OptimumBank Holdings, Inc. — Form 10-K Summary
Business context and reporting period
The filing is the annual report for the fiscal year ended December 31, 2012, rather than a standalone fourth-quarter filing. OptimumBank Holdings is a Florida one-bank holding company whose subsidiary, OptimumBank, operates three community banking offices in Broward County and serves customers in the South Florida tri-county market. The Bank primarily originates residential and commercial real estate, commercial and consumer loans and holds mortgage-backed securities.
Key financial metrics
| Metric | 2012 | 2011 |
|---|---|---|
| Total assets | $143.7 million | $154.5 million |
| Net loans | $85.2 million | $89.2 million |
| Total deposits | $101.6 million | $107.9 million |
| Stockholders’ equity | $6.9 million | $6.8 million |
| Total interest income | $5.2 million | $6.4 million |
| Net interest income | $2.6 million | $3.0 million |
| Provision for loan losses | $1.7 million | Credit of $149,000 |
| Noninterest income | $258,000 | $379,000 |
| Noninterest expense | $5.5 million | $7.2 million |
| Net loss | $4.7 million | $3.7 million |
| Basic and diluted loss per share | $0.17 loss | $0.82 loss |
| Net interest margin | 1.9% | 1.8% |
| Return on average assets | (3.1%) | (2.1%) |
| Nonperforming loans and foreclosed assets as a percentage of assets | 19.5% | 23.0% |
Cash and cash equivalents were $23.6 million at year-end. Operating activities used $2.7 million of cash, investing activities provided $10.3 million, and financing activities used $6.8 million. Primary cash sources included $11.0 million of securities repayments and $3.6 million of common-stock proceeds. Cash was used for deposit reductions, repayment of $4.0 million of Federal Home Loan Bank advances and $2.3 million of loan funding.
Debt consisted primarily of $27.7 million of Federal Home Loan Bank advances and a $5.2 million junior subordinated debenture. The Company deferred interest payments on the debenture; deferred interest totaled $485,000 at December 31, 2012. The Bank had $31.7 million of available FHLB borrowing capacity, with $27.7 million outstanding.
Material changes versus the prior comparable period
- Total assets declined $10.8 million, or approximately 7%, as management continued to downsize the balance sheet to preserve capital.
- Net loans decreased $4.0 million, while total loans before the allowance declined from $91.5 million to $87.6 million. The portfolio remained heavily concentrated in real estate, representing 91.8% of total loans.
- Interest income decreased $1.3 million, primarily because of lower average loan and securities balances.
- Interest expense declined $846,000, mainly from lower deposit balances and rates.
- The provision for loan losses increased by $1.8 million, from a $149,000 credit to a $1.7 million expense. The allowance increased to $2.5 million, or 2.81% of total loans, from $2.3 million, or 2.57%.
- Noninterest expense declined $1.8 million, including lower foreclosed-real-estate expenses, professional fees and regulatory assessments.
- Impaired loans declined to $20.0 million from $31.9 million, and nonaccrual loans declined to $17.1 million from $27.8 million. However, impaired loans and foreclosed real estate still totaled approximately $31.0 million, or 21.5% of assets.
- The Company issued approximately 9.0 million common shares in 2012 and received approximately $3.7 million of proceeds. Total shares outstanding increased to 31.5 million from 22.4 million.
Guidance, outlook, risks and unusual items
- Management expected the Company to report losses through at least the end of 2013 and estimated that at least $4.6 million of additional capital would be needed to comply with regulatory requirements through the end of 2013.
- The Bank remained subject to a 2010 FDIC and Florida Office of Financial Regulation Consent Order, and the Company remained subject to a Federal Reserve Written Agreement. Requirements include minimum capital ratios, asset-quality improvements, limits on dividends and bonuses, restrictions on brokered deposits, regulatory approvals for certain management or corporate actions and enhanced reporting.
- At December 31, 2012, the Bank’s Tier 1 leverage ratio was 8.12%, exceeding the Consent Order’s 8.0% requirement. Its total risk-based capital ratio was 11.48%, below the required 12.0%; management estimated that approximately $600,000 of additional capital was needed to satisfy that requirement. The Bank was classified as adequately capitalized, not well capitalized, for regulatory purposes.
- In March 2013, the Company amended a proposed sale to Chairman Moishe Gubin to 7,333,333 shares at $0.30 per share, for approximately $2.2 million. The transaction required Federal Reserve, OFR and shareholder approval and could terminate if not completed by September 30, 2013. Pro forma capital ratios were estimated at 9.6% Tier 1 leverage and 13.3% total risk-based capital, assuming the proceeds had been contributed to the Bank at year-end.
- There was no assurance that the Gubin transaction or other capital raising would close. Management stated that additional capital would still be required even if the transaction were completed.
- NASDAQ notified the Company that it did not meet the $1.00 minimum bid-price requirement. The Company planned a four-for-one reverse stock split and could face delisting if it failed to regain compliance by June 17, 2013.
- The Company recorded $409,000 of other-than-temporary impairment on securities in 2012. Private-label mortgage-backed securities represented approximately $12.0 million of the $18.6 million securities portfolio at year-end.
- Credit risk remained concentrated in South Florida real estate. Future losses could result from additional declines in collateral values, impaired loans, foreclosed real estate or local economic conditions.
- The filing states that management’s disclosure controls and internal control over financial reporting were effective as of December 31, 2012. The independent auditor issued an unqualified opinion on the consolidated financial statements.
Most important facts for investors to verify
- Whether the Bank obtained sufficient capital to meet the 12.0% total risk-based capital requirement and whether the Consent Order and Written Agreement remain in effect.
- Whether the proposed Gubin share issuance received regulatory and shareholder approval and closed by the stated deadline.
- Whether the Company raised the additional capital management estimated was necessary to fund projected losses through 2013.
- Whether the planned reverse stock split restored NASDAQ minimum-bid compliance and prevented delisting.
- The adequacy of the $2.5 million loan-loss allowance relative to $20.0 million of impaired loans, $17.1 million of nonaccrual loans and $10.9 million of foreclosed real estate.
- The valuation and credit performance of the private-label mortgage-backed securities portfolio and other collateral-dependent assets.
- The maturity and refinancing risk associated with $27.7 million of FHLB advances, $5.2 million of junior subordinated debt and $37.8 million of time deposits maturing in 2013.