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Loans
 6 Months Ended
Jun. 30, 2023
Receivables [Abstract]  
Loans

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

   June 30,   December 31, 
   2023   2022 
         
Residential real estate  $60,273   $50,354 
Multi-family real estate   69,518    69,555 
Commercial real estate   321,814    310,695 
Land and construction   27,019    17,286 
Commercial   6,950    5,165 
Consumer   40,686    30,323 
           
Total loans   526,260    483,378 
           
Deduct:          
Net deferred loan fees, and costs   (786)   (367)
Allowance for credit losses   (6,645)   (5,793)
           
Loans, net  $518,829   $477,218 

 

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

Schedule of Changes in Allowance for Loan Losses 

   Real Estate   Real Estate   Real Estate   Construction   Commercial   Consumer   Total 
   Residential   Multi-Family   Commercial   Land and          
   Real Estate   Real Estate   Real Estate   Construction   Commercial   Consumer   Total 
Three Months Ended June 30, 2023:                                   
                                    
Balance March 31, 2023  $742   $1,077   $3,030   $533   $26   $945   $6,353 
Credit loss expense (income)   141    (40)   (228)   147    38    487    545 
Charge-offs   —    —    —    —    (16)   (367)   (383)
Recoveries   —    —    —    —    87    43    130 
                                    
Ending balance (June 30, 2023)  $883   $1,037   $2,802   $680   $135   $1,108   $6,645 
                                    
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 (June 30, 2022)  $514   $619   $2,340   $71   $67   $632   $4,243 
                                    
Six Months Ended June 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 31, 2023  $801   $1,075   $2,895   $451   $15   $774   $6,011 
Credit loss expense (income)   82    (38)   (93)   229    75    1,056    1,311 
Charge-offs   —    —    —    —    (42)   (804)   (846)
Recoveries   —    —    —    —    87    82    169 
                                    
Ending balance (June 30, 2023)  $883   $1,037   $2,802   $680   $135   $1,108   $6,645 
                                    
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 

 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

(3) Loans, Continued.

 

                             
   Residential   Multi-Family   Commercial                 
   Real
Estate		   Real
Estate		  

Real
Estate

   Land and Construction   Commercial   Consumer   Total 
                             
At December 31, 2022:                                   
Individually evaluated for impairment:                                   
Recorded investment  $—   $—   $—   $—   $—   $—   $— 
Balance in allowance for loan losses  $—   $—   $—   $—   $—   $—   $— 
                                    
Collectively evaluated for impairment:                                   
Recorded investment  $50,354   $69,555   $310,695   $17,286   $5,165   $30,323   $483,378 
Balance in allowance for loan losses  $768   $748   $3,262   $173   $277   $565   $5,793 

 

(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 Bank’s Board of Directors. 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. 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. The following summarizes the loan credit quality (in thousands):

 

                              
   Pass   OLEM

(Other Loans Especially

Mentioned)

  

Sub-

Standard

   Doubtful   Loss   Total 
At December 31, 2022:                              
Residential real estate  $50,354   $—   $—   $—   $—   $50,354 
Multi-family real estate   69,555    —    —    —    —    69,555 
Commercial real estate   309,458    —    1,237    —    —    310,695 
Land and construction   17,286    —    —    —    —    17,286 
Commercial   5,165    —    —    —    —    5,165 
Consumer   30,323    —    —    —    —    30,323 
                               
Total  $482,141   $—   $1,237   $—   $—   $483,378 

 

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         
  

 

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 June 30, 2023:                                   
Residential real estate  $—   $—   $—   $—   $60,273   $      —   $60,273 
Multi-family real estate   1,259    —    —    1,259    68,259    —    69,518 
Commercial real estate   —    —    —    —    321,814    —    321,814 
Land and construction   —    —    —    —    27,019    —    27,019 
Commercial   —    —    —    —    6,950    —    6,950 
Consumer   347    158    —    505    40,181    —    40,686 
                                    
Total  $1,606   $158   $—   $1,764   $524,496   $—   $   526,260 

 

   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, 2022:                                   
Residential real estate  $—   $—   $—   $—   $50,354   $     —   $50,354 
Multi-family real estate   —    —    —    —    69,555    —    69,555 
Commercial real estate   —    —    —    —    310,695    —    310,695 
Land and construction   —    —    —    —    17,286    —    17,286 
Commercial   —    —    —    —    5,165    —    5,165 
Consumer   150    27    —    177    30,146    —    30,323 
                                    
Total  $150   $27   $—   $177   $483,201   $—   $  483,378 

 

  The Company has not made any modifications of loans to borrowers experiencing financial difficulties during the six months ended June 30, 2023.
   
  No loans have been determined to be troubled debt restructurings (TDR’s) during the six-month period ended June 30, 2022. At June 30, 2023 and 2022, there were no loans modified and entered into as TDR’s within the past twelve months, that subsequently defaulted during the six-month periods ended June 30, 2022.

 

(continued)

 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

(3) Loans, Continued.

