UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

x  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31,September 30, 2012
or
o

or  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

¨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)

OPTIMUMBANK HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Florida 000-50755

(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)

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 ¨o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨o

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,” “acceleratedaccelerated 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 companyx

Large accelerated filer  o                                                                                                    Accelerated filer o
Non-accelerated filer    o          (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 ¨o No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 26,549,89730,900,833 shares of Common Stock, $.01 par value, issued and outstanding as of May 10,November 13, 2012

 


OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

SUBSIDIARIES

INDEX

  
Page
 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

  2
  2

  3
  3

  4
  4

  5
  5

  6-7
  6-7

8-28
  8-27

  29-37
  28-33

38
  34

 

38
39
  34

 3540

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

SUBSIDIARIES

PART I. FINANCIAL INFORMATION

ItemItem 1. Financial Statements

Condensed Consolidated Balance Sheets

(Dollars in thousands, except per share amounts)

   March 31,
2012
  December 31,
2011
 
   (Unaudited) 

Assets

  

Cash and due from banks

  $2,270   $1,101  

Interest-bearing deposits with banks

   6,189    5,123  

Federal funds sold

   15,632    16,552  
  

 

 

  

 

 

 

Total cash and cash equivalents

   24,091    22,776  

Securities held to maturity (fair value of $100)

   100    100  

Securities available for sale

   26,946    28,907  

Loans, net of allowance for loan losses of $1,975 and $2,349

   88,254    89,217  

Federal Home Loan Bank stock

   2,159    2,159  

Premises and equipment, net

   2,673    2,691  

Foreclosed real estate, net

   7,643    7,646  

Accrued interest receivable

   495    499  

Other assets

   577    477  
  

 

 

  

 

 

 

Total assets

  $152,938   $154,472  
  

 

 

  

 

 

 

Liabilities and Stockholders’ Equity

   

Liabilities:

   

Noninterest-bearing demand deposits

   488    515  

Savings, NOW and money-market deposits

   34,688    35,538  

Time deposits

   70,357    71,842  
  

 

 

  

 

 

 

Total deposits

   105,533    107,895  

Federal Home Loan Bank advances

   31,700    31,700  

Junior subordinated debenture

   5,155    5,155  

Advanced payment by borrowers for taxes and insurance

   509    567  

Official checks

   457    1,113  

Other liabilities

   1,410    1,256  
  

 

 

  

 

 

 

Total liabilities

   144,764    147,686  
  

 

 

  

 

 

 

Stockholders’ equity:

   

Preferred stock, no par value; 6,000,000 shares authorized, no shares issued or outstanding

   0    0  

Common stock, $.01 par value; 50,000,000 shares authorized, 26,487,397 and 22,411,108 shares issued and outstanding in 2012 and 2011

   265    224  

Additional paid-in capital

   29,093    27,491  

Accumulated deficit

   (20,573  (19,991

Accumulated other comprehensive loss

   (611  (938
  

 

 

  

 

 

 

Total stockholders’ equity

   8,174    6,786  
  

 

 

  

 

 

 

Total liabilities and stockholders’ equity

  $152,938   $154,472  
  

 

 

  

 

 

 

  September 30,  December 31, 
Assets 2012  2011 
  (Unaudited)    
       
Cash and due from banks $1,959  $1,101 
Interest-bearing deposits with banks  3,688   5,123 
Federal funds sold  21,720   16,552 
         
Total cash and cash equivalents  27,367   22,776 
         
Securities available for sale  21,588   28,907 
Loans, net of allowance for loan losses of $1,936 and $2,349  85,451   89,217 
Federal Home Loan Bank stock  1,478   2,159 
Premises and equipment, net  2,859   2,691 
Foreclosed real estate, net  10,444   7,646 
Accrued interest receivable  477   499 
Other assets  330   577 
         
Total assets $149,994  $154,472 
         
Liabilities and Stockholders’ Equity        
         
Liabilities:        
Noninterest-bearing demand deposits  1,309   515 
Savings, NOW and money-market deposits  34,573   35,538 
Time deposits  69,644   71,842 
         
Total deposits  105,526   107,895 
         
Federal Home Loan Bank advances  27,700   31,700 
Junior subordinated debenture  5,155   5,155 
Advanced payment by borrowers for taxes and insurance  1,029   567 
Official checks  320   1,113 
Other liabilities  1,397   1,256 
         
Total liabilities  141,127   147,686 
         
Stockholders’ equity:        
Preferred stock, no par value; 6,000,000 shares authorized, no shares issued or outstanding  0   0 
Common stock, $.01 par value; 50,000,000 shares authorized, 30,900,833 and 22,411,108 shares issued and outstanding in 2012 and 2011  309   224 
Additional paid-in capital  30,823   27,491 
Accumulated deficit  (22,368)  (19,991)
Accumulated other comprehensive income (loss)  103   (938)
         
Total stockholders’ equity  8,867   6,786 
         
Total liabilities and stockholders’ equity $149,994  $154,472 
See Accompanying Notes to Condensed Consolidated Financial Statements.

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

SUBSIDIARIES

Condensed Consolidated Statements of Operations (Unaudited)

(in thousands, except per share amounts)

   Three Months Ended
March 31,
 
   2012  2011 

Interest income:

   

Loans

  $995   $1,289  

Securities

   298    529  

Other

   16    15  
  

 

 

  

 

 

 

Total interest income

   1,309    1,833  
  

 

 

  

 

 

 

Interest expense:

   

Deposits

   291    550  

Borrowings

   389    380  
  

 

 

  

 

 

 

Total interest expense

   680    930  
  

 

 

  

 

 

 

Net interest income

   629    903  

Provision for loan losses

   27    34  
  

 

 

  

 

 

 

Net interest income after provision for loan losses

   602    869  
  

 

 

  

 

 

 

Noninterest income:

   

Service charges and fees

   3    10  

Other

   1    6  
  

 

 

  

 

 

 

Total noninterest income

   4    16  
  

 

 

  

 

 

 

Noninterest expenses:

   

Salaries and employee benefits

   410    476  

Professional fees

   239    390  

Occupancy and equipment

   119    133  

Data processing

   50    52  

Insurance

   70    114  

Foreclosed real estate expenses

   68    391  

Regulatory assessment

   44    221  

Other

   188    265  
  

 

 

  

 

 

 

Total noninterest expenses

   1,188    2,042  
  

 

 

  

 

 

 

Net loss

  $(582 $(1,157
  

 

 

  

 

 

 

Net loss per share:

   

Basic

  $(.03 $(1.41
  

 

 

  

 

 

 

Diluted

  $(.03 $(1.41
  

 

 

  

 

 

 

Dividends per share

  $0   $0  
  

 

 

  

 

 

 

             
  
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
 
  2012  2011  2012  2011 
Interest income:            
Loans $1,025  $1,121  $3,002  $3,607 
Securities  245   378   819   1,407 
Other  22   17   60   46 
                 
Total interest income  1,292   1,516   3,881   5,060 
                 
Interest expense:                
Deposits  272   441   848   1,489 
Borrowings  359   389   1,136   1,153 
                 
Total interest expense  631   830   1,984   2,642 
                 
Net interest income  661   686   1,897   2,418 
                 
Provision (credit) for loan losses  197   (243)  378   652 
                 
Net interest income after provision (credit) for loan losses  464   929   1,519   1,766 
                 
Noninterest income:                
Service charges and fees  9   9   19   26 
Gain on sale of securities  0   0   0   153 
Other  1   1   179   53 
                 
Total noninterest income  10   10   198   232 
                 
Noninterest expenses:                
Salaries and employee benefits  465   444   1,301   1,380 
Occupancy and equipment  133   132   376   399 
Data processing  47   45   161   147 
Professional fees  283   417   810   1,267 
Insurance  68   99   208   326 
Foreclosed real estate  192   81   329   1,063 
Regulatory assessment  92   163   215   545 
Other  118   121   490   561 
                 
Total noninterest expenses  1,398   1,502   3,890   5,688 
                 
Other-than-temporary impairment on securities:                
Total other-than-temporary impairment losses  101   0   204   0 
Portion of losses recognized in other comprehensive income  0   0   0   0 
                 
Net impairment loss  101   0   204   0 
                 
Net loss $(1,025) $(563) $(2,377) $(3,690)
                 
Net loss per share:                
Basic $(.04) $(.69) $(.09) $(4.50)
                 
Diluted $(.04) $(.69) $(.09) $(4.50)
                 
Dividends per share $0  $0  $0  $0 
See Accompanying Notes to Condensed Consolidated Financial Statements.

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

SUBSIDIARIES


Condensed Consolidated Statements of Comprehensive Loss (Unaudited)

(In thousands)

   Three Months Ended
March 31,
 
   2012  2011 

Net loss

  $(582 $(1,157

Other comprehensive loss-

   

Unrealized gains on securities available for sale-

   

Unrealized holding gains arising during period

   327    0  
  

 

 

  

 

 

 

Comprehensive loss

  $(255 $(1,157
  

 

 

  

 

 

 

             
  Three Months Ended September 30,  Nine Months Ended September 30, 
  2012  2011  2012  2011 
                 
Net loss $(1,025) $(563) $(2,377) $(3,690)
                 
Other comprehensive loss-                
    Unrealized gains (loss) on securities available for sale-                
Unrealized holding gains (losses) arising during period  603   21   1,041   (854)
                 
Comprehensive loss $(422) $(542) $(1,336) $(4,544)
See Accompanying Notes to Condensed Consolidated Financial Statements.

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

SUBSIDIARIES

Condensed ConsolidatedConsolidated Statements of Stockholders’ Equity (Deficit)

Three

Nine Months Ended March 31,September 30, 2012 and 2011

(Dollars in thousands)

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

Balance at December 31, 2010

   819,358    $8    $19,071    $(16,244 $0   $2,835  

Net loss for the three months ended March 31, 2011 (unaudited)

   0     0     0     (1,157  0    (1,157
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

Balance at March 31, 2011 (unaudited)

   819,358    $8    $19,071    $(17,401 $0   $1,678  
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

Balance at December 31, 2011

   22,411,108    $224    $27,491    $(19,991 $(938 $6,786  

Net loss for the three months ended March 31, 2012 (unaudited)

   0     0     0     (582  0    (582

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

   0     0     0     0    327    327  

Proceeds from sale of common stock (unaudited)

   4,076,289     41     1,602     0    0    1,643  
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

Balance at March 31, 2012 (unaudited)

   26,487,397    $265    $29,093    $(20,573 $(611 $8,174  
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

 

                 
             Accumulated   
             Other Total 
        Additional    Compre- Stockholders’ 
   Common Stock Paid-In Accumulated hensive Equity 
   Shares Amount Capital Deficit Loss (Deficit) 
                 
Balance at December 31, 2010  819,358 $8 19,071  (16,244)0 2,835 
                 
Net loss for the nine months ended September 30, 2011 (unaudited)  0  0 0  (3,690)0 (3,690
                 
Net change in unrealized loss on securities available for sale (unaudited)  0  0 0  0 (854)(854
                 
Balance at September 30, 2011 (unaudited)  819,358 $8 19,071  (19,934)(854)(1,709
                 
                 
Balance at December 31, 2011  22,411,108 $224 27,491  (19,991)(938)6,786 
                 
Proceeds from sale of common stock (unaudited)  8,447,500  85 3,290  0 0 3,375 
                 
Common stock issued as compensation to directors (unaudited)  42,225  0 42  0 0 42 
                 
Net loss for the nine months ended September 30, 2012 (unaudited)  0  0 0  (2,377)0 (2,377
                 
Net change in unrealized loss on securities available for sale (unaudited)  0  0 0  0 1,041 1,041 
                 
Balance at September 30, 2012 (unaudited)  30,900,833 $309 30,823  (22,368)103 8,867 
See Accompanying Notes to Condensed Consolidated Financial Statements.


OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

   Three Months Ended
March 31,
 
   2012  2011 

Cash flows from operating activities:

   

Net loss

  $(582 $(1,157

Adjustments to reconcile net loss to net cash used in operating activities:

   

Depreciation and amortization

   26    33  

Provision for loan losses

   27    34  

Net amortization of fees, premiums and discounts

   9    (69

Decrease in accrued interest receivable

   4    85  

(Increase) decrease in other assets

   (100  207  

Loss on sale of foreclosed real estate

   0    166  

Write-down of foreclosed real estate

   25    180  

(Decrease) increase in official checks and other liabilities

   (502  508  
  

 

 

  

 

 

 

Net cash used in operating activities

   (1,093  (13
  

 

 

  

 

 

 

Cash flows from investing activities:

   

Purchases of securities

   0    (5,048

Principal repayments and calls of securities

   2,286    3,405  

Net decrease in loans

   929    2,463  

Purchases of premises and equipment

   (8  (4

Proceeds from sale of foreclosed real estate, net

   0    1,643  

Capital improvements on foreclosed real estate

   (22  0  
  

 

 

  

 

 

 

Net cash provided by investing activities

   3,185    2,459  
  

 

 

  

 

 

 

Cash flows from financing activities:

   

Net decrease in deposits

   (2,362  (5,940

Net (decrease) increase in advanced payments by borrowers for taxes and insurance

   (58  85  

Proceeds from sale of common stock

   1,643    0  
  

 

 

  

 

 

 

Net cash used in financing activities

   (777  (5,855
  

 

 

  

 

 

 

Net increase (decrease) in cash and cash equivalents

   1,315    (3,409

Cash and cash equivalents at beginning of the period

   22,776    14,367  
  

 

 

  

 

 

 

Cash and cash equivalents at end of the period

  $24,091   $10,958  
  

 

 

  

 

 

 

       
  Nine Months Ended September 30, 
  2012  2011 
Cash flows from operating activities:      
Net loss $(2,377) $(3,690)
Adjustments to reconcile net loss to net cash used in operating activities:        
Depreciation and amortization  87   94 
Provision for loan losses  378   652 
Gain on sale of securities  0   (153)
Common stock issued as compensation to directors  42   0 
Net amortization of fees, premiums and discounts  0   93 
Decrease in other assets  247   373 
Loss on sale of foreclosed real estate  28   186 
Write-down of foreclosed real estate  70   704 
Decrease in accrued interest receivable  22   101 
Decrease in official checks and other liabilities  (652)  (79)
Other-than-temporary impairment of securities available for sale  204   0 
         
