UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2020

 

or

 

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________ to _________

 

Commission File Number: 000-50755

 

OPTIMUMBANK HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

Florida   55-0865043
(State or other jurisdiction of
incorporation or organization) 		  (IRS Employer
Identification No.)

 

2929 East Commercial Boulevard, Fort Lauderdale, FL 33308

(Address of principal executive offices)

 

954-900-2800

(Registrant’s telephone number, including area code)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common Stock, $.01 Par Value   OPHC   NASDAQ Capital Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act (check one):

 

Large accelerated filer [  ]   Accelerated filer [  ]
Non-accelerated filer [X]   Smaller reporting company [X]
    Emerging growth company [  ]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes [  ] No [X]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 2,951,353 shares of common stock, $.01 par value, issued and outstanding as of May 14, 2020.

 

 

 

 

 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

INDEX

 

  Page
   
PART I. FINANCIAL INFORMATION  
   
Item 1. Financial Statements 1
   
Condensed Consolidated Balance Sheets - March 31, 2020 (unaudited) and December 31, 2019 1
   
Condensed Consolidated Statements of Operations - Three Months ended March 31, 2020 and 2019 (unaudited) 2
   
Condensed Consolidated Statements of Comprehensive Loss - Three Months ended March 31, 2020 and 2019 (unaudited) 3
   
Condensed Consolidated Statements of Stockholders’ Equity - Three Months ended March 31, 2020 and 2019 (unaudited) 4
   
Condensed Consolidated Statements of Cash Flows - Three Months ended March 31, 2020 and 2019 (unaudited) 5
   
Notes to Condensed Consolidated Financial Statements (unaudited) 7
   
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 20
   
Item 4. Controls and Procedures 24
   
PART II. OTHER INFORMATION  
   
Item 1. Legal Proceedings 24
   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 24
   
Item 3. Defaults on Senior Securities 24
   
Item 4. Mine Safety Disclosures 24
   
Item 5. Other Information 24
   
Item 6. Exhibits 24
   
SIGNATURES 25

 

i

 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Condensed Consolidated Balance Sheets
(Dollars in thousands, except per share amounts)

 

    March 31, 2020     December 31, 2019  
    (Unaudited)        
Assets:                
Cash and due from banks   $ 14,696     $ 2,111  
Interest-bearing deposits with banks     4,192       6,823  
Total cash and cash equivalents     18,888       8,934  
Debt securities available for sale     4,938       5,409  
Debt securities held-to-maturity (fair value of $5,586 and $5,986)     5,462       5,806  
Loans, net of allowance for loan losses of $2,198 and $2,009     107,249       102,233  
Federal Home Loan Bank stock     1,091       642  
Premises and equipment, net     1,483       1,389  
Right-of-use lease assets     1,017       1,055  
Accrued interest receivable     440       432  
Other assets     800       848  
                 
Total assets   $ 141,368     $ 126,748  
Liabilities and Stockholders’ Equity:                
                 
Liabilities:                
Noninterest-bearing demand deposits   $ 14,902     $ 10,545  
Savings, NOW and money-market deposits     60,395       55,475  
Time deposits     30,462       35,352  
                 
Total deposits     105,759       101,372  
                 
Federal Home Loan Bank advances     23,000       13,000  
Junior subordinated debenture     2,580       2,580  
Official checks     38       208  
Operating lease liabilities     1,027       1,061  
Other liabilities     1,473       1,320  
                 
Total liabilities     133,877       119,541  
                 
Commitments and contingencies (Notes 1 and 8)                
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, 2,951,353 and 2,853,171 shares issued and outstanding     29       28  
Additional paid-in capital     39,532       38,994  
Accumulated deficit     (31,918 )     (31,610 )
Accumulated other comprehensive loss     (152 )     (205 )
                 
Total stockholders’ equity     7,491       7,207  
Total liabilities and stockholders’ equity   $ 141,368     $ 126,748  

 

See accompanying notes to condensed consolidated financial statements.

 

1
 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Condensed Consolidated Statements of Operations (Unaudited)
(in thousands, except per share amounts)

 

    Three Months Ended  
    March 31,  
    2020     2019  
Interest income:                
Loans   $ 1,413     $ 1,090  
Debt securities     46       50  
Other     44       62  
                 
Total interest income     1,503       1,202  
                 
Interest expense:                
Deposits     402       289  
Borrowings     105       164  
                 
Total interest expense     507       453  
                 
Net interest income     996       749  
                 
Provision for loan losses     189       —  
                 
Net interest income after provision for loan losses     807       749  
                 
Noninterest income:                
Service charges and fees     49       22  
Other     24       15  
                 
Total noninterest income     73       37  
                 
Noninterest expenses:                
Salaries and employee benefits     548       501  
Professional fees     171       99  
Occupancy and equipment     148       113  
Data processing     117       124  
Insurance     24       24  
Regulatory assessment     41       4  
Other     139       119  
                 
Total noninterest expenses     1,188       984  
                 
Net loss before income tax benefit     (308 )     (198 )
                 
Income tax benefit     -       (52 )
                 
Net loss   $ (308 )   $ (146 )
                 
Net loss per share - Basic and diluted   $ (0.11 )   $ (0.08 )

 

See accompanying notes to condensed consolidated financial statements.

