Notes
to Consolidated Financial Statements
At
December 31, 2019 and 2018 and for the Years Then Ended
|
(1)
|
Summary
of Significant Accounting Policies
|
Organization.
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. 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. The accompanying consolidated financial statements include the accounts of the Company and the
Bank. All significant intercompany accounts and transactions have been eliminated in consolidation. The accounting and
reporting practices of the Company conform to accounting principles generally accepted in the United States of America (“GAAP”)
and to general practices within the banking industry. The following summarizes the more significant of these policies and practices.
Junior
Subordinated Debenture. In 2004, the Company formed OptimumBank Capital Trust I (the “Trust”)
for the purposes of raising capital for the Bank through the sale of trust preferred securities. At that time, the
Trust raised $5,155,000 through the sale of 5,000 trust preferred securities (the “Trust Preferred Securities”)
to a third party investor and the issuance of 155 common trust securities to the Company.
The
Trust utilized the proceeds of $5,155,000 to purchase a junior subordinated debenture from the Company (the “Junior
Subordinated Debenture”). Under the Junior Subordinated Debenture, the Company is required to make interest payments
on a periodic basis and to pay the outstanding principal amount plus accrued interest on October 7, 2034. The Company
has been in default under the Junior Subordinated Debenture since 2015 due to its failure to make required interest payments.
To date, neither the trustee nor the holders of the Trust Preferred Securities have accelerated the outstanding
balance of the Junior Subordinated Debenture.
In
May 2018, Preferred Shares, LLC (the “Purchaser”) acquired all 5,000 of the Trust Preferred Securities from a third
party. The Purchaser is an affiliate of a director of the Company. The Purchaser has subsequently sold or transferred 2,575
of the Trust Preferred Securities to third parties.
During
the third quarter of 2018, the holders of 694 Trust Preferred Securities agreed to transfer these Trust Preferred
Securities to the Company in exchange for 301,778 shares of the Company’s common stock. These shares were
issued at a value of $3.00. In December 2019, the holders of an additional 1,881 Trust Preferred Securities agreed to transfer
these Trust Preferred Securities to the Company in exchange for 924,395 shares of the Company’s common stock pursuant
to a tender offer made by the Company. These shares were issued at a value of $2.86.
For
accounting purposes, the Trust Preferred Securities acquired by the Company have been cancelled. As a result, in 2018, the Company
cancelled $694,000 in principal amount of the Trust Preferred Securities, together with accrued
interest of $211,000, and increased its stockholders’ equity by the same amount. In 2019, the Company cancelled $1,881,000
in principal amount of the Trust Preferred Securities, together with accrued interest of $763,000, and increased stockholders’
equity by the same amount.
The
Company’s total acquisition of 2,575 Trust Preferred Securities in 2018 and 2019 was recorded as a principal and accrued
interest reduction associated with the Junior Subordinated Debenture. The remaining principal owed by the Company in connection
with the Junior Subordinated Debenture is $2,580,000 and $4,461,000 at December 31, 2019 and 2018, respectively. The remaining
accrued interest owed by the Company associated with the Junior Subordinated Debenture is $995,000 and $1,475,000 at December
31, 2019 and 2018, respectively, is presented on the accompanying consolidated balance sheet under the caption “other liabilities”.
The
outstanding 2,425 Trust Preferred Securities continue to be in default. However, the Purchaser, as the owner of all of the outstanding
Trust Preferred Securities, has provided the Company with written representation not to accelerate the principal and accrued interest
amounts due under the Junior Subordinated Debenture within the next twelve months from the date this Annual Report, Form 10-K
as of and for the year ended December 31, 2019, is filed with the Securities and Exchange Commission.
The
Company is planning to acquire additional Trust Preferred Securities in 2020 in exchange for shares of its common stock, although
it has not yet entered into any agreement or commitment with respect to such an exchange.
Use
of Estimates. In preparing consolidated financial statements in conformity with GAAP, management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated balance sheet and
reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material
estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance
for loan losses and the valuation of the deferred tax asset.
Cash
and Cash Equivalents. For purposes of the consolidated statements of cash flows, cash and cash equivalents include cash
and balances due from banks and interest-bearing deposits with banks, all of which have original maturities of ninety days or
less.
The
Company may be required by law or regulation to maintain cash reserves in the form of vault cash or deposit with Federal Reserve
Banks or in Pass-through accounts with other banks. At December 31, 2019 and 2018, there were no required cash reserves.
(continued)
OPTIMUMBANK
HOLDINGS, INC. AND SUBSIDIARY
Notes
to Consolidated Financial Statements
|
(1)
|
Summary
of Significant Accounting Policies, continued
|
Debt
Securities. Debt securities may
be classified as trading, held to maturity or available for sale. Trading debt securities are held principally for resale
and recorded at their fair values. Unrealized gains and losses on trading debt securities are included immediately in operations.
Held-to-maturity debt securities are those which management has the positive intent and ability to hold to maturity and
are reported at amortized cost. Available-for-sale debt securities consist of debt securities not classified as
trading debt securities nor as held to maturity debt securities. Unrealized holding gains and losses on available
for sale debt securities are reported as a net amount in accumulated other comprehensive loss in stockholders’ equity
until realized. Gains and losses on the sale of available for sale debt securities are determined using the specific-identification
method. Premiums and discounts on debt securities are recognized in interest income using the interest method over the
period to maturity.
Management
evaluates debt securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic
or market concerns warrant such evaluation. A debt security is impaired if the fair value is less than its carrying value
at the financial statement date. When a debt security is impaired, the Company determines whether this impairment is temporary
or other-than-temporary. In estimating other-than-temporary impairment (“OTTI”) losses, management assesses whether
it intends to sell, or it is more likely than not that it will be required to sell, a debt security in an unrealized loss
position before recovery of its amortized cost basis. If either of these criteria is met, the entire difference between amortized
cost and fair value is recognized in operations. For debt securities that do not meet the aforementioned criteria, the
amount of impairment recognized in operations is limited to the amount related to credit losses, while impairment related to other
factors is recognized in other comprehensive income. Management utilizes cash flow models to segregate impairments to distinguish
between impairment related to credit losses and impairment related to other factors. To assess for OTTI, management considers,
among other things, (i) the severity and duration of the impairment; (ii) the ratings of the debt security; (iii) the overall
transaction structure (the Company’s position within the structure, the aggregate, near-term financial performance of the
underlying collateral, delinquencies, defaults, loss severities, recoveries, prepayments, cumulative loss projections, and discounted
cash flows); and (iv) the timing and magnitude of a break in modeled cash flows.
Loans.
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are reported
at their outstanding principal, adjusted for any charge-offs, the allowance for loan losses, and any deferred fees or costs.
Commitment
fees and loan origination fees are deferred and certain direct origination costs are capitalized. Both are recognized as an adjustment
of the yield of the related loan.
The
accrual of interest on loans is discontinued at the time the loan is ninety days delinquent unless the loan is well collateralized
and in process of collection. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of
principal or interest is considered doubtful.
All
interest accrued but not collected for loans that are placed on nonaccrual or charged-off is reversed against interest income.
The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual.
Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future
payments are reasonably assured.
Allowance
for Loan Losses. The allowance for loan losses is established as losses are estimated to have occurred through a provision
for loan losses charged to operations. Loan losses are charged against the allowance when management believes the uncollectability
of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. There were no changes in the Company’s
accounting policies or methodology during the years ended December 31, 2019 and 2018.
The
allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of
the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations
that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions.
This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information
becomes available.
OPTIMUMBANK
HOLDINGS, INC. AND SUBSIDIARY
Notes
to Consolidated Financial Statements
|
(1)
|
Summary
of Significant Accounting Policies, continued
|
Allowance
for Loan Losses, Continued
The
allowance consists of specific and general components. The specific component relates to loans that are classified as impaired.
For such loans, an allowance is established when the discounted cash flows (or collateral value or observable market price) of
the impaired loans are lower than the carrying value of those loans. The general component covers all other loans and is based
on historical loss experience adjusted for qualitative factors.
