OptimumBank Holdings, Inc. - Quarter Report: 2021 September (Form 10-Q)

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 September 30, 2021

☐	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: 4,730,709 shares of common stock, $.01 par value, issued and outstanding as of October 29, 2021.

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

INDEX

	Page

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements	1

Condensed Consolidated Balance Sheets - September 30, 2021 (unaudited) and December 31, 2020	1

Condensed Consolidated Statements of Operations - Three and Nine Months ended September 30, 2021 and 2020 (unaudited)	2

Condensed Consolidated Statements of Comprehensive Income (Loss) - Three and Nine Months ended September 30, 2021 and 2020 (unaudited)	3

Condensed Consolidated Statements of Stockholders’ Equity - Three and Nine Months ended September 30, 2021 and 2020 (unaudited)	4

Condensed Consolidated Statements of Cash Flows – Nine Months ended September 30, 2021 and 2020 (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 1. Legal Proceedings	25

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	25

Item 3. Defaults on Senior Securities	25

Item 4. Mine Safety Disclosures	25

Item 5. Other Information	25

Item 6. Exhibits	25

SIGNATURES	26

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Condensed Consolidated Balance Sheets

(Dollars in thousands, except per share amounts)

	September 30, 2021			December 31, 2020
	(Unaudited)
Assets:
Cash and due from banks	$	16,563		$	25,523
Interest-bearing deposits with banks		67,020			29,106
Total cash and cash equivalents		83,583			54,629
Debt securities available for sale		35,738			18,893
Debt securities held-to-maturity (fair value of $1,375 and $3,549)		1,327			3,399
Loans, net of allowance for loan losses of $2,695 and $1,906		205,865			152,469
Federal Home Loan Bank stock		793			1,092
Premises and equipment, net		1,571			1,413
Right-of-use lease assets		969			904
Accrued interest receivable		863			1,336
Other assets		4,364			977

Total assets	$	335,073		$	235,112
Liabilities and Stockholders’ Equity:

Liabilities:
Noninterest-bearing demand deposits	$	114,011		$	58,312
Savings, NOW and money-market deposits		153,406			110,704
Time deposits		14,329			21,743

Total deposits		281,746			190,759

Federal Home Loan Bank advances		18,000			23,000
Junior subordinated debenture		-			2,068
Official checks		491			142
Operating lease liabilities		998			923
Other liabilities		666			386

Total liabilities		301,901			217,278

Commitments and contingencies (Notes 1, 8 and 11)		-
Stockholders’ equity:
Preferred stock, no par value; 6,000,000 shares authorized:		—			—
Designated Series B, no par value, 760 shares authorized, 760 and 400 shares issued and outstanding		—			—
Common stock, $.01 par value; 10,000,000 shares authorized, 4,524,509 and 3,203,455 shares issued and outstanding		45			32
Additional paid-in capital		64,146			50,263
Accumulated deficit		(30,683	)		(32,392	)
Accumulated other comprehensive loss		(336	)		(69	)

Total stockholders’ equity		33,172			17,834
Total liabilities and stockholders’ equity	$	335,073		$	235,112

See accompanying notes to condensed consolidated financial statements.

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

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


	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2021		2020			2021		2020
Interest income:
Loans	$	2,795	$	1,723		$	6,820	$	4,697
Debt securities		150		41			327		136
Other		28		7			81		67

Total interest income		2,973		1,771			7,228		4,900

Interest expense:
Deposits		146		290			480		1,047
Borrowings		62		96			241		322

Total interest expense		208		386			721		1,369

Net interest income		2,765		1,385			6,507		3,531

Provision for loan losses		582		524			955		1,236

Net interest income after provision for loan losses		2,183		861			5,552		2,295

Noninterest income:
Service charges and fees		375		1			816		52
Other		48		63			86		118

Total noninterest income		423		64			902		170

Noninterest expenses:
Salaries and employee benefits		921		582			2,347		1,616
Professional fees		141		121			393		368
Occupancy and equipment		156		146			467		435
Data processing		195		132			542		381
Insurance		23		21			69		66
Regulatory assessment		20		59			147		129
Other		233		360			780		621

Total noninterest expenses		1,689		1,421			4,745		3,616

Net earnings (loss) before income taxes		917		(496	)		1,709		(1,151	)

Income taxes		—		—			—		—

Net earnings (loss)	$	917	$	(496	)	$	1,709	$	(1,151	)

Net earnings (loss) per share - basic and diluted	$	0.21	$	(0.17	)	$	0.47	$	(0.39	)

See accompanying notes to condensed consolidated financial statements.

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

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


	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2021		2020			2021			2020

Net earnings (loss)	$	917	$	(496	)	$	1,709		$	(1,151	)

Other comprehensive income (loss):
Change in unrealized gain on debt securities:
Unrealized gain (loss) arising during the period		233		(30	)		(340	)		36

Amortization of unrealized loss on debt securities transferred to held-to-maturity		18		35			98			83

Other comprehensive income (loss) before income taxes		251		5			(242	)		119

Deferred income taxes		—		(2	)		(25	)		(30	)

Total other comprehensive income (loss)		251		3			(267	)		89

Comprehensive income (loss)	$	1,168	$	(493	)	$	1,442		$	(1,062	)

See accompanying notes to condensed consolidated financial statements.

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Stockholders’ Equity

Three and Nine Months Ended September 30, 2021 and 2020

(Dollars in thousands)


	Preferred Stock												Additional					Accumulated Other
	Series A				Series B				Common Stock				Paid-In		Accumulated			Comprehensive			Stockholders’
	Shares		Amount		Shares		Amount		Shares		Amount		Capital		Deficit			Loss			Equity

Balance at December 31, 2019		-	$	-		--	$	-		2,853,171	$	28		$  38,994	$	(31,610	)	$	(205	)	$	7,207
Proceeds from the sale of preferred stock (unaudited)
Proceeds from the sale of preferred stock (unaudited), shares

Proceeds from the sale of common stock (unaudited)		-		-		-		-		98,182		1		538		-			-			539
Common stock issued for junior subordinated debenture interest payable (unaudited)
Common stock issued for junior subordinated debenture interest payable (unaudited),shares

Net loss for the three months ended March 31, 2020 (unaudited)		-		-		-		-		-		-		-		(308	)		-			(308	)

