EX-13.1 2 dex131.htm CONSOLIDATED FINANCIAL STATEMENTS OF OPTIMUMBANK HOLDINGS, INC. Consolidated Financial Statements of OptimumBank Holdings, Inc.

Exhibit 13.1

OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

Report of Independent Registered Public Accounting Firm

     F-2   

Consolidated Balance Sheets, December 31, 2010 and 2009

     F-3   

Consolidated Statements of Operations for the Years Ended December 31, 2010 and 2009

     F-4   

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2010 and 2009

     F-5   

Consolidated Statements of Cash Flows for the Years Ended December 31, 2010 and 2009

     F-6-F-7   

Notes to Consolidated Financial Statements, December 31, 2010 and 2009 and the Years Then Ended

     F-8-F-41   

 

F-1


Report of Independent Registered Public Accounting Firm

OptimumBank Holdings, Inc.

Fort Lauderdale, Florida:

We have audited the accompanying consolidated balance sheets of OptimumBank Holdings, Inc. and Subsidiary (the “Company”) as of December 31, 2010 and 2009, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company at December 31, 2010 and 2009, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company’s operating and capital requirements, along with recurring losses raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to those matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

HACKER, JOHNSON & SMITH PA

Fort Lauderdale, Florida

April 14, 2011

 

F-2


OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Consolidated Balance Sheets

(Dollars in thousands, except share amounts)

 

     December 31,  
     2010     2009  

Assets

    

Cash and due from banks

   $ 1,027      $ 1,556   

Interest-bearing deposits with banks

     186        8,506   

Federal funds sold

     13,154        26,722   
                

Total cash and cash equivalents

     14,367        36,784   

Securities held to maturity (fair value of $48,839 and $76,984)

     51,057        81,141   

Loans, net of allowance for loan losses of $3,703 and $9,363

     113,542        134,126   

Federal Home Loan Bank stock

     3,173        3,551   

Premises and equipment, net

     2,796        2,941   

Foreclosed real estate, net

     3,215        5,487   

Accrued interest receivable

     644        1,088   

Deferred tax asset

     —          772   

Income taxes receivable

     772        3,577   

Other assets

     739        490   
                

Total assets

   $ 190,305      $ 269,957   
                

Liabilities and Stockholders’ Equity

    

Liabilities:

    

Noninterest-bearing demand deposits

     309        199   

Savings, NOW and money-market deposits

     36,654        44,222   

Time deposits

     111,275        107,261   
                

Total deposits

     148,238        151,682   

Federal Home Loan Bank advances

     31,700        57,700   

Other borrowings

     —          41,800   

Junior subordinated debenture

     5,155        5,155   

Advanced payment by borrowers for taxes and insurance

     806        945   

Official checks

     815        694   

Other liabilities

     756        693   
                

Total liabilities

     187,470        258,669   
                

Commitments and contingencies (Notes 1, 4, 9, 14 and 16)

    

Stockholders’ equity:

    

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

     —          —     

Common stock, $.01 par value; 1,500,000 and 6,000,000 shares authorized in 2010 and 2009, 819,358 and 3,276,842 shares issued and outstanding in 2010 and 2009

     8        33   

Additional paid-in capital

     19,071        19,046   

Accumulated deficit

     (16,244     (7,791
                

Total stockholders’ equity

     2,835        11,288   
                

Total liabilities and stockholders’ equity

   $ 190,305      $ 269,957   
                

See Accompanying Notes to Consolidated Financial Statements.

 

F-3


OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Consolidated Statements of Operations

(In thousands, except share amounts)

 

     Year Ended December 31,  
     2010     2009  

Interest income:

    

Loans

   $ 6,301      $ 8,986   

Securities

     2,409        4,985   

Other

     77        35   
                

Total interest income

     8,787        14,006   
                

Interest expense:

    

Deposits

     2,783        3,626   

Borrowings

     2,084        4,725   
                

Total interest expense

     4,867        8,351   
                

Net interest income

     3,920        5,655   

Provision for loan losses

     3,645        15,794   
                

Net interest income (expense) after provision for loan losses

     275        (10,139
                

Noninterest income:

    

Service charges and fees

     39        27   
                

Gain on sale of securities

     1,350        —     
                

Other

     5        7   
                

Other-than-temporary impairment on securities available for sale:

    

Total other-than-temporary impairment of securities

     —          (179

Less: Portion of other-than-temporary losses recognized in other comprehensive loss

     —          —     
                

Net impairment loss recognized in operations

     —          (179
                

Total noninterest income (expense)

     1,394        (145
                

Noninterest expenses:

    

Salaries and employee benefits

     1,857        2,053   

Occupancy and equipment

     586        614   

Data processing

     202        173   

Professional fees

     1,732        605   

Insurance

     186        42   

Stationary and supplies

     42        41   

Foreclosed real estate expenses

     469        17   

Regulatory assessment

     642        511   

Loss on early extinguishment of debt

     3,699        —     

Other

     358        642   
                

Total noninterest expenses

     9,773        4,698   
                

Loss before income taxes (benefit)

     (8,104     (14,982

Income taxes (benefit)

     349        (3,501
                

Net loss

   $ (8,453   $ (11,481
                

Net loss per share:

    

Basic

   $ (10.32   $ (14.01
                

Diluted

   $ (10.32   $ (14.01
                

See Accompanying Notes to Consolidated Financial Statements.

 

F-4


OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Consolidated Statements of Stockholders’ Equity

Years Ended December 31, 2010 and 2009

(Dollars in thousands)

 

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

Balance at December 31, 2008

     3,120,992      $ 31      $ 18,494       $ 4,244      $ (4   $ 22,765   
                   

5% stock dividend (fractional shares paid in cash)

     155,850        2        552         (554     —          —     
                   

Comprehensive loss:

             

Net loss

     —          —          —           (11,481     —          (11,481

Net change in unrealized loss on security available for sale

     —          —          —           —          4        4   
                   

Comprehensive loss

                (11,477
                                                 

Balance at December 31, 2009

     3,276,842      $ 33      $ 19,046       $ (7,791   $ —        $ 11,288   
                   

Net loss

     —          —          —           (8,453     —          (8,453

Reverse stock split (1 for 4 shares)

     (2,457,484     (25     25         —          —          —     
                                                 

Balance at December 31, 2010

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

See Accompanying Notes to Consolidated Financial Statements.

