10-Q 1 form10-q.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, 2019

 

or

 

[  ] 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)

 

954-900-2800

(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 [  ]

 

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 [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act (check one):

 

Large accelerated filer [  ]   Accelerated filer [  ]
Non-accelerated filer [X] Smaller reporting company [X]
    Emerging growth company [  ]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 1,858,020 shares of Common Stock, $.01 par value, issued and outstanding as of May 6, 2019.

 

 

 

 
 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

INDEX

 

  Page
   
PART I. FINANCIAL INFORMATION  
   
Item 1. Financial Statements 1
   
Condensed Consolidated Balance Sheets - March 31, 2019 (unaudited) and December 31, 2018 1
   
Condensed Consolidated Statements of Operations - Three Months ended March 31, 2019 and 2018 (unaudited) 2
   
Condensed Consolidated Statements of Comprehensive Loss - Three Months ended March 31, 2019 and 2018 (unaudited) 3
   
Condensed Consolidated Statements of Stockholders’ Equity - Three Months ended March 31, 2019 and 2018 (unaudited) 4
   
Condensed Consolidated Statements of Cash Flows - Three Months ended March 31, 2019 and 2018 (unaudited) 5
   
Notes to Condensed Consolidated Financial Statements (unaudited) 7
   
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 23
   
Item 4. Controls and Procedures 30
   
PART II. OTHER INFORMATION  
   
Item 1. Legal Proceedings 30
   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 30
   
Item 3. Defaults on Senior Securities 30
   
Item 4. Mine Safety Disclosures 30
   
Item 5. Other Information 30
   
Item 6. Exhibits 30
   
SIGNATURES 31

 

i
 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Condensed Consolidated Balance Sheets
(Dollars in thousands, except per share amounts)

 

   March 31, 2019   December 31, 2018 
   (Unaudited)     
Assets:          
Cash and due from banks  $2,212   $1,934 
Interest-bearing deposits with banks   11,347    6,049 
Total cash and cash equivalents   13,559    7,983 
Securities available for sale   2,191    2,359 
Securities held-to-maturity (fair value of $7,066 and 7,175)   6,955    7,139 
Loans, net of allowance for loan losses of $2,047 and $2,243   78,498    77,200 
Federal Home Loan Bank stock   642    1,132 
Premises and equipment, net   2,669    2,668 
Accrued interest receivable   324    314 
Other assets   1,884    1,573 
           
Total assets  $106,722   $100,368 
Liabilities and Stockholders’ Equity:          
           
Liabilities:          
Noninterest-bearing demand deposits   11,641    9,638 
Savings, NOW and money-market deposits   41,609    26,682 
Time deposits   27,574    26,058 
           
Total deposits   80,824    62,378 
           
Federal Home Loan Bank advances   13,000    24,600 
Federal funds purchased   -    560 
Junior subordinated debenture   5,155    5,155 
Official checks   265    274 
Other liabilities   2,305    2,095 
           
Total liabilities   101,549    95,062 
           
Commitments and contingencies (Notes 7 and 9)          
Stockholders’ equity:          
Preferred stock, no par value; 6,000,000 shares authorized: Designated Series A, no par value, $25,000 liquidation value per share, no shares issued and outstanding        
Common stock, $.01 par value; 5,000,000 shares authorized, 1,858,020 shares issued and outstanding   18    18 
Additional paid-in capital   36,128    36,128 
Accumulated deficit   (30,660)   (30,510)
Accumulated other comprehensive loss   (313)   (330)
           
Total stockholders’ equity   5,173    5,306 
Total liabilities and stockholders’ equity  $106,722   $100,368 

 

See accompanying notes to condensed consolidated financial statements.

 

1
 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Condensed Consolidated Statements of Operations (Unaudited)
(in thousands, except per share amounts)

 

   Three Months Ended 
   March 31, 
   2019   2018 
Interest income:          
Loans  $1,090   $916 
Securities   50    61 
Other   62    35 
           
Total interest income   1,202    1,012 
           
Interest expense:          
Deposits   289    112 
Borrowings   164    148 
           
Total interest expense   453    260 
           
Net interest income   749    752 
           
Provision for loan losses        
           
Net interest income after provision for loan losses   749    752 
           
Noninterest income:          
Service charges and fees   22    10 
Other   15    4 
           
Total noninterest income   37    14 
           
Noninterest expenses:          
Salaries and employee benefits   501    438 
Professional fees   99    65 
Occupancy and equipment   113    104 
Data processing   124    77 
Insurance   24    24 
Regulatory assessment   4    39 
Other   119    304 
           
Total noninterest expenses   984    1,051 
           
Net loss before income tax benefit   (198)   (285)
           
Income tax benefit   (52)   - 
           
Net loss  $(146)  $(285)
           
Net loss per share - Basic and diluted  $(0.08)  $(0.24)

 

See accompanying notes to condensed consolidated financial statements.

