UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
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:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) |
(Address of principal executive offices)
(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 | ||
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.
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).
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. Yes ☐ No ☒
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: shares of common stock, $.01 par value, issued and outstanding as of July 31, 2021.
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
INDEX
| i |
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
(Dollars in thousands, except per share amounts)
| June 30, 2021 | December 31, 2020 | |||||||
| (Unaudited) | ||||||||
| Assets: | ||||||||
| Cash and due from banks | $ | $ | ||||||
| Interest-bearing deposits with banks | ||||||||
| Total cash and cash equivalents | ||||||||
| Debt securities available for sale | ||||||||
| Debt securities held-to-maturity (fair value of $ | ||||||||
| Loans, net of allowance for loan losses of $ | ||||||||
| Federal Home Loan Bank stock | ||||||||
| Premises and equipment, net | ||||||||
| Right-of-use lease assets | ||||||||
| Accrued interest receivable | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity: | ||||||||
| Liabilities: | ||||||||
| Noninterest-bearing demand deposits | $ | $ | ||||||
| Savings, NOW and money-market deposits | ||||||||
| Time deposits | ||||||||
| Total deposits | ||||||||
| Federal Home Loan Bank advances | ||||||||
| Junior subordinated debenture | ||||||||
| Official checks | ||||||||
| Operating lease liabilities | ||||||||
| Other liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Notes 1, 8 and 11) | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, | ||||||||
| Designated Series B, | ||||||||
| Common stock, $ par value; shares authorized, and shares issued and outstanding | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
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 | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Interest income: | ||||||||||||||||
| Loans | $ | $ | $ | $ | ||||||||||||
| Debt securities | ||||||||||||||||
| Other | ||||||||||||||||
| Total interest income | ||||||||||||||||
| Interest expense: | ||||||||||||||||
| Deposits | ||||||||||||||||
| Borrowings | ||||||||||||||||
| Total interest expense | ||||||||||||||||
| Net interest income | ||||||||||||||||
| Provision for loan losses | ||||||||||||||||
| Net interest income after provision for loan losses | ||||||||||||||||
| Noninterest income: | ||||||||||||||||
| Service charges and fees | ||||||||||||||||
| Other | ||||||||||||||||
| Total noninterest income | ||||||||||||||||
| Noninterest expenses: | ||||||||||||||||
| Salaries and employee benefits | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Occupancy and equipment | ||||||||||||||||
| Data processing | ||||||||||||||||
| Insurance | ||||||||||||||||
| Regulatory assessment | ||||||||||||||||
| Other | ||||||||||||||||
| Total noninterest expenses | ||||||||||||||||
| Net earnings (loss) before income taxes | ( | ) | ( | ) | ||||||||||||
| Income taxes | ||||||||||||||||
| Net earnings (loss) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Net earnings (loss) per share - Basic and diluted | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
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 | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Net earnings (loss) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Other comprehensive income (loss): | ||||||||||||||||
| Change in unrealized gain on debt securities: | ||||||||||||||||
| Unrealized gain (loss) arising during the period | ( | ) | ||||||||||||||
| Amortization of unrealized loss on debt securities transferred to held-to-maturity | ||||||||||||||||
| Other comprehensive income (loss) before income taxes | ( | ) | ||||||||||||||
| Deferred income taxes | ( | ) | ( | ) | ( | ) | ||||||||||
| Total other comprehensive income (loss) | ( | ) | ||||||||||||||
| Comprehensive income (loss) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
See accompanying notes to condensed consolidated financial statements.
