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 financial statements and footnotes for the year ended December 31, 2015 in the Annual Report on Form 10-K.
The following discussion and analysis should also
be read in conjunction with the financial statements and notes thereto appearing elsewhere in this report. This Quarterly Report
on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933
and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements involve known and unknown risks and uncertainties,
many of which are beyond the control of the Company, including adverse changes in economic, political and market conditions, losses
from the Company’s lending activities and changes in market conditions, the possible loss of key personnel, the impact of
increasing competition, the impact of changes in government regulation, the possibility of liabilities arising from violations
of federal and state securities laws and the impact of changes in technology in the banking industry. Although the Company believes
that its forward-looking statements are based upon reasonable assumptions regarding its business and future market conditions,
there can be no assurances that the Company’s actual results will not differ materially from any results expressed or implied
by the Company’s forward-looking statements. The Company undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise. Readers are cautioned that any forward-looking
statements are not guarantees of future performance.
Regulatory Enforcement Actions
Bank Consent Order. On April 16, 2010, the Bank
agreed to the issuance of the Consent Order by the FDIC and the OFR (the “Original Consent Order”), which was amended
on February 28, 2014. Under the Original Consent Order, the Bank was required to take certain measures to improve its capital position,
reduce its level of problem assets, reduce its loan concentrations in certain portfolios, improve management practices and board
supervision and assure that its reserve for loan losses is maintained at an appropriate level. The Original Consent Order required
the Bank to maintain a Tier 1 leverage ratio of at least 8% and a total risk-based capital ratio of 12%. At September 30, 2016,
the Bank had a Tier 1 leverage ratio of 7.78%, and a total risk-based capital ratio of 12.37%.
See Footnote 13 to the Consolidated Financial Statements
included in the Company’s 2015 Form 10-K for additional information concerning the requirements of the Original Consent Order.
During the second quarter of 2016, the Bank was
notified by the FDIC and the OFR that the Bank had not complied with certain of the terms of the Original Consent Order, and that
the Bank continues to exhibit weaknesses in its level of capital, loan quality, earnings, liquidity and sensitivity to market risks.
The FDIC and OFR also noted issues related to the management of the Bank, including issues with capital adequacy, risk management,
loan concentrations, operating deficits, compliance with the Original Consent Order, weaknesses in the Bank’s customer related
due diligence, insider conflicts of interest and regulatory compliance.
On November 2, 2016, at the request of the FDIC
and the OFR, the Bank agreed to the entry of a new Consent Order to be issued by the FDIC and the OFR (the “New Order”).
The New Order will become effective when issued by the FDIC and the OFR.
The New Order addresses many of the issues addressed
in the Original Consent Order, as well as issues related to board supervision and composition, management composition, asset quality,
lending practices, allowance for loan losses, asset growth, and compliance with the Bank Secrecy act and related regulations. The
New Order will continue to restrict the ability of the Bank to pay dividends.
Management believes that the Bank has made substantial
progress in improving its financial condition through a significant reduction in non-performing assets and the receipt of capital
increases from investors since the date of the Original Consent Order. The Bank is also seeking to address the other issues raised
by the FDIC and the OFR, although the Bank has been hampered by difficulties in raising capital due to the default under the Debenture
and the limits placed on the Company and the Bank under the Original Consent Order and the Written Agreement. Management intends
to continue its efforts to meet the conditions of the New Consent Order and the Written Agreement.
Company Written Agreement with Reserve Bank. On
June 22, 2010, the Company and the Reserve Bank entered into a Written Agreement with respect to certain aspects of the operation
and management of the Company The Written Agreement prohibits, without the prior approval of the Reserve Bank, the payment of dividends,
taking dividends or payments from the Bank, making any interest, principal or other distributions on trust preferred securities
(including the Debenture), incurring, increasing or guaranteeing any debt, purchasing or redeeming any shares of stock, or appointing
any new director or senior executive officer. Management believes that the Company is in substantial compliance with the requirements
of the Written Agreement.
Capital Levels
Quantitative measures established by regulation
and by the Consent Order to ensure capital adequacy require us to maintain minimum amounts and ratios (set forth in the following
table) of Total and Tier 1 capital to risk-weighted assets and Tier 1 capital to average assets. As of September 30, 2016, the
Bank met the minimum applicable capital adequacy requirements for Total Capital to Risk – Weighted Assets, but did not meet
the requirement for Tier I Capital to Total Assets.