Net change in unrealized loss on debt securities available for sale, net of income taxes (unaudited)		-		-		-		-		-		-		-		-			35			35

Amortization of unrealized loss on debt securities transferred to held-to-maturity, net of income taxes (unaudited)		-		-		-		-		-		-		-		-			18			18

Balance at March 31, 2020 (unaudited)		-		-		-		-		2,951,353		29		39,532		(31,918	)		(152	)		7,491

Proceeds from the sale of preferred stock (unaudited)		—		—		100		—		—		—		2,500		—			—			2,500

Net loss for the three months ended June 30, 2020 (unaudited)		—		—		—		—		—		—		—		(347	)		—			(347	)

Net change in unrealized gain on debt securities available for sale, net of income taxes (unaudited)		—		—		—		—		—		—		—		—			15			15

Amortization of unrealized loss on debt securities transferred to held-to-maturity, net of income taxes (unaudited)		—		—		—		—		—		—		—		—			18			18

Balance at June 30, 2020 (unaudited)		—		—		100		—		2,951,353		29		42,032		(32,265	)		(119	)		9,677

Proceeds from the sale of preferred stock (unaudited)		-		-		180		-		-		-		4,500		-			-			4,500

Net loss (unaudited)		-		-		-		-		-		-		-		(496	)		-			(496	)

Net change in unrealized gain on debt securities available for sale, net of income taxes (unaudited)		-		-		-		-		-		-		-		-			(23	)		(23	)

Amortization of unrealized loss on debt securities transferred to held-to-maturity, net of income taxes (unaudited)		-		-		-		-		-		-		-		-			26			26

Balance at September 30, 2020 (unaudited)		-	$	-		280	$	-		2,951,353	$	29	$	46,532	$	(32,761	)	$	(116	)	$	13,684

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 gain on loss 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

Proceeds from the sale of common stock (unaudited)		—		—		—		—		358,023		3		1,608		—			—			1,611

Common stock issued for junior subordinated debenture (unaudited)		—		—		—		—		407,195		4		1,217		—			—			1,221

Net change in unrealized gain on debt securities available for sale (unaudited)		—		—		—		—		—		—		—		—			233			233

Amortization of unrealized loss on debt securities transferred to held-to-maturity (unaudited)		—		—		—		—		—		—		—		—			18			18

Net earnings for three months ended September 30, 2021 (unaudited)		—		—		—		—		—		—		—		917			—			917

Net earnings (loss)		—		—		—		—		—		—		—		917			—			917

Balance at September 30, 2021 (unaudited)		—	$	—		760	$	—		4,524,509	$	45	$	64,146	$	(30,683	)	$	(336	)	$	33,172

See accompanying notes to condensed consolidated financial statements.

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)


	Nine Months Ended
	September 30,
	2021			2020
Cash flows from operating activities:
Net earnings (loss)	$	1,709		$	(1,151	)
Adjustments to reconcile net earnings (loss) to net cash used in operating activities:
Provision for loan losses		955			1,236
Depreciation and amortization		156			132
Stock - based compensation		200			200
Net accretion of fees, premiums and discounts		(586	)		(27	)
Decrease (increase) in accrued interest receivable		473			(1,112	)
Amortization of right of use asset		126			113
Net decrease in operating lease liabilities		(116	)		(103	)
Increase in other assets		(3,412	)		(270	)
Increase (decrease) in official checks and other liabilities		470			(1,063	)
Net cash used in operating activities		(25	)		(2,045	)

Cash flows from investing activities:
Purchase of debt securities available for sale		(19,513	)		(3,638	)
Principal repayments of debt securities available for sale		2,184			1,585
Principal repayments of debt securities held-to-maturity		2,113			1,276
Net increase in loans		(53,564	)		(44,109	)
Purchases of premises and equipment		(314	)		(165	)
Redemption (purchase) of FHLB stock		299			(450	)

Net cash used in investing activities		(68,795	)		(45,501	)

Cash flows from financing activities:
Net increase in deposits		90,987			66,344
Net (decrease) increase in FHLB Advances		(5,000	)		10,000
Proceeds from sale of preferred stock		9,000			7,000
Proceeds from sale of common stock		2,787			539

Net cash provided by financing activities		97,774			83,883

Net increase in cash and cash equivalents		28,954			36,337

Cash and cash equivalents at beginning of the period		54,629			8,934

Cash and cash equivalents at end of the period	$	83,583		$	45,271

Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	776		$	2,354

Income taxes	$	—		$	—

Noncash transactions:
Change in accumulated other comprehensive loss, net change in unrealized (loss) gain on debt securities available for sale, net of income taxes	$	(267	)	$	89

Amortization of unrealized loss on debt securities transferred to held-to-maturity	$	98		$	83

Right-of use lease assets obtained in exchange for operating lease liabilities	$	191		$	—

Transfer of loans to foreclosed real estate	$	—		$	681
Increase in other liabilities for Stock-based compensation	$	200		$	200
Issuance of common stock for Junior Subordinated Debenture	$	2,068		$	—
Issuance of common stock for Junior Subordinated Debenture interest payable	$	41		$	—

See accompanying notes to condensed consolidated financial statements

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 September 30, 2021, and the results of operations and cash flows for the three and nine month periods ended September 30, 2021 and 2020. All significant intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the three and nine months ended September 30, 2021, are not necessarily indicative of the results to be expected for the full year.

Subsequent Events. The Company has evaluated subsequent events through November 9, 2021, which is the date the condensed consolidated financial statements were issued.

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 and created significant volatility and disruption in financial markets. 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. 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”).

The outstanding principal amount of the Junior Subordinated Debenture at December 31, 2020, was $2,068,000, together with accrued interest of $30,000 at December 31, 2020. The accrued interest is presented on the accompanying condensed consolidated balance sheet under the caption “Other liabilities”.

During the first nine months of 2021, the Company acquired all of the outstanding Trust Preferred Securities and paid all accrued interest in exchange for 700,614 shares of the Company’s common stock. These shares were issued in the following transactions:

During the first quarter of 2021, the Company issued 11,042 shares of common stock to pay approximately $41,000 of accrued interest associated with the Junior Subordinated Debenture.

