Loans

9 Months Ended

Sep. 30, 2024

Receivables [Abstract]

Loans

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

	September 30,			December 31,
	2024			2023
Residential real estate	$	75,877		$	71,400
Multi-family real estate		62,280			67,498
Commercial real estate		479,038			422,680
Land and construction		72,729			32,600
Commercial		39,957			41,870
Consumer		48,177			44,023
Total loans		778,058			680,071
Deduct:
Net deferred loan fees, and costs		(807	)		(1,294	)
Allowance for credit losses		(8,337	)		(7,683	)
Loans, net	$	768,914		$	671,094

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (Unaudited)

(3) Loans, Continued.

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

	Residential			Multi-Family		Commercial			Land and
	Real Estate			Real Estate		Real Estate			Construction		Commercial			Consumer			Total
Three Months Ended September 30, 2024:
Beginning balance	$	970			712		4,303			1,677		134			412			8,208
Credit loss (expense) income		265			114		(803	)		605		47			181			409
Charge-offs		—			—		—			—		—			(366	)		(366	)
Recoveries		—			—		—			—		—			86			86
Ending balance (September 30, 2024)	$	1,235		$	826	$	3,500		$	2,282	$	181		$	313		$	8,337
Three Months Ended September 30, 2023:
Beginning balance	$	883			1,037		2,802			680		135			1,108			6,645
Credit loss (expense) income		(113	)		184		620			194		102			337			1,324
Charge-offs		—			—		—			—		(10	)		(872	)		(882	)
Recoveries		—			—		—			—		—			113			113
Ending balance (September 30, 2023)	$	770		$	1,221	$	3,422		$	874	$	227		$	686		$	7,200

During the three months period ended September 30, 2024, the Company recognized $52,000 of credit loss income related to unfunded loan commitments.

During the three months ended September 30, 2023, the Company recognized credit loss expense of $122,000 related to unfunded loan commitments.

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (Unaudited)

(3) Loans, Continued.

	Residential			Multi-Family			Commercial			Land and
	Real Estate			Real Estate			Real Estate			Construction		Commercial			Consumer			Total
Nine Months Ended September 30, 2024:
Balance Dec 31, 2023	$	1,020			1,041			3,793			1,019		281			529			7,683
Credit loss (expense) income		215			(215	)		(293	)		1,263		(83	)		916			1,803
Charge-offs		—			—			—			—		(17	)		(1,424	)		(1,441	)
Recoveries		—			—			—			—		—			292			292
Ending balance (September 30, 2024)	$	1,235		$	826		$	3,500		$	2,282	$	181		$	313		$	8,337
Nine Months Ended September 30, 2023:
Beginning balance Dec 31, 2022	$	768			748			3,262			173		277			565			5,793
Additional allowance recognized due to adoption of Topic 326		33			327			(367	)		278		(262	)		209			218
Balance January 1, 2023	$	801		$	1,075		$	2,895		$	451	$	15		$	774		$	6,011
Credit loss (expense) income	$	(31	)		146			527			423		177			1,393			2,635
Charge-offs		—			—			—			—		(52	)		(1,676	)		(1,728	)
Recoveries		—			—			—			—		87			195			282
Ending balance (September 30, 2023)	$	770		$	1,221		$	3,422		$	874	$	227		$	686		$	7,200

During the nine months ended September 30, 2024, the Company recognized $193,000 of credit loss income related to unfunded loan commitments.

During the nine months ended September 30, 2023, the Company recognized credit loss expense of $335,000 related to unfunded loan commitments.

(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 Bank’s Board of Directors. The Company identifies the portfolio segments as follows:

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (Unaudited)

(3) Loans, Continued.

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. Underwriting 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 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. 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 mitigates 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. Age analysis of past-due loans is as follows (in thousands):

	Accruing Loans
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Past		Total Past Due		Current		Nonaccrual Loans		Total Loans
At September 30, 2024:
Residential real estate	$	—	$	—	$	—	$	—	$	75,877	$	—	$	75,877
Multi-family real estate		—		—		—		—		62,280		—		62,280
Commercial real estate		—		—		—		—		477,620		1,418		479,038
Land and construction		—		—		—		—		72,729		—		72,729
Commercial		—		—		—		—		39,798		159		39,957
Consumer		201		66		—		267		47,305		605		48,177
Total	$	201	$	66	$	—	$	267	$	775,609	$	2,182		778,058
At December 31, 2023:
Residential real estate	$	—	$	—	$	—	$	—	$	71,400	$	—	$	71,400
Multi-family real estate		—		—		—		—		67,498		—		67,498
Commercial real estate		—		—		—		—		422,680		—		422,680
Land and construction		—		—		—		—		32,600		—		32,600
Commercial		—		—		—		—		41,870		—		41,870
Consumer		230		208		—		438		42,560		1,025		44,023
Total	$	230	$	208	$	—	$	438	$	678,608	$	1,025	$	680,071

The Company has not made any modifications of loans to borrowers experiencing financial difficulties during the three and nine months ended September 30, 2024 and 2023.