 

2
 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Condensed Consolidated Statements of Comprehensive Loss (Unaudited)
(In thousands)

 

   Three Months Ended
March 31,
 
   2019   2018 
         
Net loss  $(146)  $(285)
           
Other comprehensive income (loss):          
Change in unrealized gain (loss) on securities:          
Unrealized gain (loss) arising during the year   5    (64)
           
Amortization of unrealized loss on securities transferred to held-to-maturity   17    - 
           
Other comprehensive income (loss) before income tax (expense) benefit   22    (64)
           
Deferred income tax (expense) benefit on above change   (5)    17 
           
Total other comprehensive income (loss)   17    (47)
           
Comprehensive loss  $(129)   $(332)

 

See accompanying notes to condensed consolidated financial statements.

 

3
 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)

Three Months Ended March 31, 2019 and 2018

(Dollars in thousands)

 

                   Accumulated
Other
     
   Preferred Stock   Common Stock   Paid-In   Accumulated   Comprehensive   Stockholders’ 
   Shares   Amount   Shares   Amount   Capital   Deficit   Loss   Equity 
                                 
Balance at December 31, 2017   7   $   1,120,947   $11   $34,090   $(31,306)  $(250)  $2,545 
                                         
Proceeds from sale of common stock (unaudited)           20,814        46            46 
                                         
Common stock issued as compensation to directors (unaudited)           144,742    2    612            614 
                                         
Net loss for the three months ended March 31, 2018 (unaudited)                       (285)       (285)
                                         
Net change in unrealized loss on securities available for sale, net of income tax benefit (unaudited)                           (47)   (47)
                                         
Balance at March 31, 2018 (unaudited)   7   $    1,286,503   $13   $34,748   $(31,591)  $(297)  $2,873 
                                         
Balance at December 31, 2018      $   1,858,020   $18   $36,128   $(30,510)  $(330)  $5,306 
                                         
Cumulative-effect adjustment resulting from adoption of new lease accounting standard (unaudited)                       (4)       (4)
                                         
Net loss for the three months ended March 31, 2019 (unaudited)                       (146)       (146)
                                         
Net change in unrealized loss on securities available for sale, net of income taxes (unaudited)                           3    3 
                                         
Amortization of unrealized loss on securities transferred to held-to-maturity (unaudited)                           14    14 
                                         
Balance at March 31, 2019 (unaudited)      $    1,858,020   $18   $36,128   $(30,660)  $(313)  $5,173 

 

See accompanying notes to condensed consolidated financial statements

 

4
 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

 

   Three Months Ended
March 31,
 
   2019   2018 
Cash flows from operating activities:          
Net loss  $(146)  $(285)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation and amortization   42    35 
Net amortization of fees, premiums and discounts   43    64 
(Increase) decrease in accrued interest receivable   (10)   32
Increase in other assets   (311)   (3)
Increase in official checks and other liabilities   192   151 
Net cash used in operating activities   (190)   (6)
           
Cash flows from investing activities:          
Principal repayments of securities available for sale   154    357 
Principal repayments of securities held-to-maturity   193    - 
Net increase in loans   (1,314)   (918)
Purchases of premises and equipment   (43)   (113)
Redemption of FHLB stock   490     
           
Net cash used in investing activities   (520)   (674)
           
Cash flows from financing activities:          
Net increase (decrease) in deposits   18,446    (10,154)
Net (decrease) increase in federal funds purchased   (560)   2,767 
Net (decrease) increase in FHLB Advances   (11,600)   500 
Proceeds from sale of common stock       46 
           
Net cash provided by (used in) financing activities   6,286    (6,841)
           
Net increase (decrease) in cash and cash equivalents   5,576    (7,521)
           
