UNITED STATE
SECURITIES AND EXCHANGE COMMISSION
WASINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2004
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________ to _________
Commission file number 0001288855
OPTIMUMBANK HOLDINGS, INC.
--------------------------
(Exact name of small business issuer as specified in its charter)
FLORIDA 55-0865043
------- ----------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
2477 EAST COMMERCIAL BOULEVARD, FORT LAUDERDALE, FL 33308
---------------------------------------------------------
(Address of principal executive offices)
954-776-2332
------------
(Issuer's telephone number)
10197 CLEARY BOULEVARD, PLANTATION, FL 33324
--------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 2,648,742 common shares issued and
outstanding as of October 28, 2004
Transitional Small Business Disclosure 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 -
September 30, 2004 (unaudited) and December 31, 2003..................................2
Condensed Consolidated Statements of Earnings -
Three and Nine Months ended September 30, 2004 and 2003 (unaudited)...................3
Condensed Consolidated Statements of Stockholders' Equity -
Nine Months ended September 30, 2004 and 2003 (unaudited).............................4
Condensed Consolidated Statements of Cash Flows -
Nine Months ended September 30, 2004 and 2003 (unaudited).............................5
Notes to Condensed Consolidated Financial Statements (unaudited)......................6-8
Review By Independent Registered Public Accounting Firm.................................9
Report of Independent Registered Public Accounting Firm................................10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS...........................................................11-16
ITEM 3. CONTROLS AND PROCEDURES.........................................................17
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS................................................................17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................................18
SIGNATURES..................................................................................19
1
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SEPTEMBER 30, DECEMBER 31,
ASSETS 2004 2003
--------- ---------
(UNAUDITED)
Cash and due from banks $ 513 $ 331
Federal funds sold 6,634 208
--------- ---------
Total cash and cash equivalents 7,147 539
Securities held to maturity 19,079 16,539
Security available for sale 247 246
Loans, net of allowance for loan losses of $599 and $492 122,809 111,320
Loans held for sale 510 1,406
Federal Home Loan Bank stock 1,483 1,525
Premises and equipment, net 4,110 1,912
Accrued interest receivable 1,346 1,224
Other assets 724 468
--------- ---------
Total assets $ 157,455 $ 135,179
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Noninterest-bearing demand deposits $ 873 $ 747
Savings, NOW and money-market deposits 9,608 6,436
Time deposits 86,297 73,561
--------- ---------
Total deposits 96,778 80,744
Official checks 521 439
Federal Home Loan Bank advances 29,650 29,500
Other borrowings 7,500 8,750
Junior subordinated debenture 5,155 --
Other liabilities 986 262
Deferred income tax liability 584 584
--------- ---------
Total liabilities 141,174 120,279
--------- ---------
Stockholders' equity:
Common stock, $.01 par value; 6,000,000 shares authorized,
2,648,742 and 2,613,501 shares issued and outstanding 26 26
Additional paid-in capital 13,989 13,800
Retained earnings 2,269 1,078
Accumulated other comprehensive income (loss) (3) (4)
--------- ---------
Total stockholders' equity 16,281 14,900
--------- ---------
Total liabilities and stockholders' equity $ 157,455 $ 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2004 2003 2004 2003
------ ------ ------ ------
Interest income:
Loans $2,017 1,739 5,829 4,325
Securities 218 50 597 164
Other 18 12 68 52
------ ------ ------ ------
Total interest income 2,253 1,801 6,494 4,541
------ ------ ------ ------
Interest expense:
Deposits 713 647 2,075 1,666
Borrowings 282 180 814 435
------ ------ ------ ------
Total interest expense 995 827 2,889 2,101
------ ------ ------ ------
Net interest income 1,258 974 3,605 2,440
Provision for loan losses 52 87 107 170
------ ------ ------ ------
Net interest income after provision for loan losses 1,206 887 3,498 2,270
------ ------ ------ ------
Noninterest income:
Service charges and fees 8 36 85 91
Prepayment fees collected 98 45 427 118
Other 7 4 18 10
------ ------ ------ ------
Total noninterest income 113 85 530 219
------ ------ ------ ------
Noninterest expenses:
Salaries and employee benefits 417 315 1,233 862
Occupancy and equipment 116 79 325 210
Data processing 38 34 114 98
Professional fees 46 27 117 71
Insurance 13 14 38 36
Stationary and supplies 7 8 40 28
Other 75 71 237 191
------ ------ ------ ------
Total noninterest expenses 712 548 2,104 1,496
------ ------ ------ ------
Earnings before income taxes 607 424 1,924 993
Income taxes 231 162 733 379
------ ------ ------ ------
Net earnings $ 376 262 1,191 614
====== ====== ====== ======
Net earnings per share:
Basic $ .14 .10 .45 .24
====== ====== ====== ======
Diluted $ .14 .10 .43 .23
====== ====== ====== ======
See Accompanying Notes to Condensed Consolidated Financial Statements.