 

2
 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Condensed Consolidated Statements of Comprehensive Loss (Unaudited)
(In thousands)

 

    Three Months Ended
March 31, 		 
    2020     2019  
             
Net loss   $ (308 )   $ (146 )
                 
Other comprehensive income:                
Change in unrealized gain on debt securities:                
Unrealized gain arising during the year     53       5  
                 
Amortization of unrealized loss on debt securities transferred to held-to-maturity     24       17  
                 
Other comprehensive income before income tax expense     77       22  
                 
Deferred income tax expense on above change     (24 )     (5 )
                 
Total other comprehensive income     53       17  
                 
Comprehensive loss   $ (255 )   $ (129 )

 

See accompanying notes to condensed consolidated financial statements.

 

3
 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Stockholders’ Equity

Three Months Ended March 31, 2020 and 2019

(Dollars in thousands)

 

                Additional           Accumulated
Other 		       
    Preferred Stock     Common Stock     Paid-In     Accumulated     Comprehensive     Stockholders’  
    Shares     Amount     Shares     Amount     Capital     Deficit     Loss     Equity  
                                                 
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 debt securities available for sale, net of income taxes (unaudited)     —       —       —       —       —       —       3       3  
                                                                 
Amortization of unrealized loss on debt securities transferred to held-to-maturity, net of income taxes (unaudited)     —       —       —       —       —       —       14       14  
                                                                 
Balance at March 31, 2019 (unaudited)     —     $ —       1,858,020     $ 18     $ 36,128     $ (30,656 )   $ (313 )   $ 5,177  
                                                                 
Balance at December 31, 2019     —     $ —       2,853,171     $ 28     $ 38,994     $ (31,610 )   $ (205 )   $ 7,207  
                                                                 
Proceeds from the sale of common stock (unaudited)     —       —       98,182       1       538       —       —       539  
                                                                 
Net loss for the three months ended March 31, 2020 (unaudited)     —       —       —       —       —       (308 )     —       (308 )
                                                                 
Net change in unrealized loss on debt securities available for sale, net of income taxes (unaudited)     —       —       —       —       —       —       35       35  
                                                                 
Amortization of unrealized loss on debt securities transferred to held-to-maturity, net of income taxes (unaudited)     —       —       —       —       —       —       18       18  
                                                                 
Balance at March 31, 2020 (unaudited)     —       —       2,951,353       29       39,532       (31,918 )     (152 )     7,491  

 

See accompanying notes to condensed consolidated financial statements

 

4
 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

 

    Three Months Ended
March 31, 		 
    2020     2019  
Cash flows from operating activities:                
Net loss   $ (308 )   $ (146 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Provision for loan losses     189       —  
Depreciation and amortization     46       42  
Net amortization of fees, premiums and discounts     38       43  
Increase in accrued interest receivable     (8 )     (10 )
Amortization of right of use asset     38       17  
Net decrease in lease liability     (34 )     (16 )
Decrease (increase) in other assets     24       (328 )
(Decrease) increase in official checks and other liabilities     (17 )     208  
Net cash used in operating activities     (32 )     (190 )
                 
Cash flows from investing activities:                
Principal repayments of debt securities available for sale     514       154  
Principal repayments of debt securities held-to-maturity     340       193  
Net increase in loans     (5,205 )     (1,314 )
Purchases of premises and equipment     (140 )     (43 )
(Purchase) redemption of FHLB stock     (449 )     490  
                 
Net cash used in investing activities     (4,940 )     (520 )
                 
Cash flows from financing activities:                
Net increase in deposits     4,387       18,446  
Net decrease in federal funds purchased     —       (560 )
Net increase (decrease) in FHLB Advances     10,000       (11,600 )
Proceeds from sale of common stock     539       —  
                 
Net cash provided by financing activities     14,926       6,286  
                 
Net increase in cash and cash equivalents     9,954       5,576  
                 
Cash and cash equivalents at beginning of the period     8,934       7,983  
                 
Cash and cash equivalents at end of the period   $ 18,888     $ 13,559  

 

See accompanying notes to condensed consolidated financial statements

 

