Item
1. Financial Statements
Condensed
Consolidated Balance Sheets
(Dollars in thousands, except per share amounts)
|
|
June
30, 2019
|
|
|
December
31, 2018
|
|
|
|
(Unaudited)
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
$
|
1,853
|
|
|
$
|
1,934
|
|
Interest-bearing
deposits with banks
|
|
|
10,464
|
|
|
|
6,049
|
|
Total
cash and cash equivalents
|
|
|
12,317
|
|
|
|
7,983
|
|
Securities
available for sale
|
|
|
6,213
|
|
|
|
2,359
|
|
Securities
held-to-maturity (fair value of $6,874 and $7,175)
|
|
|
6,632
|
|
|
|
7,139
|
|
Loans,
net of allowance for loan losses of $2,053 and $2,243
|
|
|
80,861
|
|
|
|
77,200
|
|
Federal
Home Loan Bank stock
|
|
|
642
|
|
|
|
1,132
|
|
Premises
and equipment, net
|
|
|
2,676
|
|
|
|
2,668
|
|
Accrued
interest receivable
|
|
|
370
|
|
|
|
314
|
|
Other
assets
|
|
|
1,559
|
|
|
|
1,350
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
111,270
|
|
|
$
|
100,145
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders’ Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Noninterest-bearing
demand deposits
|
|
|
10,925
|
|
|
|
9,638
|
|
Savings,
NOW and money-market deposits
|
|
|
45,588
|
|
|
|
26,682
|
|
Time
deposits
|
|
|
29,388
|
|
|
|
26,058
|
|
|
|
|
|
|
|
|
|
|
Total
deposits
|
|
|
85,901
|
|
|
|
62,378
|
|
|
|
|
|
|
|
|
|
|
Federal
Home Loan Bank advances
|
|
|
13,000
|
|
|
|
24,600
|
|
Federal
funds purchased
|
|
|
—
|
|
|
|
560
|
|
Junior
subordinated debenture
|
|
|
5,155
|
|
|
|
5,155
|
|
Official
checks
|
|
|
142
|
|
|
|
274
|
|
Other
liabilities
|
|
|
2,028
|
|
|
|
1,872
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
106,226
|
|
|
|
94,839
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies (Notes 8, 10, 11 and 12)
|
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
|
Preferred
stock, no par value; 6,000,000 shares authorized: Designated Series A, no par value, $25,000 liquidation value per share,
no shares issued and outstanding
|
|
|
—
|
|
|
|
—
|
|
Common
stock, $.01 par value; 5,000,000 shares authorized, 1,927,579 shares issued and outstanding
in
2019 and 1,858,020 shares issued and outstanding in 2018
|
|
|
19
|
|
|
|
18
|
|
Additional
paid-in capital
|
|
|
36,356
|
|
|
|
36,128
|
|
Accumulated
deficit
|
|
|
(31,086
|
)
|
|
|
(30,510
|
)
|
Accumulated
other comprehensive loss
|
|
|
(245
|
)
|
|
|
(330
|
)
|
|
|
|
|
|
|
|
|
|
Total
stockholders’ equity
|
|
|
5,044
|
|
|
|
5,306
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
111,270
|
|
|
$
|
100,145
|
|
See
accompanying notes to condensed consolidated financial statements.
OPTIMUMBANK
HOLDINGS, INC. AND SUBSIDIARY
Condensed
Consolidated Statements of Operations (Unaudited)
(in thousands, except per share amounts)
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
1,097
|
|
|
$
|
938
|
|
|
$
|
2,187
|
|
|
$
|
1,854
|
|
Securities
|
|
|
72
|
|
|
|
73
|
|
|
|
122
|
|
|
|
134
|
|
Other
|
|
|
77
|
|
|
|
32
|
|
|
|
125
|
|
|
|
67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
1,246
|
|
|
|
1,043
|
|
|
|
2,434
|
|
|
|
2,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
360
|
|
|
|
95
|
|
|
|
649
|
|
|
|
207
|
|
Borrowings
|
|
|
133
|
|
|
|
190
|
|
|
|
283
|
|
|
|
338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
493
|
|
|
|
285
|
|
|
|
932
|
|
|
|
545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
753
|
|
|
|
758
|
|
|
|
1,502
|
|
|
|
1,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit for loan losses
|
|
|
—
|
|
|
|
2,100
|
|
|
|
—
|
|
|
|
2,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after credit for loan losses
|
|
|
753
|
|
|
|
2,858
|
|
|
|
1,502
|
|
|
|
3,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges and fees
|
|
|
68
|
|
|
|
—
|
|
|
|
90
|
|
|
|
9
|
|
Other
|
|
|
19
|
|
|
|
35
|
|
|
|
34
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income
|
|
|
87
|
|
|
|
35
|
|
|
|
124
|
|
|
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
529
|
|
|
|
460
|
|
|
|
1,030
|
|
|
|
898
|
|
Professional fees
|
|
|
128
|
|
|
|
158
|
|
|
|
227
|
|
|
|
223
|
|
Occupancy and equipment
|
|
|
134
|
|
|
|
102
|
|
|
|
247
|
|
|
|
206
|
|
Data processing
|
|
|
129
|
|
|
|
99
|
|
|
|
253
|
|
|
|
176
|
|
Insurance
|
|
|
18
|
|
|
|
26
|
|
|
|
42
|
|
|
|
50
|
|
Regulatory assessment
|
|
|
18
|
|
|
|
39
|
|
|
|
22
|
|
|
|
78
|
|
Other
|
|
|
314
|
|
|
|
105
|
|
|
|
433
|
|
|
|
409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expenses
|
|
|
1,270
|
|
|
|
989
|
|
|
|
2,254
|
|
|
|
2,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings before income tax
benefit
|
|
|
(430
|
)
|
|
|
1,904
|
|
|
|
(628
|
)
|
|
|
1,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit
|
|
|
—
|
|
|
|
—
|
|
|
|
(52
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings
|
|
$
|
(430
|
)
|
|
$
|
1,904
|
|
|
$
|
(576
|
)
|
|
$
|
1,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings per
share - Basic and diluted
|
|
$
|
(.23
|
)
|
|
$
|
1.35
|
|
|
$
|
(.31
|
)
|
|
$
|
1.25
|
|
See
accompanying notes to condensed consolidated financial statements.
OPTIMUMBANK
HOLDINGS, INC. AND SUBSIDIARY
Condensed
Consolidated Statements of Comprehensive (Loss) Income (Unaudited)
(In thousands)
|
|
Three
Months Ended
June 30,
|
|
|
Six
Months Ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) earnings
|
|
$
|
(430
|
)
|
|
$
|
1,904
|
|
|
$
|
(576
|
)
|
|
$
|
1,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in unrealized gain (loss) on securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gain arising during the period
|
|
|
68
|
|
|
|
346
|
|
|
|
74
|
|
|
|
282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of unrealized loss on securities transferred to held-to-maturity
|
|
|
23
|
|
|
|
6
|
|
|
|
39
|
|
|
|
6
|
|
Reclassification
adjustment for unrealized loss on securities transferred to held-to-maturity
|
|
|
-
|
|
|
|
(432
|
)
|
|
|
-
|
|
|
|
(432
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income (loss) before income tax (expense) benefit
|
|
|
91
|
|
|
|
(80
|
)
|
|
|
113
|
|
|
|
(144
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
income tax (expense) benefit on above change
|
|
|
(23
|
)
|
|
|
20
|
|
|
|
(28
|
)
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other comprehensive income (loss)
|
|
|
68
|
|
|
|
(60
|
)
|
|
|
85
|
|
|
|
(106
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
(loss) income
|
|
$
|
(362
|
)
|
|
$
|
1,844
|
|
|
$
|
(491
|
)
|
|
$
|
1,513
|
|
See
accompanying notes to condensed consolidated financial statements.