| 3 |
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Stockholders’ Equity
Three and Six Months Ended June 30, 2021 and 2020
(Dollars in thousands)
| Accumulated | ||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Additional | 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 | $ | $ | $ | $
| $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||
| Proceeds from the sale of common stock (unaudited) | ||||||||||||||||||||||||||||||||||||||||
| Net loss for the three months ended March 31, 2020 (unaudited) | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Net change in unrealized loss on debt securities available for sale, net of income taxes (unaudited) | — | — | — | |||||||||||||||||||||||||||||||||||||
| Amortization of unrealized loss on debt securities transferred to held-to-maturity, net of income taxes (unaudited) | — | — | — | |||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2020 (unaudited) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Proceeds from the sale of preferred stock (unaudited) | ||||||||||||||||||||||||||||||||||||||||
| Net loss for the three months ended June 30, 2020 (unaudited) | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Net change in unrealized gain on debt securities available for sale, net of income taxes (unaudited) | — | — | — | |||||||||||||||||||||||||||||||||||||
| Amortization of unrealized loss on debt securities transferred to held-to-maturity, net of income taxes (unaudited) | — | — | — | |||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2020 (unaudited) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Proceeds from the sale of preferred stock (unaudited) | ||||||||||||||||||||||||||||||||||||||||
| Common stock issued for junior subordinated debenture interest payable (unaudited) | ||||||||||||||||||||||||||||||||||||||||
| Net change in unrealized gain on loss securities available for sale (unaudited) | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Amortization of unrealized loss on debt securities transferred to held-to-maturity (unaudited) | — | — | — | |||||||||||||||||||||||||||||||||||||
| Net earnings (unaudited) | — | — | — | |||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2021 (unaudited) | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||||||
| Proceeds from the sale of preferred stock (unaudited) | ||||||||||||||||||||||||||||||||||||||||
| Proceeds from the sale of common stock (unaudited) | ||||||||||||||||||||||||||||||||||||||||
| Common stock issued for junior subordinated debenture (unaudited) | ||||||||||||||||||||||||||||||||||||||||
| Net change in unrealized gain on debt securities available for sale (unaudited) | — | — | — | |||||||||||||||||||||||||||||||||||||
| Amortization of unrealized loss on debt securities transferred to held-to-maturity (unaudited) | — | — | — | |||||||||||||||||||||||||||||||||||||
| Net earnings for three months ended June 30, 2021 (unaudited) | — | — | — | |||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2021 (unaudited) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
| 4 |
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
| Six Months Ended | ||||||||
| June 30, | ||||||||
| 2021 | 2020 | |||||||
| Cash flows from operating activities: | ||||||||
| Net earnings (loss) | $ | $ | ( | ) | ||||
| Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities: | ||||||||
| Provision for loan losses | ||||||||
| Depreciation and amortization | ||||||||
| Net (accretion) amortization of fees, premiums and discounts | ( | ) | ||||||
| Decrease (increase) in accrued interest receivable | ( | ) | ||||||
| Amortization of right of use asset | ||||||||
| Net decrease in operating lease liabilities | ( | ) | ( | ) | ||||
| Increase in other assets | ( | ) | ( | ) | ||||
| Increase (Decrease) in official checks and other liabilities | ( | ) | ||||||
| Net cash provided by (used in) operating activities | ( | ) | ||||||
| Cash flows from investing activities: | ||||||||
| Purchase of debt securities available for sale | ( | ) | ||||||
| Principal repayments of debt securities available for sale | ||||||||
| Principal repayments of debt securities held-to-maturity | ||||||||
| Net increase in loans | ( | ) | ( | ) | ||||
| Purchases of premises and equipment | ( | ) | ( | ) | ||||
| Redemption (purchase) of FHLB stock | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Net increase in deposits | ||||||||
| Net (decrease) increase in FHLB Advances | ( | ) | ||||||
| Increase in other borrowings | ||||||||
| Proceeds from sale of preferred stock | ||||||||
| Proceeds from sale of common stock | ||||||||
| Net cash provided by financing activities | ||||||||
| Net increase in cash and cash equivalents | ||||||||
| Cash and cash equivalents at beginning of the period | ||||||||
| Cash and cash equivalents at end of the period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| Noncash transaction - | ||||||||
| Change in accumulated other comprehensive loss, net change in unrealized (loss) gain on debt securities available for sale, net of income taxes | $ | ( | ) | $ | ||||
| Amortization of unrealized loss on debt securities transferred to held-to-maturity | $ | $ | ||||||
| Right-of use lease assets obtained in exchange for operating lease liabilities | $ | $ | ||||||
| Issuance of common stock for Junior Subordinated Debenture | $ | $ | ||||||
| Issuance of common stock for Junior Subordinated Debenture interest payable | $ | $ | ||||||
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
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 June 30, 2021, and the results of operations and cash flows for the three and six month periods ended June 30, 2021 and 2020. All significant intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the three and six months ended June 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 August 11, 2021, which is the date the condensed consolidated financial statements
were issued. On July 16, 2021, the Company closed its banking office located in Plantation, Florida. The Company acquired the
remaining Trust Preferred Securities with a balance of $
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 $
The
Trust utilized the proceeds of $
In May 2018, Preferred Shares,
LLC (the “Purchaser”) acquired all
During 2018,
the Company issued shares of common stock in exchange for Trust Preferred Securities. For accounting purposes,
the Trust Preferred Securities acquired by the Company were deemed to be cancelled. As a result, the Company cancelled $
During 2019, the Company issued shares of common stock in exchange for Trust Preferred Securities. For accounting purposes,
the Trust Preferred Securities acquired by the Company were deemed to be cancelled. As a result, the Company cancelled $
The
Company had been in default under the Junior Subordinated Debenture due to the failure to pay interest since 2015. In September 2020,
the Company paid approximately $
During December 2020, the Company issued shares of common stock in exchange for Trust Preferred Securities. For accounting purposes,
the Trust Preferred Securities acquired by the Company were deemed to be cancelled. As a result, the Company cancelled $
During the first quarter of 2021, the Company issued
shares of common stock to pay approximately $
During
the second quarter of 2021, the Company issued 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 $
During the third quarter of 2021, the Company
issued 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 $
The principal owed by the Company in connection
with the Junior Subordinated Debenture was $
(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 loss, are components of comprehensive loss.
