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, 2016 in the Annual Report on Form 10-K.
The
following discussion and analysis should also be read in conjunction with the condensed consolidated financial statements and
notes thereto appearing elsewhere in this report. This Quarterly Report on Form 10-Q contains “forward-looking statements”
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These
forward-looking statements involve known and unknown risks and uncertainties, many of which are beyond the control of the Company,
including adverse changes in economic, political and market conditions, losses from the Company’s lending activities and
changes in market conditions, the possible loss of key personnel, the impact of increasing competition, the impact of changes
in government regulation, the possibility of liabilities arising from violations of federal and state securities laws and the
impact of changes in technology in the banking industry. Although the Company believes that its forward-looking statements are
based upon reasonable assumptions regarding its business and future market conditions, there can be no assurances that the Company’s
actual results will not differ materially from any results expressed or implied by the Company’s forward-looking statements.
The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information,
future events or otherwise. Readers are cautioned that any forward-looking statements are not guarantees of future performance.
Regulatory
Enforcement Actions
Bank
Consent Order
. On November 7, 2016, the Bank agreed to the issuance of a Consent Order by the FDIC and the OFR (the “Consent
Order”), which requires the Bank to take certain measures to improve its safety and soundness. The Consent Order supersedes
the prior consent order that became effective in 2010. Pursuant to the Consent Order, the Bank is required to take certain measures
to improve its management, condition and operations, including actions to improve management practices and board supervision and
independence, assure that its allowance for loan losses is maintained at an appropriate level and improve liquidity. The Consent
Order requires the Bank to adopt and implement a compliance plan to address the Bank
’
s
obligations under the Bank Secrecy Act and related obligations related to anti-money laundering. The Consent Order prohibits the
payment of dividends by the Bank. The Consent Order continues the requirement for the Bank to maintain a Tier 1 leverage ratio
of at least 8% and a total risk-based capital ratio of 12% beginning 90 days from the issuance of the Consent Order. At September
30, 2017, the Bank had a Tier 1 leverage ratio of 8.54%, and a total risk-based capital ratio of 14.42%.
See
Footnote 13 to the Consolidated Financial Statements included in the Company’s 2016 Form 10-K for additional information
concerning the requirements of the Consent Order.
(continued)
OPTIMUMBANK
HOLDINGS, INC. AND SUBSIDIARY
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 2010
Consent Order. The Bank is also making significant progress in resolving the other issues raised by the FDIC and the
OFR including strengthening the senior management team with the addition of David Edgar as Chief Financial Officer in
October 2017. 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 prior 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, 2017, the Bank met the minimum applicable capital adequacy requirements for Total Capital to Risk
– Weighted Assets, and for Tier I Capital to Total Assets.
OPTIMUMBANK
HOLDINGS, INC. AND SUBSIDIARY
The
Bank’s actual and required minimum capital ratios were as follows (in thousands):
Regulatory
Capital Requirements
|
|
Actual
|
|
|
For
Capital
Adequacy Purposes
|
|
|
Minimum
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
|
|
|
Requirements
of
Consent Order
|
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
As
of September 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Capital to Risk-Weighted Assets
|
|
$
|
10,472
|
|
|
|
14.42
|
%
|
|
$
|
5,809
|
|
|
|
8.0
|
%
|
|
$
|
7,262
|
|
|
|
10.02
|
%
|
|
$
|
8,714
|
|
|
|
12.00
|
%
|
Tier
I Capital to Risk-Weighted Assets
|
|
|
9,527
|
|
|
|
13.12
|
%
|
|
|
4,357
|
|
|
|
6.0
|
%
|
|
|
5,809
|
|
|
|
8.0
|
%
|
|
|
NA
|
|
|
|
NA
|
|
Common
equity Tier I capital to Risk-Weighted Assets
|
|
|
9,527
|
|
|
|
13.12
|
%
|
|
|
3,268
|
|
|
|
4.5
|
%
|
|
|
4,720
|
|
|
|
6.5
|
%
|
|
|
NA
|
|
|
|
NA
|
|
Tier
I Capital to Total Assets
|
|
|
9,527
|
|
|
|
