UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from to
--------- ---------
Commission File Number 0001288855
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OPTIMUMBANK HOLDINGS, INC.
--------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
Florida 55-0865043
------- ----------
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
10197 Cleary Boulevard
Plantation, Florida 33324
-------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(954) 452-9501
--------------
(ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)
OPTIMUMBANK.COM
---------------
(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 preceeding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:
Common stock, par value $.01 per share 2,633,310 shares
- -------------------------------------- ------------------
(CLASS) OUTSTANDING AT MAY 6, 2004
Transitional Small Business Format (check one): YES [ ] NO [X]
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. INTERIM FINANCIAL STATEMENTS PAGE
Condensed Consolidated Balance Sheets -
March 31, 2004 (unaudited) and December 31, 2003.........................................................2
Condensed Consolidated Statements of Earnings -
Three Months ended March 31, 2004 and 2003 (unaudited)...................................................3
Condensed Consolidated Statements of Stockholders' Equity -
Three Months ended March 31, 2004 and 2003 (unaudited)...................................................4
Condensed Consolidated Statements of Cash Flows -
Three Months ended March 31, 2004 and 2003 (unaudited)...................................................5
Notes to Condensed Consolidated Financial Statements (unaudited).........................................6-8
Review By Independent Accountants..........................................................................9
Report on Review by Independent Accountants...............................................................10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS..............................................................................11-14
ITEM 3. CONTROLS AND PROCEDURES............................................................................15
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES..............................................................................15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...................................................................17
SIGNATURES.....................................................................................................18
1
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
MARCH 31, DECEMBER 31,
ASSETS 2004 2003
--------- ---------
(UNAUDITED)
Cash and due from banks $ 310 $ 331
Federal funds sold 8,822 208
--------- ---------
Total cash and cash equivalents 9,132 539
Securities held to maturity 16,022 16,539
Security available for sale 250 246
Loans, net of allowance for loan losses of $522 and $492 110,000 111,320
Loans held for sale 1,398 1,406
Federal Home Loan Bank stock 1,383 1,525
Premises and equipment, net 1,976 1,912
Accrued interest receivable 1,249 1,224
Other assets 1,078 468
--------- ---------
Total assets $ 142,488 135,179
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Noninterest-bearing demand deposits $ 720 $ 747
Savings, NOW and money-market deposits 8,635 6,436
Time deposits 81,299 73,561
--------- ---------
Total deposits 90,654 80,744
Official checks 265 439
Federal Home Loan Bank advances 27,650 29,500
Other borrowings 7,500 8,750
Other liabilities 412 262
Deferred income tax liability 584 584
--------- ---------
Total liabilities 127,065 120,279
--------- ---------
Stockholders' equity:
Common stock, $.01 par value; 6,000,000 shares authorized,
2,631,310 and 2,613,501 shares issued and outstanding 26 26
Additional paid-in capital 13,895 13,800
Retained earnings 1,502 1,078
Accumulated other comprehensive income (loss) -- (4)
--------- ---------
Total stockholders' equity 15,423 14,900
--------- ---------
Total liabilities and stockholders' equity $ 142,488 $ 135,179
========= =========
See Accompanying Notes to Condensed Consolidated Financial Statements.
2
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED
MARCH 31,
2004 2003
------ ------
Interest income:
Loans $1,932 1,200
Securities 194 58
Other 21 20
------ ------
Total interest income 2,147 1,278
------ ------
Interest expense:
Deposits 683 479
Borrowings 268 110
------ ------
Total interest expense 951 589
------ ------
Net interest income 1,196 689
Provision for loan losses 30 35
------ ------
Net interest income after provision for loan losses 1,166 654
------ ------
Noninterest income:
Service charges and fees 38 21
Prepayment fees collected 181 42
Other 2 1
------ ------
Total noninterest income 221 64
------ ------
Noninterest expenses:
Salaries and employee benefits 414 257
Occupancy and equipment 108 59
Data processing 38 32
Professional fees 33 18
Insurance 12 11
Stationary and supplies 16 7
Other 81 58
------ ------
Total noninterest expenses 702 442
------ ------
Earnings before income taxes 685 276
Income taxes 261 105
------ ------
Net earnings $ 424 171
====== ======
Net earnings per share:
Basic $ .16 .07
====== ======
Diluted $ .16 .07
====== ======
See Accompanying Notes to Condensed Consolidated Financial Statements.