OPTIMUMBANK
HOLDINGS, INC. AND SUBSIDIARY
Condensed
Consolidated Statements of Stockholders’ Equity
Three
and
Six Months Ended June 30, 2019 and 2018
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Preferred
Stock
|
|
|
Common
Stock
|
|
|
Additional
Paid-In
|
|
|
Accumulated
|
|
|
Other
Comprehensive
|
|
|
Total
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Loss
|
|
|
Equity
|
|
Balance
at December 31, 2017
|
|
|
7
|
|
|
$
|
-
|
|
|
|
1,120,947
|
|
|
$
|
11
|
|
|
$
|
34,090
|
|
|
$
|
(
31,306
|
)
|
|
$
|
(
250
|
)
|
|
$
|
2,545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from Sale of Common Stock (unaudited)
|
|
|
-
|
|
|
|
-
|
|
|
|
20,814
|
|
|
|
-
|
|
|
|
46
|
|
|
|
-
|
|
|
|
-
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued as compensation to directors (unaudited)
|
|
|
-
|
|
|
|
-
|
|
|
|
144,742
|
|
|
|
1
|
|
|
|
614
|
|
|
|
-
|
|
|
|
-
|
|
|
|
615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the three months ended March 31, 2018 (unaudited)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(285
|
)
|
|
|
-
|
|
|
|
(285
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
change in unrealized loss on securities available for sale, net of income tax benefit (unaudited)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(47
|
)
|
|
|
(47
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at March 31, 2018 (unaudited)
|
|
|
7
|
|
|
$
|
-
|
|
|
|
1,286,503
|
|
|
$
|
12
|
|
|
$
|
34,750
|
|
|
$
|
(31,591
|
)
|
|
$
|
(297
|
)
|
|
$
|
2,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from Sale of Common Stock (unaudited)
|
|
|
-
|
|
|
|
-
|
|
|
|
143,203
|
|
|
|
2
|
|
|
|
356
|
|
|
|
-
|
|
|
|
-
|
|
|
|
358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in exchange for Preferred Stock (unaudited)
|
|
|
(7
|
)
|
|
|
-
|
|
|
|
79,186
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings for the three months ended June 30, 2018 (unaudited)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,904
|
|
|
|
-
|
|
|
|
1,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
change in unrealized loss on securities available for sale, net of income taxes (unaudited)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
259
|
|
|
|
259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of unrealized loss on securities transferred to held to maturity (unaudited)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
loss on securities transferred to held to maturity, net of income tax benefit (unaudited)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(324
|
)
|
|
|
(324
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at June 30, 2018 (unaudited)
|
|
|
-
|
|
|
$
|
-
|
|
|
|
1,508,892
|
|
|
$
|
15
|
|
|
$
|
35,105
|
|
|
$
|
(
29,687
|
)
|
|
$
|
(356
|
)
|
|
$
|
5,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2018
|
|
|
-
|
|
|
$
|
-
|
|
|
|
1,858,020
|
|
|
$
|
18
|
|
|
$
|
36,128
|
|
|
$
|
(
30,510
|
)
|
|
$
|
(330
|
)
|
|
$
|
5,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the three months ended March 31, 2019 (unaudited)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(146
|
)
|
|
|
-
|
|
|
|
(146
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
change in unrealized loss on securities available for sale, net of income taxes (unaudited)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of unrealized loss on securities transferred to held-to-maturity (unaudited)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at March 31, 2019 (unaudited)
|
|
|
-
|
|
|
$
|
-
|
|
|
|
1,858,020
|
|
|
$
|
18
|
|
|
$
|
36,128
|
|
|
$
|
(30,656
|
)
|
|
$
|
(
313
|
)
|
|
$
|
5,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued and reclassified from other
liabilities (unaudited)
|
|
|
-
|
|
|
|
-
|
|
|
|
11,250
|
|
|
|
-
|
|
|
|
28
|
|
|
|
-
|
|
|
|
-
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued as compensation to directors (unaudited)
|
|
|
-
|
|
|
|
-
|
|
|
|
58,309
|
|
|
|
1
|
|
|
|
200
|
|
|
|
-
|
|
|
|
-
|
|
|
|
201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the three months ended June 30, 2019 (unaudited)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(430
|
)
|
|
|
-
|
|
|
|
(
430
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
change in unrealized loss on securities available for sale, net of income taxes (unaudited)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
53
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of unrealized loss on securities transferred to held-to-maturity (unaudited)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at June 30, 2019 (unaudited)
|
|
|
-
|
|
|
$
|
-
|
|
|
|
1,927,579
|
|
|
$
|
19
|
|
|
$
|
36,356
|
|
|
$
|
(31,086
|
)
|
|
$
|
(245
|
)
|
|
$
|
5,044
|
|
See
accompanying notes to condensed consolidated financial statements
OPTIMUMBANK
HOLDINGS, INC. AND SUBSIDIARY
Condensed
Consolidated Statements of Cash Flows (Unaudited)
(In
thousands)
|
|
Six
Months Ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
Net
(loss)
earnings
|
|
$
|
(576
|
)
|
|
$
|
1,619
|
|
Adjustments
to reconcile net (loss) earnings to net cash (used in) provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
86
|
|
|
|
71
|
|
Credit
for loan losses
|
|
|
—
|
|
|
|
(2,100
|
)
|
Common stock issued as compensation
to directors
|
|
|
201
|
|
|
|
—
|
|
Net
amortization of fees, premiums and discounts
|
|
|
94
|
|
|
|
116
|
|
Increase in accrued interest receivable
|
|
|
(56
|
)
|
|
|
(12
|
)
|
Increase
in other assets
|
|
|
(237
|
)
|
|
|
(3
|
)
|
Increase
in official checks and other liabilities
|
|
|
52
|
|
|
|
623
|
|
Net
cash (used in) provided by operating activities
|
|
|
(436
|
)
|
|
|
314
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchase of securities available
for sale
|
|
|
(4,153
|
)
|
|
|
—
|
|
Principal
repayments of securities available for sale
|
|
|
339
|
|
|
|
558
|
|
Principal
repayments of securities held-to-maturity
|
|
|
527
|
|
|
|
186
|
|
Net
increase in loans
|
|
|
(3,702
|
)
|
|
|
(814
|
)
|
Purchases
of premises and equipment
|
|
|
(94
|
)
|
|
|
(105
|
)
|
Redemption
(purchase) of FHLB stock
|
|
|
490
|
|
|
|
(236
|
)
|
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
(6,593
|
)
|
|
|
(411
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in deposits
|
|
|
23,523
|
|
|
|
(13,692
|
)
|
Net
decrease in federal funds purchased
|
|
|
(560
|
)
|
|
|
—
|
|
Net
(decrease) increase in FHLB Advances
|
|
|
(11,600
|
)
|
|
|
6,050
|
|
Proceeds
from sale of common stock
|
|
|
—
|
|
|
|
404
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) financing activities
|
|
|
11,363
|
|
|
|
(7,238
|
)
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
4,334
|
|
|
|
(7,335
|
)
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of the period
|
|
|
7,983
|
|
|
|
11,665
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of the period
|
|
$
|
12,317
|
|
|
$
|
4,330
|
|
See
accompanying notes to condensed consolidated financial statements
OPTIMUMBANK
HOLDINGS, INC. AND SUBSIDIARY
Condensed
Consolidated Statements of Cash Flows (Unaudited), Continued
(In
thousands)
|
|
Six
Months Ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
776
|
|
|
$
|
392
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Noncash
transactions -
|
|
|
|
|
|
|
|
|
Change
in accumulated other comprehensive loss, net change in unrealized gain (loss) on securities available for sale,
net of income taxes
|
|
$
|
85
|
|
|
$
|
(106
|
)
|
|
|
|
|
|
|
|
|
|
Transfer
of securities from available for sale to held-to-maturity
|
|
|
—
|
|
|
|
7,945
|
|
|
|
|
|
|
|
|
|
|
Amortization
of unrealized loss on securities transferred to held-to-maturity
|
|
$
|
39
|
|
|
$
|
6
|
|
|
|
|
|
|
|
|
|
|
Reclassification
of stock compensation issued as compensation to directors from other liabilities to common stock
|
|
$
|
—
|
|
|
$
|
615
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued and reclassified from other liabilities
|
|
|
28
|
|
|
|
—
|
|
See
accompanying notes to condensed consolidated financial statements
OPTIMUMBANK
HOLDINGS, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements (Unaudited)
(1)
|
General.
OptimumBank Holdings, Inc. (the “Company”) is a one-bank holding company and owns 100% of OptimumBank
(the “Bank”), a Florida-chartered commercial bank. The Company’s only business is the operation of the Bank
and its subsidiaries (collectively, the “Company”). The Bank’s deposits are insured up to applicable limits
by the Federal Deposit Insurance Corporation (“FDIC”). The Bank offers a variety of community banking services
to individual and corporate customers through its three banking offices located in Broward County, Florida.
|
|
|
|
Basis
of Presentation
.
In the opinion of management, the accompanying condensed consolidated financial statements of the
Company contain all adjustments (consisting principally of normal recurring accruals) necessary to present fairly the
financial position at June 30, 2019, and the results of operations and cash flows for the three and six month
periods ended June 30, 2019 and 2018. All significant intercompany accounts and transactions have been eliminated in
consolidation. The results of operations for the three and six month periods ended June 30, 2019, are not
necessarily indicative of the results to be expected for the full year.
|
|
|
|
Junior
Subordinated Debenture.
The Company is in default with respect to its $5,155,000
Junior Subordinated Debenture (the “Debenture”) due to its failure to make
certain required interest payments under the Debenture. The Debenture was issued to OptimumBank
Holdings Capital Trust I, a Delaware statutory trust formed by the Company for the purpose
of issuing and selling certain securities (the “Trust Preferred Securities”)
representing undivided beneficial interests in the Debenture. The trust issued a total
of 5,000 Trust Preferred Securities.
The
Trustee, Wells Fargo Bank, for the Debenture (the “Trustee”) and the beneficial owners of the Debenture are
entitled to accelerate the payment of the $5,155,000 principal balance plus accrued and unpaid interest totaling
$1,864,000 at June 30, 2019. To date, neither the Trustee nor the holders have accelerated the outstanding balance
of the Debenture. No adjustments to the accompanying condensed consolidated financial statements have been made as a result
of this uncertainty.
In
May 2018, a company affiliated with a director of the Company (the “New Holder”) purchased all 5,000 Trust
Preferred Securities from a third party. During the third quarter of 2018, the New Holder sold its rights in 694 of the
Trust Preferred Securities to several unaffiliated third parties, who subsequently exchanged these Trust Preferred Securities
for 301,778 shares of the Company’s common stock. Under the Written Agreement with the Federal Reserve Bank of
Atlanta the exchange of Trust Preferred Securities for the Company’s common stock cannot reduce the principal
amount of the Debenture collateralizing the Trust Preferred Securities. Accordingly the transaction was recorded as an
increase in the Company’s equity interest in the unconsolidated subsidiary trust, presented in “Other Assets”
in the accompanying condensed consolidated balance sheets.
