10-Q 1 ophc-10q_033113.htm CURRENT REPORT ophc-10q_033113.htm
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-Q
 
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2013
 
or
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from______________ to __________________ 

Commission File Number: 000-50755
 
OPTIMUMBANK HOLDINGS, INC.
 
(Exact name of registrant as specified in its charter)
 
Florida
 
55-0865043
     
(State or other jurisdiction of incorporation or organization)
 
(IRS Employer Identification No.)
 
2477 East Commercial Boulevard, Fort Lauderdale, FL 33308

(Address of principal executive offices)
 
954-776-2332
 
(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one):
 
Large accelerated filer ¨   Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company) Smaller reporting company x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 31,530,109 shares of Common Stock, $.01 par value, issued and outstanding as of May 7, 2013
 
 
 


 
 
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES

INDEX
 
   Page
PART I. FINANCIAL INFORMATION  
   
 
   
 2
   
 3
   
 4
 
 
 5
   
6-7
 
 
 8-24
   
25-31
   
 32 
   
 
   
 32
   
 32
   
 33
 
 
1

 
 
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES
 
 
 
(Dollars in thousands, except per share amounts)

 
 
March 31, 2013
   
December 31,  2012
 
   
(Unaudited)
       
             
Assets            
Cash and due from banks
  $ 3,929     $ 4,541  
Interest-bearing deposits with banks
    12,012       19,070  
                 
Total cash and cash equivalents
    15,941       23,611  
                 
Securities available for sale
    16,920       18,648  
Loans, net of allowance for loan losses of $2,540 and $2,459
    86,074       85,209  
Federal Home Loan Bank stock
    1,419       1,478  
Premises and equipment, net
    2,941       2,906  
Foreclosed real estate, net
    11,452       10,938  
Accrued interest receivable
    500       499  
Other assets
    355       454  
Total assets
  $ 135,602     $ 143,743  
                 
Liabilities and Stockholders’ Equity
               
Liabilities:                
Noninterest-bearing demand deposits
    2,402       4,626  
Savings, NOW and money-market deposits
    33,172       34,153  
Time deposits
    60,309       62,832  
                 
Total deposits
    95,883       101,611  
                 
Federal Home Loan Bank advances
    27,700       27,700  
Junior subordinated debenture
    5,155       5,155  
Advanced payment by borrowers for taxes and insurance
    611       461  
Official checks
    290       581  
Other liabilities
    1,232       1,325  
                 
Total liabilities
    130,871       136,833  
                 
Stockholders’ equity:
               
Preferred stock, no par value; 6,000,000 shares authorized, no shares issued or outstanding
    0       0  
Common stock, $.01 par value; 50,000,000 shares authorized 31,530,109 and 31,511,201 shares issued and outstanding
    315       315  
Additional paid-in capital
    31,066       31,057  
Accumulated deficit
    (26,845 )     (24,688 )
Accumulated other comprehensive income
    195       226  
                 
Total stockholders’ equity
    4,731       6,910  
                 
Total liabilities and stockholders’ equity
  $ 135,602     $ 143,743  
 
See Accompanying Notes to Condensed Consolidated Financial Statements.
 
 
2

 
 
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES
 
(in thousands, except per share amounts)
 
   
Three Months Ended
March 31,
 
   
2013
   
2012
 
Interest income:                
Loans
  $ 1,093     $ 995  
Securities
    192       298  
Other
    16       16  
                 
Total interest income
    1,301       1,309  
                 
Interest expense:
               
Deposits
    229       291  
Borrowings
    335       389  
                 
Total interest expense
    564       680  
                 
Net interest income
    737       629  
                 
Provision for loan losses
    1,372       27  
                 
Net interest (expense) income after provision for loan losses
    (635 )     602  
                 
Noninterest income:
               
Service charges and fees
    34       3  
Other
    12       1  
                 
Total noninterest income
    46       4  
                 
Noninterest expenses:                
Salaries and employee benefits
    488       410  
Professional fees
    168       239  
Occupancy and equipment
    136       119  
Data processing
    72       50  
Insurance
    78       70  
Foreclosed real estate expenses
    285       68  
Regulatory assessment
    88       44  
Other
    49       188  
                 
