UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended ~~September~~June 30, ~~2017~~2020

[ ]	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.)

~~2477~~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 [X] 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 [X] No [ ]

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

Large accelerated filer [ ]		Accelerated filer [ ]

Non-accelerated filer ~~[ ]~~[X]	~~(Do not check if a smaller reporting company)~~	Smaller reporting company [X]

Emerging ~~Growth Company~~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. Yes [ ] No [X]

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: ~~1,103,447~~2,951,353 shares of ~~Common Stock,~~common stock, $.01 par value, issued and outstanding as of ~~November 13, 2017.~~August 11, 2020.

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

INDEX

	Page

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements	31

Condensed Consolidated Balance Sheets - ~~September~~June 30, ~~2017~~2020 (unaudited) and December 31, ~~2016~~2019	31

Condensed Consolidated Statements of Operations -– Three and ~~Nine~~Six Months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 (unaudited)	42

Condensed Consolidated Statements of Comprehensive Loss - Three and ~~Nine~~Six Months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 (unaudited)	53

Condensed Consolidated Statements of Stockholders’ Equity - ~~Nine~~Three and Six Months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 (unaudited)	64

Condensed Consolidated Statements of Cash Flows - ~~Nine~~Six Months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 (unaudited)	7-85

Notes to Condensed Consolidated Financial Statements (unaudited)	9-246

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	~~25-~~3320

Item 4. Controls and Procedures	3325

PART II. OTHER INFORMATION

Item 1. Legal Proceedings	25

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	3425

Item 3. Defaults on Senior Securities	3425

Item ~~6. Exhibits~~4. Mine Safety Disclosures	3425

Item 5. Other Information	25

Item 6. Exhibits	25

SIGNATURES	3526

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Condensed Consolidated Balance Sheets
(Dollars in thousands, except per share amounts)

	September 30, 2017			December 31, 2016			June 30, 2020			December 31, 2019
	(Unaudited)						(Unaudited)
Assets:
Cash and due from banks	$	18,330		$	17,563		$	2,334		$	2,111
Interest-bearing deposits with banks		184			77			27,614			6,823
Total cash and cash equivalents		18,514			17,640			29,948			8,934
Securities available for sale		16,199			20,222
Loans, net of allowance for loan losses of $3,903 and $3,915		69,194			76,999
Debt securities available for sale								4,409			5,409
Debt securities held-to-maturity (fair value of $5,337 and $5,986)								5,069			5,806
Loans, net of allowance for loan losses of $2,664 and $2,009								135,842			102,233
Federal Home Loan Bank stock		979			1,113			1,092			642
Premises and equipment, net		2,601			2,648			1,451			1,389
Right-of-use operating lease assets								980			1,055
Accrued interest receivable		366			380			958			432
Other assets		619			701			1,074			848

Total assets	$	108,472		$	119,703		$	180,823		$	126,748
Liabilities and Stockholders’ Equity:

Liabilities:
Noninterest-bearing demand deposits		8,813			7,131		$	29,785		$	10,545
Savings, NOW and money-market deposits		21,705			22,153			78,964			55,475
Time deposits		46,856			56,725			29,321			35,352

Total deposits		77,374			86,009			138,070			101,372

Federal Home Loan Bank advances		20,500			23,500			23,000			13,000
Junior subordinated debenture		5,155			5,155			2,580			2,580
Advanced payment by borrowers for taxes and insurance		518			221
Other borrowings								4,988			—
Official checks		44			114			102			208
Operating lease liabilities								993			1,061
Other liabilities		2,252			1,623			1,413			1,320

Total liabilities		105,843			116,622			171,146			119,541

Commitments and contingencies (Notes 1, 8 and 9)
Commitments and contingencies (Notes 1 and 8)
Stockholders’ equity:
Preferred stock, no par value; 6,000,000 shares authorized, 7 shares issued and outstanding in 2017 and 2016		—			—
Common stock, $.01 par value; 5,000,000 shares authorized, 1,103,447 shares issued and outstanding in 2017 and 2016		11			11
Preferred stock, no par value; 6,000,000 shares authorized:
Designated Series A, no par value, no shares issued and outstanding								—			—
Designated Series B, no par value, 100 shares issued and outstanding in 2020								—			—
Common stock, $.01 par value; 10,000,000 shares authorized, 2,951,353 and 2,853,171 shares issued and outstanding								29			28
Additional paid-in capital		34,039			34,039			42,032			38,994
Accumulated deficit		(31,227	)		(30,717	)		(32,265	)		(31,610	)
Accumulated other comprehensive loss		(194	)		(252	)		(119	)		(205	)

Total stockholders’ equity		2,629			3,081			9,677			7,207
Total liabilities and stockholders’ equity	$	108,472		$	119,703		$	180,823		$	126,748

See accompanying notes to condensed consolidated financial statements.

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

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

Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016

Interest income:
Loans $ 972 $ 1,082 $ 2,971 $ 3,156
Securities 96 117 306 367
Other 65 24 162 75

Total interest income 1,133 1,223 3,439 3,598

Interest expense:
Deposits 167 181 524 550
Borrowings 141 91 378 260

Total interest expense 308 272 902 810

Net interest income 825 951 2,537 2,788

Provision for loan losses — — — —

Net interest income after provision for loan losses 825 951 2,537 2,788

Noninterest income:
Service charges and fees 44 22 55 63
Gain on sale of securities available for sale 7 2 7 48
Other 3 7 9 14

Total noninterest income 54 31 71 125

Noninterest expenses:
Salaries and employee benefits 423 430 1,301 1,385
Occupancy and equipment 91 112 293 346
Data processing 96 77 262 250
Professional fees 134 151 526 480
Insurance 24 27 72 78
Regulatory assessment 50 74 152 221
Other 117 89 512 461

Total noninterest expenses 935 965 3,118 3,263

Net (loss) earnings $ (56 ) $ 22 $ (510 ) $ (308 )

Net (loss) earnings per share-
Basic and diluted $ (.05 ) $ .02 $ (.46 ) $ (0.30 )

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2020			2019			2020			2019
Interest income:
Loans	$	1,561		$	1,097		$	2,974		$	2,187
Debt securities		49			72			95			122
Other		16			77			60			125

Total interest income		1,626			1,246			3,129			2,434

Interest expense:
Deposits		355			360			757			649
Borrowings		121			133			226			283

Total interest expense		476			493			983			932

Net interest income		1,150			753			2,146			1,502

Provision for loan losses		523			—			712			—

Net interest income after provision for loan losses		627			753			1,434			1,502

Noninterest income:
Service charges and fees		2			68			51			90
Other		31			19			55			34

Total noninterest income		33			87			106			124

Noninterest expenses:
Salaries and employee benefits		486			529			1,034			1,030
Professional fees		76			128			247			227
Occupancy and equipment		141			134			289			247
Data processing		132			129			249			253
Insurance		21			18			45			42
Regulatory assessment		29			18			70			22
Other		122			314			261			433

Total noninterest expenses		1,007			1,270			2,195			2,254

Net loss before income tax benefit		(347	)		(430	)		(655	)		(628	)

Income tax benefit		—			—			—			(52	)

Net loss	$	(347	)	$	(430	)	$	(655	)	$	(576	)

Net loss per share - Basic and diluted	$	(0.12	)	$	(.23	)	$	(0.23	)	$	(.31	)

See accompanying notes to condensed consolidated financial statements.

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

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

Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016

Net (loss) earnings $ (56 ) $ 22 (510 ) $ (308 )

Other comprehensive income (loss):
Unrealized Gain (loss) on securities available for sale:
Unrealized Gain (loss) arising during the period 29 (281 ) 100 129

Reclassification adjustment for realized gains on securities available for sale (7 ) (2 ) (7 ) (48 )

Net change in unrealized holding loss (gain) 22 (283 ) 93 81

Deferred income taxes (benefit) on above change 8 (107 ) 35 33

Total other comprehensive income (loss) 14 (176 ) 58 48

Comprehensive loss $ (42 ) $ (154 ) $ (452 ) $ (260 )

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2020			2019			2020			2019

Net loss	$	(347	)	$	(430	)	$	(655	)	$	(576	)

Other comprehensive income:
Change in unrealized gain on debt securities:
Unrealized gain arising during the year		20			68			66			74

Amortization of unrealized loss on debt securities transferred to held-to-maturity		24			23			48			39

Other comprehensive income before income tax expense		44			91			114			113

Deferred income tax expense on above change		(11	)		(23	)		(28	)		(28	)

Total other comprehensive income		33			68			86			85

Comprehensive loss	$	(314	)	$	(362	)	$	(569	)	$	(491	)

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, 2020 and 2019

(Dollars in thousands)

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

Balance at December 31, 2018		-	$	-		-	$	-	$	1,858,020	$	18	$	36,128	$	(30,510	)	$	(330	)	$	5,306

Net loss for the three months ended March 31, 2019 (unaudited)		-		-		-		-		-		-		-		(146	)		-			(146	)

Net change in unrealized loss on securities available for sale, net of income taxes (unaudited)		-		-		-		-		-		-		-		-			3			3

Amortization of unrealized loss on debt securities transferred to held-to-maturity, net of income taxes (unaudited)		-		-		-		-		-		-		-		-			14			14

Balance at March 31, 2019 (unaudited)		-	$	-		-	$	-	$	1,858,020	$	18	$	36,128	$	(30,656	)	$	(313	)	$	5,177

Common stock issued and reclassified from other liabilities (unaudited)		-		-		-		-		11,250		-		28		-			-			28

Common stock issued as compensation to directors (unaudited)		-		-		-		-		58,309		1		200		-			-			201

Net loss for the three months ended June 30, 2019 (unaudited)		-		-		-		-		-		-		-		(430	)		-			(430	)

Net change in unrealized loss on securities available for sale, net of income taxes (unaudited)		-		-		-		-		-		-		-		-			53			53

Amortization of unrealized loss on debt securities transferred to held-to-maturity (unaudited)		-		-		-		-		-		-		-		-			15			15

Balance at June 30, 2019 (unaudited)		-	$	-		-	$	-		1,927,579	$	19	$	36,356	$	(31,086	)	$	(245	)	$	5,044

Balance at December 31, 2019		-	$	-		—	$	—		2,853,171	$	28	$	38,994	$	(31,610	)	$	(205	)	$	7,207

Proceeds from the sale of common stock (unaudited)		-		-		—		—		98,182		1		538		—			—			539

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

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

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

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

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

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

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

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

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

See accompanying notes to condensed consolidated financial statements

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Condensed Consolidated Statements of ~~Stockholders’ Equity~~Cash Flows (Unaudited)

~~Nine Months ended September 30, 2017 and 2016~~

(~~Dollars in~~In thousands)

Accumulated
Other
Total
Additional Comprehensive Total
Preferred Stock Common Stock Paid-In Accumulated Income Stockholders’
Shares Amount Shares Amount Capital Deficit (Loss) Equity

Balance at December 31, 2015 4 $ — 9,628,863 $ 96 $ 33,330 $ (30,321 ) $ (138 ) $ 2,967

Reverse common stock split (1-for-10) (unaudited) — — (8,665,694 ) (87 ) 87 — — —

Proceeds from sale of Preferred stock (unaudited) 3 — — 75 — — 75

Proceeds from sale of common stock (unaudited) — — 92,980 1 374 — — 375

Common stock issued as compensation to directors (unaudited) — — 53,855 1 231 — — 232

Common stock issued for services (unaudited) — — 36,118 — 128 — — 128

Reversal of common stock issued as compensation to
directors (unaudited) (See Note 13) — — (46,296 ) — (200 ) — — (200 )

Net loss for the nine months ended September 30, 2016 (unaudited) — — — — — (308 ) — (308 )

Net change in unrealized loss on securities available for sale, net of taxes (unaudited) — — — — — — 48 48

Balance at September 30, 2016 (unaudited) 7 $ — 1,099,826 $ 11 $ 34,025 $ (30,629 ) $ (90 ) $ 3,317

Balance at December 31, 2016 7 $ - 1,103,447 $ 11 $ 34,039 $ (30,717 ) $ (252 ) $ 3,081
Net loss for the nine months ended September 30, 2017 (unaudited) — — — — — (510 ) — (510 )

Net change in unrealized loss on securities available for sale, net of taxes (unaudited) — — — — — — 58 58
Balance at September 30, 2017 (unaudited) 7 — 1,103,447 $ 11 $ 34,039 $ (31,227 ) $ (194 ) $ 2,629

	Six Months Ended June 30,
	2020			2019
Cash flows from operating activities:
Net loss	$	(655	)	$	(576	)
Adjustments to reconcile net loss to net cash used in operating activities:
Provision for loan losses		712			—
Depreciation and amortization		85			86
Common stock issued as compensation to directors		—			201
Net amortization of fees, premiums and discounts		25			94
Increase in accrued interest receivable		(526	)		(56	)
Amortization of right-of-use operating lease assets		75			—
Net decrease in operating lease liabilities		(68	)		—
Increase in other assets		(254	)		(237	)
(Decrease) increase in official checks and other liabilities		(13	)		52
Net cash used in operating activities		(619	)		(436	)

Cash flows from investing activities:
Purchase of debt securities available for sale		—			(4,153	)
Principal repayments of debt securities available for sale		1,033			339
Principal repayments of debt securities held-to-maturity		763			527
Net increase in loans		(34,291	)		(3,702	)
Purchases of premises and equipment		(147	)		(94	)
(Purchase) redemption of FHLB stock		(450	)		490