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations, (Continued)
The Bank’s actual and
required minimum capital ratios were as follows (in thousands):
Regulatory Capital Requirements
|
|
|
|
|
|
|
|
Minimum
|
|
|
|
|
|
|
|
|
|
|
|
|
To Be Well
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized Under
|
|
|
|
|
|
|
|
|
|
|
|
|
Prompt
|
|
|
|
|
|
|
|
|
|
For Capital
|
|
|
Corrective
|
|
|
Requirements of
|
|
|
|
Actual
|
|
|
Adequacy Purposes
|
|
|
Action Provisions
|
|
|
Consent Order
|
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
As of September 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital to Risk-
Weighted Assets
|
|
$
|
10,564
|
|
|
|
12.37
|
%
|
|
$
|
6,832
|
|
|
|
8.0
|
%
|
|
$
|
8,540
|
|
|
|
10.0
|
%
|
|
$
|
10,248
|
|
|
|
12.0
|
%
|
Tier I Capital to Risk-
Weighted Assets
|
|
|
9,458
|
|
|
|
11.07
|
|
|
|
5,124
|
|
|
|
6.0
|
|
|
|
6,832
|
|
|
|
8.0
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Common equity Tier I capital to Risk-Weighted Assets
|
|
|
9,458
|
|
|
|
11.07
|
|
|
|
3,843
|
|
|
|
4.5
|
|
|
|
5,551
|
|
|
|
6.5
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Tier I Capital to Total Assets
|
|
|
9,458
|
|
|
|
7.78
|
|
|
|
4,865
|
|
|
|
4.0
|
|
|
|
6,081
|
|
|
|
5.0
|
|
|
|
9,730
|
|
|
|
8.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital to Risk-
Weighted Assets
|
|
$
|
10,319
|
|
|
|
11.40
|
%
|
|
$
|
7,240
|
|
|
|
8.0
|
%
|
|
$
|
9,050
|
|
|
|
10.0
|
%
|
|
$
|
10,860
|
|
|
|
12.0
|
%
|
Tier I Capital to Risk-
Weighted Assets
|
|
|
9,173
|
|
|
|
10.14
|
|
|
|
5,430
|
|
|
|
6.0
|
|
|
|
7,240
|
|
|
|
8.0
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Common equity Tier I capital to Risk-Weighted Assets
|
|
|
9,173
|
|
|
|
10.14
|
|
|
|
4,073
|
|
|
|
4.5
|
|
|
|
5,883
|
|
|
|
6.5
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Tier I Capital to Total Assets
|
|
|
9,173
|
|
|
|
7.59
|
|
|
|
4,836
|
|
|
|
4.0
|
|
|
|
6,045
|
|
|
|
5.0
|
|
|
|
9,672
|
|
|
|
8.0
|
|
Financial Condition at September 30, 2016 and
December 31, 2015
Overview
The Bank’s total assets decreased
by $5.8 million to $121.7 million at September 30, 2016, from $127.5 million at December 31, 2015, primarily due to a reduction
in total loans and total deposits. Total stockholders’ equity increased approximately $350,000 at September 30, 2016 from
$2,967,000 at December 31, 2015 to $3,317,000. The increase was due to an unrealized OCI gain of $48,000, the issuance of $32,000
of common stock as compensation to directors, the issuance of $128,000 of common stock for services, and the sale of $450,000 in
common and preferred stock to investors, which offset the net loss of $308,000 for the nine months ended September 30, 2016.
The following table shows selected information
for the periods ended or at the dates indicated:
|
|
Nine Months
|
|
|
Nine Months
|
|
|
Year
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average equity as a percentage of average assets
|
|
|
2.59
|
%
|
|
|
2.41
|
%
|
|
|
2.45
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity to total assets at end of period
|
|
|
2.73
|
%
|
|
|
2.66
|
%
|
|
|
2.33
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets (1)
|
|
|
(0.34
|
)%
|
|
|
(0.14
|
)%
|
|
|
(0.13
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average equity (1)
|
|
|
(12.96
|
)%
|
|
|
(5.69
|
)%
|
|
|
(5.33
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expenses to average assets (1)
|
|
|
3.51
|
%
|
|
|
3.70
|
%
|
|
|
3.64
|
%
|
|
|
(1) Annualized for the nine months ended September 30, 2016 and 2015.
|
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Item 2. Management’s Discussion and Analysis of
Financial Condition and Results of Operations, (Continued)
Liquidity and Sources of Funds
The Bank’s sources of funds
include customer deposits, advances from the Federal Home Loan Bank of Atlanta (“FHLB”), principal repayments and sales
of investment securities, loan repayments, foreclosed real estate sales, the use of Federal Funds markets, net earnings, if any,
and loans taken out at the Federal Reserve Bank discount window.