The
historical loss component of the allowance is determined by losses recognized by portfolio segment over the preceding three years.
The historical loss experience is adjusted for the risks by each portfolio segment. Risk factors impacting loans in each of the
portfolio segments include: economic trends and conditions; experience, ability and depth of lending management; national and
local political environment; industry conditions and trends in charge-offs; and other trends or uncertainties that could affect
management’s estimate of probable losses.
A
loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect
the scheduled payments of principal or interest when due. Factors considered by management in determining impairment include payment
status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience
insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance
of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding
the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record,
and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis,
by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s
obtainable market price, or the fair value of the collateral if the loan is collateral-dependent.
Premises
and Equipment. Land is stated at cost. Buildings and improvements, furniture, fixtures, equipment, and leasehold improvements
are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization expense are computed using the
straight-line method over the estimated useful life of each type of asset or lease term, if shorter.
Preferred
Securities of Unconsolidated Subsidiary Trust. The Company owns all of the common interests of OptimumBank Holdings Capital
Trust I (the “Trust”), an unconsolidated subsidiary trust. The Trust used the proceeds from the sale of $5,000,000
of its Trust Preferred Securities and $155,000 from the issuance of common interests in the Trust to acquire a $5,155,000 Junior
Subordinated Debenture issued by the Company. The Junior Subordinated Debenture and certain capitalized costs associated with
the issuance of the securities comprise the Trust’s only assets, Interest payments on the Junior Subordinated Debenture
are intended to finance the distributions paid on the Trust Preferred Securities. The Company recorded the Junior Subordinated
Debenture as a liability under the heading “Junior Subordinated Debenture” and its ownership of the common interests
in the Trust under the heading “Other Assets” in the accompanying consolidated balance sheets (See Note 7).
The
Company has entered into agreements which, taken collectively, fully and unconditionally guarantee the preferred securities of
the Trust subject to the terms of the guarantee.
Transfer
of Financial Assets. Transfers of financial assets or a participating interest in an entire financial asset are accounted
for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when
(1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it
from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective
control over the transferred assets through an agreement to repurchase them before their maturity. A participating interest is
a portion of an entire financial asset that (1) conveys proportionate ownership rights with equal priority to each participating
interest holder, (2) involves no recourse (other than standard representations and warranties) to, or subordination by, any participating
interest holder, and (3) does not entitle any participating interest holder to receive cash before any other participating interest
holder.
OPTIMUMBANK
HOLDINGS, INC. AND SUBSIDIARY
Notes
to Consolidated Financial Statements
|
(1)
|
Summary
of Significant Accounting Policies, continued
|
Income
Taxes. There are two components of income tax expense: current and deferred. Current income tax expense reflects taxes
to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess
of deductions over revenues. The Company determines deferred income taxes using the liability (or balance sheet) method. Under
this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases
of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur. Deferred
income tax expense results from changes in deferred tax assets and liabilities between periods.
Deferred
tax assets are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized
or sustained upon examination. The term more likely than not means a likelihood of more than 50 percent; the terms examined and
upon examination also include resolution of the related appeals or litigation processes, if any. A tax position that meets the
more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has
a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all
relevant information. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold
considers the facts, circumstances, and information available at the reporting date and is subject to management’s judgment.
Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than
not that some portion or all of a deferred tax asset will not be realized.
The
Company provides reserves for potential payments of tax related to uncertain tax positions. These reserves are based on a determination
of whether and how much of a tax benefit taken by the Company in its tax filings or positions is more likely than not to be realized
following resolution of any potential contingencies present related to the tax benefit. Potential interest and penalties associated
with such uncertain tax positions are recorded as a component of income tax expense. See Note 8 for additional details.
The
Company recognizes interest and penalties on income taxes as a component of income tax expense.
The
Company and the Bank file a consolidated income tax return. Income taxes are allocated proportionately to the Company and the
Bank as though separate income tax returns were filed.
Advertising.
The Company expenses all media advertising as incurred. Media advertising expense included in other noninterest expenses
in the accompanying consolidated statements of operations was approximately $18,000 and $40,000 during the years ended
December 31, 2019 and 2018, respectively.
Stock
Compensation Plan. The Company has adopted the fair value recognition method and expenses the fair value of any stock
options as they vest. Under the fair value recognition method, the Company recognizes stock-based compensation in the accompanying
consolidated statements of operations.
(Loss)
Earnings Per Share. Basic (loss)
earnings per share is computed on the basis of the weighted-average number of common shares outstanding. In 2019, basic and
diluted loss per share is the same due to the net loss incurred by the Company. In 2018, basic and diluted earnings per share
is the same as there were no outstanding potentially dilutive securities. (Loss) earnings per common share has been computed
based on the following:
|
|
|
Year
Ended December 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Weighted-average
number of common shares outstanding used to calculate basic and diluted (loss) earnings per common share
|
|
|
1,901,970
|
|
|
|
1,493,303
|
|
OPTIMUMBANK
HOLDINGS, INC. AND SUBSIDIARY
Notes
to Consolidated Financial Statements
|
(1)
|
Summary
of Significant Accounting Policies, continued
|
Off-Balance-Sheet
Financial Instruments. In the ordinary course of business, the Company may enter into off-balance-sheet financial instruments
consisting of commitments to extend credit, unused lines of credit, and standby letters of credit. Such financial instruments
are recorded in the consolidated financial statements when they are funded.
Fair
Value Measurements. Fair value is the exchange price that would be received for an asset or paid to transfer a liability
(an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market
participants on the measurement date. The fair value hierarchy requires the Company to maximize the use of observable inputs and
minimize the use of unobservable inputs when measuring fair value. The hierarchy describes three levels of inputs that may be
used to measure fair value:
Level
1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level
2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include
quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities
that are not active; and model-driven valuations whose inputs are observable or whose significant value drivers are observable.
Valuations may be obtained from, or corroborated by, third-party pricing services.
Level
3: Unobservable inputs to measure fair value of assets and liabilities for which there is little, if any market activity at the
measurement date, using reasonable inputs and assumptions based upon the best information at the time, to the extent that inputs
are available without undue cost and effort.
The
following describes valuation methodologies used for assets measured at fair value:
Debt
Securities Available for Sale and Held to Maturity.
Where quoted prices are available in an active market, debt securities are classified within Level 1 of the valuation
hierarchy. Level 1 debt securities include highly liquid government bonds and certain mortgage products. If quoted
market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar
characteristics, or discounted cash flows. Examples of such instruments, which would generally be classified within Level 2 of
the valuation hierarchy, include certain mortgage-backed debt securities and U.S. Government and agency debt securities.
Impaired
Loans. The Company’s impaired loans are normally collateral dependent and, as such, are carried at the lower of the
Company’s net recorded investment in the loan or fair market value of the collateral less estimated selling costs. Estimates
of fair value are determined based on a variety of information, including the use of available appraisals, estimates of market
value by licensed appraisers or local real estate brokers and the knowledge and experience of the Company’s management related
to values of properties in the Company’s market areas. Management takes into consideration the type, location and occupancy
of the property as well as current economic conditions in the area the property is located in assessing estimates of fair value.
Accordingly, fair value estimates for impaired loans are classified as Level 3.
OPTIMUMBANK
HOLDINGS, INC. AND SUBSIDIARY
Notes
to Consolidated Financial Statements
|
(1)
|
Summary
of Significant Accounting Policies, continued
|
Fair
Values of Financial Instruments. The following methods and assumptions were used by the Company in estimating fair values
of financial instruments disclosed herein:
Cash
and Cash Equivalents. The carrying amounts of cash and cash equivalents approximate their fair value (Level 1).
Debt
Securities. Fair values for debt
securities are based on the framework for measuring fair value established by GAAP (Level 2).
Loans.
For variable-rate loans that reprice frequently and have no significant change in credit risk, fair values are based on
carrying values. Fair values for fixed-rate loans, including fixed-rate residential and commercial real estate and commercial
loans, are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality (Level 3).
