Docoh
Loading...

OPHC Optimumbank

Filed: 9 Nov 21, 9:30am

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2021

 

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________ to _________

 

Commission File Number: 000-50755

 

OPTIMUMBANK HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

Florida 55-0865043
(State or other jurisdiction of
incorporation or organization)
 (IRS Employer
Identification No.)

 

2929 East Commercial Boulevard, Fort Lauderdale, FL 33308

(Address of principal executive offices)

 

954-900-2800

(Registrant’s telephone number, including area code)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, $.01 Par Value OPHC NASDAQ Capital Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer Smaller reporting company
  Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 4,730,709 shares of common stock, $.01 par value, issued and outstanding as of October 29, 2021.

 

 

 

 

 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

INDEX

 

 Page
  
PART I. FINANCIAL INFORMATION 
  
Item 1. Financial Statements1
  
Condensed Consolidated Balance Sheets - September 30, 2021 (unaudited) and December 31, 20201
  
Condensed Consolidated Statements of Operations - Three and Nine Months ended September 30, 2021 and 2020 (unaudited)2
  
Condensed Consolidated Statements of Comprehensive Income (Loss) - Three and Nine Months ended September 30, 2021 and 2020 (unaudited)3
  
Condensed Consolidated Statements of Stockholders’ Equity - Three and Nine Months ended September 30, 2021 and 2020 (unaudited)4
  
Condensed Consolidated Statements of Cash Flows – Nine Months ended September 30, 2021 and 2020 (unaudited)5
  
Notes to Condensed Consolidated Financial Statements (unaudited)6
  
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations19
  
Item 4. Controls and Procedures25
  
PART II. OTHER INFORMATION 
  
Item 1. Legal Proceedings25
  
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds25
  
Item 3. Defaults on Senior Securities25
  
Item 4. Mine Safety Disclosures25
  
Item 5. Other Information25
  
Item 6. Exhibits25
  
SIGNATURES26

 

i

 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Condensed Consolidated Balance Sheets

(Dollars in thousands, except per share amounts)

 

  

September 30,

2021

  

December 31,

2020

 
  (Unaudited)    
Assets:        
Cash and due from banks $16,563  $25,523 
Interest-bearing deposits with banks  67,020   29,106 
Total cash and cash equivalents  83,583   54,629 
Debt securities available for sale  35,738   18,893 
Debt securities held-to-maturity (fair value of $1,375 and $3,549)  1,327   3,399 
Loans, net of allowance for loan losses of $2,695 and $1,906  205,865   152,469 
Federal Home Loan Bank stock  793   1,092 
Premises and equipment, net  1,571   1,413 
Right-of-use lease assets  969   904 
Accrued interest receivable  863   1,336 
Other assets  4,364   977 
         
Total assets $335,073  $235,112 
Liabilities and Stockholders’ Equity:        
         
Liabilities:        
Noninterest-bearing demand deposits $114,011  $58,312 
Savings, NOW and money-market deposits  153,406   110,704 
Time deposits  14,329   21,743 
         
Total deposits  281,746   190,759 
         
Federal Home Loan Bank advances  18,000   23,000 
Junior subordinated debenture  -   2,068 
Official checks  491   142 
Operating lease liabilities  998   923 
Other liabilities  666   386 
         
Total liabilities  301,901   217,278 
         
Commitments and contingencies (Notes 1, 8 and 11)  -     
Stockholders’ equity:        
Preferred stock, 0 par value; 6,000,000 shares authorized:      
Designated Series B, 0 par value, 760 shares authorized, 760 and 400 shares issued and outstanding      
Common stock, $.01 par value; 10,000,000 shares authorized, 4,524,509 and 3,203,455 shares issued and outstanding  45   32 
Additional paid-in capital  64,146   50,263 
Accumulated deficit  (30,683)  (32,392)
Accumulated other comprehensive loss  (336)  (69)
         
Total stockholders’ equity  33,172   17,834 
Total liabilities and stockholders’ equity $335,073  $235,112 

 

See accompanying notes to condensed consolidated financial statements.

 

1

 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Condensed Consolidated Statements of Operations (Unaudited)
(in thousands, except per share amounts)

 

                 
  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
  2021  2020  2021  2020 
Interest income:                
Loans $2,795  $1,723  $6,820  $4,697 
Debt securities  150   41   327   136 
Other  28   7   81   67 
                 
Total interest income  2,973   1,771   7,228   4,900 
                 
Interest expense:                
Deposits  146   290   480   1,047 
Borrowings  62   96   241   322 
                 
Total interest expense  208   386   721   1,369 
                 
Net interest income  2,765   1,385   6,507   3,531 
                 
Provision for loan losses  582   524   955   1,236 
                 
Net interest income after provision for loan losses  2,183   861   5,552   2,295 
                 
Noninterest income:                
Service charges and fees  375   1   816   52 
Other  48   63   86   118 
                 
Total noninterest income  423   64   902   170 
                 
Noninterest expenses:                
Salaries and employee benefits  921   582   2,347   1,616 
Professional fees  141   121   393   368 
Occupancy and equipment  156   146   467   435 
Data processing  195   132   542   381 
Insurance  23   21   69   66 
Regulatory assessment  20   59   147   129 
Other  233   360   780   621 
                 
Total noninterest expenses  1,689   1,421   4,745   3,616 
                 
Net earnings (loss) before income taxes  917   (496)  1,709   (1,151)
                 
Income taxes            
                 
Net earnings (loss) $917  $(496) $1,709  $(1,151)
                 
Net earnings (loss) per share - basic and diluted $0.21  $(0.17) $0.47  $(0.39)

 

See accompanying notes to condensed consolidated financial statements.

 

2

 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
(In thousands)

 

                 
  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
  2021  2020  2021  2020 
             
Net earnings (loss) $917  $(496) $1,709  $(1,151)
                 
Other comprehensive income (loss):                
Change in unrealized gain on debt securities:                
Unrealized gain (loss) arising during the period  233   (30)  (340)  36 
                 
Amortization of unrealized loss on debt securities transferred to held-to-maturity  18   35   98   83 
                 
Other comprehensive income (loss) before income taxes  251   5   (242)  119 
                 
Deferred income taxes     (2)  (25)  (30)
                 
Total other comprehensive income (loss)  251   3   (267)  89 
                 
Comprehensive income (loss) $1,168  $(493) $1,442  $(1,062)

 

See accompanying notes to condensed consolidated financial statements.

 

3

 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Condensed Consolidated Statements of Stockholders’ Equity

Three and Nine Months Ended September 30, 2021 and 2020

(Dollars in thousands)

 

                                         
  Preferred Stock        Additional     

Accumulated

Other

    
  Series A  Series B  Common Stock  

Paid-In

  Accumulated  

Comprehensive

  Stockholders’ 
  Shares  Amount  Shares  Amount  Shares  Amount  Capital  Deficit  Loss  Equity 
                               
Balance at December 31, 2019  -  $-   --  $-   2,853,171  $28   $  38,994  $(31,610) $(205) $           7,207 
Proceeds from the sale of preferred stock (unaudited)                                        
Proceeds from the sale of preferred stock (unaudited), shares                                        
                                         
Proceeds from the sale of common stock (unaudited)  -   -   -   -   98,182   1   538   -   -   539 
Common stock issued for junior subordinated debenture interest payable (unaudited)                                        
Common stock issued for junior subordinated debenture interest payable (unaudited),shares                                        
                                         
Net loss for the three months ended March 31, 2020 (unaudited)  -   -   -   -   -   -   -   (308)  -   (308)
                                         
Net change in unrealized loss on debt securities available for sale, net of income taxes (unaudited)  -   -   -   -   -   -   -   -   35   35 
                                         
Amortization of unrealized loss on debt securities transferred to held-to-maturity, net of income taxes (unaudited)  -   -   -   -   -   -   -   -   18   18 
                                         