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (Unaudited)

(3) Loans, Continued.

Term Loans

Amortized Cost Basis by Origination Year

Land and Construction	September 30, 2024		2023			2022			2021			2020		Prior			Revolving Loans (Amortized Cost Basis)		Revolving Loans Converted to Term Loans (Amortized Cost Basis)		Total
Pass	$	1,940		49,593			14,540			2,454			1,456		2,746			—		—		72,729
OLEM (Other Loans Especially Mentioned)		—		—			—			—			—		—			—		—		—
Substandard		—		—			—			—			—		—			—		—		—
Doubtful		—		—			—			—			—		—			—		—		—
Loss		—		—			—			—			—		—			—		—		—
Subtotal loans	$	1,940	$	49,593		$	14,540		$	2,454		$	1,456	$	2,746		$	—	$	—	$	72,729
Current period Gross write—offs	$	—		—			—			—			—		—			—		—		—
Residential real estate
Pass	$	7,500		21,323			23,364			9,035			4,418		7,705			—		—		73,345
OLEM (Other Loans Especially Mentioned)		—		—			—			—			—		—			—		—		—
Substandard		—		—			1,892			—			—		640			—		—		2,532
Doubtful		—		—			—			—			—		—			—		—		—
Loss		—		—			—			—			—		—			—		—		—
Subtotal loans	$	7,500	$	21,323		$	25,256		$	9,035		$	4,418	$	8,345		$	—	$	—	$	75,877
Current period Gross write—offs	$	—		—			—			—			—		—			—		—		—
Multi—family real estate
Pass	$	—		588			27,938			24,643			5,934		3,177			—		—		62,280
OLEM (Other Loans Especially Mentioned)		—		—			—			—			—		—			—		—		—
Substandard		—		—			—			—			—		—			—		—		—
Doubtful		—		—			—			—			—		—			—		—		—
Loss		—		—			—			—			—		—			—		—		—
Subtotal loans	$	—	$	588		$	27,938		$	24,643		$	5,934	$	3,177		$	—	$	—	$	62,280
Current period Gross write—offs	$	—		—			—			—			—		—			—		—		—
Commercial real estate (CRE)
Pass	$	78,965		124,673			189,639			49,515			14,512		19,134			—		—		476,438
OLEM (Other Loans Especially Mentioned)		—		—			—			—			—		—			—		—		—
Substandard		—		—			—			—			—		2,600			—		—		2,600
Doubtful		—		—			—			—			—		—			—		—		—
Loss		—		—			—			—			—		—			—		—		—
Subtotal loans	$	78,965	$	124,673		$	189,639		$	49,515		$	14,512	$	21,734		$	—	$	—	$	479,038
Current period Gross write—offs	$	—		—			—			—			—		—			—		—		—
Commercial
Pass	$	13,244		22,892			1,958			1,086			597		21			—		—		39,798
OLEM (Other Loans Especially Mentioned)		—		—			—			—			—		—			—		—		—
Substandard		—		159			—			—			—		—			—		—		159
Doubtful		—		—			—			—			—		—			—		—		—
Loss		—		—			—			—			—		—			—		—		—
Subtotal loans	$	13,244	$	23,051		$	1,958		$	1,086		$	597	$	21		$	—	$	—	$	39,957
Current period Gross write—offs	$	—		—			—			—			—		(17	)		—		—		(17	)
Consumer
Pass	$	548		5,579			3,583			1,693			57		8			36,104		—		47,572
OLEM (Other Loans Especially Mentioned)		—		—			—			—			—		—			—		—		—
Substandard		—		—			—			—			—		—			605		—		605
Doubtful		—		—			—			—			—		—			—		—		—
Loss		—		—			—			—			—		—			—		—		—
Subtotal loans	$	548	$	5,579		$	3,583		$	1,693		$	57	$	8		$	36,709	$	—	$	48,177
Current period Gross write—offs	$	—		(566	)		(650	)		(204	)		—		(4	)		—		—		(1,424	)

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (Unaudited)

(3) Loans, Continued.

