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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
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(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 30, 2006
[ ] 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 (IRS Employer
incorporation or organization) 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 [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: 2,819,003 common shares issued and
outstanding as of August 10, 2006
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
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OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
INDEX
PART I. FINANCIAL INFORMATION
PAGE
----
ITEM 1. INTERIM FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets -
June 30, 2006 (unaudited) and December 31, 2005..........................................................2
Condensed Consolidated Statements of Earnings -
Three and Six Months ended June 30, 2006 and 2005 (unaudited)............................................3
Condensed Consolidated Statements of Stockholders' Equity -
Six Months ended June 30, 2006 and 2005 (unaudited)......................................................4
Condensed Consolidated Statements of Cash Flows -
Six Months ended June 30, 2006 and 2005 (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................................................19
ITEM 6. EXHIBITS...........................................................................................20
SIGNATURES.....................................................................................................21
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,
2006 2005
--------- ---------
(UNAUDITED)
ASSETS
Cash and due from banks $ 249 $ 502
Federal funds sold 1,268 652
--------- ---------
Total cash and cash equivalents 1,517 1,154
Securities held to maturity (fair value approximates $27,885 and
$25,096) 28,561 25,618
Security available for sale 235 243
Loans, net of allowance for loan losses of $910 and $777 179,299 170,226
Federal Home Loan Bank stock 2,987 2,712
Premises and equipment, net 4,042 4,074
Accrued interest receivable 1,079 1,030
Other assets 618 987
--------- ---------
Total assets $ 218,338 $ 206,044
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Noninterest-bearing demand deposits $ 345 $ 390
Savings, NOW and money-market deposits 9,634 7,050
Time deposits 109,232 106,624
--------- ---------
Total deposits 119,211 114,064
Federal Home Loan Bank advances 57,230 52,950
Other borrowings 12,950 12,950
Junior subordinated debenture 5,155 5,155
Other liabilities 1,588 922
Official checks 2,658 1,593
--------- ---------
Total liabilities 198,792 187,634
--------- ---------
Stockholders' equity:
Common stock, $.01 par value; 6,000,000 shares authorized,
2,815,853 and 2,663,775 shares issued and outstanding 28 27
Additional paid-in capital 15,890 14,141
Retained earnings 3,643 4,249
Accumulated other comprehensive loss (15) (7)
--------- ---------
Total stockholders' equity 19,546 18,410
--------- ---------
Total liabilities and stockholders' equity $ 218,338 $ 206,044
========= =========
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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------- -----------------
2006 2005 2006 2005
------ ------ ------ ------
Interest income:
Loans $3,081 $2,427 $6,091 $4,499
Securities 275 338 562 637
Other 44 31 89 76
------ ------ ------ ------
Total interest income 3,400 2,796 6,742 5,212
------ ------ ------ ------
Interest expense:
Deposits 1,202 892 2,314 1,673
Borrowings 679 531 1,386 947
------ ------ ------ ------
Total interest expense 1,881 1,423 3,700 2,620
------ ------ ------ ------
Net interest income 1,519 1,373 3,042 2,592
Provision for loan losses 27 112 133 145
------ ------ ------ ------
Net interest income after provision for loan losses 1,492 1,261 2,909 2,447
------ ------ ------ ------
Noninterest income:
Service charges and fees 14 52 37 100
Loan prepayment fees 70 154 137 341
Gain on early extinguishment of debt -- -- 178 --
Litigation settlement 93 -- 93 --
Other 3 15 7 38
------ ------ ------ ------
Total noninterest income 180 221 452 479
------ ------ ------ ------
Noninterest expenses:
Salaries and employee benefits 505 463 996 936
Occupancy and equipment 157 150 316 291
Data processing 41 50 82 101
Professional fees 66 60 132 102
Insurance 17 18 36 34
