008
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of OptimumBank Holdings, Inc. will be held on December 30, 2008 at 10:00 a.m., local time, at the executive offices of OptimumBank, located at 2477 East Commercial Boulevard, Fort Lauderdale, Florida 33308, to consider and act upon the following matters:
Only shareholders of record as of the close of business on November [14], 2008 are entitled to notice of, and to vote at, the special meeting or any adjournment or postponement thereof.
You are cordially invited to attend the special meeting in person. However, whether or not you expect to attend the special meeting in person, we urge you to complete, sign and date the enclosed proxy as promptly as possible and return it in the enclosed envelope (to which no postage need be affixed if mailed in the United States) or submitvote your proxy overshares by phone, via the Internet, or by telephone.signing, dating, and returning the enclosed proxy card at your earliest convenience. This will ensure the presence of a quorum at the special meeting and thatmeeting. Promptly voting your shares are voted in accordance withwill save us the expense and extra work of additional solicitation. Submitting your wishes. For further details, see “Aboutproxy now will not prevent you from voting your stock at the Special Meeting - Howmeeting if you want to do I vote?”so, as your vote by proxy is revocable at your option.
Voting by theInternet orTelephone is fast and convenient, and your vote is immediately confirmed and tabulated. Most important, by using the Internet or telephone, you help us reduce postage and proxy tabulation costs.
Or, if you prefer, you can return the enclosed Proxy Card in the enclosed proxy statement.envelope provided.
Fort Lauderdale
December 3, 2008
This notice of special meeting and proxy statement and form of proxy are first being distributed to shareholders on or about December 3, 2008.
TABLE OF CONTENTSPLEASE DO NOT RETURN THE ENCLOSED PROXY CARD IF YOU ARE VOTING OVER THE INTERNET OR BY TELEPHONE.
http://www.cstproxyvote.com 24 hours a day / 7 days a week INSTRUCTIONS: Read the accompanying Proxy Statement. Go to the following website: http://www.optimumbank.com/stockholder-information/ Have your Proxy Card in hand and follow the instructions. | VOTE BY TELEPHONE: 1-866-894-0536 via touchtone phone toll-free 24 hours a day / 7 days a week INSTRUCTIONS: Read the accompanying Proxy Statement. Call 1-866-894-0536 Have your Proxy Card in hand and follow the instructions. |
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OPTIMUMBANK HOLDINGS, INC.
2477 East Commercial Boulevard
Fort Lauderdale, Florida 33308
PROXY STATEMENTJune
FOR
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 30, 2008____, 2019
Dear Shareholder:
This proxy statement contains information relatingYou are cordially invited to a specialattend the annual meeting of shareholders of OptimumBank Holdings, Inc. (sometimes referred to as the “Company,” “we,” “us,” or “our”) to, which will be held on December 30, 2008 beginning at 10 a.m., local time, at the executive offices of our subsidiary, OptimumBank, (sometimes referred to as the “Bank”), located at 2477 East Commercial Boulevard, Fort Lauderdale, Florida 33308, on ___________, July ____, 2019, at 10:00 a.m.
Details of the business to be conducted at the annual meeting are given in the attached Notice of Annual Meeting and Proxy Statement.
Also enclosed is a copy of our Annual Report on Form 10-K for 2018, which contains important information about our company.
Whether or not you attend the annual meeting, it is important that your shares be represented and voted at the meeting. Therefore, I urge you to promptly vote and submit your proxy by phone, via the Internet, or by signing, dating, and returning the enclosed proxy card in the enclosed envelope. If you decide to attend the annual meeting, you will be able to vote in person, even if you have previously submitted your proxy.
If you need directions to the annual meeting, please call our offices at (954) 900-2805.
On behalf of the Board of Directors, I would like to express our appreciation for your continued support for our company.
Sincerely, | |
Moishe Gubin | |
Director |
OPTIMUMBANK HOLDINGS, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be held on July ____, 2019
To the Shareholders:
The annual meeting of the shareholders of OptimumBank Holdings, Inc. will be held at the executive offices of OptimumBank, 2477 East Commercial Boulevard, Fort Lauderdale, Florida 33308, on __________, July ___, 2019, at 10:00 a.m. for the following purposes:
1. To elect seven (7) directors;
2. To approve the issuance of up to 1,000,000 shares of common stock in exchange for Trust Preferred Securities issued by OptimumBank Capital Trust I;
3. To approve the participation of certain directors of the Company in the exchange offer for the Trust Preferred Securities described in Proposal 2;
4. To approve an amendment to the Company’s Articles of Incorporation to increase the number of shares of common stock authorized for issuance from 5,000,000 shares to 10,000,000 shares;
5. To ratify the selection of Hacker, Johnson & Smith, P.A. as the Company’s independent auditor for fiscal year 2019; and
6. To transact such other business as may properly come before the Annual Meeting.
Only shareholders of record at the close of business on ________, 2019 are entitled to notice of, and to vote at, this meeting.
By order of the Board of Directors | |
Moishe Gubin | |
Director | |
Fort Lauderdale, Florida | |
June___, 2019 |
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IMPORTANT
Whether or not you expect to attend in person, we urge you to vote your shares at your earliest convenience. This will ensure the presence of a quorum at the meeting. Promptly voting your shares by telephone, via the Internet, or by signing, dating, and returning the enclosed proxy card will save our company the expenses and extra work of additional solicitation. An addressed envelope for which no postage is required if mailed in the United States is enclosed if you wish to vote by mail. Submitting your proxy now will not prevent you from voting your shares at the meeting if you desire to do so, as your proxy is revocable at your option.
Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to be held on July ___, 2019.Our Proxy Statement and Annual Report on Form 10-K for 2018 are available athttp://www.optimumbank.com/stockholder-information/
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OPTIMUMBANK HOLDINGS, INC.
2477 EAST COMMERCIAL BOULEVARD
FORT LAUDERDALE, FLORIDA 33308
PROXY STATEMENT
2019 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY ____, 2019
This Proxy Statement will be first mailed to shareholders on or about June ___, 2019. It is furnished in connection with the solicitation of proxies by the Board of Directors of OptimumBank Holdings, Inc. (the “Company”) to be voted at the annual meeting of the shareholders of the Company, which will be held at 10:00 a.m. on ____________, July ____, 2019, at the executive offices of OptimumBank (the “Bank”), 2477 East Commercial Boulevard, Fort Lauderdale, Florida 33308, for the purposes set forth in the accompanying Notice of Annual Meeting of Shareholders. Shareholders who execute proxies retain the right to revoke them at any adjournmentstime before the shares are voted by proxy at the meeting. A shareholder may revoke a proxy by delivering a signed statement to the Secretary of the Company at or postponements thereof.prior to the annual meeting or by executing and delivering another proxy dated as of a later date. The Company will pay the cost of solicitation of proxies.
Shareholders of record at the close of business on ________, 2019 will be entitled to vote at the meeting on the basis of one vote for each share held. On the record date, there were _________ outstanding shares of common stock held of record by approximately ___ shareholders.
QUESTIONS AND ANSWERS ABOUT THE SPECIALANNUAL MEETING
Who is soliciting my proxy?When and where will the annual meeting take place?
Our board
The annual meeting will be held on July ___, 2019 at 10:00 a.m. (local time), at the executive offices of directors is sending youthe Bank, 2477 East Commercial Boulevard, Fort Lauderdale, Florida 33308.
Why did I receive this proxy statement?
You received this proxy statement in connection with its solicitationbecause you held shares of proxies for usethe Company’s common stock on ________, 2019 (the “Record Date”) and are entitled to vote at the specialannual meeting. The Board of Directors is soliciting your proxy to vote at the meeting.
What am I voting on?
You are being asked to vote on five items:
1. The election of seven (7) Directors (see page 11);
2. The approval of the issuance of up to 1,000,000 shares of common stock in exchange for Trust Preferred Securities issued by OptimumBank Capital Trust I (see page 15);
3. The approval of the participation of certain directors of the Company in the exchange offer for the Trust Preferred Securities described in Proposal 2 (see page 19);
4. The approval of an amendment to the Company’s Articles of Incorporation to increase the number of shares of common stock authorized for issuance from 5,000,000 shares to 10,000,000 shares (see page 20); and
5. The ratification of the appointment of Hacker, Johnson & Smith, P.A. as the Company’s independent registered public accounting firm for the 2019 fiscal year (see page 23).
How do I vote?
Shareholders of Record
If you are a shareholder of record, there are four ways to vote:
●By toll free telephone at 1-866-894-0537;
● By internet athttp://www.cstproxyvote.com;
● If you request printed copies of the proxy materials, you may vote by proxy by completing and returning your proxy card in the postage-paid envelope provided by the Company; or
● By voting in person at the meeting.
Street Name Holders
Shares which are held in a brokerage account in the name of the broker are said to be held in “street name.”
If your shares are held in street name, you should follow the voting instructions provided by your broker. If you requested printed copies of the proxy materials, you may complete and return a voting instruction card to your broker, or, in many cases, your broker may also allow you to vote via the telephone or Internet. Check your notice from your broker for more information. If you hold your shares in street name and wish to vote at the meeting, you must obtain a legal proxy from your broker and bring that proxy to the meeting.
Regardless of how your shares are registered, if you request printed copies of the proxy materials, complete and properly sign the accompanying proxy card and return it to the address indicated, it will be voted as you direct.
What is the purposedeadline for voting via Internet or telephone?
Internet and telephone voting is available through 11:59 p.m. (Eastern Daylight Time) on ______, July ___, 2019 (the day before the annual meeting).
What are the voting recommendations of the special meeting?Board of Directors?
At the special meeting, shareholders will act upon the matters outlined
The Board of Directors recommends that you vote in the accompanying notice of special meeting, including:following manner:
1. FOR each of the persons nominated by the Board of Directors to serve as Directors;
2. FOR the approval of the issuance of up to 1,000,000 shares of common stock in exchange for Trust Preferred Securities issued by OptimumBank Capital Trust I;
3. FOR the approval of the participation of certain directors of the Company in the exchange offer for the Trust Preferred Securities described in Proposal One: A proposal to approve2;
4. FOR the approval of an amendment to our articlesthe Company’s Articles of incorporationIncorporation to authorize us to issue up to 6,000,000increase the number of shares of preferredcommon stock (the “Articles Amendment Proposal”);authorized for issuance from 5,000,000 shares to 10,000,000 shares; and
Proposal Two: A proposal to adjourn5. FOR the special meeting, if necessary, to solicit additional proxies, in the event there are not sufficient votes at the timeratification of the special meeting to approveappointment of Hacker, Johnson & Smith, P.A. as the Articles Amendment Proposal (the “Adjournment Proposal”).Company’s independent registered public accounting firm for the 2019 fiscal year.
Except
Unless you give contrary instructions in your proxy, the persons named as proxies will vote your shares in accordance with respect to the procedural matters incident to the conductrecommendations of the meeting, we areBoard of Directors.
Will any other matters be voted on?
We do not awareknow of any other business tomatters that will be brought before the shareholders for a vote at the annual meeting.
Why If any other matter is properly brought before the meeting, your proxy would authorize Moishe Gubin and Joel Klein of the Company seeking to amend its articles of incorporation to authorize the issuance of preferred stock?vote on such matters in their discretion.
If the proposed amendment to our articles of incorporation is approved, we will have the opportunity to raise low-cost capital on what we believe is very favorable terms under the recently enacted Emergency Economic Stabilization Act of 2008. On October 14, 2008, Treasury announced the establishment of the Troubled Asset Relief Program Capital Purchase Program (the “TARP Capital Purchase Program”), under which Treasury will invest up to $250 billion in preferred stock of U.S. financial institutions, in each case in an amount equal to not less than 1% of the institution’s risk-weighted assets and not greater than the lesser of 3% of the institution’s risk-weighted assets or $25 billion. In conjunction with the purchase of an institution’s preferred stock, Treasury will receive warrants to
purchase the institution’s common stock with an aggregate market value equal to 15% of the total amount of the preferred investment. Because our articles of incorporation currently do not authorize us to issue preferred stock, shareholder approval of the Articles Amendment Proposal authorizing preferred stock is necessary for us to be able to participate in the TARP Capital Purchase Program, assuming our application to participate in the program is approved by Treasury.
The Articles Amendment Proposal would also afford our board of directors the flexibility to set the terms of and issue additional preferred stock in other capital raising transactions without incurring the time and expense of seeking shareholder approval for particular issuances.
What will the consequences be if the Articles Amendment Proposal is not approved?
If the Articles Amendment Proposal is not approved by shareholders, we will not be able to participate in the TARP Capital Purchase Program, even if we are approved by Treasury, or have the ability to issue preferred stock in other capital raising transactions.
Who is entitled to vote at the special meeting?
Only shareholders of record as ofat the close of business on the record date, November [14], 2008,Record Date are entitled to receive notice of the special meeting and to vote at the annual meeting. If you were a shareholder of record on that date, you will be entitled to vote all of the shares of common stock that theyyou held on that date at the specialannual meeting, or any postponement or adjournment or postponement thereof. Each outstandingof the meeting.
How many votes do I have?
You will have one vote for each share of ourthe Company’s common stock entitles its holder tothat you owned on the Record Date.
How many votes can be cast one vote on each matter to be voted upon at the special meeting. by all shareholders?
The total number ofCompany had _________ outstanding shares of our common stock outstanding on the record date and eligibleRecord Date. Each of these shares is entitled to cast votes at the special meetingone vote. There is 3,120,992.
Please note that if you hold your shares in “street name” (that is, through a broker or other nominee), you will need to bring appropriate documentation from your broker or nominee to vote in person at the special meeting.no cumulative voting.
How many votes must be present to hold the special meeting?
The presenceholders of a majority of the Company’s common stock outstanding on the Record Date must be present at the special meeting in person or by proxy in order to fulfill the quorum requirement necessary to hold the meeting. This means at least _______ shares must be present in person or by proxy.
If you vote, your shares will be part of the holders of a majority of the shares of common stock outstanding on the record date, or 1,560,497 shares, will constitute a quorum at the special meeting. For purposes of determining a quorum, proxies received but marked as abstentionsquorum. Abstentions and broker non-votes will also be treated as shares that are present and entitled to vote.counted in determining the quorum. A broker non-vote occurs when a bank or broker holding shares in street name submits a proxy that states that the broker does not vote for some or other nominee indicatesall of the proposals because the broker has not received instructions from the beneficial owners on how to vote on the proxy card that itproposals and does not have discretionary authority to vote on a particular matter because it has not received voting instructions from its customer, asin the beneficial ownerabsence of the securities. It is expected that brokers will not have discretionary authorityinstructions.
We urge you to vote on the Articles Amendment Proposal or the Adjournment Proposal if they do not receive voting instructions from their customers.
How do I vote?
You may vote your shares either in person at the special meeting or by proxy whether or not you attend the special meeting. Shares held in your name as the shareholder of record may be voted in person at the special meeting. Shares held beneficially in street name may be voted in person at the special meeting only if you obtain a legal proxy from the broker or other nominee that holds your shares giving you the right to vote the shares. Eveneven if you plan to attend the special meeting we recommend that you also submit your proxy or voting instructions as described below so that your votewe will be counted if you later decide not to attend the meeting.know as soon as possible that a quorum has been achieved.
Shareholders whose shares are registered in their own names may vote by submitting a proxy via the Internet, by telephone or by mailing a completed proxy card as an alternative to voting in person at the meeting. Instructions for voting via the Internet or by telephone are set forth on the enclosed proxy card. To vote by mailing a proxy card, sign and return the enclosed proxy card in the enclosed prepaid and addressed envelope, and your shares will be voted at the meeting in the manner you direct. Granting a proxy will not affect your right to vote your shares if you attend the special meeting and want to vote in person; by voting in person you will revoke your proxy. You may also revoke your proxy at any time before the vote at the meeting by providing our President, Richard L.
Browdy, written notice of your revocation or by submitting a proxy bearing a later date via Internet, telephone or mail. If you submit your proxy but do not mark your voting preferences, the proxy holders will vote your shares FOR approval of the Articles Amendment Proposal and FOR approval of the Adjournment Proposal.
If your shares are registered in the name of a broker or other nominee, you will receive instructions from your holder of record that must be followed in order for the record holder to vote the shares per your instructions. Many banks and brokerage firms have a process for their beneficial holders to provide instructions over the telephone or via the Internet. If Internet or telephone voting is unavailable from your bank or brokerage firm, please complete and return the enclosed voting instruction card in the addressed, postage paid envelope provided.
Can I change my vote?
Yes. Even after you have submitted your proxy, you may change your vote at any time before the proxy is exercised at the special meeting. If you are the shareholder of record, you may change your vote by granting via the Internet, telephone or mail a new proxy bearing a later date (which automatically revokes the earlier proxy), by providing a written notice of revocation to our President, Richard L. Browdy, prior to your shares being voted, or by attending the special meeting and voting in person. Attendance at the meeting will not cause your previously granted proxy to be revoked unless you specifically so request. For shares you hold beneficially in street name, you may change your vote by submitting new voting instructions to your broker or other nominee, or, if you have obtained a legal proxy from your broker or nominee giving you the right to vote your shares, by attending the meeting and voting in person.
How are votes counted?
With respect to each of the Articles Amendment Proposal and the Adjournment Proposal, you may vote “FOR,” “AGAINST” or “ABSTAIN.”
If you submit your proxy without giving specific voting instructions, your shares will be voted in accordance with the recommendations of our board of directors (“FOR” the Articles Amendment Proposal, “FOR” the Adjournment Proposal and in the discretion of the proxy holders on any other matters that properly come before the special meeting, or any adjournment or postponement thereof).
What vote is required to approve each proposal?
For the election of Directors (Proposal No. 1), the affirmative vote of a plurality of the votes present in person or by proxy and entitled to vote at the meeting is required. A proxy that has properly withheld authority with respect to the election of one or more Directors will not be voted with respect to the Director or Directors indicated, although it will be counted for the purposes of determining whether there is a quorum.
For the approval of the issuance of up to 1,000,000 shares of common stock in exchange for Trust Preferred Securities issued by OptimumBank Capital Trust I (Proposal No. 2), the affirmative vote of the majority of the votes cast for this proposal will be required for approval. As such, abstentions and broker non-votes will not affect the outcome of the vote, but will be counted for determining the existence of a quorum.
For the approval of the participation of certain directors of the Company in the exchange offer for the Trust Preferred Securities described in Proposal One: TheNo. 2 (Proposal No. 3), the affirmative vote of the majority of the votes cast for this proposal will be required for approval. As such, abstentions and broker non-votes will not affect the outcome of the vote, but will be counted for determining the existence of a quorum.
For the approval of an amendment to the Company’s Articles of Incorporation to increase the number of shares of common stock authorized for issuance from 5,000,000 shares to 10,000,000 shares (Proposal No. 4), the affirmative vote of the majority of the votes cast for this proposal will be required for approval. As such, abstentions and broker non-votes will not affect the outcome of the vote, but will be counted for determining the existence of a quorum.
For the ratification of the appointment of Hacker, Johnson & Smith, P.A. (Proposal No. 5), the affirmative vote of a majority of the shares of our common stock presentrepresented in person or by proxy and votingentitled to vote at the special meeting iswill be required for approval. An abstention with respect to approvethis proposal will be counted for the Articles Amendment Proposal. Abstentions and broker non-votes will have no effect onpurposes of determining the Articles Amendment Proposal.
Proposal Two: The affirmativenumber of shares entitled to vote of a majority of the shares of our common stockthat are present in person or by proxy. Accordingly, an abstention will have the effect of a negative vote.
Can I change my vote?
Yes. If you are a shareholder of record, you may change your vote at any time before your proxy and votingis voted at the special meeting is requiredannual meeting. You can do this in one of three ways. First, you can send a written notice stating that you would like to approve the Adjournment Proposal, if this proposal becomes necessary. Abstentions and broker non-votes will have no effectrevoke your proxy. Second, you can submit new proxy instructions either on the Adjournment Proposal.
Do shareholders have dissenters’ rights in regards to the proposal to amend our articles of incorporation?
Under applicable Florida law, our shareholders are not entitled to dissenters’ rights with respect to the proposal to approve and adopt the amendment to our articles of incorporation authorizing the issuance of preferred stock.
How does the board of directors recommend I vote on the proposals?
Unless you give other instructions on youra new proxy card, Richard L. Browdy and Albert J. Finch, the proxy holders, will vote in accordance with the recommendations of our board of directors. Our board of directors recommends a vote FOR the Articles Amendment Proposal and FOR the Adjournment Proposal.
With respect to any other matter that properly comes before the meeting, the proxy holders will vote as recommended by our board of directors, or if no recommendation is given, in their own discretion.
Who will bear the costs of soliciting proxies for the special meeting?
We will bear the cost of soliciting proxies for the special meeting. We have retained Morrow & Co., LLC, to assist in the solicitation of proxies for a fee estimated to be approximately $6,000, plus reasonable out-of-pocket expenses. We may also reimburse brokerage firms and other custodians, nominees and fiduciaries for reasonable out-of-pocket expenses incurred by them in sending proxy materials to the beneficial owners of our shares of common stock. In addition to solicitations by mail, our directors, officers and employees, including those of the Bank, may solicit proxies personally, by telephone or otherwise, butvia the Internet. Third, you can attend the meeting, and vote in person. Your attendance alone will not revoke your proxy. If you have instructed a broker to vote your shares, you must follow directions received from your broker to change those instructions.
Who can attend the annual meeting?
Any person who was a shareholder of the Company on ________, 2019 may attend the meeting. If you own shares in street name, you should ask your broker or bank for a legal proxy to bring with you to the meeting. If you do not receive any additional compensation for their services.the legal proxy in time, bring your most recent brokerage statement so that we can verify your ownership of the Company’s stock and admit you to the meeting. However, you will not be able to vote your shares at the meeting without a legal proxy.
What happens if I sign and return the proxy card but do not indicate how to vote on an issue?
If you return a proxy card without indicating your vote, your shares will be voted as follows:
● | FOR each of the nominees for Director named in this proxy statement; | |
● | FOR the approval of the issuance of up to 1,000,000 shares of common stock in exchange for Trust Preferred Securities issued by OptimumBank Capital Trust I; | |
● | FOR the approval of the participation of certain directors of the Company in the exchange offer for the Trust Preferred Securities described in Proposal 2; | |
● | FOR the approval of an amendment to the Company’s Articles of Incorporation to increase the number of shares of common stock authorized for issuance from 5,000,000 shares to 10,000,000 shares; and | |
● | FOR ratification of the appointment of Hacker, Johnson & Smith, P.A. as the independent registered public accounting firm for the Company for the 2019 fiscal year. |
Who can help answer my questions?
If you are a shareholder, and would like additional copies, without charge, of this proxy statement or if you have any questions or need any assistance inabout the annual meeting, including the procedures for voting your shares, you should contact:
Mary Franco, Operations Assistant - (954) 900-2805
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Our Board of Directors currently consists of seven members, each of whom are to be elected at the annual meeting. Directors hold office until the next annual meeting of shareholders and until their successors are elected and qualified. All of the nominees are current Directors. The Board of Directors has nominated each of the current Directors for election at the 2019 annual meeting.
The Company is currently seeking additional candidates to serve as Directors.
The accompanying proxy please contact ourwill be voted in favor of the following persons to serve as directors unless the shareholder indicates to the contrary on the proxy. The election of the Company’s Directors requires a plurality of the votes cast in person or by proxy solicitor, Morrowat the meeting. Management expects that each of the nominees will be available for election, but if any of them is unable to serve at the time the election occurs, the proxy will be voted for the election of another nominee to be designated by the Board of Directors.
Moishe Gubin, age 42, has served as a Director of the Company and OptimumBank since March 2010. Mr. Gubin is Chief Executive Officer of Strawberry Fields REIT, a real estate holding company, which owns properties in multiple states, and owns many other businesses. Mr. Gubin graduated from Touro Liberal Arts and Science College, in New York, New York, with a BS in Accounting and Information Systems and a Minor in Jewish Studies. Mr. Gubin is the founder of the Midwest Torah Center Inc., a non-profit spiritual outreach center (www.midwesttorah.org). He also attended Yeshiva Bais Israel where he received a BA in Talmudic Literature. Mr. Gubin has been a licensed Certified Public Accountant in the State of New York since 2010.
Joel Klein,age 72, became a Director of the Company and OptimumBank in February 2012. Mr. Klein has been retired since 2011. From 2006 until 2010, he served as Chief Financial Officer for Chicago-based Taxi Affiliation Services, LLC, a company that provides support services to transportation companies in five states and over twenty separate municipalities. Between 1994 and 2005, he was a vice president at The Stamford Group, Inc., a Connecticut based provider of investment and merchant banking services. Prior to his service with The Stamford Group, Mr. Klein served in various financial management capacities, including Chief Financial Officer, Controller, and Senior Accountant with various firms, including Equilease Corporation, Choice Drug Systems, Inc., The Leasing Equipment Group, Ltd., I.C. Herman & Co., Goldstein, Golub, Kessler & Co. CPA’s, and Brout, Isaacs & Co. CPA’s. Mr. Klein received a Bachelor of Science degree in Accounting from Brooklyn College in 1969. He has been licensed as a CPA in the State of New York since 1972.
Martin Z. Schmidt, age 71, became a Director of the Company and OptimumBank in August 2015. Mr. Schmidt has been in the financial and estate planning, securities and insurance industries since 1975. Since 2013, he has been an independent financial consultant with National Holdings Corp/Gilman Ciocia. In 2007, he served in a marketing capacity and liaison to the national senior accounting firms for Twenty-First Securities, Inc., introducing market based solutions for tax and corporate based problems within their institutional client base. From 1993 to 2000, he served as a Vice President and Branch Manager for multiple branches of Advest, Inc., a major regional securities and investment management firm. Mr. Schmidt served with the 423rd Military Police, U.S. Army Reserve, for five years, completed 3 years of coursework towards an MBA in Management Science and Statistics at the Lubin Graduate School of Business Administration in 1973, and graduated Brooklyn College with a B.A. in Economics in 1969.
Avi M. Zwelling, age 46, became a Director of the Company and OptimumBank in December 2017. Mr. Zwelling is the managing partner of Stern Zwelling, LLC, which is located in Boca Raton, Florida. The firm handles commercial litigation, banking, real estate, and trusts and estates matters. Mr. Zwelling graduated from Columbia University in New York, New York, with a B.A. in Comparative Religion, and earned a law degree from the Benjamin N. Cardozo School of Law, also in New York, New York. Mr. Zwelling has been providing legal services to the Company since 2012.
Thomas Procelli, age 64, has served as a Director of the Company since July 25, 2017 and OptimumBank since October 2012. Mr. Procelli is Director of Operations for Better Living Solutions, a Tallahassee counseling and wellness outpatient center specializing in eating disorder treatment and offers financial institution and business support services through his firm TAP Independent Consulting. Mr. Procelli served as an Executive Vice President since the founding of OptimumBank in October 2000 through September 2015 in the positions of Chief Technology Officer and Chief Operating Officer. Mr. Procelli has been in banking for over 40 years having a diverse background in operations, information systems, compliance and audit. Outside of banking, he has worked in public accounting at (800) 662-5200,the firm of Coopers and Lybrand and in mortgage origination software product development at Fiserv. He received his MBA in Finance in 1979 and his BBA degree in Accounting in 1976 from Hofstra University located in Hempstead, New York.
Chan Heng Fai Ambrose, age 74, has served as a Director since June 2018. Mr. Chan is an expert in banking and finance, with years of experience in these industries. He has also restructured 35 companies in various industries and countries in the past 40 years. Mr. Chan serves as the CEO of Singapore eDevelopment Limited (“Singapore eDevelopment”), a limited company listed on the Catalist of the Singapore Exchange Securities Trading Limited. Singapore eDevelopment is a diversified holding company. He was appointed as a director of Singapore eDevelopment in March 2014. He is also Non-Executive Director of ASX-listed bio-technology company Holista Colltech Limited, a position he has held since July of 2013. From September of 1992 until July of 2015, Mr. Chan also served as Managing Chairman of HKSE-listed Heng Fai Enterprises Limited, a holding company now known as ZH International Holdings Limited. He also served as director of Global Medical REIT Inc. (NYSE: GMRE) from December of 2013 until July of 2015 and as director of American Housing REIT Inc. from October of 2013 to July of 2015.
Jeffry Wagner, age 65, became a Director of the Company and OptimumBank in November 2018. Mr. Wagner retired in 2015 after serving as Executive Vice President, CFO and Secretary of OptimumBank since 2013. Prior to his tenure at OptimumBank, Mr. Wagner was Executive Officer, CFO/Treasurer at Florida Business Bank in Melbourne, Florida from 2007 until 2012 and SVP of Planning & Analysis for Huntington Bancshares in Columbus, Ohio between 1993 and 2002. Mr. Wagner is also a Trustee for the Reeves Foundation, an Ohio-based private foundation. He graduated from Bowling Green University in 1978 with a B.A. in Economics and International Business.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” ALL DIRECTOR NOMINEES.
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CORPORATE GOVERNANCE
Director Independence
The Board of Directors analyzed the independence of each director and determined that Chan Heng Fai Ambrose, Moishe Gubin, Joel Klein, Thomas Procelli, Martin Schmidt, Avi Zwelling and Jeffry Wagner, each meet the standards of independence under the listing standards of The NASDAQ Stock Market (“NASDAQ”).
The Board of Directors Meetings and Committees
The Company’s Board of Directors met 12 times during 2018. The independent directors met once in executive session without management during 2018. Each of the current members of the Board of Directors attended at least 75% of the meetings of the Board and committees on which he served held while he has been a Director. The Company’s Board of Directors has established several standing committees, including the following:
Compensation Committee
The Compensation Committee currently consists of Moishe Gubin (Chairman), Joel Klein and Avi Zwelling. Mr. Gubin, Mr. Klein and Mr. Zwelling are independent under the NASDAQ listing standards. The Compensation Committee reviews and recommends to the Board of Directors the compensation arrangements for executive management and non-employee directors. The Compensation Committee met once during 2018 and operates under a written charter. A copy of the current Compensation Committee Charter can be viewed on the Company’s website atwww.optimumbank.com/information-center/corporate-governance.
In 2018, no executive officer had a role in determining or Richard L. Browdy, Presidentrecommending the amount or form of outside director compensation. The Compensation Committee does not delegate its authority to any other persons. The Compensation Committee does not use consultants to determine or recommend the amount or form of compensation arrangements.
Nominating Committee
The Nominating Committee currently consists of Mr. Gubin (Chairman), Mr. Klein and Mr. Zwelling. The committee evaluates new candidates and current directors, and recommends candidates to the Board to fill vacancies occurring between annual shareholder meetings. A copy of the charter for the Nominating Committee can be viewed on the Company’s website atwww.optimumbank.com/ information-center/corporate-governance.
All of the director nominees of the Company set forth in the Proposal entitled “Election of Directors” were recommended by a majority of the independent directors of the Company. The Nominating Committee held one meeting during 2018.
The Nominating Committee will initially consider nominating the Company’s existing directors for re-election to the Board as appropriate or other director nominees proposed, as appropriate, by the directors, and in doing so considers each director’s independence, if required, share ownership, skills, performance and attendance at a minimum of 75% of the Board and respective committee meetings. In evaluating any candidates for potential director nomination, the Nominating Committee will consider candidates that are independent, if required, who possess personal and professional integrity, have good business judgment, relevant experience and skills, including banking, financial, real estate and/or legal expertise, who would be effective as a director in conjunction with the full Board, who would commit to attend Board and committee meetings, and whose interests are aligned with the long-term interests of the Company’s shareholders.
The Nominating Committee will consider director candidates recommended by shareholders, provided the recommendation is in writing and delivered to the Corporate Secretary of the Company at the principal executive offices of the Company not later than the close of business on the 120th day prior to the first anniversary of the date on which the Company first mailed its proxy materials to shareholders for the preceding year’s annual meeting of shareholders. For the 2020 annual meeting, recommendations must be received by ___________, 2019. The nomination and notification must contain the nominee’s name, address, principal occupation, total number of shares owned, consent to serve as a director, and all information relating to the nominee and the nominating shareholder as would be required to be disclosed in solicitation of proxies for the election of such nominee as a director pursuant to the SEC’s proxy rules.
Audit Committee
The Audit Committee of the Board of Directors is responsible for the oversight of the Company’s financial and accounting reporting processes and the audits of the Company’s financial statements. The Audit Committee is currently composed of three non-employee directors consisting of Jeffry Wagner (Chairman), Thomas Procelli and Martin Schmidt. The Audit Committee operates under a written charter adopted and approved by the Board of Directors. A copy of the current Audit Committee Charter can be viewed on the Company’s website atwww.optimumbank.com/information-center/corporate-governance.
The Board determined that all of the members of the Audit Committee were financially literate and independent in accordance with the NASDAQ listing standards applicable to audit committee members. The Board has determined that Jeffry Wagner is an “audit committee financial expert” as defined by SEC rules. The Audit Committee met four times during 2018. A Report from the Audit Committee is included on page 24.
Attendance by Directors at Annual Shareholders’ Meetings
The Company expects its directors to attend the annual meeting. All of the current directors attended the 2018 annual meeting (held in May 2018), with the exception of Mr. Chan and Mr. Wagner, who did not join the Board until June 2018 and November 2018, respectively.
Shareholder Communications with the Board of Directors
The Board of Directors has adopted a formal process by which shareholders may communicate with the Board. Shareholders who wish to communicate with the Board may do so by sending written communications addressed to: Board of Directors, OptimumBank Holdings, Inc. directly at (954) 776-2332.2477 East Commercial Boulevard, Fort Lauderdale, Florida 33308, Attention: Mary Franco. All communications will be compiled by the Corporate Secretary and submitted to the members of the Board. Concerns about accounting or auditing matters or possible violations of the Company’s Code of Ethics should be reported under the procedures outlined in the Company’s Whistleblower Policy. Our Whistleblower Policy is available on the Company’s website atwww.optimumbank.com/information-center/corporate-governance.
HISTORICAL FINANCIAL INFORMATIONBoard Leadership Structure and Role in Risk Oversight
Our most recent historical
The Company’s policy is to separate the roles of chairman and chief executive officer of the Company. At the present time, the Company does not have any person serving as the Chairman of the Board.
The Board believes that risk management is an important component of the Company’s corporate strategy. While we assess specific risks at the Company’s committee levels, the Board, as a whole, oversees the Company’s risk management process, and discusses and reviews with management major policies with respect to risk assessment and risk management. The Board is regularly informed through committee reports about the Company’s risks. The Audit Committee reviews and assesses the Company’s processes to manage financial information canreporting risk. It also reviews the Company’s policies for risk assessment and assesses steps management has taken to control significant risks. The Compensation Committee oversees risks relating to compensation practices and policies.
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PROPOSAL NO. 2
APPROVAL OF THE ISSUANCE OF UP TO 1,000,000 SHARES OF COMMON STOCK IN EXCHANGE FOR TRUST PREFERRED SECURITIES ISSUED BY OPTIMUMBANK CAPITAL TRUST I
The Company is seeking shareholder approval of a proposal to issue up to 1,000,000 shares of the Company’s common stock in exchange for trust preferred securities (the “Trust Preferred Securities”) issued by OptimumBank Capital Trust I (the “Trust”). The issuance of the common stock requires the approval of the Company’s shareholders under Nasdaq Marketplace Rule 5635(d).
Background
The Trust was formed by the Company in 2004 for the purposes of raising capital for OptimumBank. At that time, the Trust raised $5,155,000 through the sale of 5,000 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 “Debenture”). The Trust Preferred Securities represent undivided beneficial interests in the Debenture. The Debenture has a term of 30 years and is payable in full on October 7, 2034. The interest rate on the Debenture was fixed at 6.40% for the first five years and, thereafter, the coupon rate floats quarterly at the three-month LIBOR rate plus 2.45% (5.05% at March 31, 2019). 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 20 consecutive quarterly periods.
On June 22, 2010, the Company and the Federal Reserve Bank of Atlanta (the “Reserve Bank”) entered into a Written Agreement with respect to certain aspects of the operation and management of the Company. The Written Agreement prohibited the Company from making any interest or principal payments on the Debenture without the prior approval of the Reserve Bank.
Beginning in 2010, the Company exercised its right under the terms of the Debenture to defer payment of interest. The Company has made no payments on the Debenture since that time. The Company’s right to defer interest payments expired in 2015. Since then, theCompany has been in default under the Debenture.
As a result of such default, the Trustee for the Debenture and the holders of the Trust Preferred Securities have the right to accelerate the $5,155,000 principal balance of the Debenture, plus accrued and unpaid interest. To date, neither the Trustee nor the holders have accelerated the Debenture.
On May 8, 2018, Preferred Shares, LLC (the “Purchaser”) acquired all 5,000 of the Trust Preferred Securities from a third party at a cost of approximately $1,411,000. The Purchaser is an affiliate of Moishe Gubin, a director of the Company. Mr. Gubin owns, directly or indirectly, all of the membership interests in the Purchaser.
During the third quarter of 2018, the Purchaser sold its rights to 694 Trust Preferred Securities to several unaffiliated third parties for an aggregate purchase price of $802,333, or an average of approximately $1,156 per Trust Preferred Security. The Company subsequently issued 301,778 shares of common stock to these third parties in exchange for the 694 Trust Preferred Securities. Under the Written Agreement, the exchange of Trust Preferred Securities for the Company’s common stock cannot reduce the principal amount of the Debenture collateralizing the Trust Preferred Securities. Accordingly, the transaction was recorded as an increase in the Company’s equity interest in the unconsolidated Trust, presented in “Other Assets” on the Company’s consolidated balance sheet.
As of March 31, 2019, the remaining 4,306 Trust Preferred Securities had an outstanding balance of approximately $5,847,000, consisting of $4,306,000 in principal and $1,541,000 in accrued interest.
In May 2019, the Purchaser provided the Company with a written undertaking that the Purchaser would not accelerate and demand payment of any of the principal or accrued interest under the Debenture prior to May 14, 2020.
As discussed more fully below, the Board has determined that the Company should make an offer to the holders of the Trust Preferred Securities to exchange a portion of the Trust Preferred Securities for newly-issued shares of common stock in order to reduce the Company’s obligations under the Trust Preferred Securities.
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Proposed Exchange Offer
The Company is seeking shareholder approval to authorize the Company to make an offer to the holders of the Trust Preferred Securities to exchange their Trust Preferred Securities for shares of the Company’s common stock.
The exchange offer would be foundmade on the following terms:
● | The maximum aggregate number of shares of common stock that would be issued by the Company would not exceed 1,000,000 shares. | |
● | The maximum aggregate value of the Trust Preferred Securities that would be exchanged would not exceed $3,150,000 (calculated on the basis of the outstanding balance of such Trust Preferred Securities). | |
● | The Trust Preferred Securities would be valued at their carrying value (i.e., principal plus accrued interest) for purposes of the exchange. | |
● | The Company will offer its common stock at a value equal to the lesser of (i) $3.15 per share (equal to 110% of book value as of December 31, 2018), or (ii) the closing market price on the termination date of the exchange offer. | |
● | The exchange offer would commence on a date to be selected by the Company after the annual meeting of shareholders, but not later than 45 days after the date of the meeting. | |
● | The Company would treat the exchange as a tender offer and would comply with the applicable rules for a tender offer under the applicable rules of the SEC. | |
● | The exchange offer would be open for a period of at least 20 business days after its commencement date. | |
● | No person would be permitted to exchange Trust Preferred Securities if, after the exchange, such person would be the beneficial owner of more than 9.9% of the Company’s common stock. | |
● | Only accredited investors would be permitted to exchange Trust Preferred Securities. |
The exchange offer is expected to be structured as a tender offer for up to $3,150,000 aggregate value of Trust Preferred Securities. Upon the commencement date of the tender offer, the Company will transmit an Offer to Purchase and a Transmittal Letter to all holders of the Trust Preferred Securities pursuant to Regulation 14E promulgated pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The exchange offer will be held open for at least 20 business days, subject to extension. Any extension will be announced by press release the day after the scheduled expiration. At the expiration of the exchange offer, the Company will determine the applicable per share price of the common stock to be issued (the lower of $3.15 or the closing market price of the common stock on the expiration date). The Company will then accept the tenders of an aggregate value of Trust Preferred Securities equal to the lesser of $3,150,000 or the applicable per share price multiplied by 1,000,000. In the event a higher aggregate value of Trust Preferred Securities is tendered, the Company will accept a pro rata amount of Trust Preferred Securities from the tendering holders and return the excess Trust Preferred Securities. As a result, the per share price of the shares of common stock issued will be the same for each tendering holder.
Each tendering holder must represent to the Company that it would not be the beneficial owner of more than 9.9% of the common stock upon consummation of the exchange offer. No holder may tender any Trust Preferred Securities if acceptance of such tenders in Appendices Bfull by the Company would result in such holder being the beneficial owner of more than 9.9% of the common stock.
All shares of common stock issuable pursuant to the exchange offer will constitute restricted securities for purposes of the Securities Act of 1933, as amended (the “Securities Act”). The Company will not provide any registration rights with regard to such shares of common stock. Any shares of common stock issued in the exchange offer will be issued in reliance on the exemption from registration contained in Section 4(a)(2) of the Securities Act as a transaction by an issuer not involving a public offering.
Nasdaq Marketplace Rule 5635(d)
The Company’s common stock is currently listed on The Nasdaq Capital Market and, Cas such, we are subject to Nasdaq Marketplace Rules.
Nasdaq Marketplace Rule 5635(d) (“Rule 5635(d)”) requires the Company to obtain shareholder approval prior to the issuance of its common stock in connection with certain non-public offerings. Rule 5635(d) applies when:
● | the offering involves the sale, issuance or potential issuance by the Company of common stock equal to 20% or more of the common stock outstanding before the issuance; and | |
● | the offering price is less than the current market price. |
Rule 5635(d) will apply because the number of shares that could be issued in the exchange offer will exceed the 20% threshold and the offering price may be less than the current market price. As a result, the Company is required to obtain shareholder approval of the offering.
Potential Effect of Exchange Offer
If the exchange offer is approved by the shareholders, the Company would commence the offering promptly after the annual meeting of shareholders. The exchange offer would be made to the then current holders of the Trust Preferred Securities.
The price for the common stock to be offered in the exchange offer would be equal to the lesser of (i) $3.15 per share (equal to 110% of book value as of December 31, 2018), or (ii) the closing market price on the termination date. The market price of the common stock as of the date of this proxy statement. Appendix B contains ourstatement is $________ per share. Assuming that the market price does not change during the term of the exchange offer, then the price for the common stock would be $3.15 per share.
The potential effects of the exchange offer would be as follows:
● | The Company could issue up to 1,000,000 shares of common stock, which would increase the outstanding number of shares from 1,858,020 shares to 2,858,020 shares. The actual number will vary based on the level of participation from the holders of the Trust Preferred Securities and the price of the common stock to be issued in the exchange. | |
● | The Company would acquire a maximum of $3,150,000 of the Trust Preferred Securities. The actual amount will vary based on the level of participation from the holders of the Trust Preferred Securities and the price of the common stock to be issued in the exchange. | |
● | The Company’s stockholders’ equity would be increased based on the value of the Trust Preferred Securities acquired by the Company in the exchange. For accounting purposes, the Company would record the purchase of the Trust Preferred Securities as an increase in the Company’s equity interest in the Trust under the heading “Other Assets” and record an equal increase in its stockholders’ equity. | |
● | The issuance of shares of common stock in the exchange would dilute, and thereby reduce, each existing shareholder’s proportionate ownership in the Company’s common stock. The shareholders do not have preemptive rights to subscribe for additional shares that may be issued by the Company in order to maintain their proportionate ownership of the Company’s common stock. |
Currently, all of the 4,306 outstanding Trust Preferred Securities are owned by the Purchaser, an affiliate of Mr. Gubin, a Director of the Company. The Purchaser has indicated that it expects to transfer a portion of the Trust Preferred Securities to one or more unrelated third parties on terms to be agreed between the Purchaser and each third party. The Purchaser currently has no agreement as to the terms on which it may transfer any Trust Preferred Securities to any other party. It may gift Trust Preferred Securities to others. The Trust Preferred Securities will only be sold or transferred to a small number of accredited investors (not more than 10), without any general solicitation. Additionally, the Purchaser has indicated that it may participate in the exchange offer subject to the restriction that no person may acquire shares in the exchange if such person would become beneficial owner of more than 9.9% of the common stock. As of December 31, 2018, Mr. Gubin and the Purchaser beneficially owned 4.11% of the common stock.
All Trust Preferred Securities acquired by the Company in the exchange offer will be held of record by the Company. The acquisition of any Trust Preferred Securities by the Company is expected to be recorded as an increase in the Company’s equity interest in the unconsolidated Trust, presented in “Other Assets” on the Company’s balance sheet.
Any outstanding Trust Preferred Securities that are not acquired by the Company would continue to be in default.
Reasons for the Exchange Offer
The Board believes that the exchange of additional Trust Preferred Securities for common stock would be in the best interest of the Company and its shareholders. The Board believes that the long-term stability of the Company depends on the Company’s ability to eliminate the Trust Preferred Securities through a combination of share exchanges and payments. The Company, however, is currently prohibited from making any payments on the Trust Preferred Securities under its Written Agreement with the Federal Reserve. Accordingly, the Board believes that the exchange remains the Company’s best option of addressing its obligations under the Trust Preferred Securities.
As noted above, the exchange offer will also result in an increase in the Company’s stockholders’ equity based on the value of the Trust Preferred Securities acquired by the Company in the exchange.
In considering this matter, the Board has also concluded that it would be necessary to offer the common stock at a discount to its market price in order to induce the holders of the Trust Preferred Securities to participate in the exchange. Assuming that the common stock will be offered at $3.15 per share, the current discount would be approximately ____% from the market price of $_________ per share as of June __, 2019.
The Board was aware that Moishe Gubin, a Director of the Company, had a conflict of interest with respect to this matter in light of his ownership of the current holder of the Trust Preferred Securities. In addition, the Board was aware that Mr. Klein and Mr. Zwelling, Directors of the Company, also indicated that they may participate in the exchange offer. To address these issues, all three Directors abstained from voting on this matter.
