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OptimumBank Holdings, Inc. - Quarter Report: 2009 September (Form 10-Q)

Form 10-Q
Table of Contents

 

 

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 30, 2009

 

¨ 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 East Commercial Boulevard, Fort Lauderdale, FL 33308

(Address of principal executive offices)

954-776-2332

(Registrant’s telephone number, including area code)

N/A

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

 

 

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  ¨    No  ¨    *The registrant has not yet been phased into the interactive data requirements.

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

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   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 registrant’s classes of common stock, as of the latest practicable date: 3,276,842 shares of Common Stock, $.01 par value, issued and outstanding as of November 23, 2009

 

 

 


Table of Contents

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

INDEX

 

     Page
PART I. FINANCIAL INFORMATION   

Item 1. Financial Statements

  

Condensed Consolidated Balance Sheets -
September 30, 2009 (unaudited) and December 31, 2008

   2

Condensed Consolidated Statements of Operations -
Three and Nine Months ended September  30, 2009 and 2008 (unaudited)

   3

Condensed Consolidated Statements of Stockholders’ Equity -
Nine Months ended September  30, 2009 and 2008 (unaudited)

   4

Condensed Consolidated Statements of Cash Flows -
Nine Months ended September  30, 2009 and 2008 (unaudited)

   5

Notes to Condensed Consolidated Financial Statements (unaudited)

   6-10

Review by Independent Registered Public Accounting Firm

   11

Report of Independent Registered Public Accounting Firm

   12

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

   13-18

Item 4T. Controls and Procedures

   19
PART II. OTHER INFORMATION   

Item 6. Exhibits

   20
SIGNATURES    21

 

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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,
2009
   December 31,
2008
 
       
     (unaudited)       

Assets

     

Cash and due from banks

   $ 1,852    $ 980   

Interest-bearing deposits with banks

     5,202      97   

Federal funds sold

     11,894      2,143   
               

Total cash and cash equivalents

     18,948      3,220   

Securities held to maturity (fair value of $83,099 and $78,756)

     86,748      82,208   

Security available for sale

     -        244   

Loans, net of allowance for loan losses of $2,878 and $1,906

     153,417      160,699   

Federal Home Loan Bank stock

     3,551      3,526   

Premises and equipment, net

     2,966      3,094   

Foreclosed assets

     88      95   

Accrued interest receivable

     1,157      1,277   

Other assets

     3,062      1,377   
               

Total assets

   $ 269,937    $ 255,740   
               

Liabilities and Stockholders’ Equity

     

Liabilities:

     

Noninterest-bearing demand deposits

   $ 130    $ 90   

Savings, NOW and money-market deposits

     41,319      30,668   

Time deposits

     93,781      84,167   
               

Total deposits

     135,230      114,925   

Federal Home Loan Bank advances

     63,700      68,700   

Other borrowings

     41,800      41,800   

Junior subordinated debenture

     5,155      5,155   

Advanced payments by borrowers for taxes and insurance

     2,029      935   

Official checks

     728      553   

Other liabilities

     951      907   
               

Total liabilities

     249,593      232,975   
               

Stockholders’ equity:

     

Common stock, $.01 par value; 6,000,000 shares authorized, 3,276,842 and 3,120,992 shares issued and outstanding

     33      31   

Additional paid-in capital

     19,046      18,494   

Retained earnings

     1,265      4,244   

Accumulated other comprehensive loss

     -        (4
               

Total stockholders’ equity

     20,344      22,765   
               

Total liabilities and stockholders’ equity

   $ 269,937    $ 255,740   
               

See Accompanying Notes to Condensed Consolidated Financial Statements.

 

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OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Operations (Unaudited)

(Dollars in thousands, except per share amounts)

 

     Three Months Ended
September 30,
   Nine Months Ended
September 30,
     2009     2008    2009     2008

Interest income:

         

Loans

   $ 2,266      $ 2,749    $ 7,338      $ 8,731

Securities

     1,268        1,116      3,845        3,030

Other

     14        35      17        144
                             

Total interest income

     3,548        3,900      11,200        11,905
                             

Interest expense:

         

Deposits

     873        1,046      2,841        3,501

Borrowings

     1,203        1,237      3,642        3,450
                             

Total interest expense

     2,076        2,283      6,483        6,951
                             

Net interest income

     1,472        1,617      4,717        4,954

Provision for loan losses

     733        47      5,240        161
                             

Net interest income (expense) after provision for loan losses

     739        1,570      (523     4,793
                             

Noninterest income:

