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 community 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 two 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,
2023, and the results of operations and cash flows for the three month periods ended March 31, 2023 and 2022. All significant intercompany
accounts and transactions have been eliminated in consolidation. The results of operations for the three months ended March 31, 2023,
are not necessarily indicative of the results to be expected for the full year.
Comprehensive
Income (Loss). Generally Accepted Accounting Principles generally require that recognized revenue, expenses, gains and losses
be included in net earnings. 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 earnings, are components of comprehensive income (loss).
Accumulated
other comprehensive loss consists of the following (in thousands):
Schedule of Accumulated Other Comprehensive Loss
| |
March 31, | | |
December 31, | |
| |
2023 | | |
2022 | |
| |
| | |
| |
Unrealized loss on debt securities available for sale | |
$ | (7,072 | ) | |
$ | (7,786 | ) |
Unamortized portion of unrealized loss related to debt securities available for sale transferred to securities held-to-maturity | |
| (17 | ) | |
| (18 | ) |
Income tax benefit | |
| 1,802 | | |
| 1,978 | |
| |
| | | |
| | |
Accumulated other comprehensive loss | |
$ | (5,287 | ) | |
$ | (5,826 | ) |
Reclassifications.
Certain amounts have been reclassified to allow for consistent presentation for the periods presented.
Adoption
of New Accounting Standards. The Company adopted Accounting Standards Update 2016-13, Financial Instruments – Credit
Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and the related amendments (collectively, Accounting Standards
Codification 326), effective January 1, 2023. The guidance replaces the incurred loss methodology with an expected loss methodology that
is referred to as the current expected credit loss (“CECL”) methodology. The measurement of expected credit losses under
the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt
securities. It also applies to certain off-balance sheet credit exposures not accounted for as insurance, including loan commitments,
standby letters of credits, financial guarantees, and other similar instruments. In addition, Accounting Standards Codification 326 (“ASC
326”) made changes to the accounting for debt securities available for sale. One such change is to require credit losses to be
presented as an allowance rather than as a write-down on debt securities available for sale that management does not intend to sell or
believes that it is more likely than not they will not be required to sell. ASC 326 also changed the accounting for purchased financial
assets with credit deterioration.
The
Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost and off-balance-sheet
credit exposures. Results for reporting periods beginning after January 1, 2023 are presented under ASC 326 while prior period amounts
continue to be reported in accordance with previously applicable GAAP. The adoption of CECL resulted in the recognition of $219,000 allowance
for credit losses, $23,000 of liability for unfunded commitments, a deferred income tax asset of $61,000 and a reduction in retained
earnings of $181,000. With this transition method, the Company did not have to restate comparative prior periods presented in the consolidated
financial statements related to ASC 326 but will present comparative prior periods disclosures using the previous accounting guidance
for the allowance for loan losses. The Company adopted ASC 326 using the prospective transition approach for debt securities available
for sale. As of January 1, 2023, the Company did not have any allowance for credit losses on debt securities.
(continued)
OPTIMUMBANK
HOLDINGS, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements (Unaudited)
(1)
General, Continued.
Allowance
for Credit Losses (“ACL”). The following is a summary of the Company’s significant accounting policies with
respect to ASC 326:
ACL
- Debt Securities Available for Sale. Management uses a systematic methodology to determine its ACL for debt securities available
for sale. Each quarter management evaluates impairment where there has been a decline in fair value below the amortized cost basis to
determine whether there is a credit loss associated with the decline in fair value. The Company first assesses whether it intends to
sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either
one of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair
value through income. For debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in
fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which the
fair value is less than the amortized cost basis, among various other factors, including the nature of the collateral, potential future
changes in collateral values, default rates, delinquency rates, third-party guarantees, credit ratings, interest rate changes since purchase,
volatility of the security’s fair value and historical loss information for financial assets secured with similar collateral among
other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from
the security are compared to the amortized cost basis. If the present value of cash flows expected to be collected is less than the amortized
cost basis, an ACL is recorded, which is limited by the amount that the fair value is less than the amortized cost basis. Credit losses
are calculated individually, rather than collectively. Any impairment that has not been recorded through an ACL is recognized in other
comprehensive loss.
Changes
in the ACL are recorded as credit loss expense (reversal). Losses are charged against the ACL when management believes the collectability
of the debt security is confirmed or when either of the criteria regarding intent or requirement to sell is met.
Management
excludes the accrued interest receivable balance from the amortized cost basis in measuring expected credit losses on the debt securities
available for sale and does not record an ACL on accrued interest receivable. As of March 31, 2023, the accrued interest receivable for
debt securities available for sale recognized in accrued interest receivable was $140,000.
ACL
– Debt Securities Held to Maturity. The Company measures expected credit losses on debt securities held to maturity on
a collective basis by major security type. U.S. Government agency securities, Mortgage-backed securities and collateralized mortgage
obligations are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have
a long history of no credit losses. Taxable municipal securities are highly rated by major credit agencies.
ACL
- Loans. The ACL reflects management’s estimate of losses that will result from the inability of our borrowers to make
required loan payments. The Company records loans charged-off against the ACL when management believes the uncollectability of a loan
balance is confirmed and subsequent recoveries, if any, increase the ACL when they are recognized.
Management
uses systematic methodologies to determine its ACL for loans and certain off- balance sheet credit exposures. The ACL is a valuation
account that is deducted from the amortized cost basis to present the net amount expected to be collected on the loan portfolio. Management
estimates the ACL using relevant available information, from internal and external sources, relating to past events, current conditions,
and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of the expected credit
losses. Adjustments to historical loss information are made for the differences in current loan-specific risk characteristics such as
differences in underwriting standards, portfolio mix, delinquency level, or term as well as changes in environmental conditions, such
as changes in unemployment rates, property values, or other relevant factors.