Net cash used in operating activities  (1,951)  (1,719)
         
Cash flows from investing activities:        
Purchases of securities held to maturity  0   (5,048)
Principal repayments and maturity of securities available for sale  8,156   7,688 
Proceeds from sale of security available for sale  0   11,028 
Net decrease in loans  232   8,492 
Purchase of premises and equipment  (255)  (5)
Proceeds from sale of foreclosed real estate  317   3,703 
Capital improvements on foreclosed real estate  (57)  0 
Redemption of Federal Home Loan Bank stock  681   747 
         
Net cash provided by investing activities  9,074   26,605 
         
Cash flows from financing activities:        
Net decrease in deposits  (2,369)  (19,014)
Increase in advance payments by borrowers for taxes and insurance  462   459 
Repayment of Federal Home Loan Bank advances  (4,000)  0 
Proceeds from sale of common stock  3,375   0 
         
Net cash used in financing activities  (2,532)  (18,555)
         
Net increase in cash and cash equivalents  4,591   6,331 
         
Cash and cash equivalents at beginning of the period  22,776   14,367 
         
Cash and cash equivalents at end of the period $27,367  $20,698 
(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited), Continued

(In thousands)

   Three Months Ended
March 31,
 
   2012   2011 

Supplemental disclosure of cash flow information:

    

Cash paid during the period for:

    

Interest

  $640    $902  
  

 

 

   

 

 

 

Income taxes

  $0    $0  
  

 

 

   

 

 

 

Noncash transactions:

    

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

  $327    $0  
  

 

 

   

 

 

 

Loans transferred to foreclosed real estate

  $0    $4,957  
  

 

 

   

 

 

 

        
  Nine Months Ended September 30, 
  2012 2011 
Supplemental disclosure of cash flow information:       
Cash paid during the period for:       
Interest $1,898 $2,535 
        
Income taxes $0 $0 
        
Noncash investing and financing activities:       
Change in accumulated other comprehensive loss, net change in unrealized loss on security available for sale $1,041 $21 
        
Transfer of securities held to maturity to available for sale $0 $50,534 
        
Loans transferred to foreclosed real estate $3,156 $8,596 
See Accompanying Notes to Condensed Consolidated Financial Statements.


OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

SUBSIDIARIES


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.  The Bank’s wholly-owned subsidiaries are OB Real Estate Management, LLC, OB Real Estate Holdings, LLC and OB Real Estate HoldingHoldings 1503, LLC, all of which were formed in 2009, OB Real Estate Holdings 1695, LLC, OB Real Estate Holdings 1669, LLC, OB Real Estate Holdings 1645, LLC, OB Real Estate Holdings 1620, LLC,  and OB Real Estate Holdings 1565, LLC, all formed in 2010, and OB Real Estate Holdings 1443, LLC, and OB Real Estate Holdings 1616, OB Real Estate Holdings 1617, OB Real Estate Holdings 1710, OB Real Estate Holdings 1596, LLC, OB Real Estate Holdings 1636, LLC, and OB Real Estate Holdings Northwood, LLC, formed in 2011.2011, OB Real Estate Holdings Sillato, LLC, OB Real Estate Holdings 1655, LLC, OB Real Estate Holdings 1704, LLC and OB Real Estate Holdings Rosemary, LLC, formed in 2012. The Holding Company’s only business is the operation of the Bank and its subsidiaries (collectively, the “Company”).  The Bank’s deposits are insured up to applicable limits by the Federal Deposit Insurance Corporation (“FDIC”). The Bank offers a variety of community banking services to individual and corporate customers through its three banking offices located in Broward County, Florida.  OB Real Estate Management, LLC is primarily engaged in managing foreclosed real estate.  This subsidiary had no activity in 2012 and 2011.  All other subsidiaries are primarily engaged in holding and disposing of foreclosed real estate.
       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, 2012, and the results of operations for the three- and nine-month periods ended September 30, 2012 and 2011, and cash flows for the nine-months periods ended September 30, 2012 and 2011.  The results of operations for the three- and nine-months ended September 30, 2012, are not necessarily indicative of the results to be expected for the full year.
       Comprehensive Loss. Generally accepted accounting principles generally requires that recognized revenue, expenses, gains and losses be included in net loss.  Although certain changes in assets and liabilities, such as unrealized gains and losses on available for sale securities, are reported as a separate component of the equity section of the consolidated balance sheet, such items along with net loss, are components of comprehensive loss.  The only component of other comprehensive loss is the net change in the unrealized loss on the securities available for sale.
        Income Taxes. During the year ended December 31, 2009, the Company assessed its earnings history and trend over the past year and its estimate of future earnings, and determined that it is more likely than not that the deferred tax asset will not be realized in the near term.  Accordingly, a valuation allowance was recorded against the net deferred tax asset for the amount not expected to be realized in the future.  Based on the available evidence at September 30, 2012, the Company determined that it is still more likely than not that the deferred tax asset will not be realized in the near term.

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 March 31, 2012, and the results of operations and cash flows for the three-month periods ended March 31, 2012 and 2011. The results of operations for the three months ended March 31, 2012, are not necessarily indicative of the results to be expected for the full year.

Comprehensive Loss.Generally accepted accounting principles generally requires that recognized revenue, expenses, gains and losses be included in net loss. Although certain changes in assets and liabilities, such as unrealized gains and losses on available for sale securities, are reported as a separate component of the equity section of the consolidated balance sheet, such items along with net loss, are components of comprehensive loss. The only component of other comprehensive loss is the net change in the unrealized loss on the securities available for sale.

Income Taxes. During the year ended December 31, 2009, the Company assessed its earnings history and trend over the past year and its estimate of future earnings, and determined that it is more likely than not that the deferred tax asset will not be realized in the near term. Accordingly, a valuation allowance was recorded against the net deferred tax asset for the amount not expected to be realized in the future. Based on the available evidence at March 31, 2012, the Company determined that it is still more likely than not that the deferred tax asset will not be realized in the near term. Accordingly, the valuation allowance was increased in 2012 to offset the increase in the net deferred tax asset.

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

SUBSIDIARIES


Notes to Condensed Consolidated Financial Statements (unaudited), Continued
(1)General, Continued.
       Recent Pronouncements. In December 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-12 (“ASU 2011-12”), Comprehensive Income (Topic 220), Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05 (“ASU 2011-05”). Stakeholders raised concerns that the new presentation requirements about reclassifications of items out of accumulated other comprehensive income would be difficult for preparers and may add unnecessary complexity to financial statements.  In addition, it is difficult for some stakeholders to change systems in time to gather the information for the new presentation requirements by the effective date of Update 2011-05.  All other requirements in ASU 2011-05 are not affected by this update, including the requirement to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements. The amendments in ASU 2011-12 are effective on a retrospective basis for public entities for annual periods beginning after December 15, 2011, and interim periods within those years.  An entity should provide the disclosures required by ASU 2011-12 retrospectively for all comparative periods presented.  The adoption of this guidance did not have a material effect on the Company’s condensed consolidated financial statements.
        In December 2011, the FASB issued ASU No. 2011-11 (“ASU 2011-11”), Balance Sheet (Topic 210), Disclosures about Offsetting Assets and Liabilities. The objective of ASU 2011-11 is to enhance disclosures required by U.S. GAAP by requiring improved information about financial instruments and derivative instruments that are either (1) offset in accordance with either Section 210-20-45 or Section 815-10-45 or (2) subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with Section 210-20-45 or Section 815-10-45.  This information will enable users of an entity’s financial statements to evaluate the effect or potential effect of netting arrangements on an entity’s financial position.  The amendments in ASU 2011-11 are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by ASU 2011-11 retrospectively for all comparative periods presented. The adoption of this guidance did not have a material effect on the Company’s condensed consolidated financial statements.

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (unaudited), Continued



(1)General, Continued.

Recent Pronouncements. In December 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-12 (“ASU 2011-12”),Comprehensive Income (Topic 220), Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05 (“ASU 2011-05”).Stakeholders raised concerns that the new presentation requirements about reclassifications of items out of accumulated other comprehensive income would be difficult for preparers and may add unnecessary complexity to financial statements. In addition, it is difficult for some stakeholders to change systems in time to gather the information for the new presentation requirements by the effective date of Update 2011-05. All other requirements in ASU 2011-05 are not affected by this update, including the requirement to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements. The amendments in ASU 2011-12 are effective on a retrospective basis for public entities for annual periods beginning after December 15, 2011, and interim periods within those years. An entity should provide the disclosures required by ASU 2011-12 retrospectively for all comparative periods presented. The adoption of this guidance did not have a material effect on the Company’s consolidated financial statements.

In December 2011, the FASB issued ASU No. 2011-11 (“ASU 2011-11”),Balance Sheet (Topic 210), Disclosures about Offsetting Assets and Liabilities.The objective of ASU 2011-11 is to enhance disclosures required by U.S. GAAP by requiring improved information about financial instruments and derivative instruments that are either (1) offset in accordance with either Section 210-20-45 or Section 815-10-45 or (2) subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with Section 210-20-45 or Section 815-10-45. This information will enable users of an entity’s financial statements to evaluate the effect or potential effect of netting arrangements on an entity’s financial position. The amendments in ASU 2011-11 are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by ASU 2011-11 retrospectively for all comparative periods presented. The adoption of this guidance did not have a material effect on the Company’s consolidated financial statements.

(continued)

        Recent Pronouncements, Continued. In June 2011, the FASB issued ASU No. 2011-05 (“ASU 2011-05”), Comprehensive Income (Topic 220), Presentation of Comprehensive Income. The objective of ASU 2011-05 is to improve the comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income.  To achieve this goal and to facilitate convergence of U.S. generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRS), the FASB decided to eliminate the option to present components of other comprehensive income as part of the consolidated statement of changes in stockholders’ equity. The amendments in ASU 2011-05 require that all nonowner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income, and the total of comprehensive income. The amendments in ASU 2011-05 should be applied retrospectively.  For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011.  Early adoption is permitted, because compliance with the amendments is already permitted.  The amendments do not require any transition disclosures.  The adoption of this guidance did not have a material effect on the Company’s condensed consolidated financial statements.
        In May 2011, the FASB issued ASU No. 2011-04 (“ASU 2011-04”), Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.  The objective of ASU 2011-04 is to provide clarification of Topic 820 and, also, to ensure that fair value has the same meaning in U.S. generally accepted accounting principles (“GAAP”) and in international financial reporting standards (“IFRSs”) and that their respective fair value measurement and disclosure requirements are generally the same.  Thus, this update results in common principles and requirements for measuring fair value and for disclosing information about fair value measurements in accordance with GAAP and IFRSs. The amendment is effective for interim and annual periods beginning after December 15, 2011 and is to be applied prospectively.  Early application is not permitted. The adoption of this guidance did not have a material effect on the Company’s condensed consolidated financial statements.

(continued)
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

SUBSIDIARIES


Notes to Condensed Consolidated Financial Statements (unaudited), Continued

(1)(2)
General, Continued.Securities.

Recent Pronouncements, Continued.In June 2011, the FASB issued ASU No. 2011-05 (“ASU 2011-05”),Comprehensive Income (Topic 220), Presentation of Comprehensive Income.The objective of ASU 2011-05 is to improve the comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. To achieve this goal and to facilitate convergence of U.S. generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRS), the FASB decided to eliminate the option to present components of other comprehensive income as part of the consolidated statement of changes in stockholders’ equity. The amendments in ASU 2011-05 require that all nonowner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income, and the total of comprehensive income. The amendments in ASU 2011-05 should be applied retrospectively. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Early adoption is permitted, because compliance with the amendments is already permitted. The amendments do not require any transition disclosures. The adoption of this guidance did not have a material effect on the Company’s consolidated financial statements.

In May 2011, the FASB issued ASU No. 2011-04 (“ASU 2011-04”),Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.The objective of ASU 2011-04 is to provide clarification of Topic 820 and, also, to ensure that fair value has the same meaning in U.S. generally accepted accounting principles (“GAAP”) and in international financial reporting standards (“IFRSs”) and that their respective fair value measurement and disclosure requirements are generally the same. Thus, this update results in common principles and requirements for measuring fair value and for disclosing information about fair value measurements in accordance with GAAP and IFRSs. The amendment is effective for interim and annual periods beginning after December 15, 2011 and is to be applied prospectively. Early application is not permitted. The adoption of this guidance did not have a material effect on the Company’s consolidated financial statements.

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (unaudited), Continued

(2)Securities.  Securities have been classified according to management’s intent.  The carrying amount of securities and approximate fair values are as follows (in thousands):

   Amortized
Cost
   Gross
Unrealized
Gains
   Gross
Unrealized
Losses
  Fair
Value
 

At March 31, 2012:

       

Securities Available for Sale-

       

Mortgage-backed securities

  $27,557    $216    $(827 $26,946  
  

 

 

   

 

 

   

 

 

  

 

 

 

Security Held to Maturity-

       

State of Israel Bond

  $100    $0    $0   $100  
  

 

 

   

 

 

   

 

 

  

 

 

 

At December 31, 2011:

       

Securities Available for Sale-

       

Mortgage-backed securities

  $29,845    $202    $(1,140 $28,907  
  

 

 

   

 

 

   

 

 

  

 

 

 

Security Held to Maturity-

       

State of Israel Bond

  $100    $0    $0   $100  
  

 

 

   

 

 

   

 

 

  

 

 

 

      Gross  Gross    
   Amortized  Unrealized  Unrealized  Fair 
   Cost  Gains  Losses  Value 
 At September 30, 2012:            
 Securities Available for Sale-            
 Mortgage-backed securities $21,485  $375  $(272) $21,588 
                  
 At December 31, 2011:                
 Securities Available for Sale-                
 Mortgage-backed securities $29,845  $202  $(1,140) $28,907 

In June 2011, the Company transferred securities with a book value of approximately $50.5 million from the held to maturity category to the available for sale category. The fair value of the securities was $49.8 million resulting in unrealized losses of approximately $0.7 million.  The net unrealized loss was recorded in accumulated other comprehensive loss.  Due to this transfer, the Company will be prohibited from classifying securities as held to maturity for a period of two years.