Net cash used in investing activities		(33,092	)		(6,593	)

Cash flows from financing activities:
Net increase in deposits		36,698			23,523
Net decrease in federal funds purchased		—			(560	)
Net increase (decrease) in Federal Home Loan Bank advances		10,000			(11,600	)
Increase in other borrowings		4,988			—
Proceeds from sale of common stock		539			—
Proceeds from sale of preferred stock		2,500			—

Net cash provided by financing activities		54,725			11,363

Net increase in cash and cash equivalents		21,014			4,334

Cash and cash equivalents at beginning of the period		8,934			7,983

Cash and cash equivalents at end of the period	$	29,948		$	12,317

Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	921		$	776

Income taxes	$	—		$	—

Noncash transaction -
Change in accumulated other comprehensive loss, net change in unrealized gain on debt securities available for sale, net of income taxes	$	86		$	85

Amortization of unrealized loss on debt securities transferred to held-to-maturity	$	48		$	39

Common stock issued and reclassified from other liabilities	$	—		$	28

Right-of use lease assets obtained in exchange for operating lease liabilities	$	—		$	281

See accompanying notes to condensed consolidated financial statements

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

~~Condensed Consolidated Statements of Cash Flows (Unaudited)~~

~~(In thousands)~~

Nine Months Ended
September 30,
2017 2016
Cash flows from operating activities:
Net loss $ (510 ) $ (308 )
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 117 118
Gain on sale of securities available for sale (7 ) (48 )
Common stock issued as compensation to directors — 32
Common stock issued as compensation for services — 128
Net amortization of fees, premiums and discounts 316 38
Decrease in other assets 47 79
Decrease in accrued interest receivable 14 73
Increase in official checks and other liabilities 559 225

Net cash provided by operating activities 536 337

Cash flows from investing activities:
Principal repayments and maturity of securities available for sale 1,656 3,074
Proceeds from sale of securities available for sale 2,278 18,028
Purchase of securities available for sale — (17,294 )
Net decrease in loans 7,678 1,342
Purchase of premises and equipment (70 ) (95 )
Proceeds from sale of foreclosed real estate, net — 1,617
Redemption (purchase) of Federal Home Loan Bank stock 134 (52 )

Net cash provided by investing activities 11,676 6,620

Cash flows from financing activities:
Net decrease in deposits (8,635 ) (7,263 )
Increase in advance payments by borrowers for taxes and insurance 297 431
Repayment Purchase of Federal Home Loan Bank advances, net (3,000 ) 500
Proceeds from sale of common stock — 375
Proceeds from sale of preferred stock — 75

Net cash used in financing activities (11,338 ) (5,882 )

Net increase in cash and cash equivalents 874 1,075

Cash and cash equivalents at beginning of the period 17,640 10,365

Cash and cash equivalents at end of the period $ 18,514 $ 11,440
~~See accompanying notes to condensed consolidated financial statements~~
7
~~OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY~~
~~Condensed Consolidated Statements of Cash Flows (Unaudited), Continued~~
~~(In thousands)~~
Nine Months Ended
September 30,
2017 2016
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 748 $ 671
Income Taxes $ — $ —
Noncash — Investing Activity
Change in accumulated other comprehensive loss, net change in unrealized loss on securities available for sale $ 58 $ 48
~~See accompanying notes to condensed consolidated financial statements~~
8
~~OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY~~

Notes to Condensed Consolidated Financial Statements (Unaudited)

(1)	*General.*OptimumBank Holdings, Inc. (the ~~“Holding Company”~~“Company”) is a one-bank holding company and owns 100% of OptimumBank (the “Bank”), a Florida-chartered commercial bank. The Bank’s wholly-owned subsidiaries are OB Real Estate Management, LLC and OB Real Estate Holdings, LLC, both of which were formed in 2009; OB Real Estate Holdings 1692 and OB Real Estate Holdings 1704 formed in 2012, collectively, (the “Real Estate Holding Subsidiaries”). The Holding Company’s only business is the operation of the ~~Bank and its subsidiaries (collectively, the “Company”).~~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 three banking offices located in Broward County, Florida. OB Real Estate Management, LLC is primarily engaged in managing foreclosed real estate. This subsidiary had no activity in 2017 and 2016. All other subsidiaries are primarily engaged in holding and disposing of foreclosed real estate.

	Basis of Presentation.In the opinion of management, the accompanying condensed consolidated financial statements of the Company contain all adjustments (consisting principally of normal recurring accruals) necessary to present fairly the financial position at ~~September~~June 30, ~~2017,~~2020, the results of operations for the three and six month periods ended June 30, 2020 and 2019, and the results of ~~operations and comprehensive loss for the three and nine month periods ended September 30, 2017 and 2016, and~~ cash flows for the ~~nine~~six month periods ~~ending September~~ended June 30, ~~2017~~2020 and ~~2016.~~2019. All significant intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020, are not necessarily indicative of the results to be expected for the full year.

	~~Going Concern Status~~Subsequent Events.. The Company has evaluated subsequent events through August 11, 2020, which is the date the condensed consolidated financial statements were issued, determining no additional events required disclosure except as follows:

	The Company is subject to risks related to the public health crisis associated with the Coronavirus global pandemic (“COVID-19”). Federal, state and local governments have taken measures to slow the spread of COVID-19. These measures have included limiting travel, temporarily closing businesses and issuing stay at home orders which has caused a steep decline in ~~default with respect~~economic activity. The long-term effect of these measures cannot be determined. Management believes the measures may have a significant impact on the Company’s financial position and results of operations. The amount of the impact is currently unquantifiable but deemed to ~~its~~be significant by management as the Company may likely experience an increase in the level of troubled assets, a reduction of cash flow from loan payments and an overall reduction in earnings as a result of COVID-19.

	*Junior Subordinated Debenture.* In 2004, the Company formed OptimumBank Capital Trust I (the “Trust’’) for the purpose of raising capital through the sale of trust preferred securities. At that time, the Trust raised $5,155,000 through the sale of 5,000 trust preferred securities (the “Trust Preferred Securities”) to a third party investor and the issuance of 155 common trust securities to the Company. The Trust utilized the proceeds of $5,155,000 to purchase a junior subordinated debenture from the Company (the “Junior Subordinated Debenture”). Under the Junior Subordinated Debenture, ~~(“Debenture”)~~the Company is required to make interest payments on a periodic basis and to pay the outstanding principal amount plus accrued interest on October 7, 2034. The Company has been in default under the Junior Subordinated Debenture since 2015 due to its failure to make ~~certain~~ required interest ~~payments under~~payments. To date, neither the ~~Debenture. The Trustee of the Debenture (the “Trustee”) or~~trustee nor the holders of the ~~Debenture are entitled to accelerate the payment of the $5,155,000 principal balance plus accrued and unpaid interest totaling $1,314,000 at September 30, 2017. To date the Trustee has not~~Trust Preferred Securities have accelerated the outstanding balance of the Junior Subordinated Debenture. ~~No adjustments~~ In May 2018, Preferred Shares, LLC (the “Purchaser”) acquired all 5,000 of the Trust Preferred Securities from a third party. The Purchaser is an affiliate of a director of the Company. The Purchaser has subsequently sold or transferred 2,575 of the Trust Preferred Securities to third parties. During 2019 and 2018, 2,575 Trust Preferred Securities were exchanged for 1,226,173 shares of the Company’s common stock. For accounting purposes, the Trust Preferred Securities acquired by the Company have been cancelled. As a result, the Company cancelled $2,575,000 in principal amount of the Trust Preferred Securities, together with accrued interest of $974,000, and increased its stockholders’ equity by the same amount. The remaining principal owed by the Company in connection with the Junior Subordinated Debenture was $2,580,000 at June 30, 2020 and December 31, 2019, respectively. The remaining accrued interest owed by the Company associated with the Junior Subordinated Debenture was $1,067,000 and $995,000 at June 30, 2020 and December 31, 2019 respectively. The accrued interest is presented on the accompanying condensed consolidated ~~financial statements have been made as a result of this uncertainty.~~balance sheet under the caption “Other liabilities”. ~~Management’s plans with regard~~The outstanding 2,425 Trust Preferred Securities continue to ~~this matter are~~be in default. However, the Purchaser, as ~~follows: A Director~~the owner of all of the ~~Company~~outstanding Trust Preferred Securities, has offered to purchase the Debenture and this offer has been approved by certain equity owners of the Trust that holds the Debenture. The Director has also agreed to enter into a forbearance agreement withprovided the Company with ~~respect~~written representation that it has no intention to ~~payments~~accelerate the principal and accrued interest amounts due under the Junior Subordinated Debenture ~~upon consummation of~~during the ~~Director’s purchase of~~next twelve months following the ~~Debenture.~~date this Quarterly Report is filed with the Securities and Exchange Commission. In March 2016, the Trustee received a direction from certain equity owners of the Trust that holds the Debenture to sell the Debenture to a Director of the Company. Based upon the receipt of conflicting directions from other debt holders of the Trust, in August 2016, the Trustee commenced an action in a Minnesota State Court seeking directions from the Court. The case was subsequently transferred to United States District Court for the Southern District of New York, where the case is currently pending. The Company ~~continues~~currently intends to ~~pursue mechanisms~~acquire additional Trust Preferred Securities in 2020 in exchange for ~~paying the accrued interest,~~shares of its common stock, although it has not yet entered into any agreement or commitment with respect to such ~~as raising additional capital.~~an exchange.

	*Comprehensive ~~Loss~~Loss.*GAAP generally requires that recognized revenue, expenses, gains and losses be included in ~~operations.~~net loss. Although certain changes in assets and liabilities, such as unrealized gains and losses on ~~available for sale~~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 ~~(loss) earnings,~~loss, are components of comprehensive loss. ~~The only component of comprehensive loss is the net change in the unrealized loss (gain) on the securities available for sale.~~

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

	June 30,			December 31,
	2020			2019

Unrealized gain on debt securities available for sale	$	77		$	11
Unamortized portion of unrealized loss related to debt securities available for sale transferred to securities held-to-maturity		(236	)		(284	)
Income tax benefit		40			68

	$	(119	)	$	(205	)

	*Income Taxes.* The Company assessed its earnings history and trends and estimates of future earnings, and determined that the deferred tax asset could not be realized as of ~~September~~June 30, ~~2017.~~2020. Accordingly, a valuation allowance was recorded against the net deferred tax asset.

	~~(continued)~~

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (Unaudited)

(1)	*General, Continued.*
	*~~Recent Pronouncements.~~~~In January 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-01,~~~~Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities~~, which is intended to enhance the reporting model for financial instruments to provide users of financial statements with more decision-useful information. The ASU requires equity investments to be measured at fair value with changes in fair values recognized in net earnings, simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identity impairment and eliminates the requirement to disclose fair values, the methods and significant assumptions used to estimate the fair value of financial instruments measured at amortized cost. The ASU also clarifies that the Company should evaluate the need for a valuation allowance on a deferred tax asset related to available for-sale debt securities in combination with the Company’s other deferred tax assets. The ASU is effective for the Company beginning January 1, 2018. Early adoption is permitted. The adoption of this guidance is not expected to have a material impact on the Company’s condensed consolidated financial statements. ~~In February 2016, the FASB issued ASU 2016-2,~~~~Leases (Topic 842)~~* which will require lessees to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases with term of more than twelve months. Consistent with current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. The new ASU will require both types of leases to be recognized on the balance sheet. The ASU also will require disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements, providing additional information about the amounts recorded in the financial statements. The ASU is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2018. The Company is in the process of determining the effect of the ASU on its condensed consolidated financial statements. Early application will be permitted. ~~In March 2016, the FASB issued ASU No. 2016-09,~~~~Compensation-Stock Compensation (Topic 718)~~ intended to improve the accounting for employee share-based payments. The ASU affects all organizations that issue share-based payment awards to their employees. The ASU simplifies several aspects of the accounting for share-based payment award transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the consolidated statement of cash flows. The ASU was effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company has evaluated the effect of ASU and determined it has no material effect on its condensed consolidated financial statements. ~~In June 2016, the FASB issued 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 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, 2019. Early adoption is permitted. The Company is in the process of determining the effect of the ASU on its condensed consolidated financial statements.

	~~In March 2017, FASB issued ASU 2017-08,~~~~Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20)~~ which amends the accounting for the amortization of premiums for certain purchased callable debt securities by shortening the amortization period to the earliest call date. ASU 2017-08 is effective for interim and annual periods beginning after December 15, 2019. The Company is currently evaluating the impact of ASU 2017-08 may have, if any, on its condensed consolidated financial statements.

	In May 2017, the FASB issued new guidance related to Stock Compensation, Scope of Modification Accounting. The new guidance provides clarity and reduces both diversity in practice and cost and complexity when applying the guidance in Accounting Standards Codification Topic 718, Compensation—Stock Compensation. An entity will not apply modification accounting to a share-based payment award if all of the following are the same immediately before and after the change: (i) the award’s fair value, (ii) the award’s vesting conditions and (iii) the award’s classification as an equity or liability instrument. The amendments are effective for fiscal years and interim periods within those years beginning after December 15, 2017. Early adoption is permitted. The Company is in the process of determining the effect of the amendments on its condensed consolidated financial statements.

