OPTIMUMBANK HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

Florida		55-0865043
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

 

2477 East Commercial Boulevard, Fort Lauderdale, FL 33308

(Address of principal executive offices)

 

954-776-2332

(Registrant’s telephone number, including area code)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

 

 

Large accelerated filer   o		Accelerated filer o
Non-accelerated filer     o  (Do not check if a smaller reporting company)	Smaller reporting company  x

 

 

 

 

 

 

 

		September 30,				December 31,
Assets		2013				2012
		(Unaudited)
Cash and due from banks		$	5,312			$	4,541
Interest-bearing deposits with banks			3,879				19,070
Total cash and cash equivalents			9,191				23,611
Securities available for sale			23,718				18,648
Loans, net of allowance for loan losses of $2,924 and $2,459			82,090				85,209
Federal Home Loan Bank stock			1,082				1,478
Premises and equipment, net			2,913				2,906
Foreclosed real estate, net			7,834				10,938
Accrued interest receivable			513				499
Other assets			477				454
Total assets		$	127,818			$	143,743
Liabilities and Stockholders’ Equity
Liabilities:
Noninterest-bearing demand deposits			2,854				4,626
Savings, NOW and money-market deposits			32,692				34,153
Time deposits			61,747				62,832
Total deposits			97,293				101,611
Federal Home Loan Bank advances			20,200				27,700
Junior subordinated debenture			5,155				5,155
Advanced payment by borrowers for taxes and insurance			968				461
Official checks			563				581
Other liabilities			1,499				1,325
Total liabilities			125,678				136,833
Stockholders’ equity:
Preferred stock, no par value; 6,000,000 shares authorized, no shares issued or outstanding			0				0
Common stock, $.01 par value; 50,000,000 shares authorized 7,982,194 and 31,511,201 shares issued and outstanding			80				315
Additional paid-in capital			31,427				31,057
Accumulated deficit			(29,429	)			(24,688	)
Accumulated other comprehensive income			62				226
Total stockholders’ equity			2,140				6,910
Total liabilities and stockholders’ equity		$	127,818			$	143,743

 

 

 

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2013				2012				2013				2012
Interest income:
Loans		$	1,074			$	1,025			$	3,235			$	3,002
Securities			196				245				571				819
Other			16				22				48				60
Total interest income			1,286				1,292				3,854				3,881
Interest expense:
Deposits			201				272				649				848
Borrowings			231				359				876				1,136
Total interest expense			432				631				1,525				1,984
Net interest income			854				661				2,329				1,897
Provision for loan losses			0				197				2,194				378
Net interest income after provision for loan losses			854				464				135				1,519
Noninterest income:
Service charges and fees			25				9				80				19
Loss on sale of securities			(20	)			0				(20	)			0
Other			1				1				22				179
Total noninterest income			6				10				82				198
Noninterest expenses:
Salaries and employee benefits			497				465				1,556				1,301
Occupancy and equipment			135				133				400				376
Data processing			76				47				227				161
Professional fees			197				283				746				810
Insurance			79				68				237				208
Foreclosed real estate			13				192				989				329
Regulatory assessment			84				92				254				215
Other			95				118				187				490
Total noninterest expenses			1,176				1,398				4,596				3,890
Other-than-temporary impairment on securities:
Total other-than-temporary impairment losses			9				101				362				204
Portion of losses recognized in other comprehensive income			0				0				0				0
Net impairment loss			9				101				362				204
Net loss		$	(325	)		$	(1,025	)		$	(4,741	)		$	(2,377	)
Net loss per share:
Basic		$	(.05	)		$	(.14	)		$	(.60	)		$	(.36	)
Diluted		$	(.05	)		$	(.14	)		$	(.60	)		$	(.36	)
Dividends per share		$	0			$	0			$	0			$	0

 

 

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2013				2012				2013				2012
Net loss		$	(325	)		$	(1,025	)		$	(4,741	)		$	(2,377	)
Other comprehensive loss-Unrealized (loss) gains on securities available for sale- Net unrealized holding (losses) gains arising during period			(45	)			603				(164	)			1,041
Comprehensive loss		$	(370	)		$	(422	)		$	(4,905	)		$	(1,336	)

 

 

 

 