Balance at March 31, 2020 (unaudited)  -   -   -   -   2,951,353   29   39,532   (31,918)  (152)  7,491 
                                         
Proceeds from the sale of preferred stock (unaudited)        100            2,500         2,500 
                                         
Net loss for the three months ended June 30, 2020 (unaudited)                       (347)     (347)
                                         
Net change in unrealized gain on debt securities available for sale, net of income taxes (unaudited)                          15   15 
                                         
Amortization of unrealized loss on debt securities transferred to held-to-maturity, net of income taxes (unaudited)                          18   18 
                                         
Balance at June 30, 2020 (unaudited)        100      2,951,353   29   42,032   (32,265)  (119)  9,677 
                                         
Proceeds from the sale of preferred stock (unaudited)  -   -   180   -   -   -   4,500   -   -   4,500 
                                         
Net loss (unaudited)  -   -   -   -   -   -   -   (496)  -   (496)
                                         
Net change in unrealized gain on debt securities available for sale, net of income taxes (unaudited)  -   -   -   -   -   -   -   -   (23)  (23)
                                         
Amortization of unrealized loss on debt securities transferred to held-to-maturity, net of income taxes (unaudited)  -   -   -   -   -   -   -   -   26   26 
                                         
Balance at September 30, 2020 (unaudited)  -  $-   280  $-   2,951,353  $29  $46,532  $(32,761) $(116) $13,684 
                                         
Balance at December 31, 2020        400      3,203,455   32   50,263   (32,392)  (69)  17,834 
                                         
Proceeds from the sale of preferred stock (unaudited)        160            4,000         4,000 
                                         
Common stock issued for junior subordinated debenture interest payable (unaudited)              11,042      41         41 
                                         
Net change in unrealized gain on loss securities available for sale (unaudited)                          (922)  (922)
                                         
Amortization of unrealized loss on debt securities transferred to held-to-maturity (unaudited)                          22   22 
                                         
Net earnings (unaudited)                       348      348 
                                         
Balance at March 31, 2021 (unaudited)    $   560  $   3,214,497  $32  $54,304  $(32,044) $(969) $21,323 
                                         
Proceeds from the sale of preferred stock (unaudited)        200            5,000         5,000 
                                         
Proceeds from the sale of common stock (unaudited)              262,417   3   1,173         1,176 
                                         
Common stock issued for junior subordinated debenture (unaudited)              282,377   3   844         847 
                                         
Net change in unrealized gain on debt securities available for sale (unaudited)                          349   349 
                                         
Amortization of unrealized loss on debt securities transferred to held-to-maturity (unaudited)                          33   33 
                                         
Net earnings for three months ended June 30, 2021 (unaudited)                       444      444 
                                         
Balance at June 30, 2021 (unaudited)        760      3,759,291   38   61,321   (31,600)  (587)  29,172 
                                         
Proceeds from the sale of common stock (unaudited)              358,023   3   1,608         1,611 
                                         
Common stock issued for junior subordinated debenture (unaudited)              407,195   4   1,217         1,221 
                                         
Net change in unrealized gain on debt securities available for sale (unaudited)                          233   233 
                                         
Amortization of unrealized loss on debt securities transferred to held-to-maturity (unaudited)                          18   18 
                                         
Net earnings for three months ended September 30, 2021 (unaudited)                       917      917 
                                         
Net earnings (loss)                       917      917 
                                         
Balance at September 30, 2021 (unaudited)    $   760  $   4,524,509  $45  $64,146  $(30,683) $(336) $33,172 

 

See accompanying notes to condensed consolidated financial statements.

 

4

 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

 

         
  Nine Months Ended 
  September 30, 
  2021  2020 
Cash flows from operating activities:        
Net earnings (loss) $1,709  $(1,151)
Adjustments to reconcile net earnings (loss) to net cash used in operating activities:        
Provision for loan losses  955   1,236 
Depreciation and amortization  156   132 
Stock - based compensation  200   200 
Net accretion of fees, premiums and discounts  (586)  (27)
Decrease (increase) in accrued interest receivable  473   (1,112)
Amortization of right of use asset  126   113 
Net decrease in operating lease liabilities  (116)  (103)
Increase in other assets  (3,412)  (270)
Increase (decrease) in official checks and other liabilities  470   (1,063)
Net cash used in operating activities  (25)  (2,045)
         
Cash flows from investing activities:        
Purchase of debt securities available for sale  (19,513)  (3,638)
Principal repayments of debt securities available for sale  2,184   1,585 
Principal repayments of debt securities held-to-maturity  2,113   1,276 
Net increase in loans  (53,564)  (44,109)
Purchases of premises and equipment  (314)  (165)
Redemption (purchase) of FHLB stock  299   (450)
         
Net cash used in investing activities  (68,795)  (45,501)
         
Cash flows from financing activities:        
Net increase in deposits  90,987   66,344 
Net (decrease) increase in FHLB Advances  (5,000)  10,000 
Proceeds from sale of preferred stock  9,000   7,000 
Proceeds from sale of common stock  2,787   539 
         
Net cash provided by financing activities  97,774   83,883 
         
Net increase in cash and cash equivalents  28,954   36,337 
         
Cash and cash equivalents at beginning of the period  54,629   8,934 
         
Cash and cash equivalents at end of the period $83,583  $45,271 
         
Supplemental disclosure of cash flow information:        
Cash paid during the period for:        
Interest $776  $2,354 
         
Income taxes $  $ 
         
Noncash transactions:        
Change in accumulated other comprehensive loss, net change in unrealized (loss) gain on debt securities available for sale, net of income taxes $(267) $89 
         
Amortization of unrealized loss on debt securities transferred to held-to-maturity $98  $83 
         
Right-of use lease assets obtained in exchange for operating lease liabilities $191  $ 
         
Transfer of loans to foreclosed real estate $  $681 
Increase in other liabilities for Stock-based compensation $200   $200 
Issuance of common stock for Junior Subordinated Debenture $2,068  $ 
Issuance of common stock for Junior Subordinated Debenture interest payable $41  $ 

 

See accompanying notes to condensed consolidated financial statements

 

5

 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

(1) General. OptimumBank Holdings, Inc. (the “Company”) is a one-bank holding company and owns 100% of OptimumBank (the “Bank”), a Florida-chartered community bank. The Company’s only business is the operation of the Bank. The Bank’s deposits are insured up to applicable limits by the Federal Deposit Insurance Corporation (“FDIC”). The Bank offers a variety of community banking services to individual and corporate customers through its two banking offices located in Broward County, Florida.

 

Basis of Presentation. In the opinion of management, the accompanying condensed consolidated financial statements of the Company contain all adjustments (consisting principally of normal recurring accruals) necessary to present fairly the financial position at September 30, 2021, and the results of operations and cash flows for the three and nine month periods ended September 30, 2021 and 2020. All significant intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the three and nine months ended September 30, 2021, are not necessarily indicative of the results to be expected for the full year.

 

Subsequent Events. The Company has evaluated subsequent events through November 9, 2021, which is the date the condensed consolidated financial statements were issued.

 

Coronavirus Global Pandemic (“COVID-19”). The Company is subject to risks related to the public health crisis associated with COVID-19. COVID-19 has negatively impacted the global economy, disrupted global supply chains and created significant volatility and disruption in financial markets. The extent to which COVID-19 impacts the Company’s business, results of operations, and financial condition, as well as loan quality, regulatory capital and liquidity ratios, will depend on future developments, the duration of the pandemic, and actions taken by governmental authorities to slow the spread of the disease or to mitigate its effects.