8.54
|
%
|
|
|
4,463
|
|
|
|
4.0
|
%
|
|
|
5,579
|
|
|
|
5.0
|
%
|
|
|
8,926
|
|
|
|
8.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Capital to Risk-Weighted Assets
|
|
$
|
10,662
|
|
|
|
12.79
|
%
|
|
$
|
6,609
|
|
|
|
8.0
|
%
|
|
$
|
8,261
|
|
|
|
10.0
|
%
|
|
$
|
9,913
|
|
|
|
12.0
|
%
|
Tier
I Capital to Risk-Weighted Assets
|
|
|
9,498
|
|
|
|
11.50
|
%
|
|
|
4,957
|
|
|
|
6.0
|
%
|
|
|
6,609
|
|
|
|
8.0
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Common
equity Tier I capital to Risk-Weighted Assets
|
|
|
9,498
|
|
|
|
11.50
|
%
|
|
|
3,718
|
|
|
|
4.5
|
%
|
|
|
5,370
|
|
|
|
6.5
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Tier
I Capital to Total Assets
|
|
|
9,498
|
|
|
|
8.06
|
%
|
|
|
4,714
|
|
|
|
4.0
|
%
|
|
|
5,893
|
|
|
|
5.0
|
%
|
|
|
9,428
|
|
|
|
8.0
|
%
|
Financial
Condition at September 30, 2017 and December 31, 2016
Overview
The
Company’s total assets decreased by $11.2 million to $108.5 million at September 30, 2017, from $119.7 million at
December 31, 2016, primarily due to a reduction in total deposits. Total stockholders’ equity decreased approximately
$0.5 million at September 30, 2017 from $3.1 million at December 31, 2016 to $2.6 million, primarily due to the net loss
of $510,000 for the nine months ended September 30, 2017. As of September 30,2017, the Bank has provided for a reserve
for BSA Compliance
lookback of $210.000.
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, 2017
|
|
|
September
30, 2016
|
|
|
December
31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
Average
equity as a percentage of average assets
|
|
|
2.22
|
%
|
|
|
2.59
|
%
|
|
|
2.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
to total assets at end of period
|
|
|
2.42
|
%
|
|
|
2.73
|
%
|
|
|
2.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
on average assets (1)
|
|
|
(.45
|
)
%
|
|
|
(0.34
|
)%
|
|
|
(0.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
on average equity (1)
|
|
|
(18.15
|
)
%
|
|
|
(12.96
|
)%
|
|
|
(12.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest
expenses to average assets (1)
|
|
|
2.74
|
%
|
|
|
3.51
|
%
|
|
|
3.3
|
%
|
(1)
Annualized for the nine months ended September 30, 2017 and 2016.
OPTIMUMBANK
HOLDINGS, INC. AND SUBSIDIARY
Liquidity
and Sources of Funds
The
Bank’s sources of funds include customer deposits, advances from the Federal Home Loan Bank of Atlanta (“FHLB”),
sales and principal repayments 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, 2017, the
Bank had outstanding borrowings of $20,500,000, against its $31,300,000 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
$643,700. 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 $2.5 million 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, 2017, the Company had commitments to extend credit totaling $4.3
million.
OPTIMUMBANK
HOLDINGS, INC. AND SUBSIDIARY
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% (3.78% at September 30, 2017). 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, 2017 totaled $1,314,000. 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.
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, in August 26, 2016, the Trustee commenced
an action in a Minnesota State Court seeking directions from the Court. The case was subsequently transferred to the United States
District Court for the Southern District of New York, were the case is currently pending. 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
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,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
Average
Balance
|
|
|
Interest
and
Dividends
|
|
|
Average
Yield/
Rate
|
|
|
Average
Balance
|
|
|
Interest
and
Dividends
|
|
|
Average
Yield/
Rate
|
|
|
|
($
in thousands)
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
72,777
|
|
|
$
|
972
|
|
|
|
5.34
|
%
|
|
$
|
85,020
|
|
|
$
|
1,082
|
|
|
|
5.09
|
%
|
Securities
|
|
|
19,207
|
|
|
|
96
|
|
|
|
2.00
|
|
|
|
22,779
|
|
|
|
117
|
|
|
|
2.05
|
|
Other
(1)
|
|
|
17,908
|
|
|
|
65
|
|
|
|
1.45
|
|
|
|
11,225
|
|
|
|
24
|
|
|
|
0.86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
interest-earning assets/interest income
|
|
|
109,892
|
|
|
|
1,133
|
|
|
|
4.12
|
|
|
|
119,024
|
|
|
|
1,223
|
|
|
|
4.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
|
1,156
|
|
|
|
|
|
|
|
|
|
|
|
910
|
|
|
|
|
|
|
|
|
|
Premise
and equipment
|
|
|
2,612
|
|
|
|
|
|
|
|
|
|
|
|
2,696
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
(3,345
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,005
