10-Q 1 ophc-10q_093013.htm QUARTERLY REPORT


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 September 30, 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 x     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   o   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: 7,982,194 shares of Common Stock, $.01 par value, issued and outstanding as of November 13, 2013
 
 
 

 


OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES
 
INDEX
 
PART I. FINANCIAL INFORMATION
 
     
Page
     
 
 
 
2
     
   
  3
     
   
   4
     
   
   5
     
   
 
6-7
     
 
8-24
     
 
and Results of Operations
25-33
     
34
     
 
     
34
     
34
     
35

1
 

 

 
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES
 
PART I. FINANCIAL INFORMATION
 
Item 1. Financial Statements
 
             
   
September 30,
   
December 31,
 
Assets
 
2013
   
2012
 
   
(Unaudited)
       
             
Cash and due from banks
  $ 5,312     $ 4,541  
Interest-bearing deposits with banks
    3,879       19,070  
                 
Total cash and cash equivalents
    9,191       23,611  
                 
Securities available for sale
    23,718       18,648  
Loans, net of allowance for loan losses of $2,924 and $2,459
    82,090       85,209  
Federal Home Loan Bank stock
    1,082       1,478  
Premises and equipment, net
    2,913       2,906  
Foreclosed real estate, net
    7,834       10,938  
Accrued interest receivable
    513       499  
Other assets
    477       454  
                 
Total assets
  $ 127,818     $ 143,743  
                 
Liabilities and Stockholders’ Equity
               
                 
Liabilities:
               
Noninterest-bearing demand deposits
    2,854       4,626  
Savings, NOW and money-market deposits
    32,692       34,153  
Time deposits
    61,747       62,832  
                 
Total deposits
    97,293       101,611  
                 
Federal Home Loan Bank advances
    20,200       27,700  
Junior subordinated debenture
    5,155       5,155  
Advanced payment by borrowers for taxes and insurance
    968       461  
Official checks
    563       581  
Other liabilities
    1,499       1,325  
                 
Total liabilities
    125,678       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 7,982,194 and 31,511,201 shares issued and outstanding
    80       315  
Additional paid-in capital
    31,427       31,057  
Accumulated deficit
    (29,429 )     (24,688 )
Accumulated other comprehensive income
    62       226  
                 
Total stockholders’ equity
    2,140       6,910  
                 
Total liabilities and stockholders’ equity
  $ 127,818     $ 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
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
   
2013
   
2012
   
2013
   
2012
 
Interest income:
                       
Loans
  $ 1,074     $ 1,025     $ 3,235     $ 3,002  
Securities
    196       245       571       819  
Other
    16       22       48       60  
                                 
Total interest income
    1,286       1,292       3,854       3,881  
                                 
Interest expense:
                               
Deposits
    201       272       649       848  
Borrowings
    231       359       876       1,136  
                                 
Total interest expense
    432       631       1,525       1,984  
                                 
Net interest income
    854       661       2,329       1,897  
                                 
Provision for loan losses
    0       197       2,194       378  
                                 
Net interest income after provision for loan losses
    854       464       135       1,519  
                                 
Noninterest income:
                               
Service charges and fees
    25       9       80       19  
Loss on sale of securities
    (20 )     0       (20 )     0  
Other
    1       1       22       179  
                                 
Total noninterest income
    6       10       82       198  
                                 
Noninterest expenses:
                               
Salaries and employee benefits
    497       465       1,556       1,301  
Occupancy and equipment
    135       133       400       376  
Data processing
    76       47       227       161  
Professional fees
    197       283       746       810  
Insurance
    79       68       237       208  
Foreclosed real estate
    13       192       989       329  
Regulatory assessment
    84       92       254       215  
Other
    95       118       187       490  
                                 
Total noninterest expenses
    1,176       1,398       4,596       3,890  
                                 
Other-than-temporary impairment on securities:
                               
Total other-than-temporary impairment losses
    9       101       362       204  
Portion of losses recognized in other comprehensive income
    0       0       0       0  
                                 
Net impairment loss
    9       101       362       204  
                                 
Net loss
  $ (325 )   $ (1,025 )   $ (4,741 )   $ (2,377 )
                                 
Net loss per share:
                               
Basic
  $ (.05 )   $ (.14 )   $ (.60 )   $ (.36 )
                                 
Diluted
  $ (.05 )   $ (.14 )   $ (.60 )   $ (.36 )
                                 
Dividends per share
  $ 0     $ 0     $ 0     $ 0  
 
See Accompanying Notes to Condensed Consolidated Financial Statements.