         

Service charges and fees

     12        46      18        119

Loan prepayment fees

     1        30      1        35

Other

     1        2      3        4
                             

Total noninterest income

     14        78      22        158
                             

Noninterest expenses:

         

Salaries and employee benefits

     520        540      1,609        1,631

Occupancy and equipment

     138        168      455        537

Data processing

     42        42      129        125

Professional fees

     94        54      313        195

Insurance

     141        36      377        64

Stationary and supplies

     10        11      29        24

Loss on sale of foreclosed assets

     -          293      -          293

Provision for losses on foreclosed assets

     -          11      7        74

Other-than-temporary impairment of securities

     179        -        179        -  

Other

     132        170      289        374
                             

Total noninterest expenses

     1,256        1,325      3,387        3,317
                             

(Loss) earnings before income taxes (benefit)

     (503     323      (3,888     1,634

Income taxes (benefit)

     (190     122      (1,463     615
                             

Net (loss) earnings

   $ (313   $ 201    $ (2,425   $ 1,019
                             

Net (loss) earnings per share:

         

Basic

   $ (.10   $ .06    $ (.74   $ .31
                             

Diluted

   $ (.10   $ .06    $ (.74   $ .31
                             

Dividends per share

   $ -        $ -      $ -        $ -  
                             

See Accompanying Notes to Condensed Consolidated Financial Statements.

 

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OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Stockholders’ Equity

Nine Months Ended September 30, 2009 and 2008

(Dollars in thousands)

 

    

 

Common Stock

   Additional
Paid-In
Capital
   Retained
Earnings
    Accumulated
Other
Comprehensive
Loss
    Total
Stockholders’
Equity
 
     Shares    Amount          

Balance at December 31, 2007

   2,972,507    $ 30    $ 17,308    $ 4,913      $ (4   $ 22,247   
                     

Comprehensive income:

               

Net earnings for the nine months ended September 30, 2008 (unaudited)

   -        -        -        1,019        -          1,019   

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

   -        -        -        -          (1     (1
                     

Comprehensive income (unaudited)

                  1,018   
                     

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

   148,485      1      1,186      (1,189     -          (2
                                           

Balance at September 30, 2008 (unaudited)

   3,120,992    $ 31    $ 18,494    $ 4,743      $ (5   $ 23,263   
                                           

Balance at December 31, 2008

   3,120,992    $ 31    $ 18,494    $ 4,244      $ (4   $ 22,765   
                     

Comprehensive loss:

               

Net loss for the nine months ended September 30, 2009 (unaudited)

   -        -        -        (2,425     -          (2,425

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

   -        -        -        -          4        4   
                     

Comprehensive loss (unaudited)

                  (2,421
                     

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

   155,850      2      552      (554     -          -     
                                           

Balance at September 30, 2009 (unaudited)

   3,276,842    $ 33    $ 19,046    $ 1,265      $ -        $ 20,344   
                                           

See Accompanying Notes to Condensed Consolidated Financial Statements.

 

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OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

 

     Nine Months Ended
September 30,
 
     2009     2008  

Cash flows from operating activities:

    

Net (loss) earnings

   $ (2,425   $ 1,019   

Adjustments to reconcile net (loss) earnings to net cash provided by operating activities:

    

Depreciation and amortization

     141        153   

Provision for loan losses

     5,240        161   

Net amortization of fees, premiums and discounts

     (464     804   

Decrease in accrued interest receivable

     120        105   

(Increase) decrease in other assets

     (1,685     118   

Loss on sale of foreclosed assets

     -          293   

Provision for losses on foreclosed assets

     7        74   

Other-than-temporary impairment of securities

     179        -     

Increase (decrease) in official checks and other liabilities

     219        (157
                

Net cash provided by operating activities

     1,332        2,570   
                

Cash flows from investing activities:

    

Purchases of securities held to maturity

     (24,032     (35,603

Principal repayments of securities held to maturity

     19,677        8,323   

Proceeds from sale of security available for sale

     248        -     

Net decrease in loans

     2,142        9,281   

Purchase of premises and equipment

     (13     (41

Proceeds from sale of foreclosed assets

     -          257   

Purchase of Federal Home Loan Bank stock

     (25     (741
                

Net cash used in investing activities

     (2,003     (18,524
                

Cash flows from financing activities:

    

Net increase (decrease) in deposits

     20,305        (12,468

Net increase in other borrowings

     -          12,900   

Proceeds from Federal Home Loan Bank advances

     -          45,600   

Repayment of Federal Home Loan Bank advances

     (5,000     (29,750

Increase in advance payments by borrowers for taxes and insurance

     1,094        878   

Fractional shares of stock dividend paid-in cash

     -          (2
                

Net cash provided by financing activities

     16,399        17,158   
                

Net increase in cash and cash equivalents

     15,728        1,204   

Cash and cash equivalents at beginning of the period

     3,220        701   
                

Cash and cash equivalents at end of the period

   $ 18,948      $ 1,905   
                

Supplemental disclosure of cash flow information:

    

Cash paid during the period for:

    

Interest

   $ 6,418      $ 6,907   
                

Income taxes

   $ 300      $ 889   
                

Noncash investing and financing activities:

    

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

   $ 4      $ (1
                

Common stock dividend

   $ 554      $ 1,187   
                

Loans transferred to foreclosed assets

   $ -        $ 2,390   
                

Loan made in connection with sale of foreclosed asset

   $ -        $ 1,600   
                

Foreclosed assets reclassified to other assets

   $ -        $ 150   
                

See Accompanying Notes to Condensed Consolidated Financial Statements.

 

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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 September 30, 2009, and the results of operations for the three- and nine-month periods ended September 30, 2009 and 2008, and cash flows for the nine-months periods ended September 30, 2009 and 2008. The results of operations for the three and nine months ended September 30, 2009, are not necessarily indicative of the results to be expected for the full year.

Management has evaluated events occurring subsequent to the balance sheet date through November 23, 2009 (the financial statement issuance date), determining no events require additional disclosure in these consolidated condensed financial statements.

 

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

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2009     2008     2009     2008  

Balance at beginning of period

   $ 3,297      $ 694      $ 1,906      $ 692   

Charge-offs, net of recoveries

     (1,152     (9     (4,268     (121

Provision for loan losses

     733        47        5,240        161   
                                

Balance at end of period

   $ 2,878      $ 732      $ 2,878      $ 732   
                                

The following summarizes the impaired loans at September 30, 2009 and 2008 (in thousands):

 

     At September 30,
     2009     2008

Loans identified as impaired:

    

Gross loans with no related allowance for loan losses

   $ 32,312      $ 5,070

Gross loans with related allowance for losses recorded

     10,493        -  

Less: Allowance on these loans

     (1,020     -  
              

Net investment in impaired loans

   $ 41,785      $ 5,070
              

(continued)

 

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OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (unaudited), Continued

 

(2) Loan Impairment and Credit Losses, Continued. The average net investment in impaired loans and interest income recognized and received on impaired loans is as follows (in thousands):

 

     Three Months Ended
September 30,
   Nine Months Ended
September 30,
     2009    2008    2009    2008

Average net investment in impaired loans

   $ 41,785    $ 4,729    $ 20,694    $ 2,675
                           

Interest income recognized on impaired loans

   $ 306    $ -      $ 392    $ -  
                           

Interest income received on impaired loans

   $ 306    $ -      $ 392    $ -  
                           

At September 30, 2009 and 2008, the Company had no loans over ninety days past due still accruing interest. Nonaccrual loans were as follows (in thousands):

 

     At September 30,
     2009    2008

Nonaccrual loans

   $ 20,258    $ 4,564
             

 

(3) Regulatory Capital. The Bank is required to maintain certain minimum regulatory capital requirements. The following is a summary at September 30, 2009 of the regulatory capital requirements and the Bank’s capital on a percentage basis:

 

     Bank     Regulatory
Requirement
 

Tier I capital to total average assets

   9.05   4.00

Tier I capital to risk-weighted assets

   13.21   4.00

Total capital to risk-weighted assets

   14.46   8.00

(continued)

 

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OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (unaudited), Continued

 

(4) (Loss) Earnings Per Share. Basic (loss) earnings per share has been computed on the basis of the weighted-average number of shares of common stock outstanding during the period. In 2008, 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. In 2009, basic and diluted loss per share are the same due to the net loss incurred by the Company. All amounts reflect the 5% stock dividends declared in May, 2009 and 2008. (Loss) earnings per common share have been computed based on the following:

 