Total noninterest expenses
    1,364       1,188  
                 
Other-than-temporary impairment on securities:
               
Total other-than-temporary impairment losses
    204       0  
Portion of losses recognized in other comprehensive income
    0       0  
                 
Net loss
  $ (2,157 )   $ (582 )
                 
Net loss per share:
               
Basic
  $ (.07 )   $ (.03 )
                 
Diluted
  $ (.07 )   $ (.03 )
                 
Dividends per share
  $ 0     $ 0  
 
See Accompanying Notes to Condensed Consolidated Financial Statements.
 
 
3

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES
 
(In thousands)
 
   
Three Months Ended
 
   
March 31,
 
   
2013
   
2012
 
             
Net loss
  $ (2,157 )   $ (582 )
                 
Other comprehensive loss-
               
Unrealized gains on securities available for sale:
               
Unrealized gain arising during the period
    173       327  
Other than temporary impairment on securities
    204        
                 
Unrealized holding (loss) gain arising during period
    (31 )     327  
                 
Comprehensive loss
  $ (2,188 )   $ (255 )
 
See Accompanying Notes to Condensed Consolidated Financial Statements.

 
4

 
 
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES
 
 
Three Months Ended March 31, 2013 and 2012
(Dollars in thousands)
 
   
Common Stock
   
Additional Paid-In
   
Accumulated
   
Accumulated Other Comprehensive (Loss)
   
Total Stockholders’
 
   
Shares
   
Amount
   
Capital
   
Deficit
   
Income
   
Equity
 
                                     
Balance at December 31, 2011
    22,411,108     $ 224     $ 27,491     $ (19,991 )   $ (938 )   $ 6,786  
                                                 
Net loss for the three months ended March 31, 2012 (unaudited)
    0       0       0       (582 )     0       (582 )
                                                 
Net change in unrealized loss on securities available for sale (unaudited)
    0       0       0       0       327       327  
 
                                               
Proceeds from sale of common stock (unaudited)
    4,076,289       41       1,602       0       0       1,643  
                                                 
Balance at March 31, 2012 (unaudited)
    26,487,397     $ 265     $ 29,093     $ (20,573 )   $ (611 )   $ 8,174  
                                                 
Balance at December 31, 2012
    31,511,201     $ 315     $ 31,057     $ (24,688 )   $ 226     $ 6,910  
                                                 
Net loss for the three months ended March 31, 2013 (unaudited)
    0       0       0       (2,157 )     0       (2,157 )
                                                 
Net change in unrealized loss on securities available for sale (unaudited)
    0       0       0       0       (31 )     (31 )
 
                                               
Issuance of common stock as compensation (unaudited)
    18,908       0       9       0       0       9  
                                                 
Balance at March 31, 2013 (unaudited)
    31,530,109     $ 315     $ 31,066     $ (26,845 )   $ 195     $ 4,731  
 
See Accompanying Notes to Condensed Consolidated Financial Statements.
 
 
5

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES
 
(In thousands)
 
   
Three Months Ended
 
   
March 31,
 
   
2013
   
2012
 
Cash flows from operating activities:
           
Net loss
  $ (2,157 )   $ (582 )
Adjustments to reconcile net loss to net cash used in operating activities:
               
Depreciation and amortization
    47       26  
Provision for loan losses
    1,372       27  
Net amortization of fees, premiums and discounts
    9       9  
Provision for losses on foreclosed real estate
    183       25  
Common stock issued as compensation
    9        
(Increase) decrease in accrued interest receivable
    (1 )     4  
Decrease (increase) in other assets
    99       (100 )
Decrease in official checks and other liabilities
    (384 )     (502 )
Other-than-temporary impairment losses
    204       0  
                 
Net cash used in operating activities
    (619 )     (1,093 )
                 
Cash flows from investing activities:
               
Principal repayments and calls of securities
    1,487       2,286  
Net (increase) decrease in loans
    (2,937 )     929  
Purchases of premises and equipment
    (82 )     (8 )
Capital improvements on foreclosed real estate
    0       (22 )
Redemption FHLB stock
    59       0  
                 