																		Accumulated
																		Other
										Additional								Compre-				Total
		Common Stock								Paid-In				Accumulated				hensive				Stockholders’
		Shares				Amount				Capital				Deficit				Loss				Equity
Balance at December 31, 2011			22,411,108			$	224				27,491				(19,991	)			(938	)			6,786
Proceeds from sale of common stock (unaudited)			8,447,500				85				3,290				0				0				3,375
Common stock issued as compensation to directors (unaudited)			42,225				0				42				0				0				42
Net loss for the nine months ended September 30, 2012 (unaudited)			0				0				0				(2,377	)			0				(2,377	)
Net change in unrealized loss on securities available for sale (unaudited)			0				0				0				0				1,041				1,041
Balance at September 30, 2012 (unaudited)			30,900,833			$	309				30,823				(22,368	)			103				8,867
Balance at December 31, 2012			31,511,201			$	315				31,057				(24,688	)			226				6,910
Reverse one-for-four common share split (unaudited)			(23,646,314	)			(236	)			236				0				0				0
Proceeds from sale of common stock (unaudited)			83,333				1				99				0				0				100
Common stock issued as compensation to directors (unaudited)			33,974				0				35				0				0				35
Net loss for the nine months ended September 30, 2013 (unaudited)			0				0				0				(4,741	)			0				(4,741	)
Net change in unrealized loss on securities available for sale (unaudited)			0				0				0				0				(164	)			(164	)
Balance at September 30, 2013 (unaudited)			7,982,194			$	80				31,427				(29,429	)			62				2,140

 

 

 

 

		Nine Months Ended
		September 30,
		2013				2012
Cash flows from operating activities:
Net loss		$	(4,741	)		$	(2,377	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			149				87
Provision for loan losses			2,194				378
Loss on sale of securities			20				0
Common stock issued as compensation to directors			35				42
Net amortization of fees, premiums and discounts			40				0
(Increase) decrease in other assets			(23	)			247
Loss on sale of foreclosed real estate			135				28
Provision for losses on real estate owned			724				0
Write-down of foreclosed real estate			0				70
(Increase) decrease in accrued interest receivable			(14	)			22
Increase (decrease) in official checks and other liabilities			156				(652	)
Other-than-temporary impairment of securities available for sale			362				204
Net cash used in operating activities			(963	)			(1,951	)
Cash flows from investing activities:
Principal repayments and maturity of securities available for sale			6,618				8,156
Proceeds from sale of security available for sale			1,965				0
Purchase of securities available for sale			(14,239	)			0
Net decrease in loans			228				232
Purchase of premises and equipment			(156	)			(255	)
Proceeds from sale of foreclosed real estate			2,942				317
Capital improvements on foreclosed real estate			0				(57	)
Redemption of Federal Home Loan Bank stock			396				681
Net cash (used in) provided by investing activities			(2,246	)			9,074
Cash flows from financing activities:
Net decrease in deposits			(4,318	)			(2,369	)
Increase in advance payments by borrowers for taxes and insurance			507				462
Repayment of Federal Home Loan Bank advances			(7,500	)			(4,000	)
Proceeds from sale of common stock			100				3,375
Net cash used in financing activities			(11,211	)			(2,532	)
Net (decrease) increase in cash and cash equivalents			(14,420	)			4,591
Cash and cash equivalents at beginning of the period			23,611				22,776
Cash and cash equivalents at end of the period		$	9,191			$	27,367

 

 

		Nine Months Ended
		September 30,
		2013				2012
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest		$	1,483			$	1,898
Income taxes		$	0			$	0
Noncash investing and financing activities:
Change in accumulated other comprehensive loss, net change in unrealized loss on securities available for sale		$	(164	)		$	1,041
Loans transferred to foreclosed real estate		$	697			$	3,156

 

 

 

 

(1)