The
Company’s estimate of its ACL involves a high degree of judgment; therefore, management’s process for determining expected
credit losses may result in a range of expected credit losses.
The
Company’s ACL recorded in the balance sheet reflects management’s best estimate of expected credit losses. The Company
recognizes in earnings the amount needed to adjust the ACL for management’s current estimate of expected credit losses. The
Company’s ACL is calculated using collectively evaluated and individually evaluated loans.
(continued)
OPTIMUMBANK
HOLDINGS, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements (Unaudited)
(1)
General, Continued.
The
ACL is measured on a collective pool basis when similar risk characteristics exist. Loans with similar risk characteristics are grouped
into homogenous segments for analysis. The Company’s ACL is measured based on FDIC call report codes as these types of loans exhibit
similar risk characteristics. The loan portfolio is further segmented by loan product type, collateral codes, occupancy codes, property
code or lien position and are representative of the manner in which the Company lends.
The
ACL for each segment is measured through the use of the average charge-off method. In accordance with the average charge-off method,
an annual loss rate is applied to the amortized cost of an asset or pool of assets over the remaining expected life. The annual loss
rate consists of historical and forecasted loss components. The forecasted component is applied using loss rates from historical
periods that management believes are representative of economic conditions over a full economic cycle. For certain loan segments
with limited credit loss histories, management determined the loss experience of peer banks provides the best basis for its
assessment of expected credit losses. Other loan segments with more established loss histories utilize historical loss experience of
the Company. Management determined that the appropriate historical loss period will begin in the first quarter of 2001 and continue
through the most recent quarter, which represents a full peak to peak economic cycle. Additionally, management has determined
that the Company’s reasonable and supportable forecast period is one year.
Included
in its systematic methodology to determine its ACL, management considers the need to qualitatively adjust model results for risk factors
that are not considered within the Company’s loss estimation process but are nonetheless relevant in assessing the expected credit
losses within our loan pools.
These
qualitative factors (“Q-Factors”) may increase or decrease management’s estimate of expected credit losses by a calculated
percentage based upon the estimated level of risk. The various risks that may be considered in making Q-Factor adjustments include, among
other things, the impact of 1) changes in lending policies and procedures, including changes in underwriting standards; 2) changes in
international, national, regional and local economic conditions; 3) changes in the volume and severity of past due and nonaccrual status;
4) the effect of any concentrations of credit and changes in the levels of such concentrations; 5) changes in the experience, depth,
and ability of lending management; 6) changes in nature and volume of the portfolio; 7) trends in underlying collateral values; 8) changes
in the quality of the loan review system and 9) the effect of other external factors (i.e., competition, legal and regulatory requirements)
on the level of estimated credit losses.
The
annual loss rates, as defined above, adjusted for Q-Factors, are applied to the amortized loan balances over each subsequent period and
aggregated to arrive at the General ACL. The amortized loan balances are adjusted based on management’s estimate of loan repayments
in future periods.
When
a loan no longer shares similar risk characteristics with its segment, the asset is assessed to determine whether it should be included
in another segment or should be individually evaluated. Under ASC 326, the Company has adopted the collateral maintenance practical expedient
to measure the ACL based on the fair value of collateral. Collateral dependent loans are loans for which the repayment is expected to
be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. These
loans do not share common risk characteristics and are not included within the collectively evaluated loans for determining ACL. A Specific
ACL is calculated on an individual loan basis based on the shortfall between the fair value of the loan’s collateral, which is
adjusted for selling costs, and amortized cost. If the fair value of the collateral exceeds the amortized cost, no allowance is required.
Financial assets that have been individually evaluated can be returned to a pool for purposes of estimating the expected credit loss
to the extent their credit profile improves and that the repayment terms were not considered to be unique to the asset.
Management
measures expected credit losses over the contractual term of a loan. The contractual term excludes expected extensions, renewals, and
modifications unless either of the following applies:
|
●
|
Management
has a reasonable expectation at the reporting date that a loan modification will be executed with an individual borrower. |
|
|
|
|
● |
The
extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally
cancellable by the Company. |
(continued)
OPTIMUMBANK
HOLDINGS, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements (Unaudited)
(1)
General, Continued.
The
Company follows its nonaccrual policy by reversing contractual interest income in the consolidated statements of income when the Company
places a loan on nonaccrual status. Therefore, management excludes the accrued interest receivable balance from the amortized cost basis
in measuring expected credit losses on the portfolio and does not record an ACL on accrued interest receivable. As of March 31, 2023,
the accrued interest receivable for loans recorded in accrued interest receivable was $1,277,000.
Also,
various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for
credit losses. Such agencies may require the Company to recognize additions to the allowance for credit losses based on their judgments
of information available to them at the time of their examination.
Prior
to the adoption of ASC 326, the allowance for loan losses represented management’s best estimate of inherent losses that had been
incurred within the existing portfolio of loans. The allowance for loan losses included allowance allocations calculated in accordance
with ASC 310, “Receivables” and allowance allocations calculated in accordance with ASC 450, “Contingencies.”
ACL
- Off -Balance Sheet Credit Exposures. The Company has a variety of assets that have a component that qualifies as an off-balance
sheet exposure. These primarily include commitments to extend credit, standby letters of credit, and unfunded commitments under revolving
lines of credit. The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk
via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. Management has determined
that a majority of the Company’s off-balance-sheet credit exposures are not unconditionally cancellable.
