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 ☐ | |
| 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 ☐
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 August 8, 2022.
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, | December 31, | |||||||
| 2022 | 2021 | |||||||
| (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 | ||||||||
| Deferred tax asset | ||||||||
| 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 | ||||||||
| Repurchase agreements | ||||||||
| Official checks | ||||||||
| Operating lease liabilities | ||||||||
| Other liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Notes 8 and 11) | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, | ||||||||
| Series A Preferred, | ||||||||
| Series B Convertible Preferred, par value, shares authorized, and shares issued and outstanding | ||||||||
| 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 Earnings (Unaudited)
(in thousands, except per share amounts)
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| 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 before income taxes | ||||||||||||||||
| Income taxes | ||||||||||||||||
| Net earnings | $ | $ | $ | $ | ||||||||||||
| Net earnings per share - Basic and diluted | $ | $ | $ | $ | ||||||||||||
See accompanying notes to condensed consolidated financial statements.
| 2 |
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Condensed
Consolidated Statements of Comprehensive (loss) income (Unaudited)
(In thousands)
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Net earnings | $ | $ | $ | $ | ||||||||||||
| Other comprehensive (loss) income: | ||||||||||||||||
| Change in unrealized loss on debt securities: | ||||||||||||||||
| Unrealized (loss) gain arising during the period | ( | ) | ( | ) | ( | ) | ||||||||||
| Amortization of unrealized loss on debt securities transferred to held-to-maturity | ||||||||||||||||
| Other comprehensive (loss) income before income taxes | ( | ) | ( | ) | ( | ) | ||||||||||
| Deferred income taxes | ( | ) | ||||||||||||||
| Total other comprehensive (loss) income | ( | ) | ( | ) | ( | ) | ||||||||||
| Comprehensive (loss) income | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
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, 2022 and 2021
(Dollars in thousands)
| Preferred Stock | ||||||||||||||||||||||||||||||||||||||||
| Series A | Series B | Common Stock | Additional Paid-In | Accumulated | Accumulated Comprehensive | Stockholders’ | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Loss | Equity | |||||||||||||||||||||||||||||||
| 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 loss on debt 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) | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||
| Balance at December 31, 2021 (unaudited) | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||
| Proceeds from the sale of preferred stock (unaudited) | — | — | ||||||||||||||||||||||||||||||||||||||
| Proceeds from the sale of common stock (unaudited) | — | — | ||||||||||||||||||||||||||||||||||||||
| Net change in unrealized loss 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 March 31, 2022 (unaudited) | — | $ | — | $ | — | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Balance at March 31, 2022 (unaudited) | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||
| Stock-based Compensation (unaudited) | — | — | ||||||||||||||||||||||||||||||||||||||
| Net change in unrealized loss on debt securities available for sale (unaudited) | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Amortization of unrealized loss on debt securities transferred to held-to-maturity (unaudited) | — | — | — | |||||||||||||||||||||||||||||||||||||
| Net earnings (unaudited) | — | — | — | |||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2022 (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, | ||||||||
| 2022 | 2021 | |||||||
| Cash flows from operating activities: | ||||||||
| Net earnings | $ | $ | ||||||
| Adjustments to reconcile net earnings to net cash provided by in operating activities: | ||||||||
| Provision for loan losses | ||||||||
| Depreciation and amortization | ||||||||
| Deferred income taxes | ||||||||
| Net accretion of fees, premiums and discounts | ( | ) | ( | ) | ||||
| Stock-based compensation expense | ||||||||
| (Increase) decrease in accrued interest receivable | ( | ) | ||||||
| Amortization of right of use asset | ||||||||
| Net decrease in operating lease liabilities | ( | ) | ( | ) | ||||
| Increase in other assets | ( | ) | ( | ) | ||||
| Increase in official checks and other liabilities | ||||||||
| Net cash provided by 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 | ( | ) | ( | ) | ||||
| (Purchase) redemption of FHLB stock | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Net increase in deposits | ||||||||
| Net increase (decrease) in FHLB Advances | ( | ) | ||||||
| Net change in repurchase agrements | ||||||||
| 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 transactions: | ||||||||
| Change in accumulated other comprehensive loss, net change in unrealized loss 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 | $ | $ | ||||||
| Increase in other liabilities for stock-based compensation | $ | $ | ||||||
| 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, 2022, and the results of operations and cash flows for the three and six month periods ended June 30, 2022 and 2021. All significant intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the three and six months ended June 30, 2022, are not necessarily indicative of the results to be expected for the full year.