 

F-5


OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Consolidated Statements of Cash Flows

(In thousands)

 

     Year Ended December 31,  
     2010     2009  

Cash flows from operating activities:

    

Net loss

   $ (8,453   $ (11,481

Adjustments to reconcile net loss to net cash provided by operating activities:

    

Depreciation and amortization

     158        186   

Provision for loan losses

     3,645        15,794   

Deferred income tax (benefit)

     772        (204

Decrease (increase) in income taxes receivable

     2,805        (3,577

Gain on sale of securities

     (1,350     —     

Loss on early extinguishment of debt

     3,699        —     

Net amortization of fees, premiums and discounts

     (345     (137

Decrease in accrued interest receivable

     444        189   

(Increase) decrease in other assets

     (249     317   

Loss on sale of foreclosed real estate

     243        —     

Provision for losses on foreclosed real estate

     —          8   

Write-down of foreclosed real estate

     126        —     

Other-than-temporary impairment of securities

     —          179   

Increase (decrease) in official checks and other liabilities

     184        (73
                

Net cash provided by operating activities

     1,679        1,201   
                

Cash flows from investing activities:

    

Purchases of securities held to maturity

     (24,328     (24,032

Principal repayments and calls of securities held to maturity

     11,389        25,364   

Proceeds from sale of securities

     44,869        248   

Net decrease in loans

     16,740        5,074   

Purchase of premises and equipment, net

     (13     (33

Proceeds from sale of foreclosed real estate, net

     1,951        —     

Redemption (purchase) of Federal Home Loan Bank stock

     378        (25
                

Net cash provided by investing activities

     50,986        6,596   
                

Cash flows from financing activities:

    

Net (decrease) increase in deposits

     (3,444     36,757   

Repayment of other borrowings

     (44,764     —     

Repayments of Federal Home Loan Bank advances

     (26,735     (11,000

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

     (139     10   
                

Net cash (used in) provided by financing activities

     (75,082     25,767   
                

Net (decrease) increase in cash and cash equivalents

     (22,417     33,564   

Cash and cash equivalents at beginning of the year

     36,784        3,220   
                

Cash and cash equivalents at end of the year

   $ 14,367      $ 36,784   
                

(continued)

 

F-6


OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Consolidated Statements of Cash Flows, Continued

(In thousands)

 

     Year Ended December 31,  
     2010     2009  

Supplemental disclosure of cash flow information:

    

Cash paid (received) during the year for:

    

Interest

   $ 4,917      $ 8,527   
                

Income taxes

   $ (3,228   $ 300   
                

Noncash transactions:

    

Change in accumulated other comprehensive loss, net change in unrealized loss on security available for sale, net of tax

   $ —        $ 4   
                

Common stock dividend

   $ —        $ 554   
                

Loan transferred to foreclosed real estate

   $ 533      $ 5,400   
                

Loans made in connection with sale of foreclosed real estate

   $ 485      $ —     
                

Reverse stock split

   $ 25      $ —     
                

See Accompanying Notes to Consolidated Financial Statements.

 

F-7


OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2010 and 2009 and the Years Then Ended

(1) Summary of Significant Accounting Policies

Organization. OptimumBank Holdings, Inc. (the “Holding Company”) is a one-bank holding company and owns 100% of OptimumBank (the “Bank”), a state (Florida)-chartered commercial bank. The Bank’s wholly-owned subsidiaries are OB Real Estate Management, LLC, OB Real Estate Holdings, LLC and OB Real Estate Holding 1503, LLC, all of which were formed in 2009 and OB Real Estate Holdings 1695, OB Real Estate Holdings 1669, OB Real Estate Holdings 1645 and OB Real Estate Holdings 1565, all formed in 2010. The Holding Company’s only business is the operation of the Bank and its subsidiaries(collectively, the “Company”). The Bank’s deposits are insured up to applicable limits by the Federal Deposit Insurance Corporation (“FDIC”). The Bank offers a variety of community banking services to individual and corporate customers through its three banking offices located in Broward County, Florida. OB Real Estate Management, LLC is primarily engaged to manage foreclosed real estate. This subsidiary had no activity in 2010 and 2009. All real estate holding subsidiaries are primarily engaged to hold and dispose of foreclosed real estate.

Going Concern. The Company’s recent and continuing increases in nonperforming assets, declining net interest margin, continuing high levels of noninterest expenses related to the credit problems, and eroding regulatory capital raise substantial doubt about the Company’s ability to continue as a going concern.

The Company has not complied with its regulatory capital requirements set forth in the Consent Order issued by the Federal Deposit Insurance Corporation (“FDIC”) and the Florida Office of Financial Regulation (“OFR”) and Prompt Corrective Action provisions discussed in Note 14, Regulatory Matters. The Company needs to raise substantial additional capital. Since January 2011, the Company has conducted a private placement offering of its common stock. There can be no assurance, however, that the Company will raise sufficient capital, if any, in the private placement offering, to meet the Bank’s capital requirements. Further, there can be no assurance that other financing alternatives or recapitalization plans will be available, forthcoming or successfully implemented, or receive regulatory approval.

Basis of Presentation. The accompanying consolidated financial statements include the accounts of the Holding Company, the Bank, OB Real Estate Management, LLC, OB Real Estate Holdings, LLC, OB Real Estate Holdings 1503, LLC, OB Real Estate Holdings 1695, OB Real Estate Holdings 1669, OB Real Estate Holdings 1645 and OB Real Estate Holdings 1565. All significant intercompany accounts and transactions have been eliminated in consolidation. The accounting and reporting practices of the Company conform to U.S. generally accepted accounting principles and to general practices within the banking industry. The following summarizes the more significant of these policies and practices:

Use of Estimates. In preparing consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”), management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated balance sheet and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. A material estimate that is particularly susceptible to significant change in the near term relates to the determination of the allowance for loan losses and the valuation of foreclosed real estate and the deferred tax asset.

 

(continued)

 

F-8


OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

 

(1) Summary of Significant Accounting Policies, Continued

 

Cash and Cash Equivalents. For purposes of the consolidated statements of cash flows, cash and cash equivalents include cash and balances due from banks, interest-bearing deposits and federal funds sold, all of which mature within ninety days.

The Company may be required by law or regulation to maintain cash reserves in the form of vault cash or in accounts with other banks. There were no reserve balances required at December 31, 2010 and 2009.

Securities. Securities may be classified as either trading, held to maturity or available for sale. Trading securities are held principally for resale and recorded at their fair values. Unrealized gains and losses on trading securities are included immediately in operations. Held to maturity securities are those which management has the positive intent and ability to hold to maturity and are reported at amortized cost. Available for sale securities consist of securities not classified as trading securities nor as held to maturity securities. Unrealized holding gains and losses on available for sale securities are reported as a net amount in accumulated other comprehensive income (loss) in stockholders’ equity until realized. Gains and losses on the sale of available for sale securities are determined using the specific-identification method. Premiums and discounts on securities are recognized in interest income using the interest method over the period to maturity.

Loans. Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are reported at their outstanding principal adjusted for any charge-offs, the allowance for loan losses, and any deferred fees or costs.

Commitment fees, and loan origination fees are deferred and certain direct origination costs are capitalized. Both are recognized as an adjustment of the yield of the related loan.

The accrual of interest on loans is discontinued at the time the loan is ninety days delinquent unless the loan is well collateralized and in process of collection. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.

 

(continued)

 

F-9


OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

 

(1) Summary of Significant Accounting Policies, Continued

 

Loans, Continued. All interest accrued but not collected for loans that are placed on nonaccrual or charged-off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Allowance for Loan Losses. The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to operations. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The allowance consists of specific and general components. The specific component relates to loans that are classified as impaired. For such loans, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loans are lower than the carrying value of those loans. The general component covers all other loans and is based on historical loss experience adjusted for qualitative factors.

