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What changed in OptimumBank Holdings, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of OptimumBank Holdings, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+130 added−131 removedSource: 10-K (2024-03-08) vs 10-K (2023-03-06)

Top changes in OptimumBank Holdings, Inc.'s 2023 10-K

130 paragraphs added · 131 removed · 98 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

45 edited+17 added−14 removed77 unchanged
Biggest changeUnder the Gramm-Leach-Bliley Financial Modernization Act of 1999 which is discussed below, bank holding companies have the opportunity to seek broadened authority, subject to limitations on investment, to engage in activities that are “financial in nature” if all of their subsidiary depository institutions are well capitalized, well managed, and have at least a satisfactory rating under the Community Reinvestment Act, which is also discussed below. 7 In this regard, the BHCA prohibits a bank holding company, with certain limited exceptions, from (i) acquiring or retaining direct or indirect ownership or control of more than 5% of the outstanding voting stock of any company which is not a bank or bank holding company, or (ii) engaging directly or indirectly in activities other than those of banking, managing or controlling banks, or performing services for its subsidiaries, unless such non-banking business is determined by the FRB to be so closely related to banking or managing or controlling banks as to be properly incident thereto.
Biggest changeIn this regard, the BHCA prohibits a bank holding company, with certain limited exceptions, from (i) acquiring or retaining direct or indirect ownership or control of more than 5% of the outstanding voting stock of any company which is not a bank or bank holding company, or (ii) engaging directly or indirectly in activities other than those of banking, managing or controlling banks, or performing services for its subsidiaries, unless such non-banking business is determined by the FRB to be so closely related to banking or managing or controlling banks as to be properly incident thereto.
The Bank provides employees and their families with access to a variety of flexible and convenient health and the welfare programs, including benefits that support their physical and mental health by providing tools and resources to help them improve or maintain their health status; and that offer choice where possible so they can customize their benefits to meet their needs and the needs of their families.
The Bank provides employees and their families with access to a variety of flexible and convenient health and welfare programs, including benefits that support their physical and mental health by providing tools and resources to help them improve or maintain their health status; and that offer choice where possible so they can customize their benefits to meet their needs and the needs of their families.
Interstate Banking and Branching . The Interstate Banking and Branching Act provides for nationwide interstate banking and branching. Under the law, interstate acquisitions of banks or bank holding companies in any state by bank holding companies in any other state are permissible subject to certain limitations.
The Interstate Banking and Branching Act provides for nationwide interstate banking and branching. Under the law, interstate acquisitions of banks or bank holding companies in any state by bank holding companies in any other state are permissible subject to certain limitations.
The Bank’s loans are also subject to federal laws applicable to consumer credit transactions, such as the: ● Federal Truth-In-Lending Act governing disclosures of credit terms to consumer borrowers; ● Community Reinvestment Act requiring financial institutions to meet their obligations to provide for the total credit needs of the communities they serve, including investing their assets in loans to low and moderate-income borrowers; ● Home Mortgage Disclosure Act requiring financial institutions to provide information to enable public officials to determine whether a financial institution is fulfilling its obligations to meet the housing needs of the community it serves; ● Equal Credit Opportunity Act prohibiting discrimination on the basis of race, creed or other prohibitive factors in extending credit; ● Real Estate Settlement Procedures Act which requires lenders to disclose certain information regarding the nature and cost of real estate settlements, and prohibits certain lending practices, as well as limits escrow account amounts in real estate transactions; ● Fair Debt Collection Act governing the manner in which consumer debts may be collected by collection agencies; ● Fair and Accurate Credit Transactions Act which establishes additional rights for consumers to obtain and correct credit reports, addresses identity theft, and establishes additional requirements for consumer reporting agencies and financial institutions that provide adverse credit information to a consumer reporting agency; and 10 ● The rules and regulations of various federal agencies charged with the responsibility of implementing such federal laws.
The Bank’s loans are also subject to federal laws applicable to consumer credit transactions, such as the: ● Federal Truth-In-Lending Act governing disclosures of credit terms to consumer borrowers; ● Community Reinvestment Act requiring financial institutions to meet their obligations to provide for the total credit needs of the communities they serve, including investing their assets in loans to low and moderate-income borrowers; ● Home Mortgage Disclosure Act requiring financial institutions to provide information to enable public officials to determine whether a financial institution is fulfilling its obligations to meet the housing needs of the community it serves; ● Equal Credit Opportunity Act prohibiting discrimination on the basis of race, creed or other prohibitive factors in extending credit; ● Real Estate Settlement Procedures Act which requires lenders to disclose certain information regarding the nature and cost of real estate settlements, and prohibits certain lending practices, as well as limits escrow account amounts in real estate transactions; ● Fair Debt Collection Act governing the manner in which consumer debts may be collected by collection agencies; ● Fair and Accurate Credit Transactions Act which establishes additional rights for consumers to obtain and correct credit reports, addresses identity theft, and establishes additional requirements for consumer reporting agencies and financial institutions that provide adverse credit information to a consumer reporting agency; and ● The rules and regulations of various federal agencies charged with the responsibility of implementing such federal laws.
In general, the GLB Act repealed most of the federal statutory barriers which separated commercial banking firms from insurance and securities firms and authorized the consolidation of such firms in a “financial services holding company.” The Bank has no current plans to utilize the structural options created by the GLB Act. 8 Securities Regulation and Corporate Governance .
In general, the GLB Act repealed most of the federal statutory barriers which separated commercial banking firms from insurance and securities firms and authorized the consolidation of such firms in a “financial services holding company.” The Bank has no current plans to utilize the structural options created by the GLB Act. Securities Regulation and Corporate Governance .
Large multi-branch banking competitors tend to compete primarily by rate and the number and location of branches while smaller, independent financial institutions tend to compete primarily by rate and personal service. Human Capital The Bank is committed to establishing personal relationships with its customers and providing personalized banking services that meet their specific needs.
Large multi-branch banking competitors tend to compete primarily by rate and the number and location of branches while smaller, independent financial institutions tend to compete primarily by rate and personal service. 4 Human Capital The Bank is committed to establishing personal relationships with its customers and providing personalized banking services that meet their specific needs.
Among other things, the agencies may require that institutions cease and desist from certain activities, may preclude persons from participating in the affairs of insured depository institutions, may suspend or remove deposit insurance, and may impose civil money penalties against institution-affiliated parties for certain violations. Community Reinvestment Act.
Among other things, the agencies may require that institutions cease and desist from certain activities, may preclude persons from participating in the affairs of insured depository institutions, may suspend or remove deposit insurance, and may impose civil money penalties against institution-affiliated parties for certain violations. 11 Community Reinvestment Act.
The Bank’s principal expenses are the interest paid on deposits, and operating and general administrative expenses. 1 As is the case with banking institutions generally, the Bank’s operations are materially and significantly influenced by general economic conditions and by related monetary and fiscal policies of financial institution regulatory agencies, including the Federal Reserve and the FDIC.
The Bank’s principal expenses are the interest paid on deposits, and operating and general administrative expenses. As is the case with banking institutions generally, the Bank’s operations are materially and significantly influenced by general economic conditions and by related monetary and fiscal policies of financial institution regulatory agencies, including the Federal Reserve and the FDIC.
The Dodd-Frank Act also increased regulatory oversight, supervision and examination of banks, bank holding companies and their respective subsidiaries by the appropriate regulatory agency. Compliance with new regulatory requirements and expanded examination processes could increase the Company’s cost of operations. 6 The Consumer Financial Protection Bureau .
The Dodd-Frank Act also increased regulatory oversight, supervision and examination of banks, bank holding companies and their respective subsidiaries by the appropriate regulatory agency. Compliance with new regulatory requirements and expanded examination processes could increase the Company’s cost of operations. The Consumer Financial Protection Bureau .
The Bank has devoted substantial attention and resources to compliance with these laws. Other Consumer Laws. Florida usury laws and federal laws concerning interest rates limit the amount of interest and various other charges collected or contracted by a bank.
The Bank has devoted substantial attention and resources to compliance with these laws. 10 Other Consumer Laws. Florida usury laws and federal laws concerning interest rates limit the amount of interest and various other charges collected or contracted by a bank.
Supervision, regulation, and examination of banks by regulatory agencies are intended primarily for the protection of depositors, rather than shareholders. Regulatory Matters Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies.
Supervision, regulation, and examination of banks by regulatory agencies are intended primarily for the protection of depositors, rather than shareholders. 5 Regulatory Matters Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies.
The FDIC and the Florida OFR also have the authority to approve or disapprove mergers, consolidations, and similar corporate actions. Dividends . The Company’s ability to pay dividends is substantially dependent on the ability of the Bank to pay dividends to the Company.
The FDIC and the Florida OFR also have the authority to approve or disapprove mergers, consolidations, and similar corporate actions. 9 Dividends . The Company’s ability to pay dividends is substantially dependent on the ability of the Bank to pay dividends to the Company.
The Dodd-Frank Act expanded the scope of these restrictions to include credit exposure arising from derivative transactions, repurchase agreements, and securities lending and borrowing transactions. Company Regulation General .
The Dodd-Frank Act expanded the scope of these restrictions to include credit exposure arising from derivative transactions, repurchase agreements, and securities lending and borrowing transactions. 7 Company Regulation General .
The Company’s only business is the ownership and operation of the Bank. The Bank is a Florida state-chartered bank established in 2000, with deposits insured by the Federal Deposit Insurance Corporation (“FDIC”). The Bank offers a variety of community banking services to individual and corporate customers through its two banking offices located in Broward County, Florida.
The Company’s only business is the ownership and operation of the Bank. The Bank is a Florida state-chartered bank established in 2000, with deposits insured by the Federal Deposit Insurance Corporation (“FDIC”). The Bank offers a variety of commercial banking services to individual and corporate customers through its two banking offices located in Broward County, Florida.
The Dodd-Frank Act revised capital rules became effective for community banks with assets less than $10 billion and their holding companies pursuant to the requirements of the Dodd-Frank Act and standards adopted by the Basel Committee on Banking Supervision (referred to as “Basel III”).
Increased Capital Standards and Enhanced Supervision . The Dodd-Frank Act revised capital rules became effective for community banks with assets less than $10 billion and their holding companies pursuant to the requirements of the Dodd-Frank Act and standards adopted by the Basel Committee on Banking Supervision (referred to as “Basel III”).
The Bank provides ATM cards and Visa debit cards, as a part of the Star, Presto and Cirrus networks, thereby permitting customers to utilize the convenience of ATMs worldwide. On December 2022, the Bank began participating as a member of the IntraFi Network, which is the largest provider of reciprocal deposits.
The Bank provides ATM cards and Visa debit cards, as a part of the Star, Presto and Cirrus networks, thereby permitting customers to utilize the convenience of ATMs worldwide. In December 2022, the Bank began participating as a member of the IntraFi Network, which is the largest provider of reciprocal deposits.
With IntraFi’s reciprocal deposit services, the Bank can offer depositors access to FDIC insurance well beyond the standard maximum of $250,000 for funds placed into demand deposit accounts, money market deposit accounts, or CDs. The Bank does not have trust powers and provides no trust services.
With IntraFi’s reciprocal deposit services, the Bank can offer depositors access to FDIC insurance for an unlimited amount, well beyond the standard maximum of $250,000 for funds placed into demand deposit accounts, money market deposit accounts, or CDs. The Bank does not have trust powers and provides no trust services.