 

Junior Subordinated Debenture. In 2004, the Company formed OptimumBank Capital Trust I (the “Trust’’) for the purpose of raising capital through the sale of trust preferred securities. At that time, the Trust raised $5,155,000 through the sale of 5,000 trust preferred securities (the “Trust Preferred Securities”) to a third-party investor and the issuance of 155 common trust securities to the Company. The Trust utilized the proceeds of $5,155,000 to purchase a junior subordinated debenture from the Company (the “Junior Subordinated Debenture”).

 

The outstanding principal amount of the Junior Subordinated Debenture at December 31, 2020, was $2,068,000, together with accrued interest of $30,000 at December 31, 2020. The accrued interest is presented on the accompanying condensed consolidated balance sheet under the caption “Other liabilities”.

 

During the first nine months of 2021, the Company acquired all of the outstanding Trust Preferred Securities and paid all accrued interest in exchange for 700,614 shares of the Company’s common stock. These shares were issued in the following transactions:

 

During the first quarter of 2021, the Company issued 11,042 shares of common stock to pay approximately $41,000 of accrued interest associated with the Junior Subordinated Debenture.

 

During the second quarter of 2021, the Company issued 282,377 shares of common stock in exchange for 840 Trust Preferred Securities. For accounting purposes, the Trust Preferred Securities acquired by the Company were deemed to be cancelled. As a result, the Company cancelled $840,000 in principal amount of the Trust Preferred Securities, together with accrued interest of $7,000, and increased its stockholders’ equity by the same amount.

 

During the third quarter of 2021, the Company issued 407,195 shares of common stock in exchange for the remaining 1,228 Trust Preferred Securities. For accounting purposes, the Trust Preferred Securities acquired by the Company were deemed to be cancelled. As a result, the Company cancelled $1,221,000 in principal amount of the Trust Preferred Securities and increased its stockholders’ equity by the same amount.

 

As of September 30, 2021, the Company had acquired all of the Trust Preferred Securities. Accordingly, there was no principal or accrued interest owed by the Company with respect to the Junior Subordinated Debenture or the Trust Preferred Securities at September 30, 2021.

 

(continued)

 

6

 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

(1) General, Continued.

 

Comprehensive Income (Loss). GAAP generally requires that recognized revenue, expenses, gains and losses be included in net earnings (loss). Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale debt securities, are reported as a separate component of the equity section of the condensed consolidated balance sheets, such items along with net earnings (loss), are components of comprehensive income (loss).

 

Accumulated other comprehensive loss consists of the following (in thousands):

Schedule of Accumulated Other Comprehensive Loss 

  September 30,  December 31, 
  2021  2020 
       
Unrealized (loss) gain on debt securities available for sale $(290) $50 
Unamortized portion of unrealized loss related to debt securities available for sale transferred to securities held-to-maturity  (46)  (144)
Income tax benefit     25 
         
Accumulated other comprehensive loss $(336) $(69)

 

Income Taxes. The Company assessed its earnings history and trends and estimates of future earnings, and determined that the deferred tax asset could not be realized as of September 30, 2021. Accordingly, a valuation allowance was recorded against the net deferred tax asset.

 

Reclassifications. Certain amounts have been reclassified to allow for consistent presentation for the periods presented.

 

Recent Pronouncements.

 

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13 Financial Instruments-Credit Losses (Topic 326). The ASU improves financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by the Company. The ASU requires the Company to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. The Company will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. The ASU requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the condensed consolidated financial statements. Additionally, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The ASU will take effect for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. The Company is in the process of determining the effect of the ASU on its condensed consolidated financial statements.

 

(continued)

 

7

 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

(2) Debt Securities. Debt Securities have been classified according to management’s intent. The carrying amount of debt securities and approximate fair values are as follows (in thousands):

 Schedule of Amortized Cost and Approximate Fair Values of Debt Securities

     Gross  Gross    
  Amortized  Unrealized  Unrealized  Fair 
  Cost  Gains  Losses  Value 
             
At September 30, 2021:                
Available for sale:                
SBA Pool Securities $1,139  $1  $(27) $1,113 
Collateralized mortgage obligations  237   13      250 
Taxable municipal securities  16,776   58   (165)  16,669 
Mortgage-backed securities  17,876   31   (201)  17,706 
Total $36,028  $103  $(393) $35,738 
                 
Held-to-maturity:                
Collateralized mortgage obligations $1,061  $43     $1,104 
Mortgage-backed securities  266   5      271 
Total $1,327  $48     $1,375 

 

     Gross  Gross    
  Amortized  Unrealized  Unrealized  Fair 
  Cost  Gains  Losses  Value 
             
At December 31, 2020:                
Available for sale:                
SBA Pool Securities $1,338  $  $(41) $1,297 
Collateralized mortgage obligations  458   27      485 
Taxable municipal securities  5,063   29   (7)  5,085 
Mortgage-backed securities  11,984   53   (11)  12,026 
Total $18,843  $109  $(59) $18,893 
                 
Held-to-maturity:                
Collateralized mortgage obligations $2,420  $116     $2,536 
Mortgage-backed securities  979   34      1,013 
Total $3,399  $150     $3,549 

 

There were 0 sales of debt securities during the three and nine months ended September 30, 2021 and 2020.

 

(continued)

 

8

 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

(2) Debt Securities Continued.

 

Debt Securities available for sale with gross unrealized losses, aggregated by investment category and length of time that individual debt securities have been in a continuous loss position, is as follows (in thousands):

 Schedule of Debt Securities with Gross Unrealized Losses, by Investment Category

  At September 30, 2021 
  Over Twelve Months  Less Than Twelve Months 
  Gross     Gross    
  Unrealized  Fair  Unrealized  Fair 
  Losses  Value  Losses  Value 
             
Available for Sale :                
SBA Pool Securities  (27)  907       
Taxable municipal securities        (165)  12,124 
Mortgage-backed securities  (39)  1,613   (162)  15,205 
Total $(66) $2,520  $(327) $27,329 

 

  At December 31, 2020 
  Over Twelve Months  Less Than Twelve Months 
  Gross     Gross    
  Unrealized  Fair  Unrealized  Fair 
  Losses  Value  Losses  Value 
             
Available for Sale :                
SBA Pool Securities  (41)  1,297       
Taxable municipal securities        (7)  1,413 
Mortgage-backed securities        (11)  3,583 
Total $(41) $1,297  $(18) $4,996 

 

 

Management evaluates debt securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospectus of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

 

At September 30, 2021 and December 31, 2020, the unrealized losses on twenty-nine and eleven debt securities respectively, were caused by market conditions. It is expected that the debt securities would not be settled at a price less than the book value of the investments. Because the decline in fair value is attributable to market conditions and not credit quality, and because the Company has the ability and intent to hold these investments until a market price recovery or maturity, these investments are not considered other-than-temporarily impaired.

