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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2005
[ ] 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 (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2477 East Commercial Boulevard
Fort Lauderdale, Florida 33308
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(954) 776-2332
(ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)
(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 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 is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
Common stock, par value $.01 per share 2,661,835 shares
- -------------------------------------- -------------------------------
(CLASS) OUTSTANDING AT NOVEMBER 3, 2005
Transitional Small Business Format (check one): YES [ ] NO [X]
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OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. INTERIM FINANCIAL STATEMENTS PAGE
Condensed Consolidated Balance Sheets -
September 30, 2005 (unaudited) and December 31, 2004....................2
Condensed Consolidated Statements of Earnings -
Three and Nine Months ended September 30, 2005 and 2004 (unaudited).....3
Condensed Consolidated Statements of Stockholders' Equity -
Nine Months ended September 30, 2005 and 2004 (unaudited)...............4
Condensed Consolidated Statements of Cash Flows -
Nine Months ended September 30, 2005 and 2004 (unaudited)...............5
Notes to Condensed Consolidated Financial Statements (unaudited)........6-8
Review By Independent Registered Public Accounting Firm...................9
Report of Independent Registered Public Accounting Firm..................10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.............................................11-16
ITEM 3. CONTROLS AND PROCEDURES...........................................17
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS..........................................................17
SIGNATURES....................................................................18
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, DECEMBER 31,
ASSETS 2005 2004
------------- ------------
(UNAUDITED)
Cash and due from banks $ 506 $ 383
Federal funds sold 2,816 2,840
--------- ---------
Total cash and cash equivalents 3,322 3,223
Securities held to maturity
(fair value approximates $27,378 and $24,065) 27,433 24,134
Security available for sale 244 247
Loans, net of allowance for loan losses of $733 and $628 159,443 128,810
Loans held for sale -- 509
Federal Home Loan Bank stock 2,428 1,965
Premises and equipment, net 4,101 4,114
Foreclosed real estate, net 3,003 --
Accrued interest receivable 921 878
Other assets 758 678
--------- ---------
Total assets $ 201,653 $ 164,558
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Noninterest-bearing demand deposits $ 415 $ 558
Savings, NOW and money-market deposits 11,235 8,091
Time deposits 103,496 89,345
--------- ---------
Total deposits 115,146 97,994
Federal Home Loan Bank advances 46,650 37,650
Other borrowings 12,950 5,000
Junior subordinated debenture 5,155 5,155
Other liabilities 736 522
Official checks 2,756 1,209
Deferred income tax liability 305 305
--------- ---------
Total liabilities 183,698 147,835
--------- ---------
Stockholders' equity:
Common stock, $.01 par value; 6,000,000 shares authorized,
2,661,835 and 2,650,102 shares issued and outstanding 27 27
Additional paid-in capital 14,113 14,051
Retained earnings 3,821 2,648
Accumulated other comprehensive income (loss) (6) (3)
--------- ---------
Total stockholders' equity 17,955 16,723
--------- ---------
Total liabilities and stockholders' equity $ 201,653 $ 164,558
========= =========
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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- ------------------------
2005 2004 2005 2004
------- ------- ------- -------
Interest income:
Loans $ 2,545 $ 2,017 $ 7,044 $ 5,829
Securities 322 218 959 597
Other 24 18 100 68
------- ------- ------- -------
Total interest income 2,891 2,253 8,103 6,494
------- ------- ------- -------
Interest expense:
Deposits 985 713 2,657 2,075
Borrowings 543 282 1,490 814
------- ------- ------- -------
Total interest expense 1,528 995 4,147 2,889
------- ------- ------- -------
Net interest income 1,363 1,258 3,956 3,605
(Credit) provision for loan losses (40) 52 105 107
------- ------- ------- -------
Net interest income after (credit) provision for loan losses 1,403 1,206 3,851 3,498
------- ------- ------- -------
Noninterest income:
Service charges and fees 30 8 130 85
Loan prepayment fees 128 98 469 427
Other 5 7 43 18
------- ------- ------- -------
Total noninterest income 163 113 642 530
------- ------- ------- -------
Noninterest expenses:
Salaries and employee benefits 462 417 1,398 1,233
Occupancy and equipment 164 116 455 325
Data processing 52 38 153 114
Professional fees 25 46 127 117
Insurance 18 13 52 38
Stationary and supplies 11 7 33 40
Other 186 75 383 237
------- ------- ------- -------
Total noninterest expenses 918 712 2,601 2,104
------- ------- ------- -------
Earnings before income taxes 648 607 1,892 1,924
Income taxes 247 231 719 733
------- ------- ------- -------
Net earnings $ 401 $ 376 $ 1,173 $ 1,191
======= ======= ======= =======
Net earnings per share:
Basic $ .15 $ .14 $ .44 $ .45
======= ======= ======= =======
Diluted $ .15 $ .14 $ .43 $ .43
======= ======= ======= =======
See Accompanying Notes to Condensed Consolidated Financial Statements.