     Three Months Ended
September 30,
   Nine Months Ended
September 30,
     2009    2008    2009    2008

Weighted-average number of common shares outstanding used to calculate basic (loss) earnings per common share

   3,276,842    3,276,842    3,276,842    3,276,842

Effect of dilutive stock options

   -      43,547    -      57,381
                   

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

   3,276,842    3,320,389    3,276,842    3,334,223
                   

The following options were excluded from the calculation of the 2008 earnings per share due to the exercise price being above the average market price:

 

     Number
Outstanding
   Exercise
Price
   Expire

For the three and nine months ended September 30, 2008-

        

Options

   292,936    $ 7.43-11.33    2014-2015

 

(5) Stock-Based Compensation. As of December 31, 2005, all stock options were fully vested and no options have been granted since 2005; therefore, no stock-based compensation has been recognized.

The Company established an Incentive Stock Option Plan (the “Plan”) for officers, directors and employees of the Company and reserved 630,720 (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. The options must be exercised within ten years from the date of grant. At September 30, 2009, 14,951 options were available for grant.

(continued)

 

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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 dividend declared in May 2009:

 

     Number of
Options
   Weighted-
Average
Exercise
Price
   Weighted-
Average
Remaining
Contractual
Term
   Aggregate
Intrinsic
Value

Outstanding and exercisable at December 31, 2008 and September 30, 2009

   528,744    $ 7.31    4.1 years    $ -  
                       

 

(6) Fair Value Measurements. Impaired collateral-dependent loans and foreclosed assets are carried at fair value when the current collateral value is lower than the carrying value of the loan or foreclosed asset. Those impaired collateral-dependent loans and foreclosed assets which are measured at fair value on a nonrecurring basis are as follows (in thousands):

 

     Fair
Value
   Level 1    Level 2    Level 3    Total
Losses
   Losses
Recorded in
Operations
For the Nine
Months Ended
September 30,
2009

As of September 30, 2009:

                 

Impaired loans (1)

   $ 9,473    -      -      9,473    3,200    2,080
                               

Foreclosed assets

   $ 88    -      -      88    22    7
                               

 

(1)

Loans with a carrying value of $32,312,000 were measured for impairment using Level 3 inputs and had a fair value in excess of carrying value.

(continued)

 

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OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (unaudited), Continued

 

(6) Fair Value Measurements, Continued. The estimated fair values of the Company’s financial instruments were as follows (in thousands):

 

     At September 30, 2009    At December 31, 2008
     Carrying
Amount
   Fair
Value
   Carrying
Amount
   Fair
Value

Financial assets:

           

Cash and cash equivalents

   $ 18,948    $ 18,948    $ 3,220    $ 3,220

Securities held to maturity

     86,748      83,099      82,208      78,756

Security available for sale

     -        -        244      244

Loans

     153,417      153,425      160,699      160,684

Federal Home Loan Bank stock

     3,551      3,551      3,526      3,526

Accrued interest receivable

     1,157      1,157      1,277      1,277

Financial liabilities:

           

Deposit liabilities

     135,230      136,029      114,925      115,807

Federal Home Loan Bank advances

     63,700      65,439      68,700      71,058

Other borrowings

     41,800      43,240      41,800      43,714

Junior subordinated debenture

     5,155      4,991      5,155      4,871

Off-balance sheet financial instruments

     -        -        -        -  

Discussion regarding the assumptions used to compute the fair values of financial instruments can be found in Note 1 to the consolidated financial statements included in the Company’s annual report on Form 10-K for the year ended December 31, 2008.

 

(7) Common Stock Dividend. On May 28, 2009, the Company’s board of directors declared a 5% stock dividend to shareholders of record on June 11, 2009 which was paid on July 11, 2009.

 

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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 September 30, 2009, and for the three- and nine-month periods ended September 30, 2009 and 2008, 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.

 

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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 September 30, 2009, and the condensed consolidated statements of operations for the three- and nine-month periods ended September 30, 2009 and 2008 and the related condensed consolidated statements of stockholders’ equity and cash flows for the nine-month periods ended September 30, 2009 and 2008. 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, 2008, 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 13, 2009, 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, 2008, 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
November 23, 2009

 

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OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Item 2. Management’s Discussion and Analysis

of Financial Condition and Results of Operations

Comparison of September 30, 2009 and December 31, 2008

Liquidity and Capital Resources

The Company’s primary sources of cash during the nine months ended September 30, 2009 were principal repayments of securities held to maturity of approximately $19.7 million, net deposit inflows of approximately $20.3 million and cash provided from operating activities of approximately $1.3 million. Cash was used primarily for purchases of securities of approximately $24.0 million and the repayment of Federal Home Loan Bank advances of $5.0 million. At September 30, 2009, the Company had time deposits of approximately $85.8 million that mature in one year or less. 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.