Although
the Company and the New Holder have not executed a formal, definitive bilateral agreement, the New Holder has provided
the Company with written representations that the New Holder will not accelerate and demand payment of any of the remaining
4,306 Trust Preferred Securities principal or accrued interest within twelve months from August 13, 2019, the date
the Company’s Form 10-Q as of and for the period ended June 30, 2019, was filed with the Securities and Exchange
Commission. See Note 10.
|
|
|
|
Comprehensive
Loss.
GAAP generally requires that recognized revenue, expenses, gains and losses be included in net loss. Although certain
changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a
separate component of the equity section of the condensed consolidated balance sheets, such items along with net (loss)
earnings, are components of comprehensive loss.
|
Accumulated
other comprehensive loss consists of the following (in thousands):
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Unrealized
gain (loss) on securities available for sale
|
|
$
|
10
|
|
|
$
|
(64
|
)
|
Unamortized
portion of unrealized loss related to securities available for sale transferred to securities held-to-maturity
|
|
|
(338
|
)
|
|
|
(377
|
)
|
Income
tax benefit
|
|
|
83
|
|
|
|
111
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(
245
|
)
|
|
$
|
(330
|
)
|
|
Income
Taxes.
The Company assessed its earnings history and trends and estimates of future earnings, and determined that
the deferred tax asset could not be realized as of June 30, 2019. Accordingly, a valuation allowance was recorded against
the net deferred tax asset.
|
|
|
|
(continued)
|
OPTIMUMBANK
HOLDINGS, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements (Unaudited)
Reclassifications.
Certains amounts have been reclassified to allow for consistent presentation in the periods presented.
Recent
Pronouncements.
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards
Update No. 2016-02, Leases (Topic 842). ASU 2016-02 is intended to improve financial reporting of leasing transactions by requiring
organizations that lease assets to recognize assets and liabilities for the rights and obligations created by leases on the condensed
consolidated balance sheet. The Company adopted ASU 2016-02 on January 1, 2019. Our only lease at the adoption date
was an operating lease for a branch location that has a 5 year term, commenced in December 2017, does not offer any options
to extend, and does contain a rent escalation clause. The effect of this ASU increased total assets by $281,000 and
total liabilities by $281,000, at the adoption date. With respect to the lease recognized on the condensed consolidated
balance sheet as of June 30, 2019, the right of use asset of $246,000 and lease liability of $248,000 are included
in the caption “other assets” and “other liabilities”, respectively, in the accompanying condensed
consolidated balance sheet. The discount rate used in this calculation was 2.6%.
|
In
June 2016, the FASB issued 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 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, 2019. Early adoption is permitted. The Company is in the
process of determining the effect of the ASU on its condensed consolidated financial
statements. In July 2019, the FASB board voted to ask its staff to prepare an exposure
draft proposing the new effective dates for ASU NO 2016-13. If approved, the new effective
date for the Company would be January 1, 2023.
|
|
|
|
(continued)
|
OPTIMUMBANK
HOLDINGS, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements (Unaudited)
(2)
|
Securities
.
Securities have been classified according to management’s intent. The carrying amount of securities and approximate
fair values are as follows (in thousands):
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-Maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized mortgage obligations
|
|
$
|
4,818
|
|
|
$
|
181
|
|
|
$
|
—
|
|
|
$
|
4,999
|
|
Mortgage-backed
securities
|
|
|
1,814
|
|
|
|
61
|
|
|
|
—
|
|
|
|
1,875
|
|
Total
|
|
|
6,632
|
|
|
|
242
|
|
|
|
—
|
|
|
|
6,874
|
|
Available for Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SBA Pool Securities
|
|
$
|
2,112
|
|
|
$
|
—
|
|
|
$
|
(54
|
)
|
|
$
|
2,058
|
|
Collateralized mortgage obligations
|
|
|
1,190
|
|
|
|
22
|
|
|
|
—
|
|
|
|
1,212
|
|
Mortgage-backed securities
|
|
|
2,901
|
|
|
|
42
|
|
|
|
—
|
|
|
|
2,943
|
|
Total
|
|
$
|
6,203
|
|
|
$
|
64
|
|
|
$
|
(54
|
)
|
|
$
|
6,213
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-Maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized mortgage obligations
|
|
$
|
5,183
|
|
|
$
|
25
|
|
|
$
|
(4
|
)
|
|
$
|
5,204
|
|
Mortgage-backed
securities
|
|
|
1,956
|
|
|
|
15
|
|
|
|
—
|
|
|
|
1,971
|
|
Total
|
|
$
|
7,139
|
|
|
$
|
40
|
|
|
$
|
(4
|
)
|
|
$
|
7,175
|
|
Available for Sale -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SBA Pool Securities
|
|
$
|
2,423
|
|
|
$
|
-
|
|
|
$
|
(64
|
)
|
|
$
|
2,359
|
|
In
April 2018, the bank transferred securities of $7,945,000 from the available-for-sale category to the held-to-maturity category
at their then fair values resulting in unrealized losses of $432,000. The unrealized loss was recorded in stockholders’
equity net of amortization and net of tax and is being amortized over the remaining term of the securities. At June 30,
2019 and December 31, 2018, $94,000 and $55,000, respectively, has been amortized.
There
were no sales of securities during the three and six month periods ended June 30, 2019 and 2018.
Securities with gross unrealized losses, aggregated by investment category and length of time that individual securities
have been in a continuous loss position, is as follows (in thousands):
|
|
At
June 30, 2019
|
|
|
|
Over
Twelve Months
|
|
|
Less
Than Twelve
Months
|
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available
for Sale -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SBA
Pool Securities
|
|
$
|
54
|
|
|
$
|
2,058
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
At
December 31, 2018
|
|
|
|
Over
Twelve Months
|
|
|
Less
Than Twelve
Months
|
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-Maturity
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized
mortgage obligations
|
|
$
|
4
|
|
|
$
|
1,361
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Available
for Sale -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SBA
Pool Securities
|
|
$
|
24
|
|
|
$
|
829
|
|
|
$
|
40
|
|
|
$
|
1,530
|
|
(continued)
OPTIMUMBANK
HOLDINGS, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements (Unaudited)
(2)
|
Securities,
Continued.
Management
evaluates 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, 2019 and December 31, 2018, the unrealized losses on six and seven investment securities, respectively,
were caused by market conditions. It is expected that the securities would not be settled at a price less than the book
value of the investments. Because the decline in fair value is attributable to market conditions and not credit quality,
and because the Company has the ability and intent to hold these investments until a market price recovery or maturity,
these investments are not considered other-than-temporarily impaired.
|
|
|
|
(continued)
|
OPTIMUMBANK
HOLDINGS, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements (Unaudited)
(3)
|
Loans.
The components of loans are as follows (in thousands):
|
|
|
At
June
30,
2019
|
|
|
At
December
31,
2018
|
|
|
|
|
|
|
|
|
Residential
real estate
|
|
$
|
26,588
|
|
|
$
|
27,204
|
|
Multi-family
real estate
|
|
|
4
,200
|
|
|
|
8,195
|
|
Commercial
real estate
|
|
|
46
,985
|
|
|
|
36,634
|
|
Land
and construction
|
|
|
157
|
|
|
|
1,998
|
|
Commercial
|
|
|
4
,779
|
|
|
|
4,997
|
|
Consumer
|
|
|
122
|
|
|
|
260
|
|
|
|
|
|
|
|
|
|
|
Total
loans
|
|
|
82,
831
|
|
|
|
79,288
|
|
|
|
|
|
|
|
|
|
|
Add
(deduct):
|
|
|
|
|
|
|
|
|
Net
deferred loan fees, costs and premiums
|
|
|
83
|
|
|
|
155
|
|
Allowance
for loan losses
|
|
|
(2,053
|
)
|
|
|
(2,243
|
)
|
|
|
|
|
|
|
|
|
|
Loans,
net
|
|
$
|
80
,861
|
|
|
$
|
77,200
|
|
(continued)
OPTIMUMBANK
HOLDINGS, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements (Unaudited)
(3)
|
Loans,
Continued.