5
 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Condensed Consolidated Statements of Cash Flows (Unaudited), Continued

(In thousands)

 

    Three Months Ended
March 31, 		 
    2020     2019  
Supplemental disclosure of cash flow information:                
Cash paid during the period for:                
Interest   $ 460     $ 370  
                 
Income taxes   $ —     $ —  
                 
Noncash transaction -                
Change in accumulated other comprehensive loss, net change in unrealized gain on debt securities available for sale, net of income taxes   $ 53     $ 17  
                 
Amortization of unrealized loss on debt securities transferred to held-to-maturity   $ 24     $ 17  
                 
Right-of use lease assets obtained in exchange for operating lease liabilities   $ -     $ 281  

 

See accompanying notes to condensed consolidated financial statements

 

(continued)

 

6
 

 

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. 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 March 31, 2020, and the results of operations and cash flows for the three-month periods ended March 31, 2020 and 2019. All significant intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the three months ended March 31, 2020, are not necessarily indicative of the results to be expected for the full year.
   
 

Subsequent Events. The Company has evaluated subsequent events through May 14, 2020, which is the date the condensed consolidated financial statements were issued, determining no additional events required disclosure except as follows:

   
  The Company is subject to risks related to the public health crisis associated with the Coronavirus global pandemic (“COVID-19”). Federal, state and local governments have taken measures to slow the spread of COVID-19. These measures have included limiting travel, temporarily closing businesses and issuing stay at home orders which has caused a steep decline in economic activity. The long-term effect of these measures cannot be determined. Management believes the measures may have a significant impact on the Company’s financial position and results of operations. The amount of the impact is currently unquantifiable but deemed to be significant by management as the Company may likely experience an increase in the level of troubled assets, a reduction of cash flow from loan payments and an overall reduction in earnings as a result of COVID-19.
   
 

Junior Subordinated Debenture. In 2004, the Company formed OptimumBank Capital Trust I (the “Trust’’) for the purpose of raising capital 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 2019 and 2018, 2,575 Trust Preferred Securities were exchanged for 1,226,173 shares of the Company’s common stock. For accounting purposes, the Trust Preferred Securities acquired by the Company have been cancelled. As a result,  the Company cancelled $2,575,000 in principal amount of the Trust Preferred Securities, together with accrued interest of $974,000, and increased its stockholders’ equity by the same amount. The remaining principal owed by the Company in connection with the Junior Subordinated Debenture was $2,580,000 at March 31, 2020 and December 31, 2019. The remaining accrued interest owed by the Company associated with the Junior Subordinated Debenture was $1,032,000 and $995,000 at March 31, 2020 and December 31, 2019 respectively. The accrued interest is presented on the accompanying condensed 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 that it has no intention to accelerate the principal and accrued interest amounts due under the Junior Subordinated Debenture during the next twelve months following the date this Quarterly Report is filed with the Securities and Exchange Commission.

 

The Company currently intends 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.

   
  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 debt securities, are reported as a separate component of the equity section of the condensed consolidated balance sheets, such items along with net loss, are components of comprehensive loss.

 

Accumulated other comprehensive loss consists of the following (in thousands):

 

    March 31,     December 31,  
    2020     2019  
             
Unrealized gain on debt securities available for sale   $ 64     $ 11  
Unamortized portion of unrealized loss related to debt securities available for sale transferred to securities held-to-maturity     (260 )     (284 )
Income tax benefit     44       68  
                 
    $ (152 )   $ (205 )

 

  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 March 31, 2020. Accordingly, a valuation allowance was recorded against the net deferred tax asset.
   
  Reclassifications. Certain amounts have been reclassified to allow for consistent presentation for the periods presented.

 

(continued)

 

7
 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

(1) General, Continued.

 

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13 Financial Instruments-Credit Losses (Topic 326). The ASU improves financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by the Company. The ASU requires the Company to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. The Company will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. The ASU requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the condensed consolidated financial statements. Additionally, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The ASU will take effect for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. The Company is in the process of determining the effect of the ASU on its condensed consolidated financial statements.

 

(continued)

 

8
 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

(2) Debt Securities. Debt Securities have been classified according to management’s intent. The carrying amount of debt securities and approximate fair values are as follows (in thousands):

 

    Amortized
Cost 		    Gross
Unrealized
Gains 		    Gross
Unrealized
Losses 		    Fair
Value 		 
                         
At March 31, 2020:                                
Held-to-maturity:                                
Collateralized mortgage obligations   $ 3,941     $ 93       —   $ 4,034  
Mortgage-backed securities     1,521       31       —     1,552  
Total   $ 5,462     $ 124       —   $ 5,586  
Available for sale:                                
SBA Pool Securities   $ 1,485     $ —     $ (41 )   $ 1,444  
Collateralized mortgage obligations     871       8       —       879  
Mortgage-backed securities     2,518       97       —       2,615  
Total   $ 4,874     $ 105     $ (41 )   $ 4,938  

 

    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  

 

There were no sales of debt securities during the three months ended March 31, 2020 and 2019.