Accumulated other comprehensive loss consists of the following (in thousands):
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Unrealized (loss) gain on debt securities available for sale | $ | ( | ) | $ | ||||
| Unamortized portion of unrealized loss related to debt securities available for sale transferred to securities held-to-maturity | ( | ) | ( | ) | ||||
| Income tax benefit | ||||||||
| $ | ( | ) | $ | ( | ) | |||
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 June 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.
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13 Financial Instruments-Credit Losses (Topic 326). The ASU improves financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by the Company. The ASU requires the Company to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. The Company will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. The ASU requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the condensed consolidated financial statements. Additionally, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The ASU will take effect for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. The Company is in the process of determining the effect of the ASU on its condensed consolidated financial statements.
(continued)
| 7 |
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (Unaudited)
(2) Debt Securities. Debt Securities have been classified according to management’s intent. The carrying amount of debt securities and approximate fair values are as follows (in thousands):
| Gross | Gross | |||||||||||||||
| Amortized | Unrealized | Unrealized | Fair | |||||||||||||
| Cost | Gains | Losses | Value | |||||||||||||
| At June 30, 2021: | ||||||||||||||||
| Available for sale: | ||||||||||||||||
| SBA Pool Securities | $ | $ | $ | ( | ) | $ | ||||||||||
| Collateralized mortgage obligations | ||||||||||||||||
| Taxable municipal securities | ( | ) | ||||||||||||||
| Mortgage-backed securities | ( | ) | ||||||||||||||
| Total | $ | $ | $ | ( | ) | $ | ||||||||||
| Held-to-maturity: | ||||||||||||||||
| Collateralized mortgage obligations | $ | $ | $ | |||||||||||||
| Mortgage-backed securities | ||||||||||||||||
| Total | $ | $ | $ | |||||||||||||
| Gross | Gross | |||||||||||||||
| Amortized | Unrealized | Unrealized | Fair | |||||||||||||
| Cost | Gains | Losses | Value | |||||||||||||
| At December 31, 2020: | ||||||||||||||||
| Available for sale: | ||||||||||||||||
| SBA Pool Securities | $ | $ | $ | ( | ) | $ | ||||||||||
| Collateralized mortgage obligations | ||||||||||||||||
| Taxable municipal securities | ( | ) | ||||||||||||||
| Mortgage-backed securities | ( | ) | ||||||||||||||
| Total | $ | $ | $ | ( | ) | $ | ||||||||||
| Held-to-maturity: | ||||||||||||||||
| Collateralized mortgage obligations | $ | $ | $ | |||||||||||||
| Mortgage-backed securities | ||||||||||||||||
| Total | $ | $ | $ | |||||||||||||
There
were
(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):
| At June 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 | ||||||||||||||||
| Taxable municipal securities | ||||||||||||||||
| Mortgage-backed securities | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| 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 | ||||||||||||||||
| Taxable municipal securities | ||||||||||||||||
| Mortgage-backed securities | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
|
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
June 30, 2021 and December 31, 2020, the unrealized losses on |
(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):
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Residential real estate | $ | $ | ||||||
| Multi-family real estate | ||||||||
| Commercial real estate | ||||||||
| Land and construction | ||||||||
| Commercial | ||||||||
| Consumer | ||||||||
| Total loans | ||||||||
| Deduct: | ||||||||
| Net deferred loan fees, costs and premiums | ( | ) | ( | ) | ||||
| Allowance for loan losses | ( | ) | ( | ) | ||||
| Loans, net | $ | $ | ||||||
| An analysis of the change in the allowance for loan losses follows (in thousands): |
| Residential | Multi-Family | Commercial | Land and | |||||||||||||||||||||||||||||
| Real Estate | Real Estate | Real Estate | Construction | Commercial | Consumer | Unallocated | Total | |||||||||||||||||||||||||
| Three Months Ended June 30, 2021: | ||||||||||||||||||||||||||||||||
| Beginning balance | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Provision (credit) for loan losses | ( | ) | ||||||||||||||||||||||||||||||
| Charge-offs | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||||||||||
| Ending balance | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Three Months Ended June 30, 2020: | ||||||||||||||||||||||||||||||||
| Beginning balance | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Provision (credit) for loan losses | ( | ) | ||||||||||||||||||||||||||||||
| Charge-offs | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||||||||||
| Ending balance | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Six Months Ended June 30, 2021: | ||||||||||||||||||||||||||||||||
| Beginning balance | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Provision (Credit) for loan losses | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Charge-offs | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||||||||||
| Ending balance | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Six Months Ended June 30, 2020: | ||||||||||||||||||||||||||||||||
| Beginning balance | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| (Credit) provision for loan losses | ( | ) | ||||||||||||||||||||||||||||||
| Charge-offs | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||||||||||
| Ending balance | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
(continued)
| 10 |
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (Unaudited)
(3) Loans, Continued.
