OptimumBank Holdings, Inc. — FY2022 Form 10-K Summary
Business context and reporting period
OptimumBank Holdings, Inc. is a Florida bank holding company whose sole operating subsidiary is OptimumBank, a Florida-chartered, FDIC-insured community bank. The Bank serves individuals and businesses primarily through two Broward County offices and focuses on commercial, commercial real estate, residential real estate, multifamily, construction and consumer lending.
The filing covers the fiscal year ended December 31, 2022, with comparisons to December 31, 2021. It is an annual report rather than a standalone fourth-quarter filing.
Key financial metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Total assets | $585.2 million | $351.9 million | +$233.3 million |
| Total loans | $483.4 million | $251.4 million | +$232.0 million |
| Net loans | $477.2 million | $247.9 million | +$229.3 million |
| Total deposits | $507.9 million | $292.5 million | +$215.4 million |
| Stockholders’ equity | $62.6 million | $38.5 million | +$24.1 million |
| Net interest income | $15.8 million | $9.4 million | +68% |
| Net earnings | $4.0 million | $6.3 million | -36% |
| Basic and diluted EPS | $0.68 | $1.61 | Decrease |
| Net interest margin | 3.53% | 3.60% | Down 7 basis points |
| Interest-rate spread | 2.96% | 3.30% | Down 34 basis points |
| Net cash from operating activities | $10.4 million | $3.8 million | +$6.6 million |
| Net cash used in investing activities | $(229.8) million | $(108.8) million | Greater loan funding |
| Net cash from financing activities | $232.3 million | $109.3 million | +$123.0 million |
Interest income increased 91% to $19.9 million, primarily from higher loan volumes. Interest expense increased 311% to $4.0 million as deposit and borrowing costs rose. Provision for loan losses increased to $3.5 million from $1.2 million. Noninterest income was $3.0 million, while noninterest expense increased 43% to $9.9 million, primarily from higher salaries, employee growth, data processing and regulatory costs.
The allowance for loan losses was $5.8 million, or 1.20% of total loans, compared with $3.1 million, or 1.22%, in 2021. The filing reports no impaired or nonaccrual loans at December 31, 2022. Approximately 93% of the loan portfolio was secured by real estate, and approximately 64% consisted of commercial real estate loans.
Material changes versus the prior comparable period
- Loans grew 92% year over year, led by a $181.2 million increase in commercial real estate loans. Commercial real estate represented 64% of total loans at year-end.
- Deposits increased 74%, principally from a $226.7 million increase in time deposits and a $35.1 million increase in noninterest-bearing demand deposits, partly offset by a $46.4 million decline in savings, NOW and money-market deposits.
- Time deposits increased to $240.0 million from $13.2 million. Management attributed much of the increase to online deposit platforms and competitive branch offerings. Approximately $47.3 million consisted of deposits of $250,000 or more.
- The Bank reduced Federal Home Loan Bank advances to $10.0 million from $18.0 million.
- The Company raised $15.0 million through Series B preferred stock and approximately $9.9 million through common stock issuances, using capital contributions to support the Bank’s regulatory capital and growth.
- Accumulated other comprehensive loss increased to $5.8 million from $0.6 million, primarily because of unrealized losses on available-for-sale securities as interest rates rose.
- Net earnings declined despite higher net interest income, reflecting increased credit-loss provision, operating expenses and the absence of the $4.0 million deferred-tax valuation allowance reversal recorded in 2021.
Debt, liquidity and capital
- FHLB advances totaled $10.0 million at December 31, 2022, with $125.7 million of remaining FHLB credit availability. The Bank also had $19.5 million of unused correspondent-bank lines of credit.
- Cash and cash equivalents were $71.8 million, up from $59.0 million.
- Contractual off-balance-sheet exposures included $15.4 million of commitments to extend credit, $17.4 million of unused lines of credit and $4.3 million of standby letters of credit.
- The Bank reported a Tier 1 leverage ratio of 11.29%, above the 9.00% community bank leverage ratio requirement for well-capitalized status. Management stated that the Company and Bank met applicable capital requirements.
- The Company does not plan to pay dividends in the foreseeable future and intends to retain earnings to strengthen its financial position and support Bank growth.
Outlook, management commentary, risks and unusual items
- Management plans to continue increasing and diversifying loan originations, expand commercial and consumer lending, seek additional capital and open a North Miami Beach branch in the third quarter of 2023.
- The Bank planned to offer Small Business Administration government loans to small and middle-market businesses in 2023.
- Key risks include South Florida real estate concentration, economic deterioration, higher interest rates, deposit pricing and liquidity pressure, increased credit losses, competition, inflation, regulatory changes and difficulties attracting and retaining employees.
- The Bank’s securities portfolio had approximately $7.8 million of gross unrealized losses on available-for-sale securities at year-end. Management attributed the losses to market conditions rather than credit deterioration and stated it had the intent and ability to hold the securities until recovery or maturity.
- The Bank adopted the CECL credit-loss standard on January 1, 2023, recording a $241,000 decrease to retained earnings. Future reported credit-loss provisions may therefore differ from the incurred-loss methodology used in 2022.
- The independent auditor issued an unqualified opinion on the consolidated financial statements. The filing identifies the qualitative adjustments to the allowance for loan losses as a critical audit matter.
- Management reported effective disclosure controls and internal control over financial reporting; the auditor was not required to provide an internal-control attestation because the Company is a smaller reporting company.
- Management stated that pending litigation and other claims arising in the ordinary course were not expected to have a material adverse effect.
Important facts for investors to verify
- Assess whether the rapid growth in commercial real estate loans and reliance on South Florida collateral remain supportable under adverse property, employment and interest-rate scenarios.
- Review the maturity and repricing profile of deposits, particularly the $223.8 million of time deposits scheduled to mature in 2023 and the increase in higher-cost deposit funding.
- Evaluate the effect of CECL adoption, including the $241,000 opening retained-earnings adjustment, on 2023 reserves, earnings and capital.
- Reconcile the filing’s provision-for-loan-losses discussion: the financial statements report $3.466 million, while one MD&A narrative reference states $3.446 million.
- Monitor unrealized securities losses, tangible liquidity sources, FHLB borrowing capacity and the potential effect of additional rate increases on capital and net interest margin.
- Review the terms, conversion features and potential dilution of the Series B preferred stock, which the filing states is convertible into up to 11.114 million common shares subject to stated conditions.