Deposits are our primary source
of funds. In order to increase its core deposits, the Bank has priced its deposit rates competitively. The Bank will adjust rates
on its deposits to attract or retain deposits as needed. Under the Consent Order, the interest rate that the Bank pays on its market
area deposits is restricted. It is possible that the Bank could experience a decrease in deposit inflows, or the migration of current
deposits to competitor institutions, if other institutions offer higher interest rates than those permitted to be offered by the
Bank. Despite these yield limitations, we believe that we have the ability to adjust rates on our deposits to attract or retain
deposits as needed.
In addition to obtaining funds
from depositors, we may borrow funds from other financial institutions. At September 30, 2016, the Bank had outstanding borrowings
of $20,500,000, against its $31,700,000 in established borrowing capacity with the FHLB. The Bank’s borrowing facility is
subject to collateral and stock ownership requirements, as well as prior FHLB consent to each advance. In 2010, the Bank obtained
an available discount window credit line with the Federal Reserve Bank, currently $788,200. The Federal Reserve Bank line is subject
to collateral requirements and must be repaid within 90 days; each advance is subject to prior Federal Reserve Bank consent. The
Bank also has a $2.5 million line of credit with SunTrust, $750,000 line of credit with Servis First Bank and a $2,500,000 line
of credit with AloStar Bank. We measure and monitor our liquidity daily and believe our liquidity sources are adequate to meet
our operating needs.
In the past, the Company, on an
unconsolidated basis, relied on dividends from the Bank to fund its operating expenses, primarily expenses of being publicly held,
and to make interest payments on the Company’s junior subordinated debenture (the “Debenture”). Under the Consent
Order, the Bank is currently unable to pay dividends to the Company without prior regulatory approval. Additionally, under the
Written Agreement, the Company may not pay interest payments on the Debenture or dividends on the Company’s common stock,
incur any additional indebtedness at the Company level, or redeem the Company’s common stock without the prior regulatory
approval of the Federal Reserve Bank. Since January 2010, the Company has deferred interest payments on the Debenture, which has
been in default since 2015. See “Junior Subordinated Debenture” below.
Off-Balance Sheet Arrangements
The Company is a 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 and may involve, to varying degrees, elements of credit and interest-rate risk in
excess of the amounts recognized in the condensed consolidated balance sheet. The contract amounts of these instruments reflect
the extent of the Company’s involvement in these financial instruments.
Commitments to extend credit are
agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally
have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected
to expire without being drawn upon, the total committed amounts do not necessarily represent future cash requirements. The Company
evaluates each customer’s creditworthiness on a case-by-case basis.
The amount of collateral obtained,
if it is deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the counter
party. As of September 30, 2016, the Company had commitments to extend credit totaling $1.2 million.
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Item 2. Management’s Discussion and Analysis of
Financial Condition and Results of Operations, (Continued)
Junior Subordinated Debenture
On September 30, 2004, the Company
issued a $5,155,000 junior subordinated debenture to an unconsolidated subsidiary (the “Debenture”). The Debenture
has a term of thirty years. The interest rate was fixed at 6.4% for the first five years, and thereafter, the coupon rate floats
quarterly at the three-month LIBOR rate plus 2.45% (3.13% at September 30, 2016). The Debenture is redeemable in certain circumstances.
The terms of the Debenture allow the Company to defer payments of interest on the Debenture by extending the interest payment period
at any time during the term of the Debenture for up to twenty consecutive quarterly periods. Beginning in 2010, the Company exercised
its right to defer payment of interest on the Debenture. Interest payments deferred as of September 30, 2016 totaled $1,095,700.
The Company has deferred interest payments with respect to the Debenture for the maximum allowable twenty consecutive quarterly
payments. The holder of the Debenture can accelerate the $5,155,000 principal balance as a result of this default. Under the Written
Agreement, the Company is not able to make these interest payments without the prior approval of the Federal Reserve Bank of Atlanta.
Regulatory approval to pay accrued and unpaid interest has been denied.
