United States Securities & Exchange Commission EDGAR Filing


 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________

FORM 10-QSB

______________

(Mark One)

ý

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2007

¨

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from __________ to _________

Commission File Number  0001288855

______________

OPTIMUMBANK HOLDINGS, INC.

(Exact name of small business issuer as specified in its charter)

______________

Florida

55-0865043

(State or other jurisdiction of incorporation or organization)

(IRS Employer Identification No.)

2477 East Commercial Boulevard, Fort Lauderdale, FL 33308

(Address of principal executive offices)

954-776-2332

(Issuer’s telephone number)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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  ý      No  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  ¨      No  ý

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date:  2,961,169 common shares issued and outstanding as of August 13, 2007

Transitional Small Business Disclosure Format (Check one):    Yes  ¨      No  ý


 

 




OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

INDEX


PART I. FINANCIAL INFORMATION

 

Item 1.    Financial Statements

Page

Condensed Consolidated Balance Sheets -
June 30, 2007 (unaudited) and December 31, 2006

2

Condensed Consolidated Statements of Earnings -
Three and Six Months ended June 30, 2007 and 2006 (unaudited)

3

Condensed Consolidated Statements of Stockholders’ Equity -
Six Months ended June 30, 2007 and 2006 (unaudited)

4

Condensed Consolidated Statements of Cash Flows -
Six Months ended June 30, 2007 and 2006 (unaudited)

5

Notes to Condensed Consolidated Financial Statements (unaudited)

6-9

Review By Independent Registered Public Accounting Firm

10

Report of Independent Registered Public Accounting Firm

11

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

12-17

Item 3.    Controls and Procedures

18

PART II. OTHER INFORMATION

 

Item 4.    Submission of Matters to a Vote of Security Holders

18

Item 6.    Exhibits

19

SIGNATURES

20






OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY


PART I. FINANCIAL INFORMATION


Item 1. Financial Statements


CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share amounts)

 

 

June 30,

 

December 31,

 

 

 

2007

 

2006

 

 

 

(unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

 

Cash and due from banks

     

$

1,478

     

$

923

 

Federal funds sold

 

 

1,542

 

 

681

 

Total cash and cash equivalents

 

 

3,020

 

 

1,604

 

Securities held to maturity (fair value approximates $52,824 and $33,150)

 

 

53,168

 

 

33,399

 

Security available for sale

 

 

237

 

 

241

 

Loans, net of allowance for loan losses of $736 and $974

 

 

172,383

 

 

181,878

 

Federal Home Loan Bank stock

 

 

2,830

 

 

2,956

 

Premises and equipment, net

 

 

3,334

 

 

3,990

 

Accrued interest receivable

 

 

1,369

 

 

1,254

 

Other assets

 

 

1,115

 

 

381

 

Total assets

 

$

237,456

 

$

225,703

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

Noninterest-bearing demand deposits

 

$

2,003

 

$

545

 

Savings, NOW and money-market deposits

 

 

26,288

 

 

25,875

 

Time deposits

 

 

93,616

 

 

103,082

 

Total deposits

 

 

121,907

 

 

129,502

 

Federal Home Loan Bank advances

 

 

53,150

 

 

56,550

 

Securities sold under agreement to repurchase

 

 

31,900

 

 

10,950

 

Junior subordinated debenture

 

 

5,155

 

 

5,155

 

Official checks

 

 

2,956

 

 

2,463

 

Other liabilities

 

 

1,167

 

 

660

 

Total liabilities

 

 

216,235

 

 

205,280

 

Stockholders’ equity:

 

 

 

 

 

 

 

Common stock, $.01 par value; 6,000,000 shares authorized,
2,961,169 and 2,820,280 shares issued and outstanding

 

 

30

 

 

28

 

Additional paid-in capital

 

 

17,230

 

 

15,930

 

Retained earnings

 

 

3,973

 

 

4,474

 

Accumulated other comprehensive loss

 

 

(12

)

 

(9

)

Total stockholders’ equity

 

 

21,221

 

 

20,423

 

Total liabilities and stockholders’ equity

 

$

237,456

 

$

225,703

 



See Accompanying Notes to Condensed Consolidated Financial Statements.


