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General (Policies)
 3 Months Ended
Mar. 31, 2021
Accounting Policies [Abstract]  
Basis of Presentation
Basis of Presentation. In the opinion of management, the accompanying condensed consolidated financial statements of the Company contain all adjustments (consisting principally of normal recurring accruals) necessary to present fairly the financial position at March 31, 2021, and the results of operations and cash flows for the three-month periods ended March 31, 2021 and 2020. All significant intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the three months ended March 31, 2021, are not necessarily indicative of the results to be expected for the full year.
Subsequent Events
Subsequent Events. The Company has evaluated subsequent events through May XX, 2021, which is the date the condensed consolidated financial statements were issued, determining no additional events required disclosure.
Coronavirus Global Pandemic ("COVID-19")
Coronavirus Global Pandemic (“COVID-19”). The Company is subject to risks related to the public health crisis associated with COVID-19. COVID-19 has negatively impacted the global economy, disrupted global supply chains, created significant volatility and disruption in financial markets and significantly increased unemployment levels. The extent to which COVID-19 impacts the Company’s business, results of operations, and financial condition, as well as loan quality, regulatory capital and liquidity ratios, will depend on future developments, the duration of the pandemic, and actions taken by governmental authorities to slow the spread of the disease or to mitigate its effects.
Junior Subordinated Debenture

Junior Subordinated Debenture. In 2004, the Company formed OptimumBank Capital Trust I (the “Trust’’) for the purpose of raising capital through the sale of trust preferred securities. At that time, the Trust raised $5,155,000 through the sale of 5,000 trust preferred securities (the “Trust Preferred Securities”) to a third party investor and the issuance of 155 common trust securities to the Company.

 

The Trust utilized the proceeds of $5,155,000 to purchase a junior subordinated debenture from the Company (the “Junior Subordinated Debenture”). Under the Junior Subordinated Debenture, the Company is required to make interest payments on a periodic basis and to pay the outstanding principal amount plus accrued interest on October 7, 2034.

 

In May 2018, Preferred Shares, LLC (the “Purchaser”) acquired all 5,000 of the Trust Preferred Securities from a third party. The Purchaser is an affiliate of a director of the Company. The Purchaser has subsequently sold and/or transferred 3,087 of the Trust Preferred Securities to unaffiliated third parties.

 

The Company had been in default under the Junior Subordinated Debenture due to the failure to pay interest since 2015. In September 2020, the Company paid approximately $1.1 million to the holders of the outstanding Trust Preferred Securities, which represented all accrued interest through September 2020 under the Junior Subordinated Debenture attributable to the Trust Preferred Securities that had not been cancelled. The coupon interest rate floats quarterly at the three-month LIBOR rate plus 2.45% (2.67% at March 31, 2021).

 

During 2018, the Company issued 301,778 shares of common stock in exchange for 694 Trust Preferred Securities. For accounting purposes, the Trust Preferred Securities acquired by the Company were deemed to be cancelled. As a result, the Company cancelled $694,000 in principal amount of the Trust Preferred Securities, together with accrued interest of $211,000, and increased its stockholders’ equity by the same amount.

 

During 2019, the Company issued 924,395 shares of common stock in exchange for 1,881 Trust Preferred Securities. For accounting purposes, the Trust Preferred Securities acquired by the Company were deemed to be cancelled. As a result, the Company cancelled $1,881,000 in principal amount of the Trust Preferred Securities, together with accrued interest of $763,000, and increased its stockholders’ equity by the same amount.

 

During December 2020, the Company issued 171,500 shares of common stock in exchange for 512 Trust Preferred Securities. For accounting purposes, the Trust Preferred Securities acquired by the Company were deemed to be cancelled. As a result, the Company cancelled $512,000 in principal amount of the Trust Preferred Securities, together with accrued interest of $2,000, and increased its stockholders’ equity by the same amount.

 

During the first quarter of 2021, the Company issued 11,042 shares of common stock to repay approximately $41,000 of accrued interest associated with the outstanding Trust Preferred Securities.

 

The principal owed by the Company in connection with the Junior Subordinated Debenture was $2,068,000 at March 31, 2021 and at December 31, 2020, respectively. There was no accrued interest owed by the Company associated with the Junior Subordinated Debenture at March 31, 2021. The accrued interest owed by the Company associated with the Junior Subordinated Debenture was $30,000 at December 31, 2020 and is presented on the accompanying consolidated balance sheet under the caption “Other liabilities”.

 

The Company currently intends to acquire additional Trust Preferred Securities in 2021 in exchange for shares its common stock, although it has not yet entered into any agreement or commitment with respect to such an exchange.
Comprehensive Loss
  Comprehensive Loss. GAAP generally requires that recognized revenue, expenses, gains and losses be included in net earnings (loss). Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale debt securities, are reported as a separate component of the equity section of the condensed consolidated balance sheets, such items along with net loss, are components of comprehensive loss.

 

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

 

    March 31,     December 31,  
    2021     2020  
             
Unrealized (loss) gain on debt securities available for sale   $ (872 )   $ 50  
Unamortized portion of unrealized loss related to debt securities available for sale transferred to securities held-to-maturity     (97 )     (144 )
Income tax benefit     -       25  
                 
    $ (969 )   $ (69 )
Income Taxes
Income Taxes. The Company assessed its earnings history and trends and estimates of future earnings, and determined that the deferred tax asset could not be realized as of March 31, 2021. Accordingly, a valuation allowance was recorded against the net deferred tax asset.
Reclassifications
  Reclassifications. Certain amounts have been reclassified to allow for consistent presentation for the periods presented.

 

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13 Financial Instruments-Credit Losses (Topic 326). The ASU improves financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by the Company. The ASU requires the Company to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. The Company will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. The ASU requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the condensed consolidated financial statements. Additionally, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The ASU will take effect for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. The Company is in the process of determining the effect of the ASU on its condensed consolidated financial statements.