OptimumBank Holdings, Inc. - Quarter Report: 2022 June (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 June 30, 2022

☐	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

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		—			—
Preferred stock value		—			—

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.

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.

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.

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.

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

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)

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)

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)

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)

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

	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)

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
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
Collectively evaluated for impairment, Balance in allowance for loan losses		$	481		$	535		$	1,535		$	32		$	72		$	420		$	3,075

(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.

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

	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		—		—		—		—		7,099
Commercial		6,783		572		—		—		—		7,355
Consumer		26,237		—		—		—		—		26,237

Total	$	350,278	$	2064	$	1,255	$	—	$	—	$	353,597

At December 31, 2021:
Residential real estate	$	30,080	$	—	$	2,503	$	—	$	—	$	32,583
Multi-family real estate		47,962		630		—		—		—		48,592
Commercial real estate		125,620		3,848		—		—		—		129,468
Land and construction		3,772		—		—		—		—		3,772
Commercial		13,960		197		—		—		—		14,157
Consumer		22,827		—		—		—		—		22,827

Total	$	244,221	$	4,675	$	2,503	$	—	$	—	$	251,399

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		Total
	Days Past		Days Past		Days Past		Past				Nonaccrual		Total
	Due		Due		Past		Due		Current		Loans		Loans

At June 30, 2022:
Residential real estate	$	—	$	—	$	—	$	—	$	33,823	$	—	$	33,823
Multi-family real estate		—		—		—		—		56,265		—		56,265
Commercial real estate		—		—		—		—		222,818		—		222,818
Land and construction		—		—		—		—		7,099		—		7,099
Commercial		—		—		—		—		7,355		—		7,355
Consumer		93		174		—		267		25,970		—		26,237

Total	$	93	$	174	$	—	$	267	$	353,330	$	—	$	353,597

	Accruing Loans
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Current		Nonaccrual Loans		Total Loans
At December 31, 2021:
Residential real estate	$	198	$	—	$	—	$	198	$	32,385	$	—	$	32,583
Multi-family real estate		—		—		—		—		48,592		—		48,592
Commercial real estate		—		—		—		—		129,468		—		129,468
Land and construction		—		—		—		—		3,772		—		3,772
Commercial		—		—		—		—		14,157		—		14,157
Consumer		69		—		—		69		22,758		—		22,827

Total	$	267	$	—	$	—	$	267	$	251,132	$	—	$	251,399

There were no impaired loans at June 30, 2022 or December 31, 2021.

(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 June 30,

2022

2021

Average

Interest

Average

Interest

Recorded

Income

Recorded

Income

Investment

Recognized

Received

Investment

Recognized

Received

Residential real estate

—

Commercial real estate

—

Commercial

—

Total

—

	Six Months Ended June 30,
	2022						2021
	Average		Interest		Interest		Average		Interest		Interest
	Recorded		Income		Income		Recorded		Income		Income
	Investment		Recognized		Received		Investment		Recognized		Received

Residential real estate	$	—	$	—	$	—	$	—	$	—	$	—
Commercial real estate	$	—	$	—	$	—	$	940	$	7	$	7
Commercial	$	—	$	—	$	—	$	—	$	—	$	—
Total	$	—	$	—	$	—	$	940	$	7	$	7

No loans have been determined to be troubled debt restructurings (TDR’s) during the three and six month periods ended June 30, 2022 or 2021. At June 30, 2022 and 2021, there were no loans modified and entered into as TDR’s within the past twelve months, that subsequently defaulted during the three and six month periods ended June 30, 2022 or 2021.

(4) Earnings Per Share. Basic earnings per share have been computed on the basis of the weighted-average number of shares of common stock outstanding during the periods. During the three and six month periods ended June 30, 2022 and 2021, basic and diluted earnings per share is the same as there were no outstanding potentially dilutive securities. Earnings per common share have been computed based on the following:

Three Months Ended

Six Months Ended

June 30,

2022

2021

2022

2021

Weighted-average number of common shares outstanding used to calculate basic and diluted earnings per common share

6,007,484

3,273,098

5,455,406

3,239,615

(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 225,603 shares remain available for grant. No stock options are outstanding at June 30, 2022.

During the quarter ended June 30, 2022, the Company recognized $96,000 of stock-based compensation with respect to 24,493 shares issued to employees for services performed.

(6) Fair Value Measurements. There were no impaired collateral dependent loans measured at fair value on a nonrecurring basis at June 30, 2022 and December 31, 2021.