3
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 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
---------
Comprehensive income:
Net earnings for the nine
months ended September 30, 2003
(unaudited) -- -- -- 614 -- 614
Net change in unrealized gain on
security available for sale
(unaudited) -- -- -- -- 1 1
---------
Comprehensive income (unaudited) -- -- -- -- -- 615
---------
Proceeds from sale of common
stock, net (unaudited) 48,345 -- 302 -- -- 302
--------- --------- --------- --------- --------- ---------
Balance at September 30, 2003
(unaudited) 2,613,184 $ 26 13,798 718 1 14,543
========= ========= ========= ========= ========= =========
Balance at December 31, 2003 2,613,501 $ 26 13,800 1,078 (4) 14,900
---------
Comprehensive income:
Net earnings for the nine months
ended September 30, 2004
(unaudited) -- -- -- 1,191 -- 1,191
Net change in unrealized loss
on security available
for sale (unaudited) -- -- -- -- 1 1
---------
Comprehensive income (unaudited) -- -- -- -- -- 1,192
---------
Proceeds from sale of common
stock (unaudited) 1,174 -- 12 -- -- 12
Proceeds from exercise of
common stock options (unaudited) 34,067 -- 177 -- -- 177
--------- --------- --------- --------- --------- ---------
Balance at September 30, 2004
(unaudited) 2,648,742 $ 26 13,989 2,269 (3) 16,281
========= ========= ========= ========= ========= =========
See Accompanying Notes to Condensed Consolidated Financial Statements.
4
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
NINE MONTHS ENDED
SEPTEMBER 30,
2004 2003
-------- --------
Cash flows from operating activities:
Net earnings $ 1,191 614
Adjustments to reconcile net earnings to net cash provided by
(used in) operating activities:
Depreciation and amortization 128 62
Provision for loan losses 107 170
Net amortization of fees, premiums and discounts 103 256
Deferred income taxes -- 379
Repayments of loans held for sale 896 28
Increase in accrued interest receivable (122) (477)
Increase in other assets (256) (2,594)
Increase in official checks and other liabilities 806 47
-------- --------
Net cash provided by (used in) operating activities 2,853 (1,515)
-------- --------
Cash flows from investing activities:
Purchases of securities held to maturity (4,982) (4,968)
Principal repayments and calls of securities held to maturity 2,453 4,021
Purchase of security available for sale -- (250)
Net increase in loans (11,710) (45,107)
Purchase of premises and equipment (2,326) (444)
Redemption (purchase) of Federal Home Loan Bank stock 42 (948)
-------- --------
Net cash used in investing activities (16,523) (47,696)
-------- --------
Cash flows from financing activities:
Net increase in deposits 16,034 29,558
Net decrease in other borrowings (1,250) --
Issuance of junior subordinated debenture 5,155 --
Proceeds from sale of common stock 12 302
Proceeds from exercise of common stock options 177 --
Net increase in Federal Home Loan Bank advances 150 18,950
-------- --------
Net cash provided by financing activities 20,278 48,810
-------- --------
Net increase (decrease) in cash and cash equivalents 6,608 (401)
Cash and cash equivalents at beginning of the period 539 3,801
-------- --------
Cash and cash equivalents at end of the period $ 7,147 3,400
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 3,181 2,036
======== ========
Income taxes $ 833 --
======== ========
Noncash investing activity-
Change in accumulated other comprehensive income (loss),
net change in unrealized loss on security available for sale $ 1 1
======== ========
See Accompanying Notes to Condensed Consolidated Financial Statements
5
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) GENERAL. OptimumBank Holdings, Inc. (the "Holding Company") is a
one-bank holding company and owns 100% of OptimumBank (the "Bank"), a
state (Florida)-chartered commercial bank (collectively, the
"Company"). The Holding Company's only business is the operation of
the Bank. The Bank's deposits are insured by the Federal Deposit
Insurance Corporation. The Bank offers a variety of community banking
services to individual and corporate customers through its three
banking offices located in Broward County, Florida.