 

Debt Securities available for sale with gross unrealized losses, aggregated by investment category and length of time that individual debt securities have been in a continuous loss position, is as follows (in thousands):

 

    At March 31, 2020  
    Over Twelve Months    

Less Than Twelve

Months

 
    Gross
Unrealized
Losses 		    Fair
Value 		    Gross
Unrealized
Losses 		    Fair
Value 		 
                         
Available for Sale -                                
SBA Pool Securities   $ 41     $ 1,444     $ —     $ —  

 

    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     $ —     $ —  

 

(continued)

 

9
 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

(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 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 March 31, 2020 and December 31, 2019, the unrealized losses on six debt securities, 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.

   
  (continued)

 

10
 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

(3) Loans. The components of loans are as follows (in thousands):

 

    At
March 31, 2020 		    At
December 31, 2019 		 
             
Residential real estate   $ 28,929     $ 28,266  
Multi-family real estate     10,432       8,396  
Commercial real estate     57,568       55,652  
Land and construction     2,786       2,496  
Commercial     4,612       4,476  
Consumer     5,122       4,903  
                 
Total loans     109,449       104,189  
                 
Add (deduct):                
Net deferred loan fees, costs and premiums     (2 )     53  
Allowance for loan losses     (2,198 )     (2,009 )
                 
Loans, net   $ 107,249     $ 102,233  

 

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 March 31, 2020:                                                                
                                                                 
Beginning balance   $ 531     $ 82     $ 624     $ 21     $ 573     $ 152     $ 26     $ 2,009  
Provision (credit) for loan losses     47       41       105       23       5       (6 )     (26 )     189  
Charge-offs     —       —       —       —       —       (10 )     —       (10 )
Recoveries     4       —       —       6       —       —       —       10  
                                                                 
Ending balance   $ 582     $ 123     $ 729     $ 50     $ 578     $ 136     $ —     $ 2,198  
                                                                 
Three Months Ended March 31, 2019:                                                                
Beginning balance   $ 544     $ 88     $ 567     $ 19     $ 850     $ 25     $ 150     $ 2,243  
(Credit) provision for loan losses     (12 )     (23 )     256       (25 )     (297 )     1       100       —  
Charge-offs     —       —       (195 )     —       —       (7 )     —       (202 )
Recoveries     —       —       —       6       —       —       —       6  
                                                                 
Ending balance   $ 532     $ 65     $ 628     $ —     $ 553     $ 19     $ 250     $ 2,047  

 

    Residential Real Estate     Multi-
Family Real Estate 		    Commercial Real Estate     Land and Construction     Commercial     Consumer     Unallocated     Total  
At March 31, 2020:                                                                
Individually evaluated for impairment:                                                                
Recorded investment   $ 940     $ —     $ 2,193     $ —     $ 812     $ —     $ —     $ 3,945  
Balance in allowance for loan losses   $ 256     $ —     $ —     $ —     $ 539     $ —     $ —     $ 795  
                                                                 
Collectively evaluated for impairment:                                                                
Recorded investment   $ 27,989     $ 10,432     $ 55,375     $ 2,786     $ 3,800     $ 5,122     $ —     $ 105,504  
Balance in allowance for loan losses   $ 326     $ 123     $ 729     $ 50     $ 39     $ 136     $ —     $ 1,403  
                                                                 
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  

 

(continued)

 

11
 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

(3)

Loans, Continued.

 

The Company has divided the loan portfolio into six portfolio segments, each with different risk characteristics and methodologies for assessing risk. All loans are underwritten based upon standards set forth in the policies approved by the Company’s Board of Directors (the “Board”). The Company identifies the portfolio segments as follows:

 