The community bank leverage ratio minimum requirement is 9%. Under the final rule, an eligible community banking organization can opt out of the CBLR framework and revert back to the risk-weighting framework without restriction. Management believes, as of December 31, 2022, that the Bank met all capital adequacy requirements to which it was subject.
The community bank leverage ratio minimum requirement is 9%. Under the CBLR framework, an eligible community banking organization can opt out of the CBLR framework and revert back to the risk-weighting framework without restriction. Management believes, as of December 31, 2023, that the Bank met all capital adequacy requirements to which it was subject.
As part of these efforts, the Bank seeks to offer competitive compensation and benefits, maintain a community in which all employees are empowered to perform their duties to the best of their abilities, and give employees the opportunity to contribute to the local community. 4 As of December 31, 2022, the Bank had 48 full-time employees, including executive officers.
As part of these efforts, the Bank seeks to offer competitive compensation and benefits, maintain a community in which all employees are empowered to perform their duties to the best of their abilities, and give employees the opportunity to contribute to the local community. As of December 31, 2023, the Bank had 60 full-time employees, including executive officers.
In addition, any person or group of persons must obtain the approval of the Federal Reserve under the BHCA before acquiring 25% (5% in the case of an acquirer that is already a bank holding company) or more of the outstanding common stock of a bank holding company, or otherwise obtaining control or a “controlling influence” over the bank holding company.
In addition, any person or group of persons must obtain the approval of the Federal Reserve under the BHCA before acquiring 25% (5% in the case of an acquirer that is already a bank holding company) or more of the outstanding common stock of a bank holding company, or otherwise obtaining control or a “controlling influence” over the bank holding company. 8 Interstate Banking and Branching .
Growing businesses can use the loans to expand inventory, take discounts, offset receivables, or establish new structured financing and repayment plans that are consistent with the cash flow of the business. In 2023, the Bank plans to provide small businesses administration government loans to small and middle market businesses.
Growing businesses can use the loans to expand inventory, take discounts, offset receivables, or establish new structured financing and repayment plans that are consistent with the cash flow of the business. During the third quarter of 2023, the Bank started providing small businesses administration government loans to small and middle market businesses.
The Dodd-Frank Act has had a broad impact on the financial services industry, including significant regulatory and compliance changes including, among other things, (1) enhanced resolution authority of troubled and failing banks and their holding companies; (2) changes to capital and liquidity requirements; (3) changes to regulatory examination fees; (4) changes to assessments to be paid to the FDIC for federal deposit insurance; and (5) numerous other provisions designed to improve supervision and oversight of, and strengthening safety and soundness for, the financial services sector.
The Dodd-Frank Act has had a broad impact on the financial services industry, including significant regulatory and compliance changes including, among other things, (1) enhanced resolution authority of troubled and failing banks and their holding companies; (2) changes to capital and liquidity requirements; (3) changes to regulatory examination fees; (4) changes to assessments to be paid to the FDIC for federal deposit insurance; and (5) numerous other provisions designed to improve supervision and oversight of, and strengthening safety and soundness for, the financial services sector. 6 The following items provide a brief description of the impact of the Dodd-Frank Act on the Bank’s operations and activities, both currently and prospectively.
Based upon the Bank’s capital, the maximum loan the Bank is currently permitted to make to any one borrower (and certain related entities of such borrower) is approximately $16.6 million, provided the unsecured portion does not exceed approximately $9.9 million. Transactions with Affiliates.
Based upon the Bank’s capital, the maximum loan the Bank is currently permitted to make to any one borrower (and certain related entities of such borrower) is approximately $18.7 million, provided the unsecured portion does not exceed approximately $11.2 million. Transactions with Affiliates.
The interest rates charged on loans varied with the degree of risk, maturity, and amount of the loan, and are further subject to competitive pressures, money market rates, availability of funds, and government regulations. The Bank has no loans to non-U.S. borrowers.
The interest rates charged on loans varied with the degree of risk, maturity, and amount of the loan, and are further subject to competitive pressures, money market rates, availability of funds, and government regulations.
The Bank’s actual capital amounts and percentages are presented in the table ($’s in thousands): To Be Well Capitalized Under Prompt Corrective Action Regulations (CBLR Actual Framework) Amount % Amount % As of December 31, 2022: Tier I Capital to Total Assets $ 66,291 11.29 % $ 52,865 9.00 % As of December 31, 2021: Tier I Capital to Total Assets $ 35,338 10.64 % $ 28,235 8.50 % Dodd-Frank Act The Company and the Bank are subject to the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act.
The Bank’s actual capital amounts and percentages are presented in the table ($’s in thousands): To Be Well Capitalized Under Prompt Corrective Action Regulations (CBLR Actual Framework) Amount % Amount % As of December 31, 2023: Tier 1 Capital to Total Assets $ 74,999 10.00 % $ 67,499 9.00 % As of December 31, 2022: Tier 1 Capital to Total Assets $ 66,291 11.29 % $ 52,865 9.00 % Dodd-Frank Act The Company and the Bank are subject to the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act.
The Bank also sells loan participations to other banks with respect to loans which exceed its lending limit. The Bank may purchase loan participations to supplement loan demand. Data Processing The Bank outsources most of its data processing services, including an automated general ledger and deposit accounting; however, it services all its loans in-house.
The Bank may sell loan participations to other banks with respect to loans which exceed its lending limit. The Bank may purchase loan participations to supplement loan demand. Data Processing The Bank outsources most of its data processing services, including an automated general ledger, deposit accounting, and loan sub-system.
Lending activities are affected by the demand for financing of real estate and other types of loans, which in turn is affected by the interest rates at which such financing may be offered and other factors affecting local demand and availability of funds. The Bank faces strong competition attracting deposits (its primary source of lendable funds) and originating loans.
Lending activities are affected by the demand for financing of real estate and other types of loans, which in turn is affected by the interest rates at which such financing may be offered and other factors affecting local demand and availability of funds.
The Bank provides a range of consumer and commercial banking services to individuals and businesses. The basic services offered include: demand interest-bearing and noninterest-bearing accounts, money market deposit accounts, NOW accounts, time deposits, Visa debit and ATM cards, cash management, direct deposits, notary services, money orders, night depository, cashier’s checks, domestic collections, and banking by mail.
The basic services offered include: demand interest-bearing and noninterest-bearing accounts, money market deposit accounts, NOW accounts, time deposits, Wire transfers, ACH services, Visa debit and ATM cards, cash management, direct deposits, notary services, money orders, night depository, cashier’s checks, domestic collections, and banking by mail.
The monetary policies of the Federal Reserve have major effects upon the levels of loans, investments and deposits through its open market operations in United States Government securities and through its regulation of the discount rate on borrowings of member banks.
The monetary policies of the Federal Reserve have major effects upon the levels of loans, investments and deposits through its open market operations in United States Government securities and through its regulation of the discount rate on borrowings of member banks. It is not possible to predict the nature or impact of future changes in monetary and fiscal policies.
It is not possible to predict the nature or impact of future changes in monetary and fiscal policies. 11 Statistical Profile and Other Financial Data Reference is hereby made to the statistical and financial data contained in the sections captioned “Selected Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” for statistical and financial data providing a review of the Bank’s business activities.
Statistical Profile and Other Financial Data Reference is hereby made to the statistical and financial data contained in the sections captioned “Selected Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” for statistical and financial data providing a review of the Bank’s business activities.
With IntraFi’s reciprocal deposit services, the Bank can offer depositors access to FDIC insurance well beyond the standard maximum of $250,000 for funds placed into demand deposit accounts, money market deposit accounts, or CDs. Transactions with Affiliates .
With IntraFi’s deposit services, the Bank can offer depositors access to FDIC insurance for an unlimited amount, well beyond the standard maximum of $250,000 for funds placed into demand deposit accounts, money market deposit accounts, or CDs. The Company uses IntraFi Network’s reciprocal deposit program and not its one-way deposit program.
Consequently, shareholders of financial institutions are less likely to benefit from the rapid increases in stock prices that often result from tender offers or similar efforts to acquire control of other companies. 9 Under Florida law, no person or group of persons may, directly or indirectly or acting by or through one or more persons, purchase or acquire a controlling interest in any bank which would result in the change in control of that bank unless the Florida OFR first shall have approved such proposed acquisition.
Under Florida law, no person or group of persons may, directly or indirectly or acting by or through one or more persons, purchase or acquire a controlling interest in any bank which would result in the change in control of that bank unless the Florida OFR first shall have approved such proposed acquisition.
At December 31, 2022, the Company had total assets of $585 million, net loans of $477 million, total deposits of $508 million and stockholders’ equity of $63 million. During 2022, the Company had a net income of $4 million.
At December 31, 2023, the Company had total assets of $791 million, net loans of $671 million, total deposits of $640 million and stockholders’ equity of $70 million. During 2023, the Company had a net income of $6 million.
These real estate loans were made at fixed or variable interest rates and are normally variable rate mortgages which adjust annually after the initial three to five-year period of the loan. The Bank’s fixed rate loans generally are for terms of five years or less, and are repayable in monthly instalments based on a maximum 30-year amortization schedule.
The Bank’s real estate loans are secured by mortgages and consist primarily of loans to individuals and businesses for the purchase or improvement of, or investment in, real estate. These real estate loans were made at fixed or variable interest rates and are normally variable rate mortgages which adjust annually after the initial three to five-year period of the loan.
A significant portion of the Bank’s portfolio is collateralized by real estate in South Florida, which is susceptible to local economic downturns. The Bank attempts to minimize credit losses through various means. On most credits, it relies on the cash flow and assets of a debtor as the source of repayment as well as the value of the underlying collateral.
The Bank attempts to minimize credit losses through various means. On most credits, it relies on the cash flow and assets of a debtor as the source of repayment as well as the value of the underlying collateral. The Bank also generally limits its loans to up to 80% of the value of the underlying real estate collateral.
Management believes as of December 31, 2022, the Company and Bank meet all capital adequacy requirements to which they are subject. 5 In 2019, the federal banking agencies jointly issued a final rule that provides for an optional, simplified measure of capital adequacy, the community bank leverage ratio framework (CBLR framework), for qualifying community banking organizations.
In 2019, the federal banking agencies jointly issued a final rule that provides for an optional, simplified measure of capital adequacy, the community bank leverage ratio framework (CBLR framework), for qualifying community banking organizations. The final rule became effective on January 1, 2020, and was elected by the Bank.
At December 31, 2022, 52% of this portfolio was invested in asset-backed securities. Mortgage-backed securities generally have a shorter life than the stated maturity.
Investments The Bank’s investment securities portfolio was approximately $24.7 million and $ 25.6 million at December 31, 2023 and 2022, respectively, representing 3% and 4% of its total assets. At December 31, 2023, 48% of this portfolio was invested in asset-backed securities. Mortgage-backed securities generally have a shorter life than the stated maturity.
Loan balances increased by $21.0 million in multi-family real estate loans, $17.8 million in residential real estate loans, $181.2 million in commercial real estate loans $13.5, million in land and construction loans, and $7.5 million in consumer loans.
Loan balances increased by $21 million in residential real estate loans, $112 million in commercial real estate loans, $15 million in land and construction loans, $37 million in commercial loans, and $14 million in consumer loans.