3
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(DOLLARS IN THOUSANDS)
ACCUMULATED
OTHER
COMPRE-
COMMON STOCK ADDITIONAL HENSIVE TOTAL
---------------------- PAID-IN RETAINED INCOME STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS (LOSS) EQUITY
--------- --------- --------- --------- --------- ---------
Balance at December 31, 2002 2,564,839 $ 26 13,496 104 -- 13,626
Net earnings for the three months
ended March 31, 2003
(unaudited) -- -- -- 171 -- 171
Proceeds from sale of common
stock, net (unaudited) 47,920 -- 298 -- -- 298
--------- --------- --------- --------- --------- ---------
Balance at March 31, 2003
(unaudited) 2,612,759 $ 26 13,794 275 -- 14,095
========= ========= ========= ========= ========= =========
Balance at December 31, 2003 2,613,501 $ 26 13,800 1,078 (4) 14,900
---------
Comprehensive income:
Net earnings for the three
months ended March 31,
2004 (unaudited) -- -- -- 424 -- 424
Net change in unrealized loss on
security available for sale
(unaudited) -- -- -- -- 4 4
---------
Comprehensive income (unaudited) 428
---------
Proceeds from sale of common stock,
net (unaudited) 475 -- 5 -- -- 5
---------
Proceeds from exercise of common
stock options (unaudited) 17,334 -- 90 -- -- 90
--------- --------- --------- --------- --------- ---------
Balance at March 31, 2004
(unaudited) 2,631,310 $ 26 13,895 1,502 -- 15,423
========= ========= ========= ========= ========= =========
See Accompanying Notes to Condensed Consolidated Financial Statements.
4
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
2004 2003
------- -------
Cash flows from operating activities:
Net earnings $ 424 171
Adjustments to reconcile net earnings to net cash used in
operating activities:
Depreciation and amortization 40 18
Provision for loan losses 30 35
Net amortization of fees, premiums and discounts 67 75
Deferred income taxes -- 105
Repayments of loans held for sale 8 9
Increase in accrued interest receivable (25) (142)
Increase in other assets (610) (1,419)
(Decrease) increase in official checks and other liabilities (24) 74
------- -------
Net cash used in operating activities (90) (1,074)
------- -------
Cash flows from investing activities:
Purchases of securities held to maturity -- (2,000)
Principal repayments of securities held to maturity 516 1,174
Net decrease (increase) in loans 1,224 (5,565)
Purchase of premises and equipment (104) (156)
Net decrease (increase) in Federal Home Loan Bank stock 142 (500)
------- -------
Net cash provided by (used in) investing activities 1,778 (7,047)
------- -------
Cash flows from financing activities:
Net increase in deposits 9,910 2,434
Net decrease in other borrowings (1,250) --
Proceeds from sale of common stock, net 5 298
Proceeds from exercise of common stock options 90 --
Net (decrease) increase in Federal Home Loan Bank advances (1,850) 5,000
------- -------
Net cash provided by financing activities 6,905 7,732
------- -------
Net increase (decrease) in cash and cash equivalents 8,593 (389)
Cash and cash equivalents at beginning of the period 539 3,801
------- -------
Cash and cash equivalents at end of the period $ 9,132 3,412
======= =======
Supplemental disclosure of cash flow information: Cash paid during the period
for:
Interest $ 950 591
======= =======
Income taxes $ 120 --
======= =======
Noncash investing activity-
Change in accumulated other comprehensive income (loss),
net change in unrealized loss on security available for sale $ 4 --
======= =======
See Accompanying Notes to Condensed Consolidated Financial Statements.
5
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) GENERAL. OptimumBank Holdings, Inc. (the "Holding Company") is a
one-bank holding company and owns 100% of OptimumBank.com, doing
business as OptimumBank (the "Bank"), a state (Florida)-chartered
commercial bank (collectively, the "Company"). The Holding Company's
only business is the operation of the Bank. The Bank's deposits are
insured by the Federal Deposit Insurance Corporation. The Bank offers
a variety of community banking services to individual and corporate
customers through its three banking offices located in Broward
County, Florida.