We have agreed with the bank regulatory agencies that OptimumBank, our subsidiary bank, will limit its asset growth to no more than 5%, will make no significant change in its funding sources, and will not increase its brokered deposits.

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

 

     Nine Months Ended
September 30, 2009
    Year Ended
December 31, 2008
    Nine Months Ended
September 30, 2008
 

Average equity as a percentage of average assets

   8.04   9.15   9.19

Equity to total assets at end of period

   7.54   8.92   8.96

Return on average assets (1)

   (1.20 )%    .21   0.55

Return on average equity (1)

   (14.86 )%    2.26   5.94

Noninterest expenses to average assets (1)

   1.67   1.81   1.78

 

(1) Annualized for the nine months ended September 30, 2009 and 2008.

 

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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. 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 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 September 30, 2009, follows (in thousands):

 

     Contract
Amount

Commitments to extend credit

   $ 2,250
      

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.

 

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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 September 30,  
     2009     2008  
     Average
Balance
   Interest
and
Dividends
   Average
Yield/
Rate
    Average
Balance
   Interest
and
Dividends
   Average
Yield/
Rate
 
     ($ in thousands)  

Interest-earning assets:

                

Loans

   $ 158,192      2,266    5.73   $ 159,844      2,749    6.88

Securities

     91,340      1,268    5.55        82,681      1,116    5.40   

Other (1)

     20,201      14    0.28        5,267      35    2.66   
                                

Total interest-earning assets/interest income

     269,733      3,548    5.26        247,792      3,900    6.30   
                        

Cash and due from banks

     2,032           486      

Premises and equipment

     2,995           3,164      

Other

     1,452           3,696      
                        

Total assets

   $ 276,212         $ 255,138      
                        

Interest-bearing liabilities:

                

Savings, NOW and money-market deposits

     40,891      169    1.65        34,449      264    3.07   

Time deposits

     96,818      704    2.91        76,924      782    4.07   

Borrowings (2)

     113,046      1,203    4.26        116,525      1,237    4.25   
                                

Total interest-bearing liabilities/interest expense

     250,755      2,076    3.31        227,898      2,283    4.01   
                        

Noninterest-bearing demand deposits

     469           487      

Other liabilities

     4,395           3,591      

Stockholders’ equity

     20,593           23,162      
                        

Total liabilities and stockholders’ equity

   $ 276,212         $ 255,138      
                        

Net interest income

      $ 1,472         $ 1,617   
                        

Interest-rate spread (3)

         1.95         2.29
                        

Net interest margin (4)

         2.18         2.61
                        

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

     1.08           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, other borrowings 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.

 

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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.

 

     Nine Months Ended September 30,  
     2009     2008  
     Average
Balance
   Interest
and
Dividends
   Average
Yield/
Rate
    Average
Balance
   Interest
and
Dividends
   Average
Yield/
Rate
 
     ($ in thousands)  

Interest-earning assets:

                

Loans

   $ 160,053      7,338    6.11   $ 162,846      8,731    7.15

Securities

     90,502      3,845    5.66        74,315      3,030    5.44   

Other (1)

     13,187      17    0.17        4,549      144    4.22   
                                

Total interest-earning assets/interest income

     263,742      11,200    5.66        241,710      11,905    6.57   
                        

Cash and due from banks

     2,247           478      

Premises and equipment

     3,036           3,200      

Other

     1,525           3,653      
                        

Total assets

   $ 270,550         $ 249,041      
                        

Interest-bearing liabilities:

                

Savings, NOW and money-market deposits

     37,155      536    1.92        32,361      804    3.31   

Time deposits

     92,725      2,305    3.31        81,843      2,697    4.39   

Borrowings (2)

     115,211      3,642    4.21        107,649      3,450    4.27   
                                

Total interest-bearing liabilities/interest expense

     245,091      6,483    3.53        221,853      6,951    4.18   
                        

Noninterest-bearing demand deposits

     439           827      

Other liabilities

     3,258           3,477      

Stockholders’ equity

     21,762           22,884      
                        

Total liabilities and stockholders’ equity

   $ 270,550         $ 249,041      
                        

Net interest income

      $ 4,717         $ 4,954   
                        

Interest-rate spread (3)

         2.13         2.39
                        

Net interest margin (4)

         2.38         2.73
                        

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

     1.08           1.09      
                        

 

(1) Includes interest-bearing deposits in banks, federal funds sold and Federal Home Loan Bank stock dividends.
(2) Includes Federal Home Loan Bank advances, other borrowings 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.

