December 4, 2008
By U.S. Mail and Facsimile (202) 772-9208
United States Securities and Exchange Commission
Division of Corporate Finance
Mail Stop 4561
100 F Street, N.E.
Washington, D.C. 20549
Attention: Kathryn McHale
| Re: | OptimumBank Holdings, Inc. | |
| Preliminary Proxy Statement on Schedule 14A | ||
| Filed November 14, 2008 | ||
| File No. 000-50755 |
Ladies and Gentlemen:
This letter is in response to verbal comments provided by Justin Dobbie in his conversation on December 2, 2008, with Wendy Mitchler, Esq., counsel for OptimumBank Holdings, Inc. (the “Company”). Those comments, and the response of the Company, are set forth below.
Comment 1. Identify in Footnote (1) to each of the pro forma consolidated income statements on pages 11 and 12 what rate on fed funds sold is being used.
Response: In our proposed definitive proxy statement, we have disclosed the fed funds rate we are using in our pro forma income statements by adding the words “at a rate of .50%” to footnote (1) to the pro forma consolidated statements of income for the year ended September 30, 2008, and nine months ended September 30, 2008. In addition, we have revised our pro forma financial statements to reflect a current fed funds rate of .5% as the fed funds rate used in the previously filed pro forma financial statements was the average historical rate for the periods presented and did not reflect a current rate. The pro forma statements blacklined to show the changes from the previously filed statements are set forth in their entirety in response to Comment 2.
Comment 2.In the pro forma consolidated balance sheets, reclassify the adjusting entry for the preferred stock discount from the “Preferred stock” line item to the “Discount on preferred stock” line item in both the minimum proceeds and the maximum proceeds columns.
Response: In our proposed definitive proxy statement, we have reclassified the adjusting entry for the discount on the preferred stock account to the “Discount on preferred stock” line item for both the minimum proceeds and the maximum proceeds columns. The revised pro forma balance sheets and pro forma income statements to be included in the definitive proxy statement and blacklined to show the changes from the previously filed statements are set forth below:
| 2477 East Commercial Blvd, Fort Lauderdale, FL 33308 | E-Mail: rlbrowdy@optimumbank.com | |||
| Phone: (954) 776-2332 x104 | Toll-Free: (888) 991-BANK | Fax: (954) 776-2281 | ||
Securities and Exchange Commission
December 4, 2008
Page 2
OPTIMUMBANK HOLDINGS, INC.
PRO FORMA CONSOLIDATED BALANCE SHEETS
September 30, 2008
| September 30, 2008 (Unaudited) | Minimum Proceeds | Pro Forma w/Minimum Pro Forma | Maximum Proceeds | Pro Forma w/Maximum | |||||||||||
| ($ in thousands) | |||||||||||||||
Cash and balances due | 1,511 | 1,511 | 1,511 | ||||||||||||
Investment securities | 85,499 | 85,499 | 85,499 | ||||||||||||
Fed Funds sold | 394 | 1,526 | (2) | 1,920 | 4,578 | (2) | 4,972 | ||||||||
Net loans | 162,779 | 162,779 | 162,779 | ||||||||||||
Other assets | 9,383 | 9,383 | 9,383 | ||||||||||||
TOTAL ASSETS | 259,566 | 1,526 | 261,092 | 4,578 | 264,144 | ||||||||||
Deposits | 112,566 | 112,566 | 112,566 | ||||||||||||
Short-term borrowings | 9,000 | 9,000 | 9,000 | ||||||||||||
Long-term debt | 110,655 | 110,655 | 110,655 | ||||||||||||
Other liabilities | 4,082 | 4,082 | 4,082 | ||||||||||||
TOTAL LIABILITIES | 236,303 | 0 | 236,303 | 0 | 236,303 | ||||||||||
Preferred stock | 0 | 1,526 | (1) | 1,396 | 4,578 | (1) | 4,188 | ||||||||
Common stock and additional paid-in capital | 18,525 | 18,525 | 18,525 | ||||||||||||
Warrants | 0 | 130 | (1) | 130 | 390 | (1) | 390 | ||||||||
Discount on preferred stock | 0 | (130 | ) | 0 | (390 | ) | 0 | ||||||||
Retained earnings | 4,743 | 4,743 | 4,743 | ||||||||||||
Accumulated other comprehensive loss | (5 | ) | (5 | ) | (5 | ) | |||||||||
TOTAL SHAREHOLDERS' EQUITY | 23,263 | 1,526 | 24,789 | 4,578 | 27,841 | ||||||||||
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY | 259,566 | 1,526 | 261,092 | 4,578 | 264,144 | ||||||||||
CAPITAL RATIOS | |||||||||||||||
Leverage (Tier 1 capital to assets) | 9.12 | % | 9.72 | % | 10.91 | % | |||||||||
Tier 1 capital to risk-weighted assets | 15.24 | % | 16.24 | % | 18.24 | % | |||||||||
Total capital to risk-weighted assets | 15.72 | % | 16.72 | % | 18.72 | % | |||||||||
(1) Proceeds of the preferred stock issuance are allocated between the estimated relative fair values of the preferred stock and the warrants. (2) The proceeds from the Capital Purchase program are assumed to be invested in fed funds sold. |
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Securities and Exchange Commission
December 4, 2008
Page 3