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
financial statements of the Company contain all adjustments
(consisting principally of normal recurring accruals) necessary to
present fairly the financial position at September 30, 2004, and the
results of operations for the three- and nine-month periods ended
September 30, 2004 and 2003, and cash flows for the nine-month
periods ended September 30, 2004 and 2003. The results of operations
for the three and nine months ended September 30, 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- --------------------
2004 2003 2004 2003
----- ----- ----- -----
Balance at beginning of period $ 547 371 492 288
Provision for loan losses 52 87 107 170
----- ----- ----- -----
Balance at end of period $ 599 458 599 458
===== ===== ===== =====
The Company 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 CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
(3) REGULATORY CAPITAL. The Holding Company and the Bank are required to
maintain certain minimum regulatory capital requirements. The
following is a summary at September 30, 2004 of the regulatory
capital requirements and the Holding Company's and the Bank's capital
on a percentage basis:
ACTUAL REGULATORY
COMPANY BANK REQUIREMENT
------- ---- -----------
Tier I capital to total average assets 14.19% 14.18% 4.00%
Tier I capital to risk-weighted assets 20.17% 20.16% 4.00%
Total capital to risk-weighted assets 20.74% 20.73% 8.00%
(4) EARNINGS PER SHARE. Basic earnings per share has been computed on
the basis of the weighted-average number of shares of common stock
outstanding during the period. Diluted earnings per share were
computed based on the weighted average number of shares outstanding
plus the effect of outstanding stock options, computed using the
treasury stock method. Earnings per common share have been computed
based on the following:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- ---------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
Weighted average number of common shares
outstanding used to calculate basic
earnings per common share 2,642,215 2,613,052 2,632,363 2,608,036
Effect of dilutive stock options 70,073 80,503 141,080 64,816
---------- ---------- ---------- ----------
Weighted average number of common shares
outstanding used to calculate diluted
earnings per common share 2,712,288 2,693,555 2,773,443 2,672,852
========= ========= ========= =========
(5) STOCK OPTIONS. The Company established a Stock Option Plan (the "Plan")
for officers, directors and employees of the Company and reserved
522,000 shares of common stock for the Plan. Both incentive stock
options and nonqualified stock options may be granted under the Plan.
The exercise price of the stock options is determined by the board of
directors at the time of grant, but cannot be less than the fair
market value of the common stock on the date of grant. The options
vest over three and five years. The options must be exercised within
ten years from the date of grant.
(continued)
7
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
(5) STOCK OPTIONS, CONTINUED. A summary of the activity in the Company's
stock option plan is as follows (dollars in thousands, except per
share amounts):
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
Granted 124,500 10.00 10.00 1,245
Exercised (34,067) 5.00-6.75 5.17 (176)
Forfeited (6,000) 6.75-8.20 7.23 (43)
-------- -------
Outstanding at September 30, 2004 371,433 $ 5.00-10.00 $ 7.18 $ 2,669
======== ============ ======= =======
The Company accounts for their stock option plan under the
recognition and measurement principles of Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees. No
stock-based employee compensation cost is reflected in net earnings,
as all options granted under this plan had an exercise price which
approximated the market value of the underlying common stock on the
date of grant. The following table illustrates the effect on net
earnings if the Company had applied the fair value recognition
provisions of Statement of Financial Accounting Standards No. 123
Accounting for Stock-Based Compensation, as amended by SFAS No. 148,
Accounting for Stock-Based Compensation Transition and Disclosure to
stock-based employee compensation (in thousands, except per share
amounts).