The Bank also generally limits its loans to up to 80% of the value of the underlying real estate collateral. The Bank generally charges a prepayment penalty if a loan is repaid within the first two to three years of origination to recover any costs it paid for the origination of the loan.
The Bank generally charges a prepayment penalty if a loan is repaid within the first two to three years of origination to recover any costs it paid for the origination of the loan. Deposit Activities Deposits are the major source of the Bank’s funds for lending and other investment activities.
Management is seeking to obtain additional capital to increase the Bank’s capital ratios in order to allow the Bank to grow, implement its business plan and improve profitability. 2 Lending Activities The Bank offers real estate, commercial and consumer loans to individuals and small businesses and other organizations that are located in or conduct a substantial portion of their business in its market area.
Lending Activities The Bank offers real estate, commercial and consumer loans to individuals and small businesses and other organizations that are located in or conduct a substantial portion of their business in its market area. The Bank’s primary market area consists of Broward, Miami-Dade, Palm Beach, Martin, and St. Lucie counties, and secondarily throughout the State of Florida.
Under the Federal Deposit Insurance Act, an FDIC-insured institution may not pay any dividend if payment would cause it to become undercapitalized or while it is undercapitalized. The FDIC and the Florida OFR also have the general authority to limit the dividend payment by banks if such payment may be deemed to constitute an unsafe and unsound practice.
Further, the FDIC and the Florida OFR also have the general authority to limit the dividend payment by banks if such payment may be deemed to constitute an unsafe and unsound practice. It is likely that those agencies would view a Bank dividend which materially reduced the capital ratios of the Bank to be such an unsafe or unsound practice.
The Bank’s loan portfolio is concentrated in three major areas: residential, multi-family real estate, and commercial real estate loans. As of December 31, 2022, 93% of the loan portfolio consisted of loans secured by mortgages on real estate, of which approximately 64% of the total loan portfolio was secured by commercial real estate properties.
As of December 31, 2023, 91% of the loan portfolio consisted of loans secured by mortgages on real estate, of which approximately 62% of the total loan portfolio was secured by commercial real estate properties. The real estate loans are located primarily in the counties the Bank serves in the State of Florida.
Loan originations are derived primarily from director and employee referrals, existing customers, and direct marketing. Certain credit risks are inherent in making loans. These include prepayment risks, risks resulting from uncertainties in the future value of collateral, risks resulting from changes in economic and industry conditions including interest rates, and risks inherent in dealing with individual borrowers.
These include prepayment risks, risks resulting from uncertainties in the future value of collateral, risks resulting from changes in economic and industry conditions including interest rates, and risks inherent in dealing with individual borrowers. A significant portion of the Bank’s portfolio is collateralized by real estate in South Florida, which is susceptible to local economic downturns.
During 2022 net loans increased by $229.3 million due to the success of the Bank is seeking new lending opportunities in South Florida.
The Bank’s net loans at December 31, 2023 were $671 million, or 85% of total assets. During 2023 net loans increased by $194 million, attributed to the bank’s successful pursuit of new lending opportunities in South Florida.
Deposit Activities Deposits are the major source of the Bank’s funds for lending and other investment activities. The Bank considers the majority of its regular savings, demand, NOW, money market deposit accounts and certificates of deposit under $250,000 to be core deposits. These accounts comprised approximately 90.7% of the Bank’s total deposits at December 31, 2022.
The Bank considers the majority of its regular savings, demand, NOW, money market deposit accounts and certificates of deposit under $250,000 to be core deposits. Deposits are insured up to the maximum amount allowed by law by the FDIC. The Company also facilitates depositor access to additional FDIC insurance via the IntraFi network.
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Operating and Business Strategy The Company’s continuing goal is for the Bank to become one of the leading community banking organizations in South Florida through steady growth and a prudent operating strategy.
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The Bank faces strong competition attracting deposits (its primary source of lendable funds) and originating loans. 1 The Bank provides a range of consumer and commercial banking services to individuals and businesses.
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The key elements of the Bank’s operating and business strategies are as follows: ● Emphasizing local management and local decision-making, resulting in rapid, personalized customer service, rapid credit decisions and expedited closings; ● Maintaining a presence in South Florida through an expanding branch network.
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Operating and Business Strategy Our key strategic initiatives are designed to generate continued growth in earning assets, core transaction and savings deposits, treasury management fee income, and lower costs. Continued emphasis on expansion of our footprint and exploring additional lines of business are also part of our plans.
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The Bank has two branch banking offices in Broward County; and has plans to open an additional branch office in Miami-Dade County in the third quarter of 2023. ● Concentrating on real estate, commercial and consumer lending activities by originating fixed and variable rate commercial mortgage loans, commercial loans, and consumer loans for Bank customers; In 2023, the Bank plans to provide small businesses administration government loans to small and middle market businesses. ● Maintaining high credit quality through strict underwriting criteria and the Bank’s knowledge of the real estate values and borrowers in its market area; and ● Personalizing products and service by providing innovative financial products and high service levels in order to maintain strong customer relationships.
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On the loan side, we intend to continue our focus on increasing our multi-family, non-owner occupied, commercial real estate, and skilled nursing facility loan portfolios. As to deposits, we are focused on identifying deposit growth opportunities among our existing customer base and prospects throughout Florida and the United States.
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The Bank seeks customers who prefer to conduct business with a Florida managed institution. The Bank and its management team are focusing on achieving the following key business objectives: ● Increasing and Diversifying Loan Originations . Management is seeking to increase the Bank’s loan production to add more interest-bearing assets to its asset base.
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With respect to treasury management, our focus will remain on merchant cash advance providers and the related electronic funds transfer line of business. For this revenue source to increase further in a meaningful way, automation will be necessary in order to further improve efficiency. We are currently investing in the necessary technology to achieve this end.
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In addition, management is endeavoring to diversify loan originations and the loan portfolio to include more commercial and consumer loans in order to supplement the Bank’s existing portfolio of commercial and residential real estate loans. ● Increasing Capital Ratios .
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Going forward, our strategic plan will continue to emphasize and build upon initiatives focused on strengthening credit oversight and credit administrative processes and procedures. Moreover, management continues to identify loan growth opportunities that are designed to improve overall profitability without sacrificing credit quality and underwriting standards.
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The Bank’s primary market area consists of Broward, Miami-Dade, Palm Beach, Martin, and St. Lucie counties, and secondarily throughout the State of Florida. The Bank’s net loans at December 31, 2022 were $477.2 million, or 82% of total assets.
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This growth oriented strategic direction is expected to be facilitated by maintaining credit administration objectives including a risk-based and comprehensive credit culture and a credit administrative infrastructure that reinforces appropriate risk management practices. During the third quarter of 2023, the Bank commenced offering U.S. Small Business Administration (“SBA”) SBA 7A loans.
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The real estate loans are located primarily in the counties the Bank serves in the State of Florida. The Bank’s real estate loans are secured by mortgages and consist primarily of loans to individuals and businesses for the purchase or improvement of, or investment in, real estate.
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SBA 7A loans are generally used to establish a new business or assist in the acquisition, operation, or expansion of an existing business. With SBA loan programs, there are set eligibility requirements and underwriting standards outlined by SBA that can change as the government alters its fiscal policy.
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Approximately 47.2% of the deposits at December 31, 2022 were certificates of deposit. Generally, the Bank attempts to maintain the rates paid on its deposits at a competitive level. Time deposits of $250,000 and over made up approximately 9.3% of the Bank’s total deposits at December 31, 2022. During 2022 total deposits increased by $215.4 million.
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These loans are generally secured by accounts receivable, inventory, equipment, and real estate. The Bank hired two full-time SBA staff. At December 31, 2023, SBA 7A loans amounted to $1.4 million. Additionally, management has implemented initiatives that have enabled us to grow our loan portfolio primarily with locally generated relationships in the non-owner occupied, multi-family and commercial real estate sectors.
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The increase in deposit balances primarily consisted of an increase of $35.1 million in non-interest bearing demand deposits and an increase of $226.7 million in time deposits. These increases were offset by a decrease of $46.4 million in Savings, NOW, and money-market accounts.
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However, out-of-area loans and loan pool purchases will be considered as deemed appropriate and subject to proper due diligence to further increase interest income and for portfolio diversification purposes.
Removed
A large portion of the increase in time deposits consisted of the sale of larger certificates of deposit through online platforms that allow the bank to contact a broader range of depositors. Investments The Bank’s investment securities portfolio was approximately $25.6 million and $35.4 million at December 31, 2022 and 2021, respectively, representing 4% and 10% of its total assets.
Added
The Bank has no loans to non-U.S. borrowers. 2 The Bank’s loan portfolio is concentrated in three major areas: residential, commercial real estate loans , and land and construction loans.
Removed
The net unrealized gain or loss on available for sale securities is not included in computing regulatory capital.
Added
The Bank’s fixed rate loans generally are for terms of five years or less, and are repayable in monthly instalments based on a maximum 30-year amortization schedule. Loan originations are derived primarily from director and employee referrals, existing customers, and direct marketing. Certain credit risks are inherent in making loans.
Removed
The final rule became effective on January 1, 2020 and was elected by the Bank.
Added
Deposits are gathered principally from within the South Florida area through the offering of a broad variety of deposit products, including checking accounts, money-market accounts, regular savings accounts, term certificate of deposit accounts. The Company also gathers deposits via listing services. The Bank had no brokered deposits at December 31, 2023 or 2022.
Removed
In April 2020, the federal banking agencies issued an interim final rule that makes temporary changes to the CBLR framework, pursuant to section 4012 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, and a second interim final rule that provides a graduated increase in the community bank leverage ratio requirement after the expiration of the temporary changes implemented pursuant to section 4012 of the CARES Act.
Added
Maturity terms, service fees, and withdrawal penalties are established by the Bank on a periodic basis. The determination of rates and terms is predicated on funds acquisition and liquidity requirements, market rate competition, growth goals, and federal regulations.
Removed
The following items provide a brief description of the impact of the Dodd-Frank Act on the Bank’s operations and activities, both currently and prospectively. Increased Capital Standards and Enhanced Supervision .
Added
At December 31, 2023, 15% of depositors were benefiting from the additional FDIC insurance provided by the IntraFi network. Transactions with Affiliates .
Added
Under the Gramm-Leach-Bliley Financial Modernization Act of 1999 which is discussed below, bank holding companies have the opportunity to seek broadened authority, subject to limitations on investment, to engage in activities that are “financial in nature” if all of their subsidiary depository institutions are well capitalized, well managed, and have at least a satisfactory rating under the Community Reinvestment Act, which is also discussed below.
Added
As of December 31, 2023, the maximum dividend payable by the Bank to the Company was $17 million. However, under the Federal Deposit Insurance Act, an FDIC-insured institution may not pay any dividend if payment would cause it to become undercapitalized or while it is undercapitalized.
