OptimumBank(OPHC) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis for the reporting period Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements and detailed notes for the periods ended June 30, 2025, and December 31, 2024 Condensed Consolidated Balance Sheets This statement provides a snapshot of the company's financial position, including assets, liabilities, and equity, at specific dates Condensed Consolidated Balance Sheets (Dollars in thousands): | Metric | June 30, 2025 (Unaudited) | December 31, 2024 (Audited) | Change ($ thousands) | Change (%) | | :------------------------------------------ | :-------------------------- | :-------------------------- | :------------------- | :--------- | | Total Assets | 999,127 | 932,933 | 66,194 | 7.1% | | Total Cash and Cash Equivalents | 181,754 | 93,630 | 88,124 | 94.1% | | Loans, net of allowance for credit losses | 774,548 | 794,985 | (20,437) | (2.6)% | | Total Deposits | 878,865 | 772,195 | 106,670 | 13.8% | | Total Stockholders' Equity | 111,348 | 103,184 | 8,164 | 7.9% | Condensed Consolidated Statements of Earnings This statement details the company's revenues, expenses, and net earnings over specific reporting periods Condensed Consolidated Statements of Earnings (Dollars in thousands, except per share amounts): | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total Interest Income | 15,588 | 15,188 | 30,595 | 28,654 | | Total Interest Expense | 5,346 | 6,446 | 10,927 | 12,161 | | Net Interest Income | 10,242 | 8,742 | 19,668 | 16,493 | | Credit Loss Expense | 1,040 | 195 | 875 | 1,253 | | Net Earnings | 3,602 | 3,496 | 7,472 | 5,873 | | Net Earnings per share - Basic | 0.31 | 0.36 | 0.64 | 0.68 | | Net Earnings per share - Diluted | 0.29 | 0.34 | 0.61 | 0.66 | Condensed Consolidated Statements of Comprehensive Income This statement presents net earnings and other comprehensive income components, reflecting total changes in equity from non-owner sources Condensed Consolidated Statements of Comprehensive Income (Dollars in thousands): | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net earnings | 3,602 | 3,496 | 7,472 | 5,873 | | Total other comprehensive (loss) income | (252) | 246 | 165 | (136) | | Comprehensive income | 3,350 | 3,742 | 7,637 | 5,737 | Condensed Consolidated Statements of Stockholders' Equity This statement outlines changes in equity accounts, including net earnings, stock issuance, and other comprehensive income, over the period - Total stockholders' equity increased to $111,348 thousand at June 30, 2025, from $103,184 thousand at December 31, 2024. This increase was primarily driven by net earnings of $7,472 thousand, proceeds from common stock sales of $231 thousand, and stock-based compensation of $296 thousand during the six months ended June 30, 2025[7][14][17] - The net change in unrealized gain on debt securities available for sale contributed $166 thousand to equity for the six months ended June 30, 2025, compared to a loss of $137 thousand in the prior year period[14][20] Condensed Consolidated Statements of Cash Flows This statement summarizes cash inflows and outflows from operating, investing, and financing activities for the reporting period Condensed Consolidated Statements of Cash Flows (Dollars in thousands): | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | 9,292 | 5,640 | | Net cash provided by (used in) investing activities | 21,931 | (81,447) | | Net cash provided by financing activities | 56,901 | 103,200 | | Net increase in cash and cash equivalents | 88,124 | 27,393 | | Cash and cash equivalents at end of the period | 181,754 | 104,056 | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and additional information supporting the condensed consolidated financial statements (1) General This note describes the company's business operations and the basis of presentation for the financial statements - OptimumBank Holdings, Inc. is a one-bank holding company operating OptimumBank, a Florida-chartered community bank. The Bank provides community banking services in Broward and Miami-Dade Counties, Florida, and offers national deposit and electronic funds transfer services to merchant cash advance providers[22] - The company is evaluating the impact of ASU 2024-03, "Expense Disaggregation Disclosures," effective for fiscal years beginning after December 15, 2026[27] (2) Debt Securities This note provides details on the company's debt securities, including their fair value and unrealized gains or losses Debt Securities Available for Sale (Dollars in thousands, at June 30, 2025): | Category | Amortized Cost | Gross Unrealized Losses | Fair Value | | :----------------------------- | :------------- | :---------------------- | :--------- | | SBA Pool