During the second quarter of 2021, the Company issued 282,377 shares of common stock in exchange for 840 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 $840,000 in principal amount of the Trust Preferred Securities, together with accrued interest of $7,000, and increased its stockholders’ equity by the same amount.

During the third quarter of 2021, the Company issued 407,195 shares of common stock in exchange for the remaining 1,228 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 $1,221,000 in principal amount of the Trust Preferred Securities and increased its stockholders’ equity by the same amount.

As of September 30, 2021, the Company had acquired all of the Trust Preferred Securities. Accordingly, there was no principal or accrued interest owed by the Company with respect to the Junior Subordinated Debenture or the Trust Preferred Securities at September 30, 2021.

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (Unaudited)

(1) General, Continued.

Comprehensive Income (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 earnings (loss), are components of comprehensive income (loss).

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

	September 30,			December 31,
	2021			2020

Unrealized (loss) gain on debt securities available for sale	$	(290	)	$	50
Unamortized portion of unrealized loss related to debt securities available for sale transferred to securities held-to-maturity		(46	)		(144	)
Income tax benefit		—			25

Accumulated other comprehensive loss	$	(336	)	$	(69	)

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 September 30, 2021. Accordingly, a valuation allowance was recorded against the net deferred tax asset.

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 is in the process of determining the effect of the ASU on its condensed consolidated financial statements.

(continued)

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 September 30, 2021:
Available for sale:
SBA Pool Securities	$	1,139	$	1	$	(27	)	$	1,113
Collateralized mortgage obligations		237		13		—			250
Taxable municipal securities		16,776		58		(165	)		16,669
Mortgage-backed securities		17,876		31		(201	)		17,706
Total	$	36,028	$	103	$	(393	)	$	35,738

Held-to-maturity:
Collateralized mortgage obligations	$	1,061	$	43		—		$	1,104
Mortgage-backed securities		266		5		—			271
Total	$	1,327	$	48		—		$	1,375

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value

At December 31, 2020:
Available for sale:
SBA Pool Securities	$	1,338	$	—	$	(41	)	$	1,297
Collateralized mortgage obligations		458		27		—			485
Taxable municipal securities		5,063		29		(7	)		5,085
Mortgage-backed securities		11,984		53		(11	)		12,026
Total	$	18,843	$	109	$	(59	)	$	18,893

Held-to-maturity:
Collateralized mortgage obligations	$	2,420	$	116		—		$	2,536
Mortgage-backed securities		979		34		—			1,013
Total	$	3,399	$	150		—		$	3,549

There were no sales of debt securities during the three and nine months ended September 30, 2021 and 2020.

(continued)

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 September 30, 2021
	Over Twelve Months					Less Than Twelve Months
	Gross					Gross
	Unrealized			Fair		Unrealized			Fair
	Losses			Value		Losses			Value

Available for Sale :
SBA Pool Securities		(27	)		907		—			—
Taxable municipal securities		—			—		(165	)		12,124
Mortgage-backed securities		(39	)		1,613		(162	)		15,205
Total	$	(66	)	$	2,520	$	(327	)	$	27,329

	At December 31, 2020
	Over Twelve Months					Less Than Twelve Months
	Gross					Gross
	Unrealized			Fair		Unrealized			Fair
	Losses			Value		Losses			Value

Available for Sale :
SBA Pool Securities		(41	)		1,297		—			—
Taxable municipal securities		—			—		(7	)		1,413
Mortgage-backed securities		—			—		(11	)		3,583
Total	$	(41	)	$	1,297	$	(18	)	$	4,996

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 September 30, 2021 and December 31, 2020, the unrealized losses on twenty-nine and eleven debt securities respectively, were caused by market conditions. It is expected that the debt securities would not be settled at a price less than the book value of the investments. Because the decline in fair value is attributable to market conditions and not credit quality, and because the Company has the ability and intent to hold these investments until a market price recovery or maturity, these investments are not considered other-than-temporarily impaired.

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (Unaudited)

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

Schedule of Components of Loans

	September 30,			December 31,
	2021			2020

Residential real estate	$	30,721		$	28,997
Multi-family real estate		41,159			19,210
Commercial real estate		102,416			74,398
Land and construction		4,694			4,750
Commercial		18,269			21,849
Consumer		12,085			5,715

Total loans		209,344			154,919

Deduct:
Net deferred loan fees, costs and premiums		(784	)		(544	)
Allowance for loan losses		(2,695	)		(1,906	)

Loans, net	$	205,865		$	152,469

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

	Real Estate			Real Estate		Commercial Real Estate		Land and Construction			Commercial			Consumer			Unallocated			Total
	Residential			Multi-Family
	Real Estate			Real Estate		Commercial Real Estate		Land and Construction			Commercial			Consumer			Unallocated			Total
Three Months Ended September 30, 2021:

Beginning balance	$	472		$	392	$	938	$	57		$	58		$	314		$	—		$	2,231
(Credit) provision for loan losses		(29	)		102		349		(10	)		39			131			—			582
Charge-offs		—			—		—		—			(10	)		(111	)		—			(121	)
Recoveries		3			—		—		—			—			—			—			3

Ending balance	$	446		$	494	$	1,287	$	47		$	87		$	334		$	—		$	2,695

Three Months Ended September 30, 2020:
Beginning balance	$	717		$	153	$	888	$	50		$	620		$	236		$	—		$	2,664
Provision (credit) for loan losses		85			75		84		(5	)		292			(7	)		—			524
Charge-offs		(259			—		—		—			(775	)		(17	)		—			(1,051	)
Recoveries		1			—		—		6			—			1			—			8

Ending balance	$	544		$	228	$	972	$	51		$	137		$	213		$	—		$	2,145

Nine Months Ended September 30, 2021:

Beginning balance	$	463		$	253	$	884	$	52		$	103		$	151		$	—		$	1,906
(Credit) provision for loan losses		(46	)		241		403		(13	)		4			366			—			955
Charge-offs		—			—		—		—			(20	)		(191	)		—			(211	)
Recoveries		29			—		—	$	8			—			8			—			45

Ending balance	$	446		$	494	$	1,287	$	47		$	87		$	334		$	—		$	2,695

Nine Months Ended September 30, 2020:

Beginning balance	$	531		$	82	$	624	$	21		$	573		$	152		$	26		$	2,009
Provision (credit) for loan losses		264			146		348		12			339			153			(26	)		1,236
Charge-offs		(259	)		—		—		—			(775	)		(94	)		—			(1,128	)
Recoveries		8			—		—		18			—			2			—			28

Ending balance	$	544		$	228	$	972	$	51		$	137		$	213		$	-		$	2,145

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (Unaudited)

(3) Loans, Continued.