Added
Consequently, shareholders of financial institutions are less likely to benefit from the rapid increases in stock prices that often result from tender offers or similar efforts to acquire control of other companies.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeLocation Year Facility Opened Facility Status Executive Office and Ft. Lauderdale Branch Office: 2019 Leased 2929 East Commercial Boulevard Suite 101, 303, and 305 Fort Lauderdale, Florida 33308 Deerfield Beach Branch Office: 2004 Leased 2215 West Hillsboro Boulevard Deerfield Beach, Florida 33442 Planned North Miami Beach Office: 757 NE 167 th Street, North Miami Beach FL 33162 _ Leased
Biggest changeLocation Year Facility Opened Facility Status Executive Office and Ft. Lauderdale Branch Office: 2019 Leased 2929 East Commercial Boulevard Suite 101, 303 - 306 Fort Lauderdale, Florida 33308 Deerfield Beach Branch Office: 2004 Leased 2215 West Hillsboro Boulevard Deerfield Beach, Florida 33442 Planned North Miami Beach Office: 757 NE 167 th Street, North Miami Beach FL 33162 Leased
Item 2. Properties The Bank operates a main office and one branch office in Broward County, Florida, and currently plans to open an additional branch office in Miami-Dade County in the third quarter of 2023. The following table sets forth information with respect to the Bank’s offices as of December 31, 2022.
Item 2. Properties The Bank operates a main office and one branch office in Broward County, Florida, and currently plans to open an additional branch office in Miami-Dade County in the second quarter of 2024. The following table sets forth information with respect to the Bank’s offices as of December 31, 2023.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe Company is currently permitted to pay cash dividends subject to restrictions under the Florida Business Corporation Act. The Company does not plan to pay any dividends in the foreseeable future. Instead, the Company intends to retain any income for the purpose of enhancing its financial position and supporting the growth of the Bank. Item 6. [Reserved]
Biggest changeThe Bank is currently permitted to pay cash dividends subject to restrictions imposed by the Florida Financial Institution Codes and federal banking law. The Company is currently permitted to pay cash dividends subject to restrictions under the Florida Business Corporation Act. The Company does not plan to pay any dividends in the foreseeable future.
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The Company’s common stock currently trades on the NASDAQ Capital Market under the symbol “OPHC.” The Company had approximately 881 record holders of its common stock as of December 31, 2022.
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The Company’s common stock currently trades on the Nasdaq Capital Market under the symbol “OPHC.” The Company had approximately 751 record holders of its common stock as of December 31, 2023.
None of these investors was an officer, director or affiliate of the Company. The Company issued these shares in reliance on Section 4(a)(2) of the Securities Act as a transaction by an issuer not involving a public offering. The Company used the proceeds to make capital contributions to the Bank in order to augment the Bank’s regulatory capital ratios.
The Company issued these shares in reliance on Section 4(a)(2) of the Securities Act as a transaction by an issuer not involving a public offering. The Company used the proceeds to make capital contributions to the Bank in order to augment the Bank’s regulatory capital ratios.
During the first quarter of 2022, the Company issued 1,227,330 shares of its common stock in a private placement transaction to 11 accredited investors at a price of $4.50 per share. None of these investors was an officer, director or affiliate of the Company other than Michael Blisko and Moishe Gubin, who are directors of the Company. Mr.
During the first quarter of 2023, the Company issued 72,221 shares of its common stock in a private placement transaction to two accredited investors at a price of $4.50 per share. None of these investors was an officer, director or affiliate of the Company.
Removed
Blisko purchased 202,000 shares and Mr. Gubin purchased 190,000 shares. The Company issued these shares in reliance on Section 4(a)(2) of the Securities Act as a transaction by an issuer not involving a public offering.
Added
Instead, the Company intends to retain any income for the purpose of enhancing its financial position and supporting the growth of the Bank. Item 6. [Reserved]
Removed
During the third quarter of 2022, the Company issued 674,222 shares of its common stock in a private placement transaction to four accredited investors at a price of $4.50 per share. None of these investors was an officer, director or affiliate of the Company other than Steven Newman, who is a director of the Company. Mr. Newman purchased 17,000 shares.
Removed
The Company issued these shares in reliance on Section 4(a)(2) of the Securities Act as a transaction by an issuer not involving a public offering. During the fourth quarter of 2022, the Company issued 290,388 shares of its common stock in a private placement transaction to five accredited investors at a price of $4.50 per share.
Removed
During the first and fourth quarters of 2022, the Company issued a total of 600 shares of preferred stock to unrelated parties for an aggregate purchase price of $15 million. The Company issued these shares in reliance on Section 4(a)(2) of the Securities Act as a transaction by an issuer not involving a public offering.
Removed
The Company used the proceeds to augment the Bank’s regulatory capital ratios. 13 The Bank is currently permitted to pay cash dividends subject to restrictions imposed by the Florida Financial Institution Code and federal banking law based on the Bank’s net earnings of the current year combined with the Bank’s retained earnings of the preceding two years.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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Biggest changeDisclosure Regarding Foreign Jurisdictions that Prevent Inspections 57 PART III 58 Item 10. Directors, Executive Officers, and Corporate Governance 58 Item 11. Executive Compensation 58 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 58 Item 13. Certain Relationships and Related Transactions, and Director Independence 58 Item 14.
Biggest changeDisclosure Regarding Foreign Jurisdictions that Prevent Inspections 62 PART III Item 10. Directors, Executive Officers, and Corporate Governance 6 3 Item 11. Executive Compensation 63 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 63 Item 13. Certain Relationships and Related Transactions, and Director Independence 63 Item 14.
Item 6. [Reserved] 14 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 14 Item 8. Financial Statements and Supplementary Data 26 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 57 Item 9A. Controls and Procedures 57 Item 9B. Other Information 57 Item 9C.
Item 6. [Reserved] 14 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 14 Item 8. Financial Statements and Supplementary Data 26 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 62 Item 9A. Controls and Procedures 62 Item 9B. Other Information 62 Item 9C.
Principal Accounting Fees and Services 58 PART IV 59 Item 15. Exhibits and Financial Statement Schedules 59 Item 16. Form 10-K Summary 60 i PART I
Principal Accounting Fees and Services 63 PART IV Item 15. Exhibits and Financial Statement Schedules 64 Item 16. Form 10-K Summary 65 SIGNATURES 66 i PART I

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

44 edited+14 added−14 removed28 unchanged
Biggest changeThe following table sets forth the Bank’s allowance for loan losses by loan type (dollars in thousands): At December 31, 2022 2021 2020 % of % of % of Total Total Total Amount Loans Amount Loans Amount Loans Residential real estate $ 768 11 % $ 482 13 % $ 463 20 % Multi-family real estate 748 14 535 19 253 13 Commercial real estate 3,262 64 1535 51 884 46 Land and construction 173 4 32 2 52 3 Commercial 277 1 74 6 103 14 Consumer 565 6 417 9 151 4 Total allowance for loan losses $ 5,793 100 % $ 3,075 100 % $ 1,906 100 % Allowance for loan losses as a percentage of total loans outstanding 1.20 % 1.22 % 1.23 % 16 The following summarizes the amount of impaired loans (in thousands): At December 31, 2022 2021 2020 Unpaid Unpaid Unpaid Recorded Principal Related Recorded Principal Related Recorded Principal Related Investment Balance Allowance Investment Balance Allowance Investment Balance Allowance With no related allowance recorded: Commercial real estate $ — $ — $ — $ — $ — $ — $ 2,193 $ 2,193 $ — Commercial — — — — — — — — — With an allowance recorded: Residential real estate — — — — — — — — — Commercial real estate — — — — — — — — — Commercial — — — — — — — — — Total: Residential real estate $ — $ — $ — $ — $ — $ — $ — $ — $ — Commercial real estate $ — $ — $ — $ — $ — $ — $ 2,193 $ 2,193 $ — Commercial $ — $ — $ — $ — $ — $ — $ — $ — $ — Total $ — $ — $ — $ — $ — $ — $ 2,193 $ 2,193 $ — During 2022, 2021, and 2020, the average recorded investment in impaired loans and interest income recognized and received on impaired loans were as follows (in thousands): Year Ended December 31, 2022 2021 2020 Average investment in impaired loans $ — $ 658 $ 3,344 Interest income recognized on impaired loans $ — $ 7 $ 96 Interest income received on a cash basis on impaired loans $ — $ 7 $ 89 Liquidity and Capital Resources Liquidity represents an institution’s ability to meet current and future obligations through liquidation or maturity of existing assets or the acquisition of additional liabilities.
Biggest changeThe following table sets forth the Bank’s allowance for credit losses by loan type (dollars in thousands): At December 31, 2023 2022 Amount % of Total Loans Amount % of Total Loans Residential real estate $ 1,020 10 % $ 768 11 % Multi-family real estate 1,041 11 748 14 Commercial real estate 3,793 62 3,262 64 Land and construction 1,019 5 173 4 Commercial 281 6 277 1 Consumer 529 6 565 6 Total allowance for credit losses $ 7,683 100 % $ 5,793 100 % Allowance for credit losses as a percentage of total loans outstanding 1.13 % 1.20 % 16 The following summarizes the amount of nonperforming loans (in thousands): At December 31, 2023 2022 Unpaid Unpaid Recorded Principal Related Recorded Principal Related Investment Balance Allowance Investment Balance Allowance With no related allowance recorded: Consumer $ 1,025 $ 1,025 $ — $ — $ — $ — With an allowance recorded: Consumer — — — — — — Total $ 1,025 $ 1,025 $ — $ — $ — $ — During 2023, 2022, and 2021, the average recorded investment in impaired loans and interest income recognized and received on impaired loans were as follows (in thousands): Year Ended December 31, 2023 2022 2021 Average investment in impaired loans $ 85 $ — 658 Interest income recognized on impaired loans $ — $ — 7 Interest income received on a cash basis on impaired loans $ — $ — 7 Liquidity and Capital Resources Liquidity represents an institution’s ability to meet current and future obligations through liquidation or maturity of existing assets or the acquisition of additional liabilities.
The Company uses the same credit policies in making commitments as it does for on-balance-sheet instruments. 21 Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed-expiration dates or other termination clauses and may require payment of a fee.
The Company uses the same credit policies in making commitments as it does for on-balance-sheet instruments. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed-expiration dates or other termination clauses and may require payment of a fee.
A variety of estimates impact the carrying value of the Company’s loan portfolio including the calculation of the allowance for loan losses, valuation of underlying collateral, the timing of loan charge-offs and the amount and amortization of loan fees and deferred origination costs.
A variety of estimates impact the carrying value of the Company’s loan portfolio including the calculation of the allowance for credit losses, valuation of underlying collateral, the timing of loan charge-offs and the amount and amortization of loan fees and deferred origination costs.
Loan originations and re-financings tend to slow as interest rates increase. As a general principle, higher, interest rates are likely to reduce the Company’s earnings. 25
Loan originations and re-financings tend to slow as interest rates increase. As a general principle, higher interest rates are likely to reduce the Company’s earnings.
The calculation of the allowance for loan losses is a complex process containing estimates which are inherently subjective and susceptible to significant revision as current information becomes available. The allowance is established and maintained at a level management believes is adequate to cover losses resulting from the inability of borrowers to make required payments on loans.
The calculation of the allowance for credit losses is a complex process containing estimates which are inherently subjective and susceptible to significant revision as current information becomes available. The allowance is established and maintained at a level management believes is adequate to cover losses resulting from the inability of borrowers to make required payments on loans.
Because the calculation of the allowance for loan losses relies on the Company’s estimates and judgments relating to inherently uncertain events, results may differ from management’s estimates. The allowance for loan losses is also discussed as part of “Loan Portfolio, Asset Quality and Allowance for Loan Losses” and in Note 3 of Notes to the consolidated financial statements.
