OptimumBank Holdings, Inc. — Form 10-Q Summary
Business context and reporting period
OptimumBank Holdings, Inc. is a one-bank holding company for OptimumBank, a Florida-chartered commercial bank operating three offices in Broward County, Florida. The filing covers the unaudited three and nine months ended September 30, 2013, with comparisons to the corresponding 2012 periods and December 31, 2012 balance-sheet data.
Key financial metrics
| Metric | Three months ended September 30, 2013 | Nine months ended September 30, 2013 |
|---|---|---|
| Interest income | $1.286 million | $3.854 million |
| Net interest income | $854,000 | $2.329 million |
| Net interest margin | 2.98% | 2.59% |
| Provision for loan losses | $0 | $2.194 million |
| Noninterest income | $6,000 | $82,000 |
| Noninterest expense | $1.176 million | $4.596 million |
| Net loss | $325,000 | $4.741 million |
| Loss per share | $0.05 | $0.60 |
| Net cash used in operating activities | Not presented for the quarter | $963,000 |
- Total assets were $127.8 million at September 30, 2013, down from $143.7 million at December 31, 2012.
- Loans, net of the allowance, were $82.1 million; gross loans were $84.6 million. The allowance for loan losses was $2.9 million, or 3.46% of gross loans, versus 2.81% at year-end 2012.
- Cash and cash equivalents were $9.2 million, down from $23.6 million at year-end. Securities available for sale were $23.7 million.
- Total deposits were $97.3 million, compared with $101.6 million at year-end. Federal Home Loan Bank advances were $20.2 million, compared with $27.7 million.
- Stockholders’ equity was only $2.1 million, or 1.67% of total assets, compared with $6.9 million and 4.81% at year-end.
- Nine-month cash flow included $11.2 million used in financing activities, principally $7.5 million of FHLB advance repayments and a $4.3 million decrease in deposits. Investing activities used $2.2 million.
- Foreclosed real estate declined to $7.8 million from $10.9 million, but the company recorded $724,000 of provisions for losses on real estate owned and $135,000 of losses on sales during the first nine months.
Material changes versus prior comparable periods
- Third-quarter net loss improved to $325,000 from $1.025 million, primarily because the loan-loss provision fell to zero from $197,000 and interest expense declined to $432,000 from $631,000.
- Nine-month net loss worsened to $4.741 million from $2.377 million. The primary drivers were the $2.194 million loan-loss provision versus $378,000 and higher foreclosed-real-estate expense of $989,000 versus $329,000.
- Nine-month net interest income increased to $2.329 million from $1.897 million despite essentially flat interest income, reflecting a reduction in interest expense to $1.525 million from $1.984 million.
- Nine-month noninterest income declined to $82,000 from $198,000, while noninterest expense increased to $4.596 million from $3.890 million.
- Other-than-temporary impairment charges on securities increased to $362,000 for the nine months from $204,000; the third-quarter charge decreased to $9,000 from $101,000.
- Gross loans declined by $3.0 million to $84.6 million. Nonaccrual loans declined to $14.8 million from $17.1 million, while loans classified as substandard increased to $20.8 million from $20.0 million.
- The company completed a one-for-four reverse common-stock split effective May 31, 2013. Shares outstanding were 7,982,194 at September 30, 2013, versus 31,511,201 at December 31, 2012, before giving effect to the reverse split.
Outlook, regulatory matters, risks and unusual items
- No formal earnings or financial guidance is provided. Management states that quarterly results are not necessarily indicative of full-year results.
- The Bank remained subject to a 2010 FDIC/OFR Consent Order and did not meet its required 8.00% Tier 1 leverage ratio and 12.00% total risk-based capital ratio at September 30, 2013. Reported ratios were 5.87% and 8.62%, respectively. Management also had not obtained an acceptable plan to reduce the Bank’s commercial real estate concentration.
- The Bank was categorized as “adequately capitalized” under applicable rules while the Consent Order remained in effect, despite failing the Consent Order’s higher capital requirements. Management intended to seek additional investor capital, but stated there was no assurance that sufficient capital would be raised.
- The company remained subject to a Federal Reserve Written Agreement restricting dividends, debt, stock repurchases, distributions on subordinated obligations, and certain management appointments without prior approval.
- The company had $20.2 million of FHLB borrowings against $31.7 million of established borrowing capacity, a $1.9 million Federal Reserve discount-window line, and a new $2.5 million SunTrust facility. Management believed liquidity sources were adequate, but deposit-rate and brokered-deposit restrictions could affect funding.
- Interest payments on the junior subordinated debenture had been deferred since March 2010; accrued and unpaid interest was $599,000 at September 30, 2013.
- The loan portfolio remained concentrated in real estate, including $37.5 million of commercial real estate loans. South Florida real-estate weakness, nonperforming loans, foreclosed property values, collateral values and future charge-offs were identified as significant risks.
- Commitments to extend credit totaled $1.2 million at September 30, 2013. No troubled debt restructurings were identified during the nine-month periods ended September 30, 2013 or 2012.
- Management concluded that disclosure controls and procedures were effective and reported no material changes in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether the company can raise sufficient capital to satisfy the Consent Order’s capital requirements and support continued operations.
- The status of the commercial real estate concentration-reduction plan and any further FDIC, OFR or Federal Reserve actions.
- Trends in nonaccrual, substandard and impaired loans, collateral values, charge-offs and the adequacy of the $2.9 million allowance.
- Deposit stability, remaining borrowing capacity, collateral requirements and the sustainability of the $9.2 million cash balance.
- The effect of continued losses and deferred subordinated-debt interest on parent-company liquidity, regulatory compliance and future financing needs.