For nonspecific loans in all classes, the general component is based on historical loss experience and adjusted for certain qualitative factors such as economic conditions and other trends or uncertainties that could affect management’s estimate of probable loss.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial real estate, land and construction and multi-family real estate loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral-dependent.

 

(continued)

 

F-10


OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

 

(1) Summary of Significant Accounting Policies, Continued

 

Allowance for Loan Losses, Continued. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer and residential loans for impairment disclosures.

Foreclosed Real Estate. Real estate acquired through, or in lieu of, loan foreclosure is to be sold and is initially recorded at fair value less estimated selling costs at the date of foreclosure establishing a new cost basis. After foreclosure, valuations are periodically performed by management and the real estate is carried at the lower of the new cost basis or fair value less cost to sell. Revenue and expenses from operations are included in the consolidated statements of operations.

Premises and Equipment. Land is stated at cost. Buildings and improvements, furniture, fixtures, equipment, and leasehold improvements are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization expense are computed using the straight-line method over the estimated useful life of each type of asset or lease term, if shorter.

Preferred Securities of Unconsolidated Subsidiary Trust. On September 30, 2004, the Company acquired the common stock of OptimumBank Holdings Capital Trust I (“Issuer Trust”), an unconsolidated subsidiary trust. The Issuer Trust used the proceeds from the issuance of $5,000,000 of its preferred securities to third-party investors and common stock to acquire a $5,155,000 debenture issued by the Company. This debenture and certain capitalized costs associated with the issuance of the preferred stock comprise the Issuer Trust’s only assets and the interest payments from the debentures finance the distributions paid on the preferred securities. The Company recorded the debenture in “Junior Subordinated Debenture” and its equity interest in the business trust in “Other Assets” on the consolidated balance sheets (See Note 7).

The Company has entered into agreements which, taken collectively, fully and unconditionally guarantee the preferred securities of the Issuer Trust subject to the terms of the guarantee.

Transfer of Financial Assets. Transfers of financial assets or a participating interest in an entire financial asset are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity. A participating interest is a portion of an entire financial asset that (1) conveys proportionate ownership rights with equal priority to each participating interest holder (2) involves no recourse (other than standard representations and warranties) to, or subordination by, any participating interest holder, and (3) does not entitle any participating interest holder to receive cash before any other participating interest holder.

 

(continued)

 

F-11


OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

 

(1) Summary of Significant Accounting Policies, Continued

 

Income Taxes. There are two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. The Company determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur. Deferred income tax expense results from changes in deferred tax assets and liabilities between periods.

Deferred tax assets are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term more likely than not means a likelihood of more than 50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation processes, if any. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances, and information available at the reporting date and is subject to management’s judgment. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.

On January 1, 2009, the Company adopted accounting guidance relating to accounting for uncertainty in income taxes, which sets out a consistent framework to determine the appropriate level of tax reserves to maintain for uncertain tax positions. As of December 31, 2010, management is not aware of any uncertain tax positions that would have a material effect on the Company’s consolidated financial statements.

The Company recognizes interest and penalties on income taxes as a component of income tax (benefit) expense.

The Holding Company and the Bank file a consolidated income tax return. Income taxes are allocated proportionately to the Holding Company and the Bank as though separate income tax returns were filed.

Advertising. The Company expenses all media advertising as incurred. Media advertising expense included in other noninterest expenses in the accompanying consolidated statements of operations was approximately $10,100 and $15,000 during the years ended December 31, 2010 and 2009, respectively.

 

(continued)

 

F-12


OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

 

(1) Summary of Significant Accounting Policies, Continued

 

Stock Compensation Plan. The Company has adopted the fair value recognition method and expenses the fair value of any stock options as they vest. Under the fair value recognition method, the Company recognizes stock-based compensation in the accompanying consolidated statements of operations. At December 31, 2005, all outstanding options had vested.

Loss Per Share. Basic loss per share is computed on the basis of the weighted-average number of common shares outstanding. In 2010 and 2009, basic and diluted loss per share is the same due to the net loss incurred by the Company. All amounts reflect the one-for-four reverse stock split declared in October 2010 and the 5% stock dividend declared in May 2009. Loss per common share has been computed based on the following:

 

     Year Ended December 31,  
     2010      2009  

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

     819,358         819,358   
                 

Off-Balance-Sheet Financial Instruments. In the ordinary course of business the Company has entered into off-balance-sheet financial instruments consisting of commitments to extend credit. Such financial instruments are recorded in the consolidated financial statements when they are funded.

Fair Value Measurements. Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The hierarchy describes three levels of inputs that may be used to measure fair value:

Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities that are not active; and model-driven valuations whose inputs are observable or whose significant value drivers are observable. Valuations may be obtained from, or corroborated by, third-party pricing services.

Level 3: Unobservable inputs to measure fair value of assets and liabilities for which there is little, if any market activity at the measurement date, using reasonable inputs and assumptions based upon the best information at the time, to the extent that inputs are available without undue cost and effort.

 

(continued)

 

F-13


OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

 

(1) Summary of Significant Accounting Policies, Continued

 

Fair Value Measurements, Continued. The following describes valuation methodologies used for assets measured at fair value:

Impaired Loans. The Company’s impaired loans are normally collateral dependent and, as such, are carried at the lower of the Company’s net recorded investment in the loan or fair market value of the collateral less estimated selling costs. Estimates of fair value are determined based on a variety of information, including the use of available appraisals, estimates of market value by licensed appraisers or local real estate brokers and the knowledge and experience of the Company’s management related to values of properties in the Company’s market areas. Management takes into consideration the type, location and occupancy of the property as well as current economic conditions in the area the property is located in assessing estimates of fair value. Accordingly, fair value estimates for impaired loans are classified as Level 3.

Foreclosed Real Estate. Estimates of fair values are determined based on a variety of information, including the use of available appraisals, estimates of market value by licensed appraisers or local real estate brokers and the knowledge and experience of the Company’s management related to values of properties in the Company’s market areas. Management takes into consideration the type, location and occupancy of the property as well as current economic conditions in the area the property is located in assessing estimates of fair value. Accordingly, the fair values estimates for foreclosed real estate are classified as Level 3.

Fair Values of Financial Instruments. The following methods and assumptions were used by the Company in estimating fair values of financial instruments disclosed herein:

Cash and Cash Equivalents. The carrying amounts of cash and cash equivalents approximate their fair value.

Securities. Fair values for securities are based on the framework for measuring fair value established by GAAP.

Federal Home Loan Bank Stock. Fair value of the Company’s investment in Federal Home Loan Bank stock is based on its redemption value, which is its cost of $100 per share.

Loans. For variable-rate loans that reprice frequently and have no significant change in credit risk, fair values are based on carrying values. Fair values for certain fixed-rate mortgage (e.g. one-to-four family residential), commercial real estate and commercial loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality.

Accrued Interest Receivable. The carrying amount of accrued interest approximates its fair value.

 

(continued)

 

F-14


OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

 

(1) Summary of Significant Accounting Policies, Continued

 

Fair Values of Financial Instruments, Continued.