 

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Comparison of the Three-Month Periods Ended September 30, 2009 and 2008

General. Net loss for the three months ended September 30, 2009, were $(313,000) or $(.10) per basic and diluted share compared to net earnings of $201,000 or $.06 per basic and diluted share for the period ended September 30, 2008. This decrease in the Company’s net earnings was primarily due to an increase in the provision for loan losses.

Interest Income. Interest income decreased to $3.5 million for the three months ended September 30, 2009 from $3.9 million for the three months ended September 30, 2008. Interest income on loans decreased due primarily to a decrease in the average loan portfolio balance and a decrease in the average yield earned for the three months ended September 30, 2009. Interest on securities increased to $1.3 million due primarily to an increase in the average balance of the securities portfolio and an increase in the average yield earned from 5.40% for the three months ended September 30, 2008, to 5.55% for the three months ended September 30, 2009.

Interest Expense. Interest expense on deposits decreased to $0.9 million for the three months ended September 30, 2009 from $1.0 million for the three months ended September 30, 2008. Interest expense decreased primarily because of a decrease in the average yield paid during 2009.

Provision for Loan Losses. The provision for the three months ended September 30, 2009, was $733,000 compared to $47,000 for the same period in 2008. 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 30, 2009. 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 collectibility of our loan portfolio. The increase in the provision for loan losses for third quarter of 2009 was due to potential increased credit risk on existing loans which resulted in a $600,000 increase in the specific reserve allocation for impaired loans and a $133,000 increase in the general reserve allocation. The allowance for loan losses totaled $2,878,000 or 1.84% of loans outstanding at September 30, 2009, compared to $1,906,000, or 1.17% of loans outstanding at December 31, 2008. Management believes the balance in the allowance for loan losses at September 30, 2009 is adequate.

Noninterest Income. Total noninterest income decreased to $14,000 for the three months ended September 30, 2009, from $78,000 for the three months ended September 30, 2008, primarily due to a decrease in loan prepayment fees and late charge fees.

Noninterest Expenses. Total noninterest expenses remained $1.3 million for the three months ended September 30, 2009 compared to the three months ended September 30, 2008. Increases in 2009 due to a special assessment by the Federal Deposit Insurance Corporation of $119,000 and an other-than-termporary impairment on securities of $179,000 were offset by a $293,000 reduction in losses on sale of foreclosed assets.

Income Taxes (Benefit). Income tax benefit for the three months ended September 30, 2009, was $(190,000) (an effective rate of 37.8%) compared to income taxes of $122,000 (an effective rate of 37.8%) for the three months ended September 30, 2008.

 

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Comparison of the Nine-Month Periods Ended September 30, 2009 and 2008

General. Net loss for the nine months ended September 30, 2009, were $(2,425,000) or $(.74) per basic and diluted share compared to net earnings of $1,019,000 or $.31 per basic and diluted share for the period ended September 30, 2008. This decrease in the Company’s net earnings was primarily due to an increase in the provision for loan losses.

Interest Income. Interest income decreased to $11.2 million for the nine months ended September 30, 2009 compared to $11.9 million for the nine months ended September 30, 2008. Interest income on loans decreased to $7.3 million due primarily to a decrease in the average loan portfolio balance and a decrease in the average yield earned in 2009. Interest on securities increased to $3.8 million due primarily to an increase in the average balance of the securities portfolio in 2009 and an increase in the average yield earned.

Interest Expense. Interest expense on deposit accounts decreased to $2.8 million for the nine months ended September 30, 2009, from $3.5 million for the nine months ended September 30, 2008. Interest expense on deposits decreased primarily because of a decrease in the average yield paid in 2009. Interest expense on borrowings increased to $3.6 million for the nine months ended September 30, 2009 from $3.5 million for the nine months ended September 30, 2008 due primarily to an increase in the average balance of borrowings.