An analysis of the change in the allowance for loan losses follows (in thousands):
|
|
|
Residential
Real Estate
|
|
|
Multi-Family
Real Estate
|
|
|
Commercial
Real Estate
|
|
|
Land
and
Construction
|
|
|
Commercial
|
|
|
Consumer
|
|
|
Unallocated
|
|
|
Total
|
|
Three
Months Ended June 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$
|
532
|
|
|
$
|
65
|
|
|
$
|
628
|
|
|
$
|
—
|
|
|
$
|
553
|
|
|
$
|
19
|
|
|
$
|
250
|
|
|
$
|
2,047
|
|
Provision
(credit)
for
loan losses
|
|
|
5
|
|
|
|
(24
|
)
|
|
|
50
|
|
|
|
(5
|
)
|
|
|
5
|
|
|
|
(8
|
)
|
|
|
(23
|
)
|
|
|
—
|
|
Charge-offs
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Recoveries
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance
|
|
$
|
537
|
|
|
$
|
41
|
|
|
$
|
678
|
|
|
$
|
1
|
|
|
$
|
558
|
|
|
$
|
11
|
|
|
$
|
227
|
|
|
$
|
2,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended June 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$
|
647
|
|
|
$
|
67
|
|
|
$
|
712
|
|
|
$
|
28
|
|
|
$
|
279
|
|
|
$
|
59
|
|
|
$
|
2,201
|
|
|
$
|
3,993
|
|
Provision
(credit) for loan losses
|
|
|
18
|
|
|
|
(14
|
)
|
|
|
27
|
|
|
|
(8
|
)
|
|
|
(13
|
)
|
|
|
(17
|
)
|
|
|
(2,093
|
)
|
|
|
(2,100
|
)
|
Charge-offs
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(3
|
)
|
|
|
—
|
|
|
|
(3
|
)
|
Recoveries
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6
|
|
|
|
—
|
|
|
|
3
|
|
|
|
—
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance
|
|
$
|
665
|
|
|
$
|
53
|
|
|
$
|
739
|
|
|
$
|
26
|
|
|
$
|
266
|
|
|
$
|
42
|
|
|
$
|
108
|
|
|
$
|
1,899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended June 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$
|
544
|
|
|
$
|
88
|
|
|
$
|
567
|
|
|
$
|
19
|
|
|
$
|
850
|
|
|
$
|
25
|
|
|
$
|
150
|
|
|
$
|
2,243
|
|
(Credit)
provision
for loan losses
|
|
|
(7
|
)
|
|
|
(47
|
)
|
|
|
306
|
|
|
|
(30
|
)
|
|
|
(292
|
)
|
|
|
(7
|
)
|
|
|
77
|
|
|
|
—
|
|
Charge-offs
|
|
|
—
|
|
|
|
—
|
|
|
|
(195
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(7
|
)
|
|
|
—
|
|
|
|
(202
|
)
|
Recoveries
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
12
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance
|
|
$
|
537
|
|
|
$
|
41
|
|
|
$
|
678
|
|
|
$
|
1
|
|
|
$
|
558
|
|
|
$
|
11
|
|
|
$
|
227
|
|
|
$
|
2,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended June 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$
|
641
|
|
|
$
|
59
|
|
|
$
|
759
|
|
|
$
|
22
|
|
|
$
|
55
|
|
|
$
|
86
|
|
|
$
|
2,369
|
|
|
$
|
3,991
|
|
Provision
(credit)
for loan losses
|
|
|
24
|
|
|
|
(6
|
)
|
|
|
(20
|
)
|
|
|
(8
|
)
|
|
|
211
|
|
|
|
(40
|
)
|
|
|
(2,261
|
)
|
|
|
(2,100
|
)
|
Charge-offs
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(12
|
)
|
|
|
—
|
|
|
|
(12
|
)
|
Recoveries
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
12
|
|
|
|
—
|
|
|
|
8
|
|
|
|
—
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance
|
|
$
|
665
|
|
|
$
|
53
|
|
|
$
|
739
|
|
|
$
|
26
|
|
|
$
|
266
|
|
|
$
|
42
|
|
|
$
|
108
|
|
|
$
|
1,899
|
|
(continued)
OPTIMUMBANK
HOLDINGS, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements (Unaudited)
|
|
Residential
Real Estate
|
|
|
Multi-
Family Real Estate
|
|
|
Commercial
Real Estate
|
|
|
Land
and Construction
|
|
|
Commercial
|
|
|
Consumer
|
|
|
Unallocated
|
|
|
Total
|
|
At
June 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually
evaluated for impairment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded
investment
|
|
$
|
954
|
|
|
$
|
—
|
|
|
$
|
2,445
|
|
|
$
|
—
|
|
|
$
|
812
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,211
|
|
Balance
in allowance for loan losses
|
|
$
|
268
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
523
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
791
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively
evaluated for impairment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded
investment
|
|
$
|
25,634
|
|
|
$
|
4,200
|
|
|
$
|
44,540
|
|
|
$
|
157
|
|
|
$
|
3,967
|
|
|
$
|
122
|
|
|
$
|
—
|
|
|
$
|
78,620
|
|
Balance
in allowance for loan losses
|
|
$
|
269
|
|
|
$
|
41
|
|
|
$
|
678
|
|
|
$
|
1
|
|
|
$
|
35
|
|
|
$
|
11
|
|
|
$
|
227
|
|
|
$
|
1,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually
evaluated for impairment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded
investment
|
|
$
|
954
|
|
|
$
|
—
|
|
|
$
|
3,861
|
|
|
$
|
—
|
|
|
$
|
1,928
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,743
|
|
Balance
in allowance for loan losses
|
|
$
|
268
|
|
|
$
|
—
|
|
|
$
|
162
|
|
|
$
|
—
|
|
|
$
|
814
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively
evaluated for impairment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded
investment
|
|
$
|
26,250
|
|
|
$
|
8,195
|
|
|
$
|
32,773
|
|
|
$
|
1,998
|
|
|
$
|
3,069
|
|
|
$
|
260
|
|
|
$
|
—
|
|
|
$
|
72,545
|
|
Balance
in allowance for loan losses
|
|
$
|
276
|
|
|
$
|
88
|
|
|
$
|
405
|
|
|
$
|
19
|
|
|
$
|
36
|
|
|
$
|
25
|
|
|
$
|
150
|
|
|
$
|
999
|
|
(continued)
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)
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, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
real estate
|
|
$
|
25,634
|
|
|
$
|
—
|
|
|
$
|
954
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
26,588
|
|
Multi-family
real estate
|
|
|
4
,200
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,200
|
|
Commercial
real estate
|
|
|
42
,814
|
|
|
|
1,726
|
|
|
|
2,445
|
|
|
|
—
|
|
|
|
—
|
|
|
|
46,985
|
|
Land
and construction
|
|
|
157
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
157
|
|
Commercial
|
|
|
3
,967
|
|
|
|
—
|
|
|
|
812
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,779
|
|
Consumer
|
|
|
122
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
76,894
|
|
|
$
|
1,726
|
|
|
$
|
4,211
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
82,831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
real estate
|
|
$
|
26,250
|
|
|
$
|
—
|
|
|
$
|
954
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
27,204
|
|
Multi-family
real estate
|
|
|
8,195
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,195
|
|
Commercial
real estate
|
|
|
31,050
|
|
|
|
1,723
|
|
|
|
3,861
|
|
|
|
—
|
|
|
|
—
|
|
|
|
36,634
|
|
Land
and construction
|
|
|
1,998
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,998
|
|
Commercial
|
|
|
2,362
|
|
|
|
707
|
|
|
|
1,928
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,997
|
|
Consumer
|
|
|
260
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
70,115
|
|
|
$
|
2,430
|
|
|
$
|
6,743
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
79,288
|
|
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 effected 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)
OPTIMUMBANK
HOLDINGS, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements (Unaudited)
(3)
|
Loans,
Continued.
Age analysis of past-due loans is as follows (in thousands):
|
|
|
Accruing Loans
|
|
|
|
|
|
|
|
|
|
30-59
Days
Past Due
|
|
|
60-89
Days
Past Due
|
|
|
Greater
Than 90
Days
Past Due
|
|
|
Total
Past
Due
|
|
|
Current
|
|
|
Nonaccrual
Loans
|
|
|
Total
Loans
|
|
At
June 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
real estate
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
26,588
|
|
|
$
|
—
|
|
|
$
|
26,588
|
|
Multi-family
real estate
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,200
|
|
|
|
—
|
|
|
|
4,200
|
|
Commercial
real estate
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
46,985
|
|
|
|
—
|
|
|
|
46,985
|
|
Land
and construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
157
|
|
|
|
—
|
|
|
|
157
|
|
Commercial
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,779
|
|
|
|
—
|
|
|
|
4,779
|
|
Consumer
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
122
|
|
|
|
—
|
|
|
|
122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
82,831
|
|
|
$
|
—
|
|
|
$
|
82,831
|
|
|
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, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
real estate
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
27,204
|
|
|
$
|
—
|
|
|
$
|
27,204
|
|
Multi-family
real estate
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,195
|
|
|
|
—
|
|
|
|
8,195
|
|
Commercial
real estate
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
35,254
|
|
|
|
1,380
|
|
|
|
36,634
|
|
Land
and construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,998
|
|
|
|
—
|
|
|
|
1,998
|
|
Commercial
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,997
|
|
|
|
—
|
|
|
|
4,997
|
|
Consumer
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
260
|
|
|
|
—
|
|
|
|
260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
77,908
|
|
|
$
|
1,380
|
|
|
$
|
79,288
|
|
The
following summarizes the amount of impaired loans (in thousands):
|
|
At
June 30, 2019
|
|
|
At
December 31, 2018
|
|
|
|
Recorded
Investment
|
|
|
Unpaid
Principal
Balance
|
|
|
Related
Allowance
|
|
|
Recorded
Investment
|
|
|
Unpaid
Principal
Balance
|
|
|
Related
Allowance
|
|
With
no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
real estate
|
|
$
|
2,445
|
|
|
$
|
2,445
|
|
|
$
|
—
|
|
|
$
|
2,259
|
|
|
$
|
2,259
|
|
|
$
|
—
|
|
Commercial
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,114
|
|
|
|
1,114
|
|
|
|
—
|
|
With
related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
real estate
|
|
|
954
|
|
|
|
954
|
|
|
|
268
|
|
|
|
954
|
|
|
|
954
|
|
|
|
268
|
|
Commercial
real estate
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,602
|
|
|
|
1,602
|
|
|
|
162
|
|
Commercial
|
|
|
812
|
|
|
|
812
|
|
|
|
523
|
|
|
|
814
|
|
|
|
814
|
|
|
|
814
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
real estate
|
|
$
|
954
|
|
|
$
|
954
|
|
|
$
|
268
|
|
|
$
|
954
|
|
|
$
|
954
|
|
|
$
|
268
|
|
Commercial
real estate
|
|
$
|
2,445
|
|
|
$
|
2,445
|
|
|
$
|
—
|
|
|
$
|
3,861
|
|
|
$
|
3,861
|
|
|
$
|
162
|
|
Commercial
|
|
$
|
812
|
|
|
$
|
812
|
|
|
$
|
523
|
|
|
$
|
1,928
|
|
|
$
|
1,928
|
|
|
$
|
814
|
|
Total
|
|
$
|
4,211
|
|
|
$
|
4,211
|
|
|
$
|
791
|
|
|
$
|
6,743
|
|
|
$
|
6,743
|
|
|
$
|
1,244
|
|
(continued)
OPTIMUMBANK
HOLDINGS, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements (Unaudited)
(3)
|
Loans,
Continued.
