Business Context and Reporting Period
OptimumBank Holdings, Inc. is a Florida one-bank holding company owning 100% of OptimumBank, a community bank serving individual and corporate customers through two Broward County, Florida offices. This unaudited Form 10-Q covers the three and six months ended June 30, 2022, with comparisons to June 30, 2021 and December 31, 2021. Dollar amounts are in thousands except per-share data.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2022 | Comparable Period |
|---|---|---|---|
| Total interest income | $4,025 | $7,488 | $2,290 and $4,255 |
| Net interest income | $3,753 | $6,980 | $2,056 and $3,742 |
| Provision for loan losses | $991 | $1,383 | $397 and $373 |
| Noninterest income | $764 | $1,414 | $302 and $478 |
| Noninterest expense | $2,260 | $4,600 | $1,517 and $3,055 |
| Net earnings | $945 | $1,800 | $444 and $792 |
| Basic and diluted EPS | $0.16 | $0.33 | $0.14 and $0.24 |
- Net earnings increased 113% in the second quarter and 127% for the six-month period versus the prior-year periods.
- Reported net interest margin was 4.04% for the quarter and 3.76% for the six months, compared with 3.35% and 3.24%, respectively, in 2021. The interest-rate spread was 3.77% for the quarter and 3.54% for the six months.
- Total assets increased to $466.6 million from $351.9 million at year-end 2021. Net loans rose to $348.9 million from $247.9 million, led by commercial real estate growth.
- Total deposits increased to $341.8 million from $292.5 million. Cash and cash equivalents increased to $77.3 million from $59.0 million.
- Federal Home Loan Bank advances increased to $68.0 million from $18.0 million, and the company had $5.0 million of repurchase agreements at June 30, 2022.
- Stockholders’ equity was $48.0 million, or 10.3% of total assets, compared with $38.5 million, or 11.0%, at year-end. The Bank reported a Tier 1 capital-to-total-assets ratio of 12.85%, above the 9.00% “well capitalized” threshold under the CBLR framework.
- Operating cash flow was $4.5 million, while investing activities used $102.5 million, primarily from a $102.1 million net increase in loans. Financing activities provided $116.4 million, producing an $18.3 million increase in cash.
Material Changes Versus Prior Comparable Period
- Interest income increased 76% for both the quarter and six months, primarily from loan growth and higher yields. Average loans increased to $297.5 million for the quarter and $281.0 million for the six months, compared with $182.1 million and $172.6 million, respectively, in 2021.
- Net interest income increased 83% in the quarter and 87% for the six months. Interest expense increased 16% in the quarter but decreased 1% for the six-month period.
- The provision for loan losses increased to $991 thousand in the quarter and $1.4 million for the six months, compared with a $397 thousand provision in the prior-year quarter and $373 thousand for the prior-year six months. Management attributed the increase primarily to loan portfolio growth and other portfolio factors.
- Noninterest income increased 153% in the quarter and 196% for the six months, primarily from higher wire transfer and ACH fees and growth in business checking accounts.
- Noninterest expense increased 49% in the quarter and 51% for the six months, primarily due to higher salaries and employee benefits, data processing, and other expenses.
- The allowance for loan losses increased to $4.2 million, although it declined to 1.20% of loans from 1.22% at December 31, 2021. The filing reports no impaired loans, no nonaccrual loans, and no troubled debt restructurings at June 30, 2022.
- Accumulated other comprehensive loss increased to $5.0 million from $635 thousand, primarily from unrealized losses on available-for-sale debt securities. The securities portfolio had $6.7 million of gross unrealized losses at June 30, 2022, which management attributed to market conditions rather than credit deterioration.
- During the first quarter, the company issued 1,227,331 common shares for $5.5 million and 260 Series B-2 preferred shares for $6.5 million. The preferred-stock proceeds were contributed to the Bank to strengthen regulatory capital.
Outlook, Risks, Contingencies, and Unusual Items
- The filing provides no formal quantitative earnings or revenue guidance. Management states that liquidity sources are adequate for operating needs and that the Bank was well capitalized at June 30, 2022.
- Liquidity depends primarily on customer deposits, supplemented by FHLB advances, correspondent-bank federal funds lines, loan repayments, securities repayments, and other funding sources. The company had $93.0 million of established FHLB borrowing capacity, of which $68.0 million was outstanding, plus $19.5 million of correspondent-bank lines subject to approval.
- Off-balance-sheet exposures included $16.4 million of commitments to extend credit, $18.0 million of unused credit lines, and $4.1 million of standby letters of credit.
- Key risks identified by management include adverse economic, political, and market conditions; credit losses from lending activities; interest-rate and securities-market changes; competition; regulatory changes; technology changes; loss of key personnel; and potential securities-law liabilities.
- The company expects adoption of ASU 2016-13, the current expected credit loss standard, to have no material effect on its financial statements, although implementation remains dependent on estimates, historical data, current conditions, and forecasts.
- Management reported no material contingencies and no subsequent events requiring disclosure through August 8, 2022. Disclosure controls and procedures were reported effective, with no material changes to internal control over financial reporting.
Important Facts for Investors to Verify
- Whether rapid loan growth, particularly in commercial real estate, remains consistent with underwriting standards and available credit-loss reserves.
- Whether the $6.7 million of unrealized securities losses remain market-related and recoverable without forced sales, especially as interest rates change.
- The effect of increased FHLB borrowings and repurchase agreements on funding costs, liquidity, and net interest margin.
- The sustainability of higher wire-transfer and ACH fee income and the elevated noninterest expense base.
- The future dilution, conversion terms, and economic rights associated with the Series B preferred stock and the increased common-share count.
- The eventual effect of CECL adoption on the allowance for loan losses and regulatory capital.