Residential Real Estate, Multi-Family Real Estate, Commercial Real Estate, Land and Construction. Residential real estate loans are underwritten based on repayment capacity and source, value of the underlying property, credit history and stability. The Company offers first and second one-to-four family mortgage loans; the collateral for these loans is generally the clients’ owner-occupied residences. Although these types of loans present lower levels of risk than commercial real estate loans, risks do still exist because of possible fluctuations in the value of the real estate collateral securing the loan, as well as changes in the borrowers’ financial condition. Multi-family and commercial real estate loans are secured by the subject property and are underwritten based upon standards set forth in the policies approved by the Board. Such standards include, among other factors, loan to value limits, cash flow coverage and general creditworthiness of the obligors. Construction loans to borrowers finance the construction of owner occupied and leased properties. These loans are categorized as construction loans during the construction period, later converting to commercial or residential real estate loans after the construction is complete and amortization of the loan begins. Real estate development and construction loans are approved based on an analysis of the borrower and guarantor, the viability of the project and on an acceptable percentage of the appraised value of the property securing the loan. Real estate development and construction loan funds are disbursed periodically based on the percentage of construction completed. The Company carefully monitors these loans with on-site inspections and requires the receipt of lien waivers on funds advanced. Development and construction loans are typically secured by the properties under development or construction, and personal guarantees are typically obtained. Further, to assure that reliance is not placed solely on the value of the underlying property, the Company considers the market conditions and feasibility of proposed projects, the financial condition and reputation of the borrower and guarantors, the amount of the borrower’s equity in the project, independent appraisals, cost estimates and pre-construction sales information. The Company also makes loans on occasion for the purchase of land for future development by the borrower. Land loans are extended for future development for either commercial or residential use by the borrower. The Company carefully analyzes the intended use of the property and the viability thereof.

   
  Commercial. Commercial business loans and lines of credit consist of loans to small- and medium-sized companies in the Company’s market area. Commercial loans are generally used for working capital purposes or for acquiring equipment, inventory or furniture. Primarily all of the Company’s commercial loans are secured loans, along with a small amount of unsecured loans. The Company’s underwriting analysis consists of a review of the financial statements of the borrower, the lending history of the borrower, the debt service capabilities of the borrower, the projected cash flows of the business, the value of the collateral, if any, and whether the loan is guaranteed by the principals of the borrower. These loans are generally secured by accounts receivable, inventory and equipment. Commercial loans are typically made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business, which makes them of higher risk than residential loans and the collateral securing loans may be difficult to appraise and may fluctuate in value based on the success of the business. The Company seeks to minimize these risks through its underwriting standards.
   
  Consumer. Consumer loans are extended for various purposes, including purchases of automobiles, recreational vehicles, and boats. Also offered are home improvement loans, lines of credit, personal loans, and deposit account collateralized loans. Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Loans to consumers are extended after a credit evaluation, including the creditworthiness of the borrower(s), the purpose of the credit, and the secondary source of repayment. Consumer loans are made at fixed and variable interest rates. Risk is mitigated by the fact that the loans are of smaller individual amounts.

 

(continued)

 

12
 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

(3) Loans, Continued. The following summarizes the loan credit quality (in thousands):

 

    Pass     OLEM
(Other
Loans
Especially Mentioned) 		    Sub-
standard 		    Doubtful     Loss     Total  
At March 31, 2020:                                                
Residential real estate   $ 27,989     $ —     $ 940     $ —     $ —     $ 28,929  
Multi-family real estate     10,432       —       —       —       —       10,432  
Commercial real estate     54,949       426       2,193       —       —       57,568  
Land and construction     1,571       1,215       —       —       —       2,786  
Commercial     3,163       637       812       —       —       4,612  
Consumer     5,122       —       —       —       —       5,122  
                                                 
Total   $ 103,226     $ 2,278     $ 3,945     $ —     $ —     $ 109,449  
                              —       —          
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  

 

Internally assigned loan grades are defined as follows:

 

  Pass – a Pass loan’s primary source of loan repayment is satisfactory, with secondary sources very likely to be realized if necessary. These are loans that conform in all aspects to bank policy and regulatory requirements, and no repayment risk has been identified.
   
  OLEM – an Other Loan Especially Mentioned has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in the deterioration of the repayment prospects for the asset or the Company’s credit position at some future date.
   
  Substandard – a Substandard loan is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Included in this category are loans that are current on their payments, but the Bank is unable to document the source of repayment. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.
   
  Doubtful – a loan classified as Doubtful has all the weaknesses inherent in one classified as Substandard, with the added characteristics that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future. The Company charges off any loan classified as Doubtful.
   
  Loss – a loan classified Loss is considered uncollectible and of such little value that continuance as a bankable asset is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be effected in the future. The Company fully charges off any loan classified as Loss.