Securities with gross unrealized losses at March 31, 2012, aggregated by investment category and length of time that individual securities have been in a continuous loss position, is as follows (in thousands):

   Less Than Twelve Months   Over Twelve Months 
   Gross
Unrealized
Losses
  Fair
Value
   Gross
Unrealized
Losses
  Fair
Value
 

Securities Available for Sale-

      

Mortgage-backed securities

  $(14 $535    $(813 $10,019  
  

 

 

  

 

 

   

 

 

  

 

 

 


Securities with gross unrealized losses at September 30, 2012, aggregated by investment category and length of time that individual securities have been in a continuous loss position, is as follows (in thousands):
   Over Twelve Months 
   
Gross
Unrealized
Losses
  
Fair
Value
 
 Securities Available for Sale-      
 Mortgage-backed securities $272  $5,132 
(continued)


OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

SUBSIDIARIES


Notes to Condensed Consolidated Financial Statements (unaudited), Continued



(2)
Securities, Continued.Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation.  A security is impaired if the fair value is less than its carrying value at the financial statement date. When a security is impaired, the Company determines whether this impairment is temporary or other-than-temporary. In estimating other-than-temporary impairment (“OTTI”) losses, management assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of these criteria is met, the entire difference between amortized cost and fair value is recognized in operations. For securities that do not meet the aforementioned criteria, the amount of impairment recognized in operations is limited to the amount related to credit losses, while impairment related to other factors is recognized in other comprehensive loss. Management utilizes cash flow models to segregate impairments to distinguish between impairment related to credit losses and impairment related to other factors. To assess for OTTI, management considers, among other things, (i) the severity and duration of the impairment; (ii) the ratings of the security; (iii) the overall transaction structure (the Company’s position within the structure, the aggregate, near-term financial performance of the underlying collateral, delinquencies, defaults, loss severities, recoveries, prepayments, cumulative loss projections, and discounted cash flows); and (iv) the timing and magnitude of a break in modeled cash flows.
        In evaluating mortgage-backed securities with unrealized losses greater than twelve months, management utilizes various resources, including input from independent third party firms to perform an analysis of expected future cash flows. The process begins with an assessment of the underlying collateral backing the mortgage pools. Management develops specific assumptions using as much market data as possible and includes internal estimates as well as estimates published by rating agencies and other third-party sources. The data for the individual borrowers in the underlying mortgage pools are generally segregated by state, FICO score at issue, loan to value at issue and income documentation criteria. Mortgage pools are evaluated for current and expected levels of delinquencies and foreclosures, based on where they fall in the proscribed data set of FICO score, geographics, LTV and documentation type and a level of loss severity is assigned to each security based on its experience. The above-described historical data is used to develop current and expected measures of cumulative default rates as well as ultimate loss frequency and severity within the underlying mortgages. This reveals the expected future cash flows within the mortgage pool. The data described above is then input to an industry recognized model to assess the behavior of the particular security tranche owned by the Company. Significant inputs in this process include the structure of any subordination structures, if applicable, and are dictated by the structure of each particular security as laid out in the offering documents. The forecasted cash flows from the mortgage pools are input through the security structuring model to derive expected cash flows for the specific security owned by the Company to determine if the future cash flows are expected to exceed the book value of the security. The values for the significant inputs are updated on a regular basis.  During the three and nine months ended September 30, 2012, the Company recorded other-than-temporary impairment charges totaling $101,000 and $204,000, respectively.

In evaluating mortgage-backed securities with unrealized losses greater than twelve months, management utilizes various resources, including input from independent third party firms to perform an analysis of expected future cash flows. The process begins with an assessment of the underlying collateral backing the mortgage pools. Management develops specific assumptions using as much market data as possible and includes internal estimates as well as estimates published by rating agencies and other third-party sources. The data for the individual borrowers in the underlying mortgage pools are generally segregated by state, FICO score at issue, loan to value at issue and income documentation criteria. Mortgage pools are evaluated for current and expected levels of delinquencies and foreclosures, based on where they fall in the proscribed data set of FICO score, geographics, LTV and documentation type and a level of loss severity is assigned to each security based on its experience. The above-described historical data is used to develop current and expected measures of cumulative default rates as well as ultimate loss frequency and severity within the underlying mortgages. This reveals the expected future cash flows within the mortgage pool. The data described above is then input to an industry recognized model to assess the behavior of the particular security tranche owned by the Company. Significant inputs in this process include the structure of any subordination structures, if applicable, and are dictated by the structure of each particular security as laid out in the offering documents. The forecasted cash flows from the mortgage pools are input through the security structuring model to derive expected cash flows for the specific security owned by the Company to determine if the future cash flows are expected to exceed the book value of the security. The values for the significant inputs are updated on a regular basis.


(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

SUBSIDIARIES


Notes to Condensed Consolidated Financial Statements (unaudited), Continued



(2)
Securities, Continued.The unrealized losses on ninefour investment securities were caused by market conditions.  It is expected that the securities would not be settled at a price less than the book value of the investments.  Because the decline in fair value is attributable to market conditions and not credit quality, and because the Company has the ability and intent to hold these investments until a market price recovery or maturity, these investments are not considered other-than-temporarily impaired.


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

   At March 31,
2012
  At December 31,
2011
 

Residential real estate

  $29,891   $30,434  

Multi-family real estate

   4,059    4,109  

Commercial real estate

   41,025    41,307  

Land and construction

   11,397    11,783  

Commercial

   3,693    3,713  

Consumer

   125    175  
  

 

 

  

 

 

 

Total loans

   90,190    91,521  

Add (deduct):

   

Net deferred loan fees, costs and premiums

   39    45  

Allowance for loan losses

   (1,975  (2,349
  

 

 

  

 

 

 

Loans, net

  $88,254   $89,217  
  

 

 

  

 

 

 

   At September 30,  At December 31, 
   2012  2011 
        
 Residential real estate $32,430  $30,434 
 Multi-family real estate  4,182   4,109 
 Commercial real estate  39,221   41,307 
 Land and construction  7,323   11,783 
 Commercial  3,959   3,713 
 Consumer  123   175 
          
 Total loans  87,238   91,521 
          
 Add (deduct):        
 Net deferred loan fees, costs and premiums  149   45 
 Allowance for loan losses  (1,936)  (2,349)
          
 Loans, net $85,451  $89,217 
An analysis of the change in the allowance for loan losses follows (in thousands):
   Residential  Multi-Family  Commercial  Land          
   Real  Real  Real  and          
   Estate  Estate  Estate  Construction  Commercial  Consumer  Total 
 Three Months Ended September 30, 2012:                     
 Beginning balance $703  $245  $799  $215  $115  $25  $2,102 
 
Provision (credit) for loan losses
  (231)  15   364   36   12   0   196 
 Charge-offs  0   (1)  (346)  (53)  0   0   (400)
 Recoveries  17   0   0   17   0   4   38 
                              
 Ending balance $489  $259  $817  $215  $127  $29  $1,936 
                              
 Nine Months Ended September 30, 2012:                            
 Beginning balance $549  $247  $1,190  $187  $161  $15  $2,349 
 
Provision (credit) for loan losses
  70   12   154   170   (33)  5   378 
 Charge-offs  (146)  0   (557)  (388)  (1)  0   (1,092)
 Recoveries  16   0   30   246   0   9   301 
                              
 Ending balance $489  $259  $817  $215  $127  $29  $1,936 
                              
(continued)


OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

SUBSIDIARIES


Notes to Condensed Consolidated Financial Statements (unaudited), Continued



(3)Loans, Continued.An analysis of the change in the allowance for loan losses for the three-month periods ended March 31, 2012 and 2011 follows (in thousands):

   March 31, 2012 
   Residential
Real
Estate
   Multi-Family
Real

Estate
  Commercial
Real

Estate
  Land
and
Construction
  Commercial  Consumer   Total 

Beginning balance

  $549    $247   $1,190   $187   $161   $15    $2,349  

Provision (credit) for loan losses

   112     (33  (307  294    (44  5     27  

Charge-offs

   0     0    (69  (335  0    0     (404

Recoveries

   0     0    0    0    0    3     3  
  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

 

Ending balance

  $661    $214   $814   $146   $117   $23    $1,975  
  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

 

Individually evaluated for impairment:

          

Recorded investment

  $8,006    $0   $15,438   $6,877   $0   $0    $30,321  
  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

 

Balance in allowance for loan losses

  $0    $0   $0   $0   $0   $0    $0  
  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

 

Collectively evaluated for impairment:

          

Recorded investment

  $21,885    $4,059   $25,587   $4,520   $3,693   $125    $59,869  
  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

 

Balance in allowance for loan losses

  $661    $214   $814   $146   $117   $23    $1,975  
  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

  

 

 

   

 

 

 

   March 31, 2011 
   Residential
Real
Estate
   Multi-Family
Real

Estate
   Commercial
Real

Estate
  Land
and
Construction
  Consumer  Total 

Beginning balance

  $1,285    $282    $1,542   $514   $80   $3,703  

Provision (credit) for loan losses

   27     23     (97  90    (9  34  

Charge-offs

   0     0     0    (245  0    (245

Recoveries

   2     0     0    23    3    28  
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Ending balance

  $1,314    $305    $1,445   $382   $74   $3,520  
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Individually evaluated for impairment:

         

Recorded investment

  $12,047    $0    $19,488   $9,052   $229   $40,816  
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Balance in allowance for loan losses

  $0    $0    $11   $199   $0   $210  
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Collectively evaluated for impairment:

         

Recorded investment

  $25,650    $4,186    $33,678   $5,006   $108   $68,628  
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Balance in allowance for loan losses

  $1,314    $305    $1,434   $183   $74   $3,310  
  

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

   
Residential
Real
Estate
  
Multi-Family
Real
Estate
  
Commercial
Real
Estate
  
Land
and
Construction
  Consumer  Total 
 Three Months Ended September 30, 2011:                  
 Beginning balance $1,093  $308  $1,400  $197  $77  $3,075 
 Provision for loan losses  (644)  135   374   (117)  9   (243)
 Charge-offs  0   0   (150)  0   0   (150)
 Recoveries  328   2   0   121   4   455 
                          
 Ending balance $777  $445  $1,624  $201  $90  $3,137 
                          
 Nine Months Ended September 30, 2011:                        
 Beginning balance $1,285  $282  $1,542  $514  $80  $3,703 
 Provision (credit) for loan losses  (562)  158   284   772   0   652 
 Charge-offs  (308)  0   (202)  (1,230)  0   (1,740)
 Recoveries  362   5   0   145   10   522 
                          
 Ending balance $777  $445  $1,624  $201  $90  $3,137 

                       
   At September 30, 2012 
   
Residential
Real
Estate
  
Multi-Family
Real
Estate
  
Commercial
Real
Estate
  
Land
and
Construction
  Commercial  Consumer  Total 
                       
 
Individually evaluated for
impairment:
                     
 Recorded investment $7,628  $0  $13,933  $905  $0  $0  $22,466 
 
Balance in allowance
for loan losses
 $0  $0  $0  $0  $0  $0  $0 
                              
 
Collectively evaluated for
impairment:
                            
 Recorded investment $24,802  $4,182  $25,288  $6,418  $3,959  $123  $64,772 
 
Balance in allowance
for loan losses
 $489  $259  $817  $215  $127  $29  $1,936 

   At December 31, 2011 
   
Residential
Real
Estate
  
Multi-Family
Real
Estate
  
Commercial
Real
Estate
   Land
and Construction
  Consumer  Total 
                    
 
Individually evaluated for
impairment:
                  
 Recorded investment $7,919  $0  $16,716  $7,241  $68  $31,944 
 
Balance in allowance
for loan losses
 $0  $0  $11  $0  $0  $11 
                          
 
Collectively evaluated for
impairment:
                        
 Recorded investment $23,223  $4,109  $27,596  $4,542  $107  $59,577 
 
Balance in allowance
for loan losses
 $566  $247  $1,323  $187  $15  $2,338 
(continued)


OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

SUBSIDIARIES


Notes to Condensed Consolidated Financial Statements (unaudited), Continued



(3)
Loans, Continued.The Company has divided the loan portfolio into six portfolio segments, each with different risk characteristics and methodologies for assessing risk. The portfolio segments identified by the Company are as follows:
        Real Estate Mortgage Loans. Real estate mortgage loans are typically segmented into four categories: Residential real estate, Multi-family real estate, Commercial real estate, and Land and Construction. Residential real estate loans are underwritten in accordance with policies set forth and approved by the Board of Directors (the “Board”), including repayment capacity and source, value of the underlying property, credit history and stability. Multi-family real estate and commercial real estate loans are secured by the subject property and are underwritten based upon standards set forth in the policies approved by the Company’s Board. Such standards include, among other factors, loan to value limits, cash flow coverage and general creditworthiness of the obligors. Land and construction loans to borrowers are to finance the construction of owner occupied and leased properties. These loans are categorized as construction loans during the construction period, later converting to commercial or residential real estate loans after the construction is complete and amortization of the loan begins. Real estate development and construction loans are approved based on an analysis of the borrower and guarantor, the viability of the project and on an acceptable percentage of the appraised value of the property securing the loan. Real estate development and construction loan funds are disbursed periodically based on the percentage of construction completed. The Company carefully monitors these loans with on-site inspections and requires the receipt of lien waivers on funds advanced. Development and construction loans are typically secured by the properties under development or construction, and personal guarantees are typically obtained. Further, to assure that reliance is not placed solely on the value of the underlying property, the Company considers the market conditions and feasibility of proposed projects, the financial condition and reputation of the borrower and guarantors, the amount of the borrower’s equity in the project, independent appraisals, costs estimates and pre-construction sale information. The Company also makes loans on occasion for the purchase of land for future development by the borrower. Land loans are extended for the future development for either commercial or residential use by the borrower. The Company carefully analyzes the intended use of the property and the viability thereof.