The Holding Company was formed on March 23, 2004 and on April 29,
2004, the Bank's stockholders approved a plan of corporate
reorganization under which the Bank became a wholly-owned subsidiary
of the Holding Company. Effective May 6, 2004, the Bank's
stockholders exchanged their common shares for shares of the Holding
Company. As a result, all of the previously issued $2.50 par value
common shares of the Bank were exchanged for 2,633,310 shares of the
$.01 par value common shares of the Holding Company. The Holding
Company's acquisition of the Bank has been accounted for as a
combination of entities under common control at historical cost,
similar to a pooling of interests and, accordingly, the financial
data for all periods presented include the results of the Bank.
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, 2004,
and the results of operations and cash flows for the three-month
periods ended March 31, 2004 and 2003. The results of operations for
the three months ended March 31, 2004, are not necessarily indicative
of the results to be expected for the full year.
(2) LOAN IMPAIRMENT AND CREDIT LOSSES. The activity in the allowance for loan
losses was as follows (in thousands):
THREE MONTHS ENDED
MARCH 31,
-----------------
2004 2003
---- ----
Balance at beginning of period $ 492 288
Provision for loan losses 30 35
----- -----
Balance at end of period $ 522 323
===== =====
The Bank had no impaired loans, nonaccrual loans or loans which were
over ninety days past due but still accruing interest in 2004 or
2003.
(continued)
6
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
(3) REGULATORY CAPITAL. The Bank is required to maintain certain minimum
regulatory capital requirements. The following is a summary at March
31, 2004 of the regulatory capital requirements and the Bank's
capital on a percentage basis:
PERCENTAGE
OF REGULATORY
THE BANK REQUIREMENT
-------- -----------
Tier I capital to total average assets 11.00% 4.00%
Tier I capital to risk-weighted assets 16.50% 4.00%
Total capital to risk-weighted assets 17.06% 8.00%
(4) EARNINGS PER SHARE. Basic earnings per share has been computed on
the basis of the weighted-average number of shares of common stock
outstanding during the period. Diluted earnings per share were
computed based on the weighted average number of shares outstanding
plus the effect of outstanding stock options, computed using the
treasury stock method. Earnings per common share have been computed
based on the following:
THREE MONTHS ENDED
MARCH 31,
--------------------
2004 2003
---- ----
Weighted average number of common shares outstanding used
to calculate basic earnings per common share 2,622,037 2,600,659
Effect of dilutive stock options 56,540 29,106
--------- ---------
Weighted average number of common shares outstanding used
to calculate diluted earnings per common share 2,678,577 2,629,765
========= =========
(5) STOCK OPTIONS. The Company established a Stock Option Plan (the
"Plan") for officers, directors and employees of the Company and
reserved 522,000 shares of common stock for the Plan. Both incentive
stock options and nonqualified stock options may be granted under the
Plan. The exercise price of the stock options is determined by the
board of directors at the time of grant, but cannot be less than the
fair market value of the common stock on the date of grant. The
options vest over three and five years. The options must be exercised
within ten years from the date of grant.
(continued)
7
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
(5) STOCK OPTIONS, CONTINUED. A summary of the activity in the Company's
stock option plan is as follows (dollars in thousands, except per
share amounts):
RANGE OF WEIGHTED-
PER SHARE AVERAGE AGGREGATE
NUMBER OF OPTION EXERCISE OPTION
SHARES PRICE PRICE PRICE
------ ----- ----- -----
Outstanding at December 31, 2003 287,000 $ 5.00-8.20 $ 5.72 $ 1,643
Exercised (17,334) 5.00-6.75 5.20 (90)
------- ------
Outstanding at March 31, 2004 269,666 $ 5.00-8.20 $ 5.76 $ 1,553
======= =========== ====== =======
The Company accounts for their stock option plan under the
recognition and measurement principles of Accounting Principles Board
Opinion No. 25 Accounting for Stock Issued to Employees. No
stock-based employee compensation cost is reflected in net earnings,
as all options granted under this plan had an exercise price which
approximated the market value of the underlying common stock on the
date of grant. The following table illustrates the effect on net
earnings if the Company had applied the fair value recognition
provisions of Statement of Financial Accounting Standards No. 123
Accounting for Stock-Based Compensation, as amended by SFAS No. 148,
Accounting for Stock-Based Compensation Transition and Disclosure to
stock-based employee compensation (in thousands, except per share
amounts).