 

(continued)

 

13
 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

(3) Loans, Continued. Age analysis of past-due loans is as follows (in thousands):

 

    Accruing Loans                    
    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 March 31, 2020:                                                        
Residential real estate   $ —     $ —     $ —     $ —     $ 28,929     $ —     $ 28,929  
Multi-family real estate     —       —       —       —       10,432       —       10,432  
Commercial real estate     1,085       —       —       1,085       56,483       —       57,568  
Land and construction     —       —       —       —       2,786       —       2,786  
Commercial     —       —       —       —       3,800       812       4,612  
Consumer     43       —       —       43       5,079       —       5,122  
                                                         
Total   $ 1,128     $ —     $ —     $ 1,128     $ 107,509     $ 812     $ 109,449  

 

    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  

 

The following summarizes the amount of impaired loans (in thousands):

 

    At March 31, 2020     At December 31, 2019  
    Recorded
Investment 		    Unpaid
Principal
Balance 		    Related
Allowance 		    Recorded
Investment 		    Unpaid
Principal
Balance 		    Related
Allowance 		 
With no related allowance recorded:                                                
Commercial real estate   $ 2,193     $ 2,193     $ —     $ 2,206     $ 2,206       —  
With related allowance recorded:                                                
Residential real estate     940       940       256       944       944       258  
Commercial     812       812       539       812       812       531  
Total:                                                
Residential real estate   $ 940     $ 940     $ 256     $ 944       944       258  
Commercial real estate   $ 2,193     $ 2,193     $ —     $ 2,206       2,206       —  
Commercial   $ 812     $ 812     $ 539     $ 812     $ 812     $ 531  
Total   $ 3,945     $ 3,945     $ 795     $ 3,962     $ 3,962     $ 789  

 

(continued)

 

14
 

 

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     Three Months Ended  
    March 31, 2020     March 31, 2019  
    Average
Recorded
Investment 		    Interest
Income
Recognized 		    Interest
Income
Received 		    Average
Recorded
Investment 		    Interest
Income
Recognized 		    Interest
Income
Received 		 
                                     
Residential real estate   $ 940       18       11     $ 951       18       18  
Commercial real estate   $ 2,200       26       30     $ 3,506       29       38  
Commercial   $ 808       -       18     $ 1,860       24       28  
                                                 
Total   $ 3,948       44       59     $ 6,317       71       84  

 

  No loans have been determined to be troubled debt restructurings (TDR’s) during the three month periods ended March 31, 2020 or 2019. At March 31, 2020 and 2019, there were no loans modified and entered into TDR’s within the past twelve months, that subsequently defaulted during the three month periods ended March 31, 2020 or 2019.

 

(continued)

 

15
 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

(4) Loss Per Share. Basic loss per share has been computed on the basis of the weighted-average number of shares of common stock outstanding during the period. In 2020 and 2019, basic and diluted loss per share are the same due to the net loss incurred by the Company. Loss per common share have been computed based on the following:

 

    Three Months Ended
March 31, 		 
    2020     2019  
Weighted-average number of common shares outstanding used to calculate basic and diluted loss per common share     2,859,844       1,858,020  

 

(continued)

 

16
 

 

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 2018 Equity Incentive Plan (the “2018 Plan”). The plan has been approved by the shareholders. The Company is authorized to issue 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.
   
 

During the second quarter of 2019, the Company recorded compensation expense of $201,000 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 three months ended

March 31, 2020

 
At March 31, 2020:                                                
Residential real estate   $ 684     $ —     $ —     $ 684     $ 256     $ —  

 

   

Fair

Value

    Level 1     Level 2     Level 3    

Total

Losses

   

Losses

Recorded in

Operations For the three months ended

March 31, 2019

 
At December 31, 2019:                                                
Residential real estate   $ 686     $ —     $ —     $ 686     $ 258     $ —  

 

Debt securities available for sale 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 March 31, 2020:                                
SBA Pool Securities   $ 1,444     $ —     $ 1,444     $ —  
Collateralized mortgage obligations     879       —       879       —  
Mortgage-backed securities     2,615       —       2,615       —  
    $ 4,938       —       4,938       —  

 

          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       —  

 

During the three months ended March 31, 2020 and 2019, no debt securities were transferred in or out of Levels 1, 2 or 3.

 

(continued)

 

17
 

 

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 March 31, 2020     At December 31, 2019  
   

Carrying

Amount

   

Fair

Value

    Level    

Carrying

Amount

   

Fair

Value

    Level  
Financial assets:                                                
Cash and cash equivalents   $ 18,888     $ 18,888       1     $ 8,934     $ 8,934       1  
Debt securities available for sale     4,938       4,938       2       5,409       5,409       2  
Debt securities held-to-maturity     5,462       5,586       2       5,806       5,986       2  
Loans     107,249        107,324       3       102,233       102,060       3  
Federal Home Loan Bank stock     1,091       1,091       3       642       642       3  
Accrued interest receivable     440       440       3       432       432       3  
                                                 
Financial liabilities:                                                
Deposit liabilities     105,759       106,020       3       101,372       101,256       3  
Federal Home Loan Bank advances     23,000       22,595       3       13,000       13,137       3  
Junior subordinated debenture     2,580       N/A (1)     N/A       2,580       N/A (1)   N/A  
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 1 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 March 31, 2020 follows (in thousands):

 

Commitments to extend credit   $ 4,537  
         
Unused lines of credit   $ 4,033  
         
Standby letters of credit   $ 1,550  

 

(9) Regulatory Matters. The Bank is subject to various regulatory capital requirements administered by the bank regulatory agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company and Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of its assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
   
  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 places 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 March 31, 2020 the Bank’s capital conservation buffer exceeds the minimum requirements of 2.50%.