The
estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected
to be funded over their expected lives. Management used its judgement to determinate funding rates. Management applied the funding rates,
along with the loss factor rate determined for each pooled loan segment, to unfunded loan commitments, excluding unconditionally cancellable
exposures and letters of credit, to arrive at the reserve for unfunded loan commitments.
As
of March 31, 2023, the liability recorded for expected credit losses on unfunded commitments was $77,000 and is included in “other
liabilities” on the accompanying condensed consolidated balance sheets. The current adjustment to the ACL for unfunded commitments
is recognized through credit loss expense in the condensed consolidated statements of earnings.
(continued)
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):
Schedule of Amortized Cost and Approximate Fair Values of Debt Securities
| |
| | |
Gross | | |
Gross | | |
| |
| |
Amortized | | |
Unrealized | | |
Unrealized | | |
Fair | |
| |
Cost | | |
Gains | | |
Losses | | |
Value | |
| |
| | |
| | |
| | |
| |
At March 31, 2023: | |
| | | |
| | | |
| | | |
| | |
Available for sale: | |
| | | |
| | | |
| | | |
| | |
SBA Pool Securities | |
$ | 802 | | |
$ | 1 | | |
$ | (18 | ) | |
$ | 785 | |
Collateralized mortgage obligations | |
| 142 | | |
| — | | |
| (12 | ) | |
| 130 | |
Taxable municipal securities | |
| 16,719 | | |
| — | | |
| (4,550 | ) | |
| 12,169 | |
Mortgage-backed securities | |
| 14,962 | | |
| — | | |
| (2,492 | ) | |
| 12,470 | |
Total | |
$ | 32,625 | | |
$ | 1 | | |
$ | (7,072 | ) | |
$ | 25,554 | |
| |
| | | |
| | | |
| | | |
| | |
Held-to-maturity: | |
| | | |
| | | |
| | | |
| | |
Collateralized mortgage obligations | |
$ | 449 | | |
$ | — | | |
$ | (29 | ) | |
$ | 420 | |
Mortgage-backed securities | |
| 49 | | |
| — | | |
| (1 | ) | |
| 48 | |
Total | |
$ | 498 | | |
$ | — | | |
$ | (30 | ) | |
$ | 468 | |
| |
| | |
| | |
| | |
| |
At December 31, 2022: | |
| | | |
| | | |
| | | |
| | |
Available for sale: | |
| | | |
| | | |
| | | |
| | |
SBA Pool Securities | |
$ | 834 | | |
$ | 1 | | |
$ | (18 | ) | |
$ | 817 | |
Collateralized mortgage obligations | |
| 145 | | |
| — | | |
| (15 | ) | |
| 130 | |
Taxable municipal securities | |
| 16,729 | | |
| — | | |
| (5,109 | ) | |
| 11,620 | |
Mortgage-backed securities | |
| 15,180 | | |
| — | | |
| (2,645 | ) | |
| 12,535 | |
Total | |
$ | 32,888 | | |
$ | 1 | | |
$ | (7,787 | ) | |
$ | 25,102 | |
| |
| | | |
| | | |
| | | |
| | |
Held-to-maturity: | |
| | | |
| | | |
| | | |
| | |
Collateralized mortgage obligations | |
$ | 475 | | |
$ | — | | |
$ | (35 | ) | |
$ | 440 | |
Mortgage-backed securities | |
| 65 | | |
| — | | |
| (1 | ) | |
| 64 | |
Total | |
$ | 540 | | |
$ | — | | |
$ | (36 | ) | |
$ | 504 | |
There
were no sales of debt securities during the three months ended March 31, 2023, and 2022.
(continued)
OPTIMUMBANK
HOLDINGS, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements (Unaudited)
(2)
Debt Securities, Continued.
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):
Schedule
of Debt Securities Available for Sale with Gross Unrealized Losses, by Investment Category
| |
Over Twelve Months | | |
Less Than Twelve Months | |
| |
Gross | | |
| | |
Gross | | |
| |
| |
Unrealized | | |
Fair | | |
Unrealized | | |
Fair | |
| |
Losses | | |
Value | | |
Losses | | |
Value | |
At March 31, 2023: | |
| | |
| | |
| | |
| |
Available for Sale: | |
| | | |
| | | |
| | | |
| | |
SBA Pool Securities | |
$ | 18 | | |
$ | 629 | | |
$ | — | | |
$ | — | |
Collateralized mortgage obligation | |
| 12 | | |
| 130 | | |
| — | | |
| — | |
Taxable municipal securities | |
| 4,550 | | |
| 12,169 | | |
| — | | |
| — | |
Mortgage-backed securities | |
| 2,492 | | |
| 12,227 | | |
| — | | |
| — | |
Total | |
$ | 7,072 | | |
$ | 25,155 | | |
$ | — | | |
$ | — | |
| |
| | | |
| | | |
| | | |
| | |
At December 31, 2022: | |
| | |
| | |
| | |
| |
Available for Sale: | |
| | | |
| | | |
| | | |
| | |
SBA Pool Securities | |
$ | 18 | | |
$ | 657 | | |
$ | — | | |
$ | — | |
Collateralized mortgage obligation | |
| - | | |
| - | | |
| 15 | | |
| 130 | |
Taxable municipal securities | |
| 5,109 | | |
| 11,620 | | |
| — | | |
| — | |
Mortgage-backed securities | |
| 2,621 | | |
| 12,292 | | |
| 24 | | |
| 243 | |
Total | |
$ | 7,748 | | |
$ | 24,569 | | |
$ | 39 | | |
$ | 373 | |
(continued)
OPTIMUMBANK
HOLDINGS, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements (Unaudited)
(2)
Debt Securities, Continued.