THREE MONTHS ENDED
MARCH 31,
--------------------
2004 2003
---- ----
Net earnings, as reported $ 424 171
Deduct: Total stock-based employee compensation
determined under the fair value based method for all
awards, net of related tax effect (14) (18)
------ ------
Proforma net earnings $ 410 $ 153
== === ======
Basic earnings per share:
As reported $ .16 $ .07
====== =====
Proforma $ .16 $ .06
====== ======
Diluted earnings per share:
As reported $ .16 $ .07
====== ======
Proforma $ .15 $ .06
====== ======
(6) PURCHASE AGREEMENT. In January 2004, the Company entered into a
contract to purchase a new main office facility for approximately
$1,850,000. The transaction is expected to be consummated in the
third quarter of 2004.
8
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
REVIEW BY INDEPENDENT ACCOUNTANTS
Hacker, Johnson & Smith PA, the Company's independent accountants, have made a
limited review of the interim financial data as of March 31, 2004, and for the
three-month periods ended March 31, 2004 and 2003, presented in this document,
in accordance with standards established by the American Institute of Certified
Public Accountants.
Their report furnished pursuant to Article 10 of Regulation S-X is included
herein.
9
INDEPENDENT ACCOUNTANTS' REPORT
OptimumBank Holdings, Inc.
Plantation, Florida:
We have reviewed the accompanying condensed consolidated balance sheet of
OptimumBank Holdings, Inc. and Subsidiary (the "Company") as of March 31, 2004,
and the related condensed consolidated statements of earnings, stockholders'
equity and cash flows for the three-month periods ended March 31, 2004 and 2003.
These financial statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States of
America, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the condensed consolidated financial statements referred to
above for them to be in conformity with accounting principles generally accepted
in the United States of America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet as of
December 31, 2003, and the related consolidated statements of earnings,
stockholders' equity and cash flows for the year then ended (not presented
herein); and in our report dated January 31, 2004, we expressed an unqualified
opinion on those financial statements. In our opinion, the information set forth
in the accompanying condensed consolidated balance sheet as of December 31,
2003, is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
/s/ Hacker, Johnson & Smith PA
HACKER, JOHNSON & SMITH PA
Fort Lauderdale, Florida
April 29, 2004
10
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
COMPARISON OF MARCH 31, 2004 AND DECEMBER 31, 2003
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of cash during the three months ended March
31, 2004 were from net deposit inflows of approximately $9.9 million and a
net decrease in loans of approximately $1.2 million. Cash was used primarily
to repay other borrowings of approximately $1.3 million and Federal Home
Loan Bank advances of approximately $1.9 million. At March 31, 2004, the
Company had time deposits of $33.3 million that mature in one year or less.
At March 31, 2004, the Company exceeded its regulatory liquidity
requirements. Management believes that, if so desired, it can adjust the
rates on time deposits to retain or attract deposits in a changing
interest-rate environment.
The following table shows selected information for the periods ended or at
the dates indicated:
THREE MONTHS THREE MONTHS
ENDED YEAR ENDED ENDED
MARCH 31, DECEMBER 31, MARCH 31,
2004 2003 2003
-------------- --------------- ----------------
Average equity as a percentage
of average assets 10.66% 13.62% 17.73%
Equity to total assets at end of period 10.82% 11.02% 16.91%
Return on average assets (1) 1.21% .95% .87%
Return on average equity (1) 11.35% 6.99% 4.90%
Noninterest expenses to average assets (1) 2.00% 2.03% 2.24%
Nonperforming loans to total assets at end
of period -- -- --
------------
(1) Annualized for the three months ended March 31, 2004 and 2003.