Vote Required
Assuming the existence of a quorum, the affirmative vote of the majority of the votes cast for this proposal is required to approve this matter.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” APPROVAL OF THE ISSUANCE OF UP TO 1,000,000 SHARES OF COMMON STOCK IN EXCHANGE FOR TRUST PREFERRED SECURITIES ISSUED BY OPTIMUMBANK CAPITAL TRUST I IN ACCORDANCE WITH NASDAQ MARKETPLACE RULE 5635(D).
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proposal no. 3
APPROVAL OF THE PARTICIPATION OF CERTAIN DIRECTORS OF THE COMPANY IN THE EXCHANGE OFFER FOR THE TRUST PREFERRED SECURITIES DESCRIBED IN PROPOSAL 2
The Company is seeking approval of a proposal to authorize certain of the Company’s directors to participate in the exchange offer for the Trust Preferred Securities described in Proposal 2.
The participation of the Company’s directors in the Trust Preferred Securities exchange requires the approval of the Company’s shareholders under Nasdaq Marketplace Rule 5635(c).
Nasdaq Marketplace Rule 5635(c) (“Rule 5635(c)”) requires shareholder approval of any issuance of the Company’s common stock to the Company’s officers, directors and employees at a price that is less than fair market value. Under Rule 5635(c), the issuance of common stock at a price less than the market value of the common stock is considered a form of “equity compensation.”
As discussed in Proposal 2 above, the Company is seeking shareholder approval of a proposal to issue to up to 1,000,000 shares of the Company’s common stock in exchange for Trust Preferred Securities issued by OptimumBank Capital Trust I.
At the present time, the owner of the Trust Preferred Securities is an affiliate of Mr. Gubin, a Director of the Company. As a result, any exchange of the Trust Preferred Securities held by the current holder would be subject to the requirements of Rule 5635(c). Additionally, it is possible that two other Directors of the Company, Mr. Klein and Mr. Zwelling, may acquire Trust Preferred Securities that they would seek to exchange for common stock. No other Director or any officers of the Bank has indicated any intent to participate in the exchange offer and the Company will not permit any other Director or officer to participate.
The Company is requesting its shareholders to approve the participation of Mr. Gubin, Mr. Klein and Mr. Zwelling in the exchange.
As discussed in Proposal 2, the Board believes that the exchange of additional Trust Preferred Securities for common stock would be in the best interest of the Company and its shareholders. The participation of Mr. Gubin and, potentially, Mr. Klein and Mr. Zwelling in the exchange would significantly enhance the Company’s ability to achieve the goals of the exchange offer.
As discussed in Proposal 2, the exchange offer may be made at a price that is less than current market price. In considering this matter, the Board has concluded that it would be necessary to offer the common stock at a discount to its market price in order to induce the holders of the Trust Preferred Securities to participate in the exchange. Assuming that the common stock will be offered at $3.15 per share, the discount would be approximately _____% from the market price of $__________ per share as of June__, 2019. Under Rule 5635(c), this discount is treated as a form of equity compensation that requires shareholder approval.
The other potential effects of the exchange offer are discussed in Proposal 2.
As described in Proposal 2, the Board was aware that Mr. Gubin, a Director of the Company, had a conflict of interest with respect to this matter in light of his ownership of the current holder of the Trust Preferred Securities. In addition, the Board was aware that Mr. Klein and Mr. Zwelling, Directors of the Company, also indicated that they may participate in the exchange offer. To address these issues, all three Directors abstained from voting on this matter.
Vote Required for Approval
Assuming the existence of a quorum, the affirmative vote of the majority of the votes cast for this proposal is required to approve this matter. Approval of this Proposal 3 is subject to the approval of Proposal 2.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE “FOR” THE APPROVAL OF THE PARTICIPATION OF CERTAIN DIRECTORS OF THE COMPANY IN THE EXCHANGE OFFER FOR THE TRUST PREFERRED SECURITIES DESCRIBED IN PROPOSAL 2.
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PROPOSAL NO. 4
APPROVAL OF AN AMENDMENT TO THE COMPANY’S ARTICLES OF INCORPORATION TO INCREASE THE NUMBER OF SHARES OF COMMON STOCK AUTHORIZED FOR ISSUANCE FROM 5,000,000 SHARES TO 10,000,000 SHARES
The Board of Directors has approved an amendment to the Company’s Articles of Incorporation to increase the number of shares of common stock authorized for issuance from 5,000,000 shares to 10,000,000 shares. The Company’s shareholders are being asked to approve this amendment in the form attached hereto as Exhibit A.
The purpose of the increase is to provide the Company with a sufficient number of authorized shares:
● | to undertake the exchange offer for the Trust Preferred Securities; | |
● | to undertake a proposed rights offering of common stock and warrants; and | |
● | to provide shares for other corporate actions that may be approved by the Board in the future, such as additional offerings. |
Current Outstanding Shares of Common Stock
As of March 31, 2019, the Company had 1,858,020 shares of common stock issued and outstanding and _______ shares reserved for future issuance in connection with the Company’s equity incentive plans.
Proposed Rights Offering
The Board is currently considering undertaking a rights offering under which the Company will offer each shareholder the right to purchase, for each common share held by the shareholder, one unit consisting of one share of common stock and one warrant (a “Unit”).
The proposed terms of the rights offering are as follows:
● | The price of each Unit would be $5.00 per Unit. | |
● | Each warrant would entitle the holder to purchase one common share at a price of $7.50 per share. The warrants would have a term of five years. The warrants could be sold or transferred separately after issuance of the Units. | |
● | The rights offering would commence following the effectiveness of the Company’s registration statement. The rights offering would be open for a period of three months. |
● | No person would be permitted to purchase the Units if, after the purchase, such person would be the beneficial owner of more than 9.9% of the shares of common stock. | |
● | The maximum number of shares of common stock that would be issued in the exchange offer would be equal to the number of outstanding shares on the record date for the rights offering. | |
● | The maximum number of shares of common stock that would be issued upon the exercise of the warrants would be equal to the number of outstanding shares of common stock on the record date for the rights offering. |
The terms of the rights offering have not been finalized. Any rights offering would need to be registered with the Securities and Exchange Commission under the Securities Act. As a result, it is possible that the terms of the rights offering may change and that the rights offering may not be completed.
Reasons for the Increase in Authorized Common Stock
As discussed in Proposal 2, the Company may issue up to 1,000,000 shares of common stock in the exchange offer for the Trust Preferred Securities. Additionally, the Company is considering a rights offering to the shareholders of the Company in which the Company would offer a substantial number of additional shares and warrants to the Company’s shareholders.
The Board believes that the availability of additional authorized shares of common stock will provide the Company with the ability to accommodate the exchange offer and the rights offering and provide the Company with the additional flexibility to issue common stock for a variety of other general corporate purposes as the Board may determine to be desirable, including stock splits (including splits effected through the declaration of stock dividends), future offerings, acquisitions or incentive compensation.
Without an increase in the number of authorized shares of common stock, the number of remaining common shares may be insufficient to complete one or more of the above corporate actions when and if the Board deems it advisable and in the best interests of the shareholders to do so. The Board further believes that having the additional authorized shares available to the Company for issuance, upon approval of the Board, will be beneficial to the Company and its shareholders by allowing us promptly to consider and complete additional offerings needed to capitalize the Company and the Bank.
Except for the exchange offer and the rights offering, the Board has not authorized the Company to take any action with respect to the shares that would be authorized under this proposal, and the Company currently does not have any definitive plans, arrangements or understandings with respect to the issuance of the additional shares of common stock to be authorized.
The proposed amendment to increase the authorized number of shares of common stock could, under certain circumstances, have an anti-takeover effect or delay or prevent a change in control of the Company by providing the Company the capability to engage in actions that would be dilutive to a potential acquirer, to pursue alternative transactions, or to otherwise increase the potential cost to acquire control of the Company. Thus, while the Company currently has no intent to employ the additional unissued authorized shares as an anti-takeover device, the proposed amendment may have the effect of discouraging future unsolicited takeover attempts. The Board is not aware of any such attempt to take control of the Company, and would act in the best interest of shareholders if any attempt was made. The proposed amendment has been prompted by business and financial considerations.
The proposed increase in the number of authorized shares of the Company’s common stock will not itself change the number of shares of common stock outstanding, nor will it have any immediate dilutive effect or change the rights of current holders of the Company’s common stock. However, the issuance of additional shares of common stock authorized by this amendment to the Articles of Incorporation may occur as a result of the exchange offer and the rights offering and at other times in the future. The issuance of additional shares could have a dilutive effect on earnings per share, book value per share or the percentage voting or ownership interest of the present holders of the Company’s common stock.
Once the proposed amendment is approved, no further action by the shareholders would be necessary prior to the issuance of additional shares of common stock unless required by law or the rules of any stock exchange or national securities association on which the common stock is then listed or quoted. Under the proposed amendment, each of the newly-authorized shares of common stock will have the same rights and privileges as the currently-authorized common stock. Adoption of the proposed amendment will not affect the rights of the holders of currently outstanding common stock of the Company nor will it change the par value of the common stock. If the proposed amendment is adopted, it will become effective upon the filing of an amendment to the Company’s Articles of Incorporation with the Secretary of State of the State of Florida.
Vote Required
Assuming the existence of a quorum, the affirmative vote of the majority of votes cast for this proposal is required to approve this matter.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE “FOR” THE APPROVAL OF AN AMENDMENT TO THE COMPANY’S ARTICLES OF INCORPORATION TO INCREASE THE NUMBER OF SHARES OF COMMON STOCK AUTHORIZED FOR ISSUANCE FROM 5,000,000 SHARES TO 10,000,000 SHARES.
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PROPOSAL NO. 5
RATIFICATION OF INDEPENDENT AUDITOR
The Audit Committee has selected Hacker, Johnson & Smith, P.A. (“Hacker Johnson”) as the Company’s independent auditor for fiscal year 2019, and the Board asks shareholders to ratify that selection. Although current law, rules, and regulations, as well as the charter of the Audit Committee, require the Audit Committee to engage, retain, and oversee the Company’s independent auditor, the Board considers the selection of the independent auditor to be an important matter of shareholder concern and is submitting the selection of Hacker Johnson for ratification by shareholders as a matter of good corporate governance.
Assuming the existence of a quorum, the affirmative vote of the majority of the shares represented in person or by proxy and entitled to vote at the meeting is required to approve this matter.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” THE RATIFICATION OF HACKER, JOHNSON & SMITH, P.A. AS THE COMPANY’S INDEPENDENT AUDITOR FOR FISCAL YEAR 2019.
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AUDIT COMMITTEE REPORT
The Audit Committee has reviewed and discussed the audited financial statements of the Company for the fiscal year ended December 31, 2018 with the Company’s management and has discussed with the independent auditors, Hacker, Johnson & Smith, P.A., communications pursuant to applicable auditing standards. In addition, Hacker, Johnson & Smith, P.A. has provided the Audit Committee with the written disclosures and the related notes,letter required by applicable requirements of the PCAOB regarding the independent auditor’s communications with the Audit Committee concerning independence, and our management’s discussionthe Audit Committee has discussed with Hacker, Johnson & Smith, P.A., the independent auditor’s independence.
Based on these reviews and analysisdiscussions, the Audit Committee recommended to the Board of Directors that the audited financial condition and results of operations, filed as part of ourstatements be included in the Company’s Annual Report on Form 10-KSB10-K for the fiscal year ended December 31, 2007. Appendix C contains our unaudited2018 and selected Hacker, Johnson & Smith, P.A. as the Company’s independent auditor for 2019.
AUDIT COMMITTEE | |
Jeffry Wagner | |
Thomas Procelli | |
Martin Schmidt |
INDEPENDENT ACCOUNTANTS
Hacker, Johnson & Smith, P.A., the Company’s independent registered public accounting firm, audited the Company’s consolidated financial statements for the fiscal year ended December 31, 2018.
Audit Fees
The following table is a summary of the fees billed to the Company by Hacker, Johnson & Smith, P.A. for professional services rendered for the years ended December 31, 2018 and 2017:
Fee Category | 2017 Fees | 2018 Fees | ||||||
Audit Fees | $ | 60,000 | $ | 73,000 |
Audit Fees.Consists of fees billed for professional services rendered for the audit of the Company’s financial statements and review of the interim financial statements included in quarterly reports and services that are normally provided by Hacker, Johnson & Smith, P.A. in connection with statutory and regulatory filings or engagements.
Pre-approved Services.Consistent with SEC rules regarding auditor independence, the Company’s Audit Committee Charter requires the Audit Committee to pre-approve all audit services and non-audit services permitted by law and Audit Committee policy (including the fees and terms of such services) to be performed for the Company by the independent auditors, subject to the “de minimis” exceptions for non-audit services described in SEC rules that are approved by the Audit Committee prior to the completion of the audit. The Audit Committee may delegate pre-approval authority to a member of the committee. The decisions of any committee member to whom pre-approval is delegated must be presented to the Audit Committee at its next scheduled meeting.
A representative from Hacker, Johnson & Smith, P.A., independent public auditors for the Company for 2018 and the related notes,current year, is expected to be present at the annual meeting, will have an opportunity to make a statement, and our management’s discussion and analysiswill be available to respond to appropriate questions.
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MANAGEMENT
Officers of financial condition and resultsthe Company
The Board of operations, filedDirectors is seeking to appoint Moishe Gubin as part of our Quarterly Report on Form 10-Qthe Company’s Chief Executive Officer. Mr. Gubin has submitted requests for the quarter ended September 30, 2008.required regulatory approvals to serve as Chief Executive Officer of the Company. These requests are currently pending.
From October 2015 to June 2016, Joel Klein, a Director of the Company, acted as the Company’s principal executive officer and principal financial officer on an interim basis. Since June 2016, Timothy Terry, President and Chief Executive Officer of the Bank, has been acting as the Principal Executive Officer for the Company, and since October 16, 2017, David Edgar, Controller of the Bank, has been acting as the Principal Financial Officer for the Company.
The backgrounds of Mr. Terry and Mr. Edgar are set forth below.
Timothy Terry, age 63, was appointed President and Chief Executive Officer of the Bank in February 2013 and was appointed Chief Operating Officer of the Bank in 2018. Mr. Terry has been in banking for 35 years and most recently served as President/CEO of Putnam State Bank in Palatka, Florida. Prior to joining OptimumBank, he served as President, CEO and Senior Loan Officer for Enterprise Bank of Florida in North Palm Beach, Florida, and held senior lending, branch administration & sales management positions at Palm Beach National Bank & Trust, Flagler National Bank of the Palm Beaches and Comerica Bank. Mr. Terry received his BBA degree in finance from Western Michigan University located in Kalamazoo, Michigan. He is also a graduate of the American Bankers Association Stonier Graduate School of Banking at the University of Delaware.
David Edgar, age 56, was appointed Controller of the Bank in October 2017. Mr. Edgar has been in banking for 34 years and most recently served as Senior Vice President and Chief Financial Officer of FirstCity Bank of Commerce in Palm Beach Gardens, Florida. Mr. Edgar received his Bachelor of Accounting degree from the University of Alabama. He is also a graduate of the Graduate School of Banking at Louisiana State University.
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MANAGEMENT COMPENSATION
The following table shows the compensation paid by the Company and the Bank for 2018 and 2017 to the persons acting as principal executive officer and principal financial officer. The Company did not have any persons serving as executive officers.
Summary Compensation Table
Name and Principal Position | Year | Salary ($) | Bonus ($) | All Other Compensation($) | Total Compensation($) | |||||||||||||
Timothy Terry (1) | 2018 | $ | 225,000 | - | $ | 8,400 | $ | 233,400 | ||||||||||
President, Chief Executive Officer and | 2017 | $ | 225,000 | - | $ | 8,400 | $ | 233,400 | ||||||||||
Chief Operating Officer of the Bank | ||||||||||||||||||
David Edgar (2) | 2018 | $ | 165,000 | - | - | $ | 165,000 | |||||||||||
Controller of the Bank | 2017 | $ | 31,855 | - | - | $ | 31,855 | |||||||||||
James Odza (3) | 2017 | $ | 90,440 | - | - | $ | 90,440 | |||||||||||
Former Chief Financial Officer of the Bank |
(1) | All other compensation for Mr. Terry in each year represents an auto allowance. |
(2) | Mr. Edgar’s employment commenced in October 2017. |
(3) | Mr. Odza’s employment was terminated in August 2017. |
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Stock Options
No stock options were granted to any of the executive officers in 2018. None of the Company’s executive officers holds any stock options.
Director Compensation
Each Director receives compensation for serving on the Board of Directors and committees of the Board. Mr. Gubin receives $1,650 for each Board meeting attended, and all other directors receive $1,100 for each Board meeting attended. At the present, the Company does not have any person serving as the Chairman of the Board. Mr. Gubin receives additional compensation for each Board meeting attended because he has performed many of the duties that would otherwise be performed by a Chairman of the Board. For Audit Committee meetings, the Chairman receives compensation of $400 for each meeting attended, and the members receive $300. For Compensation Committee meetings, Mr. Gubin, as Chairman, receives compensation of $125 for each meeting attended and the other members receive $100. Mr. Gubin also receives $200,000 per year for additional services as a director, payable in shares of the Company’s common stock (based on the fair market value on the date of issuance). These additional services include his generally spending one week per month in the Bank’s offices. He is also actively involved in the Bank’s marketing efforts for new loan business and deposits and in the Company’s investor relations efforts.
Director Compensation Table For 2018
Name | Cash Compensation($) | Stock Awards($) | All Other Compensation ($) | Total($) | ||||||||||||
Moishe Gubin | $ | 21,750 | $ | 200,000 | (1) | $ | 0 | $ | 221,750 | |||||||
Joel Klein | 15,000 | 0 | 0 | 15,000 | ||||||||||||
Martin Schmidt | 15,400 | 0 | 0 | 15,400 | ||||||||||||
Thomas Procelli | 13,600 | 0 | 0 | 13,600 | ||||||||||||
Avi M. Zwelling | 10,800 | 0 | 0 | 10,800 | ||||||||||||
Chan Heng Fai Ambrose | 3,300 | 0 | 0 | 3,300 | ||||||||||||
Jeffry Wagner | 0 | 0 | 0 | 0 | ||||||||||||
Total | $ | 79,850 | $ | 200,000 | $ | 0 | $ | 279,850 |
(1) | This amount represents the fair value of the stock grant made to Mr. Gubin in payment of a portion of his director’s fees in 2018. |
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SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
This following table sets forth information regarding the beneficial ownership of the common stock of as of November 14, 2008,December 31, 2018 for:
each of our directors and executive officers; and
● | each of the directors and executive officers of the Company and the Bank; | |
● | all of the directors and executive officers of the Company and the Bank as a group; and | |
● | each other person known by the Company to own beneficially more than 5% of the Company common stock. |
all of our directors and executive officers as a group.
each other person known by us to own beneficially more than 5% of our common stock;
Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and includes voting and investment power with respect to the securities. The persons named in the table have sole voting and investment power or have shared voting and investment power with a spouse with respect to all shares of common stock shown as beneficially owned by them, unless otherwise indicated in these footnotes. In addition, shares of common stock issuable upon exercise of options and warrants beneficially owned that are exercisable within sixty days of November [14], 2008, are deemed outstanding for the purpose of computing the percentage ownership of the person holding those options and other rights, and the group as a whole, but are not deemed outstanding for computing the percentage ownership of any other person.
Name and Address* of Beneficial Owners Directors and Executive Officers: Albert J. Finch, Chairman of the Board and Chief Executive Officer Richard L. Browdy, President, Chief Financial Officer and Director H. David Krinsky, Director Gordon Deckelbaum, Director Sam Borek, Director Michael Bedzow, Director Larry Willis, Director Irving P. Cohen, Vice Chairman Wendy Mitchler, Director Thomas A. Procelli, Executive Vice President, OptimumBank All directors and executive officers as a group (10 persons) Other Greater than 5% Shareholders Hillard Garlovsky Number of Shares Beneficially Owned Percent of
Class(13) 193,271 (1) 6.01 % 110,266 (2) 3.43 % 328,431 (3) 10.43 % 204,425 (4) 6.49 % 200,246 (5) 6.36 % 134,623 (6) 4.29 % 102,465 (7) 3.25 % 70,298 (8) 2.24 % 28,176 (9) .90 % 45,549 (10) 1.45 % 1,417,750 (11) 40.50 % 185,775 (12) 5.95 %
Name of Beneficial Owners | Number of Shares Beneficially Owned | Percent of Class1 | ||||||
Directors and Executive Officers | ||||||||
Moishe Gubin, Director | 76,327 | 4.11 | % | |||||
Joel Klein, Director | 31,404 | 1.69 | % | |||||
Thomas Procelli, Director | 3,623 | 0.19 | % | |||||
Martin Schmidt, Director | 7,653 | 0.41 | % | |||||
Avi Zwelling, Director | 31,118 | 1.67 | % | |||||
Chan Heng Fai Ambrose, Director | 104,480 | 5.62 | % | |||||
Jeffry Wagner, Director | 0 | 0 | % | |||||
Timothy Terry, President, Chief Executive Officer and Chief Operating Officer of the Bank | 0 | 0 | % | |||||
David Edgar, Controller of the Bank | 0 | 0 | % | |||||
All directors and executive officers as a group | 254,605 | 13.70 | % |
Principal Shareholders | ||||||||
Midwest Torah Center 2516 S. Twyckenham Dr. South Bend, Indiana 46614 | 94,425 | 5.08 | % | |||||
Wrights Mill Holdings LLC 16 Wrights Mill Road Armonk, New York 10540-1130 | 100,000 | 5.38 | % | |||||
Barry Webster 1840 58th Street Brooklyn, New York 11204-2027 | 134,111 | 7.22 | % | |||||
The Elisha Rothman Irrevocable Trust 3570 N.E. 190th Street, Apt. 3900 Miami, Florida 33180-2466 | 179,553 | 9.66 | % |
Notes to beneficial ownership table:
|
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PROPOSAL ONE: APPROVAL OF AMENDMENT TO ARTICLES OF INCORPORATION TOSECTION 16 BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
AUTHORIZE ISSUANCE OF UP TO 6 MILLION SHARES OF PREFERRED STOCK
Under the existing provisions of our articles of incorporation, we have the authority to issue up to 6,000,000 shares of common stock, but do not have the authority to issue preferred stock. Our board of directors has approved an amendment to our articles of incorporation to authorize up to 6,000,000 shares of preferred stock, no par value, subject to approvalSection 16(a) of the amendment by shareholders atExchange Act requires the special meeting (the “Articles Amendment Proposal”). If the Articles Amendment Proposal is approved by shareholders, our board ofCompany’s executive officers and directors, will be authorized to provide for the issuance of preferred stock from time to time in oneas well as persons who own 10% or more seriesof a class of the Company’s equity securities, to file reports of their ownership of the Company’s securities, as well as statements of changes in such ownership, with the SEC. The Company believes that all such filings required during 2018 were made on a timely basis, except for a Form 3 on behalf of Mr. Wagner and a Form 5 on behalf of Messrs. Gubin, Klein, Procelli, Schmidt and Zwelling with respect to their director compensation.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since January 1, 2018, there have been no transactions or any proposed transactions in which the Company was or is a party, in which the amount involved exceeded $120,000, and in connection with the creationwhich a director, director nominee, executive officer, holder of any such series, to determine the rights, preferences, privileges and limitations of such series. The shares of preferred stock would be available for issuance without further action or voting by our shareholders, except as may be required by applicable law.
Reasons for Proposed Amendment
Our primary reason for authorizing the preferred stock is to provide us with the ability to participate in the TARP Capital Purchase Program. Financial institutions approved for participation in the TARP Capital Purchase Program will be able to sell shares of preferred stock on standardized terms to Treasury, as described below under “—Termsmore than 5% of the TARP Capital Purchase Program.” This preferred stock would qualify as Tier I capital for bank regulatory purposes. We applied to participate in the TARP Program November 10, 2008, requesting a preferred stock investment of $4.578 million, and are awaiting preliminary approval from the U.S. Treasury (“Treasury”). Although we are “well-capitalized” as of September 30, 2008 under applicable regulatory capital guidelines and our participation in the TARP Capital Purchase Program is purely voluntary, our board of directors believes the TARP Capital Purchase Program will allow us to add capital on favorable terms. Additional capital will position us to remain strong during extremely challenging market conditions, to add flexibility for future asset growth and to maintain our history of extending financing to new and existing clients. For this reason, we currently intend to participate in the TARP Capital Purchase Program, if our application is approved by Treasury. Because our articles of incorporation currently do not authorize us to issue preferred stock, however, shareholder approval of the Articles Amendment Proposal is necessary for us to participate in the TARP Capital Purchase Program.
If we participate in the TARP Capital Program, we intend to downstream the proceeds of the issuance of the shares to our subsidiary bank. We intend to use the proceeds to make the Bank’s capital position even stronger, to support our lending activities, and for general corporate purposes. If the proposed amendment to our articles of incorporation to authorize the preferred stock is approved, but we are unable to participate in the TARP Capital Program, we would still remain well-capitalized. We believe we would have continuing access to a variety of other sources of funding to meet our existing commitments and business needs. However, we recognize that in the current economic climate, it could become more difficult to obtain other funding sources, and the cost of alternative funding could be greater than that of the Capital Purchase Program. We do not believe that a denial of our application by the Treasury would have a material, negative effect on our current liquidity, capital resources or results of operations. A denial may have the effect, however, of making future expansion of the Bank’s business more difficult or more expensive without the additional resources provided by the proceeds of the Capital Purchase Program.
The Articles Amendment Proposal would also afford our board of directors the flexibility to set the terms of and issue additional preferred stock in other capital raising transactions without incurring the time and expense of seeking shareholder approval for particular issuances. We have no present intention to issue any other series of preferred stock other than the preferred stock contemplated under the TARP Capital Purchase Program. However, if our articles of incorporation are amended to authorize the issuance of preferred stock, our board of directors would have discretion to establish different series of preferred stock and the rights, preferences, privileges, and limitations affixed to each series without further shareholder approval. Therefore, shareholders would have no input or right to approve the terms of any series of preferred stock, including the issuance of preferred stock to Treasury if we participate in the TARP Capital Purchase Program.
Terms of the TARP Capital Purchase Program
Under the TARP Capital Purchase Program, eligible financial institutions can generally apply to issue shares of preferred stock to Treasury in an amount equal to not less than 1% of the institution’s risk-weighted assets and not more than the lesser of 3% of the institution’s risk-weighted assets or $25 billion. Our risk-weighted assets as of September 30, 2008 were approximately $152.6 million, which would enable us to receive an investment from Treasury of between $1.526 million and $4.578 million. We have requested the maximum possible amount but may be approved to receive less or not be approved at all. It is expected that if our application is preliminarily approved by Treasury, we will then have 30 days to satisfy all requirements for participation in the TARP Capital Purchase Program, including receipt of shareholder approval of the Articles Amendment Proposal and the execution and delivery of a securities purchase agreement with Treasury and other related documents and agreements.
As of September 30, 2008, our consolidated ratios of total capital to risk-weighted assets, Tier 1 capital to risk-weighted assets and Tier 1 capital to average assets were 18.98%, 18.5% and 11.07%, respectively. On a pro forma basis as of September 30, 2008, giving effect to an investment from Treasury of the maximum amount available under the TARP Capital Purchase Program of $4.578 million, these ratios would have been 21.98%, 21.50% and 12.86%, respectively.
General Terms of Senior Preferred Stock.If we participate in the TARP Capital Purchase Program, Treasury would purchase from us shares of cumulative perpetual preferred stock, with a liquidation preference of $1,000 per share (the “Senior Preferred Stock”). The Senior Preferred Stock would constitute Tier 1 capital and would rank senior to our common stock. Cumulative compounding dividends would be payable on the Senior Preferred Stock quarterly in arrears at a rate of 5% per annum for the first five years and 9% per annum after year five.
The shares of Senior Preferred Stock would be non-voting shares, but would have class voting rights on (i) any authorization or issuance of shares ranking senior to the Senior Preferred Stock; (ii) any amendment that adversely affects the rights of the holders of the Senior Preferred Stock; or (iii) any merger, exchange or similar transaction which would adversely affect the rights of the holders of the Senior Preferred Stock. In the event the cumulative dividends described above were not paid in full for six dividend periods, whether or not consecutive, the holders of the Senior Preferred Stock would have the right to elect two directors of the Company. The right to elect directors would end when dividends have been paid in full for all prior dividend periods.
The shares of Senior Preferred Stock would be redeemable by us after three years at their issue price, plus any accrued and unpaid dividends. Prior to the end of three years after Treasury’s investment, the Senior Preferred Stock could only be redeemed by us using the proceeds of one or more offerings by us of other Tier 1 qualifying perpetual preferred stock orCompany’s common stock or a combinationany member of the two for cash (a “Qualified Equity Offering”), which yields aggregate gross proceeds to usimmediate family of at least 25% of the issue price of the Senior Preferred Stock. Any such redemption must be approved by the Company’s primary federal bank regulator, the Board of Governors of the Federal Reserve System.
Treasury would be permitted to transfer the shares of Senior Preferred Stock to a third party at any time. The standardized investment agreements with Treasure require us to file a shelf registration statement with the Securities and Exchange Commission (the “SEC”) to permit the transferability of the shares of Preferred Stock, as well as the Warrants (defined below) and the shares of common stock underlying the Warrants, as soon as practicable after the date of Treasury’s investment in the Senior Preferred Stock. However, if an institution is not eligible to file a shelf registration statement using the SEC’s Form S-3 (as we are not), the institution will not be required to file the shelf registration statement unless and until requested to do so in writing by the Treasury. We will also be required to grant the Treasury “piggyback” registration rights giving it the right to include the Senior Preferred Stock, the Warrants and the common stock underlying the Warrants in any separate registration of our stock with the SEC.
Warrants. If we participate in the TARP Capital Purchase Program, we must also issue warrants (the “Warrants”) to Treasury to purchase a number of shares of our common stock having a market value equal to 15% of the aggregate liquidation amount of the shares of Senior Preferred Stock purchased by Treasury. The exercise price of the Warrants, and the market value for determining the number of shares common stock subject to the Warrants, would be determined by reference to the market value of our common stock on the date of Treasury’s acceptance of our participation in the TARP Capital Purchase Program (calculated on a 20-day trailing average closing price). The exercise price of the Warrants and the number of shares of common stock issuable upon exercise of the Warrants would be subject to customary anti-dilution adjustments for any stock dividends, stock splits or similar transactions or certain below market issuances by us of common stock or securities convertible to common stock.
The Warrants would have a term of ten years. The Warrants would be immediately exercisable and would not be subject to restrictions on transfer; however, Treasury would only be permitted to exercise or transfer one-half of the Warrants prior to the earlier of (i) the date on which we have received aggregate gross proceeds of at least 100% of the issue price of the Senior Preferred Stock from one or more Qualified Equity Offerings and (ii) December 31, 2009. If we received aggregate gross proceeds of at least 100% of the issue price of the Senior Preferred Stock from one or more Qualified Equity Offerings on or prior to December 31, 2009, the number of shares of our common stock underlying the Warrants would be reduced by 50%. Treasury would agree not to exercise voting power with respect to any of the shares of common stock issuedforegoing persons had or will have a direct or indirect material interest.
Loans to it upon exercise of the Warrants; persons to whom Treasury subsequently transferred these shares would not be bound by this voting restriction. As noted above under “Terms of the TARP Capital Purchase Program – General Terms of Senior Preferred Stock”, in certain instances we may be required to register the WarrantsOfficers, Directors and the underlying common stock with the SEC.
Terms Affecting Common Stock and Any Other Preferred Stock.As long as shares of the Senior Preferred Stock remain outstanding, unless all accrued and unpaid dividends for all past dividend periods on the Senior Preferred Stock are fully paid, we would not be permitted to declare or pay dividends on our common stock, shares of any junior preferred shares or shares of any preferred shares ranking pari passu(equally) with the Senior Preferred Stock (other than in the case of preferred stock rankingpari passuwith the Senior Preferred Stock, dividends on a pro rata basis with the Senior Preferred Stock, and in the case of junior preferred shares, dividends paid solely in common stock), nor would we be permitted to repurchase or redeem any shares of common stock or preferred stock other than the Senior Preferred Stock. Unless the shares of Senior Preferred Stock have been transferred or redeemed by us in whole, until the third anniversary of Treasury’s investment in the Senior Preferred Stock, (subject to certain exceptions) any dividends on our common stock would be prohibited without the prior approval of Treasury. Currently, we do not pay dividends on our common stock. In addition, unless the shares of Senior Preferred Stock have been transferred or redeemed in whole, until the third anniversary of Treasury’s investment, Treasury’s consent would be required for any share repurchases other than repurchases of the Senior Preferred Stock and repurchases of shares of junior preferred stock or shares of common stock in connection with any benefit planThe Bank offers loans in the ordinary course of business to its directors and consistentemployees, including executive officers, their related interests and immediate family members. Applicable law and Bank policy require that these loans be on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with past practice.unrelated parties, and must not involve more than the normal risk of repayment or present other unfavorable features. Loans to individual employees, directors and executive officers must also comply with the Bank’s lending policies and statutory lending limits, and directors with a personal interest in any loan application are excluded from the consideration of such loan application.
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SHAREHOLDER PROPOSALS FOR 2020 ANNUAL MEETING
Executive Compensation.To participate
Proposals of shareholders of the Company that are intended to be presented by such shareholders at the Company’s 2020 annual meeting of shareholders and that shareholders desire to have included in the TARP Capital Purchase Program, we wouldCompany’s proxy materials relating to such meeting must be requiredreceived by the Company at its corporate offices no later than ___________, 2019, which is 120 calendar days prior to adhere to Treasury’s standards for executive compensation and corporate governance for the period during which Treasury holds any equity securities issued by us under the TARP Capital Purchase Program. These standards, which generally would apply to our chief executive officer, chief financial officer, plus the next three most highly compensated executive officers (collectively referred to as “senior executives”), include the following: (1) ensuring that incentive compensation for senior executives does not encourage unnecessary and excessive risks that threaten the valueanniversary of our company; (2) requiring a clawbackthis year’s mailing date. Upon timely receipt of any bonussuch proposal, the Company will determine whether or incentive compensation paidnot to include such proposal in the proxy statement and proxy in accordance with applicable regulations governing the solicitation of proxies.
If a senior executive based on statements of earnings, gainsshareholder wishes to present a proposal at the Company’s 2020 annual meeting or other criteria that are later provento nominate one or more Directors and the proposal is not intended to be materially inaccurate; (3) prohibiting certain severance payments to a senior executive, generally referred to as “golden parachute” payments, above specified limits set forthincluded in the U.S. Internal Revenue Code; and (4) agreeing notCompany’s proxy statement relating to deduct for federal income tax purposes executive compensation in excess of $500,000 for each senior executive – for this purpose, all compensation paidthat meeting, the shareholder must give advance written notice to the senior executiveCompany by ______, 2019, as required by SEC Rule 14a-4(c)(1).
Any shareholder filing a written notice of nomination for Director must describe various matters regarding the applicable tax year is taken into account,nominee and the shareholder, including certain qualified performance-based compensation normally deductible under Section 162(m) of the U.S. Internal Revenue Code. The adoption of these standards is not expectedsuch information as name, address, occupation and shares held. Any shareholder filing a notice to affect the existing compensation arrangements with our senior executives.
The foregoingbring other business before a shareholder meeting must include in such notice, among other things, a brief description of the TARP Capital Purchase Programproposed business and the reasons for the business, and other specified matters. Copies of those requirements will be forwarded to any shareholder upon written request.
SOLICITATION OF PROXIES
The proxy accompanying this Proxy Statement is based onsolicited by the information currently available regardingBoard of Directors of the TARP Capital Purchase ProgramCompany. All of the costs of solicitation of proxies will be paid by the Company. We may also reimburse brokerage firms and other custodians, nominees and fiduciaries for reasonable out-of-pocket expenses incurred by them in sending proxy materials to the beneficial owners of the Company’s shares of common stock. In addition to solicitations by mail, the Company’s directors, officers and employees, including those of the Bank, may solicit proxies personally, by telephone or otherwise, but will not receive any additional compensation for their services.
OTHER MATTERS
Management does not purportknow of any matters to be complete. The final termspresented at the meeting other than those set forth above. However, if other matters come before the meeting, it is the intention of our participationthe persons named in the TARP Capital Purchase Program, includingaccompanying proxy to vote the specific termsshares represented by the proxy in accordance with the recommendations of management on such matters, and discretionary authority to do so is included in the proxy.
HOW TO OBTAIN EXHIBITS TO FORM 10-K AND OTHER INFORMATION
A copy of the Senior Preferred Stock and the Warrants, would be set forth in investment agreements and related documents to be issued by Treasury and executed by us. The general forms of these investment agreements and related documents are available on Treasury’s website, atwww.treas.gov/initiatives/eesa/application-documents.
Pro Forma Financial Information
The unaudited pro forma condensed consolidated financial data set forth below has been derived by the application of pro forma adjustments to our historical financial statements for the year ended December 31, 2007 and the nine months ended September 30, 2008. The unaudited pro forma consolidated financial data gives effect to the events discussed below as if they had occurred on January 1, 2007 in the case of the statement of income data and September 30, 2008 in the case of the balance sheet data:
The issuance of $1,526,000 (minimum estimated proceeds) or $4,578,000 (maximum estimated proceeds) of preferred stock to Treasury under the Capital Purchase Program.
The issuance of warrants to purchase 228,900 shares of our common stock (minimum estimated warrants to be issued) or warrants to purchase 686,700 shares of our common stock (maximum estimated warrants to be issued) assuming an exercise price of $4.76 per share (trailing 20-day OptimumBank Holdings, Inc. average share price as of November 14, 2008).
The increase in fed funds sold from the proceeds of the Capital Purchase Program.
We present unaudited pro forma consolidated balance sheet data, including selected line items from our balance sheet and selected capital ratios, as of September 30, 2008. We also present unaudited pro forma condensed consolidated income statements for the year ended December 31, 2007 and the nine months ended September 30, 2008. In each presentation we assume that we receive both the minimum and maximum estimated proceeds from the sale of preferred stock and issue the minimum and maximum number of warrants under the Capital Purchase Program. The pro forma financial data may change materially in both cases based on the actual proceeds received under the Capital Purchase Program if our application is approved by Treasury, the timing and utilization of the proceeds as well as certain other factors including the strike price of the warrants, any subsequent changes in our common stock price, and the discount rate used to determine the fair value of the preferred stock.
This information should be read in conjunction with our audited financial statements and the related notes filed as part of our Annual ReportCompany’s annual report on Form 10-K for the fiscal year ended December 31, 2007, and2018 is included in Appendix B towith this proxy statement, and our unaudited consolidated financial statements and the related notes filed as partstatement. We will mail without charge copies of our Quarterly Report on Form 10-Q for the quarter ended September 30, 2008, and included in Appendix C to this proxy statement.
OPTIMUMBANK HOLDINGS, INC.
PRO FORMA CONSOLIDATED BALANCE SHEETS
September 30, 2008
September 30, 2008 (Unaudited) | Minimum Proceeds | Pro Forma w/Minimum Pro Forma | Maximum Proceeds | Pro Forma w/Maximum | |||||||||||
($ in thousands) | |||||||||||||||
Cash and balances due | 1,511 | 1,511 | 1,511 | ||||||||||||
Investment securities | 85,499 | 85,499 | 85,499 | ||||||||||||
Fed Funds sold | 394 | 1,526 | (2) | 1,920 | 4,578 | (2) | 4,972 | ||||||||
Net loans | 162,779 | 162,779 | 162,779 | ||||||||||||
Other assets | 9,383 | 9,383 | 9,383 | ||||||||||||
TOTAL ASSETS | 259,566 | 1,526 | 261,092 | 4,578 | 264,144 | ||||||||||
Deposits | 112,566 | 112,566 | 112,566 | ||||||||||||
Short-term borrowings | 9,000 | 9,000 | 9,000 | ||||||||||||
Long-term debt | 110,655 | 110,655 | 110,655 | ||||||||||||
Other liabilities | 4,082 | 4,082 | 4,082 | ||||||||||||
TOTAL LIABILITIES | 236,303 | 0 | 236,303 | 0 | 236,303 | ||||||||||
Preferred stock | 0 | 1,396 | (1) | 1,396 | 4,188 | (1) | 4,188 | ||||||||
Common stock and additional paid-in capital | 18,525 | 18,525 | 18,525 | ||||||||||||
Warrants | 0 | 130 | (1) | 130 | 390 | (1) | 390 | ||||||||
Discount on preferred stock | 0 | 0 | 0 | ||||||||||||
Retained earnings | 4,743 | 4,743 | 4,743 | ||||||||||||
Accumulated other comprehensive loss | (5 | ) | (5 | ) | (5 | ) | |||||||||
TOTAL SHAREHOLDERS’ EQUITY | 23,263 | 1,526 | 24,789 | 4,578 | 27,841 | ||||||||||
TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY | 259,566 | 1,526 | 261,092 | 4,578 | 264,144 | ||||||||||
CAPITAL RATIOS | |||||||||||||||
Leverage (Tier 1 capital to assets) | 9.12 | % | 9.72 | % | 10.91 | % | |||||||||
Tier 1 capital to risk-weighted assets | 15.24 | % | 16.24 | % | 18.24 | % | |||||||||
Total capital to risk-weighted assets | 15.72 | % | 16.72 | % | 18.72 | % |
OPTIMUMBANK HOLDINGS, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
September 30, 2008
Actual (Unaudited) | Nine months ended September 30, 2008 | |||||||||||
Minimum Proceeds | Pro Forma w/Minimum | Maximum Proceeds | Pro Forma w/Maximum | |||||||||
(Dollars in thousands, except per share data) | ||||||||||||
Interest income | 11,905 | 27 | (1) | 11,932 | 82 | (1) | 11,987 | |||||
Interest expense | 6,951 | 6,951 | 6,951 | |||||||||
Net interest income | 4,954 | 27 | 4,981 | 82 | 5,036 | |||||||
Provision for credit losses | 161 | 161 | 161 | |||||||||
Net interest income after provision for credit losses | 4,793 | 27 | 4,820 | 82 | 4,875 | |||||||
Noninterest income | 158 | 158 | 158 | |||||||||
Noninterest expense | 3,317 | 3,317 | 3,317 | |||||||||
Income before income taxes | 1,634 | 27 | 1,661 | 82 | 1,716 | |||||||
Income tax expense | 615 | 10 | (4) | 625 | 30 | (4) | 645 | |||||
Net income | 1,019 | 17 | 1,036 | 52 | 1,071 | |||||||
Preferred stock dividends | 75 | (2) | 75 | 226 | (2) | 226 | ||||||
Net income available to common stockholders | 1,019 | (58 | ) | 961 | (174 | ) | 845 | |||||
Earnings per common share | ||||||||||||
Basic | .33 | .31 | .27 | |||||||||
Diluted | .32 | .30 | .26 | |||||||||
Average shares outstanding basic | 3,120,992 | 3,120,992 | 3,120,992 | |||||||||
Diluted (3) | 3,175,450 | 3,195,785 | 3,231,804 |
OPTIMUMBANK HOLDINGS, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
December 31, 2007
Actual (Unaudited) | Year ended December 31, 2007 | |||||||||||
Minimum Proceeds | Pro Forma w/Minimum | Maximum Proceeds | Pro Forma w/Maximum | |||||||||
(Dollars in thousands, except per share data) | ||||||||||||
Interest income | 16,137 | 76 | (1) | 16,213 | 230 | (1) | 16,367 | |||||
Interest expense | 9,700 | 9,700 | 9,700 | |||||||||
Net interest income | 6,437 | 76 | 6,513 | 230 | 6,667 | |||||||
Provision for credit losses | 476 | 476 | 476 | |||||||||
Net interest income after provision for credit losses | 5,961 | 76 | 6,037 | 230 | 6,191 | |||||||
Noninterest income | 533 | 533 | 533 | |||||||||
Noninterest expense | 3,749 | 3,749 | 3,749 | |||||||||
Income before income taxes | 2,745 | 76 | 2,821 | 230 | 2,975 | |||||||
Income tax expense | 1,003 | 29 | (4) | 1,032 | 87 | (4) | 1,090 | |||||
Net income | 1,742 | 47 | 1,789 | 143 | 1,885 | |||||||
Preferred stock dividends | 99 | (2) | 99 | 297 | (2) | 297 | ||||||
Net income available to common stockholders | 1,742 | (52 | ) | 1,690 | (154 | ) | 1,588 | |||||
Earnings per common share | ||||||||||||
Basic | .56 | .54 | .51 | |||||||||
Diluted | .55 | .53 | .49 | |||||||||
Average shares outstanding basic | 3,112,227 | 3,112,227 | 3,112,227 | |||||||||
Diluted (3) | 3,184,745 | 3,194,357 | 3,236,292 |
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The unaudited pro forma consolidated financial data presented above is not necessarily indicative of our financial position or results of operations that actually would have been attained had proceeds from the Capital Purchase Program been received, or the issuance of the warrants pursuant to the Capital Purchase Program been made, at the dates indicated, and is not necessarily indicative of our financial position or results of operations that will be achieved in the future. In addition, our application to participate in the Capital Purchase Program has not been approved by Treasury. Accordingly, we can provide no assurance that the minimum or maximum estimated proceeds included in the unaudited pro forma financial data will ever be received.
Potential Anti-Takeover Effect of Preferred Stock
The Articles Amendment Proposal could have the effect of discouraging, delaying or preventing unsolicited takeover attempts of the Company, even if such proposed actions would be beneficialany particular exhibit to the Company’s shareholders. Under the terms of the TARP Capital Purchase Program, if we issue shares of preferred stockForm 10-K upon written request. Requests should be sent to Treasury and we fail to pay the required dividends on the shares for six quarterly dividend periods (whether or not consecutive), the Treasury would have the right to elect two additional directors to our Board. This right would continue until any suspended dividends are paid in full. This could be interpreted as having a potential anti-takeover effect. Shares of the authorized preferred stock could be issued (in a transaction other than under the TARP Capital Purchase Program) in such amounts and on such terms so as to make it more difficult or time consuming for a third party to acquire a majority of our outstanding voting stock or otherwise effect a change of control. The presence of outstanding preferred stock could increase the total consideration to be paid by a potential acquiror, possibly, depending on the terms of the preferred stock, to the point of being cost-prohibitive to the potential acquiror or to the point of materially reducing the consideration to be paid to the holders of our common stock. Our board of directors also could, although it has no present intention of doing so, issue shares of preferred stock to persons who indicate that they would support the board in opposing any unsolicited takeover proposal.