Net cash (used in) provided by investing activities
    (1,473 )     3,185  
                 
Cash flows from financing activities:
               
Net decrease in deposits
    (5,728 )     (2,362 )
Net increase (decrease) in advanced payments by borrowers for taxes and insurance
    150       (58 )
Proceeds from sale of common stock
    0       1,643  
                 
Net cash used in financing activities
    (5,578 )     (777 )
                 
Net (decrease) increase in cash and cash equivalents
    (7,670 )     1,315  
                 
Cash and cash equivalents at beginning of the period
    23,611       22,776  
                 
Cash and cash equivalents at end of the period
  $ 15,941     $ 24,091  
 
(continued)
 
6

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES
 
Condensed Consolidated Statements of Cash Flows (Unaudited), Continued
(In thousands)
 
   
Three Months Ended
 
   
March 31,
 
   
2013
   
2012
 
Supplemental disclosure of cash flow information:
           
Cash paid during the period for:
           
Interest
  $ 525     $ 640  
                 
Income taxes
  $ 0     $ 0  
                 
Noncash transactions:
               
Change in accumulated other comprehensive loss, net change in unrealized gain on securities available for sale
  $ (31 )   $ 327  
                 
Loans transferred to foreclosed real estate
  $ 697     $ 0  
 
See Accompanying Notes to Condensed Consolidated Financial Statements.
 
 
7

 
 
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES

 
(1)
General. OptimumBank Holdings, Inc. (the “Holding Company”) is a one-bank holding company and owns 100% of OptimumBank (the “Bank”), a state (Florida)-chartered commercial bank. The Bank’s wholly-owned subsidiaries are OB Real Estate Management, LLC, OB Real Estate Holdings, LLC and OB Real Estate Holding 1503, LLC, all of which were formed in 2009, OB Real Estate Holdings 1695, OB Real Estate Holdings 1669, OB Real Estate Holdings 1645, OB Real Estate Holdings 1620 and OB Real Estate Holdings 1565, all formed in 2010; OB Real Estate Holdings 1443 and OB Real Estate Holdings Northwood, OB Real Estate Holdings 1596, OB Real Estate Holdings 1636 formed in 2011; and OB Real Estate Holdings 1655, OB Real Estate Holdings 1692, OB Real Estate Holdings 1704, OB Real Estate Holdings Rosemary and OB Real Estate Holdings Sillato formed in 2012 (the “Real Estate Holding Subsidiaries”). The Holding Company’s only business is the operation of the Bank and its subsidiaries (collectively, the “Company”). The Bank’s deposits are insured up to applicable limits by the Federal Deposit Insurance Corporation (“FDIC”). The Bank offers a variety of commercial banking services to individual and corporate customers through its three banking offices located in Broward County, Florida. OB Real Estate Management, LLC is primarily engaged in managing foreclosed real estate. This subsidiary had no activity in 2012 and 2011. All other subsidiaries are primarily engaged in holding and disposing of foreclosed real estate.
 
 
In the opinion of management, the accompanying condensed consolidated financial statements of the Company contain all adjustments (consisting principally of normal recurring accruals) necessary to present fairly the financial position at March 31, 2013, and the results of operations and cash flows for the three-month periods ended March 31, 2013 and 2012. The results of operations for the three months ended March 31, 2013, are not necessarily indicative of the results to be expected for the full year.
 
 
Comprehensive Loss. Generally accepted accounting principles generally requires that recognized revenue, expenses, gains and losses be included in net loss. Although certain changes in assets and liabilities, such as unrealized gains and losses on available for sale securities, are reported as a separate component of the equity section of the consolidated balance sheet, such items along with net loss, are components of comprehensive loss. The only component of other comprehensive loss is the net change in the unrealized loss on the securities available for sale.
 