	In July 2017, the FASB issued ASU 2017-11, The ASU amends ASC 815 which makes limited changes to the Board’s guidance on classifying certain financial instruments as either liabilities or equity. The ASU’s objective is to improve (1) the accounting for instruments with “down-round” provisions and (2) the readability of the guidance in ASC 480 on distinguishing liabilities from equity by replacing the indefinite deferral of certain pending content with scope exceptions. In addition, the ASU amends the guidance on the recognition and measurement of freestanding equity-classified instruments (e.g., warrants) by adding requirements to ASC 260 for entities that disclose earnings per share (EPS). The ASU is effective for annual reporting periods beginning after December 15, 2018, early adoption is permitted upon its issuance. The Company currently has no financials instruments related to this ASU. As a result, the adoption of this guidance is not expected to be material to the condensed consolidated financial statements. In August 2017, the Financial Accounting Standards Board (“FASB”) issued ASU 2017-12, which amends the hedge accounting recognition and presentation requirements in ASC 815. The Board’s objectives in issuing the ASU are to improve the transparency and understandability of information conveyed to financial statement users about an entity’s risk management activities by better aligning the entity’s financial reporting for hedging relationships with those risk management activities and to reduce the complexity of and simplify the application of hedge accounting by preparers. The ASU is effective for fiscal years beginning after December 15, 2018, early adoption is permitted upon its issuance. The Company currently has no hedging relationships. As a result, the adoption of this guidance is not expected to be material to the condensed consolidated financial statements.

	*~~Reclassification.~~*~~Certain amounts have been reclassified to conform to the 2017 condensed consolidated financial statement presentation.~~

~~(continued)~~In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13 Financial Instruments-Credit Losses (Topic 326). The ASU improves financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by the Company. The ASU requires the Company to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. The Company will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. The ASU requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the condensed consolidated financial statements. Additionally, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The ASU will take effect for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. The Company is in the process of determining the effect of the ASU on its condensed consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820)- Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement ("ASU 2018-13"). ASU 2018-13 removes, modifies, and adds certain disclosure requirements associated with fair value measurements. ASU 2018-13 is effective for fiscal years, and interim periods, within those fiscal years, beginning after December 15, 2019. The removed and modified disclosures will be adopted on a prospective basis. Early adoption was permitted upon issuance of this ASU. The implementation had no significant impact on the Company's condensed consolidated financial statements.

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (Unaudited)

(2)	*~~Securities.~~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):

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value				Gross		Gross
										Amortized		Unrealized		Unrealized			Fair
At September 30, 2017:
Securities Available for Sale:
										Cost		Gains		Losses			Value

At June 30, 2020:
Held-to-maturity:
Collateralized mortgage obligations	$	9,181	$	—	$	(299	)	$	8,882	$	3,632	$	202	$	—		$	3,834
Mortgage-backed securities											1,437		66		—			1,503
Total										$	5,069	$	268	$	—		$	5,337
Available for sale:
SBA Pool Securities		7,330		8		(21	)		7,317	$	1,412	$	—	$	(45	)	$	1,367

Collateralized mortgage obligations											724		41		—			765
Mortgage-backed securities											2,196		81		—			2,277
Total	$	16,511	$	8	$	(320	)	$	16,199	$	4,332	$	122	$	(45	)	$	4,409

At December 31, 2016:
Securities Available for Sale:
Collateralized mortgage obligations	$	10,157	$	—	$	(405	)	$	9,752
SBA Pool Securities		10,470		—		—			10,470

Total	$	20,627	$	—	$	(405	)	$	20,222

	Cost		Gains		Losses			Value

At December 31, 2019:
Held-to-maturity:
Collateralized mortgage obligations	$	4,218	$	129		—		$	4,347
Mortgage-backed securities		1,588		51		—			1,639
Total	$	5,806	$	180		—		$	5,986
Available for sale:
SBA Pool Securities	$	1,734	$	—	$	(52	)	$	1,682
Collateralized mortgage obligations		998		18		—			1,016
Mortgage-backed securities		2,666		45		—			2,711
Total	$	5,398	$	63	$	(52	)	$	5,409

~~The following summarizes the~~There were no sales of debt securities ~~(in thousands):~~during the three and six months ended June 30, 2020 and 2019.

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016

Proceeds from sales of securities $ 2,278 $ 8,180 $ 2,278 $ 18,028

Gross gains from sale of securities 7 20 7 66
Gross losses from sale of securities — (18 ) — (18 )

Net gain from sales of securities $ 7 $ 2 $ 7 $ 48

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

At September 30, 2017
Over Twelve Months Less Than Twelve Months
Gross
Unrealized
Losses Fair
Value Gross
Unrealized
Losses Fair
Value

Securities Available for Sale:
Collateralized mortgage obligations $ (299) $ 8,882 $ — $ —
SBA Pool Securities — — (21 ) 4,091
$ (299) $ 8,882 $ (21 ) $ 4,091

At December 31, 2016
Over Twelve Months Less Than Twelve Months
Gross
Unrealized
Losses Fair
Value Gross
Unrealized
Losses Fair
Value

Securities Available for Sale-
Collateralized mortgage obligations $ (46 ) $ 864 $ (359 ) $ 8,888

	Over Twelve Months				Less Than Twelve Months
	Gross				Gross
	Unrealized		Fair		Unrealized		Fair
	Losses		Value		Losses		Value
At June 30, 2020-
Available for Sale -
SBA Pool securities	$	45	$	1,367	$	—	$	—

At December 31, 2019-
Available for Sale -
SBA Pool Securities	$	52	$	1,682	$	—	$	—

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (Unaudited)

(2)

Debt Securities Continued.

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

At ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, the unrealized losses on ~~fourteen investment~~six debt securities, ~~and six investment securities, respectively~~ were caused by market conditions. It is expected that the debt securities would not be settled at a price less than the book value of the investments. Because the decline in fair value is attributable to market conditions and not credit quality, and because the Company has the ability and intent to hold these investments until a market price recovery or maturity, these investments are not considered other-than-temporarily impaired.

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (Unaudited)

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

							At			At
	At September 30, 2017			At December 31, 2016			June 30, 2020			December 31, 2019

Residential real estate	$	26,564		$	27,334		$	33,752		$	28,266
Multi-family real estate		6,142			5,829			11,474			8,396
Commercial real estate		30,637			29,264			61,952			55,652
Land and construction		3,037			5,681			3,979			2,496
Commercial		5,390			10,514			23,094			4,476
Consumer		1,025			1,829			4,843			4,903

Total loans		72,795			80,451			139,094			104,189

Add (deduct):
Net deferred loan fees, costs and premiums		302			463			(588	)		53
Allowance for loan losses		(3,903	)		(3,915	)		(2,664	)		(2,009	)

Loans, net	$	69,194		$	76,999		$	135,842		$	102,233

~~(continued)~~

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

	Residential			Multi-Family			Commercial			Land and
	Real Estate			Real Estate			Real Estate			Construction			Commercial			Consumer			Unallocated			Total
Three Months Ended June 30, 2020:

Beginning balance	$	582		$	123		$	729		$	50		$	578		$	136		$	—		$	2,198
Provision (credit) for loan losses		132			30			159			(6	)		42			166			—			523
Charge-offs		—			—			—			—			—			(67	)		—			(67	)
Recoveries		3			—			—			6			—			1			—			10

Ending balance	$	717		$	153		$	888		$	50		$	620		$	236		$	—		$	2,664

Three Months Ended June 30, 2019:
Beginning balance	$	532		$	65		$	628		$	—		$	553		$	19		$	250		$	2,047
Provision (credit) for loan losses		5			(24	)		50			(5	)		5			(8	)		(23	)		—
Charge-offs		—			—			—			—			—			—			—			—
Recoveries		—			—			—			6			—			—			—			6

Ending balance	$	537		$	41		$	678		$	1		$	558		$	11		$	227		$	2,053

Six Months Ended June 30, 2020:

Beginning balance	$	531		$	82		$	624		$	21		$	573		$	152		$	26		$	2,009
Provision (Credit) for loan losses		179			71			264			17			47			160			(26	)		712
Charge-offs		—			—			—			—			—			(77	)		—			(77	)
Recoveries		7			—			—			12			—			1			—			20

Ending balance	$	717		$	153		$	888		$	50		$	620		$	236		$	—		$	2,664

Six Months Ended June 30, 2019:

Beginning balance	$	544		$	88		$	567		$	19		$	850		$	25		$	150		$	2,243
(Credit) provision for loan losses		(7	)		(47	)		306			(30	)		(292	)		(7	)		77			—
Charge-offs		—			—			(195	)		—			—			(7	)		—			(202	)
Recoveries		—			—			—			12			—			—			—			12

Ending balance	$	537		$	41		$	678		$	1		$	558		$	11		$	227		$	2,053

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~(3)~~

~~Loans, Continued.~~~~An analysis of the change in the allowance for loan losses follows (in thousands):~~

Residential
Real Estate Multi-Family
Real Estate Commercial
Real Estate Land and
Construction Commercial Consumer Unallocated Total
Three Months Ended September 30, 2017:

Beginning balance $ 302 $ 62 $ 769 $ 61 $ 67 $ 148 $ 2,486 $ 3,895
Provision (credit) for loan losses 322 $ — $ 6 $ (2 ) $ (2 ) $ (3 ) $ (321 ) $ —
Charge-offs — $ — $ — $ — $ — $ (3 ) $ — $ (3 )
Recoveries — $ — $ — $ 6 $ — $ 5 $ — $ 11

Ending balance $ 624 $ 62 $ 775 $ 65 $ 65 $ 147 $ 2,165 $ 3,903

Three Months Ended September 30, 2016:
Beginning balance $ 262 $ 39 $ 1,012 $ 64 $ 200 $ 156 $ 2,507 $ 4,240
Provision (credit) for loan losses 58 19 89 (4 ) 48 75 (285 ) —
Charge-offs — — (14 ) — — (72 ) — (86 )
Recoveries — — — 6 — 9 — 15

Ending balance $ 320 $ 58 $ 1,087 $ 66 $ 248 $ 168 $ 2,222 $ 4,169

Nine Months ended September 30, 2017:
Beginning balance $ 310 $ 58 $ 787 $ 120 $ 188 $ 165 $ 2,287 $ 3,915
Provision (credit) for loan losses 314 $ 4 $ (12 ) $ (73 ) $ (123 ) $ 12 $ (122 ) $ —
Charge-offs — $ — $ — $ — $ — $ (43 ) $ — $ (43 )
Recoveries — $ — $ — $ 18 $ — $ 13 $ — $ 31

Ending balance $ 624 $ 62 $ 775 $ 65 $ 65 $ 147 $ 2,165 $ 3,903

Nine Months Ended September 30, 2016:
Beginning balance $ 116 $ 26 $ 1,085 $ 77 $ 120 $ 151 $ 720 $ 2,295
Provision (credit) for loan losses 204 32 (2,033 ) (29 ) 128 196 1,502 —
Charge-offs — — (14 ) — — (195 ) — (209 )
Recoveries — — 2,049 18 — 16 — 2,083

Ending balance $ 320 58 1,087 66 248 168 2,222 4,169

	Residential Real Estate		Multi- Family Real Estate		Commercial Real Estate		Land and Construction		Commercial		Consumer		Unallocated		Total
At June 30, 2020:
Individually evaluated for impairment:
Recorded investment	$	940	$	—	$	2,193	$	—	$	811	$	—	$	—	$	3,944
Balance in allowance for loan losses	$	272	$	—	$	—	$	—	$	579	$	—	$	—	$	851

Collectively evaluated for impairment:
Recorded investment	$	32,812	$	11,474	$	59,759	$	3,979	$	22,283	$	4,843	$	—	$	135,150
Balance in allowance for loan losses	$	445	$	153	$	888	$	50	$	41	$	236	$	—	$	1,813

At December 31, 2019:
Individually evaluated for impairment:
Recorded investment	$	944	$	—	$	2,206	$	—	$	812	$	—	$	—	$	3,962
Balance in allowance for loan losses	$	258	$	—	$	—	$	—	$	531	$	—	$	—	$	789

Collectively evaluated for impairment:
Recorded investment	$	27,322	$	8,396	$	53,446	$	2,496	$	3,664	$	4,903	$	—	$	100,227
Balance in allowance for loan losses	$	273	$	82	$	624	$	21	$	42	$	152	$	26	$	1,220

(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 Commercial Consumer Unallocated Total
At September 30, 2017:
Individually evaluated for impairment:
Recorded investment $ 1,354 $ — $ 981 $ — $ — $ — $ — $ 2,335
Balance in allowance for loan losses $ 336 $ — $ 76 $ — $ — $ — $ — $ 412

Collectively evaluated for impairment:
Recorded investment $ 25,210 $ 6,142 $ 29,656 $ 3,037 $ 5,390 $ 1,025 $ — $ 70,460
Balance in allowance for loan losses $ 288 $ 62 $ 699 $ 65 $ 65 $ 147 $ 2,165 $ 3,491

At December 31, 2016:
Individually evaluated for impairment:
Recorded investment $ 375 $ — $ 1,004 $ — $ — $ — $ — $ 1,379
Balance in allowance for loan losses $ — $ — $ 104 $ — $ — $ — $ — $ 104

Collectively evaluated for impairment:
Recorded investment $ 26,959 $ 5,829 $ 28,260 $ 5,681 $ 10,514 $ 1,829 $ — $ 79,072
Balance in allowance for loan losses $ 310 $ 58 $ 683 $ 120 $ 188 $ 165 $ 2,287 $ 3,811