We believe that the flexibility to issue preferred stock can enhance our board of directors’ arm’s-length bargaining capability on behalf of our shareholders in a takeover situation. However, under some circumstances, the ability to designate the rights of, and issue, preferred stock could be used by our board of directors to make a change in control of our company more difficult. Our board of directors may issue preferred stock for capital raising transactions, acquisitions, joint ventures, or other corporate purposes where such issuance has the effect of making an acquisition of the company more difficult or costly, as could also be the case if our board of directors were to issue additional common stock for such purposes.
The full text of the proposed amendment to our articles of incorporation is attached to this proxy statement as Appendix A. The actual text of the amendment may vary as may be determined by the board of directors to comply with regulatory requirements and to effectuate the filing of same with the Florida Secretary of State. If the proposed amendment is adopted, our board of directors would be authorized to issue shares of preferred stock from time to time in one or more series, with full, limited or no voting rights, and with such other rights, preferences, privileges and limitations as may be determined by the board. The authority of our board of directors in this regard would include, but not be limited to, the determination or fixing of the following with respect to shares of any series of preferred stock:
the division of the shares of preferred stock into series and the designation and authorized number of shares (up to the number of shares authorized) in each series;
the dividend rate and whether dividends are to be cumulative;
whether the shares are to be redeemable, and, if so, whether redeemable for cash, property or rights;
the liquidation rights to which the holders of the shares will be entitled, and the preferences, if any;
whether the shares will be subject to the operation of a sinking fund, and, if so, upon what conditions;
whether the shares will be convertible into or exchangeable for shares of any other class or of any other series of any class of capital stock and the terms and conditions of the conversion or exchange;
the voting rights of the shares, which may be full, limited or none, except as otherwise required by law;
the preemptive rights, if any, to which the holders of the shares will be entitled and any limitations thereon;
whether the issuance of any additional shares, or of any shares of any other series, will be subject to restrictions as to issuance, or as to the powers, preferences or rights of any of these other series; and
any other rights, preferences, privileges and restrictions.
The rights of the holders of our common stock will be subject to, and may be adversely affected by, the rights of the holders of any preferred stock that may be issued in the future. To the extent that dividends will be payable on any issued shares of preferred stock, the result would be to reduce the amount otherwise available for payment of dividends on outstanding shares of our common stock and there might be restrictions placed on our ability to declare dividends on the our common stock or to repurchase shares of our common stock (as is the case under the TARP Capital Purchase Program). The issuance of preferred stock having voting rights would dilute the
voting power of the holders of common stock. To the extent that preferred stock is made convertible into shares of our common stock, the effect, upon such conversion, would also be to dilute the voting power and ownership percentage of the holders of common stock. In addition, holders of preferred stock would normally receive superior rights in the event of any dissolution, liquidation, or winding up of our company, thereby diminishing the rights of the holders of common stock to distribution of the Company’s assets.
The actual effect of the issuance of any shares of preferred stock, other than pursuant to the TARP Capital Purchase Program, upon the rights of holders of our common stock cannot be known until our board of directors determines the specific terms of any shares of preferred stock. For a discussion of what the effects would be upon the rights of holders of the common stock of the Senior Preferred Stock issued pursuant to the TARP Capital Purchase Program, see “—Terms of the TARP Capital Purchase Program-Terms Affecting Common Stock and Any Other Preferred Stock” above.
If the Articles Amendment Proposal is approved, the proposed amendment will become effective upon the filing of the articles of amendment with the Secretary of State of the State of Florida, which we expect we would do promptly following the special meeting.
Adoption of the Articles Amendment Proposal requires the affirmative vote of a majority of the shares of our common stock present in person or by proxy and voting at the special meeting. Abstentions and broker non-votes will have no effect on the Articles Amendment Proposal.
Our board of directors unanimously recommends that you vote FOR this proposal.
PROPOSAL TWO: APPROVAL OF ADJOURNMENT OF SPECIAL MEETING, IF NECESSARY
In the event there are not sufficient votes at the time of the special meeting to approve the Articles Amendment Proposal, our board of directors may propose to adjourn the special meeting to a later date or dates in order to permit the solicitation of additional proxies. Pursuant to the provisions of our bylaws, no notice of an adjourned meeting need be given to shareholders if the date, time and place of the adjourned meeting are announced at the special meeting.
In order to permit proxies that have been received by us at the time of the special meeting to be voted for an adjournment, if necessary, we have submitted this proposal (the “Adjournment Proposal”) to you as a separate matter for your consideration. In this proposal, we are asking you to authorize the holder of any proxy solicited by our board of directors to vote in favor of adjourning the special meeting and any later adjournments. If shareholders approve the Adjournment Proposal, we could adjourn the special meeting, and any adjourned session of the special meeting, to use the additional time to solicit additional proxies in favor of the Articles Amendment Proposal, including the solicitation of proxies from shareholders who have previously voted against the Articles Amendment Proposal. Among other things, approval of the Adjournment Proposal could mean that, even if proxies representing a sufficient number of votes against the Articles Amendment Proposal have been received, we could adjourn the special meeting without a vote on the Articles Amendment Proposal and seek to convince the holders of those shares to change their votes to votes in favor of the Articles Amendment Proposal.
The affirmative vote of a majority of the shares of our common stock present in person or by proxy and voting at the special meeting is required to approve the Adjournment Proposal, if this proposal becomes necessary. Abstentions and broker non-votes will have no effect on the Adjournment Proposal. No proxy that is specifically marked AGAINST the Articles Amendment Proposal will be voted in favor of the Adjournment Proposal unless that proxy is specifically marked FOR approval of the Adjournment Proposal.
Our board of directors believes that if the number of shares present or represented by proxy at the special meeting and voting in favor of the Articles Amendment Proposal is not sufficient to approve Articles Amendment Proposal, it is in the best interests of the shareholders to enable our board of directors to continue to seek to obtain a sufficient number of additional votes to adopt the amendment.
Our board of directors unanimously recommends that you vote FOR this proposal.
This proxy statement contains forward-looking statements that are based on management’s beliefs, assumptions, current expectations, estimates and projections about the financial services industry, the economy, and the Company. Forward-looking statements are identifiable by words or phrases such as that an event or trend “will”, “would”, “could”, or “might” occur, or “continue” or that the Company or its management “believes”, “anticipates”, “expects”, “estimates”, or “intends” that a particular result or event will occur, or other words such as “respond”, “consider”, and “assuming” and variations of such words and similar expressions. The Company’s ability to obtain approval by shareholders of the proposed amendment and successfully satisfy all conditions and requirements for participation in the Capital Purchase Program is not assured and is to some extent dependent on factors outside of the Company’s control. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. Therefore, actual results and outcomes may materially differ from what may be expressed or forecasted in such forward-looking statements. The Company undertakes no obligation to update, amend or clarify forward-looking statements, whether as a result of new information, future events or otherwise.
SHAREHOLDER PROPOSALS FOR THE 2009 ANNUAL MEETING OF SHAREHOLDERS
Proposals of shareholders intended to be presented at the next annual meeting of the Company expected to be held in April 2009, must be in writing and received by the President of OptimumBank Holdings, Inc. at our main offices,, Attn: Mary Franco, 2477 East Commercial Boulevard, Fort Lauderdale, FL 33308, no later than December 1, 2008. If such proposal or proposals are in compliance with applicable rules and regulations, they will be included in the Company’s33308. Our proxy statement, annual reports on Form 10-K, quarterly reports on Form 10-Q, and formcurrent reports on Form 8-K, as well as any amendment to those reports, are also available free of proxycharge through the SEC’s website,www.sec.gov.
Financial information
The following financial statements and related information of the Company are attached to this Proxy Statement as Exhibit B:
(i) Audited consolidated balance sheets of the Company, as of December 31, 2018 and December 31, 2017, and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for that meeting.the years then ended and the related notes;
(ii) Management’s Discussion and Analysis of Financial Condition and Results of Operations for the years ended December 31, 2018 and 2017;
(iii) Condensed consolidated balance sheets of the Company, as of March 31, 2019 (unaudited) and December 31, 2018, and the related unaudited condensed consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for the three months ended March 31, 2019 and March 31, 2018 and the related notes;
(iv) Management’s Discussion and Analysis of Financial Condition and Results of Operations for the three months ended March 31, 2018 and 2017; and
(v) Pro forma unaudited consolidated balance sheets and the related consolidated statements of operations of the Company, as of and for the three months ended March 31, 2019 and as of and for the year ended December 31, 2018, reflecting the consummation of the exchange offer.
To the best knowledge, information and belief of our board of directors, there are no matters that are to be acted upon at the special meeting other than as described in this proxy statement. If such matters arise, the form of proxy provides that discretionary authority is conferred on the designated persons in the enclosed form of proxy to vote with respect to such matters.
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
OPTIMUMBANK HOLDINGS, INC.
Article III
OPTIMUMBANK HOLDINGS, INC., a Florida corporation (the “Corporation”), hereby adopts the following Articles of theAmendment to its Articles of Incorporation, pursuant to the provisions of OptimumBank Holdings, Inc.the Florida Business Corporation Act (the “Act”):
1.Amendment. Paragraph (a) of Article III is hereby deleted in its entirety and replaced with the following new Article III is inserted in its place:(the “Amendment”):
ARTICLE III
“(a) The aggregate number of shares of stock of all classes that the corporation shall have authority to issue is 12,000,00016,000,000 shares, of which 6,000,00010,000,000 shares shall be common stock, $.01 par value per share (“Common Stock”Stock”), and of which 6,000,000 shares shall be preferred stock, no par value (“Preferred Stock”Stock”).”
(b)
2.Approval of Amendment. The Board of DirectorsAmendment was approved and adopted by all of the corporation is hereby granteddirectors of the authority, subjectCompany at a meeting duly called and held on ________, 2019 and by the holders of the outstanding Common Stock of the Company at a meeting duly called and held on July __, 2019. The holders of the Common Stock are the only voting group entitled to vote on the provisionsAmendment. The number of votes cast for the Amendment by the shareholders was sufficient to approve the Amendment under the Act and the Company’s Articles of Incorporation and Bylaws.
[Signature Page Follows]
IN WITNESS WHEREOF, the undersigned has executed these Articles of Amendment as of this Article III and to the limitations prescribed by law, to classify the unissued shares___ day of Preferred Stock into one or more series of Preferred Stock and with respect to each such series to fix by resolution or resolutions providing for the issuance of such series the terms, including the preferences, rights and limitations, of such series. Each series shall consist of such number of shares as shall be stated in the resolution or resolutions providing for the issuance of such series together with such additional number of shares as the Board of Directors by resolution or resolutions may from time to time determine to issue as a part of the series. The Board of Directors may from time to time decrease the number of shares of any series of Preferred Stock (but not below the number thereof then outstanding) by providing that any unissued shares previously assigned to such series shall no longer constitute part thereof and restoring such unissued shares to the status of authorized but unissued shares of Preferred Stock.
(c) The authority of the Board of Directors with respect to each series shall include, but not be limited to, determination of the following:_________, 2019.
(d) The holders of shares of each series of Preferred Stock shall be entitled upon liquidation or dissolution, or upon the distribution of the assets, of the Corporation to such preferences as provided in the resolution or resolutions creating the series, and no more, before any distribution of the assets of the Corporation shall be made to the holders of any other series of Preferred Stock or to the holders of shares of Common Stock. Whenever the holders of shares of Preferred Stock of all series shall have been paid the full amounts to which they shall be entitled, the holders of shares of Common Stock shall be entitled to share ratably in all the remaining assets of the Corporation.
APPENDIXExhibit B
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
FINANCIAL INFORMATION FOR YEAR ENDED DECEMBER 31, 2007
Audited Consolidated Financial Statements
December 31, 2007 and 2006 and for the Years Then Ended
(Together with Report of Independent Registered Public Accounting Firm)
Index to Financial Statements
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Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors
OptimumBank Holdings, Inc.
Fort Lauderdale, Florida:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of OptimumBank Holdings, Inc. and Subsidiary (the “Company”), as of December 31, 20072018 and 2006,2017 and the related consolidated statements of earnings,operations, comprehensive income (loss), stockholders’ equity and cash flows for the years then ended. ended and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2018 and 2017, and the consolidated results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on thesethe Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. Anmisstatement, whether due to error or fraud, the Company is not required to have, nor were we engaged to perform, an audit includesof its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the consolidated financial statements. An auditOur audits also includes assessingincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company at December 31, 2007 and 2006, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.
HACKER, JOHNSON & SMITH PA
Fort Lauderdale, Florida
March 24, 2008
/s/ HACKER, JOHNSON & SMITH PA | |
We have served as the Company’s auditor since 2000. | |
Fort Lauderdale, Florida | |
March 25, 2019 |
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Consolidated Balance Sheets
(Dollars in thousands, except per share amounts)
December 31, | December 31, | |||||||||||||||
December 31, | 2018 | 2017 | ||||||||||||||
2007 | 2006 | |||||||||||||||
Assets | ||||||||||||||||
Assets: | ||||||||||||||||
Cash and due from banks | $ | 475 | $ | 923 | $ | 1,934 | $ | 1,224 | ||||||||
Federal funds sold | 226 | 681 | ||||||||||||||
Interest-bearing deposits with banks | 6,049 | 10,441 | ||||||||||||||
Total cash and cash equivalents | 701 | 1,604 | 7,983 | 11,665 | ||||||||||||
Securities held to maturity (fair value of $58,117 and $33,150) | 58,471 | 33,399 | ||||||||||||||
Security available for sale | 244 | 241 | ||||||||||||||
Loans, net of allowance for loan losses of $692 and $974 | 173,323 | 181,878 | ||||||||||||||
Securities available for sale | 2,359 | 11,437 | ||||||||||||||
Securities held-to-maturity (fair value of $7,175) | 7,139 | — | ||||||||||||||
Loans, net of allowance for loan losses of $2,243 and $3,991 | 77,200 | 68,220 | ||||||||||||||
Federal Home Loan Bank stock | 2,965 | 2,956 | 1,132 | 979 | ||||||||||||
Premises and equipment, net | 3,249 | 3,990 | 2,668 | 2,593 | ||||||||||||
Foreclosed assets | 79 | — | ||||||||||||||
Accrued interest receivable | 1,448 | 1,254 | 314 | 316 | ||||||||||||
Other assets | 1,067 | 381 | 1,573 | 656 | ||||||||||||
Total assets | $ | 241,547 | $ | 225,703 | $ | 100,368 | $ | 95,866 | ||||||||
Liabilities and Stockholders’ Equity | ||||||||||||||||
Liabilities and Stockholders’ Equity: | ||||||||||||||||
Liabilities: | ||||||||||||||||
Noninterest-bearing demand deposits | $ | 1,304 | $ | 545 | 9,638 | 12,632 | ||||||||||
Savings, NOW and money-market deposits | 28,202 | 25,875 | 26,682 | 22,045 | ||||||||||||
Time deposits | 95,528 | 103,082 | 26,058 | 30,574 | ||||||||||||
Total deposits | 125,034 | 129,502 | 62,378 | 65,251 | ||||||||||||
Federal Home Loan Bank advances | 56,850 | 56,550 | 24,600 | 20,500 | ||||||||||||
Other borrowings | 28,900 | 10,950 | ||||||||||||||
Junior subordinated debenture | 5,155 | 5,155 | 5,155 | 5,155 | ||||||||||||
Federal funds purchased | 560 | — | ||||||||||||||
Official checks | 2,251 | 2,463 | 274 | 46 | ||||||||||||
Other liabilities | 1,076 | 611 | 2,095 | 2,369 | ||||||||||||
Deferred income tax liability | 34 | 49 | ||||||||||||||
Total liabilities | 219,300 | 205,280 | 95,062 | 93,321 | ||||||||||||
Commitments and contingencies (Notes 4, 8 and 15) | ||||||||||||||||
Commitments and contingencies (Notes 4, 7 and 13) | ||||||||||||||||
Stockholders’ equity: | ||||||||||||||||
Common stock, $.01 par value; 6,000,000 shares authorized, 2,972,507 and 2,820,280 shares issued and outstanding | 30 | 28 | ||||||||||||||
Preferred stock, no par value; 6,000,000 shares authorized: Designated Series A, no par value, $25,000 liquidation value per share, none issued or outstanding in 2018 and 7 shares issued and outstanding in 2017 | — | — | ||||||||||||||
Common stock, $.01 par value; 5,000,000 shares authorized, 1,858,020 shares issued and outstanding in 2018 and 1,120,947 shares issued and outstanding in 2017 | 18 | 11 | ||||||||||||||
Additional paid-in capital | 17,308 | 15,930 | 36,128 | 34,090 | ||||||||||||
Retained earnings | 4,913 | 4,474 | ||||||||||||||
Accumulated deficit | (30,510 | ) | (31,306 | ) | ||||||||||||
Accumulated other comprehensive loss | (4 | ) | (9 | ) | (330 | ) | (250 | ) | ||||||||
Total stockholders’ equity | 22,247 | 20,423 | 5,306 | 2,545 | ||||||||||||
Total liabilities and stockholders’ equity | $ | 241,547 | $ | 225,703 | $ | 100,368 | $ | 95,866 | ||||||||
See Accompanying Notes to Consolidated Financial Statements.Statements
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of EarningsOperations
(In thousands, except share amounts)
Year Ended December 31, | ||||||
2007 | 2006 | |||||
Interest income: | ||||||
Loans | $ | 13,086 | $ | 12,662 | ||
Securities | 2,803 | 1,323 | ||||
Other | 248 | 206 | ||||
Total interest income | 16,137 | 14,191 | ||||
Interest expense: | ||||||
Deposits | 5,836 | 5,148 | ||||
Borrowings | 3,864 | 2,915 | ||||
Total interest expense | 9,700 | 8,063 | ||||
Net interest income | 6,437 | 6,128 | ||||
Provision for loan losses | 476 | 265 | ||||
Net interest income after provision for loan losses | 5,961 | 5,863 | ||||
Noninterest income: | ||||||
Service charges and fees | 79 | 69 | ||||
Loan prepayment fees | 294 | 250 | ||||
Gain on early extinguishment of debt | — | 202 | ||||
Litigation settlement | 155 | 93 | ||||
Other | 5 | 14 | ||||
Total noninterest income | 533 | 628 | ||||
Noninterest expenses: | ||||||
Salaries and employee benefits | 2,061 | 2,002 | ||||
Occupancy and equipment | 662 | 646 | ||||
Data processing | 171 | 172 | ||||
Professional fees | 280 | 254 | ||||
Insurance | 59 | 67 | ||||
Stationary and supplies | 39 | 36 | ||||
Other | 477 | 397 | ||||
Total noninterest expenses | 3,749 | 3,574 | ||||
Earnings before income taxes | 2,745 | 2,917 | ||||
Income taxes | 1,003 | 1,083 | ||||
Net earnings | $ | 1,742 | $ | 1,834 | ||
Net earnings per share: | ||||||
Basic | $ | .59 | $ | .62 | ||
Diluted | $ | .57 | $ | .60 | ||
See Accompanying Notes to Consolidated Financial Statements.
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders’ Equity
Years Ended December 31, 2007 and 2006
(Dollars in thousands)
Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Compre- hensive Loss | Total Stockholders’ Equity | ||||||||||||||||
Shares | Amount | |||||||||||||||||||
Balance at December 31, 2005 | 2,663,775 | $ | 27 | $ | 14,141 | $ | 4,249 | $ | (7 | ) | $ | 18,410 | ||||||||
Proceeds from sale of common stock | 1,277 | — | 14 | — | — | 14 | ||||||||||||||
Proceeds from exercise of common stock options including tax benefit of $37 | 21,150 | — | 167 | — | — | 167 | ||||||||||||||
5% stock dividend | 134,078 | 1 | 1,608 | (1,609 | ) | — | — | |||||||||||||
Comprehensive income: | ||||||||||||||||||||
Net earnings | — | — | — | 1,834 | — | 1,834 | ||||||||||||||
Net change in unrealized loss on security available for sale, net of tax | — | — | — | — | (2 | ) | (2 | ) | ||||||||||||
Comprehensive income | 1,832 | |||||||||||||||||||
Balance at December 31, 2006 | 2,820,280 | $ | 28 | $ | 15,930 | $ | 4,474 | $ | (9 | ) | $ | 20,423 | ||||||||
Proceeds from sale of common stock | 4,172 | — | 37 | — | — | 37 | ||||||||||||||
Proceeds from exercise of common stock options | 7,166 | — | 41 | — | — | 41 | ||||||||||||||
5% stock dividend (fractional shares paid in cash) | 140,889 | 2 | 1,300 | (1,303 | ) | — | (1 | ) | ||||||||||||
Comprehensive income: | ||||||||||||||||||||
Net earnings | — | — | — | 1,742 | — | 1,742 | ||||||||||||||
Net change in unrealized loss on security available for sale, net of tax | — | — | — | — | 5 | 5 | ||||||||||||||
Comprehensive income | 1,747 | |||||||||||||||||||
Balance at December 31, 2007 | 2,972,507 | $ | 30 | $ | 17,308 | $ | 4,913 | $ | (4 | ) | $ | 22,247 | ||||||||
Year Ended December 31, | ||||||||
2018 | 2017 | |||||||
Interest income: | ||||||||
Loans | $ | 3,912 | $ | 4,126 | ||||
Securities | 232 | 366 | ||||||
Other | 148 | 224 | ||||||
Total interest income | 4,292 | 4,716 | ||||||
Interest expense: | ||||||||
Deposits | 510 | 674 | ||||||
Borrowings | 736 | 522 | ||||||
Total interest expense | 1,246 | 1,196 | ||||||
Net interest income | 3,046 | 3,520 | ||||||
Credit for loan losses | 1,754 | — | ||||||
Net interest income after credit for loan losses | 4,800 | 3,520 | ||||||
Noninterest income: | ||||||||
Service charges and fees | 49 | 26 | ||||||
Other | 35 | 15 | ||||||
Gain on sale of securities available for sale | — | 11 | ||||||
Total noninterest income | 84 | 52 | ||||||
Noninterest expenses: | ||||||||
Salaries and employee benefits | 1,864 | 1,770 | ||||||
Occupancy and equipment | 437 | 415 | ||||||
Data processing | 407 | 342 | ||||||
Professional fees | 558 | 784 | ||||||
Insurance | 95 | 95 | ||||||
Regulatory assessments | 114 | 202 | ||||||
Other | 613 | 553 | ||||||
Total noninterest expenses | 4,088 | 4,161 | ||||||
Net earnings (loss) | $ | 796 | $ | (589 | ) | |||
Net earnings (loss) per share: | ||||||||
Basic and diluted | $ | .53 | $ | (.53 | ) |
See Accompanying Notes to Consolidated Financial Statements.
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(In thousands)
Year Ended December 31, | ||||||||
2007 | 2006 | |||||||
Cash flows from operating activities: | ||||||||
Net earnings | $ | 1,742 | $ | 1,834 | ||||
Adjustments to reconcile net earnings to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 225 | 237 | ||||||
Provision for loan losses | 476 | 265 | ||||||
Gain on early extinguishment of debt | — | (202 | ) | |||||
Deferred income tax benefit | (13 | ) | (138 | ) | ||||
Net amortization of fees, premiums and discounts | 372 | 635 | ||||||
Increase in accrued interest receivable | (194 | ) | (224 | ) | ||||
(Increase) decrease in other assets | (686 | ) | 606 | |||||
Increase in official checks and other liabilities | 253 | 746 | ||||||
Net cash provided by operating activities | 2,175 | 3,759 | ||||||
Cash flows from investing activities: | ||||||||
Purchases of securities held to maturity | (34,206 | ) | (12,038 | ) | ||||
Principal repayments and calls of securities held to maturity | 9,193 | 3,967 | ||||||
Net decrease (increase) in loans | 7,569 | (12,262 | ) | |||||
Sale (purchase) of premises and equipment, net | 516 | (153 | ) | |||||
Purchase of Federal Home Loan Bank stock | (9 | ) | (244 | ) | ||||
Net cash used in investing activities | (16,937 | ) | (20,730 | ) | ||||
Cash flows from financing activities: | ||||||||
Net (decrease) increase in deposits | (4,468 | ) | 15,438 | |||||
Net increase (decrease) in other borrowings | 17,950 | (2,000 | ) | |||||
Proceeds from sale of common stock | 37 | 14 | ||||||
Proceeds from Federal Home Loan Bank advances | 11,300 | 18,802 | ||||||
Repayment of Federal Home Loan Bank advances | (11,000 | ) | (15,000 | ) | ||||
Proceeds from exercise of common stock options | 41 | 130 | ||||||
Tax benefit associated with exercise of common stock options | — | 37 | ||||||
Fractional shares of stock dividend paid in cash | (1 | ) | — | |||||
Net cash provided by financing activities | 13,859 | 17,421 | ||||||
Net (decrease) increase in cash and cash equivalents | (903 | ) | 450 | |||||
Cash and cash equivalents at beginning of the year | 1,604 | 1,154 | ||||||
Cash and cash equivalents at end of the year | $ | 701 | $ | 1,604 | ||||
(continued)
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows, ContinuedComprehensive Income (Loss)
(In thousands)
Year Ended December 31, | |||||||
2007 | 2006 | ||||||
Supplemental disclosure of cash flow information: | |||||||
Cash paid during the year for: | |||||||
Interest | $ | 9,697 | $ | 8,050 | |||
Income taxes | $ | 1,014 | $ | 1,033 | |||
Noncash transactions: | |||||||
Change in accumulated other comprehensive income, net change in unrealized loss on security available for sale, net of tax | $ | 5 | $ | (2 | ) | ||
Common stock dividend | $ | 1,302 | $ | 1,609 | |||
Loan reclassified to foreclosed assets | $ | 79 | $ | — | |||
Year Ended | ||||||||
December 31, | ||||||||
2018 | 2017 | |||||||
Net earnings (loss) | $ | 796 | $ | (589 | ) | |||
Other comprehensive (loss) income: | ||||||||
Change in unrealized loss on securities: | ||||||||
Unrealized gain arising during the year | 270 | 82 | ||||||
Amortization of unrealized loss on securities transferred to held-to-maturity | 55 | — | ||||||
Reclassification adjustment for unrealized loss on securities transferred to held-to-maturity | (432 | ) | — | |||||
Reclassification adjustment for realized gain on sale of securities available for sale | — | (11 | ) | |||||
Other comprehensive (loss) income before income tax benefit (expense) | (107 | ) | 71 | |||||
Deferred income tax benefit (expense) on above change | 27 | (69 | ) | |||||
Total other comprehensive (loss) income | (80 | ) | 2 | |||||
Comprehensive income (loss) | $ | 716 | $ | (587 | ) |
See Accompanying Notes to Consolidated Financial Statements.
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders’ Equity
Years Ended December 31, 2018 and 2017
(Dollars in thousands)
Preferred | Accumulated | |||||||||||||||||||||||||
Stock | Additional | Other | Total | |||||||||||||||||||||||
Series A | Common Stock | Paid-In | Accumulated | Comprehensive | Stockholders’ | |||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit | Loss | Equity | |||||||||||||||||||
Balance at December 31, 2016 | 7 | $ | — | 1,103,447 | $ | 11 | $ | 34,039 | $ | (30,717 | ) | $ | (252 | ) | $ | 3,081 | ||||||||||
Proceeds from sale of common stock | — | — | 10,000 | — | 30 | — | — | 30 | ||||||||||||||||||
Common stock issued for services | — | — | 7,500 | — | 21 | — | — | 21 | ||||||||||||||||||
Net change in unrealized loss on securities available for sale, net of income taxes | — | — | — | — | — | — | 2 | 2 | ||||||||||||||||||
Net loss | — | — | — | — | — | (589 | ) | — | (589 | ) | ||||||||||||||||
Balance at December 31, 2017 | 7 | $ | — | 1,120,947 | $ | 11 | $ | 34,090 | $ | (31,306) | $ | (250) | $ | 2,545 | ||||||||||||
Proceeds from sale of common stock | — | — | 211,367 | 2 | 523 | — | — | 525 | ||||||||||||||||||
Common stock issued as compensation to directors | — | — | 144,742 | 2 | 613 | — | — | 615 | ||||||||||||||||||
Common stock issued in exchange for Preferred Stock | (7 | ) | — | 79,186 | — | — | — | — | — | |||||||||||||||||
Common stock issued in exchange for Trust Preferred Securities | — | — | 301,778 | 3 | 902 | — | — | 905 | ||||||||||||||||||
Net change in unrealized loss on securities available for sale, net of income taxes | — | — | — | — | — | — | 200 | 200 | ||||||||||||||||||
Amortization of unrealized loss on securities transferred to held-to-maturity | — | — | — | — | — | — | 44 | 44 | ||||||||||||||||||
Unrealized loss on securities transferred to held-to-maturity, net of income tax benefit | — | — | — | — | — | — | (324 | ) | (324 | ) | ||||||||||||||||
Net earnings | — | — | — | — | — | 796 | — | 796 | ||||||||||||||||||
Balance at December 31, 2018 | — | $ | — | 1,858,020 | $ | 18 | $ | 36,128 | $ | (30,510 | ) | $ | (330 | ) | $ | 5,306 |
See Accompanying Notes to Consolidated Financial Statements.
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(In thousands)
Year Ended December 31, | ||||||||
2018 | 2017 | |||||||
Cash flows from operating activities: | ||||||||
Net earnings (loss) | $ | 796 | $ | (589 | ) | |||
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 159 | 149 | ||||||
Common stock issued as compensation for services | — | 21 | ||||||
Net amortization of fees, premiums and discounts | 237 | 211 | ||||||
Credit for loan losses | (1,754 | ) | — | |||||
Gain from sale of securities available for sale | — | (11 | ) | |||||
Decrease in accrued interest receivable | 2 | 64 | ||||||
Decrease (increase) in other assets | 15 | (24 | ) | |||||
Increase in official checks and other liabilities | 569 | 749 | ||||||
Net cash provided by operating activities | 24 | 570 | ||||||
Cash flows from investing activities: | ||||||||
Principal repayments of securities available for sale | 906 | 2,189 | ||||||
Proceeds from sale of securities available for sale | — | 6,448 | ||||||
Principal repayments of securities held-to-maturity | 814 | — | ||||||
Net (increase) decrease in loans | (7,351 | ) | 8,798 | |||||
Purchase of premises and equipment, net | (234 | ) | (94 | ) | ||||
(Purchase) redemption of Federal Home Loan Bank stock | (153 | ) | 134 | |||||
Net cash (used in) provided by investing activities | (6,018 | ) | 17,475 | |||||
Cash flows from financing activities: | ||||||||
Net decrease in deposits | (2,873 | ) | (20,836 | ) | ||||
Purchase (repayments) of Federal Home Loan Bank advances, net | 4,100 | (3,000 | ) | |||||
Net decrease in advanced payment by borrowers for taxes and insurance | — | (214 | ) | |||||
Proceeds from sale of common stock | 525 | 30 | ||||||
Increase in federal funds purchased | 560 | — | ||||||
Net cash provided by (used in) financing activities | 2,312 | (24,020 | ) | |||||
Decrease in cash and cash equivalents | (3,682 | ) | (5,975 | ) | ||||
Cash and cash equivalents at beginning of the year | 11,665 | 17,640 | ||||||
Cash and cash equivalents at end of the year | $ | 7,983 | $ | 11,665 |
(continued)
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows, Continued
(In thousands)
Year Ended December 31, | ||||||||
2018 | 2017 | |||||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid during the year for: | ||||||||
Interest | $ | 931 | $ | 980 | ||||
Income taxes | $ | — | $ | — | ||||
Noncash transactions: | ||||||||
Change in accumulated other comprehensive loss, net change in unrealized loss on securities available for sale, net of income taxes | $ | (80 | ) | $ | 2 | |||
Transfer of securities from available for sale to held-to-maturity | $ | 7,945 | $ | — | ||||
Reclassification of stock compensation from other liabilities to common stock | $ | 615 | $ | — | ||||
Issuance of common stock in exchange for Trust Preferred Securities | $ | 905 | $ | — | ||||
Amortization of unrealized loss on securities transferred to held-to-maturity | $ | 55 | $ | — |
See Accompanying Notes to Consolidated Financial Statements.
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
At December 31, 20072018 and 20062017 and for the Years Then Ended
(1) |
Organization.OptimumBank Holdings, Inc. (the “Holding Company”) is a one-bank holding company and owns 100% of OptimumBank (the “Bank”), a state (Florida)-charteredFlorida-chartered commercial bank (collectively, the “Company”).bank. The Holding Company’s only business is the operation of the Bank.Bank and its subsidiaries (collectively, the “Company”). The Bank’s deposits are insured up to applicable limits by the Federal Deposit Insurance Corporation.Corporation (“FDIC”). The Bank offers a variety of community banking services to individual and corporate customers through its three banking offices located in Broward County, Florida.
Basis of Presentation. The accompanying consolidated financial statements include the accounts of the Holding Company, the Bank and the Bank.Real Estate Subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The accounting and reporting practices of the Company conform to U.S.accounting principles generally accepted accounting principlesin the United States of America (“GAAP”) and to general practices within the banking industry. The following summarizes the more significant of these policies and practices:practices.
Junior Subordinated Debenture. The Company is in default with respect to its $5,155,000 Junior Subordinated Debenture (the “Debenture”) due to its failure to make certain required interest payments under the Debenture. The Debenture was issued to Optimum Bank Holdings Capital Trust I, a Delaware statutory trust formed by the Company for the purpose of issuing and selling certain securities (the “Trust Preferred Securities”) representing undivided beneficial interests in the Debenture. The trust issued a total of 5,000 Trust Preferred Securities.
The Trustee, Wells Fargo Bank, for the Debenture (the “Trustee”) and the beneficial owners of the Debenture are entitled to accelerate the payment of the $5,155,000 principal balance plus accrued and unpaid interest totaling $1,686,350 at December 31, 2018. To date, neither the Trustee nor the holders have accelerated the outstanding balance of the Debenture. No adjustments to the accompanying consolidated financial statements have been made as a result of this uncertainty.
In May 2018, a company affiliated with a director of the Company (the “New Holder”) purchased all 5,000 Trust Preferred Securities from a third party. During the third quarter of 2018, the New Holder sold its rights in approximately 694 of the Trust Preferred Securities to several unaffiliated third parties, who subsequently exchanged these Trust Preferred Securities for 301,778 shares of the Company’s common stock. Due to regulatory agreement the exchange of Trust Preferred Securities for the Company’s common stock cannot reduce the principal amount of the Debenture collateralizing the Trust Preferred Securities. Accordingly is recorded as an increase in the Company’s equity interest in the unconsolidated subsidiary trust, presented in “Other Assets” in the accompanying consolidated balance sheets.
Although the Company and the New Holder have not executed a formal, definitive bilateral agreement, the New Holder has provided the Company with written representations that the New Holder will not accelerate and demand payment of any of the remaining 4,306 Trust Preferred Securities principal or accrued interest within the next twelve months from the date this Annual Report, Form 10-K as of and for the year ended December 31, 2018, is filed with the Securities and Exchange Commission.
Use of Estimates. In preparing consolidated financial statements in conformity with U.S. generally accepted accounting principles,GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated balance sheet and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. A material estimateMaterial estimates that isare particularly susceptible to significant change in the near term relatesrelate to the determination of the allowance for loan losses.losses and the valuation of the deferred tax asset.
Cash and Cash Equivalents. For purposes of the consolidated statements of cash flows, cash and cash equivalents include cash and balances due from banks and federal funds sold,interest-bearing deposits with banks, all of which mature withinhave original maturities of ninety days.days or less.
The Company ismay be required by law or regulation to maintain cash reserves in the form of vault cash or deposit with Federal Reserve Banks or in Pass-through accounts with other banks. ThereAt December 31, 2018 and 2017, there were no reserve balances required at December 31, 2007 and 2006.cash reserves.
(continued)
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) | Summary of Significant Accounting Policies, continued |
Securities.Securities may be classified as either trading, held to maturity or available for sale. Trading securities are held principally for resale and recorded at their fair values. Unrealized gains and losses on trading securities are included immediately in earnings. Held to maturityoperations. Held-to-maturity securities are those which management has the positive intent and ability to hold to maturity and are reported at amortized cost. Available for sale securities consist of securities not classified as trading securities nor as held to maturity securities. Unrealized holding gains and losses net of tax on available for sale securities are reported as a net amount in accumulated other comprehensive loss in stockholders’ equity until realized. Gains and losses on the sale of available for sale securities are determined using the specific-identification method. Premiums and discounts on securities available for sale and held to maturity are recognized in interest income using the interest method over the period to maturity.
(continued)
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARYManagement evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. A security is impaired if the fair value is less than its carrying value at the financial statement date. When a security is impaired, the Company determines whether this impairment is temporary or other-than-temporary. In estimating other-than-temporary impairment (“OTTI”) losses, management assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of these criteria is met, the entire difference between amortized cost and fair value is recognized in operations. For securities that do not meet the aforementioned criteria, the amount of impairment recognized in operations is limited to the amount related to credit losses, while impairment related to other factors is recognized in other comprehensive income. Management utilizes cash flow models to segregate impairments to distinguish between impairment related to credit losses and impairment related to other factors. To assess for OTTI, management considers, among other things, (i) the severity and duration of the impairment; (ii) the ratings of the security; (iii) the overall transaction structure (the Company’s position within the structure, the aggregate, near-term financial performance of the underlying collateral, delinquencies, defaults, loss severities, recoveries, prepayments, cumulative loss projections, and discounted cash flows); and (iv) the timing and magnitude of a break in modeled cash flows.
Notes to Consolidated Financial Statements, Continued
(1) Summary of Significant Accounting Policies, Continued
Loans.Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are reported at their outstanding principal, adjusted for any charge-offs, the allowance for loan losses, and any deferred fees or costs.
Commitment fees and loan origination fees are deferred and certain direct origination costs are capitalized. Both are recognized as an adjustment of the yield of the related loan.
The accrual of interest on loans is discontinued at the time the loan is ninety days delinquent unless the loan is well collateralized and in process of collection. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.
All interest accrued but not collected for loans that are placed on nonaccrual or charged-off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
Allowance for Loan Losses. The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings.operations. Loan losses are charged against the allowance when management believes the uncollectibilityuncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. There were no changes in the Company’s accounting policies or methodology during the years ended December 31, 2018 and 2017.
The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectibilitycollectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) | Summary of Significant Accounting Policies, continued |
Allowance for Loan Losses, Continued
The allowance consists of specific and general components. The specific component relates to loans that are classified as impaired. For such loans, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loans are lower than the carrying value of those loans. The general component covers all other loans and is based on historical loss experience adjusted for qualitative factors.
(continued)
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARYThe historical loss component of the allowance is determined by losses recognized by portfolio segment over the preceding three years. The historical loss experience is adjusted for the risks by each portfolio segment. Risk factors impacting loans in each of the portfolio segments include: economic trends and conditions; experience, ability and depth of lending management; national and local political environment; industry conditions and trends in charge-offs; and other trends or uncertainties that could affect management’s estimate of probable losses.
Notes to Consolidated Financial Statements, Continued
(1) Summary of Significant Accounting Policies, Continued
Allowance for Loan Losses, Continued.A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis, for commercial real estate, land and construction and multi-family real estate loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral-dependent.
Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer and residential loans for impairment disclosures.
Foreclosed Assets. Assets repossessed or acquired by foreclosure or deed in lieu of foreclosure are carried at the lower of estimated fair value or the balance of the loan on the assets at date of acquisition. Costs relating to the development and improvement of assets are capitalized, whereas those relating to holding the assets are charged to expense. Valuations are periodically performed by management and losses are charged to earnings if the carrying value of the assets exceeds its estimated fair value.
Premises and Equipment. Land is stated at cost. Buildings and improvements, furniture, fixtures, equipment, and leasehold improvements are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization expense are computed using the straight-line method over the estimated useful life of each type of asset or lease term, if shorter.
(continued)
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(1) Summary of Significant Accounting Policies, Continued
Preferred Securities of Unconsolidated Subsidiary Trust.On September 30, 2004, theThe Company acquiredowns all of the common stock of OptimumBank Holdings Capital Trust I (“Issuer Trust”), an unconsolidated subsidiary trust. The Issuer Trust used the proceeds from the issuance of $5,000,000 of its preferred securities to third-party investors and common stock to acquire a $5,155,000 debenture issued by the Company. This debenture and certain capitalized costs associated with the issuance of the preferred stocksecurities comprise the Issuer Trust’s only assets and the interest payments from the debentures finance the distributions paid on the preferred securities. The Company recorded the debenture in “Junior Subordinated Debenture” and its equity interest in the business trust in “Other Assets” onin the accompanying consolidated balance sheets.sheets (See Note 6).
The Company has entered into agreements which, taken collectively, fully and unconditionally guarantee the preferred securities of the Issuer Trust subject to the terms of the guarantee.
The debenture held by the Issuer Trust currently qualifies as Tier I capital for the Company under Federal Reserve Board guidelines.
Transfer of Financial Assets.Transfers of financial assets or a participating interest in an entire financial asset are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity. A participating interest is a portion of an entire financial asset that (1) conveys proportionate ownership rights with equal priority to each participating interest holder, (2) involves no recourse (other than standard representations and warranties) to, or subordination by, any participating interest holder, and (3) does not entitle any participating interest holder to receive cash before any other participating interest holder.
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) | Summary of Significant Accounting Policies, continued |
Income Taxes. There are two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. The Company determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur. Deferred income tax expense results from changes in deferred tax assets and liabilities are recorded to reflect the tax consequences on future years of temporary differences between revenues and expenses reported for financial statement and those reported for income tax purposes. periods.
Deferred tax assets are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term more likely than not means a likelihood of more than 50 percent; the terms examined and liabilitiesupon examination also include resolution of the related appeals or litigation processes, if any. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances, and information available at the reporting date and is subject to management’s judgment. Deferred tax assets are measured usingreduced by a valuation allowance if, based on the enactedweight of evidence available, it is more likely than not that some portion or all of a deferred tax rates expectedasset will not be realized.
The Company provides reserves for potential payments of tax related to apply to taxable incomeuncertain tax positions. These reserves are based on a determination of whether and how much of a tax benefit taken by the Company in the years in which those temporary differences are expectedits tax filings or positions is more likely than not to be realized or settled. Valuation allowancesfollowing resolution of any potential contingencies present related to the tax benefit. Potential interest and penalties associated with such uncertain tax positions are provided against assets which are not likely to be realized.recorded as a component of income tax expense. See Note 9 for additional details.
The Company recognizes interest and penalties on income taxes as a component of income tax expense.
The Holding Company and the Bank file a consolidated income tax return. Income taxes are allocated proportionately to the Holding Company and subsidiarythe Bank as though separate income tax returns were filed.
On December 22, 2017, the “Tax Cuts and Jobs Act of 2017,” or the Tax Act, was signed into law. The Tax Act, among other things, reduced the maximum statutory federal corporate income tax rate from 35% to 21% effective January 1, 2018. As a result of enactment of the Tax Act, the Bank revalued its net deferred tax asset. This revaluation of the deferred tax asset had no effect on the income tax provision due to the valuation allowance on the deferred tax asset.
Advertising.The Company expenses all media advertising as incurred. Media advertising expense included in other noninterest expenses in the accompanying consolidated statements of earningsoperations was approximately $40,000 and $32,000$69,000 during the years ended December 31, 20072018 and 2006,2017, respectively.
(continued)
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(1) Summary of Significant Accounting Policies, Continued
Stock Compensation Plans.Plan.Effective January 1, 2006, the The Company has adopted the fair value recognition provisions of FASB Statement No. 123(R),Share-Based Payment(“SFAS 123(R)”), usingmethod and expenses the modified-prospective-transition method. Under that transition method, compensation cost recognized includes: (a) compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value calculated in accordance withof any stock options as they vest. Under the original provisions of SFAS 123,Accounting for Stock-Based Compensation (as amended by SFAS No. 148,Accounting for Stock-Based Compensation Transition and Disclosure) (collectively SFAS 123) and (b) compensation cost for all share-based payments granted subsequent to December 31, 2005, based on the grant-date fair value estimatedrecognition method, the Company recognizes stock-based compensation in accordance with the provisionsaccompanying consolidated statements of SFAS 123(R). At December 31, 2005, all outstanding options had vested.operations.
Earnings (loss) Per Share. Basic earnings (loss) per share is computed on the basis of the weighted-average number of common shares outstanding. DilutedIn 2018, basic and diluted earnings per share is computed based on the weighted-average number of sharessame as there were no outstanding pluspotentially dilutive securities. In 2017, basic and diluted loss per share is the effect of outstanding stock options, computed usingsame due to the treasury stock method. All amounts reflectnet loss incurred by the 5% stock dividends declared in May 2007 and April 2006.Company. Earnings (loss) per common share havehas been computed based on the following:
Year Ended December 31, | ||||
2007 | 2006 | |||
Weighted-average number of common shares outstanding used to calculate basic earnings per common share | 2,964,026 | 2,953,673 | ||
Effect of dilutive stock options | 69,064 | 125,962 | ||
Weighted-average number of common shares outstanding used to calculate diluted earnings per common share | 3,033,090 | 3,079,635 | ||
Year Ended December 31, | ||||||||
2018 | 2017 | |||||||
Weighted-average number of common shares outstanding used to calculate basic and diluted earnings (loss) per common share | 1,493,303 | 1,104,995 |
The following options were excluded from the calculation of EPS dueOPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to the exercise price being above the average market price:Consolidated Financial Statements
(1) | |||||||
|
Off-Balance-Sheet Financial Instruments. In the ordinary course of business, the Company has enteredmay enter into off-balance-sheet financial instruments consisting of commitments to extend credit, unused lines of credit, and standby letters of credit. Such financial instruments are recorded in the consolidated financial statements when they are funded.