 
Income Taxes. During the year ended December 31, 2009, the Company assessed its earnings history and trend over the past year and its estimate of future earnings, and determined that it is more likely than not that the deferred tax asset will not be realized in the near term. Accordingly, a valuation allowance was recorded against the net deferred tax asset for the amount not expected to be realized in the future. Based on the available evidence at March 31, 2013, the Company determined that it is still more likely than not that the deferred tax asset will not be realized in the near term.
 
(continued)
 
8

 
 
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (unaudited), Continued
 
(1)
General, Continued.
 
Recent Pronouncements. In January 2013, the FASB issued Accounting Standards Update No. 2013-01 (“ASU 2013-01”), Balance Sheet (Topic 210), Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. ASU 2013-01 clarifies that the scope of Update 2011-11 applies to derivatives accounted for in accordance with Topic 815, Derivatives and Hedging, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with Section 210-20-45 or Section 815-10-45 or subject to an enforceable master netting arrangement or similar agreement. ASU 2013-01 is effective for fiscal years beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the required disclosures retrospectively for all comparative periods presented. The adoption of this guidance is not expected to have a material effect on the Company’s consolidated financial statements.
    
In February 2013, the FASB issued Accounting Standards Update 2013-2 (“ASU 2013-2”), Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (Topic 220). ASU 2013-2 requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. The Company adopted the standard in January 2013 and it did not have a significant impact on the Company’s consolidated financial statements.
 
(continued)
 
9

 
 
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES
 
Notes to Condensed Consolidated Financial Statements (unaudited), Continued
 
(2)
Securities. Securities have been classified according to management’s intent. The carrying amount of securities and approximate fair values are as follows (in thousands): 
 
         
Gross
   
Gross
       
   
Amortized
   
Unrealized
   
Unrealized
   
Fair
 
   
Cost
   
Gains
   
Losses
   
Value
 
At March 31, 2013:
                       
Securities Available for Sale-
                       
Mortgage-backed securities
  $ 16,725     $ 325     $ (130 )   $ 16,920  
                                 
At December 31, 2012:
                               
Securities Available for Sale-
                               
Mortgage-backed securities
  $ 18,422     $ 305     $ (79 )   $ 18,648  
 
 
In June 2011, the Company transferred securities with a book value of approximately $50.5 million from the held to maturity category to the available for sale category. The fair value of the securities was $49.8 million resulting in unrealized losses of approximately $0.7 million. The net unrealized loss was recorded in accumulated other comprehensive income. Due to this transfer, the Company will be prohibited from classifying securities as held to maturity for a period of two years.
   
 
Securities with gross unrealized losses at March 31, 2013, aggregated by investment category and length of time that individual securities have been in a continuous loss position, is as follows (in thousands):
 
   
Less Than Twelve Months
   
Over Twelve Months
 
   
Gross
         
Gross
       
   
Unrealized
   
Fair
   
Unrealized
   
Fair
 
   
Losses
   
Value
   
Losses
   
Value
 
Securities Available for Sale-
                       
Mortgage-backed securities
  $ (68 )   $ 2,194     $ (62 )   $ 1,984  
 
(continued)
 
10

 
 
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (unaudited), Continued
 
(2)
Securities, Continued. Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. A security is impaired if the fair value is less than its carrying value at the financial statement date. When a security is impaired, the Company determines whether this impairment is temporary or other-than-temporary. In estimating other-than-temporary impairment (“OTTI”) losses, management assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of these criteria is met, the entire difference between amortized cost and fair value is recognized in operations. For securities that do not meet the aforementioned criteria, the amount of impairment recognized in operations is limited to the amount related to credit losses, while impairment related to other factors is recognized in other comprehensive loss. Management utilizes cash flow models to segregate impairments to distinguish between impairment related to credit losses and impairment related to other factors. To assess for OTTI, management considers, among other things, (i) the severity and duration of the impairment; (ii) the ratings of the security; (iii) the overall transaction structure (the Company’s position within the structure, the aggregate, near-term financial performance of the underlying collateral, delinquencies, defaults, loss severities, recoveries, prepayments, cumulative loss projections, and discounted cash flows); and (iv) the timing and magnitude of a break in modeled cash flows.
    