At
March 31, 2023 and December 31, 2022, the unrealized losses on forty-two and forty investment debt securities, respectively, were caused
by interest-rate changes.
Management
evaluates debt securities for impairment where there has been a decline in fair value below the amortized cost basis of a security to
determine whether there is a credit loss associated with the decline in fair value on at least a quarterly basis, and more frequently
when economic or market concerns warrant such evaluation. Consideration is given to (1) the financial condition and near-term
prospects of the issuer including looking at default and delinquency rates, (2) the outlook for receiving the contractual cash flows
of the investments, (3) the length of time and the extent to which the fair value has been less than cost, (4) the intent and ability
to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value or for a debt
security whether it is more-likely-than-not that the Company will be required to sell the debt security prior to recovering its fair
value, (5) the anticipated outlook for changes in the general level of interest rates, (6) credit ratings, (7) third party guarantees,
and (8) collateral values. In analyzing an issuer’s financial condition, management considers whether the securities are issued
by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, the results of reviews of the issuer’s
financial condition, and the issuer’s anticipated ability to pay the contractual cash flows of the investments.
The
Company performed an analysis that determined that the mortgage-backed securities, collateralized mortgage obligations, and U.S.
government securities, have a zero expected credit loss as they have the full faith and credit backing of the U.S. government or one
of its agencies. Municipal bonds that do not have a zero expected credit loss are evaluated at least quarterly to determine whether
there is a credit loss associated with a decline in fair value. At March 31, 2023 and December 31, 2022 all municipal securities
were rated as investment grade. All debt securities in an unrealized loss position as of March 31, 2023 continue to perform as
scheduled and the Company does not believe that there is a credit loss or that credit loss expense is necessary. Also, as
part of our evaluation of our intent and ability to hold investments for a period of time sufficient to allow for any anticipated
recovery in the market, the Company considers our investment strategy, cash flow needs, liquidity position, capital adequacy and
interest rate risk position. The Company does not currently intend to sell the investments within the portfolio, and it is not
more-likely-than-not that a sale will be required.
Management
continues to monitor all of our investments with a high degree of scrutiny. There can be no assurance that in a future period
conditions may not exist at that time indicating that some or all of the Company’s securities may be sold that would require a
charge to earnings as credit loss expense in such period.
(continued)
OPTIMUMBANK
HOLDINGS, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements (Unaudited)
(3)
Loans. The segments of loans are as follows (in thousands):
Schedule of Components of Loans
| |
March 31, | | |
December 31, | |
| |
2023 | | |
2022 | |
| |
| | |
| |
Residential real estate | |
$ | 52,087 | | |
$ | 50,354 | |
Multi-family real estate | |
| 68,126 | | |
| 69,555 | |
Commercial real estate | |
| 319,446 | | |
| 310,695 | |
Land and construction | |
| 19,629 | | |
| 17,286 | |
Commercial | |
| 3,720 | | |
| 5,165 | |
Consumer | |
| 39,527 | | |
| 30,323 | |
| |
| | | |
| | |
Total loans | |
| 502,535 | | |
| 483,378 | |
| |
| | | |
| | |
Deduct: | |
| | | |
| | |
Net deferred loan fees, and costs | |
| (626 | ) | |
| (367 | ) |
Allowance for credit losses | |
| (6,353 | ) | |
| (5,793 | ) |
| |
| | | |
| | |
Loans, net | |
$ | 495,556 | | |
$ | 477,218 | |
An
analysis of the change in the allowance for credit losses follows (in thousands):
Schedule of Changes in Allowance for Loan Losses
| |
Residential Real Estate | | |
Multi-Family Real Estate | | |
Commercial Real Estate | | |
Land and Construction | | |
Commercial | | |
Consumer | | |
Total | |
Three Months Ended March 31, 2023: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Beginning balance Dec 31, 2022 | |
$ | 768 | | |
$ | 748 | | |
$ | 3,262 | | |
$ | 173 | | |
$ | 277 | | |
$ | 565 | | |
$ | 5,793 | |
Additional allowance recognized due to adoption of Topic 326 | |
| 33 | | |
| 327 | | |
| (367 | ) | |
| 278 | | |
| (262 | ) | |
| 209 | | |
| 218 | |
Balance January 1, 2023 | |
| 801 | | |
| 1,075 | | |
| 2,896 | | |
| 451 | | |
| 15 | | |
| 774 | | |
| 6,011 | |
Credit loss expense | |
| (59 | ) | |
| 2 | | |
| 135 | | |
| 82 | | |
| 37 | | |
| 568 | | |
| 765 | |
Charge-offs | |
| — | | |
| — | | |
| — | | |
| — | | |
| (26 | ) | |
| (437 | ) | |
| (463 | ) |
Recoveries | |
| — | | |
| — | | |
| — | | |
| — | | |
| - | | |
| 40 | | |
| 40 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Ending balance (March 31, 2023) | |
$ | 742 | | |
$ | 1,077 | | |
$ | 3,030 | | |
$ | 533 | | |
$ | 26 | | |
$ | 945 | | |
$ | 6,353 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Three Months Ended March 31, 2022: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Beginning balance Dec. 31, 2021 | |
$ | 482 | | |
$ | 535 | | |
$ | 1,535 | | |
$ | 32 | | |
$ | 74 | | |
$ | 417 | | |
$ | 3,075 | |
Provision (credit) for loan losses | |
| 93 | | |
| 14 | | |
| 72 | | |
| 47 | | |
| (6 | ) | |
| 172 | | |
| 392 | |