 

Deposit Liabilities. The fair values disclosed for demand, NOW, money-market and savings deposits are, by definition, equal to the amount payable on demand at the reporting date (that is, their carrying amounts). Fair values for fixed-rate time deposits are estimated using a discounted cash flow calculation that applies interest rates currently being offered on time deposits to a schedule of aggregated expected monthly maturities of time deposits.

Federal Home Loan Bank Advances, Junior Subordinated Debenture and Other Borrowings. Fair values of Federal Home Loan Bank advances, junior subordinated debenture and other borrowings which consist of securities sold under an agreement to repurchase are estimated using discounted cash flow analysis based on the Company’s current incremental borrowings rates for similar types of borrowings.

Off-Balance-Sheet Financial Instruments. Fair values for off-balance-sheet lending commitments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing.

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

Recent Pronouncements. In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2010-06, Improving Disclosures about Fair Value Measurements (Topic 820), which amends the guidance for fair value measurements and disclosures. This guidance requires a reporting entity to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and to describe the reasons for the transfers. Furthermore, it requires a reporting entity to present separately information about purchases, sales, issuances, and settlements in the reconciliation for fair value measurements using significant unobservable inputs; clarifies existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value; and amends guidance on employers’ disclosures about postretirement benefit plan assets to require that disclosures be provided by classes of assets instead of by major categories of assets. It was effective for annual reporting periods beginning January 1, 2010, except for the disclosures about purchases, sales, issuances, and settlements in the rollforward of activity in Level 3 fair value measurements. Those disclosures were effective January 1, 2011. In the period of initial adoption, entities will not be required to provide the amended disclosures for any previous periods presented for comparative purposes. The adoption of this ASU had no effect on the Company’s consolidated financial statements.

 

(continued)

 

F-15


OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

 

(1) Summary of Significant Accounting Policies, Continued

 

Recent Pronouncements, Continued. In July 2010, the FASB issued ASU No. 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. The new disclosures will require significantly more information about credit quality in a financial institution’s loan portfolio. This statement addresses only disclosures and does not change recognition or measurement of the allowance. For public entities, the disclosures as of the end of a reporting period was effective for interim and annual reporting periods ending on December 31, 2010. The disclosures about activity that occurs during a reporting period was effective for interim and annual reporting periods beginning on or after January 1, 2011. For nonpublic entities, the disclosures are effective for annual reporting periods ending on or after December 15, 2011. The adoption of the ASU had no material impact on the Company’s consolidated financial statements.

(2) Securities

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

 

     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Fair
Value
 

At December 31, 2010:

          

Securities Held to Maturity:

          

Mortgage-backed securities

   $ 50,957       $ 130       $ (2,348   $ 48,739   

State of Israel bond

     100         —           —          100   
                                  
   $ 51,057       $ 130       $ (2,348   $ 48,839   
                                  

At December 31, 2009:

          

Securities Held to Maturity:

          

Mortgage-backed securities

   $ 81,041       $ 1,567       $ (5,724   $ 76,884   

State of Israel bond

     100         —           —          100   
                                  
   $ 81,141       $ 1,567       $ (5,724   $ 76,984   
                                  

The following summarizes sales of securities available for sale (in thousands):

 

     Year Ended December 31,  
     2010      2009  

Proceeds from sales of securities

   $ —         $ 248   
                 

Gross gains from sale of securities

     —           —     

Gross losses from sale of securities

     —           —     
                 

Net gains from sale of securities

   $ —         $ —     
                 

 

(continued)

 

F-16


OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

 

(2) Securities, Continued

 

During the first quarter of 2010, the Company sold twenty-two held to maturity securities in order to downsize and deleverage its balance sheet. This action was taken in an effort to comply with a significant increase in the regulatory capital requirements imposed on the Bank under a Consent Order issued by the FDIC and OFR (see Note 14).

The following summarizes sales of securities held to maturity (in thousands):

 

     Year Ended December 31,  
     2010     2009  

Proceeds from sales of securities

   $ 44,869      $ —     
                

Gross gains from sale of securities

     1,492        —     

Gross losses from sale of securities

     (142     —     
                

Net gains from sale of securities

   $ 1,350      $ —     
                

Securities with gross unrealized losses at December 31, 2010, aggregated by investment category and length of time that individual securities have been in a continuous loss position, is as follows (in thousands):

 

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

Mortgage-backed securities

   $ 268       $ 19,890       $ 2,080       $ 20,264   
                                   

 

(continued)

 

F-17


OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

 

(2) Securities, Continued

 

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

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

In evaluating mortgage-backed securities with unrealized losses greater than 12 months, management utilizes various resources, including input from independent third party firms to perform an analysis of expected future cash flows. The process begins with an assessment of the underlying collateral backing the mortgage pools. Management develops specific assumptions using as much market data as possible and includes internal estimates as well as estimates published by rating agencies and other third-party sources. The data for the individual borrowers in the underlying mortgage pools are generally segregated by state, FICO score at issue, loan to value at issue and income documentation criteria. Mortgage pools are evaluated for current and expected levels of delinquencies and foreclosures, based on where they fall in the proscribed data set of FICO score, geographics, LTV and documentation type and a level of loss severity is assigned to each security based on its experience. The above-described historical data is used to develop current and expected measures of cumulative default rates as well as ultimate loss frequency and severity within the underlying mortgages. This reveals the expected future cash flows within the mortgage pool. The data described above is then input to an industry recognized model to assess the behavior of the particular security tranche owned by the Company. Significant inputs in this process include the structure of any subordination structures, if applicable, and are dictated by the structure of each particular security as laid out in the offering documents. The forecasted cash flows from the mortgage pools are input through the security structuring model to derive expected cash flows for the specific security owned by the Company to determine if the future cash flows are expected to exceed the book value of the security. The values for the significant inputs are updated on a regular basis.

 

(continued)

 

F-18


OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

 

(2) Securities, Continued

 

The key base assumptions for mortgage-backed securities used during 2010 are in the table below:

 

Prepayment rate

     12-69 % PSA 

Loss severity

     27-68

Cumulative default rate

     0.81-6.04

Principal write-down

     0 -.04

Loss severity rates are estimated based on collateral characteristics and generally range from 27-68% for single family first mortgages.

In 2009, the Company recorded a $179,000 other-than-temporary impairment (“OTTI”) charge to adjust for credit losses relating to five mortgage-backed securities held to maturity with a total remaining principal balance of $9.5 million and fair value of $8.6 million. Based on its detailed analysis, management has determined that the fair market value is not significantly depressed and therefore the remaining decline was not recorded as an adjustment to other comprehensive loss. There was no OTTI charge in 2010.