Because the calculation of the allowance for credit losses relies on the Company’s estimates and judgments relating to inherently uncertain events, results may differ from management’s estimates. The allowance for credit losses is also discussed as part of “Loan Portfolio, Asset Quality and Allowance for Credit Losses” and in Note 3 of Notes to the consolidated financial statements.
Management believes that these processes and procedures provide us with better capital planning, asset mix and volume controls, loan-pricing guidelines, and deposit interest-rate guidelines, which should result in tighter controls and less exposure to interest-rate risk. 19 The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are “interest rate sensitive” and by monitoring an institution’s interest rate sensitivity “gap.” An asset or liability is said to be interest rate sensitive within a specific time period if it will mature or reprice within that time period.
Management believes that these processes and procedures provide us with better capital planning, asset mix and volume controls, loan-pricing guidelines, and deposit interest-rate guidelines, which should result in effective controls and limited exposure to interest-rate risk. 19 The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are “interest rate sensitive” and by monitoring an institution’s interest rate sensitivity “gap.” An asset or liability is said to be interest rate sensitive within a specific time period if it will mature or reprice within that time period.
The Bank’s primary sources of cash during the year ended December 31, 2022, were payments of principal and interest on loans made by the Bank to third parties, payments of principal and interest on debt securities held by the Bank and deposits made by third parties at the Bank.
The Bank’s primary sources of cash during the year ended December 31, 2023, were payments of principal and interest on loans made by the Bank to third parties, payments of principal and interest on debt securities held by the Bank and deposits made by third parties at the Bank.
The Company had net earnings of $4.0 million for the year ended December 31, 2022 compared to a net earnings of $6.3 million for the year ended December 31, 2021.
The Company had net earnings of $6.3 million for the year ended December 31, 2023 compared to a net earnings of $4.0 million for the year ended December 31, 2022.
When applying accounting policies in areas that are subjective in nature, the Company must use its best judgment to arrive at the carrying value of certain assets. One of the most critical accounting policies applied by the Company is related to the valuation of its loan portfolio and deferred income to valuation allowance.
When applying accounting policies in areas that are subjective in nature, the Company must use its best judgment to arrive at the carrying value of certain assets. One of the most critical accounting policies applied by the Company is related to the valuation of its loan portfolio.
The Company has focused on raising time deposits primarily within its market area, which is the area of Broward, Miami-Dade, Palm Beach, Martin, and St. Lucie counties. However, the Company offers a variety of deposit products, which are promoted within its market area. Deposits increased $215.4 million in 2022.
The Company has focused on raising time deposits primarily within its market area, which is the area of Broward, Miami-Dade, Palm Beach, Martin, and St. Lucie counties. However, the Company offers a variety of deposit products, which are promoted within its market area. Deposits increased $132 million in 2023.
Estimates for loan losses are determined by analyzing risks associated with specific loans and the loan portfolio, current trends in delinquencies and charge-offs, the views of the Company’s regulators, changes in the size and composition of the loan portfolio and peer comparisons.
Estimates for credit losses are determined by analyzing risks associated with specific loans and the loan portfolio, current trends in delinquencies and charge-offs, changes in the size and composition of the loan portfolio and peer comparisons.
Management’s periodic evaluation of the adequacy of the allowance is based upon historical experience, the volume and type of lending conducted by us, adverse situations that may affect the borrower’s ability to repay, estimated value of the underlying collateral, loans identified as impaired, general economic conditions, particularly as they relate to our market areas, and other factors related to the estimated collectability of our loan portfolio.
Management’s periodic evaluation of the adequacy of the allowance for credit losses is based upon historical experience, the volume and type of lending conducted by the Company, adverse situations that may affect the borrower’s ability to repay, estimated value of the underlying collateral, general economic conditions, particularly as they relate to our market areas, economic forecasts and other factors related to the estimated collectability of our loan portfolio.
The growth experienced in the loan portfolio is due to the implementation of our relationship based banking model and the success of our lenders in competing for new business in a highly competitive South Florida area. The Company’s total liabilities at December 31, 2022, were $522.6 million, an increase of $209.3 million from December 31, 2021.
The growth experienced in the loan portfolio is due to the implementation of our relationship-based banking model and the success of our lenders in competing for new business in a highly competitive South Florida area. The Company’s total liabilities at December 31, 2023, were $721 million, an increase of $199 million from December 31, 2022.
Fixed-rate loans are scheduled, including repayment, according to their maturities. 2 Securities are scheduled through the repricing date. 3 Money-market, interest-bearing checking and savings deposits are regarded as readily accessible withdrawable accounts.
Fixed-rate loans are scheduled, including repayment, according to their maturities. (2) Money-market, interest-bearing checking and savings deposits are regarded as readily accessible withdrawable accounts. Time deposits are scheduled through the maturity dates.
The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments.
The contractual amounts of those instruments reflect the extent of the Company’s involvement in particular classes of financial instruments. 21 The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments.
The following table sets forth the Company’s maturity distribution of time deposits of $250,000 or more at December 31, 2022 and 2021 (in thousands): At December 31, 2022 2021 Due three months or less $ - $ 583 Due more than three months to six months - 787 More than six months to one year 44,680 320 One to five years 2,656 — Total $ 47,336 $ 1,690 Analysis of Results of Operations The Company’s profitability depends to a large extent on net interest income, which is the difference between the interest received on earning assets, such as loans and securities, and the interest paid on interest-bearing liabilities, principally deposits and borrowings.
The following table sets forth the Company’s maturity distribution of time deposits of $250,000 or more at December 31, 2023 and 2022 (in thousands): At December 31, 2023 2022 Due three months or less $ 3,847 $ — Due more than three months to six months 2,671 — More than six months to one year 18,444 44,680 One to five years 14,171 2,656 Total $ 39,133 $ 47,336 23 Analysis of Results of Operations The Company’s profitability depends primiarlly on net interest income, which is the difference between the interest received on earning assets, such as loans and securities, and the interest paid on interest-bearing liabilities, principally deposits and borrowings.
Interest income increased by $9.5 million to $19.9 million for the year ended December 31, 2022 from $10.4 million for the year ended December 31, 2021, primarily due to an increase in loan volume. Interest Expense.
Interest income increased by $15.9 million to $35.8 million for the year ended December 31, 2023 from $19.9 million for the year ended December 31, 2022, primarily due to an increase in loan volume. Interest Expense.
Cash was used primarily to fund loans and repay Federal Home Loan Bank of Atlanta (“FHLB”) advances. The Bank adjusts rates on its deposits to attract or retain deposits as needed. The Bank primarily obtains deposits from its market area. The Bank may borrow funds from other financial institutions.
Cash was used primarily to fund loans and repay Federal Home Loan Bank of Atlanta (“FHLB”) advances. The Bank adjusts rates on its deposits to attract or retain deposits as needed.
The increase in deposit balances primarily consisted of an increase of $35.1 million in noninterest-bearing commercial demand deposits and an increase of $226.7 million in time deposits. These increases were partially offset by a decrease of $46.4 million in Savings, NOW and money-market deposits.
The increase in deposit balances primarily consisted of an increase of $36 million in noninterest-bearing demand deposits, increase of $156 million in money market accounts, and an increase of $59 million in NOW deposits. These increases were partially offset by a decrease of $1 million in savings, decrease of $118 in time deposits.
These instruments involve, to varying degrees, elements of credit and interest-rate risk in excess of the amounts recognized in the consolidated balance sheet. The contractual amounts of those instruments reflect the extent of the Company’s involvement in particular classes of financial instruments.
These instruments involve, to varying degrees, elements of credit and interest-rate risk in excess of the amounts recognized in the consolidated balance sheet.
Interest expense on deposits and borrowings increased by $3.1 million to $4 million for the year ended December 31, 2022 compared to the prior year. The increase in interest expense was caused by increased in interest rates paid on deposits and borrowings offset by volume increases in deposits and borrowings. Provision for Loan Losses.
Interest expense on deposits and borrowings increased by $8.0 million to $12.1 million for the year ended December 31, 2023 compared to the prior year. The increase in interest expense was caused by increases in interest rates paid on deposits and borrowings offset by volume increases in deposits and borrowings. Credit loss expense.
A summary of the contractual amounts of the Company’s financial instruments with off-balance sheet risk at December 31, 2022 follows (in thousands): Commitments to extend credit $ 15,447 Unused lines of credit $ 17,400 Standby letters of credit $ 4,313 The following is a summary of the Company’s on-balance sheet contractual obligations at December 31, 2022 (in thousands): Payments Due by Period Less 1-3 3-5 More Than 5 Contractual Obligations Total Than 1 Year Years Years Years Federal Home Loan Bank advances $ 10,000 $ — $ 10,000 $ - $ - Operating lease liabilities 2,480 264 546 602 1,068 Total $ 12,480 $ 264 10,546 602 1,068 Deposits Deposits traditionally are the primary source of funds for the Company’s use in lending, making investments and meeting liquidity demands.
A summary of the contractual amounts of the Company’s financial instruments with off-balance sheet risk at December 31, 2023, follows (in thousands): Commitments to extend credit $ 31,044 Unused lines of credit $ 69,978 Standby letters of credit $ 4,559 The following is a summary of the Company’s on-balance sheet contractual obligations at December 31, 2023 (in thousands): Payments Due by Period Less Than 1 1-3 3-5 More Than 5 Contractual Obligations Total Year Years Years Years Federal Home Loan Bank advances $ 62,000 $ 52,000 $ 10,000 $ — $ — Federal Reserve Bank Advances 13,600 13,600 — — — Operating lease liabilities 2,530 321 672 749 788 Total $ 78,130 $ 65,921 10,672 749 788 Deposits Deposits traditionally are the primary source of funds for the Company’s use in lending, making investments and meeting liquidity demands.
The Company experienced growth across the various loan types due to new organic originations. The net increase in loans resulted from $21.0 million in multi-family real estate loans, $181.2 million in commercial real estate loans and $17.8 million in residential real estate loans.
The Company experienced growth across the various loan types due to new organic originations. The net increase in loans resulted from $112 million in commercial real estate loans, $15 million in land and construction loans, $37 million in commercial, and $21 million in residential real estate loans.
The following table sets forth the amortized cost and fair value of the Bank’s debt securities portfolio (in thousands): Amortized Cost Fair Value At December 31, 2022: Held-to-maturity: Collateralized mortgage obligations $ 475 $ 440 Mortgage-backed Securities 65 64 Total $ 540 $ 504 Available for sale: SBA Pool Securities $ 834 $ 817 Collacteralized mortgage obligation 145 130 Taxable municipal securities 16,729 11,620 Mortgage-backed Securities. 15,180 12,535 Total $ 32,888 $ 25,102 At December 31, 2021: Held-to-maturity: Collateralized mortgage obligations $ 854 $ 882 Mortgage-backed Securities 186 189 Total $ 1,040 $ 1,071 Available for sale: SBA Pool Securities $ 1,097 $ 1,072 Collateralized mortgage obligations 210 217 Taxable municipal securities 16,766 16,426 Mortgage-backed Securities. 17,137 16,679 Total $ 35,210 $ 34,394 18 The following table sets forth, by maturity distribution, certain information pertaining to the debt securities portfolio at amortized cost (dollars in thousands): After One Year Through Five After Ten Years Years Total Yield At December 31, 2022: Collateralized mortgage obligation $ — $ 620 $ 620 2.29 % Mortgage-backed securities — 15,245 15,245 2.04 % Taxable municipal securities — 16,729 16,729 2.17 % SBA pool securities — 834 834 4.54 % $ — $ 33,428 $ 33,428 At December 31, 2021: Collateralized mortgage obligation — $ 1,064 $ 1,064 0.52 % Mortgage-backed securities $ — 17,323 17,323 1.57 % Taxable municipal securities — 16,766 16,766 2.16 % SBA pool securities — 1,097 1,097 0.26 % $ — $ 36,250 $ 36,250 Expected maturities of these debt securities will differ from contractual maturities because borrowers have the right to call or repay obligations with or without call or prepayment penalties.