A Director of the Company has
offered to purchase the Debenture and this offer has been approved by certain equity owners of the Trust that holds the Debenture.
The Director has also agreed to enter into a forbearance agreement with the Company with respect to payments due under the Debenture
upon consummation of the Director’s purchase of the debenture. Although the Director tendered the purchase price for the
Debenture in 2014, the Trustee has received conflicting directions and therefore on December 11, 2014, the Trustee commenced an
Action for Interpleader in the United States District Court for the Southern District of New York. On August 31, 2015, the court
held that the Trustee could not sell the Debenture to the Director because certain conditions and requirements set forth in the
indenture for the Trust had not been fulfilled. The Director has continued his efforts to acquire the Debenture. To date, the Trustee
has not accelerated the outstanding balance of the debenture.
In March of 2016, the Trustee
received a direction from certain equity owners of the Trust that hold the Debenture to Sell the Debenture to a Director of the
Company. Based upon the receipt of other conflicting directions, on August 26, 2016, the Trustee commenced an action in a Minnesota
State Court seeking directions from the court. On September 14, 2016, a Notice of removal was filed and the case was removed to
the United States District Court for the District of Minnesota. On October 10, 2016, the Trustee and the various Interested Parties
filed a Stipulation to Transfer Venue to the United States District Court for the Southern District of New York (the “Stipulation”).
Based upon the Stipulation, on October 13, 2016, the Minnesota Federal Court entered its Order to Transfer Venue of the case to
the United States District Court for the Southern District of New York. The parties are seeking to have this matter assigned to
the same District Court Judge who was assigned the Interpleader Action. To date no schedule order has been entered. The Company
continues to pursue mechanisms for paying the accrued interest, such as raising additional capital.
In the event the amounts due
under the Debenture were accelerated, then the Trustee could undertake legal proceedings to obtain a judgment against the Company
with respect to such amounts due under the Debenture. If this action were successful, then the Trustee could seek to affect a sale
of the Bank to pay the amounts due under the Debenture.
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
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) ratio of average
interest-earning assets to average interest-bearing liabilities.
|
|
Three Months Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
Average
Balance
|
|
|
Interest
and
Dividends
|
|
|
Average
Yield/
Rate
|
|
|
Average
Balance
|
|
|
Interest
and
Dividends
|
|
|
Average
Yield/
Rate
|
|
|
|
($ in thousands)
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
85,020
|
|
|
$
|
1,082
|
|
|
|
5.09
|
%
|
|
$
|
81,570
|
|
|
$
|
974
|
|
|
|
4.78
|
%
|
Securities
|
|
|
22,779
|
|
|
|
117
|
|
|
|
2.05
|
|
|
|
25,804
|
|
|
|
148
|
|
|
|
2.29
|
|
Other (1)
|
|
|
11,225
|
|
|
|
24
|
|
|
|
0.86
|
|
|
|
994
|
|
|
|
20
|
|
|
|
0.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets/interest income
|
|
|
119,024
|
|
|
|
1,223
|
|
|
|
4.11
|
|
|
|
108,368
|
|
|
|
1,142
|
|
|
|
4.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
|
910
|
|
|
|
|
|
|
|
|
|
|
|
10,242
|
|
|
|
|
|
|
|
|
|
Premise and equipment
|
|
|
2,696
|
|
|
|
|
|
|
|
|
|
|
|
2,768
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
(1,005
|
)
|
|
|
|
|
|
|
|
|
|
|
3,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
121,625
|
|
|
|
|
|
|
|
|
|
|
$
|
124,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings, NOW and money-market deposits
|
|
$
|
22,960
|
|
|
|
29
|
|
|
|
0.51
|
|
|
$
|
24,521
|
|
|
|
31
|
|
|
|
0.51
|
|
Time deposits
|
|
|
59,069
|
|
|
|
152
|
|
|
|
1.03
|
|
|
|
61,836
|
|
|
|
131
|
|
|
|
0.85
|
|
Borrowings (2)
|
|
|
25,663
|
|
|
|
91
|
|
|
|
1.42
|
|
|
|
20,331
|
|
|
|
60
|
|
|
|
1.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities/ interest expense
|
|
|
107,692
|
|
|
|
272
|
|
|
|
1.01
|
|
|
|
106,688
|
|
|
|
222
|
|
|
|
0.83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing demand deposits
|
|
|
8,039
|
|
|
|
|
|
|
|
|
|
|
|
7,219
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
2,534
|
|
|
|
|
|
|
|
|
|
|
|
7,473
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity
|
|
|
3,360
|
|
|
|
|
|
|
|
|
|
|
|
3,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
121,625
|
|
|
|
|
|
|
|
|
|
|
$
|
124,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$
|
951
|
|
|
|
|
|
|
|
|
|
|
$
|
920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-rate spread (3)
|
|
|
|
|
|
|
|
|
|
|
3.10
|
%
|
|
|
|
|
|
|
|
|
|
|
3.39
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin (4)
|
|
|
|
|
|
|
|
|
|
|
3.20
|
%
|
|
|
|
|
|
|
|
|
|
|
3.40
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of average interest-earning assets to average interest-bearing liabilities
|
|
|
1.11
|
|
|
|
|
|
|
|
|
|
|
|
1.02
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes interest-earning deposits with banks and Federal Home Loan Bank stock dividends.
