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Form 10-Q OptimumBank Holdings, For: Jun 30

August 8, 2022 3:47 PM EDT

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2022

 

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________ to _________

 

Commission File Number: 000-50755

 

OPTIMUMBANK HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

Florida   55-0865043
(State or other jurisdiction of
incorporation or organization)
  (IRS Employer
Identification No.)

 

2929 East Commercial Boulevard, Fort Lauderdale, FL 33308

(Address of principal executive offices)

 

954-900-2800

(Registrant’s telephone number, including area code)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common Stock, $.01 Par Value   OPHC   NASDAQ Capital Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

 

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

 

Large accelerated filer ☐   Accelerated filer ☐
Non-accelerated filer   Smaller reporting company
    Emerging growth company

 

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

 

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

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 6,027,105 shares of common stock, $.01 par value, issued and outstanding as of August 8, 2022.

 

 

 

 

 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

INDEX

 

  Page
   
PART I. FINANCIAL INFORMATION  
   
Item 1. Financial Statements 1
   
Condensed Consolidated Balance Sheets - June 30, 2022 (unaudited) and December 31, 2021 1
   
Condensed Consolidated Statements of Earnings - Three and Six Months ended June 30, 2022 and 2021 (unaudited) 2
   
Condensed Consolidated Statements of Comprehensive (loss) income – Three and Six Months ended June 30, 2022 and 2021 (unaudited) 3
   
Condensed Consolidated Statements of Stockholders’ Equity - Three and Six Months ended June 30, 2022 and 2021 (unaudited) 4
   
Condensed Consolidated Statements of Cash Flows – Six Months ended June 30, 2022 and 2021 (unaudited) 5
   
Notes to Condensed Consolidated Financial Statements (unaudited) 6
   
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 19
   
Item 4. Controls and Procedures 25
   
PART II. OTHER INFORMATION  
   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 25
   
Item 6. Exhibits 25
   
SIGNATURES 26

 

i
 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Condensed Consolidated Balance Sheets

(Dollars in thousands, except per share amounts)

 

   June 30,   December 31, 
   2022   2021 
    (Unaudited)      
Assets:          
Cash and due from banks  $17,666   $13,681 
Interest-bearing deposits with banks   59,603    45,289 
Total cash and cash equivalents   77,269    58,970 
Debt securities available for sale   27,211    34,394 
Debt securities held-to-maturity (fair value of $629 and $1,071)   648    1,040 
Loans, net of allowance for loan losses of $4,243 and $3,075   348,948    247,902 
Federal Home Loan Bank stock   2,725    793 
Premises and equipment, net   840    843 
Right-of-use lease assets   1,520    1,737 
Accrued interest receivable   997    971 
Deferred tax asset   4,324    3,442 
Other assets   2,117    1,786 
           
Total assets  $466,599   $351,878 
Liabilities and Stockholders’ Equity:          
           
Liabilities:          
Noninterest-bearing demand deposits  $137,106   $124,119 
Savings, NOW and money-market deposits   159,725    155,102 
Time deposits   44,988    13,236 
           
Total deposits   341,819    292,457 
           
Federal Home Loan Bank advances   68,000    18,000 
Repurchase agreements   5,000     
Official checks   1,030    140 
Operating lease liabilities   1,564    1,775 
Other liabilities   1,156    996 
           
Total liabilities   418,569    313,368 
           
Commitments and contingencies (Notes 8 and 11)   -      
Stockholders’ equity:          
Preferred stock, no par value; 6,000,000 shares authorized:        
Series A Preferred, no par value, no shares issued and outstanding        
Series B Convertible Preferred, no par value, 1,020 shares authorized, 1,020 and 760 shares issued and outstanding        
           
Common stock, $.01 par value; 10,000,000 shares authorized, 6,027,105 and 4,775,281 shares issued and outstanding   60    48 
Additional paid-in capital   77,300    65,193 
Accumulated deficit   (24,296)   (26,096)
Accumulated other comprehensive loss   (5,034)   (635)
           
Total stockholders’ equity   48,030    38,510 
Total liabilities and stockholders’ equity  $466,599   $351,878 

 

See accompanying notes to condensed consolidated financial statements.