3
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
(DOLLARS IN THOUSANDS)
ACCUMULATED
OTHER
COMPRE-
COMMON STOCK ADDITIONAL HENSIVE TOTAL
----------------------- PAID-IN RETAINED INCOME STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS (LOSS) EQUITY
--------- --------- ---------- --------- ------------ -------------
Balance at December 31, 2003 2,613,501 $ 26 13,800 1,078 (4) 14,900
---------
Comprehensive income:
Net earnings for the nine
months ended September
30, 2004 (unaudited) -- -- -- 1,191 -- 1,191
Net change in unrealized loss on
security available for sale
(unaudited) -- -- -- -- 1 1
---------
Comprehensive income (unaudited) 1,192
---------
Proceeds from sale of common
stock (unaudited) 1,174 -- 12 -- -- 12
Proceeds from exercise of common
stock options (unaudited) 34,067 -- 177 -- -- 177
--------- --------- --------- --------- --------- ---------
Balance at September 30, 2004
(unaudited) 2,648,742 $ 26 13,989 2,269 (3) 16,281
========= ========= ========= ========= ========= =========
Balance at December 31, 2004 2,650,102 $ 27 14,051 2,648 (3) 16,723
---------
Comprehensive income:
Net earnings for the nine
months ended September
30, 2005 (unaudited) -- -- -- 1,173 -- 1,173
Net change in unrealized loss on
security available for sale
(unaudited) -- -- -- -- (3) (3)
---------
Comprehensive income (unaudited) 1,170
---------
Proceeds from exercise of common
stock options (unaudited) 11,733 -- 62 -- -- 62
--------- --------- --------- --------- --------- ---------
Balance at September 30, 2005
(unaudited) 2,661,835 $ 27 14,113 3,821 (6) 17,955
========= ========= ========= ========= ========= =========
See Accompanying Notes to Condensed Consolidated Financial Statements.
4
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
2005 2004
-------- --------
Cash flows from operating activities:
Net earnings $ 1,173 $ 1,191
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization 196 128
Provision for loan losses 105 107
Provision for losses on foreclosed real estate 92 --
Net amortization of fees, premiums and discounts 213 103
Repayments of loans held for sale 509 896
Increase in accrued interest receivable (43) (122)
Increase in other assets (80) (256)
Increase in official checks and other liabilities 1,761 806
-------- --------
Net cash provided by operating activities 3,926 2,853
-------- --------
Cash flows from investing activities:
Purchases of securities held to maturity (7,843) (4,982)
Principal repayments and calls of securities held to maturity 4,567 2,453
Net increase in loans (34,289) (11,710)
Purchase of premises and equipment (183) (2,326)
(Purchase) redemption of Federal Home Loan Bank stock (463) 42
Proceeds from foreclosed real estate 220 --
-------- --------
Net cash used in investing activities (37,991) (16,523)
-------- --------
Cash flows from financing activities:
Net increase in deposits 17,152 16,034
Net increase (decrease) in other borrowings 7,950 (1,250)
Issuance of junior subordinated debenture -- 5,155
Proceeds from sale of common stock -- 12
Proceeds from exercise of common stock options 62 177
Net increase in Federal Home Loan Bank advances 9,000 150
-------- --------
Net cash provided by financing activities 34,164 20,278
-------- --------
Net increase in cash and cash equivalents 99 6,608
Cash and cash equivalents at beginning of the period 3,223 539
-------- --------
Cash and cash equivalents at end of the period $ 3,322 $ 7,147
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 4,167 $ 3,181
======== ========
Income taxes $ 1,204 $ 833
======== ========
Noncash investing activities:
Change in accumulated other comprehensive income (loss),
net change in unrealized loss on security available for sale $ (3) $ 1
======== ========
Loans reclassified to foreclosed real estate $ 3,315 $ --
======== ========
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 up to the applicable limits
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,
2005, and the results of operations for the three- and nine-month
periods ended September 30, 2005 and 2004, and cash flows for the
nine-months periods ended September 30, 2005 and 2004. The results of
operations for the three and nine months ended September 30, 2005, 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
2005 2004 2005 2004
----- ----- ----- -----