The following table sets forth the amortized cost and fair value of the Bank’s debt securities portfolio (in thousands): Amortized Cost Fair Value At December 31, 2023: Held-to-maturity: Collateralized mortgage obligations $ 353 $ 318 Mortgage-backed Securities 7 8 Total $ 360 $ 326 Available for sale: SBA Pool Securities $ 706 $ 690 Collateralized mortgage obligation 138 123 Taxable municipal securities 16,690 12,210 Mortgage-backed Securities. 13,927 11,332 Total $ 31,461 $ 24,355 At December 31, 2022: Held-to-maturity: Collateralized mortgage obligations $ 475 $ 440 Mortgage-backed Securities 65 64 Total $ 540 $ 504 Available for sale: SBA Pool Securities $ 834 $ 817 Collateralized mortgage obligations 145 130 Taxable municipal securities 16,729 11,620 Mortgage-backed Securities. 15,180 12,535 Total $ 32,888 $ 25,102 18 The following table sets forth, by maturity distribution, certain information pertaining to the debt securities portfolio at amortized cost (dollars in thousands): After One Year Through Five After Ten Years Years Total Yield At December 31, 2023: Collateralized mortgage obligation $ — $ 490 $ 490 2.19 % Mortgage-backed securities — 13,935 13,935 1.99 % Taxable municipal securities — 16,690 16,690 2.17 % SBA pool securities — 706 706 5.18 % $ — $ 31,821 $ 31,821 At December 31, 2022: Collateralized mortgage obligation — $ 620 $ 620 2.29 % Mortgage-backed securities $ — 15,245 15,245 2.04 % Taxable municipal securities — 16,729 16,729 2.17 % SBA pool securities — 834 834 4.54 % $ — $ 33,428 $ 33,428 Expected maturities of these debt securities will differ from contractual maturities because borrowers have the right to call or repay obligations with or without call or prepayment penalties.
The allowance for loan losses is increased by the provision for loan losses charged to earnings and reduced by loans charged off, net of recoveries. The allowance for loan losses represented 1.20% and 1.22% of the total loans outstanding at December 31, 2022 and 2021, respectively. 15 The Bank evaluates the allowance for loan losses on a regular basis.
The allowance for credit losses is increased by the credit loss expense charged to earnings and reduced by loans charged off, net of recoveries. The allowance for credit losses represented 1.13% and 1.20% of the total loans outstanding at December 31, 2023, and 2022, respectively.
The increase is primarily related to service charges on deposit payment transactions. Noninterest Expenses . Total noninterest expenses increased by $3,002,000 to $9.9 million for the year ended December 31, 2022, compared to $6.9 million for the year ended December 31, 2021.
Total noninterest income of $3.5 million increased by $492,000 for the year ended December 31, 2023, from $3 million for the year ended December 31, 2022. The increase is primarily related to service charges, wire transfers, and ACH fees on deposit payment transactions. Noninterest Expenses .
The increase of $209.3 million in total liabilities was mainly due to an increase of $215.4 million in total deposits and a decrease of $8.0 million in Federal Home Loan Bank advances. The Company’s total stockholders’ equity at December 31, 2022, was $62.6 million, an increase of $24.1 million.
The increase in total liabilities was mainly due to an increase of $132 million in total deposits, $13.6 in Federal Reserve Bank advances, and increase of $52 million in Federal Home Loan Bank advances. The Company’s total stockholders’ equity at December 31, 2023, was $70 million, an increase of $7.4 million from December 31, 2022.
This activity may subject the Bank to potential loan losses, the magnitude of which depends on a variety of economic factors affecting borrowers which are beyond its control. As of December 31, 2022 and 2021 the Bank did not have any impaired loans.
This activity may subject the Bank to potential credit losses, the magnitude of which depends on a variety of economic factors affecting borrowers which are beyond its control. As of December 31, 2023, the Bank’s nonperforming loans were approximately $1 million, or .15% of gross loan portfolio. At December 31, 2022, the Bank had not no nonperforming loans.
The increase of $233.3 million in total assets primarily consisted of increases of $12.9 million in cash and cash equivalents, and $229.3 million in net loans offset by a $9.2 million reduction in debt securities available for sale due to principal paydowns and unrealized losses during the year.
The increase primarily consisted of increases of $5 million in cash and cash equivalents, $194 million in net loans, and $5 million in other assets offset by a $747,000 reduction in debt securities available for sale due to principal paydowns and unrealized gains during the year, and $933,000 in decreased value of our deferred tax asset.
The increase in noninterest expenses is directly attributable to the growth of the Bank. Income taxes (benefit). The Company recorded income tax expense of $1,369,000 for the year ended December 31, 2022 compared to an income tax benefit of $3,227,000 for the year ended December 31, 2021.
The headcount of full-time equivalent employees increased from 48 to 60. The increase in noninterest expenses is directly attributable to the growth of the Bank. Income Taxes. The Company recorded income taxes of $2.2 million for the year ended December 31, 2023 compared to an income tax expense of $1.4 million for the year ended December 31, 2022.
The following table sets forth the composition of the Bank’s loan portfolio (dollars in thousands): At December 31, 2022 2021 2020 % of % of % of Amount Total Amount Total Amount Total Residential real estate $ 50,354 11 % $ 32,583 13 % $ 28,997 20 % Multi-family real estate 69,555 14 48,592 19 19,210 13 Commercial real estate 310,695 64 129,468 51 74,398 46 Land and construction 17,286 4 3,772 2 4,750 3 Commercial 5,165 1 14,157 6 21,849 14 Consumer 30,323 6 22,827 9 5,715 4 Total loans $ 483,378 100 % $ 251,399 100 % $ 154,919 100 % Deduct: Net deferred loan fees (367 ) (422 ) (544 ) Allowance for loan losses (5,793 ) (3,075 ) (1,906 ) Loans, net $ 477,218 $ 247,902 $ 152,469 The following table sets forth the activity in the allowance for loan losses (in thousands): Year Ended December 31, 2022 2021 2020 Beginning balance $ 3,075 $ 1,906 $ 2,009 Provision for loan losses 3,466 1,173 1,020 Loans charged off (901 ) (277 ) (1,184 ) Recoveries 153 273 61 Ending balance $ 5,793 $ 3,075 $ 1,906 The allowance for loan losses represents management’s estimate of probable incurred losses inherent in the existing loan portfolio.
The following table sets forth the composition of the Bank’s loan portfolio (dollars in thousands): At December 31, 2023 2022 2021 % of % of % of Amount Total Amount Total Amount Total Residential real estate $ 71,400 10.50 % $ 50,354 10.42 % $ 32,583 12.96 % Multi-family real estate 67,498 9.93 69,555 14.39 48,592 19.33 Commercial real estate 422,680 62.15 310,695 64.27 129,468 51.50 Land and construction 32,600 4.79 17,286 3.58 3,772 1.50 Commercial 41,870 6.16 5,165 1.07 14,157 5.63 Consumer 44,023 6.47 30,323 6.27 22,827 9.08 Total loans $ 680,071 100.00 % $ 483,378 100.00 % $ 251,399 100.00 % (Deduct) add: Net deferred loan fees (1,294 ) (367 ) (422 ) Allowance for credit losses (7,683 ) (5,793 ) (3,075 ) Loans, net $ 671,094 $ 477,218 $ 247,902 The following table sets forth the activity in the allowance for credit losses (in thousands): Year Ended December 31, 2023 2022 2021 Beginning balance $ 5,793 $ 3,075 $ 1,906 Additional allowance recognized due to adoption of Topic 326 218 — — Credit loss expense 3,759 3,466 1,173 Loans charged off (2,442 ) (901 ) (277 ) Recoveries 355 153 273 Ending balance $ 7,683 $ 5,793 $ 3,075 15 The allowance for credit losses represents management’s estimate of expected losses in the existing loan portfolio.
The provision for losses during the year ended December 31, 2022 amounted to $3,446,000. The provision for loan losses is charged to earnings in order to bring the total allowance for loan losses to a level deemed appropriate by management to absorb losses inherent in the portfolio.
Expected credit loss expense was $4.0 million during the year ended December 31, 2023, and $3.5 million for the year ended December 31, 2022. The expected credit loss expense is charged to earnings as losses are expected in order to bring the total allowance for credit losses to a level deemed appropriate by management to absorb losses expected.
Average balances are based on average daily balances (dollars in thousands): Year Ended December 31, 2022 2021 Interest Average Interest Average Average And Yield/ Average And Yield/ Balance Dividends Rate Balance Dividends Rate Interest-earning assets: Loans $ 354,521 17,952 5.1 % $ 191,561 9,756 5.1 % Securities 29,263 649 2.2 % 30,075 488 1.6 % Other interest-earning assets (1) 64,989 1,281 2.0 % 42,399 145 0.3 % Total interest-earning assets/interest income 448,773 19,882 4.4 % 264,035 10,389 3.9 % Cash and due from banks 16,430 19,169 Premises and equipment 867 3,045 Other assets 4,480 3,762 Total assets 470,550 $ 290,011 Interest-bearing liabilities: Savings, NOW and money-market deposits 152,588 669 0.4 % $ 129,792 533 0.4 % Time deposits 83,324 2,565 3.1 % 16,970 118 0.7 % Borrowings (4) 39,152 812 2.1 % 20,271 334 1.7 % Total interest-bearing liabilities/interest expense 275,064 4,046 1.5 % 167,033 985 0.6 % Noninterest-bearing demand deposits 145,670 93,758 Other liabilities 3,014 1,690 Stockholders’ equity 46,802 27,530 Total liabilities and stockholders’ equity $ 470,550 $ 290,011 Net interest income 15,836 9,404 Interest rate spread (2) 2.96 % 3.3 % Net interest margin (3) 3.53 % 3.6 % Ratio of average interest-earning assets to average interest- bearing liabilities 1.63 1.58 1 Includes interest-earning deposits with banks, Federal funds sold and Federal Home Loan Bank stock dividends. 2 Interest rate spread represents the difference between average yield on interest-earning assets and the average cost of interest-bearing liabilities. 3 Net interest margin is net interest income divided by average interest-earning assets. 4 Includes Federal Home Loan Bank advances. 23 Rate/Volume Analysis The following tables set forth certain information regarding changes in interest income and interest expense for the periods indicated.