 

1

 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

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

 

   2022   2021   2022   2021 
   Three Months Ended   Six Months Ended 
   June 30,   June 30, 
   2022   2021   2022   2021 
Interest income:                    
Loans  $3,764   $2,178   $7,027   $4,025 
Debt securities   159    86    322    177 
Other   102    26    139    53 
                     
Total interest income   4,025    2,290    7,488    4,255 
                     
Interest expense:                    
Deposits   170    153    345    334 
Borrowings   102    81    163    179 
                     
Total interest expense   272    234    508    513 
                     
Net interest income   3,753    2,056    6,980    3,742 
                     
Provision for loan losses   991    397    1,383    373 
                     
Net interest income after provision for loan losses   2,762    1,659    5,597    3,369 
                     
Noninterest income:                    
Service charges and fees   680    270    1,269    441 
Other   84    32    145    37 
                     
Total noninterest income   764    302    1,414    478 
                     
Noninterest expenses:                    
Salaries and employee benefits   1,307    727    2,642    1,425 
Professional fees   142    140    289    252 
Occupancy and equipment   175    159    342    311 
Data processing   285    169    562    347 
Insurance   24    23    48    46 
Regulatory assessment   23    66    100    127 
Other   304    233    617    547 
                     
Total noninterest expenses   2,260    1,517    4,600    3,055 
                     
Net earnings before income taxes   1,266    444    2,411    792 
                     
Income taxes   321        611     
                     
Net earnings  $945   $444   $1,800   $792 
                     
Net earnings per share - Basic and diluted  $0.16   $0.14   $0.33   $0.24 

 

See accompanying notes to condensed consolidated financial statements.

 

2

 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Condensed Consolidated Statements of Comprehensive (loss) income (Unaudited)
(In thousands)

 

   2022   2021   2022   2021 
   Three Months Ended   Six Months Ended 
   June 30,   June 30, 
   2022   2021   2022   2021 
                 
Net earnings  $945   $444   $1,800   $792 
                     
Other comprehensive (loss) income:                    
Change in unrealized loss on debt securities:                    
Unrealized (loss) gain arising during the period   (3,124)   349    (5,905)   (573)
                     
Amortization of unrealized loss on debt securities transferred to held-to-maturity   4    33    11    80 
                     
Other comprehensive (loss) income before income taxes   (3,120)   382    (5,894)   (493)
                     
Deferred income taxes   792        1,495    (25)
                     
Total other comprehensive (loss) income    (2,328)   382    (4,399)   (518)
                     
Comprehensive (loss) income  $(1,383)  $826   $(2,599)  $274 

 

See accompanying notes to condensed consolidated financial statements.

 

3

 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Condensed Consolidated Statements of Stockholders’ Equity

Three and Six Months Ended June 30, 2022 and 2021

(Dollars in thousands)

 

   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Deficit   Loss   Equity 
   Preferred Stock                     
   Series A   Series B   Common Stock   Additional
Paid-In
   Accumulated   Accumulated Comprehensive   Stockholders’ 
   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Deficit   Loss   Equity 
                                         
Balance at December 31, 2020      $    400   $    3,203,455   $32   $50,263   $(32,392)  $(69)  $              17,834 
                                                   
Proceeds from the sale of preferred stock (unaudited)           160                4,000            4,000 
                                                   
Common stock issued for junior subordinated debenture interest payable (unaudited)                   11,042        41            41 
                                                   
Net change in unrealized loss on debt securities available for sale (unaudited)                                   (922)   (922)
                                                   
Amortization of unrealized loss on debt securities transferred to held-to-maturity (unaudited)                                   22    22 
                                                   
Net earnings (unaudited)                               348        348 
                                                   
Balance at March 31, 2021 (unaudited)      $    560   $    3,214,497   $32   $54,304   $(32,044)  $(969)  $21,323 
                                                   
Proceeds from the sale of preferred stock (unaudited)           200                5,000            5,000 
                                                   
Proceeds from the sale of common stock (unaudited)                   262,417    3    1,173            1,176 
                                                   
Common stock issued for junior subordinated debenture (unaudited)                   282,377    3    844            847 
                                                   