Real Estate Mortgage Loans.Real estate mortgage loans are typically segmented into four categories: Residential real estate, Multi-family real estate, Commercial real estate, and Land and Construction. Residential real estate loans are underwritten in accordance with policies set forth and approved by the Board of Directors (the “Board”), including repayment capacity and source, value of the underlying property, credit history and stability. Multi-family and commercial real estate loans are secured by the subject property and are underwritten based upon standards set forth in the policies approved by the Company’s Board. Such standards include, among other factors, loan to value limits, cash flow coverage and general creditworthiness of the obligors. Construction loans to borrowers are to finance the construction of owner occupied and leased properties. These loans are categorized as construction loans during the construction period, later converting to commercial or residential real estate loans after the construction is complete and amortization of the loan begins. Real estate development and construction loans are approved based on an analysis of the borrower and guarantor, the viability of the project and on an acceptable percentage of the appraised value of the property securing the loan. Real estate development and construction loan funds are disbursed periodically based on the percentage of construction completed. The Company carefully monitors these loans with on-site inspections and requires the receipt of lien waivers on funds advanced. Development and construction loans are typically secured by the properties under development or construction, and personal guarantees are typically obtained. Further, to assure that reliance is not placed solely on the value of the underlying property, the Company considers the market conditions and feasibility of proposed projects, the financial condition and reputation of the borrower and guarantors, the amount of the borrower’s equity in the project, independent appraisals, costs estimates and pre-construction sale information. The Company also makes loans on occasion for the purchase of land for future development by the borrower. Land loans are extended for the future development for either commercial or residential use by the borrower. The Company carefully analyzes the intended use of the property and the viability thereof.

Consumer Loans.Consumer loans are extended for various purposes, including purchases of automobiles, recreational vehicles, and boats. Also offered are home improvement loans, lines of credit, personal loans, and deposit account collateralized loans. Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Loans to consumers are extended after a credit evaluation, including the creditworthiness of the borrower(s), the purpose of the credit, and the secondary source of repayment. Consumer loans are made at fixed and variable interest rates and may be made on terms of up to ten years. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.

(continued)

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARYSUBSIDIARIES


Notes to Condensed Consolidated Financial Statements (unaudited), Continued



(3)
Loans, Continued.
        Commercial Loans. Commercial loans are primarily underwritten on the basis of the borrowers’ ability to service such debt from income. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. As a general practice, the Company takes as collateral a security interest in any available real estate, equipment, or other chattel, although loans may also be made on an unsecured basis. Collateralized working capital loans typically are secured by short-term assets whereas long-term loans are primarily secured by long-term assets.  These loans are also affected by adverse economic conditions should they prevail within the Company’s local market.
Consumer Loans.  Consumer loans are extended for various purposes, including purchases of automobiles, recreational vehicles, and boats. Also offered are home improvement loans, lines of credit, personal loans, and deposit account collateralized loans. Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Loans to consumers are extended after a credit evaluation, including the creditworthiness of the borrower(s), the purpose of the credit, and the secondary source of repayment. Consumer loans are made at fixed and variable interest rates and may be made on terms of up to ten years. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.

Commercial Loans.Commercial loans consist of loans to small- and medium-sized companies in the Company’s market area. Commercial loans are generally used for working capital purposes or for acquiring equipment, inventory or furniture. Primarily all of the Company’s commercial loans are secured loans, along with a small amount of unsecured loans. The Company’s underwriting analysis consists of a review of the financial statements of the borrower, the lending history of the borrower, the debt service capabilities of the borrower, the projected cash flows of the business, the value of the collateral, if any, and whether the loan is guaranteed by the principals of the borrower. These loans are generally secured by accounts receivable, inventory and equipment. Commercial loans are typically made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business, which makes them of higher risk than residential loans. Further, the collateral securing these loans may be difficult to appraise and may fluctuate in value based on the success of the business. The Company seeks to minimize these risks through our underwriting standards.

(continued)

(continued)
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

SUBSIDIARIES


Notes to Condensed Consolidated Financial Statements (unaudited), Continued



(3)
Loans, Continued.The following summarizes the loan credit quality (in thousands):

   Pass   OLEM
(Other Loans
Especially
Mentioned)
   Substandard   Doubtful   Loss   Total 

At March 31, 2012:

            

Residential real estate:

            

Closed-end first mortgages

  $18,737    $2,919    $5,087    $0    $0    $26,743  

Closed-end second mortgages

   3,148     0     0     0     0     3,148  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total residential real estate

   21,885     2,919     5,087     0     0     29,891  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Multi-family real estate

   4,059     0     0     0     0     4,059  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Commercial real estate:

            

Owner-occupied

   10,073     2,001     369     0     0     12,443  

Non-owner-occupied

   12,371     1,141     15,070     0     0     28,582  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total commercial real estate

   22,444     3,142     15,439     0     0     41,025  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Land and construction

   4,471     49     6,877     0     0     11,397  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Commercial

   3,693     0     0     0     0     3,693  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consumer:

            

Non-real estate secured

   0     68     0     0     0     68  

Real estate secured

   57     0     0     0     0     57  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total consumer

   57     68     0     0     0     125  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $56,609    $6,178    $27,403    $0    $0    $90,190  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At December 31, 2011:

            

Residential real estate:

            

Closed-end first mortgages

  $18,588    $3,686    $5,001    $0    $0    $27,275  

Closed-end second mortgages

   3,159     0     0     0     0     3,159  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total residential real estate

   21,747     3,686     5,001     0     0     30,434  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Multi-family real estate

   4,109     0     0     0     0     4,109  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Commercial real estate:

            

Owner-occupied

   10,132     2,012     369     0     0     12,513  

Non-owner-occupied

   10,822     2,764     15,208     0     0     28,794  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total commercial real estate

   20,954     4,776     15,577     0     0     41,307  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Land and construction

   4,493     49     7,241     0     0     11,783  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Commercial

   3,713     0     0     0     0     3,713  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consumer:

            

Non-real estate secured

   0     68     0     0     0     68  

Real estate secured

   107     0     0     0     0     107  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total consumer

   107     68     0     0     0     175  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $55,123    $8,579    $27,819    $0    $0    $91,521  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 


     OLEM             
     (Other Loans             
     Especially             
  Pass  Mentioned)  Substandard  Doubtful  Loss  Total 
At September 30, 2012:                  
Residential real estate:                  
Closed-end first mortgages $21,678  $2,919  $4,709  $0  $0  $29,306 
Closed-end second mortgages  3,124   0   0   0   0   3,124 
                         
Total residential real estate  24,802   2,919   4,709   0   0   32,430 
                         
Multi-family real estate  4,182   0   0   0   0   4,182 
                         
Commercial real estate:                        
Owner-occupied  9,949   1,979   78   0   0   12,006 
Non-owner-occupied  12,235   1,125   13,855   0   0   27,215 
                         
Total commercial real estate  22,184   3,104   13,933   0   0   39,221 
                         
Land and construction  6,369   49   905   0   0   7,323 
                         
Commercial  3,959   0   0   0   0   3,959 
                         
Consumer  123   0   0   0   0   123 
                         
Total $61,619  $6,072  $19,547  $0  $0  $87,238 
                         
At December 31, 2011:                        
Residential real estate:                        
Closed-end first mortgages $18,588  $3,686  $5,001  $0  $0  $27,275 
Closed-end second mortgages  3,159   0   0   0   0   3,159 
                         
Total residential real estate  21,747   3,686   5,001   0   0   30,434 
                         
Multi-family real estate  4,109   0   0   0   0   4,109 
                         
Commercial real estate:                        
Owner-occupied  10,132   2,012   369   0   0   12,513 
Non-owner-occupied  10,822   2,764   15,208   0   0   28,794 
                         
Total commercial real estate  20,954   4,776   15,577   0   0   41,307 
                         
Land and construction  4,493   49   7,241   0   0   11,783 
                         
Commercial  3,713   0   0   0   0   3,713 
                         
Consumer  107   68   0   0   0   175 
                         
Total $55,123  $8,579  $27,819  $0  $0  $91,521 
(continued)


OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

SUBSIDIARIES


Notes to Condensed Consolidated Financial Statements (unaudited), Continued



(3)
Loans, Continued.Internally assigned loan grades are defined as follows:

Pass – a Pass loan’sloan's primary source of loan repayment is satisfactory, with secondary sources very likely to be realized if necessary.  These are loans that conform in all aspects to bank policy and regulatory requirements, and no repayment risk has been identified.


OLEM (Other Loans Especially Mentioned) – an Other Loan Especially Mentioned has potential weaknesses that deserve management’smanagement's close attention.  If left uncorrected, these potential weaknesses may result in the deterioration of the repayment prospects for the asset or the Company’sCompany's credit position at some future date.


Substandard – a Substandard loan is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any.  Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt.  They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful – a loan classified Doubtful has all the weaknesses inherent in one classified Substandard, with the added characteristics that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.  This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future.  The Company fully charges off any loan classified as Doubtful.

Loss – a loan classified Loss is considered uncollectible and of such little value that continuance as a bankable asset is not warranted.  This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future.  The Company fully charges off any loan classified as Loss.

(continued)


OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

SUBSIDIARIES


Notes to Condensed Consolidated Financial Statements (unaudited), Continued

(3)
Loans, Continued.Age analysis of past-due loans is as follows (in thousands):

   Accruing Loans 
   30-59
Days
Past Due
   60-89
Days
Past Due
   Greater
Than 90
Days
Past Due
   Total
Past
Due
   Current   Nonaccrual
Loans
   Total
Loans
 

At March 31, 2012:

              

Residential real estate:

              

Closed-end first mortgages

  $0    $41    $0    $41    $21,615    $5,087    $26,743  

Closed-end second mortgages

   0     0     0     0     3,148     0     3,148  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal

   0     41     0     41     24,763     5,087     29,891  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Multi-family real estate

   0     0     0     0     4,059     0     4,059  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Commercial real estate:

              

Owner-occupied

   0     0     0     0     12,074     369     12,443  

Non-owner-occupied

   3,300     0     0     3,300     10,212     15,070     28,582  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal

   3,300     0     0     3,300     22,286     15,439     41,025  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Land and construction

   0     0     0     0     4,520     6,877     11,397  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Commercial

   0     0     0     0     3,693     0     3,693  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consumer:

              

Non-real estate secured

   0     0     0     0     68     0     68  

Real estate secured

   0     0     0     0     57     0     57  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal

   0     0     0     0     125     0     125  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $3,300    $41    $0    $3,341    $59,446    $27,403    $90,190  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At December 31, 2011:

              

Residential real estate:

              

Closed-end first mortgages

  $0    $768    $0    $768    $21,506    $5,001    $27,275  

Closed-end second mortgages

   0     0     0     0     3,159     0     3,159  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal

   0     768     0     768     24,665     5,001     30,434  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Multi-family real estate

   0     0     0     0     4,109     0     4,109  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Commercial real estate:

              

Owner-occupied

   0     0     0     0     12,144     369     12,513  

Non-owner-occupied

   0     0     0     0     13,586     15,208     28,794  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal

   0     0     0     0     25,730     15,577     41,307  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Land and construction

   0     0     0     0     4,542     7,241     11,783  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Commercial

   0     0     0     0     3,713     0     3,713  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consumer:

              

Non-real estate secured

   0     0     0     0     68     0     68  

Real estate secured

   0     0     0     0     107     0     107  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal

   0     0     0     0     175     0     175  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $0    $768    $0    $768    $62,934    $27,819    $91,521  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

  Accruing Loans       
        Greater             
  30-59  60-89  Than 90  Total          
  Days  Days  Days  Past     Nonaccrual  Total 
  Past Due  Past Due  Past Due  Due  Current  Loans  Loans 
At September 30, 2012:                       
Residential real estate:                       
Closed-end first mortgages $0  $0  $0  $0  $24,597  $4,709  $29,306 
Closed-end second mortgages  0   0   0   0   3,124   0   3,124 
                             
Subtotal  0   0   0   0   27,721   4,709   32,430 
                             
Multi-family real estate  0   0   0   0   4,182   0   4,182 
                             
Commercial real estate:                            
Owner-occupied  0   0   0   0  ��11,928   78   12,006 
Non-owner-occupied  0   0   0   0   13,360   13,855   27,215 
                             
Subtotal  0   0   0   0   25,288   13,933   39,221 
                             
Land and construction  0   0   0   0   6,418   905   7,323 
Commercial  701   0   0   701   3,258   0   3,959 
Consumer  0   0   0   0   123   0   123 
                             
Total $701  $0  $0  $701  $66,990  $19,547  $87,238 
                             
At December 31, 2011:                            
Residential real estate:                            
Closed-end first mortgages $0  $768  $0  $768  $21,506  $5,001  $27,275 
Closed-end second mortgages  0   0   0   0   3,159   0   3,159 
                             
Subtotal  0   768   0   768   24,665   5,001   30,434 
                             
Multi-family real estate  0   0   0   0   4,109   0   4,109 
                             
Commercial real estate:                            
Owner-occupied  0   0   0   0   12,144   369   12,513 
Non-owner-occupied  0   0   0   0   13,586   15,208   28,794 
                             
Subtotal  0   0   0   0   25,730   15,577   41,307 
                             
Land and construction  0   0   0   0   4,542   7,241   11,783 
Commercial  0   0   0   0   3,713   0   3,713 
Consumer  0   0   0   0   175   0   175 
                             
Total $0  $768  $0  $768  $62,934  $27,819  $91,521 
(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (unaudited), Continued


(3)(3)
Loans, Continued.The following summarizes the amount of impaired loans (in thousands):

   At March 31, 2012   At December 31, 2011 
   Recorded
Investment
   Unpaid
Principal
Balance
   Related
Allowance
   Recorded
Investment
   Unpaid
Principal
Balance
   Related
Allowance
 

With no related allowance recorded:

            

Residential real estate-

            