3
 

 


 
Condensed Consolidated Statements of Comprehensive Loss (Unaudited)
(In thousands)
                         
   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
   
2013
   
2012
   
2013
   
2012
 
                         
Net loss
  $ (325 )   $ (1,025 )   $ (4,741 )   $ (2,377 )
                                 
Other comprehensive loss-Unrealized (loss) gains on securities available for sale- Net unrealized holding (losses) gains arising during period
    (45 )     603       (164 )     1,041  
                                 
Comprehensive loss
  $ (370 )   $ (422 )   $ (4,905 )   $ (1,336 )
 
See Accompanying Notes to Condensed Consolidated Financial Statements.
 
4
 

 

 
 
Condensed Consolidated Statements of Stockholders’ Equity
 
Nine Months Ended September 30, 2013 and 2012
(Dollars in thousands)
 
                           
Accumulated
       
                           
Other
       
               
Additional
         
Compre-
   
Total
 
   
Common Stock
   
Paid-In
   
Accumulated
   
hensive
   
Stockholders’
 
   
Shares
   
Amount
   
Capital
   
Deficit
   
Loss
   
Equity
 
                                     
Balance at December 31, 2011
    22,411,108     $ 224       27,491       (19,991 )     (938 )     6,786  
                                                 
Proceeds from sale of common stock (unaudited)
    8,447,500       85       3,290       0       0       3,375  
                                                 
Common stock issued as compensation to directors (unaudited)
    42,225       0       42       0       0       42  
                                                 
Net loss for the nine months ended September 30, 2012 (unaudited)
    0       0       0       (2,377 )     0       (2,377 )
 
                                               
Net change in unrealized loss on securities available for sale (unaudited)
    0       0       0       0       1,041       1,041  
                                                 
Balance at September 30, 2012 (unaudited)
    30,900,833     $ 309       30,823       (22,368 )     103       8,867  
                                                 
                                                 
Balance at December 31, 2012
    31,511,201     $ 315       31,057       (24,688 )     226       6,910  
                                                 
Reverse one-for-four common share split (unaudited)
    (23,646,314 )     (236 )     236       0       0       0  
                                                 
Proceeds from sale of common stock (unaudited)
    83,333       1       99       0       0       100  
                                                 
Common stock issued as compensation to directors (unaudited)
    33,974       0       35       0       0       35  
                                                 
Net loss for the nine months ended September 30, 2013 (unaudited)
    0       0       0       (4,741 )     0       (4,741 )
                                                 
Net change in unrealized loss on securities available for sale (unaudited)
    0       0       0       0       (164 )     (164 )
                                                 
Balance at September 30, 2013 (unaudited)
    7,982,194     $ 80       31,427       (29,429 )     62       2,140  
 
See Accompanying Notes to Condensed Consolidated Financial Statements.
 
5
 

 

 
 
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
 
   
Nine Months Ended
 
   
September 30,
 
   
2013
   
2012
 
Cash flows from operating activities:
           
Net loss
  $ (4,741 )   $ (2,377 )
Adjustments to reconcile net loss to net cash used in operating activities:
               
Depreciation and amortization
    149       87  
Provision for loan losses
    2,194       378  
Loss on sale of securities
    20       0  
Common stock issued as compensation to directors
    35       42  
Net amortization of fees, premiums and discounts
    40       0  
(Increase) decrease in other assets
    (23 )     247  
Loss on sale of foreclosed real estate
    135       28  
Provision for losses on real estate owned
    724       0  
Write-down of foreclosed real estate
    0       70  
(Increase) decrease in accrued interest receivable
    (14 )     22  
Increase (decrease) in official checks and other liabilities
    156       (652 )
Other-than-temporary impairment of securities available for sale
    362       204  
                 
Net cash used in operating activities
    (963 )     (1,951 )
                 
Cash flows from investing activities:
               
Principal repayments and maturity of securities available for sale
    6,618       8,156  
Proceeds from sale of security available for sale
    1,965       0  
Purchase of securities available for sale
    (14,239 )     0  
Net decrease in loans
    228       232  
Purchase of premises and equipment
    (156 )     (255 )
Proceeds from sale of foreclosed real estate
    2,942       317  
Capital improvements on foreclosed real estate
    0       (57 )
Redemption of Federal Home Loan Bank stock
    396       681  
                 