The average net investment in impaired loans and interest income recognized and received on impaired loans
are as follows (in thousands):
|
|
|
Three
Months Ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
Average
|
|
|
Interest
|
|
|
Interest
|
|
|
Average
|
|
|
Interest
|
|
|
Interest
|
|
|
|
Recorded
|
|
|
Income
|
|
|
Income
|
|
|
Recorded
|
|
|
Income
|
|
|
Income
|
|
|
|
Investment
|
|
|
Recognized
|
|
|
Received
|
|
|
Investment
|
|
|
Recognized
|
|
|
Received
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
real estate
|
|
$
|
954
|
|
|
$
|
19
|
|
|
$
|
19
|
|
|
$
|
968
|
|
|
$
|
19
|
|
|
$
|
19
|
|
Commercial
real estate
|
|
$
|
2,461
|
|
|
$
|
31
|
|
|
$
|
21
|
|
|
$
|
226
|
|
|
$
|
3
|
|
|
$
|
3
|
|
Commercial
|
|
$
|
1,302
|
|
|
$
|
20
|
|
|
$
|
11
|
|
|
$
|
2,287
|
|
|
$
|
28
|
|
|
$
|
28
|
|
Total
|
|
$
|
4,714
|
|
|
$
|
70
|
|
|
$
|
51
|
|
|
$
|
3,481
|
|
|
$
|
50
|
|
|
$
|
50
|
|
|
|
Six
Months Ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
Average
|
|
|
Interest
|
|
|
Interest
|
|
|
Average
|
|
|
Interest
|
|
|
Interest
|
|
|
|
Recorded
|
|
|
Income
|
|
|
Income
|
|
|
Recorded
|
|
|
Income
|
|
|
Income
|
|
|
|
Investment
|
|
|
Recognized
|
|
|
Received
|
|
|
Investment
|
|
|
Recognized
|
|
|
Received
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
real estate
|
|
$
|
952
|
|
|
$
|
37
|
|
|
$
|
37
|
|
|
$
|
1,000
|
|
|
$
|
38
|
|
|
$
|
38
|
|
Commercial
real estate
|
|
$
|
3,059
|
|
|
$
|
61
|
|
|
$
|
59
|
|
|
$
|
546
|
|
|
$
|
15
|
|
|
$
|
15
|
|
Commercial
|
|
$
|
1,548
|
|
|
|
43
|
|
|
$
|
39
|
|
|
$
|
1,319
|
|
|
|
45
|
|
|
$
|
45
|
|
Total
|
|
$
|
5,559
|
|
|
$
|
141
|
|
|
$
|
135
|
|
|
$
|
2,865
|
|
|
$
|
98
|
|
|
$
|
98
|
|
|
No
loans have been determined to be troubled debt restructurings (TDR’s) during the three and six month periods
ended June 30, 2019 or 2018. At June 30, 2019 and 2018, there were no loans modified and entered into TDR’s within the
past twelve months, that subsequently defaulted during the three and six month periods ended June 30, 2019 or 2018.
|
(continued)
OPTIMUMBANK
HOLDINGS, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements (Unaudited)
(4)
|
(Loss)
Earnings Per Share.
Basic (loss) earnings per share has been computed on the basis of the weighted-average
number of shares of common stock outstanding during the period. During the three and six month periods ended June 30, 2019,
basic and diluted loss per share is the same due to the net loss incurred by the Company. During the three and six month periods
ended June 30, 2018, basic and diluted earnings per share is the same as there were no outstanding potentially dilutive securities.
(Loss) earnings per common share have been computed based on the following:
|
|
|
Three
Months Ended
June 30,
|
|
|
Six
Months Ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Weighted-average
number of common shares outstanding used to calculate basic and diluted loss per common share
|
|
|
1,881,759
|
|
|
|
1,409,904
|
|
|
|
1,869,933
|
|
|
|
1,292,381
|
|
(continued)
OPTIMUMBANK
HOLDINGS, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements (Unaudited)
(5)
|
Stock-Based
Compensation.
The Company is authorized to grant stock options, stock grants and other forms of equity-based compensation
under its 2011 Equity Incentive Plan as amended (the “2011 Plan”) and its 2018 Equity Incentive Plan (the “2018
Plan”). Both plans have been approved by shareholders. The Company is authorized to issue up to 210,000 shares of common
stock under the 2011 Plan of which all have been issued, and up to 250,000 shares of common stock under the 2018 Plan,
of which 157,190 have been issued, and 92,810 shares remain available for grant.
|
|
|
|
The
Company’s only grants under the 2011 Plan have been the issuance of shares of common stock to directors for director’s
fees and compensation for services rendered. As of April 1, 2017, the Company discontinued the issuance of common stock as
a method of payment of director’s fees.
|
|
|
|
During
2018, the sale of 20,814 shares of common stock to a director of the Company, and the issuance of 79,186 shares of common
stock in exchange for 7 shares of the Company’s preferred stock held by a director in April 2018, were treated as grants
under the 2018 Plan. Please refer to the Company’s Forms 8-K filed with the Securities and Exchange Commission on November
16, 2018 and January 10, 2019 for further details.
|
|
|
|
During
the year ended December 31, 2017, the Company accrued compensation expense of $8,858 with respect to 2,821 shares to be issued
to directors at a value of $3.14 per share on account of director’s fees accrued during the first quarter of 2017. These
shares were issued in 2018.
|
|
|
|
During
the year ended December 31, 2018, the Company accrued compensation expense of $200,000 with respect to 36,101 shares
issued to a director for services performed in 2018. The Company had previously accrued compensation expense of
$200,000 in 2016 and 2017 for services performed. The Company had previously agreed to issue 105,820 shares to this
director for services performed in 2016 and 2017. All shares were issued in 2018.
|
|
|
|
During the three month period ended June 30,
2019, the Company recorded compensation expense of $200,000 with respect to 58,309 shares issued to a director for services
performed.
|
(6)
|
Fair
Value Measurements.
Impaired collateral-dependent loans are carried at fair value when the current collateral value
is lower than the carrying value of the loan. Those impaired collateral-dependent loans which are measured at fair value on
a nonrecurring basis are as follows (in thousands):
|
|
|
Fair
Value
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
Losses
|
|
|
Losses
Recorded
in
Operations
For the Six Month period ended
June
30, 2019
|
|
At
June 30, 2019 —
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
real estate
|
|
$
|
686
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
686
|
|
|
$
|
268
|
|
|
$
|
—
|
|
|
|
Fair
Value
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
Losses
|
|
|
Losses
Recorded
in
Operations
For the year ended
December
31, 2018
|
|
At
December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
real estate
|
|
$
|
686
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
686
|
|
|
$
|
268
|
|
|
$
|
—
|
|
Commercial
real estate
|
|
|
1,312
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,312
|
|
|
|
71
|
|
|
|
—
|
|
|
|
$
|
1,998
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,998
|
|
|
$
|
339
|
|
|
$
|
—
|
|
Available-for-sale
securities measured at fair value on a recurring basis are summarized below (in thousands):
|
|
Fair
Value Measurements Using
|
|
|
|
Fair
Value
|
|
|
Quoted
Prices
In
Active Markets for Identical Assets
(Level
1)
|
|
|
Significant
Other Observable Inputs
(Level
2)
|
|
|
Significant
Unobservable
Inputs
(Level
3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
June 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SBA
Pool Securities
|
|
$
|
2,058
|
|
|
$
|
—
|
|
|
$
|
2,058
|
|
|
$
|
—
|
|
Collateralized
mortgage obligations
|
|
|
1,212
|
|
|
|
—
|
|
|
|
1,212
|
|
|
|
—
|
|
Mortgage-backed
Securities
|
|
|
2,943
|
|
|
|
—
|
|
|
|
2,943
|
|
|
|
—
|
|
|
|
$
|
6,213
|
|
|
$
|
—
|
|
|
$
|
6,213
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SBA
Pool Securities
|
|
$
|
2,359
|
|
|
$
|
—
|
|
|
$
|
2,359
|
|
|
$
|
—
|
|
During
the three and six month periods ended June 30, 2019 and 2018, no securities were transferred in or out of Levels
1, 2 or 3.