| Residential | Multi- Family | Commercial | Land and | |||||||||||||||||||||||||||||
| Real Estate | Real Estate | Real Estate | Construction | Commercial | Consumer | Unallocated | Total | |||||||||||||||||||||||||
| At June 30, 2021: | ||||||||||||||||||||||||||||||||
| Individually evaluated for impairment: | ||||||||||||||||||||||||||||||||
| Recorded investment | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Balance in allowance for loan losses | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Collectively evaluated for impairment: | ||||||||||||||||||||||||||||||||
| Recorded investment | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Balance in allowance for loan losses | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| At December 31, 2020: | ||||||||||||||||||||||||||||||||
| Individually evaluated for impairment: | ||||||||||||||||||||||||||||||||
| Recorded investment | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Balance in allowance for loan losses | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Collectively evaluated for impairment: | ||||||||||||||||||||||||||||||||
| Recorded investment | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Balance in allowance for loan losses | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
(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
took action to prepare its employees, support its clients, and help its communities. The Company has supported small business owners
by making loans through the Small Business Administration Paycheck Protection Program (“PPP”). As of June 30, 2021, the Bank
had originated
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):
| Pass | OLEM (Other Loans Especially Mentioned) | Sub- Standard | Doubtful | Loss | Total | |||||||||||||||||||
| At June 30, 2021: | ||||||||||||||||||||||||
| Residential real estate | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Multi-family real estate | ||||||||||||||||||||||||
| Commercial real estate | ||||||||||||||||||||||||
| Land and construction | ||||||||||||||||||||||||
| Commercial | ||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| At December 31, 2020: | ||||||||||||||||||||||||
| Residential real estate | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Multi-family real estate | ||||||||||||||||||||||||
| Commercial real estate | ||||||||||||||||||||||||
| Land and construction | ||||||||||||||||||||||||
| Commercial | ||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
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):
| Accruing Loans | ||||||||||||||||||||||||||||
| 30-59 Days Past Due | 60-89 Days Past Due | Greater Than 90 Days Past Past | Total Past Due | Current | Nonaccrual Loans | Total Loans | ||||||||||||||||||||||
| At June 30, 2021: | ||||||||||||||||||||||||||||
| Residential real estate | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Multi-family real estate | ||||||||||||||||||||||||||||
| Commercial real estate | ||||||||||||||||||||||||||||
| Land and construction | ||||||||||||||||||||||||||||
| Commercial | ||||||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Accruing Loans | ||||||||||||||||||||||||||||
30-59 Days Past Due |
60-89 Days Past Due |
Greater Than 90 Days Past Due |
Total Past Due |
Current | Nonaccrual Loans |
Total Loans |
||||||||||||||||||||||
| At December 31, 2020: | ||||||||||||||||||||||||||||
| Residential real estate | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Multi-family real estate | ||||||||||||||||||||||||||||
| Commercial real estate | ||||||||||||||||||||||||||||
| Land and construction | ||||||||||||||||||||||||||||
| Commercial | ||||||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
There were no impaired loans at June 30, 2021. The following summarizes the amount of impaired loans at December 31, 2020 (in thousands):
| Unpaid | ||||||||||||
| Recorded | Principal | Related | ||||||||||
| Investment | Balance | Allowance | ||||||||||
| With no related allowance recorded: | ||||||||||||
| Commercial real estate | $ | $ | ||||||||||
(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):
| Three Months Ended June 30, | ||||||||||||||||||||||||
| 2021 | 2020 | |||||||||||||||||||||||
| Average | Interest | Interest | Average | Interest | Interest | |||||||||||||||||||
| Recorded | Income | Income | Recorded | Income | Income | |||||||||||||||||||
| Investment | Recognized | Received | Investment | Recognized | Received | |||||||||||||||||||
| Residential real estate | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Commercial real estate | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Commercial | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Six Months Ended June 30, | ||||||||||||||||||||||||
| 2021 | 2020 | |||||||||||||||||||||||
| Average | Interest | Interest | Average | Interest | Interest | |||||||||||||||||||
| Recorded | Income | Income | Recorded | Income | Income | |||||||||||||||||||
| Investment | Recognized | Received | Investment | Recognized | Received | |||||||||||||||||||
| Residential real estate | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Commercial real estate | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Commercial | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| No loans have been determined to be troubled debt restructurings (TDR’s) during the three and six month periods ended June 30, 2021 or 2020. At June 30, 2021 and 2020, there were no loans modified and entered into TDR’s within the past twelve months, that subsequently defaulted during the three and six month periods ended June 30, 2021 or 2020. |
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Weighted-average number of common shares outstanding used to calculate basic and diluted loss per common share | ||||||||||||||||
(continued)
| 15 |
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (Unaudited)
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 shares of common stock under the 2018 Plan, of which shares remain available for grant.