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2004 2003 2004 2003
---- ---- ---- ----
Net earnings, as reported $ 376 262 1,191 614
Deduct: Total stock-based employee
compensation determined under the
fair value based method for all
awards, net of related tax effect 39 18 122 54
----- ----- ------ ----
Proforma net earnings $ 337 244 1,069 560
===== ===== ======= =====
Basic earnings per share:
As reported $ .14 .10 .45 .24
===== ===== ======= =====
Proforma $ .13 .09 .41 .21
===== ===== ======= =====
Diluted earnings per share:
As reported $ .14 .10 .43 .23
===== ===== ======= =====
Proforma $ .12 .09 .39 .21
===== ===== ======= =====
8
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
REVIEW BY INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Hacker, Johnson & Smith PA, the Company's independent registered public
accounting firm, have made a limited review of the interim financial data as of
September 30, 2004, and for the three- and nine-month periods ended September
30, 2004 and 2003, presented in this document, in accordance with standards
established by the Public Company Accounting Oversight Board.
Their report furnished pursuant to Article 10 of Regulation S-X is included
herein.
9
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
OptimumBank Holdings, Inc.
Plantation, Florida:
We have reviewed the accompanying condensed consolidated balance sheet of
OptimumBank Holdings, Inc. and Subsidiary (the "Company") as of September 30,
2004, and the condensed consolidated statements of earnings for the three- and
nine-month periods ended September 30, 2004 and 2003 and the related condensed
consolidated statements of stockholders' equity and cash flows for the
nine-month periods ended September 30, 2004 and 2003. These interim financial
statements are the responsibility of the Company's management.
We conducted our reviews in accordance with the standards of the Public
Company Accounting Oversight Board (United States). A review of interim
financial information consists principally of applying analytical procedures and
making inquiries of persons responsible for financial and accounting matters. It
is substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying interim condensed consolidated financial
statements for them to be in conformity with U.S. generally accepted accounting
principles.
We have previously audited, in accordance with the standards of the Public
Company Accounting Oversight Board, the consolidated balance sheet as of
December 31, 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
October 29, 2004
10
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
COMPARISON OF SEPTEMBER 30, 2004 AND DECEMBER 31, 2003
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of cash during the nine months ended September
30, 2004 were from net deposit inflows of approximately $16.0 million,
issuance of a junior subordinated debenture of approximately $5.2 million
and calls and principal repayments of securities held to maturity of
approximately $2.5 million. Cash was used primarily for net loan
originations of approximately $11.7 million and purchases of securities held
to maturity of approximately $5.0 million. At September 30, 2004, the
Company had time deposits of approximately $42.9 million that mature in one
year or less. At September 30, 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:
NINE MONTHS NINE MONTHS
ENDED YEAR ENDED ENDED
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
2004 2003 2003
-------------- --------------- ----------------
Average equity as a percentage
of average assets 10.63% 13.62% 14.92%
Equity to total assets at end of period 10.34% 11.02% 11.62%
Return on average assets (1) 1.10% .95% .86%
Return on average equity (1) 10.36% 6.99% 5.78%
Noninterest expenses to average assets (1) 1.94% 2.03% 2.10%
Nonperforming loans to total assets at end
of period -- -- --
(1) Annualized for the nine months ended September 30, 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 balance sheet. The contract or notional amounts of those
instruments reflect the extent of the Company's involvement in particular
classes of financial instruments.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
undisbursed loans in process is represented by the contractual amount of
those instruments. The Company uses the same credit policies in making
commitments as it does for on-balance-sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments are
expected to expire without being drawn upon, the total committed amounts do
not necessarily represent future cash requirements. The Company evaluates
each customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained, if it is deemed necessary by the Company upon extension
of credit, is based on management's credit evaluation of the counter party.
A summary of the amounts of the Company's financial instruments, with
off-balance sheet risk at September 30, 2004, follows (in thousands):
CONTRACT
AMOUNT
------
Commitments to extend credit $ 16,363
========
Undisbursed loans in process $ 823
========
Management believes that the Company has adequate resources to fund all of
its commitments and that substantially all its existing commitments will be
funded in the next twelve months.
12
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, information regarding
(i) the total dollar amount of interest and dividend income of the Company from
interest-earning assets and the resultant average yields; (ii) the total dollar
amount of interest expense on interest-bearing liabilities and the resultant
average cost; (iii) net interest income; (iv) interest-rate spread; (v) net
interest margin; and (vi) ratio of average interest-earning assets to average
interest-bearing liabilities.