(continued)
OPTIMUMBANK
HOLDINGS, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements (Unaudited)
(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, 2019
|
|
At
December 31, 2018
|
|
|
Carrying
Amount
|
|
|
Fair
Value
|
|
|
Level
|
|
Carrying
Amount
|
|
|
Fair
Value
|
|
|
Level
|
Financial
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
12,317
|
|
|
$
|
12,317
|
|
|
1
|
|
$
|
7,983
|
|
|
$
|
7,983
|
|
|
1
|
Securities
available for sale
|
|
|
6,213
|
|
|
|
6,213
|
|
|
2
|
|
|
2,359
|
|
|
|
2,359
|
|
|
2
|
Securities
held-to-maturity
|
|
|
6,632
|
|
|
|
6,874
|
|
|
2
|
|
|
7,139
|
|
|
|
7,175
|
|
|
2
|
Loans
|
|
|
80,861
|
|
|
|
80,544
|
|
|
3
|
|
|
77,200
|
|
|
|
77,062
|
|
|
3
|
Federal
Home Loan Bank stock
|
|
|
642
|
|
|
|
642
|
|
|
3
|
|
|
1,132
|
|
|
|
1,132
|
|
|
3
|
Accrued
interest receivable
|
|
|
370
|
|
|
|
370
|
|
|
3
|
|
|
314
|
|
|
|
314
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposit
liabilities
|
|
|
85,901
|
|
|
|
85,847
|
|
|
3
|
|
|
62,378
|
|
|
|
62,243
|
|
|
3
|
Federal
Home Loan Bank advances
|
|
|
13,000
|
|
|
|
12,807
|
|
|
3
|
|
|
24,600
|
|
|
|
24,437
|
|
|
3
|
Junior
subordinated debenture
|
|
|
5,155
|
|
|
|
N/A
|
(1)
|
|
3
|
|
|
5,155
|
|
|
|
N/A
|
(1)
|
|
3
|
Federal
funds purchased
|
|
|
—
|
|
|
|
—
|
|
|
N/A
|
|
|
560
|
|
|
|
560
|
|
|
3
|
Off-balance
sheet financial instruments
|
|
|
—
|
|
|
|
—
|
|
|
N/A
|
|
|
—
|
|
|
|
—
|
|
|
N/A
|
(1)
|
The
Company is unable to determine value based on significant unobservable inputs required in the calculation. Refer to Note 10
for further information.
|
|
|
(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, 2019 follows (in thousands):
Commitments
to extend credit
|
|
$
|
3,894
|
|
|
|
|
|
|
Unused
lines of credit
|
|
$
|
2,962
|
|
|
|
|
|
|
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’s 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.
|
|
|
|
The
Bank, is subject to the Basel III capital level threshold requirements under the Prompt Corrective Action regulations with
full compliance phased in over a multi-year schedule. These new regulations were designed to ensure that banks maintain strong
capital positions even in the event of severe economic downturns or unforeseen losses.
|
|
|
|
The
Bank is subject to the capital conservation buffer rules which place limitations on distributions, including dividend payments,
and certain discretionary bonus payments to executive officers. In order to avoid these limitations, an institution must hold
a capital conservation buffer above its minimum risk-based capital requirements. As of June 30, 2019, the Bank’s
capital conservation buffer exceeds the minimum requirements of 2.50%.
|
(continued)
OPTIMUMBANK
HOLDINGS, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements (Unaudited)
(9)
|
Regulatory
Matters, Continued.
The
following table shows the Bank’s capital amounts and ratios and regulatory thresholds at June 30, 2019 and December
31, 2018 (dollars in thousands):
|
|
|
Actual
|
|
|
For
Capital
Adequacy
Purposes
|
|
|
Minimum
To
Be Well
Capitalized
Under
Prompt
Corrective
Action
Provisions
|
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
As
of June 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Capital to Risk-Weighted Assets
|
|
$
|
12,193
|
|
|
|
14.61
|
%
|
|
$
|
6,676
|
|
|
|
8.00
|
%
|
|
$
|
8,344
|
|
|
|
10.00
|
%
|
Tier
I Capital to Risk-Weighted Assets
|
|
|
11,138
|
|
|
|
13.35
|
|
|
|
5,007
|
|
|
|
6.00
|
|
|
|
6,626
|
|
|
|
8.00
|
|
Common
equity Tier I capital to Risk-Weighted Assets
|
|
|
11,138
|
|
|
|
13.35
|
|
|
|
3,755
|
|
|
|
4.50
|
|
|
|
5,424
|
|
|
|
6.50
|
|
Tier
I Capital to Total Assets
|
|
|
11,138
|
|
|
|
10.31
|
|
|
|
4,323
|
|
|
|
4.00
|
|
|
|
5,404
|
|
|
|
5.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Capital to Risk-Weighted Assets
|
|
$
|
12,155
|
|
|
|
15.86
|
%
|
|
$
|
6,132
|
|
|
|
8.00
|
%
|
|
$
|
7,665
|
|
|
|
10.00
|
%
|
Tier
I Capital to Risk-Weighted Assets
|
|
|
11,181
|
|
|
|
14.59
|
|
|
|
4,599
|
|
|
|
6.00
|
|
|
|
6,132
|
|
|
|
8.00
|
|
Common
equity Tier I capital to Risk-Weighted Assets
|
|
|
11,181
|
|
|
|
14.59
|
|
|
|
3,449
|
|
|
|
4.50
|
|
|
|
4,983
|
|
|
|
6.50
|
|
Tier
I Capital to Total Assets
|
|
|
11,181
|
|
|
|
11.68
|
|
|
|
3,828
|
|
|
|
4.00
|
|
|
|
4,785
|
|
|
|
5.00
|
|
(continued)
OPTIMUMBANK
HOLDINGS, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements (Unaudited)
|
Memorandum
of Understanding.
On August 28, 2018, the Bank agreed to the issuance of a Memorandum
of Understanding (the “MOU”), with the FDIC and Florida Office of Financial
Regulation which required the Bank to take certain measures to improve its
safety and soundness. By agreeing to the MOU, the Bank was released from the Consent
Order that became effective in 2016, including the restrictions on the interest rates
paid on deposits.
Pursuant
to the MOU, the Bank was required to take certain measures to maintain qualified management, improve its strategic
planning and budgeting process, strengthen the interest rate management practices, limit its asset growth and provide
for the ongoing organization, monitoring and operational administration of the Bank Secrecy Act Program. The MOU prohibited
the payment of dividends by the Bank.
During
the recent examinations, the examiners noted the Bank was in full compliance with the provisions of the MOU. In June
2019, the Bank was released from the MOU.
Company
Written Agreement with Federal Reserve Bank of Atlanta (“FRB”)
. On June 22, 2010, the Company
and the FRB 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 FRB, the payment of cash dividends,
taking dividends or payments from the Bank, making any interest, principal or other distributions on account of 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.
|
(10)
|
Junior
Subordinated Debenture.
On September 30, 2004, the Company issued a $5,155,000 Junior Subordinated Debenture (the
“Debenture”) to Optimum Bank Holdings Capital Trust I, a Delaware statutory trust formed by the Company for the
purpose of issuing and selling certain securities (the “Trust Preferred Securities”) representing undivided beneficial
interests in the Debenture. The trust issued a total of 5,000 Trust Preferred Securities. The Debenture has a term of thirty
years. The interest rate was fixed at 6.40% for the first five years, and thereafter, the coupon rate floats quarterly at
the three-month LIBOR rate plus 2.45% (4.77% at June 30, 2019). 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 June
30, 2019 totaled $1,864,000. The Company has deferred interest payments with respect to the Debenture for the maximum
allowable twenty consecutive quarterly payments. The Company is in default under the Debenture due to its failure to make
required interest payments. The Trustee for the Debenture and the beneficial owners of the Debenture can accelerate the $5,155,000
principal balance plus accrued and unpaid interest, as a result of this default. To date, neither the Trustee nor the holders
have accelerated the outstanding balance of the Debenture. No adjustments to the accompanying condensed consolidated financial
statements have been made as a result of this uncertainty. Under the Written Agreement, the Company is not able to make any
interest or principal payments without the prior approval of the FRB.
|
|
|
|
In
May 2018, a company affiliated with a director of the Company (the “New Holder”) purchased all 5,000 Trust Preferred
Securities from a third party. During the third quarter of 2018, the New Holder sold its rights in 694 of the
Trust Preferred Securities to several unaffiliated third parties, who subsequently exchanged these Trust Preferred Securities
for 301,778 shares of the Company’s common stock. Under the Written Agreement the exchange of Trust Preferred Securities
for the Company’s common stock cannot reduce the principal amount of the Debenture collateralizing the Trust Preferred
Securities. Accordingly, the transaction was recorded as an increase in the Company’s equity interest in the unconsolidated
subsidiary trust, presented in “Other Assets” in the accompanying condensed consolidated balance sheets.
|
|
|
|
Although
the Company and the New Holder have not executed a formal, definitive bilateral agreement, the New Holder has provided the
Company with written representations that the New Holder will not accelerate and demand payment of any of the remaining 4,306
Trust Preferred Securities principal or accrued interest within twelve months from August 13, 2019, the date the Company’s
Form 10-Q as of and for the period ended June 30, 2019, was filed with the Securities and Exchange Commission.
|
|
|
(11)
|
Branch
Relocation.