Subsequent Events. The Company has evaluated subsequent events through August 8, 2022, which is the date the condensed consolidated financial statements were issued, determining no additional events required disclosure.
(continued)
| 6 |
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (Unaudited)
(1) General, Continued.
Comprehensive (Loss) Income. Generally Accepted Accounting Principles generally requires that recognized revenue, expenses, gains and losses be included in net earnings. 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, are components of comprehensive loss.
Accumulated other comprehensive loss consists of the following (in thousands):
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Unrealized loss 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 | ||||||||
| Accumulated other comprehensive loss | $ | ( | ) | $ | ( | ) | ||
Income Taxes.
During
the fourth quarter of 2021 the Company assessed its earnings history and trend over the past year and its estimate of future earnings,
and the Company determined that it was more likely than not that the deferred tax assets would be realized in the near term. Accordingly,
in the fourth quarter of 2021, the valuation allowance in the amount of $
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 has executed an implementation plan through adoption date, implemented a software solution to assist with the estimation process, and has completed a data analysis. The Company expects that the impact of this ASU will not have a material effect to the Company’s 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, 2022: | ||||||||||||||||
| 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, 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 | $ | $ | $ | $ | ||||||||||||
There were no sales of debt securities during the three and six months ended June 30, 2022 and 2021.
(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, 2022 | ||||||||||||||||
| Over Twelve Months | Less Than Twelve Months | |||||||||||||||
| Gross | Gross | |||||||||||||||
| Unrealized | Fair | Unrealized | Fair | |||||||||||||
| Losses | Value | Losses | Value | |||||||||||||
| Available for Sale: | ||||||||||||||||
| SBA Pool Securities | $ | ( | ) | $ | $ | $ | ||||||||||
| Collateralized mortgage obligation | ( | ) | ||||||||||||||
| Taxable municipal securities | ( | ) | ( | ) | ||||||||||||
| Mortgage-backed securities | ( | ) | ( | ) | ||||||||||||
| Total | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| At December 31, 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 | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
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, 2022 and December 31, 2021, the unrealized losses on thirty-seven and twenty-nine debt securities, respectively, were caused by market conditions. It is expected that the debt securities will 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):
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| 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 Real | Multi-Family Real | Commercial | Land and | |||||||||||||||||||||||||||||
| Estate | Estate | Real Estate | Construction | Commercial | Consumer | Unallocated | Total | |||||||||||||||||||||||||
| Three Months Ended June 30, 2022: | ||||||||||||||||||||||||||||||||
| Beginning balance | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||
| (Credit) provision for loan losses | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Charge-offs | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||||||||||
| Ending balance | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||
| Three Months Ended June 30, 2021: | ||||||||||||||||||||||||||||||||
| Beginning balance | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||
| Provision (Credit) for loan losses | ( | ) | ||||||||||||||||||||||||||||||
| Charge-offs | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||||||||||
| Ending balance | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||
| Six Months Ended June 30, 2022: | ||||||||||||||||||||||||||||||||
| Beginning balance | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Provision for loan losses | ||||||||||||||||||||||||||||||||
| Charge-offs | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||||||||||
| Ending balance | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Six Months Ended June 30, 2021: | ||||||||||||||||||||||||||||||||
| 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 | |||||||||||||||||||||||||||
| Real | Real | Commercial | Land and | |||||||||||||||||||||||||
| Estate | Estate | Real Estate | Construction | Commercial | Consumer | Total | ||||||||||||||||||||||
| At June 30, 2022: | ||||||||||||||||||||||||||||
| 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, 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 | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
(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.
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, 2022: | ||||||||||||||||||||||||
| Residential real estate | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Multi-family real estate | ||||||||||||||||||||||||
| Commercial real estate | ||||||||||||||||||||||||
| Land and construction | ||||||||||||||||||||||||
| Commercial | ||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| At December 31, 2021: | ||||||||||||||||||||||||
| 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 | ||||||||||||||||||||||||||||
| Greater | ||||||||||||||||||||||||||||
| 30-59 | 60-89 | Than 90 | Total | |||||||||||||||||||||||||
Days Past | Days Past | Days Past | Past | Nonaccrual | Total | |||||||||||||||||||||||
| Due | Due | Past | Due | Current | Loans | Loans | ||||||||||||||||||||||
| At June 30, 2022: | ||||||||||||||||||||||||||||
| 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, 2021: | ||||||||||||||||||||||||||||
| Residential real estate | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Multi-family real estate | ||||||||||||||||||||||||||||
| Commercial real estate | ||||||||||||||||||||||||||||
| Land and construction | ||||||||||||||||||||||||||||
| Commercial | ||||||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
There were no impaired loans at June 30, 2022 or December 31, 2021.