Net cash (used in) provided by investing activities
    (2,246 )     9,074  
                 
Cash flows from financing activities:
               
Net decrease in deposits
    (4,318 )     (2,369 )
Increase in advance payments by borrowers for taxes and insurance
    507       462  
Repayment of Federal Home Loan Bank advances
    (7,500 )     (4,000 )
Proceeds from sale of common stock
    100       3,375  
                 
Net cash used in financing activities
    (11,211 )     (2,532 )
                 
Net (decrease) increase in cash and cash equivalents
    (14,420 )     4,591  
                 
Cash and cash equivalents at beginning of the period
    23,611       22,776  
                 
Cash and cash equivalents at end of the period
  $ 9,191     $ 27,367  
 
(continued)
 
6
 

 

 
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES
 
Condensed Consolidated Statements of Cash Flows (Unaudited), Continued
(In thousands)
             
   
Nine Months Ended
 
   
September 30,
 
   
2013
   
2012
 
Supplemental disclosure of cash flow information:
           
Cash paid during the period for:
           
Interest
  $ 1,483     $ 1,898  
                 
Income taxes
  $ 0     $ 0  
                 
Noncash investing and financing activities:
               
Change in accumulated other comprehensive loss, net change in unrealized loss on securities available for sale
  $ (164 )   $ 1,041  
                 
Loans transferred to foreclosed real estate
  $ 697     $ 3,156  
 
See Accompanying Notes to Condensed Consolidated Financial Statements.
 
7
 

 

 
 
Notes to Condensed Consolidated Financial Statements (unaudited)
 
(1)
General.  OptimumBank Holdings, Inc. (the “Holding Company”) is a one-bank holding company and owns 100% of OptimumBank (the “Bank”), a 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 2013 and 2012.  All other subsidiaries are primarily engaged in holding and disposing of foreclosed real estate.
 
 
In the opinion of the 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 September 30, 2013, and the results of operations for the three- and nine-month periods ended September 30, 2013 and 2012, and cash flows for the nine-months periods ended September 30, 2013 and 2012.  The results of operations for the three- and nine-months ended September 30, 2013, are not necessarily indicative of the results to be expected for the full year.
 
 
Comprehensive Loss. Generally accepted accounting principles generally require 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 gain 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 September 30, 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 Accounting Standards Update. In July 2012, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2012-02, “Testing Indefinite-Lived Intangible Assets for Impairment,” which, among other things, gives an entity the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that an indefinite-lived intangible asset is impaired. The Company adopted this ASU on January 1, 2013, and since the Company does not have intangible assets, it had no impact on its consolidated financial statements.
 
 
In January 2013, the FASB issued ASU No. 2013-01, “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities,” which limits the scope of the new balance sheet offsetting disclosures in ASU 2011-11 to derivatives, repurchase agreements, and securities lending transactions to the extent that they are (1) offset in the financial statements or (2) subject to an enforceable master netting arrangement or similar agreement. The Company adopted this ASU on February 1, 2013 and it had no impact on its consolidated financial statements.
 
 
In February 2013, the FASB Issued ASU No. 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income,” which requires entities to present information about reclassification adjustments from accumulated other comprehensive income in their annual financial statements in a single note or on the face of the financial statements. The Company adopted this ASU on March 1, 2013 and it had no impact on its consolidated financial statements.
 
 
In February 2013, the FASB Issued ASU No. 2013-04, “Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date.” ASU 2013-04 provides guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for obligations within the scope of this ASU, which is effective January 1, 2014. Upon adoption, the Company does not expect this ASU to impact its consolidated financial statements.
 
 
In July 2013, the FASB issued ASU 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists,” which among other things, require an unrecognized tax benefit, or a portion of an unrecognized tax benefit, to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as denoted within the ASU. The amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The Company is currently evaluating the impact on its consolidated financial statements with respect to ASU 2013-11.
 
 
In July 2013, the FASB issued ASU No. 2013-10, “Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes.ASU No. 2013-10 permits the use of the Fed Funds Effective Swap Rate (OIS) to be used as a U.S. benchmark interest rate for hedge account purposes. The amendment is effective prospectively for qualifying new or redesiginated hedging relationships entered into on or after July 17, 2013. The adoption of ASU No. 2013-10 did not have an impact on the Company’s consolidated financial statements.
 
(continued)
 
9
 

 

 
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES
 
Notes to Condensed Consolidated Financial Statements (unaudited), Continued
 
(1)
General, Continued.
 