(continued)
Fair Value Measurements. Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The hierarchy describes three levels of inputs that may be used to measure fair value:
Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities that are not active; and model-driven valuations whose inputs are observable or whose significant value drivers are observable. Valuations may be obtained from, or corroborated by, third-party pricing services.
Level 3: Unobservable inputs to measure fair value of assets and liabilities for which there is little, if any market activity at the measurement date, using reasonable inputs and assumptions based upon the best information at the time, to the extent that inputs are available without undue cost and effort.
The following describes valuation methodologies used for assets measured at fair value:
Securities Available for Sale. Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include highly liquid government bonds, certain mortgage products and exchange-traded equities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows. Examples of such instruments, which would generally be classified within Level 2 of the valuation hierarchy, include certain mortgage-backed securities and U.S. Government and agency securities.
Impaired Loans. The Company’s impaired loans are normally collateral dependent and, as such, are carried at the lower of the Company’s net recorded investment in the loan or fair market value of the collateral less estimated selling costs. Estimates of fair value are determined based on a variety of information, including the use of available appraisals, estimates of market value by licensed appraisers or local real estate brokers and the knowledge and experience of the Company’s management related to values of properties in the Company’s market areas. Management takes into consideration the type, location and occupancy of the property as well as current economic conditions in the area the property is located in assessing estimates of fair value. Accordingly, fair value estimates for impaired loans are classified as Level 3.
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements Continued
(1) | Summary of Significant Accounting Policies, continued |
Fair Values of Financial Instruments. The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument or may not necessarily represent the underlying fair value of the Company. The following methods and assumptions were used by the Company in estimating fair values of financial instruments disclosed herein:
Cash and Cash Equivalents. The carrying amounts of cash and cash equivalents approximate their fair value.value (Level 1).
Securities.Fair values for securities are based on quoted market prices, where available. If quoted market prices are not available,the framework for measuring fair value established by GAAP (Level 2).
Loans.For variable-rate loans that reprice frequently and have no significant change in credit risk, fair values are based on quoted market pricescarrying values. Fair values for fixed-rate loans, including fixed-rate residential and commercial real estate and commercial loans, are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of comparable instruments.similar credit quality (Level 3).
Federal Home Loan Bank Stock.Fair value of the Company’s investment in Federal Home Loan Bank stock is based on its redemption value, which is its cost of $100 per share.share (Level 3).
Loans.Accrued Interest Receivable. For variable-rate loans that reprice frequently and have no significant change in credit risk,The carrying amount of accrued interest approximates its fair values are based on carrying values. Fair values for certain fixed-rate mortgage (e.g. one-to-four family residential), commercial real estate and commercial loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Fair values for nonperforming loans are estimated using discounted cash flow analyses or underlying collateral values, where applicable.value (Level 3).
Deposit Liabilities. The fair values disclosed for demand, NOW, money-market and savings deposits are, by definition, equal to the amount payable on demand at the reporting date (that is, their carrying amounts). Fair values for fixed-rate time deposits are estimated using a discounted cash flow calculation that applies interest rates currently being offered on time deposits to a schedule of aggregated expected monthly maturities of time deposits.deposits (Level 3).
Accrued Interest.The carrying amounts of accrued interest approximate their fair values.
Federal Home Loan Bank Advances, Junior Subordinated Debenture and Other Borrowings.Advances.Fair values of Federal Home Loan Bank advances junior subordinated debenture and other borrowings which consist of securities sold under an agreement to repurchase are estimated using discounted cash flow analysis based on the Company’s current incremental borrowingsborrowing rates for similar types of borrowings.borrowings (Level 3).
(continued)
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(1) Summary of Significant Accounting Policies, Continued
Fair ValuesFederal Funds Purchased. The carrying amount of Financial Instruments, Continued.federal funds purchased approximates its fair value (Level 1).
Off-Balance-Sheet Financial Instruments. Fair values for off-balance-sheet lending commitments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing.standing (Level 3).
Comprehensive Income.income (loss). Accounting principlesGAAP generally requirerequires that recognized revenue, expenses, gains and losses be included in net earnings.earnings (loss). Although certain changes in consolidated assets and liabilities, such as unrealized gains and losses on available for saleavailable-for-sale securities, are reported as a separate component of the equity section of the consolidated balance sheets, such items along with net earnings (loss), are components of comprehensive income. The only component ofincome (loss).
Accumulated other comprehensive income isloss consists of the net change in unrealized loss on securities available for sale for the years ended December 31, 2007 and 2006.following (in thousands):
December 31, | December 31, | |||||||
2018 | 2017 | |||||||
Unrealized loss on securities available for sale | $ | (64 | ) | $ | (334 | ) | ||
Unamortized portion of unrealized loss related to securities available for sale transferred to securities held-to-maturity | (377 | ) | — | |||||
Income tax benefit | 111 | 84 | ||||||
$ | (330 | ) | $ | (250 | ) |
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) | Summary of Significant Accounting Policies, continued |
Recent Pronouncements.In September 2006,February 2016, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157,Fair ValueMeasurementsAccounting Standards Update (“SFAS 157”ASU”). SFAS 157 defines fair value, establishes 2016-2, Leases (Topic 842) which will require lessees to recognize on the consolidated balance sheet the assets and liabilities for the rights and obligations created by those leases with a framework for measuring fair valueterm of more than twelve months. Consistent with current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. The new ASU will require both types of leases to be recognized on the consolidated balance sheet. The ASU also will require disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements, providing additional information about the amounts recorded in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. This statementthe consolidated financial statements. The ASU is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2018. The Company estimates that the effect of the ASU will increase assets by $276,000, liabilities by $280,000 and accumulated deficit by $4,000.
In June 2016, the FASB issued ASU No. 2016-13Financial Instruments-Credit Losses (Topic 326). The ASU improves financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by the Company. The ASU requires the Company to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. The Company will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. The ASU requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of January 1, 2008. Managementan organization’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the condensed consolidated financial statements. Additionally, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The ASU will take effect for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted. The Company is in the process of evaluatingdetermining the impacteffect of SFAS 157 and does not anticipate it will have any effectthe ASU on the Company’sits consolidated financial condition or results of operations.statements.
In February 2007,August 2017, the FASB issued SFASASU No. 159,2017-12,Derivatives and Hedging (Topic 815) Targeted Improvements to Accounting for Hedge Activities. The Fair Value OptionASU better aligns an entity’s risk management activities and financial reporting for Financial Assetshedging relationships through changes to both the designation and Financial Liabilities (“SFAS 159”). SFAS 159 providesmeasurement guidance for qualifying hedging relationships and the Company with an option to report selectedpresentation of hedge results. To meet that objective, the ASU expands and refines hedge accounting for both nonfinancial and financial assetsrisk components and liabilities at fair value. This statement is effective foraligns the Company asrecognition and presentation of January 1, 2008. Management isthe effects of the hedging instrument and the hedged item in the process of evaluating the impact of SFAS 159 and does not anticipate it will have any effect on the Company’s consolidated financial condition or results of operations.
In December 2007, the FASB issued SFAS No. 141(R),Business Combinations (“SFAS 141(R)”). SFAS 141(R)statements. The ASU is effective for fiscal years beginning after December 15, 2008 and early implementation is2018. The adoption of guidance will not permitted. SFAS 141(R) requires the acquiring entity inhave a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction; establishes the acquisition date fair value as the measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose to investors and other users all of the information they need to evaluate and understand the nature and financial effect of the business combination. Acquisition related costs including finder’s fees, advisory, legal, accounting valuation and other professional and consulting fees are required to be expensed as incurred. Management is in the process of evaluating thematerial impact of SFAS 141(R) and does not anticipate it will have any current effect on the Company’s consolidated financial conditionstatements.
In June 2018, the FASB issued ASU No. 2018-07, Stock Compensation(Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. The ASU is intended to reduce the cost and complexity and to improve financial reporting for nonemployee share-based payments. The ASU expands the scope of Topic 718. Compensation Stock Compensation (which currently only includes share-based payments to employees) to include share-based payments issued to nonemployees for goods or resultsservices. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned. The ASU supersedes Subtopic 505-50,Equity-Equity-Based payments to Non-Employees. The ASU is effective for the Company for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. The adoption of operations.this guidance will not have a material impact on the company’s consolidated financial statements.
(continued)
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements Continued
(2) Securities
Securities.Securities have been classified according to management’s intent. The carrying amount of securities and approximate fair values are as follows (in thousands):
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||
At December 31, 2007: | |||||||||||||
Securities Held to Maturity: | |||||||||||||
Mortgage-backed securities | $ | 58,371 | $ | 229 | $ | (583 | ) | $ | 58,017 | ||||
State of Israel bond | 100 | — | — | 100 | |||||||||
$ | 58,471 | $ | 229 | $ | (583 | ) | $ | 58,117 | |||||
Security Available for Sale- | |||||||||||||
Mutual fund | $ | 250 | $ | — | $ | (6 | ) | $ | 244 | ||||
At December 31, 2006: | |||||||||||||
Securities Held to Maturity: | |||||||||||||
Mortgage-backed securities | $ | 33,299 | $ | 272 | $ | (521 | ) | $ | 33,050 | ||||
State of Israel bond | 100 | — | — | 100 | |||||||||
$ | 33,399 | $ | 272 | $ | (521 | ) | $ | 33,150 | |||||
Security Available for Sale- | |||||||||||||
Mutual fund | $ | 250 | $ | — | $ | (9 | ) | $ | 241 | ||||
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||
At December 31, 2018: | ||||||||||||||||
Held-to-maturity – | ||||||||||||||||
Collateralized mortgage obligations | $ | 7,139 | $ | 40 | $ | (4 | ) | $ | 7,175 | |||||||
Available for sale – | ||||||||||||||||
SBA Pool Securities | $ | 2,423 | $ | — | $ | (64 | ) | $ | 2,359 | |||||||
At December 31, 2017 – | ||||||||||||||||
Securities Available for Sale: | ||||||||||||||||
Collateralized mortgage obligations | $ | 8,806 | $ | — | $ | (340 | ) | $ | 8,466 | |||||||
SBA Pool Securities | 2,965 | 10 | (4 | ) | 2,971 | |||||||||||
Total | $ | 11,771 | $ | 10 | $ | (344 | ) | $ | 11,437 |
In April 2018, the bank transferred securities of $7,945,000 from the available-for-sale category to the held-to-maturity category at their then fair values resulting in unrealized losses of $432,000. The unrealized loss which is recorded in the stockholders’ equity net of amortization and net of tax is being amortized over the remaining term of the securities. At December 31, 2018, $55,000 has been amortized.
There were no sales of securities soldavailable for sale during the yearsyear ended December 31, 2007 or 2006.2018.
The following summarizes the sale of securities available for sale during the year ended December 31, 2017 (in thousands):
Proceeds from sales | $ | 6,448 | ||
Gross gains from sales | 11 | |||
Gross loss from sales | - | |||
Net gain from sales | $ | 11 |
Securities with gross unrealized losses, at December 31, 2007, aggregated by investment category and length of time that individual securities have been in a continuous loss position, is as follows (in thousands):
Less Than Twelve Months | Over Twelve Months | |||||||||||||
Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | |||||||||||
Securities held to maturity- | ||||||||||||||
Mortgage-backed securities | $ | (291 | ) | $ | 25,298 | $ | (292 | ) | $ | 15,412 | ||||
Security available for sale- | ||||||||||||||
Mutual fund | $ | — | $ | — | $ | (6 | ) | $ | 244 | |||||
At December 31, 2018 | ||||||||||||||||
Over Twelve Months | Less Than Twelve Months | |||||||||||||||
Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | |||||||||||||
Held-to-maturity — | ||||||||||||||||
Collateralized mortgage obligations | $ | 4 | $ | 1,361 | $ | — | $ | — | ||||||||
Available for Sale — | ||||||||||||||||
SBA Pool Securities | $ | 24 | $ | 829 | $ | 40 | $ | 1,530 |
At December 31, 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 | $ | 340 | 8,466 | — | — | |||||||||||
SBA Pools Securities | $ | 3 | $ | 539 | $ | 1 | $ | 540 | ||||||||
343 | 9,005 | $ | 1 | $ | 540 |
(continued)
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements Continued
(2)Securities, Continued
.Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.
The
At December 31, 2018 and 2017, the unrealized losses on seven and eight investment securities, held to maturityrespectively were caused by market changes.conditions. It is expected that the securities would not be settled at a price less than the parbook value of the investments. Because the decline in fair value is attributable to market changesconditions and not credit quality, and because the Company has the ability and intent to hold these investments until a market price recovery or maturity, these investments are not considered other-than-temporarily impaired.
Available-for-sale securities measured at fair value on a recurring basis are summarized below (in thousands):
Fair Value Measurements Using | ||||||||||||||||
Fair Value | Quoted Prices In Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
At December 31, 2018 – | ||||||||||||||||
SBA Pool Securities | $ | 2,359 | $ | — | $ | 2,359 | $ | — | ||||||||
At December 31, 2017: | ||||||||||||||||
Collateralized mortgage obligations | $ | 8,466 | $ | — | $ | 8,466 | $ | — | ||||||||
SBA Pool Securities | 2,971 | — | 2,971 | — | ||||||||||||
$ | 11,437 | $ | — | $ | 11,437 | $ | — |
During the years ended December 31, 2018 and 2017, no securities were transferred in or out of Level 1, 2 or 3.
As of December 31, 2018, the Company had pledged Securities with a market value of $453,000 as collateral for the Federal Reserve Bank Discount Window.
The Company’s available-for-sale and held-to-maturity securities all have contractual maturity dates which are greater than ten years after December 31, 2018. Expected maturities of these securities will differ from contractual maturities because borrowers have the right to call or repay obligations with or without call or prepayment penalties.
(continued)
B-16 |
(3) LoansOPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(3)Loans.The components of loans are as follows (in thousands):
At December 31, | At December 31, | |||||||||||||||
At December 31, | 2018 | 2017 | ||||||||||||||
2007 | 2006 | |||||||||||||||
Residential real estate | $ | 65,908 | $ | 70,868 | $ | 27,204 | $ | 26,054 | ||||||||
Multi-family real estate | 10,275 | 10,769 | 8,195 | 7,356 | ||||||||||||
Commercial real estate | 75,777 | 68,852 | 36,634 | 32,152 | ||||||||||||
Land and construction | 21,093 | 31,022 | 1,998 | 1,051 | ||||||||||||
Commercial | 4,997 | 4,522 | ||||||||||||||
Consumer | 15 | 227 | 260 | 794 | ||||||||||||
Total loans | 173,068 | 181,738 | 79,288 | 71,929 | ||||||||||||
Add (deduct): | ||||||||||||||||
Net deferred loan fees, costs and premiums | 970 | 1,163 | 155 | 282 | ||||||||||||
Loan discounts | (23 | ) | (49 | ) | ||||||||||||
Allowance for loan losses | (692 | ) | (974 | ) | (2,243 | ) | (3,991 | ) | ||||||||
Loans, net | $ | 173,323 | $ | 181,878 | $ | 77,200 | $ | 68,220 | ||||||||
The Company grants the majority of its loans to borrowers throughout Broward County, Florida and portions of Palm Beach and Miami-Dade Counties, Florida. Although the Company has a diversified loan portfolio, a significant portion of its borrowers’ ability to repay their loans and meet their contractual obligations to the Company is dependent upon the economy in Broward, Palm Beach and Miami-Dade Counties, Florida.
(continued)
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements Continued
(3)Loans, Continued
Continued.An analysis of the change in the allowance for loan losses for the years ended December 31, 2018 and 2017 follows (in thousands):
Residential Real Estate | Multi-Family Real Estate | Commercial Real Estate | Land and Construction | Commercial | Consumer | Unallocated | Total | |||||||||||||||||||||||||
Year Ended December 31, 2018: | ||||||||||||||||||||||||||||||||
Beginning balance | $ | 641 | $ | 59 | $ | 759 | $ | 22 | $ | 55 | $ | 86 | $ | 2,369 | $ | 3,991 | ||||||||||||||||
(Credit) provision for loan losses | (97 | ) | 29 | (192 | ) | (26 | ) | 795 | (44 | ) | (2,219 | ) | (1,754 | ) | ||||||||||||||||||
Charge-offs | — | — | — | — | — | (25 | ) | — | (25 | ) | ||||||||||||||||||||||
Recoveries | — | — | — | 23 | — | 8 | — | 31 | ||||||||||||||||||||||||
Ending balance | $ | 544 | $ | 88 | $ | 567 | $ | 19 | $ | 850 | $ | 25 | $ | 150 | $ | 2,243 | ||||||||||||||||
Year Ended December 31, 2017: | ||||||||||||||||||||||||||||||||
Beginning balance | $ | 310 | $ | 58 | $ | 787 | $ | 120 | $ | 188 | $ | 165 | $ | 2,287 | $ | 3,915 | ||||||||||||||||
Provision (credit) for loan losses | 229 | 1 | (28 | ) | (122 | ) | (133 | ) | (29 | ) | 82 | — | ||||||||||||||||||||
Charge-offs | — | — | — | — | — | (67 | ) | — | (67 | ) | ||||||||||||||||||||||
Recoveries | 102 | — | — | 24 | — | 17 | — | 143 | ||||||||||||||||||||||||
Ending balance | $ | 641 | $ | 59 | $ | 759 | $ | 22 | $ | 55 | $ | 86 | $ | 2,369 | $ | 3,991 |
(continued)
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(3) | Loans, continued. |
The balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 2018 and 2017 follows (in thousands):
Year Ended December 31, | ||||||||
2007 | 2006 | |||||||
Beginning balance | $ | 974 | $ | 777 | ||||
Charge-offs | (758 | ) | (68 | ) | ||||
Provision for loan losses | 476 | 265 | ||||||
Ending balance | $ | 692 | $ | 974 | ||||
Residential Real Estate | Multi-Family Real Estate | Commercial Real Estate | Land and Construction | Commercial | Consumer | Unallocated | Total | |||||||||||||||||||||||||
At December 31, 2018: | ||||||||||||||||||||||||||||||||
Individually evaluated for impairment: | ||||||||||||||||||||||||||||||||
Recorded investment | $ | 954 | $ | — | $ | 3,861 | $ | — | $ | 1,928 | $ | — | $ | — | $ | 6,743 | ||||||||||||||||
Balance in allowance for loan losses | $ | 268 | $ | — | $ | 162 | $ | — | $ | 814 | $ | — | $ | — | $ | 1,244 | ||||||||||||||||
Collectively evaluated for impairment: | ||||||||||||||||||||||||||||||||
Recorded investment | $ | 26,250 | $ | 8,195 | $ | 32,773 | $ | 1,998 | $ | 3,069 | $ | 260 | $ | — | $ | 72,545 | ||||||||||||||||
Balance in allowance for loan losses | $ | 276 | $ | 88 | $ | 405 | $ | 19 | $ | 36 | $ | 25 | $ | 150 | $ | 999 | ||||||||||||||||
At December 31, 2017: | ||||||||||||||||||||||||||||||||
Individually evaluated for impairment: | ||||||||||||||||||||||||||||||||
Recorded investment | $ | 1,172 | $ | — | $ | 975 | $ | — | $ | — | $ | — | $ | — | $ | 2,147 | ||||||||||||||||
Balance in allowance for loan losses | $ | 330 | $ | — | $ | 83 | $ | — | $ | — | $ | — | $ | — | $ | 413 | ||||||||||||||||
Collectively evaluated for impairment: | ||||||||||||||||||||||||||||||||
Recorded investment | $ | 24,882 | $ | 7,356 | $ | 31,177 | $ | 1,051 | $ | 4,522 | $ | 794 | $ | — | $ | 69,782 | ||||||||||||||||
Balance in allowance for loan losses | $ | 311 | $ | 59 | $ | 676 | $ | 22 | $ | 55 | $ | 86 | $ | 2,369 | $ | 3,578 |
There were no impaired
On January 6, 2016, the Bank completed a sale of a judgement on a defaulted credit that resulted in a $1.8 million recovery of previously charged-off amounts to the Allowance for Loan and Lease Losses (“ALLL”). That increased the balance of the ALLL to approximately $4.2 million. On February 12, 2016, and amended May 6, 2016, pursuant to the terms and requirements of the Consent Order, Management submitted a Second written request to the FDIC for a partial reversal of the ALLL. During the second quarter of 2018, the FDIC approved management’s request. In June 2018, the Bank reversed $2.1 million of the ALLL into income.
(continued)
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(3) | Loans, Continued. |
Residential Real Estate, Multi-Family Real Estate, Commercial Real Estate, Land and Construction. All loans are underwritten in accordance with policies set forth and approved by the Board of Directors (the “Board”), including repayment capacity and source, value of the underlying property, credit history and stability. Residential real estate loans are underwritten based on repayment capacity and source, value of the underlying property, credit history and stability. 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 Company’s 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 2006the 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.
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 Consolidated Financial Statements
(3) | Loans, Continued. The following summarizes the loan credit quality (in thousands): |
Pass | OLEM (Other Loans Especially Mentioned) | Sub- standard | Doubtful | Loss | Total | |||||||||||||||||||
At December 31, 2018: | ||||||||||||||||||||||||
Residential real estate | $ | 26,250 | $ | — | $ | 954 | $ | — | $ | — | $ | 27,204 | ||||||||||||
Multi-family real estate | 8,195 | — | — | — | — | 8,195 | ||||||||||||||||||
Commercial real estate | 31,050 | 1,723 | 3,861 | — | — | 36,634 | ||||||||||||||||||
Land and construction | 1,998 | — | — | — | — | 1,998 | ||||||||||||||||||
Commercial | 2,362 | 707 | 1,928 | — | — | 4,997 | ||||||||||||||||||
Consumer | 260 | — | — | — | — | 260 | ||||||||||||||||||
Total | $ | 70,115 | $ | 2,430 | $ | 6,743 | $ | — | $ | — | $ | 79,288 | ||||||||||||
At December 31, 2017: | ||||||||||||||||||||||||
Residential real estate | $ | 22,315 | $ | 2,494 | $ | 1,245 | $ | — | $ | — | $ | 26,054 | ||||||||||||
Multi-family real estate | 7,356 | — | — | — | — | 7,356 | ||||||||||||||||||
Commercial real estate | 24,704 | 6,473 | 975 | — | — | 32,152 | ||||||||||||||||||
Land and construction | 1,051 | — | — | — | — | 1,051 | ||||||||||||||||||
Commercial | 2,304 | 2,218 | — | — | — | 4,522 | ||||||||||||||||||
Consumer | 794 | — | — | — | — | 794 | ||||||||||||||||||
Total | $ | 58,524 | $ | 11,185 | $ | 2,220 | $ | — | $ | — | $ | 71,929 |
Internally assigned loan grades are defined as follows:
Pass – a Pass loan’s primary source of loan repayment is satisfactory, with secondary sources very likely to be realized if necessary. These are loans that conform in all aspects to bank policy and regulatory requirements, and no repayment risk has been identified.
OLEM (Other Loans Especially Mentioned) – an Other Loan Especially Mentioned has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in the deterioration of the repayment prospects for the asset or the Company’s credit position at some future date.
Substandard – a Substandard loan is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Included in this category are loans that are current on their payments, but the Bank is unable to document the source of repayment. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.
Doubtful – a loan classified as Doubtful has all the weaknesses inherent in one classified as Substandard, with the added characteristics that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future. The Company charges off any loan classified as Doubtful.
Loss – a loan classified as Loss is considered uncollectible and of such little value that continuance as a bankable asset is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future. The Company fully charges off any loan classified as Loss.
(continued)
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(3) | Loans, Continued. Age analysis of past due loans at December 31, 2018 is as follows (in thousands): |
Accruing Loans | ||||||||||||||||||||||||||||
30-59 Days Past Due | 60-89 Days Past Due | Greater Than 90 Days Past Due | Total Past Due | Current | Nonaccrual Loans | Total Loans | ||||||||||||||||||||||
At December 31, 2018: | ||||||||||||||||||||||||||||
Residential real estate | $ | — | $ | — | $ | — | $ | — | $ | 27,204 | $ | — | $ | 27,204 | ||||||||||||||
Multi-family real estate | — | — | — | — | 8,195 | — | 8,195 | |||||||||||||||||||||
Commercial real estate | — | — | — | — | 35,254 | 1,380 | 36,634 | |||||||||||||||||||||
Land and construction | — | — | — | — | 1,998 | — | 1,998 | |||||||||||||||||||||
Commercial | — | — | — | — | 4,997 | — | 4,997 | |||||||||||||||||||||
Consumer | — | — | — | — | 260 | — | 260 | |||||||||||||||||||||
Total | $ | — | $ | — | $ | — | $ | — | $ | 77,908 | $ | 1,380 | $ | 79,288 |
At December 31, 2007. During 2007,2017, no loans were past due, more than thirty days and no loans were on nonaccrual.
The following summarizes the average net investment inamount of impaired loans and interest income recognized and received on impaired loans is as follows (in thousands):
Average investment in impaired loans | $ | 1,581 | |
Interest income recognized on impaired loans | $ | 39 | |
Interest income received on impaired loans | $ | 39 | |
At December 31, 2018 | At December 31, 2017 | |||||||||||||||||||||||
Recorded Investment | Unpaid Principal Balance | Related Allowance | Recorded Investment | Unpaid Principal Balance | Related Allowance | |||||||||||||||||||
With no related allowance recorded: | ||||||||||||||||||||||||
Residential real estate | $ | — | $ | — | $ | — | $ | 194 | $ | 217 | $ | — | ||||||||||||
Commercial real estate | 2,259 | 2,259 | — | 231 | 231 | — | ||||||||||||||||||
Commercial | 1,114 | 1,114 | — | — | — | — | ||||||||||||||||||
With related allowance recorded: | ||||||||||||||||||||||||
Residential real estate | 954 | 954 | 268 | 978 | 978 | 330 | ||||||||||||||||||
Commercial real estate | 1,602 | 1,602 | 162 | 744 | 744 | 83 | ||||||||||||||||||
Commercial | 814 | 814 | 814 | — | — | — | ||||||||||||||||||
Total | ||||||||||||||||||||||||
Residential real estate | $ | 954 | $ | 954 | $ | 268 | $ | 1,172 | $ | 1,195 | $ | 330 | ||||||||||||
Commercial real estate | $ | 3,861 | $ | 3,861 | $ | 162 | $ | 975 | $ | 975 | $ | 83 | ||||||||||||
Commercial | $ | 1,928 | $ | 1,928 | $ | 814 | $ | — | $ | — | $ | — | ||||||||||||
Total | $ | 6,743 | $ | 6,743 | $ | 1,244 | $ | 2,147 | $ | 2,170 | $ | 413 |
At
(continued)
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(3) | Loans, Continued. The average net investment in impaired loans and interest income recognized and received on impaired loans are as follows (in thousands): |
For the Year Ended December 31, | ||||||||||||||||||||||||
2018 | 2017 | |||||||||||||||||||||||
Average Recorded Investment | Interest Income Recognized | Interest Income Received | Average Recorded Investment | Interest Income Recognized | Interest Income Received | |||||||||||||||||||
Residential real estate | $ | 981 | $ | 76 | $ | 76 | $ | 817 | $ | 226 | $ | 121 | ||||||||||||
Commercial real estate | $ | 677 | $ | 25 | $ | 25 | $ | 984 | $ | 52 | $ | 52 | ||||||||||||
Commercial | $ | 1,638 | $ | 86 | $ | 86 | $ | — | $ | — | $ | — | ||||||||||||
Total | $ | 3,296 | $ | 187 | $ | 187 | $ | 1,801 | $ | 278 | $ | 173 |
There were no loans modified and determined to be troubled debt restructurings during the years ended December 31, 2006, the Company had no nonaccrual loans or loans over 90 days past due still accruing interest. Nonaccrual2018 and past due loans were as follows as of December 31, 2007 (in thousands):2017.
Nonaccrual loans | $ | 245 | |
Past due ninety days or more, but still accruing interest | $ | — | |
(4) |
A summary of premises and equipment follows (in thousands):
At December 31, | At December 31, | |||||||||||||||
2007 | 2006 | 2018 | 2017 | |||||||||||||
Land | $ | 1,171 | $ | 1,371 | $ | 1,171 | $ | 1,171 | ||||||||
Buildings and improvements | 1,940 | 2,336 | 2,123 | 2,105 | ||||||||||||
Furniture, fixtures and equipment | 987 | 896 | 684 | 1,308 | ||||||||||||
Leasehold improvements | 114 | 111 | 127 | 131 | ||||||||||||
Total, at cost | 4,212 | 4,714 | 4,105 | 4,715 | ||||||||||||
Less accumulated depreciation and amortization | (963 | ) | (724 | ) | (1,437 | ) | (2,122 | ) | ||||||||
Premises and equipment, net | $ | 3,249 | $ | 3,990 | $ | 2,668 | $ | 2,593 | ||||||||
(continued)
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(4) Premises and Equipment, Continued
On February 1, 2007, the Company entered into a sale/leaseback transaction for its Galt Ocean Mile branch facility. No gain or loss was recognized on this transaction.
The Company currently leases twoone branch facilitiesfacility under an operating leases. Onelease. The lease contains renewal options and requires the Company to pay an allowable share of common area maintenance and real estate taxes. The other lease only requires the Company to pay real estate taxes. Rent expense under the operating leaseslease during the years ended December 31, 20072018 and 20062017 was $119,000$90,000 and $70,000$73,000, respectively. At December 31, 2007,2018, the future minimum lease payments are approximately as follows (in thousands):
Year Ending | Amount | ||
2008 | $ | 130 | |
2009 | 130 | ||
2010 | 130 | ||
2011 | 130 | ||
2012 | 81 | ||
Thereafter | 70 | ||
$ | 671 | ||
Year Ending December 31, | Amount | |||
2019 | $ | 92 | ||
2020 | 95 | |||
2021 | 98 | |||
2022 | 93 | |||
Total | $ | 378 |
(continued)
(5) OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(5) | Deposits |
The aggregate amount of time deposits with a minimum denomination of $100,000,$250,000 was approximately $38.9 million$2.7 and $40.9$1.3 million at December 31, 20072018 and 2006,2017, respectively.
A schedule of maturities of time deposits at December 31, 20072018 follows (in thousands):
Year Ending December 31, | Amount | ||
2008 | $ | 78,100 | |
2009 | 10,961 | ||
2010 | 5,555 | ||
2011 | 801 | ||
2012 | 111 | ||
$ | 95,528 | ||
Year Ending December 31, | Amount | |||
2019 | $ | 20,413 | ||
2020 | 3,914 | |||
2021 | 334 | |||
2022 | 1,095 | |||
2023 | 302 | |||
$ | 26,058 |
(continued)
(6) |
|
The maturities and interest rates on the Federal Home Loan Bank (“FHLB”) advances were as follows (dollars in thousands):
Call Date | Interest Rate | At December 31, | |||||||||
Maturity Year Ending December 31, | 2007 | 2006 | |||||||||
Daily | — | 4.40 | %(a) | $ | 700 | $ | 2,500 | ||||
2007 | — | 3.48 | — | 2,500 | |||||||
2007 | — | 3.70 | — | 2,000 | |||||||
2009 | — | 4.92 | 1,000 | 1,000 | |||||||
2009 | — | 4.99 | 5,000 | 5,000 | |||||||
2009 | — | 4.95 | 5,000 | — | |||||||
2012 | 2009 | 4.75 | 4,000 | — | |||||||
2013 | 2008 | 3.42 | 2,000 | 2,000 | |||||||
2013 | 2008 | 3.09 | 3,000 | 3,000 | |||||||
2013 | 2008 | 2.80 | 1,950 | 1,950 | |||||||
2013 | 2008 | 2.56 | 3,000 | 3,000 | |||||||
2013 | 2008 | 3.44 | 3,000 | 3,000 | |||||||
2014 | 2007 | 3.14 | — | 4,000 | |||||||
2014 | 2009 | 3.64 | 8,000 | 8,000 | |||||||
2016 | 2009 | 4.51 | 5,000 | 5,000 | |||||||
2016 | 2009 | 4.65 | 8,000 | 8,000 | |||||||
2016 | 2009 | 4.44 | 5,600 | 5,600 | |||||||
2017 | 2009 | 4.38 | 1,600 | — | |||||||
$ | 56,850 | $ | 56,550 | ||||||||
Maturity | ||||||||||||||
Year Ending | Interest | At December 31, | ||||||||||||
December 31, | Rate | 2018 | 2017 | |||||||||||
2018 | 1.53% | $ | — | $ | 5,000 | |||||||||
2019 | 1.60 - 2.65% | 19,600 | 10,500 | |||||||||||
2021 | 1.68% | 5,000 | 5,000 | |||||||||||
$ | 24,600 | $ | 20,500 |
|
|
Certain of the above advances are callable by the FHLB at the dates indicated.
At December 31, 20072018, all FHLB advances had fixed interest rates, with the exception of one advance in the amount of $9.1 million which is a daily rate credit and 2006,matures in 2019.
At December 31, 2018, the FHLB advances were collateralized by a blanket lien on qualifying residential one-to-four familyrequiring the Company to maintain certain first mortgage loans commercial and multi-family real estateas pledged collateral. The Company has remaining credit availability of $2.0 million which can be used if additional collateral is pledged. At December 31, 2018, the Company had loans and allpledged with a carrying value of $39.5 million as collateral for FHLB advances.
At December 31, 2018, the Company also had lines of credit amounting to $8.4 million with four correspondent banks to purchase federal funds. The Company also has a line of credit with the Federal Reserve Bank under which the Company may draw up to $0.4 million. The line is secured by $0.5 million in securities. There were $560,000 of federal funds purchased outstanding with one of the Company’s Federal Home Loan Bank stock.correspondent banks at December 31, 2018. There were no federal funds purchased outstanding at December 31, 2017.
During 2006, the Company repaid $15,000,000 of FHLB advances early resulting in a gain of $202,000.
Junior Subordinated Debenture. On September 30, 2004, the Company issued a $5,155,000 junior subordinated debentureJunior Subordinated Debenture (the “Debenture”) to an unconsolidated subsidiary.Optimum Bank Holdings Capital Trust I, a Delaware statutory trust formed by the Company for the purpose of issuing and selling certain securities (the “Trust Preferred Securities”) representing undivided beneficial interests in the Debenture. The debenturetrust issued a total of 5,000 Trust Preferred Securities. The Debenture has a term of thirty years. The interest rate iswas fixed at 6.4%6.40% for the first five years, and thereafter, the coupon rate will floatfloats quarterly at the three-month LIBOR rate plus 2.45% (5.25% at December 31, 2018). The junior subordinated debenture, due in 2034,Debenture is redeemable in certain circumstances after October 2009.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 December 31, 2018 totaled $1,686,350. The Company has deferred interest payments with respect to the Debenture for the maximum allowable twenty consecutive quarterly payments. The Trustee for the Debenture and the beneficial owners of the Debenture can accelerate the $5,155,000 principal balance plus accrued and unpaid interest, as a result of this default. To date, neither the Trustee nor the holders have accelerated the outstanding balance of the Debenture. No adjustments to the accompanying consolidated financial statements have been made as a result of this uncertainty. Under the Written Agreement, the Company is not able to make any interest or principal payments without the prior approval of the Federal Reserve Bank of Atlanta.
In May 2018, a company affiliated with a director of the Company (the “New Holder”) purchased all 5,000 Trust Preferred Securities from a third party. During the third quarter of 2018, the New Holder sold its rights in approximately 694 of the Trust Preferred Securities to several unaffiliated third parties, who subsequently exchanged these Trust Preferred Securities for 301,778 shares of the Company’s common stock. Due to regulatory agreement the exchange of Trust Preferred Securities for the Company’s common stock cannot reduce the prinicipal amount of the Debenture collateralizing the Trust Preferred Securities. Accordingly is recorded as an increase in the Company’s equity interest in the unconsolidated subsidiary trust, presented in “Other Assets” in the accompanying consolidated balance sheets.
Although the Company and the New Holder have not executed a formal, definitive bilateral agreement, the New Holder has provided the Company with written representations that the New Holder will not accelerate and demand payment of any of the remaining 4,306 Trust Preferred Securities principal or accrued interest within the next twelve months from the date this Annual Report, Form 10-K as of and for the year ended December 31, 2018, is filed with the Securities and Exchange Commission.
(continued)
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(7) Other Borrowings
Other borrowings consist of securities sold under an agreement to repurchase. The securities sold under the agreement to repurchase were delivered to the broker-dealer who arranged the transactions. Information concerning the securities sold under an agreement to repurchase is summarized as follows (dollars in thousands):
Year Ended December 31, | ||||||||
2007 | 2006 | |||||||
Balance at year end | $ | 28,900 | $ | 10,950 | ||||
Average balance during the year | $ | 26,971 | $ | 12,756 | ||||
Average interest rate during the year | 4.72 | % | 4.41 | % | ||||
Maximum month-end balance during the year | $ | 31,900 | $ | 12,950 | ||||
Securities held to maturity pledged as collateral | $ | 33,675 | $ | 15,352 |
The maturities and interest rates on securities sold under an agreement to repurchase are as follows (dollars in thousands):
Interest Rate | At December 31, | ||||||||
Maturing Year Ended December 31, | 2007 | 2006 | |||||||
2007 | 4.02 | % | $ | — | $ | 5,350 | |||
2007 | 4.85 | % | — | 3,000 | |||||
2007 | 5.32 | % | — | 2,600 | |||||
2012 | 4.60 | % | 6,000 | — | |||||
2012 | 4.63 | % | 4,500 | — | |||||
2012 | 4.69 | % | 8,000 | — | |||||
2012 | 4.71 | % | 4,600 | — | |||||
2012 | 4.64 | % | 5,800 | — | |||||
$ | 28,900 | $ | 10,950 | ||||||
At December 31, 2007, the Company also had $6 million available under a line of credit with its correspondent bank. There were no amounts outstanding in connection with this agreement at December 31, 2007.
(continued)
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements Continued
(7) |
The estimated fair values of the Company’s financial instruments were as follows (in thousands):
At December 31, 2007 | At December 31, 2006 | At December 31, 2018 | At December 31, 2017 | |||||||||||||||||||||||||||||||
Carrying Amount | Fair Value | Carrying Amount | Fair Value | Carrying Amount | Fair Value | Level | Carrying Amount | Fair Value | Level | |||||||||||||||||||||||||
Financial assets: | ||||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 701 | $ | 701 | $ | 1,604 | $ | 1,604 | $ | 7,983 | $ | 7,983 | 1 | $ | 11,665 | $ | 11,665 | 1 | ||||||||||||||||
Securities held to maturity | 58,471 | 58,117 | 33,399 | 33,150 | ||||||||||||||||||||||||||||||
Security available for sale | 244 | 244 | 241 | 241 | ||||||||||||||||||||||||||||||
Securities available for sale | 2,359 | 2,359 | 2 | 11,437 | 11,437 | 2 | ||||||||||||||||||||||||||||
Securities held-to-maturity | 7,139 | 7,175 | 2 | — | — | 2 | ||||||||||||||||||||||||||||
Loans | 173,323 | 172,860 | 181,878 | 181,688 | 77,200 | 77,062 | 3 | 68,220 | 68,079 | 3 | ||||||||||||||||||||||||
Federal Home Loan Bank stock | 2,965 | 2,965 | 2,956 | 2,956 | 1,132 | 1,132 | 3 | 979 | 979 | 3 | ||||||||||||||||||||||||
Accrued interest receivable | 1,448 | 1,448 | 1,254 | 1,254 | 314 | 314 | 3 | 316 | 316 | 3 | ||||||||||||||||||||||||
Financial liabilities: | ||||||||||||||||||||||||||||||||||
Deposit liabilities | 125,034 | 125,134 | 129,502 | 129,059 | 62,378 | 62,243 | 3 | 65,251 | 65,475 | 3 | ||||||||||||||||||||||||
Federal Home Loan Bank advances | 56,850 | 56,346 | 56,550 | 54,178 | 24,600 | 24,437 | 3 | 20,500 | 20,394 | 3 | ||||||||||||||||||||||||
Other borrowings | 28,900 | 29,317 | 10,950 | 10,887 | ||||||||||||||||||||||||||||||
Junior subordinated debenture | 5,155 | 5,083 | 5,155 | 5,086 | 5,155 | N/A | (1) | 3 | 5,155 | N/A | (1) | 3 | ||||||||||||||||||||||
Federal funds purchased | 560 | 560 | 3 | — | — | 3 | ||||||||||||||||||||||||||||
Off-balance sheet financial instruments | — | — | — | — | — | — | 3 | — | — | 3 |
(1) | The Company is unable to determine value based on significant unobservable inputs required in the calculation. Refer to Note 6 for further information. |
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 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 nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments as it does for on-balance-sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Because some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company, upon extension of credit, is based on management’s credit evaluation of the counterparty.
(continued)
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARYStandby letters of credit are conditional commitments issued by the Company 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 Company generally holds collateral supporting those commitments. Standby letters of credit generally have expiration dates within one year.
Notes to Consolidated Financial Statements, Continued
(8) Financial Instruments, Continued
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 December 31, 20072018 follows (in thousands):
Contract Amount | |||||||
Undisbursed loans in process | $ | 250 | |||||
Commitments to extend credit | $ | 6,665 | $ | 1,820 | |||
Unused lines of credit | $ | 2,735 | |||||
Standby letters of credit | $ | - |
(continued)
(9) Credit RiskOPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
The Company grants the majority of its loans
Notes to borrowers throughout Broward and portions of Palm Beach and Miami-Dade Counties, Florida. Although the Company has a diversified loan portfolio, a significant portion of its borrowers’ ability to honor their contracts is dependent upon the economy in Broward, Palm Beach and Miami-Dade Counties, Florida.Consolidated Financial Statements
(8) |
Income taxestax benefit consisted of the following (in thousands):
Year Ended December 31, | Year Ended December 31, | |||||||||||||||
2007 | 2006 | 2018 | 2017 | |||||||||||||
Current: | ||||||||||||||||
Federal | $ | 866 | $ | 1,041 | $ | — | $ | — | ||||||||
State | 150 | 180 | — | — | ||||||||||||
Total current | 1,016 | 1,221 | ||||||||||||||
Total Current | — | — | ||||||||||||||
Deferred: | ||||||||||||||||
Federal | (10 | ) | (118 | ) | 182 | 1,633 | ||||||||||
State | (3 | ) | (20 | ) | 38 | (32 | ) | |||||||||
Change in Valuation Allowance | (220 | ) | (1,601 | ) | ||||||||||||
Total deferred | (13 | ) | (138 | ) | ||||||||||||
Total Deferred | — | — | ||||||||||||||
Total | $ | 1,003 | $ | 1,083 | $ | — | $ | — | ||||||||
(continued)
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(10) Income Taxes, Continued
The reasons for the differences between the statutory Federal income tax rate and the effective tax rate are summarized as follows (dollars in thousands):
Year Ended December 31, | ||||||||||||||||||||||||||||||
Year Ended December 31, | 2018 | 2017 | ||||||||||||||||||||||||||||
2007 | 2006 | Amount | % of Pretax Loss | Amount | % of Pretax Loss | |||||||||||||||||||||||||
Amount | % of Pretax Earnings | Amount | % of Pretax Earnings | |||||||||||||||||||||||||||
Income taxes at statutory rate | $ | 933 | 34.0 | % | $ | 992 | 34.0 | % | ||||||||||||||||||||||
Income tax benefit at statutory rate | $ | 167 | 21.00 | % | $ | (200 | ) | (34.0 | )% | |||||||||||||||||||||
Increase (decrease) resulting from: | ||||||||||||||||||||||||||||||
State taxes, net of Federal tax benefit | 97 | 3.5 | 106 | 3.6 | 38 | 4.77 | % | (21 | ) | (3.6 | )% | |||||||||||||||||||
Other | (27 | ) | (1.0 | ) | (15 | ) | (.5 | ) | ||||||||||||||||||||||
Other permanent differences | 15 | 1.88 | % | — | — | % | ||||||||||||||||||||||||
Reduction in Federal income-tax rate | (220 | ) | (27.65 | )% | 1,822 | 309.3 | % | |||||||||||||||||||||||
Change in valuation allowance | — | — | (1,601 | ) | (271.7 | )% | ||||||||||||||||||||||||
$ | — | — | $ | — | — | |||||||||||||||||||||||||
$ | 1,003 | 36.5 | % | $ | 1,083 | 37.1 | % | |||||||||||||||||||||||
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below (in thousands).:
At December 31, | At December 31, | |||||||||||||||
2007 | 2006 | 2018 | 2017 | |||||||||||||
Deferred tax assets: | ||||||||||||||||
Allowance for loan losses | $ | 186 | $ | 282 | ||||||||||||
Unrealized loss on security available for sale | 2 | — | ||||||||||||||
Net operating loss carryforwards | $ | 3,926 | $ | 3,547 | ||||||||||||
Premises and equipment | 70 | 66 | ||||||||||||||
Accrued expenses | — | 104 | ||||||||||||||
Nonaccrual loan interest | 77 | 122 | ||||||||||||||
Unrealized loss on available for sale securities | 111 | 84 | ||||||||||||||
Other | 54 | 56 | ||||||||||||||
Gross deferred tax assets | 4,238 | 3,979 | ||||||||||||||
Less: Valuation allowance | 3,572 | 3,792 | ||||||||||||||
Deferred tax assets | 188 | 282 | ||||||||||||||
Net deferred tax assets | 666 | 187 | ||||||||||||||
Deferred tax liabilities: | ||||||||||||||||
Allowance for loan losses | (521 | ) | (77 | ) | ||||||||||||
Loan costs | (39 | ) | (49 | ) | (34 | ) | (26 | ) | ||||||||
Accrual to cash adjustment | (62 | ) | (123 | ) | ||||||||||||
Premises and equipment | (104 | ) | (142 | ) | ||||||||||||
Other | (17 | ) | (17 | ) | ||||||||||||
Deferred tax liabilities | (222 | ) | (331 | ) | ||||||||||||
Net deferred income tax liability | $ | (34 | ) | $ | (49 | ) | ||||||||||
Total deferred tax liabilities | (555 | ) | (103 | ) | ||||||||||||
Net deferred tax asset | $ | 111 | $ | 84 |
During the years ended December 31, 2018 and 2017, the Company assessed its earnings history and trend over the past year and its estimate of future earnings, and determined that it was more likely than not that the deferred tax assets would not be realized in the near term. Accordingly, a valuation allowance was recorded and maintained against the net deferred tax asset for the amount not expected to be realized in the future.