Securities | 512 | (12) | 500 | | Collateralized mortgage obligations | 121 | (14) | 107 | | Taxable municipal securities | 16,635 | (4,654) | 11,981 | | Mortgage-backed securities | 12,360 | (2,570) | 9,790 | | Total | 29,628 | (7,250) | 22,378 | - Unrealized losses on debt securities are primarily due to interest-rate changes, and the Company does not intend to sell these investments, nor does it believe a credit loss expense is necessary[33][34] - No sales of debt securities occurred during the six-month periods ended June 30, 2025, and 2024[30] (3) Loans This note details the composition of the loan portfolio, allowance for credit losses, and credit quality classifications Loan Segments (Dollars in thousands): | Loan Type | June 30, 2025 | December 31, 2024 | | :---------------------- | :-------------- | :---------------- | | Residential real estate | 66,602 | 74,064 | | Multi-family real estate | 68,321 | 64,001 | | Commercial real estate | 478,224 | 485,671 | | Land and construction | 61,126 | 77,295 | | Commercial | 50,351 | 52,810 | | Consumer | 59,940 | 50,399 | | Total loans | 784,564 | 804,240 | - The allowance for credit losses increased to $9,338 thousand (1.19% of loans outstanding) at June 30, 2025, from $8,660 thousand (1.08%) at December 31, 2024[36][120] Nonaccrual Loans (Dollars in thousands): | Loan Type | June 30, 2025 | December 31, 2024 | | :---------------------- | :-------------- | :---------------- | | Commercial | 2,614 | 1,374 | | Consumer | 605 | 605 | | Land and construction | - | 5,597 | | Total Nonaccrual | 3,219 | 7,576 | - The Company defines internal loan grades as Pass, OLEM (Other Loan Especially Mentioned), Substandard, Doubtful, and Loss, reflecting increasing levels of credit risk[51][52][53][54][55] (4) Earnings Per Share This note presents the calculation of basic and diluted earnings per share, including the impact of convertible securities Earnings Per Share (Dollars in thousands, except per share amounts): | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Basic EPS | $0.31 | $0.36 | $0.64 | $0.68 | | Diluted EPS | $0.29 | $0.34 | $0.61 | $0.66 | | Weighted Average Shares (Basic) | 11,751,082 | 9,639,503 | 11,727,974 | 8,627,904 | | Weighted Average Shares (Diluted) | 12,276,723 | 10,165,144 | 12,253,615 | 8,902,247 | - The dilutive effect on EPS is primarily due to 525,641 outstanding Series C Convertible Preferred shares, calculated using the if-converted method[64][65] (5) Stock-Based Compensation This note outlines the company's stock-based compensation plans, related expenses, and shares available for grant - The Company issued 62,171 shares to employees for services, recording $296,000 in compensation expense during the six months ended June 30, 2025[67] - As of June 30, 2025, 861,488 shares remain available for grant under the 2018 Equity Incentive Plan[66] (6) Fair Value Measurements This note describes the methodologies and inputs used to determine the fair value of financial instruments Fair Value Measurements Using Significant Other Observable Inputs (Level 2) for Debt Securities Available for Sale (Dollars in thousands, at June 30, 2025): | Category | Fair Value | Level 2 Inputs | | :----------------------------- | :--------- | :------------- | | SBA Pool Securities | 500 | 500 | | Collateralized mortgage obligations | 107 | 107 | | Taxable municipal securities | 11,981 | 11,981 | | Mortgage-backed securities | 9,790 | 9,790 | | Total | 22,378 | 22,378 | (7) Financial Instruments This note provides information on the carrying amounts and fair values of various financial instruments Fair Value of Financial Instruments (Dollars in thousands, at June 30, 2025): | Financial Instrument | Carrying Amount | Fair Value | Level | | :-------------------------------- | :-------------- | :--------- | :---- | | Cash and cash equivalents | 181,754 | 181,754 | 1 | | Debt securities available for sale | 22,378 | 22,378 | 2 | | Debt securities held-to-maturity | 260 | 232 | 2 | | Loans | 774,548 | 691,943 | 3 | | Federal Home Loan Bank stock | 658 | 658 | 3 | | Accrued interest receivable | 3,138 | 3,138 | 3 | | Deposit liabilities | 878,865 | 866,058 | 3 | | Federal Home Loan Bank advances | - | - | 3 | (8) Off-Balance Sheet Financial Instruments This note details the company's commitments to extend credit and other off-balance sheet arrangements Off-Balance Sheet Financial Instruments (Dollars in thousands, at June 30, 2025): | Instrument | Contractual Amount | | :----------------------------- | :----------------- | | Commitments to extend credit | 13,450 | | Unused lines of credit | 52,777 | | Standby letters of credit | 3,779 | - The Company manages credit risk for off-balance sheet instruments using the same credit policies