2



OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)

(Dollars in thousands, except per share amounts)

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2007

 

2006

 

2007

 

2006

 

Interest income:

     

 

 

     

 

 

     

 

 

     

 

 

  

Loans

 

$

3,238

 

$

3,081

 

$

6,561

 

$

6,091

 

Securities

 

 

705

 

 

275

 

 

1,154

 

 

562

 

Other

 

 

62

 

 

44

 

 

117

 

 

89

 

Total interest income

 

 

4,005

 

 

3,400

 

 

7,832

 

 

6,742

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

1,444

 

 

1,202

 

 

2,918

 

 

2,314

 

Borrowings

 

 

986

 

 

679

 

 

1,752

 

 

1,386

 

Total interest expense

 

 

2,430

 

 

1,881

 

 

4,670

 

 

3,700

 

Net interest income

 

 

1,575

 

 

1,519

 

 

3,162

 

 

3,042

 

Provision for loan losses

 

 

209

 

 

27

 

 

520

 

 

133

 

Net interest income after provision for loan losses

 

 

1,366

 

 

1,492

 

 

2,642

 

 

2,909

 

Noninterest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Service charges and fees

 

 

11

 

 

14

 

 

26

 

 

37

 

Loan prepayment fees

 

 

142

 

 

70

 

 

210

 

 

137

 

Gain on early extinguishment of debt

 

 

 

 

 

 

 

 

178

 

Litigation settlement

 

 

5

 

 

93

 

 

155

 

 

93

 

Other

 

 

1

 

 

3

 

 

2

 

 

7

 

Total noninterest income

 

 

159

 

 

180

 

 

393

 

 

452

 

Noninterest expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

480

 

 

505

 

 

977

 

 

996

 

Occupancy and equipment

 

 

161

 

 

157

 

 

328

 

 

316

 

Data processing

 

 

36

 

 

41

 

 

84

 

 

82

 

Professional fees

 

 

69

 

 

66

 

 

126

 

 

132

 

Insurance

 

 

15

 

 

17

 

 

30

 

 

36

 

Stationary and supplies

 

 

10

 

 

6

 

 

22

 

 

17

 

Other

 

 

134

 

 

100

 

 

231

 

 

198

 

Total noninterest expenses

 

 

905

 

 

892

 

 

1,798

 

 

1,777

 

Earnings before income taxes

 

 

620

 

 

780

 

 

1,237

 

 

1,584

 

Income taxes

 

 

233

 

 

294

 

 

435

 

 

581

 

Net earnings

 

$

387

 

$

486

 

$

802

 

$

1,003

 

Net earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

.13

 

$

.16

 

$

.27

 

$

.34

 

Diluted

 

$

.13

 

$

.16

 

$

.26

 

$

.32

 

Dividends per share

 

$

 

$

 

$

 

$

 



See Accompanying Notes to Condensed Consolidated Financial Statements.


3



OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

SIX MONTHS ENDED JUNE 30, 2007 AND 2006

(Dollars in thousands)

 

 

 

 

 

 

Additional
Paid-In
Capital

 

Retained
Earnings

 

Accumulated
Other
Compre-
hensive
Loss

 

Total
Stockholders’
Equity

 

 

Common Stock

Shares

 

Amount

Balance at December 31, 2005

     

 

2,663,775

     

$

27

     

 

14,141

     

 

4,249

     

 

(7

)     

 

18,410

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings for the six
months ended June 30,
2006 (unaudited)

 

 

 

 

 

 

 

 

1,003

 

 

 

 

1,003

 

Net change in unrealized loss on
security available for sale
(unaudited)

 

 

 

 

 

 

 

 

 

 

(8

)

 

(8

)

Comprehensive income
(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

955

 

Proceeds from exercise of common
stock options, including
tax benefit of $37 (unaudited)

 

 

18,000

 

 

 

 

141

 

 

 

 

 

 

141

 

5% stock dividend (unaudited)

 

 

134,078

 

 

1

 

 

1,608

 

 

(1,609

)

 

 

 

 

Balance at June 30, 2006
(unaudited)

 

 

2,815,853

 

$

28

 

 

15,890

 

 

3,643

 

 

(15

)

 

19,546

 

Balance at December 31, 2006

 

 

2,820,280

 

 

28

 

 

15,930

 

 

4,474

 

 

(9

)

 

20,423

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings for the six
months ended June 30,
2007 (unaudited)

 

 

 

 

 

 

 

 

802

 

 

 

 

802

 

Net change in unrealized loss on
security available for sale
(unaudited)

 

 

 

 

 

 

 

 

 

 

(3

)

 

(3

)

Comprehensive income (unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

799

 

5% stock dividend (fractional shares
paid in cash) (unaudited)

 

 

140,889

 

 

2

 

 

1,300

 

 

(1,303

)

 

 

 

(1

)

Balance at June 30, 2007
(unaudited)

 

 

2,961,169

 

$

30

 

 

17,230

 

 

3,973

 

 

(12

)

 

21,221

 




See Accompanying Notes to Condensed Consolidated Financial Statements.