Charge-offs | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (73 | ) | |
| (73 | ) |
Recoveries | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 14 | | |
| 14 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Ending balance (March 31, 2022) | |
$ | 575 | | |
$ | 549 | | |
$ | 1,607 | | |
$ | 79 | | |
$ | 68 | | |
$ | 530 | | |
$ | 3,408 | |
(continued)
OPTIMUMBANK
HOLDINGS, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements (Unaudited)
(3)
Loans, Continued.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
Real Estate |
|
|
Multi-Family
Real
Estate |
|
|
Commercial
Real Estate |
|
|
Land
and Construction |
|
|
Commercial |
|
|
Consumer |
|
|
Total |
|
At
December 31, 2022: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually
evaluated for impairment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded
investment |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Balance
in allowance for loan losses |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively
evaluated for impairment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded
investment |
|
$ |
50,354 |
|
|
$ |
69,555 |
|
|
$ |
310,695 |
|
|
$ |
17,286 |
|
|
$ |
5,165 |
|
|
$ |
30,323 |
|
|
$ |
483,378 |
|
Balance
in allowance for loan losses |
|
$ |
768 |
|
|
$ |
748 |
|
|
$ |
3,262 |
|
|
$ |
173 |
|
|
$ |
277 |
|
|
$ |
565 |
|
|
$ |
5,793 |
|
(continued)
OPTIMUMBANK
HOLDINGS, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements (Unaudited)
(3)
Loans, Continued. The Company has divided the loan portfolio into six portfolio segments, each with different risk characteristics
and methodologies for assessing risk. All loans are underwritten based upon standards set forth in the policies approved by the Company’s
Board of Directors (the “Board”). The Company identifies the portfolio segments as follows:
Residential
Real Estate, Multi-Family Real Estate, Commercial Real Estate, Land and Construction. Residential real estate loans are underwritten
based on repayment capacity and source, value of the underlying property, credit history and stability. The Company offers first and
second one-to-four family mortgage loans; the collateral for these loans is generally the clients’ owner-occupied residences. Although
these types of loans present lower levels of risk than commercial real estate loans, risks do still exist because of possible fluctuations
in the value of the real estate collateral securing the loan, as well as changes in the borrowers’ financial condition. Multi-family
and commercial real estate loans are secured by the subject property. Underwriting 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 an acceptable
percentage of the appraised value of the property securing the loan. Real estate development and construction loan funds are disbursed
periodically based on the percentage of construction completed. The Company carefully monitors these loans with on-site inspections and
requires the receipt of lien waivers on funds advanced. Development and construction loans are typically secured by the properties under
development or construction, and personal guarantees are typically obtained. Further, to assure that reliance is not placed solely on
the value of the underlying property, the Company considers the market conditions and feasibility of proposed projects, the financial
condition and reputation of the borrower and guarantors, the amount of the borrower’s equity in the project, independent appraisals,
cost estimates and pre-construction sales information. The Company also makes loans on occasion for the purchase of land for future development
by the borrower. Land loans are extended for future development for either commercial or residential use by the borrower. The Company
carefully analyzes the intended use of the property and the viability thereof.
Commercial.
Commercial business loans and lines of credit consist of loans to small- and medium-sized companies in the Company’s market
area. Commercial loans are generally used for working capital purposes or for acquiring equipment, inventory or furniture. Primarily
all of the Company’s commercial loans are secured loans, along with a small amount of unsecured loans. The Company’s underwriting
analysis consists of a review of the financial statements of the borrower, the lending history of the borrower, the debt service capabilities
of the borrower, the projected cash flows of the business, the value of the collateral, if any, and whether the loan is guaranteed by
the principals of the borrower. These loans are generally secured by accounts receivable, inventory and equipment. Commercial loans are
typically made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business, which
makes them of higher risk than residential loans and the collateral securing loans may be difficult to appraise and may fluctuate in
value based on the success of the business. The Company seeks to minimize these risks through its underwriting standards.
Consumer.
Consumer loans are extended for various purposes, including purchases of automobiles, recreational vehicles, and boats. Also
offered are home improvement loans, lines of credit, personal loans, and deposit account collateralized loans. Repayment of these loans
is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas such
as unemployment levels. Loans to consumers are extended after a credit evaluation, including the creditworthiness of the borrower(s),
the purpose of the credit, and the secondary source of repayment. Consumer loans are made at fixed and variable interest rates. Risk
is mitigated by the fact that the loans are of smaller individual amounts.