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------------------------
2004 2003
--------------------------------- ---------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE AND YIELD/ AVERAGE AND YIELD/
BALANCE DIVIDENDS RATE BALANCE DIVIDENDS RATE
------- --------- ------- ------- --------- ----
(DOLLARS IN THOUSANDS)
Interest-earning assets:
Loans $ 120,569 2,017 6.69% $ 101,651 1,739 6.84%
Securities 19,790 218 4.41 6,827 50 2.93
Other (1) 2,683 18 2.68 2,184 12 2.20
--------- ------ --------- -------
Total interest-earning assets 143,042 2,253 6.30 110,662 1,801 6.51
----- -----
Cash and due from banks 416 311
Premises and equipment 3,384 909
Other 2,995 1,902
-------- ---------
Total assets $ 149,837 $ 113,784
========= =======
Interest-bearing liabilities:
Savings, NOW and money-market deposit
accounts 9,653 29 1.20 6,557 24 1.46
Time deposits 82,656 684 3.31 68,193 623 3.65
Federal Home Loan Bank advances 39,124 282 2.88 23,488 180 3.07
------- ------ ------- -----
Total interest-bearing liabilities 131,433 995 3.03 98,238 827 3.37
------ -----
Demand deposits 866 595
Noninterest-bearing liabilities 1,506 540
Stockholders' equity 16,032 14,411
------- --------
Total liabilities and stockholders' equity $ 149,837 $ 113,784
========= =========
Net interest income $ 1,258 $ 974
======= ========
Interest-rate spread (2) 3.27% 3.14%
==== ====
Net interest margin (3) 3.52% 3.52%
==== ====
Ratio of average interest-earning assets to
average interest-bearing liabilities 1.09 1.13
==== ====
(1) Includes federal funds sold, Federal Home Loan Bank stock dividends
and interest-bearing deposits with banks.
(2) Interest-rate spread represents the difference between the average
yield on interest-earning assets and the average cost of
interest-bearing liabilities.
(3) Net interest margin is net interest income divided by average
interest-earning assets.
13
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
The following table sets forth, for the periods indicated, information regarding
(i) the total dollar amount of interest and dividend income of the Company from
interest-earning assets and the resultant average yields; (ii) the total dollar
amount of interest expense on interest-bearing liabilities and the resultant
average cost; (iii) net interest income; (iv) interest-rate spread; (v) net
interest margin; and (vi) ratio of average interest-earning assets to average
interest-bearing liabilities.
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------------------------
2004 2003
--------------------------------- ---------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE AND YIELD/ AVERAGE AND YIELD/
BALANCE DIVIDENDS RATE BALANCE DIVIDENDS RATE
------- --------- ------- ------- --------- ----
(DOLLARS IN THOUSANDS)
Interest-earning assets:
Loans $ 116,211 5,829 6.69% $ 81,938 4,325 7.04%
Securities 17,516 597 4.54 6,666 164 3.28
Other (1) 5,010 68 1.81 3,807 52 1.82
--------- ------- --------- -------
Total interest-earning assets 138,737 6,494 6.24 92,411 4,541 6.55
------- -------
Cash and due from banks 480 301
Premises and equipment 2,434 738
Other 2,593 1,492
-------- ---------
Total assets $ 144,244 $ 94,942
========= =========
Interest-bearing liabilities:
Savings, NOW and money-market deposit
accounts 8,746 84 1.28 5,576 67 1.60
Time deposits 80,156 1,991 3.31 56,778 1,599 3.75
Federal Home Loan Bank advances 37,316 814 2.91 17,292 435 3.35
--------- ------- --------- -------
Total interest-bearing liabilities 126,218 2,889 3.05 79,646 2,101 3.52
------- -------
Demand deposits 944 495
Noninterest-bearing liabilities 1,756 635
Stockholders' equity 15,326 14,166
--------- ------
Total liabilities and stockholders' equity $ 144,244 $ 94,942
========= =========
Net interest income $ 3,605 $ 2,440
======= =======
Interest-rate spread (2) 3.19% 3.03%
==== ====
Net interest margin (3) 3.46% 3.52%
==== ====
Ratio of average interest-earning assets to
average interest-bearing liabilities 1.10 1.16
==== ====
(1) Includes federal funds sold, Federal Home Loan Bank stock dividends
and interest-bearing deposits with banks.