During
the first quarter of 2021, the Company agreed to issue shares to a director for services performed and
recorded compensation expense of $.
The director has not yet taken delivery of the shares. As such, at June 30, 2021, the $
(6) Fair Value Measurements. There were
Debt securities available for sale measured at fair value on a recurring basis are summarized below (in thousands):
| Fair Value Measurements Using | ||||||||||||||||
| Fair Value | Quoted Prices In Active Markets for Identical Assets
| Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
| At June 30, 2021 : | ||||||||||||||||
| SBA Pool Securities | $ | $ | $ | |||||||||||||
| Collateralized mortgage obligations | ||||||||||||||||
| Taxable municipal securities | ||||||||||||||||
| Mortgage-backed securities | ||||||||||||||||
| Total | $ | $ | ||||||||||||||
| Fair Value Measurements Using | ||||||||||||||||
| Fair Value | Quoted
Prices In Active Markets for Identical Assets (Level 1) | Significant
Other Observable Inputs (Level 2) | Significant
Unobservable Inputs (Level 3) | |||||||||||||
| At December 31, 2020 : | ||||||||||||||||
| SBA Pool Securities | $ | $ | $ | |||||||||||||
| Collateralized mortgage obligations | ||||||||||||||||
| Taxable municipal securities | ||||||||||||||||
| Mortgage-backed securities | ||||||||||||||||
| Total | $ | $ | ||||||||||||||
(7) Fair Value of Financial Instruments. The estimated fair values and fair value measurement method with respect to the Company’s financial instruments were as follows (in thousands):
| At June 30, 2021 | At December 31, 2020 | |||||||||||||||||||||||
| Carrying Amount | Fair Value | Level | Carrying Amount | Fair Value | Level | |||||||||||||||||||
| Financial assets: | ||||||||||||||||||||||||
| Cash and cash equivalents | $ | $ | 1 | $ | $ | 1 | ||||||||||||||||||
| Debt securities available for sale | 2 | 2 | ||||||||||||||||||||||
| Debt securities held-to-maturity | 2 | 2 | ||||||||||||||||||||||
| Loans | 3 | 3 | ||||||||||||||||||||||
| Federal Home Loan Bank stock | 3 | 3 | ||||||||||||||||||||||
| Accrued interest receivable | 3 | 3 | ||||||||||||||||||||||
| Financial liabilities: | ||||||||||||||||||||||||
| Deposit liabilities | 3 | 3 | ||||||||||||||||||||||
| Federal Home Loan Bank advances | 3 | 3 | ||||||||||||||||||||||
| Junior subordinated debenture | (1) | 3 | (1) | 3 | ||||||||||||||||||||
| Off-balance sheet financial instruments | 3 | 3 | ||||||||||||||||||||||
| (1) |
(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 June 30, 2021 follows (in thousands):
| Commitments to extend credit | $ | |||
| Unused lines of credit | $ | |||
| Standby letters of credit | $ |
(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
(continued)
| 17 |
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (Unaudited)
(9) Regulatory Matters, Continued.
Management believes, as of June 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):
| Actual | To Be Well Capitalized Under Prompt Corrective Action Regulations (CBLR Framework) | |||||||||||||||
| Amount | % | Amount | % | |||||||||||||
| As of June 30, 2021: | ||||||||||||||||
| Tier I Capital to Total Assets | % | % | ||||||||||||||
| 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 | % | % | ||||||||||||||
(10) Preferred Stock
During the first quarter of 2021, the Company issued shares of Series B Participating Preferred Stock
(the “Series B Preferred Stock”) to a related party at a cash price of $per share, or an aggregate of $
During the second quarter of 2021, the Company
issued shares of Series B Participating Preferred Stock (the “Series B Preferred Stock”) to a non-related party at a
cash price of $ per share, or an aggregate of $
The
Series B Preferred Stock has
(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.
The following discussion and analysis should also be read in conjunction with the condensed consolidated financial statements and notes thereto appearing elsewhere in this report. This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements involve known and unknown risks and uncertainties, many of which are beyond the control of the Company, including adverse changes in economic, political and market conditions, losses from the Company’s lending activities and changes in market conditions, the possible loss of key personnel, the impact of increasing competition, the impact of changes in government regulation, the possibility of liabilities arising from violations of federal and state securities laws and the impact of changes in technology in the banking industry. Although the Company believes that its forward-looking statements are based upon reasonable assumptions regarding its business and future market conditions, there can be no assurances that the Company’s actual results will not differ materially from any results expressed or implied by the Company’s forward-looking statements. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Readers are cautioned that any forward-looking statements are not guarantees of future performance.