~~(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.* ~~All~~Residential real estate loans are underwritten ~~in accordance with policies set forth and approved by the Board of Directors (the “Board”), including~~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 ~~Company’s~~ 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):

	Pass		OLEM (Other Loans Especially Mentioned)		Sub- standard		Doubtful		Loss		Total		Pass		OLEM (Other Loans Especially Mentioned)		Sub- standard		Doubtful		Loss		Total
At September 30, 2017:
At June 30, 2020:
Residential real estate	$	22,820	$	3,375	$	369	$	—	$	—	$	26,564	$	32,812	$	—	$	940	$	—	$	—	$	33,752
Multi-family real estate		6,142	$	—	$	—	$	—	$	—	$	6,142		11,474		—		—		—		—		11,474
Commercial real estate		26,773	$	2,883	$	981	$	—	$	—	$	30,637		59,759		—		2,193		—		—		61,952
Land and construction		651	$	2,386	$	—	$	—	$	—	$	3,037		3,979		—		—		—		—		3,979
Commercial		3,133	$	2,257	$	—	$	—	$	—	$	5,390		21,688		595		811		—		—		23,094
Consumer		1,025	$	—	$	—	$	—	$	—	$	1,025		4,843		—		—		—		—		4,843

Total	$	60,544	$	10,901	$	1,350	$	—	$	—	$	72,795	$	134,555	$	595	$	3,944	$	—	$	—	$	139,094
																				—		—
At December 31, 2016:
At December 31, 2019:																				—		—
Residential real estate	$	25,326	$	1,633	$	375	$	—	$	—	$	27,334	$	27,322	$	—	$	944	$	—	$	—	$	28,266
Multi-family real estate		5,829		—		—		—		—		5,829		8,396		—		—		—		—		8,396
Commercial real estate		25,979		1,174		2,111		—		—		29,264		53,011		435		2,206		—		—		55,652
Land and construction		5,636		45		—		—		—		5,681		1,261		1,235		—		—		—		2,496
Commercial		8,768		—		1,746		—		—		10,514		3,027		637		812		—		—		4,476
Consumer		1,823		—		6		—		—		1,829		4,903		—		—		—		—		4,903

Total	$	73,361	$	2,852	$	4,238	$	—	$	—	$	80,451	$	97,920	$	2,307	$	3,962	$	—	$	—	$	104,189

Internally assigned loan grades are defined as follows:

	Pass – Aa 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 – Anan 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 – Aa Substandard loan is inadequately protected by the current ~~sound~~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 – Aa 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 – Aa 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~~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																						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			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 September 30, 2017:
At June 30, 2020:
Residential real estate	$		—	$		—	$		—	$		—		$		26,564	$		—	$		26,564	$	—	$	—	$	—	$	—	$	32,812	$	940	$	33,752
Multi-family real estate			—			—			—			—				6,142			—			6,142		—		—		—		—		11,474		—		11,474
Commercial real estate			—			—			—			—				30,637			—			30,637		—		—		—		—		61,952		—		61,952
Land and construction			—			—			—			—				3,037			—			3,037		—		—		—		—		3,979		—		3,979
Commercial			—			—			—			—				5,390			—			5,390		—		—		—		—		22,283		811		23,094
Consumer			—			—			—			—				1,025			—			1,025		—		17		—		17		4,826		—		4,843

Total	$		—	$		—	$			$		—		$		72,795	$		—	$		72,795	$	—	$	17	$	—	$	17	$	137,326	$	1,751	$	139,094

At December 31, 2016:
Residential real estate		$	—		$	—		$	—		$	—			$	26,959		$	375		$	27,334
Multi-family real estate			—			—			—			—				5,829			—			5,829
Commercial real estate			—			—			—			—				29,264			—			29,264
Land and construction			—			—			—			—				5,681			—			5,681
Commercial			—			—			—			—				10,514			—			10,514
Consumer			—			6			—			6				1,823			—			1,829

Total		$	—		$	6		$	—		$	6			$	80,070		$	375		$	80,451

	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, 2019:
Residential real estate	$	944	$	—	$	—	$	944	$	27,322	$	—	$	28,266
Multi-family real estate		—		—		—		—		8,396		—		8,396
Commercial real estate		—		—		—		—		55,652		—		55,652
Land and construction		1,235		—		—		1,235		1,261		—		2,496
Commercial		—		—		—		—		3,664		812		4,476
Consumer		—		—		—		—		4,903		—		4,903

Total	$	2,179	$	—	$	—	$	2,179	$	101,198	$	812	$	104,189

The following summarizes the amount of impaired loans (in thousands):

At September 30, 2017 At December 31, 2016
Recorded Investment Unpaid Principal Balance Related Allowance Recorded Investment Unpaid Principal Balance Related Allowance
With no related allowance recorded:
Residential real estate $ 370 $ 495 $ — $ 375 $ 501 $ —
Commercial real estate 232 232 — — — —
With related allowance recorded:
Residential real estate 984 984 336 — — —
Commercial real estate $ 749 749 76 1,004 1,004 104

Total
Residential real estate $ 1,354 $ 1,479 $ 336 $ 375 $ 501 $ —
Commercial real estate $ 981 $ 981 $ 76 $ 1,004 $ 1,004 $ 104

Total $ 2,335 $ 2,460 $ 412 $ 1,379 $ 1,505 $ 104

	At June 30, 2020						At December 31, 2019
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
Commercial real estate	$	2,193	$	2,193	$	—	$	2,206	$	2,206		—
With related allowance recorded:
Residential real estate		940		940		272		944		944		258
Commercial		811		811		579		812		812		531
Total:
Residential real estate	$	940	$	940	$	272	$	944		944		258
Commercial real estate	$	2,193	$	2,193	$	—	$	2,206		2,206		—
Commercial	$	811	$	811	$	579	$	812	$	812	$	531
Total	$	3,944	$	3,944	$	851	$	3,962	$	3,962	$	789

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (Unaudited)

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

	Three Months Ended September 30,												Three Months Ended June 30,
	2017						2016						2020						2019
	Average		Interest		Interest		Average		Interest		Interest		Average		Interest		Interest		Average		Interest		Interest
	Recorded		Income		Income		Recorded		Income		Income		Recorded		Income		Income		Recorded		Income		Income
	Investment		Recognized		Received		Investment		Recognized		Received		Investment		Recognized		Received		Investment		Recognized		Received

Residential real estate	$	385	$	12	$	12	$	598	$	3	$	16	$	940	$	—	$	—	$	954	$	19	$	19
Commercial real estate	$	907	$	14	$	14	$	1,829	$	16	$	22	$	2,193	$	26	$	30	$	2,461	$	31	$	21

Commercial													$	811	$	—	$	—	$	1,302	$	20	$	11
Total	$	1,292	$	26	$	26	$	2,427	$	19	$	38	$	3,944	$	26	$	30	$	4,714	$	70	$	51

	Nine Months Ended September 30,												Six Months Ended June 30,
	2017						2016						2020						2019
	Average		Interest		Interest		Average		Interest		Interest		Average		Interest		Interest		Average		Interest		Interest
	Recorded		Income		Income		Recorded		Income		Income		Recorded		Income		Income		Recorded		Income		Income
	Investment		Recognized		Received		Investment		Recognized		Received		Investment		Recognized		Received		Investment		Recognized		Received

Residential real estate	$	375	$	36	$	36	$	1,057	$	36	$	64	$	940	$	18	$	11	$	952	$	37	$	37
Commercial real estate	$	899	$	39	$	39	$	2,483	$	63	$	89	$	2,194	$	52	$	60	$	3,059	$	61	$	59

Commercial													$	811	$	—	$	18	$	1,548		43	$	39
Total	$	1,274	$	75	$	75	$	3,540	$	99	$	153	$	3,945	$	70	$	89	$	5,559	$	141	$	135

No loans have been determined to be troubled debt restructurings (TDR’s) during the three and ~~nine~~six month periods ended ~~September~~June 30, ~~2017~~2020 or ~~2016.~~2019. At June 30, 2020 and 2019, there were no loans modified and entered into TDR’s within the past twelve months, that subsequently defaulted during the three and six month periods ended June 30, 2020 or 2019.

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (Unaudited)

(4)

~~Regulatory Capital.~~Loss Per Share. ~~The Bank is required to maintain certain minimum regulatory capital requirements. The following is a summary at September 30, 2017~~Basic loss per share has been computed on the basis of the ~~regulatory capital requirements~~weighted-average number of shares of common stock outstanding during the period. In 2020 and 2019, basic and diluted loss per share are the ~~Bank’s capital~~same due to the net loss incurred by the Company. Loss per common share have been computed based on ~~a percentage basis:~~the following:

Bank Consent Order
Regulatory
Requirement

Tier I capital to total average assets 8.54 % 8.00 %

Tier I capital to risk-weighted assets 13.12 % NA %

Common equity Tier I capital to risk-weighted assets 13.12 % NA %

Total capital to risk-weighted assets 14.42 % 12.00 %

At September 30, 2017, the Bank is well-capitalized. As a result of the Consent Order discussed in Note 9, the Bank cannot be categorized higher than “adequately capitalized” until the Consent Order is lifted, even if its ratios were to exceed those required to be a “well capitalized” bank.

Three Months Ended

June 30,

Six Months Ended

June 30,

2020

��

2019

2020

2019

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

2,951,353

1,881,759

2,905,599

1,869,933

(continued)

1916

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (Unaudited)

(5)	(Stock-Based Compensation~~Loss) Earnings per Share.~~ ~~Basic (loss) earnings per share~~

	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 ~~computed on~~approved by the ~~basis of the weighted-average number of~~shareholders. The Company is authorized to issue up to 250,000 shares of common stock ~~outstanding during~~under the ~~periods. (Loss) earnings per common share~~2018 Plan, of which 157,190 have been ~~computed based~~issued, and 92,810 shares remain available for grant.

	During the second quarter of 2019, the Company recorded compensation expense of $201,000 with respect to 58,309 shares issued to a director for services performed.

(6)

Fair Value Measurements. Impaired collateral-dependent loans are carried at fair value when the current collateral value is lower than the carrying value of the loan. Those impaired collateral-dependent loans which are measured at fair value on ~~the following (weighted-average number of common shares outstanding have been adjusted for the reverse stock split discussed in note 11)~~a nonrecurring basis are as follows (in thousands):

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
Weighted-average number of common shares outstanding used to calculate basic and diluted (loss) earnings per common share 1,103,447 1,097,644 1,103,447 1,024,704

Fair

Value

Level 1

Level 2

Level 3

Total

Losses

Recorded in

Operations For the Six months ended

June 30, 2020

At June 30, 2020—

Residential real estate

668

—

668

272

—

Fair

Value

Level 1

Level 2

Level 3

Total

Losses

Recorded in

Operations For the six months ended

June 30, 2019

At December 31, 2019—

Residential real estate

686

—

686

258

—

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

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

At June 30, 2020:
SBA Pool Securities	$	1,367	$	—	$	1,367	$	—
Collateralized mortgage obligations		765		—		765		—
Mortgage-backed securities		2,277		—		2,277		—
	$	4,409		—		4,409		—

At December 31, 2019:
SBA Pool Securities	$	1,682	$	—	$	1,682	$	—
Collateralized mortgage obligations		1,016		—		1,016		—
Mortgage-backed securities		2,711		—		2,711		—
Total	$	5,409		—	$	5,409	$	—

During the three and six month periods ended June 30, 2020 and 2019, no debt securities were transferred in or out of Levels 1, 2 or 3.

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~(6)~~	*~~Stock-Based Compensation.~~* On December 27, 2011, the Company’s stockholders approved the 2011 Equity Incentive Plan (“2011 Plan”). In May 2016, the Company increased the total number of shares available to be awarded from 105,000 shares (adjusted for the one-for-ten reverse stock split) to 210,000 shares. Options, restricted stock, performance share awards and bonus share awards in lieu of obligations may be issued under the 2011 Plan. Both incentive stock options and nonqualified stock options can be granted under the 2011 Plan. The exercise price of the stock options cannot be less than the fair market value of the common stock on the date of grant. Options must be exercised within ten years of the date of grant.

	As of September 30, 2017, only common stock has been issued as compensation to directors for services rendered under this plan. There were no shares of common stock issued during the period ended September 30, 2017. A total of 7,559 shares of common stock (adjusted for one-for-ten reverse stock split) were issued during the period ended September 30, 2016. A total of $32,000 of compensation was recorded during the period ended September 30, 2016. Subsequently, $200,000 (46,296 shares) was reclassified to other liabilities (see Note 13). At September 30, 2017, a total of 145,861 (adjusted for one-for-ten reverse stock split) shares remain available for grant.