11
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED
OFF-BALANCE SHEET ARRANGEMENTS AND AGGREGATE CONTRACTUAL OBLIGATIONS
The Company is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend credit
and undisbursed loans in process. These instruments involve, to varying
degrees, elements of credit and interest-rate risk in excess of the amounts
recognized in the condensed consolidated balance sheet. The contract amounts
of those instruments reflect the extent of the Company's involvement in
particular classes of financial instruments.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
undisbursed loans in process is represented by the contractual amount of
those instruments. The Company uses the same credit policies in making
commitments as it does for on-balance-sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Because some of the commitments
are expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. The Company
evaluates each customer's credit worthiness 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
counterparty.
Commitments to extend credit typically result in loans with a market
interest rate when funded. A summary of the amounts of the Company's
financial instruments with off-balance sheet risk at March 31, 2004, follows
(in thousands):
ESTIMATED
CONTRACT CARRYING FAIR
AMOUNT AMOUNT VALUE
Commitments to extend credit $ 14,223 -- --
======== ======== =========
Undisbursed loans in process $ 2,333 -- --
======== ======== =========
Management believes that the Company has adequate resources to fund all of
its commitments and that substantially all its existing commitments will be
funded in 2004.
12
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, information regarding
(i) the total dollar amount of interest income from interest-earning assets and
the resultant average yield; (ii) the total dollar amount of interest expense on
interest-bearing liabilities and the resultant average cost; (iii) net interest
income; (iv) rate differential; (v) net interest margin; and (vi) ratio of
average interest-earning assets to average interest-bearing liabilities. Average
balances are based on average daily balances (dollars in thousands):
THREE MONTHS ENDED MARCH 31,
2004 2003
------------------------------------------------------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE AND YIELD/ AVERAGE AND YIELD/
BALANCE DIVIDENDS RATE BALANCE DIVIDENDS RATE
------- --------- ---- ------- --------- ----
Interest-earning assets:
Loans $ 114,594 1,932 6.74% $ 65,729 1,200 7.30%
Securities 16,568 194 4.68 6,169 58 3.76
Other interest-earning assets (1) 3,750 21 2.24 4,853 20 1.65
--------- ------- --------- ------
Total interest-earning assets/interest income 134,912 2,147 6.37 76,751 1,278 6.66
------- ------
Cash and due from banks 574 335
Premises and equipment 1,950 642
Other assets 2,726 1,046
--------- ---------
Total assets $ 140,162 $ 78,774
========= =========
Interest-bearing liabilities:
Savings, NOW and money-market deposits 7,705 28 1.45 5,761 21 1.46
Time deposits 77,973 655 3.36 46,035 458 3.98
Borrowings (2) 37,096 268 2.89 11,980 110 3.67
--------- ------- --------- ------
Total interest-bearing liabilities/interest
expense 122,774 951 3.10 63,776 589 3.69
------- ------
Noninterest-bearing demand deposits 751 515
Other liabilities 1,689 517
Stockholders' equity 14,948 13,966
--------- ---------
Total liabilities and stockholders' equity $ 140,162 $ 78,774
========= =========
Net interest income $ 1,196 $ 689
======= ======
Rate differential (3) 3.27% 2.97%
==== ====
Net interest margin (4) 3.55% 3.59%
==== ====
Ratio of average interest-earning assets to
average interest-bearing liabilities 1.10 1.20
==== =========
- ---------
(1) Includes interest-earning deposits with banks, Federal funds sold and
Federal Home Loan Bank stock dividends.
(2) Includes Federal Home Loan Bank advances and securities sold under an
agreement to repurchase.
(3) Rate differential represents the difference between average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(4) Net interest margin is net interest income divided by average
interest-earning assets.
13
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
COMPARISON OF THE THREE-MONTH PERIODS ENDED MARCH 31, 2004 AND 2003
GENERAL. Net earnings for the three months ended March 31, 2004, were
$424,000 or $.16 per basic and diluted share compared to net earnings of
$171,000 or $.07 per basic and diluted share for the period ended March
31, 2003. This increase in the Company's net earnings was primarily due to
an increase in net interest income and noninterest income which was
partially offset by an increase in noninterest expenses, both of which
were due to the overall growth of the Company.