Stationary and supplies 6 12 17 22
Other 100 102 198 196
------ ------ ------ ------
Total noninterest expenses 892 855 1,777 1,682
------ ------ ------ ------
Earnings before income taxes 780 627 1,584 1,244
Income taxes 294 239 581 472
------ ------ ------ ------
Net earnings $ 486 $ 388 $1,003 $ 772
====== ====== ====== ======
Net earnings per share:
Basic $ .17 $ .14 $ .36 $ .28
====== ====== ====== ======
Diluted $ .16 $ .13 $ .34 $ .27
====== ====== ====== ======
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, 2006 AND 2005
(DOLLARS IN THOUSANDS)
ACCUMULATED
OTHER
ADDITIONAL COMPRE- TOTAL
COMMON STOCK PAID-IN RETAINED HENSIVE STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS LOSS EQUITY
---------- --------- --------- --------- --------- ---------
Balance at December 31, 2004 2,650,102 $ 27 14,051 2,648 (3) 16,723
---------
Comprehensive income:
Net earnings for the six months
ended June 30, 2005
(unaudited) -- -- -- 772 -- 772
Net change in unrealized loss on
security available for sale
(unaudited) -- -- -- -- 2 2
---------
Comprehensive income
(unaudited) -- -- -- -- -- 774
---------
Proceeds from exercise of common
stock options (unaudited) 11,733 -- 62 -- -- 62
---------- --------- --------- --------- --------- ---------
Balance at June 30, 2005
(unaudited) 2,661,835 $ 27 14,113 3,420 (1) 17,559
========== ========= ========= ========= ========= =========
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) -- -- -- -- -- 995
---------
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
========== ========= ========= ========= ========= =========
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,
----------------------
2006 2005
-------- --------
Cash flows from operating activities:
Net earnings $ 1,003 772
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization 114 131
Provision for loan losses 133 145
Gain on early extinguishment of debt (178) --
Net amortization of fees, premiums and discounts 332 106
Repayments of loans held for sale -- 5
(Increase) decrease in accrued interest receivable (49) 10
Decrease (increase) in other assets 369 (195)
Increase in official checks and other liabilities 1,731 1,243
-------- --------
Net cash provided by operating activities 3,455 2,217
-------- --------
Cash flows from investing activities:
Purchases of securities held to maturity (4,926) (7,843)
Principal repayments of securities held to maturity 1,825 2,926
Net increase in loans (9,380) (25,306)
Purchase of premises and equipment (82) (120)
Purchase of Federal Home Loan Bank stock (275) (247)
-------- --------
Net cash used in investing activities (12,838) (30,590)
-------- --------
Cash flows from financing activities:
Net increase in deposits 5,147 14,069
Proceeds from exercise of common stock options 104 62
Net increase in Federal Home Loan Bank advances 4,458 3,650
Net increase in other borrowings -- 7,950
Tax benefit associated with exercise of common stock options 37 --
-------- --------
Net cash provided by financing activities 9,746 25,731
-------- --------
Net increase (decrease) in cash and cash equivalents 363 (2,642)
Cash and cash equivalents at beginning of the period 1,154 3,223
-------- --------
Cash and cash equivalents at end of the period $ 1,517 $ 581
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 3,705 $ 2,533
======== ========
Income taxes $ 818 $ 1,004
======== ========
Noncash investing and financing activities:
Change in accumulated other comprehensive (loss) income
net change in unrealized loss on security available for sale $ (8) $ 2
======== ========
Loans reclassified to foreclosed real estate $ -- $ 3,315
======== ========
Common stock dividend $ 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, 2006,
and the results of operations for the three- and six-month periods
ended June 30, 2006 and 2005, and cash flows for the six-months
periods ended June 30, 2006 and 2005. The results of operations for
the three and six months ended June 30, 2006, 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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- ---------------------
2006 2005 2006 2005
------ ------ ------ ------
Balance at beginning of period $ 883 $ 661 $ 777 $ 628
Provision for loan losses 27 112 133 145
------ ------ ------ ------
Balance at end of period $ 910 $ 773 $ 910 $ 773
------ ------ ------ ------
There were no impaired loans at June 30, 2006 or December 31, 2005.