(7)	*~~Fair Value Measurements.~~*~~Assets measured at fair value on a nonrecurring basis are as follows (in thousands):~~

~~Impaired Collateral Dependent Loans:~~

Fair
Value Level 1 Level 2 Level 3 Total
Losses Losses
Recorded in
Operations
At September 30, 2017-
Residential real estate $ 1,018 $ — $ — $ 1,018 $ 461 $ —

Fair
Value Level 1 Level 2 Level 3 Total Losses Losses
Recorded in
Operations
At December 31, 2016-
Residential real estate $ 375 $ — $ — $ 375 $ 126 $ —

~~Available-for-sale securities measured at fair value on a recurring basis are summarized below (in thousands):~~

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

At September 30, 2017:
Collateralized mortgage obligations $ 8,882 — $ 8,882 —
SBA Pool Securities 7,317 — 7,317 —

$ 16,199 — $ 16,199 —
At December 31, 2016:
Collateralized mortgage obligations $ 9,752 $ — $ 9,752 $ —
SBA Pool Securities 10,470 — 10,470 —

$ 20,222 $ — $ 20,222 $ —

~~During the three and nine month periods ended September 30, 2017 and 2016, no securities were transferred in or out of Level 1, Level 2 or Level 3.~~

~~(continued)~~

~~OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~(8)~~

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 September 30, 2017 At December 31, 2016
Carrying
Amount Fair
Value Level Carrying
Amount Fair
Value Level
Financial assets:
Cash and cash equivalents $ 18,514 $ 18,514 1 $ 17,640 $ 17,640 1
Securities available for sale 16,199 16,199 2 20,222 20,222 2
Loans 69,194 69,095 3 76,999 76,829 3
Federal Home Loan Bank stock 979 979 3 1,113 1,113 3
Accrued interest receivable 366 366 3 380 380 3

Financial liabilities:
Deposit liabilities 77,374 77,935 3 86,009 86,364 3
Federal Home Loan Bank advances 20,500 20,458 3 23,500 23,500 3
Junior subordinated debenture 5,155 NA ⁽¹⁾ 3 5,155 N/A ⁽¹⁾ 3
Off-balance sheet financial instruments — — — — — —

	At June 30, 2020							At December 31, 2019
	Carrying Amount		Fair Value			Level		Carrying Amount		Fair Value			Level
Financial assets:
Cash and cash equivalents	$	29,948	$	29,948			1	$	8,934	$	8,934			1
Debt securities available for sale		4,409		4,409			2		5,409		5,409			2
Debt securities held-to-maturity		5,069		5,337			2		5,806		5,986			2
Loans		135,842		135,906			3		102,233		102,060			3
Federal Home Loan Bank stock		1,092		1,092			3		642		642			3
Accrued interest receivable		958		958			3		432		432			3

Financial liabilities:
Deposit liabilities		138,070		138,328			3		101,372		101,256			3
Federal Home Loan Bank advances		23,000		22,607			3		13,000		13,137			3
Junior subordinated debenture		2,580		N/A	(1)		N/A		2,580		N/A	(1)		N/A
Other borrowings		4,988		4,988					-		-
Off-balance sheet financial instruments		—		—			3		—		—			3

(1)	The Company is unable to determine ~~the fair~~ value based on significant unobservable inputs required in the ~~calculation refer~~calculation. Refer to Note 101 for further information.

(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 ~~sheets.~~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 nonperformance 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.

	~~As of September 30, 2017, commitments to extend credit totaled $4.3 million.~~

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, 2020 follows (in thousands):

Commitments to extend credit	$	5,902

Unused lines of credit	$	5,569

Standby letters of credit	$	1,550

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

	~~Effective January 1, 2015, the~~The Bank, ~~became~~is subject to the ~~new~~ Basel III capital level threshold requirements under the Prompt Corrective Action regulations with full compliance ~~with all of the final rule’s requirements~~ phased in over a multi-year schedule. These new regulations were designed to ensure that banks maintain strong capital positions even in the event of severe economic downturns or unforeseen losses.

	~~Changes~~Regulatory banking agencies issued final rules on October 29, 2019 that ~~could affect~~provide simplified capital measures, including a simplified measure of capital adequacy for qualifying community banking organizations consistent with section 201 of the ~~Bank going forward include additional constraints~~Economic Growth, Regulatory Relief, and Consumer Protection Act. Qualifying community banking organizations with less than $10 billion of assets that comply with, and elect to use, the community bank leverage ratio (“CBLR”) and that maintain a CBLR greater than 8% in 2020 would be considered to be “well-capitalized” and would no longer be subject to the other generally applicable capital rules. The CBLR would be used and applied for purposes of compliance with the Federal Banking Agencies ‘prompt corrective action rules, and Federal Reserve Regulation O and W compliance, as well as in calculating FDIC deposit insurance assessments. The CBLR, among other proposals, reflects the regulatory banking agencies’ focus on ~~the inclusion~~appropriately tailoring capital requirements to an institution’s size, complexity and risk profile. The CBLR was first available for banking organizations to use in their March 31, 2020 Call Report. Non-advanced approaches banking organizations will also be able to take advantage of simpler regulatory capital requirements for mortgage servicing assets, certain deferred tax assets arising from temporary differences and investments in capital and increased risk weightings for nonperforming loans and acquisition/development loans in regulatory capital. Beginning on January 1, 2016, the Bank became subject to the capital conservation buffer rules which places limitations on distributions, including dividend payments, and certain discretionary bonus payments to executive officers. In order to avoid these limitations, an institution must hold a capital conservation buffer above its minimum risk-based capital requirements.unconsolidated financial institutions. As of ~~September~~June 30, ~~2017 and December 31, 2016,~~2020, the ~~Bank’s capital conversation buffer exceeds the minimum requirements of 0.625%. The required buffer is~~Company has determined to ~~be phased~~opt in ~~over three years. Under~~adopting the new ~~regulations in the first quarter of 2015, the Bank elected an irreversible one-time opt-out to exclude accumulated other comprehensive loss from regulatory capital.~~CBLR.

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (Unaudited)

(9)

Regulatory Matters, Continued.As of September 30, 2017 and December 31, 2016, the Bank is subject to a Consent Order issued by the Federal Deposit Insurance Corporation and the State of Florida Office of Financial Regulation (“OFR”), and accordingly is deemed to be “adequately capitalized” even if its capital ratios were to exceed those generally required to be a “well capitalized” bank. An institution must maintain minimum total risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the following tables. The Bank’s actual capital amounts and percentages are also presented in the table (dollars in thousands):

The following table shows the Bank’s capital amounts and ratios and regulatory thresholds at ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 (dollars in thousands):

	Actual					For Capital Adequacy Purposes					Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions					Requirements of Consent Order					Actual					For Capital Adequacy Purposes					Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		%			Amount		%			Amount		%			Amount		%			Amount		%			Amount		%			Amount		%
As of September 30, 2017:
As of June 30, 2020—
Tier I Capital to Total Assets																					$	13,153		8.51	%	$	6,181		4.00	%	$	7,726		5.00	%

As of December 31, 2019:
Total Capital to Risk-Weighted Assets	$	10,472		14.42	%	$	5,809		8.0	%	$	7,262		10.0	%	$	8,714		12.00	%	$	12,212		12.03	%	$	8,124		8.00	%	$	10,154		10.00	%
Tier I Capital to Risk-Weighted Assets		9,527		13.12	%		4,357		6.0	%		5,809		8.0	%		NA		NA			10,934		10.77			6,093		6.00	%		8,124		8.00	%
Common equity Tier I capital to Risk-Weighted Assets		9,527		13.12	%		3,268		4.5	%		4,720		6.5	%		NA		NA			10,934		10.77			4,569		4.50	%		6,600		6.50	%
Tier I Capital to Total Assets		9,527		8.54	%		4,463		4.0	%		5,579		5.0	%		8,926		8.00	%		10,934		8.73			5,010		4.00	%		6,263		5.00	%

As of December 31, 2016:
Total Capital to Risk-Weighted Assets	$	10,662		12.79	%	$	6,609		8.0	%	$	8,261		10.0	%	$	9,913		12.0	%
Tier I Capital to Risk-Weighted Assets		9,498		11.50	%		4,957		6.0	%		6,609		8.0	%		N/A		N/A
Common equity Tier I capital to Risk-Weighted Assets		9,498		11.50	%		3,718		4.5	%		5,370		6.5	%		N/A		N/A
Tier I Capital to Total Assets		9,498		8.06	%		4,714		4.0	%		5,893		5.0	%		9,428		8.0	%

(10)	~~Regulatory Enforcement Actions~~

	~~Bank Consent Order. On November 7, 2016,~~ Preferred Stock The company issued 100 shares of Series B Participating Preferred Stock (the “Preferred Stock”) to a related party at $25,000 per share. The related party is a significant common stockholder. The Preferred Stock has no preferential rate of return. The Preferred Stock has no par value and is convertible into 1,000,000 shares of common stock, at the ~~Bank agreed~~option of the Company. The conversion is subject to adjustment based on the terms of the Certificate of Designation in the Amendment to the ~~issuance~~Company’s Articles of ~~a Consent Order by~~Incorporation filed on June 23, 2020 (the “Certificate of Designation”) The Preferred Stock has preferential liquidation rights over common stockholders. The Preferred Stock generally has no voting rights except as provided in the ~~FDIC and~~Certificate of Designation. The liquidation price is the ~~OFR (the “Consent Order”), which requires the Bank to take certain measures to improve its safety and soundness. The Consent Order supersedes the prior consent order~~greater of $25,000 per share of preferred stock or such amount per share of preferred stock that became effective in 2010. Pursuant to the Consent Order, the Bank is required to take certain measures to improve its management, condition and operations, including actions to improve management practices and board supervision and independence, assure that its allowance for loan losses is maintained at an appropriate level and improve liquidity. The Consent Order requires the Bank to adopt and implement a compliance plan to address the Bank’s obligations under the Bank Secrecy Act and related obligations related to anti-money laundering. The Consent Order prohibits the payment of dividends by the Bank. The Consent Order continues the requirement for the Bank to maintain a Tier 1 leverage ratio of at least 8% and a total risk-based capital ratio of 12% beginning 90 days from the issuancewould have been payable had all shares of the ~~Consent Order. At September 30, 2017,~~preferred stock been converted into common stock per the ~~Bank had a Tier 1 leverage ratio of 8.54%, and a total risk-based capital ratio of 14.42%.~~

	~~See Footnote 13 to the Consolidated Financial Statements included in the Company’s 2016 Form 10-K for additional information concerning the requirements~~terms of the ~~Consent Order.~~Certificate of Designation immediately prior to a liquidation.

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

	*~~Regulatory Matters, Continued.~~*Management believes that the Bank has made substantial progress in improving its financial condition through a significant reduction in non-performing assets and the receipt of capital increases from investors since the 2010 Consent Order. The Bank is also making significant progress in resolving the other issues raised by the FDIC and the OFR including strengthening the senior management team with the addition of David Edgar as Chief Financial Officer in October 2017. Although the Bank has been hampered by difficulties in raising capital due to the default under the Junior Subordinated Debenture and the limits placed on the Company and the Bank under the prior Consent Order and the Written Agreement. Management intends to continue its efforts to meet the conditions of the New Consent Order and the Written Agreement.

	~~Company Written Agreement with Reserve Bank~~. On June 22, 2010, the Company and the Reserve Bank entered into a Written Agreement with respect to certain aspects of the operation and management of the Company. The Written Agreement prohibits, without the prior approval of the Reserve Bank, the payment of dividends, taking dividends or payments from the Bank, making any interest, principal or other distributions on trust preferred securities (including the Debenture), incurring, increasing or guaranteeing any debt, purchasing or redeeming any shares of stock, or appointing any new director or senior executive officer. Management believes that the Company is in substantial compliance with the requirements of the Written Agreement.

~~(10)~~	*~~Junior Subordinated Debenture.~~* On September 30, 2004, the Company issued a $5,155,000 junior subordinated debenture to an unconsolidated subsidiary (the “Debenture”). The Debenture has a term of thirty years. The interest rate was fixed at 6.4% for the first five years, and thereafter, the coupon rate floats quarterly at the three-month LIBOR rate plus 2.45% (3.78% at September 30, 2017). The Debenture is redeemable in certain circumstances. The terms of the Debenture allow the Company to defer payments of interest on the Debenture by extending the interest payment period at any time during the term of the Debenture for up to twenty consecutive quarterly periods. Beginning in 2010, the Company exercised its right to defer payment of interest on the Debenture. Interest payments deferred as of September 30, 2017 totaled $1,314,000. The Company has deferred interest payments with respect to the Debenture for the maximum allowable twenty consecutive quarterly payments. The holder of the Debenture can accelerate the $5,155,000 principal balance as a result of this default. Under the Written Agreement, the Company is not able to make these interest payments without the prior approval of the Federal Reserve Bank of Atlanta. Regulatory approval to pay accrued and unpaid interest has been denied.

	A Director of the Company has offered to purchase the Debenture and this offer has been approved by certain equity owners of the Trust that holds the Debenture. The Director has also agreed to enter into a forbearance agreement with the Company with respect to payments due under the Debenture upon consummation of the Director’s purchase of the debenture.

	In March of 2016, the Trustee received a direction from certain equity owners of the Trust that hold the Debenture to Sell the Debenture to a Director of the Company. Based upon the receipt of other conflicting directions, in August 26, 2016, the Trustee commenced an action in a Minnesota State Court seeking directions from the Court. The case was subsequently transferred to the United States District Court for the Southern District of New York, were the case is currently pending. The Company continues to pursue mechanisms for paying the accrued interest, such as raising additional capital.

~~(11)~~	*~~Reverse Common Stock Split.~~* Effective January 11, 2016 each ten shares of the Company’s common stock were converted into one share of common stock. Loss (earnings) per share for 2017 and 2016 has been adjusted to reflect the 1-for-10 reverse common stock split.

~~(12)~~	*~~Loan Loss Recovery.~~*On January 6, 2016, the Bank completed a sale of judgement on a defaulted credit that resulted in a $1.8 million recovery of previously charged-off amounts to the Allowance for Loan and Lease Losses (“ALLL”). This increased the balance of the ALLL to approximately $4.2 million. On February 12, 2016, and amended May 6, 2016, pursuant to the terms and requirements of the Consent Order, Management submitted a written request to the FDIC for a partial reversal of the ALLL. The FDIC has requested additional information to assess the Bank’s request for a reversal. As of this date, the FDIC has not reached a final decision in regards to the Bank’s request.