(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, | ||||||||||||||||||||||||
| 2022 | 2021 | |||||||||||||||||||||||
| 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, | ||||||||||||||||||||||||
| 2022 | 2021 | |||||||||||||||||||||||
| 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, 2022 or 2021. At June 30, 2022 and 2021, there were no loans modified and entered into as TDR’s within the past twelve months, that subsequently defaulted during the three and six month periods ended June 30, 2022 or 2021. |
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Weighted-average number of common shares outstanding used to calculate basic and diluted earnings 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. stock options are outstanding at June 30, 2022.
During the quarter ended June 30, 2022, the Company recognized $ of stock-based compensation with respect to shares issued to employees for services performed.
(6) Fair Value Measurements. There were no impaired collateral dependent loans measured at fair value on a nonrecurring basis at June 30, 2022 and December 31, 2021.
Debt securities available for sale measured at fair value on a recurring basis are summarized below (in thousands):
| Fair Value Measurements Using | ||||||||||||||||
| Quoted Prices | ||||||||||||||||
| In Active Markets for | Significant Other | Significant | ||||||||||||||
| Identical Assets | Observable Inputs | Unobservable Inputs | ||||||||||||||
| Fair Value | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
| At June 30, 2022 : | ||||||||||||||||
| SBA Pool Securities | $ | $ | $ | |||||||||||||
| Collateralized mortgage obligations | ||||||||||||||||
| Taxable municipal securities | ||||||||||||||||
| Mortgage-backed securities | ||||||||||||||||
| Total | $ | $ | ||||||||||||||
| At December 31, 2021 : | ||||||||||||||||
| 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, 2022 | At December 31, 2021 | |||||||||||||||||||||||
| 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 | ||||||||||||||||||||||
| Repurchase agreements | 3 | 3 | ||||||||||||||||||||||
| Off-balance sheet financial instruments | 3 | 3 | ||||||||||||||||||||||
(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, 2022 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.
(continued)
| 17 |
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements (Unaudited)
(9) Regulatory Matters, Continued.
Management believes, as of June 31, 2022 and December 31, 2021, 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, 2022: | ||||||||||||||||
| Tier I Capital to Total Assets | $ | % | $ | % | ||||||||||||
| As of December 31, 2021: | ||||||||||||||||
| Tier I Capital to Total Assets | $ | % | $ | % | ||||||||||||
(10) Preferred Stock
During
the first quarter of 2022, the Company issued shares of Series B-2 Participating Preferred Stock to an unrelated party at a cash
price of $ per share, or an aggregate of $
OptimumBank Holding Inc. is authorized to issue shares of Series B Participating Preferred Stock at a price of $ per share. The Preferred Stock has no par value. Except in the event 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 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.
The
Preferred Stock is convertible into shares of common stock, at the option of the Company, subject to the prior fulfilment of the following
conditions: (i) such conversion shall have been approved by the holders of a majority of the outstanding common stock of the Company;
and (ii) such conversion shall not result in any holder of the Series B Preferred Stock and any persons with whom the holder may be acting
in concert, becoming beneficial owners of more than of the outstanding shares of the common stock. The number of shares issuable
upon conversion is subject to adjustment based on the terms of the applicable Certificate of Designation for the Series B Preferred (the
“Certificate of Designation”) The Series B Preferred has preferential liquidation rights over common stockholders and holders
of junior securities. The liquidation price is the greater of $
The Series B is subdivided into Series B-1 and Series B-2 Preferred Stock. The Company is authorized to issue shares of Series B-1 and shares of Series B-2.
Series
B-2 has substantially the same rights, preferences, powers, restrictions and limitations, except that the initial conversion price of
the Series B-1 is $
(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, 2021 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 June 30, 2022, 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, 2022 and December 31, 2021
Overview
The Company’s total assets increased by approximately $114.7 million to $466.6 million at June 30, 2022, from $351.9 million at December 31, 2021, primarily due to increases in loans, and cash and cash equivalents. The growth in assets was attributable to the success of the Company’s efforts to increase loans and deposits from new customers. Net loans grew by $101 million and deposits grew by approximately $49.4 million to $341.8 million at June 30, 2022, from $292.5 million at December 31, 2021. The Company increased the Federal Home Loan Bank advances by $50 million to $68 million at June 30, 2022. Total stockholders’ equity increased by approximately $9.5 million to $48.0 million at June 30, 2022, from $38.5 million at December 31, 2021, primarily due to proceeds from the sale of preferred stock, common stock and net earnings. The increase in stockholders’ equity was partially offset by the increase in accumulated other comprehensive loss of approximately $4.4 million for the six months ended June 30, 2022.