Balance at beginning of period $ 773 $ 547 $ 628 $ 492
(Credit) provision for loan losses (40) 52 105 107
----- ----- ----- -----
Balance at end of period $ 733 $ 599 $ 733 $ 599
===== ===== ===== =====
The following summarizes the amount of impaired loans, all of which
are collateral dependent (in thousands):
AT
SEPTEMBER 30, DECEMBER 31,
2005 2004
------------- ------------
Loans identified as impaired:
Gross loans with related allowance for losses recorded $ -- $3,268
Less allowance for losses on these loans -- --
------ ------
Net investment in impaired loans $ -- $3,268
====== ======
Nonaccrual loans $ -- $3,268
====== ======
Loans past due 90 days still accruing interest $ -- $ --
====== ======
The activities in the allowance for losses on foreclosed real estate
is as follows (in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- ------------------
2005 2004 2005 2004
---- ------- ---- -----
Balance at beginning of period $-- $ -- $-- $ --
Provision for losses on foreclosed real estate 92 -- 92 --
--- ------- --- -----
Balance at end of period $92 $ -- $92 $ --
=== ======= === =====
(continued)
6
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- ---------------------
2005 2004 2005 2004
------- ----- ------- ------
Average net investment in impaired loans $ -- $ -- $ 1,258 $ --
======= ===== ======= ======
Interest income recognized on impaired loans $ -- $ -- $ -- $ --
======= ===== ======= ======
Interest income received on impaired loans $ -- $ -- $ -- $ --
======= ===== ======= ======
(3) REGULATORY CAPITAL. The Company and the Bank are required to maintain
certain minimum regulatory capital requirements. The following is a
summary at September 30, 2005 of the regulatory capital requirements
and the Company's and the Bank's capital on a percentage basis:
REGULATORY
COMPANY BANK REQUIREMENT
------- ---- -----------
Tier I capital to total average assets 11.90% 11.76% 4.00%
Tier I capital to risk-weighted assets 15.86% 15.69% 4.00%
Total capital to risk-weighted assets 16.37% 16.20% 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.
Earnings per common share have been computed based on the following:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
2005 2004 2005 2004
--------- --------- --------- ---------
Weighted-average number of common shares
outstanding used to calculate basic
earnings per common share 2,661,835 2,642,215 2,657,755 2,632,363
Effect of dilutive stock options 91,088 70,073 99,940 141,080
--------- --------- --------- ---------
Weighted-average number of common shares
outstanding used to calculate diluted earnings
per common share 2,752,923 2,712,288 2,757,695 2,773,443
========= ========= ========= =========
(5) STOCK OPTIONS. The Company established a Stock Option Plan (the "Plan") for
officers, directors and employees of the Company and reserved 522,000
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.
(continued)
7
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
(5) STOCK OPTIONS, CONTINUED. A summary of the activity in the Company's stock
option plan is as follows (dollars in thousands, except per share
amounts):
WEIGHTED-
RANGE OF AVERAGE AGGREGATE
NUMBER OF PER SHARE EXERCISE OPTION
SHARES OPTION PRICE PRICE PRICE
-------- ------------ --------- ---------
Outstanding at December 31, 2004 370,433 $ 5.00-10.00 $ 7.19 $ 2,662
Granted 10,000 12.49 12.49 125
Exercised (11,733) 5.00-6.75 5.36 (61)
Forfeited (3,000) 6.75-10.00 8.37 (25)
-------- ------------ -------- --------
Outstanding at September 30, 2005 365,700 $ 5.00-12.49 $ 7.39 $ 2,701
======== ============ ========= ========
The Company accounts for their stock option plan under the recognition and
measurement principles of Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees. No stock-based employee
compensation cost is reflected in net earnings, as all options granted
under this plan had an exercise price which approximated the market
value of the underlying common stock on the date of grant. The
following table illustrates the effect on net earnings if the Company
had applied the fair value recognition provisions of Statement of
Financial Accounting Standards No. 123 Accounting for Stock-Based
Compensation, as amended by SFAS No. 148, Accounting for Stock-Based
Compensation Transition and Disclosure to stock-based employee
compensation (in thousands, except per share amounts).