 

(continued)

 

9

 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

(3) Loans. The components of loans are as follows (in thousands):

 Schedule of Components of Loans

  September 30,  December 31, 
  2021  2020 
       
Residential real estate $30,721  $28,997 
Multi-family real estate  41,159   19,210 
Commercial real estate  102,416   74,398 
Land and construction  4,694   4,750 
Commercial  18,269   21,849 
Consumer  12,085   5,715 
         
Total loans  209,344   154,919 
         
Deduct:        
Net deferred loan fees, costs and premiums  (784)  (544)
Allowance for loan losses  (2,695)  (1,906)
         
Loans, net $205,865  $152,469 

 

 An analysis of the change in the allowance for loan losses follows (in thousands):

 Schedule of Change in Allowance for Loan Losses

  Real Estate  Real Estate  

Commercial

Real Estate

  

Land and

Construction

  Commercial  Consumer  Unallocated  Total 
  Residential  Multi-Family                 
  Real Estate  Real Estate  

Commercial

Real Estate

  

Land and

Construction

  Commercial  Consumer  Unallocated  Total 
Three Months Ended September 30, 2021:   ��                            
                                 
Beginning balance $472  $392  $938  $57  $58  $314  $  $2,231 
(Credit) provision for loan losses  (29)  102   349   (10)  39   131      582 
Charge-offs              (10)  (111)     (121)
Recoveries  3                     3 
                                 
Ending balance $446  $494  $1,287  $47  $87  $334  $  $2,695 
                                 
Three Months Ended September 30, 2020:                                
Beginning balance $717  $153  $888  $50  $620  $236  $  $2,664 
Provision (credit) for loan losses  85   75   84   (5)  292   (7)     524 
Charge-offs  (259            (775)  (17)     (1,051)
Recoveries  1         6      1      8 
                                 
Ending balance $544  $228  $972  $51  $137  $213  $  $2,145 
                                 
Nine Months Ended September 30, 2021:                                
                                 
Beginning balance $463  $253  $884  $52  $103  $151  $  $1,906 
(Credit) provision for loan losses  (46)  241   403   (13)  4   366      955 
Charge-offs              (20)  (191)     (211)
Recoveries  29        $8      8      45 
                                 
Ending balance $446  $494  $1,287  $47  $87  $334  $  $2,695 
                                 
Nine Months Ended September 30, 2020:                                
                                 
Beginning balance $531  $82  $624  $21  $573  $152  $26  $2,009 
Provision (credit) for loan losses  264   146   348   12   339   153   (26)  1,236 
Charge-offs  (259)           (775)  (94)     (1,128)
Recoveries  8         18      2      28 
                                 
Ending balance $544  $228  $972  $51  $137  $213  $-  $2,145 

 

(continued)

 

10

 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

(3) Loans, Continued.

 

     Multi-                   
  Residential  Family                 
  

Real

Estate

  Real Estate  

Commercial

Real Estate

  

Land and

Construction

  Commercial  Consumer  Unallocated  Total 
At September 30, 2021:                                
Individually evaluated for impairment:                                
Recorded investment $  $  $  $  $  $  $  $ 
Balance in allowance for loan losses $  $  $  $  $  $  $  $ 
                                 
Collectively evaluated for impairment:                                
Recorded investment $30,721  $41,159  $102,416  $4,694  $18,269  $12,085  $  $209,344 
Balance in allowance for loan losses $446  $494  $1,287  $47  $87  $334  $  $2,695 
                                 
At December 31, 2020:                                
Individually evaluated for impairment:                                
Recorded investment $  $  $2,193  $  $  $  $  $2,193 
Balance in allowance for loan losses $  $  $  $  $  $  $  $ 
                                 
Collectively evaluated for impairment:                                
Recorded investment $28,997  $19,210  $72,205  $4,750  $21,849  $5,715  $  $152,726 
Balance in allowance for loan losses $463  $253  $884  $52  $103  $151  $  $1,906 

 

(continued)

 

11

 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

(3) Loans, Continued. The Company has divided the loan portfolio into six portfolio segments, each with different risk characteristics and methodologies for assessing risk. All loans are underwritten based upon standards set forth in the policies approved by the Company’s Board of Directors (the “Board”). The Company identifies the portfolio segments as follows:

 

Residential Real Estate, Multi-Family Real Estate, Commercial Real Estate, Land and Construction. Residential real estate loans are underwritten based on repayment capacity and source, value of the underlying property, credit history and stability. The Company offers first and second one-to-four family mortgage loans; the collateral for these loans is generally the clients’ owner-occupied residences. Although these types of loans present lower levels of risk than commercial real estate loans, risks do still exist because of possible fluctuations in the value of the real estate collateral securing the loan, as well as changes in the borrowers’ financial condition. Multi-family and commercial real estate loans are secured by the subject property and are underwritten based upon standards set forth in the policies approved by the Board. Such standards include, among other factors, loan to value limits, cash flow coverage and general creditworthiness of the obligors. Construction loans to borrowers finance the construction of owner occupied and leased properties. These loans are categorized as construction loans during the construction period, later converting to commercial or residential real estate loans after the construction is complete and amortization of the loan begins. Real estate development and construction loans are approved based on an analysis of the borrower and guarantor, the viability of the project and on an acceptable percentage of the appraised value of the property securing the loan. Real estate development and construction loan funds are disbursed periodically based on the percentage of construction completed. The Company carefully monitors these loans with on-site inspections and requires the receipt of lien waivers on funds advanced. Development and construction loans are typically secured by the properties under development or construction, and personal guarantees are typically obtained. Further, to assure that reliance is not placed solely on the value of the underlying property, the Company considers the market conditions and feasibility of proposed projects, the financial condition and reputation of the borrower and guarantors, the amount of the borrower’s equity in the project, independent appraisals, cost estimates and pre-construction sales information. The Company also makes loans on occasion for the purchase of land for future development by the borrower. Land loans are extended for future development for either commercial or residential use by the borrower. The Company carefully analyzes the intended use of the property and the viability thereof.

 

Commercial. Commercial business loans and lines of credit consist of loans to small- and medium-sized companies in the Company’s market area. Commercial loans are generally used for working capital purposes or for acquiring equipment, inventory or furniture. Primarily all of the Company’s commercial loans are secured loans, along with a small amount of unsecured loans. The Company’s underwriting analysis consists of a review of the financial statements of the borrower, the lending history of the borrower, the debt service capabilities of the borrower, the projected cash flows of the business, the value of the collateral, if any, and whether the loan is guaranteed by the principals of the borrower. These loans are generally secured by accounts receivable, inventory and equipment. Commercial loans are typically made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business, which makes them of higher risk than residential loans and the collateral securing loans may be difficult to appraise and may fluctuate in value based on the success of the business. The Company seeks to minimize these risks through its underwriting standards. The Company has supported small business owners by making loans through the Small Business Administration Paycheck Protection Program (“PPP”). As of September 30, 2021, the Bank had originated 502 PPP loans for a total dollar amount of $37.4 million. These loans are 100% guaranteed by the Small Business Administration (the “SBA”). At September 30, 2021 outstanding PPP loans total approximately $14.3 million.

 

Consumer. Consumer loans are extended for various purposes, including purchases of automobiles, recreational vehicles, and boats. Also offered are home improvement loans, lines of credit, personal loans, and deposit account collateralized loans. Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Loans to consumers are extended after a credit evaluation, including the creditworthiness of the borrower(s), the purpose of the credit, and the secondary source of repayment. Consumer loans are made at fixed and variable interest rates. Risk is mitigated by the fact that the loans are of smaller individual amounts.

 

(continued)

 

12

 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

(3) Loans, Continued. The following summarizes the loan credit quality (in thousands):

 Schedule of Loans by Credit Quality

     

OLEM

(Other Loans Especially

  Sub-          
  Pass  Mentioned)  Standard  Doubtful  Loss  Total 
                   
At September 30, 2021:                        
Residential real estate $28,212  $  $2,509  $  $  $30,721 
Multi-family real estate  41,159               41,159 
Commercial real estate  99,825   2,591            102,416 
Land and construction  4,694               4,694 
Commercial  17,992   277            18,269 
Consumer  12,085               12,085 
                         
Total $203,967  $2,868  $2,509  $  $  $209,344 
                         
At December 31, 2020:                        
Residential real estate $28,151  $  $846  $  $  $28,997 
Multi-family real estate  19,210               19,210 
Commercial real estate  66,089   4,449   3,860         74,398 
Land and construction  4,750               4,750 
Commercial  20,735   1,114            21,849 
Consumer  5,715               5,715 
                         
Total $144,650  $5,563  $4,706  $  $  $154,919 

 

Internally assigned loan grades are defined as follows:

 

 Pass – a Pass loan’s primary source of loan repayment is satisfactory, with secondary sources very likely to be realized if necessary. These are loans that conform in all aspects to bank policy and regulatory requirements, and no repayment risk has been identified.
  