Net change in unrealized gain on debt securities available for sale (unaudited)                                   349    349 
                                                   
Amortization of unrealized loss on debt securities transferred to held-to-maturity (unaudited)                                   33    33 
                                                   
Net earnings for three months ended June 30, 2021 (unaudited)      $       $       $   $   $444   $   $444 
                                                   
Balance at June 30, 2021 (unaudited)      $   760   $   3,759,291   $38   $61,321   $(31,600)  $(587)  $29,172 
                                                                
Balance at December 31, 2021 (unaudited)      $    760   $    4,775,281   $48   $65,193   $(26,096)  $(635)  $38,510 
                                                   
Proceeds from the sale of preferred stock (unaudited)          260               6,500            6,500 
                                                   
Proceeds from the sale of common stock (unaudited)                   1,227,331    12    5,511            5,523 
                                                          
Net change in unrealized loss on debt securities available for sale (unaudited)                                   (2,078)   (2,078)
                                                   
Amortization of unrealized loss on debt securities transferred to held-to-maturity (unaudited)                                   7    7 
                                                   
Net earnings for three months ended March 31, 2022 (unaudited)      $       $       $   $   $855   $   $855 
                                                   
Balance at March 31, 2022 (unaudited)      $    1,020   $    6,002,612   $60   $77,204   $(25,241)  $(2,706)  $49,317 
                                                   
Stock-based Compensation (unaudited)                   24,493        96            96 
                                                   
Net change in unrealized loss on debt securities available for sale (unaudited)                                   (2,332)   (2,332)
                                                   
Amortization of unrealized loss on debt securities transferred to held-to-maturity (unaudited)                                   4    4 
                                                   
Net earnings (unaudited)                               945        945 
                                                   
Balance at June 30, 2022 (unaudited)      $    1,020   $    6,027,105   $60   $77,300   $(24,296)  $(5,034)  $48,030 

 

See accompanying notes to condensed consolidated financial statements.

 

4

 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

 

   2022   2021 
   Six Months Ended 
   June 30, 
   2022   2021 
Cash flows from operating activities:          
Net earnings  $1,800   $792 
Adjustments to reconcile net earnings to net cash provided by in operating activities:          
Provision for loan losses   1,383    373 
Depreciation and amortization   115    104 
Deferred income taxes   613     
Net accretion of fees, premiums and discounts   (252)   (175)
Stock-based compensation expense   96     
(Increase) decrease in accrued interest receivable   (26)   245 
Amortization of right of use asset   217    83 
Net decrease in operating lease liabilities   (211)   (75)
Increase in other assets   (332)   (75)
Increase in official checks and other liabilities   1,050    220 
Net cash provided by operating activities   4,453    1,492 
           
Cash flows from investing activities:          
Purchase of debt securities available for sale       (5,193)
Principal repayments of debt securities available for sale   1,177    1,443 
Principal repayments of debt securities held-to-maturity   398    1,690 
Net increase in loans   (102,070)   (38,397)
Purchases of premises and equipment   (112)   (238)
(Purchase) redemption of FHLB stock   (1,932)   299 
           
Net cash used in investing activities   (102,539)   (40,396)
           
Cash flows from financing activities:          
Net increase in deposits   49,362    53,246 
Net increase (decrease) in FHLB Advances   50,000    (5,000)
Net change in repurchase agrements   5,000     
Proceeds from sale of preferred stock   6,500    9,000 
Proceeds from sale of common stock   5,523    1,176 
           
Net cash provided by financing activities   116,385    58,422 
           
Net increase in cash and cash equivalents   18,299    19,518 
           
Cash and cash equivalents at beginning of the period   58,970    54,629 
           
Cash and cash equivalents at end of the period  $77,269   $74,147 
           
Supplemental disclosure of cash flow information:          
Cash paid during the period for:          
Interest  $473   $490 
           
Income taxes  $   $ 
           
Noncash transactions:          
Change in accumulated other comprehensive loss, net change in unrealized loss on debt securities available for sale, net of income taxes  $(4,399)  $(518)
           
Amortization of unrealized loss on debt securities transferred to held-to-maturity  $11   $80 
           