At December 31, 2018, the Company had net operating loss carryforwards of approximately $15.1 million for Federal tax purposes and $15.1 million for Florida tax purposes available to offset future taxable income. These carryforwards will begin to expire in 2029. A portion of the Federal and Florida net operating losses are subject to Internal Revenue Code Section 382 limitations.
(continued)
(11) OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(8) | Income Taxes, Continued |
The Company files U.S. and Florida income tax returns. The Company is no longer subject to U.S. Federal or state income tax examinations by taxing authorities for years before 2015.
The Company regularly reviews its tax positions in each significant taxing jurisdiction in the process of evaluating its unrecognized tax benefits. The Company makes adjustments to its unrecognized tax benefits when: (i) facts and circumstances regarding a tax position change, causing a change in management’s judgment regarding that tax position; (ii) a tax position is effectively settled with a tax authority at a differing amount; and/or (iii) the statute of limitations expires regarding a tax position. The Company does not expect a change in unrecognized tax benefits in the next year.
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(9) | Related Party Transactions |
The Company has entered into transactions with its executive officers, directors and their affiliates in the ordinary course of business. There were no loans to related parties at December 31, 2007 and 2006 of2018 or 2017. During 2018, the Company incurred approximately $3,810,000 and $2,243,000, respectively.$99,000 in legal fees related to a law firm owned by a director. At December 31, 20072018 and 2006, these same2017, related parties had approximately $1,436,000$1,147,000 and $1,931,000,$229,000, respectively, on deposit with the Company. At December 31, 2018, all 4,306 Trust Preferred Securities are owned by a company affiliated with a director of the Company.
(continued)
(10) |
|
The Company established anis authorized to grant stock options, stock grants and other forms of equity-based compensation under its 2011 Equity Incentive Stock OptionPlan as amended (the “2011 Plan”) and its 2018 Equity Incentive Plan (the “Plan”“2018 Plan”). Both plans have been approved by shareholders. The Company is authorized to issue up to 210,000 shares of common stock under the 2011 Plan as amended, of which 208,881 have been issued, and 1,119 shares remain available for officers,grant, and up to 250,000 shares of common stock under the 2018 Plan, of which 100,000 have been issued, and 150,000 shares remain available for grant.
The Company’s only grants under the 2011 Plan as amended have been the issuance of shares of common stock to directors for director’s fees and employeescompensation for services rendered. As of April 1, 2017, the Company discontinued the issuance of common stock as a method of payment of director’s fees.
During 2018, the sale of 20,814 shares of common stock to a director of the Company, and reserved 544,840 (amended)the issuance of 79,186 shares of common stock in exchange for 7 shares of the plan. Both incentiveCompany’s preferred stock options and nonqualified stock options may be grantedheld by a director in April 2018, were treated as grants under the plan. The exercise price of the stock options is determined by the board of directors at the time of grant, but cannot be less than the fair market value of the common stock on the date of grant. The options vest over three and five years. However,2018 Plan. Please refer to the Company’s board of directors authorizedForms 8-K filed with the immediate vesting of all stock options outstanding as of December 29, 2005 in order to reduce noncash compensation expense that would have been recorded in its consolidated statements of earnings in future years upon adoption of SFAS 123(R) inSecurities and Exchange Commission on November 16, 2018 and January 2006. The options must be exercised within ten years from the date of grant. At December 31, 2007, 13,561 options were available10, 2019 for grant.
A summary of the activity in the Company’s stock option plan is as follows. All option amounts reflect the 5% stock dividends declared in May 2007 and April 2006. The Board of Directors did not adjust the exercise price of the stock options outstanding to reflect the 5% stock dividends (dollars in thousands, except share amounts):further details.
Number of Options | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term | Aggregate Intrinsic Value | ||||||||
Outstanding at December 31, 2005 | 521,484 | $ | 7.98 | ||||||||
Exercised | (21,150 | ) | 6.45 | ||||||||
Forfeited | (9,702 | ) | 9.67 | ||||||||
Outstanding at December 31, 2006 | 490,632 | 8.04 | |||||||||
Exercised | (7,166 | ) | 5.67 | ||||||||
Forfeited | (3,859 | ) | 10.00 | ||||||||
Outstanding and exercisable at December 31, 2007 | 479,607 | $ | 8.06 | 5.7 years | $ | 226 | |||||
The total intrinsic value of options exercised during the yearsDuring year ended December 31, 2007 and 2006 was $16,675 and $106,734, respectively, and2017, the tax benefit relatingCompany accrued compensation expense of $8,858 with respect to the stock options exercised in 2006 was $37,000. There was no tax benefit recognized in 2007.
(continued)
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes2,821 shares to Consolidated Financial Statements, Continued
(12) Stock-Based Compensation, Continued
Effective January 1, 2002, the Board of Directors adopted a nonemployee director compensation and stock purchase plan under which each outside director is requiredbe issued to purchase Company stock with compensation for board meetingsdirectors at a price no less than fair market value. A totalvalue of 15,941$3.14 per share on account of director’s fees accrued during the first quarter of 2017. These shares (as adjusted to reflect the 5% stock dividends declared in May 2007 and April 2006) have been authorized for issuance to outside directors under this plan. A total of 4,172 and 1,277 shares of common stock were issued to outside directors under this plan duringin 2018.
During the yearsyear ended December 31, 20072018, the Company accrued compensation expense of $200,000 with respect to 36,101 shares issued to a director for services performed in 2018. The Company had previously agreed to issue 105,820 shares to this director for services performed in 2016 and 2006, respectively. A total of 5,3002017. These shares were available for issuance at December 31, 2007. This plan was terminated effective January 1, 2008.issued in 2018.
(13)(11) Regulatory Matters
Matters.The Bank is subject to various regulatory capital requirements administered by the bank regulatory banking 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’sCompany and the 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 theirits 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.
Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and percentages (set forth in the following table) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as defined). Management believes, as of December 31, 2007, the Bank met all capital adequacy requirements to which they are subject.
As of December 31, 2007, the most recent notification from the regulatory authorities categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, an institution must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage percentages as set forth in the following tables. There are no conditions or events since that notification that management believes have changed the Bank’s category. The Bank’s actual capital amounts and percentages are also presented in the table (dollars in thousands).
Actual | For Capital Adequacy Purposes | Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions | ||||||||||||||||
Amount | % | Amount | % | Amount | % | |||||||||||||
As of December 31, 2007: | ||||||||||||||||||
Total Capital to Risk-Weighted Assets | $ | 27,966 | 17.95 | % | $ | 12,465 | 8.00 | % | $ | 15,581 | 10.00 | % | ||||||
Tier I Capital to Risk-Weighted Assets | 27,274 | 17.50 | 6,232 | 4.00 | 9,349 | 6.00 | ||||||||||||
Tier I Capital to Total Assets | 27,274 | 11.15 | 9,787 | 4.00 | 12,234 | 5.00 |
(continued)
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements Continued
(13)(11) Regulatory Matters, Continued
Actual | For Capital Adequacy Purposes | Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions | ||||||||||
Amount | % | Amount | % | Amount | % | |||||||
As of December 31, 2006: | ||||||||||||
Total Capital to Risk- Weighted Assets | 26,334 | 16.72 | 12,599 | 8.00 | 15,749 | 10.00 | ||||||
Tier I Capital to Risk- Weighted Assets | 25,360 | 16.10 | 6,299 | 4.00 | 9,449 | 6.00 | ||||||
Tier I Capital to Total Assets | 25,360 | 11.24 | 9,026 | 4.00 | 11,282 | 5.00 |
Effective January 1, 2015, the Bank became subject to the new Basel III capital level threshold requirements under the Prompt Corrective Action regulations with full compliance with all of the final rule’s requirements phased in over a multi-year schedule. These new regulations were designed to ensure that banks maintain strong capital positions even in the event of severe economic downturns or unforeseen losses.
Changes that could affect the Bank going forward include additional constraints on the inclusion of deferred tax assets in capital and increased risk weightings for nonperforming loans and acquisition/development loans in regulatory capital. Beginning on January 1, 2016, the Bank became subject to the capital conservation buffer rules which places limitations on distributions, including dividend payments, and certain discretionary bonus payments to executive officers. In order to avoid these limitations, an institution must hold a capital conservation buffer above its minimum risk-based capital requirements. As of December 31, 2018 and 2017, the Bank’s capital conservation buffer exceeds the minimum requirements of 1.875% and 1.250%, respectively. The required conservation buffer of 2.50% is effective January 1, 2019.
The following table shows the Bank’s capital amounts and ratios and regulatory thresholds at December 31, 2018 and 2017 (dollars in thousands):
Actual | For Capital Adequacy Purposes | Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions | ||||||||||||||||||||||
Amount | % | Amount | % | Amount | % | |||||||||||||||||||
As of December 31, 2018: | ||||||||||||||||||||||||
Total Capital to Risk-Weighted Assets | $ | 12,155 | 15.86 | % | $ | 6,132 | 8.00 | % | $ | 7,665 | 10.00 | % | ||||||||||||
Tier I Capital to Risk-Weighted Assets | 11,181 | 14.59 | 4,599 | 6.00 | 6,132 | 8.00 | ||||||||||||||||||
Common equity Tier I capital to Risk-Weighted Assets | 11,181 | 14.59 | 3,449 | 4.50 | 4,983 | 6.50 | ||||||||||||||||||
Tier I Capital to Total Assets | 11,181 | 11.68 | 3,828 | 4.00 | 4,785 | 5.00 | ||||||||||||||||||
As of December 31, 2017: | ||||||||||||||||||||||||
Total Capital to Risk-Weighted Assets | $ | 10,484 | 15.08 | % | $ | 5,561 | 8.00 | % | $ | 6,951 | 10.00 | % | ||||||||||||
Tier I Capital to Risk-Weighted Assets | 9,577 | 13.78 | 4,170 | 6.00 | 5,561 | 8.00 | ||||||||||||||||||
Common equity Tier I capital to Risk-Weighted Assets | 9,577 | 13.78 | 3,128 | 4.50 | 4,518 | 6.50 | ||||||||||||||||||
Tier I Capital to Total Assets | 9,577 | 8.89 | 4,307 | 4.00 | 5,383 | 5.00 |
(14) DividendsOPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(11) Regulatory Matters, Continued
Regulatory Enforcement Actions | |
Memorandum of Understanding. On August 28, 2018, the Bank agreed to the issuance of a Memorandum of Understanding (the “MOU”), with the FDIC and OFR which requires the Bank to take certain measures to improve its safety and soundness. By agreeing to the MOU, the Bank was released from the Consent Order that became effective in 2016, including the restrictions on the interest rates paid on deposits. | |
Pursuant to the MOU, the Bank is required to take certain measures to maintain qualified management, improve its strategic planning and budgeting process, strengthen the interest rate management practices, limit its asset growth and provide for the ongoing organization, monitoring and operational administration of the Bank Secrecy Act Program. The MOU prohibits the payment of dividends by the Bank. |
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 cash dividends, taking dividends or payments from the Bank, making any interest, principal or other distributions on account of 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.
(12)Dividends.
The Company is limited in the amount of cash dividends that may be paid. Banking regulations place certain restrictions on dividends and loans or advances made by the Bank to the Holding Company. The amount of cash dividends that may be paid by the Bank to the Holding Company is based on the Bank’s net earnings of the current year combined with the Bank’s retained earnings of the preceding two years, as defined by state banking regulations. However, for any dividend declaration, the Company must consider additional factors such as the amount of current period net earnings, liquidity, asset quality, capital adequacy and economic conditions. It is likely that these factors would further limit the amount of dividenddividends which the Company could declare. In addition, bank regulators have the authority to prohibit banks from paying dividends if they deem such payment to be an unsafe or unsound practice. At December 31, 2018, the Bank and Holding Company could not pay cash dividends (See Note 11).
(15) (13)Contingencies.
Various claims also 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 consolidated financial statements.
(16) Simple IRA(14)Retirement Plans.
The Company has a Simple IRA Plan whereby substantially401(k) Profit Sharing plan covering all eligible employees participate inwho are over the Plan. Employees may contribute up to 15 percentage of their compensation subject to certain limits based on federal tax laws.twenty-one and have completed one year of service. The Company makesmay make a matching contribution each year. The Company did not make any matching contributions equal to the first 3% of an employee’s compensation contributed to the Plan. Matching contributions vest to the employee immediately. Forin connection with this plan during the years ended December 31, 2007 and 2006, expense attributable to the Plan amounted to $42,333 and $42,205, respectively.2018 or 2017.
(continued)
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements Continued
(15) | Fair Value Measurement |
Impaired collateral-dependent loans are carried at fair value when the current collateral value is lower than the carrying value of the loan. Those impaired collateral-dependent loans which are measured at fair value on a nonrecurring basis are as follows (in thousands):
At December 31, 2018 | ||||||||||||||||||||||||
Fair Value | Level 1 | Level 2 | Level 3 | Total Losses | Losses Recorded in Operations For the Year Ended December 31, 2018 | |||||||||||||||||||
Residential real estate | $ | 686 | $ | — | $ | — | $ | 686 | $ | 268 | $ | — | ||||||||||||
Commercial real estate | 1,312 | — | — | 1,312 | 71 | — | ||||||||||||||||||
1,998 | — | — | 1,998 | 339 | — |
At December 31, 2017 | ||||||||||||||||||||||||
Fair Value | Level 1 | Level 2 | Level 3 | Total Losses | Losses Recorded in Operations For the Year Ended December 31, 2017 | |||||||||||||||||||
Residential real estate | $ | 648 | $ | — | $ | — | $ | 648 | $ | 330 | $ | — |
(17) OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(16) | Holding Company Financial Information |
The Holding Company’s unconsolidated financial information as of December 31, 20072018 and 20062017 and for the years then ended follows (in thousands):
Condensed Balance Sheets
At December 31, | At December 31, | |||||||||||||
2007 | 2006 | 2018 | 2017 | |||||||||||
Assets | ||||||||||||||
Cash | $ | 13 | $ | 75 | $ | 245 | $ | 51 | ||||||
Investment in subsidiary | 27,270 | 25,351 | 10,851 | 9,327 | ||||||||||
Other assets | 218 | 255 | 1,103 | 200 | ||||||||||
Total assets | $ | 27,501 | $ | 25,681 | $ | 12,199 | $ | 9,578 | ||||||
Liabilities and Stockholders’ Equity | ||||||||||||||
Other liabilities | $ | 99 | $ | 103 | $ | 1,738 | $ | 1,878 | ||||||
Junior subordinated debenture | 5,155 | 5,155 | 5,155 | 5,155 | ||||||||||
Stockholders’ equity | 22,247 | 20,423 | 5,306 | 2,545 | ||||||||||
Total liabilities and stockholders’ equity | $ | 27,501 | $ | 25,681 | $ | 12,199 | $ | 9,578 | ||||||
Condensed Statements of EarningsOperations
Year Ended December 31, | Year Ended December 31, | |||||||||||||||
2007 | 2006 | 2018 | 2017 | |||||||||||||
Earnings of subsidiary | $ | 2,011 | $ | 2,102 | $ | 1,604 | $ | 79 | ||||||||
Interest expense | (320 | ) | (320 | ) | (298 | ) | (227 | ) | ||||||||
Other expense | (111 | ) | (109 | ) | (510 | ) | (441 | ) | ||||||||
Earnings before income tax benefit | 1,580 | 1,673 | ||||||||||||||
Income tax benefit | (162 | ) | (161 | ) | ||||||||||||
Net earnings | $ | 1,742 | $ | 1,834 | ||||||||||||
Net earnings (loss) | $ | 796 | $ | (589 | ) |
(continued)
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(17) Holding Company Financial Information, Continued
Condensed Statements of Cash Flows
Year Ended December 31, | ||||||||
2007 | 2006 | |||||||
Cash flows from operating activities: | ||||||||
Net earnings | $ | 1,742 | $ | 1,834 | ||||
Adjustments to reconcile net earnings to net cash (used in) provided by operating activities: | ||||||||
Equity in undistributed earnings of subsidiary | (2,011 | ) | (2,102 | ) | ||||
Decrease in other assets | 37 | 264 | ||||||
(Decrease) increase in accrued other liabilities | (4 | ) | 7 | |||||
Net cash (used in) provided by operating activities | (236 | ) | 3 | |||||
Cash flow from investing activities: | ||||||||
Dividend from subsidiary | 175 | — | ||||||
Investment in subsidiary | (78 | ) | (144 | ) | ||||
Net cash provided by (used in) investing activities | 97 | (144 | ) | |||||
Cash flows from financing activities: | ||||||||
Proceeds from sale of common stock | 37 | 14 | ||||||
Proceeds from exercise of common stock options | 41 | 130 | ||||||
Tax benefit associated with exercise of stock options | — | 37 | ||||||
Fractional shares of stock dividend paid in cash | (1 | ) | — | |||||
Net cash provided by financing activities | 77 | 181 | ||||||
Net (decrease) increase in cash | (62 | ) | 40 | |||||
Cash at beginning of the year | 75 | 35 | ||||||
Cash at end of year | $ | 13 | $ | 75 | ||||
Noncash transactions: | ||||||||
Change in accumulated other comprehensive loss of subsidiary, net change in unrealized loss on security available for sale, net of tax | $ | 5 | $ | (2 | ) | |||
Common stock dividend | $ | 1,302 | $ | 1,609 | ||||
Year Ended December 31, | ||||||||
2018 | 2017 | |||||||
Cash flows from operating activities: | ||||||||
Net earnings (loss) | $ | 796 | $ | (589 | ) | |||
Adjustments to reconcile net earnings (loss) to net cash used in operating activities: | ||||||||
Stock compensation for services | — | 21 | ||||||
Equity in undistributed earnings of subsidiary | (1,604 | ) | (79 | ) | ||||
Increase in other liabilities | 475 | 525 | ||||||
Decrease (increase) in other assets | 2 | (19 | ) | |||||
Net cash used in operating activities | (331 | ) | (141 | ) | ||||
Cash flow from investing activities- | ||||||||
Investment in subsidiary | — | (2 | ) | |||||
Cash flow from financing activities – | ||||||||
Proceeds from sale of common stock | 525 | 30 | ||||||
Net increase (decrease) in cash | 194 | (113 | ) | |||||
Cash at beginning of the year | 51 | 164 | ||||||
Cash at end of year | $ | 245 | $ | 51 | ||||
Noncash transactions: | ||||||||
Change in accumulated other comprehensive loss of subsidiary, net change in unrealized loss on securities available for sale, net of income taxes | $ | (80 | ) | $ | 2 | |||
Reclassification of stock compensation from other liabilities to common stock | 615 | — | ||||||
Issuance of common stock in exchange for Trust Preferred Securities | 905 | — |
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(17) | Preferred Stock |
Prior to 2016, the Company issued 7 shares of Series A Preferred Stock (the “Series A Preferred”) at a price of $25,000 per share to a director. Each share of the Series A Preferred had an initial liquidation preference of $25,000 per share and was entitled to cumulative dividends at the rate of 10% per annum, provided that no dividends would be declared, paid or set aside for payment to the extent such act would cause the Company to fail to comply with any applicable regulatory requirements. In April 2018, the Company issued 79,186 shares of Common Stock in exchange for the 7 outstanding shares of the Series A Preferred.
(18) | Bank Secrecy Act (“BSA”) Lookback Review. |
The Bank is required to perform a BSA lookback review. The Bank expects the cost of the BSA lookback review to be $235,000 based on an independent firm’s proposal for services. The proposal and ultimate agreement is subject to FDIC review and approval. Until the approval is received, these BSA services cannot be rendered. Once the BSA lookback review begins, the independent firm has 120 days to complete the work. At December 31, 2018, the Bank has accrued $235,000 for the proposed services.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
FOR YEAR ENDED DECEMBER 31, 2007
General
OptimumBank Holdings, Inc. was formed in 2004 as a Florida corporation to serve as a one-bank holding company for OptimumBank and acquired all of the shares of OptimumBank in May 2004. Our only business is the ownership and operation of OptimumBank. OptimumBank is a Florida chartered bank which opened in November 2000, and its deposits are insured by the FDIC. OptimumBank provides community banking services to individuals and businesses in Broward, Miami-Dade and Palm Beach counties. OptimumBank conducts operations from its Fort Lauderdale headquarters and three branch offices in Fort Lauderdale, Plantation and Deerfield Beach.
At December 31, 2007, our company had total assets of $241.5 million, net loans of $173.3 million, total deposits of $125.0 million and stockholders’ equity of $22.2 million. During 2007, our company had net earnings of $1,742,000.
Critical Accounting Policies
Our
The Company’s financial condition and results of operations are sensitive to accounting measurements and estimates of matters that are inherently uncertain. When applying accounting policies in areas that are subjective in nature, wethe Company must use ourits best judgment to arrive at the carrying value of certain assets. One of the most critical accounting policies applied by usthe Company is related to the valuation of ourits loan portfolio.
A variety of estimates impact the carrying value of ourthe Company’s loan portfolio including the calculation of the allowance for loan losses, valuation of underlying collateral, the timing of loan charge-offs and the amount and amortization of loan fees and deferred origination costs.
The calculation of the allowance for loan losses is one of our most difficulta complex process containing estimates which are inherently subjective and subjective judgments.susceptible to significant revision as current information becomes available. The allowance is established and maintained at a level we believemanagement believes is adequate to cover losses resulting from the inability of borrowers to make required payments on loans. Estimates for loan losses are determined by analyzing risks associated with specific loans and the loan portfolio, current trends in delinquencies and charge-offs, the views of ourthe Company’s regulators, changes in the size and composition of the loan portfolio and peer comparisons. The analysis also requires consideration of the economic climate and direction, changes in the economic and interest rate environment which may impact a borrower’s ability to pay, legislation impacting the banking industry and economic conditions specific to the tri-county region we servethe Bank serves in Southeast Florida. Because the calculation of the allowance for loan losses relies on ourthe Company’s estimates and judgments relating to inherently uncertain events, results may differ from management’s estimates.
During the years ended December 31, 2018 and 2017, the Company assessed its earnings history and trend over the past year and its estimate of future earnings, and determined that it was more likely than not that the deferred tax assets would not be realized in the near term. Accordingly, a valuation allowance was recorded and maintained against the net deferred tax asset for the amount not expected to be realized in the future
The allowance for loan losses is also discussed as part of “Results of Operations”“Loan Portfolio, Asset Quality and Allowance for Loan Losses” and in Note 3 of Notes to the Consolidated Financial Statements. Ourconsolidated financial statements. The Company’s significant accounting policies are discussed in Note 1 of Notes to the Consolidated Financial Statements.consolidated financial statements.
Regulation and Legislation
As a state-chartered commercial bank, the Bank is subject to extensive regulation by the Florida DepartmentOffice of Financial ServicesRegulation, or Florida OFR, and the FDIC. We fileThe Bank files reports with the Florida DepartmentOFR and the FDIC concerning ourits activities and financial condition, in addition to obtaining regulatory approvals prior to entering into certain transactions such as mergers with or acquisitions of other financial institutions. Periodic examinations are performed by the Florida DepartmentOFR and the FDIC to monitor ourthe Bank’s compliance with the various regulatory requirements. The Company is also subject to regulation and examination by the Federal Reserve Board of Governors.
Loan Portfolio, Asset Quality and Credit RiskAllowance for Loan Losses
Our
The Bank’s primary business is making real estatebusiness loans. This activity may subject usthe Bank to potential loan losses, the magnitude of which depends on a variety of economic factors affecting borrowers which are beyond ourits control. We have instituted detailedThe combination of stronger U.S. growth, the consumer boost from sharply lower crude oil prices and the aggressive monetary easing and weaker currencies outside of the United States should support improving conditions. With most of the Bank’s loans concentrated in south Florida, the decline in local economic conditions had previously adversely affected the values of the Bank’s real estate collateral, but these trends are reversing and are shown in the improvement in the Bank’s impaired loans and improved asset quality. As of December 31, 2018, the Bank’s impaired loans were approximately $6.7 million, or 8.5% of the gross loan policies and procedures which include underwriting guidelines to minimize loss exposure. We also have credit review procedures to protect us from avoidable credit losses. We believe our
procedures are adequate to insure asset quality and protect against credit risk, but some losses beyond our control will inevitably occur.
The following table sets forth the composition of ourthe Bank’s loan portfolio:
At December 31, | ||||||||||||||||||||||||||||||||||||||||||||||
At December 31, | 2018 | 2017 | 2016 | |||||||||||||||||||||||||||||||||||||||||||
2007 | 2006 | 2005 | Amount | % of Total | Amount | % of Total | Amount | % of Total | ||||||||||||||||||||||||||||||||||||||
Amount | % of Total | Amount | % of Total | Amount | % of Total | (dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||
Residential real estate | $ | 65,908 | 38.08 | % | $ | 70,868 | 38.99 | % | $ | 65,016 | 38.29 | % | $ | 27,204 | 34.31 | % | $ | 26,054 | 36.22 | % | $ | 27,334 | 33.98 | % | ||||||||||||||||||||||
Multi-family real estate | 10,275 | 5.94 | 10,769 | 5.93 | 15,135 | 8.91 | 8,195 | 10.34 | 7,356 | 10.23 | 5,829 | 7.25 | ||||||||||||||||||||||||||||||||||
Commercial real estate | 75,777 | 43.78 | 68,852 | 37.89 | 54,286 | 31.97 | 36,634 | 46.20 | 32,152 | 44.70 | 29,264 | 36.37 | ||||||||||||||||||||||||||||||||||
Land and construction | 21,093 | 12.19 | 31,022 | 17.07 | 34,760 | 20.47 | 1,998 | 2.52 | 1,051 | 1.46 | 5,681 | 7.06 | ||||||||||||||||||||||||||||||||||
Commercial | — | — | — | — | 570 | .33 | 4,997 | 6.30 | 4,522 | 6.29 | 10,514 | 13.07 | ||||||||||||||||||||||||||||||||||
Consumer | 15 | .01 | 227 | .12 | 43 | .03 | 260 | .33 | 794 | 1.10 | 1,829 | 2.27 | ||||||||||||||||||||||||||||||||||
Total loans | 173,068 | 100.00 | % | 181,738 | 100.00 | % | 169,810 | 100.00 | % | 79,288 | 100.00 | % | 71,929 | 100.00 | % | 80,451 | 100.00 | % | ||||||||||||||||||||||||||||
Add (deduct): | ||||||||||||||||||||||||||||||||||||||||||||||
Net deferred loan costs and premiums | 155 | 282 | 463 | |||||||||||||||||||||||||||||||||||||||||||
Allowance for loan losses | (692 | ) | (974 | ) | (777 | ) | (2,243 | ) | (3,991 | ) | (3,915 | ) | ||||||||||||||||||||||||||||||||||
Net deferred loan costs discounts | 947 | 1,114 | 1,193 | |||||||||||||||||||||||||||||||||||||||||||
Loans, net | $ | 173,323 | $ | 181,878 | $ | 170,226 | $ | 77,200 | $ | 68,220 | $ | 76,999 | ||||||||||||||||||||||||||||||||||
At December 31, | ||||||||||||||||||||||||||||||
At December 31, | 2015 | 2014 | ||||||||||||||||||||||||||||
2004 | 2003 | Amount | % of Total | Amount | % of Total | |||||||||||||||||||||||||
Amount | % of Total | Amount | % of Total | (dollars in thousands) | ||||||||||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||||||||
Residential real estate | $ | 61,070 | 47.38 | % | $ | 57,797 | 51.88 | % | $ | 16,203 | 19.13 | % | $ | 21,426 | 27.51 | % | ||||||||||||||
Multi-family real estate | 10,853 | 8.42 | 10,148 | 9.11 | 3,697 | 4.36 | 1,979 | 2.54 | ||||||||||||||||||||||
Commercial real estate | 38,064 | 29.53 | 26,129 | 23.45 | 34,771 | 41.05 | 37,215 | 47.78 | ||||||||||||||||||||||
Land and construction | 18,169 | 14.09 | 16,783 | 15.06 | 5,258 | 6.21 | 6,177 | 7.93 | ||||||||||||||||||||||
Commercial | 581 | .45 | 490 | .44 | 21,770 | 25.70 | 11,070 | 14.21 | ||||||||||||||||||||||
Consumer | 162 | .13 | 72 | .06 | 3,015 | 3.55 | 20 | .03 | ||||||||||||||||||||||
Total loans | 128,899 | 100.00 | % | 111,419 | 100.00 | % | 84,714 | 100.00 | % | 77,887 | 100.00 | % | ||||||||||||||||||
Add (deduct): | ||||||||||||||||||||||||||||||
Net deferred loan costs and premiums | 154 | 186 | ||||||||||||||||||||||||||||
Allowance for loan losses | (628 | ) | (492 | ) | (2,295 | ) | (2,244 | ) | ||||||||||||||||||||||
Net deferred loan costs discounts | 539 | 393 | ||||||||||||||||||||||||||||
Loans, net | $ | 128,810 | $ | 111,320 | $ | 82,573 | $ | 75,829 | ||||||||||||||||||||||
The following table sets forth the activity in the allowance for loan losses (in thousands):
Year Ended December 31, | |||||||||||||||||||||||||||||||||||||
Year Ended December 31, | 2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||||||||||||||||||
2007 | 2006 | 2005 | 2004 | 2003 | |||||||||||||||||||||||||||||||||
Beginning balance | $ | 974 | $ | 777 | $ | 628 | $ | 492 | $ | 288 | $ | 3,991 | $ | 3,915 | $ | 2,295 | $ | 2,244 | $ | 2,211 | |||||||||||||||||
Provision for loan losses | 476 | 265 | 149 | 136 | 204 | ||||||||||||||||||||||||||||||||
Provision (credit) for loan losses | (1,754 | ) | — | — | — | — | |||||||||||||||||||||||||||||||
Loans charged off | (758 | ) | (68 | ) | — | — | — | (25 | ) | (67 | ) | (469 | ) | (289 | ) | — | |||||||||||||||||||||
Recoveries | 31 | 143 | 2,089 | 340 | 33 | ||||||||||||||||||||||||||||||||
Ending balance | $ | 692 | $ | 974 | $ | 777 | $ | 628 | $ | 492 | $ | 2,243 | $ | 3,991 | $ | 3,915 | $ | 2,295 | $ | 2,244 | |||||||||||||||||
The allowance for loan losses represents management’s estimate of probable incurred losses inherent in the existing loan portfolio. The allowance for loan losses is established as losses are estimated to have occurred through aincreased (decreased) by the provision (credit) for loan losses charged to earnings. Loan losses areoperations and reduced by loans charged against the allowance when we believe the uncollectibilityoff, net of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. In 2007 and 2006, the charge-offs related to a single-family residential loan.recoveries. The allowance for loan losses represented .40%2.83% and .54%5.55% of the total loans outstanding at December 31, 20072018 and 2006,2017, respectively.
We evaluate
The Bank evaluates the allowance for loan losses on a regular basis. ItThe allowance for loan losses is determined based on oura periodic review of the collectibilityseveral factors: reviews and evaluation of the existingindividual loans, historical loan portfolio in light of historical experience,loss experiences, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailingcurrent economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.
The allowance consists of specific and generaltwo components. The first component consists of amounts specifically reserved (“specific component relates toallowance”) for specific loans identified as impaired, as defined by FASB Accounting Standards Codification No. 310 (“ASC 310”). Impaired loans are those loans that are classifiedmanagement has estimated will not be repaid as impaired. For such loans, we establish an allowance when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan.agreed upon. The general component covers all other loans and is based on historical loss experience adjusted for qualitative factors.
We consider a loan impaired when, based on current information and events, it is probable that we will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors we consider in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. We determine the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. We measureBank measures impairment on a loan by loan basis for commercial real estate, land and construction and multi-family real estateall of its loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.collateral-dependent. A loan may be impaired (i.e. not expected to be repaid as agreed), but may be sufficiently collateralized such that the Bank expects to recover all principal and interest eventually, and therefore no specific reserve is warranted.
We collectively evaluate large
The second component is a general reserve (“general allowance”) on all of the Bank’s loans, other than those identified as impaired. The Bank groups these loans into categories with similar characteristics and then applies a loss factor to each group which is derived from the Bank’s historical loss experience for that category adjusted for qualitative factors such as economic conditions and other trends or uncertainties that could affect management’s estimate of smaller balance homogeneous loansprobable loss. The aggregate of these two components results in the Bank’s total allowance for impairment. Accordingly, we do not separately identify individual consumer and residential loans for impairment disclosures.
The following table sets forth ourthe Bank’s allowance for loan losses by loan type (dollars in thousands):
Allowance for Loan Losses
At December 31, | |||||||||||||||||||||||||
2018 | 2017 | 2016 | |||||||||||||||||||||||
Amount | % of Total Loans | Amount | % of Total Loans | Amount | % of Total Loans | ||||||||||||||||||||
Residential real estate | $ | 544 | 34.31 | % | $ | 641 | 36.22 | % | $ | 310 | 33.98 | % | |||||||||||||
Multi-family real estate | 88 | 10.34 | 59 | 10.23 | 58 | 7.25 | |||||||||||||||||||
Commercial real estate | 567 | 46.20 | 759 | 44.70 | 787 | 36.37 | |||||||||||||||||||
Land and construction | 19 | 2.52 | 22 | 1.46 | 120 | 7.06 | |||||||||||||||||||
Commercial | 850 | 6.30 | 55 | 6.29 | 188 | 13.07 | |||||||||||||||||||
Consumer | 25 | .33 | 86 | 1.10 | 165 | 2.27 | |||||||||||||||||||
Unallocated | 150 | — | 2,369 | — | 2,287 | — | |||||||||||||||||||
Total allowance for loan losses | $ | 2,243 | 100.00 | % | $ | 3,991 | 100.00 | % | $ | 3,915 | 100.00 | % | |||||||||||||
Allowance for loan losses as a percentage of total loans outstanding | 2.83 | % | 5.55 | % | 4.87 | % |
At December 31, | ||||||||||||||||
2015 | 2014 | |||||||||||||||
Amount | % of Total Loans | Amount | % of Total Loans | |||||||||||||
Residential real estate | $ | 116 | 19.13 | % | $ | 66 | 27.51 | % | ||||||||
Multi-family real estate | 26 | 4.36 | 2 | 2.54 | ||||||||||||
Commercial real estate | 1,085 | 41.05 | 2,058 | 47.78 | ||||||||||||
Land and construction | 77 | 6.21 | 99 | 7.93 | ||||||||||||
Commercial | 120 | 25.70 | 10 | 14.21 | ||||||||||||
Consumer | 151 | 3.55 | — | .03 | ||||||||||||
Unallocated | 720 | — | 9 | — | ||||||||||||
Total allowance for loan losses | $ | 2,295 | 100.00 | % | $ | 2,244 | 100.00 | % | ||||||||
Allowance for loan losses as a percentage of total loans outstanding | 2.71 | % | 2.88 | % |
The following summarizes the amount of impaired loans (in thousands):
At December 31, | |||||||||||||||||||||
2007 | 2006 | 2005 | |||||||||||||||||||
Amount | % of Total Loans | Amount | % of Total Loans | Amount | % of Total Loans | ||||||||||||||||
Residential real estate | $ | 187 | 38.08 | % | $ | 400 | 38.99 | % | $ | 206 | 38.29 | % | |||||||||
Multi-family real estate | 59 | 5.94 | 54 | 5.93 | 81 | 8.91 | |||||||||||||||
Commercial real estate | 379 | 43.78 | 406 | 37.89 | 347 | 31.97 | |||||||||||||||
Land and construction | 67 | 12.19 | 114 | 17.07 | 140 | 20.47 | |||||||||||||||
Commercial | — | — | — | — | 3 | .33 | |||||||||||||||
Consumer | — | .01 | — | .12 | — | .03 | |||||||||||||||
Total allowance for loan losses | $ | 692 | 100.00 | % | $ | 974 | 100.00 | % | $ | 777 | 100.00 | % | |||||||||
Allowance for loan losses as a percentage of total loans outstanding | 0.40 | % | 0.54 | % | 0.46 | % | |||||||||||||||
December 31, 2018 | December 31, 2017 | |||||||||||||||||||||||
Recorded Investment | Unpaid Principal Balance | Related Allowance | Recorded Investment | Unpaid Principal Balance | Related Allowance | |||||||||||||||||||
With no related allowance recorded: | ||||||||||||||||||||||||
Residential real estate | $ | — | $ | — | $ | — | $ | 194 | $ | 217 | $ | — | ||||||||||||
Commercial real estate | 2,259 | 2,259 | — | 231 | 231 | — | ||||||||||||||||||
Commercial | 1,114 | 1,114 | — | — | — | — | ||||||||||||||||||
With an allowance recorded - | ||||||||||||||||||||||||
Residential real estate | 954 | 954 | 268 | 978 | 978 | 330 | ||||||||||||||||||
Commercial real estate | 1,602 | 1,602 | 162 | 744 | 744 | 83 | ||||||||||||||||||
Commercial | 814 | 814 | 814 | — | — | — | ||||||||||||||||||
Total: | ||||||||||||||||||||||||
Residential real estate | $ | 954 | $ | 954 | $ | 268 | $ | 1,172 | $ | 1,195 | $ | 330 | ||||||||||||
Commercial real estate | $ | 3,861 | $ | 3,861 | $ | 162 | $ | 975 | $ | 975 | $ | 83 | ||||||||||||
Commercial | $ | 1,928 | $ | 1,928 | $ | 814 | $ | — | $ | — | $ | — | ||||||||||||
Total | $ | 6,743 | $ | 6,743 | $ | 1,244 | $ | 2,147 | $ | 2,170 | $ | 413 |
At December 31, | ||||||||||||||
2004 | 2003 | |||||||||||||
Amount | % of Total Loans | Amount | % of Total Loans | |||||||||||
Residential real estate | $ | 218 | 47.38 | % | $ | 202 | 51.88 | % | ||||||
Multi-family real estate | 52 | 8.42 | 137 | 9.11 | ||||||||||
Commercial real estate | 240 | 29.53 | 60 | 23.45 | ||||||||||
Land and construction | 115 | 14.09 | 93 | 15.06 | ||||||||||
Commercial | 3 | .45 | — | .44 | ||||||||||
Consumer | — | .13 | — | .06 | ||||||||||
Total allowance for loan losses | $ | 628 | 100.00 | % | $ | 492 | 100.00 | % | ||||||
Allowance for loan losses as a percentage of total loans outstanding | 0.49 | % | 0.44 | % | ||||||||||
There were no impaired loans during 2006 or at December 31, 2005 or 2007. During 20072018, 2017, and 2005,2016, the average net investment in impaired loans and interest income recognized and received on impaired loans is as follows (in thousands):
Year Ended December 31, | ||||||
2007 | 2005 | |||||
Average investment in impaired loans | $ | 1,581 | $ | 844 | ||
Interest income recognized on impaired loans | $ | 39 | $ | — | ||
Interest income received on a cash basis on impaired loans | $ | 39 | $ | — | ||
At December 31, 2006, 2005 and 2003, the Company had no nonaccrual loans or loans over 90 days past due still accruing interest. Nonaccrual and past due loans were as follows as of December 31, 2007 and 2004 (in thousands):
Year Ended December 31, | ||||||||||||
2018 | 2017 | 2016 | ||||||||||
Average investment in impaired loans | $ | 3,296 | $ | 1,801 | $ | 2,957 | ||||||
Interest income recognized on impaired loans | $ | 187 | $ | 278 | $ | 124 | ||||||
Interest income received on a cash basis on impaired loans | $ | 187 | $ | 173 | $ | 182 |
At December 31, | ||||||
2007 | 2004 | |||||
Nonaccrual loans | $ | 245 | $ | 3,268 | ||
Past ninety days or more, but still accruing interest | $ | — | $ | — | ||
Liquidity and Capital Resources
Liquidity represents an institution’s ability to meet current and future obligations through liquidation or maturity of existing assets or the acquisition of additional liabilities. OurThe Bank’s ability to respond to the needs of depositors and borrowers and to benefit from investment opportunities is facilitated through liquidity management.
Our
The Bank’s primary sources of cash during the year ended December 31, 20072018, were from other borrowings of $18.0 million, principal repayments and calls of securities held to maturityavailable for sale and held-to-maturity of $9.2$1.7 million, proceeds from Federal Home Loan Bank Advances of $4.1 million, proceeds from federal funds of $0.6 million, and net repaymentsproceeds from sale of loanscommon stock of $7.6$0.5 million. Cash was used primarily to purchase securities held to maturity totaling $34.2 million and to fund deposit withdrawals of $4.5 million. In order to increase our core deposits, we have priced our deposit rates competitively. Weloans. The Bank will adjust rates on ourits deposits to attract or retain deposits as needed. In addition to obtainingThe Bank obtains funds primarily from depositors in ourits market area, from time to time we have utilized brokers to obtain deposits outside our market area.
In addition to obtaining funds from depositors, wethe Bank may borrow funds from other financial institutions. We areOptimumBank is a member of the Federal Home Loan Bank of Atlanta, which allows usit to borrow funds under a pre-arranged line of credit equal to 40% of the Bank’s total assets.$26.6 million. As of December 31, 2007, we2018, the Bank had $56.9$24.6 million in borrowings outstanding from the Federal Home Loan Bank of Atlanta to facilitate loan fundings and manage ourits asset and liability structure. In addition, we have an unsecured “federal funds”The Bank has established a line of credit for $3.0 million with IndependentCenter State Bank, $2.5 million with State Bank, $2.1 million with First National Bankers Bank, of Florida totaling $6.0$0.8 million none of which was outstanding at December 31, 2007. This credit line is normally used to meet short-term funding demands. At December 31, 2007, we sold securities under an agreement to repurchase totaling $28.9 million. These borrowings are collateralized by securities held to maturity with a carrying value of $33.7Servis First Bank, and $0.4 million at December 31, 2007. We believe our liquidity sources are adequate to meet our operating needs.with the Federal Reserve.
Securities
Our
The Bank’s securities portfolio is comprised primarily of mortgage-backed securitiesSBA Pool Securities and a mutual fund.Collateralized mortgage obligations. The securities portfolio is categorized as either “held to maturity”“held-to-maturity” or “available for sale.” Securities held to maturityheld-to-maturity represent those securities which we havethe Company has the positive intent and ability to hold to maturity. These securities are carried at amortized cost. Securities available for sale represent those investments which may be sold for various reasons including changes in interest rates and liquidity considerations. These securities are reported at fair market value and unrealized gains and losses are excluded from earnings and reported in other comprehensive income.loss.
The following table sets forth the amortized cost and fair value of ourthe Bank’s securities portfolio (in thousands):
Amortized Cost | Fair Value | |||||
At December 31, 2007: | ||||||
Securities held to maturity: | ||||||
Mortgage-backed securities | $ | 58,371 | $ | 58,017 | ||
Foreign bond | 100 | 100 | ||||
$ | 58,471 | $ | 58,117 | |||
Securities available for sale- | ||||||
Mutual fund | $ | 250 | $ | 244 | ||
At December 31, 2006: | ||||||
Securities held to maturity: | ||||||
Mortgage-backed securities | $ | 33,299 | $ | 33,050 | ||
Foreign bond | 100 | 100 | ||||
$ | 33,399 | $ | 33,150 | |||
Securities available for sale- | ||||||
Mutual fund | $ | 250 | $ | 241 | ||
At December 31, 2005: | ||||||
Securities held to maturity- | ||||||
Mortgage-backed securities | $ | 25,618 | $ | 25,096 | ||
Securities available for sale- | ||||||
Mutual fund | $ | 250 | $ | 243 | ||
Amortized
Cost Fair
Value At December 31, 2018: Held-to-maturity- Collateralized mortgage obligations $ 7,139 $ 7,175 Securities available for sale- SBA Pool Securities 2,423 2,359 $ 9,562 $ 9,534 At December 31, 2017: Securities available for sale: Collateralized mortgage obligations $ 8,806 $ 8,466 SBA Pool Securities 2,965 2,971 $ 11,771 $ 11,437
The following table sets forth, by maturity distribution, certain information pertaining to the securities portfolio (dollars in thousands):
Within One Year | After One But Within Five Years | After Five Years Through Ten Years | After Ten Years | Total | Yield | |||||||||||||
At December 31, 2007: | ||||||||||||||||||
Mortgage-backed securities | $ | — | $ | — | $ | — | $ | 58,371 | $ | 58,371 | 5.59 | % | ||||||
Foreign bond | $ | — | $ | — | $ | 100 | $ | — | $ | 100 | 5.95 | % | ||||||
At December 31, 2006: | ||||||||||||||||||
Mortgage-backed securities | $ | — | $ | — | $ | — | $ | 33,299 | $ | 33,299 | 5.01 | % | ||||||
Foreign bond | $ | — | $ | — | $ | 100 | $ | — | $ | 100 | 5.95 | % | ||||||
At December 31, 2005: | ||||||||||||||||||
Mortgage-backed securities | $ | — | $ | — | $ | — | $ | 25,618 | $ | 25,618 | 4.49 | % | ||||||
After One Year Through Five Years | After Ten Years | Total | Yield | |||||||||||||
At December 31, 2018: | ||||||||||||||||
Collateralized mortgage obligation | $ | 7,139 | $ | — | $ | 7,139 | 2.09 | % | ||||||||
SBA Pool Securities | — | 2,423 | 2,423 | 2.67 | % | |||||||||||
$ | 7,139 | $ | 2,423 | $ | 9,562 | |||||||||||
At December 31, 2017: | ||||||||||||||||
Collateralized mortgage obligation | $ | 8,806 | $ | — | $ | 8,806 | 1.93 | % | ||||||||
SBA Pool Securities | — | 2,965 | 2,965 | 2.50 | % | |||||||||||
$ | 8,806 | $ | 2,965 | $ | 11,771 |
Regulatory Capital Adequacy
The Bank is subject to various regulatory capital requirements administered by the Federal and state banking agencies. As of December 31, 2007, the most recent notification from the regulatory authorities categorized our Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, an institution must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage percentages as set forth in the following tables. There are no conditions or events since that notification that management believes have changed our category.