The table below provides a cumulative roll forward of credit losses recognized in operations for the year ended December 31, 2010 relating to the Company’s held to maturity debt securities (in thousands):

 

Balance at December 31, 2009

   $  179   

Additions for credit losses on securities not previously impaired

     —     
        

Balance at December 31, 2010

   $ 179   
        

 

(continued)

 

F-19


OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

 

(3) Loans

The components of loans are as follows (in thousands):

 

     At December 31,  
     2010     2009  

Residential real estate

   $ 40,130      $ 55,915   

Multi-family real estate

     4,213        5,162   

Commercial real estate

     55,119        58,901   

Land and construction

     17,292        22,355   

Consumer

     358        836   
                

Total loans

     117,112        143,169   

Add (deduct):

    

Net deferred loan fees, costs and premiums

     134        322   

Loan discounts

     (1     (2

Allowance for loan losses

     (3,703     (9,363
                

Loans, net

   $ 113,542      $ 134,126   
                

An analysis of the change in the allowance for loan losses for the years ended December 31, 2010 and 2009 follows (in thousands):

 

     For the Year Ended December 31,  
     2010        
     Residential
Real
Estate
    Multi-Family
Real

Estate
    Commercial
Real

Estate
    Land
and
Construction
    Consumer     Total     2009  

Beginning balance

   $ 2,049      $ 489      $ 1,466      $ 5,227      $ 132      $ 9,363      $ 1,906   

Provision (credit) for loan losses

     878        (64     2,405        510        (84     3,645        15,794   

Charge-offs

     (1,663     (154     (2,330     (5,223     (54     (9,424     (8,337

Recoveries

     21        11        1        —          86        119        —     
                                                        

Ending balance

   $ 1,285      $ 282      $ 1,542      $ 514      $ 80      $ 3,703      $ 9,363   
                                                        

Individually evaluated for impairment:

              

Recorded investment

   $ 12,608      $ —        $ 21,215      $ 10,649      $ 249      $ 44,721      $ 43,501   
                                                        

Balance in allowance for loan losses

   $ —        $ —        $ 11      $ 75      $ —        $ 86      $ 5,607   
                                                        

Collectively evaluated for impairment:

              

Recorded investment

   $ 27,522      $ 4,213      $ 33,904      $ 6,643      $ 109      $ 72,391      $ 99,668   
                                                        

Balance in allowance for loan losses

   $ 1,285      $ 282      $ 1,531      $ 439      $ 80      $ 3,617      $ 3,756   
                                                        

 

(continued)

 

F-20


OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

 

(3) Loans, Continued

 

The following summarizes the loan credit quality at December 31, 2010 (in thousands):

 

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

Residential real estate:

                 

Closed-end mortgages first mortgages

   $ 23,542       $ 3,697       $ 9,691       $ —         $ —         $ 36,930   

Closed-end second mortgages

     3,200         —           —           —           —           3,200   
                                                     

Total residential real estate

     26,742         3,697         9,691         —           —           40,130   
                                                     

Multi-family real estate

     4,213         —           —           —           —           4,213   
                                                     

Commercial real estate:

                 

Owner-occupied

     12,960         1,238         1,837         —           —           16,035   

Non-owner-occupied

     18,042         3,638         17,404         —           —           39,084   
                                                     

Total commercial real estate

     31,002         4,876         19,241         —           —           55,119   
                                                     

Land and construction

     4,976         1,667         10,649         —           —           17,292   
                                                     

Consumer:

                 

Non-real estate secured

     99         —           151         —           —           250   

Real estate secured

     108         —           —           —           —           108   
                                                     

Total consumer

     207         —           151         —           —           358   
                                                     

Total

   $ 67,140       $ 10,240       $ 39,732       $ —         $ —         $ 117,112   
                                                     

Internally assigned loan grades are defined as follows:

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

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

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

 

(continued)

 

F-21


OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

 

(3) Loans, Continued

 

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

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

Age analysis of past-due loans is as follows at December 31, 2010 (in thousands):

 

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

Residential real estate:

                    

Closed-end first mortgages

   $ —         $ —         $ —         $ —         $ 27,239       $ 9,691       $ 36,930   

Closed-end second mortgages

     —           —           —           —           3,200         —           3,200   
                                                              

Subtotal

     —           —           —           —           30,439         9,691         40,130   
                                                              

Multi-family real estate

     —           —           —           —           4,213         —           4,213   
                                                              

Commercial real estate:

                    

Owner-occupied

     —           —           —           —           14,198         1,837         16,035   

Non-owner-occupied

     3,195         —           —           3,195         20,881         15,008         39,084   
                                                              

Subtotal

     3,195         —           —           3,195         35,079         16,845         55,119   
                                                              

Land and construction

     —           —           —           —           9,449         7,843         17,292   
                                                              

Consumer:

                    

Non-real estate secured

     99         —           —           99         —           151         250   

Real estate secured

     —           —           —           —           108         —           108   
                                                              

Subtotal

     99         —           —           99         108         151         358   
                                                              

Total

   $ 3,294       $ —         $ —         $ 3,294       $ 79,288       $ 34,530       $ 117,112   
                                                              

 

(continued)

 

F-22


OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

 

(3) Loans, Continued

 

Nonaccrual loans and loans past due ninety days but still accruing at December 31, 2009 were as follows (in thousands):

 

Nonaccrual loans

   $  23,848   
        

Past due ninety days or more, but still accruing interest

   $ —     
        

The following summarizes the amount of impaired loans at December 31, 2010 (in thousands):

 

     Recorded
Investment
     Unpaid
Principal
Balance
     Related
Allowance
 

With no related allowance recorded:

        

Residential real estate-

        

Closed-end first mortgages

   $ 12,608       $ 14,272       $ —     

Commercial real estate:

        

Owner-occupied

     1,837         1,857         —     

Non-owner-occupied

     18,204         20,466         —     

Land and construction

     9,980         15,018         —     

Consumer-

        

Non-real estate secured

     249         249         —     

With an allowance recorded:

        

Commercial real estate-

        

Non-owner-occupied

     1,174         1,174         11   

Land and construction

     669         669         75   

Total:

        

Residential real estate-

        

Closed-end first mortgages

   $ 12,608       $ 14,272       $ —     
                          

Commercial real estate:

        

Owner-occupied

   $ 1,837       $ 1,857       $ —     
                          

Non-owner-occupied

   $ 19,378       $ 21,640       $ 11   
                          

Land and construction

   $ 10,649       $ 15,687       $ 75   
                          

Consumer-

        

Non-real estate secured

   $ 249       $ 249       $ —     
                          

 

(continued)

 

F-23


OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

 

(3) Loans, Continued

 

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

 

     For the Year Ended December 31,  
     2010  
     Average
Recorded
Investment
     Interest
Income
Recognized
     Interest
Income
Received
 

Residential real estate-

        

Closed-end first mortgages

   $ 7,081       $ 20       $ 35   
                          

Multi-family real estate

   $ 387       $ —         $ —     
                          

Commercial real estate:

        

Owner-occupied

   $ 1,266       $ —         $ 4   
                          

Non-owner-occupied

   $ 15,279       $ 267       $ 366   
                          

Land and construction

   $ 9,965       $ 26       $ 253   
                          

Consumer-

        

Non-real estate secured

   $ 9       $ —         $ —     
                          

The following summarizes the amount of impaired loans at December 31, 2009 (in thousands):

 

Collateral-dependent loans identified as impaired:

  