Cash and cash equivalents at beginning of the period   7,983    11,665 
           
Cash and cash equivalents at end of the period  $13,559   $4,144 

 

See accompanying notes to condensed consolidated financial statements

 

5
 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Condensed Consolidated Statements of Cash Flows (Unaudited), Continued

(In thousands)

 

   Three Months Ended
March 31,
 
   2019   2018 
Supplemental disclosure of cash flow information:          
Cash paid during the period for:          
Interest  $370   $194 
           
Income taxes  $   $ 
           
Noncash transaction -          
Change in accumulated other comprehensive loss, net change in unrealized loss on securities available for sale, net of income taxes  $17   $(47)
           
Reclassification of stock compensation from other liabilities to common stock  $   $614 
           
Cumulative-effect adjustment resulting from adoption of new lease accounting standard  $(4)  $ 
           
Amortization of unrealized loss on securities transferred to held-to-maturity  $17   $ 

 

See accompanying notes to condensed consolidated financial statements

 

(continued)

 

6
 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

(1) General. OptimumBank Holdings, Inc. (the “Company”) is a one-bank holding company and owns 100% of OptimumBank (the “Bank”), a Florida-chartered commercial bank. The 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 community banking services to individual and corporate customers through its three banking offices located in Broward County, Florida.
   
  Basis of Presentation. 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, 2019, and the results of operations and cash flows for the three-month periods ended March 31, 2019 and 2018. All significant intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the three months ended March 31, 2019, are not necessarily indicative of the results to be expected for the full year.
   
  Junior Subordinated Debenture. The Company is in default with respect to its $5,155,000 Junior Subordinated Debenture (the “Debenture”) due to its failure to make certain required interest payments under the Debenture. The Debenture was issued to OptimumBank Holdings Capital Trust I, a Delaware statutory trust formed by the Company for the purpose of issuing and selling certain securities (the “Trust Preferred Securities”) representing undivided beneficial interests in the Debenture. The trust issued a total of 5,000 Trust Preferred Securities.

 

The Trustee, Wells Fargo Bank, for the Debenture (the “Trustee”) and the beneficial owners of the Debenture are entitled to accelerate the payment of the $5,155,000 principal balance plus accrued and unpaid interest totaling $1,776,000 at March 31, 2019. To date, neither the Trustee nor the holders have accelerated the outstanding balance of the Debenture. No adjustments to the accompanying condensed consolidated financial statements have been made as a result of this uncertainty.

 

In May 2018, a company affiliated with a director of the Company (the “New Holder”) purchased all 5,000 Trust Preferred Securities from a third party. During the third quarter of 2018, the New Holder sold its rights in 694 of the Trust Preferred Securities to several unaffiliated third parties, who subsequently exchanged these Trust Preferred Securities for 301,778 shares of the Company’s common stock. Under the Written Agreement the exchange of Trust Preferred Securities for the Company’s common stock cannot reduce the principal amount of the Debenture collateralizing the Trust Preferred Securities. Accordingly the transaction was recorded as an increase in the Company’s equity interest in the unconsolidated subsidiary trust, presented in “Other Assets” in the accompanying condensed consolidated balance sheets.

 

Although the Company and the New Holder have not executed a formal, definitive bilateral agreement, the New Holder has provided the Company with written representations that the New Holder will not accelerate and demand payment of any of the remaining 4,306 Trust Preferred Securities principal or accrued interest within twelve months from May 14, 2019, the date the Company’s Form 10-Q as of and for the period ended March 31, 2019, was filed with the Securities and Exchange Commission.

   
  Comprehensive Loss. GAAP 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 condensed consolidated balance sheets, such items along with net loss, are components of comprehensive loss.

 

Accumulated other comprehensive loss consists of the following (in thousands):

 

   March 31,   December 31, 
   2019   2018 
         
Unrealized loss on securities available for sale  $(59)  $(64)
Unamortized portion of unrealized loss related to securities available for sale transferred to securities held-to-maturity   (360)   (377)
Income tax benefit   106    111 
           
   $(313)  $(330)

 

  Income Taxes. The Company assessed its earnings history and trends and estimates of future earnings, and determined that the deferred tax asset could not be realized as of March 31, 2019. Accordingly, a valuation allowance was recorded against the net deferred tax asset.
   