The following table sets forth for the Bank the amount and the percentage of our actual regulatory capital, regulatory capital for capital adequacy purposes, and the minimum regulatory capital to be well capitalized under the prompt corrective action provisions of the Federal regulations (dollars in thousands).
REGULATORY CAPITAL REQUIREMENTS
Actual | For Capital Adequacy Purposes | Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions | ||||||||||||||||
Amount | % | Amount | % | Amount | % | |||||||||||||
As of December 31, 2007: | ||||||||||||||||||
Total Capital to Risk-Weighted Assets | $ | 27,966 | 17.95 | % | $ | 12,465 | 8.00 | % | $ | 15,581 | 10.00 | % | ||||||
Tier I Capital to Risk-Weighted Assets | 27,274 | 17.50 | 6,232 | 4.00 | 9,349 | 6.00 | ||||||||||||
Tier I Capital to Total Assets | 27,274 | 11.15 | 9,787 | 4.00 | 12,234 | 5.00 | ||||||||||||
As of December 31, 2006: | ||||||||||||||||||
Total Capital to Risk-Weighted Assets | 26,334 | 16.72 | 12,599 | 8.00 | 15,749 | 10.00 | ||||||||||||
Tier I Capital to Risk-Weighted Assets | 25,360 | 16.10 | 6,299 | 4.00 | 9,449 | 6.00 | ||||||||||||
Tier I Capital to Total Assets | 25,360 | 11.24 | 9,026 | 4.00 | 11,282 | 5.00 |
As of December 31, 2005: Total capital to Risk-Weighted assets Tier I Capital to Risk-Weighted Assets Tier I Capital to Total Assets Actual For Capital Adequacy
Purposes Minimum
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions Amount % Amount % Amount % $ 23,891 16.27 % $ 11,746 8.00 % $ 14,684 10.00 % 23,114 15.74 5,874 4.00 8,811 6.00 23,114 11.50 8,040 4.00 10,050 5.00
Market Risk
Market risk is the risk of loss from adverse changes in market prices and rates. OurThe Bank’s market risk arises primarily from interest-rate risk inherent in ourits lending and deposit-taking activities. We doThe Bank does not engage in securities trading or hedging activities and dodoes not invest in interest-rate derivatives or enter into interest rate swaps.
We
The Bank may utilize financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of ourits customers. The measurement of market risk associated with financial instruments is meaningful only when all related and offsetting on- and off-balance-sheet transactions are aggregated, and the resulting net positions are identified. Disclosures about the fair value of financial instruments, which reflect changes in market prices and rates, can be found in Note 87 of Notes to Consolidated Financial Statements.
Our
The Bank’s primary objective in managing interest-rate risk is to minimize the potential adverse impact of changes in interest rates on ourits net interest income and capital, while adjusting ourits asset-liability structure to obtain the maximum yield-cost spread on that structure. WeThe Bank actively monitormonitors and manage ourmanages its interest-rate risk exposure by managing ourits asset and liability structure. However, a sudden and substantial increase in interest rates may adversely impact ourits earnings, to the extent that the interest-earning assets and interest-bearing liabilities do not change or reprice at the same speed, to the same extent, or on the same basis.
We use
The Bank uses modeling techniques to simulate changes in net interest income under various rate scenarios. Important elements of these techniques include the mix of floating versus fixed-rate assets and liabilities, and the scheduled, as well as expected, repricing and maturing volumes and rates of the existing balance sheet.
Asset Liability Management
As part of ourits asset and liability management, we havethe Bank has emphasized establishing and implementing internal asset-liability decision processes, as well as control procedures to aid in managing ourits earnings. Management believes that these processes and procedures provide us with better capital planning, asset mix and volume controls, loan-pricing guidelines, and deposit interest-rate guidelines, which should result in tighter controls and less exposure to interest-rate risk.
The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are “interest rate sensitive” and by monitoring an institution’s interest rate sensitivity “gap.” An asset or liability is said to be interest rate sensitive within a specific time period if it will mature or reprice within that time period. The interest-rate sensitivity gap is defined as the difference between interest-earning assets and interest-bearing liabilities maturing or repricing within a given time period. The gap ratio is computed as the amount of rate sensitive assets less the amount of rate sensitive liabilities divided by total assets. A gap is considered positive when the amount of interest-rate sensitive assets exceeds interest-rate sensitive liabilities. A gap is considered negative when the amount of interest-rate sensitive liabilities exceeds interest-rate sensitive assets. During a period of rising interest rates, a negative gap would adversely affect net interest income, while a positive gap would result in an increase in net interest income. During a period of falling interest rates, a negative gap would result in an increase in net interest income, while a positive gap would adversely affect net interest income.
In order to minimize the potential for adverse effects of material and prolonged increases in interest rates on the results of operations, ourthe Bank’s management continues to monitor ourits assets and liabilities to better match the maturities and repricing terms of ourits interest-earning assets and interest-bearing liabilities. OurThe Bank’s policies emphasize the origination of adjustable-rate loans, building a stable core deposit base and, to the extent possible, matching deposit maturities with loan repricing timeframes or maturities.
The following table sets forth certain information relatingrelated to ourthe Bank’s interest-earning assets and interest-bearing liabilities at December 31, 2007,2018, that are estimated to mature or are scheduled to reprice within the period shown (dollars in thousands):
GAP MATURITYGap Maturity / REPRICING SCHEDULERepricing Schedule
One Year or Less | More than One Year and Less than Five Years | More than Five Years and Less than Fifteen Years | Over Fifteen Years | Total | |||||||||||||||
Loans (1): | |||||||||||||||||||
Residential real estate loans | $ | 26,996 | $ | 34,166 | $ | 4,746 | $ | — | $ | 65,908 | |||||||||
Multi-family real estate loans | 5,173 | 5,102 | — | — | 10,275 | ||||||||||||||
Commercial real estate loans | 27,759 | 47,818 | 200 | — | 75,777 | ||||||||||||||
Land and construction | 9,004 | 12,089 | — | — | 21,093 | ||||||||||||||
Consumer loans | 15 | — | — | — | 15 | ||||||||||||||
Total loans | 68,947 | 99,175 | 4,946 | — | 173,068 | ||||||||||||||
Federal funds sold | 226 | — | — | — | 226 | ||||||||||||||
Securities (2) | 1,473 | 3,693 | 11,202 | 42,347 | 58,715 | ||||||||||||||
Federal Home Loan Bank stock | 2,965 | — | — | — | 2,965 | ||||||||||||||
Total rate-sensitive assets | 73,611 | 102,868 | 16,148 | 42,347 | 234,974 | ||||||||||||||
Deposit accounts (3): | |||||||||||||||||||
Money-market deposits | 26,760 | — | — | — | 26,760 | ||||||||||||||
Interest-bearing checking deposits | 967 | — | — | — | 967 | ||||||||||||||
Savings deposits | 475 | — | — | — | 475 | ||||||||||||||
Time deposits | 78,100 | 17,428 | — | — | 95,528 | ||||||||||||||
Total deposits | 106,302 | 17,428 | — | — | 123,730 | ||||||||||||||
Federal Home Loan Bank advances | 13,650 | 43,200 | — | — | 56,850 | ||||||||||||||
Other borrowings | — | 28,900 | — | — | 28,900 | ||||||||||||||
Junior subordinated debenture | — | 5,155 | — | — | 5,155 | ||||||||||||||
Total rate-sensitive liabilities | 119,952 | 94,683 | — | — | 214,635 | ||||||||||||||
GAP (repricing differences) | $ | (46,341 | ) | $ | 8,185 | $ | 16,148 | $ | 42,347 | $ | 20,339 | ||||||||
Cumulative GAP | $ | (46,341 | ) | $ | (38,156 | ) | $ | (22,008 | ) | $ | 20,339 | ||||||||
Cumulative GAP/total assets | (19.19 | )% | $ | (15.80 | )% | $ | (9.11 | )% | $ | 8.42 | % | ||||||||
One Year or Less | More than One Year and Less than Five Years | More than Five Years and Less than Fifteen Years | Over Fifteen Years | Total | ||||||||||||||||
Loans (1): | ||||||||||||||||||||
Residential real estate loans | $ | 8,309 | $ | 14,712 | $ | 3,058 | $ | 1,125 | $ | 27,204 | ||||||||||
Multi-family real estate loans | 349 | 7,776 | 70 | — | 8,195 | |||||||||||||||
Commercial real estate loans | 11,198 | 24,620 | 816 | — | 36,634 | |||||||||||||||
Land and construction | 1,998 | — | — | — | 1,998 | |||||||||||||||
Commercial | 3,193 | 1,804 | — | — | 4,997 | |||||||||||||||
Consumer | 260 | — | — | — | 260 | |||||||||||||||
Total loans | 25,307 | 48,912 | 3,944 | 1,125 | 79,288 | |||||||||||||||
Securities (2) | 2,359 | — | — | 7,175 | 9,534 | |||||||||||||||
Interest-bearing deposits in banks | 6,049 | — | — | — | 6,049 | |||||||||||||||
Federal Home Loan Bank stock | 1,132 | — | — | — | 1,132 | |||||||||||||||
Total rate-sensitive assets | 34,847 | 48,912 | 3,944 | 8,300 | 96,003 | |||||||||||||||
Deposit accounts (3): | ||||||||||||||||||||
Money-market deposits | 20,450 | — | — | — | 20,450 | |||||||||||||||
Interest-bearing checking deposits | 5,675 | — | — | — | 5,675 | |||||||||||||||
Savings deposits | 557 | — | — | — | 557 | |||||||||||||||
Time deposits | 20,413 | 5,645 | — | — | 26,058 | |||||||||||||||
Total deposits | 47,095 | 5,645 | — | — | 52,740 | |||||||||||||||
Federal Home Loan Bank advances | 19,600 | 5,000 | — | — | 24,600 | |||||||||||||||
Junior subordinated debenture | — | — | — | 5,155 | 5,155 | |||||||||||||||
Federal funds purchased | 560 | — | — | — | 560 | |||||||||||||||
Total rate-sensitive liabilities | 67,255 | 10,645 | — | 5,155 | 83,055 | |||||||||||||||
GAP (repricing differences) | $ | (32,408 | ) | $ | 38,267 | $ | 3,944 | $ | 3,145 | $ | 12,948 | |||||||||
Cumulative GAP | $ | (32,408 | ) | $ | 5,859 | $ | 9,803 | $ | 12,948 | $ | 12,948 | |||||||||
Cumulative GAP/total assets | (32.29 | )% | 5.84 | % | 9.77 | % | 12.90 | % |
(1) | In preparing the table above, adjustable-rate loans are included in the period in which the interest rates are next scheduled to adjust rather than in the period in which the loans mature. Fixed-rate loans are scheduled, including repayment, according to their maturities. |
(2) | Securities are scheduled through the repricing date. |
(3) | Money-market, interest-bearing checking and savings deposits are regarded as readily accessible withdrawable accounts. All other time deposits are scheduled through the maturity dates. |
The following table sets forth loan maturities by type of loan at December 31, 20072018 (in thousands):
One Year or Less | After One But Within Five Years | After Five Years | Total | |||||||||||||||||||||||||
One Year or Less | After One But Within Five Years | After Five Years | Total | |||||||||||||||||||||||||
Residential real estate | $ | 1,401 | $ | 10,917 | $ | 53,590 | $ | 65,908 | $ | — | $ | 1,593 | $ | 25,611 | $ | 27,204 | ||||||||||||
Multi-family real estate | — | — | 10,275 | 10,275 | — | 518 | 7,677 | 8,195 | ||||||||||||||||||||
Commercial real estate | 1,720 | 593 | 73,464 | 75,777 | 6,024 | 5,188 | 25,422 | 36,634 | ||||||||||||||||||||
Land and construction | 3,507 | 6,044 | 11,542 | 21,093 | 1,998 | — | — | 1,998 | ||||||||||||||||||||
Commercial | 94 | 4,181 | 722 | 4,997 | ||||||||||||||||||||||||
Consumer | 15 | — | — | 15 | 5 | 255 | — | 260 | ||||||||||||||||||||
Total | $ | 6,643 | $ | 17,554 | $ | 148,871 | $ | 173,068 | $ | 8,121 | $ | 11,735 | $ | 59,432 | $ | 79,288 | ||||||||||||
The following table sets forth the maturity or repricing of loans by interest type at December 31, 20072018 (in thousands):
One Year or Less | After One But Within Five Years | After Five Years | Total | One Year or Less | After One But Within Five Years | After Five Years | Total | |||||||||||||||||||||
Fixed interest rate | $ | 5,836 | $ | 8,627 | $ | 4,946 | $ | 19,409 | $ | 8,038 | $ | 7,442 | $ | 2,012 | $ | 17,492 | ||||||||||||
Variable interest rate | 63,110 | 90,549 | — | 153,659 | 17,269 | 41,470 | 3,057 | 61,796 | ||||||||||||||||||||
Total | $ | 68,946 | $ | 99,176 | $ | 4,946 | $ | 173,068 | $ | 25,307 | $ | 48,912 | $ | 5,069 | $ | 79,288 | ||||||||||||
Scheduled contractual principal repayments of loans do not reflect the actual life of such assets. The average life of loans is substantially less than their average contractual terms due to prepayments. In addition, due-on-sale clauses on loans generally give us the right to declare a conventional loan immediately due and payable in the event, among other things, that the borrower sells real property subject to a mortgage and the loan is not repaid. The average life of mortgage loans tends to increase, however, when current mortgage loan rates are substantially higher than rates on existing mortgage loans and, conversely, decrease when rates on existing mortgages are substantially higher than current mortgage rates.
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
We are
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 include commitments to extend credit. At December 31, 2007, we had outstanding commitments to originate real estate loans totaling $6.7 millioncredit, unused lines of credit, and undisbursed loans in process totaling $250,000.standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest-rate risk in excess of the amounts recognized in the consolidated balance sheet. The contractual amounts of those instruments reflect the extent of the Company’s involvement in particular classes of financial instruments.
Our
The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. We useThe Company uses the same credit policies in making commitments as we doit 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. Since certain commitments expire without being drawn upon, the total committed amounts do not necessarily represent future cash requirements. We evaluateThe Company evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if we deem itdeemed necessary in order to extend credit, is based on management’s credit evaluation of the counterparty.
A summary of the contractual amounts of the Company’s off-balance sheet risk at December 31, 2018 follows (in thousands):
Commitments to extend credit | $ | 1,820 | ||
Unused lines of credit | $ | 2,735 | ||
Standby letters of credit | $ | - |
The following is a summary of the Bank’sCompany’s contractual obligations, including certain on-balance sheet obligations, at December 31, 20072018 (in thousands):
Payments Due by Period | |||||||||||||||||||||||||||||||||||
Total | Less Than 1 Year | 1-3 Years | 3-5 Years | More Than 5 Years | Payments Due by Period | ||||||||||||||||||||||||||||||
Contractual Obligations | Total | Less Than 1 Year | 1-3 Years | 3-5 Years | More Than 5 Years | ||||||||||||||||||||||||||||||
Federal Home Loan Bank advances | $ | 56,850 | $ | 700 | $ | 11,000 | $ | 4,000 | $ | 41,150 | $ | 24,600 | $ | 19,600 | $ | 5,000 | $ | — | $ | — | |||||||||||||||
Junior subordinated debenture | 5,155 | — | 5,155 | — | — | 5,155 | — | — | — | 5,155 | |||||||||||||||||||||||||
Other borrowings | 28,900 | — | — | 28,900 | — | 560 | 560 | — | — | — | |||||||||||||||||||||||||
Operating leases | 671 | 130 | 390 | 151 | — | 378 | 92 | 193 | 93 | — | |||||||||||||||||||||||||
Loan commitments | 6,665 | 6,665 | — | — | — | ||||||||||||||||||||||||||||||
Undisbursed loans in process | 250 | 250 | — | — | — | ||||||||||||||||||||||||||||||
Total | $ | 98,491 | $ | 7,745 | $ | 16,545 | $ | 33,051 | $ | 41,150 | $ | 30,693 | $ | 20,252 | $ | 5,193 | $ | 93 | $ | 5,155 | |||||||||||||||
Deposits
Deposits traditionally are the primary source of funds for ourthe Company’s use in lending, making investments and meeting liquidity demands. We haveThe Company has focused on raising time deposits primarily within ourits market area, which is the tri-county area of Broward, Miami-Dade and Palm Beach counties. However, we offerthe Company offers a variety of deposit products, which we promoteare promoted within ourits market area. Net deposits decreased $4.5$2.9 million in 2007 and increased $15.4 million in 2006.
We use brokered deposits to facilitate mortgage loan fundings in circumstances when larger than anticipated loan volumes occur and there is limited time to fund the additional loan demand through traditional deposit solicitation. In general, brokered deposits can be obtained in one to three days. The rates paid on these deposits are typically equal to or slightly less than the high end of the interest rates in our market area. Brokered deposits amounted to $7.5 million and $8.3 million as of December 31, 2007 and December 31, 2006, respectively.2018.
The following table displays the distribution of the Bank’sCompany’s deposits at December 31, 2007, 20062018, 2017 and 20052016 (dollars in thousands):
At December 31, | ||||||||||||||||||
2007 | 2006 | 2005 | ||||||||||||||||
Amount | % of Deposits | Amount | % of Deposits | Amount | % of Deposits | |||||||||||||
Noninterest-bearing demand deposits | $ | 1,304 | 1.04 | % | $ | 545 | .42 | % | $ | 390 | .34 | % | ||||||
Interest-bearing demand deposits | 967 | .77 | 1,780 | 1.37 | 2,382 | 2.09 | ||||||||||||
Money-market deposits | 26,760 | 21.40 | 23,239 | 17.95 | 3,509 | 3.08 | ||||||||||||
Savings | 475 | .39 | 856 | .66 | 1,159 | 1.01 | ||||||||||||
Subtotal | 29,506 | 23.60 | 26,420 | 20.40 | 7,440 | 6.52 | ||||||||||||
Time deposits: | ||||||||||||||||||
2.00% – 2.99% | $ | — | — | % | $ | 501 | .39 | % | $ | 7,201 | 6.31 | % | ||||||
3.00% – 3.99% | 11,721 | 9.37 | 16,578 | 12.80 | 48,410 | 42.44 | ||||||||||||
4.00% – 4.99% | 44,680 | 35.73 | 47,282 | 36.51 | 47,819 | 41.92 | ||||||||||||
5.00% – 5.99% | 37,801 | 30.23 | 38,721 | 29.90 | 3,179 | 2.79 | ||||||||||||
6.00% – 6.99% | 1,326 | 1.07 | — | — | — | — | ||||||||||||
7.00% – 7.99% | — | — | — | — | 15 | .02 | ||||||||||||
Total time deposits (1) | 95,528 | 76.40 | 103,082 | 79.60 | 106,624 | 93.48 | ||||||||||||
Total deposits | $ | 125,034 | 100.00 | % | $ | 129,502 | 100.00 | % | $ | 114,064 | 100.00 | % | ||||||
2018 | 2017 | 2016 | |||||||||||||||||||||
Amount | % of Deposits | Amount | % of Deposits | Amount | % of Deposits | ||||||||||||||||||
Noninterest-bearing demand deposits | $ | 9,638 | 15.45 | % | $ | 12,632 | 19.36 | % | $ | 7,209 | 8.37 | % | |||||||||||
Interest-bearing demand deposits | 20,450 | 32.79 | 4,782 | 7.33 | 3,604 | 4.19 | |||||||||||||||||
Money-market deposits | 5,675 | 9.10 | 16,498 | 25.28 | 17,743 | 20.61 | |||||||||||||||||
Savings | 557 | 0.89 | 765 | 1.17 | 806 | 0.94 | |||||||||||||||||
Subtotal | $ | 36,320 | 58.23 | % | $ | 34,677 | 53.14 | % | $ | 29,362 | 34.11 | % | |||||||||||
Time deposits: | |||||||||||||||||||||||
0.00% – 0.99% | $ | 2,669 | 4.20 | % | $ | 6,849 | 10.50 | % | $ | 14,891 | 17.30 | % | |||||||||||
1.00% – 1.99% | 10,113 | 16.21 | 23,582 | 36.14 | 41,695 | 48.43 | |||||||||||||||||
2.00% – 2.99% | 13,276 | 21.28 | 143 | 0.22 | 139 | 0.16 | |||||||||||||||||
Total time deposits (1) | 26,058 | 41.77 | 30,574 | 46.86 | 56,725 | 65.89 | |||||||||||||||||
Total deposits | $ | 62,378 | 100.00 | % | $ | 65,251 | 100.00 | % | $ | 86,087 | 100.00 | % |
(1) Included are Individual Retirement Accounts (IRA’s) totaling $1,922,000 and $2,451,000 at December 31, 2018 and 2017, respectively, all of which are in the form of time deposits. |
Time Deposits of $100,000$250,000 or more, or Jumbo Time Deposits, are generally considered a more unpredictable source of funds. The following table sets forth ourthe Company’s maturity distribution of time deposits of $100,000$250,000 or more at December 31, 20072018 and 20062017 (in thousands):
At December 31, | ||||||||||||||
At December 31, | 2018 | 2017 | ||||||||||||
2007 | 2006 | |||||||||||||
Due three months or less | $ | 8,033 | $ | 6,858 | $ | 666 | $ | 303 | ||||||
Due more than three months to six months | 16,616 | 9,898 | 324 | — | ||||||||||
More than six months to one year | 8,680 | 8,599 | 909 | 302 | ||||||||||
One to five years | 5,543 | 15,544 | 760 | 673 | ||||||||||
Total | $ | 38,872 | $ | 40,899 | $ | 2,659 | $ | 1,278 | ||||||
ANALYSIS OF RESULTS OF OPERATIONSAnalysis of Results of Operations
Our
The Company’s profitability depends to a large extent on net interest income, which is the difference between the interest received on earning assets, such as loans and securities, and the interest paid on interest-bearing liabilities, principally deposits and borrowings. Net interest income is determined by the difference between yields earned on interest-earning assets and rates paid on interest-bearing liabilities (“interest-rate spread”) and the relative amounts of interest-earning assets and interest-bearing liabilities. OurThe Company’s interest-rate spread is affected by regulatory, economic, and competitive factors that influence interest rates, loan demand, and deposit flows. OurThe Company’s results of operations are also affected by the provision for loan losses, operating expenses such as salaries and employee benefits, occupancy and other operating expenses including income taxes, and noninterest income such as loan prepayment fees.
The following table sets forth,,for the periods indicated, information regarding (i) the total dollar amount of interest income from interest-earning assets and the resultant average yield; (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; and (v) net interest margin. Average balances are based on average daily balances (dollars in thousands):
Years Ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Years Ended December 31, | Interest | Average | Interest | Average | Interest | Average | Interest | Average | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2007 | 2006 | 2005 | Average | And | Yield/ | Average | And | Yield/ | Average | and | Yield/ | Average | and | Yield/ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average Balance | Interest and Dividends | Average Yield/ Rate | Average Balance | Interest and Dividends | Average Yield/ Rate | Average Balance | Interest and Dividends | Average Yield/ Rate | Balance | Dividends | Rate | Balance | Dividends | Rate | Balance | Dividends | Rate | Balance | Dividends | Rate | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loans | $ | 176,679 | $ | 13,086 | 7.41 | % | $ | 175,225 | $ | 12,662 | 7.23 | % | $ | 145,961 | $ | 9,928 | 6.80 | % | $ | 74,598 | $ | 3,912 | 5.24 | % | $ | 75,894 | $ | 4,126 | 5.44 | % | $ | 83,574 | $ | 4,200 | 5.03 | % | $ | 80,691 | 3,865 | 4.79 | % | |||||||||||||||||||||||||||||||
Securities | 50,891 | 2,803 | 5.51 | 28,129 | 1,323 | 4.70 | 28,305 | 1,260 | 4.45 | 10,494 | 232 | 2.21 | 18,054 | 366 | 2.03 | 22,686 | 459 | 2.02 | 26,490 | 597 | 2.25 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Other interest-earning assets (1) | 4,364 | 248 | 5.68 | 3,851 | 206 | 5.35 | 4,008 | 146 | 3.64 | 4,811 | 148 | 3.08 | 16,536 | 224 | 1.35 | 11,996 | 105 | 0.88 | 1,273 | 72 | 5.66 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Total interest-earning assets/interest income | 231,934 | 16,137 | 6.96 | 207,205 | 14,191 | 6.85 | 178,274 | 11,334 | 6.36 | 89,903 | 4,292 | 4.78 | % | 110,484 | 4,716 | 4.27 | % | 118,256 | 4,764 | 4.03 | % | 108,454 | 4,534 | 4.18 | % | |||||||||||||||||||||||||||||||||||||||||||||||
Cash and due from banks | 346 | 311 | 211 | 1,676 | 1,171 | 953 | 9,483 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Premises and equipment | 3,433 | 4,034 | 4,113 | 2,676 | 2,618 | 2,687 | 3,744 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other assets | 2,609 | 3,019 | 4,383 | (1,985 | ) | (3,480 | ) | (747 | ) | 3,278 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total assets | $ | 238,322 | $ | 214,569 | $ | 186,981 | $ | 92,270 | $ | 110,793 | $ | 121,149 | $ | 124,959 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Savings, NOW and money-market deposits | 26,648 | 1,196 | 4.49 | 11,974 | 390 | 3.26 | 7,493 | 80 | 1.07 | $ | 22,000 | 175 | .80 | $ | 22,062 | 112 | .51 | $ | 23,360 | 117 | 0.50 | $ | 19,314 | 124 | 0.64 | |||||||||||||||||||||||||||||||||||||||||||||||
Time deposits | 97,269 | 4,640 | 4.77 | 108,448 | 4,758 | 4.39 | 99,236 | 3,620 | 3.65 | 23,032 | 335 | 1.45 | 50,367 | 562 | 1.11 | 60,813 | 611 | 1.00 | 59,158 | 524 | 0.89 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Borrowings (4) | 86,089 | 3,864 | 4.49 | 70,614 | 2,915 | 4.13 | 59,050 | 2,141 | 3.63 | 29,213 | 736 | 2.52 | 25,672 | 522 | 2.03 | 24,416 | 351 | 1.44 | 23,158 | 236 | 1.02 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Total interest-bearing liabilities/interest expense | 210,006 | 9,700 | 4.62 | 191,036 | 8,063 | 4.22 | 165,779 | 5,841 | 3.52 | 74,245 | 1,246 | 1.68 | 98,101 | 1,196 | 1.22 | 108,589 | 1,079 | .99 | 101,630 | 884 | 0.87 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Noninterest-bearing demand deposits | 1,684 | 747 | 953 | 11,893 | 6,551 | 5,870 | 8,497 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other liabilities | 5,289 | 3,214 | 2,640 | 2,105 | 3,380 | 3,526 | 11,771 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stockholders’ equity | 21,343 | 19,572 | 17,609 | 4,027 | 2,761 | 3,164 | 3,061 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 238,322 | $ | 214,569 | $ | 186,981 | $ | 92,270 | $ | 110,793 | $ | 121,149 | $ | 124,959 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net interest income | $ | 6,437 | $ | 6,128 | $ | 5,493 | $ | 3,046 | $ | 3,520 | $ | 3,685 | $ | 3,650 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest rate spread (2) | 2.34 | % | 2.63 | % | 2.84 | % | 3.10 | 3.05 | 3.04 | 3.31 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net interest margin (3) | 2.78 | % | 2.96 | % | 3.08 | % | 3.39 | 3.19 | 3.12 | 3.37 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ratio of average interest-earning assets to average interest-bearing liabilities | 1.10 | 1.08 | 1.08 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ratio of average interest-earning assets to average interest- bearing liabilities | 1.21 | 1.13 | 1.09 | 1.07 |
(1) | Includes interest-earning deposits with banks, Federal funds sold and Federal Home Loan Bank stock dividends. |
(2) | Interest rate spread represents the difference between average yield on interest-earning assets and the average cost of interest-bearing liabilities. |
(3) | Net interest margin is net interest income divided by average interest-earning assets. |
(4) | Includes Federal Home Loan Bank advances, junior subordinated debenture and securities sold under an agreement to repurchase. |
Rate/Volume Analysis
RATE/VOLUME ANALYSIS
The following tables set forth certain information regarding changes in interest income and interest expense for the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (1) changes in rate (change in rate multiplied by prior volume), (2) changes in volume (change in volume multiplied by prior rate) and (3) changes in rate-volume (change in rate multiplied by change in volume) (in thousands):
Year Ended December 31, 2018 versus 2017 Increases (Decreases) Due to Change In: | ||||||||||||||||||||||||||||||||
Year Ended December 31, 2007 versus 2006 Increases (Decreases) Due to Change In: | Rate | Volume | Rate/ Volume | Total | ||||||||||||||||||||||||||||
Rate | Volume | Rate/ Volume | Total | |||||||||||||||||||||||||||||
Interest income: | ||||||||||||||||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||||||||||
Loans | $ | 316 | $ | 105 | $ | 3 | $ | 424 | $ | (146 | ) | $ | (70 | ) | $ | 2 | $ | (214 | ) | |||||||||||||
Securities | 227 | 1,071 | 182 | 1,480 | 33 | (153 | ) | (14 | ) | (134 | ) | |||||||||||||||||||||
Other interest-earning assets | 14 | 26 | 2 | 42 | 285 | (159 | ) | (202 | ) | (76 | ) | |||||||||||||||||||||
Total interest income | 557 | 1,202 | 187 | 1,946 | ||||||||||||||||||||||||||||
Total interest-earning assets | 172 | (382 | ) | (214 | ) | (424 | ) | |||||||||||||||||||||||||
Interest expense: | ||||||||||||||||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||||||||||
Savings, NOW and money-market | 148 | 478 | 181 | 807 | 63 | 0 | 0 | 63 | ||||||||||||||||||||||||
Time deposits | 414 | (491 | ) | (42 | ) | (119 | ) | 171 | (305 | ) | (93 | ) | (227 | ) | ||||||||||||||||||
Borrowings | 254 | 638 | 57 | 949 | ||||||||||||||||||||||||||||
Other | 125 | 72 | 17 | 214 | ||||||||||||||||||||||||||||
Total interest expense | 816 | 625 | 196 | 1,637 | ||||||||||||||||||||||||||||
Total interest-bearing liabilities | 359 | (233 | ) | (76 | ) | 50 | ||||||||||||||||||||||||||
Net interest income | $ | (259 | ) | $ | 577 | $ | (9 | ) | $ | 309 | $ | (187 | ) | $ | (149 | ) | $ | (138 | ) | $ | (474 | ) | ||||||||||
Year Ended December 31, 2006 versus 2005 Increases (Decreases) Due to Change In: | ||||||||||||||||||||||||||||||||
Rate | Volume | Rate/ Volume | Total | |||||||||||||||||||||||||||||
Interest income: | ||||||||||||||||||||||||||||||||
Loans | $ | 620 | $ | 1,990 | $ | 124 | $ | 2,734 | ||||||||||||||||||||||||
Securities | 71 | (8 | ) | — | 63 | |||||||||||||||||||||||||||
Other interest-earning assets | 70 | (7 | ) | (3 | ) | 60 | ||||||||||||||||||||||||||
Total interest income | 761 | 1,975 | 121 | 2,857 | ||||||||||||||||||||||||||||
Interest expense: | ||||||||||||||||||||||||||||||||
Savings, NOW and money-market | 164 | 48 | 98 | 310 | ||||||||||||||||||||||||||||
Time deposits | 734 | 336 | 68 | 1,138 | ||||||||||||||||||||||||||||
Borrowings | 297 | 418 | 59 | 774 | ||||||||||||||||||||||||||||
Total interest expense | 1,195 | 802 | 225 | 2,222 | ||||||||||||||||||||||||||||
Net interest income | $ | (434 | ) | $ | 1,173 | $ | (104 | ) | $ | 635 | ||||||||||||||||||||||
Year Ended December 31, 2017 versus 2016 Increases (Decreases) Due to Change In: | ||||||||||||||||
Rate | Volume | Rate/ Volume | Total | |||||||||||||
Interest-earning assets: | ||||||||||||||||
Loans | $ | 299 | $ | (386 | ) | $ | (27 | ) | $ | (114 | ) | |||||
Securities | 1 | (94 | ) | — | (93 | ) | ||||||||||
Other interest-earning assets | 58 | 40 | 21 | 119 | ||||||||||||
Total interest-earning assets | 358 | (440 | ) | (6 | ) | (88 | ) | |||||||||
Interest-bearing liabilities: | ||||||||||||||||
Savings, NOW and money-market | 2 | (7 | ) | — | (5 | ) | ||||||||||
Time deposits | 68 | (105 | ) | (12 | ) | (49 | ) | |||||||||
Other | 145 | 18 | 7 | 170 | ||||||||||||
Total interest-bearing liabilities | 215 | (94 | ) | (5 | ) | 116 | ||||||||||
Net interest income | $ | 143 | $ | (346 | ) | $ | (1 | ) | $ | (204 | ) |
Financial Condition as of December 31, 2018 Compared to December 31, 2017
The Company’s total assets increased by $4.5 million at December 31, 2018, to $100.4 million.
At December 31, 2018, the Bank had a Tier 1 leverage ratio of 11.68%, and a total risk-based capital ratio of 15.86%. The Company’s capital was enhanced during 2018 through the sale of $525,000 of common stock, the issuance of common stock for compensation of $615,000, and common stock issued in exchange for Trust Preferred Securities, with fair value of $694,000 plus accrued interest of $211,000, which resulted in $905,000 increase in Company’s capital.
Junior Subordinated Debenture. The Company is in default with respect to its $5,155,000 Junior Subordinated Debenture (the “Debenture”) due to its failure to make certain required interest payments under the Debenture. The Debenture was issued to Optimum Bank Holdings Capital Trust I, a Delaware statutory trust formed by the Company for the purpose of issuing and selling certain securities (the “Trust Preferred Securities”) representing undivided beneficial interests in the Debenture. The trust issued a total of 5,000 Trust Preferred Securities.
The Trustee, Wells Fargo Bank, for the Debenture (the “Trustee”) and the beneficial owners of the Debenture are entitled to accelerate the payment of the $5,155,000 principal balance plus accrued and unpaid interest totaling $1,686,350 at December 31, 2018. To date, neither the Trustee nor the holders have accelerated the outstanding balance of the Debenture. No adjustments to the accompanying consolidated financial statements have been made as a result of this uncertainty.
In May 2018, a company affiliated with a director of the Company (the “New Holder”) purchased all 5,000 Trust Preferred Securities from a third party. During the third quarter of 2018, the New Holder sold its rights in approximately 694 of the Trust Preferred Securities to several unaffiliated third parties, who subsequently exchanged these Trust Preferred Securities for 301,778 shares of the Company’s common stock. Due to regulatory agreement the exchange of Trust Preferred Securities for the Company’s common stock cannot reduce the principal amount of the Debenture collateralizing the Trust Preferred Securities. Accordingly it is recorded as an increase in the Company’s equity interest in the unconsolidated subsidiary trust, presented in “Other Assets” in the accompanying consolidated balance sheets.
Although the Company and the New Holder have not executed a formal, definitive bilateral agreement, the New Holder has provided the Company with written representations that the New Holder will not accelerate and demand payment of any of the remaining 4,306 Trust Preferred Securities principal or accrued interest within the next twelve months from the date this Annual Report, Form 10-K as of and for the year ended December 31, 2018, is filed with the Securities and Exchange Commission.
Results of Operations for Year Ended December 31, 20072018 Compared to Year Ended December 31, 20062017
General. Net earnings for 2007 were $1.7 million,of $796,000 or $.59$.53 earnings per basic and $.57 per diluted share $92,000 less than in 2006. The primary factors explainingfor the decline were a $175,000 increase in noninterest expenses coupled with a $211,000 increase inyear ended December 31, 2018 compared to net loss for the provision for loan losses, partially offset by a $309,000 increase in net interest income.year ended December 31, 2017 of $589,000 or $.53 loss per basic and diluted share.
Interest Incomeincome. Interest income totaled $16.1decreased to $4.3 million in 2007, an increase of $1.9for the year ended December 31, 2018 compared to $4.7 million or 13.7%. This increase was primarilyfor the year ended December 31, 2017. Interest on loans decreased by $214,000 due to a $22.8 million, or 80.9%, increasedecrease in the average securities portfolio balance coupled with an increaseof loans in the average yield earned2018 compared to 2017. Interest on securities from 4.7%decreased by $134,000 due to 5.51%,a decrease in average balance of securities in 2018 compared to 2017. Other interest income decreased by $76,000 as the bank’s average deposits decreased, resulting in a $1.5 million increasedecrease in interestcash available for other interest-earning assets.
Interest expense. Interest expense on securities.deposits was $510,000 during the year ended December 31, 2018 compared to $674,000 during the year ended December 31, 2017. Interest incomeexpense on loans increased by 3.4%, or $424 thousand, primarily due to an increaseborrowings was $736,000 in the average yield earned on loans, from 7.23% to 7.41%.
Interest Expense.Interest expense totaled $9.7 million in 2007, an increase of $1.6 million, or 20.3%, primarily as a result of an increase in the overall cost of interest-bearing liabilities to 4.62%year ended December 31, 2018 compared to 4.22% a$522,000 during the year ago, coupled with a $15.5 million or 21.9% increase in the average balance of borrowings used to fund the Company’s growth. Average balances in deposit accounts increased only marginally by $3.5 million, or 2.9%, and interest expense on deposit accounts increased by $688,000, or 13.4%, to $5.8 million for 2007.ended December 31, 2017.
Provision for Loan Losses. TheIn June 2018, the Bank reversed $2.1 million of the allowance for loan losses into income, which was later offset by a $0.3 million provision for loan losses in 2007during the fourth quarter of 2018. There was $476,000 compared to $265,000 in 2006.no provision or credit for losses during the year ended December 31, 2017. The provision or credit for loan losses is charged to earningsoperations as losses are estimated to have occurred in order to bring the total allowance for loan losses to a level deemed appropriate by management.management to absorb losses inherent in the portfolio at December 31, 2018. 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 collectibilitycollectability of our loan portfolio. The allowance for loan losses totaled $692,000$2.2 million or .40%2.8% of loans outstanding at December 31, 2007,2018, as compared to $974,000,$4.0 million or .54%5.5% of loans outstanding at December 31, 2006.2017. Management believes the balance in the allowance for loan losses at December 31, 20072018 is adequate. The Company determined that it was appropriate to decrease in the amount of the Company’s allowance for loan losses due to the continued improvement in the performance and credit quality of the loan portfolio.
Noninterest Income. Total noninterest income decreased $95,000, to $533,000 in 2007, from $628,000 in 2006, primarily due to a reduction of $202,000 due to no gains recognized on the payoff of Federal Home Loan Bank advances in 2007, partially offset by a $62,000 increase in litigation settlements and a $44,000 increase in loan prepayment fees.
Noninterest Expenses. Noninterest expenses totaled $3.7 million in 2007, a $175,000 increase from 2006, due primarily to a $59,000 increase in salaries and employee benefits, a $49,000 increase in the FDIC insurance premium, and a $26,000 increase in professional fees, all due to general increases in the cost of services.
Income Taxes. Income taxes for 2007 were $1,003,000 (an effective rate of 36.5%) compared to income taxes of $1,083,000 (an effective rate of 37.1%) for 2006.
Year Ended December 31, 2006 Compared to Year Ended December 31, 2005
General. Net earnings for 2006 were $1,834,000, or $.62 per basic and $.60 per diluted share, compared to net earnings of $1,601,000 or $.55 per basic and $.53 per diluted share for 2005. This increase in the Company’s net earnings was primarily due to an increase in net interest income which was partially offset by an increase in noninterest expenses, all of which were due to the overall growth of the Company.
Interest Income. Interest income increased to $14.2 million$84,000 for 2006 from $11.3 million in 2005. Interest income on loans increased to $12.7 million due primarily to an increase in the average loan portfolio balance in 2006, and an increase in the average yield earned from 6.80% in 2005 to 7.23% in 2006. Interest on securities increased to $1.3 million due to an increase in the average yield during the year ended December 31, 2006.
Interest Expense.Interest expense2018, from $52,000 for the year ended December 31, 2017 primarily due to loss on deposit accounts increased to $5.1 million in 2006, from $3.7 million in 2005. Interest expense increased primarily becausesale of securities during 2017 and an increase in the average balance of depositsservice charges and the average rate paid during 2006. Interest expense on borrowings increased to $2.9 millionfees in 2006 from $2.1 million in 2005 primarily due to an increase in the average balance of borrowings.2018.
Provision for Loan Losses. The provision for loan losses is charged to earnings to bring the total allowance to a level deemed appropriate by management and is based upon historical experience, the volume and type of lending conducted by us, industry standards, the amount of nonperforming loans, general economic conditions, particularly as they relate to our market areas, and other factors related to the estimated collectibility of our loan portfolio. The provision in 2006 was $265,000 compared to $149,000 for the same period in 2005. Management believes the balance in the allowance for loan losses of $974,000 at December 31, 2006, is adequate.
Noninterest Income. Total noninterest income decreased to $628,000 in 2006, from $635,000 in 2005 primarily as a result of a decrease in prepayment fees collected of $272,000 partially offset by an increase in gains recognized on the payoff of Federal Home Loan Bank advances of $202,000 and a litigation settlement of $93,000 in 2006.
Noninterest Expenses. Total noninterest expenses increaseddecreased by $73,000 for the year ended December 31, 2018, from $4,161,000 for the year ended December 31, 2017 to $3.6 million in 2006 from $3.4 million in 2005,$4,088,000 for the year ended December 31, 2018, primarily due to an increase in salaries and employee benefits of $318,000 and an increase in professional fees of $85,000 all dueaccrual related to the continued growth of the Company. The increase was partially offset by a decrease in the provision for losses on foreclosed assets of $243,000.BSA look back project.
Income Taxes. Income taxes in 2006,There were $1,083,000 (an effective rate of 37.1%) compared tono income taxes of $982,000 (an effective rate of 38.0%) in 2005.during the years ended December 31, 2018 and 2017.
Impact of Inflation and Changing Prices
The consolidated financial statements and related data presented herein have been prepared in accordance with accounting principles generally accepted in the United States of America, which requires the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative purchasing power of money over time due to inflation. Unlike most industrial companies, substantially all of ourthe Bank’s assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on ourits performance than the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or in the same magnitude as the prices of goods and services, since such prices are affected by inflation to a larger extent than interest rates.
Selected Quarterly ResultsOPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Selected quarterly results of operations for the four quarters ended December 31, 2007 and 2006 are as follows (in
Condensed Consolidated Balance Sheets
(Dollars in thousands, except per share amounts):
2007 | 2006 | ||||||||||||||||||||||||
Fourth Quarter | Third Quarter | Second Quarter | First Quarter | Fourth Quarter | Third Quarter | Second Quarter | First Quarter | ||||||||||||||||||
Interest income | $ | 4,175 | $ | 4,130 | $ | 4,005 | $ | 3,827 | $ | 3,828 | $ | 3,621 | $ | 3,400 | $ | 3,342 | |||||||||
Interest expense | 2,531 | 2,499 | 2,430 | 2,240 | 2,258 | 2,104 | 1,881 | 1,820 | |||||||||||||||||
Net interest income | 1,644 | 1,631 | 1,575 | 1,587 | 1,570 | 1,517 | 1,519 | 1,522 | |||||||||||||||||
Provision (credit) for loan losses | (60 | ) | 16 | 209 | 311 | 120 | 12 | 27 | 106 | ||||||||||||||||
Net interest income after provision for loan losses | 1,704 | 1,615 | 1,366 | 1,276 | 1,450 | 1,505 | 1,492 | 1,416 | |||||||||||||||||
Noninterest income | 93 | 47 | 159 | 234 | 63 | 108 | 181 | 276 | |||||||||||||||||
Noninterest expense | 993 | 959 | 905 | 892 | 908 | 890 | 891 | 885 | |||||||||||||||||
Earnings before income taxes | 804 | 703 | 620 | 618 | 605 | 723 | 782 | 807 | |||||||||||||||||
Net earnings | 501 | 438 | 387 | 416 | 376 | 451 | 488 | 519 | |||||||||||||||||
Basic earnings per common share | .17 | .15 | .13 | .15 | .13 | .15 | .16 | .18 | |||||||||||||||||
Diluted earnings per common share | .17 | .14 | .13 | .14 | .12 | .14 | .16 | .18 |
March 31, 2019 | December 31, 2018 | |||||||
(Unaudited) | ||||||||
Assets: | ||||||||
Cash and due from banks | $ | 2,212 | $ | 1,934 | ||||
Interest-bearing deposits with banks | 11,347 | 6,049 | ||||||
Total cash and cash equivalents | 13,559 | 7,983 | ||||||
Securities available for sale | 2,191 | 2,359 | ||||||
Securities held-to-maturity (fair value of $7,066 and 7,175) | 6,955 | 7,139 | ||||||
Loans, net of allowance for loan losses of $2,047 and $2,243 | 78,498 | 77,200 | ||||||
Federal Home Loan Bank stock | 642 | 1,132 | ||||||
Premises and equipment, net | 2,669 | 2,668 | ||||||
Accrued interest receivable | 324 | 314 | ||||||
Other assets | 1,884 | 1,573 | ||||||
Total assets | $ | 106,722 | $ | 100,368 | ||||
Liabilities and Stockholders’ Equity: | ||||||||
Liabilities: | ||||||||
Noninterest-bearing demand deposits | 11,641 | 9,638 | ||||||
Savings, NOW and money-market deposits | 41,609 | 26,682 | ||||||
Time deposits | 27,574 | 26,058 | ||||||
Total deposits | 80,824 | 62,378 | ||||||
Federal Home Loan Bank advances | 13,000 | 24,600 | ||||||
Federal funds purchased | - | 560 | ||||||
Junior subordinated debenture | 5,155 | 5,155 | ||||||
Official checks | 265 | 274 | ||||||
Other liabilities | 2,305 | 2,095 | ||||||
Total liabilities | 101,549 | 95,062 | ||||||
Commitments and contingencies (Notes 7 and 9) | ||||||||
Stockholders’ equity: | ||||||||
Preferred stock, no par value; 6,000,000 shares authorized: Designated Series A, no par value, $25,000 liquidation value per share, no shares issued and outstanding | — | — | ||||||
Common stock, $.01 par value; 5,000,000 shares authorized, 1,858,020 shares issued and outstanding | 18 | 18 | ||||||
Additional paid-in capital | 36,128 | 36,128 | ||||||
Accumulated deficit | (30,660 | ) | (30,510 | ) | ||||
Accumulated other comprehensive loss | (313 | ) | (330 | ) | ||||
Total stockholders’ equity | 5,173 | 5,306 | ||||||
Total liabilities and stockholders’ equity | $ | 106,722 | $ | 100,368 |
See accompanying notes to condensed consolidated financial statements.