In evaluating mortgage-backed securities with unrealized losses greater than twelve months, management utilizes various resources, including input from independent third party firms to perform an analysis of expected future cash flows. The process begins with an assessment of the underlying collateral backing the mortgage pools. Management develops specific assumptions using as much market data as possible and includes internal estimates as well as estimates published by rating agencies and other third-party sources. The data for the individual borrowers in the underlying mortgage pools are generally segregated by state, FICO score at issue, loan to value at issue and income documentation criteria. Mortgage pools are evaluated for current and expected levels of delinquencies and foreclosures, based on where they fall in the proscribed data set of FICO score, geographics, LTV and documentation type and a level of loss severity is assigned to each security based on its experience. The above-described historical data is used to develop current and expected measures of cumulative default rates as well as ultimate loss frequency and severity within the underlying mortgages. This reveals the expected future cash flows within the mortgage pool. The data described above is then input to an industry recognized model to assess the behavior of the particular security tranche owned by the Company. Significant inputs in this process include the structure of any subordination structures, if applicable, and are dictated by the structure of each particular security as laid out in the offering documents. The forecasted cash flows from the mortgage pools are input through the security structuring model to derive expected cash flows for the specific security owned by the Company to determine if the future cash flows are expected to exceed the book value of the security. The values for the significant inputs are updated on a regular basis. During the three months ended March 31, 2013, the Company recorded other-than-temporary impairment charges totaling $204,000 which resulted in cumulative OTTI of $708,000 at March 31, 2013.
 
(continued)
 
11

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (unaudited), Continued
 
(2)  
Securities, Continued. The unrealized losses on investment securities were caused by market conditions. It is expected that the securities would not be settled at a price less than the book value of the investments. Because the decline in fair value is attributable to market conditions and not credit quality, and because the Company has the ability and intent to hold these investments until a market price recovery or maturity, these investments are not considered other-than-temporarily impaired.
 
(3) Loans. The segments of loans are as follows (in thousands):
 
 
 
At March 31,
   
At December 31,
 
   
2013
   
2012
 
             
Residential real estate
  $ 29,803     $ 30,064  
Multi-family real estate
    3,885       3,916  
Commercial real estate
    38,944       39,126  
Land and construction
    7,233       7,276  
Commercial
    8,604       7,158  
Consumer
    107       70  
                 
Total loans
    88,576       87,610  
                 
Add (deduct):
               
Net deferred loan fees, costs and premiums
    38       58  
Allowance for loan losses
    (2,540 )     (2,459 )
                 
Loans, net
  $ 86,074     $ 85,209  
 
An analysis of the change in the allowance for loan losses follows (in thousands):
 
   
Residential Real
Estate
   
Multi-Family Real
Estate
   
Commercial Real
Estate
   
Land and
Construction
    Commercial    
 Consumer
   
Total
 
Three Months Ended March 31, 2013:
                                         
Beginning balance
  $ 434     $ 267     $ 1,372     $ 166     $ 216     $ 4     $ 2,459  
Provision (credit) for loan losses
    32       (224 )     1,567       (36 )     40       (7 )     1,372  
Charge-offs
    (97 )     0       (1,197 )     0       0       0       (1,294 )
Recoveries
    0       0       0       0       0       3       3  
                                                         
Ending balance
  $ 369     $ 43     $ 1,742     $ 130     $ 256     $ 0     $ 2,540  
                                                         
Individually evaluated for impairment:
                                                       
Recorded investment
  $ 7,410     $ 0     $ 9,579     $ 872     $ 0     $ 0     $ 17,861  
Balance in allowance for loan losses
  $ 0     $ 0     $ 882     $ 17     $ 0     $ 0     $ 899  
 
                                                       
Collectively evaluated for impairment:
                                                       
Recorded investment
  $ 22,393     $ 3,885     $ 29,365     $ 6,361     $ 8,604     $ 107     $ 70,715  
Balance in allowance for loan losses
  $ 369     $ 43     $ 860     $ 113     $ 256     $ 0     $ 1,641  
 
(continued)
 
12

 
 
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (unaudited), Continued
 
(3)
Loans, Continued.
 