			Multi-
	Residential		Family
	Real Estate		Real Estate		Commercial Real Estate		Land and Construction		Commercial		Consumer		Unallocated		Total
At September 30, 2021:
Individually evaluated for impairment:
Recorded investment	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Balance in allowance for loan losses	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Collectively evaluated for impairment:
Recorded investment	$	30,721	$	41,159	$	102,416	$	4,694	$	18,269	$	12,085	$	—	$	209,344
Balance in allowance for loan losses	$	446	$	494	$	1,287	$	47	$	87	$	334	$	—	$	2,695

At December 31, 2020:
Individually evaluated for impairment:
Recorded investment	$	—	$	—	$	2,193	$	—	$	—	$	—	$	—	$	2,193
Balance in allowance for loan losses	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Collectively evaluated for impairment:
Recorded investment	$	28,997	$	19,210	$	72,205	$	4,750	$	21,849	$	5,715	$	—	$	152,726
Balance in allowance for loan losses	$	463	$	253	$	884	$	52	$	103	$	151	$	—	$	1,906

(continued)

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. The Company has supported small business owners by making loans through the Small Business Administration Paycheck Protection Program (“PPP”). As of September 30, 2021, the Bank had originated 502 PPP loans for a total dollar amount of $37.4 million. These loans are 100% guaranteed by the Small Business Administration (the “SBA”). At September 30, 2021 outstanding PPP loans total approximately $14.3 million.

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)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (Unaudited)

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

Schedule of Loans by Credit Quality

			OLEM (Other Loans Especially		Sub-
	Pass		Mentioned)		Standard		Doubtful		Loss		Total

At September 30, 2021:
Residential real estate	$	28,212	$	—	$	2,509	$	—	$	—	$	30,721
Multi-family real estate		41,159		—		—		—		—		41,159
Commercial real estate		99,825		2,591		—		—		—		102,416
Land and construction		4,694		—		—		—		—		4,694
Commercial		17,992		277		—		—		—		18,269
Consumer		12,085		—		—		—		—		12,085

Total	$	203,967	$	2,868	$	2,509	$	—	$	—	$	209,344

At December 31, 2020:
Residential real estate	$	28,151	$	—	$	846	$	—	$	—	$	28,997
Multi-family real estate		19,210		—		—		—		—		19,210
Commercial real estate		66,089		4,449		3,860		—		—		74,398
Land and construction		4,750		—		—		—		—		4,750
Commercial		20,735		1,114		—		—		—		21,849
Consumer		5,715		—		—		—		—		5,715

Total	$	144,650	$	5,563	$	4,706	$	—	$	—	$	154,919

Internally assigned loan grades are defined as follows:

	Pass – a Pass loan’s primary source of loan repayment is satisfactory, with secondary sources very likely to be realized if necessary. These are loans that conform in all aspects to bank policy and regulatory requirements, and no repayment risk has been identified.

	OLEM – an Other Loan Especially Mentioned has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in the deterioration of the repayment prospects for the asset or the Company’s credit position at some future date.

	Substandard – a Substandard loan is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Included in this category are loans that are current on their payments, but the Bank is unable to document the source of repayment. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

	Doubtful – a loan classified as Doubtful has all the weaknesses inherent in one classified as Substandard, with the added characteristics that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future. The Company charges off any loan classified as Doubtful.

	Loss – a loan classified Loss is considered uncollectible and of such little value that continuance as a bankable asset is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be effected in the future. The Company fully charges off any loan classified as Loss.

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (Unaudited)

(3) Loans, Continued. Age analysis of past-due loans is as follows (in thousands):

	Accruing Loans
					Greater
	30-59		60-89		Than 90
	Days Past		Days Past		Days Past		Total Past				Nonaccrual		Total
	Due		Due		Past		Due		Current		Loans		Loans

At September 30, 2021:
Residential real estate	$	—	$	—	$	—	$	—	$	30,721	$	—	$	30,721
Multi-family real estate		—		—		—		—		41,159		—		41,159
Commercial real estate		—		—		—		—		102,416		—		102,416
Land and construction		—		—		—		—		4,694		—		4,694
Commercial		—		—		—		—		18,269		—		18,269
Consumer		21		22		—		43		12,042		—		12,085

Total	$	21	$	22	$	—	$	43	$	209,301	$	—	$	209,344

	Accruing Loans
					Greater
	30-59 Days		60-89 Days		Than 90 Days		Total
	Past		Past		Past		Past				Nonaccrual		Total
	Due		Due		Due		Due		Current		Loans		Loans
At December 31, 2020:
Residential real estate	$	977	$	—	$	—	$	977	$	28,020	$	—	$	28,997
Multi-family real estate		—		—		—		—		19,210		—		19,210
Commercial real estate		—		—		—		—		72,205		2,193		74,398
Land and construction		—		—		—		—		4,750		—		4,750
Commercial		—		—		—		—		21,849		—		21,849
Consumer		6		—		—		6		5,709		—		5,715

Total	$	983	$	—	$	—	$	983	$	151,743	$	2,193	$	154,919

There were no impaired loans at September 30, 2021. The following summarizes the amount of impaired loans at December 31, 2020 (in thousands):

Schedule of Impaired Loans

December 31, 2020

Unpaid

Recorded

Principal

Investment

Balance

Allowance

With no related allowance recorded:

Commercial real estate

2,193

—

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (Unaudited)

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

	Three Months Ended September 30,
	2021						2020
	Average		Interest		Interest		Average		Interest		Interest
	Recorded		Income		Income		Recorded		Income		Income
	Investment		Recognized		Received		Investment		Recognized		Received

Residential real estate	$	—	$	—	$	—	$	626	$	—	$	—
Commercial real estate	$	—	$	—	$	—	$	2,193	$	26	$	—
Commercial	$	—	$	—	$	—	$	270	$	—	$	—
Total	$	—	$	—	$	—	$	3,089	$	26	$	—

	Nine Months Ended September 30,
	2021						2020
	Average		Interest		Interest		Average		Interest		Interest
	Recorded		Income		Income		Recorded		Income		Income
	Investment		Recognized		Received		Investment		Recognized		Received

Residential real estate	$	—	$	—	$	—	$	846	$	18	$	11
Commercial real estate	$	658	$	7	$	7	$	2,194	$	78	$	60
Commercial	$	—	$	—	$	—	$	649	$	—	$	18
Total	$	658	$	7	$	7	$	3,689	$	96	$	89

No loans have been determined to be troubled debt restructurings (TDR’s) during the three and nine month periods ended September 30, 2021 or 2020. At September 30, 2021 and 2020, there were no loans modified and entered into as TDR’s within the past twelve months, that subsequently defaulted during the three and nine month periods ended September 30, 2021 or 2020.