Provision for Loan Losses. The provision for the nine months ended September 30, 2009, was $5,240,000 compared to $161,000 for the same period in 2008. 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 loan portfolio at September 30, 2009. 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 collectibility of our loan portfolio. The increase in the provision for loan losses for 2009 was due to potential increased credit risk on existing loans which resulted in a $4,619,000 increase in the specific reserve allocation for impaired loans and a $621,000 increase in the general reserve allocation. The allowance for loan losses totaled $2,878,000 or 1.84% of loans outstanding at September 30, 2009, compared to $1,906,000, or 1.17% of loans outstanding at December 31, 2008. Management believes the balance in the allowance for loan losses at September 30, 2009 is adequate.

Noninterest Income. Total noninterest income decreased to $22,000 for the nine months ended September 30, 2009, from $158,000 for the nine months ended September 30, 2008 primarily due to a decrease in loan prepayment fees and late charge fees.

Noninterest Expenses. Total noninterest expenses increased to $3.4 million for the nine months ended September 30, 2009 from $3.3 million for the nine months ended September 30, 2008, primarily due to a special assessment by the Federal Deposit Insurance Corporation of $119,000 and an other-than-temporary impairment on securities of $179,000 in 2009.

Income Taxes (Benefit). Income tax benefit for the nine months ended September 30, 2009, was $(1,463,000) (an effective rate of 37.6%) compared to income taxes of $615,000 (an effective rate of 37.6%) for the nine months ended September 30, 2008.

 

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Item 4T. Controls and Procedures

 

a. Evaluation of Disclosure Controls and Procedures. On November 23, 2009, the Company restated its interim financial statements for the three and six months ended June 30, 2009. In the restatement, management increased the level of impaired loans and reported substantial additional provisions for loan losses and charge offs of impaired real estate loans for the three months ended June 30, 2009. Management made the adjustments to the Company’s financial statements as a result of adjustments to the Bank’s call report for June 30, 2009. Among other things, the adjustments were based on management’s review of additional information regarding the Company’s real estate loan portfolio, reevaluation of the underlying collateral and identification of continued deterioration in the ability of some of the borrowers to make loan payments.

As a result of the restatement, management is in the process of evaluating the effectiveness of the Company’s disclosure controls and procedures and internal control over financial reporting as of September 30, 2009, including the identification of any material weaknesses in the Company’s internal controls. Management has not yet reached a conclusion as to whether the Company’s disclosure controls and procedures were effective as of September 30, 2009. Management intends to retain outside advisors to assist with this process and expects to complete its evaluation as promptly as possible, but in no event later than December 31, 2009.

 

b. Changes in Internal Controls. During the period covered by this report, there have been no changes in the Company’s internal control over financial reporting that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting. However, as described above, management is in the process of evaluating the effectiveness of the Company’s disclosure controls and procedures and internal control over financial reporting as of September 30, 2009, including the identification of any material weaknesses in the Company’s internal controls. If material weaknesses are identified, the Company has directed management to promptly develop such modifications to its internal control processes and procedures as may be necessary to address the identified material weaknesses.

 

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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 part of a current report on Form 8-K filed with the Securities and Exchange Commission (“SEC”) on May 11, 2004; and (iii) a triple asterisk (***)were previously filed as part of a Quarterly Report on Form 10-QSB filed with the SEC on August 12, 2004; (iv) a quadruple asterisk (****) were previously filed as part of an Annual Report on Form 10-KSB filed with the SEC on March 31, 2006; (v) a quintuple asterisk (*****) were previously filed as part of an Annual Report on Form 10-KSB filed with the SEC on March 31, 2008; and (vi) a sextuple asterisk (******) were previously filed as part of an Annual Report on Form 10-K filed with the SEC on March 31, 2009.

 

Exhibit No.

  

Description

**     3.1    Articles of Incorporation
******     3.2    Articles of Amendment to Articles of Incorporation
**     3.3    Bylaws
***     4.1    Form of stock certificate
****   10.1    Amended and Restated Stock Option 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

 

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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:   November 23, 2009     By:   /S/    ALBERT J. FINCH        
       

Albert J. Finch,

Chief Executive Officer

Date:   November 23 , 2009     By:   /S/    RICHARD L. BROWDY        
       

Richard L. Browdy,

Chief Financial Officer

 

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