OptimumBank Holdings, Inc. — 2022 Q1 Form 10-Q Summary
Business context and reporting period
OptimumBank Holdings, Inc. is a one-bank holding company that owns 100% of OptimumBank, a Florida-chartered community bank serving individual and corporate customers through two Broward County, Florida offices. The filing covers the unaudited three months ended March 31, 2022, compared with the three months ended March 31, 2021, and balance-sheet data as of March 31, 2022, compared with December 31, 2021.
Key financial metrics
| Metric | Q1 2022 | Comparable period or prior date |
|---|---|---|
| Total assets | $387.2 million | $351.9 million at December 31, 2021 |
| Total loans, gross | $277.5 million | $251.4 million at December 31, 2021 |
| Total deposits | $317.3 million | $292.5 million at December 31, 2021 |
| Cash and cash equivalents | $72.2 million | $59.0 million at December 31, 2021 |
| FHLB advances | $18.0 million | $18.0 million at December 31, 2021 |
| Stockholders’ equity | $49.3 million | $38.5 million at December 31, 2021 |
| Total interest income | $3.463 million | $1.965 million in Q1 2021 |
| Net interest income | $3.227 million | $1.686 million in Q1 2021 |
| Net interest margin | 3.49% | 3.12% in Q1 2021 |
| Provision for loan losses | $392,000 | $24,000 credit in Q1 2021 |
| Noninterest income | $650,000 | $176,000 in Q1 2021 |
| Noninterest expense | $2.340 million | $1.538 million in Q1 2021 |
| Net earnings | $855,000 | $348,000 in Q1 2021 |
| Basic and diluted EPS | $0.17 | $0.11 in Q1 2021 |
| Operating cash flow | $1.646 million | $250,000 in Q1 2021 |
Loans, net of the allowance for loan losses, were $273.7 million at March 31, 2022. The allowance was $3.4 million, or 1.23% of gross loans, compared with $3.1 million, or 1.22%, at December 31, 2021. No impaired or nonaccrual loans were reported; accruing past-due loans totaled $180,000.
The Bank reported a Tier 1 capital-to-total-assets ratio of 12.53% at March 31, 2022, above the 9.00% threshold for well-capitalized status under the applicable CBLR framework. Management stated that the Bank met all applicable capital requirements.
Material changes versus prior comparable periods
- Net earnings increased 146% to $855,000, driven primarily by higher net interest income and noninterest income.
- Total interest income increased 76% to $3.463 million, primarily reflecting loan growth. Average loans increased to $264.4 million from $163.1 million, and the average loan yield increased to 4.94% from 4.53%.
- Net interest income increased 91% to $3.227 million. Interest expense declined 15% to $236,000 as interest-bearing deposit rates and the deposit mix changed.
- Net interest margin increased to 3.49% from 3.12%; the interest-rate spread increased to 3.30% from 2.93%.
- Noninterest income increased to $650,000, primarily due to higher wire-transfer and ACH fees.
- Noninterest expense increased 52% to $2.340 million, primarily due to higher salaries and employee benefits and data-processing costs.
- The loan-loss provision changed from a $24,000 credit in Q1 2021 to a $392,000 provision in Q1 2022, which management attributed primarily to loan-volume growth.
- Total assets increased approximately $35.3 million, deposits increased approximately $24.9 million, and loans increased approximately $26.1 million from December 31, 2021.
- Stockholders’ equity increased approximately $10.8 million, primarily from $6.5 million of preferred-stock proceeds, $5.5 million of common-stock proceeds, and quarterly earnings, partly offset by a $2.1 million increase in accumulated other comprehensive loss.
Cash flow, liquidity, debt, and capital
Cash and cash equivalents increased $13.2 million during the quarter to $72.2 million. Operating activities provided $1.6 million, investing activities used $25.3 million, principally because of a $26.1 million net increase in loans, and financing activities provided $36.9 million.
Deposits are the primary funding source. At March 31, 2022, the Company had $18.0 million of FHLB borrowings against $87.0 million of established FHLB borrowing capacity, a $430,000 Federal Reserve discount-window line, and $19.5 million of available correspondent-bank federal-funds lines. Management stated that liquidity sources were adequate for operating needs.
Off-balance-sheet commitments included $28.6 million of commitments to extend credit, $15.0 million of unused lines of credit, and $3.0 million of standby letters of credit. These arrangements expose the Bank to potential credit and interest-rate risk, although actual funding requirements may be lower because some commitments may expire undrawn.
Guidance, outlook, risks, contingencies, and unusual items
- The filing provides no quantitative earnings, revenue, margin, or balance-sheet guidance. Management cautioned that first-quarter results are not necessarily indicative of full-year results.
- Management identified risks including adverse economic, political, and market conditions; lending losses; changes in interest rates and market conditions; loss of key personnel; competition; regulatory changes; potential securities-law liabilities; and technology changes in banking.
- Available-for-sale debt securities had $3.597 million of gross unrealized losses at March 31, 2022, compared with $862,000 at December 31, 2021. Management attributed the losses to market conditions rather than credit quality and stated that it had the intent and ability to hold the securities until recovery or maturity.
- The Company issued 1,227,331 common shares in a private placement at $4.50 per share, generating $5.523 million. Two directors purchased portions of the offering.
- The Company issued 260 Series B-2 preferred shares for $6.5 million and used the proceeds to make capital contributions to the Bank. The preferred shares have preferential liquidation rights and an initial conversion price of $4.00 per share.
- The Bank had originated 502 PPP loans totaling $37.4 million through March 31, 2022; $8.4 million of PPP principal remained outstanding and was 100% guaranteed by the SBA.
- The Company is preparing for adoption of the current expected credit losses standard, ASU 2016-13, effective for the Company’s fiscal years and interim periods beginning after December 15, 2022. The filing does not provide a quantified expected effect.
- Management reported no material litigation or contingencies and no subsequent events requiring disclosure through May 11, 2022.
- Management concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter.
Important facts for investors to verify
- Verify the sustainability of loan and deposit growth, particularly the concentration in commercial real estate loans, which totaled $146.2 million at March 31, 2022.
- Monitor credit quality, the allowance methodology, and the effect of the upcoming expected-credit-loss accounting standard.
- Assess the potential effect of rising interest rates on securities’ unrealized losses, funding costs, net interest margin, and liquidity.
- Review the terms, conversion features, liquidation preferences, and potential dilution associated with Series B preferred stock and the first-quarter common-stock issuance.
- Confirm the Bank’s regulatory capital ratios, borrowing availability, collateral requirements, and reliance on deposit growth to fund loan expansion.
- Evaluate whether higher wire-transfer and ACH fees and the lower interest-expense environment are recurring or period-specific contributors to earnings.