|
|
(2)
|
Includes Federal Home Loan Bank advances, other borrowings and 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.
|
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion
and Analysis of Financial Condition and Results of Operations, (Continued)
|
|
Nine Months Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
Average
Balance
|
|
|
Interest
and
Dividends
|
|
|
Average
Yield/
Rate
|
|
|
Average
Balance
|
|
|
Interest
and
Dividends
|
|
|
Average
Yield/
Rate
|
|
|
|
|
|
|
|
|
|
($ in thousands)
|
|
|
|
|
|
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
84,173
|
|
|
$
|
3,156
|
|
|
|
5.00
|
%
|
|
$
|
81,342
|
|
|
$
|
2,828
|
|
|
|
4.64
|
%
|
Securities
|
|
|
23,454
|
|
|
|
367
|
|
|
|
2.09
|
|
|
|
26,839
|
|
|
|
455
|
|
|
|
2.26
|
|
Other (1)
|
|
|
11,433
|
|
|
|
75
|
|
|
|
0.87
|
|
|
|
1,601
|
|
|
|
58
|
|
|
|
4.83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets/interest income
|
|
|
119,060
|
|
|
|
3,598
|
|
|
|
4.03
|
|
|
|
109,782
|
|
|
|
3,341
|
|
|
|
4.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
|
887
|
|
|
|
|
|
|
|
|
|
|
|
9,256
|
|
|
|
|
|
|
|
|
|
Premise and equipment
|
|
|
2,694
|
|
|
|
|
|
|
|
|
|
|
|
2,795
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
(393
|
)
|
|
|
|
|
|
|
|
|
|
|
4,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
122,248
|
|
|
|
|
|
|
|
|
|
|
$
|
126,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings, NOW and money-market deposits
|
|
$
|
23,719
|
|
|
|
89
|
|
|
|
0.50
|
|
|
$
|
24,874
|
|
|
|
93
|
|
|
|
0.50
|
|
Time deposits
|
|
|
62,203
|
|
|
|
461
|
|
|
|
0.99
|
|
|
|
60,295
|
|
|
|
386
|
|
|
|
0.85
|
|
Borrowings (2)
|
|
|
25,700
|
|
|
|
260
|
|
|
|
1.35
|
|
|
|
25,476
|
|
|
|
176
|
|
|
|
0.92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities/ interest expense
|
|
|
111,622
|
|
|
|
810
|
|
|
|
0.97
|
|
|
|
110,645
|
|
|
|
655
|
|
|
|
0.79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing demand deposits
|
|
|
5,249
|
|
|
|
|
|
|
|
|
|
|
|
8,574
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
2,208
|
|
|
|
|
|
|
|
|
|
|
|
4,047
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity
|
|
|
3,169
|
|
|
|
|
|
|
|
|
|
|
|
3,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
122,248
|
|
|
|
|
|
|
|
|
|
|
$
|
126,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$
|
2,788
|
|
|
|
|
|
|
|
|
|
|
$
|
2,686
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-rate spread (3)
|
|
|
|
|
|
|
|
|
|
|
3.06
|
%
|
|
|
|
|
|
|
|
|
|
|
3.27
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin (4)
|
|
|
|
|
|
|
|
|
|
|
3.12
|
%
|
|
|
|
|
|
|
|
|
|
|
3.26
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of average interest-earning assets to average interest-bearing liabilities
|
|
|
1.07
|
|
|
|
|
|
|
|
|
|
|
|
0.99
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes interest-earning deposits with banks and Federal Home Loan Bank stock dividends.
|
|
(2)
|
Includes Federal Home Loan Bank advances, other borrowings and 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.
|
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Item 2. Management’s Discussion and Analysis of
Financial Condition and Results of Operations, (Continued)
Comparison of the Three-Month Periods
Ended September 30, 2016 and 2015
General.
