OptimumBank Holdings, Inc. — Form 10-Q Summary
Reporting period: Quarterly and six-month periods ended June 30, 2021; comparative periods ended June 30, 2020. The company is a one-bank holding company operating OptimumBank, a Florida-chartered community bank with two Broward County offices. Financial statements are unaudited and amounts are generally in thousands, except per-share data.
Financial position and key metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total interest income | $2,290 | $1,626 | $4,255 | $3,129 |
| Net interest income | $2,056 | $1,150 | $3,742 | $2,146 |
| Provision for loan losses | $397 | $523 | $373 | $712 |
| Noninterest income | $302 | $33 | $478 | $106 |
| Noninterest expense | $1,517 | $1,007 | $3,055 | $2,195 |
| Net earnings (loss) | $444 | $(347) | $792 | $(655) |
| Basic and diluted EPS | $0.14 | $(0.12) | $0.24 | $(0.23) |
- Total assets increased to $294.1 million at June 30, 2021 from $235.1 million at December 31, 2020. Net loans increased to $190.8 million from $152.5 million, while total deposits increased to $244.0 million from $190.8 million.
- Cash and cash equivalents increased to $74.1 million from $54.6 million. Six-month operating cash flow was $1.5 million, compared with cash used in operations of $0.6 million in the prior-year period. Investing activities used $40.4 million, primarily for loan growth, and financing activities provided $58.4 million, primarily from deposit growth and preferred-stock issuance.
- Net interest margin was 3.35% in Q2 2021 versus 3.07% in Q2 2020, and 3.24% for the first six months versus 3.08% in the prior-year period. The Q2 interest-rate spread increased to 3.14% from 2.87%.
- Equity was $29.2 million, or 9.9% of total assets, compared with $17.8 million, or 7.6%, at year-end 2020. Annualized six-month return on average assets was 0.6% and return on average equity was 7.9%.
- At June 30, 2021, FHLB advances were $18.0 million, down from $23.0 million at year-end. The company reported $63 million of established FHLB borrowing capacity, a $430,000 Federal Reserve discount-window line, and $9.5 million of correspondent-bank federal-funds lines.
- The allowance for loan losses was $2.2 million, or 1.15% of loans, compared with $1.9 million, or 1.23%, at December 31, 2020. Gross loans included approximately $32 million of outstanding PPP loans, which are 100% SBA-guaranteed.
- The Bank reported a community bank leverage ratio of 11.3%, above the 8.5% well-capitalized threshold applicable at June 30, 2021.
Material changes versus comparable periods
- Q2 net earnings improved by $791,000 from a $347,000 loss, while six-month earnings improved by $1.447 million from a $655,000 loss.
- Net interest income increased 79% in Q2 and 74% for the six-month period, driven primarily by loan growth and lower interest-bearing deposit costs.
- Noninterest income increased substantially, principally from higher wire-transfer and ACH fees associated with growth in business checking accounts. Management reported approximately $27.5 million of business-checking growth in Q2 and $46.5 million for the six-month period.
- Noninterest expense increased 51% in Q2 and 39% for the six-month period, primarily due to higher salaries and benefits, professional fees, data processing, and other expenses.
- During the first half of 2021, the company issued $9.0 million of Series B preferred stock and $1.176 million of common stock. The preferred-stock proceeds were contributed to the Bank to strengthen regulatory capital.
- During Q2, the company issued 282,377 common shares in exchange for 840 trust preferred securities, eliminating $840,000 of related principal and approximately $7,000 of accrued interest.
Outlook, risks, contingencies, and unusual items
- The filing provides no formal earnings, revenue, margin, or balance-sheet guidance. Management states that period results are not necessarily indicative of full-year results.
- COVID-19 remains a risk to economic conditions, loan quality, regulatory capital, liquidity, and financial-market stability. Forward-looking risks include credit losses, adverse economic or market conditions, competition, regulatory changes, technology changes, key-person risk, and potential securities-law liabilities.
- The company had previously been in default on interest payments under its junior subordinated debenture. It paid approximately $1.1 million of accrued interest through September 2020. The remaining $1.228 million principal was exchanged for 407,195 common shares in July 2021, after the reporting date; the company stated that it had acquired all trust preferred securities and was pursuing termination of the related trust.
- On July 16, 2021, the company closed its Plantation, Florida banking office.
- Off-balance-sheet commitments at June 30, 2021 included $13.4 million of commitments to extend credit, $9.3 million of unused lines of credit, and $4.6 million of standby letters of credit.
- Accumulated other comprehensive loss was $587,000, primarily reflecting unrealized losses on available-for-sale debt securities. Management attributed the losses to market conditions rather than credit deterioration and did not consider the securities other-than-temporarily impaired.
- The company determined that its deferred tax asset was not realizable and maintained a valuation allowance; no income-tax expense was reported for the presented periods.
- Management reported no material legal proceedings, no impaired loans at June 30, 2021, and no material contingencies. Disclosure controls and procedures were reported effective.
Investor verification checklist
- Verify the sustainability of loan and deposit growth, including the concentration and expected runoff of PPP loans.
- Review credit quality trends, allowance coverage, criticized loans, past-due loans, and the effect of COVID-19 or changing real-estate conditions.
- Confirm the Bank’s capital ratios, FHLB borrowing availability, collateral requirements, and overall liquidity under stressed conditions.
- Assess whether lower funding costs and the reported net interest margin can persist as rates and deposit competition change.
- Evaluate the dilution and preferential rights associated with Series B preferred stock and the common-stock exchanges for trust preferred securities.
- Confirm the accounting and post-period effects of the July 2021 office closure and retirement of the remaining junior subordinated debenture.