(2) Interest-rate spread represents the difference between the average
yield on interest-earning assets and the average cost of
interest-bearing liabilities.
(3) Net interest margin is net interest income divided by average
interest-earning assets.
14
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
COMPARISON OF THE THREE-MONTH PERIODS ENDED SEPTEMBER 30, 2004 AND 2003
GENERAL. Net earnings for the three months ended September 30, 2004, were
$376,000 or $.14 per basic and diluted share compared to net earnings of
$262,000 or $.10 per basic and diluted share for the period ended
September 30, 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, all of
which were due to the overall growth of the Company.
INTEREST INCOME. Interest income increased to $2.3 million for the three
months ended September 30, 2004 from $1.8 million for the three months
ended September 30, 2003. Interest income on loans increased to $2.0
million due primarily to an increase in the average loan portfolio balance
for the three months ended September 30, 2004, partially offset by a
decrease in the average yield earned from 6.8% for the three months ended
September 30, 2003 to 6.7% for the three months ended September 30, 2004.
Interest on securities increased to $218,000 due primarily to an increase
in the average balance and an increase in the yield earned on the
securities portfolio in 2004.
INTEREST EXPENSE. Interest expense on deposit accounts increased to $713,000
for the three months ended September 30, 2004, from $647,000 for the three
months ended September 30, 2003. Interest expense on deposits 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 $282,000 for the
three months ended September 30, 2004 from $180,000 for the three months
ended September 30, 2003 due to an increase in the average balance of
borrowings, partially offset by a decrease in the average rate paid on
borrowings during 2004.
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 September 30, 2004, was $52,000 compared to
$87,000 for the same period in 2003. Management believes the balance in
the allowance for loan losses of $599,000 at September 30, 2004, is
adequate.
NONINTEREST INCOME. Total noninterest income increased to $113,000 for the
three months ended September 30, 2004, from $85,000 for the three months
ended September 30, 2003, primarily due to an increase in prepayment fees
collected, which was partially offset by a decrease in service charges and
fees.
NONINTEREST EXPENSES. Total noninterest expenses increased to $712,000 for
the three months ended September 30, 2004 from $548,000 for the three
months ended September 30, 2003, primarily due to an increase in salaries
and employee benefits of $102,000 and an increase in occupancy and
equipment of $37,000, all due to the continued growth of the Company.
INCOME TAXES. Income taxes for the three months ended September 30, 2004,
were $231,000 (an effective rate of 38.1%) compared to income taxes of
$162,000 (an effective rate of 38.2%) for the three months ended September
30, 2003.
15
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
COMPARISON OF THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2004 AND 2003
GENERAL. Net earnings for the nine months ended September 30, 2004, were
$1,191,000 or $.45 per basic and $.43 per diluted share compared to net
earnings of $614,000 or $.24 per basic and $.23 per diluted share for the
period ended September 30, 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, all of which were due to the overall growth of the
Company.
INTEREST INCOME. Interest income increased to $6.5 million for the nine
months ended September 30, 2004 from $4.5 million for the nine months
ended September 30, 2003. Interest income on loans increased to $5.8
million due primarily to an increase in the average loan portfolio balance
for the nine months ended September 30, 2004, partially offset by a
decrease in the average yield earned from 7.0% for the nine months ended
September 30, 2003 to 6.7% for the nine months ended September 30, 2004.
Interest on securities increased to $597,000 due primarily to an increase
in the average balance and an increase in the yield earned on the
securities portfolio in 2004.
INTEREST EXPENSE. Interest expense on deposit accounts increased to $2.1
million for the nine months ended September 30, 2004, from $1.7 million
for the nine months ended September 30, 2003. Interest expense on deposits
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
$814,000 for the nine months ended September 30, 2004 from $435,000 for
the nine months ended September 30, 2003 due to an increase in the average
balance of borrowings, partially offset by a decrease in the average rate
paid on borrowings during 2004.
PROVISION FOR LOAN LOSSES. The provision for loan losses is charged to
earnings to bring the total allowance to a level deemed appropriate by
management and is based upon historical experience, the volume and type of
lending conducted by the Company, industry standards, the amount of
nonperforming loans, general economic conditions, particularly as they
relate to the Company's market areas, and other factors related to the
estimated collectibility of the Company's loan portfolio. The provision
for the nine months ended September 30, 2004, was $107,000 compared to
$170,000 for the same period in 2003. Management believes the balance in
the allowance for loan losses of $599,000 at September 30, 2004, is
adequate.