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

	Fair Value		(Level 1)		(Level 2)		(Level 3)
			Fair Value Measurements Using
			Quoted Prices
			In Active Markets for		Significant Other		Significant
			Identical Assets		Observable Inputs		Unobservable Inputs
	Fair Value		(Level 1)		(Level 2)		(Level 3)
At June 30, 2022 :
SBA Pool Securities	$	958	$	—	$	958		—
Collateralized mortgage obligations		154		—		154		—
Taxable municipal securities		12,496		—		12,496		—
Mortgage-backed securities		13,603		—		13,603		—
Total	$	27,211		—	$	27,211		—

At December 31, 2021 :
SBA Pool Securities	$	1,072	$	—	$	1,072		—
Collateralized mortgage obligations		217		—		217		—
Taxable municipal securities		16,426		—		16,426		—
Mortgage-backed securities		16,679		—		16,679		—
Total	$	34,394		—	$	34,394		—

(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):

	At June 30, 2022						At December 31, 2021
	Carrying Amount		Fair Value		Level		Carrying Amount		Fair Value		Level

Financial assets:
Cash and cash equivalents	$	77,269	$	77,269		1	$	58,970	$	58,970		1
Debt securities available for sale		27,211		27,211		2		34,394		34,394		2
Debt securities held-to-maturity		648		629		2		1,040		1,071		2
Loans		348,948		348,607		3		247,902		247,788		3
Federal Home Loan Bank stock		2,725		2,725		3		793		793		3
Accrued interest receivable		997		997		3		971		971		3

Financial liabilities:
Deposit liabilities		341,819		341,687		3		292,457		292,537		3
Federal Home Loan Bank advances		68,000		67,368		3		18,000		18,021		3
Repurchase agreements		5,000		5,000		3		—		—		3
Off-balance sheet financial instruments		—		—		3		—		—		3

(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 June 30, 2022 follows (in thousands):


Commitments to extend credit	$	16,448

Unused lines of credit	$	18,030

Standby letters of credit	$	4,144

(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.

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (Unaudited)

(9) Regulatory Matters, Continued.

Management believes, as of June 31, 2022 and December 31, 2021, 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 June 30, 2022:
Tier I Capital to Total Assets	$	50,092		12.85	%	$	35,085		9.00	%

As of December 31, 2021:
Tier I Capital to Total Assets	$	35,338		10.64	%	$	28,235		8.50	%

(10) Preferred Stock

During the first quarter of 2022, the Company issued 260 shares of Series B-2 Participating Preferred Stock to an unrelated party at a cash price of $25,000 per share, or an aggregate of $6,500,000.

OptimumBank Holding Inc. is authorized to issue 1,020 shares of Series B Participating Preferred Stock at a price of $25,000 per share. The Preferred Stock has no par value. Except in the event 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 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.

The Preferred Stock is convertible into 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 applicable Certificate of Designation for the Series B Preferred (the “Certificate of Designation”) The Series B Preferred has preferential liquidation rights over common stockholders and holders of junior securities. The liquidation price is the greater of $25,000 per share of Series B Preferred or such amount per share of Series A Preferred that would have been payable had all shares of the Series B Preferred had been converted into common stock pursuant to the terms of the Certificate of Designation immediately prior to a liquidation. The Series B Preferred generally has no voting rights except as provided in the Certificate of Designation.

The Series B is subdivided into Series B-1 and Series B-2 Preferred Stock. The Company is authorized to issue 760 shares of Series B-1 and 260 shares of Series B-2.

Series B-2 has substantially the same rights, preferences, powers, restrictions and limitations, except that the initial conversion price of the Series B-1 is $2.50 per share and the initial conversion price for Series B-2 is $4.00 per share.

(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, 2021 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 June 30, 2022, 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 June 30, 2022 and December 31, 2021

Overview

The Company’s total assets increased by approximately $114.7 million to $466.6 million at June 30, 2022, from $351.9 million at December 31, 2021, primarily due to increases in loans, and cash and cash equivalents. The growth in assets was attributable to the success of the Company’s efforts to increase loans and deposits from new customers. Net loans grew by $101 million and deposits grew by approximately $49.4 million to $341.8 million at June 30, 2022, from $292.5 million at December 31, 2021. The Company increased the Federal Home Loan Bank advances by $50 million to $68 million at June 30, 2022. Total stockholders’ equity increased by approximately $9.5 million to $48.0 million at June 30, 2022, from $38.5 million at December 31, 2021, primarily due to proceeds from the sale of preferred stock, common stock and net earnings. The increase in stockholders’ equity was partially offset by the increase in accumulated other comprehensive loss of approximately $4.4 million for the six months ended June 30, 2022.

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

	Six Months Ended			Year Ended
	30-Jun-22			31-Dec-21

Average equity as a percentage of average assets		11.1	%		9.4	%

Equity to total assets at end of period		10.3	%		11.0	%

Return on average assets (1)		0.9	%		2.2	%

Return on average equity (1)		8.3	%		23.3	%

Noninterest expenses to average assets (1)		2.3	%		2.4	%

(1) Annualized for the six months ended June 30, 2022.