In June 2019, the Company entered into a sales contract to sell one of its branch locations for
$1,400,000. The Company will finance $1,050,000 of the total sales price. Also in June
2019, the Company entered into a lease agreement for the purpose of relocating the aforementioned
branch.
|
|
|
|
The
Company has requested regulatory approval for the branch relocation. The lease commencement date shall occur upon receiving
approval from the regulators, but will start no later than 120 days from the date the lease agreement was executed in
June 2019. The sale closing will occur within two weeks of Company vacating the building.
|
(12)
|
Lease.
We adopted ASU 2016-02, Leases on January 1, 2019, which resulted in the recognition of one operating lease on the
condensed consolidated balance sheet in 2019 and forward. See Note 1 – Recent Pronouncements for more information on
the adoption of the ASU. We determine if a contract contains a lease at inception and recognize operating lease right-of-use
assets and operating lease liabilities based on the present value of the future minimum lease payments at the adoption date.
The right-of-use asset and lease liability is disclosed below and are included in the caption “Other assets” and
“Other liabilities”, respectively, in the accompanying condensed consolidated balance sheet. As our lease does
not provide an implicit rate, we use our incremental borrowing rate based on the information available at the adoption date
in determining the present value of future payments. Lease agreements that have lease and non-lease components, are accounted
for as a single lease component. Lease expense is recognized on a straight-line basis over the lease term.
|
|
|
|
The
Company’s operating lease obligation is for one of the Company’s branch locations. Our lease has a remaining lease
term of approximately 3.4 years and does not offer an option to extend the lease. The components of lease expense and other
lease information are as follows (in thousands):
|
|
|
Three Month Period Ended June 30, 2019
|
|
|
Six Month Period Ended June 30, 2019
|
|
|
|
|
|
|
|
|
Operating Lease Cost
|
|
$
|
19
|
|
|
$
|
38
|
|
Cash paid for amounts included in measurement of lease liabilities
|
|
$
|
18
|
|
|
$
|
36
|
|
|
|
At June 30, 2019
|
|
|
|
|
|
Operating lease right-of-use asset
|
|
$
|
246
|
|
Operating lease liability
|
|
$
|
248
|
|
Weighted-average remaining lease term
|
|
|
3.4
years
|
|
Weighted-average discount rate
|
|
|
2.6
|
%
|
Future minimum lease payments under non-cancellable
leases, reconciled to our discounted operating lease liability is as follows (in thousands):
|
|
At June 30, 2019
|
|
Remainder of 2019
|
|
$
|
36
|
|
2020
|
|
$
|
75
|
|
2021
|
|
$
|
77
|
|
2022
|
|
$
|
72
|
|
Total future minimum lease payments
|
|
$
|
260
|
|
Less imputed interest
|
|
$
|
(12
|
)
|
Total operating lease liability
|
|
|
248
|
|
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, 2018 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.
(continued)
OPTIMUMBANK
HOLDINGS, INC. AND SUBSIDIARY
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued
)
Memorandum
of Understanding.
On August 28, 2018, the Bank agreed to the issuance of a Memorandum of Understanding (the “MOU”),
with the FDIC and OFR which required the Bank to take certain measures to improve its safety and soundness. By agreeing
to the MOU, the Bank was released from the Consent Order that became effective in 2016, including the restrictions on the interest
rates paid on deposits.
Pursuant
to the MOU, the Bank was required to take certain measures to maintain qualified management, improve its strategic planning
and budgeting process, strengthen the interest rate management practices, limit its asset growth and provide for the ongoing organization,
monitoring and operational administration of the Bank Secrecy Act Program. The MOU prohibited the payment of dividends
by the Bank.
During the recent examination,
the examiners noted the Bank was in full compliance with the provisions of the MOU. In June 2019, the Bank was released
from the MOU.
Company
Written Agreement with Federal Reserve Bank of Atlanta (“FRB”)
. On June 22, 2010, the Company and
the FRB 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 FRB, the payment of dividends, taking dividends or payments
from the Bank, making any interest, principal or other distributions on account of 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 to ensure capital adequacy require us to maintain minimum amounts and ratios of Total and Tier
1 capital to risk-weighted assets and Tier 1 capital to average assets. As of June 30, 2019, the Bank met the minimum applicable
capital adequacy requirements.
Refer
to Note 9 for the Bank’s actual and required minimum capital ratios.
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, 2019 and December 31, 2018
Overview
The
Company’s total assets increased by approximately $11.1 million to $111.3 million at June 30, 2019, from $100.1
million at December 31, 2018, primarily due to an increase in total deposits offset by a decrease in Federal Home Loan Bank
advances. Total stockholders’ equity decreased by approximately $300,000 to $5.0 million at June 30, 2019,
from $5.3 million at December 31, 2018, primarily due to the net loss for the six month period ended June 30, 2019,
offset by common stock issued as compensation to one director during 2019.
The
following table shows selected information for the dates indicated:
|
|
Six
Month Period
Ended
June
30, 2019
|
|
|
Year
Ended
December
31, 2018
|
|
|
|
|
|
|
|
|
Average
equity as a percentage of average assets
|
|
|
4.8
|
%
|
|
|
4.4
|
%
|
|
|
|
|
|
|
|
|
|
Equity
to total assets at end of period
|
|
|
4.5
|
%
|
|
|
5.3
|
%
|
|
|
|
|
|
|
|
|
|
Return
on average assets (1)
|
|
|
(
1.1
|
)%
|
|
|
0.9
|
%
|
|
|
|
|
|
|
|
|
|
Return
on average equity (1)
|
|
|
(22.5
|
)%
|
|
|
19.8
|
%
|
|
|
|
|
|
|
|
|
|
Noninterest
expenses to average assets (1)
|
|
|
4.3
|
%
|
|
|
4.4
|
%
|
(1)
Annualized for the six month period ended June 30, 2019.
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
Company’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 Company has priced its deposit rates competitively.
The Company will adjust rates on its deposits to attract or retain deposits as needed.
The
Bank increased deposits by $23.5 million during the six month period ended June 30, 2019. The proceeds were used
to paydown FHLB Advances and listing service Certificates of deposits.
In
addition to obtaining funds from depositors, we may borrow funds from other financial institutions. At June 30, 2019, the Company
had outstanding borrowings of $13.0 million, against its $26.6 million in established borrowing capacity with the
FHLB. The Company’s borrowing facility is subject to collateral and stock ownership requirements, as well as prior FHLB
consent to each advance. The Bank has an available discount window credit line with the Federal Reserve Bank,
currently $430,000. The Federal Reserve Bank line is subject to collateral requirements and must be repaid within 90 days; each
advance is subject to prior Federal Reserve Bank consent. At June 30, 2019, the Company also had lines of credit amounting to
$8.4 million with three correspondent banks to purchase federal funds. The Company had no outstanding federal funds purchased
at June 30, 2019 and $560,000 outstanding at December 31, 2018. Disbursements on the lines of credit are subject to the approval
of the correspondent banks. We measure and monitor our liquidity daily and believe our liquidity sources are adequate to meet
our operating needs.
Off-Balance
Sheet Arrangements
Refer
to Note 8 for Off-Balance Sheet Arrangements.
Junior
Subordinated Debenture
Refer
to Note 10 regarding the Junior Subordinated 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) the ratio of average interest-earning assets to average interest-bearing liabilities.