Capital Levels
As of June 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 June 30, 2021 and December 31, 2020
Overview
The Company’s total assets increased by approximately $59 million to $294.1 million at June 30, 2021, from $235.1 million at December 31, 2020, primarily due to an increase in loans, cash and cash equivalents and debt securities. Total stockholders’ equity increased by approximately $11.3 to $29.1 million at June 30, 2021, from $17.8 million at December 31, 2020, primarily due to proceeds from the sale of preferred stock, common stock and net earnings which was partially offset by the change in accumulated other comprehensive loss for the three and six months ended June 30, 2021.
The following table shows selected information for the periods ended or at the dates indicated:
Six Months Ended June 30, 2021 | Year Ended December 31, 2020 | |||||||
| Average equity as a percentage of average assets | 7.7 | % | 5.8 | % | ||||
| Equity to total assets at end of period | 9.9 | % | 7.6 | % | ||||
| Return on average assets (1) | 0.6 | % | (0.5 | )% | ||||
| Return on average equity (1) | 7.9 | % | (7.8 | )% | ||||
| Noninterest expenses to average assets (1) | 2.3 | % | 2.9 | % | ||||
(1) Annualized for the six months ended June 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 $53.2 million during the six month period ending June 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 June 30, 2021, the Company had outstanding borrowings of $18 million, against its $63 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 June 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 for Off-Balance Sheet Arrangements.
Junior Subordinated Debenture
Please refer to Note 1 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 June 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 | $ | 182,136 | $ | 2,178 | 4.78 | % | $ | 126,385 | $ | 1,561 | 4.94 | % | ||||||||||||
| Securities | 24,306 | 86 | 1.42 | % | 10,053 | 49 | 1.95 | % | ||||||||||||||||
| Other (1) | 39,274 | 26 | 0.26 | % | 13,204 | 16 | 0.48 | % | ||||||||||||||||
| Total interest-earning assets/interest income | 245,716 | 2,290 | 3.73 | % | 149,642 | 1,626 | 4.35 | % | ||||||||||||||||
| Cash and due from banks | 23,867 | 5,970 | ||||||||||||||||||||||
| Premises and equipment | 1,326 | 1,470 | ||||||||||||||||||||||
| Other | 1,687 | 1,173 | ||||||||||||||||||||||
| Total assets | $ | 272,596 | $ | 158,255 | ||||||||||||||||||||
| Interest-bearing liabilities: | ||||||||||||||||||||||||
| Savings, NOW and money-market deposits | $ | 121,476 | 122 | 0.40 | % | $ | 70,402 | 213 | 1.21 | % | ||||||||||||||
| Time deposits | 18,270 | 31 | 0.68 | % | 29,521 | 142 | 1.92 | % | ||||||||||||||||
| Borrowings (2) | 20,057 | 81 | 1.62 | % | 29,068 | 121 | 1.67 | % | ||||||||||||||||
| Total interest-bearing liabilities/interest expense | 159,803 | 234 | 0.59 | % | 128,991 | 476 | 1.48 | % | ||||||||||||||||
| Noninterest-bearing demand deposits | 89,047 | 19,234 | ||||||||||||||||||||||
| Other liabilities | 1,699 | 2,506 | ||||||||||||||||||||||
| Stockholders’ equity | 22,047 | 7,524 | ||||||||||||||||||||||
| Total liabilities and stockholders’ equity | $ | 272,596 | $ | 158,255 | ||||||||||||||||||||
| Net interest income | $ | 2,056 | $ | 1,150 | ||||||||||||||||||||
| Interest rate spread (3) | 3.14 | % | 2.87 | % | ||||||||||||||||||||
| Net interest margin (4) | 3.35 | % | 3.07 | % | ||||||||||||||||||||
| Ratio of average interest-earning assets to average interest-bearing liabilities | 1.54 | % | 1.16 | % | ||||||||||||||||||||
| (1) | Includes interest-earning deposits with banks and Federal Home Loan Bank stock dividends. |
| (2) | Includes Federal Home Loan Bank advances, other borrowings and the junior subordinated debenture. |
| (3) | Interest-rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. |
| (4) | Net interest margin is net interest income divided by average interest-earning assets. |
| (5) | Annualized. |
(continued)
| 21 |
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
| Six Months Ended June 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 | $ | 172,611 | $ | 4,025 | 4.66 | % | $ | 116,565 | $ | 2,974 | 5.10 | % | ||||||||||||