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, 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 $49.4 million during the six-month period ending June 30, 2022. The proceeds were used to originate new loans.

In addition to obtaining funds from depositors, the Company may borrow funds from other financial institutions. At June 30, 2022, the Company had outstanding borrowings of $68 million, against its $93 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. At June 30, 2022, the Company also had available lines of credit amounting to $19.5 million with six 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.

(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 June 30,
	2022							2021
			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	$	297,472	$	3,764		5.06	%	$	182,136	$	2,178		4.78	%
Securities		29,944		159		2.12	%		24,306		86		1.42	%
Other (1)		44,235		102		0.92	%		39,274		26		0.26	%

Total interest-earning assets/interest income		371,651		4,025		4.33	%		245,716		2,290		3.73	%

Cash and due from banks		15,264							23,867
Premises and equipment		863							1,326
Other		5,010							1,687

Total assets	$	392,788						$	272,596

Interest-bearing liabilities:
Savings, NOW and money-market deposits	$	154,365		125		0.32	%	$	121,476		122		0.40	%
Time deposits		15,958		45		1.13	%		18,270		31		0.68	%
Borrowings (2)		24,649		102		1.66	%		20,057		81		1.62	%

Total interest-bearing liabilities/interest expense		194,972		272		0.56	%		159,803		234		0.59	%

Noninterest-bearing demand deposits		146,579							89,047
Other liabilities		2,521							1,699
Stockholders’ equity		48,716							22,047

Total liabilities and stockholders’ equity	$	392,788						$	272,596

Net interest income			$	3,753						$	2,056

Interest rate spread (3)						3.77	%						3.14	%

Net interest margin (4)						4.04	%						3.35	%

Ratio of average interest-earning assets to average interest-bearing liabilities		1.91							1.54

(1)	Includes interest-earning deposits with banks and Federal Home Loan Bank stock dividends.
(2)	Includes Federal Home Loan Bank advances and other borrowings.
(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)

	Six Months Ended June 30,
	2022							2021
			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	$	280,957	$	7,027		5.00	%	$	172,611	$	4,025		4.66	%
Securities		32,026		322		2.01	%		25,014		177		1.42	%
Other (1)		57,933		139		0.48	%		33,386		53		0.32	%

Total interest-earning assets/interest income		370,916		7,488		4.04	%		231,011		4,255		3.68	%

Cash and due from banks		15,277							25,967
Premises and equipment		861							1,316
Other		4,850							2,097

Total assets	$	391,904						$	260,391

Interest-bearing liabilities:
Savings, NOW and money-market deposits	$	168,478		286		0.34	%	$	117,193		256		0.44	%
Time deposits		14,097		59		0.84	%		19,540		78		0.80	%
Borrowings (2)		21,324		163		1.53	%		22,341		179		1.60	%

Total interest-bearing liabilities/interest expense		203,899		508		0.50	%		159,074		513		0.64	%

Noninterest-bearing demand deposits		141,927							79,657
Other liabilities		2,598							1,593
Stockholders’ equity		43,480							20,067

Total liabilities and stockholders’ equity	$	391,904						$	260,391

Net interest income			$	6,980						$	3,742

Interest rate spread (3)						3.54	%						3.04	%

Net interest margin (4)						3.76	%						3.24	%

Ratio of average interest-earning assets to average interest-bearing liabilities		1.82							1.45

(1)	Includes interest-earning deposits with banks and Federal Home Loan Bank stock dividends.
(2)	Includes Federal Home Loan Bank advances and other borrowings.
(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.

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 June 30, 2022 and 2021

	Three Months Ended				Increase /
	June 30,				(Decrease)
(dollars in thousands)	2022		2021		Amount		Percentage
Total interest income	$	4,025	$	2,290	$	1,735		76	%
Total interest expense		272		234		38		16	%
Net interest income		3,753		2,056		1,697		83	%
Provision for loan losses		991		397		594		150	%
Net interest income after provision for loan losses		2,762		1,659		1,103		66	%
Total noninterest income		764		302		462		153	%
Total noninterest expenses		2,260		1,517		743		49	%
Net earnings before income taxes		1,266		444		822		185	%
Income taxes		321		—		321		—
Net earnings	$	945	$	444		501		113	%
Net earnings per share - Basic and diluted	$	0.16	$	0.14

Net earnings. Net earnings for the three months ended June 30, 2022, were $945,000 or $0.16 per basic and diluted share compared to net earnings of $444,000 or $0.14 per basic and diluted share for the three months ended June 30, 2021. The increase in net earnings during the three months ended June 30, 2022 compared to three months ended June 30, 2021 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 $1,735,000 for the three months ended June 30, 2022 compared to the three months ended June 30, 2021 due primarily to growth in the loan portfolio and increase in yield.