Right-of use lease assets obtained in exchange for operating lease liabilities  $   $191 
Increase in other liabilities for stock-based compensation  $96   $ 
Issuance of common stock for Junior Subordinated Debenture       847 
Issuance of common stock for Junior Subordinated Debenture interest payable  $   $41 

 

See accompanying notes to condensed consolidated financial statements

 

5

 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

(1) General. OptimumBank Holdings, Inc. (the “Company”) is a one-bank holding company and owns 100% of OptimumBank (the “Bank”), a Florida-chartered community bank. The Company’s only business is the operation of the Bank. The Bank’s deposits are insured up to applicable limits by the Federal Deposit Insurance Corporation (“FDIC”). The Bank offers a variety of community banking services to individual and corporate customers through its two banking offices located in Broward County, Florida.

 

Basis of Presentation. In the opinion of management, the accompanying condensed consolidated financial statements of the Company contain all adjustments (consisting principally of normal recurring accruals) necessary to present fairly the financial position at June 30, 2022, and the results of operations and cash flows for the three and six month periods ended June 30, 2022 and 2021. All significant intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the three and six months ended June 30, 2022, are not necessarily indicative of the results to be expected for the full year.

 

Subsequent Events. The Company has evaluated subsequent events through August 8, 2022, which is the date the condensed consolidated financial statements were issued, determining no additional events required disclosure.

 

(continued)

 

6

 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

(1) General, Continued.

 

Comprehensive (Loss) Income. Generally Accepted Accounting Principles generally requires that recognized revenue, expenses, gains and losses be included in net earnings. 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 earnings, are components of comprehensive loss.

 

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

 

   June 30,   December 31, 
   2022   2021 
         
Unrealized loss on debt securities available for sale  $(6,721)  $(816)
Unamortized portion of unrealized loss related to debt securities available for sale transferred to securities held-to-maturity   (23)   (34)
Income tax benefit   1,710    215 
           
Accumulated other comprehensive loss  $(5,034)  $(635)

 

Income Taxes.

 

During the fourth quarter of 2021 the Company assessed its earnings history and trend over the past year and its estimate of future earnings, and the Company determined that it was more likely than not that the deferred tax assets would be realized in the near term. Accordingly, in the fourth quarter of 2021, the valuation allowance in the amount of $4 million that had been previously recorded against the net deferred tax asset for the amount not expected to be realized in the future was fully reversed. Therefore, there was no provision for income taxes for the three and six months ended June 30, 2021.

 

Reclassifications. Certain amounts have been reclassified to allow for consistent presentation for the periods presented.

 

Recent Pronouncements.

 

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 has executed an implementation plan through adoption date, implemented a software solution to assist with the estimation process, and has completed a data analysis. The Company expects that the impact of this ASU will not have a material effect to the Company’s Condensed Consolidated Financial Statements.

 

(continued)

 

7

 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

(2) Debt Securities. Debt Securities have been classified according to management’s intent. The carrying amount of debt securities and approximate fair values are as follows (in thousands):

 

       Gross   Gross     
   Amortized   Unrealized   Unrealized   Fair 
   Cost   Gains   Losses   Value 
                 
At June 30, 2022:                    
Available for sale:                    
SBA Pool Securities  $978   $1   $(21)  $958 
Collateralized mortgage obligations   164        (10)   154 
Taxable municipal securities   16,748        (4,252)   12,496 
Mortgage-backed securities   16,041        (2,438)   13,603 
Total  $33,931   $1   $(6,721)  $27,211 
                     
Held-to-maturity:                    
Collateralized mortgage obligations  $563   $   $(19)  $544 
Mortgage-backed securities   85            85 
Total  $648   $   $(19)  $629 

 

       Gross   Gross     
   Amortized   Unrealized   Unrealized   Fair 
   Cost   Gains   Losses   Value 
                 
At December 31, 2021:                    
Available for sale:                    
SBA Pool Securities  $1,097   $1   $(26)  $1,072 
Collateralized mortgage obligations   210    7        217 
Taxable municipal securities   16,766    19    (359)   16,426 
Mortgage-backed securities   17,137    19    (477)   16,679 
Total  $35,210   $46   $(862)  $34,394 
                     
Held-to-maturity:                    
Collateralized mortgage obligations  $854   $28   $   $882 
Mortgage-backed securities   186    3        189 
Total  $1,040   $31   $   $1,071 

 

There were no sales of debt securities during the three and six months ended June 30, 2022 and 2021.