The average net investment in impaired loans and interest income
recognized and received on impaired loans is as follows (in
thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2006 2005 2006 2005
Average net investment in impaired loans $ -- $ 467 $ -- $ 1,870
====== ====== ====== =======
Interest income recognized on impaired loans $ -- $ -- $ -- $ --
====== ====== ====== =======
Interest income received on impaired loans $ -- $ -- $ -- $ --
====== ====== ====== =======
At June 30, 2006, the Company had no nonaccrual loans or loans over
90 days still accruing.
(continued)
6
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(3) REGULATORY CAPITAL. The Bank is required to maintain certain minimum
regulatory capital requirements. The following is a summary at June
30, 2006 of the regulatory capital requirements of the Bank's capital
on a percentage basis:
REGULATORY
BANK REQUIREMENT
---- -----------
Tier I capital to total average assets 11.67% 4.00%
Tier I capital to risk-weighted assets 15.56% 4.00%
Total capital to risk-weighted assets 16.15% 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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ ------------------------
2006 2005 2006 2005
---------- ---------- ---------- ----------
Weighted-average number of common shares
outstanding used to calculate basic
earnings per common share 2,815,225 2,791,514 2,808,377 2,788,807
Effect of dilutive stock options 149,634 94,777 136,615 110,155
---------- ---------- ---------- ----------
Weighted-average number of common shares
outstanding used to calculate diluted earnings
per common share 2,964,859 2,886,291 2,944,992 2,898,962
========== ========== ========== ==========
All amounts reflect the 5% stock dividend declared in April, 2006 and
paid in June, 2006.
(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 plans were accounted for under the recognition and
measurement provisions of APB Opinion No. 25 (Opinion 25),
Accounting for Stock Issued to Employees, and related
Interpretations, as permitted by FASB Statement No. 123, Accounting
for Stock-Based Compensation (as amended by 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 plans
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 123R), using the
modified-prospective-transition method. Under that transition
method, compensation cost recognized 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 during the period ending June
30, 2006; therefore, no stock-based compensation has been
recognized in 2006.
In addition, prior to the adoption of SFAS 123(R), the tax benefits
of stock options exercised were classified as operating cash flows.
Since the adoption of SFAS 123(R), tax benefits resulting from tax
deductions in excess of the compensation cost recognized for
options are classified as financing cash flows. As the Company
adopted the modified-prospective- transition method, the prior
period condensed consolidated cash flow statement was not adjusted
to reflect current period presentation.
The Company established an Incentive Stock Option Plan (the "Plan")
for officers, directors and employees of the Company and reserved
544,840 (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
Company accelerated the vesting of all unvested options in the Plan
in 2005, primarily 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. In accordance with SFAS 123, in 2005 the Company expensed the
remaining unrecognized compensation cost associated with these
options in the proforma disclosure. The options must be exercised
within ten years from the date of grant. At June 30, 2006, 9,240
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 dividend declared in April, 2006 and paid in June, 2006
(dollars in thousands, except per share amounts):
WEIGHTED-
WEIGHTED- AVERAGE
AVERAGE REMAINING AGGREGATE
NUMBER OF EXERCISE CONTRACTUAL INTRINSIC
OPTIONS PRICE TERM VALUE
--------- -------- -------- --------
Outstanding at December 31, 2005 497,640 $ 7.62
Exercised (18,000) 5.77
Forfeited (9,240) 9.21
---------
Outstanding and exercisable at June
30, 2006 470,400 $ 7.66 7.2 years $ 2,394
========= ======= ========== =======
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.
The following table illustrates the effect on net earnings and
earnings per share if the Company had applied the fair value
recognition provisions of SFAS 123 to options granted under the
Company's stock option plan for the three months and six months
ended June 30, 2005. For purposes of this pro forma disclosure, the
value of the options is estimated using the Black-Scholes
option-pricing model and is being amortized to expense over the
options' vesting periods. All amounts reflect the 5% stock dividend
declared in April, 2006 and paid in June, 2006 (in thousands,
except per share data).