| Securities | 25,014 | 177 | 1.42 | % | 10,478 | 95 | 1.81 | % | ||||||||||||||||
| Other (1) | 33,386 | 53 | 0.32 | % | 12,326 | 60 | 0.97 | % | ||||||||||||||||
| Total interest-earning assets/interest income | 231,011 | 4,255 | 3.68 | % | 139,369 | 3,129 | 4.49 | % | ||||||||||||||||
| Cash and due from banks | 25,967 | 4,382 | ||||||||||||||||||||||
| Premises and equipment | 1,316 | 1,466 | ||||||||||||||||||||||
| Other | 2,097 | 911 | ||||||||||||||||||||||
| Total assets | $ | 260,391 | $ | 146,128 | ||||||||||||||||||||
| Interest-bearing liabilities: | ||||||||||||||||||||||||
| Savings, NOW and money-market deposits | $ | 117,193 | 256 | 0.44 | % | $ | 63,831 | 439 | 1.38 | % | ||||||||||||||
| Time deposits | 19,540 | 78 | 0.80 | % | 31,407 | 318 | 2.03 | % | ||||||||||||||||
| Borrowings (2) | 22,341 | 179 | 1.60 | % | 24,106 | 226 | 1.88 | % | ||||||||||||||||
| Total interest-bearing liabilities/interest expense | 159,074 | 513 | 0.64 | % | 119,344 | 983 | 1.65 | % | ||||||||||||||||
| Noninterest-bearing demand deposits | 79,657 | 16,899 | ||||||||||||||||||||||
| Other liabilities | 1,593 | 2,489 | ||||||||||||||||||||||
| Stockholders’ equity | 20,067 | 7,396 | ||||||||||||||||||||||
| Total liabilities and stockholders’ equity | $ | 260,391 | $ | 146,128 | ||||||||||||||||||||
| Net interest income | $ | 3,742 | $ | 2,146 | ||||||||||||||||||||
| Interest rate spread (3) | 3.04 | % | 2.84 | % | ||||||||||||||||||||
| Net interest margin (4) | 3.24 | % | 3.08 | % | ||||||||||||||||||||
| Ratio of average interest-earning assets to average interest-bearing liabilities | 1.45 | % | 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 June 30, 2021 and 2020
| Three Months Ended | Increase / | |||||||||||||||
| June 30, | (Decrease) | |||||||||||||||
| (dollars in thousands) | 2021 | 2020 | Amount | Percentage | ||||||||||||
| Total interest income | $ | 2,290 | $ | 1,626 | $ | 664 | 41 | % | ||||||||
| Total interest expense | 234 | 476 | (242 | ) | -51 | % | ||||||||||
| Net interest income | 2,056 | 1,150 | 906 | 79 | % | |||||||||||
| Provision for loan losses | 397 | 523 | (126 | ) | -24 | % | ||||||||||
| Net interest income after provision for loan losses | 1,659 | 627 | 1,032 | 165 | % | |||||||||||
| Total noninterest income | 302 | 33 | 269 | 815 | % | |||||||||||
| Total noninterest expenses | 1,517 | 1,007 | 510 | 51 | % | |||||||||||
| Net earnings (loss) before income taxes | 444 | (347 | ) | 791 | 228 | % | ||||||||||
| Income taxes | - | - | - | - | ||||||||||||
| Net earnings (loss) | $ | 444 | $ | (347 | ) | 791 | 228 | % | ||||||||
| Net earnings (loss) per share - Basic and diluted | $ | 0.14 | $ | (0.12 | ) | |||||||||||
Net earnings (loss). Net earnings for the three months ended June 30, 2021, was $444,000 or $0.14 per basic and diluted share compared to a net loss of $(347,000) or $(0.12) per basic and diluted share for the three months ended June 30, 2020. The increase in net earnings during the three months ended June 30, 2021 compared to three months ended June 30, 2020 is primarily attributed to a decrease in the provision for loan losses, increase in noninterest income and net interest income, partially offset by the increase in noninterest expense.
Interest Income. Interest income increased $664,000 for the three months ended June 30, 2021 compared to the three ended June 30, 2020 due primarily to growth in the loan portfolio.
Interest Expense. Interest expense decreased $242,000 to $234,000 for the three months ended June 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 $397,000 for the three months ended June 30, 2021 compared to $523,000 for the three months ended June 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 June 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 $2.2 million or 1.15% of loans outstanding at June 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 an evaluation of the other factors noted above.
Noninterest Income. Total noninterest income increased to $302,000 for the three months ended June 30, 2021, from $33,000 for the three months ended June 30, 2020 due to increased wire transfer and ACH fees related to an increase in business checking accounts of approximately $27.5 million during the three month period ended June 30, 2021.