  (continued)

 

7
 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

(1) General, Continued.

 

Recent Pronouncements. In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2016-02, Leases (Topic 842). ASU 2016-02 is intended to improve financial reporting of leasing transactions by requiring organizations that lease assets to recognize assets and liabilities for the rights and obligations created by leases on the condensed consolidated balance sheet. The Company adopted ASU 2016-02 retrospectively at January 1, 2019 using a simplified transition option that allows companies to initially apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Our only lease at the adoption date was an operating lease for a branch location has a 5 year term, commenced in December 2017, does not offer any options to extend, and does contain a rent escalation clause. The effect of this ASU increased condensed consolidated assets by $277,000 and condensed consolidated liabilities by $281,000, at the adoption date. With respect to the lease recognized on the condensed consolidated balance sheet as of March 31, 2019, the right of use asset $259,000 and lease liability of $264,000 are included in accompanying other assets and other liabilities, respectively. The discount rate used in this calculation was 2.6%.

 

In June 2016, the FASB issued ASU No. 2016-13 Financial Instruments-Credit Losses (Topic 326). The ASU improves financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by the Company. The ASU requires the Company to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. The Company will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. The ASU requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements. Additionally, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The ASU will take effect for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. The Company is in the process of determining the effect of the ASU on its condensed consolidated financial statements.

 

In June 2018, the FASB issued ASU No. 2018-07, Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. The ASU is intended to reduce the cost and complexity and to improve financial reporting for nonemployee share-based payments. The ASU expands the scope of Topic 718. Compensation Stock Compensation (which currently only includes share-based payments to employees) to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned. The ASU supersedes Subtopic 505-50, Equity-Equity-Based payments to Non-Employees. The ASU was effective for the Company for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. The ASU did not have a material impact on the Company’s condensed consolidated financial statements.

   
 

(continued)

 

8
 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

(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):

 

   Amortized
Cost
   Gross
Unrealized
Gains
   Gross
Unrealized
Losses
   Fair
Value
 
                 
At March 31, 2019:                    
Held-to-Maturity -                    
Collateralized mortgage obligations  $6,955   $111   $   $7,066 
Available for Sale -                    
SBA Pool Securities  $2,250  $  $(59)  $2,191

 

   Amortized
Cost
   Gross
Unrealized
Gains
   Gross
Unrealized
Losses
   Fair
Value
 
                 
At December 31, 2018:                    
Held-to-Maturity -                    
Collateralized mortgage obligations  $7,139   $40   $(4)  $7,175 
Available for Sale -                    
SBA Pool Securities  $2,423   $-   $(64)  $2,359 

 

In April 2018, the bank transferred securities of $7,945,000 from the available-for-sale category to the held-to-maturity category at their then fair values resulting in unrealized losses of $432,000. The unrealized loss which was recorded in stockholders’ equity net of amortization and net of tax is being amortized over the remaining term of the securities. At March 31, 2019 and December 31, 2018, $72,000 and $55,000 has been amortized.

 

There were no sales of securities during the three months ended March 31, 2018 and 2017.

 

Securities available for sale with gross unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous loss position, is as follows (in thousands):

 

   At March 31, 2019 
   Over Twelve Months  

Less Than Twelve

Months

 
   Gross
Unrealized
Losses
   Fair
Value
   Gross
Unrealized
Losses
   Fair
Value
 
                 
Available for Sale -                    
SBA Pool Securities  $59  $2,191  $   $

 

   At December 31, 2018 
   Over Twelve Months  

Less Than Twelve

Months

 
   Gross
Unrealized
Losses
   Fair
Value
   Gross
Unrealized
Losses
   Fair
Value
 
                 
Held-to-Maturity -                    
Collateralized mortgage obligations  $4   $1,361   $   $ 
Available for Sale -                    
SBA Pool Securities  $24   $829   $40   $1,530 

 

(continued)

 

9
 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

(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. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospectus of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

 

At March 31, 2019 and December 31, 2018, the unrealized losses on six and seven 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 SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

(3) Loans. The components of loans are as follows (in thousands):

 

   At
March 31, 2019
   At
December 31, 2018
 
         
Residential real estate $26,015   $27,204 
Multi-family real estate   6,455    8,195 
Commercial real estate   42,886    36,634 
Land and construction   -    1,998 
Commercial   4,867    4,997 
Consumer   189    260 
           