Closed-end first mortgages

  $8,006    $8,551    $0    $7,919    $8,465    $0  

Commercial real estate:

            

Owner-occupied

   368     376     0     369     376     0  

Non-owner-occupied

   15,070     17,516     0     15,208     17,584     0  

Land and construction

   6,877     11,623     0     7,241     11,652     0  

Consumer-

            

Non-real estate secured

   0     0     0     68     68     0  

With an allowance recorded:

            

Commercial real estate-

            

Non-owner-occupied

   0     0     0     1,139     1,139     11  

Total:

            

Residential real estate-

            

Closed-end first mortgages

  $8,006    $8,551    $0    $7,919    $8,465    $0  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Commercial real estate:

            

Owner-occupied

  $368    $376    $0    $369    $376    $0  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-owner-occupied

  $15,070    $17,516    $0    $16,347    $18,723    $11  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Land and construction

  $6,877    $11,623    $0    $7,241    $11,652    $0  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consumer-

            

Non-real estate secured

  $0    $0    $0    $68    $68    $0  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $30,321    $38,066    $0    $31,944    $39,284    $11  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

   For the Period Ended March 31,   For the Period Ended March 31, 
   2012   2011 
   Average
Recorded
Investment
   Interest
Income
Recognized
   Interest
Income
Received
   Average
Recorded
Investment
   Interest
Income
Recognized
   Interest
Income
Received
 

Residential real estate-

            

Closed-end first mortgages

  $8,011    $52    $68    $11,752    $52    $78  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Commercial real estate:

            

Owner-occupied

  $369    $0    $0    $751    $0    $1  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-owner-occupied

  $15,199    $0    $51    $19,465    $53    $117  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Land and construction

  $7,123    $0    $29    $8,080    $21    $56  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consumer-

            

Non-real estate secured

  $0    $0    $0    $234    $2    $2  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $30,702    $52    $148    $40,282    $128    $254  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

  At September 30, 2012  At December 31, 2011 
     Unpaid        Unpaid    
  Recorded  Principal  Related  Recorded  Principal  Related 
  Investment  Balance  Allowance  Investment  Balance  Allowance 
With no related allowance recorded:                  
Residential real estate-                  
Closed-end first mortgages $7,628  $8,079  $0  $7,919  $8,465  $0 
Commercial real estate:                        
Owner-occupied  78   78   0   369   376   0 
Non-owner-occupied  13,855   16,730   0   15,208   17,584   0 
Land and construction  905   2,429   0   7,241   11,652   0 
Consumer  0   0   0   68   68   0 
                         
With an allowance recorded:                        
Commercial real estate-                        
Non-owner-occupied  0   0   0   1,139   1,139   11 
                         
Total:                        
Residential real estate-                        
Closed-end first mortgages $7,628  $8,079  $0  $7,919  $8,465  $0 
Commercial real estate:                        
Owner-occupied $78  $78  $0  $369  $376  $0 
Non-owner-occupied $13,855  $16,730  $0  $16,347  $18,723  $11 
Land and construction $905  $2,429  $0  $7,241  $11,652  $0 
Consumer $0  $0  $0  $68  $68  $0 
                         
Total $22,466  $27,316  $0  $31,944  $39,284  $11 
The average net investment in impaired loans and interest income recognized and received on impaired loans are as follows (in thousands):
  Three Months Ended September 30, 
  2012  2011 
  Average  Interest  Interest  Average  Interest  Interest 
  Recorded  Income  Income  Recorded  Income  Income 
  Investment  Recognized  Received  Investment  Recognized  Received 
Residential real estate-                  
Closed-end first mortgages $7,688  $52  $102  $11,080  $66  $71 
Multi-family real estate $0  $0  $0  $0  $0  $0 
Commercial real estate:                        
Owner-occupied $78  $0  $0  $296  $0  $0 
Non-owner-occupied $14,199  $0  $63  $18,404  $10  $92 
Land and construction $2,372  $0  $25  $6,746  $0  $28 
Consumer-                        
Non-real estate secured $0  $0  $0  $216  $1  $1 
                         
Total $24,337  $52  $190  $36,742  $77  $192 
(continued)


OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (unaudited), Continued

(3)(3)Loans, Continued.
  Nine Months Ended September 30, 
  2012  2011 
  Average  Interest  Interest  Average  Interest  Interest 
  Recorded  Income  Income  Recorded  Income  Income 
  Investment  Recognized  Received  Investment  Recognized  Received 
Residential real estate-                  
Closed-end first mortgages $7,863  $156  $254  $11,686  $174  $211 
Multi-family real estate $0  $0  $0  $0  $0  $0 
Commercial real estate:                        
Owner-occupied $177  $0  $0  $466  $0  $1 
Non-owner-occupied $14,682  $0  $172  $19,009  $95  $303 
Land and construction $4,681  $0  $69  $7,704  $21  $119 
Consumer-                        
Non-real estate secured $0  $0  $0  $224  $5  $5 
                         
Total $27,403  $156  $495  $39,089  $295  $639 
No loans have been determined to be restructured as troubled debt restructurings (“TDR’s”TDRs”) during the nine months ended September 30, 2012.  The following schedule summarizes TDRs during nine months ended September 30, 2011.  There were no loans determined to be restructured as TDR during three months ended March 31, 2012. In addition thereSeptember 30, 2011.
  Nine Months Ended September 30, 2011 
  Outstanding Recorded Investment 
  Number       
  of  Pre-  Post- 
  Contracts  Modification  Modification 
Troubled Debt Restructurings:         
Real estate mortgage loans:         
Residential real estate:         
Modified interest rate and amortization  1  $1,289  $1,289 
Commercial real estate:            
Modified interest rate and amortization  4   6,321   6,321 
Land and construction:            
Modified interest rate and amortization  1   2,080   2,080 
             
Total  6  $9,690  $9,690 
(continued)
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (unaudited), Continued
(3)
Loans, Continued.  There were no defaults of TDR’s during the threenine months ended March 31, 2011 orSeptember 30, 2012.  The following schedule summarizes troubled debt restructurings that subsequently defaulted during three and nine months ended September 30, 2011.

The allowance for loan losses on commercial and consumer loans that have been restructured and are considered TDR’s is included in the Company’s specific reserve. The specific reserve is determined on a loan by loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, or the fair value of the collateral if the loan is collateral-dependent. TDR’s that have subsequently defaulted are considered collateral-dependent.

             
  
Three Months Ended
September 30, 2011
  
Nine Months Ended
September 30, 2011
 
  
Number
of
Contracts
  
Recorded
Investment
  
Number
of
Contracts
   
Recorded
Investment
 
Troubled debt restructurings that subsequently defaulted which were restructured during the last twelve months (dollars in thousands):
            
Real estate mortgage loans-Land and construction
  1  $2,806   1  $2,806 
(4)
Regulatory Capital.The Bank is required to maintain certain minimum regulatory capital requirements. The following is a summary at March 31,September 30, 2012 of the regulatory capital requirements and the Bank’s capital on a percentage basis:

   Bank  Regulatory
Requirement
 

Tier I capital to total average assets

   9.16  8.00

Tier I capital to risk-weighted assets

   11.94  4.00

Total capital to risk-weighted assets

   13.20  12.00

  Bank  
Regulatory
Requirement
 
         
Tier I capital to total average assets  9.21%  8.00%
         
Tier I capital to risk-weighted assets  12.64%  4.00%
         
Total capital to risk-weighted assets  13.90%  12.00%
(5)As a result of the Consent Order discussed in Note 8, the Bank is categorized as “adequately capitalized” until the Consent Order is lifted, even though the ratios would otherwise place it in the “well capitalized” category.

(5)
LossPer Share. Basic loss per share has been computed on the basis of the weighted-average number of shares of common stock outstanding during the period.  Basic and diluted loss per share is the same due to the net loss incurred by the Company.  Loss per common share has been computed based on the following:

   Three Months Ended
March 31,
 
   2012   2011 

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

   22,509,296     819,358  
  

 

 

   

 

 

 

  Three Months Ended September 30,  Nine Months Ended September 30, 
  2012  2011  2012  2011 
Weighted-average number of common shares outstanding used to calculate basic and diluted loss per common share
  29,114,906   819,358   26,130,843   819,358 
(continued)
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (unaudited), Continued

(6)
Stock-Based Compensation.  On December 27, 2011, the Company’s stockholders approved the 2011 Equity Incentive Plan (“2011 Plan”).  A total of 2,200,000 shares of common stock are available to be issued under the 2011 Plan.  Options, restricted stock, performance share awards and bonus share awards in lieu of obligations may be issued under the 2011 Plan.  Both incentive stock options and nonqualified stock options can be granted under the 2011 Plan.  The exercise price of the stock options cannot be less than the fair market value of the common stock on the date of grant.  Effective January 1, 2012, the Company adopted a Non- Employee Director Compensation Plan under which bonus shares issuable under the 2011 Plan aremay be issued as compensation to outside directors. As of March 31,During the nine months ended September 30, 2012, 3,78942,225 shares of stock valued at approximately $42,000 have been issued under the 2011 Plan and Non-Employee Director Compensation Plan as compensation to outside directors.

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (unaudited), Continued


(6)Stock-Based Compensation, Continued.The Company’s prior stock option plan terminated on February 27, 2011.  At MarchSeptember 30, 2012, no options were available for grant under this plan.  Options must be exercised within ten years of the date of grant.

A summary of the activity in the prior plan is as follows:

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

Outstanding at December 31, 2011

   50,900   $34.31      

Options forfeited

   (11,392  32.97      
  

 

 

      

Outstanding and exercisable at March 31, 2012

   39,508   $34.70     2.8 years    $0  
  

 

 

  

 

 

   

 

 

   

 

 

 


(7)A summary of the activity in the prior plan is as follows:
  
Number of
Options
  
Weighted-
Average
Exercise
Price
  
Weighted-
Average
Remaining
Contractual
Term
   
Aggregate
Intrinsic
Value
 
Outstanding at December 31, 2011 50,900  $ 34.31       
Options forfeited (11,392  32.97       
             
Outstanding and exercisable at September 30, 2012
  39,508  $34.70  2.3 years  $0 
(7)
Fair Value Measurements.Securities available for sale measured at fair value on a recurring basis are summarized below (in thousands):

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

As of March 31, 2012-

        

Mortgage-backed securities

  $26,946    $0    $26,946    $0  
  

 

 

   

 

 

   

 

 

   

 

 

 

As of December 31, 2011-

        

Mortgage-backed securities

  $28,907    $0    $28,907    $0  
  

 

 

   

 

 

   

 

 

   

 

 

 


     Fair Value Measurements at Reporting Date Using 
  
Fair
Value
  
Quoted Prices
In Active
Markets for
Identical
Assets
(Level 1)
   
Significant
Other
Observable
Inputs
(Level 2)
   
Significant
Unobservable
Inputs
(Level 3)
 
As of September 30, 2012-            
Mortgage-backed securities $21,588  $0  $21,588  $0 
                 
As of December 31, 2011-                
Mortgage-backed securities $28,907  $0  $28,907  $0 

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

SUBSIDIARIES


Notes to Condensed Consolidated Financial Statements (unaudited), Continued

(7)
Fair Value Measurements, Continued.There were no transfers of securities between levels of inputs for the threenine months ended March 31, 2012.September 30, 2012 and 2011.

Impaired collateral-dependent loans are carried at fair value when the current collateral value less estimated selling costs is lower than the carrying value of the loan. Those impaired collateral-dependent loans which are measured at fair value on a nonrecurring basis are as follows (in thousands):

                       Losses
Recorded in
Operations
For the Three
 
   At March 31, 2012   Months Ended 
   Fair
Value
   Level 1   Level 2   Level 3   Total
Losses
   March 31,
2012
 

Residential real estate-

            

Closed-end first mortgages

  $854    $0    $0    $854    $545    $0  

Commercial real estate:

            

Owner-occupied

   291     0     0     291     8     0  

Non-owner-occupied

   10,061     0     0     10,061     2,781     69  

Land and construction

   6,699     0     0     6,699     1,525     335  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $17,905    $0    $0    $17,905    $4,859    $404  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

                       Losses
Recorded in
Operations
For the
 
   At December 31, 2011   Year Ended 
   Fair
Value
   Level 1   Level 2   Level 3   Total
Losses
   December 31,
2011
 

Residential real estate-

            

Closed-end first mortgages

  $1,591    $0    $0    $1,591    $545    $308  

Commercial real estate:

            

Owner-occupied

   291     0     0     291     8     8  

Non-owner-occupied

   6,540     0     0     6,540     2,652     150  

Land and construction

   6,793     0     0     6,793     1,511     834  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $15,215    $0    $0    $15,215    $4,716    $1,300  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 


Impaired collateral-dependent loans are carried at fair value when the current collateral value less estimated selling costs is lower than the carrying value of the loan. Those impaired collateral-dependent loans which are measured at fair value on a nonrecurring basis are as follows (in thousands):
                   
                 
 Losses Recorded in Operations
For the Nine Months Ended September 30,
2012
 
                  
                  
                  
  
At September 30, 2012
   
  
 Fair
Value
   
Level 1
  
Level 2
  
Level 3
  
Total
Losses
   
Residential real estate-                         
Closed-end first mortgages
 $1,294  $0  $0  $1,294  $451  $0 
Commercial real estate:                        
Non-owner-occupied  8,997   0   0   8,997   2,484   0 
Land and construction  905   0   0   905   449   0 
                         
  $11,196  $0  $0  $11,196  $3,384  $0 
                 
Losses
Recorded in
Operations
For the
Year Ended
December 31,
2011
 
                  
                  
                  
  At December 31, 2011   
  
 Fair
Value
  Level 1  Level 2  Level 3  
Total
Losses
   
Residential real estate-                        
Closed-end first mortgages
 $1,591  $0  $0  $1,591  $545  $308 
Commercial real estate:                        
Owner-occupied  291   0   0   291   8   8 
Non-owner-occupied  6,540   0   0   6,540   2,652   150 
Land and construction  6,793   0   0   6,793   1,511   834 
                         
  $15,215  $0  $0  $15,215  $4,716  $1,300 
(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

SUBSIDIARIES


Notes to Condensed Consolidated Financial Statements (unaudited), Continued

(7)
Fair Value Measurements, Continued.Foreclosed real estate is recorded at fair value less estimated costs to sell.  Foreclosed real estate which is measured at fair value on a nonrecurring basis is as follows (in thousands):

   Fair
Value
   Level 1   Level 2   Level 3   Total
Losses
   Losses
Recorded
During the
Period
 

At March 31, 2012

  $7,643    $0    $0    $7,643    $797    $25  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At December 31, 2011

  $7,646    $0    $0    $7,646    $772    $772  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The estimated fair values of the Company’s financial instruments were as follows (in thousands):

   At March 31, 2012   At December 31, 2011 
   Carrying
Amount
   Fair Value   Carrying
Amount
   Fair Value 

Financial assets:

        

Cash and cash equivalents

  $24,091    $24,091    $22,776    $22,776  

Securities held to maturity

   100     100     100     100  

Securities available for sale

   26,946     26,946     28,907     28,907  

Loans

   88,254     88,110     89,217     89,069  

Federal Home Loan Bank stock

   2,159     2,159     2,159     2,159  

Accrued interest receivable

   495     495     499     499  

Financial liabilities:

        

Deposit liabilities

   105,533     105,949     107,895     108,461  

Federal Home Loan Bank advances

   31,700     33,842     31,700     33,920  

Junior subordinated debenture

   5,155     4,790     5,155     4,734  

Off-balance sheet financial instruments

   0     0     0     0  

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, 2011.