(continued)
OPTIMUMBANK
HOLDINGS, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements (Unaudited)
(3)
Loans, Continued. The following summarizes the loan credit quality (in thousands):
Schedule
of Loans by Credit Quality
| |
| | |
| | |
| | |
| | |
| | |
| |
| |
| | |
OLEM | | |
| | |
| | |
| | |
| |
| |
| | |
(Other Loans Especially | | |
Sub- | | |
| | |
| | |
| |
| |
Pass | | |
Mentioned) | | |
Standard | | |
Doubtful | | |
Loss | | |
Total | |
| |
| | |
| | |
| | |
| | |
| | |
| |
At March 31, 2023: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Residential real estate | |
$ | 52,087 | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | 52,087 | |
Multi-family real estate | |
| 68,126 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 68,126 | |
Commercial real estate | |
| 318,216 | | |
| — | | |
| 1,230 | | |
| — | | |
| — | | |
| 319,446 | |
Land and construction | |
| 19,629 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 19,629 | |
Commercial | |
| 3,720 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 3,720 | |
Consumer | |
| 39,527 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 39,527 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Total | |
$ | 501,305 | | |
$ | — | | |
$ | 1,230 | | |
$ | — | | |
$ | — | | |
$ | 502,535 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
At December 31, 2022: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Residential real estate | |
$ | 50,354 | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | 50,354 | |
Multi-family real estate | |
| 69,555 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 69,555 | |
Commercial real estate | |
| 309,458 | | |
| — | | |
| 1,237 | | |
| — | | |
| — | | |
| 310,695 | |
Land and construction | |
| 17,286 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 17,286 | |
Commercial | |
| 5,165 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 5,165 | |
Consumer | |
| 30,323 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 30,323 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Total | |
$ | 482,141 | | |
$ | — | | |
$ | 1,237 | | |
$ | — | | |
$ | — | | |
$ | 483,378 | |
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)
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):
Schedule
of Age Analysis of Past-due Loans
| |
| | |
| | |
| |
| |
Accruing Loans | | |
| | |
| |
| |
| | |
| | |
Greater | | |
| | |
| | |
| | |
| |
| |
30-59 Days | | |
60-89 Days | | |
Than 90 Days | | |
Total | | |
| | |
| | |
| |
| |
Past | | |
Past | | |
Past | | |
Past | | |
| | |
Nonaccrual | | |
Total | |
| |
Due | | |
Due | | |
Due | | |
Due | | |
Current | | |
Loans | | |
Loans | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| |
At March 31, 2023: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Residential real estate | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | 52,087 | | |
$ | — | | |
$ | 52,087 | |
Multi-family real estate | |
| — | | |
| — | | |
| — | | |
| — | | |
| 68,126 | | |
| — | | |
| 68,126 | |
Commercial real estate | |
| — | | |
| — | | |
| — | | |
| — | | |
| 319,446 | | |
| — | | |
| 319,446 | |
Land and construction | |
| — | | |
| — | | |
| — | | |
| — | | |
| 19,629 | | |
| — | | |
| 19,629 | |
Commercial | |
| — | | |
| — | | |
| — | | |
| — | | |
| 3,720 | | |
| — | | |
| 3,720 | |
Consumer | |
| 197 | | |
| 49 | | |
| — | | |
| 246 | | |
| 39,281 | | |
| — | | |
| 39,527 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Total | |
$ | 197 | | |
$ | 49 | | |
$ | — | | |
$ | 246 | | |
$ | 502,289 | | |
$ | — | | |
$ | 502,535 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
At December 31, 2022: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Residential real estate | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | 50,354 | | |
$ | — | | |
$ | 50,354 | |
Multi-family real estate | |
| — | | |
| — | | |
| — | | |
| — | | |
| 69,555 | | |
| — | | |
| 69,555 | |
Commercial real estate | |
| — | | |
| — | | |
| — | | |
| — | | |
| 310,695 | | |
| — | | |
| 310,695 | |
Land and construction | |
| — | | |
| — | | |
| — | | |
| — | | |
| 17,286 | | |
| — | | |
| 17,286 | |
Commercial | |
| — | | |
| — | | |
| — | | |
| — | | |
| 5,165 | | |
| — | | |
| 5,165 | |
Consumer | |
| 150 | | |
| 27 | | |
| — | | |
| 177 | | |
| 30,146 | | |
| — | | |
| 30,323 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Total | |
$ | 150 | | |
$ | 27 | | |
$ | — | | |
$ | 177 | | |
$ | 483,201 | | |
$ | — | | |
$ | 483,378 | |
(continued)
OPTIMUMBANK
HOLDINGS, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements (Unaudited)
(3)
Loans, Continued.
|
The
Company has not made any modifications of loans to borrowers experiencing financial difficulties during the three months ended March
31, 2023. |
|
No
loans have been determined to be troubled debt restructurings (TDR’s) during the three-month period ended March 31, 2022. At
March 31, 2023 and 2022, there were no loans modified and entered into as TDR’s within the past twelve months, that subsequently
defaulted during the three-month periods ended March 31, 2023 and 2022. |
The
Company’s loans to customers as of March 31, 2023, based on year of origination within each credit quality indicator are as follows
(in thousands):
Term
Loans
Amortized
Cost Basis by Origination Year
Schedule
of Amortized Cost Basis
Construction and land real estate | |
2023 | | |
2022 | | |
2021 | | |
2020 | | |
2019 | | |
Prior | | |
Revolving Loans (Amortized Cost Basis) | | |
Revolving Loans Converted to Term Loans (Amortized Cost Basis) | | |
Total | |
Pass | |
$ | 808 | | |
$ | 15,223 | | |
$ | 2,079 | | |
$ | 1,519 | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | 19,629 | |
OLEM (Other Loans Especially Mentioned) | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Substandard | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Doubtful | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Subtotal loans | |
$ | 808 | | |
$ | 15,223 | | |
$ | 2,079 | | |
$ | 1,519 | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | 19,629 | |
Current period Gross write-offs | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | |
Residential real estate | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Pass | |
$ | - | | |
$ | 26,695 | | |
$ | 9,908 | | |
$ | 6,841 | | |
$ | 4,122 | | |
$ | 3,634 | | |
$ | 887 | | |
$ | - | | |
$ | 52,087 | |
OLEM (Other Loans Especially Mentioned) | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Substandard | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Doubtful | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Subtotal loans | |
$ | - | | |
$ | 26,695 | | |
$ | 9,908 | | |
$ | 6,841 | | |
$ | 4,122 | | |
$ | 3,634 | | |
$ | 887 | | |
$ | - | | |
$ | 52,087 | |
Current period Gross write-offs | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | |
(continued)
OPTIMUMBANK
HOLDINGS, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements (Unaudited)
(3)
Loans, Continued.