General.  OptimumBank Holdings, Inc. (the “Holding Company”) is a one-bank holding company and owns 100% of OptimumBank (the “Bank”), a Florida chartered commercial bank.  The Bank’s wholly-owned subsidiaries are OB Real Estate Management, LLC, OB Real Estate Holdings, LLC and OB Real Estate Holding 1503, LLC, all of which were formed in 2009, OB Real Estate Holdings 1695, OB Real Estate Holdings 1669, OB Real Estate Holdings 1645, OB Real Estate Holdings 1620 and OB Real Estate Holdings 1565, all formed in 2010; OB Real Estate Holdings 1443 and OB Real Estate Holdings Northwood, OB Real Estate Holdings 1596, OB Real Estate Holdings 1636 formed in 2011; and OB Real Estate Holdings 1655, OB Real Estate Holdings 1692, OB Real Estate Holdings 1704, OB Real Estate Holdings Rosemary and OB Real Estate Holdings Sillato formed in 2012 (the “Real Estate Holding Subsidiaries”).  The Holding Company’s only business is the operation of the Bank and its subsidiaries (collectively, the “Company”).  The Bank’s deposits are insured up to applicable limits by the Federal Deposit Insurance Corporation (“FDIC”). The Bank offers a variety of commercial banking services to individual and corporate customers through its three banking offices located in Broward County, Florida.  OB Real Estate Management, LLC is primarily engaged in managing foreclosed real estate.  This subsidiary had no activity in 2013 and 2012.  All other subsidiaries are primarily engaged in holding and disposing of foreclosed real estate.

 

In the opinion of the management, the accompanying condensed consolidated financial statements of the Company contain all adjustments (consisting principally of normal recurring accruals) necessary to present fairly the financial position at September 30, 2013, and the results of operations for the three- and nine-month periods ended September 30, 2013 and 2012, and cash flows for the nine-months periods ended September 30, 2013 and 2012.  The results of operations for the three- and nine-months ended September 30, 2013, are not necessarily indicative of the results to be expected for the full year.

 

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

 

Income Taxes. During the year ended December 31, 2009, the Company assessed its earnings history and trend over the past year and its estimate of future earnings, and determined that it is more likely than not that the deferred tax asset will not be realized in the near term.  Accordingly, a valuation allowance was recorded against the net deferred tax asset for the amount not expected to be realized in the future.  Based on the available evidence at September 30, 2013, the Company determined that it is still more likely than not that the deferred tax asset will not be realized in the near term.

 

 

 

 

(1)	General, Continued.

Recent Accounting Standards Update. In July 2012, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2012-02, “Testing Indefinite-Lived Intangible Assets for Impairment,” which, among other things, gives an entity the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that an indefinite-lived intangible asset is impaired. The Company adopted this ASU on January 1, 2013, and since the Company does not have intangible assets, it had no impact on its consolidated financial statements.

 

In January 2013, the FASB issued ASU No. 2013-01, “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities,” which limits the scope of the new balance sheet offsetting disclosures in ASU 2011-11 to derivatives, repurchase agreements, and securities lending transactions to the extent that they are (1) offset in the financial statements or (2) subject to an enforceable master netting arrangement or similar agreement. The Company adopted this ASU on February 1, 2013 and it had no impact on its consolidated financial statements.

 

In February 2013, the FASB Issued ASU No. 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income,” which requires entities to present information about reclassification adjustments from accumulated other comprehensive income in their annual financial statements in a single note or on the face of the financial statements. The Company adopted this ASU on March 1, 2013 and it had no impact on its consolidated financial statements.

 

In February 2013, the FASB Issued ASU No. 2013-04, “Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date.” ASU 2013-04 provides guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for obligations within the scope of this ASU, which is effective January 1, 2014. Upon adoption, the Company does not expect this ASU to impact its consolidated financial statements.

 

In July 2013, the FASB issued ASU 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists,” which among other things, require an unrecognized tax benefit, or a portion of an unrecognized tax benefit, to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as denoted within the ASU. The amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The Company is currently evaluating the impact on its consolidated financial statements with respect to ASU 2013-11.

 

In July 2013, the FASB issued ASU No. 2013-10, “Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes.” ASU No. 2013-10 permits the use of the Fed Funds Effective Swap Rate (OIS) to be used as a U.S. benchmark interest rate for hedge account purposes. The amendment is effective prospectively for qualifying new or redesiginated hedging relationships entered into on or after July 17, 2013. The adoption of ASU No. 2013-10 did not have an impact on the Company’s consolidated financial statements.

 

 

 

(1)	General, Continued.

Recent Regulatory Developments

Basel III Legislation.  On July 2, 2013, the Federal Reserve Board (“FRB”) approved the final rules implementing the Basel Committee on Banking Supervision’s capital guidelines for U.S. banks. Under the final rules, minimum requirements will increase for both the quantity and quality of capital held by the Bank. The rules include a new common equity Tier I capital to risk-weighted assets ratio of 4.5% and a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets. The final rules also raise the minimum ratio of Tier I capital to risk-weighted assets from 4.0% to 6.0% and require a minimum leverage ratio of 4.0%. The final rules also implement strict eligibility criteria for regulatory capital instruments. On July 9, 2013, the Federal Deposit Insurance Corporation (“FDIC”) also approved, as an interim final rule, the regulatory capital requirements for U.S. banks, following the actions of the FRB. The FDIC’s rule is identical in substance to the final rules issued by the FRB.