Average balances are based on average daily balances (dollars in thousands): Year Ended December 31, 2023 2022 Interest Average Interest Average Average And Yield/ Average And Yield/ Balance Dividends Rate Balance Dividends Rate Interest-earning assets: Loans $ 543,745 31,759 5.8 % $ 354,521 17,952 5.1 % Securities 24,841 686 2.8 % 29,263 649 2.2 % Other interest-earning assets (1) 63,804 3,335 5.2 % 64,989 1,281 2.0 % Total interest-earning assets/interest income 632,390 35,780 5.7 % 448,773 19,882 4.4 % Cash and due from banks 13,344 16,430 Premises and equipment 1,157 867 Other assets 4,174 4,480 Total assets 651,065 $ 470,550 Interest-bearing liabilities: Savings, NOW and money-market deposits 189,286 4,315 2.3 % $ 152,588 669 0.4 % Time deposits 185,727 7,284 3.9 % 83,324 2,565 3.1 % Borrowings (4) 16,739 468 2.8 % 39,152 812 2.1 % Total interest-bearing liabilities/interest expense 391,752 12,067 3.1 % 275,064 4,046 1.5 % Noninterest-bearing demand deposits 188,826 145,670 Other liabilities 4,992 3,014 Stockholders’ equity 65,495 46,802 Total liabilities and stockholders’ equity $ 651,065 $ 470,550 Net interest income 23,713 15,836 Interest rate spread (2) 2.58 % 2.96 % Net interest margin (3) 3.75 % 3.53 % Ratio of average interest-earning assets to average interest- bearing liabilities 1.61 1.63 (1) Includes interest-earning deposits with banks, Federal funds sold and Federal Home Loan Bank stock dividends.
The Bank’s ability to respond to the needs of depositors and borrowers and to benefit from investment opportunities is facilitated through liquidity management.
The Bank’s ability to respond to the needs of depositors and borrowers and to benefit from investment opportunities is facilitated through liquidity management. Management monitors the liquidity position daily. The Bank’s liquidity is derived primarily from our deposit base, scheduled amortization and prepayments of loans and investment securities, funds provided by operations, and capital.
The following table displays the distribution of the Company’s deposits at December 31, 2022 and 2021 (in thousands): 2022 2021 % of % of Amount Deposits Amount Deposits Noninterest-bearing demand deposits 159,193 31.3 % $ 124,119 42.4 Interest-bearing demand deposits 47,224 9.3 33,083 11.3 Money-market deposits 60,020 11.8 121,083 41.4 Savings 1,482 0.3 936 0.3 Subtotal $ 267,919 52.7 % $ 279,221 95.4 % Time deposits: 0.00% – 0.99% 2,618 0.5 $ 10,295 3.5 1.00% – 1.99% 5,660 1.2 2,183 0.8 2.00% – 2.99% 231,702 45.6 758 0.3 Total time deposits (1) 239,980 47.3 13,236 4.6 Total deposits $ 507,899 100 % $ 292,457 100 % (1) Includes Individual Retirement Accounts (IRA’s) totaling $1,537,000 and $1,207,000 at December 31, 2022 and 2021, respectively, all of which are in the form of time deposits. 22 Time Deposits of $250,000 or more, or Jumbo Time Deposits, are generally considered a more unpredictable source of funds.
The increase in money market consisted of $105 million in deposits sourced through an online listing service and $51 million in deposits from competitive offerings at our branch offices. 22 The following table displays the distribution of the Company’s deposits by product at December 31, 2023 and 2022 (in thousands): 2023 2022 Amount % of Deposits Amount % of Deposits Noninterest-bearing demand deposits $ 194,892 30.5 % $ 159,193 31.3 % NOW deposits 106,172 16.6 47,224 9.3 Money-market deposits 216,309 33.8 60,020 11.8 Savings 451 0.1 1,482 0.3 Subtotal 517,824 81.0 % $ 267,919 52.7 % Time deposits: 0.00% – 0.99% 416 0.1 % $ 2,618 0.5 % 1.00% – 1.99% 2,169 0.3 5,660 1.2 2.00% – 2.99% 2,087 0.3 231,702 45.6 3.00% – 3.99% 13,135 2.1 — — 4.00% – 4.99% 4,637 0.7 — — 5.00% – 5.99% 99,313 15.5 — — Total time deposits (1) 121,757 19.0 % 239,980 47.3 % Total deposits $ 639,581 100.0 % $ 507,899 100.0 % (1) Includes Individual Retirement Accounts (IRA’s) totaling $2,267,000 and $1,537,000 at December 31, 2023 and 2022, respectively, all of which are in the form of time deposits.
The increase of $24.1 was principally due to the Company’s issuance of shares of Series B Participating Preferred Stock for an aggregate amount of $15.0 million, issuance of common stock for an aggregate amount of $9.9 million and net income of $4.0 million, offset by an increase in unrealized loss on debt securities of $5.2 million.
The increase was principally due to the, issuance of common stock for an aggregate amount of $324,000, increase in unrealized gain on debt securities of $511,000, and net income of $6.3 million.
The allowance for loan losses totaled $5.8 million or 1.20% of loans outstanding at December 31, 2022, compared to $3.1 million or 1.22% of loans outstanding at December 31, 2021. Noninterest Income. Total noninterest income increased by $1,186,000 for the year ended December 31, 2022, from $1,774,000 for the year ended December 31, 2021.
The allowance for credit losses totaled $7.6 million or 1.13% of loans outstanding at December 31, 2023, compared to $5.8 million or 1.20% of loans outstanding at December 31, 2022.
At December 31, 2022, the Bank had a Tier 1 leverage ratio of 11.29%. 24 Results of Operations for Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 Years Ended December 31, Increase / (Decrease) (dollars in thousands) 2022 2021 Amount Percentage Total interest income $ 19,882 $ 10,389 $ 9,493 91 % Total interest expense 4,046 985 3,061 311 % Net interest income 15,836 9,404 6,432 68 % Provision for loan losses 3,466 1,173 2,293 195 % Net interest income after provision for loan losses 12,370 8,231 4,139 50 % Total noninterest income 2,960 1,774 1,186 67 % Total noninterest expenses 9,938 6,936 3,002 43 % Net earnings before income taxes (benefit) 5,392 3,069 2,323 76 % Income taxes expense (benefit) 1,369 (3,227 ) 4,596 142 % Net earnings $ 4,023 $ 6,296 $ (2,273 ) (36 )% Net earnings per share - Basic and diluted $ 0.68 $ 1.61 Net earnings.
At December 31, 2023, the Bank had a Tier 1 leverage ratio of 10%. 25 Results of Operations for Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 Years Ended December 31, Increase / (Decrease) (dollars in thousands) 2023 2022 Amount Percentage Total interest income $ 35,780 $ 19,882 $ 15,898 80 % Total interest expense 12,067 4,046 8,021 198 % Net interest income 23,713 15,836 7,877 50 % Credit loss expense 4,047 3,466 581 17 % Net interest income after credit loss expense 19,666 12,370 7,296 59 % Total noninterest income 3,452 2,960 492 17 % Total noninterest expenses 14,661 9,938 4,723 48 % Net earnings before income taxes 8,457 5,392 3,065 57 % Income taxes 2,174 1,369 805 59 % Net earnings $ 6,283 $ 4,023 $ 2,260 56 % Net earnings per share - Basic and diluted $ 0.87 $ 0.68 Net earnings.
The Company recorded a provision for loan losses amounting to $3,446,000 during year ended December 31, 2022, which was largely due to the growth in the loan portfolio of $229.3 million. The Company recorded a provision for loan losses amounting to $ 1,173,000 during the year ended December 31, 2021. Interest Income.
Adversely affecting net income was the Company recording a credit loss expense amounting to $4.0 million during the year ended December 31, 2023, which was largely due to the growth in the loan portfolio of $196.7 million. This compared to the Company recording a credit loss expense amounting to $3.5 million during the year ended December 31, 2022. Interest Income.
For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (1) changes in rate (change in rate multiplied by prior volume), (2) changes in volume (change in volume multiplied by prior rate) and (3) changes in rate-volume (change in rate multiplied by change in volume) (in thousands): Year Ended December 31, 2022 versus 2021 Increases (Decreases) Due to Change In: Rate Volume Rate/Volume Total Interest-earning assets: Loans $ (56 ) $ 8,299 $ (48 ) $ 8,195 Securities 179 (13 ) (5 ) 161 Other interest-earning assets 691 77 368 1,136 Total interest-earning assets 814 8,363 315 9,492 Interest-bearing liabilities: Savings, NOW and money-market 35 94 6 135 Time deposits 405 460 1,582 2,447 Other 63 349 66 478 Total interest-bearing liabilities 503 903 1,654 3,060 Net interest income $ 311 $ 7,460 $ (1,339 ) $ 6,432 Financial Condition as of December 31, 2022 Compared to December 31, 2021 The Company’s total assets at December 31, 2022, were $585.2 million, an increase of $233.3 million from December 31, 2021.
For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (1) changes in rate (change in rate multiplied by prior volume), (2) changes in volume (change in volume multiplied by prior rate) and (3) changes in rate-volume (change in rate multiplied by change in volume) (in thousands): Year Ended December 31, 2023 versus 2022 Increases (Decreases) Due to Change In: Rate Volume Rate/Volume Total Interest-earning assets: Loans $ 2,755 $ 9,582 $ 1,470 $ 13,807 Securities 159 (98 ) (24 ) 37 Other interest-earning assets 2,116 (23 ) (39 ) 2,054 Total interest-earning assets 5,030 9,461 1,407 15,898 Interest-bearing liabilities: Savings, NOW and money-market 2,809 160 676 3,645 Time deposits 704 3,151 865 4,720 Other 283 (465 ) (162 ) (344 ) Total interest-bearing liabilities 3,796 2,846 1,379 8,021 Net interest income $ 1,234 $ 6,615 $ 28 $ 7,877 Financial Condition as of December 31, 2023 Compared to December 31, 2022 The Company’s total assets at December 31, 2023, were $791 million, an increase of $206 million from December 31, 2022.
The following table sets forth certain information related to the Bank’s interest-earning assets and interest-bearing liabilities at December 31, 2022, that are estimated to mature or are scheduled to reprice within the period shown (dollars in thousands): Gap Maturity / Repricing Schedule More than More than Five Years One Year and Less One and Less than Over Year than Five Fifteen Fifteen or Less Years Years Years Total Loans (1): Residential real estate loans $ 2,087 $ 38,580 $ 9,600 $ 87 $ 50,354 Multi-family real estate loans 701 65,755 3,099 - 69,555 Commercial real estate loans 14,870 255,340 40,485 - 310,695 Land and construction - 13,688 3,598 - 17,286 Commercial 2,809 1,797 - 559 5,165 Consumer 892 21,683 - 7,748 30,323 Total loans 21,359 396,843 56,782 8,394 483,378 Securities (2) 816 - 5,632 19,194 25,642 Interest-bearing deposits in banks 52,048 - - - 52,048 Federal Home Loan Bank stock 600 - - - 600 Total rate-sensitive assets 74,823 396,843 62,414 27,588 561,668 Deposit accounts (3): Money-market deposits 60,020 - - - 60,020 Interest-bearing checking deposits 47,224 - - - 47,224 Savings deposits 1,482 - - - 1,482 Time deposits 223,840 16,140 - - 239,980 Total deposits 332,566 16,140 - - 348,706 Federal Home Loan Bank advances - 10,000 - - 10,000 Total rate-sensitive liabilities 332,566 26,140 - - 358,706 GAP (repricing differences) $ (257,743 ) $ 370,703 $ 62,414 $ 27,588 $ 202,962 Cumulative GAP $ (257,743 ) $ 112,960 $ 175,374 $ 202,962 Cumulative GAP/total assets (44 )% 19 % 30 % 35 % 1 In preparing the table above, adjustable-rate loans are included in the period in which the interest rates are next scheduled to adjust rather than in the period in which the loans mature.