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
110,315
|
|
|
|
|
|
|
|
|
|
|
$
|
121,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings,
NOW and money-market deposits
|
|
$
|
21,657
|
|
|
|
27
|
|
|
|
.50
|
|
|
$
|
22,960
|
|
|
|
29
|
|
|
|
0.51
|
|
Time
deposits
|
|
|
49,945
|
|
|
|
140
|
|
|
|
1.12
|
|
|
|
59,069
|
|
|
|
152
|
|
|
|
1.03
|
|
Borrowings
(2)
|
|
|
25,655
|
|
|
|
141
|
|
|
|
2.20
|
|
|
|
25,663
|
|
|
|
91
|
|
|
|
1.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
interest-bearing liabilities/ interest expense
|
|
|
97,257
|
|
|
|
308
|
|
|
|
1.27
|
|
|
|
107,692
|
|
|
|
272
|
|
|
|
1.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing
demand deposits
|
|
|
8,376
|
|
|
|
|
|
|
|
|
|
|
|
8,039
|
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
2,026
|
|
|
|
|
|
|
|
|
|
|
|
2,534
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
2,656
|
|
|
|
|
|
|
|
|
|
|
|
3,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
110,315
|
|
|
|
|
|
|
|
|
|
|
$
|
121,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
|
|
|
$
|
825
|
|
|
|
|
|
|
|
|
|
|
$
|
951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-rate
spread (3)
|
|
|
|
|
|
|
|
|
|
|
2.85
|
%
|
|
|
|
|
|
|
|
|
|
|
3.10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest-earnings assets
|
|
$
|
12,635
|
|
|
|
|
|
|
|
|
|
|
$
|
11,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest margin (4)
|
|
|
|
|
|
|
|
|
|
|
3.00
|
%
|
|
|
|
|
|
|
|
|
|
|
3.20
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio
of average interest-earning assets to average interest-bearing liabilities
|
|
|
1.13
|
|
|
|
|
|
|
|
|
|
|
|
1.11
|
|
|
|
|
|
|
|
|
|
|
|
Nine
Months Ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
Average
Balance
|
|
|
Interest
and
Dividends
|
|
|
Average
Yield/
Rate
|
|
|
Average
Balance
|
|
|
Interest
and
Dividends
|
|
|
Average
Yield/
Rate
|
|
|
|
|
|
|
|
|
|
($
in thousands)
|
|
|
|
|
|
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
76,583
|
|
|
$
|
2,971
|
|
|
|
5.17
|
%
|
|
$
|
84,173
|
|
|
$
|
3,156
|
|
|
|
5.00
|
%
|
Securities
|
|
|
19,622
|
|
|
|
306
|
|
|
|
2.08
|
|
|
|
23,454
|
|
|
|
367
|
|
|
|
2.09
|
|
Other
(1)
|
|
|
16,985
|
|
|
|
162
|
|
|
|
1.27
|
|
|
|
11,433
|
|
|
|
75
|
|
|
|
0.87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
interest-earning assets/interest income
|
|
|
113,190
|
|
|
|
3,439
|
|
|
|
4.05
|
|
|
|
119,060
|
|
|
|
3,598
|
|
|
|
4.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
|
1,162
|
|
|
|
|
|
|
|
|
|
|
|
887
|
|
|
|
|
|
|
|
|
|
Premise
and equipment
|
|
|
2,624
|
|
|
|
|
|
|
|
|
|
|
|
2,694
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
(3,164
|
)
|
|
|
|
|
|
|
|
|
|
|
(393
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
113,812
|
|
|
|
|
|
|
|
|
|
|
$
|
122,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings,
NOW and money-market deposits
|
|
$
|
22,052
|
|
|
|
82
|
|
|
|
0.50
|
|
|
$
|
23,719
|
|
|
|
89
|
|
|
|
0.50
|
|
Time
deposits
|
|
|
53,609
|
|
|
|
442
|
|
|
|
1.10
|
|
|
|
62,203
|
|
|
|
461
|
|
|
|
0.99
|
|
Borrowings
(2)
|
|
|
25,677
|
|
|
|
378
|
|
|
|
1.96
|
|
|
|
25,700
|
|
|
|
260
|
|
|
|
1.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
interest-bearing liabilities/ interest expense
|
|
|
101,338
|
|
|
|
902
|
|
|
|
1.29
|
|
|
|
111,622
|
|
|
|
810
|
|
|
|
0.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing
demand deposits
|
|
|
7,471
|
|
|
|
|
|
|
|
|
|
|
|
5,249
|
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
2,193
|
|
|
|
|
|
|
|
|
|
|
|
2,208
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
2,810
|
|
|
|
|
|
|
|
|
|
|
|
3,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
113,812
|
|
|
|
|
|
|
|
|
|
|
$
|
122,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
|
|
|
$
|
2,537
|
|
|
|
|
|
|
|
|
|
|
$
|
2,788
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-rate
spread (3)
|
|
|
|
|
|
|
|
|
|
|
2.76
|
%
|
|
|
|
|
|
|
|
|
|
|
3.06
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest-earning assets
|
|
$
|
11,852
|
|
|
|
|
|
|
|
|
|
|
$
|
7,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest margin (4)
|
|
|
|
|
|
|
|
|
|
|
2.99
|
%
|
|
|
|
|
|
|
|
|
|
|
3.12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio
of average interest-earning assets to average interest-bearing liabilities
|
|
|
1.21
|
|
|
|
|
|
|
|
|
|
|
|
1.07
|
|
|
|
|
|
|
|
|
|
(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
Comparison
of the Three-Month Periods Ended September 30, 2017 and 2016
General.