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -------------------------
2005 2004 2005 2004
----- ----- -------- ---------
Net earnings, as reported $ 401 $ 376 $ 1,173 $ 1,191
Deduct: Total stock-based employee
compensation determined under the
fair value based method for all
awards, net of related tax effect 44 39 132 122
----- ----- -------- ---------
Proforma net earnings $ 357 $ 337 $ 1,041 $ 1,069
===== ===== ======== =========
Basic earnings per share:
As reported $ .15 $ .14 $ .44 $ .45
===== ===== ======== =========
Proforma $ .13 $ .13 $ .39 $ .41
===== ===== ======== =========
Diluted earnings per share:
As reported $ .15 $ .14 $ .43 $ .43
===== ===== ======== =========
Proforma $ .13 $ .12 $ .38 $ .39
===== ===== ======== =========
8
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, 2005, and for the three- and nine-month periods ended September
30, 2005 and 2004, 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.
9
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
OptimumBank Holdings, Inc.
Plantation, Florida:
We have reviewed the accompanying condensed consolidated balance sheet of
OptimumBank Holdings, Inc. and Subsidiary (the "Company") as of September 30,
2005, and the condensed consolidated statements of earnings for the three- and
nine-month periods ended September 30, 2005 and 2004 and the related condensed
consolidated statements of stockholders' equity and cash flows for the
nine-month periods ended September 30, 2005 and 2004. 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, 2004, 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 February 22, 2005, 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,
2004, 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 2, 2005
10
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
COMPARISON OF SEPTEMBER 30, 2005 AND DECEMBER 31, 2004
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of cash during the nine months ended
September 30, 2005 were from net deposit inflows of approximately $17.2
million, principal repayments of securities held to maturity of
approximately $4.6 million and Federal Home Loan Bank advances of $9
million and other borrowings of $8.0 million. Cash was used primarily for
net loan originations of approximately $34.3 million and purchases of
securities held to maturity of approximately $7.8 million. At September 30,
2005, the Company had time deposits of approximately $55.6 million that
mature in one year or less. At September 30, 2005, 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:
NINE MONTHS NINE MONTHS
ENDED YEAR ENDED ENDED
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
2005 2004 2004
------------- ------------ -------------
Average equity as a percentage
of average assets 9.54% 10.53% 10.63%
Equity to total assets at end of period 8.90% 10.16% 10.34%
Return on average assets (1) 0.86% 1.06% 1.10%
Return on average equity (1) 8.98% 10.05% 10.36%
Noninterest expenses to average assets (1) 1.90% 1.89% 1.94%
Nonperforming assets to total assets at end
of period 1.49% 2.54% --%
(1) Annualized for the nine months ended September 30, 2005 and 2004.
11
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 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 September 30, 2005, follows (in thousands):
CONTRACT
AMOUNT
--------
Commitments to extend credit $ 12,948
========
Undisbursed loans in process $ 1,449
=========
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.
12
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 SEPTEMBER 30,
---------------------------------------------------------------------
2005 2004
----------------------------------- ---------------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE AND YIELD/ AVERAGE AND YIELD/
BALANCE DIVIDENDS RATE BALANCE DIVIDENDS RATE
-------- --------- ------- -------- --------- --------
Interest-earning assets:
Loans $150,880 2,545 6.75% $120,569 2,017 6.69%
Securities 28,724 322 4.48 19,790 218 4.41
Other (1) 2,867 24 3.35 2,683 18 2.68
-------- ----- -------- -----
Total interest-earning assets 182,471 2,891 6.34 143,042 2,253 6.30
-------- ----- -----
Cash and due from banks 286 416
Premises and equipment 4,104 3,384
Other 5,947 2,995
-------- --------
Total assets $192,808 $149,837
======== ========
Interest-bearing liabilities:
Savings, NOW and money-market deposit
accounts 7,682 19 0.99 9,653 29 1.20
Time deposits 103,379 966 3.74 82,656 684 3.31
Borrowings 59,843 543 3.63 39,124 282 2.88
-------- ----- -------- -----
Total interest-bearing liabilities 170,904 1,528 3.58 131,433 995 3.03
----- -----
Demand deposits 845 866
Noninterest-bearing liabilities 3,224 1,506
Stockholders' equity 17,835 16,032
-------- --------
Total liabilities and stockholders' equity $192,808 $149,837
======== ========
Net interest income $ 1,363 $ 1,258
======== ========
Interest-rate spread (3) 2.76% 3.27%
==== ====
Net interest margin (4) 2.99% 3.52%
==== ====
Ratio of average interest-earning assets to
average interest-bearing liabilities 1.07 1.09
======== ========
- ----------
(1) Includes 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.