Term
Loans
Amortized
Cost Basis by Origination Year
Multi-family real estate | |
2023 | | |
2022 | | |
2021 | | |
2020 | | |
2019 | | |
Prior | | |
Revolving Loans (Amortized Cost Basis) | | |
Revolving Loans Converted to Term Loans (Amortized Cost Basis) | | |
Total | |
Pass | |
$ | 1,000 | | |
$ | 27,736 | | |
$ | 29,762 | | |
$ | 6,233 | | |
$ | 2,103 | | |
$ | 1,292 | | |
$ | - | | |
$ | - | | |
$ | 68,126 | |
OLEM (Other Loans Especially Mentioned) | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Substandard | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Doubtful | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Subtotal loans | |
$ | 1,000 | | |
$ | 27,736 | | |
$ | 29,762 | | |
$ | 6,233 | | |
$ | 2,103 | | |
$ | 1,292 | | |
$ | - | | |
$ | - | | |
| 68,126 | |
Current period Gross write-offs | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | |
Commercial real estate (CRE) | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Pass | |
$ | 12,084 | | |
$ | 201,594 | | |
$ | 55,395 | | |
$ | 16,990 | | |
$ | 15,805 | | |
$ | 16,348 | | |
$ | - | | |
$ | - | | |
$ | 318,216 | |
OLEM (Other Loans Especially Mentioned) | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Substandard | |
| - | | |
| - | | |
| - | | |
| - | | |
| 1,230 | | |
| - | | |
| - | | |
| - | | |
| 1,230 | |
Doubtful | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Subtotal loans | |
$ | 12,084 | | |
$ | 201,594 | | |
$ | 55,395 | | |
$ | 16,990 | | |
$ | 17,035 | | |
$ | 16,348 | | |
$ | - | | |
$ | - | | |
$ | 319,446 | |
Current period Gross write-offs | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | |
Commercial business loans | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Pass | |
$ | 123 | | |
$ | 1,055 | | |
$ | 1,426 | | |
$ | 295 | | |
$ | 821 | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | 3,720 | |
OLEM (Other Loans Especially Mentioned) | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Substandard | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Doubtful | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Subtotal loans | |
$ | 123 | | |
$ | 1,055 | | |
$ | 1,426 | | |
$ | 295 | | |
$ | 821 | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | 3,720 | |
Current period Gross write-offs | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | (26 | ) | |
$ | - | | |
$ | - | | |
$ | (26 | ) |
Consumer | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Pass | |
$ | 5,508 | | |
$ | - | | |
$ | 4,006 | | |
$ | - | | |
$ | 22,499 | | |
$ | - | | |
$ | 12,813 | | |
$ | - | | |
$ | 39,527 | |
OLEM (Other Loans Especially Mentioned) | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Substandard | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Doubtful | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Subtotal loans | |
$ | 5,508 | | |
$ | - | | |
$ | 4,006 | | |
$ | - | | |
$ | 22,499 | | |
$ | - | | |
$ | 12,813 | | |
$ | - | | |
$ | 39,527 | |
Current period Gross write-offs | |
$ | - | | |
$ | (243 | ) | |
$ | (191 | ) | |
$ | (3 | ) | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | (437 | ) |
(continued)
OPTIMUMBANK
HOLDINGS, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements (Unaudited)
(3)
Loans, Continued.
(4)
Earnings Per Share. Basic earnings per share have been computed on the basis of the weighted-average number of shares of common
stock outstanding during the periods. During the three-month periods ended March 31, 2023 and 2022, basic and diluted earnings per share
is the same as there were no outstanding potentially dilutive securities. Earnings per common share have been computed based on the following:
Schedule of Basic and Diluted Loss Per Share
| |
2023 | | |
2022 | |
| |
Three Months Ended | |
| |
March 31, | |
| |
2023 | | |
2022 | |
Weighted-average number of common shares outstanding used to calculate basic and diluted earnings per common share | |
| 7,204,168 | | |
| 4,892,323 | |
(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 550,000
shares of common stock under the 2018 Plan, of which 39,320 shares remain available for grant. No stock options are outstanding at March
31, 2023.
During
the first quarter ended March 31, 2023, the Company issued 66,479 shares to a director for services performed and recorded compensation
expense of $274,000.
During
the first quarter ended March 31, 2023, the Company issued 52,622 shares to employees for services performed and recorded compensation
expense of $216,000.
(continued)
OPTIMUMBANK
HOLDINGS, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements (Unaudited)
(6)
Fair Value Measurements.