   
Residential Real Estate
   
Multi-Family Real Estate
   
Commercial Real Estate
   
Land and Construction
    Commercial     Consumer    
Total
 
Three Months Ended March 31, 2012:                                          
Beginning balance
  $ 549     $ 247     $ 1,190     $ 187     $ 161     $ 15     $ 2,349  
Provision (credit) for loan losses
    112       (33 )     (307 )     294       (44 )     5       27  
Charge-offs
    0       0       (69 )     (335 )     0       0       (404 )
Recoveries
    0       0       0       0       0       3       3  
                                                         
Ending balance
  $ 661     $ 214     $ 814     $ 146     $ 117     $ 23     $ 1,975  
                                                         
Individually evaluated for impairment:
                                                       
Recorded investment
  $ 8,006     $ 0     $ 15,438     $ 6,877     $ 0     $ 0     $ 30,321  
Balance in allowance for loan losses
  $ 0     $ 0     $ 0     $ 0     $ 0     $ 0     $ 0  
                                                         
Collectively evaluated for impairment:
                                                       
Recorded investment
  $ 21,885     $ 4,059     $ 25,587     $ 4,520     $ 3,693     $ 125     $ 59,869  
Balance in allowance for loan losses
  $ 661     $ 214     $ 814     $ 146     $ 117     $ 23     $ 1,975  
 
(continued)
 
13

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES
 
Notes to Condensed Consolidated Financial Statements (unaudited), Continued
 
(3)
Loans, Continued. The Company has divided the loan portfolio into six portfolio segments, each with different risk characteristics and methodologies for assessing risk. The portfolio segments identified by the Company are as follows:
 
Residential Real Estate, Multi-Family Real Estate, Commercial Real Estate, Land and Construction. Real estate mortgage loans are typically segmented into four categories: Residential real estate, Multi-family real estate, Commercial real estate, and Land and Construction. Residential real estate loans are underwritten in accordance with policies set forth and approved by the Board of Directors (the “Board”), including repayment capacity and source, value of the underlying property, credit history and stability. Multi-family real estate and commercial real estate loans are secured by the subject property and are underwritten based upon standards set forth in the policies approved by the Company’s Board. Such standards include, among other factors, loan to value limits, cash flow coverage and general creditworthiness of the obligors. Land and construction loans to borrowers are to finance the construction of owner occupied and leased properties. These loans are categorized as construction loans during the construction period, later converting to commercial or residential real estate loans after the construction is complete and amortization of the loan begins. Real estate development and construction loans are approved based on an analysis of the borrower and guarantor, the viability of the project and on an acceptable percentage of the appraised value of the property securing the loan. Real estate development and construction loan funds are disbursed periodically based on the percentage of construction completed. The Company carefully monitors these loans with on-site inspections and requires the receipt of lien waivers on funds advanced. Development and construction loans are typically secured by the properties under development or construction, and personal guarantees are typically obtained. Further, to assure that reliance is not placed solely on the value of the underlying property, the Company considers the market conditions and feasibility of proposed projects, the financial condition and reputation of the borrower and guarantors, the amount of the borrower’s equity in the project, independent appraisals, costs estimates and pre-construction sale information. The Company also makes loans on occasion for the purchase of land for future development by the borrower. Land loans are extended for the future development for either commercial or residential use by the borrower. The Company carefully analyzes the intended use of the property and the viability thereof.
 
 (continued)
 
14

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (unaudited), Continued
 
(3)
Loans, Continued.
 
Commercial Loans. Commercial loans are primarily underwritten on the basis of the borrowers’ ability to service such debt from income. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. As a general practice, the Company takes as collateral a security interest in any available real estate, equipment, or other chattel, although loans may also be made on an unsecured basis. Collateralized working capital loans typically are secured by short-term assets whereas long-term loans are primarily secured by long-term assets. These loans are also affected by adverse economic conditions should they prevail within the Company’s local market.
 