 

(continued)

 

8

 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

(2) Debt Securities Continued.

 

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

 

   At June 30, 2022 
   Over Twelve Months   Less Than Twelve Months 
   Gross       Gross     
   Unrealized   Fair   Unrealized   Fair 
   Losses   Value   Losses   Value 
                 
Available for Sale:                    
SBA Pool Securities  $(21)  $768   $   $ 
Collateralized mortgage obligation           (10)   153 
Taxable municipal securities   (1,717)   4,832    (2,535)   7,663 
Mortgage-backed securities   (1,323)   6,959    (1,115)   6,644 
Total  $(3,061)  $12,559   $(3,660)  $14,460 

 

   At December 31, 2021 
   Over Twelve Months   Less Than Twelve Months 
   Gross       Gross     
   Unrealized   Fair   Unrealized   Fair 
   Losses   Value   Losses   Value 
                 
Available for Sale :                    
SBA Pool Securities  $(26)  $895   $   $ 
Taxable municipal securities   (81)   1,853    (278)   12,828 
Mortgage-backed securities   (242)   6,179    (235)   9,984 
Total  $(349)  $8,927   $(513)  $22,812 

 

 

Management evaluates debt securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospectus of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

 

At June 30, 2022 and December 31, 2021, the unrealized losses on thirty-seven and twenty-nine debt securities, respectively, were caused by market conditions. It is expected that the debt securities will not be settled at a price less than the book value of the investments. Because the decline in fair value is attributable to market conditions and not credit quality, and because the Company has the ability and intent to hold these investments until a market price recovery or maturity, these investments are not considered other-than-temporarily impaired.

 

(continued)

 

9

 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

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

  

   June 30,   December 31, 
   2022   2021 
         
Residential real estate  $33,823   $32,583 
Multi-family real estate   56,265    48,592 
Commercial real estate   222,818    129,468 
Land and construction   7,099    3,772 
Commercial   7,355    14,157 
Consumer   26,237    22,827 
           
Total loans   353,597    251,399 
           
Deduct:          
Net deferred loan fees, costs and premiums   (406)   (422)
Allowance for loan losses   (4,243)   (3,075)
           
Loans, net  $348,948   $247,902 

 

  An analysis of the change in the allowance for loan losses follows (in thousands):

  

  

Residential

Real

   Multi-Family Real   Commercial   Land and                 
   Estate   Estate   Real Estate   Construction   Commercial   Consumer   Unallocated   Total 
Three Months Ended June 30, 2022:                                        
                                                                       
Beginning balance  $575   $549   $1,607   $79   $68   $530   $    3,408 
(Credit) provision for loan losses   (61)   70    733    (8)   33    224        991 
Charge-offs                   (90)   (136)       (226)
Recoveries                   56    14        70 
                                         
Ending balance  $514   $619   $2,340   $71   $67   $632       $4,243 
                                         
Three Months Ended June 30, 2021:                                        
Beginning balance  $396   $238   $843   $46   $99   $268       $1,890 
Provision (Credit) for loan losses   74    154    95    7    (31)   98        397 
Charge-offs                   (10)   (60)       (70)
Recoveries   2            4        8        14 
                                         
Ending balance  $472   $392   $938   $57   $58   $314       $2,231 
                                         
Six Months Ended June 30, 2022:                                        
                                         
Beginning balance  $482   $535   $1,535   $32   $74   $417   $   $3,075 
Provision for loan losses   32    84    805    39    27    396        1,383 
Charge-offs                   (90)   (209)       (299)
Recoveries                   56    28        84 
                                         
Ending balance  $514   $619   $2,340   $71   $67   $632   $   $4,243 
                                         
Six Months Ended June 30, 2021:                                        
                                         
Beginning balance  $463   $253   $884   $52   $103   $151   $   $1,906 
(Credit) provision for loan losses   (17)   139    54    (3)   (35)   235        373 
Charge-offs                   (10)   (80)       (90)
Recoveries   26            8        8        42 
                                         
Ending balance  $472   $392   $938   $57   $58   $314   $   $2,231 

 

(continued)

 

10

 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

(3) Loans, Continued.