4



OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)

 

 

Six Months Ended
June
 30,

 

 

 

2007

 

2006

 

Cash flows from operating activities:

     

 

 

     

 

 

 

Net earnings

 

$

802

 

$

1,003

 

Adjustments to reconcile net earnings to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

 

114

 

 

114

 

Provision for loan losses

 

 

520

 

 

133

 

Gain on early extinguishment of debt

 

 

 

 

(178

)

Net amortization of fees, premiums and discounts

 

 

105

 

 

332

 

Increase in accrued interest receivable

 

 

(115

)

 

49

 

(Increase) decrease in other assets

 

 

(734

)

 

369

 

Increase in official checks and other liabilities

 

 

1,001

 

 

1,731

 

Net cash provided by operating activities

 

 

1,693

 

 

3,455

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchases of securities held to maturity

 

 

(24,680

)

 

(4,926

)

Principal repayments of securities held to maturity

 

 

5,017

 

 

1,825

 

Decrease (increase) in loans

 

 

8,764

 

 

(9,380

)

Sale (purchase) of premises and equipment

 

 

542

 

 

(82

)

Redemption (purchase) of Federal Home Loan Bank stock

 

 

126

 

 

(275

)

Net cash used in investing activities

 

 

(10,231

)

 

(12,838

)

Cash flows from financing activities:

 

 

 

 

 

 

 

(Decrease) increase in deposits

 

 

(7,595

)

 

5,147

 

Proceeds from exercise of common stock options

 

 

 

 

104

 

(Decrease) increase in Federal Home Loan Bank advances

 

 

(3,400

)

 

4,458

 

Net increase in securities sold under agreement to repurchase

 

 

20,950

 

 

 

Tax benefit associated with exercise of common stock options

 

 

 

 

37

 

Fractional shares of stock dividend paid in cash

 

 

(1

)

 

 

Net cash provided by financing activities

 

 

9,954

 

 

9,746

 

Net increase in cash and cash equivalents

 

 

1,416

 

 

363

 

Cash and cash equivalents at beginning of the period

 

 

1,604

 

 

1,154

 

Cash and cash equivalents at end of the period

 

$

3,020

 

$

1,517

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

Interest

 

$

4,671

 

$

3,705

 

Income taxes

 

$

802

 

$

818

 

Noncash investing and financing activities:

 

 

 

 

 

 

 

Change in accumulated other comprehensive loss, net
change in unrealized loss on security available for sale

 

$

(3

)

$

(8

)

Common stock dividend

 

$

1,302

 

$

1,609

 




See Accompanying Notes to Condensed Consolidated Financial Statements.


5



OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(1)      General. OptimumBank Holdings, Inc. (the “Holding Company”) is a one-bank holding company and owns 100% of OptimumBank (the “Bank”), a state (Florida)-chartered commercial bank (collectively, the “Company”). The Holding Company’s only business is the operation of the Bank. The Bank’s deposits are insured by the Federal Deposit Insurance Corporation. The Bank offers a variety of community banking services to individual and corporate customers through its three banking offices located in Broward County, Florida.

In the opinion of the management, the accompanying condensed consolidated financial statements of the Company contain all adjustments (consisting principally of normal recurring accruals) necessary to present fairly the financial position at June 30, 2007, and the results of operations for the three- and six-month periods ended June 30, 2007 and 2006, and cash flows for the six-months periods ended June 30, 2007 and 2006. The results of operations for the three and six months ended June 30, 2007, are not necessarily indicative of the results to be expected for the full year.

(2)      Loan Impairment and Credit Losses. The activity in the allowance for loan losses was as follows (in thousands):

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2007

 

2006

 

2007

 

2006

 

Balance at beginning of period

     

$

1,113

     

$

883

     

$

974 

     

$

777

 

Charge-offs

 

 

(586

)

 

 

 

(758

)

 

 

Provision for loan losses

 

 

209

 

 

27

 

 

520

 

 

133

 

  

 

 

          

 

 

          

 

 

          

 

 

          

 

Balance at end of period

 

$

736

 

$

910

 

$

736

 

$

910

 

There were no impaired loans at June 30, 2007 or December 31, 2006.

The average net investment in impaired loans and interest income recognized and received on impaired loans is as follows (in thousands):

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

  

 

2007

 

2006

 

2007

 

2006

 

Average net investment in impaired loans

     

$

      3,771

     

$

        —

     

$

      3,189

     

$

        —

 

Interest income recognized on impaired loans

 

$

 

$

 

$

39

 

$

 

Interest income received on impaired loans

 

$

 

$

 

$

39

 

$

 

(continued)




6



OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED

(2)      Loan Impairment and Credit Losses, Continued At December 31, 2006, the Company had no nonaccrual loans or loans over ninety days past due still accruing interest. Nonaccrual and past due loans were as follows as of June 30, 2007 (in thousands):

Nonaccrual loans

                        

$

115

 

  

 

 

 

 

Past ninety days or more, but still accruing interest

 

$

 

(3)      Regulatory Capital.The Bank is required to maintain certain minimum regulatory capital requirements. The following is a summary at June 30, 2007 of the regulatory capital requirements and the Bank’s capital on a percentage basis:

 

 

Bank

     

Regulatory
Requirement

Tier I capital to total average assets                                       

     

10.87%

     

4.00%

  

 

 

 

 

Tier I capital to risk-weighted assets

 

17.09%

 

4.00%

  

 

 

 

 