~~(13)~~	*~~Reclassification.~~*During the quarter ended March 31, 2016, the Company agreed to issue 46,296 shares to the Bank’s Chairman as compensation. The Company recorded compensation expense of $200,000 based on the fair market value of the shares at that time, and reflected the issuance of the shares as an increase in stockholders’ equity. The Bank’s Chairman has not yet taken delivery of the shares. As a result, during the quarter ended September 30, 2016, the Company determined to reclassify the transaction as a liability of the Company (rather than an increase in stockholders’ equity) until the issuance of the shares. As of December 31, 2016, an accrued liability totaling $200,000 was recorded in connection with these shares.

~~(14)~~	*~~Brokered Deposits.~~*Under the terms of the Consent Order, the Bank is not permitted to solicit brokered deposits. In March 2017, the FDIC notified the Bank that it considers a significant portion of the Bank’s certificates of deposit to be brokered deposits due to the rates paid on such deposits, even though such deposits were not obtained through any deposit brokers. The Bank has requested a waiver of the prohibition on brokered deposits from the FDIC which has been subsequently withdrawn. Consequently, the Bank can not renew or rollover the existing certificates of deposit that are viewed as brokered deposits, which have an adverse effect on the Bank’s liquidity. Management has identified several strategies to mitigate this issue and believes that the Bank’s liquidity will be sufficient. As of September 30, 2017, the Bank had $25.1 million in brokered deposits that will mature over the next two years. Management is exploring all alternatives to resolve this issue including, but not limited to, raising local deposits.

~~(15)~~	*~~Bank Secrecy Act (“BSA”) Lookback Review.~~*Under the terms of the Consent Order, the Bank is required to perform a BSA lookback review. The Bank estimates that the cost of the BSA lookback review will range from $250,000 to $300,000 based on an independent firm’s proposal for services. The proposal and ultimate agreement is subject to FDIC review and approval. Until the approval is received, these BSA services cannot be rendered. Once the BSA lookback review begins, the independent firm has 120 days to complete the work. As of September 30, 2017, the Bank has accrued $210,000 for the proposed services.

~~(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, ~~2016~~2019 in the Annual Report on Form 10-K.

The following discussion and analysis should also be read in conjunction with the condensed consolidated financial statements and notes thereto appearing elsewhere in this report. 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.

~~Regulatory Enforcement Actions~~

~~Bank Consent Order~~. On November 7, 2016, the Bank agreed to the issuance of a Consent Order by the FDIC and the OFR (the “Consent Order”), which requires the Bank to take certain measures to improve its safety and soundness. The Consent Order supersedes the prior consent order that became effective in 2010. Pursuant to the Consent Order, the Bank is required to take certain measures to improve its management, condition and operations, including actions to improve management practices and board supervision and independence, assure that its allowance for loan losses is maintained at an appropriate level and improve liquidity. The Consent Order requires the Bank to adopt and implement a compliance plan to address the Bank’s obligations under the Bank Secrecy Act and related obligations related to anti-money laundering. The Consent Order prohibits the payment of dividends by the Bank. The Consent Order continues the requirement for the Bank to maintain a Tier 1 leverage ratio of at least 8% and a total risk-based capital ratio of 12% beginning 90 days from the issuance of the Consent Order. At September 30, 2017, the Bank had a Tier 1 leverage ratio of 8.54%, and a total risk-based capital ratio of 14.42%.

~~See Footnote 13 to the Consolidated Financial Statements included in the Company’s 2016 Form 10-K for additional information concerning the requirements of the Consent Order.~~

~~(continued)~~

~~OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY~~

Management believes that the Bank has made substantial progress in improving its financial condition through a significant reduction in non-performing assets and the receipt of capital increases from investors since the 2010 Consent Order. The Bank is also making significant progress in resolving the other issues raised by the FDIC and the OFR including strengthening the senior management team with the addition of David Edgar as Chief Financial Officer in October 2017. Although the Bank has been hampered by difficulties in raising capital due to the default under the Debenture and the limits placed on the Company and the Bank under the prior Consent Order and the Written Agreement. Management intends to continue its efforts to meet the conditions of the New Consent Order and the Written Agreement.

~~Company Written Agreement with Reserve Bank~~. On June 22, 2010, the Company and the Reserve Bank entered into a Written Agreement with respect to certain aspects of the operation and management of the Company. The Written Agreement prohibits, without the prior approval of the Reserve Bank, the payment of dividends, taking dividends or payments from the Bank, making any interest, principal or other distributions on trust preferred securities (including the Debenture), incurring, increasing or guaranteeing any debt, purchasing or redeeming any shares of stock, or appointing any new director or senior executive officer. Management believes that the Company is in substantial compliance with the requirements of the Written Agreement.

Capital Levels

Quantitative measures established by regulation ~~and by the Consent Order~~ to ensure capital adequacy require us to maintain minimum amounts and ratios ~~(set forth in the following table)~~ of Total and Tier 1 capital to risk-weighted assets and Tier 1 capital to average assets. As of ~~September~~June 30, ~~2017,~~2020, the Bank ~~met~~is well capitalized under the ~~minimum applicable capital adequacy requirements~~regulatory framework for ~~Total Capital to Risk – Weighted Assets, and for Tier I Capital to Total Assets.~~prompt corrective action.

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

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

~~The Bank’s actual~~Item 2. Management’s Discussion and ~~required minimum capital ratios were as follows (in thousands):~~

~~Regulatory Capital Requirements~~Analysis of Financial Condition and Results of Operations (Continued)

Actual For Capital
Adequacy Purposes Minimum
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions Requirements of
Consent Order
Amount % Amount % Amount % Amount %
As of September 30, 2017:
Total Capital to Risk-Weighted Assets $ 10,472 14.42 % $ 5,809 8.0 % $ 7,262 10.02 % $ 8,714 12.00 %
Tier I Capital to Risk-Weighted Assets 9,527 13.12 % 4,357 6.0 % 5,809 8.0 % NA NA
Common equity Tier I capital to Risk-Weighted Assets 9,527 13.12 % 3,268 4.5 % 4,720 6.5 % NA NA
Tier I Capital to Total Assets 9,527 8.54 % 4,463 4.0 % 5,579 5.0 % 8,926 8.00 %

As of December 31, 2016:
Total Capital to Risk-Weighted Assets $ 10,662 12.79 % $ 6,609 8.0 % $ 8,261 10.0 % $ 9,913 12.0 %
Tier I Capital to Risk-Weighted Assets 9,498 11.50 % 4,957 6.0 % 6,609 8.0 % N/A N/A
Common equity Tier I capital to Risk-Weighted Assets 9,498 11.50 % 3,718 4.5 % 5,370 6.5 % N/A N/A
Tier I Capital to Total Assets 9,498 8.06 % 4,714 4.0 % 5,893 5.0 % 9,428 8.0 %

Financial Condition at ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019

Overview

The Company’s total assets ~~decreased~~increased by ~~$11.2~~approximately $54.1 million to ~~$108.5~~$180.8 million at ~~September~~June 30, ~~2017,~~2020, from ~~$119.7~~$126.8 million at December 31, ~~2016,~~2019, primarily due to ~~a reduction~~an increase in ~~total deposits.~~loans, and cash and cash equivalents corresponding to an increase in deposits, FHLB advances, and other borrowings. Total stockholders’ equity ~~decreased~~increased by approximately ~~$0.5~~$2.5 million to $9.7 million at ~~September~~June 30, ~~2017~~2020, from ~~$3.1~~$7.2 million at December 31, ~~2016 to $2.6 million,~~2019, primarily due to proceeds from the sale of preferred and common stock which more than offset the net loss ~~of $510,000~~ for the ~~nine months~~six month period ended ~~September~~June 30, ~~2017. As of September 30,2017, the Bank has provided for a reserve for BSA Compliancelookback of $210.000.~~2020.

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

Nine Months Nine Months Year
Ended Ended Ended
September 30, 2017 September 30, 2016 December 31, 2016

Average equity as a percentage of average assets 2.22 % 2.59 % 2.6 %

Equity to total assets at end of period 2.42 % 2.73 % 2.6 %

Return on average assets (1) (.45 )% (0.34 )% (0.3 )%

Return on average equity (1) (18.15 )% (12.96 )% (12.5 )%

Noninterest expenses to average assets (1) 2.74 % 3.51 % 3.3 %

	Six Month Period Ended June 30, 2020			Year Ended December 31, 2019

Average equity as a percentage of average assets		5.1	%		4.6	%

Equity to total assets at end of period		5.4	%		5.6	%

Return on average assets (1)		(0.9	)%		(1.0	)%

Return on average equity (1)		(17.7	)%		(21.3	)%

Noninterest expenses to average assets (1)		3.0	%		4.0	%

(1) Annualized for the ~~nine months~~six month period ended ~~September~~June 30, ~~2017 and 2016.~~

~~OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY~~2020.

Liquidity and Sources of Funds

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

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

The Company increased deposits by $36.7 million during the Consent Order, the interest rate that the Bank pays on its market area deposits is restricted. It is possible that the Bank could experience a decrease in deposit inflows, or the migration of current depositssix month period ended June 30, 2020. The proceeds were used to competitor institutions, if other institutions offer higher interest rates than those permitted to be offered by the Bank. Despite these yield limitations, we believe that we have the ability to adjust rates on our deposits to attract or retain deposits as needed.originate new loans.

In addition to obtaining funds from depositors, wethe Company may borrow funds from other financial institutions. At ~~September~~June 30, ~~2017,~~2020, the ~~Bank~~Company had outstanding borrowings of ~~$20,500,000,~~$23 million, against its ~~$31,300,000~~$45 million in established borrowing capacity with the FHLB. The ~~Bank’s~~Company’s borrowing facility is subject to collateral and stock ownership requirements, as well as prior FHLB consent to each advance. In 2010, the ~~Bank~~Company obtained an available discount window credit line with the Federal Reserve Bank, currently ~~$643,700.~~$430,000. The Federal Reserve Bank line is subject to collateral requirements and must be repaid within 90 days; each advance is subject to prior Federal Reserve Bank consent. ~~The Bank~~At June 30, 2020, the Company also ~~has a $2.5 million line~~had lines of credit amounting to $9.5 million with ~~SunTrust, $750,000 line~~four correspondent banks. Also at June 30, 2020, the Company had outstanding borrowings of $5.0 million against an available paycheck protection program liquidity facility with the Federal Reserve Bank, to purchase federal funds. Disbursements on the lines of credit ~~with Servis First Bank and a $2.5 million line~~are subject to the approval of ~~credit with AloStar Bank.~~the correspondent banks. We measure and monitor our liquidity daily and believe our liquidity sources are adequate to meet our operating needs.

In the past, the Company, on an unconsolidated basis, relied on dividends from the Bank to fund its operating expenses, primarily expenses of being publicly held, and to make interest payments on the Company’s junior subordinated debenture (the “Debenture”). Under the Consent Order, the Bank is currently unable to pay dividends to the Company without prior regulatory approval. Additionally, under the Written Agreement, the Company may not pay interest payments on the Debenture or dividends on the Company’s common stock, incur any additional indebtedness at the Company level, or redeem the Company’s common stock without the prior regulatory approval of the Federal Reserve Bank. Since January 2010, the Company has deferred interest payments on the Debenture, which has been in default since 2015. See “Junior Subordinated Debenture” below.

Off-Balance Sheet Arrangements

~~The Company is a party~~Refer 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 and may involve, to varying degrees, elements of credit and interest-rate risk in excess of the amounts recognized in the condensed consolidated balance sheet. The contract amounts of these instruments reflect the extent of the Company’s involvement in these financial instruments.Note 8 for Off-Balance Sheet Financial 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. Since many of the commitments are expected to expire without being drawn upon, the total committed amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis.Junior Subordinated Debenture

~~The amount of collateral obtained, if it is deemed necessary by the Company upon extension of credit, is based~~Please refer to Note 1 for discussion on ~~management’s credit evaluation of the counter party. As of September 30, 2017, the Company had commitments to extend credit totaling $4.3 million.~~

this matter.

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

~~Junior Subordinated Debenture~~

~~On September 30, 2004, the Company issued a $5,155,000 junior subordinated debenture to an unconsolidated subsidiary (the “Debenture”). The Debenture has a term~~Item 2. Management’s Discussion and Analysis of ~~thirty years. The interest rate was fixed at 6.4% for the first five years,~~Financial Condition and ~~thereafter, the coupon rate floats quarterly at the three-month LIBOR rate plus 2.45% (3.78% at September 30, 2017). The Debenture is redeemable in certain circumstances. The terms~~Results of the Debenture allow the Company to defer payments of interest on the Debenture by extending the interest payment period at any time during the term of the Debenture for up to twenty consecutive quarterly periods. Beginning in 2010, the Company exercised its right to defer payment of interest on the Debenture. Interest payments deferred as of September 30, 2017 totaled $1,314,000. The Company has deferred interest payments with respect to the Debenture for the maximum allowable twenty consecutive quarterly payments. The holder of the Debenture can accelerate the $5,155,000 principal balance as a result of this default. Under the Written Agreement, the Company is not able to make these interest payments without the prior approval of the Federal Reserve Bank of Atlanta. Regulatory approval to pay accrued and unpaid interest has been denied.