 

(continued)

 

18
 

 

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 March 31, 2020 and December 31, 2019 (dollars in thousands):

 

    Actual     For Capital Adequacy Purposes     Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions  
    Amount     %     Amount     %     Amount     %  
As of March 31, 2020:                                                
Total Capital to Risk-Weighted Assets   $ 12,348       11.77 %   $ 8,395       8 %   $ 10,494       10 %
Tier I Capital to Risk-Weighted Assets     11,027       10.51       6,300       6.00       8,395       8.00  
Common equity Tier I capital to Risk-Weighted Assets     11,027       10.51       4,720       4.50       6,821       6.50  
Tier I Capital to Total Assets     11,027       8.24       5,360       4.00       6,700       5.00  
                                                 
As of December 31, 2019:                                                
Total Capital to Risk-Weighted Assets   $ 12,212       12.03 %   $ 8,124       8 %   $ 10,154       10 %
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  

 

19
 

 

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, 2019 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.

 

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 March 31, 2020, the Bank is well capitalized under the regulatory framework for prompt corrective action.

 

Refer to Note 9 for the Bank’s actual and required minimum capital ratios.

 

(continued)

 

  20  

 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

 

Financial Condition at March 31, 2020 and December 31, 2019

 

Overview

 

The Company’s total assets increased by approximately $14.6 million to $141.4 million at March 31, 2020, from $126.8 million at December 31, 2019, primarily due to an increase in cash and cash equivalents corresponding to an increase in Federal Home Loan Bank advances. Total stockholders’ equity increased by approximately $284,000 to $7.5 million at March 31, 2020, from $7.2 million at December 31, 2019, primarily due to proceeds from the sale of common stock which more than offset the net loss for the three months ended March 31, 2020.

 

The following table shows selected information for the periods ended or at the dates indicated:

 

   

Three Months

Ended

March 31, 2020

   

Year Ended

December 31, 2019

 
             
Average equity as a percentage of average assets     5.4 %     4.6 %
                 
Equity to total assets at end of period     5.3 %     5.6 %
                 
Return on average assets (1)     (0.9 )%     (1.0 )%
                 
Return on average equity (1)     (17.0 )%     (21.3 )%
                 
Noninterest expenses to average assets (1)     3.5 %     4.0 %

 

(1) Annualized for the three months ended March 31, 2020.

 

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, 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 Company increased deposits by $4.4 million during the three month period ending March 31, 2020. The proceeds were used to originate new loans.

 

In addition to obtaining funds from depositors, the Company may borrow funds from other financial institutions. At March 31, 2020, the Company had outstanding borrowings of $23 million, against its $27 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. In 2010, the Company obtained 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 March 31, 2020, the Company also had lines of credit amounting to $9.5 million with four correspondent banks to purchase federal funds. Disbursements on the lines of credit are subject to the approval of the correspondent banks. We measure and monitor our liquidity daily and believe our liquidity sources are adequate to meet our operating needs.

 

Off-Balance Sheet Arrangements

 

Refer to Note 8 for Off-Balance Sheet Arrangements.

 

Junior Subordinated Debenture

 

Please refer to Note 1 for discussion on this matter.

 

  21  

 

 

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 March 31,  
    2020     2019  
          Interest     Average           Interest     Average  
    Average     and     Yield/     Average     and     Yield/  
    Balance     Dividends     Rate(5)     Balance     Dividends     Rate(5)  
Interest-earning assets:                                                
Loans   $ 106,875     $ 1,413       5.29 %   $ 82,384     $ 1,090       5.29 %
Debt securities     10,903       46       1.69       9,329       50       2.14  
Other (1)     11,447       44       1.54       7,624       62       3.25  
                                                 
Total interest-earning assets/interest income     129,225       1,503       4.65       99,337       1,202       4.89  
                                                 
Cash and due from banks     2,792                       2,540                  
Premises and equipment     1,467                       2,836                  
Other     515                       (1,237 )                
                                                 
Total assets   $ 133,999                     $ 103,476                  
                                                 
Interest-bearing liabilities:                                                
Savings, NOW and money-market deposits     57,258       226       1.58       35,569       146       1.64  
Time deposits     33,292       176       2.11       27,596       143       2.07  
Borrowings (2)     19,143       105       2.20       21,520       164       3.05  
                                                 