Interest Expense. Interest expense increased $38,000 to $272,000 for the three months ended June 30, 2022 compared to the prior period, primarily due to an increase in Federal Home Loan Bank advances, interest bearing deposit rates and change in the composition of deposits.

Provision for Loan Losses. Provision for loan losses was $991,000 for the three months ended June 30, 2022 compared to a $397,000 credit for loan losses for the three months ended June 30, 2021. The provision for loan losses is charged to earnings 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 June 30, 2022. 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 $4.2 million or 1.20% of loans outstanding at June 30, 2022, compared to $3.1 million or 1.22% of loans outstanding at December 31, 2021. The increase in the provision for loan losses during the second quarter of 2022 was primarily due to loan volume growth and the evaluation of the other factors noted above.

Noninterest Income. Total noninterest income increased to $764,000 for the three months ended June 30, 2022, from $302,000 for the three months ended June 30, 2021 due to increased wire transfer and ACH fees during the three month period ended June 30, 2022.

Noninterest Expenses. Total noninterest expenses increased to $2,260,000 for the three months ended June 30, 2022 compared to $1,517,000 for the three months ended June 30, 2021 primarily due to an increase in salaries and employee benefits and data processing.

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Comparison of the Six-Month Periods Ended June 30, 2022 and 2021

	Six Months Ended				Increase /
	June 30,				(Decrease)
(dollars in thousands)	2022		2021		Amount			Percentage
Total interest income	$	7,488	$	4,255	$	3,233			76	%
Total interest expense		508		513		(5	)		(1	)%
Net interest income		6,980		3,742		3,238			87	%
Provision for loan losses		1,383		373		1,010			271	%
Net interest income after provision for loan losses		5,597		3,369		2,228			66	%
Total noninterest income		1,414		478		936			196	%
Total noninterest expenses		4,600		3,055		1,545			51	%
Net earnings before income taxes		2,411		792		1,619			204	%
Income taxes		611		—		611			—
Net earnings	$	1,800	$	792		1,008			127	%
Net earnings per share - Basic and diluted	$	0.33	$	0.24

Net earnings . Net earnings for the six months ended June 30, 2022, was $1,800,000 or $0.33 per basic and diluted share compared to a net earnings of $792,000 or $0.24 per basic and diluted share for the six months ended June 30, 2021. The increase in net earnings during the six months ended June 30, 2022 compared to six months ended June 30, 2021 is primarily attributed to an increase in noninterest income and net interest income, partially offset by the increase in noninterest expense.

Interest Income. Interest income increased $3,233,000 for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 due primarily to growth in the loan portfolio and increase in yield.

Interest Expense. Interest expense decreased $5,000 to $508,000 for the six months ended June 30, 2022 compared to the prior period.

Provision for Loan Losses. Provision for loan losses amounted to $1,383,000 for the six months ended June 30, 2022 compared to $373,000 for the six months ended June 30, 2021. 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 June 30, 2022. 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 $4.2 million or 1.20% of loans outstanding at June 30, 2022, compared to $3.1 million or 1.22% of loans outstanding at December 31, 2021. The increase in the provision for loan losses during six months ended June 30, 2022 was primarily due to loan volume growth and the evaluation of the other factors noted above.

Noninterest Income. Total noninterest income increased to $1,414,000 for the six months ended June 30, 2022, from $478,000 for the six months ended June 30, 2021 due to increased wire transfer and ACH fees related to an increase in business checking accounts of approximately $22.7 million during the six month period ended June 30, 2022.

Noninterest Expenses. Total noninterest expenses increased to $4,600,000 for the six months ended June 30, 2022 compared to $3,055,000 for the six months ended June 30, 2021 primarily due to an increase in salaries and employee benefits, data processing, and other.

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 June 30, 2022, that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

PART II. OTHER INFORMATION

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

During the first quarter of 2022, the Company issued 1,227,331 shares of its common stock in a private placement transaction to 11 accredited investors at a price of $4.50 per share. None of these investors was an officer, director or affiliate of the Company other than Michael Blisko and Moishe Gubin, who are directors of the Company. Mr. Blisko purchased 202,000 shares and Mr. Gubin purchased 190,000 shares. The Company issued these shares in reliance on Section 4(a)(2) of the Securities Act as a transaction by an issuer not involving a public offering.

During the first quarter of 2022, the Company issued a total of 260 shares of Series B-2 preferred stock to a non-related party for a purchase price of $6,500,000. The issuance of the shares was exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933 as a transaction by an issuer not involving a public offering. The Company used the proceeds to make capital contributions to the Bank in order to augment the Bank’s regulatory capital ratios.

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: August 8, 2022	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

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)