INTEREST INCOME. Interest income increased to $2.1 million for the three
months ended March 31, 2004 from $1.3 million for the three months ended
March 31, 2003. Interest income on loans increased to $1.9 million due
primarily to an increase in the average loan portfolio balance for the
three months ended March 31, 2004, partially offset by a decrease in the
average yield earned from 7.30% for the three months ended March 31, 2003
to 6.74% for the three months ended March 31, 2004. Interest on securities
increased to $194,000 due primarily to an increase in the average balance
and an increase in the average yield earned on the securities portfolio in
2004.
INTEREST EXPENSE. Interest expense on deposit accounts increased to $683,000
for the three months ended March 31, 2004, from $479,000 for the three
months ended March 31, 2003. Interest expense increased primarily because
of an increase in the average balance of deposits during 2004, partially
offset by a decrease in the average rate paid on deposits during 2004.
Interest expense on borrowings increased to $268,000 for the three months
ended March 31, 2004 from $110,000 for the three months ended March 31,
2003 due to an increase in the average balance of borrowings.
PROVISION FOR LOAN LOSSES. The provision for loan losses is charged to
earnings to bring the total allowance to a level deemed appropriate by
management and is based upon historical experience, the volume and type of
lending conducted by the Company, industry standards, the amount of
nonperforming loans, general economic conditions, particularly as they
relate to the Company's market areas, and other factors related to the
estimated collectibility of the Company's loan portfolio. The provision
for the three months ended March 31, 2004, was $30,000 compared to $35,000
for the same period in 2003. Management believes the balance in the
allowance for loan losses of $522,000 at March 31, 2004, is adequate.
NONINTEREST INCOME. Total noninterest income increased to $221,000 for the
three months ended March 31, 2004, from $64,000 for the three months ended
March 31, 2003, primarily due to an increase in prepayment fees collected
of $139,000.
NONINTEREST EXPENSES. Total noninterest expenses increased to $702,000 for
the three months ended March 31, 2004 from $442,000 for the three months
ended March 31, 2003, primarily due to an increase in salaries and
employee benefits of $157,000, an increase in occupancy and equipment of
$49,000, and an increase in other expenses of $23,000 all due to the
continued growth of the Company.
INCOME TAXES. Income taxes for the three months ended March 31, 2004, were
$261,000 (an effective rate of 38.1%) compared to income taxes of $105,000
(an effective rate of 38.0%) for the three months ended March 31, 2003.
14
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
ITEM 3. CONTROLS AND PROCEDURES
a. Evaluation of Disclosure Controls and Procedures. The Company maintains
controls and procedures designed to ensure that information required to be
disclosed in the reports that the Company files or submits under the
Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in the rules and forms of the
Securities and Exchange Commission. Based upon their evaluation of those
controls and procedures performed within 90 days of the filing date of this
report, the chief executive and principal accounting officers of the
Company concluded that the Company's disclosure controls and procedures
were adequate.
b. Changes in Internal Controls. The Company made no significant changes in
its internal controls or in other factors that could significantly affect
these controls subsequent to the date of the evaluation of those controls
by the chief executive and principal accounting officers.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
Effective May 6, 2004, pursuant to an Agreement and Plan of Reorganization dated
March 23, 2004 (the "Agreement") between the Holding Company and the Bank, and
approved by the shareholders of the Bank at its annual meeting of shareholders
held on April 29, 2004, the Holding Company acquired all of the outstanding
stock of the Bank in a statutory share exchange transaction. Under the terms of
the Agreement, the shares of the Bank's common stock were exchanged for shares
of the Holding Company on a one-for-one basis. As a result, the Bank became a
wholly owned subsidiary of the Holding Company and the shareholders of the Bank
became shareholders of the Holding Company. Differences in Shareholder Rights.
The rights of the holders of the Bank's common stock are governed by Florida and
federal banking laws, the Florida Business Corporation Act ("FBCA"), by the
Bank's articles of incorporation and by-laws and by applicable rules of the
Securities and Exchange Commission. The rights of the holders of the Holding
Company's common stock are governed by the FBCA, by the Holding Company's
articles of incorporation and by-laws, by Federal banking laws, and by the
applicable rules of the Securities and Exchange Commission and the NASDAQ
SmallCap Market. The articles of incorporation and bylaws of the Holding Company
and the Bank are substantially similar in all material provisions, except with
respect to provisions in the Bank's articles of incorporation and bylaws
required by the Florida banking statutes which are applicable only to banks.
