OptimumBank Holdings, Inc. — FY2023 Form 10-K Summary
Business context and reporting period
OptimumBank Holdings, Inc. is a Florida bank holding company whose sole business is ownership of OptimumBank, a Florida-chartered, FDIC-insured community bank. The Bank operates two Broward County offices and planned a North Miami Beach branch for the second quarter of 2024. The filing covers the fiscal year ended December 31, 2023, with comparisons to December 31, 2022. Common stock trades on Nasdaq Capital Market under OPHC.
Financial performance and condition
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Total assets | $791.3 million | $585.2 million | +$206.0 million |
| Net loans | $671.1 million | $477.2 million | +$193.9 million |
| Total deposits | $639.6 million | $507.9 million | +$131.7 million |
| Stockholders’ equity | $70.0 million | $62.6 million | +$7.4 million |
| Total interest income | $35.8 million | $19.9 million | +80% |
| Total interest expense | $12.1 million | $4.0 million | +198% |
| Net interest income | $23.7 million | $15.8 million | +50% |
| Net interest margin | 3.75% | 3.53% | +22 basis points |
| Credit loss expense | $4.0 million | $3.5 million | +17% |
| Noninterest income | $3.5 million | $3.0 million | +17% |
| Noninterest expense | $14.7 million | $9.9 million | +48% |
| Net earnings | $6.3 million | $4.0 million | +56% |
| Basic and diluted EPS | $0.87 | $0.68 | +28% |
| Net cash provided by operating activities | $6.9 million | $10.4 million | -$3.5 million |
Loan growth was concentrated in commercial real estate, which increased $112 million, commercial loans, which increased $37 million, residential real estate, which increased $21 million, and land and construction loans, which increased $15 million. Approximately 91% of the loan portfolio was secured by real estate and approximately 62% of total loans were commercial real estate loans.
The allowance for credit losses was $7.7 million, or 1.13% of total loans, compared with $5.8 million, or 1.20%, in 2022. Net charge-offs were approximately $2.1 million, primarily related to consumer lending. Nonperforming loans were approximately $1.0 million, or 0.15% of gross loans, compared with none reported at December 31, 2022.
Cash and cash equivalents totaled $76.7 million at year-end. The Bank had $62.0 million of FHLB advances outstanding against $178 million of established FHLB borrowing capacity, a $13.6 million Federal Reserve advance maturing in August 2024, and $29.5 million of available correspondent-bank lines. Management stated that liquidity sources were adequate for operating needs.
The Bank reported a 10.00% Tier 1 leverage ratio at December 31, 2023, above the 9.00% CBLR threshold for well-capitalized status. The filing states that the Bank met applicable capital adequacy requirements.
Material changes versus the prior comparable period
- Loan growth accelerated, with net loans increasing approximately 41% and total assets increasing approximately 35%.
- Deposits increased approximately 26%, driven principally by money-market deposits, noninterest-bearing demand deposits, and NOW deposits. Listing-service deposits represented 22% of total deposits, compared with 32% in 2022.
- Interest income rose substantially from higher earning-asset balances and yields, while deposit and borrowing costs increased sharply. The interest-rate spread declined to 2.58% from 2.96%, but net interest margin increased to 3.75% from 3.53%.
- Noninterest expense increased $4.7 million, reflecting growth-related salaries, employee benefits, data processing and operating costs, as well as a $375,000 one-time foreclosure-litigation settlement.
- Other comprehensive income improved to $511,000 from a $5.2 million loss, primarily because unrealized losses on available-for-sale securities declined.
- The Company adopted CECL effective January 1, 2023. Adoption resulted in a $218,000 allowance for credit losses, a $23,000 liability for unfunded commitments, a $60,000 deferred tax asset and a $181,000 reduction in retained earnings.
- The Company issued 72,221 common shares in a private placement for $324,000 and contributed $1.5 million to the Bank during 2023 to support regulatory capital.
Outlook, commentary, risks and unusual items
Management intends to continue growing earning assets and core deposits, expanding treasury-management fee income, improving operating efficiency through technology, and increasing lending in multifamily, non-owner-occupied commercial real estate and skilled-nursing sectors. The Bank began offering SBA 7(a) loans in the third quarter of 2023; those loans totaled $1.4 million at year-end.
Key risks include concentration in South Florida real estate, commercial real estate and land-and-construction lending; deterioration in local economic or property conditions; higher deposit and borrowing costs; interest-rate repricing risk; competitive pressure; regulatory changes; inflation; cybersecurity threats; and reliance on third-party technology providers. The Bank reported a significant one-year negative repricing gap of $309.8 million, indicating sensitivity to changes in deposit and funding costs.
The securities portfolio had approximately $7.1 million of unrealized losses on available-for-sale securities at December 31, 2023. Management stated that the securities continued to perform as scheduled, that no credit loss was identified, and that it did not intend or expect to be required to sell them before recovery.
The Company does not plan to pay dividends in the foreseeable future and expects to retain earnings to strengthen its financial position and support Bank growth. The Bank’s estimated dividend capacity to the holding company was $17 million, subject to regulatory and other restrictions.
The independent auditor issued an unqualified opinion on the consolidated financial statements. The allowance for credit losses was identified as a critical audit matter because of the significant estimates and judgment involved. Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2023; the auditor was not required to provide an internal-control attestation.
Important facts for investors to verify
- Whether rapid commercial real estate loan growth remains consistent with underwriting standards and South Florida collateral values.
- Trends in nonperforming loans, past-due consumer loans, charge-offs and the adequacy of the $7.7 million allowance for credit losses.
- Deposit retention and pricing, particularly the sustainability and cost of money-market and listing-service deposits.
- Refinancing or repayment plans for the $75.6 million of year-end FHLB and Federal Reserve advances, including the $13.6 million advance maturing in 2024.
- The effect of interest-rate changes on net interest margin, funding costs and the reported repricing gap.
- Execution and cost of the planned North Miami Beach branch, SBA lending expansion and technology investments.
- The potential dilution and regulatory implications of the Series B Preferred Stock, which was convertible into up to 11,113,889 common shares subject to specified conditions and approvals.
- Any future realization of unrealized securities losses, litigation exposure, cybersecurity incidents or changes in regulatory capital requirements.