 

The phase-in period for the final rules will begin for the Company on January 1, 2015, with full compliance with all of the final rule’s requirements phased in over a multi-year schedule. The Company is currently evaluating the provisions of the final rules and their expected impact on the Company.

 

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

 

						Gross				Gross
		Amortized				Unrealized				Unrealized				Fair
		Cost				Gains				Losses				Value
At September 30, 2013:
Securities Available for Sale-
Mortgage-backed securities		$	23,656			$	286			$	(224	)		$	23,718
At December 31, 2012:
Securities Available for Sale-
Mortgage-backed securities		$	18,422			$	305			$	(79	)		$	18,648

 

Securities with gross unrealized losses at September 30, 2013, aggregated by investment category and length of time that individual securities have been in a continuous loss position, is as follows (in thousands):

 

 

 

(2)

Securities, Continued.  Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation.  A security is impaired if the fair value is less than its carrying value at the financial statement date. When a security is impaired, the Company determines whether this impairment is temporary or other-than-temporary. In estimating other-than-temporary impairment (“OTTI”) losses, management assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of these criteria is met, the entire difference between amortized cost and fair value is recognized in operations. For securities that do not meet the aforementioned criteria, the amount of impairment recognized in operations is limited to the amount related to credit losses, while impairment related to other factors is recognized in other comprehensive loss. Management utilizes cash flow models to segregate impairments to distinguish between impairment related to credit losses and impairment related to other factors. To assess for OTTI, management considers, among other things, (i) the severity and duration of the impairment; (ii) the ratings of the security; (iii) the overall transaction structure (the Company’s position within the structure, the aggregate, near-term financial performance of the underlying collateral, delinquencies, defaults, loss severities, recoveries, prepayments, cumulative loss projections, and discounted cash flows; and (iv) the timing and magnitude of a break in modeled cash flows.

 

In evaluating mortgage-backed securities with unrealized losses, management utilizes various resources, including input from independent third party firms to perform an analysis of expected future cash flows. The process begins with an assessment of the underlying collateral backing the mortgage pools. Management develops specific assumptions using as much market data as possible and includes internal estimates as well as estimates published by rating agencies and other third-party sources. The data for the individual borrowers in the underlying mortgage pools are generally segregated by state, FICO score at issue, loan to value at issue and income documentation criteria. Mortgage pools are evaluated for current and expected levels of delinquencies and foreclosures, based on where they fall in the proscribed data set of FICO score, geographics, LTV and documentation type and a level of loss severity is assigned to each security based on its experience. The above-described historical data is used to develop current and expected measures of cumulative default rates as well as ultimate loss frequency and severity within the underlying mortgages. This reveals the expected future cash flows within the mortgage pool. The data described above is then input to an industry recognized model to assess the behavior of the particular security tranche owned by the Company. Significant inputs in this process include the structure of any subordination structures, if applicable, and are dictated by the structure of each particular security as laid out in the offering documents. The forecasted cash flows from the mortgage pools are input through the security structuring model to derive expected cash flows for the specific security owned by the Company to determine if the future cash flows are expected to exceed the book value of the security. The values for the significant inputs are updated on a regular basis.  During the three and nine months ended September 30, 2013, the Company recorded other-than-temporary impairment charges totaling $9,000 and $362,000, respectively. During the three and nine month periods ended September 30, 2012, the Company recorded other-than-temporary impairment charges totaling $101,000 and $204,000, respectively.

 

(continued)

 

 

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

 

		At September 30,				At December 31,
		2013				2012
Residential real estate		$	26,624			$	30,064
Multi-family real estate			3,818				3,916
Commercial real estate			37,544				39,126
Land and construction			6,301				7,276
Commercial			10,247				7,158
Consumer			81				70
Total loans			84,615				87,610
Add (deduct):
Net deferred loan fees, costs and premiums			399				58
Allowance for loan losses			(2,924	)			(2,459	)
Loans, net		$	82,090			$	85,209

 

An analysis of the change in the allowance for loan losses follows (in thousands):