Net loss for the three months ended September 30, 2017, was $(56,000) or $(.05) loss per basic and
diluted share compared to a net earnings of $22,000 or $0.02 earnings per basic and diluted share for the period
ended September 30, 2016.
Interest
Income.
Interest income decreased $90,000 for the three months ended September 30, 2017 compared to the three
months Ended September 30, 2016.
Interest
Expense.
Interest expense on deposits and borrowings increased by $36,000 for the three months ended September
30, 2017 from $272,000 for the three months Ended September 30, 2016. Interest expense increased primarily due to higher
interest paid on borrowings during the second and third quarter of 2017. In late March 2017, the Bank extended the maturities
of $15.5 million in Federal Home loan Advances into longer fixed rate terms with higher interest rates. The weighted average rate
of these advances increased from 0.49% to 1.19%.
Provision
for Loan Losses.
There was no provision for losses during the 2017 or 2016 period. The provision for loan losses is charged
to operations as losses are estimated to have occurred in order to bring the total allowance for loan losses to a level deemed
appropriate by management to absorb losses inherent in the portfolio at September 30, 2017. 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 $3.9 million or 5.37% of loans outstanding
at September 30, 2017, as compared to $4.2 million or 4.91% of loans outstanding at September 30, 2016. Management believes the
balance in the allowance for loan losses at September 30, 2017 is significantly overfunded.
Noninterest
Income.
Total noninterest income increased by $23,000 for the three months ended September 30, 2017, from $31,000
for the three months Ended September 30, 2016 due to significant fees collected on previously impaired loans.
Noninterest
Expenses.
Total noninterest expenses decreased $25,000 to $935,000 for the three months ended September 30, 2017
compared to $960,000 million for the three months Ended September 30, 2016.
Comparison
of the Nine-Month Periods Ended September 30, 2017 and 2016
General.
Net loss for the nine months ended September 30, 2017, was $(510,000) or $(.46) loss per basic and
diluted share compared to a net loss of $(308,000) or $(0.30) loss per basic and diluted share for the nine nonths Ended
September 30, 2016. The increase in net loss was due to a decrease in net interest income and a combination of higher
professional fees and other non-interest expenses and a lower level of loan fees included in noninterest income.
Interest
Income.
Interest income decreased by $159,000 for the nine months ended September 30, 2017 from $3,598,000
for the nine months Ended September 30, 2016, primarily due to a decrease in interest earnings assets.
Interest
Expense.
Interest expense on deposits and borrowings increased to $902,000 for the nine months ended September
30, 2017 from $810,000 for the nine months Ended September 30, 2016. Interest expense increased primarily due to
higher interest paid on borrowings during 2017. In late March 2017, the Bank extended the maturities of $15.5 million in Federal
Home Loan Advances into longer fixed rate terms with higher interest rates. The weighted average rate of these advances increased
from 0.49% to 1.19%.
Provision
for Loan Losses.
There was no provision for the nine months ended September 30, 2017 or 2016. 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 $3.9 million or 5.37% of loans outstanding at September 30, 2017, compared to $4.2 million, or
4.91% of loans outstanding at September 30, 2016. Management believes the balance in the allowance for loan losses at September
30, 2017 is significantly overfunded.
Noninterest
Income.
Total noninterest income decreased to $71,000 from $125,000 for the nine months ended September
30, 2017, compared to the nine months Ended September 30, 2016 due to gains on securities sales of $48,000 in 2016
compared to $7,000 in 2017 and reduced service charges and other fees.
Noninterest
Expenses.
Total noninterest expenses decreased to $3,118,000 for the nine months ended September 30, 2017
compared to $3,221,000 for the nine months Ended September 30, 2016, primarily due to decreased salaries and benefits,
occupancy, data processing, and regulatory assessments.