Federal
Home Loan Bank Stock. Fair value of the Company’s investment in Federal Home Loan Bank stock is based on its redemption
value, which is its cost of $100 per share (Level 3).
Accrued
Interest Receivable. The carrying amount of accrued interest approximates its fair value (Level 3).
Deposit
Liabilities. The fair values disclosed for demand, NOW, money-market and savings deposits are, by definition, equal to
the amount payable on demand at the reporting date (that is, their carrying amounts). Fair values for fixed-rate time deposits
are estimated using a discounted cash flow calculation that applies interest rates currently being offered on time deposits to
a schedule of aggregated expected monthly maturities of time deposits (Level 3).
Federal
Home Loan Bank Advances. Fair values of Federal Home Loan Bank advances are estimated using discounted cash flow analysis
based on the Company’s current incremental borrowing rates for similar types of borrowings (Level 3).
Federal
Funds Purchased. The carrying amount of federal funds purchased approximates its fair value (Level 1).
Off-Balance-Sheet
Financial Instruments. Fair values for off-balance-sheet lending commitments are based on fees currently charged to enter
into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing
(Level 3).
Comprehensive
(loss) income. GAAP generally requires that recognized revenue, expenses, gains and losses be included in net (loss)
earnings. Although certain changes in consolidated assets and liabilities, such as unrealized gains and losses on available-for-sale
debt securities, are reported as a separate component of the equity section of the consolidated balance sheets, such items
along with net (loss) earnings, are components of comprehensive (loss) income.
Accumulated
other comprehensive loss consists of the following (in thousands):
|
|
|
December
31, 2019
|
|
|
December
31, 2018
|
|
|
|
|
|
|
|
|
|
|
Unrealized
loss on securities available for sale
|
|
$
|
11
|
|
|
$
|
(64
|
)
|
|
Unamortized
portion of unrealized loss related to debt securities available for sale transferred to debt securities held-to-maturity
|
|
|
(284
|
)
|
|
|
(377
|
)
|
|
Income
tax benefit
|
|
|
68
|
|
|
|
111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(205
|
)
|
|
$
|
(330
|
)
|
OPTIMUMBANK
HOLDINGS, INC. AND SUBSIDIARY
Notes
to Consolidated Financial Statements
|
(1)
|
Summary
of Significant Accounting Policies, continued
|
Reclassifications.
Certain amounts have been reclassified to allow for consistent presentation in the years 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 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. During June 2019, the Company entered into another operating lease agreement which commenced in September 2019,
has a 10 year term, does not offer any options to extend, and does contain a rent escalation clause. This resulted in an additional
increase to total assets of $863,000 and total liabilities of $863,000.
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 consolidated financial statements. Additionally, the ASU amends the accounting for credit losses on available-for-sale
debt securities and purchased financial assets with credit deterioration. The ASU will take effect for fiscal years, and interim
periods within those fiscal years, beginning after December 15, 2022 as the FASB approved delaying the initially anticipated
effective date January 1, 2020. Early adoption is permitted. The Company is in the process of determining the effect of the
ASU on its consolidated financial statements.
(continued)
OPTIMUMBANK
HOLDINGS, INC. AND SUBSIDIARY
Notes
to Consolidated Financial Statements
(2)
Debt Securities. Debt Securities have been classified according to management’s intent. The carrying
amount of debt securities and approximate fair values are as follows (in thousands):
|
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized
mortgage obligations
|
|
$
|
4,218
|
|
|
$
|
129
|
|
|
|
—
|
|
|
$
|
4,347
|
|
|
Mortgage-backed
securities
|
|
|
1,588
|
|
|
|
51
|
|
|
|
—
|
|
|
|
1,639
|
|
|
Total
|
|
$
|
5,806
|
|
|
$
|
180
|
|
|
|
—
|
|
|
$
|
5,986
|
|
|
Available
for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SBA
Pool Securities
|
|
$
|
1,734
|
|
|
$
|
—
|
|
|
$
|
(52
|
)
|
|
$
|
1,682
|
|
|
Collateralized
mortgage obligations
|
|
|
998
|
|
|
|
18
|
|
|
|
—
|
|
|
|
1,016
|
|
|
Mortgage-backed
securities
|
|
|
2,666
|
|
|
|
45
|
|
|
|
—
|
|
|
|
2,711
|
|
|
Total
|
|
$
|
5,398
|
|
|
$
|
63
|
|
|
$
|
(52
|
)
|
|
$
|
5,409
|
|
|
|
|
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 debt 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 December
31, 2019, and 2018, $148,000 and $55,000, respectively, has been amortized.
There
were no sales of debt securities available for sale during the years ended December 31, 2019 and 2018.
Securities
with gross unrealized losses, aggregated by investment category and length of time that individual debt securities have
been in a continuous loss position, is as follows (in thousands):
|
|
|
|
At
December 31, 2019
|
|
|
|
|
|
Over
Twelve Months
|
|
|
|
Less
Than Twelve Months
|
|
|
|
|
|
Gross
Unrealized Losses
|
|
|
|
Fair
Value
|
|
|
|
Gross
Unrealized Losses
|
|
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available
for Sale —
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SBA
Pool Securities
|
|
$
|
52
|
|
|
|
1.682
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
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 Consolidated Financial Statements
(2)
Debt Securities, Continued. Management evaluates debt securities for other-than-temporary impairment
at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is
given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and
near-term prospects 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
December 31, 2019 and 2018, the unrealized losses on six and seven investment debt securities, respectively
were caused by market conditions. It is expected that the debt 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.
Available-for-sale
debt 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
December 31, 2019 –
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SBA
Pool Securities
|
|
$
|
1,682
|
|
|
$
|
—
|
|
|
$
|
1,682
|
|
|
|
—
|
|
|
Collateralized
mortgage obligations
|
|
|
1,016
|
|
|
|
—
|
|
|
|
1,016
|
|
|
|
—
|
|
|
Mortgage-backed
securities
|
|
|
2,711
|
|
|
|
—
|
|
|
|
2,711
|
|
|
|
—
|
|
|
Total
|
|
|
5,409
|
|
|
|
—
|
|
|
$
|
5,409
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
December 31, 2018 –
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SBA
Pool Securities
|
|
$
|
2,359
|
|
|
$
|
—
|
|
|
$
|
2,359
|
|
|
$
|
—
|
|
During
the years ended December 31, 2019 and 2018, no debt securities were transferred in or out of Level 1, 2 or 3.
As
of December 31, 2019, the Company had pledged securities with a market value of $363,000 as collateral for the Federal
Reserve Bank (the “FRB”) discount window.
The
Company’s available-for-sale and held-to-maturity debt securities all have contractual maturity dates which are greater
than ten years as of December 31, 2019. Expected maturities of these debt securities will differ from contractual
maturities because borrowers have the right to call or repay obligations with or without call or prepayment penalties.
(continued)
OPTIMUMBANK
HOLDINGS, INC. AND SUBSIDIARY
Notes
to Consolidated Financial Statements
(3)
Loans. The components of loans are as follows (in thousands):
|
|
|
At
December 31, 2019
|
|
|
At
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
Residential
real estate
|
|
$
|
28,266
|
|
|
$
|
27,204
|
|
|
Multi-family
real estate
|
|
|
8,396
|
|
|
|
8,195
|
|
|
Commercial
real estate
|
|
|
55,652
|
|
|
|
34,971
|
|
|
Land
and construction
|
|
|
2,496
|
|
|
|
3,661
|
|
|
Commercial
|
|
|
4,476
|
|
|
|
4,997
|
|
|
Consumer
|
|
|
4,903
|
|
|
|
260
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
loans
|
|
|
104,189
|
|
|
|
79,288
|
|
|
|
|
|
|
|
|
|
|
|
|
Add
(deduct):
|
|
|
|
|
|
|
|
|
|
Net
deferred loan fees, costs and premiums
|
|
|
53
|
|
|
|
155
|
|
|
Allowance
for loan losses
|
|
|
(2,009
|
)
|
|
|
(2,243
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Loans,
net
|
|
$
|
102,233
|
|
|
$
|
77,200
|
|
The
Company grants the majority of its loans to borrowers throughout Broward County, Florida and portions of Palm Beach and Miami-Dade
Counties, Florida. Although the Company has a diversified loan portfolio, a significant portion of its borrowers’ ability
to repay their loans and meet their contractual obligations to the Company is dependent upon the economy in Broward, Palm Beach
and Miami-Dade Counties, Florida.