A Director of the Company has offered to purchase the Debenture and this offer has been approved by certain equity owners of the Trust that holds the Debenture. The Director has also agreed to enter into a forbearance agreement with the Company with respect to payments due under the Debenture upon consummation of the Director’s purchase of the debenture.

In March of 2016, the Trustee received a direction from certain equity owners of the Trust that hold the Debenture to Sell the Debenture to a Director of the Company. Based upon the receipt of other conflicting directions, in August 26, 2016, the Trustee commenced an action in a Minnesota State Court seeking directions from the Court. The case was subsequently transferred to the United States District Court for the Southern District of New York, were the case is currently pending. The Company continues to pursue mechanisms for paying the accrued interest, such as raising additional capital.

In the event the amounts due under the Debenture were accelerated, then the Trustee could undertake legal proceedings to obtain a judgment against the Company with respect to such amounts due under the Debenture. If this action were successful, then the Trustee could seek to affect a sale of the Bank to pay the amounts due under the Debenture.

~~OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY~~Operations (Continued)

Results of ~~Operations~~Operationss

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

	Three Months Ended September 30,																Three Months Ended June 30,
	2017								2016								2020								2019
	Average Balance			Interest and Dividends		Average Yield/ Rate			Average Balance			Interest and Dividends		Average Yield/ Rate						Interest		Average						Interest		Average
	($ in thousands)																Average			and		Yield/			Average			and		Yield/
(dollars in thousands)																	Balance			Dividends		Rate⁽⁵⁾			Balance			Dividends		Rate⁽⁵⁾
Interest-earning assets:
Loans	$	72,777		$	972		5.34	%	$	85,020		$	1,082		5.09	%	$	126,385		$	1,561		4.94	%	$	81,325		$	1,097		5.4	%
Securities		19,207			96		2.00			22,779			117		2.05			10,053			49		1.95	%		12,954			72		2.22
Other (1)		17,908			65		1.45			11,225			24		0.86			13,204			16		0.48	%		10,199			77		3.02

Total interest-earning assets/interest income		109,892			1,133		4.12			119,024			1,223		4.11			149,642			1,626		4.35	%		104,478			1,246		4.81

Cash and due from banks		1,156								910								5,970								2,149
Premise and equipment		2,612								2,696
Premises and equipment																		1,470								2,644
Other		(3,345	)							(1,005	)							1,173								(912	)

Total assets	$	110,315							$	121,625							$	158,255							$	108,359

Interest-bearing liabilities:
Savings, NOW and money-market deposits	$	21,657			27		.50		$	22,960			29		0.51		$	70,402			213		1.21	%	$	43,329			199		1.84
Time deposits		49,945			140		1.12			59,069			152		1.03			29,521			142		1.92	%		28,956			161		2.22
Borrowings (2)		25,655			141		2.20			25,663			91		1.42			29,068			121		1.67	%		18,155			133		2.93

Total interest-bearing liabilities/ interest expense		97,257			308		1.27			107,692			272		1.01
Total interest-bearing liabilities/interest expense																		128,991			476		1.48	%		90,440			493		2.18

Noninterest-bearing demand deposits		8,376								8,039								19,234								10,860
Other liabilities		2,026								2,534								2,506								2,017
Stockholders’ equity		2,656								3,360								7,524								5,042

Total liabilities and stockholders’ equity	$	110,315							$	121,625							$	158,255							$	108,359

Net interest income				$	825							$	951							$	1,150							$	753

Interest-rate spread (3)							2.85	%							3.10	%

Net interest-earnings assets	$	12,635							$	11,332
Interest rate spread (3)																							2.87	%							2.63	%

Net interest margin (4)							3.00	%							3.20	%							3.07	%							2.89	%

Ratio of average interest-earning assets to average interest-bearing liabilities		1.13								1.11								1.16	%							1.16	%

Nine Months Ended September 30,
2017 2016
Average
Balance Interest
and
Dividends Average
Yield/
Rate Average
Balance Interest
and
Dividends Average
Yield/
Rate
($ in thousands)
Interest-earning assets:
Loans $ 76,583 $ 2,971 5.17 % $ 84,173 $ 3,156 5.00 %
Securities 19,622 306 2.08 23,454 367 2.09
Other (1) 16,985 162 1.27 11,433 75 0.87

Total interest-earning assets/interest income 113,190 3,439 4.05 119,060 3,598 4.03

Cash and due from banks 1,162 887
Premise and equipment 2,624 2,694
Other (3,164 ) (393 )

Total assets $ 113,812 $ 122,248

Interest-bearing liabilities:
Savings, NOW and money-market deposits $ 22,052 82 0.50 $ 23,719 89 0.50
Time deposits 53,609 442 1.10 62,203 461 0.99
Borrowings (2) 25,677 378 1.96 25,700 260 1.35

Total interest-bearing liabilities/ interest expense 101,338 902 1.29 111,622 810 0.97

Noninterest-bearing demand deposits 7,471 5,249
Other liabilities 2,193 2,208
Stockholders’ equity 2,810 3,169

Total liabilities and stockholders’ equity $ 113,812 $ 122,248

Net interest income $ 2,537 $ 2,788

Interest-rate spread (3) 2.76 % 3.06 %

Net interest-earning assets $ 11,852 $ 7,438

Net interest margin (4) 2.99 % 3.12 %

Ratio of average interest-earning assets to average interest-bearing liabilities 1.21 1.07

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

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,
	2020								2019
				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	$	116,565		$	2,974		5.10	%	$	81,445		$	2,187		5.37	%
Securities		10,478			95		1.81	%		10,787			122		2.26
Other (1)		12,326			60		0.97	%		9,824			125		2.54

Total interest-earning assets/interest income		139,369			3,129		4.49	%		102,056			2,434		4.77

Cash and due from banks		4,382								2,239
Premises and equipment		1,466								2,648
Other		911								(1,100	)

Total assets	$	146,128							$	105,843

Interest-bearing liabilities:
Savings, NOW and money-market deposits	$	63,831			439		1.38	%	$	39,274			289		1.47
Time deposits		31,407			318		2.03	%		28,174			360		2.56
Borrowings (2)		24,106			226		1.88	%		19,855			283		2.85

Total interest-bearing liabilities/interest expense		119,344			983		1.65	%		87,303			932		2.14

Noninterest-bearing demand deposits		16,899								11,352
Other liabilities		2,489								2,059
Stockholders’ equity		7,396								5,129

Total liabilities and stockholders’ equity	$	146,128							$	105,843

Net interest income				$	2,146							$	1,502

Interest rate spread (3)							2.84	%							2.63	%

Net interest margin (4)							3.08	%							2.94	%

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

32(1)	Includes interest-earning deposits with banks and Federal Home Loan Bank stock dividends.
(2)	Includes Federal Home Loan Bank advances, other borrowings and the Debenture.
(3)	Interest-rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.
(4)	Net interest margin is net interest income divided by average interest-earning assets.
(5)	Annualized.

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

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

Comparison of the Three-Month Periods Ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 (dollars in thousands):

	Three Months Ended						Increase /
	June 30,						(Decrease)
(dollars in thousands)	2020			2019			Amount			Percentage
Total interest income	$	1,626		$	1,246		$	380			30	%
Total interest expense		476			493			(17	)		(3	)
Net interest income		1,150			753			397			53
Provision for loan losses		523			-			523			100
Net interest income after provision for loan losses		627			753			(126	)		(17	)
Total noninterest income		33			87			(54	)		(62	)
Total noninterest expenses		1,007			1,270			(263	)		(21	)
Net loss before income tax benefit		(347	)		(430	)		83			19
Income tax benefit		-			-			-			-
Net Loss	$	(347	)	$	(430	)		83			19
Net loss per share - Basic and diluted	$	(0.12	)	$	(0.23	)

~~General.~~Net Loss. The Company had a net loss of $347,000 for the three ~~months~~month period ended ~~September~~June 30, ~~2017, was $(56,000) or $(.05) loss per basic and diluted share~~2020 compared to a$430,000 for the three month period ended June 30, 2019. The Company recorded provision for loan losses amounting to $523,000 during the three month period ended June 30, 2020, which was largely due to the economic environment associated with the COVID-19 pandemic. No provision for loan losses was recorded during the three month period ended June 30, 2019. Excluding the provision for loan losses, the Company would have had net earnings of ~~$22,000 or $0.02 earnings per basic and diluted share~~$176,000 for the three month period ended ~~September~~June 30, ~~2016.~~2020 and a net loss of $430,000 for the three month period ended June 30, 2019. Excluding the provision for loan losses, net earnings increased $606,000 for the three month period ended June 30, 2020 as compared to the three month period ended June 30, 2019.

Interest ~~Income.~~Income. Interest income ~~decreased $90,000~~increased $380,000 for the three ~~months~~month period ended ~~September~~June 30, ~~2017~~2020 compared to the three ~~months Ended September~~month period ended June 30, ~~2016.~~2019 primarily due to growth in the loan portfolio.

Interest Expense.Interest expense decreased $17,000 to $476,000 for the three month period ended June 30, 2020 compared to the prior period. This decrease in interest expense is due to a 70-basis point reduction in the average rate paid on deposits and borrowings ~~increased~~offset by $36,000 for the three months ended September 30, 2017 from $272,000 for the three months Ended September 30, 2016. Interest expense increased primarily due to higher interest paid on borrowings during the secondvolume increase in deposits and third quarter of 2017. In late March 2017, the Bank extended the maturities of $15.5 million in Federal Home loan Advances into longer fixed rate terms with higher interest rates. The weighted average rate of these advances increased from 0.49% to 1.19%.borrowings.

Provision for Loan Losses. Provision for loan losses amounted to $523,000 for the three month period ended June 30, 2020. There was no provision for losses during the ~~2017 or 2016~~2019 period. The provision for loan losses is charged to operations ~~as losses are estimated to have occurred~~ in order to bring the total allowance for loan losses to a level deemed appropriate by management to absorb losses inherent in the portfolio at ~~September~~June 30, ~~2017.~~2020 and 2019. 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 ~~$3.9~~$2.6 million or ~~5.37%~~1.92% of loans outstanding at ~~September~~June 30, ~~2017, as~~2020, compared to ~~$4.2~~$2.0 million or ~~4.91%~~1.93% of loans outstanding at ~~September 30, 2016. Management believes the balance in the allowance~~December 31, 2019. The provision for loan losses ~~at September 30, 2017 is significantly overfunded.~~during the second quarter of 2020 was primarily due to the increase in the loan portfolio, and an evaluation of the other factors noted above.

Noninterest Income.Total noninterest income ~~increased by $23,000~~decreased to $33,000 for the three ~~months~~month period ended ~~September~~June 30, ~~2017,~~2020, from ~~$31,000~~$87,000 for the three ~~months Ended September~~month period ended June 30, ~~2016~~2019 due to ~~significant fees collected on previously impaired loans.~~decreased loan related fees.

Noninterest ~~Expenses.~~Expenses. Total noninterest expenses decreased ~~$25,000~~ to ~~$935,000~~$1,007,000 for the three ~~months~~month period ended ~~September~~June 30, ~~2017~~2020 compared to ~~$960,000 million~~$1,270,000 for the three ~~months Ended September~~month period ended June 30, ~~2016.~~2019 primarily due to a decrease in salaries and employee benefits, professional fees, and other.

Comparison of the ~~Nine-Month~~Six-Month Periods Ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 (dollars in thousands):

	Six Months Ended						Increase /
	June 30,						(Decrease)
(dollars in thousands)	2020			2019			Amount			Percentage
Total interest income	$	3,129		$	2,434		$	695			29	%
Total interest expense		983			932			51			5
Net interest income		2,146			1,502			644			43
Provision for loan losses		712			-			712			100
Net interest income after provision for loan losses		1,434			1,502			(68	)		(5	)
Total noninterest income		106			124			(18	)		(15	)
Total noninterest expenses		2,195			2,254			(59	)		(3	)
Net loss before income tax benefit		(655	)		(628	)		(27	)		4
Income tax benefit		-			(52	)		-			-
Net Loss	$	(655	)	$	(576	)		(79	)		14
Net loss per share - Basic and diluted	$	(0.23	)	$	(0.31	)

~~General.~~Net ~~loss for the nine months ended September 30, 2017, was $(510,000) or $(.46) loss per basic and diluted share compared to~~Loss. The Company had a net loss of ~~$(308,000) or $(0.30) loss per basic and diluted share~~$655,000 for the ~~nine nonths Ended September~~six month period ended June 30, ~~2016.~~2020 compared to $576,000 for the six month period ended June 30, 2019. The ~~increase in~~Company recorded provision for loan losses amounting to $712,000 during the six month period ended June 30, 2020, which was largely due to the economic environment associated with the COVID-19 pandemic. No provision for loan losses was recorded during the six month period ended June 30, 2019. Excluding the provision for loan losses, the Company would have had net earnings of $57,000 for the six month period ended June 30, 2020 and a net loss ~~was due~~of $576,000 for the six month period ended June 30, 2019. Excluding the provision for loan losses, net earnings increased $633,000 for the six month period ended June 30, 2020 as compared to ~~a decrease in net interest income and a combination of higher professional fees and other non-interest expenses and a lower level of loan fees included in noninterest income.~~the six month period ended June 30, 2019.