Consumer Loans. Consumer loans are extended for various purposes, including purchases of automobiles, recreational vehicles, and boats. Also offered are home improvement loans, lines of credit, personal loans, and deposit account collateralized loans. Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Loans to consumers are extended after a credit evaluation, including the creditworthiness of the borrower(s), the purpose of the credit, and the secondary source of repayment. Consumer loans are made at fixed and variable interest rates and may be made on terms of up to ten years. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.
 
The following summarizes the loan credit quality (in thousands):
 
   
Pass
   
OLEM
(Other Loans
Especially
Mentioned)
   
Substandard
   
Doubtful
   
Loss
   
Total
 
At March 31, 2013:
                                   
Residential real estate
  $ 22,393     $ 0     $ 7,410     $ 0     $ 0     $ 29,803  
Multi-family real estate
    3,885       0       0       0       0       3,885  
Commercial real estate
    26,858       1,390       10,696       0       0       38,944  
Land and construction
    4,379       1,982       872       0       0       7,233  
Commercial
    7,544       995       65       0       0       8,604  
Consumer
    107       0       0       0       0       107  
                                                 
Total
  $ 65,166     $ 4,367     $ 19,043     $ 0     $ 0     $ 88,576  
                                                 
At December 31, 2012:
                                               
Residential real estate
  $ 22,491     $ 0     $ 7,573     $ 0     $ 0     $ 30,064  
Multi-family real estate
    3,916       0       0       0       0       3,916  
Commercial real estate
    24,967       2,624       11,535       0       0       39,126  
Land and construction
    4,402       1,987       887       0       0       7,276  
Commercial
    7,092       66       0       0       0       7,158  
Consumer
    70       0       0       0       0       70  
                                                 
Total
  $ 62,938     $ 4,677     $ 19,995     $ 0     $ 0     $ 87,610  
 
(continued)
 
15

 
 
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (unaudited), Continued
 
(3)
Loans, Continued. Internally assigned loan grades are defined as follows:
 
Pass – a Pass loan’s primary source of loan repayment is satisfactory, with secondary sources very likely to be realized if necessary. These are loans that conform in all aspects to bank policy and regulatory requirements, and no repayment risk has been identified.
 
OLEM (Other Loans Especially Mentioned) – an Other Loan Especially Mentioned has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in the deterioration of the repayment prospects for the asset or the Company’s credit position at some future date.
 
Substandard – a Substandard loan is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.
 
Doubtful – a loan classified Doubtful has all the weaknesses inherent in one classified Substandard, with the added characteristics that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The Company fully charges off any loan classified as Doubtful.
 
Loss – a loan classified Loss is considered uncollectible and of such little value that continuance as a bankable asset is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future. The Company fully charges off any loan classified as Loss.
 
(continued)
 
16

 
 
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (unaudited), Continued
 
(3)
Loans, Continued. Age analysis of past-due loans is as follows (in thousands):
 
    Accruing Loans              
   
30-59 Days Past Due
   
60-89 Days Past Due
   
Greater Than 90 Days Past Due
   
Total Past Due
   
Current
   
Nonaccrual Loans
   
Total Loans
 
At March 31, 2013:
                                             
Residential real estate
  $ 0     $ 1,309     $ 0     $ 1,309     $ 23,983     $ 4,511     $ 29,803  
Multi-family real estate
    0       0       0       0       3,885       0       3,885  
Commercial real estate
    2,973       0       0       2,973       26,392       9,579       38,944  
Land and construction
    0       0       0       0       6,361       872       7,233  
Commercial
    696       0       0       696       7,908       0       8,604  
Consumer
    0       0       0       0       107       0       107  
                                                         
Total
  $ 3,669     $ 1,309     $ 0     $ 4,978     $ 68,636     $ 14,962     $ 88,576  
 
At December 31, 2012:
                                         
Residential real estate
  $ 0     $ 2,915     $ 0     $ 2,915     $ 22,492     $ 4,657     $ 30,064  
Multi-family real estate
    0       0       0       0       3,916       0       3,916  
Commercial real estate
    0       0       0       0       27,591       11,535       39,126  
Land and construction
    0       0       0       0       6,389       887       7,276  
Commercial
    699       0       0       699       6,459       0       7,158  
Consumer
    0       0       0       0       70       0       70