(continued)
OPTIMUMBANK
HOLDINGS, INC. AND SUBSIDIARY
Notes
to Consolidated Financial Statements
(3)
Loans, Continued. An analysis of the change in the allowance for loan losses for the years ended December 31, 2019
and 2018 follows (in thousands):
|
|
|
Residential
Real Estate
|
|
|
Multi-Family
Real
Estate
|
|
|
Commercial
Real Estate
|
|
|
Land
and Construction
|
|
|
Commercial
|
|
|
Consumer
|
|
|
Unallocated
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$
|
544
|
|
|
|
88
|
|
|
|
545
|
|
|
|
37
|
|
|
|
850
|
|
|
|
25
|
|
|
|
154
|
|
|
|
2,243
|
|
|
(Credit)
provision for loan losses
|
|
|
(36
|
)
|
|
|
(6
|
)
|
|
|
274
|
|
|
|
(40
|
)
|
|
|
(277
|
)
|
|
|
134
|
|
|
|
(128
|
)
|
|
|
(79
|
)
|
|
Charge-offs
|
|
|
—
|
|
|
|
—
|
|
|
|
(195
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(7
|
)
|
|
|
—
|
|
|
|
(202
|
)
|
|
Recoveries
|
|
|
23
|
|
|
|
—
|
|
|
|
—
|
|
|
|
24
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance
|
|
$
|
531
|
|
|
$
|
82
|
|
|
$
|
624
|
|
|
$
|
21
|
|
|
$
|
573
|
|
|
$
|
152
|
|
|
$
|
26
|
|
|
$
|
2,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$
|
641
|
|
|
$
|
59
|
|
|
$
|
759
|
|
|
$
|
22
|
|
|
$
|
55
|
|
|
$
|
86
|
|
|
$
|
2,369
|
|
|
$
|
3,991
|
|
|
(Credit)
provision for loan losses
|
|
|
(97
|
)
|
|
|
29
|
|
|
|
(214
|
)
|
|
|
(8
|
)
|
|
|
795
|
|
|
|
(44
|
)
|
|
|
(2,215
|
)
|
|
|
(1,754
|
)
|
|
Charge-offs
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(25
|
)
|
|
|
—
|
|
|
|
(25
|
)
|
|
Recoveries
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
23
|
|
|
|
—
|
|
|
|
8
|
|
|
|
—
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance
|
|
$
|
544
|
|
|
$
|
88
|
|
|
$
|
545
|
|
|
$
|
37
|
|
|
$
|
850
|
|
|
$
|
25
|
|
|
$
|
154
|
|
|
$
|
2,243
|
|
(continued)
OPTIMUMBANK
HOLDINGS, INC. AND SUBSIDIARY
Notes
to Consolidated Financial Statements
The
balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method
as of December 31, 2019 and 2018 follows (in thousands):
|
|
|
Residential
Real Estate
|
|
|
Multi-Family
Real Estate
|
|
|
Commercial
Real Estate
|
|
|
Land
and Construction
|
|
|
Commercial
|
|
|
Consumer
|
|
|
Unallocated
|
|
|
Total
|
|
|
At
December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually
evaluated for impairment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded
investment
|
|
$
|
944
|
|
|
$
|
—
|
|
|
$
|
2,206
|
|
|
$
|
—
|
|
|
$
|
812
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,962
|
|
|
Balance
in allowance for loan losses
|
|
$
|
258
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
531
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively
evaluated for impairment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded
investment
|
|
$
|
27,322
|
|
|
$
|
8,396
|
|
|
$
|
53,446
|
|
|
$
|
2,496
|
|
|
$
|
3,664
|
|
|
$
|
4,903
|
|
|
$
|
—
|
|
|
$
|
100,227
|
|
|
Balance
in allowance for loan losses
|
|
$
|
273
|
|
|
$
|
82
|
|
|
$
|
624
|
|
|
$
|
21
|
|
|
$
|
42
|
|
|
$
|
152
|
|
|
$
|
26
|
|
|
$
|
1,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
$
|
31,110
|
|
|
$
|
3,661
|
|
|
$
|
3,069
|
|
|
$
|
260
|
|
|
$
|
—
|
|
|
$
|
72,545
|
|
|
Balance
in allowance for loan losses
|
|
$
|
276
|
|
|
$
|
88
|
|
|
$
|
383
|
|
|
$
|
37
|
|
|
$
|
36
|
|
|
$
|
25
|
|
|
$
|
154
|
|
|
$
|
999
|
|
(continued)
OPTIMUMBANK
HOLDINGS, INC. AND SUBSIDIARY
Notes
to Consolidated Financial Statements
Residential
Real Estate, Multi-Family Real Estate, Commercial Real Estate, Land and Construction. All loans are underwritten in accordance
with policies set forth and approved by the Board of Directors (the “Board”), including repayment capacity and source,
value of the underlying property, credit history and stability. Residential real estate loans are underwritten based on repayment
capacity and source, value of the underlying property, credit history and stability. 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 Company’s
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 Consolidated Financial Statements
|
(3)
|
Loans,
Continued. The following summarizes the loan credit quality (in thousands):
|
|
|
|
Pass
|
|
|
OLEM
(Other
Loans
Especially Mentioned)
|
|
|
Sub-
standard
|
|
|
Doubtful
|
|
|
Loss
|
|
|
Total
|
|
|
At
December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
real estate
|
|
$
|
27,322
|
|
|
$
|
—
|
|
|
$
|
944
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
28,266
|
|
|
Multi-family
real estate
|
|
|
8,396
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,396
|
|
|
Commercial
real estate
|
|
|
53,011
|
|
|
|
435
|
|
|
|
2,206
|
|
|
|
—
|
|
|
|
—
|
|
|
|
55,652
|
|
|
Land
and construction
|
|
|
1,261
|
|
|
|
1,235
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,496
|
|
|
Commercial
|
|
|
3,027
|
|
|
|
637
|
|
|
|
812
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,476
|
|
|
Consumer
|
|
|
4,903
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
97,920
|
|
|
$
|
2,307
|
|
|
$
|
3,962
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
104,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
real estate
|
|
$
|
26,250
|
|
|
$
|
—
|
|
|
$
|
954
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
27,204
|
|
|
Multi-family
real estate
|
|
|
8,195
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,195
|
|
|
Commercial
real estate
|
|
|
30,697
|
|
|
|
413
|
|
|
|
3,861
|
|
|
|
—
|
|
|
|
—
|
|
|
|
34,971
|
|
|
Land
and construction
|
|
|
2,351
|
|
|
|
1,310
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,661
|
|
|
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 sound worth and paying capacity of the obligor or of the collateral
pledged, if any. Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt.
Included in this category are loans that are current on their payments, but the Bank is unable to document the source of repayment.
They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.
Doubtful
– a loan classified as Doubtful has all the weaknesses inherent in one classified as Substandard, with the added characteristics
that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values,
highly questionable and improbable. This classification does not mean that the asset has absolutely no recovery or salvage value,
but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may
be affected in the future. The Company charges off any loan classified as Doubtful.
Loss
– a loan classified as 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 affected in
the future. The Company fully charges off any loan classified as Loss.