Gross loans with no related allowance for losses

   $ 21,846   
        

Gross loans with related allowance for losses recorded

     18,032   

Less allowances on these loans

     (5,542
        

Net loans with related allowance

     12,490   
        

Net investment in collateral-dependent impaired loans

     34,336   
        

Noncollateral-dependent loans identified as impaired:

  

Gross loans with related allowance for losses recorded

     3,623   

Less allowance on these loans

     (65
        

Net investment in noncollateral-dependent impaired loans

     3,558   
        

Net investment in impaired loans

   $ 37,894   
        

The average net investment in impaired loans and interest income recognized and received on impaired loans in 2009 is as follows (in thousands):

 

Average investment in impaired loans

   $ 25,017   
        

Interest income recognized on impaired loans

   $ 280   
        

Interest income received on impaired loans

   $ 584   
        

 

(continued)

 

F-24


OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

 

(4) Premises and Equipment

A summary of premises and equipment follows (in thousands):

 

     At December 31,  
     2010     2009  

Land

   $ 1,171      $ 1,171   

Buildings and improvements

     1,959        1,959   

Furniture, fixtures and equipment

     1,026        1,022   

Leasehold improvements

     119        119   
                

Total, at cost

     4,275        4,271   

Less accumulated depreciation and amortization

     (1,479     (1,330
                

Premises and equipment, net

   $ 2,796      $ 2,941   
                

The Company currently leases two branch facilities under operating leases. One lease contains renewal options and requires the Company to pay an allowable share of common area maintenance and real estate taxes. The other lease only requires the Company to pay real estate taxes. Rent expense under operating leases during the years ended December 31, 2010 and 2009 was $133,000 and $131,000 respectively. At December 31, 2010, the future minimum lease payments are approximately as follows (in thousands):

 

Year Ending December 31,

   Amount  

2011

   $ 133   

2012

     84   

2013

     80   
        
   $ 297   
        

 

(continued)

 

F-25


OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

 

(5) Foreclosed Real Estate

Foreclosed real estate is presented net of an allowance for losses. An analysis of the allowance for losses on foreclosed real estate is as follows (in thousands):

 

     Year Ended December 31,  
     2010     2009  

Balance of beginning of year

   $ 21      $ 13   

Provision for losses on foreclosed real estate

     —          8   

Charge-offs

     (21     —     
                

Balance at end of year

   $ —        $ 21   
                

Expenses applicable to foreclosed real estate are as follows (in thousands):

 

     Year Ended December 31,  
     2010      2009  

Write-down on foreclosed real estate

   $ 126       $ —     

Provision for losses on foreclosed real estate

     —           8   

Loss on sale of foreclosed real estate

     243         —     

Operating expenses

     100         9   
                 
   $ 469       $ 17   
                 

(6) Deposits

The aggregate amount of time deposits with a minimum denomination of $100,000, was approximately $51.3 million and $52.6 million at December 31, 2010 and 2009, respectively.

A schedule of maturities of time deposits at December 31, 2010 follows (in thousands):

 

Year Ending

December 31,

   Amount  

2011

   $ 87,919   

2012

     15,939   

2013

     4,309   

2014

     820   

2015

     2,288   
        
   $ 111,275   
        

 

(continued)

 

F-26


OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

 

(7) Federal Home Loan Bank Advances and Junior Subordinated Debenture

The maturities and interest rates on the Federal Home Loan Bank (“FHLB”) advances were as follows (dollars in thousands):

 

Maturity

Year Ending

December 31,

   Call
Date
     Interest
Rate
    At December 31,  
        2010      2009  

2010

     -         3.16   $ —         $ 5,000   

2010

     -         3.12        —           5,000   

2012

     2011         4.75        4,000         4,000   

2013

     -         3.44        —           3,000   

2013

     -         3.00        —           5,000   

2013

     2011         3.64        7,500         7,500   

2014

     -         3.64        —           8,000   

2016

     -         4.51        5,000         5,000   

2016

     -         4.65        8,000         8,000   

2016

     -         4.44        5,600         5,600   

2017

     2011         4.38        1,600         1,600   
                      
        $ 31,700       $ 57,700   
                      

Certain of the above advances are callable by the FHLB starting in the year indicated.

At December 31, 2010 and 2009, the FHLB advances were collateralized by $15.8 million of securities and by a lien on qualifying residential one-to-four family mortgage loans, commercial and multi-family real estate loans and second mortgage loans.

During the first quarter of 2010, the Company sold mortgage-backed securities and collateralized mortgage obligations with a carrying value of $13.8 million in order to downsize and deleverage its balance sheet in order to increase the Bank’s regulatory capital ratios to comply with the Consent Order issued by the FDIC and OFR (see Note 14). The proceeds from the sale of securities were used to prepay approximately $16 million in FHLB advances secured by these securities. The Company realized a loss from prepayment penalties of approximately $735,000.

On September 30, 2004, the Company issued a $5,155,000 junior subordinated debenture to an unconsolidated subsidiary. The debenture has a term of thirty years. The interest rate was fixed at 6.4% for the first five years, and thereafter, the coupon rate floats quarterly at the three-month LIBOR rate plus 2.45% (2.73% at December 31, 2010). The junior subordinated debenture, due in 2034, is redeemable in certain circumstances after October 2009. The terms of the debenture agreement allows the Company to defer payments of interest on the debenture by extending the interest payment period at any time during the term of the debenture for up to twenty consecutive quarterly periods. During 2010, the Company exercised its right to defer payment of interest on the debenture. Interest payments deferred as of December 31, 2010 totaled $179,000.

 

(continued)

 

F-27


OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

 

(8) Other Borrowings

Other borrowings consisted of securities sold under agreements to repurchase. The securities sold under the agreements to repurchase were delivered to the broker-dealer who arranged the transactions. Information concerning the securities sold under agreements to repurchase is summarized as follows (dollars in thousands):

 

     Year Ended December 31,  
     2010     2009  

Balance at year end

   $ —        $ 41,800   

Average balance during the year

   $ 7,558      $ 41,800   

Average interest rate during the year

     4.24     4.20

Maximum month-end balance during the year

   $ 41,800      $ 41,800   

Securities held to maturity pledged as collateral

   $ —        $ 49,175   

Cash pledged as collateral

   $ —        $ 7,847   

During the first quarter of 2010, the Company sold mortgage-backed securities and collateralized mortgage obligations with a carrying value of $29.6 million in order to downsize and deleverage its balance sheet in order to increase the Bank’s regulatory capital ratios to comply with the Consent Order issued by the FDIC and OFR (see Note 14). The proceeds from the sale of securities were used to prepay approximately $41.8 million in reverse repurchase agreements secured by these securities. The Company realized a loss from prepayment penalties of approximately $3.0 million.