13
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.
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------------------------
2005 2004
--------------------------------- ---------------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE AND YIELD/ AVERAGE AND YIELD/
BALANCE DIVIDENDS RATE BALANCE DIVIDENDS RATE
--------- --------- ------- --------- --------- --------
Interest-earning assets:
Loans $ 140,634 7,044 6.67% $ 116,211 5,829 6.69%
Securities 28,762 959 4.44 17,516 597 4.54
Other (1) 3,976 100 3.35 5,010 68 1.81
--------- ------- --------- -------
Total interest-earning assets 173,372 8,103 6.23 138,737 6,494 6.24
------- -------
Cash and due from banks 214 480
Premises and equipment 4,119 2,434
Other 4,632 2,593
--------- ---------
Total assets $ 182,337 $ 144,244
========= =========
Interest-bearing liabilities:
Savings, NOW and money-market deposit
accounts 7,780 64 1.10 8,746 84 1.28
Time deposits 97,277 2,593 3.56 80,156 1,991 3.31
Borrowings 56,310 1,490 3.53 37,316 814 2.91
--------- ------- --------- -------
Total interest-bearing liabilities 161,367 4,147 3.43 126,218 2,889 3.05
------- -------
Demand deposits 1,001 944
Noninterest-bearing liabilities 2,566 1,756
Stockholders' equity 17,403 15,326
--------- ---------
Total liabilities and stockholders' equity $ 182,337 $ 144,244
========= =========
Net interest income $ 3,956 $ 3,605
======= =======
Interest-rate spread (3) 2.80% 3.19%
==== ====
Net interest margin (4) 3.04% 3.46%
==== ====
Ratio of average interest-earning assets to
average interest-bearing liabilities 1.07 1.10
========= =========
- ----------
(1) Includes 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
COMPARISON OF THE THREE-MONTH PERIODS ENDED SEPTEMBER 30, 2005 AND 2004
GENERAL. Net earnings for the three months ended September 30, 2005, were
$401,000 or $.15 per basic and diluted share compared to net earnings
of $376,000 or $.14 per basic and diluted share for the period ended
September 30, 2004. This increase in the Company's net earnings was
primarily due to an increase in net interest income and noninterest
income which was partially offset by an increase in noninterest
expenses, all of which were due to the overall growth of the Company.
INTEREST INCOME. Interest income increased to $2.9 million for the three
months ended September 30, 2005 from $2.3 million for the three months
ended September 30, 2004. Interest income on loans increased to $2.5
million due primarily to an increase in the average loan portfolio
balance for the three months ended September 30, 2005. Interest on
securities increased to $322,000 due primarily to an increase in the
average balance and an increase in the yield earned on the securities
portfolio in 2005.
INTEREST EXPENSE. Interest expense on deposit accounts increased to
$985,000 for the three months ended September 30, 2005, from $713,000
for the three months ended September 30, 2004. Interest expense on
deposits increased primarily because of an increase in the average
balance of deposits during 2005. Interest expense on borrowings
increased to $543,000 for the three months ended September 30, 2005
from $282,000 for the three months ended September 30, 2004 due to an
increase in the average balance of borrowings.
(CREDIT) PROVISION FOR LOAN LOSSES. The (credit) 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 Company recorded a credit for the three
months ended September 30, 2005 of $(40,000) compared to a provision
of $52,000 for the same period in 2004. Management believes the
balance in the allowance for loan losses of $733,000 at September 30,
2005, is adequate.