APPENDIX COPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Operations (Unaudited)
(in thousands, except per share amounts)
Three Months Ended | ||||||||
March 31, | ||||||||
2019 | 2018 | |||||||
Interest income: | ||||||||
Loans | $ | 1,090 | $ | 916 | ||||
Securities | 50 | 61 | ||||||
Other | 62 | 35 | ||||||
Total interest income | 1,202 | 1,012 | ||||||
Interest expense: | ||||||||
Deposits | 289 | 112 | ||||||
Borrowings | 164 | 148 | ||||||
Total interest expense | 453 | 260 | ||||||
Net interest income | 749 | 752 | ||||||
Provision for loan losses | — | — | ||||||
Net interest income after provision for loan losses | 749 | 752 | ||||||
Noninterest income: | ||||||||
Service charges and fees | 22 | 10 | ||||||
Other | 15 | 4 | ||||||
Total noninterest income | 37 | 14 | ||||||
Noninterest expenses: | ||||||||
Salaries and employee benefits | 501 | 438 | ||||||
Professional fees | 99 | 65 | ||||||
Occupancy and equipment | 113 | 104 | ||||||
Data processing | 124 | 77 | ||||||
Insurance | 24 | 24 | ||||||
Regulatory assessment | 4 | 39 | ||||||
Other | 119 | 304 | ||||||
Total noninterest expenses | 984 | 1,051 | ||||||
Net loss before income tax benefit | (198 | ) | (285 | ) | ||||
Income tax benefit | (52 | ) | - | |||||
Net loss | $ | (146 | ) | $ | (285 | ) | ||
Net loss per share - Basic and diluted | $ | (0.08 | ) | $ | (0.24 | ) |
See accompanying notes to condensed consolidated financial statements.
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Comprehensive Loss (Unaudited)
(In thousands)
Three Months Ended March 31, | ||||||||
2019 | 2018 | |||||||
Net loss | $ | (146 | ) | $ | (285 | ) | ||
Other comprehensive income (loss): | ||||||||
Change in unrealized gain (loss) on securities: | ||||||||
Unrealized gain (loss) arising during the year | 5 | (64 | ) | |||||
Amortization of unrealized loss on securities transferred to held-to-maturity | 17 | - | ||||||
Other comprehensive income (loss) before income tax (expense) benefit | 22 | (64 | ) | |||||
Deferred income tax (expense) benefit on above change | (5 | ) | 17 | |||||
Total other comprehensive income (loss) | 17 | (47 | ) | |||||
Comprehensive loss | $ | (129 | ) | $ | (332 | ) |
See accompanying notes to condensed consolidated financial statements.
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
FINANCIAL INFORMATION FOR NINE MONTHS ENDED SEPTEMBER 30, 2008
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OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
PART I. FINANCIAL INFORMATION
Condensed Consolidated Balance Sheets
(Dollars in thousands, except per share amounts)
September 30, | December 31, | |||||||
2008 | 2007 | |||||||
(unaudited) | ||||||||
Assets | ||||||||
Cash and due from banks | $ | 1,511 | $ | 475 | ||||
Federal funds sold | 394 | 226 | ||||||
Total cash and cash equivalents | 1,905 | 701 | ||||||
Securities held to maturity (fair value of $82,531 and $58,117) | 85,259 | 58,471 | ||||||
Security available for sale | 240 | 244 | ||||||
Loans, net of allowance for loan losses of $732 and $692 | 162,779 | 173,323 | ||||||
Federal Home Loan Bank stock | 3,706 | 2,965 | ||||||
Premises and equipment, net | 3,137 | 3,249 | ||||||
Foreclosed assets | 95 | 79 | ||||||
Accrued interest receivable | 1,343 | 1,448 | ||||||
Other assets | 1,102 | 1,067 | ||||||
Total assets | $ | 259,566 | $ | 241,547 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Liabilities: | ||||||||
Noninterest-bearing demand deposits | $ | 112 | $ | 1,304 | ||||
Savings, NOW and money-market deposits | 33,239 | 28,202 | ||||||
Time deposits | 79,215 | 95,528 | ||||||
Total deposits | 112,566 | 125,034 | ||||||
Federal Home Loan Bank advances | 72,700 | 56,850 | ||||||
Other borrowings | 41,800 | 28,900 | ||||||
Junior subordinated debenture | 5,155 | 5,155 | ||||||
Official checks | 3,338 | 2,251 | ||||||
Other liabilities | 744 | 1,110 | ||||||
Total liabilities | 236,303 | 219,300 | ||||||
Stockholders’ equity: | ||||||||
Common stock, $.01 par value; 6,000,000 shares authorized, 3,120,992 and 2,972,507 shares issued and outstanding | 31 | 30 | ||||||
Additional paid-in capital | 18,494 | 17,308 | ||||||
Retained earnings | 4,743 | 4,913 | ||||||
Accumulated other comprehensive loss | (5 | ) | (4 | ) | ||||
Total stockholders’ equity | 23,263 | 22,247 | ||||||
Total liabilities and stockholders’ equity | $ | 259,566 | $ | 241,547 | ||||
See Accompanying Notes to Condensed Consolidated Financial Statements.
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Earnings (Unaudited)
(Dollars in thousands, except per share amounts)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||
Interest income: | ||||||||||||
Loans | $ | 2,749 | $ | 3,240 | $ | 8,731 | $ | 9,801 | ||||
Securities | 1,116 | 824 | 3,030 | 1,978 | ||||||||
Other | 35 | 66 | 144 | 183 | ||||||||
Total interest income | 3,900 | 4,130 | 11,905 | 11,962 | ||||||||
Interest expense: | ||||||||||||
Deposits | 1,046 | 1,443 | 3,501 | 4,361 | ||||||||
Borrowings | 1,237 | 1,056 | 3,450 | 2,808 | ||||||||
Total interest expense | 2,283 | 2,499 | 6,951 | 7,169 | ||||||||
Net interest income | 1,617 | 1,631 | 4,954 | 4,793 | ||||||||
Provision for loan losses | 47 | 16 | 161 | 536 | ||||||||
Net interest income after provision for loan losses | 1,570 | 1,615 | 4,793 | 4,257 | ||||||||
Noninterest income: | ||||||||||||
Service charges and fees | 46 | 30 | 119 | 56 | ||||||||
Loan prepayment fees | 30 | 15 | 35 | 225 | ||||||||
Litigation settlement | — | — | — | 155 | ||||||||
Other | 2 | 2 | 4 | 4 | ||||||||
Total noninterest income | 78 | 47 | 158 | 440 | ||||||||
Noninterest expenses: | ||||||||||||
Salaries and employee benefits | 540 | 532 | 1,631 | 1,509 | ||||||||
Occupancy and equipment | 168 | 166 | 537 | 494 | ||||||||
Data processing | 42 | 43 | �� | 125 | 127 | |||||||
Professional fees | 54 | 82 | 195 | 208 | ||||||||
Insurance | 36 | 15 | 64 | 45 | ||||||||
Stationary and supplies | 11 | 8 | 24 | 30 | ||||||||
Loss on sale of foreclosed assets | 293 | — | 293 | — | ||||||||
Provision for losses on foreclosed assets | 11 | — | 74 | — | ||||||||
Other | 170 | 113 | 374 | 344 | ||||||||
Total noninterest expenses | 1,325 | 959 | 3,317 | 2,757 | ||||||||
Earnings before income taxes | 323 | 703 | 1,634 | 1,940 | ||||||||
Income taxes | 122 | 265 | 615 | 700 | ||||||||
Net earnings | $ | 201 | $ | 438 | $ | 1,019 | $ | 1,240 | ||||
Net earnings per share: | ||||||||||||
Basic | $ | .06 | $ | .14 | $ | .33 | $ | .40 | ||||
Diluted | $ | .06 | $ | .14 | $ | .32 | $ | .39 | ||||
Dividends per share | $ | — | $ | — | $ | — | $ | — | ||||
See Accompanying Notes to Condensed Consolidated Financial Statements.
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)
NineThree Months Ended September 30, 2008March 31, 2019 and 20072018
(Dollars in thousands)
Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Compre- hensive Loss | Total Stockholders’ Equity | ||||||||||||
Shares | Amount | |||||||||||||||
Balance at December 31, 2006 | 2,820,280 | $ | 28 | 15,930 | 4,474 | (9 | ) | 20,423 | ||||||||
Comprehensive income: | ||||||||||||||||
Net earnings for the nine months ended September 30, 2007 (unaudited) | — | — | — | 1,240 | — | 1,240 | ||||||||||
Net change in unrealized loss on security available for sale (unaudited) | — | — | — | — | (1 | ) | (1 | ) | ||||||||
Comprehensive income (unaudited) | 1,239 | |||||||||||||||
Proceeds from exercise of common stock options (unaudited) | 7,166 | — | 41 | — | — | 41 | ||||||||||
5% stock dividend (fractional shares paid-in cash) (unaudited) | 140,889 | 2 | 1,300 | (1,303 | ) | — | (1 | ) | ||||||||
Balance at September 30, 2007 (unaudited) | 2,968,335 | $ | 30 | 17,271 | 4,411 | (10 | ) | 21,702 | ||||||||
Balance at December 31, 2007 | 2,972,507 | $ | 30 | 17,308 | 4,913 | (4 | ) | 22,247 | ||||||||
Comprehensive income: | ||||||||||||||||
Net earnings for the nine months ended September 30, 2008 (unaudited) | — | — | — | 1,019 | — | 1,019 | ||||||||||
Net change in unrealized loss on security available for sale, net of tax (unaudited) | — | — | — | — | (1 | ) | (1 | ) | ||||||||
Comprehensive income (unaudited) | 1,018 | |||||||||||||||
5% stock dividend (fractional shares paid-in cash) (unaudited) | 148,485 | 1 | 1,186 | (1,189 | ) | — | (2 | ) | ||||||||
Balance at September 30, 2008 (unaudited) | 3,120,992 | $ | 31 | 18,494 | 4,743 | (5 | ) | 23,263 | ||||||||
Accumulated Other | ||||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Paid-In | Accumulated | Comprehensive | Stockholders’ | |||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit | Loss | Equity | |||||||||||||||||||||||||
Balance at December 31, 2017 | 7 | $ | — | 1,120,947 | $ | 11 | $ | 34,090 | $ | (31,306 | ) | $ | (250 | ) | $ | 2,545 | ||||||||||||||||
Proceeds from sale of common stock (unaudited) | — | — | 20,814 | — | 46 | — | — | 46 | ||||||||||||||||||||||||
Common stock issued as compensation to directors (unaudited) | — | — | 144,742 | 2 | 612 | — | — | 614 | ||||||||||||||||||||||||
Net loss for the three months ended March 31, 2018 (unaudited) | — | — | — | — | — | (285 | ) | — | (285 | ) | ||||||||||||||||||||||
Net change in unrealized loss on securities available for sale, net of income tax benefit (unaudited) | — | — | — | — | — | — | (47 | ) | (47 | ) | ||||||||||||||||||||||
Balance at March 31, 2018 (unaudited) | 7 | $ | — | 1,286,503 | $ | 13 | $ | 34,748 | $ | (31,591 | ) | $ | (297 | ) | $ | 2,873 | ||||||||||||||||
Balance at December 31, 2018 | — | $ | — | 1,858,020 | $ | 18 | $ | 36,128 | $ | (30,510 | ) | $ | (330 | ) | $ | 5,306 | ||||||||||||||||
Cumulative-effect adjustment resulting from adoption of new lease accounting standard (unaudited) | — | — | — | — | — | (4 | ) | — | (4 | ) | ||||||||||||||||||||||
Net loss for the three months ended March 31, 2019 (unaudited) | — | — | — | — | — | (146 | ) | — | (146 | ) | ||||||||||||||||||||||
Net change in unrealized loss on securities available for sale, net of income taxes (unaudited) | — | — | — | — | — | — | 3 | 3 | ||||||||||||||||||||||||
Amortization of unrealized loss on securities transferred to held-to-maturity (unaudited) | — | — | — | — | — | — | 14 | 14 | ||||||||||||||||||||||||
Balance at March 31, 2019 (unaudited) | — | $ | — | �� | 1,858,020 | $ | 18 | $ | 36,128 | $ | (30,660 | ) | $ | (313 | ) | $ | 5,173 |
See Accompanying Notesaccompanying notes to Condensed Consolidated Financial Statements.condensed consolidated financial statements.
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Three Months Ended March 31, | ||||||||
2019 | 2018 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (146 | ) | $ | (285 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 42 | 35 | ||||||
Net amortization of fees, premiums and discounts | 43 | 64 | ||||||
(Increase) decrease in accrued interest receivable | (10 | ) | 32 | |||||
Increase in other assets | (311 | ) | (3 | ) | ||||
Increase in official checks and other liabilities | 192 | 151 | ||||||
Net cash used in operating activities | (190 | ) | (6 | ) | ||||
Cash flows from investing activities: | ||||||||
Principal repayments of securities available for sale | 154 | 357 | ||||||
Principal repayments of securities held-to-maturity | 193 | - | ||||||
Net increase in loans | (1,314 | ) | (918 | ) | ||||
Purchases of premises and equipment | (43 | ) | (113 | ) | ||||
Redemption of FHLB stock | 490 | — | ||||||
Net cash used in investing activities | (520 | ) | (674 | ) | ||||
Cash flows from financing activities: | ||||||||
Net increase (decrease) in deposits | 18,446 | (10,154 | ) | |||||
Net (decrease) increase in federal funds purchased | (560 | ) | 2,767 | |||||
Net (decrease) increase in FHLB Advances | (11,600 | ) | 500 | |||||
Proceeds from sale of common stock | — | 46 | ||||||
Net cash provided by (used in) financing activities | 6,286 | (6,841 | ) | |||||
Net increase (decrease) in cash and cash equivalents | 5,576 | (7,521 | ) | |||||
Cash and cash equivalents at beginning of the period | 7,983 | 11,665 | ||||||
Cash and cash equivalents at end of the period | $ | 13,559 | $ | 4,144 |
See accompanying notes to condensed consolidated financial statements.
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows (Unaudited), Continued
(In thousands)
Nine Months Ended September 30, | ||||||||
2008 | 2007 | |||||||
Cash flows from operating activities: | ||||||||
Net earnings | $ | 1,019 | $ | 1,240 | ||||
Adjustments to reconcile net earnings to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 153 | 172 | ||||||
Provision for loan losses | 161 | 536 | ||||||
Net amortization of fees, premiums and discounts | 804 | 280 | ||||||
Decrease (increase) in accrued interest receivable | 105 | (182 | ) | |||||
Decrease (increase) in other assets | 118 | (1,001 | ) | |||||
Loss on sale of foreclosed assets | 293 | — | ||||||
Provision for losses on foreclosed assets | 74 | — | ||||||
Increase in official checks and other liabilities | 721 | 1,971 | ||||||
Net cash provided by operating activities | 3,448 | 3,016 | ||||||
Cash flows from investing activities: | ||||||||
Purchases of securities held to maturity | (35,603 | ) | (32,517 | ) | ||||
Principal repayments of securities held to maturity | 8,323 | 7,649 | ||||||
Net decrease in loans | 9,281 | 2,913 | ||||||
(Purchase) sale of premises and equipment | (41 | ) | 531 | |||||
Proceeds from sale of foreclosed assets | 257 | — | ||||||
Purchase of Federal Home Loan Bank stock | (741 | ) | (121 | ) | ||||
Net cash used in investing activities | (18,524 | ) | (21,545 | ) | ||||
Cash flows from financing activities: | ||||||||
Net decrease in deposits | (12,468 | ) | (5,691 | ) | ||||
Net increase in other borrowings | 12,900 | 21,210 | ||||||
Proceeds from exercise of common stock options | — | 41 | ||||||
Net increase in Federal Home Loan Bank advances | 15,850 | 1,700 | ||||||
Fractional shares of stock dividend paid-in cash | (2 | ) | (1 | ) | ||||
Net cash provided by financing activities | 16,280 | 17,259 | ||||||
Net increase (decrease) in cash and cash equivalents | 1,204 | (1,270 | ) | |||||
Cash and cash equivalents at beginning of the period | 701 | 1,604 | ||||||
Cash and cash equivalents at end of the period | $ | 1,905 | $ | 334 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid during the period for: | ||||||||
Interest | $ | 6,907 | $ | 7,234 | ||||
Income taxes | $ | 889 | $ | 832 | ||||
Noncash investing and financing activities: | ||||||||
Change in accumulated other comprehensive loss, net change | $ | (1 | ) | $ | (1 | ) | ||
Common stock dividend | $ | 1,187 | $ | 1,302 | ||||
Loans transferred to foreclosed assets | $ | 2,390 | $ | — | ||||
Loan made in connection with sale of foreclosed asset | $ | 1,600 | $ | — | ||||
Foreclosed assets reclassified to other assets | $ | 150 | $ | — | ||||
Three Months Ended March 31, | ||||||||
2019 | 2018 | |||||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid during the period for: | ||||||||
Interest | $ | 370 | $ | 194 | ||||
Income taxes | $ | — | $ | — | ||||
Noncash transaction - | ||||||||
Change in accumulated other comprehensive loss, net change in unrealized loss on securities available for sale, net of income taxes | $ | 17 | $ | (47 | ) | |||
Reclassification of stock compensation from other liabilities to common stock | $ | — | $ | 614 | ||||
Cumulative-effect adjustment resulting from adoption of new lease accounting standard | $ | (4 | ) | $ | — | |||
Amortization of unrealized loss on securities transferred to held-to-maturity | $ | 17 | $ | — |
See Accompanying Notesaccompanying notes to Condensed Consolidated Financial Statements.
(continued)
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (unaudited)(Unaudited)
(1)General. OptimumBank Holdings, Inc. (the “Holding Company”) is a one-bank holding company and owns 100% of OptimumBank (the “Bank”), a state (Florida)-chartered commercial bank (collectively, the “Company”).
(1) | General.OptimumBank Holdings, Inc. (the “Company”) is a one-bank holding company and owns 100% of OptimumBank (the “Bank”), a Florida-chartered commercial bank. The |
Basis of Presentation.In the opinion of management, the accompanying condensed consolidated financial statements of the Company contain all adjustments (consisting principally of normal recurring accruals) necessary to present fairly the financial position at March 31, 2019, and the results of operations and cash flows for the three-month periods ended March 31, 2019 and 2018. All significant intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the three months ended March 31, 2019, are not necessarily indicative of the results to be expected for the full year. | |
Junior Subordinated Debenture. The Company is in default with respect to its $5,155,000 Junior Subordinated Debenture (the “Debenture”) due to its failure to make certain required interest payments under the Debenture. The Debenture was issued to OptimumBank Holdings Capital Trust I, a Delaware statutory trust formed by the Company for the purpose of issuing and selling certain securities (the “Trust Preferred Securities”) representing undivided beneficial interests in the Debenture. The trust issued a total of 5,000 Trust Preferred Securities. The Trustee, Wells Fargo Bank, for the Debenture (the “Trustee”) and the beneficial owners of the Debenture are entitled to accelerate the payment of the $5,155,000 principal balance plus accrued and unpaid interest totaling $1,776,000 at March 31, 2019. To date, neither the Trustee nor the holders have accelerated the outstanding balance of the Debenture. No adjustments to the accompanying condensed consolidated financial statements have been made as a result of this uncertainty. In May 2018, a company affiliated with a director of the Company (the “New Holder”) purchased all 5,000 Trust Preferred Securities from a third party. During the third quarter of 2018, the New Holder sold its rights in 694 of the Trust Preferred Securities to several unaffiliated third parties, who subsequently exchanged these Trust Preferred Securities for 301,778 shares of the Company’s common stock. Under the Written Agreement the exchange of Trust Preferred Securities for the Company’s common stock cannot reduce the principal amount of the Debenture collateralizing the Trust Preferred Securities. Accordingly the transaction was recorded as an increase in the Company’s equity interest in the unconsolidated subsidiary trust, presented in “Other Assets” in the accompanying condensed consolidated balance sheets. Although the Company and the New Holder have not executed a formal, definitive bilateral agreement, the New Holder has provided the Company with written representations that the New Holder will not accelerate and demand payment of any of the remaining 4,306 Trust Preferred Securities principal or accrued interest within twelve months from May 14, 2019, the date the Company’s Form 10-Q as of and for the period ended March 31, 2019, was filed with the Securities and Exchange Commission. | |
Comprehensive Loss.GAAP generally requires that recognized revenue, expenses, gains and losses be included in net loss. Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of the equity section of the condensed consolidated balance sheets, such items along with net loss, are components of comprehensive loss. |
Accumulated other comprehensive loss consists of the Bank. The Bank’s deposits are insured by the Federal Deposit Insurance Corporation. The Bank offers a variety of community banking services to individual and corporate customers through its three banking offices located in Broward County, Florida.
In the opinion of the 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, 2008, and the results of operations for the three- and nine-month periods ended September 30, 2008 and 2007, and cash flows for the nine-months periods ended September 30, 2008 and 2007. The results of operations for the three and nine months ended September 30, 2008, are not necessarily indicative of the results to be expected for the full year.
(2)Loan Impairment and Credit Losses.The activity in the allowance for loan losses was as follows (in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2008 | 2007 | 2008 | 2007 | ||||||||||||
Balance at beginning of period | $ | 694 | $ | 736 | $ | 692 | $ | 974 | |||||||
Charge-offs | (9 | ) | — | (121 | ) | (758 | ) | ||||||||
Provision for loan losses | 47 | 16 | 161 | 536 | |||||||||||
Balance at end of period | $ | 732 | $ | 752 | $ | 732 | $ | 752 | |||||||
There were no impaired loans at December 31, 2007. The following summarizes the impaired loans at September 30, 2008, which were collateral dependent (in thousands):
At September 30, 2008 | |||
Loans identified as impaired- | |||
Gross loans with no related allowance for losses recorded | $ | 5,070 | |
March 31, | December 31, | |||||||
2019 | 2018 | |||||||
Unrealized loss on securities available for sale | $ | (59 | ) | $ | (64 | ) | ||
Unamortized portion of unrealized loss related to securities available for sale transferred to securities held-to-maturity | (360 | ) | (377 | ) | ||||
Income tax benefit | 106 | 111 | ||||||
$ | (313 | ) | $ | (330 | ) |
(continued)
Income Taxes. The Company assessed its earnings history and trends and estimates of future earnings, and determined that the deferred tax asset could not be realized as of March 31, 2019. Accordingly, a valuation allowance was recorded against the net deferred tax asset. | |
(continued) |
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (unaudited), Continued
(2)Loan Impairment and Credit Losses, Continued.The average net investment in impaired loans and interest income recognized and received on impaired loans is as follows (in thousands):(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||
Average net investment in impaired loans | $ | 4,729 | $ | — | $ | 2,675 | $ | 2,114 | ||||
Interest income recognized on impaired loans | $ | — | $ | — | $ | — | $ | 39 | ||||
Interest income received on impaired loans | $ | — | $ | — | $ | — | $ | 39 | ||||
(1) | General, Continued. |
At September 30, 2008
Recent Pronouncements.In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2016-02, Leases (Topic 842). ASU 2016-02 is intended to improve financial reporting of leasing transactions by requiring organizations that lease assets to recognize assets and 2007,liabilities for the rights and obligations created by leases on the condensed consolidated balance sheet. The Company had no loans over ninety days past due still accruing interest. Nonaccrual loans wereadopted ASU 2016-02 retrospectively at January 1, 2019 using a simplified transition option that allows companies to initially apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Our only lease at the adoption date was an operating lease for a branch location has a 5 year term, commenced in December 2017, does not offer any options to extend, and does contain a rent escalation clause. The effect of this ASU increased condensed consolidated assets by $277,000 and condensed consolidated liabilities by $281,000, at the adoption date. With respect to the lease recognized on the condensed consolidated balance sheet as follows (in thousands):of March 31, 2019, the right of use asset $259,000 and lease liability of $264,000 are included in accompanying other assets and other liabilities, respectively. The discount rate used in this calculation was 2.6%.
At September 30, | ||||||
2008 | 2007 | |||||
Nonaccrual loans | $ | 4,564 | $ | 108 | ||
In June 2016, the FASB issued ASU No. 2016-13Financial Instruments-Credit Losses (Topic 326). The ASU improves financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by the Company. The ASU requires the Company to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. The Company will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. The ASU requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements. Additionally, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The ASU will take effect for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. The Company is in the process of determining the effect of the ASU on its condensed consolidated financial statements. In June 2018, the FASB issued ASU No. 2018-07, Stock Compensation(Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. The ASU is intended to reduce the cost and complexity and to improve financial reporting for nonemployee share-based payments. The ASU expands the scope of Topic 718. Compensation Stock Compensation (which currently only includes share-based payments to employees) to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned. The ASU supersedes Subtopic 505-50,Equity-Equity-Based payments to Non-Employees. The ASU was effective for the Company for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. The ASU did not have a material impact on the Company’s condensed consolidated financial statements. (continued) Tier I capital to total average assets Tier I capital to risk-weighted assets Total capital to risk-weighted assets(3)Regulatory Capital.The Bank is required to maintain certain minimum regulatory capital requirements. The following is a summary at September 30, 2008 of the regulatory capital requirements and the Bank’s capital on a percentage basis: Bank Regulatory
Requirement 10.97 % 4.00 % 18.33 % 4.00 % 18.81 % 8.00 % (continued)
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (unaudited), Continued(Unaudited)
(4)Earnings Per Share.Basic earnings per share has been computed on the basis of the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share were computed based on the weighted-average number of shares outstanding plus the effect of outstanding stock options, computed using the treasury stock method. All amounts reflect the 5% stock dividends declared in May, 2008 and 2007. Earnings per common share have been computed based on the following:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||
2008 | 2007 | 2008 | 2007 | |||||
Weighted-average number of common shares outstanding used to calculate basic earnings per common share | 3,120,992 | 3,112,990 | 3,120,992 | 3,110,596 | ||||
Effect of dilutive stock options | 41,283 | 67,571 | 54,458 | 75,342 | ||||
Weighted-average number of common shares outstanding used to calculate diluted earnings per common share | 3,162,275 | 3,180,561 | 3,175,450 | 3,185,938 | ||||
The following options were excluded from the calculation of earnings per share due to the exercise price being above the average market price:
(2) | |||||||
| |||||||
| |||||||
| |||||||
|
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||
At March 31, 2019: | ||||||||||||||||
Held-to-Maturity - | ||||||||||||||||
Collateralized mortgage obligations | $ | 6,955 | $ | 111 | $ | — | $ | 7,066 | ||||||||
Available for Sale - | ||||||||||||||||
SBA Pool Securities | $ | 2,250 | $ | — | $ | (59 | ) | $ | 2,191 |
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||
At December 31, 2018: | ||||||||||||||||
Held-to-Maturity - | ||||||||||||||||
Collateralized mortgage obligations | $ | 7,139 | $ | 40 | $ | (4 | ) | $ | 7,175 | |||||||
Available for Sale - | ||||||||||||||||
SBA Pool Securities | $ | 2,423 | $ | - | $ | (64 | ) | $ | 2,359 |
(5)Stock-Based Compensation.InApril 2018, the bank transferred securities of $7,945,000 from the available-for-sale category to the held-to-maturity category at their then fair values resulting in unrealized losses of $432,000. The Company followsunrealized loss which was recorded in stockholders’ equity net of amortization and net of tax is being amortized over the fair value recognition provisionsremaining term of Statement of Financial Accounting Standards No. 123(R),Share-Based Payment(“SFAS 123(R)”), using the modified-prospective-transition method. Under that transition method, compensation cost to be recognized includes: (a) compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value calculated in accordance with the original provisions of SFAS 123,securities. At March 31, 2019 and (b) compensation cost for all share-based payments granted subsequent to December 31, 2005, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123(R). As of December 31, 2006, all stock options were fully vested2018, $72,000 and no options were granted in 2007 or 2008; therefore, no stock-based compensation$55,000 has been recognizedamortized.
There were no sales of securities during the three months ended March 31, 2018 and 2017.
Securities available for sale with gross unrealized losses, aggregated by investment category and length of time that individual securities have been in 2007 or 2008.a continuous loss position, is as follows (in thousands):
At March 31, 2019 | ||||||||||||||||
Over Twelve Months | Less Than Twelve Months | |||||||||||||||
Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | |||||||||||||
Available for Sale - | ||||||||||||||||
SBA Pool Securities | $ | 59 | $ | 2,191 | $ | — | $ | — |
At December 31, 2018 | ||||||||||||||||
Over Twelve Months | Less Than Twelve Months | |||||||||||||||
Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | |||||||||||||
Held-to-Maturity - | ||||||||||||||||
Collateralized mortgage obligations | $ | 4 | $ | 1,361 | $ | — | $ | — | ||||||||
Available for Sale - | ||||||||||||||||
SBA Pool Securities | $ | 24 | $ | 829 | $ | 40 | $ | 1,530 |
(continued)
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (unaudited), Continued(Unaudited)
(5)Stock-Based Compensation, Continued.The Company established an Incentive Stock Option Plan (the “Plan”) for officers, directors and employees of the Company and reserved 600,686 (amended) shares of common stock for the plan. Both incentive stock options and nonqualified stock options may be granted under the plan. The exercise price of the stock options is determined by the board of directors at the time of grant, but cannot be less than the fair market value of the common stock on the date of grant. The options vest over three and five years. The options must be exercised within ten years from the date of grant. At September 30, 2008, 14,239 options were available for grant.
A summary of the activity in the Company’s stock option plan is as follows. All amounts reflect the 5% stock dividend declared on May 29, 2008 (dollars in thousands, except per share amounts):
Number of Options | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term | Aggregate Intrinsic Value | |||||||
Outstanding and exercisable at December 31, 2007 and | 503,587 | $ | 7.68 | 4.9 years | $ | 92 | ||||
The total intrinsic value of options exercised during the three and nine months ended September 30, 2007 was $16,675. There was no tax benefit recognized in connection with the exercised stock options. No stock options were exercised in 2008.
Securities Continued. Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospectus of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. At March 31, 2019 and December 31, 2018, the unrealized losses on six and seven investment securities, were caused by market conditions. It is expected that the securities would not be settled at a price less than the book value of the investments. Because the decline in fair value is attributable to market conditions and not credit quality, and because the Company has the ability and intent to hold these investments until a market price recovery or maturity, these investments are not considered other-than-temporarily impaired. OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY Notes to Condensed Consolidated Financial Statements (continued) 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) (continued) OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY Notes to Condensed Consolidated Financial Statements (Unaudited) 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. (continued) OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY Notes to Condensed Consolidated Financial Statements (Unaudited) Internally assigned loan grades are (continued) OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY Notes to The following (continued) 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) (continued) OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY Notes to Condensed Consolidated Financial Statements (Unaudited) The Company’s only grants under the 2011 Plan have been the issuance of shares of common stock to directors for director’s fees and compensation for services rendered. As of April 1, 2017, the Company discontinued the issuance of common stock as a method of payment of director’s fees. During 2018, the sale of 20,814 shares of common stock to a director of the Company, and the issuance of 79,186 shares of common stock in exchange for 7 shares of the Company’s preferred stock held by a director in April 2018, were treated as grants under the 2018 Plan. Please refer to the Company’s Forms 8-K filed with the Securities and Exchange Commission on November 16, 2018 and January 10, 2019 for further details. During the year ended December 31, 2017, the Company accrued compensation expense of $8,858 with respect to 2,821 shares to be issued to directors at a value of $3.14 per share on account of director’s fees accrued during the first quarter of 2017. These shares were issued in 2018. During the year ended December 31, 2018, the Company accrued compensation expense of $200,000 with respect to 36,101 shares issued to a director for services performed in 2018. The Company had previously accrued compensation expense of $200,000 in 2016 and 2017 for services performed. The Company had previously agreed to issue 105,820 shares to this director for services performed in 2016 and 2017. All shares were issued in 2018. Fair Value Total Losses Losses Recorded in Operations For the three months ended March 31, 2019 Fair Value Total Losses Losses Recorded in Operations For the three monthsended December 31, 2018 Available-for-sale securities measured at fair value on a recurring basis are summarized below (in thousands): Fair Value Quoted Prices In Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) During the three months ended March 31, 2019 and (continued)(6)Common Stock Dividend(2) . On May 29, 2008, the Company’s board of directors declared a 5% stock dividend to shareholders of record on June 12, 2008 and paid on July 14, 2008.(7)Fair Value Measurements. On January 1, 2008, the Company adopted SFAS 157, “Fair Value Measurements.” SFAS 157, among other things, defines fair value, establishes a framework for measuring fair value and enhances disclosures about fair value measurements required under other accounting pronouncements, but does not change existing guidance as to whether or not an instrument is carried at fair value. The adoption of this statement had no effect on the Company’s financial statements.The following disclosures, which include certain disclosures that are generally not required in interim period financial statements, are included herein as a result of the adoption of SFAS 157.The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Currently, the Company has securities available for sale that are recorded at fair value on a recurring basis. Also from time to time the Company may be required to record at fair value other assets or liabilities on a non-recurring basis, such as impaired loans. These non-recurring fair value adjustments involve the application of lower-of-cost-or-market accounting or write-downs of individual assets.(continued)(continued) (unaudited), Continued(7)Fair Value Measurements, Continued. In accordance with SFAS 157, the Company groups its assets and liabilities at fair value in three levels, based on the markets in which the assets are traded and the reliability of the assumptions used to determine fair value. These levels are:(Unaudited)(3) Loans.The components of loans are as follows (in thousands): Level 1 – Valuation is based upon quoted prices for identical instruments in active markets. At
March 31, 2019 At
December 31, 2018 Residential real estate $ 26,015 $ 27,204 Multi-family real estate 6,455 8,195 Commercial real estate 42,886 36,634 Land and construction - 1,998 Commercial 4,867 4,997 Consumer 189 260 Total loans 80,412 79,288 Add (deduct): Net deferred loan fees, costs and premiums 133 155 Allowance for loan losses (2,047 ) (2,243 ) Loans, net $ 78,498 $ 77,200 Level 2 – Valuation is based upon quoted prices for similar instruments traded in active markets, quoted prices for identical or similar instruments in markets(3) Loans, Continued.An analysis of the change in the allowance for loan losses follows (in thousands): Residential
Real Estate Multi-Family
Real Estate Commercial
Real Estate Land and
Construction Commercial Consumer Unallocated Total Three Months Ended March 31, 2019: Beginning balance $ 544 $ 88 $ 567 $ 19 $ 850 $ 25 $ 150 $ 2,243 (Credit) provision for loan losses (12 ) (23 ) 256 (25 ) (297 ) 1 100 — Charge-offs — — (195 ) — — (7 ) — (202 ) Recoveries — — — 6 — — — 6 Ending balance $ 532 $ 65 $ 628 $ — $ 553 $ 19 $ 250 $ 2,047 Three Months Ended March 31, 2018: Beginning balance $ 641 $ 59 $ 759 $ 22 $ 55 $ 86 $ 2,369 $ 3,991 Provision (credit) for loan losses 6 8 (47 ) — 224 (23 ) (168 ) — Charge-offs — — — — — (9 ) — (9 ) Recoveries — — — 6 — 5 — 11 Ending balance $ 647 $ 67 $ 712 $ 28 $ 279 $ 59 $ 2,201 $ 3,993 (3) Loans, Continued. Residential Real Estate Multi-
Family Real Estate Commercial Real Estate Land and Construction Commercial Consumer Unallocated Total At March 31, 2019: Individually evaluated for impairment: Recorded investment $ 948 $ — $ 2,457 $ — $ 1,806 $ — $ — $ 5,211 Balance in allowance for loan losses $ 261 $ — $ — $ — $ 523 $ — $ — $ 784 Collectively evaluated for impairment: Recorded investment $ 25,067 $ 6,455 $ 40,429 $ — $ 3,061 $ 189 $ — $ 75,201 Balance in allowance for loan losses $ 271 $ 65 $ 628 $ — $ 30 $ 19 $ 250 $ 1,263 At December 31, 2018: Individually evaluated for impairment: Recorded investment $ 954 $ — $ 3,861 $ — $ 1,928 $ — $ — $ 6,743 Balance in allowance for loan losses $ 268 $ — $ 162 $ — $ 814 $ — $ — $ 1,244 Collectively evaluated for impairment: Recorded investment $ 26,250 $ 8,195 $ 32,773 $ 1,998 $ 3,069 $ 260 $ — $ 72,545 Balance in allowance for loan losses $ 276 $ 88 $ 405 $ 19 $ 36 $ 25 $ 150 $ 999 (3) 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. 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. (3) Loans, Continued. The following summarizes the loan credit quality (in thousands): Pass OLEM
(Other
Loans
Especially Mentioned) Sub-
standard Doubtful Loss Total At March 31, 2019: Residential real estate $ 25,067 $ — $ 948 $ — $ — $ 26,015 Multi-family real estate 6,455 — — — — 6,455 Commercial real estate 38,699 1,730 2,457 — — 42,886 Land and construction — — — — — — Commercial 2,355 706 1,806 — — 4,867 Consumer 189 — — — — 189 Total $ 72,765 $ 2,436 $ 5,211 $ — $ — $ 80,412 At December 31, 2018: Residential real estate $ 26,250 $ — $ 954 $ — $ — $ 27,204 Multi-family real estate 8,195 — — — — 8,195 Commercial real estate 31,050 1,723 3,861 — — 36,634 Land and construction 1,998 — — — — 1,998 Commercial 2,362 707 1,928 — — 4,997 Consumer 260 — — — — 260 Total $ 70,115 $ 2,430 $ 6,743 $ — $ — $ 79,288 not active and model-based valuation techniques for which all significant assumptions are observable in the market.defined as follows:Level 3 – Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect the Company’s estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include the use of option pricing models, discounted cash flow models and similar techniques. The results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the asset or liability.Pass – a Pass loan’s primary source of loan repayment is satisfactory, with secondary sources very likely to be realized if necessary. These are loans that conform in all aspects to bank policy and regulatory requirements, and no repayment risk has been identified. OLEM – an Other Loan Especially Mentioned has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in the deterioration of the repayment prospects for the asset or the Company’s credit position at some future date. Substandard – a Substandard loan is inadequately protected by the current Net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Included in this category are loans that are current on their payments, but the Bank is unable to document the source of repayment. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Doubtful – a loan classified as Doubtful has all the weaknesses inherent in one classified as Substandard, with the added characteristics that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be effected in the future. The Company charges off any loan classified as Doubtful. Loss – a loan classified Loss is considered uncollectible and of such little value that continuance as a bankable asset is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be effected in the future. The Company fully charges off any loan classified as Loss. The Company bases its fair value on the price that would be receivedsell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. SFAS 157 requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.Condensed Consolidated Financial Statements (Unaudited)(3) Loans, Continued. Age analysis of past-due loans is as follows (in thousands): Accruing Loans 30-59
Days
Past Due 60-89
Days
Past Due Greater
Than 90
Days
Past Due Total
Past
Due Current Nonaccrual
Loans Total
Loans At March 31, 2019: Residential real estate $ - $ - $ - $ - $ 26,015 $ — $ 26,015 Multi-family real estate - - - - 6,455 — 6,455 Commercial real estate - - - - 42,886 — 42,886 Land and construction - - - - - — - Commercial - - - - 4,867 — 4,867 Consumer - - - - 189 — 189 Total $ - $ - $ - $ - $ 80,412 $ — $ 80,412 Accruing Loans 30-59
Days
Past Due 60-89
Days
Past Due Greater
Than 90
Days
Past Due Total
Past
Due Current Nonaccrual
Loans Total
Loans At December 31, 2018: Residential real estate $ — $ — $ — $ — $ 27,204 $ — $ 27,204 Multi-family real estate — — — — 8,195 — 8,195 Commercial real estate — — — — 35,254 1,380 36,634 Land and construction — — — — 1,998 — 1,998 Commercial — — — — 4,997 — 4,997 Consumer — — — — 260 — 260 Total $ — $ — $ — $ — $ 77,908 $ 1,380 $ 79,288 describes valuation methodologies used for assetssummarizes the amount of impaired loans (in thousands): At March 31, 2019 At December 31, 2018 Recorded
Investment Unpaid
Principal
Balance Related
Allowance Recorded
Investment Unpaid
Principal
Balance Related
Allowance With no related allowance recorded: Commercial real estate $ 2,457 $ 2,457 $ — $ 2,259 $ 2,259 $ — Commercial 994 994 — 1,114 1,114 — With related allowance recorded: Residential real estate 948 948 261 954 954 268 Commercial real estate — — — 1,602 1,602 162 Commercial 812 812 523 814 814 814 Total: Residential real estate $ 948 $ 948 $ 261 $ 954 $ 954 $ 268 Commercial real estate $ 2,457 $ 2,457 $ — $ 3,861 $ 3,861 $ 162 Commercial $ 1,806 $ 1,806 $ 523 $ 1,928 $ 1,928 $ 814 Total $ 5,211 $ 5,211 $ 784 $ 6,743 $ 6,743 $ 1,244 (3) Loans, Continued. The average net investment in impaired loans and interest income recognized and received on impaired loans are as follows (in thousands): Three Months Ended Three Months Ended March 31, 2019 March 31, 2018 Average
Recorded
Investment Interest
Income
Recognized Interest
Income
Received Average
Recorded
Investment Interest
Income
Recognized Interest
Income
Received Residential real estate $ 951 18 18 $ 696 $ 19 $ 19 Commercial real estate $ 3,506 29 38 $ 702 $ 12 $ 13 Commercial $ 1,860 24 28 $ 537 $ 17 $ 17 Total $ 6,317 71 84 $ 1,935 $ 48 $ 49 No loans have been determined to be troubled debt restructurings (TDR’s) during the three month periods ended March 31, 2019 or 2018. At March 31, 2019 and 2018, there were no loans modified and entered into TDR’s within the past twelve months, that subsequently defaulted during the three month periods ended March 31, 2019 or 2018. (4) Loss Per Share. Basic loss per share has been computed on the basis of the weighted-average number of shares of common stock outstanding during the period. In 2019 and 2018, basic and diluted loss per share is the same due to the net loss incurred by the Company. Loss per common share have been computed based on the following: Three Months Ended
March 31, 2019 2018 Weighted-average number of common shares outstanding used to calculate basic and diluted loss per common share 1,858,020 1,173,018 (5) Stock-Based Compensation.The Company is authorized to grant stock options, stock grants and other forms of equity-based compensation under its 2011 Equity Incentive Plan as amended (the “2011 Plan”) and its 2018 Equity Incentive Plan (the “2018 Plan”). Both plans have been approved by shareholders. The Company is authorized to issue up to 210,000 shares of common stock under the 2011 Plan of which 208,881 have been issued, and 1,119 shares remain available for grant, and up to 250,000 shares of common stock under the 2018 Plan, of which 100,000 have been issued, and 150,000 shares remain available for grant. (6) Fair Value Measurements.Impaired collateral-dependent loans are carried at fair value when the current collateral value is lower than the carrying value of the loan. Those impaired collateral-dependent loans which are measured at fair value on a nonrecurring basis are as follows (in thousands): Level 1 Level 2 Level 3 At March 31, 2019: Residential real estate $ 687 $ — $ — $ 687 $ 261 $ — Level 1 Level 2 Level 3 At December 31, 2018: Residential real estate $ 686 $ — $ — $ 686 $ 268 $ — Commercial real estate 1,312 — — 1,312 71 — $ 1,998 — — 1,998 339 — Fair Value Measurements Using At March 31, 2019: SBA Pool Securities $ 2,191 $ — $ 2,191 $ — At December 31, 2018: SBA Pool Securities $ 2,359 $ — $ 2,359 $ — non-recurring basis.2018, no securities were transferred in or out of Levels 1, 2 or 3.Securities Available for Sale.These securities are valued based upon open-market quotes obtained from reputable third-party brokers which is considered a Level I fair value measurement. Level I fair value measurements are quoted prices in active markets. For identical assets market pricing is based upon CUSIP identification for each individual security. Changes in fair value are recorded in other comprehensive income.
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (unaudited), Continued(Unaudited)
(7)Fair Value Measurements, Continued.
Impaired Loans. A loan is considered impaired when, based upon current information and events, it is probable that we will be unable to collect all amounts due, including principal and interest, according to the contractual terms of the loan agreement. The Company’s impaired loans are normally collateral dependent and, as such, are carried at the lower of the Company’s net recorded investment in the loan or the estimated fair value of the collateral less estimated selling costs. Adjustments to the recorded investment are made through specific valuation allowances that are recorded as part of the overall allowances for loan losses. Estimates of fair value is determined based on a variety of information, including the use of available appraisals, estimates of market value by licensed appraisers or local real estate brokers and the knowledge and experience of the Company’s officers related to values of properties in the Company’s market areas. These officers take into consideration the type, location and occupancy of the property as well as current economic conditions in the area the property is located in assessing estimates of fair value. Accordingly, fair value estimates for impaired loans is classified as Level 3.
The following table provides the level of valuation assumptions used to determine the carrying value of our assets measured at fair value on a recurring and non-recurring basis at September 30, 2008 (in thousands).