Noninterest Expenses. Total noninterest expenses increased to $1,517,000 for the three months ended June 30, 2021 compared to $1,007,000 for the three months ended June 30, 2020 primarily due to an increase in salaries and employee benefits, professional fees, data processing, and other.
| 23 |
Comparison of the Six-Month Periods Ended June 30, 2021 and 2020
| Six Months Ended | Increase / | |||||||||||||||
| June 30, | (Decrease) | |||||||||||||||
| (dollars in thousands) | 2021 | 2020 | Amount | Percentage | ||||||||||||
| Total interest income | $ | 4,255 | $ | 3,129 | $ | 1,126 | 36 | % | ||||||||
| Total interest expense | 513 | 983 | (470 | ) | -48 | % | ||||||||||
| Net interest income | 3,742 | 2,146 | 1,596 | 74 | % | |||||||||||
| Provision for loan losses | 373 | 712 | (339 | ) | -48 | % | ||||||||||
| Net interest income after provision for loan losses | 3,369 | 1,434 | 1,935 | 135 | % | |||||||||||
| Total noninterest income | 478 | 106 | 372 | 351 | % | |||||||||||
| Total noninterest expenses | 3,055 | 2,195 | 860 | 39 | % | |||||||||||
| Net earnings (loss) before income taxes | 792 | (655 | ) | 1,447 | 221 | % | ||||||||||
| Income taxes | - | - | - | - | ||||||||||||
| Net earnings (loss) | $ | 792 | $ | (655 | ) | 1,447 | 221 | % | ||||||||
| Net earnings (loss) per share - Basic and diluted | $ | 0.24 | $ | (0.23 | ) | |||||||||||
Net earnings (loss). Net earnings for the six months ended June 30, 2021, was $792,000 or $0.24 per basic and diluted share compared to a net loss of $(655,000) or $(0.23) per basic and diluted share for the six months ended June 30, 2020. The increase in net earnings during the six months ended June 30, 2021 compared to six months ended June 30, 2020 is primarily attributed to a decrease in the provision for loan losses, increase in noninterest income and net interest income, partially offset by the increase in noninterest expense.
Interest Income. Interest income increased $1,126,000 for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 due primarily to growth in the loan portfolio.
Interest Expense. Interest expense decreased $470,000 to $513,000 for the six months ended June 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 $373,000 for the six months ended June 30, 2021 compared to $712,000 for the six months ended June 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 June 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 $2.2 million or 1.15% of loans outstanding at June 30, 2021, compared to $1.9 million or 1.23% of loans outstanding at December 31, 2020. The provision for loan losses during six months ended June 30, 2021 was primarily due to loan volume growth and the an evaluation of the other factors noted above.
Noninterest Income. Total noninterest income increased to $478,000 for the six months ended June 30, 2021, from $106,000 for the six months ended June 30, 2020 due to increased wire transfer and ACH fees related to an increase in business checking accounts of approximately $46.5 million during the six month period ended June 30, 2021.
Noninterest Expenses. Total noninterest expenses increased to $3,055,000 for the six months ended June 30, 2021 compared to $2,195,000 for the six months ended June 30, 2020 primarily due to an increase in salaries and employee benefits, data processing, and other.
| 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 June 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 first quarter of 2021, the Company issued a total of 160 shares of Series B preferred stock to Michael Blisko, a director of the Company, for a purchase price of $4,000,000. The issuance of the shares in these transactions were exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933 as a transaction by an issuer not involving a public offering. The Company used the proceeds to make capital contributions to the Bank in order to augment the Bank’s regulatory capital ratios.
During the second quarter of 2021, the Company issued a total of 200 shares of Series B preferred stock to a non-related party for a purchase price of $5,000,000. The issuance of the shares in these transactions were exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933 as a transaction by an issuer not involving a public offering. The Company used the proceeds to- make capital contributions to the Bank in order to augment the Bank’s regulatory capital ratios.
During the second quarter of 2021, the Company issued a total of 200 shares of preferred stock to a non-related party for a purchase price of $5,000,000. The issuance of the shares in these transactions were exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933 as a transaction by an issuer not involving a public offering. The Company used the proceeds to augment the Bank’s regulatory capital ratios.
During June 2021, the Company issued 262,417 shares of its common stock in a private placement transaction to four accredited investors. All of the shares were sold at a price of $4.50 per share, except for 23,529 shares sold to one purchaser at a price of $4.25 per share. None of the investors was an officer, director or affiliate of the Company. The issuance of the shares in these transactions were exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933 as a transaction by an issuer not involving a public offering.
During July 2021, the Company issued an additional 205,823 shares of its common stock in a private placement transaction to four 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 5,323 shares. The shares issued to Mr. Schmidt were issued to him pursuant to the company’s equity incentive plan. The issuance of the shares in these transactions were exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933 as a transaction by an issuer not involving a public offering.
Item 3. Defaults on Senior Securities
Previously disclosed.
Item 4. Mine Safety Disclosures
None
Item 5. Other Information
None
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: August 11, 2021 | By: | /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
| 27 |
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
EXHIBIT INDEX
| Exhibit No. | Description | |
| 101.INS | XBRL Instance Document | |
| 101.SCH | XBRL Taxonomy Extension Schema Document | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
| 28 |