NONINTEREST INCOME. Total noninterest income increased to $530,000 for the
nine months ended September 30, 2004, from $219,000 for the nine months
ended September 30, 2003 primarily as a result of an increase in
prepayment fees collected of $309,000.
NONINTEREST EXPENSES. Total noninterest expenses increased to $2.1 million
for the nine months ended September 30, 2004 from $1.5 million for the
nine months ended September 30, 2003, primarily due to an increase in
salaries and employee benefits of $371,000 and an increase in occupancy
and equipment expense of $115,000, all due to the continued growth of the
Company.
INCOME TAXES. Income taxes for the nine months ended September 30, 2004, were
$733,000 (an effective rate of 38.1%) compared to income taxes of $379,000
(an effective rate of 38.2%) for the nine months ended September 30, 2003.
16
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
ITEM 3. CONTROLS AND PROCEDURES
a. Evaluation of Disclosure Controls and Procedures. The Company maintains
controls and procedures designed to ensure that information required to
be disclosed in the reports that the Company files or submits under the
Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in the rules and forms of the
Securities and Exchange Commission. Based upon their evaluation of those
controls and procedures performed within 90 days of the filing date of
this report, the chief executive and principal accounting officers of the
Company concluded that the Company's disclosure controls and procedures
were adequate.
b. Changes in Internal Controls. The Company made no significant changes in
its internal controls or in other factors that could significantly affect
these controls subsequent to the date of the evaluation of those controls
by the chief executive and principal accounting officers.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
OptimumBank is a defendant in a pending lawsuit currently being
transferred to Broward County, Florida Circuit Court brought by Attorneys' Title
Insurance Fund, Inc. (the "Fund"), a title insurance underwriter that issued
OptimumBank a mortgagee title insurance policy in connection with a $2.3 million
mortgage loan funded by OptimumBank in July 2004 on vacant land in Kissimmee,
Florida. Subsequent to the closing, all the loan documents, including the
mortgage, were discovered to be forgeries due to the identity theft of the
property owner by an imposter. In response to Optimum's claim for
indemnification against the Fund, currently estimated at $1.8 million, the Fund
filed an action for declaratory relief against OptimumBank in Collier County
Circuit Court on September 27, 2004, and requested the Court to enter a judgment
declaring that OptimumBank had no coverage under the title policy. The Fund also
issued a letter dated October 19, 2004, declining coverage under their title
insurance policy for the forged mortgage on the basis that OptimumBank elected
to use a Florida attorney who was not an agent of the Fund as its settlement
agent; thus, OptimumBank could not obtain coverage under the policy for issues
related to the settlement of the loan.
In October 2004, the Fund identified the imposter and, at the Fund's
request and expense, OptimumBank authorized the Fund, on behalf of the Bank, to
take legal action in OptimumBank's name in the Cayman Islands and Fulton County,
Georgia to freeze the imposter's bank accounts and certain other assets. The
Fund has informed OptimumBank that the amount of assets under the control of the
courts exceeds OptimumBank's claim. Further, the Fund and OptimumBank have
agreed to abate the pending suit for declaratory relief during the Fund's
investigation and recovery of the monies.
If the Bank's claim against the Fund is not satisfied as a result of
the recovery of and realization on funds under control of the courts,
OptimumBank intends to vigorously defend the Fund's suit for declaratory relief
and file additional claims against the Fund and the Fund's title attorney. The
Company does not believe that the Fund has any legal basis for denial of
coverage.
OptimumBank also has a blanket bond with a second insurance company
covering forged mortgages, and has filed notice of a potential claim with the
second carrier. The Company does not believe that the foregoing litigation will
have a material adverse affect on the financial condition or operations of the
Company.
17
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
18
OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY
PART II. OTHER INFORMATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OPTIMUMBANK HOLDINGS, INC.
(Registrant)
Date: November 15, 2004 By: /s/ Albert J. Finch
-------------------- ------------------------------------------
Albert J. Finch, Chief Executive Officer
Date: November 15, 2004 By: /s/Richard L. Browdy
-------------------- ------------------------------------------
Richard L. Browdy, Chief Financial Officer
19