(4) Earnings (Loss) Per Share. Basic earnings (loss) per share have been computed on the basis of the weighted-average number of shares of common stock outstanding during the period. During the three and nine month periods ended September 30, 2021, basic and diluted earnings per share is the same as there were no outstanding potentially dilutive securities. During the three and nine month periods ended September 30, 2020, basic and diluted loss per share is the same due to the net loss incurred by the Company. Earnings (loss) per common share have been computed based on the following:

	2021		2020		2021		2020
	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Weighted-average number of common shares outstanding used to calculate basic and diluted loss per common share		4,346,211		2,951,353		3,611,814		2,920,961

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (Unaudited)

(5) Stock-Based Compensation

The Company is authorized to grant stock options, stock grants and other forms of equity-based compensation under its 2018 Equity Incentive Plan (the “2018 Plan”). The plan has been approved by the shareholders. The Company is authorized to issue up to 550,000 shares of common stock under the 2018 Plan, of which 250,096 shares remain available for grant. No stock options are outstanding at September 30, 2021.

During the first quarter of 2021, the Company agreed to issue 62,112 shares to a director for services performed and recorded compensation expense of $200,000. At September 30, 2021 the director had not yet taken delivery of the shares. As such, at September 30, 2021, the $200,000 is presented on the accompanying condensed consolidated balance sheets under the caption of “other liabilities”. During October 2021, the director took delivery of the shares.

(6) Fair Value Measurements. There were no impaired collateral dependent loans measured at fair value on a nonrecurring basis at September 30, 2021 and December 31, 2020.

Debt securities available for sale measured at fair value on a recurring basis are summarized below (in thousands):

			Fair Value Measurements Using
			Quoted Prices		Significant
			In Active Markets for		Other Observable		Significant Unobservable
	Fair Value		Identical Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)
At September 30, 2021 :
SBA Pool Securities	$	1,113	$	—	$	1,113		—
Collateralized mortgage obligations		250		—		250		—
Taxable municipal securities		16,669		—		16,669		—
Mortgage-backed securities		17,706		—		17,706		—
Total	$	35,738		—	$	35,738		—

			Fair Value Measurements Using
			Quoted Prices In Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Fair Value		(Level 1)		(Level 2)		(Level 3)

At December 31, 2020 :
SBA Pool Securities	$	1,297	$	—	$	1,297		—
Collateralized mortgage obligations		485		—		485		—
Taxable municipal securities		5,085		—		5,085		—
Mortgage-backed securities		12,026		—		12,026		—
Total	$	18,893		—	$	18,893		—

(7) Fair Value of Financial Instruments. The estimated fair values and fair value measurement method with respect to the Company’s financial instruments were as follows (in thousands):

	Carrying Amount		Fair Value		Level		Carrying Amount		Fair Value			Level
	At September 30, 2021						At December 31, 2020
	Carrying Amount		Fair Value		Level		Carrying Amount		Fair Value			Level

Financial assets:
Cash and cash equivalents	$	83,583	$	83,583		1	$	54,629	$	54,629			1
Debt securities available for sale		35,738		35,738		2		18,893		18,893			2
Debt securities held-to-maturity		1,327		1,375		2		3,399		3,549			2
Loans		205,865		205,807		3		152,469		153,276			3
Federal Home Loan Bank stock		793		793		3		1,092		1,092			3
Accrued interest receivable		863		863		3		1,336		1,336			3

Financial liabilities:
Deposit liabilities		281,746		281,813		3		190,759		191,011			3
Federal Home Loan Bank advances		18,000		18,185		3		23,000		23,254			3
Junior subordinated debenture		—		—		3		2,068		N/A	(1)		3
Off-balance sheet financial instruments		—		—		3		—		—			3

(1)

The Company is unable to determine value based on significant unobservable inputs required in the calculation.

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (Unaudited)

(8) Off- Balance Sheet Financial Instruments. The Company is party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments are commitments to extend credit, unused lines of credit, and standby letters of credit and may involve, to varying degrees, elements of credit and interest-rate risk in excess of the amount recognized in the condensed consolidated balance sheet. The contract amounts of these instruments reflect the extent of involvement the Company has in these financial instruments.

The Company’s exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. 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. Because some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company, upon extension of credit, is based on management’s credit evaluation of the counterparty.

Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit to customers is essentially the same as that involved in extending loan facilities to customers. The Bank generally holds collateral supporting those commitments. Standby letters of credit generally have expiration dates within one year.

Commitments to extend credit, unused lines of credit, and standby letters of credit typically result in loans with a market interest rate when funded. A summary of the contractual amounts of the Company’s financial instruments with off-balance-sheet risk at September 30, 2021 follows (in thousands):


Commitments to extend credit	$	16,153

Unused lines of credit	$	11,532

Standby letters of credit	$	4,550

(9) Regulatory Matters. The Bank is subject to various regulatory capital requirements administered by the bank regulatory agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company and Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of its assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

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. 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.

The community bank leverage ratio removes the requirement for qualifying banking organizations to calculate and report risk-based capital but rather only requires a Tier 1 to average assets (leverage) ratio. Qualifying community banking organizations that elect to use the community bank leverage ratio framework and that maintain a leverage ratio of greater than required minimums will be considered to have satisfied the generally applicable risk based and leverage capital requirements in the agencies’ capital rules (generally applicable rule) and, if applicable, will be considered to have met the well capitalized ratio requirements for purposes of section 38 of the Federal Deposit Insurance Act. Under the interim final rules, the community bank leverage ratio minimum requirement is 8% as of December 31, 2020, 8.5% for calendar year 2021, and 9% for calendar year 2022 and beyond. The interim rule allows for a two-quarter grace period to correct a ratio that falls below the required amount, provided that the Bank maintains a leverage ratio of 7% as of December 31, 2020, 7.5% for calendar year 2021, and 8% for calendar year 2022 and beyond. 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.