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2005 2005
------ ------
Net earnings, as reported $ 388 $ 772
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards (44) (88)
------ ------
Proforma net earnings $ 344 $ 684
====== ======
Basic earnings per share:
As reported $ .14 $ .28
====== ======
Proforma $ .12 $ .25
====== ======
Diluted earnings per share:
As reported $ .13 $ .27
====== ======
Proforma $ .12 $ .24
====== ======
(6) COMMON STOCK DIVIDEND. On April 27, 2006, the Company's board of
directors declared a 5% stock dividend to shareholders of record on
May 11, 2006, to be paid on June 11, 2006.
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, 2006, and for the three- and six-month periods ended June 30, 2006 and
2005, 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, 2006,
and the condensed consolidated statements of earnings for the three- and
six-month periods ended June 30, 2006 and 2005 and the related condensed
consolidated statements of stockholders' equity and cash flows for the six-month
periods ended June 30, 2006 and 2005. 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, 2005, 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 10, 2006, 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,
2005, 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 21, 2006
11
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
COMPARISON OF JUNE 30, 2006 AND DECEMBER 31, 2005
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of cash during the six months ended June 30,
2006 were from net deposit inflows of approximately $5.1 million, principal
repayments of securities held to maturity of approximately $1.8 million,
cash provided from operating activities of approximately $3.5 million and
increases in Federal Home Loan Bank advances of approximately $4.5 million.
Cash was used primarily for net loan originations of approximately $9.4
million and purchases of securities of approximately $4.9 million. At June
30, 2006, the Company had time deposits of approximately $67.2 million that
mature in one year or less. At June 30, 2006, 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 SIX MONTHS
ENDED YEAR ENDED ENDED
JUNE 30, DECEMBER 31, JUNE 30,
2006 2005 2005
------ ------ ------
Average equity as a percentage
of average assets 9.16% 9.48% 9.70%
Equity to total assets at end of period 8.95% 8.93% 9.13%
Return on average assets (1) .96% .86% .87%
Return on average equity (1) 10.53% 9.03% 8.98%
Noninterest expenses to average assets (1) 1.71% 1.82% 1.90%
Nonperforming loans to total assets at end
of period --% --% 1.72%
------------
(1) Annualized for the six months ended June 30, 2006 and 2005.
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, 2006, follows (in thousands):
CONTRACT
AMOUNT
--------
Commitments to extend credit $ 9,395
========
Undisbursed loans in process $ 207
========
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 30,
2006 2005
--------------------------------- ----------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE AND YIELD/ AVERAGE AND YIELD/
BALANCE DIVIDENDS RATE BALANCE DIVIDENDS RATE
--------- ------- ------- --------- ------- ------
($ IN THOUSANDS)
Interest-earning assets:
Loans $ 173,395 $ 3,081 7.11% $ 145,080 $ 2,427 6.69%
Securities 24,635 275 4.47 30,405 338 4.45
Other (1) 3,173 44 5.55 2,840 31 4.37
--------- ------- --------- -------
Total interest-earning assets/interest income 201,203 3,400 6.76 178,325 2,796 6.27
-------
Cash and due from banks 277 -- -- 258 -- --
Premise and equipment 4,044 4,125 -- --
Other 2,251 -- -- 5,420 -- --
--------- ---------
Total assets $ 207,775 -- -- $ 188,128 -- --
========= =========
Interest-bearing liabilities:
Savings, NOW and money-market deposits 8,580 42 1.96 7,640 26 1.36
Time deposits 108,842 1,160 4.26 98,525 866 3.52
Borrowings (2) 67,131 679 4.05 61,132 531 3.47
--------- ------- --------- -------
Total interest-bearing liabilities/
interest expense 184,553 1,881 4.08 167,297 1,423 3.40
------- -------
Noninterest-bearing demand deposits 884 -- -- 1,070 -- --
Other liabilities 2,964 -- -- 2,399 -- --
Stockholders' equity 19,374 -- -- 17,362 -- --
--------- ---------
Total liabilities and stockholders' equity $ 207,775 -- -- $ 188,128 -- --
========= =========