OPTIMUMBANK HOLDINGS, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
September 30, 2008
| Nine months ended September 30, 2008 | ||||||||||||
| Actual (Unaudited) | Minimum Proceeds | Pro Forma w/Minimum | Maximum Proceeds | Pro Forma w/Maximum | ||||||||
| (Dollars in thousands, except per share data) | ||||||||||||
Interest income | 11,905 | 6 | (1) | 11,911 | 17 | (1) | 11,922 | |||||
Interest expense | 6,951 | 6,951 | 6,951 | |||||||||
Net interest income | 4,954 | 6 | 4,960 | 17 | 4,971 | |||||||
Provision for credit losses | 161 | 161 | 161 | |||||||||
Net interest income after provision for credit losses | 4,793 | 6 | 4,799 | 17 | 4,810 | |||||||
Noninterest income | 158 | 158 | 158 | |||||||||
Noninterest expense | 3,317 | 3,317 | 3,317 | |||||||||
Income before income taxes | 1,634 | 6 | 1,640 | 17 | 1,651 | |||||||
Income tax expense | 615 | 2 | (4) | 617 | 6 | (4) | 621 | |||||
Net income | 1,019 | 4 | 1,023 | 11 | 1,030 | |||||||
Preferred stock dividends | 75 | (2) | 75 | 226 | (2) | 226 | ||||||
Net income available to common stockholders | 1,019 | (71 | ) | 948 | (215 | ) | 804 | |||||
Earnings per common share | ||||||||||||
Basic | .33 | .30 | .26 | |||||||||
Diluted | .32 | .30 | .25 | |||||||||
Average shares outstanding basic | 3,120,992 | 3,120,992 | 3,120,992 | |||||||||
Diluted (3) | 3,175,450 | 3,195,785 | 3,231,804 | |||||||||
| (1) | Assumes the Capital Purchase Program proceeds are used to invest in daily fed funds sold for the period at a rate of .50%. The actual impact to net interest income would be different as OptimumBank Holdings expects to utilize a portion of the proceeds for loan origination. However, such impact cannot be estimated at this time as the impact would vary based on the timing when the loans are funded and the actual pricing of any such loans. |
| (2) | Consists of preferred stock dividends at a 5% annual rate as well as accretion of discount on preferred stock upon issuance. The discount is determined based on the value that is allocated to the warrants upon issuance. The discount is accreted back to par value on a constant effective yield method (approximately 7%) over a five year term, which is the expected life of the preferred stock upon issuance. The estimated accretion is based on a number of assumptions which are subject to change. These assumptions include the discount (market rate at issuance) rate on the preferred stock, and assumptions underlying the value of the warrants. The proceeds are allocated based on the relative fair value of the warrants as compared to the fair value of the preferred stock. The fair value of the warrants is determined under a Black-Scholes model. The model includes assumptions regarding OptimumBank Holdings' common stock price, dividend yield, stock price volatility, as well as assumptions regarding the risk-free interest rate. The lower the value of the warrants, the less negative impact on net income and earnings per share available to common shareholders. The fair value of the preferred stock is determined based on assumptions regarding the discount rate (market rate) on the preferred stock (currently estimated at 14%). The lower the discount rate, the less negative impact on net income and earnings per share available to common shareholders. |
Securities and Exchange Commission
December 4, 2008
Page 4
| (3) | As described in the Section titled “Terms of the Capital Purchase Program,” the Treasury would receive warrants to purchase a number of shares of our common stock having an aggregate market price equal to 15% of the proceeds on the date of issuance with a strike price equal to the trailing twenty day trading average prior to November 14, 2008. This pro forma assumes that the warrants would give the Treasury the option to purchase 144,265 shares of OptimumBank Holdings common stock assuming maximum proceeds, and 48,088 shares of OptimumBank Holdings' common stock assuming the minimum proceeds. The pro forma adjustment shows the increase in diluted shares outstanding assuming that the warrants had been issued on January 1, 2007 at a strike price of $4.76 (based on the trailing 20 day OptimumBank Holdings' average share price as of November 14, 2008) and remained outstanding for the entire period presented. The treasury stock method was utilized to determine dilution of the warrants for the period presented. The strike price of $4.76 was compared to OptimumBank Holdings’ average daily stock price during the nine months ended September 30, 2008 of $7.61. |
| (4) | Assumes a combined Federal and State income tax rate of 37.63%. |
OPTIMUMBANK HOLDINGS, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
December 31, 2007
| Year ended December 31, 2007 | ||||||||||||