Recent Regulatory Developments
 
Basel III Legislation.  On July 2, 2013, the Federal Reserve Board (“FRB”) approved the final rules implementing the Basel Committee on Banking Supervision’s capital guidelines for U.S. banks. Under the final rules, minimum requirements will increase for both the quantity and quality of capital held by the Bank. The rules include a new common equity Tier I capital to risk-weighted assets ratio of 4.5% and a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets. The final rules also raise the minimum ratio of Tier I capital to risk-weighted assets from 4.0% to 6.0% and require a minimum leverage ratio of 4.0%. The final rules also implement strict eligibility criteria for regulatory capital instruments. On July 9, 2013, the Federal Deposit Insurance Corporation (“FDIC”) also approved, as an interim final rule, the regulatory capital requirements for U.S. banks, following the actions of the FRB. The FDIC’s rule is identical in substance to the final rules issued by the FRB.
 
 
The phase-in period for the final rules will begin for the Company on January 1, 2015, with full compliance with all of the final rule’s requirements phased in over a multi-year schedule. The Company is currently evaluating the provisions of the final rules and their expected impact on the Company.
 
(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 September 30, 2013:
                       
Securities Available for Sale-
                       
Mortgage-backed securities
  $ 23,656     $ 286     $ (224 )   $ 23,718  
                                 
At December 31, 2012:
                               
Securities Available for Sale-
                               
Mortgage-backed securities
  $ 18,422     $ 305     $ (79 )   $ 18,648  
 
 
Securities with gross unrealized losses at September 30, 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  
      Gross          
      Unrealized       Fair  
      Losses      
Value
 
Securities Available for Sale-                
Mortgage-backed securities   $ (224   $ 10,501  
 
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.
 
(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, 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 and nine months ended September 30, 2013, the Company recorded other-than-temporary impairment charges totaling $9,000 and $362,000, respectively. During the three and nine month periods ended September 30, 2012, the Company recorded other-than-temporary impairment charges totaling $101,000 and $204,000, respectively.
 
 
(continued)

11
 

 


OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES
 
Notes to Condensed Consolidated Financial Statements (unaudited), Continued
 
(3)
Loans.  The segments of loans are as follows (in thousands):
 
   
At September 30,
   
At December 31,
 
   
2013
   
2012
 
             
Residential real estate
  $ 26,624     $ 30,064  
Multi-family real estate
    3,818       3,916  
Commercial real estate
    37,544       39,126  
Land and construction
    6,301       7,276  
Commercial
    10,247       7,158  
Consumer
    81       70  
                 
Total loans
    84,615       87,610  
                 
Add (deduct):
               
Net deferred loan fees, costs and premiums
    399       58  
Allowance for loan losses
    (2,924 )     (2,459 )
                 
Loans, net
  $ 82,090     $ 85,209  
 
 
 
An analysis of the change in the allowance for loan losses follows (in thousands):
 
    Residential     Multi-Family    
Commercial
     Land                          
   
Real
   
Real
    Real      and                          
   
Estate
   
Estate
   
Estate
   
Construction
   
Commercial
   
Consumer
   
Unallocated
   
Total
 
Three Months Ended September 30, 2013:
                                                               
Beginning balance
  $ 342     $ 16     $ 1,910     $ 40     $ 279     $ 0     $ 0     $ 2,587  
Provision (credit) for loan losses
    (210 )     0       (143 )     (250 )     (21 )     (3 )     627       0  
Charge-offs
    0       0       0       0       0       0       0       0  
Recoveries
    0       0       107       227       0       3       0       337  
                                                                 
Ending balance
  $ 132     $ 16     $ 1,874     $ 17     $ 258     $ 0     $ 627     $ 2,924  
                                                                 
Nine Months Ended September 30, 2013:
                                                               
Beginning balance
  $ 434     $ 267     $ 1,372     $ 166     $ 216     $ 4     $ 0     $ 2,459  
Provision (credit) for loan losses
    (205 )     (251 )     2,442       (448 )     42       (13 )     627       2,194  
Charge-offs
    (97 )     0       (2,147 )     0       0       0       0       (2,244 )
Recoveries
    0       0       207       299       0       9       0       515  
                                                                 
Ending balance
  $ 132     $ 16     $ 1,874     $ 17     $ 258     $ 0     $ 627     $ 2,924  
 
(continued)
 
12
 

 

 
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES
 
Notes to Condensed Consolidated Financial Statements (unaudited), Continued
 
(3)
Loans, Continued.
 