NONINTEREST INCOME. Total noninterest income increased to $163,000 for the
three months ended September 30, 2005, from $113,000 for the three
months ended September 30, 2004, primarily due to increases in
prepayment fees collected and service charges and fees.
NONINTEREST EXPENSES. Total noninterest expenses increased to $918,000 for
the three months ended September 30, 2005 from $712,000 for the three
months ended September 30, 2004, primarily due to an increase in
salaries and employee benefits of $45,000 and an increase in occupancy
and equipment of $48,000, all due to the continued growth of the
Company.
INCOME TAXES. Income taxes for the three months ended September 30, 2005,
were $247,000 (an effective rate of 38.2%) compared to income taxes of
$231,000 (an effective rate of 38.1%) for the three months ended
September 30, 2004.
15
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
COMPARISON OF THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2005 AND 2004
GENERAL. Net earnings for the nine months ended September 30, 2005, were
$1,173,000 or $.44 per basic and $.43 per diluted share compared to
net earnings of $1,191,000 or $.45 per basic and $.43 per diluted
share for the period ended September 30, 2004. This increase in the
Company's net earnings was primarily due to an increase in net
interest income and noninterest income which was partially offset by
an increase in noninterest expenses, all of which were due to the
overall growth of the Company.
INTEREST INCOME. Interest income increased to $8.1 million for the nine
months ended September 30, 2005 from $6.5 million for the nine months
ended September 30, 2004. Interest income on loans increased to $7.0
million due primarily to an increase in the average loan portfolio
balance for the nine months ended September 30, 2005. Interest on
securities increased to $959,000 due primarily to an increase in the
average balance and an increase in the yield earned on the securities
portfolio in 2005.
INTEREST EXPENSE. Interest expense on deposit accounts increased to $2.7
million for the nine months ended September 30, 2005, from $2.1
million for the nine months ended September 30, 2004. Interest expense
on deposits increased primarily because of an increase in the average
balance of deposits during 2005. Interest expense on borrowings
increased to $1,490,000 for the nine months ended September 30, 2005
from $814,000 for the nine months ended September 30, 2004 due to an
increase in the average balance of borrowings.
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 nine months ended September 30, 2005,
was $105,000 compared to $107,000 for the same period in 2004.
Management believes the balance in the allowance for loan losses of
$733,000 at September 30, 2005, is adequate.
NONINTEREST INCOME. Total noninterest income increased to $642,000 for the
nine months ended September 30, 2005, from $530,000 for the nine
months ended September 30, 2004 primarily as a result of an increase
in prepayment fees collected of $42,000 and an increase in service
charges and fees of $45,000.
NONINTEREST EXPENSES. Total noninterest expenses increased to $2.6 million
for the nine months ended September 30, 2005 from $2.1 million for the
nine months ended September 30, 2004, primarily due to an increase in
salaries and employee benefits of $165,000 and an increase in
occupancy and equipment expense of $130,000, all due to the continued
growth of the Company.
INCOME TAXES. Income taxes for the nine months ended September 30, 2005,
were $719,000 (an effective rate of 38.0%) compared to income taxes of
$733,000 (an effective rate of 38.1%) for the nine months ended
September 30, 2004.
16
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.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following exhibits are filed with or incorporated by reference into this
report. The exhibits denominated by 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 on March 30, 2004; (iii) a
triple asterisk (***) were previously filed as part of a current report on Form
8-K filed with the Securities and Exchange Commission on May 11, 2004; and (iv)
a quadruple asterisk (****)were previously filed as part of an Annual Report on
Form 10-KSB filed with the Securities and Exchange Commission on March 31, 2005.
EXHIBIT NO. DESCRIPTION OF EXHIBIT
**2 Agreement and Plan of Reorganization 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 Nonemployee Directors Stock Purchase Plan
*10.3 Agreement between OptimumBank, Albert J. Finch and
Richard L. Browdy dated June 14, 2002
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 pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of
Sarbanes-Oxley Act of 2002
32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of
Sarbanes-Oxley Act of 2002
17
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 14, 2005 By: /s/ Albert J. Finch
----------------- ----------------------------
Albert J. Finch,
Chief Executive Officer
Date: November 14, 2005 By: /s/ Richard L. Browdy
----------------- ----------------------------
Richard L. Browdy,
Chief Financial Officer
18