 

Term Loans

Amortized Cost Basis by Origination Year

 

   Term Loans
Amortized Cost Basis by Origination Year		  

Revolving Loans

(Amortized

   Revolving Loans Converted to Term Loans (Amortized     
land and construction 

June 30, 2023

  

2022

  

2021

  

2020

  

2019

  

Prior

  

Cost Basis)

  

Cost

Basis)

  

Total

 
Pass  $       6,406   $15,136   $2,324   $1,509   $1,644   $-   $      -   $         -   $27,019 
OLEM (Other Loans Especially Mentioned)   -    -    -    -    -    -    -    -    - 
Substandard   -    -    -    -    -    -    -    -    - 
Doubtful   -    -    -    -    -    -    -    -    - 
Loss   -    -    -    -    -    -    -    -    - 
Subtotal loans  $6,406   $15,136   $2,324   $1,509   $1,644   $-   $-   $-   $27,019 
Current period Gross charge-offs  $-   $-   $-   $-   $-   $-   $-   $-   $- 
Residential real estate                                             
Pass  $7,350   $26,567   $9,853   $6,686   $4,097   $3,286   $2,434   $-   $60,273 
OLEM (Other Loans Especially Mentioned)   -    -    -    -    -    -    -    -    - 
Substandard   -    -    -    -    -    -    -    -    - 
Doubtful   -    -    -    -    -    -    -    -    - 
Loss   -    -    -    -    -    -    -    -    - 
Subtotal loans  $7,350   $26,567   $9,853   $6,686   $4,097   $3,286   $2,434   $-   $60,273 
Current period Gross charge-offs  $-   $-   $-   $-   $-   $-   $-   $-   $- 

 

(continued)

 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

(3) Loans, Continued.

 

Term Loans

Amortized Cost Basis by Origination Year

 

   Term Loans
Amortized Cost Basis by Origination Year		  

Revolving Loans

(Amortized

   Revolving Loans Converted to Term Loans (Amortized     
Multi-family real estate 

June 30, 2023

  

2022

  

2021

  

2020

  

2019

  

Prior

  

Cost Basis)

  

Cost

Basis)

  

Total

 
Pass   $ 998     $ 29,396     $ 29,570     $ 6,185     $ 2,090     $ 1,279     $ -     $               -     $ 69,518  
OLEM (Other Loans Especially Mentioned)     -       -       -       -       -       -       -       -       -  
Substandard     -       -       -       -       -       -       -       -       -  
Doubtful     -       -       -       -       -       -       -       -       -  
Loss     -       -       -       -       -       -       -       -       -  
Subtotal loans   $ 998     $ 29,396     $ 29,570     $ 6,185     $ 2,090     $ 1,279     $ -     $ -     $ 69,518  
Current period Gross charge-offs   $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -  
Commercial real estate (CRE)                                                                        
Pass   $ 20,590     $ 199,769     $ 55,017     $ 16,183     $ 12,815     $ 16,218     $ -     $ -     $ 320,592  
OLEM (Other Loans Especially Mentioned)     -       -       -       -       -       -       -       -       -  
Substandard     -       -       -       -       1,222       -       -       -       1,222  
Doubtful     -       -       -       -       -       -       -       -       -  
Loss     -       -       -       -       -       -       -       -       -  
Subtotal loans   $ 20,590     $ 199,769     $ 55,017     $ 16,183     $ 14,037     $ 16,218     $ -     $ -     $ 321,814  
Current period Gross charge-offs   $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -     $ -  
Commercial                                                                        
Pass   $ 4,044     $ 1,401     $ 1,363     $ 85     $ 57     $ -     $ -     $ -     $ 6,950  
OLEM (Other Loans Especially Mentioned)     -       -       -       -       -       -       -       -       -  
Substandard     -       -       -       -       -       -       -       -       -  
Doubtful     -       -       -       -       -       -       -       -       -  
Loss     -       -       -       -       -       -       -       -       -  
Subtotal loans   $ 4,044     $ 1,401     $ 1,363     $ 85     $ 57     $ -     $ -     $ -     $ 6,950  
Current period Gross charge-offs   $ (16 )    $ -     $ -     $ -     $ -     $ (26 )   $ -     $ -     $ (42 )
Consumer                                                                        
Pass   $ 8,798     $ 9,359     $ 5,612     $ 250     $ 198     $ -     $ 16,469     $ -     $ 40,686  
OLEM (Other Loans Especially Mentioned)     -       -       -       -       -       -       -       -       -  
Substandard     -       -       -       -       -       -       -       -       -  
Doubtful     -       -       -       -       -       -       -       -       -  
Loss     -       -       -       -       -       -       -       -       -  
Subtotal loans   $ 8,798     $ 9,359     $ 5,612     $ 250     $ 198     $ -     $ 16,469     $ -     $ 40,686  
Current period Gross charge-offs   $ (30 )   $ (505 )   $ (266 )   $ (3 )   $ -     $ -     $ -     $ -     $ (804 )

 

(continued)

 

 

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

 

Notes to Condensed Consolidated Financial Statements (Unaudited)