Interest Income. Interest income ~~decreased by $159,000~~increased to $3,129,000 for the ~~nine months~~six month period ended ~~September~~June 30, ~~2017~~2020 from ~~$3,598,000~~$2,434,000 for the ~~nine months Ended September~~six month period ended June 30, ~~2016,~~2019, primarily due to ~~a decrease~~an increase in ~~interest earnings assets.~~loan volume.

Interest Expense.Interest expense on deposits and borrowings increased $51,000 to ~~$902,000~~$983,000 for the ~~nine months~~six month period ended ~~September~~June 30, ~~2017 from $810,000 for~~2020 compared to the ~~nine months Ended September 30, 2016. Interest~~prior period. The increase in interest expense ~~increased primarily due to higher~~was caused by an increase in volume of deposits and in borrowings, partially offset by reduction in interest ~~paid on borrowings during 2017. In late March 2017, the Bank extended the maturities of $15.5 million in Federal Home Loan Advances into longer fixed rate terms with higher interest~~ rates. ~~The weighted average rate of these advances increased from 0.49% to 1.19%.~~

Provision for Loan Losses.~~There was no~~ The provision for losses during the ~~nine months~~six month period ended ~~September~~June 30, ~~2017 or 2016.~~2020 amounted to $712,000. The provision or credit for loan losses is charged to operations in order to bring the total allowance for loan losses to a level deemed appropriate by management to absorb losses inherent in the ~~portfolio.~~portfolio at June 30, 2020 and 2019. 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 ~~$3.9~~$2.6 million or ~~5.37%~~1.92% of loans outstanding at ~~September~~June 30, ~~2017,~~2020, as compared to ~~$4.2~~$2.0 million or ~~4.91%~~1.93% of loans outstanding at ~~September 30, 2016. Management believes the balance in the allowance for loan losses at September 30, 2017 is significantly overfunded.~~December 31, 2019.

Noninterest Income. Total noninterest income decreased ~~to $71,000 from $125,000~~by $18,000 for the ~~nine months~~six month period ended ~~September~~June 30, ~~2017,~~2020, to $106,000 compared to $124,000 for the ~~nine months Ended September~~six month period ended June 30, ~~2016~~2019 due to ~~gains on securities sales of $48,000 in 2016 compared to $7,000 in 2017 and reduced service charges and other~~decreased loan related fees.

Noninterest ~~Expenses.~~Expenses.Total noninterest expenses decreased $59,000 to ~~$3,118,000~~$2.2 million for the ~~nine months~~six month period ended ~~September~~June 30, ~~2017~~2020 compared to ~~$3,221,000~~$2.3 million for the ~~nine months Ended September~~six month period ended June 30, ~~2016, primarily due to decreased salaries and benefits, occupancy,~~2019.

COVID-19 related loan data ~~processing, and regulatory assessments.~~

Loan Forbearance. During 2020 we granted 180-day forbearances on 60 loans totaling $43.8 million, which accounted for 31.5% of our gross loan portfolio.

Paycheck Protection Program (“PPP”). We closed 181 PPP loans totaling $18.8 million during the six month period ending June 30, 2020.

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Item 4. Controls and Procedures

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

There have been no changes in the Company’s internal control over financial reporting during the quarter ended ~~September~~June 30, ~~2017,~~2020, that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

~~OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY~~

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

None

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

~~Non-Employee Director Share Issuances~~

~~On March 31, 2017,~~During the second quarter of 2020, the Company ~~agreed to issue 4,550~~issued 100 shares of ~~its common~~preferred stock to ~~the Company’s non-employee directors under the Company’s 2011 Equity Incentive Plan and the Company’s Non-Employee Director Compensation Plan (the “Director Compensation Plan”)~~a related party for attendance fees at board meetings of the Company. Under the Director Compensation Plan, which became effective on January 1, 2012, fees for attendance at board and committee meetings are payable 75% in shares of common stock and 25% in cash on a quarterly basis. The shares were issued at thean aggregate purchase price of ~~$3.15, the fair market value of the shares on the date of issuance. Pursuant to the Director Compensation Plan,~~$2,500,000. The related party is a ~~director must remain on the board as of the end of the year to earn the shares. Therefore, these shares with an aggregate value of $14,333 are recorded as a liability as of September 30, 2017.~~significant common stockholder. The issuance of the shares in this transaction was exempt from registration pursuant to Section ~~4(2)~~4(a)(2) of the Securities Act of 1933 as a transaction by an issuer not involving a public offering.

~~Other Significant Share Issuance~~

~~On March 27, 2017,~~ The Company used the ~~Company allocated 59,523 shares~~proceeds to augment the Bank’s Chairman under the 2011 Equity Incentive Plan as compensation for services as a director at the price of $3.36 per share, the fair market value of the shares on the date of issuance. The aggregate value of $200,000 was also recorded as a liability because the Bank’s Chairman has yet to take delivery of the shares. In addition, in March 2016 the Company allocated 46,296 shares to the Bank’ s Chairman under the 2011 Equity Incentive Plan as compensation for services as a director at the price of $4.32 per share, the fair market value of the shares on the date of issuance. The aggregate value of $200,000 was also recorded as a liability because the Bank’s Chairman has yet to take delivery of the shares. The total liability recorded for these allocated shares is $400,000 as of September 30, 2017. The issuance of the shares was exempt from registration pursuant to Section 4(2) of the Securities Act as a transaction by an issuer not involving a public offering.regulatory capital ratios.

Item 3. Defaults on Senior Securities

Previously disclosed.

Item 4. Mine Safety Disclosures

None

~~Junior Subordinated Debenture~~Item 5. Other Information

On September 30, 2004, the Company issued a $5,155,000 junior subordinated debenture to an unconsolidated subsidiary (the “Debenture”). The Debenture has a term of thirty years. The interest rate was fixed at 6.4% for the first five years, and thereafter, the coupon rate floats quarterly at the three-month LIBOR rate plus 2.45% (3.78% at September 30, 2017). The Debenture is redeemable in certain circumstances. The terms of the Debenture allow the Company to defer payments of interest on the Debenture by extending the interest payment period at any time during the term of the Debenture for up to twenty consecutive quarterly periods. Beginning in 2010, the Company exercised its right to defer payment of interest on the Debenture. Interest payments deferred as of September 30, 2017 totaled $1,314,000. The Company has deferred interest payments with respect to the Debenture for the maximum allowable twenty consecutive quarterly payments. The holder of the Debenture can accelerate the $5,155,000 principal balance as a result of this default. Under the Written Agreement, the Company is not able to make these interest payments without the prior approval of the Federal Reserve Bank of Atlanta. Regulatory approval to pay accrued and unpaid interest has been denied.None

Item 6. Exhibits

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

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

SIGNATURES

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

			OPTIMUMBANK HOLDINGS, INC.
		(Registrant)

Date:	~~November 13, 2017~~August 11, 2020	By:	/s/ Timothy Terry
			Timothy Terry,
			Principal Executive Officer

		By:	/s/ ~~David L.Edgar~~Joel Klein
			~~David L.Edgar~~Joel Klein
			Principal Financial Officer

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

EXHIBIT INDEX

35 Exhibit No.		Description

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

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

32.1		Certification of Principal Executive Officer

32.2		Certification of Principal Financial Officer

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

EXHIBIT INDEX

Exhibit No.		~~Description~~

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

~~31.2~~		~~Certification of Principal Executive and Principal Financial Officer under 18 U.S.C. Section 1350~~

~~32.1~~		~~Certification of Principal Executive Officer~~

~~32.2~~		~~Certification of Principal Financial Officer~~

~~OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY~~

~~EXHIBIT INDEX~~

~~Exhibit~~ ~~No.~~		Description

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

3728

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2017			2016		2017			2016

Interest income:
Loans	$	972		$	1,082	$	2,971		$	3,156
Securities		96			117		306			367
Other		65			24		162			75

Total interest income		1,133			1,223		3,439			3,598

Interest expense:
Deposits		167			181		524			550
Borrowings		141			91		378			260

Total interest expense		308			272		902			810

Net interest income		825			951		2,537			2,788

Provision for loan losses		—			—		—			—

Net interest income after provision for loan losses		825			951		2,537			2,788

Noninterest income:
Service charges and fees		44			22		55			63
Gain on sale of securities available for sale		7			2		7			48
Other		3			7		9			14

Total noninterest income		54			31		71			125

Noninterest expenses:
Salaries and employee benefits		423			430		1,301			1,385
Occupancy and equipment		91			112		293			346
Data processing		96			77		262			250
Professional fees		134			151		526			480
Insurance		24			27		72			78
Regulatory assessment		50			74		152			221
Other		117			89		512			461

Total noninterest expenses		935			965		3,118			3,263

Net (loss) earnings	$	(56	)	$	22	$	(510	)	$	(308	)

Net (loss) earnings per share-
Basic and diluted	$	(.05	)	$	.02	$	(.46	)	$	(0.30	)

	At September 30, 2017
	Over Twelve Months				Less Than Twelve Months
	Gross Unrealized Losses		Fair Value		Gross Unrealized Losses			Fair Value

Securities Available for Sale:
Collateralized mortgage obligations	$	(299)	$	8,882	$	—		$	—
SBA Pool Securities		—		—		(21	)		4,091
	$	(299)	$	8,882	$	(21	)	$	4,091

	At December 31, 2016
	Over Twelve Months					Less Than Twelve Months
	Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value

Securities Available for Sale-
Collateralized mortgage obligations	$	(46	)	$	864	$	(359	)	$	8,888

	Residential Real Estate		Multi-Family Real Estate		Commercial Real Estate			Land and Construction			Commercial			Consumer			Unallocated			Total
Three Months Ended September 30, 2017:

Beginning balance	$	302	$	62	$	769		$	61		$	67		$	148		$	2,486		$	3,895
Provision (credit) for loan losses		322	$	—	$	6		$	(2	)	$	(2	)	$	(3	)	$	(321	)	$	—
Charge-offs		—	$	—	$	—		$	—		$	—		$	(3	)	$	—		$	(3	)
Recoveries		—	$	—	$	—		$	6		$	—		$	5		$	—		$	11

Ending balance	$	624	$	62	$	775		$	65		$	65		$	147		$	2,165		$	3,903

Three Months Ended September 30, 2016:
Beginning balance	$	262	$	39	$	1,012		$	64		$	200		$	156		$	2,507		$	4,240
Provision (credit) for loan losses		58		19		89			(4	)		48			75			(285	)		—
Charge-offs		—		—		(14	)		—			—			(72	)		—			(86	)
Recoveries		—		—		—			6			—			9			—			15

Ending balance	$	320	$	58	$	1,087		$	66		$	248		$	168		$	2,222		$	4,169

Nine Months ended September 30, 2017:
Beginning balance	$	310	$	58	$	787		$	120		$	188		$	165		$	2,287		$	3,915
Provision (credit) for loan losses		314	$	4	$	(12	)	$	(73	)	$	(123	)	$	12		$	(122	)	$	—
Charge-offs		—	$	—	$	—		$	—		$	—		$	(43	)	$	—		$	(43	)
Recoveries		—	$	—	$	—		$	18		$	—		$	13		$	—		$	31

Ending balance	$	624	$	62	$	775		$	65		$	65		$	147		$	2,165		$	3,903

Nine Months Ended September 30, 2016:
Beginning balance	$	116	$	26	$	1,085		$	77		$	120		$	151		$	720		$	2,295
Provision (credit) for loan losses		204		32		(2,033	)		(29	)		128			196			1,502			—
Charge-offs		—		—		(14	)		—			—			(195	)		—			(209	)
Recoveries		—		—		2,049			18			—			16			—			2,083

Ending balance	$	320		58		1,087			66			248			168			2,222			4,169

	Bank			Consent Order Regulatory Requirement

Tier I capital to total average assets		8.54	%		8.00	%

Tier I capital to risk-weighted assets		13.12	%		NA	%

Common equity Tier I capital to risk-weighted assets		13.12	%		NA	%

Total capital to risk-weighted assets		14.42	%		12.00	%

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Weighted-average number of common shares outstanding used to calculate basic and diluted (loss) earnings per common share		1,103,447		1,097,644		1,103,447		1,024,704

	At September 30, 2017							At December 31, 2016
	Carrying Amount		Fair Value			Level		Carrying Amount		Fair Value			Level
Financial assets:
Cash and cash equivalents	$	18,514	$	18,514			1	$	17,640	$	17,640			1
Securities available for sale		16,199		16,199			2		20,222		20,222			2
Loans		69,194		69,095			3		76,999		76,829			3
Federal Home Loan Bank stock		979		979			3		1,113		1,113			3
Accrued interest receivable		366		366			3		380		380			3

Financial liabilities:
Deposit liabilities		77,374		77,935			3		86,009		86,364			3
Federal Home Loan Bank advances		20,500		20,458			3		23,500		23,500			3
Junior subordinated debenture		5,155		NA	⁽¹⁾		3		5,155		N/A	⁽¹⁾		3
Off-balance sheet financial instruments		—		—			—		—		—			—

	Nine Months			Nine Months			Year
	Ended			Ended			Ended
	September 30, 2017			September 30, 2016			December 31, 2016

Average equity as a percentage of average assets		2.22	%		2.59	%		2.6	%

Equity to total assets at end of period		2.42	%		2.73	%		2.6	%

Return on average assets (1)		(.45	)%		(0.34	)%		(0.3	)%

Return on average equity (1)		(18.15	)%		(12.96	)%		(12.5	)%

Noninterest expenses to average assets (1)		2.74	%		3.51	%		3.3	%