Net carrying value at September 30, 2008 | Total Losses(1) | ||||||||||||
Three-Months Ended September 30, 2008 | Nine-Months Ended September 30, 2008 | ||||||||||||
Total | Level 1 | Level 2 | Level 3 | ||||||||||
Securities available for sale | $ | 240 | 240 | — | — | — | 1 | ||||||
Impaired loans | 5,070 | — | — | 5,070 | — | — |
(7) |
|
|
(continued)
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (unaudited), Continued
(7)Fair Value Measurements, Continued. Also effective January 1, 2008, the Company adopted SFAS 159,The Fair Value Option for Financial Assets and Financial Liabilities-Including an amendment of FASB Statement No. 115(“SFAS 159”). SFAS 159 provides companies with an option to report selected financial assets and liabilities at fair value. Most of the provisions of this statement apply only to entities that elect the fair value option. However, the amendment to SFAS No. 115,Accounting for Certain Investments in Debt and Equity Securities, applies to all entities with available-for-sale and trading securities. SFAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. Management determined that this Statement had no material effect on the Company’s consolidated financial statements.
(8)Stock Purchase Plan.On September 25, 2008, the Company adopted a stock purchase plan (the “Plan”). The Plan allows the Company to purchase up to 5% of the common stock outstanding (approximately 156,050 shares).
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Review by Independent Registered Public Accounting Firm
Hacker, Johnson & Smith PA, the Company’s independent registered public accounting firm, have made a limited review of the interim financial data as of September 30, 2008, and for the three- and nine-month periods ended September 30, 2008 and 2007, presented in this document, in accordance with standards established by the Public Company Accounting Oversight Board.
Their report furnished pursuant to Article 10 of Regulation S-X is included herein.
Report of Independent Registered Public Accounting Firm
OptimumBank Holdings, Inc.
Fort Lauderdale, Florida:
We have reviewed the accompanying condensed consolidated balance sheet of OptimumBank Holdings, Inc. and Subsidiary (the “Company”) as of September 30, 2008, and the condensed consolidated statements of earnings for the three- and nine-month periods ended September 30, 2008 and 2007 and the related condensed consolidated statements of stockholders’ equity and cash flows for the nine-month periods ended September 30, 2008 and 2007. These interim financial statements are the responsibility of the Company’s management.
We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim condensed consolidated financial statements for them to be in conformity with U.S. generally accepted accounting principles.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board, the consolidated balance sheet as of December 31, 2007, and the related consolidated statements of earnings, stockholders’ equity and cash flows for the year then ended (not presented herein); and in our report dated March 21, 2008, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2007, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
/s/ Hacker, Johnson & Smith PA
HACKER, JOHNSON & SMITH PA
Fort Lauderdale, Florida
October 20, 2008
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Item 2. Management’s Discussion and Analysis
of Financial Condition and Results of Operations
Recent Events
The Company has filed an application under the Troubled Asset Relief Program Capital Purchase Program with the U. S. Department of Treasury seeking approval to sell $4.578 million in preferred stock to the Treasury. The Company’s participation in the Capital Purchase Program will remain subject to various contingencies, including, but not limited to, acceptance by the Treasury of its application and approval by the shareholders of an amendment to the Company’s articles of incorporation authorizing the issuance of preferred stock. If the Company ultimately elects to participate in the Capital Purchase Program, the Company anticipates using the proceeds to increase its overall capital levels and provide funds for additional lending.
Comparison of September 30, 2008 and December 31, 2007 Liquidity and Capital Resources
The Company’s primary sources of cash during the nine months ended September 30, 2008 were from an increase in other borrowings of approximately $12.9 million, an increase in Federal Home Loan Bank advances of approximately $15.9 million, principal repayments of securities held to maturity of approximately $8.3 million, net loan repayments of approximately $9.3 million and cash provided from operating activities of approximately $3.4 million. Cash was used primarily for purchases of securities of approximately $35.6 million and to fund deposit withdrawals of approximately $12.5 million. At September 30, 2008, the Company had time deposits of approximately $66.3 million that mature in one year or less. At September 30, 2008, the Company exceeded its regulatory liquidity requirements. Management believes that, if so desired, it can adjust the rates on time deposits to retain or attract deposits in a changing interest-rate environment.
The following table shows selected information for the periods ended or at the dates indicated:
At March 31, 2019 | At December 31, 2018 | |||||||||||||||||||
Carrying Amount | Fair Value | Level | Carrying Amount | Fair Value | Level | |||||||||||||||
Financial assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | 13,559 | $ | 13,559 | 1 | $ | 7,983 | $ | 7,983 | 1 | ||||||||||
Securities available for sale | 2,191 | 2,191 | 2 | 2,359 | 2,359 | 2 | ||||||||||||||
Securities held-to-maturity | 6,955 | 7,066 | 2 | 7,139 | 7,175 | 2 | ||||||||||||||
Loans | 78,498 | 78,196 | 3 | 77,200 | 77,062 | 3 | ||||||||||||||
Federal Home Loan Bank stock | 642 | 642 | 3 | 1,132 | 1,132 | 3 | ||||||||||||||
Accrued interest receivable | 324 | 324 | 3 | 314 | 314 | 3 | ||||||||||||||
Financial liabilities: | ||||||||||||||||||||
Deposit liabilities | 80,824 | 80,744 | 3 | 62,378 | 62,243 | 3 | ||||||||||||||
Federal Home Loan Bank advances | 13,000 | 12,951 | 3 | 24,600 | 24,437 | 3 | ||||||||||||||
Junior subordinated debenture | 5,155 | N/A | (1) | 3 | 5,155 | N/A | (1) | 3 | ||||||||||||
Federal funds purchased | — | — | 3 | 560 | 560 | 3 | ||||||||||||||
Off-balance sheet financial instruments | — | — | 3 | — | — | 3 |
Nine Months Ended September 30, 2008 | Year Ended December 31, 2007 | Nine Months Ended September 30, 2007 | |||||||
Average equity as a percentage of average assets | 9.19 | % | 8.96 | % | 8.94 | % | |||
Equity to total assets at end of period | 8.96 | % | 9.21 | % | 8.82 | % | |||
Return on average assets (1) | 0.55 | % | 0.73 | % | 0.70 | % | |||
Return on average equity (1) | 5.94 | % | 8.91 | % | 7.83 | % | |||
Noninterest expenses to average assets (1) | 1.78 | % | 1.57 | % | 1.56 | % |
(1) | The Company is unable to determine value based on significant unobservable inputs required in the calculation. Refer to Note 10 for further information. |
(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. |
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Management’s Discussion and Analysis
of Financial Condition and Results of Operations, Continued
Off-Balance Sheet Arrangements
The Company is a 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 include commitments to extend credit. These instruments involve, to varying degrees, elements of credit and interest-rate risk in excess of the amounts recognized in the condensed consolidated balance sheet. The contract or notional amounts of those instruments reflect the extent of the Company’s involvement in particular classes of financial instruments.
The Company’s exposure to credit loss in the event of nonperformancenon-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. Since manyBecause some of the commitments are expected to expire without being drawn upon, the total committedcommitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthinesscredit worthiness on a case-by-case basis. 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 countercounterparty.
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 sheetoff-balance-sheet risk at September 30, 2008,March 31, 2019 follows (in thousands):
Contract Amount | |||
Commitments to extend credit | $ | 5,165 | |
Commitments to extend credit | $ | 550 | ||
Unused lines of credit | $ | 2,896 | ||
Standby letters of credit | $ | - |
Management believes that the Company has adequate resources to fund all of its commitments and that substantially all its existing commitments will be funded in the next twelve months.
(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. |
The Bank, is subject to the Basel III capital level threshold requirements under the Prompt Corrective Action regulations with full compliance phased in over a multi-year schedule. These new regulations were designed to ensure that banks maintain strong capital positions even in the event of severe economic downturns or unforeseen losses. | |
The Bank is subject to the capital conservation buffer rules which places limitations on distributions, including dividend payments, and certain discretionary bonus payments to executive officers. In order to avoid these limitations, an institution must hold a capital conservation buffer above its minimum risk-based capital requirements. As of March 31, 2019 and the Bank’s capital conservation buffer exceeds the minimum requirements of 2.50%. |
(continued)
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (Unaudited)
(9) | Regulatory Matters, Continued. The following table shows the Bank’s capital amounts and ratios and regulatory thresholds at March 31, 2019 and December 31, 2018 (dollars in thousands): |
Actual | For Capital Adequacy Purposes | Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions | ||||||||||||||||||||||
Amount | % | Amount | % | Amount | % | |||||||||||||||||||
As of March 31, 2019: | ||||||||||||||||||||||||
Total Capital to Risk-Weighted Assets | $ | 12,180 | 15.52 | % | $ | 6,276 | 8.00 | % | $ | 7,846 | 10.00 | % | ||||||||||||
Tier I Capital to Risk-Weighted Assets | 11,186 | 14.26 | 4,707 | 6.00 | 6,276 | 8.00 | ||||||||||||||||||
Common equity Tier I capital to Risk-Weighted Assets | 11,186 | 14.26 | 3,531 | 4.50 | 5,100 | 6.50 | ||||||||||||||||||
Tier I Capital to Total Assets | 11,186 | 10.86 | 4,119 | 4.00 | 5,149 | 5.00 | ||||||||||||||||||
As of December 31, 2018: | ||||||||||||||||||||||||
Total Capital to Risk-Weighted Assets | $ | 12,155 | 15.86 | % | $ | 6,132 | 8.00 | % | $ | 7,665 | 10.00 | % | ||||||||||||
Tier I Capital to Risk-Weighted Assets | 11,181 | 14.59 | 4,599 | 6.00 | 6,132 | 8.00 | ||||||||||||||||||
Common equity Tier I capital to Risk-Weighted Assets | 11,181 | 14.59 | 3,449 | 4.50 | 4,983 | 6.50 | ||||||||||||||||||
Tier I Capital to Total Assets | 11,181 | 11.68 | 3,828 | 4.00 | 4,785 | 5.00 |
(continued)
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (Unaudited)
Memorandum of Understanding.On August 28, 2018, the Bank agreed to the issuance of a Memorandum of Understanding (the “MOU”), with the FDIC and OFR which requires the Bank to take certain measures to improve its safety and soundness. By agreeing to the MOU, the Bank was released from the Consent Order that became effective in 2016, including the restrictions on the interest rates paid on deposits. Pursuant to the MOU, the Bank is required to take certain measures to maintain qualified management, improve its strategic planning and budgeting process, strengthen the interest rate management practices, limit its asset growth and provide for the ongoing organization, monitoring and operational administration of the Bank Secrecy Act Program. The MOU prohibits the payment of dividends by the Bank. Management believes the Bank is in substantial compliance with the provisions of the MOU. Company Written Agreement with Federal Reserve Bank of Atlanta (“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 cash dividends, taking dividends or payments from the Bank, making any interest, principal or other distributions on account of 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. |
(10) | Junior Subordinated Debenture.On September 30, 2004, the Company issued a $5,155,000 Junior Subordinated Debenture (the “Debenture”) to Optimum Bank Holdings Capital Trust I, a Delaware statutory trust formed by the Company for the purpose of issuing and selling certain securities (the “Trust Preferred Securities”) representing undivided beneficial interests in the Debenture. The trust issued a total of 5,000 Trust Preferred Securities. The Debenture has a term of thirty years. The interest rate was fixed at 6.40% for the first five years, and thereafter, the coupon rate floats quarterly at the three-month LIBOR rate plus 2.45% (5.05% at March 31, 2019). 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 March 31, 2019 totaled $1,776,000. The Company has deferred interest payments with respect to the Debenture for the maximum allowable twenty consecutive quarterly payments. The Company is in default under the Debenture due to its failure to make required interest payments. The Trustee for the Debenture and the beneficial owners of the Debenture can accelerate the $5,155,000 principal balance plus accrued and unpaid interest, as a result of this default. To date, neither the Trustee nor the holders have accelerated the outstanding balance of the Debenture. No adjustments to the accompanying condensed consolidated financial statements have been made as a result of this uncertainty. Under the Written Agreement, the Company is not able to make any interest or principal payments without the prior approval of the Federal Reserve Bank of Atlanta. | |
In May 2018, a company affiliated with a director of the Company (the “New Holder”) purchased all 5,000 Trust Preferred Securities from a third party. During the third quarter of 2018, the New Holder sold its rights in approximately 694 of the Trust Preferred Securities to several unaffiliated third parties, who subsequently exchanged these Trust Preferred Securities for 301,778 shares of the Company’s common stock. Under the Written Agreement the exchange of Trust Preferred Securities for the Company’s common stock cannot reduce the principal amount of the Debenture collateralizing the Trust Preferred Securities. Accordingly, the transaction was recorded as an increase in the Company’s equity interest in the unconsolidated subsidiary trust, presented in “Other Assets” in the accompanying condensed consolidated balance sheets. | |
Although the Company and the New Holder have not executed a formal, definitive bilateral agreement, the New Holder has provided the Company with written representations that the New Holder will not accelerate and demand payment of any of the remaining 4,306 Trust Preferred Securities principal or accrued interest within twelve months from May 14, 2019, the date the Company’s Form 10-Q as of and for the period ended March 31, 2019, was filed with the Securities and Exchange Commission. |
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 herein. For additional information, refer to the consolidated financial statements and footnotes for the year ended December 31, 2018.
The following discussion and analysis should also be read in conjunction with the condensed consolidated financial statements and notes thereto appearing elsewhere herein. This discussion and analysis 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.
(continued)
B-69 |
Memorandum of Understanding. On August 28, 2018, the Bank agreed to the issuance of a Memorandum of Understanding (the “MOU”), with the FDIC and OFR which requires the Bank to take certain measures to improve its safety and soundness. By agreeing to the MOU, the Bank was released from the Consent Order that became effective in 2016, including the restrictions on the interest rates paid on deposits.
Pursuant to the MOU, the Bank is required to take certain measures to maintain qualified management, improve its strategic planning and budgeting process, strengthen the interest rate management practices, limit its asset growth and provide for the ongoing organization, monitoring and operational administration of the Bank Secrecy Act Program. The MOU prohibits the payment of dividends by the Bank.
Management believes the Bank is in substantial compliance with the provisions of the MOU.
Company Written Agreement with Federal Reserve Bank of Atlanta (“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 account of 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 to ensure capital adequacy require us to maintain minimum amounts and ratios of Total and Tier 1 capital to risk-weighted assets and Tier 1 capital to average assets. As of March 31, 2019, the Bank met the minimum applicable capital adequacy requirements.
Refer to Note 9 forthe Bank’s actual and required minimum capital ratios.
B-70 |
Financial Condition at March 31, 2019 and December 31, 2018
Overview
The Company’s total assets increased by approximately $6.3 million to $106.7 million at March 31, 2019, from $100.4 million at December 31, 2018, primarily due to an increase in total deposits offset by a decrease in Federal Home Loan Bank advances. Total stockholders’ equity decreased by approximately $133,000 to $5.2 million at March 31, 2019, from $5.3 million at December 31, 2018, primarily due to the net loss for the three months ended March 31, 2019.
The following table shows selected information for the periods ended or at the dates indicated:
Three Months Ended March 31, 2019 | Year Ended December 31, 2018 | |||||||
Average equity as a percentage of average assets | 5.0 | % | 4.4 | % | ||||
Equity to total assets at end of period | 4.8 | % | 5.3 | % | ||||
Return on average assets (1) | (0.56 | )% | 0.9 | % | ||||
Return on average equity (1) | (11.1 | )% | 19.8 | % | ||||
Noninterest expenses to average assets (1) | 3.8 | % | 4.4 | % |
(1) Annualized for the three months ended March 31, 2019.
B-71 |
Liquidity and Sources of Funds
The Company’s sources of funds include customer deposits, advances from the Federal Home Loan Bank of Atlanta (“FHLB”), principal repayments and sales of investment securities, loan repayments, foreclosed real estate sales, the use of Federal Funds markets, net earnings, if any, and loans taken out at the Federal Reserve Bank discount window.
Deposits are our primary source of funds. In order to increase its core deposits, the Company has priced its deposit rates competitively. The Company will adjust rates on its deposits to attract or retain deposits as needed.
The Bank increased deposits by $17.5 million during the three month period ending March 31, 2019. The proceeds were used to paydown FHLB Advances and listing service Certificates of deposits.
In addition to obtaining funds from depositors, we may borrow funds from other financial institutions. At March 31, 2019, the Company had outstanding borrowings of $13.0 million, against its $26.6 million in established borrowing capacity with the FHLB. The Company’s borrowing facility is subject to collateral and stock ownership requirements, as well as prior FHLB consent to each advance. In 2010, the Bank obtained an available discount window credit line with the Federal Reserve Bank, currently $430,000. The Federal Reserve Bank line is subject to collateral requirements and must be repaid within 90 days; each advance is subject to prior Federal Reserve Bank consent. At March 31, 2019, the Company also had lines of credit amounting to $8.4 million with three correspondent banks to purchase federal funds. The Company had no outstanding federal funds purchased at March 31, 2019 and $560,000 outstanding at December 31, 2018. Disbursements on the lines of credit are subject to the approval of the correspondent banks. We measure and monitor our liquidity daily and believe our liquidity sources are adequate to meet our operating needs.
Off-Balance Sheet Arrangements
Refer to Note 8 for Off-Balance Sheet Arrangements
B-72 |
Junior Subordinated Debenture
On September 30, 2004, the Company issued a $5,155,000 Junior Subordinated Debenture (the “Debenture”) to Optimum Bank Holdings Capital Trust I, a Delaware statutory trust formed by the Company for the purpose of issuing and selling certain securities (the “Trust Preferred Securities”) representing undivided beneficial interests in the Debenture. The trust issued a total of 5,000 Trust Preferred Securities. The Debenture has a term of thirty years. The interest rate was fixed at 6.40% for the first five years, and thereafter, the coupon rate floats quarterly at the three-month LIBOR rate plus 2.45% (5.05% at March 31, 2019). 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 March 31, 2019 totaled $1,776,000. The Company has deferred interest payments with respect to the Debenture for the maximum allowable twenty consecutive quarterly payments. The Company is in default under the Debenture due to its failure to make required interest payments. The Trustee for the Debenture and the beneficial owners of the Debenture can accelerate the $5,155,000 principal balance plus accrued and unpaid interest, as a result of this default. To date, neither the Trustee nor the holders have accelerated the outstanding balance of the Debenture. No adjustments to the accompanying condensed consolidated financial statements have been made as a result of this uncertainty. Under the Written Agreement, the Company is not able to make any interest or principal payments without the prior approval of the Federal Reserve Bank of Atlanta.
In May 2018, a company affiliated with a director of the Company (the “New Holder”) purchased all 5,000 Trust Preferred Securities from a third party. During the third quarter of 2018, the New Holder sold its rights in approximately 694 of the Trust Preferred Securities to several unaffiliated third parties, who subsequently exchanged these Trust Preferred Securities for 301,778 shares of the Company’s common stock. Due to regulatory agreement the exchange of Trust Preferred Securities for the Company’s common stock cannot reduce the principal amount of the Debenture collateralizing the Trust Preferred Securities. Accordingly, the transaction was recorded as an increase in the Company’s equity interest in the unconsolidated subsidiary trust, presented in “Other Assets” in the accompanying condensed consolidated balance sheets.
Although the Company and the New Holder have not executed a formal, definitive bilateral agreement, the New Holder has provided the Company with written representations that the New Holder will not accelerate and demand payment of any of the remaining 4,306 Trust Preferred Securities principal or accrued interest within twelve months from May 14, 2019, the date the Company’s Form 10-Q as of and for the period ended March 31, 2019, was filed with the Securities and Exchange Commission.
B-73 |
Results of Operations
The following table sets forth, for the periods indicated, information regarding (i) the total dollar amount of interest and dividend income of the Company from interest-earning assets and the resultant average yields; (ii) the total dollar amount of interest expense on interest-bearing liabilities and the resultant average cost; (iii) net interest income; (iv) interest-rate spread; (v) net interest margin; and (vi) the ratio of average interest-earning assets to average interest-bearing liabilities.
Three Months Ended March 31, | ||||||||||||||||||||||||||||||||||||||||||
Three Months Ended September 30, | 2019 | 2018 | ||||||||||||||||||||||||||||||||||||||||
2008 | 2007 | Interest | Average | Interest | Average | |||||||||||||||||||||||||||||||||||||
Average Balance | Interest and Dividends | Average Yield/ Rate | Average Balance | Interest and Dividends | Average Yield/ Rate | Average | and | Yield/ | Average | and | Yield/ | |||||||||||||||||||||||||||||||
($ in thousands) | Balance | Dividends | Rate(5) | Balance | Dividends | Rate(5) | ||||||||||||||||||||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||||||||||||||||||||
Loans | $ | 159,844 | 2,749 | 6.88 | % | $ | 172,935 | 3,240 | 7.49 | % | $ | 82,384 | $ | 1,090 | 5.29 | % | $ | 71,602 | $ | 916 | 5.12 | % | ||||||||||||||||||||
Securities | 82,681 | 1,116 | 5.40 | 58,349 | 824 | 5.65 | 9,329 | 50 | 2.14 | 11,606 | 61 | 2.10 | ||||||||||||||||||||||||||||||
Other (1) | 5,267 | 35 | 2.66 | 4,601 | 66 | 5.74 | 7,624 | 62 | 3.25 | 6,780 | 35 | 2.06 | ||||||||||||||||||||||||||||||
Total interest-earning assets/interest income | 247,792 | 3,900 | 6.30 | 235,885 | 4,130 | 7.00 | 99,337 | 1,202 | 4.89 | 89,988 | 1,012 | 4.50 | ||||||||||||||||||||||||||||||
Cash and due from banks | 486 | 403 | 2,540 | 1,461 | ||||||||||||||||||||||||||||||||||||||
Premises and equipment | 3,164 | 3,316 | 2,836 | 2,649 | ||||||||||||||||||||||||||||||||||||||
Other | 3,696 | 2,980 | (1,237 | ) | (3,729 | ) | ||||||||||||||||||||||||||||||||||||
Total assets | $ | 255,138 | $ | 242,584 | $ | 103,476 | $ | 90,369 | ||||||||||||||||||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||||||||||||||||||||
Savings, NOW and money-market deposits | 34,449 | 264 | 3.07 | 26,379 | 308 | 4.67 | 35,569 | 146 | 1.64 | 21,163 | 33 | 0.62 | ||||||||||||||||||||||||||||||
Time deposits | 76,924 | 782 | 4.07 | 93,963 | 1,135 | 4.83 | 27,596 | 143 | 2.07 | 25,946 | 79 | 1.22 | ||||||||||||||||||||||||||||||
Borrowings (2) | 116,525 | 1,237 | 4.25 | 89,045 | 1,056 | 4.74 | 21,520 | 164 | 3.05 | 26,093 | 148 | 2.27 | ||||||||||||||||||||||||||||||
Total interest-bearing liabilities/interest expense | 227,898 | 2,283 | 4.01 | 209,387 | 2,499 | 4.77 | 84,685 | 453 | 2.14 | 73,202 | 260 | 1.42 | ||||||||||||||||||||||||||||||
Noninterest-bearing demand deposits | 487 | 1,867 | 11,258 | 12,268 | ||||||||||||||||||||||||||||||||||||||
Other liabilities | 3,591 | 9,794 | 2,282 | 2,286 | ||||||||||||||||||||||||||||||||||||||
Stockholders’ equity | 23,162 | 21,536 | 5,251 | 2,613 | ||||||||||||||||||||||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 255,138 | $ | 242,584 | $ | 103,476 | $ | 90,369 | ||||||||||||||||||||||||||||||||||
Net interest income | $ | 1,617 | $ | 1,631 | $ | 749 | $ | 752 | ||||||||||||||||||||||||||||||||||
Interest-rate spread (3) | 2.29 | % | 2.23 | % | ||||||||||||||||||||||||||||||||||||||
Interest rate spread (3) | 2.75 | % | 3.08 | % | ||||||||||||||||||||||||||||||||||||||
Net interest margin (4) | 2.61 | % | 2.77 | % | 3.02 | % | 3.34 | % | ||||||||||||||||||||||||||||||||||
Ratio of average interest-earning assets to average interest-bearing liabilities | 1.09 | 1.13 | 1.17 | % | 1.23 | % | ||||||||||||||||||||||||||||||||||||
(1) | Includes interest-earning deposits with banks |
(2) | Includes Federal Home Loan Bank advances, other borrowings and |
(3) | Interest-rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. |
(4) | Net interest margin is net interest income divided by average interest-earning assets. |
(5) | Annualized. |
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
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) ratio of average interest-earning assets to average interest-bearing liabilities.
Nine Months Ended September 30, | ||||||||||||||||||
2008 | 2007 | |||||||||||||||||
Average Balance | Interest and Dividends | Average Yield/ Rate | Average Balance | Interest and Dividends | Average Yield/ Rate | |||||||||||||
($ in thousands) | ||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||
Loans | $ | 162,846 | 8,731 | 7.15 | % | $ | 177,116 | 9,801 | 7.38 | % | ||||||||
Securities | 74,315 | 3,030 | 5.44 | 48,441 | 1,978 | 5.44 | ||||||||||||
Other (1) | 4,549 | 144 | 4.22 | 4,222 | 183 | 5.78 | ||||||||||||
Total interest-earning assets/interest income | 241,710 | 11,905 | 6.57 | 229,779 | 11,962 | 6.94 | ||||||||||||
Cash and due from banks | 478 | 343 | ||||||||||||||||
Premises and equipment | 3,200 | 3,486 | ||||||||||||||||
Other | 3,653 | 2,596 | ||||||||||||||||
Total assets | $ | 249,041 | $ | 236,204 | ||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||
Savings, NOW and money-market deposits | 32,361 | 804 | 3.31 | 26,550 | 890 | 4.47 | ||||||||||||
Time deposits | 81,843 | 2,697 | 4.39 | 97,536 | 3,471 | 4.74 | ||||||||||||
Borrowings (2) | 107,649 | 3,450 | 4.27 | 83,694 | 2,808 | 4.47 | ||||||||||||
Total interest-bearing liabilities/interest expense | 221,853 | 6,951 | 4.18 | 207,780 | 7,169 | 4.60 | ||||||||||||
Noninterest-bearing demand deposits | 827 | 1,741 | ||||||||||||||||
Other liabilities | 3,477 | 5,577 | ||||||||||||||||
Stockholders’ equity | 22,884 | 21,106 | ||||||||||||||||
Total liabilities and stockholders’ equity | $ | 249,041 | $ | 236,204 | ||||||||||||||
Net interest income | $ | 4,954 | $ | 4,793 | ||||||||||||||
Interest-rate spread (3) | 2.39 | % | 2.34 | % | ||||||||||||||
Net interest margin (4) | 2.73 | % | 2.78 | % | ||||||||||||||
Ratio of average interest-earning assets to average interest-bearing liabilities | 1.09 | 1.11 | ||||||||||||||||
B-74 |
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Comparison of the Three-Month Periods Ended September 30, 2008March 31, 2019 and 20072018
General.. Net earningsloss for the three months ended September 30, 2008, were $201,000March 31, 2019, was $(146,000) or $.06$(0.08) per basic and diluted share compared to a net earningsloss of $438,000$(285,000) or $.14$(0.24) per basic and diluted share for the period ended September 30, 2007. This decrease in the Company’s net earnings was primarily due to an increase in noninterest expenses.March 31, 2018.
Interest Income.. Interest income decreased to $3.9 millionincreased $190,000 for the three months ended September 30, 2008 from $4.1 million forMarch 31, 2019 compared to the three months ended September 30, 2007. Interest income on loans decreased due primarily to a decrease in the average loan portfolio balance and a decrease in the average yield earned for the three months ended September 30, 2008. Interest on securities increased to $1.1 million due primarily to an increase in the average balance of the securities portfolio.March 31, 2018.
Interest Expense.Interest expense on deposits decreasedincreased $177,000 to $1.0 million$289,000 for the three months ended September 30, 2008 from $1.4 million forMarch 31, 2019 compared to the three months ended September 30, 2007. Interest expense decreased primarily because of a decrease in the average balance of deposits and rates paid during 2008. Interest expense on borrowings increased to $1.2 million for the three months ended September 30, 2008 from $1.1 million for the three months ended September 30, 2007 due primarily to an increase in the average balance of borrowings.prior period.
Provision for Loan Losses. There was no provision for losses during the 2019 or 2018 period. The provision for loan losses is charged to operations as losses are estimated to have occurred in order to bring the total allowance for loan losses to a level deemed appropriate by management to absorb losses inherent in the portfolio at March 31, 2019. Management’s periodic evaluation of the adequacy of the allowance is based upon historical experience, the volume and type of lending conducted by us, adverse situations that may affect the borrower’s ability to repay, estimated value of the underlying collateral, loans identified as impaired, general economic conditions, particularly as they relate to our market areas, and other factors related to the estimated collectibilitycollectability of our loan portfolio. The allowance for loan losses totaled $732,000$2.0 million or .45%2.55% of loans outstanding at September 30, 2008,March 31, 2019, compared to $752,000,$2.2 million or .42%2.83% of loans outstanding at September 30, 2007. Management believes the balance in the allowance for loan losses at September 30, 2008 is adequate. The provision for the three months ended September 30, 2008, was $47,000 compared to $16,000 for the same period in 2007. The provision for loan losses is charged to earnings as losses are estimated to have occurred in order to bring the total allowance to a level deemed appropriate by management.December 31, 2018.
Noninterest Income. Total noninterest income increased to $78,000$37,000 for the three months ended September 30, 2008,March 31, 2019, from $47,000$14,000 for the three months ended September 30, 2007, primarilyMarch 31, 2018 due to an increase inincreased loan prepayment fees collected.related fees.
Noninterest Expenses.. Total noninterest expenses increaseddecreased $67,000 to $1.3$984,000 for the three months ended March 31, 2019 compared to $1.05 million for the three months ended September 30, 2008 from $959,000March 31, 2018.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
For purposes of preparing the Unaudited Pro Forma Consolidated Financial Statements, the consummation of the exchange offer is assumed to have occurred on January 1, 2018. As a result, it is assumed that 1,000,000 shares of common stock were issued on January 1, 2018 at an assumed price of $3.15 (which is the lower of $3.15 or $4.70, the market price of the common stock as of December 31, 2017), in exchange for 2,486 Trust Preferred Securities, with a face value of $2,486,000 and accrued interest as of such date of $664,000. These unaudited pro forma consolidated financial statements should be read in conjunction with the Company’s historical consolidated financial statements and accompanying notes as of and for the year ended December 31, 2018 and as of and for the three months ended September 30, 2007, primarily due to losses relating to foreclosed assets.March 31, 2019, all of which are included herein.
Income Taxes. Income taxes for
The pro forma information is not necessarily indicative of what the three months ended September 30, 2008, were $122,000 (an effective rateCompany’s financial position and results of 37.8%) compared to income taxes of $265,000 (an effective rate of 37.7%) foroperations would have actually been had the three months ended September 30, 2007.
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
ComparisonPro Forma Consolidated Balance Sheet (Unaudited)
As of March 31, 2019
(Dollars in thousands, except per share amounts)
Actual | Pro Forma Adjustments | Pro Forma | ||||||||||
Assets: | ||||||||||||
Cash and due from banks | $ | 2,212 | $ | — | $ | 2,212 | ||||||
Interest-bearing deposits with banks | 11,347 | — | 11,347 | |||||||||
Total cash and cash equivalents | 13,559 | — | 13,559 | |||||||||
Securities available for sale | 2,191 | — | 2,191 | |||||||||
Securities held-to-maturity | 6,955 | — | 6,955 | |||||||||
Loans, net of allowance for loan losses | 78,498 | — | 78,498 | |||||||||
Federal Home Loan Bank stock | 642 | — | 642 | |||||||||
Premises and equipment, net | 2,669 | — | 2,669 | |||||||||
Accrued interest receivable | 324 | — | 324 | |||||||||
Other assets | 1,884 | 3,150 | 5,034 | |||||||||
Total assets | $ | 106,722 | $ | 3,150 | $ | 109,872 | ||||||
Liabilities and Stockholders’ Equity: | ||||||||||||
Liabilities: | ||||||||||||
Noninterest-bearing demand deposits | 11,641 | — | 11,641 | |||||||||
Savings, NOW and money-market deposits | 41,609 | — | 41,609 | |||||||||
Time deposits | 27,574 | — | 27,574 | |||||||||
Total deposits | 80,824 | — | 80,824 | |||||||||
Federal Home Loan Bank advances | 13,000 | — | 13,000 | |||||||||
Junior subordinated debenture | 5,155 | — | 5,155 | |||||||||
Official checks | 265 | — | 265 | |||||||||
Other liabilities | 2,305 | (193 | ) | 2,112 | ||||||||
Total liabilities | 101,549 | (193 | ) | 101,356 | ||||||||
Commitments and contingencies | ||||||||||||
Stockholders’ equity: | ||||||||||||
Common stock | 18 | 10 | 28 | |||||||||
Additional paid-in capital | 36,128 | 3,140 | 39,268 | |||||||||
(Accumulated deficit) Retained earnings | (30,660 | ) | 193 | (30,467 | ) | |||||||
Accumulated other comprehensive loss | (313 | ) | — | (313 | ) | |||||||
Total stockholders’ equity | 5,173 | 3,343 | 8,516 | |||||||||
Total liabilities and stockholders’ equity | $ | 106,722 | $ | 3,150 | $ | 109,872 |
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Pro Forma Consolidated Balance Sheet
As of December 31, 2018
(Dollars in thousands, except per share amounts)
Actual | Pro Forma Adjustments | Pro Forma | ||||||||||
Assets: | ||||||||||||
Cash and due from banks | $ | 1,934 | $ | — | $ | 1,934 | ||||||
Interest-bearing deposits with banks | 6,049 | — | 6,049 | |||||||||
Total cash and cash equivalents | 7,983 | — | 7,983 | |||||||||
Securities available for sale | 2,359 | — | 2,359 | |||||||||
Securities held-to-maturity | 7,139 | — | 7,139 | |||||||||
Loans, net of allowance for loan losses | 77,200 | — | 77,200 | |||||||||
Federal Home Loan Bank stock | 1,132 | — | 1,132 | |||||||||
Premises and equipment, net | 2,668 | — | 2,668 | |||||||||
Accrued interest receivable | 314 | — | 314 | |||||||||
Other assets | 1,573 | 3,150 | 4,723 | |||||||||
Total assets | $ | 100,368 | $ | 3,150 | $ | 103,518 | ||||||
Liabilities and Stockholders’ Equity: | ||||||||||||
Liabilities: | ||||||||||||
Noninterest-bearing demand deposits | 9,638 | — | 9,638 | |||||||||
Savings, NOW and money-market deposits | 26,682 | — | 26,682 | |||||||||
Time deposits | 26,058 | — | 26,058 | |||||||||
Total deposits | 62,378 | — | 62,378 | |||||||||
Federal Home Loan Bank advances | 24,600 | — | 24,600 | |||||||||
Junior subordinated debenture | 5,155 | — | 5,155 | |||||||||
Federal funds purchased | 560 | — | 560 | |||||||||
Official checks | 274 | — | 274 | |||||||||
Other liabilities | 2,095 | (150 | ) | 1,945 | ||||||||
Total liabilities | 95,062 | (150 | ) | 94,912 | ||||||||
Commitments and contingencies | ||||||||||||
Stockholders’ equity: | ||||||||||||
Common stock | 18 | 10 | 28 | |||||||||
Additional paid-in capital | 36,128 | 3,140 | 39,268 | |||||||||
(Accumulated deficit) Retained earnings | (30,510 | ) | 150 | (30,360 | ) | |||||||
Accumulated other comprehensive loss | (330 | ) | — | (330 | ) | |||||||
Total stockholders’ equity | 5,306 | 3,300 | 8,606 | |||||||||
Total liabilities and stockholders’ equity | $ | 100,368 | $ | 3,150 | $ | 103,518 |
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Pro Forma Consolidated Statement of Operations (Unaudited)
For the Three Months Ended March 31, 2019
(Dollars in thousands, except per share amounts)
Actual | Pro Forma Adjustments | Pro Forma | ||||||||||
Interest income: | ||||||||||||
Loans | $ | 1,090 | $ | — | $ | 1,090 | ||||||
Securities | 50 | — | 50 | |||||||||
Other | 62 | — | 62 | |||||||||
Total interest income | 1,202 | — | 1,202 | |||||||||
Interest expense: | ||||||||||||
Deposits | 289 | — | 289 | |||||||||
Borrowings | 164 | (43 | ) | 121 | ||||||||
Total interest expense | 453 | (43 | ) | 410 | ||||||||
Net interest income | 749 | 43 | 792 | |||||||||
Provision for loan losses | — | — | — | |||||||||
Net interest income after provision for loan losses | 749 | 43 | 792 | |||||||||
Noninterest income: | ||||||||||||
Service charges and fees | 22 | — | 22 | |||||||||
Other | 15 | — | 15 | |||||||||
Total noninterest income | 37 | — | 37 | |||||||||
Noninterest expenses: | ||||||||||||
Salaries and employee benefits | 501 | — | 501 | |||||||||
Professional fees | 99 | — | 99 | |||||||||
Occupancy and equipment | 113 | — | 113 | |||||||||
Data processing | 124 | — | 124 | |||||||||
Insurance | 24 | — | 24 | |||||||||
Regulatory assessment | 4 | — | 4 | |||||||||
Other | 119 | — | 119 | |||||||||
Total noninterest expenses | 984 | — | 984 | |||||||||
Net (loss) earnings before income tax benefit | (198 | ) | 43 | (155 | ) | |||||||
Income tax benefit | (52 | ) | — | (52 | ) | |||||||
Net (loss)income | $ | (146 | ) | $ | 43 | $ | (103 | ) | ||||
Net (loss) income per share — Basic and diluted | $ | (0.08 | ) | $ | (0.04 | ) |
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Pro Forma Consolidated Statement of Operations
For the Year Ended December 31, 2018
(Dollars in thousands, except per share amounts)
Actual | Pro Forma Adjustments | Pro Forma | ||||||||||
Interest income: | ||||||||||||
Loans | $ | 3,912 | $ | — | $ | 3,912 | ||||||
Securities | 232 | — | 232 | |||||||||
Other | 148 | — | 148 | |||||||||
Total interest income | 4,292 | — | 4,292 | |||||||||
Interest expense: | ||||||||||||
Deposits | 510 | — | 510 | |||||||||
Borrowings | 736 | (150 | ) | 586 | ||||||||
Total interest expense | 1,246 | (150 | ) | 1,096 | ||||||||
Net interest income | 3,046 | 150 | 3,196 | |||||||||
Credit for loan losses | 1,754 | — | 1,754 | |||||||||
Net interest income after credit for loan losses | 4,800 | 150 | 4,950 | |||||||||
Noninterest income: | ||||||||||||
Service charges and fees | 49 | — | 49 | |||||||||
Other | 35 | — | 35 | |||||||||
Gain on sale of securities available for sale | — | — | — | |||||||||
Total noninterest income | 84 | — | 84 | |||||||||
Noninterest expenses: | ||||||||||||
Salaries and employee benefits | 1,864 | — | 1,864 | |||||||||
Occupancy and equipment | 437 | — | 437 | |||||||||
Data processing | 407 | — | 407 | |||||||||
Professional fees | 558 | — | 558 | |||||||||
Insurance | 95 | — | 95 | |||||||||
Regulatory assessments | 114 | — | 114 | |||||||||
Other | 613 | — | 613 | |||||||||
Total noninterest expenses | 4,088 | — | 4,088 | |||||||||
Net earnings | $ | 796 | $ | 150 | $ | 946 | ||||||
Net earnings per share: | ||||||||||||
Basic and diluted | $ | .53 | $ | .38 |
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Pro Forma Consolidated Financial Statements (Unaudited)
For purposes of preparing the Unaudited Pro Forma Consolidated Financial Statements, the consummation of the Nine-Month Periods Ended September 30, 2008exchange offer is assumed to have occurred on January 1, 2018. As a result, it is assumed that 1,000,000 shares of common stock were issued on January 1, 2018 at an assumed price of $3.15 (which is the lower of $3.15 or $4.70, the market price of the common stock as of December 31, 2017), in exchange for 2,486 Trust Preferred Securities, with a face value of $2,486,000 and 2007
General. Net earningsaccrued interest as of such date of $664,000. These unaudited pro forma consolidated financial statements should be read in conjunction with the Company’s historical consolidated financial statements and accompanying notes as of and for the nineyear ended December 31, 2018 and as of and for the three months ended September 30, 2008, were $1,019,000 or $.33 per basicMarch 31, 2019, all of which are included herein.
The pro forma information is not necessarily indicative of what the Company’s financial position and $.32 per diluted share comparedresults of operations would have actually been had the exchange offer been consummated on January 1, 2018 at the assumed level.
Pro Forma Adjustments
Other Liabilities
The pro forma adjustments to net earningsother liabilities on the Unaudited Pro Forma Consolidated Balance Sheets reflect the interest associated with the assumed acquisition of $1,240,000 or $.40 per basic and $.39 per diluted share for2,486 Trust Preferred Securities.
Other Assets
The pro forma adjustments to other assets on the period ended September 30, 2007. This decreaseUnaudited Pro Forma Consolidated Balance Sheets reflect the increase in the Company’s net earnings was primarilyequity interest in the unconsolidated Trust due to an increase in noninterest expenses.
Interest Income. Interest income decreased to $11.9 million for the nine months ended September 30, 2008 compared to $12.0 million for the nine months ended September 30, 2007. Interest income on loans decreased to $8.7 million due primarily to a decreaseassumed acquisition of 2,486 Trust Preferred Securities in the average loan portfolio balanceexchange offer.
Common Stock and a decreasePaid-in Capital
The pro forma adjustments to common stock and paid-in capital on the Unaudited Pro Forma Consolidated Balance Sheets reflect the assumed issuance of 1,000,000 shares of common stock in the average yield earned in 2008. Interestexchange offer.
(Accumulated Deficit) Retained Earnings
The pro forma adjustments to (accumulated deficit) retained earnings on securities increased by $1.1 million due primarily to an increase in the average balance of the securities portfolio in 2008.
Interest Expense.Interest expense on deposit accounts decreased to $3.5 million for the nine months ended September 30, 2008, from $4.4 million for the nine months ended September 30, 2007. Interest expense on deposits decreased primarily because of a decrease in the average balance of deposits and rates paid in 2008. Interest expense on borrowings increased to $3.5 million for the nine months ended September 30, 2008 from $2.8 million for the nine months ended September 30, 2007 due primarily to an increase in the average balance of borrowings.
Provision for Loan Losses. The provision for the nine months ended September 30, 2008, was $161,000 compared to $536,000 for the same period in 2007. In 2007, the provision was primarily toUnaudited Pro Forma Consolidated Balance Sheets reflect the impairment in value of a collateral dependent single-family residential construction loan, which was paid off in June 2007, through the sale of the underlying property. The provision for loan losses is charged to earnings as losses are estimated to have occurred in order to bring the total allowance for loan losses to a level deemed appropriate by management. 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 collectibility of our loan portfolio. The allowance for loan losses totaled $732,000 or .45% of loans outstanding at September 30, 2008, compared to $752,000, or .42% of loans outstanding at September 30, 2007. Management believes the balance in the allowance for loan losses at September 30, 2008 is adequate.
Noninterest Income. Total noninterest income decreased to $158,000 for the nine months ended September 30, 2008, from $440,000 for the nine months ended September 30, 2007 primarilyinterest expense reduced as a result of a litigation settlementthe assumed acquisition of $155,0002,486 Trust Preferred Securities in 2007 and a decrease in loan prepayment fees.the exchange offer.
Noninterest Expenses. Total noninterest expenses increased
Borrowings Interest Expense
The pro forma adjustments to $3.3 million forborrowings interest expense on the nine
months ended September 30, 2008 from $2.8 million forUnaudited Pro Forma Consolidated Statements of Operations reflect the nine months ended September 30, 2007, primarilyinterest expense reduced due to losses relating to foreclosed assets.
Income Taxes. Income taxes for the nine months ended September 30, 2008, were $615,000 (an effective rateassumed acquisition of 37.6%) compared to income taxes of $700,000 (an effective rate of 36.1%) for the nine months ended September 30, 2007.
OPTIMUMBANK HOLDINGS, INC.
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As a stockholder of OptimumBank Holdings, Inc., you have the option of voting your shares electronically through the Internet or on the telephone, eliminating the need to return the proxy card. Your electronic vote authorizes the named proxies to vote your shares2,486 Trust Preferred Securities in the same manner as if you marked, signed, dated and returned the proxy card. Votes submitted electronically over the Internet or by telephone must be received by 7:00 p.m., Eastern Time, on December 29, 2008.
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PLEASE DO NOT RETURN THE PROXY CARD IF YOU ARE
VOTING ELECTRONICALLY OR BY PHONE.exchange offer.
Net (Loss) Income per Share – Basic and Diluted
The pro forma adjustments to net (loss) income per share – basic and diluted on the Unaudited Pro Forma Consolidated Statements of Operations reflect the increased weighted average shares of common stock outstanding due to the assumed issuance of 1,000,000 shares pursuant to the exchange offer. The weighted average shares were adjusted as follows:
As Reported | Shares Issued | Pro Forma | ||||
December 31, 2018 | 1,493,303 | 1,000,000 | 2,493,303 | |||
March 31, 2019 | 1,858,020 | 1,000,000 | 2,858,020 |
FOLD AND DETACH HERE AND READ THE REVERSE SIDE
PROXY
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¨FOLD AND DETACH HERE AND READ THE REVERSE SIDE ¨● DO NOT SEPARATE ● INSERT IN ENVELOPE PROVIDED
OPTIMUMBANK HOLDINGS, INC.
P R O X YPROXY
FOR SPECIAL2019 ANNUAL MEETING OF SHAREHOLDERS
December 30, 2008JULY__, 2019
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints ALBERT J. FINCHMOISHE GUBIN and RICHARD L. BROWDY,JOEL KLEIN, and each of them, with full power of substitution, as proxies to vote the shares which the undersigned is entitled to vote at the SpecialAnnual Meeting of Shareholders of the Company to be held at the executive offices of OptimumBank, 2477 East Commercial Boulevard, Fort Lauderdale, Florida 33308, on December 30, 2008,July __, 2019, at 10:00 a.m. or at any adjournment thereof. Such shares shall be voted as indicated with respect to the proposalproposals listed on the reverse side hereof and in the discretion of the proxies on such other matters as may properly come before the meeting or any adjournment thereof.
(CONTINUED, AND TO BE MARKED, SIGNED AND DATED ON THE REVERSE SIDE)Continued, and to be marked, dated and signed, on the other side)