(9) Financial Instruments

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

 

     At December 31, 2010      At December 31, 2009  
     Carrying
Amount
     Fair
Value
     Carrying
Amount
     Fair
Value
 

Financial assets:

           

Cash and cash equivalents

   $ 14,367       $ 14,367       $ 36,784       $ 36,784   

Securities held to maturity

     51,057         48,839         81,141         76,984   

Loans

     113,542         113,513         134,126         134,365   

Federal Home Loan Bank stock

     3,173         3,173         3,551         3,551   

Accrued interest receivable

     644         644         1,088         1,088   

Financial liabilities:

           

Deposit liabilities

     148,238         148,929         151,682         152,381   

Federal Home Loan Bank advances

     31,700         33,425         57,700         59,206   

Other borrowings

     —           —           41,800         43,537   

Junior subordinated debenture

     5,155         4,740         5,155         4,875   

Off-balance sheet financial instruments

     —           —           —           —     

 

(continued)

 

F-28


OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

 

(9) Financial Instruments, Continued

 

The Company is party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments are commitments to extend credit and may involve, to varying degrees, elements of credit and interest-rate risk in excess of the amount recognized in the consolidated balance sheet. The contract amounts of these instruments reflect the extent of involvement the Company has in these 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 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 deemed necessary by the Company, upon extension of credit, is based on management’s credit evaluation of the counterparty.

As of December 31, 2010, the Company has no commitments to extend credit.

(10) Credit Risk

The Company grants the majority of its loans to borrowers throughout Broward and portions of Palm Beach and Miami-Dade Counties, Florida. Although the Company has a diversified loan portfolio, a significant portion of its borrowers’ ability to honor their contracts is dependent upon the economy in Broward, Palm Beach and Miami-Dade Counties, Florida.

 

(continued)

 

F-29


OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

 

(11) Income Taxes

Income taxes (benefit) consisted of the following (in thousands):

 

     Year Ended December 31,  
     2010     2009  

Current:

    

Federal

   $ (423   $ (3,297

State

     —          —     
                

Total current

     (423     (3,297
                

Deferred:

    

Federal

     (2,191     (1,506

State

     (446     (824

Valuation allowance

     3,409        2,126   
                

Total deferred

     772        (204
                

Total

   $ 349      $ (3,501
                

The reasons for the differences between the statutory Federal income tax rate and the effective tax rate are summarized as follows (dollars in thousands):

 

     Year Ended December 31,  
     2010     2009  
     Amount     % of
Pretax
Loss
    Amount     % of
Pretax
Loss
 

Income taxes (benefit) at statutory rate

   $ (2,755     (34.0 )%    $ (5,094     (34.0 )% 

Increase (decrease) resulting from:

        

State taxes, net of Federal tax benefit

     (294     (3.6     (544     (3.6

Change in valuation allowance

     3,409        42.1        2,126        14.2   

Other

     (11     (.2     11        —     
                                
   $ 349        4.3   $ (3,501     (23.4 )% 
                                

 

(continued)

 

F-30


OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

 

(11) Income Taxes, Continued

 

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below (in thousands).

 

     At December 31,  
     2010     2009  

Deferred tax assets:

    

Allowance for loan losses

   $ 434      $ 2,516   

Net operating loss carryforwards

     4,933        317   

Premises and equipment

     92        58   

Impaired securities

     67        67   

Foreclosed property expenses

     14        —     

Other

     27        —     
                

Gross deferred tax assets

     5,567        2,958   

Less: Valuation allowance

     5,535        2,126   
                

Net deferred tax assets

     32        832   
                

Deferred tax liabilities:

    

Loan costs

     (10     (18

Prepaid expenses

     (22     (42
                

Deferred tax liabilities

     (32     (60
                

Net deferred tax asset

   $ —        $ 772   
                

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 assets 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.

At December 31, 2010, the Company has net operating loss carryforwards of approximately $12.1 million for Federal and $23.0 million for Florida available to offset future taxable income. These carryforwards will begin to expire in 2029.

The Company files U.S. and Florida income tax returns. With few exceptions, the Company is no longer subject to U.S. Federal or state and local income tax examinations by taxing authorities for years before 2007.

 

(continued)

 

F-31


OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

 

(12) Related Party Transactions

The Company has entered into transactions with its executive officers, directors and their affiliates in the ordinary course of business. There were loans to related parties at December 31, 2010 and 2009 of approximately $244,000 and $4,164,000, respectively. At December 31, 2010 and 2009, these same related parties had approximately $975,000 and $1,092,000, respectively, on deposit with the Company.

(13) Stock-Based Compensation

The Company established an Incentive Stock Option Plan (the “Plan”) for officers, directors and employees of the Company and reserved 157,680 (amended) 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.

However, the Company’s board of directors authorized the immediate vesting of all stock options outstanding as of December 29, 2005 and no stock options have been granted since 2005. The options must be exercised within ten years from the date of grant. At December 31, 2010, 66,794 options (amended) were available for grant. The plan terminated on February 27, 2011.

A summary of the activity in the Company’s stock option plan is as follows. All option amounts reflect the one-for-four reverse stock split declared in October 2010 and the 5% stock dividend declared in May 2010 (dollars in thousands, except share amounts):

 

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

Outstanding at December 31, 2008

     132,186      $ 29.24         

Forfeited

     (27,197     32.00         
                

Outstanding at December 31, 2009

     104,989        28.52         

Forfeited

     (35,857     27.84         
                

Outstanding and exercisable at December 31, 2010

     69,132      $ 30.05         3.1 years       $ —     
                                  

 

(continued)

 

F-32


OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

 

(14) Regulatory Matters

The Bank is subject to various regulatory capital requirements administered by the regulatory banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s and Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and percentages (set forth in the following table) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as defined). As of December 31, 2010, the Bank did not meet the capital adequacy ratios as required in the Consent Order discussed below.

The Bank’s actual capital amounts and percentages are also presented in the table (dollars in thousands).

 

                               Minimum
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
              
                                           
                                           
                  For Capital
Adequacy
Purposes
      Requirements of
Consent Order
 
     Actual        
     Amount      %     Amount      %     Amount      %     Amount      %  

As of December 31, 2010:

                    

Total Capital to Risk-Weighted Assets

   $ 9,639         6.70   $ 11,513         8.00   $ 14,392         10.00   $ 17,270         12.00

Tier I Capital to Risk-Weighted Assets

     7,817         5.43        5,757         4.00        8,635         6.00        N/A         N/A   

Tier I Capital to Total Assets

     7,817         4.02        7,786         4.00        9,733         5.00        15,572         8.00   

As of December 31, 2009:

                    

Total Capital to Risk-Weighted Assets

   $ 18,342         10.23   $ 14,349         8.00   $ 17,937         10.00     N/A         N/A   

Tier I Capital to Risk-Weighted Assets

     16,012         8.93        7,175         4.00        10,762         6.00        N/A         N/A   

Tier I Capital to Total Assets

     16,012         5.85        10,952         4.00        13,690         5.00        N/A         N/A   

 

(continued)

 

F-33


OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

 

(14) Regulatory Matters, Continued

 

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

The Written Agreement contains the following principal requirements:

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

(continued)

 

F-34


OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

 

(14) Regulatory Matters, Continued

 

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

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

The Consent Order contains the following principal requirements:

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

(continued)

 

F-35


OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

 

(14) Regulatory Matters, Continued

 

   

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

 

   

Lending and Collection Policies

 

   

Investment Policy

 

   

Liquidity, Contingency Funding and Funds Management Plan

 

   

Interest Rate Risk Management Policy

 

   

Internal Loan Review and Grading System and

 

   

Internal Control Policy.

