Business Context and Reporting Period
OptimumBank Holdings, Inc. is a one-bank holding company that owns OptimumBank, a Florida-chartered community bank serving individual and corporate customers through two Broward County offices. This unaudited Form 10-Q covers the three and nine months ended September 30, 2021, with comparisons to the corresponding 2020 periods and December 31, 2020 balance-sheet data.
Financial Highlights
| Metric | Three Months Ended September 30, 2021 | Three Months Ended September 30, 2020 | Nine Months Ended September 30, 2021 | Nine Months Ended September 30, 2020 |
|---|---|---|---|---|
| Total interest income | $3.0 million | $1.8 million | $7.2 million | $4.9 million |
| Net interest income | $2.8 million | $1.4 million | $6.5 million | $3.5 million |
| Provision for loan losses | $0.6 million | $0.5 million | $1.0 million | $1.2 million |
| Noninterest income | $0.4 million | $0.1 million | $0.9 million | $0.2 million |
| Noninterest expenses | $1.7 million | $1.4 million | $4.7 million | $3.6 million |
| Net earnings (loss) | $0.9 million | $(0.5) million | $1.7 million | $(1.2) million |
| Basic and diluted earnings (loss) per share | $0.21 | $(0.17) | $0.47 | $(0.39) |
- Annualized net interest margin was 3.86% for the third quarter and 3.48% for the first nine months, compared with 3.26% and 3.15%, respectively, in the prior-year periods.
- Total assets increased to $335.1 million at September 30, 2021, from $235.1 million at December 31, 2020. Loans, net, increased to $205.9 million from $152.5 million.
- Total deposits increased to $281.7 million from $190.8 million, primarily supporting loan originations, securities purchases and repayment of FHLB advances.
- Cash and cash equivalents were $83.6 million, compared with $54.6 million at December 31, 2020. The filing reports $18.0 million of FHLB advances outstanding against $55.0 million of established FHLB borrowing capacity.
- Stockholders’ equity increased to $33.2 million from $17.8 million. The Bank reported a 10.96% Tier 1 capital-to-total-assets ratio at September 30, 2021, above the 8.5% well-capitalized CBLR threshold.
- The allowance for loan losses was $2.7 million, or 1.29% of loans, compared with $1.9 million, or 1.23%, at year-end 2020.
Cash Flow, Liquidity and Debt
- For the nine months ended September 30, 2021, operating activities used $25,000 of cash, investing activities used $68.8 million, and financing activities provided $97.8 million.
- Investing uses were primarily a $53.6 million net increase in loans and $19.5 million of purchases of available-for-sale debt securities.
- Financing sources included a $91.0 million increase in deposits, $9.0 million of preferred-stock proceeds and $2.8 million of common-stock proceeds. FHLB advances decreased by $5.0 million.
- Management stated that liquidity sources were adequate for operating needs. Additional sources included a $430,000 Federal Reserve discount-window line and $9.5 million of correspondent-bank federal-funds lines, subject to collateral, approval and other conditions.
- The junior subordinated debenture was eliminated during 2021 through the issuance of common stock in exchange for all outstanding trust preferred securities and accrued interest. No principal or accrued interest remained outstanding at September 30, 2021.
Material Changes Versus Prior Comparable Period
- Third-quarter net earnings improved by $1.4 million to $0.9 million from a $0.5 million loss. Nine-month earnings improved by $2.9 million to $1.7 million from a $1.2 million loss.
- Net interest income increased 100% in the third quarter and 84% for the first nine months, primarily because of loan growth and lower interest-bearing deposit rates.
- Noninterest income increased 561% in the third quarter and 431% for the first nine months, driven mainly by higher wire-transfer and ACH fees associated with growth in business checking accounts.
- Noninterest expenses increased 19% in the third quarter and 31% for the first nine months, primarily from higher salaries and employee benefits, professional fees and data-processing costs.
- The loan portfolio grew materially, particularly in commercial real estate and multifamily real estate. Total loans increased from $154.9 million at year-end 2020 to $209.3 million before deferred fees and the allowance at September 30, 2021.
- Credit quality improved in certain respects: there were no impaired loans or nonaccrual loans at September 30, 2021, compared with $2.2 million of impaired commercial real estate loans at December 31, 2020. However, the allowance increased because of loan-volume growth and management’s evaluation of portfolio risks.
- The Company issued $9.0 million of Series B preferred stock and $2.8 million of common stock during the first nine months. In the third quarter, it issued 358,023 common shares in a private placement at $4.50 per share.
Guidance, Outlook, Risks and Unusual Items
- The filing does not provide formal earnings, revenue or balance-sheet guidance. Management stated that quarterly and year-to-date results are not necessarily indicative of full-year results.
- COVID-19 remains a risk to business activity, financial markets, loan quality, regulatory capital and liquidity. The ultimate effects depend on the pandemic’s duration, future developments and government actions.
- The loan portfolio includes significant commercial real estate exposure of $102.4 million and multifamily real estate exposure of $41.2 million. PPP loans outstanding were approximately $14.3 million at September 30, 2021 and were 100% guaranteed by the SBA.
- Off-balance-sheet credit exposure consisted of $16.2 million of commitments to extend credit, $11.5 million of unused lines of credit and $4.6 million of standby letters of credit.
- Series B preferred stock outstanding totaled 760 shares and was convertible into 7.6 million common shares, subject to specified conditions. The preferred stock has preferential liquidation rights and generally limited voting rights.
- The Company recorded no income-tax expense because management determined that its deferred tax asset was not realizable and maintained a valuation allowance.
- Management identified general economic, market, lending, competition, personnel, technology, regulatory and securities-law risks as factors that could cause actual results to differ materially from forward-looking statements.
- Management reported no material legal proceedings or material changes affecting internal control over financial reporting. The principal executive and financial officers concluded that disclosure controls and procedures were effective.
Important Facts for Investors to Verify
- Verify whether loan growth, particularly commercial and multifamily real estate growth, is sustainable without deterioration in credit quality or increases in the allowance.
- Monitor deposit growth, deposit pricing and the effect of changing interest rates on net interest margin and funding costs.
- Review the Bank’s capital ratio against applicable CBLR requirements and confirm continued access to FHLB, Federal Reserve and correspondent-bank liquidity facilities.
- Assess the potential dilution and priority effects of the Series B preferred stock, including its conversion terms and liquidation preference.
- Evaluate the impact of COVID-19, economic conditions and real-estate-market changes on borrowers, collateral values, PPP loan repayment and future provisions.
- Confirm subsequent equity issuances, including the October 2021 issuance of 188,660 common shares at $4.50 per share, and their effect on ownership and dilution.