as for on-balance sheet instruments and generally holds collateral[74][76] (9) Regulatory Matters This note discusses the company's compliance with regulatory capital requirements and its capital adequacy status Bank Capital Adequacy (Dollars in thousands, at June 30, 2025): | Metric | Actual Amount | Actual % | To Be Well Capitalized (CBLR Framework) Amount | To Be Well Capitalized (CBLR Framework) % | | :----------------------------- | :------------ | :------- | :--------------------------------------------- | :---------------------------------------- | | Tier 1 Capital to Total Assets | 116,277 | 11.89% | 88,011 | 9.00% | - The Bank meets all capital adequacy requirements and is considered well-capitalized under regulatory guidelines[78] (10) Series B and C Preferred Stock and ATM offering program This note describes the terms of preferred stock, conversion rights, and the at-the-market equity offering program - Series B Preferred Stock is convertible into 11,113,889 common shares, subject to shareholder and regulatory approvals, and has preferential liquidation rights[80][82] - 525,641 shares of Series C Preferred Stock are outstanding, each convertible into one common share, subject to a 9.9% ownership limit[83] - The ATM Program generated $231,000 in net proceeds from the sale of 52,819 common shares during the six months ended June 30, 2025, intended to facilitate growth[84] (11) Contingencies This note addresses potential future obligations arising from legal claims or other uncertain events - Management believes no current legal claims will have a material effect on the Company's condensed consolidated financial statements[87] (12) Borrowings This note details the company's borrowing arrangements, including FHLB advances and lines of credit - As of June 30, 2025, the Company had no outstanding FHLB advances, having repaid $10 million borrowed during the period[88] - The Company maintains $244.3 million in FHLB borrowing capacity, collateralized by $458 million in first mortgage loans, and has $49.5 million in lines of credit with correspondent banks[89][90] - A line of credit with the Federal Reserve Bank is secured by investment securities with a fair value of $1.7 million[89] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition, operational results, strategic initiatives, and liquidity for the reporting periods Strategic Plan This section outlines the company's strategic objectives for growth, efficiency, and market expansion - The strategic plan focuses on generating growth in earning assets, core transaction deposits, and treasury management fee income, while maintaining an efficient cost structure[94] - Key initiatives include expanding the South Florida footprint, exploring niche lines of business (Skilled Nursing Facilities, Merchant Cash Advance, SBA lending), investing in talent, and modernizing technology, including a core banking system upgrade in 2025[94][96][97][98] - The Company achieved Preferred Lender status under the SBA's PLP in Q1 2025, enhancing its SBA-guaranteed 7A loan offerings[97] Financial Condition at June 30, 2025 and December 31, 2024 This section analyzes the company's financial position, including assets, liabilities, and equity, at the specified dates Capital Levels This subsection reviews the company's regulatory capital adequacy and overall capital strength - The Bank remained well-capitalized under regulatory guidelines as of June 30, 2025, and December 31, 2024[100] Overview This subsection provides a high-level summary of changes in total assets, deposits, and loans - Total assets increased by approximately $66.2 million to $999.1 million at June 30, 2025, primarily due to increases in cash and cash equivalents[102] - Deposits grew by approximately $106.7 million to $878.9 million, while net loans decreased by $20.4 million[102] Selected Financial Information: | Metric | Six Months Ended June 30, 2025 | Year Ended December 31, 2024 | | :-------------------------------- | :----------------------------- | :--------------------------- | | Average equity as a percentage of average assets | 11.2% | 9.3% | | Equity to total assets at end of period | 11.1% | 11.1% | | Return on average assets (annualized) | 1.6% | 1.4% | | Return on average equity (annualized) | 13.9% | 7.3% | | Noninterest expenses to average assets (annualized) | 2.5% | 2.1% | Liquidity and Sources of Funds This subsection discusses the company's liquidity position and its primary funding sources - Liquidity is primarily derived from customer deposits, loan repayments, earnings, and access to borrowing arrangements, including $244.3 million in FHLB capacity and $49.5 million in correspondent bank lines of credit[104][105][108] - Deposits increased by