Total loans   80,412    79,288 
           
Add (deduct):          
Net deferred loan fees, costs and premiums   133    155 
Allowance for loan losses   (2,047)   (2,243)
           
Loans, net  $78,498   $77,200 

 

(continued)

 

11
 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

(3) Loans, Continued. 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   Unallocated   Total 
Three Months Ended March 31, 2019:                                        
                                         
Beginning balance  $544  $88  $567  $19  $      850  $25  $150  $2,243
(Credit) provision for loan losses   (12)   (23)   256   (25)   (297)   1   100    
Charge-offs           (195)           (7)       (202)
Recoveries               6              6
                                         
Ending balance  $532  $65  $628  $           —  $553  $19  $250  $2,047
                                         
Three Months Ended March 31, 2018:                                        
Beginning balance  $641   $59   $759   $22   $55   $86   $2,369   $3,991 
Provision (credit) for loan losses   6    8    (47)       224    (23)   (168)    
Charge-offs                       (9)       (9)
Recoveries               6        5        11 
                                         
Ending balance  $647   $67   $712   $28   $279   $59   $2,201   $3,993 

 

(continued)

 

12
 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

(3) Loans, Continued.

 

   Residential Real Estate   Multi-
Family Real Estate
   Commercial Real Estate   Land and Construction   Commercial   Consumer   Unallocated   Total 
At March 31, 2019:                                        
Individually evaluated for impairment:                                        
Recorded investment  $948  $  $2,457  $  $1,806  $  $  $5,211
Balance in allowance for loan losses  $261  $  $  $  $523  $  $  $784
                                         
Collectively evaluated for impairment:                                        
Recorded investment  $25,067  $6,455  $40,429  $  $3,061  $189  $  $75,201
Balance in allowance for loan losses  $271  $65  $628  $  $30  $19  $   250  $1,263
                                         
At December 31, 2018:                                        
Individually evaluated for impairment:                                        
Recorded investment  $954   $   $3,861   $   $1,928   $   $   $6,743 
Balance in allowance for loan losses  $268   $   $162   $   $814   $   $   $1,244 
                                         
Collectively evaluated for impairment:                                        
Recorded investment  $26,250   $8,195   $32,773   $1,998   $3,069   $260   $   $72,545 
Balance in allowance for loan losses  $276   $88   $405   $19   $36   $25   $150   $999 

 

(continued)

 

13
 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

(3)

Loans, Continued.

 

The Company has divided the loan portfolio into six portfolio segments, each with different risk characteristics and methodologies for assessing risk. All loans are underwritten based upon standards set forth in the policies approved by the Company’s Board of Directors (the “Board”). The Company identifies the portfolio segments as follows: 

 

Residential Real Estate, Multi-Family Real Estate, Commercial Real Estate, Land and Construction. Residential real estate loans are underwritten based on repayment capacity and source, value of the underlying property, credit history and stability. The Company offers first and second one-to-four family mortgage loans; the collateral for these loans is generally the clients' owner-occupied residences. Although these types of loans present lower levels of risk than commercial real estate loans, risks do still exist because of possible fluctuations in the value of the real estate collateral securing the loan, as well as changes in the borrowers' financial condition. Multi-family 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 Board. Such standards include, among other factors, loan to value limits, cash flow coverage and general creditworthiness of the obligors. Construction loans to borrowers 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, cost estimates and pre-construction sales information. The Company also makes loans on occasion for the purchase of land for future development by the borrower. Land loans are extended for 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.

   
  Commercial. Commercial business loans and lines of credit consist of loans to small- and medium-sized companies in the Company’s market area. Commercial loans are generally used for working capital purposes or for acquiring equipment, inventory or furniture. Primarily all of the Company’s commercial loans are secured loans, along with a small amount of unsecured loans. The Company’s underwriting analysis consists of a review of the financial statements of the borrower, the lending history of the borrower, the debt service capabilities of the borrower, the projected cash flows of the business, the value of the collateral, if any, and whether the loan is guaranteed by the principals of the borrower. These loans are generally secured by accounts receivable, inventory and equipment. Commercial loans are typically made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business, which makes them of higher risk than residential loans and the collateral securing loans may be difficult to appraise and may fluctuate in value based on the success of the business. The Company seeks to minimize these risks through its underwriting standards.
   