The following table shows selected information for the periods ended or at the dates indicated:
| Six Months Ended | Year Ended | |||||||
| 30-Jun-22 | 31-Dec-21 | |||||||
| Average equity as a percentage of average assets | 11.1 | % | 9.4 | % | ||||
| Equity to total assets at end of period | 10.3 | % | 11.0 | % | ||||
| Return on average assets (1) | 0.9 | % | 2.2 | % | ||||
| Return on average equity (1) | 8.3 | % | 23.3 | % | ||||
| Noninterest expenses to average assets (1) | 2.3 | % | 2.4 | % | ||||
(1) Annualized for the six months ended June 30, 2022.
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, 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 $49.4 million during the six-month period ending June 30, 2022. The proceeds were used to originate new loans.
In addition to obtaining funds from depositors, the Company may borrow funds from other financial institutions. At June 30, 2022, the Company had outstanding borrowings of $68 million, against its $93 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. At June 30, 2022, the Company also had available lines of credit amounting to $19.5 million with six 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.
(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, | ||||||||||||||||||||||||
| 2022 | 2021 | |||||||||||||||||||||||
| 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 | $ | 297,472 | $ | 3,764 | 5.06 | % | $ | 182,136 | $ | 2,178 | 4.78 | % | ||||||||||||
| Securities | 29,944 | 159 | 2.12 | % | 24,306 | 86 | 1.42 | % | ||||||||||||||||
| Other (1) | 44,235 | 102 | 0.92 | % | 39,274 | 26 | 0.26 | % | ||||||||||||||||
| Total interest-earning assets/interest income | 371,651 | 4,025 | 4.33 | % | 245,716 | 2,290 | 3.73 | % | ||||||||||||||||
| Cash and due from banks | 15,264 | 23,867 | ||||||||||||||||||||||
| Premises and equipment | 863 | 1,326 | ||||||||||||||||||||||
| Other | 5,010 | 1,687 | ||||||||||||||||||||||
| Total assets | $ | 392,788 | $ | 272,596 | ||||||||||||||||||||
| Interest-bearing liabilities: | ||||||||||||||||||||||||
| Savings, NOW and money-market deposits | $ | 154,365 | 125 | 0.32 | % | $ | 121,476 | 122 | 0.40 | % | ||||||||||||||
| Time deposits | 15,958 | 45 | 1.13 | % | 18,270 | 31 | 0.68 | % | ||||||||||||||||
| Borrowings (2) | 24,649 | 102 | 1.66 | % | 20,057 | 81 | 1.62 | % | ||||||||||||||||
| Total interest-bearing liabilities/interest expense | 194,972 | 272 | 0.56 | % | 159,803 | 234 | 0.59 | % | ||||||||||||||||
| Noninterest-bearing demand deposits | 146,579 | 89,047 | ||||||||||||||||||||||
| Other liabilities | 2,521 | 1,699 | ||||||||||||||||||||||
| Stockholders’ equity | 48,716 | 22,047 | ||||||||||||||||||||||
| Total liabilities and stockholders’ equity | $ | 392,788 | $ | 272,596 | ||||||||||||||||||||
| Net interest income | $ | 3,753 | $ | 2,056 | ||||||||||||||||||||
| Interest rate spread (3) | 3.77 | % | 3.14 | % | ||||||||||||||||||||
| Net interest margin (4) | 4.04 | % | 3.35 | % | ||||||||||||||||||||
| Ratio of average interest-earning assets to average interest-bearing liabilities | 1.91 | 1.54 | ||||||||||||||||||||||
| (1) | Includes interest-earning deposits with banks and Federal Home Loan Bank stock dividends. |
| (2) | Includes Federal Home Loan Bank advances and other borrowings. |
| (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, | ||||||||||||||||||||||||
| 2022 | 2021 | |||||||||||||||||||||||
| 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 | $ | 280,957 | $ | 7,027 | 5.00 | % | $ | 172,611 | $ | 4,025 | 4.66 | % | ||||||||||||
| Securities | 32,026 | 322 | 2.01 | % | 25,014 | 177 | 1.42 | % | ||||||||||||||||