   
Residential
   
Multi-Family
   
Commercial
   
Land
                   
   
Real
   
Real
   
Real
   
and
                   
   
Estate
   
Estate
   
Estate
   
Construction
   
Commercial
   
Consumer
   
Total
 
Three Months Ended September 30, 2012:
                                         
Beginning balance
  $ 703     $ 245     $ 799     $ 215     $ 115     $ 25     $ 2,102  
Provision (credit) for loan losses
    (231 )     15       364       37       12       0       197  
Charge-offs
    0       (1 )     (346 )     (54 )     0       0       (401 )
Recoveries
    17       0       0       17       0       4       38  
                                                         
Ending balance
  $ 489     $ 259     $ 817     $ 215     $ 127     $ 29     $ 1,936  
                                                         
Nine Months Ended September 30, 2012:
                                                       
Beginning balance
  $ 549     $ 247     $ 1,190     $ 187     $ 161     $ 15     $ 2,349  
Provision (credit) for loan losses
    70       12       154       170       (33 )     5       378  
Charge-offs
    (146 )     0       (557 )     (388 )     (1 )     0       (1,092 )
Recoveries
    16       0       30       246       0       9       301  
                                                         
Ending balance
  $ 489     $ 259     $ 817     $ 215     $ 127     $ 29     $ 1,936  
 
    Residential     Multi-Family    
 Commercial
   
Land
                         
   
Real
   
Real
   
Real
   
and
                         
   
Estate
   
Estate
   
Estate
   
Construction
   
Commercial
   
Consumer
   
Unallocated
   
Total
 
At September 30, 2013:
                                               
Individually evaluated for impairment:
                                               
Recorded investment
  $ 7,002     $ 0     $ 12,595     $ 0     $ 0     $ 0     $ 0     $ 19,597  
Balance in allowance for loan losses
  $ 0     $ 0     $ 809     $ 0     $ 0     $ 0     $ 0     $ 809  
                                                                 
Collectively evaluated for impairment:
                                                               
Recorded investment
  $ 19,622     $ 3,818     $ 24,949     $ 6,301     $ 10,247     $ 81     $ 0     $ 65,018  
Balance in allowance for loan losses
  $ 132     $ 16     $ 1,065     $ 17     $ 258     $ 0     $ 627     $ 2,115  
                                                                 
At December 31, 2012:
                                                               
Individually evaluated for impairment:
                                                               
Recorded investment
  $ 7,573     $ 0     $ 11,535     $ 886     $ 0     $ 0     $ 0     $ 19,994  
Balance in allowance for loan losses
  $ 0     $ 0     $ 366     $ 0     $ 0     $ 0     $ 0     $ 366  
                                                                 
Collectively evaluated for impairment:
                                                               
Recorded investment
  $ 22,491     $ 3,916     $ 27,591     $ 6,390     $ 7,158     $ 70     $ 0     $ 67,616  
Balance in allowance for loan losses
  $ 434     $ 267     $ 1,006     $ 166     $ 216     $ 4     $ 0     $ 2,093  
 
(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. 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):
 
         
OLEM
                         
         
(Other Loans
                         
         
Especially
                         
   
Pass
   
Mentioned)
   
Substandard
   
Doubtful
   
Loss
   
Total
 
At September 30, 2013:
                                   
Residential real estate
  $ 18,324     $ 1,298     $ 7,002     $ 0     $ 0     $ 26,624  
Multi-family real estate
    3,818       0       0       0       0       3,818  
Commercial real estate
    22,477       1,368       13,699       0       0       37,544  
Land and construction
    4,330       1,971       0       0       0       6,301  
Commercial
    9,636       547       64       0       0       10,247  
Consumer
    81       0       0       0       0       81  
                                                 
Total
  $ 58,666     $ 5,184     $ 20,765     $ 0     $ 0     $ 84,615  
                                                 
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.
 
 
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              
               
Greater
                         
    30-59     60-89    
Than 90
   
Total
                   
   
Days
   
Days
   
Days
   
Past
         
Nonaccrual
   
Total
 
   
Past Due
   
Past Due
   
Past Due
   
Due
   
Current
   
Loans
   
Loans
 
At September 30, 2013:
                                             
Residential real estate
  $ 183     $ 1,298     $ 0     $ 1,481     $ 20,968     $ 4,175     $ 26,624  
Multi-family real estate
    0       0       0       0       3,818       0       3,818  
Commercial real estate
    0