Total capital to risk-weighted assets

 

17.57%

 

8.00%

(4)     Earnings Per Share. Basic earnings per share has been computed on the basis of the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share were computed based on the weighted-average number of shares outstanding plus the effect of outstanding stock options, computed using the treasury stock method. All amounts reflect the 5% stock dividends declared in May, 2007 and April, 2006. Earnings per common share have been computed based on the following:

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2007

 

2006

 

2007

 

2006

 

Weighted-average number of common shares

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding used to calculate basic

 

 

 

 

 

 

 

 

 

 

 

 

 

earnings per common share

     

 

2,961,169

     

 

2,955,986

     

 

2,961,169

     

 

2,948,796

 

Effect of dilutive stock options

 

 

73,668

 

 

157,116

 

 

77,941

 

 

143,446

 

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

 

 

3,034,837

 

 

3,113,102

 

 

3,039,110

 

 

3,092,242

 


(continued)



7



OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED

(5)     Stock-Based Compensation. Prior to January 1, 2006, the Company’s stock option plan was accounted for under the recognition and measurement provisions of Accounting Principles Board (APB) Opinion No. 25 (Opinion 25), Accounting for Stock Issued to Employees, and related Interpretations, as permitted by Financial Accounting Standards Board (FASB) Statement No. 123, Accounting for Stock-Based Compensation (as amended by Statement of Financial Accounting Standards (SFAS) No. 148, Accounting for Stock-Based Compensation Transition and Disclosure) (collectively SFAS 123). No stock-based employee compensation cost was recognized in the Company’s consolidated statements of earnings through December 31, 2005, as all options granted under the plan had an exercise price equal to the market value of the underlying common stock on the date of grant. Effective January 1, 2006, the Company adopted the fair value recognition provisions of FASB Statement No. 123(R), Share-Based Payment (SFAS 123(R)), using the modified-prospective-transition method. Under that transition method, compensation cost to be recognized beginning in 2006 includes: (a) compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value calculated in accordance with the original provisions of SFAS 123, and (b) compensation cost for all share-based payments granted subsequent to December 31, 2005, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123(R). As of December 31, 2005, all stock options were fully vested and no options were granted in 2006 or 2007; therefore, no stock-based compensation has been recognized in 2006 or 2007.

The Company established an incentive Stock Option Plan (the “Plan”) for officers, directors and employees of the Company and reserved 572,082 (amended) shares of common stock for the plan. Both incentive stock options and nonqualified stock options may be granted under the plan. The exercise price of the stock options is determined by the board of directors at the time of grant, but cannot be less than the fair market value of the common stock on the date of grant. The options vest ­­over three and five years. However, the Company accelerated the vesting of all unvested options in the Plan in 2005, in order to reduce noncash compensation expense that would have been recorded in its consolidated statements of earnings in future years due to the adoption of SFAS No. 123(R) in January 2006. The options must be exercised within ten years from the date of grant. At June 30, 2007, 9,702 options were available for grant.

(continued)



8



OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED

(5)     Stock-Based Compensation, Continued. A summary of the activity in the Company’s stock option plan is as follows. All amounts reflect the 5% stock dividends declared in May 2007 and April 2006. The Board of Directors did not adjust the exercise price of the stock options outstanding to reflect the 5% stock dividends (dollars in thousands, except per share amounts):

 

 

Number of
Options

 

Weighted
Average
Exercise
Price

 

Weighted-
Average
Remaining
Contractual
Term

 

Aggregate
Intrinsic
Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding and exercisable at
December 31, 2006 and
June 30, 2007

 

 

490,632

 

$

8.04

 

 

6.2 years

 

$

530

 

The total intrinsic value of options exercised during the three and six months ended June 30, 2006 was $14,250 and $93,850, respectively and the tax benefit relating to the stock options exercised was $5,000 and $37,000, respectively.

(6)     Sale of Branch. On February 1, 2007, the Company entered into a sale/leaseback transaction for its Galt Ocean Mile branch facility. No gain or loss was recognized on this transaction.




9



OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY


REVIEW BY INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Hacker, Johnson & Smith PA, the Company’s independent registered public accounting firm, have made a limited review of the interim financial data as of June 30, 2007, and for the three- and six-month periods ended June 30, 2007 and 2006, presented in this document, in accordance with standards established by the Public Company Accounting Oversight Board.

Their report furnished pursuant to Article 10 of Regulation S-X is included herein.       




10



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




OptimumBank Holdings, Inc.

Fort Lauderdale, Florida:

We have reviewed the accompanying condensed consolidated balance sheet of OptimumBank Holdings, Inc. and Subsidiary (the “Company”) as of June 30, 2007, and the condensed consolidated statements of earnings for the three- and six-month periods ended June 30, 2007 and 2006 and the related condensed consolidated statements of stockholders’ equity and cash flows for the six-month periods ended June 30, 2007 and 2006. These interim financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim condensed consolidated financial statements for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board, the consolidated balance sheet as of December 31, 2006, and the related consolidated statements of earnings, stockholders’ equity and cash flows for the year then ended (not presented herein); and in our report dated March 7, 2007, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2006, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.