| Other (1) | 57,933 | 139 | 0.48 | % | 33,386 | 53 | 0.32 | % | ||||||||||||||||
| Total interest-earning assets/interest income | 370,916 | 7,488 | 4.04 | % | 231,011 | 4,255 | 3.68 | % | ||||||||||||||||
| Cash and due from banks | 15,277 | 25,967 | ||||||||||||||||||||||
| Premises and equipment | 861 | 1,316 | ||||||||||||||||||||||
| Other | 4,850 | 2,097 | ||||||||||||||||||||||
| Total assets | $ | 391,904 | $ | 260,391 | ||||||||||||||||||||
| Interest-bearing liabilities: | ||||||||||||||||||||||||
| Savings, NOW and money-market deposits | $ | 168,478 | 286 | 0.34 | % | $ | 117,193 | 256 | 0.44 | % | ||||||||||||||
| Time deposits | 14,097 | 59 | 0.84 | % | 19,540 | 78 | 0.80 | % | ||||||||||||||||
| Borrowings (2) | 21,324 | 163 | 1.53 | % | 22,341 | 179 | 1.60 | % | ||||||||||||||||
| Total interest-bearing liabilities/interest expense | 203,899 | 508 | 0.50 | % | 159,074 | 513 | 0.64 | % | ||||||||||||||||
| Noninterest-bearing demand deposits | 141,927 | 79,657 | ||||||||||||||||||||||
| Other liabilities | 2,598 | 1,593 | ||||||||||||||||||||||
| Stockholders’ equity | 43,480 | 20,067 | ||||||||||||||||||||||
| Total liabilities and stockholders’ equity | $ | 391,904 | $ | 260,391 | ||||||||||||||||||||
| Net interest income | $ | 6,980 | $ | 3,742 | ||||||||||||||||||||
| Interest rate spread (3) | 3.54 | % | 3.04 | % | ||||||||||||||||||||
| Net interest margin (4) | 3.76 | % | 3.24 | % | ||||||||||||||||||||
| Ratio of average interest-earning assets to average interest-bearing liabilities | 1.82 | 1.45 | ||||||||||||||||||||||
| (1) | Includes interest-earning deposits with banks and Federal Home Loan Bank stock dividends. |
| (2) | Includes Federal Home Loan Bank advances and other borrowings. |
| (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. |
| 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, 2022 and 2021
| Three Months Ended | Increase / | |||||||||||||||
| June 30, | (Decrease) | |||||||||||||||
| (dollars in thousands) | 2022 | 2021 | Amount | Percentage | ||||||||||||
| Total interest income | $ | 4,025 | $ | 2,290 | $ | 1,735 | 76 | % | ||||||||
| Total interest expense | 272 | 234 | 38 | 16 | % | |||||||||||
| Net interest income | 3,753 | 2,056 | 1,697 | 83 | % | |||||||||||
| Provision for loan losses | 991 | 397 | 594 | 150 | % | |||||||||||
| Net interest income after provision for loan losses | 2,762 | 1,659 | 1,103 | 66 | % | |||||||||||
| Total noninterest income | 764 | 302 | 462 | 153 | % | |||||||||||
| Total noninterest expenses | 2,260 | 1,517 | 743 | 49 | % | |||||||||||
| Net earnings before income taxes | 1,266 | 444 | 822 | 185 | % | |||||||||||
| Income taxes | 321 | — | 321 | — | ||||||||||||
| Net earnings | $ | 945 | $ | 444 | 501 | 113 | % | |||||||||
| Net earnings per share - Basic and diluted | $ | 0.16 | $ | 0.14 | ||||||||||||
Net earnings. Net earnings for the three months ended June 30, 2022, were $945,000 or $0.16 per basic and diluted share compared to net earnings of $444,000 or $0.14 per basic and diluted share for the three months ended June 30, 2021. The increase in net earnings during the three months ended June 30, 2022 compared to three months ended June 30, 2021 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 $1,735,000 for the three months ended June 30, 2022 compared to the three months ended June 30, 2021 due primarily to growth in the loan portfolio and increase in yield.
Interest Expense. Interest expense increased $38,000 to $272,000 for the three months ended June 30, 2022 compared to the prior period, primarily due to an increase in Federal Home Loan Bank advances, interest bearing deposit rates and change in the composition of deposits.