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (Unaudited)

(9) Regulatory Matters, Continued.

Management believes, as of September 30, 2021 and December 31, 2020, that the Bank meets all capital adequacy requirements to which it is subject. The Bank’s actual capital amounts and percentages are presented in the table ($ in thousands):

	Actual					To Be Well Capitalized Under Prompt Corrective Action Regulations (CBLR Framework)
	Amount		%			Amount		%
As of September 30, 2021:
Tier I Capital to Total Assets		32,980		10.96	%		25,567		8.5	%

	Actual					To Be Well Capitalized Under Prompt Corrective Action Regulations (CBLR Framework)
	Amount		%			Amount		%
As of December 31, 2020:
Tier I Capital to Total Assets		19,261		9	%		17,116		8	%

(10) Preferred Stock

During the first quarter of 2021, the Company issued 160 shares of Series B Participating Preferred Stock (the “Series B Preferred Stock”) to a related party at a cash price of $25,000 per share, or an aggregate of $4,000,000. The related party is a significant common stockholder.

During the second quarter of 2021, the Company issued 200 shares of Series B Participating Preferred Stock (the “Series B Preferred Stock”) to a non-related party at a cash price of $25,000 per share, or an aggregate of $5,000,000.

The Series B Preferred Stock has no par value. Except in the case of liquidation, if the Company declares or pays a dividend or distribution on the common stock, the Company shall simultaneously declare and pay a dividend on the Series B Preferred Stock on a pro rata basis with the common stock determined on an as-converted basis assuming all Shares of Series B Preferred Stock had been converted immediately prior to the record date of the applicable dividend. At September 30, 2021, the Company had 760 shares of Series B Preferred Stock outstanding, which are convertible into 7,600,000 shares of common stock, at the option of the Company, subject to the prior fulfilment of the following conditions: (i) such conversion shall have been approved by the holders of a majority of the outstanding common stock of the Company; and (ii) such conversion shall not result in any holder of the Series B Preferred Stock and any persons with whom the holder may be acting in concert, becoming beneficial owners of more than 9.9% of the outstanding shares of the common stock. The number of shares issuable upon conversion is subject to adjustment based on the terms of the amended Certificate of Designation in the Amendment to the Company’s Articles of Incorporation filed on June 25, 2021 (the “Certificate of Designation”) The Preferred Stock has preferential liquidation rights over common stockholders and holders of junior securities. The liquidation price is the greater of $25,000 per share of preferred stock or such amount per share of preferred stock that would have been payable had all shares of the preferred stock been converted into common stock per the terms of the Certificate of Designation immediately prior to a liquidation. The Preferred Stock generally has no voting rights except as provided in the Certificate of Designation.

(11) Contingencies. Various claims arise from time to time in the normal course of business. In the opinion of management, none have occurred that will have a material effect on the Company’s condensed consolidated financial statements.

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto presented elsewhere in this report. For additional information, refer to the consolidated financial statements and footnotes for the year ended December 31, 2020 in the Annual Report on Form 10-K.

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements involve known and unknown risks and uncertainties, many of which are beyond the control of the Company, including adverse changes in economic, political and market conditions, losses from the Company’s lending activities and changes in market conditions, the possible loss of key personnel, the impact of increasing competition, the impact of changes in government regulation, the possibility of liabilities arising from violations of federal and state securities laws and the impact of changes in technology in the banking industry. Although the Company believes that its forward-looking statements are based upon reasonable assumptions regarding its business and future market conditions, there can be no assurances that the Company’s actual results will not differ materially from any results expressed or implied by the Company’s forward-looking statements. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Readers are cautioned that any forward-looking statements are not guarantees of future performance.

Capital Levels

As of September 30, 2021, the Bank is well capitalized under regulatory guidelines.

Refer to Note 9 for the Bank’s actual and required minimum capital ratios.

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Financial Condition at September 30, 2021 and December 31, 2020

Overview

The Company’s total assets increased by approximately $100 million to $335.1 million at September 30, 2021, from $235.1 million at December 31, 2020, primarily due to increases in loans, cash and cash equivalents and debt securities. The growth in assets was attributable to the success of the Company’s efforts to increase deposits from new customers. Total deposits grew by approximately $91 million to $281.7 million at September 30, 2021, from $190.8 million at December 31, 2020. Total stockholders’ equity increased by approximately $15.3 million to $33.2 million at September 30, 2021, from $17.8 million at December 31, 2020, primarily due to proceeds from the sale of preferred stock, common stock, the issuance of common stock in exchange for Trust Preferred Securities and net earnings. The increase in stockholders’ equity was partially offset by the change in accumulated other comprehensive loss for the three and nine months ended September 30, 2021.

The following table shows selected information for the periods ended or at the dates indicated:

	Nine Months Ended September 30, 2021			Year Ended December 31, 2020

Average equity as a percentage of average assets		8.7	%		5.8	%

Equity to total assets at end of period		9.9	%		7.6	%

Return on average assets (1)		0.9	%		(0.5	)%

Return on average equity (1)		9.5	%		(7.8	)%

Noninterest expenses to average assets (1)		2.3	%		2.9	%

(1) Annualized for the nine months ended September 30, 2021.

Liquidity and Sources of Funds

The Company’s sources of funds include customer deposits, advances from the Federal Home Loan Bank of Atlanta (“FHLB”), principal repayments and sales of debt securities, loan repayments, the use of Federal Funds markets, net earnings, if any, and loans taken out at the Federal Reserve Bank discount window.

Deposits are our primary source of funds. In order to increase its core deposits, the Company has priced its deposit rates competitively. The Company will adjust rates on its deposits to attract or retain deposits as needed.

The Company increased deposits by approximately $91 million during the nine-month period ending September 30, 2021. The proceeds were used to originate new loans, purchase debt securities and repay Federal Home Loan Bank advances.