| Actual (Unaudited) | Minimum Proceeds | Pro Forma w/Minimum | Maximum Proceeds | Pro Forma w/Maximum | ||||||||
| (Dollars in thousands, except per share data) | ||||||||||||
Interest income | 16,137 | 8 | (1) | 16,145 | 23 | (1) | 16,160 | |||||
Interest expense | 9,700 | 9,700 | 9,700 | |||||||||
Net interest income | 6,437 | 8 | 6,445 | 23 | 6,460 | |||||||
Provision for credit losses | 476 | 476 | 476 | |||||||||
Net interest income after provision for credit losses | 5,961 | 8 | 5,969 | 23 | 5,984 | |||||||
Noninterest income | 533 | 533 | 533 | |||||||||
Noninterest expense | 3,749 | 3,749 | 3,749 | |||||||||
Income before income taxes | 2,745 | 8 | 2,753 | 23 | 2,768 | |||||||
Income tax expense | 1,003 | 3 | (4) | 1,006 | 9 | (4) | 1,012 | |||||
Net income | 1,742 | 5 | 1,747 | 14 | 1,756 | |||||||
Preferred stock dividends | 99 | (2) | 99 | 2972 | ) | 297 | ||||||
Net income available to common stockholders | 1,742 | (94 | ) | 1,648 | (283 | ) | 1,459 | |||||
Earnings per common share | ||||||||||||
Basic | .56 | .53 | .47 | |||||||||
Diluted | .55 | .52 | .45 | |||||||||
Average shares outstanding basic | 3,112,227 | 3,112,227 | 3,112,227 | |||||||||
Diluted (3) | 3,184,745 | 3,194,357 | 3,236,292 | |||||||||
Securities and Exchange Commission
December 4, 2008
Page 5
(1) Assumes the Capital Purchase Program proceeds are used to invest in daily fed funds sold for the period at a rate of .50%. The actual impact to net interest income would be different as OptimumBank Holdings expects to utilize a portion of the proceeds for lending . However, such impact cannot be estimated at this time as the impact would vary based on the timing when the loans are funded and the actual pricing of any such loans. (2) Consists of preferred stock dividends at a 5% annual rate as well as accretion of discount on preferred stock upon issuance. The discount is determined based on the value that is allocated to the warrants upon issuance. The discount is accreted back to par value on a constant effective yield method (approximately 7%) over a five year term, which is the expected life of the preferred stock upon issuance. The estimated accretion is based on a number of assumptions which are subject to change. These assumptions include the discount (market rate at issuance) rate on the preferred stock, and assumptions underlying the value of the warrants. The proceeds are allocated based on the relative fair value of the warrants as compared to the fair value of the preferred stock. The fair value of the warrants is determined under a Black-Scholes model. The model includes assumptions regarding OptimumBank Holdings’ common stock price, dividend yield, stock price volatility, as well as assumptions regarding the risk-free interest rate. The lower the value of the warrants, the less negative impact on net income and earnings per share available to common shareholders. The fair value of the preferred stock is determined based on assumptions regarding the discount rate (market rate) on the preferred stock (currently estimated at 14%). The lower the discount rate, the less negative impact on net income and earnings per share available to common shareholders. (3) As described in the Section titled “Terms of the Capital Purchase Program,” the Treasury would receive warrants to purchase a number of shares of our common stock having an aggregate market price equal to 15% of the proceeds on the date of issuance with a strike price equal to the trailing twenty day trading average prior to November 14, 2008. This pro forma assumes that the warrants would give the Treasury the option to purchase 144,265 shares of OptimumBank Holdings' common stock assuming maximum proceeds, and 48,088 shares of OptimumBank Holdings common stock assuming the minimum proceeds. The pro forma adjustment shows the increase in diluted shares outstanding assuming that the warrants had been issued on January 1, 2007 at a strike price of $4.76 (based on the trailing 20 day OptimumBank Holdings' average share price as of November 14, 2008) and remained outstanding for the entire period presented. The treasury stock method was utilized to determine dilution of the warrants for the period presented. The strike price of $4.76 was compared to OptimumBank Holdings' average daily stock price during 2007 of $8.44. (4) Assumes a combined Federal and State income tax rate of 37.63%. |
The above changes are the only changes we will be making to the preliminary proxy statement prior to filing the definitive proxy statement, other than rescheduling the mailing date to on or around December 7, 2008, and the meeting date to on or around January 5, 2009.
| Sincerely, |
/s/ Richard L. Browdy |
| Richard L. Browdy |
| President |