 OLEM – an Other Loan Especially Mentioned has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in the deterioration of the repayment prospects for the asset or the Company’s credit position at some future date.
  
 Substandard – a Substandard loan is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Included in this category are loans that are current on their payments, but the Bank is unable to document the source of repayment. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.
  
 Doubtful – a loan classified as Doubtful has all the weaknesses inherent in one classified as Substandard, with the added characteristics that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future. The Company charges off any loan classified as Doubtful.
  
 Loss – a loan classified Loss is considered uncollectible and of such little value that continuance as a bankable asset is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be effected in the future. The Company fully charges off any loan classified as Loss.

 

(continued)

 

13

 

  

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

(3) Loans, Continued. Age analysis of past-due loans is as follows (in thousands):

 Schedule of Age Analysis of Past-due Loans

  Accruing Loans       
      Greater         
  30-59  60-89  Than 90          
  

Days

Past

  

Days

Past

  Days Past  

Total

Past

     Nonaccrual  Total 
  Due  Due  Past  Due  Current  Loans  Loans 
                      
At September 30, 2021:                            
Residential real estate $  $  $  $  $30,721  $  $30,721 
Multi-family real estate              41,159      41,159 
Commercial real estate              102,416      102,416 
Land and construction              4,694      4,694 
Commercial              18,269      18,269 
Consumer  21   22      43   12,042      12,085 
                             
Total $21  $22  $  $43  $209,301  $  $209,344 

 

  Accruing Loans       
       Greater             
  30-59 Days  

60-89

Days

  Than 90 Days  Total        
  Past  Past  Past  Past     Nonaccrual  Total 
  Due  Due  Due  Due  Current  Loans  Loans 
At December 31, 2020:                            
Residential real estate $977  $  $  $977  $28,020  $  $28,997 
Multi-family real estate              19,210      19,210 
Commercial real estate              72,205   2,193   74,398 
Land and construction              4,750      4,750 
Commercial              21,849      21,849 
Consumer  6         6   5,709      5,715 
                             
Total $983  $  $  $983  $151,743  $2,193  $154,919 

 

There were no impaired loans at September 30, 2021. The following summarizes the amount of impaired loans at December 31, 2020 (in thousands):

 Schedule of Impaired Loans

  December 31, 2020 
     Unpaid    
  Recorded  Principal  Related 
  Investment  Balance  Allowance 
With no related allowance recorded:            
Commercial real estate $2,193  $2,193    

 

(continued)

 

14

 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

(3) Loans, Continued. The average recorded investment in impaired loans and interest income recognized and received on impaired loans are as follows (in thousands):

 Schedule of Interest Income Recognized and Received on Impaired Loans

  Three Months Ended September 30, 
  2021  2020 
  Average  Interest  Interest  Average  Interest  Interest 
  Recorded  Income  Income  Recorded  Income  Income 
  Investment  Recognized  Received  Investment  Recognized  Received 
                   
Residential real estate $  $  $  $626  $  $ 
Commercial real estate $  $  $  $2,193  $26  $ 
Commercial $  $  $  $270  $  $ 
Total $  $  $  $3,089  $26  $ 

 

  Nine Months Ended September 30, 
  2021  2020 
  Average  Interest  Interest  Average  Interest  Interest 
  Recorded  Income  Income  Recorded  Income  Income 
  Investment  Recognized  Received  Investment  Recognized  Received 
                   
Residential real estate $  $  $  $846  $18  $11 
Commercial real estate $658  $7  $7  $2,194  $78  $60 
Commercial $  $  $  $649  $  $18 
Total $658  $7  $7  $3,689  $96  $89 

 

 No loans have been determined to be troubled debt restructurings (TDR’s) during the three and nine month periods ended September 30, 2021 or 2020. At September 30, 2021 and 2020, there were no loans modified and entered into as TDR’s within the past twelve months, that subsequently defaulted during the three and nine month periods ended September 30, 2021 or 2020.

 

(4) Earnings (Loss) Per Share. Basic earnings (loss) per share have been computed on the basis of the weighted-average number of shares of common stock outstanding during the period. During the three and nine month periods ended September 30, 2021, basic and diluted earnings per share is the same as there were no outstanding potentially dilutive securities. During the three and nine month periods ended September 30, 2020, basic and diluted loss per share is the same due to the net loss incurred by the Company. Earnings (loss) per common share have been computed based on the following:

 Schedule of Basic and Diluted Loss Per Share

  2021  2020  2021  2020 
  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
  2021  2020  2021  2020 
Weighted-average number of common shares outstanding used to calculate basic and diluted loss per common share  4,346,211   2,951,353   3,611,814   2,920,961 

 

(continued)

 

15

 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

(5) Stock-Based Compensation

 

The Company is authorized to grant stock options, stock grants and other forms of equity-based compensation under its 2018 Equity Incentive Plan (the “2018 Plan”). The plan has been approved by the shareholders. The Company is authorized to issue up to 550,000 shares of common stock under the 2018 Plan, of which 250,096 shares remain available for grant. NaN stock options are outstanding at September 30, 2021.

 

During the first quarter of 2021, the Company agreed to issue 62,112 shares to a director for services performed and recorded compensation expense of $200,000. At September 30, 2021 the director had not yet taken delivery of the shares. As such, at September 30, 2021, the $200,000 is presented on the accompanying condensed consolidated balance sheets under the caption of “other liabilities”. During October 2021, the director took delivery of the shares.

 

(6) Fair Value Measurements. There were 0 impaired collateral dependent loans measured at fair value on a nonrecurring basis at September 30, 2021 and December 31, 2020.

 

Debt securities available for sale measured at fair value on a recurring basis are summarized below (in thousands):

 Schedule of Debt Securities Available-for-sale Measured at Fair Value on Recurring Basis

 

     Fair Value Measurements Using 
     Quoted Prices  Significant    
     In Active Markets for  Other Observable  

Significant

Unobservable

 
  Fair Value  Identical Assets
(Level 1)
  Inputs
(Level 2)
  

Inputs

(Level 3)

 
At September 30, 2021 :                
SBA Pool Securities $1,113  $  $1,113    
Collateralized mortgage obligations  250      250    
Taxable municipal securities  16,669      16,669    
Mortgage-backed securities  17,706      17,706    
Total $35,738     $35,738    

 

     Fair Value Measurements Using 
     Quoted Prices In Active Markets for Identical Assets  Significant Other Observable Inputs  Significant Unobservable Inputs 
  Fair Value  (Level 1)  (Level 2)  (Level 3) 
             
At December 31, 2020 :                
SBA Pool Securities $1,297  $  $1,297    
Collateralized mortgage obligations  485      485    
Taxable municipal securities  5,085      5,085    
Mortgage-backed securities  12,026      12,026    
Total $18,893     $18,893    

 

(7) Fair Value of Financial Instruments. The estimated fair values and fair value measurement method with respect to the Company’s financial instruments were as follows (in thousands):

 Schedule of Estimated Fair Value of Financial Instruments

  Carrying Amount  Fair Value  Level  Carrying Amount  

Fair

Value

  Level 
  At September 30, 2021  At December 31, 2020 
  Carrying Amount  Fair Value  Level  Carrying Amount  

Fair

Value

  Level 
                   
Financial assets:                        
Cash and cash equivalents $83,583  $83,583   1  $54,629  $54,629   1 
Debt securities available for sale  35,738   35,738   2   18,893   18,893   2 
Debt securities held-to-maturity  1,327   1,375   2   3,399   3,549   2 
Loans  205,865   205,807   3   152,469   153,276   3 
Federal Home Loan Bank stock  793   793   3   1,092   1,092   3 
Accrued interest receivable  863   863   3   1,336   1,336   3 
                         
Financial liabilities:                        
Deposit liabilities  281,746   281,813   3   190,759   191,011   3 
Federal Home Loan Bank advances  18,000   18,185   3   23,000   23,254   3 
Junior subordinated debenture        3   2,068   N/A (1) 3 
Off-balance sheet financial instruments        3         3 

 

 (1)The Company is unable to determine value based on significant unobservable inputs required in the calculation.