Net interest income -- $ 1,519 -- -- $ 1,373 --
========= =======
Interest-rate spread (3) -- -- 2.68% -- -- 2.87%
====== =====
Net interest margin (4) -- -- 3.02% -- -- 3.08%
====== =====
Ratio of average interest-earning assets to
average interest-bearing liabilities 1.09 -- -- 1.07 -- --
========= =========
------------
(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. OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
14
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,
------------------------------------------------------------------
2006 2005
--------------------------------- ----------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE AND YIELD/ AVERAGE AND YIELD/
BALANCE DIVIDENDS RATE BALANCE DIVIDENDS RATE
--------- ------- -------- --------- -------- ------
($ IN THOUSANDS)
Interest-earning assets:
Loans $ 172,791 $ 6,091 7.05% $ 135,511 $ 4,499 6.64%
Securities 25,020 562 4.49 28,782 637 4.43
Other (1) 3,349 89 5.32 4,530 76 3.35
--------- ------- --------- -------
Total interest-earning assets/interest income 201,160 6,742 6.70 168,823 5,212 6.17
------- -------
Cash and due from banks 313 -- -- 417 -- --
Premise and equipment 4,055 -- -- 2,857 -- --
Other 2,431 -- -- 5,004 -- --
---------
Total assets $ 207,959 -- -- $ 177,101 -- --
========= =========
Interest-bearing liabilities:
Savings, NOW and money-market deposits 7,948 65 1.64 7,829 45 1.15
Time deposits 108,606 2,249 4.14 94,227 1,628 3.46
Borrowings (2) 68,692 1,386 4.04 54,542 947 3.47
--------- ------- --------- -------
Total interest-bearing liabilities/
interest expense 185,246 3,700 4.00 156,598 2,620 3.35
-------
Noninterest-bearing demand deposits 887 -- -- 1,079 -- --
Other liabilities 2,768 -- -- 2,237 -- --
Stockholders' equity 19,058 -- -- 17,187 -- --
--------- ---------
Total liabilities and stockholders' equity $ 207,959 -- -- $ 177,101 -- --
========= =========
Net interest income -- $ 3,042 -- -- $ 2,592 --
======= =======
Interest-rate spread (3) -- -- 2.70% -- -- 2.82%
====== ======
Net interest margin (4) -- -- 3.02% -- -- 3.07%
====== ======
Ratio of average interest-earning assets to
average interest-bearing liabilities 1.09 -- -- 1.08 -- --
========= =========
------------
(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, 2006 AND 2005
GENERAL. Net earnings for the three months ended June 30, 2006, were $486,000
or $.17 per basic and $.16 per diluted share compared to net earnings of
$388,000 or $.14 per basic and $.13 per diluted share for the period ended
June 30, 2005. This increase in the Company's net earnings was primarily
due to an increase in net interest income.
INTEREST INCOME. Interest income increased to $3.4 million for the three
months ended June 30, 2006 from $2.8 million for the three months ended
June 30, 2005. Interest income on loans increased to $3.1 million due
primarily to an increase in the average loan portfolio balance for the
three months ended June 30, 2006, and an increase in the average yield
earned from 6.69% for the three months ended June 30, 2005 to 7.11% for
the three months ended June 30, 2006. Interest on securities decreased to
$275,000 due primarily to a decrease in the average balance of the
securities portfolio in 2006.
INTEREST EXPENSE. Interest expense on deposits increased to $1,202,000 for
the three months ended June 30, 2006, from $892,000 for the three months
ended June 30, 2005. Interest expense increased primarily because of an
increase in the average balance and the average rate paid on deposits
during 2006. Interest expense on borrowings increased to $679,000 for the
three months ended June 30, 2006 from $531,000 for the three months ended
June 30, 2005 due to an increase in the average balance of borrowings and
an increase in the average rate paid on borrowings during 2006.
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, 2006, was $27,000 compared to $112,000
for the same period in 2005. Management believes the balance in the
allowance for loan losses of $910,000 at June 30, 2006, is adequate.
NONINTEREST INCOME. Total noninterest income decreased to $180,000 for the
three months ended June 30, 2006, from $221,000 for the three months ended
June 30, 2005, primarily due to a decrease in loan prepayment fees,
partially offset by receiving a litigation settlement.