                 Losses 
                 Recorded 
  Fair           Total  During the 
  Value  Level 1  Level 2  Level 3  Losses  Period 
                   
At September 30, 2012 $10,444  $0  $ 0  $10,444  $842  $70 
                         
At December 31, 2011 $7,646  $0  $0  $7,646  $772  $772 

The estimated fair values and fair value measurement method with respect to the Company’s financial instruments were as follows (in thousands):

  At September 30, 2012  At December 31, 2011 
  Carrying  Fair     Carrying  Fair    
  Amount  Value  Level  Amount  Value  Level 
Financial assets:                  
Cash and cash equivalents $27,367  $27,367   1  $22,776  $22,776   1 
Securities available for sale  21,588   21,588   2   28,907   28,907   2 
Loans  85,451   85,298   3   89,217   89,069   3 
Federal Home Loan Bank stock  1,478   1,478   3   2,159   2,159   3 
Accrued interest receivable  477   477   3   499   499   3 
                         
Financial liabilities:                        
Deposit liabilities  105,526   106,065   1,3   107,895   108,461   1,3 
Federal Home Loan Bank advances
  27,700   29,884   3   31,700   33,920   3 
Junior subordinated debenture  5,155   4,836   3   5,155   4,734   3 
Off-balance sheet financial instruments
  0   0   3   0   0   3 

Discussion regarding the assumptions used to compute the estimated 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, 2011.

(continued)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (unaudited), Continued
(8)

(8)Regulatory Matters - Company.The Company is subject to the supervision and regulation of the Board of Governors of the Federal Reserve System (the “Federal Reserve”). On June 22, 2010, the Company entered into a written agreement with the Federal Reserve Bank of Atlanta (“Reserve Bank”) with respect to certain aspects of the operation and management of the Company (the “Written Agreement”).

  Regulatory Matters - Company.  The Company is subject to the supervision and regulation of the Board of Governors of the Federal Reserve System (the “Federal Reserve”).  On June 22, 2010, the Company entered into a written agreement with the Federal Reserve Bank of Atlanta (“Reserve Bank”) with respect to certain aspects of the operation and management of the Company (the “Written Agreement”).

The Written Agreement contains the following principal requirements:

The Board of the Company must take appropriate steps to fully utilize the Company’s financial and managerial resources to serve as a source of strength to the Bank, including, but not limited to, taking steps to ensure that the Bank complies with the Consent Order entered into with the OFR and the FDIC and any other supervisory action taken by the Bank’s state or federal regulator.

The Company may not declare or pay any dividends without prior Reserve Bank and Federal Reserve approval.

 ●
The Board of the Company must take appropriate steps to fully utilize the Company’s financial and managerial resources to serve as a source of strength to the Bank, including, but not limited to, taking steps to ensure that the Bank complies with the Consent Order entered into with the OFR and the FDIC and any other supervisory action taken by the Bank’s state or federal regulator.

The Company may not, directly or indirectly, take dividends or any other form of payment representing a reduction in capital from the Bank without prior Reserve Bank approval.

 ●
The Company may not declare or pay any dividends without prior Reserve Bank and Federal Reserve approval.

The Company and its nonbank subsidiary, OptimumBank Holdings Capital Trust I, may not make any distributions of interest, principal, or other sums on subordinated debentures or trust preferred securities without the prior written approval of the Reserve Bank and the Federal Reserve.

 ●
The Company may not, directly or indirectly, take dividends or any other form of payment representing a reduction in capital from the Bank without prior Reserve Bank approval.

The Company and its nonbank subsidiary, OptimumBank Holdings Capital Trust I, may not, directly or indirectly, incur, increase, or guarantee any debt or purchase or redeem any shares of its stock without the prior written approval of the Reserve Bank.

The Company must obtain prior written consent from the Reserve Bank before appointing any new director or senior executive officer, or changing the responsibilities of any senior executive officer so that the officer would assume a different senior executive officer position, and must comply with the regulations applicable to indemnification and severance payments.

 ●
The Company and its nonbank subsidiary, OptimumBank Holdings Capital Trust I, may not make any distributions of interest, principal, or other sums on subordinated debentures or trust preferred securities without the prior written approval of the Reserve Bank and the Federal Reserve.

The Company must provide quarterly progress reports to the Reserve Bank, along with parent company only financial statements.

 ●
The Company and its nonbank subsidiary, OptimumBank Holdings Capital Trust I,   may not, directly or indirectly, incur, increase, or guarantee any debt or purchase or redeem any shares of its stock without the prior written approval of the Reserve Bank.
 ●
The Company must obtain prior written consent from the Reserve Bank before appointing any new director or senior executive officer, or changing the responsibilities of any senior executive officer so that the officer would assume a different senior executive officer position, and must comply with the regulations applicable to indemnification and severance payments.
 ●
The Company must provide quarterly progress reports to the Reserve Bank, along with parent company only financial statements.
Management believes the Company is in substantial compliance with the requirements of the Written Agreement.

(continued)


OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (unaudited), Continued
(9)  

(9)Regulatory Matters - Bank.Effective April 16, 2010, the Bank consented to the issuance of a Consent Order by the FDIC and the OFR, also effective as of April 16, 2010.

Regulatory Matters- Bank. Effective April 16, 2010, the Bank consented to the   issuance of a Consent Order by the FDIC and the OFR, also effective as of April 16, 2010.

The Consent Order represents an agreement among the Bank, the FDIC and the OFR as to areas of the Bank’s operations that warrant improvement and presents a plan for making those improvements. The Consent Order imposes no fines or penalties on the Bank. The Consent Order will remain in effect and enforceable until it is modified, terminated, suspended, or set aside by the FDIC and the OFR.


The Consent Order contains the following principal requirements:

The Board of the Bank is required to increase its participation in the affairs of the Bank and assume full responsibility for the approval of sound policies and objectives for the supervision of all of the Bank’s activities.

The Bank is required to have and retain qualified and appropriately experienced senior management, including a chief executive officer, a chief lending officer and a chief financial officer, who are given the authority to implement the provisions of the Consent Order.

 ●
The Board of the Bank is required to increase its participation in the affairs of the Bank and assume full responsibility for the approval of sound policies and objectives for the supervision of all of the Bank’s activities.

Any proposed changes in the Bank’s Board of Directors or senior executive officers are subject to the prior consent of the FDIC and the OFR.

 ●
The Bank is required to have and retain qualified and appropriately experienced senior management, including a chief executive officer, a chief lending officer and a chief financial officer, who are given the authority to implement the provisions of the Consent Order.

The Bank is required to maintain both a fully funded allowance for loan and lease losses satisfactory to the FDIC and the OFR and a minimum Tier 1 leverage capital ratio of 8% and a total risk-based capital ratio of 12% for as long as the Consent Order remains in effect.

 ●
Any proposed changes in the Bank's Board of Directors or senior executive officers are subject to the prior consent of the FDIC and the OFR.

The Bank must undertake over a two-year period a scheduled reduction of the balance of loans classified “substandard” and “doubtful” in its 2009 FDIC examination by at least 75%.

The Bank is required to reduce the volume of its adversely classified private label mortgage backed securities under a plan acceptable to the FDIC and OFR.

 ●
The Bank is required to maintain both a fully funded allowance for loan and lease losses satisfactory to the FDIC and the OFR and a minimum Tier 1 leverage capital ratio of 8% and a total risk-based capital ratio of 12% for as long as the Consent Order remains in effect.

The Bank must submit to the FDIC and the OFR for their review and comment a written business/strategic plan covering the overall operation of the Bank.

The Bank must implement a plan to improve earnings, addressing goals and strategies for improving and sustaining earnings, major areas for improvement in the Bank’s operating performance, realistic and comprehensive budgets and a budget review process.

 ●
The Bank must undertake over a two-year period a scheduled reduction of the balance of loans classified “substandard” and “doubtful” in its 2009 FDIC examination by at least 75%.

 ●
The Bank is required to reduce the volume of its adversely classified private label mortgage backed securities under a plan acceptable to the FDIC and OFR.
 ●
The Bank must submit to the FDIC and the OFR for their review and comment a written business/strategic plan covering the overall operation of the Bank.
 ●
The Bank must implement a plan to improve earnings, addressing goals and strategies for improving and sustaining earnings, major areas for improvement in the Bank’s operating performance, realistic and comprehensive budgets and a budget review process.
(continued)


OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

SUBSIDIARIES


Notes to Condensed Consolidated Financial Statements (unaudited), Continued


(9)
(9)   Regulatory Matters - Bank, Continued.

The Bank is required to revise, implement and incorporate recommendations of the FDIC and OFR with respect to the following policies or plans:

Lending and Collection Policies

Investment Policy

Liquidity, Contingency Funding and Funds Management Plan

Interest Rate Risk Management Policy

Internal Loan Review and Grading System;

Internal Control Policy; and

A plan to reduce concentration in commercial real estate loans;

The Bank’s Board of Directors must review the adequacy of the allowance for loan and lease losses and establish a comprehensive policy satisfactory to the FDIC and OFR for determining such adequacy at least quarterly thereafter.

The Bank may not pay any dividends or bonuses without the prior approval of the FDIC.

The Bank may not accept, renew or rollover any brokered deposits except with the prior approval of the FDIC.

The Bank is required to notify the FDIC and OFR prior to undertaking asset growth of 10% or more per annum while the Consent Order remains in effect.

The Bank is required to file quarterly progress reports with the FDIC and the OFR.

Management believes that the Bank is currently in substantial compliance with all the requirements of the Consent Order except for the following requirements:

Scheduled reductions by October 31, 2011, and April 30, 2012, of 60% and 75%, respectively, of loans classified as substandard and doubtful in the 2009 FDIC Examination;

Retention of a qualified chief executive officer and chief lending officer; and

Development of a plan to reduce Bank’s concentration in commercial real estate loans acceptable to the supervisory authorities.

The Bank has implemented comprehensive policies and plans to address all of the requirements of the Consent Order and has incorporated recommendations from the FDIC and OFR into these policies and plans.

(10)
The Bank is required to revise, implement and incorporate recommendations of the FDIC and OFR with respect to the following policies or plans:
oLending and Collection Policies
oInvestment Policy
oLiquidity, Contingency Funding and Funds Management Plan
oInterest Rate Risk Management Policy
oInternal Loan Review and Grading System;
oInternal Control Policy; and
oA plan to reduce concentration in commercial real estate loans;
The Bank’s Board of Directors must review the adequacy of the allowance for loan and lease losses and establish a comprehensive policy satisfactory to the FDIC and OFR for determining such adequacy at least quarterly thereafter.
The Bank may not pay any dividends or bonuses without the prior approval of the FDIC.
The Bank may not accept, renew or rollover any brokered deposits except with the prior approval of the FDIC.
The Bank is required to notify the FDIC and OFR prior to undertaking asset growth of 10% or more per annum while the Consent Order remains in effect.
The Bank is required to file quarterly progress reports with the FDIC and the OFR.
Management believes that the Bank is currently in substantial compliance with all the requirements of the Consent Order except for the following requirements:
Scheduled reductions by October 31, 2011, and April 30, 2012, of 60% and 75%, respectively, of loans classified as substandard and doubtful in the 2009 FDIC Examination;
Retention of a qualified chief executive officer; and
Development of a plan to reduce Bank’s concentration in commercial real estate loans acceptable to the supervisory authorities.
The Bank has implemented comprehensive policies and plans to address all of the requirements of the Consent Order and has incorporated recommendations from the FDIC and OFR into these policies and plans.
(10)Junior Subordinated Debenture.The terms of the debenture agreement allow the Company to defer payments of interest on the debenture by extending the interest payment period at any time during the term of the debenture for up to twenty consecution quarterly periods. The Company has elected its right to defer payment of interest on the debenture. Accrued and unpaid interest on the debenture totaled $367,000$446,629 at March 31,September 30, 2012.

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

SUBSIDIARIES

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


The following discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto presented elsewhere in this report.  For additional information, refer to the financial statements and footnotes for the year ended December 31, 2011 in the Annual Report on Form 10-K.