Provision for Loan Losses. Provision for loan losses was $991,000 for the three months ended June 30, 2022 compared to a $397,000 credit for loan losses for the three months ended June 30, 2021. The provision for loan losses is charged to earnings 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, 2022. 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 $4.2 million or 1.20% of loans outstanding at June 30, 2022, compared to $3.1 million or 1.22% of loans outstanding at December 31, 2021. The increase in the provision for loan losses during the second quarter of 2022 was primarily due to loan volume growth and the evaluation of the other factors noted above.
Noninterest Income. Total noninterest income increased to $764,000 for the three months ended June 30, 2022, from $302,000 for the three months ended June 30, 2021 due to increased wire transfer and ACH fees during the three month period ended June 30, 2022.
Noninterest Expenses. Total noninterest expenses increased to $2,260,000 for the three months ended June 30, 2022 compared to $1,517,000 for the three months ended June 30, 2021 primarily due to an increase in salaries and employee benefits and data processing.
| 23 |
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Comparison of the Six-Month Periods Ended June 30, 2022 and 2021
| Six Months Ended | Increase / | |||||||||||||||
| June 30, | (Decrease) | |||||||||||||||
| (dollars in thousands) | 2022 | 2021 | Amount | Percentage | ||||||||||||
| Total interest income | $ | 7,488 | $ | 4,255 | $ | 3,233 | 76 | % | ||||||||
| Total interest expense | 508 | 513 | (5 | ) | (1 | )% | ||||||||||
| Net interest income | 6,980 | 3,742 | 3,238 | 87 | % | |||||||||||
| Provision for loan losses | 1,383 | 373 | 1,010 | 271 | % | |||||||||||
| Net interest income after provision for loan losses | 5,597 | 3,369 | 2,228 | 66 | % | |||||||||||
| Total noninterest income | 1,414 | 478 | 936 | 196 | % | |||||||||||
| Total noninterest expenses | 4,600 | 3,055 | 1,545 | 51 | % | |||||||||||
| Net earnings before income taxes | 2,411 | 792 | 1,619 | 204 | % | |||||||||||
| Income taxes | 611 | — | 611 | — | ||||||||||||
| Net earnings | $ | 1,800 | $ | 792 | 1,008 | 127 | % | |||||||||
| Net earnings per share - Basic and diluted | $ | 0.33 | $ | 0.24 | ||||||||||||
Net earnings . Net earnings for the six months ended June 30, 2022, was $1,800,000 or $0.33 per basic and diluted share compared to a net earnings of $792,000 or $0.24 per basic and diluted share for the six months ended June 30, 2021. The increase in net earnings during the six months ended June 30, 2022 compared to six months ended June 30, 2021 is primarily attributed to an increase in noninterest income and net interest income, partially offset by the increase in noninterest expense.
Interest Income. Interest income increased $3,233,000 for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 due primarily to growth in the loan portfolio and increase in yield.
Interest Expense. Interest expense decreased $5,000 to $508,000 for the six months ended June 30, 2022 compared to the prior period.
Provision for Loan Losses. Provision for loan losses amounted to $1,383,000 for the six months ended June 30, 2022 compared to $373,000 for the six months ended June 30, 2021. 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, 2022. 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 $4.2 million or 1.20% of loans outstanding at June 30, 2022, compared to $3.1 million or 1.22% of loans outstanding at December 31, 2021. The increase in the provision for loan losses during six months ended June 30, 2022 was primarily due to loan volume growth and the evaluation of the other factors noted above.
Noninterest Income. Total noninterest income increased to $1,414,000 for the six months ended June 30, 2022, from $478,000 for the six months ended June 30, 2021 due to increased wire transfer and ACH fees related to an increase in business checking accounts of approximately $22.7 million during the six month period ended June 30, 2022.
Noninterest Expenses. Total noninterest expenses increased to $4,600,000 for the six months ended June 30, 2022 compared to $3,055,000 for the six months ended June 30, 2021 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, 2022, that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.
PART II. OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the first quarter of 2022, the Company issued 1,227,331 shares of its common stock in a private placement transaction to 11 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 Michael Blisko and Moishe Gubin, who are directors of the Company. Mr. Blisko purchased 202,000 shares and Mr. Gubin purchased 190,000 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 the first quarter of 2022, the Company issued a total of 260 shares of Series B-2 preferred stock to a non-related party for a purchase price of $6,500,000. The issuance of the shares was 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.
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 8, 2022 | 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
| 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) |
| 27 |