Debt
securities available for sale measured at fair value on a recurring basis are summarized below (in thousands):
Schedule of Debt Securities Available-for-sale Measured at Fair Value on Recurring Basis
| |
| | |
| | |
| | |
| |
| |
| | |
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, 2023: | |
| | | |
| | | |
| | | |
| | |
SBA Pool Securities | |
$ | 785 | | |
$ | — | | |
$ | 785 | | |
$ | — | |
Collateralized mortgage obligations | |
| 130 | | |
| — | | |
| 130 | | |
| — | |
Taxable municipal securities | |
| 12,169 | | |
| — | | |
| 12,169 | | |
| — | |
Mortgage-backed securities | |
| 12,470 | | |
| — | | |
| 12,470 | | |
| — | |
Total | |
$ | 25,554 | | |
$ | — | | |
$ | 25,554 | | |
$ | — | |
| |
| | | |
| | | |
| | | |
| | |
At December 31, 2022: | |
| | | |
| | | |
| | | |
| | |
SBA Pool Securities | |
$ | 817 | | |
$ | — | | |
$ | 817 | | |
$ | — | |
Collateralized mortgage obligations | |
| 130 | | |
| — | | |
| 130 | | |
| — | |
Taxable municipal securities | |
| 11,620 | | |
| — | | |
| 11,620 | | |
| — | |
Mortgage-backed securities | |
| 12,535 | | |
| — | | |
| 12,535 | | |
| — | |
Total | |
$ | 25,102 | | |
$ | — | | |
$ | 25,102 | | |
$ | — | |
(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):
Schedule of Estimated Fair Value of Financial Instruments
| |
At March 31, 2023 | | |
At December 31, 2022 | |
| |
Carrying Amount | | |
Fair Value | | |
Level | | |
Carrying Amount | | |
Fair Value | | |
Level | |
| |
| | |
| | |
| | |
| | |
| | |
| |
Financial assets: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Cash and cash equivalents | |
$ | 86,658 | | |
$ | 86,658 | | |
| 1 | | |
$ | 71,836 | | |
$ | 71,836 | | |
| 1 | |
Debt securities available for sale | |
| 25,554 | | |
| 25,554 | | |
| 2 | | |
| 25,102 | | |
| 25,102 | | |
| 2 | |
Debt securities held-to-maturity | |
| 498 | | |
| 468 | | |
| 2 | | |
| 540 | | |
| 504 | | |
| 2 | |
Loans | |
| 495,556 | | |
| 488,175 | | |
| 3 | | |
| 477,218 | | |
| 476,566 | | |
| 3 | |
Federal Home Loan Bank stock | |
| 1,354 | | |
| 1,354 | | |
| 3 | | |
| 600 | | |
| 600 | | |
| 3 | |
Accrued interest receivable | |
| 1,427 | | |
| 1,427 | | |
| 3 | | |
| 1,444 | | |
| 1,444 | | |
| 3 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Financial liabilities: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Deposit liabilities | |
| 527,387 | | |
| 531,928 | | |
| 3 | | |
| 507,899 | | |
| 512,357 | | |
| 3 | |
Federal Home Loan Bank advances | |
| 25,000 | | |
| 24,526 | | |
| 3 | | |
| 10,000 | | |
| 9,450 | | |
| 3 | |
Off-balance sheet financial instruments | |
| — | | |
| — | | |
| 3 | | |
| — | | |
| — | | |
| 3 | |
(continued)
OPTIMUMBANK
HOLDINGS, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements (Unaudited)
(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, 2023 follows
(in thousands):
Schedule of Off-Balance Sheet Risks of Financial Instruments
| |
| | |
Commitments to extend credit | |
$ | 25,600 | |
| |
| | |
Unused lines of credit | |
$ | 33,628 | |
| |
| | |
Standby letters of credit | |
$ | 4,313 | |
(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.
(continued)
OPTIMUMBANK
HOLDINGS, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements (Unaudited)
(9)
Regulatory Matters, Continued.
Management
believes, as of March 31, 2023 and December 31, 2022, that the Bank meets all capital adequacy requirements to which it is subject. The
Bank’s actual capital amounts and percentages are presented in the table ($ in thousands):
Schedule of Capital Amounts, Ratios and Regulatory Thresholds
| |
Actual | | |
To Be Well Capitalized Under Prompt Corrective Action Regulations (CBLR Framework) | |
| |
Amount | | |
% | | |
Amount | | |
% | |
As of March 31, 2023: | |
| | | |
| | | |
| | | |
| | |
Tier I Capital to Total Assets | |
$ | 67,652 | | |
| 11.24 | % | |
$ | 54,158 | | |
| 9.00 | % |
| |
| | | |
| | | |
| | | |
| | |
As of December 31, 2022: | |
| | | |
| | | |
| | | |
| | |
Tier I Capital to Total Assets | |
$ | 66,291 | | |
| 11.29 | % | |
$ | 52,865 | | |
| 9.00 | % |
(10)
Preferred Stock
During
the first quarter of 2022, the Company issued 260 shares of Series B Preferred Stock to an unrelated party at a cash
price of $25,000 per share, or an aggregate of $6,500,000.
(continued)
OPTIMUMBANK
HOLDINGS, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements (Unaudited)
(10)
Preferred Stock, Continued.
The
Preferred Stock has no
par value. Except in the event of liquidation, if the Company declares or pays a dividend or distribution on the common stock, the
Company shall simultaneously declare and pay a dividend on the Series B Preferred on a pro rata basis with the common stock
determined on an as-conve1ted basis assuming all shares of Series B Preferred Stock had been converted immediately prior to the
record date of the applicable dividend. As of March 31, 2023 the Series B Preferred Stock is convertible into 11,114,000
shares of common stock, at the option of the Company, subject to the prior fulfilment of the following conditions: (i) such
conversion shall have been approved by the holders of a majority of the outstanding common stock of the Company; and (ii) such
conversion shall not result in any holder of the Series B Preferred Stock and any persons with whom the holder may be acting in
concert, becoming beneficial owners of more than 9.9%
of the outstanding shares of the common stock. The number of shares issuable upon conversion is subject to adjustment based on the
terms of the applicable Certificate of Designation for the Series B Preferred (the “Certificate of Designation”). The
Series B Preferred has preferential liquidation rights over common stockholders. The liquidation price is the greater of
$25,000
per share of Series B Preferred or such amount per share of Series B Preferred that would have been payable had all shares of the
Series B Preferred had been converted into common stock pursuant to the terms of the Certificate of Designation immediately prior to
a liquidation. The Series B Preferred generally has no voting rights except as provided in the Certificate of
Designation.
(11)
Contingencies. Various claims 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 condensed consolidated financial statements.
(continued)
OPTIMUMBANK
HOLDINGS, INC. AND SUBSIDIARY