	Term Loans																			Revolving Loans Converted
	Amortized Cost Basis by Origination Year																	Revolving		to Term
Land and construction	2023			2022			2021			2020			2019		Prior			Loans (Amortized Cost Basis)		Loans (Amortized Cost Basis)		Total
Pass	$	11,869		$	14,933		$	2,689		$	1,488		$	1,621	$	—		$	—	$	—	$	32,600
OLEM (Other Loans Especially Mentioned)		—			—			—			—			—		—			—		—		—
Substandard		—			—			—			—			—		—			—		—		—
Doubtful		—			—			—			—			—		—			—		—		—
Loss		—			—			—			—			—		—			—		—		—
Subtotal loans	$	11,869		$	14,933		$	2,689		$	1,488		$	1,621	$	—		$	—	$	—	$	32,600
Current period Gross write-offs	$	—		$	—		$	—		$	—		$	—	$	—		$	—	$	—	$	—
Residential real estate
Pass	$	21,343		$	25,898		$	9,747		$	4,777		$	4,044	$	4,844		$	747	$	—	$	71,400
OLEM (Other Loans Especially Mentioned)		—			—			—			—			—		—			—		—		—
Substandard		—			—			—			—			—		—			—		—		—
Doubtful		—			—			—			—			—		—			—		—		—
Loss		—			—			—			—			—		—			—		—		—
Subtotal loans	$	21,343		$	25,898		$	9,747		$	4,777		$	4,044	$	4,844		$	747	$	—	$	71,400
Current period Gross write-offs	$	—		$	—		$	—		$	—		$	—	$	—		$	—	$	—	$	—
Multi-family real estate
Pass	$	1,369		$	29,561		$	27,224		$	6,086		$	2,064	$	1,194		$	—	$	—	$	67,498
OLEM (Other Loans Especially Mentioned)		—			—			—			—			—		—			—		—		—
Substandard		—			—			—			—			—		—			—		—		—
Doubtful		—			—			—			—			—		—			—		—		—
Loss		—			—			—			—			—		—			—		—		—
Subtotal loans	$	1,369		$	29,561		$	27,224		$	6,086		$	2,064	$	1,194		$	—	$	—	$	67,498
Current period Gross write-offs	$	—		$	—		$	—		$	—		$	—	$	—		$	—	$	—	$	—
Commercial real estate
Pass	$	123,081		$	204,425		$	52,536		$	15,297		$	12,593	$	13,539		$	—	$	—	$	421,471
OLEM (Other Loans Especially Mentioned)		—			—			—			—			—		—			—		—		—
Substandard		—			—			—			—			1,209		—			—		—		1,209
Doubtful		—			—			—			—			—		—			—		—		—
Loss		—			—			—			—			—		—			—		—		—
Subtotal loans	$	123,081		$	204,425		$	52,536		$	15,297		$	13,802	$	13,539		$	—	$	—	$	422,680
Current period Gross write-offs	$	—		$	—		$	—		$	—		$	—	$	—		$	—	$	—	$	—
Commercial business loans
Pass	$	37,854		$	1,935		$	1,403		$	634		$	44	$	—		$	—	$	—	$	41,870
OLEM (Other Loans Especially Mentioned)		—			—			—			—			—							—		—
Substandard		—			—			—			—			—							—		—
Doubtful		—			—			—			—			—							—		—
Loss		—			—			—			—			—							—		—
Subtotal loans	$	37,854		$	1,935		$	1,403		$	634		$	44	$	—		$	—	$	—	$	41,870
Current period Gross write-offs	$	(45	)	$	—		$	—		$	—		$	—	$	(26	)	$	—	$	—	$	(71	)
Consumer
Pass	$	8,657		$	7,033		$	3,627		$	147		$	111	$	—		$	23,423	$	—	$	42,998
OLEM (Other Loans Especially Mentioned)		—			—			—			—			—		—			—		—		—
Substandard		—			—			—			—			—		—			1,025		—		1,025
Doubtful		—			—			—			—			—		—			—		—		—
Loss		—			—			—			—			—		—			—		—		—
Subtotal loans	$	8,657		$	7,033		$	3,627		$	147		$	111	$	—		$	24,448	$	—	$	44,023
Current period Gross write-offs	$	(423	)	$	(1,065	)	$	(880	)	$	(3	)	$	—	$	—		$	—	$	—	$	(2,371	)

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (Unaudited)

(3) Loans, Continued.

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 estimated loss on loans 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 affected in the future. The Company fully charges off any loan classified as loss.