/s/ Hacker, Johnson & Smith PA


HACKER, JOHNSON & SMITH PA

Fort Lauderdale, Florida

July 27, 2007





11



OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY


Item 2. Management’s Discussion and Analysis

of Financial Condition and Results of Operations


Comparison of June 30, 2007 and December 31, 2006



Liquidity and Capital Resources

The Company’s primary sources of cash during the six months ended June 30, 2007 were from an increase in other borrowings of approximately $21.0 million, principal repayments of securities held to maturity of approximately $5.0 million, net loan repayments of approximately $8.8 million and cash provided from operating activities of approximately $1.7 million. Cash was used primarily for purchases of securities of approximately $24.7 million, to fund deposit withdrawals of approximately $7.6 million and repayment of Federal Home Loan Bank advances of approximately $3.4 million. At June 30, 2007, the Company had time deposits of approximately $70.2 million that mature in one year or less. At June 30, 2007, the Company exceeded its regulatory liquidity requirements. Management believes that, if so desired, it can adjust the rates on time deposits to retain or attract deposits in a changing interest-rate environment.

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

 

 

Six Months
Ended
June 30,

 

Year Ended
December 31,

 

Six Months
Ended
June 30,

 

 

 

2007

 

2006

 

2006

 

 

     

 

 

     

 

 

     

 

 

 

Average equity as a percentage
of average assets

 

 

8.97

%

 

9.12

%

 

9.16

%

Equity to total assets at end of period

 

 

8.94

%

 

9.04

%

 

8.95

%

Return on average assets (1)

 

 

0.69

%

 

0.85

%

 

0.96

%

Return on average equity (1)

 

 

7.68

%

 

9.37

%

 

10.53

%

Noninterest expenses to average assets (1)

 

 

1.63

%

 

1.67

%

 

1.71

%

———————

(1)

Annualized for the six months ended June 30, 2007 and 2006.




12



OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY


Item 2. Management’s Discussion and Analysis

of Financial Condition and Results of Operations, Continued


Off-Balance Sheet Arrangements

The Company is a 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 include commitments to extend credit and undisbursed loans in process. These instruments 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 or notional amounts of those instruments reflect the extent of the Company’s involvement in particular classes of 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 and undisbursed loans in process 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. 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. The amount of collateral obtained, if it is deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the counter party.

A summary of the amounts of the Company’s financial instruments, with off-balance sheet risk at June 30, 2007, follows (in thousands):


 

     

 

Contract
Amount

 

Commitments to extend credit                                                           

     

$

2,800

 

  

 

 

 

 

Undisbursed loans in process

 

$

250

 

Management believes that the Company has adequate resources to fund all of its commitments and that substantially all its existing commitments will be funded in the next twelve months.



13



OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY


Results of Operations

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

 

 

Three Months Ended June 31,

 

 

 

2007

 

2006

 

 

 

Average
Balance

 

Interest
and
Dividends

 

Average
Yield/
Rate

 

Average
Balance

 

Interest
and
Dividends

 

Average
Yield/
Rate

 

 

 

($ in thousands)

 

Interest-earning assets:

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Loans

 

$

178,718

 

$

3,238

 

 

7.25

%

$

173,395

 

$

3,081

 

 

7.11

%

Securities

 

 

51,756

 

 

705

 

 

5.45

 

 

24,635

 

 

275

 

 

4.47

 

Other (1)

 

 

4,379

 

 

62

 

 

5.66

 

 

3,173

 

 

44

 

 

5.55

 

Total interest-earning assets/interest
income

 

 

234,853

 

 

4,005

 

 

6.82

 

 

201,203

 

 

3,400

 

 

6.76

 

Cash and due from banks

 

 

239

 

 

 

 

 

 

 

 

277

 

 

 

 

 

 

 

Premises and equipment

 

 

3,369

 

 

 

 

 

 

 

 

4,044

 

 

 

 

 

 

 

Other

 

 

2,196

 

 

 

 

 

 

 

 

2,251

 

 

 

 

 

 

 

Total assets

 

$

240,657

 

 

 

 

 

 

 

$

207,775

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Savings, NOW and money-market
deposits

 

 

26,487

 

 

2967

 

 

4.47

 

 

8,580

 

 

42

 

 

1.96

 

Time deposits

 

 

96,768

 

 

1,148

 

 

4.75

 

 

108,842

 

 

1,160

 

 

4.26

 

Borrowings (2)

 

 

90,205

 

 

986

 

 

4.37

 

 

67,131

 

 

679

 

 

4.05

 

Total interest-bearing liabilities/
interest expense

 

 

213,460

 

 

2,430

 

 

4.55

 

 

184,553

 