In addition to obtaining funds from depositors, the Company may borrow funds from other financial institutions. At September 30, 2021, the Company had outstanding borrowings of $18 million, against its $55 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. The Company has an available discount window credit line with the Federal Reserve Bank, currently $430,000. The Federal Reserve Bank line is subject to collateral requirements and must be repaid within 90 days; each advance is subject to prior Federal Reserve Bank consent. At September 30, 2021, the Company also had available lines of credit amounting to $9.5 million with four correspondent banks to purchase federal funds. Disbursements on the lines of credit are subject to the approval of the correspondent banks. We measure and monitor our liquidity daily and believe our liquidity sources are adequate to meet our operating needs.

Off-Balance Sheet Arrangements

Refer to Note 8 in the condensed consolidated financial statements for Off-Balance Sheet Arrangements.

Junior Subordinated Debenture

Please refer to Note 1 in the condensed consolidated financial statements for discussion on this matter.

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Results of Operations

The following table sets forth, for the periods indicated, information regarding (i) the total dollar amount of interest and dividend income of the Company from interest-earning assets and the resultant average yields; (ii) the total dollar amount of interest expense on interest-bearing liabilities and the resultant average cost; (iii) net interest income; (iv) interest-rate spread; (v) net interest margin; and (vi) the ratio of average interest-earning assets to average interest-bearing liabilities.

	Three Months Ended September 30,
	2021							2020
			Interest		Average					Interest		Average
	Average		and		Yield/			Average		and		Yield/
(dollars in thousands)	Balance		Dividends		Rate⁽⁵⁾			Balance		Dividends		Rate⁽⁵⁾
Interest-earning assets:
Loans	$	203,983	$	2,795		5.48	%	$	142,138	$	1,723		4.85	%
Securities		34,044		150		1.76	%		9,092		41		1.80	%
Other (1)		48,596		28		0.23	%		18,928		7		0.15	%

Total interest-earning assets/interest income		286,623		2,973		4.15	%		170,158		1,771		4.16	%

Cash and due from banks		12,080							14,480
Premises and equipment		1,402							1,439
Other		1,626							1,312

Total assets	$	301,731						$	187,389

Interest-bearing liabilities:
Savings, NOW and money-market deposits	$	128,844		124		0.38	%	$	89,383		168		0.75	%
Time deposits		15,429		22		0.57	%		28,583		122		1.71	%
Borrowings (2)		18,387		62		1.35	%		26,758		96		1.44	%

Total interest-bearing liabilities/interest expense		162,660		208		0.51	%		144,724		386		1.07	%

Noninterest-bearing demand deposits		105,843							29,970
Other liabilities		1,744							2,367
Stockholders’ equity		31,484							10,328

Total liabilities and stockholders’ equity	$	301,731						$	187,389

Net interest income			$	2,765						$	1,385

Interest rate spread (3)						3.64	%						3.09	%

Net interest margin (4)						3.86	%						3.26	%

Ratio of average interest-earning assets to average interest-bearing liabilities		1.76							1.18

(1)	Includes interest-earning deposits with banks and Federal Home Loan Bank stock dividends.
(2)	Includes Federal Home Loan Bank advances, other borrowings and the junior subordinated debenture.
(3)	Interest-rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.
(4)	Net interest margin is net interest income divided by average interest-earning assets.
(5)	Annualized.

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

	Nine Months Ended September 30,
	2021							2020
			Interest		Average					Interest		Average
	Average		and		Yield/			Average		and		Yield/
(dollars in thousands)	Balance		Dividends		Rate⁽⁵⁾			Balance		Dividends		Rate⁽⁵⁾
Interest-earning assets:
Loans	$	183,068	$	6,820		4.97	%	$	125,090	$	4,697		5.01	%
Securities		28,024		327		1.56	%		10,016		136		1.81	%
Other (1)		38,457		81		0.28	%		14,526		67		0.61	%

Total interest-earning assets/interest income		249,549		7,228		3.86	%		149,632		4,900		4.37	%

Cash and due from banks		21,338							7,748
Premises and equipment		1,344							1,423
Other		1,940							1,043

Total assets	$	274,171						$	159,846

Interest-bearing liabilities:
Savings, NOW and money-market deposits	$	121,077		380		0.42	%	$	72,348		607		1.12	%
Time deposits		18,170		100		0.73	%		30,466		440		1.93	%
Borrowings (2)		21,023		241		1.53	%		24,990		322		1.72	%

Total interest-bearing liabilities/interest expense		160,270		721		0.60	%		127,804		1,369		1.43	%

Noninterest-bearing demand deposits		88,387							21,255
Other liabilities		1,642							2,447
Stockholders’ equity		23,872							8,340

Total liabilities and stockholders’ equity	$	274,171						$	159,846

Net interest income			$	6,507						$	3,531

Interest rate spread (3)						3.26	%						2.94	%

Net interest margin (4)						3.48	%						3.15	%

Ratio of average interest-earning assets to average interest-bearing liabilities		1.56							1.17

(1)	Includes interest-earning deposits with banks and Federal Home Loan Bank stock dividends.
(2)	Includes Federal Home Loan Bank advances, other borrowings and the junior subordinated debenture.
(3)	Interest-rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.
(4)	Net interest margin is net interest income divided by average interest-earning assets.
(5)	Annualized.

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Comparison of the Three-Month Periods Ended September 30, 2021 and 2020

	Three Months Ended					Increase /
	September 30,					(Decrease)
(dollars in thousands)	2021		2020			Amount			Percentage
Total interest income	$	2,973	$	1,771		$	1,202			68	%
Total interest expense		208		386			(178	)		(46	)%
Net interest income		2,765		1,385			1,380			100	%
Provision for loan losses		582		524			58			11	%
Net interest income after provision for loan losses		2,183		861			1,322			154	%
Total noninterest income		423		64			359			561	%
Total noninterest expenses		1,689		1,421			268			19	%
Net earnings (loss) before income taxes		917		(496	)		1,413			(284	)%
Income taxes		-		-			-			-
Net earnings (loss)	$	917	$	(496	)		1,413			(284	)%
Net earnings (loss) per share - basic and diluted	$	0.21	$	(0.17	)

Net earnings (loss). Net earnings for the three months ended September 30, 2021, were $917,000 or $0.21 per basic and diluted share compared to a net loss of $(496,000) or $(0.17) per basic and diluted share for the three months ended September 30, 2020. The increase in net earnings during the three months ended September 30, 2021 compared to three months ended September 30, 2020 is primarily attributed to an increase in net interest income and noninterest income, partially offset by the increase in noninterest expense.