 

(continued)

 

16

 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

(8) Off- Balance Sheet Financial Instruments. The Company is party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments are commitments to extend credit, unused lines of credit, and standby letters of credit and may involve, to varying degrees, elements of credit and interest-rate risk in excess of the amount recognized in the condensed consolidated balance sheet. The contract amounts of these instruments reflect the extent of involvement the Company has in these financial instruments.

 

The Company’s exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments as it does for on-balance-sheet instruments.

 

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Because some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company, upon extension of credit, is based on management’s credit evaluation of the counterparty.

 

Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit to customers is essentially the same as that involved in extending loan facilities to customers. The Bank generally holds collateral supporting those commitments. Standby letters of credit generally have expiration dates within one year.

 

Commitments to extend credit, unused lines of credit, and standby letters of credit typically result in loans with a market interest rate when funded. A summary of the contractual amounts of the Company’s financial instruments with off-balance-sheet risk at September 30, 2021 follows (in thousands):

 

 Schedule of Off-Balance Sheet Risks of Financial Instruments

     
Commitments to extend credit $16,153 
     
Unused lines of credit $11,532 
     
Standby letters of credit $4,550 

 

(9) Regulatory Matters. The Bank is subject to various regulatory capital requirements administered by the bank regulatory agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company and Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of its assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

 

In 2019, the federal banking agencies jointly issued a final rule that provides for an optional, simplified measure of capital adequacy, the community bank leverage ratio framework (CBLR framework), for qualifying community banking organizations. The final rule became effective on January 1, 2020 and was elected by the Bank. In April 2020, the federal banking agencies issued an interim final rule that makes temporary changes to the CBLR framework, pursuant to section 4012 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, and a second interim final rule that provides a graduated increase in the community bank leverage ratio requirement after the expiration of the temporary changes implemented pursuant to section 4012 of the CARES Act.

 

The community bank leverage ratio removes the requirement for qualifying banking organizations to calculate and report risk-based capital but rather only requires a Tier 1 to average assets (leverage) ratio. Qualifying community banking organizations that elect to use the community bank leverage ratio framework and that maintain a leverage ratio of greater than required minimums will be considered to have satisfied the generally applicable risk based and leverage capital requirements in the agencies’ capital rules (generally applicable rule) and, if applicable, will be considered to have met the well capitalized ratio requirements for purposes of section 38 of the Federal Deposit Insurance Act. Under the interim final rules, the community bank leverage ratio minimum requirement is 8% as of December 31, 2020, 8.5% for calendar year 2021, and 9% for calendar year 2022 and beyond. The interim rule allows for a two-quarter grace period to correct a ratio that falls below the required amount, provided that the Bank maintains a leverage ratio of 7% as of December 31, 2020, 7.5% for calendar year 2021, and 8% for calendar year 2022 and beyond. Under the final rule, an eligible community banking organization can opt out of the CBLR framework and revert back to the risk-weighting framework without restriction.

 

(continued)

 

17

 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

(9) Regulatory Matters, Continued.

 

Management believes, as of September 30, 2021 and December 31, 2020, that the Bank meets all capital adequacy requirements to which it is subject. The Bank’s actual capital amounts and percentages are presented in the table ($ in thousands):

 

 Schedule of Capital Amounts, Ratios and Regulatory Thresholds

  Actual  To Be Well Capitalized Under Prompt Corrective Action Regulations (CBLR Framework) 
  Amount  %  Amount  % 
As of September 30, 2021:                
Tier I Capital to Total Assets  32,980   10.96%  25,567   8.5%

 

  Actual  To Be Well Capitalized Under Prompt Corrective Action Regulations (CBLR Framework) 
  Amount  %  Amount  % 
As of December 31, 2020:            
Tier I Capital to Total Assets  19,261   9%  17,116   8%

 

(10) Preferred Stock

 

During the first quarter of 2021, the Company issued 160 shares of Series B Participating Preferred Stock (the “Series B Preferred Stock”) to a related party at a cash price of $25,000 per share, or an aggregate of $4,000,000. The related party is a significant common stockholder.

 

During the second quarter of 2021, the Company issued 200 shares of Series B Participating Preferred Stock (the “Series B Preferred Stock”) to a non-related party at a cash price of $25,000 per share, or an aggregate of $5,000,000.

 

The Series B Preferred Stock has no par value. Except in the case of liquidation, if the Company declares or pays a dividend or distribution on the common stock, the Company shall simultaneously declare and pay a dividend on the Series B Preferred Stock on a pro rata basis with the common stock determined on an as-converted basis assuming all Shares of Series B Preferred Stock had been converted immediately prior to the record date of the applicable dividend. At September 30, 2021, the Company had 760 shares of Series B Preferred Stock outstanding, which are convertible into 7,600,000 shares of common stock, at the option of the Company, subject to the prior fulfilment of the following conditions: (i) such conversion shall have been approved by the holders of a majority of the outstanding common stock of the Company; and (ii) such conversion shall not result in any holder of the Series B Preferred Stock and any persons with whom the holder may be acting in concert, becoming beneficial owners of more than 9.9% of the outstanding shares of the common stock. The number of shares issuable upon conversion is subject to adjustment based on the terms of the amended Certificate of Designation in the Amendment to the Company’s Articles of Incorporation filed on June 25, 2021 (the “Certificate of Designation”) The Preferred Stock has preferential liquidation rights over common stockholders and holders of junior securities. The liquidation price is the greater of $25,000 per share of preferred stock or such amount per share of preferred stock that would have been payable had all shares of the preferred stock been converted into common stock per the terms of the Certificate of Designation immediately prior to a liquidation. The Preferred Stock generally has no voting rights except as provided in the Certificate of Designation.

 

(11) Contingencies. Various claims arise from time to time in the normal course of business. In the opinion of management, none have occurred that will have a material effect on the Company’s condensed consolidated financial statements.

 

(continued)

 

18

 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto presented elsewhere in this report. For additional information, refer to the consolidated financial statements and footnotes for the year ended December 31, 2020 in the Annual Report on Form 10-K.

 

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements involve known and unknown risks and uncertainties, many of which are beyond the control of the Company, including adverse changes in economic, political and market conditions, losses from the Company’s lending activities and changes in market conditions, the possible loss of key personnel, the impact of increasing competition, the impact of changes in government regulation, the possibility of liabilities arising from violations of federal and state securities laws and the impact of changes in technology in the banking industry. Although the Company believes that its forward-looking statements are based upon reasonable assumptions regarding its business and future market conditions, there can be no assurances that the Company’s actual results will not differ materially from any results expressed or implied by the Company’s forward-looking statements. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Readers are cautioned that any forward-looking statements are not guarantees of future performance.

 

Capital Levels

 

As of September 30, 2021, the Bank is well capitalized under regulatory guidelines.

 

Refer to Note 9 for the Bank’s actual and required minimum capital ratios.

 

(continued)

 

19

 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

 

Financial Condition at September 30, 2021 and December 31, 2020

 

Overview

 

The Company’s total assets increased by approximately $100 million to $335.1 million at September 30, 2021, from $235.1 million at December 31, 2020, primarily due to increases in loans, cash and cash equivalents and debt securities. The growth in assets was attributable to the success of the Company’s efforts to increase deposits from new customers. Total deposits grew by approximately $91 million to $281.7 million at September 30, 2021, from $190.8 million at December 31, 2020. Total stockholders’ equity increased by approximately $15.3 million to $33.2 million at September 30, 2021, from $17.8 million at December 31, 2020, primarily due to proceeds from the sale of preferred stock, common stock, the issuance of common stock in exchange for Trust Preferred Securities and net earnings. The increase in stockholders’ equity was partially offset by the change in accumulated other comprehensive loss for the three and nine months ended September 30, 2021.