 

1,881

 

 

4.08

 

Noninterest-bearing demand deposits

 

 

2,150

 

 

 

 

 

 

 

 

884

 

 

 

 

 

 

 

Other liabilites

 

 

3,948

 

 

 

 

 

 

 

 

2,964

 

 

 

 

 

 

 

Stockholders’ equity

 

 

21,099

 

 

 

 

 

 

 

 

19,374

 

 

 

 

 

 

 

Total liabilities and stockholders’
equity

 

$

240,657

 

 

 

 

 

 

 

$

207,775

 

 

 

 

 

 

 

Net interest income

 

 

 

 

$

1,575

 

 

 

 

 

 

 

$

1,519

 

 

 

 

Interest-rate spread (3)

 

 

 

 

 

 

 

 

2.27

%

 

 

 

 

 

 

 

2.68

%

Net interest margin (4)

 

 

 

 

 

 

 

 

2.68

%

 

 

 

 

 

 

 

3.02

%

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

 

 

1.10

 

 

 

 

 

 

 

 

1.09

 

 

 

 

 

 

 

———————

(1)

Includes interest-earning deposits with banks, Federal funds sold, and Federal Home Loan Bank stock dividends.

(2)

Includes Federal Home Loan Bank advances, securities sold under agreements to repurchase and junior subordinated debenture.

(3)

Interest-rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.

(4)

Net interest margin is net interest income divided by average interest-earning assets.



14



OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY


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) ratio of average interest-earning assets to average interest-bearing liabilities.

 

 

Six Months Ended June 30,

 

 

 

2007

 

2006

 

 

 

Average
Balance

 

Interest
and
Dividends

 

Average
Yield/
Rate

 

Average
Balance

 

Interest
and
Dividends

 

Average
Yield/
Rate

 

 

 

($ in thousands)

 

Interest-earning assets:

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Loans

 

$

179,207

 

$

6,561

 

 

7.32

%

$

172,791

 

$

6,091

 

 

7.05

%

Securities

 

 

43,487

 

 

1,154

 

 

5.31

 

 

25,020

 

 

562

 

 

4.49

 

Other (1)

 

 

4,032

 

 

117

 

 

5.80

 

 

3,349

 

 

89

 

 

5.32

 

Total interest-earning assets/interest
income

 

 

226,726

 

 

7,832

 

 

6.91

 

 

201,160

 

 

6,742

 

 

6.70

 

Cash and due from banks

 

 

313

 

 

 

 

 

 

 

 

313

 

 

 

 

 

 

 

Premises and equipment

 

 

3,571

 

 

 

 

 

 

 

 

4,055

 

 

 

 

 

 

 

Other

 

 

2,404

 

 

 

 

 

 

 

 

2,431

 

 

 

 

 

 

 

Total assets

 

$

233,014

 

 

 

 

 

 

 

$

207,959

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Savings, NOW and money-market
deposits

 

 

26,635

 

 

582

 

 

4.37

 

 

7,948

 

 

65

 

 

1.64

 

Time deposits

 

 

99,322

 

 

2,336

 

 

4.70

 

 

108,606

 

 

2,249

 

 

4.14

 

Borrowings (2)

 

 

81,019

 

 

1,752

 

 

4.32

 

 

68,692

 

 

1,386

 

 

4.04

 

Total interest-bearing liabilities/
interest expense

 

 

206,976

 

 

4,670

 

 

4.51

 

 

185,246

 

 

3,700

 

 

4.00

 

Noninterest-bearing demand deposits

 

 

1,678

 

 

 

 

 

 

 

 

887

 

 

 

 

 

 

 

Other liabilites

 

 

3,468

 

 

 

 

 

 

 

 

2,768

 

 

 

 

 

 

 

Stockholders’ equity

 

 

20,892

 

 

 

 

 

 

 

 

19,058

 

 

 

 

 

 

 

Total liabilities and stockholders’
equity

 

$

233,014

 

 

 

 

 

 

 

$

207,959

 

 

 

 

 

 

 

Net interest income

 

 

 

 

$

3,162

 

 

 

 

 

 

 

$

3,042

 

 

 

 

Interest-rate spread (3)

 

 

 

 

 

 

 

 

2.40

%

 

 

 

 

 

 

 

2.70

%

Net interest margin (4)

 

 

 

 

 

 

 

 

2.79

%

 

 

 

 

 

 

 

3.02

%

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

 

 

1.10

 

 

 

 

 

 

 

 

1.09

 

 

 

 

 

 

 

———————

(1)

Includes interest-earning deposits with banks, Federal funds sold, and Federal Home Loan Bank stock dividends.

(2)

Includes Federal Home Loan Bank advances, securities sold under agreements to repurchase and junior subordinated debenture.

(3)

Interest-rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.

(4)

Net interest margin is net interest income divided by average interest-earning assets.