  

   Residential   Multi-Family                     
   Real   Real   Commercial   Land and             
   Estate   Estate   Real Estate   Construction   Commercial   Consumer   Total 
At June 30, 2022:                            
Individually evaluated for impairment:                            
Recorded investment$  $  $  $  $  $  $  
Balance in allowance for loan losses$  $  $  $  $  $  $  
                             
Collectively evaluated for impairment:                                   
Recorded investment  $33,823   $56,265   $222,818   $7,099   $7,355   $26,237   $353,597 
Balance in allowance for loan losses  $514   $619   $2,340   $71   $67   $632   $4,243 
                                    
At December 31, 2021:                                   
Individually evaluated for impairment:                                   
Recorded investment  $   $   $   $   $   $   $ 
Balance in allowance for loan losses  $   $   $   $   $   $   $ 
                                    
Collectively evaluated for impairment:                                   
Recorded investment  $32,583   $48,592   $129,468   $3,772   $14,157   $22,827   $251,399 
Balance in allowance for loan losses  $481   $535   $1,535   $32   $72   $420   $3,075 

 

(continued)

 

11

 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

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

 

Residential Real Estate, Multi-Family Real Estate, Commercial Real Estate, Land and Construction. Residential real estate loans are underwritten based on repayment capacity and source, value of the underlying property, credit history and stability. The Company offers first and second one-to-four family mortgage loans; the collateral for these loans is generally the clients’ owner-occupied residences. Although these types of loans present lower levels of risk than commercial real estate loans, risks do still exist because of possible fluctuations in the value of the real estate collateral securing the loan, as well as changes in the borrowers’ financial condition. Multi-family and commercial real estate loans are secured by the subject property and are underwritten based upon standards set forth in the policies approved by the Board. Such standards include, among other factors, loan to value limits, cash flow coverage and general creditworthiness of the obligors. Construction loans to borrowers finance the construction of owner occupied and leased properties. These loans are categorized as construction loans during the construction period, later converting to commercial or residential real estate loans after the construction is complete and amortization of the loan begins. Real estate development and construction loans are approved based on an analysis of the borrower and guarantor, the viability of the project and on an acceptable percentage of the appraised value of the property securing the loan. Real estate development and construction loan funds are disbursed periodically based on the percentage of construction completed. The Company carefully monitors these loans with on-site inspections and requires the receipt of lien waivers on funds advanced. Development and construction loans are typically secured by the properties under development or construction, and personal guarantees are typically obtained. Further, to assure that reliance is not placed solely on the value of the underlying property, the Company considers the market conditions and feasibility of proposed projects, the financial condition and reputation of the borrower and guarantors, the amount of the borrower’s equity in the project, independent appraisals, cost estimates and pre-construction sales information. The Company also makes loans on occasion for the purchase of land for future development by the borrower. Land loans are extended for future development for either commercial or residential use by the borrower. The Company carefully analyzes the intended use of the property and the viability thereof.

 

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

 

Consumer. Consumer loans are extended for various purposes, including purchases of automobiles, recreational vehicles, and boats. Also offered are home improvement loans, lines of credit, personal loans, and deposit account collateralized loans. Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Loans to consumers are extended after a credit evaluation, including the creditworthiness of the borrower(s), the purpose of the credit, and the secondary source of repayment. Consumer loans are made at fixed and variable interest rates. Risk is mitigated by the fact that the loans are of smaller individual amounts.

 

(continued)

 

12

 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

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

 

   Pass  

OLEM

(Other Loans Especially

Mentioned)

  

Sub-

Standard

   Doubtful   Loss   Total 
                         
At June 30, 2022:                              
Residential real estate  $33,823   $   $   $   $   $33,823 
Multi-family real estate   56,265                    56,265 
Commercial real estate   220,071    1,492    1,255            222,818 
Land and construction   7,099