 

The following table shows selected information for the periods ended or at the dates indicated:

 

  Nine Months Ended
September 30, 2021
  Year Ended
December 31, 2020
 
       
Average equity as a percentage of average assets  8.7%  5.8%
         
Equity to total assets at end of period  9.9%  7.6%
         
Return on average assets (1)  0.9%  (0.5)%
         
Return on average equity (1)  9.5%  (7.8)%
         
Noninterest expenses to average assets (1)  2.3%  2.9%

 

 

(1) Annualized for the nine months ended September 30, 2021.

 

Liquidity and Sources of Funds

 

The Company’s sources of funds include customer deposits, advances from the Federal Home Loan Bank of Atlanta (“FHLB”), principal repayments and sales of debt securities, loan repayments, the use of Federal Funds markets, net earnings, if any, and loans taken out at the Federal Reserve Bank discount window.

 

Deposits are our primary source of funds. In order to increase its core deposits, the Company has priced its deposit rates competitively. The Company will adjust rates on its deposits to attract or retain deposits as needed.

 

The Company increased deposits by approximately $91 million during the nine-month period ending September 30, 2021. The proceeds were used to originate new loans, purchase debt securities and repay Federal Home Loan Bank advances.

 

In addition to obtaining funds from depositors, the Company may borrow funds from other financial institutions. At September 30, 2021, the Company had outstanding borrowings of $18 million, against its $55 million in established borrowing capacity with the FHLB. The Company’s borrowing facility is subject to collateral and stock ownership requirements, as well as prior FHLB consent to each advance. The Company has an available discount window credit line with the Federal Reserve Bank, currently $430,000. The Federal Reserve Bank line is subject to collateral requirements and must be repaid within 90 days; each advance is subject to prior Federal Reserve Bank consent. At September 30, 2021, the Company also had available lines of credit amounting to $9.5 million with four correspondent banks to purchase federal funds. Disbursements on the lines of credit are subject to the approval of the correspondent banks. We measure and monitor our liquidity daily and believe our liquidity sources are adequate to meet our operating needs.

 

Off-Balance Sheet Arrangements

 

Refer to Note 8 in the condensed consolidated financial statements for Off-Balance Sheet Arrangements.

 

Junior Subordinated Debenture

 

Please refer to Note 1 in the condensed consolidated financial statements for discussion on this matter.

 

(continued)

 

20

 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

 

Results of Operations

 

The following table sets forth, for the periods indicated, information regarding (i) the total dollar amount of interest and dividend income of the Company from interest-earning assets and the resultant average yields; (ii) the total dollar amount of interest expense on interest-bearing liabilities and the resultant average cost; (iii) net interest income; (iv) interest-rate spread; (v) net interest margin; and (vi) the ratio of average interest-earning assets to average interest-bearing liabilities.

 

  Three Months Ended September 30, 
  2021  2020 
     Interest  Average     Interest  Average 
  Average  and  Yield/  Average  and  Yield/ 
(dollars in thousands) Balance  Dividends  Rate(5)  Balance  Dividends  Rate(5) 
Interest-earning assets:                        
Loans $203,983  $2,795   5.48% $142,138  $1,723   4.85%
Securities  34,044   150   1.76%  9,092   41   1.80%
Other (1)  48,596   28   0.23%  18,928   7   0.15%
                         
Total interest-earning assets/interest income  286,623   2,973   4.15%  170,158   1,771   4.16%
                         
Cash and due from banks  12,080           14,480         
Premises and equipment  1,402           1,439         
Other  1,626           1,312         
                         
Total assets $301,731          $187,389         
                         
Interest-bearing liabilities:                        
Savings, NOW and money-market deposits $128,844   124   0.38% $89,383   168   0.75%
Time deposits  15,429   22   0.57%  28,583   122   1.71%
Borrowings (2)  18,387   62   1.35%  26,758   96   1.44%
                         
Total interest-bearing liabilities/interest expense  162,660   208   0.51%  144,724   386   1.07%
                         
Noninterest-bearing demand deposits  105,843           29,970         
Other liabilities  1,744           2,367         
Stockholders’ equity  31,484           10,328         
                         
Total liabilities and stockholders’ equity $301,731          $187,389         
                         
Net interest income     $2,765          $1,385     
                         
Interest rate spread (3)          3.64%          3.09%
                         
Net interest margin (4)          3.86%          3.26%
                         
Ratio of average interest-earning assets to average interest-bearing liabilities  1.76          1.18         

 

(1)Includes interest-earning deposits with banks and Federal Home Loan Bank stock dividends.
(2)Includes Federal Home Loan Bank advances, other borrowings and the junior subordinated debenture.
(3)Interest-rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.
(4)Net interest margin is net interest income divided by average interest-earning assets.
(5)Annualized.

 

(continued)

 

21

 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

 

  Nine Months Ended September 30, 
  2021  2020 
     Interest  Average     Interest  Average 
  Average  and  Yield/  Average  and  Yield/ 
(dollars in thousands) Balance  Dividends  Rate(5)  Balance  Dividends  Rate(5) 
Interest-earning assets:                        
Loans $183,068  $6,820   4.97% $125,090  $4,697   5.01%
Securities  28,024   327   1.56%  10,016   136   1.81%
Other (1)  38,457   81   0.28%  14,526   67   0.61%
                         
Total interest-earning assets/interest income  249,549   7,228   3.86%  149,632   4,900   4.37%
                         
Cash and due from banks  21,338           7,748         
Premises and equipment  1,344           1,423         
Other  1,940           1,043         
                         
Total assets $274,171          $159,846         
                         
Interest-bearing liabilities:                        
Savings, NOW and money-market deposits $121,077   380   0.42% $72,348   607   1.12%
Time deposits  18,170   100   0.73%  30,466   440   1.93%
Borrowings (2)  21,023   241   1.53%  24,990   322   1.72%
                         
Total interest-bearing liabilities/interest expense  160,270   721   0.60%  127,804   1,369   1.43%
                         
Noninterest-bearing demand deposits  88,387           21,255         
Other liabilities  1,642           2,447         
Stockholders’ equity  23,872           8,340         
                         
Total liabilities and stockholders’ equity $274,171          $159,846         
                         
Net interest income     $6,507          $3,531     
                         
Interest rate spread (3)          3.26%          2.94%
                         
Net interest margin (4)          3.48%          3.15%
                         
Ratio of average interest-earning assets to average interest-bearing liabilities  1.56          1.17        

 

(1)Includes interest-earning deposits with banks and Federal Home Loan Bank stock dividends.
(2)Includes Federal Home Loan Bank advances, other borrowings and the junior subordinated debenture.
(3)Interest-rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.
(4)Net interest margin is net interest income divided by average interest-earning assets.
(5)Annualized.

 

(continued)

 

22

 

 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

 

Comparison of the Three-Month Periods Ended September 30, 2021 and 2020

 

  Three Months Ended  Increase / 
  September 30,  (Decrease) 
(dollars in thousands) 2021  2020  Amount  Percentage 
Total interest income $2,973  $1,771  $1,202   68%
Total interest expense  208   386   (178)  (46)%
Net interest income  2,765   1,385   1,380   100%
Provision for loan losses  582   524   58   11%
Net interest income after provision for loan losses  2,183   861   1,322   154%
Total noninterest income  423   64   359   561%
Total noninterest expenses  1,689   1,421   268   19%
Net earnings (loss) before income taxes  917   (496)  1,413   (284)%
Income taxes  -   -   -   - 
Net earnings (loss) $917  $(496)  1,413   (284)%
Net earnings (loss) per share - basic and diluted $0.21  $(0.17)        

 

Net earnings (loss). Net earnings for the three months ended September 30, 2021, were $917,000 or $0.21 per basic and diluted share compared to a net loss of $(496,000) or $(0.17) per basic and diluted share for the three months ended September 30, 2020. The increase in net earnings during the three months ended September 30, 2021 compared to three months ended September 30, 2020 is primarily attributed to an increase in net interest income and noninterest income, partially offset by the increase in noninterest expense.