NONINTEREST EXPENSES. Total noninterest expenses increased to $892,000 for
the three months ended June 30, 2006 from $855,000 for the three months
ended June 30, 2005, primarily due to the continued growth of the Company.
INCOME TAXES. Income taxes for the three months ended June 30, 2006, were
$294,000 (an effective rate of 37.7%) compared to income taxes of $239,000
(an effective rate of 38.1%) for the three months ended June 30, 2005.
16
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
COMPARISON OF THE SIX-MONTH PERIODS ENDED JUNE 30, 2006 AND 2005
GENERAL. Net earnings for the six months ended June 30, 2006, were $1,003,000
or $.36 per basic and $.34 per diluted share compared to net earnings of
$772,000 or $.28 per basic and $.27 per diluted share for the period ended
June 30, 2005. This increase in the Company's net earnings was primarily
due to an increase in net interest income.
INTEREST INCOME. Interest income increased to $6.7 million for the six months
ended June 30, 2006 from $5.2 million for the six months ended June 30,
2005. Interest income on loans increased to $6.1 million due primarily to
an increase in the average loan portfolio balance for the six months ended
June 30, 2006 and an increase in the average yield earned from 6.64% for
the six months ended June 30, 2005 to 7.05% for the six months ended June
30, 2006. Interest on securities decreased to $562,000 due primarily to a
decrease in the average balance of the securities portfolio in 2006.
INTEREST EXPENSE. Interest expense on deposits increased to $2.3 million for
the six months ended June 30, 2006, from $1.7 million for the six months
ended June 30, 2005. Interest expense increased primarily because of an
increase in the average balance and the average rate paid on deposits
during 2006. Interest expense on borrowings increased to $1.4 million for
the six months ended June 30, 2006 from $947,000 for the six months ended
June 30, 2005 due to an increase in the average balance of borrowings and
an increase in the average rate paid on borrowings during 2006.
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 six months ended June 30, 2006, was $133,000 compared to $145,000
for the same period in 2005. Management believes the balance in the
allowance for loan losses of $910,000 at June 30, 2006, is adequate.
NONINTEREST INCOME. Total noninterest income decreased to $452,000 for the
six months ended June 30, 2006, from $479,000 for the six months ended
June 30, 2005, primarily due to a decrease in loan prepayment fees
partially offset by an increase in gains recognized on the payoff of
Federal Home Loan Bank advances and due to receiving a litigation
settlement.
NONINTEREST EXPENSES. Total noninterest expenses increased to $1.8 million
for the six months ended June 30, 2006 from $1.7 million for the six
months ended June 30, 2005, primarily due to the continued growth of the
Company.
INCOME TAXES. Income taxes for the six months ended June 30, 2006, were
$581,000 (an effective rate of 36.7%) compared to income taxes of $472,000
(an effective rate of 37.9%) for the six months ended June 30, 2005.
17
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.
18
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, 2006, to consider the election of directors each for a term of
one year.
At the Annual Meeting, 2,204,766 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 2,204,686 80
========== =======
Richard L. Browdy 2,204,686 80
========== =======
Michael Bedzow 2,204,686 80
========== =======
Sam Borek 2,203,766 1,000
========== =======
Irving P. Cohen 2,204,686 80
========== =======
Gordon Deckelbaum 2,204,686 80
========== =======
H. David Krinsky 2,203,686 1,080
========== =======
Wendy Mitchler 2,204,686 80
========== =======
Larry R. Willis 2,203,686 1,080
========== =======
19
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 ss.906 of the
Sarbanes-Oxley Act of 2002
32.2 Certification of Chief Financial Officer under ss.906 of the
Sarbanes-Oxley Act of 2002
20
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 11, 2006 By: /s/ Albert J. Finch
---------------------------
Albert J. Finch,
Chief Executive Officer
Date: August 11, 2006 By: /s/ Richard L. Browdy
---------------------------
Richard L. Browdy,
Chief Financial Officer
21