(continued)
OPTIMUMBANK
HOLDINGS, INC. AND SUBSIDIARY
Notes
to Consolidated Financial Statements
|
(3)
|
Loans,
Continued. Age analysis of past due loans at December 31, 2019 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
December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
real estate
|
|
$
|
944
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
944
|
|
|
$
|
27,322
|
|
|
$
|
—
|
|
|
$
|
28,266
|
|
|
Multi-family
real estate
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,396
|
|
|
|
—
|
|
|
|
8,396
|
|
|
Commercial
real estate
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
55,652
|
|
|
|
—
|
|
|
|
55,652
|
|
|
Land
and construction
|
|
|
1,235
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,235
|
|
|
|
1,261
|
|
|
|
—
|
|
|
|
2,496
|
|
|
Commercial
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,664
|
|
|
|
812
|
|
|
|
4,476
|
|
|
Consumer
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,903
|
|
|
|
—
|
|
|
|
4,903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,179
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,179
|
|
|
$
|
101,198
|
|
|
$
|
812
|
|
|
$
|
104,189
|
|
|
|
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
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
33,591
|
|
|
|
1,380
|
|
|
|
34,971
|
|
|
Land
and construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,661
|
|
|
|
—
|
|
|
|
3,661
|
|
|
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
December 31, 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
|
|
$
|
2,206
|
|
|
$
|
2,206
|
|
|
|
—
|
|
|
$
|
2,259
|
|
|
$
|
2,259
|
|
|
$
|
—
|
|
|
Commercial
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,114
|
|
|
|
1,114
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With
related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
real estate
|
|
|
944
|
|
|
|
944
|
|
|
|
258
|
|
|
|
954
|
|
|
|
954
|
|
|
|
268
|
|
|
Commercial
real estate
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,602
|
|
|
|
1,602
|
|
|
|
162
|
|
|
Commercial
|
|
|
812
|
|
|
|
812
|
|
|
|
531
|
|
|
|
814
|
|
|
|
814
|
|
|
|
814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
real estate
|
|
$
|
944
|
|
|
$
|
944
|
|
|
$
|
258
|
|
|
$
|
954
|
|
|
$
|
954
|
|
|
$
|
268
|
|
|
Commercial
real estate
|
|
$
|
2,206
|
|
|
$
|
2,206
|
|
|
$
|
—
|
|
|
$
|
3,861
|
|
|
$
|
3,861
|
|
|
$
|
162
|
|
|
Commercial
|
|
$
|
812
|
|
|
$
|
812
|
|
|
$
|
531
|
|
|
$
|
1,928
|
|
|
$
|
1,928
|
|
|
$
|
814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,962
|
|
|
$
|
3,962
|
|
|
$
|
789
|
|
|
$
|
6,743
|
|
|
$
|
6,743
|
|
|
$
|
1,244
|
|
(continued)
OPTIMUMBANK
HOLDINGS, INC. AND SUBSIDIARY
Notes
to Consolidated Financial Statements
|
(3)
|
Loans,
Continued. The average net investment in impaired loans and interest income recognized and received on impaired loans
are as follows (in thousands):
|
|
|
|
For
the Year Ended December 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
Average
Recorded Investment
|
|
|
Interest
Income Recognized
|
|
|
Interest
Income Received
|
|
|
Average
Recorded Investment
|
|
|
Interest
Income Recognized
|
|
|
Interest
Income Received
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
real estate
|
|
$
|
949
|
|
|
$
|
75
|
|
|
$
|
69
|
|
|
$
|
981
|
|
|
$
|
76
|
|
|
$
|
76
|
|
|
Commercial
real estate
|
|
$
|
2,672
|
|
|
$
|
115
|
|
|
$
|
113
|
|
|
$
|
677
|
|
|
$
|
25
|
|
|
$
|
25
|
|
|
Commercial
|
|
$
|
1,208
|
|
|
$
|
43
|
|
|
$
|
48
|
|
|
$
|
1,638
|
|
|
$
|
86
|
|
|
$
|
86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,829
|
|
|
$
|
233
|
|
|
$
|
230
|
|
|
$
|
3,296
|
|
|
$
|
187
|
|
|
$
|
187
|
|
The
restructuring of a loan constitutes a troubled debt restructuring (“TDR”) if the creditor grants a concession to the
debtor that it would not otherwise consider in the normal course of business. A concession may include an extension of repayment
terms which would not normally be granted, a reduction in interest rate or the forgiveness of principal and/or accrued interest.
All TDRs are evaluated individually for impairment on a quarterly basis as part of the allowance for loan losses calculation.
TDRs entered into during the year ended December 31, 2019 were as follows (in thousands):
|
|
|
|
|
|
Pre-
|
|
|
Post-
|
|
|
Current
|
|
|
|
|
|
|
|
Modification
|
|
|
Modification
|
|
|
Modification
|
|
|
|
|
Number
|
|
|
Outstanding
|
|
|
Outstanding
|
|
|
Outstanding
|
|
|
|
|
of
|
|
|
Recorded
|
|
|
Recorded
|
|
|
Recorded
|
|
|
|
|
Contracts
|
|
|
Investment
|
|
|
Investment
|
|
|
Investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Troubled
Debt Restructurings -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Modified
payment schedule
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
2
|
|
|
$
|
812
|
|
|
$
|
812
|
|
|
$
|
812
|
|
At
December 31, 2019, the Company has $812,000 in loans identified as TDRs. There were no TDRs entered into during the past 12 months
that subsequently defaulted during the years ended December 31, 2019 and 2018.
|
(4)
|
Premises
and Equipment
|
A
summary of premises and equipment follows (in thousands):
|
|
|
At
December 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Land
|
|
$
|
426
|
|
|
$
|
1,171
|
|
|
Buildings
and improvements
|
|
|
654
|
|
|
|
2,123
|
|
|
Furniture,
fixtures and equipment
|
|
|
664
|
|
|
|
684
|
|
|
Leasehold
improvements
|
|
|
367
|
|
|
|
127
|
|
|
|
|
|
|
|
|
|
|
|
|
Total,
at cost
|
|
|
2,111
|
|
|
|
4,105
|
|
|
|
|
|
|
|
|
|
|
|
|
Less
accumulated depreciation and amortization
|
|
|
(722
|
)
|
|
|
(1,437
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Premises
and equipment, net
|
|
$
|
1,389
|
|
|
$
|
2,668
|
|
The
Company sold one of its branch locations to a related party. The related party is a significant stockholder. The sale was completed
in November 2019 for $1,400,000. The Company financed $1,050,000 of the total sales price. In connection with the sale, the Company
recorded a loss in the consolidated statement of operations of $215,000 in November 2019.
The
Company entered into an operating lease agreement for the purpose of relocating the aforementioned branch. The lease for the new
location commenced during September 2019.
In
November 2019, the Company entered into an agreement to sell one of its branch locations for $1,275,000. The agreement provides
for a due diligence period of ninety days with an option to extend this period for up to an additional two hundred ten days.
(continued)
OPTIMUMBANK
HOLDINGS, INC. AND SUBSIDIARY
Notes
to Consolidated Financial Statements
|
(5)
|
Leases.
We adopted ASU 2016-02, Leases on January 1, 2019, which initially resulted in the recognition of one operating lease
on the 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. Accordingly,
the Company recognized an additional operating lease right-of-use asset and operating lease liability that amounted to $863,000.
As our leases do not provide implicit rates, 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 two of the Company’s branch locations. Our leases have a weighted-average
remaining lease term of approximately 8.4 years and do not offer options to extend the leases. The components of lease expense
and other lease information are as follows (in thousands):
|
|
|
|
For
the year ended December 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
Operating
lease cost
|
|
$
|
99
|
|
|
$
|
90
|
|
|
Cash
paid for amounts included in measurement of lease liabilities
|
|
$
|
93
|
|
|
$
|
N/A
|
|
N/A
– Not applicable during 2018. The Company adopted ASU 2016-02 Leases on January 1, 2019.
|
|
|
At December
31, 2019
|
|
|
|
|
|
|
|
Operating
lease right-of-use assets
|
|
$
|
1,055
|
|
|
Operating
lease liabilities
|
|
$
|
1,061
|
|
|
Weighted-average
remaining lease term
|
|
|
8.4
years
|
|
|
Weighted-average
discount rate
|
|
|
2.1
|
%
|
Future
minimum lease payments under non-cancellable leases, reconciled to our discounted operating lease liabilities are as follows (in
thousands):
|
|
|
At
December 31, 2019
|
|
|
2020
|
|
$
|
158
|
|
|
2021
|
|
$
|
163
|
|
|
2022
|
|
$
|
161
|
|
|
2023
|
|
$
|
92
|
|
|
2024
|
|
$
|
94
|
|
|
Thereafter
|
|
$
|
488
|
|
|
Total
future minimum lease payments
|
|
$
|
1,156
|
|
|
Less
imputed interest
|
|
$
|
(95
|
)
|
|
Total
operating lease liability
|
|
$
|
1,061
|
|
The
aggregate amount of time deposits with a minimum denomination of $250,000 was approximately $4.9 and $2.7 million at December
31, 2019 and 2018, respectively.