15



OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Comparison of the Three-Month Periods Ended June 30, 2007 and 2006


General. Net earnings for the three months ended June 30, 2007, were $387,000 or $.13 per basic and diluted share compared to net earnings of $486,000 or $.16 per basic and diluted share for the period ended June 30, 2006. This decrease in the Company’s net earnings was primarily due to an increase in noninterest expenses and the provision for loan losses.

Interest Income.  Interest income increased to $4.0 million for the three months ended June 30, 2007 from $3.4 million for the three months ended June 30, 2006. Interest income on loans increased to $3.2 million due primarily to an increase in the average loan portfolio balance and an increase in the average yield earned from 7.11% for the three months ended June 30, 2006 to 7.25% for the three months ended June 30, 2007. Interest on securities increased to $705,000 due primarily to an increase in the average balance of the securities portfolio in 2007 and an increase in the average yield earned.

Interest Expense.  Interest expense on deposits increased to $1.4 million for the three months ended June 30, 2007, from $1.2 million for the three months ended June 30, 2006. Interest expense increased primarily because of an increase in the average rate paid on deposits during 2007. Interest expense on borrowings increased to $986,000 for the three months ended June 30, 2007 from $679,000 for the three months ended June 30, 2006 due to an increase in the average balance of borrowings and an increase in the average rate paid on borrowings during 2007.

Provision for Loan Losses. The provision for loan losses is charged to earnings to bring the total allowance to a level deemed appropriate by management and is based upon historical experience, the volume and type of lending conducted by the Company, industry standards, the amount of nonperforming loans, general economic conditions, particularly as they relate to the Company’s market areas, and other factors related to the estimated collectibility of the Company’s loan portfolio. The provision for the three months ended June 30, 2007, increased to $209,000, as compared to $27,000 for the same period in 2006, primarily to reflect the impairment in value of a collateral dependent single-family residential construction loan, which was paid off in June 2007, through the sale of the underlying property.  Charge-offs to the allowance for loan losses in the amount of $586,000 in the three months ended June 30, 2007, relate to this loan. Management believes the balance in the allowance for loan losses of $736,000 at June 30, 2007, is adequate.

Noninterest Income. Total noninterest income decreased to $159,000 for the three months ended June 30, 2007, from $180,000 for the three months ended June 30, 2006, primarily due to a non-recurring litigation settlement received in 2006, partially offset by an increase in loan prepayment fees in 2007.

Noninterest Expenses. Total noninterest expenses increased to $905,000 for the three months ended June 30, 2007 from $892,000 for the three months ended June 30, 2006, primarily due to the continued growth of the Company.

Income Taxes. Income taxes for the three months ended June 30, 2007, were $233,000 (an effective rate of 37.6%) compared to income taxes of $294,000 (an effective rate of 37.7%) for the three months ended June 30, 2006.






OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Comparison of the Six-Month Periods Ended June 30, 2007 and 2006


General. Net earnings for the six months ended June 30, 2007, were $802,000 or $.27 per basic and $.26 per diluted share compared to net earnings of $1,003,000 or $.34 per basic and $.32 per diluted share for the period ended June 30, 2006. This decrease in the Company’s net earnings was primarily due to an increase in noninterest expenses and the provision for loan losses.

Interest Income. Interest income increased to $7.8 million for the six months ended June 30, 2007 from $6.7 million for the six months ended June 30, 2006. Interest income on loans increased to $6.6 million due primarily to an increase in the average loan portfolio balance and an increase in the average yield earned from 7.05% for the six months ended June 30, 2006 to 7.32% for the six months ended June 30, 2007. Interest on securities increased to $1.2 million due primarily to an increase in the average balance of the securities portfolio in 2007 and an increase in the average yield earned.

Interest Expense. Interest expense on deposits increased to $2.9 million for the six months ended June 30, 2007, from $2.3 million for the six months ended June 30, 2006. Interest expense increased primarily because of an increase in the average rate paid on deposits during 2007. Interest expense on borrowings increased to $1.8 million for the six months ended June 30, 2007 from $1.4 million for the six months ended June 30, 2006 due to an increase in the average balance of borrowings and an increase in the average rate paid on borrowings during 2007.

Provision for Loan Losses. The provision for loan losses is charged to earnings to bring the total allowance to a level deemed appropriate by management and is based upon historical experience, the volume and type of lending conducted by the Company, industry standards, the amount of nonperforming loans, general economic conditions, particularly as they relate to the Company’s market areas, and other factors related to the estimated collectibility of the Company’s loan portfolio. The increase in the provision for the six months ended June 30, 2007, to $520,000, as compared to $133,000 for the same period in 2006, was primarily due to the impairment in value of a collateral dependent single-family residential construction loan, which was identified as impaired in the first quarter of 2007 and paid off in June 2007, through the sale of the underlying property.  Charge-offs in the allowance for loan losses in the amount of $758,000 in the six months ended June 30, 2007, relate to this loan. Management believes the balance in the allowance for loan losses of $736,000 at June 30, 2007, is adequate.