  Consumer. 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. Risk is mitigated by the fact that the loans are of smaller individual amounts.

 

(continued)

 

14
 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

(3) Loans, Continued. The following summarizes the loan credit quality (in thousands):

 

    Pass     OLEM
(Other
Loans
Especially Mentioned)
    Sub-
standard
    Doubtful     Loss     Total  
At March 31, 2019:                                                
Residential real estate   $ 25,067     $     $ 948     $     $     $ 26,015  
Multi-family real estate     6,455                               6,455  
Commercial real estate     38,699       1,730       2,457                   42,886  
Land and construction                                    
Commercial     2,355       706       1,806                   4,867  
Consumer     189                               189  
                                                 
Total   $ 72,765     $ 2,436     $ 5,211     $     $     $ 80,412  
                                                 
At December 31, 2018:                                                
Residential real estate   $ 26,250     $     $ 954     $     $     $ 27,204  
Multi-family real estate     8,195                               8,195  
Commercial real estate     31,050       1,723       3,861                   36,634  
Land and construction     1,998                               1,998  
Commercial     2,362       707       1,928                   4,997  
Consumer     260                               260  
                                                 
Total   $ 70,115     $ 2,430     $ 6,743     $     $     $ 79,288  

 

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 – 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 Net 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. Included in this category are loans that are current on their payments, but the Bank is unable to document the source of repayment. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.
   
  Doubtful – a loan classified as Doubtful has all the weaknesses inherent in one classified as 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. 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 effected in the future. The Company 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 effected in the future. The Company fully charges off any loan classified as Loss.

 

(continued)

 

15
 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

(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, 2019:                                                        
Residential real estate   $    -     $    -     $      -     $    -     $ 26,015     $     $ 26,015  
Multi-family real estate     -       -       -       -       6,455             6,455  
Commercial real estate     -       -       -       -       42,886             42,886  
Land and construction     -       -       -       -       -             -  
Commercial     -       -       -       -       4,867             4,867  
Consumer     -       -       -       -       189             189  
                                                         
Total   $ -     $ -     $ -     $ -     $ 80,412     $     $ 80,412  

 

  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 December 31, 2018:                                                        
Residential real estate   $       $     $          —     $           —     $ 27,204     $             —     $ 27,204  
Multi-family real estate                          —       8,195        —       8,195  
Commercial real estate                          —       35,254       1,380       36,634  
Land and construction                          —       1,998        —       1,998  
Commercial                          —       4,997        —       4,997  
Consumer                          —       260        —       260  
                                                         
Total   $        —      $         —      $     $  —     $ 77,908     $ 1,380      $ 79,288  

 

The following summarizes the amount of impaired loans (in thousands):

 

    At March 31, 2019     At December 31, 2018  
    Recorded
Investment
    Unpaid
Principal
Balance
    Related
Allowance
    Recorded
Investment
    Unpaid
Principal
Balance
    Related
Allowance
 
With no related allowance recorded:                                                
Commercial real estate   $ 2,457     $ 2,457     $     $ 2,259     $ 2,259     $  
Commercial     994       994             1,114       1,114        
With related allowance recorded:                                                
Residential real estate   948       948       261       954       954       268  
Commercial real estate                     1,602       1,602       162  
Commercial     812       812       523       814       814       814  
Total:                                                
Residential real estate   $ 948     $ 948     $ 261     $ 954     $ 954     $ 268  
Commercial real estate   $ 2,457     $ 2,457     $     $ 3,861     $ 3,861     $ 162  
Commercial   $ 1,806     $ 1,806     $ 523     $ 1,928     $ 1,928     $ 814  
Total   $ 5,211     $ 5,211     $ 784     $ 6,743     $ 6,743     $ 1,244  

 

(continued)

 

16
 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

(3) Loans, Continued. The average net investment in impaired loans and interest income recognized and received on impaired loans are as follows (in thousands):

 

    Three Months Ended     Three Months Ended  
    March 31, 2019     March 31, 2018  
    Average
Recorded
Investment
    Interest
Income
Recognized
    Interest
Income
Received
    Average
Recorded
Investment
    Interest
Income
Recognized
    Interest
Income
Received
 
                                     
Residential real estate   $ 951       18