A
schedule of maturities of time deposits at December 31, 2019 follows (in thousands):
|
Year
Ending December 31,
|
|
|
Amount
|
|
|
2020
|
|
$
|
32,403
|
|
|
2021
|
|
|
1,548
|
|
|
2022
|
|
|
924
|
|
|
2023
|
|
|
237
|
|
|
2024
|
|
|
240
|
|
|
|
|
$
|
35,352
|
|
|
(7)
|
Federal
Home Loan Bank Advances, Other Available Credit and Junior Subordinated Debenture
|
The
maturities and interest rates on the Federal Home Loan Bank (“FHLB”) advances were as follows (dollars in thousands)
|
Maturity
|
|
|
|
|
|
|
|
|
Year
Ending
|
|
|
Interest
|
|
|
At
December 31,
|
|
|
December
31,
|
|
|
Rate
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
|
1.60
- 2.65
|
%
|
|
$
|
—
|
|
|
$
|
19,600
|
|
|
2021
|
|
|
|
1.68
|
%
|
|
|
5,000
|
|
|
|
5,000
|
|
|
2024
|
|
|
|
1.96
|
%
|
|
|
4,000
|
|
|
|
—
|
|
|
2029
|
|
|
|
1.69
|
%
|
|
|
4,000
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13,000
|
|
|
$
|
24,600
|
|
At
December 31, 2019, one FHLB advance in the amount of $5.0 million had a fixed interest rate, and two FHLB
Advances were structured advances with potential calls on a quarterly basis.
At
December 31, 2019, the FHLB advances were collateralized by a blanket lien requiring the Company to maintain certain first mortgage
loans as pledged collateral. The Company has remaining credit availability of $16.6 million which can be used if additional
collateral is pledged. At December 31, 2019, the Company had loans pledged with a carrying value of $33.8 million as collateral
for FHLB advances.
At
December 31, 2019, the Company also had lines of credit amounting to $9.5 million with four correspondent banks to purchase
federal funds. The Company also has a line of credit with the Federal Reserve Bank under which the Company may draw up to $350,000.
The line is secured by $360,000 in securities. There were no federal funds purchased outstanding at December 31,
2019. There were $560,000 of federal funds purchased outstanding at December 31, 2018.
Junior
Subordinated Debenture. In 2004, the Company formed
OptimumBank Capital Trust I (the “Trust”) for the purposes of raising capital for the Bank through the sale of trust
preferred securities. At that time, the Trust raised $5,155,000 through the sale of 5,000 trust preferred securities (the “Trust
Preferred Securities”) to a third party investor and the issuance of 155 common trust securities to the Company.
The
Trust utilized the proceeds of $5,155,000 to purchase a junior subordinated debenture from the Company (the “Junior Subordinated
Debenture”). Under the Junior Subordinated Debenture, the Company is required to make interest payments on a periodic basis
and to pay the outstanding principal amount plus accrued interest on October 7, 2034. 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% (4.32% at December
31, 2019). The Junior Subordinated Debenture is redeemable in certain circumstances. The terms of the Debenture allow the Company
to defer payments of interest on the Junior Subordinated Debenture by extending the interest payment period at any time during
the term of the Junior Subordinated Debenture for up to twenty consecutive quarterly periods.
Beginning
in 2010, the Company exercised its right to defer payment of interest on the Debenture. The Company has deferred interest payments
with respect to the Debenture for the maximum allowable twenty consecutive quarterly payments. The Trustee for the Debenture and
the beneficial owners of the Debenture can accelerate the outstanding principal balance plus accrued and unpaid interest, as a
result of this default. The Company has been in default under the Junior Subordinated Debenture since 2015 due to its failure
to make required interest payments. To date, neither the trustee nor the holders of the Trust Preferred Securities have accelerated
the outstanding balance of the Junior Subordinated Debenture.
In
May 2018, Preferred Shares, LLC (the “Purchaser”) acquired all 5,000 of the Trust Preferred Securities from a third
party. The Purchaser is an affiliate of Moishe Gubin, a director of the Company. The Purchaser has subsequently sold or transferred
2,575 of the Trust Preferred Securities to third parties.
During
the third quarter of 2018, the holders of 694 Trust Preferred Securities agreed to transfer these Trust Preferred Securities to
the Company in exchange for 301,778 shares of the Company’s common stock. These shares were issued at a value of $3.00.
In December 2019, the holders of an additional 1,881 Trust Preferred Securities agreed to transfer these Trust Preferred Securities
to the Company in exchange for 924,395 shares of the Company’s common stock pursuant to a tender offer made by the Company.
These shares were issued at a value of $2.86.
For
accounting purposes, the Trust Preferred Securities acquired by the Company have been cancelled. As a result, in 2018, the Company
cancelled $694,000 in principal amount of the Trust Preferred Securities, together with accrued interest of $211,000, and increased
its stockholders’ equity by the same amount. In 2019, the Company cancelled $1,881,000 in principal amount of the Trust
Preferred Securities, together with accrued interest of $763,000, and increased stockholders’ equity by the same amount.
The
Company’s total acquisition of 2,575 Trust Preferred Securities in 2018 and 2019 was recorded as a principal and accrued
interest reduction associated with the Junior Subordinated Debenture. The remaining principal owed by the Company in connection
with the Junior Subordinated Debenture is $2,580,000 and $4,461,000 at December 31, 2019 and 2018, respectively. The remaining
accrued interest owed by the Company associated with the Junior Subordinated Debenture is $995,000 and $1,475,000 at December
31, 2019 and 2018, respectively, is presented on the accompanying consolidated balance sheet under the caption “other liabilities”.
The
outstanding 2,425 Trust Preferred Securities continue to be in default. However, the Purchaser, as the owner of all of the outstanding
Trust Preferred Securities, has provided the Company with written representation not to accelerate the principal and accrued interest
amounts due under the Junior Subordinated Debenture within the next twelve months from the date this Annual Report, Form 10-K
as of and for the year ended December 31, 2019, is filed with the Securities and Exchange Commission.
The
Company is planning to acquire additional Trust Preferred Securities in 2020 in exchange for shares of its common stock, although
it has not yet entered into any agreement or commitment with respect to such an exchange.