Regulatory Enforcement Actions


Bank Consent Order.  On April 16, 2010, the Bank consented to the issuance of a Consent Order (“Consent Order”) by the FDIC and OFR.   The Consent Order covers areas of the Bank’s operations that warrant improvement and imposes various requirements and restrictions designed to address these areas, including the requirement to maintain certain minimum capital ratios.  A detailed discussion of the Consent Order is contained in Footnote 9 to the condensed consolidated financial statements contained in this report.   Management believes that the Bank is currently in substantial compliance with all the requirements of the Consent Order except for the following requirements:

Scheduled reductions by October 31, 2011, and April 30, 2012, of 60% and 75%, respectively, of loans classified as substandard and doubtful in the 2009 FDIC Examination;

Retention of a qualified chief executive officer and chief lending officer; and

     ●
Scheduled reductions by October 31, 2011, and April 30, 2012, of 60% and 75%, respectively, of loans classified as substandard and doubtful in the 2009 FDIC Examination;

Development of a plan to reduce Bank’s concentration in commercial real estate loans acceptable to the supervisory authorities.

     ●
Retention of a qualified chief executive officer and a chief lending officer; and

     ●
Development of a plan to reduce Bank’s concentration in commercial real estate loans acceptable to the supervisory authorities.
The Bank has implemented comprehensive policies and plans to address all of the requirements of the Consent Order and has incorporated recommendations from the FDIC and OFR into these policies and plans.

As of September 30, 2012 scheduled reductions of the aforementioned 2009 classified loans were 59.44%.


Company Written Agreement with Reserve Bank.  On June 22, 2010, the Company and the Reserve Bank entered into a Written Agreement with respect to certain aspects of the operation and management of the Company, including, without the prior approval of the Reserve Bank, paying or declaring dividends, taking dividends or payments from the Bank, making any interest, principal or other distributions on trust preferred securities, incurring, increasing or guaranteeing any debt, purchasing or redeeming any shares of stock, or appointing any new director or senior executive officer.  Management believes that the Company is currently in substantial compliance with the requirements of the Written Agreement.  A detailed discussion of the Written Agreement is contained in Footnote 8 to the condensed consolidated financial statements contained in this report.

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

SUBSIDIARIES

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

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Continued
The following discussion and analysis should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this report. This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements involve known and unknown risks and uncertainties, many of which are beyond the control of the Company), including adverse changes in economic, political and market conditions, losses from the Company’s lending activities and changes in market conditions, the possible loss of key personnel, the impact of increasing competition, the impact of changes in government regulation, the possibility of liabilities arising from violations of federal and state securities laws and the impact of changes in technology in the banking industries. Although the Company believes that its forward-looking statements are based upon reasonable assumptions regarding its business and future market conditions, there can be no assurances that the Company’s actual results will not differ materially from any results expressed or implied by the Company’s forward-looking statements. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Readers are cautioned that any forward-looking statements are not guarantees of future performance.

Capital Levels


At September 30, 2012, the Bank met or exceeded all of its regulatory capital requirements.  The following table summarizes the capital measures of the Bank at March 31,September 30, 2012 and December 31, 2011:

           FDIC Guideline Requirements 
   March 31,
2012
   December 31,
2011
   Adequately-
Capitalized
   Well-
Capitalized
   Consent
Order
 

Tier I risk-based capital ratio

   9.16     7.76     4.00     6.00     *  

Total risk-based capital ratio

   13.20     12.48     8.00     10.00     12.00  

Leverage ratio

   11.94     11.22     4.00     5.00     8.00  

*No additional requirement is established by the Consent Order

        FDIC Guideline Requirements 
  
September 30,
2012
  
December 31,
2011
  
Adequately-Capitalized
  
Well-
Capitalized
  
Consent
Order
 
                
Tier I risk-based capital ratio  12.64   11.22   4.00   6.00   * 
                     
Total risk-based capital ratio  13.90   12.48   8.00   10.00   12.00 
                     
Leverage ratio  9.21   7.76   4.00   5.00   8.00 

*No additional requirement is established by the Consent Order

Financial Condition at March 31,September 30, 2012 and December 31, 2011


Overview


Our total assets declined by $1.5$4.5 million to $152.9$150.0 million at March 31,September 30, 2012, from $154.5 million at December 31, 2011, due to a $2.0$7.3 million reduction in securities primarily as a result of repayments and a $1.0$3.8 million reduction in net loans primarily as a result of loan payments,payoffs and transfers to foreclosed real estate, partially offset by a $1.3$4.6 million increase in cash and cash equivalents.  Deposits decreased by $2.4 million to $105.5 million at March 31,September 30, 2012, from $107.9 million at December 31, 2011.2011, primarily due to a reduction in time deposits. Total stockholders’ equity increased by $1.4$2.1 million to $8.2$8.9 million at March 31,September 30, 2012 from $6.8 million at December 31, 2011, due to the receipt of $1.6$3.4 million in proceeds from the sale of common stock and a $.3$1.0 million decrease in accumulated other comprehensive loss from a reduction of unrealized losses on securities available for sale, partially offset by a $.6$2.4 million net loss for the quarter.

nine month period ended September 30, 2012.


OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

SUBSIDIARIES


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



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

   Three Months
Ended
March 31,
2012
  Year Ended
December 31,
2011
  Three Months
Ended
March 31,
2011
 

Average equity as a percentage of average assets

   4.67  1.04  1.15

Equity to total assets at end of period

   5.34  4.39  0.91

Return on average assets (1)

   (1.54)%   (2.11)%   (2.44)% 

Return on average equity (1)

   (33.07)%   (203.97)%   (212.49)% 

Noninterest expenses to average assets (1)

   3.15  4.08  4.30

  Nine Months     Nine Months 
  Ended  Year Ended  Ended 
  September 30,  December 31,  September 30, 
  2012  2011  2011 
          
Average equity as a percentage of average assets  5.11%�� 1.04%  0.13%
             
Equity to total assets at end of period  5.91%  4.39%  (1.02)%
             
Return on average assets (1)  (2.08)%  (2.11)%  (2.72)%
             
Return on average equity (1)  (40.75)%  (203.97)%  (129.87)%
             
Noninterest expenses to average assets (1)  3.41%  4.08%  4.19%

(1)Annualized for the threenine months ended March 31,September 30, 2012 and 2011.

Despite the slowing of the decline ofin real estate values in South Florida, we continue to experience the adverse effects of the prolonged real estate devaluation resulting in significant levels of non-performing loans, foreclosed real estate and loan charge-offs.   Management, however, is committed to minimizing further losses in the loan portfolio and reducing our nonperforming assets.


Liquidity and Sources of Funds


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


Deposits are our primary source of funds. Under the Consent Order, the interest rates that we pay on our market area deposits and our ability to accept brokered deposits isare restricted. The restriction on brokered deposits is not expected to alter the Bank’sBank's current deposit gathering activities since the Bank has not accepted, renewed or rolled over any brokered deposits since December 2009. With respect to the yield limitations, it is possible that the Bank could experience a decrease in deposit inflows, or the migration of current deposits to competitor institutions, if other institutions offer higher interest rates than those permitted to be offered by the Bank. Despite these yield limitations, we believe that we have to the ability to adjust rates on our deposits to attract or retain deposits as needed.

31


OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

SUBSIDIARIES


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


In addition to obtaining funds from depositors, we may borrow funds from other financial institutions. At March 31,September 30, 2012, the Bank had outstanding borrowings of $31.7$27.7 million, against its $31.7$27.7 million in established borrowing capacity with the FHLB. The Bank’s borrowing facility is subject to collateral and stock ownership requirements, as well as prior FHLB consent to each advance. The use of the Federal Fund line is subject to certain conditions. In 2010, the Bank obtained an available discount window credit line with the Reserve Bank, currently $1.1$1.9 million.  The Reserve Bank line is subject to collateral requirements and must be repaid within 90 days, anddays; each advance is subject to prior Reserve Bank consent. We measure and monitor our liquidity daily and believe our liquidity sources are adequate to meet our operating needs.


The Company, on an unconsolidated basis, typically relies on dividends from the Bank to fund its operating expenses, primarily expenses of being publicly held, and to make interest payments on its outstanding trust preferred securities.  Under the Consent Order, the Bank is currently unable to pay dividends without prior regulatory approval.  In addition, under the Written Agreement, we may not pay interest payments on the trust preferred securities or dividends on our common stock, incur any additional indebtedness at the holding company level, or redeem our common stock without the prior regulatory approval of the Reserve Bank.  Since January 2010, we have deferred interest payments on our trust preferred securities.


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 are commitments to extend credit and may involve, to varying degrees, elements of credit and interest-rate risk in excess of the amounts recognized in the condensed consolidated balance sheet.  The contract amounts of these instruments reflect the extent of the Company’s involvement in these financial instruments.


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.  As of March 31,September 30, 2012, the Company has nohad commitments to extend credit.

credit totaling $6.9 million.0-


OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

SUBSIDIARIES


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


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 March 31, 
   2012  2011 
   Average
Balance
   Interest
and
Dividends
   Average
Yield/
Rate
  Average
and
Balance
   Interest
and
Dividends
   Average
Yield/
Rate
 

Interest-earning assets:

           

Loans

  $90,721     995     4.39 $111,905     1,289     4.61

Securities

   28,367     298     4.20    52,505     529     4.03  

Other (1)

   22,236     16     0.29    16,854     15     0.36  
  

 

 

   

 

 

    

 

 

   

 

 

   

Total interest-earning assets/interest income

   141,324     1,309     3.70    181,264     1,833     4.04  
  

 

 

   

 

 

      

 

 

   

Cash and due from banks

   421        581      

Premises and equipment

   2,685        2,787      

Other

   6,363        5,347      
  

 

 

      

 

 

     

Total assets

  $150,793       $189,979      
  

 

 

      

 

 

     

Interest-bearing liabilities:

           

Savings, NOW and money-market deposits

   34,831     55     0.63    36,166     77     0.85  

Time deposits

   69,275     236     1.36    111,576     473     1.70  

Borrowings (2)

   36,855     389     4.22    36,855     380     4.12  
  

 

 

   

 

 

    

 

 

   

 

 

   

Total interest-bearing liabilities/interest expense

   140,961     680     1.93    184,597     930     2.02  
    

 

 

      

 

 

   

Noninterest-bearing demand deposits

   545        481      

Other liabilities

   2,247        2,723      

Stockholders’ equity

   7,040        2,178      
  

 

 

      

 

 

     

Total liabilities and stockholders’ equity

  $150,793       $189,979      
  

 

 

      

 

 

     

Net interest income

    $629       $903    
    

 

 

      

 

 

   

Interest rate spread (3)

       1.77      2.02
      

 

 

      

 

 

 

Net interest margin (4)

       1.78      1.99
      

 

 

      

 

 

 

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

   1.00        0.98      
  

 

 

      

 

 

     

  Three Months Ended September 30, 
  2012  2011 
     Interest  Average     Interest  Average 
  Average  and  Yield/  Average  and  Yield/ 
  Balance  Dividends  Rate  Balance  Dividends  Rate 
  ($ in thousands) 
Interest-earning assets:                  
Loans $89,022  $1,025   4.61% $102,825  $1,121   4.36%
Securities  24,661   245   3.97   38,281   378   3.95 
Other (1)  25,838   22   0.34   20,881   17   0.33 
                         
Total interest-earning assets/interest income  139,521   1,292   3.70   161,987   1,516   3.74 
                         
Cash and due from banks  2,399           27         
Premises and equipment  2,804           2,726         
Other  7,232           5,363         
                         
Total assets $151,956          $170,103         
                         
Interest-bearing liabilities:                        
Savings, NOW and money-market deposits  35,837   57   0.64   34,491   62   0.72 
Time deposits  70,228   215   1.22   97,033   379   1.56 
Borrowings (2)  34,116   359   4.21   36,855   389   4.22 
                         
Total interest-bearing liabilities/interest expense  140,181   631   1.80   168,379   830   1.97 
                         
Noninterest-bearing demand deposits  1,069           570         
Other liabilities  2,299           2,836         
Stockholders’ equity  8,407           (1,682)        
                         
Total liabilities and stockholders’ equity $151,956          $170,103         
                         
Net interest income     $661          $686     
                         
Interest-rate spread (3)          1.90%          1.77%
                         
Net interest margin (4)          1.81%          1.69%
                         
Ratio of average interest-earning assets to average interest-bearing liabilities  1.00           0.96         

(1)Includes interest-earning deposits with banks, Federalfederal 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.
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES

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

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.
  Nine Months Ended September 30, 
  2012  2011 
     Interest  Average     Interest  Average 
  Average  and  Yield/  Average  and  Yield/ 
  Balance  Dividends  Rate  Balance  Dividends  Rate 
  ($ in thousands) 
Interest-earning assets:                  
Loans $89,607  $3,002   4.47% $107,650  $3,607   4.47%
Securities  26,530   819   4.12   47,309   1,407   3.97 
Other (1)  25,085   60   0.32   17,844   46   0.34 
                         
Total interest-earning assets/interest income  141,222   3,881   3.66   172,803   5,060   3.90 
                         
Cash and due from banks  1,594           349         
Premises and equipment  2,726           2,757         
Other  6,760           5,052         
                         
Total assets $152,308          $180,961         
                         
Interest-bearing liabilities:                        
Savings, NOW and money-market deposits  35,336   169   0.64   35,615   215   0.80 
Time deposits  70,089   679   1.29   104,861   1,274   1.62 
Borrowings (2)  35,942   1,136   4.21   36,855   1,153   4.17 
                         
Total interest-bearing liabilities/interest expense  141,367   1,984   1.87   177,331   2,642   1.99 
                         
Noninterest-bearing demand deposits  728           521         
Other liabilities  2,435           2,878         
Stockholders’ equity  7,777           231         
                         
Total liabilities and stockholders’ equity $152,308          $180,961         
                         
Net interest income     $1,897          $2,418     
                         
Interest-rate spread (3)          1.79%          1.91%
                         
Net interest margin (4)          1.79%          1.87%
                         
Ratio of average interest-earning assets to average interest-bearing liabilities  1.00           0.97         


(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 rateInterest-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

SUBSIDIARIES


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


Comparison of the Three-Month Periods Ended March 31,September 30, 2012 and 2011

General. Net loss for the three months ended March 31, 2012, was $.6 million or $(.03) per basic and diluted share compared to a net loss of $1.2 million or $(1.41) per basic and diluted share for the period ended March 31, 2011. This decrease in the Company’s net loss was primarily due to a $.9 million decrease in noninterest expenses, including foreclosure expenses, regulatory assessments, and professional fees associated with loan foreclosures and workouts.