approximately $106.7 million during the six-month period ended June 30, 2025, providing funding for new loan originations and repayment of FHLB advances[106] Off-Balance Sheet Arrangements This subsection refers to disclosures regarding the company's off-balance sheet commitments and contingencies - Details on off-balance sheet arrangements are provided in Note 8 to the condensed consolidated financial statements[109] Results of Operations This section analyzes the company's financial performance, including net earnings, interest income, and expenses, for the reporting periods Comparison of the three-month periods ended June 30, 2025, and 2024 This subsection compares key financial performance metrics for the three-month periods, highlighting changes and drivers - Net earnings increased by 3% to $3.6 million, driven by a 17% increase in net interest income and a 53% increase in noninterest income[117] - Credit loss expense significantly increased by 433% to $1.0 million, primarily due to estimated collectability on individually analyzed loans[117][120] - Total noninterest expenses rose by 22% to $6.2 million, mainly due to employee compensation and benefits, and professional fees[117][122] - Interest expense decreased by 17% to $5.3 million, attributed to reduced deposit rates and repayment of borrowings[117][119] Comparison of the six-month periods ended June 30, 2025, and 2024 This subsection compares key financial performance metrics for the six-month periods, highlighting changes and drivers - Net earnings increased by 27% to $7.5 million, primarily due to a 19% increase in net interest income and a 26% increase in noninterest income[124] - Credit loss expense decreased by 30% to $875,000, reflecting improvements in loan portfolio quality and reassessment of collectability factors[124][126] - Total noninterest expenses increased by 21% to $11.8 million, mainly driven by employee compensation and benefits[124][128] - Interest expense decreased by 10% to $10.9 million, due to a reduction in deposit rates and changes in deposit composition[124][125] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section is not applicable to the current report, indicating no material market risk disclosures are required - Not applicable[129] Item 4. Controls and Procedures Management assessed the effectiveness of disclosure controls and internal control over financial reporting as of June 30, 2025 - The Principal Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were effective as of June 30, 2025[130] - There have been no significant changes in the Company's internal control over financial reporting during the quarter ended June 30, 2025[131] PART II. OTHER INFORMATION This section includes disclosures on legal proceedings, risk factors, equity sales, defaults, and exhibits Item 1. Legal Proceedings The company reports no material legal proceedings that would significantly impact its financial statements - The Company is not currently a party to any material legal proceedings[134] Item 1A. Risk Factors This section is not applicable to the current report, indicating no new material risk factors are disclosed - Not applicable[135] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section is not applicable to the current report, indicating no unregistered equity sales or proceeds to disclose - Not applicable[136] Item 3. Defaults Upon Senior Securities This section is not applicable to the current report, indicating no defaults on senior securities - Not applicable[137] Item 4. Mine Safety Disclosures This section is not applicable to the current report, as the company is not involved in mining operations - Not applicable[138] Item 5. Other Information This section is not applicable to the current report, indicating no other material information to disclose - Not applicable[139] Item 6. Exhibits This section lists all exhibits filed with the report, including corporate documents and officer certifications - The exhibit index includes Amended and Restated Articles of Incorporation, Bylaws, Description of Securities, Form of Stock Certificate, Certifications of Principal Executive Officer and Chief Financial Officer (Rule 13a-14(a)/15d-14(a) and Section 32), and various Inline XBRL documents[147] SIGNATURES This section contains the official signatures of the company's principal executive and financial officers - The report was signed on August 8, 2025, by Timothy Terry, Principal Executive Officer, and Elliot Nunez, Chief Financial Officer[144] EXHIBIT INDEX This section provides a comprehensive list and description of all exhibits accompanying the report - A comprehensive list of exhibits filed with the Form 10-Q, including corporate documents, certifications, and XBRL files[147]