(continued)
OPTIMUMBANK
HOLDINGS, INC. AND SUBSIDIARY
Notes
to Consolidated Financial Statements
|
(8)
|
Financial
Instruments
|
The
estimated fair values of the Company’s financial instruments were as follows (in thousands):
|
|
|
At December 31, 2019
|
|
|
At December 31, 2018
|
|
|
|
|
Carrying Amount
|
|
|
Fair Value
|
|
|
Level
|
|
|
Carrying Amount
|
|
|
Fair
Value
|
|
|
Level
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
8,934
|
|
|
$
|
8,934
|
|
|
|
1
|
|
|
$
|
7,983
|
|
|
$
|
7,983
|
|
|
|
1
|
|
|
Securities available for sale
|
|
|
5,409
|
|
|
|
5,409
|
|
|
|
2
|
|
|
|
2,359
|
|
|
|
2,359
|
|
|
|
2
|
|
|
Securities held-to-maturity
|
|
|
5,806
|
|
|
|
5,986
|
|
|
|
2
|
|
|
|
7,139
|
|
|
|
7,175
|
|
|
|
2
|
|
|
Loans
|
|
|
102,233
|
|
|
|
102,060
|
|
|
|
3
|
|
|
|
77,200
|
|
|
|
77,062
|
|
|
|
3
|
|
|
Federal Home Loan Bank stock
|
|
|
642
|
|
|
|
642
|
|
|
|
3
|
|
|
|
1,132
|
|
|
|
1,132
|
|
|
|
3
|
|
|
Accrued interest receivable
|
|
|
432
|
|
|
|
432
|
|
|
|
3
|
|
|
|
314
|
|
|
|
314
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposit liabilities
|
|
|
101,372
|
|
|
|
101,256
|
|
|
|
3
|
|
|
|
62,378
|
|
|
|
62,243
|
|
|
|
3
|
|
|
Federal Home Loan Bank advances
|
|
|
13,000
|
|
|
|
13,137
|
|
|
|
3
|
|
|
|
24,600
|
|
|
|
24,437
|
|
|
|
3
|
|
|
Junior subordinated debenture
|
|
|
2,580
|
|
|
|
N/A
|
(1)
|
|
|
3
|
|
|
|
4,461
|
|
|
|
N/A
|
(1)
|
|
|
3
|
|
|
Federal funds purchased
|
|
|
—
|
|
|
|
—
|
|
|
|
3
|
|
|
|
560
|
|
|
|
560
|
|
|
|
3
|
|
|
Off-balance sheet financial instruments
|
|
|
—
|
|
|
|
—
|
|
|
|
3
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3
|
|
|
|
(1)
|
The
Company is unable to determine value based on significant unobservable inputs required in the calculation. Refer to Note 6
for further information.
|
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
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 nonperformance 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 Company 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 Company 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
December 31, 2019 follows (in thousands):
|
Commitments
to extend credit
|
|
$
|
2,200
|
|
|
|
|
|
|
|
|
Unused
lines of credit
|
|
$
|
2,020
|
|
|
|
|
|
|
|
|
Standby
letters of credit
|
|
$
|
1,550
|
|
(continued)
OPTIMUMBANK
HOLDINGS, INC. AND SUBSIDIARY
Notes
to Consolidated Financial Statements
Income
tax benefit consisted of the following (in thousands):
|
|
|
Year Ended December 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
—
|
|
|
$
|
—
|
|
|
State
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(240
|
)
|
|
|
182
|
|
|
State
|
|
|
(50
|
)
|
|
|
38
|
|
|
Change in Valuation Allowance
|
|
|
238
|
|
|
|
(220
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total Deferred
|
|
|
(52
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(52
|
)
|
|
$
|
—
|
|
The
reasons for the differences between the statutory Federal income tax rate and the effective tax rate are summarized as follows
(dollars in thousands):
|
|
|
Year
Ended December 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
Amount
|
|
|
%
of
Pretax
Loss
|
|
|
Amount
|
|
|
%
of
Pretax
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax benefit at statutory rate
|
|
$
|
(242
|
)
|
|
|
21
|
%
|
|
$
|
167
|
|
|
|
21.00
|
%
|
|
Increase
(decrease) resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State
taxes, net of Federal tax benefit
|
|
|
(50
|
)
|
|
|
4.3
|
%
|
|
|
38
|
|
|
|
4.77
|
%
|
|
Other
permanent differences
|
|
|
2
|
|
|
|
(0.2
|
)%
|
|
|
15
|
|
|
|
1.88
|
%
|
|
Change
in valuation allowance
|
|
|
238
|
|
|
|
(20.7
|
)%
|
|
|
(220
|
)
|
|
|
(27.65
|
)
|
|
|
|
$
|
(52
|
)
|
|
|
4.4
|
%
|
|
$
|
—
|
|
|
|
—
|
|
The
tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities
are presented below (in thousands):
|
|
|
At
December 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
|
|
Net
operating loss carryforwards
|
|
$
|
4299
|
|
|
$
|
3,926
|
|
|
Premises
and equipment
|
|
|
65
|
|
|
|
70
|
|
|
Nonaccrual
loan interest
|
|
|
51
|
|
|
|
77
|
|
|
Lease
Liability
|
|
|
269
|
|
|
|
—
|
|
|
Unrealized
loss on available for sale securities
|
|
|
68
|
|
|
|
111
|
|
|
Other
|
|
|
1
|
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
deferred tax assets
|
|
|
4,753
|
|
|
|
4,238
|
|
|
Less:
Valuation allowance
|
|
|
3,810
|
|
|
|
3,572
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
deferred tax assets
|
|
|
943
|
|
|
|
666
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax liabilities:
|
|
|
|
|
|
|
|
|
|
Allowance
for loan losses
|
|
|
(541
|
)
|
|
|
(521
|
)
|
|
Right
of use lease assets
|
|
|
(267
|
)
|
|
|
—
|
|
|
Loan
costs
|
|
|
(67
|
)
|
|
|
(34
|
)
|
|
Total
deferred tax liabilities
|
|
|
(875
|
)
|
|
|
(555
|
)
|
|
Net
deferred tax asset
|
|
$
|
68
|
|
|
$
|
111
|
|
During
the years ended December 31, 2019 and 2018, the Company assessed its earnings history and trend over the past year and its estimate
of future earnings, and determined that it was more likely than not that the deferred tax assets would not be realized in the
near term. Accordingly, a valuation allowance was recorded and maintained against the net deferred tax asset for the amount not
expected to be realized in the future.
At
December 31, 2019, the Company had net operating loss carryforwards of approximately $16.6 million for Federal tax purposes
and $16.6 million for Florida tax purposes available to offset future taxable income. These carryforwards will begin to
expire in 2029. A portion of the Federal and Florida net operating losses are subject to Internal Revenue Code Section 382 limitations.
(continued)
OPTIMUMBANK
HOLDINGS, INC. AND SUBSIDIARY
Notes
to Consolidated Financial Statements
|
(9)
|
Income
Taxes, Continued
|
The
Company files U.S. and Florida income tax returns. The Company is no longer subject to U.S. Federal or state income tax examinations
by taxing authorities for years before 2016.
The
Company regularly reviews its tax positions in each significant taxing jurisdiction in the process of evaluating its unrecognized
tax benefits. The Company makes adjustments to its unrecognized tax benefits when: (i) facts and circumstances regarding a tax
position change, causing a change in management’s judgment regarding that tax position; (ii) a tax position is effectively
settled with a tax authority at a differing amount; and/or (iii) the statute of limitations expires regarding a tax position.
The Company does not expect a change in unrecognized tax benefits in the next year.
OPTIMUMBANK
HOLDINGS, INC. AND SUBSIDIARY
Notes
to Consolidated Financial Statements
|
(10)
|
Related
Party Transactions
|
The
Company has entered into transactions with its executive officers, directors and their affiliates in the ordinary course of business.
During
2019, the Company incurred approximately $63,000 in legal fees payable to a law firm owned
by a director.
At
December 31, 2019 and 2018, related parties had approximately $828,000 and $1,147,000, respectively, on deposit with the Company.
At
December 31, 2019, all of the outstanding Trust Preferred Securities were held by a company affiliated with a director of the
Company.
There
were no loans to related parties as of December 31, 2019 or 2018.
As
disclosed in Note 4, the Company sold one of its branch locations to a related party.
|
(11)
|
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.
In
2018, the Company elected to treat 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, as equity-compensation 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 year ended December 31, 2019, the Company recorded compensation expense of $201,000 with respect to 58,309 shares issued to
a director for services performed.
(12)
Regulatory Matters. The Bank is subject to various
regulatory capital requirements administered by the bank regulatory agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Company and the Bank’s financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of its
assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts
and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
(continued)
OPTIMUMBANK
HOLDINGS, INC. AND SUBSIDIARY
Notes
to Consolidated Financial Statements
(12)
Regulatory Matters, Continued
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 December 31, 2019, the Bank’s capital
conservation buffer exceeds the minimum requirements of 2.50%.
Written
Agreement between the Company and the Federal Reserve Bank of Atlanta (“FRB”).
In June 2010, the Company and the FRB entered into a Written Agreement with respect to certain aspects of the operation and management
of the Company. On September 11, 2019, the FRB notified the Company that the Written Agreement was terminated based upon the improvements
noted at the June 7, 2019 off-site review.