Certain differences in shareholder rights arise from this change of governing
law. The material differences are summarized below.
15
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
ITEM 2. CHANGES IN SECURITIES, CONTINUED
Payment of Dividends. The Florida banking laws impose restrictions on the
payment of dividends by Florida chartered banks. Pursuant to Florida banking
statutes, a state-chartered bank may pay dividends only out of its undivided
profits and may not declare a cash dividend, unless it has surplus in an amount
equal to its paid-in capital stock after payment of the cash dividend unless the
bank transfers at least 20% of its income to surplus. The FBCA, applicable to
the Holding Company, generally provides that a Florida corporation may declare
and pay dividends on its outstanding stock so long as the corporation is not
insolvent and would not become insolvent as a consequence of the dividend
payment. Although the Holding Company's ability to pay dividends is not subject
to the restrictions imposed upon the Bank, such restrictions indirectly affect
the Holding company because dividends from the Bank will be a primary source of
the Holding Company's funds for the payment of dividends to shareholders of the
Holding Company. Dividend payments by a bank or holding company are further and
similarly limited by federal law. Federal law prohibits a bank or holding
company from paying a dividend if the dividend payment would result in the bank
or holding company failing to meet any of its minimum capital requirements.
Moreover, the FDIC has issued policy statements which provide that bank holding
companies and insured depository institutions generally should only pay
dividends out of current operating earnings.
Rights of Issuer to Issue Stock. The Bank may issue additional common stock up
to the amount in its articles of incorporation, but only with the prior approval
of the Florida Office of Financial Regulation. The Holding Company may issue
additional common stock up to the amount in its articles of incorporation
without regulatory approval.
Rights of Issuer to Repurchase Stock. The Bank may repurchase its stock, but
only with the prior approval of the Florida Office of Financial Regulation.
Under the FBCA, no prior approval is required and, therefore, the Holding
Company is allowed to purchase its own stock in the open market subject to
applicable law and the availability of funds for repurchase. The Federal Reserve
Board, however, is required to receive written notice when a bank holding
company purchases or redeems its outstanding equity securities if the holding
company does not meet certain conditions.
During the quarter ended March 31, 2004, the Company sold 475 shares of common
stock at $9.15 per share to its outside directors under the Company's
non-employee director compensation stock purchase plan. The shares were
purchased by the directors with their fees for attending board of director
meetings. The shares are exempt from registration under Section 3(a) of the
Securities Act of 1933 which contains an exemption for securities issued by a
bank.
16
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS. The following exhibits are filed with or incorporated by
reference into this report. The exhibits denominated by an asterisk (*)
were previously filed as a part of a Registration Statement on Form 10-SB
under the Exchange Act, filed with the Federal Deposit Insurance
Corporation on March 28, 2003. The exhibits denominated by a double
asterisk (**) were previously filed as a part of a current report on Form
8-K filed with the Securities and Exchange Commission on May 11, 2004.
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
**2 Agreement and Plan of Reorganization dated March 23, 2004
**3.1 Articles of Incorporation
**3.3 Bylaws
* 4.1 Form of stock certificate
* 10.1 Stock Option Plan
* 10.2 Nonemployee Directors Stock Purchase Plan
* 10.3 Agreement between OptimumBank.com, Albert J. Finch and Richard L. Browdy dated
June 14, 2002
31.1 Certification of Chief Executive Officer required by Rule 13a-14(a)/15d-14(a)
under the Exchange Act
31.2 Certification of Chief Financial Officer required by Rule 13a-14(a)/15d-14(a)
under the Exchange Act
32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002
32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002
(b) REPORTS ON FORM 8-K. During the first quarter, the Company filed a report
on Form 8-K dated January 15, 2004 reporting the press release covering
the results for the fourth quarter of 2003.
17
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
PART II. OTHER INFORMATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OPTIMUMBANK HOLDINGS, INC.
(Registrant)
Date: May 14, 2004 By: /s/Albert J. Finch
------------- -------------------------------------------
Albert J. Finch, Chief Executive Officer
Date: May 14, 2004 By: /s/Richard L. Browdy
------------- ---------------------------------------------
Richard L. Browdy, Chief Financial Officer
18