|
|
Three
Months Ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
Interest
|
|
|
Average
|
|
|
|
|
|
Interest
|
|
|
Average
|
|
|
|
Average
|
|
|
and
|
|
|
Yield/
|
|
|
Average
|
|
|
and
|
|
|
Yield/
|
|
|
|
Balance
|
|
|
Dividends
|
|
|
Rate
(5)
|
|
|
Balance
|
|
|
Dividends
|
|
|
Rate
(5)
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
81,325
|
|
|
$
|
1,097
|
|
|
|
5.40
|
%
|
|
$
|
72,602
|
|
|
$
|
938
|
|
|
|
5.17
|
%
|
Securities
|
|
|
12,954
|
|
|
|
72
|
|
|
|
2.22
|
|
|
|
10,758
|
|
|
|
73
|
|
|
|
2.71
|
|
Other
(1)
|
|
|
10,199
|
|
|
|
77
|
|
|
|
3
.02
|
|
|
|
4,552
|
|
|
|
32
|
|
|
|
2.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
interest-earning assets/interest income
|
|
|
104,478
|
|
|
|
1,246
|
|
|
|
4.81
|
|
|
|
87,912
|
|
|
|
1,043
|
|
|
|
4.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
|
2,149
|
|
|
|
|
|
|
|
|
|
|
|
1,356
|
|
|
|
|
|
|
|
|
|
Premises
and equipment
|
|
|
2,644
|
|
|
|
|
|
|
|
|
|
|
|
2,688
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
(912
|
)
|
|
|
|
|
|
|
|
|
|
|
(
2,152
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
108,359
|
|
|
|
|
|
|
|
|
|
|
$
|
89,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings,
NOW and money-market deposits
|
|
$
|
43,329
|
|
|
|
199
|
|
|
|
1.84
|
|
|
$
|
21,123
|
|
|
|
33
|
|
|
|
0.62
|
|
Time
deposits
|
|
|
28,956
|
|
|
|
161
|
|
|
|
2.22
|
|
|
|
19,693
|
|
|
|
62
|
|
|
|
1.26
|
|
Borrowings
(2)
|
|
|
18,155
|
|
|
|
133
|
|
|
|
2.93
|
|
|
|
30,577
|
|
|
|
190
|
|
|
|
2.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
interest-bearing liabilities/interest expense
|
|
|
90,440
|
|
|
|
493
|
|
|
|
2.18
|
|
|
|
71,393
|
|
|
|
285
|
|
|
|
1.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing
demand deposits
|
|
|
10,860
|
|
|
|
|
|
|
|
|
|
|
|
12,510
|
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
2,017
|
|
|
|
|
|
|
|
|
|
|
|
2,388
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
5,042
|
|
|
|
|
|
|
|
|
|
|
|
3,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
108,359
|
|
|
|
|
|
|
|
|
|
|
$
|
89,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
|
|
|
$
|
753
|
|
|
|
|
|
|
|
|
|
|
$
|
758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate spread (3)
|
|
|
|
|
|
|
|
|
|
|
2.63
|
%
|
|
|
|
|
|
|
|
|
|
|
3.15
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest margin (4)
|
|
|
|
|
|
|
|
|
|
|
2.89
|
%
|
|
|
|
|
|
|
|
|
|
|
3.45
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio
of average interest-earning assets to average interest-bearing liabilities
|
|
|
1.16
|
%
|
|
|
|
|
|
|
|
|
|
|
1.23
|
%
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
Interest
|
|
|
Average
|
|
|
|
|
|
Interest
|
|
|
Average
|
|
|
|
Average
|
|
|
and
|
|
|
Yield/
|
|
|
Average
|
|
|
and
|
|
|
Yield/
|
|
|
|
Balance
|
|
|
Dividends
|
|
|
Rate
(5)
|
|
|
Balance
|
|
|
Dividends
|
|
|
Rate
(5)
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
81,445
|
|
|
$
|
2,187
|
|
|
|
5.37
|
%
|
|
$
|
72,102
|
|
|
$
|
1,854
|
|
|
|
5.14
|
%
|
Securities
|
|
|
10,787
|
|
|
|
122
|
|
|
|
2.26
|
|
|
|
11,182
|
|
|
|
134
|
|
|
|
2.40
|
|
Other
(1)
|
|
|
9,824
|
|
|
|
125
|
|
|
|
2.54
|
|
|
|
5,666
|
|
|
|
67
|
|
|
|
2.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
interest-earning assets/interest income
|
|
|
102,056
|
|
|
|
2,434
|
|
|
|
4.77
|
|
|
|
88,950
|
|
|
|
2,055
|
|
|
|
4.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
|
2,239
|
|
|
|
|
|
|
|
|
|
|
|
1,409
|
|
|
|
|
|
|
|
|
|
Premises
and equipment
|
|
|
2,648
|
|
|
|
|
|
|
|
|
|
|
|
2,669
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
(1,100
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,941
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
105,843
|
|
|
|
|
|
|
|
|
|
|
$
|
90,087
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings,
NOW and money-market deposits
|
|
$
|
39,274
|
|
|
|
289
|
|
|
|
1
.47
|
|
|
$
|
21,143
|
|
|
|
67
|
|
|
|
0.63
|
|
Time
deposits
|
|
|
28,174
|
|
|
|
360
|
|
|
|
2.56
|
|
|
|
22,820
|
|
|
|
140
|
|
|
|
1.23
|
|
Borrowings
(2)
|
|
|
19,855
|
|
|
|
283
|
|
|
|
2
.85
|
|
|
|
28,335
|
|
|
|
338
|
|
|
|
2.39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
interest-bearing liabilities/interest expense
|
|
|
87,303
|
|
|
|
932
|
|
|
|
2.14
|
|
|
|
72,298
|
|
|
|
545
|
|
|
|
1.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing
demand deposits
|
|
|
11,352
|
|
|
|
|
|
|
|
|
|
|
|
12,389
|
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
2,059
|
|
|
|
|
|
|
|
|
|
|
|
2,337
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
5,129
|
|
|
|
|
|
|
|
|
|
|
|
3,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
105,843
|
|
|
|
|
|
|
|
|
|
|
$
|
90,087
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
|
|
|
$
|
1,502
|
|
|
|
|
|
|
|
|
|
|
$
|
1,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate spread (3)
|
|
|
|
|
|
|
|
|
|
|
2.63
|
%
|
|
|
|
|
|
|
|
|
|
|
3.11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest margin (4)
|
|
|
|
|
|
|
|
|
|
|
2.94
|
%
|
|
|
|
|
|
|
|
|
|
|
3.40
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio
of average interest-earning assets to average interest-bearing liabilities
|
|
|
1.17
|
%
|
|
|
|
|
|
|
|
|
|
|
1.23
|
%
|
|
|
|
|
|
|
|
|
(1)
|
Includes
interest-earning deposits with banks and Federal Home Loan Bank stock dividends.
|
(2)
|
Includes
Federal Home Loan Bank advances, other borrowings and the Debenture.
|
(3)
|
Interest-rate
spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing
liabilities.
|
(4)
|
Net
interest margin is net interest income divided by average interest-earning assets.
|
(5)
|
Annualized.
|
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, 2019 and 2018
General.
Net loss for
the three month period ended June 30, 2019, was $(430,000) or $(.23) per basic and diluted share compared to net earnings of
$1,904,000 or $1.35 per basic and diluted share for the three month period ended June 30, 2018. The substantial earnings in
2018 were due to the $2.1 million reversal of the Company’s allowance for loan losses.
Interest Income.
Interest income increased $203,000 to $1.2 million for the three month period ended June 30, 2019 compared to $1.0 million
for the three month period ended June 30, 2018. The increase in interest income was caused primarily by the increase in loans
of $3.5 million.
Interest Expense.
Interest expense on deposits and borrowings increased to $493,000 for the three month period ended June 30, 2019 from
$285,000 for the three month period ended June 30, 2018. The Bank continued to attract local deposits during 2019.
Provision for Loan
Losses.
There was no provision or credit for losses during the three month period ended June 30, 2019. The Bank
reversed $2.1 million of the allowance for loan losses into income during the second quarter of 2018. The provision
or credit 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
June 30, 2019 and 2018. Management’s periodic evaluation of the adequacy of the allowance is based upon historical
experience, the volume and type of lending conducted by us, adverse situations that may affect the borrower’s ability
to repay, estimated value of the underlying collateral, loans identified as impaired, general economic conditions,
particularly as they relate to our market areas, and other factors related to the estimated collectability of our loan
portfolio. The allowance for loan losses totaled $2.1 million or 2.47% of loans outstanding at June 30, 2019, as compared to
$2.2 million or 2.83% of loans outstanding at December 31, 2018.
Noninterest Income.
Total
noninterest income increased to $87,000 for the three month period ended June 30, 2019, from $35,000 for the three month
period ended June 30, 2018 due to loan related fees.
Noninterest Expenses.
Total noninterest expenses increased $281,000 to $1,270,000 for the three month period ended June 30, 2019 compared to
$989,000 for the three month period ended June 30, 2018.
Comparison of the Six-Month Periods
Ended June 30, 2019 and 2018
General
.
Net loss for
the six month period ended June 30, 2019, was $(576,000) or $(.31) per basic and diluted share compared to net earnings of
$1,619,000 or $1.25 per basic and diluted share for the six month period ended June 30, 2018. The substantial earnings in
2018 were due to the $2.1 million reversal of the Company’s allowance for loan losses.
Interest
Income.
Interest income increased to $2,434,000 for the six month period ended June 30, 2019 from $2,055,000 for the
six month period ended June 30, 2018, primarily due to an increase in interest earning assets.
Interest Expense.
Interest
expense on deposits and borrowings increased $387,000 to $932,000 for the six month period ended June 30, 2019 compared
to the prior period. The increase in interest expense was caused by the net effect of an increase in deposits and a
decrease in borrowings.
Provision for Loan
Losses.
There was no provision or credit for losses during the six month period ended June 30, 2019. The Bank
reversed $2.1 million of the allowance for loan losses into income during the second quarter of 2018. The provision or credit
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 June 30, 2019 and 2018.
Management’s periodic evaluation of the adequacy of the allowance is based upon historical experience, the volume and
type of lending conducted by us, adverse situations that may affect the borrower’s ability to repay, estimated value of
the underlying collateral, loans identified as impaired, general economic conditions, particularly as they relate to our
market areas, and other factors related to the estimated collectability of our loan portfolio. The allowance for loan losses
totaled $2.1 million or 2.47% of loans outstanding at June 30, 2019, as compared to $2.2 million or 2.83% of loans
outstanding at December 31, 2018.
Noninterest Income.
Total noninterest income increased by $75,000 for the six month period ended June 30, 2019, to $124,000 compared to $49,000
for the six month period ended June 30, 2018 due to increased loan related fees.
Noninterest Expenses
.
Total noninterest expenses increased $214,000 to $2.3 million for the six month period ended June 30, 2019 compared to $2.0
million for the six month period ended June 30, 2018.
OPTIMUMBANK
HOLDINGS, INC. AND SUBSIDIARY