Memorandum
of Understanding between the Bank, the FDIC and Florida Office of Financial Regulation. In August 2018, the Bank agreed to
the issuance of a Memorandum of Understanding (the “MOU”), with the FDIC and Florida Office of Financial Regulation.
The MOU required the Bank to take certain measures to improve its safety and soundness. By agreeing to the MOU, the Bank was released
from an earlier Consent Order that had become effective in 2016. In June 2019, the MOU was terminated by FDIC and Florida Office
of Financial Regulation due to the progress made by the Bank in addressing the requirements of the MOU.
The
following table shows the Bank’s capital amounts and ratios and regulatory thresholds at December 31, 2019 and 2018 (dollars
in thousands):
|
|
|
Actual
|
|
For
Capital
Adequacy Purposes
|
|
Minimum
To Be
Well
Capitalized Under
Prompt Corrective
Action Provisions
|
|
|
|
Amount
|
|
%
|
|
Amount
|
|
%
|
|
Amount
|
|
%
|
|
As
of December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Capital to Risk-Weighted Assets
|
|
$
|
12,212
|
|
|
|
12.03
|
%
|
|
$
|
8,124
|
|
|
|
8.00
|
%
|
|
$
|
10,154
|
|
|
|
10.00
|
%
|
|
Tier
I Capital to Risk-Weighted Assets
|
|
|
10,934
|
|
|
|
10.77
|
|
|
|
6,093
|
|
|
|
6.00
|
|
|
|
8,124
|
|
|
|
8.00
|
|
|
Common
equity Tier I capital to Risk-Weighted Assets
|
|
|
10,934
|
|
|
|
10.77
|
|
|
|
4,569
|
|
|
|
4.50
|
|
|
|
6,600
|
|
|
|
6.50
|
|
|
Tier
I Capital to Total Assets
|
|
|
10,934
|
|
|
|
8.73
|
|
|
|
5,010
|
|
|
|
4.00
|
|
|
|
6,263
|
|
|
|
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
|
|
OPTIMUMBANK
HOLDINGS, INC. AND SUBSIDIARY
Notes
to Consolidated Financial Statements
(13)
Dividends.
The
Company is limited in the amount of cash dividends that may be paid. Banking regulations place certain restrictions on dividends
and loans or advances made by the Bank to the Company. The amount of cash dividends that may be paid by the Bank to the Company
is based on the Bank’s net earnings of the current year combined with the Bank’s retained earnings of the preceding
two years, as defined by state banking regulations. However, for any dividend declaration, the Company must consider additional
factors such as the amount of current period net earnings, liquidity, asset quality, capital adequacy and economic conditions.
It is likely that these factors would further limit the amount of dividends which the Company could declare. In addition, bank
regulators have the authority to prohibit banks from paying dividends if they deem such payment to be an unsafe or unsound practice.
(14)
Contingencies.
Various
claims also arise from time to time in the normal course of business. In the opinion of management, none have occurred that will
have a material effect on the Company’s consolidated financial statements.
(15)
Retirement Plans.
The
Company has a 401(k) Profit Sharing plan covering all eligible employees who are over the age of twenty-one and have completed
one year of service. The Company may make a matching contribution each year. The Company did not make any matching contributions
in connection with this plan during the years ended December 31, 2019 or 2018.
(continued)
OPTIMUMBANK
HOLDINGS, INC. AND SUBSIDIARY
Notes
to Consolidated Financial Statements
|
(16)
|
Fair
Value Measurement
|
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):
|
|
|
At
December 31, 2019
|
|
|
|
|
|
|
|
Fair
Value
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
Losses
|
|
|
Losses
Recorded in Operations For the Year Ended December 31, 2019
|
|
|
Residential
real estate
|
|
$
|
686
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
686
|
|
|
$
|
258
|
|
|
$
|
—
|
|
|
|
|
At
December 31, 2018
|
|
|
|
|
|
|
|
Fair
Value
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
Losses
|
|
|
Losses
Recorded in Operations For the Year Ended December 31, 2018
|
|
|
Residential
real estate
|
|
$
|
686
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
686
|
|
|
$
|
268
|
|
|
$
|
—
|
|
|
Commercial
real estate
|
|
|
1,312
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,312
|
|
|
|
71
|
|
|
|
—
|
|
|
|
|
|
1,998
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,998
|
|
|
|
339
|
|
|
|
—
|
|
OPTIMUMBANK
HOLDINGS, INC. AND SUBSIDIARY
Notes
to Consolidated Financial Statements
|
(17)
|
Company
Unconsolidated Financial Information
|
The
Company’s unconsolidated financial information as of December 31, 2019 and 2018 and for the years then ended follows (in
thousands):
Condensed
Balance Sheets
|
|
|
At
December 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
10
|
|
|
$
|
245
|
|
|
Investment
in subsidiary
|
|
|
10,730
|
|
|
|
10,851
|
|
|
Other
assets
|
|
|
167
|
|
|
|
198
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
10,907
|
|
|
$
|
11,294
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
$
|
1,120
|
|
|
$
|
1,527
|
|
|
Junior
subordinated debenture
|
|
|
2,580
|
|
|
|
4,461
|
|
|
Stockholders’
equity
|
|
|
7,207
|
|
|
|
5,306
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
10,907
|
|
|
$
|
11,294
|
|
Condensed
Statements of Operations
|
|
|
Year
Ended December 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
(Loss)
earnings of
subsidiary
|
|
$
|
(246
|
)
|
|
$
|
1,604
|
|
|
Interest
expense
|
|
|
(294
|
)
|
|
|
(298
|
)
|
|
Other
expense
|
|
|
(560
|
)
|
|
|
(510
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) earnings
|
|
$
|
(1,100
|
)
|
|
$
|
796
|
|
Condensed
Statements of Cash Flows
|
|
|
Year
Ended December 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net
(loss) earnings
|
|
$
|
(1,100
|
)
|
|
$
|
796
|
|
|
Adjustments
to reconcile net loss (earnings) to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
Common
stock issued as compensation for services
|
|
|
201
|
|
|
|
—
|
|
|
Equity
in undistributed loss (earnings) of subsidiary
|
|
|
246
|
|
|
|
(1,604
|
)
|
|
Increase
in other liabilities
|
|
|
387
|
|
|
|
475
|
|
|
Decrease
in other assets
|
|
|
31
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
|
(235
|
)
|
|
|
(331
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flow from investing activities
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flow from financing activities –
|
|
|
|
|
|
|
|
|
|
Proceeds
from sale of common stock
|
|
|
—
|
|
|
|
525
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(decrease) increase in cash
|
|
|
(235
|
)
|
|
|
194
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
at beginning of the year
|
|
|
245
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
at end of year
|
|
$
|
10
|
|
|
$
|
245
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash
transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in accumulated other comprehensive loss of subsidiary, net change in unrealized (loss) on debt securities available
for sale, net of income taxes
|
|
$
|
125
|
|
|
$
|
(80
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification
of stock compensation from other liabilities to common stock
|
|
|
—
|
|
|
|
615
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued and reclassified from other liabilities
|
|
|
31
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock in exchange for Trust Preferred Securities
|
|
|
2,644
|
|
|
|
905
|
|
Prior
to 2016, the Company issued 7 shares of Series A Preferred Stock (the “Series A Preferred”) at a price of $25,000
per share to a director. Each share of the Series A Preferred had an initial liquidation preference of $25,000 per share and was
entitled to cumulative dividends at the rate of 10% per annum, provided that no dividends would be declared, paid or set aside
for payment to the extent such act would cause the Company to fail to comply with any applicable regulatory requirements. In April
2018, the Company issued 79,186 shares of Common Stock in exchange for the 7 outstanding shares of the Series A Preferred.
|
(19)
|
Bank
Secrecy Act (“BSA”) Lookback Review
|
Under
the terms of the Consent Order and the MOU, the Bank was ordered to perform a BSA lookback review by the FDIC. The review has
been completed in 2019 with no negative results.