Total interest-bearing liabilities/interest expense     109,693       507       1.85       84,685       453       2.14  
                                                 
Noninterest-bearing demand deposits     14,565                       11,258                  
Other liabilities     2,477                       2,282                  
Stockholders’ equity     7,264                       5,251                  
                                                 
Total liabilities and stockholders’ equity   $ 133,999                     $ 103,476                  
                                                 
Net interest income           $ 996                     $ 749          
                                                 
Interest rate spread (3)                     2.80 %                     2.75 %
                                                 
Net interest margin (4)                     3.08 %                     3.02 %
                                                 
Ratio of average interest-earning assets to average interest-bearing liabilities     1.18 %                     1.17 %                

 

(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.

 

  22  

 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

 

Comparison of the Three-Month Periods Ended March 31, 2020 and 2019

 

General. Net loss for the three months ended March 31, 2020, was $(308,000) or $(0.11) per basic and diluted share compared to a net loss of $(146,000) or $(0.08) per basic and diluted share for the three months ended March 31, 2019. The increase in net loss during the three months ended March 31, 2020 compared to three months ended March 31, 2019 is primarily attributed to an increase in the provision for loan losses, increase in noninterest expense and no income tax benefit, partially offset by the increase in net interest income and increase in noninterest income.

 

Interest Income. Interest income increased $301,000 for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 due primarily to growth in the loan portfolio.

 

Interest Expense. Interest expense increased $54,000 to $507,000 for the three months ended March 31, 2020 compared to the prior period, primarily due to an increase in interest bearing deposits.

 

Provision for Loan Losses. Provision for loan losses amounted to $189,000 for the three months ended March 31, 2020. There was no provision for losses during the 2019 period. The provision for loan losses is charged to operations as losses are estimated to have occurred in order to bring the total allowance for loan losses to a level deemed appropriate by management to absorb losses inherent in the portfolio at March 31, 2020. 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 $2,198 million or 2.01% of loans outstanding at March 31, 2020, compared to $2.0 million or 1.9% of loans outstanding at December 31, 2019. The provision for loan losses during the first quarter of 2020 was primarily due to the increase in the loan portfolio, and an evaluation of the other factors noted above.

 

Noninterest Income. Total noninterest income increased to $73,000 for the three months ended March 31, 2020, from $37,000 for the three months ended March 31, 2019 due to increased loan related fees.

 

Noninterest Expenses. Total noninterest expenses increased to $1,188,000 for the three months ended March 31, 2020 compared to $984,000 for the three months ended March 31, 2019 primarily due to an increase in salaries and employee benefits, professional fees, and occupancy and equipment.

 

  23  

 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Item 4. Controls and Procedures

 

The Company’s management evaluated the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report, and, based on this evaluation, the Principal Executive Officer and Principal Financial Officer concluded that these disclosure controls and procedures are effective.

 

There have been no changes in the Company’s internal control over financial reporting during the quarter ended March 31, 2020, that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

 

PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

 

None

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

During the first quarter of 2020, the Company issued 98,182 shares of common stock for an aggregate purchase price of $539,000. The issuance of the shares in this transaction was exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933 as a transaction by an issuer not involving a public offering. The Company used the proceeds to pay for operating expenses.

 

Item 3. Defaults on Senior Securities

 

Previously disclosed.

 

Item 4. Mine Safety Disclosures

 

None

 

Item 5. Other Information

 

None

 

Item 6. Exhibits

 

The exhibits listed in the Exhibit Index following the signature page are filed with or incorporated by reference into this report.

 

  24  

 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  OPTIMUMBANK HOLDINGS, INC.
  (Registrant)
       
Date: May 14, 2020 By: /s/ Timothy Terry
    Timothy Terry,
    Principal Executive Officer
     
  By: /s/ Joel Klein
    Joel Klein
    Principal Financial Officer

 

  25  

 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

EXHIBIT INDEX

 

Exhibit
No. 		  Description
     
31.1   Certification of Principal Executive Officer required by Rule 13a-14(a)/15d-14(a) under the Exchange Act
     
31.2   Certification of Principal Financial Officer required by Rule 13a-14(a)/15d-14(a) under the Exchange Act
     
32.1   Certification of Principal Executive Officer
     
32.2   Certification of Principal Financial Officer

 

  26  

 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

EXHIBIT INDEX

 

Exhibit
No. 		  Description
     
101.INS   XBRL Instance Document
     
101.SCH   XBRL Taxonomy Extension Schema Document
     
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document
     
101.LAB   XBRL Taxonomy Extension Label Linkbase Document
     
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document
     
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document

 

  27  

 

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