 

Interest Income. Interest income increased $1,202,000 for the three months ended September 30, 2021 compared to the three ended September 30, 2020 due primarily to growth in the loan portfolio.

 

Interest Expense. Interest expense decreased $178,000 to $208,000 for the three months ended September 30, 2021 compared to the prior period, primarily due to a decrease in interest bearing deposit rates.

 

Provision for Loan Losses. Provision for loan losses was $582,000 for the three months ended September 30, 2021 compared to $524,000 for the three months ended September 30, 2020. The provision for loan losses is charged to operations as losses are estimated to have occurred in order to bring the total loan allowance for loan losses to a level deemed appropriate by management to absorb losses inherent in the portfolio at September 30, 2021. Management’s periodic evaluation of the adequacy of the allowance is based upon historical experience, the volume and type of lending conducted by us, adverse situations that may affect the borrower’s ability to repay, estimated value of the underlying collateral, loans identified as impaired, general economic conditions, particularly as they relate to our market areas, and other factors related to the estimated collectability of our loan portfolio. The allowance for loan losses totaled $2.7 million or 1.29% of loans outstanding at September 30, 2021, compared to $1.9 million or 1.23% of loans outstanding at December 31, 2020. The provision for loan losses during the second quarter of 2021 was primarily due to loan volume growth and the evaluation of the other factors noted above.

 

Noninterest Income. Total noninterest income increased to $423,000 for the three months ended September 30, 2021, from $64,000 for the three months ended September 30, 2020 due to increased wire transfer and ACH fees related to an increase in business checking accounts of approximately $14.5 million during the three month period ended September 30, 2021.

 

Noninterest Expenses. Total noninterest expenses increased to $1,689,000 for the three months ended September 30, 2021 compared to $1,421,000 for the three months ended September 30, 2020 primarily due to an increase in salaries and employee benefits, professional fees and data processing.

 

23

 

 

Comparison of the Nine-Month Periods Ended September 30, 2021 and 2020

 

  Nine Months Ended  Increase / 
  September 30,  (Decrease) 
(dollars in thousands) 2021  2020  Amount  Percentage 
Total interest income $7,228  $4,900  $2,328   48%
Total interest expense  721   1,369   (648)  (47)%
Net interest income  6,507   3,531   2,976   84%
Provision for loan losses  955   1,236   (281)  (23)%
Net interest income after provision for loan losses  5,552   2,295   3,257   142%
Total noninterest income  902   170   732   431%
Total noninterest expenses  4,745   3,616   1,129   31%
Net earnings (loss) before income taxes  1,709   (1,151)  2,860   (248)%
Income taxes  -   -   -   - 
Net earnings (loss) $1,709  $(1,151)  2,860   (248)%
Net earnings (loss) per share - basic and diluted $0.47  $(0.39)        

 

Net earnings (loss). Net earnings for the nine months ended September 30, 2021, were $1,709,000 or $0.47 per basic and diluted share compared to a net loss of $(1.2 million) or $(0.39) per basic and diluted share for the nine months ended September 30, 2020. The increase in net earnings during the nine months ended September 30, 2021 compared to nine months ended September 30, 2020 is primarily attributed to a decrease in the provision for loan losses, increase in net interest income and noninterest income, partially offset by the increase in noninterest expense.

 

Interest Income. Interest income increased $2,328,000 for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 due primarily to growth in the loan portfolio.

 

Interest Expense. Interest expense decreased $648,000 to $721,000 for the nine months ended September 30, 2021 compared to the prior period, primarily due to a decrease in interest bearing deposit rates.

 

Provision for Loan Losses. Provision for loan losses amounted to $955,000 for the nine months ended September 30, 2021 compared to $1.2 million for the nine months ended September 30, 2020. The provision for loan losses is charged to operations as losses are estimated to have occurred in order to bring the total loan allowance for loan losses to a level deemed appropriate by management to absorb losses inherent in the portfolio at September 30, 2021. Management’s periodic evaluation of the adequacy of the allowance is based upon historical experience, the volume and type of lending conducted by us, adverse situations that may affect the borrower’s ability to repay, estimated value of the underlying collateral, loans identified as impaired, general economic conditions, particularly as they relate to our market areas, and other factors related to the estimated collectability of our loan portfolio. The allowance for loan losses totaled $2.7 million or 1.29% of loans outstanding at September 30, 2021, compared to $1.9 million or 1.23% of loans outstanding at December 31, 2020. The provision for loan losses during nine months ended September 30, 2021 was primarily due to loan volume growth and an evaluation of the other factors noted above.

 

Noninterest Income. Total noninterest income increased to $902,000 for the nine months ended September 30, 2021, from $170,000 for the nine months ended September 30, 2020 due to increased wire transfer and ACH fees related to an increase in business checking accounts of approximately $23.7 million during the nine month period ended September 30, 2021.

 

Noninterest Expenses. Total noninterest expenses increased to $4,745,000 for the nine months ended September 30, 2021 compared to $3,616,000 for the nine months ended September 30, 2020 primarily due to an increase in salaries and employee benefits and data processing.

 

24

 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Item 4. Controls and Procedures

 

The Company’s management evaluated the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report, and, based on this evaluation, the Principal Executive Officer and Principal Financial Officer concluded that these disclosure controls and procedures are effective.

 

There have been no changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2021, that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

 

PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

 

None

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

During the third quarter of 2021, the Company issued 358,023 shares of its common stock in a private placement transaction to 18 accredited investors at a price of $4.50 per share. None of these investors was an officer, director or affiliate of the Company other than Martin Schmidt, who is a director of the Company. Mr. Schmidt purchased 10,323 shares. The Company issued these shares in reliance on Section 4(a)(2) of the Securities Act as a transaction by an issuer not involving a public offering.

 

During October 2021, the Company issued an additional 188,660 shares of its common stock in a private placement transaction to an accredited investor at a price of $4.50 per share. The investor was not an officer, director or affiliate of the Company. The Company issued these shares in reliance on Section 4(a)(2) of the Securities Act as a transaction by an issuer not involving a public offering.

 

Item 3. Defaults on Senior Securities

 

Not applicable.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

Not applicable.

 

Item 6. Exhibits

 

The exhibits listed in the Exhibit Index following the signature page are filed with or incorporated by reference into this report.

 

 

25

 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 OPTIMUMBANK HOLDINGS, INC.
 (Registrant)
   
Date: November 9, 2021By:/s/ Timothy Terry
  Timothy Terry
  Principal Executive Officer
   
 By:/s/ Joel Klein
  Joel Klein
  Principal Financial Officer

 

26

 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

EXHIBIT INDEX

 

Exhibit No. Description
   
31.1 Certification of Principal Executive Officer required by Rule 13a-14(a)/15d-14(a) under the Exchange Act
   
31.2 Certification of Principal Financial Officer required by Rule 13a-14(a)/15d-14(a) under the Exchange Act
   
32.1 Certification of Principal Executive Officer
   
32.2 Certification of Principal Financial Officer

 

27

 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

EXHIBIT INDEX

 

Exhibit No. Description
   
101.INS Inline XBRL Instance Document
   
101.SCH Inline XBRL Taxonomy Extension Schema Document
   
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
   
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document
   
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
   
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
   
104 Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

28