The following table sets forth certain information related to the Bank’s interest-earning assets and interest-bearing liabilities at December 31, 2023, that are estimated to mature or are scheduled to reprice within the period shown (dollars in thousands): Gap Maturity / Repricing Schedule More than More than Five Years One Year and Less One and Less than Over Year than Five Fifteen Fifteen or Less Years Years Years Total Loans (1): Residential real estate loans $ 6,109 55,919 9,372 — $ 71,400 Multi—family real estate loans 1,695 63,798 2,005 — 67,498 Commercial real estate loans 34,870 343,538 44,272 — 422,680 Land and construction 5,598 21,370 5,632 — 32,600 Commercial 27,874 13,748 248 — 41,870 Consumer 17,151 2,423 — 24,449 44,023 Total loans 93,297 500,796 61,529 24,449 680,071 Securities 690 — 6,337 17,688 24,715 Interest—bearing deposits in banks 62,654 — — — 62,654 — — — — Federal Home Loan Bank stock 3,354 — — — 3,354 Total rate—sensitive assets 159,995 500,796 67,866 42,137 770,794 Deposit accounts (2): Money—market deposits 216,309 — — — 216,309 Interest—bearing checking deposits 106,172 — — — 106,172 Savings deposits 451 — — — 451 Time deposits 81,302 40,455 — — 121,757 Total deposits 404,234 40,455 — — 444,689 Federal Home Loan Bank advances 52,000 10,000 — — 62,000 Federal Reserve Bank advances 13,600 — — — 13,600 Total rate—sensitive liabilities 469,834 50,455 — — 520,289 GAP (repricing differences) $ (309,839 ) $ 450,341 $ 67,866 $ 42,137 $ 250,505 Cumulative GAP $ (309,839 ) $ 140,502 $ 208,368 $ 250,505 Cumulative GAP/total assets (39 )% 18 % 26 % 32 % 20 (1) In preparing the table above, adjustable-rate loans are included in the period in which the interest rates are next scheduled to adjust rather than in the period in which the loans mature.
The increase is primarily due to an increase of $1.8 million in salaries and employee benefits during the year ended December 31, 2022. The headcount of full-time equivalent employees increased from 38 to 48. Further, data processing and regulatory assessments and related costs increased $0.5 million and $0.7 million, respectively, during the year ended December 31, 2022.
Total noninterest expenses of $14.7 million increased by $4.7 million for the year ended December 31, 2023, compared to $9.9 million for the year ended December 31, 2022. The increase is primarily due to a one-time litigation settlement, increases in salaries and employee benefits, data processing, and other operating costs.
Accordingly, in 2021, the valuation allowance in the amount of $4 million that has been previously recorded against the net deferred tax asset for the amount not expected to be realized in the future was fully reversed. 14 Regulation and Legislation As a state-chartered commercial bank, the Bank is subject to extensive regulation by the Florida Office of Financial Regulation, or Florida OFR, and the FDIC.
The Company’s significant accounting policies are discussed in Note 1 of Notes to the consolidated financial statements. 14 Regulation and Legislation As a state-chartered commercial bank, the Bank is subject to extensive regulation by the Florida Office of Financial Regulation, or Florida OFR, and the FDIC.
Removed
The Company’s significant accounting policies are discussed in Note 1 of Notes to the consolidated financial statements. During the year ended December 31, 2021, the Company assessed its earnings history and trend over the past year and its estimate of future earnings.
Added
The allowance for credit losses is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. The allowance for credit losses is adjusted by a credit loss expense which is reported in earnings and reduced by the charge-off of loan amounts, net of recoveries.
Removed
In 2021, the Company determined that it was more likely than not that the deferred tax assets would be realized in the near term.
Added
Loans are charged off against the allowance when management believes the uncollectability of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Expected credit loss inherent in non-cancellable off-balance sheet credit exposures is provided through the credit loss expense, but recorded separately in other liabilities.
Removed
The allowance for loan losses is determined based on a periodic review of several factors: reviews and evaluation of individual loans, historical loan loss experiences, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and current economic conditions.
Added
Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical loan default and loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information incorporate management’s view of current conditions and forecasts.
Removed
This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. The allowance consists of two components. The first component consists of amounts specifically reserved (“specific allowance”) for specific loans identified as impaired, as defined by FASB Accounting Standards Codification No. 310 (“ASC 310”).
Added
Additionally, as a commercial bank, we are expected to maintain an adequate liquidity position. The liquidity position may consist of cash on hand, cash on demand deposit with correspondent banks, federal funds sold, and marketable securities such as United States government treasury and agency securities, municipal securities, U.S. agency mortgage-backed securities and asset-backed securities.
Removed
Impaired loans are those loans that management has estimated will not be repaid as agreed upon.
Added
The Bank primarily obtains deposits from its market area and secondarily from listing services. 17 The Bank also has external sources of funds through the FHLB and with unsecured lines of credit with correspondent banks and the Federal Reserve. The Bank is a member of the FHLB, which allows it to borrow funds under a pre-arranged line of credit.
Removed
The Bank measures impairment on a loan by loan basis for all of its loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral-dependent.
Added
As of December 31, 2023, the Bank had outstanding borrowings of $62 million against its $178 million in established borrowing capacity with the FHLB. The Company’s borrowing facility is subject to collateral and stock ownership requirements, as well as prior FHLB consent to each advance.
Removed
A loan may be impaired (i.e. not expected to be repaid as agreed), but may be sufficiently collateralized such that the Bank expects to recover all principal and interest eventually, and therefore no specific reserve is warranted. The second component is a general reserve (“general allowance”) on all of the Bank’s loans, other than those identified as impaired.
Added
The Company also has a $13.6 million advance with the Federal Reserve that matures in August 2024. At December 31, 2023, the Company also had available lines of credit amounting to $29.5 million with five correspondent banks to purchase federal funds. Disbursements on the lines of credit are subject to the approval of the correspondent banks.
Removed
The Bank groups these loans into categories with similar characteristics and then applies a loss factor to each group which is derived from the Bank’s historical loss experience for that category adjusted for qualitative factors such as economic conditions and other trends or uncertainties that could affect management’s estimate of probable loss.
Added
We measure and monitor our liquidity daily and believe our liquidity sources are adequate to meet our operating needs. Debt Securities The Bank’s securities portfolio is comprised of SBA pool securities, mortgage-backed securities, taxable municipal securities and collateralized mortgage obligations.
Removed
The aggregate of these two components results in the Bank’s total allowance for loan losses.
Added
The following table sets forth loan maturities by type of loan at December 31, 2023 (in thousands): One Year or After One But Within After Five Less Five Years Years Total Residential real estate $ 747 $ 9,188 $ 61,465 $ 71,400 Multi-family real estate — 2,158 65,340 67,498 Commercial real estate 4,827 65,721 352,132 422,680 Land and construction — 1,488 31,112 32,600 Commercial 19,622 13,748 8,500 41,870 Consumer 19,575 — 24,448 44,023 Total $ 44,771 $ 92,303 $ 542,997 $ 680,071 The following table sets forth the maturity or repricing of loans by interest type at December 31, 2023 (in thousands): One Year or After One But Within Five After Five Less Years Years Total Fixed interest rate $ 3,223 $ 44,758 $ 362,792 $ 410,773 Variable interest rate 41,548 47,545 180,205 269,298 Total $ 44,771 $ 92,303 $ 542,997 $ 680,071 Scheduled contractual principal repayments of loans do not reflect the actual life of such assets.
Removed
The Bank is a member of the FHLB, which allows it to borrow funds under a pre-arranged line of credit. As of December 31, 2022, the Bank had $10 million in borrowings outstanding from the FHLB of Atlanta to facilitate lending and manage its asset and liability structure, and remaining credit availability with the FHLB of $125.7 million.
Added
The following table displays the distribution of the Company’s deposits by source at December 31, 2023 and 2022 (in thousands): At December 31, 2023 At December 31, 2022 Retail Listing Services Total Retail Listing Services Total Noninterest-bearing demand deposits 194,892 — 194,892 159,193 — 159,193 NOW deposits 106,172 — 106,172 47,224 — 47,224 Money-market deposits 110,524 105,785 216,309 60,020 — 60,020 Savings 451 — 451 1,482 — 1,482 Time deposits 87,150 34,607 121,757 75,438 164,542 239,980 499,189 140,392 639,581 343,357 164,542 507,899 The Company uses the listing services from QwickRate, National CD RateLine and Raisin.
Removed
At December 31, 2022, the Bank also had lines of credit amounting to $19.5 million with five correspondent banks to purchase federal funds. 17 Debt Securities The Bank’s securities portfolio is comprised of SBA pool securities, mortgage-backed securities, taxable municipal securities and collateralized mortgage obligations.
Added
None of the deposits obtained from the listing services are considered brokered deposits. At December 31, 2023 and 2022, listing service deposits comprised 22% and 32% of total deposits, respectively.
Removed
Time deposits are scheduled through the maturity dates. 20 The following table sets forth loan maturities by type of loan at December 31, 2022 (in thousands): One Year or After One But Within After Five Less Five Years Years Total Residential real estate $ - $ 6,916 $ 43,438 $ 50,354 Multi-family real estate - 2,635 66,920 69,555 Commercial real estate 2,802 44,001 263,892 310,695 Land and construction - 1,529 15,757 17,286 Commercial 2,635 1,871 659 5,165 Consumer 772 21,684 7,867 30,323 Total $ 6,209 $ 78,636 $ 398,533 $ 483,378 The following table sets forth the maturity or repricing of loans by interest type at December 31, 2022 (in thousands): One Year or After One But Within Five After Five Less Years Years Total Fixed interest rate $ 3,574 $ 43,216 $ 45,730 $ 92,520 Variable interest rate 2,635 35,420 352,803 390,858 Total $ 6,209 $ 78,636 $ 398,533 $ 483,378 Scheduled contractual principal repayments of loans do not reflect the actual life of such assets.
Added
(2) Interest rate spread represents the difference between average yield on interest-earning assets and the average cost of interest-bearing liabilities. (3) Net interest margin is net interest income divided by average interest-earning assets.
Removed
The increase in time deposits consisted of $165 million in deposits sourced through an online listing service and $61.7 million in deposits from competitive offerings at our branch offices.
Added
(4) Includes Federal Home Loan Bank and Federal Reserve Bank advances. 24 Rate/Volume Analysis The following tables set forth certain information regarding changes in interest income and interest expense for the periods indicated.
Removed
The income tax benefit was the result of the reversal of a valuation allowance that had previously been recognized.
Added
The increase in the credit loss expense during the year ended on December 31, 2023 was primarily due to loan volume growth and the evaluation of the other factors noted above. During the year ended December 31, 2023, the net charge off amounting to $2 million resulted from consumer lending. Noninterest Income.

Other OPHC 10-K year-over-year comparisons