Interest Income. Interest income increased $1,202,000 for the three months ended September 30, 2021 compared to the three ended September 30, 2020 due primarily to growth in the loan portfolio.

Interest Expense. Interest expense decreased $178,000 to $208,000 for the three months ended September 30, 2021 compared to the prior period, primarily due to a decrease in interest bearing deposit rates.

Provision for Loan Losses. Provision for loan losses was $582,000 for the three months ended September 30, 2021 compared to $524,000 for the three months ended September 30, 2020. The provision for loan losses is charged to operations as losses are estimated to have occurred in order to bring the total loan allowance for loan losses to a level deemed appropriate by management to absorb losses inherent in the portfolio at September 30, 2021. 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. The allowance for loan losses totaled $2.7 million or 1.29% of loans outstanding at September 30, 2021, compared to $1.9 million or 1.23% of loans outstanding at December 31, 2020. The provision for loan losses during the second quarter of 2021 was primarily due to loan volume growth and the evaluation of the other factors noted above.

Noninterest Income. Total noninterest income increased to $423,000 for the three months ended September 30, 2021, from $64,000 for the three months ended September 30, 2020 due to increased wire transfer and ACH fees related to an increase in business checking accounts of approximately $14.5 million during the three month period ended September 30, 2021.

Noninterest Expenses. Total noninterest expenses increased to $1,689,000 for the three months ended September 30, 2021 compared to $1,421,000 for the three months ended September 30, 2020 primarily due to an increase in salaries and employee benefits, professional fees and data processing.

Comparison of the Nine-Month Periods Ended September 30, 2021 and 2020

	Nine Months Ended					Increase /
	September 30,					(Decrease)
(dollars in thousands)	2021		2020			Amount			Percentage
Total interest income	$	7,228	$	4,900		$	2,328			48	%
Total interest expense		721		1,369			(648	)		(47	)%
Net interest income		6,507		3,531			2,976			84	%
Provision for loan losses		955		1,236			(281	)		(23	)%
Net interest income after provision for loan losses		5,552		2,295			3,257			142	%
Total noninterest income		902		170			732			431	%
Total noninterest expenses		4,745		3,616			1,129			31	%
Net earnings (loss) before income taxes		1,709		(1,151	)		2,860			(248	)%
Income taxes		-		-			-			-
Net earnings (loss)	$	1,709	$	(1,151	)		2,860			(248	)%
Net earnings (loss) per share - basic and diluted	$	0.47	$	(0.39	)

Net earnings (loss). Net earnings for the nine months ended September 30, 2021, were $1,709,000 or $0.47 per basic and diluted share compared to a net loss of $(1.2 million) or $(0.39) per basic and diluted share for the nine months ended September 30, 2020. The increase in net earnings during the nine months ended September 30, 2021 compared to nine months ended September 30, 2020 is primarily attributed to a decrease in the provision for loan losses, increase in net interest income and noninterest income, partially offset by the increase in noninterest expense.

Interest Income. Interest income increased $2,328,000 for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 due primarily to growth in the loan portfolio.

Interest Expense. Interest expense decreased $648,000 to $721,000 for the nine months ended September 30, 2021 compared to the prior period, primarily due to a decrease in interest bearing deposit rates.

Provision for Loan Losses. Provision for loan losses amounted to $955,000 for the nine months ended September 30, 2021 compared to $1.2 million for the nine months ended September 30, 2020. The provision for loan losses is charged to operations as losses are estimated to have occurred in order to bring the total loan allowance for loan losses to a level deemed appropriate by management to absorb losses inherent in the portfolio at September 30, 2021. 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. The allowance for loan losses totaled $2.7 million or 1.29% of loans outstanding at September 30, 2021, compared to $1.9 million or 1.23% of loans outstanding at December 31, 2020. The provision for loan losses during nine months ended September 30, 2021 was primarily due to loan volume growth and an evaluation of the other factors noted above.

Noninterest Income. Total noninterest income increased to $902,000 for the nine months ended September 30, 2021, from $170,000 for the nine months ended September 30, 2020 due to increased wire transfer and ACH fees related to an increase in business checking accounts of approximately $23.7 million during the nine month period ended September 30, 2021.

Noninterest Expenses. Total noninterest expenses increased to $4,745,000 for the nine months ended September 30, 2021 compared to $3,616,000 for the nine months ended September 30, 2020 primarily due to an increase in salaries and employee benefits and data processing.

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Item 4. Controls and Procedures

The Company’s management evaluated the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report, and, based on this evaluation, the Principal Executive Officer and Principal Financial Officer concluded that these disclosure controls and procedures are effective.

There have been no changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2021, that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

None

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

During the third quarter of 2021, the Company issued 358,023 shares of its common stock in a private placement transaction to 18 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 Martin Schmidt, who is a director of the Company. Mr. Schmidt purchased 10,323 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.

During October 2021, the Company issued an additional 188,660 shares of its common stock in a private placement transaction to an accredited investor at a price of $4.50 per share. The investor was not 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.

Item 3. Defaults on Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits

The exhibits listed in the Exhibit Index following the signature page are filed with or incorporated by reference into this report.

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	OPTIMUMBANK HOLDINGS, INC.
	(Registrant)

Date: November 9, 2021	By:	/s/ Timothy Terry
		Timothy Terry
		Principal Executive Officer

	By:	/s/ Joel Klein
		Joel Klein
		Principal Financial Officer

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

EXHIBIT INDEX

Exhibit No.		Description

31.1		Certification of Principal Executive Officer required by Rule 13a-14(a)/15d-14(a) under the Exchange Act

31.2		Certification of Principal Financial Officer required by Rule 13a-14(a)/15d-14(a) under the Exchange Act

32.1		Certification of Principal Executive Officer

32.2		Certification of Principal Financial Officer

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

EXHIBIT INDEX

Exhibit No.		Description

101.INS		Inline XBRL Instance Document

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

104		Cover Page Interactive Data File (embedded within the Inline XBRL document)