OptimumBank Holdings, Inc. — Form 10-Q Summary
Business Context and Reporting Period
OptimumBank Holdings, Inc. is a one-bank holding company whose principal subsidiary, OptimumBank, is a Florida-chartered community bank operating three offices in Broward County, Florida. The filing covers the unaudited three and nine months ended September 30, 2017, compared with the corresponding 2016 periods, and the balance sheet compared with December 31, 2016. The filing was signed November 13, 2017.
Key Financial Metrics
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Interest income | $1.133 million | $1.223 million | $3.439 million | $3.598 million |
| Net interest income | $825 thousand | $951 thousand | $2.537 million | $2.788 million |
| Noninterest income | $54 thousand | $31 thousand | $71 thousand | $125 thousand |
| Noninterest expense | $935 thousand | $965 thousand | $3.118 million | $3.263 million |
| Net earnings (loss) | $(56) thousand | $22 thousand | $(510) thousand | $(308) thousand |
| Basic and diluted EPS | $(0.05) | $0.02 | $(0.46) | $(0.30) |
| Net interest margin | 3.00% | 3.20% | 2.99% | 3.12% |
No provision for loan losses was recorded in either comparison period. Management stated that the allowance was significantly overfunded.
Balance Sheet, Liquidity, Debt and Capital
- Total assets were $108.5 million at September 30, 2017, down from $119.7 million at December 31, 2016, primarily reflecting lower deposits.
- Loans, net of the allowance, were $69.2 million, down from $77.0 million. Gross loans declined to $72.8 million from $80.5 million.
- Cash and cash equivalents were $18.5 million, compared with $17.6 million at year-end 2016. Securities available for sale declined to $16.2 million from $20.2 million.
- Total deposits declined to $77.4 million from $86.0 million, including a decrease in time deposits from $56.7 million to $46.9 million.
- Federal Home Loan Bank advances were $20.5 million, down from $23.5 million. The Company also had a $5.155 million junior subordinated debenture.
- Stockholders’ equity was $2.6 million, or 2.42% of total assets, compared with $3.1 million, or 2.6%, at December 31, 2016.
- At September 30, 2017, Bank Tier 1 leverage was 8.54%, Tier 1 risk-based capital was 13.12%, and total risk-based capital was 14.42%. The Bank met Consent Order requirements but, because of the Consent Order, could not be categorized above “adequately capitalized.”
Cash Flow and Material Changes
| Nine months ended September 30 | 2017 | 2016 |
|---|---|---|
| Cash provided by operating activities | $536 thousand | $337 thousand |
| Cash provided by investing activities | $11.676 million | $6.620 million |
| Cash used in financing activities | $(11.338) million | $(5.882) million |
| Net increase in cash | $874 thousand | $1.075 million |
| Ending cash and cash equivalents | $18.514 million | $11.440 million |
- Net interest income declined 9.0% for the nine-month period, driven by lower interest-earning assets and loan balances.
- Interest expense increased to $902 thousand from $810 thousand. In March 2017, the Bank extended $15.5 million of FHLB advances into longer-term fixed-rate borrowings, increasing the weighted-average rate from 0.49% to 1.19%.
- Noninterest expense declined 4.4% for the nine-month period, although professional fees and certain other expenses increased.
- Loan credit quality improved in several categories, but total loans classified as OLEM or substandard were $12.3 million at September 30, 2017, compared with $7.1 million at December 31, 2016. No loans were classified doubtful or loss, and all loans were reported as current and accruing.
Guidance, Outlook, Risks and Unusual Items
- The filing provides no formal earnings or revenue guidance. Management states that liquidity sources are adequate for operating needs and that it is pursuing strategies to address deposit runoff and brokered-deposit restrictions.
- The Bank remains subject to a November 2016 FDIC and Florida Office of Financial Regulation Consent Order requiring improvements in management, board oversight, loan-loss allowance practices, liquidity, and Bank Secrecy Act compliance. The order prohibits Bank dividends and requires minimum Tier 1 leverage of 8% and total risk-based capital of 12%.
- The Company is in default on the $5.155 million junior subordinated debenture after deferring the maximum twenty consecutive quarterly interest payments. Accrued unpaid interest was $1.314 million at September 30, 2017. The holder or trustee may accelerate the principal and accrued interest; the trustee had not done so as of the filing date.
- A Company director offered to purchase the debenture and enter into a forbearance agreement, but the transaction remained subject to unresolved trustee and debt-holder litigation in federal court. Management also continued to seek additional capital and other mechanisms to pay accrued interest.
- In March 2017, the FDIC determined that approximately $25.1 million of certificates of deposit were brokered deposits based on pricing. The Bank cannot renew or roll over deposits viewed as brokered under the Consent Order, creating a liquidity risk. These deposits were expected to mature over the following two years.
- The Bank accrued $210 thousand for a required BSA lookback review, with estimated total costs of $250 thousand to $300 thousand, subject to FDIC review and approval.
- The Company had $4.3 million of commitments to extend credit at September 30, 2017.
- Management reported effective disclosure controls and no material changes in internal control over financial reporting during the quarter.
Most Important Facts for Investors to Verify
- Whether the junior subordinated debenture purchase and proposed forbearance agreement were completed, and whether acceleration or litigation developments occurred.
- Current liquidity after the maturity of the $25.1 million of deposits identified as brokered and the availability of FHLB and other borrowing facilities.
- Continued compliance with the Consent Order, Written Agreement, and required capital ratios.
- Progress and final cost of the BSA lookback review and any additional regulatory remediation requirements.
- Trends in deposits, loan balances, classified loans, allowance coverage, and recurring profitability.
- Whether the reported $2.6 million of stockholders’ equity and low equity-to-assets ratio provide sufficient loss absorption capacity.