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

The Bank has implemented comprehensive policies and plans to address all of the requirements of the Consent Order and has incorporated recommendations from the FDIC and OFR into these policies and plans. Management believes that the Bank is currently in substantial compliance with all the requirements of the Consent Order except for the Bank’s failure to attain the regulatory capital ratio requirements. The Company is conducting a private placement offering of its common stock intended to result in the Bank attaining such capital ratios. There can be no assurance, however, that the Company will raise sufficient capital, if any, in the private placement offering for the Bank to achieve material compliance with these ratios.

 

(continued)

 

F-36


OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

 

(15) Dividends

The Company is limited in the amount of cash dividends that may be paid. Banking regulations place certain restrictions on dividends and loans or advances made by the Bank to the Holding Company. The amount of cash dividends that may be paid by the Bank to the Holding Company is based on the Bank’s net earnings of the current year combined with the Bank’s retained earnings of the preceding two years, as defined by state banking regulations. However, for any dividend declaration, the Company must consider additional factors such as the amount of current period net earnings, liquidity, asset quality, capital adequacy and economic conditions. It is likely that these factors would further limit the amount of dividends which the Company could declare. In addition, bank regulators have the authority to prohibit banks from paying dividends if they deem such payment to be an unsafe or unsound practice. At December 31, 2010, the Bank and Holding Company could not pay cash dividends (See Note 14).

(16) Contingencies

Various claims also arise from time to time in the normal course of business. In the opinion of management, none have occurred that will have a material effect on the Company’s consolidated financial statements.

(17) Simple IRA

The Company has a Simple IRA Plan whereby substantially all employees participate in the Plan. Employees may contribute up to 15 percent of their compensation subject to certain limits based on federal tax laws. The Company makes matching contributions equal to the first 3% of an employee’s compensation contributed to the Plan. Matching contributions vest to the employee immediately. For the years ended December 31, 2010 and 2009, expense attributable to the Plan amounted to $35,000 and $42,000, respectively.

 

(continued)

 

F-37


OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

 

(18) Fair Value Measurement

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

 

                                        Losses  
                                        Recorded in  
                                        Operations  
                                        For the  
     At December 31, 2010      Year Ended  
     Fair
Value
     Level 1      Level 2      Level 3      Total
Losses
     December 31,
2010
 

Residential real estate-

                 

Closed-end first mortgages

   $ 4,136       $ —         $ —         $ 4,136       $ 561       $ 561   

Commercial real estate:

                 

Owner-occupied

     70         —           —           70         20         20   

Non-owner-occupied

     8,893         —           —           8,893         2,583         1,857   

Land and construction

     7,231         —           —           7,231         1,815         1,363   
                                                     
   $ 20,330       $ —         $ —         $ 20,330       $ 4,979       $ 3,801   
                                                     
                                        Losses  
                                        Recorded in  
                                        Operations  
                                        For the  
     At December 31, 2009      Year Ended  
     Fair
Value
     Level 1      Level 2      Level 3      Total
Losses
     December 31,
2009
 

Residential real estate:

                 

Closed-end first mortgages

   $ 3,412       $ —         $ —         $ 3,412       $ 1,227       $ 1,227   

Closed-end second mortgages

     200         —           —           200         205         205   

Multi-family real estate

     842         —           —           842         562         562   

Commercial real estate-

                 

Non-owner-occupied

     1,656         —           —           1,656         1,844         1,844   

Land and construction

     7,855         —           —           7,855         4,490         4,426   

Consumer-

                 

Non-real estate secured

     1         —           —           1         198         198   
                                                     
   $ 13,966       $ —         $ —         $ 13,966       $ 8,526       $ 8,462   
                                                     

Loans with a carrying value of $15,796,000 and $20,370,000 at December 31, 2010 and 2009, respectively, were measured for impairment using Level 3 inputs and had a fair value in excess of carrying value.

 

(continued)

 

F-38


OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

 

(18) Fair Value Measurement, Continued

 

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

 

     At Year End     

Losses

Recorded

 
     Fair
Value
     Level 1      Level 2      Level 3      Total
Losses
     During the
Year
 

At December 31, 2010

   $ 3,215       $ —         $ —         $ 3,215       $ —         $ —     
                                                     

At December 31, 2009

   $ 5,487       $ —         $ —         $ 5,487       $ 82       $ 8   
                                                     

(19) Stockholders’ Equity

The Company’s board of directors authorized a one-for-four reverse stock split on October 18, 2010, which became effective on November 5, 2010, with fractional shares rounded up to the next largest whole share. As part of the reverse stock split, the Company amended its Articles of Incorporation on November 5, 2010, to ratably decrease the number of common shares authorized from 6,000,000 shares to 1,500,000 shares.

 

(continued)

 

F-39


OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

 

(20) Holding Company Financial Information

The Holding Company’s unconsolidated financial information as of December 31, 2010 and 2009 and for the years then ended follows (in thousands):

Condensed Balance Sheets

 

     At December 31,  
     2010      2009  

Assets

     

Cash

   $ 172       $ 286   

Investment in subsidiary

     7,817         16,012   

Other assets

     180         180   
                 

Total assets

   $ 8,169       $ 16,478   
                 

Liabilities and Stockholders’ Equity

     

Other liabilities

   $ 179       $ 35   

Junior subordinated debenture

     5,155         5,155   

Stockholders’ equity

     2,835         11,288   
                 

Total liabilities and stockholders’ equity

   $ 8,169       $ 16,478   
                 

Condensed Statements of Operations

 

     Year Ended December 31,  
     2010     2009  

Loss of subsidiary

   $ (8,195   $ (11,189

Interest expense

     (144     (275

Other expense

     (114     (147
                

Loss before income tax benefit

     (8,453     (11,611

Income tax benefit

     —          (130
                

Net loss

   $ (8,453   $ (11,481
                

 

(continued)

 

F-40


OPTIMUMBANK HOLDINGS, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

 

(20) Holding Company Financial Information, Continued

 

Condensed Statements of Cash Flows

 

     Year Ended December 31,  
     2010     2009  

Cash flows from operating activities:

    

Net loss

   $ (8,453   $ (11,481

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

    

Equity in undistributed loss of subsidiary

     8,195        11,189   

Decrease in other assets

     —          76   

Increase (decrease) in accrued other liabilities

     144        (110
                

Net cash used in operating activities

     (114     (326
                

Cash flow from investing activity-

    

Dividend from subsidiary

     —          250   
                

Net decrease in cash

     (114     (76

Cash at beginning of the year

     286        362   
                

Cash at end of year

   $ 172      $ 286   
                

Noncash transactions:

    

Change in accumulated other comprehensive loss of subsidiary, net change in unrealized loss on security available for sale, net of tax

   $ —        $ 4   
                

Common stock dividend

   $ —        $ 554   
                

Reverse stock split

   $ 25      $ —     
                

 

(continued)

 

F-41