Interest Income. Interest income decreased to $1.3 million for the three months ended March 31, 2012 from $1.8 million for the three months ended March 31, 2011. Interest income on loans decreased $.3 million due primarily to a decrease in the average loan portfolio balance for the three months ended March 31, 2012 compared to the same period in 2011. Interest on securities decreased by $.2 million to $.3 million due primarily to a decrease in the average balance of the securities portfolio.

Interest Expense.Interest expense on deposits decreased to $.3 million for the three months ended March 31, 2012 from $.6 million for the three months ended March 31, 2011. Interest expense decreased primarily because of a decrease in average deposits as well as a decrease in the average yield paid during 2012.

Provision for Loan Losses. The provision for the three months ended March 31, 2012, was $27,000 compared to $34,000 for the same period in 2011. 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 March 31, 2012. Management’s periodic evaluation of the adequacy of the allowance is based upon historical experience, the volume and type of lending conducted by us, adverse situations that may affect the borrower’s ability to repay, estimated value of the underlying collateral, loans identified as impaired, general economic conditions, particularly as they relate to our market areas, and other factors related to the estimated collectability of our loan portfolio. The allowance for loan losses totaled $2.0 million or 2.19% of loans outstanding at March 31, 2012, compared to $2.3 million, or 2.57% of loans outstanding at December 31, 2011. The decrease in the allowance was due to the use of specific reserves for charge-offs of loans deemed uncollectible. Management believes the balance in the allowance for loan losses at March 31, 2012 is adequate.

Noninterest Income. Total noninterest income decreased to $4,000 for the three months ended March 31, 2012, from $16,000 for the three months ended March 31, 2011 primarily due to a decrease inservice charges and fees.

Noninterest Expenses. Total noninterest expenses decreased to $1.2 million for the three months ended March 31, 2012 compared to $2.0 million for the three months ended March 31, 2011, primarily due to a decrease in foreclosure expenses, regulatory assessments, and professional fees.


General.  Net loss for the three months ended September 30, 2012, was $1.0 million or $(.04) per basic and diluted share compared to a net loss of $0.6 million or $(.69) per basic and diluted share for the period ended September 30, 2011.  This increase in the Company’s net loss was primarily due to a increase in the provision for loan losses.

Interest Income.  Interest income decreased to $1.3 million for the three months ended September 30, 2012 from $1.5 million for the three months ended September 30, 2011.  Interest income on loans primarily decreased as a result of a decrease in the average loan portfolio balance for the three months ended September 30, 2012.  Interest on securities decreased to $0.2 million due primarily to a decrease in the average balance of the securities portfolio in 2012.

Interest Expense.  Interest expense decreased to $0.6 million for the three months ended September 30, 2012 from $0.8 million for the three months ended September 30, 2011.  Interest expense decreased primarily because of a decrease in the average yield paid during 2012 and a decrease in the average balance of time deposits.

Provision for Loan Losses.  The provision for the three months ended September 30, 2012, was $0.2 million compared to $(0.2) million for the same period in 2011.  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, 2012. Management’s periodic evaluation of the adequacy of the allowance is based upon historical experience, the volume and type of lending conducted by us, adverse situations that may affect the borrower’s ability to repay, estimated value of the underlying collateral, loans identified as impaired, general economic conditions, particularly as they relate to our market areas, and other factors related to the estimated collectability of our loan portfolio.  The allowance for loan losses totaled $1.9 million or 2.2% of loans outstanding at September 2012, compared to $2.3 million, or 2.6% of loans outstanding at December 31, 2011. Management believes the balance in the allowance for loan losses at September 30, 2012 is adequate.

Noninterest Income.  Total noninterest income remained unchanged at $10,000 for the three months ended September 30, 2012 and 2011.

Noninterest Expenses.  Total noninterest expenses decreased to $1.4 million for the three months ended September 30, 2012 compared to $1.5 million for the three months ended September 30, 2011 primarily as a result of a reduction in professional fees.

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARYSUBSIDIARIES

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

Comparison of the Nine-Month Periods Ended September 30, 2012 and 2011

General.  Net loss for the nine months ended September 30, 2012, was $2.4 million or $(.09) per basic and diluted share compared to a net loss of $3.7 million or $(4.50) per basic and diluted share for the period ended September 30, 2011.  This decrease in the Company’s net loss was primarily due to decreases in foreclosed real estate expense, provision for loan losses and professional fees.

Interest Income.  Interest income decreased to $3.9 million for the nine months ended September 30, 2012 compared to $5.1 million for the nine months ended September 30, 2011.  Interest income on loans decreased $600,000 to $3.0 million due primarily to a decrease in the average loan portfolio balance for the nine months ended September 30, 2012 compared to the same period in 2011.  Interest on securities decreased by $600,000 to $0.8 million due primarily to a decrease in the average balance of the securities portfolio in 2012.

Interest Expense.  Interest expense decreased to $2.0 million for the nine months ended September 30, 2012, from $2.6 million for the nine months ended September 30, 2011.  Interest expense on deposits decreased primarily because of a decrease in the average balance in 2012.

Provision for Loan Losses.  The provision for the nine months ended September 30, 2012, was $0.4 million compared to $0.7 million for the same period in 2011.  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, 2012. Management’s periodic evaluation of the adequacy of the allowance is based upon historical experience, the volume and type of lending conducted by us, adverse situations that may affect the borrower’s ability to repay, estimated value of the underlying collateral, loans identified as impaired, general economic conditions, particularly as they relate to our market areas, and other factors related to the estimated collectability of our loan portfolio.  The allowance for loan losses totaled $1.9 million or 2.2% of loans outstanding at September 30, 2012, compared to $2.3 million, or 2.6% of loans outstanding at December 31, 2011. Management believes the balance in the allowance for loan losses at September 30, 2012 is adequate.

Noninterest Income.  Total noninterest income decreased to $198,000 for the nine months ended September 30, 2012, from $232,000 for the nine months ended September 30, 2011.

Noninterest Expenses.  Total noninterest expenses decreased to $3.9 million for the nine months ended September 30, 2012 from $5.7 million for the nine months ended September 30, 2011, primarily due to a $0.7 million decrease in foreclosed real estate expense, $0.5 million decrease in professional fees and a $0.3 million decrease in regulatory assessment.

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES

Under the supervision and with the participation of our President and Chief Financial Officer (our principal executive officer and principal financial officer), we have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report, and, based on this evaluation, the President and Chief Financial Officer concluded that these disclosure controls and procedures are effective.

There have been no changes in our internal control over financial reporting during the quarter ended September 30, 2012, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PrivateSale to Accredited Investor

On July 9, 2012, the Company closed the sale of 500,000 shares of its common stock at a price of $.40 per share to an individual accredited investor.  On August 15, 2012, the Company closed the sale of 3,000,000 shares of its common stock at a price of $.40 per share to an individual accredited investor.  On August 17, 2012, the Company closed the sale of 500,000 shares of its common stock at a price of $.40 per share to an individual accredited investor.  The shares sold were not registered under the Securities Act of 1933 (the “Securities Act”), in reliance on the exemption provided by Section 4(2) thereof as a transaction by an issuer not involving a public offering.

Non-Employee Director Share Issuances

On September [_30_], 2012, the Company issued an aggregate of 19,839 shares of its common stock to the Company's non-employee directors under the Company's 2011 Equity Incentive Plan and the Company's Non-Employee Director Compensation Plan (the "Director Compensation Plan") for attendance fees at board meetings of the Company during the second quarter of 2012. Under the Director Compensation Plan, which became effective on January 1, 2012, fees for attendance at board and committee meetings are payable 75% in shares of common stock and 25% in cash on a quarterly basis. The shares were issued at the price of $0.61, the fair market value of the shares on the date of issuance. The issuance of the shares was exempt from registration pursuant to Section 4(2) of the Securities Act as a transaction by an issuer not involving a public offering.
Proposed Stock Sale to Gubin. The Company has previously entered into an Amended and Restated Stock Purchase Agreement dated as of December 5, 2011 with Moishe Gubin, the Chairman of the Board of the Company (the “Stock Purchase Agreement”). Under this agreement, Mr. Gubin agreed to purchase, subject to certain conditions, 6,750,000 newly issued shares of common stock of the Company for a price of $.40 per share. If this transaction is consummated, the Company will receive gross proceeds of $2.7 million. These shares are in addition to 1,800,000 shares purchased by Mr. Gubin in the Private Offering, the 250,000 shares purchased by Mr. Gubin from his father-in-law, Mark Orenstein, as well as 4,795 shares issued to Mr. Gubin in 2012 as nonemployee directors’ fees. On October 17, 2012, the Company and Mr. Gubin entered into the First Amendment to Amended and Restated Stock Purchase Agreement, which provided that: (i) the proposed shares may be purchased by Mr. Gubin in one or more closings, (ii) the number of shares to be purchased will be reduced to the extent that the Federal Reserve Board and/or the Florida Office of Financial Regulation limit the number of shares that may be purchased by Mr. Gubin, and (iii) the outside closing date was extended until January 31, 2013.
Item 4.Controls and Procedures

Under


The exhibits contained in the supervision andExhibit Index following the signature page are filed with this report.

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES


Pursuant to the participation of our President and Chief Financial Officer (our principal executive officer and principal financial officer), we have evaluated the effectiveness of our disclosure controls and procedures asrequirements of the endSecurities Exchange Act of 1934, the period covered byRegistrant has duly caused this report and, basedto be signed on this evaluation,its behalf by the President and Chief Financial Officer concluded that these disclosure controls and procedures are effective.

There have been no changes in our internal control over financial reporting during the quarter ended March 31, 2012, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

undersigned thereunto duly authorized.

OPTIMUMBANK HOLDINGS, INC.
(Registrant)
Date: November  14 , 2012
By:  /s/ Richard L. Browdy
  Richard L. Browdy
  President and Chief Financial Officer
  (Principal Executive Officer and Principal
  Financial Officer)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARIES

PART II. OTHER INFORMATIONEXHIBIT INDEX



Exhibit No.Description
3.1Amended and Restated Articles of Incorporation (incorporated by reference from Annual Report on Form 10-K filed with the SEC on March 30, 2012)
4.1Bylaws (incorporated by reference from Current Report on Form 8-K filed with the SEC on May 11, 2004)
4.2Form of stock certificate (incorporated by reference from Quarterly Report on Form 10-QSB filed with the SEC on August 12, 2004)
4.3Form of Registration Rights Agreement between OptimumBank Holdings, Inc. and Investors (incorporated by reference from Current Report on Form 8-K filed with the SEC on October 31, 2011)
4.4The Company has outstanding certain long-term debt. None of such debt exceeds ten percent of the Company’s total assets; therefore, copies of the constituent instruments defining the rights of the holders of such debt are not included as exhibits. Copies of instruments with respect to such long-term debt will be furnished to the SEC upon request.
10.1OptimumBank Holdings, Inc. Non-Employee Director Compensation Plan (incorporated by reference from Annual Report on Form 10-K filed with the SEC on March 30, 2012)
10.2Amended and Restated Stock Purchase Agreement, dated as of December 5 2011, between OptimumBank Holdings, Inc. and Moishe Gubin (incorporated by reference from Annual Report on Form 10-K filed with the SEC on March 30, 2012)
10.3First Amendment dated June 29, 2012 to Amended and Restated Stock Purchase Agreement between OptimumBank Holdings, Inc. and Moishe Gubin dated December 5, 2011 (incorporated by reference from Current Report on Form 8-K filed with the SEC on July 6, 2012)
10.4Second First Amendment dated October 25, 2012 to Amended and Restated Stock Purchase Agreement between OptimumBank Holdings, Inc. and Moishe Gubin dated December 5, 2011
31.1
32.1
101.INSXBRL Instance Document
101.SCHXBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.LABXBRL Taxonomy Extension Label Linkbase Document
101.PREXBRL Taxonomy Extension Presentation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition Linkbase Document

39

 

Item 6.Exhibits

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

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

SIGNATURES

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

OPTIMUMBANK HOLDINGS, INC.

    (Registrant)

Date:

May 11, 2012

By:

/s/ Richard L. Browdy

Richard L. Browdy

President and Chief Financial Officer

(Principal Executive Officer and Principal Financial Officer)

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

EXHIBIT INDEX

Exhibit
No.

Description

    3.1Amended and Restated Articles of Incorporation (incorporated by reference from Annual Report on Form 10-K filed with the SEC on March 30, 2012)
    4.1Bylaws (incorporated by reference from Current Report on Form 8-K filed with the SEC on May 11, 2004)
    4.2Form of stock certificate (incorporated by reference from Quarterly Report on Form 10-QSB filed with the SEC on August 12, 2004)
    4.3Form of Registration Rights Agreement between OptimumBank Holdings, Inc. and Investors (incorporated by reference from Current Report on Form 8-K filed with the SEC on October 31, 2011)
    4.4The Company has outstanding certain long-term debt. None of such debt exceeds ten percent of the Company’s total assets; therefore, copies of the constituent instruments defining the rights of the holders of such debt are not included as exhibits. Copies of instruments with respect to such long-term debt will be furnished to the SEC upon request.
  10.1OptimumBank Holdings, Inc. Non-Employee Director Compensation Plan (incorporated by reference from Annual Report on Form 10-K filed with the SEC on March 30, 2012)
  10.2Amended and Restated Stock Purchase Agreement, dated as of December 5 2011, between OptimumBank Holdings, Inc. and Moishe Gubin (incorporated by reference from Annual Report on Form 10-K filed with the SEC on March 30, 2012)
  31.1Certification of Principal Executive and Principal Financial Officer required by Rule 13a-14(a)/15d-14(a) under the Exchange Act
  32.1Certification of Principal Executive and Principal Financial Officer under 18 U.S.C. Section 1350
101.INSXBRL Instance Document
101.SCHXBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
101.LABXBRL Taxonomy Extension Label Linkbase Document
101.PREXBRL Taxonomy Extension Presentation Linkbase Document