Noninterest Income. Total noninterest income decreased to $393,000 for the six months ended June 30, 2007, from $452,000 for the six months ended June 30, 2006, primarily due to gains recognized on the payoff of Federal Home Loan Bank advances in 2006, partially offset by increases in loan prepayment fees in 2007.

Noninterest Expenses. Total noninterest expenses was $1.8 million for the six months ended June 30, 2007 and $1.8 million for the six months ended June 30, 2006.

Income Taxes. Income taxes for the six months ended June 30, 2007, were $435,000 (an effective rate of 35.2%) compared to income taxes of $581,000 (an effective rate of 36.7%) for the six months ended June 30, 2006.







OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY


Item 3.

Controls and Procedures

a.

Evaluation of Disclosure Controls and Procedures. The Company maintains controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Based upon their evaluation of those controls and procedures performed within 90 days of the filing date of this report, the chief executive and principal accounting officers of the Company concluded that the Company’s disclosure controls and procedures were adequate.

b.

Changes in Internal Controls. The Company made no significant changes in its internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation of those controls by the chief executive and principal accounting officers.







OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY


PART II. OTHER INFORMATION

Item 4.

Submission of Matters to a Vote of Security Holders

The Annual Meeting of the Shareholders (the “Annual Meeting”) of OptimumBank was held on April 27, 2007, to consider the election of directors each for a term of one year.

At the Annual Meeting, 2,189,837 shares were present in person or by proxy. The following is a summary and tabulation of the matters that were voted upon at the Annual Meeting:

Proposal I

The election of directors each for a term of one year is as follows:

 

 

For

 

Withheld

Albert J. Finch

     

2,188,312

     

1,525

Richard L. Browdy

 

2,167,312

 

     22,525

Michael Bedzow

 

2,169,983

 

19,854

Sam Borek

 

2,189,337

 

500

Irving P. Cohen

 

2,168,337

 

21,500

Gordon Deckelbaum

 

2,189,337

 

500

H. David Krinsky

 

2,189,337

 

500

Wendy Mitchler

 

2,188,312

 

1,525

Larry R. Willis

 

2,189,337

 

500








OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

PART II. OTHER INFORMATION

Item 6.

Exhibits

The following exhibits are filed with or incorporated by reference into this report. The exhibits denominated by (i) an asterisk (*) were previously filed as a part of a Registration Statement on Form 10-SB under the Exchange Act, filed with the Federal Deposit Insurance Corporation on March 28, 2003; (ii) a double asterisk (**) were previously filed as a part of an Annual Report on Form 10-KSB filed with the Securities and Exchange Commission (“SEC”) on March 30, 2004; (iii) a triple asterisk (***) were previously filed as part of a current report on Form 8-K filed with the SEC on May 11, 2004; and (iv) a quadruple asterisk (****)were previously filed as part of a Quarterly Report on Form 10-QSB filed with the SEC on August 12, 2004; (v) a quintuple asterisk (*****) were previously filed as part of an Annual Report on Form 10-KSB filed with the SEC on March 31, 2005; and (vi) a sextuple asterisk (******) were previously filed as part of an Annual Report on Form 10-KSB filed with the SEC on March 31, 2006.


 Exhibit No.

     

Description

 

**

     

2.1

     

Agreement and Plan of Reorganization between OptimumBank and
OptimumBank Holdings, Inc. dated March 23, 2004

 

 

 


 

 

 

***

 

3.1

 

Articles of Incorporation

 

***

 

3.3

 

Bylaws

 

****

 

4.1

 

Form of stock certificate

 

******

 

10.1

 

Amended and Restated Stock Option Plan

 

*

 

10.2

 

Non-employee Directors’ Fee Compensation and Stock Purchase Plan

 

*

 

10.3

 

Agreement between OptimumBank, Albert J. Finch and Richard L. Browdy
dated June 14, 2002

 

*****

 

14.1

 

Code of Ethics for Chief Executive Officer and Senior Financial Officers

 

 

 

31.1

 

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

 

 

 

31.2

 

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

 

 

 

32.1

 

Certification of Chief Executive Officer under §906 of the Sarbanes-Oxley Act of 2002

 

 

 

32.2

 

Certification of Chief Financial Officer under §906 of the Sarbanes-Oxley Act of 2002

 







OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

PART II. OTHER INFORMATION

SIGNATURES

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

 

 

OPTIMUMBANK HOLDINGS, INC.

 

 

     (Registrant)

  

 

 

 

  

 

 

 

Date:  August 14, 2007

                                                  

By:

/s/ ALBERT J. FINCH

 

 

 

Albert J. Finch, Chief Executive Officer

 

 

 

 

 

 

 

 

Date:  August 14, 2007

 

By:

/s/ RICHARD L. BROWDY

 

 

 

Richard L. Browdy, Chief Financial Officer