Net earnings for the three months ended September 30, 2016, was $22,000 or $0.02 per basic and diluted share compared to
net earnings of $46,000 or $0.05 per basic and diluted share for the three months ended September 30, 2015. This decrease in net
earnings was due to a combination of higher loan interest income, lower non-interest income and lower expenses associated with
foreclosed real estate. During September 30, 2015, the bank recognized a reversal of previously recorded income tax expense.
Interest
Income.
Interest income increased to $1.2 million for the three months ended September 30, 2016 from $1.1 million for the
three months ended September 30, 2015 due primarily to an increase in interest earnings assets.
Interest
Expense.
Interest expense increased to $272,000 for the three months ended September 30, 2016 from $222,000 for the three
months ended September 30, 2015, due to higher interest paid on deposits and an increase in borrowing during 2016.
Provision
for Loan Losses.
There was no provision for the three months ended September 30, 2016 or September 30, 2015. The provision
for loan losses is charged to operations in order to bring the total allowance for loan losses to a level deemed appropriate by
management to absorb losses inherent in the portfolio. 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 4.91% of loans outstanding at September 30, 2016, compared to $2.3 million, or 2.71% of
loans outstanding at September 30, 2015. See Note 12 to the Condensed Consolidated Financial Statements.
Noninterest
Income.
Total noninterest income decreased to $31,000 for the three months ended September 30, 2016, compared to $172,000
for the three months ended September 30, 2015. The decrease was due to nonrecurring loan fees recognized in 2015.
Noninterest
Expenses.
Total noninterest expenses decreased to $960,000 for the three months ended September 30, 2016 compared to $1.4
million for the three months ended September 30, 2015 as a result of lower expenses on foreclosed real estate.
Income
Tax Benefit.
The income tax benefit resulted from the favorable settlement of a dispute with the IRS related to certain
of the Company’s Federal income tax returns.
Comparison of the Nine-Month Periods Ended September 30,
2016 and 2015
General.
Net loss for the nine months ended September 30, 2016, was $(308,000) or $(0.30) loss per basic and diluted share compared
to a net loss of $(130,000) or $(.12) loss per basic and diluted share for the nine months ended September 30, 2015. The increase
in net loss was due to a combination of higher interest income, lower non-interest income and lower expenses associated with foreclosed
real estate. During the nine months ended September 30, 2015, the bank recognized a reversal of previously recorded income tax
expense.
Interest
Income.
Interest income increased to $3,599,000 for the nine months ended September 30, 2016 from $3,341,000 for the nine
months ended September 30, 2015, primarily due to an increase in interest earnings assets.
Interest
Expense.
Interest expense on deposits and borrowings increased to $810,000 for the nine months ended September 30, 2016
from $655,000 for the nine months ended September 30, 2015. Interest expense increased primarily due to higher interest paid on
deposits and borrowing during 2016.
Provision
for Loan Losses.
There was no provision for the nine months ended September 30, 2016 or 2015. The provision for loan losses
is charged to operations in order to bring the total allowance for loan losses to a level deemed appropriate by management to absorb
losses inherent in the portfolio. 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 4.91% of loans outstanding at September 30, 2016, compared to $2.3 million, or 2.71% of
loans outstanding at September 30, 2015. See Note 12 to the Condensed Consolidated Financial Statements.
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
Item 2. Management’s Discussion and Analysis of
Financial Condition and Results of Operations, (Continued)
Noninterest
Income.
Total noninterest income decreased to $125,000 for the nine months ended September 30, 2016, compared to $372,000
for the nine months ended September 30, 2015 primarily due to nonrecurring loan fees recognized in 2015.
Noninterest
Expenses.
Total noninterest expenses decreased to $3,221,000 for the nine months ended September 30, 2016 compared to $3,508,000
for the nine months ended September 30, 2015, primarily due to reduction in expenses for foreclosed real estate.
Income
Tax Benefit.
The income tax benefit resulted from the favorable settlement of a dispute with the IRS related to certain
of the Company’s Federal income tax returns.